Moody's downgrades Allied Capital rating

Moody's on Monday cut its rating on Allied Capital's senior unsecured debt to "Baa3," the lowest investment-grade rating on Moody's rating scale. It also placed Allied Capital's ratings under review for possible further downgrade.

Allied Capital in long-term debt and equity capital of middle market businesses.

Meanwhile, on Tuesday, Fitch Ratings put the company's issuer default and debt ratings on its negative watchlist because of worse-than-expected portfolio depreciation. About $1.9 billion in debt is affected by the move.

Moody's said a decline in Allied's capital "has resulted in a minor cushion over its most stringent quarterly minimum net worth covenant, and put pressure on its regulatory capital requirement."

The ratings firm attributed the capital decline to recent losses in the investment portfolio at Washington-based Allied Capital, which invests in long-term debt and equity capital of middle market businesses.

"The company remains at risk for further markdowns on its investment portfolio and these write-downs could be significant," Moody's said.

In reviewing Allied Capital for a possible further downgrade, Moody's said it will focus on Allied Capital's "ability to renegotiate its minimum net worth covenants and take actions to increase capital levels to avoid a covenant violation, including changing the company's dividend policy."

On Monday, Allied Capital reported it lost $318.3 million in the third quarter, or $1.78 per share, including net realized gains and unrealized depreciation. It was the company's third consecutive quarterly loss, and its fourth in the past five quarters, Moody's said.

Shares of Allied fell 50 cents or 12 percent to $3.61 Tuesday.