Ahead Of The Bell: Allied Capital Upgraded

NEW YORK (AP) — Allied Capital Corp. was upgraded Thursday by an analyst because it has reached preliminary agreements to restructure debt, which has been weighing on the stock.

Keefe, Bruyette & Woods Inc. analyst Sanjay Sakhrani upgraded the stock to "Market Perform" from "Underperform." He also raised his price target to $3.50 from $1.

Shares of Allied Capital closed Wednesday at $3.15 and rose 7 cents, or 2.2 percent, to $3.22 in premarket trading Thursday.

In a research note, Sakhrani said he upgraded the stock because the preliminary debt restructuring plan the financial firm has put in place should solidify the company's operations. However, the debt restructuring is likely to increase the financial firm's borrowing costs, which will hurt profitability, Sakhrani noted.

Allied Capital, which provides financing for buyouts, acquisitions and other business transactions, is currently in default on its revolving line of credit and private notes.

The firm has yet to disclose the terms of the restructuring, and no timetable for a final agreement has been announced.

Sakhrani raised his price target on the stock based on the potential return investors would likely see should Allied Capital have to liquidate its operations. Stabilizing credit markets and better values of some of Allied Capital's investments led to the increased price target, Sakhrani wrote in the note.