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AFC is a preferred security originally issued by Allied Capital. Allied Capital was a Washington, DC based BDC (business development company) that provided subordinated debt financing to middle market companies. Unfortunately they could not survive the financial crises and were ultimately acquired by Ares Capital (ARCC). Ares, a New York based BDC survived the crises by adopting a more conservative portfolio approach dominated by senior loans. Ares has a nearly $3B market cap and $2.6B of book equity beneath the $230 million of old Allied preferreds. Ares is currently levered less than .5X and has a common dividend yield of 9.1%.

The AFC preferred notes currently yield 7.6% (BBB rated) and sell for $22.60 on a face value of $25. If it takes 3 years to trade back to par, your annualized return would be 11.2%. If they trade to par within a year, which I think is likely, your annualized return would be 19%.

The equity is interesting and will do well over time, but the preferred is compelling.


These notes don’t have a lot of liquidity, so even a little selling can drive the price down. However, look at these drops as buying opportunities.

Disclosure: Author is long AFC

Source: AFC: A Compelling Preferred