NEW YORK CITY-Ciena Capital, a local provider of commercial real estate financing and factoring services, has filed for chapter 11 relief in the US Bankruptcy Court for the Southern District of New York, according to a statement by its major investor, Washington, DC-based Allied Capital. Although it will continue to operate its servicing business and, shielded by bankruptcy will be able to dispose of its assets in an orderly fashion when the markets improve, Ciena Capital joins the growing credit-market-freeze body count--and by extension, Allied Capital will be feeling some heat as well. Ciena did not return a call to GlobeSt.com in time for publication. Allied Capital declined to comment beyond its press release.

Allied Capital's "unconditional guaranty of the obligations outstanding under Ciena's revolving credit facility may become due," it said in the release. The company intends to pay approximately $320 million to the lenders in connection with Ciena's revolving credit facility and will continue to guarantee a remaining balance of approximately $10 million. To fund the payment, Allied Capital will tap some $150 million it has in cash and may borrow an additional $170 million on its unsecured revolving line of credit. In essence, Allied Capital will become a senior secured lender to Ciena.

These moves should leave the company still on solid ground, the statement continues. Allied Capital estimates that it will maintain approximately $200 million in cash and other liquid securities and will have borrowings of approximately $170 million under its line of credit. In addition, Allied Capital has approximately $124 million in standby letters of credit under its line of credit, including standby letters of credit totaling approximately $103 million in connection with term securitization transactions completed by Ciena, it says.

Ciena's--and by extension, Allied Capital's--woes provide yet another illustration of the impact the capital markets upheaval is having, not that one was needed. Although real estate loans in general are still showing relatively low levels of default, the freeze is making itself felt in other ways. Developers are not getting funding for projects and existing buildings are losing value. Ciena's woes can be attributed to both of those trends, the Allied Capital statement said.

"Ciena has continued to experience significant deterioration in the value of its assets as a result of increasing uncertainty in the financial markets, decreasing bid prices and a reduction in the number of loan buyers," it said. It has reached the point where it now believes that the value of its assets is insufficient to cover all of its liabilities. With the shield of bankruptcy protection, Ciena will be able to sell off its assets when market conditions become more favorable.