Allied Capital Leads Minority Recapitalization of Leading Children's Apparel Company.

WASHINGTON -- Allied Capital Corporation (NYSE:ALD) announced today that it has invested $176.5 million in the minority recapitalization of Wear Me Apparel, one of the largest wholesale designers, licensees and marketers of children's apparel and related accessories in the U.S. Allied Capital's investment took the form of senior subordinated debt and a minority share of the equity. Ares Capital Corporation and Stephens Capital Partners participated in the transaction with additional debt and equity capital. Senior management of Wear Me, led by founding Chairman and CEO Artie Rabin and President Jason Rabin, have retained a majority share of the equity of the company and will continue to actively manage the business. Allied Capital's $176.5 million investment includes $40.0 million that was previously invested in the company.

Wear Me is the market leader in children's apparel, with a highly diversified portfolio of licensed brands (including characters from companies such as Disney, Nickelodeon and Marvel and popular national brands such as Rocawear, Ecko, Calvin Klein, Timberland and Hurley), proprietary brands and private label products which encompass a broad spectrum of children's clothing for boys and girls sold through multiple retail channels.

"Allied Capital began its relationship with the Rabins in December 2003 when we became a subordinated debt lender to Wear Me," said Bill Walton, Chairman and CEO of Allied Capital. "Since that time, we have seen first hand the dedication and talent of this management team as they have continued to build on the company's unparalleled leadership position in the children's apparel market," added Mr. Walton.

"The decision to buy an equity stake in Wear Me reflects Allied Capital's high level of confidence in the business and its management team," said Rob Long, Managing Director of Allied Capital. "This company possesses numerous competitive advantages in the children's apparel industry, including outstanding customer relationships, significant scale, diversity across brands and channels, highly respected design talent and an extensive global vendor network, all of which contribute to its strong market position," added Long.

"Allied Capital has been a value-added financing partner to our company since 2003, and we are pleased to now have Allied Capital, as well as Ares and Stephens as our equity partners as we enter our next stage of growth," said Artie Rabin, Founder and Chairman of Wear Me.

About Allied Capital

Allied Capital Corporation (NYSE:ALD) is a leading business development company (BDC) in the U.S. that invests private debt and equity capital in middle market businesses nationwide. Founded in 1958 and operating as a public company since 1960, Allied Capital has paid consistent or increasing regular, quarterly cash dividends annually to shareholders since 1963.

Allied Capital provides long-term debt and equity capital for management and sponsor-led buyouts, and for recapitalizations, acquisitions and growth of middle market companies. Allied Capital's one-stop financing capabilities include first and second lien senior loans, unitranche debt, junior or subordinated debt and equity. Allied Capital seeks to invest in stable, less cyclical companies that produce significant free cash flow and high returns on invested capital. At December 31, 2006, the Company's private finance portfolio included investments in 145 companies in a variety of industries. These companies currently generate aggregate revenues of over $13 billion and employ more than 90,000 people.

Headquartered in Washington, DC, Allied Capital offers shareholders the opportunity to participate in the private equity industry through an investment in its New York Stock Exchange-listed stock. Allied Capital invests in the American entrepreneurial economy by providing long-term capital and access to managerial resources often unavailable to middle market companies. For more information, please visit www.alliedcapital.com, call Allied Capital investor relations toll-free at [phone], or e-mail us at [e-mail].

About Wear Me Apparel

Founded in 1972, Wear Me is today the leading wholesale designer and marketer of children's apparel in the U.S., with a diversified portfolio of licensed, proprietary and private label brands sold through multiple retail channels. The Company has one of the strongest portfolios in children's apparel and holds some of the most recognizable classic and emerging character licenses and brands in the apparel industry. The Company's portfolio consists of i) licenses of brands such as Rocawear, Ecko, Timberland, Ocean Pacific, Calvin Klein, Timberland and Hurley, among others, ii) multi-property character licenses with Disney, Nickelodeon and Marvel as well as property-specific licenses with Warner Entertainment and Universal, iii) proprietary Kid's Headquarters and KHQ brands, and iv) private label programs on behalf of retailers. Wear Me is headquartered in New York, NY and has approximately 1,000 employees.

Forward-Looking Statements

The information contained in this press release contains forward-looking statements. These forward-looking statements are subject to the inherent uncertainties in predicting future results and conditions. Certain factors could cause actual results and conditions to differ materially from those projected in these forward-looking statements, and these factors are enumerated in the company's periodic filings with the Securities and Exchange Commission.