UPDATE 2-Ares Capital Q3 profit tops Street, Allied posts loss

* Sees merger adding to EPS in yr-1

* Ares says trying to increase credit pact

* Ares Q3 core EPS $0.36 vs est $0.35 * Allied posts $117.5 million loss on debt repayment

* Ares up 7 pct, Allied rises 8 pct (Adds conference call comments, background, updates stock

Nov 5 (Reuters) - Small-business lender Ares Capital Corp (ARCC.O) posted a quarterly profit that beat analysts' estimates by a penny, while struggling rival Allied Capital Corp ALD.N, which Ares agreed to buy last month, posted a quarterly loss.

The companies, which held a joint conference call with analysts, said they expect the merger to add to net asset value and core earnings per share of the combined company in the first year, and reduce the need to sell Allied's assets to deleverage its balance sheet.

Allied and old rival American Capital Ltd (ACAS.O) have struggled as the economic downturn reduced the value of their portfolio companies, to which they make loans in return for equity stakes, leaving them with no option but to sell assets at distressed prices to raise cash.

Ares Capital is considering increasing a JP Morgan revolving credit facility to a range of $750 million to $1 billion in commitments from current $525 million in commitments, with an expected new three year term, a company official said on a conference call with analysts.

The company, which would look to access capital to de-leverage balance sheet and reinvest in current portfolio, said it may consider accessing the debt and equity capital markets.

Ares Capital posted a net profit of $63.3 million, or 62 cents a share, for the third quarter, compared with a loss of $41.4 million, or 43 cents a share, a year earlier. It is the highest quarterly earnings-per-share amount the company has reported since the first quarter of 2005, a company official said.

Excluding professional fees related to the acquisition of Allied Capital and dilution from a recent offering, the company earned 36 cents a share.

Analysts were looking for a profit of 35 cents a share, excluding items, according to Thomson Reuters I/B/E/S.

Ares gained $30.4 million from investments and foreign currency transactions during the quarter, compared with $74.2 million it lost in the same quarter last year.

Separately, Allied Capital said it had a quarterly net loss of $140.7 million, or 79 cents a share, hurt by a $117.5 million loss on extinguishment of debt.

Ares Capital agreed to buy Allied Capital in October in an all-stock deal valued at $648 million, providing relief to the debt-laden company. [ID:nBNG507417]

Ares shares were up about 6 percent at $11.13 Thursday on Nasdaq, while those of Allied were up about 7 percent at $3.37 on the New York Stock Exchange. (Reporting by Anurag Kotoky and Archana Shankar in Bangalore; Editing by Ratul Ray Chaudhuri and Anil D'Silva)