CORRECTED - CORRECTED-UPDATE 2-Allied tumbles after portfolio co files for b

(Corrects headline and first paragraph to clarify that Ciena Capital is a portfolio company of Allied Capital and not a unit)

(Recasts, adds details, analyst comments, share movement)

By Adheesha Sarkar BANGALORE, Sept 30 (Reuters) - Allied Capital Corp (ALD.N) said portfolio company Ciena Capital LLC filed for bankruptcy protection as the credit crisis led to a significant decline in the value of its assets, sending Allied Capital's shares tumbling 49 percent to an all-time low.

Allied Capital's earnings may be hit by about 5 cents a share from Ciena's bankruptcy as it will increase interest expense for the company in the near term, Stifel Nicolaus analyst Troy Ward said by phone.

The company's shares tumbled to a low of $6.46 but pared some losses and were down 35 percent at $8.17 in midday trade on the New York Stock Exchange. The stock had risen as much as 5 percent to $13.22 earlier in the day.

The company declined to comment on the fall in the share price.

Allied Capital said it plans to pay about $320 million to lenders related to Ciena's credit facility and will continue to guarantee a remaining balance of about $10 million.

The buyout firm said it will fund the payment with about $150 million in cash and may borrow about $170 million.

As a result, Allied Capital expects that it will record substantial further unrealized depreciation in the value of its investment in Ciena for the third quarter.

"In this market, Allied having to pay up money to Ciena's lenders is definitely a negative in our opinion," Ward said, adding that Ciena was not earning any income for Allied for about a year.

Allied is very capital constrained, which makes the bankruptcy additionally negative for it as it has to use some of its capital to pay the lenders at Ciena, the analyst said.

"If you are using your money to make good on previous guarantee, that in itself is a new investment in Ciena, which will not provide any income. The capital they will use to do this could have had a better use than going to the lenders of Ciena," Ward said.

Separately, S&P Equity Research cut its price target on Allied Capital's stock by $3 to $15.

The company said the value of Ciena's assets is insufficient to cover all of its liabilities and it is insolvent.

Ciena Capital provides commercial real estate loans of up to $10 million. (Reporting by Supantha Mukherjee and Adheesha Sarkar in Bangalore; Editing by Anil D'Silva and Deepak Kannan)