Patience isn't a well-cultivated virtue in the telecommunications business. During the late-1990s boom in data processing, networking and fiber optics, dozens of private equity investors invested billions of dollars in budding telecommunications companies. Some made money early on. Most lost their shirts. Few were in it for the long haul.

Allied Capital Corp. is about to find out if patience pays off. Allied invested $49.6 million in debt and equity in Potomac long-distance company Startec Global Communications Corp. D.C.-based Allied, a business lender and buyout firm, gave financial and professional support to Startec before and during a treacherous three-year period that put Startec into a prolonged bankruptcy workout. Now that Startec is coming out, Allied owns 68 percent of the company.

According to bankruptcy court documents, Startec had a total value of $43 million when it exited bankruptcy in May, but nearly all the insiders in the deal say that is a conservative estimate.

William L. Walton, chief executive of Allied, said he has already received inquiries from private-equity investors interested in Startec. He said he was pleased with how Startec was able to emerge from bankruptcy intact, and was "optimistic" that it would eventually make money for Allied.

Startec was started in Ram Mukunda's bedroom in 1991 to offer long-distance service to the immigrant Indian community. Funded in the mid-1990s by Signet Bank's merchant banking group (now independent and known as MCG Capital Corp.), he took it public in a $60 million stock offering in 1997 that, for a few years, made him very wealthy.

Allied in the late 1990s was trying to establish itself as a player in local telecom. It had invested in an Oklahoma telecommunications company and made a large return. It then lent more than $15 million to Falls Church's Velocita Corp., a fiber-optics company, and more than $13 million to Georgetown-based business telecommunications provider NETtel Communications Inc. Both failed. But a lot of investors in those companies lost more money than Allied did.

In June 2000, Allied bought $20 million in high-yield bonds from Startec. Allied's telecom point man was managing director Scott S. Binder. Allied had been pitched on Startec by Richard K. Prins, a Startec board member and investment banker at Ferris, Baker Watts Inc., which helped Startec go public.

Binder explained Allied's initial interest in Startec: It was selling telecommunications services to immigrants and ethnic groups who used Startec's voice-over-Internet-protocol network to phone family back home. While long-distance prices have been falling almost everywhere, lack of competition has kept prices steady for calls to the Far East, Southeast Asia and especially India, where many of Startec's customers come from.

But by the spring of 2001, Startec was running out of cash and facing $9 million in interest payments due in November. While it had $325 million in revenue in 2000, it had never made money. In April 2001, Allied and Startec officials said, it was clear that the company was headed toward a restructuring that would swap its debt for equity. So Allied lent it another $15 million, secured by accounts receivable. Also as part of that deal, a portion of Allied's previous $20 million loan to Startec was given a more senior position over other bondholders. Allied was now in a position to gain control of the company six months before it filed for Chapter 11 bankruptcy protection.

Meanwhile, Startec was slashing costs and laying off employees. Daniel L. Russell, a principal at Allied who now manages its ownership of Startec, said part of the reason Allied decided to lend more money to Startec and help Mukunda through Chapter 11 was that the chief executive was committed to making Startec's costs match its revenue.

In an interview Friday, Mukunda said he was working on a deal to recapitalize the company with new equity from a group of investors and swap the company's bonds -- the vast majority of which were owned by Romulus Holdings Inc., a fund in New York founded by Gary A. Singer that was a major investor in troubled telecommunications company debt after the industry crashed in 2000. The deal was scheduled to close the week of Sept. 11, 2001. After the terrorist attacks, it fell apart. Startec filed for Chapter 11 protection in December. "September 11th completely turned our world upside down," he said.

At that point, Mukunda was dealing with three seasoned investors who were Startec's main creditors: Allied, Singer and General Electric Capital Corp., which had bought out Nortel Networks Ltd.'s secured loan to Startec. Over the next 21/2 years, those three investors were, in the professional way unique to bankruptcy struggles, at each other's throats, Mukunda said.

"Allied, GE and the bondholders were always fighting amongst themselves," Mukunda said. According to bankruptcy court documents, GE Capital sued Allied to renegotiate an early version of Startec's reorganization plan.

Mukunda estimated that the infighting added another 12 months to the bankruptcy process. He said he thinks one reason each party fought so hard was that each recognized that Startec was going to be worth a lot of money some day.

Mukunda last summer played shuttle diplomacy between GE Capital in Connecticut and Allied back home. Eventually, he managed to put executives from both companies in a conference room at Startec in August and told them to hash out their differences. "The ice was finally broken," Mukunda said.

The deal that eventually came out was this: Allied, which has lent a total of $46.6 million in receivables financing, debtor-in-possession financing and other secured and unsecured loans, took 68 percent of Startec's equity. General Electric took 25 percent and Romulus and other unsecured creditors took 7 percent. The company has $25 million in debt (down from $240 million before it filed Chapter 11). Of the seven board seats, Allied controls five, GE Capital controls two.

Startec has a total of 260 employees, including those at companies in Toronto and Frankfurt, Germany, that never filed for Chapter 11. This year, the consolidated revenue should reach $95 million, said Prabhav V. Maniyar, who was named chief executive in May.

Maniyar said the company plans to build on its niche with ethnic users: "We'll use our existing resources and position them with new services." Specifically, Maniyar said Startec will bundle broadband Internet access and local service.

He would also like to buy more customers from other long-distance providers, such as those that serve Latin American or Russian communities. Allied's Russell said it would consider financing such expansions. Maniyar said the firm's future, and Allied's return on this deal, hinges on how well it can sell bundled telecommunications services.

Russell said that in the last year of its reorganization, Startec expanded its customer base by 35,000, and the company's operations are generating positive cash flow. "We believed that once they were out of Chapter 11 and could focus on marketing, there would be potential upside," he said.

Mukunda agreed, and though he wished it hadn't taken so long he praised Allied as the ideal senior lender if you have to go bankrupt. He quit the company when its reorganization plan was approved. (Allied and Maniyar declined to comment on his departure.)

"I decided it was time for them to get someone else and get some breathing room," he said. "In a process like this, as a CEO you're really squeezing all parties. You're really taking blood from all three of them. Having taken blood from all three of them it was time for me to move on."

Mukunda said he is undertaking a new venture, but it wasn't ripe enough to talk about.

Terence O'Hara's e-mail address is Dealmakers appears every other Monday in Washington Business.

Ram Mukunda started Startec, but now he has moved on.