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8-K - MCG CAPITAL CORP 8-K 3-4-2010 - MCG CAPITAL CORP | fom8k.htm |
Exhibit 99.1
MCG Capital Corporation
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PRESS RELEASE
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1100 Wilson Boulevard
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Suite 3000
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Contact: Marshall Murphy
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Arlington, VA 22209
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(703) 562-7110
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(703) 247-7500
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MMurphy@MCGCapital.com
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(866) 904-4775 (FAX)
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MCGCapital.com
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FOR IMMEDIATE RELEASE
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MCG CAPITAL CORPORATION REPORTS
FOURTH QUARTER AND ANNUAL 2009 RESULTS
ARLINGTON, VA – March 4, 2010 – MCG Capital Corporation (Nasdaq: MCGC) (“MCG” or the “Company”) announced today its financial results for the quarter and year ended December 31, 2009. MCG will host an investment community conference call today, March 4, 2010 at 10:00 a.m. (Eastern Time). Slides and financial information to be reviewed during the investor conference call will be available on MCG’s website at http://www.mcgcapital.com prior to the call.
Highlights
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·
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Distributable net operating income, or DNOI, for the quarter ended December 31, 2009 was $11.5 million, or $0.15 per share. DNOI for all of 2009 was $45.9 million, or $0.61 per share. DNOI refers to net operating income adjusted for amortization of employee restricted stock awards.
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·
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Net operating income for the quarter ended December 31, 2009 was $9.4 million, or $0.12 per share. Net operating income for the full year was $38.2 million, or $0.51 per share.
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·
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Net income for the quarter ended December 31, 2009 was $1.6 million, or $0.02 per share. Net loss for the full year was $51.1 million, or $0.68 per share.
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·
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Net investment loss for the quarter ended December 31, 2009 was $7.6 million, which represents 0.7% of the most recently reported fair value of MCG’s investment portfolio. Net investment loss for the year ended December 31, 2009 was $94.4 million.
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·
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Net asset value as of both December 31, 2009 and September 30, 2009 was $8.06 per common share.
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·
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Since beginning its monetization initiatives in July 2008, MCG completed a total of $285.8 million in investment monetizations, including 29 monetizations for $274.2 million, which were completed at 100.5% of their most recently reported fair value, and one distressed sale for $11.6 million, which was completed at 42.3% of its most recently reported fair value.
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·
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MCG’s ratio of total assets to total borrowings and other senior securities was 216% as of December 31, 2009, and rose to 220% as of February 26, 2010. MCG also had $56.8 million of unrestricted cash as of February 26, 2010 and $119.7 million of cash in securitization and restricted accounts, which may be deployed for suitable new investment opportunities.
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Overview
Today, MCG reported fourth quarter 2009 net income of $1.6 million, or $0.02 per basic and diluted share, which represented a $58.9 million, or $0.79 per share, improvement over the net loss of $57.3 million, or $0.77 per share, reported for the comparable period in 2008. This improvement was attributable primarily to a $69.3 million reduction in the net investment loss recognized on the fair value of MCG’s investment portfolio and $0.6 million, or 6.3%, increase in net operating income, partially offset by an $11.0 million decrease in the gain on extinguishment of debt.
MCG’s revenue for the fourth quarter of 2009 was $23.7 million, which represented a 21.0% decrease from the comparable period in 2008. MCG’s reported DNOI of $11.5 million, or $0.15 per share, was down from $14.2 million, or $0.19 per share, from the comparable period in 2008. Net operating income during the fourth quarter of 2009 increased 6.3% to $9.4 million from the comparable period in 2008. The decreases in MCG’s revenues and DNOI resulted primarily from a reduction in its average investment portfolio balance stemming from the Company’s monetization activities, a 247 basis point decrease in average LIBOR and changes in the composition and average balance of loans on non-accrual status.
MCG Capital Corporation
March 4, 2010
Page 2
"We are pleased to report that our fourth quarter 2009 results were in-line with our expectations,” said Steven F. Tunney, CEO and President. “For the third consecutive quarter, we are reporting stable net asset values.” Tunney continued, “While we remain cautious about the economy, as we move into 2010, we have restarted our origination activities to redeploy a portion of our cash and capacity in our borrowing facilities into new yield-oriented debt investment opportunities that we believe can increase our operating income and support the reinstitution and future growth of distributions to our stockholders.”
During the quarter ended December 31, 2009, MCG successfully completed $43.9 million in monetizations, which were completed at 104.3% of their most recently reported fair values. MCG will strive to continue monetizing certain assets opportunistically over the course of the next several quarters; however, the timing of such monetizations depends largely upon future market conditions. The Company is under no contractual or other obligation to monetize assets at specified times, levels or prices.
Direction for 2010
As the Company moves into 2010, it is continuing its monetization activities and starting its origination activities. For the foreseeable future, MCG expects to generally limit its investing activities to debt instruments and does not intend to make significant investments in control companies beyond those currently in its portfolio. Although the Company currently has sufficient capital and borrowing capacity available to fund investments, the Company plans to underwrite credit in a manner consistent with its expectation that macro economic conditions will be under pressure for an extended period of time. Over time, if the Company meets its goals with respect to leverage levels and unrestricted cash balances, it may seek to repurchase equity and additional debt securities, subject to the limitations set forth in its private placement borrowing agreements.
To help provide sustainable stockholder value, the Company expects to make future distributions to stockholders based upon a quarterly assessment of the statutorily required level of distributions, gains and losses recognized for tax purposes, portfolio transactional events, its liquidity, cash earnings, and its asset coverage ratio. The Company expects to make the first such determination after the results for the first quarter of 2010 are finalized.
Liquidity and Capital Resources
As of December 31, 2009, MCG’s cash and cash equivalents totaled $54.2 million and it had $557.8 million of borrowings (the majority of which was composed of $478.8 million of collateralized non-recourse borrowings). During the three months ended December 31, 2009, MCG paid down $10.7 million of outstanding borrowings. As a BDC, MCG is required to meet an asset coverage ratio of total net assets to total borrowings and other senior securities of at least 200% in order to borrow under new or existing borrowing facilities or to distribute dividends to its stockholders. MCG’s asset coverage ratio increased to 216% as of December 31, 2009. The cash balance in the securitization and restricted accounts, which may be deployed for suitable new investment opportunities, was $130.4 million as of December 31, 2009. By February 26, 2010, cash and cash equivalents totaled $56.8 million and the asset coverage ratio increased to 220%. As of December 31, 2009 MCG had $28.3 million of funded borrowing capacity, subject to Small Business Administration approval, available in its SBIC subsidiary that effectively is exempt from the statutory asset coverage ratio requirements. In addition, MCG has $50.0 million in available capacity under its 2006-1 facility subject to facility requirements.
Portfolio Activity
The fair value of MCG’s investment portfolio totaled $986 million at December 31, 2009, as compared to $1.037 billion at September 30, 2009. During the fourth quarter of 2009, MCG made $8.0 million of advances, including $4.9 million of paid-in-kind, or PIK, advances and $3.1 million of advances to portfolio companies under revolving and line of credit facilities. Gross payments, reductions and sales of securities during the fourth quarter of 2009 of $51.9 million were composed of $38.5 million of senior debt, $11.8 million of secured subordinated debt, $0.1 million of preferred equity and $1.5 million of common equity.
MCG Capital Corporation
March 4, 2010
Page 3
During the three months ended December 31, 2009, MCG reported net investment losses before income tax provision of $7.6 million, which are detailed below:
(in thousands)
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Three months ended December 31, 2009
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Portfolio Company
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Industry
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Type
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Realized
(Loss)/Gain
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Unrealized (Depreciation)/ Appreciation
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Reversal of
Unrealized
Depreciation
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Net
(Loss)/
Gain
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Active Brands International, Inc.
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Consumer Products
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Non-affiliate
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$ | — | $ | (8,067 | ) | $ | — | $ | (8,067 | ) | ||||||||
Stratford School Holdings, Inc.
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Education
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Affiliate
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— | (5,681 | ) | — | (5,681 | ) | ||||||||||||
Cruz Bay Publishing, Inc.
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Publishing
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Non-affiliate
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— | (3,604 | ) | — | (3,604 | ) | ||||||||||||
NPS Holdings Group, LLC
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Business Services
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Control
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— | (2,232 | ) | — | (2,232 | ) | ||||||||||||
Orbitel Holdings, LLC
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Cable
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Control
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— | (2,084 | ) | — | (2,084 | ) | ||||||||||||
Jet Plastica Investors, LLC.
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Plastic Products
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Control
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— | (2,061 | ) | — | (2,061 | ) | ||||||||||||
Cleartel Communications, Inc.
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Communications
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Control
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(150,212 | ) | — | 150,136 | (76 | ) | ||||||||||||
Superior Industries Investors, LLC
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Sporting Goods
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Control
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— | 4,388 | — | 4,388 | ||||||||||||||
Avenue Broadband LLC
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Cable
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Control
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— | 3,247 | — | 3,247 | ||||||||||||||
B&H Education, Inc.
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Education
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Non-affiliate
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— | 2,658 | — | 2,658 | ||||||||||||||
Xpressdocs Holdings, Inc.
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Business Services
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Non-affiliate
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— | 2,622 | — | 2,622 | ||||||||||||||
CWP/RMK Acquisition Corp.
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Home Furnishings
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Non-affiliate
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(10,692 | ) | (188 | ) | 11,509 | 629 | ||||||||||||
Marietta Intermediate Holding Corporation
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Cosmetics
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Non-affiliate
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(1,832 | ) | — | 2,028 | 196 | |||||||||||||
Other
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624 | 1,691 | 108 | 2,423 | ||||||||||||||||
Total
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$ | (162,112 | ) | $ | (9,311 | ) | $ | 163,781 | $ | (7,642 | ) |
During the quarter ended December 31, 2009, MCG recorded a $150.2 million realized loss on Cleartel, offset by the reversal of $150.1 million of unrealized depreciation, which resulted in a $0.1 million net loss on this investment. MCG sold its debt and equity investment in CWP/RMK Acquisition Corp., which resulted in MCG reversing $11.5 million of unrealized depreciation and realizing a $10.7 million loss. Subsequent to the sale, MCG recorded $0.2 million of unrealized depreciation on its investment in CWP/RMK Acquisition Corp. During December 2009, MCG’s investment in the subordinated debt of Marietta Intermediate Holding Corporation was settled at approximately the reported fair value for this investment. As a result of this settlement, MCG reversed $2.0 million of previously unrealized depreciation and realized a $1.8 million loss. The remaining unrealized depreciation shown in the above table resulted predominantly from the performance of certain of the portfolio companies, and, to a lesser extent, the multiples that MCG used to estimate the fair value of the investments.
Conference Call
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Date and time
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Thursday, March 4, 2010 at 10:00 a.m. Eastern Time
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(Live Call)
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Dial-in Number
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(877) 878-2269 domestic
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(No Conference ID required)
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(847) 829-0062 international
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Webcast
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http://investor.mcgcapital.com
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Replay
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Call Replay
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(800) 642-1687 domestic
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(Available through March 18, 2010)
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(Conference ID for replay is #59296993)
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(706) 645-9291 international
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Web Replay
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http://investor.mcgcapital.com
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MCG Capital Corporation
March 4, 2010
Page 4
MCG Capital Corporation
Consolidated Balance Sheets
December 31,
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(in thousands, except per share amounts)
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2009
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2008
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Assets
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Cash and cash equivalents
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$ | 54,187 | $ | 46,149 | ||||
Cash, securitization accounts
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109,141 | 37,493 | ||||||
Cash, restricted
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21,232 | 979 | ||||||
Investments at fair value
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Non-affiliate investments (cost of $560,347 and $605,906, respectively)
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531,974 | 584,336 | ||||||
Affiliate investments (cost of $38,845 and $45,141, respectively)
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44,388 | 56,126 | ||||||
Control investments (cost of $555,732 and $819,076, respectively)
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409,984 | 562,686 | ||||||
Total investments (cost of $1,154,924 and $1,470,123, respectively)
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986,346 | 1,203,148 | ||||||
Interest receivable
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6,025 | 8,472 | ||||||
Other assets
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14,218 | 16,193 | ||||||
Total assets
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$ | 1,191,149 | $ | 1,312,434 | ||||
Liabilities
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Borrowings (maturing within one year of $13,327 and $44,500, respectively)
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$ | 557,848 | $ | 636,649 | ||||
Interest payable
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2,736 | 5,367 | ||||||
Other liabilities
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14,882 | 11,507 | ||||||
Total liabilities
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575,466 | 653,523 | ||||||
Stockholders’ equity
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Preferred stock, par value $0.01, authorized 1 share, none issued and outstanding
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— | — | ||||||
Common stock, par value $0.01, authorized 200,000 shares on December 31, 2009 and 2008, 76,394 issued and outstanding on December 31, 2009 and 76,075 issued and outstanding on December 31, 2008
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764 | 761 | ||||||
Paid-in capital
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1,005,085 | 997,318 | ||||||
Undistributed (distributions in excess of) earnings
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Paid-in capital
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(162,783 | ) | (162,783 | ) | ||||
Other
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(57,066 | ) | 91,624 | |||||
Net unrealized depreciation on investments
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(170,317 | ) | (267,948 | ) | ||||
Stockholder loans
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— | (61 | ) | |||||
Total stockholders’ equity
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615,683 | 658,911 | ||||||
Total liabilities and stockholders’ equity
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$ | 1,191,149 | $ | 1,312,434 | ||||
Net asset value per common share at end of period
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$ | 8.06 | $ | 8.66 |
MCG Capital Corporation
March 4, 2010
Page 5
MCG Capital Corporation
Consolidated Statements of Operations
Three months ended
December 31,
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Years ended
December 31,
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(in thousands, except per share amounts)
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2009
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2008
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2009
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2008
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Revenue
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Interest and dividend income
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Non-affiliate investments (less than 5% owned)
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$ | 16,251 | $ | 17,073 | $ | 64,209 | $ | 72,725 | ||||||||
Affiliate investments (5% to 25% owned)
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1,087 | 1,572 | 4,470 | 6,777 | ||||||||||||
Control investments (more than 25% owned)
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5,885 | 10,688 | 28,627 | 52,753 | ||||||||||||
Total interest and dividend income
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23,223 | 29,333 | 97,306 | 132,255 | ||||||||||||
Advisory fees and other income
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Non-affiliate investments (less than 5% owned)
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252 | 108 | 1,333 | 1,507 | ||||||||||||
Affiliate investments (less than 5% owned)
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— | 99 | — | 99 | ||||||||||||
Control investments (more than 25% owned)
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204 | 433 | 1,195 | 1,504 | ||||||||||||
Total advisory fees and other income
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456 | 640 | 2,528 | 3,110 | ||||||||||||
Total revenue
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23,679 | 29,973 | 99,834 | 135,365 | ||||||||||||
Operating expenses
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Interest expense
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5,053 | 8,725 | 23,444 | 35,431 | ||||||||||||
Employee compensation
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Salaries and benefits
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4,001 | 2,817 | 14,825 | 16,490 | ||||||||||||
Amortization of employee restricted stock awards
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2,124 | 1,449 | 7,727 | 6,855 | ||||||||||||
Total employee compensation
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6,125 | 4,266 | 22,552 | 23,345 | ||||||||||||
General and administrative expense
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3,082 | 4,271 | 15,650 | 16,648 | ||||||||||||
Goodwill impairment
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— | 3,851 | — | 3,851 | ||||||||||||
Total operating expenses
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14,260 | 21,113 | 61,646 | 79,275 | ||||||||||||
Net operating income before net investment loss, gain on extinguishment of debt and income tax provision (benefit)
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9,419 | 8,860 | 38,188 | 56,090 | ||||||||||||
Net realized loss on investments
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Non-affiliate investments (less than 5% owned)
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(12,024 | ) | 384 | (18,015 | ) | 5,868 | ||||||||||
Affiliate investments (5% to 25% owned)
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— | — | (1,947 | ) | (61 | ) | ||||||||||
Control investments (more than 25% owned)
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(150,088 | ) | (639 | ) | (172,022 | ) | (15,190 | ) | ||||||||
Total net realized loss on investments
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(162,112 | ) | (255 | ) | (191,984 | ) | (9,383 | ) | ||||||||
Net unrealized appreciation (depreciation) on investments
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Non-affiliate investments (less than 5% owned)
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8,321 | (28,587 | ) | (6,803 | ) | (53,312 | ) | |||||||||
Affiliate investments (5% to 25% owned)
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(4,894 | ) | (936 | ) | (5,442 | ) | 3,900 | |||||||||
Control investments (more than 25% owned)
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150,525 | (46,386 | ) | 110,642 | (198,252 | ) | ||||||||||
Derivative and other fair value adjustments
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518 | (827 | ) | (766 | ) | (554 | ) | |||||||||
Total net unrealized appreciation (depreciation) on investments
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154,470 | (76,736 | ) | 97,631 | (248,218 | ) | ||||||||||
Net investment loss before income tax provision (benefit)
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(7,642 | ) | (76,991 | ) | (94,353 | ) | (257,601 | ) | ||||||||
Gain on extinguishment of debt before income tax provision (benefit)
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— | 11,055 | 5,025 | 11,055 | ||||||||||||
Income tax provision (benefit)
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212 | 221 | (81 | ) | 789 | |||||||||||
Net income (loss)
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$ | 1,565 | $ | (57,297 | ) | $ | (51,059 | ) | $ | (191,245 | ) | |||||
Earnings (loss) per basic and diluted common share
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$ | 0.02 | $ | (0.77 | ) | $ | (0.68 | ) | $ | (2.65 | ) | |||||
Cash distributions declared per common share
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$ | — | $ | — | $ | — | $ | 0.71 | ||||||||
Weighted-average common shares outstanding—basic and diluted
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76,267 | 74,424 | 74,692 | 72,254 |
MCG Capital Corporation
March 4, 2010
Page 6
MCG Capital Corporation
Consolidated Statements of Cash Flows
Years ended December 31,
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(in thousands)
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2009
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2008
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2007
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Cash flows from operating activities
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Net (loss) income
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$ | (51,059 | ) | $ | (191,245 | ) | $ | 86,636 | ||||
Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities
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Investments in portfolio companies
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(58,673 | ) | (87,530 | ) | (603,818 | ) | ||||||
Principal collections related to investment repayments or sales
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196,575 | 203,881 | 341,551 | |||||||||
Increase in interest receivable, accrued payment-in-kindinterest and dividends
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(13,330 | ) | (26,415 | ) | (49,980 | ) | ||||||
Amortization of restricted stock awards
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Employee
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7,727 | 6,961 | 9,024 | |||||||||
Non-employee director
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135 | 255 | 174 | |||||||||
Decrease (increase) in cash—securitization accounts from interest collections
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1,305 | (566 | ) | (15,226 | ) | |||||||
Depreciation and amortization
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5,395 | 3,763 | 1,903 | |||||||||
Impairment of goodwill
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— | 3,851 | — | |||||||||
Unrealized (appreciation) depreciation on stockholder loans
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(31 | ) | 398 | — | ||||||||
Decrease (increase) in other assets
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1,160 | (3,848 | ) | 3,407 | ||||||||
Increase (decrease) in other liabilities
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663 | (5,592 | ) | 3,243 | ||||||||
Realized loss (gain) on investments
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191,984 | 9,383 | (21,750 | ) | ||||||||
Change in unrealized (appreciation) depreciation on investments
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(97,631 | ) | 248,218 | 34,637 | ||||||||
Gain on extinguishment of debt
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(5,025 | ) | (11,055 | ) | — | |||||||
Net cash provided by (used in) operating activities
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179,195 | 150,459 | (210,199 | ) | ||||||||
Cash flows from financing activities
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Net (payments) proceeds on borrowings
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(73,776 | ) | (103,091 | ) | 229,152 | |||||||
(Increase) decrease in cash in restricted and securitization accounts
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Securitization accounts for repayment of principal on debt
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(72,953 | ) | 76 | (5,846 | ) | |||||||
Restricted cash
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(20,253 | ) | — | — | ||||||||
Payment of financing costs
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(4,175 | ) | (3,500 | ) | (1,165 | ) | ||||||
Issuance of common stock, net of costs
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— | 57,038 | 95,350 | |||||||||
Distributions paid
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— | (78,130 | ) | (105,837 | ) | |||||||
Cancellation of common stock held as collateral for stockholder loans
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(92 | ) | (105 | ) | — | |||||||
Repayment of stockholder loans
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92 | 105 | 151 | |||||||||
Net cash (used in) provided by financing activities
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(171,157 | ) | (127,607 | ) | 211,805 | |||||||
Increase in cash and cash equivalents
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8,038 | 22,852 | 1,606 | |||||||||
Cash and cash equivalents
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Beginning balance
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46,149 | 23,297 | 21,691 | |||||||||
Ending balance
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$ | 54,187 | $ | 46,149 | $ | 23,297 | ||||||
Supplemental disclosure of cash flow information
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||||||||||||
Interest paid
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$ | 22,056 | $ | 34,282 | $ | 40,240 | ||||||
Income taxes paid
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59 | 905 | 4,258 | |||||||||
Payment-in-kind interest collected
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2,214 | 6,230 | 13,848 | |||||||||
Dividend income collected
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8,414 | 3,817 | 7,328 |
MCG Capital Corporation
March 4, 2010
Page 7
Selected Financial Data
Quarterly Operating Information
(in thousands, except per share amounts)
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2008
Q4
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2009
Q1
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2009
Q2
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2009
Q3
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2009
Q4
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Revenue
|
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Interest and dividend income
|
||||||||||||||||||||
Interest income
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$ | 25,982 | $ | 24,054 | $ | 22,092 | $ | 21,050 | $ | 21,113 | ||||||||||
Dividend income
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2,545 | 1,824 | 1,702 | 1,289 | 1,334 | |||||||||||||||
Loan fee income
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806 | 719 | 634 | 719 | 776 | |||||||||||||||
Total interest and dividend income
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29,333 | 26,597 | 24,428 | 23,058 | 23,223 | |||||||||||||||
Advisory fees and other income
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640 | 1,209 | 310 | 553 | 456 | |||||||||||||||
Total revenue
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29,973 | 27,806 | 24,738 | 23,611 | 23,679 | |||||||||||||||
Operating expense
|
||||||||||||||||||||
Interest expense
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8,725 | 6,558 | 6,315 | 5,518 | 5,053 | |||||||||||||||
Salaries and benefits
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2,817 | 3,798 | 2,911 | 4,115 | 4,001 | |||||||||||||||
Amortization of employee restricted stock awards(a)
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1,467 | 1,537 | 1,787 | 2,279 | 2,124 | |||||||||||||||
General and administrative(a)
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4,253 | 3,975 | 5,552 | 3,041 | 3,082 | |||||||||||||||
Goodwill impairment
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3,851 | — | — | — | — | |||||||||||||||
Total operating expense
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21,113 | 15,868 | 16,565 | 14,953 | 14,260 | |||||||||||||||
Net operating income before net investment loss, gain (loss) on extinguishment of debt and income tax provision (benefit)
|
8,860 | 11,938 | 8,173 | 8,658 | 9,419 | |||||||||||||||
Net investment loss before gain (loss) on extinguishment of debt and income tax provision (benefit)
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(76,991 | ) | (68,331 | ) | (13,984 | ) | (4,396 | ) | (7,642 | ) | ||||||||||
Gain (loss) on extinguishment of debt
|
11,055 | 5,275 | (132 | ) | (118 | ) | — | |||||||||||||
Income tax provision (benefit)
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221 | (172 | ) | (82 | ) | (39 | ) | 212 | ||||||||||||
Net (loss) earnings
|
$ | (57,297 | ) | $ | (50,946 | ) | $ | (5,861 | ) | $ | 4,183 | $ | 1,565 | |||||||
Reconciliation of DNOI to net operating income
|
||||||||||||||||||||
Net operating income before net investment losses, gain (loss) on extinguishment of debt and income tax provision (benefit)
|
$ | 8,860 | $ | 11,938 | $ | 8,173 | $ | 8,658 | $ | 9,419 | ||||||||||
Amortization of employee restricted stock awards(a)
|
1,467 | 1,537 | 1,787 | 2,279 | 2,124 | |||||||||||||||
Goodwill impairment
|
3,851 | — | — | — | — | |||||||||||||||
DNOI(b)
|
$ | 14,178 | $ | 13,475 | $ | 9,960 | $ | 10,937 | $ | 11,543 | ||||||||||
DNOI per share-weighted average common shares – basic and diluted(b)
|
$ | 0.19 | $ | 0.18 | $ | 0.13 | $ | 0.14 | $ | 0.15 | ||||||||||
Per common share statistics
|
||||||||||||||||||||
Weighted-average common shares outstanding – basic and diluted
|
74,424 | 74,498 | 74,592 | 75,876 | 76,267 | |||||||||||||||
Net operating income before net investment losses, gain (loss) on extinguishment of debt and income tax provision (benefit) per common share - basic and diluted
|
$ | 0.12 | $ | 0.16 | $ | 0.11 | $ | 0.11 | $ | 0.12 | ||||||||||
(Loss) earnings per common share - basic and diluted
|
$ | (0.77 | ) | $ | (0.68 | ) | $ | (0.08 | ) | $ | 0.06 | $ | 0.02 | |||||||
Net asset value per common share - period end
|
$ | 8.66 | $ | 8.02 | $ | 7.97 | $ | 8.06 | $ | 8.06 | ||||||||||
Dividends declared per common share
|
$ | — | $ | — | $ | — | $ | — | $ | — |
_____________
(a)
|
Q4 2008, Q1 2009, Q2 2009, Q3 2009 and Q4 2009 include $332, $3, $1, $0 and $2, respectively, of costs associated with MCG’s restructuring expense, including, $18, $0, $0, $0 and $0, respectively, of costs associated with the amortization of restricted stock awards related to MCG’s restructuring expense.
|
(b)
|
DNOI represents net operating income before net investment loss, gain (loss) on extinguishment of debt and income tax provision (benefit), as determined in accordance with U.S. generally accepted accounting principles, or GAAP, adjusted for amortization of employee restricted stock awards and impairment of goodwill. MCG views DNOI and the related per share measures as useful and appropriate supplements to net operating income, net income, earnings per share and cash flows from operating activities. These measures serve as an additional measure of MCG’s operating performance exclusive of employee restricted stock amortization and goodwill impairment charges, which represents expenses of the Company but do not require settlement in cash. DNOI does include paid-in-kind, or PIK, interest and dividend income which are generally not payable in cash on a regular basis but rather at investment maturity or when declared. DNOI should not be considered as an alternative to net operating income, net income, earnings per share and cash flows from operating activities (each computed in accordance with GAAP). Instead, DNOI should be reviewed in connection with net operating income, net income, earnings per share and cash flows from operating activities in MCG’s consolidated financial statements, to help analyze how MCG’s business is performing.
|
MCG Capital Corporation
March 4, 2010
Page 8
Selected Financial Data
Key Quarterly Statistics
(dollars in thousands)
|
2008
Q4
|
2009
Q1
|
2009
Q2
|
2009
Q3
|
2009
Q4
|
|||||||||||||||
Average quarterly loan portfolio - fair value
|
$ | 858,237 | $ | 815,620 | $ | 785,737 | $ | 739,909 | $ | 728,731 | ||||||||||
Average quarterly total investment portfolio - fair value
|
1,290,524 | 1,197,840 | 1,106,113 | 1,054,409 | 1,027,699 | |||||||||||||||
Average quarterly total assets
|
1,356,785 | 1,308,567 | 1,218,843 | 1,187,179 | 1,182,402 | |||||||||||||||
Average quarterly stockholders' equity
|
715,497 | 660,665 | 607,828 | 603,029 | 610,193 | |||||||||||||||
Return on average total assets (trailing 12 months)
|
||||||||||||||||||||
Net operating income before net investment loss, gain (loss) on extinguishment of debt and income tax provision (benefit)
|
3.73 | % | 3.26 | % | 3.14 | % | 2.97 | % | 3.12 | % | ||||||||||
Net loss
|
(12.73 | %) | (17.08 | %) | (13.52 | %) | (8.67 | %) | (4.17 | %) | ||||||||||
Return on average equity (trailing 12 months)
|
||||||||||||||||||||
Net operating income before net investment loss, gain (loss) on extinguishment of debt and income tax provision (benefit)
|
7.12 | % | 6.25 | % | 6.08 | % | 5.82 | % | 6.16 | % | ||||||||||
Net loss
|
(24.27 | %) | (32.72 | %) | (26.21 | %) | (16.99 | %) | (8.23 | %) | ||||||||||
Yield on average loan portfolio at fair value
|
||||||||||||||||||||
Average LIBOR (90-Day)
|
2.74 | % | 1.24 | % | 0.85 | % | 0.41 | % | 0.27 | % | ||||||||||
Spread to average LIBOR on average yielding loan portfolio at fair value(a)
|
10.44 | % | 11.94 | % | 12.01 | % | 11.83 | % | 11.97 | % | ||||||||||
13.18 | % | 13.18 | % | 12.86 | % | 12.24 | % | 12.24 | % | |||||||||||
Impact of fee accelerations of unearned fees on paid/restructured loans
|
0.06 | % | 0.06 | % | 0.03 | % | 0.10 | % | 0.14 | % | ||||||||||
Impact of non-accrual loans
|
(0.82 | %) | (0.92 | %) | (1.29 | %) | (0.67 | %) | (0.46 | %) | ||||||||||
Total yield on average loan portfolio at fair value
|
12.42 | % | 12.32 | % | 11.60 | % | 11.67 | % | 11.92 | % | ||||||||||
Cost of funds
|
||||||||||||||||||||
Average LIBOR
|
2.74 | % | 1.24 | % | 0.85 | % | 0.41 | % | 0.27 | % | ||||||||||
Spread to average LIBOR excluding amortization of deferred debt issuance costs(a)
|
2.30 | % | 2.19 | % | 2.51 | % | 2.77 | % | 2.65 | % | ||||||||||
Impact of amortization of deferred debt issuance costs
|
0.40 | % | 0.70 | % | 0.80 | % | 0.59 | % | 0.60 | % | ||||||||||
Total cost of funds
|
5.44 | % | 4.13 | % | 4.16 | % | 3.77 | % | 3.52 | % | ||||||||||
Net portfolio yield margin
|
6.25 | % | 6.69 | % | 6.48 | % | 6.51 | % | 6.92 | % | ||||||||||
Selected period end balance sheet statistics
|
||||||||||||||||||||
Total investment portfolio at fair value
|
$ | 1,203,148 | $ | 1,114,992 | $ | 1,061,506 | $ | 1,037,244 | $ | 986,346 | ||||||||||
Total assets
|
1,312,434 | 1,255,340 | 1,203,839 | 1,194,387 | 1,191,149 | |||||||||||||||
Borrowings
|
636,649 | 631,245 | 584,349 | 568,507 | 557,848 | |||||||||||||||
Total equity
|
658,911 | 609,531 | 605,478 | 611,967 | 615,683 | |||||||||||||||
Cash, securitization and restricted accounts
|
38,472 | 61,902 | 99,052 | 89,222 | 130,373 | |||||||||||||||
Debt to equity
|
96.62 | % | 103.56 | % | 96.51 | % | 92.90 | % | 90.61 | % | ||||||||||
Debt, net of cash, securitization and restricted accounts to equity
|
90.78 | % | 93.41 | % | 80.15 | % | 78.32 | % | 69.43 | % | ||||||||||
Other statistics (at period end)
|
||||||||||||||||||||
BDC asset coverage ratio
|
201 | % | 199 | % | 206 | % | 212 | % | 216 | % | ||||||||||
Number of portfolio companies
|
70 | 71 | 67 | 65 | 59 | |||||||||||||||
Number of employees
|
73 | 70 | 68 | 66 | 64 | |||||||||||||||
Loans on non-accrual as a percentage of total debt investments
|
||||||||||||||||||||
Fair Value
|
4.86 | % | 4.82 | % | 6.23 | % | 6.99 | % | 3.74 | % | ||||||||||
Cost
|
13.00 | % | 14.53 | % | 19.59 | % | 19.64 | % | 10.80 | % |
_____________
(a)
|
The impact due to the timing of the LIBOR resets and floors is included in the spread to average LIBOR. The impact to the yield on average loan portfolio at fair value due to the timing of LIBOR resets and floors for Q4 2008, Q1 2009, Q2 2009, Q3 2009 and Q4 2009 was approximately 0.55%, 0.80%, 0.84%, 0.99% and 0.94%, respectively. The impact to the cost of funds due to the timing of LIBOR resets for Q4 2008, Q1 2009, Q2 2009, Q3 2009 and Q4 2009 was approximately 0.64%, 0.11%, 0.17%, 0.48% and 0.18%, respectively.
|
MCG Capital Corporation
March 4, 2010
Page 9
Selected Financial Data
Quarterly Investment Risk and Changes in Portfolio Composition
(dollars in thousands)
|
2008
Q4
|
2009
Q1
|
2009
Q2
|
2009
Q3
|
2009
Q4
|
|||||||||||||||
Investment rating:(a)
|
||||||||||||||||||||
IR 1 total investments at fair value(b)
|
$ | 719,765 | $ | 669,004 | $ | 667,117 | $ | 599,261 | $ | 573,231 | ||||||||||
IR 2 total investments at fair value
|
206,829 | 179,499 | 151,933 | 135,988 | 125,222 | |||||||||||||||
IR 3 total investments at fair value
|
233,172 | 232,714 | 223,080 | 281,638 | 271,447 | |||||||||||||||
IR 4 total investments at fair value
|
32,648 | 19,257 | 16,313 | 11,125 | 3,394 | |||||||||||||||
IR 5 total investments at fair value
|
10,734 | 14,518 | 3,063 | 9,232 | 13,052 | |||||||||||||||
IR 1 percentage of total portfolio
|
59.8 | % | 60.0 | % | 62.9 | % | 57.8 | % | 58.1 | % | ||||||||||
IR 2 percentage of total portfolio
|
17.2 | % | 16.1 | % | 14.3 | % | 13.1 | % | 12.7 | % | ||||||||||
IR 3 percentage of total portfolio
|
19.4 | % | 20.9 | % | 21.0 | % | 27.1 | % | 27.5 | % | ||||||||||
IR 4 percentage of total portfolio
|
2.7 | % | 1.7 | % | 1.5 | % | 1.1 | % | 0.4 | % | ||||||||||
IR 5 percentage of total portfolio
|
0.9 | % | 1.3 | % | 0.3 | % | 0.9 | % | 1.3 | % | ||||||||||
New investments by security type:
|
||||||||||||||||||||
Senior secured debt
|
$ | 12,610 | $ | 41,778 | $ | 3,658 | $ | 4,132 | $ | 1,468 | ||||||||||
Subordinated debt—Secured
|
7,125 | 4,076 | 4,127 | 2,852 | 4,956 | |||||||||||||||
Subordinated debt—Unsecured
|
(395 | ) | 127 | 130 | 3,509 | 134 | ||||||||||||||
Preferred equity
|
2,543 | 6,825 | 2,102 | 1,287 | 1,479 | |||||||||||||||
Common/common equivalents equity
|
1 | — | — | — | — | |||||||||||||||
Total
|
$ | 21,884 | $ | 52,806 | $ | 10,017 | $ | 11,780 | $ | 8,037 | ||||||||||
Exits and repayments by security type:
|
||||||||||||||||||||
Senior secured debt
|
$ | 23,333 | $ | 7,777 | $ | 28,888 | $ | 13,924 | $ | 38,508 | ||||||||||
Subordinated debt—Secured
|
16,295 | 22,171 | 11,263 | 1,128 | 11,803 | |||||||||||||||
Subordinated debt—Unsecured
|
— | — | — | — | — | |||||||||||||||
Preferred equity
|
291 | 42,289 | 9,660 | 15,240 | 70 | |||||||||||||||
Common/common equivalents equity
|
7 | 426 | — | 2,556 | 1,500 | |||||||||||||||
Total
|
$ | 39,926 | $ | 72,663 | $ | 49,811 | $ | 32,848 | $ | 51,881 | ||||||||||
Exits and repayments by transaction type:
|
||||||||||||||||||||
Scheduled principal amortization
|
$ | 13,047 | $ | 8,083 | $ | 7,728 | $ | 14,365 | $ | 7,537 | ||||||||||
Loan sales
|
— | — | — | — | — | |||||||||||||||
Principal prepayments
|
25,234 | 21,500 | 31,603 | 308 | 42,124 | |||||||||||||||
Payment of payment-in-kind interest and dividends
|
1,645 | 5,562 | 793 | 3,553 | 720 | |||||||||||||||
Sale of equity investments
|
— | 37,518 | 9,687 | 14,622 | 1,500 | |||||||||||||||
Total
|
$ | 39,926 | $ | 72,663 | $ | 49,811 | $ | 32,848 | $ | 51,881 |
(a)
|
MCG uses an investment rating system to characterize and monitor its expected level of returns on each investment in MCG’s portfolio. MCG uses the following 1 to 5 investment rating scale:
|
|
Investment
|
|
Rating
|
|
1
|
Capital gain expected or realized
|
|
2
|
Full return of principal and interest or dividend expected with customer performing in accordance with plan
|
|
3
|
Full return of principal and interest or dividend expected but customer requires closer monitoring
|
|
4
|
Some loss of interest or dividend expected but still expecting an overall positive internal rate of return on the investment
|
|
5
|
Loss of interest or dividend and some loss of principal investment expected which would result in an overall negative internal rate of return on the investment
|
(b)
|
At December 31, 2008, March 31, 2009, June 30, 2009, September 30, 2009 and December 31, 2009, approximately, $363; $317; $317; $244 and $219, respectively, of MCG’s investments with an investment rating of “1” represented loans to companies in which MCG also holds equity securities or for which it has already realized a gain on its equity investment.
|
MCG Capital Corporation
March 4, 2010
Page 10
Selected Financial Data
Portfolio Composition by Type
(dollars in thousands)
|
2008
Q4
|
2009
Q1
|
2009
Q2
|
2009
Q3
|
2009
Q4
|
|||||||||||||||
Composition of investments at period end, fair value
|
||||||||||||||||||||
Senior secured debt
|
$ | 428,817 | $ | 456,377 | $ | 428,576 | $ | 416,302 | $ | 379,457 | ||||||||||
Subordinated debt
|
||||||||||||||||||||
Secured
|
351,425 | 303,490 | 283,471 | 292,144 | 275,398 | |||||||||||||||
Unsecured
|
28,081 | 27,823 | 27,961 | 30,476 | 30,618 | |||||||||||||||
Total debt investments
|
808,323 | 787,690 | 740,008 | 738,922 | 685,473 | |||||||||||||||
Preferred equity
|
339,576 | 277,893 | 270,899 | 252,604 | 257,984 | |||||||||||||||
Common/common equivalents equity
|
55,249 | 49,409 | 50,599 | 45,718 | 42,889 | |||||||||||||||
Total equity investments
|
394,825 | 327,302 | 321,498 | 298,322 | 300,873 | |||||||||||||||
Total investments
|
$ | 1,203,148 | $ | 1,114,992 | $ | 1,061,506 | $ | 1,037,244 | $ | 986,346 | ||||||||||
Percentage of investments at period end, fair value
|
||||||||||||||||||||
Senior secured debt
|
35.7 | % | 40.9 | % | 40.4 | % | 40.1 | % | 38.5 | % | ||||||||||
Subordinated debt
|
||||||||||||||||||||
Secured
|
29.2 | % | 27.2 | % | 26.7 | % | 28.2 | % | 27.9 | % | ||||||||||
Unsecured
|
2.3 | % | 2.5 | % | 2.6 | % | 2.9 | % | 3.1 | % | ||||||||||
Total debt investments
|
67.2 | % | 70.6 | % | 69.7 | % | 71.2 | % | 69.5 | % | ||||||||||
Preferred equity
|
28.2 | % | 24.9 | % | 25.5 | % | 24.4 | % | 26.2 | % | ||||||||||
Common/common equivalents equity
|
4.6 | % | 4.5 | % | 4.8 | % | 4.4 | % | 4.3 | % | ||||||||||
Total equity investments
|
32.8 | % | 29.4 | % | 30.3 | % | 28.8 | % | 30.5 | % | ||||||||||
Total investments
|
100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % |
MCG Capital Corporation
March 4, 2010
Page 11
Selected Financial Data
Key Annual Financial and Statistical Information
Years Ended December 31,
|
||||||||
(dollars in thousands)
|
2008
|
2009
|
||||||
Reconciliation of DNOI(b) to net operating income
|
||||||||
Net operating income before investment losses, gain on extinguishment of debt and income tax provision
|
$ | 56,090 | $ | 38,188 | ||||
Amortization of employee restricted stock awards(a)
|
6,961 | 7,727 | ||||||
Goodwill impairment
|
3,851 | — | ||||||
DNOI(b)
|
$ | 66,902 | $ | 45,915 | ||||
DNOI per share-weighted average common shares(b)
|
$ | 0.93 | $ | 0.61 | ||||
Weighted-average common shares outstanding
|
72,254 | 74,692 | ||||||
Average loan portfolio - fair value
|
$ | 949,904 | $ | 767,186 | ||||
Average total investment portfolio - fair value
|
1,436,852 | 1,095,934 | ||||||
Average total assets
|
1,502,043 | 1,223,800 | ||||||
Average stockholders' equity
|
788,036 | 620,243 | ||||||
Return on average total assets
|
||||||||
Net operating income before net investment losses, gain on extinguishment of debt and income tax provision
|
3.73 | % | 3.12 | % | ||||
Net income
|
(12.73 | %) | (4.17 | %) | ||||
Return on average equity
|
||||||||
Net operating income before net investment losses, gain on extinguishment of debt and income tax provision
|
7.12 | % | 6.16 | % | ||||
Net income
|
(24.27 | %) | (8.23 | %) | ||||
Yield on average loan portfolio at fair value
|
||||||||
Average LIBOR
|
2.92 | % | 0.69 | % | ||||
Spread to average LIBOR on average loan portfolio at fair value
|
9.83 | % | 12.00 | % | ||||
12.75 | % | 12.69 | % | |||||
Impact of fee accelerations of unearned fees on paid/restructured loans
|
0.06 | % | 0.03 | % | ||||
Impact of previously unaccrued PIK income
|
— | — | ||||||
Impact of non-accrual loans
|
(0.99 | %) | (0.84 | %) | ||||
Total yield on average loan portfolio at fair value
|
11.82 | % | 11.88 | % | ||||
Cost of funds
|
||||||||
Average LIBOR
|
2.92 | % | 0.69 | % | ||||
Spread to LIBOR excluding amortization of deferred debt issuance costs
|
1.81 | % | 2.54 | % | ||||
Impact of amortization of deferred debt issuance costs
|
0.34 | % | 0.67 | % | ||||
Total cost of funds
|
5.07 | % | 3.90 | % | ||||
Net portfolio yield margin
|
6.63 | % | 6.65 | % |
(a)
|
2008 includes $106 of costs associated with the amortization of restricted stock awards associated with MCG’s restructuring expenses.
|
(b)
|
DNOI represents net operating income before net investment gains and losses, gain on extinguishment of debt and income tax (benefit) provision, as determined in accordance with U.S. generally accepted accounting principles, or GAAP, adjusted for amortization of employee restricted stock awards and impairment of goodwill. MCG views DNOI and the related per share measures as useful and appropriate supplements to net operating income, net income, earnings per share and cash flows from operating activities. These measures serve as an additional measure of MCG’s operating performance exclusive of employee restricted stock amortization and goodwill impairment charges, which represents an expense of the company but does not require settlement in cash. DNOI does include paid-in-kind, or PIK, interest and dividend income which are generally not payable in cash on a regular basis but rather at investment maturity or when declared. DNOI should not be considered as an alternative to net operating income, net income, earnings per share and cash flows from operating activities (each computed in accordance with GAAP). Instead, DNOI should be reviewed in connection with net operating income, net income, earnings per share and cash flows from operating activities in MCG’s consolidated financial statements, to help analyze how MCG’s business is performing.
|
MCG Capital Corporation
March 4, 2010
Page 12
Selected Financial Data
Annual Changes in Portfolio Composition
Years ended December 31,
|
||||||||
(dollars in thousands)
|
2008
|
2009
|
||||||
New investments by security type
|
||||||||
Secured senior debt
|
$ | 49,351 | $ | 51,036 | ||||
Subordinated debt - Secured
|
46,796 | 16,011 | ||||||
Subordinated debt - Unsecured
|
1,823 | 3,900 | ||||||
Preferred equity
|
26,973 | 11,693 | ||||||
Common/Common equivalents equity
|
38 | — | ||||||
Total
|
$ | 124,981 | $ | 82,640 | ||||
Exits and repayments by security type
|
||||||||
Secured senior debt
|
$ | 124,326 | $ | 89,097 | ||||
Subordinated debt - Secured
|
58,478 | 46,365 | ||||||
Subordinated debt - Unsecured
|
— | — | ||||||
Preferred equity
|
18,003 | 67,259 | ||||||
Common/Common equivalents equity
|
11,794 | 4,482 | ||||||
Total
|
$ | 212,601 | $ | 207,203 | ||||
Exits and repayments by transaction type
|
||||||||
Scheduled principal amortization
|
$ | 52,106 | $ | 37,713 | ||||
Senior loan sales
|
18,733 | — | ||||||
Principal prepayments
|
108,989 | 95,535 | ||||||
Payment of payment-in-kind interest and dividends
|
10,047 | 10,628 | ||||||
Sale of equity investments
|
22,726 | 63,327 | ||||||
Total
|
$ | 212,601 | $ | 207,203 |
Important Information About Non-GAAP References
References by MCG Capital Corporation to distributable net operating income, or DNOI, refer to net operating income before net investment loss, (loss) gain on extinguishment of debt and income tax (benefit) provision, as determined in accordance with GAAP adjusted for amortization of employee restricted stock awards and impairment of goodwill.
The Company’s management uses DNOI and the related per share measures as useful and appropriate supplements to net operating income, net income, earnings per share and cash flows from operating activities. These measures serve as an additional measure of MCG’s operating performance exclusive of employee restricted stock amortization and impairment of goodwill, which represents expenses of the Company but do not require settlement in cash. DNOI does include paid-in-kind, or PIK, interest and dividend income that generally are not payable in cash on a regular basis but rather at investment maturity or when declared.
The Company believes that providing non-GAAP DNOI and DNOI per share affords investors a view of results that may be more easily compared to peer companies and enables investors to consider the Company’s results on both a GAAP and non-GAAP basis in periods when the Company is undertaking non-recurring activities. DNOI should not be considered as an alternative to, as an indicator of the Company’s operating performance, or as a substitute for net operating income, net income, earnings per share and cash flows from operating activities (each computed in accordance with GAAP). Instead, DNOI should be reviewed in connection with net operating income, net income, earnings per share and cash flows from operating activities in MCG’s consolidated financial statements, to help analyze how MCG’s business is performing because the items excluded from the non-GAAP measures often have a material impact on the Company’s results of operations. Therefore, management uses, and investors should use, non-GAAP measures only in conjunction with its reported GAAP results.
MCG Capital Corporation
March 4, 2010
Page 13
About MCG Capital Corporation
MCG Capital Corporation is a solutions-focused commercial finance company providing capital and advisory services to middle market companies throughout the United States. MCG’s investment objective is to achieve current income and capital gains. Portfolio companies generally use capital provided by MCG to finance acquisitions, recapitalizations, buyouts, organic growth and working capital.
Forward-looking Statements:
Statements in this press release regarding management’s future expectations, beliefs, intentions, goals, strategies, plans or prospects, including statements relating to: MCG’s results of operations, including revenues, net operating income, distributable net operating income, net investment losses and general and administrative expenses and the factors that may affect such results; the cause of unrealized losses; the amount, timing and price (relative to fair value) of asset monetizations; the performance of MCG’s current and former portfolio companies; the Company’s future strategic plans, including plans to redeploy cash in securitization and restricted accounts into new investment opportunities; the ability to preserve net asset value; the ability to generate operating income from new investments and to support the reinstitution and future growth of distributions to stockholders; the Company’s plans to opportunistically monetize assets over the course of the next several quarters; the expectation regarding limits on future investing activities to debt investments; the Company’s intentions to curtail investments in control companies beyond those that are currently in the Company’s portfolio; the timing of, and the Company’s ability to, repurchase equity and additional debt securities; the pacing of MCG’s origination activity and the deployment of capital in investments that are consistent with its investment strategy; MCG’s underwriting process relative to macro economic conditions; the Company’s timing of and decisions regarding dividend distributions during 2010 based on the quarterly assessment of statutory distribution requirements, gains and losses recognized for tax purposes, portfolio transactional events, liquidity, cash earnings and asset coverage ratio; and general economic factors may constitute forward-looking statements for purposes of the safe harbor protection under applicable securities laws. Forward-looking statements can be identified by terminology such as “anticipate,” “believe,” “could,” “could increase the likelihood,” “estimate,” “expect,” “intend,” “is planned,” “may,” “should,” “will,” “will enable,” “would be expected,” “look forward,” “may provide,” “would” or similar terms, variations of such terms or the negative of those terms. Such forward-looking statements involve known and unknown risks, uncertainties and other factors including those risks, uncertainties and factors referred to in MCG’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2009 filed with the Securities and Exchange Commission under the section “Risk Factors,” as well as other documents that may be filed by MCG from time to time with the Securities and Exchange Commission. As a result of such risks, uncertainties and factors, actual results may differ materially from any future results, performance or achievements discussed in or implied by the forward-looking statements contained herein. MCG is providing the information in this press release as of this date and assumes no obligations to update the information included in this press release or revise any forward-looking statements, whether as a result of new information, future events or otherwise.