Attached files
| file | filename |
|---|---|
| 8-K - FORM 8-K - MCG CAPITAL CORP | d8k.htm |
Exhibit 99.1
|
MCG Capital Corporation | PRESS RELEASE | ||
| 1100 Wilson Boulevard | ||||
| Suite 3000 | Contact: Marshall Murphy | |||
| Arlington, VA 22209 | (703) 562-7110 | |||
| (703) 247-7500 | MMurphy@MCGCapital.com | |||
| (866) 904-4775 (FAX) | ||||
| www.MCGCapital.com | ||||
|
FOR IMMEDIATE RELEASE |
MCG CAPITAL CORPORATION REPORTS FIRST QUARTER 2011 RESULTS
DECLARES DIVIDEND OF $0.17 PER SHARE
ARLINGTON, VA—May 9, 2011—MCG Capital Corporation (Nasdaq: MCGC) (“MCG” or the “Company”) announced today its financial results for the quarter ended March 31, 2011. MCG will host an investment community conference call today, May 9, 2011 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
| • | Distributable net operating income, or DNOI, for the quarter ended March 31, 2011 was $13.6 million, or $0.18 per share. DNOI refers to net operating income adjusted for amortization of employee restricted stock awards. |
| • | Net operating income for the quarter ended March 31, 2011 was $13.0 million, or $0.17 per share. |
| • | Net loss for the quarter ended March 31, 2011 was $8.8 million, or $0.12 per share. |
| • | Net investment loss for the quarter ended March 31, 2011 was $20.9 million, which included a $24.3 million reduction in the fair value of Broadview Networks Holdings, Inc., or Broadview, resulting from a decrease in the multiples used to value that investment. |
| • | During the quarter ended March 31, 2011, MCG made $95.1 million of advances and originations, including $54.0 million in investments to six new portfolio companies. Payoffs and portfolio monetization activities totaled $129.2 million during the quarter. |
| • | Repaid in full the remaining $17.4 million of Series 2005-A 9.98% unsecured notes. |
| • | MCG’s ratio of total assets to total borrowings and other senior securities was 233% as of March 31, 2011. |
DIVIDEND DECLARATION
MCG also announced today that its board of directors declared a dividend of $0.17 per share. The dividend is payable as follows:
Record date: June 15, 2011
Payable date: July 15, 2011
OVERVIEW
Today, MCG reported a first quarter 2011 net loss of $8.8 million, or $0.12 per basic and diluted share, which represented a $14.8 million, or $0.20 per share, decrease from the net income of $6.0 million, or $0.08 per share, reported for the comparable period in 2010. This decrease resulted primarily from an $18.6 million increase in MCG’s net investment loss and a $0.8 million increase in the loss on extinguishment of debt, partially offset by a $4.6 million increase in net operating income.
MCG’s revenue for the first quarter of 2011 was $24.3 million, which represented a $2.6 million, or 11.8%, increase from the comparable period in 2010. This increase was composed of a $1.8 million increase in interest and dividend income, including a $1.2 million increase in dividend income on existing investments and a $0.6 million increase in interest income, which resulted from an increase in the Company’s average portfolio balance. In addition, advisory fees increased $0.7 million during the first quarter of 2011 as a result of origination activity over the first quarter of 2010. MCG reported DNOI of
MCG Capital Corporation
May 9, 2011
Page 2
$13.6 million, or $0.18 per share, which represented a $4.0 million, or $0.05 per share, increase over the first quarter of 2010. Net operating income during the first quarter of 2011 was $13.0 million, which represents a $4.6 million, or 54.1%, increase over the comparable period in 2010.
“Overall we are pleased with the volume of first quarter originations, the level of equity monetizations during the quarter and after quarter-end, the increase in our first quarter net operating income and distributable net operating income, and the repositioning of low-yielding assets. Based on our results, we will be increasing our dividend to $0.17 per share for the first quarter,” said Steven Tunney, President and CEO. “This is our fourth consecutive quarterly dividend increase since we reinstated our dividend in April 2010. We remain focused on our strategy of monetizing low-yielding investments and redeploying proceeds and balance sheet cash into new investments to grow operating income and distributions to our stockholders.”
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2011, MCG’s cash and cash equivalents totaled $40.6 million and it had $527.3 million of borrowings (the majority of which was composed of $443.6 million of collateralized non-recourse borrowings). As a business development company, 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 from 231% as of December 31, 2010 to 233% as of March 31, 2011. The cash balance in the securitization and restricted accounts, which may be deployed for suitable new investment opportunities, was $92.5 million as of March 31, 2011. As of March 31, 2011, MCG had $45.0 million in available incremental capacity under its 2006-1 facility, subject to facility requirements. In addition, MCG had $6.0 million of funded borrowing capacity, subject to the United States Small Business Administration’s, or SBA’s, approval, available in its small business investment company, or SBIC, subsidiary that effectively is exempt from the statutory asset coverage ratio requirements.
As of March 31, 2011, the total borrowing potential under the SBA license with Solutions Capital I, L.P. is $150.0 million. To access the entire $150.0 million borrowing potential, MCG would have to fund $25.4 million, in addition to the $49.6 million that it had funded through March 31, 2011. Additionally, in March 2011, the Company formed another wholly owned subsidiary, Solutions Capital II, L.P. The Company received approval from the SBA to submit an application for a second SBIC license under Solutions Capital II, L.P. If approved, the total borrowing capacity under both SBICs would increase from $150.0 million to $225.0 million in the aggregate.
During the first quarter of 2011, MCG repaid in full the remaining $17.4 million of Series 2005-A unsecured notes. The notes carried an interest rate of 9.98% and had a maturity date of October 2011. The Series 2007-A unsecured notes due October 2012 remain outstanding with a balance of $8.7 million.
PORTFOLIO ACTIVITY
The fair value of MCG’s investment portfolio totaled $954.3 million as of March 31, 2011, as compared to $1,009.7 million as of December 31, 2010. During the first quarter of 2011, MCG made $95.1 million of originations and advances, including $54.0 million of originations to six new portfolio companies, $35.8 million of originations and advances to 13 existing portfolio companies under revolving and line of credit facilities, and $5.3 million of paid-in-kind, or PIK, advances. The $54.0 million of originations to new portfolio companies, included $25 million of senior debt investments and $29.0 million in subordinated debt investments. The $35.8 million of originations and advances to existing portfolio companies included $35.3 million of investments in senior debt securities and a total of $0.5 million of preferred and common equity in two portfolio companies. Gross payments, reductions and sales of securities during the first quarter of 2011 of $129.2 million were composed of $73.2 million of senior debt, $37.6 million of secured subordinated debt, $18.2 million of preferred equity and $0.2 million of common equity.
MCG Capital Corporation
May 9, 2011
Page 3
During the three months ended March 31, 2011, MCG reported net investment losses before income tax provision of $20.9 million, which are detailed below:
| Three months ended March 31, 2011 | ||||||||||||||||||||||||
| (in thousands)
Portfolio Company |
Industry | Type | Realized Gain/ (Loss) |
Unrealized (Depreciation)/ Appreciation |
Reversal of Unrealized Depreciation/ (Appreciation) |
Net (Loss)/ Gain |
||||||||||||||||||
| Broadview Networks Holdings, Inc. |
Communications | Control | $ | — | $ | (24,289 | ) | $ | — | $ | (24,289 | ) | ||||||||||||
| Premier Garage Holdings LLC. |
Home Furnishings | Control | — | (3,281 | ) | — | (3,281 | ) | ||||||||||||||||
| Superior Industries Investors, Inc. |
Sporting Goods | Control | 988 | — | (2,788 | ) | (1,800 | ) | ||||||||||||||||
| Provo Craft & Novelty Inc. |
Leisure Activities | Non-Affiliate | — | (1,160 | ) | — | (1,160 | ) | ||||||||||||||||
| Jenzabar, Inc. |
Technology | Non-Affiliate | — | (1,121 | ) | — | (1,121 | ) | ||||||||||||||||
| RadioPharmacy Investors, LLC |
Healthcare | Control | — | 4,852 | — | 4,852 | ||||||||||||||||||
| Cruz Bay Publishing, Inc. |
Publishing | Non-Affiliate | — | 1,524 | — | 1,524 | ||||||||||||||||||
| Restaurant Technologies, Inc. |
Food Services | Non-Affiliate | — | 1,429 | — | 1,429 | ||||||||||||||||||
| Active Brands International, Inc. |
Consumer Products | Non-Affiliate | (27,654 | ) | — | 27,776 | 122 | |||||||||||||||||
| Other (< $1 million net gain (loss)) |
(961 | ) | 2,947 | 794 | 2,780 | |||||||||||||||||||
| Total |
$ | (27,627 | ) | $ | (19,099 | ) | $ | 25,782 | $ | (20,944 | ) | |||||||||||||
The decrease in the fair value of Broadview is primarily attributable to a decrease in the multiples used to value that investment. During the quarter ended March 31, 2011, MCG received payments of $2.1 million on the sale of Active Brands International, Inc., or Active Brands, senior debt and wrote off the Company’s equity in that portfolio company. In conjunction with the Active Brands transaction, MCG reversed $27.8 million of previously unrealized depreciation and realized a $27.7 million loss.
| Conference Call (Live Call) |
Date and time | Monday, May 9, 2011 at 10:00 a.m. Eastern Time | ||
| Dial-in Number (No Conference ID required) |
(877) 878-2269 domestic (847) 829-0062 international | |||
| Webcast | http://investor.mcgcapital.com | |||
| Replay (Available through May 23, 2011) |
Call Replay (Conference ID for replay is #64774162)
Web Replay |
(800) 642-1687 domestic (706) 645-9291 international
http://investor.mcgcapital.com | ||
MCG Capital Corporation
May 9, 2011
Page 4
MCG Capital Corporation
Consolidated Balance Sheets
| (in thousands, except per share amounts) |
March 31, 2011 |
December 31, 2010 |
||||||
| (unaudited) | ||||||||
| Assets |
||||||||
| Cash and cash equivalents |
$ | 40,571 | $ | 44,970 | ||||
| Cash, securitization accounts |
70,562 | 42,245 | ||||||
| Cash, restricted |
21,941 | 29,383 | ||||||
| Investments at fair value |
||||||||
| Non-affiliate investments (cost of $647,348 and $684,785, respectively) |
640,512 | 646,116 | ||||||
| Affiliate investments (cost of $43,137 and $43,721, respectively) |
54,163 | 53,300 | ||||||
| Control investments (cost of $492,831 and $517,167, respectively) |
259,674 | 310,289 | ||||||
| Total investments (cost of $1,183,616 and $1,245,673, respectively) |
954,349 | 1,009,705 | ||||||
| Interest receivable |
3,492 | 5,453 | ||||||
| Other assets |
14,235 | 13,521 | ||||||
| Total assets |
$ | 1,105,150 | $ | 1,145,277 | ||||
| Liabilities |
||||||||
| Borrowings (maturing within one year of $0 and $18,858, respectively) |
$ | 527,343 | $ | 546,882 | ||||
| Interest payable |
1,593 | 2,291 | ||||||
| Dividends payable |
11,582 | 10,735 | ||||||
| Other liabilities |
7,539 | 7,353 | ||||||
| Total liabilities |
548,057 | 567,261 | ||||||
| Stockholders’ equity |
||||||||
| Preferred stock, par value $0.01, authorized 1 share, none issued and outstanding |
— | — | ||||||
| Common stock, par value $0.01, authorized 200,000 shares on March 31, 2011 and December 31, 2010, 77,065 issued and outstanding on March 31, 2011 and 76,662 issued and outstanding on December 31, 2010 |
771 | 767 | ||||||
| Paid-in capital |
1,008,293 | 1,008,823 | ||||||
| Distributions in excess of earnings |
||||||||
| Paid-in capital |
(166,029 | ) | (166,029 | ) | ||||
| Other |
(55,635 | ) | (28,555 | ) | ||||
| Net unrealized depreciation on investments |
(230,307 | ) | (236,990 | ) | ||||
| Total stockholders’ equity |
557,093 | 578,016 | ||||||
| Total liabilities and stockholders’ equity |
$ | 1,105,150 | $ | 1,145,277 | ||||
| Net asset value per common share at end of period |
$ | 7.23 | $ | 7.54 | ||||
MCG Capital Corporation
May 9, 2011
Page 5
MCG Capital Corporation
Consolidated Statements of Operations
| Three months ended March 31, | ||||||||
| (in thousands, except per share amounts) |
2011 | 2010 | ||||||
| Revenue |
||||||||
| Interest and dividend income |
||||||||
| Non-affiliate investments (less than 5% owned) |
$ | 17,558 | $ | 14,846 | ||||
| Affiliate investments (5% to 25% owned) |
1,143 | 982 | ||||||
| Control investments (more than 25% owned) |
4,735 | 5,783 | ||||||
| Total interest and dividend income |
23,436 | 21,611 | ||||||
| Advisory fees and other income |
||||||||
| Non-affiliate investments (less than 5% owned) |
507 | 22 | ||||||
| Control investments (more than 25% owned) |
360 | 113 | ||||||
| Total advisory fees and other income |
867 | 135 | ||||||
| Total revenue |
24,303 | 21,746 | ||||||
| Operating expenses |
||||||||
| Interest expense |
3,873 | 4,473 | ||||||
| Employee compensation |
||||||||
| Salaries and benefits |
3,976 | 4,796 | ||||||
| Amortization of employee restricted stock awards |
624 | 1,227 | ||||||
| Total employee compensation |
4,600 | 6,023 | ||||||
| General and administrative expense |
2,827 | 2,811 | ||||||
| Total operating expenses |
11,300 | 13,307 | ||||||
| Net operating income before net investment loss, loss on extinguishment of debt and income tax provision |
13,003 | 8,439 | ||||||
| Net realized gain (loss) on investments |
||||||||
| Non-affiliate investments (less than 5% owned) |
(27,917 | ) | (2,267 | ) | ||||
| Affiliate investments (5% to 25% owned) |
(917 | ) | — | |||||
| Control investments (more than 25% owned) |
1,207 | — | ||||||
| Total net realized gain (loss) gain on investments |
(27,627 | ) | (2,267 | ) | ||||
| Net unrealized (depreciation) appreciation on investments |
||||||||
| Non-affiliate investments (less than 5% owned) |
31,533 | 4,730 | ||||||
| Affiliate investments (5% to 25% owned) |
1,447 | 1,200 | ||||||
| Control investments (more than 25% owned) |
(26,279 | ) | (6,114 | ) | ||||
| Derivative and other fair value adjustments |
(18 | ) | 87 | |||||
| Total net unrealized (depreciation) appreciation on investments |
6,683 | (97 | ) | |||||
| Net investment loss before income tax provision |
(20,944 | ) | (2,364 | ) | ||||
| Loss on extinguishment of debt before income tax provision |
(863 | ) | (58 | ) | ||||
| Income tax provision |
11 | 62 | ||||||
| Net (loss) income |
$ | (8,815 | ) | $ | 5,955 | |||
| Earnings per basic and diluted common share |
$ | (0.12 | ) | $ | 0.08 | |||
| Cash distributions declared per common share |
$ | 0.15 | $ | — | ||||
| Weighted-average common shares outstanding—basic and diluted |
75,765 | 76,339 | ||||||
MCG Capital Corporation
May 9, 2011
Page 6
MCG Capital Corporation
Consolidated Statements of Cash Flows
| Three months ended March 31, |
||||||||
| (in thousands) |
2011 | 2010 | ||||||
| Cash flows from operating activities |
||||||||
| Net (loss) income |
$ | (8,815 | ) | $ | 5,955 | |||
| Adjustments to reconcile net (loss) income to net cash provided by operating activities |
||||||||
| Investments in portfolio companies |
(89,483 | ) | (35,408 | ) | ||||
| Principal collections related to investment repayments or sales |
119,260 | 33,044 | ||||||
| Decrease (increase) in interest receivable, accrued payment-in-kind interest and dividends |
6,503 | (6,385 | ) | |||||
| Amortization of restricted stock awards |
||||||||
| Employee |
624 | 1,227 | ||||||
| Non-employee director |
17 | 26 | ||||||
| Decrease (increase) in cash—securitization accounts from interest collections |
(7,891 | ) | 4,001 | |||||
| Increase in restricted cash—escrow accounts |
(1,224 | ) | — | |||||
| Depreciation and amortization |
902 | 1,101 | ||||||
| Decrease in other assets |
85 | 113 | ||||||
| Decrease in other liabilities |
(419 | ) | (3,935 | ) | ||||
| Realized loss on investments |
27,627 | 2,267 | ||||||
| Net change in unrealized (appreciation) depreciation on investments |
(6,683 | ) | 97 | |||||
| Loss on extinguishment of debt |
863 | 58 | ||||||
| Net cash provided by operating activities |
41,366 | 2,161 | ||||||
| Cash flows from financing activities |
||||||||
| Payments on borrowings |
(25,402 | ) | (23,014 | ) | ||||
| Proceeds from borrowings |
5,000 | — | ||||||
| Decrease (increase) in cash in restricted and securitization accounts |
||||||||
| Securitization accounts for repayment of principal on debt |
(20,426 | ) | 10,535 | |||||
| Restricted cash |
8,666 | 12,194 | ||||||
| Payment of financing costs |
(1,701 | ) | (1,500 | ) | ||||
| Distributions paid |
(10,735 | ) | — | |||||
| Common stock withheld to pay taxes applicable to the vesting of restricted stock |
(1,167 | ) | — | |||||
| Net cash used in financing activities |
(45,765 | ) | (1,785 | ) | ||||
| Net (decrease) increase in cash and cash equivalents |
(4,399 | ) | 376 | |||||
| Cash and cash equivalents |
||||||||
| Beginning balance |
44,970 | 54,187 | ||||||
| Ending balance |
$ | 40,571 | $ | 54,563 | ||||
| Supplemental disclosure of cash flow information |
||||||||
| Interest paid |
$ | 3,952 | $ | 3,049 | ||||
| Income taxes (refunded) paid |
(103 | ) | 188 | |||||
| Payment-in-kind interest collected |
5,780 | 405 | ||||||
| Dividend income collected |
4,183 | — | ||||||
MCG Capital Corporation
May 9, 2011
Page 7
SELECTED FINANCIAL DATA
QUARTERLY OPERATING INFORMATION
| (in thousands, except per share amounts) |
2010 Q1 |
2010 Q2 |
2010 Q3 |
2010 Q4 |
2011 Q1 |
|||||||||||||||
| Revenue |
||||||||||||||||||||
| Interest and dividend income |
||||||||||||||||||||
| Interest income |
$ | 19,558 | $ | 19,089 | $ | 19,519 | $ | 18,459 | $ | 20,158 | ||||||||||
| Dividend income |
1,329 | 1,494 | 1,561 | 2,984 | 2,497 | |||||||||||||||
| Loan fee income |
724 | 570 | 810 | 432 | 781 | |||||||||||||||
| Total interest and dividend income |
21,611 | 21,153 | 21,890 | 21,875 | 23,436 | |||||||||||||||
| Advisory fees and other income |
135 | 615 | 681 | 1,609 | 867 | |||||||||||||||
| Total revenue |
21,746 | 21,768 | 22,571 | 23,484 | 24,303 | |||||||||||||||
| Operating expense |
||||||||||||||||||||
| Interest expense |
4,473 | 4,383 | 4,326 | 3,709 | 3,873 | |||||||||||||||
| Salaries and benefits |
4,796 | 3,742 | 3,527 | 4,210 | 3,976 | |||||||||||||||
| Amortization of employee restricted stock awards |
1,227 | 1,123 | 1,013 | 979 | 624 | |||||||||||||||
| General and administrative |
2,811 | 3,670 | 2,305 | 2,710 | 2,827 | |||||||||||||||
| Total operating expense |
13,307 | 12,918 | 11,171 | 11,608 | 11,300 | |||||||||||||||
| Net operating income before net investment loss, gain (loss) on extinguishment of debt and income tax provision (benefit) |
8,439 | 8,850 | 11,400 | 11,876 | 13,003 | |||||||||||||||
| Net investment loss before income tax provision (benefit) |
(2,364 | ) | (12,966 | ) | (9,800 | ) | (29,689 | ) | (20,944 | ) | ||||||||||
| Gain (loss) on extinguishment of debt before income tax provision (benefit) |
(58 | ) | 3,490 | (449 | ) | — | (863 | ) | ||||||||||||
| Income tax provision (benefit) |
62 | 124 | 1,680 | (65 | ) | 11 | ||||||||||||||
| Net income (loss) |
$ | 5,955 | $ | (750 | ) | $ | (529 | ) | $ | (17,748 | ) | $ | (8,815 | ) | ||||||
| Reconciliation of DNOI to net operating income |
||||||||||||||||||||
| Net operating income before net investment loss, gain (loss) on extinguishment of debt and income tax provision (benefit) |
$ | 8,439 | $ | 8,850 | $ | 11,400 | $ | 11,876 | $ | 13,003 | ||||||||||
| Amortization of employee restricted stock awards |
1,227 | 1,123 | 1,013 | 979 | 624 | |||||||||||||||
|
DNOI(a) |
$ | 9,666 | $ | 9,973 | $ | 12,413 | $ | 12,855 | $ | 13,627 | ||||||||||
| DNOI per share-weighted average common shares—basic and diluted(a) |
$ | 0.13 | $ | 0.13 | $ | 0.16 | $ | 0.17 | $ | 0.18 | ||||||||||
| Per common share statistics |
||||||||||||||||||||
| Weighted-average common shares outstanding—basic and diluted |
76,339 | 75,392 | 75,486 | 75,648 | 75,765 | |||||||||||||||
| Net operating income before net investment loss, gain (loss) on extinguishment of debt and income tax provision (benefit) per common share—basic and diluted |
$ | 0.11 | $ | 0.12 | $ | 0.15 | $ | 0.16 | $ | 0.17 | ||||||||||
| Earnings (loss) per common share—basic and diluted |
$ | 0.08 | $ | (0.01 | ) | $ | (0.01 | ) | $ | (0.23 | ) | $ | (0.12 | ) | ||||||
| Net asset value per common share—period end |
$ | 8.16 | $ | 8.03 | $ | 7.92 | $ | 7.54 | $ | 7.23 | ||||||||||
| Dividends declared per common share(b) |
$ | — | $ | 0.11 | $ | 0.12 | $ | 0.14 | $ | 0.15 | ||||||||||
| (a) | 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. MCG views DNOI and the related per share measures as useful and appropriate supplements to net operating income, net income (loss), earnings (loss) 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, which represents an expense of the Company but does not require settlement in cash. DNOI does include 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 (loss), earnings (loss) 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 (loss), earnings (loss) per share and cash flows from operating activities in MCG’s consolidated financial statements, to help analyze how MCG’s business is performing. |
| (b) | On May 5, 2011, MCG’s board of directors declared a dividend of $0.17 per share payable on July 15, 2011 to shareholders of record as of June 15, 2011. |
MCG Capital Corporation
May 9, 2011
Page 8
SELECTED FINANCIAL DATA
KEY QUARTERLY STATISTICS
| (dollars in thousands) |
2010 Q1 |
2010 Q2 |
2010 Q3 |
2010 Q4 |
2011 Q1 |
|||||||||||||||
| Average quarterly loan portfolio at fair value |
$ | 684,370 | $ | 686,746 | $ | 670,726 | $ | 663,443 | $ | 756,842 | ||||||||||
| Average quarterly total investment portfolio - fair value |
986,022 | 989,782 | 954,231 | 948,504 | 1,003,581 | |||||||||||||||
| Average quarterly total assets |
1,171,779 | 1,162,988 | 1,153,995 | 1,111,728 | 1,131,291 | |||||||||||||||
| Average quarterly stockholders’ equity |
616,726 | 620,079 | 606,933 | 600,816 | 574,024 | |||||||||||||||
| 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) |
2.91 | % | 3.01 | % | 3.26 | % | 3.53 | % | 3.96 | % | ||||||||||
| Net income (loss) |
0.49 | % | 0.93 | % | 0.53 | % | (1.14 | )% | (2.44 | )% | ||||||||||
| 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) |
5.69 | % | 5.77 | % | 6.21 | % | 6.64 | % | 7.51 | % | ||||||||||
| Net income (loss) |
0.96 | % | 1.79 | % | 1.02 | % | (2.14 | )% | (4.64 | )% | ||||||||||
| Yield on average loan portfolio at fair value |
||||||||||||||||||||
| Average LIBOR (90-Day) |
0.26 | % | 0.43 | % | 0.39 | % | 0.29 | % | 0.31 | % | ||||||||||
| Spread to average LIBOR on average yielding loan portfolio at fair value(a) |
12.37 | % | 11.89 | % | 12.45 | % | 11.51 | % | 11.22 | % | ||||||||||
| 12.63 | % | 12.32 | % | 12.84 | % | 11.80 | % | 11.53 | % | |||||||||||
| Impact of fee accelerations of unearned fees on paid/restructured loans |
0.14 | % | 0.05 | % | 0.20 | % | 0.00 | % | 0.00 | % | ||||||||||
| Impact of non-accrual loans |
(0.75 | )% | (0.89 | )% | (1.02 | )% | (0.50 | )% | (0.31 | )% | ||||||||||
| Total yield on average loan portfolio at fair value |
12.02 | % | 11.48 | % | 12.02 | % | 11.30 | % | 11.22 | % | ||||||||||
| Cost of funds |
||||||||||||||||||||
| Average LIBOR |
0.26 | % | 0.43 | % | 0.39 | % | 0.29 | % | 0.31 | % | ||||||||||
| Spread to average LIBOR excluding amortization of deferred debt issuance costs(a) |
2.48 | % | 2.31 | % | 2.31 | % | 2.16 | % | 2.08 | % | ||||||||||
| Impact of amortization of deferred debt issuance costs |
0.55 | % | 0.57 | % | 0.50 | % | 0.46 | % | 0.45 | % | ||||||||||
| Total cost of funds |
3.29 | % | 3.31 | % | 3.20 | % | 2.91 | % | 2.84 | % | ||||||||||
| Net portfolio yield margin |
6.95 | % | 6.70 | % | 7.20 | % | 7.49 | % | 7.80 | % | ||||||||||
| Selected period-end balance sheet statistics |
||||||||||||||||||||
| Total investment portfolio at fair value |
$ | 991,032 | $ | 997,590 | $ | 924,253 | $ | 1,009,705 | $ | 954,349 | ||||||||||
| Total assets |
1,171,385 | 1,170,463 | 1,136,665 | 1,145,277 | 1,105,150 | |||||||||||||||
| Borrowings |
534,892 | 534,278 | 508,899 | 546,882 | 527,343 | |||||||||||||||
| Total equity |
622,897 | 614,855 | 606,078 | 578,016 | 557,093 | |||||||||||||||
| Cash, securitization and restricted accounts |
103,643 | 108,612 | 124,545 | 71,628 | 92,503 | |||||||||||||||
| Debt to equity |
85.87 | % | 86.89 | % | 83.97 | % | 94.61 | % | 94.66 | % | ||||||||||
| Debt, net of cash, securitization and restricted accounts to equity |
69.23 | % | 69.23 | % | 63.42 | % | 82.22 | % | 78.06 | % | ||||||||||
| Other statistics (at period end) |
||||||||||||||||||||
| BDC asset coverage ratio |
222 | % | 224 | % | 233 | % | 231 | % | 233 | % | ||||||||||
| Number of portfolio companies |
58 | 59 | 62 | 71 | 67 | |||||||||||||||
| Number of employees |
65 | 65 | 66 | 66 | 63 | |||||||||||||||
| Loans on non-accrual as a percentage of total debt investments |
||||||||||||||||||||
| Fair Value |
4.08 | % | 4.69 | % | 4.35 | % | 3.43 | % | 4.43 | % | ||||||||||
| Cost |
12.92 | % | 15.12 | % | 18.33 | % | 15.87 | % | 13.93 | % | ||||||||||
| (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 Q1 2010, Q2 2010, Q3 2010, Q4 2010 and Q1 2011 was approximately 0.78%, 0.73%, 1.25%, 1.34% and 1.34%, respectively. The impact to the cost of funds due to the timing of LIBOR resets for Q1 2010, Q2 2010, Q3 2010, Q4 2010 and Q1 2011 was approximately 0.01%, (0.01)%, 0.05%, 0.05% and (0.3)%, respectively. |
MCG Capital Corporation
May 9, 2011
Page 9
SELECTED FINANCIAL DATA
QUARTERLY INVESTMENT RISK AND CHANGES IN PORTFOLIO COMPOSITION
| (dollars in thousands) |
2010 Q1 |
2010 Q2 |
2010 Q3 |
2010 Q4 |
2011 Q1 |
|||||||||||||||
| Investment rating:(a) |
||||||||||||||||||||
| IR 1 total investments at fair value(b) |
$ | 568,918 | $ | 555,745 | $ | 451,743 | $ | 330,605 | $ | 319,588 | ||||||||||
| IR 2 total investments at fair value |
151,526 | 194,690 | 242,579 | 370,694 | 336,050 | |||||||||||||||
| IR 3 total investments at fair value |
256,380 | 204,892 | 195,342 | 173,447 | 187,610 | |||||||||||||||
| IR 4 total investments at fair value |
3,188 | 1,988 | 6,796 | 112,811 | 94,293 | |||||||||||||||
| IR 5 total investments at fair value |
11,020 | 40,275 | 27,793 | 22,148 | 16,808 | |||||||||||||||
| IR 1 percentage of total portfolio |
57.4 | % | 55.7 | % | 48.9 | % | 32.7 | % | 33.5 | % | ||||||||||
| IR 2 percentage of total portfolio |
15.3 | % | 19.5 | % | 26.3 | % | 36.7 | % | 35.2 | % | ||||||||||
| IR 3 percentage of total portfolio |
25.9 | % | 20.6 | % | 21.1 | % | 17.2 | % | 19.6 | % | ||||||||||
| IR 4 percentage of total portfolio |
0.3 | % | 0.2 | % | 0.7 | % | 11.2 | % | 9.9 | % | ||||||||||
| IR 5 percentage of total portfolio |
1.1 | % | 4.0 | % | 3.0 | % | 2.2 | % | 1.8 | % | ||||||||||
| Originations and advances, including PIK, by security type: |
||||||||||||||||||||
| Senior secured debt |
$ | 32,814 | $ | 34,596 | $ | 46,692 | $ | 145,440 | $ | 61,918 | ||||||||||
| Subordinated debt—Secured |
6,387 | 4,001 | 17,986 | 9,116 | 30,143 | |||||||||||||||
| Subordinated debt—Unsecured |
132 | 10,178 | 2,855 | 75 | 57 | |||||||||||||||
| Preferred equity |
1,330 | 1,636 | 1,561 | 4,751 | 2,801 | |||||||||||||||
| Common/common equivalents equity |
— | 1 | — | 716 | 184 | |||||||||||||||
| Total |
$ | 40,663 | $ | 50,412 | $ | 69,094 | $ | 160,098 | $ | 95,103 | ||||||||||
| Exits and repayments by security type: |
||||||||||||||||||||
| Senior secured debt |
$ | 32,649 | $ | 9,517 | $ | 21,315 | $ | 24,770 | $ | 73,186 | ||||||||||
| Subordinated debt—Secured |
667 | 11,880 | 51,177 | 2,749 | 37,568 | |||||||||||||||
| Subordinated debt—Unsecured |
— | — | 31,618 | — | — | |||||||||||||||
| Preferred equity |
— | 8,844 | 16,579 | 2,410 | 18,224 | |||||||||||||||
| Common/common equivalents equity |
133 | 55 | 12,531 | 12,774 | 245 | |||||||||||||||
| Total |
$ | 33,449 | $ | 30,296 | $ | 133,220 | $ | 42,703 | $ | 129,223 | ||||||||||
| Exits and repayments by transaction type: |
||||||||||||||||||||
| Scheduled principal amortization |
$ | 7,092 | $ | 16,933 | $ | 6,277 | $ | 12,186 | $ | 4,907 | ||||||||||
| Principal prepayments and loan sales |
25,819 | 50 | 85,129 | 14,037 | 100,068 | |||||||||||||||
| Payment of payment-in-kind interest and dividends |
405 | 5,369 | 13,851 | 3,164 | 9,963 | |||||||||||||||
| Sale of equity investments |
133 | 7,944 | 27,963 | 13,316 | 14,285 | |||||||||||||||
| Total |
$ | 33,449 | $ | 30,296 | $ | 133,220 | $ | 42,703 | $ | 129,223 | ||||||||||
| (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 |
||
| 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) | As of March 31, 2010, June 30, 2010, September 30, 2010, December 31, 2010 and March 31, 2011, approximately, $207 million, $205 million, $117 million, $112 million and $119 million, respectively, of MCG’s investments with an investment rating of “1” represented loans to companies in which MCG also held equity. |
MCG Capital Corporation
May 9, 2011
Page 10
SELECTED FINANCIAL DATA
PORTFOLIO COMPOSITION BY TYPE
| (dollars in thousands) |
2010 Q1 |
2010 Q2 |
2010 Q3 |
2010 Q4 |
2011 Q1 |
|||||||||||||||
| Composition of investments at period end, fair value |
||||||||||||||||||||
| Senior secured debt |
$ | 379,600 | $ | 419,398 | $ | 437,709 | $ | 555,667 | $ | 547,280 | ||||||||||
| Subordinated debt |
||||||||||||||||||||
| Secured |
272,713 | 237,226 | 187,918 | 190,309 | 177,628 | |||||||||||||||
| Unsecured |
30,760 | 40,848 | 12,241 | 12,321 | 12,588 | |||||||||||||||
| Total debt investments |
683,073 | 697,472 | 637,868 | 758,297 | 737,496 | |||||||||||||||
| Preferred equity |
261,931 | 248,983 | 244,864 | 218,690 | 183,735 | |||||||||||||||
| Common/common equivalents equity |
46,028 | 51,135 | 41,521 | 32,718 | 33,118 | |||||||||||||||
| Total equity investments |
307,959 | 300,118 | 286,385 | 251,408 | 216,853 | |||||||||||||||
| Total investments |
$ | 991,032 | $ | 997,590 | $ | 924,253 | $ | 1,009,705 | $ | 954,349 | ||||||||||
| Percentage of investments at period end, fair value |
||||||||||||||||||||
| Senior secured debt |
38.3 | % | 42.0 | % | 47.4 | % | 55.0 | % | 57.4 | % | ||||||||||
| Subordinated debt |
||||||||||||||||||||
| Secured |
27.5 | % | 23.8 | % | 20.3 | % | 18.9 | % | 18.6 | % | ||||||||||
| Unsecured |
3.1 | % | 4.1 | % | 1.3 | % | 1.2 | % | 1.3 | % | ||||||||||
| Total debt investments |
68.9 | % | 69.9 | % | 69.0 | % | 75.1 | % | 77.3 | % | ||||||||||
| Preferred equity |
26.4 | % | 25.0 | % | 26.5 | % | 21.7 | % | 19.2 | % | ||||||||||
| Common/common equivalents equity |
4.7 | % | 5.1 | % | 4.5 | % | 3.2 | % | 3.5 | % | ||||||||||
| Total equity investments |
31.1 | % | 30.1 | % | 31.0 | % | 24.9 | % | 22.7 | % | ||||||||||
| Total investments |
100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||||
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, gain (loss) on extinguishment of debt and income tax provision (benefit), as determined in accordance with GAAP adjusted for amortization of employee restricted stock awards.
The Company’s management uses DNOI and the related per share measures as useful and appropriate supplements to net operating income, net income (loss), earnings (loss) 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, which represents an expense of the Company but does not require settlement in cash. DNOI does include 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 (loss) income, earnings (loss) 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 (loss) income, earnings (loss) 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
May 9, 2011
Page 11
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 performance of current or former MCG portfolio companies; the cause of net investment losses; management’s belief that, as the Company deploys debt and equity proceeds from monetization activities, it can continue to increase operating income and support the future growth of distributions to MCG stockholders; 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 Annual Report on Form 10-K for the year ended December 31, 2010 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.