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EX-15.1 - LETTER REGARDING UNAUDITED INTERIM FINANCIAL INFORMATION FROM ERNST & YOUNG - MCG CAPITAL CORPex-15193012.htm
EX-31.1 - SECTION 302 CERTIFICATION OF CHIEF EXECUTIVE OFFICER - MCG CAPITAL CORPex-31193012.htm
EX-31.2 - SECTION 302 CERTIFICATION OF CHIEF FINANCIAL OFFICER - MCG CAPITAL CORPex-31293012.htm
EX-32.2 - SECTION 906 CERTIFICATION OF CHIEF FINANCIAL OFFICER - MCG CAPITAL CORPex-32293012.htm
EX-32.1 - SECTION 906 CERTIFICATION OF CHIEF EXECUTIVE OFFICER - MCG CAPITAL CORPex-32193012.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2012
OR
o    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
___________________
Commission file number 0-33377
MCG CAPITAL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
54-1889518
(State or other jurisdiction
of incorporation or organization)
(I.R.S. Employer
Identification No.)
1100 Wilson Boulevard, Suite 3000
Arlington, VA
(Address of principal executive offices)
22209
(Zip Code)

(703) 247-7500
(Registrant's telephone number, including area code)

None
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer    o
Accelerated filer    x
Non-accelerated filer    o
Smaller reporting company    o
(Do not check if a smaller reporting company)
 
Indicate by check mark whether the registrant is a shell company (as defined in rule 12b-2 of the Exchange Act).    Yes o No x
As of October 26, 2012, there were 72,788,426 shares of the registrant’s $0.01 par value Common Stock outstanding.




MCG CAPITAL CORPORATION
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2012
TABLE OF CONTENTS


 
 
PART I. FINANCIAL INFORMATION
 
 
ITEM 1. FINANCIAL STATEMENTS
 
 
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED STATEMENTS OF OPERATIONS
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
CONSOLIDATED STATEMENTS OF CASH FLOWS
CONSOLIDATED SCHEDULE OF INVESTMENTS
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
 
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
 
ITEM 4. CONTROLS AND PROCEDURES
 
 
PART II. OTHER INFORMATION
 
 
ITEM 1. LEGAL PROCEEDINGS
 
 
ITEM 1A. RISK FACTORS
 
 
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 
 
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
 
 
ITEM 4. MINE SAFETY DISCLOSURES
 
 
ITEM 5. OTHER INFORMATION
 
 
ITEM 6. EXHIBITS
 
 
SIGNATURES




PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MCG Capital Corporation
Consolidated Balance Sheets
(in thousands, except per share amounts)
September 30,
2012
December 31, 2011
 
(unaudited)
 
Assets
 
 
Cash and cash equivalents
$
65,898

$
58,563

Cash, securitization accounts
3,675

40,306

Cash, restricted
114,543

34,964

Investments at fair value
 
 
Non-affiliate investments (cost of $334,410 and $552,642, respectively)
320,177

552,301

Affiliate investments (cost of $69,796 and $58,425, respectively)
61,566

69,602

Control investments (cost of $257,829 and $406,151, respectively)
63,050

119,263

Total investments (cost of $662,035 and $1,017,218, respectively)
444,793

741,166

Interest receivable
4,158

4,049

Other assets
5,360

11,490

Total assets
$
638,427

$
890,538

Liabilities
 
 
Borrowings (maturing within one year of $1,000 and $32,983, respectively)
$
249,053

$
430,219

Interest payable
871

2,710

Dividends payable

13,092

Other liabilities
9,763

9,565

Total liabilities
259,687

455,586

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 September 30, 2012 and December 31, 2011, 72,788 issued and outstanding on September 30, 2012 and 76,997 issued and outstanding on December 31, 2011
728

770

Paid-in capital
988,785

1,009,748

Distributions in excess of earnings
 
 
Paid-in capital
(195,310
)
(195,310
)
Other
(197,883
)
(103,912
)
Net unrealized depreciation on investments
(217,580
)
(276,344
)
Total stockholders’ equity
378,740

434,952

Total liabilities and stockholders’ equity
$
638,427

$
890,538

Net asset value per common share at end of period
$
5.20

$
5.65



The accompanying notes are an integral part of these Condensed Consolidated Financial Statements
1


MCG Capital Corporation
Consolidated Statements of Operations
(unaudited)
 
Three months ended
Nine months ended
 
September 30
September 30
(in thousands, except per share amounts)
2012
2011
2012
2011
Revenue
 
 
 
 
Interest and dividend income
 
 
 
 
Non-affiliate investments (less than 5% owned)
$
9,174

$
15,954

$
35,401

$
49,168

Affiliate investments (5% to 25% owned)
1,418

1,801

4,856

5,284

Control investments (more than 25% owned)
1,243

2,025

4,696

8,952

Total interest and dividend income
11,835

19,780

44,953

63,404

Advisory fees and other income
 
 




Non-affiliate investments (less than 5% owned)
210

885

1,357

1,812

Control investments (more than 25% owned)
24

45

1,262

1,005

Total advisory fees and other income
234

930

2,619

2,817

Total revenue
12,069

20,710

47,572

66,221

Operating expense
 
 




Interest expense
2,974

3,960

12,728

11,778

Employee compensation








Salaries and benefits
2,018

2,683

8,684

9,567

Amortization of employee restricted stock awards
505

348

1,694

1,378

Total employee compensation
2,523

3,031

10,378

10,945

General and administrative expense
2,504

3,657

10,714

9,130

Restructuring expense
12

4,109

59

4,174

Total operating expense
8,013

14,757

33,879

36,027

Net operating income before net investment gain (loss), loss on extinguishment of debt and income tax provision
4,056

5,953

13,693

30,194

Net realized (loss) gain on investments
 
 




Non-affiliate investments (less than 5% owned)

281

12,550

(47,288
)
Affiliate investments (5% to 25% owned)

(1
)
16,370

(917
)
Control investments (more than 25% owned)
(5,394
)
(38,107
)
(102,288
)
(25,755
)
Total net realized loss on investments
(5,394
)
(37,827
)
(73,368
)
(73,960
)
Net unrealized appreciation (depreciation) on investments
 
 




Non-affiliate investments (less than 5% owned)
2,463

(2,305
)
(13,892
)
51,975

Affiliate investments (5% to 25% owned)
(3,662
)
1,613

(19,407
)
3,150

Control investments (more than 25% owned)
6,838

7,613

92,109

(55,227
)
Derivative and other fair value adjustments
(17
)
(146
)
(46
)
618

Total net unrealized appreciation on investments
5,622

6,775

58,764

516

Net investment gain (loss) before income tax provision
228

(31,052
)
(14,604
)
(73,444
)
Loss on extinguishment of debt before income tax provision


(174
)
(863
)
Income tax provision
18

10

329

29

Net income (loss)
$
4,266

$
(25,109
)
$
(1,414
)
$
(44,142
)
Income (loss) per basic and diluted common share
$
0.06

$
(0.33
)
$
(0.02
)
$
(0.58
)
Cash distributions declared per common share
$
0.14

$
0.17

$
0.45

$
0.49

Weighted-average common shares outstanding—basic and diluted
73,431

76,404

74,588

76,173


The accompanying notes are an integral part of these Condensed Consolidated Financial Statements
2



MCG Capital Corporation
Consolidated Statements of Changes in Net Assets
(unaudited)
 
Nine months ended
 
September 30
(in thousands, except per share amounts)
2012
2011
Decrease in net assets from operations
 
 
Net operating income before net investment gain (loss), loss on extinguishment of debt and income tax provision
$
13,693

$
30,194

Net realized (loss) gain on investments
(73,368
)
(73,960
)
Net unrealized appreciation (depreciation) on investments
58,764

516

Loss on extinguishment of debt before income tax provision
(174
)
(863
)
Income tax provision
(329
)
(29
)
Net income (loss)
(1,414
)
(44,142
)
Distributions to stockholders
 
 
Distributions declared
(33,793
)
(37,784
)
Net decrease in net assets resulting from stockholder distributions
(33,793
)
(37,784
)
Capital share transactions
 
 
Repurchase of common stock
(22,416
)

Amortization of restricted stock awards
 
 
Employee awards accounted for as employee compensation
1,694

1,378

Employee awards accounted for as restructuring expense

431

Non-employee director awards accounted for as general and administrative expense
53

46

Common stock withheld to pay taxes applicable to the vesting of restricted stock
(336
)
(1,453
)
Net forfeitures of restricted common stock

(11
)
Net decrease in net assets resulting from capital share transactions
(21,005
)
391

Total decrease in net assets
(56,212
)
(81,535
)
Net assets
 
 
Beginning of period
434,952

578,016

End of period
$
378,740

$
496,481

Net asset value per common share at end of period
$
5.20

$
6.44

Common shares outstanding at end of period
72,788

77,035



The accompanying notes are an integral part of these Condensed Consolidated Financial Statements
3


MCG Capital Corporation
Consolidated Statements of Cash Flows
(unaudited)
 
Nine months ended
 
September 30
(in thousands)
2012
2011
Cash flows from operating activities
 
 
Net income (loss)
$
(1,414
)
$
(44,142
)
Adjustments to reconcile net loss to net cash provided by
operating activities
 
 
Investments in portfolio companies
(42,619
)
(243,966
)
Principal collections related to investment repayments or sales
314,598

336,172

Decrease in interest receivable, accrued payment-in-kind interest and dividends
9,717

21,453

Amortization of restricted stock awards
 
 
Employee
1,694

1,809

Non-employee director
53

46

Decrease in cash—securitization accounts from interest collections
5,475

1,515

Decrease (increase) in restricted cash—escrow accounts
327

(3,648
)
Depreciation and amortization
6,120

2,936

Decrease in other assets
1,039

1,021

Increase (decrease) in other liabilities
(1,676
)
428

Realized loss on investments
73,368

73,960

Net change in unrealized appreciation on investments
(58,764
)
(516
)
Loss on extinguishment of debt
174

863

Net cash provided by operating activities
308,092

147,931

Cash flows from financing activities
 
 
Repurchase of common stock
(22,416
)

Payments on borrowings
(202,740
)
(62,726
)
Proceeds from borrowings
21,400

5,000

Decrease (increase) in cash in restricted and securitization accounts
 


Securitization accounts for repayment of principal on debt
31,156

(58,686
)
Restricted cash
(79,906
)
16,049

Payment of financing costs
(1,030
)
(1,700
)
Distributions paid
(46,885
)
(35,418
)
Common stock withheld to pay taxes applicable to the vesting of restricted stock
(336
)
(1,453
)
Net forfeitures of restricted common stock

(11
)
Net cash used in financing activities
(300,757
)
(138,945
)
Net increase in cash and cash equivalents
7,335

8,986

Cash and cash equivalents
 
 
Beginning balance
58,563

44,970

Ending balance
$
65,898

$
53,956

Supplemental disclosure of cash flow information
 
 
Interest paid
$
9,261

$
10,397

Income taxes (refunded) paid
61

297

Paid-in-kind interest collected
8,510

20,410

Dividend income collected
8,149

12,355


The accompanying notes are an integral part of these Condensed Consolidated Financial Statements
4



MCG Capital Corporation
Consolidated Schedule of Investments
September 30, 2012 (unaudited)
(dollars in thousands)
 
 
 
Interest Rate(9)
 
 
Fair
Value
Portfolio Company
Industry
Investment
Current
PIK
Total
Principal
Cost
Control Investments(4):
 
 
 
 
 
 
 
Broadview Networks Holdings, Inc.
Communications
Series A Preferred Stock (12.0%, 87,254 shares)(6)
 
 
 
 
$
81,984

$
552

 
Series A-1 Preferred Stock (12.0%,
100,702 shares)(6)
 
 
 
 
77,496

637

 
Series B Preferred Stock (12.0%, 1,282 shares)(6)
 
 
 
 
100

8

 
 
Class A Common Stock (4,731,031 shares)(6)
 
 
 
 


GMC Television Broadcasting, LLC(2)
Broadcasting
Senior Debt (Due 12/16)(1)
4.4
%

4.4
%
$
17,574

15,146

15,729

 
Subordinated Debt (Due 12/16)(7)
2.5
%

2.5
%
11,231

6,976


 
 
Class B Voting Units (8.0%, 86,700 units)(6)
 
 
 
 
9,071


Intran Media, LLC
Other Media
Series A Preferred Units (10.0%, 36,300 units)(6)
 
 
 
 
9,095

400

Jet Plastica
Investors, LLC
(2)(11)
Plastic Products
Senior Debt A (Due 3/15)(1)(7)
2.4
%
7.0
%
9.4
%
4,876

3,897


NPS Holding Group, LLC(2)(5)
Business
Services
Senior Debt Revolver (Due 6/13)(7)
6.3
%
2.5
%
8.7
%
4,011

2,360

4,367

Senior Debt A1 (Due 6/13)(7)
6.3
%

6.3
%
9,157

3,470

7,689

 
 
Senior Debt A2 (Due 6/13)(7)
6.3
%

6.3
%
2,069

1,905

32

 
 
Senior Debt A3 (Due 6/13)(7)
6.3
%

6.3
%
15,324

6,228

229

 
 
Series A Preferred Units (504 units)(6)
 
 
 
 
50


 
 
Series B Preferred Units (5.0%, 10,731 units)(6)
 
 
 
 
10,731


 
 
Common Units (36,500 units)(6)
 
 
 
 


RadioPharmacy
Investors, LLC
(2)
Healthcare
Senior Debt (Due 12/16)(1)
7.5
%

7.5
%
7,640

7,640

7,640

 
Subordinated Debt (Due 12/16)(1)
12.0
%
4.0
%
16.0
%
10,521

10,517

10,517

 
 
Preferred LLC Interest (19.7%, 70,000 units)
 
 
 
 
11,163

15,250

Total Control investments (represents 14.2% of total investments at fair value)
257,829

63,050

Affiliate Investments(3):
 
 
 
 
 
 
 
Advanced Sleep  
Concepts, Inc.(2)
Home Furnishings
Senior Debt (Due 1/14)(1)
12.9
%

12.9
%
$
7,559

$
7,533

$
7,533

Subordinated Debt (Due 1/14)(1)(7)
12.0
%
4.0
%
16.0
%
5,813

5,385

3,112

 
 
Series A Preferred Stock (20.0%, 49 shares)(6)
 
 
 
 
344


 
 
Series B Preferred Stock (1,000 shares)(6)
 
 
 
 


 
 
Common Stock (423 shares)(6)
 
 
 
 
524


 
 
Warrants to purchase Common Stock
(expire 10/16)(6)
 
 
 
 
348


C7 Data Centers, Inc.
Business Services
Senior Debt (Due 9/17)(1)
9.5
%

9.5
%
10,000

9,641

9,641

Series B Preferred Units (10.0%, 7,142,857 units)(6)
 
 
 
 
2,000

2,000

Contract Datascan Holdings, Inc.
Business Services

Subordinated Debt (Due 3/16)(1)
12.0
%
2.0
%
14.0
%
8,531

7,985

7,782

Series A Preferred Stock (10.0%, 2,313 shares)(1)(6)
 
 
 
 
2,387

2,173

Series B Preferred Stock (10.0%, 358 shares)(1)(6)
 
 
 
 
307

279

 
 
Common Stock (8,519 shares)(1)(6)
 
 
 
 
538


IDOC, LLC
Healthcare
Senior Debt (Due 8/17)(1)
9.8
%

9.8
%
15,000

14,691

14,691

 
 
Limited Partner Interests (8.0%)(1)(2)(6)
 
 
 
 
1,012

1,012

Miles Media Group, LLC(2)
Business Services
Senior Debt (Due 6/16)(1)
12.5
%

12.5
%
17,238

16,978

13,343

Warrants to purchase Class A Units (expire 3/21) (1)
 
 
 
 
123


Total Affiliate investments (represents 13.8% of total investments at fair value)
 
 
 
 
69,796

61,566


The accompanying notes are an integral part of these Condensed Consolidated Financial Statements
5


MCG Capital Corporation
Consolidated Schedule of Investments
September 30, 2012 (unaudited)
(dollars in thousands)
 
 
 
Interest Rate(9)
 
 
Fair
Value
Portfolio Company
Industry
Investment
Current
PIK
Total
Principal
Cost
Non-Affiliate Investments (less than 5% owned):
 
 
 
 
 
 
BarBri, Inc.
Publishing
Senior Debt (Due 6/17)(1)
6.0
%

6.0
%
$
6,099

$
6,043

$
6,113

Capstone Logistics, LLC(12)
Logistics
Senior Debt (Due 9/16)(1)
10.5
%

10.5
%
29,854

29,736

29,736

Chase Doors Holdings, Inc.
Manufacturing
Senior Debt (Due 12/15)(1)
9.5
%

9.5
%
22,037

21,857

21,913

Construction Trailer Specialists, Inc.(2)
Auto Parts
Senior Debt (Due 6/13)(1)
8.6
%
6.3
%
14.9
%
7,639

7,508

7,626

Cruz Bay Publishing, Inc.
Publishing
Subordinated Debt (Due 12/13)(1)(8)
6.7
%
6.5
%
13.2
%
28,094

22,930

18,107

CWP/RMK Acquisition Corp.(2)(6)
Home Furnishings
Senior Debt (Due 12/16)(7)
7.0
%

7.0
%
600

541

597

Education Management, Inc.
Education
Senior Debt (Due 6/15)(1)
4.0
%
5.3
%
9.3
%
26,305

26,102

25,487

Gans Communications,
L.P.(2)
Cable
Senior Debt (Due 10/17)(1)
6.3
%

6.3
%
5,015

4,995

5,024

G&L Investment Holdings, LLC(2)
Insurance
Subordinated Debt (Due 5/14)(1)
10.7
%
4.3
%
15.0
%
18,466

18,232

18,232

 
Series A Preferred Shares (14.0%,
5,000,000 shares)(6)
 
 
 


8,191

7,965

 
 
Class C Shares (621,907 shares)(6)
 
 
 


529


Golden Knight II CLO, Ltd.
Diversified Financial Services
Income Notes (Due 4/19)
8.0
%

8.0
%
 
3,071

2,717

Goodman Global, Inc.
Manufacturing
Senior Debt (Due 10/16)(1)
5.8
%

5.8
%
5,599

5,625

5,621

Industrial Safety Technologies, LLC(12)
Manufacturing
Senior Debt (Due 9/16)(1)
9.5
%

9.5
%
22,000

21,808

22,138

Jenzabar, Inc.(10)
Technology
Subordinated Preferred Stock (109,800 shares)
 
 
 
 
1,098

988

Legacy Cabinets Holdings II, Inc.
Home Furnishings
Class B-1 Common Stock (2,000 shares)(6)
 
 
 
 
2,185


Mailsouth, Inc.
Publishing
Senior Debt (Due 12/16)(1)
6.8
%

6.8
%
4,652

4,599

4,582

Maverick Healthcare
Equity, LLC
Healthcare
Preferred Units (10.0%, 1,250,000 units)
 
 
 
 
1,877

2,028

 
Class A Common Units (1,250,000 units)(6)
 
 
 
 

452

NDSSI Holdings,
LLC(2)
Electronics
Senior Debt (Due 12/12)(1)
12.8
%
1.0
%
13.8
%
30,096

30,035

30,035

 
Series D Preferred Units (30.0%, 2,000,000 units)(6)
 
 
 


2,000

3,000

 
 
Series A Preferred Units (516,691 units)(6)
 
 
 


718


 
 
Series B Convertible Preferred Units
(165,003 units)(6)
 
 
 


142

273

 
 
Class A Common Units (1,000,000 units)(6)
 
 
 


333



The accompanying notes are an integral part of these Condensed Consolidated Financial Statements
6


MCG Capital Corporation
Consolidated Schedule of Investments
September 30, 2012 (unaudited)
(dollars in thousands)
 
 
 
Interest Rate(9)
Principal
Cost
Fair
Value
Portfolio Company
Industry
Investment
Current
PIK
Total
Orbitz Worldwide, Inc.
Personal Transportation
Senior Debt (Due 7/14)(1)
3.2
%

3.2
%
$
2,808

$
2,715

$
2,746

Rita’s Water Ice Franchise Company, LLC
Restaurants
Senior Debt (Due 11/16)(1)
14.0
%

14.0
%
9,375

9,295

9,295

Sagamore Hill Broadcasting, LLC(2)
Broadcasting
Senior Debt (Due 8/14)(1)
12.0
%

12.0
%
9,800

9,727

9,727

SC Academy Holdings, Inc.
Education
Subordinated Debt (Due 7/16)(1)
12.0
%

12.0
%
13,500

13,412

13,412

Scotsman Industries, Inc.
Manufacturing
Senior Debt (Due 4/16)(1)
5.8
%

5.8
%
4,819

4,818

4,842

ShowPlex Cinemas, Inc.
Entertainment
Senior Debt (Due 5/15)(1)
9.5
%

9.5
%
7,427

7,312

7,312

Softlayer Technologies, Inc.
Business Services
Senior Debt (Due 11/16)(1)
7.3
%

7.3
%
13,755

13,634

13,846

South Bay Mental Health Center, Inc
Healthcare
Subordinated Debt (Due 10/17)(1)
12.0
%
2.5
%
14.5
%
8,176

8,029

8,029

Summit Business Media Parent Holding Company LLC
Information Services
Class E Series I Units (636 units)(1)(6)
 
 
 
 
4,120

352

Class E Series II Units (276 units)(1)(6)
 
 
 
 
1,788


Sunshine Media
Group, Inc.
(2)
Publishing
Warrants to purchase Common Stock
(expire 1/21)(6)
 
 
 
 


The e-Media Club I, LLC
Investment Fund
LLC Interest (74 units)(6)
 
 
 
 
88

11

The Gavilon Group, LLC
Agriculture
Senior Debt (Due 12/16)(1)
6.0
%

6.0
%
8,750

8,653

8,734

Virtual Radiologic Corporation
Healthcare
Senior Debt (Due 12/16)(1)
7.8
%

7.8
%
13,810

13,652

12,268

Visant Corporation
Consumer Products
Senior Debt (Due 12/16)(1)
5.3
%

5.3
%
4,851

4,864

4,684

VS&A-PBI Holding LLC
Publishing
LLC Interest(6)
 
 
 
 
500


West World Media, LLC
Information Services
Senior Debt (Due 9/15)(1)
11.0
%
3.0
%
14.0
%
11,423

10,823

11,008

Class A Membership Units (25,000 units) (1)
 
 
 


1

316

 
 
Warrant to purchase Class A Membership Units
(expire 9/15)
(1)(6)
 
 
 


324

719

Xpressdocs Holdings, Inc.
Business Services
Series A Preferred Stock (161,870 shares)(6)
 
 
 


500

242

Total Non-Affiliate investments (represents 72.0% of total investments at fair value)
 
 
 
 
334,410

320,177

Total Investments
 
 
 
 
 
 
$
662,035

$
444,793


The accompanying notes are an integral part of these Condensed Consolidated Financial Statements
7


MCG Capital Corporation
Consolidated Schedule of Investments
December 31, 2011
(dollars in thousands)
 
 
 
Interest Rate(9)
 
 
Fair
Value
Portfolio Company
Industry
Investment
Current
PIK
Total
Principal
Cost
Control Investments(4):
 
 
 
 
 
 
 
Broadview Networks Holdings, Inc.
Communications
Series A Preferred Stock (12.0%, 87,254 shares)(6)
 
 
 
 
$
81,984

$
5,015

 
Series A-1 Preferred Stock (12.0%, 100,702 shares)(6)
 
 
 
 
77,496

5,788

 
 
Series B Preferred Stock (12.0%, 1,282 shares)(6)
 
 
 
 
100

74

 
 
Class A Common Stock (4,731,031 shares)(6)
 
 
 
 


GMC Television Broadcasting, LLC(2)
Broadcasting
Senior Debt (Due 12/16)(1)
4.6
%

4.6
%
$
19,103

16,651

17,167

 
Subordinated Debt (Due 12/16)(1)(7)
2.5
%

2.5
%
10,950

6,976


 
 
Class B Voting Units (8.0%, 86,700 units)(6)
 
 
 
 
9,071


Intran Media, LLC
Other Media
Series A Preferred Units (10.0%, 36,300 units)(6)
 
 
 
 
9,095

400

 
 
Series B Preferred Units (10.0%, 12,700 units)(6)
 
 
 
 
3,000


 
 
Series C Preferred Units (10.0%,15,000 units)(6)
 
 
 
 
1,250


Jet Plastica
Investors, LLC
(2)
Plastic Products
Senior Debt A (Due 3/15)(1)(7)
2.6
%
7.0
%
9.6
%
15,288

14,914

9,145

Senior Debt B (Due 6/15)(1)(7)
2.6
%
5.0
%
7.6
%
23,836

18,977


 
 
Senior Debt C (Due 6/16)(7)

2.5
%
2.5
%
6,299

6,250


 
 
Senior Debt D (Due 3/13-9/16)(7)

2.5
%
2.5
%
29,018

21,560


 
 
Series B Preferred Stock (8.0%, 10,000 shares)(6)
 
 
 
 
10,000


 
 
Preferred LLC Interest (8.0%, 301,595 units)(6)
 
 
 
 
34,014


NPS Holding Group, LLC(2)(5)
Business
Services
Senior Debt Revolver (Due 6/13)(1)(7)
6.3
%
2.5
%
8.7
%
3,909

2,360

4,116

Senior Debt A1 (Due 6/13)(1)(7)
6.3
%

6.3
%
9,157

3,470

5,237

 
 
Senior Debt A2 (Due 6/13)(1)(7)
6.3
%

6.3
%
2,069

1,905

32

 
 
Senior Debt A3 (Due 6/13)(1)(7)
6.3
%

6.3
%
15,324

6,228

230

 
 
Series A Preferred Units (504 units)(6)
 
 
 
 
50


 
 
Series B Preferred Units (5.0%, 10,731 units)(6)
 
 
 
 
10,731


 
 
Common Units (36,500 units)(6)
 
 
 
 


Orbitel Holdings, LLC(2)
Cable
Senior Debt (Due 2/13)(1)
10.0
%

10.0
%
18,580

18,512

18,512

 
Preferred LLC Interest (10.0%, 150,000 units)(1)
 
 
 
 
17,929

19,090

PremierGarage
Holdings, LLC
(2)
Home Furnishings
Preferred LLC Units (400 units)(6)
 
 
 
 
400


Common LLC Units (79,935 units)(6)
 
 
 
 
4,971


RadioPharmacy
Investors, LLC
(2)
Healthcare
Senior Debt (Due 12/16)(1)
7.5
%

7.5
%
8,176

8,176

8,176

 
Subordinated Debt (Due 12/16)(1)
12.0
%
3.0
%
15.0
%
10,362

10,355

10,355

 
 
Preferred LLC Interest (19.7%, 70,000 units)
 
 
 
 
9,726

15,926

Total Control Investments (represents 16.1% of total investments at fair value)
 
 
 
 
406,151

119,263


The accompanying notes are an integral part of these Condensed Consolidated Financial Statements
8


MCG Capital Corporation
Consolidated Schedule of Investments
December 31, 2011
(dollars in thousands)
 
 
 
Interest Rate(9)
 
 
Fair
Value
Portfolio Company
Industry
Investment
Current
PIK
Total
Principal
Cost
Affiliate Investments(3):
 
 
 
 
 
 
 
Advanced Sleep  
Concepts, Inc.(2)
Home Furnishings
Senior Debt (Due 1/14)(1)
13.4
%

13.4
%
$
5,859

$
5,851

$
5,851

Subordinated Debt (Due 1/14)(1)
12.0
%
4.0
%
16.0
%
5,640

5,614

5,614

 
 
Series A Preferred Stock (20.0%, 49 shares)
 
 
 
 
344

61

 
 
Series B Preferred Stock (1,000 shares)(6)
 
 
 
 

270

 
 
Common Stock (423 shares)(6)
 
 
 
 
524


 
 
Warrants to purchase Common Stock
(expire 10/16)(6)
 
 
 
 
348


Contract Datascan Holdings, Inc.
Business Services
Subordinated Debt (Due 3/16)(1)
12.0
%
2.0
%
14.0
%
8,402

7,778

7,353

Series A Preferred Stock (10.0%, 2,313 shares)(1)
 
 
 
 
2,387

1,931

 
 
Common Stock (4,806 shares)(1)(6)
 
 
 
 
477


Miles Media Group, LLC(2)(13)
Business Services
Senior Debt (Due 6/16)(1)
12.5
%

12.5
%
17,738

17,444

17,309

Warrants to purchase Class A Units
(expire 3/21) (1)(6)
 
 
 
 
123

523

Stratford School Holdings, Inc.(2)
Education
Senior Debt (Due 12/15)(1)
7.5
%

7.5
%
17,500

17,412

17,412

 
Series A Convertible Preferred Stock (12.0%, 10,000 shares)
 
 
 
 
123

10,191

 
 
Warrants to purchase Common Stock
(expire 5/15)(1)(6)
 
 
 
 

3,087

Total Affiliate Investments (represents 9.4% of total investments at fair value)
 
 
 
 
58,425

69,602


The accompanying notes are an integral part of these Condensed Consolidated Financial Statements
9


MCG Capital Corporation
Consolidated Schedule of Investments
December 31, 2011
(dollars in thousands)
 
 
 
Interest Rate(9)
 
 
Fair 
Value
Portfolio Company
Industry
Investment
Current
PIK
Total
Principal
Cost
Non-Affiliate Investments (less than 5% owned):
 
 
 
 
 
 
BarBri, Inc.
Publishing
Senior Debt (Due 6/17)(1)
6.0
%

6.0
%
$
7,000

$
6,936

$
6,991

Bentley Systems, Incorporated
Information Services
Senior Debt (Due 12/16)(1)
5.8
%

5.8
%
9,900

9,810

9,810

Capstone Logistics, LLC
Logistics
Senior Debt (Due 9/16)(1)
10.5
%

10.5
%
29,957

29,816

29,816

Chase Doors Holdings, Inc.
Manufacturing
Senior Debt (Due 12/15)(1)
9.5
%

9.5
%
23,660

23,442

23,442

Coastal Sunbelt
Holding, Inc.
(2)
Food Services
Senior Debt (Due 8/14-12/15)(1)
9.1
%

9.1
%
19,961

19,818

19,818

 
Subordinated Debt (Due 8/15)(1)
16.0
%

16.0
%
9,038

8,967

9,024

Coastal Sunbelt Real Estate, Inc.
Real Estate Investments
Series A-2 Preferred Stock (12.0%, 20,000 shares)
 
 
 
 

441

Construction Trailer Specialists, Inc.(2)
Auto Parts
Senior Debt (Due 6/13)(1)
8.6
%
6.3
%
14.9
%
8,020

7,877

7,575

Cruz Bay Publishing, Inc.
Publishing
Subordinated Debt (Due 12/13)(1)(8)
5.3
%
8.0
%
13.3
%
26,154

22,895

19,440

CWP/RMK Acquisition Corp.(2)
Home Furnishings
Senior Debt (Due 12/16)(7)
3.0
%

3.0
%
600

564

559

Data Based Systems International, Inc.
Business Services
Subordinated Debt (Due 8/16)(1)
10.0
%
4.0
%
14.0
%
9,004

8,834

8,989

Education Management, Inc.
Education
Senior Debt (Due 6/15)(1)
9.3
%

9.3
%
25,000

24,775

24,963

Focus Brands Inc. 
Restaurants
Senior Debt (Due 11/16)(1)
5.3
%

5.3
%
9,354

9,355

9,296

Gans Communications,
L.P.(2)
Cable
Senior Debt (Due 10/17)(1)
5.3
%

5.3
%
5,565

5,548

5,520

G&L Investment Holdings, LLC(2)
Insurance
Subordinated Debt (Due 5/14)(1)
10.7
%
4.3
%
15.0
%
17,882

17,565

17,565

 
Series A Preferred Shares (14.0%,
5,000,000 shares)
 
 
 
 
8,192

7,422

 
 
Class C Shares (621,907 shares)(6)
 
 
 
 
529


Golden Knight II CLO, Ltd.
Diversified Financial Services
Income Notes (Due 4/19)
8.0
%

8.0
%
 
3,053

2,207

Goodman Global, Inc.
Manufacturing
Senior Debt (Due 10/16)(1)
5.8
%

5.8
%
5,599

5,630

5,611

GSDM Holdings
Corp.(2)
Healthcare
Senior Debt (Due 1/16)(1)
11.5
%
6.0
%
17.5
%
26,777

26,536

26,536

 
Series B Preferred Stock (12.5%, 852,950 shares)
 
 
 
 
5,292

8,117

Haws Corporation
Manufacturing
Senior Debt (Due 12/15)(1)
10.5
%

10.5
%
16,500

16,320

16,320

Industrial Safety Technologies, LLC
Manufacturing
Senior Debt (Due 9/16)(1)
10.0
%

10.0
%
22,000

21,772

21,772

Jenzabar, Inc.(10)
Technology
Senior Preferred Stock (11.0%, 3,750 shares)
 
 
 
 
6,844

6,844

 
 
Subordinated Preferred Stock (109,800 shares)
 
 
 
 
1,098

988

 
 
Warrants to purchase Common Stock
(expire 4/16)(6)
 
 
 
 
422

16,858

Legacy Cabinets Holdings II, Inc.
Home Furnishings
Class B-1 Common Stock (2,000 shares)(6)
 
 
 
 
2,185


Mailsouth, Inc.
Publishing
Senior Debt (Due 12/16)(1)
6.8
%

6.8
%
4,963

4,901

4,888

Maverick Healthcare
Equity, LLC
Healthcare
Preferred Units (10.0%, 1,250,000 units)
 
 
 
 
1,744

1,882

 
Class A Common Units (1,250,000 units)(6)
 
 
 
 

484

Metropolitan Telecommunications
Holding Company
(2)
Communications
Senior Debt (Due 3/14-12/16)(1)
8.1
%

8.1
%
23,770

23,630

23,630


The accompanying notes are an integral part of these Condensed Consolidated Financial Statements
10


MCG Capital Corporation
Consolidated Schedule of Investments
December 31, 2011
(dollars in thousands)
 
 
 
Interest Rate(9)
Principal
Cost
Fair
Value
Portfolio Company
Industry
Investment
Current
PIK
Total
NDSSI Holdings,
LLC(2)
Electronics
Senior Debt (Due 12/12)(1)
12.8
%
1.0
%
13.8
%
$
29,859

$
29,718

$
28,791

 
Series D Preferred Units (30.0%, 2,000,000 units)(6)
 
 
 
 
2,000

3,175

 
 
Series A Preferred Units (516,691 units)(6)
 
 
 
 
718


 
 
Series B Convertible Preferred Units (165,003 units)(6)
 
 
 
 
142


 
 
Class A Common Units
(1,000,000 units)(6)
 
 
 
 
333


Orbitz Worldwide, Inc.
Personal Transportation
Senior Debt (Due 7/14)(1)
3.4
%

3.4
%
3,014

2,883

2,604

Ozburn-Hessey Holding Company LLC
Logistics
Senior Debt (Due 4/16)(1)
8.3
%

8.3
%
4,378

4,426

3,868

Philadelphia Media Network, Inc.
Newspaper
Class A Common Stock
(1,000 shares)(6)
 
 
 
 
5,070

7

Qualawash Holdings, LLC
Repair Services
Subordinated Debt (Due 1/16)(1)
11.0
%

11.0
%
20,000

19,839

19,839

Rita’s Water Ice Franchise Company, LLC
Restaurants
Senior Debt (Due 11/16)(1)
14.0
%

14.0
%
9,375

9,282

9,282

Sagamore Hill
Broadcasting, LLC(2)
Broadcasting
Senior Debt (Due 8/14)(1)
12.0
%
1.0
%
13.0
%
11,114

11,018

11,018

Sally Holdings LLC
Cosmetics
Senior Debt (Due 11/13)(1)
2.6
%

2.6
%
8,531

8,541

8,521

SC Academy Holdings, Inc.
Education
Subordinated Debt (Due 7/16)(1)
12.0
%

12.0
%
13,500

13,398

13,471

Scotsman Industries, Inc.
Manufacturing
Senior Debt (Due 4/16)(1)
5.8
%

5.8
%
5,309

5,309

5,256

Service Champ, Inc.
Auto Parts
Subordinated Unsecured Debt (Due 2/17)(1)
12.0
%
2.3
%
14.3
%
12,111

12,009

12,203

ShowPlex Cinemas, Inc.
Entertainment
Senior Debt (Due 5/15)(1)
11.0
%

11.0
%
7,689

7,539

7,539

Softlayer Technologies, Inc.
Business Services
Senior Debt (Due 11/16)(1)
7.3
%

7.3
%
13,860

13,718

13,906

Summit Business Media Parent Holding Company LLC
Information Services
Class E Series I Units (636 units)(1)(6)
 
 
 
 
4,120

281

Class E Series II Units (276 units)(1)(6)
 
 
 
 
1,788


Sunshine Media
Group, Inc.
(2)
Publishing
Warrants to purchase Common Stock
(expire 1/21)(6)
 
 
 
 


Tank Intermediate
Holding Corp.
Manufacturing
Senior Debt (Due 4/16)(1)
5.0
%

5.0
%
5,506

5,421

5,448

The e-Media Club I, LLC
Investment Fund
LLC Interest (74 units)(6)
 
 
 
 
88

11

The Gavilon Group, LLC
Agriculture
Senior Debt (Due 12/16)(1)
6.0
%

6.0
%
9,500

9,395

9,464

The Matrixx Group, Incorporated
Plastic Products
Subordinated Debt (Due 6/14)(1)
10.8
%

10.8
%
12,500

12,500

12,639

Virtual Radiologic Corporation
Healthcare
Senior Debt (Due 12/16)(1)
7.8
%

7.8
%
13,915

13,730

13,184

Visant Corporation
Consumer Products
Senior Debt (Due 12/16)(1)
5.3
%

5.3
%
4,851

4,866

4,563

VS&A-PBI Holding LLC
Publishing
LLC Interest(6)
 
 
 
 
500


West World Media, LLC
Information Services
Senior Debt (Due 9/15)(1)
11.0
%
3.0
%
14.0
%
11,301

10,577

10,577

Class A Membership Units
(25,000 units) (1)(6)
 
 
 
 
1

285

 
 
Warrant to purchase Class A Membership Units (expire 9/15)(1)(6)
 
 
 
 
324

719

Xpressdocs Holdings, Inc.(2)
Business Services
Senior Debt (Due 4/12-4/13)(1)
10.9
%
0.9
%
11.8
%
18,734

18,539

18,733

Series A Preferred Stock
(161,870 shares)(6)
 
 
 
 
500

109

Total Non-Affiliate Investments (represents 74.5% of total investments at fair value)
 
552,642

552,301

Total Investments
 
 
 
 
 
 
$
1,017,218

$
741,166


The accompanying notes are an integral part of these Condensed Consolidated Financial Statements
11


MCG Capital Corporation
Consolidated Schedule of Investments
December 31, 2011
(dollars in thousands)
(1) 
Some or all of this security is held by our SBIC subsidiary or one of our other financing subsidiaries and may have been pledged as collateral in connection therewith. See Note 5—Borrowings to the Condensed Consolidated Financial Statements.
(2) 
Includes securities issued by one or more of the portfolio company’s affiliates.
(3) 
Affiliate investments represent companies in which we own at least 5%, but not more than 25% of the portfolio company’s voting securities.
(4) 
Control investments represent companies in which we own more than 25% of the portfolio company’s voting securities.
(5) 
Represents a non-majority-owned control portfolio company of which we own at least 25%, but not more than 50% of the portfolio company’s voting securities.
(6) 
Equity security is non-income producing at period-end.
(7) 
Loan or debt security is on non-accrual status.
(8) 
We did not recognize paid-in-kind, or PIK, interest or accretion income because the fair value of our investment was below its cost basis. However, we continue to accrue interest that is receivable in cash from the portfolio company.
(9) 
Interest rates represent the weighted-average annual stated interest rate on debt securities, presented by nature of indebtedness for a single issuer. PIK interest represents contractually deferred interest that is added to the principal balance of the debt security and compounded if not paid on a current basis. PIK may be prepaid by either contract or the portfolio company's choice, but generally is paid at the end of the loan term. Rates on preferred stock and preferred LLC interests, where applicable, represent the contractual rate.
(10) 
In February 2012, we accepted $23.7 million for our senior preferred stock and warrant position in Jenzabar.  The consideration received also settled any and all direct claims and counterclaims asserted in the litigation by and among the Company, Jenzabar and certain Jenzabar officers and directors.  We will receive the balance of the payment for our position in Jenzabar in the amount of $990,000 for our subordinated preferred stock and will exchange those shares upon the final dismissal of the litigation, including the dismissal of the derivative claims.
(11) 
In the three months ended June 30, 2012, Jet Plastica Investors, LLC liquidated substantially all of its assets.  Including the proceeds from the liquidation, we have received $11.0 million of payments on our senior debt.  We anticipate receiving additional payments on our senior debt upon future collection of certain accounts receivable.
(12) 
In October 2012, Industrial Safety Technologies, LLC senior debt was repaid in full.
(13) 
Investment has been reclassified from a non-affiliate investment to an affiliate investment due to certain voting rights that the Company may have prior to the exercise of the warrants.





The accompanying notes are an integral part of these Condensed Consolidated Financial Statements
12


MCG Capital Corporation
Notes to the Condensed Consolidated Financial Statements (Unaudited)
NOTE 1—DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
These Condensed Consolidated Financial Statements present the results of operations, financial position and cash flows of MCG Capital Corporation and its consolidated subsidiaries. The terms “we,” “our,” “us” and “MCG” refer to MCG Capital Corporation and its consolidated subsidiaries.
We are a solutions-focused commercial finance company that provides capital and advisory services to middle-market companies throughout the United States. We are an internally managed, non-diversified, closed-end investment company that elected to be regulated as a business development company, or BDC, under the Investment Company Act of 1940, as amended, or the 1940 Act. Our organization includes the following categories of subsidiaries:
Wholly Owned Special-Purpose Financing Subsidiaries—These subsidiaries are bankruptcy remote, special-purpose entities to which we transfer certain loans. Each financing subsidiary, in turn, transfers the loans to a Delaware statutory trust. For accounting purposes, the transfers of the loans to the Delaware statutory trusts are structured as on-balance sheet securitizations.
Small Business Investment Subsidiaries—We own Solutions Capital I, L.P., a wholly owned subsidiary licensed by the United States Small Business Administration, or SBA, which operates as a small business investment company, or SBIC, under the Small Business Investment Act of 1958, as amended, or SBIC Act. In March 2011, we formed another wholly owned subsidiary, Solutions Capital II, L. P., and in May 2011, we submitted a license to the SBA to obtain an SBIC license for Solutions Capital II, L.P. On September 30, 2011, after discussions with the SBA, we elected to withdraw our application for a second license. In September 2012, we submitted documentation to the SBA in support of a potential SBIC license for Solutions Capital II, L.P.  There is no assurance that the SBA will grant the additional license in any specified time period or at all. MCG is also the sole member of Solutions Capital G.P., LLC, which acts as the general partner of Solutions Capital I, L.P.
Taxable SubsidiariesWe currently qualify as a regulated investment company, or RIC, for federal income tax purposes and, therefore, are not required to pay corporate income taxes on any income or gains that we distribute to our stockholders. We have certain wholly owned taxable subsidiaries, or Taxable Subsidiaries, each of which holds one or more portfolio investments listed on our Consolidated Schedules of Investments. The purpose of these Taxable Subsidiaries is to permit us to hold portfolio companies organized as limited liability companies, or LLCs, (or other forms of pass-through entities) and still satisfy the RIC tax requirement that at least 90% of our gross revenue for income tax purposes must consist of investment income. Absent the Taxable Subsidiaries, a portion of the gross income of any LLC (or other pass-through entity) portfolio investment would flow through directly to us, and be included in the calculation of the 90% test. To the extent that such income did not consist of investment income, it could jeopardize our ability to qualify as a RIC and, therefore, cause us to incur significant federal income taxes. The income of the LLCs (or other pass-through entities) owned by Taxable Subsidiaries is taxed to the Taxable Subsidiaries and does not flow through to us, thereby helping us preserve our RIC status and resultant tax advantages. We do not consolidate the Taxable Subsidiaries for income tax purposes and they may generate income tax expense because of the Taxable Subsidiaries’ ownership of the portfolio companies. We reflect any such income tax expense on our Consolidated Statements of Operations.
The accompanying financial statements reflect the consolidated accounts of MCG and the following subsidiaries: Solutions Capital I, L.P.; Solutions Capital II, L.P.; Solutions Capital G.P., LLC; and MCG’s special-purpose financing subsidiary: MCG Finance VII, LLC.
BASIS OF PRESENTATION AND USE OF ESTIMATES
These unaudited financial statements and the accompanying notes are prepared in accordance with accounting principles generally accepted in the United States of America and conform to Regulation S-X under the Securities Exchange Act of 1934, as amended. We believe we have made all necessary adjustments so that the financial statements are presented fairly and that all such adjustments are of a normal recurring nature. We eliminated all significant intercompany balances. In accordance with Article 6 of Regulation S-X of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, we do not consolidate portfolio company investments, including those in which we have a controlling interest. Certain prior period information has been reclassified to conform to current year presentation. Further, in connection with the preparation of these Condensed Consolidated Financial

13


Statements, we have evaluated subsequent events that occurred after the balance sheet date as of September 30, 2012 through the date these financial statements were issued.
Preparing financial statements requires us to make estimates and assumptions that affect the amounts reported on our Condensed Consolidated Financial Statements and accompanying notes. Although we believe the estimates and assumptions used in preparing these Condensed Consolidated Financial Statements and related notes are reasonable, actual results could differ materially.
Interim results are not necessarily indicative of results for a full year. You should read these Condensed Consolidated Financial Statements in conjunction with the Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2011.
NOTE 2—INVESTMENT PORTFOLIO
The following table summarizes the composition of our investment portfolio at cost and fair value:
 
COST BASIS
FAIR VALUE BASIS
 
September 30, 2012
December 31, 2011
September 30, 2012
December 31, 2011
(dollars in thousands)
Investments
at Cost
% of Total
Portfolio
Investments
at Cost
% of Total
Portfolio
Investments
at Fair Value
% of Total
Portfolio
Investments
at Fair Value
% of Total
Portfolio
Debt Investments
 
 
 
 
 
 
 
 
Senior secured debt
$
333,831

50.4
%
$
551,402

54.2
%
$
324,228

72.9
%
$
492,488

66.4
%
Subordinated debt
 
 
 
 
 
 
 
 
Secured
93,466

14.1

134,721

13.2

79,191

17.8

124,289

16.8

Unsecured


12,009

1.2



12,203

1.7

Total debt investments
427,297

64.5

698,132

68.6

403,419

90.7

628,980

84.9

Equity investments
 
 
 
 
 
 
 
 
Preferred
223,337

33.8

297,283

29.3

39,524

8.9

89,931

12.1

Common/common equivalents
11,401

1.7

21,803

2.1

1,850

0.4

22,255

3.0

Total equity investments
234,738

35.5

319,086

31.4

41,374

9.3

112,186

15.1

Total investments
$
662,035

100.0
%
$
1,017,218

100.0
%
$
444,793

100.0
%
$
741,166

100.0
%
Our debt instruments bear contractual interest rates ranging from 2.5% to 16.5%, a portion of which may be in the form of paid-in-kind interest, or PIK. As of September 30, 2012, approximately 89.4% of the fair value of our loan portfolio had variable interest rates, based on a LIBOR benchmark or the prime rate, and 10.6% of the fair value of our loan portfolio had fixed interest rates. As of September 30, 2012, approximately 78.9% of our loan portfolio, at fair value, had LIBOR floors between 1.0% and 3.0% on a LIBOR-based index and prime floors between 1.75% and 6.0%. At origination, our loans generally have four- to eight-year stated maturities. Borrowers typically pay an origination fee based on a percent of the total commitment and a fee on undrawn commitments.
When one of our loans becomes more than 90 days past due, or if we otherwise do not expect the customer to be able to service its debt and other obligations, we will, as a general matter, place the loan on non-accrual status and generally will cease recognizing interest income on that loan until all principal and interest has been brought current through payment or due to a restructuring such that the interest income is deemed to be collectible. However, we may make exceptions to this policy if the loan has sufficient collateral value and is in the process of collection. If the fair value of a loan is below cost, we may cease recognizing PIK interest and/or the accretion of a discount on the debt investment until such time that the fair value equals or exceeds cost.

14


The following table summarizes the cost and fair value of loans more than 90 days past due and loans on non-accrual status:
 
COST BASIS
FAIR VALUE BASIS
 
September 30, 2012
December 31, 2011
September 30, 2012
December 31, 2011
(dollars in thousands)
Investments
at Cost
% of Loan
Portfolio
Investments
at Cost
% of Loan
Portfolio
Investments
at Fair Value
% of Loan
Portfolio
Investments
at Fair Value
% of Loan
Portfolio
Loans greater than 90 days past due
 
 
 
 
 
 
 
On non-accrual status
$
17,860

4.18
%
$
13,963

2.00
%
$
12,317

3.05
%
$
9,615

1.53
%
Not on non-accrual status








Total loans greater than 90 days past due
$
17,860

4.18
%
$
13,963

2.00
%
$
12,317

3.05
%
$
9,615

1.53
%
Loans on non-accrual status
 
 
 
 
 
 
 
 
0 to 90 days past due
$
12,902

3.02
%
$
69,241

9.92
%
$
3,709

0.92
%
$
9,704

1.54
%
Greater than 90 days past due
17,860

4.18

13,963

2.00

12,317

3.05

9,615

1.53

Total loans on non-accrual status
$
30,762

7.20
%
$
83,204

11.92
%
$
16,026

3.97
%
$
19,319

3.07
%
The following table summarizes our investment portfolio by industry at fair value:
 
September 30, 2012
December 31, 2011
(dollars in thousands)
Investments
at Fair Value
Percent of
Total Portfolio
Investments at
Fair Value
Percent of
Total Portfolio
Healthcare
$
71,887

16.2
%
$
84,660

11.4
%
Business services
61,623

13.9

78,468

10.6

Manufacturing
54,514

12.3

77,849

10.5

Education
38,899

8.7

69,124

9.3

Electronics
33,308

7.5

31,966

4.3

Logistics
29,736

6.7

33,684

4.5

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