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Table of Contents

 

 

 

FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington D.C.  20549

 

x      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended April 30, 2014 or

 

o         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission File Number 814-00201

 

MVC CAPITAL, INC.

(Exact name of the registrant as specified in its charter)

 

DELAWARE

(State or other jurisdiction of
incorporation or organization)

 

94-3346760

(I.R.S. Employer
Identification No.)

 

 

 

287 Bowman Avenue

2nd Floor

Purchase, New York

(Address of principal
executive offices)

 

10577

(Zip Code)

 

 

Registrant’s telephone number, including area code:  (914) 701-0310

 

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 (§232.405 of this chapter) 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 definition 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

 

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

 

There were 22,860,653 shares of the registrant’s common stock, $.01 par value, outstanding as of June 6, 2014.

 

 

 



Table of Contents

 

MVC Capital, Inc.

(A Delaware Corporation)

Index

 

 

 

 

Page

 

 

 

 

Part I. Consolidated Financial Information

 

 

 

 

 

 

Item 1.

Consolidated Financial Statements

 

 

 

Consolidated Balance Sheets

 

 

 

-

April 30, 2014 and October 31, 2013

 

3

 

Consolidated Statements of Operations

 

 

 

-

For the Period November 1, 2013 to April 30, 2014 and

 

 

 

-

For the Period November 1, 2012 to April 30, 2013

 

4

 

Consolidated Statements of Operations

 

 

 

-

For the Period February 1, 2014 to April 30, 2014 and

 

 

 

-

For the Period February 1, 2013 to April 30, 2013

 

5

 

Consolidated Statements of Cash Flows

 

 

 

-

For the Period November 1, 2013 to April 30, 2014 and

 

 

 

-

For the Period November 1, 2012 to April 30, 2013

 

6

 

Consolidated Statements of Changes in Net Assets

 

 

 

-

For the Period November 1, 2013 to April 30, 2014

 

 

 

-

For the Period November 1, 2012 to April 30, 2013 and

 

 

 

-

For the Year ended October 31, 2013

 

7

 

Consolidated Selected Per Share Data and Ratios

 

 

 

-

For the Period November 1, 2013 to April 30, 2014,

 

 

 

-

For the Period November 1, 2012 to April 30, 2013 and

 

 

 

-

For the Year ended October 31, 2013

 

8

 

Consolidated Schedules of Investments

 

 

 

-

April 30, 2014

 

 

 

-

October 31, 2013

 

9

 

Notes to Consolidated Financial Statements

 

13

 

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

37

 

 

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

63

 

 

 

Item 4. Controls and Procedures

 

73

 

 

 

Part II. Other Information

 

74

 

 

 

Exhibits

 

74

 

 

 

SIGNATURE

 

75

 



Table of Contents

 

Part I. Consolidated Financial Information

 

Item 1. Consolidated Financial Statements

 

CONSOLIDATED FINANCIAL STATEMENTS

 

MVC Capital, Inc.

Consolidated Balance Sheets

 

 

 

April 30,

 

October 31,

 

 

 

2014

 

2013

 

 

 

(Unaudited)

 

 

 

ASSETS

 

 

 

 

 

 

 

Assets

 

 

 

 

 

Cash and cash equivalents

 

$

23,124,065

 

$

74,234,560

 

Restricted cash and cash equivalents

 

6,933,500

 

6,792,000

 

Investments at fair value

 

 

 

 

 

Short-term investments (cost $0 and $49,937,320)

 

 

49,826,893

 

Non-control/Non-affiliated investments (cost $119,215,249 and $92,139,375)

 

95,093,412

 

74,433,413

 

Affiliate investments (cost $139,232,093 and $136,499,386)

 

223,025,960

 

219,694,633

 

Control investments (cost $156,453,823 and $143,292,881)

 

145,006,347

 

146,169,917

 

Total investments at fair value (cost $414,901,165 and $421,868,962)

 

463,125,719

 

490,124,856

 

Receivable on sale of short-term investments

 

99,783,203

 

 

Escrow receivables, net of reserves

 

5,936,928

 

6,236,928

 

Dividends and interest receivables, net of reserves

 

4,236,637

 

3,528,899

 

Deferred financing fees

 

3,051,835

 

3,265,495

 

Fee and other receivables

 

1,925,720

 

2,109,538

 

Prepaid expenses

 

508,708

 

534,904

 

Prepaid taxes

 

 

336

 

 

 

 

 

 

 

Total assets

 

$

608,626,315

 

$

586,827,516

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

Senior notes

 

$

114,408,750

 

$

114,408,750

 

Revolving credit facility

 

100,000,000

 

50,000,000

 

Provision for incentive compensation (Note 11)

 

19,645,253

 

23,959,109

 

Management fee payable

 

2,305,971

 

2,221,213

 

Management fee payable - Asset Management

 

1,069,880

 

606,766

 

Professional fees payable

 

820,631

 

742,859

 

Accrued expenses and liabilities

 

650,067

 

655,615

 

Portfolio fees payable - Asset Management

 

375,802

 

140,347

 

Interest payable

 

374,387

 

371,817

 

Consulting fees payable

 

115,983

 

167,968

 

Taxes payable

 

541

 

 

 

 

 

 

 

 

Total liabilities

 

239,767,265

 

193,274,444

 

 

 

 

 

 

 

Shareholders’ equity

 

 

 

 

 

Common stock, $0.01 par value; 150,000,000 shares authorized; 22,464,814 and 22,617,688 shares outstanding, respectively

 

283,044

 

283,044

 

Additional paid-in-capital

 

420,165,045

 

420,165,045

 

Accumulated earnings

 

69,078,307

 

66,030,475

 

Dividends paid to stockholders

 

(110,623,617

)

(104,537,479

)

Accumulated net realized loss

 

(1,716,744

)

(2,201,455

)

Net unrealized appreciation

 

48,224,554

 

68,255,894

 

Treasury stock, at cost, 5,839,634 and 5,686,760 shares held, respectively

 

(56,551,539

)

(54,442,452

)

Total shareholders’ equity

 

368,859,050

 

393,553,072

 

 

 

 

 

 

 

Total liabilities and shareholders’ equity

 

$

608,626,315

 

$

586,827,516

 

 

 

 

 

 

 

Net asset value per share

 

$

16.42

 

$

17.40

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

3



Table of Contents

 

MVC Capital, Inc.

Consolidated Statements of Operations

(Unaudited)

 

 

 

For the Six Month Period

 

For the Six Month Period

 

 

 

November 1, 2013 to

 

November 1, 2012 to

 

 

 

April 30, 2014

 

April 30, 2013

 

Operating Income:

 

 

 

 

 

Dividend income

 

 

 

 

 

Non-control/Non-affiliated investments

 

$

69,580

 

$

1,551

 

Affiliate investments

 

71,590

 

4,842,150

 

Control investments

 

 

426,300

 

Total dividend income

 

141,170

 

5,270,001

 

 

 

 

 

 

 

Payment-in-kind dividend income

 

 

 

 

 

Affiliate investments

 

143,182

 

132,278

 

Total payment-in-kind dividend income

 

143,182

 

132,278

 

 

 

 

 

 

 

Interest income

 

 

 

 

 

Non-control/Non-affiliated investments

 

2,692,651

 

1,079,798

 

Affiliate investments

 

2,406,842

 

1,940,922

 

Control investments

 

191,798

 

892,719

 

Total interest income

 

5,291,291

 

3,913,439

 

 

 

 

 

 

 

Payment-in-kind interest income

 

 

 

 

 

Non-control/Non-affiliated investments

 

1,634,473

 

285,698

 

Affiliate investments

 

498,657

 

481,435

 

Control investments

 

77,264

 

497,131

 

Total payment-in-kind interest income

 

2,210,394

 

1,264,264

 

 

 

 

 

 

 

Fee income

 

 

 

 

 

Non-control/Non-affiliated investments

 

300,991

 

400,591

 

Affiliate investments

 

460,001

 

473,129

 

Control investments

 

161,499

 

538,298

 

Total fee income

 

922,491

 

1,412,018

 

 

 

 

 

 

 

Fee income - Asset Management(1)

 

 

 

 

 

Portfolio fees

 

595,827

 

278,592

 

Management Fees

 

617,485

 

618,128

 

Total fee income - Asset Management

 

1,213,312

 

896,720

 

 

 

 

 

 

 

Other income

 

553,769

 

160,197

 

 

 

 

 

 

 

Total operating income

 

10,475,609

 

13,048,917

 

 

 

 

 

 

 

Operating Expenses:

 

 

 

 

 

Interest and other borrowing costs

 

4,660,899

 

2,354,861

 

Management fee

 

4,609,912

 

3,945,370

 

Management fee - Asset Management(1)

 

463,114

 

463,592

 

Portfolio fees - Asset Management(1)

 

446,870

 

208,944

 

Audit fees

 

324,100

 

316,400

 

Legal fees

 

290,000

 

276,000

 

Consulting fees

 

259,402

 

268,502

 

Directors fees

 

206,250

 

206,250

 

Insurance

 

173,400

 

165,540

 

Administration

 

126,123

 

126,187

 

Other expenses

 

103,797

 

274,291

 

Public relations fees

 

102,000

 

97,500

 

Printing and postage

 

49,889

 

61,118

 

Net Incentive compensation (Note 11)

 

(4,313,856

)

2,183,145

 

 

 

 

 

 

 

Total operating expenses

 

7,501,900

 

10,947,700

 

 

 

 

 

 

 

Less: Voluntary Expense Waiver by Adviser(2)

 

(75,000

)

(75,000

)

 

 

 

 

 

 

Total waivers

 

(75,000

)

(75,000

)

 

 

 

 

 

 

Net operating income before taxes

 

3,048,709

 

2,176,217

 

 

 

 

 

 

 

Tax Expenses:

 

 

 

 

 

Current tax expense

 

877

 

1,800

 

 

 

 

 

 

 

Total tax expense

 

877

 

1,800

 

 

 

 

 

 

 

Net operating income

 

3,047,832

 

2,174,417

 

 

 

 

 

 

 

Net Realized and Unrealized Gain (Loss) on Investments:

 

 

 

 

 

 

 

 

 

 

 

Net realized (loss) gain on investments

 

 

 

 

 

Short-term investments

 

176,515

 

 

Non-control/Non-affiliated investments

 

308,196

 

(6,441,216

)

Affiliate investments

 

 

 

Control investments

 

 

49,655,826

 

 

 

 

 

 

 

Total net realized gain on investments

 

484,711

 

43,214,610

 

 

 

 

 

 

 

Net change in unrealized depreciation on investments

 

(20,031,340

)

(30,621,385

)

 

 

 

 

 

 

Net realized and unrealized (loss) gain on investments

 

(19,546,629

)

12,593,225

 

 

 

 

 

 

 

Net (decrease) increase in net assets resulting from operations

 

$

(16,498,797

)

$

14,767,642

 

 

 

 

 

 

 

Net (decrease) increase in net assets per share resulting from operations

 

$

(0.73

)

$

0.62

 

 

 

 

 

 

 

Dividends declared per share

 

$

0.27

 

$

0.27

 

 

 

 

 

 

 

Weighted average number of shares outstanding (3)

 

22,574,010

 

23,844,840

 

 


(1)These items are related to the management of the MVC Private Equity Fund, L.P. (“PE Fund”). Please see Note 10 “Management” for more information.

 

(2)Reflects the quarterly portion of the TTG Advisers’ voluntary waiver of $150,000 of expenses for the 2014 and 2013 fiscal years, that the Company would otherwise be obligated to reimburse TTG Advisers under the Advisory Agreement (the “Voluntary Waiver”).  Please see Note 10 “Management” for more information.

 

(3)Please see Note 12 “Dividends and Distributions to Shareholders and Share Repurchase Program” for more information.

 

The accompanying notes are an integral part of these consolidated financial statements.

 

4



Table of Contents

 

MVC Capital, Inc.

Consolidated Statements of Operations

(Unaudited)

 

 

 

For the Quarter

 

For the Quarter

 

 

 

February 1, 2014 to

 

February 1, 2013 to

 

 

 

April 30, 2014

 

April 30, 2013

 

Operating Income:

 

 

 

 

 

Dividend income

 

 

 

 

 

Non-control/Non-affiliated investments

 

$

69,390

 

$

577

 

Affiliate investments

 

36,149

 

2,456,402

 

Control investments

 

 

 

 

 

 

 

 

 

Total dividend income

 

105,539

 

2,456,979

 

 

 

 

 

 

 

Payment-in-kind dividend income

 

 

 

 

 

Affiliate investments

 

72,300

 

66,794

 

Total payment-in-kind dividend income

 

72,300

 

66,794

 

 

 

 

 

 

 

Interest income

 

 

 

 

 

Non-control/Non-affiliated investments

 

1,389,257

 

563,080

 

Affiliate investments

 

1,330,673

 

823,884

 

Control investments

 

96,493

 

391,672

 

 

 

 

 

 

 

Total interest income

 

2,816,423

 

1,778,636

 

 

 

 

 

 

 

Payment-in-kind interest income

 

 

 

 

 

Non-control/Non-affiliated investments

 

852,407

 

242,520

 

Affiliate investments

 

251,784

 

236,846

 

Control investments

 

37,992

 

202,830

 

Total payment-in-kind interest income

 

1,142,183

 

682,196

 

 

 

 

 

 

 

Fee income

 

 

 

 

 

Non-control/Non-affiliated investments

 

300,487

 

400,487

 

Affiliate investments

 

230,001

 

236,283

 

Control investments

 

80,749

 

404,498

 

 

 

 

 

 

 

Total fee income

 

611,237

 

1,041,268

 

 

 

 

 

 

 

Fee income - Asset Management(1)

 

 

 

 

 

Management fees

 

454,392

 

309,287

 

Portfolio fees

 

308,710

 

137,979

 

 

 

 

 

 

 

Total fee income - Asset Management

 

763,102

 

447,266

 

 

 

 

 

 

 

Other income

 

351,571

 

190,042

 

 

 

 

 

 

 

Total operating income

 

5,862,355

 

6,663,181

 

 

 

 

 

 

 

Operating Expenses:

 

 

 

 

 

Interest and other borrowing costs

 

2,405,389

 

1,417,818

 

Management fee

 

2,305,970

 

1,865,133

 

Portfolio fees - Asset Management(1)

 

340,794

 

103,484

 

Management fee - Asset Management(1)

 

231,533

 

231,961

 

Audit fees

 

161,700

 

158,100

 

Legal fees

 

152,000

 

140,000

 

Consulting fees

 

124,251

 

136,251

 

Directors’ fees

 

103,125

 

103,125

 

Insurance

 

86,700

 

82,770

 

Administration

 

61,448

 

62,315

 

Public relations fees

 

51,000

 

48,000

 

Printing and postage

 

24,083

 

30,118

 

Other expenses

 

(36,941

)

140,738

 

Net Incentive compensation (Note 11)

 

(4,867,797

)

1,008,484

 

 

 

 

 

 

 

Total operating expenses

 

1,143,255

 

5,528,297

 

 

 

 

 

 

 

Less: Voluntary Expense Waiver by Adviser (2)

 

(37,500

)

(37,500

)

 

 

 

 

 

 

Total waivers

 

(37,500

)

(37,500

)

 

 

 

 

 

 

Net operating income before taxes

 

4,756,600

 

1,172,384

 

 

 

 

 

 

 

Tax (Benefit) Expenses:

 

 

 

 

 

Current tax (benefit) expense

 

(23

)

1,067

 

 

 

 

 

 

 

Total tax (benefit) expense

 

(23

)

1,067

 

 

 

 

 

 

 

Net operating income

 

4,756,623

 

1,171,317

 

 

 

 

 

 

 

Net Realized and Unrealized (Loss) Gain on Investments:

 

 

 

 

 

 

 

 

 

 

 

Net realized gain (loss) on investments

 

 

 

 

 

Short-term investments

 

338,448

 

 

Non-control/Non-affiliated investments

 

383,402

 

(4,518,677

)

Control investments

 

 

49,655,826

 

 

 

 

 

 

 

Total net realized gain on investments

 

721,850

 

45,137,149

 

 

 

 

 

 

 

Net unrealized depreciation on investments

 

(24,023,980

)

(38,417,062

)

 

 

 

 

 

 

Net realized gain and net change in unrealized (depreciation) appreciation on investments

 

(23,302,130

)

6,720,087

 

 

 

 

 

 

 

Net (decrease) increase in net assets resulting from operations

 

$

(18,545,507

)

$

7,891,404

 

 

 

 

 

 

 

Net (decrease) increase in net assets per share resulting from operations

 

$

(0.83

)

$

0.33

 

 

 

 

 

 

 

Dividends declared per share

 

$

0.135

 

$

0.135

 

 

 

 

 

 

 

Weighted average number of shares outstanding (3)

 

22,541,251

 

23,790,734

 

 


(1)These items are related to the management of the MVC Private Equity Fund, L.P. (“PE Fund”). Please see Note 10 “Management” for more information.

 

(2)Reflects the quarterly portion of the TTG Advisers’ voluntary waiver of $150,000 of expenses for the 2014 and 2013 fiscal years, that the Company would otherwise be obligated to reimburse TTG Advisers under the Advisory Agreement (the “Voluntary Waiver”).  Please see Note 10 “Management” for more information.

 

(3) Please see Note 12 “Dividends and Distributions to Shareholders and Share Repurchase Program” for more information.

 

The accompanying notes are an integral part of these consolidated financial statements.

 

5



Table of Contents

 

MVC Capital, Inc.

Consolidated Statements of Cash Flows

(Unaudited)

 

 

 

For the Six Month Period

 

For the Six Month Period

 

 

 

November 1, 2013

 

November 1, 2012

 

 

 

April 30, 2014

 

April 30, 2013

 

Cash flows from Operating Activities:

 

 

 

 

 

Net (decrease) increase in net assets resulting from operations

 

$

(16,498,797

)

$

14,767,642

 

Adjustments to reconcile net (decrease) increase in net assets resulting from operations to net cash (used in) provided by operating activities:

 

 

 

 

 

Net realized gain

 

(484,711

)

(43,214,610

)

Net change in unrealized depreciation

 

20,031,340

 

30,621,385

 

Amortization of discounts and fees

 

(861,285

)

(100,982

)

Increase in accrued payment-in-kind dividends and interest

 

(2,127,458

)

(1,102,967

)

Amortization of deferred financing fees

 

213,660

 

56,287

 

Allocation of flow through (income) loss

 

(281,831

)

(80,370

)

Changes in assets and liabilities:

 

 

 

 

 

Dividends, interest and fees receivable

 

(707,738

)

1,460,383

 

Fee and other receivables

 

183,818

 

1,068,134

 

Proceeds from short term receivables

 

(99,783,203

)

 

Escrow receivables, net of reserves

 

300,000

 

(4,970,868

)

Prepaid expenses

 

26,196

 

212,029

 

Prepaid taxes

 

336

 

343

 

Incentive compensation (Note 11)

 

(4,313,856

)

2,183,145

 

Other liabilities

 

581,677

 

212,282

 

Purchases of equity investments

 

(12,818,418

)

(5,894,411

)

Purchases of debt instruments

 

(34,037,000

)

(30,571,661

)

Purchases of short term investments

 

(199,323,373

)

 

Proceeds from equity investments (1)

 

491,075

 

65,744,643

 

Proceeds from debt instruments

 

7,200,000

 

20,229,280

 

Sales/maturities of short term investments

 

249,435,798

 

 

 

 

 

 

 

 

Net cash (used in) provided by operating activities

 

(92,773,770

)

50,619,684

 

 

 

 

 

 

 

Cash flows from Financing Activities:

 

 

 

 

 

Proceeds from senior notes

 

 

80,500,000

 

Net proceeds from revolving credit facility

 

50,000,000

 

 

Repayments of revolving credit facility

 

 

(50,000,000

)

Repurchase of common stock

 

(2,109,087

)

(5,729,895

)

Financing fees paid

 

 

(3,096,620

)

Distributions paid to shareholders

 

(6,086,138

)

(6,419,929

)

 

 

 

 

 

 

Net cash provided by financing activities

 

41,804,775

 

15,253,556

 

 

 

 

 

 

 

Net change in cash and cash equivalents for the period

 

(50,968,995

)

65,873,240

 

 

 

 

 

 

 

Unrestricted and restricted cash and cash equivalents, beginning of period

 

$

81,026,560

 

$

42,640,558

 

 

 

 

 

 

 

Unrestricted and restricted cash and cash equivalents, end of period

 

$

30,057,565

 

$

108,513,798

 

 


(1) For the six month period ended April 30, 2014, proceeds from equity investments includes $491,075 in escrow receivables, net of reserves.

 

During the six month period ended April 30, 2014 and 2013 MVC Capital, Inc. paid $4,348,623 and $2,360,378 in interest expense, respectively.

 

During the six month period ended April 30, 2014 and 2013 MVC Capital, Inc. paid $300 and $1,757 in  income taxes, respectively.

 

Non-cash activity:

 

During the six month period ended April 30, 2014 and 2013, MVC Capital, Inc. recorded payment in-kind dividend and interest of $2,127,458 and $1,102,967, respectively. This amount was added to the principal balance of the investments and recorded as dividend/interest income.

 

During the six month period ended April 30, 2014 and 2013, MVC Capital, Inc. was allocated $553,769 and $160,197, respectively, in flow-through income from its equity investment in Octagon Credit Investors, LLC.  Of these amounts, $271,938 and $80,370, respectively, was received in cash and $281,831 and $80,370, respectively, was undistributed and therefore increased the cost of the investment.  The fair value then increased by $101,099 and $80,370, respectively, by the Company’s Valuation Committee.

 

On November 19, 2013, MVC Capital, Inc. converted the MVC Automotive Group B.V. bridge loan of approximately $1.6 million to addional common equity interest.

 

The accompanying notes are an integral part of these consolidated financial statements.

 

6



Table of Contents

 

MVC Capital, Inc.

Consolidated Statements of Changes in Net Assets

 

 

 

For the Six Month Period

 

For the Six Month Period

 

 

 

 

 

November 1, 2013 to

 

November 1, 2012 to

 

For the Year Ended

 

 

 

April 30, 2014

 

April 30, 2013

 

October 31, 2013

 

 

 

(Unaudited)

 

(Unaudited)

 

 

 

Operations:

 

 

 

 

 

 

 

Net operating income (loss)

 

$

3,047,832

 

$

2,174,417

 

$

(3,445,195

)

Net realized gain on investments

 

484,711

 

43,214,610

 

43,664,918

 

Net change in unrealized depreciation on investments

 

(20,031,340

)

(30,621,385

)

(3,482,873

)

 

 

 

 

 

 

 

 

Net (decrease) increase in net assets from operations

 

(16,498,797

)

14,767,642

 

36,736,850

 

 

 

 

 

 

 

 

 

Shareholder Distributions:

 

 

 

 

 

 

 

Distributions to shareholders from income

 

 

(6,419,929

)

(5,837,868

)

Distributions to shareholders from return of capital

 

(6,086,138

)

 

(6,688,836

)

 

 

 

 

 

 

 

 

Net decrease in net assets from shareholder distributions

 

(6,086,138

)

(6,419,929

)

(12,526,704

)

 

 

 

 

 

 

 

 

Capital Share Transactions:

 

 

 

 

 

 

 

Repurchase of common stock

 

(2,109,087

)

(5,729,895

)

(16,673,207

)

 

 

 

 

 

 

 

 

Net decrease in net assets from capital share transactions

 

(2,109,087

)

(5,729,895

)

(16,673,207

)

 

 

 

 

 

 

 

 

Total (decrease) increase in net assets

 

(24,694,022

)

2,617,818

 

7,536,939

 

 

 

 

 

 

 

 

 

Net assets, beginning of period/year

 

393,553,072

 

386,016,133

 

386,016,133

 

 

 

 

 

 

 

 

 

Net assets, end of period/year

 

$

368,859,050

 

$

388,633,951

 

$

393,553,072

 

 

 

 

 

 

 

 

 

Common shares outstanding, end of period/year

 

22,464,814

 

23,469,342

 

22,617,688

 

 

 

 

 

 

 

 

 

Undistributed net operating income

 

$

 

$

5,036,651

 

$

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

7



Table of Contents

 

MVC Capital, Inc.

Consolidated Selected Per Share Data and Ratios

 

 

 

For the Six Month Period

 

For the Six Month Period

 

For the

 

 

 

November 1, 2013 to

 

November 1, 2012 to

 

Year Ended

 

 

 

April 30, 2014

 

April 30, 2013

 

October 31, 2013

 

 

 

(Unaudited)

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

Net asset value, beginning of period/year

 

$

17.40

 

$

16.14

 

$

16.14

 

 

 

 

 

 

 

 

 

Gain from operations:

 

 

 

 

 

 

 

Net operating income (loss)

 

0.14

 

0.07

 

(0.15

)

Net realized and unrealized (loss) gain on investments

 

(0.87

)

0.55

 

1.74

 

 

 

 

 

 

 

 

 

Total gain from investment operations

 

(0.73

)

0.62

 

1.59

 

 

 

 

 

 

 

 

 

Less distributions from:

 

 

 

 

 

 

 

Income

 

 

(0.27

)

(0.25

)

Return of capital

 

(0.27

)

 

(0.29

)

 

 

 

 

 

 

 

 

Total distributions

 

(0.27

)

(0.27

)

(0.54

)

 

 

 

 

 

 

 

 

Capital share transactions

 

 

 

 

 

 

 

Anti-dilutive effect of share repurchase program

 

0.02

 

0.07

 

0.21

 

 

 

 

 

 

 

 

 

Total capital share transactions

 

0.02

 

0.07

 

0.21

 

 

 

 

 

 

 

 

 

Net asset value, end of period/year

 

$

16.42

 

$

16.56

 

$

17.40

 

 

 

 

 

 

 

 

 

Market value, end of period/year

 

$

13.04

 

$

12.99

 

$

13.83

 

 

 

 

 

 

 

 

 

Market discount

 

(20.58

)%

(21.56

)%

(20.52

)%

 

 

 

 

 

 

 

 

Total Return - At NAV (a)

 

(4.12

)%(d)

4.30

%(d)

11.30

%

 

 

 

 

 

 

 

 

Total Return - At Market (a)

 

(3.83

)%(d)

7.37

%(d)

16.65

%

 

 

 

 

 

 

 

 

Ratios and Supplemental Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Portfolio turnover ratio

 

1.64

%

9.44

%

24.40

%

 

 

 

 

 

 

 

 

Net assets, end of period/year (in thousands)

 

$

368,859

 

$

388,634

 

$

393,553

 

 

 

 

 

 

 

 

 

Ratios to average net assets:

 

 

 

 

 

 

 

Expenses excluding tax expense

 

3.85

%(c)

5.65

%(c)

7.26

%

Expenses including tax expense

 

3.85

%(c)

5.65

%(c)

7.26

%

 

 

 

 

 

 

 

 

Net operating income (loss) before tax expense

 

1.58

%(c)

1.13

%(c)

(0.89

)%

Net operating income (loss) after tax expense

 

1.58

%(c)

1.13

%(c)

(0.89

)%

 

 

 

 

 

 

 

 

Ratios to average net assets excluding waivers:

 

 

 

 

 

 

 

Expenses excluding tax expense

 

3.89

%(c)

5.69

%(c)

7.30

%

Expenses including tax expense

 

3.89

%(c)

5.69

%(c)

7.30

%

 

 

 

 

 

 

 

 

Net operating income (loss) before tax expense

 

1.54

%(c)

1.09

%(c)

(0.93

)%

Net operating income (loss) after tax expense

 

1.54

%(c)

1.09

%(c)

(0.93

)%

 


(a) Total annual return is historical and assumes changes in share price, reinvestments of all dividends and distributions, and no sales charge for the period/year.

 

(b) Supplemental Ratio information

 

Ratios to average net assets: (b)

 

 

 

 

 

 

 

Expenses excluding incentive compensation

 

6.09

%(c)

4.52

%(c)

5.12

%

Expenses excluding incentive compensation, interest and other borrowing costs

 

3.67

%(c)

3.29

%(c)

3.39

%

 

 

 

 

 

 

 

 

Net operating (loss) income before incentive compensation

 

(0.66

)%(c)

2.26

%(c)

1.25

%

Net operating income before incentive compensation, interest and other borrowing costs

 

1.76

%(c)

3.49

%(c)

2.98

%

 

 

 

 

 

 

 

 

Ratios to average net assets excluding waivers: (b)

 

 

 

 

 

 

 

Expenses excluding incentive compensation

 

6.13

%(c)

4.56

%(c)

5.16

%

Expenses excluding incentive compensation, interest and other borrowing costs

 

3.71

%(c)

3.33

%(c)

3.43

%

 

 

 

 

 

 

 

 

Net operating (loss) income before incentive compensation

 

(0.70

)%(c)

2.22

%(c)

1.21

%

Net operating income before incentive compensation, interest and other borrowing costs

 

1.72

%(c)

3.45

%(c)

2.94

%

 

(c) Annualized.

(d) Non- Annualized.

 

The accompanying notes are an integral part of these consolidated financial statements.

 

8



Table of Contents

 

MVC Capital, Inc.

Consolidated Schedule of Investments

April 30, 2014 (Unaudited)

 

Company

 

Industry

 

Investment

 

Principal

 

Cost

 

Fair Value

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-control/Non-affiliated investments- 25.78% (a), (c), (f), (g)

 

 

 

 

 

 

 

 

 

 

 

Actelis Networks, Inc.

 

Technology Investment

 

Preferred Stock (150,602 shares) (d), (i)

 

 

 

$

5,000,003

 

 

Biogenic Reagents

 

Renewable energy

 

Senior Note 12.0000% Cash, 4.0000% PIK, 07/21/2018 (b)

 

$

5,141,868

 

5,141,868

 

$

5,141,868

 

 

 

 

 

Senior Convertible Note 12.0000% Cash, 4.0000% PIK, 07/21/2018 (b)

 

4,627,682

 

4,627,682

 

4,627,682

 

 

 

 

 

 

 

 

 

9,769,550

 

9,769,550

 

Biovation Holdings, Inc.

 

Manufacturer of Laminate Material and Composites

 

Bridge Loan 6.0000% Cash, 6.0000% PIK, 08/31/2014 (b)

 

3,105,032

 

3,105,032

 

3,034,155

 

 

 

 

 

Warrants (d)

 

 

 

288,000

 

363,000

 

 

 

 

 

 

 

 

 

3,393,032

 

3,397,155

 

FOLIOfn, Inc.

 

Technology Investment

 

Preferred Stock (5,802,259 shares) (d), (i)

 

 

 

15,000,000

 

6,018,000

 

Freshii USA, Inc.

 

Food Services

 

Senior Secured Loan 6.0000% Cash, 6.0000% PIK, 01/11/2017 (b)

 

1,143,200

 

1,119,497

 

1,124,900

 

 

 

 

 

Warrants (d), (l)

 

 

 

33,873

 

41,785

 

 

 

 

 

 

 

 

 

1,153,370

 

1,166,685

 

G3K Display, Inc.

 

Retail Store Fixtures

 

Senior Lien Loan 13.0000% Cash, 4/11/2019 (h)

 

5,625,000

 

5,625,000

 

 

 

 

 

 

Warrants (d)

 

 

 

 

 

 

 

 

 

 

 

 

 

5,625,000

 

 

Inland Environmental & Remediation LP

 

Environmental Services

 

Senior Secured Loan 12.0000% Cash, 4/17/2019

 

13,000,000

 

12,292,467

 

12,292,467

 

 

 

 

 

Warrants (d)

 

 

 

713,000

 

713,000

 

 

 

 

 

 

 

 

 

13,005,467

 

13,005,467

 

MainStream Data, Inc.

 

Technology Investment

 

Common Stock (5,786 shares) (d), (i)

 

 

 

3,750,000

 

 

Morey’s Seafood International, LLC

 

Food Services

 

Second Lien Loan 10.0000% Cash, 3.0000% PIK, 08/12/2018

 

15,108,750

 

15,108,750

 

15,108,750

 

NPWT Corporation

 

Medical Device Manufacturer

 

Series B Common Stock (281 shares) (d)

 

 

 

1,231,638

 

11,000

 

 

 

 

 

Series A Convertible Preferred Stock (5,000 shares) (d)

 

 

 

 

205,000

 

 

 

 

 

 

 

 

 

1,231,638

 

216,000

 

Prepaid Legal Services, Inc.

 

Consumer Services

 

2nd Lien Term Loan , 9.7500% Cash, 07/01/2020

 

10,000,000

 

9,866,634

 

10,100,000

 

SGDA Sanierungsgesellschaft fur Deponien und Altlasten GmbH

 

Environmental Services

 

Term Loan 7.0000% Cash, 08/31/2014 (e)

 

6,547,350

 

6,547,350

 

6,547,350

 

Summit Research Labs, Inc.

 

Specialty Chemicals

 

Second Lien Loan 7.0000% Cash, 7.0000% PIK , 10/01/2018 (b)

 

24,276,455

 

24,276,455

 

24,276,455

 

U.S. Spray Drying Holding Company

 

Specialty Chemicals

 

Class B Common Stock (784 shares)

 

 

 

5,488,000

 

5,488,000

 

Sub Total Non-control/Non-affiliated investments

 

 

 

 

 

 

 

              119,215,249

 

                 95,093,412

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Affiliate investments - 60.46% (a), (c), (f), (g)

 

 

 

 

 

 

 

 

 

 

 

Advantage Insurance Holdings LTD

 

Insurance

 

Preferred Stock (750,000 shares) (d), (e)

 

 

 

7,500,000

 

7,500,000

 

Centile Holdings B.V.

 

Software

 

Common Equity Interest (d), (e)

 

 

 

3,274,376

 

4,905,000

 

Custom Alloy Corporation

 

Manufacturer of Pipe Fittings

 

Unsecured Subordinated Loan 12.0000% Cash, 09/04/2016

 

6,500,000

 

6,500,000

 

6,500,000

 

 

 

 

 

Convertible Series A Preferred Stock (9 shares) (d)

 

 

 

44,000

 

99,704

 

 

 

 

 

Convertible Series B Preferred Stock (1,991 shares) (d)

 

 

 

9,956,000

 

22,560,296

 

 

 

 

 

 

 

 

 

16,500,000

 

29,160,000

 

JSC Tekers Holdings

 

Real Estate Management

 

Common Stock (2,250 shares) (d), (e)

 

 

 

4,500

 

4,500

 

 

 

 

 

Secured Loan 8.0000% Cash, 12/31/2014 (e), (h)

 

12,000,000

 

12,000,000

 

11,000,000

 

 

 

 

 

 

 

 

 

12,004,500

 

11,004,500

 

Marine Exhibition Corporation

 

Theme Park

 

Senior Subordinated Debt 7.0000% Cash, 4.0000% PIK, 06/30/2017 (b)

 

11,546,289

 

11,546,289

 

11,546,289

 

 

 

 

 

Second Lien Loan 7.0000% Cash, 4.0000% PIK, 06/30/2014 (b)

 

1,503,500

 

1,503,500

 

1,503,500

 

 

 

 

 

Convertible Preferred Stock (20,000 shares) (b)

 

 

 

3,687,302

 

3,687,302

 

 

 

 

 

 

 

 

 

16,737,091

 

16,737,091

 

Octagon Credit Investors, LLC

 

Financial Services

 

Limited Liability Company Interest

 

 

 

2,893,330

 

7,000,000

 

RuMe Inc.

 

Consumer Products

 

Common Stock (5,297,548 shares) (d)

 

 

 

924,475

 

924,475

 

 

 

 

 

Senior Secured Loan 12.0000% Cash, 04/04/2014

 

3,250,000

 

3,250,000

 

3,250,000

 

 

 

 

 

Series B-1 Preferred Stock (4,999,076 shares) (d)

 

 

 

999,815

 

1,090,000

 

 

 

 

 

 

 

 

 

5,174,290

 

5,264,475

 

Security Holdings B.V.

 

Electrical Engineering

 

Common Equity Interest (d), (e)

 

 

 

40,186,620

 

36,376,000

 

 

 

 

 

Bridge Loan 5.0000% Cash, 2/15/2014 (e)

 

4,000,000

 

4,000,000

 

4,000,000

 

 

 

 

 

 

 

 

 

44,186,620

 

40,376,000

 

SGDA Europe B.V.

 

Environmental Services

 

Common Equity Interest (d), (e)

 

 

 

20,084,599

 

7,034,000

 

U.S. Gas & Electric, Inc.

 

Energy Services

 

Second Lien Loan 9.0000% Cash, 5.0000% PIK , 07/25/2015 (b)

 

10,377,287

 

10,377,287

 

10,377,287

 

 

 

 

 

Convertible Series I Preferred Stock (32,200 shares) (d), (k)

 

 

 

500,000

 

83,667,607

 

 

 

 

 

Convertible Series J Preferred Stock (8,216 shares) (d)

 

 

 

 

 

 

 

 

 

 

 

 

 

10,877,287

 

94,044,894

 

 

 

 

 

 

 

 

 

 

 

 

 

Sub Total Affiliate investments

 

 

 

 

 

 

 

139,232,093

 

223,025,960

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

9



Table of Contents

 

MVC Capital, Inc.

Consolidated Schedule of Investments - (Continued)

April 30, 2014 (Unaudited)

 

Company 

 

Industry

 

Investment

 

Principal

 

Cost

 

Fair Value

 

Control Investments - 39.31% (a), (c), (f), (g)

 

 

 

 

 

 

 

 

 

 

 

Harmony Health & Beauty, Inc.

 

Health & Beauty - Distributor

 

Common Stock (147,621 shares) (d)

 

 

 

$

6,700,000

 

 

MVC Automotive Group B.V.

 

Automotive Dealerships

 

Common Equity Interest (d), (e)

 

 

 

45,662,438

 

$

34,969,000

 

MVC Private Equity Fund LP

 

Private Equity

 

Limited Partnership Interest (d), (j)

 

 

 

11,831,196

 

17,158,826

 

 

 

 

 

General Partnership Interest (d), (j)

 

 

 

301,816

 

432,610

 

 

 

 

 

 

 

 

 

12,133,012

 

17,591,436

 

Ohio Medical Corporation

 

Medical Device Manufacturer

 

Common Stock (5,620 shares) (d)

 

 

 

15,763,636

 

 

 

 

 

 

Series A Convertible Preferred Stock (26,795 shares) (b)

 

 

 

30,000,000

 

24,600,000

 

 

 

 

 

Series C Convertible Preferred Stock (8,486 shares) (b)

 

 

 

22,618,466

 

25,668,855

 

 

 

 

 

 

 

 

 

68,382,102

 

50,268,855

 

SIA Tekers Invest

 

Port Facilities

 

Common Stock (68,800 shares) (d), (e)

 

 

 

2,300,000

 

1,472,000

 

Turf Products, LLC

 

Distributor - Landscaping and

 

Senior Subordinated Debt 7.0000% Cash, 4.0000% PIK, 11/1/2018 (b)

 

$

3,895,262

 

3,895,262

 

3,895,262

 

 

 

Irrigation Equipment

 

Limited Liability Company Interest (d)

 

 

 

3,535,694

 

3,466,794

 

 

 

 

 

Guarantee

 

 

 

 

(92,000

)

 

 

 

 

Warrants (d)

 

 

 

 

 

 

 

 

 

 

 

 

 

7,430,956

 

7,270,056

 

Velocitius B.V.

 

Renewable Energy

 

Common Equity Interest (d), (e)

 

 

 

11,395,315

 

17,385,000

 

Vestal Manufacturing Enterprises, Inc.

 

Iron Foundries

 

Senior Subordinated Debt 12.0000% Cash, 04/29/2015

 

600,000

 

600,000

 

600,000

 

 

 

 

 

Common Stock (81,000 shares) (d)

 

 

 

1,850,000

 

15,450,000

 

 

 

 

 

 

 

 

 

2,450,000

 

16,050,000

 

 

 

 

 

 

 

 

 

 

 

 

 

Sub Total Control Investments

 

 

 

 

 

 

 

156,453,823

 

145,006,347

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL INVESTMENT ASSETS - 125.55% (f)

 

 

 

 

 

 

 

$

414,901,165

 

$

463,125,719

 

 


(a) These securities are restricted from public sale without prior registration under the Securities Act of 1933.  The Company negotiates certain aspects of the method and timing of the disposition of these investments, including registration rights and related costs.

 

(b) These securities accrue a portion of their interest/dividends in “payment in kind” interest/dividends which is capitalized to the investment.

 

(c) All of the Company’s equity and debt investments are issued by eligible portfolio companies, as defined in the Investment Company Act of 1940, except MVC Automotive Group B.V., Security Holdings B.V., SGDA Europe B.V., SGDA Sanierungsgesellschaft fur Deponien und Altlasten mbH, SIA Tekers Invest, JSC Tekers Holdings, Centile Holdings B.V., Velocitius B.V., MVC Private Equity Fund L.P., Advantage Insurance and Freshii USA, Inc.  The Company makes available significant managerial assistance to all of the portfolio companies in which it has invested.

 

(d) Non-income producing assets.

 

(e) The principal operations of these portfolio companies are located in Europe which represents approximately 21% of the total assets.  The remaining portfolio companies are located in North America which represents approximately 55% of the total assets.

 

(f) Percentages are based on net assets of $368,859,050 as of April 30, 2014.

 

(g) See Note 3 for further information regarding “Investment Classification.”

 

(h) All or a portion of the accrued interest on these securities have been reserved for.

 

(i) Legacy Investments.

 

(j) MVC Private Equity Fund, LP is a private equity fund focused on control equity investments in the lower middle market.  The fund currently holds four investments, three located in the United States and one in Gibraltar, the investments are in the energy, services, and industrial sectors.

 

(k) Upon a liquidity event, the Company may receive additional ownership in U.S. Gas & Electric, Inc.

 

(l) Includes a warrant in Freshii One LLC, an affiliate of Freshii USA, Inc.

 

(m) All or a portion of these securities may serve as collateral for the BB&T Credit Facility.

 

PIK - Payment-in-kind

 

- Denotes zero cost or fair value.

 

The accompanying notes are an integral part of these consolidated financial statements.

 

10



Table of Contents

 

MVC Capital, Inc.

Consolidated Schedules of Investments

October 31, 2013

 

Company

 

Industry

 

Investment

 

Principal

 

Cost

 

Fair Value

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-control/Non-affiliated investments - 18.91% (a),