ARLINGTON, Va., May 7 /PRNewswire-FirstCall/ -- MCG Capital Corporation (Nasdaq: MCGC) ("MCG" or the "Company") announced today its financial results for the quarter ended March 31, 2009. MCG will host an investment community conference call on Friday, May 8, 2009 at 9:30 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, 2009 was $13.5 million, or $0.18 per share. DNOI refers to net operating income adjusted for amortization of employee restricted stock awards and impairment of goodwill.
- Net operating income for the quarter ended March 31, 2009 was $11.9 million, or $0.16 per share.
- Net loss for the quarter ended March 31, 2009 was $50.9 million, or $0.68 per share.
- Since MCG began its deleveraging initiatives in July 2008, it cumulatively has completed a total of $169.2 million in investment monetizations, including 17 monetizations for $157.5 million, which were completed at 99.4% of their most recently reported fair value, and one distressed sale for $11.7 million, which was completed at 42.7% of its most recently reported fair value.
- During the quarter ended March 31, 2009, MCG repurchased $7.5 million of borrowings, which resulted in a $5.4 million realized gain on extinguishment. In total, since December 2008, MCG has repurchased a total of $22.6 million of its borrowings at 27% of par.
- On May 4, 2009, MCG repaid the remaining balance on its unsecured revolving line of credit out of cash on hand. This facility is scheduled to mature on May 29, 2009. MCG expects to have sufficient liquidity from its operations, monetizations and remaining unrestricted cash balance to meet its 2009 operating requirements.
- As of March 31, 2009, MCG's ratio of total assets to total borrowings and other senior securities was 199%. Subsequently, this ratio increased to 208% as of May 4, 2009. The decline had no impact on MCG's operations, liquidity, or borrowing facilities.
- Through the date of this release, MCG has met all required financial covenants in its borrowing agreements.
OVERVIEW
Today, MCG reported a first quarter 2009 net loss of $50.9 million, or $0.68 per share, compared to net income of $2.5 million, or $0.04 per share, during the comparable period in 2008. This decrease in earnings reported was attributable to the recognition of $68.3 million of losses on MCG's investment portfolio, composed of $14.3 million of realized gains on its investments offset by $82.6 million of unrealized depreciation on the fair value of its portfolio. MCG's revenue for the first quarter of 2009 was $27.8 million, which represents a 35% decrease from the comparable period in 2008. MCG's reported DNOI of $13.5 million, or $0.18 per share, was down from $23.0 million, or $0.33 per share, from the comparable period in 2008. Net operating income during the first quarter of 2009 decreased 44% to $11.9 million from the comparable period in 2008. MCG's revenues, net operating income and DNOI decreased primarily because MCG stopped accreting dividends on one of its more significant portfolio investments during the second quarter of 2008. In addition, a 202 basis point decrease in average LIBOR, as well as decreases in MCG's loan originations and loan fees, also contributed to the decrease in MCG's revenue.
"While current economic conditions remain challenging, our successful monetization activities have allowed us to make significant strides toward improving our liquidity, preserving our capital and reducing our debt obligations," said Steven F. Tunney, CEO and President. "We are pleased that during the first quarter we were able to monetize $64.2 million of portfolio investments and repay our outstanding revolver in full after quarter end. Moving forward in 2009, we will remain focused on asset monetizations, balance sheet and portfolio management and enhancing shareholder value."
During the quarter ended March 31, 2009, MCG successfully monetized $64.2 million of portfolio investments at 105.1% of fair value as of the most recent reported period. Subsequent to quarter-end, the Company monetized three additional investments for $13.0 million. Since MCG began its deleveraging initiatives in July 2008, it cumulatively has completed a total of $169.2 million in investment monetizations, including 17 monetizations for $157.5 million which were completed at 99.4% of their most recently reported fair value, and one distressed sale for $11.7 million, which was completed at 42.7% of its most recently reported fair value. In March 2009, three major customers of TNR Holdings Corp., or TNR, elected not to renew their contracts. As a result, the revenues forecasted for TNR decreased by nearly 80%, which resulted in a significant decline in the fair value of MCG's investment in TNR. On April 20, 2009, TNR repaid its debt in full, together with all accrued interest and MCG concurrently sold its equity investments in TNR in a related transaction for combined proceeds of $11.7 million in cash. This sale represented a $15.8 million additional loss compared to MCG's reported fair value as of December 31, 2008. MCG continues to focus on preserving its net asset value through opportunistic monetizations. Therefore, while MCG will strive to continue monetizing assets opportunistically over the course of the next several quarters, the timing of such monetizations depends largely upon future market conditions. However, the Company is under no contractual or other obligation to monetize assets at specified times, levels or prices.
During the quarter ended March 31, 2009, MCG repurchased $7.5 million of collateralized loan obligations for $2.1 million that previously had been issued by MCG Commercial Loan Trust 2006-1. Since December 2008, MCG has repurchased a total of $22.6 million of borrowings at 27% of par.
As previously announced, the Company renegotiated three of its debt facilities during the first quarter of 2009. Most significantly, these amendments reduced key covenant requirements under the borrowing facilities. In addition, cross-default provisions related to MCG's unsecured privately placed notes were modified so that defaults under other non-recourse credit facilities would not be considered an event of default under the unsecured notes. In February 2009, MCG obtained a liquidity renewal and covenant relief from SunTrust for its committed secured warehouse facility, which resulted in a final maturity for this facility of August 2011. MCG agreed to increase the interest rates paid under each of these facilities. Compared with the interest rates in effect as of December 31, 2008, these interest rate increases would increase annual interest expense by approximately $4.2 million, based on principal outstanding as of December 31, 2008, reduced by repayments required under the facilities. This increase is being offset by approximately $0.7 million of annual interest expense MCG will save on the 2006-1 notes that it repurchased. These amendments provide MCG with continuing debt financing with repayment terms that are generally tied to future monetizations.
If the Company is able to meet its goals with respect to leverage levels, unrestricted cash balances and credit agreement limitations, MCG will evaluate on a quarterly basis the potential repurchase of equity and additional debt securities at a discount and the resumption of shareholder distributions.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2009, MCG's cash and cash equivalents totaled $50.3 million and it had $631.2 million of borrowings (the majority of which was composed of $505.4 million of collateralized non-recourse borrowings), including $32.6 million of borrowings that mature within one year. As a BDC, MCG is required to meet an asset coverage ratio of total net assets to total borrowings and other senior securities of at least 200% in order to borrow under new or existing borrowing facilities or to distribute dividends to its shareholders. MCG's asset coverage ratio decreased to 199% as of March 31, 2009, but by May 4, 2009 had increased to 208%. During 2009 MCG intends to deleverage its balance sheet and pay only the minimum statutory dividend, which may be as low as zero. Furthermore, none of MCG's borrowing facilities contains a financial covenant that requires the Company to maintain a 200% asset coverage ratio; MCG's renegotiated borrowing facilities contain a financial covenant that requires the Company to maintain a minimum asset coverage ratio of 180%, down from 200%. In addition, MCG has $28.3 million of funded borrowing capacity available in its SBIC subsidiary that is exempt from the asset coverage ratio requirements.
In accordance with three of MCG's borrowing facilities amended in February 2009, MCG repaid $3.8 million on its unsecured revolving line of credit, $1.5 million on its SunTrust warehouse facility and $8.0 million on its unsecured notes during the quarter ended March 31, 2009. These repayments represent a portion of the monetization proceeds that MCG received during the quarter. Subsequently, on May 4, 2009, MCG repaid its remaining balance on its unsecured revolving line of credit out of cash on hand. After this repayment, the Company had over $23.3 million of unrestricted cash, $35.9 million of cash held in securitization accounts and $20.2 million of restricted cash as of May 4, 2009. MCG believes its current liquidity, combined with its future cash flows from operations and expected monetizations, should provide sufficient liquidity to meet the Company's operating expenses during the upcoming year.
PORTFOLIO ACTIVITY
The fair value of MCG's investment portfolio totaled $1.115 billion at March 31, 2009, as compared to $1.203 billion at December 31, 2008. During the first quarter of 2009, MCG originated $38.0 million of investments in four existing portfolio companies, including $20.6 million in connection with the equity sale and debt financing of LMS Intellibound Investors, Inc., and made advances of $14.8 million, including $6.9 million of paid-in-kind, or PIK, advances and $7.9 million of advances to portfolio companies under revolving and line of credit facilities. The originations of $38.0 million included $32.9 million of senior debt, $0.1 million of secured subordinated debt and $5.0 million of preferred equity. Gross payments, reductions and sales of securities during the first quarter of 2009 of $72.7 million were composed of $7.8 million of senior debt, $22.2 million of secured subordinated debt, $42.3 million of preferred equity and $0.4 million of common equity.
During the three months ended March 31, 2009, MCG reported net investment losses before income tax benefit of $68.3 million, which are detailed below:
Three months ended March 31, 2009
(dollars in thousands)
Reversal of
Unrealized Unrealized
(Depre- (Appre-
Realized ciation)/ ciation)/ Net
Portfolio (Loss)/ Appre- Depre- (Loss)/
Company Industry Type Gain ciation ciation Gain
TNR Holdings
Corp. Entertainment Control $ - $(15,802) $- (15,802)
Total Sleep
Holdings,
Inc. Healthcare Control - (13,540) - (13,540)
GMC Television
Broadcasting,
LLC Broadcasting Control - (6,218) - (6,218)
Jenzabar, Non-
Inc. Technology affiliate - (5,733) - (5,733)
Superior
Industries
Investors, Sporting
LLC Goods Control - (4,955) - (4,955)
Broadview
Networks
Holdings,
Inc. Communications Control - (3,822) - (3,822)
Jet Plastica
Investors, Plastic
LLC Products Control - (3,522) - (3,522)
CWP/RMK
Acquisition Home Non-
Corp. Furnishings affiliate - (3,511) - (3,511)
Active Brands
Inter-
national, Consumer Non-
Inc. Products affiliate - (2,679) - (2,679)
Avenue
Broadband
LLC Cable Control - (2,085) - (2,085)
Xpressdocs
Holdings, Business Non-
Inc. Services affiliate - (1,996) - (1,996)
VOX
Communications
Group
Holdings, Non-
LLC Broadcasting affiliate - (1,256) - (1,256)
XFone, Inc. Communications Affiliate (1,969) - 1,969 -
LMS
Intellibound
Investors,
LLC Logistics Control 16,257 (1,014) (15,065) 178
Other
(< $1 million
net (loss)
gain) (35) (3,355) - (3,390)
Total $14,253 $(69,488) $(13,096) (68,331)
During the three months ended March 31, 2009, MCG recorded $82.6 million of unrealized depreciation, which includes the reversal of previously recorded unrealized appreciation on LMS Intellibound Investors, LLC, which was realized on the sale of its investment in LMS Intellibound Investors, LLC, in February 2009. The remaining unrealized depreciation shown in the above table predominantly resulted from a change in the performance of certain of the portfolio companies, as well as the multiples that MCG used to estimate the fair value of the investments.
Conference Call: Friday, May 8, 2009 at 9:30 a.m. Eastern Time
Dial-in Number: (877) 397-0250 domestic; (719) 325-4861 for
international callers (no access code required)
Live Webcast /Replay: http://investor.mcgcapital.com
Call Replay: (888) 203-1112 or (719) 457-0820 for international
callers - replay pass code #4542633, through May
22, 2009.
MCG Capital Corporation
Consolidated Balance Sheets
(in thousands, except per share amounts) March 31, December 31,
2009 2008
(unaudited)
Assets
Cash and cash equivalents $50,330 $46,149
Cash, securitization accounts 41,801 37,493
Cash, restricted 20,101 979
Investments at fair value
Non-affiliate investments (cost of
$632,909 and $605,906, respectively) 591,747 584,336
Affiliate investments (cost of $41,890
and $45,141, respectively) 54,492 56,126
Control investments (cost of $789,399 and
$819,076, respectively) 468,753 562,686
Total investments (cost of $1,464,198 and
$1,470,123, respectively) 1,114,992 1,203,148
Interest receivable 9,810 8,472
Other assets 18,306 16,193
Total assets $1,255,340 $1,312,434
Liabilities
Borrowings (maturing within one year of
$32,552 and $44,500, respectively) $631,245 $636,649
Interest payable 3,731 5,367
Other liabilities 10,833 11,507
Total liabilities 645,809 653,523
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, 2009 and
December 31, 2008, 76,027 issued and
outstanding on March 31, 2009 and
76,075 issued and outstanding on December
31, 2008 760 761
Paid-in capital 998,894 997,318
Undistributed (distributions in excess
of) earnings
Paid-in capital (162,783) (162,783)
Other 121,936 90,651
Net unrealized depreciation on investments (349,206) (266,975)
Stockholder loans (70) (61)
Total stockholders' equity 609,531 658,911
Total liabilities and stockholders'
equity $1,255,340 $1,312,434
Net asset value per common share at end of year $8.02 $8.66
MCG Capital Corporation
Consolidated Statements of Operations
(unaudited)
Three months ended
March 31,
(in thousands, except per share amounts) 2009 2008
Revenue
Interest and dividend income
Non-affiliate investments (less than 5% owned) $15,667 $19,874
Affiliate investments (5% to 25% owned) 1,141 1,873
Control investments (more than 25% owned) 9,789 20,652
Total interest and dividend income 26,597 42,399
Advisory fees and other income
Non-affiliate investments (less than 5% owned) 725 353
Control investments (more than 25% owned) 484 244
Total advisory fees and other income 1,209 597
Total revenue 27,806 42,996
Operating expenses
Interest expense 6,558 10,300
Employee compensation
Salaries and benefits 3,798 6,206
Amortization of employee restricted
stock awards 1,537 1,742
Total employee compensation 5,335 7,948
General and administrative expense 3,975 3,482
Total operating expenses 15,868 21,730
Net operating income before net investment losses,
gain on extinguishment of debt and income tax
(benefit) provision 11,938 21,266
Net realized (losses) gains on investments
Non-affiliate investments (less than 5% owned) (65) -
Affiliate investments (5% to 25% owned) (1,947) -
Control investments (more than 25% owned) 16,265 200
Total net realized gains on investments 14,253 200
Net unrealized (depreciation) appreciation on
investments
Non-affiliate investments (less than 5% owned) (18,932) (9,567)
Affiliate investments (5% to 25% owned) 1,618 472
Control investments (more than 25% owned) (65,270) (9,703)
Total net unrealized depreciation on
investments (82,584) (18,798)
Net investment losses before income tax
(benefit) provision (68,331) (18,598)
Gain on extinguishment of debt 5,275 -
Income tax (benefit) provision (172) 170
Net (loss) income $(50,946) $2,498
(Loss) earnings per basic and diluted
common share $(0.68) $0.04(a)
Cash distributions declared per common share $- $0.44
Weighted-average common shares outstanding
Basic 74,498 68,847(a)
Diluted 74,498 68,847(a)
(a) In accordance with FSP EITF 03-06-1-Determining Whether Instruments
Granted in Share-based Payment Transactions are Participating
Securities, we adjusted the weighted-average basic and diluted common
shares outstanding for the three months ended March 31, 2008 to
include participating restricted shares of common stock that received
non-forfeitable dividends. The implementation of this standard did
not change our previously reported earnings per share.
MCG Capital Corporation
Consolidated Statements of Cash Flows
(unaudited)
Three months ended
March 31,
(in thousands) 2009 2008
Cash flows from operating activities
Net (loss) income $(50,946) $2,498
Adjustments to reconcile net (loss)
income to net cash provided by
operating activities
Investments in portfolio companies (45,648) (19,454)
Principal collections related to
investment repayments or sales 67,102 46,972
Increase in interest receivable,
accrued payment-in-kind interest
and dividends (2,644) (11,793)
Amortization of restricted stock awards
Employee 1,537 1,742
Non-employee director 60 76
(Increase) decrease in cash in
restricted and securitization accounts
Restricted cash (19,122) 1,220
Securitization accounts from
interest collections 3,776 (176)
Depreciation and amortization 1,441 765
Unrealized appreciation on
stockholder loans (31) -
Decrease (increase) in other assets 628 (1,031)
Decrease in other liabilities (2,663) (7,235)
Net realized gains on investments (14,253) (200)
Net change in unrealized
depreciation on investments 82,584 18,798
Gain on extinguishment of debt (5,275) -
Net cash provided by operating
activities 16,546 32,182
Cash flows from financing activities
Net payments on borrowings (129) (30,699)
(Increase) decrease in cash --
securitization accounts for
repayment of principal on debt (8,084) 16,685
Payment of financing costs (4,152) (579)
Distributions paid - (28,858)
Net cash used in by financing
activities (12,365) (43,451)
Increase (decrease) in cash and
cash equivalents 4,181 (11,269)
Cash and cash equivalents
Beginning balance 46,149 23,297
Ending balance $50,330 $12,028
Supplemental disclosure of cash flow
information
Interest paid $7,094 $9,928
Income taxes paid 99 331
Payment-in-kind interest collected 365 2,643
Dividend income collected 5,196 345
SELECTED FINANCIAL DATA
QUARTERLY OPERATING INFORMATION (unaudited)
(in thousands, except 2008 2008 2008 2008 2009
per share amounts) Q1 Q2 Q3 Q4 Q1
Revenue
Interest and dividend
income
Interest income $29,829 $26,219 $26,825 $25,982 $24,054
Dividend income 11,721 2,957 2,750 2,545 1,824
Loan fee income 849 964 808 806 719
Total interest and
dividend income 42,399 30,140 30,383 29,333 26,597
Advisory fees and other
income 597 960 913 640 1,209
Total revenue 42,996 31,100 31,296 29,973 27,806
Operating expense
Interest expense 10,300 8,415 7,991 8,725 6,558
Salaries and benefits 6,206 3,386 4,081 2,817 3,798
Amortization of
employee restricted
stock awards(a) 1,742 1,862 1,890 1,467 1,537
General and
administrative(a) 3,482 4,487 4,320 4,253 3,975
Goodwill impairment - - - 3,851 -
Total operating
expense 21,730 18,150 18,282 21,113 15,868
Net operating income
before net investment
losses, gain on
extinguishment of debt
and income tax
provision (benefit) 21,266 12,950 13,014 8,860 11,938 Net investment losses
before gain on
extinguishment of debt
and income tax
provision (benefit) (18,598) (82,288) (79,724) (76,991) (68,331)
Gain on extinguishment
of debt - - - 11,055 5,275
Income tax provision
(benefit) 170 162 236 221 (172)
Net income (loss) $2,498 $(69,500) $(66,946) $(57,297) $(50,946)
Reconciliation of DNOI
to net operating income
Net operating income
before net investment
losses, gain on
extinguishment of debt
and income tax
provision (benefit) $21,266 $12,950 $13,014 $8,860 $11,938
Amortization of
employee restricted
stock awards(a) 1,742 1,862 1,890 1,467 1,537
Goodwill impairment - - - 3,851 -
DNOI(b) $23,008 $14,812 $14,904 $14,178 $13,475
DNOI per
share-weighted
average common
shares(b)(c) $0.33(d) $0.20 $0.20 $0.19 $0.18
Per common share
statistics
Weighted-average
common shares
outstanding(c) 68,847(d) 72,310 74,296 74,424 74,498
Net operating
income before net
investment losses,
gain on extinguishment
of debt and income tax
provision (benefit)
per common share -
basic and diluted(c) $0.31(d) $0.18 $0.18 $0.12 $0.16
Earnings (loss)
per common share -
basic and diluted(c) $0.04 $(0.96) $(0.90) $(0.77) $(0.68)
Net asset value per
common share - period
end $12.36 $10.31 $9.39 $8.66 $8.02
Dividends declared per
common share $0.44 $0.27 $- $- $-
(a) Q3 2008, Q4 2008 and Q1 2009 include $865, $332 and $3, respectively,
of costs associated with MCG's restructuring expense, including, $88,
$18 and $0, respectively, of costs associated with the amortization of
restricted stock awards associated with MCG's restructuring expense.
(b) DNOI represents net operating income before investment gains and
losses and income tax provision (benefit), as determined in accordance
with U.S. generally accepted accounting principles, or GAAP, adjusted
for amortization of employee restricted stock awards and impairment
of goodwill. MCG views DNOI and the related per share measures as
useful and appropriate supplements to net operating income, net
income, earnings per share and cash flows from operating activities.
These measures serve as an additional measure of MCG's operating
performance exclusive of employee restricted stock amortization and
goodwill impairment charges, which represents expenses of the Company
but do not require settlement in cash. DNOI does include paid-in-
kind, or PIK, interest and dividend income which are generally not
payable in cash on a regular basis but rather at investment maturity
or when declared. DNOI should not be considered as an alternative to
net operating income, net income, earnings per share and cash flows
from operating activities (each computed in accordance with GAAP).
Instead, DNOI should be reviewed in connection with net operating
income, net income, earnings per share and cash flows from operating
activities in MCG's consolidated financial statements, to help analyze
how MCG's business is performing.
(c) In accordance with SFAS 128, for the purposes of computing the basic
and diluted number of shares, MCG adjusted the number of common shares
outstanding prior to April 29, 2008 by a factor of 1.052 to reflect
the impact of a bonus element associated with MCG's rights offering to
acquire shares of common stock issued to shareholders on April 29,
2008 (the date that that the common stock was issued in conjunction
with the stockholders' rights offering).
(d) In accordance with FSP EITF 03-06-1-Determining Whether Instruments
Granted in Share-based Payment Transactions are Participating
Securities, we adjusted the weighted-average basic and diluted common
shares outstanding for the three months ended March 31, 2008 to
include participating restricted shares of common stock that received
non-forfeitable dividends. The implementation of this standard did
not change our previously reported earnings per share; however, DNOI
decreased by $0.01 per share for the quarter ended March 31, 2008.
SELECTED FINANCIAL DATA
KEY QUARTERLY STATISTICS (unaudited)
(dollars in
thousands) 2008 2008 2008 2008 2009
Q1 Q2 Q3 Q4 Q1
Average
quarterly
loan
portfolio
- fair
value $1,016,845 $999,942 $925,862 $858,237 $815,620
Average
quarterly
total
investment
portfolio
- fair
value 1,530,940 1,514,918 1,412,899 1,290,524 1,197,840
Average
quarterly
total
assets 1,590,101 1,593,656 1,469,584 1,356,785 1,308,567
Average
quarterly
stockholders'
equity 823,485 836,044 778,026 715,497 660,665
Return on
average
total
assets
(trailing
12 months)
Net operating
income before
net investment
losses, gain
on extinguishment
of debt and
income tax
provision
(benefit) 6.62% 5.50% 4.87% 3.73% 3.26%
Net income
(loss) 3.77% (3.07%) ( 8.85%) (12.73%) (17.08%)
Return on
average
equity
(trailing
12 months)
Net operating
income before
net investment
losses, gain on
extinguishment
of debt and
income tax
provision
(benefit) 12.60% 10.53% 9.29% 7.12% 6.25%
Net income
(loss) 7.17% (5.88%) (16.89%) (24.27%) (32.72%)
Yield on
average loan
portfolio at fair
value
Average LIBOR
(90-Day) 3.27% 2.75% 2.91% 2.74% 1.24%
Spread to average
LIBOR on average
yielding loan
portfolio at
fair value(a) 9.73% 9.46% 9.75% 10.44% 11.94%
13.00% 12.21% 12.66% 13.18% 13.18%
Impact of fee
accelerations of
unearned fees on
paid/restructured
loans 0.03% 0.09% 0.04% 0.06% 0.06%
Impact of
previously
unaccrued
income 0.00% 0.00% 0.00% 0.00% 0.00%
Impact of
non-accrual
loans (0.90%) (1.37%) (0.83%) (0.82%) (0.92%)
Total yield on
average loan
portfolio at
fair value 12.13% 10.93% 11.87% 12.42% 12.32% Cost of funds
Average LIBOR 3.27% 2.75% 2.91% 2.74% 1.24%
Spread to average
LIBOR excluding
amortization of
deferred debt
issuance
costs(a) 2.07% 1.54% 1.36% 2.30% 2.19%
Impact of
amortization of
deferred debt
issuance costs 0.27% 0.30% 0.39% 0.40% 0.70%
Total cost of
funds 5.61% 4.59% 4.66% 5.44% 4.13%
Net portfolio
yield margin 8.29% 5.67% 6.20% 6.25% 6.69%
Selected period
end balance
sheet statistics
Total
investment
portfolio
at fair
value $1,512,416 $1,431,084 $1,296,469 $1,203,148 $1,114,992
Total
assets 1,574,686 1,506,595 1,386,054 1,312,434 1,255,340(c)
Borrowings 720,336 692,975 652,968 636,649 631,245(c)
Total
equity 810,203 779,530 714,679 658,911 609,531(c)
Cash,
securitization
accounts 20,494 29,098 41,083 37,493 41,801(c)
Debt to
equity 88.91% 88.90% 91.37% 96.62% 103.56%(c)
Debt, net
of cash,
securitization
accounts
to equity 86.38% 85.16% 85.62% 90.93% 96.70%(c)
Other statistics
(at period end)
BDC asset
coverage
ratio 209% 210% 207% 201% 199%(c)
Number of
portfolio
companies 79 77 73 70 71
Number of
employees 98 99 74 73 70
Loans on
non-accrual as
a percentage
of total debt
investments
(fair
value)(b) 7.06% 6.21% 4.24% 4.86% 4.82%
Loans on
non-accrual
as a percentage
of total
debt
investments
(cost) 7.52% 11.73% 10.93% 13.00% 14.53%
(a) The impact due to the timing of the LIBOR resets 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 for Q1 2008,
Q2 2008, Q3 2008, Q4 2008 and Q1 2009 was approximately 0.88%, 0.15%,
0.04%, 0.55% and 0.80%, respectively. The impact to the cost of funds
due to the timing of LIBOR resets for, Q1 2008, Q2 2008, Q3 2008, Q4
2008 and Q1 2009 was approximately 0.70%, (0.03%), (0.23%), 0.64%, and
0.11%, respectively.
(b) At March 31, 2008, June 30, 2008, September 30, 2008, December 31,
2008 and March 31, 2009 the impact of Cleartel on loans on non-accrual
as a percentage of total debt investment at fair value is 2.94%,
0.0%, 0.0%, 0.0% and 0.0%, respectively. The decrease in the impact
of Cleartel on the non-accrual percentage from Q1 2008 to Q2 2008 is
a result of the unrealized depreciation recorded during 2007 and in
Q2 2008. At March 31, 2008, June 30, 2008, September 30, 2008,
December 31, 2008 and March 31, 2009, the impact of TNR on loans on
non-accrual as a percentage of total debt investment at fair value is
2.75%, 3.0%, 0.20%, 0.21% and 0.22%, respectively. The decrease in
the impact of TNR on the non-accrual percentage from Q2 2008 to Q3
2008 reflects a restructuring of TNR debt into equity during Q3 2008.
(c) As of May 4, 2009, MCG has repaid $45.5 million in outstanding
borrowings, which resulted in the following changes to its period end
statistics: Total assets $1,208,141; Borrowings $584,444; Total
equity $612,201; Cash, securitization accounts $35,860; Debt to equity
95.47%; Debt, net of cash, securitization accounts to equity 89.61%;
and the BDC asset coverage ratio 208%.
SELECTED FINANCIAL DATA
QUARTERLY INVESTMENT RISK AND CHANGES IN PORTFOLIO COMPOSITION (unaudited)
(dollars in thousands) 2008 2008 2008 2008 2009
Q1 Q2 Q3 Q4 Q1
Investment rating(a)
IR 1 total
investments at
fair value(b) $1,043,040 $989,536 $848,115 $719,765 $669,004
IR 2 total
investments at
fair value 192,358 195,576 172,376 206,829 179,499
IR 3 total
investments at
fair value 220,894 219,230 263,988 233,172 232,714
IR 4 total
investments at
fair value 21,703 11,713 - 32,648 19,257
IR 5 total
investments at
fair value 34,421 15,029 11,990 10,734 14,518
IR 1 percentage
of total
portfolio 69.0% 69.1% 65.4% 59.8% 60.0%
IR 2 percentage
of total
portfolio 12.7% 13.7% 13.3% 17.2% 16.1%
IR 3 percentage
of total
portfolio 14.6% 15.3% 20.4% 19.4% 20.9%
IR 4 percentage
of total
portfolio 1.4% 0.8% - 2.7% 1.7%
IR 5 percentage
of total
portfolio 2.3% 1.1% 0.9% 0.9% 1.3%
New investments by
security type:
Secured senior
debt $9,782 $16,263 $10,696 $12,610 $41,778
Subordinated debt -
Secured 8,888 20,572 10,211 7,125 4,076
Subordinated debt -
Unsecured 804 691 723 (395) 127
Preferred
equity 17,710 2,954 3,766 2,543 6,825
Common/Common
equivalents equity 9 19 9 1 -
Total $37,193 $40,499 $25,405 $21,884 $52,806
Exits and repayments
by security type:
Secured senior
debt $33,532 $20,705 $46,756 $23,333 $7,777
Subordinated debt -
Secured 13,696 18,908 9,579 16,295 22,171
Subordinated debt -
Unsecured - - - - -
Preferred equity 3,592 281 13,839 291 42,289
Common/Common
equivalents equity 751 205 10,831 7 426
Total $51,571 $40,099 $81,005 $39,926 $72,663
Exits and repayments
by transaction type:
Scheduled principal
amortization $9,773 $15,524 $13,762 $13,047 $8,083
Senior loan
sales 10,733 - 8,000 - -
Principal
prepayments 27,332 22,362 34,061 25,234 21,500
Payment of
payment-in-kind
interest and
dividends 2,990 2,049 3,363 1,645 5,562
Sale of equity
investments 743 164 21,819 - 37,518
Total $51,571 $40,099 $81,005 $39,926 $72,663
(a) MCG uses an investment rating system to characterize and monitor its
expected level of returns on each investment in MCG's portfolio. MCG
uses the following 1 to 5 investment rating scale:
Investment
Rating
---------
1 Capital gain expected or realized
2 Full return of principal and interest or dividend expected
with customer performing in accordance with plan
3 Full return of principal and interest or dividend expected
but customer requires closer monitoring
4 Some loss of interest or dividend expected but still
expecting an overall positive internal rate of return on
the investment
5 Loss of interest or dividend and some loss of principal
investment expected which would result in an overall
negative internal rate of return on the investment
(b) At March 31, 2008, June 30, 2008, September 30, 2008, December 31,
2008 and March 31, 2009, approximately, $593,388, $543,405, $469,066,
$362,917 and $316,867, respectively, of MCG's investments with an
investment rating of "1" were loans to companies in which MCG also
holds equity securities or for which it has already realized a gain
on its equity investment.
SELECTED FINANCIAL DATA
PORTFOLIO COMPOSITION BY TYPE (unaudited)
2008 2008 2008 2008 2009
(dollars in thousands) Q1 Q2 Q3 Q4 Q1
Composition of
investments at
period end,
fair value
Secured senior
debt $452,445 $441,500 $383,493 $428,817 $456,377
Subordinated debt
Secured 513,467 478,107 453,336 351,425 303,490
Unsecured 32,722 30,613 29,967 28,081 27,823
Total debt 998,634 950,220 866,796 808,323 787,690
Preferred
equity 449,978 411,700 369,513 339,576 277,893
Common/common
equivalents
equity 63,804 69,164 60,160 55,249 49,409
Total
equity 513,782 480,864 429,673 394,825 327,302
Total $1,512,416 $1,431,084 $1,296,469 $1,203,148 $1,114,992
Percentage of
investments at
period end,
fair value
Secured senior
debt 29.9% 30.9% 29.6% 35.7% 40.9%
Subordinated
debt
Secured 34.0% 33.4% 35.0% 29.2% 27.2%
Unsecured 2.1% 2.1% 2.3% 2.3% 2.5%
Total debt 66.0% 66.4% 66.9% 67.2% 70.6%
Preferred equity 29.8% 28.8% 28.5% 28.2% 24.9%
Common/common
equivalents
equity 4.2% 4.8% 4.6% 4.6% 4.5%
Total equity 34.0% 33.6% 33.1% 32.8% 29.4%
Total 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 investment gains and losses and income tax provision (benefit), as determined in accordance with U.S. generally accepted accounting principles, or GAAP, adjusted for amortization of employee restricted stock awards and impairment of goodwill.
The Company's management uses DNOI and the related per share measures as useful and appropriate supplements to net operating income, net income, earnings per share and cash flows from operating activities. These measures serve as an additional measure of MCG's operating performance exclusive of employee restricted stock amortization and impairment of goodwill, which represents expenses of the Company but do not require settlement in cash. DNOI does include paid-in-kind, or PIK, interest and dividend income which are generally 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 our operating performance, or as a substitute for net operating income, net income, earnings per share and cash flows from operating activities (each computed in accordance with GAAP). Instead, DNOI should be reviewed in connection with net operating income, net income, earnings per share and cash flows from operating activities in MCG's consolidated financial statements, to help analyze how MCG's business is performing because the items excluded from the non-GAAP measures often have a material impact on the Company's results of operations. Therefore, management uses, and investors should use, non-GAAP measures only in conjunction with our reported GAAP results.
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 and general and administrative expenses and the factors that may affect such results, the sufficiency of liquidity from operations, monetizations and unrestricted cash to meet its 2009 operating requirements, the cause of unrealized losses, the performance of MCG's current and former portfolio companies, the Company's current strategic direction, including deleveraging its balance sheet, building its cash position and preserving net asset value through opportunistically monetizing assets, the amount, timing and price (relative to fair value) of asset monetizations, the ability to repurchase equity, additional debt securities at a discount and make stockholder distributions, the ability to increase its BDC asset coverage ratio, the impact of monetization activities on liquidity, capital preservation and debt reduction, the Company's ability to exclude debt from its asset coverage ratio, the Company's ability to enhance shareholder value, 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, 2008 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.
SOURCE MCG Capital Corporation
