ARLINGTON, Va.--()--MCG Capital Corporation (Nasdaq: MCGC) (“MCG” or the “Company”) announced today its financial results for the quarter ended September 30, 2009. MCG will host an investment community conference call today, November 4, 2009 at 10:00 a.m. (Eastern Time). Slides and financial information to be reviewed during the investor conference call will be available on MCG’s website at http://www.mcgcapital.com prior to the call.
“We are pleased that the results for the quarter were in-line with our expectations and that our net asset value has stabilized for the last two quarters. During the quarter, we have remained focused on our strategy of monetizing certain investments, building liquidity, preserving capital and reducing our debt obligations”
HIGHLIGHTS
- Distributable net operating income, or DNOI, for the quarter ended September 30, 2009 was $10.9 million, or $0.14 per share. DNOI refers to net operating income adjusted for amortization of employee restricted stock awards.
- Net operating income for the quarter ended September 30, 2009 was $8.7 million, or $0.11 per share.
- Net income for the quarter ended September 30, 2009 was $4.2 million, or $0.06 per share.
- Net investment loss for the quarter ended September 30, 2009 was $4.4 million, which represents 0.4% of the most recently reported fair value of MCG’s investment portfolio.
- Net asset value per common share for the quarter ended September 30, 2009 was $8.06 as compared to $7.97 at June 30, 2009.
- Since MCG began its monetization initiatives in July 2008, it cumulatively has completed a total of $216.1 million in investment monetizations, including 22 monetizations for $204.5 million, which were completed at 99.5% of their most recently reported fair value, and one distressed sale for $11.6 million, which was completed at 42.3% of its most recently reported fair value.
- MCG’s ratio of total assets to total borrowings and other senior securities was 212%, as of September 30, 2009, and rose to 214% as of October 29, 2009. MCG also had $49.9 million of unrestricted cash as of October 29, 2009 and $78.0 million of cash in securitization and restricted accounts which may be deployed for suitable new investment opportunities.
- Executed amendments with the holders of MCG’s unsecured privately placed notes to, among other things, extend the maturity of the 2005-A Notes to October 11, 2011; with these amendments, MCG will have no scheduled debt due until the latter part of 2011.
OVERVIEW
Today, MCG reported third quarter 2009 net income of $4.2 million, or $0.06 per share, which represented a $71.1 million improvement over the net loss of $66.9 million, or $0.90 per share, reported for the comparable period in 2008. This improvement was attributable primarily to a $75.3 million reduction in the net investment loss recognized on the fair value of MCG’s investment portfolio, partially offset by a $4.4 million, or 33.5%, decrease in net operating income.
MCG’s revenue for the third quarter of 2009 was $23.6 million, which represents a 24.6% decrease from the comparable period in 2008. MCG’s reported DNOI of $10.9 million, or $0.14 per share, was down from $14.9 million, or $0.20 per share, from the comparable period in 2008. Net operating income during the third quarter of 2009 decreased 33.5% to $8.7 million from the comparable period in 2008. The decreases in MCG’s revenues, net operating income and DNOI resulted primarily from a reduction in the average portfolio balance stemming from the Company’s monetization activities, a 250 basis point decrease in average LIBOR, an increase on loans placed on non-accrual status, as well as decreases in MCG’s loan originations and loan fees.
“We are pleased that the results for the quarter were in-line with our expectations and that our net asset value has stabilized for the last two quarters. During the quarter, we have remained focused on our strategy of monetizing certain investments, building liquidity, preserving capital and reducing our debt obligations,” said Steven F. Tunney, CEO and President. “While we remain cautious about the economy, we believe that we can increase stockholder value by monetizing equity securities and redeploying the proceeds along with cash in restricted and securitization accounts into new yield-oriented investment opportunities.”
During the quarter ended September 30, 2009, MCG successfully completed $18.1 million in monetizations, which were completed at 97.8% of their most recently reported fair values. MCG will strive to continue monetizing assets opportunistically over the course of the next several quarters; however, the timing of such monetizations depends largely upon future market conditions. The Company is under no contractual or other obligation to monetize assets at specified times, levels or prices.
STRATEGIC PLAN
During the third quarter of 2009, the Company developed a comprehensive strategic plan intended to enhance stockholder value, close the gap between its stock price and its NAV and enable the future resumption of dividends. Since it is possible that the economy may not recover fully for several years, or may even regress, the Company’s strategic plan focuses on specific actions the Company can take regardless of the availability of incremental capital.
While management continues to be cautious about the state of the economy, the Company believes that it can increase stockholder value by converting lower-yielding equity investments and deploying cash in securitization and restricted accounts into yield-oriented new investment opportunities. As the Company executes this plan over the next several years, it plans to continue to monetize its equity portfolio, which has an average annual earnings yield of 1.9%, and redeploy that capital and cash held in securitization and restricted accounts into debt securities with interest yields that are expected to increase its operating income and support the reinstitution and future growth of distributions to its stockholders. As the Company executes on this monetization strategy, it will continue to focus on preserving its NAV and enhancing the overall return profile on its investment capital. The Company estimates this component of its strategy will reduce its investment in equity securities to no more than 20% of the fair value of the Company’s total portfolio over the next few years. The Company generally expects to limit its future investing activities to debt investments until such time that it has closed the valuation gap between MCG’s stock price and its NAV and can validate the performance returns of the existing equity portfolio. MCG does not intend to make significant investments in control companies beyond those that are currently in the Company’s portfolio for the foreseeable future. When making new investments, the Company expects to underwrite credit in a manner consistent with its expectation that macro economic conditions will be under pressure for an extended period of time. Over time, if the Company meets its goals with respect to leverage levels and unrestricted cash balances, it will seek to potentially repurchase equity and additional debt securities, subject to the limitations set forth in its private placement borrowing agreements. To help provide sustainable stockholder value, the Company expects to make future distributions to stockholders based upon a quarterly assessment of cash earnings, liquidity, statutory distribution requirements, asset coverage ratio and its borrowing agreements.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2009, MCG’s cash and cash equivalents totaled $47.2 million and it had $568.5 million of borrowings (the majority of which was composed of $484.4 million of collateralized non-recourse borrowings), including $2.0 million of borrowings that mature within one year stemming from monetizations in September 2009. During the three months ended September 30, 2009, MCG paid down $15.8 million of outstanding borrowings. As a BDC, MCG is required to meet an asset coverage ratio of total net assets to total borrowings and other senior securities of at least 200% in order to borrow under new or existing borrowing facilities or to distribute dividends to its stockholders. MCG’s asset coverage ratio increased to 212% as of September 30, 2009. The cash balance in the securitization and restricted accounts, which may be deployed for suitable new investment opportunities, was $89.2 million as of September 30, 2009. By October 29, 2009, cash and cash equivalents totaled $49.9 million and the asset coverage ratio increased to 214%. MCG has $28.3 million of funded borrowing capacity, subject to Small Business Administration approval, available in its SBIC subsidiary that effectively is exempt from the statutory asset coverage ratio requirements. In addition, MCG has $50.0 million available under its 2006-1 facility subject to facility requirements. Due to anticipated recognition of a realized loss on the Cleartel investment in the fourth quarter of 2009, MCG does not expect there will be any required distributions for 2009.
PORTFOLIO ACTIVITY
The fair value of MCG’s investment portfolio totaled $1.037 billion at September 30, 2009, as compared to $1.062 billion at June 30, 2009. During the third quarter of 2009, MCG made $11.8 million of advances, including $7.4 million of paid-in-kind, or PIK, advances and $4.4 million of advances to portfolio companies under revolving and line of credit facilities. Gross payments, reductions and sales of securities during the third quarter of 2009 of $32.8 million were composed of $13.9 million of senior debt, $1.1 million of secured subordinated debt, $15.2 million of preferred equity and $2.6 million of common equity.
During the three months ended September 30, 2009, MCG reported net investment losses before income tax benefit of $4.4 million, which are detailed below:
|
(in thousands) |
Three months ended September 30, 2009 | |||||||||||||||||||
| Industry | Type |
Realized (Loss)/Gain |
Unrealized |
Reversal of Unrealized (Appreciation) /Depreciation |
Net (Loss)/ Gain |
|||||||||||||||
| Portfolio Company | ||||||||||||||||||||
| NPS Holdings Group, LLC | Business Services | Control | $ | (1,580 | ) | $ | (2,921 | ) | $ | 1,574 | $ | (2,927 | ) | |||||||
| Coastal Sunbelt Real Estate, Inc. | Real Estate Investments | Non-affiliate | — | (2,580 | ) | — | (2,580 | ) | ||||||||||||
| RadioPharmacy Investors, LLC | Healthcare | Control | — | (2,103 | ) | — | (2,103 | ) | ||||||||||||
| Jenzabar, Inc. | Technology | Non-affiliate | — | (2,000 | ) | — | (2,000 | ) | ||||||||||||
| Stratford School Holdings, Inc. | Education | Affiliate | — | (1,491 | ) | — | (1,491 | ) | ||||||||||||
| Jet Plastica Investors, LLC. | Plastic Products | Control | — | 3,129 | — | 3,129 | ||||||||||||||
| Active Brands International, Inc. | Consumer Products | Non-affiliate | — | 2,763 | — | 2,763 | ||||||||||||||
| Intran Media, LLC. | Other Media | Control | — | 1,349 | — | 1,349 | ||||||||||||||
| Golden Knight II CLO, Ltd | Diversified Financial Services | Non-affiliate | — | 1,144 | — | 1,144 | ||||||||||||||
| Flexsol Packaging Corp. | Plastic Products | Non-affiliate | (2,821 | ) | — | 2,772 | (49 | ) | ||||||||||||
| Other | 79 | (1,540 | ) | (170 | ) | (1,631 | ) | |||||||||||||
| Total | $ | (4,322 | ) | $ | (4,250 | ) | $ | 4,176 | $ | (4,396 | ) | |||||||||
During the quarter ended September 30, 2009, MCG recapitalized National Product Services, Inc. into NPS Holdings Group, LLC. As a result of this recapitalization, MCG reversed $1.6 million of unrealized depreciation and realized a $1.6 million loss. Subsequent to the recapitalization, MCG recorded $2.9 million of unrealized depreciation on its investment in NPS Holdings Group, LLC. During July 2009, MCG’s investment in subordinated debt of Flexsol Packaging was settled at approximately the reported fair value for this investment. As a result of this settlement, MCG reversed $2.8 million of previously unrealized depreciation and realized a $2.8 million loss. The remaining unrealized depreciation shown in the above table resulted predominantly from the performance of certain of the portfolio companies, and, to a lesser extent, the multiples that MCG used to estimate the fair value of the investments.
| Conference Call: | Wednesday, November 4, 2009 at 10:00 a.m. Eastern Time | |
| Dial-in Number: | (800) 347-6311 domestic; (719) 785-1718 for international callers (no access code required) | |
| Live Webcast /Replay: | ||
| Call Replay: | (888) 203-1112 or (719) 457-0820 for international callers – replay pass code #2645091, through November 18, 2009. |
| MCG Capital Corporation | ||||||||
| Consolidated Balance Sheets | ||||||||
| September 30, | December 31, | |||||||
| (in thousands, except per share amounts) | 2009 | 2008 | ||||||
| (unaudited) | ||||||||
| Assets | ||||||||
| Cash and cash equivalents | $ | 47,166 | $ | 46,149 | ||||
| Cash, securitization accounts | 68,405 | 37,493 | ||||||
| Cash, restricted | 20,817 | 979 | ||||||
| Investments at fair value | ||||||||
| Non-affiliate investments (cost of $618,841 and $605,906, respectively) | 582,147 | 584,336 | ||||||
| Affiliate investments (cost of $39,913 and $45,141, respectively) | 50,350 | 56,126 | ||||||
| Control investments (cost of $701,020 and $819,076, respectively) | 404,747 | 562,686 | ||||||
| Total investments (cost of $1,359,774 and $1,470,123, respectively) | 1,037,244 | 1,203,148 | ||||||
| Interest receivable | 6,141 | 8,472 | ||||||
| Other assets | 14,614 | 16,193 | ||||||
| Total assets | $ | 1,194,387 | $ | 1,312,434 | ||||
| Liabilities | ||||||||
| Borrowings (maturing within one year of $2,036 and $44,500, respectively) | $ | 568,507 | $ | 636,649 | ||||
| Interest payable | 3,854 | 5,367 | ||||||
| Other liabilities | 10,059 | 11,507 | ||||||
| Total liabilities | 582,420 | 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 September 30, 2009 and December 31, 2008, 75,970 issued and outstanding on September 30, 2009 and 76,075 issued and outstanding on December 31, 2008 | 760 | 761 | ||||||
| Paid-in capital | 1,002,938 | 997,318 | ||||||
| Undistributed (distributions in excess of) earnings | ||||||||
| Paid-in capital | (162,783 | ) | (162,783 | ) | ||||
| Other | 95,839 | 91,624 | ||||||
| Net unrealized depreciation of investments | (324,787 | ) | (267,948 | ) | ||||
| Stockholder loans | — | (61 | ) | |||||
| Total stockholders’ equity | 611,967 | 658,911 | ||||||
| Total liabilities and stockholders’ equity | $ | 1,194,387 | $ | 1,312,434 | ||||
| Net asset value per common share at end of period | $ | 8.06 | $ | 8.66 | ||||
| MCG Capital Corporation | ||||||||||||||||
| Consolidated Statements of Operations | ||||||||||||||||
| (unaudited) | ||||||||||||||||
| Three months ended | Nine months ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| (in thousands, except per share amounts) | 2009 | 2008 | 2009 | 2008 | ||||||||||||
| Revenue | ||||||||||||||||
| Interest and dividend income | ||||||||||||||||
| Non-affiliate investments (less than 5% owned) | $ | 15,861 | $ | 18,198 | $ | 47,958 | $ | 55,652 | ||||||||
| Affiliate investments (5% to 25% owned) | 1,115 | 1,656 | 3,383 | 5,205 | ||||||||||||
| Control investments (more than 25% owned) | 6,082 | 10,529 | 22,742 | 42,065 | ||||||||||||
| Total interest and dividend income | 23,058 | 30,383 | 74,083 | 102,922 | ||||||||||||
| Advisory fees and other income | ||||||||||||||||
| Non-affiliate investments (less than 5% owned) | 335 | 466 | 1,081 | 1,399 | ||||||||||||
| Control investments (more than 25% owned) | 218 | 447 | 991 | 1,071 | ||||||||||||
| Total advisory fees and other income | 553 | 913 | 2,072 | 2,470 | ||||||||||||
| Total revenue | 23,611 | 31,296 | 76,155 | 105,392 | ||||||||||||
| Operating expenses | ||||||||||||||||
| Interest expense | 5,518 | 7,991 | 18,391 | 26,706 | ||||||||||||
| Employee compensation | ||||||||||||||||
| Salaries and benefits | 4,115 | 4,081 | 10,824 | 13,673 | ||||||||||||
| Amortization of employee restricted stock awards | 2,279 | 1,802 | 5,603 | 5,406 | ||||||||||||
| Total employee compensation | 6,394 | 5,883 | 16,427 | 19,079 | ||||||||||||
| General and administrative expense | 3,041 | 4,408 | 12,568 | 12,377 | ||||||||||||
| Total operating expenses | 14,953 | 18,282 | 47,386 | 58,162 | ||||||||||||
| Net operating income before net investment loss, (loss) gain on extinguishment of debt and income tax (benefit) provision | 8,658 | 13,014 | 28,769 | 47,230 | ||||||||||||
| Net realized loss on investments | ||||||||||||||||
| Non-affiliate investments (less than 5% owned) | (2,820 | ) | 5,359 | (5,991 | ) | 5,484 | ||||||||||
| Affiliate investments (5% to 25% owned) | — | 1 | (1,947 | ) | (61 | ) | ||||||||||
| Control investments (more than 25% owned) | (1,502 | ) | (14,823 | ) | (21,934 | ) | (14,551 | ) | ||||||||
| Total net realized loss on investments | (4,322 | ) | (9,463 | ) | (29,872 | ) | (9,128 | ) | ||||||||
| Net unrealized appreciation (depreciation) on investments | ||||||||||||||||
| Non-affiliate investments (less than 5% owned) | 4,064 | (12,644 | ) | (15,124 | ) | (24,725 | ) | |||||||||
| Affiliate investments (5% to 25% owned) | (1,400 | ) | 4,214 | (548 | ) | 4,836 | ||||||||||
| Control investments (more than 25% owned) | (1,652 | ) | (61,685 | ) | (39,883 | ) | (151,866 | ) | ||||||||
| Derivative and other fair value adjustments | (1,086 | ) | (146 | ) | (1,284 | ) | 273 | |||||||||
| Total net unrealized appreciation (depreciation) on investments | (74 | ) | (70,261 | ) | (56,839 | ) | (171,482 | ) | ||||||||
| Net investment loss before income tax (benefit) provision | (4,396 | ) | (79,724 | ) | (86,711 | ) | (180,610 | ) | ||||||||
| (Loss) gain on extinguishment of debt before income tax (benefit) provision | (118 | ) | — | 5,025 | — | |||||||||||
| Income tax (benefit) provision | (39 | ) | 236 | (293 | ) | 568 | ||||||||||
| Net income (loss) | $ | 4,183 | $ | (66,946 | ) | $ | (52,624 | ) | $ | (133,948 | ) | |||||
| Earnings (loss) per basic and diluted common share | $ | 0.06 | $ | (0.90 | ) | $ | (0.71 | ) | $ | (1.87 | ) | |||||
| Cash distributions declared per common share | $ | — | $ | — | $ | — | $ | 0.71 | ||||||||
| Weighted-average common shares outstanding—basic and diluted | 75,876 | 74,296 | 74,588 | 71,526 | ||||||||||||
| MCG Capital Corporation | ||||||||
| Consolidated Statements of Cash Flows | ||||||||
| (unaudited) | ||||||||
| Nine months ended | ||||||||
| September 30, | ||||||||
| (in thousands) | 2009 | 2008 | ||||||
| Cash flows from operating activities | ||||||||
| Net loss | $ | (52,624 | ) | $ | (133,948 | ) | ||
|
Adjustments to reconcile net loss to net cash provided by operating activities |
||||||||
| Investments in portfolio companies | (55,078 | ) | (70,817 | ) | ||||
| Principal collections related to investment repayments or sales | 145,414 | 164,574 | ||||||
| Increase in interest receivable, accrued payment-in-kind interest and dividends | (8,753 | ) | (20,756 | ) | ||||
| Amortization of restricted stock awards | ||||||||
| Employee | 5,603 | 5,494 | ||||||
| Non-employee director | 108 | 194 | ||||||
| Decrease in cash—securitization accounts from interest collections | 1,644 | 64 | ||||||
| Depreciation and amortization | 4,195 | 2,755 | ||||||
| Unrealized (appreciation) depreciation on stockholder loans | (123 | ) | 328 | |||||
| Decrease (increase) in other assets | 1,754 | (1,635 | ) | |||||
| Decrease in other liabilities | (3,263 | ) | (4,232 | ) | ||||
| Realized loss on investments | 29,872 | 9,128 | ||||||
| Change in unrealized depreciation on investments | 56,839 | 171,482 | ||||||
| Gain on extinguishment of debt | (5,025 | ) | — | |||||
| Net cash provided by operating activities | 120,563 | 122,631 | ||||||
| Cash flows from financing activities | ||||||||
| Payments on borrowings | (63,117 | ) | (98,067 | ) | ||||
| Increase in cash in restricted and securitization accounts | ||||||||
| Securitization accounts for repayment of principal on debt | (32,556 | ) | (4,144 | ) | ||||
| Restricted cash | (19,838 | ) | — | |||||
| Payment of financing costs | (4,127 | ) | (3,413 | ) | ||||
| Issuance of common stock, net of costs | — | 57,107 | ||||||
| Distributions paid | — | (78,130 | ) | |||||
| Cancellation of common stock held as collateral for stockholder loans | — | (105 | ) | |||||
| Repayment of stockholder loans | 92 | 105 | ||||||
| Net cash used in financing activities | (119,546 | ) | (126,647 | ) | ||||
| Increase (decrease) in cash and cash equivalents | 1,017 | (4,016 | ) | |||||
| Cash and cash equivalents | ||||||||
| Beginning balance | 46,149 | 23,297 | ||||||
| Ending balance | $ | 47,166 | $ | 19,281 | ||||
| Supplemental disclosure of cash flow information | ||||||||
| Interest paid | $ | 16,741 | $ | 25,687 | ||||
| Income taxes paid | 51 | 1,105 | ||||||
| Payment-in-kind interest collected | 1,564 | 4,881 | ||||||
| Dividend income collected | 8,344 | 3,519 | ||||||
| SELECTED FINANCIAL DATA | ||||||||||||||||||||
| QUARTERLY OPERATING INFORMATION (unaudited) | ||||||||||||||||||||
| 2008 | 2008 | 2009 | 2009 | 2009 | ||||||||||||||||
| (in thousands, except per share amounts) | Q3 | Q4 | Q1 | Q2 | Q3 | |||||||||||||||
| Revenue | ||||||||||||||||||||
| Interest and dividend income | ||||||||||||||||||||
| Interest income | $ | 26,825 | $ | 25,982 | $ | 24,054 | $ | 22,092 | $ | 21,050 | ||||||||||
| Dividend income | 2,750 | 2,545 | 1,824 | 1,702 | 1,289 | |||||||||||||||
| Loan fee income | 808 | 806 | 719 | 634 | 719 | |||||||||||||||
| Total interest and dividend income | 30,383 | 29,333 | 26,597 | 24,428 | 23,058 | |||||||||||||||
| Advisory fees and other income | 913 | 640 | 1,209 | 310 | 553 | |||||||||||||||
| Total revenue | 31,296 | 29,973 | 27,806 | 24,738 | 23,611 | |||||||||||||||
| Operating expense | ||||||||||||||||||||
| Interest expense | 7,991 | 8,725 | 6,558 | 6,315 | 5,518 | |||||||||||||||
| Salaries and benefits | 4,081 | 2,817 | 3,798 | 2,911 | 4,115 | |||||||||||||||
| Amortization of employee restricted stock awards(a) | 1,890 | 1,467 | 1,537 | 1,787 | 2,279 | |||||||||||||||
| General and administrative(a) | 4,320 | 4,253 | 3,975 | 5,552 | 3,041 | |||||||||||||||
| Goodwill impairment | — | 3,851 | — | — | — | |||||||||||||||
| Total operating expense | 18,282 | 21,113 | 15,868 | 16,565 | 14,953 | |||||||||||||||
| Net operating income before net investment loss, gain (loss) on extinguishment of debt and income tax provision (benefit) | 13,014 | 8,860 | 11,938 | 8,173 | 8,658 | |||||||||||||||
| Net investment loss before gain (loss) on extinguishment of debt and income tax provision (benefit) | (79,724 | ) | (76,991 | ) | (68,331 | ) | (13,984 | ) | (4,396 | ) | ||||||||||
| Gain (loss) on extinguishment of debt | — | 11,055 | 5,275 | (132 | ) | (118 | ) | |||||||||||||
| Income tax provision (benefit) | 236 | 221 | (172 | ) | (82 | ) | (39 | ) | ||||||||||||
| Net (loss) earnings | $ | (66,946 | ) | $ | (57,297 | ) | $ | (50,946 | ) | $ | (5,861 | ) | $ | 4,183 | ||||||
| Reconciliation of DNOI to net operating income | ||||||||||||||||||||
| Net operating income before net investment losses, gain (loss) on extinguishment of debt and income tax provision (benefit) | $ | 13,014 | $ | 8,860 | $ | 11,938 | $ | 8,173 | $ | 8,658 | ||||||||||
| Amortization of employee restricted stock awards(a) | 1,890 | 1,467 | 1,537 | 1,787 | 2,279 | |||||||||||||||
| Goodwill impairment | — | 3,851 | — | — | — | |||||||||||||||
| DNOI(b) | $ | 14,904 | $ | 14,178 | $ | 13,475 | $ | 9,960 | $ | 10,937 | ||||||||||
| DNOI per share-weighted average common shares – basic and diluted(b) (c) | $ | 0.20 | $ | 0.19 | $ | 0.18 | $ | 0.13 | $ | 0.14 | ||||||||||
| Per common share statistics | ||||||||||||||||||||
| Weighted-average common shares outstanding – basic and diluted(c) | 74,296 | 74,424 | 74,498 | 74,592 | 75,876 | |||||||||||||||
| Net operating income before net investment losses, gain (loss) on extinguishment of debt and income tax provision (benefit) per common share - basic and diluted(c) | $ | 0.18 | $ | 0.12 | $ | 0.16 | $ | 0.11 | $ | 0.11 | ||||||||||
| (Loss) earnings per common share - basic and diluted(c) | $ | (0.90 | ) | $ | (0.77 | ) | $ | (0.68 | ) | $ | (0.08 | ) | $ | 0.06 | ||||||
| Net asset value per common share - period end | $ | 9.39 | $ | 8.66 | $ | 8.02 | $ | 7.97 | $ | 8.06 | ||||||||||
| Dividends declared per common share | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||
| (a) | Q3 2008, Q4 2008, Q1 2009, Q2 2009 and Q3 2009 include $865, $332, $3, $1 and $0, respectively, of costs associated with MCG’s restructuring expense, including, $88, $18, $0, $0 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, gain (loss) on extinguishment of debt and income tax provision (benefit), as determined in accordance with U.S. generally accepted accounting principles, or GAAP, adjusted for amortization of employee restricted stock awards and impairment of goodwill. MCG views DNOI and the related per share measures as useful and appropriate supplements to net operating income, net income, earnings per share and cash flows from operating activities. These measures serve as an additional measure of MCG’s operating performance exclusive of employee restricted stock amortization and goodwill impairment charges, which represents expenses of the Company but do not require settlement in cash. DNOI does include paid-in-kind, or PIK, interest and dividend income which are generally not payable in cash on a regular basis but rather at investment maturity or when declared. DNOI should not be considered as an alternative to net operating income, net income, earnings per share and cash flows from operating activities (each computed in accordance with GAAP). Instead, DNOI should be reviewed in connection with net operating income, net income, earnings per share and cash flows from operating activities in MCG’s consolidated financial statements, to help analyze how MCG’s business is performing. | |
| (c) | In accordance with ASC Topic 260—Earnings per Share, 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 stockholders on April 29, 2008 (the date that the common stock was issued in conjunction with the stockholders’ rights offering). |
| SELECTED FINANCIAL DATA | ||||||||||||||||||||
| KEY QUARTERLY STATISTICS (unaudited) | ||||||||||||||||||||
| 2008 | 2008 | 2009 | 2009 | 2009 | ||||||||||||||||
| (dollars in thousands) | Q3 | Q4 | Q1 | Q2 | Q3 | |||||||||||||||
| Average quarterly loan portfolio - fair value | $ | 925,862 | $ | 858,237 | $ | 815,620 | $ | 785,737 | $ | 739,909 | ||||||||||
| Average quarterly total investment portfolio - fair value | 1,412,899 | 1,290,524 | 1,197,840 | 1,106,113 | 1,054,409 | |||||||||||||||
| Average quarterly total assets | 1,469,584 | 1,356,785 | 1,308,567 | 1,218,843 | 1,187,179 | |||||||||||||||
| Average quarterly stockholders' equity | 778,026 | 715,497 | 660,665 | 607,828 | 603,029 | |||||||||||||||
| Return on average total assets (trailing 12 months) | ||||||||||||||||||||
| Net operating income before net investment loss, gain (loss) on extinguishment of debt and income tax provision (benefit) | 4.87 | % | 3.73 | % | 3.26 | % | 3.14 | % | 2.97 | % | ||||||||||
| Net loss | (8.85 | %) | (12.73 | %) | (17.08 | %) | (13.52 | %) | (8.67 | %) | ||||||||||
| Return on average equity (trailing 12 months) | ||||||||||||||||||||
| Net operating income before net investment loss, gain (loss) on extinguishment of debt and income tax provision (benefit) | 9.29 | % | 7.12 | % | 6.25 | % | 6.08 | % | 5.82 | % | ||||||||||
| Net loss | (16.89 | %) | (24.27 | %) | (32.72 | %) | (26.21 | %) | (16.99 | %) | ||||||||||
| Yield on average loan portfolio at fair value | ||||||||||||||||||||
| Average LIBOR (90-Day) | 2.91 | % | 2.74 | % | 1.24 | % | 0.85 | % | 0.41 | % | ||||||||||
| Spread to average LIBOR on average yielding loan portfolio at fair value(a) | 9.75 | % | 10.44 | % | 11.94 | % | 12.01 | % | 11.83 | % | ||||||||||
| 12.66 | % | 13.18 | % | 13.18 | % | 12.86 | % | 12.24 | % | |||||||||||
| Impact of fee accelerations of unearned fees on paid/restructured loans | 0.04 | % | 0.06 | % | 0.06 | % | 0.03 | % | 0.10 | % | ||||||||||
| Impact of non-accrual loans | (0.83 | %) | (0.82 | %) | (0.92 | %) | (1.29 | %) | (0.67 | %) | ||||||||||
| Total yield on average loan portfolio at fair value | 11.87 | % | 12.42 | % | 12.32 | % | 11.60 | % | 11.67 | % | ||||||||||
| Cost of funds | ||||||||||||||||||||
| Average LIBOR | 2.91 | % | 2.74 | % | 1.24 | % | 0.85 | % | 0.41 | % | ||||||||||
| Spread to average LIBOR excluding amortization of deferred debt issuance costs(a) | 1.36 | % | 2.30 | % | 2.19 | % | 2.51 | % | 2.77 | % | ||||||||||
| Impact of amortization of deferred debt issuance costs | 0.39 | % | 0.40 | % | 0.70 | % | 0.80 | % | 0.59 | % | ||||||||||
| Total cost of funds | 4.66 | % | 5.44 | % | 4.13 | % | 4.16 | % | 3.77 | % | ||||||||||
| Net portfolio yield margin | 6.20 | % | 6.25 | % | 6.69 | % | 6.48 | % | 6.51 | % | ||||||||||
| Selected period end balance sheet statistics | ||||||||||||||||||||
| Total investment portfolio at fair value | $ | 1,296,469 | $ | 1,203,148 | $ | 1,114,992 | $ | 1,061,506 | $ | 1,037,244 | ||||||||||
| Total assets | 1,386,054 | 1,312,434 | 1,255,340 | 1,203,839 | 1,194,387 | |||||||||||||||
| Borrowings | 652,968 | 636,649 | 631,245 | 584,349 | 568,507 | |||||||||||||||
| Total equity | 714,679 | 658,911 | 609,531 | 605,478 | 611,967 | |||||||||||||||
| Cash, securitization and restricted accounts | 42,434 | 38,472 | 61,902 | 99,052 | 89,222 | |||||||||||||||
| Debt to equity | 91.37 | % | 96.62 | % | 103.56 | % | 96.51 | % | 92.90 | % | ||||||||||
| Debt, net of cash, securitization and restricted accounts to equity | 85.43 | % | 90.78 | % | 93.41 | % | 80.15 | % | 78.32 | % | ||||||||||
| Other statistics (at period end) | ||||||||||||||||||||
| BDC asset coverage ratio | 207 | % | 201 | % | 199 | % | 206 | % | 212 | % | ||||||||||
| Number of portfolio companies | 73 | 70 | 71 | 67 | 65 | |||||||||||||||
| Number of employees | 74 | 73 | 70 | 68 | 66 | |||||||||||||||
| Loans on non-accrual as a percentage of total debt investments | ||||||||||||||||||||
| Fair Value | 4.24 | % | 4.86 | % | 4.82 | % | 6.23 | % | 6.99 | % | ||||||||||
| Cost | 10.93 | % | 13.00 | % | 14.53 | % | 19.59 | % | 19.64 | % | ||||||||||
| (a) | The impact due to the timing of the LIBOR resets and floors is included in the spread to average LIBOR. The impact to the yield on average loan portfolio at fair value due to the timing of LIBOR resets and floors for Q3 2008, Q4 2008, Q1 2009, Q2 2009 and Q3 2009 was approximately 0.04%, 0.55%, 0.80%, 0.84% and 0.99%, respectively. The impact to the cost of funds due to the timing of LIBOR resets for Q3 2008, Q4 2008, Q1 2009, Q2 2009 and Q3 2009 was approximately (0.23%), 0.64%, 0.11%, 0.17% and 0.48%, respectively. |
| SELECTED FINANCIAL DATA | ||||||||||||||||||||
| QUARTERLY INVESTMENT RISK AND CHANGES IN PORTFOLIO COMPOSITION (unaudited) | ||||||||||||||||||||
| 2008 | 2008 | 2009 | 2009 | 2009 | ||||||||||||||||
| (dollars in thousands) | Q3 | Q4 | Q1 | Q2 | Q3 | |||||||||||||||
| Investment rating:(a) | ||||||||||||||||||||
| IR 1 total investments at fair value(b) | $ | 848,115 | $ | 719,765 | $ | 669,004 | $ | 667,117 | $ | 599,261 | ||||||||||
| IR 2 total investments at fair value | 172,376 | 206,829 | 179,499 | 151,933 | 135,988 | |||||||||||||||
| IR 3 total investments at fair value | 263,988 | 233,172 | 232,714 | 223,080 | 281,638 | |||||||||||||||
| IR 4 total investments at fair value | — | 32,648 | 19,257 | 16,313 | 11,125 | |||||||||||||||
| IR 5 total investments at fair value | 11,990 | 10,734 | 14,518 | 3,063 | 9,232 | |||||||||||||||
| IR 1 percentage of total portfolio | 65.4 | % | 59.8 | % | 60.0 | % | 62.9 | % | 57.8 | % | ||||||||||
| IR 2 percentage of total portfolio | 13.3 | % | 17.2 | % | 16.1 | % | 14.3 | % | 13.1 | % | ||||||||||
| IR 3 percentage of total portfolio | 20.4 | % | 19.4 | % | 20.9 | % | 21.0 | % | 27.1 | % | ||||||||||
| IR 4 percentage of total portfolio | — | 2.7 | % | 1.7 | % | 1.5 | % | 1.1 | % | |||||||||||
| IR 5 percentage of total portfolio | 0.9 | % | 0.9 | % | 1.3 | % | 0.3 | % | 0.9 | % | ||||||||||
| New investments by security type: | ||||||||||||||||||||
| Senior secured debt | $ | 10,696 | $ | 12,610 | $ | 41,778 | $ | 3,658 | $ | 4,132 | ||||||||||
| Subordinated debt— Secured | 10,211 | 7,125 | 4,076 | 4,127 | 2,852 | |||||||||||||||
| Subordinated debt— Unsecured | 723 | (395 | ) | 127 | 130 | 3,509 | ||||||||||||||
| Preferred equity | 3,766 | 2,543 | 6,825 | 2,102 | 1,287 | |||||||||||||||
| Common/common equivalents equity | 9 | 1 | — | — | — | |||||||||||||||
| Total | $ | 25,405 | $ | 21,884 | $ | 52,806 | $ | 10,017 | $ | 11,780 | ||||||||||
| Exits and repayments by security type: | ||||||||||||||||||||
| Senior secured debt | $ | 46,756 | $ | 23,333 | $ | 7,777 | $ | 28,888 | $ | 13,924 | ||||||||||
| Subordinated debt—Secured | 9,579 | 16,295 | 22,171 | 11,263 | 1,128 | |||||||||||||||
| Subordinated debt— Unsecured | — | — | — | — | — | |||||||||||||||
| Preferred equity | 13,839 | 291 | 42,289 | 9,660 | 15,240 | |||||||||||||||
| Common/common equivalents equity | 10,831 | 7 | 426 | — | 2,556 | |||||||||||||||
| Total | $ | 81,005 | $ | 39,926 | $ | 72,663 | $ | 49,811 | $ | 32,848 | ||||||||||
| Exits and repayments by transaction type: | ||||||||||||||||||||
| Scheduled principal amortization | $ | 13,762 | $ | 13,047 | $ | 8,083 | $ | 7,728 | $ | 14,365 | ||||||||||
| Loan sales | 8,000 | — | — | — | — | |||||||||||||||
| Principal prepayments | 34,061 | 25,234 | 21,500 | 31,603 | 308 | |||||||||||||||
| Payment of payment-in-kind interest and dividends | 3,363 | 1,645 | 5,562 | 793 | 3,553 | |||||||||||||||
| Sale of equity investments | 21,819 | — | 37,518 | 9,687 | 14,622 | |||||||||||||||
| Total | $ | 81,005 | $ | 39,926 | $ | 72,663 | $ | 49,811 | $ | 32,848 | ||||||||||
| (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 September 30, 2008, December 31, 2008, March 31, 2009, June 30, 2009 and September 30, 2009, approximately, $469,066; $362,917; $316,867; $316,758 and $244,285, 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 | 2009 | 2009 | 2009 | ||||||||||||||||
| (dollars in thousands) | Q3 | Q4 | Q1 | Q2 | Q3 | |||||||||||||||
| Composition of investments at period end, fair value | ||||||||||||||||||||
| Senior secured debt | $ | 383,493 | $ | 428,817 | $ | 456,377 | $ | 428,576 | $ | 416,302 | ||||||||||
| Subordinated debt | ||||||||||||||||||||
| Secured | 453,336 | 351,425 | 303,490 | 283,471 | 292,144 | |||||||||||||||
| Unsecured | 29,967 | 28,081 | 27,823 | 27,961 | 30,476 | |||||||||||||||
| Total debt investments | 866,796 | 808,323 | 787,690 | 740,008 | 738,922 | |||||||||||||||
| Preferred equity | 369,513 | 339,576 | 277,893 | 270,899 | 252,604 | |||||||||||||||
| Common/common equivalents equity | 60,160 | 55,249 | 49,409 | 50,599 | 45,718 | |||||||||||||||
| Total equity investments | 429,673 | 394,825 | 327,302 | 321,498 | 298,322 | |||||||||||||||
| Total investments | $ | 1,296,469 | $ | 1,203,148 | $ | 1,114,992 | $ | 1,061,506 | $ | 1,037,244 | ||||||||||
| Percentage of investments at period end, fair value | ||||||||||||||||||||
| Senior secured debt | 29.6 | % | 35.7 | % | 40.9 | % | 40.4 | % | 40.1 | % | ||||||||||
| Subordinated debt | ||||||||||||||||||||
| Secured | 35.0 | % | 29.2 | % | 27.2 | % | 26.7 | % | 28.2 | % | ||||||||||
| Unsecured | 2.3 | % | 2.3 | % | 2.5 | % | 2.6 | % | 2.9 | % | ||||||||||
| Total debt investments | 66.9 | % | 67.2 | % | 70.6 | % | 69.7 | % | 71.2 | % | ||||||||||
| Preferred equity | 28.5 | % | 28.2 | % | 24.9 | % | 25.5 | % | 24.4 | % | ||||||||||
| Common/common equivalents equity | 4.6 | % | ||||||||||||||||||