MCG Capital Corporation Reports Third Quarter 2009 Results

ARLINGTON, Va.--(BUSINESS WIRE)--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.

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 (Depreciation)/ Appreciation				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:		http://investor.mcgcapital.com
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