ARLINGTON, Va., Aug. 6 /PRNewswire-FirstCall/ -- MCG Capital Corporation (Nasdaq: MCGC) announced today its results for the quarter ended June 30, 2008. MCG will host an investment community conference call at 10:00 a.m. Eastern Time on Thursday, August 7, 2008.

    Financial Results
                              Three months             Six months
     (dollars in millions       ended                    ended
     except per share          June 30,       %         June 30,       %
     amounts)               2007     2008  change   2007      2008   change
    Revenue                $50.2    $31.1   -38%   $90.3     $74.1    -18%
    Distributable net
     operating income
     (DNOI) ( c )          $30.5    $14.8   -51%   $53.5     $37.8    -29%
    Net operating income
     (NOI)                 $28.5    $13.0   -54%   $48.5     $34.2    -29%
    Net income (loss)      $38.0   $(69.5) NM(b)   $68.5    $(67.0)  NM(b)
    DNOI/share (a) ( c )   $0.48    $0.20   -58%   $0.86     $0.54    -37%
    NOI/share(a)           $0.45    $0.18   -60%   $0.78     $0.49    -37%
    EPS (a)                $0.60   $(0.96) NM(b)   $1.10    $(0.96) NM(b)%
    Dividends/share        $0.44    $0.27   -39%   $0.88     $0.71    -19%
    Gross originations
     and advances         $191.3    $40.5   -79%  $369.2     $77.7    -79%
    Total investment
     portfolio at fair
     value at June 30                           $1,463.2  $1,431.1     -2%
    Net increase (decrease)
     in investment
     portfolio                                    $215.1   $(114.0)
    (a)   In accordance with SFAS 128-Earnings per Share, or SFAS 128, for the
          purposes of computing the basic and diluted number of shares, we
          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 our 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).
    (b)   NM = Not Meaningful.
    ( c ) See Selected Financial Data herein for a reconciliation of this non-
          GAAP measure.

Dividends

MCG announced today that it has met its estimated distribution requirements as a regulated investment company for 2008 and does not expect to make additional distributions during 2008. The Company currently expects to resume making distributions in 2009.

Conference Call/Webcast/Replay

MCG will host an investment community conference call on Thursday, August 7th at 10:00 a.m. Eastern Time. Slides and financial information reviewed in the investor conference call will be available on MCG's website at http://www.mcgcapital.com prior to the call.

    Conference Call:      Thursday, August 7, 2008 at 10:00 a.m. Eastern Time
    Dial-in Number:       (877) 591-4951 or (719) 325-4891 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 #3170403, through
                          August 22, 2008.

Business Update

For the quarter ended June 30, 2008, we reported a net loss of $0.96 per share, compared with net income of $0.04 per share in the quarter ended March 31, 2008. This decrease primarily resulted from the recognition of $82.4 million of net unrealized losses on our investment portfolio. Our revenue for the current quarter was $31.1 million, which represents a 38% decrease from the same quarter last year. Net operating income decreased 54% to $13.0 million. The decrease in our revenues and net operating income reflects the fact that we are no longer accruing dividends on one of our portfolio investments and that we are experiencing a decrease in fee income due to lower originations, as well as the fact that we had high levels of fee and dividend income related to an asset sale during the second quarter of fiscal 2007.

The current capital market environment continues to be extremely challenging, creating pressure on access to both debt and equity capital. Our 2008 business plan assumed that we would be able to monetize several equity investments. While we have been able to accomplish some capital market initiatives, they were completed with lower than expected proceeds and at higher than expected costs. Further, asset monetizations have been impacted by current economic conditions. Therefore, we are building our plans around the assumption that we will not access the capital markets for the balance of 2008 and into 2009 and potential monetizations will be reduced significantly.

We are implementing a number of actions to strengthen our capital base, including suspending dividend payments for the remainder of 2008, reducing our headcount by 27%, eliminating bonus compensation for our senior executive team in 2008, and reducing other incentive compensation and other general and administrative expenses. The following discussion provides a summary of actions we are taking to strengthen our capital base and additional details about our financial and operating results during the quarter ended June 30, 2008. We believe that these actions, along with our existing capital resources, will provide us with sufficient liquidity for our operations for the foreseeable future.

Stockholder Distributions

We have met our estimated distribution requirements as a regulated investment company for 2008 and do not expect to make additional distributions to our stockholders during 2008. Currently, we do not expect to realize significant gains or to consummate transactions during the second half of fiscal 2008 that would require us to make additional distributions during the second half of fiscal 2008. The suspension of dividends for the remainder of fiscal 2008 will preserve approximately $40 million of capital relative to July 30, 2008 distribution levels. We anticipate that this capital will be reinvested in our business and provide enhanced liquidity. Currently, we expect to resume making distributions in 2009.

Corporate Restructuring

We are restructuring our business in response to changes in the capital markets. On August 6, 2008, our board of directors approved a plan to reduce our workforce by 27%, including 19 current employees and 9 vacancies. After effecting the plan, our headcount is 74 employees. The workforce reduction focuses primarily on sizing the organization at a level appropriate for our expected near-term objectives. Affected employees are eligible for a severance package that includes severance pay, continuation of benefits and, for employees who have been awarded restricted stock, additional lapsing of restrictions associated with restricted stock awards.

We estimate that the aggregate charges associated with the plan will be approximately $1.25 million to $2.25 million, most of which will be incurred during the remainder of fiscal 2008. We expect these charges to consist of approximately $1.0 million for severance pay and other related obligations and a range of approximately $0.25 million to $1.25 million for lease costs and associated obligations related to our office space and other miscellaneous costs. We expect these actions, when combined with the elimination of bonus compensation for our senior executive team, a reduction in incentive compensation for the balance of the staff and other planned reductions in our general and administrative expense, will result in approximately $12.0 million to $14.0 million of savings through December 31, 2009.

2008 Retention Program

On August 6, 2008, our board of directors approved the MCG Capital Corporation Retention Program, or the Retention Program, for the benefit of our employees, including one of our named executive officers. Our senior executive team is not participating in the Retention Program. We designed the Retention Program to provide eligible employees with certain incentives related to their past service and continuing employment with MCG. The Retention Program consists of an aggregate of $3.35 million in cash and up to 735,000 shares of restricted common stock.

Under the Retention Program, we will award a cash bonus to eligible employees, representing a specified percentage of each eligible employee's respective annual cash bonus target for the fiscal year ending December 31, 2008. We will pay the incentive bonus to eligible employees in three substantially equal installments each on March 31, 2009, June 30, 2009 and September 30, 2009, subject to continued employment with MCG. Certain employees may also receive shares of restricted common stock under the MCG Capital Corporation 2006 Employee Restricted Stock Plan, as amended. The forfeiture provisions with respect to 100% of the shares of restricted common stock subject to each retention stock award will lapse on March 31, 2011.

Liquidity and Capital Resources

As of June 30, 2008, our cash and cash equivalents totaled $17.0 million. As of June 30, 2008, we had borrowings of $693.0 million under various debt facilities, including $44.7 million of borrowings that mature within one year. As of August 6, 2008, we had borrowings of $664.0 million, of which $8.0 million matures within one year. As a business development company, or BDC, we are required to meet a coverage ratio of total net assets to total borrowings and other senior securities of at least 200%, which may affect our ability to incur additional debt. As of June 30, 2008, our ratio of total net assets to total borrowings and other senior securities was 210%. Based on our balances of total assets, total borrowings and other securities as of August 6, 2008, we would be able to incur approximately $100.0 million of additional borrowings pursuant to our asset coverage ratio requirements.

In April 2008, we increased our commitment to fund up to $65 million in Solutions Capital I, a wholly owned SBIC subsidiary, which increased the potential borrowing capacity from $100.0 million to $130.0 million, subject to meeting SBA requirements, that can be used to provide debt and equity capital to qualifying small businesses. At the present time, $20.0 million of such borrowing capacity of Solutions Capital I has been approved by the SBA and the remainder is expected to become available to us upon approval by the SBA and subject to compliance with the SBA's customary procedures. We may only use the borrowings from the SBA to fund new originations.

On May 1, 2008, SunTrust Bank provided the annual renewal of its liquidity facility that supports our $250.0 million Commercial Loan Funding Trust facility, as required annually. We entered into an agreement, effective May 30, 2008 for an unsecured revolving line of credit facility with a $70.0 million commitment, to replace, in part, a revolving unsecured credit facility that we repaid in May 2008. The new $70.0 million facility is scheduled to mature in May 2009.

As of June 30, 2008, we had $23.2 million outstanding under our 2006-2 warehouse facility with Merrill Lynch Capital Corporation. Previously, this facility, which we had intended to repay with a placement of debt in the CLO market, was scheduled to expire on February 29, 2008. Due to the severe dislocation that occurred in the CLO market, we determined that a CLO transaction was not possible in the near term. On February 12, 2008, we amended this facility to extend the maturity to August 31, 2008. Under the terms of the amendment, we were required to reduce the amount outstanding under this facility to not more than $82.5 million at April 21, 2008, not more than $55.0 million at May 31, 2008, and not more than $27.5 million outstanding at July 21, 2008, with the balance due on August 31, 2008. We met our repayment obligations under this facility by transferring the assets in this facility to other existing facilities. On August 4, 2008, we repaid all outstanding balances and terminated this warehouse credit facility.

Previously, we disclosed that we had term sheets with an existing lender for a new revolving warehouse facility and were in discussions with a new lender for a revolving warehouse facility. If these facilities had been consummated, they would have provided $350.0 million of additional borrowing capacity. In both instances, the banks were unable to complete the transactions due to worsening market conditions. We anticipate that asset originations for the remainder of 2008 will be minimal.

During April 2008, we completed a rights offering which resulted in the issuance of 9,500,000 shares of common stock, and we received $57.7 million of proceeds.

Portfolio Activity

The fair value of our investment portfolio totaled $1.431 billion at June 30, 2008, as compared to $1.512 billion at March 31, 2008. During the second quarter of 2008, we originated investments of $16.6 million in two portfolio companies and made advances of $23.9 million to existing portfolio companies. The originations of $16.6 million included $2.6 million of senior debt and $14.0 million of secured subordinated debt.