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.
