MCGC

MCG Capital Corporation (MCGC)

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MCG Capital Corporation (MCGC)

Q4 2008 Earnings Call Transcript

March 6, 2009 10:00 am ET

Executives

Steve Tunney – Co-founder, President and CEO

Tod Reichert – Chief Compliance Officer, SVP and Corporate Secretary

Steve Bacica – EVP and CFO

Analysts

Greg Mason – Stifel Nicolaus

Vernon Plack – BB&T Capital Markets

Steven Fox [ph] – KBW

Gregg Hillman – First Wilshire Securities Management

Alan Gelband – Alan Gelband Company

Ron Hollander [ph] – Morgan Stanley

Presentation

Operator

Good day, and welcome to the MCG Capital Corporation fourth quarter earnings conference call. Today's call is being recorded.

With us today are Steve Bacica, Chief Financial Officer and MCG Capital's Co-founder, President and Chief Executive Officer, Steven Tunney. Please go ahead, sir.

Steven Tunney

Good morning, everyone. First, before we get started, I would like to have Tod Reichert, our Chief Compliance Officer to provide the necessary Safe Harbor disclosures, Tod?

Tod Reichert

Thanks, Steve. As a reminder to everybody on call this morning, the slides for today's presentation and our Q4 earnings release can be found in the Investor Relations tab of our website. Today's call being recorded and webcast live through our website at www.mcgcapital.com. A replay of the call will be available on our website and an audio replay will be available through March 20, 2009. The replay information is included in our press release announcing this call and is posted in the Investor Relations section of our website. This recording is the property of MCG Capital Corporation and cannot be used or reproduced without the prior written consent of MCG.

Now before we begin this morning, we would like to remind that you various remarks that we may make during this morning's call regarding MCG's future expectations, plans and prospects constitute forward-looking statements for purposes of the Safe Harbor protection under applicable security laws. These forward-looking statements involve risks and uncertainties that may cause actual results and/or performance to differ materially from any future results, performance and achievements discussed in or implied by such forward-looking statements.

The risks and uncertainty include, but are not limited to expectations regarding results of operation including revenues, net operating income, distributable net operating income and general and administrative expenses and the factors that may affect such results. The steps we have taken to ensure that we have maintained stability through challenging economic conditions and our ability to emerge from the current economic cycle in a position of relative strength, our current strategic direction, including opportunistically monetizing assets, preserving liquidity, building our unrestricted cash position, deleveraging our balance sheet and increasing our BDC coverage ratio, the amount, timing and price relative to the fair value of asset monetization, the flexibility that covenant modifications have provided to support the management of our portfolio, the effects of the monetization of second lien and equity investments have on our liquidity and net asset values, our improved collateral position and financing flexibility, our ability to repurchase equity, additional debt securities and make stockholder distributions, the relief that our debt modifications will provide in the challenging market, our belief that our portfolio will weather a protracted recession, our ability to exclude debt from our BDC asset coverage ratio, our ability to execute on our strategy throughout 2009, the performance of our portfolio companies and general economic factors.

In addition, any forward-looking statements represent our views only as of today and should not be relied upon as representing our views as of any subsequent date. We may elect to update forward-looking statements at some point in the future, we specifically disclaim any obligations to do so, even if our estimates change and therefore, you should not rely on these forward-looking statements as representing our views as of any date subsequent to today.

Now during this call, we will be referring to a non-GAAP financial measure, distributable net operating income, also referred to as DNOI. This non-GAAP measure is not prepared in accordance with generally accepted accounting principles. A reconciliation of this non-GAAP financial measure to the most directly comparable GAAP measures is available in MCG's fourth quarter 2008 earnings release and in the Investor Relations section of our website at www.mcgcapital.com under the heading Financial Information, non-GAAP Financial Measures.

I would now like to turn the call over to our President and CEO, Steve Tunney.

Steve Tunney

Thank you, Tod, and, again, welcome everyone. Hopefully by now you've had a chance to review our fourth quarter earnings release which was issued last evening. While we, like others throughout the financial services industry, have had to confront the issues associated with liquidity, leverage and the impact of fair value accounting on portfolio company valuations, we believe that we took the necessary steps early in the process to ensure that we maintain stability through these challenging economic conditions.

For example, we began our deleveraging initiatives during the middle of 2008 and since then, have made significant strides to improve our liquidity, preserve our capital and reduce our debt obligations. Given that we anticipate capital market conditions will remain difficult, we will continue to execute this strategy throughout 2009. We believe that by doing so, we will come out of this cycle in a position of relative strength.

Despite this challenging environment, we are extremely pleased that we have been able to monetize assets near their fair value. Since we began our deleveraging initiatives in July 2008, MCG has announced a total of $156.3 million in investment monetizations at approximately 100% of their previously reported fair value. This has enabled us to maintain our asset coverage ratio above 200%, build unrestricted cash and reduce our debt since the second quarter of 2008.

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