MCGC

MCG Capital Corporation (MCGC)

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MCG Capital Corporation (MCGC)

Q1 2010 Earnings Call Transcript

May 4, 2010 10:00 am ET

Executives

Steven Tunney – President and CEO

Tod Reichert – SVP and Corporate Secretary

Steve Bacica – CFO

Analysts

Troy Ward – Stifel Nicolaus

Vernon Plack – BB&T Capital Markets

David Chiaverini – BMO Capital Markets

Gregg Hillman – First Wilshire

Rick Fearon – Accretive Capital

Presentation

Operator

Good day, ladies and gentlemen and welcome to the MCG Capital 2010 first quarter earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. (Operator Instructions). As a reminder, this conference call is being recorded.

I would now like to introduce your host for today's conference, MCG Capital's Co-Founder, President, and Chief Executive Officer, Steven Tunney; and Steve Bacica, Chief Financial Officer. You may begin.

Steven Tunney

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

Tod Reichert

Thanks, Steve. Good morning, everyone. Before we begin, we would like to remind that you various statements that we may make during this morning's call will include forward-looking statements as defined under applicable securities laws.

Management's assumptions, expectations, and opinions reflected in those statements are subject to risks and uncertainties that may cause actual results and/or performance to differ materially from any future results, performance or achievements discussed in or implied by such forward-looking statements and the company can give no assurance that they will prove to be correct. Those risks and uncertainties are described in the company's earnings release and its filings with the Securities and Exchange Commission.

Also, during this call, management will be referring to a non-GAAP financial measure, DNOI. This measure is not prepared in accordance with U.S. Generally Accepted Accounting Principles. You can find a reconciliation of this non-GAAP financial measure to the most directly comparable GAAP measures and other related information in MCG's first quarter 2010 earnings release and in the Investor Relations section of our website at www.mcgcapital.com under the heading Financial Information, Non-GAAP Financial Measures.

With that, I'll turn the call over to our President and CEO, Steve Tunney.

Steven Tunney

Thank you, Tod. And again, welcome, everyone. First, before we begin the call in earnest, as many of you know, an activist hedge fund has launched a proxy fight to unseat two of our directors. Their rhetoric has been inflammatory, includes a number of things that we do not believe to be true, and does not recognize the tremendous accomplishments that the company has achieved over the last 16 months or the 800% increase in our share price since the beginning of 2009.

However, the focus of this call is to update you on the results for the first quarter and on the significant progress we've made in executing on our strategic plan to increase our share price relative to our net asset value and delivering long-term value to all of our stockholders. We won't be discussing or taking questions on this call about the proxy contest.

Hopefully, by now you've had a chance to review the earnings release, which was issued today. We are extremely pleased to announce that we will be paying a dividend of $0.11 per share based on the first quarter's results. Further, we are encouraged that our portfolio has become increasingly stable over the past four quarters and that our net asset value has increased to $8.16 per share as of March 31, 2010.

During the quarter, we have remained disciplined and focused on our strategy of monetizing low-yielding investments, building liquidity, originating new investments, and reducing our leverage. In that regard, we successfully monetized four additional portfolio investments during the first quarter, totaling $26 million which were completed at 102.8% of their most recently reported fair values.

Subsequent to quarter-end, we also announced that Jet Broadband Holdings, LLC had signed a definitive agreement to sell all of its assets. This transaction is expected to close in August of 2010 with expected proceeds to MCG of $49.7 million. We also closed on three new deals totaling $29 million during the quarter and one new deal totaling $10 million after quarter-end.

We also paid down $23 million of outstanding debt obligations after year-end, which, when added to the $103.8 million of debt paid down under our SunTrust Warehouse unsecured revolver and our unsecured notes during 2009, brings our total debt paydowns to approximately $126.8 million in the last five quarters. We also repurchased $8 million of our outstanding CLO debt securities at 55% of par, resulting in a $3.6 million gain which will be recognized in the second quarter of 2010. And we also increased our asset coverage ratio to 222% as of quarter-end and 224% as of April 29, 2010.

Since we began our monetization initiatives in July of 2008, we have completed or announced $335.7 million of investment monetizations, $324.1 million of which have been completed at 100.3% of their most recently reported fair values and one of which was completed at 42.3% of its most recently reported fair value.

We are also excited about being back in the origination business after a long hiatus. As I mentioned on our last call, we began calling on private equity firms and reinserting ourselves into the deal flow last November. As previously mentioned, by quarter-end, we had funded three new deals totaling $29 million. We expect to gather momentum in the coming quarters and that our origination pacing will continue to increase.

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