MCG Capital Corporation (Nasdaq: MCGC) (“MCG,” "we," "our," "us" or the “Company”) announced today its financial results for the first quarter ended March 31, 2012. We will host an investment community conference call today, May 3, 2012, at 9:00 a.m. (Eastern Time).
As outlined in further detail in this earnings release and in our Quarterly Report on Form 10-Q, for the quarter ended March 31, 2012, the following highlights occurred during the three months ended March 31, 2012:
- Net operating income, or NOI, was $4.0 million, or $0.05 per share;
- Net income was $1.4 million, or $0.02 per share;
- We incurred approximately $3.7 million of costs associated with our transition plan, a $0.05 per share impact to NOI;
- We monetized $23.7 million of our equity investments and $55.3 million of our debt portfolio;
- We ended the quarter with $164.6 million of cash, consisting of $59.9 million of unrestricted cash, $35.4 million of cash in securitization accounts and $69.3 million in restricted cash; and
- Under our stock repurchase program, we repurchased and retired 1,180,000 shares of our common stock at a total cost of $5.1 million, or an average of $4.31 per share;
In addition, we anticipate paying off our SunTrust Warehouse financing facility in the second quarter of 2012. As of March 31, 2012, we owed $35.2 million under this facility secured by $120.0 million of collateral held primarily by the MCG Commercial Loan Funding Trust.RECENT DEVELOPMENTS We continue to execute on our strategic plan to return the Company to its roots as a leading middle-market lender. We continue to simplify our capital structure, redeploy cash into yield-oriented investments, repay debt and return equity to our stockholders. We are also re-sizing the business to operate more efficiently. The following significant developments occurred during the first four months of 2012:
- Equity Monetizations - On February 24, 2012, we successfully exited our equity investment in Jenzabar, Inc. for $23.7 million in proceeds, realizing a $16.4 million gain over the 8-year investment period. On April 30, 2012, we successfully exited our equity investment in GSDM Holdings Corp. for $7.1 million, $5.2 million of which we received at closing and $1.9 million of which will be held in escrow.
- Loan Monetizations and Fundings - We received $55.3 million in loan payoffs and amortization payments during the first quarter of 2012. Four borrowers repaid $48.1 million in principal at or above par. We did not fund any new debt investments during the first quarter; however, we funded $3.8 million in loan advances and draws to existing borrowers. In conjunction with the sale of our investment in GSDM Holdings Corp, the Borrower repaid the outstanding contractual loan balances of approximately $27.6 million owed to us.
- Open-Market Purchase of Our Stock - In January 2012, our board of directors authorized a stock repurchase program of up to $35.0 million. In the first quarter of 2012, we repurchased and retired 1,180,000 shares at a total cost of $5.1 million, or an average of $4.31 per share. We acquired these shares from sellers in open market transactions. We retire these shares upon settlement, thereby reducing the number of authorized shares otherwise outstanding.
- Operational Realignment - Executing on our transition plan, during the first quarter of 2012 we eliminated an additional ten positions, including seven back-office or support positions. In the first quarter, we accrued $1.1 million in severance related expenses and we anticipate accruing an additional $0.4 million in severance related expenses over the remainder of 2012 related to these ten positions. At the end of the required service period for each terminated employee, our full time headcount will be reduced to 28. Furthermore, we would anticipate transitioning our current workforce to a level of 20 to 25 by year end 2012.
- Liquidity and De-Leveraging Events - During the first quarter 2012, our asset coverage ratio improved from 244% at December 31, 2011 to 265% at March 31, 2012. We also took the following actions during the quarter:
- SunTrust Warehouse Modification - In January 2012, we entered into an amendment to our SunTrust Warehouse facility, which among other things, accelerated the scheduled termination date to January 17, 2012 and set the final legal maturity of this facility to January 17, 2014, thereby commencing a 24-month amortization period. We paid down $20.6 million of debt in this facility during the quarter, reducing the outstanding loan balance from $55.8 million at December 31, 2011 to $35.2 million at March 31, 2012. In connection with the execution of the amendment, we paid an amendment fee of $0.5 million. In addition, due to the reduction of the facility we recognized in interest expense approximately $1.5 million of accelerated deferred financing fees.
- SunTrust Warehouse Pay-off - We anticipate paying off the SunTrust Warehouse facility in the second quarter of 2012. As of March 31, 2012, we had $1.0 million of deferred financing fees on our balance sheet recorded in other assets. Upon the repayment of our obligation to SunTrust, we anticipate accelerating and recognizing the deferred financing fees as an interest expense in our Consolidated Statement of Operations.
- Private Placement Notes - In January 2012, we repaid in full and terminated the Series 2007-A unsecured notes. We paid the noteholders $8.7 million of principal, $0.2 million in accrued interest and $0.2 million in prepayment fees. The prepayment fees are recorded as a "loss on extinguishment of debt before income tax provision" in our Consolidated Statement of Operations for the three months ended March 31, 2012.