MVC Capital Announces Third Quarter Fiscal 2013 Results

PURCHASE, N.Y., Sept. 9, 2013 (GLOBE NEWSWIRE) -- MVC Capital, Inc. (NYSE:MVC), a publicly traded business development company that makes private equity and debt investments, today announced its financial results for the third fiscal quarter ended July 31, 2013.

Third Fiscal Quarter 2013 Financial Highlights
  • Interest and dividend income of $5.7 million, compared with $2.8 million in Q3 2012
  • Approximately $2.9 million of which was a U.S. Gas & Electric, Inc. ("USG&E") dividend 
  • Total net realized and unrealized gains on investments of $20.2 million compared to a loss of $12.6 million in Q3 2012
  • This increase is mostly attributed to significant write-ups in two portfolio holdings; USG&E and Custom Alloy Corporation
  • Fee and other income of $1.6 million, compared with $1.2 million in Q3 2012
  • Paid quarterly dividend of $0.135 per share totaling $3.1 million; 33rd consecutive quarterly dividend
  • Raised an additional $33.9 million from Senior Notes
  • Entered into a new $50 million revolving credit facility
  • Repurchased $16.7 million of MVC stock in FY2013 through July 31, 2013
  • Made two new yielding investments and two follow-on investments totaling over $42 million
  • $27.2 million of net investment activity during the quarter

"With our improved cash position as a result of the capital raise and sale of Summit Research Labs, we have ramped up our investment activity in pursuit of our yield-generating focused strategy," said Michael Tokarz, Chairman & Portfolio Manager of MVC Capital.   "During the quarter, we invested in two new portfolio companies and continued to support our existing portfolio. We are excited by the quality of the middle-market companies seeking our financial support and expertise to strengthen their performance and drive future growth."

Third-Fiscal Quarter 2013 Results

     
  Quarter Ended 9 months ended
(Unaudited) ($ in thousands except for per share data) Q1 2013 Q2 2013 Q3 2013 Q3 2012 July-13 July-12
Total operating income 6,386 6,663 7,245 3,931 20,294 23,739
             
Management fee 2,080 1,865 2,101 2,127 6,046 6,560
Portfolio fees - asset management 106 103 103 338 312 862
Management fee - asset management 232 232 232 41 696 618
Administrative 890 902 897 971 2,689 2,709
Interest, fees and other borrowing costs 937 1,418 2,115 854 4,470 2,481
Net Incentive compensation 1,175 1,008 3,961 (2,415) 6,144 (4,527)
Total waiver by adviser (38) (37) (38) (37) (113) (2,516)
Tax expense 1 1 1 -- 3 1
             
Net operating income (loss) before net realized and unrealized gains 1,003 1,171 (2,127) 2,052 47 17,549
Net increase (decrease) in net assets resulting from operations 6,876 7,892 18,114 (10,595) 32,882 (18,098)
Net increase (decrease) in net assets resulting from operations per share 0.29 0.33 0.79 (0.45) 1.41 (0.76)
Net asset value per share 16.29 16.56 17.36 16.42 17.36 16.42

In the third quarter of 2013, the Company earned $5.7 million in interest and dividend income and $1.6 million in fee and other income, compared to $2.8 million and $1.2 million for the third quarter of 2012, respectively. The increase is mainly attributable to dividend payments received from USG&E in the fiscal third quarter of 2013 totaling approximately $2.9 million. 

The Company reported a net operating loss of $2.1 million for the third quarter, as compared to net operating income of $2.1 million for the same quarter in 2012. Net operating income for the quarter was primarily impacted by the $4.0 million in the Company's provision for incentive compensation, $2.1 million in interest and other borrowing costs and $2.1 million in management fees. 

Third-Fiscal Quarter 2013 Portfolio Adjustments

As of July 31, 2013, the Company's net assets were $392.8 million or $17.36 per share, compared with net assets of $388.6 million, or $16.56 per share, at the beginning of the quarter and $392.8 million, or $16.42 per share, at the end of the same period last year. 

During the quarter, the Valuation Committee, which is comprised of three independent directors, changed the fair values of eleven portfolio companies, resulting in a net increase of $19.4 million or $0.86 per share. In arriving at these determinations and consistent with the Company's valuation procedures and ASC 820, the Valuation Committee took into account many factors, including the performance of the portfolio companies, as well as the impact of changes in market multiples within certain sectors and fluctuations in currency valuations, particularly in the Euro.
     
   Quarter End Write ups (downs)   9 Month Write ups (downs)
 Active Deals:  Q1 2013  Q2 2013   Q3 2013  Q3 2012 July-13 July-12
 Biovations Holdings, Inc. $ -- $(50,104) $53,366 $ -- $3,262 $ --
 BPC II LLC -- -- --  (180,000) --  (180,000)
 BP Clothing LLC -- -- -- -- --  (100,000)
 Centile Holding B.V.  90,000  505,000  474,000 --  1,069,000 --
 Custom Alloy Corporation   840,000 --  5,000,000 --  5,840,000 --
 Freshii USA Inc  --  4,880  (8,260) --  (3,380) --
 Harmony Health & Beauty, Inc.   (100,000) -- --  (150,000)  (100,000)  (750,000)
 JSC Tekers Invest --  (1,000,000) -- --  (1,000,000) --
 MVC Automotive Group B.V.  2,180,000  665,000 --  (1,140,000)  2,845,000  (8,569,000)
 MVC Partners LLC -- -- --  (564,971) --  (1,003,869)
 MVC Private Equity Fund, L.P.  11,965  1,707,958  (85,424)  48  1,634,499   (11,148)
 NPWT Corporation  (84,091)  69,817  (210,000) --  (224,274)  (126,364)
 Octagon Credit Investors, LLC  450,000 -- -- --  450,000 --
 Octagon High Income Cayman Fund -- -- -- -- --  227,247
 Ohio Medical Corporation   (350,000)  (3,425,000) -- --  (3,775,000)  (700,000)
 Pre-Paid Legal Services, Inc.   118,520 -- -- --  118,520 --
 RuMe, Inc.  423,000 -- --  417,185  423,000  417,185
 Security Holdings, B.V.  2,955,000  4,029,000  1,905,000  (6,536,000)  8,889,000  (6,230,000)
 SGDA Europe B.V.  (1,742,000)  614,000  (187,000)  (3,122,000)  (1,315,000)  (2,824,000)
 SIA Tekers Invest  234,000  (218,000) --   (141,000)  16,000  (417,000)
 Turf Products, LLC   180,000  412,000 --  (618,000)  592,000  (118,000)
 US Gas & Electric, Inc.  -- --  11,600,000 --  11,600,000 --
 Velocitius B.V.   (1,054,000)  (1,195,000)  (116,000)  (1,851,000)  (2,365,000)  (5,827,000)
 Vestal Manufacturing Enterprises, Inc.  1,650,000  1,475,000  1,000,000  1,245,000  4,125,000  2,445,000
 TOTAL $5,802,394 $3,594,551 $19,425,682  $(12,640,738) $28,822,627 $(23,766,949)

Quarterly Investment Activity

MVC Capital ("MVC") announced in the fiscal third quarter of 2013 two new investments and two follow-on investments totaling $42.7 million. The new investments were made in Pre-Paid Legal Services, Inc. for $9.9 million and into Biogenic Reagents for $9.5 million. 

The Company made a follow-on investment of $700,000 in the MVC Private Equity Fund and completed a follow-on investment of $22.6 million in Ohio Medical Corporation ("OMC"). The OMC investment replaced equity financings in OMC that deleveraged the company. This investment was made in accordance with a guarantee that MVC committed to when it was unable to make non-diversified investments in 2011. 

During the fiscal year 2013 and through July 31, 2013, MVC repurchased approximately $16.7 million or 1,299,294 of its shares at an average price of $12.79, before commissions. These shares were repurchased under the share repurchase program authorized by the Board of Directors in April 2013. 

Liquidity

As of July 31, 2013, the Company had investments in portfolio companies totaling $416.4 million and cash and cash equivalents of approximately $94.6 million, excluding restricted cash and cash equivalents of $6.7 million. 

Dividends

The board of directors declared a dividend of $0.135 per share, or a total of $3.1 million distributed to shareholders for the third quarter of fiscal 2013. The dividend was paid on July 31, 2013 to shareholders of record on July 24, 2013. This distribution represents the thirty-third consecutive quarterly dividend paid by the Company since implementing a dividend policy in July of 2005. The dividends issued under current management have resulted in approximately $95 million in distributions to the Company's shareholders.

MVC-G

About MVC Capital, Inc.

MVC is a business development company traded on the New York Stock Exchange that provides long-term debt and equity investment capital to fund growth, acquisitions and recapitalizations of companies in a variety of industries. For additional information about MVC, please visit the MVC's website at www.mvccapital.com.

Safe Harbor Statement

The information contained in this press release contains forward-looking statements. These forward-looking statements are subject to the inherent uncertainties in predicting future results and conditions. Certain factors could cause actual results and conditions to differ materially from those projected in these forward-looking statements, including: MVC Capital's ability to execute its investment strategy; the performance of MVC Capital's investments; and changes in economic or financial market conditions and other factors that are enumerated in the Company's periodic filings with the Securities and Exchange Commission. MVC Capital disclaims and does not undertake any obligation to update or revise any forward-looking statement in this press release.

The press release contains unaudited financial results. For ease of review, we have excluded the word "approximately" when rounding the results. 

There can be no assurance that future USG&E dividend payments to MVC or MVC dividend payments will match or exceed historic ones, or that they will be made at all.
     
CONSOLIDATED FINANCIAL STATEMENTS
     
MVC Capital, Inc.
Consolidated Balance Sheets
     
  July 31, October 31,
  2013 2012
  (Unaudited)  
ASSETS
     
Assets    
Cash and cash equivalents  $ 94,631,624  $ 36,160,558
Restricted cash and cash equivalents  6,650,000  6,480,000
Investments at fair value    
Short term investments (cost $49,508,735 and $0)  50,026,641  --
Non-control/Non-affiliated investments (cost $82,461,260 and $54,629,419)  68,294,064  34,197,990
Affiliate investments (cost $130,204,755 and $128,521,214)  205,923,003  178,396,856
Control investments (cost $143,159,786 and $149,281,248)  142,202,543  191,575,802
Total investments at fair value (cost $405,334,536 and $332,431,881)  466,446,251  404,170,648
Escrow receivables, net of reserves  5,912,749  991,563
Dividends and interest receivables, net of reserves  4,149,151  4,559,703
Deferred financing fees  3,331,810  --
Fee and other receivables  1,973,959  3,314,116
Prepaid expenses  323,985  753,501
Prepaid taxes  336  591
     
Total assets  $ 583,419,865  $ 456,430,680
     
LIABILITIES AND SHAREHOLDERS' EQUITY
     
Liabilities     
Senior notes  $ 114,408,750  $ --
Revolving credit facility  50,000,000  --
Provision for incentive compensation (Note 11)  21,799,378  15,655,438
Management fee payable  2,100,496  2,027,571
Professional fees payable  712,642  767,835
Other accrued expenses and liabilities  656,314  734,501
Management fee payable - Asset Management  374,393  1,054,433
Interest payable  368,651  --
Portfolio fees payable - Asset Management  138,528  140,293
Consulting fees payable  108,631  34,476
Term loan  --  50,000,000
     
Total liabilities  190,667,783  70,414,547
     
Shareholders' equity    
Common stock, $0.01 par value; 150,000,000 shares authorized; 22,617,688 and 23,916,982 shares outstanding, respectively  283,044  283,044
Additional paid-in-capital  425,651,660  425,651,660
Accumulated earnings  64,572,122  64,524,665
Distributions paid to stockholders  (101,484,091)  (92,010,775)
Accumulated net realized loss  (2,939,916)  (46,401,983)
Net unrealized appreciation   61,111,715  71,738,767
Treasury stock, at cost, 5,686,760 and 4,387,466 shares held, respectively (54,442,452)  (37,769,245)
     
Total shareholders' equity 392,752,082  386,016,133
     
Total liabilities and shareholders' equity $ 583,419,865  $ 456,430,680
     
Net asset value per share  $ 17.36  $ 16.14
     
The accompanying notes are an integral part of these consolidated financial statements.
   
   
 MVC Capital, Inc.   
 Consolidated Statements of Operations   
 (Unaudited)   
       
   For the Nine Month Period   For the Nine Month Period   
  November 1, 2012 to November 1, 2011 to  
  July 31, 2013 July 31, 2012  
Operating Income:      
Dividend income      
Non-control/Non-affiliated investments  $ 1,804  $ 6,352  
Affiliate investments  7,817,470  92,574  
Control investments  426,300  12,000,000  
Total dividend income  8,245,574  12,098,926  
       
Payment-in-kind dividend income      
Affiliate investments  200,408  185,146  
Total payment-in-kind dividend income  200,408  185,146  
       
Interest income       
Non-control/Non-affiliated investments  1,785,285  1,453,152  
Affiliate investments  2,673,283  2,987,903  
Control investments  1,157,569  761,122  
Total interest income  5,616,137  5,202,177  
       
Payment-in-kind interest income       
Non-control/Non-affiliated investments  899,068  51,597  
Affiliate investments  726,483  873,564  
Control investments  581,774  1,653,154  
Total payment-in-kind interest income  2,207,325  2,578,315  
       
Fee income      
Non-control/Non-affiliated investments  686,095  67,427  
Affiliate investments  707,308  807,246  
Control investments  988,159  570,331  
Total fee income  2,381,562  1,445,004  
       
Fee income - Asset Management(1)      
Portfolio fees  416,618  1,149,779  
Management Fees  928,471  823,562  
Total fee income - Asset Management  1,345,089  1,973,341  
       
Other income  298,096  255,874  
       
Total operating income  20,294,191  23,738,783  
       
Operating Expenses:      
Net Incentive compensation (Note 11)  6,143,940  (4,526,865)  
Management fee  6,045,866  6,560,420  
Interest and other borrowing costs  4,470,464  2,480,757  
Management fee - Asset Management(1)  696,350  617,671  
Audit fees  473,700  522,000  
Consulting fees  427,753  327,353  
Other expenses  407,999  466,045  
Legal fees  408,000  511,238  
Portfolio fees - Asset Management(1)  312,464  862,335  
Directors' fee  309,375  259,000  
Insurance  248,310  250,839  
Administration fee  190,166  197,751  
Public relations fees  145,500  76,500  
Printing and postage  76,647  99,900  
       
Total operating expenses  20,356,534  8,704,944  
       
Less: Voluntary Expense Waiver by Adviser(2)  (112,500)  (112,500)  
Less: Voluntary Management Fee Waiver by Adviser(3)  --  (58,728)  
Less: Voluntary Incentive Fee Waiver by Adviser(4)  --  (2,345,189)  
       
Total waivers  (112,500)  (2,516,417)  
       
Net operating income before taxes   50,157  17,550,256  
       
Tax Expenses:      
Current tax expense  2,700  1,646  
       
Total tax expense  2,700  1,646  
       
Net operating income   47,457  17,548,610  
       
Net Realized and Unrealized (Loss) Gain on Investments:      
       
Net realized gain (loss) on investments      
Non-control/Non-affiliated investments  (6,276,271)  (25,170,615)  
Affiliate investments  82,512  --  
Control investments  49,655,826  41,097  
       
Total net realized gain (loss) on investments   43,462,067  (25,129,518)  
       
Net unrealized depreciation on investments  (10,627,052)  (10,517,555)  
       
Net realized and unrealized gain (loss) on investments   32,835,015  (35,647,073)  
       
Net increase (decrease) in net assets resulting from operations  $ 32,882,472  $ (18,098,463)  
       
Net increase (decrease) in net assets per share resulting from operations  $ 1.41  $ (0.76)  
       
Dividends declared per share  $ 0.405  $ 0.360  
       
Weighted average number of shares outstanding (5)  23,549,370  23,916,982  
       
(1) These items are related to the management of the MVC Private Equity Fund, L.P. ("PE Fund"). Please see Note 10 "Management" for more information.  
(2) Reflects the quarterly portion of the TTG Advisers' voluntary waiver of $150,000 of expenses for the 2013 and 2012 fiscal years, that the Company would otherwise be obligated to reimburse TTG Advisers under the Advisory Agreement (the "Voluntary Waiver"). Please see Note 10 "Management" for more information.  
(3) Reflects TTG Advisers' voluntary agreement that any assets of the Company invested in exchange-traded funds or the Octagon High Income Cayman Fund Ltd. would not be taken into the calculation of the base management fee due to TTG Advisers under the Advisory Agreement. Please see Note 10 "Management" for more information.  
(4) Reflects TTG Advisers' voluntary waiver of the Incentive Fee associated with pre-incentive fee net operating income for the fiscal quarter ended April 30, 2012. Please see Note 10 "Management" for more information.  
(5) Please see Note 13 "Dividends and Distributions to Shareholders and Share Repurchase Program" for more information.  
       
The accompanying notes are an integral part of these consolidated financial statements.
 
 
 MVC Capital, Inc. 
 Consolidated Statements of Operations 
 (Unaudited) 
     
   For the Quarter   For the Quarter 
   May 1, 2013 to   May 1, 2012 to 
  July 31, 2013 July 31, 2012
Operating Income:    
Dividend income    
Non-control/Non-affiliated investments  $ 253  $ 2,110
Affiliate investments  2,975,320  31,471
     
Total dividend income  2,975,573  33,581
     
Payment-in-kind dividend income    
Affiliate investments  68,130  62,942
Total payment-in-kind dividend income  68,130  62,942
     
Interest income     
Non-control/Non-affiliated investments  705,487  473,719
Affiliate investments  732,361  1,090,935
Control investments  264,850  250,983
     
Total interest income  1,702,698  1,815,637
     
Payment-in-kind interest income     
Non-control/Non-affiliated investments  613,370  33,365
Affiliate investments  245,048  242,405
Control investments  84,643  563,382
Total payment-in-kind interest income  943,061  839,152
     
Fee income    
Non-control/Non-affiliated investments  285,504  13,308
Affiliate investments  234,179  268,668
Control investments  449,861  196,300
     
Total fee income  969,544  478,276
     
Fee income - Asset Management(1)    
Management fees  138,026  450,903
Portfolio fees  310,343  54,473
     
Total fee income - Asset Management  448,369  505,376
     
Other income   137,899  195,737
     
Total operating income  7,245,274  3,930,701
     
Operating Expenses:    
Net Incentive compensation (Note 11)  3,960,795  (2,415,163)
Interest and other borrowing costs  2,115,603  853,645
Management fee  2,100,496  2,127,182
Management fee - Asset Management(1)  232,758  40,855
Consulting fees  159,251  109,651
Audit fees  157,300  234,000
Other expenses  133,708  138,870
Legal fees  132,000  198,718
Portfolio fees - Asset Management(1)  103,520  338,178
Directors' fees  103,125  84,000
Insurance  82,770  83,613
Administration fee  63,979  65,548
Public relations fees  48,000  25,500
Printing and postage  15,529  31,500
     
Total operating expenses  9,408,834  1,916,097
     
Less: Voluntary Expense Waiver by Adviser (2)  (37,500)  (37,500)
     
Total waivers  (37,500)  (37,500)
     
Net operating (loss) income before taxes   (2,126,060)  2,052,104
     
Tax Expenses:    
Current tax expense  900  549
     
Total tax expense  900  549
     
Net operating (loss) income   (2,126,960)  2,051,555
     
Net Realized and Unrealized Gain (Loss) on Investments:    
     
Net realized gain (loss) on investments    
Non-control/Non-affiliated investments  164,945  (25,384,331)
Affiliate investments  82,512  --
     
Total net realized gain (loss) on investments   247,457  (25,384,331)
     
Net unrealized appreciation on investments  19,994,333  12,737,773
     
Net realized and unrealized gain (loss) on investments   20,241,790  (12,646,558)
     
Net increase (decrease) in net assets resulting from operations  $ 18,114,830  $ (10,595,003)
     
Net increase (decrease) in net assets per share resulting from operations  $ 0.79  $ (0.45)
     
Dividends declared per share  $ 0.135  $ 0.120
     
Weighted average number of shares outstanding (3)  22,859,939  23,916,982
     
(1) These items are related to the management of the MVC Private Equity Fund, L.P. ("PE Fund"). Please see Note 10 "Management" for more information.
(2) Reflects the quarterly portion of the TTG Advisers' voluntary waiver of $150,000 of expenses for the 2013 and 2012 fiscal years, that the Company would otherwise be obligated to reimburse TTG Advisers under the Advisory Agreement (the "Voluntary Waiver"). Please see Note 10 "Management" for more information.
(3) Please see Note 13 "Dividends and Distributions to Shareholders and Share Repurchase Program" for more information.
     
The accompanying notes are an integral part of these consolidated financial statements.
CONTACT:  Investor Relations          Jackie Rothchild          MVC Capital          914-510-9400          or           Jeffrey Goldberger / Garth Russell          KCSA Strategic Communications          212-896-1249 / 212-896-1250          Media Inquiries          Nathaniel Garnick / Patrick Scanlan          Sard Verbinnen & Co.          212-687-8080