MVC Capital Announces Third Quarter Fiscal 2012 Results

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, 2012.

Third-Fiscal Quarter 2012 Financial Highlights

  • Interest and dividend income of $2.8 million, compared with $2.5 million in Q3 FY 2011
  • Fee and other income of $1.2 million, compared with $1.0 million in Q3 FY 2011
  • Net operating income of $2.1 million, compared with a loss of $34,000 in Q3 FY 2011
  • Paid quarterly dividend of $0.12 per share; 29th consecutive quarterly dividend
  • Completed $1.5 million debt investment in Biovation Holdings Inc.

"During the quarter, MVC continued to execute against our business strategy. Excluding negative fluctuations in the Euro versus the US dollar, on an operational basis, a good portion of our investments delivered strong performance during the period," said Michael Tokarz, Chairman and Portfolio Manager. "With the additional cash from the sale of our stake in SHL Group, I am confident our greater liquidity will provide us with additional flexibility to pursue yielding investments, paying down our debt and/or buying back shares.”

Third-Fiscal Quarter 2012 Results

(Unaudited) (in thousands, except per share data)Qtr 3 2012Qtr 2 2012Qtr 3 2011
Total operating income $3,931 $16,164 $3,482
Management fee expense $2,168 $2,365 $2,183
Portfolio fees - asset management expense $338 $462 -
Administrative $971 $817 $1,049
Interest, fees and other borrowing costs $854 $832 $784
Net incentive compensation ($2,415) ($175) ($463)
Total Operating Expenses $1,916 $4,301 $3,553
Waiver by advisor ($37) ($2,383) ($37)
Tax expense - - -
Net operating income (loss) $2,052 $14,246 ($34)
Net realized (loss) gain and net change in unrealized appreciation (depreciation) on investments ($12,647) ($12,731) ($2,335)
Net (decrease) increase in net assets resulting from operations ($10,595) $1,515 ($2,369)
Net (decrease) increase in net assets resulting from operations per share ($0.45) $0.06 ($0.10)
Net Asset value per share $16.42 $16.99 $17.10

In the third quarter of 2012, the Company earned approximately $2.8 million in interest and dividend income and approximately $1.2 million in fee and other income, representing an increase in total operating income of approximately $448,000 as compared to the same quarter in 2011. The primary reason for the increase in total operating income was fee income from the MVC PE Fund and its portfolio companies.

The Company reported net operating income of approximately $2.1 million for the third quarter, as compared to net operating loss of approximately $34,000 for the same quarter in 2011. The primary reason for the increase in net operating income was the result of a reduction in incentive compensation fees due to unrealized depreciation in the portfolio during the period. The Company continued to manage its ordinary operating expenses at comparable levels to last year.

Third-Fiscal Quarter 2012 Portfolio Adjustments

Active Deals:StatusWrite up (Write down)
Vestal Manufacturing Write-up $1,245,000
RuMe Inc. Write-up $417,185
MVC Private Equity Fund LP Write-up $48

Security Holdings B.V.

Write-down ($6,536,000)

SGDA Europe B.V.

Write-down ($3,122,000)
Velocitius Write-down ($1,851,000)
MVC Automotive Group B.V. Write-down ($1,140,000)
Turf Products Write-down ($618,000)
MVC Partners LLC Write-down ($564,971)
BPC II LLC Write-down ($180,000)
Harmony Health & Beauty Write-down ($150,000)
SIA Tekers Write-down ($141,000)
TOTAL($12,640,738)

As of July 31, 2012, the Company's net assets were approximately $392.8 million or $16.42 per share, compared with net assets of approximately $406.3 million, or $16.99 per share, at the beginning of the quarter and $409.1 million, or $17.10 per share, at the end of the same period last year. During the quarter, the Valuation Committee, which is comprised of three independent directors, adjusted the fair values of twelve portfolio companies, resulting in a net decrease of approximately $12.6 million or $0.53 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 the Euro which materially declined from 1.32 USD/Euro on April 30, 2012 to 1.23 USD/Euro on July 31, 2012.

Quarterly Investment Activity

During the quarter, the Company made one new yielding investment in the amount of $1.5 million in Biovation Holdings Inc., at a 12% coupon. During the nine month period ended July 31, 2012, the Company made two new investments and seven follow-on investments in three existing portfolio companies totaling approximately $10.8 million.

On June 20, 2012, BP Clothing, LLC completed the bankruptcy process which resulted in a realized loss of approximately $23.4 million on the second lien loan, term loan A and term loan B. At July 31, 2012, the Fund’s equity investment in BPC II, LLC the company emerging out of bankruptcy, had a cost basis of $180,000 and a fair value of $0.

During the quarter, MVC contributed approximately $1.9 million to the MVC Private Equity Fund to support its investment in Focus Pointe Global, a leading provider of marketing research data collection.

Subsequent Investment Activity

Subsequent to the end of the quarter, the Company sold its common shares of SHL Group Limited and received gross proceeds of approximately $15.3 million, which includes all transaction expenses and approximately $225,000 held in escrow, resulting in a realized gain of approximately $9.3 million.

Portfolio Update

MVC Capital continues to pursue opportunities to monetize its investments, including its investment in U.S. Gas & Electric, Inc. ("USG&E"). However, current market conditions in the IPO markets for businesses such as USG&E are not favorable, and no actionable alternatives have emerged at this time.

Dividends

The board of directors declared a dividend of $0.12 per share, or a total of approximately $2.9 million, to be distributed to shareholders for the third quarter of fiscal 2012. The dividend was paid on July 31, 2012 to shareholders of record on July 24, 2012. Since implementing the dividend policy in July 2005, the Company has distributed over $82 million to shareholders.

Liquidity

As of July 31, 2012, the Company had investments in portfolio companies totaling $425.5 million, investments in unrestricted cash and cash equivalents of approximately $24.9 million and restricted cash and cash equivalents of $6.2 million. As of September 10, 2012, the Company had cash and cash equivalents of approximately $47 million, taking into account the receipt of SHL’s sale proceeds and adding that to the Company’s cash balance as of July 31, 2012.

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.

Forward-Looking Statements

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, and these factors are enumerated in the company's periodic filings with the Securities and Exchange Commission.

Part I. Consolidated Financial Information

Item 1. Consolidated Financial Statements
CONSOLIDATED FINANCIAL STATEMENTS
MVC Capital, Inc.
Consolidated Balance Sheets
July 31,October 31,
20122011
(Unaudited)
ASSETS
Assets
Cash and cash equivalents $ 24,895,220 $ 28,317,460
Restricted cash and cash equivalents 6,152,000 6,925,000
Investments at fair value
Non-control/Non-affiliated investments (cost $63,767,552 and $90,292,464) 49,863,801 51,182,558
Affiliate investments (cost $127,801,028 and $126,356,770) 179,897,585 187,953,099
Control investments (cost $150,414,008 and $141,569,773) 195,699,727 213,079,430
Total investments at fair value (cost $341,982,588 and $358,219,007) 425,461,113 452,215,087
Dividends, interest and fee receivables, net of reserves 6,967,678 7,872,867
Escrow receivables 856,563 1,146,899
Prepaid expenses 485,511 629,868
Prepaid taxes 1,978 -
Total assets $ 464,820,063 $ 497,107,181
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Term loan $ 50,000,000 $ 50,000,000
Provision for incentive compensation (Note 10) 17,066,004 23,938,058
Management fee payable 3,042,103 2,600,905
Professional fees payable 756,480 703,293
Other accrued expenses and liabilities 615,197 288,111
Portfolio fees payable 453,210 -
Consulting fees payable 85,930 64,999
Taxes payable - 2,099
Total liabilities 72,018,924 77,597,465
Shareholders' equity
Common stock, $0.01 par value; 150,000,000 shares
authorized; 23,916,982 and 23,916,982 shares outstanding, respectively 283,044 283,044
Additional paid-in-capital 428,428,139 428,428,139
Accumulated earnings 58,047,616 40,499,006
Dividends paid to stockholders (88,781,982 ) (80,171,868 )
Accumulated net realized loss (50,884,958 ) (25,755,440 )
Net unrealized appreciation 83,478,525 93,996,080
Treasury stock, at cost, 4,387,466 and 4,387,466 shares held, respectively (37,769,245 ) (37,769,245 )
Total shareholders' equity 392,801,139 419,509,716
Total liabilities and shareholders' equity $ 464,820,063 $ 497,107,181
Net asset value per share $ 16.42 $ 17.54
The accompanying notes are an integral part of these consolidated financial statements.
MVC Capital, Inc.
Consolidated Statements of Operations
(Unaudited)
For the QuarterFor the Quarter
May 1, 2012 toMay 1, 2011 to
July 31, 2012July 31, 2011
Operating Income:
Dividend income
Non-control/Non-affiliated investments $ 2,110 $ 851
Affiliate investments 94,413 87,223
Total dividend income 96,523 88,074
Interest income
Non-control/Non-affiliated investments 507,084 327,460
Affiliate investments 1,333,340 1,290,971
Control investments 814,365 785,962
Total interest income 2,654,789 2,404,393
Fee income
Non-control/Non-affiliated investments 13,308 68,170
Affiliate investments 268,668 282,168
Control investments 196,300 141,446
Total fee income 478,276 491,784
Fee income - Asset Management 1
Portfolio fees 450,903 -
Management fees 54,473 -
Total fee income - Asset Management 505,376 -
Other income 195,737 498,005
Total operating income 3,930,701 3,482,256
Operating Expenses:
Management fee 2,127,182 2,183,055
Interest and other borrowing costs 853,645 783,412
Portfolio fees - Asset Management 1 338,178 -
Audit fees 234,000 133,000
Legal fees 198,718 223,499
Other expenses 138,870 239,087
Consulting fees 109,651 150,000
Directors' fees 84,000 96,000
Insurance 83,613 87,855
Administration 65,548 67,178
Management fee - Asset Management 1 40,855 -
Printing and postage 31,500 27,000
Public relations fees 25,500 25,500
Net Incentive compensation (Note 10) (2,415,163 ) (462,747 )
Total operating expenses 1,916,097 3,552,839
Less: Voluntary Expense Waiver by Adviser 2 (37,500 ) (37,500 )
Total waivers (37,500 ) (37,500 )
Net operating income (loss) before taxes 2,052,104 (33,083 )
Tax Expenses:
Current tax expense 549 510
Total tax expense 549 510
Net operating income (loss) 2,051,555 (33,593 )
Net Realized and Unrealized (Loss) Gain on
Investments:
Net realized (loss) gain on investments
Non-control/Non-affiliated investments (25,384,331 ) 72,311
Net change in unrealized appreciation
(depreciation) on investments 12,737,773 (2,407,722 )
Net realized (loss) gain and net change in
unrealized appreciation (depreciation) on investments (12,646,558 ) (2,335,411 )
Net decrease in net assets resulting
from operations $ (10,595,003 ) $ (2,369,004 )
Net decrease in net assets per share
resulting from operations $ (0.45 ) $ (0.10 )
Dividends declared per share $ 0.12 $ 0.12

The accompanying notes are an integral part of these consolidated financial statements.

1 These items are related to the management of the PE Fund. Please see Note 9 "Management" for more information.

2 Reflects the quarterly portion of the TTG Advisers' voluntary waiver of $150,000 of expenses for the 2012 and 2011 fiscal years, that the Company would otherwise be obligated to reimburse TTG Advisers under the Advisory Agreement (the "Voluntary Waiver"). Please see Note 9 "Management" for more information.

Contacts:

Investor Relations
MVC Capital
Jackie Rothchild, 914-510-9400
or
KCSA Strategic Communications
Garth Russell, 212-896-1250
or
Media Inquiries
Sard Verbinnen & Co
Nathaniel Garnick, 212-687-8080
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