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
"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 2012||Qtr 2 2012||Qtr 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||-|
|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)|
|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:||Status||Write up (Write down)|
|MVC Private Equity Fund LP||Write-up||$48|
Security Holdings B.V.
SGDA Europe B.V.
|MVC Automotive Group B.V.||Write-down||($1,140,000)|
|MVC Partners LLC||Write-down||($564,971)|
|BPC II LLC||Write-down||($180,000)|
|Harmony Health & Beauty||Write-down||($150,000)|
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.
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.
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.
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 $47 million, taking into account the receipt of SHL’s sale proceeds and adding that to the Company’s cash balance as of July 31, 2012.
About MVC Capital, Inc.
MVC is a business development company traded on the New York Stock Exchange that provides long-term debt and equity investment capital to fund growth, acquisitions and recapitalizations of companies in a variety of industries. For additional information about MVC, please visit the MVC's website at www.mvccapital.com.
The information contained in this press release contains forward-looking statements. These forward-looking statements are subject to the inherent uncertainties in predicting future results and conditions. Certain factors could cause actual results and conditions to differ materially from those projected in these forward-looking statements, and these factors are enumerated in the company's periodic filings with the Securities and Exchange Commission.
Part I. Consolidated Financial Information
|Item 1. Consolidated Financial Statements|
|CONSOLIDATED FINANCIAL STATEMENTS|
|MVC Capital, Inc.|
|Consolidated Balance Sheets|
|July 31,||October 31,|
|Cash and cash equivalents||$||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|
|LIABILITIES AND SHAREHOLDERS' EQUITY|
|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|
|Common stock, $0.01 par value; 150,000,000 shares|
|authorized; 23,916,982 and 23,916,982 shares outstanding, respectively||283,044||283,044|
|Dividends paid to stockholders||(88,781,982||)||(80,171,868||)|
|Accumulated net realized loss||(50,884,958||)||(25,755,440||)|
|Net unrealized appreciation||83,478,525||93,996,080|
|Treasury stock, at cost, 4,387,466 and 4,387,466 shares held, respectively||(37,769,245||)||(37,769,245||)|
|Total shareholders' equity||392,801,139||419,509,716|
|Total liabilities and shareholders' equity||$||464,820,063||$||497,107,181|
|Net asset value per share||$||16.42||$||17.54|
|The accompanying notes are an integral part of these consolidated financial statements.|
|MVC Capital, Inc.|
|Consolidated Statements of Operations|
|For the Quarter||For the Quarter|
|May 1, 2012 to||May 1, 2011 to|
|July 31, 2012||July 31, 2011|
|Total dividend income||96,523||88,074|
|Total interest income||2,654,789||2,404,393|
|Total fee income||478,276||491,784|
|Fee income - Asset Management 1|
|Total fee income - Asset Management||505,376||-|
|Total operating income||3,930,701||3,482,256|
|Interest and other borrowing costs||853,645||783,412|
|Portfolio fees - Asset Management 1||338,178||-|
|Management fee - Asset Management 1||40,855||-|
|Printing and postage||31,500||27,000|
|Public relations fees||25,500||25,500|
|Net Incentive compensation (Note 10)||(2,415,163||)||(462,747||)|
|Total operating expenses||1,916,097||3,552,839|
|Less: Voluntary Expense Waiver by Adviser 2||(37,500||)||(37,500||)|
|Net operating income (loss) before taxes||2,052,104||(33,083||)|
|Current tax expense||549||510|
|Total tax expense||549||510|
|Net operating income (loss)||2,051,555||(33,593||)|
|Net Realized and Unrealized (Loss) Gain on|
|Net realized (loss) gain on investments|
|Net change in unrealized appreciation|
|(depreciation) on investments||12,737,773||(2,407,722||)|
|Net realized (loss) gain and net change in|
|unrealized appreciation (depreciation) on investments||(12,646,558||)||(2,335,411||)|
|Net decrease in net assets resulting|
|Net decrease in net assets per share|
|resulting from operations||$||(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.