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MVC Capital Announces Third Quarter Fiscal 2014 Results

PURCHASE, N.Y., Sept. 9, 2014 (GLOBE NEWSWIRE) -- MVC Capital, Inc. (NYSE:MVC), a publicly traded business development company that makes private debt and equity investments, today announced its financial results for the third fiscal quarter ended July 31, 2014.

Fiscal Third Quarter 2014 and Recent Financial Updates

  • Entered into a share exchange with Equus Total Return, Inc. ("Equus"), providing optionality for the Company and its portfolio
  • Closed sale of Octagon Credit Investors for $6.3 million, generating an 8.9x return on equity capital and an IRR of 39%1
  • Marine Exhibition Corporation repaid its loan in full, including all accrued interest and sold 20,000 shares of its preferred stock for $3.8 million, realizing a 16% IRR on its equity investment and a 12% IRR on its debt investment2
  • Interest income was $3.2 million, compared to $2.6 million in Q3 2013
  • NAV was $15.86, compared to $17.36 at Q3 2013 and $16.42 at Q2 2014
  • Paid quarterly dividend of $0.135 per share, totaling $3.1 million; 37th consecutive quarterly dividend

Fiscal Third Quarter 2014 Results
Quarter Ended Nine Month
Period Ended
(Unaudited) ($ in thousands except for per share data) Q3 2014 Q2 2014 Q1 2014 Q3 2013 July-14 July-13
Total operating income 5,016 5,863 4,613 7,245 15,492 20,294
Management fee 2,162 2,306 2,304 2,101 6,772 6,046
Portfolio fees - asset management 153 341 106 103 600 312
Management fee - asset management 17 231 232 232 480 696
Administrative 1,096 727 908 897 2,731 2,689
Interest, fees and other borrowing costs 2,426 2,406 2,255 2,115 7,087 4,470
Net Incentive compensation (1,831) (4,868) 554 3,961 (6,145) 6,144
Total waiver by adviser (38) (37) (38) (38) (113) (113)
Tax expense 1 0 1 1 2 3
Net operating income (loss) before net realized and unrealized gains 1,030 4,757 (1,709) (2,127) 4,078 47
Net (decrease) increase in net assets resulting from operations (7,876) (18,546) 2,047 18,114 (24,375) 32,882
Net (decrease) increase in net assets resulting from operations per share (0.35) (0.83) 0.10 0.79 (1.08) 1.41
Net asset value per share 15.86 16.42 17.36 17.36 15.86 17.36

In the third quarter of 2014, the Company earned $3.2 million in interest income, $811,000 in dividend income and $1.0 million in fee and other income, compared to $2.6 million, $3.0 million and $1.6 million, respectively for the third quarter of 2013. The decrease in operating income over the same period last year was primarily due to a reduction in dividend income from portfolio companies, specifically U.S. Gas & Electric ("USG&E"), as it did not pay a quarterly dividend in the fiscal third quarter 2014. The decrease in operating income was partially offset by an increase in interest income from more yield generating portfolio companies as the Company continues to execute on its transition.

The Company reported net operating income of $1.0 million for the third quarter, compared to a net operating loss of $2.1 million for the same quarter in 2013. Net operating income for the quarter was primarily impacted by a reduction in net incentive compensation of $1.8 million or a $5.8 million decrease from the third quarter 2013, which lowered operating expenses.

Fiscal Third Quarter 2014 Portfolio Adjustments

As of July 31, 2014, the Company's net assets were $360.1 million, or $15.86 per share, compared with net assets of $368.9 million, or $16.42 per share, at the beginning of the quarter and $392.8 million or $17.36 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 17 portfolio companies, resulting in a net decrease of $11.2 million or $0.49 per share.3 The decrease was primarily due to an $8.4 million write down of MVC Auto. The write-up of $948,000 in Equus was based upon the closing market price on July 31, 2014. Including Equus, the net decrease in the portfolio value for the third quarter was $10.2 million or $0.45 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. The changes in the Euro negatively impacted the European portfolio values during the quarter.

"The uncertain economic environment in Europe, particularly for consumers, continued to weigh on our portfolio during the quarter," said Michael Tokarz, Chairman & Portfolio Manager of MVC Capital. "While we are disappointed with the short-term performance of certain holdings, we continue to believe that the long-term fundamentals of our portfolio companies remain bright and we are excited about the optionality that the Equus transaction provides."

Write ups (downs) Quarter Ended Nine Month Period Ended
Active Deals: Q3 2014 Q2 2014 Q1 2014 Q3 2013 July-14 July-13
Advantage Insurance Holdings LTD $ 96,000 $ -- $ -- $ -- $ 96,000 $ --
Biogenics Reagents 275,000 -- -- -- 275,000 --
Biovation Holdings, Inc. (129,281) (19,860) 59,846 53,366 (89,295) 3,262
Centile Holding B.V. (76,000) 57,000 (29,000) 474,000 (48,000) 1,069,000
Custom Alloy Corporation -- (1,340,000) 4,000,000 5,000,000 2,660,000 5,840,000
Equus Total Return, Inc. 947,999 -- -- -- 947,999 --
Foliofn, Inc. (109,000) 127,000 (1,091,000) -- (1,073,000) --
Freshii USA Inc -- 8,531 14,600 (8,260) 23,131 (3,380)
G3K Displays, Inc. -- (5,625,000) -- -- (5,625,000) --
Harmony Health & Beauty, Inc. -- -- -- -- -- (100,000)
JSC Tekers Invest (499,388) -- -- -- (499,388) (1,000,000)
MVC Automotive Group B.V. (8,388,000) (11,175,000) (1,924,409) -- (21,487,409) 2,845,000
MVC Private Equity Fund, L.P. 358,984 910,704 2,204,636 (85,424) 3,474,324 1,634,499
NPWT Corporation (109,000) (74,000) 35,000 (210,000) (148,000) (224,274)
Octagon Credit Investors, LLC (730,000) 1,133,657 (1,153,305) -- (749,648) 450,000
Ohio Medical Corporation (800,000) -- -- -- (800,000) (3,775,000)
Pre-Paid Legal Services, Inc. -- 100,000 -- -- 100,000 118,520
RuMe, Inc. 74,831 -- -- -- 74,831 423,000
Security Holdings, B.V. (564,000) 422,000 (304,000) 1,905,000 (446,000) 8,889,000
SGDA Europe B.V. (1,711,201) 350,000 (57,000) (187,000) (1,418,201) (1,315,000)
SIA Tekers Invest (111,000) 7,000 (12,000) -- (116,000) 16,000
Turf Products, LLC -- -- (92,000) -- (92,000) 592,000
U.S. Gas & Electric, Inc. -- (9,000,000) -- 11,600,000 (9,000,000) 11,600,000
Velocitius B.V. (198,000) (606,000) (1,874,000) (116,000) (2,678,000) (2,365,000)
Vestal Manufacturing Enterprises, Inc. 1,450,000 -- 3,000,000 1,000,000 4,450,000 4,125,000
TOTAL $(10,222,056) $(24,723,968) $2,777,368 $19,425,682 $(32,168,656) $28,822,627

Quarterly Investment Activity

At the beginning of the quarter, MVC entered into a share exchange agreement with Equus, another publicly traded business development company, pursuant to Equus' plan of reorganization. Under the agreement, MVC received 2,112,000 shares of Equus in exchange for 395,839 shares of the Company. During the quarter, and as part of Equus' reorganization, MVC also purchased additional common shares of Equus at a total cost of $5.7 million. As of July 31, 2014, the Company owned 4,444,644 shares of Equus.

During the quarter ended July 31, 2014, the Company made three follow-on investments totaling $5.0 million. The follow-on investments were made in U.S. Spray Drying Holding Company ($1.5 million), Biovation Holdings, Inc. ($500,000) and U.S. Gas & Electric, Inc. ($3.0 million). Also during the quarter, the Company converted its loans to RuMe, Inc. and JSC Tekers Holding to preferred stock and acquired additional common shares of Ohio Medical for a nominal cost. Additionally, the Company converted its loan to SGDA Sanierungsgesellschaft fur Deponien und Altasten GmbH ("SGDA") to additional common equity in SGDA Europe B.V. Also during the quarter, the Company loaned an additional $2.0 million to Inland Environmental & Remediation LP under its existing $15.0 million commitment.

During the third quarter, MVC Capital repurchased 157,832 of its shares at a total cost of approximately $2.0 million at an average price of $12.71 per share, including commissions. Since implementing an unlimited share repurchase program during the second quarter of 2013, the Company has repurchased $20.8 million worth of stock, representing 7% of the current market capitalization as of July 31, 2014.

Liquidity

As of July 31, 2014, the Company had investments in portfolio companies totaling $448.9 million and cash and cash equivalents of approximately $29.1 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 during the third quarter. The dividend was paid on July 31, 2014 to shareholders of record on July 25, 2014. This distribution represented the thirty-seventh consecutive quarterly dividend paid by the Company since implementing a dividend policy in July of 2005. The dividends paid under current management have resulted in approximately $107 million in distributions to the Company's shareholders.

1 The return on equity and resulting IRR include all fees and income earned over the life of the investment (not including any fees and income generated from the initial debt investment).

2 The IRR includes all fees and income earned over the life of the investments.

3 Based on shares outstanding as of July 31, 2014.

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; the performance of Equus, including its ability to achieve its expected financial and business objectives; Equus' ability to execute its reorganization and complete transactions contemplated thereby; MVC's ability to complete the transactions contemplated by Equus' reorganization; 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. There can be no assurance that MVC will achieve its investment objective.

MVC Capital, Inc.
Consolidated Balance Sheets
July 31, October 31,
2014 2013
(Unaudited)
ASSETS
Assets
Cash $17,650,431 $74,234,560
Restricted cash equivalents (cost $6,694,500 and $6,792,000) 6,694,500 6,792,000
Cash equivalents (cost $11,455,152 and $0) 11,455,152 --
Short-term investments (cost $0 and $49,937,320) -- 49,826,893
Investments, at fair value
Non-control/Non-affiliated investments (cost $117,598,667 and $92,139,375) 93,398,599 74,433,413
Affiliate investments (cost $122,831,153 and $136,499,386) 200,673,576 219,694,633
Control investments (cost $171,819,080 and $143,292,881) 154,823,356 146,169,917
Total investments at fair value (cost $412,248,900 and $371,931,642) 448,895,531 440,297,963
Receivable on sale of short-term investments 99,698,193 --
Escrow receivables, net of reserves 5,936,928 6,236,928
Deferred financing fees 3,095,180 3,265,495
Fee and other receivables 1,830,048 2,109,538
Dividends and interest receivables, net of reserves 1,286,429 3,528,899
Prepaid expenses 399,088 534,904
Prepaid taxes -- 336
Total assets $596,941,480 $586,827,516
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Senior notes $114,408,750 $114,408,750
Revolving credit facility 100,000,000 50,000,000
Provision for incentive compensation (Note 11) 17,814,123 23,959,109
Management fee payable 2,162,573 2,221,213
Professional fees payable 1,133,054 742,859
Interest payable 371,789 371,817
Accrued expenses and liabilities 342,183 655,615
Management fee payable - Asset Management 261,223 606,766
Portfolio fees payable - Asset Management 197,706 140,347
Consulting fees payable 125,229 167,968
Taxes payable 780 --
Total liabilities 236,817,410 193,274,444
Commitments and Contingencies (Note 9)
Shareholders' equity
Common stock, $0.01 par value; 150,000,000 shares authorized; 22,702,821 and 22,617,688 shares outstanding, respectively 283,044 283,044
Additional paid-in-capital 421,115,554 420,165,045
Accumulated earnings 70,108,536 66,030,475
Dividends paid to stockholders (113,688,497) (104,537,479)
Accumulated net realized loss 955,008 (2,201,455)
Net unrealized appreciation 36,646,631 68,255,894
Treasury stock, at cost, 5,601,627 and 5,686,760 shares held, respectively (55,296,206) (54,442,452)
Total shareholders' equity 360,124,070 393,553,072
Total liabilities and shareholders' equity $596,941,480 $586,827,516
Net asset value per share $15.86 $17.40
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, 2013 to November 1, 2012 to
July 31, 2014 July 31, 2013
Operating Income:
Dividend income
Non-control/Non-affiliated investments $69,767 $1,804
Affiliate investments 808,463 7,817,470
Control investments -- 426,300
Total dividend income 878,230 8,245,574
1,095,158 8,445,982
Payment-in-kind dividend income
Affiliate investments 216,928 200,408
Total payment-in-kind dividend income 216,928 200,408
Interest income
Non-control/Non-affiliated investments 4,755,577 1,785,285
Affiliate investments 2,493,429 2,673,283
Control investments 236,111 1,157,569
Total interest income 7,485,117 5,616,137
10,697,439 7,823,462
Payment-in-kind interest income
Non-control/Non-affiliated investments 2,461,572 899,068
Affiliate investments 582,191 726,483
Control investments 168,559 581,774
Total payment-in-kind interest income 3,212,322 2,207,325
Fee income
Non-control/Non-affiliated investments 301,495 686,095
Affiliate investments 700,835 707,308
Control investments 242,250 988,159
Total fee income 1,244,580 2,381,562
Fee income - Asset Management(1)
Portfolio fees 799,563 416,618
Management Fees 693,033 928,471
Total fee income - Asset Management 1,492,596 1,345,089
Other income 962,252 298,096
Total operating income 15,492,025 20,294,191
Operating Expenses:
Administration 198,121 190,166
Audit fees 478,200 473,700
Consulting fees 398,653 427,753
Directors fees 302,625 309,375
Insurance 260,100 248,310
Interest and other borrowing costs 7,087,004 4,470,464
Legal fees 616,000 408,000
Management fee 6,772,485 6,045,866
Management fee - Asset Management(1) 479,522 696,350
Net Incentive compensation (Note 11) (6,144,986) 6,143,940
Other expenses 264,536 407,999
Portfolio fees - Asset Management(1) 599,672 312,464
Printing and postage 60,216 76,647
Public relations fees 153,000 145,500
Total operating expenses 11,525,148 20,356,534
Less: Voluntary Expense Waiver by Adviser(2) (112,500) (112,500)
Total waivers (112,500) (112,500)
Net operating income before taxes 4,079,377 50,157
Tax Expenses:
Current tax expense 1,316 2,700
Total tax expense 1,316 2,700
Net operating income 4,078,061 47,457
Net Realized and Unrealized Gain (Loss) on Investments:
Net realized gain (loss) on investments
Short-term investments (131,418) --
Non-control/Non-affiliated investments 308,196 (6,276,271)
Affiliate investments 2,979,685 82,512
Control investments -- 49,655,826
Total net realized gain on investments 3,156,463 43,462,067
Net change in unrealized depreciation on investments (31,609,263) (10,627,052)
Net realized and unrealized (loss) gain on investments (28,452,800) 32,835,015
Net (decrease) increase in net assets resulting from operations $ (24,374,739) $ 32,882,472
Net (decrease) increase in net assets per share resulting from operations $ (1.08) $ 1.41
Dividends declared per share $ 0.41 $ 0.41
Weighted average number of shares outstanding (3) 22,611,513 23,549,370
(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 2014 and 2013 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.
MVC Capital, Inc.
Consolidated Statements of Operations
(Unaudited)
For the Quarter For the Quarter
May 1, 2014 to May 1, 2013 to
July 31, 2014 July 31, 2013
Operating Income:
Dividend income
Non-control/Non-affiliated investments $ 187 $ 253
Affiliate investments 736,873 2,975,320
Total dividend income 737,060 2,975,573
Payment-in-kind dividend income
Affiliate investments 73,746 68,130
Total payment-in-kind dividend income 73,746 68,130
810,806
Interest income
Non-control/Non-affiliated investments 2,062,925 705,487
Affiliate investments 86,587 732,361
Control investments 44,313 264,850
Total interest income 2,193,825 1,702,698
Payment-in-kind interest income
Non-control/Non-affiliated investments 827,099 613,370
Affiliate investments 83,534 245,048
Control investments 91,295 84,643
Total payment-in-kind interest income 1,001,928 943,061
3,195,753
Fee income
Non-control/Non-affiliated investments 504 285,504
Affiliate investments 240,834 234,179
Control investments 80,751 449,861
Total fee income 322,089 969,544
Fee income - Asset Management(1)
Portfolio fees 203,736 310,343
Management fees 75,548 138,026
Total fee income - Asset Management 279,284 448,369
601,373
Other income 408,483 137,899
Total operating income 5,016,415 7,245,274
Operating Expenses:
Administration 71,998 2,115,603
Audit fees 154,100 2,100,496
Consulting fees 139,251 132,000
Directors' fees 96,375 133,708
Incentive compensation (Note 11) (1,831,130) 157,300
Insurance 86,700 103,520
Interest and other borrowing costs 2,426,105 159,251
Legal fees 326,000 103,125
Management fee 2,162,573 82,770
Management fee - Asset Management(1) 16,408 63,979
Other expenses 160,738 48,000
Portfolio fees - Asset Management(1) 152,802 232,758
Printing and postage 10,327 15,529
Public relations fees 51,000 3,960,795
Total operating expenses 4,023,247 9,408,834
Less: Voluntary Expense Waiver by Adviser (2) (37,500) (37,500)
Total waivers (37,500) (37,500)
Net operating income (Loss) before taxes 1,030,668 (2,126,060)
Tax Expenses:
Current tax expense 439 900
Total tax expense 439 900
Net operating income (Loss) 1,030,229 (2,126,960)
Net Realized and Unrealized Gain (Loss) on Investments:
Net realized gain (loss) on investments
Short-term investments (307,933) --
Non-control/Non-affiliated investments -- 164,945
Affiliate investments 2,979,685 --
Control investments -- 82,512
Total net realized gain on investments 2,671,752 247,457
Net unrealized (depreciation) appreciation on investments (11,577,923) 19,994,333
Net realized gain and net change in unrealized (depreciation) appreciation on investments (8,906,171) 20,241,790
Net (decrease) increase in net assets resulting from operations $ (7,875,942) $ 18,114,830
Net (decrease) increase in net assets per share resulting from operations $ (0.35) $ 0.79
Dividends declared per share $ 0.135 $ 0.135
Weighted average number of shares outstanding (3) 22,699,020 22,859,939
(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 2014 and 2013 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 waiver of the Incentive Fee associated with pre-incentive fee net operationg income for the fiscal quarter ended April 30, 2013. Please see Note 9 "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, Inc. 914-510-9400 Or Jeffrey Goldberger / Brad Nelson KCSA Strategic Communications 212-896-1249 / 212-896-1217 Media Inquiries Nathaniel Garnick / Patrick Scanlan Sard Verbinnen & Co 212-687-8080

Source:MVC Capital