MCG Capital Corporation Reports Fourth Quarter and Annual 2007 Results

ARLINGTON, Va., Feb. 26 /PRNewswire-FirstCall/ -- MCG Capital Corporation
(Nasdaq: MCGC) announced today its results for the fourth quarter and year
ended December 31, 2007. MCG will host an investment community conference
call tomorrow at 10:00 a.m. ET.
Highlights

(dollars in millions except
per share amounts)
Three Months ended Year ended
December 31, December 31,
% %
2006 2007 change 2006 2007 change

Revenue $40.6 $49.7 +22% $154.4 $187.1 +21%
Distributable net
operating income (DNOI) $24.9 $31.0 +24% $87.1 $110.9 +27%
Net operating income (NOI) $23.9 $29.1 +22% $83.6 $101.9 +22%
Net income (loss) $29.5 $(4.9) -117% $100.9 $86.6 -14%
DNOI/share $0.44 $0.48 +9% $1.61 $1.81 +12%
NOI/share $0.42 $0.45 +7% $1.54 $1.66 +8%
EPS $0.52 $(0.08) -115% $1.86 $1.41 -24%
Dividends/share $0.42 $0.44 +5% $1.68 $1.76 +5%
Gross originations
and advances $128.0 $165.6 +29% $544.7 $675.5 +24%
Total investment
portfolio at fair value
at December 31 $1,257.6 $1,555.9 +24%
Net increase in
investment
portfolio $50.4 $30.6 $160.0 $298.3

Dividend Declaration
MCG also announced today that its board of directors has declared a first
quarter 2008 dividend of $0.44 per share. The dividend is payable as follows:
Record date: March 12, 2008
Payable date: April 29, 2008

Conference Call/Webcast/Replay
MCG will host an investment community conference call tomorrow, Wednesday,
February 27th at 10:00 a.m. ET. Slides and financial information reviewed in
the investor conference call will be available on MCG's website at
http://www.mcgcapital.com prior to the call.
Conference Call: Tomorrow - Wednesday, February 27, 2008 at 10:00 a.m. ET
Dial-in Number: 888/254-3609 or 913/312-0390 for international
callers (no access code required)
Live Webcast/Replay: http://investor.mcgcapital.com
Call Replay: 888/203-1112 or 719/457-0820 for international
callers - replay pass code #4270636, through
March 5, 2008

MCG Capital Corporation
Consolidated Balance Sheets
(in thousands, except per share amounts)

December 31, December 31,
2007 2006
(unaudited)
Assets
Cash and cash equivalents $23,297 $21,691
Cash, securitization accounts 37,003 15,931
Cash, restricted 4,010 2,587
Investments at fair value
Non-affiliate investments (cost of $681,086
and $595,885, respectively) 712,828 621,582
Affiliate investments (cost of $71,335 and
$105,553, respectively) 78,420 109,890
Control investments (cost of $822,787 and
$541,267, respectively) 764,649 526,140
Total investments (cost of $1,575,208 and
$1,242,705, respectively) 1,555,897 1,257,612
Unearned income on commercial loans (10,903) (9,539)
Total investments net of unearned income 1,544,994 1,248,073
Interest receivable 11,272 10,451
Other assets 17,005 20,535
Total assets $1,637,581 $1,319,268

Liabilities
Borrowings (maturing within one year of $288,435
and $167,983, respectively) $751,035 $521,883
Interest payable 6,599 5,198
Dividends payable 28,858 24,652
Other liabilities 16,400 14,398
Total liabilities 802,892 566,131

Stockholders' Equity
Preferred stock, par value $.01, authorized
1 share, none issued and outstanding - -
Common stock, par value $.01, authorized 200,000
shares on December 31, 2007 and 2006, 65,587
issued and outstanding on December 31, 2007
and 58,694 issued and outstanding on
December 31, 2006 656 587
Paid-in capital 933,274 828,795
Undistributed (distributions in excess of) earnings:
Paid-in capital (84,070) (78,072)
Other 4,704 (12,365)
Net unrealized (depreciation) appreciation on
investments (19,311) 14,907
Stockholder loans (564) (715)
Total stockholders' equity 834,689 753,137

Total liabilities and stockholders' equity $1,637,581 $1,319,268

Net asset value per common share at period end $12.73 $12.83

Note: Certain prior period information has been reclassified to conform
to current year presentation

MCG Capital Corporation
Consolidated Statements of Operations (unaudited)
(in thousands, except per share amounts)

Three Months
Ended Year Ended
December 31, December 31,
2007 2006 2007 2006
Revenue
Interest and dividend income
Non-affiliate investments
(less than 5% owned) $22,386 $18,126 $82,229 $80,846
Affiliate investments
(5% to 25% owned) 3,619 3,229 13,453 10,368
Control investments
(more than 25% owned) 21,202 17,238 81,187 47,631
Total interest and dividend
income 47,207 38,593 176,869 138,845
Advisory fees and other income
Non-affiliate investments
(less than 5% owned) 1,360 909 4,819 7,257
Affiliate investments
(5% to 25% owned) - 135 107 1,901
Control investments
(more than 25% owned) 1,140 985 5,324 6,390
Total advisory fees and other
income 2,500 2,029 10,250 15,548
Total revenue 49,707 40,622 187,119 154,393
Operating expenses
Interest expense 11,584 8,825 43,119 36,240
Employee compensation:
Salaries and benefits 3,748 4,109 21,800 21,318
Amortization of employee restricted
stock awards 1,898 955 9,024 3,470
Total employee compensation 5,646 5,064 30,824 24,788
General and administrative expense 3,347 2,802 11,258 9,721
Total operating expenses 20,577 16,691 85,201 70,749
Net operating income before investment
gains and losses and income tax
provision (benefit) 29,130 23,931 101,918 83,644
Net realized gains (losses) on
investments
Non-affiliate investments
(less than 5% owned) (1,471) 926 7,037 1,619
Affiliate investments
(5% to 25% owned) 7,522 - 7,522 9
Control investments
(more than 25% owned) (373) (11,066) 7,191 (16,215)
Total net realized gains (losses)
on investments 5,678 (10,140) 21,750 (14,587)
Net unrealized appreciation
(depreciation) on investments
Non-affiliate investments
(less than 5% owned) 1,587 5,059 2,202 13,778
Affiliate investments
(5% to 25% owned) (5,849) 2,725 2,860 4,226
Control investments
(more than 25% owned) (35,901) 7,089 (39,699) 16,600
Total net unrealized appreciation
(depreciation) on investments (40,163) 14,873 (34,637) 34,604
Net investment (losses) gains before
income tax provision (benefit) (34,485) 4,733 (12,887) 20,017
Income tax provision (benefit) (472) (857) 2,395 2,712
Net income (loss) $(4,883) $29,521 $86,636 $100,949

Earnings (loss) per common share
basic and diluted $(0.08) $0.52 $1.41 $1.86
Cash distributions declared per
common share $0.44 $0.42 $1.76 $1.68

Weighted average common shares
outstanding 64,472 57,166 61,310 54,227
Weighted average common shares
outstanding and dilutive common
stock equivalents 64,503 57,218 61,319 54,264

Note: Certain prior period information has been reclassified to conform to
current year presentation

Portfolio Activity
The fair value of our investment portfolio totaled $1.556 billion at
December 31, 2007 as compared to $1.525 billion at September 30, 2007.
During the fourth quarter of 2007, we originated investments of $136.9 million
in eleven portfolio companies (some of which were new customers and some of
which were existing customers) and made advances of $9.8 million to existing
portfolio companies. The originations of $136.9 million included $46.0
million of senior debt, $54.1 million of secured subordinated debt, $35.2
million of preferred equity and $1.6 million of common equity. The
significant investment activity included:
-- $30.1 million, comprised of $13.0 million in secured subordinated debt
and $17.1 million in preferred equity, to Avenue Broadband LLC, a cable
services provider, to support its acquisition of cable systems in
Indiana and Illinois.

-- $27.0 million, comprised of $26.0 million in senior debt and $1.0
million in common equity, to New England Precision Grinding Holdings,
LLC, a specialty contract manufacturer for the medical industry, to
support a private equity buyout of New England Precision Grinding, Inc.

-- $23.1 million, comprised of $17.5 million in secured subordinated debt,
$5.0 million in preferred equity and $0.6 million in common equity, to
G&L Investment Holdings, LLC., the largest outsourced provider of
third-party claims estimations for workmen's compensation insurance
carriers, third-party benefits administrators, self-insured/self-
administered funds and state workmen's compensation funds, to support a
private equity buyout of Gould & Lamb, LLC.

-- $21.2 million, comprised of $7.5 million in senior debt, $7.0 million
in secured subordinated debt and $6.7 million in preferred equity, to
Coastal Sunbelt, LLC, and affiliates, a leading distributor and
processor of fresh produce in the Mid-Atlantic region, to support the
purchase of L&M Produce Company.

Gross payments, reductions and sales of securities during the fourth
quarter of 2007 of $100.7 million at cost were comprised of $63.7 million of
senior debt, $15.5 million of secured subordinated debt, $5.3 million of
unsecured subordinated debt, $4.9 million of preferred equity and $11.3
million of common equity. The significant payoff activity included:
-- $18.7 million in senior debt for Community Media Group, Inc. through a
sale of the investment.

-- $12.4 million, comprised of $9.2 million in senior debt and $3.2
million in preferred equity, from GMC Television Broadcasting, LLC
("GMC") in connection with the sale of certain real estate owned by
GMC.

-- $11.6 million in secured subordinated debt from EAS Group, Inc through
the sale of the company.

-- $10.5 million in common equity from On Target Media, LLC through the
sale of the company. Previously unrealized gains of approximately $8.5
million were realized in connection with this transaction.

Net investment losses before income tax benefit was approximately ($34.5)
million which are shown more fully below. The following table summarizes our
net investment losses before income tax benefit:

Three Months Ended December 31, 2007

Reversal of
(dollars in thousands) Realized Unrealized Unrealized Net
Portfolio Company Industry Type Gain/ Gain/ (Gain)/ Gain/
(Loss) (Loss) Loss (Loss)
LMS Intelli-
bound
Investors, LLC Logistics Control $- $8,352 $- $8,352
JUPR Holdings, Information
Inc. Services Control - 2,671 - 2,671
Intran Media, Other
LLC Media Control - 1,716 - 1,716
Stratford
Schools
Holdings, Inc. Education Affiliate - 1,715 - 1,715
Metropolitan
Telecommunic-
ations Communic- Non-
Holding Company ations affiliate - 1,112 - 1,112
iVerify, US Communic-
Inc. ations Affiliate (1,022) - 1,022 -
On Target Other
Media, LLC Media Affiliate 8,544 - (8,593) (49)
Cornerstone
Healthcare
Group Health- Non-
Holding, Inc. care affiliate (1,451) - 1,216 (235)
Working Mother Publish-
Media, Inc. ing Control - (1,359) - (1,359)
National
Product Business
Services, Inc. Services Control - (1,673) - (1,673)
Total Sleep Health-
Holdings, Inc. care Control - (1,913) - (1,913)
TNR
Entertainment Enter-
Corp tainment Control - (5,827) - (5,827)
Cleartel
Communications, Communic-
Inc. ations Control - (38,853) - (38,853)
Other (393) 157 94 (142)
Total $5,678 $(33,902) $(6,261) $(34,485)

Cleartel Investment
Cleartel Communications, Inc. ("Cleartel"), one of our control
investments, is a competitive local exchange carrier ("CLEC") serving
primarily residential customers. During the year ended December 31, 2007, we
invested an additional $20.0 million into Cleartel in order to support their
operations, of which $4.7 million was invested during the fourth quarter of
2007. In December 2007, we converted a portion of our subordinated debt
investment in Cleartel into common stock. This debt to equity conversion did
not result in any additional cash investments or repayments. We may elect to
make additional investments in Cleartel in future periods to support its
business initiatives. As of December 31, 2007, our investment in Cleartel is
comprised of subordinated debt with a fair value of $26.2 million, preferred
stock with a fair value of zero and 100% of the common stock of Cleartel with
a fair value of zero. These fair values reflect unrealized depreciation
recorded during 2007 of approximately $63.5 million, including $38.9 million
recorded during the fourth quarter. At December 31, 2007, Cleartel
represented approximately 1.7% of the fair value of our investments compared
to 5.8% of the fair value of our investments at December 31, 2006.
Cleartel has made several acquisitions in recent years, including the
acquisition of Supra Telecom ("Supra"), a Florida-based CLEC, during the
fourth quarter of 2006. Cleartel achieved operating results during 2007 that
were materially below expectations and has not met our expectations and
projections with respect to the realization of synergies from its
acquisitions, reductions in customer attrition and bad debts and the
initiation and effective implementation of new marketing programs. During the
third quarter of 2007, in connection with the completion of a re-evaluation
of Cleartel's multi-year business plan, it became evident that revenue levels
in future periods will run at lower levels than previously anticipated and it
will take longer than expected for Cleartel to achieve meaningful
profitability. This was due in part to the fact that Cleartel has reduced
some of its less profitable initiatives and in part to the impact of the
customer attrition that occurred. Because we view revenue as a key component
of value, we recorded an unrealized loss of $24.6 million on our Cleartel
investment in the third quarter of 2007. During the fourth quarter of 2007,
Cleartel continued to significantly underperform on these expectations, which
resulted in a further reduction of forecasted revenue. As a result of
Cleartel's underperformance, we recorded an additional $38.9 million
unrealized loss during the fourth quarter of 2007.
Since our Cleartel investment is a control investment and because Cleartel
is not currently generating sufficient earnings to service its capital
structure, all of our Cleartel debt investments were placed on non-accrual
status during the first quarter of 2007 and remained on non-accrual status
throughout 2007. This investment will remain on non-accrual status until the
underlying financial results and cash flows of Cleartel improve. We cannot
predict with certainty when any of our Cleartel investments will return to
accrual status. At a minimum, we do not expect our Cleartel debt investment
to return to accrual status in 2008. Our ability to recognize income from our
investment in Cleartel in future periods and the fair value of our investment
in Cleartel will be dependent on the financial and operational performance of
Cleartel.
Broadview Investment
Broadview Networks Holdings, Inc. ("Broadview"), a CLEC serving primarily
business customers, is our largest portfolio investment, in which we hold
preferred stock with an aggregate fair value of $189.5 million at December 31,
2007. Our Broadview investment represented approximately 12.2% of the fair
value of our total investments at December 31, 2007 compared to 12.7% of the
fair value of our total investments at December 31, 2006. Additionally, our
investment in Broadview accounted for $7.8 million and $29.8 million, or 15.6%
and 15.9%, of our total revenue for the three months and year ended December
31, 2007, respectively, compared to $6.9 million and $22.3 million, or 16.9%
and 14.5%, of our total revenue for the three months and year ended December
31, 2006, respectively.
Our investment in Broadview entitles us to total preferred claims of
approximately $266.9 million, prior to any claims by common shareholders. We
are also entitled to accumulating dividends on our preferred stock investment,
which accumulate and compound quarterly at an annual rate of 12% on $266.9
million but are not payable in cash on a current basis. Because accumulating
dividends are typically not considered as part of taxable income until they
are received in cash, it is possible that our GAAP earnings may exceed our
taxable earnings by a significant amount until such time as this investment is
liquidated.
In December 2007, Broadview filed a registration statement on Form S-1 to
register shares for an initial public offering ("IPO") of equity securities.
In the event that Broadview is successful with their IPO, we will be required
to convert our yielding preferred stock, which represents an ownership
interest of approximately 46% on an as-if converted basis, into non-yielding
common stock. This would materially reduce our dividend income from
historical levels. In connection with an IPO by Broadview, we may sell a
portion of our investment in Broadview, which could result in a significant
liquidity event for us.
Our ability to recognize income from our preferred stock investment in
Broadview in future periods and the fair value of our preferred stock
investment in Broadview will be dependent on the financial and operational
performance of Broadview. In the event that the financial and operational
performance of Broadview does not support the full recognition of income on
our preferred stock investment, our dividend income could be materially
reduced from historical levels.
Valuation
MCG's board of directors is responsible for determining the fair value of
our portfolio investments on a quarterly basis. As part of our process for
determining the fair value of our portfolio of investments, we retained
independent valuation firms to perform independent valuations on certain of
our portfolio companies and review certain of our fair value determinations.
The independent valuations and the reviews were considered by our board of
directors in its determination of the fair value of our portfolio companies.
We intend to continue to obtain independent valuations or reviews of our fair
value determinations and to periodically update those valuations and reviews.
The following table summarizes the independent valuations and reviews that
have been performed from December 31, 2006 through December 31, 2007:

Total Equity
Investments Investments
% of portfolio value as of December 31,
2007 for which independent valuations or
reviews of our fair value determinations
were obtained between December 31, 2006
and December 31, 2007 81 % 89 %

% of portfolio value that is greater than
one year old as of December 31, 2007 for
which independent valuations or reviews
of our fair value determinations were
obtained between December 31, 2006 and
December 31, 2007 94 % 97 %

% of loans on non-accrual status as of
December 31, 2007 for which independent
valuations or reviews of our fair value
determinations were obtained between
December 31, 2006 and December 31, 2007 56 % N/A

Current Market Conditions
The debt and equity capital markets in the United States have been
severely impacted by significant write-offs in the financial services sector
relating to subprime mortgages and the re-pricing of credit risk in the
broadly syndicated market, among other things. These events, along with the
deterioration of the housing market, have led to worsening general economic
conditions, which have impacted the broader financial and credit markets and
have reduced the availability of debt and equity capital for the market as a
whole and financial firms in particular. The Company and other commercial
finance companies have historically utilized the collateralized loan
obligation ("CLO") market to finance some of their investment activities. Due
to the current dislocation of the CLO market, which we believe may continue
for an extended period of time, we and other companies in the commercial
finance sector will have to access alternative debt markets in order to grow.
The debt capital that will be available will most likely be at a higher cost,
and terms and conditions may be less favorable. This may result in slowing
our origination activity during the early part of 2008.
In the event that the United States economy enters into an extended
downturn or a recession, it is possible that the results of some of the middle
market companies similar to those in which we invest could experience
deterioration which could ultimately lead to difficulty in meeting debt
service requirements and an increase in defaults. While we are not seeing
signs of an overall broad deterioration in our portfolio at this time, there
can be no assurance that the performance of certain of our portfolio companies
will not be negatively impacted by economic conditions, which could have a
negative impact on our future results.
Liquidity and Capital Resources
As of December 31, 2007, our cash and cash equivalents totaled $23.3
million and our borrowings totaled $751.0 million. Of the $751.0 million in
borrowings, approximately $136.4 million was outstanding under our 2006-2
warehouse facility with Merrill Lynch Capital Corporation, which was scheduled
to expire on February 29, 2008. On February 12, 2008, this facility was
amended to extend the maturity until August 31, 2008. As of the date of the
amendment, approximately, $111.3 million was outstanding under this facility.
Under the terms of the amendment, we are required to reduce the amount
outstanding under this facility to not more than $82.5 million at April 21,
2008, not more than $55.0 million at May 31, 2008, and not more than $27.5
million outstanding at July 21, 2008, with the balance due on August 31, 2008.
This warehouse was originally intended to be repaid with proceeds from a
placement of debt in the CLO market. However, due to the severe dislocation
which has occurred in the CLO market, we have determined that a CLO
transaction is not possible at this time.
Our existing debt facilities provide sufficient borrowing capacity to meet
our current operational needs, including the required reduction in borrowings
under our 2006-2 warehouse facility; however, our outstanding balances under
our other debt facilities will increase to higher levels than they otherwise
would have absent these required borrowing reductions. As a result, we will
have less remaining capacity under these facilities. We are currently working
on a variety of initiatives to increase our overall borrowing capacity. While
market conditions are challenging and pricing for debt capital is increasing,
we remain confident that we will be successful in this regard; however, there
can be no assurance that any of these initiatives will be successful.
In addition to our initiatives with respect to our borrowing facilities,
we are working on a variety of initiatives to enhance our overall liquidity,
including the sale of certain debt and equity investments and an equity
offering. Such an offering could serve to increase the equity capital
available for making additional investments. As a business development
company, we are prohibited, absent approval from our stockholders, from
issuing equity securities at a price below our net asset value per share
("NAV"). However, under the 1940 Act, we are permitted to conduct a rights
offering of equity securities at a time when our stock is trading below NAV.
As a result of our stock trading below NAV, we have not been able to access
the equity markets, which has reduced our liquidity and ability to grow. On
January 23, 2008, we filed a Registration Statement on Form N-2 with the
Securities and Exchange Commission for a rights offering of equity securities.
There can be no assurance that we will be able to complete a rights offering.
In addition, the company is in the process of enhancing its liquidity
through the sale of debt securities and equity positions in certain portfolio
companies, including potentially a portion of our investment in Broadview
Networks Holdings, Inc. ("Broadview"), our largest investment, in connection
with Broadview's planned initial public offering in 2008. During the fourth
quarter approximately $28.5 million of senior debt securities were sold to
third parties. No gains or losses were realized on these sales.
The completion of some or all of these initiatives is expected to provide
us with liquidity to be utilized throughout 2008 and potentially beyond.
While we believe that some or all of these initiatives can be completed during
the first half of 2008, there can be no assurance that we will be successful
with any of these initiatives. In addition, we expect our origination
activity to be slower during early 2008, until we are able to complete some or
all of these initiatives. In the event that we are unsuccessful with these
initiatives, our ability to originate new investments and continue quarterly
distributions at current levels could be impacted.
Dividend Guidance
For 2008, MCG currently estimates that dividends will be at least $1.76
per share. This estimate takes into consideration our expectations for the
performance of our business and estimates of distributable net operating
income, capital gains, net income and taxable income for 2008.
Recent Developments
On January 8, 2008, MCG amended its Revolving Credit Facility with
Bayerische Hypo-Und Vereinsbank, AG, New York Branch ("HVB"). Pursuant to
this amendment, the aggregate revolving commitment under this credit facility
was increased from $100.0 million to $130.0 million, and an additional lender
was added to this facility. Chevy Chase Bank increased its commitment from
$10.0 million to $15.0 million. HVB, Sovereign Bank and Royal Bank of Canada
maintained their $50.0 million, $15.0 million and $25.0 million commitments,
respectively. The additional $25.0 million was committed by SunTrust Bank.
On February 12, 2008, MCG entered into the second amendment to its
Commercial Loan Trust 2006-2 warehouse credit facility with Merrill Lynch
Capital Corp. Pursuant to the amendment, the maturity date for the facility
was extended from February 29, 2008 through August 31, 2008. In addition, the
amendment provides for the reduction of the outstanding amount under the
facility, with not more than $82.5 million outstanding on April 21, 2008, not
more than $55 million outstanding on May 31, 2008, and not more than $27.5
million outstanding on July 21, 2008, with the balance due on August 31, 2008.
After February 29, 2008, the advance rate under the facility is reduced from
75% to 70% for non-senior loans but remains at 75% for senior loans, and the
interest rate for advances increases from LIBOR plus 0.75% to LIBOR plus 1.5%.
Additionally, MCG has paid a modification fee of $250,000 to Merrill Lynch
Capital Corp. The amount outstanding under the facility as of December 31,
2007 was $136.4 million. As of February 7, 2008, MCG had $111.3 million
outstanding under the facility.

Selected Financial Data
(dollars in thousands)
(unaudited)

2006 2007 2007 2007 2007
Q4 Q1 Q2 Q3 Q4

Income statement:
Interest and dividend income $38,593 $36,693 $47,573 $45,396 $47,207
Advisory fees and other income 2,029 3,449 2,615 1,686 2,500
Total revenue 40,622 40,142 50,188 47,082 49,707
Interest expense 8,825 9,145 10,502 11,888 11,584
Salaries & benefits 4,109 5,502 6,364 6,186 3,748
G & A 2,802 2,467 2,804 2,640 3,347
Distributable net operating
income (DNOI) 24,886 23,028 30,518 26,368 31,028
Amortization of employee restricted
stock awards 955 2,982 2,024 2,120 1,898
Net operating income before
investment gains and losses and
income tax provision (benefit) 23,931 20,046 28,494 24,248 29,130
Net investment gains and losses
before income tax provision
(benefit) 4,733 10,775 8,618 2,205 (34,485)
Income tax provision (benefit) (857) 367 (934) 3,434 (472)
Net income (loss) $29,521 $30,454 $38,046 $23,019 $(4,883)

Reconciliation of distributable net
operating income (DNOI) to net
operating income before investment
gains and losses and income tax
provision (benefit):

Net operating income before
investment gains and losses and
income tax provision (benefit) $23,931 $20,046 $28,494 $24,248 $29,130
Amortization of employee
restricted stock awards 955 2,982 2,024 2,120 1,898
DNOI $24,886 $23,028 $30,518 $26,368 $31,028
DNOI per share-weighted average
common shares outstanding (a) $0.44 $0.40 $0.51 $0.42 $0.48
Per common share statistics:
Weighted average common shares
outstanding 57,166 58,067 60,324 62,298 64,472
Net operating income before
investment gains and losses
and income tax provision
(benefit) per common share
- basic and diluted $0.42 $0.35 $0.47 $0.39 $0.45
Earnings (loss) per common share
- basic and diluted 0.52 0.52 0.63 0.37 (0.08)
Net asset value per common share
- period end 12.83 12.79 13.23 13.22 12.73
Dividends declared per common share 0.42 0.44 0.44 0.44 0.44

(a) DNOI is net operating income before investment gains and losses and
income tax provision (benefit), as determined in accordance with U.S.
generally accepted accounting principles ("GAAP"), adjusted for
amortization of employee restricted stock awards. We view DNOI and the
related per share measures as useful and appropriate supplements to
net operating income, net income, earnings per share and cash flows
from operating activities. These measures serve as an additional
measure of our operating performance exclusive of employee restricted
stock amortization, which represents an expense of the company but
does not require settlement in cash. DNOI should not be considered as
an alternative to net operating income, net income, earnings per share
and cash flows from operating activities (each computed in accordance
with GAAP). Instead, DNOI should be reviewed in connection with net
operating income, net income, earnings per share and cash flows from
operating activities in our consolidated financial statements, to help
analyze how our business is performing.

Selected Financial Data
(dollars in thousands)
(unaudited)

Year Ended December 31,
2006 2007
Income statement:
Interest and dividend income $138,845 $176,869
Advisory fees and other income 15,548 10,250
Total revenue 154,393 187,119
Interest expense 36,240 43,119
Salaries & benefits 21,318 21,800
G & A 9,721 11,258
Distributable net operating income (DNOI) 87,114 110,942
Amortization of employee restricted stock awards 3,470 9,024
Net operating income before investment gains and
losses and income tax provision (benefit) 83,644 101,918
Net investment gains and losses before income
tax provision (benefit) 20,017 (12,887)
Income tax provision (benefit) 2,712 2,395
Net income $100,949 $86,636

Reconciliation of distributable net operating
income (DNOI) to net operating income
before investment gains and losses and income
tax provision (benefit):
Net operating income before investment gains and
losses and income tax provision (benefit) $83,644 $101,918

Amortization of employee restricted stock awards 3,470 9,024
DNOI $87,114 $110,942
DNOI per share-weighted average common shares
outstanding (b) $1.61 $1.81
Per common share statistics:
Weighted average common shares outstanding 54,227 61,310
Net operating income before investment gains and
losses and income tax provision (benefit) per
common share - basic and diluted $1.54 $1.66
Earnings per common share - basic and diluted 1.86 1.41
Net asset value per common share - period end 12.83 12.73
Dividends declared per common share 1.68 1.76

(b) DNOI is net operating income before investment gains and losses and
income tax provision (benefit), as determined in accordance with U.S.
generally accepted accounting principles ("GAAP"), adjusted for
amortization of employee restricted stock awards. We view DNOI and the
related per share measures as useful and appropriate supplements to
net operating income, net income, earnings per share and cash flows
from operating activities. These measures serve as an additional
measure of our operating performance exclusive of employee restricted
stock amortization, which represents an expense of the company but
does not require settlement in cash. DNOI should not be considered as
an alternative to net operating income, net income, earnings per share
and cash flows from operating activities (each computed in accordance
with GAAP). Instead, DNOI should be reviewed in connection with net
operating income, net income, earnings per share and cash flows from
operating activities in our consolidated financial statements, to help
analyze how our business is performing.

Selected Financial Data
(dollars in thousands)
(unaudited)

2006 2007 2007 2007 2007
Q4 Q1 Q2 Q3 Q4
Average quarterly loan
portfolio - fair
value $898,226 $916,826 $1,010,238 $1,067,638 $1,091,728
Average quarterly total
investment portfolio
- fair value 1,224,725 1,275,280 1,414,114 1,495,130 1,573,786
Average quarterly
total assets 1,281,747 1,333,113 1,453,969 1,567,353 1,619,945
Average quarterly
stockholders' equity 729,222 750,058 782,558 816,242 850,370
Return on average
total assets
(trailing 12 months)
Net operating income
before investment
gains and losses and
income tax provision
(benefit) 6.84% 6.63% 7.02% 6.86% 6.82%
Net income 8.25% 8.39% 9.11% 8.66% 5.80%
Return on average equity
(trailing 12 months)
Net operating income
before investment
gains and losses and
income tax provision
(benefit) 12.30% 11.80% 12.64% 12.57% 12.74%
Net income 14.84% 14.94% 16.41% 15.73% 10.83%
Yield on average loan
portfolio at fair value
Average LIBOR 5.37% 5.36% 5.36% 5.45% 5.01%
Spread to average LIBOR
on average yielding
loan portfolio at
fair value 7.85% 8.22% 8.29% 8.19% 8.34%
13.22% 13.58% 13.65% 13.64% 13.35%
Impact of fee
accelerations of
unearned fees on
paid/restructured
loans 0.16% 0.20% 0.02% 0.20% 0.13%
Impact of previously
unaccrued income 0.29% 0.00% 1.47% 0.00% 0.00%
Impact of non-accrual
loans (0.57%) (1.68%) (1.66%) (1.66%) (1.34%)
Total yield on average
loan portfolio at
fair value 13.10% 12.10% 13.48% 12.18% 12.14%
Cost of funds
Average LIBOR 5.37% 5.36% 5.36% 5.45% 5.01%
Spread to LIBOR
excluding
amortization of
deferred debt
issuance costs 1.11% 1.01% 1.04% 0.96% 1.08%
Impact of amortization
of deferred debt
issuance costs 0.29% 0.33% 0.20% 0.16% 0.22%
Total cost of funds 6.77% 6.70% 6.60% 6.57% 6.31%
Net interest margin 9.51% 8.64% 10.37% 8.77% 8.86%

Selected period end
balance sheet statistics:
Total investment
portfolio at fair
value $1,257,612 $1,352,432 $1,473,905 $1,525,325 $1,555,897
Total assets 1,319,268 1,409,997 1,573,123 1,579,386 1,637,581
Borrowings 521,883 606,102 701,065 659,780 751,035
Total equity 753,137 760,698 826,991 866,309 834,689
Cash, securitization
accounts 15,931 20,866 34,260 20,325 37,003
Period end debt to
period end equity 69.29% 79.68% 84.77% 76.16% 89.98%
Period end debt,
net of cash,
securitization
accounts to period
end equity 67.18% 76.93% 80.63% 73.81% 85.54%

Other statistics
(at period end):
Number of portfolio
companies 83 84 87 86 81
Number of employees 85 86 90 94 95
Loans on non-accrual
as a percentage of
total debt investments
(fair value) (c) 3.89% 12.10% 10.67% 10.11% 6.58%
Loans past due greater
than 90 days as a
percentage of total
debt investments
(fair value) 2.41% 2.31% 0.22% 0.77% 0.00%

(c) At December 31, 2006, March 31, 2007, June 30, 2007, September 30,
2007 and December 31, 2007, the impact of Cleartel on loans on non-
accrual as a percentage of total debt investment at fair value is
0.00%, 8.30%, 7.72%, 5.71% and 2.51%, respectively. The decrease in
the impact of Cleartel on the non-accrual percentage reflects the
unrealized depreciation recorded during 2007.

Selected Financial Data
(dollars in thousands)
(unaudited)

2006 2007 2007 2007 2007
Q4 Q1 Q2 Q3 Q4
Investment rating: (d)
IR 1 total investments at
fair value (e) $785,317 $840,972 $937,470 $992,169 $1,113,825
IR 2 total investments at
fair value 285,530 261,028 273,166 267,269 208,980
IR 3 total investments at
fair value 158,223 224,390 233,464 176,441 181,822
IR 4 total investments at
fair value 23,585 24,748 26,795 26,256 20,142
IR 5 total investments at
fair value 4,957 1,294 3,010 63,190 31,128

IR 1 percentage of total
portfolio 62.4% 62.2% 63.6% 65.1% 71.6%
IR 2 percentage of total
portfolio 22.7% 19.3% 18.5% 17.5% 13.4%
IR 3 percentage of total
portfolio 12.6% 16.6% 15.9% 11.6% 11.7%
IR 4 percentage of total
portfolio 1.9% 1.8% 1.8% 1.7% 1.3%
IR 5 percentage of total
portfolio 0.4% 0.1% 0.2% 4.1% 2.0%

New investments by
security type
Secured senior debt $37,083 $73,202 $101,544 $62,117 $51,432
Subordinated debt 72,751 70,691 38,978 48,885 63,491
Preferred equity 17,299 33,945 48,584 25,681 48,249
Common/Common equivalents
equity 887 52 2,194 4,057 2,390
Total $128,020 $177,890 $191,300 $140,740 $165,562

Exits and repayments by
security type
Secured senior debt $49,009 $31,114 $26,195 $70,599 $63,679
Subordinated debt 26,708 51,990 29,306 17,233 20,873
Preferred equity 753 2,484 11,460 70 4,902
Common/Common equivalents
equity 5,835 8,225 11,503 2,977 11,263
Total $82,305 $93,813 $78,464 $90,879 $100,717

Exits and repayments by
transaction type
Scheduled principal
amortization $7,736 $5,487 $9,386 $17,897 $17,689
Senior loan sales 2,000 2,000 2,603 - 28,506
Principal prepayments 64,278 72,266 38,026 67,466 35,586
Payment of payment-in-kind
interest and dividends 2,464 4,740 8,955 2,547 5,816
Sale of equity investments 5,827 9,320 19,494 2,969 13,120
Total $82,305 $93,813 $78,464 $90,879 $100,717

(d) MCG uses an investment rating system to characterize and monitor our
expected level of returns on each investment in our portfolio. We use
the following 1 to 5 investment rating scale:
1 Capital gain expected or realized
2 Full return of principal and interest or dividend expected with
customer performing in accordance with plan
3 Full return of principal and interest or dividend expected but
customer requires closer monitoring
4 Some loss of interest or dividend expected but still expecting an
overall positive internal rate of return on the investment
5 Loss of interest or dividend and some loss of principal investment
expected which would result in an overall negative internal rate of
return on the investment

(e) At December 31, 2006, March 31, 2007, June 30, 2007, September 30,
2007 and December 31, 2007, approximately $447,389, $465,960,
$530,188, $551,097 and $627,358, respectively, of our investments with
an investment rating of "1" were loans to companies in which we also
hold equity securities or for which we have already realized a gain on
our equity investment.

Selected Financial Data
(dollars in thousands)
(unaudited)

2006 2007 2007 2007 2007
Q4 Q1 Q2 Q3 Q4
Composition of
investments at
period end,
fair value
Secured senior debt $389,721 $431,038 $505,142 $497,488 $484,368
Subordinated debt
Secured 494,992 514,073 539,826 521,499 528,082
Unsecured 24,666 25,478 12,087 37,453 32,502
Total debt 909,379 970,589 1,057,055 1,056,440 1,044,952
Preferred equity 285,150 326,567 357,928 401,273 447,229
Common/Common
equivalents
equity 63,083 55,276 58,922 67,612 63,716
Total equity 348,233 381,843 416,850 468,885 510,945
Total $1,257,612 $1,352,432 $1,473,905 $1,525,325 $1,555,897

Percentage of
investments at
period end,
fair value
Secured senior debt 31.0% 31.9% 34.3% 32.6% 31.1%
Subordinated debt
Secured 39.3% 38.0% 36.6% 34.2% 33.9%
Unsecured 2.0% 1.9% 0.8% 2.5% 2.1%
Total debt 72.3% 71.8% 71.7% 69.3% 67.1%
Preferred equity 22.7% 24.1% 24.3% 26.3% 28.8%
Common/Common
equivalents equity 5.0% 4.1% 4.0% 4.4% 4.1%
Total equity 27.7% 28.2% 28.3% 30.7% 32.9%
Total 100.0% 100.0% 100.0% 100.0% 100.0%

Selected Financial Data
(dollars in thousands)
(unaudited)

Year Ended December 31,
2006 2007

Average loan portfolio - fair value $892,571 $1,022,213
Average total investment portfolio - fair value 1,128,723 1,440,548
Average total assets 1,223,655 1,494,583
Average stockholders' equity 680,282 800,127
Return on average total assets
Net operating income before investment gains and
losses and income tax provision (benefit) 6.84 % 6.82 %
Net income 8.25 % 5.80 %
Return on average equity
Net operating income before investment gains and
losses and income tax provision (benefit) 12.30 % 12.74 %
Net income 14.84 % 10.83 %
Yield on average loan portfolio at fair value
Average LIBOR 5.20 % 5.29 %
Spread to average LIBOR on average loan portfolio
at fair value 7.46 % 8.35 %
12.66 % 13.64 %
Impact of fee accelerations of unearned fees on
paid/restructured loans 0.33 % 0.14 %
Impact of previously unaccrued PIK income 0.30 % 0.36 %
Impact of non-accrual loans (0.41%) (1.67%)
Total yield on average loan portfolio at fair value 12.88 % 12.47 %
Cost of funds
Average LIBOR 5.20 % 5.29 %
Spread to LIBOR excluding amortization of
deferred debt issuance costs 1.04 % 1.02 %
Impact of amortization of deferred debt
issuance costs 0.80 % 0.22 %
Total cost of funds 7.04 % 6.53 %
Net interest margin 8.97 % 9.16 %

Selected Financial Data
(dollars in thousands)
(unaudited)

Year Ended December 31,
2006 2007
New investments by security type
Secured senior debt $176,037 $288,295
Subordinated debt 256,697 222,045
Preferred equity 103,049 156,459
Common/Common equivalents equity 8,915 8,693
Total $544,698 $675,492

Exits and repayments by security type
Secured senior debt $307,448 $191,587
Subordinated debt 84,495 119,402
Preferred equity 1,956 18,916
Common/Common equivalents equity 10,578 33,968
Total $404,477 $363,873

Exits and repayments by transaction type
Scheduled principal amortization $35,922 $50,459
Senior loan sales 102,731 33,109
Principal prepayments 245,009 213,344
Payment of accrued payment-in-kind interest and
dividends 10,262 22,058
Sale of equity investments 10,553 44,903
Total $404,477 $363,873

About MCG Capital Corporation
MCG Capital Corporation is a solutions-focused commercial finance company
providing capital and advisory services to middle market companies throughout
the United States. Our investment objective is to achieve current income and
capital gains. Our capital is generally used by our portfolio companies to
finance acquisitions, recapitalizations, buyouts, organic growth and working
capital.
Forward-looking Statements:
This press release contains forward-looking statements (i.e., statements
that are not historical fact) describing the Company's future plans and
objectives. These forward-looking statements are not guarantees of future
performance and are subject to risks, uncertainties, and other factors, some
of which are beyond our control and difficult to predict and could cause
actual results to differ materially from those expressed or forecasted in the
forward-looking statements including, without limitation, the risks,
uncertainties and other factors we identify from time to time in our filings
with the Securities and Exchange Commission, including our Form 10-Ks, Form
10-Qs and Form 8-Ks. Although we believe that the assumptions on which these
forward-looking statements are based are reasonable, any of those assumptions
could prove to be inaccurate and, as a result, the forward-looking statements
based on those assumptions also could be incorrect. In light of these and
other uncertainties, the inclusion of a projection or forward-looking
statement in this press release should not be regarded as a representation by
us that our plans and objectives will be achieved. You should not place undue
reliance on these forward-looking statements, which apply only as of the date
of this press release. We undertake no obligation to update such statements to
reflect subsequent events.
SOURCE MCG Capital Corporation

Michael McDonnell of MCG Capital Corporation, +1-703-247-7500,
MMcdonnell@MCGCapital.com