Profile: MCG Capital Corporation (MCGC.O)

MCG Capital Corporation (MCG) is a solutions-focused commercial finance company that provides debt and equity investment, and advisory services to middle-market companies in the United States. MCG's portfolio companies use its capital investment to finance acquisitions, recapitalizations, buyouts, organic growth and working capital. The Company identifies and sources new portfolio companies through multiple channels, including private equity sponsors, investment bankers, brokers, fund-less sponsors, institutional syndication partners, other club lenders and owner operators. The Company makes debt and equity investments primarily in companies with annual revenue of $20 million to $200 million and earnings before interest, taxes, depreciation and amortization (EBITDA) of $3 million to $25 million, which MCG refers to as middle market companies.

The Company conducts some of its activities through wholly owned special purpose financing subsidiaries. These subsidiaries are bankruptcy remote, special purpose entities, to which MCG transfers certain loans. These financing subsidiaries, in turn transfer the loans to a Delaware statutory trust. The Company has core products include one-stop solution, institutional subordinated debt, control investments, and other investment and services. As of December 31, 2008, the Company had debt and equity investments in 70 portfolio companies.

As of December 31, 2008, the Company’s 10 largest portfolio companies represented approximately 43.6% of the total fair value of its investments. These 10 companies accounted for approximately 34.7% of its total revenue during 2008. As of December 31, 2008, approximately 15.9% of its portfolio at fair value was invested in companies in the communications industry, of which 14.4% were in CLECs. The Company’s largest portfolio company, Broadview Network Holdings, Inc., (Broadview), is a CLEC that represents 11.6% of the fair value of its portfolio. The remaining investments in the communications industry include telecommunications tower companies, rural local exchange carriers, Internet service providers, wireless companies and security alarm companies.

One-stop Solution

In a typical one-stop transaction, the Company provides a combination of senior and subordinated debt to its customer and, in certain cases, also acquires an equity interest in the customer. The overall transaction size and product mix are based upon MCG customers' needs. In some cases the Company's one-stop solution results in a product mix that meets its customer’s needs, but which is not the efficient use of its capital. In these cases, MCG may sell portions of some of the securities. When the Company sells portions of one of its investments, it continues to service the investment and thus these sales are seamless to its customers. One-stop transactions generally provide current interest income on its loans and the opportunity to achieve capital gains on the Company's equity investment, as well as fee income generated through syndication of portions of the investment.

Institutional Subordinated Debt

The Company provides institutional subordinated debt in the form of junior, yielding capital, as a sole or club investor. These loans are payable in full at maturity. MCG's institutional subordinated debt customers are generally larger businesses supported by institutional equity capital.

Control Investments

Control investments are investments, for which MCG takes a majority ownership position. The Company uses its established relationships, and one-stop capabilities to secure controlling interests in operating companies. The Company's control investments include investments across the entire capital structure of the portfolio company.

Other Investments and Services

The Company makes other investments, such as senior loans and investments in syndicated loans. In addition to capital, MCG also offers managerial assistance to its portfolio companies. This assistance involves strategic advice, evaluation of business plans, financial modeling assistance and industry research and insights.