Get Started for Free Contexxia identifies hard-to-find pieces of information in SEC filings. No more highlighters, no more redlining, no more poring over huge documents. MCG CAPITAL CORP (1141299) 10-Q published on Jul 28, 2015 at 8:37 am
Reporting Period: Jun 29, 2015
This Quarterly Report on Form 10-Q, including Management's Discussion and Analysis of Financial Condition and Results of Operations, contains forward-looking statements that involve substantial risks and uncertainties. These forward-looking statements are not historical facts, but rather are based on current expectations, estimates, forecasts, projections, intentions, goals, strategies, plans, prospects and the beliefs and assumptions of our management including, without limitation: our expectations regarding our results of operations, including revenues, net operating income, net investment losses and general and administrative expenses and the factors that may affect such results; the ability of the parties to consummate the transaction with PennantPark on the expected timeline (or at all); the failure of PennantPark or MCG stockholders to approve the proposed merger; the ability to realize the anticipated benefits of the transaction; the effects of disruption on the companies’ business from the proposed merger; the actual premium to adjusted net asset value paid in the merger, if any; the actual market capitalization of the combined company; the effect that the announcement or consummation of the merger may have on the trading price of the common stock of PennantPark or MCG; the combined company’s plans, expectations, objectives, performance, operations and intentions; the amount or timing of any dividends that may be paid by the combined company; the proposal made by HC2 Holdings, Inc. (“HC2”); any regulatory action which may or may not be taken with respect to the proposed merger or the proposal made by HC2; any decision by MCG to pursue continued operations, a liquidation or an alternative transaction upon the termination of any merger agreement; changes in MCG’s net asset value in the future; fees and expenses incurred by MCG in connection with a liquidation; the value of MCG’s assets in a liquidation; the timeline to complete a liquidation; any changes to MCG’s listing, registration, management or board of directors in a liquidation; the outcome of any stockholder litigation relating to the transaction or any other litigation to which MCG is a party; any other alternative proposed transactions and any potential termination of the merger agreement; the actions of MCG stockholders with respect to any proposed transactions; our ability to use net capital loss carryforwards and certain other pre-tax attributes; our decisions to make dividend distributions after taking into account our distribution requirements as a RIC, together with an assessment of our current and forecasted gains and losses recognized or to be recognized for tax purposes, portfolio transactional events, liquidity, cash earnings and our asset coverage ratio; the sufficiency of liquidity to meet 2015 operating requirements, new origination opportunities and potential dividend distributions; our expectations regarding the full use of, and our belief that our operations, monetizations and unrestricted cash will provide sufficient liquidity to fund, as necessary, requests to draw on unused portions of commitments that obligate us to extend credit in the form of loans, participations in loans, guarantees, letters of credit and other financial commitments; our use of independent valuation firms to provide additional support for our internal analyses; our expectations regarding the outcome of legal proceedings incidental to our business; market conditions generally and specifically regarding the leveraged loan market; the state of the economy and other factors. Forward-looking statements can be identified by terminology such as “anticipate,” “believe,” “could,” “could increase the likelihood,” “hope,” “target,” “project,” “goals,” “potential,” “predict,” “might,” “estimate,” “expect,” “intend,” “is planned,” “may,” “should,” “will,” “will enable,” “would be expected,” “look forward,” “may provide,” “would” or similar terms, variations of such terms or the negative of those terms. These 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. Important factors could cause our actual results to differ materially from those indicated or implied by forward-looking statements. Such factors that could cause or contribute to such differences include those risk factors discussed in Item IA of Part II of this Quarterly Report on Form 10-Q.
If the merger is completed, holders of MCG common stock will have the right to receive $4.521 in shares of PennantPark common stock for each share of MCG common stock held immediately prior to the merger, as well as $0.226 in cash consideration (subject to upward adjustment based on the market price of PennantPark common stock).
The PennantPark offer price of $4.75 per MCG share represents a 57% premium to MCG"s 52-week low, 25% premium from the date MCG announced an intention to explore strategic alternatives and 15.8% premium to MCG's closing stock price of $4.10 the day before the merger announcement.
As of June 30, 2015, all of our PIK loans were accruing interest and as of June 30, 2014, we were not accruing interest on $1.0 million of the PIK loans, at cost, shown in the preceding table. During the three months ended June 30, 2014, the payments received from PIK loans included $5.3 million collected in conjunction with the repayment of our loan to Cruz Bay Publishing, Inc., $1.5 million collected in conjunction with the sale of our loan to SC Academy Holdings, Inc. and $0.9 million collected in conjunction with the repayment of our loan to West World Media, LLC.
As of June 30, 2015 and December 31, 2014, we had no outstanding borrowings or borrowing facilities. During the six months ended June 30, 2014, we incurred $3.9 million of interest expense related to our $150.0 million of SBIC debentures owed to the SBA by Solutions Capital and our notes outstanding under the MCG Commercial Loan Trust 2006-1, or 2006-1 Trust. On September 2, 2014, we prepaid in full the SBIC debentures, which had a cost of funds, including the amortization of deferred financing costs, of 4.6%. In addition, on January 21, 2014, we repaid the 2006-1 Trust notes.
In connection with our proposed merger with PennantPark, we are a party to a consolidated class action stockholder lawsuit. Six complaints were filed by stockholders challenging the merger between May 6, 2015, and May 18, 2015, in the Delaware Court of Chancery. The complaints were consolidated and on June 10, 2015, a consolidated class action complaint was filed. The consolidated complaint alleges that MCG’s directors violated their fiduciary duties by, among other things, not protecting against their supposed conflicts of interest and failing to take steps to maximize the consideration to be received by MCG’s stockholders in the Merger. The consolidated complaint also alleges that PennantPark and its affiliated entities have aided and abetted the MCG directors’ purported breach of fiduciary duties. The complaint demands, among other things, a preliminary and permanent injunction against the Merger and rescission of the transaction to the extent that it has been implemented. MCG believes that the consolidated complaint is without merit.