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MCG Capital Corporation Message Board

  • FRANKEFURTER FRANKEFURTER Mar 27, 2009 12:33 PM Flag

    Not much interest in MCGC this week!

    I have a 5K order for shares at $1.39. Probably will fill. No much interest/volume in MCGC this week.

    We need M2M news for this to run again.

    Meanwhile, I still think it's the strongest of the BDC's.

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    • I did not say that MCG would achieve a 50% return on their defaulted portfolio, I said that if they acheived a 50% return on their entire portfolio of loans (performing) not pledged to the CLO, equity would be worth $3.43/share. I agree that on defaults, MCG will be lucky to get 20 - 30% return.

    • Why would you believe MCG would get a recovery rate of 50% or better on a defaulted portfolio? Historically, recovery rates on defaulted debt are lower than 50% in normal times and these are not normal times. In a fire-sale liquidation scenario of control-position companies no one wants, MCG will get much lower than 50%. Can you imagine them trying to sell Broadview? That said, I agree about the renegotiated debt facilities. They are a definite improvement. I'm not saying the company is hideous. I think it's better than ALD and ACAS and very cheap. But to say again that it's the strongest BDC is a big mistake. It is the cheapness that makes it interesting. But that cheapness must be weighed against competing BDCs, which are also cheap.

    • I completely disagree that MCG's financial health is laughable. Because all the BDCs have low leverage and generally really low stock prices the credit quality is not the main driver for the stock price. The most important factor for all the BDCs is whether they will be forced to sell their loans at fire sale prices. I believe MCG's debt is structured in a way that it is highly impropable that they will be forced to sell loans.

      MCG has two main debt facilities - the CLO and the SunTrust facility. The MCG CLO has approx. $400mm (cost) of loans supporting $327mm in debt. MCG equity = $73mm. All of the covenants of the CLOs are in good shape and equity (MCG) is getting distributions of excess spread and the CLO does not contain any provisions that would require MCG to sell assets.

      The second debt facility is the approx. $309 SunTrust facility that was just recently amended. While I don't know all the details of the revised facility, it means alot that ST stood behind MCG and amended the facility in a very difficult market. This facility is basically supported by $1,070/$877 (cost/FV) and $46 in cash. MCG could sell all the non-clo loans for .25 of cost and pay off the debt. And this does not include the value of MCG's equity in the CLO.

      Given the above, I simply don't care about the underlying credit quality of the portfolio becuase even under the worse case scenario, i believe MCG will be able to achieve at least a 50% realization on their non-CLO portfolio, which would equate to a stock equity value of $3.43/share (again without giving any value to the CLO equity).

      Finally, I don't think MCG's overall porfolio is the best quality but given the leverage and stock price, I think MCG is a really good value.

    • I'm not sure that I agree, barring considerable negative changes in the future (longer, more severe recession than is currently expected, unusually bad portfolio performance, etc.), that MCGC is in trouble. I think their covenant package re-nego was pretty good, and combined with M2M revisions they should not be in any real risk at all of re-violating their covenants.

      Someone double check this, but I think their new covenants are related to net worth, debt/equity... M2M revisions should make it quite unlikely that they violate again.

    • Yes, MCGC raised some cash from a few sales. I applaud them for that and they are in better shape financially than ACAS and ALD, which is something no one on those boards seems willing to admit. But to think a few tiny sales are tantamount to financial health is foolhardy. The real question with MCGC's credit quality lies in its large control positions such as Broadview and those I will wager will be the real stinkers if MCGC ever gets out of them. Control Positions are in no way liquid as MCG is the primary holder of the debt--hence the control position. MCGC., to its credit, won a stay of execution by renegotiating its debt facilities. But to think it is financially healthy is laughable. Again, it's a cheap stock. That is all. FSC is in far better shape, but is not cheap relative to MCGC. But FSC is cheap relative to the rest of the market. Both stocks have their appeals, but MCGC is cheap for a good reason. Its survival is still in question. FSC's survival isn't.

    • Credit quality sucks? Really? MCG has had no problem restructuring their debt during this down time in the economy. Illiquid assets? Really?

      "This $40.5 million equity sale, completed at an 11% premium to the previously-reported fair value of our LMS equity investment, is another step forward in our strategic plan to preserve liquidity and deleverage the balance sheet as we monetize assets at or near their fair value," said Steven F. Tunney, MCG Capital's President and CEO. "Since we began our deleveraging initiatives in July 2008, MCG Capital has completed a total of $156.3 million in investment monetizations at 100.1% of their previously-reported fair value."
      No problem selling assets at fair value.

      Yes FSC looks pretty good, that 16% dividend is nice. The dilution it is causing (by reinvesting)should thin out that dividend pretty quickly though.
      It sure is nice you compare MCG to an $8 stock.

    • I repeat. MCGC is cheap. I said that in my last post, but its credit quality sucks, its assets are illiquid and its creditors are howling at the door. It is the cheapness of the stock that makes it attractive and the fact that its credit situation is a bit better than ACAS and ALD since it renegotiated the terms of its lending facilities. But compare that to a stock like FSC which is a brand new BDC, has no debt it owes and has been investing in companies AFTER the crash. The kind of deals FSC is getting are far superior to MCGC's. MCGC invested much of its capital during the height of the private equity boom and paid exorbitant prices for covenant lite types of deals that will pay little in the event of a default. It will be stuck with a few real stinkers for sure. Other companies on that list also have access to more capital or aren't in debt like MCGC. They deserve to have higher prices. And yet MCGC is cheap. That is all. Cheapness is nothing to scoff at though.

    • CASH / share

      ACAS - $1.03
      MCGC - $0.607
      ALD - $0.28

    • Operating cash flow/share

      ALD - $2.55
      MCGC - $1.97
      ACAS - $1.86 (pre-ECAS)
      - $1.76 (With ECAS shares)

    • M to M news will be positive. Asset sale news will be positive. Remember, all the insiders bought for the long run not for short term gains. This will take a while. Be patient and you will be rewarded, imo.

 
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