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MCG Capital Corporation Message Board

  • vra_shareholder vra_shareholder Mar 9, 2013 5:17 PM Flag

    Why I quadrupled my MCGC Stock Ownership This Week - Part I

    I have owned MCGC stock for years and, to date, have a significant unrealized loss in the name.

    In fact, until this week, my last purchase of the stock was the company's rights issue.

    That said, I have not been as bullish on the company as I am now for nearly a decade.

    My history with MCGC is long dating back to the Bryan Mitchell era.

    I liked Bryan and thought that he was a good operator; it is a shame that his resume tripped him up.

    I also thought that Bob Merrick as a credit guy was excellent.

    When I think about what MCGC started out as and what it evolved into, the company's current business strategy is a return to its roots: a credit-driven institution focused on extending subordinated loans to middle-market companies. When the company was first founded, it had a successful niche in TMT as its founders came from the TMT unit of Signet Bank. Over time, the company has become more of a generalist but staying in the middle-market space.

    In hindsight, MCGC got itself into trouble when it began making outsized equity investments - e.g. Broadview and Jet Plastica. Further compounding the problem was management's decision, post Mitchell and Merrick, to leverage up the company based on the unrealized gains from these investments. When Broadview began to have problems, it had a disproportionate negative impact on MCGC.

    With Broadview and Jet Plastica written down to $0, MCGC has made a clean break from its past.

    Two recent developments caught my eye:
    A) The $20 million unsecured line of credit with BAC
    B) Management's expectation that it will be able to lend the entire $121 million of cash it had at Dec. 31, 2012 in 2013

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