MVC Capital, Inc.
MVC CAPITAL, INC. (Form: 10-Q, Received: 03/13/2017 16:44:07)

Table of Contents

 

 

 

FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington D.C.  20549

 

x       QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended January 31, 2017 or

 

o          TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission File Number 814-00201

 

MVC CAPITAL, INC.

(Exact name of the registrant as specified in its charter)

 

DELAWARE

 

94-3346760

(State or other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

Identification No.)

 

 

 

287 Bowman Avenue

 

 

2nd Floor

 

 

Purchase, New York

 

10577

(Address of principal

 

(Zip Code)

executive offices)

 

 

 

Registrant’s telephone number, including area code:  (914) 701-0310

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x No o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer £ Accelerated filer x Non-accelerated filer o Smaller reporting company o

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o No x

 

There were 22,556,412 shares of the registrant’s common stock, $.01 par value, outstanding as of March 13, 2017.

 

 

 



Table of Contents

 

MVC Capital, Inc.

(A Delaware Corporation)

Index

 

 

Page

Part I. Consolidated Financial Information

 

 

 

Item 1. Consolidated Financial Statements

 

 

Consolidated Balance Sheets
-      January 31, 2017 (Unaudited) and October 31, 2016

3

 

Consolidated Statements of Operations
-      For the Quarter Ended January 31, 2017 (Unaudited) and
-      For the Quarter Ended January 31, 2016 (Unaudited)

4

 

Consolidated Statements of Cash Flows
-      For the Quarter Ended January 31, 2017 (Unaudited) and
-      For the Quarter Ended January 31, 2016 (Unaudited)

5

 

Consolidated Statements of Changes in Net Assets
-      For the Quarter Ended January 31, 2017 (Unaudited),
-      For the Quarter Ended January 31, 2016 (Unaudited) and
-      For the Year ended October 31, 2016

6

 

Consolidated Selected Per Share Data and Ratios
-      For the Quarter Ended January 31, 2017 (Unaudited),
-      For the Quarter Ended January 31, 2016 (Unaudited) and
-      For the Year ended October 31, 2016

7

 

Consolidated Schedules of Investments

 

 

-      January 31, 2017 (Unaudited)

 

 

-      October 31, 2016

8

 

Notes to Consolidated Financial Statements

12

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

40

Item 3. Quantitative and Qualitative Disclosures about Market Risk

67

Item 4. Controls and Procedures

82

 

 

Part II. Other Information

83

 

 

Item 1. Legal Proceedings

83

Item 1A. Risk Factors

83

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

83

Item 3. Defaults Upon Senior Securities

83

Item 4. Mine Safety Disclosures

83

Item 5. Other Information

83

Item 6. Exhibits

83

 

 

Exhibits

83

 

 

SIGNATURE

84

 



Table of Contents

 

CONSOLIDATED FINANCIAL STATEMENTS

 

MVC Capital, Inc.

Consolidated Balance Sheets

 

 

 

January 31,

 

October 31,

 

 

 

2017

 

2016

 

 

 

(Unaudited)

 

 

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

Cash

 

$

31,630,953

 

$

19,819,548

 

Restricted cash (cost $800,673 and $800,527)

 

800,673

 

800,527

 

Cash equivalents (cost $1,349,391 and $394,612)

 

1,349,391

 

394,612

 

Investments at fair value

 

 

 

 

 

U.S. Treasury obligations (cost $24,995,613 and $34,998,593)

 

25,029,838

 

34,991,681

 

Non-control/Non-affiliated investments (cost $151,118,826 and $150,348,963)

 

124,810,998

 

123,189,755

 

Affiliate investments (cost $130,443,504 and $130,484,393)

 

170,704,110

 

169,426,770

 

Control investments (cost $91,941,874 and $93,878,518)

 

59,906,047

 

67,503,229

 

Total investments at fair value (cost $398,499,817 and $409,710,467)

 

380,450,993

 

395,111,435

 

Escrow receivables, net of reserves

 

5,004,895

 

9,151,805

 

Dividends and interest receivables, net of reserves

 

684,541

 

3,595,357

 

Deferred financing fees

 

1,027,762

 

1,201,473

 

Fee and other receivables

 

2,183,144

 

2,098,625

 

Prepaid expenses

 

253,611

 

192,712

 

 

 

 

 

 

 

Total assets

 

$

423,385,963

 

$

432,366,094

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

Senior notes 1

 

$

112,369,320

 

$

112,283,745

 

Revolving credit facility II

 

25,000,000

 

35,000,000

 

Provision for incentive compensation (Note 5)

 

1,610,249

 

1,946,555

 

Professional fees payable

 

369,873

 

583,049

 

Management fee payable

 

1,338,630

 

1,290,230

 

Accrued expenses and liabilities

 

606,620

 

715,538

 

Guarantees

 

237,479

 

 

Interest payable

 

346,985

 

348,525

 

Management fee payable - Asset Management

 

87,053

 

151,053

 

Consulting fees payable

 

175,236

 

151,943

 

Portfolio fees payable - Asset Management

 

353,820

 

336,297

 

Taxes payable

 

614

 

1,381

 

 

 

 

 

 

 

Total liabilities

 

142,495,879

 

152,808,316

 

 

 

 

 

 

 

Commitments and Contingencies (Note 10)

 

 

 

 

 

 

 

 

 

 

 

Shareholders’ equity

 

 

 

 

 

Common stock, $0.01 par value; 150,000,000 shares authorized; 28,304,448 shares issued and 22,556,412 and 22,556,412 shares outstanding as of January 31, 2017 and October 31, 2016, respectively

 

283,044

 

283,044

 

Additional paid-in-capital

 

418,298,709

 

418,298,709

 

Accumulated earnings

 

125,181,214

 

128,135,727

 

Dividends paid to stockholders

 

(148,157,256

)

(145,112,140

)

Accumulated net realized (loss) gain

 

(40,517,400

)

(51,542,156

)

Net unrealized depreciation

 

(17,685,275

)

(13,992,454

)

Treasury stock, at cost, 5,748,036 and 5,748,036 shares held, respectively

 

(56,512,952

)

(56,512,952

)

 

 

 

 

 

 

Total shareholders’ equity

 

280,890,084

 

279,557,778

 

 

 

 

 

 

 

Total liabilities and shareholders’ equity

 

$

423,385,963

 

$

432,366,094

 

 

 

 

 

 

 

Net asset value per share

 

$

12.45

 

$

12.39

 

 


1 Reflects reductions of approximately $2.0 million and approximately $2.1 million as of January 31, 2017 and October 31, 2016, respectively, related to the reclassification of the unamortized debt issuance costs related the the Senior notes

 

The accompanying notes are an integral part of these consolidated financial statements.

 

3



Table of Contents

 

 

 MVC Capital, Inc.

 Consolidated Statements of Operations

 (Unaudited)

 

 

 

For the Quarter Ended

 

For the Quarter Ended

 

 

 

January 31, 2017

 

January 31, 2016

 

Operating Income:

 

 

 

 

 

Dividend income

 

 

 

 

 

Non-control/Non-affiliated investments

 

$

 

$

97,385

 

 

 

 

 

 

 

Total dividend income

 

 

97,385

 

 

 

 

 

 

 

Interest income

 

 

 

 

 

Non-control/Non-affiliated investments

 

1,507,102

 

2,988,786

 

Affiliate investments

 

585,319

 

573,373

 

Control investments

 

133,473

 

79,699

 

 

 

 

 

 

 

Total interest income

 

2,225,894

 

3,641,858

 

 

 

 

 

 

 

Payment-in-kind/Deferred interest income

 

 

 

 

 

Non-control/Non-affiliated investments

 

302,961

 

1,259,420

 

Affiliate investments

 

179,704

 

90,297

 

Control investments

 

61,958

 

39,272

 

 

 

 

 

 

 

Total payment-in-kind/Deferred interest income

 

544,623

 

1,388,989

 

 

 

 

 

 

 

Fee income

 

 

 

 

 

Non-control/Non-affiliated investments

 

72,897

 

52,259

 

Affiliate investments

 

180,000

 

181,500

 

Control investments

 

37,500

 

2,343,750

 

 

 

 

 

 

 

Total fee income

 

290,397

 

2,577,509

 

 

 

 

 

 

 

Fee income - Asset Management 1

 

 

 

 

 

Portfolio fees

 

235,864

 

249,408

 

Management fees

 

83,222

 

134,362

 

 

 

 

 

 

 

Total fee income - Asset Management

 

319,086

 

383,770

 

 

 

 

 

 

 

Total operating income

 

3,380,000

 

8,089,511

 

 

 

 

 

 

 

Operating Expenses:

 

 

 

 

 

Interest and other borrowing costs

 

2,538,096

 

2,628,786

 

Management fee

 

1,813,915

 

1,979,291

 

Net Incentive compensation (Note 11)

 

759,774

 

(2,229,988

)

Audit & tax preparation fees

 

455,000

 

135,600

 

Other expenses

 

367,446

 

122,185

 

Consulting fees

 

275,555

 

222,351

 

Portfolio fees - Asset Management 1

 

176,898

 

187,056

 

Directors’ fees

 

106,514

 

110,000

 

Legal fees

 

78,525

 

164,000

 

Insurance

 

72,219

 

79,917

 

Management fee - Asset Management 1

 

62,417

 

100,772

 

Administration

 

50,646

 

61,318

 

Public relations fees

 

47,000

 

48,000

 

Printing and postage

 

21,007

 

14,694

 

 

 

 

 

 

 

Total operating expenses

 

6,825,012

 

3,623,982

 

 

 

 

 

 

 

Less: Voluntary Expense Waiver by Adviser 2

 

(37,500

)

(37,500

)

Less: Voluntary Management Fee Waiver by Adviser 3

 

(453,479

)

(494,823

)

 

 

 

 

 

 

Total waivers

 

(490,979

)

(532,323

)

 

 

 

 

 

 

Net operating income (loss) before taxes

 

(2,954,033

)

4,997,852

 

 

 

 

 

 

 

Tax Expenses:

 

 

 

 

 

Current tax expense

 

480

 

439

 

 

 

 

 

 

 

Total tax expense

 

 480

 

439

 

 

 

 

 

 

 

Net operating income (loss)

 

(2,954,513

)

4,997,413

 

 

 

 

 

 

 

Net Realized and Unrealized (Loss) Gain on Investments:

 

 

 

 

 

 

 

 

 

 

 

Net realized gain (loss) on investments

 

 

 

 

 

Short term investments

 

97,184

 

(90,427

)

Non-control/Non-affiliated investments

 

 

(7,636,535

)

Affiliate investments

 

 

(71,268

)

Control investments

 

10,923,023

 

(31,760,287

)

Foreign currency

 

4,549

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total net realized gain (loss) on investments

 

11,024,756

 

(39,558,517

)

 

 

 

 

 

 

Net unrealized appreciation (depreciation) on investments

 

(3,692,821

)

29,569,795

 

 

 

 

 

 

 

Net realized and unrealized gain (loss) on investments

 

7,331,935

 

(9,988,722

)

 

 

 

 

 

 

Net increase (decrease) in net assets resulting from operations

 

$

4,377,422

 

$

(4,991,309

)

 

 

 

 

 

 

Net increase (decrease) in net assets per share resulting from operations

 

$

0.19

 

$

(0.21

)

 

 

 

 

 

 

Dividends declared per share

 

$

0.135

 

$

0.305

 

 

 

 

 

 

 

Weighted average number of shares outstanding 4  

 

22,556,412

 

22,702,821

 

 


1 These items are related to the management of the MVC Private Equity Fund, L.P. (“PE Fund”). Please see Note 10 “Management” for more information.

 

2 Reflects the quarterly portion of the TTG Advisers’ voluntary waiver of $150,000 of expenses for the 2017 and 2016 fiscal years, that the Company would otherwise be obligated to reimburse TTG Advisers under the Advisory Agreement (the “Voluntary Waiver”). Please see Note 10 “Management” for more information.

 

3 Reflects the quarterly portion of the TTG Advisers’ voluntary waiver of .50% of the management fee for the 2017 and 2016 fiscal years. Please see Note 10 “Management” for more information.

 

4 Please see Note 13 “Dividends and Distributions to Shareholders and Share Repurchase Program” for more information.

 

The accompanying notes are an integral part of these consolidated financial statements.

 

4



Table of Contents

 

MVC Capital, Inc.

Consolidated Statements of Cash Flows

(Unaudited)

 

 

 

For the Quarter Ended

 

For the Quarter Ended

 

 

 

January 31, 2017

 

January 31, 2016

 

Cash flows from Operating Activities:

 

 

 

 

 

Net decrease in net assets resulting from operations

 

$

4,377,422

 

$

(4,991,309

)

Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash provided by (used in) operating activities:

 

 

 

 

 

Net realized gain (loss)

 

(11,024,756

)

39,558,517

 

Net change in unrealized (appreciation) depreciation

 

3,692,821

 

(29,569,795

)

Amortization of premiums (discounts) and fees

 

(63,474

)

5,314

 

Increase in accrued payment-in-kind dividends and interest

 

(511,649

)

(3,337,651

)

Amortization of deferred financing fees

 

259,286

 

(241,013

)

Changes in operating assets and liabilities:

 

 

 

 

 

Restricted cash

 

(146

)

500,034

 

Restricted cash equivalents

 

 

5,503,000

 

Dividends, interest and fees receivable

 

2,910,816

 

2,697,730

 

Fee and other receivables

 

(84,519

)

(160,738

)

Escrow receivables, net of reserves

 

4,146,910

 

(9,728,934

)

Prepaid expenses

 

(60,899

)

(37,349

)

Short-term investments receivable

 

 

(50,130,858

)

Incentive compensation (Note 11)

 

(336,306

)

(2,229,988

)

Other liabilities

 

(299,185

)

(647,939

)

Purchases of equity investments

 

(59,375

)

(1,599,450

)

Purchases of debt instruments

 

(909,743

)

(8,280,800

)

Purchases of short-term investments

 

(24,995,573

)

(49,931,003

)

Proceeds from equity investments (1)

 

13,643,783

 

36,621,814

 

Proceeds from debt instruments

 

30,000

 

8,951,299

 

Sales/maturities of short-term investments

 

35,095,887

 

139,662,416

 

 

 

 

 

 

 

Net cash provided by (used in) operating activities

 

25,811,300

 

72,613,297

 

 

 

 

 

 

 

Cash flows from Financing Activities:

 

 

 

 

 

Borrowings from revolving credit facility

 

25,000,000

 

63,200,000

 

Repayments from revolving credit facility

 

(35,000,000

)

(103,200,000

)

Borrowings from bridge loan

 

 

 

Repayments from bridge loan

 

 

(8,000,000

)

Share exchange

 

 

 

Financing fees paid

 

 

(1,304,545

)

Distributions paid to shareholders

 

(2,979,028

)

(6,787,796

)

Repurchases of common stock under dividend reinvestment plan

 

(66,088

)

(136,564

)

 

 

 

 

 

 

Net cash used in financing activities

 

(13,045,116

)

(56,228,905

)

 

 

 

 

 

 

Net change in cash and cash equivalents for the period

 

12,766,184

 

16,384,392

 

 

 

 

 

 

 

Cash and cash equivalents, beginning of period

 

$

20,214,160

 

$

10,311,567

 

 

 

 

 

 

 

Cash and cash equivalents, end of period

 

$

32,980,344

 

$

26,695,959

 

 


(1) For the quarter ended January 31, 2017, proceeds from equity investments includes $800,859, in escrow receivables, net of reserves.

 

During the quarters ended January 31, 2017 and 2016 MVC Capital, Inc. paid $2,108,571 and $2,340,892 in interest expense, respectively.

 

During the quarters ended January 31, 2017 and 2016 MVC Capital, Inc. paid $0 and $0 in income taxes, respectively.

 

Non-cash activity:

During the quarters ended January 31, 2017 and 2016, MVC Capital, Inc. recorded payment in-kind dividend and interest of $545,804 and $3,337,651, respectively. This amount was added to the principal balance of the investments and recorded as dividend/interest income.

 

During the quarters ended January 31, 2017 and 2016, the Plan Agent purchased 7,676 and 17,843 shares of common stock in the open market in order to satisfy the reinvestment portion of our dividends.

 

The accompanying notes are an integral part of these consolidated financial statements.

 

5



Table of Contents

 

MVC Capital, Inc.

Consolidated Statements of Changes in Net Assets

 

 

 

 

For the Quarter Ended

 

For the Quarter Ended

 

For the Year Ended

 

 

 

January 31, 2017

 

January 31, 2016

 

October 31, 2016

 

 

 

(Unaudited)

 

(Unaudited)

 

 

 

Operations:

 

 

 

 

 

 

 

Net operating gain (loss)

 

$

(2,954,513

)

$

4,997,413

 

$

19,327,746

 

Net realized (loss) gain on investments

 

11,024,756

 

(39,558,517

)

(45,157,415

)

Net change in appreciation (depreciation) unrealized appreciation on investments

 

(3,692,821

)

29,569,795

 

28,627,844

 

 

 

 

 

 

 

 

 

Net increase (decrease) in net assets from operations

 

4,377,422

 

(4,991,309

)

2,798,175

 

 

 

 

 

 

 

 

 

Shareholder Distributions from:

 

 

 

 

 

 

 

Income

 

(3,045,116

)

(4,997,852

)

(16,099,238

)

Return of capital

 

 

(1,926,508

)

 

 

 

 

 

 

 

 

 

Net decrease in net assets from shareholder distributions

 

(3,045,116

)

(6,924,360

)

(16,099,238

)

 

 

 

 

 

 

 

 

Capital Share Transactions:

 

 

 

 

 

 

 

Issuance of common stock under dividend reinvestment plan

 

66,088

 

136,564

 

328,509

 

Repurchase of common stock under dividend reinvestment plan

 

(66,088

)

(136,564

)

(328,509

)

Repurchase of common stock

 

 

 

(1,216,746

)

 

 

 

 

 

 

 

 

Net increase in net assets from capital share transactions

 

 

 

(1,216,746

)

 

 

 

 

 

 

 

 

Total increase (decrease) in net assets

 

1,332,306

 

(11,915,669

)

(14,517,809

)

 

 

 

 

 

 

 

 

Net assets, beginning of period/year

 

279,557,778

 

294,075,587

 

294,075,587

 

 

 

 

 

 

 

 

 

Net assets, end of period/year

 

$

280,890,084

 

$

282,159,918

 

$

279,557,778

 

 

 

 

 

 

 

 

 

Common shares outstanding, end of period/year

 

22,556,412

 

22,702,821

 

22,556,412

 

 

 

 

 

 

 

 

 

Undistributed net operating income

 

$

 

$

 

$

3,228,508

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

6



Table of Contents

 

MVC Capital, Inc.

Consolidated Selected Per Share Data and Ratios

 

 

 

For the

 

 

For the

 

 

For the

 

 

 

Quarter Ended

 

 

Quarter Ended

 

 

Year Ended

 

 

 

January 31, 2017

 

 

January 31, 2016

 

 

October 31, 2016

 

 

 

(Unaudited)

 

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net asset value, beginning of period/year

 

$

12.39

 

 

$

12.95

 

 

$

12.95

 

 

 

 

 

 

 

 

 

 

 

(Loss) Gain from operations:

 

 

 

 

 

 

 

 

 

Net operating (loss) gain

 

(0.13

)

 

0.22

 

 

0.85

 

Net realized and unrealized loss on investments

 

0.32

 

 

(0.43

)

 

(0.73

)

 

 

 

 

 

 

 

 

 

 

Total loss from investment operations

 

0.19

 

 

(0.21

)

 

0.12

 

 

 

 

 

 

 

 

 

 

 

Less distributions from:

 

 

 

 

 

 

 

 

 

Income

 

(0.13

)

 

(0.22

)

 

(0.71

)

Return of capital

 

 

 

(0.09

)

 

 

 

 

 

 

 

 

 

 

 

 

Total distributions

 

(0.13

)

 

(0.31

)

 

(0.71

)

 

 

 

 

 

 

 

 

 

 

Capital share transactions

 

 

 

 

 

 

 

 

 

Anti-dilutive effect of share repurchase program

 

 

 

 

 

0.03

 

 

 

 

 

 

 

 

 

 

 

Total capital share transactions

 

 

 

 

 

0.03

 

 

 

 

 

 

 

 

 

 

 

Net asset value, end of period/year

 

$

12.45

 

 

$

12.43

 

 

$

12.39

 

 

 

 

 

 

 

 

 

 

 

Market value, end of period/year

 

$

8.55

 

 

$

7.40

 

 

$

8.69

 

 

 

 

 

 

 

 

 

 

 

Market discount

 

(31.33

)%

 

(40.47

)%

 

(29.86

)%

 

 

 

 

 

 

 

 

 

 

Total Return - At NAV (a)

 

1.57

%

 

(1.66

)%

 

1.26

%

 

 

 

 

 

 

 

 

 

 

Total Return - At Market (a)

 

(0.06

)%

 

(7.40

)%

 

14.32

%

 

 

 

 

 

 

 

 

 

 

Ratios and Supplemental Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Portfolio turnover ratio

 

0.43

%

 

2.60

%

 

13.74

%

 

 

 

 

 

 

 

 

 

 

Net assets, end of period/year (in thousands)

 

$

280,890

 

 

$

282,160

 

 

$

279,558

 

 

 

 

 

 

 

 

 

 

 

Ratios to average net assets:

 

 

 

 

 

 

 

 

 

Expenses including tax expense

 

8.94

%(c)

 

4.26

%(c)

 

6.35

%

Expenses excluding tax expense

 

8.94

%(c)

 

4.26

%(c)

 

6.35

%

 

 

 

 

 

 

 

 

 

 

Net operating income before tax expense

 

(4.17

)%(c)

 

6.88

%(c)

 

6.81

%

Net operating income after tax expense

 

(4.17

)%(c)

 

6.88

%(c)

 

6.81

%

 

 

 

 

 

 

 

 

 

 

Ratios to average net assets excluding waivers:

 

 

 

 

 

 

 

 

 

Expenses including tax expense

 

9.64

%(c)

 

4.99

%(c)

 

7.43

%

Expenses excluding tax expense

 

9.64

%(c)

 

4.99

%(c)

 

7.43

%

 

 

 

 

 

 

 

 

 

 

Net operating income before tax expense

 

(4.87

)%(c)

 

6.15

%(c)

 

5.74

%

Net operating income after tax expense

 

(4.87

)%(c)

 

6.15

%(c)

 

5.74

%

 


(a) Total annual return is historical and assumes changes in share price, reinvestments of all dividends and distributions, and no sales charge for the period/year.

 

(b) Supplemental Ratio information

 

Ratios to average net assets: (b)

 

 

 

 

 

 

 

 

 

Expenses excluding incentive compensation

 

7.87

%(c)

 

7.33

%(c)

 

7.07

%

Expenses excluding incentive compensation, interest and other borrowing costs

 

4.29

%(c)

 

3.71

%(c)

 

3.47

%

 

 

 

 

 

 

 

 

 

 

Net operating income (loss) before incentive compensation

 

(3.10

)%(c)

 

3.81

%(c)

 

6.09

%

Net operating income before incentive compensation, interest and other borrowing costs

 

0.49

%(c)

 

7.43

%(c)

 

9.69

%

 

 

 

 

 

 

 

 

 

 

Ratios to average net assets excluding waivers: (b)

 

 

 

 

 

 

 

 

 

Expenses excluding incentive compensation

 

8.57

%(c)

 

8.06

%(c)

 

8.15

%

Expenses excluding incentive compensation, interest and other borrowing costs

 

4.99

%(c)

 

4.44

%(c)

 

4.55

%

 

 

 

 

 

 

 

 

 

 

Net operating income (loss) before incentive compensation

 

(3.80

)%(c)

 

3.08

%(c)

 

5.02

%

Net operating income before incentive compensation, interest and other borrowing costs

 

(0.21

)%(c)

 

6.70

%(c)

 

8.62

%

 


(c) Annualized.

 

The accompanying notes are an integral part of these consolidated financial statements.

 

7



Table of Contents

 

MVC Capital, Inc.

Consolidated Schedule of Investments

January 31, 2017

(Unaudited)

 

Company

 

Industry

 

Investment

 

Principal

 

Cost

 

Fair Value/Market Value

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-control/Non-affiliated investments- 44.43% (a, c, f, g)

 

 

 

 

 

 

 

 

 

 

 

Actelis Networks, Inc.

 

Technology Investment

 

Preferred Stock (150,602 shares) (d, i)

 

 

 

$

5,000,003

 

 

Biogenic Reagents

 

Renewable Energy

 

Senior Note 12.0000% Cash, 4.0000% PIK, 07/21/2018 (b, h, l)

 

$

5,574,648

 

 5,574,648

 

$

5,191,932

 

 

 

 

 

Senior Convertible Note 12.0000% Cash, 4.0000% PIK, 07/21/2018 (b, h, l)

 

5,017,183

 

5,017,183

 

4,672,737

 

 

 

 

 

Senior Note 12.0000% Cash, 4.0000% PIK, 06/30/2016 (b, h, l)

 

4,250,291

 

4,250,291

 

4,250,291

 

 

 

 

 

Senior Subordinated Debt 12.0000% Cash, 4.0000% PIK, 06/30/2016 (b, h, l)

 

1,030,188

 

1,030,188

 

1,030,188

 

 

 

 

 

Warrants (d)

 

2

 

620,077

 

 

 

 

 

 

 

 

 

 

16,492,387

 

15,145,148

 

Biovation Acquisition Co.

 

Manufacturer of Laminate Material and Composites

 

Common Stock (90 shares) (d)

 

 

 

784,622

 

 

Custom Alloy Corporation

 

Manufacturer of Pipe Fittings and Forgings

 

Second Lien Loan 10.1000% Cash, 04/30/2020 (h, l)

 

24,425,294

 

24,425,294

 

18,040,231

 

 

 

 

 

Unsecured Subordinated Loan 12.0000% Cash, 03/31/2018 (l)

 

3,000,000

 

3,000,000

 

2,506,189

 

 

 

 

 

 

 

 

 

27,425,294

 

20,546,420

 

Dukane IAS,LLC

 

Welding Equipment Manufacturer

 

Second Lien Note 10.5000% Cash, 2.5000% PIK, 11/17/2020 (b, l)

 

7,119,911

 

7,008,030

 

7,191,110

 

FDS, Inc.

 

Software

 

Senior Subordinated Debt 12.0000% Cash, 11/30/2017 (l)

 

2,353,156

 

2,353,156

 

2,353,156

 

FOLIOfn, Inc.

 

Technology Investment - Financial Services

 

Preferred Stock (5,802,259 shares) (d, i)

 

 

 

15,000,000

 

5,676,000

 

HTI Technologies and Industries, Inc.

 

Electronic Component Manufacturing

 

Second Lien Note 12.0000% Cash, 2.0000% PIK, 06/21/2018 (b, l)

 

9,729,727

 

9,665,627

 

9,729,727

 

Initials, Inc.

 

Consumer Products

 

Senior Subordinated Debt 12.0000% Cash, 3.0000% PIK, 06/23/2020 (b, l)

 

4,818,874

 

4,818,874

 

4,659,564

 

Legal Solutions Holdings, Inc.

 

Business Services

 

Senior Subordinated Debt 12.0000% Cash, 4.0000% PIK, 09/12/2018 (b, l)

 

11,141,681

 

11,148,723

 

11,123,957

 

MainStream Data, Inc.

 

Technology Investment

 

Common Stock (5,786 shares) (d, i)

 

 

 

3,750,000

 

 

Morey’s Seafood International, LLC

 

Food Services

 

Second Lien Loan 10.0000% Cash, 4.0000% PIK, 08/12/2018 (b, h, l)

 

17,167,669

 

17,167,669

 

15,631,507

 

Pride Engineering, LLC

 

Manufacturer of Equipment Components

 

Second Lien Note 12.0000% Cash, 06/18/2021 (l)

 

5,135,000

 

5,053,232

 

5,186,350

 

Quantum Plastics, LLC

 

Manufacturer of Plastic Parts

 

Senior Subordinated Debt 12.0000% Cash, 03/10/2021 (l)

 

10,000,000

 

9,594,815

 

10,000,000

 

 

 

 

 

Warrants (d)

 

1

 

392,792

 

1,418,059

 

 

 

 

 

 

 

 

 

9,987,607

 

11,418,059

 

Thunderdome Restaurants, LLC

 

Restaurants

 

Second Lien Loan, 12.0000% Cash, 06/10/2020 (l)

 

3,000,000

 

2,985,147

 

3,030,000

 

U.S. Spray Drying Holding Company

 

Specialty Chemicals

 

Class B Common Stock (784 shares) (d)

 

 

 

5,488,000

 

6,065,000

 

 

 

 

 

Secured Loan 12.0000% Cash, 04/30/2019 (l)

 

1,500,000

 

1,500,000

 

1,500,000

 

 

 

 

 

 

 

 

 

6,988,000

 

7,565,000

 

United States Technologies, Inc.

 

Electronics Manufacturing and Repair

 

Senior Lien Loan 10.5000% Cash, 07/17/2020 (l)

 

5,500,000

 

5,490,455

 

5,555,000

 

Sub Total Non-control/Non-affiliated investments

 

 

 

 

 

 

 

151,118,826

 

124,810,998

 

 

 

 

 

 

 

 

 

 

 

 

 

Affiliate investments - 60.77% (a, c, f, g)

 

 

 

 

 

 

 

 

 

 

 

Advantage Insurance Holdings LTD

 

Insurance

 

Preferred Stock (750,000 shares) (d, e)

 

 

 

7,500,000

 

8,440,595

 

Centile Holdings B.V.

 

Software

 

Common Equity Interest (d, e)

 

 

 

3,524,376

 

5,719,000

 

JSC Tekers Holdings

 

Real Estate Management

 

Common Stock (3,201 shares) (d, e)

 

 

 

4,500

 

 

 

 

 

 

Preferred Stock (9,159,085 shares) (d, e)

 

 

 

11,810,188

 

3,687,000

 

 

 

 

 

 

 

 

 

11,814,688

 

3,687,000

 

MVC Environmental, Inc.

 

Environmental Services

 

Senior Secured Loan 9.0000% PIK, 12/22/2020 (b, l)

 

6,572,738

 

6,572,738

 

6,572,738

 

 

 

 

 

Common Stock (980 shares) (d)

 

 

 

3,140,375

 

1,169,518

 

 

 

 

 

 

 

 

 

9,713,113

 

7,742,256

 

Security Holdings B.V.

 

Electrical Engineering

 

Common Equity Interest (d, e)

 

 

 

51,204,270

 

36,350,000

 

SGDA Europe B.V.

 

Environmental Services

 

Common Equity Interest (d, e)

 

 

 

28,544,800

 

1,005,395

 

U.S. Gas & Electric, Inc.

 

Energy Services

 

Second Lien Loan, 13.0000% Cash, 07/01/2019 (l)

 

7,500,000

 

7,500,000

 

7,500,000

 

 

 

 

 

Unsecured Loan 10.0000% Cash, 4.0000% PIK , 07/01/2018 (b, l)

 

3,332,281

 

3,332,281

 

3,332,281

 

 

 

 

 

Convertible Series I Preferred Stock (32,200 shares) (k, n)

 

 

 

500,000

 

89,367,607

 

 

 

 

 

Convertible Series J Preferred Stock (8,216 shares) (n)

 

 

 

 

 

 

 

 

 

 

 

 

 

11,332,281

 

100,199,888

 

Vestal Manufacturing Enterprises, Inc.

 

Iron Foundries

 

Senior Subordinated Debt 12.0000% Cash, 3.0000% PIK , 11/28/2021 (b, l)

 

6,559,976

 

6,559,976

 

6,559,976

 

 

 

 

 

Common Stock (5,610 shares) (d)

 

 

 

250,000

 

623,231

 

 

 

 

 

Warrants (d)

 

5,303

 

 

376,769

 

 

 

 

 

 

 

 

 

6,809,976

 

7,559,976

 

 

 

 

 

 

 

 

 

 

 

 

 

Sub Total Affiliate investments

 

 

 

 

 

 

 

130,443,504

 

170,704,110

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

8



Table of Contents

 

MVC Capital, Inc.

Consolidated Schedule of Investments - (Continued)

January 31, 2017

(Unaudited)

 

Company

 

Industry

 

Investment

 

Principal

 

Cost

 

Fair Value/Market Value

 

Control investments - 21.33% (c, f, g)

 

 

 

 

 

 

 

 

 

 

 

Equus Total Return, Inc.

 

Registered Investment Company

 

Common Stock (4,444,644 shares) (d, l)

 

 

 

$

10,030,272

 

$

9,333,752

 

MVC Automotive Group GmbH

 

Automotive Dealerships

 

Common Equity Interest (a, d, e)

 

 

 

50,057,288

 

12,014,000

 

 

 

 

 

Bridge Loan 6.0000% Cash, 12/31/2017 (a, e, l)

 

$

3,797,093

 

3,797,093

 

3,797,093

 

 

 

 

 

 

 

 

 

53,854,381

 

15,811,093

 

MVC Private Equity Fund LP

 

Private Equity

 

Limited Partnership Interest (a, d, j, l)

 

 

 

11,452,452

 

16,563,755

 

 

 

 

 

General Partnership Interest (a, d, j, l)

 

 

 

292,154

 

416,546

 

 

 

 

 

 

 

 

 

11,744,606

 

16,980,301

 

RuMe Inc.

 

Consumer Products

 

Common Stock (5,297,548 shares) (a, d)

 

 

 

924,475

 

498,448

 

 

 

 

 

Series C Preferred Stock (23,896,634 shares) (a, d)

 

 

 

3,410,694

 

5,649,927

 

 

 

 

 

Series B-1 Preferred Stock (4,999,076 shares) (a, d)

 

 

 

999,815

 

2,007,875

 

 

 

 

 

Subordinated Debt 10.0000% PIK, 10/07/2017 (a, b, l)

 

921,205

 

882,497

 

882,497

 

 

 

 

 

Warrants (a, d)

 

1

 

336,393

 

988,111

 

 

 

 

 

 

 

 

 

6,553,874

 

10,026,858

 

SIA Tekers Invest

 

Port Facilities

 

Common Stock (68,800 shares) (a, d, e)

 

 

 

2,300,000

 

 

 

 

 

 

Bridge Loan 6.0000% Cash, 06/27/2017 (a, e, h, l)

 

27,785

 

27,785

 

 

 

 

 

 

 

 

 

 

2,327,785

 

 

Turf Products, LLC

 

Distributor - Landscaping and Irrigation Equipment

 

Senior Subordinated Debt 7.0000% Cash, 4.0000% PIK, 11/01/2018 (a, b, l)

 

3,895,262

 

3,895,262

 

3,762,249

 

 

 

 

 

Limited Liability Company Interest (a, d)

 

 

 

3,535,694

 

3,991,794

 

 

 

 

 

Warrants (a, d)

 

150

 

 

 

 

 

 

 

 

 

 

 

7,430,956

 

7,754,043

 

 

 

 

 

 

 

 

 

 

 

 

 

Sub Total Control investments

 

 

 

 

 

 

 

91,941,874

 

59,906,047

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL PORTFOLIO INVESTMENTS - 126.53% (f)

 

 

 

 

 

 

 

$

373,504,204

 

$

355,421,155

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury Obligations - 8.91% (f, g)

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury Bill

 

U.S. Government Securities

 

1.8750% Cash, 01/31/2022 (m)

 

25,070,000

 

$

24,995,613

 

$

25,029,838

 

 

 

 

 

 

 

 

 

 

 

 

 

Sub Total Short-Term Investments

 

 

 

 

 

 

 

$

24,995,613

 

$

25,029,838

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents and restricted cash equivalents - 0.48% (f, g)

 

 

 

 

 

 

 

 

 

 

 

Fidelity Institutional Government Money Market Fund

 

Money Market Fund

 

Beneficial Shares (1,349,391 shares)

 

 

 

1,349,391

 

1,349,391

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Cash equivalents and restricted cash equivalents

 

 

 

 

 

 

 

1,349,391

 

1,349,391

 

TOTAL INVESTMENT ASSETS - 135.92%

 

 

 

 

 

 

 

$

399,849,208

 

$

381,800,384

 

 


(a) These securities are restricted from public sale without prior registration under the Securities Act of 1933.  The Company negotiates certain aspects of the method and timing of the disposition of these investments, including registration rights and related costs.

 

(b) These securities accrue a portion of their interest/dividends in “payment in kind” interest/dividends which is capitalized to the investment.

 

(c) All of the Company’s equity and debt investments are issued by eligible portfolio companies, as defined in the Investment Company Act of 1940, except MVC Automotive Group GmbH, Security Holdings B.V.,

SGDA Europe B.V., SIA Tekers Invest, JSC Tekers Holdings, Centile Holdings B.V., Equus Total Return Inc., MVC Private Equity Fund L.P. and Advantage Insurance LTD.

The Company makes available significant managerial assistance to all of the portfolio companies in which it has invested.

 

(d) Non-income producing assets.

 

(e) The principal operations of these portfolio companies are located in Europe and the Cayman Islands which represents approximately 17% of the total assets.  The remaining portfolio companies are located in North America which represents approximately 67% of the total assets.

 

(f) Percentages are based on net assets of $280,890,084 as of January 31, 2017.

 

(g) See Note 3 for further information regarding “Investment Classification.”

 

(h) All or a portion of the accrued interest on these securities have been reserved for.

 

(i) Legacy Investments.

 

(j) MVC Private Equity Fund, LP is a private equity fund focused on control equity investments in the lower middle market.  The fund currently holds four investments, three located in the United States and one in Gibraltar, the investments are in the energy, services, contract manufacturing, and industrial sectors.  The Company’s proportional share of Plymouth Rock Energy membership interest and loan, the Gibdock Limited equity interest and Focus Pointe preferred stock is $7,319,123, $4,119,043, $2,812,552, respectively.

 

(k) Upon a liquidity event, the Company may receive additional ownership in U.S. Gas & Electric, Inc.

 

(l) All or a portion of these securities may serve as collateral for the Santander Credit Facility.

 

(m) All or a portion of these securities may serve as collateral for the BB&T Credit Facility.

 

(n) All or a portion of these securities may serve as collateral for the Macquarie Energy trade supply credit facility.

 

PIK - Payment-in-kind

 

-Denotes zero cost or fair value.

 

The accompanying notes are an integral part of these consolidated financial statements .

 

9



Table of Contents

 

 

MVC Capital, Inc.

Consolidated Schedule of Investments

October 31, 2016

 

Company

 

Industry

 

Investment

 

Principal/Shares

 

Cost

 

Fair Value/Market Value

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-control/Non-affiliated investments- 44.06% (a, c, f, g)

 

 

 

 

 

 

 

 

 

 

 

Actelis Networks, Inc.

 

Technology Investment

 

Preferred Stock (150,602 shares) (d, i)

 

 

 

$

5,000,003

 

 

Biogenic Reagents

 

Renewable Energy

 

Senior Note 12.0000% Cash, 4.0000% PIK, 07/21/2018 (b, h, l)

 

$

5,574,648

 

5,574,648

 

$

5,191,932

 

 

 

 

 

Senior Convertible Note 12.0000% Cash, 4.0000% PIK, 07/21/2018 (b, h, l)

 

5,017,183

 

5,017,183

 

4,672,737

 

 

 

 

 

Senior Note 12.0000% Cash, 4.0000% PIK, 06/30/2016 (b, h, l)

 

4,250,291

 

4,250,291

 

4,250,291

 

 

 

 

 

Senior Subordinated Debt 12.0000% Cash, 4.0000% PIK, 06/30/2016 (b, h, l)

 

1,030,188

 

1,030,188

 

1,030,188

 

 

 

 

 

Warrants (d)

 

2

 

620,077

 

 

 

 

 

 

 

 

 

 

16,492,387

 

15,145,148

 

Biovation Acquisition Co.

 

Manufacturer of Laminate Material and Composites

 

Common Stock (90 shares) (d)

 

 

 

784,622

 

55,351

 

 

 

 

 

Senior Lien Loan 5.0000% PIK, 05/05/2021 (b, l)

 

30,000

 

30,000

 

30,000

 

 

 

 

 

 

 

 

 

814,622

 

85,351

 

Custom Alloy Corporation

 

Manufacturer of Pipe Fittings and Forgings

 

Second Lien Loan 4.5000% Cash, 5.5000% PIK, 04/30/2020 (b, h, l)

 

24,425,293

 

24,425,293

 

18,615,650

 

 

 

 

 

Unsecured Subordinated Loan 12.0000% Cash, 03/31/2018 (l)

 

3,000,000

 

3,000,000

 

2,135,760

 

 

 

 

 

 

 

 

 

27,425,293

 

20,751,410

 

Dukane IAS,LLC

 

Welding Equipment Manufacturer

 

Second Lien Note 10.5000% Cash, 2.5000% PIK, 11/17/2020 (b, l)

 

7,074,711

 

6,955,462

 

7,074,711

 

FDS, Inc.

 

Software

 

Senior Subordinated Debt 12.0000% Cash, 4.0000% PIK, 11/30/2016 (b, l)

 

2,300,000

 

2,300,000

 

2,300,000

 

FOLIOfn, Inc.

 

Technology Investment - Financial Services

 

Preferred Stock (5,802,259 shares) (d, i)

 

 

 

15,000,000

 

5,940,000

 

HTI Technologies and Industries, Inc.

 

Electronic Component Manufacturing

 

Second Lien Note 12.0000% Cash, 2.0000% PIK, 06/21/2018 (b, l)

 

9,680,251

 

9,604,132

 

9,680,251

 

Initials, Inc.

 

Consumer Products

 

Senior Subordinated Debt 12.0000% Cash, 3.0000% PIK, 06/23/2020 (b, l)

 

4,818,874

 

4,818,874

 

4,754,355

 

Legal Solutions Holdings, Inc.

 

Business Services

 

Senior Subordinated Debt 12.0000% Cash, 4.0000% PIK, 09/12/2018 (b, l)

 

11,028,610

 

11,036,929

 

10,898,792

 

MainStream Data, Inc.

 

Technology Investment

 

Common Stock (5,786 shares) (d, i)

 

 

 

3,750,000

 

 

Morey’s Seafood International, LLC

 

Food Services

 

Second Lien Loan 10.0000% Cash, 4.0000% PIK, 08/12/2018 (b, h, l)

 

17,167,669

 

17,167,669

 

15,169,547

 

Pride Engineering, LLC

 

Manufacturer of Equipment Components

 

Second Lien Note 12.0000% Cash, 06/18/2021 (l)

 

5,135,000

 

5,048,563

 

5,135,000

 

Quantum Plastics, LLC

 

Manufacturer of Plastic Parts

 

Senior Subordinated Debt 12.0000% Cash, 03/10/2021 (l)

 

10,000,000

 

9,570,176

 

9,657,398

 

 

 

 

 

Warrants (d)

 

1

 

392,792

 

392,792

 

 

 

 

 

 

 

 

 

9,962,968

 

10,050,190

 

Thunderdome Restaurants, LLC

 

Restaurants

 

Second Lien Loan, 12.0000% Cash, 06/10/2020 (l)

 

3,000,000

 

2,984,061

 

3,030,000

 

U.S. Spray Drying Holding Company

 

Specialty Chemicals

 

Class B Common Stock (784 shares) (d)

 

 

 

5,488,000

 

6,625,000

 

 

 

 

 

Secured Loan 12.0000% Cash, 04/30/2019 (l)

 

1,500,000

 

1,500,000

 

1,500,000

 

 

 

 

 

 

 

 

 

6,988,000

 

8,125,000

 

United States Technologies, Inc.

 

Electronics Manufacturing and Repair

 

Senior Lien Loan 10.5000% Cash, 07/17/2020 (l)

 

5,000,000

 

5,000,000

 

5,050,000

 

Sub Total Non-control/Non-affiliated investments

 

 

 

 

 

 

 

150,348,963

 

123,189,755

 

 

 

 

 

 

 

 

 

 

 

 

 

Affiliate investments - 60.61% (a, c, f, g)

 

 

 

 

 

 

 

 

 

 

 

Advantage Insurance Holdings LTD

 

Insurance

 

Preferred Stock (750,000 shares) (d, e)

 

 

 

7,500,000

 

8,304,412

 

Centile Holdings B.V.

 

Software

 

Common Equity Interest (d, e)

 

 

 

3,524,376

 

5,379,000

 

JSC Tekers Holdings

 

Real Estate Management

 

Common Stock (3,201 shares) (d, e)

 

 

 

4,500

 

 

 

 

 

 

Preferred Stock (9,159,085 shares) (d, e)

 

 

 

11,810,188

 

3,730,000

 

 

 

 

 

 

 

 

 

11,814,688

 

3,730,000

 

MVC Environmental, Inc.

 

Environmental Services

 

Senior Secured Loan 9.0000% PIK, 12/22/2020 (b, l)

 

6,426,943

 

6,426,943

 

6,426,943

 

 

 

 

 

Common Stock (950 shares) (d)

 

 

 

3,081,000

 

1,626,910

 

 

 

 

 

 

 

 

 

9,507,943

 

8,053,853

 

Security Holdings B.V.

 

Electrical Engineering

 

Common Equity Interest (d, e)