MVC Capital, Inc.
MVC CAPITAL, INC. (Form: 10-Q, Received: 06/08/2017 17:17:33)

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 April 30, 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
incorporation or organization)

 

(I.R.S. Employer
Identification No.)

 

 

 

287 Bowman Avenue
2nd Floor
Purchase, New York

 

10577

(Address of principal
executive offices)

 

(Zip Code)

 

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, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer  o

 

Accelerated filer x

 

 

 

Non-accelerated filer  o

 

(Do not check if a smaller reporting company)

 

 

Smaller reporting company o

 

 

 

 

 

Emerging growth company o

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 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 June 8, 2017.

 

 

 



Table of Contents

 

MVC Capital, Inc.

(A Delaware Corporation)

In dex

 

 

 

Page

Part I. Consolidated Financial Information

 

 

 

 

 

Item 1.  Consolidated Financial Statements

 

 

Consolidated Balance Sheets

 

 

-      April 30, 2017 (Unaudited) and October 31, 2016

3

 

Consolidated Statements of Operations

 

 

-      For the Six Month Period November 1, 2016 to April 30, 2017 (Unaudited) and

 

 

-      For the Six Month Period November 1, 2015 to April 30, 2016 (Unaudited)

4

 

Consolidated Statements of Operations

 

 

-      For the Quarter February 1, 2017 to April 30, 2017 (Unaudited) and

 

 

-      For the Quarter February 1, 2016 to April 30, 2016 (Unaudited)

5

 

Consolidated Statements of Cash Flows

 

 

-      For the Six Month Period November 1, 2016 to April 30, 2017 (Unaudited) and

 

 

-      For the Six Month Period November 1, 2015 to April 30, 2016 (Unaudited)

6

 

Consolidated Statements of Changes in Net Assets

 

 

-      For the Six Month Period November 1, 2016 to April 30, 2017 (Unaudited),

 

 

-      For the Six Month Period November 1, 2015 to April 30, 2016 (Unaudited) and

 

 

-      For the Year ended October 31, 2016

7

 

Consolidated Selected Per Share Data and Ratios

 

 

-      For the Six Month Period November 1, 2016 to April 30, 2017 (Unaudited),

 

 

-      For the Six Month Period November 1, 2015 to April 30, 2016 (Unaudited) and

 

 

-      For the Year ended October 31, 2016

8

 

Consolidated Schedules of Investments

 

 

-      April 30, 2017 (Unaudited)

9

 

-      October 31, 2016

11

 

Notes to Consolidated Financial Statements

13

 

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

43

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

72

 

Item 4. Controls and Procedures

87

 

 

 

Part II. Other Information

 

 

 

 

 

Item 1. Legal Proceedings

87

 

Item 1A. Risk Factors

87

 

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

87

 

Item 3. Defaults Upon Senior Securities

87

 

Item 4. Mine Safety Disclosures

87

 

Item 5. Other Information

87

 

Item 6. Exhibits

87

 

 

 

SIGNATURE

89

 

 

 

Exhibits

 

 



Table of Contents

 

CONSOLIDATED FINANCIAL STATEMENTS

 

MVC Capital, Inc.

Consolidated Balance Sheets

 

 

 

April 30,

 

October 31,

 

 

 

2017

 

2016

 

 

 

(Unaudited)

 

 

 

ASSETS

 

 

 

 

 

 

 

Assets

 

 

 

 

 

Cash

 

$

29,253,012

 

$

19,819,548

 

Restricted cash (cost $300,176 and $800,527)

 

300,176

 

800,527

 

Cash equivalents (cost $1,011,158 and $394,612)

 

1,011,158

 

394,612

 

Investments at fair value

 

 

 

 

 

U.S. Treasury obligations (cost $24,958,878 and $34,998,593)

 

24,983,272

 

34,991,681

 

Non-control/Non-affiliated investments (cost $161,200,340 and $150,348,963)

 

135,712,553

 

123,189,755

 

Affiliate investments (cost $127,902,880 and $130,484,393)

 

166,360,899

 

169,426,770

 

Control investments (cost $82,220,364 and $93,878,518)

 

56,845,817

 

67,503,229

 

Total investments at fair value (cost $396,282,462 and $409,710,467)

 

383,902,541

 

395,111,435

 

Escrow receivables, net of reserves

 

5,232,415

 

9,151,805

 

Dividends and interest receivables, net of reserves

 

1,123,115

 

3,595,357

 

Deferred financing fees

 

1,002,489

 

1,201,473

 

Fee and other receivables

 

2,204,938

 

2,098,625

 

Prepaid expenses

 

434,282

 

192,712

 

 

 

 

 

 

 

Total assets

 

$

424,464,126

 

$

432,366,094

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

Senior notes 1

 

$

112,454,895

 

$

112,283,745

 

Revolving credit facility II

 

25,000,000

 

35,000,000

 

Provision for incentive compensation (Note 11)

 

2,595,592

 

1,946,555

 

Professional fees payable

 

487,769

 

583,049

 

Management fee payable

 

1,271,777

 

1,290,230

 

Accrued expenses and liabilities

 

622,001

 

715,538

 

Guarantees

 

136,196

 

 

Interest payable

 

350,297

 

348,525

 

Management fee payable - Asset Management

 

61,736

 

151,053

 

Consulting fees payable

 

273,677

 

151,943

 

Portfolio fees payable - Asset Management

 

295,392

 

336,297

 

Taxes payable

 

1,094

 

1,381

 

 

 

 

 

 

 

Total liabilities

 

143,550,426

 

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 April 30, 2017 and October 31, 2016, respectively

 

283,044

 

283,044

 

Additional paid-in-capital

 

418,298,709

 

418,298,709

 

Accumulated earnings

 

122,924,714

 

128,135,727

 

Dividends paid to stockholders

 

(151,202,372

)

(145,112,140

)

Accumulated net realized loss

 

(40,639,664

)

(51,542,156

)

Net unrealized depreciation

 

(12,237,779

)

(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

 

280,913,700

 

279,557,778

 

 

 

 

 

 

 

Total liabilities and shareholders’ equity

 

$

424,464,126

 

$

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 April 30, 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 Six Month Period

 

For the Six Month Period

 

 

 

November 1, 2016 to

 

November 1, 2015 to

 

 

 

April 30, 2017

 

April 30, 2016

 

Operating Income:

 

 

 

 

 

Dividend income

 

 

 

 

 

Non-control/Non-affiliated investments

 

$

 

$

284

 

Affiliate investments

 

 

10,000,000

 

Control investments

 

 

97,101

 

 

 

 

 

 

 

Total dividend income

 

 

10,097,385

 

 

 

 

 

 

 

Interest income

 

 

 

 

 

Non-control/Non-affiliated investments

 

3,753,071

 

5,960,781

 

Affiliate investments

 

1,075,970

 

1,135,384

 

Control investments

 

332,771

 

162,790

 

 

 

 

 

 

 

Total interest income

 

5,161,812

 

7,258,955

 

 

 

 

 

 

 

Payment-in-kind/Deferred interest income

 

 

 

 

 

Non-control/Non-affiliated investments

 

557,217

 

2,694,080

 

Affiliate investments

 

374,104

 

258,261

 

Control investments

 

96,559

 

77,690

 

 

 

 

 

 

 

Total payment-in-kind/Deferred interest income

 

1,027,880

 

3,030,031

 

 

 

 

 

 

 

Fee income

 

 

 

 

 

Non-control/Non-affiliated investments

 

144,642

 

66,805

 

Affiliate investments

 

353,333

 

364,000

 

Control investments

 

52,420

 

2,381,250

 

 

 

 

 

 

 

Total fee income

 

550,395

 

2,812,055

 

 

 

 

 

 

 

Fee income - Asset Management 1

 

 

 

 

 

Portfolio fees

 

420,461

 

497,823

 

Management fees

 

148,010

 

248,935

 

 

 

 

 

 

 

Total fee income - Asset Management

 

568,471

 

746,758

 

 

 

 

 

 

 

Total operating income

 

7,308,558

 

23,945,184

 

 

 

 

 

 

 

Operating Expenses:

 

 

 

 

 

Interest and other borrowing costs

 

5,143,949

 

5,126,214

 

Management fee

 

3,510,042

 

3,937,338

 

Net Incentive compensation (Note 11)

 

1,745,117

 

(1,094,949

)

Consulting fees

 

548,555

 

579,202

 

Audit & tax preparation fees

 

527,000

 

135,600

 

Legal fees

 

509,410

 

583,056

 

Other expenses

 

480,654

 

243,107

 

Portfolio fees - Asset Management 1

 

315,345

 

373,367

 

Directors’ fees

 

212,514

 

215,000

 

Insurance

 

141,016

 

152,217

 

Management fee - Asset Management 1

 

111,008

 

186,701

 

Administration

 

99,247

 

111,041

 

Public relations fees

 

91,000

 

92,000

 

Printing and postage

 

36,265

 

20,221

 

 

 

 

 

 

 

Total operating expenses

 

13,471,122

 

10,660,115

 

 

 

 

 

 

 

Less: Voluntary Expense Waiver by Adviser 2

 

(75,000

)

(75,000

)

Less: Voluntary Management Fee Waiver by Adviser 3

 

(877,511

)

(984,335

)

Less: Voluntary Incentive Fee Waiver by Adviser 4

 

 

(1,000,000

)

 

 

 

 

 

 

Total waivers

 

(952,511

)

(2,059,335

)

 

 

 

 

 

 

Net operating (loss) income before taxes

 

(5,210,053

)

15,344,404

 

 

 

 

 

 

 

Tax Expenses:

 

 

 

 

 

Current tax expense

 

960

 

878

 

 

 

 

 

 

 

Total tax expense

 

960

 

878

 

 

 

 

 

 

 

Net operating (loss) income

 

(5,211,013

)

15,343,526

 

 

 

 

 

 

 

Net Realized and Unrealized Gain (Loss) on Investments:

 

 

 

 

 

 

 

 

 

 

 

Net realized gain (loss) on investments

 

 

 

 

 

Short term investments

 

183,087

 

(90,427

)

Non-control/Non-affiliated investments

 

1,208

 

(7,636,535

)

Affiliate investments

 

850,000

 

(46,414

)

Control investments

 

9,863,648

 

(31,583,082

)

Foreign currency

 

4,549

 

 

 

 

 

 

 

 

Total net realized gain (loss) on investments

 

10,902,492

 

(39,356,458

)

 

 

 

 

 

 

Net unrealized appreciation on investments

 

1,754,675

 

25,067,972

 

 

 

 

 

 

 

Net realized and unrealized gain (loss) on investments

 

12,657,167

 

(14,288,486

)

 

 

 

 

 

 

Net increase in net assets resulting from operations

 

$

7,446,154

 

$

1,055,040

 

 

 

 

 

 

 

Net increase in net assets per share resulting from operations

 

$

0.33

 

$

0.05

 

 

 

 

 

 

 

Dividends declared per share

 

$

0.270

 

$

0.440

 

 

 

 

 

 

 

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 Operations

(Unaudited)

 

 

 

For the Quarter

 

For the Quarter

 

 

 

February 1, 2017 to

 

February 1, 2016 to

 

 

 

April 30, 2017

 

April 30, 2016

 

Operating Income:

 

 

 

 

 

Dividend income

 

 

 

 

 

Non-control/Non-affiliated investments

 

$

 

$

 

Affiliate investments

 

 

10,000,000

 

 

 

 

 

 

 

Total dividend income

 

 

10,000,000

 

 

 

 

 

 

 

Interest income

 

 

 

 

 

Non-control/Non-affiliated investments

 

2,245,969

 

2,971,995

 

Affiliate investments

 

490,651

 

562,011

 

Control investments

 

199,298

 

83,091

 

 

 

 

 

 

 

Total interest income

 

2,935,918

 

3,617,097

 

 

 

 

 

 

 

Payment-in-kind/Deferred interest income

 

 

 

 

 

Non-control/Non-affiliated investments

 

254,256

 

1,434,660

 

Affiliate investments

 

194,400

 

167,964

 

Control investments

 

34,601

 

38,418

 

 

 

 

 

 

 

Total payment-in-kind/Deferred interest income

 

483,257

 

1,641,042

 

 

 

 

 

 

 

Fee income

 

 

 

 

 

Non-control/Non-affiliated investments

 

71,745

 

14,546

 

Affiliate investments

 

173,333

 

182,500

 

Control investments

 

14,920

 

37,500

 

 

 

 

 

 

 

Total fee income

 

259,998

 

234,546

 

 

 

 

 

 

 

Fee income - Asset Management 1

 

 

 

 

 

Portfolio fees

 

184,597

 

248,415

 

Management fees

 

64,788

 

114,573

 

 

 

 

 

 

 

Total fee income - Asset Management

 

249,385

 

362,988

 

 

 

 

 

 

 

Total operating income

 

3,928,558

 

15,855,673

 

 

 

 

 

 

 

Operating Expenses:

 

 

 

 

 

Interest and other borrowing costs

 

2,605,853

 

2,497,428

 

Management fee

 

1,696,127

 

1,958,047

 

Net Incentive compensation (Note 11)

 

985,343

 

1,135,039

 

Legal fees

 

430,885

 

419,056

 

Consulting fees

 

273,000

 

356,851

 

Portfolio fees - Asset Management 1

 

138,447

 

186,311

 

Other expenses

 

113,208

 

120,922

 

Directors’ fees

 

106,000

 

105,000

 

Audit & tax preparation fees

 

72,000

 

 

Insurance

 

68,797

 

72,300

 

Administration

 

48,601

 

49,723

 

Management fee - Asset Management 1

 

48,591

 

85,929

 

Public relations fees

 

44,000

 

44,000

 

Printing and postage

 

15,258

 

5,527

 

 

 

 

 

 

 

Total operating expenses

 

6,646,110

 

7,036,133

 

 

 

 

 

 

 

Less: Voluntary Expense Waiver by Adviser 2

 

(37,500

)

(37,500

)

Less: Voluntary Management Fee Waiver by Adviser 3

 

(424,032

)

(489,512

)

Less: Voluntary Incentive Fee Waiver by Adviser 4

 

 

(1,000,000

)

 

 

 

 

 

 

Total waivers

 

(461,532

)

(1,527,012

)

 

 

 

 

 

 

Net operating (loss) income before taxes

 

(2,256,020

)

10,346,552

 

 

 

 

 

 

 

Tax Expenses:

 

 

 

 

 

Current tax expense

 

480

 

439

 

 

 

 

 

 

 

Total tax expense

 

480

 

439

 

 

 

 

 

 

 

Net operating (loss) income

 

(2,256,500

)

10,346,113

 

 

 

 

 

 

 

Net Realized and Unrealized Gain (Loss) on Investments:

 

 

 

 

 

 

 

 

 

 

 

Net realized (loss) gain on investments

 

 

 

 

 

Short term investments

 

85,903

 

 

Non-control/Non-affiliated investments

 

1,208

 

 

Affiliate investments

 

850,000

 

24,854

 

Control investments

 

(1,059,375

)

177,205

 

Foreign currency

 

 

 

 

 

 

 

 

 

Total net realized (loss) gain on investments

 

(122,264

)

202,059

 

 

 

 

 

 

 

Net unrealized appreciation (depreciation) on investments

 

5,447,496

 

(4,501,823

)

 

 

 

 

 

 

Net realized and unrealized gain (loss) on investments

 

5,325,232

 

(4,299,764

)

 

 

 

 

 

 

Net increase in net assets resulting from operations

 

$

3,068,732

 

$

6,046,349

 

 

 

 

 

 

 

Net increase in net assets per share resulting from operations

 

$

0.14

 

$

0.26

 

 

 

 

 

 

 

Dividends declared per share

 

$

0.135

 

$

0.135

 

 

 

 

 

 

 

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.

 

5



Table of Contents

 

MVC Capital, Inc.

Consolidated Statements of Cash Flows

(Unaudited)

 

 

 

For the Six Month Period

 

For the Six Month Period

 

 

 

November 1, 2016 to

 

November 1, 2015 to

 

 

 

April 30, 2017

 

April 30, 2016

 

Cash flows from Operating Activities:

 

 

 

 

 

Net decrease in net assets resulting from operations

 

$

7,446,154

 

$

1,055,040

 

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

 

(10,902,492

)

39,356,458

 

Net change in unrealized (appreciation) depreciation

 

(1,754,675

)

(25,067,972

)

Amortization of premiums (discounts) and fees

 

(127,216

)

(398

)

Increase in accrued payment-in-kind dividends and interest

 

(918,545

)

(4,832,830

)

Amortization of deferred financing fees

 

557,634

 

514,789

 

Changes in operating assets and liabilities:

 

 

 

 

 

Restricted cash

 

500,351

 

499,857

 

Restricted cash equivalents

 

 

5,503,000

 

Dividends, interest and fees receivable

 

2,472,242

 

2,384,867

 

Fee and other receivables

 

(106,313

)

269,885

 

Escrow receivables, net of reserves

 

3,919,390

 

(8,577,755

)

Prepaid expenses

 

(241,570

)

27,470

 

Incentive compensation (Note 11)

 

649,037

 

(2,094,949

)

Other liabilities

 

(214,273

)

(1,099,668

)

Purchases of equity investments

 

(59,375

)

(1,992,242

)

Purchases of debt instruments

 

(5,151,147

)

(25,973,805

)

Purchases of short-term investments

 

(49,954,511

)

(84,895,819

)

Proceeds from equity investments (1)

 

15,554,570

 

36,621,814

 

Proceeds from debt instruments

 

4,480,843

 

10,799,150

 

Sales/maturities of short-term investments

 

60,177,638

 

139,662,416

 

 

 

 

 

 

 

Net cash provided by operating activities

 

26,327,742

 

82,159,308

 

 

 

 

 

 

 

Cash flows from Financing Activities:

 

 

 

 

 

Borrowings from revolving credit facility

 

50,000,000

 

99,300,000

 

Repayments from revolving credit facility

 

(60,000,000

)

(154,300,000

)

Repayments from bridge loan

 

 

(8,000,000

)

Financing fees paid

 

(187,500

)

(1,792,058

)

Distributions paid to shareholders

 

(5,957,039

)

(9,989,241

)

Repurchases of common stock under dividend reinvestment plan

 

(133,193

)

 

 

 

 

 

 

 

Net cash used in financing activities

 

(16,277,732

)

(74,781,299

)

 

 

 

 

 

 

Net change in cash and cash equivalents for the period

 

10,050,010

 

7,378,009

 

 

 

 

 

 

 

Cash and cash equivalents, beginning of period

 

$

20,214,160

 

$

10,311,567

 

 

 

 

 

 

 

Cash and cash equivalents, end of period

 

$

30,264,170

 

$

17,689,576

 

 


(1) For the six month period ended April 30, 2017, proceeds from equity investments includes $800,859, in escrow receivables, net of reserves.

 

During the six month periods ended April 30, 2017 and 2016 MVC Capital, Inc. paid $4,214,601 and $4,557,783 in interest expense, respectively.

 

During the six month periods ended April 30, 2017 and 2016 MVC Capital, Inc. paid $1,278 and $641 in income taxes, respectively.

 

Non-cash activity:

During the six month periods ended April 30, 2017 and 2016, MVC Capital, Inc. recorded payment in-kind dividend and interest of $918,545 and $4,832,830, respectively. This amount was added to the principal balance of the investments and recorded as dividend/interest income.

 

During the six month periods ended April 30, 2017 and 2016, the Plan Agent purchased 15,127 and 26,180 shares of common stock in the open market in order to satisfy the reinvestment portion of our dividends.

 

On December 24, 2015, as part of Inland’s restructuring, the Company obtained a $6.0 million senior secured loan to MVC Environmental, Inc. and received 950 common shares in MVC Environmental, Inc.

 

On March 7, 2017, the Company exchanged its shares of MVC Turf, the holding company which owned the Company’s LLC interest in Turf, for approximately $3.8 million of additional subordinated debt in Turf.

 

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

 

6



Table of Contents

 

MVC Capital, Inc.

Consolidated Statements of Changes in Net Assets

 

 

 

For the Six Month Period

 

For the Six Month Period

 

 

 

 

 

November 1, 2016 to

 

November 1, 2015 to

 

For the Year Ended

 

 

 

April 30, 2017

 

April 30, 2016

 

October 31, 2016

 

 

 

(Unaudited)

 

(Unaudited)

 

 

 

Operations:

 

 

 

 

 

 

 

Net operating (loss) gain

 

$

(5,211,013

)

$

15,343,526

 

$

19,327,746

 

Net realized gain (loss) on investments

 

10,902,492

 

(39,356,458

)

(45,157,415

)

Net change in unrealized appreciation on investments

 

1,754,675

 

25,067,972

 

28,627,844

 

 

 

 

 

 

 

 

 

Net increase in net assets from operations

 

7,446,154

 

1,055,040

 

2,798,175

 

 

 

 

 

 

 

 

 

Shareholder Distributions from:

 

 

 

 

 

 

 

Income

 

(6,090,232

)

(9,989,241

)

(16,099,238

)

Return of capital

 

 

 

 

 

 

 

 

 

 

 

 

Net decrease in net assets from shareholder distributions

 

(6,090,232

)

(9,989,241

)

(16,099,238

)

 

 

 

 

 

 

 

 

Capital Share Transactions:

 

 

 

 

 

 

 

Issuance of common stock under dividend reinvestment plan

 

133,193

 

 

328,509

 

Repurchase of common stock under dividend reinvestment plan

 

(133,193

)

 

(328,509

)

Repurchase of common stock

 

 

 

(1,216,746

)

 

 

 

 

 

 

 

 

Net decrease in net assets from capital share transactions

 

 

 

(1,216,746

)

 

 

 

 

 

 

 

 

Total increase (decrease) in net assets

 

1,355,922

 

(8,934,201

)

(14,517,809

)

 

 

 

 

 

 

 

 

Net assets, beginning of period/year

 

279,557,778

 

294,075,587

 

294,075,587

 

 

 

 

 

 

 

 

 

Net assets, end of period/year

 

$

280,913,700

 

$

285,141,386

 

$

279,557,778

 

 

 

 

 

 

 

 

 

Common shares outstanding, end of period/year

 

22,556,412

 

22,702,821

 

22,556,412

 

 

 

 

 

 

 

 

 

Undistributed net operating income

 

$

 

$

5,354,285

 

$

3,228,508

 

 

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

 

7


 


Table of Contents

 

MVC Capital, Inc.

Consolidated Selected Per Share Data and Ratios

 

 

 

For the Six Month Period

 

For the Six Month Period

 

For the

 

 

 

November 1, 2016 to

 

November 1, 2015 to

 

Year Ended

 

 

 

April 30, 2017

 

April 30, 2016

 

October 31, 2016

 

 

 

(Unaudited)

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

Net asset value, beginning of period/year

 

$

12.39

 

$

12.95

 

$

12.95

 

 

 

 

 

 

 

 

 

Gain from operations:

 

 

 

 

 

 

 

Net operating (loss) gain

 

(0.23

)

0.68

 

0.85

 

Net realized and unrealized gain (loss) on investments

 

0.56

 

(0.63

)

(0.73

)

 

 

 

 

 

 

 

 

Total gain from investment operations

 

0.33

 

0.05

 

0.12

 

 

 

 

 

 

 

 

 

Less distributions from:

 

 

 

 

 

 

 

Income

 

(0.27

)

(0.44

)

(0.71

)

Return of capital

 

 

 

 

 

 

 

 

 

 

 

 

Total distributions

 

(0.27

)

(0.44

)

(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

 

$

12.56

 

$

12.39

 

 

 

 

 

 

 

 

 

Market value, end of period/year

 

$

9.04

 

$

7.43

 

$

8.69

 

 

 

 

 

 

 

 

 

Market discount

 

(27.39

)%

(40.84

)%

(29.86

)%

 

 

 

 

 

 

 

 

Total Return - At NAV (a)

 

2.68

%

0.44

%

1.26

%

 

 

 

 

 

 

 

 

Total Return - At Market (a)

 

7.25

%

(5.33

)%

14.32

%

 

 

 

 

 

 

 

 

Ratios and Supplemental Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Portfolio turnover ratio

 

0.55

%

8.70

%

13.74

%

 

 

 

 

 

 

 

 

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

 

$

280,914

 

$

285,142

 

$

279,558

 

 

 

 

 

 

 

 

 

Ratios to average net assets:

 

 

 

 

 

 

 

Expenses including tax expense

 

9.00

% (c)

6.02

% (c)

6.35

%

Expenses excluding tax expense

 

9.00

% (c)

6.02

% (c)

6.35

%

 

 

 

 

 

 

 

 

Net operating (loss) income before tax expense

 

(3.75

)% (c)

10.75

% (c)

6.81

%

Net operating (loss) income after tax expense

 

(3.75

)% (c)

10.75

% (c)

6.81

%

 

 

 

 

 

 

 

 

Ratios to average net assets excluding waivers:

 

 

 

 

 

 

 

Expenses including tax expense

 

9.69

% (c)

7.47

% (c)

7.43

%

Expenses excluding tax expense

 

9.69

% (c)

7.47

% (c)

7.43

%

 

 

 

 

 

 

 

 

Net operating (loss) income before tax expense

 

(4.43

)% (c)

9.31

% (c)

5.74

%

Net operating (loss) income after tax expense

 

(4.43

)% (c)

9.31

% (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

 

7.75

% (c)

6.79

% (c)

7.07

%

Expenses excluding incentive compensation, interest and other borrowing costs

 

4.05

% (c)

3.20

% (c)

3.47

%

 

 

 

 

 

 

 

 

Net operating income (loss) before incentive compensation

 

(2.49

)% (c)

9.98

% (c)

6.09

%

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

 

1.21

% (c)

13.57

% (c)

9.69

%

 

 

 

 

 

 

 

 

Ratios to average net assets excluding waivers: (b)

 

 

 

 

 

 

 

Expenses excluding incentive compensation

 

8.43

% (c)

8.24

% (c)

8.15

%

Expenses excluding incentive compensation, interest and other borrowing costs

 

4.73

% (c)

4.65

% (c)

4.55

%

 

 

 

 

 

 

 

 

Net operating income (loss) before incentive compensation

 

(3.18

)% (c)

8.54

% (c)

5.02

%

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

 

0.52

% (c)

12.13

% (c)

8.62

%

 

(c) Annualized.

 

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

 

8



Table of Contents

 

MVC Capital, Inc.

Consolidated Schedule of Investments

April 30, 2017

(Unaudited)

 

Company

 

Industry

 

Investment

 

Principal

 

Cost

 

Fair Value/Market Value

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-control/Non-affiliated investments- 48.31% (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)

 

24,425,298

 

24,425,298

 

18,040,230

 

 

 

 

 

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

 

3,000,000

 

3,000,000

 

2,506,189

 

 

 

 

 

 

 

 

 

27,425,298

 

20,546,419

 

Dukane IAS,LLC

 

Welding Equipment Manufacturer

 

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

 

7,164,410

 

7,059,897

 

7,236,055

 

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

 

5,804,000

 

HTI Technologies and Industries, Inc.

 

Electronic Component Manufacturing

 

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

 

9,778,376

 

9,726,295

 

9,778,376

 

Initials, Inc.

 

Consumer Products

 

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

 

4,818,874

 

4,818,874

 

4,612,901

 

Legal Solutions Holdings, Inc.

 

Business Services

 

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

 

11,253,420

 

11,259,225

 

11,365,946

 

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)

 

16,905,669

 

16,905,669

 

16,619,965

 

Pride Engineering, LLC

 

Manufacturer of Equipment Components

 

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

 

5,056,133

 

4,980,241

 

5,107,483

 

Quantum Plastics, LLC

 

Manufacturer of Plastic Parts

 

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

 

10,000,000

 

9,619,455

 

10,000,000

 

 

 

 

 

Warrants (d)

 

1

 

392,792

 

1,420,188

 

 

 

 

 

 

 

 

 

10,012,247

 

11,420,188

 

Thunderdome Restaurants, LLC

 

Restaurants

 

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

 

3,000,000

 

2,986,234

 

3,030,000

 

Turf Products, LLC

 

Distributor - Landscaping and Irrigation Equipment

 

Senior Subordinated Debt 10.0000% Cash, 08/07/2020 (a, b, l)

 

7,717,056

 

7,717,056

 

7,337,916

 

U.S. Spray Drying Holding Company

 

Specialty Chemicals

 

Class B Common Stock (784 shares) (d)

 

 

 

5,488,000

 

5,850,000

 

 

 

 

 

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

 

1,500,000

 

1,500,000

 

1,500,000

 

 

 

 

 

 

 

 

 

6,988,000

 

7,350,000

 

United States Technologies, Inc.

 

Electronics Manufacturing and Repair

 

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

 

5,500,000

 

5,491,136

 

5,555,000

 

Vestal Manufacturing Enterprises, Inc.

 

Iron Foundries

 

Second Lien Loan 12.0000% Cash, 08/21/2022 (l)

 

2,450,000

 

2,450,000

 

2,450,000

 

 

 

 

 

 

 

 

 

 

 

 

 

Sub Total Non-control/Non-affiliated investments

 

 

 

 

 

161,200,340

 

135,712,553

 

 

 

 

 

 

 

 

 

 

 

 

 

Affiliate investments - 59.22% (a, c, f, g)

 

 

 

 

 

 

 

 

 

Advantage Insurance Holdings LTD

 

Insurance

 

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

 

 

 

7,500,000

 

8,659,416

 

Centile Holdings B.V.

 

Software

 

Common Equity Interest (d, e)

 

 

 

3,524,376

 

5,855,000

 

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

 

3,758,000

 

 

 

 

 

 

 

 

 

11,814,688

 

3,758,000

 

MVC Environmental, Inc.

 

Environmental Services

 

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

 

6,718,599

 

6,718,599

 

6,718,599

 

 

 

 

 

Common Stock (980 shares) (d)

 

 

 

3,140,375

 

759,505

 

 

 

 

 

 

 

 

 

9,858,974

 

7,478,104

 

Security Holdings B.V.

 

Electrical Engineering

 

Common Equity Interest (d, e)

 

 

 

51,204,270

 

35,388,000

 

 

 

 

 

Bridge Loan 5.0000% PIK, 12/31/2019 (b, e, l)

 

4,090,057

 

4,090,057

 

4,090,057

 

 

 

 

 

 

 

 

 

55,294,327

 

39,478,057

 

SGDA Europe B.V.

 

Environmental Services

 

Common Equity Interest (d, e)

 

 

 

28,544,800

 

899,000

 

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)

 

3,365,715

 

3,365,715

 

3,365,715

 

 

 

 

 

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

 

 

 

500,000

 

89,367,607

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

11,365,715

 

100,233,322

 

 

 

 

 

 

 

 

 

 

 

 

 

Sub Total Affiliate investments

 

 

 

 

 

127,902,880

 

166,360,899

 

 

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

 

9



Table of Contents

 

MVC Capital, Inc.

Consolidated Schedule of Investments - (Continued)

April 30, 2017

(Unaudited)

 

Company

 

Industry

 

Investment

 

Principal

 

Cost

 

Fair Value/Market Value

 

Control investments - 20.24% (c, f, g)

 

 

 

 

 

 

 

 

 

Equus Total Return, Inc.

 

Registered Investment Company

 

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

 

 

 

$

10,030,272

 

$

12,756,128

 

MVC Automotive Group GmbH

 

Automotive Dealerships

 

Common Equity Interest (a, d, e)

 

 

 

50,057,288

 

13,678,000

 

 

 

 

 

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

 

$

3,797,093

 

3,797,093

 

3,797,093

 

 

 

 

 

 

 

 

 

53,854,381

 

17,475,093

 

MVC Private Equity Fund LP

 

Private Equity

 

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

 

 

 

11,452,452

 

16,414,761

 

 

 

 

 

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

 

 

 

292,154

 

413,615

 

 

 

 

 

 

 

 

 

11,744,606

 

16,828,376

 

RuMe Inc.

 

Consumer Products

 

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

 

 

 

924,475

 

462,061

 

 

 

 

 

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

 

 

 

3,410,694

 

5,485,789

 

 

 

 

 

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

 

 

 

999,815

 

2,002,663

 

 

 

 

 

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

 

943,921

 

919,728

 

919,728

 

 

 

 

 

Warrants (a, d)

 

1

 

336,393

 

915,979

 

 

 

 

 

 

 

 

 

6,591,105

 

9,786,220

 

 

 

 

 

 

 

 

 

 

 

 

 

Sub Total Control investments

 

 

 

 

 

 

 

82,220,364

 

56,845,817

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL PORTFOLIO INVESTMENTS - 127.77% (f)

 

 

 

 

 

$

371,323,584

 

$

358,919,269

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury Obligations - 8.89% (f, g)

 

 

 

 

 

 

 

 

 

U.S. Treasury Bill

 

U.S. Government Securities

 

1.8750% Cash, 03/31/2022 (m)

 

$

24,920,000

 

$

24,958,878

 

$

24,983,272

 

Sub Total Short-Term Investments

 

 

 

 

 

24,958,878

 

24,983,272

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents and restricted cash equivalents - 0.36% (f, g)

 

 

 

 

 

 

 

Fidelity Institutional Government Money Market Fund

 

Money Market Fund

 

Beneficial Shares (1,011,158 shares)

 

 

 

$

1,011,158

 

$

1,011,158

 

Total Cash equivalents and restricted cash equivalents

 

 

 

1,011,158

 

1,011,158

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL INVESTMENT ASSETS - 137.02%

 

 

 

 

 

$

397,293,620

 

$

384,913,699

 

 


(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., 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 18% 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 $280,913,700 as of April 30, 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 $7,328,665, $3,948,145, $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.

 

10


 


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