MVC Capital, Inc.
MVC CAPITAL, INC. (Form: 10-Q, Received: 09/11/2017 16:16:47)

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 July 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
(State or other jurisdiction of
incorporation or organization)

 

94-3346760
(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, 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 o Accelerated filer x Non-accelerated filer o 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 21,114,105 shares of the registrant’s common stock, $.01 par value, outstanding as of September 11, 2017.

 

 

 



Table of Contents

 

 

MVC Capital, Inc.

 

 

(A Delaware Corporation)

 

 

Index

 

 

 

Part I.

Consolidated Financial Information

Page

 

 

 

 

Item 1. Consolidated Financial Statements

 

 

Consolidated Balance Sheets

 

 

-   July 31, 2017 (Unaudited) and October 31, 2016

3

 

Consolidated Statements of Operations

 

 

-   For the Nine Month Period November 1, 2016 to July 31, 2017 (Unaudited) and

 

 

-   For the Nine Month Period November 1, 2015 to July 31, 2016 (Unaudited)

4

 

Consolidated Statements of Operations

 

 

-   For the Quarter May 1, 2017 to July 31, 2017 (Unaudited) and

 

 

-   For the Quarter May 1, 2016 to July 31, 2016 (Unaudited)

5

 

Consolidated Statements of Cash Flows

 

 

-   For the Nine Month Period November 1, 2016 to July 31, 2017 (Unaudited) and

 

 

-   For the Nine Month Period November 1, 2015 to July 31, 2016 (Unaudited)

6

 

Consolidated Statements of Changes in Net Assets

 

 

-   For the Nine Month Period November 1, 2016 to July 31, 2017 (Unaudited),

 

 

-   For the Nine Month Period November 1, 2015 to July 31, 2016 (Unaudited) and

 

 

-   For the Year ended October 31, 2016

7

 

Consolidated Selected Per Share Data and Ratios

 

 

-   For the Nine Month Period November 1, 2016 to July 31, 2017 (Unaudited),

 

 

-   For the Nine Month Period November 1, 2015 to July 31, 2016 (Unaudited) and

 

 

-   For the Year ended October 31, 2016

8

 

Consolidated Schedules of Investments

 

 

-   July 31, 2017 (Unaudited)

 

 

-   October 31, 2016

9

 

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

74

 

Item 4. Controls and Procedures

89

 

 

 

Part II.

Other Information

90

 

 

 

 

Item 1. Legal Proceedings

90

 

Item 1A. Risk Factors

90

 

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

90

 

Item 3. Defaults Upon Senior Securities

90

 

Item 4. Mine Safety Disclosures

90

 

Item 5. Other Information

90

 

Item 6. Exhibits

90

 

 

 

SIGNATURE

92

 

 

Exhibits

 

 



Table of Contents

 

CONSOLIDATED FINANCIAL STATEMENTS

 

MVC Capital, Inc.

Consolidated Balance Sheets

 

 

 

July 31,

 

October 31,

 

 

 

2017

 

2016

 

 

 

(Unaudited)

 

 

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

Cash

 

$

118,753,247

 

$

19,819,548

 

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

 

300,253

 

800,527

 

Cash equivalents (cost $772,055 and $394,612)

 

772,055

 

394,612

 

Investments at fair value

 

 

 

 

 

U.S. Treasury obligations (cost $0 and $34,998,593)

 

 

34,991,681

 

Non-control/Non-affiliated investments (cost $177,520,484 and $150,348,963)

 

153,428,098

 

123,189,755

 

Affiliate investments (cost $141,259,885 and $130,484,393)

 

89,938,950

 

169,426,770

 

Control investments (cost $84,444,213 and $93,878,518)

 

59,669,247

 

67,503,229

 

Total investments at fair value (cost $403,224,582 and $409,710,467)

 

303,036,295

 

395,111,435

 

Escrow receivables, net of reserves

 

 

9,151,805

 

Dividends and interest receivables, net of reserves

 

1,237,078

 

3,595,357

 

Deferred financing fees

 

782,974

 

1,201,473

 

Fee and other receivables

 

1,496,607

 

2,098,625

 

Prepaid expenses

 

358,011

 

192,712

 

 

 

 

 

 

 

Total assets

 

$

426,736,520

 

$

432,366,094

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

Senior notes 1

 

$

112,540,470

 

$

112,283,745

 

Revolving credit facility II

 

 

35,000,000

 

Provision for incentive compensation (Note 11)

 

7,672,101

 

1,946,555

 

Professional fees payable

 

240,626

 

583,049

 

Management fee payable

 

1,044,505

 

1,290,230

 

Accrued expenses and liabilities

 

593,863

 

715,538

 

Guarantees

 

217,224

 

 

Interest payable

 

345,611

 

348,525

 

Management fee payable - Asset Management

 

89,240

 

151,053

 

Consulting fees payable

 

343,620

 

151,943

 

Portfolio fees payable - Asset Management

 

386,572

 

336,297

 

Transaction fees payable

 

1,486,900

 

 

Taxes payable

 

1,574

 

1,381

 

 

 

 

 

 

 

Total liabilities

 

124,962,306

 

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 July 31, 2017 and October 31, 2016, respectively

 

283,044

 

283,044

 

Additional paid-in-capital

 

418,298,709

 

418,298,709

 

Accumulated earnings

 

120,479,685

 

128,135,727

 

Dividends paid to stockholders

 

(154,247,487

)

(145,112,140

)

Accumulated net realized gain (loss)

 

73,600,388

 

(51,542,156

)

Net unrealized depreciation

 

(100,127,173

)

(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

 

301,774,214

 

279,557,778

 

 

 

 

 

 

 

Total liabilities and shareholders’ equity

 

$

426,736,520

 

$

432,366,094

 

 

 

 

 

 

 

Net asset value per share

 

$

13.38

 

$

12.39

 

 

1  Reflects reductions of approximately $1.9 million and approximately $2.1 million as of July 31, 2017 and October 31, 2016, respectively, related to the reclassification of the unamortized debt issuance costs related to the Senior notes per the adoption of ASU 2015-3.

 

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 Nine Month Period

 

For the Nine Month Period

 

 

 

November 1, 2016 to

 

November 1, 2015 to

 

 

 

July 31, 2017

 

July 31, 2016

 

Operating Income:

 

 

 

 

 

Dividend income

 

 

 

 

 

Non-control/Non-affiliated investments

 

$

 

$

284

 

Affiliate investments

 

 

12,500,000

 

Control investments

 

 

97,101

 

 

 

 

 

 

 

Total dividend income

 

 

12,597,385

 

 

 

 

 

 

 

Interest income

 

 

 

 

 

Non-control/Non-affiliated investments

 

8,591,364

 

9,038,608

 

Affiliate investments

 

1,622,040

 

1,715,641

 

Control investments

 

469,656

 

240,965

 

 

 

 

 

 

 

Total interest income

 

10,683,060

 

10,995,214

 

 

 

 

 

 

 

Payment-in-kind/Deferred interest income

 

 

 

 

 

Non-control/Non-affiliated investments

 

807,418

 

3,772,909

 

Affiliate investments

 

602,856

 

430,496

 

Control investments

 

120,551

 

116,962

 

 

 

 

 

 

 

Total payment-in-kind/Deferred interest income

 

1,530,825

 

4,320,367

 

 

 

 

 

 

 

Fee income

 

 

 

 

 

Non-control/Non-affiliated investments

 

302,879

 

100,757

 

Affiliate investments

 

1,192,485

 

444,000

 

Control investments

 

52,420

 

2,418,750

 

 

 

 

 

 

 

Total fee income

 

1,547,784

 

2,963,507

 

 

 

 

 

 

 

Fee income - Asset Management 1

 

 

 

 

 

Portfolio fees

 

615,448

 

743,595

 

Management fees

 

237,262

 

329,881

 

 

 

 

 

 

 

Total fee income - Asset Management

 

852,710

 

1,073,476

 

 

 

 

 

 

 

Total operating income

 

14,614,379

 

31,949,949

 

 

 

 

 

 

 

Operating Expenses:

 

 

 

 

 

Interest and other borrowing costs

 

7,792,549

 

7,613,976

 

Net Incentive compensation (Note 11)

 

6,821,626

 

(2,607,115

)

Management fee

 

4,902,716

 

5,869,533

 

Other expenses

 

787,415

 

348,332

 

Consulting fees

 

746,555

 

1,108,790

 

Audit & tax preparation fees

 

593,000

 

205,381

 

Legal fees

 

472,976

 

929,155

 

Portfolio fees - Asset Management 1

 

461,586

 

557,696

 

Directors’ fees and expenses

 

317,514

 

320,000

 

Insurance

 

208,102

 

224,492

 

Management fee - Asset Management 1

 

177,946

 

247,411

 

Administration

 

150,575

 

161,308

 

Public relations fees

 

136,000

 

132,000

 

Printing and postage

 

38,600

 

20,415

 

 

 

 

 

 

 

Total operating expenses

 

23,607,160

 

15,131,374

 

 

 

 

 

 

 

Less: Voluntary Expense Waiver by Adviser 2

 

(112,500

)

(112,500

)

Less: Voluntary Management Fee Waiver by Adviser 3

 

(1,225,679

)

(1,467,383

)

Less: Voluntary Incentive Fee Waiver by Adviser 4

 

 

(1,000,000

)

 

 

 

 

 

 

Total waivers

 

(1,338,179

)

(2,579,883

)

 

 

 

 

 

 

Net operating (loss) income before taxes

 

(7,654,602

)

19,398,458

 

 

 

 

 

 

 

Tax Expenses:

 

 

 

 

 

Current tax expense

 

1,440

 

1,316

 

 

 

 

 

 

 

Total tax expense

 

1,440

 

1,316

 

 

 

 

 

 

 

Net operating (loss) income

 

(7,656,042

)

19,397,142

 

 

 

 

 

 

 

Net Realized and Unrealized Gain (Loss) on Investments:

 

 

 

 

 

 

 

 

 

 

 

Net realized gain (loss) on investments

 

 

 

 

 

Short term investments

 

229,812

 

125,116

 

Non-control/Non-affiliated investments

 

(620,077

)

(8,822,166

)

Affiliate investments

 

115,430,586

 

(30,996

)

Control investments

 

10,097,674

 

(31,373,017

)

Foreign currency

 

4,549

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total net realized gain (loss) on investments

 

125,142,544

 

(40,101,063

)

 

 

 

 

 

 

Net unrealized (depreciation) appreciation on investments

 

(86,134,719

)

18,223,347

 

 

 

 

 

 

 

 

 

 

 

 

 

Net realized and unrealized gain (loss) on investments

 

39,007,825

 

(21,877,716

)

 

 

 

 

 

 

Net increase (decrease) in net assets resulting from operations

 

$

31,351,783

 

$

(2,480,574

)

 

 

 

 

 

 

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

 

$

1.39

 

$

(0.11

)

 

 

 

 

 

 

Dividends declared per share

 

$

0.405

 

$

0.575

 

 

 

 

 

 

 

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 nine month 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 nine month 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, Share Repurchase Program and Tender Offer” 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

 

 

 

May 1, 2017 to

 

May 1, 2016 to

 

 

 

July 31, 2017

 

July 31, 2016

 

Operating Income:

 

 

 

 

 

Dividend income

 

 

 

 

 

Non-control/Non-affiliated investments

 

$

 

$

 

Affiliate investments

 

 

2,500,000

 

 

 

 

 

 

 

Total dividend income

 

 

2,500,000

 

 

 

 

 

 

 

Interest income

 

 

 

 

 

Non-control/Non-affiliated investments

 

4,838,293

 

3,077,827

 

Affiliate investments

 

546,070

 

580,257

 

Control investments

 

136,885

 

78,175

 

 

 

 

 

 

 

Total interest income

 

5,521,248

 

3,736,259

 

 

 

 

 

 

 

Payment-in-kind/Deferred interest income

 

 

 

 

 

Non-control/Non-affiliated investments

 

250,201

 

1,078,829

 

Affiliate investments

 

228,752

 

172,235

 

Control investments

 

23,992

 

39,272

 

 

 

 

 

 

 

Total payment-in-kind/Deferred interest income

 

502,945

 

1,290,336

 

 

 

 

 

 

 

Fee income

 

 

 

 

 

Non-control/Non-affiliated investments

 

158,237

 

33,952

 

Affiliate investments

 

839,152

 

80,000

 

Control investments

 

 

37,500

 

 

 

 

 

 

 

Total fee income

 

997,389

 

151,452

 

 

 

 

 

 

 

Fee income - Asset Management 1

 

 

 

 

 

Portfolio fees

 

194,987

 

245,772

 

Management fees

 

89,252

 

80,946

 

 

 

 

 

 

 

Total fee income - Asset Management

 

284,239

 

326,718

 

 

 

 

 

 

 

Total operating income

 

7,305,821

 

8,004,765

 

 

 

 

 

 

 

Operating Expenses:

 

 

 

 

 

Net Incentive compensation (Note 11)

 

5,076,509

 

(1,512,166

)

Interest and other borrowing costs

 

2,648,600

 

2,487,762

 

Management fee

 

1,392,674

 

1,932,195

 

Other expenses

 

306,761

 

105,225

 

Consulting fees

 

198,000

 

529,588

 

Portfolio fees - Asset Management 1

 

146,241

 

184,329

 

Directors’ fees and expenses

 

105,000

 

105,000

 

Insurance

 

67,086

 

72,275

 

Management fee - Asset Management 1

 

66,938

 

60,710

 

Audit & tax preparation fees

 

66,000

 

69,781

 

Administration

 

51,328

 

50,267

 

Public relations fees

 

45,000

 

40,000

 

Printing and postage

 

2,335

 

194

 

Legal fees

 

(36,434

)

346,099

 

 

 

 

 

 

 

Total operating expenses

 

10,136,038

 

4,471,259

 

 

 

 

 

 

 

Less: Voluntary Expense Waiver by Adviser 2

 

(37,500

)

(37,500

)

Less: Voluntary Management Fee Waiver by Adviser 3

 

(348,168

)

(483,048

)

Less: Voluntary Incentive Fee Waiver by Adviser 4

 

 

 

 

 

 

 

 

 

Total waivers

 

(385,668

)

(520,548

)

 

 

 

 

 

 

Net operating (loss) income before taxes

 

(2,444,549

)

4,054,054

 

 

 

 

 

 

 

Tax Expenses:

 

 

 

 

 

Current tax expense

 

480

 

438

 

 

 

 

 

 

 

Total tax expense

 

480

 

438

 

 

 

 

 

 

 

Net operating (loss) income

 

(2,445,029

)

4,053,616

 

 

 

 

 

 

 

Net Realized and Unrealized Gain (Loss) on

 

 

 

 

 

Investments:

 

 

 

 

 

 

 

 

 

 

 

Net realized (loss) gain on investments

 

 

 

 

 

Short term investments

 

46,725

 

215,543

 

Non-control/Non-affiliated investments

 

(621,285

)

(1,185,631

)

Affiliate investments

 

114,580,586

 

15,418

 

Control investments

 

234,026

 

210,065

 

Foreign currency

 

 

 

 

 

 

 

 

 

Total net realized gain (loss) on investments

 

114,240,052

 

(744,605

)

 

 

 

 

 

 

Net unrealized depreciation on investments

 

(87,889,394

)

(6,844,625

)

 

 

 

 

 

 

Net realized and unrealized gain (loss) on investments

 

26,350,658

 

(7,589,230

)

 

 

 

 

 

 

Net increase (decrease) in net assets resulting from operations

 

$

23,905,629

 

$

(3,535,614

)

 

 

 

 

 

 

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

 

$

1.06

 

$

(0.16

)

 

 

 

 

 

 

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, Share Repurchase Program and Tender Offer” 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 Nine Month Period

 

For the Nine Month Period

 

 

 

November 1, 2016

 

November 1, 2015

 

 

 

July 31, 2017

 

July 31, 2016

 

Cash flows from Operating Activities:

 

 

 

 

 

Net increase (decrease) in net assets resulting from operations

 

$

31,351,783

 

$

(2,480,574

)

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

 

 

 

 

 

Net realized (loss) gain

 

(125,142,544

)

40,101,063

 

Net change in unrealized (appreciation) depreciation

 

86,134,719

 

(18,223,347

)

Amortization of premiums (discounts) and fees

 

(276,030

)

(53,301

)

Increase in accrued payment-in-kind dividends and interest

 

(1,405,278

)

(6,698,463

)

Amortization of deferred financing fees

 

901,092

 

767,348

 

Changes in operating assets and liabilities:

 

 

 

 

 

Restricted cash

 

500,274

 

499,670

 

Restricted cash equivalents

 

 

5,503,000

 

Dividends, interest and fees receivable

 

2,358,279

 

2,394,917

 

Fee and other receivables

 

602,018

 

527,952

 

Escrow receivables, net of reserves

 

9,151,805

 

(35,057,482

)

Prepaid expenses

 

(165,299

)

(8,495,076

)

Incentive compensation (Note 11)

 

5,725,546

 

(3,607,115

)

Other liabilities

 

954,495

 

(1,139,157

)

Purchases of equity investments

 

(1,187,101

)

(1,992,242

)

Purchases of debt instruments

 

(6,209,282

)

(39,155,640

)

Purchases of short-term investments

 

(49,954,511

)

(119,857,875

)

Proceeds from equity investments (1)

 

65,770,471

 

36,848,989

 

Proceeds from debt instruments

 

39,378,619

 

22,917,871

 

Sales/maturities of short-term investments

 

85,183,301

 

209,805,021

 

 

 

 

 

 

 

Net cash provided by operating activities

 

143,672,357

 

82,766,571

 

 

 

 

 

 

 

Cash flows from Financing Activities:

 

 

 

 

 

Borrowings from revolving credit facility

 

50,000,000

 

136,300,000

 

Repayments from revolving credit facility

 

(85,000,000

)

(189,300,000

)

Repayments from bridge loan

 

 

(8,000,000

)

Financing fees paid

 

(225,868

)

(1,803,777

)

Distributions paid to shareholders

 

(8,934,067

)

(13,054,122

)

Repurchases of common stock under dividend reinvestment plan

 

(201,280

)

 

 

 

 

 

 

 

Net cash used in financing activities

 

(44,361,215

)

(75,857,899

)

 

 

 

 

 

 

Net change in cash and cash equivalents for the period

 

99,311,142

 

6,908,672

 

 

 

 

 

 

 

Cash and cash equivalents, beginning of period

 

$

20,214,160

 

$

10,311,567

 

 

 

 

 

 

 

Cash and cash equivalents, end of period

 

$

119,525,302

 

$

17,220,239

 

 

 

 

 

 

 

 


(1) For the nine month period ended July 31, 2017, proceeds from equity investments includes approximately $1.0 million from escrow receivables, net of reserves.

 

During the nine month periods ended July 31, 2017 and 2016 MVC Capital, Inc. paid $6,319,251 and $6,404,189 in interest expense, respectively.

 

During the nine month periods ended July 31, 2017 and 2016 MVC Capital, Inc. paid $1,278 and $930 in income taxes, respectively.

 

Non-cash activity:

 

During the nine month periods ended July 31, 2017 and 2016, MVC Capital, Inc. recorded payment in-kind dividend and interest of $1,405,288 and $6,698,463, respectively. This amount was added to the principal balance of the investments and recorded as dividend/interest income.

 

During the nine month periods ended July 31, 2017 and 2016, the Plan Agent purchased 21,724 and 34,095 shares of common stock, respectively, 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 MVC Environmental, Inc. $6.0 million senior secured note and 950 shares of its common stock.

 

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.

 

On July 5, 2017, the Company received gross consideration for its investment in U.S. Gas valued at approximately $126.1 million, including approximately $11.0 million for the repayment of its two outstanding loans from the Company. The fair value of the consideration received by the Company for its equity investment in U.S. Gas was $115.1 million. As a result of the gross consideration received, the Company realized a gain of approximately $114.6 million. The $115.1 million is comprised of: (i) cash of approximately $50.0 million; (ii) 9.5% second-lien callable notes due in July 2025 with a face amount of approximately $40.5 million (before certain post-closing and indemnification adjustments, if any); and (iii) 3,282,982 Crius trust units valued at approximately $24.6 million at the time of closing.

 

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 Nine Month Period
November 1, 2016 to

 

For the Nine Month Period
November 1, 2015 to

 

For the Year Ended

 

 

 

July 31, 2017

 

July 31, 2016

 

October 31, 2016

 

 

 

(Unaudited)

 

(Unaudited)

 

 

 

Operations:

 

 

 

 

 

 

 

Net operating (loss) gain

 

$

(7,656,042

)

$

19,397,142

 

$

19,327,746

 

Net realized gain (loss) on investments

 

125,142,544

 

(40,101,063

)

(45,157,415

)

Net change in unrealized (depreciation) appreciation on investments

 

(86,134,719

)

18,223,347

 

28,627,844

 

 

 

 

 

 

 

 

 

Net increase (decrease) in net assets from operations

 

31,351,783

 

(2,480,574

)

2,798,175

 

 

 

 

 

 

 

 

 

Shareholder Distributions from:

 

 

 

 

 

 

 

Income

 

(9,135,347

)

(13,054,122

)

(16,099,238

)

Return of capital

 

 

 

 

 

 

 

 

 

 

 

 

Net decrease in net assets from shareholder distributions

 

(9,135,347

)

(13,054,122

)

(16,099,238

)

 

 

 

 

 

 

 

 

Capital Share Transactions:

 

 

 

 

 

 

 

Issuance of common stock under dividend reinvestment plan

 

201,280

 

 

328,509

 

Repurchase of common stock under dividend reinvestment plan

 

(201,280

)

 

(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

 

22,216,436

 

(15,534,696

)

(14,517,809

)

 

 

 

 

 

 

 

 

Net assets, beginning of period/year

 

279,557,778

 

294,075,587

 

294,075,587

 

 

 

 

 

 

 

 

 

Net assets, end of period/year

 

$

301,774,214

 

$

278,540,891

 

$

279,557,778

 

 

 

 

 

 

 

 

 

Common shares outstanding, end of period/year

 

22,556,412

 

22,702,821

 

22,556,412

 

 

 

 

 

 

 

 

 

Undistributed net operating income

 

$

 

$

6,343,020

 

$

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 Nine Month Period
November 1, 2016 to

 

For the Nine Month Period
November 1, 2015 to

 

For the Year Ended

 

 

 

July 31, 2017

 

July 31, 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

 

(0.34

)

0.85

 

0.85

 

Net realized and unrealized gain (loss) on investments

 

1.73

 

(0.96

)

(0.73

)

 

 

 

 

 

 

 

 

Total gain from investment operations

 

1.39

 

(0.11

)

0.12

 

 

 

 

 

 

 

 

 

Less distributions from:

 

 

 

 

 

 

 

Income

 

(0.40

)

(0.57

)

(0.71

)

Return of capital

 

 

 

 

 

 

 

 

 

 

 

 

Total distributions

 

(0.40

)

(0.57

)

(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

 

$

13.38

 

$

12.27

 

$

12.39

 

 

 

 

 

 

 

 

 

Market value, end of period/year

 

$

10.39

 

$

8.08

 

$

8.69

 

 

 

 

 

 

 

 

 

Market discount

 

(22.35

)%

(34.15

)%

(29.86

)%

 

 

 

 

 

 

 

 

Total Return - At NAV (a)

 

11.46

%

(0.80

)%

1.26

%

 

 

 

 

 

 

 

 

Total Return - At Market (a)

 

24.87

%

4.67

%

14.32

%

 

 

 

 

 

 

 

 

Ratios and Supplemental Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Portfolio turnover ratio

 

2.56

%

12.77

%

13.74

%

 

 

 

 

 

 

 

 

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

 

$

301,775

 

$

278,541

 

$

279,558

 

 

 

 

 

 

 

 

 

Ratios to average net assets:

 

 

 

 

 

 

 

Expenses including tax expense

 

10.42

%(c)

5.88

%(c)

6.35

%

Expenses excluding tax expense

 

10.42

%(c)

5.88

%(c)

6.35

%

 

 

 

 

 

 

 

 

Net operating (loss) income before tax expense

 

(3.58

)%(c)

9.09

%(c)

6.81

%

Net operating (loss) income after tax expense

 

(3.58

)%(c)

9.09

%(c)

6.81

%

 

 

 

 

 

 

 

 

Ratios to average net assets excluding waivers:

 

 

 

 

 

 

 

Expenses including tax expense

 

11.04

%(c)

7.09

%(c)

7.43

%

Expenses excluding tax expense

 

11.04

%(c)

7.09

%(c)

7.43

%

 

 

 

 

 

 

 

 

Net operating (loss) income before tax expense

 

(4.21

)%(c)

7.88

%(c)

5.74

%

Net operating (loss) income after tax expense

 

(4.21

)%(c)

7.88

%(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

 

7.22

%(c)

7.10

%(c)

7.07

%

Expenses excluding incentive compensation, interest and other borrowing costs

 

7.85

%(c)

3.53

%(c)

3.47

%

 

 

 

 

 

 

 

 

Net operating income (loss) before incentive compensation

 

(0.39

)%(c)

7.87

%(c)

6.09

%

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

 

3.26

%(c)

11.44

%(c)

9.69

%

 

 

 

 

 

 

 

 

Ratios to average net assets excluding waivers: (b)

 

 

 

 

 

 

 

Expenses excluding incentive compensation

 

3.58

%(c)

8.31

%(c)

8.15

%

Expenses excluding incentive compensation, interest and other borrowing costs

 

4.21

%(c)

4.74

%(c)

4.55

%

 

 

 

 

 

 

 

 

Net operating income (loss) before incentive compensation

 

(1.02

)%(c)

6.66

%(c)

5.02

%

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

 

2.63

%(c)

10.23

%(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

July 31, 2017

(Unaudited)

 

Company

 

Industry

 

Investment

 

Principal

 

Cost

 

Fair Value/Market Value

 

 

 

 

 

 

 

 

 

Non-control/Non-affiliated investments- 50.84% (a, c, f, g)

 

 

 

 

 

 

 

Actelis Networks, Inc.

 

Technology Investment

 

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

 

 

 

$

5,000,003

 

 

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, k)

 

$

24,425,299

 

24,425,299

 

$

17,665,079

 

 

 

 

 

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

 

3,000,000

 

3,000,000

 

2,823,336

 

 

 

 

 

 

 

 

 

27,425,299

 

20,488,415

 

Dukane IAS,LLC

 

Welding Equipment Manufacturer

 

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

 

7,209,686

 

7,112,541

 

7,281,774

 

FDS, Inc.

 

Software

 

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

 

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

 

5,648,000

 

HTI Technologies and Industries, Inc.

 

Electronic Component Manufacturing

 

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

 

9,827,811

 

9,787,748

 

9,708,861

 

Initials, Inc.

 

Consumer Products

 

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

 

4,818,874

 

4,818,874

 

4,364,970

 

Legal Solutions Holdings, Inc.

 

Business Services

 

Senior Subordinated Debt 12.0000% Cash, 3.0000% PIK, 09/12/2018 (b, k)

 

11,367,537

 

11,372,066

 

11,481,213

 

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, k)

 

16,905,669

 

16,905,669

 

17,622,478

 

Quantum Plastics, LLC

 

Manufacturer of Plastic Parts

 

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

 

10,000,000

 

9,644,095

 

10,000,000

 

 

 

 

 

Warrants (d)

 

1

 

392,792

 

1,421,347

 

 

 

 

 

 

 

 

 

10,036,887

 

11,421,347

 

Turf Products, LLC

 

Distributor - Landscaping and Irrigation Equipment

 

Senior Subordinated Debt 10.0000% Cash, 08/07/2020 (k)

 

7,717,056

 

7,717,056

 

7,491,956

 

U.S. Gas & Electric, Inc.

 

Energy Services

 

Second Lien Loan, 9.5000% Cash, 07/05/2025 (l, k)

 

40,526,745

 

40,526,745

 

40,526,745

 

U.S. Spray Drying Holding Company

 

Specialty Chemicals

 

Class B Common Stock (784 shares) (d)

 

 

 

5,488,000

 

5,534,183

 

 

 

 

 

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

 

1,500,000

 

1,500,000

 

1,500,000

 

 

 

 

 

 

 

 

 

6,988,000

 

7,034,183

 

United States Technologies, Inc.

 

Electronics Manufacturing and Repair

 

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

 

5,500,000

 

5,491,818

 

5,555,000

 

Vestal Manufacturing Enterprises, Inc.

 

Iron Foundries

 

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

 

2,450,000

 

2,450,000

 

2,450,000

 

 

 

 

 

 

 

 

 

 

 

 

 

Sub Total Non-control/Non-affiliated investments

 

 

 

177,520,484

 

153,428,098

 

 

 

 

 

 

 

 

 

 

 

 

 

Affiliate investments - 29.81% (c, f, g)

 

 

 

 

 

 

 

Advantage Insurance, Inc.

 

Insurance

 

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

 

 

 

7,500,000

 

8,798,281

 

Centile Holdings B.V.

 

Software

 

Common Equity Interest (a, d, e)

 

 

 

3,524,376

 

6,484,000

 

Crius Energy Trust

 

Energy Services

 

Equity Unit (3,282,982 shares) (e)

 

 

 

24,571,966

 

24,376,199

 

JSC Tekers Holdings

 

Real Estate Management

 

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

 

 

 

4,500

 

 

 

 

 

 

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

 

 

 

11,810,188

 

4,177,000

 

 

 

 

 

 

 

 

 

11,814,688

 

4,177,000

 

MVC Environmental, Inc.

 

Environmental Services

 

Senior Secured Loan 9.0000% PIK, 12/22/2020 (a, b, h, k)

 

6,869,353

 

6,869,353

 

5,799,413

 

 

 

 

 

Common Stock (980 shares) (a, d)

 

 

 

3,140,375

 

 

 

 

 

 

 

 

 

 

10,009,728

 

5,799,413

 

Security Holdings B.V.

 

Electrical Engineering

 

Common Equity Interest (a, d, e)

 

 

 

51,204,270

 

35,388,000

 

 

 

 

 

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

 

4,090,057

 

4,090,057

 

4,090,057

 

 

 

 

 

 

 

 

 

55,294,327

 

39,478,057

 

SGDA Europe B.V.

 

Environmental Services

 

Common Equity Interest (a, d, e)

 

 

 

28,544,800

 

826,000

 

 

 

 

 

 

 

 

 

 

 

 

 

Sub Total Affiliate investments

 

 

 

 

 

 

 

141,259,885

 

89,938,950

 

 

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

 

9



Table of Contents

 

 MVC Capital, Inc.

 Consolidated Schedule of Investments - (Continued)

 July 31, 2017

 (Unaudited)

 

Company

 

Industry

 

Investment

 

Principal

 

Cost

 

Fair Value/Market Value

 

Control investments - 19.77% (c, f, g)

 

 

 

 

 

 

 

 

 

 

 

Equus Total Return, Inc.

 

Registered Investment Company

 

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

 

 

 

$

10,030,272

 

$

10,489,360

 

MVC Automotive Group GmbH

 

Automotive Dealerships

 

Common Equity Interest (a, d, e)

 

 

 

51,185,015

 

16,242,000

 

 

 

 

 

Bridge Loan 6.0000% Cash, 06/30/2018 (a, e, k)

 

$

4,855,166

 

4,855,166

 

4,855,166

 

 

 

 

 

 

 

 

 

56,040,181

 

21,097,166

 

MVC Private Equity Fund LP

 

Private Equity

 

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

 

 

 

11,452,452

 

17,536,094

 

 

 

 

 

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

 

 

 

292,154

 

441,185

 

 

 

 

 

 

 

 

 

11,744,606

 

17,977,279

 

RuMe Inc.

 

Consumer Products

 

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

 

 

 

924,475

 

490,590

 

 

 

 

 

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

 

 

 

3,410,694

 

5,614,482

 

 

 

 

 

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

 

 

 

999,815

 

2,060,272

 

 

 

 

 

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

 

967,454

 

957,777

 

957,777

 

 

 

 

 

Warrants (a, d)

 

1

 

336,393

 

982,321

 

 

 

 

 

 

 

 

 

6,629,154

 

10,105,442

 

 

 

 

 

 

 

 

 

 

 

 

 

Sub Total Control investments

 

 

 

 

 

 

 

84,444,213

 

59,669,247

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL PORTFOLIO INVESTMENTS - 100.42% (f)

 

 

 

 

 

 

 

$

403,224,582

 

$

303,036,295

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents and restricted cash equivalents - 0.25% (f, g)

 

 

 

 

 

 

 

 

 

 

 

Fidelity Institutional Government Money Market Fund

 

Money Market Fund

 

Beneficial Shares (772,055 shares)

 

 

 

$

772,055

 

$

772,055

 

Total Cash equivalents and restricted cash equivalents

 

 

 

 

 

 

 

772,055

 

772,055

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL INVESTMENT ASSETS - 100.67%

 

 

 

 

 

 

 

$

403,996,637

 

$

303,808,350

 

 


(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, Canada, and Puerto Rico which represents approximately 25% of the total assets.  The remaining portfolio companies are located in United States which represents approximately 46% of the total assets.

 

(f) Percentages are based on net assets of $301,774,214 as of July 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 $7,255,392, $4,247,217, $3,001,696, respectively.

 

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

 

(l) U.S. Gas & Electric, Inc. is an indirect subsidiary of Crius Energy Trust.

 

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

 

Common 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