Main Street Capital Announces Second Quarter 2011 Financial Results

Distributable NII Per Share Increased 30% to $0.43 Per Share

Aug 04, 2011, 17:52 ET from Main Street Capital Corporation

HOUSTON, Aug. 4, 2011 /PRNewswire/ -- Main Street Capital Corporation (NYSE: MAIN) (“Main Street”) announced today its financial results for the second quarter ended June 30, 2011.  

Second Quarter 2011 Highlights

  • Total investment income of $16.1 million, representing an 85% increase from second quarter 2010
  • Distributable net investment income of $10.0 million (or $0.43 per share), representing a 99% increase from second quarter 2010 (1) (5)
  • Distributable net realized income of $10.3 million (or $0.44 per share), representing a 34% increase from second quarter 2010 (1) (5)
  • Net Asset Value of $14.24 per share at June 30, 2011, representing an increase of 9% compared to $13.06 per share at December 31, 2010
  • Paid dividends of $0.39 per share, or $0.13 per share for each of April, May, and June 2011
  • Declared third quarter 2011 dividends of $0.39 per share, or $0.13 per share for each of July, August, and September 2011
  • Closed $71.0 million in new portfolio investments, including both lower middle market portfolio investments and privately placed portfolio debt investments
  • Expanded credit facility (the “Credit Facility”) from $100 million to $155 million in total commitments and extended maturity of Credit Facility to September 2014
  • Awarded the 2011 Small Business Investment Company (“SBIC”) of the Year by the U.S. Small Business Administration

Second Quarter 2011 Operating Results

For the second quarter of 2011, total investment income was $16.1 million, an 85% increase over the $8.7 million of total investment income for the corresponding period of 2010. This comparable period increase was principally attributable to (i) a $5.9 million increase in interest income from higher average levels of both portfolio debt investments and interest-bearing marketable securities and idle funds investments and (ii) a $1.7 million increase in dividend income from portfolio equity investments.  The increase in investment income included $0.5 million of non-recurring income associated with prepayment and repricing activity for certain debt investments and a $0.3 million special dividend from one portfolio equity investment.    

The $0.4 million of share-based compensation expense recognized during the second quarter of 2011 related to non-cash amortization expense for restricted share grants. Operating expenses (total expenses excluding share-based compensation expense) increased to $6.1 million in the second quarter of 2011 from $3.7 million in the corresponding period of 2010. This comparable period increase in operating expenses was principally attributable to (i) higher interest expense of $1.2 million as a result of the issuance of an additional $65 million in SBIC debentures subsequent to the second quarter of 2010 and increased borrowing activity under the Credit Facility and (ii) higher compensation and other operating expenses of $1.2 million as a result of the significant increase in investment income and portfolio investments compared to the corresponding period of 2010.

Distributable net investment income, which is net investment income before non-cash, share-based compensation expense, increased 99% to $10.0 million, or $0.43 per share, in the second quarter of 2011 compared with $5.0 million, or $0.33 per share, in the corresponding period of 2010.(1) (5)  The increase in distributable net investment income was primarily due to the higher level of total investment income partially offset by higher interest and other operating expenses, due to the changes discussed above.  Distributable net investment income on a per share basis for the second quarter of 2011 reflects (i) approximately $0.02 per share of non-recurring investment income associated with the prepayment and repricing activity discussed above, (ii) $0.01 per share of investment income due to the special dividend discussed above, and (iii) a greater number of average shares outstanding compared to the corresponding period in 2010 primarily due to the March 2011 and August 2010 follow-on stock offerings.

Distributable net realized income, which is net realized income before non-cash, share-based compensation expense, increased to $10.3 million, or $0.44 per share, in the second quarter of 2011 compared with distributable net realized income of $7.7 million, or $0.51 per share, in the corresponding period of 2010.(1) (5)  This increase was due to the higher level of total distributable net investment income in 2011, partially offset by the higher level of total net realized gain from investments in the corresponding period of 2010.  The $2.7 million net realized gain during the second quarter of 2010 was primarily attributable to realized gain recognized on two partial exits and one full exit of portfolio company equity investments.

The net increase in net assets resulting from operations attributable to common stock was $17.6 million, or $0.77 per share, in the second quarter of 2011 compared with $8.9 million, or $0.59 per share, in the corresponding period of 2010.  The $9.9 million net change in unrealized appreciation during the second quarter of 2011 was principally attributable to (i) unrealized appreciation on 39 portfolio investments totaling $17.8 million, partially offset by unrealized depreciation on 15 portfolio investments totaling $6.2 million, (ii) $0.5 million of net unrealized appreciation on investments in marketable securities and idle funds investments, and (iii) $2.1 million of net unrealized depreciation attributable to our SBIC debentures.  For the second quarter of 2011, Main Street also recognized a net income tax provision of $2.0 million principally related to deferred taxes on net unrealized appreciation of equity investments held in its taxable subsidiaries.

Liquidity and Capital Resources

As of June 30, 2011, Main Street had approximately $134.4 million in cash and cash equivalents, marketable securities and idle funds investments.  In June 2011, Main Street closed an expansion of the Credit Facility from $100 million to $155 million to provide additional liquidity in support of future investment and operational activities.  The $55 million increase in total commitments included commitment increases by all six lenders currently participating in the Credit Facility. In addition to the $55 million increase in total commitments, Main Street extended the maturity of the Credit Facility by one year to September 2014. The amended Credit Facility also contains an accordion feature that allows for a further increase in total commitments under the facility to $200 million on the same terms and conditions as the existing lender commitments.  Borrowings under the Credit Facility bear interest on a per annum basis equal to the applicable LIBOR rate plus 2.50%.  As of June 30, 2011, Main Street had $73.0 million in outstanding borrowings under the Credit Facility, bearing interest at an interest rate of 2.69%.

As of June 30, 2011, Main Street had $210 million of SBIC debenture leverage outstanding which bears a weighted average fixed interest rate of approximately 5.1%, paid semi-annually, and matures ten years from original issuance. The weighted average duration for the existing SBIC leverage is approximately 7.0 years as of June 30, 2011.  As of June 30, 2011, Main Street had access to an incremental $15 million in SBIC leverage capacity.  

Lower Middle Market (“LMM”) Portfolio Statistics (all as of June 30, 2011) (2)

Within its investment portfolio, Main Street had debt and equity investments in 49 LMM portfolio companies collectively totaling approximately $336.4 million in fair value with a total cost basis of approximately $295.7 million. Approximately 76% of Main Street’s LMM portfolio investments at cost were in the form of secured debt investments, and 92% of these debt investments were secured by first priority liens on the assets of portfolio companies.  The annual weighted average effective yield on Main Street’s LMM portfolio debt investments was 14.8%.(3)  

Based on information provided by Main Street’s LMM portfolio companies, which Main Street has not independently verified, the portfolio companies had a weighted average net senior debt (senior interest-bearing debt through Main Street’s debt position less cash and cash equivalents) to EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) ratio of approximately 2.5 to 1.0 and a total EBITDA to senior interest expense ratio of approximately 3.2 to 1.0. (4)  Including all debt that is junior in priority to Main Street’s debt position, these ratios were approximately 3.1 to 1.0 and 2.8 to 1.0, respectively.(4)  

Main Street had equity ownership in 92% of its LMM portfolio companies, and the average fully diluted equity ownership in those portfolio companies was approximately 35%.

Privately Placed Portfolio Investments (all as of June 30, 2011)

Main Street had privately placed portfolio investments in 23 companies collectively totaling approximately $133.3 million in fair value with a total cost basis of approximately $129.8 million.  Privately placed portfolio investments include investments made through direct or secondary purchases of interest-bearing debt securities in companies that are generally larger in size than Main Street’s LMM portfolio companies and are included in the “Non-Control/Non-Affiliate investments” section of Main Street’s balance sheet.  The weighted average revenues for the 23 privately placed portfolio company investments were approximately $399 million. Main Street’s privately placed portfolio investments are primarily in the form of debt investments, and 69% of such debt investments at cost were secured by first priority liens on portfolio company assets.  The weighted average effective yield on Main Street’s privately placed portfolio debt investments was approximately 11.0%.(3)

Portfolio Quality

Based upon Main Street’s internal investment rating system, with a rating of “1” being the highest and a rating of “5” being the lowest, the weighted average investment rating for Main Street’s investment portfolio was 2.1 at June 30, 2011 and 2.3 at March 31, 2011.  As of June 30, 2011, Main Street had two investments on non-accrual status that represented 1.6% of the investment portfolio at fair value and 3.7% of the investment portfolio at cost (or 1.2% and 2.8%, respectively with the inclusion of marketable securities and idle funds investments).  Main Street’s portfolio investments at fair value were approximately 110% of the related cost basis as of June 30, 2011.

Second Quarter Financial Results Conference Call / Webcast

Main Street has scheduled a conference call for Friday, August 5, 2011 at 10:00 a.m. Eastern Time to discuss the second quarter 2011 financial results.

You may access the conference call by dialing 480-629-9771 or 800-762-8779 and quote passcode 4456963 at least 10 minutes prior to the start time.  The conference call can also be accessed via a simultaneous webcast by logging into the investor relations section of the Main Street web site at http://www.mainstcapital.com.  

A telephonic replay of the conference call will be available through Friday, August 12, 2011 and may be accessed by dialing 303-590-3030 and using the passcode 4456963.  An audio archive of the conference call will also be available on the investor relations section of the company’s website at http://www.mainstcapital.com shortly after the call and will be accessible for approximately 90 days.

For a more detailed discussion of the financial and other information included in this press release, please refer to the Main Street Form 10-Q for the quarterly period ended June 30, 2011 to be filed with the Securities and Exchange Commission (www.sec.gov) and Main Street’s Second Quarter 2011 Investor Presentation to be posted on the investor relations section of the Main Street web site at http://www.mainstcapital.com.

(1) Distributable net investment income and distributable net realized income are net investment income and net realized income, respectively, as determined in accordance with U.S. Generally Accepted Accounting Principles, or GAAP, excluding the impact of share-based compensation expense which is non-cash in nature. Main Street believes presenting distributable net investment income, distributable net realized income, and related per share measures are useful and appropriate supplemental disclosures for analyzing its financial performance since share-based compensation does not require settlement in cash. However, distributable net investment income and distributable net realized income are non-GAAP measures and should not be considered as a replacement to net investment income, net realized income, and other earnings measures presented in accordance with GAAP. Instead, distributable net investment income and distributable net realized income should be reviewed only in connection with such GAAP measures in analyzing Main Street’s financial performance. A reconciliation of net investment income and net realized income in accordance with GAAP to distributable net investment income and distributable net realized income is detailed in the financial tables included with this press release.

(2) All LMM portfolio statistics are calculated exclusive of Main Street’s privately placed portfolio investments, marketable securities and idle funds investments, and Main Street’s investment in Main Street Capital Partners, LLC, the wholly owned Investment Manager.  LMM portfolio company financial information has not been independently verified by Main Street.

(3) Weighted average effective yield includes amortization of deferred debt origination fees and accretion of original issue discount, but excludes any liquidation fees payable upon repayment and any debt investments on non-accrual status.

(4) Excludes one investment that is in the "rapid growth" phase of its business life cycle with high customer acquisition costs.  

(5) Per share amounts exclude the earnings attributable to the remaining noncontrolling equity interest in MSC II not owned by Main Street.

ABOUT MAIN STREET CAPITAL CORPORATION

Main Street (www.mainstcapital.com) is a principal investment firm that primarily provides long-term debt and equity capital to lower middle market companies. Main Street's lower middle market investments are made to support management buyouts, recapitalizations, growth financings and acquisitions of companies that operate in diverse industry sectors and generally have annual revenues ranging from $10 million to $100 million.  Main Street seeks to partner with entrepreneurs, business owners and management teams and generally provides "one stop" financing alternatives within its lower middle market portfolio. Main Street also maintains a portfolio of privately placed, interest-bearing debt investments in middle market businesses that are generally larger in size than its lower middle market portfolio companies.

FORWARD-LOOKING STATEMENTS

Main Street cautions that statements in this press release which are forward-looking and provide other than historical information involve risks and uncertainties that may impact our future results of operations.  The forward-looking statements in this press release are based on current conditions and include statements regarding our goals, beliefs, strategies and future operating results and cash flows, including but not limited to the availability of up to $45 million of additional commitments under the accordion feature of the Credit Facility and our estimates regarding the incremental amount of SBIC or other leverage available to us. Although our management believes that the expectations reflected in those forward-looking statements are reasonable, Main Street can give no assurance that those expectations will prove to have been correct.  Those statements are made based on various underlying assumptions and are subject to numerous uncertainties and risks, including, without limitation: our continued effectiveness in raising, investing and managing capital; adverse changes in the economy generally or in the industries in which our portfolio companies operate; changes in laws and regulations that may adversely impact our operations or the operations of one or more of our portfolio companies; the operating and financial performance of our portfolio companies; retention of key investment personnel; competitive factors; and such other factors described under the captions “Cautionary Statement Concerning Forward Looking Statements” and “Risk Factors” included in our filings with the Securities and Exchange Commission (www.sec.gov).  Main Street undertakes no obligation to update the information contained herein to reflect subsequently occurring events or circumstances, except as required by applicable securities laws and regulations.

Contacts: Main Street Capital Corporation Dwayne Hyzak, CFO dhyzak@mainstcapital.com  / 713-350-6000

Dennard Rupp Gray & Lascar, LLC Ken Dennard / ksdennard@drg-l.com Ben Burnham / bburnham@drg-l.com 713-529-6600

MAIN STREET CAPITAL CORPORATION

Consolidated Statements of Operations

(Unaudited)

Three Months Ended June 30,

Six Months Ended June 30,

2011

2010

2011

2010

INVESTMENT INCOME:

Interest, fee and dividend income:

  Control investments

$          6,491,097

$          4,532,343

$        12,140,859

$          8,127,651

  Affiliate investments

3,113,091

1,953,832

5,259,510

3,762,445

  Non-Control/Non-Affiliate investments

4,325,520

1,686,032

7,656,629

2,549,428

Total interest, fee and dividend income

13,929,708

8,172,207

25,056,998

14,439,524

Interest from marketable securities, idle funds and other

2,199,054

560,012

4,446,336

1,385,534

Total investment income

16,128,762

8,732,219

29,503,334

15,825,058

EXPENSES:

Interest

(3,263,807)

(2,111,868)

(6,166,012)

(4,105,105)

General and administrative

(599,361)

(246,194)

(1,106,543)

(671,898)

Expenses reimbursed to affiliated Investment Manager

(2,207,606)

(1,330,611)

(4,337,412)

(2,482,798)

Share-based compensation

(442,897)

(301,458)

(885,794)

(602,916)

Total expenses

(6,513,671)

(3,990,131)

(12,495,761)

(7,862,717)

NET INVESTMENT INCOME

9,615,091

4,742,088

17,007,573

7,962,341

NET REALIZED GAIN (LOSS) FROM INVESTMENTS:

  Control investments

-

2,301,745

-

(1,719,173)

  Marketable securities and idle funds investments

249,654

353,487

249,654

313,948

Total net realized gain (loss) from investments

249,654

2,655,232

249,654

(1,405,225)

NET REALIZED INCOME

9,864,745

7,397,320

17,257,227

6,557,116

NET CHANGE IN UNREALIZED

APPRECIATION (DEPRECIATION):

  Portfolio investments

11,524,983

957,432

15,543,567

6,072,091

  Marketable securities and idle funds investments

519,734

(484,585)

634,477

(231,281)

  SBIC debentures

(2,117,924)

1,475,861

(2,079,292)

1,757,054

  Investment in affiliated Investment Manager

(45,700)

(141,117)

(87,006)

(286,196)

Total net change in unrealized appreciation

9,881,093

1,807,591

14,011,746

7,311,668

Income tax provision

(1,962,206)

(36,686)

(3,162,612)

(421,260)

Bargain purchase gain

-

-

-

4,890,582

NET INCREASE IN NET ASSETS

RESULTING FROM OPERATIONS

17,783,632

9,168,225

28,106,361

18,338,106

Noncontrolling interest

(157,600)

(295,559)

(157,600)

(408,895)

NET INCREASE IN NET ASSETS

RESULTING FROM OPERATIONS

ATTRIBUTABLE TO COMMON STOCK

$        17,626,032

$          8,872,666

$        27,948,761

$        17,929,211

NET INVESTMENT INCOME PER SHARE -

BASIC AND DILUTED

$                   0.41

$                   0.31

$                   0.79

$                   0.53

NET REALIZED INCOME PER SHARE -

BASIC AND DILUTED

$                   0.42

$                   0.49

$                   0.80

$                   0.44

NET INCREASE IN NET ASSETS RESULTING FROM

OPERATIONS ATTRIBUTABLE TO COMMON

STOCK PER SHARE - BASIC AND DILUTED

$                   0.77

$                   0.59

$                   1.32

$                   1.22

DIVIDENDS PAID PER SHARE

$                   0.39

$                   0.38

$                   0.77

$                   0.75

WEIGHTED AVERAGE SHARES OUTSTANDING -

BASIC AND DILUTED

23,015,718

15,147,091

21,128,360

14,754,121

MAIN STREET CAPITAL CORPORATION

Consolidated Balance Sheets

June 30, 2011

December 31, 2010

(Unaudited)

ASSETS

Portfolio investments at fair value:

Control investments (cost: $187,884,250 and $161,009,443 as of

June 30, 2011 and December 31, 2010, respectively)

$          206,162,509

$          174,596,394

Affiliate investments (cost: $79,599,578 and $65,650,789 as of

June 30, 2011 and December 31, 2010, respectively)

103,864,454

80,206,804

Non-Control/Non-Affiliate investments (cost: $157,923,128 and

  $91,911,304 as of June 30, 2011 and December 31, 2010, respectively)

159,737,085

91,956,221

Investment in affiliated Investment Manager (cost: $4,284,042 as of

June 30, 2011 and December 31, 2010)

1,964,649

2,051,655

Total portfolio investments (cost: $429,690,998 and $322,855,578 as of

June 30, 2011 and December 31, 2010, respectively)

471,728,697

348,811,074

Marketable securities and idle funds investments (cost: $118,916,360 and $67,970,907

as of June 30, 2011 and December 31, 2010, respectively)

120,299,248

68,752,858

Total investments (cost: $548,607,358 and $390,826,485 as of

June 30, 2011 and December 31, 2010, respectively)

592,027,945

417,563,932

Cash and cash equivalents

14,132,738

22,334,340

Deferred tax asset

-

1,958,593

Interest receivable and other assets

7,377,424

4,523,792

Deferred financing costs (net of accumulated amortization of $1,810,987

   and $1,504,584 as of June 30, 2011 and December 31, 2010,

   respectively)

3,715,272

2,543,645

Total  assets

$          617,253,379

$          448,924,302

LIABILITIES

SBIC debentures (par: $210,000,000 and $180,000,000 as of June 30,

   2011 and December 31, 2010, respectively; of which $72,637,267 and

   $70,557,975 are recorded at fair value as of June 30, 2011 and

   December  31, 2010, respectively)

$          187,637,267

$          155,557,975

Credit facility

73,000,000

39,000,000

Payable for securities purchased

10,805,000

-

Interest payable

3,717,072

3,194,870

Dividend payable

3,013,738

-

Deferred tax liability

953,719

-

Payable to affiliated Investment Manager

2,237,417

15,124

Accounts payable and other liabilities

1,261,674

1,173,295

Total  liabilities

282,625,887

198,941,264

Commitments and contingencies

NET ASSETS

Common stock, $0.01 par value per share (150,000,000 shares authorized;

23,182,600 and 18,797,444 issued and outstanding

as of June 30, 2011 and December 31, 2010, respectively)

231,826

187,975

Additional paid-in capital

300,130,851

224,485,165

Accumulated net investment income

7,435,312

9,261,405

Accumulated net realized loss from investments

(20,499,798)

(20,541,897)

Net unrealized appreciation, net of income taxes

42,833,531

32,141,997

Total Net Asset Value

330,131,722

245,534,645

Noncontrolling interest

4,495,770

4,448,393

Total net assets including noncontrolling interests

334,627,492

249,983,038

Total liabilities and net assets

$          617,253,379

$          448,924,302

NET ASSET VALUE PER SHARE

$                     14.24

$                     13.06

MAIN STREET CAPITAL CORPORATION

Reconciliation of Distributable Net Investment Income and Distributable Net Realized Income

(Unaudited)

Three Months Ended June 30,

Six Months Ended June 30,

2011

2010

2011

2010

Reconciliation of distributable net investment income and distributable net realized income:

Net investment income

$             9,615,091

$           4,742,088

$            17,007,573

$              7,962,341

  Share-based compensation expense

442,897

301,458

885,794

602,916

Distributable net investment income

10,057,988

5,043,546

17,893,367

8,565,257

Net realized income (loss) from investments

249,654

2,655,232

249,654

(1,405,225)

Distributable net realized income

$           10,307,642

$           7,698,778

$            18,143,021

$              7,160,032

Per share amounts:

Distributable net investment income per share -

   Basic and diluted (1) (5)

$                      0.43

$                    0.33

$                       0.83

$                       0.57

Distributable net realized income per share -

   Basic and diluted (1) (5)

$                      0.44

$                    0.51

$                       0.84

$                       0.48

SOURCE Main Street Capital Corporation



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