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Press release from PR Newswire

Main Street Capital Announces Third Quarter 2011 Financial Results

Thursday, November 03, 2011

Main Street Capital Announces Third Quarter 2011 Financial Results16:05 EDT Thursday, November 03, 2011Distributable NII Per Share Increased 53% to $0.46 Per ShareHOUSTON, Nov. 3, 2011 /PRNewswire/ -- Main Street Capital Corporation (NYSE: MAIN) ("Main Street") announced today its financial results for the third quarter ended September 30, 2011.  Third Quarter 2011 HighlightsTotal investment income of $17.1 million, representing a 90% increase from third quarter 2010Distributable net investment income of $11.0 million (or $0.46 per share), representing a 110% increase from third quarter 2010 (1) (5)Distributable net realized income of $12.4 million (or $0.52 per share), representing a 237% increase from third quarter 2010 (1) (5)Net Asset Value of $14.49 per share at September 30, 2011, representing an increase of 11% compared to $13.06 per share at December 31, 2010Paid dividends of $0.39 per share, or $0.13 per share for each of July, August, and September 2011Declared fourth quarter 2011 dividends of $0.405 per share, or $0.135 per share for each of October, November, and December 2011, representing an 8% increase compared to fourth quarter 2010 dividendsCompleted $32.3 million in new portfolio investments, including both lower middle market investments and privately placed debt investmentsThird Quarter 2011 Operating ResultsFor the third quarter of 2011, total investment income was $17.1 million, a 90% increase over the $9.0 million of total investment income for the corresponding period of 2010. This comparable period increase was principally attributable to (i) a $6.2 million increase in interest income from higher average levels of both portfolio debt investments and interest-bearing marketable securities and idle funds investments, (ii) a $1.2 million increase in dividend income from portfolio equity investments and (iii) a $0.7 million increase in fee income due to higher levels of transaction activity.  The increase in investment income included $0.5 million of interest income associated with higher levels of prepayment and repricing activity for certain debt investments.     The $0.6 million of share-based compensation expense recognized during the third 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 third quarter of 2011 from $3.8 million in the corresponding period of 2010. This comparable period increase in operating expenses was principally attributable to (i) higher interest expense of $1.4 million as a result of the issuance of an additional $40 million in SBIC debentures subsequent to the third quarter of 2010 and increased borrowing activity under Main Street's credit facility (the "Credit Facility") and (ii) higher compensation and other operating expenses of $0.9 million related to 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 110% to $11.0 million, or $0.46 per share, in the third quarter of 2011 compared with $5.2 million, or $0.30 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 third quarter of 2011 reflects (i) approximately $0.02 per share of investment income associated with the prepayment and repricing activity discussed above and (ii) 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 $12.4 million, or $0.52 per share, in the third quarter of 2011 compared with distributable net realized income of $3.7 million, or $0.21 per share, in the corresponding period of 2010.(1)(5)  This increase was due to (i) the higher level of total distributable net investment income in 2011 and (ii) the higher level of total net realized gain from investments in 2011 compared to the net realized loss from investments in the corresponding period of 2010.  The $1.4 million net realized gain during the third quarter of 2011 was primarily attributable to a realized gain recognized on the partial exit of a portfolio company equity investment and realized gains related to privately placed and marketable securities debt investments.  The net realized loss for the third quarter of 2010 was primarily related to a $1.9 million realized loss on the sale of a portfolio company investment. The net increase in net assets resulting from operations attributable to common stock was $14.4 million, or $0.62 per share, in the third quarter of 2011 compared with $10.9 million, or $0.65 per share, in the corresponding period of 2010.  The $2.8 million net change in unrealized appreciation during the third quarter of 2011 was principally attributable to (i) accounting reversals of net unrealized appreciation related to the net realized gains recognized in the third quarter of 2011 in the amounts of $1.3 million for portfolio investments and $0.4 million for marketable securities and idle funds investments, (ii) unrealized appreciation on 28 portfolio investments totaling $20.2 million, partially offset by unrealized depreciation on 26 portfolio investments totaling $8.3 million, (iii) $3.8 million of net unrealized depreciation on investments in marketable securities and idle funds investments, and (iv) $3.6 million of net unrealized depreciation attributable to our SBIC debentures.  For the third quarter of 2011, Main Street also recognized a net income tax provision of $0.1 million principally related to deferred taxes on net unrealized appreciation of equity investments held in its taxable subsidiaries. Liquidity and Capital ResourcesAs of September 30, 2011, Main Street had approximately $25.1 million in cash and cash equivalents and $134.7 million in marketable securities and idle funds investments.  In October 2011, Main Street completed a follow-on public stock offering in which it sold 3,450,000 shares of common stock, including the underwriters' full exercise of the over-allotment option, at a price to the public of $17.50 per share (or approximately 123% of the then latest reported Net Asset Value per share), resulting in total net proceeds of approximately $57.5 million, after deducting underwriters' commissions and estimated offering costs.  Main Street also has access to its multi-year, $155 million Credit Facility to provide additional liquidity in support of future investment and operational activities.  The 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.  The Credit Facility will mature in September 2014, and borrowings under the Credit Facility bear interest on a per annum basis equal to the applicable LIBOR rate plus 2.50%.  As of September 30, 2011, Main Street had $114.0 million in outstanding borrowings under the Credit Facility, bearing interest at an annual interest rate of 2.72%. As of September 30, 2011, Main Street had $220 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 6.9 years as of September 30, 2011.    Lower Middle Market ("LMM") Portfolio Information (all as of September 30, 2011) (2)Within its investment portfolio, Main Street had debt and equity investments in 51 LMM companies collectively totaling approximately $371.7 million in fair value with a total cost basis of approximately $315.3 million. Approximately 76% of Main Street's LMM portfolio investments at cost were in the form of secured debt investments, and 93% of these debt investments were secured by first priority liens on the assets of portfolio companies.  The weighted average annual 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 2.3 to 1.0 and a total EBITDA to senior interest expense ratio of approximately 3.5 to 1.0. (4)  Including all debt that is junior in priority to Main Street's debt position, these ratios were approximately 2.8 to 1.0 and 3.2 to 1.0, respectively.(4)   Main Street had equity ownership in 94% of its LMM portfolio companies, and the average fully diluted equity ownership in those portfolio companies was approximately 34%. Privately Placed Portfolio Information (all as of September 30, 2011) (6)Main Street had privately placed portfolio investments in 23 companies collectively totaling approximately $123.4 million in fair value with a total cost basis of approximately $124.8 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 $359 million. Main Street's privately placed portfolio investments are primarily in the form of debt investments, and 64% of such debt investments at cost were secured by first priority liens on portfolio company assets.  The weighted average annual effective yield on Main Street's privately placed portfolio debt investments was approximately 10.6%.(3)Portfolio QualityBased 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 2.2 at September 30, 2011 and 2.1 at June 30, 2011.  As of September 30, 2011, Main Street had two investments on non-accrual status that represented 1.3% of the investment portfolio at fair value and 3.4% of the investment portfolio at cost (or 1.0% and 2.6%, respectively with the inclusion of marketable securities and idle funds investments).  Main Street's portfolio investments at fair value were approximately 112% of the related cost basis as of September 30, 2011.Third Quarter Financial Results Conference Call / WebcastMain Street has scheduled a conference call for Friday, November 4, 2011 at 10:00 a.m. Eastern Time to discuss the third quarter 2011 financial results.You may access the conference call by dialing 480-629-9722 or 877-941-0844 and quote passcode 4481831 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, November 11, 2011 and may be accessed by dialing 303-590-3030 and using the passcode 4481831.  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 September 30, 2011 to be filed with the Securities and Exchange Commission (www.sec.gov) and Main Street's Third 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 information is 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 annual 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 Main Street Capital II, LP not owned by Main Street.(6) Information for the privately placed portfolio investments is calculated exclusive of Main Street's LMM portfolio investments, marketable securities and idle funds investments, and Main Street's investment in Main Street Capital Partners, LLC, the wholly owned Investment Manager.  The financial information for the privately placed portfolio company investments has not been independently verified by Main Street.ABOUT MAIN STREET CAPITAL CORPORATIONMain 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 STATEMENTSMain 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 additional commitments under the accordion feature of the Credit Facility. 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 CorporationDwayne Hyzak, CFO and Senior Managing Directordhyzak@mainstcapital.com  / 713-350-6000Dennard Rupp Gray & Lascar, LLCKen Dennard / ksdennard@drg-l.com Ben Burnham / bburnham@drg-l.com 713-529-6600MAIN STREET CAPITAL CORPORATIONConsolidated Statements of Operations(Unaudited)Three Months Ended September 30,Nine Months Ended September 30,2011201020112010INVESTMENT INCOME:Interest, fee and dividend income:   Control investments$   6,361,495$   4,497,476$ 18,502,354$ 12,625,127   Affiliate investments3,185,3161,975,1318,468,0265,737,576   Non-Control/Non-Affiliate investments4,700,0842,124,60312,312,0544,674,031Total interest, fee and dividend income14,246,8958,597,21039,282,43423,036,734Interest from marketable securities, idle funds and other2,839,438408,7457,285,7741,794,279Total investment income17,086,3339,005,95546,568,20824,831,013EXPENSES:Interest(3,715,733)(2,283,262)(9,881,745)(6,388,367)General and administrative(478,960)(367,074)(1,585,503)(1,038,972)Expenses reimbursed to affiliated Investment Manager(1,949,656)(1,151,713)(6,287,068)(3,634,511)Share-based compensation(580,622)(446,342)(1,466,416)(1,049,258)Total expenses(6,724,971)(4,248,391)(19,220,732)(12,111,108)NET INVESTMENT INCOME10,361,3624,757,56427,347,47612,719,905NET REALIZED GAIN (LOSS) FROM INVESTMENTS:   Control investments407,168(1,868,465)407,168(3,587,638)   Non-Control/Non-Affiliate investments750,000156,476771,460156,476   Marketable securities and idle funds investments290,582179,633540,236493,581Total net realized gain (loss) from investments1,447,750(1,532,356)1,718,864(2,937,581)NET REALIZED INCOME11,809,1123,225,20829,066,3409,782,324NET CHANGE IN UNREALIZEDAPPRECIATION (DEPRECIATION):   Portfolio investments10,700,6805,314,50726,191,99011,386,598   Marketable securities and idle funds investments(4,250,244)335,205(3,563,510)103,924   SBIC debentures(3,635,658)3,035,336(5,714,950)4,792,390   Investment in affiliated Investment Manager(48,327)(55,462)(135,333)(341,658)Total net change in unrealized appreciation2,766,4518,629,58616,778,19715,941,254Income tax provision(139,490)(358,647)(3,302,102)(779,907)Bargain purchase gain---4,890,582NET INCREASE IN NET ASSETSRESULTING FROM OPERATIONS14,436,07311,496,14742,542,43529,834,253Noncontrolling interest-(552,845)(157,600)(961,740)NET INCREASE IN NET ASSETSRESULTING FROM OPERATIONSATTRIBUTABLE TO COMMON STOCK$ 14,436,073$ 10,943,302$ 42,384,835$ 28,872,513NET INVESTMENT INCOME PER SHARE -BASIC AND DILUTED$            0.44$            0.28$            1.23$            0.81NET REALIZED INCOME PER SHARE -BASIC AND DILUTED$            0.50$            0.19$            1.30$            0.62NET INCREASE IN NET ASSETS RESULTING FROMOPERATIONS ATTRIBUTABLE TO COMMONSTOCK PER SHARE - BASIC AND DILUTED$            0.62$            0.65$            1.94$            1.87DIVIDENDS PAID PER SHARE$            0.39$            0.38$            1.16$            1.13WEIGHTED AVERAGE SHARES OUTSTANDING -BASIC AND DILUTED23,194,89616,878,08821,824,77515,469,890MAIN STREET CAPITAL CORPORATIONConsolidated Balance SheetsSeptember 30, 2011December 31, 2010(Unaudited)ASSETSPortfolio investments at fair value:Control investments (cost: $193,683,126 and $161,009,443 as ofSeptember 30, 2011 and December 31, 2010, respectively)$         219,026,676$        174,596,394Affiliate investments (cost: $95,369,438 and $65,650,789 as ofSeptember 30, 2011 and December 31, 2010, respectively)128,108,79380,206,804Non-Control/Non-Affiliate investments (cost: $151,074,694 and$91,911,304 as of September 30, 2011 and December 31, 2010, respectively)147,937,95291,956,221Investment in affiliated Investment Manager (cost: $4,284,042 as ofSeptember 30, 2011 and December 31, 2010)1,916,3222,051,655Total portfolio investments (cost: $444,411,300 and $322,855,578 as ofSeptember 30, 2011 and December 31, 2010, respectively)496,989,743348,811,074Marketable securities and idle funds investments (cost: $137,509,250 and $67,970,907as of September 30, 2011 and December 31, 2010, respectively)134,727,69468,752,858Total investments (cost: $581,920,550 and $390,826,485 as ofSeptember 30, 2011 and December 31, 2010, respectively)631,717,437417,563,932Cash and cash equivalents25,126,45722,334,340Deferred tax asset, net-1,958,593Interest receivable and other assets5,322,6734,523,792Deferred financing costs (net of accumulated amortization of $1,985,141 and$1,504,584 as of September 30, 2011 and December 31, 2010, respectively)3,789,0582,543,645Total  assets$         665,955,625$        448,924,302LIABILITIESSBIC debentures (par: $220,000,000 and $180,000,000 as of September 30, 2011 andDecember 31, 2010, respectively; par of $95,000,000 is recorded at a fair value of $76,272,925 and $70,557,975 as of September 30, 2011 and December 31, 2010, respectively)$         201,272,925$        155,557,975Credit facility114,000,00039,000,000Interest payable920,9313,194,870Dividend payable3,134,611-Deferred tax liability, net1,043,210-Payable to affiliated Investment Manager3,105,00115,124Accounts payable and other liabilities1,443,0611,173,295Total  liabilities324,919,739198,941,264Commitments and contingencies NET ASSETSCommon stock, $0.01 par value per share (150,000,000 shares authorized;23,219,348 and 18,797,444 issued and outstanding as of September 30, 2011 and December 31, 2010, respectively)232,193187,975Additional paid-in capital301,269,008224,485,165Accumulated net investment income9,203,1529,261,405Accumulated net realized loss from investments(19,624,729)(20,541,897)Net unrealized appreciation, net of income taxes45,460,49232,141,997Total Net Asset Value336,540,116245,534,645Noncontrolling interest4,495,7704,448,393Total net assets including noncontrolling interests341,035,886249,983,038Total liabilities and net assets$         665,955,625$        448,924,302NET ASSET VALUE PER SHARE$                    14.49$                   13.06MAIN STREET CAPITAL CORPORATIONReconciliation of Distributable Net Investment Income and Distributable Net Realized Income(Unaudited)Three Months Ended September 30,Nine Months Ended September 30,2011201020112010Reconciliation of distributable net investment income and distributable net realized income:Net investment income$ 10,361,362$ 4,757,564$ 27,347,476$ 12,719,905   Share-based compensation expense580,622446,3421,466,4161,049,258Distributable net investment income 10,941,9845,203,90628,813,89213,769,163Net realized income (loss) from investments1,447,750(1,532,356)1,718,864(2,937,581)Distributable net realized income$ 12,389,734$ 3,671,550$ 30,532,756$ 10,831,582Per share amounts:Distributable net investment income per share -    Basic and diluted (1) (5)$            0.46$          0.30$            1.29$            0.88Distributable net realized income per share -    Basic and diluted (1) (5)$            0.52$          0.21$            1.37$            0.69SOURCE Main Street Capital Corporation