MVC Capital Announces Second Quarter Fiscal 2013 Results

Sells 2^nd Largest Portfolio Company Realizing $50 Million Gain

PURCHASE, N.Y.--(BUSINESS WIRE)--MVC Capital, Inc. (NYSE: MVC), a publicly traded business development company that makes private equity and debt investments, today announced its financial results for the second fiscal quarter ended April 30, 2013.

Second Fiscal Quarter 2013 Financial Highlights

• Interest and dividend income of $5.0 million, compared with $14.6 million in Q2 2012
  • Q2 2012 interest and dividend income included a $12.0 million dividend paid by Summit Research Labs, Inc. (“Summit”). Without the one-time dividend paid by Summit, interest and dividend income increased by 88% over the same quarter in 2012.
• Total net realized gain on investments of $45.1 million, compared with $61,020 in Q2 2012
  • Total net realized gain on investment for the Q2 2013 includes a $49.7 million net gain from the sale of Summit Research Labs
• Fee and other income of $1.7 million, compared with $1.5 million in Q2 2012
• Paid quarterly dividend of $0.135 per share; 32^ndconsecutive quarterly dividend

"Having recently implemented a strategic shift to enable us to more actively pursue yielding investment opportunities, I am confident that MVC is well-positioned to deliver increased shareholder value. Driving this is the $50 million of net proceeds received from the recent sale of Summit, combined with the proceeds of $114 million from the sale of our notes,” noted Michael Tokarz, Chairman and Portfolio Manager. “In addition to having greater access to capital to support our investment activities, we have also implemented a no-limit share repurchase program in an effort to reduce the discount between the price of our stock to NAV, which should directly add value to our shareholders.”

Second-Fiscal Quarter 2013 Results

(Unaudited) (in thousands except for per share data)	Q2 2013	Q1 2013	Q2 2012
Total operating income	$6,663	$6,386	$16,164
Management fee	1,865	2,080	2,177
Portfolio fees - asset management	103	106	462
Management fee - asset management	232	232	188
Administrative	902	890	817
Interest, fees and other borrowing costs	1,418	937	832
Net Incentive compensation	1,008	1,175	(175)
Total waiver by adviser	(37)	(38)	(2,383)
Tax expense	1	1	-
Net operating income before net realized and unrealized gains	1,171	1,003	14,246
Net increase in net assets resulting from operations	7,892	6,876	1,515
Net increase in net assets resulting from operations per share	$0.33	$0.29	$0.06
Net asset value per share	$16.56	$16.29	$16.99

In the second quarter of 2013, the Company earned $5.0 million in interest and dividend income and $1.7 million in fee and other income, compared to $14.6 million and $1.5 million for the same quarter in 2012. Interest and dividend income for the second quarter of fiscal 2012 includes a one-time $12.0 million dividend paid by Summit.

The Company reported net operating income of $1.2 million for the second quarter, as compared to net operating income of $14.2 million for the same quarter in 2012. Net operating income for the quarter was impacted by a $1.0 million increase in the Company's provision for incentive compensation, $1.4 million in interest and other borrowing costs and $1.9 million in management fees. The higher operating income reported in the second quarter of 2012 was mainly attributable to the $12.0 million Summit dividend, lower interest and borrowing costs, a negative incentive compensation accrual and a $2.4 million fee waiver.

Second-Fiscal Quarter 2013 Portfolio Adjustments

As of April 30, 2013, the Company had net assets of $388.6 million or $16.56 per share, compared to net assets of $389.7 million, or $16.29 per share, at the beginning of the quarter and $406.3 million, or $16.99 per share, at the end of the same period last year. During the quarter, the Valuation Committee, which is comprised of three independent directors, changed the fair values of fourteen portfolio companies, resulting in a net increase of $3.6 million or $0.15 per share. In arriving at these determinations and consistent with the Company's valuation procedures and ASC 820, the Valuation Committee took into account many factors, including the performance of the portfolio companies, as well as the impact of changes in market multiples within certain sectors and fluctuations in currency valuations, particularly in the Euro.

	Q2 2013	YTD 2013*
Active Deals:	Write up (down)	Write up (down)
Biovations Holdings	($50,104)	($50,104)
Centile Holding B.V.	$505,000	$595,000
Custom Alloy Corporation	-	$840,000
Freshii USA Inc	$4,880	$4,880
Harmony Health & Beauty, Inc.	-	($100,000)
JSC Tekers Invest	($1,000,000)	($1,000,000)
MVC Automotive Group B.V.	$665,000	$2,845,000
MVC Private Equity Fund, L.P.	$1,707,958	$1,719,923
NPWT Corporation	$69,817	($14,274)
Octagon Credit Investors, LLC	-	$450,000
Ohio Medical Corporation	($3,425,000)	($3,775,000)
Pre-Paid Legal Services, Inc.	-	$118,520
RuMe, Inc.	-	$423,000
Security Holdings, B.V.	$4,029,000	$6,984,000
SGDA Europe B.V.	$614,000	($1,128,000)
SIA Tekers Invest	($218,000)	$16,000
Turf Products, LLC	$412,000	$592,000
Velocitius B.V.	($1,195,000)	($2,249,000)
Vestal Manufacturing Enterprises, Inc.	$1,475,000	$3,125,000
TOTAL	$3,594,551	$9,396,945
* As of April 30, 2013

Quarterly Activity

During the quarter, MVC Capital completed the sale of its second largest portfolio holding, Summit, to an affiliate of One Rock Capital Partners, LLC receiving gross equity proceeds of $66 million, realizing a net gain of $49.7 million, a $3.5 million premium to the last reported fair value placed on Summit as of January 31, 2013. The investment resulted in an IRR of 31%¹, calculated from the original date of purchase in August 2006. As part of the sale, and after receiving repayment of its outstanding $12.1 million loan to Summit, MVC provided Summit with a new $22.0 million second lien loan.

In February 2013, MVC raised $80.5 million by the sale of notes that trade on the NYSE under the ticker MVCB. The first quarterly interest payment on the notes was made on April 15, 2013 to holders of record on April 1, 2013. With a portion of the proceeds from the notes offering, MVC repaid its outstanding $50.0 million term loan on February 26, 2013.

The remaining capital will allow MVC to invest according to its investment objective and strategy in new opportunities, to continue investing and supporting its existing portfolio companies, for funding distributions, and/or funding the activities of its subsidiaries. As a result of both the sale of Summit and the sale of the notes, MVC instituted an expanded share repurchase program to opportunistically buy back shares in the market in an effort to narrow the stock’s discount to NAV. The previously authorized $5.0 million limit on share repurchases was eliminated. In accordance with the authorized, expanded share repurchase program, the total repurchases during fiscal 2013 through April 30, 2013, have been 447,640 shares at an average price of $12.80, including commissions.

During the quarter, the Company made two new investments and two follow-on investments, committing capital totaling approximately $28.0 million. The new investments were made in Summit ($22.0 million) and Summit Custom Spray Drying ($5.5 million). The follow-on investments were made in Biovation Holdings, Inc. ($75,000) and MVC Private Equity Fund, L.P. ($406,000). During the quarter, the Company realized a loss of approximately $4.5 million on DPHI, Inc., a legacy investment, formerly DataPlay, Inc, which had a fair value of $0. U.S. Gas & Electric, Inc. issued another quarterly dividend to MVC during the second quarter of $2.3 million. Also during the quarter, MVC received principal payments from Custom Alloy Corporation ($5.0 million), Marine Exhibition Corporation ($250,000) and Pre-paid Legal Services, Inc. ($162,000).

Liquidity

As of April 30, 2013, the Company had investments in portfolio companies totaling $368.5 million and investments in cash and cash equivalents of approximately $108.5 million, including restricted cash and cash equivalents of $6.6 million.

Dividends

The board of directors declared a dividend of $0.135 per share for the second quarter of fiscal 2013. The dividend was paid on April 30, 2013 to shareholders of record on April 23, 2013. This distribution represents the thirty-second consecutive quarterly dividend paid by the Company since implementing a dividend policy in July of 2005. The dividends issued under current management have resulted in over $92 million in distributions to the Company’s shareholders.

Subsequent Quarterly Activity

In early May, MVC sold an additional $33.9 million of Senior Notes in a direct offering, resulting in net proceeds to MVC after estimated expenses of $33.7 million. The coupon and quarterly interest payment schedule are the same as those under the notes sold in February 2013, as the notes are part of the same series. Also subsequent to the quarter, MVC contributed $705,000 to the MVC Private Equity Fund, L.P. primarily for a follow-on equity investment in Plymouth Rock Energy, LLC. In accordance with the authorized, expanded share repurchase program, during May 2013, MVC Capital repurchased a total of 217,900 shares at an average price of $13.02. The total repurchases during fiscal 2013 through May 31, 2013 have been 665,540 shares at an average price of $12.89, including commissions.

MVC-G

About MVC Capital, Inc.

MVC is a business development company traded on the New York Stock Exchange that provides long-term debt and equity investment capital to fund growth, acquisitions and recapitalizations of companies in a variety of industries. For additional information about MVC, please visit the MVC's website at www.mvccapital.com.

Safe Harbor Statement

The information contained in this press release contains forward-looking statements. These forward-looking statements are subject to the inherent uncertainties in predicting future results and conditions. Certain factors could cause actual results and conditions to differ materially from those projected in these forward-looking statements, and these factors are enumerated in the company's periodic filings with the Securities and Exchange Commission.

Past performance does not guarantee future results. MVC’s share value may fluctuate. There can be no assurance that the Company will achieve its investment objective, and there can be no assurance that future dividend payments by MVC will match or exceed historic ones, or that they will be made at all.

MVC is subject to certain significant risks relating to its business and investment objective, including, for example, the potential volatility of its common stock price and the illiquidity of its investments in portfolio companies. For a detailed description of the risk factors impacting the Company, please read the “Risk Factors” section of MVC’s recent Securities and Exchange Commission filings.

The press release contains unaudited financial results. For ease of review, we have excluded the word “approximately” when rounding the results.

^[1] The anticipated IRR assumes the full receipt of all escrow proceeds.

MVC Capital, Inc.
Consolidated Balance Sheets
	April 30,			October 31,
	2013			2012
	(Unaudited)
ASSETS
Assets
Cash and cash equivalents	$	101,929,798		$	36,160,558
Restricted cash and cash equivalents		6,584,000			6,480,000
Investments at fair value
Non-control/Non-affiliated investments (cost $76,014,013 and $54,629,419)		62,158,921			34,197,990
Affiliate investments (cost $131,572,266 and $128,521,214)		188,501,613			178,396,856
Control investments (cost $119,836,680 and $149,281,248)		117,879,807			191,575,802
Total investments at fair value (cost $327,422,959 and $332,431,881)		368,540,341			404,170,648
Escrow receivables, net of reserves		5,962,431			991,563
Dividends and interest receivables, net of reserves		3,099,320			4,559,703
Deferred financing fees		3,040,333			-
Fee and other receivables		2,245,982			3,314,116
Prepaid expenses		541,472			753,501
Prepaid taxes		248			591
Total assets	$	491,943,925		$	456,430,680
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Senior notes	$	80,500,000		$	-
Provision for incentive compensation (Note 10)		17,838,583			15,655,438
Management fee payable		1,865,133			2,027,571
Other accrued expenses and liabilities		805,490			734,501
Professional fees payable		642,334			767,835
Management fee payable - Asset Management		605,960			1,054,433
Payable for purchased treasury shares		579,450			-
Interest payable		259,388			-
Portfolio fees payable - Asset Management		138,492			140,293
Consulting fees payable		75,144			34,476
Term loan		-			50,000,000
Total liabilities		103,309,974			70,414,547
Shareholders' equity
Common stock, $0.01 par value; 150,000,000 shares
authorized; 23,469,342 and 23,916,982 shares outstanding, respectively		283,044			283,044
Additional paid-in-capital		425,651,660			425,651,660
Accumulated earnings		66,699,082			64,524,665
Distributions paid to stockholders		(98,430,704	)		(92,010,775	)
Accumulated net realized loss		(3,187,373	)		(46,401,983	)
Net unrealized appreciation		41,117,382			71,738,767
Treasury stock, at cost, 4,835,106 and 4,387,466 shares held, respectively		(43,499,140	)		(37,769,245	)
Total shareholders' equity		388,633,951			386,016,133
Total liabilities and shareholders' equity	$	491,943,925		$	456,430,680
Net asset value per share	$	16.56		$	16.14
The accompanying notes are an integral part of these consolidated financial statements.

MVC Capital, Inc.
Consolidated Statements of Operations
(Unaudited)
	For the Six Month Period			For the Six Month Period
	November 1, 2012 to			November 1, 2011 to
	April 30, 2013			April 30, 2012
Operating Income:
Dividend income
Non-control/Non-affiliated investments	$	1,551		$	4,242
Affiliate investments		4,842,150			61,102
Control investments		426,300			12,000,000
Total dividend income		5,270,001			12,065,344
Payment-in-kind dividend income
Affiliate investments		132,278			122,205
Total payment-in-kind dividend income		132,278			122,205
Interest income
Non-control/Non-affiliated investments		1,079,798			984,498
Affiliate investments		1,940,922			1,527,702
Control investments		892,719			1,200,657
Total interest income		3,913,439			3,712,857
Payment-in-kind interest income
Non-control/Non-affiliated investments		285,698			13,167
Affiliate investments		481,435			1,000,425
Control investments		497,131			399,254
Total payment-in-kind interest income		1,264,264			1,412,846
Fee income
Non-control/Non-affiliated investments		400,591			54,119
Affiliate investments		473,129			538,578
Control investments		538,298			374,031
Total fee income		1,412,018			966,728
Fee income - Asset Management^(1)
Portfolio fees		278,592			698,876
Management Fees		618,128			769,089
Total fee income - Asset Management		896,720			1,467,965
Other income		160,197			60,137
Total operating income		13,048,917			19,808,082
Operating Expenses:
Management fee		3,945,370			4,433,238
Interest and other borrowing costs		2,354,861			1,627,112
Net Incentive compensation (Note 10)		2,183,145			(2,111,702	)
Management fee - Asset Management^(1)		463,592			576,816
Audit fees		316,400			288,000
Legal fees		276,000			312,520
Other expenses		274,291			327,176
Consulting fees		268,502			217,702
Portfolio fees - Asset Management^(1)		208,944			524,156
Directors fees		206,250			175,000
Insurance		165,540			167,226
Administration		126,187			132,203
Public relations fees		97,500			51,000
Printing and postage		61,118			68,400
Total operating expenses		10,947,700			6,788,847
Less: Voluntary Expense Waiver by Adviser^(2)		(75,000	)		(75,000	)
Less: Voluntary Management Fee Waiver by Adviser^(3)		-			(58,728	)
Less: Voluntary Incentive Fee Waiver by Adviser^(4)		-			(2,345,189	)
Total waivers		(75,000	)		(2,478,917	)
Net operating income before taxes		2,176,217			15,498,152
Tax Expenses:
Current tax expense		1,800			1,097
Total tax expense		1,800			1,097
Net operating income		2,174,417			15,497,055
Net Realized and Unrealized Gain (Loss) on Investments:
Net realized (loss) gain on investments
Non-control/Non-affiliated investments		(6,441,216	)		213,716
Control investments		49,655,826			41,097
Total net realized gain on investments		43,214,610			254,813
Net unrealized depreciation on investments		(30,621,385	)		(23,255,328	)
Net realized and unrealized gain (loss) on investments		12,593,225			(23,000,515	)
Net increase (decrease) in net assets resulting from operations	$	14,767,642		$	(7,503,460	)
Net increase (decrease) in net assets per share resulting from operations	$	0.62		$	(0.31	)
Dividends declared per share	$	0.27		$	0.24
Weighted average number of shares outstanding ^(5)		23,844,840			23,916,982

^(1)These items are related to the management of the MVC Private Equity Fund, L.P. ("PE Fund"). Please see Note 9 "Management" for more information.

^(2)Reflects the quarterly portion of the TTG Advisers' voluntary waiver of $150,000 of expenses for the 2013 and 2012 fiscal years, that the Company would otherwise be obligated to reimburse TTG Advisers under the Advisory Agreement (the "Voluntary Waiver"). Please see Note 9 "Management" for more information.

^(3)Reflects TTG Advisers' voluntary agreement that any assets of the Company invested in exchange-traded funds or the Octagon High Income Cayman Fund Ltd. would not be taken into the calculation of the base management fee due to TTG Advisers under the Advisory Agreement. Please see Note 9 "Management" for more information.

^(4)Reflects TTG Advisers' voluntary waiver of the Incentive Fee associated with pre-incentive fee net operating income for the fiscal quarter ended April 30, 2012. Please see Note 9 "Management" for more information.

(5) Please see Note 12 "Dividends and Distributions to Shareholders and Share Repurchase Program" for more information.

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