ARLINGTON, Va., Nov. 1 /PRNewswire-FirstCall/ -- MCG Capital Corporation (Nasdaq: MCGC - News ) today announced that on October 26, 2005 its Board of Directors declared a dividend of $0.42 per share for the fourth quarter of 2005. The actual tax characteristics of this dividend will be reported to each shareholder on a Form 1099.
We invite interested parties to join our analyst call today at 10:30 a.m. ET for a further discussion of our third quarter 2005 financial results. The dial-in number for the call is (800) 475-3716. International callers should dial (719) 457-2728. Please dial-in at least five minutes prior to the call to register. The call may also be accessed via an audio webcast available on the MCG website at http://investor.mcgcapital.com . Click on the November 1, 2005, Conference Call to access the call. A recording of the call will be available through November 8, 2005. The replay dial-in number is (888) 203-1112. International callers should call (719) 457-0820. The replay pass code is 4349137. The replay will also be available via MCG's website. Financial information provided in the investor conference call will be available on our website at http://www.mcgcapital.com prior to the call.
The level of interest income, which includes interest paid in cash and in kind, is directly related to the balance of the interest-bearing investment portfolio outstanding during the period multiplied by the weighted average yield. The weighted average yield varies from period to period based on the current stated interest rate on interest-bearing investments and the amounts of loans for which interest is not accruing. The increase in interest income for the three months ended September 30, 2005, as compared to the three months ended September 30, 2004, is primarily due to growth in average loans, which had an impact of $3.1 million, and an increase in LIBOR, which had an impact of $3.6 million. The increase related to growth in average loans and the increase in LIBOR was partially offset by a decrease in the spread to LIBOR in our loan portfolio, which had an impact of ($1.9) million. The majority of the decrease in the spread to LIBOR is related to holding fixed rate loans and loans with LIBOR floors in a rising interest rate environment, as well as normal fluctuations due to payoff and origination activity. Dividend income results from dividends earned on our yielding equity investments. Dividend income will vary from period to period depending upon the level of yield on our equity investments and the amount of yielding equities outstanding. Dividend income increased $1.7 million for the three months ended September 30, 2005 as compared to the three months ended September 30, 2004. This increase was primarily related to dividends on preferred stock of Broadview Networks Holdings, Inc., one of our majority owned control investments.
During the three months ended September 30, 2005, our Broadview investments accounted for approximately $4.0 million, or 14.2%, of our total operating income. Our operating income from Broadview was related to interest and dividends on our Broadview loan and equity investments. Our preferred stock investment in Broadview, which had a fair value of $49.3 million as of September 30, 2005, entitles us to a preferred claim of approximately $90 million plus accrued dividends, which accumulate at an annual rate of 12% on our preferred claim. We currently expect that our Broadview investment will continue to comprise a significant component of our operating income. Our ability to record income related to the accumulating dividends on our preferred securities will be dependent upon the performance of Broadview.
Loan fees include origination fees on loans that are capitalized and amortized into interest income over the life of the loan. When repayments or restructurings with other than minor modifications occur, we will generally accelerate the recognition of previously unamortized loan origination fees. These accelerations have the effect of increasing current period income and reducing future amortizable income. Because these repayments and restructurings may vary from period to period, the amount of loan origination fees that are recognized as interest income may also vary from period to period. The decrease in amortizing fee income is related primarily to the volume of fee accelerations and an increase in the proportion of our portfolio which does not generate origination fees and fewer of our debt investments have generated significant origination fees.
Fees and other income primarily include fees related to advisory and management services, prepayment fees, research revenues, bank interest and other income. Fees and other income are generally related to specific transactions or services and therefore may vary from period to period depending on the level and types of services provided. The decrease in fees and other income of $2.3 million for the three months ended September 30, 2005 as compared to the three months ended September 30, 2004 was primarily due to $1.5 million of management fees in the third quarter of 2004 from one of our control investments, Bridgecom Holdings, Inc., prior to its merger with Broadview versus none in the third quarter of 2005, and a decrease in advisory fees of $1.0 million and prepayment fees of $0.5 million, partially offset by increases in our research revenues from our wholly owned subsidiary Kagan Research, LLC of $0.2 million, and bank interest income of $0.5 million. The increase in bank interest income is due to higher cash balances.
Operating Expenses. Operating expenses include interest, employee compensation and general and administrative expenses. The increase in interest expense during the three months ended September 30, 2005 as compared to the three months ended September 30, 2004, is primarily attributable to an increase of $2.2 million due to increases in LIBOR, an increase of $0.6 million due to higher average borrowings, and an increase of $0.4 million due to the increase in the spread to LIBOR.
Employee compensation includes salaries and benefits, variable annual incentive compensation and long-term incentive compensation. The change in salaries and benefits expense is primarily due to increased staffing, which is part of an ongoing effort to expand our infrastructure in order to support our plans for future growth. Long-term incentive compensation expense is made up of non-cash amortization of restricted stock awards granted in 2001 and dividends on performance based restricted shares and shares securing employee loans. Long-term incentive compensation totaled $2.1 million for the three months ended September 30, 2005 compared to $2.3 million for the three months ended September 30, 2004. During the third quarter of 2005, the performance- based forfeiture restrictions and time-based forfeiture provisions associated with the Tier III shares of certain non-executive officers lapsed which resulted in a $0.6 million increase in long-term incentive compensation expense and a $0.4 million increase in salaries and benefits expense.
General and administrative expenses include legal and accounting fees, insurance premiums, rent and various other expenses. General and administrative expenses decreased $0.2 million to $2.6 million for the three months ended September 30, 2005 compared to $2.8 million for the three months ended September 30, 2004.
Net investment gains totaled $3.8 million for the third quarter of 2005 compared to losses of ($5.1) million for the third quarter of 2004. These amounts represent the total of net realized gains and losses, net unrealized appreciation and depreciation and reversals of unrealized appreciation and depreciation. Reversals of unrealized appreciation and depreciation occur when a gain or loss becomes realized. For the three months ended September 30, 2005, Net Unrealized Gains are comprised of loan investment losses of ($0.7) million and equity investment gains of $3.9 million. Net Realized Losses for the three months ended September 30, 2005 are comprised of loan investment losses of ($1.0) million and equity investment losses of ($2.3) million.
The level of interest income, which includes interest paid in cash and in kind, is directly related to the balance of the interest-bearing investment portfolio outstanding during the period multiplied by the weighted average yield. The weighted average yield varies from period to period based on the current stated interest rate on interest-bearing investments and the amounts of loans for which interest is not accruing. The increase in interest income for the nine months ended September 30, 2005, as compared to the nine months ended September 30, 2004, is primarily due to growth in average loans, which had an impact of $10.8 million, and an increase in LIBOR, which had an impact of $9.3 million. The increase related to growth in average loans and an increase in LIBOR was partially offset by a decrease in the spread to LIBOR in our loan portfolio, which had an impact of ($6.7) million. The majority of the decrease in the spread to LIBOR is related to holding fixed rate loans and loans with LIBOR floors in a rising interest rate environment, as well as normal fluctuations due to payoff and origination activity. Dividend income results from dividends earned on our yielding equity investments. Dividend income will vary from period to period depending upon the level of yield on our equity investments and the amount of yielding equities outstanding. Dividend income increased $5.3 million for the nine months ended September 30, 2005 as compared to the nine months ended September 30, 2004. This increase was primarily related to dividends on preferred stock of Broadview Networks Holdings, Inc., one of our majority owned control investments.
During the nine months ended September 30, 2005, our Bridgecom and Broadview investments accounted for approximately $13.3 million, or 15.4%, of our total operating income. Our operating income related to Bridgecom and Broadview related to interest and dividends on our loan and equity investments in these entities. Our preferred stock investment in Broadview, which had a fair value of $49.3 million as of September 30, 2005, entitles us to a preferred claim of approximately $90 million plus accrued dividends, which accumulate at an annual rate of 12% on our preferred claim. We currently expect that our Broadview investment will continue to comprise a significant component of our operating income. Our ability to record income related to the accumulating dividends on our preferred securities will be dependent upon the performance of Broadview.
Loan fees include origination fees on loans that are capitalized and amortized into interest income over the life of the loan. When repayments or restructurings with other than minor modifications occur, we will accelerate the recognition into loan fee income of previously unamortized loan origination fees. These accelerations have the effect of increasing current period income and reducing future amortizable income. Because these repayments and restructurings may vary from period to period, the amount of loan origination fees that are recognized as interest income may also vary from period to period. The decrease in amortizing fee income is related primarily to the volume of fee accelerations and an increase in the proportion of our portfolio which does not generate origination fees and fewer of our debt investments have generated significant origination fees.
Fees and other income primarily include fees related to advisory and management services, prepayment fees, research revenues, bank interest and other income. Fees and other income are generally related to specific transactions or services and therefore may vary from period to period depending on the level and types of services provided. The decrease in fees and other income of $3.1 million for the nine months ended September 30, 2005 as compared to the nine months ended September 30, 2004 was primarily due to $4.5 million of management fees during the first nine month of 2004 from one of our control investments, Bridgecom Holdings, Inc., prior to its merger with Broadview versus none in the first nine months of 2005, a decrease in advisory fees of $0.2 million and a decrease in other income of $0.6 million, partially offset by increases in prepayment fees of $0.1 million, research revenues from our wholly owned subsidiary Kagan Research, LLC of $0.5 million, and bank interest income of $1.6 million. The increase in bank interest income is due to higher cash balances, primarily in our cash, securitization accounts, due to higher principal and interest payments on loans held as collateral for our securitization facilities. Cash from principal and interest payments that occur in our securitization facilities are accumulated in trust accounts until monthly or quarterly disbursements are made from trust accounts. These balances are reflected as Cash, securitization accounts on the balance sheet. The portion of payments that represent principal payments are primarily used to repay debt.
Operating Expenses. Operating expenses include interest, employee compensation and general and administrative expenses. The increase in interest expense during the nine months ended September 30, 2005 as compared to the nine months ended September 30, 2004, is primarily attributable to an increase of $5.2 million due to increases in LIBOR, an increase of $2.8 million due to higher average borrowings, and an increase of $0.7 million due to an increase in the spread to LIBOR.
Employee compensation includes salaries and benefits, variable annual incentive compensation and long-term incentive compensation. The change in salaries and benefits expense is primarily due to increased staffing, which is part of an ongoing effort to expand our infrastructure in order to support our plans for future growth. Long-term incentive compensation expense is made up of non-cash amortization of restricted stock awards granted in 2001 and dividends on performance based restricted shares and shares securing employee loans. Long-term incentive compensation totaled $5.4 million for the nine months ended September 30, 2005 compared to $10.0 million for the nine months ended September 30, 2004. During the first quarter of 2004, our compensation committee waived the performance-based forfeiture restrictions and modified the time-based forfeiture provisions associated with the Tier III shares of certain of our executive officers which resulted in an expense of $4.0 million. During the third quarter of 2005, the performance-based forfeiture restrictions and time-based forfeiture provisions associated with the Tier III shares of certain non-executive officers lapsed which resulted in a $0.6 million increase in long-term incentive compensation expense and a $0.4 million increase in salaries and benefits expense.
General and administrative expenses include legal and accounting fees, insurance premiums, rent and various other expenses. General and administrative expenses increased $0.4 million to $7.8 million for the nine months ended September 30, 2005 compared to $7.4 million for the nine months ended September 30, 2004.
Net investment gains totaled $5.8 million for the nine months ended September 30, 2005 compared to losses of ($7.7) million for the nine months ended September 30, 2004. These amounts represent the total of net realized gains and losses, net unrealized appreciation and depreciation and reversals of unrealized appreciation and depreciation. Reversals of unrealized appreciation and depreciation occur when a gain or loss becomes realized. For the nine months ended September 30, 2005, Net Unrealized Gains are comprised of loan investment losses of ($3.8) million and equity investment gains of $7.2 million. Net Realized Gains for the nine months ended September 30, 2005 are comprised of loan investment losses of ($0.6) million and equity investment gains of $21.3 million. Included in net realized gains/(losses) for the nine months ended September 30, 2005 is $20.4 million related to the sale of our equity investment in Creatas. The reversal of unrealized appreciation on this Creatas investment was ($22.1) million.
We receive payments in our loan portfolio based on the scheduled amortization of the outstanding balances. In addition, from time to time we experience payoffs of some of our investments prior to their scheduled maturity date. The frequency or volume of these payoffs may fluctuate significantly from period to period. For the first nine months of 2005, we had loan payments, including payoffs and sales of securities of $303.5 million. Of this amount, $82.3 million was related to the third quarter of 2005. The third quarter payments included $79.0 million of loan repayments and $3.2 million of sales of equity securities.
At September 30, 2005 there were $14.6 million of loans, or 1.6% of the investment portfolio, greater than 60 days past due compared to $2.0 million of loans, or 0.23% of the investment portfolio, at December 31, 2004. The increase in past due loans relates to four portfolio companies, one of which accounts for $13.1 million and is in the publishing industry. At September 30, 2005, $13.2 million of loans, including $1.7 million of the loans greater than 60 days past due, were on non-accrual status representing 1.4% of the investment portfolio. At December 31, 2004, $16.0 million of loans, including all of the loans greater than 60 days past due, were on non-accrual status representing 1.8% of the investment portfolio.
On October 11, 2005, we issued $50.0 million of investment grade long-term unsecured five-year notes in a private placement. The notes have been rated "BBB-" by Fitch Ratings, Inc. and have a fixed interest rate of 6.73% per year payable semi-annually. The proceeds from the offering will be used for working capital and other general corporate purposes, including the origination of investments and reduction of outstanding borrowings under our revolving credit facilities.
MCG Capital Corporation is a solutions-focused specialized commercial finance company providing financing and advisory services to a variety of growth-oriented small and medium-sized companies throughout the United States. Our investment objective is to achieve current income and capital gains. Our capital is generally used by our portfolio companies to finance acquisitions, recapitalizations, management buyouts, organic growth and working capital.
This press release contains forward-looking statements (i.e., statements that are not historical fact) describing the Company's future plans and objectives, such as our expectation to re-deploy cash balances into new investments, or the expected value resulting from a portfolio company's acquisition. These forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties, and other factors, some of which are beyond our control and difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements including, without limitation, the risks, uncertainties and other factors we identify from time to time in our filings with the Securities and Exchange Commission, including our Form 10-Ks, Form 10-Qs and Form 8-Ks. Although we believe that the assumptions on which these forward-looking statements are based are reasonable, any of those assumptions could prove to be inaccurate and, as a result, the forward-looking statements based on those assumptions also could be incorrect. In light of these and other uncertainties, the inclusion of a projection or forward-looking statement in this press release should not be regarded as a representation by us that our plans and objectives will be achieved. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this press release. We undertake no obligation to update such statements to reflect subsequent events.
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