Fitch Affirms MCG Capital Corp.'s IDR at 'BB+'; Outlook Remains Negative

--Long-term Issuer Default Rating (IDR) at 'BB+'; and

--Senior unsecured debt at 'BB+'.

The Rating Outlook remains Negative. Approximately $60 million of unsecured debt is affected by this action.

The ratings affirmation reflects MCG's reduced funding flexibility as a result of extended disruptions in the capital markets and the expectation that the company will be unable to grow its portfolio of investments until capital market conditions improve and investor confidence is restored. Funding capacity is currently limited to unrestricted cash, cash flows from portfolio investments, and available capacity on secured facilities, although actual draws will be limited by leverage restrictions and collateral requirements.

Still, MCG has been successful de-leveraging its balance sheet in the last year in order to offset mounting unrealized portfolio depreciation. The company has completed $198.3 million of asset sales since July 2008, including 21 that were completed at 99.6% of fair value and one distressed sale of TNR Holdings at 42.3% of its most recently reported fair value. The asset coverage ratio amounted to 209% as of July 29, 2009, up from 206% at June 30 and 199% at the end of the first quarter, and above the 180% debt covenant requirement, which was renegotiated in February 2009. Valuation multiples did show signs of stabilization in the second quarter, but Fitch believes the weaker economy's impact on underlying portfolio performance will yield further unrealized portfolio depreciation in the latter half of 2009. As a result, Fitch expects MCG will continue to de-leverage with further asset sales as opportunities arise.

Negative rating action could be triggered by further unrealized portfolio depreciation which is not tempered by asset sales and reductions in leverage and/or deterioration in the company's liquidity position. Conversely, rating stability will be driven by an improvement in market spreads, valuation multiples, and underlying portfolio performance which result in unrealized portfolio appreciation, combined with the ability to access the debt and equity markets to raise investment capital when market conditions improve, which should yield better operating performance.

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SOURCE: Fitch Ratings

Fitch Ratings 
Meghan Crowe, CFA, 212-908-9121, New York 
William A. Artz, 312-368-3178, Chicago 
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