Jet Broadband is a broadband company serving communities in Virginia and West Virginia. The company was acquired by a subsidiary of Shenandoah Telecommunications as part of a just announced $148mn transaction. Jet was a so called control investment for MCGC due to its owning a majority stake in the equity securities. Before MCGC got into trouble, and perhaps the reason for its financial troubles, management placed substantial emphasis on being more than just a financier of leveraged buy-outs, but also a leading equity investor.
As recently as the latest 10-K, nearly half MCGC’s investment portfolio at cost was invested in Control Investments, spread out over 13 different deals, including Jet Broadband.
The Jet Broadband investment, which began in December 2005 to a differently named entity (Helicon) and was restructured a few years later has not been a home run for MCGC, but not a disaster either.
At closing MCGC will recoup $49.7mn of the $51.9mn invested (as reported in the 2009 10-K). MCGC will miss the 14.9% interest being earned on Jet’s $28.4mn in Unsecured Debt, which brought in $3.9mn last year.
However, the rest of the capital invested (including $5mn put in just last year) was not earning anything. If MCGC sticks to its stated strategy, as mentioned in the press release, of focusing principally on invested in yield investments rather than a mix of yield and equity, the re-deployed assets should eventually help earnings. Re-investing $49.7mn at 12% into mezzanine investments would earn MCGC $6.0mn annually.
That’s an incremental 2.7 cents per share in annual investment income, most of which should work its way down to Net Investment Income Per Share.
What we don’t know is which investment pool the Jet Broadband deal was pledged to. MCGC has several different loan agreements, each with diverse terms and each with a different set of pledged loan and equity investments. What MCGC can do or not do with the Jet Broadband proceeds will depend on the terms agreed with the lender in the massive renegotiations that MCGC entered into very successfully last year. The press release was silent on this subject so we won’t hazard a guess.
Disclosure: Author holds a long position in MCGC