Finally, MCG Capital (MCGC), the beleaguered Business Development Company, which recently cut its dividend (a big no-no in any industry, but especially with a BDC), has announced the outcome of its efforts to renew its $130mn Unsecured Revolving Line of Credit.

Here is the full text of MCGC's press release on the subject:

MCG Capital (MCGC) reported its first quarter 2008 earnings today and held a conference call.

Revenues were up to $43mn from $40.1mn a year ago, but Distributable Net Operating Income was flat at $23mn, and DNOI on a per share basis was down to $0.34. Total assets were up 13% at fair value, but still DNOI was substantially below what management had been indicating just a few weeks before.

MCG Capital (MCGC), one of the oldest business development companies, is in a fight for survival. Last summer the stock was trading at $13-$14 a share. Today, MCGC is at a 52 week low of $7.37, about $5 a share below its NAV, which suggests the market expects over $300 million in write-offs on an investment portfolio of $1.575 billion Ironically, the company has already announced its first quarter dividend of 44 cents a share in 2008 and has reiterated guidance of $1.76 in distributions for the whole year. This calculates out to a current yield of 24%. Skeptics will say Mr. Market is projecting either a huge dividend roll-back or bankruptcy.

Rights Offering Status

CapitalSource (CSE) is a leading commercial lending, investment and asset management business focused on the middle market. CapitalSource manages an asset portfolio which as of December 31, 2007 was approximately $20.9 billion. We just listened to the Q4 2007 Conference Call and reviewed the Earnings Report. Our conclusion is that CSE is in a bind.

Through most of last year this financial company REIT managed to keep the gap between its Adjusted Earnings Per Share (go to the Earnings Report for a definition) and its dividend in a narrow band. For the entire year, in fact, Adjusted Earnings were $2.32 and the dividend $2.28. However, in the last couple of quarters the dividend has outpaced the earnings. Let us illustrate: in the just closed Q4 2007 the dividend outstripped the earnings by 60 cents to 51 cents.

Gladstone Investment Corporation (GAIN) is the first Business Development Company ("BDC") to report earnings for the quarter ended December 31, 2007. For the Press Release, click here. We were interested to see what GAIN had to report in its Earnings Report, 10-Q and Conference Call, all of which we reviewed. The Company is popular with many institutional investors due to its conservative and measured approach to the buy-out business. Just read the transcript of its recent Conference Call on Seeking Alpha to see what we mean. Anyway, the market seemed to approve of the Company's performance, pushing up the stock price by 7.5% on the day, the biggest increase for any BDC today. Still, we remain spectical about the Company's prospects and its valuation. More on that later. Let's get to the numbers.

QUARTERLY RESULTS: At first blush, there's a lot to like here. Gladstone saw Total Investment Income increase to $7.5mn, a 75% increase over a year ago, and 5% over the September 30 2007 period. Net Investment Income reached a record $3.7mn, 29% up from last year and 25% higher than 3 months ago. Even when Unrealized Gains and Losses are taken into account (which we always take with a grain of salt both on the way up and way down), the Company managed to grow earnings to an aggregate Net Increase in Net Assets of $5.1mn. Last quarter the comparable number was a loss of ($4.4mn), due to the unrealized depreciation of many assets due to the credit crunch.

Surprise! In the midst of a stock price meltdown amongst Business Development Companies (BDCs) which has lasted over six months, two BDCs yesterday managed to raise new equity. Before we get into the details of the capital raised, let's quantify how drastic has been the bear market in BDC stocks. Notwithstanding that none of the 19 BDCs we track has reduced its dividend, nor even registered more than a minimal drop in reported Investment Income, every single BDC has seen their stock price drop by double digits (calculated as the market price as of yesterday, January 30, 2008 versus the 52 week high). The lowest decline is BlackRock Kelso (BKCC), down only 14%, and the greatest decline TICC Capital (TICC), down a whopping 46%. On average, these 19 BDCs are down 29%. Moreover, most of the companies trade below their Net Asset Value (NAV). (For example, TICC is currently trading at 26% below its NAV). Dark times indeed for this little known corner of the Financial sector.

So we were delighted to see that Allied Capital (ALD) and Gladstone Capital (GLAD) were able to launch public offerings yesterday. Allied Capital issued 4 million shares at $22.0 a share, for an infusion of $88 million. Gladstone, a much smaller company with a market cap of only $212 million, raised an impressive $48 million. Allied and Gladstone's stock prices are trading 35% and 30% respectively off their 52-week highs. Nonetheless, both companies were able to convince investors to ante up $136 million to reinvest in middle market buy-outs. Gladstone was even able to raise the money at a "bargain" price. The $17 stock issue bears just a 9.8% dividend at the current dividend rate. Allied Capital had to pay up: the new stock yield is 13%.

We read the press releases every day on every company we track. We've been noticing that Hercules Technology Growth Capital (HTGC) has been adding new investments at a rapid clip. Just based on announcements, HTGC has invested in 9 new or existing deals since September 30th 2007 (the last reported quarter) and committed about $120mn. To put that into perspective, this represents a 30% growth in assets at cost on the balance sheet back at September 30th. Some of the deals closed after the 2007 year-end, but most will impact the soon to be announced fourth quarter 2007 results, and should offset any modest bad debts which might pop up. This is quite a change from the pace of new asset formation in the last quarter, which was anemic.

We gave Kohlberg Capital (KCAP), a recently minted Business Development Company, a thumbs up back in November 7, 2007 (Kohlberg Capital Corporation: On the Right Track). At the time the stock was down 50% to $12.76. Since then, KCAP has dropped as low as $9.63, but has managed to claw its way back to $11.71. With a NAV of $14.77, KCAP continues to trade at a severe 21% discount to NAV. We said then that the market seemed to be writing off the value of the Company's asset management affiliate Katonah Debt Advisors, which is carried at $58mn, or 23% of KCAP's equity. Katonah is in the business of managing CDO ("Collateralized Debt Obligations") funds, in which KCAP invests, resulting in both management fees and interest income. Since the summer of 2007, anything related to CDO issuance has caused the market to run screaming in the opposite direction. It's worth noting,though, that KCAP has nothing to do with the mortgage market and all the CDOs under management have continued to perform without a material hitch during the intervening months.

On Friday, GSC Investments (GNV)- a Business Development Company which focuses principally on senior debt financings - announced the closing of its new $400mn CLO Fund (which one of its affiliates will manage) and the Company's simultaneous $30mn equity investment therein. The Company had mentioned its plans to use its remaining cash, borrowing capacity and existing loans to invest in this senior debt CLO in its earnings report for the period ending November 30 2007, which were announced earlier this month. We thought then that GNV was making a bold move to invest the last of its available capital in the highest risk-return portion of a CLO. (See our commentary on Seeking Alpha on January 13th 2008: Buy GSC Investment - But Keep Your Fingers Crossed).

GSC Investment Corporation (GNV) is the first Business Development Company [BDC] to report earnings in the New Year. GNV is a smaller BDC with only $200mn in assets, but is managed by the GSC Group, a multi-billion dollar asset management company. The Company is on a February 2008 fiscal year-end, so the books closed for the latest quarter at the end of November 2007.

We had a hard look at GNV's results, both for their own sake (we have a major position in the stock) and to get a preview of what we might expect from the many more BDCs reporting year-end results as of December 31 2007. We came away satisfied with the quarterly financial performance of GSC Investment, but were even more impressed with the financial engineering management is undertaking in the current strained economic environment to increase earnings. The jury, though, is still out as to whether GNV will succeed.

With the New Year upon us, we thought it would be interesting to see what high yield stocks meet our risk-adjusted criteria following months of bone crushing price declines for most stocks in this space. We track 29 non-financial high yield stocks and have set minimum yield returns for each stock, based on our view of the outlook for the dividend in the year ahead. We compare our target yield against the current yield (based on the latest dividend annualized divided by the stock price as of December 21 2007). If the target is being reached AND the Business Outlook for the company is Positive, we rate the stock a Buy.

Sadly, despite the drop in stock prices and very little pull-back in dividend pay-outs, there are still very few legitimate buys out there. We find just three:

On November 5 we projected that U-Store It Trust (YSI), a leading self storage operator, which trades under the ticker YSI, would cut its dividend. We estimated the lowered dividend would be 20 cents or lower a quarter, down from 29 cents. A week ago the Company did announce a reduced dividend for the IVQ 2007: 18 cents, a whopping 38% drop. The stock price has tumbled 58% from its 52-week high back in February. Today the stock is just shy of $10.0 and has been trading between $9.5-$10.5 since late October when it dropped off a cliff. Time to buy ? We say no. YSI is still too expensive for our blood.

Iowa Telecommunications (IWA) provides wireline and other services to customers in rural Iowa. For a high yield dividend investor Iowa is attractive for its consistent revenues and cash flow. Let me illustrate: third quarter 2007 revenues and EBITDA were both just 2% over the same period last year. This is a high margin business too: Adjusted EBITDA is over 50% of revenues. We especially like that Free Cash Flow (which we define as EBITDA less interest and capital expenditures and cash taxes) is well in excess of the current dividend. The Company has been using the extra money to pay down debt which is a little high at $485mn. Still debt is manageable, with cash flow after capex and cash taxes covering interest over 3X.

Judging by the stock price of Technology Investment (TICC),which just reached a 52 week low and has dropped over 40% from its high, the end of the world is here. From $17.52 a few months ago, TICC has dropped to just over the $10 mark. We're here to tell you the situation is not as dire as the stock movement would lead one to conclude. (TICC is a Business Development Company whose area of focus is providing senior debt to the technology industry).

Admittedly, TICC does have a problem: bad debts. The Company has 31 companies in portfolio, and 2 are in serious trouble. Genu-Tech started to deteriorate late in 2006, and Falcon Communications in spring 2007. Today, TICC has $28mn in non-performing loans out of a $400mn portfolio, or 7%. More importantly, the non-accruing income amounts to 10% of the Company's third quarter 2007 Net Investment Income annualized (after adding back non-accrued income). We've known about these two duds for months now, so the write downs (to virtually nothing) that TICC has taken are no great surprise. In fact, Genu-Tech has already been re-structured, with most of the debt outstanding converted to preferred stock. Only time will tell if TICC recovers any of the write-offs. In the meantime, TICC has lost about $1 in Net Asset Value per share, but the stock is down $7.25.

Hercules Technology Growth Capital (HTGC), currently the only Business Development Company focused on lending and investing in technology and life science companies, has just crossed a threshold. After eight consecutive dividends of 30 cents a share pegged above the Company's Net Investment Income Per Share ("NIIPS" for short), HTGC recorded a 31 cent NIIPS in the 3Q of 2007. We're predicting that we'll be hearing about a dividend increase to 35 cents (or more) very soon. For the year ending September 2007, distributions were 98% ordinary income. Given the recent ramp up in earnings, this suggests Taxable Income is outrunning distributions. Ergo, HTGC will have to increase its dividend shortly to keep within the BDC tax rules.

First, though, let's go back to the numbers. HTGC achieved record Revenues and Net Investment Income for the period, blowing away the prior year comparables. Despite nearly tripling the shares outstanding in a year, the Company still managed to rack up an 8 cent increase in diluted NIIPS. That's a 34% increase in twelve months. The balance sheet remained very strong, with debt outstanding only accounting for 13% of equity capital. Credit quality-always a concern with a BDC which invests (partly) in early stage venture deals at the senior level-with only 2% of investments in the lowest 2 portfolio grades.

We've just reviewed the Kohlberg Capital Corporation's (KCAP) 3Q 2007 Earnings report and listened to the Conference Call. We remain convinced that the Company is on the right track, and does not deserve the pounding which the stock price has taken, down nearly 50% from its high. However, there are some issues to worry about.

Starting with the results: Net Investment Income came in at $6.7mn, up from $5.9mn in the prior quarter, or 37 cents a share, up from 33 cents just a quarter ago. The loan portfolio remains heavily weighted to senior debt, and credit quality remains excellent: NO loans on non-accrual from the 83 in portfolio. In the IIIQ of 2007 KCAP also invested another $5mn in subordinated CLO securities issued by its subsidiary, Katonah Debt Advisors. The $33mn Kohlberg has in these securities accounts for 7.6% of investment assets, but contributes twice that much to total revenues. As the first loss piece, this is the riskiest portion of the Company's portfolio, but KCAP is being paid for the risk, earning 28% of annualized yield in the quarter. No loan in the CLO is in default either.

After reviewing the IIIQ 2007 earnings report and reading the conference call transcript for U-Store-It Trust (YSI), we came to one clear conclusion: the dividend is likely to be cut. U-Store-It is the third largest public self storage company in the United States, and in the midst of an operational turnaround. A new CEO and senior management team, brought in from Storage USA, has been busy re-thinking the business as the stock price has dropped more than 50% from its 52 week high. (All three self-storage public companies have dropped in value, but YSI has been leading the pack by a wide margin).

Anyway, the new CEO Dean Jernigan has been implementing a wide range of initiatives. He's brought in new senior managers, and added 4 facility service managers responsible for upgrading all the company's warehouses. YSI has been spending heavily on repainting all 160 storage centers (100 done, 60 to go), undertaking repairs and improvements wherever necessary. Maintenance capex is up, as are regular maintenance costs which are expensed through the P&L. This physical upgrade is necessary to increase occupancy and rates, and to remain competitive, and is months from completion. Even after the upgrades are completed, we'd expect to see U-Store-It spend more heavily than was previously the case. Moreover, Jernigan has authorized an aggressive discounting program to bring in new tenants, and waiving of administrative fees, and additional marketing and promotion to get the word out.

American Capital Strategies (ACAS), the largest Business Development Company ("BDC") and the only one in the S&P 500, has just reported 3Q 2007 earnings, and provided guidance for 2008. Regarding the latter, ACAS is projecting-with great confidence because most of the funds for distribution will be coming from already realized gains-$4.19 in 2008, versus $3.72 in 2007, a 13% increase. Comparing the IVQ 2007 dividend (just raised to $1.00 yesterday) to the IV Q 2008 projected dividend, the increase will be 10.0%, viz. the AA rating. We had previously expected a more modest 6% increase in 2008, given the summer credit crunch.

Our confidence in the ACAS projection is high, partly due to the fact that the Company's Net Operating Income from interest and dividends is covering 80% + of the dividend. Another confidence boosting factor is that ACAS has announced nearly 75 cents a share of realized gains spilling over from 2007 into 2008. Finally, ACAS has just announced a change in its dividend policy: all long term capital gains will be retained rather than a deemed distribution paid. This will leave ACAS with more spillover income to use to manage the dividend.