New York-based PennantPark, a credit manager that handles BDCs and private debt funds, has signed an agreement to acquire the MCG Capital Corporation and merge it into its own PennantPark Floating Rate (PFLT) publicly-traded vehicle. PennantPark will acquire all outstanding shares of MCG in a stock and cash transaction valued at about $175 million, or approximately $4.75 per MCG share at closing. MCG shares ended trading at $4.09 yesterday (28 April) on the NASDAQ stock exchange.
Approximately 11.8 million shares of PennantPark common stock will be exchanged for about 37 million shares of MCG common stock, subject to adjustment in certain circumstances, said a statement from MCG. If the merger agreement falls through for any reason, MCG may be required to pay PennantPark a termination fee of $7 million. The transaction is expected to close in the third quarter of 2015, subject to approval by MCG and PennantPark’s respective shareholders.
PDI reported in February that MCG was weighing a sale in conjunction with winding down its business. In tandem with announcing the deal with PennantPark, MCG also reported its first quarter earnings results today (29 April). The firm had $129 million or $3.48 per outstanding share of unrestricted cash. Total assets were $180.9 million at the end of the first quarter, compared to $183.8 million at the end of 2014. Net income for the quarter was $1.3 million, compared to a loss of $18.9 million in the same quarter last year.
PennantPark was founded in 2007 by former Apollo Investment Management executive Art Penn. Since its founding through the end of last year, the firm has deployed $4.3 billion to 350 companies (with 145 sponsors), according to its website. PennantPark manages two publicly-traded BDCs: the PennantPark Investment Corporation and the PennantPark Floating Rate Capital, as well as a private fund, the PennantPark Credit Opportunities Fund II, which raised $39.5 million in January, according to SEC filings. PFLT shares are currently trading at around $14.15 per share.