Fitch Downgrades MCG Capital Corp's IDR to 'BB-'; Rating Watch Negative

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CHICAGO--(BUSINESS WIRE)-- Fitch Ratings has downgraded the long-term Issuer Default Rating (IDR) and unsecured debt rating of MCG Capital Corporation (MCG) to 'BB-' from 'BB'. The ratings have also been placed on Rating Watch Negative. Approximately $8.7 million of unsecured debt is affected by these actions.

The rating downgrade reflects the sudden departure of Chief Executive Officer (CEO), Stephen F. Tunney Sr. and the potential impact of his departure on MCG's warehouse facility with SunTrust. MCG is exposed to key-man risk within its business, as the departure of CEO Steven Tunney, or EVP, Business Development B. Hagen Saville, could result in a default under the SunTrust Warehouse facility, unless a replacement, which is reasonably acceptable to the bank, is found within 90 calendar days. If no replacement is found, the termination date of the facility would be accelerated.

Fitch believes the acceleration of the facility's maturity could further weaken the company's liquidity profile and reduce MCG's already limited funding flexibility. At June 30, 2011 approximately $77 million on the $150 million warehouse facility was outstanding. The ratings also reflect Fitch's view that Stephen Tunney was an integral part of MCG's operational and strategic management.

Fitch expects to resolve the Rating Watch Negative in the near term as MCG works with SunTrust to amend the credit facility covenant. Upon resolution, the ratings could be affirmed or downgraded several notches to reflect the company's liquidity and funding profile, its core operating performance, as well as the impact of any strategic actions on creditors, including the use of cash for significant share repurchase activity or a decline in the quality of unencumbered assets.

As a business development company MCG primary lends to and or invests in middle-market companies. Investment capital is often used to fund acquisitions, recapitalizations, buyouts or to support organic growth and working capital. The company is headquartered in Arlington, Virginia.

Fitch has downgraded the following ratings and placed them on Rating Watch Negative:

MCG Capital Corporation

-- Long-term IDR downgraded to 'BB-' from 'BB';

-- Senior unsecured debt downgraded to 'BB-' from 'BB'.

Additional information is available at 'www.fitchratings.com' . The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

Applicable Criteria and Related Research:

-- 'Global Financial Institutions Criteria' (Aug. 16. 2011);

-- 'Investment Manager and Alternative Funds Criteria' (Dec. 23, 2010).

Applicable Criteria and Related Research:

Global Financial Institutions Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=649171

Investment Manager and Alternative Funds Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=590125

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