MCG Capital Corporation (Nasdaq: MCGC) today announced that on February 16, 2006 its Board of Directors declared a dividend of $0.42 per share for the first quarter of 2006. The actual tax characteristics of this dividend will be reported to each shareholder on a Form 1099.

The dividend is payable as follows: Record date: March 16, 2006

Payable date: April 27, 2006

In addition, MCG announced today its results for the quarter and year ended December 31, 2005.

Highlights:

- Q4 2005 gross originations and advances of $222.1 million and net

investment growth of $158.6 million, and 2005 gross originations and

advances of $578.3 million and net investment growth of $217.2 million

- Q4 2005 operating income of $32.9 million, up 41% from $23.3 million for

Q4 2004, and 2005 operating income of $119.5 million, up 28% from $93.1

million for 2004

- Q4 2005 net operating income of $16.7 million, up 88% from $8.9 million

for Q4 2004, and 2005 net operating income of $60.5 million, up 34% from

$45.1 million for 2004

- Q4 2005 net income of $18.6 million, down 3% from $19.1 million for Q4

2004, and 2005 net income of $68.2 million, up 43% from $47.6 million

for 2004

- Q4 2005 basic earnings per share of $0.37, down 14% from $0.43 for Q4

2004, and 2005 basic earnings per share of $1.42, up 22% from $1.16 for

2004

- Issued $50.0 million of unsecured, investment grade 5 year notes during

Q4 2005

- Raised approximately $49.0 million of gross proceeds in a public

offering during Q4 2005

We invite interested parties to join our analyst call today at 10:30 a.m. ET for a further discussion of our fourth quarter 2005 financial results. The dial-in number for the call is (800) 289-0496. International callers should dial (913) 981-5519. Please dial-in at least five minutes prior to the call to register. The call may also be accessed via an audio webcast available on the MCG website at http://investor.mcgcapital.com. Click on the February 22, 2006, Conference Call to access the call. A recording of the call will be available through March 1, 2006. The replay dial-in number is (888) 203- 1112. International callers should call (719) 457-0820. The replay pass code is 6343224. The replay will also be available via MCG's website. Financial information provided in the investor conference call will be available on our website at http://www.mcgcapital.com prior to the call.

MCG Capital Corporation

Consolidated Balance Sheets

(in thousands, except per share amounts)

December 31,

2005 2004

Assets

Cash and cash equivalents $45,626 $82,732

Cash, securitization accounts 82,107 79,473

Cash, restricted 1,977 -

Investments at fair value

Non-affiliate investments (cost of $733,717

and $573,658, respectively) 745,757 578,416

Affiliate investments (cost of $46,168 and

$52,480, respectively) 46,156 47,728

Control investments (cost of $337,372 and

$272,616, respectively) 305,647 254,256

Total investments (cost of $1,117,257

and $898,754, respectively) 1,097,560 880,400

Unearned income on commercial loans (9,062) (12,529)

Total investments net of unearned income 1,088,498 867,871

Interest receivable 10,602 5,729

Other assets 15,677 17,706

Total assets $1,244,487 $1,053,511

Liabilities

Borrowings (maturing within one year of

$362,435 and $82,805, respectively) $541,119 $467,400

Interest payable 5,904 2,925

Dividends payable 20,967 19,043

Other liabilities 10,410 9,930

Total liabilities 578,400 499,298

Commitments and contingencies

Stockholders' Equity

Preferred stock, par value $.01, authorized 1

share, none issued and outstanding - -

Common stock, par value $.01, authorized

200,000 shares on December 31, 2005 and

100,000 on December 31, 2004, 53,372 issued

and outstanding on December 31, 2005 and 45,342

issued and outstanding on December 31, 2004 534 453

Paid-in capital 758,433 640,879

Distributions in excess of earnings:

Paid -in Capital (39,219) (28,998)

Other (26,784) (27,780)

Net unrealized depreciation on investments (19,697) (18,354)

Stockholder loans (3,624) (4,601)

Unearned compensation - restricted stock (3,556) (7,386)

Total stockholders' equity 666,087 554,213

Total liabilities and stockholders'

equity $1,244,487 $1,053,511

Net asset value per common share at period end $12.48 $12.22

MCG Capital Corporation

Consolidated Statements of Operations

(in thousands, except per share amounts)

Three Months Ended Year Ended

December 31, December 31,

2005 2004 2005 2004

Operating income

Interest and dividend income

Non-affiliate investments (less

than 5% owned) $19,765 $13,194 $69,760 $51,898

Affiliate investments (5% to 25%

owned) 1,408 1,593 5,745 3,999

Control investments (more than 25%

owned) 7,694 5,623 30,761 21,954

Total interest and dividend income 28,867 20,410 106,266 77,851

Advisory fees and other income

Non-affiliate investments (less

than 5% owned) 3,729 2,879 12,317 9,306

Affiliate investments (5% to 25%

owned) - - - 495

Control investments (more than 25%

owned) 302 2 962 5,465

Total advisory fees and other income 4,031 2,881 13,279 15,266

Total operating income 32,898 23,291 119,545 93,117

Operating expenses

Interest expense 7,892 3,997 23,100 10,509

Employee compensation:

Salaries and benefits 4,889 5,996 19,331 15,693

Long-term incentive compensation 1,101 1,683 6,523 11,683

Total employee compensation 5,990 7,679 25,854 27,376

General and administrative expense 2,309 2,736 10,076 10,142

Total operating expenses 16,191 14,412 59,030 48,027

Net operating income before

investment gains and losses 16,707 8,879 60,515 45,090

Net realized gains (losses) on

investments

Non-affiliate investments (less

than 5% owned) (1,979) (985) 5,741 1,939

Affiliate investments (5% to 25%

owned) 395 - 205 (2,531)

Control investments (more than 25%

owned) (10,075) - 3,075 (7,658)

Total net realized gains

(losses) on investments (11,659) (985) 9,021 (8,250)

Net change in unrealized appreciation

(depreciation) on investments

Non-affiliate investments (less

than 5% owned) 2,167 2,777 7,279 378

Affiliate investments (5% to 25%

owned) 1,794 (1) 5,289 (1,186)

Control investments (more than 25%

owned) 9,551 8,434 (13,911) 11,615

Total net change in unrealized

appreciation (depreciation) on

investments 13,512 11,210 (1,343) 10,807

Net investment gains (losses) 1,853 10,225 7,678 2,557

Net income $18,560 $19,104 $68,193 $47,647

Earnings per common share basic $0.37 $0.43 $1.42 $1.16

Earnings per common share diluted $0.37 $0.43 $1.42 $1.15

Cash dividends declared per common

share $0.42 $0.42 $1.68 $1.68

Weighted average common shares

outstanding 50,550 44,804 48,109 41,244

Weighted average common shares

outstanding and dilutive common

stock equivalents 50,550 44,854 48,131 41,298

The following table shows the components of our net operating income and distributable net operating income for the three months and years ended December 31, 2005 and 2004:

Three Months Ended Year Ended

December 31, December 31,

2005 2004 2005 2004

(dollars and shares

in thousands)

Operating income

Interest and dividend income $28,867 $20,410 $106,266 $77,851

Fees and other income 4,031 2,881 13,279 15,266

Total operating income 32,898 23,291 119,545 93,117

Operating expenses

Interest expense 7,892 3,997 23,100 10,509

Employee compensation:

Salaries and benefits 4,889 5,996 19,331 15,693

Long-term incentive

compensation (a) 1,101 1,683 6,523 11,683

Total employee compensation 5,990 7,679 25,854 27,376

General and administrative

expense 2,309 2,736 10,076 10,142

Total operating expenses 16,191 14,412 59,030 48,027

Net operating income (b) $16,707 $8,879 $60,515 $45,090

Net operating income per share $0.33 $ 0.20 $1.26 $ 1.09

Following is a reconciliation of

net operating income to

distributable net

operating income (c):

Net operating income (b) $16,707 $8,879 $60,515 $45,090

Long-term incentive

compensation (a) 1,101 1,683 6,523 11,683

Distributable net operating

income (c) $17,808 $10,562 $67,038 $56,773

Distributable net operating

income per share (d) $0.35 $ 0.23 $1.38 $ 1.35

Distributable net operating

income per share-record

date shares (e) $0.36 $ 0.23 $1.40 $ 1.39

(a) Includes non-cash amortization expense associated with certain

restricted shares and the expense associated with the dividends on

performance based restricted shares and shares securing employee loans

(which are shown as compensation expense for GAAP purposes).

(b) These amounts represent net operating income before investment gains

and losses in the Consolidated Statements of Operations.

most comparable to net operating income before investment gains and

losses as shown in the Consolidated Statements of Operations.

Management believes that distributable net operating income provides a

guide to amounts from operations that may be distributable to

shareholders. However, actual distributions may vary and such amounts

identified in this table are not intended to represent amounts we will

actually distribute in future periods. Distributable net operating

income may not be comparable to similarly titled measures reported by

other companies.

Distributable net operating income does not represent net income or

net cash provided by operating activities in accordance with GAAP and

should not be considered an alternative to such items as an indication

of our performance. Distributable net operating income should not be

considered an alternative to cash flows as a measure of liquidity or

ability to make distributions.

(d) This amount is computed based on weighted average common shares

outstanding subject to dividends which is the weighted average common

shares outstanding as disclosed in the Consolidated Statements of

Operations, together with the weighted average of shares related to

restricted stock awards for which forfeiture provisions have not

lapsed. The weighted average of shares related to restricted stock

awards for which forfeiture provisions have not lapsed total 208 and

543 for the three months ended December 31, 2005 and 2004,

respectively and 367 and 697 for the twelve months ended December 31,

2005 and 2004, respectively. These unvested shares are excluded from

weighted average common shares outstanding as disclosed in the

Consolidated Statements of Operations but are issued, outstanding and

subject to receipt of dividend.

(e) This amount is based on total shares outstanding at the record date

for which the dividend is payable for each respective quarterly

dividend.

Total operating income increased by $9.6 million, or 41%, for the quarter ending December 31, 2005 as compared to the quarter ending December 31, 2004. This increase was primarily the result of an increase in the size of our investment portfolio and an increase in yield. An increase in fees and other income also contributed to the increase.

The increase in total operating income for the quarter ending December 31, 2005 as compared to the quarter ending December 31, 2004 was made up of the following:

(dollars in millions)

Increase in LIBOR $4.1

Increase in loans 3.6

Increase in dividend income 1.8

Increase in advisory fees and other income 1.2

Decrease in Spread to LIBOR (0.7)

Decrease in scheduled fee amortization (0.6)

Increase in accelerated fee amortization 0.2

Total increase in operating income $9.6

Total operating expenses increased by $1.8 million, or 12%, for the quarter ending December 31, 2005 compared to the quarter ending December 31, 2004. This increase was due primarily to an increase in rates on our borrowing facilities and was also due to higher outstanding borrowings. The increase in rates is due to increases in LIBOR, to which the majority of our borrowings are indexed, as well as increases in the average spread to LIBOR. This increase was partially offset by a decrease in employee compensation and general and administrative expenses. The decrease in employee compensation was due primarily to a decrease in annual incentive compensation for the quarter ended December 31, 2005 as compared to the quarter ended December 31, 2004 and a decrease in long-term incentive compensation due to the final vesting of the majority of our restricted stock grants on September 30, 2005.

The increase in total operating expenses for the quarter ending December 31, 2005 as compared to the quarter ending December 31, 2004 was made up of the following:

(dollars in millions)

Increase in LIBOR $2.5

Increase in spread to LIBOR 1.3

Increase in borrowings 0.1

Decrease in salaries and benefits (1.1)

Decrease in long-term incentive comp (0.6)

Decrease in G & A (0.4)

Total increase in operating expenses $1.8

The following table shows the components of net investment gains and losses for the three months ended December 31, 2005 as compared to the three months ended December 31, 2004:

Three Months Ended

December 31,

(dollars in millions) 2005 2004

Net Unrealized Gains/(Losses) $1.6 $10.3

Net Realized Gains/(Losses) (11.7) (1.0)

Reversals of unrealized appreciation/(depreciation) 11.9 1.0

Net Investment Gains $1.8 $10.3

Net investment gains totaled $1.8 million for the fourth quarter of 2005 compared to $10.3 million for the fourth quarter of 2004. These amounts represent the total of net realized gains and losses, net unrealized appreciation and depreciation and reversals of unrealized appreciation and depreciation. Reversals of unrealized appreciation and depreciation occur when a gain or loss becomes realized. For the three months ended December 31, 2005, Net Unrealized Gains are comprised of loan investment gains of $3.0 million and equity investment losses of ($1.4) million. Net Realized Losses for the three months ended December 31, 2005 are comprised of loan investment losses of ($1.9) million and equity investment losses of ($9.8) million. Net unrealized gains for the fourth quarter of 2005 were lower than the fourth quarter of 2004 primarily due to unrealized appreciation of $8.5 million recorded in the fourth quarter of 2004 related to our investment in Creatas LLC. Net realized losses and reversals of unrealized depreciation for the fourth quarter of 2005 were primarily due to a realized loss of $10.1 million on our UMAC investment and the reversal of unrealized depreciation of the same amount which resulted in no impact to net investment gains.

Asset Quality

MCG uses an investment rating system to characterize and monitor our expected level of returns on each investment in our portfolio. We use the following 1 to 5 investment rating scale:

1 Capital gain expected or realized

2 Full return of principal and interest or dividend expected with

customer performing in accordance with plan

3 Full return of principal and interest or dividend expected but customer

requires closer monitoring

4 Some loss of interest or dividend expected but still expecting an

overall positive internal rate of return on the investment

5 Loss of interest or dividend and some loss of principal investment

expected which would result in an overall negative internal rate of

return on the investment

The following table shows the fair value of our investments on the 1 to 5 investment rating scale, as of December 31, 2005 and December 31, 2004 (excluding unearned income):

December 31, 2005 December 31, 2004

(dollars in

thousands) Percentage of Percentage of

Investment Investments at Total Investments at Total

Rating Fair Value Portfolio Fair Value Portfolio

1 $459,012(a) 41.8% $301,474(a) 34.2%

2 429,857 39.2 375,801 42.7

3 127,970 11.7 142,294 16.2

4 77,454 7.0 59,408 6.7

5 3,267 0.3 1,423 0.2

$1,097,560 100.0% $880,400 100.0%

(a) Of this amount, $16.7 million at December 31, 2005 and $15.7 million

at December 31, 2004 relates to debt instruments in companies for

which we have already realized a gain through the sale of equity

instruments. While these debt instruments are still outstanding, all

of the related equity instruments have already been sold at a gain

and, therefore, we do not expect any further realized gain.

At December 31, 2005, $1.1 million of the investments with a 5 rating were loans, all of which were on non-accrual status, and $32.5 million of the investments with a 4 rating were loans, $10.7 million of which were on non- accrual status. At December 31, 2004, $0.7 million of the investments with a 5 rating were loans, all of which were on non-accrual status, and $54.6 million of the investments with a 4 rating were loans, $13.9 million of which were on non-accrual status.

At December 31, 2005 and December 31, 2004, there were $16.8 million and $2.0 million, respectively, of loans, or approximately 1.5% and 0.2%, respectively, of the investment portfolio, greater than 60 days past due. At December 31, 2005, these past due loans were related to four portfolio companies. During early 2006, one of these companies, which accounted for $13.7 million of the loans greater than 60 days past due, made a portion of the interest payments that were greater than 60 days past due as of December 31, 2005. At December 31, 2005, $12.7 million of loans, including $3.2 million of the loans greater than 60 days past due, were on non-accrual status, representing 1.2% of the investment portfolio. At December 31, 2004, $16.0 million of loans, including all of the loans greater than 60 days past due, were on non-accrual status representing 1.8% of the investment portfolio.

Subsequent Events

Effective January 1, 2006, MCG deconsolidated its investment in Kagan Research LLC and will therefore account for this investment as a portfolio company. Prior to January 1, 2006, Kagan was accounted for as a consolidated subsidiary. We currently do not expect the deconsolidation of Kagan to have a material impact on our financial position or results of operations.

2006 Guidance

For 2006, we currently estimate that our dividends will be at least $1.68 per share. This estimate takes into consideration our estimates of distributable net operating income, capital gains and taxable income for 2006. The tax attributes of our 2006 dividends will be determined after the end of the year and will be reported to shareholders in a 1099.

About MCG Capital Corporation

MCG Capital Corporation is a solutions-focused specialized commercial finance company providing financing and advisory services to a variety of growth-oriented small and medium-sized companies throughout the United States. Our investment objective is to achieve current income and capital gains. Our capital is generally used by our portfolio companies to finance acquisitions, recapitalizations, management buyouts, organic growth and working capital.

Forward-looking Statements:

This press release contains forward-looking statements (i.e., statements that are not historical fact) describing the Company's future plans and objectives, such as our expectation to re-deploy cash balances into new investments, or the expected value resulting from a portfolio company's acquisition. These forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties, and other factors, some of which are beyond our control and difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements including, without limitation, the risks, uncertainties and other factors we identify from time to time in our filings with the Securities and Exchange Commission, including our Form 10-Ks, Form 10-Qs and Form 8-Ks. Although we believe that the assumptions on which these forward-looking statements are based are reasonable, any of those assumptions could prove to be inaccurate and, as a result, the forward-looking statements based on those assumptions also could be incorrect. In light of these and other uncertainties, the inclusion of a projection or forward-looking statement in this press release should not be regarded as a representation by us that our plans and objectives will be achieved. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this press release. We undertake no obligation to update such statements to reflect subsequent events.

Source: prnewswire