SEC Division of Investment Management staff letter: MCG Capital Corporation

RESPONSE OF THE
EXEMPTIVE APPLICATIONS OFFICE Our Ref. No. 2013-1-EAO DIVISION OF INVESTMENT MANAGEMENT MCG Capital Corporation Your letter dated September 27,2013, requests our assurance that we would not recommend enforcement action to the Securities and Exchange Commission ("Commission") against MCG Capital Corporation ("MCG") under sections 23(a), 23(b), 23(c), 57(a)(4), 57(i) and 63 ofthe Investment Company Act of 1940 (the "Act") or rule 17d-1 thereunder ifMCG does not rescind awards of its restricted stock ("Restricted Stock") previously made in compliance with the terms and conditions of the Orders (as defined below) and makes new awards ofRestricted Stock, both as described below. MCG is an internally managed, non-diversified, closed-end investment company that has elected to be regulated as a business development company under the Act. On April 4, 2006, the Commission issued MCG an exemptive order permitting it to issue Restricted Stock to its employees and directors subject to certain conditions ("2006 Order"). 1 MCG has two Restricted Stock plans: the Third Amended and Restated 2006 Employee Restricted Stock Plan (the "Employee Plan"), and the Third Amended and Restated 2006 Non-Employee Director Restricted Stock Plan (together with the Employee Plan, the "Plans"). Condition 4 ofthe 2006 Order limits the maximum amount of Restricted Stock that may be issued under the Plans to no more than 10% of the outstanding shares of common stock of MCG on the effective date ofthe Plans plus 10% ofthe number of shares of MCG' s common stock issued or delivered by MCG (other than pursuant to compensation plans) during the term of the Plans ("Threshold"). You state that, for purposes of condition 4, the "effective date of the Plans" refers to June 12, 2006, the date that MCG's stockholders initially approved the Plans. You state that MCG counts as Restricted Stock under the Orders all shares of MCG' s common stock that are issued pursuant to the Plans less any shares that are forfeited back to MCG and cancelled as a result of the forfeiture restrictions not lapsing. MCG also counts as Restricted Stock under the Orders the shares ofMCG's common stock that were issued in November 2001 in connection with the termination ofMCG's stock option plan. You state that as of June 30, 2013 , MCG had made awards of Restricted Stock under the Plans equal to 6,436,996 shares, which are 9.93% ofthe total outstanding shares of common stock (excluding shares previously issued pursuant to compensation plans). You state that at the time each award was made, it was made in compliance with the then-effective Threshold calculation set forth in condition 4. On January 17, 2012, you state that MCG's board of directors approved a stock repurchase program ("Repurchase Program") for reasons unrelated to the Plans. You state however, that MCG did not anticipate engaging in share repurchases at the time it sought the 1 MCG Capital Corporation, Investment Company Release Nos. 27258 (March 8,
2006) (notice) and 27280 (April4,
2006) (order). The Commission issued a second order to MCG on April20, 2010, permitting MCG to withhold
shares of its common stock or purchase shares ofits common stock from plan participants to satisfy tax withholding obligations related to the vesting ofRestricted Stock. MCG Capital Corporation, Investment Company Release Act Nos. 29191 (March 25, 2010) (notice) and 29210 (April20, 2010) (order) ("2010 Order"). (The 2010 Order together with the 2006 Order, the "Orders").