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NASDAQ – GS: MAIN
Introduction to Business
Development Companies (“BDCs”)
and Main Street Capital Corporation
NYSE: MAIN
M A I N
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Forward-Looking Statements and Non-GAAP Financial Measures
This presentation contains forward-looking statements regarding the plans and objectives of management
for future operations. Any such forward-looking statements may involve known and unknown risks,
uncertainties and other factors which may cause our actual results, performance or achievements to be
materially different from future results, performance or achievements expressed or implied by any forward-
looking statements. Forward-looking statements, which involve assumptions and describe our future plans,
strategies and expectations, are generally identifiable by use of the words “may,” “will,” “should,” “expect,”
“anticipate,” “estimate,” “believe,” “intend” or “project” or the negative of these words or other variations on
these words or comparable terminology. These forward-looking statements are based on assumptions that
may be incorrect, and we cannot assure you that the projections included in these forward-looking
statements will come to pass. Our actual results could differ materially from those expressed or implied by
the forward-looking statements as a result of various factors, including the factors discussed under the
captions “Cautionary Statement Concerning Forward Looking Statements” and “Risk Factors” included in our
filings with the Securities and Exchange Commission. Other factors that could cause actual results to differ
materially include changes in the economy and future changes in laws or regulations and conditions in our
operating areas. We have based the forward-looking statements included in this presentation on information
available to us on the date hereof, and we assume no obligation to update any such forward-looking
statements, unless we are required to do so by applicable law. However, you are advised to consult any
additional disclosures that we may make directly to you or through reports that we in the future may file with
the Securities and Exchange Commission, including annual reports on Form 10-K, quarterly reports on Form
10-Q and current reports on Form 8-K.
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Business Development Companies (“BDCs”)
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Overview
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Created by the Small Business Investment Incentive Act of 1980 (the
“1980 Amendments”) as a result of a perceived crisis in the capital
markets in the 1970s
Private equity and venture capital firms believed the “small private
investment company” exemption (Section 3(c)(1) of 1940 Act) limited
their capacity to provide financing to small, growing businesses
Provided Regulated Investment Company (RIC) status in 1990
Special type of closed-end fund that:
Provides small, growing companies access to capital
Enables private equity funds to access the public capital markets
Enables retail investors to participate in the upside of pre-IPO
investing with complete liquidity
Hybrid between an operating company and an investment company
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Key Market Role
M A I N
NYSERetail Investors
Public Equity Capital MarketsAccredited
Investors
Business Development Companies
Small and Middle-Market
Businesses
Investment
Company Act of 1940
Private Equity Firms
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Benefits of BDCs as an Investment Vehicle
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Access to public capital markets
Shares are traded on national exchanges
Flow-through tax treatment as RIC
Reduced burden under 1940 Act, as compared to closed-end funds
Restrictions on leverage
Restrictions on affiliated transactions
External model permits management fee and “carried interest” incentive
fee structure
Publicly available financial information though quarterly reporting
Portfolio is typically diversified
Reduces risk typically associated with private equity investments
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BDC Industry Renaissance
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Prior to 2003, the largest BDCs were primarily internally managed
Choice reflected the success of the internally managed, income
producing BDC model
In 2004, Apollo Investment Corporation raised $930 million in less than three
months which ignited the growth in the BDC industry
There has been a steady stream of BDC IPOs since that period
Approximately 35 internally and externally managed BDCs make up the
current BDC space; 29 of which are the subject of frequent research
Current BDC space has average Market Capitalization of $591 million with
the 10 largest BDCs having a combined Market Capitalization of $13.3
billion*
Since the beginning of 2012, existing BDCs have completed 9 follow-on
offerings with combined gross proceeds in excess of $925 million*
* As of March 9, 2012.
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Non-Traded BDC Structures
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The first registered, continuously-offered unlisted BDC, FS Investment
Corporation, commenced fundraising in 2008; since then, these fund
vehicles have grown rapidly and gained the attention of potential sponsors
and the capital markets
Longer offering period with periodic closings (as opposed to IPO)
Subject to individual state registration requirements for public offerings,
which can be time-consuming and expensive
Less susceptible to capital raise constraints caused by market downturns
due to ability to adjust periodic offering price to remain at or above NAV
Lack of price fluctuation attractive to yield-based investors
Not fully liquid: exit through periodic repurchase offers (often at discount to
NAV)
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Eligible BDC Investments
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A BDC must invest 70% of its assets in “good” BDC assets
70% basket includes securities issued by an eligible portfolio company, as defined
in Section 2(a)(46), which includes:
U.S. issuers that are neither an investment company as defined in section 3
(other than a wholly-owned SBIC) nor a company which would be an
investment company except for the exclusion from the definition of
investment company in section 3(c) and
(i) do not have any class of securities listed on a national securities
exchange; or
(ii) have a class of securities listed on a national securities exchange,
but have an aggregate market value outstanding voting and non-voting
common equity of less than $250 million
A BDC can generally invest with flexibility in “bad” assets that do not fall within the
“70% basket”
The SEC Staff has never been called upon to consider whether utilizing a
specific strategy for the entire “30% basket,” e.g., investing solely in foreign
companies, might run afoul of the intent of Section 55(a)
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BDC Borrowing Limitations
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BDCs must have 200% asset coverage (Total Assets/Total Debt)
For example, a BDC with $50 in equity can borrow up to $50
A BDC would be able to invest $100 in growing businesses
Other investment companies are restricted to a 300% asset coverage
requirement with respect to issuing debt
BDCs may exclude leverage at the SBIC level if the SEC grants
exemptive relief
$50
Debt$50
Equity $50
Equity
$25
Debt$50
Equity $50
Equity
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How do BDCs Value Their Assets?
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Investments are reported at fair value
FASB ASC 820 – Fair Value Measurements and Disclosures
Fair Value – Price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants
at measurement date
Regulated investment companies also governed by definition of “value”
in Investment Company Act of 1940 further interpreted in SEC
Codification of Financial Reporting section 404.03 – “fair value as
determined in good faith by the board of directors”
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Tax Considerations for BDCs
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A BDC may elect to be taxed as a RIC under the Internal Revenue
Code
Taxation as a RIC
Allows “pass through” tax treatment for income and capital gains
that are distributable to shareholders
A BDC must distribute at least 90% of its investment income to
shareholders annually
The BDC may retain, distribute or “deem distribute” capital gains
BDC must meet minimum source of income requirements annually
and meet requirements on a quarterly basis with respect to
portfolio diversification
Conversion to RIC status
Formation considerations – Built-in gains
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BDC Market Statistics
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BDC Market Statistics
Source: Morgan Keegan – BDC Weekly Update, March 16, 2012.
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BDC Market Statistics
Source: Morgan Keegan – BDC Weekly Update, March 16, 2012.
(1) Dividend Yield uses the current dividend annualized.
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BDC Market Statistics
Source: Morgan Keegan – BDC Weekly Update, March 16, 2012.
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BDC Market Statistics
Source: Morgan Keegan – BDC Weekly Update, March 16, 2012.
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Main Street Capital Corporation
Corporate Overview
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MAIN is a Principal Investor in Private Debt and Equity
Publicly-traded on the New York Stock Exchange (NYSE: “MAIN”)
Internally-managed Business Development Company
IPO in October 2007
Over $800 million in assets under management
Primarily invests in the under-served Lower Middle Market (LMM)
Companies with revenue between $10 million - $100 million;
EBITDA generally between $2 million - $10 million
Self-sponsored/self-originated orientation – partner with business
owners and entrepreneurs
Recapitalizations, buyouts, growth and acquisition capital
High level of management ownership/investment in MAIN
Headquartered in Houston, Texas
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MAIN is a Principal Investor in Private Debt and Equity
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High cash dividend yield – dividends paid monthly
Long-term focus on delivering shareholders sustainable growth in both the
value of portfolio assets and recurring dividends
Owns two Small Business Investment Company (SBIC) Funds
Main Street Mezzanine Fund (2002 vintage) and Main Street Capital II
(2006 vintage)
Provides access to 10-year, low cost, fixed rate government-backed
leverage
Strong capitalization and liquidity position – stable, long-term debt and
significant available liquidity
Internally managed cost structure provides significant operating leverage
Favorable ratio of total operating expenses, excluding interest
expense, to average total assets of 2.2%
Greater portion of gross portfolio returns are delivered to our
shareholders
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MAIN Regulatory Framework
Operates as Business Development Company
Regulated by SEC - 1940 Act
Publicly-traded, private investment company
Regulated Investment Company (RIC) tax structure
Eliminates corporate level income tax
Efficient tax structure providing high yield to investors
Passes through capital gains to investors
Small Business Investment Company subsidiaries
Regulated by SBA
Access to low cost, fixed rate, long-term leverage
Total leverage capacity of $225 million
MAIN received 2011 SBIC of the Year Award
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MAIN Corporate Structure – Internally Managed
Main Street Mezzanine
Fund, LP(2002 vintage SBIC)
Assets: ~$247 million
SBIC Debt: $125 million
Main Street Capital II, LP(2006 vintage SBIC)
Assets: ~$159 million
SBIC Debt: $95 million
“Internally managed” means no external management fees or expenses and provides operating leverage to
MAIN’s business. MAIN targets cash operating and administrative costs at or less than 2% of total assets.
Main Street Capital
Corporation
(BDC/RIC)Assets: ~$332 million
Line of Credit: $107 million
($235 million facility)
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M A I N
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Flexible Capital for the Lower Middle Market
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Market Segment Opportunity for LMM Investment Strategy
MAIN targets LMM investments in established, profitable companies
Large and critical portion of U.S. economy
175,000+ domestic LMM businesses(1)
LMM is under-served from a capital perspective and less
competitive
Inefficient asset class generates pricing inefficiencies
Enterprise values average 4X – 5X EBITDA and leverage
multiples average 2X – 3X EBITDA to MAIN
Ability to become a partner vs. a “commoditized vendor of
capital”
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(1) Source: U.S. Small Business Administration, Office of Advocacy
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LMM Investment Portfolio
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Privately Placed Debt Investment Strategy
MAIN also maintains a portfolio of privately placed, interest-bearing debt
investments
Favorable market environment has generated attractive investment opportunities
Generally larger issuances of secured and/or rated debt securities
69% of current privately-placed debt portfolio is first lien term debt and 31% is second lien term debt
Most have a B or BB S&P rating
Generally larger companies than LMM investment strategy
Current privately-placed portfolio has weighted average revenues of approximately $367 million
7% - 12% targeted gross yields
27 investments representing 27% of total portfolio at cost
Weighted average yield of 10.6%
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Includes complimentary LMM debt and equity investments and privately placed debt investments
Total portfolio consists of 73% LMM / 27% privately placed investments (as a percentage of cost)
81 portfolio companies
Average investment size of $6.2 million
Largest individual portfolio company represents 3.2% of total investment income and 4.3% of total portfolio fair value
Significant diversification
Issuer
Industry
Transaction type
Geography
End markets
Total Investment Portfolio
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Total Portfolio by Industry (as a Percentage of Cost)
Commercial Services & Supplies, 11%
Energy Equipment & Services, 10%Machinery, 8%
Media, 7%
Health Care Providers & Services, 7%
Construction & Engineering, 5%Software, 4%
Specialty Retail, 4%
Hotels, Restaurants & Leisure, 4%
Insurance, 3%
Electronic Equipment, Instruments & Components, 3%
Food & Staples Retailing, 3%
Professional Services, 3%
Internet Software & Services, 2%
Diversified Consumer Services, 2%
Building Products, 2%
Food Products, 2%
Paper & Forest Products, 2%
Health Care Equipment & Supplies, 2%
Auto Components, 2%
Consumer Finance, 2%
Transportation Infrastructure, 1%
Chemicals, 1%
Leisure Equipment & Products, 1%
Trading Companies & Distributors, 1%
Pharmaceuticals, 1%
Real Estate Management & Development, 1%
IT Services, 1%
Internet & Catalog Retail, 1%
Diversified Telecommunication Services, 1%
Construction Materials, 1%
Containers & Packaging, 1%
Other, 1%
Combined Portfolio
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Diversified Total Portfolio (as a Percentage of Cost)
Growth Capital
22%Acquisition
19%
Recapitalization/Refinancing
33%
28%
42%
12%
9%
9%
LBO/MBO
26%
Invested Capital by
Transaction Type
Invested Capital by
Geography
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MAIN Total Return Performance Since IPO
Notes:
(1) Assumes dividends reinvested on ex-dividend date
(2) BDC Index includes: ACAS, AINV, ARCC, BKCC, FDUS, FSC, GAIN, GBDC, GLAD, HRZN, HTGC, KCAP, MAIN, MCC, MCGC, MVC, NGPC, NMFC,
PNNT, PSEC, SAR, SLRC, SUNS, TCAP, TCRD, TICC and TINY
(3) BDC Index is equal weighted
(4) First trading date is October 4, 2007 and last trading date is December 30, 2011
Jan.
08
Apr. 0
8
Jul. 0
8
Oct.
08
Jan.
09
Apr. 0
9
Jul. 0
9
Oct.
09
Jan.
10
Apr. 1
0
Jul. 1
0
Oct.
10
Jan.
11
Apr. 1
1
Jul. 1
1
Oct.
11
20%20%
40%40%
60%60%
80%80%
100%100%
120%120%
140%140%
160%160%
180%180%
200%200%
220%220%
MAIN (118.4%) S&P 500 (-10.1%) BDC Index (42.7%) Russell 2000 (-4.6%)
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Q&A
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Contact Information
Main Street Capital Corporation
1300 Post Oak Blvd., Suite 800
Houston, TX 77056
713-350-6000 (main)
713-350-6042 (fax)
www.mainstcapital.com
Vincent D. Foster
Chairman of the Board and Chief Executive Officer
713-350-6039
Alejandro Capetillo
Associate
713-350-6023
