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"). 
2006 Order, and, as a result, the 2006 Order was silent on how to incorporate such repurchases 

into the Threshold calculation. MCG therefore proposes to comply with the Orders by 

decreasing the Threshold by 10% ofthe amount of shares repurchased pursuant to the 

Repurchase Program. You further state that MCG will not issue additional Restricted Stock 

under any compensation plan unless the number of shares ofMCG's common stock resulting 

from such issue together with all Restricted Stock outstanding under all compensation plans does 

not exceed 10% ofMCG's outstanding common stock at the time of such issue less the total 

number of shares ofMCG's common stock previously issued, in the aggregate, pursuant to the 

compensation plans. 

You are concerned that existing awards of Restricted Stock under the Plans may exceed 

the Threshold after it is reduced by repurchases, thus causing MCG to be in violation ofthe 

Threshold as modified by the proposal described above. To address MCG's concern, MCG 

requests assurances that the staff would not recommend that the Commission institute 

enforcement action under sections 23(a), 23(b), 23(c), 57(a)(4), 57(i) and 63 ofthe Act or rule 

17d-1 thereunder if MCG does not rescind awards of its Restricted Stock previously made in 

compliance with the terms and conditions ofthe Orders and makes new awards of Restricted 

Stock as described in this letter. In support of your request, you argue that the Repurchase 

Program will be accretive rather than dilutive to existing stockholders' equity. You also argue 

that reducing the Threshold for new awards by 10% ofthe amount of shares repurchased is 

consistent with the purpose of condition 4, which was designed to limit dilution of shareholders' 

equity. You state that MCG would exceed the Threshold only due to the decrease in the number 

of shares outstanding as a result of the Repurchase Program and not as a result ofthe issuance of 

additional Restricted Stock. 

Without necessarily agreeing with your analysis, based on the facts and representations 

made in your letter, and particularly based on your representations: that all Restricted Stock 

awards to date were made in compliance with the Threshold calculation set forth in Condition 4 

of the 2006 Order; that the effective date of the Plans refers to June 12, 2006, the date MCG's 

stockholders initially approved the Plans; and that MCG will decrease the Threshold by 10% of 

the amount of shares repurchased pursuant to the Repurchase Program, we would not 

recommend that the Commission institute enforcement action under sections 23(a), 23(b), 23(c), 

57(a)(4), 57(i) and 63 ofthe Act or rule 17d-1 thereunder ifMCG does not rescind awards ofits 

Restricted Stock previously made in compliance with the terms and conditions of the Orders and 

makes new awards of Restricted Stock as described herein. 

This response expresses the Division's position on enforcement action only, and does not 

purport to express any legal conclusions on the questions presented. Because our position is 

based upon all ofthe facts and representations in your letter, any facts or representations 

different from those presented in your letter might require a different conclusion. 

Steven I. Amchan 

Senior Counsel 

Exemptive Applications Office 

September 27, 2013 

2 

CYNTHIA M. KRUS 


DIRECT LINE: 202.383.0218 


E-mail: cynthia.krus@sutherland.com 


September 27, 2013 

Elizabeth G. Osterman, Esq. 

Associate Director, Exemptive Applications Office 

Division of Investment Management 

U.S. Securities and Exchange Commission 

100 F Street, NE 

Washington, DC 20549 

Re: MCG Capital Corporation 

Dear Ms. Osterman: 

We are writing on behalf ofMCG Capital Corporation ("MCG" or the "Corporation") to 

request the assurance of the staff of the Division of Investment Management ("Staff') that it 

would not recommend enforcement action to the Securities and Exchange Commission 

("Commission") against the Corporation under Sections 23(a), 23(b), 23(c), 57(a)(4), 57(i) and 

63 of the Investment Company Act of 1940 (the "1940 Act") or Rule 17d-1 thereunder if the 

Corporation does not rescind awards of its restricted stock ("Restricted Stock") previously made 

in compliance with the terms and conditions of the Exemptive Orders (as defined below) and 

makes new awards of Restricted Stock as described below. 

MCG Capital Corporation 

The Corporation is an internally managed, non-diversified, closed-end investment 

company that has elected to be regulated as a business development company ( "BDC') under the 

Investment Company Act of 1940, as amended (the "1940 Act'). 1 The Corporation was 

incorporated in Delaware in 1998. On March 18, 1998, the Corporation changed its name from 

MCG, Inc. to MCG Credit Corporation and, on June 14,2001, the Corporation changed its name 

from MCG Credit Corporation to MCG Capital Corporation. Shares of the Corporation's 

common stock are traded on the NASDAQ Global Select Market under the symbol "MCGC." 

The Corporation is a solutions-focused commercial finance company that provides capital 

and advisory services to middle-market companies throughout the United States. Its investment 

objective is to achieve current income and capital gains. The Corporation also makes 

1 Unless otherwise specified, all section and rule references herein are to the 1940 Act and the rules thereunder. 

16270466.9 
Elizabeth G. Osterman, Esq. 

September 27, 2013 

Page 2 

investments in qualifying small businesses through Solutions Capital I, L.P., its wholly owned 

subsidiary licensed by the United States Small Business Administration to operate as a small 

business investment company under the Small Business Investment Act of 1958, as amended. 

The Plans 

The Corporation has two restricted stock plans: ( 1) Third Amended and Restated 2006 

Employee Restricted Stock Plan (the "Employee Plan'); and (2) Third Amended and Restated 

2006 Non-Employee Director Restricted Stock Plan2 (the "Director Plan," and, together with 

the Employee Plan, the "Plans'). Amendments to the Plans were last approved by the 

Corporation's stockholders at the Corporation's annual meeting of stockholders held on May 26, 

2010. The number of shares authorized for issuance under the Employee Plan and the Director 

Plan is 6,050,000 shares3 and 150,000 shares,4 respectively. As ofDecember 31,2012, the 

Corporation had 71,721,209 shares of common stock outstanding and 6,421,996 shares of 

common stock issued or delivered by the Corporation under the Plans. 5 

The Employee Plan limits the total number of shares that may be awarded to any single 

participant in a single year to 500,000 shares. In addition, no participant may be awarded more 

than 25% of the shares reserved for issuance under the Plans. The Employee Plan is administered 

by the compensation committee of the Corporation's board of directors. A "required majority" 

of directors, as defined under Section 57 ( o) ofthe 1940 Act, must approve each award to the 

participants in the Employee Plan from time to time as part of a participant's compensation 

based on a participant's actual or expected performance and value to the Corporation. 

2 Under the Director Plan, the Corporation's non-employee directors each receive an award of7,500 shares of 

Restricted Stock at the beginning of each three-year term of service on the Corporation's board of directors, for 

which forfeiture restrictions will lapse as to one-third of such shares each year. The Corporation's non-employee 

directors have agreed to waive the receipt of the annual award of7,500 shares of Restricted Stock at the beginning 

of each three-year term of service in any year in which the Company is not in compliance with the Threshold 

(defined below). 3 The 6,050,000 shares authorized for issuance under the Employee Plan consists of 3,500,000 shares approved by 

the Corporation's stockholders on June 12, 2006 (at which time 53,378,309 shares of the Corporation's common 

stock were outstanding) and 2,550,000 shares approved by the Corporation's stockholders on May 26,2010 (at 

which time 76,549,537 shares of the Corporation's common stock were outstanding). 4 The 150,000 shares authorized for issuance under the Director Plan consists of 100,000 shares approved by the 

Corporation's stockholders on June 12, 2006 and 50,000 shares approved by the Corporation's stockholders on May 

26, 2010. 

5 The 6,421,996 shares of common stock issued or delivered by the Corporation under the Plans consist of the 

following: (i) 4,814,544 shares under the Employee Plan; (ii) 115,000 shares under the Director Plan; and (iii) 

1,492,452 shares issued in consideration for the cancellation of stock options in 2001. 

16270466.9 
Elizabeth G. Osterman, Esq. 

September 27, 2013 

Page 3 

The Restricted Stock Exemptive Orders 

On April 4, 2006, the Corporation received an exemptive order from the Commission 

permitting it to issue Restricted Stock to its employees and directors subject to certain conditions 

(the "2006 Order'). 6 Among the conditions the Corporation agreed to comply with in the 2006 

Order, the Corporation agreed in condition 4 that the maximum amount of Restricted Stock that 

may be issued under the Plans will be 10% of the outstanding shares of common stock of the 

Corporation on the effective date of the Plans plus 10% of the number of shares of the 

Corporation's common stock issued or delivered by the Corporation (other than pursuant to 

compensation plans) during the term of the Plans (the "Titreslwld").7 For purposes of condition 

4 ofthe 2006 Order, the effective date of the Plans refers to June 12, 2006 (the "Effective 

Date"), which is the date the Corporation's stockholders initially approved the Plans. 

On the Effective Date, the Corporation had approximately 53,378,309 shares of common 

stock outstanding. As a result, the Threshold for Restricted Stock as of the Effective Date was 

5,337,831 shares ofRestricted Stock, less the 1,492,452 shares deemed issued in connection with 

the conversion ofthe Corporation's stock option plan, leaving 3,845,379 shares of Restricted 

Stock for further issuance. As of December 31, 2011, prior to the date the Company commenced 

the Repurchase Program (defined below), the Corporation had issued 18,183,589 additional 

shares of its common stock other than pursuant to compensation plans, raising the Threshold by 

1,818,3 59 to 7, 156,190. During the same period, the Corporation issued 4,817,979 shares of 

Restricted Stock under the Employee Plan and 115,000 under the Director Plan for a total of 

4,932,979 aggregate shares of Restricted Stock issued and 1,720,969 remaining under the 

Threshold. As of June 30, 2013, the Corporation had made awards of Restricted Stock under the 

Plans equal to 6,436,996 shares, which constitute 9.93% ofthe Corporation's total outstanding 

common stock excluding shares issued pursuant to compensation plans. 

6 MCG Capital Corporation, Notice of Application, Investment Company Act of 1940 Release No. 27258 (March 8, 

2006), MCG Capital Corporation, Order, Investment Company Act of 1940 Release No. 27280 (April 4, 2006) 

(granting an exemption from Sections 23(a), 23(b) and 63 and pursuant to Sections 57(a)(4) and 57(i) and Rule 17dl under the 1940 Act authorizing certain joint transactions otherwise prohibited by Section 57 (a)( 4) in order to 

permit the Corporation to issue Restricted Stock as part of the compensation packages for certain of its employees 

and directors, and certain employees of its wholly owned consolidated subsidiaries). 7 The Notice of Application for the 2006 Order provides that, "For purposes of calculating compliance with this 

limit, Applicant will count as Restricted Stock all shares of Applicant's common stock that are issued pursuant to the 

Plans less any shares that are forfeited back to Applicant and cancelled as a result of the forfeiture restrictions not 

lapsing. Applicant will also count as Restricted Stock the shares of Applicant's common stock that were issued in 

November 2001 in connection with the termination of Applicant's stock option plan [1,492,452 shares, representing 

1,539,851 shares of common stock that were issued in November 2001 in connection with the termination ofthe 

Corporation's stock option plan, less 47,399 shares that were forfeited], pursuant to the same calculation formula." 

16270466.1 0 
Elizabeth G. Osterman, Esq. 

September 27, 2013 

Page 4 

On April 20, 2010, the Corporation received another exemptive order from the 

Commission related to its issuance of Restricted Stock (the "2010 Order" and, together with the 

2006 Order, the "Exemptive Orders''). 8 The 2010 Order amended the 2006 Order to permit the 

Corporation to withhold shares ofits common stock or purchase shares of its common stock 

from Plan participants to satisfy tax withholding obligations related to the vesting of Restricted 

Stock. Under the 2010 Order, shares that are withheld from an award to satisfy tax withholding 

obligations are treated as having been awarded under the Plans for purposes of the Threshold. 

The Repurchase Program 

On January 17, 2012, the Corporation's board of directors approved a stock repurchase 

program (the "Repurchase Program'') for reasons unrelated to the Plans. Under the Repurchase 

Program, the Corporation may repurchase up to $35.0 million of its common stock. Stock 

repurchases may be purchased in open market transactions, including through block purchases, 

in accordance with regulatory requirements. The Corporation anticipates that the manner, timing 

and amount of any stock repurchases will be determined by the Corporation's management based 

upon the evaluation ofmarket conditions, stock price and additional factors. Repurchases made 

pursuant to the Repurchase Program will decrease the number of outstanding shares of the 

Corporation's common stock, which is part of the Threshold calculation. As of June 30, 2013, 

the Corporation had repurchased 6,686,685 shares of its common stock. 

The Corporation has and will continue to comply with Section 23( c) ofthe 1940 Act by 

mailing the required notice to all stockholders regarding the possibility of share repurchases over 

a six month period. The Repurchase Program may be extended, modified or discontinued at any 

time for any reason. The Repurchase Program does not obligate MCG to acquire any specific 

number of shares, and all repurchases will be made in accordance with rule 1Ob-18 under the 

Securities Exchange Act of 1934, which sets certain restrictions on the method, timing, price and 

volume of stock repurchases. 

Discussion 

The Corporation did not anticipate engaging in share repurchases at the time it sought the 

2006 Order, and, as a result, the 2006 Order was silent on how to incorporate such repurchases 

into the Threshold calculation set forth in condition 4. 

8 MCG Capital Corporation, Notice of Application Investment Company Act of 1940 Release Act No. 29191 

(March 25, 20 I 0), MCG Capital Corporation, Order, Investment Company Act of 1940 Release No. 29210 (April 

20, 201 0) (amending the 2006 Order to permit the Corporation to withhold shares of its common stock or purchase 

shares of its common stock from the participants to satisfy tax withholding obligations related to the vesting of 

Restricted Stock). 

16270466.10 
Elizabeth G. Osterman, Esq. 

September 27, 2013 

Page 5 

The Corporation proposes to address this silence and comply with condition 4 of the 2006 

Order by reducing the Threshold by 10% of the number of shares repurchased. The Corporation 

notes that at the time of each award of Restricted Stock made to date, the award was made in 

compliance with the Threshold as then in effect. Further, the Corporation believes that under 

condition 4 the Threshold calculation is performed only on the Restricted Stock's award date. 

Therefore, ifthe Corporation repurchases shares and consequently the Threshold drops below the 

number of the Corporation's already-outstanding Restricted Stock issued pursuant to the Plans, 

such change in the Threshold should not require rescission of those outstanding awards of 

Restricted Stock. 

The Corporation acknowledges that any new awards of Restricted Stock issued under the 

Plans would be subject to the Threshold calculation on the date of the new award. The 

Corporation will not issue additional Restricted Stock under any compensation plan unless such 

issuance together with all Restricted Stock outstanding under all compensation plans does not 

exceed 10% of the Corporation's outstanding common stock at the time of such issuance less the 

total number of shares previously issued, in the aggregate, pursuant to compensation plans. 

The Corporation does not believe that there is a concern about dilution of stockholders' 

equity in connection with this no-action relief. The simplest assessment is that the decrease in 

the amount ofthe Corporation's common stock outstanding as a result ofthe Repurchase 

Program will be accretive rather than dilutive to existing stockholders. Stockholders may retain 

their current beneficial ownership in the Corporation's common stock while the number of the 

Corporation's shares outstanding decreases as a result of the Repurchase Program. The 

Corporation believes that reducing the Threshold for new awards by 10% of the amount of 

shares repurchased is consistent with the purpose of condition 4, which was designed to limit 

dilution of shareholders' equity. The Corporation states that it would exceed the Threshold only 

due to the decrease in the number of shares outstanding as a result ofthe Repurchase Program 

and not as a result of the issuance of additional Restricted Stock. 

Conclusion 

Accordingly, we respectfully request that the Staff agree not to recommend enforcement 

action to the Commission against the Corporation under Sections 23(a), 23(b), 23(c), 57(a)(4), 

57(i) and 63 ofthe 1940 Act or Rule 17d-1 thereunder if the Corporation does not rescind awards 

of its Restricted Stock previously made in compliance with the terms and conditions of the 

Exemptive Orders and makes new awards of Restricted Stock as described herein. 

16270466.1 0 
Elizabeth G. Osterman, Esq. 

September 27, 2013 

Page 6 

Should you have any questions or require any additional information concerning this 

request, please contact the undersigned at (202) 383-0218. 

Sincerely, 

0/

C~thia M. Krus 

cc: Tod Reichert, Esq. I MCG Capital Corporation 

16270466.10