MAIN
NYSE
Introduction to Business
Development Companies (“BDCs”)
and Main Street Capital Corporation
NASDAQ – GS: MAIN
NYSE: MAIN
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 forwardlooking 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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MAIN
NYSE
Business Development Companies (“BDCs”)
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Overview
MAIN
NYSE

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
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Retail Investors
Public Equity Capital Markets
Accredited
Investors
Business Development Companies
Private Equity Firms
Investment
Company Act of 1940
Small and Middle-Market
Businesses
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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 $565 million with
the 10 largest BDCs having a combined Market Capitalization of $12.9
billion*
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* As of June 1, 2012.
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Non-Traded BDC Structures

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

MAIN
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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
$50
Equity

$50
Equity
Other investment companies are restricted to a 300% asset coverage
requirement with respect to issuing debt
$50
Equity

$50
Debt
$25
Debt
$50
Equity
BDCs may exclude leverage at the SBIC level if the SEC grants
exemptive relief
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How do BDCs Value Their Assets?
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Investments are reported at fair value

FASB ASC 820 – Fair Value Measurements and Disclosures

Fair Value – Price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants
at measurement date

Regulated investment companies also governed by definition of “value”
in Investment Company Act of 1940 further interpreted in SEC
Codification of Financial Reporting section 404.03 – “fair value as
determined in good faith by the board of directors”
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Tax Considerations for BDCs
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NYSE

A BDC may elect to be taxed as a RIC under the Internal Revenue
Code

Taxation as a RIC


Allows “pass through” tax treatment for income and capital gains
that are distributable to shareholders

A BDC must distribute at least 90% of its investment income to
shareholders annually

The BDC may retain, distribute or “deem distribute” capital gains

BDC must meet minimum source of income requirements annually
and meet requirements on a quarterly basis with respect to
portfolio diversification
Conversion to RIC status

Formation considerations – Built-in gains
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MAIN
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BDC Market Statistics
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BDC Market Statistics
Market Cap. ($MM)
Source: Raymond James – BDC Weekly Update, June 01, 2012.
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BDC Market Statistics
Dividend Yield (1)
Source: Raymond James – BDC Weekly Update, June 01, 2012.
(1) Dividend Yield uses the current dividend annualized.
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BDC Market Statistics
Price / NAV
Source: Raymond James – BDC Weekly Update, June 01, 2012.
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BDC Market Statistics
Price / 2012 EPS
Source: Raymond James – BDC Weekly Update, June 01, 2012.
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MAIN
NYSE
Main Street Capital Corporation
Corporate Overview
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MAIN is a Principal Investor in Private Debt and Equity
MAIN
NYSE

Publicly-traded on the New York Stock Exchange (NYSE: “MAIN”)

Internally-managed Business Development Company (BDC)


IPO in October 2007

Over $900 million in assets under management
Seeks to invest in the under-served Lower Middle Market (LMM)

Generally companies with revenue between $10 million - $150 million; EBITDA
between $3 million - $20 million

Self-sponsored/self-originated orientation – partner with business owners and
entrepreneurs

Invest in complimentary interest bearing debt investments in Middle Market companies

Generally issuances of secured and/or rated debt securities

Generally larger companies than LMM strategy

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
MAIN
NYSE

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

MAIN
NYSE


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
“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)
Main Street Mezzanine
Fund, LP
Main Street Capital II, LP
(2006 vintage SBIC)
Assets: ~$159 million
SBIC Debt: $95 million
(2002 vintage SBIC)
Assets: ~$247 million
SBIC Debt: $125 million
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Flexible Capital for the Lower Middle Market
MAIN
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Market Segment Opportunity for LMM Investment Strategy
MAIN targets LMM investments in established, profitable companies
MAIN
NYSE

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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NYSE
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Privately Placed Debt Investment Strategy
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NYSE
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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Total Investment Portfolio
MAIN
NYSE

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
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Combined
Portfolio
Total Portfolio by Industry
(as a Percentage
of Cost)
Energy Equipment & Services, 10%
Machinery, 8%
Media, 7%
Commercial Services & Supplies, 11%
Health Care Providers & Services, 7%
Construction & Engineering, 5%
Software, 4%
Other, 1%
Containers & Packaging, 1%
Construction Materials, 1%
Diversified Telecommunication Services,
1%
Internet & Catalog Retail, 1%
IT Services, 1%
Real Estate Management & Development,
1%
Pharmaceuticals, 1%
Specialty Retail, 4%
Hotels, Restaurants & Leisure, 4%
Insurance, 3%
Trading Companies & Distributors, 1%
Electronic Equipment, Instruments &
Components, 3%
Leisure Equipment & Products, 1%
Chemicals, 1%
Food & Staples Retailing, 3%
Transportation Infrastructure, 1%
Professional Services, 3%
Consumer Finance, 2%
Internet Software & Services, 2%
Auto Components, 2%
Health Care Equipment & Supplies, 2%
Paper & Forest Products, 2%
Diversified Consumer Services, 2%
Building Products, 2%
Food Products, 2%
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Diversified Total Portfolio (as a Percentage of Cost)
Invested Capital by
Transaction Type
Invested Capital by
Geography
Recapitalization/Refinancing
33%
28%
9%
12%
LBO/MBO
26%
Acquisition
19%
Growth Capital
22%
42%
9%
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MAIN Total Return Performance Since IPO
100%
100%
80%
80%
60%
60%
40%
40%
20%
20%
S&P 500 (-10.1%)
BDC Index (42.7%)
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MAIN (118.4%)
O
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1
120%
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1
140%
O
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0
140%
.1
0
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0
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9
200%
O
ct
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8
200%
.0
8
220%
8
220%
Russell 2000 (-4.6%)
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
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MAIN
NYSE
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
vdfoster@mainstcapital.com
Alejandro Palomo
Sr. Associate
713-350-6019
apalomo@mainstcapital.com
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