Gladstone Capital Corporation Reports Results for the Second Quarter Ended March 31, 2010

MCLEAN, Va., May 4, 2010 (GLOBE NEWSWIRE) --

  --  Net Investment Income was $4.5 Million or $0.21 Per Common Share
  --  Net Increase in Net Assets Resulting From Operations was $8.0 Million or
      $0.38 Per Common Share

Gladstone Capital Corporation (Nasdaq:GLAD) (the "Company") today announced earnings for the second quarter ended March 31, 2010. All per share references are per basic and diluted weighted average common shares outstanding, unless otherwise noted.

Net Investment Income for 3 Months: Net Investment Income for the quarter ended March 31, 2010 was $4.5 million, or $0.21 per share, as compared to $5.6 million, or $0.26 per share, for the prior year period, a decrease in Net Investment Income of 20% and a decrease of 19% per share. Net Investment Income decreased primarily due to a decline in investment income resulting from the repayment and sale of loans, incentive fees accrued and lower transaction fees received in the three months ended March 31, 2010 than during the prior year period.

Net Investment Income for 6 Months: Net Investment Income for the six months ended March 31, 2010 was $8.9 million, or $0.42 per share, as compared to $11.4 million, or $0.54 per share, for the prior year period, a decrease in Net Investment Income of 22% and a decrease of 22% per share. Net Investment Income decreased primarily due to a decline in investment income resulting from the repayment and sale of loans, incentive fees accrued and lower transaction fees received in the six months ended March 31, 2010 than during the prior year period.

Net Increase in Net Assets Resulting from Operations for 3 Months: Net Increase in Net Assets Resulting from Operations for the quarter ended March 31, 2010 was $8.0 million, or $0.38 per share, as compared to a Net Increase in Net Assets Resulting from Operations of $10.3 million, or $0.48 per share, for the prior year period. The decrease in the Net Increase in Net Assets Resulting from Operations between the three months ended March 31, 2010 and the prior year period was primarily due to the lower net gain on the Company's investment portfolio. The Company recorded a net gain on investments, derivatives and line of credit of $3.5 million for the three months ended March 31, 2010, compared to a net gain of $4.7 million for the prior year period.

Net Increase in Net Assets Resulting from Operations for 6 Months: Net Increase in Net Assets Resulting from Operations for the six months ended March 31, 2010 was $14.3 million, or $0.68 per share, as compared to a Net Increase in Net Assets Resulting from Operations of $1.2 million, or $0.05 per share, for the prior year period. The increase in the Net Increase in Net Assets Resulting from Operations between the six months ended March 31, 2010 and the prior year period was primarily due to the net gain on the Company's investment portfolio. The Company recorded a net gain on investments, derivatives and line of credit of $5.4 million for the six months ended March 31, 2010, compared to a net loss of $10.3 million for the prior year period.

Estimated Fair Value: The aggregate investment portfolio appreciated during the three months ended March 31, 2010. As of March 31, 2010, the entire portfolio was fair valued at 88% of cost, which was unchanged from September 30, 2009.

Asset Characteristics: Total assets were $311.6 million at March 31, 2010, as compared to $335.9 million at September 30, 2009. Net asset value was $12.10 per actual common share outstanding at March 31, 2010, as compared to $11.81 per actual common share outstanding at September 30, 2009. At March 31, 2010, the Company had investments in 41 private companies with an aggregate cost basis of $330.1 million and an aggregate fair value of $291.8 million. Average asset risk rating for the non-syndicated loans in the Company's portfolio at March 31, 2010 was 6.3 on a ten point scale as compared to 7.1 at September 30, 2009.

Annualized Yield: The annualized weighted average yield on the Company's portfolio, excluding cash and cash equivalents, was 10.9% for the quarter ended March 31, 2010, as compared to 9.7% for the prior year period. The weighted average yield varies from period to period based on the current stated interest rate on interest-bearing investments and the amounts of loans for which interest is not accruing. The increase in the weighted average yield for the quarter ended March 31, 2010 resulted primarily from the Company's sale of lower interest-bearing senior syndicated loans subsequent to March 31, 2009. The effect of continuing reductions in LIBOR has been mitigated by the presence of a rate floor or fixed rate on most of the non-syndicated loans held in the Company's portfolio as of March 31, 2010.

Highlights for 3 Months: For the quarter ended March 31, 2010, the Company reported the following significant events:

  --  Funded approximately $5.2 million of additional investments to existing
      portfolio companies;
  --  Received principal repayments of approximately $23.1 million, which
      included scheduled principal payments and full repayments from four
      companies;
  --  Received proceeds of approximately $0.3 million from the sale of 1
      syndicated loan (which resulted in the Company's exit from 1 portfolio
      company) and recorded a corresponding realized net loss of approximately
      $0.2 million;
  --  Received approximately $0.8 million in success fees in connection with
      the payoff and refinancing of three investments;
  --  Securities and Exchange Commission declared the Company's registration
      statement, which was filed on October 20, 2009, effective on January 28,
      2010. This will permit the Company to issue, through one or more
      transactions, up to an aggregate of $300 million in securities,
      consisting of common stock, senior common stock, preferred stock,
      subscription rights, debt securities and warrants to purchase common
      stock, or a combination of these securities;
  --  Entered into a fourth amended and restated credit facility with Key
      Equipment Finance Company Inc., Branch Bank and Trust Company and ING
      Capital LLC for a $127 million line of credit, which matures on March
      15, 2012, with a one year amortization period; and
  --  Paid monthly cash distributions of $0.07 per share for each of the
      months of January, February and March 2010.

Comments from President and Chief Investment Officer Chip Stelljes: "During the quarter, we received proceeds from repayments/sales of approximately $23.4 million, including the successful realizations of four investments. This has allowed us to deleverage our company in line with the realities of today's market. With our new two-year, $127 million line of credit and the currently outstanding balance on the line of about $28.4 million, we believe it is time to become more active lenders. We continue to see new investment opportunities with pricing and structures that are attractive and, as a result, we believe that we will be able to increase our investment activity over the next twelve months."

Subsequent to March 31, 2010, the Company:

  --  Funded approximately $0.4 million of a new investment and $1.2 million
      of additional investments to existing portfolio companies, for an
      aggregate of $1.6 million;
  --  Received approximately $15.0 million of repayments, including scheduled
      amortizations and a repayment from one company; and
  --  Declared monthly cash distributions of $0.07 per common share for each
      of the months of April, May and June 2010.

Conference Call for Stockholders: The Company will hold a conference call Wednesday, May 5, 2010 at 8:30 am EDT. Please call (877) 407-8031 to enter the conference. An operator will monitor the call and set a queue for the questions. A replay of the conference call will be available through June 5, 2010. To hear the replay, please dial (877) 660-6853, access playback account 286 and use ID code 349212. The replay will be available approximately two hours after the call concludes.

The live audio broadcast of Gladstone Capital's quarterly conference call will be available online at GladstoneCapital.com and investorcalendar.com. The event will be archived and available for replay on the Company's website through August 3, 2010.

Warning: The financial statements below are without footnotes so readers should obtain and carefully review the Company's Form 10-Q for the quarter ended March 31, 2010, including the footnotes to the financial statements contained therein. The Company has filed the Form 10-Q today with the SEC, which can be retrieved from the SEC's website at sec.gov or from the Company's website at GladstoneCapital.com. A paper copy can be obtained free of charge by writing to us at 1521 Westbranch Drive, Suite 200, McLean, VA 22102.

For further information contact Investor Relations at 703-287-5893.

The statements in this press release regarding the timing and ability of the Company to increase its investment activities are "forward-looking statements." These forward-looking statements inherently involve certain risks and uncertainties, although they are based on the Company's current plans that are believed to be reasonable as of the date of this press release. Factors that may cause the Company's actual results to differ from these forward-looking statements include, among others, the duration and potential future effects of the current economic downturn on its portfolio companies and on the senior loan market, the Company's ability to access debt and equity capital and those factors listed under the caption "Risk Factors" of the Company's Form 10-K for the fiscal year ended September 30, 2009 and Form 10-Q for the quarter ended March 31, 2010, as filed with the SEC on November 23, 2009 and May 4, 2010, respectively. The risk factors set forth in the Form 10-K and the Form 10-Q under the caption "Risk Factors" are specifically incorporated by reference into this press release. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

         GLADSTONE CAPITAL CORPORATION
  CONDENSED CONSOLIDATED STATEMENTS OF ASSETS
                  & LIABILITIES
   (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER
                  SHARE DATA)
                  (UNAUDITED)


                                                  September
                                    March 31,        30,
                                       2010          2009
                                    ---------     ---------
  ASSETS
  Non-Control/Non-Affiliate
   investments (Cost 3/31/10:
   $274,627; 9/30/09: $312,043)     $ 256,227     $ 286,997
  Control investments (Cost
   3/31/10: $55,467; 9/30/09:
   $52,350)                            35,524        33,972
                                    ---------     ---------
  Total investments at fair
   value (Cost 3/31/10:
   $330,094; 9/30/09: $364,393)       291,751       320,969
  Cash                                  4,261         5,276
  Interest receivable --
   investments in debt
   securities                           2,387         3,048
  Interest receivable --
   employees                               91            85
  Due from custodian                   10,571         3,059
  Due from Adviser                         --            69
  Deferred financing fees               1,610         1,230
  Prepaid assets                          288           341
  Receivable from portfolio
   companies, less allowance
   for uncollectible
   receivables of
  $177 and $0 at March 31, 2010
   and September 30, 2009,
   respectively                           367         1,528

  Other assets                            312           305
                                    ---------     ---------

  TOTAL ASSETS                      $ 311,638     $ 335,910
                                    =========     =========

  LIABILITIES
  Accounts payable                       $ --          $ 67
  Interest payable                        244           378
  Fee due to Administrator                176           216
  Due to Adviser                        2,365           834
  Borrowings under line of
   credit at fair value (Cost
   3/31/10: $53,000; 9/30/09:
   $83,000)                            53,000        83,350
  Accrued expenses and deferred
   liabilities                          1,203         1,800

  Funds held in escrow                    101           189
                                    ---------     ---------

  TOTAL LIABILITIES                    57,089        86,834
                                    ---------     ---------

  NET ASSETS                        $ 254,549     $ 249,076
                                    =========     =========

  ANALYSIS OF NET ASSETS
  Common stock, $0.001 par
   value, 50,000,000 shares
   authorized and 21,039,242
   and
  21,087,574 shares issued and
   outstanding at March 31,
   2010 and September 30, 2009,

  respectively                           $ 21          $ 21
  Capital in excess of par
   value                              327,709       328,203
  Notes receivable -- employees       (8,503)       (9,019)
  Net unrealized depreciation
   on investments                    (38,343)      (43,425)
  Net unrealized appreciation
   on borrowings under line of
   credit                                  --         (350)
  Accumulated Net Realized
   Losses                            (26,335)      (26,354)
                                    ---------     ---------

  TOTAL NET ASSETS                  $ 254,549     $ 249,076
                                    =========     =========

  NET ASSETS PER SHARE                $ 12.10       $ 11.81
                                    =========     =========


                              GLADSTONE CAPITAL CORPORATION
                     CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                   (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
                                       (UNAUDITED)


                                           Three Months Ended       Six Months Ended
                                                March 31,               March 31,
                                         ----------------------  ----------------------

                                            2010        2009        2010        2009
                                         ----------  ----------  ----------  ----------
  INVESTMENT INCOME
   Interest income --
    Non-Control/Non-Affiliate
    investments                             $ 8,523    $ 10,329    $ 17,432    $ 21,990
   Interest income -- Control
    investments                                 709         482       1,477         502
   Interest income -- Cash                       --           1          --          11
   Interest income -- Notes receivable
    from employees                              108         117         221         235

   Prepayment fees and other income             474          --         488          --
                                         ----------  ----------  ----------  ----------

     Total investment income                  9,814      10,929      19,618      22,738
                                         ----------  ----------  ----------  ----------

  EXPENSES
   Interest expense                           1,136       2,016       2,671       4,478
   Loan servicing fee                           852       1,526       1,781       3,149
   Base management fee                          739         484       1,459         917
   Incentive fee                              1,072       1,089       1,447       2,265
   Administration fee                           176         211         354         438
   Professional fees                            219         205       1,131         518
   Amortization of deferred financing
    fees                                        449         726         943       1,446
   Stockholder related costs                    144         196         222         284
   Directors fees                                48          48          97          97
   Insurance expense                             79          65         147         122
   Compensation expense                         245          --         245          --

   Other expenses                               187          74         254         140
                                         ----------  ----------  ----------  ----------
     Expenses before credit from
      Adviser                                 5,346       6,640      10,751      13,854
                                         ----------  ----------  ----------  ----------
   Credit to base management and
    incentive fees
   from Adviser                                 (6)     (1,266)        (35)     (2,553)
                                         ----------  ----------  ----------  ----------
     Total expenses net of credit to
      base management and incentive
      fees                                    5,340       5,374      10,716      11,301
                                         ----------  ----------  ----------  ----------


  NET INVESTMENT INCOME                       4,474       5,555       8,902      11,437
                                         ----------  ----------  ----------  ----------

  REALIZED AND UNREALIZED GAIN (LOSS)
   ON INVESTMENTS,
  DERIVATIVE AND BORROWINGS UNDER LINE
   OF CREDIT:
   Net realized gain (loss) on
    investments                                 892     (2,000)        (28)     (3,731)
   Realized loss on settlement of
    derivative                                   --       (304)          --       (304)
   Unrealized appreciation on
    derivative                                   --         304          --         304
   Net unrealized appreciation
    (depreciation) on investments             2,483       6,725       5,082     (6,528)
   Net unrealized depreciation on
    borrowings under line of credit             131          --         350          --
                                         ----------  ----------  ----------  ----------
     Net gain (loss) on investments,
      derivative and borrowings under
      line of credit                          3,506       4,725       5,404    (10,259)

  NET INCREASE IN NET ASSETS RESULTING
   FROM
  OPERATIONS                                $ 7,980    $ 10,280    $ 14,306     $ 1,178
                                         ==========  ==========  ==========  ==========

  NET INCREASE IN NET ASSETS RESULTING
   FROM OPERATIONS PER COMMON SHARE:

     Basic and Diluted                       $ 0.38      $ 0.48      $ 0.68      $ 0.05
                                         ==========  ==========  ==========  ==========

  WEIGHTED AVERAGE SHARES OF COMMON
   STOCK OUTSTANDING:
     Basic and Diluted                   21,075,445  21,087,574  21,081,576  21,087,574

                                   GLADSTONE CAPITAL CORPORATION
                                       FINANCIAL HIGHLIGHTS
                 (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT DATA)
                                           (UNAUDITED)


                                                    Three months ended       Six months ended
                                                         March 31,               March 31,
                                                  ----------------------  ----------------------

                                                     2010        2009        2010        2009
                                                  ----------  ----------  ----------  ----------

  Per Share Data (1)
  ----------------------------------------------

   Net asset value at beginning of period             $11.92      $12.04      $11.81      $12.89
                                                  ----------  ----------  ----------  ----------
   Income from investment operations:
     Net investment income (2)                          0.21        0.26        0.42        0.54
     Net realized gain (loss) on investments (2)        0.04      (0.09)          --      (0.18)
     Realized loss on settlement of derivative
      (2)                                                 --      (0.01)          --      (0.01)
     Unrealized appreciation on derivative (2)            --        0.01          --        0.01
     Net unrealized appreciation (depreciation)
      on investments (2)                                0.12        0.31        0.24      (0.31)
     Net unrealized depreciation on borrowings
      under line of credit (2)                          0.01          --        0.02          --
                                                  ----------  ----------  ----------  ----------

   Total from investment operations                     0.38        0.48        0.68        0.05
                                                  ----------  ----------  ----------  ----------

   Distributions to stockholders (3)                  (0.21)      (0.42)      (0.42)      (0.84)
   Conversion of former employee stock option
    loans from recourse to nonrecourse                (0.02)          --      (0.02)          --
   Reclassification of principal on employee
    note                                                  --          --        0.02          --
   Anti-dilutive effect from retirement of
    employee loan shares                                0.03          --        0.03          --
                                                  ----------  ----------  ----------  ----------

   Net asset value at end of period                   $12.10      $12.10      $12.10      $12.10
                                                  ==========  ==========  ==========  ==========

   Per share market value at beginning of period      $ 7.69      $ 8.09      $ 8.93      $15.24
   Per share market value at end of period            $11.80      $ 6.26      $11.80      $ 6.26
   Total return (4)(5)                                56.94%    (17.93)%      38.77%    (54.11)%
   Shares outstanding at end of period            21,039,242  21,087,574  21,039,242  21,087,574

  Statement of Assets and Liabilities Data:
  ----------------------------------------------
   Net assets at end of period                      $254,549    $255,213    $254,549    $255,213
   Average net assets (6)                           $251,111    $249,526    $251,111    $255,763

  Senior Securities Data:
  ----------------------------------------------
   Borrowings under line of credit                  $ 53,000    $153,370    $ 53,000    $153,370
   Asset coverage ratio (7)(8)                          575%        266%        575%        266%
   Asset coverage per unit (8)                       $ 5,754     $ 2,659     $ 5,754     $ 2,659

  Ratios/Supplemental Data:
  ----------------------------------------------
   Ratio of expenses to average net
    assets-annualized (9)                              8.52%      10.64%       8.60%      10.83%
   Ratio of net expenses to average net
    assets-annualized (10)                             8.51%       8.61%       8.57%       8.84%
   Ratio of net investment income to average net
    assets-annualized                                  7.13%       8.91%       7.12%       8.94%

  (1)   Based on actual shares outstanding at the end of the corresponding period.
  (2)   Based on weighted average basic per share data.
  (3)   Distributions are determined based on taxable income calculated in accordance with
   income tax regulations which may differ from amounts determined under accounting principles
   generally accepted in the United States of America.
  (4)   Total return equals the change in the ending market value of the Company's common stock
   from the beginning of the period taking into account distributions reinvested in accordance
   with the terms of the Company's dividend reinvestment plan. Total return does not take into
   account distributions that may be characterized as a return of capital.
  (5)   Amounts were not annualized.
  (6)   Average net assets are computed using the average of the balance of net assets at the
   end of each month of the reporting period.
  (7)   As a business development company, the Company is generally required to maintain a ratio
   of at least 200% of total assets, less all liabilities and indebtedness not represented by
   senior securities, to total borrowings.
  (8)   Asset coverage ratio is the ratio of the carrying value of the Company's total
   consolidated assets, less all liabilities and indebtedness not represented by senior
   securities, to the aggregate amount of senior securities representing indebtedness (including
   interest payable and guarantees). Asset coverage per unit is the asset coverage ratio
   expressed in terms of dollar amounts per $1 thousand of indebtedness.
  (9)   Ratio of expenses to average net assets is computed using expenses before credits from
   Adviser to the base management and incentive fees and including income tax expense.
  (10) Ratio of net expenses to average net assets is computed using total expenses net of
   credits from Adviser to the base management and incentive fees and including income tax
   expense.
  ----------------------------------------------------------------------------------------------
CONTACT:  Gladstone Capital Corporation
          Investor Relations
          703-287-5893