Gladstone Capital Corporation Reports Results for the Second Quarter Ended March 31, 2009

Net Investment Income Was $5.6 Million or $0.26 per Common Share Net Increase in Net Assets Resulting from Operations Was $10.3 Million or $0.48 per Common Share

MCLEAN, Va.--(BUSINESS WIRE)-- Gladstone Capital Corp. (NASDAQ:GLAD) (the "Company") today announced earnings for the second quarter ended March 31, 2009. All per share references are per basic and diluted weighted average common shares outstanding, unless otherwise noted.

Net Investment Income for the quarter ended March 31, 2009 was $5.6 million, or $0.26 per share, as compared to $6.4 million, or $0.33 per share, for the quarter ended March 31, 2008, a decrease in Net Investment Income of 13% and a decrease of 21% per share. Net Investment Income for the six months ended March 31, 2009 was $11.4 million, or $0.54 per share, as compared to $13.7 million, or $0.75 per share, for the six months ended March 31, 2008, a decrease in Net Investment Income of 17% and a decrease of 28% per share. Net Investment Income decreased primarily due to lower transaction fees (which are credited against base management fees) and the amortization of deferred financing fees incurred in connection with certain amendments to the Company's credit facility subsequent to March 31, 2008. The per share results were adversely impacted by the issuance of additional shares in public offerings during the three and six months ended March 31, 2008.

Net Increase in Net Assets Resulting from Operations for the quarter ended March 31, 2009 was $10.3 million, or $0.48 per share, as compared to a Net Decrease in Net Assets Resulting from Operations of ($11.9) million, or ($0.61) per share, for the quarter ended March 31, 2008. The increase in Net Assets Resulting from Operations between the current and prior year periods was primarily due to the net unrealized appreciation on the Company's investment portfolio. The Company recorded net unrealized appreciation of $6.7 million for the quarter ended March 31, 2009, compared to net unrealized depreciation of $18.3 million for the quarter ended March 31, 2008.

Net Increase in Net Assets Resulting from Operations for the six months ended March 31, 2009 was $1.2 million, or $0.05 per share, as compared to a Net Decrease in Net Assets Resulting from Operations of ($10.0) million, or ($0.55) per share, for the six months ended March 31, 2008. The increase in Net Assets Resulting from Operations between the current and prior year periods was primarily due to the lower net unrealized depreciation on the Company's investment portfolio. The Company recorded net unrealized depreciation of $6.5 million for the six months ended March 31, 2009, compared to net unrealized depreciation of $23.7 million for the six months ended March 31, 2008.

The value of the Company's portfolio is determined quarterly by its board of directors based in part on opinions of value provided by Standard and Poor's Securities Evaluations, Inc. and by internally-developed discounted cash flow methodologies. The aggregate investment portfolio increased in fair value by approximately 1.3% during the quarter ended March 31, 2009. As of March 31, 2009, the entire portfolio was fair valued at 87% of cost due primarily to the general instability of the loan markets.

Total assets were $411.4 million at March 31, 2009, as compared to $425.7 million at September 30, 2008. Net asset value was $12.10 per actual common share outstanding at March 31, 2009, as compared to $12.89 per actual common share outstanding at September 30, 2008.

The annualized weighted average yield on the Company's portfolio, excluding cash, was 9.7% for the quarter ended March 31, 2009, as compared to 10.1% for the quarter ended March 31, 2008. 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. Recent reductions in interest rates in the financial markets (LIBOR rates) have reduced the Company's income on its variable rate investments. Specifically, the Company experienced a decrease in LIBOR on approximately $69.6 million in syndicated loans that have their rate based on LIBOR without a rate floor. The effect of the decrease in LIBOR has been mitigated by the presence of a rate floor on most of the other loans held in the Company's portfolio that it has originated. Results were also negatively impacted by three non-accrual loans in the portfolio during the quarter ended March 31, 2009.

For the quarter ended March 31, 2009, the Company reported the following activity:

    --  Funded approximately $8.4 million of new investments to existing
        portfolio companies;
    --  Received principal repayments of approximately $13.1 million, which
        included scheduled principal payments and full repayments;
    --  Received approximately $21,000 of success fees in connection with a
        refinancing of one investment;
    --  Converted a loan into a control investment (Lindmark Acquisition, LLC),
        which had a fair value of approximately $13.3 million as of March 31,
        2009;
    --  Received stockholder approval at its annual meeting of stockholders held
        on February 19, 2009 to sell shares of its common stock at a price below
        its then current net asset value per share for a period of one year from
        the date of approval, provided that the Board of Directors makes certain
        determinations prior to any such sale; and
    --  Paid monthly cash distributions of $0.14 per share for each of the
        months of January, February and March 2009.

At March 31, 2009, the Company had investments in 60 private companies with an aggregate cost basis of $444.6 million and an aggregate fair value of $385.1 million, as noted in the following table.


                                      March 31, 2009

                                      Cost       Fair Value

                                      (in thousands)

Senior Term Debt                      $ 282,733  $ 248,966

Senior Subordinated Term Debt           156,797    133,632

Preferred & Common Equity Securities    5,033      2,499

Total Investments                     $ 444,563  $ 385,097



"While we believe the longer-term prospects for our portfolio companies remain good, the instability of the financial and lending markets continue to make forecasting the future difficult," said Chip Stelljes, President and Chief Investment Officer. "We expect the majority of the portfolio to continue paying as agreed, although we are watching carefully the underlying portfolio companies' revenues and backlogs as we move through this economic and financial cycle. The appreciation of our investments during the quarter was approximately 1.3%. We are seeing some strengthening in the senior loan market although loans continue to trade at significant discounts to original cost. Even though the values stabilized this quarter we still believe the valuations are more reflective of the overall poor market for loans rather than our specific portfolio."

Subsequent to March 31, 2009, the Company:

    --  Funded approximately $4.7 million of new investments to existing
        portfolio companies;
    --  Received approximately $31.3 million of repayments, including scheduled
        amortizations and repayments and syndicated loan sales. The Company sold
        13 of the 24 syndicated loans that were held in its portfolio of
        investments at March 31, 2009 to various investors in the syndicated
        loan market for an aggregate of $22.5 million in net proceeds. The loans
        had an aggregate cost value of approximately $30.4 million, or 7% of the
        cost value of the Company's total investments, and an aggregate fair
        market value of approximately $22.5 million, or 6% of the fair market
        value of the Company's total investments, at March 31, 2009. The Company
        used the proceeds of these sales and of the refinancings of certain
        proprietary investments to pay down its line of credit;
    --  Reduced the amount available under its line of credit from $300 million
        to $162 million, effective April 14, 2009, as part of its process of
        attempting to secure new financing; and
    --  Declared a monthly cash distribution of $0.07 per common share for the
        month of April 2009.

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, 2009, including the footnotes to the financial statements contained therein. The Company has filed the Form 10-Q today with the Securities and Exchange Commission (the "SEC"), which can be retrieved from the SEC's website at www.sec.gov or from the Company's web site at www.GladstoneCapital.com. A paper copy can be obtained free of charge by writing to us at 1521 Westbranch Drive, Suite 200, McLean, VA 22102.

The Company will hold a conference call Wednesday, May 6, 2009 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 6, 2009. To hear the replay, please dial (877) 660-6853, access playback account 286 and use ID code 320570. 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 www.GladstoneCapital.com and www.investorcalendar.com. The event will be archived and available for replay on the Company's website through August 6, 2009.

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

The statements in this press release regarding the longer-term prospects of and expected continued current payments from the Company's portfolio companies and the state of the senior loan markets, 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, and those factors listed under the caption "Risk Factors" of the Company's Form 10-K for the fiscal year ended September 30, 2008, as filed with the SEC on December 2, 2008 and the Company's Quarterly Reports on Form 10-Q for the quarters ended December 31, 2008 and March 31, 2009, as filed with the SEC on February 3, 2009 and May 5, 2009, respectively. The risk factors set forth in the Form 10-K and Form 10-Qs 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)

                                                      March 31,    September 30,

                                                        2009         2008

ASSETS

Non-Control/Non-Affiliate investments (Cost 3/31/09:  $ 369,595    $ 407,153
$417,063; 9/30/08: $448,356)

Control investments (Cost 3/31/09: $27,500; 9/30/08:    15,502       780
$12,514)

Total investments at fair value (Cost 3/31/09:          385,097      407,933
$444,563; 9/30/08: $460,870)

Cash                                                    10,529       6,493

Interest receivable - investments in debt securities    3,473        3,588

Interest receivable - employees                         117          91

Due from custodian                                      10,132       4,544

Deferred financing fees                                 637          1,905

Prepaid assets                                          249          306

Other assets                                            1,156        838

TOTAL ASSETS                                          $ 411,390    $ 425,698

LIABILITIES

Accounts payable                                      $ 8          $ 8

Interest payable                                        481          646

Fee due to Administrator                                211          247

Due to Adviser                                          691          457

Borrowings under line of credit                         153,370      151,030

Accrued expenses and deferred liabilities               1,295        1,328

Funds held in escrow                                    121          234

TOTAL LIABILITIES                                       156,177      153,950

NET ASSETS                                            $ 255,213    $ 271,748

ANALYSIS OF NET ASSETS

Common stock, $0.001 par value, 50,000,000 shares
authorized and 21,087,574 shares issued and           $ 21         $ 21
outstanding at March 31, 2009 and September 30, 2008

Capital in excess of par value                          334,140      334,143

Notes receivable - employees                            (9,171  )    (9,175  )

Net unrealized depreciation on investments              (59,466 )    (52,937 )

Unrealized depreciation on derivative                   -            (304    )

Distributions in excess of net investment income        (10,311 )    -

TOTAL NET ASSETS                                      $ 255,213    $ 271,748

NET ASSETS PER SHARE                                  $ 12.10      $ 12.89





GLADSTONE CAPITAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)

(UNAUDITED)

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

                           2009            2008            2009            2008

INVESTMENT INCOME

Interest income -
Non-Control/Non-Affiliate  $ 10,329        $ 11,108        $ 21,990        $ 22,233
investments

Interest income - Control    482             16              502             30
investments

Interest income - Cash       1               103             11              247

Interest income - Notes      117             118             235             236
receivable from employees

Prepayment fees and other    -               5               -               5
income

Total investment income      10,929          11,350          22,738          22,751

EXPENSES

Interest expense             2,016           1,855           4,478           4,211

Loan servicing fee           1,526           1,562           3,149           2,943

Base management fee          484             557             917             1,134

Incentive fee                1,089           1,288           2,265           2,749

Administration fee           211             240             438             452

Professional fees            205             410             518             539

Amortization of deferred     726             184             1,446           258
financing fees

Stockholder related costs    196             138             284             258

Directors fees               48              57              97              111

Insurance expense            65              59              122             113

Other expenses               74              95              140             161

Expenses before credit       6,640           6,445           13,854          12,929
from Adviser

Credit to base management
and incentive fees           (1,266     )    (1,537     )    (2,553     )    (3,923     )

from Adviser

Total expenses net of
credit to base management    5,374           4,908           11,301          9,006
and incentive fees

NET INVESTMENT INCOME        5,555           6,442           11,437          13,745

REALIZED AND UNREALIZED
GAIN (LOSS)

ON INVESTMENTS AND
DERIVATIVE:

Net realized loss on         (2,000     )    -               (3,731     )    -
investments

Realized (loss) gain on      (304       )    1               (304       )    7
settlement of derivative

Unrealized appreciation
(depreciation) on            304             (2         )    304             (12        )
derivative

Net unrealized
appreciation                 6,725           (18,345    )    (6,528     )    (23,744    )
(depreciation) on
investments

Net gain (loss) on           4,725           (18,346    )    (10,259    )    (23,749    )
investments

NET INCREASE (DECREASE)
IN NET ASSETS RESULTING    $ 10,280        $ (11,904    )  $ 1,178         $ (10,004    )
FROM OPERATIONS

NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM OPERATIONS PER
COMMON SHARE:

Basic and Diluted          $ 0.48          $ (0.61      )  $ 0.05          $ (0.55      )

WEIGHTED AVERAGE SHARES
OF COMMON STOCK
OUTSTANDING:

Basic and Diluted            21,087,574      19,670,333      21,087,574      18,312,018




GLADSTONE CAPITAL CORPORATION

FINANCIAL HIGHLIGHTS

(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT DATA)

(UNAUDITED)

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

                        2009        2008              2009        2008

Per Share Data (1)

Net asset value at      $12.04      $15.08            $12.89      $14.97
beginning of period

Income from investment
operations:

Net investment income   0.26        0.33              0.54        0.75
(2)

Net realized loss on    (0.09)      -                 (0.18)      -
investments (2)

Realized loss on
settlement of           (0.01)      -                 (0.01)      -
derivative (2)

Unrealized
appreciation on         0.01        -                 0.01        -
derivative (2)

Net unrealized
appreciation            0.31        (0.94)            (0.31)      (1.30)
(depreciation) on
investments (2)

Total from investment   0.48        (0.61)            0.05        (0.55)
operations

Distributions to        (0.42)      (0.42)            (0.84)      (0.84)
stockholders (3)

Issuance of common
stock under shelf       -           0.24              -           0.73
offering

Offering costs          -           (0.02)            -           (0.04)

Net asset value at end  $12.10      $14.27            $12.10      $14.27
of period

Per share market value  $ 8.09      $17.01            $15.24      $19.52
at beginning of period

Per share market value  $ 6.26      $18.71            $ 6.26      18.71
at end of period

Total return (4)(5)     (17.93)%    12.69%            (54.11)%    0.45%

Shares outstanding at   21,087,574  21,087,574        21,087,574  21,087,574
end of period

Statement of Assets
and Liabilities Data:

Net assets at end of    $255,213    $300,849          $255,213    $300,849
period

Average net assets (6)  $249,526    $293,158          $255,763    $279,259

Senior Securities
Data:

Borrowings under line   $153,370    $123,459          $153,370    $123,459
of credit

Asset coverage ratio    266%        344%              266%        344%
(7)(8)

Asset coverage per      $2,664      $3,437            $2,664      $3,437
unit (8)

Ratios/Supplemental
Data:

Ratio of expenses to
average net             10.64%      8.79%             10.83%      9.26%
assets-annualized (9)

Ratio of net expenses
to average net          8.61%       6.70%             8.84%       6.45%
assets-annualized (10)

Ratio of net
investment income to    8.91%       8.79%             8.94%       9.84%
average net
assets-annualized




(1)   Based on actual shares outstanding at the end of the corresponding period.

(2)   Based on weighted average basic per share data.

      Distributions are determined based on taxable income calculated in
(3)   accordance with income tax regulations which may differ from amounts
      determined under accounting principles generally accepted in the United
      States of America.

      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
(4)   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.

      As a business development company, the Company is generally required to
(7)   maintain a ratio of at least 200% of total assets, less all liabilities
      and indebtedness not represented by senior securities, to total
      borrowings.

      Asset coverage ratio is the ratio of the carrying value of the Company's
      total consolidated assets, less all liabilities and indebtedness not
(8)   represented by senior securities, to the aggregate amount of senior
      securities representing indebtedness. Asset coverage per unit is the asset
      coverage ratio expressed in terms of dollar amounts per $1,000 of
      indebtedness.

      Ratio of expenses to average net assets is computed using expenses before
(9)   credits from Adviser to the base management and incentive fees and
      including income tax expense.

      Ratio of net expenses to average net assets is computed using total
(10)  expenses net of credits from Adviser to the base management and incentive
      fees and including income tax expense.




    Source: Gladstone Capital Corp.