Prospect Capital Corporation (NASDAQ: PSEC) is one of the largest business development companies (“BDCs”) with over $7 billion of available capital.(1) PSEC provides flexible private debt and equity capital to middle market companies in the United States and Canada. As of December 31, 2016, PSEC had investments in 123 long-term portfolio investments.(2) PSEC has invested across a range of industries, with low exposure to energy, where energy sector investments account for 2.6% of total investments.(2)
First-lien and second-lien secured loans comprise approximately 70% of PSEC's portfolio of investments, and majority of those are first-lien.(2)
PSEC has historically used income from these debt and equity investments to pay attractive dividends with yields that have often been higher than other income-oriented investments such as master limited partnerships ("MLPs"), real estate investment trusts ("REITs"), and high yield bonds.(3) PSEC pays a current monthly dividend of $0.08333 per share, implying an annual dividend yield of approximately 11.6%.(3)
PSEC reports Net Asset Value ("NAV") on a quarterly basis within its public filings. PSEC is trading at approximately a 10% discount to NAV.(3)
PSEC has generated superior operating returns compared to the publicly-traded BDC median over the 1 year, 3 year, 5 year, and 10 year periods ended December 31, 2016, based on dividends plus change in NAV compounded on a quarterly basis.(4) PSEC's operating performance among publicly-traded BDCs ranks in the 58th percentile during the 5 years ended 12/31/16, based on dividends plus change in NAV compounded on a quarterly basis.(4)
Senior management are the largest shareholders of PSEC with more than $175 million of common stock, including over $50 million purchased in 2016.(5) Senior management own 6.7% of PSEC's outstanding shares and have never sold a share.(5)
PSEC has positioned itself to benefit from a rising rate environment by investing predominately in floating rate assets and borrowing at fixed rates.(2)
(1) Total assets as of 12/31/16 plus undrawn credit facility.
(2) Source: 12/31/16 10-Q.
(3) Source: Bloomberg; Market data as of 2/7/17 and net asset value reported as of 12/31/16.
(4) Source: PSEC analysis of Capital IQ data as of 3/20/17 for the BDCs for which there is quarterly data for each entire period.
(5) Source: SEC filings as of 3/20/17.
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