Press Release

Prospect Capital Reports September 2017 Quarterly Results and Declares Additional Monthly Distributions

Company Release - 11/8/2017 4:36 PM ET

NEW YORK, Nov. 08, 2017 (GLOBE NEWSWIRE) -- Prospect Capital Corporation (NASDAQ:PSEC) (“Prospect”, “our”, or “we”) today announced financial results for our first fiscal quarter ended September 30, 2017.

    

All amounts in $000’s except per share amounts
Quarter EndedQuarter EndedQuarter Ended
September 30, 2017June 30, 2017September 30, 2016
    
Net Investment Income (“NII”)$63,732 $69,678$78,919
Interest as % of Total Investment Income93.4%96.3% 95.5%
    
NII per Share$0.18 $0.19$0.22
    
Net Income (“NI”)$11,973$51,168$81,366
NI per Share$0.03$0.14$0.23
    
Distributions to Shareholders$81,647$89,998$89,428
Distributions per Share$0.23$0.25$0.25
    
NAV per Share at Period End$9.12$9.32$9.60
    
Net of Cash Debt to Equity Ratio71.6%70.5% 73.6%
      

For the September 2017 quarter, we earned net investment income (“NII”) of $63.7 million, or $0.18 per weighted average share, down $0.01 from the June 2017 quarter, and in line with our current dividend rate.  

Continuing our strategy to preserve capital, reduce risk, and avoid “chasing yield” through investments deemed too risky with a poor risk/return profile at this point in the economic cycle, we remain committed to our historic credit discipline with originations this quarter consistent with the levels in the prior quarter. We have a robust pipeline of potential investments in our target range for credit quality and yield. We believe our disciplined approach to credit will serve us well in the coming years, just as that disciplined approach has served us well in past years.

In the September 2017 quarter we maintained a prudent net debt to equity ratio of 71.6%, down 2.0% from September 2016.

For the September 2017 quarter, our net income (“NI”) was $11.97 million, or $0.03 per weighted average share, a decrease of $0.11 from the June 2017 quarter. Unrealized depreciation within our structured credit investments and a lower interest-earning asset base in the September 2017 quarter over the June 2017 quarter contributed to decreased NI.

Our interest income as a percentage of total investment income was 93.4% in the September 2017 quarter.

DISTRIBUTION DECLARATION

Prospect is declaring distributions as follows:

  • $0.06 per share for November 2017 to November 30, 2017 record holders with December 21, 2017 payment date;
  • $0.06 per share for December 2017 to December 29, 2017 record holders with January 18, 2018 payment date; and
  • $0.06 per share for January 2018 to January 31, 2018 record holders with February 15, 2018 payment date.

These distributions mark Prospect’s 112th, 113th, and 114th consecutive cash distributions to shareholders.

Based on the declarations above, Prospect’s closing stock price of $5.91 at November 7, 2017 delivers to shareholders a 12.2% dividend yield. 

Based on past distributions and our current share count for declared distributions, Prospect since inception through our January 2018 distribution will have distributed $16.26 per share to original shareholders, exceeding $2.4 billion in cumulative distributions to all shareholders.

Prospect expects to declare February 2018, March 2018, and April 2018 distributions in February 2018.

PORTFOLIO AND INVESTMENT ACTIVITY

We continue to prioritize secured lending. At September 30, 2017 and June 30, 2017, our portfolio consisted of the following:

All amounts in $000’s except
  per unit amounts
As ofAs of
September 30, 2017June 30, 2017
   
Total Investments (at fair value)$5,687,117$5,838,305
Number of Portfolio Companies120121
% Controlled Investments (at fair value)34.0%32.7%
   
Secured First Lien
48.5%48.3%
Secured Second Lien19.5%19.1%
Structured Credit17.0%18.5%
Equity Investments14.3%13.2%
Unsecured Debt0.6%0.8%
Small Business Whole Loans0.1%0.1%
   
Annualized Current Yield – All Investments9.9%10.4%
Annualized Current Yield – Performing Interest Bearing Investments11.8%12.2%
   
Top Industry Concentration(1)11.2%10.7%
   
Energy Industry Concentration(1)2.7%2.4%
   
Retail Industry Concentration(1)0.0%0.0%
   
Non-Accrual Loans as % of Total Assets2.1%2.5%
   
Weighted Average Portfolio Net Leverage(2)4.32x4.19x
Weighted Average Portfolio EBITDA$49,155$48,340
   

(1) Excluding our underlying industry-diversified structured credit portfolio.   

(2)  Through our investment in the portfolio company’s capital structure.

During the September 30, 2017 and June 30, 2017 quarters, our investment origination and repayment activity was as follows:

   
All amounts in $000’s Quarter EndedQuarter Ended
September 30, 2017June 30, 2017
   
Total Originations
$222,151$223,176
   
Structured Credit32%
Agented Sponsor Debt47%31%
Non-Agented Debt34%31%
Online Lending17%4%
Real Estate2%1%
Operating Buyouts1%
   
Total Repayments$310,894$352,043
Repayments in excess of Originations$(88,743)$(128,867)
   

For a listing of transactions completed during the quarter, please see section titled “Portfolio Investment Activity” in our form 10-Q for the quarter ended September 30, 2017.

We have invested in structured credit investments with individual standalone financings non-recourse to Prospect and with our risk limited in each case to our net investment amount. At September 30, 2017 and June 30, 2017, our structured credit portfolio at fair value consisted of the following:

   
All amounts in $000’s except per unit amountsAs ofAs of
September 30, 2017June 30, 2017
   
Total Structured Credit Investments$969,478$1,079,712
   
# of Investments4343
   
TTM Average Cash Yield(1)(3)20.5%21.4%
Annualized Cash Yield(1)(3)18.3%18.8%
Annualized GAAP Yield on Fair Value(1)(3)12.4%13.6%
Annualized GAAP Yield on Amortized Cost(2)(3)11.1%12.7%
   
Cumulative Cash Distributions$1,034,772$939,048
% of Original Investment69.8%63.8%
   
# of Underlying Collateral Loans2,3102,491
Total Asset Base of Underlying Portfolio$19,225,010$19,254,846
   
Prospect TTM Default Rate0.55%0.75%
Broadly Syndicated Market TTM Default Rate1.53%1.54%
Prospect Default Rate Outperformance vs. Market0.98%0.79%
   

(1) Calculation based on fair value.

(2) Calculation based on amortized cost.

(3) Excludes deals in the process of redemption.

To date, including called deals in the process of liquidation, we have exited eleven structured credit investments totaling $290.5 million with an expected average realized IRR of 16.3% and cash on cash multiple of 1.49 times.

Since August 29, 2016 (the date of our June 2016 earnings release), 18 of our structured credit investments have completed refinancings to reduce their liability spreads, and six additional structured credit investments have completed multi-year extensions of their reinvestment periods (also at reduced liability spreads). We believe further upside exists in our structured credit portfolio through additional refinancings and reinvestment period extensions.  

To date during the December 2017 quarter, we have completed new and follow-on investments as follows:

  
All amounts in $000’s Quarter Ended
December 31, 2017
  
Total Originations
$126,002
  
Non-Agented Debt59%
Real Estate32%
Agented Sponsor Debt6%
Operating Buyouts3%
  
Total Repayments
  

LIQUIDITY AND FINANCIAL RESULTS

The following table summarizes key leverage statistics at September 30, 2017 and June 30, 2017:   

   
All amounts in $000’s As of
September 30, 2017
As of
June 30, 2017
Net of Cash Debt to Equity Ratio71.6%70.5%
% of Assets at Floating Rates90.5%90.4%
% of Liabilities at Fixed Rates99.9%99.9%
   
Unencumbered Assets$4,494,399$4,546,147
% of Total Assets75.2%73.7%
   

We repaid our remaining $50.7 million October 2017 convertible notes at maturity. In calendar year 2017, we have also refinanced (or provided notice to call) a majority of our debt maturing in less than one year as follows:

    
All amounts in $000’s PrincipalRateMaturity
    
Debt Issuances

   
2022 Notes$225,0004.95%July 2022
Repurchases   
2017 Notes$78,7665.375%October 2017
2018 Notes$114,5815.75%March 2018
Prospect Capital InterNotes®$222,0093.75% - 5.85%December 2017 – November 2019
     

For the remainder of fiscal year 2018, we have liability maturities of $108.5 million.

On August 29, 2014, we renegotiated and closed an expanded five and a half year revolving credit facility (the “Facility”), summarized as follows: 

All amounts in $000’s As of
September 30, 2017
  
Total Extended Commitments$885,000
Total Commitments with Accordion Feature$1,500,000
Interest Rate on Borrowings1M LIBOR + 225 bps (no floor)
Moody’s RatingAa3
  

We have diversified our counterparty risk. At September 30, 2017, 21 institutional lenders were committed to the Facility compared to five lenders at June 30, 2010, one of the most diversified bank groups in our industry. The revolving period of the Facility extends through March 2019, with an additional one-year amortization period to March 2020, with distributions allowed after the completion of the revolving period. We currently have no borrowings drawn under our Facility.

We have seven separate unsecured debt issuances aggregating $1.7 billion outstanding, not including our program notes, with maturities ranging from March 2018 to June 2024. At September 30, 2017, $916.0 million of program notes were outstanding with staggered maturities through October 2043.

EARNINGS CONFERENCE CALL

Prospect will host an earnings call on Thursday, November 9, 2017 at 11:00 am. Eastern Time. Dial 888-338-7333. For a replay prior to December 9, 2017, call 877-344-7529 passcode 10114021. The call will be available prior to December 9, 2017 on Prospect’s website, www.prospectstreet.com.

     
     
 September 30, 2017 June 30, 2017 
   
     
Assets    
Investments at fair value:    
Control investments (amortized cost of $1,861,230 and $1,840,731, respectively)$1,933,366  $1,911,775  
Affiliate investments (amortized cost of $24,075 and $22,957, respectively)17,739  11,429  
Non-control/non-affiliate investments (amortized cost of $3,997,812 and $4,117,868, respectively)3,736,012  3,915,101  
Total investments at fair value (amortized cost of $5,883,117 and $5,981,556, respectively)5,687,117  5,838,305  
Cash264,517  318,083  
Receivables for:    
Interest, net21,273  9,559  
Other1,098  924  
Prepaid expenses981  1,125  
Due from Prospect Administration12    
Due from Affiliate18  14  
Deferred financing costs on Revolving Credit Facility4,086  4,779  
Total Assets5,979,102  6,172,789  
     
Liabilities    
Revolving Credit Facility    
Prospect Capital InterNotes® (less unamortized discount and debt issuance costs of $13,561 and $14,240, respectively)902,471  966,254  
Convertible Notes (less unamortized discount and debt issuance costs of $14,437 and $15,512, respectively)938,716  937,641  
Public Notes (less unamortized discount and debt issuance costs of $10,476 and $10,981, respectively)738,805  738,300  
Due to Prospect Capital Management46,313  48,249  
Interest payable33,324  38,630  
Dividends payable21,619  30,005  
Due to Prospect Administration1,910  1,910  
Accrued expenses3,287  4,380  
Other liabilities2,711  2,097  
Due to broker2,955  50,371  
Total Liabilities2,692,111  2,817,837  
Commitments and Contingencies    
Net Assets$3,286,991  $3,354,952  
     
Components of Net Assets    
Common stock, par value $0.001 per share (1,000,000,000 common shares authorized; 360,310,422 and 360,076,933 issued and outstanding, respectively)$360  $360  
Paid-in capital in excess of par3,993,800  3,991,317  
Accumulated overdistributed net investment income(72,726) (54,039) 
Accumulated net realized loss(438,443) (439,435) 
Net unrealized loss(196,000) (143,251) 
Net Assets$3,286,991  $3,354,952  
     
Net Asset Value Per Share$9.12  $9.32  
         


 Three Months Ended September 30,
 2017 2016
Investment Income   
Interest income:   
Control investments$46,030  $45,909 
Affiliate investments205   
Non-control/non-affiliate investments72,430  86,660 
Structured credit securities29,420  39,081 
Total interest income148,085  171,650 
Dividend income:   
Control investments  2,240 
Non-control/non-affiliate investments544  144 
Total dividend income544  2,384 
Other income:   
Control investments2,091  2,940 
Non-control/non-affiliate investments7,859  2,858 
Total other income9,950  5,798 
Total Investment Income158,579  179,832 
Operating Expenses   
Investment advisory fees:   
Base management fee30,163  30,792 
Income incentive fee15,933  19,730 
Interest and credit facility expenses41,035  41,669 
Allocation of overhead from Prospect Administration3,528  3,533 
Audit, compliance and tax related fees1,088  1,395 
Directors’ fees113  113 
Other general and administrative expenses2,987  3,681 
Total Operating Expenses94,847  100,913 
Net Investment Income63,732  78,919 
Net Realized and Change in Unrealized (Losses) Gains from Investments   
Net realized gains   
Control investments9  5 
Affiliate investments846  137 
Non-control/non-affiliate investments582  572 
Net realized gains1,437  714 
Net change in unrealized (losses) gains   
Control investments1,093  13,366 
Affiliate investments5,193  (2,126)
Non-control/non-affiliate investments(59,037) (9,446)
Net change in unrealized (losses) gains(52,751) 1,794 
Net Realized and Change in Unrealized (Losses) Gains from Investments(51,314) 2,508 
Net realized losses on extinguishment of debt(445) (61)
Net Increase in Net Assets Resulting from Operations$11,973  $81,366 
Net increase in net assets resulting from operations per share$0.03  $0.23 
Dividends declared per share$(0.23) $(0.25)
        


 Three Months Ended
September 30,
 
 2017  2016 
Per Share Data     
Net asset value at beginning of period$9.32   $9.62  
Net investment income(1)0.18   0.22  
Net realized and change in unrealized (losses) gains(1)(0.15)  0.01  
Distributions of net investment income(0.23)  (0.25) 
Common stock transactions(2) (3)  (3)
  Net asset value at end of period$9.12   $9.60  
          

(1) Per share data amount is based on the weighted average number of common shares outstanding for the period presented (except for dividends to shareholders which is based on actual rate per share).

(2) Common stock transactions include the effect of issuances and repurchases of common stock, if any.

(3) Amount is less than $0.01.

ABOUT PROSPECT CAPITAL CORPORATION

Prospect Capital Corporation (www.prospectstreet.com) is a business development company that focuses on lending to and investing in private businesses. Our investment objective is to generate both current income and long-term capital appreciation through debt and equity investments.

We have elected to be treated as a business development company under the Investment Company Act of 1940 (“1940 Act”). We are required to comply with a series of regulatory requirements under the 1940 Act as well as applicable NASDAQ, federal and state rules and regulations. We have elected to be treated as a regulated investment company under the Internal Revenue Code of 1986.

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, whose safe harbor for forward-looking statements does not apply to business development companies. Any such statements, other than statements of historical fact, are highly likely to be affected by other unknowable future events and conditions, including elements of the future that are or are not under our control, and that we may or may not have considered; accordingly, such statements cannot be guarantees or assurances of any aspect of future performance. Actual developments and results are highly likely to vary materially from any forward-looking statements. Such statements speak only as of the time when made. We undertake no obligation to update any such statement now or in the future. 

For additional information, contact:

Grier Eliasek, President and Chief Operating Officer
grier@prospectstreet.com 
Telephone (212) 448-0702

Source: Prospect Capital Corporation