Press Release

Prospect Capital Reports March 2018 Quarterly Results and Declares Additional Monthly Distributions

Company Release - 5/9/2018 4:04 PM ET

NEW YORK, May 09, 2018 (GLOBE NEWSWIRE) -- Prospect Capital Corporation (NASDAQ:PSEC) (“Prospect”, “our”, or “we”) today announced financial results for our third fiscal quarter ended March 31, 2018.


All amounts in $000’s except
  per share amounts
Quarter EndedQuarter EndedQuarter Ended
March 31, 2018December 31, 2017March 31, 2017
    
Net Investment Income (“NII”)$70,446 $73,192 $73,080 
Interest as % of Total Investment Income 89.6% 94.4% 94.6%
    
NII per Share$0.19 $0.20 $0.20 
    
Net Increase in Net Assets Resulting from Operations (“NI”)$51,859 $121,727 $19,492 
NI per Share$0.14 $0.34 $0.05 
    
Distributions to Shareholders$65,174 $64,912 $89,892 
Distributions per Share$0.18 $0.18 $0.25 
    
Net Asset Value (“NAV”) per Share$9.23 $9.28 $9.43 
    
Net of Cash Debt to Equity Ratio 69.1% 60.2% 75.6%

For the March 2018 quarter, we earned net investment income (“NII”) of $70.4 million, or $0.19 per weighted average share, down $0.01 from the December 2017 quarter, and exceeding our current quarterly dividend rate of $0.18 per share by $0.01 per share. The decrease in NII per share resulted primarily from higher administrative overhead expense compared to the December 2017 quarter.

As the economic cycle ages, we are not chasing yield but are instead seeking to reduce risk and protect capital. We remain committed to our historic credit discipline, which has served us well in the past. While we have a robust pipeline of potential investments in our target range for credit quality and yield, we are not chasing risky assets with low returns and so remained underinvested at March 31, 2018. We believe our disciplined approach to credit will continue to serve us well in the coming years.

In the March 2018 quarter our net of cash debt to equity ratio was 69.1%, up 8.9% from December 2017 and down 6.5% from March 2017.

For the March 2018 quarter, our net increase in net assets resulting from operations (“NI”) was $51.9 million, or $0.14 per weighted average share, a decrease of $0.20 from the December 2017 quarter as a result of increased unrealized depreciation in the fair market value of certain investments compared to the prior quarter.

Our interest income as a percentage of total investment income was 89.6% in the March 2018 quarter.

Our net asset value (“NAV”) per share decreased by $0.05 to $9.23 during the March 2018 quarter.

All amounts in $000’s except
  per share amounts
Nine Months Ended
March 31, 2018
Nine Months Ended
March 31, 2017
   
NII$207,370$236,404
NII per Share$0.57$0.66
   
NI$185,559$201,738
NI per Share$0.51$0.56
   
Distributions to Shareholders$211,733$268,989
Distributions per Share$0.59$0.75


For the nine months ended March 31, 2018, we earned NII of $207.4 million, or $0.57 per weighted average share, down $0.09 from the prior year. For the nine months ended March 31, 2018, we earned NI of $185.6 million, or $0.51 per weighted average share, down $0.05 from the prior year.

DISTRIBUTION DECLARATION

Prospect is declaring distributions as follows:

  • $0.06 per share for May 2018 to May 31, 2018 record holders with June 21, 2018 payment date;
  • $0.06 per share for June 2018 to June 29, 2018 record holders with July 19, 2018 payment date;
  • $0.06 per share for July 2018 to July 31, 2018 record holders with August 23, 2018 payment date; and
  • $0.06 per share for August 2018 to August 31, 2018 record holders with September 20, 2018 payment date.

These distributions mark Prospect’s 118th, 119th, 120th, and 121st consecutive cash distributions to shareholders.

Based on the declarations above, Prospect’s closing stock price of $6.45 at May 8, 2018 delivers to shareholders a dividend yield of 11.2%.

Based on past distributions and our current share count for declared distributions, Prospect since inception through our August 2018 distribution will have distributed $16.68 per share to original shareholders, exceeding $2.59 billion in cumulative distributions to all shareholders.

Prospect expects to declare September 2018 and October 2018 distributions in August 2018.

PORTFOLIO AND INVESTMENT ACTIVITY

We continue to prioritize secured lending. At March 31, 2018, December 31, 2017, and June 30, 2017, our portfolio comprised the following:

All amounts in $000’s except
  per unit amounts
As ofAs ofAs of
March 31, 2018December 31, 2017June 30, 2017
    
Total Investments (at fair value)$5,719,804 $5,421,132 $5,838,305 
Number of Portfolio Companies 134  122  121 
% Controlled Investments (at fair value) 34.7% 37.1% 32.7%
    
Secured First Lien

 
 44.9% 44.5% 48.3%
Secured Second Lien 23.2% 21.4% 19.1%
Structured Credit 16.5% 17.3% 18.5%
Equity Investments 14.9% 16.2% 13.2%
Unsecured Debt 0.5% 0.6% 0.8%
Small Business Whole Loans 0.0% 0.0% 0.1%
    
Annualized Current Yield – All Investments 10.8% 10.3% 10.4%
Annualized Current Yield – Performing Interest Bearing Investments 

12.9%
 12.5% 

12.2%
    
Top Industry Concentration(1) 12.8% 13.3% 10.7%
    
Energy Industry Concentration(1) 2.8% 3.1% 2.4%
    
Retail Industry Concentration(1) 0.0% 0.0% 0.0%
    
Non-Accrual Loans as % of Total Assets 1.3% 1.2% 2.5%
    
Weighted Average Portfolio Net Leverage(2)4.65x4.44x4.19x
Weighted Average Portfolio EBITDA$62,628 $60,475 $48,340 

             

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

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


During the March 2018 and December 2017 quarters, our investment origination and repayment activity was as follows:

All amounts in $000’s Quarter EndedQuarter Ended
March 31, 2018December 31, 2017
   
Total Originations

 
$429,928 $738,737 
   
Non-Agented Debt 43% 32%
Agented Sponsor Debt 40% 56%
Structured Credit 7% 0%
Operating Buyouts 6% 1%
Real Estate 3% 11%
Online Lending 1% 0%
   
Total Repayments$118,083$1,042,269 
Originations, Net of Repayments$311,845 ($303,532)

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 March 31, 2018 as filed with the Securities and Exchange Commission on May 9, 2018.


Our structured credit investments have individual standalone financings each non-recourse to Prospect and with our risk limited in each case to our net investment amount. At March 31, 2018 and December 31, 2017, our structured credit portfolio at fair value consisted of the following:

All amounts in $000’s except
  per unit amounts
As ofAs of
March 31, 2018December 31, 2017
   
Total Structured Credit Investments

 
$944,815 $940,276 
   
# of Investments 43  43 
   
TTM Average Cash Yield(1)(3) 17.3% 19.3%
Annualized Cash Yield(1)(3) 13.2% 17.0%
Annualized GAAP Yield on Fair Value(1)(3) 13.2% 12.5%
Annualized GAAP Yield on Amortized Cost(2)(3) 11.6% 11.0%
   
Cumulative Cash Distributions$1,112,703 $1,078,373 
% of Original Investment 73.8% 73.0%
   
# of Underlying Collateral Loans 2,184  2,225 
Total Asset Base of Underlying Portfolio$18,762,162 $19,026,601 
   
Prospect TTM Default Rate 1.10% 0.77%
Broadly Syndicated Market TTM Default Rate 2.42% 2.05%
Prospect Default Rate Outperformance vs. Market 1.32% 1.28%


      (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 11 structured credit investments totaling $290.5 million with an expected average realized IRR of 16.1% and cash on cash multiple of 1.48 times.

Since August 29, 2016 (the date of our June 2016 quarter earnings release) through today, 19 of our structured credit investments have completed refinancings to reduce their liability spreads, and 15 additional structured credit investments have completed multi-year extensions of their reinvestment periods (with most resulting in reduced liability spreads). We believe further upside exists in our structured credit portfolio through additional refinancings and reinvestment period extensions, and are actively working on such transactions.

To date during the June 2018 quarter, we have completed new and follow-on investments as follows:

All amounts in $000’s Quarter Ended
June 30, 2018
  
Total Originations

 
$181,586 
  
Agented Non-Sponsor Debt 63%
Agented Sponsor Debt 25%
Non-Agented Debt 6%
Real Estate 5%
Operating Buyouts 1%
  
Total Repayments$113,078 

LIQUIDITY AND FINANCIAL RESULTS

The following table summarizes key leverage statistics at March 31, 2018, December 31, 2017, and March 31, 2017:

All amounts in $000’s As of
March 31, 2018
As of
December 31, 2017
As of
March 31, 2017
Net of Cash Debt to Equity Ratio 69.1% 60.2% 75.6%
% of Assets at Floating Rates 90.1% 89.3% 90.7%
% of Liabilities at Fixed Rates 96.4% 99.9% 99.9%
    
Unencumbered Assets$4,619,909 $4,606,067 $4,611,293 
% of Total Assets 78.9% 77.8% 74.9%

We repaid our remaining $50.7 million October 2017 and $85.4 million March 2018 convertible notes at maturity. In calendar year 2017 and early 2018, we also issued $225 million of 2022 Notes and repurchased (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®$318,8723.75% - 5.85%December 2017 – August 2020

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
March 31, 2018
  
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 over the last seven years. At March 31, 2018, 21 institutional lenders were committed to the Facility compared to five lenders at June 30, 2010, representing 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, and with distributions allowed after the completion of the revolving period. We currently have $105 million drawn under our Facility.

We have six separate unsecured debt issuances aggregating $1.6 billion outstanding, not including our program notes, with laddered maturities extending to June 2024. At March 31, 2018, $756.1 million of program notes were outstanding with staggered maturities through October 2043.

EARNINGS CONFERENCE CALL

Prospect will host an earnings call on Thursday, May 10, 2018 at 11:00 am. Eastern Time. Dial 888-338-7333. For a replay prior to June 9, 2018, call 877-344-7529 passcode 10119888. The call will be available prior to June 9, 2018 on Prospect’s website, www.prospectstreet.com.


 March 31, 2018 June 30, 2017
  
 (Unaudited) (Audited)
Assets   
Investments at fair value:   
Control investments (amortized cost of $1,857,698 and $1,840,731, respectively)$1,986,984  $1,911,775 
Affiliate investments (amortized cost of $55,482 and $22,957, respectively)52,288  11,429 
Non-control/non-affiliate investments (amortized cost of $3,951,787 and $4,117,868, respectively)3,680,532  3,915,101 
Total investments at fair value (amortized cost of $5,864,967 and $5,981,556, respectively)5,719,804  5,838,305 
Cash97,563  318,083 
Receivables for:   
Interest, net29,511  9,559 
Other836  924 
Prepaid expenses566  1,125 
Due from Broker  
Due from Prospect Administration60   
Due from Affiliate88  14 
Deferred financing costs on Revolving Credit Facility2,717  4,779 
Total Assets5,851,145  6,172,789 
    
Liabilities   
Revolving Credit Facility86,000   
Convertible Notes (less unamortized debt issuance costs of $11,908 and $15,512, respectively)
 
805,092  937,641 
Prospect Capital InterNotes® (less unamortized debt issuance costs of $12,342 and $14,240,
  respectively)
743,729  966,254 
Public Notes (less unamortized discount and debt issuance costs of $9,445 and $10,981,
  respectively)
739,836  738,300 
Due to Prospect Capital Management47,009  48,249 
Interest payable29,588  38,630 
Due to Broker24,457  50,371 
Dividends payable21,759  30,005 
Due to Prospect Administration2,148  1,910 
Accrued expenses4,320  4,380 
Other liabilities811  2,097 
Total Liabilities2,504,749  2,817,837 
Commitments and Contingencies   
Net Assets$3,346,396  $3,354,952 
    
Components of Net Assets   
Common stock, par value $0.001 per share (1,000,000,000 common shares authorized; 362,657,362 and 360,076,933 issued and outstanding, respectively)$363  $360 
Paid-in capital in excess of par4,009,704  3,991,317 
Accumulated overdistributed net investment income(59,174) (54,039)
Accumulated net realized loss(459,334) (439,435)
Net unrealized loss(145,163) (143,251)
Net Assets$3,346,396  $3,354,952 
    
Net Asset Value Per Share$9.23  $9.32 


 Three Months Ended March 31, Nine Months Ended March 31,
 2018 2017 2018 2017
Investment Income       
Interest income:       
Control investments$45,944   $41,353  $139,392  $135,543 
Affiliate investments271     476   
Non-control/non-affiliate investments68,376   83,794  216,639  257,919 
Structured credit securities31,271   36,564  90,822  114,690 
Total interest income145,862   161,711  447,329  508,152 
Dividend income:       
Control investments5,639   728  5,639  4,250 
Non-control/non-affiliate investments648   89  1,518  330 
Total dividend income6,287   817  7,157  4,580 
Other income:       
Control investments6,188   2,953  12,317  9,749 
Non-control/non-affiliate investments4,498   5,551  17,011  11,863 
Total other income10,686   8,504  29,328  21,612 
Total Investment Income162,835   171,032  483,814  534,344 
Operating Expenses       
Base management fee29,268   30,549  88,990  92,227 
Income incentive fee17,612   18,270  51,843  59,101 
Interest and credit facility expenses37,479   41,464  117,861  123,981 
Allocation of overhead from Prospect Administration3,195   3,581  5,899  9,771 
Audit, compliance and tax related fees1,130   1,223  4,084  3,676 
Directors’ fees113   113  338  338 
Excise Tax       (1,100)
Other general and administrative expenses3,592   2,752  7,429  9,946 
Total Operating Expenses92,389   97,952  276,444  297,940 
Net Investment Income70,446   73,080  207,370  236,404 
Net Realized and Change in Unrealized Gains (Losses) from Investments       
Net realized gains (losses)       
Control investments2   1  13  184 
Affiliate investments(14,197)    (13,351) 137 
Non-control/non-affiliate investments(23  177  (5,116) 489 
Net realized (losses) gains(14,218)  178  (18,454) 810 
Net change in unrealized gains (losses)       
Control investments1,380   (33,235) 46,898  (30,937)
Affiliate investments12,952   (581) 19,678  (1,854)
Non-control/non-affiliate investments(18,188)  (19,930) (68,488) (2,480)
Net change in unrealized gains (losses)(3,856)  (53,746) (1,912) (35,271)
Net Realized and Change in Unrealized Gains (Losses) from Investments(18,074)  (53,568) (20,366) (34,461)
Net realized losses on extinguishment of debt(513)  (20) (1,445) (205)
Net Increase in Net Assets Resulting from Operations$51,859   $19,492  $185,559  $201,738 
Net increase in net assets resulting from operations per share$0.14   $0.05  $0.51  $0.56 
Dividends declared per share$(0.18  $(0.25) $(0.59) $(0.75)


 Three Months Ended
March 31,
 Nine Months Ended
March 31,
 
 2018 2017 2018 2017 
Per Share Data        
Net asset value at beginning of period$9.28  $9.62  $9.32 $9.62 
Net investment income(1)0.19  0.20  0.57 0.66 
Net realized and change in unrealized gains (losses) (1)(0.05) (0.15) (0.06)(0.10)
Distributions of net investment income(0.18) (0.25) (0.59)(0.75)
Common stock transactions(2)(0.01)  0.01  (0.01)(3) 
  Net asset value at end of period$9.23  $9.43  $9.23 $9.43 
  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

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Source: Prospect Capital Corporation