Press Release

Prospect Capital Reports June 2018 Annual and Quarterly Results and Declares Additional Monthly Distributions

Company Release - 8/28/2018 4:26 PM ET

NEW YORK , Aug. 28, 2018 (GLOBE NEWSWIRE) -- Prospect Capital Corporation (NASDAQ: PSEC) (“Prospect”, “our”, or “we”) today announced financial results for our fiscal year ended June 30, 2018.

    
All amounts in $000’s except
per share amounts
Quarter EndedQuarter EndedQuarter Ended
June 30, 2018March 31, 2018June 30, 2017
    
Net Investment Income (“NII”)$79,480$70,446$69,678
Interest as % of Total Investment Income91.8%89.6%96.3%
    
NII per Share$0.22$0.19$0.19
    
Net Increase in Net Assets Resulting from Operations (“NI”)$114,304$51,859$51,168
NI per Share$0.31$0.14$0.14
    
Distributions to Shareholders$65,491$65,174$89,998
Distributions per Share$0.18$0.18$0.25
    
Net Asset Value (“NAV”) per Share$9.35$9.23$9.32
    
Net of Cash Debt to Equity Ratio66.5%69.1%70.5%
    

For the June 2018 quarter, we earned net investment income (“NII”) of $79.5 million, or $0.22 per weighted average share, up $0.03 from the March 2018 quarter, and exceeding our current quarterly dividend rate of $0.18 per share by $0.04 per share. The increase in NII per share resulted primarily from an increase in interest and other income compared to the March 2018 quarter.

In the June 2018 quarter, our net of cash debt to equity ratio was 66.5%, down 2.6% from March 2018 and down 4.0% from June 2017.

For the June 2018 quarter, our net increase in net assets resulting from operations (“NI”) was $114.3 million, or $0.31 per weighted average share, an increase of $0.17 from the March 2018 quarter as a result of an increased NII and a net increase in the fair value of our portfolio, including investments in the real estate, CLO, consumer finance, and other sectors.

Our interest income as a percentage of total investment income was 91.8% in the June 2018 quarter, up 2.2% from 89.6% in the March 2018 quarter.

Our net asset value (“NAV”) per share increased by $0.12 to $9.35 during the June 2018 quarter.

   
All amounts in $000’s except
per share amounts
Year Ended
June 30, 2018
Year Ended
June 30, 2017
   
NII$286,850$306,082
NII per Share$0.79$0.85
   
NI$299,863$252,906
NI per Share$0.83$0.70
   
Distributions to Shareholders$277,224$358,987
Distributions per Share$0.77$1.00
     

For the year ended June 30, 2018, we earned NII of $286.9 million, or $0.79 per weighted average share, down $0.06 from the prior year. For the year ended June 30, 2018, we earned NI of $299.9 million, or $0.83 per weighted average share, up $0.13 from the prior year.

DISTRIBUTION DECLARATION

Prospect is declaring distributions as follows:

  • $0.06 per share for September 2018 to September 28, 2018 record holders with October 18, 2018 payment date; and
  • $0.06 per share for October 2018 to October 31, 2018 record holders with November 21, 2018 payment date.

These distributions mark Prospect’s 122nd and 123rd consecutive cash distributions to shareholders.

Based on the declarations above, Prospect’s closing stock price of $7.18 at August 27, 2018 delivers to shareholders a dividend yield of 10.0%.

Based on past distributions and our current share count for declared distributions, Prospect since inception through our October 2018 distribution will have distributed $16.80 per share to original shareholders, exceeding $2.6 billion in cumulative distributions to all shareholders.

Prospect expects to declare November 2018, December 2018, and January 2019 distributions in November 2018.

PORTFOLIO AND INVESTMENT ACTIVITY

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

    
All amounts in $000’s except
per unit amounts
As ofAs ofAs of
June 30, 2018March 31, 2018June 30, 2017
    
Total Investments (at fair value)$5,727,279$5,719,804$5,838,305
Number of Portfolio Companies135134121
% Controlled Investments (at fair value)42.0%34.7%32.7%
    
Secured First Lien
43.9%44.9%48.3%
Secured Second Lien22.1%23.2%19.1%
Structured Credit16.8%16.5%18.5%
Equity Investments16.6%14.9%13.2%
Unsecured Debt0.6%0.5%0.8%
Small Business Whole Loans0.0%0.0%0.1%
    
Annualized Current Yield – All Investments10.5%10.8%10.4%
Annualized Current Yield – Performing Interest Bearing Investments13.0%12.9%12.2%
    
Top Industry Concentration(1)14.2%12.8%10.7%
    
Energy Industry Concentration(1)3.0%2.8%2.4%
    
Non-Accrual Loans as % of Total Assets(4)2.5%1.3%2.5%(3)
    
Weighted Average Portfolio Net Leverage(2)4.60x4.65x4.19x
Weighted Average Portfolio EBITDA$55,384$62,628$48,340
    
(1) Excluding our underlying industry-diversified structured credit portfolio. 
(2) Through our investment in the portfolio company’s capital structure.
(3) Includes 1.3% from USC, which timely paid income-producing, contractual interest to us in June 2017 quarter.
(4) Calculated at fair value
 

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

   
All amounts in $000’s Quarter EndedQuarter Ended
June 30, 2018March 31, 2018
   
Total Originations
$339,841$429,928
   
   
Agented Sponsor Debt42%40%
Agented Non-Sponsor Debt33%0%
Real Estate15%3%
Structured Credit6%7%
Non-Agented Debt3%43%
Corporate Yield Buyouts1%6%
Online Lending1%
   
Total Repayments$362,287$116,978
Originations, Net of Repayments($22,446)$312,950
   

For a listing of transactions completed during the quarter, please see section titled “Portfolio Investment Activity” in our Form 10-K for the year ended June 30, 2018 as filed with the Securities and Exchange Commission on August 28, 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 June 30, 2018 and March 31, 2018, our structured credit portfolio at fair value consisted of the following:

   
All amounts in $000’s except
per unit amounts
As ofAs of
June 30, 2018March 31, 2018
   
Total Structured Credit Investments
$960,194$944,815
   
# of Investments4443
   
TTM Average Cash Yield on Fair Value(1)(2)17.6%17.3%
Annualized Cash Yield on Fair Value(1)(2)21.1%13.2%
Annualized GAAP Yield on Fair Value(1)(2)14.5%13.2%
Annualized GAAP Yield on Amortized Cost(1)(2)12.6%11.6%
   
Cumulative Cash Distributions$1,163,691$1,112,703
% of Original Investment76.3%73.8%
   
# of Underlying Collateral Loans2,0252,184
Total Asset Base of Underlying Portfolio$19,087,415$18,762,162
   
Prospect TTM Default Rate1.15%1.10%
Broadly Syndicated Market TTM Default Rate1.98%2.42%
Prospect Default Rate Outperformance vs. Market0.83%1.32%
   
(1) Excludes deals in the process of redemption.
(2) Cash yield includes all cash distributions from an investment, while GAAP yield subtracts out amortization of cost basis.
 

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 1.49 times.

Since June 30, 2017 through today, one of our structured credit investments has completed a refinancing to reduce liability spreads, and 19 additional structured credit investments have completed multi-year extensions of their reinvestment periods (with most resulting in reduced liability spreads as well as higher asset spread possibilities from longer weighted average life tests). 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 September 2018 quarter, we have completed new and follow-on investments as follows:

  
All amounts in $000’s Quarter Ended
September 30, 2018
  
Total Originations
$180,901
  
Agented Sponsor Debt66%
Non-Agented Debt24%
Structured Credit6%
Real Estate4%
Agented Non-Sponsor Debt0%
  
Total Repayments$20,126
Originations, Net of Repayments$160,775
  

LIQUIDITY AND FINANCIAL RESULTS

The following table summarizes key leverage statistics at June 30, 2018, March 31, 2018, and June 30, 2017:

    
All amounts in $000’s As of
June 30, 2018
As of
March 31, 2018
As of
June 30, 2017
Net of Cash Debt to Equity Ratio66.5%69.1%70.5%
% of Assets at Floating Rates89.7%90.1%90.4%
% of Liabilities at Fixed Rates98.4%96.4%99.9%
    
Unencumbered Assets$4,502,764$4,619,909$4,546,147
% of Total Assets77.1%79.0%73.6%
    

In the past year, we repaid our remaining October 2017 and March 2018 convertible notes at maturity and repurchased $269.4 million of our program notes. In May 2018 we repurchased $98.4 million in principal amount of our January 2019 convertible notes and issued an additional $103.5 million of our July 2022 convertible notes. In June 2018 we repurchased $146.5 million in principal amount of our 5% coupon July 2019 notes, issued $70.0 million of our March 2023 notes, and issued $55.0 million of our June 2028 notes. The below table summarizes our issuance and repurchase activity:

    
All amounts in $000’s PrincipalRateMaturity
    
Debt Issuances
   
2022 Notes$103,5004.95%July 2022
2023 Notes$70,0005.875%March 2023
2028 Notes$55,0006.25%June 2028
Repurchases   
2017 Notes$50,7345.375%October 2017
2018 Notes$85,4195.75%March 2018
2019 Notes$98,3535.875%January 2019
5% 2019 Notes$146,4645.00%July 2019
Prospect Capital InterNotes®$298,7353.75% - 5.85%February 2018– September 2020
     

On August 1, 2018, we completed an extension of the revolving credit facility (the “Facility”) for Prospect Capital Funding, extending the term 5.7 years from such date and reducing the interest rate on drawn amounts to one-month Libor plus 2.20%. The new Facility, for which $770 million of commitments have been closed to date with 19 institutional lenders (representing one of the most diversified bank groups in our industry), with further increases targeted, includes an accordion feature that allows the Facility, at Prospect's discretion, to accept up to a total of $1.5 billion of commitments. The Facility matures on March 27, 2024. The Facility includes a revolving period that extends through March 27, 2022, followed by an additional two-year amortization period, with distributions allowed to Prospect after the completion of the revolving period.

We currently have seven separate unsecured debt issuances aggregating $1.6 billion outstanding, not including our program notes, with laddered maturities extending to June 2028. At June 30, 2018, $760.9 million of program notes were outstanding with staggered maturities through October 2043.

EARNINGS CONFERENCE CALL

Prospect will host an earnings call on Wednesday, August 29, 2018 at 11:00 am. Eastern Time. Dial 888-338-7333. For a replay prior to September 28, 2018, call 877-344-7529 passcode 10123493. The call will be available prior to September 28, 2018 on Prospect’s website, www.prospectstreet.com.


    
 June 30, 2018 June 30, 2017
Assets   
Investments at fair value:   
Control investments (amortized cost of $2,300,526 and $1,840,731, respectively)$2,404,326  $1,911,775 
Affiliate investments (amortized cost of $55,637 and $22,957, respectively)58,436  11,429 
Non-control/non-affiliate investments (amortized cost of $3,475,295 and $4,117,868, respectively)3,264,517  3,915,101 
Total investments at fair value (amortized cost of $5,831,458 and $5,981,556, respectively)5,727,279  5,838,305 
Cash83,758  318,083 
Receivables for:   
Interest, net19,783  9,559 
Other1,867  924 
Due from Broker3,029   
Prepaid Expenses984 1,125 
Due from Affiliate88  14 
Deferred financing costs on Revolving Credit Facility2,032  4,779 
Total Assets5,838,820  6,172,789 
    
Liabilities   
Revolving Credit Facility37,000   
Convertible Notes (less unamortized debt issuance costs of $13,074 and $15,512, respectively)
809,073  937,641 
Prospect Capital InterNotes® (less unamortized debt issuance costs of $11,998 and $14,240, respectively)748,926  966,254 
Public Notes (less unamortized discount and debt issuance costs of $11,007 and $10,981, respectively)716,810  738,300 
Due to Prospect Capital Management49,045  48,249 
Interest payable33,741  38,630 
Dividends payable21,865  30,005 
Due to Broker6,159  50,371 
Accrued expenses5,426  4,380 
Due to Prospect Administration2,212  1,910 
Other liabilities1,516  2,097 
Total Liabilities2,431,773  2,817,837 
Commitments and Contingencies   
Net Assets$3,407,047  $3,354,952 
    
Components of Net Assets   
Common stock, par value $0.001 per share (1,000,000,000 common shares authorized; 364,409,938 and 360,076,933 issued and outstanding, respectively)$364  $360 
Paid-in capital in excess of par4,021,541  3,991,317 
Accumulated overdistributed net investment income(45,186) (54,039)
Accumulated net realized loss(465,493) (439,435)
Net unrealized loss(104,179) (143,251)
Net Assets$3,407,047  $3,354,952 
    
Net Asset Value Per Share$9.35  $9.32 
        


 Three Months Ended June 30, Year Ended June 30,
 2018 2017 2018 2017
Investment Income       
Interest income:       
Control investments$57,527  $41,953  $195,487  $177,496 
Affiliate investments234  297  553  297 
Non-control/non-affiliate investments67,244  84,777  285,473  342,696 
Structured credit securities34,678  33,538  125,499  148,228 
Total interest income159,683  160,565  607,012  668,717 
Dividend income:       
Control investments5,639  1,000  11,279  5,250 
Non-control/non-affiliate investments250  99  1,767  429 
Total dividend income5,889
  1,099  13,046  5,679 
Other income:       
Control investments2,765 
  1,721  15,080  11,470 
Non-control/non-affiliate investments5,694 
  3,317  22,707  15,180 
Total other income8,459  5,038  37,787  26,650 
Total Investment Income174,031  166,702  657,845  701,046 
Operating Expenses       
Base management fee29,056  30,647  118,046  122,874 
Income incentive fee19,870  17,419  71,713  76,520 
Interest and credit facility expenses37,178
  40,867  155,039  164,848 
Allocation of overhead from Prospect Administration4,132
  3,475  10,031  13,246 
Audit, compliance and tax related fees1,455
  1,412  5,539  5,088 
Directors’ fees237
  116  450  454 
Excise Tax      (1,100)
Other general and administrative expenses2,623  3,088  10,177  13,034 
Total Operating Expenses94,551  97,024  370,995  394,964 
Net Investment Income79,480  69,678  286,850  306,082 
Net Realized and Change in Unrealized Gains (Losses) from Investments       
Net realized gains (losses)       
Control investments1  (66,099) 13  (65,915)
Affiliate investments    (13,351) 137 
Non-control/non-affiliate investments(11) (31,017 (5,126) (30,528)
Net realized losses(10) (97,116 (18,464) (96,306)
Net change in unrealized gains (losses)       
Control investments(25,487) 117,754  55,670  86,817 
Affiliate investments5,994  2,407  25,671  553 
Non-control/non-affiliate investments60,475  (34,749) (42,270) (37,229)
Net change in unrealized gains (losses)40,982  85,412  39,071  50,141)
Net Realized and Change in Unrealized Gains (Losses) from Investments40,972  (11,704 20,607  (46,165)
Net realized (losses) on extinguishment of debt(6,148) (6,806) (7,594) (7,011)
Net Increase in Net Assets Resulting from Operations 114,304  $51,168  $299,863  $252,906 
Net increase in net assets resulting from operations per share$0.31  $0.14  $0.83  $0.70 
Dividends declared per share$(0.18) $(0.25) $(0.77) $(1.00)
                


     
 Three Months Ended
June,
 Year Ended
June 30,
 
 2018 2017 2018 2017 
Per Share Data        
Net asset value at beginning of period$9.23  $9.43  $9.32 $9.62 
Net investment income(1)0.22  0.19  0.79 0.85 
Net realized and change in unrealized gains (losses) (1)0.09  (0.05) (0.04)(0.15)
Distributions of net investment income(0.18) (0.25) (0.77)(1.00)
Common stock transactions(2)(0.01) — (3) (0.03)(3)
Net asset value at end of period$9.35  $9.32  $9.35 $9.32 
               
(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 lending to and investing in private businesses. Our investment objective is to generate 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 are highly likely to be affected by unknowable future events and conditions, including some 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

Primary Logo

Source: Prospect Capital Corporation