Press Release

Prospect Capital Reports June 2019 Annual and Quarterly Results and Declares Additional Monthly Distributions

Company Release - 8/27/2019 4:13 PM ET

NEW YORK, Aug. 27, 2019 (GLOBE NEWSWIRE) -- Prospect Capital Corporation (NASDAQ: PSEC) (“Prospect”, “our”, or “we”) today announced financial results for our fiscal quarter and year ended June 30, 2019.

 
All amounts in $000’s except
  per share amounts (on weighted average
  basis for period numbers)
Quarter EndedQuarter EndedQuarter Ended
June 30, 2019March 31, 2019June 30, 2018
    
Net Investment Income (“NII”)$69,627
$77,262
$79,480
Interest as % of Total Investment Income92.2%90.6%91.8%
    
NII per Share$0.19$0.21$0.22
    
Net Income$38,886$89,195$114,304
Net Income per Share$0.11$0.24$0.31
    
Distributions to Shareholders$66,069$66,024$65,491
Distributions per Share$0.18$0.18$0.18
    
NII / Distributions to Shareholders105%117%122%
    
NAV per Share at Period End$9.01$9.08$9.35
    
Net of Cash Debt to Equity Ratio70.0%69.1%66.5%
 

For the June 2019 quarter, we earned net investment income (“NII”) of $69.6 million, or $0.19 per weighted average share, down $0.02 from the March 2019 quarter, and exceeding our current quarterly dividend rate of $0.18 per share by $0.01 per share. Our ratio of NII to distributions was 105% in the June 2019 quarter.

In the June 2019 quarter, our net of cash debt to equity ratio was 70.0%, up 0.9% from March 2019.

For the June 2019 quarter, our net income was $38.9 million, or $0.11 per weighted average share. The $0.13 decrease in net income for the June 2019 quarter is primarily due to realized and unrealized gains in our portfolio.

Our net asset value (“NAV”) per share decreased by $0.07 to $9.01 during the June 2019 quarter.

 
All amounts in $000’s except
  per share amounts (on weighted
  average basis for period numbers)
Year Ended
June 30, 2019
Year Ended
June 30, 2018
   
NII$312,859$286,850
NII per Share$0.85$0.79
   
Net Income (“NI”)$144,487$299,863
NI per Share$0.39$0.83
   
Distributions to Shareholders$263,624$277,224
Distributions per Share$0.72$0.77
   

For the year ended June 30, 2019, we earned NII of $312.9 million, or $0.85 per weighted average share, up $0.06 from the prior year. For the year ended June 30, 2019 we earned NI of $144.5 million, or $0.39 per weighted average share, down $0.44 from the prior year.

DISTRIBUTION DECLARATION

Prospect is declaring distributions as follows:

  • $0.06 per share for September 2019 to September 30, 2019 record holders with October 24, 2019 payment date;
  • $0.06 per share for October 2019 to October 31, 2019 record holders with November 20, 2019 payment date.

These distributions are Prospect’s 134th and 135th consecutive cash distributions to shareholders.

Based on the declarations above, Prospect’s closing stock price of $6.66 at August 26, 2019 delivers to shareholders a distribution yield of 10.8%.

Based on past distributions and our current share count for declared distributions, Prospect since inception through our October 2019 distribution will have distributed $17.52 per share to original shareholders, aggregating approximately $3 billion in cumulative distributions to all shareholders.

Prospect expects to declare November 2019, December 2019, and January 2020 distributions in November 2019.

PORTFOLIO AND INVESTMENT ACTIVITY

All amounts in $000’s except
  per unit amounts
As ofAs ofAs of
June 30, 2019March 31, 2019June 30, 2018
    
Total Investments (at fair value)$5,653,553$5,700,673$5,727,279
Number of Portfolio Companies135137135
% Controlled Investments (at fair value)43.8%42.0%42.0%
    
Secured First Lien43.9%44.6%43.9%
Secured Second Lien23.5%23.5%22.1%
Subordinated Structured Notes15.1%15.5%16.7%
Rated Secured Structured Notes (1)0.8%0.8%0.1%
Unsecured Debt0.6%0.5%0.6%
Equity Investments16.1%15.1%16.6% 
    
Annualized Current Yield – All Investments10.6%10.4%10.5%
Annualized Current Yield – Performing Interest Bearing Investments13.1%12.8%13.0%
    
Top Industry Concentration(2)14.6%13.8%14.2%
    
Energy Industry Concentration(2)2.7%3.0%3.0%
    
Non-Accrual Loans as % of Total Assets (3)2.9%3.3%2.5%
    
Weighted Average Portfolio Net Leverage(4)4.67x4.51x4.60x
Weighted Average Portfolio EBITDA(4)$60,669$59,835$55,384


(1)Our Rated Secured Structured Notes are considered non-agented debt where applicable.
(2)Excluding our underlying industry-diversified structured credit portfolio.
(3)Calculated at fair value.
(4)For additional disclosure see “Weighted Average Portfolio EBITDA and Net Leverage” at the end of this release.
  

During the June 2019 and March 2019 quarters, our investment origination and repayment activity was as follows:

All amounts in $000’s Quarter EndedQuarter Ended
June 30, 2019March 31, 2019
   
Total Originations$187,938$35,711
   
Non-Agented Debt79.3%100.0%
Agented Sponsor Debt19.0%
Corporate Yield Buyouts1.7%
   
Total Repayments$212,813$195,055
Originations, Net of Repayments$(24,875)$(159,344)
 

We have invested in structured credit investments benefiting from individual standalone financings non-recourse to Prospect and with our risk limited in each case to our net investment amount. At June 30, 2019 and March 31, 2019, our subordinated structured note portfolio at fair value consisted of the following:

All amounts in $000’s except
  per unit amounts
As ofAs of
June 30, 2019March 31, 2019
   
Total Subordinated Structured Notes
$850,694$881,128
   
# of Investments4343
   
TTM Average Cash Yield(1)(2)16.0%17.9%
Annualized Cash Yield(1)(2)13.4%15.2%
Annualized GAAP Yield on Fair Value(1)(2)15.6%15.8%
Annualized GAAP Yield on Amortized Cost(2)(3)12.0%12.7%
   
Cumulative Cash Distributions$1,299,594$1,271,206
% of Original Investment84.8%83.0%
   
# of Underlying Collateral Loans1,7921,808
Total Asset Base of Underlying Portfolio$18,296,239$18,426,692
   
Prospect TTM Default Rate0.39%0.29%
Broadly Syndicated Market TTM Default Rate1.34%0.93%
Prospect Default Rate Outperformance vs. Market0.95%0.64%


(1)Calculation based on fair value.
(2)Excludes deals being redeemed.
(3)Calculation based on amortized cost.
  

To date, including called deals being liquidated, we have exited nine subordinated structured notes totaling $263.4 million with an expected pooled average realized IRR of 16.8% and cash on cash multiple of 1.49 times.

Since December 31, 2017 through today, 23 of our structured credit investments have completed multi-year extensions of their reinvestment periods (typically at reduced liability spreads). We believe further optionality upside exists in our structured credit portfolio through additional re-financings and reinvestment period extensions.

To date during the September 2019 quarter, we have completed new and follow-on investments as follows:

All amounts in $000’s Quarter Ended
September 30, 2019
  
Total Originations
$33,319
  
Non-Agented Debt74.2%
Agented Sponsor Debt25.8%
  
Total Repayments$168,508
Originations, Net of Repayments$(135,189)
 

LIQUIDITY AND FINANCIAL RESULTS

All amounts in $000’s As of
June 30, 2019
As of
March 31, 2019
As of
June 30, 2018
Net of Cash Debt to Equity Ratio70.0%69.1%66.5%
% of Assets at Floating Rates87.4%88.0%89.7%
% of Liabilities at Fixed Rates93.0%95.9%98.4%
    
Unencumbered Assets$4,121,775$4,152,393$4,502,764
% of Total Assets71.1%71.0%77.1%
 

We repaid the remaining $101.6 million of our January 2019 notes at maturity. The below table summarizes our June 2019 quarter issuance and repurchase activity, including at-the-market (“ATM”) follow-on issuance:

All amounts in $000’s PrincipalRateMaturity
    
Debt Issuances   
2024 Notes ATM$2,5696.25%June 2024
2028 Notes ATM$1,8856.25%June 2028
Prospect Capital InterNotes®$112,3285.00% - 6.25%April 2024-June 2029
Repurchases   
2020 Notes$24,5884.75%April 2020
Prospect Capital InterNotes®$156,4234.25% - 5.50%April 2020-December 2021
 

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%.

$1.1325 billion of Facility commitments have closed to date with 30 institutional lenders (representing one of the largest and most diversified bank groups in our industry). An accordion feature allows the Facility, at Prospect's discretion, to accept up to $1.5 billion of commitments. The Facility matures 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.

On June 28, 2019, we commenced a tender offer to purchase $224.1 million of our 2020 Notes. As of the expiration of the tender offer, $32.9 million, representing 14.7% of the outstanding notes, was validly tendered.

We currently have eight separate unsecured debt issuances aggregating $1.5 billion outstanding, not including our program notes, with laddered maturities extending to June 2029. At June 30, 2019, $707.7 million of program notes were outstanding with laddered maturities through October 2043.

EARNINGS CONFERENCE CALL

Prospect will host an earnings call on Wednesday, August 28, 2019 at 11:00 am. Eastern Time. Dial 888-338-7333. For a replay prior to September 28, 2019 visit www.prospectstreet.com or call 877-344-7529 with passcode 10134604.

 
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES
(in thousands, except share and per share data)
 
 June 30,
2019

 June 30,
2018

Assets     
Investments at fair value:     
Control investments (amortized cost of $2,385,806 and $2,300,526, respectively)$2,475,924  $2,404,326 
Affiliate investments (amortized cost of $177,616 and $55,637, respectively)76,682  58,436 
Non-control/non-affiliate investments (amortized cost of $3,368,880 and $3,475,295, respectively)3,100,947  3,264,517 
Total investments at fair value (amortized cost of $5,932,302 and $5,831,458, respectively)5,653,553  5,727,279 
Cash107,098
  83,758 
Receivables for:     
Interest, net26,504  19,783 
Other3,326  1,867 
Due from broker
  3,029 
Prepaid expenses
1,053  984 
Due from Affiliate  88 
Deferred financing costs on Revolving Credit Facility8,529  2,032 
Total Assets5,800,063  5,838,820 
      
Liabilities     
Revolving Credit Facility167,000  37,000 
Convertible Notes (less unamortized debt issuance costs of $13,867 and $13,074, respectively)
739,997  809,073 
Prospect Capital InterNotes® (less unamortized debt issuance costs of $12,349 and $11,998, respectively)695,350  748,926 
Public Notes (less unamortized discount and debt issuance costs of $13,826 and $11,007, respectively)
780,548  716,810 
Due to Prospect Capital Management46,525  49,045 
Interest payable34,104  33,741 
Dividends payable22,028  21,865 
Due to broker  6,159 
Accrued expenses5,414  5,426 
Due to Prospect Administration1,885  2,212 
Other liabilities937  1,516 
Total Liabilities2,493,788  2,431,773 
Commitments and Contingencies     
Net Assets$3,306,275  $3,407,047 
Components of Net Assets     
Common stock, par value $0.001 per share (1,000,000,000 common shares authorized; 367,131,025 and 364,409,938 issued and outstanding, respectively)$367  $364 
Paid-in capital in excess of par4,039,872  4,021,541 
Total distributable earnings (loss)(733,964) (614,858)
Net Assets$3,306,275  $3,407,047 
Net Asset Value Per Share $9.01  $9.35 
      


 
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
 
 Three  Months  Ended
June 30,

   Year  Ended
June 30,

 2019 2018 2019 2018
Investment Income           
Interest income:           
Control investments$50,006  $57,527  $211,212  $195,487 
Affiliate investments312  234  943  553 
Non-control/non-affiliate investments66,963  67,244  271,907  285,473 
Structured credit securities34,323  34,678  140,054  125,499 
Total interest income151,604  159,683  624,116  607,012 
Dividend income:           
Control investments2,850  5,639  34,127  11,279 
Affiliate investments    659   
Non-control/non-affiliate investments462  250  1,243  1,767 
Total dividend income3,312  5,889  36,029  13,046 
Other income:           
Control investments6,680  2,765
  36,011  15,080 
Non-control/non-affiliate investments2,757  5,694
  7,611  22,707 
Total other income9,437  8,459  43,622  37,787 
Total Investment Income164,353  174,031  703,767  657,845 
Operating Expenses           
Base management fee29,149  29,056  121,833  118,046 
Income incentive fee17,407  19,870  78,215  71,713 
Interest and credit facility expenses39,721  37,178
  157,231  155,039 
Allocation of overhead from Prospect Administration3,746  4,132
  14,837  10,031 
Audit, compliance and tax related fees1,552  1,455
  5,014  5,539 
Directors’ fees116  237
  457  450 
Other general and administrative expenses3,035  2,623  13,321  10,177 
Total Operating Expenses94,726  94,551  390,908  370,995 
Net Investment Income69,627  79,480  312,859  286,850 
Net Realized and Net Change in Unrealized Gains (Losses) from Investments           
Net realized gains (losses)           
Control investments  1  14,309  13 
Affiliate investments      (13,351)
Non-control/non-affiliate investments1,167  (11) 375  (5,126)
Net realized gains (losses)1,167  (10) 14,684  (18,464)
Net change in unrealized (losses) gains           
Control investments27,234  (25,487) 5,105  55,670 
Affiliate investments(11,699) 5,994  (35,449) 25,671 
Non-control/non-affiliate investments(45,887) 60,475  (144,225) (42,270)
Net change in unrealized (losses) gains(30,352) 40,982  (174,569) 39,071 
Net Realized and Net Change in Unrealized (Losses) Gains from Investments(29,185) 40,972  (159,885) 20,607 
Net realized losses on extinguishment of debt(1,556) (6,148) (8,487) (7,594)
Net Increase in Net Assets Resulting from Operations$38,886  $114,304  $144,487  $299,863 
Net increase in net assets resulting from operations per share$0.11  $0.31  $0.39  $0.83 
Dividends declared per share$(0.18) $(0.18) $(0.72) $(0.77)
 


 
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
ROLLFORWARD OF NET ASSET VALUE PER SHARE
(in actual dollars)
 
 Three Months Ended
June 30,
 Year  Ended
June 30,
 2019 2018 2019 2018
Per Share Data           
Net asset value at beginning of period$9.08  $9.23  $9.35  $9.32 
Net investment income(1)0.19  0.22  0.85  0.79 
Net realized and change in unrealized (losses) gains(1)(0.08) 0.09  (0.46) (0.04)
Distributions of net investment income(0.18) (0.18) (0.72) (0.77)
Common stock transactions(2)(3)  (0.01) (0.01) (0.03)
Net asset value at end of period$9.01  $9.35  $9.01  $9.35 
 


(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.
  

WEIGHTED AVERAGE PORTFOLIO EBITDA AND NET LEVERAGE

Weighted Average Portfolio Net Leverage (“Portfolio Net Leverage”) and Weighted Average Portfolio EBITDA (“Portfolio EBITDA”) provide clarity into the underlying capital structure of our portfolio debt investments and the likelihood that our overall portfolio will make interest payments and repay principal.        

Portfolio Net Leverage reflects the net leverage of each of our portfolio company debt investments, weighted based on the current debt principal outstanding of such investments. The net leverage for each portfolio company is calculated based on our investment in the capital structure of such portfolio company, with a maximum limit of 10.0x adjusted EBITDA. This calculation excludes debt subordinate to our position within the capital structure because our exposure to interest payment and principal repayment risk is limited beyond that point. Additionally, structured credit residual interests and equity investments, for which principal repayment is not fixed, are also not included in the calculation. The calculation does not exceed 10.0x adjusted EBITDA for any individual investment because 10.0x captures the highest level of risk to us. Portfolio Net Leverage provides us with some guidance as to our exposure to the interest payment and principal repayment risk of our overall debt portfolio.  We monitor our Portfolio Net Leverage on a quarterly basis.

Portfolio EBITDA is used by Prospect to supplement Portfolio Net Leverage and generally indicates a portfolio company’s ability to make interest payments and repay principal.  Portfolio EBITDA is calculated using the weighted average dollar amount EBITDA of each of our portfolio company debt investments.  The calculation provides us with insight into profitability and scale of the portfolio companies within our overall debt investments. 

These calculations include addbacks that are typically negotiated and documented in the applicable investment documents, including but not limited to transaction costs, share-based compensation, management fees, foreign currency translation adjustments and other nonrecurring transaction expenses.

Together, Portfolio Net Leverage and Portfolio EBITDA assist us in assessing the likelihood that we will timely receive interest and principal payments.  However, these calculations are not meant to substitute for an analysis of our underlying portfolio company debt investments, but to supplement such analysis.

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 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

Prospect.jpg

Source: Prospect Capital Corporation