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Prospect Capital for December 2021 Results Announces $0.22 per Share of Net Investment Income, 4.7% Increase in Net Asset Value per Common Share, and Monthly Stable $0.06 per Common Share Distributions

02/08/2022

NEW YORK, Feb. 08, 2022 (GLOBE NEWSWIRE) -- Prospect Capital Corporation (NASDAQ: PSEC) (“Prospect”, “our”, or “we”) today announced financial results for our second quarter ended December 31, 2021.

FINANCIAL RESULTS

All amounts in $000’s except
per share amounts (on weighted average
basis for period numbers)
Quarter Ended Quarter Ended Quarter Ended
December 31, 2021 September 30, 2021 December 31, 2020
       
Net Investment Income (“NII”) $85,557 $81,369 $81,561
Basic NII per Common Share $0.22 $0.21 $0.21
Interest as % of Total Investment Income 81.1% 86.3% 84.0%
       
Net Income Applicable to Common Stockholders $246,411 $209,724 $305,967
Basic Net Income per Common Share $0.63 $0.54 $0.80
       
Distributions to Common Shareholders $70,240 $70,043 $68,824
Distributions per Common Share $0.18 $0.18 $0.18
       
Since Oct 2017 Basic NII per Common Share $3.37 $3.15 $2.55
Since Oct 2017 Distributions per Common Share(2) $3.09 $2.89 $2.34
Since Oct 2017 Basic NII Less Distributions per Common Share $0.28 $0.26 $0.21
       
Net Asset Value (“NAV”) to Common Shareholders $4,140,128 $3,943,263 $3,442,734
NAV per Common Share $10.60 $10.12 $8.96
       
Net of Cash Debt to Equity Ratio(1) 51.3% 48.2% 61.1%
Net of Cash Asset Coverage of Debt Ratio 293% 306% 265%
       
Unsecured Debt as % of Total Debt 80.3% 96.0% 86.8%
Unsecured and Non-Recourse Debt as % of Total Debt 100.0% 100.0% 100.0%

(1) Including our preferred stock as equity.

(2) Including common stock and preferred stock dividends paid.

 

CASH COMMON SHAREHOLDER DISTRIBUTION DECLARATION

Prospect is declaring distributions to common shareholders as follows:

Monthly Cash Common Shareholder Distribution Record Date Payment Date Amount ($ per share)
February 2022 2/24/2022 3/22/2022 $0.0600
March 2022 3/29/2022 4/20/2022 $0.0600
April 2022 4/27/2022 5/19/2022 $0.0600

These monthly cash distributions are the 54th, 55th, and 56th consecutive $0.06 per share distributions to common shareholders.

Prospect expects to declare May 2022, June 2022, July 2022, and August 2022 distributions in May 2022.

Based on the declarations above, Prospect’s closing stock price of $8.41 at February 7, 2022 delivers to our common shareholders an annualized distribution yield of 8.6%.

Shareholders earned over a 73% total return for the twelve months ended December 31, 2021 if they participated in our dividend reinvestment plan (also known as our “DRIP”), while non-participating shareholders earned a 69% return. We offer a 5% discount to the market price of our common stock to shareholders who have elected to participate in our DRIP.

Taking into account past distributions and our current share count for declared distributions, and since inception through our April 2022 declared distribution, Prospect will have distributed $19.32 per share to original common shareholders, aggregating approximately $3.6 billion in cumulative distributions to all common shareholders.

Since October 2017, our NII per common share has aggregated $3.37 while our common shareholder and preferred shareholder distributions per common share have aggregated $3.09, enabling our NII to exceed common and preferred distributions during this period by $0.28 per common share.

Initiatives focused on enhancing accretive NII per share growth include (1) our $1.25 billion targeted 5.50% perpetual preferred stock offerings, (2) a greater utilization of our cost efficient revolving credit facility (with an incremental cost of approximately 1.47% at today’s one month Libor), (3) retirement of higher cost liabilities (including multiple recent tender offers and repurchases), (4) issuing low cost notes (including recent 5 to 30 year senior unsecured notes with coupons ranging from 2.25% to 4.625%), and (5) increased originations of senior secured debt and selected equity investments targeting risk-adjusted yields and total returns as we deploy dry powder from our underleveraged balance sheet.

Our senior management team and employees own approximately 28% of all common shares outstanding, over $1.1 billion of our common equity.

CASH PREFERRED SHAREHOLDER DISTRIBUTION DECLARATION

Prospect is declaring distributions to Series A1, Series M1, and Series A2 preferred shareholders at an annual rate of 5.50% of the stated value of $25.00 per share, from the date of issuance or, if later, from the most recent dividend payment date (the first business day of the month, with no additional dividend accruing in January as a result), as follows:

Series A1, M1, and A2 Monthly Cash 5.50% Preferred Shareholder Distribution Record Date Payment Date Monthly Amount ($ per share), before pro ration for partial periods
March 2022 3/23/2022 4/1/2022 $0.114583
April 2022 4/20/2022 5/2/2022 $0.114583
May 2022 5/18/2022 6/1/2022 $0.114583

Prospect is declaring our second quarterly distribution to Series A preferred shareholders at an annual rate of 5.35% of the stated value of $25.00 per share, from the date of issuance as follows:

Series A Quarterly Cash 5.35% Preferred Shareholder Distribution Record Date Payment Date Amount ($ per share)
February 2022 – April 2022 4/20/2022 5/2/2022 $0.334375

PORTFOLIO UPDATE AND INVESTMENT ACTIVITY

All amounts in $000’s except
per unit amounts

As of As of
December 31, 2021 September 30, 2021
     
Total Investments (at fair value) $7,002,846 $6,430,707
Number of Portfolio Companies 127 124
     
Secured First Lien
46.7% 49.4%
Other Senior Secured Debt 19.5% 16.5%
Subordinated Structured Notes 10.6% 11.6%
Unsecured and Other Debt 0.1% 0.1%
Equity Investments 23.1% 22.4%
Mix of Investments with Underlying Collateral Security 76.8% 77.5%
     
Annualized Current Yield – All Investments 8.1% 9.0%
Annualized Current Yield – Performing Interest Bearing Investments 10.6% 11.6%
     
Top Industry Concentration(1) 15.8% 17.9%
Retail Industry Concentration(1) 0.0% 0.0%
Energy Industry Concentration(1) 1.3% 1.3%
Hotels, Restaurants & Leisure Concentration(1) 0.3% 0.4%
     
Non-Accrual Loans as % of Total Assets (2) 0.4% 0.5%
     
Middle-Market Loan Portfolio Company Weighted Average EBITDA(3) $99,452 $95,332

As of the quarter ended December 31, 2021, our middle-market loan portfolio company weighted average net debt leverage ratio was 5.20x.(3)

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

(2) Calculated at fair value.

(3) For additional disclosure see “Middle-Market Loan Portfolio Company Weighted Average EBITDA and Net Leverage” at the end of this release.

During the March 2022 (to date), December 2021, and September 2021 quarters, investment originations and repayments were as follows:

All amounts in $000’s

Quarter Ended Quarter Ended Quarter Ended
March 31, 2022 December 31, 2021 September 30, 2021
       
Total Originations
$284,008 $855,373 $424,668
       
Middle-Market Lending 81.9% 85.6% 94.5%
Subordinated Structured Notes 12.3% 3.3% 0.0%
Real Estate 4.3% 9.4% 2.3%
Other 1.5% 0.7% 0.0%
Middle-Market Lending / Buyout 0.0% 1.0% 3.2%
       
Total Repayments $107,762 $444,060 $324,000
       
Originations, Net of Repayments $176,246 $411,313 $100,668
       

Note: For additional disclosure see “Primary Origination Strategies” at the end of this release.

We have invested in subordinated structured notes benefiting from individual standalone financings non-recourse to Prospect, with our risk limited in each case to our net investment. At December 31, 2021 and September 30, 2021, our subordinated structured note portfolio at fair value consisted of the following:

All amounts in $000’s except
per unit amounts

As of As of
December 31, 2021 September 30, 2021
     
Total Subordinated Structured Notes
$744,458 $750,773
     
# of Investments 39 39
     
TTM Average Cash Yield(1)(2) 19.5% 18.8%
Annualized Cash Yield(1)(2) 20.5% 20.4%
Annualized GAAP Yield on Fair Value(1)(2) 9.8% 12.2%
Annualized GAAP Yield on Amortized Cost(2) 7.0% 8.5%
     
Cumulative Cash Distributions $1,407,921 $1,365,583
% of Original Investment 99.2% 97.1%
     
# of Underlying Collateral Loans 1,783 1,756
Total Asset Base of Underlying Portfolio $16,035,417 $16,259,707
     
Prospect TTM Default Rate 0.19% 0.26%
Broadly Syndicated Market TTM Default Rate 0.29% 0.35%
Prospect Default Rate Outperformance vs. Market 0.10% 0.09%

(1) Calculation based on fair value.

(2) Excludes investments being redeemed.

To date, including called investments being redeemed, we have exited 10 subordinated structured notes totaling $286.4 million with an expected pooled average realized IRR of 15.7% and cash on cash multiple of 1.45 times.

Since December 31, 2017 through today, 32 of our subordinated structured note investments have completed multi-year extensions of their reinvestment periods (typically at reduced liability spreads and with increased weighted average life asset benefits). We believe further long-term optionality upside exists in our structured credit portfolio through additional refinancings and reinvestment period extensions.

CAPITAL AND LIQUIDITY

Our multi-year, long-term laddered and diversified funding profile includes a recently upsized $1.5 billion revolving credit facility (with 43 lenders, an increase of 13 lenders from before our prior April 2021 extension and upsizing), program notes, listed baby bonds, institutional bonds, convertible bonds, listed preferred stock, and program preferred stock. We have retired multiple previously upcoming maturities and as of today have no debt maturing until July 2022, our sole liability maturity for calendar year 2022 and with a principal amount of $60.5 million.

On April 28, 2021, we completed an amendment and upsizing of our existing revolving credit facility (the “Facility”) for Prospect Capital Funding, extending the term 5.0 years from such date. Pricing for amounts drawn under the Facility is one-month Libor plus 2.05%, a decrease of 0.15% from before our extension. Undrawn pricing (1) was reduced by 0.30% for above 35% and up to 60% utilization and (2) was reduced by 0.10% for above 60% utilization. Our extended facility also has improved borrowing base benefits due to a change in concentration baskets, which we estimate increased our borrowing base by approximately $150 million.

The combined amount of our balance sheet cash and undrawn revolving credit facility commitments is currently approximately $960 million. Our total unfunded eligible commitments to non-control portfolio companies totals approximately $38 million, representing approximately 0.5% of our total assets as of December 31, 2021.

All amounts in $000’s As of
December 31, 2021
As of
September 30, 2021
As of
December 31, 2020
Net of Cash Debt to Equity Ratio(1) 51.3% 48.2% 61.1%
% of Interest-Bearing Assets at Floating Rates 87.1% 85.6% 86.6%
% of Liabilities at Fixed Rates 80.3% 96.0% 86.8%
       
% of Floating Loans with Libor Floors 95.2% 92.9% 89.6%
Weighted Average Libor Floor 1.35% 1.62% 1.62%
       
Unencumbered Assets $4,994,777 $4,614,548 $4,208,925
% of Total Assets 70.6% 71.0% 73.8%

(1) Including our preferred stock as equity.

The below table summarizes our December 2021 quarter term debt issuance and repurchase/repayment activity:

All amounts in $000’s Principal Coupon Maturity
Debt Issuances

     
Prospect Capital InterNotes® $32,665 2.25% – 4.25% October 2026 – December 2051
Total Debt Issuances $ 32,665    
       
Debt Repurchases/Repayments      
6.375% 2024 Notes $149 6.375% January 2024
2029 Notes $69,170 6.875% June 2029
Prospect Capital InterNotes® $74,292 5.00% - 6.625% November 2025 – October 2043
Total Debt Repurchases/Repayments $ 143,611    
       
Net Debt Repurchases/Repayments $ (110,946 )    

$1.5 billion of Facility commitments have closed to date with 43 lenders. The Facility matures April 27, 2026. The Facility includes a revolving period that extends through April 27, 2025, followed by an additional one-year amortization period.

We currently have seven separate unsecured debt issuances aggregating approximately $1.6 billion outstanding, not including our program notes, with laddered maturities extending through October 2028. At December 31, 2021, $340.5 million of program notes were outstanding with laddered maturities through December 2051.

At December 31, 2021, our weighted average cost of unsecured debt financing was 4.39%, a decrease of 0.17% from September 30, 2021, and a decrease of 1.11% from December 31, 2020. Including usage of our revolving credit facility, at December 31, 2021, our weighted average cost of all debt financing was 3.95%, a decrease of 0.51% from September 30, 2021, and a decrease of 1.13% from December 31, 2020.

On August 3, 2020 and October 3, 2020, we launched our $1.25 billion 5.50% perpetual preferred stock offering programs. Prospect expects to use the net proceeds from the offering programs to maintain and enhance balance sheet liquidity, including repaying our credit facility and purchasing high quality short-term debt instruments, and to make long-term investments in accordance with our investment objective. The preferred stock provides Prospect with a diversified source of accretive fixed-rate capital without creating maturity risk due to the perpetual term. To date we have issued over $360 million in aggregate of our 5.50% perpetual preferred stock programs.

On July 19, 2021, we closed a $150 million listed 5.35% perpetual preferred stock offering. Prospect used the net proceeds from the offering to maintain and enhance balance sheet liquidity, including repaying our credit facility and redeeming higher cost program notes.

In connection with the 5.50% perpetual preferred stock offering program, effective August 3, 2020 and as amended on October 30, 2020, we adopted and amended, respectively, a Preferred Stock Dividend Reinvestment Plan, pursuant to which holders of the preferred stock will have dividends on their preferred stock automatically reinvested in additional shares of such preferred stock at a price per share of $25.00, if they elect.

We currently have over $515 million in preferred stock outstanding.

Prospect holds recently reaffirmed or initiated investment grade company ratings, all with a stable outlook, from Standard & Poor’s (BBB-), Moody’s (Baa3), Kroll (BBB-), Egan-Jones (BBB), and DBRS (BBB (low)). Maintaining our investment grade ratings with prudent asset, liability, and risk management is an important objective for Prospect.

DIVIDEND REINVESTMENT PLAN

We have adopted a dividend reinvestment plan (also known as our “DRIP”) that provides for reinvestment of our distributions on behalf of our shareholders, unless a shareholder elects to receive cash. On April 17, 2020, our board of directors approved amendments to the Company’s DRIP, effective May 21, 2020. These amendments principally provide for the number of newly-issued shares pursuant to the DRIP to be determined by dividing (i) the total dollar amount of the distribution payable by (ii) 95% of the closing market price per share of our stock on the valuation date of the distribution (providing a 5% discount to the market price of our common stock), a benefit to shareholders who participate.

HOW TO PARTICIPATE IN OUR DIVIDEND REINVESTMENT PLAN

Shares held with a broker or financial institution

Many shareholders have been automatically “opted out” of our DRIP by their brokers. Even if you have elected to automatically reinvest your PSEC stock with your broker, your broker may have “opted out” of our DRIP (which utilizes DTC’s dividend reinvestment service), and you may therefore not be receiving the 5% pricing discount. Shareholders interested in participating in our DRIP to receive the 5% discount should contact their brokers to make sure each such DRIP participation election has been made through DTC. In making such DRIP election, each shareholder should specify to one’s broker the desire to participate in the "Prospect Capital Corporation DRIP through DTC" that issues shares based on 95% of the market price (a 5% discount to the market price) and not the broker's own "synthetic DRIP” plan (if any) that offers no such discount. Each shareholder should not assume one’s broker will automatically place such shareholder in our DRIP through DTC. Each shareholder will need to make this election proactively with one’s broker or risk not receiving the 5% discount. Each shareholder may also consult with a representative of such shareholder’s broker to request that the number of shares the shareholder wishes to enroll in our DRIP be re-registered by the broker in the shareholder’s own name as record owner in order to participate directly in our DRIP.

Shares registered directly with our transfer agent

If a shareholder holds shares registered in the shareholder’s own name with our transfer agent (less than 0.1% of our shareholders hold shares this way) and wants to make a change to how the shareholder receives dividends, please contact our plan administrator, American Stock Transfer and Trust Company LLC by calling (888) 888-0313 or by mailing American Stock Transfer and Trust Company LLC, 6201 15th Avenue, Brooklyn, New York 11219.

EARNINGS CONFERENCE CALL

Prospect will host an earnings call on Wednesday February 9, 2022 at 11:00 am. Eastern Time. Dial 844-200-6205. For a replay prior to March 9, 2022 visit www.prospectstreet.com or call 866-813-9403 with passcode 148409.

  December 31, 2021
  June 30, 2021
   
Assets (Unaudited)   (Audited)
Investments at fair value:      
Control investments (amortized cost of $2,364,241 and $2,482,431, respectively) $ 3,057,923     $ 2,919,717  
Affiliate investments (amortized cost of $238,537 and $202,943, respectively)   429,954     356,734  
Non-control/non-affiliate investments (amortized cost of $3,938,560 and $3,372,750, respectively)   3,514,969     2,925,327  
Total investments at fair value (amortized cost of $6,541,338 and $6,058,124, respectively)   7,002,846     6,201,778  
Cash   45,026     63,610  
Receivables for:      
Interest, net   15,725     12,575  
Other   644     365  
Deferred financing costs on Revolving Credit Facility   9,869     11,141  
Due from broker       12,551  
Prepaid expenses   539     1,072  
Due from Affiliate        
Total Assets   7,074,649     6,303,093  
Liabilities      
Revolving Credit Facility   472,608     356,937  
Public Notes (less unamortized discount and debt issuance costs of $24,842 and $20,061,
respectively)
  1,340,617     1,114,717  
Prospect Capital InterNotes® (less unamortized debt issuance costs of $7,667 and $10,496,
respectively)
  332,870     498,215  
Convertible Notes (less unamortized discount and debt issuance costs of $3,106 and $4,123, respectively)   213,563     263,100  
Due to Prospect Capital Management   53,439     48,612  
Dividends payable   23,457     23,313  
Interest payable   26,856     27,359  
Due to broker   24,750     14,854  
Accrued expenses   3,067     5,151  
Due to Prospect Administration   1,611     4,835  
Other liabilities   1,022     482  
Total Liabilities   2,493,860     2,357,575  
Preferred Stock, par value $0.001 per share (147,900,000 shares authorized, with 40,000,000 shares of preferred stock authorized for each of the Series A1, Series M1, and Series M2 and 20,000,000 shares of preferred stock authorized for the Series AA1 and 1,000,000 shares of preferred stock authorized for the Series A2 and 6,900,000 shares of preferred stock authorized for the Series A; 11,751,346 Series A1 shares issued and outstanding; 519,211 Series M1 shares issued and outstanding; 0 Series M2 shares issued and outstanding; 0 Series AA1 shares issued and outstanding; 187,000 Series A2 shares issued and outstanding; and 6,000,000 Series A shares issued and outstanding as of December 31, 2021) plus cumulative accrued and unpaid dividends   440,661      
Net Assets as of June 30, 2021 $     $ 3,945,517  
Net Assets Applicable to Common Shares as of December 31, 2021 $ 4,140,128     $  
       
Components of Net Assets Applicable to Common Shares and Net Assets, respectively      
Preferred Stock, par value $0.001 per share (141,000,000 shares authorized, with 40,000,000 shares of preferred stock authorized for each of the Series A1, Series M1, and Series M2 and 20,000,000 shares of preferred stock authorized for the Series AA1 and 1,000,000 shares of preferred stock authorized for the Series A2; 5,163,926 Series A1 shares issued and outstanding; 130,666 Series M1 shares issued and outstanding; 0 Series M2 shares issued and outstanding; 0 Series AA1 shares issued and outstanding; and 187,000 Series A2 shares issued and outstanding as of June 30, 2021) at carrying value plus cumulative accrued and unpaid dividends $     —   $ 137,040  
Common stock, par value $0.001 per share (1,852,100,000 common shares authorized; 390,584,255 and 388,419,573 issued and outstanding, respectively)   391       388  
Paid-in capital in excess of par   4,056,544     4,040,748  
Total distributable earnings (loss)   83,193     (232,659 )
Net Assets as of June 30, 2021 $     $ 3,945,517  
Net Assets Applicable to Common Shares as of December 31, 2021 $ 4,140,128     $  
Net Asset Value Per Common Share $ 10.60     $ 9.81  

 

  Three Months Ended December 31,   Six Months Ended December 31,
  2021   2020   2021   2020  
Investment Income              
Interest income:              
Control investments $ 57,110     $ 50,633       112,941     $ 99,360  
Affiliate investments 6,675     10,826     16,752     18,188  
Non-control/non-affiliate investments 60,132     52,029     117,661     103,279  
Structured credit securities 18,256     31,299     41,090     56,199  
Total interest income 142,173     144,787     288,444     277,026  
Dividend income:              
Control investments 5,687     2,261     6,937     2,261  
Non-control/non-affiliate investments 17     19     34     44  
Total dividend income 5,704     2,280     6,971     2,305  
Other income:              
Control investments 11,703     20,545     28,735     29,616  
Affiliate investments 126     64     3,942     64  
Non-control/non-affiliate investments 15,670     4,616     16,758     6,161  
Total other income 27,499     25,225     49,435     35,841  
Total Investment Income 175,376     172,292     344,850     315,172  
Operating Expenses              
Base management fee 33,843     27,833     66,046     54,683  
Income incentive fee 19,589     20,717     39,329     35,103  
Interest and credit facility expenses 29,679     33,727     57,717     67,776  
Allocation of overhead from Prospect Administration 2,239     3,426     6,765     8,083  
Audit, compliance and tax related fees 329     340     946     1,278  
Directors’ fees 113     113     229     226  
Other general and administrative expenses 4,027     4,575     6,892     8,917  
Total Operating Expenses 89,819     90,731     177,924     176,066  
Net Investment Income 85,557     81,561     166,926     139,106  
Net Realized and Net Change in Unrealized Gains (Losses) from Investments              
Net realized (losses) gains              
Control investments 3         6     2,832  
Affiliate investments     3,724         3,724  
Non-control/non-affiliate investments (9,230 )   3     (9,834 )   14  
Net realized (losses) gains (9,227 )   3,727     (9,828 )   6,570  
Net change in unrealized gains              
Control investments 134,065     168,053     256,395     181,588  
Affiliate investments 31,590     19,233     37,627     85,706  
Non-control/non-affiliate investments 15,479     38,487     23,832     66,323  
Net change in unrealized gains 181,134     225,773     317,854     333,617  
Net Realized and Net Change in Unrealized Gains from Investments 171,907     229,500     308,026     340,187  
Net realized (losses) on extinguishment of debt (3,851 )   (5,094 )   (9,208 )   (5,580
Net Increase in Net Assets Resulting from Operations   253,613       305,967       465,744       473,713  
Preferred stock dividend   7,202       46       9,609       46  
Net Increase in Net Assets Resulting from Operations applicable to Common Stockholders $ 246,411     $ 305,921     $ 456,135     $ 473,667  

 

  Three Months Ended
December 31,
  Six Months Ended
December 31,
 
  2021   2020   2021     2020    
Per Share Data                
Net asset value per common share at beginning of period $ 10.12       $ 8.40       $ 9.81     $ 8.18    
Net investment income(1) 0.22       0.21       0.43     0.37    
Net realized and change in unrealized gains(1) 0.43       0.59       0.77     0.88    
Net increase from operations 0.65       0.80       1.20     1.25    
Distributions of net investment income to preferred stockholders
(0.02 )         (3 ) (0.03 )     (3 )
Distributions of net investment income to common stockholders (0.18 )   (5 ) (0.18 )     (0.36 ) (5 ) (0.33 )  
Return of Capital to common stockholders     (5 )         (5 ) (0.03 )  
Common stock transactions(2) (0.01 )     (0.05 )                     (0.02 )   (0.10 )  
Offering costs from issuance of preferred stock            —              —     (3 ) (0.03 )                —   (3 )
Reclassification of preferred stock issuance costs(6)                    
Net asset value per common share at end of period $ 10.60     (4 ) $ 8.96     (4 ) $ 10.60     $ 8.96   (4 )

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

(2) Common stock transactions include the effect of our issuance of common stock in public offerings (net of underwriting and offering costs), shares issued in connection with our common stock dividend reinvestment plan, common shares issued to acquire investments and common shares repurchased below net asset value pursuant to our Repurchase Program, and common shares issued pursuant to the Holder Optional Conversion of our 5.50% preferred stock.

(3) Amount is less than $0.01.

(4) Does not foot due to rounding.

(5) Not finalized for the respective fiscal period.

(6) Preferred stock issuance costs include offering costs and underwriting costs related to the issuance of preferred stock. During the three months ended December 31, 2021, we have reclassified all preferred stock issuance costs related to preferred stock issued as temporary equity following our reclassification of preferred stock during the three months ended September 30, 2021.

MIDDLE-MARKET LOAN PORTFOLIO COMPANY WEIGHTED AVERAGE EBITDA AND NET LEVERAGE

Middle-Market Loan Portfolio Company Weighted Average Net Leverage (“Middle-Market Portfolio Net Leverage”) and Middle-Market Loan Portfolio Company Weighted Average EBITDA (“Middle-Market Portfolio EBITDA”) provide clarity into the underlying capital structure of PSEC’s middle-market loan portfolio investments and the likelihood that PSEC’s overall portfolio will make interest payments and repay principal.
    
Middle-Market Portfolio Net Leverage reflects the net leverage of each of PSEC’s middle-market loan portfolio company debt investments, weighted based on the current fair market value of such debt investments. The net leverage for each middle-market loan portfolio company is calculated based on PSEC’s investment in the capital structure of such portfolio company, with a maximum limit of 10.0x adjusted EBITDA. This calculation excludes debt subordinate to PSEC’s position within the capital structure because PSEC’s exposure to interest payment and principal repayment risk is limited beyond that point. Additionally, subordinated structured notes, other structured credit, real estate investments, investments for which EBITDA is not available, 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 PSEC. Middle-Market Portfolio Net Leverage provides PSEC with some guidance as to PSEC’s exposure to the interest payment and principal repayment risk of PSEC’s overall debt portfolio. PSEC monitors its Middle-Market Portfolio Net Leverage on a quarterly basis.

Middle-Market Portfolio EBITDA is used by PSEC to supplement Middle-Market Portfolio Net Leverage and generally indicates a portfolio company’s ability to make interest payments and repay principal. Middle-Market Portfolio EBITDA is calculated using the EBITDA of each of PSEC’s middle-market loan portfolio companies, weighted based on the current fair market value of the related investments. The calculation provides PSEC 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, Middle-Market Portfolio Net Leverage and Middle-Market Portfolio EBITDA assist PSEC in assessing the likelihood that PSEC will timely receive interest and principal payments. However, these calculations are not meant to substitute for an analysis of PSEC’s our underlying portfolio company debt investments, but to supplement such analysis.

PRIMARY ORIGINATION STRATEGIES

Middle-Market Lending - We make directly-originated, agented loans to companies, including companies which are controlled by private equity sponsors and companies that are not controlled by private equity sponsors (such as companies that are controlled by the management team, the founder, a family or public shareholders). This debt can take the form of first lien, second lien, unitranche or unsecured loans. These loans typically have equity subordinate to our loan position. We may also purchase selected equity co-investments in such companies. In addition to directly-originated, agented loans, we also invest in senior and secured loans, syndicated loans and high yield bonds that have been sold to a club or syndicate of buyers, both in the primary and secondary markets. These investments are often purchased with a long term, buy-and-hold outlook, and we often look to provide significant input to the transaction by providing anchoring orders.

Middle-Market Lending / Buyout - This strategy involves purchasing senior and secured yield-producing debt and controlling equity positions in operating companies across various industries. We believe this strategy provides enhanced certainty of closing to sellers, and the opportunity for management to continue in their current roles. These investments are often structured in tax-efficient partnerships, enhancing returns.

Real Estate - We purchase debt and controlling equity positions in tax-efficient real estate investment trusts (“REIT” or “REITs”). The real estate investments of National Property REIT Corp. (“NPRC”) are in various classes of developed and occupied real estate properties that generate current yields, including multi-family properties, student housing, and self-storage. NPRC seeks to identify properties that have historically attractive occupancy rates and recurring cash flow generation. NPRC generally co-invests with established and experienced property management teams that manage such properties after acquisition.

Subordinated Structured Notes - We make investments in structured credit, often taking a significant position in subordinated structured notes (equity) and rated secured structured notes (debt). The underlying portfolio of each structured credit investment is diversified across approximately 100 to 200 broadly syndicated loans and does not have direct exposure to real estate, mortgages, or consumer-based credit assets. The structured credit portfolios in which we invest are managed by established collateral management teams with many years of experience in the industry.

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@prospectcap.com 
Telephone (212) 448-0702


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Source: Prospect Capital Corporation
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