NEW YORK, NY — (MARKET WIRE) — 08/03/09 — Prospect Capital Corporation (NASDAQ: PSEC)(“Prospect”) announced today that it has entered into a definitiveagreement to acquire Patriot Capital Funding, Inc. (NASDAQ: PCAP)(“Patriot”).
Prospect is acquiring Patriot for $197 million, comprised of (a) cash torepay all Patriot debt, anticipated to be $110.5 million when theacquisition closes, plus (b) Prospect shares exchanged at a ratio ofapproximately 0.3992 Prospect shares for each Patriot share, or 8,616,467Prospect shares for 21,584,251 Patriot shares, with such exchange ratiodecreased by any tax distributions Patriot may declare before closing.
The acquisition, unanimously approved by both of Prospect’s and Patriot’sBoard of Directors, is expected to close in the next 60 days. Theacquisition is subject to Patriot stockholder approval and other customaryclosing conditions. Patriot’s shareholders will own 15% of Prospect’soutstanding shares pro forma for the acquisition, so Prospect shareholderapproval is not required.
Prospect believes the benefits of the acquisition for its shareholdersinclude, but are not limited to:
— Accretion: Prospect expects the Prospect shares issued to generate 64cents per share per quarter of net investment income, which would beaccretive to Prospect at 10 cents per share per quarter across all Prospectshares pro forma for the acquisition. Prospect expects to generate a morethan 20% IRR and 2x cash-on-cash return on the Patriot acquisition.
— Attractive Price: Prospect is acquiring Patriot for 63% of asset cost,75% of asset book value, and 54% of equity book value. Purchases of assetsbelow book value, if such assets have existing leverage, imply even greaterdiscounts to equity book value. Prospect’s purchase price, assumingProspect has to pay 100 cents on the dollar for the debt financed portionof the Patriot portfolio, translates into 54 cents on the dollar for theequity portion.
— Synergy: Because Patriot has been in default without forbearance fromits lenders, creating a risk of lender foreclosure eliminating Patriotequity value, and because Patriot has ceased its dividend, Patriot’s stockprice has traded at significant discounts to net asset value. Prospect’sacquisition, which pays off Patriot’s existing debt, enables both a premiumto the Patriot share price as well as a discount to Patriot net assetvalue, unlocking value for mutual shareholder benefit.
— Scale: With this acquisition, Prospect’s gross assets increase by morethan 35% and equity capitalization increases by more than 14% withoutincurring underwriting costs associated with a stock offering. Prospectexpects this greater scale to enhance daily trading volume, increaseProspect’s attractiveness to lending institutions, and expand access toinvestment opportunities, including both individual transactions as well asportfolio purchase opportunities similar to Patriot.
— Diversification: Prospect will double its number of portfolio companiesto over 60 by adding approximately 30 companies located in 13 U.S. statesand covering 18 industry sectors.
— Seniority: 70% of the acquired asset value is in portfolio companieswhere Patriot has a senior secured position in the capital structure.
— Private Equity Sponsor Expansion: Patriot has pursued a strategy oflending to middle market private equity sponsors. With this acquisition,Prospect deepens its presence in the sponsor marketplace, building onProspect’s own sponsor business in addition to Prospect’s direct lendingand controlled buyouts.
— Low Leverage: On a combined basis, Prospect’s debt to equity isexpected to be less than 20%.
— Tax-free: The acquisition is expected to be considered a tax-freereorganization under the Internal Revenue Code.
All amounts set forth herein are estimates subject to change.
“The Patriot acquisition is a perfect example of our previously statedstrategy to go on offense in the current opportunity-rich marketplace inwhich competitors have faltered with overleveraged balance sheets,” said M.Grier Eliasek, President of Prospect. “We are pursuing other move-the-needle portfolio opportunities similar to Patriot in addition to continuingour work on individual transactions.”
“We are pleased to be completing with Patriot the first of what we hopewill be multiple strategically compelling acquisitions to drive superiorvalue to our shareholders,” said John F. Barry III, Chief Executive Officerof Prospect. “We would not have signed this agreement but for thecreativity, drive, and persistence of Grier Eliasek, and his team, focusingand executing on this wonderful opportunity for Prospect and Patriot. Welook forward to having Richard Buckanavage and other Patriot professionalsjoin our team.”
Skadden, Arps, Slate, Meagher & Flom LLP served as Prospect’s legal counselin connection with the transaction and related matters.
FBR Capital Markets & Co. served as financial advisor to Patriot inconnection with the transaction, and Sutherland Asbill & Brennan LLP servedas Patriot’s legal counsel in connection with the transaction and relatedmatters.
ABOUT PROSPECT CAPITAL CORPORATION
Prospect Capital Corporation (www.prospectstreet.com/) is a closed-endinvestment company that lends to and invests in private and microcap publicbusinesses. Prospect’s investment objective is to generate both currentincome and long-term capital appreciation through debt and equityinvestments.
Prospect has elected to be treated as a business development company underthe Investment Company Act of 1940 (the “1940 Act”). Prospect is requiredto comply with a series of regulatory requirements under the 1940 Act aswell as applicable NASDAQ, federal and state rules and regulations.Prospect has elected to be treated as a regulated investment company underthe Internal Revenue Code of 1986. Failure to comply with any of the lawsand regulations that apply to Prospect could have an adverse effect onProspect and its shareholders.
ABOUT PATRIOT CAPITAL FUNDING, INC.
Patriot Capital Funding, Inc. (www.patcapfunding.com) is a specialtyfinance company primarily providing customized financing solutions toprivate equity sponsors focused on making investments in small- to mid-sized companies. Patriot Capital Funding typically invests in companieswith annual revenues generally ranging from $10 million to $100 millionthat operate in diverse industry sectors. Investments usually take the formof senior secured loans, junior secured loans, and/or subordinated debtinvestments — which may contain equity or equity-related instruments.Patriot Capital Funding also offers “one-stop” financing, which typicallyincludes a revolving credit line, one or more senior term loans and asubordinated debt investment. Patriot Capital Funding also makes equity co-investments of up to $3.0 million.
CAUTIONARY LANGUAGE CONCERNING FORWARD LOOKING STATEMENTS
This press release contains forward-looking statements within the meaningof the Private Securities Litigation Reform Act of 1995, whose safe harborfor forward-looking statements does not apply to business developmentcompanies. Any such statements, other than statements of historical fact,are highly likely to be affected by other unknowable future events andconditions, including elements of the future that are or are not under ourcontrol, and that we may or may not have considered; accordingly, suchstatements cannot be guarantees or assurances of any aspect of futureperformance. Actual developments and results are highly likely to varymaterially from these estimates and projections of the future. Suchstatements are subject to a number of risks, assumptions and uncertaintiesthat include, but are not limited to risks associated with the acquisition,including (i) the occurrence of any event, change or other circumstancesthat could give rise to the termination of the merger agreement; (ii) theinability to complete the transaction due to the failure to obtain thenecessary stockholder approval; (iii) the failure to satisfy otherconditions to completion of the transaction; and (iv) other risks. Suchstatements speak only as of the time when made, and we undertake noobligation to update any such statement now or in the future.
IMPORTANT ADDITIONAL INFORMATION WILL BE FILED WITH THE SEC
This communication is being made in respect of the proposed businesscombination involving Prospect and Patriot. In connection with the proposedtransaction, Prospect plans to file with the SEC a Registration Statementon Form N-14 containing a Joint Proxy Statement/Prospectus and each ofProspect and Patriot plan to file with the SEC other documents regardingthe proposed transaction. The definitive Joint Proxy Statement/Prospectuswill be mailed to stockholders of Patriot. INVESTORS AND SECURITY HOLDERSOF PROSPECT AND PATRIOT ARE URGED TO READ THE JOINT PROXYSTATEMENT/PROSPECTUS AND OTHER DOCUMENTS FILED WITH THE SEC CAREFULLY INTHEIR ENTIRETY WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAINIMPORTANT INFORMATION ABOUT THE PROPOSED TRANSACTION.
Investors and security holders will be able to obtain free copies of theRegistration Statement and the Joint Proxy Statement/Prospectus (whenavailable) and other documents filed with the SEC by Prospect and Patriotthrough the web site maintained by the SEC at http://www.sec.gov/. Freecopies of the Registration Statement and the Joint ProxyStatement/Prospectus (when available) and other documents filed with theSEC can also be obtained by directing a request to Prospect CapitalCorporation, 10 East 40th Street, 44th Floor, New York, NY 10016,Attention: Brian Oswald, Chief Financial Officer, or by directing a requestto Patriot Capital Funding, Inc., 274 Riverside Avenue, Westport,Connecticut, Attention: William Alvarez, Chief Financial Officer.
PROXY SOLICITATION
Prospect, Patriot and their respective directors, executive officers andcertain other members of management and employees may be soliciting proxiesfrom Patriot stockholders in favor of the acquisition. Informationregarding the persons who may, under the rules of the SEC, be consideredparticipants in the solicitation of the Patriot stockholders in connectionwith the proposed acquisition will be set forth in the proxystatement/prospectus when it is filed with the SEC. You can findinformation about Prospect’s executive officers and directors in theprospectus supplement, dated June 30, 2009, to the prospectus dated June26, 2009, filed with the SEC on July 1, 2009. You can find informationabout Patriot’s executive officers and directors in its definitive proxystatement filed with the SEC on April 28, 2009. You can obtain free copiesof these documents from Prospect and Patriot in the manner set forth above.