NEW YORK, NY — (MARKET WIRE) — 08/30/10 — Prospect Capital Corporation (NASDAQ: PSEC)(“Company” or “Prospect”) today announced financial results for our fourthfiscal quarter and fiscal year ended June 30, 2010.
For the year ended June 30, 2010, our net investment income was $66.5million, an increase of 12.3% from the prior year on a dollars basis. On aweighted average share basis, net interest income declined from $1.87 forthe year ended June 30, 2009 to $1.12 for the year ended June 30, 2010.This decline was primarily the result of raising additional equity capitalearly in the year ended June 30, 2010 in order to complete the acquisitionof Patriot Capital Funding, Inc. (“Patriot”) in December 2009 as well as tomake new investments in the fourth fiscal quarter.
Our net asset value per share on June 30, 2010 stood at $10.29 per share,an increase of $0.18 per share from March 31, 2010.
For the quarter ended June 30, 2010, our net investment income was $16.6million, or $0.25 per weighted average number of shares for the quarter.Several new investments that we had anticipated would close in the June2010 quarter were deferred and closed in the current September 2010quarter. We have closed more than $130 million of new investments in thecurrent September 2010 quarter. We estimate that our net investment incomefor the current first fiscal quarter ended September 30, 2010 will be $0.26to $0.30 per share.
In addition, we have revised upward our second quarter results to reflectthe settlement of certain accrued liabilities, assumed in connection withour acquisition of Patriot, which had been estimated on a tentative basisat the time of the acquisition of Patriot in the December 2009 quarter. Thesettlement of these accruals at less than the estimated cost resulted in anincrease in our net investment income per share for the fiscal 2010 secondquarter of $0.03, increasing from the previously reported $0.29 to $0.32.
We have previously announced upcoming cash distributions, our 24th, 25th,26th, and 27th consecutive cash distributions to shareholders, as follows:
10.0250 cents per share for July 2010 (record date of July 30, 2010 and payment date of August 31, 2010); and 10.0500 cents per share for August 2010 (record date of August 31, 2010 and payment date of September 30, 2010); and 10.0625 cents per share for September 2010 (record date of September 30, 2010 and payment date of October 29, 2010); and 10.0750 cents per share for October 2010 (record date of October 29, 2010 and payment date of November 30, 2010).HIGHLIGHTSEquity Values: Net assets as of June 30, 2010: $710.69 million Net asset value per share as of June 30, 2010: $10.29Fiscal Year Operating Results: Net investment income: $66.45 million Net investment income per share: $1.12 Dividends declared to shareholders per share: $1.32625Fourth Fiscal Quarter Operating Results: Net investment income: $16.64 million Net investment income per share: $0.25 Dividends declared to shareholders per share: $0.10Fourth Fiscal Quarter Portfolio and Portfolio Activity: Portfolio investments in quarter: $157.66 million Total Portfolio investments at cost at June 30, 2010: $728.76 million Number of portfolio companies at June 30, 2010: 58
PORTFOLIO AND INVESTMENT ACTIVITY
At June 30, 2010, our portfolio consisted of 58 long-term investments witha fair value of $748.5 million, compared to 55 long-term investments with afair value of $697.0 million at March 31, 2010. This increase in investedcapital resulted primarily from investments in Seaton Corporation,SkillSoft PLC, Hoffmaster, Inc. and EXL Acquisition Corp. during thequarter, as well as additional fundings to existing portfolio companies.
On April 7, 2010, we purchased $12.3 million of second lien notes in SeatonCorporation, a human resources services company.
On May 26, 2010, we purchased $15.0 million in senior notes issued by anaffiliate of SkillSoft PLC, a leading “Software as a Service” provider ofon-demand, e-learning, and performance support solutions.
On June 2, 2010, we made a secured second lien debt investment of $20.0million in Hoffmaster, Inc., which primarily serves the foodservice andconsumer market segments.
On June 18, 2010, we purchased $6.3 million of second lien notes in aleading provider of coating services for steel suppliers.
On June 24, 2010, we closed a $25.5 million senior secured credit facilityfor EXL Acquisition Corp., a leading manufacturer and marketer ofconsumable lab testing equipment and supplies.
During the three months ended June 30, 2010, we repriced our loans to EXLAcquisition Corp. and to LHC Holdings Corp. The revised terms were morefavorable than the original terms and increased the present value of thefuture cash flows. In accordance with ASC 320-20-35, the cost bases of thenew loans were recorded at par value, resulting in $1.2 million ofaccelerated original purchase discount recognized as interest income. Inaddition, Caleel + Hayden, LLC and Custom Direct repaid outstanding debt tous during the quarter ended June 30, 2010, resulting in the acceleration ofpurchase discount of $1.6 million.
The primary source of new investments earlier in the fiscal year ended June30, 2010 occurred through the acquisition of Patriot in December 2009. Inthis acquisition, we acquired 28 investments with a fair value of $207.1million, thereby expanding the scale, borrower diversity, industrydiversity, and private equity sponsor reach of our business.
Since June 30, 2010, we have completed four new investments aggregatingmore than $130 million.
On July 14, 2010, we closed a $37.4 million first lien senior securedcredit facility to support the acquisition by H.I.G. Capital of a leadingconsumer credit enhancement services company.
On July 23, 2010, we made a secured debt investment of $21.0 million inSonicWALL, Inc., a global leader in network security and data protectionfor small, mid-sized, and large enterprise organizations.
On July 30, 2010, we invested $52.4 million of combined debt and equity inthe acquisition of AIRMALL USA Inc., a leading infrastructure-likedeveloper and manager of long-term contract airport retail operations.
On July 30, 2010, we closed a $21.5 million senior secured credit facilityfor Northwestern Management Services, LLC (“NMS”), a leading dentalpractice management company in the Southeast Florida market.
The NMS investment is our tenth new investment over a four month period,with such investments aggregating approximately $250 million.
Our investment pipeline currently aggregates more than $1 billion ofpotential opportunities. Primary investment activity in the marketplace hasincreased in calendar year 2010, and we are currently evaluating a robustpipeline of potential investments, some of which have the potential toclose this quarter. These investments are primarily secured investmentswith double digit coupons, sometimes coupled with equity upside throughco-investments or warrants, and diversified across multiple sectors.
As we have throughout 2009 and 2010 year to date, we also continue toevaluate potential acquisitions of lending and other financial servicesplatforms, portfolios, and assets, utilizing our significant liquidity andbalance sheet strength to go on offense to drive shareholder value.
We are pleased with the overall stability of the credit quality of ourportfolio, with many of our companies generating year-over-year andsequential growth in top-line revenues and bottom-line profits.
LIQUIDITY AND FINANCIAL RESULTS
On June 11, 2010, we held a first closing of an extension and expansion ofour revolving credit facility (“Facility”) with a syndicate of lenders. Thelenders currently have commitments of $210 million under the Facility. TheFacility includes an accordion feature which allows an increase to up to$300 million of commitments without the need for re-approval from theexisting lenders. We are currently scheduling a second closing of theFacility for an additional $30 million in commitments with current andadditional lenders. We will seek to add additional lenders to the Facilityin order to reach the maximum size. While we are optimistic about theseplanned Facility size increases, we cannot guarantee them.
As we make additional investments that are eligible to be pledged under theFacility, we will generate additional availability to the extent suchinvestments are eligible to be placed into the borrowing base. Therevolving period of the Facility extends through June 2012, with anadditional one year amortization period (with distributions allowed) afterthe completion of the revolving period. Interest on borrowings under theFacility is one-month Libor plus 325 basis points, subject to a minimumLibor floor of 100 basis points, representing a significant decrease infinancing cost for us compared to our prior facility. The unused portion ofthe Facility has a fee equal to either 75 basis points (if at least half ofthe Facility is used) or 100 basis points (if less than half of theFacility is used). The Facility has been and we believe will be used,together with our equity capital, to make additional long-term investments.The Facility has an investment grade Moody’s rating of A2.
As of June 30, 2010, we had $100.3 million of borrowings under ourFacility. Including cash and additional assets we are in the process ofpledging to the Facility, and not including either our anticipated secondclosing of the Facility or further leveragability of additional collateralthat we could add to our Facility from existing unleveraged investments andadditional new transactions, our available liquidity as of today iscurrently in excess of $150 million for new investments.
Our at-the-market stock distribution program has proven to be a costeffective source of new equity capital to fund investment activity. OnMarch 17, 2010, we established an at-the-market program through which wecould sell up to 8,000,000 shares of our common stock. Through this programwe issued 5,251,400 shares of our common stock at an average price of$11.50 per share, raising $60.4 million of gross proceeds, from March 23,2010 through June 30, 2010.
During the period from July 1, 2010 to July 21, 2010, we completed thesales of the remaining 2,748,600 shares of our common stock at an averageprice of $9.75 per share, and raised $26.8 million of gross proceeds, underour at-the-market program.
During the period from July 22, 2010 to August 24, 2010, we issued3,814,528 shares of our common stock at an average price of $9.71 pershare, and raised $37.1 million of gross proceeds, under our at-the-marketprogram.
With a debt to equity ratio currently less than 15%, our modestly leveragedbalance sheet is a source of significant strength. Our equitized balancesheet also gives us the potential for future earnings upside as weprudently look to grow our existing revolving credit facility, addadditional secured facilities, and evaluate term debt solutions made moreattractive by our investment grade facility ratings at both the corporateand Facility levels.
CONFERENCE CALL
The Company will host a conference call on Tuesday, August 31, 2010, at11:00 a.m. Eastern Time. The conference call dial-in number will be877-317-6789. A recording of the conference call will be available forapproximately 30 days. To hear a replay, call 877-344-7529 and use passcode443880.
PROSPECT CAPITAL CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES June 30, 2010 and 2009 (in thousands, except share and per share data) June 30, June 30, 2010 2009 (audited) (audited) --------- ---------AssetsInvestments at fair value (net cost of $728,759 and $531,424, respectively) Control investments (net cost of $185,720 and $187,105, respectively) $ 195,958 $ 206,332 Affiliate investments (net cost of $65,082 and $33,544, respectively) 73,740 32,254 Non-control/Non-affiliate investments (net cost of $477,957 and $310,775, respectively) 478,785 308,582 --------- --------- Total investments at fair value 748,483 547,168 --------- ---------Investments in money market funds 68,871 98,735Cash 1,081 9,942Receivables for: Interest, net 5,356 3,562 Dividends 1 28 Other 419 571Prepaid expenses 371 68Deferred financing costs 7,579 6,951Other assets 534 -- --------- --------- Total Assets 832,695 667,025 --------- ---------LiabilitiesCredit facility payable 100,300 124,800Dividends payable 6,909 --Due to Prospect Administration 294 842Due to Prospect Capital Management 8,821 5,871Accrued expenses 4,981 2,381Other liabilities 705 535 --------- --------- Total Liabilities 122,010 134,429 --------- ---------Net Assets $ 710,685 $ 532,596 ========= =========Components of Net AssetsCommon stock, par value $0.001 per share (100,000,000 and 100,000,000 common shares authorized, respectively; 69,086,862 and 42,943,084 issued and outstanding, respectively) $ 69 $ 43Paid-in capital in excess of par 805,918 545,707(Over) undistributed net investment income (10,431) 24,152Accumulated realized losses on investments (104,595) (53,050)Unrealized appreciation on investments 19,724 15,744 --------- ---------Net Assets $ 710,685 $ 532,596 ========= =========Net Asset Value Per Share $ 10.29 $ 12.40 ========= ========= PROSPECT CAPITAL CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS For the Three Months and the Year Ended June 30, 2010 and 2009 (in thousands, except share and per share data) For the Three Months Ended For the Year Ended ---------------------- ---------------------- June 30, June 30, June 30, June 30, 2010 2009 2010 2009 (unaudited) (unaudited) (audited) (audited) ---------- ---------- ---------- ----------Investment IncomeInterest income: Control investments $ 3,081 $ 1,981 $ 17,218 $ 19,281 Affiliate investments 2,838 674 7,957 3,039 Non-control/Non-affiliate investments 19,278 9,409 61,343 40,606 ---------- ---------- ---------- ---------- Total interest income 25,197 12,064 86,518 62,926 ---------- ---------- ---------- ----------Dividend income Control investments 2,200 8,900 14,860 22,468 Non-control/Non-affiliate investments 474 -- 474 -- Money market funds 3 60 32 325 ---------- ---------- ---------- ---------- Total dividend income 2,677 8,960 15,366 22,793 ---------- ---------- ---------- ----------Other income: Control/affiliate investments (55) 418 261 1,249 Affiliate investments 169 -- 169 -- Non-control/Non-affiliate investments 1,248 358 3,613 13,513 Gain on Patriot acquisition -- -- 7,708 -- ---------- ---------- ---------- ---------- Total other income 1,362 776 11,751 14,762 ---------- ---------- ---------- ---------- Total Investment Income 29,236 21,800 113,635 100,481 ---------- ---------- ---------- ----------Operating ExpensesInvestment advisory fees: Base management fee 3,968 3,175 13,929 11,915 Income incentive fee 4,158 2,995 16,613 14,790 ---------- ---------- ---------- ---------- Total investment advisory fees 8,126 6,170 30,542 26,705 ---------- ---------- ---------- ----------Interest and credit facility expenses 2,902 1,333 8,382 6,161Sub-administration fees -- 202 -- 846Legal fees 166 357 702 947Valuation services 230 144 734 705Audit, compliance and tax related fees 299 167 981 1,015Allocation of overhead from Prospect Administration 841 1,092 3,361 2,856Insurance expense 64 61 254 246Directors' fees 63 65 255 269Potential merger expenses (73) -- 852 --Other general and administrative expenses (22) 228 1,121 1,035Excise taxes -- -- -- 533 ---------- ---------- ---------- ---------- Total Operating Expenses 12,596 9,819 47,184 41,318 ---------- ---------- ---------- ---------- Net Investment Income 16,640 11,981 66,451 59,163 ---------- ---------- ---------- ----------Net realized (loss) gain on investments (314) (40,739) (51,545) (39,078)Net change in unrealized appreciation (depreciation) on investments (1,743) 28,009 3,980 15,019 ---------- ---------- ---------- ----------Net Increase in Net Assets Resulting from Operations $ 14,583 $ (749) $ 18,886 $ 35,104 ========== ========== ========== ==========Net increase in net assets resulting from operations per share: $ 0.22 $ (0.02) $ 0.32 $ 1.11 ========== ========== ========== ==========Weighted average shares of common stock outstanding: 66,900,043 37,155,258 59,429,222 31,559,905 ========== ========== ========== ========== PROSPECT CAPITAL CORPORATION AND SUBSIDIARY ROLLFORWARD OF NET ASSET VALUE PER SHARE For the Three Months and the Year Ended June 30, 2010 and 2009 (in actual dollars) For the Three Months Ended For the Year Ended -------------------- -------------------- June 30, June 30, June 30, June 30, 2010 2009 2010 2009 (unaudited)(unaudited) (audited) (audited) --------- --------- --------- ---------Per Share Data:Net asset value at beginning of period $ 10.11 $ 14.19 $ 12.40 $ 14.55Net investment income 0.25 0.32 1.12 1.87Net realized loss -- (1.10) (0.87) (1.24)Net unrealized (depreciation) appreciation (0.03) 0.75 0.07 0.48Net increase (decrease) in net assets as a result of public offerings 0.06 (1.76) (0.85) (2.11)Net increase in net assets as a result of shares issued for Patriot acquisition -- -- 0.12 --Dividends recognized (0.10) -- (1.70) (1.15) ========= ========= ========= =========Net asset value at end of period $ 10.29 $ 12.40 $ 10.29 $ 12.40 ========= ========= ========= =========
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. Our investment objective is to generate both current income andlong-term capital appreciation through debt and equity investments.
We have elected to be treated as a business development company under theInvestment Company Act of 1940 (“1940 Act”). We are required to comply witha series of regulatory requirements under the 1940 Act as well asapplicable NASDAQ, federal and state rules and regulations. We have electedto be treated as a regulated investment company under the Internal RevenueCode of 1986. Failure to comply with any of the laws and regulations thatapply to us could have an adverse effect on us and our shareholders.
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 speak only as of the time when made, and we undertake noobligation to update any such statement now or in the future.