NEW YORK, NY — (MARKET WIRE) — 11/09/10 — Prospect Capital Corporation (NASDAQ: PSEC)(“Company” or “Prospect”) today announced financial results for our firstfiscal quarter ended September 30, 2010.
For the quarter ended September 30, 2010, our net investment income was$21.0 million, or $0.28 per weighted average number of shares for thequarter, up from $16.6 million, or $0.25 per weighted average number ofshares for the quarter ended June 30, 2010 and up from $12.3 million, or$0.25 per weighted average number of shares for the quarter ended September30, 2009. New and follow-on investments in excess of $137 million closed inthe September 2010 quarter contributed to the improved results.
For the quarter ended September 30, 2010, our net assets resulting fromoperations increased by $25.6 million, or $0.34 per weighted average numberof shares for the quarter, up from $14.6 million, or $0.22 per weightedaverage number of shares for the quarter ended June 30, 2010. Our netasset value per share on September 30, 2010 stood at $10.24 per share.
In addition, we have revised upward our results for the second quarter ofour fiscal year ended June 30, 2010 to reflect the final settlement of allaccrued liabilities assumed in connection with our acquisition of Patriot,which had been estimated on a tentative basis at the time of theacquisition of Patriot in the December 2009 quarter. The settlement ofthese accruals at less than the estimated cost resulted in an increase inour net investment income per share for the December 2009 quarter of $0.01,increasing from the previously reported $0.32 to $0.33.
We estimate that our net investment income for the current second fiscalquarter ended December 31, 2010 will be $0.26 to $0.30 per share.
We have previously announced upcoming cash distributions, our 27th, 28th,29th, and 30th consecutive cash distributions to shareholders, as follows:
10.0750 cents per share for October 2010 (record date of October 29, 2010 and payment date of November 30, 2010); 10.0875 cents per share for November 2010 (record date of November 30, 2010 and payment date of December 31, 2010); 10.1000 cents per share for December 2010 (record date of December 31, 2010 and payment date of January 31, 2011); and 10.1125 cents per share for January 2011 (record date of January 31, 2011 and payment date of February 28, 2011).
HIGHLIGHTS
Equity Values: Net assets as of September 30, 2010: $802.82 million Net asset value per share as of September 30, 2010: $10.24First Fiscal Quarter Operating Results: Net investment income: $21.00 million Net investment income per share: $0.28 Net increase in net assets resulting from operations per share: $0.34 Dividends declared to shareholders per share: $0.301375First Fiscal Quarter Portfolio and Portfolio Activity: Portfolio investments in quarter: $137.80 million Total portfolio investments at cost at September 30, 2010: $806.40 million Number of portfolio companies at September 30, 2010: 57
PORTFOLIO AND INVESTMENT ACTIVITY
At September 30, 2010, our portfolio consisted of 57 long-term investmentswith a fair value of $830.2 million, compared to 58 long-term investmentswith a fair value of $748.5 million at June 30, 2010. Since June 30, 2010,we have completed four new investments aggregating more 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.
During the quarter ended September 30, 2010, we recognized $4.0 million ofinterest income due to purchase discount accretion from the assets acquiredfrom Patriot. Included in this amount is $1.1 million of accretionresulting from the $12.8 million repayment by Impact Products, LLC. We werealso repaid in full on our $25.8 million loan to Regional ManagementCorporation. In addition, we recapitalized our debt investment in NMS, withour new loan issued at market terms comparable to other industrytransactions. In accordance with ASC 320-20-35, the cost basis of the newNMS loan was recorded at par value, precipitating the acceleration of $1.6million of original purchase discount which was recognized as interestincome.
Since September 30, 2010, we have closed on one additional investment andreceived repayment on two other investments.
On October 12, 2010, we made a senior secured debt investment of $32.5million in ICON Health & Fitness, Inc., a leading manufacturer and marketerof branded health and fitness equipment.
On October 29, 2010, Castro Cheese Company, Inc. repaid our $7.7 millionloan.
On November 3, 2010, TriZetto Group repaid our $15.5 million loan.
Our investment pipeline currently aggregates more than $1.5 billion ofpotential opportunities, including more than $300 million of advancedopportunities targeted by counterparties to close during the next 45 daysfor tax rate change and other time-sensitive reasons. These investments aresecured and unsecured investments with double digit coupons, sometimescoupled with equity upside through co-investments or warrants, anddiversified across multiple sectors. While we cannot guarantee the volumeof transactions we will close before quarter end, we anticipate a busyperiod of closings in the near future.
As we have throughout 2009 and 2010, we also continue to evaluate potentialacquisitions of lending and other financial services platforms, portfolios,and assets, utilizing our significant liquidity and balance sheet strengthto 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 andquarterly sequential growth in top-line revenues and bottom-line profits.Our multiple loan payoffs in the past few months have continued our trackrecord of successful realizations while adding prepayment and accretionincome, as well as providing additional liquidity for new loanoriginations.
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 whoextended commitments of $210 million under the Facility. The Facilityincludes an accordion feature which allows an increase to up to $300million of commitments without the need for re-approval from the existinglenders. Since June 30, 2010, we have closed on an additional $50 millionin commitments with one existing and two additional new lenders, raisingthe total commitment under the facility to $260 million. We will seek toadd additional commitments to the Facility in order to reach the maximumsize. While we are optimistic about these planned Facility size increases,we cannot guarantee them. The Facility has an investment grade Moody’srating of A2.
As of September 30, 2010, we had $46.6 million of borrowings under ourFacility. Since September 30, 2010, we have paid down the credit facilityto $14.3 million, and our available liquidity as of today is currently inexcess of $200 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. Duringthe September 2010 quarter, we sold 9,051,000 shares of our common stock atan average price of $9.74 per share, and raised $88.2 million of grossproceeds. During the period from October 1, 2010 to November 3, 2010, weissued an additional 4,929,556 shares of our common stock at an averageprice of $9.86 per share, and raised $48.6 million of gross proceeds.
With a debt to equity ratio currently less than 2%, 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.
With significant expected near-term originations, coupled with recentlysuccessful peer group term debt issuances, we are actively exploringpotential term debt issuance as a means of accretively expanding ourbalance sheet while lengthening our weighted average debt maturities. Ourdiscussions include both public and private debt, as well as both unsecuredand secured debt, with expected maturities of five years or more. Webelieve that historically low Treasury rates make the current environmentan attractive period for a strong, diversified, and scale balance sheetcompany like Prospect to consider term debt issuance during the near andmedium term.
CONFERENCE CALL
The Company will host a conference call on Wednesday, November 10, 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 passcode445937.
PROSPECT CAPITAL CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES September 30, 2010 and June 30, 2010 (in thousands, except share and per share data) September 30, June 30, 2010 2010 (Unaudited) (Audited) ------------- -------------AssetsInvestments at fair value: Control investments (cost of $238,633 and $185,720, respectively) $ 258,831 $ 195,958 Affiliate investments (cost of $64,429 and $65,082, respectively) 70,254 73,740 Non-control/Non-affiliate investments (cost of $503,333 and $477,957, respectively) 501,092 478,785 ------------- ------------- Total investments at fair value (cost of $806,395 and $728,759, respectively) 830,177 748,483 ------------- -------------Investments in money market funds 21,040 68,871Cash 1,062 1,081Receivables for: Interest, net 5,898 5,356 Dividends 1,751 1 Other 679 419Prepaid expenses 297 371Deferred financing costs, net 7,359 7,579Due from broker 1,803 --Other assets 534 534 ------------- ------------- Total Assets 870,600 832,695 ------------- -------------LiabilitiesCredit facility payable 46,600 100,300Dividends payable 7,889 6,909Due to broker 1,980 --Due to Prospect Administration 407 294Due to Prospect Capital Management 6,818 9,006Accrued expenses 3,044 4,057Other liabilities 1,038 705 ------------- ------------- Total Liabilities 67,776 121,271 ------------- -------------Net Assets $ 802,824 $ 711,424 ============= =============Components of Net AssetsCommon stock, par value $0.001 per share (200,000,000 and 100,000,000 common shares authorized, respectively; 78,401,363 and 69,086,862 issued and outstanding, respectively) $ 78 $ 69Paid-in capital in excess of par 894,568 805,918Distributions in excess of net investment income (11,536) (9,692)Accumulated realized losses on investments (104,068) (104,595)Unrealized appreciation on investments 23,782 19,724 ------------- -------------Net Assets $ 802,824 $ 711,424 ============= =============Net Asset Value Per Share $ 10.24 $ 10.30 ============= ============= PROSPECT CAPITAL CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS For The Three Months Ended September 30, 2010 and 2009 (in thousands, except share and per share data) (Unaudited) For Three Months Ended September 30, ---------------------- 2010 2009 ----------- ----------Investment IncomeInterest income: Control investments (Net of foreign withholding tax of $0 and $32, respectively) $ 5,189 $ 4,591 Affiliate investments 2,950 849 Non-control/Non-affiliate investments 20,782 9,395 ----------- ---------- Total interest income 28,921 14,835 ----------- ----------Dividend income: Control investments 1,750 6,200 Non-control/Non-affiliate investments 440 -- Money market funds 4 18 ----------- ---------- Total dividend income 2,194 6,218 ----------- ----------Other income: Control/affiliate investments 1,771 -- Affiliate investments 147 -- Non-control/Non-affiliate investments 2,179 464 ----------- ---------- Total other income 4,097 464 ----------- ---------- Total Investment Income 35,212 21,517 ----------- ----------Operating ExpensesInvestment advisory fees: Base management fee 4,276 3,209 Income incentive fee 5,249 3,080 ----------- ---------- Total investment advisory fees 9,525 6,289 ----------- ----------Interest and credit facility expenses 2,261 1,374Legal fees 310 --Valuation services 217 120Audit, compliance and tax related fees 216 262Allocation of overhead from Prospect Administration 800 840Insurance expense 71 63Directors' fees 64 64Other general and administrative expenses 753 187 ----------- ---------- Total Operating Expenses 14,217 9,199 ----------- ---------- Net Investment Income 20,995 12,318 ----------- ----------Net realized gain on investments 527 --Net change in unrealized appreciation (depreciation) on investments 4,058 (18,696) ----------- ---------- Net Increase (Decrease) in Net Assets Resulting from Operations $ 25,580 $ (6,378) =========== ==========Net increase (decrease) in net assets resulting from operations per share $ 0.34 $ (0.13) =========== ==========Dividends declared per share $ 0.30 $ 0.41 =========== ========== PROSPECT CAPITAL CORPORATION AND SUBSIDIARY ROLLFORWARD OF NET ASSET VALUE PER SHARE For the Three Months Ended September 30, 2010 and 2009 (in actual dollars) (Unaudited) For The Three Months Ended September 30, ------------------------ 2010 2009 ----------- -----------Per Share Data:Net asset value at beginning of period $ 10.30 $ 12.40Net investment income 0.28 0.25Realized gain 0.01 -Net unrealized appreciation (depreciation) 0.05 (0.38)Net decrease in net assets as a result of public offerings (0.09) (0.77)Dividends declared and paid (0.31) (0.39) ----------- -----------Net asset value at end of period $ 10.24 $ 11.11 =========== ===========
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.