NEW YORK, NY — (MARKET WIRE) — 02/09/10 — Prospect Capital Corporation (NASDAQ: PSEC)(“Company,” “Prospect” or “we”) today announced financial results for itssecond fiscal quarter ended December 31, 2009.
For the three and six months ended December 31, 2009, our net investmentincome was $16.9 million and $29.2 million, respectively, or 29 cents and54 cents, respectively, per weighted average share outstanding for theperiod presented. Our net investment income increased 37%, and our netinvestment income per share increased 19%, from the quarter ended September30, 2009 to the quarter ended December 31, 2009.
We closed our acquisition of Patriot Capital Funding, Inc. (NASDAQ: PCAP)(“Patriot”) on December 2, 2009. While the full quarterly benefits of thePatriot acquisition are not expected to be reflected until the March 31,2010 quarterly financial results, we did recognize a gain on the Patriotacquisition of $5.7 million. We also recognized $7.5 million of interestincome during the period from the acquisition through the end of thequarter, including $4.6 million of interest income from the acceleration ofpurchase discounts upon early repayments of three loans, repayments ofthree revolving lines of credit and the sale of one investment position.These early repayments have been full par repayments, comparing favorablyto the discount on our purchase of the Patriot portfolio.
We have additional liquidity available that can be deployed into otheraccretive investments beyond the Patriot acquisition and are currentlymoving forward a pipeline of potential additional portfolio and individualinvestment opportunities that aggregate more than $3 billion of assets.
We estimate that our net investment income for the current third fiscalquarter ended March 31, 2010 will be 24 to 32 cents per share. We expect toannounce our third fiscal quarter distribution in March.
The December 31, 2009 quarter, because of a desire to eliminate excisetaxes for the 2009 calendar year, included two dividend record dates,thereby causing a second dividend payable and a second associated deductionfrom our net asset value deduction during the quarter.
OPERATING RESULTSHIGHLIGHTSEquity Values: Net assets as of December 31, 2009: $637.48 million Net asset value per share as of December 31, 2009: $10.06Second Fiscal Quarter Operating Results: Net investment income: $16.93 million Net investment income per share: $0.29 Dividends declared to shareholders per share: $0.40875Year-to-date Operating Results: Net investment income: $29.24 million Net investment income per share: $0.54 Dividends declared to shareholders per share: $0.81625
PORTFOLIO AND INVESTMENT ACTIVITY
At December 31, 2009, our portfolio grew to 55 long-term investments with afair value of approximately $648.1 million compared to 29 long-terminvestments with a fair value of $510.8 million at September 30, 2009.This increase in investments was driven by the acquisition of Patriot netof post-closing monetizations from the Patriot portfolio.
On December 2, 2009, we acquired the outstanding shares of Patriot commonstock for $201.1 million. Under the terms of the merger agreement, Patriotcommon shareholders received 0.363992 shares of our common stock for eachshare of Patriot common stock, resulting in 8,444,068 shares of commonstock being issued by us. In connection with the transaction, we repaid allthe outstanding borrowings of Patriot, in compliance with the mergeragreement.
On December 2, 2009, Patriot made a final dividend equal to itsundistributed net ordinary income and capital gains of $0.38 per share. Inaccordance with a recent IRS revenue procedure, the dividend was paid 10%in cash and 90% in newly issued shares of Patriot’s common stock. Theexchange ratio was adjusted to give effect to the tax distribution so thatour purchase consideration for Patriot was not affected by thisdistribution.
The merger has been accounted for as an acquisition of Patriot by Prospectin accordance with the acquisition method of accounting as detailed in ASC805, Business Combinations (“ASC 805”). The fair value of the considerationpaid was allocated to the assets acquired and liabilities assumed based ontheir fair values as the date of acquisition. As of the acquisition date,the fair value of the identifiable net assets acquired exceeded the fairvalue of the consideration transferred, and we recognized the excess as again. A gain of $5.7 million was recorded by Prospect in the quarter endedDecember 31, 2009 related to the acquisition of Patriot.
The purchase price has been allocated to the assets acquired and theliabilities assumed based on their estimated fair values as summarized inthe following table (in thousands):
Cash (to repay Patriot debt) $ 107,313Cash (to fund purchase of restricted stock from former Patriot employees) 970Common stock issued (1) 92,800 --------------Total purchase price 201,083 --------------Assets acquired:Investments (2) 207,126Cash and cash equivalents 1,697Other assets 3,859 --------------Assets acquired 212,682Other liabilities assumed (5,885) --------------Net assets acquired 206,797 --------------Preliminary gain on Patriot acquisition (3) $ 5,714 ==============(1) The value of the shares of common stock exchanged with the Patriot common shareholders was based upon the closing price of our common stock on December 2, 2009, the price immediately prior to the closing of the transaction.(2) The fair value of Patriot's investments was determined by our Board of Directors in conjunction with an independent valuation agent. This valuation resulted in a purchase price which was $98,150 below the amortized cost of such investments. For those assets which are performing, Prospect will record the accretion to par value in interest income over the remaining term of the investment.(3) The preliminary gain has been determined based upon the estimated value of certain liabilities which are not yet settled. Any changes to such accruals will be recorded in future periods as an adjustment to such gain. We do not believe such adjustments will be material.
During the period from the acquisition of Patriot on December 2, 2009 toDecember 31, 2009, we recognized $7.5 million of interest income from theassets acquired from Patriot. Included in this amount is $4.6 millionresulting from the acceleration of purchase discounts from the earlyrepayments of three loans, three revolving lines of credit and the sale ofone investment position.
During the quarter ended December 31, 2009, one additional investment,Resco Products Inc. (“Resco”), has repaid its outstanding debt to us.Earlier in the quarter, we had purchased additional debt in Resco at a 40%discount to par and subsequently received a full par repayment of all ourdebt at the closing, generating a 16% cash-on-cash internal rate of returnon our overall investment.
Primary investment activity in the marketplace has increased recently, andwe are currently evaluating a robust pipeline of potential investments,some of which have the potential to close this quarter. These investmentsare primarily secured investments with double digit coupons, sometimescoupled with equity upside through co-investments or warrants, anddiversified by sector.
Gas Solutions continues to generate free cash flows, with no third partydebt. We are discussing opportunities for potential monetization of ourposition, and we recently hired a new senior executive to help drivefurther revenue and profit growth.
LIQUIDITY AND FINANCIAL RESULTS
On June 25, 2009, we completed a first closing on an expanded syndicatedrevolving credit facility (the “Facility”). The Facility includes anaccordion feature which allows the Facility to accept up to an aggregatetotal of $250 million of commitments. Since that initial closing with twolenders, we have added four additional lenders to the Facility andcurrently have commitments totaling $210 million. We continue to solicitadditional commitments from other lenders to grow the Facility, andmultiple lenders are performing due diligence toward committing to ourFacility, and potentially additional independent facilities. The Facilityhas an investment grade Moody’s rating of A2. We are also working with ourlenders to reduce our cost of debt financing and extend the duration of theFacility.
As of December 31, 2009, we had $10 million of borrowings under ourFacility. With the pledging of additional assets from the Patriotacquisition, we have significant credit availability in excess of $100million, not including further leveragability of additional collateral thatwe could add to our Facility with additional transaction activity.
Our virtually unleveraged balance sheet is a source of significant strengthin comparison with many overleveraged competitors. Our equitized balancesheet also gives us the potential for future earnings upside as weprudently grow our existing revolving credit facility, add additionalsecured facilities, and evaluate term debt solutions driven by ourinvestment grade facility ratings at both the corporate and Facilitylevels. We are pleased with the increase in desire of counterparties toprovide us additional credit at significantly more attractive pricing ascompared to what the capital markets offered a year ago.
CONFERENCE CALL
The Company will host a conference call on Wednesday, February 10, 2010, at11:00 a.m. Eastern Time. The conference call dial-in number will be800-860-2442. A recording of the conference call will be available forapproximately 30 days. To hear a replay, call 877-344-7529 and use passcode437757.
PROSPECT CAPITAL CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES December 31, 2009 and June 30, 2009 (in thousands, except share and per share data) December 31, June 30, 2009 2009 (Unaudited) (Audited) ------------ ------------AssetsInvestments at fair value (cost of $633,636 and $531,424, respectively) Control investments (cost of $165,867 and $187,105, respectively) $ 191,898 $ 206,332 Affiliate investments (cost of $68,052 and $33,544, respectively) 66,479 32,254 Non-control/Non-affiliate investments (cost of $399,717 and $310,775, respectively) 389,758 308,582 ------------ ------------ Total investments at fair value 648,135 547,168 ------------ ------------Investments in money market funds 23,418 98,735Cash 3,844 9,942Receivables for: Interest, net 5,723 3,562 Dividends 2 28 Other 359 571Prepaid expenses 175 68Due from Prospect Administration 998 --Deferred financing costs, net 5,891 6,951Other assets 535 -- ------------ ------------ Total Assets $ 689,080 $ 667,025 ------------ ------------LiabilitiesCredit facility payable 10,000 124,800Dividend payable 25,894 --Due to Prospect Administration -- 842Due to Prospect Capital Management 7,412 5,871Accrued expenses 8,039 2,381Other liabilities 258 535 ------------ ------------ Total Liabilities 51,603 134,429 ------------ ------------Net Assets $ 637,477 $ 532,596 ------------ ------------Components of Net AssetsCommon stock, par value $0.001 per share (100,000,000 and 100,000,000 common shares authorized, respectively; 63,349,746 and 42,943,084 issued and outstanding, respectively) $ 63 $ 43Paid-in capital in excess of par 741,520 545,707Under/(over) distributed net investment income (14,326) 24,152Accumulated realized losses on investments (104,279) (53,050)Unrealized appreciation on investments 14,499 15,744 ------------ ------------Net Assets $ 637,477 $ 532,596 ------------ ------------Net Asset Value Per Share $ 10.06 $ 12.40 ------------ ------------ PROSPECT CAPITAL CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS For The Three and Six Months Ended December 31, 2009 and 2008 (in thousands, except share and per share data) (Unaudited) For The Three Months For The Six Months Ended December 31, Ended December 31, -------------------- -------------------- 2009 2008 2009 2008 --------- --------- --------- ---------Investment IncomeInterest Income Control investments (Net of foreign withholding tax of ($52), $62, ($19), and $109, respectively) $ 5,052 $ 5,075 $ 9,643 $ 11,797 Affiliate investments (Net of foreign withholding tax of $0, $0, $0, and $0, respectively) 1,539 1,075 2,388 1,635 Non-control/non-affiliate investments 11,948 11,091 21,343 21,365 --------- --------- --------- --------- Total interest income 18,539 17,241 33,374 34,797 --------- --------- --------- ---------Dividend income Control investments 4,160 4,584 10,360 9,168 Money market funds 10 81 28 220 --------- --------- --------- --------- Total dividend income 4,170 4,665 10,388 9,388 --------- --------- --------- ---------Other income: Control/affiliate investments 75 87 75 831 Gain on Patriot acquisition 5,714 -- 5,714 -- Non-control/non-affiliate investments 385 220 849 12,996 --------- --------- --------- --------- Total other income 6,174 307 6,638 13,827 --------- --------- --------- --------- --------- --------- --------- --------- Total Investment Income 28,883 22,213 50,400 58,012 --------- --------- --------- ---------Operating ExpensesInvestment advisory fees: Base management fee 3,176 2,940 6,385 5,763 Income incentive fee 4,231 2,990 7,311 8,865 --------- --------- --------- --------- Total investment advisory fees 7,407 5,930 13,696 14,628Interest and credit facility expenses 1,995 1,965 3,369 3,483Sub-administration fees (Including former Chief Financial Officer and Chief Compliance Officer) -- 217 -- 467Legal fees 390 184 390 483Valuation services 153 110 273 422Audit, compliance and tax related fees 239 306 501 629Allocation of overhead from Prospect Administration 840 588 1,680 1,176Insurance expense 63 63 126 124Directors' fees 64 62 128 143Other general and administrative expenses 807 295 994 462Tax expense -- 533 -- 533 --------- --------- --------- --------- Total Operating Expenses 11,958 10,253 21,157 22,550 --------- --------- --------- ---------Net Investment Income 16,925 11,960 29,243 35,462 --------- --------- --------- ---------Net realized (loss) gain on investments (51,229) 16 (51,229) 1,661Net change in unrealized appreciation/depreciation on investments 17,451 (5,452) (1,245) (16,601) --------- --------- --------- ---------Net (Decrease) Increase in Net Assets Resulting from Operations $ (16,853) $ 6,524 $ (23,231) $ 20,522 --------- --------- --------- ---------Net (decrease) increase in net assets resulting from operations per share: $ (0.29) $ 0.22 $ (0.43) $ 0.69 --------- --------- --------- ---------Dividends/distributions declared per share: $ 0.41 $ 0.40 $ 0.82 $ 0.80 --------- --------- --------- --------- PROSPECT CAPITAL CORPORATION AND SUBSIDIARY ROLLFORWARD OF NET ASSET VALUE PER SHARE For the Three and Six Months Ended December 31, 2009 and 2008 (in actual dollars) (Unaudited) For The Three Months For The Six Months Ended Ended --------------------- --------------------- December December December December 31, 2009 31, 2008 31, 2009 31, 2008 ---------- ---------- ---------- ----------Per Share Data:Net asset value at beginning of period $ 11.11 $ 14.63 $ 12.40 $ 14.55Net investment income 0.29 0.40 0.54 1.20Net realized (loss) gain (0.89) -- (0.95) 0.06Net unrealized appreciation (depreciation) 0.30 (0.18) (0.02) (0.56)Net decrease in net assets as a result of public offerings and DRIP issuance (0.01) -- (0.79) --Net increase in net assets as a result of shares issued for Patriot acquisition 0.08 -- 0.14 --Dividends declared and paid (0.82) (0.42) (1.26) (0.82) ---------- ---------- ---------- ----------Net asset value at end of period $ 10.06 $ 14.43 $ 10.06 $ 14.43 ---------- ---------- ---------- ----------
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.