NEW YORK, NY — (MARKET WIRE) — 11/12/07 — Prospect Capital Corporation (NASDAQ: PSEC)today announced financial results for its first fiscal quarter endedSeptember 30, 2007.
Our net investment income, excluding non-recurring items (see SupplementalFinancial Information below), was $8.7 million, or 44 cents per weightedaverage shares for the quarter, up approximately 153% and 26% from theprior year-over-year quarter on a dollars and per share basis,respectively. At September 30, 2007, our net asset value per share was$15.08, up $0.04 from the prior quarter.
We estimate that our net investment income for the current second fiscalquarter ended December 31, 2007, will be $0.43 to $0.49 per share. Weexpect to announce our second fiscal quarter dividend in December.
OPERATING RESULTS
HIGHLIGHTS
Equity Values: Stockholders' equity as of September 30, 2007: $302.01 million Net asset value per share as of September 30, 2007: $15.08First Fiscal Quarter Portfolio Activity: Number of new portfolio companies invested: 3 Number of portfolio companies at end of period: 27First Fiscal Quarter Operating Results: Net investment income excluding non-recurring items*: $8.75 million Net investment income per share excluding non-recurring items*: $0.44 Net investment income: $7.86 million Net realized and unrealized appreciation: $0.69 million Net increase in net assets resulting from operations: $8.55 million Dividends to shareholders per share: $0.3925* See Supplemental Financial Information below
PORTFOLIO AND INVESTMENT ACTIVITY
At September 30, 2007, the fair value of our portfolio of 27 long-terminvestments was approximately $352.3 million as compared to a fair value of$328.2 million at June 30, 2007.
As of September 30, 2007, our portfolio generated a current yield ofapproximately 15.9% across all our long-term debt and equity investments.This current yield includes interest from all our long-term investments aswell as dividends and net profits interest and royalties from certainportfolio companies.
During the quarter ended September 30, 2007, we completed three newinvestments and follow on investments in existing portfolio companies,totaling approximately $40.4 million. The new investments included thefollowing:
-- On July 31, 2007, we invested $15.0 million in senior secured financing in Wind River Resources Corp. and Wind River II Corp., an oil and gas production business based in Salt Lake City, Utah, and received a net profits interest in conjunction with our investment.-- On August 8, 2007, we invested $6.0 million in senior secured financing in Deep Down, Inc., a deepwater drilling services and manufacturing provider based in Houston, Texas, and received warrants in conjunction with our investment.-- On August 28, 2007, we invested $9.2 million in senior secured financing in Diamondback Operating, LP, an oil and gas production company based in Tulsa, Oklahoma, and received a net profits interest in conjunction with our investment.
Additionally, on August 16, 2007, Arctic Acquisition Corp. completelyrepaid its loan with an additional prepayment premium of $461,000 for theloan. Including the prepayment premium but excluding warrants that wecontinue to hold, we have realized a 20% cash internal rate of return onthis investment, representing a 1.25 times cash on cash return.
Since the end of the first quarter of our fiscal year ending June 2008, wehave made investments in five new portfolio companies, and the follow-oninvestment described below, aggregating approximately $62 million.
-- On October 9, 2007, we invested approximately $10 million in second lien secured financing for Resco Products, Inc., a leading refractory materials manufacturer and supplier based in Pittsburgh, Pennsylvania, with Hancock Park Associates acting as the private equity financial sponsor.-- On October 17, 2007, we made a $3 million follow-on secured debt investment in NRG Manufacturing, Inc. ("NRG") in support of NRG's acquisition of Dynafab Corporation ("Dynafab"). Dynafab is a manufacturer of a range of metal structures and vessels for use in the oil and gas and transportation industries, including fuel tanks for on-road and off-road vehicles as well as various drilling rig components.-- On October 19, 2007, we provided approximately $5 million of second lien secured debt financing to an outsourced technical services provider based in Pennsylvania, with an affiliate of HM Capital Partners, L.P., whose principals were formerly affiliated with Hicks, Muse, Tate & Furst, Inc., acting as the private equity financial sponsor.-- On November 1, 2007, we invested approximately $14 million consisting of a second lien secured financing and a small equity co-investment in Maverick Healthcare, Inc. (d/b/a Preferred Homecare), a home healthcare services provider based in Mesa, Arizona, with Beecken Petty O'Keefe & Company acting as the private equity financial sponsor.-- On November 5, 2007, we invested approximately $18 million in second lien secured financing in Shearer's Foods, Inc., a snack food manufacturer based in Brewster, Ohio, with Winston Partners as the private equity financial sponsor.-- On November 9, 2007, we made a second lien debt investment of $12 million in Qualitest Pharmaceuticals, Inc., and affiliates, a leading manufacturer and distributor of generic pharmaceuticals based in Huntsville, Alabama, with Apax Partners as the private equity financial sponsor.
As of today, we now have 32 portfolio companies aggregating approximately$410 million of assets, calculated as our September 30 investment portfolioplus additional investments net of repayments.
LIQUIDITY AND FINANCIAL RESULTS
At September 30, 2007, borrowings under our credit facility stood atapproximately $60 million. On October 11, 2007, we priced a public offeringof 3.5 million shares of common stock at $16.34 per share, raising $57.2million in gross proceeds. Our borrowings now aggregate approximately $88million under our credit facility. We are currently in discussions toincrease the size of our $200 million facility.
Our net investment income for the quarter ended September 30, 2007, wasapproximately $7.9 million, or approximately $8.7 million of adjusted netinvestment income before nonrecurring items. We have shown adjusted netinvestment income herein below by adding back approximately $1.1 million ofnon-recurring legal expenses, less any associated incentive fees, incurredin connection with an arbitration (the majority of these legal expenses webelieve are now in the past).
CONFERENCE CALL
We will host a conference call Monday, November 12, 2007, at 11:00 amEastern Time. The conference call dial-in number is (877) 407-0782. Arecording of the conference call will be available for approximately 30days. To hear a replay, call (877) 660-6853 and use Playback Access Accountcode 286 and Playback Conference ID code 261411.
CONSOLIDATED STATEMENTS OF NET ASSETS As of As of (in thousands) September 30, June 30, 2007 2007 (unaudited) (audited)AssetsCash and cash equivalents $ 11,348 $ 41,760Investments in controlled entities at fair value (cost - $129,222 and $124,664, respectively) 145,645 139,292Investments in affiliated entities at fair value (cost - $14,852 and $14,821, respectively) 14,631 14,625Investments in non-controlled and non-affiliated entities, at fair value (cost - $205,462 and $186,712, respectively) 191,981 174,305Interest receivable 3,073 2,139Dividends receivable 64 263Loan principal receivable 125 -Structuring fees receivable - 1,625Other receivables 258 271Prepaid expenses 651 471Deferred financing fees 1,965 1,751Total assets 369,741 376,502LiabilitiesCredit facility payable 59,962 -Payable for securities purchased - 70,000Accrued expenses 2,233 1,312Due to Prospect Administration, LLC 418 330Due to Prospect Capital Management, LLC 4,310 4,508Other current liabilities 807 304Total liabilities 67,730 76,454Net Assets $ 302,011 $ 300,048Components of Net AssetsCommon stock, par value $.001 per share, (100,000,000 and 100,000,000 common shares authorized, respectively; 20,021,138 and 19,949,065 issued and outstanding, respectively) $ 20 $ 20Paid-in capital in excess of par 301,088 299,845Undistributed (distributions in excess of) net investment income (4,057) (4,092)Realized gain 2,239 2,250Net unrealized appreciation 2,721 2,025Net Assets $ 302,011 $ 300,048Net Asset Value Per Share $ 15.08 $ 15.04CONSOLIDATED STATEMENTS OF OPERATIONS Three Months Three Months(in thousands) Ended Ended September 30, September 30, 2007 2006Investment IncomeInterest income, controlled entities (net of foreign tax withholding of $89 and $-, respectively) $ 4,848 $ 2,246Interest income, affiliated entities (net of foreign tax withholding of $35 and $110, respectively) 667 981Interest income, non controlled and non-affiliated entities 7,317 2,079 Total interest income 12,832 5,306Dividend income, controlled entities 1,450 850Dividend income, money market funds 168 276 Total dividend income 1,618 1,126Other income, affiliate investments 10 -Other income, non-controlled and non-affiliated entities 931 - Total other income 941 -Total investment income 15,391 6,432Operating ExpensesInvestment advisory fees Base management fee 1,866 616 Income incentive fee 1,966 818 Total investment advisory fees 3,832 1,434Interest expense and credit facility costs 1,238 662Chief Compliance Officer and Sub-administration fees 186 119Legal fees 1,206 280Valuation services 113 93Audit and tax related fees 250 292Sarbanes-Oxley compliance expenses 10 45Insurance expense 64 75Directors fees 55 63Other general and administrative expenses 572 95Total operating expenses 7,526 3,158Net investment income 7,865 3,274Net realized gain (loss) on investments (11) 1,951Net unrealized (depreciation) appreciation 696 (1,261)Net increase in net assets resulting from Operations $ 8,550 $ 3,964Net increase in net assets per weighted average shares of common stock resulting from operations $ 0.43 $ 0.40PER SHARE DATA Three Months Three Months Ended Ended September 30, September 30, 2007 2006Net asset value, beginning of period $ 15.04 $ 15.31Costs related to the secondary public offering - (0.47)Net investment income 0.39 0.33Realized gain - 0.20Net unrealized appreciation (depreciation) 0.04 (0.13)Dividend declared and paid (0.39) (0.38)Net asset value at end of period $ 15.08 $ 14.86
SUPPLEMENTAL FINANCIAL INFORMATION (UNAUDITED) (IN THOUSANDS)
Please note that the following supplemental financial informationrepresents a reconciliation of a GAAP measure (Net investment income) to anon-GAAP measure (Adjusted net investment income).
Three months Three months ended ended September 30, September 30, 2007 2006 ------------- -------------Total investment income $ 15,391 $ 6,432Total operating expenses 7,526 3,158Net investment income 7,865 3,274Add back non-recurring items 883 182Adjusted net investment income $ 8,748 $ 3,456Net investment income per weighted average common share $ 0.39 $ 0.33Adjusted net investment income per weighted average common share $ 0.44 $ 0.35
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 Capital’s investment objective is to generate bothcurrent income and long-term capital appreciation through debt and equityinvestments.
Prospect Capital has elected to be treated as a business developmentcompany under the Investment Company Act of 1940 (“1940 Act”). We arerequired to comply with a series of regulatory requirements under the 1940Act as well as applicable NASDAQ, federal and state rules and regulations.We have elected to be treated as a regulated investment company under theInternal Revenue Code of 1986. Failure to comply with any of the laws andregulations that apply to Prospect Capital could have an adverse effect onProspect Capital and its shareholders.
This press release contains forward-looking statements within the meaningof the Private Securities Litigation Reform Act of 1995. Any suchstatements, other than statements of historical fact, are highly likely tobe affected by other unknowable future events and conditions, includingelements of the future that are or are not under the Company’s control, andthat the Company 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 the Company undertakesno obligation to update any such statement now or in the future.
Please send investment proposals to:Grier EliasekPresident and Chief Operating Officergrier@prospectstreet.comTelephone (212) 448-0702