NEW YORK, NY — (MARKET WIRE) — 02/12/08 — Prospect Capital Corporation (NASDAQ: PSEC)today announced financial results for its second fiscal quarter endedDecember 31, 2007.
Our net investment income, excluding non-recurring items (as furtherdiscussed under Supplemental Financial Information below), was $11.1million, or 48 cents per weighted average share for the quarter, anincrease of approximately 146% and 45% from the prior year-over-yearquarter on a dollars and per share basis, respectively.
We estimate that our net investment income for the current third fiscalquarter ended March 31, 2008, will be $0.45 to $0.53 per share. We expectto announce our third fiscal quarter dividend in March.
OPERATING RESULTS
HIGHLIGHTS
Equity Values: Stockholders' equity as of December 31, 2007: $345.82 million Net asset value per share as of December 31, 2007: $14.58Second Fiscal Quarter Portfolio Activity: Number of new portfolio companies invested: 7 Number of portfolio companies at end of period: 32Second Fiscal Quarter Operating Results: Net investment income: $10.66 million Net investment income per share: $0.46 Net realized and unrealized depreciation: ($14.35) million Net decrease in net assets resulting from operations: ($3.69) million Dividends to shareholders per share: $0.395 * See Supplemental Financial Information below
PORTFOLIO AND INVESTMENT ACTIVITY
At December 31, 2007, the fair value of our portfolio of 32 long-terminvestments was approximately $440.1 million as compared to a fair value of$328.2 million at June 30, 2007.
As of December 31, 2007, our portfolio generated a current yield ofapproximately 15.3% 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 December 31, 2007, we completed seven newinvestments and follow-on investments in existing portfolio companies,totaling approximately $120.8 million. The new investments included thefollowing:
-- On October 9, 2007, the Company made a second lien debt investment of $9.75 million in Resco Products, Inc., a leading designer and manufacturer of refractory materials based in Pittsburgh, Pennsylvania.-- On October 17, 2007, the Company made a $3 million follow-on secured debt investment in 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, the Company made a second lien debt investment of approximately $5 million in a leading provider of outsourced technical services based in Pennsylvania. The Company's debt is supporting the acquisition of the company by HM Capital Partners, L.P. ("HM"), a $1.6 billion private equity fund based in Dallas, Texas. HM's investment professionals previously were principals with Hicks, Muse, Tate & Furst, Inc.-- On November 1, 2007, the Company made a second lien secured debt investment, as well as a small equity co-investment, aggregating approximately $13.75 million, in Maverick Healthcare, Inc. d/b/a Preferred Homecare, a leading comprehensive home healthcare services provider based in Mesa, Arizona.-- On November 5, 2007, the Company invested approximately $18 million in second lien secured debt financing issued by Shearer's Foods, Inc., a snack food manufacturer based in Brewster, Ohio.-- On November 9, 2007, the Company 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.-- On November 14, 2007, the Company entered into an agreement to invest in $15 million of second lien secured debt issued by Deb Shops, Inc. This transaction was consummated on December 10, 2007. Deb Shops, Inc. is a leading specialty apparel retailer based in Philadelphia, Pennsylvania.-- On November 21, 2007, the Company provided combined debt financing of $25.6 million to IEC Systems LP and Advanced Rig Services LLC, two related oilfield service companies based in Houston, Texas. This investment took the form of two separate senior secured debt instruments with cross- collateralized guarantees and a net profit interest in each company.
For the three months ended December 31, 2007, we also monetized twopositions, Central Illinois Energy, LLC, and Advantage Oilfield Group Ltd.,for an aggregate of $9.1 million in proceeds.
In December, we announced that we have engaged RBC as a financial advisorto explore strategic alternatives, including the potential sale, of ourlargest 100% controlled investment, Gas Solutions, a midstream gatheringand processing business in East Texas. Gas Solutions is currentlygenerating approximately $26.5 million of adjusted EBITDA as an annualizedrun rate. We expect to conclude that process over the next few months.
As of today, we now have 32 portfolio companies aggregating approximately$440 million of assets, calculated as our December 31 investment portfolioplus additional investments net of repayments.
LIQUIDITY AND FINANCIAL RESULTS
At December 31, 2007, borrowings under our credit facility stood atapproximately $107 million. On October 17, 2007, we priced a secondaryoffering of 3.5 million shares of common stock at $16.34 per share, raising$57.2 million in gross proceeds. On November 13, 2007 the underwritersexercised the over-allotment option raising an additional $3.3 million ingross proceeds when 0.2 million shares of common stock were issued. We arecurrently in discussions to increase the size of our $200 million facilityto at least $400 million in size.
Our net investment income for the quarter ended December 31, 2007 wasapproximately $10.7 million, or approximately $11.1 million of adjusted netinvestment income before nonrecurring items. We have shown adjusted netinvestment income herein below by adding back approximately $0.4 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
The Company will host a conference call on Tuesday, February 12, 2008, 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 5 days. To hear a replay, call 877-344-7529 and use passcode416115.
CONSOLIDATED STATEMENTS OF NET As of As of ASSETS December June 30, (in thousands) 31, 2007 2007 (unaudited) (audited)AssetsCash and cash equivalents $ 26,070 $ 41,760Investments in controlled entities at fair value (cost - $141,322 and $124,664, respectively) 150,156 139,292Investments in affiliated entities at fair value (cost - $5,474 and $14,821, respectively) 5,288 14,625Investments in non-controlled and non-affiliated entities, at fair value (cost - $286,304 and $186,712, respectively) 284,641 174,305Interest receivable 3,405 2,139Dividends receivable 70 263Loan principal receivable 115 -Structuring fees receivable - 1,625Securities sold 3,100 -Other receivables 282 271Prepaid expenses 298 471Deferred financing fees 1,804 1,751Total assets 475,229 376,502LiabilitiesCredit facility payable 107,042 -Payable for securities purchased 5,604 70,000Accrued expenses 1,384 1,312Dividends Payable 9,370 -Due to Prospect Administration, LLC 202 330Due to Prospect Capital Management, LLC 4,640 4,508Other current liabilities 1,163 304Total liabilities 129,405 76,454Net Assets $345,824 $300,048Components of Net AssetsCommon stock, par value $.001 per share (100,000,000 and 100,000,000 common shares authorized, respectively; 23,721,138 and 19,949,065 issued and outstanding, respectively) $ 24 $ 20Paid-in capital in excess of par 357,953 299,845Distributions in excess of net investment income (2,767) (4,092)Accumulated realized gains (losses) on investments (16,371) 2,250Unrealized appreciation on investments 6,985 2,025Net Assets $345,824 $300,048Net Asset Value Per Share $ 14.58 $ 15.04 CONSOLIDATED STATEMENTS OF OPERATIONS Three Months Three Months (in thousands) Ended Ended Dec. 31, Dec. 31, 2007 2006 -------- --------Investment IncomeInterest income, controlled entities (net of foreign tax withholding of $69 and $45, respectively) $ 5,285 $ 3,364Interest income, affiliated entities (net of foreign tax withholding of $35 and $57, respectively) 655 1,056Interest income, non controlled and non-affiliated entities 8,876 2,552 Total interest income 14,816 6,972Dividend income, controlled entities 2,200 850Dividend income, money market funds 266 318 Total dividend income 2,466 1,168Other income, affiliate investments - 3Other income, non-controlled and non-affiliated entities 1,281 28 Total other income 1,281 31Total investment income 18,563 8,171Operating ExpensesInvestment advisory fees Base management fee 2,112 1,568 Income incentive fee 2,665 1,123 Total investment advisory fees 4,777 2,691Interest expense and credit facility costs 1,618 370Chief Compliance Officer and Sub-administration fees 206 119Legal fees 569 97Valuation services 120 100Audit and tax related fees 43 47Sarbanes-Oxley compliance expenses - 1Insurance expense 64 72Directors fees 55 57Other professional fees 35 -Other general and administrative expenses 416 124Total operating expenses 7,903 3,678Net investment income 10,660 4,493Net realized loss on investments $(18,610) (1)Net unrealized appreciation (depreciation) 4,264 (1,552)Net (decrease) increase in net assets resulting from Operations $ (3,686) $ 2,940Net (decrease) increase in net assets per weighted average shares of common stock resulting from operations $ (0.16) $ 0.22 PER SHARE DATA Three Months Three Months Ended Ended Dec. 31, Dec. 31, 2007 2006Net asset value, beginning of period $ 15.08 $ 14.86Costs related to the secondary public offering (0.02) (0.04)Net investment income 0.46 0.33Realized (loss) (0.80) -Net unrealized appreciation (depreciation) 0.18 (0.11)Net increase in net assets as a result of secondary public offering 0.07 0.59Dividend declared and paid (0.39) (0.39)Net asset value at end of period $ 14.58 $ 15.24
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 Dec. 31, Dec. 31, 2007 2006 ------- -------Total investment income $18,563 $8,171Total operating expenses 7,903 3,678Net investment income 10,660 4,493Add back non-recurring items 410 -Adjusted net investment income $11,070 $4,493Net investment income per weighted average common share $ 0.46 $ 0.33Adjusted net investment income per weighted average common share $ 0.48 $ 0.33
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.