NEW YORK, NY — (MARKET WIRE) — 05/12/08 — Prospect Capital Corporation (NASDAQ: PSEC)(“Company” or “Prospect”) today announced financial results for its thirdfiscal quarter ended March 31, 2008.
Our net investment income was approximately $12.9 million, or 54 cents perweighted average shares for the quarter, an increase of approximately 84%and 50% from the prior year-over-year quarter on a dollars and per sharebasis, respectively.
We estimate that our net investment income for the current fourth fiscalquarter ended June 30, 2008, will be $0.43 to $0.51 per share. We expect toannounce our fourth fiscal quarter dividend in June.
OPERATING RESULTS
HIGHLIGHTS
Equity Values: Stockholders' equity as of March 31, 2008: $371.72 million Net asset value per share as of March 31, 2008: $14.15Third Fiscal Quarter Portfolio Activity: Number of new portfolio companies invested: 2 Number of portfolio companies at end of period: 31Third Fiscal Quarter Operating Results: Net investment income: $12.92 million Net investment income per share: $0.54 Net realized gain: $0.21 million Net unrealized depreciation: ($14.39) million Net decrease in net assets resulting from operations: ($1.26) million Dividends to shareholders per share: $0.40 * See Supplemental Financial Information below
PORTFOLIO AND INVESTMENT ACTIVITY
On March 31, 2008, the fair value of our portfolio of 31 long-terminvestments was approximately $429.2 million.
As of March 31, 2008, our portfolio generated a current yield ofapproximately 16.8% 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 March 31, 2008, we completed two new investmentsand follow-on investments in existing portfolio companies, totalingapproximately $31.8 million.
On February 11, 2008, the Company made a $5.1 million senior secured loanto North Fork Collieries LLC (“North Fork”), a Kentucky-based mining andcoal production company. The Company also has a controlling equityinterest in North Fork.
On March 5, 2008, the Company made an additional secured debt investment of$6.5 million in Unitek Acquisition, Inc. (“Unitek”), a leading provider ofoutsourced technical services based in Blue Bell, Pennsylvania. Prospectnow has extended in the aggregate $11.5 million of debt capital to Unitek.
On March 14, 2008, the Company provided debt financing of $14.5 million tosupport the acquisition of American Gilsonite Company (“AGC”) by a privateequity firm based in New York. AGC is a specialty mineral company withoperations based in Bonanza, Utah. The Company made an additional $1.0million investment in the equity of AGC.
For the three months ended March 31, 2008, the Company monetized positionsin three portfolio companies.
On February 20, 2008, Ken-Tex Energy Corp. (“Ken-Tex”), repaid the $10.8million of debt that it owed the Company. As part of the transaction, theCompany also sold back its net profit interest (“NPI”) and overridingroyalty interest (“ORRI”) in Ken-Tex. In addition to the debt repayment,this transaction generated $3.3 million in the form of a prepayment penaltyand the sale of the NPI and ORRI.
On March 5, 2008, the Company monetized its ownership of common shares ofEvolution Petroleum Corp. at a gain of $0.49 million.
On March 31, 2008, TLOGH, L.P. repaid in full the $15.5 million of debtthat it owed to the Company.
As of today, we now have 32 portfolio companies aggregating approximately$492 million of assets, calculated as our March 31 investment portfolioplus additional investments net of repayments. In the current quarter, theCompany so far has made investments in two new portfolio companies, as wellas monetized an interest in an existing portfolio company.
On April 3, 2008, the Company provided $39.8 million of first and secondlien debt and equity for the recapitalization of Ajax Rolled Ring & Machine(“Ajax”), a custom forger of seamless rolled steel rings located in York,South Carolina.
On April 30, 2008, we provided debt financing of $20.0 million to supportthe acquisition by Peerless Mfg Co. (“Peerless”), headquartered in Dallas,Texas, of Nitram Energy Inc. (“Nitram”). Peerless is a leading designer,manufacturer, and marketer of industrial environmental separation andfiltration systems while Nitram focuses on separation, heat transfer,pulsation dampening, and industrial silencing products.
On April 30, 2008, we fully exited our investment in Arctic AcquisitionCorp., dba Cougar Pressure Control (“Cougar”) through the sale of ourequity interest in Cougar for approximately $3.4 million.
In late December 2007, the Company’s largest 100% controlled investment,Gas Solutions Holdings Inc (“Gas Solutions”), a midstream gathering andprocessing business in East Texas, engaged RBC Capital Markets Corporationas a financial advisor to explore strategic alternatives, including apotential sale. This monetization process is ongoing, and extensivediscussions are occurring with multiple interested parties. Managementseeks entering into a definitive purchase agreement before the conclusionof the Company’s fourth fiscal quarter, but can make no assurances as tothe likelihood or timing of any agreement. In late March 2008, Royal Bankof Canada provided a $38 million term loan to Gas Solutions II Ltd, awholly owned subsidiary of Gas Solutions, the proceeds of which were usedto refinance all of Citibank’s approximately $8 million of outstandingsenior secured debt as well as to make a $30 million cash distribution toGas Solutions. The Company has non-recourse access to this cash at GasSolutions, in addition to the Company’s other assets and undrawn revolvingcredit facility. In early May 2008, Gas Solutions II Ltd purchased a seriesof propane puts at $0.10 out of the money and at prices of $1.53 per gallonand $1.394 per gallon covering the periods May 1, 2008, through April 30,2009, and May 1, 2009, through April 30, 2010, respectively. These hedgeshave been executed at close to the highest market propane prices everachieved on an historical basis. Such hedges preserve the upside of GasSolutions II Ltd to benefit from potential future increases in commodityprices. Gas Solutions is generating approximately $24.3 million ofunadjusted plant operating income based on annualizing the performance ofthe six months ending March 31, 2008, which is an increase of 74% from theprevious year. For calendar year 2008, Gas Solutions estimates based oncurrent commodity prices and annualized run rates that it would achievemore than $30 million of unadjusted plant operating income.
LIQUIDITY AND FINANCIAL RESULTS
Our net investment income for the quarter ended March 31, 2008, wasapproximately $12.9 million. At March 31, 2008, our net asset value pershare was $14.15, a reduction from December 31 based primarily on reversingsome of the previous unrealized appreciation for an investment.
On March 28, 2008, we priced a registered direct offering of 1.3 millionshares of common stock at $15.22 per share, raising approximately $19.8million in gross proceeds. On March 31, 2008, we completed a publicoffering of 1.15 million shares of common stock at $15.45 per share,raising approximately $17.8 million in gross proceeds.
At March 31, 2008, borrowings under our credit facility stood atapproximately $91 million. Currently, the Company has approximately $138million drawn under its credit facility, with $62 million undrawn. Inaddition to its corporate cash, the Company has non-recourse access to anadditional $30 million of cash at Gas Solutions.
In mid-April 2008, the Company entered into an engagement letter with alender that has agreed, on a best-efforts basis, to lead a syndicationgroup in an increase to the Company’s revolving credit facility from $200million to approximately $400 million. Such facility is anticipated to havepricing similar to the Company’s existing facility. The engagement letteris not a final commitment and the closing of the facility is subject to thelender’s final internal approval and other conditions customary for atransaction of this type.
CONFERENCE CALL
The Company will host a conference call on Tuesday, May 13, 2008, at 11:00a.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 passcode419425.
As of As of March 31, June 30,CONSOLIDATED STATEMENTS OF NET ASSETS (in 2008 2007 thousands) (unaudited) (audited)AssetsCash and cash equivalents $ 43,819 $ 41,760Investments in controlled entities at fair value (cost - $147,142 and $124,664, respectively) 141,631 139,292Investments in affiliated entities at fair value (cost - $5,582 and $14,821, respectively) 5,582 14,625Investments in non-controlled and non-affiliated entities, at fair value (cost - $283,833 and $186,712, respectively) 281,943 174,305Interest receivable 4,039 2,139Dividends receivable 45 263Loan principal receivable 107 -Structuring fees receivable - 1,625Investments sold 506 -Other receivables 419 271Prepaid expenses 298 471Deferred financing fees 1,618 1,751Total assets 480,007 376,502LiabilitiesCredit facility payable 90,667 -Payable for investments purchased - 70,000Accrued expenses 1,227 1,312Dividends Payable 8,958 -Due to Prospect Administration, LLC 931 330Due to Prospect Capital Management, LLC 5,562 4,508Other current liabilities 944 304Total liabilities 108,289 76,454Net Assets $ 371,718 $ 300,048Components of Net AssetsCommon stock, par value $.001 per share, (100,000,000 and 100,000,000 common shares authorized, respectively; 26,270,379 and 19,949,065 issued and outstanding, respectively) $ 26 $ 20Paid-in capital in excess of par 395,571 299,845Distributions in excess of net investment income (315) (4,092)Accumulated realized gains (losses) on investments (16,163) 2,250Unrealized appreciation (depreciation) on investments (7,401) 2,025Net Assets $ 371,718 $ 300,048Net Asset Value Per Share $ 14.15 $ 15.04 Three months Three months Ended Ended March 31, March 31,CONSOLIDATED STATEMENTS OF OPERATIONS 2008 2007 (in thousands) (unaudited) (audited)Investment IncomeInterest income, controlled entities (net of foreign tax withholding of $35 and $67, respectively) $ 4,556 $ 3,845Interest income, affiliated entities (net of foreign tax withholding of $0 and $35, respectively) 290 800Interest income, non controlled and non-affiliated entities 10,044 4,025 Total interest income 14,890 8,670Dividend income, controlled entities 3,300 850Dividend income, money market funds 123 1,245 Total dividend income 3,423 2,095Other income, controlled entities 200 8Other income, non-controlled and non-affiliated entities 3,487 1,296 Total other income 3,687 1,304Total investment income 22,000 12,069Operating ExpensesInvestment advisory fees Base management fee 2,388 1,531 Income incentive fee 3,230 1,754 Total investment advisory fees 5,618 3,285Interest expense and credit facility costs 1,863 353Chief Compliance Officer and Sub-administration fees 228 164Legal fees 449 593Valuation services 198 92Audit and tax related fees 45 43Insurance expense 64 72Directors fees 55 55Other professional fees 18 4Other general and administrative expenses 543 393Total operating expenses 9,081 5,054Net investment income 12,919 7,015Net realized gain (loss) on investments 208 (1)Net unrealized appreciation (depreciation) (14,386) (2,038)Net (decrease) increase in net assets resulting from operations ($ 1,259) $ 4,976Net (decrease) increase in net assets per weighted average shares of common stock resulting from operations ($ 0.05) $ 0.26 Three months Three months Ended Ended March 31, March 31,PER SHARE DATA 2008 2007Net asset value, beginning of period $ 14.58 $ 15.24Costs related to the secondary public offering (0.03) 0.01Net investment income 0.54 0.36Realized gain/(loss) 0.01 -Net unrealized appreciation (depreciation) (0.60) (0.10)Net increase in net assets as a result of secondary public offering 0.05 0.06Dividend declared and paid (0.40) (0.39)Net asset value at end of period $ 14.15 $ 15.18
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