NEW YORK, NY — (MARKET WIRE) — 11/09/09 — Prospect Capital Corporation (NASDAQ: PSEC)(“Company,” “Prospect” or “we”) today announced financial results for itsfirst fiscal quarter ended September 30, 2009.
For the quarter ended September 30, 2009, our net investment income was$12.3 million, or 25 cents per weighted average number of shares for thequarter. We estimate that our net investment income for the current secondfiscal quarter ended December 31, 2009 will be 22 to 30 cents per share.These temporary per share changes from prior quarters are primarily due tothe issuance of additional shares to fund the acquisition of PatriotCapital Funding, Inc. (NASDAQ: PCAP) (“Patriot”). The full quarterlybenefits of the Patriot acquisition are expected to be reflected in theMarch 31, 2010 quarterly financial results. We have also raised additionalequity capital that can be deployed into other accretive investments beyondthe Patriot acquisition.
We anticipate that the merger with Patriot will close on or about December2, 2009. We expect the Patriot acquisition to be accretive to netinvestment income per quarter in an amount approximating 9 cents or moreper share, which could be greater with early repayments before scheduledmaturity dates as well as with loan coupon increases, as have occurred withmultiple prior Patriot investments.
In addition, we are currently evaluating a pipeline of potential additionalportfolio and individual investment opportunities, aggregating more than $4billion of assets, for which we have cash and credit facility availabilityon hand. We are negotiating to make a controlling investment in a sizeableportfolio, which we believe could be significantly accretive to our income,with a more than 20% internal rate of return on our investment anticipated,and look forward to providing more details in the weeks to come.
We expect to announce our second fiscal quarter dividend in December.
OPERATING RESULTSHIGHLIGHTSEquity Values: Net assets as of September 30, 2009: $607.25 million Net asset value per share as of September 30, 2009: $11.11First Fiscal Quarter Operating Results: Net investment income: $12.32 million Net investment income per share: $0.25 Dividends declared to shareholders per share: $0.4075
PORTFOLIO AND INVESTMENT ACTIVITY
At September 30, 2009, the fair value of our portfolio of 29 long-terminvestments was approximately $510.8 million.
During the quarter ended September 30, 2009, two additional investments,Peerless and C&J, have been repaid, generating a 19% cash-on-cash internalrate of return in each case, not including a 40% equity stake which wecontinue to hold in C&J.
On August 3, 2009, we announced our entering into a definitive agreement toacquire Patriot, including assets with an amortized cost of approximately$311 million, for a purchase price of approximately $197 million, or 63% ofamortized cost. We are purchasing Patriot with our common stock plus cashto repay all Patriot debt, anticipated to be approximately $110.5 millionwhen the acquisition closes. At September 30, 2009, Patriot had reduced itsdebt balance to $112.7 million and will continue to amortize the loanbalance through cash sweeps until the closing, which is anticipated on orabout December 2, 2009.
The merger agreement calls for our common shares to be exchanged at a ratioof approximately 0.3992 for each Patriot share, or 8,616,467 shares of ourcommon stock for 21,584,251 Patriot shares, with such exchange ratiodecreased for any tax distributions Patriot may declare before closing. OnNovember 3, 2009, Patriot announced that it would be making a finaldividend to Patriot shareholders equal to its undistributed net ordinaryincome and capital gains. Patriot has estimated that this final dividendwill be approximately $0.38 per share, with the final amount determined atclosing. In accordance with a recent IRS revenue procedure, the Patriotfinal dividend will be payable up to 10% in cash and at least 90% in newlyissued shares of Patriot’s common stock. If $0.038 of the dividend isdistributed as cash, the total number of shares to be issued by Prospect inthe Patriot merger will be reduced to 8,534,111 shares.
The acquisition of Patriot is at a discount to the principal balance of thedebt securities being acquired. We expect income accretion of this discounton a quarterly basis and anticipate a majority of this accretion to beincome not subject to Prospect shareholder taxation due to thestock-for-stock nature of the transaction. Our net investment incomeaccretion assumptions assume no early repayments. Early repayments wouldaccelerate the recognition of such accretion income. We have also notassumed repricings of any legacy Patriot loans with Patriot borrowers inour assumptions, and such upward repricings to current higher marketpricing would also provide upside to our future income.
The Patriot acquisition reflects our previously articulated strategy ofidentifying and closing on opportunities created by the marketplace creditdislocation, including opportunities to acquire financial companies andportfolios with attractive assets but with liquidity issues created bylenders seeking reduced exposure and equity owners seeking exitopportunities, even at potentially steep discounts. We are currentlyevaluating a number of other portfolios, both public and private, where ourability to provide liquidity has the potential for significant reward.
In addition, the Patriot acquisition will approximately double our numberof portfolio companies to approximately 59 companies, thereby expanding ourdiversification by company, by industry, by geography, and by businessowner. Approximately 70% of the acquired asset value is in companies wherePatriot has a senior secured position. Our gross assets will also expand bymore than 30%, providing anticipated scaling benefits as a consolidator inthe industry.
Primary investment activity in the marketplace has increased substantiallyin recent weeks, and we are currently evaluating a significant number ofpotential investments, some of which have the potential to close beforeyear end. Such transactions are primary senior secured investments withdouble digit coupons, sometimes coupled with equity upside throughco-investments or warrants, and diversified by sector.
Gas Solutions continues to generate free cash flows, with no third partydebt. We are discussing opportunities for potential monetization of ourposition.
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 three additional lenders to the facility andcurrently have commitments totaling $195 million. We continue to solicitadditional commitments from other lenders to fill out the facility, andmultiple lenders are performing due diligence toward committing to ourfacility. The facility has an investment grade Moody’s rating of A2.
As of September 30, 2009, we had zero outstanding borrowings under ourcredit facility, for which we had available credit of approximately $89million based on currently pledged assets, as well as cash-equivalentinstruments of approximately $92 million. Our credit availability willincrease with the pledging of additional assets from the Patriotacquisition.
Our unleveraged balance sheet is a source of significant strength incomparison with many overleveraged competitors. Our equitized balance sheetalso gives us the potential for future earnings upside as we prudently growour revolving credit facility and evaluate term debt solutions driven byour Facility’s investment grade facility rating. We are actively exploringboth Facility and corporate term debt solutions as the credit marketsimprove in both demand and pricing.
We also continue to generate liquidity through stock offerings and therealization of portfolio investments. From March through September 2009, wecompleted stock offerings aggregating 24,374,297 shares of our commonstock, raising approximately $206.0 million in gross proceeds. Two recentofferings were completed in an unregistered format pending declaration ofeffectiveness of our shelf amendment with disclosure for the Patriotacquisition, and such effectiveness has now been granted.
In the second quarter of the fiscal year ended June 30, 2009, we announcedthe authorization by our board of directors to repurchase up to $20 millionof our outstanding stock. To date, we have not made any such repurchases,but we continue to maintain the flexibility to do so should we deem suchpurchases to be in the best interest of our shareholders.
CONFERENCE CALL
The Company will host a conference call on Tuesday, November 10, 2009, 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 passcode435501.
PROSPECT CAPITAL CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES September 30, 2009 and June 30, 2009 (in thousands, except share and per share data) September 30, June 30, 2009 2009 (Unaudited) (Audited) --------- ---------AssetsInvestments at fair value (cost of $513,750 and $531,424, respectively) Control investments (cost of $188,886 and $187,105, respectively) $ 198,043 $ 206,332 Affiliate investments (cost of $33,555 and $33,544, respectively) 31,790 32,254 Non-control/Non-affiliate investments (cost of $291,309 and $310,775, respectively) 280,965 308,582 --------- --------- Total investments at fair value 510,798 547,168 --------- ---------Investments in money market funds 85,143 98,735Cash 7,020 9,942Receivables for: Interest, net 4,652 3,562 Dividends 7 28 Other 314 571Prepaid expenses 780 68Deferred financing costs, net 6,781 6,951 --------- --------- Total Assets 615,495 667,025 --------- ---------LiabilitiesCredit facility payable -- 124,800Due to Prospect Administration 157 842Due to Prospect Capital Management 5,874 5,871Accrued expenses 1,447 2,381Other liabilities 771 535 --------- --------- Total Liabilities 8,249 134,429 --------- ---------Net Assets $ 607,246 $ 532,596 ========= =========Components of Net AssetsCommon stock, par value $0.001 per share (100,000,000 and 100,000,000 common shares authorized, respectively; 54,672,155 and 42,943,084 issued and outstanding, respectively) $ 55 $ 43Paid-in capital in excess of par 646,271 545,707Undistributed net investment income 16,922 24,152Accumulated realized losses on investments (53,050) (53,050)Unrealized (depreciation) appreciation on investments (2,952) 15,744 --------- ---------Net Assets $ 607,246 $ 532,596 ========= =========Net Asset Value Per Share $ 11.11 $ 12.40 ========= ========= PROSPECT CAPITAL CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS For The Three Months Ended September 30, 2009 and 2008 (in thousands, except share and per share data) (Unaudited) For Three Months Ended -------------------------- September September 30, 2009 30, 2008 ------------ ------------Investment IncomeInterest income: Control investments (Net of foreign withholding tax of $32 and $47, respectively) $ 4,591 $ 6,722 Affiliate investments 849 560 Non-control/non-affiliate investments 9,395 10,274 ------------ ------------ Total interest income 14,835 17,556 ------------ ------------Dividend income: Control investments 6,200 4,584 Money market funds 18 139 ------------ ------------ Total dividend income 6,218 4,723 ------------ ------------Other income: Control/affiliate investments -- 744 Non-control/non-affiliate investments 464 12,776 ------------ ------------ Total other income 464 13,520 ------------ ------------ Total Investment Income 21,517 35,799 ------------ ------------Operating ExpensesInvestment advisory fees: Base management fee 3,209 2,823 Income incentive fee 3,080 5,875 ------------ ------------ Total investment advisory fees 6,289 8,698 ------------ ------------Interest and credit facility expenses 1,374 1,518Sub-administration fees (including former Chief Financial Officer and Chief Compliance Officer) -- 250Legal fees -- 597Valuation services 120 160Audit, compliance and tax related fees 262 177Allocation of overhead from Prospect Administration 840 588Insurance expense 63 61Directors’ fees 64 81Other general and administrative expenses 187 167 ------------ ------------ Total Operating Expenses 9,199 12,297 ------------ ------------ Net Investment Income 12,318 23,502 ------------ ------------Net realized gain on investments -- 1,645Net change in unrealized depreciation on investments (18,696) (11,149) ------------ ------------ Net (Decrease) Increase in Net Assets Resulting from Operations $ (6,378) $ 13,998 ============ ============Net (decrease) increase in net assets resulting from operations per share: $ (0.13) $ 0.47 ============ ============Dividends declared per share: $ 0.41 $ 0.40 ============ ============ PROSPECT CAPITAL CORPORATION AND SUBSIDIARY ROLLFORWARD OF NET ASSET VALUE PER SHARE For the Three Months Ended September 30, 2009 and 2008 (in actual dollars) (Unaudited) For The Three Months Ended September 30, -------------------- 2009 2008 --------- ---------Per Share Data:Net asset value at beginning of period $ 12.40 $ 14.55Net investment income 0.25 0.80Realized gain - 0.05Net unrealized depreciation (0.38) (0.38)Net decrease in net assets as a result of public offerings (0.77) -Dividends declared and paid (0.39) (0.39) --------- ---------Net asset value at end of period $ 11.11 $ 14.63 ========= =========
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.