NEW YORK, NY — (MARKET WIRE) — 11/05/07 — Prospect Capital Corporation (NASDAQ: PSEC)(“Prospect”) announced today that it has made two additional debtinvestments aggregating $8 million.
Prospect has made a follow-on secured debt investment of $3 million intoits existing controlled portfolio company NRG Manufacturing, Inc. (“NRG”),in support of NRG’s acquisition of Dynafab Corporation (“Dynafab”). Dynafabis a manufacturer of a range of metal structures and vessels for use in theoil and gas and transportation industries, including fuel tanks for on-roadand off-road vehicles as well as various drilling rig components. With theacquisition of Dynafab, NRG now manages three manufacturing facilities withover 200 employees, all located in the Houston area. The acquisition hasstrengthened NRG’s position as a leading manufacturer of oilfieldequipment.
“NRG has tripled its EBITDA through organic growth since our initialinvestment in September 2006, and this acquisition will expand NRG’scapabilities significantly,” said Bart J. de Bie, a Managing Director withProspect Capital Management. “NRG’s management has done a superb job ofgrowing its revenues and profits. We are delighted to be in business withthis first-class management team.”
Prospect has also made a second lien debt investment of approximately $5million in a leading nationwide provider of outsourced technical servicesbased in Pennsylvania. The company currently provides installation,maintenance, repair, construction, and other technical services to bluechip customers in the satellite television, telecommunications, broadbandcable, and cellular industries, and is also evaluating entry into the powerand energy markets. The company has a workforce of more than 2,600 peopleacross four operating subsidiaries. The company’s technology neutralitymeans that the company benefits from customer migration across platforms.The CEO has more than 18 years of industry experience and was previouslythe chief operating officer of a similar company. Prospect’s debt issupporting the acquisition of the company by HM Capital Partners, L.P.(“HM”), an affiliate of the $1.6 billionDallas-based private equitysponsor previously known as Hicks, Muse, Tate & Furst, Inc.
“These investments illustrate key components of our three-prongedinvestment strategy, which includes ‘Sponsorless,’ ‘Sponsor,’ and ‘Buyout’transaction types,” said Grier Eliasek, President and Chief OperatingOfficer of Prospect. “The first component of our strategy, which we haveexecuted on significantly to date, is a ‘Sponsorless’ transaction in whichwe purchase debt and receive an equity participation ‘kicker’ from acompany controlled by a non-sponsor shareholder group, often managementinstead of a financial institution. Our average realized annualized rate ofreturn to date on these ‘Sponsorless’ financings is 59%. However, we do notearn these high absolute returns on every ‘Sponsorless’ transaction. Whileeach of our writedowns has occurred in a ‘Sponsorless’ transaction, weexpect the ‘Sponsorless’ transaction business, in the aggregate, tocontinue to provide compelling net returns. The second component of ourstrategy, shown by the technical services deal above, is a ‘Sponsor’transaction in which Prospect provides financing to a leading privateequity fund sponsor that risks significant junior capital underneathProspect’s debt, typically investing in a larger and more diversifiedcompany than would Prospect itself without a sponsor. While these ‘Sponsor’financings infrequently offer the opportunity to earn a 59% IRR, we believethey provide significantly enhanced credit quality while adding valuableportfolio diversification. As we continue to adhere to our disciplinedfocus on acceptable leverage multiples and coverage ratios, we see’Sponsor’ financings as attractive reward-to-risk propositions, and we haveincreased our business mix with this transaction type. The third componentof our strategy, shown by the NRG investment above, is a ‘Buyout’transaction in which Prospect, in addition to having a debt instrument, hasreceived controlling ownership and significant equity upside. To date, wehave been successful in acquiring businesses at value-driven prices ofthree to five turns of EBITDA through disciplined screening. We expect toearn our highest absolute returns — and have achieved our highestunrealized returns to date, which we anticipate monetizing in the future –in this third component of our strategy. As we build out an increasinglydiversified portfolio, we expect to continue to pursue all three types ofthese transactions, both within the energy and industrial markets as wellas beyond, and we are pleased with the robustness of our transaction flow.”
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 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 laws 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 a material adverseeffect on Prospect 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 likely to beaffected 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.com(212) 448-9577