NEW YORK, NY — (MARKET WIRE) — 02/09/11 — Prospect Capital Corporation (NASDAQ: PSEC)(“Company” or “Prospect”) today announced financial results for our secondquarter ended December 31, 2010.
For the three and six months ended December 31, 2010, the increase in netassets resulting from operations was $31.9 million and $57.5 million,respectively, or $0.38 per share and $0.73 per share, respectively. For thethree months ended September 30, 2010, the increase in net assets resultingfrom operations was $25.6 million or $0.34 per share.
Our operating results increased 24.9%, and our operating results per shareincreased 10.1% from the quarter ended September 30, 2010 to the quarterended December 31, 2010. This increase is primarily due to our sale ofMiller Petroleum, Inc. common stock, which generated a $5.4 millionrealized gain. New and follow-on investments of $137.6 million closed inthe December 2010 quarter.
Our net investment income (“NII”) was $19.1 million and $19.3 million forthe three months ended December 31, 2010 and December 31, 2009,respectively, or $0.23 per share and $0.33 per share, respectively. Our NIIwas $40.1 million and $31.6 million for the six months ended December 31,2010 and December 31, 2009, respectively, or $0.51 per share and $0.59 pershare, respectively.
The primary source of the higher NII per share in 2009 is our recognitionof a gain on the Patriot acquisition of $8.6 million in December 2009. Alsoaffecting NII per share is the accelerated accretion of original purchasediscounts of $4.6 million recognized in the quarter ended December 31,2009. During the quarter ended September 30, 2010, we recognized $2.7million of accelerated accretion of original purchase discounts. Noaccelerated accretion of original purchase discounts was recognized in thequarter ended December 31, 2010. If these two sources of adjustment to NIIper share were removed and adjustments made for the related effects onadvisory fees, NII per share would have been $0.23 per share and $0.15 pershare for the three months ended December 31, 2010 and 2009, respectively,and $0.48 per share and $0.39 per share for the six months ended December31, 2010 and 2009, respectively.
We anticipate NII per share will increase as we utilize prudent termleverage to finance our growth through new originations, given our debt toequity ratio stood at only approximately 17% as of December 31, 2010. Weestimate that our net investment income for the current third fiscalquarter ended March 31, 2011 will be $0.24 to $0.30 per share.
Our net asset value per share on December 31, 2010 stood at $10.25 pershare, an increase of $0.01 per share from September 30, 2010.
Earlier today, we declared our 31st, 32nd, and 33rd consecutive cashdistributions to shareholders, as follows:
10.1150 cents per share for February 2011 (record date of February 28, 2011and payment date of March 31, 2011); and
10.1175 cents per share for March 2011 (record date of March 31, 2011 andpayment date of April 29, 2011); and
10.1200 cents per share for April 2011 (record date of April 29, 2011 andpayment date of May 31, 2011).
HIGHLIGHTS
Equity Values: Net assets as of December 31, 2010: $903.2 million Net asset value per share as of December 31, 2010: $10.25Second Fiscal Quarter Operating Results: Net investment income: $19.1 million Net investment income per share: $0.23 Dividends declared to shareholders per share: $0.302625Year-to-date Operating Results: Net investment income: $40.1 million Net investment income per share: $0.51 Dividends declared to shareholders per share: $0.604000Second Fiscal Quarter Portfolio and Portfolio Activity: Portfolio investments in quarter: $140.9 million Total portfolio investments at cost at December 31, 2010: $886.1 million Total portfolio investments at market at December 31, 2010: $918.2 million Number of portfolio companies at December 31, 2010: 58
PORTFOLIO AND INVESTMENT ACTIVITY
During the six months ended December 31, 2010, we originated $281.9 millionof new investments. Our origination efforts recently have focused primarilyon secured lending, including a higher percentage of first lien loans thanin recent prior fiscal quarters, though we also continue to close selectedjunior debt and equity investments. In addition to targeting investmentssenior in corporate capital structures with our new originations, we havealso increased our new investments in third party private equity sponsorowned companies, which tend to have more third party equity capitalsupporting our debt investments than in non-sponsor transactions.
As a result of these credit risk management initiatives, our portfolio’sannualized current yield stood at 14.1% across all long-term debt andcertain equity investments as of December 31, 2010. Non-recurringdistributions of other equity positions that we hold is not included inthis yield calculation. In many of our portfolio companies, we hold equitypositions, ranging from minority interests to majority stakes, which weexpect over time to contribute to our investment returns.
At December 31, 2010, our portfolio consisted of 58 long-term investmentswith a fair value of $918.2 million, compared to 57 long-term investmentswith a fair value of $830.2 million at September 30, 2010. In the December2010 quarter, we completed new and follow-on investments aggregating morethan $137.6 million, sold one investment and received repayment on fourinvestments.
On October 12, 2010, we made a senior secured debt investment of $32.5million in ICON Health & Fitness, Inc., a leading manufacturer and marketerof branded health and fitness equipment.
On October 29, 2010, Castro Cheese Company, Inc. repaid our $7.7 millionloan in full.
On November 3, 2010, TriZetto Group repaid our $15.5 million loan in full.
On November 12, 2010, we made a senior subordinated debt investment of$15.0 million in Snacks Holding Corporation, a leading manufacturer andmarketer of dried fruits and trail mixes.
On November 29, 2010, we made a senior subordinated debt investment of$14.0 million in Royal Adhesives & Sealants LLC (“Royal”), a leadingproducer of proprietary, high-performance adhesives and sealants. OnDecember 13, 2010, we made a follow-on debt investment of $11.0 million inRoyal.
On December 1, 2010, Qualitest Pharmaceuticals, Inc. repaid our $12.0million loan in full.
On December 3, 2010, we exercised our warrants in Miller Petroleum, Inc.(“Miller”) and received 2,013,814 shares of Miller common stock. OnDecember 27, 2010, we sold 1,397,510 of these shares at $3.95 net proceedsper share, realizing a gain of $5.4 million.
On December 10, 2010, we made a $30.0 million secured second-lien loan toAmerican Gilsonite Company (“AGC”) for a dividend recapitalization.Concurrent with the financing, we received repayment of our prior loan aswell as a $2.1 million dividend from our equity ownership of AGC.
On December 23, 2010, we made a secured second-lien debt investment of$15.3 million in Jordan Healthcare Holdings, Inc., a leading provider ofhome healthcare services in Texas.
On December 23, 2010, we made a senior secured investment of $18.3 millionin VPSI, Inc., a leading market share transportation services company.
Several new investments that we anticipated closing prior to December 31,2010 were delayed by counterparties when the expiring lower federal taxrates were extended. The subsequent closing of these delayed loans hasincreased our level of origination activity during the current quarterending March 31, 2011. Since December 31, 2010, we have closed on sevenadditional investments aggregating more than $154 million, receivedrepayment on one investment, and sold our remaining equity in oneinvestment.
On January 6, 2011, we made a senior secured debt investment of $30.0million to support the acquisition of Progressive Logistics Services, LLCby a middle market private equity firm.
On January 10, 2011, we made a senior secured debt investment of $19.0million to support the acquisition of Endeavor House by Pinnacle TreatmentCenters, Inc.
On January 10, 2011, we sold our remaining 616,304 shares of Miller commonstock, realizing $4.23 of net proceeds per share, realizing a gain of $2.6million.
On January 21, 2011, we provided senior secured credit facilities of $28.2million to support the acquisition of Stauber Performance Ingredients, byICV Partners. Through February 9, 2011, we have funded $26.5 million of thecommitment.
On January 24, 2011, Maverick Healthcare, LLC repaid our $13.1 million loanin full.
On January 31, 2011, we made a senior secured debt investment of $7.5million to support the recapitalization of Empire Today, LLC, the secondlargest independent provider of carpet and hard surface flooring toconsumers in the residential replacement flooring industry.
On February 3, 2011, we made a senior secured debt investment of $22.0million to support the recapitalization of a pharmacy services company by aleading private equity firm. Through February 9, 2011, we have funded $20.5million of the commitment.
On February 4, 2011, we made a secured second-lien debt investment of $45.0million to support the refinancing of Clearwater Seafoods LimitedPartnership, a leading premium seafood company based in Nova Scotia,Canada.
On February 9, 2011, we made a net follow-on investment of $3.0 million inThe Copernicus Group, Inc. that increased our total investment to $22.5million.
We have now closed more than $500 million of new investments over the pastten months. Our investment pipeline currently aggregates more than $1.0billion of potential opportunities. Primary investment activity in themarketplace increased during the second half of 2010 and has continued intocalendar year 2011. Our pipeline of potential investments remains robust,with additional originations expected to close in the current quarter.These investments are primarily secured investments with double digitcoupons, sometimes coupled with equity upside through co-investments orwarrants, and diversified across multiple sectors.
We are pleased with the overall stability of the credit quality of ourportfolio, with many of our companies generating year-over-year andsequential growth in top-line revenues and bottom-line profits.
LIQUIDITY AND FINANCIAL RESULTS
On December 21, 2010, we issued $150 million in aggregate principal amountof five-year unsecured 6.25% Senior Convertible Notes Due 2015 (the”Notes”). The Notes are convertible into shares of Common Stock at aninitial and December 31, 2010 conversion rate of 88.0902 shares of CommonStock per $1,000 principal amount of the Notes, which is equivalent to aconversion price of approximately $11.352 per share of Common Stock,subject to adjustment in certain circumstances. The conversion rate for theNotes will be increased if monthly cash dividends paid to common sharesexceed the rate of $0.101125 per share, subject to adjustment.
Interest on the Notes is paid semi-annually in arrears on June 15 andDecember 15, at a rate of 6.25% per year, commencing June 15, 2011. TheNotes mature on December 15, 2015 unless converted earlier. The Notes aregeneral unsecured obligations of Prospect, with no financial covenants, notechnical cross default provisions, and no payment cross default provisionswith respect to our revolving credit facility.
The Notes have no restrictions related to the type and security of assetsin which Prospect might invest. The issuance of these five-year notes hasallowed us to grow our investment program in calendar year 2011 and committo loans with maturities longer than our existing revolving credit facilitymaturity. These Notes have an investment grade S&P rating of BBB.
On June 11, 2010, we held a first closing of an extension and expansion ofour revolving credit facility (the “Facility”) with a syndicate of lenderswho extended commitments of $210 million under the Facility. The Facilityincludes an accordion feature, which, with the amendment completed onJanuary 13, 2011, allows commitments to increase to up to $400 millionwithout the need for re-approval from the existing lenders. Since June 30,2010, we have closed on an additional $75 million in commitments with oneexisting and three additional new lenders, raising the total commitmentunder the Facility to $285 million. We seek to add additional lenders tothe Facility in order to reach the maximum size. While we are optimisticabout these planned Facility size increases, we cannot guarantee them. Theamendment signed in January also allows for larger loans to be pledged tothe facility and provides a mechanism for pledging loans on an expeditedbasis.
As we make additional investments, we generate additional availability tothe extent such investments are eligible to be placed into the borrowingbase. The revolving period of the Facility extends through June 2012, withan additional one year amortization period (with distributions allowed)after the completion of the revolving period. Interest on borrowings underthe Facility is one-month Libor plus 325 basis points, subject to a minimumLibor floor of 100 basis points, representing a significant decrease infinancing cost for us compared to our prior facility. The unused portion ofthe Facility has a fee equal to either 75 basis points (if at least half ofthe Facility is used) or 100 basis points (if less than half of theFacility is used). The Facility has been and we believe will be used,together with our equity capital, to make additional long-term investments.The Facility has an investment grade Moody’s rating of A2.
With the issuance of the Notes in late December, we repaid the revolvingbalance on the Facility in full. As of February 9, 2011, we had deployedall of the proceeds from the Note issuance and we had borrowed $31.1million under our Facility. Our available liquidity as of today iscurrently in excess of $245.0 million for new investments.
Our at-the-market stock distribution program has proven to be a costeffective source of new equity capital to fund investment activity. Duringthe second quarter ended December 31, 2010, we continued our at-the-marketprogram, completing the third such program (which was initiated onSeptember 24, 2010) in the quarter and embarking on a fourth program onNovember 10, 2010.
Under our third at-the-market program, we issued 4,929,556 shares of ourcommon stock at an average price of $9.86 per share, raising $48.6 millionof gross proceeds, from October 1, 2010 through November 3, 2010.
Under our fourth at-the-market program, we issued 4,513,920 shares of ourcommon stock at an average price of $10.00 per share, raising $45.1 millionof gross proceeds, from November 16, 2010 through December 15, 2010. Noshares have been sold under this program since December 15, 2010.
Our modestly leveraged balance sheet is a source of significant strength.Our debt to equity ratio currently stands at approximately 20%. Ourequitized balance sheet also gives us the potential for future earningsupside as we prudently look to utilize and grow our existing revolvingcredit facility and add additional secured and unsecured term facilities,made more attractive by our investment grade ratings at corporate, Facilityand Notes levels.
CONFERENCE CALL
The Company will host a conference call on Thursday, February 10, 2011 at11:00 a.m. Eastern Time. The conference call dial-in number will be877-317-6789. A recording of the conference call will be available forapproximately 30 days. To hear a replay, call 877-344-7529 and use passcode448180.
PROSPECT CAPITAL CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES December 31, 2010 and June 30, 2010 (in thousands, except share and per share data) December 31, June 30, 2010 2010 ----------- ----------- (Unaudited) (Audited)AssetsInvestments at fair value: Control investments (cost of $235,729 and $185,720, respectively) $ 264,228 $ 195,958 Affiliate investments (cost of $65,815 and $65,082, respectively) 74,709 73,740 Non-control/Non-affiliate investments (cost of $584,524 and $477,957, respectively) 579,284 478,785 ----------- ----------- Total investments at fair value (cost of $886,068 and $728,759, respectively) 918,221 748,483 ----------- -----------Investments in money market funds 132,194 68,871Cash 4,019 1,081Receivables for: Interest, net 8,420 5,356 Dividends 2 1 Other 350 419Prepaid expenses 250 371Deferred financing costs, net 12,105 7,579Other assets 534 534 ----------- ----------- Total Assets 1,076,095 832,695 ----------- -----------LiabilitiesCredit facility payable -- 100,300Senior Convertible Notes 150,000 --Dividends payable 8,900 6,909Due to Prospect Administration 317 294Due to Prospect Capital Management 9,787 9,006Accrued expenses 2,639 4,057Other liabilities 1,262 705 ----------- ----------- Total Liabilities 172,905 121,271 ----------- -----------Net Assets $ 903,190 $ 711,424 =========== ===========Components of Net AssetsCommon stock, par value $0.001 per share (200,000,000 and 100,000,000 common shares authorized, respectively; 88,115,382 and 69,086,862 issued and outstanding, respectively) $ 88 $ 69Paid-in capital in excess of par 988,897 805,918Distributions in excess of net investment income (18,369) (9,692)Accumulated realized losses on investments (99,579) (104,595)Unrealized appreciation on investments 32,153 19,724 ----------- -----------Net Assets $ 903,190 $ 711,424 =========== ===========Net Asset Value Per Share $ 10.25 $ 10.30 =========== =========== PROSPECT CAPITAL CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS For the Three and Six Months Ended December 31, 2010 and 2009 (in thousands, except share and per share data) (Unaudited) For The For The Three Months Ended Six Months Ended December 31, December 31, -------------------- -------------------- 2010 2009 2010 2009 ---------- --------- ---------- ---------Investment IncomeInterest Income: Control investments (Net of foreign withholding tax of $0, ($52), $0, and ($19), respectively) $ 5,428 $ 5,052 $ 10,617 $ 9,643 Affiliate investments 3,524 1,539 6,474 2,388 Non-control/Non-affiliate investments 18,410 11,948 39,192 21,343 ---------- --------- ---------- --------- Total interest income 27,362 18,539 56,283 33,374 ---------- --------- ---------- ---------Dividend income: Control investments 2,300 4,160 4,050 10,360 Non-control/Non-affiliate investments 1,068 -- 1,508 -- Money market funds 3 10 7 28 ---------- --------- ---------- --------- Total dividend income 3,371 4,170 5,565 10,388 ---------- --------- ---------- ---------Other income: Control investments 14 75 1,785 75 Affiliate investments 7 -- 154 -- Non-control/Non-affiliate investments 2,546 385 4,725 849 Gain on Patriot acquisition -- 8,632 -- 8,632 ---------- --------- ---------- --------- Total other income 2,567 9,092 6,664 9,556 ---------- --------- ---------- --------- Total Investment Income 33,300 31,801 68,512 53,318 ---------- --------- ---------- ---------Operating ExpensesInvestment advisory fees: Base management fee 4,903 3,176 9,179 6,385 Income incentive fee 4,769 4,816 10,018 7,896 ---------- --------- ---------- --------- Total investment advisory fees 9,672 7,992 19,197 14,281Interest and credit facility expenses 2,261 1,995 4,522 3,369Legal fees 170 390 480 390Valuation services 231 153 448 273Audit, compliance and tax related fees 265 239 481 501Allocation of overhead from Prospect Administration 840 840 1,640 1,680Insurance expense 72 63 143 126Directors' fees 64 64 128 128Other general and administrative expenses 645 807 1,398 994 ---------- --------- ---------- --------- Total Operating Expenses 14,220 12,543 28,437 21,742 ---------- --------- ---------- --------- Net Investment Income 19,080 19,258 40,075 31,576 ---------- --------- ---------- ---------Net realized gain (loss) on investments 4,489 (51,229) 5,016 (51,229)Net change in unrealized appreciation (depreciation) on investments 8,371 17,451 12,429 (1,245) ---------- --------- ---------- --------- Net Increase (Decrease) in Net Assets Resulting from Operations $ 31,940 $ (14,520) $ 57,520 $ (20,898) ========== ========= ========== =========Net increase (decrease) in net assets resulting from operations per share: $ 0.38 $ (0.25) $ 0.73 $ (0.39) ========== ========= ========== =========Dividends declared per share $ 0.30 $ 0.41 $ 0.60 $ 0.82 ========== ========= ========== ========= PROSPECT CAPITAL CORPORATION AND SUBSIDIARY ROLLFORWARD OF NET ASSET VALUE PER SHARE For the Three and Six Months Ended December 31, 2010 and 2009 (in actual dollars) (Unaudited) For The For The Three Months Ended Six Months Ended -------------------- -------------------- December December December December 31, 2010 31, 2009 31, 2010 31, 2009 --------- --------- --------- ---------Per Share Data:Net asset value at beginning of period $ 10.24 $ 11.11 $ 10.30 $ 12.40Net investment income 0.23 0.33 0.51 0.59Net realized gain (loss) 0.05 (0.89) 0.06 (0.95)Net unrealized appreciation (depreciation) 0.10 0.30 0.16 (0.02)Net decrease in net assets as a result of public offerings (0.06) (0.01) (0.16) (0.79)Net increase in net assets as a result of shares issued for Patriot acquisition -- 0.08 -- 0.13Dividends declared and paid (0.31) (0.82) (0.62) (1.26) --------- --------- --------- ---------Net asset value at end of period $ 10.25 $ 10.10 $ 10.25 $ 10.10 ========= ========= ========= =========
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.
Source: Prospect Capital Corporation