NEW YORK, NY — (MARKET WIRE) — 05/10/11 — Prospect Capital Corporation (NASDAQ: PSEC)(“Company” or “Prospect”) today announced financial results for our thirdquarter ended March 31, 2011.
For the three and nine months ended March 31, 2011, the increase in netassets resulting from operations was $33.8 million and $91.3 million,respectively, or $0.38 per share and $1.11 per share, respectively. For thethree months ended December 31, 2010, the increase in net assets resultingfrom operations was $31.9 million or $0.38 per share.
Our operating results increased 5.7%, and our operating results per sharewere unchanged, from the quarter ended December 31, 2010 to the quarterended March 31, 2011. This increase is primarily due to investment incomefrom new and follow-on investments of $359.2 million which were closed inthe March 2011 quarter, a quarter with our highest level of originationssince our inception.
Our net investment income (“NII”) was $24.0 million and $19.0 million forthe three months ended March 31, 2011 and March 31, 2010, respectively, or$0.27 per share and $0.30 per share, respectively. Our NII was $64.0million and $50.6 million for the nine months ended March 31, 2011 andMarch 31, 2010, respectively, or $0.78 per share and $0.89 per share,respectively.
The primary source of the higher NII per share in fiscal year 2010 comparedto fiscal year 2011 is the non-recurrence of the gain recognized in fiscalyear 2010 in connection with the acquisition of Patriot Capital Funding,Inc. Also affecting NII per share is a decrease in the acceleratedaccretion of original purchase discounts from $6.9 million recognized inthe March 2010 quarter to $3.4 million recognized during the March 2011quarter. Accelerated accretion of original purchase discounts decreasedfrom $11.5 million recognized during the nine months ended March 31, 2010to $6.1 million recognized during the nine months ended March 2011. Ifthese two sources of adjustment to NII per share were removed andadjustments made for the related effects on advisory fees, NII per sharewould have been $0.24 per share in the March 2011 quarter and $0.21 pershare in the March 2010 quarter, and $0.72 per share and $0.61 per sharefor the nine months ended March 2011 and March 2010, respectively.
We are targeting growth in NII per share as we utilize prudent leverage tofinance our growth through new originations, given our debt to equity ratiostood at less than 42% as of March 31, 2011 and approximately 34% today. Weestimate that our net investment income for the current fourth fiscalquarter ended June 30, 2011 will be $0.35 to $0.40 per share. Included inthis estimate is $0.11 per share generated from accelerated accretion on anasset acquired from Patriot and anticipated to be repaid during thequarter.
Our net asset value per share on March 31, 2011 stood at $10.33 per share,an increase of $0.08 per share from December 31, 2010.
Yesterday, we declared our 34th, 35th, 36th, and 37th consecutive cashdistributions to shareholders, as follows:
-- $0.101225 per share for May 2011 to holders of record on May 31, 2011 with a payment date of June 24, 2011;-- $0.101250 per share for June 2011 to holders of record on June 30, 2011 with a payment date of July 22, 2011;-- $0.101275 per share for July 2011 to holders of record on July 29, 2011 with a payment date of August 26, 2011;-- $0.101300 per share for August 2011 to holders of record on August 31, 2011 with a payment date of September 23, 2011.
HIGHLIGHTS
Equity Values: Net assets as of March 31, 2011: $912.9 million Net asset value per share as of March 31, 2011: $10.33Third Fiscal Quarter Operating Results: Net investment income: $24.0 million Net investment income per share: $0.27 Dividends declared to shareholders per share: $0.30345Year-to-date Operating Results: Net investment income: $64.0 million Net investment income per share: $0.78 Dividends declared to shareholders per share: $0.90745Third Fiscal Quarter Portfolio and Portfolio Activity: Portfolio investments in quarter: $359.2 million Total portfolio investments at cost at March 31, 2011: $1.174 billion Total portfolio investments at market at March 31, 2011: $1.214 billion Number of portfolio companies at March 31, 2011: 64
PORTFOLIO AND INVESTMENT ACTIVITY
During the nine months ended March 31, 2011, we originated $641.0 millionof new investments. As we reported last quarter and continued this quarter,our origination efforts recently have focused primarily on secured lending,including a higher percentage of first lien loans than in recent priorfiscal quarters, though we also continue to close selected junior debt andequity investments. In addition to targeting investments senior incorporate capital structures with our new originations, we have alsoincreased our new investments in third party private equity sponsor ownedcompanies, which tend to have more third party equity capital supportingour debt investments than in non-sponsor transactions.
As a result of these credit risk management initiatives, our portfolio’sannualized current yield stood at 12.9% across all long-term debt andcertain equity investments as of March 31, 2011. 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 March 31, 2011, our portfolio consisted of 64 long-term investments witha fair value of $1.214 billion, compared to 58 long-term investments with afair value of $918.2 million at December 31, 2010. In the March 2011quarter, we completed new and follow-on investments aggregatingapproximately $359.2 million, sold one investment, and received repaymenton three other investments.
On January 6, 2011, we made a senior secured term loan investment of $30.0million to support the acquisition of Progressive Logistics Services byH.I.G. Capital.
On January 10, 2011, we made a senior secured debt investment of $19.0million to support the acquisition of Endeavor House by Pinnacle TreatmentCenters.
On January 10, 2011, we sold our remaining 616,304 shares of MillerPetroleum common stock, realizing $4.23 of net proceeds per share. As aresult, we generated an additional gain of $2.6 million, bringing our totalrealized gain to $8.0 million for this investment.
On January 21, 2011, we provided senior secured credit facilities of $28.2million to support the acquisition of Stauber Performance Ingredients byICV Partners. Through March 31, 2011, we have funded $25.7 million of thecommitment.
On January 24, 2011, Maverick Healthcare repaid our $13.1 million loan infull.
On January 31, 2011, we made a senior secured debt investment of $7.5million to support the recapitalization of Empire Today, a leadingindependent provider 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 March 31, 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, a leadingpremium seafood company based in Nova Scotia, Canada.
On February 9, 2011, we made a senior secured debt investment of $22.5million to support the recapitalization of Copernicus and to repay ourprior loan in full.
On March 2, 2011, we made a senior secured first-lien debt investment of$12.5 million to support the acquisition of Out Rage, a market leader inthe bowhunting equipment industry.
On March 4, 2011, we made a $27.0 million secured second-lien term loan tosupport the recapitalization of Arrowhead and to repay our prior loan infull.
On March 11, 2011, EXL repaid our $23.0 million loan in full, and we soldour 2,500 shares of EXL common stock.
On March 18, 2011, we closed a $60.0 million first-lien senior securedfacility for Safe-Guard Products International, the leading third-partyadministrator of ancillary finance and insurance products for new, used,and leased motor vehicles.
On March 31, 2011, we funded a $53.0 million first-lien senior securedcredit facility, funded $1.4 million of a $5.0 million commitment on arevolving line of credit and invested $1.5 million in common equity tosupport the acquisition of Cargo Airport Services by ICV Partners.
On March 31, 2011, we provided a net $32.8 million in first-lien seniorsecured financing for the recapitalization of Progrexion, an existingportfolio company focused on the consumer credit information sector.
On March 31, 2011, KTPS repaid our prior $8.4 million loan. A portion ofthe loan receivable was repaid at a discount, for which we realized a lossof $0.5 million.
Since March 31, 2011, we have closed on seven additional investments(aggregating more than $115 million) and received repayment on oneinvestment.
On April 18, 2011, we made a $13.0 million secured debt investment tosupport the acquisition of a leading food distributor by Annex Capital.
On April 26, 2011, we made a senior secured follow-on investment of $11.0million in ICON Health & Fitness.
On May 2, 2011, we sold our membership interests in Fischbein for $13.3million of gross proceeds, $1.5 million of which is deferred revenue heldin escrow, realizing a gain of $9.9 million, and received a full repaymenton the loan that was outstanding. We subsequently made a $3.3 millionsenior secured second-lien term loan and invested $0.9 million in thecommon equity of Fischbein with the new ownership. Compared to our originalcost from the Patriot acquisition, Fischbein has delivered for us a cash oncash return of approximately 3.3 times and an internal rate of return ofapproximately 150%.
On May 3, 2011, we made a debt investment of $25.0 million to support theacquisition of J.D. Byrider, a leading used car sales and finance business,by Altamont Capital Partners.
On May 6, 2011, we made a $32.0 million investment in an advertising mediabuying business, with $24.0 million structured as senior secured debt, $3.0million as subordinated debt, and $4.0 million as controlling equity.
On May 6, 2011, we provided $15.0 million in secured second-lienacquisition financing for a top company in the in-store media industry.
On May 6, 2011, we provided $15.0 million in secured second-lien financingfor the recapitalization of a leading company in the engineered glassmaterials industry.
Our investment pipeline continues to aggregate more than $1.0 billion ofpotential opportunities. Primary investment activity in the marketplaceincreased during the second half of calendar year 2010 and has continued tobe robust in calendar year 2011. These investments are primarily securedinvestments with double digit coupons, sometimes coupled with equity upsidethrough additional investments, 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 “2010Notes”). The 2010 Notes are convertible into shares of common stock at aninitial and March 31, 2011 conversion rate of 88.0902 and 88.0908 shares ofcommon stock per $1,000 principal amount of the 2010 Notes, respectively,which is equivalent to a conversion price of approximately $11.352 pershare of common stock, subject to adjustment in certain circumstances. Theconversion rate for the 2010 Notes is increased when monthly cash dividendspaid to common shares exceed the rate of $0.101125 cents per share, subjectto adjustment.
On February 18, 2011, we issued $172.5 million in aggregate principalamount of 5.5-year unsecured 5.50% senior convertible notes due 2016 (“2011Notes”) for net proceeds of approximately $167.3 million. Interest on the2011 Notes is paid semi-annually in arrears on February 15 and August 15,at a rate of 5.50% per year, commencing August 15, 2011. The 2011 Notesmature on August 15, 2016 unless converted earlier. The 2011 Notes areconvertible into shares of common stock at an initial conversion rate andconversion rate at March 31, 2011 of 78.3699 and 78.3701 shares,respectively, of common stock per $1,000 principal amount of 2011 Notes,which is equivalent to a conversion price of approximately $12.76 per shareof common stock, subject to adjustment in certain circumstances. Theconversion rate for the 2011 Notes will be increased when monthly cashdividends paid to common shares exceed the rate of $0.101150 per share.
The 2010 and 2011 Notes are general unsecured obligations of Prospect, withno financial covenants, no technical cross default provisions, and nopayment cross default provisions with respect to our revolving creditfacility.
The 2010 and 2011 Notes have no restrictions related to the type andsecurity of assets in which Prospect might invest. The issuance of thesenotes has allowed us to grow our investment program in calendar year 2011and commit to loans with maturities longer than our existing revolvingcredit facility maturity. These 2010 and 2011 Notes have an investmentgrade 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 $115 million in commitments with oneexisting and five additional new lenders, raising the total commitmentsunder the Facility to $325 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 an investment grade Moody’s rating ofA2.
On April 7, 2011, we completed a public stock offering for 9.0 millionshares of our common stock at a net price of $11.40 per share, raising$102.6 million of net proceeds.
With the issuance of the 2010 and 2011 Notes in December and February, werepaid the revolving balance on the Facility in full. As of May 10, 2011,we have deployed all of the proceeds from the Notes and equity issuances,and we currently have borrowed $22.9 million under our Facility.
Our modestly leveraged balance sheet is a source of significant strength.Our debt to equity ratio currently stands at approximately 34%. 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,Facility, and Notes levels.
CONFERENCE CALL
Prospect will host a conference call on Wednesday, May 11, 2011, at 11:00a.m. Eastern Time. The conference call dial-in number will be 877-317-6789.A recording of the conference call will be available for approximately 30days. To hear a replay, call 877-344-7529 and use passcode 450877.
PROSPECT CAPITAL CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES March 31, 2011 and June 30, 2011 (in thousands, except share and per share data) March 31, June 30, 2011 2010 --------- --------- (Unaudited) (Audited)AssetsInvestments at fair value: Control investments (cost of $235,879 and $185,720, respectively) $ 275,349 $ 195,958 Affiliate investments (cost of $56,594 and $65,082, respectively) 70,754 73,740 Non-control/Non-affiliate investments (cost of $881,166 and $477,957, respectively) 867,414 478,785 --------- --------- Total investments at fair value (cost of $1,173,639 and $728,759, respectively) 1,213,517 748,483 --------- ---------Investments in money market funds 94,919 68,871Cash 2,395 1,081Receivables for: Interest, net 10,728 5,356 Dividends 60 1 Other 561 419Prepaid expenses 496 371Deferred financing costs, net 16,186 7,579Other assets -- 534 --------- --------- Total Assets 1,338,862 832,695 --------- ---------LiabilitiesCredit facility payable 47,500 100,300Senior convertible notes 322,500 --Payable for securities purchased 31,984 --Dividends payable 8,940 6,909Due to Prospect Administration 1,456 294Due to Prospect Capital Management 6,353 9,006Accrued expenses 5,319 4,057Other liabilities 1,889 705 --------- --------- Total Liabilities 425,941 121,271 --------- ---------Net Assets $ 912,921 $ 711,424 ========= =========Components of Net AssetsCommon stock, par value $0.001 per share (200,000,000 and 100,000,000 common shares authorized, respectively; 88,358,811 and 69,086,862 issued and outstanding, respectively) $ 88 $ 69Paid-in capital in excess of par 991,658 805,918Distributions in excess of net investment income (21,202) (9,692)Accumulated realized losses on investments (97,501) (104,595)Unrealized appreciation on investments 39,878 19,724 --------- ---------Net Assets $ 912,921 $ 711,424 ========= =========Net Asset Value Per Share $ 10.33 $ 10.30 ========= ========= PROSPECT CAPITAL CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS For the Three and Nine Months Ended March 31, 2011 and 2010 (in thousands, except share and per share data) (Unaudited) For The Three For The Nine Months Ended Months Ended March 31, March 31, ---------------- ----------------- 2011 2010 2011 2010 -------- ------- -------- --------Investment IncomeInterest Income: Control investments (Net of foreign withholding tax of $0, $0, $0, and ($19), respectively) $ 5,180 $ 4,494 $ 15,798 $ 14,137 Affiliate investments 3,049 2,731 9,523 5,119 Non-control/Non-affiliate investments 26,275 20,722 65,466 42,065 -------- ------- -------- -------- Total interest income 34,504 27,947 90,787 61,321 -------- ------- -------- --------Dividend income: Control investments 2,760 2,300 6,810 12,660 Non-control/Non-affiliate investments -- -- 1,508 -- Money market funds 3 1 10 29 -------- ------- -------- -------- Total dividend income 2,763 2,301 8,328 12,689 -------- ------- -------- --------Other income: (Note 8) Control investments 2 235 1,787 243 Affiliate investments 22 6 176 73 Non-control/Non-affiliate investments 7,282 1,516 12,007 2,365 Gain on Patriot acquisition -- -- -- 8,632 -------- ------- -------- -------- Total other income 7,306 1,757 13,970 11,313 -------- ------- -------- -------- Total Investment Income 44,573 32,005 113,085 85,323 -------- ------- -------- --------Operating ExpensesInvestment advisory fees: Base management fee 6,037 3,576 15,216 9,961 Income incentive fee 5,997 4,744 16,015 12,640 -------- ------- -------- -------- Total investment advisory fees 12,034 8,320 31,231 22,601Interest and credit facility expenses 5,660 2,111 10,182 5,480Legal fees 283 146 763 536Valuation services 262 231 711 504Audit, compliance and tax related fees 168 181 649 682Allocation of overhead from Prospect Administration 1,669 840 3,309 2,520Insurance expense 74 64 217 190Directors' fees 64 64 191 192Potential merger expenses -- 925 -- 925Other general and administrative expenses 403 149 1,801 1,143 -------- ------- -------- -------- Total Operating Expenses 20,617 13,031 49,054 34,773 -------- ------- -------- -------- Net Investment Income 23,956 18,974 64,031 50,550 -------- ------- -------- --------Net realized gain (loss) on investments 2,078 (2) 7,094 (51,231)Net change in unrealized appreciation (depreciation) on investments 7,725 6,968 20,154 5,723 -------- ------- -------- --------Net Increase in Net Assets Resulting from Operations $ 33,759 $25,940 $ 91,279 $ 5,042 ======== ======= ======== ========Net increase in net assets resulting from operations per share: $ 0.38 $ 0.41 $ 1.11 $ 0.09 ======== ======= ======== ========Dividends declared per share $ 0.30 $ 0.41 $ 0.91 $ 1.23 ======== ======= ======== ======== PROSPECT CAPITAL CORPORATION AND SUBSIDIARY ROLLFORWARD OF NET ASSET VALUE PER SHARE For the Three and Nine Months Ended March 31, 2011 and 2010 (in actual dollars) (Unaudited) For The Three For The Nine Months Ended Months Ended ---------------- ---------------- March March March March 31, 2011 31, 2010 31, 2011 31, 2010 ------- ------- ------- -------Per Share Data:Net asset value at beginning of period $ 10.25 $ 10.10 $ 10.30 $ 12.40Net investment income 0.27 0.30 0.78 0.89Net realized gain (loss) 0.02 -- 0.09 (0.90)Net unrealized appreciation 0.09 0.11 0.25 0.10Net increase (decrease) in net assets as a result of public offerings -- 0.02 (0.16) (0.86)Net increase in net assets as a result of shares issued for Patriot acquisition -- -- -- 0.14Dividends declared and paid (0.30) (0.41) (0.93) (1.65) ------- ------- ------- -------Net asset value at end of period $ 10.33 $ 10.12 $ 10.33 $ 10.12 ======= ======= ======= =======
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