NEW YORK, NY — (MARKET WIRE) — 11/11/04 — Prospect Energy Corporation (NASDAQ: PSEC)today announced financial results for its first fiscal quarter endedSeptember 30, 2004. PSEC commenced operations on July 30, 2004 afterclosing its initial public offering of 7,000,000 shares of common stock at$15.00 per share (with a subsequent sale of 55,000 shares). Afterdeducting underwriting discounts, commissions and offering expenses, PSECreceived net proceeds of $96,954,250. At September 30, 2004, our net assetvalue was $13.67 per share. The primary purpose of the initial publicoffering was to obtain capital with which to invest primarily in mezzanineloans, senior secured loans and equity investments in U.S. middle-marketenergy-related companies. At September 30, 2004, we had investedapproximately $30,344,000, comprising approximately 31% of our initial netproceeds consistent with our long-term investment objectives and businessplan.
We are pleased to announce that our board of directors has approved adividend of $0.10 per share to holders of record on December 10, payable onDecember 30, 2004. Such a dividend amounts to an annualized book dividendyield of approximately 2.9%.
Highlights:
Stockholders’ Equity: $96,421
Net Asset Value per share: $13.67
Operating Results (in thousands):
Net decrease in stockholders’ equity from operations: $441
Portfolio Activity:
Cost of portfolio investments made during period: $30,416
Number of portfolio companies at September 30, 2004: 1
Portfolio and Investment Activity
We completed our first quarter of operations on September 30, 2004 with ourportfolio invested approximately 31% in Gas Solutions II Ltd, of “GasSolutions,” and the remainder in cash, cash equivalents and short-termtreasuries. At September 30, 2004, the weighted average yield of ourlong-term investments was 12.3%.
On September 24, 2004, Prospect Energy Corporation acquired indirectlysubstantially all of the assets and equity of Gas Solutions. Our all-inacquisition price represents a modest multiple of current cash flow of GasSolutions. The amount paid was $28,575,000 plus acquisition expenses of$1,769,000, including underwriting fees and legal and professional fees,for a total cost of $30,344,000. Our investment in Gas Solutions includesa Secured Promissory Note, or “Note,” in the principal amount of$25,000,000 payable to Prospect Energy. The Note is secured by a mortgageand security agreement encumbering substantially all of Gas Solutions’assets. We are currently in discussions with several senior lendersregarding the refinancing of a portion of the Note and expect to reachclosing on such a refinancing on or before December 30, 2004.
In addition to the 15% interest rate on the Note, which does not includeany accretion of discount or other non-cash payment-in-kind securities, weexpect to have significant recurring equity distributions from GasSolutions after reserving sufficient capital for its growth and capitalexpenditures. During the next 30 to 45 days, we expect to release moredisclosure in a separate filing with the historical audited financials ofGas Solutions. Because we are an investment company, we will not beconsolidating Gas Solutions into our overall company financials.
Gas Solutions is one of the largest gas-gathering and processing businessesin East Texas. The business includes approximately 1,000 miles of gatheringpipelines in Gregg, Upshur, Rusk, and Smith Counties, plus two processingfacilities in Longview and Chapel Hill. Gas Solutions owns and operatesone of the only casinghead gas gathering system in the East Texas oilfieldWoodbine formation, which has been producing oil and gas continuously since1931 and is believed to be one of the largest oil reservoirs in NorthAmerica. Gas Solutions also operates a major gas-well gas-gathering systemserving the Cotton Valley and Travis Peak formations, which haveexperienced volume expansions because of recent drilling activity. GasSolutions serves approximately 700 leases and approximately 2,500associated wells. Longview and Chapel Hill currently process approximately32 million cubic feet per day, with the ability to nearly triple thisthroughput without extensive capital expenditures. The Longview plant hasbeen in operation since 1934.
Major customers of Gas Solutions include ONEOK, ExxonMobil, BP,ChevronTexaco, and Eastman Chemical. Gas Solutions has contracts with theoil and gas well lease operators with respect to the leases referencedpreviously to gather, via pipeline, the gas mixture produced from theleases. These contracts determine the lease operator’s position, if any,of the liquid and dry gas sales, normally determined according to a slidingscale based on production. Gas Solutions also generates service fee incomefrom several processing and operating agreements. The natural gas liquidsproduced by Gas Solutions include ethane, propane, n-butane, isobutane andnatural gasoline. Gas Solutions has historically maintained goodrelationships with its customers and has not experienced any significantcustomer loss. The original management of Gas Solutions, which has aprofit sharing arrangement, has been operating the Longview plant since1979, and nearly all of the employees have been with the business for morethan five years, with most of the employees having more than 20 years ofexperience in the industry.
We have continued to pursue the investments disclosed in our prospectussince the closing of the initial public offering, and we anticipate that inthe future we may consummate investments in approximately one-third ofthese companies, subject to completion of due diligence and the negotiationof customary documentation in forms mutually satisfactory to the parties.Following the closing of our initial public offering, and the market’srecognition that Prospect Energy has capital to invest in energytransactions, Prospect Capital has hired additional originators and hasseen its pipeline of potential transactions grow in variety, number andquality. We anticipate that substantially all of the net proceeds of ourinitial public offering will be invested by June 30, 2005.
Tax/Diversification
In order to maintain compliance with all applicable laws and regulationsapplicable to the Company, Prospect Energy may buy or sell investments,rebalance the portfolio, elect a year for tax purposes other than June 30or take other actions deemed advisable.
Operating Results
Investment income was modest during our initial quarter of operations as itlargely reflected income generated from invested cash and cash equivalents.Investment income totaled $266,000 for the period with $194,000attributable to treasury obligations and $72,000 attributable to ourlong-term investments. Operating expenses for the period were $700,000 andincluded investment advisory and management fees, insurance expense,administrative services fees, professional fees, directors’ fees and othergeneral and administrative expenses. It also included a non-recurringcharge of approximately $25,000 in expenses related to the organization ofProspect Energy. The resultant net investment loss was $434,000. AtSeptember 30, 2004, our portfolio had net unrealized depreciation of$7,000. Overall, PSEC had a net decrease in stockholders’ equity of$441,000 or $0.09 per share.
Conference Call at approximately 4:30 p.m. (Eastern Time) on Thursday,November 11, 2004
Prospect Energy will host a conference call at for the fiscal quarter endedSeptember 30, 2004, at approximately 4:30 p.m. (Eastern Time) on November11, 2004. The conference call dial-in number is 1-877-407-8031(or 201-689-8031). A recording of the conference call will be available forapproximately 7 days. To hear a replay, call 1-877-660-6853(or 1-201-612-7415) and use Playback Account # 1628 and Playback ConferenceID # 123425. All interested parties are welcome to participate.
Numbers shown below are in thousands, except for per share data.
BALANCE SHEET September 30, 2004 --------AssetsCash equivalents $ 422Investments (cost - $96,877) 97,027Due from affiliate 53Other assets 299 --------Total assets $ 97,801 ========LiabilitiesAccounts payable $ 595Accrued expenses 735Other Liabilites 50 --------Total liabilities $ 1,380 ========Stockholders' EquityCommon stock, par value $.001 per share, 100,000,000 common shares authorized, 7,055,100 issued and outstanding $ 7Paid-in capital in excess of par 96,955Accumulated net investment loss (534)Net unrealized loss (7)Total stockholders' equity $ 96,421 --------Total liabilities and stockholders' equity $ 97,801 ======== For the period from July 1, 2004 throughSTATEMENT OF OPERATIONS September 30, 2004 --------Operating IncomeInterest income $ 266 --------Total operating income 266 ========Operating ExpensesInvestment advisory fee $ 337Administration fee 73Insurance expense 61Legal and professional fees 160General and administrative expenses 69 --------Total operating expenses 700 ========Net investment income $ (434)Net unrealized depreciation (7) --------Net decrease in stockholders' equity resulting from operations $ (441) ========Basic net decrease in stockholders' equity per common share (0.09)Per Share Data:Net asset value, July 1, 2004 $ (.01)Proceeds from initial public offering 13.95Net unrealized depreciation on investments 0Net decrease in stockholders' equity resulting from operations (.06)Costs related to the initial public offering (.21) --------Net asset value at end of period $ 13.67 --------
About Prospect Energy Corporation
Prospect Energy Corporation is a financial services company that lends toand invests in middle-market companies in the energy industry. ProspectEnergy’s investment objective is to generate both current income andlong-term capital appreciation through debt and equity investments.
This press release contains forward-looking statements within the meaningof the Private Securities Litigation Reform Act of 1995. Forward-lookingstatements involve risks and uncertainties, including, but not limited to,statements as to our future operating results; our business prospects andthe prospects of our portfolio companies; the impact of investments that weexpect to make; the dependence of our future success on the general economyand its impact on the industries in which we invest; the ability of ourportfolio companies to achieve their objectives; our expected financingsand investments; the adequacy of our cash resources and working capital;and the timing of cash flows, if any, from the operations of our portfoliocompanies.
We may use words such as “anticipates,” “believes,” “expects,” “intends,””will,” “should,” “may” and similar expressions to identify forward-lookingstatements. Such statements are based on currently available operating,financial and competitive information and are subject to various risks anduncertainties that could cause actual results to differ materially from ourhistorical experience and our present expectations. Undue reliance shouldnot be placed on such forward-looking statements as such statements speakonly as of the date on which they are made. We do not undertake to updateour forward-looking statements unless required by law.
Contact:Please send investment proposals to:Prospect Energy CorporationJohn Barryjbarry@prospectstreet.com212-448-0702Grier Eliasekgrier@prospectstreet.com212-448-0702