NEW YORK, NY — (MARKET WIRE) — 11/09/05 — Prospect Energy Corporation (NASDAQ: PSEC)(“Prospect Energy,” “the Company” or “we”) today announced financialresults for its first fiscal quarter ended September 30, 2005. We commencedoperations on July 30, 2004 after closing our initial public offering of7,000,000 shares of common stock at $15.00 per share (with a subsequentgreenshoe sale of 55,000 shares). After deducting underwriting discounts,commissions and offering expenses, we received net proceeds ofapproximately $97 million for an opening balance of $13.74 net asset valueper share. At September 30, 2005, our net asset value per share was$14.60. The purpose of the initial public offering was to provide capitalto invest primarily in mezzanine loans, senior secured loans and equityinvestments in U.S. middle-market energy-related companies.
We currently estimate that our net investment income for the fiscal quarterending December 31, 2005 will be in a range of $0.24 to $0.30 per share,and that our Board of Directors will declare a dividend in line with actualresults in the next few weeks.
We estimate that the current second fiscal quarter results will include$0.03 to $0.06 per share of non-recurring expense (see SupplementalFinancial Information below). Without such expense, we estimate that NetInvestment Income would be in the range of $0.30 to $0.33 per share in thepresent quarter. We are approximately 78% invested on a value basis,representing approximately 86% of our initial available capital, inlong-term investments, and will continue to target additional long-terminvestments.
OPERATING RESULTS
Within the Highlights section of this release, additional disclosures havebeen included to better assist in the analysis of both recurring andnon-recurring charges. Non-recurring charges include legal fees associatedwith previously reported events including certain legal proceedings. Basedon these additional disclosures, we project future annual recurringoperating expenses to be approximately $3.4 million.
HIGHLIGHTS
Equity values:
-- Stockholders' equity as of September 30, 2005: $103.029 million-- Net asset value ("NAV") per share: $14.60
First Fiscal Quarter Operating Results:
-- Net investment income: $1.415 million-- Net investment income per share: $0.20-- Net investment income excluding non-recurring items*: $1.807 million-- Net investment income per share excluding non-recurring* items: $0.26-- Net realized loss: ($0.018) million-- Net unrealized appreciation: $0.076 million-- Dividends to shareholders per share: $0.20
First Fiscal Quarter Portfolio Activity:
-- Number of new long-term portfolio companies during period: 2-- Number of follow-on fundings of long-term portfolio companies during period: 2-- Cost of investments during period: $25.404 million-- Number of portfolio companies at end of period: 8
* See Supplemental Financial Information
PORTFOLIO AND INVESTMENT ACTIVITY
We completed our first fiscal quarter, which was our fourth full quartersince completion of our initial public offering, on September 30, 2005,with our portfolio invested approximately $81.902 million in eightlong-term investments, and the remainder in cash and short-terminstruments.
As of September 30, 2005, our portfolio generated a current yield of 19.1%across all our long-term debt and equity investments. This current yieldincludes interest from all of our long-term investments as well asdividends from Gas Solutions Holdings, Inc. (“Gas Solutions”) and UnityVirginia Holdings. Monetization of, or dividends from, other equitypositions that we hold is not included in this yield estimate.
During the quarter ended September 30, 2005, we completed two newinvestments totaling approximately $20.1 million in Worcester EnergyCorporation (“WECO”) and Arctic Acquisition Corporation (“Arctic”), as wellas two follow-on fundings totaling approximately $5.9 million in WhymoreCoal Company (“Whymore”) and Stryker Energy II, LLC (“Stryker”).
On July 19, 2005, we provided $9.3 million of senior secured debt financingto Arctic alongside $6.8 million of equity from Petro Capital IV, LP, ofDallas, Texas. The funding was used by Arctic to acquire the business andassets of Arctic Recoil, Inc., and to provide working and expansion capitalto Arctic. As part of this investment, we also received a significantequity ownership position in Arctic. Arctic is a privately owned andoperated oilfield services company based in Houston, Texas, that providesdrillers with equipment that includes coiled tubing units, nitrogen pumps,fluid power pumps, trucks, cranes, and trailers. Arctic also specializes inhigh pressure coiled tubing workovers. Coiled tubing is one of the fastestgrowing segments of the oilfield services sector, with applications such aswellbore cleanouts, acid stimulations, fracing, drilling, and logging.
On August 10 and September 22, 2005, we provided an additional $0.9 millionof senior secured debt financing to Whymore for which we also receivedadditional equity in Whymore.
On September 15, 2005, we provided an additional $5.0 million of seniorsecured debt financing to Stryker.
On September 28, we provided $10.8 million of senior secured debt financingto WECO, a wood processing and biomass power generation business based inDeblois, Maine. WECO is a privately owned renewable energy company thatoperates a wood harvesting and chipping business as well as a newlyrefurbished 25.85 megawatt wood-fired power plant. Built in 1988, the planthas operated intermittently over the past decade and recently has beenrecommissioned for baseload operations. The wood harvesting and chippingbusiness has access to more than 16,000 acres of wood fuel, and the planthas long-term contracts for the sale of electricity as well as renewableenergy credits. Prospect Energy’s funding has been utilized to refinanceexisting debt and to provide working capital to re-initiate plantoperations. Prospect Energy received a significant equity ownershipposition in WECO as part of the investment, including a minimum internalrate of return on Prospect’s investment.
CONFERENCE CALL
The Company will host a conference call on Thursday, November 10, 2005, at11:00 am Eastern Time. The conference call dial-in number will be (877)407-9205 to enter the conference. A recording of the conference call willbe available for approximately 7 days. To hear a replay, call (877)660-6853 and use Playback Access Account code 286 and Playback ConferenceID code 175765.
BALANCE SHEETS As of As of (in thousands) September 30, June 30, 2005 2005 ------------ ------------ (Unaudited)AssetsCash held in segregated account $ 9,587 $ 9,587Investment, Gas Solutions Holdings, Inc. at value (cost - $23,327 and $23,327, respectively) 29,700 29,500Investments, at value (cost - $63,917 and $64,197, respectively) 63,962 64,366Accrued interest receivable 502 206Prepaid expenses 297 49Due from affiliates 10 201Total assets $ 104,058 $ 103,909LiabilitiesAccrued liabilities 1,016 818Due to Investment Adviser - 77Other current liabilities 13 47Total liabilities 1,029 942Stockholders' EquityCommon stock, par value $.001 per share, 100,000,000 common shares authorized, 7,055,100 issued and outstanding 7 7Paid-in capital in excess of par 96,955 96,955Distributions in excess of net investment income (351) (337)Net unrealized appreciation 6,418 6,342Total stockholders' equity 103,029 102,967Total liabilities and stockholders' equity $ 104,058 $ 103,909 STATEMENTS OF OPERATIONS Three months Three months (UNAUDITED) ended ended (in thousands) September 30, September 30, 2005 2004 ------------ ------------Investment IncomeInterest income $ 1,361 $ 266Interest income, Gas Solutions Holdings, Inc. 828 -Dividend income 196 -Dividend income, Gas Solutions Holdings, Inc. 556 -Other income 168 -Total investment income 3,109 266Operating ExpensesInvestment advisory fee 510 337Administration costs 56 73Legal fees 719 160Valuation services 41 -Other professional fees 122 -Insurance expense 98 -Directors fees 55 -Organizational costs - -General and administrative expenses 93 69Total operating expenses 1,694 700Net investment income (loss) 1,415 (434)Net realized loss (18) -Net unrealized appreciation 76 -Net increase in stockholders' equity resulting from operations $ 1,473 $ (434)Basic net increase in stockholders' equity per common share resulting from operations $ 0.21 $ (0.06) PER SHARE DATA (UNAUDITED) For the three For the twelve months ended months ended September 30, June 30, 2005 2005 ------------ ------------Net asset value, beginning of period $ 14.59 $ (.01)Proceeds from initial public offering - 13.95Costs related to the initial public offering - (.21)Net investment income 0.20 0.34Net unrealized appreciation 0.01 0.90Dividend declared and paid (.20) (.38)Net asset value at end of period $ 14.60 $ 14.59SUPPLEMENTAL FINANCIAL INFORMATION (UNAUDITED) (IN THOUSANDS)Please note that the following supplemental financial informationrepresents a reconciliation of a GAAP measure (Net investment income)to a non-GAAP measure (Adjusted net investment income). Three months Twelve months ended ended September 30, June 30, 2005 2005 ------------ ------------Total investment income $ 3,109 $ 8,093Total operating expenses 1,694 5,682Net investment income 1,415 2,411Add back non-recurring items 844 2,083Subtract pro forma incentive fee* (452) 0Adjusted net investment income $ 1,807 $ 4,494Net investment income per common share $ 0.20 $ 0.40Adjusted net investment income per common share $ 0.26 $ 0.64* This entry is not an accounting accrual but is presented to illustrate the financial effect had an incentive fee been charged in the period indicated.
ABOUT PROSPECT ENERGY CORPORATION
Prospect Energy Corporation is a financial services company that lends toand invests in energy-related businesses and assets. Prospect Energy’sinvestment objective is to generate both current income and long-termcapital appreciation through debt and equity investments.
Prospect Energy has elected to be treated as a business development companyunder the Investment Company Act of 1940 (“1940 Act”). Accordingly, we arerequired to comply with a series of regulatory requirements under the 1940Act as well as applicable NASDAQ, state, and federal rules and regulations.In addition, we have elected to be treated as a regulated investmentcompany under the Internal Revenue Code of 1986 (“Code”). The Codespecifies certain quarterly asset diversification and annual source ofincome requirements. Certain investments in the partnerships, limitedliability companies, joint ventures and other “pass through” entitiescommon in the energy industry can create enhanced risks of compliance withthe Code. To the extent we remain in compliance with the applicableprovisions of the Code, we will not be required to pay corporate-leveltaxes on any income that we earn. To the extent we do not qualify aselected, corporate-level taxes may be imposed upon our net income.
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.
Please send investment proposals to:Prospect Energy CorporationJohn BarryChairman and Chief Executive Officerjbarry@prospectstreet.comGrier EliasekPresident and Chief Operating Officergrier@prospectstreet.comTelephone (212) 448-0702