NEW YORK, NY — (MARKET WIRE) — 05/13/05 — Prospect Energy Corporation (NASDAQ: PSEC)(“Prospect Energy,” “the Company” or “we”) today announced financialresults for its third fiscal quarter ended March 31, 2005. Amounts areexpressed in thousands except per share amounts. PSEC commenced operationson July 30, 2004 after closing its initial public offering of 7,000 sharesof common stock at $15.00 per share (with a subsequent greenshoe sale of 55shares). After deducting underwriting discounts, commissions and offeringexpenses, PSEC received net proceeds of $96,962. At March 31, 2005, our netasset value was $13.74 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.
As previously disclosed, our Board of Directors has approved a dividend of$0.15 per share to holders of record on June 10, payable on June 30, 2005,an increase of $0.025 from the prior quarter’s dividend of $0.125 pershare, and the third consecutive quarterly increase. Our annualized bookdividend yield is currently approximately 4.4%.
THIRD FISCAL QUARTER HIGHLIGHTS
Stockholders' equity: $96,927Net asset value per share: $13.74Market value per share: $12.90Market value discount to net asset value: 6.1%Net increase in stockholders' equity from operations: $858Net investment income: $444Net realized and unrealized gains: $414Dividends paid to stockholders: $0.125 per share
PORTFOLIO AND INVESTMENT ACTIVITY
We completed our third quarter, which was our second full quarter sincecompletion of our initial public offering, on March 31, 2005, with ourportfolio invested approximately $31,051 in three long-term investments,including Gas Solutions, a gas gathering and processing business, and theremainder in cash and short-term instruments.
During the quarter ended March 31, 2005, we completed two new investmentstotaling approximately $7,900 in Unity Virginia Holdings LLC and NaturalGas Systems, Inc.
On January 31, 2005, we provided $3,900 in financing to Unity VirginiaHoldings LLC (“UVH”). The UVH financing is comprised of two facilities:$3,300 in secured subordinated debt and $585 in redeemable preferred stock.UVH is a coal mining company located near Norton, Virginia, owned by theprincipals of Unity Platform LLC (“Unity”), a Dallas-based coal managementand private investment firm with interests in operating US coal mines. Inaddition to $1,500 in common equity from Unity and financing from Prospect,Plains Capital Bank of Dallas provided senior secured financing totaling$4,500. Capital from the transaction is being utilized to support UVH’sacquisition and development of certain assets of Appalachian Resources,Inc. (“ARI”), including approximately 6,800 acres of mineral reserves whichcontain 11,000,000 estimated tons of coal, as well as a coal preparationplant and load-out facility on the Norfolk & Southern Railway. ARI hadbeen in bankruptcy since early 2004 when the owners of ARI encountereddifficulty developing the property. We understand that those difficultiesstemmed largely from lack of access to capital and financing. UVH isactively pursuing its business plan and has made satisfactory progressduring the first three months, including construction of a new operatingplatform. The preparation plant and material handling facilities are nowfully operational and coal is being processed and shipped. Saleablequantities of metallurgical coal are expected to be mined and marketedduring May. The demand and pricing features in both domestic and exportmarkets continue to present strong margin opportunities.
On February 3, 2005, we agreed to provide up to $4,800 of senior secureddebt financing to Natural Gas Systems, Inc. (OTC BB: NGSY) (“NGS”), an oiland gas production company based in Houston, Texas. An initial investmentof $3,000 was made at that time and a further $1,000 was invested on March16, 2005. PSEC also received a total of 600 non-revocable warrants and 400revocable warrants with an exercise price of $0.75 cents per share, whichis below where NGS has recently traded. NGS acquires and develops oil andgas fields, applying both conventional and specialized technology toaccelerate production and develop incremental reserves in those fields.NGS owns 100% working interests in the Delhi and Tullos Urania fields incentral and northern Louisiana, which encompass a series of producing oiland gas wells plus opportunities for development of shut-in wells and newwell drilling.
Since March 31, 2005, we have completed three new investments totalingapproximately $17,800 in Stryker Energy II, LLC, a gas production business,Whymore Coal Company, a coal production business, and Miller Petroleum,Inc., an oil and gas production business. At the present time, we estimatewe are generating an annualized cash debt yield of approximately 14% andtotal cash yield in excess of 18% across our total long-term debt andequity capital. This cash yield includes interest from all of our sixlong-term investments and dividends from Gas Solutions. Monetization of ordividends from any other equity positions that we hold is not included inthis yield estimation.
To date, we have invested approximately 51% of our initial equity capitalin long-term investments. Accordingly, the Company has recently initiateddiscussions with providers of commercial credit with respect to asyndicated commercial credit facility which, together with other borrowings(which may include reverse repos and similar transactions), may be used inthe future to leverage the Company’s capital.
PERSONNEL
As previously disclosed, William E. Vastardis, in addition to his role asthe Company’s Chief Compliance Officer, has been retained to serve as ChiefFinancial Officer effective April 30. Eugene S. Stark, our prior CFO, hasaccepted a more senior position at another investment management firm.
Mr. Vastardis is Co-CEO of EOS Compliance Services LLC and President of EOSFund Services LLC (collectively, “EOS”). Mr. Vastardis will execute the CFOfunctions with the support of his team of 16 professionals at EOS. Mr.Vastardis and the EOS companies perform various fund administrationservices for registered investment companies, registered investmentadvisors and other institutions with total assets in excess of $23 billion.Prospect selected Mr. Vastardis and EOS based on EOS’ reputation and basedon Prospect’s experience with Mr. Vastardis in the role of PSEC ChiefCompliance Officer, a position he has held since January 4, 2005.
William E. Vastardis, in addition to the roles of Co-Chief ExecutiveOfficer of EOS Compliance Services LLC, President of EOS Fund Services LLC,and Chief Compliance Officer of Prospect Energy Corporation, is also theChief Compliance Officer of Prospect Capital Management, LLC, the Company’sinvestment adviser. He also serves as Chief Financial Officer of ProspectAdministration, LLC, effective April 30, 2005. The Company and ProspectAdministration have each contracted with EOS Fund Services LLC for Mr.Vastardis’ services as Chief Financial Officer, as well as for otherfinancially related services that may be provided by EOS Fund Services LLC.The Company believes that expanding its relationships with EOS will helpthe company effect cost savings and efficiencies. Mr. Vastardis willcontinue to perform his other duties for EOS Compliance Services LLC andEOS Fund Services LLC.
Mr. Vastardis (age 49) is a founder and President of EOS Fund Services LLCand Co-Chief Executive Officer of EOS Compliance Services LLC. Mr.Vastardis has over 26 years of experience in fund oversight andadministration. Mr. Vastardis founded EOS Fund Services LLC in 2003 and EOSCompliance Services LLC in June 2004. The EOS group of companies performschief compliance officer and fund administration services for variousregistered mutual funds, registered investment advisers and otherinstitutions with total assets in excess of $23 billion. Prior to foundingEOS Fund Services LLC, Mr. Vastardis managed a third-party fundadministration firm, AMT Capital Services Inc., which was acquired byInvestors Bank & Trust Company in 1998. Mr. Vastardis continued in the roleof Managing Director at the renamed Investors Capital Services until hedeparted to found EOS Fund Services LLC. Prior to starting AMT Capital, Mr.Vastardis spent 14 years at The Vanguard Group, where he most recentlyserved as Vice President in charge of the $10 billion Private Label Groupthat handled the administration of over 45 outside funds. Mr. Vastardis isa graduate of Villanova University.
OPERATING RESULTS
Investment income, which consists of interest income and dividend income,was $1,788 for the three months ended March 31, 2005 and $5,000 for thenine months ended March 31, 2005. Interest income increased by 3%quarter-over-quarter as a result of interest received from two additionalportfolio investments in UVH and NGS made during the quarter and describedearlier. A decline in dividend income from Gas Solutions is the result offour factors. First, the prior fiscal quarter’s dividend from GasSolutions was based upon a four-month period (the effective date of PSEC’sacquisition of the equity of Gas Solutions was September 2, 2004 and theDecember 2004 dividend from Gas Solutions to PSEC therefore covered theperiod from that date through December 31, 2004) versus a three monthperiod during the current quarter. Second, gas processing volumestypically experience a seasonal decline during the winter months due to theimpact of cold weather upon the processing speed of the gas. Third,pricing was generally softer than that experienced during the prior fiscalquarter. Fourth, Gas Solutions made capital expenditures of approximately$2,250 to maintain and expand gas processing volumes, which decreased theimmediate cash available for distribution. The remaining investment incomeduring the three and nine months ended March 31, 2005 was generatedprimarily from investments in short-term U.S. Treasury bills and cashequivalents.
Operating expenses were $1,344 for the three months ended March 31, 2005and $3,762 for the nine months ended December 31, 2004. These expensesconsisted of investment advisory and administrative services fees,professional fees, insurance expenses, directors’ fees and other generaland administrative expenses. The base investment advisory fee was $485 forthe three months ended March 31, 2005 and $1,317 for the nine months endedMarch 31, 2005. No incentive fee has yet been incurred pursuant to theInvestment Advisory Agreement. Administrative services fees incurred underthe Administration Agreement were $126 for the three months ended March 31,2005 and $295 for the nine months ended March 31, 2005. Legal andprofessional fees were higher during the three months and nine months endedMarch 31, 2005 than we would expect in future periods due to the occurrenceof certain items and their associated costs which we would not expect tooccur at this level in the future. These items include consultation andpreparation of initial corporate documents including the initial Form 10-Qand compliance and procedural manuals, costs associated with an internalinvestigation, tax compliance consultation and analysis, Sarbanes-Oxley Actof 2002 related matters, litigation-related costs and the costs of hiringpersonnel.
Prospect Energy’s net investment income was $444 for the three months endedMarch 31, 2005 and $1,238 for the nine months ended March 31, 2005. Netinvestment income represents the difference between investment income andoperating expenses and is directly impacted by the items described above.Net unrealized appreciation increased by $414 during the three and ninemonths ended March 31, 2005 as a result of a reduction in the cost basis ofour investment in Gas Solutions. The reduction in cost basis resulted fromlower actual versus estimated acquisition costs relating to Gas Solutionswhich did not impact the overall fair market value of our investment. Netincrease in stockholders’ equity resulting from operations represents thesum of the returns generated from net investment income and from unrealizedappreciation.
CONFERENCE CALL
The Company will host a conference call for the fiscal quarter ended March31, 2005, at approximately 12:00 p.m. (Eastern Time), Friday, May 13, 2005.The conference call dial-in number will be 1-877-407-8031. A recording ofthe conference call will be available for approximately 7 days. To hear areplay, call 1-877-660-6853 and use Playback Account # 286 and PlaybackConference ID # 151087.
BALANCE SHEETS (UNAUDITED) March 31, June 30, 2005 2004 ------------ ------------AssetsCash held in segregated account $ 12,848 $ 1Investments, at value (cost - $84,947) 85,361Accrued interest receivable 94Prepaid expenses 143 ------------ ------------Total assets $ 98,446 $ 1 ============ ============LiabilitiesAccounts payable $ 850Accrued liabilities 224Due to Investment Adviser 319 $ 100Due to Prospect Administration 48Other current liabilities 78 ------------ ------------Total liabilities 1,519 100 ------------ ------------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 96,955 1Overdistributed net investment income/(loss) (449) (100)Net unrealized appreciation 414 ------------ ------------Total stockholders' equity 96,927 (99) ------------ ------------Total liabilities and stockholders' equity $ 98,446 $ 1 ============ ============STATEMENTS OF OPERATIONS (UNAUDITED) Three months ended Nine months ended March 31, 2005March 31, 2005 -------------- --------------Investment IncomeInterest income $ 1,288 $ 2,800Dividend income 500 2,200 -------------- --------------Total investment income 1,788 5,000 -------------- --------------Operating ExpensesInvestment advisory fee 485 1,317Administration costs 126 295Legal and professional fees 574 1,718Insurance expense 89 237Directors fees $ 55 $ 147General and administrative expenses 15 48 -------------- --------------Total operating expenses 1,344 3,762 -------------- --------------Net investment income 444 1,238Net unrealized appreciation 414 414 -------------- --------------Net increase in stockholders' equity resulting from operations $ 858 $ 1,652 ============== ==============Basic net increase in stockholders' equity per common share resulting from operations $ 0.12 $ 0.22PER SHARE DATA (UNAUDITED) For the three For the nine months ended months ended March 31, 2005March 31, 2005 -------------- --------------Net asset value, beginning of period $ 13.74 $ (.01)Proceeds from initial public offering - 13.95Costs related to the initial public offering - (.21)Net investment income 0.06 0.17Net unrealized appreciation 0.06 0.07Dividend declared and paid (.12) (.22) -------------- --------------Net asset value at end of period $ 13.74 $ 13.74 -------------- --------------
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.comMain (212) 448-0702