NEW YORK, NY — (MARKET WIRE) — 12/27/04 — Prospect Energy Corporation (NASDAQ: PSEC)(the “Company”) announced today that its portfolio investment Gas SolutionsII Ltd. (“Gas Solutions”) has closed a senior secured loan of $12.5 millionfrom First American Bank, SSB (“FAB”). The loan bears interest at LIBORplus 225 basis points, matures in 2010, begins straightline quarterlyamortization payments June 30, 2005, and benefits from standard covenantprotection for a loan of this type. The loan agreement and any othermaterial contracts will be filed with the Company’s next 10-Q.
Gas Solutions used $9.3 million of the proceeds of the loan to repay debtowed to the Company. The Company’s investment in Gas Solutions now standsat $5.3 million of equity and $18.4 million of second-lien secured debt.In connection with this refinancing, the Company has provided certainlimited assurances to FAB with respect to potential legal claims that mightor could be asserted by certain third parties; these assurances are backedby segregated funds in the Company’s custody account aggregatingapproximately $12.85 million. These funds are to be released after theearlier of (1) dismissal of such claims, should any be made, or (2) 91 daysafter the FAB loan is refinanced or otherwise repaid.
As previously disclosed, on December 6, 2004, Dallas Gas Partners, LP(“DGP”) served the Company with a complaint filed November 30, 2004, in theUnited States District Court for the Southern District of Texas inGalveston. The Company believes that the DGP complaint is frivolous andwithout merit. DGP alleges that DGP was fraudulently induced to sign anagreement with the Company, that the Company breached an alleged fiduciaryduty to DGP, and that the Company tortiously interfered with DGP’s contractwith Gas Solutions in connection with the Company’s agreement with DGP.DGP alleges it is the successor to MNW Acquisition, LP (“MNW”), with whomthe Company entered into two agreements. The first agreement, a letter ofintent dated September 3, 2004, under which Prospect proposed to providefinancing to MNW, was subject to Prospect’s due diligence in its solediscretion. Under the second agreement, on September 24, 2004, anaffiliate of the Company acquired MNW’s rights to purchase Gas Solutions,the Company paid DGP and affiliates more than $3 million, and each of theprincipals of the predecessor general partner of DGP, constituting what weunderstand to be all of the management and ownership interests in suchpredecessor, and all of the limited partners of DGP, executed a release,forever discharging the Company from any and all claims in connection withthe Company’s agreements with DGP. On December 20, 2004, the Company fileda motion to dismiss, an answer, and counterclaim to the DGP complaint,denying all of DGP’s material claims. The Company intends to defend itselfagainst DGP’s claims and prosecute the Company’s counterclaims vigorously.While the Company is confident of its defenses, the Company recognizes thatthe results of litigation are inherently uncertain and unpredictable and,as a result, the Company can offer no assurances with respect to anyultimate outcome with respect to this matter.
Concluding a thorough screening process, the Company has identified acandidate for chief financial officer and plans to announce an appointmentwithin the next two weeks. The Company’s chief financial and complianceofficer was placed on administrative leave as of December 23, 2004. Thecompany expects to engage an outsourced compliance consulting firm toprovide compliance-related services.
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.
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