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5 months ago
Prospect Capital Announces September 2023 Financial Results and Declares Steady Monthly Dividends through January 2024 of $0.06 Per Common Share
Source: GlobeNewswire Inc.
Prospect Capital Corporation (NASDAQ: PSEC) (“Prospect”, “our”, or “we”) today announced financial results for our fiscal quarter ended September 30, 2023.
FINANCIAL RESULTS
All amounts in $000’s except
per share amounts (on weighted average
basis for period numbers)
Quarter Ended Quarter Ended Quarter Ended
September 30, 2023 June 30, 2023 September 30, 2022
Net Investment Income (“NII”) $125,612 $112,779 $99,266
Basic NII per Common Share(1) $0.25 $0.23 $0.22
Interest as % of Total Investment Income 85.7% 89.1% 86.0%
Basic NII Coverage of Distributions to Common Shareholders 139% 128% 122%
Annualized Basic NII Return on Common NAV 10.8% 10.0% 8.8%
Net Income (Loss) Applicable to Common Shareholders $94,011 $(13,950) $(105,199)
Basic Net Income (Loss) per Common Share(2) $0.23 $(0.03) $(0.27)
Distributions to Common Shareholders $73,252 $72,490 $71,072
Distributions per Common Share $0.18 $0.18 $0.18
Since Oct 2017 Basic NII per Common Share(1) $4.89 $4.63 $3.97
Since Oct 2017 Distributions per Common Share $4.32 $4.14 $3.60
Since Oct 2017 Basic NII Less Distributions per Common Share $0.57 $0.49 $0.37
Since Oct 2017 Basic NII Coverage of Distributions to Common Shareholders 113% 112% 110%
Net Asset Value (“NAV”) to Common Shareholders $3,780,866 $3,732,665 $3,964,422
NAV per Common Share $9.25 $9.24 $10.01
Balance Sheet Cash + Undrawn Revolving Credit Facility Commitments $1,108,386 $993,443 $877,548
Net of Cash Debt to Equity Ratio(3) 46.5% 48.8% 53.5%
Net of Cash Asset Coverage of Debt Ratio(3) 314% 304% 286%
Unsecured Debt + Preferred Equity as % of Total Debt + Preferred Equity 77.0% 74.8% 77.9%
Unsecured or Non-Recourse Debt as % of Total Debt 100.0% 100.0% 100.0%
(1) Basic NII is calculated by dividing NII, less preferred dividends, by the weighted average number of common shares outstanding.
(2) Basic Net Income (Loss) is calculated by dividing Net Income (Loss) by the weighted average number of common shares outstanding.
(3) Including our preferred stock as equity.
CASH COMMON SHAREHOLDER DISTRIBUTION DECLARATION
Prospect is declaring distributions to common shareholders as follows:
Monthly Cash Common Shareholder Distribution Record Date Payment Date Amount ($ per share)
November 2023 11/28/2023 12/19/2023 $0.0600
December 2023 12/27/2023 1/18/2024 $0.0600
January 2024 1/29/2024 2/20/2024 $0.0600
These monthly cash distributions are the 75th, 76th, and 77th consecutive $0.06 per share distributions to common shareholders. Prospect's objective is to maintain or increase such distributions per common share over time.
Prospect expects to declare February 2024, March 2024, and April 2024 distributions to common shareholders in February 2024.
Based on the declarations above, Prospect’s closing stock price of $5.35 at November 7, 2023 delivers to our common shareholders an annualized distribution yield of 13.5% and an annualized basic NII yield of 18.7%, representing 139% basic NII coverage of common distributions.
Taking into account past distributions and our current share count for declared distributions, since inception through our January 2024 declared distribution, Prospect will have distributed $20.58 per share to original common shareholders, representing 2.2 times September 2023 common NAV per share, aggregating approximately $4.10 billion in cumulative distributions to all common shareholders.
Since inception in 2004, Prospect has invested $20.4 billion across 419 investments, exiting 283 of these investments.
Since October 2017, our NII per common share has aggregated $4.89 while our common shareholder and preferred shareholder distributions per common share have aggregated $4.32, with our NII exceeding common and preferred distributions during this period by $0.57 per common share and representing 113% coverage.
Drivers focused on enhancing accretive NII per share growth include (1) our $2.05 billion targeted 6.50% perpetual preferred stock offerings, (2) greater utilization of our cost efficient revolving floating rate credit facility, (3) increase of short-term SOFR rates based on Fed tightening to boost asset yields, (4) optimization of portfolio company performance, and (5) increased primary and secondary originations of senior secured debt and selected equity investments targeting attractive risk-adjusted yields and total returns as we deploy dry powder from our underleveraged balance sheet.
Our senior management team and employees own over 27% of all common shares outstanding, over $1.0 billion of our common equity as measured at NAV.
CASH PREFERRED SHAREHOLDER DISTRIBUTION DECLARATION
Prospect is declaring monthly distributions to 5.50% preferred shareholders at an annual rate of 5.50% of the stated value of $25.00 per share, from the date of issuance or, if later, from the most recent dividend payment date (the first business day of the month, with no additional dividend accruing in January as a result), as follows:
Monthly Cash 5.50% Preferred Shareholder Distribution Record Date Payment Date Monthly Amount ($ per share), before pro ration for partial periods
December 2023 12/20/2023 1/2/2024 $0.114583
January 2024 1/17/2024 2/1/2024 $0.114583
February 2024 2/21/2024 3/1/2024 $0.114583
Prospect is declaring monthly distributions to 6.50% preferred shareholders at an annual rate of 6.50% of the stated value of $25.00 per share, from the date of issuance or, if later, from the most recent dividend payment date (the first business day of the month, with no additional dividend accruing in January as a result), as follows:
Monthly Cash 6.50% Preferred Shareholder Distribution Record Date Payment Date Monthly Amount ($ per share), before pro ration for partial periods
December 2023 12/20/2023 1/2/2024 $0.135417
January 2024 1/17/2024 2/1/2024 $0.135417
February 2024 2/21/2024 3/1/2024 $0.135417
Prospect is declaring our quarterly distribution to Series A preferred shareholders at an annual rate of 5.35% of the stated value of $25.00 per share, from the date of issuance or, if later, from the most recent dividend payment date, as follows:
Quarterly Cash 5.35% Preferred Shareholder Distribution Record Date Payment Date Amount ($ per share)
November 2023 - January 2024 1/17/2024 2/1/2024 $0.334375
PORTFOLIO UPDATE AND INVESTMENT ACTIVITY
All amounts in $000’s except
per unit amounts
As of As of As of
September 30, 2023 June 30, 2023 September 30, 2022
Total Investments (at fair value) $7,736,817 $7,724,931 $7,582,665
Number of Portfolio Companies 128 130 128
First Lien Debt 57.3% 56.5% 51.8%
Second Lien Debt 15.9% 16.4% 19.0%
Subordinated Structured Notes 8.1% 8.6% 9.2%
Unsecured Debt 0.1% 0.1% 0.1%
Equity Investments 18.6% 18.4% 19.9%
Mix of Investments with Underlying Collateral Security 81.3% 81.5% 80.0%
Annualized Current Yield – All Investments 10.3% 10.7% 9.9%
Annualized Current Yield – Performing Interest Bearing Investments 12.7% 13.3% 12.4%
Top Industry Concentration(1) 18.2% 18.6% 18.6%
Retail Industry Concentration(1) 0.3% 0.3% 0.4%
Energy Industry Concentration(1) 1.6% 1.6% 1.6%
Hotels, Restaurants & Leisure Concentration(1) 0.3% 0.3% 0.3%
Non-Accrual Loans as % of Total Assets (2) 0.2% 1.1% 0.3%
Middle-Market Loan Portfolio Company Weighted Average EBITDA(3) $111,026 $113,071 $114,238
Middle-Market Loan Portfolio Company Weighted Average Net Leverage Ratio(3) 5.3x 5.2x 5.3x
(1) Excluding our underlying industry-diversified structured credit portfolio.
(2) Calculated at fair value.
(3) For additional disclosure see “Middle-Market Loan Portfolio Company Weighted Average EBITDA and Net Leverage” at the end of this release.
During the December 2023 (to date), September 2023, and June 2023 quarters, investment originations and repayments were as follows:
All amounts in $000’s
Quarter Ended Quarter Ended Quarter Ended
December 31, 2023 (to date) September 30, 2023 June 30, 2023
Total Originations $57,160 $131,074 $372,236
Real Estate 53.5% 48.5% 18.1%
Structured Notes 24.5% —% 2.7%
Middle-Market Lending 22.0% 40.6% 69.0%
Middle-Market Lending / Buyout —% 10.9% 10.2%
Total Repayments and Sales $1,723 $93,646 $121,745
Originations, Net of Repayments and Sales $55,437 $37,428 $250,491
For additional disclosure see “Primary Origination Strategies” at the end of this release.
We have invested in subordinated structured notes benefiting from individual standalone financings non-recourse to Prospect, with our risk limited in each case to our net investment. At September 30, 2023 and June 30, 2023, our subordinated structured note portfolio at fair value consisted of the following:
All amounts in $000’s except
per unit amounts
As of As of
September 30, 2023 June 30, 2023
Total Subordinated Structured Notes $626,746 $665,002
Subordinated Structured Notes as % of Portfolio 8.1% 8.6%
# of Investments(2) 33 35
TTM Average Cash Yield(1)(2) 17.5% 16.1
Annualized GAAP Yield on Fair Value(1)(2) 10.7% 12.8
Cumulative Cash Distributions on Current Portfolio $1,422,537 $1,460,824
% of Original Investment 116.2% 112.7%
# of Underlying Collateral Loans 1,593 1,613
(1) Calculation based on fair value.
(2) Excludes investments being redeemed.
To date we have exited 15 subordinated structured notes with an expected pooled average realized gross IRR of 12.0% and cash on cash multiple of 1.3 times.
CAPITAL AND LIQUIDITY
Our multi-year, long-term laddered and diversified historical funding profile has included a $1.95 billion revolving credit facility (with 53 lenders, an increase of 11 lenders including our prior September 2022 extension and related upsizing), program notes, institutional bonds, convertible bonds, listed preferred stock, and program preferred stock. We have retired multiple upcoming maturities and, as of today, we have $81.24M of debt maturing during the calendar year 2024, which we intend to repay at maturity using credit facility and preferred stock proceeds. The combined amount of our balance sheet cash and undrawn revolving credit facility commitments is currently approximately $968 million.
On September 15, 2022, we completed an amendment and upsizing of our existing revolving credit facility (the “Facility”) for Prospect Capital Funding, extending the term 1.5 years. The Facility includes a revolving period that extends through September 15, 2026, followed by an additional one-year amortization period. Pricing for amounts drawn under the Facility is one-month SOFR plus 2.05%.
Our total unfunded eligible commitments to portfolio companies totals approximately $27 million, 0.3% of our total assets as of September 30, 2023.
As of As of
All amounts in $000’s September 30, 2023 June 30, 2023
Net of Cash Debt to Equity Ratio(1) 46.5% 48.8%
% of Interest-Bearing Assets at Floating Rates 83.4% 84.7%
% of Fixed Rate Debt & Preferred Equity 77.0% 74.8%
Balance Sheet Cash + Undrawn Revolving Credit Facility Commitments $1,108,386 $993,443
Unencumbered Assets $4,807,645 $4,757,653
% of Total Assets 61.2% 60.5%
(1) Including our preferred stock as equity.
The below table summarizes our September 2023 quarter term debt issuance and repurchase/repayment activity:
All amounts in $000’s Principal Coupon Maturity
Debt Issuances
Prospect Capital InterNotes® $3,976 5.75% - 6.50% July 2026 – September 2043
Total Debt Issuances $3,976
Debt Repurchases/Repayments
Prospect Capital InterNotes® $3,247 2.75% - 5.50% February 2026 – March 2052
Total Debt Repurchases/Repayments $3,247
Net Debt Repurchases/Repayments $729
We currently have five separate unsecured debt issuances aggregating over $1.2 billion outstanding, not including our program notes, with laddered maturities extending through October 2028. At September 30, 2023, $358.8 million of program notes were outstanding with laddered maturities through March 2052.
At September 30, 2023, our weighted average cost of unsecured debt financing was 4.08%, an increase of 0.01% from June 30, 2023, and a decrease of 0.25% from September 30, 2022.
On August 3, 2020 and October 3, 2020, we launched our $1.75 billion 5.50% perpetual preferred stock offering programs. On October 7, 2022, we amended our existing $1.75 billion in perpetual preferred stock offering programs to offer new 6.50% series of shares. On February 10, 2023, we upsized our existing $1.75 billion total offerings to $2.05 billion. Prospect expects to use the net proceeds from the offering programs to maintain and enhance balance sheet liquidity, including repaying our credit facility and purchasing high quality short-term debt instruments, and to make long-term investments in accordance with our investment objective. The preferred stock provides Prospect with a diversified source of accretive fixed-rate capital without creating maturity risk due to the perpetual term. To date we have issued over $1.5 billion of our 6.50% and 5.50% perpetual preferred stock programs (including $80 million in the September 2023 quarter and, to date, $32 million in the current December 2023 quarter).
On July 19, 2021, we closed a $150 million listed 5.35% perpetual preferred stock offering. Prospect used the net proceeds from the offering to maintain and enhance balance sheet liquidity, including repaying our credit facility and redeeming higher cost program notes.
In connection with our 5.50% and 6.50% perpetual preferred stock offering programs we have adopted and amended a Preferred Stock Dividend Reinvestment Plan, pursuant to which holders of the preferred stock will have dividends on their preferred stock automatically reinvested in additional shares of such preferred stock at a 5% discount to the stated value per share of $25.00, if they elect.
We currently have over $1.6 billion in preferred stock outstanding.
Prospect holds recently reaffirmed investment grade company ratings, all with a stable outlook, from Standard & Poor’s (BBB-), Moody’s (Baa3), Kroll (BBB-), Egan-Jones (BBB), and DBRS (BBB (low)). Maintaining our investment grade ratings with prudent asset, liability, and risk management is an important objective for Prospect.
DIVIDEND REINVESTMENT PLAN
We have adopted a dividend reinvestment plan (also known as our “DRIP”) that provides for reinvestment of our distributions on behalf of our shareholders, unless a shareholder elects to receive cash. On April 17, 2020, our board of directors approved amendments to the Company’s DRIP, effective May 21, 2020. These amendments principally provide for the number of newly-issued shares pursuant to the DRIP to be determined by dividing (i) the total dollar amount of the distribution payable by (ii) 95% of the closing market price per share of our stock on the valuation date of the distribution (providing a 5% discount to the market price of our common stock), a benefit to shareholders who participate.
HOW TO PARTICIPATE IN OUR DIVIDEND REINVESTMENT PLAN
Shares held with a broker or financial institution
Many shareholders have been automatically “opted out” of our DRIP by their brokers. Even if you have elected to automatically reinvest your PSEC stock with your broker, your broker may have “opted out” of our DRIP (which utilizes DTC’s dividend reinvestment service), and you may therefore not be receiving the 5% pricing discount. Shareholders interested in participating in our DRIP to receive the 5% discount should contact their brokers to make sure each such DRIP participation election has been made through DTC. In making such DRIP election, each shareholder should specify to one’s broker the desire to participate in the "Prospect Capital Corporation DRIP through DTC" that issues shares based on 95% of the market price (a 5% discount to the market price) and not the broker's own "synthetic DRIP” plan (if any) that offers no such discount. Each shareholder should not assume one’s broker will automatically place such shareholder in our DRIP through DTC. Each shareholder will need to make this election proactively with one’s broker or risk not receiving the 5% discount. Each shareholder may also consult with a representative of such shareholder’s broker to request that the number of shares the shareholder wishes to enroll in our DRIP be re-registered by the broker in the shareholder’s own name as record owner in order to participate directly in our DRIP.
Shares registered directly with our transfer agent
If a shareholder holds shares registered in the shareholder’s own name with our transfer agent (less than 0.1% of our shareholders hold shares this way) and wants to make a change to how the shareholder receives dividends, please contact our plan administrator, American Stock Transfer and Trust Company LLC by calling (888) 888-0313 or by mailing American Stock Transfer and Trust Company LLC, 6201 15th Avenue, Brooklyn, New York 11219.
EARNINGS CONFERENCE CALL
Prospect will host an earnings call on Thursday November 9, 2023 at 10:30 a.m. Eastern Time. Dial 888-338-7333. For a replay prior to December 9, 2023 visit www.prospectstreet.com or call 877-344-7529 with passcode 3766732.
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES
(in thousands, except share and per share data)
September 30, 2023
June 30, 2023
(Unaudited)
Assets
Investments at fair value:
Control investments (amortized cost of $3,060,201 and $2,988,496, respectively) $ 3,625,608 $ 3,571,697
Affiliate investments (amortized cost of $10,162 and $8,855, respectively) 12,541 10,397
Non-control/non-affiliate investments (amortized cost of $4,543,490 and $4,803,245, respectively) 4,098,668 4,142,837
Total investments at fair value (amortized cost of $7,613,853 and $7,800,596, respectively) 7,736,817 7,724,931
Cash and Cash Equivalents (restricted cash of $4,575 and $5,074, respectively) 68,907 95,646
Receivables for:
Interest, net 30,796 22,701
Other 1,057 1,051
Deferred financing costs on Revolving Credit Facility 14,906 15,569
Due from broker 435 617
Prepaid expenses 893 1,149
Due from Affiliate 17 2
Total Assets 7,853,828 7,861,666
Liabilities
Revolving Credit Facility 915,021 1,014,703
Public Notes (less unamortized discount and debt issuance costs of $15,929 and $17,103, respectively) 1,065,311 1,064,137
Prospect Capital InterNotes® (less unamortized debt issuance costs of $6,510 and $6,688, respectively) 352,324 351,417
Convertible Notes (less unamortized discount and debt issuance costs of $1,350 and $1,577, respectively) 154,818 154,591
Due to Prospect Capital Management 64,906 61,651
Dividends payable 24,798 31,033
Interest payable 20,303 22,684
Accrued expenses 3,590 4,926
Due to Prospect Administration 1,521 4,066
Due to broker 16 94
Due to Affiliate — 161
Other liabilities 107 1,524
Total Liabilities 2,602,715 2,710,987
Commitments and Contingencies
Preferred Stock, par value $0.001 per share (447,900,000 and 447,900,000 shares of preferred stock authorized, with 72,000,000 and 72,000,000 as Series A1, 72,000,000 and 72,000,000 as Series M1, 72,000,000 and 72,000,000 as Series M2, 20,000,000 and 20,000,000 as Series AA1, 20,000,000 and 20,000,000 as Series MM1, 1,000,000 and 1,000,000 as Series A2, 6,900,000 and 6,900,000 as Series A, 72,000,000 and 72,000,000 as Series A3, 72,000,000 and 72,000,000 as Series M3, 20,000,000 and 20,000,000 as Series AA2, and 20,000,000 and 20,000,000 as Series MM2, each as of September 30, 2023 and June 30, 2023; 30,780,669 and 30,965,138 Series A1 shares issued and outstanding; 3,155,352 and 3,681,591 Series M1 shares issued and outstanding; 0 and 0 Series M2 shares issued and outstanding; 0 and 0 Series AA1 shares issued and outstanding; 0 and 0 Series MM1 shares issued and outstanding; 164,000 and 164,000 Series A2 shares issued and outstanding; 5,900,345 and 5,962,654 Series A shares issued and outstanding; 21,611,105 and 18,829,837 Series A3 shares issued and outstanding; 2,882,254 and 2,498,788 Series M3 shares issued and outstanding; 0 and 0 Series AA2 shares issued and outstanding; and 0 and 0 Series MM2 shares issued and outstanding as of September 30, 2023 and June 30, 2023, respectively) at carrying value plus cumulative accrued and unpaid dividends. 1,470,247 1,418,014
Net Assets Applicable to Common Shares $ 3,780,866 $ 3,732,665
Components of Net Assets Applicable to Common Shares and Net Assets, respectively
Common stock, par value $0.001 per share (1,552,100,000 and 1,552,100,000 common shares authorized; 408,618,704 and 404,033,549 issued and outstanding, respectively) 409 404
Paid-in capital in excess of par 4,151,023 4,123,586
Total distributable (loss) earnings (370,566 ) (391,325 )
Net Assets Applicable to Common Shares $ 3,780,866 $ 3,732,665
Net Asset Value Per Common Share $ 9.25 $ 9.24
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
(Unaudited)
Three Months Ended September 30,
2023 2022
Investment Income
Interest income:
Control investments $ 73,243 $ 62,263
Affiliate investments — 7,461
Non-control/non-affiliate investments 112,517 81,698
Structured credit securities 16,687 22,896
Total interest income 202,447 174,318
Dividend income:
Control investments 227 1,187
Affiliate investments 1,307 1,374
Non-control/non-affiliate investments 1,525 340
Total dividend income 3,059 2,901
Other income:
Control investments 29,745 20,665
Affiliate investments — 133
Non-control/non-affiliate investments 994 4,657
Total other income 30,739 25,455
Total Investment Income 236,245 202,674
Operating Expenses
Base management fee 39,289 38,314
Income incentive fee 25,617 21,626
Interest and credit facility expenses 40,593 33,870
Allocation of overhead from Prospect Administration 2,113 3,099
Audit, compliance and tax related fees 1,017 2,301
Directors’ fees 135 131
Other general and administrative expenses 1,869 4,067
Total Operating Expenses 110,633 103,408
Net Investment Income 125,612 99,266
Net Realized and Net Change in Unrealized (Losses) Gains from Investments
Net realized losses
Control investments (147 ) (1,093 )
Non-control/non-affiliate investments (207,342 ) (22,084 )
Net realized losses (207,489 ) (23,177 )
Net change in unrealized gains (losses)
Control investments (17,794 ) (47,289 )
Affiliate investments 837 (70,786 )
Non-control/non-affiliate investments 215,586 (50,425 )
Net change in unrealized gains (losses) 198,629 (168,500 )
Net Realized and Net Change in Unrealized Gains (Losses) from Investments (8,860 ) (191,677 )
Net realized losses on extinguishment of debt (91 ) (28 )
Net Increase (Decrease) in Net Assets Resulting from Operations 116,661 (92,439 )
Preferred stock dividend (23,151 ) (12,760 )
Gain on Repurchase of Preferred Stock 501 —
Net Increase (Decrease) in Net Assets Resulting from Operations applicable to Common Stockholders $ 94,011 $ (105,199 )
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
ROLLFORWARD OF NET ASSET VALUE PER COMMON SHARE
(in actual dollars)
Three Months Ended September 30,
2023 2022
Per Share Data
Net asset value per common share at beginning of period $ 9.24 $ 10.48
Net investment income(1) 0.31 0.25
Net realized and change in unrealized gains (losses)(1) (0.02 ) (0.48 )
Net increase (decrease) from operations 0.29 (0.23 )
Distributions of net investment income to preferred stockholders (0.06 ) (3 ) (0.03 )
Distributions of capital gains to preferred stockholders — (3 ) —
Net increase (decrease) from operations applicable to common stockholders(4) 0.23 (0.26 )
Distributions of net investment income to common stockholders (0.18 ) (3 ) (0.16 )
Distributions of capital gains to common stockholders — (3 ) (0.02 )
Common stock transactions(2) (0.04 ) (0.03 )
Net asset value per common share at end of period $ 9.25 $ 10.01
(1) Per share data amount is based on the basic weighted average number of common shares outstanding for the year/period presented (except for dividends to stockholders which is based on actual rate per share). Realized gains (losses) is inclusive of net realized losses (gains) on investments, realized losses from extinguishment of debt and realized gains from the repurchase of preferred stock.
(2) Common stock transactions include the effect of our issuance of common stock in public offerings (net of underwriting and offering costs), shares issued in connection with our common stock dividend reinvestment plan, common shares issued to acquire investments and common shares repurchased below net asset value pursuant to our Repurchase Program, and common shares issued pursuant to the Holder Optional Conversion of our 5.50% and 6.50% Preferred Stock.
(3) Tax character of distributions is not yet finalized for the respective fiscal period.
(4) Diluted net increase from operations applicable to common stockholders was $0.18 for the three months ended September 30, 2023. Diluted net decrease from operations applicable to common stockholders was $0.27 for the three months ended September 30, 2022.
MIDDLE-MARKET LOAN PORTFOLIO COMPANY WEIGHTED AVERAGE EBITDA AND NET LEVERAGE
Middle-Market Loan Portfolio Company Weighted Average Net Leverage (“Middle-Market Portfolio Net Leverage”) and Middle-Market Loan Portfolio Company Weighted Average EBITDA (“Middle-Market Portfolio EBITDA”) provide clarity into the underlying capital structure of PSEC’s middle-market loan portfolio investments and the likelihood that such portfolio will make interest payments and repay principal.
Middle-Market Portfolio Net Leverage reflects the net leverage of each of PSEC’s middle-market loan portfolio company debt investments, weighted based on the current fair market value of such debt investments. The net leverage for each middle-market loan portfolio company is calculated based on PSEC’s investment in the capital structure of such portfolio company, with a maximum limit of 10.0x adjusted EBITDA. This calculation excludes debt subordinate to PSEC’s position within the capital structure because PSEC’s exposure to interest payment and principal repayment risk is limited beyond that point. Additionally, subordinated structured notes, rated secured structured notes, real estate investments, investments for which EBITDA is not available, and equity investments, for which principal repayment is not fixed, are also not included in the calculation. The calculation does not exceed 10.0x adjusted EBITDA for any individual investment because 10.0x captures the highest level of risk to PSEC. Middle-Market Portfolio Net Leverage provides PSEC with some guidance as to PSEC’s exposure to the interest payment and principal repayment risk of PSEC’s middle-market loan portfolio. PSEC monitors its Middle-Market Portfolio Net Leverage on a quarterly basis.
Middle-Market Portfolio EBITDA is used by PSEC to supplement Middle-Market Portfolio Net Leverage and generally indicates a portfolio company’s ability to make interest payments and repay principal. Middle-Market Portfolio EBITDA is calculated using the EBITDA of each of PSEC’s middle-market loan portfolio companies, weighted based on the current fair market value of the related investments. The calculation provides PSEC with insight into profitability and scale of the portfolio companies within PSEC's middle-market loan portfolio.
These calculations include addbacks that are typically negotiated and documented in the applicable investment documents, including but not limited to transaction costs, share-based compensation, management fees, foreign currency translation adjustments, and other nonrecurring transaction expenses.
Together, Middle-Market Portfolio Net Leverage and Middle-Market Portfolio EBITDA assist PSEC in assessing the likelihood that PSEC will timely receive interest and principal payments. However, these calculations are not meant to substitute for an analysis of PSEC’s underlying portfolio company debt investments, but to supplement such analysis.
PRIMARY ORIGINATION STRATEGIES
Lending to Companies - We make directly-originated, agented loans to companies, including companies which are controlled by private equity sponsors and companies that are not controlled by private equity sponsors (such as companies that are controlled by the management team, the founder, a family or public shareholders). This debt can take the form of first lien, second lien, unitranche or unsecured loans. These loans typically have equity subordinate to our loan position. We may also purchase selected equity co-investments in such companies. In addition to directly-originated, agented loans, we also invest in senior and secured loans, syndicated loans and high yield bonds that have been sold to a club or syndicate of buyers, both in the primary and secondary markets. These investments are often purchased with a long term, buy-and-hold outlook, and we often look to provide significant input to the transaction by providing anchoring orders.
Lending to Companies and Purchasing Controlling Equity Positions in Such Companies - This strategy involves purchasing senior and secured yield-producing debt and controlling equity positions in middle-market companies across various industries. We believe this strategy provides enhanced certainty of closing to sellers, and the opportunity for management to continue in their current roles. These investments are often structured in tax-efficient partnerships, enhancing returns.
Purchasing Controlling Equity Positions and Lending to Real Estate Companies - We purchase debt and controlling equity positions in tax-efficient real estate investment trusts (“REIT” or “REITs”). The real estate investments of National Property REIT Corp. (“NPRC”) are in various classes of developed and occupied real estate properties that generate current yields, including multi-family properties, student housing, and senior living. NPRC seeks to identify properties that have historically attractive occupancy rates and recurring cash flow generation. NPRC generally co-invests with established and experienced property management teams that manage such properties after acquisition.
Investing in Structured Credit - We make investments in structured credit, often taking a significant position in subordinated structured notes (equity) and rated secured structured notes (debt). The underlying portfolio of each structured credit investment is diversified across approximately 100 to 200 broadly syndicated loans and does not have direct exposure to real estate, mortgages, or consumer-based credit assets. The structured credit portfolios in which we invest are managed by established collateral management teams with many years of experience in the industry.
ABOUT PROSPECT CAPITAL CORPORATION
Prospect Capital Corporation (www.prospectstreet.com) is a business development company that focuses on lending to and investing in private businesses. Our investment objective is to generate both current income and long-term capital appreciation through debt and equity investments.
We have elected to be treated as a business development company under the Investment Company Act of 1940 (“1940 Act”). We are required to comply with regulatory requirements under the 1940 Act as well as applicable NASDAQ, federal, and state rules and regulations. We have elected to be treated as a regulated investment company under the Internal Revenue Code of 1986.
This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, whose safe harbor for forward-looking statements does not apply to business development companies. Any such statements, other than statements of historical fact, are highly likely to be affected by other unknowable future events and conditions, including elements of the future that are or are not under our control, and that we may or may not have considered; accordingly, such statements cannot be guarantees or assurances of any aspect of future performance. Actual developments and results are highly likely to vary materially from any forward-looking statements. Such statements speak only as of the time when made. We undertake no obligation to update any such statement now or in the future.
For additional information, contact:
Grier Eliasek, President and Chief Operating Officer
grier@prospectcap.com
Telephone (212) 448-0702
Primary Logo
abrooklyn
1 year ago
Prospect Capital Announces December 2022 Results: $0.23 per Common Share Basic Net Investment Income and Stable Monthly $0.06 per Common Share Distributions
Source: GlobeNewswire Inc.
Prospect Capital Corporation (NASDAQ: PSEC) (“Prospect”, “our”, or “we”) today announced financial results for our fiscal quarter ended December 31, 2022.
FINANCIAL RESULTS
All amounts in $000’s except
per share amounts (on weighted average
basis for period numbers) Quarter Ended
December 31, 2022 Quarter Ended
September 30, 2022 Quarter Ended
December 31, 2021
Net Investment Income (“NII”) $106,704 $99,266 $85,557
Basic NII per Common Share(1) $0.23 $0.22 $0.20
Interest as % of Total Investment Income 89.6% 86.0% 81.1%
Basic NII Coverage of Distributions to Common Shareholders 128% 122% 111%
Annualized Basic NII Return on Common NAV 9.3% 8.8% 7.5%
Net Income (Loss) Applicable to Common Stockholders $55,623 $(105,199) $246,411
Basic Net Income (Loss) per Common Share(2) $0.14 $(0.27) $0.63
Distributions to Common Shareholders $71,670 $71,072 $70,240
Distributions per Common Share $0.18 $0.18 $0.18
Since Oct 2017 Basic NII per Common Share(1) $4.20 $3.97 $3.37
Since Oct 2017 Distributions per Common Share $3.78 $3.60 $3.09
Since Oct 2017 Basic NII Less Distributions per Common Share $0.42 $0.37 $0.28
Since Oct 2017 Basic NII Coverage of Distributions to Common Shareholders 111% 110% 109%
Net Asset Value (“NAV”) to Common Shareholders $3,966,391 $3,964,422 $4,140,128
NAV per Common Share $9.94 $10.01 $10.60
Net of Cash Debt to Equity Ratio(3) 49.4% 53.5% 51.3%
Net of Cash Asset Coverage of Debt Ratio(3) 301% 286% 293%
Unsecured Debt as % of Total Debt 71.3% 70.0% 80.3%
Unsecured or Non-Recourse Debt as % of Total Debt 100.0% 100.0% 100.0%
(1) Basic NII is calculated by dividing NII, less preferred dividends, by the weighted average number of common shares outstanding.
(2) Basic Net Income (Loss) is calculated by dividing Net Income (Loss) by the weighted average number of common shares outstanding.
(3) Including our preferred stock as equity.
CASH COMMON SHAREHOLDER DISTRIBUTION DECLARATION
Prospect is declaring distributions to common shareholders as follows:
Monthly Cash Common Shareholder Distribution Record Date Payment Date Amount (per share)
February 2023 2/24/2023 3/22/2023 $0.0600
March 2023 3/29/2023 4/19/2023 $0.0600
April 2023 4/26/2023 5/18/2023 $0.0600
These monthly cash distributions are the 66th, 67th, and 68th consecutive $0.06 per share distributions to common shareholders.
Prospect expects to declare May 2023, June 2023, July 2023, and August 2023 distributions to common shareholders in May 2023.
Based on the declarations above, Prospect’s closing stock price of $7.51 at February 7, 2023 delivers to our common shareholders an annualized distribution yield of 9.6% and an annualized basic NII yield of 12.3%, representing 128% basic NII coverage of common distributions.
Taking into account past distributions and our current share count for declared distributions, since inception through our April 2023 declared distribution, Prospect will have distributed $20.04 per share to original common shareholders, representing 2.0 times December 2022 common NAV, aggregating over $3.87 billion in cumulative distributions to all common shareholders.
Since inception in 2004, Prospect has invested $20 billion across 407 investments, exiting 275 of these investments.
Over the eleven quarters from the pre-pandemic December 2019 quarter to the September 2022 quarter, Prospect delivered the highest growth of net asset value per common share in the business development company industry, with NAV per common share increasing by 15.6% over that time period.
Since October 2017, our NII per common share has aggregated $4.20 while our common shareholder and preferred shareholder distributions per common share have aggregated $3.78, with our NII exceeding common and preferred distributions during this period by $0.42 per common share and representing 111% coverage.
Drivers focused on enhancing accretive NII per share growth include (1) our $1.75 billion targeted 6.50% perpetual preferred stock offerings (which could potentially be increased in capacity in an accretive fashion), (2) greater utilization of our cost efficient revolving credit facility (with an incremental cost of approximately 5.91% at today’s one month SOFR), (3) increase of short-term Libor and SOFR rates based on Fed tightening to boost asset yields, and (4) increased primary and secondary originations of senior secured debt and selected equity investments targeting attractive risk-adjusted yields and total returns as we deploy dry powder from our underleveraged balance sheet.
Our senior management team and employees own approximately 28% of all common shares outstanding, approximately $1.1 billion of our common equity as measured at NAV.
All amounts in $000’s except
per share amounts Six Months Ended
December 31, 2022 Six Months Ended
December 31, 2021
Net Investment Income (“NII”) $205,970 $166,926
Basic NII per Common Share $0.45 $0.40
Net Income Applicable to Common Stockholders $(49,576) $456,135
Basic Net Income per Common Share $(0.13) $1.17
Distributions to Common Shareholders $142,742 $140,283
Distributions per Common Share $0.36 $0.36
CASH PREFERRED SHAREHOLDER DISTRIBUTION DECLARATION
Prospect is declaring monthly distributions to 5.50% preferred shareholders at an annual rate of 5.50% of the stated value of $25.00 per share, from the date of issuance or, if later, from the most recent dividend payment date (the first business day of the month, with no additional dividend accruing in April as a result), as follows:
Monthly Cash 5.50% Preferred Shareholder Distribution Record Date Payment Date Monthly Amount (per share), before pro ration for partial periods
March 2023 3/22/2023 4/3/2023 $0.114583
April 2023 4/19/2023 5/1/2023 $0.114583
May 2023 5/17/2023 6/1/2023 $0.114583
Prospect is declaring monthly distributions to 6.50% preferred shareholders at an annual rate of 6.50% of the stated value of $25.00 per share, from the date of issuance or, if later, from the most recent dividend payment date (the first business day of the month, with no additional dividend accruing in April as a result), as follows:
Monthly Cash 6.50% Preferred Shareholder Distribution Record Date Payment Date Monthly Amount (per share), before pro ration for partial periods
March 2023 3/22/2023 4/3/2023 $0.135417
April 2023 4/19/2023 5/1/2023 $0.135417
May 2023 5/17/2023 6/1/2023 $0.135417
Prospect is declaring our second quarterly distribution to Series A preferred shareholders at an annual rate of 5.35% of the stated value of $25.00 per share, from the date of issuance or, if later, from the most recent dividend payment date, as follows:
Quarterly Cash 5.35% Preferred Shareholder Distribution Record Date Payment Date Amount (per share)
February 2023 - April 2023 4/19/2023 5/1/2023 $0.334375
PORTFOLIO UPDATE AND INVESTMENT ACTIVITY
All amounts in $000’s except
per unit amounts As of
December 31, 2022 As of
September 30, 2022
Total Investments (at fair value) $7,770,336 $7,582,665
Number of Portfolio Companies 130 128
First Lien Debt 53.0% 51.8%
Second Lien Debt 18.5% 19.0%
Subordinated Structured Notes 9.0% 9.2%
Unsecured Debt 0.2% 0.1%
Equity Investments 19.3% 19.9%
Mix of Investments with Underlying Collateral Security 80.5% 80.0%
Annualized Current Yield – All Investments 10.3% 9.9%
Annualized Current Yield – Performing Interest Bearing Investments 12.9% 12.4%
Top Industry Concentration(1) 17.7% 18.6%
Retail Industry Concentration(1) 0.4% 0.4%
Energy Industry Concentration(1) 1.6% 1.6%
Hotels, Restaurants & Leisure Concentration(1) 0.3% 0.3%
Non-Accrual Loans as % of Total Assets (2) 0.5% 0.3%
Middle-Market Loan Portfolio Company Weighted Average EBITDA(3) $111,925 $114,238
As of the quarter ended December 31, 2022, our middle-market loan portfolio company weighted average net debt leverage ratio was 5.41x.(3)
(1) Excluding our underlying industry-diversified structured credit portfolio.
(2) Calculated at fair value.
(3) For additional disclosure see “Middle-Market Loan Portfolio Company Weighted Average EBITDA and Net Leverage” at the end of this release.
During the March 2023 (to date), December 2022, and September 2022 quarters, investment originations and repayments were as follows:
All amounts in $000’s
Quarter Ended Quarter Ended Quarter Ended
March 31, 2023 (to date) December 31, 2022 September 30, 2022
Total Originations $25,580 $307,981 $304,530
Middle-Market Lending 51.1% 86.6% 69.6%
Real Estate 48.9% 8.5% 11.9%
Middle-Market Lending / Buyout —% 3.5% 4.9%
Structured Notes —% 1.4% 13.6%
Other —% —% —%
Total Repayments $40,117 $76,732 $150,463
Originations, Net of Repayments $(14,537) $231,249 $154,067
For additional disclosure see “Primary Origination Strategies” at the end of this release.
We have invested in subordinated structured notes benefiting from individual standalone financings non-recourse to Prospect, with our risk limited in each case to our net investment. At December 31, 2022 and September 30, 2022, our subordinated structured note portfolio at fair value consisted of the following:
All amounts in $000’s except
per unit amounts As of
December 31, 2022 As of
September 30, 2022
Total Subordinated Structured Notes $698,957 $695,292
Subordinated Structured Notes as % of Portfolio 9.0% 9.2%
# of Investments(2) 37 37
TTM Average Cash Yield(1)(2) 17.9% 20.6%
Annualized Cash Yield(1)(2) 11.6% 17.2%
Annualized GAAP Yield on Fair Value(1)(2) 14.9% 13.2%
Annualized GAAP Yield on Amortized Cost(2) 10.6% 9.3%
Cumulative Cash Distributions on Current Portfolio $1,473,278 $1,452,967
% of Original Investment 108.4% 106.9%
# of Underlying Collateral Loans 1,657 1,670
Total Asset Base of Underlying Portfolio $15,358,286 $15,440,229
(1) Calculation based on fair value.
(2) Excludes investments being redeemed.
To date we have exited 11 subordinated structured notes with an expected pooled average realized gross IRR of 15.2% and cash on cash multiple of 1.44 times.
Since December 31, 2017 through today, 32 of our subordinated structured note investments have completed multi-year extensions of their reinvestment periods (typically at reduced liability spreads and increased weighted average life asset benefits). We believe further long-term optionality upside exists in our structured credit portfolio through additional refinancings and reinvestment period extensions.
CAPITAL AND LIQUIDITY
Our multi-year, long-term laddered and diversified historical funding profile has included a $1.70 billion revolving credit facility (with 49 lenders, an increase of 7 lenders including our prior September 2022 extension and related upsizing), program notes, institutional bonds, convertible bonds, listed preferred stock, and program preferred stock. We have retired multiple upcoming maturities and as of today we have $282,115 of debt maturing in calendar year 2023. The combined amount of our balance sheet cash and undrawn revolving credit facility commitments is currently over $1 billion.
On September 15, 2022, we completed an amendment and upsizing of our existing revolving credit facility (the “Facility”) for Prospect Capital Funding, extending the term 1.5 years. The Facility includes a revolving period that extends through September 15, 2026, followed by an additional one-year amortization period. Pricing for amounts drawn under the Facility is one-month SOFR plus 2.05%.
Our total unfunded eligible commitments to non-control portfolio companies totals approximately $84 million, 1.1% of our total assets as of December 31, 2022.
As of As of
All amounts in $000’s December 31, 2022 September 30, 2022
Net of Cash Debt to Equity Ratio(1) 49.4% 53.5%
% of Interest-Bearing Assets at Floating Rates 82.6% 88.2%
% of Liabilities at Fixed Rates 71.3% 70.0%
% of Floating Loans with Libor or SOFR Floors 94.1% 94.3%
Weighted Average Libor/SOFR Floor 1.20% 1.26%
Unencumbered Assets $5,238,560 $4,965,086
% of Total Assets 66.4% 64.8%
(1) Including our preferred stock as equity.
The below table summarizes our December 2022 quarter term debt issuance and repurchase/repayment activity:
All amounts in $000’s Principal Coupon Maturity
Debt Issuances
Prospect Capital InterNotes® $2,852 5.00% - 5.95% October 2025 – December 2032
Total Debt Issuances $2,852
Debt Repurchases/Repayments
Prospect Capital InterNotes® $1,851 2.40% - 6.625% May 2026 – December 2051
2023 Notes $1,757 5.875% March 2023
Total Debt Repurchases/Repayments $3,608
Net Debt Repurchases/Repayments $(756)
We currently have six separate unsecured debt issuances aggregating over $1.5 billion outstanding, not including our program notes, with laddered maturities extending through October 2028. At December 31, 2022, $350.0 million of program notes were outstanding with laddered maturities through March 2052.
At December 31, 2022, our weighted average cost of unsecured debt financing was 4.33%, remaining constant from September 30, 2022, and a decrease of 0.06% from December 31, 2021.
On August 3, 2020 and October 3, 2020, we launched our $1.75 billion 5.50% perpetual preferred stock offering programs. On October 7, 2022, we amended our existing $1.75 billion in perpetual preferred stock offering programs to offer new 6.50% series of shares. Prospect expects to use the net proceeds from the offering programs to maintain and enhance balance sheet liquidity, including repaying our credit facility and purchasing high quality short-term debt instruments, and to make long-term investments in accordance with our investment objective. The preferred stock provides Prospect with a diversified source of accretive fixed-rate capital without creating maturity risk due to the perpetual term. To date we have issued over $1.2 billion of our 6.50% and 5.50% perpetual preferred stock programs (including $298 million in the December 2022 quarter and, to date, $70 million in the current March 2023 quarter), with the ability potentially to upsize such programs based on significant balance sheet capacity.
On July 19, 2021, we closed a $150 million listed 5.35% perpetual preferred stock offering. Prospect used the net proceeds from the offering to maintain and enhance balance sheet liquidity, including repaying our credit facility and redeeming higher cost program notes.
In connection with the 5.50% perpetual preferred stock offering program, effective August 3, 2020 and as amended on June 9, 2022, we adopted and amended, respectively, a Preferred Stock Dividend Reinvestment Plan, pursuant to which holders of the preferred stock will have dividends on their preferred stock automatically reinvested in additional shares of such preferred stock at a price per share of $25.00, if they elect.
In connection with the 6.50% perpetual preferred stock offering program, effective October 7, 2022 we adopted a Preferred Stock Dividend Reinvestment Plan, pursuant to which holders of the preferred stock will have dividends on their preferred stock automatically reinvested in additional shares of such preferred stock at a price per share of $25.00, if they elect.
We currently have approximately $1.4 billion in preferred stock outstanding.
Prospect holds recently reaffirmed investment grade company ratings, all with a stable outlook, from Standard & Poor’s (BBB-), Moody’s (Baa3), Kroll (BBB-), Egan-Jones (BBB), and DBRS (BBB (low)). Maintaining our investment grade ratings with prudent asset, liability, and risk management is an important objective for Prospect.
DIVIDEND REINVESTMENT PLAN
We have adopted a dividend reinvestment plan (also known as our “DRIP”) that provides for reinvestment of our distributions on behalf of our shareholders, unless a shareholder elects to receive cash. On April 17, 2020, our board of directors approved amendments to the Company’s DRIP, effective May 21, 2020. These amendments principally provide for the number of newly-issued shares pursuant to the DRIP to be determined by dividing (i) the total dollar amount of the distribution payable by (ii) 95% of the closing market price per share of our stock on the valuation date of the distribution (providing a 5% discount to the market price of our common stock), a benefit to shareholders who participate.
HOW TO PARTICIPATE IN OUR DIVIDEND REINVESTMENT PLAN
Shares held with a broker or financial institution
Many shareholders have been automatically “opted out” of our DRIP by their brokers. Even if you have elected to automatically reinvest your PSEC stock with your broker, your broker may have “opted out” of our DRIP (which utilizes DTC’s dividend reinvestment service), and you may therefore not be receiving the 5% pricing discount. Shareholders interested in participating in our DRIP to receive the 5% discount should contact their brokers to make sure each such DRIP participation election has been made through DTC. In making such DRIP election, each shareholder should specify to one’s broker the desire to participate in the "Prospect Capital Corporation DRIP through DTC" that issues shares based on 95% of the market price (a 5% discount to the market price) and not the broker's own "synthetic DRIP” plan (if any) that offers no such discount. Each shareholder should not assume one’s broker will automatically place such shareholder in our DRIP through DTC. Each shareholder will need to make this election proactively with one’s broker or risk not receiving the 5% discount. Each shareholder may also consult with a representative of such shareholder’s broker to request that the number of shares the shareholder wishes to enroll in our DRIP be re-registered by the broker in the shareholder’s own name as record owner in order to participate directly in our DRIP.
Shares registered directly with our transfer agent
If a shareholder holds shares registered in the shareholder’s own name with our transfer agent (less than 0.1% of our shareholders hold shares this way) and wants to make a change to how the shareholder receives dividends, please contact our plan administrator, American Stock Transfer and Trust Company LLC by calling (888) 888-0313 or by mailing American Stock Transfer and Trust Company LLC, 6201 15th Avenue, Brooklyn, New York 11219.
EARNINGS CONFERENCE CALL
Prospect will host an earnings call on Thursday February 9, 2023 at 9:30 a.m. Eastern Time. Dial 888-338-7333. For a replay prior to March 9, 2023 visit www.prospectstreet.com or call 877-344-7529 with passcode 3454656.
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES
(in thousands, except share and per share data)
December 31, 2022 June 30, 2022
(Unaudited)
Assets
Investments at fair value:
Control investments (amortized cost of $2,821,034 and $2,732,906, respectively) $ 3,457,698 $ 3,438,317
Affiliate investments (amortized cost of $8,996 and $242,101, respectively) 7,944 393,264
Non-control/non-affiliate investments (amortized cost of $4,753,800 and $4,221,824, respectively) 4,304,694 3,770,929
Total investments at fair value (amortized cost of $7,583,830 and $7,196,831, respectively) 7,770,336 7,602,510
Cash and Cash Equivalents 70,086 35,364
Receivables for:
Interest, net 33,709 12,925
Other 974 745
Deferred financing costs on Revolving Credit Facility 14,895 10,801
Prepaid expenses 413 1,078
Total Assets 7,890,413 7,663,423
Liabilities
Revolving Credit Facility 754,305 839,464
Public Notes (less unamortized discount and debt issuance costs of $19,589 and $22,281, respectively) 1,343,766 1,343,178
Prospect Capital InterNotes® (less unamortized debt issuance costs of $6,931 and $7,122, respectively) 343,114 340,442
Convertible Notes (less unamortized discount and debt issuance costs of $2,024 and $2,477, respectively) 154,144 214,192
Due to Prospect Capital Management 61,393 58,100
Dividends payable 24,036 23,657
Interest payable 26,386 26,669
Accrued expenses 5,410 3,309
Due to Prospect Administration 3,765 2,281
Other liabilities 150 932
Total Liabilities 2,716,469 2,852,224
Commitments and Contingencies
Preferred Stock, par value $0.001 per share (387,900,000 and 227,900,000 shares of preferred stock authorized, with 60,000,000 as Series A1, 60,000,000 as Series M1, 60,000,000 as Series M2, 20,000,000 as Series AA1, 20,000,000 as Series MM1, 1,000,000 as Series A2, 6,900,000 as Series A, 60,000,000 and 0 as Series A3, 60,000,000 and 0 as Series M3, 20,000,000 and 0 as Series AA2, and 20,000,000 and 0 as Series MM2, each as of December 31, 2022 and June 30, 2022; 31,143,878 and 20,794,645 Series A1 shares issued and outstanding; 3,996,761 and 2,626,238 Series M1 shares issued and outstanding; 0 and 0 Series M2 shares issued and outstanding; 0 and 0 Series AA1 shares issued and outstanding; 0 and 0 Series MM1 shares issued and outstanding; 187,000 and 187,000 Series A2 shares issued and outstanding; 6,000,000 and 6,000,000 Series A shares issued and outstanding; 10,184,347 and 0 Series A3 shares issued and outstanding; 1,157,019 and 0 Series M3 shares issued and outstanding; 0 and 0 Series AA2 shares issued and outstanding; and 0 and 0 Series MM2 shares issued and outstanding as of December 31, 2022 and June 30, 2022) at carrying value plus cumulative accrued and unpaid dividends 1,207,553 692,076
Net Assets Applicable to Common Shares $ 3,966,391 $ 4,119,123
Components of Net Assets Applicable to Common Shares and Net Assets, respectively
Common stock, par value $0.001 per share (1,612,100,000 and 1,772,100,000 common shares authorized; 398,852,478 and 393,164,437 issued and outstanding, respectively) 399 393
Paid-in capital in excess of par 4,089,950 4,050,370
Total distributable (loss) earnings (123,958 ) 68,360
Net Assets Applicable to Common Shares $ 3,966,391 $ 4,119,123
Net Asset Value Per Common Share $ 9.94 $ 10.48
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
Three Months Ended December 31, Six Months Ended December 31,
2022 2021 2022 2021
Investment Income
Interest income:
Control investments $ 60,820 $ 57,110 $ 123,083 $ 112,941
Affiliate investments 7,573 6,675 15,034 16,752
Non-control/non-affiliate investments 96,436 60,132 178,134 117,661
Structured credit securities 26,047 18,256 48,943 41,090
Total interest income 190,876 142,173 365,194 288,444
Dividend income:
Control investments 1,170 5,687 2,357 6,937
Affiliate investments — — 1,374 —
Non-control/non-affiliate investments 1,047 17 1,387 34
Total dividend income 2,217 5,704 5,118 6,971
Other income:
Control investments 15,030 11,703 35,695 28,735
Affiliate investments — 126 133 3,942
Non-control/non-affiliate investments 4,793 15,670 9,450 16,758
Total other income 19,823 27,499 45,278 49,435
Total Investment Income 212,916 175,376 415,590 344,850
Operating Expenses
Base management fee 38,882 33,843 77,196 66,046
Income incentive fee 22,505 19,589 44,131 39,329
Interest and credit facility expenses 37,783 29,679 71,653 57,717
Allocation of overhead from Prospect Administration 3,618 2,239 6,717 6,765
Audit, compliance and tax related fees 236 329 2,537 946
Directors’ fees 131 113 262 229
Other general and administrative expenses 3,057 4,027 7,124 6,892
Total Operating Expenses 106,212 89,819 209,620 177,924
Net Investment Income 106,704 85,557 205,970 166,926
Net Realized and Net Change in Unrealized Gains (Losses) from Investments
Net realized gains (losses)
Control investments (619 ) 3 (1,712 ) 6
Affiliate investments 16,143 — 16,143 —
Non-control/non-affiliate investments 774 (9,230 ) (21,310 ) (9,834 )
Net realized gains (losses) 16,298 (9,227 ) (6,879 ) (9,828 )
Net change in unrealized (losses) gains
Control investments (21,458 ) 134,066 (68,747 ) 256,396
Affiliate investments (18,248 ) 31,589 (89,034 ) 37,626
Non-control/non-affiliate investments (10,967 ) 15,479 (61,392 ) 23,832
Net change in unrealized (losses) gains (50,673 ) 181,134 (219,173 ) 317,854
Net Realized and Net Change in Unrealized (Losses) Gains from Investments (34,375 ) 171,907 (226,052 ) 308,026
Net realized losses on extinguishment of debt (52 ) (3,851 ) (80 ) (9,208 )
Net Increase (Decrease) in Net Assets Resulting from Operations 72,277 253,613 (20,162 ) 465,744
Preferred stock dividend 16,654 7,202 29,414 9,609
Net Increase (Decrease) in Net Assets Resulting from Operations applicable to Common Stockholders $ 55,623 $ 246,411 $ (49,576 ) $ 456,135
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
ROLLFORWARD OF NET ASSET VALUE PER COMMON SHARE
(in actual dollars)
Three Months Ended December 31, Six Months Ended December 31,
2022 2021 2022 2021
Per Share Data
Net asset value per common share at beginning of period $ 10.01 $ 10.12 $ 10.48 $ 9.81
Net investment income(1) 0.27 0.22 0.52 0.43
Net realized and change in unrealized (losses) gains(1) (0.09 ) 0.43 (0.57 ) 0.77
Net increase (decrease) from operations 0.18 0.65 (0.05 ) 1.20
Distributions of net investment income to preferred stockholders (0.04 ) (0.02 ) (0.07 ) (0.03 )
Net increase (decrease) from operations applicable to common stockholders(4) 0.14 0.63 (0.12 ) 1.17
Distributions of net investment income to common stockholders (0.18 ) (3) (0.18 ) (0.36 ) (3) (0.35 )
Return of Capital to common stockholders — (3) — — (3) (0.01 )
Common stock transactions(2) (0.03 ) (0.01 ) (0.06 ) (0.02 )
Offering costs from issuance of preferred stock — — — (0.03 )
Reclassification of preferred stock issuance costs — 0.03 — 0.03
Net asset value per common share at end of period $ 9.94 $ 10.60 (5 ) $ 9.94 $ 10.60
(1) Per share data amount is based on the weighted average number of common shares outstanding for the period presented (except for dividends to stockholders which is based on actual rate per share).
(2) Common stock transactions include the effect of our issuance of common stock in public offerings (net of underwriting and offering costs), shares issued in connection with our common stock dividend reinvestment plan, common shares issued to acquire investments and common shares repurchased below net asset value pursuant to our Repurchase Program, and common shares issued pursuant to the Holder Optional Conversion of our 5.50% and 6.50% Preferred Stock.
(3) Not finalized for the respective fiscal period.
(4) Diluted net increase from operations applicable to common stockholders was $0.13 for the three months ended December 31, 2022. Diluted net increase from operations applicable to common stockholders was $0.61 for the three months ended December 31, 2021. Diluted net decrease from operations applicable to common stockholders was $0.13 for the six months ended December 31, 2022. Diluted net increase from operations applicable to common stockholders was $1.13 for the six months ended December 31, 2021.
(5) Does not foot due to rounding.
MIDDLE-MARKET LOAN PORTFOLIO COMPANY WEIGHTED AVERAGE EBITDA AND NET LEVERAGE
Middle-Market Loan Portfolio Company Weighted Average Net Leverage (“Middle-Market Portfolio Net Leverage”) and Middle-Market Loan Portfolio Company Weighted Average EBITDA (“Middle-Market Portfolio EBITDA”) provide clarity into the underlying capital structure of PSEC’s middle-market loan portfolio investments and the likelihood that PSEC’s overall portfolio will make interest payments and repay principal.
Middle-Market Portfolio Net Leverage reflects the net leverage of each of PSEC’s middle-market loan portfolio company debt investments, weighted based on the current fair market value of such debt investments. The net leverage for each middle-market loan portfolio company is calculated based on PSEC’s investment in the capital structure of such portfolio company, with a maximum limit of 10.0x adjusted EBITDA. This calculation excludes debt subordinate to PSEC’s position within the capital structure because PSEC’s exposure to interest payment and principal repayment risk is limited beyond that point. Additionally, subordinated structured notes, other structured credit, real estate investments, investments for which EBITDA is not available, and equity investments, for which principal repayment is not fixed, are also not included in the calculation. The calculation does not exceed 10.0x adjusted EBITDA for any individual investment because 10.0x captures the highest level of risk to PSEC. Middle-Market Portfolio Net Leverage provides PSEC with some guidance as to PSEC’s exposure to the interest payment and principal repayment risk of PSEC’s overall debt portfolio. PSEC monitors its Middle-Market Portfolio Net Leverage on a quarterly basis.
Middle-Market Portfolio EBITDA is used by PSEC to supplement Middle-Market Portfolio Net Leverage and generally indicates a portfolio company’s ability to make interest payments and repay principal. Middle-Market Portfolio EBITDA is calculated using the EBITDA of each of PSEC’s middle-market loan portfolio companies, weighted based on the current fair market value of the related investments. The calculation provides PSEC with insight into profitability and scale of the portfolio companies within our overall debt investments.
These calculations include addbacks that are typically negotiated and documented in the applicable investment documents, including but not limited to transaction costs, share-based compensation, management fees, foreign currency translation adjustments and other nonrecurring transaction expenses.
Together, Middle-Market Portfolio Net Leverage and Middle-Market Portfolio EBITDA assist PSEC in assessing the likelihood that PSEC will timely receive interest and principal payments. However, these calculations are not meant to substitute for an analysis of PSEC’s our underlying portfolio company debt investments, but to supplement such analysis.
PRIMARY ORIGINATION STRATEGIES
Middle-Market Lending - We make directly-originated, agented loans to companies, including companies which are controlled by private equity sponsors and companies that are not controlled by private equity sponsors (such as companies that are controlled by the management team, the founder, a family or public shareholders). This debt can take the form of first lien, second lien, unitranche or unsecured loans. These loans typically have equity subordinate to our loan position. We may also purchase selected equity co-investments in such companies. In addition to directly-originated, agented loans, we also invest in senior and secured loans, syndicated loans and high yield bonds that have been sold to a club or syndicate of buyers, both in the primary and secondary markets. These investments are often purchased with a long term, buy-and-hold outlook, and we often look to provide significant input to the transaction by providing anchoring orders.
Middle-Market Lending / Buyout - This strategy involves purchasing senior and secured yield-producing debt and controlling equity positions in operating companies across various industries. We believe this strategy provides enhanced certainty of closing to sellers, and the opportunity for management to continue in their current roles. These investments are often structured in tax-efficient partnerships, enhancing returns.
Real Estate - We purchase debt and controlling equity positions in tax-efficient real estate investment trusts (“REIT” or “REITs”). The real estate investments of National Property REIT Corp. (“NPRC”) are in various classes of developed and occupied real estate properties that generate current yields, including multi-family properties, student housing, and self-storage. NPRC seeks to identify properties that have historically attractive occupancy rates and recurring cash flow generation. NPRC generally co-invests with established and experienced property management teams that manage such properties after acquisition.
Subordinated Structured Notes - We make investments in structured credit, often taking a significant position in subordinated structured notes (equity) and rated secured structured notes (debt). The underlying portfolio of each structured credit investment is diversified across approximately 100 to 200 broadly syndicated loans and does not have direct exposure to real estate, mortgages, or consumer-based credit assets. The structured credit portfolios in which we invest are managed by established collateral management teams with many years of experience in the industry.
ABOUT PROSPECT CAPITAL CORPORATION
Prospect Capital Corporation (www.prospectstreet.com) is a business development company that focuses on lending to and investing in private businesses. Our investment objective is to generate both current income and long-term capital appreciation through debt and equity investments.
We have elected to be treated as a business development company under the Investment Company Act of 1940 (“1940 Act”). We are required to comply with regulatory requirements under the 1940 Act as well as applicable NASDAQ, federal and state rules and regulations. We have elected to be treated as a regulated investment company under the Internal Revenue Code of 1986.
This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, whose safe harbor for forward-looking statements does not apply to business development companies. Any such statements, other than statements of historical fact, are highly likely to be affected by other unknowable future events and conditions, including elements of the future that are or are not under our control, and that we may or may not have considered; accordingly, such statements cannot be guarantees or assurances of any aspect of future performance. Actual developments and results are highly likely to vary materially from any forward-looking statements. Such statements speak only as of the time when made. We undertake no obligation to update any such statement now or in the future.
For additional information, contact:
Grier Eliasek, President and Chief Operating Officer
grier@prospectcap.com
Telephone (212) 448-0702
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