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Prospect Capital Reports June 2019 Annual and Quarterly Results and Declares Additional Monthly Distributions

NEW YORK, Aug. 27, 2019 (GLOBE NEWSWIRE) -- Prospect Capital Corporation (PSEC) (“Prospect”, “our”, or “we”) today announced financial results for our fiscal quarter and year ended June 30, 2019.

 
All amounts in $000’s except
  per share amounts (on weighted average

  basis for period numbers)
Quarter Ended Quarter Ended Quarter Ended
June 30, 2019 March 31, 2019 June 30, 2018
       
Net Investment Income (“NII”) $69,627
$77,262
$79,480
Interest as % of Total Investment Income 92.2% 90.6% 91.8%
       
NII per Share $0.19 $0.21 $0.22
       
Net Income $38,886 $89,195 $114,304
Net Income per Share $0.11 $0.24 $0.31
       
Distributions to Shareholders $66,069 $66,024 $65,491
Distributions per Share $0.18 $0.18 $0.18
       
NII / Distributions to Shareholders 105% 117% 122%
       
NAV per Share at Period End $9.01 $9.08 $9.35
       
Net of Cash Debt to Equity Ratio 70.0% 69.1% 66.5%
 

For the June 2019 quarter, we earned net investment income (“NII”) of $69.6 million, or $0.19 per weighted average share, down $0.02 from the March 2019 quarter, and exceeding our current quarterly dividend rate of $0.18 per share by $0.01 per share. Our ratio of NII to distributions was 105% in the June 2019 quarter.

In the June 2019 quarter, our net of cash debt to equity ratio was 70.0%, up 0.9% from March 2019.

For the June 2019 quarter, our net income was $38.9 million, or $0.11 per weighted average share. The $0.13 decrease in net income for the June 2019 quarter is primarily due to realized and unrealized gains in our portfolio.

Our net asset value (“NAV”) per share decreased by $0.07 to $9.01 during the June 2019 quarter.

 
All amounts in $000’s except
  per share amounts (on weighted
  average basis for period numbers)
Year Ended
June 30, 2019
Year Ended
June 30, 2018
     
NII $312,859 $286,850
NII per Share $0.85 $0.79
     
Net Income (“NI”) $144,487 $299,863
NI per Share $0.39 $0.83
     
Distributions to Shareholders $263,624 $277,224
Distributions per Share $0.72 $0.77
     

For the year ended June 30, 2019, we earned NII of $312.9 million, or $0.85 per weighted average share, up $0.06 from the prior year. For the year ended June 30, 2019 we earned NI of $144.5 million, or $0.39 per weighted average share, down $0.44 from the prior year.

DISTRIBUTION DECLARATION

Prospect is declaring distributions as follows:

  • $0.06 per share for September 2019 to September 30, 2019 record holders with October 24, 2019 payment date;
  • $0.06 per share for October 2019 to October 31, 2019 record holders with November 20, 2019 payment date.

These distributions are Prospect’s 134th and 135th consecutive cash distributions to shareholders.

Based on the declarations above, Prospect’s closing stock price of $6.66 at August 26, 2019 delivers to shareholders a distribution yield of 10.8%.

Based on past distributions and our current share count for declared distributions, Prospect since inception through our October 2019 distribution will have distributed $17.52 per share to original shareholders, aggregating approximately $3 billion in cumulative distributions to all shareholders.

Prospect expects to declare November 2019, December 2019, and January 2020 distributions in November 2019.

PORTFOLIO AND INVESTMENT ACTIVITY

All amounts in $000’s except
  per unit amounts
As of As of As of
June 30, 2019 March 31, 2019 June 30, 2018
       
Total Investments (at fair value) $5,653,553 $5,700,673 $5,727,279
Number of Portfolio Companies 135 137 135
% Controlled Investments (at fair value) 43.8% 42.0% 42.0%
       
Secured First Lien 43.9% 44.6% 43.9%
Secured Second Lien 23.5% 23.5% 22.1%
Subordinated Structured Notes 15.1% 15.5% 16.7%
Rated Secured Structured Notes (1) 0.8% 0.8% 0.1%
Unsecured Debt 0.6% 0.5% 0.6%
Equity Investments 16.1% 15.1% 16.6% 
       
Annualized Current Yield – All Investments 10.6% 10.4% 10.5%
Annualized Current Yield – Performing Interest Bearing Investments 13.1% 12.8% 13.0%
       
Top Industry Concentration(2) 14.6% 13.8% 14.2%
       
Energy Industry Concentration(2) 2.7% 3.0% 3.0%
       
Non-Accrual Loans as % of Total Assets (3) 2.9% 3.3% 2.5%
       
Weighted Average Portfolio Net Leverage(4) 4.67x 4.51x 4.60x
Weighted Average Portfolio EBITDA(4) $60,669 $59,835 $55,384


(1) Our Rated Secured Structured Notes are considered non-agented debt where applicable.
(2) Excluding our underlying industry-diversified structured credit portfolio.
(3) Calculated at fair value.
(4) For additional disclosure see “Weighted Average Portfolio EBITDA and Net Leverage” at the end of this release.
   

During the June 2019 and March 2019 quarters, our investment origination and repayment activity was as follows:

All amounts in $000’s Quarter Ended Quarter Ended
June 30, 2019 March 31, 2019
     
Total Originations $187,938 $35,711
     
Non-Agented Debt 79.3% 100.0%
Agented Sponsor Debt 19.0%
Corporate Yield Buyouts 1.7%
     
Total Repayments $212,813 $195,055
Originations, Net of Repayments $(24,875) $(159,344)
 

We have invested in structured credit investments benefiting from individual standalone financings non-recourse to Prospect and with our risk limited in each case to our net investment amount. At June 30, 2019 and March 31, 2019, 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
June 30, 2019 March 31, 2019
     
Total Subordinated Structured Notes
$850,694 $881,128
     
# of Investments 43 43
     
TTM Average Cash Yield(1)(2) 16.0% 17.9%
Annualized Cash Yield(1)(2) 13.4% 15.2%
Annualized GAAP Yield on Fair Value(1)(2) 15.6% 15.8%
Annualized GAAP Yield on Amortized Cost(2)(3) 12.0% 12.7%
     
Cumulative Cash Distributions $1,299,594 $1,271,206
% of Original Investment 84.8% 83.0%
     
# of Underlying Collateral Loans 1,792 1,808
Total Asset Base of Underlying Portfolio $18,296,239 $18,426,692
     
Prospect TTM Default Rate 0.39% 0.29%
Broadly Syndicated Market TTM Default Rate 1.34% 0.93%
Prospect Default Rate Outperformance vs. Market 0.95% 0.64%


(1) Calculation based on fair value.
(2) Excludes deals being redeemed.
(3) Calculation based on amortized cost.
   

To date, including called deals being liquidated, we have exited nine subordinated structured notes totaling $263.4 million with an expected pooled average realized IRR of 16.8% and cash on cash multiple of 1.49 times.

Since December 31, 2017 through today, 23 of our structured credit investments have completed multi-year extensions of their reinvestment periods (typically at reduced liability spreads). We believe further optionality upside exists in our structured credit portfolio through additional re-financings and reinvestment period extensions.

To date during the September 2019 quarter, we have completed new and follow-on investments as follows:

All amounts in $000’s Quarter Ended
September 30, 2019
   
Total Originations
$33,319
   
Non-Agented Debt 74.2%
Agented Sponsor Debt 25.8%
   
Total Repayments $168,508
Originations, Net of Repayments $(135,189)
 

LIQUIDITY AND FINANCIAL RESULTS

All amounts in $000’s As of
June 30, 2019
As of
March 31, 2019
As of
June 30, 2018
Net of Cash Debt to Equity Ratio 70.0% 69.1% 66.5%
% of Assets at Floating Rates 87.4% 88.0% 89.7%
% of Liabilities at Fixed Rates 93.0% 95.9% 98.4%
       
Unencumbered Assets $4,121,775 $4,152,393 $4,502,764
% of Total Assets 71.1% 71.0% 77.1%
 

We repaid the remaining $101.6 million of our January 2019 notes at maturity. The below table summarizes our June 2019 quarter issuance and repurchase activity, including at-the-market (“ATM”) follow-on issuance:

All amounts in $000’s Principal Rate Maturity
       
Debt Issuances      
2024 Notes ATM $2,569 6.25% June 2024
2028 Notes ATM $1,885 6.25% June 2028
Prospect Capital InterNotes® $112,328 5.00% - 6.25% April 2024-June 2029
Repurchases      
2020 Notes $24,588 4.75% April 2020
Prospect Capital InterNotes® $156,423 4.25% - 5.50% April 2020-December 2021
 

On August 1, 2018, we completed an extension of the revolving credit facility (the “Facility”) for Prospect Capital Funding, extending the term 5.7 years from such date and reducing the interest rate on drawn amounts to one-month Libor plus 2.20%.

$1.1325 billion of Facility commitments have closed to date with 30 institutional lenders (representing one of the largest and most diversified bank groups in our industry). An accordion feature allows the Facility, at Prospect's discretion, to accept up to $1.5 billion of commitments. The Facility matures March 27, 2024. The Facility includes a revolving period that extends through March 27, 2022, followed by an additional two-year amortization period, with distributions allowed to Prospect after the completion of the revolving period.

On June 28, 2019, we commenced a tender offer to purchase $224.1 million of our 2020 Notes. As of the expiration of the tender offer, $32.9 million, representing 14.7% of the outstanding notes, was validly tendered.

We currently have eight separate unsecured debt issuances aggregating $1.5 billion outstanding, not including our program notes, with laddered maturities extending to June 2029. At June 30, 2019, $707.7 million of program notes were outstanding with laddered maturities through October 2043.

EARNINGS CONFERENCE CALL

Prospect will host an earnings call on Wednesday, August 28, 2019 at 11:00 am. Eastern Time. Dial 888-338-7333. For a replay prior to September 28, 2019 visit www.prospectstreet.com or call 877-344-7529 with passcode 10134604.

 
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES
(in thousands, except share and per share data)
 
  June 30,
2019

  June 30,
2018

Assets          
Investments at fair value:          
Control investments (amortized cost of $2,385,806 and $2,300,526, respectively) $ 2,475,924     $ 2,404,326  
Affiliate investments (amortized cost of $177,616 and $55,637, respectively) 76,682     58,436  
Non-control/non-affiliate investments (amortized cost of $3,368,880 and $3,475,295, respectively) 3,100,947     3,264,517  
Total investments at fair value (amortized cost of $5,932,302 and $5,831,458, respectively) 5,653,553     5,727,279  
Cash 107,098
    83,758  
Receivables for:          
Interest, net 26,504     19,783  
Other 3,326     1,867  
Due from broker
    3,029  
Prepaid expenses
1,053     984  
Due from Affiliate     88  
Deferred financing costs on Revolving Credit Facility 8,529     2,032  
Total Assets 5,800,063     5,838,820  
           
Liabilities          
Revolving Credit Facility 167,000     37,000  
Convertible Notes (less unamortized debt issuance costs of $13,867 and $13,074, respectively)
739,997     809,073  
Prospect Capital InterNotes® (less unamortized debt issuance costs of $12,349 and $11,998, respectively) 695,350     748,926  
Public Notes (less unamortized discount and debt issuance costs of $13,826 and $11,007, respectively)
780,548     716,810  
Due to Prospect Capital Management 46,525     49,045  
Interest payable 34,104     33,741  
Dividends payable 22,028     21,865  
Due to broker     6,159  
Accrued expenses 5,414     5,426  
Due to Prospect Administration 1,885     2,212  
Other liabilities 937     1,516  
Total Liabilities 2,493,788     2,431,773  
Commitments and Contingencies          
Net Assets $ 3,306,275     $ 3,407,047  
Components of Net Assets          
Common stock, par value $0.001 per share (1,000,000,000 common shares authorized; 367,131,025 and 364,409,938 issued and outstanding, respectively) $ 367     $ 364  
Paid-in capital in excess of par 4,039,872     4,021,541  
Total distributable earnings (loss) (733,964 )   (614,858 )
Net Assets $ 3,306,275     $ 3,407,047  
Net Asset Value Per Share $ 9.01     $ 9.35  
           


 
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
 
  Three  Months  Ended
June 30,

    Year  Ended
June 30,

  2019   2018   2019   2018
Investment Income                      
Interest income:                      
Control investments $ 50,006     $ 57,527     $ 211,212     $ 195,487  
Affiliate investments 312     234     943     553  
Non-control/non-affiliate investments 66,963     67,244     271,907     285,473  
Structured credit securities 34,323     34,678     140,054     125,499  
Total interest income 151,604     159,683     624,116     607,012  
Dividend income:                      
Control investments 2,850     5,639     34,127     11,279  
Affiliate investments         659      
Non-control/non-affiliate investments 462     250     1,243     1,767  
Total dividend income 3,312     5,889     36,029     13,046  
Other income:                      
Control investments 6,680     2,765
    36,011     15,080  
Non-control/non-affiliate investments 2,757     5,694
    7,611     22,707  
Total other income 9,437     8,459     43,622     37,787  
Total Investment Income 164,353     174,031     703,767     657,845  
Operating Expenses                      
Base management fee 29,149     29,056     121,833     118,046  
Income incentive fee 17,407     19,870     78,215     71,713  
Interest and credit facility expenses 39,721     37,178
    157,231     155,039  
Allocation of overhead from Prospect Administration 3,746     4,132
    14,837     10,031  
Audit, compliance and tax related fees 1,552     1,455
    5,014     5,539  
Directors’ fees 116     237
    457     450  
Other general and administrative expenses 3,035     2,623     13,321     10,177  
Total Operating Expenses 94,726     94,551     390,908     370,995  
Net Investment Income 69,627     79,480     312,859     286,850  
Net Realized and Net Change in Unrealized Gains (Losses) from Investments                      
Net realized gains (losses)                      
Control investments     1     14,309     13  
Affiliate investments             (13,351 )
Non-control/non-affiliate investments 1,167     (11 )   375     (5,126 )
Net realized gains (losses) 1,167     (10 )   14,684     (18,464 )
Net change in unrealized (losses) gains                      
Control investments 27,234     (25,487 )   5,105     55,670  
Affiliate investments (11,699 )   5,994     (35,449 )   25,671  
Non-control/non-affiliate investments (45,887 )   60,475     (144,225 )   (42,270 )
Net change in unrealized (losses) gains (30,352 )   40,982     (174,569 )   39,071  
Net Realized and Net Change in Unrealized (Losses) Gains from Investments (29,185 )   40,972     (159,885 )   20,607  
Net realized losses on extinguishment of debt (1,556 )   (6,148 )   (8,487 )   (7,594 )
Net Increase in Net Assets Resulting from Operations $ 38,886     $ 114,304     $ 144,487     $ 299,863  
Net increase in net assets resulting from operations per share $ 0.11     $ 0.31     $ 0.39     $ 0.83  
Dividends declared per share $ (0.18 )   $ (0.18 )   $ (0.72 )   $ (0.77 )
 


 
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
ROLLFORWARD OF NET ASSET VALUE PER SHARE
(in actual dollars)
 
  Three Months Ended
June 30,
  Year  Ended
June 30,
  2019   2018   2019   2018
Per Share Data                      
Net asset value at beginning of period $ 9.08     $ 9.23     $ 9.35     $ 9.32  
Net investment income(1) 0.19     0.22     0.85     0.79  
Net realized and change in unrealized (losses) gains(1) (0.08 )   0.09     (0.46 )   (0.04 )
Distributions of net investment income (0.18 )   (0.18 )   (0.72 )   (0.77 )
Common stock transactions(2)(3)     (0.01 )   (0.01 )   (0.03 )
Net asset value at end of period $ 9.01     $ 9.35     $ 9.01     $ 9.35  
 


(1) Per share data amount is based on the weighted average number of common shares outstanding for the period presented (except for dividends to shareholders which is based on actual rate per share).
(2) Common stock transactions include the effect of issuances and repurchases of common stock, if any.
(3) Amount is less than $0.01.
   

WEIGHTED AVERAGE PORTFOLIO EBITDA AND NET LEVERAGE

Weighted Average Portfolio Net Leverage (“Portfolio Net Leverage”) and Weighted Average Portfolio EBITDA (“Portfolio EBITDA”) provide clarity into the underlying capital structure of our portfolio debt investments and the likelihood that our overall portfolio will make interest payments and repay principal.        

Portfolio Net Leverage reflects the net leverage of each of our portfolio company debt investments, weighted based on the current debt principal outstanding of such investments. The net leverage for each portfolio company is calculated based on our investment in the capital structure of such portfolio company, with a maximum limit of 10.0x adjusted EBITDA. This calculation excludes debt subordinate to our position within the capital structure because our exposure to interest payment and principal repayment risk is limited beyond that point. Additionally, structured credit residual interests 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 us. Portfolio Net Leverage provides us with some guidance as to our exposure to the interest payment and principal repayment risk of our overall debt portfolio.  We monitor our Portfolio Net Leverage on a quarterly basis.

Portfolio EBITDA is used by Prospect to supplement Portfolio Net Leverage and generally indicates a portfolio company’s ability to make interest payments and repay principal.  Portfolio EBITDA is calculated using the weighted average dollar amount EBITDA of each of our portfolio company debt investments.  The calculation provides us 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, Portfolio Net Leverage and Portfolio EBITDA assist us in assessing the likelihood that we will timely receive interest and principal payments.  However, these calculations are not meant to substitute for an analysis of our underlying portfolio company debt investments, but to supplement such analysis.

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@prospectstreet.com
Telephone (212) 448-0702