Prospect Reports June 2020 Financial Results, Declares 37th and 38th Consecutive $0.06 per Share Monthly Cash Distributions, and Announces 2.5% Increase in Net Asset Value per Share

Prospect Capital Corporation
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NEW YORK, Aug. 26, 2020 (GLOBE NEWSWIRE) -- Prospect Capital Corporation (NASDAQ: PSEC) (“Prospect”, “our”, or “we”) today announced financial results for our fiscal quarter and year ended June 30, 2020.

FINANCIAL RESULTS

All amounts in $000’s except per share amounts (on weighted average basis for period numbers)

Quarter Ended
June 30, 2020

Quarter Ended
March 31, 2020

Quarter Ended
June 30, 2019

Net Investment Income (“NII”)

$

58,273

$

68,476

$

69,627

Interest as % of Total Investment Income

88.8

%

89.8

%

92.2

%

NII per Share

$

0.16

$

0.19

$

0.19

Net Income (Loss)

$

162,613

$

(185,699

)

$

38,886

Net Income (Loss) per Share

$

0.44

$

(0.51

)

$

0.11

Distributions to Shareholders

$

66,823

$

66,192

$

66,069

Distributions per Share

$

0.18

$

0.18

$

0.18

Since October 2017 NII per Share

$

2.19

$

2.04

$

1.47

Since October 2017 Distributions per Share

$

1.98

$

1.80

$

1.26

Since October 2017 NII Less Distributions per Share

$

0.21

$

0.24

$

0.21

NAV per Share at Period End

$

8.18

$

7.98

$

9.01

Net of Cash Debt to Equity Ratio

69.6

%

74.1

%

70.0

%

Net of Cash Asset Coverage of Debt Ratio

244

%

236

%

246

%

Unsecured Debt as % of Total Debt

89.1

%

92.5

%

93.1

%

Unsecured and Non-Recourse Debt as % of Total Debt

100

%

100

%

100

%


All amounts in $000’s except per share amounts

Year Ended
June 30, 2020

Year Ended
June 30, 2019

NII

$

265,694

$

312,859

NII per Share

$

0.72

$

0.85

Net (Loss) Income

$

(16,224

)

$

144,487

Net (Loss) Income per Share

$

(0.04

)

$

0.39

Distributions to Shareholders

$

265,277

$

263,624

Distributions per Share

$

0.72

$

0.72

NII / Distributions to Shareholders

100

%

119

%

CASH SHAREHOLDER DISTRIBUTION DECLARATION

Prospect is declaring shareholder distributions as follows:

Monthly Cash Shareholder Distribution

Record Date

Payment Date

Amount ($ per share)

September 2020

9/30/2020

10/22/2020

$0.0600

October 2020

10/30/2020

11/19/2020

$0.0600

These monthly cash distributions represent the 37th and 38th consecutive $0.06 per share distributions.

Prospect expects to declare November 2020, December 2020, and January 2021 distributions in November 2020.

Based on the declarations above, Prospect’s closing stock price of $5.17 at August 25, 2020 delivers to shareholders an annualized distribution yield of 13.9%.

Taking into account past distributions and our current share count for declared distributions, Prospect since inception through our October 2020 distribution will have distributed $18.24 per share to original shareholders, aggregating over $3.16 billion in cumulative distributions to all shareholders.

Since October 2017, our NII per share has aggregated $2.19 while our shareholder distributions per share have aggregated $1.98, resulting in our NII exceeding distributions during this period by $0.21 per share.

Initiatives focused on enhancing accretive NII per share growth include (1) our recently announced $1 billion targeted perpetual preferred equity program, (2) a greater utilization of our cost efficient revolving credit facility (with an incremental cost of approximately 1.4% at today’s one month Libor), and (3) increased originations in senior secured debt and selected equity investments to deliver targeted risk-adjusted yields and total returns as we deploy available capital from our current underleveraged balance sheet.

INSIDER PURCHASES

During the month of March 2020, our senior management team made open market purchases of $138 million of Prospect shares. Senior management and employee insider ownership is now over 27% of shares outstanding.

PORTFOLIO UPDATE AND INVESTMENT ACTIVITY

All amounts in $000’s except per unit amounts

As of

As of

As of

June 30, 2020

March 31, 2020

June 30, 2019

Total Investments (at fair value)

$

5,232,328

$

5,144,542

$

5,653,553

Number of Portfolio Companies

121

121

135

% Controlled Investments (at fair value)

43.2

%

43.0

%

43.8

%

Secured First Lien

46.9

%

44.8

%

43.9

%

Other Senior Secured Debt

24.4

%

23.6

%

23.5

%

Subordinated Structured Notes

13.5

%

13.7

%

15.1

%

Unsecured and Other Debt

1.0

%

0.9

%

1.4

%

Equity Investments

14.2

%

17.0

%

16.1

%

Mix of Investments with Underlying Collateral Security

84.8

%

82.1

%

83.3

%

Annualized Current Yield – All Investments

9.7

%

10.1

%

10.6

%

Annualized Current Yield – Performing Interest Bearing Investments

11.4

%

12.4

%

13.1

%

Top Industry Concentration(1)

15.2

%

14.7

%

14.6

%

Retail Industry Concentration(1)

0

%

0

%

0

%

Energy Industry Concentration(1)

1.6

%

1.7

%

2.7

%

Hotels, Restaurants & Leisure Concentration(1)

0.4

%

0.4

%

0.7

%

Non-Accrual Loans as % of Total Assets (2)

0.9

%

1.6

%

2.9

%

Weighted Average Portfolio Net Leverage(3)

4.51x

4.63x

4.67x

Weighted Average Portfolio EBITDA(3)

$

71,970

$

72,281

$

60,669

(1) Excluding our underlying industry-diversified structured credit portfolio.
(2) Calculated at fair value.
(3) For additional disclosure see “Weighted Average Portfolio EBITDA and Net Leverage” at the end of this release.

During the June 2020 and March 2020 quarters, our investment origination and repayment activity was as follows:

All amounts in $000’s

Quarter Ended

Quarter Ended

June 30, 2020

March 31, 2020

Total Originations

$

36,563

$

402,370

Real Estate

52.8

%

0.0

%

Agented Sponsor Debt

35.8

%

62.6

%

Non-Agented Debt

0.0

%

27.3

%

Rated Secured Structured Notes

2.9

%

8.8

%

Corporate Yield Buyouts

8.5

%

1.3

%

Total Repayments

$

64,110

$

266,510

Originations, Net of Repayments

$

(27,547

)

$

135,860

Note: “Agented” debt refers to non-control debt investments where Prospect acts as the administrative agent or similar role, while “Non-agented” debt refers to non-control debt investments where Prospect has no such role. “Sponsor” refers to third-party institutional ownership.

We have invested in structured credit investments benefiting from individual standalone financings non-recourse to Prospect with our risk limited in each case to our net investment. At June 30, 2020 and March 31, 2020, 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, 2020

March 31, 2020

Total Subordinated Structured Notes

$

708,961

$

704,403

# of Investments

39

39

TTM Average Cash Yield(1)(2)

17.4

%

18.3

%

Annualized Cash Yield(1)(2)

13.0

%

18.1

%

Annualized GAAP Yield on Fair Value(1)(2)

12.5

%

15.0

%

Annualized GAAP Yield on Amortized Cost(2)(3)

8.1

%

9.7

%

Cumulative Cash Distributions

$

1,211,395

$

1,188,308

% of Original Investment

86.6

%

84.9

%

# of Underlying Collateral Loans

1,658

1,683

Total Asset Base of Underlying Portfolio

$

17,530,303

$

17,810,722

Prospect TTM Default Rate

1.46

%

0.91

%

Broadly Syndicated Market TTM Default Rate

3.23

%

1.84

%

Prospect Default Rate Outperformance vs. Market

1.77

%

0.93

%

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

To date, including called investments being liquidated, we have exited nine subordinated structured notes totaling $263.4 million with an expected pooled average realized IRR of 16.7% and cash on cash multiple of 1.48 times.

Since December 31, 2017 through today, 27 of our structured credit investments have completed multi-year extensions of their reinvestment periods (typically at reduced liability spreads and with 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.

To date during the September 2020 quarter, we have completed new and follow-on investments as follows:

All amounts in $000’s

Quarter Ended

September 30, 2020

Total Originations

$

109,875

Agented Sponsor Debt

43.9

%

Non-Agented Debt

22.7

%

Rated Secured Structured Notes

20.0

%

Real Estate

13.4

%

Total Repayments

$

64,110

Originations, Net of Repayments

$

45,765

CAPITAL AND LIQUIDITY

Our laddered funding profile includes a revolving credit facility (with 30 lenders), program notes, listed baby bonds, institutional bonds, and convertible bonds. We have retired upcoming maturities, including a recent retirement in April 2020, and as of today have zero debt maturing until July 2022. On September 9, 2019, we completed an amendment of our existing revolving credit facility (the “Facility”) for Prospect Capital Funding, extending the term 5.0 years from such date. Pricing for amounts drawn under the Facility is one-month Libor plus 2.20%.

The combined amount of our balance sheet cash and undrawn revolving credit facility commitments currently stands at approximately $498 million. Our total unfunded eligible commitments to non-control portfolio companies totals approximately $24 million.

All amounts in $000’s

As of
June 30, 2020

As of
March 31, 2020

As of
June 30, 2019

Net of Cash Debt to Equity Ratio

69.6

%

74.1

%

70.0

%

% of Interest-Bearing Assets at Floating Rates

85.9

%

86.1

%

87.4

%

% of Liabilities at Fixed Rates

89.1

%

92.5

%

93.1

%

% of Floating Loans with LIBOR Floors

85.2

%

90.1

%

84.9

%

Weighted Average LIBOR Floor

1.67

%

1.55

%

1.73

%

Unencumbered Assets

$

3,772,478

$

3,561,643

$

4,121,775

% of Total Assets

71.2

%

68.3

%

71.1

%

The below table summarizes our June 2020 quarter term debt issuance and repurchase/repayment activity:

All amounts in $000’s

Principal

Rate

Maturity

Debt Issuances

Prospect Capital InterNotes®

$9,054

5.00% - 6.00%

April 15, 2025 - July 15, 2030

Debt Repurchases/Repayments

2020 Notes

$127,711

4.75%

April 2020

Prospect Capital InterNotes®

$1,384

4.50% - 6.63%

May 2025 - October 2043

$1.0775 billion of Facility commitments have closed to date with 30 lenders. An accordion feature allows the Facility, at Prospect's discretion, to accept up to $1.5 billion of commitments. The Facility matures September 9, 2024. The Facility includes a revolving period that extends through September 9, 2023, followed by an additional one-year amortization period, with distributions allowed to Prospect after the completion of the revolving period.

On November 7, 2019, we commenced a tender offer to purchase up to $50.0 million of our convertible notes that mature in July 2022 (“2022 Notes”). On December 7, 2019, $13.4 million was validly tendered and accepted, representing 4.4% of the outstanding notes. On December 23, 2019, we commenced a tender offer to purchase up to $25.0 million of the 2022 Notes. On January 22, 2020, $1.3 million was validly tendered and accepted, representing 0.5% of the outstanding notes. We repurchased an additional $32.6 million of the 2022 Notes during the March 2020 quarter. On July 23, 2020, we commenced a tender offer to purchase up to $100.0 million of the 2022 Notes during the September 2020 quarter. On August 20, 2020, $29.4 million was validly tendered and accepted, representing 11.4% of the outstanding notes.

On March 20, 2020, we commenced a tender offer to purchase up to $234.4 million of our unsecured notes that mature in June 2024 (“2024 Notes”). On March 31, 2020, $655 thousand was validly tendered and accepted.

We currently have eight separate unsecured debt issuances aggregating $1.9 billion outstanding, not including our program notes, with laddered maturities extending to June 2029. At June 30, 2020, $680.2 million of program notes were outstanding with laddered maturities through October 2043.

On August 3, 2020, we launched a $1 billion 5.50% perpetual preferred stock offering. Prospect expects to use the net proceeds from the Offering 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 its 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.

Prospect holds investment grade company ratings from Standard & Poor’s (BBB-), Moody’s (Baa3), Kroll (BBB-), and Egan-Jones (BBB). 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 a “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, August 27, 2020 at 11:00 am. Eastern Time. Dial 888-338-7333. For a replay prior to September 28, 2020 visit www.prospectstreet.com or call 877-344-7529 with passcode 10147561.

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

June 30, 2020

June 30, 2019

(Audited)

(Audited)

Assets

Investments at fair value:

Control investments (amortized cost of $2,286,725 and $2,385,806, respectively)

$

2,259,292

$

2,475,924

Affiliate investments (amortized cost of $163,484 and $177,616, respectively)

187,537

76,682

Non-control/non-affiliate investments (amortized cost of $3,332,509 and $3,368,880, respectively)

2,785,499

3,100,947

Total investments at fair value (amortized cost of $5,782,718 and $5,932,302, respectively)

5,232,328

5,653,553

Cash

44,561

107,098

Receivables for:

Interest, net

11,712

26,504

Other

106

3,326

Deferred financing costs on Revolving Credit Facility

9,145

8,529

Prepaid expenses

1,248

1,053

Due from broker

1,063

—

Total Assets

5,300,163

5,800,063

Liabilities

Revolving Credit Facility

237,536

167,000

Public Notes (less unamortized discount and debt issuance costs of $12,802 and $13,826, respectively)

782,106

780,548

Prospect Capital InterNotes® (less unamortized debt issuance costs of $11,613 and $12,349, respectively)

667,427

695,350

Convertible Notes (less unamortized debt issuance costs of $8,892 and $13,867, respectively)

450,598

739,997

Due to Prospect Capital Management

42,481

46,525

Interest payable

29,066

34,104

Dividends payable

22,412

22,028

Due to Prospect Administration

7,000

1,885

Accrued expenses

3,648

5,414

Due to broker

1

—

Other liabilities

2,027

937

Total Liabilities

2,244,302

2,493,788

Commitments and Contingencies

Net Assets

$

3,055,861

$

3,306,275

Components of Net Assets

Common stock, par value $0.001 per share (1,000,000,000 common shares authorized; 373,538,499 and 367,131,025 issued and outstanding, respectively)

$

374

$

367

Paid-in capital in excess of par

4,070,874

4,039,872

Total distributable earnings (loss)

(1,015,387

)

(733,964

)

Net Assets

$

3,055,861

$

3,306,275

Net Asset Value Per Share

$

8.18

$

9.01

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,

2020

2019

2020

2019

Investment Income

Interest income:

Control investments

$

48,647

$

50,006

$

200,948

$

211,212

Affiliate investments

7,324

312

12,649

943

Non-control/non-affiliate investments

50,901

66,963

229,963

271,907

Structured credit securities

22,083

34,323

110,816

140,054

Total interest income

128,955

151,604

554,376

624,116

Dividend income:

Control investments

1,000

2,850

10,335

34,127

Affiliate investments

—

—

—

659

Non-control/non-affiliate investments

104

462

1,109

1,243

Total dividend income

1,104

3,312

11,444

36,029

Other income:

Control investments

13,299

6,680

47,311

36,011

Affiliate investments

37

—

38

—

Non-control/non-affiliate investments

1,834

2,757

10,361

7,611

Total other income

15,170

9,437

57,710

43,622

Total Investment Income

145,229

164,353

623,530

703,767

Operating Expenses

Base management fee

26,279

29,149

108,910

121,833

Income incentive fee

16,202

17,407

68,057

78,215

Interest and credit facility expenses

34,765

39,721

148,368

157,231

Allocation of overhead from Prospect Administration

4,646

3,746

18,247

14,837

Audit, compliance and tax related fees

1,299

1,552

4,028

5,014

Directors’ fees

115

116

453

457

Other general and administrative expenses

1,316

3,035

9,773

13,321

Total Operating Expenses

86,956

94,726

357,836

390,908

Net Investment Income

58,273

69,627

265,694

312,859

Net Realized and Net Change in Unrealized (Losses) Gains from Investments

Net realized gains (losses)

Control investments

—

—

—

14,309

Affiliate investments

(7,311

)

—

—

Non-control/non-affiliate investments

—

1,167

(7,574

)

375

Net realized gains (losses)

(7,311

)

1,167

(7,574

)

14,684

Net change in unrealized (losses) gains

Control investments

54,775

27,234

(117,552

)

5,105

Affiliate investments

104,241

(11,699

)

67,077

(35,449

)

Non-control/non-affiliate investments

(47,310

)

(45,887

)

(221,167

)

(144,225

)

Net change in unrealized (losses) gains

111,706

(30,352

)

(271,642

)

(174,569

)

Net Realized and Net Change in Unrealized (Losses) Gains from Investments

104,395

(29,185

)

(279,216

)

(159,885

)

Net realized gains (losses) on extinguishment of debt

(55

)

(1,556

)

(2,702

)

(8,487

)

Net (Decrease) Increase in Net Assets Resulting from Operations

$

162,613

$

38,886

$

(16,224

)

$

144,487

Net (decrease) increase in net assets resulting from operations per share

$

0.44

$

0.11

$

(0.04

)

$

0.39

Dividends declared per share

$

(0.18

)

$

(0.18

)

$

(0.72

)

$

(0.72

)

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
ROLLFORWARD OF NET ASSET VALUE PER SHARE
(in actual dollars)

Three Months Ended
June 30,

Year Ended
June 30,

2020

2019

2020

2019

Per Share Data

Net asset value at beginning of period

$

7.98

$

9.08

$

9.01

$

9.35

Net investment income(1)

0.16

0.19

0.72

0.85

Net realized and change in unrealized gains (losses) (1)

0.28

(0.08

)

(0.76

)

(0.46

)

Net increase (decrease) from operations

0.44

0.11

(0.04

)

0.39

Distributions of net investment income

(0.18

)

(0.18

)

(0.72

)

(0.72

)

Common stock transactions(2)

(0.05

)

—

(3)

(0.07

)

(0.01

)

Net asset value at end of period

$

8.18

(4)

$

9.01

$

8.18

$

9.01

(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.

(4) Does not foot due to rounding.

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@prospectcap.com
Telephone (212) 448-0702


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