Wells Fargo Reiterates Prospect Capital Underperform, Warns Any SEC Involvement Could Push Stock Lower

• Shares of Prospect Capital Corporation PSEC have declined 33.84 percent over the past one year, almost touching their 52 week low on February 5.
• Wells Fargo’s Jonathan Bock has maintained an Underperform rating on the company.
• An Asset-Backed publication of repute reported that there could be an ongoing SEC investigation at Prospect Capital. This could negatively impact the stock.

Analyst Jonathan Bock elaborated that the potential SEC enquiry was about whether Prospect Capital and the company that values its CLOs had “conspired with Prospect to set improper marks for its CLO investments.” The article also said that Prospect Capital’s auditor could be under scrutiny.

The article also stated that “another question ties to whether or not PSEC rebuffed advances from other valuation firms to value the CLO portfolio out of fear this would lead to CLO markdowns of 20 percent or greater.”

Bock believes that the best course of action for the company’s independent board members would be to employ another valuation firm or repute for a second opinion on the CLO marks, using either conventional methods or methods compared to those used by other BDCs.