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Prospect Capital Reports June 2018 Annual and Quarterly Results and Declares Additional Monthly Distributions

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NEW YORK , Aug. 28, 2018 (GLOBE NEWSWIRE) -- Prospect Capital Corporation (NASDAQ:PSEC) ("Prospect", "our", or "we") today announced financial results for our fiscal year ended June 30, 2018.

       
All amounts in $000's except
per share amounts
Quarter Ended Quarter Ended Quarter Ended
June 30, 2018 March 31, 2018 June 30, 2017
       
Net Investment Income ("NII") $79,480 $70,446 $69,678
Interest as % of Total Investment Income 91.8% 89.6% 96.3%
       
NII per Share $0.22 $0.19 $0.19
       
Net Increase in Net Assets Resulting from Operations ("NI") $114,304 $51,859 $51,168
NI per Share $0.31 $0.14 $0.14
       
Distributions to Shareholders $65,491 $65,174 $89,998
Distributions per Share $0.18 $0.18 $0.25
       
Net Asset Value ("NAV") per Share $9.35 $9.23 $9.32
       
Net of Cash Debt to Equity Ratio 66.5% 69.1% 70.5%
       

For the June 2018 quarter, we earned net investment income ("NII") of $79.5 million, or $0.22 per weighted average share, up $0.03 from the March 2018 quarter, and exceeding our current quarterly dividend rate of $0.18 per share by $0.04 per share. The increase in NII per share resulted primarily from an increase in interest and other income compared to the March 2018 quarter.

In the June 2018 quarter, our net of cash debt to equity ratio was 66.5%, down 2.6% from March 2018 and down 4.0% from June 2017.

For the June 2018 quarter, our net increase in net assets resulting from operations ("NI") was $114.3 million, or $0.31 per weighted average share, an increase of $0.17 from the March 2018 quarter as a result of an increased NII and a net increase in the fair value of our portfolio, including investments in the real estate, CLO, consumer finance, and other sectors.

Our interest income as a percentage of total investment income was 91.8% in the June 2018 quarter, up 2.2% from 89.6% in the March 2018 quarter.

Our net asset value ("NAV") per share increased by $0.12 to $9.35 during the June 2018 quarter.

     
All amounts in $000's except
per share amounts
Year Ended
June 30, 2018
Year Ended
June 30, 2017
     
NII $286,850 $306,082
NII per Share $0.79 $0.85
     
NI $299,863 $252,906
NI per Share $0.83 $0.70
     
Distributions to Shareholders $277,224 $358,987
Distributions per Share $0.77 $1.00
         

For the year ended June 30, 2018, we earned NII of $286.9 million, or $0.79 per weighted average share, down $0.06 from the prior year. For the year ended June 30, 2018, we earned NI of $299.9 million, or $0.83 per weighted average share, up $0.13 from the prior year.

DISTRIBUTION DECLARATION

Prospect is declaring distributions as follows:

  • $0.06 per share for September 2018 to September 28, 2018 record holders with October 18, 2018 payment date; and
  • $0.06 per share for October 2018 to October 31, 2018 record holders with November 21, 2018 payment date.

These distributions mark Prospect's 122nd and 123rd consecutive cash distributions to shareholders.

Based on the declarations above, Prospect's closing stock price of $7.18 at August 27, 2018 delivers to shareholders a dividend yield of 10.0%.

Based on past distributions and our current share count for declared distributions, Prospect since inception through our October 2018 distribution will have distributed $16.80 per share to original shareholders, exceeding $2.6 billion in cumulative distributions to all shareholders.

Prospect expects to declare November 2018, December 2018, and January 2019 distributions in November 2018.

PORTFOLIO AND INVESTMENT ACTIVITY

We continue to prioritize secured lending. At June 30, 2018, March 31, 2018, and June 30, 2017, our portfolio comprised the following:

       
All amounts in $000's except
per unit amounts
As of As of As of
June 30, 2018 March 31, 2018 June 30, 2017
       
Total Investments (at fair value) $5,727,279 $5,719,804 $5,838,305
Number of Portfolio Companies 135 134 121
% Controlled Investments (at fair value) 42.0% 34.7% 32.7%
       
Secured First Lien
43.9% 44.9% 48.3%
Secured Second Lien 22.1% 23.2% 19.1%
Structured Credit 16.8% 16.5% 18.5%
Equity Investments 16.6% 14.9% 13.2%
Unsecured Debt 0.6% 0.5% 0.8%
Small Business Whole Loans 0.0% 0.0% 0.1%
       
Annualized Current Yield – All Investments 10.5% 10.8% 10.4%
Annualized Current Yield – Performing Interest Bearing Investments 13.0% 12.9% 12.2%
       
Top Industry Concentration(1) 14.2% 12.8% 10.7%
       
Energy Industry Concentration(1) 3.0% 2.8% 2.4%
       
Non-Accrual Loans as % of Total Assets(4) 2.5% 1.3% 2.5%(3)
       
Weighted Average Portfolio Net Leverage(2) 4.60x 4.65x 4.19x
Weighted Average Portfolio EBITDA $55,384 $62,628 $48,340
       
(1) Excluding our underlying industry-diversified structured credit portfolio. 
(2) Through our investment in the portfolio company's capital structure.
(3) Includes 1.3% from USC, which timely paid income-producing, contractual interest to us in June 2017 quarter.
(4) Calculated at fair value
 

During the June 2018 and March 2018 quarters, our investment origination and repayment activity was as follows:

     
All amounts in $000's Quarter Ended Quarter Ended
June 30, 2018 March 31, 2018
     
Total Originations
$339,841 $429,928
     
     
Agented Sponsor Debt 42% 40%
Agented Non-Sponsor Debt 33% 0%
Real Estate 15% 3%
Structured Credit 6% 7%
Non-Agented Debt 3% 43%
Corporate Yield Buyouts 1% 6%
Online Lending 1%
     
Total Repayments $362,287 $116,978
Originations, Net of Repayments ($22,446) $312,950
     

For a listing of transactions completed during the quarter, please see section titled "Portfolio Investment Activity" in our Form 10-K for the year ended June 30, 2018 as filed with the Securities and Exchange Commission on August 28, 2018.

Our structured credit investments have individual standalone financings each non-recourse to Prospect and with our risk limited in each case to our net investment amount. At June 30, 2018 and March 31, 2018, our structured credit portfolio at fair value consisted of the following:

     
All amounts in $000's except
per unit amounts
As of As of
June 30, 2018 March 31, 2018
     
Total Structured Credit Investments
$960,194 $944,815
     
# of Investments 44 43
     
TTM Average Cash Yield on Fair Value(1)(2) 17.6% 17.3%
Annualized Cash Yield on Fair Value(1)(2) 21.1% 13.2%
Annualized GAAP Yield on Fair Value(1)(2) 14.5% 13.2%
Annualized GAAP Yield on Amortized Cost(1)(2) 12.6% 11.6%
     
Cumulative Cash Distributions $1,163,691 $1,112,703
% of Original Investment 76.3% 73.8%
     
# of Underlying Collateral Loans 2,025 2,184
Total Asset Base of Underlying Portfolio $19,087,415 $18,762,162
     
Prospect TTM Default Rate 1.15% 1.10%
Broadly Syndicated Market TTM Default Rate 1.98% 2.42%
Prospect Default Rate Outperformance vs. Market 0.83% 1.32%
     
(1) Excludes deals in the process of redemption.
(2) Cash yield includes all cash distributions from an investment, while GAAP yield subtracts out amortization of cost basis.
 

To date, including called deals in the process of liquidation, we have exited 11 structured credit investments totaling $290.5 million with an expected average realized IRR of 16.1% and cash on cash multiple of 1.49 times.

Since June 30, 2017 through today, one of our structured credit investments has completed a refinancing to reduce liability spreads, and 19 additional structured credit investments have completed multi-year extensions of their reinvestment periods (with most resulting in reduced liability spreads as well as higher asset spread possibilities from longer weighted average life tests). We believe further upside exists in our structured credit portfolio through additional refinancings and reinvestment period extensions, and are actively working on such transactions.

To date during the September 2018 quarter, we have completed new and follow-on investments as follows:

   
All amounts in $000's Quarter Ended
September 30, 2018
   
Total Originations
$180,901
   
Agented Sponsor Debt 66%
Non-Agented Debt 24%
Structured Credit 6%
Real Estate 4%
Agented Non-Sponsor Debt 0%
   
Total Repayments $20,126
Originations, Net of Repayments $160,775
   

LIQUIDITY AND FINANCIAL RESULTS

The following table summarizes key leverage statistics at June 30, 2018, March 31, 2018, and June 30, 2017:

       
All amounts in $000's As of
June 30, 2018
As of
March 31, 2018
As of
June 30, 2017
Net of Cash Debt to Equity Ratio 66.5% 69.1% 70.5%
% of Assets at Floating Rates 89.7% 90.1% 90.4%
% of Liabilities at Fixed Rates 98.4% 96.4% 99.9%
       
Unencumbered Assets $4,502,764 $4,619,909 $4,546,147
% of Total Assets 77.1% 79.0% 73.6%
       

In the past year, we repaid our remaining October 2017 and March 2018 convertible notes at maturity and repurchased $269.4 million of our program notes. In May 2018 we repurchased $98.4 million in principal amount of our January 2019 convertible notes and issued an additional $103.5 million of our July 2022 convertible notes. In June 2018 we repurchased $146.5 million in principal amount of our 5% coupon July 2019 notes, issued $70.0 million of our March 2023 notes, and issued $55.0 million of our June 2028 notes. The below table summarizes our issuance and repurchase activity:

       
All amounts in $000's Principal Rate Maturity
       
Debt Issuances
     
2022 Notes $103,500 4.95% July 2022
2023 Notes $70,000 5.875% March 2023
2028 Notes $55,000 6.25% June 2028
Repurchases      
2017 Notes $50,734 5.375% October 2017
2018 Notes $85,419 5.75% March 2018
2019 Notes $98,353 5.875% January 2019
5% 2019 Notes $146,464 5.00% July 2019
Prospect Capital InterNotes® $298,735 3.75% - 5.85% February 2018– September 2020
         

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%. The new Facility, for which $770 million of commitments have been closed to date with 19 institutional lenders (representing one of the most diversified bank groups in our industry), with further increases targeted, includes an accordion feature that allows the Facility, at Prospect's discretion, to accept up to a total of $1.5 billion of commitments. The Facility matures on 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.

We currently have seven separate unsecured debt issuances aggregating $1.6 billion outstanding, not including our program notes, with laddered maturities extending to June 2028. At June 30, 2018, $760.9 million of program notes were outstanding with staggered maturities through October 2043.

EARNINGS CONFERENCE CALL

Prospect will host an earnings call on Wednesday, August 29, 2018 at 11:00 am. Eastern Time. Dial 888-338-7333. For a replay prior to September 28, 2018, call 877-344-7529 passcode 10123493. The call will be available prior to September 28, 2018 on Prospect's website, www.prospectstreet.com.


       
  June 30, 2018   June 30, 2017
Assets      
Investments at fair value:      
Control investments (amortized cost of $2,300,526 and $1,840,731, respectively) $ 2,404,326     $ 1,911,775  
Affiliate investments (amortized cost of $55,637 and $22,957, respectively) 58,436     11,429  
Non-control/non-affiliate investments (amortized cost of $3,475,295 and $4,117,868, respectively) 3,264,517     3,915,101  
Total investments at fair value (amortized cost of $5,831,458 and $5,981,556, respectively) 5,727,279     5,838,305  
Cash 83,758     318,083  
Receivables for:      
Interest, net 19,783     9,559  
Other 1,867     924  
Due from Broker 3,029      
Prepaid Expenses 984   1,125  
Due from Affiliate 88     14  
Deferred financing costs on Revolving Credit Facility 2,032     4,779  
Total Assets 5,838,820     6,172,789  
       
Liabilities      
Revolving Credit Facility 37,000      
Convertible Notes (less unamortized debt issuance costs of $13,074 and $15,512, respectively)
809,073     937,641  
Prospect Capital InterNotes® (less unamortized debt issuance costs of $11,998 and $14,240, respectively) 748,926     966,254  
Public Notes (less unamortized discount and debt issuance costs of $11,007 and $10,981, respectively) 716,810     738,300  
Due to Prospect Capital Management 49,045     48,249  
Interest payable 33,741     38,630  
Dividends payable 21,865     30,005  
Due to Broker 6,159     50,371  
Accrued expenses 5,426     4,380  
Due to Prospect Administration 2,212     1,910  
Other liabilities 1,516     2,097  
Total Liabilities 2,431,773     2,817,837  
Commitments and Contingencies      
Net Assets $ 3,407,047     $ 3,354,952  
       
Components of Net Assets      
Common stock, par value $0.001 per share (1,000,000,000 common shares authorized; 364,409,938 and 360,076,933 issued and outstanding, respectively) $ 364     $ 360  
Paid-in capital in excess of par 4,021,541     3,991,317  
Accumulated overdistributed net investment income (45,186 )   (54,039 )
Accumulated net realized loss (465,493 )   (439,435 )
Net unrealized loss (104,179 )   (143,251 )
Net Assets $ 3,407,047     $ 3,354,952  
       
Net Asset Value Per Share $ 9.35     $ 9.32  
               


  Three Months Ended June 30,   Year Ended June 30,
  2018   2017   2018   2017
Investment Income              
Interest income:              
Control investments $ 57,527     $ 41,953     $ 195,487     $ 177,496  
Affiliate investments 234     297     553     297  
Non-control/non-affiliate investments 67,244     84,777     285,473     342,696  
Structured credit securities 34,678     33,538     125,499     148,228  
Total interest income 159,683     160,565     607,012     668,717  
Dividend income:              
Control investments 5,639     1,000     11,279     5,250  
Non-control/non-affiliate investments 250     99     1,767     429  
Total dividend income 5,889
    1,099     13,046     5,679  
Other income:              
Control investments 2,765 
    1,721     15,080     11,470  
Non-control/non-affiliate investments 5,694 
    3,317     22,707     15,180  
Total other income 8,459     5,038     37,787     26,650  
Total Investment Income 174,031     166,702     657,845     701,046  
Operating Expenses              
Base management fee 29,056     30,647     118,046     122,874  
Income incentive fee 19,870     17,419     71,713     76,520  
Interest and credit facility expenses 37,178
    40,867     155,039     164,848  
Allocation of overhead from Prospect Administration 4,132
    3,475     10,031     13,246  
Audit, compliance and tax related fees 1,455
    1,412     5,539     5,088  
Directors' fees 237
    116     450     454  
Excise Tax             (1,100 )
Other general and administrative expenses 2,623     3,088     10,177     13,034  
Total Operating Expenses 94,551     97,024     370,995     394,964  
Net Investment Income 79,480     69,678     286,850     306,082  
Net Realized and Change in Unrealized Gains (Losses) from Investments              
Net realized gains (losses)              
Control investments 1     (66,099 )   13     (65,915 )
Affiliate investments         (13,351 )   137  
Non-control/non-affiliate investments (11 )   (31,017   (5,126 )   (30,528 )
Net realized losses (10 )   (97,116   (18,464 )   (96,306 )
Net change in unrealized gains (losses)              
Control investments (25,487 )   117,754     55,670     86,817  
Affiliate investments 5,994     2,407     25,671     553  
Non-control/non-affiliate investments 60,475     (34,749 )   (42,270 )   (37,229 )
Net change in unrealized gains (losses) 40,982     85,412     39,071     50,141 )
Net Realized and Change in Unrealized Gains (Losses) from Investments 40,972     (11,704   20,607     (46,165 )
Net realized (losses) on extinguishment of debt (6,148 )   (6,806 )   (7,594 )   (7,011 )
Net Increase in Net Assets Resulting from Operations   114,304     $ 51,168     $ 299,863     $ 252,906  
Net increase in net assets resulting from operations per share $ 0.31     $ 0.14     $ 0.83     $ 0.70  
Dividends declared per share $ (0.18 )   $ (0.25 )   $ (0.77 )   $ (1.00 )
                               


         
  Three Months Ended
June,
  Year Ended
June 30,
 
  2018   2017   2018   2017  
Per Share Data                
Net asset value at beginning of period $ 9.23     $ 9.43     $ 9.32   $ 9.62  
Net investment income(1) 0.22     0.19     0.79   0.85  
Net realized and change in unrealized gains (losses) (1) 0.09     (0.05 )   (0.04 ) (0.15 )
Distributions of net investment income (0.18 )   (0.25 )   (0.77 ) (1.00 )
Common stock transactions(2) (0.01 )   — (3 )   (0.03 ) (3)
Net asset value at end of period $ 9.35     $ 9.32     $ 9.35   $ 9.32  
                             
(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.
 

ABOUT PROSPECT CAPITAL CORPORATION

Prospect Capital Corporation (www.prospectstreet.com) is a business development company lending to and investing in private businesses. Our investment objective is to generate 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 a series of 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 are highly likely to be affected by unknowable future events and conditions, including some 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

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