Prospect Capital Reports December 2018 Quarterly Results and Declares Additional Monthly Distributions

NEW YORK, Feb. 06, 2019 (GLOBE NEWSWIRE) — Prospect Capital Corporation (NASDAQ: PSEC) (“Prospect”, “our”, or “we”) today announced financial results for our second fiscal quarter ended December 31, 2018.

All amounts in $000’s except
  per share amounts
Quarter Ended Quarter Ended Quarter Ended
December 31, 2018 September 30, 2018 December 31, 2017
       
Net Investment Income (“NII”) $ 80,811   $ 85,159   $ 73,192  
Interest as % of Total Investment Income   84.1 %   88.4 %   94.4 %
       
NII per Share $ 0.22   $ 0.23   $ 0.20  
       
Net (Loss) Income $ (67,389 ) $ 83,795   $ 121,727  
Net (Loss) Income per Share $ (0.18 ) $ 0.23   $ 0.34  
       
Distributions to Shareholders $ 65,837   $ 65,693   $ 64,912  
Distributions per Share $ 0.18   $ 0.18   $ 0.18  
       
NAV per Share at Period End $ 9.02   $ 9.39   $ 9.28  
       
Net of Cash Debt to Equity Ratio   75.0 %   75.1 %   60.2 %

For the December 2018 quarter, we earned net investment income (“NII”) of $80.8 million, or $0.22 per weighted average share, down $0.01 from the September 2018 quarter, exceeding our current quarterly dividend rate of $0.18 per share by $0.04 per share. The decrease in NII per share resulted primarily from an increase in operating expenses partially offset by an increase in investment income due to higher levels of structuring fee income compared to the September 2018 quarter.

In the December 2018 quarter, our net of cash debt to equity ratio was 75.0%, down 0.1% from September 2018.

For the December 2018 quarter, our net loss was $(67.4) million, or $(0.18) per weighted average share, a decrease of $0.41 from the September 2018 quarter. The decrease in our net asset value (“NAV”) resulted primarily from unrealized losses in our portfolio, including due to a decline in industry valuations in the overall debt and equity capital markets as of December 31, 2018.

Our NAV per share decreased by $0.37 to $9.02 during the December 2018 quarter.

All amounts in $000’s except
  per share amounts
Six Months Ended
December 31, 2018
Six Months Ended
December 31, 2017
     
NII $ 165,970 $ 136,924
NII per Share $ 0.45 $ 0.38
     
Net Income (“NI”) $ 16,406 $ 133,700
NI per Share $ 0.04 $ 0.37
     
Distributions to Shareholders $ 131,531 $ 146,559
Distributions per Share $ 0.36 $ 0.41

For the six months ended December 31, 2018, we earned NII of $166.0 million, or $0.45 per weighted average share, up $0.07 from the prior year. For the six months ended December 31, 2018, we earned NI of $16.4 million, or $0.04 per weighted average share, down $0.33 from the prior year.

DISTRIBUTION DECLARATION

Prospect is declaring distributions as follows:

  • $0.06 per share for February 2019 to February 28, 2019 record holders with March 21, 2019 payment date;
  • $0.06 per share for March 2019 to March 29, 2019 record holders with April 18, 2019 payment date; and
  • $0.06 per share for April 2019 to April 30, 2019 record holders with May 23, 2019 payment date.

These distributions mark Prospect’s 127th, 128th, and 129th consecutive cash distributions to shareholders.

Based on the declarations above, Prospect’s closing stock price of $6.93 at February 5, 2019 delivers to shareholders a dividend yield of 10.4%.

Based on past distributions and our current share count for declared distributions, Prospect since inception through our April 2019 distribution will have distributed $17.16 per share to original shareholders, aggregating approximately $2.8 billion in cumulative distributions to all shareholders.

Prospect expects to declare May 2019, June 2019, July 2019, and August 2019 distributions in May 2019.

PORTFOLIO AND INVESTMENT ACTIVITY

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

All amounts in $000’s except
  per unit amounts
As of As of As of
December 31, 2018 September 30, 2018 June 30, 2018
       
Total Investments (at fair value) $ 5,842,570   $ 5,936,683   $ 5,727,279  
Number of Portfolio Companies   139     137     135  
% Controlled Investments (at fair value)   41.6 %   41.9 %   42.0 %
       
Secured First Lien   46.2 %   44.4 %   43.9 %
Secured Second Lien   23.1 %   21.7 %   22.1 %
Structured Credit   16.0 %   16.3 %   16.8 %
Equity Investments   14.3 %   17.1 %   16.6 %
Unsecured Debt   0.4 %   0.5 %   0.6 %
       
Annualized Current Yield – All Investments   10.7 %   10.8 %   10.5  
Annualized Current Yield – Performing Interest Bearing Investments   13.1 %   13.5 %   13.0 %
    12.5 %    
Top Industry Concentration(1)   13.8 %   14.1 %   14.2 %
       
Energy Industry Concentration(1)   3.0 %   3.2 %   3.0 %
       
Non-Accrual Loans as % of Total Assets (2)   3.6 %   2.4 %   2.5 %
       
Weighted Average Portfolio Net Leverage(3)   4.57x     4.57x     4.60x  
Weighted Average Portfolio EBITDA(3) $ 58,491   $ 56,459   $ 55,384  
  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 December 31, 2018 and September 30, 2018 quarters, our investment origination and repayment activity was as follows:

All amounts in $000’s Quarter Ended Quarter Ended
December 31, 2018 September 30, 2018
     
Total Originations $ 226,252   $ 254,642  
     
Non-Agented Debt   63.7 %   20.8 %
Structured Credit   19.0 %   9.3 %
Agented Sponsor Debt   14.5 %   63.6 %
Agented Non-Sponsor Debt   2.1 %   0.0 %
Real Estate   0.6 %   4.2 %
Corporate Yield Buyouts   0.1 %   2.1 %
     
Total Repayments $ 163,502   $ 56,608  
Originations, Net of Repayments $ 62,750   $ 198,034  

For a listing of transactions completed during the quarter, please see section titled “Portfolio Investment Activity” in our Form 10-Q for the quarter ended December 31, 2018.

We have invested in structured credit investments with individual standalone financings non-recourse to Prospect and with our risk limited in each case to our net investment amount. At December 31, 2018 and September 30, 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
December 31, 2018 September 30, 2018
     
Total Structured Credit Investments $ 937,127   $ 965,322  
     
# of Investments   48     46  
     
CLO Equity    
TTM Average Cash Yield(1)(2)(3)   17.5 %   16.2 %
Annualized Cash Yield(1)(2)(3)   21.0 %   11.7 %
Annualized GAAP Yield on Fair Value(1)(2)   15.5 %   14.4 %
Annualized GAAP Yield on Amortized Cost(2)(4)   12.6 %   12.2 %
     
Cumulative Cash Distributions $ 1,237,719   $ 1,191,061  
% of Original Investment   80.8 %   77.9 %
     
# of Underlying Collateral Loans   1,855     1,908  
Total Asset Base of Underlying Portfolio $ 19,196,380   $ 19,335,517  
     
Prospect TTM Default Rate   0.92 %   1.13 %
Broadly Syndicated Market TTM Default Rate   1.63 %   1.81 %
Prospect Default Rate Outperformance vs. Market   0.71 %   0.68 %
  1. Calculation based on fair value.
  2. Excludes deals in the process of redemption.
  3. Excludes deals that have yet to make a first payment.
  4. Calculation based on amortized cost.

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 December 31, 2017 through today, 22 structured credit investments have completed multi-year extensions of their reinvestment periods (typically at reduced liability spreads). We believe further upside exists in our structured credit portfolio through additional refinancings and reinvestment period extensions.

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

All amounts in $000’s Quarter Ended
March 31, 2019
   
Total Originations $ 3,290  
   
Non-Agented Debt   100.0 %
   
Total Repayments $ 44,307  
Originations, Net of Repayments $ (41,017 )

LIQUIDITY AND FINANCIAL RESULTS

The following table summarizes key leverage statistics at December 31, 2018, September 30, 2018, and December 31, 2017:

All amounts in $000’s As of
December 31, 2018
As of
September 30, 2018
As of
December 31, 2017
Net of Cash Debt to Equity Ratio   75.0 %   75.1 %   60.2 %
% of Assets at Floating Rates   88.2 %   87.8 %   89.3 %
% of Liabilities at Fixed Rates   88.5 %   85.0 %   99.9 %
       
Unencumbered Assets $ 4,322,091   $ 4,667,374   $ 4,606,067  
% of Total Assets   72.4 %   75.3 %   77.8 %

In November 2018 we issued $50 million of 2029 Notes. The below table summarizes our December 2018 quarter issuance and repurchase activity:

All amounts in $000’s Principal Rate Maturity
       
Debt Issuances      
2029 Notes $ 50,000 6.875 % June 2029
2024 Notes ATM $   4,450 6.25 % June 2024
2028 Notes ATM $ 2,332 6.25 % June 2028
Repurchases      
2020 Notes $ 13,500 4.75 % April 2020
Prospect Capital InterNotes® $ 70,072 4.25% – 5.50 % May 2020 – November 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 $1.02 billion of commitments have been closed to date with 29 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 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 eight separate unsecured debt issuances aggregating $1.6 billion outstanding, not including our program notes, with laddered maturities extending to June 2029. At December 31, 2018, $725.7 million of program notes were outstanding with staggered maturities through October 2043.

EARNINGS CONFERENCE CALL 

Prospect will host an earnings call on Thursday, February 7, 2019 at 11:00 am. Eastern Time. Dial 888-338-7333. For a replay prior to March 6, 2019, call 877-344-7529 passcode 10128664. The call will be available prior to March 6, 2019 on Prospect’s website, www.prospectstreet.com.

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES
(in thousands, except share and per share data)
  December 31,
2018
  June 30,
2018
   
  (Unaudited)   (Audited)
Assets      
Investments at fair value:      
Control investments (amortized cost of $2,381,352 and $2,300,526, respectively) $ 2,432,766     $ 2,404,326  
Affiliate investments (amortized cost of $176,997 and $55,637, respectively) 91,861     58,436  
Non-control/non-affiliate investments (amortized cost of $3,538,047 and $3,475,295, respectively) 3,317,943     3,264,517  
Total investments at fair value (amortized cost of $6,096,396 and $5,831,458, respectively) 5,842,570     5,727,279  
Cash 109,668     83,758  
Receivables for:      
Interest, net 7,663     19,783  
Other 237     1,867  
Deferred financing costs on Revolving Credit Facility 8,493     2,032  
Due from broker 580     3,029  
Prepaid expenses 568     984  
Due from Affiliate 88     88  
Total Assets 5,969,867     5,838,820  
       
Liabilities      
Revolving Credit Facility 297,000     37,000  
Convertible Notes (less unamortized debt issuance costs of $10,636 and $13,074, respectively) 798,011     809,073  
Public Notes (less unamortized discount and debt issuance costs of $13,946 and $11,007,
  respectively)
742,762     716,810  
Prospect Capital InterNotes® (less unamortized debt issuance costs of $11,641 and $11,998,
  respectively)
714,018     748,926  
Due to Prospect Capital Management 51,301     49,045  
Interest payable 32,975     33,741  
Dividends payable 21,963     21,865  
Due to broker     6,159  
Accrued expenses 5,505     5,426  
Due to Prospect Administration 1,785     2,212  
Other liabilities 1,372     1,516  
Total Liabilities 2,666,692     2,431,773  
Commitments and Contingencies          
Net Assets $ 3,303,175     $ 3,407,047  
       
Components of Net Assets      
Common stock, par value $0.001 per share (1,000,000,000 common shares authorized; 366,055,966 and 364,409,938 issued and outstanding, respectively) $ 366     $ 364  
Paid-in capital in excess of par 4,032,761     4,021,541  
Accumulated overdistributed net investment income (10,716 )   (45,186 )
Accumulated net realized loss (465,410 )   (465,493 )
Net unrealized loss (253,826 )   (104,179 )
Net Assets $ 3,303,175     $ 3,407,047  
       
Net Asset Value Per Share $ 9.02     $ 9.35  
 

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
(Unaudited)
  Three Months Ended
December 31,
  Six Months Ended
December 31,
  2018   2017   2018   2017
Investment Income              
Interest income:              
Control investments $ 53,674     $ 47,418     $ 110,128     $ 93,448  
Affiliate investments 174         401     205  
Non-control/non-affiliate investments 68,679     75,833     137,288     148,263  
Structured credit securities 35,467     30,131     69,619     59,551  
Total interest income 157,994     153,382     317,436     301,467  
Dividend income:              
Control investments 13,000         27,665      
Non-control/non-affiliate investments 266     326     528     870  
Total dividend income 13,266     326     28,193     870  
Other income:              
Control investments 15,741     4,038     18,532     6,129  
Non-control/non-affiliate investments 882     4,654     4,144     12,513  
Total other income 16,623     8,692     22,676     18,642  
Total Investment Income 187,883     162,400     368,305     320,979  
Operating Expenses              
Base management fee 33,187     29,559     63,144     59,722  
Income incentive fee 20,203     18,298     41,493     34,231  
Interest and credit facility expenses 40,656     39,347     78,564     80,382  
Allocation of overhead from Prospect Administration 5,642     (824 )   9,007     2,704  
Audit, compliance and tax related fees 2,389     1,866     2,782     2,954  
Directors’ fees 150     112     229     225  
Other general and administrative expenses 4,845     850     7,116     3,837  
Total Operating Expenses 107,072     89,208     202,335     184,055  
Net Investment Income 80,811     73,192     165,970     136,924  
Net Realized and Net Change in Unrealized (Losses) Gains from Investments              
Net realized gains (losses)              
Control investments 2,801     2     2,802     11  
Affiliate investments             846  
Non-control/non-affiliate investments 192     (5,675 )   1,232     (5,093 )
Net realized gains (losses) 2,993     (5,673 )   4,034     (4,236 )
Net change in unrealized (losses) gains              
Control investments (85,733 )   44,425     (33,815 )   45,518  
Affiliate investments (5,894 )   1,533     (19,649 )   6,726  
Non-control/non-affiliate investments (59,069 )   8,737     (96,183 )   (50,300 )
Net change in unrealized (losses) gains (150,696 )   54,695     (149,647 )   1,944  
Net Realized and Net Change in Unrealized (Losses) Gains from Investments (147,703 )   49,022     (145,613 )   (2,292 )
Net realized losses on extinguishment of debt (497 )   (487 )   (3,951 )   (932 )
Net (Decrease) Increase in Net Assets Resulting from Operations $ (67,389 )   $ 121,727     $ 16,406     $ 133,700  
Net (decrease) increase in net assets resulting from operations per share $ (0.18 )   $ 0.34     $ 0.04     $ 0.37  
Dividends declared per share $ (0.18 )   $ (0.18 )   $ (0.36 )   $ (0.41 )
 

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
ROLLFORWARD OF NET ASSET VALUE PER SHARE
(in actual dollars)
  Three Months Ended
December 31,
  Six  Months Ended
December 31,
  2018   2017   2018   2017  
Per Share Data                
Net asset value at beginning of period $ 9.39       $ 9.12     $ 9.35     $ 9.32    
Net investment income(1) 0.22       0.20     0.45     0.38    
Net realized and change in unrealized (losses) gains (1) (0.40 )     0.14     (0.41   ) (0.01 )  
Distributions of net investment income (0.18 )     (0.18 )   (0.36   ) (0.41 )  
Common stock transactions(2) (0.01 )         (3 ) (0.01 )     (3 )
Net asset value at end of period $ 9.02       $ 9.28     $ 9.02     $ 9.28    
  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 fair market value 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 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, 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
[email protected]
Telephone (212) 448-0702