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Prospect Capital Reports June 2017 Annual and Quarterly Results and Declares Distributions for October and November 2017

NEW YORK, Aug. 28, 2017 (GLOBE NEWSWIRE) -- Prospect Capital Corporation (NASDAQ:PSEC) (“Prospect”, “our”, or “we”) today announced financial results for our fiscal year and fourth fiscal quarter ended June 30, 2017.


All amounts in $000’s except
per share amounts
Quarter EndedQuarter EndedQuarter Ended
June 30, 2017March 31, 2017June 30, 2016
Net Investment Income (“NII”)$69,678 $73,080 $91,367
Interest as % of Total Investment Income 96.3% 94.6% 90.6%
NII per Share$0.19 $0.20 $0.26
Net Income (“NI”)$51,168 $19,492 $95,157
NI per Share$0.14 $0.05 $0.27
Distributions to Shareholders$89,998 $89,892 $89,190
Distributions per Share$0.25 $0.25 $0.25
NAV per Share at Period End$9.32 $9.43 $9.62
Net of Cash Debt to Equity Ratio 70.5% 75.6% 69.6%

For the June 2017 quarter, we earned net investment income (“NII”) of $69.7 million, or $0.19 per weighted average share, down $0.01 from the March 2017 quarter. Carrying out our plan to reduce risk decreased originations, structuring fees, and management fees.

Executing our strategy to preserve capital, reduce risk, and avoid “chasing yield” through investments deemed too risky with a poor risk/return profile at this point in the economic cycle, we reduced originations this quarter to about half the levels of the prior quarter. We remain committed to our historic credit discipline. We currently have a robust pipeline of potential investments in our target range for credit quality and yield. We believe our disciplined approach to credit will serve us well in the coming years, just as that disciplined approach has served us well in past years.

In the June 2017 quarter we also implemented our objective to reduce risk by decreasing our net debt to equity ratio from 75.6% at March 2017 to 70.5% at June 2017.

For the June 2017 quarter, our net income (“NI”) was $51.2 million, or $0.14 per weighted average share, an increase of $0.09 from the March 2017 quarter. Lower management fees and improvement in unrealized depreciation in our energy, consumer finance, and structured credit investments in the June 2017 quarter over the March 2017 quarter contributed to increased NI.

Our interest income as a percentage of total investment income increased to 96.3% in the June 2017 quarter, further reducing the contribution of one-time structuring fees in favor of recurring interest income.

All amounts in $000’s except
per share amounts
Year Ended
June 30, 2017
Year Ended
June 30, 2016
Net Investment Income (“NII”)$306,082$371,128
NII per Share$0.85$1.04
Net Income (“NI”)$252,906$103,362
NI per Share$0.70$0.29
Distributions to Shareholders$358,987$356,110
Distributions per Share$1.00$1.00
NAV per Share at Year End$9.32$9.62

For the year ended June 30, 2017, we earned NII of $306.1 million, or $0.85 per weighted average share, down $0.19 from the prior year. For the year ended June 30, 2017, we earned NI of $252.9 million, or $0.70 per weighted average share, up $0.41 from the prior year.

DISTRIBUTION DECLARATION

Prospect is declaring distributions as follows:

  • $0.06 per share for September 2017 to September 29, 2017 record holders with October 19, 2017 payment date; and
  • $0.06 per share for October 2017 to October 31, 2017 record holders with November 22, 2017 payment date.

These distributions mark Prospect’s 110th and 111th consecutive cash distributions to shareholders.

Based on the declarations above, Prospect’s closing stock price of $7.13 at August 25, 2017 delivers to shareholders a 10.1% dividend yield.

Based on past distributions and our current share count for declared distributions, Prospect since inception through our October 2017 distribution will have distributed $16.07 per share to original shareholders, exceeding $2.3 billion in cumulative distributions to all shareholders.

Prospect expects to declare November 2017, December 2017, and January 2018 distributions in November 2017.

PORTFOLIO AND INVESTMENT ACTIVITY

We continue to prioritize secured lending. At June 30, 2017, March 31, 2017, and June 30, 2016, our portfolio consisted of the following:

All amounts in $000’s except
per unit amounts
As ofAs ofAs of
June 30, 2017March 31, 2017June 30, 2016
Total Investments (at fair value)$5,838,305 $6,024,766 $5,897,708
Number of Portfolio Companies 121 125 125
% Controlled Investments (at fair value) 32.7% 31.4% 29.7%
Secured First Lien
48.3% 48.8% 50.0%
Secured Second Lien 19.1% 20.5% 20.6%
Structured Credit 18.5% 17.8% 17.1%
Equity Investments 13.2% 12.0% 10.9%
Unsecured Debt 0.8% 0.7% 1.2%
Small Business Whole Loans 0.1% 0.2% 0.2%
Annualized Current Yield(1) 12.2% 12.3% 13.2%
Top Industry Concentration(2) 10.7% 9.6% 8.2%
Energy Industry Concentration(2) 2.4% 2.6% 3.1%
Non-Accrual Loans as % of Total Assets 2.5%(3) 1.4% 1.4%
Non-Accrual Loans as % of Total Assets, Energy Industry 0.2% 0.3% 0.5%
Weighted Average Portfolio Net Leverage(4) 4.19x 4.15x 4.18x
Weighted Average Portfolio EBITDA$48,340 $49,425 $48,138

(1) Across all performing interest bearing investments.

(2) Excluding our underlying industry-diversified structured credit portfolio.

(3) Includes 1.3% from USC, which timely paid income-producing, contractual interest to us in June 2017 quarter.

(4) Through our investment in the portfolio company’s capital structure.

During the June 30, 2017 and March 31, 2017 quarters, our investment origination and repayment activity was as follows:

All amounts in $000’s Quarter EndedQuarter Ended
June 30, 2017March 31, 2017
Total Originations $223,176 $449,607
Structured Credit 32% 2%
Third-Party Sponsor Deals 31% 66%
Syndicated Debt 31% 12%
Online Lending 4% 6%
Real Estate 1% 10%
Operating Buyouts 1% 4%
Total Repayments$352,043 $302,513
Originations, Net of Repayments$(128,867)$147,094

During the years ended June 30, 2017 and June 30, 2016, our investment origination and repayment activity was as follows:

All amounts in $000’s Year EndedYear Ended
June 30, 2017June 30, 2016
Total Originations
$1,489,470 $979,102
Structured Credit 12% 10%
Third-Party Sponsor Deals 38% 44%
Syndicated Debt 27% 12%
Online Lending 12% 31%
Real Estate 8% 2%
Operating Buyouts 2% 1%
Aircraft Leasing 1% --
Total Repayments$1,413,882 $1,338,875
Originations, Net of Repayments$75,588 ($359,773)

For a listing of transactions completed during the quarter and fiscal year, please see section titled “Portfolio Investment Activity” in our form 10-K for the year ended June 30, 2017.

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 June 30, 2017, March 31, 2017, and June 30, 2016, our structured credit portfolio at fair value consisted of the following:

All amounts in $000’s except
per unit amounts
As ofAs ofAs of
June 30, 2017March 31, 2017June 30, 2016
Total Structured Credit Investments $1,079,712 $1,072,517 $1,009,696
# of Investments 43 41 38
TTM Average Cash Yield(1)(2) 21.4% 22.6% 28.8%
Annualized Cash Yield(2) 18.8% 17.9% 22.8%
Annualized GAAP Yield(2) 13.6% 13.6% 15.4%
Cumulative Cash Distributions$939,048 $857,111 $695,865
% of Original Investment 63.8% 64.9% 53.6%
# of Underlying Collateral Loans 2,491 2,568 3,031
Total Asset Base of Underlying Portfolio$19,254,846 $19,867,965 $18,529,331
Prospect TTM Default Rate 0.75% 1.05% 1.37%
Broadly Syndicated Market TTM Default Rate 1.54% 1.49% 1.97%
Prospect Default Rate Outperformance vs. Market 0.79% 0.44% 0.60%


(1) Calculation based on fair value.

(2) Excludes deals in the process of redemption as of June 30, 2017.

To date, we have exited seven structured credit investments totaling $153.6 million with an average realized IRR of 16.8% and cash on cash multiple of 1.42 times.

Since August 29, 2016 (the date of our June 2016 earnings release), 18 of our structured credit investments have completed refinancings to reduce their liability spreads, and four additional structured credit investments have completed multi-year extensions of their reinvestment periods (also 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 September 2017 quarter, we have completed new and follow-on investments as follows:

All amounts in $000’s Quarter Ended
September 30, 2017
Total Originations
$41,986
Syndicated Debt43%
Online Lending38%
Third-Party Sponsor Deals12%
Real Estate7%
Total Repayments$141,960

LIQUIDITY AND FINANCIAL RESULTS

The following table summarizes key leverage statistics at June 30, 2017, March 31, 2017, and June 30, 2016:

All amounts in $000’s As of
June 30, 2017
As of
March 31, 2017
As of
June 30, 2016
Net of Cash Debt to Equity Ratio 70.5% 75.6% 69.6%
% of Assets at Floating Rates 90.4% 90.7% 91.0%
% of Liabilities at Fixed Rates 99.9% 99.9% 99.9%
Unencumbered Assets$4,546,147 $4,611,293 $4,892,542
% of Total Assets 73.7% 74.9% 78.0%

We repaid our $167.5 million August 2016 convertible notes at maturity. We have refinanced (or provided notice to call) a majority of our debt maturing in less than one year as follows:

All amounts in $000’s PrincipalRateMaturity
Debt Issuances
2022 Notes$225,0004.95%July 2022
Repurchases
2017 Notes$78,7665.375%October 2017
2018 Notes$114,5815.75%March 2018
Prospect Capital InterNotes®$139,4773.75% - 5.85%December 2017 – September 2019

For the remainder of calendar year 2017, we have liability maturities of $60.6 million.

On August 29, 2014, we renegotiated and closed an expanded five and a half year revolving credit facility (the “Facility”), summarized as follows:

All amounts in $000’s As of
June 30, 2017
Total Extended Commitments$885,000
Total Commitments with Accordion Feature$1,500,000
Interest Rate on Borrowings1M LIBOR + 225 bps (no floor)
Moody’s RatingAa3

We have diversified our counterparty risk. At June 30, 2017, 21 institutional lenders were committed to the Facility compared to five lenders at June 30, 2010, one of the most diversified bank groups in our industry. The revolving period of the Facility extends through March 2019, with an additional one-year amortization period to March 2020, with distributions allowed after the completion of the revolving period. We currently have no borrowings drawn under our Facility.

We have eight separate unsecured debt issuances aggregating $1.7 billion outstanding, not including our program notes, with maturities ranging from October 2017 to June 2024. At June 30, 2017, $980.5 million of program notes were outstanding with staggered maturities through October 2043.

EARNINGS CONFERENCE CALL

Prospect will host an earnings call on Tuesday, August 29, 2017 at 11:00 am. Eastern Time. Dial 888-338-7333. For a replay prior to September 29, 2017, call 877-344-7529 passcode 10111573. The call will be available prior to September 29, 2017 on Prospect’s website, www.prospectstreet.com. For copies of our corporate presentation, our recent shareholder letter, and our performance data please see http://shareholder.prospectstreet.com.

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES
(in thousands, except share and per share data)
June 30, 2017 June 30, 2016
Assets
Investments at fair value:
Control investments (amortized cost of $1,840,731 and $1,768,220, respectively) $1,911,775 $1,752,449
Affiliate investments (amortized cost of $22,957 and $10,758, respectively) 11,429 11,320
Non-control/non-affiliate investments (amortized cost of $4,117,868 and $4,312,122, respectively) 3,915,101 4,133,939
Total investments at fair value (amortized cost of $5,981,556 and $6,091,100, respectively) 5,838,305 5,897,708
Cash 318,083 317,798
Receivables for:
Interest, net 9,559 12,127
Other 924 168
Prepaid expenses 1,125 855
Due from Affiliate 14
Deferred financing costs on Revolving Credit Facility 4,779 7,525
Total Assets 6,172,789 6,236,181
Liabilities
Revolving Credit Facility
Prospect Capital InterNotes® 966,254 893,210
Convertible Notes 937,641 1,074,361
Public Notes 738,300 699,368
Due to Prospect Capital Management 48,249 54,149
Interest payable 38,630 40,804
Dividends payable 30,005 29,758
Due to Prospect Administration 1,910 1,765
Accrued expenses 4,380 2,259
Other liabilities 2,097 3,633
Due to broker 50,371 957
Total Liabilities 2,817,837 2,800,264
Commitments and Contingencies
Net Assets $3,354,952 $3,435,917
Components of Net Assets
Common stock, par value $0.001 per share (1,000,000,000 common shares authorized;
360,076,933 and 357,107,231 issued and outstanding, respectively)
$360 $357
Paid-in capital in excess of par 3,991,317 3,967,397
Accumulated overdistributed net investment income (54,039) (3,623)
Accumulated net realized loss (439,435) (334,822)
Net unrealized loss (143,251) (193,392)
Net Assets $3,354,952 $3,435,917
Net Asset Value Per Share $9.32 $9.62


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,
2017 2016 2017 2016
Investment Income
Interest income:
Control investments $41,953 $53,242 $177,496 $207,377
Affiliate investments 297 297 896
Non-control/non-affiliate investments 84,777 81,277 342,696 347,132
Structured credit securities 33,538 40,301 148,228 176,213
Total interest income 160,565 174,820 668,717 731,618
Dividend income:
Control investments 1,000 1,389 5,250 26,435
Non-control/non-affiliate investments 99 50 429 66
Total dividend income 1,099 1,439 5,679 26,501
Other income:
Control investments 1,721 15,092 11,470 22,528
Non-control/non-affiliate investments 3,317 1,687 15,180 11,326
Total other income 5,038 16,779 26,650 33,854
Total Investment Income 166,702 193,038 701,046 791,973
Operating Expenses
Base management fee 30,647 30,811 122,874 126,523
Income incentive fee 17,419 22,842 76,520 92,782
Interest and credit facility expenses 40,867 41,838 164,848 167,719
Allocation of overhead from Prospect Administration 3,475 3,533 13,246 12,647
Audit, compliance and tax related fees 1,412 (237) 5,088 4,428
Directors’ fees 116 97 454 379
Excise Tax 595 (1,100) 2,295
Other general and administrative expenses 3,088 2,192 13,034 14,072
Total Operating Expenses 97,024 101,671 394,964 420,845
Net Investment Income 69,678 91,367 306,082 371,128
Net Realized and Change in Unrealized Gains (Losses) from
Investments
Net realized gains (losses)
Control investments (66,099) (5,413) (65,915) (5,406)
Affiliate investments 137 (14,194)
Non-control/non-affiliate investments (31,017) (767) (30,528) (4,817)
Net realized losses (97,116) (6,180) (96,306) (24,417)
Net change in unrealized gains (losses)
Control investments 117,754 (47,972) 86,817 (88,751)
Affiliate investments 2,407 (768) 553 (233)
Non-control/non-affiliate investments (34,749) 58,400 (37,229) (154,589)
Net change in unrealized gains (losses) 85,412 9,660 50,141 (243,573)
Net Realized and Change in Unrealized Losses from
Investments
(11,704) 3,480 (46,165) (267,990)
Net realized (losses) gains on extinguishment of debt (6,806) 310 (7,011) 224
Net Increase in Net Assets Resulting from Operations $51,168 $95,157 $252,906 $103,362
Net increase in net assets resulting from operations per share $0.14 $0.27 $0.70 $0.29
Dividends declared per share $(0.25) $(0.25) $(1.00) $(1.00)


PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
ROLLFORWARD OF NET ASSET VALUE PER SHARE
(in actual dollars)
Three Months Ended
June 30,
Year Ended
June 30,
2017 2016 2017 2016
Per Share Data
Net asset value at beginning of period $9.43 $9.61 $9.62 $10.31
Net investment income(1) 0.19 0.26 0.85 1.04
Net realized and change in unrealized (losses) gains(1) (0.05) 0.01 (0.15) (0.75)
Distributions of net investment income (0.25) (0.25) (1.00) (1.00)
Common stock transactions(2) (3)(0.01) (3)0.02
Net asset value at end of period $9.32 $9.62 $9.32 $9.62

(1) Per share data amount is based on the weighted average number of common shares outstanding for the year/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 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 grier@prospectstreet.com Telephone (212) 448-0702

Source: Prospect Capital Corporation