Equity Values: Stockholders' equity as of September 30, 2007: $302.01 million Net asset value per share as of September 30, 2007: $15.08 First Fiscal Quarter Portfolio Activity: Number of new portfolio companies invested: 3 Number of portfolio companies at end of period: 27 First Fiscal Quarter Operating Results: Net investment income excluding non-recurring items*: $8.75 million Net investment income per share excluding non-recurring items*: $0.44 Net investment income: $7.86 million Net realized and unrealized appreciation: $0.69 million Net increase in net assets resulting from operations: $8.55 million Dividends to shareholders per share: $0.3925 * See Supplemental Financial Information belowPORTFOLIO AND INVESTMENT ACTIVITY At September 30, 2007, the fair value of our portfolio of 27 long-term investments was approximately $352.3 million as compared to a fair value of $328.2 million at June 30, 2007. As of September 30, 2007, our portfolio generated a current yield of approximately 15.9% across all our long-term debt and equity investments. This current yield includes interest from all our long-term investments as well as dividends and net profits interest and royalties from certain portfolio companies. During the quarter ended September 30, 2007, we completed three new investments and follow on investments in existing portfolio companies, totaling approximately $40.4 million. The new investments included the following:
-- On July 31, 2007, we invested $15.0 million in senior secured
financing in Wind River Resources Corp. and Wind River II Corp., an oil and
gas production business based in Salt Lake City, Utah, and received a net
profits interest in conjunction with our investment.
-- On August 8, 2007, we invested $6.0 million in senior secured
financing in Deep Down, Inc., a deepwater drilling services and
manufacturing provider based in Houston, Texas, and received warrants in
conjunction with our investment.
-- On August 28, 2007, we invested $9.2 million in senior secured
financing in Diamondback Operating, LP, an oil and gas production company
based in Tulsa, Oklahoma, and received a net profits interest in
conjunction with our investment.
Additionally, on August 16, 2007, Arctic Acquisition Corp. completely
repaid its loan with an additional prepayment premium of $461,000 for the
loan. Including the prepayment premium but excluding warrants that we
continue to hold, we have realized a 20% cash internal rate of return on
this investment, representing a 1.25 times cash on cash return.
Since the end of the first quarter of our fiscal year ending June 2008, we
have made investments in five new portfolio companies, and the follow-on
investment described below, aggregating approximately $62 million.
-- On October 9, 2007, we invested approximately $10 million in second
lien secured financing for Resco Products, Inc., a leading refractory
materials manufacturer and supplier based in Pittsburgh, Pennsylvania, with
Hancock Park Associates acting as the private equity financial sponsor.
-- On October 17, 2007, we made a $3 million follow-on secured debt
investment in NRG Manufacturing, Inc. ("NRG") in support of NRG's
acquisition of Dynafab Corporation ("Dynafab"). Dynafab is a manufacturer
of a range of metal structures and vessels for use in the oil and gas and
transportation industries, including fuel tanks for on-road and off-road
vehicles as well as various drilling rig components.
-- On October 19, 2007, we provided approximately $5 million of second
lien secured debt financing to an outsourced technical services provider
based in Pennsylvania, with an affiliate of HM Capital Partners, L.P.,
whose principals were formerly affiliated with Hicks, Muse, Tate & Furst,
Inc., acting as the private equity financial sponsor.
-- On November 1, 2007, we invested approximately $14 million consisting
of a second lien secured financing and a small equity co-investment in
Maverick Healthcare, Inc. (d/b/a Preferred Homecare), a home healthcare
services provider based in Mesa, Arizona, with Beecken Petty O'Keefe &
Company acting as the private equity financial sponsor.
-- On November 5, 2007, we invested approximately $18 million in second
lien secured financing in Shearer's Foods, Inc., a snack food manufacturer
based in Brewster, Ohio, with Winston Partners as the private equity
financial sponsor.
-- On November 9, 2007, we made a second lien debt investment of $12
million in Qualitest Pharmaceuticals, Inc., and affiliates, a leading
manufacturer and distributor of generic pharmaceuticals based in
Huntsville, Alabama, with Apax Partners as the private equity financial
sponsor.
As of today, we now have 32 portfolio companies aggregating approximately
$410 million of assets, calculated as our September 30 investment portfolio
plus additional investments net of repayments.
LIQUIDITY AND FINANCIAL RESULTS
At September 30, 2007, borrowings under our credit facility stood at
approximately $60 million. On October 11, 2007, we priced a public offering
of 3.5 million shares of common stock at $16.34 per share, raising $57.2
million in gross proceeds. Our borrowings now aggregate approximately $88
million under our credit facility. We are currently in discussions to
increase the size of our $200 million facility.
Our net investment income for the quarter ended September 30, 2007, was
approximately $7.9 million, or approximately $8.7 million of adjusted net
investment income before nonrecurring items. We have shown adjusted net
investment income herein below by adding back approximately $1.1 million of
non-recurring legal expenses, less any associated incentive fees, incurred
in connection with an arbitration (the majority of these legal expenses we
believe are now in the past).
CONFERENCE CALL
We will host a conference call Monday, November 12, 2007, at 11:00 am
Eastern Time. The conference call dial-in number is (877) 407-0782. A
recording of the conference call will be available for approximately 30
days. To hear a replay, call (877) 660-6853 and use Playback Access Account
code 286 and Playback Conference ID code 261411.
CONSOLIDATED STATEMENTS OF NET ASSETS As of As of
(in thousands) September 30, June 30,
2007 2007
(unaudited) (audited)
Assets
Cash and cash equivalents $ 11,348 $ 41,760
Investments in controlled entities at fair
value (cost - $129,222 and $124,664,
respectively) 145,645 139,292
Investments in affiliated entities at fair
value (cost - $14,852 and $14,821,
respectively) 14,631 14,625
Investments in non-controlled and
non-affiliated entities, at fair value (cost
- $205,462 and $186,712, respectively) 191,981 174,305
Interest receivable 3,073 2,139
Dividends receivable 64 263
Loan principal receivable 125 -
Structuring fees receivable - 1,625
Other receivables 258 271
Prepaid expenses 651 471
Deferred financing fees 1,965 1,751
Total assets 369,741 376,502
Liabilities
Credit facility payable 59,962 -
Payable for securities purchased - 70,000
Accrued expenses 2,233 1,312
Due to Prospect Administration, LLC 418 330
Due to Prospect Capital Management, LLC 4,310 4,508
Other current liabilities 807 304
Total liabilities 67,730 76,454
Net Assets $ 302,011 $ 300,048
Components of Net Assets
Common stock, par value $.001 per share,
(100,000,000 and 100,000,000 common shares
authorized, respectively; 20,021,138 and
19,949,065 issued and outstanding,
respectively) $ 20 $ 20
Paid-in capital in excess of par 301,088 299,845
Undistributed (distributions in excess of) net
investment income (4,057) (4,092)
Realized gain 2,239 2,250
Net unrealized appreciation 2,721 2,025
Net Assets $ 302,011 $ 300,048
Net Asset Value Per Share $ 15.08 $ 15.04
CONSOLIDATED STATEMENTS OF OPERATIONS Three Months Three Months
(in thousands) Ended Ended
September 30, September 30,
2007 2006
Investment Income
Interest income, controlled entities (net of
foreign tax withholding of $89 and $-,
respectively) $ 4,848 $ 2,246
Interest income, affiliated entities (net of
foreign tax withholding of $35 and $110,
respectively) 667 981
Interest income, non controlled and
non-affiliated entities 7,317 2,079
Total interest income 12,832 5,306
Dividend income, controlled entities 1,450 850
Dividend income, money market funds 168 276
Total dividend income 1,618 1,126
Other income, affiliate investments 10 -
Other income, non-controlled and
non-affiliated entities 931 -
Total other income 941 -
Total investment income 15,391 6,432
Operating Expenses
Investment advisory fees
Base management fee 1,866 616
Income incentive fee 1,966 818
Total investment advisory fees 3,832 1,434
Interest expense and credit facility costs 1,238 662
Chief Compliance Officer and
Sub-administration fees 186 119
Legal fees 1,206 280
Valuation services 113 93
Audit and tax related fees 250 292
Sarbanes-Oxley compliance expenses 10 45
Insurance expense 64 75
Directors fees 55 63
Other general and administrative expenses 572 95
Total operating expenses 7,526 3,158
Net investment income 7,865 3,274
Net realized gain (loss) on investments (11) 1,951
Net unrealized (depreciation) appreciation 696 (1,261)
Net increase in net assets resulting from
Operations $ 8,550 $ 3,964
Net increase in net assets per weighted
average shares of common stock resulting
from operations $ 0.43 $ 0.40
PER SHARE DATA Three Months Three Months
Ended Ended
September 30, September 30,
2007 2006
Net asset value, beginning of period $ 15.04 $ 15.31
Costs related to the secondary public offering - (0.47)
Net investment income 0.39 0.33
Realized gain - 0.20
Net unrealized appreciation (depreciation) 0.04 (0.13)
Dividend declared and paid (0.39) (0.38)
Net asset value at end of period $ 15.08 $ 14.86
SUPPLEMENTAL FINANCIAL INFORMATION (UNAUDITED) (IN THOUSANDS)
Please note that the following supplemental financial information
represents a reconciliation of a GAAP measure (Net investment income) to a
non-GAAP measure (Adjusted net investment income).
Three months Three months
ended ended
September 30, September 30,
2007 2006
------------- -------------
Total investment income $ 15,391 $ 6,432
Total operating expenses 7,526 3,158
Net investment income 7,865 3,274
Add back non-recurring items 883 182
Adjusted net investment income $ 8,748 $ 3,456
Net investment income per weighted average
common share $ 0.39 $ 0.33
Adjusted net investment income per weighted
average common share $ 0.44 $ 0.35
ABOUT PROSPECT CAPITAL CORPORATION
Prospect Capital Corporation (www.prospectstreet.com) is a closed-end
investment company that lends to and invests in private and microcap public
businesses. Prospect Capital's investment objective is to generate both
current income and long-term capital appreciation through debt and equity
investments.
Prospect Capital has 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. Failure to comply with any of the laws and
regulations that apply to Prospect Capital could have an adverse effect on
Prospect Capital and its shareholders.
This press release contains forward-looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995. 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 the Company's control, and
that the Company 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 these estimates and projections of the future. Such
statements speak only as of the time when made, and the Company undertakes
no obligation to update any such statement now or in the future.
Contact Information: Please send investment proposals to: Grier Eliasek President and Chief Operating Officer grier@prospectstreet.com Telephone (212) 448-0702