SOURCE: Prospect Capital Corporation

Prospect Capital Corporation

August 30, 2010 16:30 ET

Prospect Capital Announces 12.3% Year-Over-Year Increase in Net Investment Income for Fiscal Year Ended June 30, 2010, Plus an $0.18 per Share Quarterly Increase in Net Asset Value

NEW YORK, NY--(Marketwire - August 30, 2010) - Prospect Capital Corporation (NASDAQ: PSEC) ("Company" or "Prospect") today announced financial results for our fourth fiscal quarter and fiscal year ended June 30, 2010.

For the year ended June 30, 2010, our net investment income was $66.5 million, an increase of 12.3% from the prior year on a dollars basis. On a weighted average share basis, net interest income declined from $1.87 for the year ended June 30, 2009 to $1.12 for the year ended June 30, 2010. This decline was primarily the result of raising additional equity capital early in the year ended June 30, 2010 in order to complete the acquisition of Patriot Capital Funding, Inc. ("Patriot") in December 2009 as well as to make new investments in the fourth fiscal quarter.

Our net asset value per share on June 30, 2010 stood at $10.29 per share, an increase of $0.18 per share from March 31, 2010.

For the quarter ended June 30, 2010, our net investment income was $16.6 million, or $0.25 per weighted average number of shares for the quarter. Several new investments that we had anticipated would close in the June 2010 quarter were deferred and closed in the current September 2010 quarter. We have closed more than $130 million of new investments in the current September 2010 quarter. We estimate that our net investment income for the current first fiscal quarter ended September 30, 2010 will be $0.26 to $0.30 per share.

In addition, we have revised upward our second quarter results to reflect the settlement of certain accrued liabilities, assumed in connection with our acquisition of Patriot, which had been estimated on a tentative basis at the time of the acquisition of Patriot in the December 2009 quarter. The settlement of these accruals at less than the estimated cost resulted in an increase in our net investment income per share for the fiscal 2010 second quarter of $0.03, increasing from the previously reported $0.29 to $0.32.

We have previously announced upcoming cash distributions, our 24th, 25th, 26th, and 27th consecutive cash distributions to shareholders, as follows:

      10.0250 cents per share for July 2010 (record date of July 30, 2010
      and payment date of August 31, 2010); and

      10.0500 cents per share for August 2010 (record date of August 31,
      2010 and payment date of September 30, 2010); and

      10.0625 cents per share for September 2010 (record date of September
      30, 2010 and payment date of October 29, 2010); and

      10.0750 cents per share for October 2010 (record date of October 29,
      2010 and payment date of November 30, 2010).

HIGHLIGHTS

Equity Values:
  Net assets as of June 30, 2010:  $710.69 million
  Net asset value per share as of June 30, 2010:  $10.29

Fiscal Year Operating Results:
  Net investment income:  $66.45 million
  Net investment income per share:  $1.12
  Dividends declared to shareholders per share:  $1.32625

Fourth Fiscal Quarter Operating Results:
  Net investment income:  $16.64 million
  Net investment income per share:  $0.25
  Dividends declared to shareholders per share:  $0.10

Fourth Fiscal Quarter Portfolio and Portfolio Activity:
  Portfolio investments in quarter:  $157.66 million
  Total Portfolio investments at cost at June 30, 2010:  $728.76 million
  Number of portfolio companies at June 30, 2010:  58

PORTFOLIO AND INVESTMENT ACTIVITY

At June 30, 2010, our portfolio consisted of 58 long-term investments with a fair value of $748.5 million, compared to 55 long-term investments with a fair value of $697.0 million at March 31, 2010. This increase in invested capital resulted primarily from investments in Seaton Corporation, SkillSoft PLC, Hoffmaster, Inc. and EXL Acquisition Corp. during the quarter, as well as additional fundings to existing portfolio companies.

On April 7, 2010, we purchased $12.3 million of second lien notes in Seaton Corporation, a human resources services company.

On May 26, 2010, we purchased $15.0 million in senior notes issued by an affiliate of SkillSoft PLC, a leading "Software as a Service" provider of on-demand, e-learning, and performance support solutions.

On June 2, 2010, we made a secured second lien debt investment of $20.0 million in Hoffmaster, Inc., which primarily serves the foodservice and consumer market segments.

On June 18, 2010, we purchased $6.3 million of second lien notes in a leading provider of coating services for steel suppliers.

On June 24, 2010, we closed a $25.5 million senior secured credit facility for EXL Acquisition Corp., a leading manufacturer and marketer of consumable lab testing equipment and supplies.

During the three months ended June 30, 2010, we repriced our loans to EXL Acquisition Corp. and to LHC Holdings Corp. The revised terms were more favorable than the original terms and increased the present value of the future cash flows. In accordance with ASC 320-20-35, the cost bases of the new loans were recorded at par value, resulting in $1.2 million of accelerated original purchase discount recognized as interest income. In addition, Caleel + Hayden, LLC and Custom Direct repaid outstanding debt to us during the quarter ended June 30, 2010, resulting in the acceleration of purchase discount of $1.6 million.

The primary source of new investments earlier in the fiscal year ended June 30, 2010 occurred through the acquisition of Patriot in December 2009. In this acquisition, we acquired 28 investments with a fair value of $207.1 million, thereby expanding the scale, borrower diversity, industry diversity, and private equity sponsor reach of our business.

Since June 30, 2010, we have completed four new investments aggregating more than $130 million.

On July 14, 2010, we closed a $37.4 million first lien senior secured credit facility to support the acquisition by H.I.G. Capital of a leading consumer credit enhancement services company.

On July 23, 2010, we made a secured debt investment of $21.0 million in SonicWALL, Inc., a global leader in network security and data protection for small, mid-sized, and large enterprise organizations.

On July 30, 2010, we invested $52.4 million of combined debt and equity in the acquisition of AIRMALL USA Inc., a leading infrastructure-like developer and manager of long-term contract airport retail operations.

On July 30, 2010, we closed a $21.5 million senior secured credit facility for Northwestern Management Services, LLC ("NMS"), a leading dental practice management company in the Southeast Florida market.

The NMS investment is our tenth new investment over a four month period, with such investments aggregating approximately $250 million.

Our investment pipeline currently aggregates more than $1 billion of potential opportunities. Primary investment activity in the marketplace has increased in calendar year 2010, and we are currently evaluating a robust pipeline of potential investments, some of which have the potential to close this quarter. These investments are primarily secured investments with double digit coupons, sometimes coupled with equity upside through co-investments or warrants, and diversified across multiple sectors.

As we have throughout 2009 and 2010 year to date, we also continue to evaluate potential acquisitions of lending and other financial services platforms, portfolios, and assets, utilizing our significant liquidity and balance sheet strength to go on offense to drive shareholder value.

We are pleased with the overall stability of the credit quality of our portfolio, with many of our companies generating year-over-year and sequential growth in top-line revenues and bottom-line profits.

LIQUIDITY AND FINANCIAL RESULTS

On June 11, 2010, we held a first closing of an extension and expansion of our revolving credit facility ("Facility") with a syndicate of lenders. The lenders currently have commitments of $210 million under the Facility. The Facility includes an accordion feature which allows an increase to up to $300 million of commitments without the need for re-approval from the existing lenders. We are currently scheduling a second closing of the Facility for an additional $30 million in commitments with current and additional lenders. We will seek to add additional lenders to the Facility in order to reach the maximum size. While we are optimistic about these planned Facility size increases, we cannot guarantee them.

As we make additional investments that are eligible to be pledged under the Facility, we will generate additional availability to the extent such investments are eligible to be placed into the borrowing base. The revolving period of the Facility extends through June 2012, with an additional one year amortization period (with distributions allowed) after the completion of the revolving period. Interest on borrowings under the Facility is one-month Libor plus 325 basis points, subject to a minimum Libor floor of 100 basis points, representing a significant decrease in financing cost for us compared to our prior facility. The unused portion of the Facility has a fee equal to either 75 basis points (if at least half of the Facility is used) or 100 basis points (if less than half of the Facility is used). The Facility has been and we believe will be used, together with our equity capital, to make additional long-term investments. The Facility has an investment grade Moody's rating of A2.

As of June 30, 2010, we had $100.3 million of borrowings under our Facility. Including cash and additional assets we are in the process of pledging to the Facility, and not including either our anticipated second closing of the Facility or further leveragability of additional collateral that we could add to our Facility from existing unleveraged investments and additional new transactions, our available liquidity as of today is currently in excess of $150 million for new investments.

Our at-the-market stock distribution program has proven to be a cost effective source of new equity capital to fund investment activity. On March 17, 2010, we established an at-the-market program through which we could sell up to 8,000,000 shares of our common stock. Through this program we issued 5,251,400 shares of our common stock at an average price of $11.50 per share, raising $60.4 million of gross proceeds, from March 23, 2010 through June 30, 2010.

During the period from July 1, 2010 to July 21, 2010, we completed the sales of the remaining 2,748,600 shares of our common stock at an average price of $9.75 per share, and raised $26.8 million of gross proceeds, under our at-the-market program.

During the period from July 22, 2010 to August 24, 2010, we issued 3,814,528 shares of our common stock at an average price of $9.71 per share, and raised $37.1 million of gross proceeds, under our at-the-market program.

With a debt to equity ratio currently less than 15%, our modestly leveraged balance sheet is a source of significant strength. Our equitized balance sheet also gives us the potential for future earnings upside as we prudently look to grow our existing revolving credit facility, add additional secured facilities, and evaluate term debt solutions made more attractive by our investment grade facility ratings at both the corporate and Facility levels.

CONFERENCE CALL

The Company will host a conference call on Tuesday, August 31, 2010, at 11:00 a.m. Eastern Time. The conference call dial-in number will be 877-317-6789. A recording of the conference call will be available for approximately 30 days. To hear a replay, call 877-344-7529 and use passcode 443880.

               PROSPECT CAPITAL CORPORATION AND SUBSIDIARY
            CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES
                          June 30, 2010 and 2009
             (in thousands, except share and per share data)

                                                       June 30,   June 30,
                                                        2010       2009
                                                      (audited)  (audited)
                                                      ---------  ---------
Assets
Investments at fair value (net cost of $728,759 and
 $531,424, respectively)
  Control investments (net cost of $185,720 and
   $187,105, respectively)                            $ 195,958  $ 206,332
  Affiliate investments (net cost of $65,082 and
   $33,544, respectively)                                73,740     32,254
  Non-control/Non-affiliate investments (net cost of
   $477,957 and $310,775, respectively)                 478,785    308,582
                                                      ---------  ---------
    Total investments at fair value                     748,483    547,168
                                                      ---------  ---------

Investments in money market funds                        68,871     98,735
Cash                                                      1,081      9,942
Receivables for:
  Interest, net                                           5,356      3,562
  Dividends                                                   1         28
  Other                                                     419        571
Prepaid expenses                                            371         68
Deferred financing costs                                  7,579      6,951
Other assets                                                534         --
                                                      ---------  ---------
    Total Assets                                        832,695    667,025
                                                      ---------  ---------

Liabilities
Credit facility payable                                 100,300    124,800
Dividends payable                                         6,909         --
Due to Prospect Administration                              294        842
Due to Prospect Capital Management                        8,821      5,871
Accrued expenses                                          4,981      2,381
Other liabilities                                           705        535
                                                      ---------  ---------
    Total Liabilities                                   122,010    134,429
                                                      ---------  ---------
Net Assets                                            $ 710,685  $ 532,596
                                                      =========  =========

Components of Net Assets
Common stock, par value $0.001 per share (100,000,000
 and 100,000,000  common shares authorized,
 respectively; 69,086,862 and 42,943,084 issued and
 outstanding, respectively)                           $      69  $      43
Paid-in capital in excess of par                        805,918    545,707
(Over) undistributed net investment income              (10,431)    24,152
Accumulated realized losses on investments             (104,595)   (53,050)
Unrealized appreciation on investments                   19,724     15,744
                                                      ---------  ---------
Net Assets                                            $ 710,685  $ 532,596
                                                      =========  =========

Net Asset Value Per Share                             $   10.29  $   12.40
                                                      =========  =========




               PROSPECT CAPITAL CORPORATION AND SUBSIDIARY
                  CONSOLIDATED STATEMENTS OF OPERATIONS
      For the Three Months and the Year Ended June 30, 2010 and 2009
             (in thousands, except share and per share data)

                                 For the Three
                                 Months Ended         For the Year Ended
                            ----------------------  ----------------------
                             June 30,    June 30,    June 30,    June 30,
                               2010        2009        2010        2009
                           (unaudited) (unaudited)  (audited)   (audited)
                            ----------  ----------  ----------  ----------
Investment Income
Interest income:
  Control investments       $    3,081  $    1,981  $   17,218  $   19,281
  Affiliate investments          2,838         674       7,957       3,039
  Non-control/Non-affiliate
   investments                  19,278       9,409      61,343      40,606
                            ----------  ----------  ----------  ----------
    Total interest income       25,197      12,064      86,518      62,926
                            ----------  ----------  ----------  ----------

Dividend income
  Control investments            2,200       8,900      14,860      22,468
  Non-control/Non-affiliate
   investments                     474          --         474          --
  Money market funds                 3          60          32         325
                            ----------  ----------  ----------  ----------
    Total dividend income        2,677       8,960      15,366      22,793
                            ----------  ----------  ----------  ----------

Other income:
  Control/affiliate
   investments                     (55)        418         261       1,249
  Affiliate investments            169          --         169          --
  Non-control/Non-affiliate
   investments                   1,248         358       3,613      13,513
  Gain on Patriot
   acquisition                      --          --       7,708          --
                            ----------  ----------  ----------  ----------
    Total other income           1,362         776      11,751      14,762
                            ----------  ----------  ----------  ----------
    Total Investment Income     29,236      21,800     113,635     100,481
                            ----------  ----------  ----------  ----------

Operating Expenses
Investment advisory fees:
  Base management fee            3,968       3,175      13,929      11,915
  Income incentive fee           4,158       2,995      16,613      14,790
                            ----------  ----------  ----------  ----------
    Total investment
     advisory fees               8,126       6,170      30,542      26,705
                            ----------  ----------  ----------  ----------

Interest and credit
 facility expenses               2,902       1,333       8,382       6,161
Sub-administration fees             --         202          --         846
Legal fees                         166         357         702         947
Valuation services                 230         144         734         705
Audit, compliance and tax
 related fees                      299         167         981       1,015
Allocation of overhead from
 Prospect Administration           841       1,092       3,361       2,856
Insurance expense                   64          61         254         246
Directors' fees                     63          65         255         269
Potential merger expenses          (73)         --         852          --
Other general and
 administrative expenses           (22)        228       1,121       1,035
Excise taxes                        --          --          --         533
                            ----------  ----------  ----------  ----------
    Total Operating
     Expenses                   12,596       9,819      47,184      41,318
                            ----------  ----------  ----------  ----------
    Net Investment Income       16,640      11,981      66,451      59,163
                            ----------  ----------  ----------  ----------

Net realized (loss) gain on
 investments                      (314)    (40,739)    (51,545)    (39,078)
Net change in unrealized
 appreciation (depreciation)
 on investments                 (1,743)     28,009       3,980      15,019
                            ----------  ----------  ----------  ----------
Net Increase in Net Assets
 Resulting from Operations  $   14,583  $     (749) $   18,886  $   35,104
                            ==========  ==========  ==========  ==========
Net increase in net assets
 resulting from operations
 per share:                 $     0.22  $    (0.02) $     0.32  $     1.11
                            ==========  ==========  ==========  ==========
Weighted average shares of
 common stock outstanding:  66,900,043  37,155,258  59,429,222  31,559,905
                            ==========  ==========  ==========  ==========




               PROSPECT CAPITAL CORPORATION AND SUBSIDIARY
                 ROLLFORWARD OF NET ASSET VALUE PER SHARE
      For the Three Months and the Year Ended June 30, 2010 and 2009
                           (in actual dollars)

                                   For the Three
                                    Months Ended       For the Year Ended
                                --------------------  --------------------
                                 June 30,   June 30,   June 30,   June 30,
                                  2010       2009       2010       2009
                               (unaudited)(unaudited) (audited)  (audited)
                                ---------  ---------  ---------  ---------
Per Share Data:
Net asset value at beginning of
 period                         $   10.11  $   14.19  $   12.40  $   14.55
Net investment income                0.25       0.32       1.12       1.87
Net realized loss                      --      (1.10)     (0.87)     (1.24)
Net unrealized (depreciation)
 appreciation                       (0.03)      0.75       0.07       0.48
Net increase (decrease) in net
 assets as a result of public
 offerings                           0.06      (1.76)     (0.85)     (2.11)
Net increase in net assets as a
 result of shares issued for
 Patriot acquisition                   --         --       0.12         --
Dividends recognized                (0.10)        --      (1.70)     (1.15)
                                =========  =========  =========  =========
Net asset value at end of
 period                         $   10.29  $   12.40  $   10.29  $   12.40
                                =========  =========  =========  =========

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. 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. Failure to comply with any of the laws and regulations that apply to us could have an adverse effect on us and our shareholders.

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 these estimates and projections of the future. Such statements speak only as of the time when made, and we undertake no obligation to update any such statement now or in the future.