SOURCE: Prospect Capital Corporation

Prospect Capital Corporation

September 14, 2009 08:00 ET

Prospect Capital Announces 31% Year-Over-Year Increase in Net Investment Income for Fiscal Year Ended June 30, 2009

NEW YORK, NY--(Marketwire - September 14, 2009) - Prospect Capital Corporation (NASDAQ: PSEC) ("Company" or "Prospect") today announced financial results for its fourth fiscal quarter and fiscal year ended June 30, 2009.

For the year ended June 30, 2009, our net investment income was $59.2 million, or $1.87 per weighted average number of shares for the year, an increase of 31% from the prior year on a dollars basis, and comparable to the prior year per weighted average share amount of $1.91. Our net asset value per share on June 30, 2009 stood at $12.40 per share.

For the quarter ended June 30, 2009, our net investment income was $12.0 million, or 32 cents per weighted average number of shares for the quarter. We estimate that our net investment income for the current first fiscal quarter ended September 30, 2009 will be 25 to 30 cents per share. These temporary per share changes from prior quarters are primarily due to the raising of additional capital to fund the acquisition of Patriot Capital Funding, Inc. (NASDAQ: PCAP) ("Patriot"), the benefits of which will be reflected in our future financial results after the Patriot closing projected in the fourth quarter. We expect the Patriot acquisition to be significantly accretive to net investment income per quarter in an amount approximating at least 9 to 10 cents per share, which could be greater with early repayments before scheduled maturity dates, as has occurred with multiple prior Patriot transactions. In addition, we are currently evaluating a pipeline of potential additional portfolio and individual investment opportunities, aggregating more than $1 billion, for which we have significant cash and credit facility availability on hand.

We expect to announce our first fiscal quarter dividend later this month.

OPERATING RESULTS

HIGHLIGHTS

Equity Values:
  Net assets as of June 30, 2009: $532.60 million
  Net asset value per share as of June 30, 2009: $12.40

Fiscal Year Operating Results:
  Net investment income: $59.16 million
  Net investment income per share: $1.87
  Dividends declared to shareholders per share: $1.6175

Fourth Fiscal Quarter Operating Results:
  Net investment income: $11.98 million
  Net investment income per share: $0.32
  Dividends declared to shareholders per share: $0.40625

Fourth Fiscal Quarter Portfolio Activity:
  Total Portfolio investments at cost:  $531.42 million
  Number of portfolio companies at end of period: 30

PORTFOLIO AND INVESTMENT ACTIVITY

During the year ended June 30, 2009, we completed three new investments in Castro Cheese, TriZetto, and Biotronic, as well as several follow-on investments in existing portfolio companies, totaling approximately $96.3 million.

For the year ended June 30, 2009, we fully exited our investments in Deep Down and Charlevoix, and partially exited our investments in R-V and Diamondback, including full repayment of the Diamondback loan.

As of June 30, 2009, we held 30 portfolio company investments aggregating approximately $547.2 million. Since June 30, 2009, two additional investments, Peerless and C&J, have been repaid, generating a 19% cash-on-cash internal rate of return in each case, not including a 40% equity stake which we continue to hold in C&J.

On August 3, 2009, we announced our entering into a definitive agreement to acquire Patriot, including assets with an amortized cost of approximately $311 million, for a purchase price of approximately $197 million, or 63% of amortized cost. We are purchasing Patriot with our common stock plus cash to repay all Patriot debt, anticipated to be approximately $110.5 million when the acquisition closes. Our common shares will be exchanged at a ratio of approximately 0.3992 for each Patriot share, or 8,616,467 shares of our common stock for 21,584,251 Patriot shares, with such exchange ratio decreased for any tax distributions Patriot may declare before closing. We expect significant accretion of this discount on a quarterly basis and anticipate a majority of this accretion to be income not subject to Prospect shareholder taxation. We are basing our net investment income accretion assumptions assuming no early repayments. Early repayments would accelerate the recognition of such accretion income.

The Patriot acquisition reflects our previously articulated strategy of identifying and closing on opportunities created by the marketplace credit dislocation, including opportunities to acquire financial companies and portfolios with attractive assets but with liquidity issues created by lenders seeking immediate payment. We are currently evaluating a number of other portfolios, both public and private, where our ability to provide liquidity has the potential for significant reward.

In addition, the Patriot acquisition will approximately double our number of portfolio companies to approximately 60 companies, thereby expanding our diversification by company, by industry, by geography, and by business owner. Approximately 70% of the acquired asset value is in companies where Patriot has a senior secured position. Our gross assets will also expand by more than 30%, providing anticipated scaling benefits as a consolidator in the industry.

LIQUIDITY AND FINANCIAL RESULTS

On June 25, 2009, we completed a first closing on an expanded $250 million syndicated revolving credit facility (the "Facility"). The new Facility, for which lenders have closed on $175 million to date, includes an accordion feature which allows the Facility to accept up to an aggregate total of $250 million of commitments for which we continue to solicit additional commitments from other lenders for the additional $75 million. The revolving period of the Facility extends through June 2010, with an additional one year amortization period after the completion of the revolving period. The maturity date of the facility is June 2020. Interest on borrowings under the credit facility is one-month LIBOR plus 400 basis points, subject to a minimum Libor floor of 200 basis points. The facility has an investment grade Moody's rating of A2.

We expect to close on an additional lender commitment, for which lender credit committee approval has already occurred but for which signed documentation has not yet been received, in the next 30 days, bringing our facility size to $195 million and our number of lenders to five, providing counterparty diversification benefits.

As of June 30, 2009, we had $124.8 million outstanding under our credit facility. We currently have zero outstanding borrowings in our facility, as well as cash-equivalent instruments of approximately $60 million. Our unleveraged balance sheet is a source of significant strength in comparison with many overleveraged competitors. Our equitized balance sheet also gives us the potential for future earnings upside as we prudently grow our revolving credit facility and evaluate term debt solutions driven by our Facility's investment grade facility rating.

We also continue to generate liquidity through stock offerings and the realization of portfolio investments. On March 19, April 27, May 26, July 7, and August 20, 2009, we completed stock offerings aggregating 21,567,186 shares of our common stock, raising approximately $180.7 million in gross proceeds.

In the second quarter of the fiscal year ended June 30, 2009, we announced the authorization by our board of directors to repurchase up to $20 million of our outstanding stock. To date, we have not made any such repurchases, but we continue to maintain the flexibility to do so should we deem such purchases to be in the best interest of our shareholders.

On April 30, 2009, we gave a 60-day notice to Vastardis Fund Services LLC ("Vastardis") regarding termination, effective June 30, 2009, of the agreement with Vastardis to provide sub-administration services. The prior cost of this agreement had been approximately $700 thousand per annum based on approximately $600 million of assets. With our chief financial officer having expanded his finance and administration team in recent months, we no longer require any services from Vastardis.

CONFERENCE CALL

The Company will host a conference call on Tuesday, September 15, 2009, at 11:00 a.m. Eastern Time. The conference call dial-in number will be 800-860-2442. A recording of the conference call will be available for approximately 30 days. To hear a replay, call 877-344-7529 and use passcode 433827.

                PROSPECT CAPITAL CORPORATION AND SUBSIDIARY
            CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES
                          June 30, 2009 and 2008
              (in thousands, except share and per share data)


                                            June 30, 2009   June 30, 2008
                                              (Audited)       (Audited)
                                            --------------  --------------
Assets
Investments at fair value (cost of $531,424
 and $496,805, respectively)
  Control investments (cost of $187,105
   and $203,661, respectively)              $      206,332  $      205,827
  Affiliate investments (cost of $33,544
   and $5,609, respectively)                        32,254           6,043
  Non-control/Non-affiliate investments
   (cost of $310,775 and $287,535,
   respectively)                                   308,582         285,660
                                            --------------  --------------
          Total investments at fair value          547,168         497,530
                                            --------------  --------------

Investments in money market funds                   98,735          33,000
Cash                                                 9,942             555
Receivables for:
  Interest, net                                      3,562           4,094
  Dividends                                             28           4,248
  Loan principal                                        --              71
  Other                                                571             567
Prepaid expenses                                        68             273
Deferred financing costs                             6,951           1,440
                                            --------------  --------------
          Total Assets                             667,025         541,778
                                            --------------  --------------

Liabilities
Credit facility payable                            124,800          91,167
Dividends payable                                       --          11,845
Due to Prospect Administration                         842             695
Due to Prospect Capital Management                   5,871           5,946
Accrued expenses                                     2,381           1,104
Other liabilities                                      535           1,398
                                            --------------  --------------
          Total Liabilities                        134,429         112,155
                                            --------------  --------------

Net Assets                                  $      532,596  $      429,623
                                            ==============  ==============

Components of Net Assets
Common stock, par value $0.001 per share
 (100,000,000 and 100,000,000 common
 shares authorized, respectively; 42,943,084
 and 29,520,379 issued and outstanding,
 respectively)                              $           43  $           30
Paid-in capital in excess of par                   545,707         441,332
Undistributed net investment income                 24,152           1,508
Accumulated realized losses on investments         (53,050)        (13,972)
Unrealized (depreciation) appreciation on
 investments                                        15,744             725
                                            --------------  --------------
Net Assets                                  $      532,596  $      429,623
                                            ==============  ==============

Net Asset Value Per Share                   $        12.40  $        14.55
                                            ==============  ==============





                PROSPECT CAPITAL CORPORATION AND SUBSIDIARY
                  CONSOLIDATED STATEMENTS OF OPERATIONS
      For the Three Months and the Year Ended June 30, 2009 and 2008
              (in thousands, except share and per share data)
                                (Unaudited)


                                         For The
                                    Three Months Ended  For The Year Ended
                                         June 30,            June 30,
                                    ------------------  ------------------
                                      2009      2008      2009      2008
                                    --------  --------- --------  --------

Investment Income
Interest Income
   Control investments              $  1,981  $   7,020 $ 19,281  $ 21,709
   Affiliate investments                 674        246    3,039     1,858
   Non-control/Non-affiliate
    investments                        9,409      9,229   40,606    35,466
                                    --------  --------- --------  --------
     Total interest income            12,064     16,495   62,926    59,033
                                    --------  --------- --------  --------

Dividend income
   Control investments                 8,900      4,377   22,468    11,327
   Money market funds                     60        149      325       706
                                    --------  --------- --------  --------
     Total dividend income             8,960      4,526   22,793    12,033
                                    --------  --------- --------  --------

Other income:
   Control/affiliate investments         418        913    1,249     1,123
   Non-control/Non-affiliate
    investments                          358      1,514   13,513     7,213
                                    --------  --------- --------  --------
     Total other income                  776      2,427   14,762     8,336
                                    --------  --------- --------  --------
   Total Investment Income            21,800     23,448  100,481    79,402
                                    --------  --------- --------  --------

Operating Expenses
Investment advisory fees:
   Base management fee                 3,175      2,555   11,915     8,921
   Income incentive fee                2,995      3,417   14,790    11,278
                                    --------  --------- --------  --------
     Total investment advisory fees    6,170      5,972   26,705    20,199

Interest and credit facility
 expenses                              1,333      1,599    6,161     6,318
Sub-administration fees (including
 former Chief Financial Officer and
 Chief Compliance Officer)               202        239      846       859
Legal fees                               357        279      947     2,503
Valuation services                       144        146      705       577
Audit, compliance and tax related
 fees                                    167        122    1,015       470
Allocation of overhead from
 Prospect Administration               1,092      1,031    2,856     2,139
Insurance expense                         61         64      246       256
Directors’ fees                           65         88      269       253
Other general and administrative
 expenses                                228        239    1,035       715
Excise taxes                              --         --      533        --
                                    --------  --------- --------  --------
  Total Operating Expenses             9,819      9,779   41,318    34,289
                                    --------  --------- --------  --------

Net Investment Income                 11,981     13,669   59,163    45,113
                                    --------  --------- --------  --------

Net realized (loss) gain on
 investments                         (40,739)     2,191  (39,078)  (16,222)
Net change in unrealized
 appreciation/depreciation on
 investments                          28,009      8,126   15,019    (1,300)
                                    --------  --------- --------  --------

Net (Decrease) Increase in Net
 Assets Resulting from Operations   $   (749) $  23,986 $ 35,104  $ 27,591
                                    ========  ========= ========  ========

Net (decrease) increase in net
 assets resulting from operations
 per share                          $  (0.02) $    0.88 $   1.11  $   1.17
                                    ========  ========= ========  ========
Dividends declared per share:       $   0.41  $    0.40 $   1.62  $   1.59
                                    ========  ========= ========  ========





                PROSPECT CAPITAL CORPORATION AND SUBSIDIARY
                 ROLLFORWARD OF NET ASSET VALUE PER SHARE
      For the Three Months and the Year Ended June 30, 2009 and 2008
                            (in actual dollars)
                                (Unaudited)


                                      For the
                                 Three Months Ended   For the Year Ended
                                --------------------  --------------------
                                June 30,   June 30,   June 30,   June 30,
                                  2009       2008       2009       2008
                                ---------  ---------  ---------  ---------
Per Share Data:
Net asset value at beginning of
 period                         $   14.19  $   14.15  $   14.55  $   15.04
Costs related to the secondary
 public offering                       --      (0.07)        --      (0.07)
Net investment income                0.32       0.50       1.87       1.91
Net realized (loss) gain            (1.10)      0.08      (1.24)     (0.69)
Net unrealized appreciation
 (depreciation)                      0.75       0.30       0.48      (0.05)
Net (decrease) increase in net
 assets as a result of public
 offerings                          (1.76)        --      (2.11)        --
Dividends recognized                   --      (0.41)     (1.15)     (1.59)
                                ---------  ---------  ---------  ---------
Net asset value at end of
 period                         $   12.40  $   14.55  $   12.40  $   14.55
                                =========  =========  =========  =========

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.