SOURCE: Prospect Capital Corporation

Prospect Capital Corporation

May 06, 2013 16:45 ET

Prospect Capital Announces 90% Increase in Net Investment Income for First Three Fiscal Quarters Over Prior Year

NEW YORK, NY--(Marketwired - May 6, 2013) - Prospect Capital Corporation (NASDAQ: PSEC) ("Company" or "Prospect") today announced financial results for our third fiscal quarter ended March 31, 2013.

For the nine months ended March 2013, our NII was $232.8 million or $1.20 per weighted average number of shares for the period. For the nine months ended March 31, 2012, our NII was $122.5 million or $1.10 per weighted average number of shares for the period. NII increased by 90% from the nine months ended March 2012 to the nine months ended March 2013.

For the March 2013 quarter, our net investment income ("NII") was $59.6 million or $0.26 per weighted average number of shares for the quarter. For the March 2012 quarter, a quarter positively impacted by significant event-driven income activity related to exits in the portfolio, our NII was $58.1 million or $0.51 per weighted average number of shares for the quarter.

Our debt to equity ratio stood at a modest 43.7% after subtraction of cash and equivalents as of March 31, 2013, compared to 29.2% after subtraction of cash and equivalents as of December 31, 2012. Our net asset value per share on March 31, 2013 stood at $10.71 per share, a decrease of $0.10 per share from December 31, 2012. We estimate that our net investment income for the current June 2013 quarter will be $0.26 to $0.32 per share.

Our objective is to grow net investment income per share in the coming quarters by focusing on prudently increased levels of matched-book funding to finance disciplined and accretive originations across our diversified lines of business.

We have previously announced our upcoming monthly cash distributions, our 58th, 59th, 60th, and 61st consecutive cash distributions to shareholders, as follows:

$0.110125 per share for May 2013 (record date of May 31, 2013 and payment date of June 20, 2013);

$0.110150 per share for June 2013 (record date of June 28, 2013 and payment date of July 18, 2013);

$0.110175 per share for July 2013 (record date of July 31, 2013 and payment date of August 22, 2013); and

$0.110200 per share for August 2013 (record date of August 30, 2013 and payment date of September 19, 2013).

We have generated cumulative NII in excess of cumulative distributions to shareholders in the current fiscal year to date, in the prior fiscal year, and since Prospect's initial public offering nine years ago. For the current fiscal year as of March 31, 2013, our NII in excess of distributions to shareholders stands at $42.5 million and $0.22 per share.

Since our IPO nine years ago through our August 2013 distribution, assuming our current share count for upcoming distributions, we will have distributed more than $11.49 per share to initial shareholders and $785 million in cumulative distributions to all shareholders.

HIGHLIGHTS

Equity Values:
 Net assets as of March 31, 2013: $2.556 billion
 Net asset value per share as of March 31, 2013: $10.71

Third Fiscal Quarter Operating Results:
 Net investment income: $59.59 million
 Net investment income per share: $0.26
 Dividends to shareholders per share: $0.330150

Fiscal Year to Date Operating Results:
 Net investment income: $232.83 million
 Net investment income per share: $1.20
 Net increase in net assets resulting from operations: $138.17 million
 Net increase in net assets per share resulting from operations: $0.71
 Dividends to shareholders per share: $0.948275

Third Quarter and Fiscal Year to Date Portfolio and Investment Activity:
 Portfolio investments in quarter: $784.40 million
 Portfolio investments during the nine months ended March 31, 2013: $2.304 billion
 Total Portfolio investments at cost at March 31, 2013: $3.795 billion
 Total portfolio investments at fair value at March 31, 2013: $3.708 billion
 Number of portfolio companies at March 31, 2013: 120

PORTFOLIO AND INVESTMENT ACTIVITY 

Our origination efforts during the March 2013 quarter prioritized secured lending, with an emphasis on senior loans, although we also seek to close selected subordinated debt and equity investments. Our diversified approach includes multiple business segments, including agented sponsor finance, club and syndicated finance, agented direct lending, structured credit, real estate yield, and controlled debt and equity investments. With our scale team of more than 75 professionals, one of the largest dedicated middle-market credit groups in the industry, we believe we are well positioned to select in a disciplined manner a small number of investments out of thousands of investment opportunities sourced annually.

Our portfolio's annualized current yield stood at 13.9% across all performing interest bearing investments as of March 31, 2013. Distributions from equity positions that we hold are not included in this yield calculation. In many of our portfolio companies, we hold equity positions, ranging from minority interests to majority stakes, which we expect over time to contribute to our investment returns.

At March 31, 2013, our portfolio consisted of 120 long-term investments with a fair value of $3.708 billion, a record total, compared to 85 long-term investments with a fair value of $2.094 billion at June 30, 2012.

During the March 2013 quarter, we completed 23 new and follow-on investments aggregating a record $784.4 million (approximately five times our origination dollar volume in the prior year March 2012 quarter), sold four investments, and received repayment on one other investment. Our repayments in the March 2013 quarter were $102.5 million, resulting in investments net of repayments of $681.9 million.

Broadly diversified across our lines of business, our originations in the March 2013 quarter were weighted toward the last month of the quarter, resulting in only a partial quarter positive income impact from such originations. We expect such originations to generate full-quarter positive impact in the current June 2013 quarter.

The majority of our portfolio consists of agented middle-market loans that we have originated, structured, selected, and closed. In general, we perceive the risk-adjusted reward in the current environment to be superior for agented and self-originated opportunities compared to the syndicated market, causing us to prioritize our proactive sourcing efforts.

  • On January 11, 2013, we provided $27.1 million of debt financing to Correctional Healthcare Holding Company, Inc., a national provider of correctional medical and behavioral healthcare solutions.
  • On January 17, 2013, we made a $30.3 million follow-on investment in APH Property Holdings, LLC ("APH"), to acquire 5100 Live Oaks Blvd, LLC, a multi-family residential property located in Tampa, Florida. We invested $2.7 million of equity and $27.6 million of debt in APH.
  • On January 24, 2013, we made an investment of $24.9 million to purchase subordinated notes in Cent 17 CLO Limited.
  • On January 24, 2013, we made an investment of $26.9 million to purchase subordinated notes in Octagon Investment Partners XV, Ltd.
  • On January 29, 2013 we provided $8.0 million of secured second lien financing to TGG Medical Transitory, Inc., a developer of technologies for extracorporeal photopheresis treatments.
  • On January 31, 2013, we funded the acquisition of the subsidiaries of Nationwide Acceptance Holdings, LLC, an auto finance business, with $25.2 million of combined debt and equity financing.
  • On February 5, 2013, we received a distribution of $3.3 million related to our investment in NRG Manufacturing, Inc., for which we realized a gain of the same amount.
  • On February 5, 2013, we made a secured debt investment of $2.0 million in Healogics, Inc., a provider of outpatient wound care management services.
  • On February 13, 2013, we made an investment of $35.0 million to purchase subordinated notes in Galaxy XV CLO, Ltd.
  • On February 14, 2013, we made a $2.0 million secured first-lien debt investment in J.G. Wentworth, LLC, the largest purchaser of structured settlement and annuity payments in the United States.
  • On February 14, 2013, we provided $15.0 million of senior secured financing to Speedy Group Holdings Corp., a leading provider of short-term loans and financial services in the United States, United Kingdom, and Canada.
  • On February 15, 2013, we made a $6.0 million secured second-lien debt investment in SESAC Holdco II LLC, a performing rights organization based in Nashville, Tennessee.
  • On February 21, 2013, we provided $39.6 million of senior secured first-lien financing to Atlantis Healthcare Group (Puerto Rico), Inc., a leading owner and operator of dialysis stations.
  • On February 25, 2013, we made a $10.0 million secured second-lien loan and a $2.0 million secured first-lien loan to Transaction Networks Services, Inc., an international data communications company that provides networking, data communications, and other value added services. On the same day we sold the $2.0 million secured first-lien debt instrument and realized a gain of $20,000 on this investment.
  • On March 1, 2013, we made a $70.0 million secured term loan investment in a subsidiary of Cinedigm DC Holdings, LLC, the leading provider of digital cinema services, software, and content marketing and distribution.
  • On March 6, 2013, we made a $5.0 million follow-on investment in Rocket Software, Inc.
  • On March 7, 2013, we made a secured second-lien follow-on investment of $60.0 million in United Sporting Companies, Inc.
  • On March 8, 2013, we made an investment of $40.4 million to purchase subordinated notes in Halcyon Loan Advisors Funding 2013-I Ltd.
  • On March 12, 2013, we provided $12.0 million of secured second-lien financing to ALG USA Holdings, LLC, a vertically integrated travel company that focuses on providing all-inclusive vacations in Mexico and the Caribbean to the U.S. customer.
  • On March 15, 2013, we made an investment of $44.1 million to purchase subordinated notes in Apidos CLO XII, Ltd.
  • On March 18, 2013, we sold our $2.0 million investment in J.G. Wentworth and realized a gain of $75,000 on this investment.
  • On March 18, 2013, we provided a $197.3 million first-lien senior secured credit facility to support the refinancing of Capstone Logistics, LLC, a logistics services portfolio company. After the financing, we received repayment of the $30.7 million and $38.4 million loans previously outstanding.
  • On March 27, 2013, we provided $100.0 million of senior secured debt financing to support the recapitalization of Broder Bros., Co., a leading distributor of imprintable sportswear and accessories in the United States.
  • On March 28, 2013, we sold our investment in New Meatco Provisions, LLC for net proceeds of approximately $2.0 million, recognizing a realized loss of $10.8 million on the sale.
  • On March 29, 2013, we received net proceeds of $1.3 million for the partial sale of our equity investment in Caleel + Hayden, LLC, realizing a gain of $900,000 on the sale.

Since March 31, 2013 in the current June 2013 quarter, we have completed a follow-on investment and four new investments aggregating $163.8 million.

  • On April 1, 2013, we refinanced our existing $38.5 million senior secured loans to Ajax Rolled Ring & Machine, Inc.
  • On April 19, 2013, we made an investment of $43.7 million to purchase subordinated notes in Mountain View CLO 2013-I Ltd.
  • On April 22, 2013, we provided $34.4 million of senior secured financing to support the carve-out acquisition of Pegasus Financial Services.
  • On April 25, 2013, we made an investment of $26.0 million to purchase subordinated notes in Brookside Mill CLO Ltd.
  • On April 30, 2013, we made a $21.2 million follow-on investment in APH, to acquire Lofton Place Apartments and Vista at Palma Sola, two residential properties located in Florida. We invested $3.2 million of equity and $18.0 million of debt in APH.

None of our loans originated in nearly six years has gone on non-accrual status. The fair market value of our loan assets on non-accrual as a percentage of total assets stood at approximately 1.3% on March 31, 2013, down from 1.9% on June 30, 2012. We are pleased with the overall 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.

During calendar year 2012, we received significant dividends and interest income from our ESHI investment. Our income from ESHI in calendar year 2013 is significantly less than such income in calendar year 2012. We are targeting to offset this decrease by utilizing existing liquidity and prudent leverage to finance our growth through new originations, including attractive yielding investments in the financial services and other sectors.

Because of the good performance of several controlled positions in our portfolio, we have selectively monetized certain such companies and may monetize other positions if we identify attractive opportunities for exit. As such exits materialize, we expect to reinvest such proceeds into new income-producing opportunities. We are pleased with the performance of our controlled portfolio companies, and are actively exploring other new investment opportunities at attractive multiples of cash flow.

Our advanced investment pipeline aggregates more than $500 million of potential opportunities diversified across multiple sectors. These opportunities are primarily secured investments with double-digit coupons, sometimes coupled with equity upside through additional investments.

LIQUIDITY AND FINANCIAL RESULTS

Our modestly leveraged balance sheet, with its vast majority of unencumbered assets, access to multiple funding sources, matched-book funding, and weighting toward unsecured fixed-rate debt, is a source of significant strength. Our debt to equity ratio stood at a modest 43.7% after subtraction of cash and equivalents at March 31, 2013. Our equitized balance sheet also gives us the potential for future earnings upside as we prudently utilize and grow our existing revolving credit facility as well as potentially add additional secured or unsecured term facilities made more attractive by our investment-grade ratings at corporate, revolving facility, and term debt levels.

On March 27, 2012, we renegotiated our credit facility and closed on an expanded five-year revolving credit facility (the "Facility") for Prospect Capital Funding LLC. As of March 31, 2013, our Facility size stood at $552.5 million with commitments from 17 total lenders. The Facility includes an accordion feature which allows aggregate commitments to be increased to $650 million without the need for re-approval from existing lenders or the rating agency.

As we make additional investments, we 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 March 2015, with an additional two-year amortization period, with distributions allowed after the completion of the revolving period. Interest on borrowings under the Facility is one-month Libor plus 275 basis points, with no minimum Libor floor. The Facility continues to carry a high-investment-grade Moody's rating of Aa3.

We also have significantly diversified our counterparty risk. The current count of 17 institutional lenders in our Facility compares to five lenders at June 30, 2010.

In addition, our repeat issuance in the 5-year to 30-year unsecured term debt market has extended our liability duration, thereby better matching our assets and liabilities for balance sheet risk management.

On December 21, 2010, we issued $150.0 million in principal amount of 6.25% senior unsecured convertible notes, convertible at $11.35 per common share and due December 2015 ("2015 Converts").

On February 18, 2011, we issued $172.5 million in principal amount of 5.50% senior unsecured convertible notes, convertible at $12.76 per common share and due August 2016 ("2016 Converts"). In the March 2012 quarter, we repurchased $5.0 million of our 2016 Notes.

On April 16, 2012, we issued $130.0 million in principal amount of 5.375% senior unsecured convertible notes, convertible at $11.65 per common share and due October 2017 ("2017 Converts").

On August 14, 2012, we issued $200.0 million in principal amount of 5.75% senior unsecured convertible notes, convertible at $12.14 per common share and due March 2018 ("2018 Converts").

On December 21, 2012, we issued $200.0 million in principal amount of 5.875% senior unsecured convertible notes, convertible at $12.54 per common share and due January 2019 ("2019 Converts", and together with the 2015 Converts, 2016 Converts, 2017 Converts, and 2018 Converts, the "Convertible Notes").

On February 16, 2012, we entered into a Selling Agent Agreement for our issuance and sale from time to time of senior unsecured program notes (the "Program Notes"). Since initiating the program, we have issued $263.6 million of Program Notes. These notes were issued with interest rates ranging from 4.00% to 7.00% with a weighted average rate of 5.71%. These notes mature between June 15, 2019 and May 15, 2043.

On May 1, 2012, we issued $100.0 million in principal amount of 6.95% senior unsecured notes due November 2022 (the "2022 Baby Bond Notes). The 2022 Baby Bond Notes trade on the New York Stock Exchange with ticker PRY and further demonstrate our diversified access to longer-dated funding.

On March 15, 2013, we issued $250 million in aggregate principal amount of 5.875% senior unsecured notes due March 2023 (the "2023 Notes", and together with our 2022 Baby Bond Notes, Convertible Notes, and our Program Notes, the "Unsecured Notes").

The Unsecured Notes are general unsecured obligations of Prospect, with no financial covenants, no technical cross default provisions, and no payment cross default provisions with respect to our revolving credit facility. The Unsecured Notes have no restrictions related to the type and security of assets in which Prospect might invest. These Unsecured Notes have an investment-grade S&P rating of BBB. As of March 31, 2013, Prospect held more than $3.3 billion of unencumbered assets on its balance sheet to benefit holders of Unsecured Notes and Prospect shareholders.

On February 11, 2013, we entered into an equity distribution agreement relating to at-the-market offerings from time to time of our common stock. During the period from February 11, 2013 to May 6, 2013, we sold approximately 17.2 million shares of our common stock at an average price of $11.14 per share, and raised $191.9 million of gross proceeds, with all issuance at prices above net asset value per share.

We currently have no borrowings under our Facility. Assuming sufficient assets are pledged to the Facility and that we are in compliance with all Facility terms, and taking into account our cash balances on hand, we have over $740 million of new investment capacity. Any principal repayments, other monetizations of our assets, debt and other capital issuances, or increase in our Facility size would also further increase our investment capacity.

CONFERENCE CALL

The Company will host a conference call on Tuesday, May 7, 2013 at 11:00 a.m. Eastern Time. The conference call dial-in number will be 888-317-6016. A recording of the conference call will be available for approximately 30 days. To hear a replay, call 877-344-7529 and use passcode 10028354.

   
PROSPECT CAPITAL CORPORATION AND SUBSIDIARY  
CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES  
March 31, 2013 and June 30, 2013  
(in thousands, except share and per share data)  
   
   
   
   
  March 31,
2013
    June 30,
2012
 
Assets (Unaudited)     (Audited)  
Investments at fair value:          
  Control investments (amortized cost of $715,301 and $518,015, respectively) $ 675,305     $ 564,489  
  Affiliate investments (amortized cost of $48,949 and $44,229, respectively)   41,745       46,116  
    Non-control/Non-affiliate investments (amortized cost of $3,030,863 and $1,537,069, respectively)   2,990,672       1,483,616  
      Total investments at fair value (amortized cost of $3,795,113 and $2,099,313, respectively)   3,707,722       2,094,221  
               
  Investments in money market funds   253,332       118,369  
Total investments   3,961,054       2,212,590  
               
Cash   24,726       2,825  
Receivables for:              
  Interest, net   18,435       14,219  
  Dividends   2       1  
  Other   462       783  
Prepaid expenses   210       421  
Deferred financing costs   42,128       24,415  
    Total Assets   4,047,017       2,255,254  
               
Liabilities              
Credit facility payable   --       96,000  
Senior convertible notes   847,500       447,500  
Senior unsecured notes   347,682       100,000  
Prospect Capital InterNotes®   199,401       20,638  
Due to broker   42,961       44,533  
Dividends payable   26,267       14,180  
Due to Prospect Administration   1,332       658  
Due to Prospect Capital Management   873       7,913  
Accrued expenses   2,559       2,925  
Interest payable   15,268       6,723  
Other liabilities   7,586       2,210  
    Total Liabilities   1,491,429       743,280  
Net Assets $ 2,555,588     $ 1,511,974  
               
Components of Net Assets              
Common stock, par value $0.001 per share (500,000,000 common shares authorized; 238,628,037 and 139,633,870 issued and outstanding, respectively) $ 239     $ 140  
Paid-in capital in excess of par   2,640,457       1,544,801  
Undistributed net investment income   66,187       23,667  
Accumulated realized losses on investments   (63,904 )     (51,542 )
Unrealized depreciation on investments   (87,391 )     (5,092 )
Net Assets $ 2,555,588     $ 1,511,974  
               
Net Asset Value Per Share $ 10.71     $ 10.83  
               
               
   
PROSPECT CAPITAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three and Nine Months Ended March 31, 2013 and 2012
(in thousands, except share and per share data)
(Unaudited)
 
  For The Three Months Ended     For The Nine Months Ended
  March 31,     March 31,
  2013     2012     2013     2012
                     
Investment Income                    
Interest Income:                    
  Control investments $ 26,598     $ 32,966     $ 77,756     $ 45,546
  Affiliate investments   1,599       2,378       4,944       7,179
  Non-control/Non-affiliate investments other than CLO securities   58,187       37,044       161,727       107,078
  CLO fund securities   23,228       2,560       60,361       3,668
    Total interest income   109,612       74,948       304,788       163,471
                             
Dividend income:                            
  Control investments   75       5,474       65,042       29,819
  Non-control/Non-affiliate investments   --       --       3,185       1,733
  Money market funds   8       1       19       2
    Total dividend income   83       5,475       68,246       31,554
                             
Other income:                            
  Control investments   2,656       13,768       7,753       14,386
  Affiliate investments   5       11       618       85
  Non-control/Non-affiliate investments   7,839       1,421       28,461       8,732
    Total other income   10,500       15,200       36,832       23,203
  Total Investment Income   120,195       95,623       409,866       218,228
                             
Operating Expenses                            
Investment advisory fees:                            
  Base management fee   18,966       8,949       48,500       25,985
  Income incentive fee   14,896       14,518       58,207       30,614
    Total investment advisory fees   33,862       23,467       106,707       56,599
                             
Interest and credit facility expenses   20,854       9,655       50,779       28,374
Legal fees   395       256       1,652       1,198
Valuation services   420       308       1,167       916
Audit, compliance and tax related fees   200       276       1,010       1,141
Allocation of overhead from Prospect Administration   2,957       2,910       7,280       5,143
Insurance expense   88       69       259       168
Directors' fees   75       68       225       195
Excise Tax   1,000       --       5,500       --
Other general and administrative expenses   759       542       2,459       2,037
  Total Operating Expenses   60,610       37,551       177,038       95,771
                             
  Net Investment Income   59,585       58,072       232,828       122,457
                             
Net realized (loss) gain on investments   (6,014 )     24,812       (12,362 )     23,703
Net change in unrealized (depreciation) appreciation on investments   (9,142 )     (32,675 )     (82,299 )     8,441
                             
  Net Increase in Net Assets Resulting from Operations $ 44,429     $ 50,209     $ 138,167     $ 154,601
                             
Net increase in net assets resulting from operations per share: $ 0.20     $ 0.44     $ 0.71     $ 1.39
Dividends declared per share $ 0.33     $ 0.30     $ 0.95     $ 0.91
                             
                             
                             
PROSPECT CAPITAL CORPORATION AND SUBSIDIARY
ROLLFORWARD OF NET ASSET VALUE PER SHARE
For the Three and Nine Months March 31, 2013 and 2012
(in actual dollars)
(Unaudited)
 
  For The Three Months Ended   For The Nine Months Ended
  March 31, 2013   March 31, 2012   March 31, 2013   March 31, 2012
Per Share Data:                              
Net asset value at beginning of period $ 10.81     $ 10.69     $ 10.83     $ 10.36  
Net investment income   0.26       0.51       1.20       1.10  
Net realized (loss) gain   (0.03 )     0.22       (0.06 )     0.21  
Net unrealized (depreciation) appreciation   (0.04 )     (0.29 )     (0.42 )     0.08  
Net increase in net assets as a result of public offerings   0.04       -       0.14       --  
Dividends declared and paid   (0.33 )     (0.31 )     (0.98 )     (0.93 )
Net asset value at end of period $ 10.71     $ 10.82     $ 10.71     $ 10.82  
 

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 any forward-looking statements. 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.