Equity Values:
Stockholders' equity as of March 31, 2008: $371.72 million
Net asset value per share as of March 31, 2008: $14.15
Third Fiscal Quarter Portfolio Activity:
Number of new portfolio companies invested: 2
Number of portfolio companies at end of period: 31
Third Fiscal Quarter Operating Results:
Net investment income: $12.92 million
Net investment income per share: $0.54
Net realized gain: $0.21 million
Net unrealized depreciation: ($14.39) million
Net decrease in net assets resulting from operations: ($1.26) million
Dividends to shareholders per share: $0.40
* See Supplemental Financial Information below
PORTFOLIO AND INVESTMENT ACTIVITY
On March 31, 2008, the fair value of our portfolio of 31 long-term
investments was approximately $429.2 million.
As of March 31, 2008, our portfolio generated a current yield of
approximately 16.8% 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 March 31, 2008, we completed two new investments
and follow-on investments in existing portfolio companies, totaling
approximately $31.8 million.
On February 11, 2008, the Company made a $5.1 million senior secured loan
to North Fork Collieries LLC ("North Fork"), a Kentucky-based mining and
coal production company. The Company also has a controlling equity
interest in North Fork.
On March 5, 2008, the Company made an additional secured debt investment of
$6.5 million in Unitek Acquisition, Inc. ("Unitek"), a leading provider of
outsourced technical services based in Blue Bell, Pennsylvania. Prospect
now has extended in the aggregate $11.5 million of debt capital to Unitek.
On March 14, 2008, the Company provided debt financing of $14.5 million to
support the acquisition of American Gilsonite Company ("AGC") by a private
equity firm based in New York. AGC is a specialty mineral company with
operations based in Bonanza, Utah. The Company made an additional $1.0
million investment in the equity of AGC.
For the three months ended March 31, 2008, the Company monetized positions
in three portfolio companies.
On February 20, 2008, Ken-Tex Energy Corp. ("Ken-Tex"), repaid the $10.8
million of debt that it owed the Company. As part of the transaction, the
Company also sold back its net profit interest ("NPI") and overriding
royalty interest ("ORRI") in Ken-Tex. In addition to the debt repayment,
this transaction generated $3.3 million in the form of a prepayment penalty
and the sale of the NPI and ORRI.
On March 5, 2008, the Company monetized its ownership of common shares of
Evolution Petroleum Corp. at a gain of $0.49 million.
On March 31, 2008, TLOGH, L.P. repaid in full the $15.5 million of debt
that it owed to the Company.
As of today, we now have 32 portfolio companies aggregating approximately
$492 million of assets, calculated as our March 31 investment portfolio
plus additional investments net of repayments. In the current quarter, the
Company so far has made investments in two new portfolio companies, as well
as monetized an interest in an existing portfolio company.
On April 3, 2008, the Company provided $39.8 million of first and second
lien debt and equity for the recapitalization of Ajax Rolled Ring & Machine
("Ajax"), a custom forger of seamless rolled steel rings located in York,
South Carolina.
On April 30, 2008, we provided debt financing of $20.0 million to support
the acquisition by Peerless Mfg Co. ("Peerless"), headquartered in Dallas,
Texas, of Nitram Energy Inc. ("Nitram"). Peerless is a leading designer,
manufacturer, and marketer of industrial environmental separation and
filtration systems while Nitram focuses on separation, heat transfer,
pulsation dampening, and industrial silencing products.
On April 30, 2008, we fully exited our investment in Arctic Acquisition
Corp., dba Cougar Pressure Control ("Cougar") through the sale of our
equity interest in Cougar for approximately $3.4 million.
In late December 2007, the Company's largest 100% controlled investment,
Gas Solutions Holdings Inc ("Gas Solutions"), a midstream gathering and
processing business in East Texas, engaged RBC Capital Markets Corporation
as a financial advisor to explore strategic alternatives, including a
potential sale. This monetization process is ongoing, and extensive
discussions are occurring with multiple interested parties. Management
seeks entering into a definitive purchase agreement before the conclusion
of the Company's fourth fiscal quarter, but can make no assurances as to
the likelihood or timing of any agreement. In late March 2008, Royal Bank
of Canada provided a $38 million term loan to Gas Solutions II Ltd, a
wholly owned subsidiary of Gas Solutions, the proceeds of which were used
to refinance all of Citibank's approximately $8 million of outstanding
senior secured debt as well as to make a $30 million cash distribution to
Gas Solutions. The Company has non-recourse access to this cash at Gas
Solutions, in addition to the Company's other assets and undrawn revolving
credit facility. In early May 2008, Gas Solutions II Ltd purchased a series
of propane puts at $0.10 out of the money and at prices of $1.53 per gallon
and $1.394 per gallon covering the periods May 1, 2008, through April 30,
2009, and May 1, 2009, through April 30, 2010, respectively. These hedges
have been executed at close to the highest market propane prices ever
achieved on an historical basis. Such hedges preserve the upside of Gas
Solutions II Ltd to benefit from potential future increases in commodity
prices. Gas Solutions is generating approximately $24.3 million of
unadjusted plant operating income based on annualizing the performance of
the six months ending March 31, 2008, which is an increase of 74% from the
previous year. For calendar year 2008, Gas Solutions estimates based on
current commodity prices and annualized run rates that it would achieve
more than $30 million of unadjusted plant operating income.
LIQUIDITY AND FINANCIAL RESULTS
Our net investment income for the quarter ended March 31, 2008, was
approximately $12.9 million. At March 31, 2008, our net asset value per
share was $14.15, a reduction from December 31 based primarily on reversing
some of the previous unrealized appreciation for an investment.
On March 28, 2008, we priced a registered direct offering of 1.3 million
shares of common stock at $15.22 per share, raising approximately $19.8
million in gross proceeds. On March 31, 2008, we completed a public
offering of 1.15 million shares of common stock at $15.45 per share,
raising approximately $17.8 million in gross proceeds.
At March 31, 2008, borrowings under our credit facility stood at
approximately $91 million. Currently, the Company has approximately $138
million drawn under its credit facility, with $62 million undrawn. In
addition to its corporate cash, the Company has non-recourse access to an
additional $30 million of cash at Gas Solutions.
In mid-April 2008, the Company entered into an engagement letter with a
lender that has agreed, on a best-efforts basis, to lead a syndication
group in an increase to the Company's revolving credit facility from $200
million to approximately $400 million. Such facility is anticipated to have
pricing similar to the Company's existing facility. The engagement letter
is not a final commitment and the closing of the facility is subject to the
lender's final internal approval and other conditions customary for a
transaction of this type.
CONFERENCE CALL
The Company will host a conference call on Tuesday, May 13, 2008, 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 5 days. To hear a replay, call 877-344-7529 and use passcode
419425.
As of As of
March 31, June 30,
CONSOLIDATED STATEMENTS OF NET ASSETS (in 2008 2007
thousands) (unaudited) (audited)
Assets
Cash and cash equivalents $ 43,819 $ 41,760
Investments in controlled entities at fair value
(cost - $147,142 and $124,664, respectively) 141,631 139,292
Investments in affiliated entities at fair value
(cost - $5,582 and $14,821, respectively) 5,582 14,625
Investments in non-controlled and non-affiliated
entities, at fair value (cost - $283,833 and
$186,712, respectively) 281,943 174,305
Interest receivable 4,039 2,139
Dividends receivable 45 263
Loan principal receivable 107 -
Structuring fees receivable - 1,625
Investments sold 506 -
Other receivables 419 271
Prepaid expenses 298 471
Deferred financing fees 1,618 1,751
Total assets 480,007 376,502
Liabilities
Credit facility payable 90,667 -
Payable for investments purchased - 70,000
Accrued expenses 1,227 1,312
Dividends Payable 8,958 -
Due to Prospect Administration, LLC 931 330
Due to Prospect Capital Management, LLC 5,562 4,508
Other current liabilities 944 304
Total liabilities 108,289 76,454
Net Assets $ 371,718 $ 300,048
Components of Net Assets
Common stock, par value $.001 per share,
(100,000,000 and 100,000,000 common shares
authorized, respectively; 26,270,379 and
19,949,065 issued and outstanding, respectively) $ 26 $ 20
Paid-in capital in excess of par 395,571 299,845
Distributions in excess of net investment income (315) (4,092)
Accumulated realized gains (losses) on
investments (16,163) 2,250
Unrealized appreciation (depreciation) on
investments (7,401) 2,025
Net Assets $ 371,718 $ 300,048
Net Asset Value Per Share $ 14.15 $ 15.04
Three months Three months
Ended Ended
March 31, March 31,
CONSOLIDATED STATEMENTS OF OPERATIONS 2008 2007
(in thousands) (unaudited) (audited)
Investment Income
Interest income, controlled entities (net of
foreign tax withholding of $35 and $67,
respectively) $ 4,556 $ 3,845
Interest income, affiliated entities (net of
foreign tax withholding of $0 and $35,
respectively) 290 800
Interest income, non controlled and
non-affiliated entities 10,044 4,025
Total interest income 14,890 8,670
Dividend income, controlled entities 3,300 850
Dividend income, money market funds 123 1,245
Total dividend income 3,423 2,095
Other income, controlled entities 200 8
Other income, non-controlled and non-affiliated
entities 3,487 1,296
Total other income 3,687 1,304
Total investment income 22,000 12,069
Operating Expenses
Investment advisory fees
Base management fee 2,388 1,531
Income incentive fee 3,230 1,754
Total investment advisory fees 5,618 3,285
Interest expense and credit facility costs 1,863 353
Chief Compliance Officer and Sub-administration
fees 228 164
Legal fees 449 593
Valuation services 198 92
Audit and tax related fees 45 43
Insurance expense 64 72
Directors fees 55 55
Other professional fees 18 4
Other general and administrative expenses 543 393
Total operating expenses 9,081 5,054
Net investment income 12,919 7,015
Net realized gain (loss) on investments 208 (1)
Net unrealized appreciation (depreciation) (14,386) (2,038)
Net (decrease) increase in net assets resulting
from operations ($ 1,259) $ 4,976
Net (decrease) increase in net assets per
weighted average shares of common stock
resulting from operations ($ 0.05) $ 0.26
Three months Three months
Ended Ended
March 31, March 31,
PER SHARE DATA 2008 2007
Net asset value, beginning of period $ 14.58 $ 15.24
Costs related to the secondary public offering (0.03) 0.01
Net investment income 0.54 0.36
Realized gain/(loss) 0.01 -
Net unrealized appreciation (depreciation) (0.60) (0.10)
Net increase in net assets as a result of
secondary public offering 0.05 0.06
Dividend declared and paid (0.40) (0.39)
Net asset value at end of period $ 14.15 $ 15.18
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