SOURCE: Prospect Capital Corporation

Prospect Capital Corporation

December 18, 2013 07:45 ET

Prospect Capital Corporation Agrees to Acquire Nicholas Financial, Inc. in a $340 Million Transaction Pro Forma Earnings Accretive to Prospect

NEW YORK, NY--(Marketwired - Dec 18, 2013) - Prospect Capital Corporation (NASDAQ: PSEC) ("Prospect") announced today that Prospect has entered into a definitive agreement to acquire 100% of the common stock of Nicholas Financial, Inc. (NASDAQ: NICK) ("Nicholas") for $16.00 per share. Subject to certain conditions, the transaction is currently contemplated to close in April 2014, although this timing could be earlier or later depending on the time required to obtain the requisite approvals. The Board of Directors of Nicholas has voted to recommend the transaction to the security holders of Nicholas.

Founded in 1986, Nicholas is a specialty finance company headquartered in Clearwater, Florida. Nicholas is engaged primarily as an indirect lender in the consumer automobile lending business, where Nicholas purchases loans originated by more than 1,600 car dealerships. Nicholas operates in 15 states through 65 branch offices, which manage the origination and collection of loans. In the past year, Nicholas financed the purchase of nearly 15,000 previously owned automobiles. Nicholas currently employs more than 320 people and has an aggregate loan portfolio in excess of $290 million.

Based on the terms set forth in the definitive agreement, Prospect for approximately $199 million in consideration will be acquiring 100% of the common stock and outstanding options to acquire common stock of Nicholas. The options to acquire common stock will be acquired for cash in an amount equal to their net exercise value, and each outstanding share of common stock of Nicholas will be converted into the right to receive the number of shares of Prospect common stock determined by dividing $16.00 by the volume weighted average price per share of Prospect common stock for the 20 trading days prior to the closing of the transaction. The transaction is intended to qualify as a tax-free reorganization. Completion of the transaction is subject to certain conditions, including the approval of Nicholas security holders, the receipt of all necessary regulatory approvals, including expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, and the satisfaction of other terms and conditions.

Including the $199 million equity valuation for Nicholas and after taking into consideration its outstanding net debt, which is currently $127 million, the overall value placed on Nicholas in the transaction is approximately $326 million before estimated transaction fees and expenses. Upon closing the transaction, Prospect intends to refinance the business using proceeds from a newly committed $250 million revolving credit facility from bank lenders and an operating company term loan that Prospect will provide. The aggregate net proceeds from this recapitalization will be used to repay the existing debt of Nicholas and return a portion of capital issued by Prospect to complete the transaction on the closing date. After receipt of the recapitalization cash distribution, Prospect will have a net investment in the transaction of approximately $139 million.

The new revolving credit facility is being provided jointly by Bank of America, N.A., as administrative agent and Wells Fargo, National Association. The new facility is a floating-rate three-year $250 million revolving credit facility that is priced at an attractive spread to Libor relative to other credit facilities in place with consumer lending companies.

Following the closing of the transaction, Prospect expects Nicholas to pay out substantially all of its income to Prospect on an ongoing basis. Prospect has structured the post-recapitalization entity in a tax efficient manner expected to result in substantial elimination of corporate taxation going forward. For the trailing twelve months ending September 2013, Nicholas generated pre-tax income of $31.8 million.

Prospect's post-recapitalization $139 million investment in Nicholas is expected to consist of $122 million of operating and holding company term loans and $17 million of a holding company equity investment.

Established more than 27 years ago, Nicholas is one of the largest branch-based specialty finance indirect auto lending companies serving the southeastern and mid-western United States. Nicholas has enjoyed multi-decade success due to several key factors, including a broad-based dealer origination network, a rigorous and consistent new loan underwriting process, and an intense commitment to monitoring and collecting existing loans. Because of these strengths, Nicholas has generated consistent profitability and has grown its asset base during the past several years. Nicholas holds more than 40,000 individual loans on its balance sheet, serves as a leader in its markets, and benefits from customer loyalty among its dealers due to responsive brand-based local customer service. Because of its loan underwriting discipline and collection capability, Nicholas has been a consistently profitable company over the years, including and throughout the last market credit crisis.

The acquisition of Nicholas allows Prospect to build on its tax-efficient industry experience in both consumer lending and auto lending. In early 2013, Prospect acquired Nationwide Acceptance Corporation ("Nationwide"), which, like Nicholas, competes in the previously-owned car lending industry. Nationwide, which is headquartered in Chicago, Illinois, operates with a direct to dealer business model compared to the branch-based model of Nicholas. Prospect expects Nationwide and Nicholas to continue to operate independently as unconsolidated portfolio companies of Prospect.

"With its significant borrower diversity, prudent third-party leverage, secured lending orientation, long operating history, consistent financial performance, steady growth, and expected tax efficiency, Nicholas represents a compelling portfolio company investment opportunity," said Grier Eliasek, President of Prospect.

"After Nicholas announced earlier in 2013 that we would commence a process to consider our strategic options, we went through a comprehensive review," said Peter Vosotas, founder and CEO of Nicholas. "There is no doubt in my mind that the transaction we are announcing today with Prospect is in the best interests of our security holders, our employees, and our customers. We look forward to successfully consummating this transaction in the months ahead."

IMPORTANT ADDITIONAL INFORMATION WILL BE FILED WITH THE SEC

This communication is being made in respect of the proposed business combination involving Prospect and Nicholas. In connection with the proposed transaction, Prospect plans to file with the SEC a Registration Statement on Form N-14 containing a Proxy Statement of Nicholas and a Prospectus of Prospect and each of Nicholas and Prospect plan to file with the SEC other documents regarding the proposed transaction. The definitive Proxy Statement and Prospectus will be mailed to shareholders of Nicholas. INVESTORS AND SECURITY HOLDERS OF PROSPECT AND NICHOLAS ARE URGED TO READ THE REGISTRATION STATEMENT AND THE PROXY STATEMENT/PROSPECTUS AND OTHER DOCUMENTS FILED WITH THE SEC CAREFULLY IN THEIR ENTIRETY WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED TRANSACTION.

Investors and security holders will be able to obtain free copies of the Registration Statement and the Proxy Statement/Prospectus (when available) and other documents filed with the SEC by Prospect and Nicholas through the web site maintained by the SEC at http://www.sec.gov. Free copies of the Registration Statement and the Proxy Statement/Prospectus (when available) and other documents filed with the SEC can also be obtained by directing a request to Prospect Capital Corporation, 10 East 40th Street, 44th Floor, New York, NY 10016, Attention: Brian Oswald, Chief Financial Officer, or by directing a request to Nicholas Financial, Inc., 454 McMullen Booth Road, Building C, Clearwater, Florida, 33759, Attention: Ralph Finkenbrink, Chief Financial Officer.

PROXY SOLICITATION

Prospect, Nicholas and their respective directors, executive officers and certain other members of management and employees may be soliciting proxies from Nicholas shareholders in favor of the transaction. Information regarding the persons who may, under the rules of the SEC, be considered participants in the solicitation of the Nicholas shareholders in connection with the proposed acquisition will be set forth in the Proxy Statement/Prospectus when it is filed with the SEC. You can find information about Prospect's executive officers and directors in its definitive proxy statement filed with the SEC on September 10, 2013. You can find information about the executive officers and directors of Nicholas in its Annual Report on Form 10-K filed with the SEC on June 14, 2013. You can obtain free copies of these documents from Prospect and Nicholas in the manner set forth above.

ABOUT PROSPECT CAPITAL CORPORATION

Prospect (www.prospectstreet.com) is a closed-end investment company that lends to and invests in private and microcap public businesses. Prospect's investment objective is to generate both current income and long-term capital appreciation through debt and equity investments.

Prospect has elected to be treated as a business development company under the Investment Company Act of 1940 ("1940 Act"). Prospect is required to comply with a series of regulatory requirements under the 1940 Act as well as applicable NASDAQ, federal and state rules and regulations. Prospect has 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 could have an adverse effect on Prospect and its 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 Prospect's control, and that Prospect 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 are subject to a number of risks, assumptions and uncertainties that include, but are not limited to risks associated with the acquisition, including (i) the occurrence of any event, change or other circumstances that could give rise to the termination of the definitive agreement; (ii) the inability to complete the transaction due to the failure to obtain the necessary regulatory approval or shareholder approval; (iii) the failure to satisfy other conditions to completion of the transaction; and (iv) other risks. Such statements speak only as of the time when made, and Prospect undertakes no obligation to update any such statement now or in the future.