Equity Values: Stockholders' equity as of December 31, 2006: $289.24 million Net asset value per share: $15.24 Second Fiscal Quarter Operating Results: Net investment income: $4.49 million Net investment income per share: $0.33 Net realized and unrealized depreciation: $(1.55) million Net increase in net assets resulting from operations: $2.94 million Dividends to shareholders per share: $0.385 Portfolio: Number of new portfolio companies invested: 2 Number of portfolio companies at end of period: 19PORTFOLIO AND INVESTMENT ACTIVITY December 31, 2006 marked our second fiscal quarter and tenth full quarter since our initial public offering. Our portfolio on December 31, 2006 was invested approximately $200.82 million in 19 long-term investments, with the remainder in cash and short-term instruments. As of December 31, 2006, our portfolio generated a current yield of 17.1% across all our long-term debt and equity investments. This current yield includes interest from all our long-term investments as well as dividends from Gas Solutions Holdings, Inc. ("Gas Solutions") and net profits interests and royalties from other portfolio companies. Excluding such dividends and other income, our weighted average long-term debt yield as of December 31, 2006, was 15.2%. We completed two new investments, as well as follow-on investments in the existing portfolio, totaling approximately $62.57 million in the prior quarter, or approximately $45.8 million net of a refinancing. Both of these new investments were structured as senior secured debt with equity-like participation rights. On October 31, 2006, we provided $15.5 million in senior secured debt financing to TLOGH, L.P., a Barnett Shale gas development company based in Dallas, Texas. On November 9, 2006, we provided $6.5 million in senior secured debt financing to Jettco Marine Services LLC, an offshore supply vessel company based in Morgan City, Louisiana. During the prior quarter, we provided additional funding aggregating approximately $40.9 million to existing portfolio companies, including a $4.9 million additional investment into Conquest Cherokee LLC and also including a $22.7 million investment related to the acquisition of Stryker Energy II, LLC, by Stryker Energy, LLC, which took place on December 4, 2006 and included the refinancing of approximately $16.8 million of our existing credit to Stryker Energy II, LLC. LIQUIDITY On December 13, 2006, we priced a public offering of 6 million shares of common stock at $17.70 per share, raising $106.20 million in gross proceeds. On January 11, 2007, the underwriter exercised its over-allotment option to purchase 815,000 shares, raising an additional $14.42 million in gross proceeds. We maintain a $50.0 million revolving credit facility, which we put in place on July 25, 2006. That facility is undrawn. We are seeking to increase the size of our credit facility. We have approximately $95 million invested in cash and short-term instruments. CONFERENCE CALL We will host a conference call Monday, February 12, 2007, at 11:00am Eastern Time. The conference call dial-in number is (877) 407-9205. A recording of the conference call will be available for approximately 7 days. To hear a replay, call (877) 660-6853 and use Playback Access Account code 286 and Playback Conference ID code 230846.
STATEMENTS OF NET ASSETS As of As of
(in thousands) December 31, June 30,
2006 2006
Assets
Cash and cash equivalents $ 93,247 $ 1,608
Investments in controlled entities at fair value
(cost - $86,656 and $39,759, respectively) 98,133 49,585
Investments in affiliated entities at fair value
(cost - $22,922 and $25,329, respectively) 22,107 25,329
Investments in non-controlled and non-affiliated
entities, at fair value (cost - $83,677 and $58,505,
respectively) 80,580 59,055
Interest receivable 2,040 1,639
Dividends receivable 161 13
Loan Principal Receivable 454 385
Due from broker - 369
Other receivables 896 -
Due from Prospect Capital Management, LLC - 28
Due from Prospect Administration, LLC - 5
Prepaid expenses 222 77
Deferred financing fees 590 355
Deferred offering costs - 32
Total assets 298,430 138,480
Liabilities
Credit facility payable - 28,500
Dividends payable to shareholders 5,413 -
Accrued expenses 842 843
Due to Prospect Administration, LLC 184 -
Due to Prospect Capital Management, LLC 2,347 745
Other current liabilities 406 122
Total liabilities 9,192 30,210
Net Assets $ 289,238 $ 108,270
Components of Net Assets
Common stock, par value $.001 per share, (100,000,000
and 100,000,000 common shares authorized,
respectively; 18,975,388 and 7,069,873 issued and
outstanding, respectively) $ 19 $ 7
Paid-in capital in excess of par 283,440 97,266
Undistributed (distributions in excess of) net
investment income (4,037) 319
Realized gain 2,251 301
Net unrealized appreciation 7,565 10,377
Net Assets $ 289,238 $ 108,270
Net Asset Value Per Share $ 15.24 $ 15.31
STATEMENTS OF OPERATIONS Three months Three months
(in thousands) ended ended
December 31, December 31,
2006 2005
Investment Income
Interest income, controlled entities (net of
foreign tax withholding of $45 and $-,
respectively) $ 3,364 $ 828
Interest income, affiliated entities (net of
foreign tax withholding of $57 and $-,
respectively) 1,056 -
Interest income, non controlled and
non-affiliated entities 2,552 1,964
Interest income, cash equivalents - 137
Total interest income 6,972 2,929
Dividend income, controlled entities 850 843
Dividend income, non-controlled and
non-affiliated entities - 143
Dividend income, money market funds 318 20
Total dividend income 1,168 1,006
Other income, affiliated entities 3 -
Other income, non-controlled and
non-affiliated entities 28 -
Total other income 31 -
Total investment income 8,171 3,935
Operating Expenses
Investment advisory fees
Base management fee 1,568 524
Income incentive fee 1,123 508
Total investment advisory fees 2,691 1,032
Interest expense and credit facility costs 370 -
Chief Compliance Officer and Sub-administration
fees 119 81
Legal fees 97 391
Valuation services 100 45
Sarbanes-Oxley compliance expenses 1 -
Other professional fees 47 107
Insurance expense 72 85
Directors fees 57 55
Other general and administrative expenses 124 99
Total operating expenses 3,678 1,895
Net investment income 4,493 2,040
Net realized gain (loss) (1) -
Net unrealized appreciation (depreciation) (1,552) 488
Net increase in net assets resulting from
operations $ 2,940 $ 2,528
Net increase in net assets per weighted average
shares of common stock resulting from
operations $ 0.22 $ 0.36
PER SHARE DATA For the For the
three months three months
ended ended
December 31, December 31,
2006 2005
Net asset value, beginning of period $ 14.86 $ 14.60
Costs related to the initial public offering - 0.01
Costs related to the secondary public offering (0.04) -
Net investment income 0.33 0.29
Realized gain - -
Net unrealized appreciation (depreciation) (0.11) 0.07
Net increase in net assets as a result of
secondary public offering 0.59 -
Dividend declared and paid (0.39) (0.28)
Net asset value at end of period $ 15.24 $ 14.69
ABOUT PROSPECT ENERGY CORPORATION
Prospect Energy Corporation (www.prospectenergy.com) is a closed-end
investment company that lends to and invests in energy-related businesses.
Prospect Energy's investment objective is to generate both current income
and long-term capital appreciation through debt and equity investments.
Prospect Energy 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 Energy could have an adverse effect on
Prospect Energy 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 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