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Prospect Capital Corporation$6.53$.142.19%

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 Prospect Capital Reports March 2019 Quarterly Results and Declares Additional Monthly Distributions
   Wednesday, May 08, 2019 4:02:00 PM ET

NEW YORK, May 08, 2019 (GLOBE NEWSWIRE) -- Prospect Capital Corporation (NASDAQ: PSEC) (“Prospect”, “our”, or “we”) today announced financial results for our third fiscal quarter ended March 31, 2019.

All amounts in $000’s except
  per share amounts (on weighted average

  basis for period numbers) 
Quarter Ended
March 31, 2019
Quarter Ended
December 31, 2018
Quarter Ended
March 31, 2018
    
Net Investment Income (“NII”)$77,262 $80,811 $70,446 
Interest as % of Total Investment Income 90.6%  84.1%  89.6% 
    
NII per Share$0.21 $0.22 $0.19 
    
Net Income (Loss)$89,195 $(67,389) $51,859 
Net Income (Loss) per Share$0.24 $(0.18) $0.14 
    
Distributions to Shareholders$66,024 $65,837 $65,174 
Distributions per Share$0.18 $0.18 $0.18 
    
NII / Distributions to Shareholders 117%  123%  108% 
    
NAV per Share at Period End$9.08 $9.02 $9.23 
    
Net of Cash Debt to Equity Ratio 69.1%  75.0%  69.1% 

For the March 2019 quarter, we earned net investment income (“NII”) of $77.3 million, or $0.21 per weighted average share, down $0.01 from the December 2018 quarter, exceeding our current quarterly dividend rate of $0.18 per share by $0.03 per share. The decrease in NII per share for the March 2019 quarter is primarily due to lower levels of dividends and structuring fee income compared to the December 2018 quarter. Our ratio of NII to distributions was 117% in the March 2019 quarter.

In the March 2019 quarter, our net of cash debt to equity ratio was 69.1%, down 5.9% from December 2018.

For the March 2019 quarter, our net income was $89.2 million, or $0.24 per weighted average share. The $0.42 increase in net income for the March 2019 quarter is primarily due to realized and unrealized gains in our portfolio.

Our net asset value (“NAV”) per share increased by $0.06 to $9.08 during the March 2019 quarter.




All amounts in $000’s except
  per share amounts (on weighted
  average basis for period numbers)
Nine Months Ended
March 31, 2019
Nine Months Ended
March 31, 2018
   
NII$243,232$207,370
NII per Share$0.67$0.57
   
Net Income (“NI”)$105,601$185,559
NI per Share$0.29$0.51
   
Distributions to Shareholders$197,555$211,733
Distributions per Share$0.54$0.59

For the nine months ended March 31, 2019, we earned NII of $243.2 million, or $0.67 per weighted average share, up $0.10 from the prior year. For the nine months ended March 31, 2019, we earned NI of $105.6 million, or $0.29 per weighted average share, down $0.22 from the prior year.

DISTRIBUTION DECLARATION

Prospect is declaring distributions as follows:

  • $0.06 per share for May 2019 to May 31, 2019 record holders with June 20, 2019 payment date;
  • $0.06 per share for June 2019 to June 28, 2019 record holders with July 18, 2019 payment date;
  • $0.06 per share for July 2019 to July 31, 2019 record holders with August 22, 2019 payment date; and
  • $0.06 per share for August 2019 to August 30, 2019 record holders with September 19, 2019 payment date.

These distributions are Prospect’s 130th, 131th, and 132nd, and 133rd consecutive cash distributions to shareholders.

Based on the declarations above, Prospect’s closing stock price of $6.78 at May 7, 2019 delivers to shareholders a distribution yield of 10.6%.

Based on past distributions and our current share count for declared distributions, Prospect since inception through our August 2019 distribution will have distributed $17.40 per share to original shareholders, aggregating approximately $2.9 billion in cumulative distributions to all shareholders.

Prospect expects to declare September 2019 and October 2019 distributions in August 2019.

PORTFOLIO AND INVESTMENT ACTIVITY

All amounts in $000’s except
  per unit amounts 
As of
March 31, 2019
As of
December 31, 2018
As of
June 30, 2018
    
Total Investments (at fair value)$5,700,673 $5,842,570 $5,727,279 
Number of Portfolio Companies 137  139  135 
% Controlled Investments (at fair value) 42.0%  41.6%  42.0% 
    
Secured First Lien 44.6%  46.2%  43.9% 
Secured Second Lien 23.5%  23.1%  22.1% 
Subordinated Structured Notes 15.5%  15.2%  16.8% 
Equity Investments 15.1%  14.3%  16.6% 
Rated Secured Structured Notes (1) 0.8%  0.8%  - 
Unsecured Debt 0.5%  0.4%  0.6% 
    
Annualized Current Yield – All Investments 10.4%  10.7%  10.5% 
Annualized Current Yield – Performing Interest Bearing Investments 12.8%  13.1%  13.0% 
        
Top Industry Concentration(2) 13.8%  13.8%  14.2% 
    
Energy Industry Concentration(2) 3.0%  3.0%  3.0% 
    
Non-Accrual Loans as % of Total Assets (3) 3.3%  3.6%  2.5% 
    
Weighted Average Portfolio Net Leverage(4)4.51x4.57x4.60x
Weighted Average Portfolio EBITDA(4)$59,835 $58,491 $55,384 

      (1) Our Rated Secured Structured Notes are considered non-agented debt where applicable.

      (2) Excluding our underlying industry-diversified structured credit portfolio. 

      (3) Calculated at fair value.

      (4) For additional disclosure see “Weighted Average Portfolio EBITDA and Net Leverage” at the end of this release.

During the March 2019 and December 2018 quarters, our investment origination and repayment activity was as follows:

All amounts in $000’s Quarter EndedQuarter Ended
 March 31, 2019December 31, 2018
   
Total Originations
$35,711 $226,252 
   
Non-Agented Debt (1) 100.0%  72.5% 
Agented Sponsor Debt   14.5% 
Subordinated Structured Notes   10.2% 
Agented Non-Sponsor Debt   2.1% 
Real Estate   0.6% 
Corporate Yield Buyouts   0.1% 
   
Total Repayments$195,055 $163,502 
Originations, Net of Repayments$(159,344) $62,750 

(1) Non-Agented Debt includes 8.8% of origination activity in Rated Secured Structured Notes for the quarter ended December 31, 2018.

For a list of transactions completed during the quarter, please see “Portfolio Investment Activity” in our Form 10-Q for the quarter ended March 31, 2019.

We have invested in structured credit investments with individual standalone financings non-recourse to Prospect and with our risk limited in each case to our net investment amount. At March 31, 2019 and December 31, 2018, our subordinated structured note portfolio at fair value consisted of the following:

All amounts in $000’s except
  per unit amounts 
As of
March 31, 2019
As of 
December 31, 2018
   
Total Subordinated Structured Notes
$881,128 $889,491 
   
# of Investments 43  43 
   
TTM Average Cash Yield(1)(2)(3) 17.9%  17.5% 
Annualized Cash Yield(1)(2)(3) 15.2%  21.0% 
Annualized GAAP Yield on Fair Value(1)(2) 15.8%  15.5% 
Annualized GAAP Yield on Amortized Cost(2)(4) 12.7%  12.6% 
   
Cumulative Cash Distributions$1,271,206 $1,237,719 
% of Original Investment 83.0%  80.8% 
   
# of Underlying Collateral Loans 1,808  1,853 
Total Asset Base of Underlying Portfolio$18,426,692 $18,646,090 
   
Prospect TTM Default Rate 0.29%  0.92% 
Broadly Syndicated Market TTM Default Rate 0.93%  1.63% 
Prospect Default Rate Outperformance vs. Market 0.64%  0.71% 

(1) Calculation based on fair value.

(2) Excludes deals being redeemed.

(3) Excludes deals that have yet to make a first payment.

(4) Calculation based on amortized cost.

To date, including called deals being liquidated, we have exited nine subordinated structured notes totaling $263.4 million with an expected pooled average realized IRR of 16.8% and cash on cash multiple of 1.49 times.

Since December 31, 2017 through today, 22 of our structured credit investments have completed multi-year extensions of their reinvestment periods (typically at reduced liability spreads). We believe further optionality upside exists in our structured credit portfolio through additional re-financings and reinvestment period extensions.

To date during the March 2019 quarter, we have completed new and follow-on investments as follows:

All amounts in $000’s Quarter Ended
 June 30, 2019
  
Total Originations$25,919 
  
Non-Agented Debt 64.7% 
Agented Sponsor Debt 35.3% 
  
Total Repayments$61,651 
Originations, Net of Repayments$(35,732) 

LIQUIDITY AND FINANCIAL RESULTS

All amounts in $000’s As of
March 31, 2019
As of
December 31, 2018
As of
March 31, 2018
Net of Cash Debt to Equity Ratio 69.1%  75.0%  69.1% 
% of Assets at Floating Rates 88.0%  88.2%  90.1% 
% of Liabilities at Fixed Rates 95.9%  88.5%  96.4% 
    
Unencumbered Assets$4,152,393 $4,322,091 $4,619,909 
% of Total Assets 71.0%  72.4%  78.9% 

We repaid the remaining $101.6 million of our January 2019 notes at maturity. The below table summarizes our March 2019 quarter issuance and repurchase activity, including at-the-market (“ATM”) follow-on issuance:

All amounts in $000’s PrincipalRateMaturity
    
Debt Issuances    
  2025 Notes$201,2506.375% March 2025
  2024 Notes ATM$12,5766.25% June 2024
  2028 Notes ATM$1,4656.25% June 2028
  2029 Notes ATM$19,1706.875% June 2029
Repurchases   
2020 Notes$129,7984.75% April 2020
Prospect Capital InterNotes®$23,9864.50% - 4.75%July 2020

On August 1, 2018, we completed an extension of the revolving credit facility (the “Facility”) for Prospect Capital Funding, extending the term 5.7 years from such date and reducing the interest rate on drawn amounts to one-month Libor plus 2.20%.

$1.05 billion of Facility commitments have closed to date with 29 institutional lenders (representing one of the largest and most diversified bank groups in our industry), with further increases targeted. An accordion feature allows the Facility, at Prospect's discretion, to accept up to $1.5 billion of commitments. The Facility matures March 27, 2024. The Facility includes a revolving period that extends through March 27, 2022, followed by an additional two-year amortization period, with distributions allowed to Prospect after the completion of the revolving period.

We currently have eight separate unsecured debt issuances aggregating $1.6 billion outstanding, not including our program notes, with laddered maturities extending to June 2029. At March 31, 2019, $754.7 million of program notes were outstanding with laddered maturities through October 2043.

EARNINGS CONFERENCE CALL

Prospect will host an earnings call on Thursday, May 9, 2019 at 11:00 am. Eastern Time. Dial 888-338-7333. For a replay prior to June 8, 2019, visit www.prospectstreet.com or call 877-344-7529 with passcode 10131367.

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES  
CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES  
(in thousands, except share and per share data)  
         
 March 31,
2019
 June 30,
2018
 
 (Unaudited) (Audited) 
Assets    
Investments at fair value:    
Control investments (amortized cost of $2,331,616 and $2,300,526, respectively)$2,394,716  $2,404,326  
Affiliate investments (amortized cost of $180,279 and $55,637, respectively)91,042  58,436  
Non-control/non-affiliate investments (amortized cost of $3,437,174 and $3,475,295, respectively)3,214,915  3,264,517  
Total investments at fair value (amortized cost of $5,949,069 and $5,831,458, respectively)5,700,673  5,727,279  
Cash120,566  83,758  
Receivables for:    
Interest, net16,925  19,783  
Other985  1,867  
Deferred financing costs on Revolving Credit Facility8,386  2,032  
Due from broker539  3,029  
Prepaid expenses285  984  
Due from Affiliate88  88  
Total Assets5,848,447  5,838,820  
     
Liabilities    
Revolving Credit Facility99,000  37,000  
Convertible Notes (less unamortized debt issuance costs of $15,207 and $13,074, respectively)  763,245   809,073  
Public Notes (less unamortized discount and debt issuance costs of $14,296 and $11,007,        
respectively) 775,624   716,810  
Prospect Capital InterNotes® (less unamortized debt issuance costs of $11,969 and $11,998,        
respectively) 742,752   748,926  
Due to Prospect Capital Management48,855  49,045  
Interest payable25,426  33,741  
Due to broker31,819  6,159  
Dividends payable22,013  21,865  
Accrued expenses5,478  5,426  
Due to Prospect Administration1,807  2,212  
Other liabilities613  1,516  
Total Liabilities2,516,632  2,431,773  
Commitments and Contingencies      
Net Assets$3,331,815  $3,407,047  
     
Components of Net Assets    
Common stock, par value $0.001 per share (1,000,000,000 common shares authorized; 366,884,974 and 364,409,938 issued and outstanding, respectively)$367  $364  
Paid-in capital in excess of par4,038,229  4,021,541  
Total distributable earnings (loss)(706,781) (614,858) 
Net Assets$3,331,815  $3,407,047  
     
Net Asset Value Per Share $9.08  $9.35  
         


PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES 
CONSOLIDATED STATEMENTS OF OPERATIONS 
(in thousands, except share and per share data) 
                
 Three Months Ended
March 31,
 Nine Months Ended
March 31,
 2019 2018 2019 2018
Investment Income       
Interest income:       
Control investments$51,078  $45,944  $161,206  $139,392 
Affiliate investments230  271  631  476 
Non-control/non-affiliate investments67,656  68,376  204,944  216,639 
Structured credit securities36,112  31,271  105,731  90,822 
Total interest income155,076  145,862  472,512  447,329 
Dividend income:       
Control investments3,612  5,639  31,277  5,639 
Affiliate investments659    659   
Non-control/non-affiliate investments253  648  781  1,518 
Total dividend income4,524  6,287  32,717  7,157 
Other income:       
Control investments10,799  6,188  29,331  12,317 
Non-control/non-affiliate investments710  4,498  4,854  17,011 
Total other income11,509  10,686  34,185  29,328 
Total Investment Income171,109  162,835  539,414  483,814 
Operating Expenses       
Base management fee29,540  29,268  92,684  88,990 
Income incentive fee19,315  17,612  60,808  51,843 
Interest and credit facility expenses38,946  37,479  117,510  117,861 
Allocation of overhead from Prospect Administration2,084  3,195  11,091  5,899 
Audit, compliance and tax related fees680  1,130  3,462  4,084 
Directors’ fees112  113  341  338 
Other general and administrative expenses3,170  3,592  10,286  7,429 
Total Operating Expenses93,847  92,389  296,182  276,444 
Net Investment Income77,262  70,446  243,232  207,370 
Net Realized and Net Change in Unrealized Gains (Losses) from Investments       
Net realized gains (losses)       
Control investments11,507  2  14,309  13 
Affiliate investments  (14,197)   (13,351)
Non-control/non-affiliate investments(2,024) (23) (792) (5,116)
Net realized gains (losses)9,483  (14,218) 13,517  (18,454)
Net change in unrealized gains (losses)       
Control investments11,686  1,380  (22,129) 46,898 
Affiliate investments(4,101) 12,952  (23,750) 19,678 
Non-control/non-affiliate investments(2,155) (18,188) (98,338) (68,488)
Net change in unrealized gains (losses)5,430  (3,856) (144,217) (1,912)
Net Realized and Net Change in Unrealized Gains (Losses) from Investments14,913  (18,074) (130,700) (20,366)
Net realized losses on extinguishment of debt(2,980) (513) (6,931) (1,445)
Net Increase in Net Assets Resulting from Operations$89,195  $51,859  $105,601  $185,559 
Net increase in net assets resulting from operations per share$0.24  $0.14  $0.29  $0.51 
Dividends declared per share$(0.18) $(0.18) $(0.54) $(0.59)
                


PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES 
ROLLFORWARD OF NET ASSET VALUE PER SHARE 
(in actual dollars) 
               
 Three Months Ended  Nine  Months Ended
 March 31,March 31,
 2019 2018 2019  2018 
Per Share Data       
Net asset value at beginning of period$9.02  $9.28  $9.35  $9.32 
Net investment income(1)0.21  0.19  0.67  0.57 
Net realized and change in unrealized gains (losses) (1)0.03  (0.05) (0.38) (0.06)
Distributions of net investment income  (0.18) (0.18) (0.54) (0.59)
Common stock transactions(2)(3)0.00  (0.01) (0.02) (0.01)
  Net asset value at end of period$9.08  $9.23  $9.08  $9.23 
               

(1) Per share data amount is based on the weighted average number of common shares outstanding for the period presented (except for dividends to shareholders which is based on actual rate per share). 
(2) Common stock transactions include the effect of issuances and repurchases of common stock, if any. 
(3) Amount is less than $0.01.

WEIGHTED AVERAGE PORTFOLIO EBITDA AND NET LEVERAGE

Weighted Average Portfolio Net Leverage (“Portfolio Net Leverage”) and Weighted Average Portfolio EBITDA (“Portfolio EBITDA”) provide clarity into the underlying capital structure of our portfolio debt investments and the likelihood that our overall portfolio will make interest payments and repay principal.        

Portfolio Net Leverage reflects the net leverage of each of our portfolio company debt investments, weighted based on the current debt principal outstanding of such investments. The net leverage for each portfolio company is calculated based on our investment in the capital structure of such portfolio company, with a maximum limit of 10.0x adjusted EBITDA. This calculation excludes debt subordinate to our position within the capital structure because our exposure to interest payment and principal repayment risk is limited beyond that point. Additionally, structured credit residual interests and equity investments, for which principal repayment is not fixed, are also not included in the calculation. The calculation does not exceed 10.0x adjusted EBITDA for any individual investment because 10.0x captures the highest level of risk to us. Portfolio Net Leverage provides us with some guidance as to our exposure to the interest payment and principal repayment risk of our overall debt portfolio.  We monitor our Portfolio Net Leverage on a quarterly basis.

Portfolio EBITDA is used by Prospect to supplement Portfolio Net Leverage and generally indicates a portfolio company’s ability to make interest payments and repay principal.  Portfolio EBITDA is calculated using the weighted average dollar amount EBITDA of each of our portfolio company debt investments.  The calculation provides us with insight into profitability and scale of the portfolio companies within our overall debt investments. 

These calculations include addbacks that are typically negotiated and documented in the applicable investment documents, including but not limited to transaction costs, share-based compensation, management fees, foreign currency translation adjustments and other nonrecurring transaction expenses.

Together, Portfolio Net Leverage and Portfolio EBITDA assist us in assessing the likelihood that we will timely receive interest and principal payments.  However, these calculations are not meant to substitute for an analysis of our underlying portfolio company debt investments, but to supplement such analysis.

ABOUT PROSPECT CAPITAL CORPORATION

Prospect Capital Corporation (www.prospectstreet.com ) is a business development company that focuses on lending to and investing in private 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.

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. We undertake no obligation to update any such statement now or in the future.

For additional information, contact:

Grier Eliasek, President and Chief Operating Officer
grier@prospectstreet.com  
Telephone (212) 448-0702

Prospect.jpg

Source: Prospect Capital Corporation


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