Prospect Capital Corporation (NASDAQ:PSEC) (“Prospect”, “our”, or
“we”) today announced financial results for our second fiscal
quarter ended December 31, 2017.
|
|
|
|
All amounts in $000’s except per share amounts |
Quarter EndedDecember 31,
2017 |
Quarter EndedSeptember 30,
2017 |
Quarter EndedDecember 31, 2016 |
|
|
|
|
Net Investment Income (“NII”) |
$73,192 |
$63,732 |
$84,405 |
Interest as % of Total Investment Income |
94.4% |
93.4% |
95.3% |
|
|
|
|
NII per Share |
$0.20 |
$0.18 |
$0.24 |
|
|
|
|
Net Increase in Net Assets Resulting from Operations (“NI”) |
$121,727 |
$11,973 |
$100,880 |
NI per Share |
$0.34 |
$0.03 |
$0.28 |
|
|
|
|
Distributions to Shareholders |
$64,912 |
$81,647 |
$89,668 |
Distributions per Share |
$0.18 |
$0.23 |
$0.25 |
|
|
|
|
Net Asset Value (“NAV”) per Share |
$9.28 |
$9.12 |
$9.62 |
|
|
|
|
Net of Cash Debt to Equity Ratio |
60.2% |
71.6% |
70.3% |
|
|
|
|
For the December 2017 quarter, we earned net
investment income (“NII”) of $73.2 million, or $0.20 per weighted
average share, up $0.02 from the September 2017 quarter, and
exceeding our current quarterly dividend rate of $0.18 per share by
$0.02 per share. The increase in NII per share resulted primarily
from a reduction in administrative overhead expenses and a
restoration of certain loans to income accrual status due to
improved performance.
Our strategy focuses on risk reduction, capital
preservation, and avoidance of “yield chasing” investments deemed
too risky with a poor risk/return profile at this point in the
economic cycle. We remain committed to our historic credit
discipline with repayments outpacing originations for the third
consecutive quarter. While we have a robust pipeline of potential
investments in our target range for credit quality and yield, we
have not chased risky assets with low returns and remain
underinvested at December 31, 2017. We believe our disciplined
approach to credit will serve us well in the coming years, just as
that disciplined approach has served us well in past years.
In the December 2017 quarter our net of cash
debt to equity ratio was 60.2%, down 11.4% from September 2017.
For the December 2017 quarter, our net increase
in net assets resulting from operations (“NI”) was $121.7 million,
or $0.34 per weighted average share, an increase of $0.31 from the
September 2017 quarter as a result of NII in excess of dividends
and an increase in the fair market value of certain
investments.
Our interest income as a percentage of total
investment income was 94.4% in the December 2017 quarter.
Our net asset value (“NAV”) per share increased
by $0.16 to $9.28 during the December 2017 quarter.
|
|
|
All amounts in $000’s except per share amounts |
Six Months EndedDecember 31,
2017 |
Six Months EndedDecember 31,
2016 |
|
|
|
NII |
$136,924 |
$163,324 |
NII per Share |
$0.38 |
$0.46 |
|
|
|
NI |
$133,700 |
$182,246 |
NI per Share |
$0.37 |
$0.51 |
|
|
|
Distributions to Shareholders |
$146,559 |
$179,097 |
Distributions per Share |
$0.41 |
$0.50 |
|
|
|
|
|
For the six months ended December 31, 2017, we
earned NII of $136.9 million, or $0.38 per weighted average share,
down $0.08 from the prior year. For the six months ended December
31, 2017, we earned NI of $133.7 million, or $0.37 per weighted
average share, down $0.14 from the prior year.
DISTRIBUTION DECLARATION
Prospect is declaring distributions as
follows:
- $0.06 per share for February 2018 to February 28, 2018 record
holders with March 22, 2018 payment date;
- $0.06 per share for March 2018 to March 30, 2018 record holders
with April 19, 2018 payment date; and
- $0.06 per share for April 2018 to April 30, 2018 record holders
with May 24, 2018 payment date.
These distributions mark Prospect’s 115th,
116th, and 117th consecutive cash distributions to
shareholders.
Based on the declarations above, Prospect’s
closing stock price of $6.29 at February 6, 2018 delivers to
shareholders a dividend yield of 11.4%.
Based on past distributions and our current
share count for declared distributions, Prospect since inception
through our April 2018 distribution will have distributed $16.44
per share to original shareholders, exceeding $2.5 billion in
cumulative distributions to all shareholders.
Prospect expects to declare May 2018, June 2018,
July 2018, and August 2018 distributions in May 2018.
PORTFOLIO AND INVESTMENT ACTIVITY
We continue to prioritize secured lending. At
December 31, 2017, September 30, 2017, and June 30, 2017, our
portfolio comprised of the following:
|
|
|
|
All amounts in $000’s except per unit
amounts |
As of |
As of |
As of |
December 31, 2017 |
September 30, 2017 |
June 30, 2017 |
|
|
|
|
Total Investments (at fair value) |
$5,421,132 |
$5,687,117 |
$5,838,305 |
Number of Portfolio Companies |
122 |
120 |
121 |
% Controlled Investments (at fair value) |
37.1% |
34.0% |
32.7% |
|
|
|
|
Secured First Lien |
44.6% |
48.5% |
48.4% |
Secured Second Lien |
21.3% |
19.5% |
19.0% |
Structured Credit |
17.3% |
17.0% |
18.5% |
Equity Investments |
16.2% |
14.3% |
13.2% |
Unsecured Debt |
0.6% |
0.6% |
0.8% |
Small Business Whole Loans |
0.0% |
0.1% |
0.1% |
|
|
|
|
Annualized Current Yield – All Investments |
10.3% |
9.9% |
10.4% |
Annualized Current Yield – Performing Interest Bearing
Investments |
12.5% |
11.8% |
12.2% |
|
|
|
|
Top Industry Concentration(1) |
13.3% |
11.2% |
10.7% |
|
|
|
|
Energy Industry Concentration(1) |
3.1% |
2.7% |
2.4% |
|
|
|
|
Retail Industry Concentration(1) |
0.0% |
0.0% |
0.0% |
|
|
|
|
Non-Accrual Loans as % of Total Assets |
1.2% |
2.1% |
2.5% |
|
|
|
|
Weighted Average Portfolio Net Leverage(2) |
4.44x |
4.32x |
4.19x |
Weighted Average Portfolio EBITDA |
$60,475 |
$49,155 |
$48,340 |
|
|
|
|
(1) Excluding our
underlying industry-diversified structured credit
portfolio.
(2) Through our
investment in the portfolio company’s capital structure.
During the December 31, 2017 and September 30, 2017 quarters,
our investment origination and repayment activity was as
follows:
|
|
|
All amounts in $000’s |
Quarter Ended |
Quarter Ended |
December 31, 2017 |
September 30, 2017 |
|
|
|
Total Originations |
$738,737 |
$222,151 |
|
|
|
Agented Sponsor Debt |
56% |
47% |
Non-Agented Debt |
32% |
34% |
Real Estate |
11% |
2% |
Operating Buyouts |
1% |
— |
Online Lending |
0% |
17% |
|
|
|
Total Repayments |
$1,042,269 |
$310,894 |
Repayments in excess of Originations |
$(303,532) |
$(88,743) |
|
|
|
For a listing of transactions completed during
the quarter, please see section titled “Portfolio Investment
Activity” in our Form 10-Q for the quarter ended December 31, 2017
as filed with the Securities and Exchange Commission on February 7,
2018.
Our structured credit investments have
individual standalone financings each non-recourse to Prospect and
with our risk limited in each case to our net investment amount. At
December 31, 2017 and September 30, 2017, our structured credit
portfolio at fair value consisted of the following:
|
|
|
All amounts in $000’s except per unit
amounts |
As of |
As of |
December 31, 2017 |
September 30, 2017 |
|
|
|
Total Structured Credit Investments |
$940,276 |
$969,478 |
|
|
|
# of Investments |
43 |
43 |
|
|
|
TTM Average Cash Yield(1)(3) |
19.3% |
20.5% |
Annualized Cash Yield(1)(3) |
17.0% |
18.3% |
Annualized GAAP Yield on Fair Value(1)(3) |
12.5% |
12.4% |
Annualized GAAP Yield on Amortized Cost(2)(3) |
11.0% |
11.1% |
|
|
|
Cumulative Cash Distributions |
$1,078,373 |
$1,034,772 |
% of Original Investment |
73.0% |
69.8% |
|
|
|
# of Underlying Collateral Loans |
2,225 |
2,310 |
Total Asset Base of Underlying Portfolio |
$19,026,601 |
$19,225,010 |
|
|
|
Prospect TTM Default Rate |
0.77% |
0.55% |
Broadly Syndicated Market TTM Default Rate |
2.05% |
1.53% |
Prospect Default Rate Outperformance vs. Market |
1.28% |
0.98% |
|
|
|
(1) Calculation
based on fair value.
(2) Calculation
based on amortized cost.
(3) Excludes deals
in the process of redemption.
To date, including called deals in the process
of liquidation, we have exited 11 structured credit investments
totaling $290.5 million with an expected average realized IRR of
16.1% and cash on cash multiple of 1.48 times.
Since August 29, 2016 (the date of our June 2016
earnings release), 19 of our structured credit investments have
completed refinancings to reduce their liability spreads, and eight
additional structured credit investments have completed multi-year
extensions of their reinvestment periods (also at reduced liability
spreads). We believe further upside exists in our structured credit
portfolio through additional refinancings and reinvestment period
extensions, and are actively working on such transactions.
To date during the March 2018 quarter, we have
completed new and follow-on investments as follows:
|
|
All amounts in $000’s |
Quarter Ended |
March 31, 2018 |
|
|
Total Originations |
$181,881 |
|
|
Agented Sponsor Debt |
53% |
Non-Agented Debt |
41% |
Online Lending |
3% |
Structured Credit |
2% |
Real Estate |
1% |
|
|
Total Repayments |
$— |
|
|
LIQUIDITY AND FINANCIAL RESULTS
The following table summarizes key leverage
statistics at December 31, 2017, September 30, 2017, and December
31, 2016:
|
|
|
|
All amounts in $000’s |
As ofDecember 31, 2017 |
As ofSeptember 30, 2017 |
As ofDecember 31, 2016 |
Net of Cash Debt to Equity Ratio |
60.2% |
71.6% |
70.3% |
% of Assets at Floating Rates |
89.3% |
90.5% |
90.4% |
% of Liabilities at Fixed Rates |
99.9% |
99.9% |
99.9% |
|
|
|
|
Unencumbered Assets |
$4,606,067 |
$4,494,399 |
$4,803,861 |
% of Total Assets |
77.8% |
75.2% |
77.8% |
|
|
|
|
We repaid our remaining $50.7 million October
2017 convertible notes at maturity. In calendar year 2017 and early
2018, we also issued $225 million of 2022 Notes and repurchased (or
provided notice to call) a majority of our debt maturing in less
than one year as follows:
|
|
|
|
All amounts in $000’s |
Principal |
Rate |
Maturity |
|
|
|
|
Debt Issuances |
|
|
|
2022 Notes |
$225,000 |
4.95% |
July 2022 |
Repurchases |
|
|
|
2017 Notes |
$78,766 |
5.375% |
October 2017 |
2018 Notes |
$114,581 |
5.75% |
March 2018 |
Prospect Capital InterNotes® |
$318,872 |
3.75% - 5.85% |
December 2017 – August 2020 |
|
|
|
|
|
For the remainder of calendar year 2018, we have
liability maturities of $113.6 million.
On August 29, 2014, we renegotiated and closed
an expanded five and a half year revolving credit facility (the
“Facility”), summarized as follows:
|
|
All amounts in $000’s |
As ofDecember 31,
2017 |
|
|
Total Extended Commitments |
$885,000 |
Total Commitments with Accordion Feature |
$1,500,000 |
Interest Rate on Borrowings |
1M LIBOR + 225 bps (no floor) |
Moody’s Rating |
Aa3 |
|
|
We have diversified our counterparty risk over
the last seven years. At December 31, 2017, 21 institutional
lenders were committed to the Facility compared to five lenders at
June 30, 2010, representing one of the most diversified bank groups
in our industry. The revolving period of the Facility extends
through March 2019, with an additional one-year amortization period
to March 2020, and with distributions allowed after the completion
of the revolving period. We currently have no borrowings drawn
under our Facility.
We have seven separate unsecured debt issuances
aggregating $1.7 billion outstanding, not including our program
notes, with laddered maturities extending to June 2024. At December
31, 2017, $837.5 million of program notes were outstanding with
staggered maturities through October 2043.
EARNINGS CONFERENCE CALL
Prospect will host an earnings call on
Thursday, February 8, 2018 at 11:00
am. Eastern Time. Dial 888-338-7333. For
a replay prior to March 8, 2018, call 877-344-7529 passcode
10116503. The call will be available prior to March 8, 2018 on
Prospect’s website, www.prospectstreet.com.
|
PROSPECT CAPITAL CORPORATION AND
SUBSIDIARIES |
CONSOLIDATED STATEMENTS OF ASSETS AND
LIABILITIES |
(in thousands, except share and per share
data) |
|
December 31, 2017 |
|
June 30, 2017 |
|
(Unaudited) |
|
(Audited) |
Assets |
|
|
|
Investments at fair
value: |
|
|
|
Control
investments (amortized cost of $1,895,360 and $1,840,731,
respectively) |
$ |
2,011,922 |
|
|
$ |
1,911,775 |
|
Affiliate
investments (amortized cost of $24,075 and $22,957,
respectively) |
19,272 |
|
|
11,429 |
|
Non-control/non-affiliate investments (amortized cost of $3,643,003
and $4,117,868, respectively) |
3,389,938 |
|
|
3,915,101 |
|
Total
investments at fair value (amortized cost of $5,562,438 and
$5,981,556, respectively) |
5,421,132 |
|
|
5,838,305 |
|
Cash |
474,476 |
|
|
318,083 |
|
Receivables for: |
|
|
|
Interest,
net |
14,432 |
|
|
9,559 |
|
Other |
763 |
|
|
924 |
|
Prepaid expenses |
546 |
|
|
1,125 |
|
Due from Broker |
600 |
|
|
— |
|
Due from Prospect
Administration |
2,082 |
|
|
— |
|
Due from Affiliate |
88 |
|
|
14 |
|
Deferred financing
costs on Revolving Credit Facility |
3,394 |
|
|
4,779 |
|
Total Assets |
5,917,513 |
|
|
6,172,789 |
|
|
|
|
|
Liabilities |
|
|
|
Revolving Credit
Facility |
— |
|
|
— |
|
Prospect Capital
InterNotes® (less unamortized debt issuance costs of $13,114
and $14,240, respectively) |
824,383 |
|
|
966,254 |
|
Convertible Notes (less
unamortized debt issuance costs of $13,186 and $15,512,
respectively) |
889,233 |
|
|
937,641 |
|
Public Notes (less
unamortized discount and debt issuance costs of $9,963 and
$10,981, respectively) |
739,318 |
|
|
738,300 |
|
Due to Prospect Capital
Management |
47,629 |
|
|
48,249 |
|
Interest payable |
39,180 |
|
|
38,630 |
|
Dividends payable |
21,659 |
|
|
30,005 |
|
Due to Prospect
Administration |
1,935 |
|
|
1,910 |
|
Accrued expenses |
3,615 |
|
|
4,380 |
|
Other liabilities |
2,149 |
|
|
2,097 |
|
Due to Broker |
— |
|
|
50,371 |
|
Total Liabilities |
2,569,101 |
|
|
2,817,837 |
|
Commitments and
Contingencies |
— |
|
|
— |
|
Net Assets |
$ |
3,348,412 |
|
|
$ |
3,354,952 |
|
|
|
|
|
Components of
Net Assets |
|
|
|
Common stock, par value
$0.001 per share (1,000,000,000 common shares authorized;
360,980,752 and 360,076,933 issued and outstanding,
respectively) |
$ |
361 |
|
|
$ |
360 |
|
Paid-in capital in
excess of par |
3,998,406 |
|
|
3,991,317 |
|
Accumulated
overdistributed net investment income |
(64,446 |
) |
|
(54,039 |
) |
Accumulated net
realized loss |
(444,603 |
) |
|
(439,435 |
) |
Net unrealized
loss |
(141,306 |
) |
|
(143,251 |
) |
Net Assets |
$ |
3,348,412 |
|
|
$ |
3,354,952 |
|
|
|
|
|
Net Asset Value
Per Share |
$ |
9.28 |
|
|
$ |
9.32 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PROSPECT CAPITAL CORPORATION AND
SUBSIDIARIES |
CONSOLIDATED STATEMENTS OF
OPERATIONS |
(in thousands, except share and per share
data) |
|
|
|
|
|
Three Months Ended December 31, |
|
Six Months Ended December 31, |
|
2017 |
|
2016 |
|
2017 |
|
2016 |
Investment
Income |
|
|
|
|
|
|
|
Interest income: |
|
|
|
|
|
|
|
Control
investments |
$ |
47,418 |
|
|
$ |
48,281 |
|
|
$ |
93,448 |
|
|
$ |
94,190 |
|
Affiliate
investments |
— |
|
|
— |
|
|
205 |
|
|
— |
|
Non-control/non-affiliate investments |
75,833 |
|
|
87,465 |
|
|
148,263 |
|
|
174,125 |
|
Structured credit securities |
30,131 |
|
|
39,045 |
|
|
59,551 |
|
|
78,126 |
|
Total
interest income |
153,382 |
|
|
174,791 |
|
|
301,467 |
|
|
346,441 |
|
Dividend income: |
|
|
|
|
|
|
|
Control
investments |
— |
|
|
1,282 |
|
|
— |
|
|
3,522 |
|
Non-control/non-affiliate investments |
326 |
|
|
97 |
|
|
870 |
|
|
241 |
|
Total
dividend income |
326 |
|
|
1,379 |
|
|
870 |
|
|
3,763 |
|
Other income: |
|
|
|
|
|
|
|
Control
investments |
4,038 |
|
|
3,856 |
|
|
6,129 |
|
|
6,796 |
|
Non-control/non-affiliate investments |
4,654 |
|
|
3,454 |
|
|
12,513 |
|
|
6,312 |
|
Total
other income |
8,692 |
|
|
7,310 |
|
|
18,642 |
|
|
13,108 |
|
Total Investment Income |
162,400 |
|
|
183,480 |
|
|
320,979 |
|
|
363,312 |
|
Operating
Expenses |
|
|
|
|
|
|
|
Base management
fee |
29,559 |
|
|
30,886 |
|
|
59,722 |
|
|
61,678 |
|
Income incentive
fee |
18,298 |
|
|
21,101 |
|
|
34,231 |
|
|
40,831 |
|
Interest and credit
facility expenses |
39,347 |
|
|
40,848 |
|
|
80,382 |
|
|
82,517 |
|
Allocation of overhead
from Prospect Administration |
(824 |
) |
|
2,657 |
|
|
2,704 |
|
|
6,190 |
|
Audit, compliance and
tax related fees |
1,866 |
|
|
1,058 |
|
|
2,954 |
|
|
2,453 |
|
Directors’ fees |
112 |
|
|
112 |
|
|
225 |
|
|
225 |
|
Other general and
administrative expenses |
850 |
|
|
2,413 |
|
|
3,837 |
|
|
6,094 |
|
Total Operating Expenses |
89,208 |
|
|
99,075 |
|
|
184,055 |
|
|
199,988 |
|
Net Investment Income |
73,192 |
|
|
84,405 |
|
|
136,924 |
|
|
163,324 |
|
Net Realized
and Change in Unrealized Gains (Losses) from
Investments |
|
|
|
|
|
|
|
Net realized gains
(losses) |
|
|
|
|
|
|
|
Control
investments |
2 |
|
|
178 |
|
|
11 |
|
|
183 |
|
Affiliate
investments |
— |
|
|
— |
|
|
846 |
|
|
137 |
|
Non-control/non-affiliate investments |
(5,675 |
) |
|
(260 |
) |
|
(5,093 |
) |
|
312 |
|
Net
realized (losses) gains |
(5,673 |
) |
|
(82 |
) |
|
(4,236 |
) |
|
632 |
|
Net change in
unrealized gains (losses) |
|
|
|
|
|
|
|
Control
investments |
44,425 |
|
|
(11,068 |
) |
|
45,518 |
|
|
2,298 |
|
Affiliate
investments |
1,533 |
|
|
853 |
|
|
6,726 |
|
|
(1,273 |
) |
Non-control/non-affiliate investments |
8,737 |
|
|
26,896 |
|
|
(50,300 |
) |
|
17,450 |
|
Net
change in unrealized gains (losses) |
54,695 |
|
|
16,681 |
|
|
1,944 |
|
|
18,475 |
|
Net Realized and Change in Unrealized Gains (Losses) from
Investments |
49,022 |
|
|
16,599 |
|
|
(2,292 |
) |
|
19,107 |
|
Net
realized losses on extinguishment of debt |
(487 |
) |
|
(124 |
) |
|
(932 |
) |
|
(185 |
) |
Net Increase in Net Assets Resulting from
Operations |
$ |
121,727 |
|
|
$ |
100,880 |
|
|
$ |
133,700 |
|
|
$ |
182,246 |
|
Net increase in net
assets resulting from operations per share |
$ |
0.34 |
|
|
$ |
0.28 |
|
|
$ |
0.37 |
|
|
$ |
0.51 |
|
Dividends declared per
share |
$ |
(0.18 |
) |
|
$ |
(0.25 |
) |
|
$ |
(0.41 |
) |
|
$ |
(0.50 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PROSPECT CAPITAL CORPORATION AND
SUBSIDIARIES |
ROLLFORWARD OF NET ASSET VALUE PER
SHARE |
(in actual dollars) |
|
|
|
|
|
Three Months Ended December
31, |
|
Six Months EndedDecember
31, |
|
|
2017 |
|
2016 |
|
2017 |
|
2016 |
|
Per Share
Data |
|
|
|
|
|
|
|
|
|
Net asset value at
beginning of period |
$ |
9.12 |
|
|
$ |
9.60 |
|
|
$ |
9.32 |
|
|
$ |
9.62 |
|
|
Net investment
income(1) |
0.20 |
|
|
0.24 |
|
|
0.38 |
|
|
0.46 |
|
|
Net realized and change
in unrealized gains (losses) (1) |
0.14 |
|
|
0.04 |
|
|
(0.01 |
) |
|
0.05 |
|
|
Distributions of net
investment income |
(0.18 |
) |
|
(0.25 |
) |
|
(0.41 |
) |
|
(0.50 |
) |
|
Common stock
transactions(2) |
— |
|
(3) |
(0.01 |
) |
|
— |
|
(3) |
(0.01 |
) |
|
Net asset
value at end of period |
$ |
9.28 |
|
|
$ |
9.62 |
|
|
$ |
9.28 |
|
|
$ |
9.62 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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.
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
Officergrier@prospectstreet.comTelephone (212) 448-0702
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