Prospect Capital Corporation (NASDAQ: PSEC) (“Prospect”, “our”, or
“we”) today announced financial results for our fiscal quarter
ended September 30, 2019.
All amounts in $000’s except per share amounts (on weighted
average basis for period numbers) |
Quarter Ended |
Quarter Ended |
Quarter Ended |
September 30, 2019 |
June 30, 2019 |
September 30, 2018 |
|
|
|
|
Net Investment Income (“NII”) |
$71,060 |
$69,627 |
$85,159 |
Interest as % of Total Investment Income |
90.2% |
92.2% |
88.4% |
|
|
|
|
NII per Share |
$0.19 |
$0.19 |
$0.23 |
|
|
|
|
Net Income |
$18,065 |
$38,886 |
$83,795 |
Net Income per Share |
$0.05 |
$0.11 |
$0.23 |
|
|
|
|
Distributions to Shareholders |
$66,111 |
$66,069 |
$65,693 |
Distributions per Share |
$0.18 |
$0.18 |
$0.18 |
|
|
|
|
NII / Distributions to Shareholders |
107% |
105% |
130% |
|
|
|
|
NAV per Share at Period End |
$8.87 |
$9.01 |
$9.39 |
|
|
|
|
Net of Cash Debt to Equity Ratio |
66.3% |
70.0% |
75.1% |
For the September 2019 quarter, we earned net
investment income (“NII”) of $71.1 million, or $0.19 per weighted
average share, consistent with the June 2019 quarter, and exceeding
our current quarterly dividend rate of $0.18 per share by $0.01 per
share. Our ratio of NII to distributions was 107% in the September
2019 quarter.
In the September 2019 quarter, our net of cash
debt to equity ratio was 66.3%, down 8.8% from September 2018.
For the September 2019 quarter, our net income
was $18.1 million, or $0.05 per weighted average share.
Our net asset value (“NAV”) per share decreased
by $0.14 to $8.87 during the September 2019 quarter.
DISTRIBUTION DECLARATION
Prospect is declaring distributions as
follows:
- $0.06 per share for November 2019 to November 29, 2019 record
holders with December 19, 2019 payment date;
- $0.06 per share for December 2019 to January 2, 2020 record
holders with January 23, 2020 payment date; and
- $0.06 per share for January 2020 to January 31, 2020 record
holders with February 20, 2020 payment date.
These distributions are Prospect’s 136th, 137th,
and 138th consecutive cash distributions to shareholders.
Based on the declarations above, Prospect’s
closing stock price of $6.41 at November 5, 2019 delivers to
shareholders a distribution yield of 11.2%.
Based on past distributions and our current
share count for declared distributions, Prospect since inception
through our January 2020 distribution will have distributed $17.70
per share to original shareholders, aggregating approximately $3
billion in cumulative distributions to all shareholders.
Prospect expects to declare February 2020, March
2020, and April 2020 distributions in February 2020.
PORTFOLIO AND INVESTMENT
ACTIVITY
All amounts in $000’s except per unit amounts |
As of |
As of |
September 30, 2019 |
June 30, 2019 |
|
|
|
Total Investments (at fair value) |
$5,450,560 |
$5,653,553 |
Number of Portfolio Companies |
125 |
135 |
% Controlled Investments (at fair value) |
44.0% |
43.8% |
|
|
|
Secured First Lien |
43.3% |
43.9% |
Secured Second Lien |
23.1% |
23.5% |
Subordinated Structured Notes |
15.0% |
15.1% |
Rated Secured Structured Notes (1) |
1.0% |
0.8% |
Unsecured Debt |
0.8% |
0.6% |
Equity Investments |
16.8% |
16.1% |
|
|
|
Annualized Current Yield – All Investments |
10.2% |
10.6% |
Annualized Current Yield – Performing Interest Bearing
Investments |
12.7% |
13.1% |
|
|
|
Top Industry Concentration(2) |
15.7% |
14.6% |
|
|
|
Energy Industry Concentration(2) |
2.7% |
2.7% |
|
|
|
Non-Accrual Loans as % of Total Assets (3) |
2.4% |
2.9% |
|
|
|
Weighted Average Portfolio Net Leverage(4) |
4.69x |
4.67x |
Weighted Average Portfolio EBITDA(4) |
$62,006 |
$60,669 |
(1) Our Rated Secured Structured Notes are considered
non-agented debt where applicable herein.(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 September 30, 2019 and June 30, 2019 quarters, our
investment origination and repayment activity was as follows:
All amounts in $000’s |
Quarter Ended |
Quarter Ended |
September 30, 2019 |
June 30, 2019 |
|
|
|
Total Originations |
$94,540 |
$187,938 |
|
|
|
Non-Agented Debt |
79.0% |
79.3% |
Corporate Yield Buyouts |
7.7% |
1.7% |
Rated Secured Structured Notes |
7.0% |
— |
Agented Sponsor Debt |
6.3% |
19.0% |
|
|
|
Total Repayments |
$245,173 |
$212,813 |
Originations, Net of Repayments |
$(150,633) |
$(24,875) |
We have invested in structured credit investments benefiting
from individual standalone financings non-recourse to Prospect and
with our risk limited in each case to our net investment amount. At
September 30, 2019 and June 30, 2019, our subordinated structured
note portfolio at fair value consisted of the following:
All amounts in $000’s except per unit amounts |
As of |
As of |
September 30, 2019 |
June 30, 2019 |
|
|
|
Total Subordinated Structured Notes |
$818,268 |
$850,694 |
|
|
|
# of Investments |
39 |
43 |
|
|
|
TTM Average Cash Yield(1)(2) |
17.6% |
16.0% |
Annualized Cash Yield(1)(2) |
17.4% |
13.4% |
Annualized GAAP Yield on Fair Value(1)(2) |
15.5% |
15.6% |
Annualized GAAP Yield on Amortized Cost(2)(3) |
11.6% |
12.0% |
|
|
|
Cumulative Cash Distributions(4) |
$1,123,631 |
$1,088,122 |
% of Original Investment |
80.5% |
78.0% |
|
|
|
# of Underlying Collateral Loans |
1,738 |
1,792 |
Total Asset Base of Underlying Portfolio |
$18,133,692 |
$18,296,239 |
|
|
|
Prospect TTM Default Rate |
0.40% |
0.39% |
Broadly Syndicated Market TTM Default Rate |
1.29% |
1.34% |
Prospect Default Rate Outperformance vs. Market |
0.89% |
0.95% |
(1) Calculation based on fair
value.(2) Excludes deals being redeemed.(3) Calculation
based on amortized cost.(4) The June 30, 2019 Cumulative Cash
Distributions and % of Original Investment figures have been
updated to exclude four deals that were written off during the
quarter ending September 30, 2019.
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 16.7% and cash on cash multiple of 1.48 times.
Since December 31, 2017 through today, 26 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 refinancings and
reinvestment period extensions.
To date during the December 2019 quarter, we
have completed new and follow-on investments as follows:
All amounts in $000’s |
Quarter Ended |
December 31, 2019 |
|
|
Total Originations |
$18,697 |
|
|
Real Estate |
52.8% |
Non-Agented Debt |
25.3% |
Agented Sponsor Debt |
21.9% |
|
|
Total Repayments |
$23,099 |
Originations, Net of Repayments |
$(4,402) |
LIQUIDITY AND FINANCIAL RESULTS
All amounts in $000’s |
As ofSeptember 30, 2019 |
As ofJune 30, 2019 |
Net of Cash Debt to Equity Ratio |
66.3% |
70.0% |
% of Assets at Floating Rates |
86.9% |
87.4% |
% of Liabilities at Fixed Rates |
95.2% |
93.0% |
|
|
|
Unencumbered Assets |
$4,019,805 |
$4,121,775 |
% of Total Assets |
72.0% |
71.1% |
The below table summarizes our September 2019
quarter issuance and repurchase activity:
All amounts in $000’s |
Principal |
Rate |
Maturity |
|
|
|
|
Debt Issuances |
|
|
|
Prospect Capital InterNotes® |
$95,135 |
3.75% -5.50% |
July 2024-October 2029 |
Repurchases |
|
|
|
2020 Notes |
$46,545 |
4.75% |
April 2020 |
Prospect Capital InterNotes® |
$143,980 |
4.00% - 7.00% |
January 2020- March 2022 |
On September 9, 2019, we completed an amendment
of our existing revolving credit facility (the “Facility”) for
Prospect Capital Funding, extending the term 5.0 years from such
date. Pricing for amounts drawn under the Facility is one-month
Libor plus 2.20%.
$1.0775 billion of Facility commitments have
closed to date with 30 institutional lenders (representing one of
the largest and most diversified bank groups in our industry). An
accordion feature allows the Facility, at Prospect's discretion, to
accept up to $1.5 billion of commitments. The Facility matures
September 9, 2024. The Facility includes a revolving period that
extends through September 9, 2023, followed by an additional
one-year amortization period, with distributions allowed to
Prospect after the completion of the revolving period.
On June 28, 2019, we commenced a tender offer to
purchase $224.1 million of our convertible notes that mature in
April 2020 (“2020 Notes”). On July 27, 2019, $32.9 million was
validly tendered and accepted, representing 14.7% of the
outstanding notes. On August 12, 2019, we commenced a tender offer
to purchase up to $60.0 million of the 2020 Notes. On September 10,
2019, $13.6 million was validly tendered and accepted, representing
7.1% of the outstanding notes. On September 24, 2019, we commenced
a tender offer to purchase up to $40 million of 2020 Notes. On
October 25, 2019, $2.1 million were validly tendered and accepted,
representing 1.2% of the outstanding notes.
We currently have eight separate unsecured debt
issuances aggregating $1.5 billion outstanding, not including our
program notes, with laddered maturities extending to June 2029. At
September 30, 2019, $657.4 million of program notes were
outstanding with laddered maturities through October 2043.
EARNINGS CONFERENCE CALL
Prospect will host an earnings call on
Thursday November 7, 2019 at 11:00
am. Eastern Time. Dial 888-338-7333. For
a replay prior to December 6, 2019 visit www.prospectstreet.com or
call 877-344-7529 with passcode 10136706.
|
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES |
CONSOLIDATED STATEMENTS OF ASSETS AND
LIABILITIES |
(in thousands, except share and per share
data) |
|
|
September 30, 2019 |
|
June 30, 2019 |
|
|
|
(Unaudited) |
|
(Audited) |
Assets |
|
|
|
Investments at fair
value: |
|
|
|
Control investments (amortized cost of $2,346,633 and $2,385,806,
respectively) |
$ |
2,397,730 |
|
|
$ |
2,475,924 |
|
Affiliate investments (amortized cost of $156,177 and $177,616,
respectively) |
73,263 |
|
|
76,682 |
|
Non-control/non-affiliate investments (amortized cost of $3,274,957
and $3,368,880, respectively) |
2,979,567 |
|
|
3,100,947 |
|
Total investments at fair value (amortized cost of $5,777,767 and
$5,932,302, respectively) |
5,450,560 |
|
|
5,653,553 |
|
Cash |
106,174 |
|
|
107,098 |
|
Receivables for: |
|
|
|
Interest, net |
12,526 |
|
|
26,504 |
|
Other |
200 |
|
|
3,326 |
|
Deferred financing costs on
Revolving Credit Facility |
10,745 |
|
|
8,529 |
|
Due from broker |
4,121 |
|
|
— |
|
Prepaid expenses |
772 |
|
|
1,053 |
|
Total Assets |
5,585,098 |
|
|
5,800,063 |
|
Liabilities |
|
|
|
Revolving Credit Facility |
108,000 |
|
|
167,000 |
|
Public Notes (less unamortized
discount and debt issuance costs of $13,373 and $13,826,
respectively) |
781,001 |
|
|
780,548 |
|
Convertible Notes (less
unamortized debt issuance costs of $12,618 and $13,867,
respectively) |
694,701 |
|
|
739,997 |
|
Prospect Capital
InterNotes® (less unamortized debt issuance costs of $12,561
and $12,349, respectively) |
644,814 |
|
|
695,350 |
|
Due to Prospect Capital
Management |
46,228 |
|
|
46,525 |
|
Interest payable |
22,364 |
|
|
34,104 |
|
Dividends payable |
22,042 |
|
|
22,028 |
|
Accrued expenses |
4,688 |
|
|
5,414 |
|
Due to Prospect
Administration |
511 |
|
|
1,885 |
|
Other liabilities |
976 |
|
|
937 |
|
Total Liabilities |
2,325,325 |
|
|
2,493,788 |
|
Commitments and
Contingencies |
|
|
|
Net Assets |
$ |
3,259,773 |
|
|
$ |
3,306,275 |
|
|
|
|
|
Components of Net
Assets |
|
|
|
Common stock, par value $0.001
per share (1,000,000,000 common shares authorized; 367,363,872 and
367,131,025 issued and outstanding, respectively) |
$ |
367 |
|
|
$ |
367 |
|
Paid-in capital in excess of
par |
4,041,338 |
|
|
4,039,872 |
|
Total distributable earnings
(loss) |
(781,932 |
) |
|
(733,964 |
) |
Net Assets |
$ |
3,259,773 |
|
|
$ |
3,306,275 |
|
Net Asset Value Per
Share |
$ |
8.87 |
|
|
$ |
9.01 |
|
|
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES |
CONSOLIDATED STATEMENTS OF OPERATIONS |
(in thousands, except share and per share
data) |
|
|
Three Months Ended September 30, |
|
2019 |
|
2018 |
Investment
Income |
|
|
|
Interest income: |
|
|
|
Control investments |
$ |
50,866 |
|
|
$ |
56,454 |
|
Affiliate investments |
239 |
|
|
227 |
|
Non-control/non-affiliate investments |
61,950 |
|
|
68,609 |
|
Structured credit securities |
32,901 |
|
|
34,152 |
|
Total interest income |
145,956 |
|
|
159,442 |
|
Dividend income: |
|
|
|
Control investments |
3,800 |
|
|
14,665 |
|
Non-control/non-affiliate investments |
454 |
|
|
262 |
|
Total dividend income |
4,254 |
|
|
14,927 |
|
Other income: |
|
|
|
Control investments |
11,383 |
|
|
2,791 |
|
Non-control/non-affiliate investments |
290 |
|
|
3,262 |
|
Total other income |
11,673 |
|
|
6,053 |
|
Total Investment Income |
161,883 |
|
|
180,422 |
|
Operating
Expenses |
|
|
|
Base management fee |
28,463 |
|
|
29,957 |
|
Income incentive fee |
17,765 |
|
|
21,290 |
|
Interest and credit facility
expenses |
38,898 |
|
|
37,908 |
|
Allocation of overhead from
Prospect Administration |
3,494 |
|
|
3,365 |
|
Audit, compliance and tax related
fees |
375 |
|
|
393 |
|
Directors’ fees |
113 |
|
|
79 |
|
Other general and administrative
expenses |
1,715 |
|
|
2,271 |
|
Total Operating Expenses |
90,823 |
|
|
95,263 |
|
Net Investment Income |
71,060 |
|
|
85,159 |
|
Net Realized and Net
Change in Unrealized (Losses) Gains from Investments |
|
|
|
Net realized (losses) gains |
|
|
|
Control investments |
— |
|
|
1 |
|
Non-control/non-affiliate investments |
(2,198 |
) |
|
1,040 |
|
Net realized (losses) gains |
(2,198 |
) |
|
1,041 |
|
Net change in unrealized (losses)
gains |
|
|
|
Control investments |
(39,021 |
) |
|
51,918 |
|
Affiliate investments |
18,020 |
|
|
(13,755 |
) |
Non-control/non-affiliate investments |
(27,458 |
) |
|
(37,114 |
) |
Net change in unrealized (losses) gains |
(48,459 |
) |
|
1,049 |
|
Net Realized and Net Change in Unrealized (Losses) Gaines
from Investments |
(50,657 |
) |
|
2,090 |
|
Net realized losses on extinguishment of debt |
(2,338 |
) |
|
(3,454 |
) |
Net Increase in Net Assets Resulting from
Operations |
$ |
18,065 |
|
|
$ |
83,795 |
|
Net increase in net assets
resulting from operations per share |
$ |
0.05 |
|
|
$ |
0.23 |
|
Dividends declared per share |
$ |
(0.18 |
) |
|
$ |
(0.18 |
) |
|
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES |
ROLLFORWARD OF NET ASSET VALUE PER SHARE |
(in actual dollars) |
|
|
Three Months Ended September
30, |
|
|
2019 |
|
2018 |
|
Per Share
Data |
|
|
|
|
Net asset value at beginning of
period |
$ |
9.01 |
|
|
$ |
9.35 |
|
|
Net investment income(1) |
0.19 |
|
|
0.23 |
|
|
Net realized and change in
unrealized (losses) gains(1) |
(0.14 |
) |
|
— |
|
(3) |
Distributions of net investment
income |
(0.18 |
) |
|
(0.18 |
) |
|
Common stock
transactions(2)(3) |
(0.01 |
) |
|
(0.01 |
) |
|
Net asset value at end of
period |
$ |
8.87 |
|
|
$ |
9.39 |
|
|
(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 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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