NEW YORK, Feb. 06, 2019 (GLOBE NEWSWIRE) — Prospect Capital Corporation (NASDAQ: PSEC) (“Prospect”, “our”, or “we”) today announced financial results for our second fiscal quarter ended December 31, 2018.
| All amounts in $000’s except per share amounts |
Quarter Ended | Quarter Ended | Quarter Ended | ||||||
| December 31, 2018 | September 30, 2018 | December 31, 2017 | |||||||
| Net Investment Income (“NII”) | $ | 80,811 | $ | 85,159 | $ | 73,192 | |||
| Interest as % of Total Investment Income | 84.1 | % | 88.4 | % | 94.4 | % | |||
| NII per Share | $ | 0.22 | $ | 0.23 | $ | 0.20 | |||
| Net (Loss) Income | $ | (67,389 | ) | $ | 83,795 | $ | 121,727 | ||
| Net (Loss) Income per Share | $ | (0.18 | ) | $ | 0.23 | $ | 0.34 | ||
| Distributions to Shareholders | $ | 65,837 | $ | 65,693 | $ | 64,912 | |||
| Distributions per Share | $ | 0.18 | $ | 0.18 | $ | 0.18 | |||
| NAV per Share at Period End | $ | 9.02 | $ | 9.39 | $ | 9.28 | |||
| Net of Cash Debt to Equity Ratio | 75.0 | % | 75.1 | % | 60.2 | % | |||
For the December 2018 quarter, we earned net investment income (“NII”) of $80.8 million, or $0.22 per weighted average share, down $0.01 from the September 2018 quarter, exceeding our current quarterly dividend rate of $0.18 per share by $0.04 per share. The decrease in NII per share resulted primarily from an increase in operating expenses partially offset by an increase in investment income due to higher levels of structuring fee income compared to the September 2018 quarter.
In the December 2018 quarter, our net of cash debt to equity ratio was 75.0%, down 0.1% from September 2018.
For the December 2018 quarter, our net loss was $(67.4) million, or $(0.18) per weighted average share, a decrease of $0.41 from the September 2018 quarter. The decrease in our net asset value (“NAV”) resulted primarily from unrealized losses in our portfolio, including due to a decline in industry valuations in the overall debt and equity capital markets as of December 31, 2018.
Our NAV per share decreased by $0.37 to $9.02 during the December 2018 quarter.
| All amounts in $000’s except per share amounts |
Six Months Ended December 31, 2018 |
Six Months Ended December 31, 2017 |
||
| NII | $ | 165,970 | $ | 136,924 |
| NII per Share | $ | 0.45 | $ | 0.38 |
| Net Income (“NI”) | $ | 16,406 | $ | 133,700 |
| NI per Share | $ | 0.04 | $ | 0.37 |
| Distributions to Shareholders | $ | 131,531 | $ | 146,559 |
| Distributions per Share | $ | 0.36 | $ | 0.41 |
For the six months ended December 31, 2018, we earned NII of $166.0 million, or $0.45 per weighted average share, up $0.07 from the prior year. For the six months ended December 31, 2018, we earned NI of $16.4 million, or $0.04 per weighted average share, down $0.33 from the prior year.
DISTRIBUTION DECLARATION
Prospect is declaring distributions as follows:
- $0.06 per share for February 2019 to February 28, 2019 record holders with March 21, 2019 payment date;
- $0.06 per share for March 2019 to March 29, 2019 record holders with April 18, 2019 payment date; and
- $0.06 per share for April 2019 to April 30, 2019 record holders with May 23, 2019 payment date.
These distributions mark Prospect’s 127th, 128th, and 129th consecutive cash distributions to shareholders.
Based on the declarations above, Prospect’s closing stock price of $6.93 at February 5, 2019 delivers to shareholders a dividend yield of 10.4%.
Based on past distributions and our current share count for declared distributions, Prospect since inception through our April 2019 distribution will have distributed $17.16 per share to original shareholders, aggregating approximately $2.8 billion in cumulative distributions to all shareholders.
Prospect expects to declare May 2019, June 2019, July 2019, and August 2019 distributions in May 2019.
PORTFOLIO AND INVESTMENT ACTIVITY
We continue to prioritize secured lending. At December 31, 2018, September 30, 2018, and June 30, 2018, our portfolio comprised the following:
| All amounts in $000’s except per unit amounts |
As of | As of | As of | ||||||
| December 31, 2018 | September 30, 2018 | June 30, 2018 | |||||||
| Total Investments (at fair value) | $ | 5,842,570 | $ | 5,936,683 | $ | 5,727,279 | |||
| Number of Portfolio Companies | 139 | 137 | 135 | ||||||
| % Controlled Investments (at fair value) | 41.6 | % | 41.9 | % | 42.0 | % | |||
| Secured First Lien | 46.2 | % | 44.4 | % | 43.9 | % | |||
| Secured Second Lien | 23.1 | % | 21.7 | % | 22.1 | % | |||
| Structured Credit | 16.0 | % | 16.3 | % | 16.8 | % | |||
| Equity Investments | 14.3 | % | 17.1 | % | 16.6 | % | |||
| Unsecured Debt | 0.4 | % | 0.5 | % | 0.6 | % | |||
| Annualized Current Yield – All Investments | 10.7 | % | 10.8 | % | 10.5 | ||||
| Annualized Current Yield – Performing Interest Bearing Investments | 13.1 | % | 13.5 | % | 13.0 | % | |||
| 12.5 | % | ||||||||
| Top Industry Concentration(1) | 13.8 | % | 14.1 | % | 14.2 | % | |||
| Energy Industry Concentration(1) | 3.0 | % | 3.2 | % | 3.0 | % | |||
| Non-Accrual Loans as % of Total Assets (2) | 3.6 | % | 2.4 | % | 2.5 | % | |||
| Weighted Average Portfolio Net Leverage(3) | 4.57x | 4.57x | 4.60x | ||||||
| Weighted Average Portfolio EBITDA(3) | $ | 58,491 | $ | 56,459 | $ | 55,384 | |||
- Excluding our underlying industry-diversified structured credit portfolio.
- Calculated at fair value.
- For additional disclosure see “Weighted Average Portfolio EBITDA and Net Leverage” at the end of this release.
During the December 31, 2018 and September 30, 2018 quarters, our investment origination and repayment activity was as follows:
| All amounts in $000’s | Quarter Ended | Quarter Ended | ||||
| December 31, 2018 | September 30, 2018 | |||||
| Total Originations | $ | 226,252 | $ | 254,642 | ||
| Non-Agented Debt | 63.7 | % | 20.8 | % | ||
| Structured Credit | 19.0 | % | 9.3 | % | ||
| Agented Sponsor Debt | 14.5 | % | 63.6 | % | ||
| Agented Non-Sponsor Debt | 2.1 | % | 0.0 | % | ||
| Real Estate | 0.6 | % | 4.2 | % | ||
| Corporate Yield Buyouts | 0.1 | % | 2.1 | % | ||
| Total Repayments | $ | 163,502 | $ | 56,608 | ||
| Originations, Net of Repayments | $ | 62,750 | $ | 198,034 | ||
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, 2018.
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 December 31, 2018 and September 30, 2018, 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, 2018 | September 30, 2018 | |||||
| Total Structured Credit Investments | $ | 937,127 | $ | 965,322 | ||
| # of Investments | 48 | 46 | ||||
| CLO Equity | ||||||
| TTM Average Cash Yield(1)(2)(3) | 17.5 | % | 16.2 | % | ||
| Annualized Cash Yield(1)(2)(3) | 21.0 | % | 11.7 | % | ||
| Annualized GAAP Yield on Fair Value(1)(2) | 15.5 | % | 14.4 | % | ||
| Annualized GAAP Yield on Amortized Cost(2)(4) | 12.6 | % | 12.2 | % | ||
| Cumulative Cash Distributions | $ | 1,237,719 | $ | 1,191,061 | ||
| % of Original Investment | 80.8 | % | 77.9 | % | ||
| # of Underlying Collateral Loans | 1,855 | 1,908 | ||||
| Total Asset Base of Underlying Portfolio | $ | 19,196,380 | $ | 19,335,517 | ||
| Prospect TTM Default Rate | 0.92 | % | 1.13 | % | ||
| Broadly Syndicated Market TTM Default Rate | 1.63 | % | 1.81 | % | ||
| Prospect Default Rate Outperformance vs. Market | 0.71 | % | 0.68 | % | ||
- Calculation based on fair value.
- Excludes deals in the process of redemption.
- Excludes deals that have yet to make a first payment.
- Calculation based on amortized cost.
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 1.49 times.
Since December 31, 2017 through today, 22 structured credit investments have completed multi-year extensions of their reinvestment periods (typically at reduced liability spreads). We believe further upside exists in our structured credit portfolio through additional refinancings 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 | ||
| March 31, 2019 | |||
| Total Originations | $ | 3,290 | |
| Non-Agented Debt | 100.0 | % | |
| Total Repayments | $ | 44,307 | |
| Originations, Net of Repayments | $ | (41,017 | ) |
LIQUIDITY AND FINANCIAL RESULTS
The following table summarizes key leverage statistics at December 31, 2018, September 30, 2018, and December 31, 2017:
| All amounts in $000’s | As of December 31, 2018 |
As of September 30, 2018 |
As of December 31, 2017 |
||||||
| Net of Cash Debt to Equity Ratio | 75.0 | % | 75.1 | % | 60.2 | % | |||
| % of Assets at Floating Rates | 88.2 | % | 87.8 | % | 89.3 | % | |||
| % of Liabilities at Fixed Rates | 88.5 | % | 85.0 | % | 99.9 | % | |||
| Unencumbered Assets | $ | 4,322,091 | $ | 4,667,374 | $ | 4,606,067 | |||
| % of Total Assets | 72.4 | % | 75.3 | % | 77.8 | % | |||
In November 2018 we issued $50 million of 2029 Notes. The below table summarizes our December 2018 quarter issuance and repurchase activity:
| All amounts in $000’s | Principal | Rate | Maturity | ||
| Debt Issuances | |||||
| 2029 Notes | $ | 50,000 | 6.875 | % | June 2029 |
| 2024 Notes ATM | $ | 4,450 | 6.25 | % | June 2024 |
| 2028 Notes ATM | $ | 2,332 | 6.25 | % | June 2028 |
| Repurchases | |||||
| 2020 Notes | $ | 13,500 | 4.75 | % | April 2020 |
| Prospect Capital InterNotes® | $ | 70,072 | 4.25% – 5.50 | % | May 2020 – November 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%.
The new Facility, for which $1.02 billion of commitments have been closed to date with 29 institutional lenders (representing one of the most diversified bank groups in our industry), with further increases targeted, includes an accordion feature that allows the Facility, at Prospect’s discretion, to accept up to a total of $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 December 31, 2018, $725.7 million of program notes were outstanding with staggered maturities through October 2043.
EARNINGS CONFERENCE CALL
Prospect will host an earnings call on Thursday, February 7, 2019 at 11:00 am. Eastern Time. Dial 888-338-7333. For a replay prior to March 6, 2019, call 877-344-7529 passcode 10128664. The call will be available prior to March 6, 2019 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, 2018 |
June 30, 2018 |
||||||
| (Unaudited) | (Audited) | ||||||
| Assets | |||||||
| Investments at fair value: | |||||||
| Control investments (amortized cost of $2,381,352 and $2,300,526, respectively) | $ | 2,432,766 | $ | 2,404,326 | |||
| Affiliate investments (amortized cost of $176,997 and $55,637, respectively) | 91,861 | 58,436 | |||||
| Non-control/non-affiliate investments (amortized cost of $3,538,047 and $3,475,295, respectively) | 3,317,943 | 3,264,517 | |||||
| Total investments at fair value (amortized cost of $6,096,396 and $5,831,458, respectively) | 5,842,570 | 5,727,279 | |||||
| Cash | 109,668 | 83,758 | |||||
| Receivables for: | |||||||
| Interest, net | 7,663 | 19,783 | |||||
| Other | 237 | 1,867 | |||||
| Deferred financing costs on Revolving Credit Facility | 8,493 | 2,032 | |||||
| Due from broker | 580 | 3,029 | |||||
| Prepaid expenses | 568 | 984 | |||||
| Due from Affiliate | 88 | 88 | |||||
| Total Assets | 5,969,867 | 5,838,820 | |||||
| Liabilities | |||||||
| Revolving Credit Facility | 297,000 | 37,000 | |||||
| Convertible Notes (less unamortized debt issuance costs of $10,636 and $13,074, respectively) | 798,011 | 809,073 | |||||
| Public Notes (less unamortized discount and debt issuance costs of $13,946 and $11,007, respectively) |
742,762 | 716,810 | |||||
| Prospect Capital InterNotes® (less unamortized debt issuance costs of $11,641 and $11,998, respectively) |
714,018 | 748,926 | |||||
| Due to Prospect Capital Management | 51,301 | 49,045 | |||||
| Interest payable | 32,975 | 33,741 | |||||
| Dividends payable | 21,963 | 21,865 | |||||
| Due to broker | — | 6,159 | |||||
| Accrued expenses | 5,505 | 5,426 | |||||
| Due to Prospect Administration | 1,785 | 2,212 | |||||
| Other liabilities | 1,372 | 1,516 | |||||
| Total Liabilities | 2,666,692 | 2,431,773 | |||||
| Commitments and Contingencies | |||||||
| Net Assets | $ | 3,303,175 | $ | 3,407,047 | |||
| Components of Net Assets | |||||||
| Common stock, par value $0.001 per share (1,000,000,000 common shares authorized; 366,055,966 and 364,409,938 issued and outstanding, respectively) | $ | 366 | $ | 364 | |||
| Paid-in capital in excess of par | 4,032,761 | 4,021,541 | |||||
| Accumulated overdistributed net investment income | (10,716 | ) | (45,186 | ) | |||
| Accumulated net realized loss | (465,410 | ) | (465,493 | ) | |||
| Net unrealized loss | (253,826 | ) | (104,179 | ) | |||
| Net Assets | $ | 3,303,175 | $ | 3,407,047 | |||
| Net Asset Value Per Share | $ | 9.02 | $ | 9.35 | |||
| PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except share and per share data) (Unaudited) |
|||||||||||||||
| Three Months Ended December 31, |
Six Months Ended December 31, |
||||||||||||||
| 2018 | 2017 | 2018 | 2017 | ||||||||||||
| Investment Income | |||||||||||||||
| Interest income: | |||||||||||||||
| Control investments | $ | 53,674 | $ | 47,418 | $ | 110,128 | $ | 93,448 | |||||||
| Affiliate investments | 174 | — | 401 | 205 | |||||||||||
| Non-control/non-affiliate investments | 68,679 | 75,833 | 137,288 | 148,263 | |||||||||||
| Structured credit securities | 35,467 | 30,131 | 69,619 | 59,551 | |||||||||||
| Total interest income | 157,994 | 153,382 | 317,436 | 301,467 | |||||||||||
| Dividend income: | |||||||||||||||
| Control investments | 13,000 | — | 27,665 | — | |||||||||||
| Non-control/non-affiliate investments | 266 | 326 | 528 | 870 | |||||||||||
| Total dividend income | 13,266 | 326 | 28,193 | 870 | |||||||||||
| Other income: | |||||||||||||||
| Control investments | 15,741 | 4,038 | 18,532 | 6,129 | |||||||||||
| Non-control/non-affiliate investments | 882 | 4,654 | 4,144 | 12,513 | |||||||||||
| Total other income | 16,623 | 8,692 | 22,676 | 18,642 | |||||||||||
| Total Investment Income | 187,883 | 162,400 | 368,305 | 320,979 | |||||||||||
| Operating Expenses | |||||||||||||||
| Base management fee | 33,187 | 29,559 | 63,144 | 59,722 | |||||||||||
| Income incentive fee | 20,203 | 18,298 | 41,493 | 34,231 | |||||||||||
| Interest and credit facility expenses | 40,656 | 39,347 | 78,564 | 80,382 | |||||||||||
| Allocation of overhead from Prospect Administration | 5,642 | (824 | ) | 9,007 | 2,704 | ||||||||||
| Audit, compliance and tax related fees | 2,389 | 1,866 | 2,782 | 2,954 | |||||||||||
| Directors’ fees | 150 | 112 | 229 | 225 | |||||||||||
| Other general and administrative expenses | 4,845 | 850 | 7,116 | 3,837 | |||||||||||
| Total Operating Expenses | 107,072 | 89,208 | 202,335 | 184,055 | |||||||||||
| Net Investment Income | 80,811 | 73,192 | 165,970 | 136,924 | |||||||||||
| Net Realized and Net Change in Unrealized (Losses) Gains from Investments | |||||||||||||||
| Net realized gains (losses) | |||||||||||||||
| Control investments | 2,801 | 2 | 2,802 | 11 | |||||||||||
| Affiliate investments | — | — | — | 846 | |||||||||||
| Non-control/non-affiliate investments | 192 | (5,675 | ) | 1,232 | (5,093 | ) | |||||||||
| Net realized gains (losses) | 2,993 | (5,673 | ) | 4,034 | (4,236 | ) | |||||||||
| Net change in unrealized (losses) gains | |||||||||||||||
| Control investments | (85,733 | ) | 44,425 | (33,815 | ) | 45,518 | |||||||||
| Affiliate investments | (5,894 | ) | 1,533 | (19,649 | ) | 6,726 | |||||||||
| Non-control/non-affiliate investments | (59,069 | ) | 8,737 | (96,183 | ) | (50,300 | ) | ||||||||
| Net change in unrealized (losses) gains | (150,696 | ) | 54,695 | (149,647 | ) | 1,944 | |||||||||
| Net Realized and Net Change in Unrealized (Losses) Gains from Investments | (147,703 | ) | 49,022 | (145,613 | ) | (2,292 | ) | ||||||||
| Net realized losses on extinguishment of debt | (497 | ) | (487 | ) | (3,951 | ) | (932 | ) | |||||||
| Net (Decrease) Increase in Net Assets Resulting from Operations | $ | (67,389 | ) | $ | 121,727 | $ | 16,406 | $ | 133,700 | ||||||
| Net (decrease) increase in net assets resulting from operations per share | $ | (0.18 | ) | $ | 0.34 | $ | 0.04 | $ | 0.37 | ||||||
| Dividends declared per share | $ | (0.18 | ) | $ | (0.18 | ) | $ | (0.36 | ) | $ | (0.41 | ) | |||
| PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES ROLLFORWARD OF NET ASSET VALUE PER SHARE (in actual dollars) |
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| Three Months Ended December 31, |
Six Months Ended December 31, |
||||||||||||||||||||
| 2018 | 2017 | 2018 | 2017 | ||||||||||||||||||
| Per Share Data | |||||||||||||||||||||
| Net asset value at beginning of period | $ | 9.39 | $ | 9.12 | $ | 9.35 | $ | 9.32 | |||||||||||||
| Net investment income(1) | 0.22 | 0.20 | 0.45 | 0.38 | |||||||||||||||||
| Net realized and change in unrealized (losses) gains (1) | (0.40 | ) | 0.14 | (0.41 | ) | (0.01 | ) | ||||||||||||||
| Distributions of net investment income | (0.18 | ) | (0.18 | ) | (0.36 | ) | (0.41 | ) | |||||||||||||
| Common stock transactions(2) | (0.01 | ) | — | (3 | ) | (0.01 | ) | — | (3 | ) | |||||||||||
| Net asset value at end of period | $ | 9.02 | $ | 9.28 | $ | 9.02 | $ | 9.28 | |||||||||||||
- 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).
- Common stock transactions include the effect of issuances and repurchases of common stock, if any.
- 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 fair market value 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
[email protected]
Telephone (212) 448-0702
