NEW YORK, NY--(Marketwire - May 10, 2011) - Prospect Capital Corporation (NASDAQ: PSEC) ("Company" or "Prospect") today announced financial results for our third quarter ended March 31, 2011.
For the three and nine months ended March 31, 2011, the increase in net assets resulting from operations was $33.8 million and $91.3 million, respectively, or $0.38 per share and $1.11 per share, respectively. For the three months ended December 31, 2010, the increase in net assets resulting from operations was $31.9 million or $0.38 per share.
Our operating results increased 5.7%, and our operating results per share were unchanged, from the quarter ended December 31, 2010 to the quarter ended March 31, 2011. This increase is primarily due to investment income from new and follow-on investments of $359.2 million which were closed in the March 2011 quarter, a quarter with our highest level of originations since our inception.
Our net investment income ("NII") was $24.0 million and $19.0 million for the three months ended March 31, 2011 and March 31, 2010, respectively, or $0.27 per share and $0.30 per share, respectively. Our NII was $64.0 million and $50.6 million for the nine months ended March 31, 2011 and March 31, 2010, respectively, or $0.78 per share and $0.89 per share, respectively.
The primary source of the higher NII per share in fiscal year 2010 compared to fiscal year 2011 is the non-recurrence of the gain recognized in fiscal year 2010 in connection with the acquisition of Patriot Capital Funding, Inc. Also affecting NII per share is a decrease in the accelerated accretion of original purchase discounts from $6.9 million recognized in the March 2010 quarter to $3.4 million recognized during the March 2011 quarter. Accelerated accretion of original purchase discounts decreased from $11.5 million recognized during the nine months ended March 31, 2010 to $6.1 million recognized during the nine months ended March 2011. If these two sources of adjustment to NII per share were removed and adjustments made for the related effects on advisory fees, NII per share would have been $0.24 per share in the March 2011 quarter and $0.21 per share in the March 2010 quarter, and $0.72 per share and $0.61 per share for the nine months ended March 2011 and March 2010, respectively.
We are targeting growth in NII per share as we utilize prudent leverage to finance our growth through new originations, given our debt to equity ratio stood at less than 42% as of March 31, 2011 and approximately 34% today. We estimate that our net investment income for the current fourth fiscal quarter ended June 30, 2011 will be $0.35 to $0.40 per share. Included in this estimate is $0.11 per share generated from accelerated accretion on an asset acquired from Patriot and anticipated to be repaid during the quarter.
Our net asset value per share on March 31, 2011 stood at $10.33 per share, an increase of $0.08 per share from December 31, 2010.
Yesterday, we declared our 34th, 35th, 36th, and 37th consecutive cash distributions to shareholders, as follows:
-- $0.101225 per share for May 2011 to holders of record on May 31, 2011
with a payment date of June 24, 2011;
-- $0.101250 per share for June 2011 to holders of record on June 30,
2011 with a payment date of July 22, 2011;
-- $0.101275 per share for July 2011 to holders of record on July 29,
2011 with a payment date of August 26, 2011;
-- $0.101300 per share for August 2011 to holders of record on
August 31, 2011 with a payment date of September 23, 2011.
HIGHLIGHTS
Equity Values: Net assets as of March 31, 2011: $912.9 million Net asset value per share as of March 31, 2011: $10.33 Third Fiscal Quarter Operating Results: Net investment income: $24.0 million Net investment income per share: $0.27 Dividends declared to shareholders per share: $0.30345 Year-to-date Operating Results: Net investment income: $64.0 million Net investment income per share: $0.78 Dividends declared to shareholders per share: $0.90745 Third Fiscal Quarter Portfolio and Portfolio Activity: Portfolio investments in quarter: $359.2 million Total portfolio investments at cost at March 31, 2011: $1.174 billion Total portfolio investments at market at March 31, 2011: $1.214 billion Number of portfolio companies at March 31, 2011: 64
PORTFOLIO AND INVESTMENT ACTIVITY
During the nine months ended March 31, 2011, we originated $641.0 million of new investments. As we reported last quarter and continued this quarter, our origination efforts recently have focused primarily on secured lending, including a higher percentage of first lien loans than in recent prior fiscal quarters, though we also continue to close selected junior debt and equity investments. In addition to targeting investments senior in corporate capital structures with our new originations, we have also increased our new investments in third party private equity sponsor owned companies, which tend to have more third party equity capital supporting our debt investments than in non-sponsor transactions.
As a result of these credit risk management initiatives, our portfolio's annualized current yield stood at 12.9% across all long-term debt and certain equity investments as of March 31, 2011. Non-recurring distributions of other equity positions that we hold is not included in this yield calculation. In many of our portfolio companies, we hold equity positions, ranging from minority interests to majority stakes, which we expect over time to contribute to our investment returns.
At March 31, 2011, our portfolio consisted of 64 long-term investments with a fair value of $1.214 billion, compared to 58 long-term investments with a fair value of $918.2 million at December 31, 2010. In the March 2011 quarter, we completed new and follow-on investments aggregating approximately $359.2 million, sold one investment, and received repayment on three other investments.
On January 6, 2011, we made a senior secured term loan investment of $30.0 million to support the acquisition of Progressive Logistics Services by H.I.G. Capital.
On January 10, 2011, we made a senior secured debt investment of $19.0 million to support the acquisition of Endeavor House by Pinnacle Treatment Centers.
On January 10, 2011, we sold our remaining 616,304 shares of Miller Petroleum common stock, realizing $4.23 of net proceeds per share. As a result, we generated an additional gain of $2.6 million, bringing our total realized gain to $8.0 million for this investment.
On January 21, 2011, we provided senior secured credit facilities of $28.2 million to support the acquisition of Stauber Performance Ingredients by ICV Partners. Through March 31, 2011, we have funded $25.7 million of the commitment.
On January 24, 2011, Maverick Healthcare repaid our $13.1 million loan in full.
On January 31, 2011, we made a senior secured debt investment of $7.5 million to support the recapitalization of Empire Today, a leading independent provider in the residential replacement flooring industry.
On February 3, 2011, we made a senior secured debt investment of $22.0 million to support the recapitalization of a pharmacy services company by a leading private equity firm. Through March 31, 2011, we have funded $20.5 million of the commitment.
On February 4, 2011, we made a secured second-lien debt investment of $45.0 million to support the refinancing of Clearwater Seafoods, a leading premium seafood company based in Nova Scotia, Canada.
On February 9, 2011, we made a senior secured debt investment of $22.5 million to support the recapitalization of Copernicus and to repay our prior loan in full.
On March 2, 2011, we made a senior secured first-lien debt investment of $12.5 million to support the acquisition of Out Rage, a market leader in the bowhunting equipment industry.
On March 4, 2011, we made a $27.0 million secured second-lien term loan to support the recapitalization of Arrowhead and to repay our prior loan in full.
On March 11, 2011, EXL repaid our $23.0 million loan in full, and we sold our 2,500 shares of EXL common stock.
On March 18, 2011, we closed a $60.0 million first-lien senior secured facility for Safe-Guard Products International, the leading third-party administrator of ancillary finance and insurance products for new, used, and leased motor vehicles.
On March 31, 2011, we funded a $53.0 million first-lien senior secured credit facility, funded $1.4 million of a $5.0 million commitment on a revolving line of credit and invested $1.5 million in common equity to support the acquisition of Cargo Airport Services by ICV Partners.
On March 31, 2011, we provided a net $32.8 million in first-lien senior secured financing for the recapitalization of Progrexion, an existing portfolio company focused on the consumer credit information sector.
On March 31, 2011, KTPS repaid our prior $8.4 million loan. A portion of the loan receivable was repaid at a discount, for which we realized a loss of $0.5 million.
Since March 31, 2011, we have closed on seven additional investments (aggregating more than $115 million) and received repayment on one investment.
On April 18, 2011, we made a $13.0 million secured debt investment to support the acquisition of a leading food distributor by Annex Capital.
On April 26, 2011, we made a senior secured follow-on investment of $11.0 million in ICON Health & Fitness.
On May 2, 2011, we sold our membership interests in Fischbein for $13.3 million of gross proceeds, $1.5 million of which is deferred revenue held in escrow, realizing a gain of $9.9 million, and received a full repayment on the loan that was outstanding. We subsequently made a $3.3 million senior secured second-lien term loan and invested $0.9 million in the common equity of Fischbein with the new ownership. Compared to our original cost from the Patriot acquisition, Fischbein has delivered for us a cash on cash return of approximately 3.3 times and an internal rate of return of approximately 150%.
On May 3, 2011, we made a debt investment of $25.0 million to support the acquisition of J.D. Byrider, a leading used car sales and finance business, by Altamont Capital Partners.
On May 6, 2011, we made a $32.0 million investment in an advertising media buying business, with $24.0 million structured as senior secured debt, $3.0 million as subordinated debt, and $4.0 million as controlling equity.
On May 6, 2011, we provided $15.0 million in secured second-lien acquisition financing for a top company in the in-store media industry.
On May 6, 2011, we provided $15.0 million in secured second-lien financing for the recapitalization of a leading company in the engineered glass materials industry.
Our investment pipeline continues to aggregate more than $1.0 billion of potential opportunities. Primary investment activity in the marketplace increased during the second half of calendar year 2010 and has continued to be robust in calendar year 2011. These investments are primarily secured investments with double digit coupons, sometimes coupled with equity upside through additional investments, and diversified across multiple sectors.
We are pleased with the overall stability of the credit quality of our portfolio, with many of our companies generating year-over-year and sequential growth in top-line revenues and bottom-line profits.
LIQUIDITY AND FINANCIAL RESULTS
On December 21, 2010, we issued $150 million in aggregate principal amount of five-year unsecured 6.25% senior convertible notes due 2015 (the "2010 Notes"). The 2010 Notes are convertible into shares of common stock at an initial and March 31, 2011 conversion rate of 88.0902 and 88.0908 shares of common stock per $1,000 principal amount of the 2010 Notes, respectively, which is equivalent to a conversion price of approximately $11.352 per share of common stock, subject to adjustment in certain circumstances. The conversion rate for the 2010 Notes is increased when monthly cash dividends paid to common shares exceed the rate of $0.101125 cents per share, subject to adjustment.
On February 18, 2011, we issued $172.5 million in aggregate principal amount of 5.5-year unsecured 5.50% senior convertible notes due 2016 ("2011 Notes") for net proceeds of approximately $167.3 million. Interest on the 2011 Notes is paid semi-annually in arrears on February 15 and August 15, at a rate of 5.50% per year, commencing August 15, 2011. The 2011 Notes mature on August 15, 2016 unless converted earlier. The 2011 Notes are convertible into shares of common stock at an initial conversion rate and conversion rate at March 31, 2011 of 78.3699 and 78.3701 shares, respectively, of common stock per $1,000 principal amount of 2011 Notes, which is equivalent to a conversion price of approximately $12.76 per share of common stock, subject to adjustment in certain circumstances. The conversion rate for the 2011 Notes will be increased when monthly cash dividends paid to common shares exceed the rate of $0.101150 per share.
The 2010 and 2011 Notes are general unsecured obligations of Prospect, with no financial covenants, no technical cross default provisions, and no payment cross default provisions with respect to our revolving credit facility.
The 2010 and 2011 Notes have no restrictions related to the type and security of assets in which Prospect might invest. The issuance of these notes has allowed us to grow our investment program in calendar year 2011 and commit to loans with maturities longer than our existing revolving credit facility maturity. These 2010 and 2011 Notes have an investment grade S&P rating of BBB.
On June 11, 2010, we held a first closing of an extension and expansion of our revolving credit facility (the "Facility") with a syndicate of lenders who extended commitments of $210 million under the Facility. The Facility includes an accordion feature, which, with the amendment completed on January 13, 2011, allows commitments to increase to up to $400 million without the need for re-approval from the existing lenders. Since June 30, 2010, we have closed on an additional $115 million in commitments with one existing and five additional new lenders, raising the total commitments under the Facility to $325 million. We seek to add additional lenders to the Facility in order to reach the maximum size. While we are optimistic about these planned Facility size increases, we cannot guarantee them. The amendment signed in January also allows for larger loans to be pledged to the facility and provides a mechanism for pledging loans on an expedited basis.
As we make additional investments, we generate additional availability to the extent such investments are eligible to be placed into the borrowing base. The revolving period of the Facility extends through June 2012, with an additional one year amortization period (with distributions allowed) after the completion of the revolving period. Interest on borrowings under the Facility is one-month Libor plus 325 basis points, subject to a minimum Libor floor of 100 basis points, representing a significant decrease in financing cost for us compared to our prior facility. The unused portion of the Facility has a fee equal to either 75 basis points (if at least half of the Facility is used) or 100 basis points (if less than half of the Facility is used). The Facility has an investment grade Moody's rating of A2.
On April 7, 2011, we completed a public stock offering for 9.0 million shares of our common stock at a net price of $11.40 per share, raising $102.6 million of net proceeds.
With the issuance of the 2010 and 2011 Notes in December and February, we repaid the revolving balance on the Facility in full. As of May 10, 2011, we have deployed all of the proceeds from the Notes and equity issuances, and we currently have borrowed $22.9 million under our Facility.
Our modestly leveraged balance sheet is a source of significant strength. Our debt to equity ratio currently stands at approximately 34%. Our equitized balance sheet also gives us the potential for future earnings upside as we prudently look to utilize and grow our existing revolving credit facility and add additional secured and unsecured term facilities, made more attractive by our investment grade ratings at corporate, Facility, and Notes levels.
CONFERENCE CALL
Prospect will host a conference call on Wednesday, May 11, 2011, at 11:00 a.m. Eastern Time. The conference call dial-in number will be 877-317-6789. A recording of the conference call will be available for approximately 30 days. To hear a replay, call 877-344-7529 and use passcode 450877.
PROSPECT CAPITAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES
March 31, 2011 and June 30, 2011
(in thousands, except share and per share data)
March 31, June 30,
2011 2010
--------- ---------
(Unaudited) (Audited)
Assets
Investments at fair value:
Control investments (cost of $235,879 and $185,720,
respectively) $ 275,349 $ 195,958
Affiliate investments (cost of $56,594 and $65,082,
respectively) 70,754 73,740
Non-control/Non-affiliate investments (cost of
$881,166 and $477,957, respectively) 867,414 478,785
--------- ---------
Total investments at fair value (cost of
$1,173,639 and $728,759, respectively) 1,213,517 748,483
--------- ---------
Investments in money market funds 94,919 68,871
Cash 2,395 1,081
Receivables for:
Interest, net 10,728 5,356
Dividends 60 1
Other 561 419
Prepaid expenses 496 371
Deferred financing costs, net 16,186 7,579
Other assets -- 534
--------- ---------
Total Assets 1,338,862 832,695
--------- ---------
Liabilities
Credit facility payable 47,500 100,300
Senior convertible notes 322,500 --
Payable for securities purchased 31,984 --
Dividends payable 8,940 6,909
Due to Prospect Administration 1,456 294
Due to Prospect Capital Management 6,353 9,006
Accrued expenses 5,319 4,057
Other liabilities 1,889 705
--------- ---------
Total Liabilities 425,941 121,271
--------- ---------
Net Assets $ 912,921 $ 711,424
========= =========
Components of Net Assets
Common stock, par value $0.001 per share (200,000,000
and 100,000,000 common shares authorized,
respectively; 88,358,811 and 69,086,862 issued
and outstanding, respectively) $ 88 $ 69
Paid-in capital in excess of par 991,658 805,918
Distributions in excess of net investment income (21,202) (9,692)
Accumulated realized losses on investments (97,501) (104,595)
Unrealized appreciation on investments 39,878 19,724
--------- ---------
Net Assets $ 912,921 $ 711,424
========= =========
Net Asset Value Per Share $ 10.33 $ 10.30
========= =========
PROSPECT CAPITAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three and Nine Months Ended March 31, 2011 and 2010
(in thousands, except share and per share data)
(Unaudited)
For The Three For The Nine
Months Ended Months Ended
March 31, March 31,
---------------- -----------------
2011 2010 2011 2010
-------- ------- -------- --------
Investment Income
Interest Income:
Control investments (Net of foreign
withholding tax of $0, $0, $0,
and ($19), respectively) $ 5,180 $ 4,494 $ 15,798 $ 14,137
Affiliate investments 3,049 2,731 9,523 5,119
Non-control/Non-affiliate
investments 26,275 20,722 65,466 42,065
-------- ------- -------- --------
Total interest income 34,504 27,947 90,787 61,321
-------- ------- -------- --------
Dividend income:
Control investments 2,760 2,300 6,810 12,660
Non-control/Non-affiliate
investments -- -- 1,508 --
Money market funds 3 1 10 29
-------- ------- -------- --------
Total dividend income 2,763 2,301 8,328 12,689
-------- ------- -------- --------
Other income: (Note 8)
Control investments 2 235 1,787 243
Affiliate investments 22 6 176 73
Non-control/Non-affiliate
investments 7,282 1,516 12,007 2,365
Gain on Patriot acquisition -- -- -- 8,632
-------- ------- -------- --------
Total other income 7,306 1,757 13,970 11,313
-------- ------- -------- --------
Total Investment Income 44,573 32,005 113,085 85,323
-------- ------- -------- --------
Operating Expenses
Investment advisory fees:
Base management fee 6,037 3,576 15,216 9,961
Income incentive fee 5,997 4,744 16,015 12,640
-------- ------- -------- --------
Total investment advisory fees 12,034 8,320 31,231 22,601
Interest and credit facility expenses 5,660 2,111 10,182 5,480
Legal fees 283 146 763 536
Valuation services 262 231 711 504
Audit, compliance and tax related fees 168 181 649 682
Allocation of overhead from Prospect
Administration 1,669 840 3,309 2,520
Insurance expense 74 64 217 190
Directors' fees 64 64 191 192
Potential merger expenses -- 925 -- 925
Other general and administrative
expenses 403 149 1,801 1,143
-------- ------- -------- --------
Total Operating Expenses 20,617 13,031 49,054 34,773
-------- ------- -------- --------
Net Investment Income 23,956 18,974 64,031 50,550
-------- ------- -------- --------
Net realized gain (loss) on
investments 2,078 (2) 7,094 (51,231)
Net change in unrealized appreciation
(depreciation) on investments 7,725 6,968 20,154 5,723
-------- ------- -------- --------
Net Increase in Net Assets Resulting
from Operations $ 33,759 $25,940 $ 91,279 $ 5,042
======== ======= ======== ========
Net increase in net assets resulting
from operations per share: $ 0.38 $ 0.41 $ 1.11 $ 0.09
======== ======= ======== ========
Dividends declared per share $ 0.30 $ 0.41 $ 0.91 $ 1.23
======== ======= ======== ========
PROSPECT CAPITAL CORPORATION AND SUBSIDIARY
ROLLFORWARD OF NET ASSET VALUE PER SHARE
For the Three and Nine Months Ended March 31, 2011 and 2010
(in actual dollars)
(Unaudited)
For The Three For The Nine
Months Ended Months Ended
---------------- ----------------
March March March March
31, 2011 31, 2010 31, 2011 31, 2010
------- ------- ------- -------
Per Share Data:
Net asset value at beginning of period $ 10.25 $ 10.10 $ 10.30 $ 12.40
Net investment income 0.27 0.30 0.78 0.89
Net realized gain (loss) 0.02 -- 0.09 (0.90)
Net unrealized appreciation 0.09 0.11 0.25 0.10
Net increase (decrease) in net assets
as a result of public offerings -- 0.02 (0.16) (0.86)
Net increase in net assets as a result
of shares issued for Patriot acquisition -- -- -- 0.14
Dividends declared and paid (0.30) (0.41) (0.93) (1.65)
------- ------- ------- -------
Net asset value at end of period $ 10.33 $ 10.12 $ 10.33 $ 10.12
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ABOUT PROSPECT CAPITAL CORPORATION
Prospect Capital Corporation (www.prospectstreet.com) is a closed-end investment company that lends to and invests in private and microcap public 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. Failure to comply with any of the laws and regulations that apply to us could have an adverse effect on us and our shareholders.
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 these estimates and projections of the future. Such statements speak only as of the time when made, and we undertake no obligation to update any such statement now or in the future.