Prospect Capital Corporation (NASDAQ: PSEC) ("Company," "Prospect" or "we") today announced financial results for its third fiscal quarter ended March 31, 2010.
For the three and nine months ended March 31, 2010, our net investment income was $19.0 million and $48.2 million, respectively, or 30 cents and 85 cents, respectively, per weighted average share outstanding for the periods then ended. Our net investment income increased 12%, and our net investment income per share increased 3%, from the quarter ended December 31, 2009 to the quarter ended March 31, 2010.
We closed our acquisition of Patriot Capital Funding, Inc. (NASDAQ: PCAP) ("Patriot") on December 2, 2009. During the quarter ended March 31, 2010, we recognized $15.6 million of interest income in connection with the assets acquired from Patriot, including $6.7 million of interest income from the acceleration of purchase discounts upon repricing of three loans.
We have additional liquidity available that can be deployed into other accretive investments beyond the Patriot acquisition and are currently moving forward a pipeline of potential additional portfolio and individual investment opportunities.
We estimate that our net investment income for the current fourth fiscal quarter ended June 30, 2010 will be 24 to 32 cents per share. We expect to announce our third fiscal quarter distribution in June.
OPERATING RESULTS HIGHLIGHTS Equity Values: Net assets as of March 31, 2010: $649.48 million Net asset value per share as of March 31, 2010: $10.09 Third Fiscal Quarter Operating Results: Net investment income: $18.97 million Net investment income per share: $0.30 Dividends declared to shareholders per share: $0.41 Year-to-date Operating Results: Net investment income: $48.22 million Net investment income per share: $0.85 Dividends declared to shareholders per share: $1.22625
PORTFOLIO AND INVESTMENT ACTIVITY
At March 31, 2010, our portfolio consisted of 55 long-term investments with a fair value of approximately $697.0 million, compared to the same number of long-term investments with a fair value of $648.1 million at December 31, 2009. This increase in invested capital resulted primarily from a follow-on investment in Shearer's Food's, Inc. ("Shearer's") on March 31, 2010, as well as additional fundings to existing portfolio companies.
During the quarter ended March 31, 2010, we completed a $36.3 million investment in Shearer's, a snack food company, for which we received $35.0 million of junior secured debt and $1.3 million of equity interests. Concurrent with this funding, Shearer's repaid its existing $18.0 million loan to us. During the nine months ended March 31, 2010, we also made follow-on investments in portfolio companies and received principal payments of $15.7 million on loans.
During the three months ended March 31, 2010, we repriced our loans to Aircraft Fasteners International, LLC ("AFI"), Prince Mineral Company, Inc. ("Prince") and R-O-M Corporation ("ROM"). The revised terms were more favorable than the original terms and increased the present value of the future cash flows. In accordance with ASC 320-20-35, the cost bases of the new loans were recorded at par value, resulting in $6.7 million of accelerated original purchase discount recognized as interest income.
Subsequent to March 31, 2010, we invested $12.3 million in secured debt in Seaton Corp., a leading vendor-on-premise staffing company.
Primary investment activity in the marketplace has increased recently, and we are currently evaluating a growing pipeline of potential investments, some of which have the potential to close this quarter. These investments are primarily secured investments with double digit coupons, sometimes coupled with equity upside through co-investments or warrants, and diversified across multiple sectors.
Gas Solutions continues to generate meaningful free cash flows, with no third party debt. In February 2010, we hired Robert Bourne as President and CEO of Gas Solutions. Mr. Bourne has over 30 years of experience in the midstream sector. He is focusing on new business development and seeking new opportunities to help Gas Solutions grow beyond its existing footprint. In April 2010, Gas Solutions purchased a series of propane puts with strike prices of $1.00 per gallon and $0.95 per gallon covering the periods May 1, 2010, through April 30, 2011, and May 1, 2011, through April 30, 2012, respectively. Gas Solutions hedged approximately 85% of its current exposure to natural gas liquids based on current plant volumes. These hedges are expected to reduce the earnings volatility associated with lower prices of natural gas liquids without limiting the upside from higher prices, helping Gas Solutions continue to generate significant cash flows for interest and dividend payments.
LIQUIDITY AND FINANCIAL RESULTS
On June 25, 2009, we completed a first closing on an expanded syndicated revolving credit facility (the "Facility"). The Facility includes an accordion feature which allows the Facility to accept up to an aggregate total of $250 million of commitments. Since that initial closing with two lenders, we have added four additional lenders to the Facility and currently have commitments totaling $210 million. The Facility has an investment grade Moody's rating of A2. We are working with our lenders to reduce the cost, grow the size, increase the advance rate, expand the collateral pool and extend the duration of the Facility, with such amendment targeted for completion within the next 45 days.
As of March 31, 2010, we had $54.2 million of borrowings under our Facility. With the pledging of additional assets from the Patriot acquisition, we have significant additional credit availability of $62.5 million, not including further leveragability of additional collateral that we could add to our Facility with additional transaction activity, and not including further availability increases targeted by our Facility amendment.
Our virtually unleveraged balance sheet is a source of significant strength in comparison with many overleveraged competitors. Our equitized balance sheet also gives us the potential for future earnings upside as we prudently grow our existing revolving credit facility, add additional secured facilities, and evaluate term debt solutions driven by our investment grade facility ratings at both the corporate and Facility levels. We are pleased with the increase in desire of counterparties to provide us additional credit at significantly more attractive pricing as compared to what the capital markets offered a year ago.
CONFERENCE CALL
The Company will host a conference call on Tuesday, May 11, 2010, at 11:00 a.m. Eastern Time. The conference call dial-in number will be 866-524-3160. A recording of the conference call will be available for approximately 30 days. To hear a replay, call 877-344-7529 and use passcode 440436.
PROSPECT CAPITAL CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES March 31, 2010 and June 30, 2009 (in thousands, except share and per share data) March 31, June 30, 2010 2009 (Unaudited) (Audited) ---------- ---------- Assets Investments at fair value (cost of $675,534 and $531,424, respectively, Note 4) Control investments (cost of $181,894 and $187,105, respectively) $ 194,647 $ 206,332 Affiliate investments (cost of $63,197 and $33,544, respectively) 73,516 32,254 Non-control/Non-affiliate investments (cost of $430,443 and $310,775, respectively) 428,838 308,582 ---------- ---------- Total investments at fair value 697,001 547,168 ---------- ---------- Investments in money market funds 23,011 98,735 Cash 21,249 9,942 Receivables for: Interest, net 3,233 3,562 Dividends 1 28 Other 404 571 Prepaid expenses 146 68 Deferred financing costs, net 4,948 6,951 Other assets 534 -- ---------- ---------- Total Assets $ 750,527 $ 667,025 ---------- ---------- Liabilities Credit facility payable 54,200 124,800 Dividend payable 26,403 -- Due to Prospect Administration 243 842 Due to Prospect Capital Management 9,246 5,871 Due to broker 1,743 -- Accrued expenses 7,640 2,381 Other liabilities 1,566 535 ---------- ---------- Total Liabilities 101,041 134,429 ---------- ---------- Net Assets $ 649,486 $ 532,596 ========== ========== Components of Net Assets Common stock, par value $0.001 per share (100,000,000 and 100,000,000 common shares authorized, respectively; 64,398,231 and 42,943,084 issued and outstanding, respectively) $ 64 $ 43 Paid-in capital in excess of par 753,992 545,707 Under/(over) distributed net investment income (21,756) 24,152 Accumulated realized losses on investments (104,281) (53,050) Unrealized appreciation on investments 21,467 15,744 ---------- ---------- Net Assets $ 649,486 $ 532,596 ========== ========== Net Asset Value Per Share $ 10.09 $ 12.40 ========== ========== PROSPECT CAPITAL CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS For The Three and Nine Months Ended March 31, 2010 and 2009 (in thousands, except share and per share data) (Unaudited) For The Three Months For The Nine Months Ended Ended March 31, March 31, --------------------- -------------------- 2010 2009 2010 2009 --------- ---------- --------- --------- Investment Income Interest Income Control investments (Net of foreign withholding tax of $0, $28, ($19), and $137, respectively) $ 4,494 $ 5,503 $ 14,137 $ 17,300 Affiliate investments 2,731 730 5,119 2,365 Non-control/non-affiliate investments 20,722 9,832 42,065 31,197 --------- ---------- --------- --------- Total interest income 27,947 16,065 61,321 50,862 --------- ---------- --------- --------- Dividend income Control investments 2,300 4,400 12,660 13,568 Money market funds 1 45 29 265 --------- ---------- --------- --------- Total dividend income 2,301 4,445 12,689 13,833 --------- ---------- --------- --------- Other income: Control/affiliate investments 241 -- 316 831 Gain on Patriot acquisition -- -- 5,714 -- Non-control/non-affiliate investments 1,516 159 2,365 13,155 --------- ---------- --------- --------- Total other income 1,757 159 8,395 13,986 --------- ---------- --------- --------- --------- ---------- --------- --------- Total Investment Income 32,005 20,669 82,405 78,681 --------- ---------- --------- --------- Operating Expenses Investment advisory fees: Base management fee 3,576 2,977 9,962 8,740 Income incentive fee 4,744 2,930 12,054 11,795 --------- ---------- --------- --------- Total investment advisory fees 8,320 5,907 22,016 20,535 Interest and credit facility expenses 2,111 1,345 5,480 4,828 Sub-administration fees -- 177 -- 644 Legal fees 146 107 469 590 Valuation services 231 139 504 561 Audit, compliance and tax related fees 181 219 681 848 Allocation of overhead from Prospect Administration 840 588 2,520 1,764 Insurance expense 64 61 190 185 Directors' fees 64 61 192 204 Potential merger expenses 925 -- 1,148 -- Other general and administrative expenses 149 345 988 807 Tax expense -- -- -- 533 --------- ---------- --------- --------- Total Operating Expenses 13,031 8,949 34,188 31,499 --------- ---------- --------- --------- Net Investment Income 18,974 11,720 48,217 47,182 --------- ---------- --------- --------- Net realized (loss) gain on investments (2) -- (51,231) 1,661 Net change in unrealized appreciation/depreciation on investments 6,968 3,611 5,723 (12,990) --------- ---------- --------- --------- Net Increase in Net Assets Resulting from Operations $ 25,940 $ 15,331 $ 2,709 $ 35,853 ========= ========== ========= ========= Net increase in net assets resulting from operations per share: $ 0.41 $ 0.51 $ 0.05 $ 1.21 ========= ========== ========= ========= Dividends/distributions declared per share: $ 0.41 $ 0.41 $ 1.23 $ 1.21 ========= ========== ========= ========= PROSPECT CAPITAL CORPORATION AND SUBSIDIARY ROLLFORWARD OF NET ASSET VALUE PER SHARE For the Three and Nine Months Ended March 31, 2010 and 2009 (in actual dollars) (Unaudited) For The Three Months For The Nine Months Ended Ended -------------------- -------------------- March 31, March 31, March 31, March 31, 2010 2009 2010 2009 --------- --------- --------- --------- Per Share Data: Net asset value at beginning of period $ 10.06 $ 14.43 $ 12.40 $ 14.55 Net investment income 0.30 0.39 0.85 1.59 Net realized (loss) gain -- -- (0.90) 0.06 Net unrealized appreciation (depreciation) 0.11 0.12 0.10 (0.44) Net increase (decrease) in net assets as a result of public offerings and DRIP issuance 0.03 (0.34) (0.85) (0.36) Net increase in net assets as a result of shares issued for Patriot acquisition -- -- 0.14 -- Dividends declared (0.41) (0.41) (1.65) (1.21) --------- --------- --------- --------- Net asset value at end of period $ 10.09 $ 14.19 $ 10.09 $ 14.19 ========= ========= ========= =========
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.