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Prospect Capital Reports $0.26 Of Net Investment Income Per Share In

The following excerpt is from the company's SEC filing.

NEW YORK - (Marketwired) - November 4, 2015 - Prospect Capital Corporation (NASDAQ: PSEC) (“Prospect” or “we”) today announced financial results for our first fiscal quarter ended September 30, 2015.

For the September 2015 quarter, our net investment income (“NII”) was $91.2 million or $0.26 per weighted average share. For the June 2015 quarter, our NII was $89.5 million or $0.25 per weighted average share. NII increased by $1.7 million on a dollars basis and increased by $0.01 on a per share basis, driven primarily by an increase in dividend income and a decrease in operating expenses. Our recurring income as measured by the percentage of total investment income from interest income was 96% in the September 2015 quarter.

As a tax-efficient regulated investment company, our 90% minimum shareholder dividend payout requirement is based on taxable income (“distributable income” or “DI”) rather than GAAP net investment income. Distributable income can decouple from such NII. In the September 2015 quarter, we generated distributable income of $94.0 million or $0.26 per weighted average share, exceeding our $0.25 per share of dividends.

While regulated investment companies may utilize “spillback” dividends in the subsequent tax year to count toward prior year distribution requirements, distributable income consistently in excess of dividends enhances the possibility of future special dividends in order to maintain regulated investment company status.

We have previously announced monthly cash dividends to shareholders of $0.08333 per share for September and October 2015. On November 4, 2015, we announced the declaration of monthly cash dividends in the following amounts and with the following dates:

$0.08333 per share for November 2015 to holders of record on November 30, 2015 with a payment date of December 24, 2015;

$0.08333 per share for December 2015 to holders of record on December 31, 2015 with a payment date of January 21, 2016; and

$0.08333 per share for January 2016 to holders of record on January 29, 2016 with a payment date of February 18, 2016.

Since our IPO ten years ago through our January 2016 distribution, assuming our current share count for upcoming distributions, we will have distributed approximately $14.37 per share to initial shareholders and approximately $1.8 billion in cumulative distributions to all shareholders.

Our debt to equity ratio stood at 76.0% after subtraction of cash and equivalents at September 30, 2015, down from 77.6% at June 30, 2015. Our objective is to sustain and grow net investment income per share in the coming quarters by focusing on matched-book funding to finance disciplined and accretive originations across our diversified lines of business. We are currently pursuing initiatives to lower our funding costs (including refinancing of existing liabilities at lower rates), opportunistically harvest certain controlled investments at a gain, optimize our origination strategy mix (including increasing our mix of online loans), repurchase shares at a discount to net asset value, and rotate our portfolio out of lower yielding assets into higher yielding assets while maintaining a significant focus on first lien senior secured lending.

Our net asset value on September 30, 2015 stood at $10.17 per share, a decrease of $0.14 in comparison to the value at June 30, 2015. For the September 2015 quarter, our increase in net assets resulting from operations (“net income” or “NI”) was $27.8 million or $0.08 per weighted average share.

HIGHLIGHTS

Equity Values:

Net assets as of September 30, 2015: $3.614 billion

Net asset value per share as of September 30, 2015: $10.17

First Fiscal Quarter Operating Results:

Net investment income: $91.2 million

Net investment income per share: $0.26

Distributable income: $94.0 million

Distributable income per share: $0.26

Dividends to shareholders per share: $0.25

First Fiscal Quarter Portfolio and Investment Activity:

Portfolio investments acquired in quarter: $437.6 million

Total portfolio investments at cost at September 30, 2015: $6.442 billion

Number of portfolio companies at September 30, 2015: 131

PORTFOLIO AND INVESTMENT ACTIVITY

Our origination efforts during the September 2015 quarter continued to prioritize secured lending. As of September 30, 2015, our portfolio at fair value consisted of 54.2% first lien, 17.4% second lien, 18.7% structured credit (with underlying first lien), 0.3% small business whole loan, 1.1% unsecured debt, and 8.3% equity investments.

We currently have multiple primary investment origination strategies, including non-control agented and syndicated lending in private equity sponsored and non-sponsored transactions, control investments in operating and financial companies, structured credit investments, real estate investments, and online lending. As of September 30, 2015, our control investments at fair value stood at 31.3% of our portfolio, compared to 29.9% at June 30, 2015.

With our scale team of approximately 100 professionals, one of the largest dedicated middle-market credit groups in the industry, we believe we are well positioned to select in a disciplined manner a small percentage of investment opportunities out of the thousands we source annually. Prospect closed over $2.0 billion of investments during the 2015 fiscal year.

Our portfolio’s annualized current yield stood at 13.0% across all performing interest bearing investments as of September 30, 2015, an increase of 1.1% over September 2014 and an increase of 0.3% over June 2015. Distributions from equity positions that we hold are 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. While the market has experienced some yield compression in recent years, we have elected to deploy capital in other asset classes such as structured credit and online lending to help counteract the decreases in market rates for corporate middle market lending.

At September 30, 2015, our portfolio consisted of 131 long-term investments with a fair value of $6.431 billion. These investments span a diversified range of industries with no one industry representing more than 10.2% of the portfolio at fair value as of September 30, 2015. As of September 30, 2015, Prospect’s asset concentration in the energy industry stood at 3.5%, including

Prospect’s first lien senior secured loans where third parties bear first loss capital risk. The fair market value of our loan assets on non-accrual as a percentage of total assets stood at approximately 1.4% at September 30, 2015, with approximately 1.3% residing in the energy industry.

We are pleased with the overall 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. As of September 2015, our weighted average portfolio net leverage stood at 4.36 times earnings before interest, taxes, depreciation, and amortization (“EBITDA”), and our weighted average EBITDA per portfolio company stood at approximately $44.6 million.

During the September 2015 quarter, we completed six new and several follow-on investments aggregating $437.6 million, and received full repayment on seven investments. Our sales, repayments, and scheduled amortization payments in the September 2015 quarter were $528.8 million, resulting in net investment exits of $91.2 million.

The majority of our portfolio consists of sole agented middle-market loans that we have originated, selected, negotiated, structured, and closed. We perceive the risk-adjusted reward in the current environment to be superior for agented, self-originated, and anchor investor opportunities compared to the broadly syndicated market, causing us to prioritize our proactive sourcing efforts. Our proprietary Prospect call center initiative has enabled us to source investment opportunities we may not have seen otherwise. We anticipate that calling effort to continue to contribute to our business in the upcoming years.

During the September 2015 quarter, our originations comprised 39% third party sponsor deals, 28% online lending, 25% syndicated debt, 6% structured credit, 1% non-sponsor direct lending and 1% real estate.

Our activity during the September 2015 quarter included the following transactions:

On July 1, 2015, we provided $31.0 million of first lien senior secured financing, of which $30.2 million was funded at closing, to Intelius, Inc. (“Intelius”), an online information commerce company. On August 11, 2015, we made a $13.5 million follow-on first lien senior secured debt investment in Intelius, of which $13.0 million was funded at closing, to support an acquisition.

On July 8, 2015, we sold 27.45% of our Term Loan A investment in InterDent, Inc. for $34.4 million. We realized no gain or loss on the sale.

On July 23, 2015, we made an investment of $38.0 million to purchase 80.73% of the subordinated notes issued by Halcyon Loan Advisors Funding 2015-3 Ltd.

On July 24, 2015, TB Corp. (“Taco Bueno”) repaid our $23.6 million loan. We realized a 15.8% internal rate of return (“IRR”) and 1.4 times cash-on-cash return on its investment in Taco Bueno.

On August 6, 2015, we provided $92.5 million of first lien senior secured debt to support the recapitalization of Crosman Corporation. Concurrent with the refinancing, we received repayment of our previously outstanding $40.0 million second lien term loan.

On August 7, 2015, Ryan, LLC (“Ryan”) repaid our $72.7 million loan. We realized an 18.0% IRR and 1.4 times cash-on-cash return on its investment in Ryan.

On August 12, 2015, we made an investment of $22.9 million to purchase 50.04% of the subordinated notes issued by Octagon Investment Partners XVIII, Ltd.

On August 12, 2015, we sold 780 of our small business whole loans purchased from OnDeck to Jefferies Asset Funding LLC for proceeds of $26,562, net of related transaction expenses, and a trust certificate representing a 41.54% interest in the MarketPlace Loan Trust, Series 2015-OD2. We realized a loss of $775 on the...


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