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Actionable news in PSEC: Prospect Capital Corporation,

Prospect Capital: An Investigation Into Lending Activity


I have covered PSEC many times.

It is prudent to know where the company is putting its money, thus I investigate 2016 lending activity that has been disclosed in various filings but not press-released.

The amount of lending may surprise you.

You may recall that I have periodically covered Prospect Capital's (NASDAQ:PSEC) investing activity. While the company doesn't disclose CLO moves that it makes, which it makes many, digging into the investments the company does disclose is incredibly useful. While some find this material to be very dry, it is absolutely critical. Everyone knows the basic investing strategy, the strengths and weaknesses of the company and, of course, the problems with the company including confusion on the spinoffs, as well as the exorbitant management. Those are realities. And those concerns had crushed shares from the $8.00 mark where I started getting behind the name all the way down to $5. But I stood behind the name and it has regained most of the losses. That said, we want to ensure that management is avoiding excessive risk and reducing the chances to run into underperforming or non-performing loans. Recall last year in my exclusive interview with Grier Eliasek I asked about a perceived slowdown in lending, which he confirmed my suspicions. He said:

"We've been passing on a lot of opportunities. We're also cautious; others are too. It's been eight years since the last recession; within a few years, we may be due. I'm not saying the tea leaves pointing to that right now. With every passing quarter, we will tighten up a little more."

It has been many months since I decided to investigate the investing activity directly. That said I need to remind you Prospect focuses on offering non-control debt financing to corporate management teams as well as financial sponsors. However, it is important to note that the company also makes very selective acquisitions by investing in multiple levels of business' capital structure. The company has grown its equity substantially in the last few years. I still expect that total to grow but expect the pace to be extremely reduced. The company's asset portfolio is quite impressive, but with the recent issues the company has faced, it has become more selective in its investments.

So what has the company done this year? The answer is - not much. It has been very quiet. Table 1...