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Actionable news in PSEC: Prospect Capital Corporation,

Prospect Capital: Expect 10% Write-Down On CLO Equity This Quarter ($0.30 Per Share)

Prospect Capital had ~$1.1B of CLO Equity (or $3.10 per share) as of 6/30/15. ~30% of NAV is exposed to CLO equity.

S&P Loan Index average bid fell from 95.06 (6/30/15) to 91.14 (9/30/15), or a 4.1% drop. Since CLO Equity is a 10x-12x levered vehicle, fair value loss is magnified.

On 10/14/15, Eagle Point Credit announced projected NAV of $15.76-$15.86 for 9/30/15, compared to 6/30/15 NAV of $17.52 (9.8% decline).

Prospect will write down CLO equity by 10% at least. Eagle Point is the pure-play CLO equity vehicle but also invests in warehouses. Prospect does not invest in warehouses.

Prospect Capital (NASDAQ:PSEC) will report a large decline in its CLO equity book due to continued weakness in the loan markets. As of 6/30/15, Prospect has $1.1bn of CLO equity or $3.10 per share. Thus, ~30% of Prospect's NAV is exposed to CLO equity.

Source: Prospect's Filings

Loan prices have fallen from 95.06 (6/30/15) to 91.14 (9/30/15) or a 4.1% drop. The weakness in the market has been energy-related and other macroeconomic factors.

Source: S&P

Since CLO Equity is a 10x-12x levered vehicle of corporate loans, CLO equity is much more volatile and exposed to the broadly syndicated loan prices. Thus, the 4.1% drop in...


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