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Actionable news in PSEC: Prospect Capital Corporation,

Prospect Capital: Declining Distributable Income

Summary

BDCs are required to pay distributions based on taxable income, which has been declining for PSEC.

During the most recent quarter, distributable income fell below the level of GAAP NII and the dividend.

This article discusses some trends that investors should be watching as PSEC reports results next week.

This article is a follow up to "Upcoming Dividend Cuts For BDCs: Part 3" linked below that discussed upcoming dividend coverage for Prospect Capital (NASDAQ:PSEC). However, this article focuses on distributable income (rather than GAAP income) from its collateralized loan obligations ("CLOs") that has been declining and over the last two quarters and GAAP NII has exceeded taxable income. Please see the articles linked below that analyze dividend coverage for PSEC, Medley Capital (NYSE:MCC) and Ares Capital (NASDAQ:ARCC). As predicted in Part 1 of this series, MCC cut its quarterly dividend to $0.22, which was just below my expected range of $0.23 to $0.25.

Links to previous dividend coverage articles:

As mentioned in the articles linked above, I have noticed very little discussion on Seeking Alpha of projected dividend coverage, especially beyond looking at historical and maybe 90 days out. Most of these projections do not provide investors with a long enough timeframe for proper dividend sustainability analysis.

Recent Dividend Coverage:

For the quarter ended March 31, 2016, PSEC came in slightly below my "base case" projections mostly due to sales and repayments during the quarter of $164 million, resulting in net investment exits of around $140 million. Dividend coverage for the quarter was supported...


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