Prospect Capital Reports Record Net Investment Income of $58.1Million, or $0.51 per Share for the March 2012 Quarter, an Increaseof 59% From the Prior Quarter
Thursday, May 10, 2012 4:05:39 PM ET Prospect Capital Corporation (PSEC ) ("PSEC", "Prospect",
"we", "our", or "us") today announced financial results for our third
fiscal quarter ended March 31, 2012.
For the three and nine months ended March 31, 2012, our net income
was $50.2 million and $154.6 million, respectively, or $0.44 per
share and $1.39 per share, respectively. For the three and nine
months ended March 31, 2011, our net income was $33.8 million and
$91.3 million, respectively, or $0.38 per share and $1.11 per share,
respectively.
Our net income increased 49%, and our net income per share increased
16%, from the March 2011 quarter to the March 2012 quarter. These
increases are primarily due to growing interest income from
additional investments, a loan prepayment premium received from NRG
Manufacturing, Inc. ("NRG"), higher dividend income from our
investments in Energy Solutions Holdings, Inc. ("Energy Solutions")
and NRG, and fees recognized in connection with the sale of our stock
in NRG and the sale by Energy Solutions of its gas processing
business.
Our net investment income ("NII") was $58.1 million and $24.0 million
for the March 2012 quarter and March 2011 quarter, respectively, or
$0.51 per share and $0.27 per share, respectively. Our NII was $122.5
million and $64.0 million for the nine months ended March 31, 2012
and March 31, 2011, respectively, or $1.10 per share and $0.78 per
share, respectively. Our NII was $36.5 million for the December 2011
quarter, or $0.33 per share. Our NII per share in the March 2012
quarter represented an increase of 55% from the December 2011 quarter
and an increase of 89% from the March 2011 quarter.
We are targeting continued growth in NII per share as we utilize
prudent leverage to finance our growth through new originations,
given our debt to equity ratio stood at less than 34% as of March 31,
2012. We estimate that our NII for the current fourth fiscal quarter
ended June 30, 2012 will be $0.38 to $0.43 per share.
Our net asset value per share on March 31, 2012 stood at $10.82 per
share, an increase of $0.13 per share from December 31, 2011. This
growth represents our sixth consecutive quarterly increase in net
asset value per share. Our portfolio continued to perform during the
March 2012 quarter. None of our loans originated in over four years
have gone on non-accrual status.
We have generated cumulative NII in excess of cumulative
distributions to shareholders for both (i) the current August 2012
tax year ($98.2 million of NII from September 1, 2011 through March
31, 2012, compared to shareholder distributions of $80.3 million
during the same period) and (ii) since Prospect’s initial public
offering almost eight years ago. Depending on future distributions to
shareholders, spillback dividend classifications, differences between
NII and investment company taxable income, and other factors, we may
retain significantly all or a portion of recent realizations and
reinvest them in additional income-producing investments.
We recently declared our 46th, 47th, 48th, and 49th consecutive cash
distributions to shareholders, including 26 consecutive per share
monthly cash distribution increases, as follows:
-- $0.101525 per share for May 2012 payable to holders of record on May
31, 2012 with a payment date of June 22, 2012;
-- $0.101550 per share for June 2012 payable to holders of record on June
29, 2012 with a payment date of July 24, 2012;
-- $0.101575 per share for July 2012 payable to holders of record on July
31, 2012 with a payment date of August 24, 2012; and
-- $0.101600 per share for August 2012 payable to holders of record on
August 31, 2012 with a payment date of September 21, 2012.
HIGHLIGHTS
Equity Values:
Net assets as of March 31, 2012: $1.319 billion
Net asset value per share as of March 31, 2012: $10.82
Third Fiscal Quarter Operating Results:
Net investment income:
$58.07 million
Net investment income per share: $0.51
Net
increase in net assets resulting from operations: $50.21 million
Net increase in net assets per share resulting from operations:
$0.44
Dividends to shareholders per share: $0.304350
Third Fiscal Quarter Portfolio Activity:
New portfolio investments
in quarter: $170.07 million
Fiscal Year to Date Operating Results:
Net investment income:
$122.46 million
Net investment income per share: $1.10
Net
increase in net assets resulting from operations: $154.60 million
Net increase in net assets per share resulting from operations:
$1.39
Dividends to shareholders per share: $0.912375
Fiscal Year to Date Portfolio and Portfolio Activity:
New
portfolio investments during the nine months ended March 31, 2012:
$547.34 million
Total portfolio investments at cost at March 31,
2012: $1.656 billion
Total portfolio investments at fair value at
March 31, 2012: $1.692 billion
Number of portfolio companies at
March 31, 2012: 78
PORTFOLIO AND INVESTMENT ACTIVITY
Our origination efforts during the March 2012 quarter and current
June 2012 quarter continue to prioritize secured lending, with an
emphasis on first-lien loans, though we also seek to close selected
subordinated debt and equity investments. In addition to targeting
investments senior in corporate capital structures with our new
originations, we have also increased our new investments in
third-party private equity sponsor-owned companies, which tend to
have more third-party equity capital supporting our debt investments
than in non-sponsor transactions, while still maintaining flexibility
to pursue attractive non-sponsor investments. With our scale team of
more than 50 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 number of
investments out of thousands of investment opportunities sourced per
annum.
At March 31, 2012, our portfolio consisted of 78 long-term
investments with a fair value of $1.692 billion, compared to 72
long-term investments with a fair value of $1.463 billion at June 30,
2011, and compared to 58 long-term investments with a fair value of
$748.5 million at June 30, 2010.
During the March 2012 quarter, we completed new and follow-on
investments aggregating approximately $170.1 million. Our repayments
in the March 2012 quarter were $188.4 million.
-- On January 4, 2012, Energy Solutions sold its gathering and processing
assets ("Gas Solutions") for a sale price of $199.8 million, adjusted
for the final working capital settlement, including a potential
earnout of $28.0 million that can be paid to us based on the future
performance of Gas Solutions. So far, after expenses, including
structuring fees of $10.0 million paid to PSEC, Energy Solutions has
received approximately $148.7 million in cash and an additional $10.0
million held in escrow. Our loans to Energy Solutions remain
outstanding and are collateralized by the cash held by Energy
Solutions after the sale transaction. The sale of Gas Solutions’
assets by Energy Solutions has resulted in significant earnings and
profits, as defined by the Internal Revenue Code, at Energy Solutions
for calendar year 2012, which coincides with the tax year for Energy
Solutions. As a result, dividend distributions from Energy Solutions
to Prospect will be required to be recognized by Prospect as
investment income to the extent there are current year earnings and
profits sufficient to support such recognition. Energy Solutions
currently has approximately $148 million of cash available for future
debt service, distributions, operating investments, and the add-on
acquisitions it is seeking and reviewing. Together with prior cash
flows, but excluding both escrow and earnout, the exit price for Gas
Solutions produced a 57% internal rate of return and 5.5 times cash on
cash multiple for Energy Solutions on its Gas Solutions investment.
-- On January 9, 2012, Arrowhead General Insurance Agency, Inc. repaid
our $27.0 million loan.
-- On January 12, 2012, we made a follow-on investment of $16.5 million
to purchase 87% of the secured Class D Notes issued by CIFC Funding
2011-I, Ltd.
-- On January 17, 2012, we provided $18.3 million of secured second-lien
financing to National Bankruptcy Services, LLC, a financial services
processing company being acquired by a leading private equity
sponsor.
-- On January 31, 2012, Aircraft Fasteners International, LLC repaid our
$7.4 million loan.
-- On February 2, 2012, Prospect sold NRG to a strategic buyer for $123.3
million. In conjunction with the sale, our outstanding $37.2 million
loan was repaid. We received a $26.9 million make-whole fee for early
repayment of the outstanding debt, which was recorded as interest
income in the March 2012 quarter. PSEC also earned a $3.8 million
advisory fee in connection with the transaction, which was recorded as
other income in the March 2012 quarter. After expenses, we received
for sale of our equity net proceeds of $26.0 million and recognized a
realized gain of $24.8 million in our results for the March 2012
quarter. In addition, there is $11.1 million being held in escrow of
which at least 80% is due to us upon release of the escrowed amounts.
Monies released from escrow will be recognized as additional gain when
and if received. Including all cash flows over the life of the
investment, but not including escrowed amounts, Prospect has realized
a 58% annualized internal rate of return on our NRG investment.
-- On February 10, 2012, we provided $15.0 million of secured second-lien
financing to Rocket Software, Inc., a leading global infrastructure
software company.
-- On February 15, 2012, we provided $25.0 million of secured second-lien
financing to Blue Coat Systems, Inc., a leading provider of Web
security and wide area network optimization solutions.
-- On February 24, 2012, we made a follow-on investment of $7.9 million
to purchase 24% of the unrated subordinated notes in Apidos CLO VIII,
Ltd.
-- On February 28, 2012, we made a senior secured follow-on investment of
$9.5 million in Clearwater Seafoods LP.
-- On February 29, 2012, we provided $15.0 million of secured second-lien
financing to Focus Brands, Inc., a leading franchiser and operator of
restaurants, cafes, ice cream stores, and retail bakeries.
-- On March 1, 2012, we made a senior secured follow-on investment of
$27.5 million in SG Acquisition, Inc. to support a recapitalization.
-- On March 14, 2012, we made an investment of $26.6 million to purchase
74% of the unrated subordinated notes in Babson CLO Ltd. 2012-1A.
-- On March 16, 2012, VPSI, Inc. repaid our $16.6 million loan.
-- On March 23, 2012, Anchor Hocking, LLC repaid our $20.4 million loan.
-- On March 27, 2012, we provided $12.5 million of senior secured
financing to IDQ Holdings, Inc., a manufacturer of refrigerant refill
kits for automobile air conditioners.
-- On March 30, 2012, ROM Acquisition Corporation repaid our $31.6
million loan.
Since March 31, 2012 (in the current June 2012 quarter), we have
completed three new investments aggregating approximately $80 million
and received a repayment of $23 million.
-- On April 2, 2012, we made an investment of $22.0 million to purchase
51% of the subordinated notes in Galaxy XII CLO, Ltd.
-- On April 16, 2012, we made a senior secured debt investment of $15.0
million to support the acquisition of Nixon, Inc., a designer and
distributor of watches and accessories.
-- On April 20, 2012, we made an investment of $43.2 million to purchase
71% of the subordinated notes in Symphony CLO IX, Ltd.
-- On May 8, 2012, SonicWALL, Inc. repaid our $23.0 million loan.
On March 19, 2012, we entered into a definitive agreement to provide
debt and equity for the acquisition of the businesses of First Tower
Corp. ("First Tower"), a private multiline specialty finance company
based in Flowood, Mississippi with over 150 branch offices. We are
acquiring 80.1% of First Tower for $110.2 million of cash and
14,518,207 shares of our common stock. We have the option, at our
sole discretion, to substitute up to 100% cash in lieu of such
14,518,207 shares of our common stock at a price per share based on
average trading prices prior to the closing date. Completion of the
First Tower acquisition is subject to regulatory approvals and is
expected to close late in the quarter ended June 30, 2012.
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. None of our loans
originated in over four years have gone on non-accrual status. The
fair market value of our loan assets on non-accrual as a percentage
of total assets stood at approximately 2.2% on March 31, 2012, down
from 3.5% on June 30, 2011.
Because of the performance of several controlled positions in our
portfolio, we have selectively monetized certain such companies and
may monetize other positions if we identify attractive opportunities
for exit. As such exits materialize, we expect to reinvest such
proceeds into new income-producing opportunities. We are pleased with
the performance of our controlled portfolio companies, and are
actively exploring other new investment opportunities at attractive
multiples of cash flow.
Our advanced investment pipeline aggregates more than $500 million of
potential opportunities. These investments are primarily secured
investments with double-digit coupons, sometimes coupled with equity
upside through additional investments, and diversified across
multiple sectors.
LIQUIDITY AND FINANCIAL RESULTS
Our modestly leveraged balance sheet is a source of significant
strength. Our debt to equity ratio stood at less than 34% at March
31, 2012. Our equitized balance sheet also gives us the potential for
future earnings upside as we prudently look to utilize and grow our
existing revolving credit facility as well as potentially add
additional secured or unsecured term facilities, made more attractive
by our investment-grade ratings at corporate, revolving facility, and
term debt levels.
On March 27, 2012, we renegotiated our credit facility and closed on
an expanded five-year revolving credit facility (the "Facility") for
Prospect Capital Funding LLC. As of March 31, 2012, ten original
lenders had extended commitments of $410 million under the Facility.
We increased the Facility size to $482.5 million in April 2012 with
commitments from four additional lenders, thereby bringing the total
number of lenders to 14. The Facility includes an accordion feature
which allows aggregate commitments to be increased to up to $650
million without the need for re-approval from the existing lenders or
the rating agency.
As we make additional investments, we generate additional
availability to the extent such investments are eligible to be placed
into the borrowing base. The revolving period of the Facility extends
through March 2015, with an additional two-year amortization period,
with distributions allowed after the completion of the revolving
period. Interest on borrowings under the Facility is one-month Libor
plus 275 basis points, with no minimum Libor floor. The Facility
continues to carry a high-investment-grade Moody’s rating of Aa3.
Improvements in the new five-year Facility from the prior three-year
Facility include longer tenor, increases in advance rates under
certain conditions, decreases in drawn interest cost, decreases in
unused line fees, increases in maximum eligible loan sizes, and
increases in baskets for longer-dated and quarterly pay loans. Based
on current Libor, we achieved an approximately 125 basis point
reduction in annual drawn interest coupon compared to the previous
three-year Facility.
We also have significantly diversified our counterparty risk. We
currently have 14 institutional lenders in our Facility, up from five
lenders at June 30, 2010, two lenders at June 30, 2009, and one
lender at June 30, 2008.
In addition, our repeat issuance in the past three calendar years in
the five-year and greater, as well as ten-year and greater, unsecured
term debt market has extended our liability duration, thereby better
matching our assets and liabilities for balance sheet risk
management. All of our term debt offerings are unsecured, have fixed
interest rates, have no asset restrictions, have no financial
covenants, have no technical cross-default provisions, and have no
payment cross-default provisions to our revolving credit facility. In
the March 2012 and current June 2012 quarters, we have also
diversified our term debt beyond convertible debt and into the
program registered bond and listed registered bond markets, thereby
expanding our access to capital across multiple capital markets. All
of our term debt has an investment-grade S&P rating of BBB.
On February 16, 2012, we entered into a selling agent agreement for
our issuance and sale from time to time of an unsecured program
registered bond series ("Program Notes"). The Program Notes issued to
date have a fixed interest rate and ten-year maturity. During the
March 2012 quarter, we issued $5.5 million of such Program Notes at
an average interest rate of 6.97%. Since March 31, 2012, we have
issued an additional $8.5 million of such Program Notes.
On April 16, 2012, we issued $130 million of 5.5-year unsecured
5.375% convertible notes due 2017 ("2017 Notes"). This coupon
represents the lowest coupon of any term debt that we have issued to
date. The 2017 Notes are convertible into shares of common stock at a
conversion price of approximately $11.65 per share of common stock,
subject to adjustment in certain circumstances.
On May 1, 2012, we issued $100 million in aggregate principal amount
of 10.5-year unsecured 6.95% notes due 2022 in the form of listed
registered notes ("2022 Notes"). The 2022 Notes represented the
longest dated notes issued in the prior 18 months by any business
development company.
On December 21, 2010, we issued $150 million of five-year unsecured
6.25% convertible notes due December 2015 ("2015 Notes"). The 2015
Notes are convertible into shares of common stock at a conversion
price of approximately $11.35 per share of common stock, subject to
adjustment in certain circumstances.
On February 18, 2011, we issued $172.5 million of 5.5-year unsecured
5.50% convertible notes due August 2016 ("2016 Notes"). The 2016
Notes are convertible into shares of common stock at a conversion
price of approximately $12.76 per share of common stock, subject to
adjustment in certain circumstances.
Between January 30, 2012 and February 2, 2012, we repurchased $5.0
million of our 2016 Notes at a price of 97.5% of par, including
commissions. We may look to make additional repurchases of our debt
if attractive opportunities become available.
We currently have no borrowings under our Facility. Assuming
sufficient assets are pledged to the Facility and that we are in
compliance with all Facility terms, and taking into account our cash
balances on hand, we have over $600 million of new investment
capacity. Any principal repayments or other monetizations of our
assets would further increase our new investment capacity. Any
increase in our Facility size or issuance of other debt, including
additional term debt, would also further increase our investment
capacity.
CONFERENCE CALL
Prospect will host a conference call on Friday, May 11, 2012 at 11:00
a.m. Eastern Time. The conference call dial-in number will be
877-317-6789. A recording of the conference call will be available
for approximately 30 days. To hear a replay, call 877-344-7529 and
use passcode 10013901.
PROSPECT CAPITAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES
March 31, 2012 and June 30, 2011
(in thousands, except share and per share data)
March 31, June 30,
2012 2011
------------ ------------
Assets (Unaudited) (Audited)
Investments at fair value:
Control investments (net cost of $232,459 and
$262,301, respectively) $ 323,786 $ 310,072
Affiliate investments (net cost of $59,606 and
$56,833, respectively) 67,581 72,337
Non-control/Non-affiliate investments (net
cost of $1,363,798 and $1,116,600,
respectively) 1,300,213 1,080,601
------------ ------------
Total investments at fair value (net cost
of $1,655,863 and $1,435,734,
respectively) 1,691,580 1,463,010
------------ ------------
Investments in money market funds 58,025 59,903
Cash 34,978 1,492
Receivables for:
Interest, net 12,407 9,269
Other 1,686 267
Prepaid expenses 154 101
Deferred financing costs 17,179 15,275
------------ ------------
Total Assets 1,816,009 1,549,317
------------ ------------
Liabilities
Credit facility payable 121,000 84,200
Senior Convertible Notes 317,500 322,500
Prospect Capital InterNotes(R) 5,465 --
Dividends payable 12,372 10,895
Due to Broker 26,569 --
Due to Prospect Administration 362 212
Due to Prospect Capital Management 4,315 7,706
Accrued expenses 6,166 5,876
Other liabilities 3,454 3,571
------------ ------------
Total Liabilities 497,203 434,960
------------ ------------
Net Assets $ 1,318,806 $ 1,114,357
============ ============
Components of Net Assets
Common stock, par value $0.001 per share
(200,000,000 common shares authorized;
121,923,931 and 107,606,690 issued and
outstanding, respectively) $ 122 $ 108
Paid-in capital in excess of par 1,348,996 1,196,741
Distributions in excess of net investment income (1,602) (21,638)
Accumulated net realized losses on investments (64,427) (88,130)
Net unrealized appreciation on investments 35,717 27,276
------------ ------------
Net Assets $ 1,318,806 $ 1,114,357
============ ============
Net Asset Value Per Share $ 10.82 $ 10.36
============ ============
PROSPECT CAPITAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three and Nine Months Ended March 31, 2012 and 2011
(in thousands, except share and per share data)
(Unaudited)
For The Three Months For The Nine Months
Ended Ended
March 31, March 31,
-------------------- -------------------
2012 2011 2012 2011
--------- --------- --------- ---------
Investment Income
Interest Income:
Control investments $ 32,966 $ 5,180 $ 45,546 $ 15,798
Affiliate investments 2,378 3,049 7,179 9,523
Non-control/Non-affiliate
investments 37,602 26,275 107,636 65,466
--------- --------- --------- ---------
Total interest income 72,946 34,504 160,361 90,787
--------- --------- --------- ---------
Dividend income:
Control investments 5,474 2,760 29,819 6,810
Non-control/Non-affiliate
investments 2,002 -- 4,843 1,508
Money market funds 1 3 2 10
--------- --------- --------- ---------
Total dividend income 7,477 2,763 34,664 8,328
--------- --------- --------- ---------
Other income:
Control investments 13,768 2 14,386 1,787
Affiliate investments 11 22 85 176
Non-control/Non-affiliate
investments 1,421 7,282 8,732 12,007
--------- --------- --------- ---------
Total other income 15,200 7,306 23,203 13,970
--------- --------- --------- ---------
Total Investment Income 95,623 44,573 218,228 113,085
--------- --------- --------- ---------
Operating Expenses
Investment advisory fees:
Base management fee 8,949 6,037 25,985 15,216
Income incentive fee 14,518 5,997 30,614 16,015
--------- --------- --------- ---------
Total investment advisory fees 23,467 12,034 56,599 31,231
Interest and credit facility
expenses 9,655 5,660 28,374 10,182
Legal fees 256 283 1,198 763
Valuation services 308 262 916 711
Audit, compliance and tax related
fees 276 168 1,141 649
Allocation of overhead from
Prospect Administration 2,910 1,669 5,143 3,309
Insurance expense 69 74 168 217
Directors’ fees 68 64 195 191
Other general and administrative
expenses 542 403 2,037 1,801
--------- --------- --------- ---------
Total Operating Expenses 37,551 20,617 95,771 49,054
--------- --------- --------- ---------
Net Investment Income 58,072 23,956 122,457 64,031
--------- --------- --------- ---------
Net realized gain on investments 24,812 2,078 23,703 7,094
Net change in unrealized
appreciation /depreciation on
investments (32,675) 7,725 8,441 20,154
--------- --------- --------- ---------
Net Increase in Net Assets
Resulting from Operations $ 50,209 $ 33,759 $ 154,601 $ 91,279
========= ========= ========= =========
Net increase in net assets
resulting from operations per
share $ 0.44 $ 0.38 $ 1.39 $ 1.11
========= ========= ========= =========
Dividends declared per share $ 0.30 $ 0.30 $ 0.91 $ 0.91
========= ========= ========= =========
PROSPECT CAPITAL CORPORATION AND SUBSIDIARY
ROLLFORWARD OF NET ASSET VALUE PER SHARE
For the Three and Nine Months Ended March 31, 2012 and 2011
(in actual dollars)
(Unaudited)
For The Three Months For The Nine Months
Ended Ended
---------------------- ----------------------
March 31, March 31, March 31, March 31,
2012 2011 2012 2011
---------- ---------- ---------- ----------
Per Share Data:
Net asset value at beginning
of period $ 10.69 $ 10.25 $ 10.36 $ 10.30
Net investment income 0.51 0.27 1.10 0.78
Net realized gain 0.22 0.02 0.21 0.09
Net unrealized
(depreciation) appreciation (0.29) 0.09 0.08 0.25
Net decrease in net assets
as a result of public
offerings -- -- -- (0.16)
Dividends declared and paid (0.31) (0.30) (0.93) (0.93)
---------- ---------- ---------- ----------
Net asset value at end of
period $ 10.82 $ 10.33 $ 10.82 $ 10.33
========== ========== ========== ==========
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 statements. 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.
SOURCE: Prospect Capital Corporation
