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Section 1: 8-K (8-K)

Document
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 FORM 8-K

CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): August 30, 2018 (August 28, 2018)

Prospect Capital Corporation
(Exact name of registrant as specified in its charter)

 
 
 
 
 
MARYLAND 
 
814-00659
 
43-2048643
(State or other jurisdiction
 
(Commission File Number)
 
(IRS Employer
of incorporation)
 
 
 
Identification No.)

10 East 40th Street, 42nd Floor, New York, New York 10016
(Address of principal executive offices, including zip code)

(212) 448-0702

(Registrant’s telephone number, including area code)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o
 
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
 
 
o
 
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
 
 
o
 
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
 
 
o
 
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
 



Item 2.02.   Results of Operations and Financial Condition.

On August 28, 2018, the registrant issued a press release announcing its financial results for its fiscal year ended June 30, 2018. The text of the press release is included as Exhibit 99.1 to this Form 8-K.

The information disclosed under this Item 2.02, including Exhibit 99.1 hereto, is being furnished and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 and shall not be deemed incorporated by reference into any filing made under the Securities Act of 1933, except as expressly set forth by specific reference in such filing.

Item 7.01. Regulation FD Disclosure.

On August 28, 2018, the registrant issued a press release, included herewith as Exhibit 99.1, and by this reference incorporated herein, announcing the declaration of monthly cash distributions to shareholders in the following amounts and with the following record and payment dates:
$0.06 per share for September 2018 to September 28, 2018 record holders with October 18, 2018 payment date; and
$0.06 per share for October 2018 to October 31, 2018 record holders with November 21, 2018 payment date.
The information disclosed under this Item 7.01, including Exhibit 99.1 hereto, is being furnished and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 and shall not be deemed incorporated by reference into any filing made under the Securities Act of 1933, except as expressly set forth by specific reference in such filing.





2



 
 



Item 9.01. Financial Statements and Exhibits
(d) Exhibits

99.1
Press Release, dated August 28, 2018



3



 
 




SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Current Report on Form 8-K to be signed on its behalf by the undersigned hereunto duly authorized.

Prospect Capital Corporation


By:     /s/ M. Grier Eliasek
Name: M. Grier Eliasek
Title: Chief Operating Officer
Date:  August 30, 2018


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Index to Exhibits
Exhibit
Number
Description
 
 
 
 
 
 
 
 
 
 


5



 
 

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Section 2: EX-99.1 (EXHIBIT 99.1)

Exhibit
Exhibit 99.1

Prospect Capital Reports June 2018 Annual Results and
Declares Additional Monthly Distributions

NEW YORK - (GLOBE NEWSWIRE) - August 28, 2018 - Prospect Capital Corporation (NASDAQ: PSEC) (“Prospect”, “our”, or “we”) today announced financial results for our fiscal year ended June 30, 2018.

All amounts in $000’s except
   per share amounts
Quarter Ended
Quarter Ended
Quarter Ended
June 30, 2018
March 31, 2018
June 30, 2017
 
 
 
 
Net Investment Income (“NII”)
$79,480
$70,446
$69,678
Interest as % of Total Investment Income
91.8%
89.6%
96.3%
 
 
 
 
NII per Share
$0.22
$0.19
$0.19
 
 
 
 
Net Increase in Net Assets Resulting from Operations (“NI”)
$114,304
$51,859
$51,168
NI per Share
$0.31
$0.14
$0.14
 
 
 
 
Distributions to Shareholders
$65,491
$65,174
$89,998
Distributions per Share
$0.18
$0.18
$0.25
 
 
 
 
Net Asset Value (“NAV”) per Share
$9.35
$9.23
$9.32
 
 
 
 
Net of Cash Debt to Equity Ratio
66.5%
69.1%
70.5%
For the June 2018 quarter, we earned net investment income (“NII”) of $79.5 million, or $0.22 per weighted average share, up $0.03 from the March 2018 quarter, and exceeding our current quarterly dividend rate of $0.18 per share by $0.04 per share. The increase in NII per share resulted primarily from an increase in interest and other income compared to the March 2018 quarter.
In the June 2018 quarter, our net of cash debt to equity ratio was 66.5%, down 2.6% from March 2018 and down 4.0% from June 2017.
For the June 2018 quarter, our net increase in net assets resulting from operations (“NI”) was $114.3 million, or $0.31 per weighted average share, an increase of $0.17 from the March 2018 quarter as a result of an increased NII and a net increase in the fair value of our portfolio, including investments in the real estate, CLO, consumer finance, and other sectors.
Our interest income as a percentage of total investment income was 91.8% in the June 2018 quarter, up 2.2% from 89.6% in the March 2018 quarter.




Our net asset value (“NAV”) per share increased by $0.12 to $9.35 during the June 2018 quarter.

All amounts in $000’s except
   per share amounts
Year Ended
June 30, 2018
Year Ended
June 30, 2017
 
 
 
NII
$286,850
$306,082
NII per Share
$0.79
$0.85
 
 
 
NI
$299,863
$252,906
NI per Share
$0.83
$0.70
 
 
 
Distributions to Shareholders
$277,224
$358,987
Distributions per Share
$0.77
$1.00
For the year ended June 30, 2018, we earned NII of $286.9 million, or $0.79 per weighted average share, down $0.06 from the prior year. For the year ended June 30, 2018, we earned NI of $299.9 million, or $0.83 per weighted average share, up $0.13 from the prior year.
DISTRIBUTION DECLARATION

Prospect is declaring distributions as follows:

$0.06 per share for September 2018 to September 28, 2018 record holders with October 18, 2018 payment date; and
$0.06 per share for October 2018 to October 31, 2018 record holders with November 21, 2018 payment date.
These distributions mark Prospect’s 122nd and 123rd consecutive cash distributions to shareholders.
Based on the declarations above, Prospect’s closing stock price of $7.18 at August 27, 2018 delivers to shareholders a dividend yield of 10.0%.
Based on past distributions and our current share count for declared distributions, Prospect since inception through our October 2018 distribution will have distributed $16.80 per share to original shareholders, exceeding $2.6 billion in cumulative distributions to all shareholders.
Prospect expects to declare November 2018, December 2018, and January 2019 distributions in November 2018.






PORTFOLIO AND INVESTMENT ACTIVITY

We continue to prioritize secured lending. At June 30, 2018, March 31, 2018, and June 30, 2017, our portfolio comprised the following:
All amounts in $000’s except
   per unit amounts
As of
As of
As of
June 30, 2018
March 31, 2018
June 30, 2017
 
 
 
 
Total Investments (at fair value)
$5,727,279
$5,719,804
$5,838,305
Number of Portfolio Companies
135
134
121
% Controlled Investments (at fair value)
42.0%
34.7%
32.7%
 
 
 
 
Secured First Lien
43.9%
44.9%
48.3%
Secured Second Lien
22.1%
23.2%
19.1%
Structured Credit
16.8%
16.5%
18.5%
Equity Investments
16.6%
14.9%
13.2%
Unsecured Debt
0.6%
0.5%
0.8%
Small Business Whole Loans
0.0%
0.0%
0.1%
 
 
 
 
Annualized Current Yield - All Investments
10.5%
10.8%
10.4%
Annualized Current Yield - Performing Interest Bearing Investments
13.0%
12.9%
12.2%
 
 
 
 
Top Industry Concentration(1)
14.2%
12.8%
10.7%
 
 
 
 
Energy Industry Concentration(1)
3.0%
2.8%
2.4%
 
 
 
 
Non-Accrual Loans as % of Total Assets(4)
2.5%
1.3%
2.5%(3)
 
 
 
 
Weighted Average Portfolio Net Leverage(2)
4.60x
4.65x
4.19x
Weighted Average Portfolio EBITDA
$55,384
$62,628
$48,340
(1)
Excluding our underlying industry-diversified structured credit portfolio.
(2)
Through our investment in the portfolio company’s capital structure.
(3)
Includes 1.3% from USC, which timely paid income-producing, contractual interest to us in June 2017 quarter.
(4)
Calculated at fair value





During the June 2018 and March 2018 quarters, our investment origination and repayment activity was as follows:

All amounts in $000’s
Quarter Ended
Quarter Ended
June 30, 2018
March 31, 2018
 
 
 
Total Originations
$339,841
$429,928
 
 
 
 
 
 
Agented Sponsor Debt
42%
40%
Agented Non-Sponsor Debt
33%
0%
Real Estate
15%
3%
Structured Credit
6%
7%
Non-Agented Debt
3%
43%
Corporate Yield Buyouts
1%
6%
Online Lending
—%
1%
 
 
 
Total Repayments
$362,287
$116,978
Originations, Net of Repayments
($22,446)
$312,950


For a listing of transactions completed during the quarter, please see section titled “Portfolio Investment Activity” in our Form 10-K for the year ended June 30, 2018 as filed with the Securities and Exchange Commission on August 28, 2018.






Our structured credit investments have individual standalone financings each non-recourse to Prospect and with our risk limited in each case to our net investment amount. At June 30, 2018 and March 31, 2018, our structured credit portfolio at fair value consisted of the following:
All amounts in $000’s except
   per unit amounts
As of
As of
June 30, 2018
March 31, 2018
 
 
 
Total Structured Credit Investments
$960,194
$944,815
 
 
 
# of Investments
44
43
 
 
 
TTM Average Cash Yield on Fair Value(1)(2)
17.6%
17.3%
Annualized Cash Yield on Fair Value(1)(2)
21.1%
13.2%
Annualized GAAP Yield on Fair Value(1)(2)
14.5%
13.2%
Annualized GAAP Yield on Amortized Cost(1)(2)
12.6%
11.6%
 
 
 
Cumulative Cash Distributions
$1,163,691
$1,112,703
% of Original Investment
76.3%
73.8%
 
 
 
# of Underlying Collateral Loans
2,025
2,184
Total Asset Base of Underlying Portfolio
$19,087,415
$18,762,162
 
 
 
Prospect TTM Default Rate
1.15%
1.10%
Broadly Syndicated Market TTM Default Rate
1.98%
2.42%
Prospect Default Rate Outperformance vs. Market
0.83%
1.32%

(1)
Excludes deals in the process of redemption.
(2)
Cash yield includes all cash distributions from an investment, while GAAP yield subtracts out amortization of cost basis.

To date, including called deals in the process of liquidation, we have exited 11 structured credit investments totaling $290.5 million with an expected average realized IRR of 16.1% and cash on cash multiple of 1.49 times.
Since June 30, 2017 through today, one of our structured credit investments has completed a refinancing to reduce liability spreads, and 19 additional structured credit investments have completed multi-year extensions of their reinvestment periods (with most resulting in reduced liability spreads as well as higher asset spread possibilities from longer weighted average life tests). We believe further upside exists in our structured credit portfolio through additional refinancings and reinvestment period extensions, and are actively working on such transactions.






To date during the September 2018 quarter, we have completed new and follow-on investments as follows:
All amounts in $000’s
Quarter Ended
September 30, 2018
 
 
Total Originations
$180,901
 
 
Agented Sponsor Debt
66%
Non-Agented Debt
24%
Structured Credit
6%
Real Estate
4%
Agented Non-Sponsor Debt
0%
 
 
Total Repayments
$20,126
Originations, Net of Repayments
$160,775


LIQUIDITY AND FINANCIAL RESULTS

The following table summarizes key leverage statistics at June 30, 2018, March 31, 2018, and June 30, 2017:
All amounts in $000’s
As of
June 30, 2018
As of
March 31, 2018
As of
June 30, 2017
Net of Cash Debt to Equity Ratio
66.5%
69.1%
70.5%
% of Assets at Floating Rates
89.7%
90.1%
90.4%
% of Liabilities at Fixed Rates
98.4%
96.4%
99.9%
 
 
 
 
Unencumbered Assets
$4,502,764
$4,619,909
$4,546,147
% of Total Assets
77.1%
79.0%
73.6%

In the past year, we repaid our remaining October 2017 and March 2018 convertible notes at maturity and repurchased $269.4 million of our program notes. In May 2018 we repurchased $98.4 million in principal amount of our January 2019 convertible notes and issued an additional $103.5 million of our July 2022 convertible notes. In June 2018 we repurchased $146.5 million in principal amount of our 5% coupon July 2019 notes, issued $70.0 million of our March 2023 notes, and issued $55.0 million of our June 2028 notes. The below table summarizes our issuance and repurchase activity:
All amounts in $000’s
Principal
Rate
Maturity
 
 
 
 
Debt Issuances
 
 
 
      2022 Notes
$103,500
4.95%
July 2022
      2023 Notes
$70,000
5.875%
March 2023
      2028 Notes
$55,000
6.25%
June 2028
Repurchases
 
 
 
      2017 Notes
$50,734
5.375%
October 2017
      2018 Notes
$85,419
5.75%
March 2018
      2019 Notes
$98,353
5.875%
January 2019
      5% 2019 Notes
$146,464
5.00%
July 2019
      Prospect Capital InterNotes®
$298,735
3.75% - 5.85%
February 2018- September 2020





On August 1, 2018, we completed an extension of the revolving credit facility (the “Facility”) for Prospect Capital Funding, extending the term 5.7 years from such date and reducing the interest rate on drawn amounts to one-month Libor plus 2.20%. The new Facility, for which $770 million of commitments have been closed to date with 19 institutional lenders (representing one of the most diversified bank groups in our industry), with further increases targeted, includes an accordion feature that allows the Facility, at Prospect's discretion, to accept up to a total of $1.5 billion of commitments. The Facility matures on March 27, 2024. The Facility includes a revolving period that extends through March 27, 2022, followed by an additional two-year amortization period, with distributions allowed to Prospect after the completion of the revolving period.
We currently have seven separate unsecured debt issuances aggregating $1.6 billion outstanding, not including our program notes, with laddered maturities extending to June 2028. At June 30, 2018, $760.9 million of program notes were outstanding with staggered maturities through October 2043.





EARNINGS CONFERENCE CALL
Prospect will host an earnings call on Wednesday, August 29, 2018 at 11:00 am. Eastern Time. Dial 888-338-7333. For a replay prior to September 28, 2018, call 877-344-7529 passcode 10123493. The call will be available prior to September 28, 2018 on Prospect’s website, www.prospectstreet.com.






PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES
(in thousands, except share and per share data)
 
June 30, 2018
 
June 30, 2017
 
 
Assets
 
 
 

Investments at fair value:
 

 
 

Control investments (amortized cost of $2,300,526 and $1,840,731, respectively)
$
2,404,326

 
$
1,911,775

Affiliate investments (amortized cost of $55,637 and $22,957, respectively)
58,436

 
11,429

Non-control/non-affiliate investments (amortized cost of $3,475,295 and $4,117,868, respectively)
3,264,517

 
3,915,101

Total investments at fair value (amortized cost of $5,831,458 and $5,981,556, respectively)
5,727,279

 
5,838,305

Cash
83,758

 
318,083

Receivables for:
 
 
 
Interest, net
19,783

 
9,559

Other
1,867

 
924

Due from broker
3,029

 

Prepaid expenses
984

 
1,125

Due from Affiliate
88

 
14

Deferred financing costs on Revolving Credit Facility
2,032

 
4,779

Total Assets 
5,838,820

 
6,172,789

 
 
 
 
Liabilities 
 

 
 

Revolving Credit Facility
37,000

 

Convertible Notes (less unamortized debt issuance costs of $13,074 and $15,512, respectively)
809,073

 
937,641

Prospect Capital InterNotes® (less unamortized debt issuance costs of $11,998 and $14,240, respectively)
748,926

 
966,254

Public Notes (less unamortized discount and debt issuance costs of $11,007 and $10,981, respectively)
716,810

 
738,300

Due to Prospect Capital Management
49,045

 
48,249

Interest payable
33,741

 
38,630

Dividends payable
21,865

 
30,005

Due to broker
6,159

 
50,371

Accrued expenses
5,426

 
4,380

Due to Prospect Administration
2,212

 
1,910

Other liabilities
1,516

 
2,097

Total Liabilities 
2,431,773

 
2,817,837

Commitments and Contingencies

 

Net Assets 
$
3,407,047

 
$
3,354,952

 
 
 
 
Components of Net Assets 
 

 
 

Common stock, par value $0.001 per share (1,000,000,000 common shares authorized; 364,409,938 and 360,076,933 issued and outstanding, respectively)
$
364

 
$
360

Paid-in capital in excess of par
4,021,541

 
3,991,317

Accumulated overdistributed net investment income
(45,186
)
 
(54,039
)
Accumulated net realized loss
(465,493
)
 
(439,435
)
Net unrealized loss
(104,179
)
 
(143,251
)
Net Assets 
$
3,407,047

 
$
3,354,952

 
 
 
 
Net Asset Value Per Share
$
9.35

 
$
9.32





PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)

 
Three Months Ended June 30,
 
Year Ended June 30,
 
2018
 
2017
 
2018
 
2017
Investment Income
 
 
 
 
 
 
 
Interest income:
 
 
 
 
 
 
 
Control investments
$
57,527

 
$
41,953

 
$
195,487

 
$
177,496

Affiliate investments
234

 
297

 
553

 
297

Non-control/non-affiliate investments
67,244

 
84,777

 
285,473

 
342,696

Structured credit securities
34,678

 
33,538

 
125,499

 
148,228

Total interest income
159,683

 
160,565

 
607,012

 
668,717

Dividend income:
 
 
 
 
 
 
 
Control investments
5,639

 
1,000

 
11,279

 
5,250

Non-control/non-affiliate investments
250

 
99

 
1,767

 
429

Total dividend income
5,889

 
1,099

 
13,046

 
5,679

Other income:
 
 
 
 
 
 
 
Control investments
2,765

 
1,721

 
15,080

 
11,470

Non-control/non-affiliate investments
5,694

 
3,317

 
22,707

 
15,180

Total other income
8,459

 
5,038

 
37,787

 
26,650

Total Investment Income
174,031

 
166,702

 
657,845

 
701,046

Operating Expenses
 
 
 
 
 
 
 
Base management fee
29,056

 
30,647

 
118,046

 
122,874

Income incentive fee
19,870

 
17,419

 
71,713

 
76,520

Interest and credit facility expenses
37,178

 
40,867

 
155,039

 
164,848

Allocation of overhead from Prospect Administration
4,132

 
3,475

 
10,031

 
13,246

Audit, compliance and tax related fees
1,455

 
1,412

 
5,539

 
5,088

Directors’ fees
237

 
116

 
450

 
454

Excise tax

 

 

 
(1,100
)
Other general and administrative expenses
2,623

 
3,088

 
10,177

 
13,034

Total Operating Expenses
94,551

 
97,024

 
370,995

 
394,964

Net Investment Income
79,480

 
69,678

 
286,850

 
306,082

Net Realized and Change in Unrealized Gains (Losses) from Investments
 
 
 
 
 
 
 
Net realized gains (losses)
 
 
 
 
 
 
 
Control investments
1

 
(66,099
)
 
13

 
(65,915
)
Affiliate investments

 

 
(13,351
)
 
137

Non-control/non-affiliate investments
(11
)
 
(31,017
)
 
(5,126
)
 
(30,528
)
Net realized losses
(10
)
 
(97,116
)
 
(18,464
)
 
(96,306
)
Net change in unrealized gains (losses)
 
 
 
 
 
 
 
Control investments
(25,487
)
 
117,754

 
55,670

 
86,817

Affiliate investments
5,994

 
2,407

 
25,671

 
553

Non-control/non-affiliate investments
60,475

 
(34,749
)
 
(42,270
)
 
(37,229
)
Net change in unrealized gains (losses)
40,982

 
85,412

 
39,071

 
50,141

Net Realized and Change in Unrealized Gains (Losses) from Investments
40,972

 
(11,704
)
 
20,607

 
(46,165
)
Net realized (losses) gains on extinguishment of debt
(6,148
)
 
(6,806
)
 
(7,594
)
 
(7,011
)
Net Increase in Net Assets Resulting from Operations
$
114,304

 
$
51,168

 
$
299,863

 
$
252,906

Net increase in net assets resulting from operations per share
$
0.31

 
$
0.14

 
$
0.83

 
$
0.70

Dividends declared per share
$
(0.18
)
 
$
(0.25
)
 
$
(0.77
)
 
$
(1.00
)




PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
ROLLFORWARD OF NET ASSET VALUE PER SHARE
(in actual dollars)

 
Three Months Ended
June 30,
 
Year Ended
June 30,
 
 
2018
 
2017
 
2018
 
2017
 
Per Share Data
 
 
 
 
 
 
 
 
Net asset value at beginning of period
$
9.23

 
 
$
9.43

 
 
$
9.32

 
$
9.62

 
Net investment income(1)
0.22
 
 
 
0.19
 
 
 
0.79
 
 
 
0.85

 
Net realized and change in unrealized gains (losses) (1)
0.09
 
 
 
(0.05
)
 
 
(0.04
)
 
 
(0.15
)
 
Distributions of net investment income
(0.18
)
 
 
(0.25
)
 
 
(0.77
)
 
 
(1.00
)
 
Common stock transactions(2)
(0.01
)
 
 
 
(3)
 
(0.03
)
 
 

(3)
  Net asset value at end of period
$
9.35

 
 
$
9.32

 
 
$
9.35

 
$
9.32

 
(1)
Per share data amount is based on the weighted average number of common shares outstanding for the period presented (except for dividends to shareholders which is based on actual rate per share).
(2)
Common stock transactions include the effect of issuances and repurchases of common stock, if any.
(3)
Amount is less than $0.01.





ABOUT PROSPECT CAPITAL CORPORATION



PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
ROLLFORWARD OF NET ASSET VALUE PER SHARE
(in actual dollars)

Prospect Capital Corporation (www.prospectstreet.com) is a business development company lending to and investing in private businesses. Our investment objective is to generate 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.
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 are highly likely to be affected by unknowable future events and conditions, including some 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 any forward-looking statements. Such statements speak only as of the time when made. We undertake no obligation to update any such statement now or in the future.
For additional information, contact:
Grier Eliasek, President and Chief Operating Officer
grier@prospectstreet.com
Telephone (212) 448-0702


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