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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): November 8, 2019 (November 6, 2019)

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




Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading symbol
Name of each exchange on which registered
Common Stock, $0.001 par value
PSEC
NASDAQ Global Select Market
6.25% Notes due 2024, par value $25
PBB
New York Stock Exchange
6.25% Notes due 2028, par value $25
PBY
New York Stock Exchange
6.875% Notes due 2029, par value $25
PBC
New York Stock Exchange

 



Item 2.02.   Results of Operations and Financial Condition.

On November 6, 2019, the registrant issued a press release announcing its financial results for its first fiscal quarter ended September 30, 2019. 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 November 6, 2019, 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 November 2019 to November 29, 2019 record holders with December 19, 2019 payment date;
$0.06 per share for December 2019 to January 2, 2020 record holders with January 23, 2020 payment date; and
$0.06 per share for January 2020 to January 31, 2020 record holders with February 20, 2020 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.





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Item 9.01. Financial Statements and Exhibits
(d) Exhibits

99.1
Press Release, dated November 6, 2019



4



 
 




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:  November 8, 2019


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Index to Exhibits
Exhibit
Number
Description
 
 
 
 
 
 
 
 
 
 


6



 
 

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Section 2: EX-99.1 (EXHIBIT 99.1)

Exhibit


Prospect Capital Reports September 2019 Quarterly Results and Declares Additional Monthly Distributions

NEW YORK - (GLOBE NEWSWIRE) - November 6, 2019 - Prospect Capital Corporation (NASDAQ: PSEC) (“Prospect”, “our”, or “we”) today announced financial results for our fiscal quarter ended September 30, 2019.

All amounts in $000’s except
   per share amounts (on weighted average
   basis for period numbers)
Quarter Ended
Quarter Ended
Quarter Ended
September 30, 2019
June 30, 2019
September 30, 2018
 
 
 
 
Net Investment Income (“NII”)
$71,060
$69,627
$85,159
Interest as % of Total Investment Income
90.2%
92.2%
88.4%
 
 
 
 
NII per Share
$0.19
$0.19
$0.23
 
 
 
 
Net Income
$18,065
$38,886
$83,795
Net Income per Share
$0.05
$0.11
$0.23
 
 
 
 
Distributions to Shareholders
$66,111
$66,069
$65,693
Distributions per Share
$0.18
$0.18
$0.18
 
 
 
 
NII / Distributions to Shareholders
107%
105%
130%
 
 
 
 
NAV per Share at Period End
$8.87
$9.01
$9.39
 
 
 
 
Net of Cash Debt to Equity Ratio
66.3%
70.0%
75.1%

For the September 2019 quarter, we earned net investment income (“NII”) of $71.1 million, or $0.19 per weighted average share, consistent with the June 2019 quarter, and exceeding our current quarterly dividend rate of $0.18 per share by $0.01 per share. Our ratio of NII to distributions was 107% in the September 2019 quarter.
In the September 2019 quarter, our net of cash debt to equity ratio was 66.3%, down 8.8% from September 2018.
For the September 2019 quarter, our net income was $18.1 million, or $0.05 per weighted average share.
Our net asset value (“NAV”) per share decreased by $0.14 to $8.87 during the September 2019 quarter.





DISTRIBUTION DECLARATION

Prospect is declaring distributions as follows:

$0.06 per share for November 2019 to November 29, 2019 record holders with December 19, 2019 payment date;
$0.06 per share for December 2019 to January 2, 2020 record holders with January 23, 2020 payment date; and
$0.06 per share for January 2020 to January 31, 2020 record holders with February 20, 2020 payment date.
These distributions are Prospect’s 136th, 137th, and 138th consecutive cash distributions to shareholders.
Based on the declarations above, Prospect’s closing stock price of $6.41 at November 5, 2019 delivers to shareholders a distribution yield of 11.2%.
Based on past distributions and our current share count for declared distributions, Prospect since inception through our January 2020 distribution will have distributed $17.70 per share to original shareholders, aggregating approximately $3 billion in cumulative distributions to all shareholders.
Prospect expects to declare February 2020, March 2020, and April 2020 distributions in February 2020.





PORTFOLIO AND INVESTMENT ACTIVITY

All amounts in $000’s except
   per unit amounts
As of
As of
September 30, 2019
June 30, 2019
 
 
 
Total Investments (at fair value)
$5,450,560
$5,653,553
Number of Portfolio Companies
125
135
% Controlled Investments (at fair value)
44.0%
43.8%
 
 
 
Secured First Lien
43.3%
43.9%
Secured Second Lien
23.1%
23.5%
Subordinated Structured Notes
15.0%
15.1%
Rated Secured Structured Notes (1)
1.0%
0.8%
Unsecured Debt
0.8%
0.6%
Equity Investments
16.8%
16.1%
 
 
 
Annualized Current Yield - All Investments
10.2%
10.6%
Annualized Current Yield - Performing Interest Bearing Investments
12.7%
13.1%
 
 
 
Top Industry Concentration(2)
15.7%
14.6%
 
 
 
Energy Industry Concentration(2)
2.7%
2.7%
 
 
 
Non-Accrual Loans as % of Total Assets (3)
2.4%
2.9%
 
 
 
Weighted Average Portfolio Net Leverage(4)
4.69x
4.67x
Weighted Average Portfolio EBITDA(4)
$62,006
$60,669
(1)
Our Rated Secured Structured Notes are considered non-agented debt where applicable herein.
(2)
Excluding our underlying industry-diversified structured credit portfolio.
(3)
Calculated at fair value.
(4)
For additional disclosure see “Weighted Average Portfolio EBITDA and Net Leverage” at the end of this release.





During the September 30, 2019 and June 30, 2019 quarters, our investment origination and repayment activity was as follows:

All amounts in $000’s
Quarter Ended
Quarter Ended
September 30, 2019
June 30, 2019
 
 
 
Total Originations
$94,540
$187,938
 
 
 
Non-Agented Debt
79.0%
79.3%
Corporate Yield Buyouts
7.7%
1.7%
Rated Secured Structured Notes
7.0%
Agented Sponsor Debt
6.3%
19.0%
 
 
 
Total Repayments
$245,173
$212,813
Originations, Net of Repayments
$(150,633)
$(24,875)






We have invested in structured credit investments benefiting from individual standalone financings non-recourse to Prospect and with our risk limited in each case to our net investment amount. At September 30, 2019 and June 30, 2019, our subordinated structured note portfolio at fair value consisted of the following:

All amounts in $000’s except
   per unit amounts
As of
As of
September 30, 2019
June 30, 2019
 
 
 
Total Subordinated Structured Notes
$818,268
$850,694
 
 
 
# of Investments
39
43
 
 
 
TTM Average Cash Yield(1)(2)
17.6%
16.0%
Annualized Cash Yield(1)(2)
17.4%
13.4%
Annualized GAAP Yield on Fair Value(1)(2)
15.5%
15.6%
Annualized GAAP Yield on Amortized Cost(2)(3)
11.6%
12.0%
 
 
 
Cumulative Cash Distributions(4) 
$1,123,631
$1,088,122
% of Original Investment
80.5%
78.0%
 
 
 
# of Underlying Collateral Loans
1,738
1,792
Total Asset Base of Underlying Portfolio
$18,133,692
$18,296,239
 
 
 
Prospect TTM Default Rate
0.40%
0.39%
Broadly Syndicated Market TTM Default Rate
1.29%
1.34%
Prospect Default Rate Outperformance vs. Market
0.89%
0.95%
(1)
Calculation based on fair value.
(2)
Excludes deals being redeemed.
(3)
Calculation based on amortized cost.
(4)
The June 30, 2019 Cumulative Cash Distributions and % of Original Investment figures have been updated to exclude four deals that were written off during the quarter ending September 30, 2019.

To date, including called deals being liquidated, we have exited nine subordinated structured notes totaling $263.4 million with an expected pooled average realized IRR of 16.7% and cash on cash multiple of 1.48 times.
Since December 31, 2017 through today, 26 of our structured credit investments have completed multi-year extensions of their reinvestment periods (typically at reduced liability spreads). We believe further optionality upside exists in our structured credit portfolio through additional refinancings and reinvestment period extensions.





To date during the December 2019 quarter, we have completed new and follow-on investments as follows:
All amounts in $000’s
Quarter Ended
December 31, 2019
 
 
Total Originations
$18,697
 
 
Real Estate
52.8%
Non-Agented Debt
25.3%
Agented Sponsor Debt
21.9%
 
 
Total Repayments
$23,099
Originations, Net of Repayments
$(4,402)


LIQUIDITY AND FINANCIAL RESULTS
All amounts in $000’s
As of
September 30, 2019
As of
June 30, 2019
Net of Cash Debt to Equity Ratio
66.3%
70.0%
% of Assets at Floating Rates
86.9%
87.4%
% of Liabilities at Fixed Rates
95.2%
93.0%
 
 
 
Unencumbered Assets
$4,019,805
$4,121,775
% of Total Assets
72.0%
71.1%
The below table summarizes our September 2019 quarter issuance and repurchase activity:
All amounts in $000’s
Principal
Rate
Maturity
 
 
 
 
Debt Issuances
 
 
 
    Prospect Capital InterNotes®
$95,135
3.75% -5.50%
July 2024-October 2029
Repurchases
 
 
 
    2020 Notes
$46,545
4.75%
April 2020
    Prospect Capital InterNotes®
$143,980
4.00% - 7.00%
January 2020- March 2022
On September 9, 2019, we completed an amendment of our existing revolving credit facility (the “Facility”) for Prospect Capital Funding, extending the term 5.0 years from such date. Pricing for amounts drawn under the Facility is one-month Libor plus 2.20%.
$1.0775 billion of Facility commitments have closed to date with 30 institutional lenders (representing one of the largest and most diversified bank groups in our industry). An accordion feature allows the Facility, at Prospect's discretion, to accept up to $1.5 billion of commitments. The Facility matures September 9, 2024. The Facility includes a revolving period that extends through September 9, 2023, followed by an additional one-year amortization period, with distributions allowed to Prospect after the completion of the revolving period.
On June 28, 2019, we commenced a tender offer to purchase $224.1 million of our convertible notes that mature in April 2020 (“2020 Notes”). On July 27, 2019, $32.9 million was validly tendered and accepted, representing 14.7% of the outstanding notes. On August 12, 2019, we commenced a tender offer to purchase up to $60.0 million of the 2020 Notes. On September 10, 2019,





$13.6 million was validly tendered and accepted, representing 7.1% of the outstanding notes. On September 24, 2019, we commenced a tender offer to purchase up to $40 million of 2020 Notes. On October 25, 2019, $2.1 million were validly tendered and accepted, representing 1.2% of the outstanding notes.
We currently have eight separate unsecured debt issuances aggregating $1.5 billion outstanding, not including our program notes, with laddered maturities extending to June 2029. At September 30, 2019, $657.4 million of program notes were outstanding with laddered maturities through October 2043.
EARNINGS CONFERENCE CALL
Prospect will host an earnings call on Thursday November 7, 2019 at 11:00 am. Eastern Time. Dial 888-338-7333. For a replay prior to December 6, 2019 visit www.prospectstreet.com or call 877-344-7529 with passcode 10136706.






PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES
(in thousands, except share and per share data)
 
September 30, 2019
 
June 30, 2019
 
 
 
(Unaudited)
 
(Audited)
Assets
 
 
 

Investments at fair value:
 

 
 

Control investments (amortized cost of $2,346,633 and $2,385,806, respectively)
$
2,397,730

 
$
2,475,924

Affiliate investments (amortized cost of $156,177 and $177,616, respectively)
73,263

 
76,682

Non-control/non-affiliate investments (amortized cost of $3,274,957 and $3,368,880, respectively)
2,979,567

 
3,100,947

Total investments at fair value (amortized cost of $5,777,767 and $5,932,302, respectively)
5,450,560

 
5,653,553

Cash
106,174

 
107,098

Receivables for:
 
 
 
Interest, net
12,526

 
26,504

Other
200

 
3,326

Deferred financing costs on Revolving Credit Facility
10,745

 
8,529

Due from broker
4,121

 

Prepaid expenses
772

 
1,053

Total Assets 
5,585,098

 
5,800,063

Liabilities 
 

 
 

Revolving Credit Facility
108,000

 
167,000

Public Notes (less unamortized discount and debt issuance costs of $13,373 and $13,826,
  respectively)
781,001

 
780,548

Convertible Notes (less unamortized debt issuance costs of $12,618 and $13,867, respectively)
694,701

 
739,997

Prospect Capital InterNotes® (less unamortized debt issuance costs of $12,561 and $12,349,
respectively)
644,814

 
695,350

Due to Prospect Capital Management
46,228

 
46,525

Interest payable
22,364

 
34,104

Dividends payable
22,042

 
22,028

Accrued expenses
4,688

 
5,414

Due to Prospect Administration
511

 
1,885

Other liabilities
976

 
937

Total Liabilities 
2,325,325

 
2,493,788

Commitments and Contingencies
 
 
 
Net Assets 
$
3,259,773

 
$
3,306,275

 
 
 
 
Components of Net Assets 
 

 
 

Common stock, par value $0.001 per share (1,000,000,000 common shares authorized; 367,363,872 and 367,131,025 issued and outstanding, respectively)
$
367

 
$
367

Paid-in capital in excess of par
4,041,338

 
4,039,872

Total distributable earnings (loss)
(781,932
)
 
(733,964
)
Net Assets 
$
3,259,773

 
$
3,306,275

Net Asset Value Per Share
$
8.87

 
$
9.01






PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
 
Three Months Ended September 30,
 
2019
 
2018
Investment Income
 
 
 
Interest income:
 
 
 
Control investments
$
50,866

 
$
56,454

Affiliate investments
239

 
227

Non-control/non-affiliate investments
61,950

 
68,609

Structured credit securities
32,901

 
34,152

Total interest income
145,956

 
159,442

Dividend income:
 
 
 
Control investments
3,800

 
14,665

Non-control/non-affiliate investments
454

 
262

Total dividend income
4,254

 
14,927

Other income:
 
 
 
Control investments
11,383

 
2,791

Non-control/non-affiliate investments
290

 
3,262

Total other income
11,673

 
6,053

Total Investment Income
161,883

 
180,422

Operating Expenses
 
 
 
Base management fee
28,463

 
29,957

Income incentive fee
17,765

 
21,290

Interest and credit facility expenses
38,898

 
37,908

Allocation of overhead from Prospect Administration
3,494

 
3,365

Audit, compliance and tax related fees
375

 
393

Directors’ fees
113

 
79

Other general and administrative expenses
1,715

 
2,271

Total Operating Expenses
90,823

 
95,263

Net Investment Income
71,060

 
85,159

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

 
1

Non-control/non-affiliate investments
(2,198
)
 
1,040

Net realized (losses) gains
(2,198
)
 
1,041

Net change in unrealized (losses) gains
 
 
 
Control investments
(39,021
)
 
51,918

Affiliate investments
18,020

 
(13,755
)
Non-control/non-affiliate investments
(27,458
)
 
(37,114
)
Net change in unrealized (losses) gains
(48,459
)
 
1,049

Net Realized and Net Change in Unrealized (Losses) Gains from Investments
(50,657
)
 
2,090

Net realized losses on extinguishment of debt
(2,338
)
 
(3,454
)
Net Increase in Net Assets Resulting from Operations
$
18,065

 
$
83,795

Net increase in net assets resulting from operations per share
$
0.05

 
$
0.23

Dividends declared per share
$
(0.18
)
 
$
(0.18
)





PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
ROLLFORWARD OF NET ASSET VALUE PER SHARE
(in actual dollars)
 
Three Months Ended
September 30,
 
 
2019
 
2018
 
Per Share Data
 
 
 
 
Net asset value at beginning of period
$
9.01

 
$
9.35

 
Net investment income(1)
0.19

 
0.23

 
Net realized and change in unrealized (losses) gains(1)
(0.14
)
 

(3)
Distributions of net investment income
(0.18
)
 
(0.18
)
 
Common stock transactions(2)(3)
(0.01
)
 
(0.01
)
 
  Net asset value at end of period
$
8.87

 
$
9.39

 

(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.





WEIGHTED AVERAGE PORTFOLIO EBITDA AND NET LEVERAGE

Weighted Average Portfolio Net Leverage (“Portfolio Net Leverage”) and Weighted Average Portfolio EBITDA (“Portfolio EBITDA”) provide clarity into the underlying capital structure of our portfolio debt investments and the likelihood that our overall portfolio will make interest payments and repay principal.     
Portfolio Net Leverage reflects the net leverage of each of our portfolio company debt investments, weighted based on the current debt principal outstanding of such investments. The net leverage for each portfolio company is calculated based on our investment in the capital structure of such portfolio company, with a maximum limit of 10.0x adjusted EBITDA. This calculation excludes debt subordinate to our position within the capital structure because our exposure to interest payment and principal repayment risk is limited beyond that point. Additionally, structured credit residual interests and equity investments, for which principal repayment is not fixed, are also not included in the calculation. The calculation does not exceed 10.0x adjusted EBITDA for any individual investment because 10.0x captures the highest level of risk to us. Portfolio Net Leverage provides us with some guidance as to our exposure to the interest payment and principal repayment risk of our overall debt portfolio. We monitor our Portfolio Net Leverage on a quarterly basis.
Portfolio EBITDA is used by Prospect to supplement Portfolio Net Leverage and generally indicates a portfolio company’s ability to make interest payments and repay principal. Portfolio EBITDA is calculated using the weighted average dollar amount EBITDA of each of our portfolio company debt investments. The calculation provides us with insight into profitability and scale of the portfolio companies within our overall debt investments.
These calculations include addbacks that are typically negotiated and documented in the applicable investment documents, including but not limited to transaction costs, share-based compensation, management fees, foreign currency translation adjustments and other nonrecurring transaction expenses.
Together, Portfolio Net Leverage and Portfolio EBITDA assist us in assessing the likelihood that we will timely receive interest and principal payments. However, these calculations are not meant to substitute for an analysis of our underlying portfolio company debt investments, but to supplement such analysis.





ABOUT PROSPECT CAPITAL CORPORATION

Prospect Capital Corporation (www.prospectstreet.com) is a business development company that focuses on lending to and investing in private 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 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, 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 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
[email protected]
Telephone (212) 448-0702



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