Prospect Capital Corporation (NASDAQ: PSEC) ("Company," "Prospect"
or "we") today announced financial results for its first fiscal
quarter ended September 30, 2009.
For the quarter ended September 30, 2009, our net investment
income was $12.3 million, or 25 cents per weighted average number
of shares for the quarter. We estimate that our net investment
income for the current second fiscal quarter ended December 31,
2009 will be 22 to 30 cents per share. These temporary per share
changes from prior quarters are primarily due to the issuance of
additional shares to fund the acquisition of Patriot Capital
Funding, Inc. (NASDAQ: PCAP) ("Patriot"). The full quarterly
benefits of the Patriot acquisition are expected to be reflected in
the March 31, 2010 quarterly financial results. We have also raised
additional equity capital that can be deployed into other accretive
investments beyond the Patriot acquisition.
We anticipate that the merger with Patriot will close on or
about December 2, 2009. We expect the Patriot acquisition to be
accretive to net investment income per quarter in an amount
approximating 9 cents or more per share, which could be greater
with early repayments before scheduled maturity dates as well as
with loan coupon increases, as have occurred with multiple prior
Patriot investments.
In addition, we are currently evaluating a pipeline of potential
additional portfolio and individual investment opportunities,
aggregating more than $4 billion of assets, for which we have cash
and credit facility availability on hand. We are negotiating to
make a controlling investment in a sizeable portfolio, which we
believe could be significantly accretive to our income, with a more
than 20% internal rate of return on our investment anticipated, and
look forward to providing more details in the weeks to come.
We expect to announce our second fiscal quarter dividend in
December.
OPERATING RESULTS
HIGHLIGHTS
Equity Values:
Net assets as of September 30, 2009: $607.25 million
Net asset value per share as of September 30, 2009: $11.11
First Fiscal Quarter Operating Results:
Net investment income: $12.32 million
Net investment income per share: $0.25
Dividends declared to shareholders per share: $0.4075
PORTFOLIO AND INVESTMENT ACTIVITY
At September 30, 2009, the fair value of our portfolio of 29
long-term investments was approximately $510.8 million.
During the quarter ended September 30, 2009, two additional
investments, Peerless and C&J, have been repaid, generating a
19% cash-on-cash internal rate of return in each case, not
including a 40% equity stake which we continue to hold in
C&J.
On August 3, 2009, we announced our entering into a definitive
agreement to acquire Patriot, including assets with an amortized
cost of approximately $311 million, for a purchase price of
approximately $197 million, or 63% of amortized cost. We are
purchasing Patriot with our common stock plus cash to repay all
Patriot debt, anticipated to be approximately $110.5 million when
the acquisition closes. At September 30, 2009, Patriot had reduced
its debt balance to $112.7 million and will continue to amortize
the loan balance through cash sweeps until the closing, which is
anticipated on or about December 2, 2009.
The merger agreement calls for our common shares to be exchanged
at a ratio of approximately 0.3992 for each Patriot share, or
8,616,467 shares of our common stock for 21,584,251 Patriot shares,
with such exchange ratio decreased for any tax distributions
Patriot may declare before closing. On November 3, 2009, Patriot
announced that it would be making a final dividend to Patriot
shareholders equal to its undistributed net ordinary income and
capital gains. Patriot has estimated that this final dividend will
be approximately $0.38 per share, with the final amount determined
at closing. In accordance with a recent IRS revenue procedure, the
Patriot final dividend will be payable up to 10% in cash and at
least 90% in newly issued shares of Patriot's common stock. If
$0.038 of the dividend is distributed as cash, the total number of
shares to be issued by Prospect in the Patriot merger will be
reduced to 8,534,111 shares.
The acquisition of Patriot is at a discount to the principal
balance of the debt securities being acquired. We expect income
accretion of this discount on a quarterly basis and anticipate a
majority of this accretion to be income not subject to Prospect
shareholder taxation due to the stock-for-stock nature of the
transaction. Our net investment income accretion assumptions assume
no early repayments. Early repayments would accelerate the
recognition of such accretion income. We have also not assumed
repricings of any legacy Patriot loans with Patriot borrowers in
our assumptions, and such upward repricings to current higher
market pricing would also provide upside to our future income.
The Patriot acquisition reflects our previously articulated
strategy of identifying and closing on opportunities created by the
marketplace credit dislocation, including opportunities to acquire
financial companies and portfolios with attractive assets but with
liquidity issues created by lenders seeking reduced exposure and
equity owners seeking exit opportunities, even at potentially steep
discounts. We are currently evaluating a number of other
portfolios, both public and private, where our ability to provide
liquidity has the potential for significant reward.
In addition, the Patriot acquisition will approximately double
our number of portfolio companies to approximately 59 companies,
thereby expanding our diversification by company, by industry, by
geography, and by business owner. Approximately 70% of the acquired
asset value is in companies where Patriot has a senior secured
position. Our gross assets will also expand by more than 30%,
providing anticipated scaling benefits as a consolidator in the
industry.
Primary investment activity in the marketplace has increased
substantially in recent weeks, and we are currently evaluating a
significant number of potential investments, some of which have the
potential to close before year end. Such transactions are primary
senior secured investments with double digit coupons, sometimes
coupled with equity upside through co-investments or warrants, and
diversified by sector.
Gas Solutions continues to generate free cash flows, with no
third party debt. We are discussing opportunities for potential
monetization of our position.
LIQUIDITY AND FINANCIAL RESULTS
On June 25, 2009, we completed a first closing on an expanded
syndicated revolving credit facility (the "Facility"). The Facility
includes an accordion feature which allows the Facility to accept
up to an aggregate total of $250 million of commitments. Since that
initial closing with two lenders, we have added three additional
lenders to the facility and currently have commitments totaling
$195 million. We continue to solicit additional commitments from
other lenders to fill out the facility, and multiple lenders are
performing due diligence toward committing to our facility. The
facility has an investment grade Moody's rating of A2.
As of September 30, 2009, we had zero outstanding borrowings
under our credit facility, for which we had available credit of
approximately $89 million based on currently pledged assets, as
well as cash-equivalent instruments of approximately $92 million.
Our credit availability will increase with the pledging of
additional assets from the Patriot acquisition.
Our unleveraged balance sheet is a source of significant
strength in comparison with many overleveraged competitors. Our
equitized balance sheet also gives us the potential for future
earnings upside as we prudently grow our revolving credit facility
and evaluate term debt solutions driven by our Facility's
investment grade facility rating. We are actively exploring both
Facility and corporate term debt solutions as the credit markets
improve in both demand and pricing.
We also continue to generate liquidity through stock offerings
and the realization of portfolio investments. From March through
September 2009, we completed stock offerings aggregating 24,374,297
shares of our common stock, raising approximately $206.0 million in
gross proceeds. Two recent offerings were completed in an
unregistered format pending declaration of effectiveness of our
shelf amendment with disclosure for the Patriot acquisition, and
such effectiveness has now been granted.
In the second quarter of the fiscal year ended June 30, 2009, we
announced the authorization by our board of directors to repurchase
up to $20 million of our outstanding stock. To date, we have not
made any such repurchases, but we continue to maintain the
flexibility to do so should we deem such purchases to be in the
best interest of our shareholders.
CONFERENCE CALL
The Company will host a conference call on Tuesday, November 10,
2009, at 11:00 a.m. Eastern Time. The conference call dial-in
number will be 800-860-2442. A recording of the conference call
will be available for approximately 30 days. To hear a replay, call
877-344-7529 and use passcode 435501.
PROSPECT CAPITAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES
September 30, 2009 and June 30, 2009
(in thousands, except share and per share data)
September 30, June 30,
2009 2009
(Unaudited) (Audited)
--------- ---------
Assets
Investments at fair value (cost of $513,750 and
$531,424, respectively)
Control investments (cost of $188,886 and
$187,105, respectively) $ 198,043 $ 206,332
Affiliate investments (cost of $33,555 and
$33,544, respectively) 31,790 32,254
Non-control/Non-affiliate investments (cost of
$291,309 and $310,775, respectively) 280,965 308,582
--------- ---------
Total investments at fair value 510,798 547,168
--------- ---------
Investments in money market funds 85,143 98,735
Cash 7,020 9,942
Receivables for:
Interest, net 4,652 3,562
Dividends 7 28
Other 314 571
Prepaid expenses 780 68
Deferred financing costs, net 6,781 6,951
--------- ---------
Total Assets 615,495 667,025
--------- ---------
Liabilities
Credit facility payable -- 124,800
Due to Prospect Administration 157 842
Due to Prospect Capital Management 5,874 5,871
Accrued expenses 1,447 2,381
Other liabilities 771 535
--------- ---------
Total Liabilities 8,249 134,429
--------- ---------
Net Assets $ 607,246 $ 532,596
========= =========
Components of Net Assets
Common stock, par value $0.001 per share (100,000,000
and 100,000,000 common shares authorized,
respectively; 54,672,155 and 42,943,084 issued
and outstanding, respectively) $ 55 $ 43
Paid-in capital in excess of par 646,271 545,707
Undistributed net investment income 16,922 24,152
Accumulated realized losses on investments (53,050) (53,050)
Unrealized (depreciation) appreciation on investments (2,952) 15,744
--------- ---------
Net Assets $ 607,246 $ 532,596
========= =========
Net Asset Value Per Share $ 11.11 $ 12.40
========= =========
PROSPECT CAPITAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
For The Three Months Ended September 30, 2009 and 2008
(in thousands, except share and per share data)
(Unaudited)
For Three Months Ended
--------------------------
September September
30, 2009 30, 2008
------------ ------------
Investment Income
Interest income:
Control investments (Net of foreign
withholding tax of $32 and $47,
respectively) $ 4,591 $ 6,722
Affiliate investments 849 560
Non-control/non-affiliate investments 9,395 10,274
------------ ------------
Total interest income 14,835 17,556
------------ ------------
Dividend income:
Control investments 6,200 4,584
Money market funds 18 139
------------ ------------
Total dividend income 6,218 4,723
------------ ------------
Other income:
Control/affiliate investments -- 744
Non-control/non-affiliate investments 464 12,776
------------ ------------
Total other income 464 13,520
------------ ------------
Total Investment Income 21,517 35,799
------------ ------------
Operating Expenses
Investment advisory fees:
Base management fee 3,209 2,823
Income incentive fee 3,080 5,875
------------ ------------
Total investment advisory fees 6,289 8,698
------------ ------------
Interest and credit facility expenses 1,374 1,518
Sub-administration fees (including former Chief
Financial Officer and Chief Compliance
Officer) -- 250
Legal fees -- 597
Valuation services 120 160
Audit, compliance and tax related fees 262 177
Allocation of overhead from Prospect
Administration 840 588
Insurance expense 63 61
Directors fees 64 81
Other general and administrative expenses 187 167
------------ ------------
Total Operating Expenses 9,199 12,297
------------ ------------
Net Investment Income 12,318 23,502
------------ ------------
Net realized gain on investments -- 1,645
Net change in unrealized depreciation on
investments (18,696) (11,149)
------------ ------------
Net (Decrease) Increase in Net Assets
Resulting from Operations $ (6,378) $ 13,998
============ ============
Net (decrease) increase in net assets resulting
from operations per share: $ (0.13) $ 0.47
============ ============
Dividends declared per share: $ 0.41 $ 0.40
============ ============
PROSPECT CAPITAL CORPORATION AND SUBSIDIARY
ROLLFORWARD OF NET ASSET VALUE PER SHARE
For the Three Months Ended September 30, 2009 and 2008
(in actual dollars)
(Unaudited)
For The Three
Months Ended
September 30,
--------------------
2009 2008
--------- ---------
Per Share Data:
Net asset value at beginning of period $ 12.40 $ 14.55
Net investment income 0.25 0.80
Realized gain - 0.05
Net unrealized depreciation (0.38) (0.38)
Net decrease in net assets as a result of public
offerings (0.77) -
Dividends declared and paid (0.39) (0.39)
--------- ---------
Net asset value at end of period $ 11.11 $ 14.63
========= =========
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 estimates and projections of
the future. 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.
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