Equity Values: Stockholders' equity as of March 31, 2008: $371.72 million Net asset value per share as of March 31, 2008: $14.15 Third Fiscal Quarter Portfolio Activity: Number of new portfolio companies invested: 2 Number of portfolio companies at end of period: 31 Third Fiscal Quarter Operating Results: Net investment income: $12.92 million Net investment income per share: $0.54 Net realized gain: $0.21 million Net unrealized depreciation: ($14.39) million Net decrease in net assets resulting from operations: ($1.26) million Dividends to shareholders per share: $0.40 * See Supplemental Financial Information belowPORTFOLIO AND INVESTMENT ACTIVITY On March 31, 2008, the fair value of our portfolio of 31 long-term investments was approximately $429.2 million. As of March 31, 2008, our portfolio generated a current yield of approximately 16.8% across all our long-term debt and equity investments. This current yield includes interest from all our long-term investments as well as dividends and net profits interest and royalties from certain portfolio companies. During the quarter ended March 31, 2008, we completed two new investments and follow-on investments in existing portfolio companies, totaling approximately $31.8 million. On February 11, 2008, the Company made a $5.1 million senior secured loan to North Fork Collieries LLC ("North Fork"), a Kentucky-based mining and coal production company. The Company also has a controlling equity interest in North Fork. On March 5, 2008, the Company made an additional secured debt investment of $6.5 million in Unitek Acquisition, Inc. ("Unitek"), a leading provider of outsourced technical services based in Blue Bell, Pennsylvania. Prospect now has extended in the aggregate $11.5 million of debt capital to Unitek. On March 14, 2008, the Company provided debt financing of $14.5 million to support the acquisition of American Gilsonite Company ("AGC") by a private equity firm based in New York. AGC is a specialty mineral company with operations based in Bonanza, Utah. The Company made an additional $1.0 million investment in the equity of AGC. For the three months ended March 31, 2008, the Company monetized positions in three portfolio companies. On February 20, 2008, Ken-Tex Energy Corp. ("Ken-Tex"), repaid the $10.8 million of debt that it owed the Company. As part of the transaction, the Company also sold back its net profit interest ("NPI") and overriding royalty interest ("ORRI") in Ken-Tex. In addition to the debt repayment, this transaction generated $3.3 million in the form of a prepayment penalty and the sale of the NPI and ORRI. On March 5, 2008, the Company monetized its ownership of common shares of Evolution Petroleum Corp. at a gain of $0.49 million. On March 31, 2008, TLOGH, L.P. repaid in full the $15.5 million of debt that it owed to the Company. As of today, we now have 32 portfolio companies aggregating approximately $492 million of assets, calculated as our March 31 investment portfolio plus additional investments net of repayments. In the current quarter, the Company so far has made investments in two new portfolio companies, as well as monetized an interest in an existing portfolio company. On April 3, 2008, the Company provided $39.8 million of first and second lien debt and equity for the recapitalization of Ajax Rolled Ring & Machine ("Ajax"), a custom forger of seamless rolled steel rings located in York, South Carolina. On April 30, 2008, we provided debt financing of $20.0 million to support the acquisition by Peerless Mfg Co. ("Peerless"), headquartered in Dallas, Texas, of Nitram Energy Inc. ("Nitram"). Peerless is a leading designer, manufacturer, and marketer of industrial environmental separation and filtration systems while Nitram focuses on separation, heat transfer, pulsation dampening, and industrial silencing products. On April 30, 2008, we fully exited our investment in Arctic Acquisition Corp., dba Cougar Pressure Control ("Cougar") through the sale of our equity interest in Cougar for approximately $3.4 million. In late December 2007, the Company's largest 100% controlled investment, Gas Solutions Holdings Inc ("Gas Solutions"), a midstream gathering and processing business in East Texas, engaged RBC Capital Markets Corporation as a financial advisor to explore strategic alternatives, including a potential sale. This monetization process is ongoing, and extensive discussions are occurring with multiple interested parties. Management seeks entering into a definitive purchase agreement before the conclusion of the Company's fourth fiscal quarter, but can make no assurances as to the likelihood or timing of any agreement. In late March 2008, Royal Bank of Canada provided a $38 million term loan to Gas Solutions II Ltd, a wholly owned subsidiary of Gas Solutions, the proceeds of which were used to refinance all of Citibank's approximately $8 million of outstanding senior secured debt as well as to make a $30 million cash distribution to Gas Solutions. The Company has non-recourse access to this cash at Gas Solutions, in addition to the Company's other assets and undrawn revolving credit facility. In early May 2008, Gas Solutions II Ltd purchased a series of propane puts at $0.10 out of the money and at prices of $1.53 per gallon and $1.394 per gallon covering the periods May 1, 2008, through April 30, 2009, and May 1, 2009, through April 30, 2010, respectively. These hedges have been executed at close to the highest market propane prices ever achieved on an historical basis. Such hedges preserve the upside of Gas Solutions II Ltd to benefit from potential future increases in commodity prices. Gas Solutions is generating approximately $24.3 million of unadjusted plant operating income based on annualizing the performance of the six months ending March 31, 2008, which is an increase of 74% from the previous year. For calendar year 2008, Gas Solutions estimates based on current commodity prices and annualized run rates that it would achieve more than $30 million of unadjusted plant operating income. LIQUIDITY AND FINANCIAL RESULTS Our net investment income for the quarter ended March 31, 2008, was approximately $12.9 million. At March 31, 2008, our net asset value per share was $14.15, a reduction from December 31 based primarily on reversing some of the previous unrealized appreciation for an investment. On March 28, 2008, we priced a registered direct offering of 1.3 million shares of common stock at $15.22 per share, raising approximately $19.8 million in gross proceeds. On March 31, 2008, we completed a public offering of 1.15 million shares of common stock at $15.45 per share, raising approximately $17.8 million in gross proceeds. At March 31, 2008, borrowings under our credit facility stood at approximately $91 million. Currently, the Company has approximately $138 million drawn under its credit facility, with $62 million undrawn. In addition to its corporate cash, the Company has non-recourse access to an additional $30 million of cash at Gas Solutions. In mid-April 2008, the Company entered into an engagement letter with a lender that has agreed, on a best-efforts basis, to lead a syndication group in an increase to the Company's revolving credit facility from $200 million to approximately $400 million. Such facility is anticipated to have pricing similar to the Company's existing facility. The engagement letter is not a final commitment and the closing of the facility is subject to the lender's final internal approval and other conditions customary for a transaction of this type. CONFERENCE CALL The Company will host a conference call on Tuesday, May 13, 2008, 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 5 days. To hear a replay, call 877-344-7529 and use passcode 419425.
As of As of March 31, June 30, CONSOLIDATED STATEMENTS OF NET ASSETS (in 2008 2007 thousands) (unaudited) (audited) Assets Cash and cash equivalents $ 43,819 $ 41,760 Investments in controlled entities at fair value (cost - $147,142 and $124,664, respectively) 141,631 139,292 Investments in affiliated entities at fair value (cost - $5,582 and $14,821, respectively) 5,582 14,625 Investments in non-controlled and non-affiliated entities, at fair value (cost - $283,833 and $186,712, respectively) 281,943 174,305 Interest receivable 4,039 2,139 Dividends receivable 45 263 Loan principal receivable 107 - Structuring fees receivable - 1,625 Investments sold 506 - Other receivables 419 271 Prepaid expenses 298 471 Deferred financing fees 1,618 1,751 Total assets 480,007 376,502 Liabilities Credit facility payable 90,667 - Payable for investments purchased - 70,000 Accrued expenses 1,227 1,312 Dividends Payable 8,958 - Due to Prospect Administration, LLC 931 330 Due to Prospect Capital Management, LLC 5,562 4,508 Other current liabilities 944 304 Total liabilities 108,289 76,454 Net Assets $ 371,718 $ 300,048 Components of Net Assets Common stock, par value $.001 per share, (100,000,000 and 100,000,000 common shares authorized, respectively; 26,270,379 and 19,949,065 issued and outstanding, respectively) $ 26 $ 20 Paid-in capital in excess of par 395,571 299,845 Distributions in excess of net investment income (315) (4,092) Accumulated realized gains (losses) on investments (16,163) 2,250 Unrealized appreciation (depreciation) on investments (7,401) 2,025 Net Assets $ 371,718 $ 300,048 Net Asset Value Per Share $ 14.15 $ 15.04 Three months Three months Ended Ended March 31, March 31, CONSOLIDATED STATEMENTS OF OPERATIONS 2008 2007 (in thousands) (unaudited) (audited) Investment Income Interest income, controlled entities (net of foreign tax withholding of $35 and $67, respectively) $ 4,556 $ 3,845 Interest income, affiliated entities (net of foreign tax withholding of $0 and $35, respectively) 290 800 Interest income, non controlled and non-affiliated entities 10,044 4,025 Total interest income 14,890 8,670 Dividend income, controlled entities 3,300 850 Dividend income, money market funds 123 1,245 Total dividend income 3,423 2,095 Other income, controlled entities 200 8 Other income, non-controlled and non-affiliated entities 3,487 1,296 Total other income 3,687 1,304 Total investment income 22,000 12,069 Operating Expenses Investment advisory fees Base management fee 2,388 1,531 Income incentive fee 3,230 1,754 Total investment advisory fees 5,618 3,285 Interest expense and credit facility costs 1,863 353 Chief Compliance Officer and Sub-administration fees 228 164 Legal fees 449 593 Valuation services 198 92 Audit and tax related fees 45 43 Insurance expense 64 72 Directors fees 55 55 Other professional fees 18 4 Other general and administrative expenses 543 393 Total operating expenses 9,081 5,054 Net investment income 12,919 7,015 Net realized gain (loss) on investments 208 (1) Net unrealized appreciation (depreciation) (14,386) (2,038) Net (decrease) increase in net assets resulting from operations ($ 1,259) $ 4,976 Net (decrease) increase in net assets per weighted average shares of common stock resulting from operations ($ 0.05) $ 0.26 Three months Three months Ended Ended March 31, March 31, PER SHARE DATA 2008 2007 Net asset value, beginning of period $ 14.58 $ 15.24 Costs related to the secondary public offering (0.03) 0.01 Net investment income 0.54 0.36 Realized gain/(loss) 0.01 - Net unrealized appreciation (depreciation) (0.60) (0.10) Net increase in net assets as a result of secondary public offering 0.05 0.06 Dividend declared and paid (0.40) (0.39) Net asset value at end of period $ 14.15 $ 15.18ABOUT 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. Prospect Capital's investment objective is to generate both current income and long-term capital appreciation through debt and equity investments. Prospect Capital has 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 Prospect Capital could have an adverse effect on Prospect Capital and its shareholders. This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. 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 the Company's control, and that the Company 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 the Company undertakes no obligation to update any such statement now or in the future.
Contact Information: Please send investment proposals to: Grier Eliasek President and Chief Operating Officer grier@prospectstreet.com Telephone (212) 448-0702