Equity Values: Stockholders' equity as of June 30, 2008: $429.62 million Net asset value per share as of June 30, 2008: $14.55 Fiscal Year Operating Results: Net investment income: $45.11 million Net investment income per share: $1.91 Net increase in net assets resulting from operations: $27.59 million Dividends to shareholders per share: $1.58875 Fourth Fiscal Quarter Operating Results: Net investment income: $13.67 million Net investment income per share: $0.50 Net increase in net assets resulting from operations: $23.99 million Dividends to shareholders per share: $0.40125 Fourth Fiscal Quarter Portfolio Activity: Number of new portfolio companies invested: 2 Number of portfolio companies at end of period: 29PORTFOLIO AND INVESTMENT ACTIVITY On June 30, 2008, the fair value of our portfolio of 29 long-term investments was approximately $497.5 million. During the fiscal year ended June 30, 2008, our portfolio generated a current yield of approximately 15.5% across all our long-term debt and equity investments. This current yield includes interest from all our long-term investments as well as dividends from certain portfolio companies. During the quarter ended June 30, 2008, we completed two new investments totaling approximately $59.8 million, as well as follow-on investments in existing portfolio companies. On April 3, 2008, we provided $39.8 million in first and second lien debt and equity for our control acquisition of Ajax, a custom forger of seamless rolled steel rings based in York, South Carolina. Ajax manufactures rings for wind turbines, mining equipment, construction equipment, and other end user markets. On April 30, 2008, we provided $20.0 million in secured debt financing to support the acquisition by Peerless, based in Dallas, Texas, of Nitram. Peerless is a leading manufacturer of separation, filtration, heat transfer, and sound dampening systems for diversified energy and industrial markets. On April 30, 2008, we fully exited our investment in Cougar through the sale of our equity interest for $3.4 million. With this monetization, we have received a 34% internal rate of return on this investment. On June 9, 2008, Deep Down fully repaid our $12.0 million loan. We exercised our warrant on a cashless basis and sold the acquired shares on August 1, 2008 for approximately $1.65 million, generating a 54% internal rate of return. On June 30, 2008, we consolidated our coal investments into Yatesville Coal under one management team, allowing for a more efficient utilization and oversight of our assets. We are pleased with the improvement of Yatesville, which we attribute to more efficient operations as a result of the consolidation of the multiple operating companies, as well as significant increases in coal prices in Central Appalachia. As of June 30, 2008, we had 29 portfolio companies which together with other assets aggregated to approximately $541.8 million of total assets. Thus far in the current quarter ending September 30, 2008, we have made investments in three new portfolio companies, received repayment on our debt outstanding to R-V Industries, and sold our stock in Deep Down. On August 1, 2008, we provided $7.4 million in secured debt financing to Castro Cheese, based in Houston. Castro is a leading manufacturer and marketer of Hispanic cheeses and creams. On August 4, 2008, we provided $15.0 million in debt financing to support the take-private acquisition of TriZetto Group, a leading healthcare information technology company, by Apax Partners and equity co-investors. On August 26, 2008, we provided $26.0 million in first lien secured debt financing and co-invested $2.3 million in equity for the growth recapitalization of Biotronic NeuroNetwork, based in Ann Arbor, Michigan. Biotronic is the largest independent national provider of intra-operative neurophysiological monitoring services. On August 27, 2008, R-V Industries repaid our $7.5 million of secured debt. In early May 2008, Gas Solutions purchased a series of propane puts at prices of $1.530 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 to benefit from potential future increases in commodity prices. Gas Solutions is generating approximately $27.3 million of unadjusted plant operating income based on annualizing the performance of the six months ending June 30, 2008, which is an increase of 55% 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. As previously disclosed, we are in the process of monetizing Gas Solutions. This monetization process is ongoing, and extensive discussions are occurring now with an interested party related to a definitive purchase agreement. While we are optimistic, we will make no definitive assurances as to the likelihood or timing of such agreement. Besides Gas Solutions, we are in active discussions concerning monetizing other controlled investments to maximize shareholder value. LIQUIDITY AND FINANCIAL RESULTS On June 2, 2008, we closed a public offering of 3.25 million shares of our common stock, raising $48.4 million in gross proceeds. At June 30, 2008, borrowings under our credit facility stood at approximately $91.2 million. Currently, the Company has approximately $130 million drawn under its $200 million credit facility. In addition to its corporate cash, the Company has non-recourse access to an additional approximately $30 million of cash at Gas Solutions. We are currently seeking to increase our revolving credit facility from its current size of $200 million. Over the past few months we have worked with rating agencies to structure an expanded facility of up to $400 million in size, and we expect to initiate syndication of this facility during this calendar year. The closing of the facility is subject to lender syndication and other conditions customary for a transaction of this type. CONFERENCE CALL The Company will host a conference call on Tuesday, September 9, 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 30 days. To hear a replay, call 877-344-7529 and use passcode 422994.
Prospect Capital Corporation and Subsidiary Consolidated Statements of Assets and Liabilities (in thousands, except share and per share data) June 30, 2008 June 30, 2007 ------------- ------------- Assets (Audited) (Audited) Investments at fair value (cost of $496,805 and $326,197, respectively) Control investments (cost of $203,661 and $130,493, respectively) $ 205,827 $ 145,121 Affiliate investments (cost of $5,609 and $14,821, respectively) 6,043 14,625 Non-control/Non-affiliate investments (cost of $287,535 and $180,883, respectively) 285,660 168,476 ------------- ------------- Total investments at fair value 497,530 328,222 ------------- ------------- Investments in money market funds 33,000 41,760 Cash 555 - Receivables for: Interest 4,094 2,139 Dividends 4,248 263 Loan principal 71 - Structuring Fees - 1,625 Other 567 271 Prepaid expenses 273 471 Deferred financing costs 1,440 1,751 ------------- ------------- Total Assets 541,778 376,502 ------------- ------------- Liabilities Credit facility payable 91,167 - Payable for securities purchased - 70,000 Dividends payable 11,845 - Due to Prospect Administration 695 330 Due to Prospect Capital Management 5,946 4,508 Accrued expenses 1,104 1,312 Other liabilities 1,398 304 ------------- ------------- Total Liabilities 112,155 76,454 ------------- ------------- Net Assets $ 429,623 $ 300,048 ============= ============= Components of Net Assets Common stock, par value $0.001 per share (100,000,000 and 100,000,000 common shares authorized, respectively; 29,520,379 and 19,949,065 issued and outstanding, respectively) $ 30 $ 20 Paid-in capital in excess of par 441,332 299,845 Undistributed (distributions in excess of) net investment income 1,508 (4,092) Accumulated realized gains (losses) on investments (13,972) 2,250 Unrealized appreciation on investments 725 2,025 ------------- ------------- Net Assets $ 429,623 $ 300,048 ============= ============= Net Asset Value Per Share $ 14.55 $ 15.04 ============= ============= Prospect Capital Corporation and Subsidiary Consolidated Statements of Operations (in thousands, except share and per share data) Three Months Ended Year Ended ------------------------- ------------------------ June 30, June 30, June 30, June 30, 2008 2007 2008 2007 ------------ ----------- ----------- ----------- (Unaudited) (Unaudited) (Audited) (Audited) Investment Income Interest income: Control investments $ 7,020 $ 4,045 $ 21,709 $ 13,500 Affiliate investments 246 652 1,858 3,489 Non-control/Non- affiliate investments 9,229 4,439 35,466 13,095 ------------ ----------- ----------- ----------- Total interest income 16,495 9,136 59,033 30,084 ------------ ----------- ----------- ----------- Dividend income: Control investments 4,377 850 11,327 3,400 Money market funds 149 914 706 2,753 ------------ ----------- ----------- ----------- Total dividend income 4,526 1,764 12,033 6,153 ------------ ----------- ----------- ----------- Other Income: Control/Affiliate investments 913 219 1,123 230 Non-control/Non- affiliate investments 1,514 2,890 7,213 4,214 ------------ ----------- ----------- ----------- Total Other income 2,427 3,109 8,336 4,444 ------------ ----------- ----------- ----------- Total Investment Income 23,448 14,009 79,402 40,681 ------------ ----------- ----------- ----------- Operating Expenses Investment advisory fees: Base management fee 2,555 1,730 8,921 5,445 Income incentive fee 3,417 2,086 11,278 5,781 ------------ ----------- ----------- ----------- Total investment advisory fees 5,972 3,816 20,199 11,226 ------------ ----------- ----------- ----------- Interest and credit facility expenses 1,599 518 6,318 1,903 Chief Financial, Chief Compliance Officer and Sub-administration fees 239 147 859 567 Legal fees 279 395 2,503 1,365 Valuation services 146 110 577 395 Sarbanes-Oxley compliance expenses 56 55 66 101 Audit and tax related fees 66 - 404 498 Allocation of overhead from Prospect Administration 1,031 170 2,139 532 Insurance expense 64 72 256 291 Directors' fees 88 55 253 230 Other general and administrative expenses 239 322 715 442 ------------ ----------- ----------- ----------- Total Operating Expenses 9,779 5,660 34,289 17,550 ------------ ----------- ----------- ----------- Net Investment Income 13,669 8,349 45,113 23,131 ------------ ----------- ----------- ----------- Net realized gain (loss) on investments 2,191 - (16,222) 1,949 Net change in unrealized appreciation/ depreciation on investments 8,126 (3,501) (1,300) (8,352) ------------ ----------- ----------- ----------- Net Increase in Net Assets Resulting from Operations $ 23,986 $ 4,848 $ 27,591 $ 16,728 ------------ ----------- ----------- ----------- Three Months Ended Year Ended ------------------------ ------------------------ June 30, June 30, June 30, June 30, 2008 2007 2008 2007 ----------- ----------- ----------- ----------- Per Share Data: (Unaudited) (Unaudited) (Audited) (Audited) Net asset value at beginning of period $ 14.15 $ 15.18 $ 15.04 $ 15.31 Costs related to the secondary public offering (0.01) - (0.05) (0.06) Share issuances related to the secondary public offering (0.06) - - 0.26 Net investment income 0.50 0.42 1.91 1.47 Realized gain 0.08 - (0.69) 0.13 Net unrealized appreciation 0.30 (0.17) (0.05) (0.53) Dividends declared and paid (0.41) (0.39) (1.59) (1.54) ----------- ----------- ----------- ----------- Net asset value at end of period $ 14.55 $ 15.04 $ 14.55 $ 15.04 =========== =========== =========== ===========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. 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 Telephone (212) 448-0702