NEW YORK, NY--(Marketwire - February 9, 2010) - Prospect Capital Corporation (
NASDAQ:
PSEC)
("Company," "Prospect" or "we") today announced financial results for its
second fiscal quarter ended December 31, 2009.
For the three and six months ended December 31, 2009, our net investment
income was $16.9 million and $29.2 million, respectively, or 29 cents and
54 cents, respectively, per weighted average share outstanding for the
period presented. Our net investment income increased 37%, and our net
investment income per share increased 19%, from the quarter ended September
30, 2009 to the quarter ended December 31, 2009.
We closed our acquisition of Patriot Capital Funding, Inc. (
NASDAQ:
PCAP)
("Patriot") on December 2, 2009. While the full quarterly benefits of the
Patriot acquisition are not expected to be reflected until the March 31,
2010 quarterly financial results, we did recognize a gain on the Patriot
acquisition of $5.7 million. We also recognized $7.5 million of interest
income during the period from the acquisition through the end of the
quarter, including $4.6 million of interest income from the acceleration of
purchase discounts upon early repayments of three loans, repayments of
three revolving lines of credit and the sale of one investment position.
These early repayments have been full par repayments, comparing favorably
to the discount on our purchase of the Patriot portfolio.
We have additional liquidity available that can be deployed into other
accretive investments beyond the Patriot acquisition and are currently
moving forward a pipeline of potential additional portfolio and individual
investment opportunities that aggregate more than $3 billion of assets.
We estimate that our net investment income for the current third fiscal
quarter ended March 31, 2010 will be 24 to 32 cents per share. We expect to
announce our third fiscal quarter distribution in March.
The December 31, 2009 quarter, because of a desire to eliminate excise
taxes for the 2009 calendar year, included two dividend record dates,
thereby causing a second dividend payable and a second associated deduction
from our net asset value deduction during the quarter.
OPERATING RESULTS
HIGHLIGHTS
Equity Values:
Net assets as of December 31, 2009: $637.48 million
Net asset value per share as of December 31, 2009: $10.06
Second Fiscal Quarter Operating Results:
Net investment income: $16.93 million
Net investment income per share: $0.29
Dividends declared to shareholders per share: $0.40875
Year-to-date Operating Results:
Net investment income: $29.24 million
Net investment income per share: $0.54
Dividends declared to shareholders per share: $0.81625
PORTFOLIO AND INVESTMENT ACTIVITY
At December 31, 2009, our portfolio grew to 55 long-term investments with a
fair value of approximately $648.1 million compared to 29 long-term
investments with a fair value of $510.8 million at September 30, 2009.
This increase in investments was driven by the acquisition of Patriot net
of post-closing monetizations from the Patriot portfolio.
On December 2, 2009, we acquired the outstanding shares of Patriot common
stock for $201.1 million. Under the terms of the merger agreement, Patriot
common shareholders received 0.363992 shares of our common stock for each
share of Patriot common stock, resulting in 8,444,068 shares of common
stock being issued by us. In connection with the transaction, we repaid all
the outstanding borrowings of Patriot, in compliance with the merger
agreement.
On December 2, 2009, Patriot made a final dividend equal to its
undistributed net ordinary income and capital gains of $0.38 per share. In
accordance with a recent IRS revenue procedure, the dividend was paid 10%
in cash and 90% in newly issued shares of Patriot's common stock. The
exchange ratio was adjusted to give effect to the tax distribution so that
our purchase consideration for Patriot was not affected by this
distribution.
The merger has been accounted for as an acquisition of Patriot by Prospect
in accordance with the acquisition method of accounting as detailed in ASC
805, Business Combinations ("ASC 805"). The fair value of the consideration
paid was allocated to the assets acquired and liabilities assumed based on
their fair values as the date of acquisition. As of the acquisition date,
the fair value of the identifiable net assets acquired exceeded the fair
value of the consideration transferred, and we recognized the excess as a
gain. A gain of $5.7 million was recorded by Prospect in the quarter ended
December 31, 2009 related to the acquisition of Patriot.
The purchase price has been allocated to the assets acquired and the
liabilities assumed based on their estimated fair values as summarized in
the following table (in thousands):
Cash (to repay Patriot debt) $ 107,313
Cash (to fund purchase of restricted stock from former
Patriot employees) 970
Common stock issued (1) 92,800
--------------
Total purchase price 201,083
--------------
Assets acquired:
Investments (2) 207,126
Cash and cash equivalents 1,697
Other assets 3,859
--------------
Assets acquired 212,682
Other liabilities assumed (5,885)
--------------
Net assets acquired 206,797
--------------
Preliminary gain on Patriot acquisition (3) $ 5,714
==============
(1) The value of the shares of common stock exchanged with the Patriot
common shareholders was based upon the closing price of our common
stock on December 2, 2009, the price immediately prior to the closing
of the transaction.
(2) The fair value of Patriot's investments was determined by our Board of
Directors in conjunction with an independent valuation agent. This
valuation resulted in a purchase price which was $98,150 below the
amortized cost of such investments. For those assets which are
performing, Prospect will record the accretion to par value in interest
income over the remaining term of the investment.
(3) The preliminary gain has been determined based upon the estimated value
of certain liabilities which are not yet settled. Any changes to such
accruals will be recorded in future periods as an adjustment to such
gain. We do not believe such adjustments will be material.
During the period from the acquisition of Patriot on December 2, 2009 to
December 31, 2009, we recognized $7.5 million of interest income from the
assets acquired from Patriot. Included in this amount is $4.6 million
resulting from the acceleration of purchase discounts from the early
repayments of three loans, three revolving lines of credit and the sale of
one investment position.
During the quarter ended December 31, 2009, one additional investment,
Resco Products Inc. ("Resco"), has repaid its outstanding debt to us.
Earlier in the quarter, we had purchased additional debt in Resco at a 40%
discount to par and subsequently received a full par repayment of all our
debt at the closing, generating a 16% cash-on-cash internal rate of return
on our overall investment.
Primary investment activity in the marketplace has increased recently, and
we are currently evaluating a robust pipeline of potential investments,
some of which have the potential to close this quarter. These investments
are primarily 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, and we recently hired a new senior executive to help drive
further revenue and profit growth.
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 four additional lenders to the Facility and
currently have commitments totaling $210 million. We continue to solicit
additional commitments from other lenders to grow the Facility, and
multiple lenders are performing due diligence toward committing to our
Facility, and potentially additional independent facilities. The Facility
has an investment grade Moody's rating of A2. We are also working with our
lenders to reduce our cost of debt financing and extend the duration of the
Facility.
As of December 31, 2009, we had $10 million of borrowings under our
Facility. With the pledging of additional assets from the Patriot
acquisition, we have significant credit availability in excess of $100
million, not including further leveragability of additional collateral that
we could add to our Facility with additional transaction activity.
Our virtually 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 existing revolving credit facility, add additional
secured facilities, and evaluate term debt solutions driven by our
investment grade facility ratings at both the corporate and Facility
levels. We are pleased with the increase in desire of counterparties to
provide us additional credit at significantly more attractive pricing as
compared to what the capital markets offered a year ago.
CONFERENCE CALL
The Company will host a conference call on Wednesday, February 10, 2010, 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
437757.
PROSPECT CAPITAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES
December 31, 2009 and June 30, 2009
(in thousands, except share and per share data)
December 31, June 30,
2009 2009
(Unaudited) (Audited)
------------ ------------
Assets
Investments at fair value (cost of $633,636 and
$531,424, respectively)
Control investments (cost of $165,867 and
$187,105, respectively) $ 191,898 $ 206,332
Affiliate investments (cost of $68,052 and
$33,544, respectively) 66,479 32,254
Non-control/Non-affiliate investments (cost
of $399,717 and $310,775, respectively) 389,758 308,582
------------ ------------
Total investments at fair value 648,135 547,168
------------ ------------
Investments in money market funds 23,418 98,735
Cash 3,844 9,942
Receivables for:
Interest, net 5,723 3,562
Dividends 2 28
Other 359 571
Prepaid expenses 175 68
Due from Prospect Administration 998 --
Deferred financing costs, net 5,891 6,951
Other assets 535 --
------------ ------------
Total Assets $ 689,080 $ 667,025
------------ ------------
Liabilities
Credit facility payable 10,000 124,800
Dividend payable 25,894 --
Due to Prospect Administration -- 842
Due to Prospect Capital Management 7,412 5,871
Accrued expenses 8,039 2,381
Other liabilities 258 535
------------ ------------
Total Liabilities 51,603 134,429
------------ ------------
Net Assets $ 637,477 $ 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; 63,349,746 and
42,943,084 issued and outstanding,
respectively) $ 63 $ 43
Paid-in capital in excess of par 741,520 545,707
Under/(over) distributed net investment income (14,326) 24,152
Accumulated realized losses on investments (104,279) (53,050)
Unrealized appreciation on investments 14,499 15,744
------------ ------------
Net Assets $ 637,477 $ 532,596
------------ ------------
Net Asset Value Per Share $ 10.06 $ 12.40
------------ ------------
PROSPECT CAPITAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
For The Three and Six Months Ended December 31, 2009 and 2008
(in thousands, except share and per share data)
(Unaudited)
For The Three Months For The Six Months
Ended December 31, Ended December 31,
-------------------- --------------------
2009 2008 2009 2008
--------- --------- --------- ---------
Investment Income
Interest Income
Control investments (Net of
foreign withholding tax of
($52), $62, ($19), and
$109, respectively) $ 5,052 $ 5,075 $ 9,643 $ 11,797
Affiliate investments (Net
of foreign withholding tax
of $0, $0, $0, and $0,
respectively) 1,539 1,075 2,388 1,635
Non-control/non-affiliate
investments 11,948 11,091 21,343 21,365
--------- --------- --------- ---------
Total interest income 18,539 17,241 33,374 34,797
--------- --------- --------- ---------
Dividend income
Control investments 4,160 4,584 10,360 9,168
Money market funds 10 81 28 220
--------- --------- --------- ---------
Total dividend income 4,170 4,665 10,388 9,388
--------- --------- --------- ---------
Other income:
Control/affiliate
investments 75 87 75 831
Gain on Patriot acquisition 5,714 -- 5,714 --
Non-control/non-affiliate
investments 385 220 849 12,996
--------- --------- --------- ---------
Total other income 6,174 307 6,638 13,827
--------- --------- --------- ---------
--------- --------- --------- ---------
Total Investment Income 28,883 22,213 50,400 58,012
--------- --------- --------- ---------
Operating Expenses
Investment advisory fees:
Base management fee 3,176 2,940 6,385 5,763
Income incentive fee 4,231 2,990 7,311 8,865
--------- --------- --------- ---------
Total investment advisory
fees 7,407 5,930 13,696 14,628
Interest and credit facility
expenses 1,995 1,965 3,369 3,483
Sub-administration fees
(Including former Chief
Financial Officer and Chief
Compliance Officer) -- 217 -- 467
Legal fees 390 184 390 483
Valuation services 153 110 273 422
Audit, compliance and tax
related fees 239 306 501 629
Allocation of overhead from
Prospect Administration 840 588 1,680 1,176
Insurance expense 63 63 126 124
Directors' fees 64 62 128 143
Other general and
administrative expenses 807 295 994 462
Tax expense -- 533 -- 533
--------- --------- --------- ---------
Total Operating Expenses 11,958 10,253 21,157 22,550
--------- --------- --------- ---------
Net Investment Income 16,925 11,960 29,243 35,462
--------- --------- --------- ---------
Net realized (loss) gain on
investments (51,229) 16 (51,229) 1,661
Net change in unrealized
appreciation/depreciation on
investments 17,451 (5,452) (1,245) (16,601)
--------- --------- --------- ---------
Net (Decrease) Increase in Net
Assets Resulting from
Operations $ (16,853) $ 6,524 $ (23,231) $ 20,522
--------- --------- --------- ---------
Net (decrease) increase in net
assets resulting from
operations per share: $ (0.29) $ 0.22 $ (0.43) $ 0.69
--------- --------- --------- ---------
Dividends/distributions
declared per share: $ 0.41 $ 0.40 $ 0.82 $ 0.80
--------- --------- --------- ---------
PROSPECT CAPITAL CORPORATION AND SUBSIDIARY
ROLLFORWARD OF NET ASSET VALUE PER SHARE
For the Three and Six Months Ended December 31, 2009 and 2008
(in actual dollars)
(Unaudited)
For The Three Months For The Six Months
Ended Ended
--------------------- ---------------------
December December December December
31, 2009 31, 2008 31, 2009 31, 2008
---------- ---------- ---------- ----------
Per Share Data:
Net asset value at beginning
of period $ 11.11 $ 14.63 $ 12.40 $ 14.55
Net investment income 0.29 0.40 0.54 1.20
Net realized (loss) gain (0.89) -- (0.95) 0.06
Net unrealized appreciation
(depreciation) 0.30 (0.18) (0.02) (0.56)
Net decrease in net assets
as a result of public
offerings and DRIP issuance (0.01) -- (0.79) --
Net increase in net assets
as a result of shares
issued for Patriot
acquisition 0.08 -- 0.14 --
Dividends declared and paid (0.82) (0.42) (1.26) (0.82)
---------- ---------- ---------- ----------
Net asset value at end of
period $ 10.06 $ 14.43 $ 10.06 $ 14.43
---------- ---------- ---------- ----------
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.