Prospect Capital Announces 26% Sequential Quarterly Increase in Net Investment Income and Reports Operating Results of 34 Cents per Share


NEW YORK, NY--(Marketwire - November 9, 2010) - Prospect Capital Corporation (NASDAQ: PSEC) ("Company" or "Prospect") today announced financial results for our first fiscal quarter ended September 30, 2010.

For the quarter ended September 30, 2010, our net investment income was $21.0 million, or $0.28 per weighted average number of shares for the quarter, up from $16.6 million, or $0.25 per weighted average number of shares for the quarter ended June 30, 2010 and up from $12.3 million, or $0.25 per weighted average number of shares for the quarter ended September 30, 2009. New and follow-on investments in excess of $137 million closed in the September 2010 quarter contributed to the improved results.

For the quarter ended September 30, 2010, our net assets resulting from operations increased by $25.6 million, or $0.34 per weighted average number of shares for the quarter, up from $14.6 million, or $0.22 per weighted average number of shares for the quarter ended June 30, 2010. Our net asset value per share on September 30, 2010 stood at $10.24 per share.

In addition, we have revised upward our results for the second quarter of our fiscal year ended June 30, 2010 to reflect the final settlement of all accrued liabilities assumed in connection with our acquisition of Patriot, which had been estimated on a tentative basis at the time of the acquisition of Patriot in the December 2009 quarter. The settlement of these accruals at less than the estimated cost resulted in an increase in our net investment income per share for the December 2009 quarter of $0.01, increasing from the previously reported $0.32 to $0.33.

We estimate that our net investment income for the current second fiscal quarter ended December 31, 2010 will be $0.26 to $0.30 per share.

We have previously announced upcoming cash distributions, our 27th, 28th, 29th, and 30th consecutive cash distributions to shareholders, as follows:

      10.0750 cents per share for October 2010 (record date of October 29,
      2010 and payment date of November 30, 2010);

      10.0875 cents per share for November 2010 (record date of November
      30, 2010 and payment date of December 31, 2010);

      10.1000 cents per share for December 2010 (record date of December
      31, 2010 and payment date of January 31, 2011); and

      10.1125 cents per share for January 2011 (record date of January 31,
      2011 and payment date of February 28, 2011).

HIGHLIGHTS

Equity Values:
  Net assets as of September 30, 2010:  $802.82 million
  Net asset value per share as of September 30, 2010: $10.24

First Fiscal Quarter Operating Results:
  Net investment income:  $21.00 million
  Net investment income per share:  $0.28
  Net increase in net assets resulting from operations per share: $0.34
  Dividends declared to shareholders per share:  $0.301375

First Fiscal Quarter Portfolio and Portfolio Activity:
  Portfolio investments in quarter:  $137.80 million
  Total portfolio investments at cost at September 30, 2010: $806.40
  million
  Number of portfolio companies at September 30, 2010: 57

PORTFOLIO AND INVESTMENT ACTIVITY

At September 30, 2010, our portfolio consisted of 57 long-term investments with a fair value of $830.2 million, compared to 58 long-term investments with a fair value of $748.5 million at June 30, 2010. Since June 30, 2010, we have completed four new investments aggregating more than $130 million.

On July 14, 2010, we closed a $37.4 million first lien senior secured credit facility to support the acquisition by H.I.G. Capital of a leading consumer credit enhancement services company.

On July 23, 2010, we made a secured debt investment of $21.0 million in SonicWALL, Inc., a global leader in network security and data protection for small, mid-sized, and large enterprise organizations.

On July 30, 2010, we invested $52.4 million of combined debt and equity in the acquisition of AIRMALL USA Inc., a leading infrastructure-like developer and manager of long-term contract airport retail operations.

On July 30, 2010, we closed a $21.5 million senior secured credit facility for Northwestern Management Services, LLC ("NMS"), a leading dental practice management company in the Southeast Florida market.

During the quarter ended September 30, 2010, we recognized $4.0 million of interest income due to purchase discount accretion from the assets acquired from Patriot. Included in this amount is $1.1 million of accretion resulting from the $12.8 million repayment by Impact Products, LLC. We were also repaid in full on our $25.8 million loan to Regional Management Corporation. In addition, we recapitalized our debt investment in NMS, with our new loan issued at market terms comparable to other industry transactions. In accordance with ASC 320-20-35, the cost basis of the new NMS loan was recorded at par value, precipitating the acceleration of $1.6 million of original purchase discount which was recognized as interest income.

Since September 30, 2010, we have closed on one additional investment and received repayment on two other investments.

On October 12, 2010, we made a senior secured debt investment of $32.5 million in ICON Health & Fitness, Inc., a leading manufacturer and marketer of branded health and fitness equipment.

On October 29, 2010, Castro Cheese Company, Inc. repaid our $7.7 million loan.

On November 3, 2010, TriZetto Group repaid our $15.5 million loan.

Our investment pipeline currently aggregates more than $1.5 billion of potential opportunities, including more than $300 million of advanced opportunities targeted by counterparties to close during the next 45 days for tax rate change and other time-sensitive reasons. These investments are secured and unsecured investments with double digit coupons, sometimes coupled with equity upside through co-investments or warrants, and diversified across multiple sectors. While we cannot guarantee the volume of transactions we will close before quarter end, we anticipate a busy period of closings in the near future.

As we have throughout 2009 and 2010, we also continue to evaluate potential acquisitions of lending and other financial services platforms, portfolios, and assets, utilizing our significant liquidity and balance sheet strength to go on offense to drive shareholder value.

We are pleased with the overall stability of the credit quality of our portfolio, with many of our companies generating year-over-year and quarterly sequential growth in top-line revenues and bottom-line profits. Our multiple loan payoffs in the past few months have continued our track record of successful realizations while adding prepayment and accretion income, as well as providing additional liquidity for new loan originations.

LIQUIDITY AND FINANCIAL RESULTS

On June 11, 2010, we held a first closing of an extension and expansion of our revolving credit facility ("Facility") with a syndicate of lenders who extended commitments of $210 million under the Facility. The Facility includes an accordion feature which allows an increase to up to $300 million of commitments without the need for re-approval from the existing lenders. Since June 30, 2010, we have closed on an additional $50 million in commitments with one existing and two additional new lenders, raising the total commitment under the facility to $260 million. We will seek to add additional commitments to the Facility in order to reach the maximum size. While we are optimistic about these planned Facility size increases, we cannot guarantee them. The Facility has an investment grade Moody's rating of A2.

As of September 30, 2010, we had $46.6 million of borrowings under our Facility. Since September 30, 2010, we have paid down the credit facility to $14.3 million, and our available liquidity as of today is currently in excess of $200 million for new investments.

Our at-the-market stock distribution program has proven to be a cost effective source of new equity capital to fund investment activity. During the September 2010 quarter, we sold 9,051,000 shares of our common stock at an average price of $9.74 per share, and raised $88.2 million of gross proceeds. During the period from October 1, 2010 to November 3, 2010, we issued an additional 4,929,556 shares of our common stock at an average price of $9.86 per share, and raised $48.6 million of gross proceeds.

With a debt to equity ratio currently less than 2%, our modestly leveraged balance sheet is a source of significant strength. Our equitized balance sheet also gives us the potential for future earnings upside as we prudently look to grow our existing revolving credit facility, add additional secured facilities, and evaluate term debt solutions made more attractive by our investment grade facility ratings at both the corporate and Facility levels.

With significant expected near-term originations, coupled with recently successful peer group term debt issuances, we are actively exploring potential term debt issuance as a means of accretively expanding our balance sheet while lengthening our weighted average debt maturities. Our discussions include both public and private debt, as well as both unsecured and secured debt, with expected maturities of five years or more. We believe that historically low Treasury rates make the current environment an attractive period for a strong, diversified, and scale balance sheet company like Prospect to consider term debt issuance during the near and medium term.

CONFERENCE CALL

The Company will host a conference call on Wednesday, November 10, 2010, at 11:00 a.m. Eastern Time. The conference call dial-in number will be 877-317-6789. A recording of the conference call will be available for approximately 30 days. To hear a replay, call 877-344-7529 and use passcode 445937.

             PROSPECT CAPITAL CORPORATION AND SUBSIDIARY
          CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES
                September 30, 2010 and June 30, 2010
           (in thousands, except share and per share data)

                                              September 30,    June 30,
                                                  2010           2010
                                               (Unaudited)     (Audited)
                                              -------------  -------------
Assets
Investments at fair value:
  Control investments (cost of $238,633 and
   $185,720, respectively)                    $     258,831  $     195,958
  Affiliate investments (cost of $64,429 and
   $65,082, respectively)                            70,254         73,740
  Non-control/Non-affiliate investments (cost
   of $503,333 and $477,957, respectively)          501,092        478,785
                                              -------------  -------------
    Total investments at fair value (cost of
     $806,395 and $728,759, respectively)           830,177        748,483
                                              -------------  -------------

Investments in money market funds                    21,040         68,871
Cash                                                  1,062          1,081
Receivables for:
  Interest, net                                       5,898          5,356
  Dividends                                           1,751              1
  Other                                                 679            419
Prepaid expenses                                        297            371
Deferred financing costs, net                         7,359          7,579
Due from broker                                       1,803             --
Other assets                                            534            534
                                              -------------  -------------
    Total Assets                                    870,600        832,695
                                              -------------  -------------

Liabilities
Credit facility payable                              46,600        100,300
Dividends payable                                     7,889          6,909
Due to broker                                         1,980             --
Due to Prospect Administration                          407            294
Due to Prospect Capital Management                    6,818          9,006
Accrued expenses                                      3,044          4,057
Other liabilities                                     1,038            705
                                              -------------  -------------
    Total Liabilities                                67,776        121,271
                                              -------------  -------------

Net Assets                                    $     802,824  $     711,424
                                              =============  =============

Components of Net Assets
Common stock, par value $0.001 per share
 (200,000,000 and 100,000,000 common shares
 authorized, respectively; 78,401,363 and
 69,086,862 issued and outstanding,
 respectively)                                $          78  $          69
Paid-in capital in excess of par                    894,568        805,918
Distributions in excess of net investment
 income                                             (11,536)        (9,692)
Accumulated realized losses on investments         (104,068)      (104,595)
Unrealized appreciation on investments               23,782         19,724
                                              -------------  -------------
Net Assets                                    $     802,824  $     711,424
                                              =============  =============

Net Asset Value Per Share                     $       10.24  $       10.30
                                              =============  =============



             PROSPECT CAPITAL CORPORATION AND SUBSIDIARY
                CONSOLIDATED STATEMENTS OF OPERATIONS
        For The Three Months Ended September 30, 2010 and 2009
           (in thousands, except share and per share data)
                            (Unaudited)


                                                    For Three Months Ended
                                                        September 30,
                                                    ----------------------
                                                       2010        2009
                                                    ----------- ----------
Investment Income
Interest income:
  Control investments (Net of foreign withholding
   tax of $0 and $32, respectively)                 $     5,189 $    4,591
  Affiliate investments                                   2,950        849
  Non-control/Non-affiliate investments                  20,782      9,395
                                                    ----------- ----------
    Total interest income                                28,921     14,835
                                                    ----------- ----------

Dividend income:
  Control investments                                     1,750      6,200
  Non-control/Non-affiliate investments                     440         --
  Money market funds                                          4         18
                                                    ----------- ----------
    Total dividend income                                 2,194      6,218
                                                    ----------- ----------

Other income:
  Control/affiliate investments                           1,771         --
  Affiliate investments                                     147         --
  Non-control/Non-affiliate investments                   2,179        464
                                                    ----------- ----------
    Total other income                                    4,097        464
                                                    ----------- ----------
    Total Investment Income                              35,212     21,517
                                                    ----------- ----------

Operating Expenses
Investment advisory fees:
  Base management fee                                     4,276      3,209
  Income incentive fee                                    5,249      3,080
                                                    ----------- ----------
    Total investment advisory fees                        9,525      6,289
                                                    ----------- ----------

Interest and credit facility expenses                     2,261      1,374
Legal fees                                                  310         --
Valuation services                                          217        120
Audit, compliance and tax related fees                      216        262
Allocation of overhead from Prospect Administration         800        840
Insurance expense                                            71         63
Directors' fees                                              64         64
Other general and administrative expenses                   753        187
                                                    ----------- ----------
    Total Operating Expenses                             14,217      9,199
                                                    ----------- ----------

    Net Investment Income                                20,995     12,318
                                                    ----------- ----------

Net realized gain on investments                            527         --
Net change in unrealized appreciation
 (depreciation) on investments                            4,058    (18,696)
                                                    ----------- ----------
    Net Increase (Decrease) in Net Assets Resulting
     from Operations                                $    25,580 $   (6,378)
                                                    =========== ==========

Net increase (decrease) in net assets resulting
 from operations per share                          $      0.34 $    (0.13)
                                                    =========== ==========
Dividends declared per share                        $      0.30 $     0.41
                                                    =========== ==========




             PROSPECT CAPITAL CORPORATION AND SUBSIDIARY
              ROLLFORWARD OF NET ASSET VALUE PER SHARE
      For the Three Months Ended September 30, 2010 and 2009
                       (in actual dollars)
                           (Unaudited)

                                                    For The Three Months
                                                            Ended
                                                        September 30,
                                                  ------------------------
                                                      2010         2009
                                                  -----------  -----------
Per Share Data:
Net asset value at beginning of period            $     10.30  $     12.40
Net investment income                                    0.28         0.25
Realized gain                                            0.01            -
Net unrealized appreciation (depreciation)               0.05        (0.38)
Net decrease in net assets as a result of public
 offerings                                              (0.09)       (0.77)
Dividends declared and paid                             (0.31)       (0.39)
                                                  -----------  -----------
Net asset value at end of period                  $     10.24  $     11.11
                                                  ===========  ===========

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.