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.
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