Business & Finance
Business and Finance
Business and Finance
Wed, February 9, 2011
Prospect Capital Reports Operating Results of 38 Cents per Share for Quarter Ended December 31, 2010
NEW YORK, NY--(Marketwire - February 9, 2011) - Prospect Capital Corporation (
For the three and six months ended December 31, 2010, the increase in net assets resulting from operations was $31.9 million and $57.5 million, respectively, or $0.38 per share and $0.73 per share, respectively. For the three months ended September 30, 2010, the increase in net assets resulting from operations was $25.6 million or $0.34 per share.
Our operating results increased 24.9%, and our operating results per share increased 10.1% from the quarter ended September 30, 2010 to the quarter ended December 31, 2010. This increase is primarily due to our sale of Miller Petroleum, Inc. common stock, which generated a $5.4 million realized gain. New and follow-on investments of $137.6 million closed in the December 2010 quarter.
Our net investment income ("NII") was $19.1 million and $19.3 million for the three months ended December 31, 2010 and December 31, 2009, respectively, or $0.23 per share and $0.33 per share, respectively. Our NII was $40.1 million and $31.6 million for the six months ended December 31, 2010 and December 31, 2009, respectively, or $0.51 per share and $0.59 per share, respectively.
The primary source of the higher NII per share in 2009 is our recognition of a gain on the Patriot acquisition of $8.6 million in December 2009. Also affecting NII per share is the accelerated accretion of original purchase discounts of $4.6 million recognized in the quarter ended December 31, 2009. During the quarter ended September 30, 2010, we recognized $2.7 million of accelerated accretion of original purchase discounts. No accelerated accretion of original purchase discounts was recognized in the quarter ended December 31, 2010. If these two sources of adjustment to NII per share were removed and adjustments made for the related effects on advisory fees, NII per share would have been $0.23 per share and $0.15 per share for the three months ended December 31, 2010 and 2009, respectively, and $0.48 per share and $0.39 per share for the six months ended December 31, 2010 and 2009, respectively.
We anticipate NII per share will increase as we utilize prudent term leverage to finance our growth through new originations, given our debt to equity ratio stood at only approximately 17% as of December 31, 2010. We estimate that our net investment income for the current third fiscal quarter ended March 31, 2011 will be $0.24 to $0.30 per share.
Our net asset value per share on December 31, 2010 stood at $10.25 per share, an increase of $0.01 per share from September 30, 2010.
Earlier today, we declared our 31st, 32nd, and 33rd consecutive cash distributions to shareholders, as follows:
10.1150 cents per share for February 2011 (record date of February 28, 2011 and payment date of March 31, 2011); and
10.1175 cents per share for March 2011 (record date of March 31, 2011 and payment date of April 29, 2011); and
10.1200 cents per share for April 2011 (record date of April 29, 2011 and payment date of May 31, 2011).
HIGHLIGHTS
Equity Values: Net assets as of December 31, 2010: $903.2 million Net asset value per share as of December 31, 2010: $10.25 Second Fiscal Quarter Operating Results: Net investment income: $19.1 million Net investment income per share: $0.23 Dividends declared to shareholders per share: $0.302625 Year-to-date Operating Results: Net investment income: $40.1 million Net investment income per share: $0.51 Dividends declared to shareholders per share: $0.604000 Second Fiscal Quarter Portfolio and Portfolio Activity: Portfolio investments in quarter: $140.9 million Total portfolio investments at cost at December 31, 2010: $886.1 million Total portfolio investments at market at December 31, 2010: $918.2 million Number of portfolio companies at December 31, 2010: 58
PORTFOLIO AND INVESTMENT ACTIVITY
During the six months ended December 31, 2010, we originated $281.9 million of new investments. Our origination efforts recently have focused primarily on secured lending, including a higher percentage of first lien loans than in recent prior fiscal quarters, though we also continue to close selected junior debt and equity investments. In addition to targeting investments senior in corporate capital structures with our new originations, we have also increased our new investments in third party private equity sponsor owned companies, which tend to have more third party equity capital supporting our debt investments than in non-sponsor transactions.
As a result of these credit risk management initiatives, our portfolio's annualized current yield stood at 14.1% across all long-term debt and certain equity investments as of December 31, 2010. Non-recurring distributions of other equity positions that we hold is not included in this yield calculation. In many of our portfolio companies, we hold equity positions, ranging from minority interests to majority stakes, which we expect over time to contribute to our investment returns.
At December 31, 2010, our portfolio consisted of 58 long-term investments with a fair value of $918.2 million, compared to 57 long-term investments with a fair value of $830.2 million at September 30, 2010. In the December 2010 quarter, we completed new and follow-on investments aggregating more than $137.6 million, sold one investment and received repayment on four 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 in full.
On November 3, 2010, TriZetto Group repaid our $15.5 million loan in full.
On November 12, 2010, we made a senior subordinated debt investment of $15.0 million in Snacks Holding Corporation, a leading manufacturer and marketer of dried fruits and trail mixes.
On November 29, 2010, we made a senior subordinated debt investment of $14.0 million in Royal Adhesives & Sealants LLC ("Royal"), a leading producer of proprietary, high-performance adhesives and sealants. On December 13, 2010, we made a follow-on debt investment of $11.0 million in Royal.
On December 1, 2010, Qualitest Pharmaceuticals, Inc. repaid our $12.0 million loan in full.
On December 3, 2010, we exercised our warrants in Miller Petroleum, Inc. ("Miller") and received 2,013,814 shares of Miller common stock. On December 27, 2010, we sold 1,397,510 of these shares at $3.95 net proceeds per share, realizing a gain of $5.4 million.
On December 10, 2010, we made a $30.0 million secured second-lien loan to American Gilsonite Company ("AGC") for a dividend recapitalization. Concurrent with the financing, we received repayment of our prior loan as well as a $2.1 million dividend from our equity ownership of AGC.
On December 23, 2010, we made a secured second-lien debt investment of $15.3 million in Jordan Healthcare Holdings, Inc., a leading provider of home healthcare services in Texas.
On December 23, 2010, we made a senior secured investment of $18.3 million in VPSI, Inc., a leading market share transportation services company.
Several new investments that we anticipated closing prior to December 31, 2010 were delayed by counterparties when the expiring lower federal tax rates were extended. The subsequent closing of these delayed loans has increased our level of origination activity during the current quarter ending March 31, 2011. Since December 31, 2010, we have closed on seven additional investments aggregating more than $154 million, received repayment on one investment, and sold our remaining equity in one investment.
On January 6, 2011, we made a senior secured debt investment of $30.0 million to support the acquisition of Progressive Logistics Services, LLC by a middle market private equity firm.
On January 10, 2011, we made a senior secured debt investment of $19.0 million to support the acquisition of Endeavor House by Pinnacle Treatment Centers, Inc.
On January 10, 2011, we sold our remaining 616,304 shares of Miller common stock, realizing $4.23 of net proceeds per share, realizing a gain of $2.6 million.
On January 21, 2011, we provided senior secured credit facilities of $28.2 million to support the acquisition of Stauber Performance Ingredients, by ICV Partners. Through February 9, 2011, we have funded $26.5 million of the commitment.
On January 24, 2011, Maverick Healthcare, LLC repaid our $13.1 million loan in full.
On January 31, 2011, we made a senior secured debt investment of $7.5 million to support the recapitalization of Empire Today, LLC, the second largest independent provider of carpet and hard surface flooring to consumers in the residential replacement flooring industry.
On February 3, 2011, we made a senior secured debt investment of $22.0 million to support the recapitalization of a pharmacy services company by a leading private equity firm. Through February 9, 2011, we have funded $20.5 million of the commitment.
On February 4, 2011, we made a secured second-lien debt investment of $45.0 million to support the refinancing of Clearwater Seafoods Limited Partnership, a leading premium seafood company based in Nova Scotia, Canada.
On February 9, 2011, we made a net follow-on investment of $3.0 million in The Copernicus Group, Inc. that increased our total investment to $22.5 million.
We have now closed more than $500 million of new investments over the past ten months. Our investment pipeline currently aggregates more than $1.0 billion of potential opportunities. Primary investment activity in the marketplace increased during the second half of 2010 and has continued into calendar year 2011. Our pipeline of potential investments remains robust, with additional originations expected to close in the current quarter. These investments are primarily secured investments with double digit coupons, sometimes coupled with equity upside through co-investments or warrants, and diversified across multiple sectors.
We are pleased with the overall stability of the credit quality of our portfolio, with many of our companies generating year-over-year and sequential growth in top-line revenues and bottom-line profits.
LIQUIDITY AND FINANCIAL RESULTS
On December 21, 2010, we issued $150 million in aggregate principal amount of five-year unsecured 6.25% Senior Convertible Notes Due 2015 (the "Notes"). The Notes are convertible into shares of Common Stock at an initial and December 31, 2010 conversion rate of 88.0902 shares of Common Stock per $1,000 principal amount of the Notes, which is equivalent to a conversion price of approximately $11.352 per share of Common Stock, subject to adjustment in certain circumstances. The conversion rate for the Notes will be increased if monthly cash dividends paid to common shares exceed the rate of $0.101125 per share, subject to adjustment.
Interest on the Notes is paid semi-annually in arrears on June 15 and December 15, at a rate of 6.25% per year, commencing June 15, 2011. The Notes mature on December 15, 2015 unless converted earlier. The Notes are general unsecured obligations of Prospect, with no financial covenants, no technical cross default provisions, and no payment cross default provisions with respect to our revolving credit facility.
The Notes have no restrictions related to the type and security of assets in which Prospect might invest. The issuance of these five-year notes has allowed us to grow our investment program in calendar year 2011 and commit to loans with maturities longer than our existing revolving credit facility maturity. These Notes have an investment grade S&P rating of BBB.
On June 11, 2010, we held a first closing of an extension and expansion of our revolving credit facility (the "Facility") with a syndicate of lenders who extended commitments of $210 million under the Facility. The Facility includes an accordion feature, which, with the amendment completed on January 13, 2011, allows commitments to increase to up to $400 million without the need for re-approval from the existing lenders. Since June 30, 2010, we have closed on an additional $75 million in commitments with one existing and three additional new lenders, raising the total commitment under the Facility to $285 million. We seek to add additional lenders 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 amendment signed in January also allows for larger loans to be pledged to the facility and provides a mechanism for pledging loans on an expedited basis.
As we make additional investments, we generate additional availability to the extent such investments are eligible to be placed into the borrowing base. The revolving period of the Facility extends through June 2012, with an additional one year amortization period (with distributions allowed) after the completion of the revolving period. Interest on borrowings under the Facility is one-month Libor plus 325 basis points, subject to a minimum Libor floor of 100 basis points, representing a significant decrease in financing cost for us compared to our prior facility. The unused portion of the Facility has a fee equal to either 75 basis points (if at least half of the Facility is used) or 100 basis points (if less than half of the Facility is used). The Facility has been and we believe will be used, together with our equity capital, to make additional long-term investments. The Facility has an investment grade Moody's rating of A2.
With the issuance of the Notes in late December, we repaid the revolving balance on the Facility in full. As of February 9, 2011, we had deployed all of the proceeds from the Note issuance and we had borrowed $31.1 million under our Facility. Our available liquidity as of today is currently in excess of $245.0 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 second quarter ended December 31, 2010, we continued our at-the-market program, completing the third such program (which was initiated on September 24, 2010) in the quarter and embarking on a fourth program on November 10, 2010.
Under our third at-the-market program, we issued 4,929,556 shares of our common stock at an average price of $9.86 per share, raising $48.6 million of gross proceeds, from October 1, 2010 through November 3, 2010.
Under our fourth at-the-market program, we issued 4,513,920 shares of our common stock at an average price of $10.00 per share, raising $45.1 million of gross proceeds, from November 16, 2010 through December 15, 2010. No shares have been sold under this program since December 15, 2010.
Our modestly leveraged balance sheet is a source of significant strength. Our debt to equity ratio currently stands at approximately 20%. Our equitized balance sheet also gives us the potential for future earnings upside as we prudently look to utilize and grow our existing revolving credit facility and add additional secured and unsecured term facilities, made more attractive by our investment grade ratings at corporate, Facility and Notes levels.
CONFERENCE CALL
The Company will host a conference call on Thursday, February 10, 2011 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 448180.
PROSPECT CAPITAL CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES December 31, 2010 and June 30, 2010 (in thousands, except share and per share data) December 31, June 30, 2010 2010 ----------- ----------- (Unaudited) (Audited) Assets Investments at fair value: Control investments (cost of $235,729 and $185,720, respectively) $ 264,228 $ 195,958 Affiliate investments (cost of $65,815 and $65,082, respectively) 74,709 73,740 Non-control/Non-affiliate investments (cost of $584,524 and $477,957, respectively) 579,284 478,785 ----------- ----------- Total investments at fair value (cost of $886,068 and $728,759, respectively) 918,221 748,483 ----------- ----------- Investments in money market funds 132,194 68,871 Cash 4,019 1,081 Receivables for: Interest, net 8,420 5,356 Dividends 2 1 Other 350 419 Prepaid expenses 250 371 Deferred financing costs, net 12,105 7,579 Other assets 534 534 ----------- ----------- Total Assets 1,076,095 832,695 ----------- ----------- Liabilities Credit facility payable -- 100,300 Senior Convertible Notes 150,000 -- Dividends payable 8,900 6,909 Due to Prospect Administration 317 294 Due to Prospect Capital Management 9,787 9,006 Accrued expenses 2,639 4,057 Other liabilities 1,262 705 ----------- ----------- Total Liabilities 172,905 121,271 ----------- ----------- Net Assets $ 903,190 $ 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; 88,115,382 and 69,086,862 issued and outstanding, respectively) $ 88 $ 69 Paid-in capital in excess of par 988,897 805,918 Distributions in excess of net investment income (18,369) (9,692) Accumulated realized losses on investments (99,579) (104,595) Unrealized appreciation on investments 32,153 19,724 ----------- ----------- Net Assets $ 903,190 $ 711,424 =========== =========== Net Asset Value Per Share $ 10.25 $ 10.30 =========== =========== PROSPECT CAPITAL CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS For the Three and Six Months Ended December 31, 2010 and 2009 (in thousands, except share and per share data) (Unaudited) For The For The Three Months Ended Six Months Ended December 31, December 31, -------------------- -------------------- 2010 2009 2010 2009 ---------- --------- ---------- --------- Investment Income Interest Income: Control investments (Net of foreign withholding tax of $0, ($52), $0, and ($19), respectively) $ 5,428 $ 5,052 $ 10,617 $ 9,643 Affiliate investments 3,524 1,539 6,474 2,388 Non-control/Non-affiliate investments 18,410 11,948 39,192 21,343 ---------- --------- ---------- --------- Total interest income 27,362 18,539 56,283 33,374 ---------- --------- ---------- --------- Dividend income: Control investments 2,300 4,160 4,050 10,360 Non-control/Non-affiliate investments 1,068 -- 1,508 -- Money market funds 3 10 7 28 ---------- --------- ---------- --------- Total dividend income 3,371 4,170 5,565 10,388 ---------- --------- ---------- --------- Other income: Control investments 14 75 1,785 75 Affiliate investments 7 -- 154 -- Non-control/Non-affiliate investments 2,546 385 4,725 849 Gain on Patriot acquisition -- 8,632 -- 8,632 ---------- --------- ---------- --------- Total other income 2,567 9,092 6,664 9,556 ---------- --------- ---------- --------- Total Investment Income 33,300 31,801 68,512 53,318 ---------- --------- ---------- --------- Operating Expenses Investment advisory fees: Base management fee 4,903 3,176 9,179 6,385 Income incentive fee 4,769 4,816 10,018 7,896 ---------- --------- ---------- --------- Total investment advisory fees 9,672 7,992 19,197 14,281 Interest and credit facility expenses 2,261 1,995 4,522 3,369 Legal fees 170 390 480 390 Valuation services 231 153 448 273 Audit, compliance and tax related fees 265 239 481 501 Allocation of overhead from Prospect Administration 840 840 1,640 1,680 Insurance expense 72 63 143 126 Directors' fees 64 64 128 128 Other general and administrative expenses 645 807 1,398 994 ---------- --------- ---------- --------- Total Operating Expenses 14,220 12,543 28,437 21,742 ---------- --------- ---------- --------- Net Investment Income 19,080 19,258 40,075 31,576 ---------- --------- ---------- --------- Net realized gain (loss) on investments 4,489 (51,229) 5,016 (51,229) Net change in unrealized appreciation (depreciation) on investments 8,371 17,451 12,429 (1,245) ---------- --------- ---------- --------- Net Increase (Decrease) in Net Assets Resulting from Operations $ 31,940 $ (14,520) $ 57,520 $ (20,898) ========== ========= ========== ========= Net increase (decrease) in net assets resulting from operations per share: $ 0.38 $ (0.25) $ 0.73 $ (0.39) ========== ========= ========== ========= Dividends declared per share $ 0.30 $ 0.41 $ 0.60 $ 0.82 ========== ========= ========== ========= PROSPECT CAPITAL CORPORATION AND SUBSIDIARY ROLLFORWARD OF NET ASSET VALUE PER SHARE For the Three and Six Months Ended December 31, 2010 and 2009 (in actual dollars) (Unaudited) For The For The Three Months Ended Six Months Ended -------------------- -------------------- December December December December 31, 2010 31, 2009 31, 2010 31, 2009 --------- --------- --------- --------- Per Share Data: Net asset value at beginning of period $ 10.24 $ 11.11 $ 10.30 $ 12.40 Net investment income 0.23 0.33 0.51 0.59 Net realized gain (loss) 0.05 (0.89) 0.06 (0.95) Net unrealized appreciation (depreciation) 0.10 0.30 0.16 (0.02) Net decrease in net assets as a result of public offerings (0.06) (0.01) (0.16) (0.79) Net increase in net assets as a result of shares issued for Patriot acquisition -- 0.08 -- 0.13 Dividends declared and paid (0.31) (0.82) (0.62) (1.26) --------- --------- --------- --------- Net asset value at end of period $ 10.25 $ 10.10 $ 10.25 $ 10.10 ========= ========= ========= =========
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.
