Equity Values: Net assets as of September 30, 2008: $431.74 million Net asset value per share as of September 30, 2008: $14.63 First Fiscal Quarter Operating Results: Net investment income: $23.50 million Net investment income per share: $0.80 Net increase in net assets resulting from operations: $14.00 million Dividends to shareholders per share: $0.4025 First Fiscal Quarter Portfolio Activity: Number of new portfolio company investments: 3 Number of portfolio companies at end of period: 31PORTFOLIO AND INVESTMENT ACTIVITY On September 30, 2008, the fair value of our portfolio of 31 long-term investments was approximately $549.3 million. As of September 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 September 30, 2008, we completed three new investments totaling approximately $50.7 million, as well as follow-on investments in existing portfolio companies. On August 1, 2008, we provided $7.4 million in secured debt financing to Castro Cheese Company ("Castro"), based in Houston, Texas. Castro is a leading manufacturer, marketer, and distributor of Hispanic cheeses and creams. On August 4, 2008, we provided $15.0 million in debt financing to support the take-private acquisition of the TriZetto Group ("TriZetto"). TriZetto is a leading healthcare information technology company. On August 21, 2008, we provided $26.0 million in senior secured debt financing and co-invested $2.3 million in equity in the acquisition of BNN Holdings Corp. d/b/a Biotronic NeuroNetwork ("Biotronic"), based in Ann Arbor, Michigan. Biotronic is the largest independent national provider of intra-operative neurophysiological monitoring services. In addition, during the quarter ended September 30, 2008, we exited two positions. We exercised our options and sold our shares in Deep Down on August 1, 2008 for approximately $1.65 million, generating a 53% all-in internal rate of return on our investment. On August 27, 2008, R-V Industries repaid the $7.5 million of debt owed to us. On September 30, 2008, we settled our net profits interests ("NPIs") in IEC Systems LP ("IEC") and Advanced Rig Services LLC ("ARS") with the companies for a combined $12.6 million. In conjunction with the NPI settlement, we simultaneously reinvested the $12.6 million as incremental senior secured debt in IEC and ARS. The incremental debt will be amortized over the period from September 30, 2008 to November 20, 2010. Prospect has been in discussions with multiple purchasers for Gas Solutions but has not yet entered into a binding agreement. Significant negotiations continue. While Prospect wishes to unlock the value Prospect sees in Gas Solutions, Prospect does not wish to enter into any agreement at any time that does not recognize the long term value Prospect sees in Gas Solutions. As an almost fully hedged midstream asset generating predictable and consistent cash flow to Prospect, Gas Solutions is an asset that Prospect wishes to sell at a value-maximizing price, or not at all. Prospect has a patient approach toward the process. Prospect's multi-year puts purchased earlier this year are substantially in the money, providing downside protection to commodity price declines. GSHI has generated approximately $19.5 million of unadjusted plant operating income during the eight month period ended August 31, 2008. On an annualized basis this represents an increase over the results from the year ended December 31, 2007 of 126.7%. LIQUIDITY AND FINANCIAL RESULTS At September 30, 2008, borrowings under our credit facility stood at approximately $131.7 million. 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. We have not yet embarked upon initiating a syndication process for this facility due to the current credit environment, but we expect to initiate such activities in early 2009. The closing of the facility is subject to lender syndication and other conditions customary for a transaction of this type. In the current quarter we announced the authorization by our board of directors to repurchase up to $20 million of our outstanding stock. We will be disclosing any such repurchases in each quarterly report beginning with our December quarter report that we anticipate filing in February. CONFERENCE CALL The Company will host a conference call on Monday, November 10, 2008, at 1:00 p.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 425233.
Prospect Capital Corporation and Subsidiary
Consolidated Statements of Assets and Liabilities
(in thousands, except share and per share data)
September 30, June 30,
2008 2008
----------- -----------
Assets (Unaudited) (Audited)
Investments at fair value (cost of $559,727 and
$496,805, respectively)
Control investments (cost of $204,064 and
$203,661, respectively) $ 202,324 $ 205,827
Affiliate investments (cost of $33,354 and
$5,609, respectively) 33,392 6,043
Non-control/Non-affiliate investments
(cost of $322,309 and $287,535, respectively) 313,587 285,660
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Total investments at fair value 549,303 497,530
----------- -----------
Investments in money market funds 28,658 33,000
Cash 1,269 555
Receivables for:
Interest 5,516 4,094
Dividends 230 4,248
Loan principal 63 71
Mangerial assistance 382 380
Structuring fees 303 -
Other 232 187
Prepaid expenses 346 273
Deferred financing costs 1,416 1,440
----------- -----------
Total Assets 587,718 541,778
----------- -----------
Liabilities
Credit facility payable 131,667 91,167
Dividends payable 11,882 11,845
Due to Prospect Administration 1,038 695
Due to Prospect Capital Management 8,631 5,946
Accrued expenses 994 1,104
Other liabilities 1,767 1,398
----------- -----------
Total Liabilities 155,979 112,155
----------- -----------
Net Assets $ 431,739 $ 429,623
=========== ===========
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
29,520,379 issued and outstanding, respectively) $ 30 $ 30
Paid-in capital in excess of par 441,332 441,332
Undistributed net investment income 13,128 1,508
Accumulated realized losses on investments (12,327) (13,972)
Unrealized (depreciation) appreciation on
investments (10,424) 725
----------- -----------
Net Assets $ 431,739 $ 429,623
=========== ===========
Net Asset Value Per Share $ 14.63 $ 14.55
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Prospect Capital Corporation and Subsidiary
Consolidated Statements of Operations
(in thousands)
Three Months Ended
------------------------
Sep 30, Sep 30,
2008 2007
----------- -----------
(Unaudited) (Unaudited)
Investment Income
Interest income:
Control investments $ 6,722 $ 5,063
Affiliate investments 560 667
Non-control/non-affiliate investments 10,274 7,102
----------- -----------
Total interest income 17,556 12,832
----------- -----------
Dividend income:
Control investments 4,585 1,450
Money market funds 138 168
----------- -----------
Total dividend income 4,723 1,618
----------- -----------
Other income:
Control/affiliate investments 744 10
Non-control/non-affiliate investments 12,776 931
----------- -----------
Total other income 13,520 941
----------- -----------
Total Investment Income 35,799 15,391
----------- -----------
Operating Expenses
Investment advisory fees:
Base management fee 2,823 1,866
Income incentive fee 5,875 1,966
----------- -----------
Total investment advisory fees 8,698 3,832
----------- -----------
Interest and credit facility expenses 1,518 1,238
Chief Financial, Chief Compliance Officer and
Sub-administration fees 250 186
Legal fees 597 1,206
Valuation services 160 113
Sarbanes-Oxley compliance expenses 2 10
Audit and tax related fees 175 250
Allocation of overhead from Prospect
Administration 588 260
Insurance expense 61 64
Directors' fees 81 55
Other general and administrative expenses 167 312
----------- -----------
Total Operating Expenses 12,297 7,526
----------- -----------
Net Investment Income 23,502 7,865
----------- -----------
Net realized gain (loss) on investments 1,645 (11)
Net change in unrealized appreciation/depreciation
on investments (11,149) 696
----------- -----------
Net Increase in Net Assets Resulting from
Operations $ 13,998 $ 8,550
=========== ===========
Prospect Capital Corporation and Subsidiary
Per Share Data
(in actual dollars)
Three Months Ended
------------------------
Sep 30, Sep 30,
2008 2007
----------- -----------
Per Share Data: (Unaudited) (Unaudited)
Net asset value at beginning of period $ 14.55 $ 15.04
Net investment income 0.80 0.39
Realized gain (loss) 0.05 -
Net unrealized (depreciation) appreciation (0.38) 0.04
Difference due to rounding 0.01 -
Dividends declared (0.40) (0.39)
----------- -----------
Net asset value at end of period $ 14.63 $ 15.08
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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