- Net Investment Income (NII): $102.9 million or $0.25 per common share.
- Net Asset Value (NAV): $3.71 billion or $8.74 per common share.
- Net Debt to Total Assets Ratio: 30.5%.
- Unsecured Debt plus Preferred: 80.3% of total debt plus preferred.
- Monthly Common Shareholder Distributions: $0.06 per share for September and October.
- Portfolio Composition: 60.3% first-lien debt, 13.6% second-lien debt, 6.9% subordinated structured notes, 19.2% unsecured debt and equity investments.
- Interest Income: 89.2% of total investment income.
- Number of Portfolio Companies: 117, a decrease of five from the prior quarter.
- Non-Accruals: 0.3% of total assets, a 0.1% decrease from the prior quarter.
- Weighted Average Middle Market Portfolio Net Leverage: 5.5 times EBITDA.
- Weighted Average EBITDA per Portfolio Company: $107 million, an increase of $1 million from the prior quarter.
- Originations: $242 million in the June quarter.
- Repayments and Exits: $245 million in the June quarter, resulting in net repayments of $3 million.
- Real Estate Investments: 110 properties with a $4 billion aggregate initial property value.
- Structured Credit Portfolio: $532 million across 32 nonrecourse subordinated structured notes investments.
- Cash and Undrawn Revolving Credit Facility Commitments: $1.4 billion.
- Unencumbered Assets: Approximately $5 billion, representing 63% of the portfolio.
- Credit Facility Commitments: $2.12 billion from 48 banks.
- Weighted Average Cost of Unsecured Debt Financing: 4.25%, an increase of 0.11% from March 31, 2024.
Release Date: August 29, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Prospect Capital Corp (PSEC, Financial) reported a net investment income (NII) of $102.9 million or $0.25 per common share for the June quarter.
- The company announced monthly common shareholder distributions of $0.06 per share for September and October, marking the 86th consecutive distribution.
- PSEC's portfolio at fair value comprises 60.3% first-lien debt, reflecting a 3.8% increase from the prior year, indicating a strategic shift towards lower-risk investments.
- The company's structured credit business has delivered attractive cash yields, with a GAAP yield of 4.1% and a cash yield of 22.3% for the June quarter.
- PSEC has successfully completed and amended an extended credit facility with a new five-year maturity, increasing commitments to $2.12 billion from 48 banks, demonstrating strong support from the lender community.
Negative Points
- The company's net debt to total assets ratio stands at 30.5%, which may be a concern for some investors.
- PSEC's concentration in the energy industry is at 1.6%, which, although low, still exposes the company to sector-specific risks.
- The company's weighted average cost of unsecured debt financing increased to 4.25%, up 0.11% from the previous quarter and 0.18% from the prior year.
- Non-accruals as a percentage of total assets stood at approximately 0.3%, which, while low, still represents a risk of non-performing assets.
- The company's structured credit portfolio, although generating high yields, comprises less than 7% of the investment portfolio and is expected to continue decreasing, potentially impacting future income.
Q & A Highlights
Q: Can you provide insights on the trends in convertible preferred stock conversions this quarter and the potential for forced conversions by the Board?
A: (John Barry, CEO) We have not discussed or contemplated forced conversions. The Board has not considered it, and we do not anticipate invoking such measures. Our current structure is functioning well, and we have no plans to change it.
Q: What are your plans regarding the issuer option conversion for the 5.35% preferred stock?
A: (John Barry, CEO) We do not plan to convert the preferred stock unless necessary. Our current capital structure is effective, and we are not considering any changes unless required.
Q: Can you explain the impact of the reclassification of CLOs on your net asset value (NAV)?
A: (John Barry, CEO) The reclassification did not affect our NAV. It was an accounting adjustment with no impact on our financials or future projections.
Q: What was the purpose of the $20 million investment in the REIT this quarter?
A: (John Barry, CEO) The investment was for acquiring new properties and ongoing value-add capital expenditures. The REIT generates significant cash flows and high returns, and we continue to support its growth.
Q: Can you elaborate on the performance and strategy of your structured credit business?
A: (M. Grier Eliasek, President & COO) Our structured credit business has delivered attractive cash yields and continues to amortize. We focus on favorable risk-adjusted opportunities and expect this portfolio to decrease over time.
Q: How has the performance of your real estate investments been, particularly in the current higher financing cost environment?
A: (M. Grier Eliasek, President & COO) Our real estate investments, particularly through our private REIT, have performed well with rising rents and high occupancies. We focus on value-add multifamily properties and expect continued strong returns.
Q: What is the current status of your balance sheet and liquidity?
A: (Kristin Van Dask, CFO) We have a strong balance sheet with substantial liquidity. Our combined balance sheet cash and undrawn revolving credit facility commitments stand at $1.4 billion, and we have successfully extended our credit facility with strong support from the lender community.
Q: Can you discuss the diversification and risk profile of your investment portfolio?
A: (M. Grier Eliasek, President & COO) Our portfolio is well-diversified with a focus on senior secured and first-lien middle market lending. We avoid cyclicality and industry concentration, with our largest industry concentration below 20%.
Q: What are your thoughts on the current market environment and future investment opportunities?
A: (John Barry, CEO) We remain optimistic about future investment opportunities. Our prudent leverage, diversified funding, and strong liquidity position us well to capitalize on attractive opportunities in the market.
Q: How do you view the performance and future prospects of your private REIT strategy?
A: (M. Grier Eliasek, President & COO) Our private REIT strategy has been highly successful, generating strong returns and cash yields. We continue to focus on value-add multifamily properties and expect continued growth and performance in this segment.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
