• Net Investment Income (NII): $86.4 million or $0.20 per common share for the December quarter.
• Net Asset Value (NAV): $3.4 billion or $7.84 per common share as of December 31.
• Net Debt to Total Assets: 28.1% as of December 31.
• Unsecured Debt Plus Unsecured Preferred: 91.9% of total debt plus preferred.
• Portfolio Fair Value: $7.1 billion as of December.
• First-Lien Debt: 64.9% of portfolio at fair value, up 620 basis points from the prior year.
• Second-Lien Debt: 10.2% of portfolio at fair value, down 530 basis points from the prior year.
• Subordinate Structured Notes: 5.8% of portfolio at fair value, down 210 basis points from the prior year.
• Unsecured Debt and Equity Investments: 19.1% of portfolio at fair value.
• Interest Income: 91% of total investment income for the December quarter.
• Payment in Kind Income: $20 million for the December quarter, down 39% from the prior quarter.
• Non-Accruals: Approximately 0.4% of total assets as of December.
• Weighted Average EBITDA per Portfolio Company: $102 million.
• Investment Originations: $135 million for the December quarter, with $120 million in first-lien senior secured loans.
• Repayments and Exits: $383 million for the December quarter, resulting in net repayments of $248 million.
• Unfunded Eligible Commitments: Approximately $62 million as of December 2024.
• Balance Sheet Cash and Undrawn Revolving Credit Facility: $1.9 billion as of December.
• Unencumbered Assets: $4.8 billion, representing approximately 66% of the portfolio.
• Commitments from Banks: $2.12 billion from 48 banks.
• Weighted Average Cost of Unsecured Debt Financing: 4.49% as of December 31, 2024.

• Warning! GuruFocus has detected 4 Warning Signs with PSEC.

Release Date: February 11, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Prospect Capital Corp (NASDAQ:PSEC) reported a net investment income of $86.4 million or $0.20 per common share for the December quarter.
• The company has distributed over $4.4 billion or $21.39 per share since inception, demonstrating a strong track record of shareholder returns.
• PSEC's portfolio at fair value comprised 64.9% first-lien debt, indicating a focus on secured investments.
• The company has a diversified portfolio with 114 portfolio companies across 33 industries, totaling an aggregate fair value of $7.1 billion.
• Prospect Capital Corp (NASDAQ:PSEC) has a strong liquidity position with $1.9 billion in combined balance sheet cash and undrawn revolving credit facility commitments.

Negative Points

• Payment in kind income for the December quarter was $20 million, down 39% from the prior quarter.
• The company experienced net repayments of $248 million during the December quarter, which could indicate challenges in maintaining investment levels.
• Non-accruals as a percentage of total assets stood at approximately 0.4%, which, while low, still represents potential risk.
• The weighted average cost of unsecured debt financing was 4.49%, which may impact profitability if interest rates rise.
• PSEC's subordinate structured notes portfolio has decreased, representing only 5.8% of the investment portfolio, which may limit diversification.

Q & A Highlights

Q: Can you discuss how rating changes will impact your strategy for unsecured debt and whether you plan to replace public maturities in similar channels or rely more on the revolver? A: We don't anticipate significant changes in our financing strategy. Prospect Capital has pioneered various financing methods in the BDC industry, and we plan to continue utilizing a diversified array of markets, including bond and program notes markets, as well as our preferred markets. Our credit spread versus treasuries is tighter now than in July 2024, reflecting our strong credit profile. - M. Grier Eliasek, President, Chief Operating Officer, Director

Q: Regarding the preferreds, there was a disclosed offer for an exchange at the end of January. Can you discuss participation levels and whether the 7.5% rate for new securities is indicative of where you would issue a new class of preferreds? A: We've had strong participation in exchange offers historically and expect the same going forward. The 7.5% coupon reflects balancing decisions across fixed income markets. We moved away from using a floater with a floor due to demand for fixed rates, especially as rates are going up. - M. Grier Eliasek, President, Chief Operating Officer, Director

Q: How does Prospect Capital plan to manage its liabilities and funding sources given the current market conditions? A: We have a ladder of liabilities extending 27 years into the future, with a strong support from 48 banks. Our facility revolves until June 2028, and we have diversified funding sources, including unsecured debt with no financial covenants. Our weighted average cost of unsecured debt financing was 4.49% as of December 2024. - Kristin Van Dask, Chief Financial Officer, Chief Compliance Officer, Treasurer, Secretary

Q: Can you provide an update on the performance and strategy of your real estate property portfolio? A: Since 2012, we've exited 51 property investments with a 24.3% unlevered investment level gross cash IRR. The remaining portfolio includes 59 properties with a 6.9% income yield for the December quarter. We plan to redeploy future asset sale proceeds into property value enhancements and first-lien senior secured middle-market loans. - M. Grier Eliasek, President, Chief Operating Officer, Director

Q: What is the current status of your middle-market lending strategy, and can you provide examples of recent investments? A: Our middle-market lending strategy includes recent investments like a $65 million first-lien senior secured term loan to Taos Footwear. Other examples include Druid City Infusion and Discovery Point Retreat, both showing significant growth and expansion. Our portfolio at fair value comprised 64.9% first-lien debt as of December. - M. Grier Eliasek, President, Chief Operating Officer, Director

For the complete transcript of the earnings call, please refer to the full earnings call transcript.