Prospect Capital(PSEC) - 2025 Q4 - Annual Results

Executive Summary Prospect Capital reported a significant net loss, decreased Net Investment Income, and a notable decline in Net Asset Value per common share for the quarter and year ended June 30, 2025 Financial Highlights (Quarter Ended June 30, 2025) Prospect Capital Corporation reported a significant net loss applicable to common shareholders and a decrease in Net Investment Income (NII) for the fiscal quarter and year ended June 30, 2025. The Net Asset Value (NAV) per common share also experienced a notable decline Key Financial Metrics (Quarter Ended June 30, 2025 vs. Prior Periods) | Metric | June 30, 2025 | March 31, 2025 | June 30, 2024 | | :--- | :--- | :--- | :--- | | Net Investment Income ("NII") | $79.043 million | $83.489 million | $102.922 million | | NII per Common Share | $0.17 | $0.19 | $0.25 | | Net Income (Loss) Applicable to Common Shareholders | $(226.369) million | $(171.331) million | $(9.050) million | | Net Income (Loss) per Common Share | $(0.50) | $(0.39) | $(0.02) | | Distributions to Common Shareholders | $61.181 million | $59.966 million | $75.640 million | | Distributions per Common Share | $0.135 | $0.135 | $0.18 | | Total Assets | $6.805 billion | $6.996 billion | $7.857 billion | | Total Liabilities | $2.186 billion | $2.119 billion | $2.559 billion | | Net Asset Value ("NAV") to Common Shareholders | $2.989 billion | $3.245 billion | $3.712 billion | | NAV per Common Share | $6.56 | $7.25 | $8.74 | - NII per Common Share decreased to $0.17 for Q2 2025 from $0.25 in Q2 2024, representing a 32% year-over-year decline[2] - Net Income (Loss) per Common Share significantly declined to $(0.50) for Q2 2025 from $(0.02) in Q2 2024, indicating a substantial increase in losses[2] - NAV per Common Share decreased to $6.56 as of June 30, 2025, from $8.74 as of June 30, 2024, a 25% reduction[2] Shareholder Distributions Prospect declared consistent monthly cash distributions and has accumulated significant cumulative distributions to common shareholders since inception Declared Monthly Distributions Prospect declared consistent monthly cash distributions of $0.0450 per common share for September and October 2025, maintaining the distribution rate from previous periods Monthly Cash Common Shareholder Distribution Declaration | Monthly Cash Common Shareholder Distribution | Record Date | Payment Date | Amount ($ per share) | | :--- | :--- | :--- | :--- | | September 2025 | 9/26/2025 | 10/22/2025 | $0.0450 | | October 2025 | 10/29/2025 | 11/18/2025 | $0.0450 | - Prospect anticipates declaring distributions for November 2025, December 2025, and January 2026 in November 2025[3] Cumulative Distributions Since its inception through the October 2025 declared distribution, Prospect will have distributed a significant cumulative amount of $21.66 per share to original common shareholders, totaling approximately $4.6 billion - Cumulative distributions since inception through October 2025 will amount to $21.66 per share for original common shareholders[4] - The aggregate cumulative distributions to all common shareholders are approximately $4.6 billion[4] Investment Strategy and Portfolio Update Prospect has a history of substantial investments and exits, is optimizing its portfolio towards senior secured loans, and experienced net repayments in the latest quarter Historical Investment Performance Since its initial public offering in July 2004, Prospect has made substantial investments, deploying over $22 billion across more than 450 investments and successfully exiting over 350, achieving a realized gross internal rate of return (IRR) of approximately 12% - Over $22 billion invested across more than 450 investments since the July 2004 IPO[5] - Over 350 investments have been exited, generating an approximate 12% realized gross IRR on total capital invested of $12.6 billion and total proceeds of $16.0 billion[6] Strategic Portfolio Optimization and Mix Prospect is actively optimizing its investment portfolio by increasing its focus on first lien senior secured middle market loans, significantly reducing second lien loans and exiting subordinated structured notes. The company also manages equity-linked assets and enhances portfolio company operating performance - Increased first lien senior secured middle market loans mix by 642 basis points to 70.5% (based on cost) from the prior year[7][12] - Reduced second lien senior secured middle market loans mix by 202 basis points to 14.4% (based on cost) from the prior year[7][12] - Substantially completed the exit of the subordinated structured notes portfolio, decreasing its mix by 781 basis points to 0.6% (based on cost) from 8.4% as of June 30, 2024[7][9][12] - The middle market lending strategy constituted 85% of investments at cost as of June 30, 2025[8] - The real estate property portfolio (NPRC) represented 14% of investments at cost, with 52 exited properties yielding an unlevered investment-level gross cash IRR of 24.0% and a 2.4 times cash on cash multiple[10] Investment Portfolio Mix (at cost) | Investment Type (at cost) | June 30, 2025 (%) | March 31, 2025 (%) | June 30, 2024 (%) | | :--- | :--- | :--- | :--- | | First Lien Debt | 70.5% | 67.7% | 64.1% | | Second Lien Debt | 14.4% | 13.6% | 16.4% | | Total Senior and Secured Debt | 84.9% | 81.3% | 80.5% | | Subordinated Structured Notes | 0.6% | 5.9% | 8.4% | | Unsecured Debt | 0.1% | 0.1% | 0.1% | | Equity Investments | 14.4% | 12.7% | 11.0% | | Total Investments | 100.0% | 100.0% | 100.0% | Quarterly Investment Activity For the quarter ended June 30, 2025, total investment originations were $270.9 million, predominantly in middle-market loans. However, repayments and sales significantly outpaced originations, resulting in net repayments of $(174.5) million Investment Originations and Repayments (Quarter Ended) | Metric | June 30, 2025 | March 31, 2025 | | :--- | :--- | :--- | | Total Originations | $270.859 million | $196.144 million | | Middle-Market Originations | 90.6% | 85.9% | | Real Estate Originations | 9.4% | 14.1% | | Total Repayments and Sales | $445.327 million | $191.656 million | | Originations, Net of Repayments and Sales | $(174.468) million | $4.488 million | - Net originations shifted from positive $4.5 million in Q1 2025 to negative $(174.5) million in Q2 2025, indicating a period of significant portfolio reduction[15] Capital and Liquidity Prospect maintains a diversified funding profile, strong liquidity, and manages debt maturities and costs effectively, utilizing preferred stock programs Funding Profile and Debt Management Prospect maintains a diversified, laddered funding profile and has successfully retired substantial debt maturities, leaving only $2.4 million of debt maturing in calendar year 2025. The next significant institutional bond maturity is scheduled for November 2026 - Successfully retired a $156.2 million convertible bond in March 2025 and $400.0 million of 3.706% Notes in June 2025[16] - Only $2.4 million of debt remains maturing during calendar year 2025[16] - The next institutional bond maturity is $300 million in November 2026[16] Liquidity and Capital Structure The company reported strong liquidity with over $1.3 billion in cash and undrawn revolving credit facility commitments. Its net of cash debt to total assets ratio remained stable at 30.4%, and unencumbered assets represented 62.1% of total assets - Balance Sheet Cash + Undrawn Revolving Credit Facility Commitments totaled $1.316 billion as of June 30, 2025[18] - Unfunded eligible commitments to portfolio companies aggregate approximately $40.7 million, representing 0.6% of total assets[17] Key Capital and Liquidity Ratios | Metric | June 30, 2025 (%) | March 31, 2025 (%) | June 30, 2024 (%) | | :--- | :--- | :--- | :--- | | Net of Cash Debt to Total Assets Ratio | 30.4% | 28.7% | 30.5% | | Net of Cash Debt to Equity Ratio (1) | 44.4% | 40.8% | 44.7% | | % of Interest-Bearing Assets at Floating Rates | 76.8% | 77.5% | 82.1% | | Unsecured Debt + Preferred Equity as % of Total Debt + Preferred Equity | 77.1% | 87.5% | 80.3% | | Unencumbered Assets % of Total Assets | 62.1% | 63.5% | 63.4% | Debt Cost and Preferred Stock Programs The weighted average cost of unsecured debt financing increased to 4.52% as of June 30, 2025. Prospect leverages perpetual preferred stock offerings as a diversified and programmatic capital source, mitigating scheduled maturity risk - Weighted average cost of unsecured debt financing increased to 4.52% as of June 30, 2025, up 0.19% from March 31, 2025, and 0.27% from June 30, 2024[19] - Perpetual preferred stock offerings provide a diversified source of programmatic capital without creating scheduled maturity risk[19] Dividend Reinvestment Plan (DRIP) Prospect's DRIP offers a 5% discount on reinvested distributions, requiring shareholders to actively enroll through their brokers for this benefit DRIP Structure and Shareholder Benefits Prospect's Dividend Reinvestment Plan (DRIP) allows shareholders to reinvest distributions, offering a 5% discount on the market price for newly-issued shares, providing a direct benefit to participants - The DRIP provides for reinvestment of distributions on behalf of shareholders, unless a cash election is made[20] - Newly-issued shares under the DRIP are determined by dividing the distribution amount by 95% of the closing market price, offering a 5% discount[20] How to Participate in DRIP Shareholders holding shares through a broker must proactively instruct their broker to enroll them in Prospect's DRIP through DTC to receive the 5% discount, as brokers may default to synthetic plans without this benefit. Direct registered shareholders can contact the transfer agent for dividend changes - Shareholders holding shares with a broker must contact their broker to ensure participation in the 'Prospect Capital Corporation DRIP through DTC' to receive the 5% pricing discount, as brokers may automatically 'opt out' or use their own 'synthetic DRIP' plans[21] - Shareholders registered directly with the transfer agent can contact Equiniti Trust Company, LLC to make changes to their dividend receipt method[22] Earnings Conference Call Prospect Capital will host an earnings call on Wednesday, August 27, 2025, at 9:00 a.m. Eastern Time, with replay options available online and via phone - An earnings call is scheduled for Wednesday, August 27, 2025, at 9:00 a.m. Eastern Time[23] - A replay will be available after August 27, 2025, on www.prospectstreet.com or by calling 877-344-7529 with passcode 7458818[23] Consolidated Financial Statements Prospect's financial statements show a decrease in total assets and investments, a net loss from operations, and a decline in NAV per common share for the period Consolidated Statements of Assets and Liabilities As of June 30, 2025, Prospect's total assets decreased to $6.8 billion from $7.8 billion year-over-year, primarily driven by a reduction in total investments at fair value. Total liabilities also decreased, contributing to a lower Net Asset Value per Common Share of $6.56 Consolidated Statements of Assets and Liabilities (Selected Items) | Metric | June 30, 2025 | June 30, 2024 | Change (YoY) | | :--- | :--- | :--- | :--- | | Total investments at fair value | $6.674 billion | $7.718 billion | $(1.045) billion | | Cash and cash equivalents | $50.788 million | $85.872 million | $(35.084) million | | Total Assets | $6.805 billion | $7.857 billion | $(1.052) billion | | Revolving Credit Facility | $856.322 million | $794.796 million | $61.526 million | | Public Notes | $593.444 million | $987.567 million | $(394.123) million | | Convertible Notes | $0 | $155.519 million | $(155.519) million | | Total Liabilities | $2.186 billion | $2.559 billion | $(372.905) million | | Preferred Stock | $1.630 billion | $1.586 billion | $43.712 million | | Net Assets Applicable to Common Shares | $2.989 billion | $3.712 billion | $(722.961) million | | Net Asset Value Per Common Share | $6.56 | $8.74 | $(2.18) | - Total investments at fair value decreased by over $1 billion, reflecting a significant reduction in the investment portfolio year-over-year[25] - The Convertible Notes liability was fully retired, decreasing from $155.5 million to $0 as of June 30, 2025[25] Consolidated Statements of Operations For the quarter ended June 30, 2025, total investment income decreased, and substantial net realized and unrealized losses from investments led to a net loss applicable to common stockholders of $(226.4) million, a significant deterioration compared to the prior year Consolidated Statements of Operations (Selected Items, Three Months Ended June 30) | Metric | 2025 | 2024 | Change (YoY) | | :--- | :--- | :--- | :--- | | Total Investment Income | $166.946 million | $212.260 million | $(45.314) million | | Total Operating Expenses | $87.903 million | $109.338 million | $(21.435) million | | Net Investment Income | $79.043 million | $102.922 million | $(23.879) million | | Net realized gains (losses) | $(308.479) million | $(140.314) million | $(168.165) million | | Net change in unrealized gains (losses) | $33.662 million | $66.984 million | $(33.322) million | | Net Realized and Net Change in Unrealized Gains (Losses) from Investments | $(274.817) million | $(73.330) million | $(201.487) million | | Net Increase (Decrease) in Net Assets Resulting from Operations applicable to Common Stockholders | $(226.369) million | $(9.050) million | $(217.319) million | - Net Investment Income decreased by $23.9 million (23.2%) year-over-year for the quarter ended June 30, 2025[27] - Net realized losses from investments more than doubled year-over-year, increasing by $168.2 million, significantly impacting overall profitability[27] - For the full year ended June 30, 2025, the net decrease in net assets applicable to common stockholders was $(593.762) million, a substantial reversal from a net increase of $147 thousand in the prior year[27] Rollforward of Net Asset Value Per Common Share The Net Asset Value per common share declined from $7.25 at the beginning of the quarter to $6.56 at the end, primarily due to significant net realized and unrealized losses from investments and distributions to common stockholders Rollforward of Net Asset Value Per Common Share (Selected Items, Three Months Ended June 30) | Per Share Data | 2025 ($) | 2024 ($) | | :--- | :--- | :--- | | Net asset value per common share at beginning of period | $7.25 | $8.99 | | Net investment income | $0.17 | $0.25 | | Net realized and change in unrealized gains (losses) | $(0.62) | $(0.20) | | Net increase (decrease) from operations applicable to common stockholders | $(0.50) | $(0.01) | | Total distributions to common stockholders | $(0.14) | $(0.18) | | Net asset value per common share at end of period | $6.56 | $8.74 | - Net realized and change in unrealized losses per share significantly increased to $(0.62) for Q2 2025 from $(0.20) for Q2 2024[28] - For the full year ended June 30, 2025, NAV per common share decreased from $8.74 to $6.56, with net increase (decrease) from operations applicable to common stockholders being $(1.35) per share[28] Additional Disclosures This section defines Internal Rate of Return (IRR) and details Prospect's primary origination strategies, focusing on middle-market senior secured loans and equity-linked investments Internal Rate of Return (IRR) Definition Internal Rate of Return (IRR) is defined as the discount rate that equates the net present value of all cash flows related to a specific investment to zero. These calculations are gross of general expenses and are unaudited - IRR is the discount rate that makes the net present value of all cash flows for a particular investment equal to zero[31] - IRR calculations are gross of general expenses not allocable to specific investments and are unaudited[31] Primary Origination Strategies Prospect's primary investment strategy focuses on originating senior and secured loans, typically under $250 million, to private middle-market U.S. companies with annual revenues below $750 million and enterprise values under $1 billion. The company also engages in equity-linked investments and real estate REITs, directly originating most investments through established relationships - Primary investment strategy involves investing in private, middle-market U.S. companies (annual revenues < $750M, enterprise values < $1B) for various capital needs[32] - Typical investments are senior and secured loans of less than $250 million, ranking ahead of unsecured debt and equity, often with security interests on assets[32][33] - Also makes equity and equity-linked investments with capital-appreciation potential, such as convertible debt, preferred equity, common equity, and warrants[33] - Invests a lesser amount in senior and secured debt and controlling equity positions in real estate investment trusts (REITs), specifically National Property REIT Corp. (NPRC), focused on developed and occupied cash flow multifamily properties[34] - The significant majority of investments are directly originated through long-term relationships with private equity sponsors, financial intermediaries, and management teams[36] Company Information Prospect Capital is a BDC focused on middle-market lending, aiming for income and appreciation, with forward-looking statements subject to material variation, and provides contact details About Prospect Capital Corporation Prospect Capital Corporation operates as a business development company (BDC) primarily focused on lending to and investing in middle-market privately-held companies. Its objective is to generate both current income and long-term capital appreciation, and it is treated as a regulated investment company (RIC) for tax purposes - Prospect is a business development company (BDC) that primarily lends to and invests in middle market privately-held companies[38] - The company's investment objective is to generate both current income and long-term capital appreciation[38] - Prospect has elected to be treated as a regulated investment company (RIC) under the Internal Revenue Code of 1986[38] Caution Concerning Forward-Looking Statements This press release contains forward-looking statements that are subject to various future events and conditions, which may cause actual developments and results to differ materially. The company explicitly states it undertakes no obligation to update these statements - The press release contains forward-looking statements that are highly likely to be affected by unknowable future events and conditions[39] - Actual developments and results are highly likely to vary materially from any forward-looking statements[39] - The company undertakes no obligation to update any such statement now or in the future[39] Contact Information For additional information, interested parties can contact Grier Eliasek, President and Chief Operating Officer, via email or telephone - Grier Eliasek, President and Chief Operating Officer, is the contact for additional information[40]