Prospect Capital(US:PSEC)2021-02-10 20:44Financial Data and Key Metrics Changes - In the December quarter, net investment income (NII) was $81.6 million or $0.21 per common share, an increase of $0.06 from the prior quarter [5] - Net income was $306 million or $0.80 per common share, up $0.35 from the prior quarter [5] - Net asset value (NAV) stood at $8.96 per common share in December, up $0.56 and 7% from the prior quarter, marking the third consecutive quarter of NAV growth [5] - The net debt-to-equity ratio was 61.1%, down 13% from March and down 7% from September [5] Business Line Data and Key Metrics Changes - The portfolio at fair value comprised over 47% secured first lien, 21% other senior secured debt, 13% subordinated structured notes, and 18% equity investments, resulting in 82% of investments being secured debt [8] - Originations in the December quarter totaled $346 million, with $338 million in repayments and exits, resulting in net originations of $8 million [12] - The weighted average middle market portfolio net leverage stood at 4.97x EBITDA, down 0.31 from the prior quarter [11] Market Data and Key Metrics Changes - The structured credit portfolio generated an annualized cash yield of 17.2% and a GAAP yield of 16.8% as of December [15] - The trailing 12-month default rate for the structured credit portfolio was 206 basis points, down 14 from the prior quarter [14] Company Strategy and Development Direction - The company focuses on a diversified investment strategy that includes third-party private equity sponsor-related lending, direct non-sponsor lending, and real estate yield investing [7] - The company aims to maintain a balance between liquidity and efficient financing, with a target net debt-to-equity ratio of 0.7 to 0.85 [5][28] - The company has a significant pipeline of deals to deploy capital, indicating a proactive approach to investment opportunities [28] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the loan space, citing a decline in default rates and improvements in loan prices [25] - The company highlighted the importance of having a strong management team at portfolio companies, particularly in overcoming challenges [47] - Management noted that the real estate business is highly profitable and generates significant cash flows, contributing positively to overall performance [52] Other Important Information - The company announced monthly cash common shareholder distributions of $0.06 per share for February, March, and April, marking the 42nd, 43rd, and 44th consecutive dividends [5] - The company has a combined balance sheet cash and undrawn revolving credit facility commitments of approximately $845 million [17][29] Q&A Session Summary Question: Insights on CLO portfolio yields - Management noted a rebound in yields for the CLO portfolio, with cash yields up to 17.2%, and a decline in default rates, indicating optimism for the loan space [24][25] Question: Utilization of the revolver and borrowing base - Management indicated an increase in revolver utilization from 15% to 35% and mentioned approximately $430 million available on the current borrowing base [26][29] Question: NAV performance and asset concentration - Management acknowledged that a significant portion of NAV came from two assets, InterDent and the REIT, and discussed the diversification within the real estate portfolio [31][36] Question: Cash flow disclosures for the REIT - Management agreed to review disclosures regarding cash flows and the mechanics of IRR for the REIT, emphasizing that it is a profitable business [40][41]