Prospect Capital Q1 2026 Earnings Report

Prospect Capital EPS Results

• Actual EPS: $0.17
• Consensus EPS: $0.11
• Beat/Miss: Beat by +$0.06
• One Year Ago EPS: N/A

Prospect Capital Revenue Results

• Actual Revenue: $119.44 million
• Expected Revenue: $169.53 million
• Beat/Miss: Missed by -$50.09 million
• YoY Revenue Growth: N/A

Prospect Capital Announcement Details

• Quarter: Q1 2026
• Date: 11/6/2025
• Time: After Market Closes
• Conference Call Date: Friday, November 7, 2025
• Conference Call Time: 9:00AM ET

Prospect Capital (NASDAQ:PSEC) (NASDAQ:PSEC) is a business development company that provides financing to middle-market businesses. The company primarily invests in privately held companies through first-lien and second-lien secured loans, unsecured debt, mezzanine financing and equity investments.

Prospect Capital generally works with companies across a range of industries and seeks to provide customized capital solutions for acquisitions, recapitalizations, refinancings, growth initiatives and other corporate purposes. Its portfolio activities have also included structured credit investments and real estate-related financing.

Founded in 2004, Prospect Capital is externally managed by Prospect Capital Management LLC. The company primarily serves businesses in the United States and has elected to be regulated as a business development company under the Investment Company Act of 1940.

Prospect Capital Q1 2026 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Company reported NII of $79.4M ($0.17/share), NAV of $3.0B ($6.45/share), and declared monthly common distributions of $0.045 for Nov–Jan, noting >$4.6B total distributions since IPO.
• Positive Sentiment: Management is accelerating a rotation into its core strategy of first‑lien senior secured middle‑market loans, with first‑lien mix up 701 bps to 71.1% and new originations targeting sub‑$50M EBITDA companies for higher spreads and stronger protections.
• Neutral Sentiment: They have largely exited subordinated structured notes (now ~0.3% of portfolio versus 8.4% in June) and are monetizing real‑estate assets (3 properties sold since June; NPRC shows ~$320M unrealized gain), planning to redeploy proceeds into first‑lien loans.
• Positive Sentiment: Balance sheet and funding remain robust: $1.5B combined cash+undrawn revolver, $4.2B unencumbered assets (~63% of portfolio), $2.12B bank commitments from 48 banks, and a recent $168M senior unsecured 5.5% note issuance due 2030.
• Positive Sentiment: Portfolio performance shows strength with performing interest‑bearing assets yielding an annualized 11.8%, non‑accruals at ~0.7% of assets, and $235M of repayments/exits (net repayments $143M) in the quarter.

Presentation

[Operator]

Today, and welcome to the Prospect Capital first fiscal quarter 2026 earnings release and conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touch-tone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to John Barry, Chairman and CEO. Please go ahead.

[John Barry, Chairman and CEO at Prospect Capital]

Thank you, Danielle. Joining me on the call this morning are Grier Eliasek, our President and Chief Operating Officer, and Kristin Van Dask, our Chief Financial Officer. Kristin?

[Kristin Van Dask, CFO at Prospect Capital]

Thanks, John. This call contains forward-looking statements that are intended to be subject to safe harbor protection. Future results are highly likely to vary materially. We do not undertake to update our forward-looking statements. For additional disclosure, see our earnings press release and 10Q filed previously and available on our website, prospectstreet.com. Now I'll turn the call back over to John.

[John Barry, Chairman and CEO at Prospect Capital]

Thank you, Kristin. In the September quarter, our net investment income, or NII, was $79.4 million, or $0.17 per common share. Our net asset value was $3 billion, or $6.45 per common share. At September 30, our net debt to total assets ratio was 28.2%. Unsecured debt plus unsecured perpetual preferred was 80.8% of total debt plus preferred. We are announcing monthly common shareholder distributions of $0.045 per share for each of November, December, and January. Since our IPO 20 years ago, through our January 2026 declared distribution, we will have distributed over $4.6 billion, or $21.79 per share. Our preferred shareholder cash distributions continue at their contracted rates.

[John Barry, Chairman and CEO at Prospect Capital]

We continue to make progress repositioning our business, including rotation of assets into and increased focus on our core business of first lien senior secured middle market loans, with our first lien mix increasing 701 basis points to 71.1% from June 2024. We are focusing on new investments in companies with less than $50 million of EBITDA, including companies with smaller funded private equity sponsors, independent sponsors, and no third-party financial sponsors, where we see less competition, better returns, and more protection. Reduction in our second lien senior secured middle market loans, with our second lien mix decreasing 292 basis points to 13.5% from June 2024. Exit of our subordinated structured notes, with our subordinated structured notes mix decreasing 808 basis points to 0.3% from June 2024.

[John Barry, Chairman and CEO at Prospect Capital]

Exit of targeted equity-linked securities, including real estate, with three additional properties sold since July 1, 2025, and certain corporate investments, including the sale of significant assets within Echelon Transportation in July 2025, with remaining assets expected to be sold in the December 2025 quarter, with other exits targeted. Enhancement of portfolio company operations and greater utilization of our cost-efficient floating rate revolver, which largely matches our floating rate assets. Thank you. I will now turn the call over to Grier.

[Grier Eliasek, President and COO at Prospect Capital]

Thank you, John. Over the past two decades, Prospect Capital Corporation has invested approximately $13 billion in nearly 400 exited investments, out of over $22 billion in nearly 500 total investments, that have earned a 12% unlevered investment level gross cash internal rate of return, or IRR, to Prospect Capital Corporation. This multi-decade time period includes the GFC and has been dominated in general by low prevailing market interest rates. As of September 2025, we held 92 portfolio companies across 32 different industries, with an aggregate fair value of $6.5 billion. We primarily focus on senior and secured debt, which was 85% of our portfolio at cost as of September. Our middle market lending strategy is the primary focus of our company, with such strategy as of September 2025 representing 85% of our investments at cost, an increase of 864 basis points from June of 2024.

[Grier Eliasek, President and COO at Prospect Capital]

In our middle market lending strategy, we've continued our focus on first lien senior secured loans during the quarter, with such investments totaling 81% of originations during the quarter. Investments during the quarter included a new investment in The Ridge, also known as Healthcare Venture Partners, a provider of healthcare services, and other follow-on investments in existing portfolio companies to support acquisitions, working capital needs, organic growth initiatives, and other objectives. We've substantially completed the exit of our subordinated structured notes portfolio as of September 2025, with such portfolio representing only 0.3% of our investment portfolio at cost, which represents a reduction of 808 basis points from 8.4% as of June 2024.

[Grier Eliasek, President and COO at Prospect Capital]

In our real estate property portfolio at National Property REIT Corp, or NPRC, which represented 14% of our investments at cost as of September 2025, and which is focused on developed and occupied cash-flowing multifamily investments, since the inception of this strategy in 2012 and through October 31, 2025, we have now exited 55 property investments that have earned an unlevered investment level gross cash IRR of 24% and cash-on-cash multiple of 2.4 times. We exited three property investments since June 2025 for approximately $59 million of net proceeds to Prospect Capital, and that earned an unlevered investment level gross cash IRR of 23% and cash-on-cash multiple of 2.3 times. The remaining real estate property portfolio includes 55 properties and paid us an income yield of 5.1% for the September quarter. Prospect's aggregate investments in NPRC included a $320 million unrealized gain as of September.

[Grier Eliasek, President and COO at Prospect Capital]

We expect to continue to redeploy future asset sale proceeds primarily into more first lien senior secured loans with selected equity-linked investments. Prospect's approach is one that generates attractive risk-adjusted yields and our performing interest-bearing investments were generating an annualized yield of 11.8% for the quarter-ended September. Our interest income in the September quarter was 97% of total investment income, reflecting a strong and high-quality recurring revenue profile for our business. Payment in kind income for the quarter-ended September 2025 was reduced by over 50% from the quarter-ended September 2024. Non-accruals as a percentage of total assets as of September stood at approximately 0.7% based on fair market value. Investment originations in the September quarter aggregated $92 million and were comprised of 72% middle market investments, with a significant majority of first lien senior secured loans.

[Grier Eliasek, President and COO at Prospect Capital]

We also experienced $235 million of repayments and exits as a validation of our capital preservation objective, resulting in net repayments of $143 million. Thank you, and I'll now turn the call over to Kristin. Kristin?

[Kristin Van Dask, CFO at Prospect Capital]

Thanks, Grier. We believe our prudent leverage, diversified access to matched book funding, substantial majority of unencumbered assets, weighting toward unsecured fixed-rate debt, and avoidance of unfunded asset commitments all demonstrate balance sheet strength, as well as substantial liquidity to capitalize on attractive opportunities. Our company has locked in a ladder of liabilities extending 26 years into the future. On October 30, 2025, we successfully completed the institutional issuance of approximately $168 million in aggregate principal amount of senior unsecured 5.5% notes due 2030, which mature on December 31, 2030. We expect to use the net proceeds of the offering primarily for the refinancing of existing indebtedness. Our unfunded eligible commitments to portfolio companies total approximately $36 million, of which $15 million are considered at our sole discretion, representing approximately 0.5% and 0.2% of our total assets as of September, respectively.

[Kristin Van Dask, CFO at Prospect Capital]

Our combined balance sheet cash and undrawn revolving credit facility commitments stood at $1.5 billion as of September, and we held $4.2 billion of our assets as unencumbered assets, representing approximately 63% of our portfolio. The remaining assets are pledged to Prospect Capital Funding, a non-recourse SPV. We currently have $2.12 billion of commitments from 48 banks, demonstrating strong support of our company from the lender community, with a diversity unmatched by any other company in our industry. The facility does not mature until June 2029 and revolves until June 2028. Our drawn pricing continues to be SOFR plus 2.05%. Outside of our revolver, we have access to diversified funding sources across multiple investor types and have successfully issued securities in an array of markets. Prospect has issued multiple types of unsecured debt, institutional non-convertible bonds, institutional convertible bonds, retail baby bonds, and retail program notes.

[Kristin Van Dask, CFO at Prospect Capital]

All of these types of unsecured debt have no financial covenants, no asset restrictions, and no cross-defaults with our revolver. We have tapped the unsecured term debt market on multiple occasions to ladder our maturities and to extend our liability duration out 26 years, with our debt maturities extending through 2052. With so many banks and debt investors across so many unsecured and non-recourse debt tranches, we have substantially reduced our counterparty risk. At September 30, 2025, our weighted average cost of unsecured debt financing was 4.54%. Now I'll turn the call back over to John.

[John Barry, Chairman and CEO at Prospect Capital]

Thank you, Kristin. We can take questions now.

[Operator]

Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your touch-tone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. The first question comes from Finian O'Shea from Wells Fargo. Please go ahead.

[Finian O'Shea, Director and Senior Equity Research Analyst at Wells Fargo]

Hey, everyone. Good morning. I want to ask about the equity-linked rotation. You've made some good progress there as you sort of embark on that, but seeing if you can give us color on how far it goes and what are maybe the sacred cows within a lot of that's in the control book, particularly one area, consumer finance. You're still putting money in. Those companies are doing well. Is that sort of what's supposed to remain, and/or how much of the rest is sort of a candidate to move versus what you'd view as a strategic holding? Thanks.

[Grier Eliasek, President and COO at Prospect Capital]

Sure. I'll take that. Go ahead, John.

[John Barry, Chairman and CEO at Prospect Capital]

No, no. Please take it, Grier.

[Grier Eliasek, President and COO at Prospect Capital]

Okay. So, Finian, yes, we do like to make first lien and senior and secured loans to companies, and we do really increasing percentage of time like to have some portion of our paper as equity linked, ideally without a trade-off involved. The best type, of course, is penny warrants, the free type. The next best is convertible debt that is still senior and secured, has a cash pay coupon pledgeable to our facility, but then has ups as well. Then various types of convertible preferred that have coupons and liquidation preferences on top of third-party capital, all the way to some heads-up capital.

[Grier Eliasek, President and COO at Prospect Capital]

Our strategy is one of evaluating each investment in the book and looking at it on a foregone yield and foregone IRR, including giving effect to accretion through our roughly $200 secured credit facility for those foregone returns at a price that we think is actionable with a third-party purchaser in the market. That's the guidepost we use to make decisions to optimize the portfolio. What that leads us to is to look to divest over time, generally when you've had appreciated equity-linked assets, and we're looking forward, and maybe there's upside in the future, but not quite as much, and we're not foregoing as much. We're also paying careful attention to foregone yield as well, wanting to rotate and drive and optimize increased revenue, increased income for our business. The best candidate for that in our portfolio is real estate.

[Grier Eliasek, President and COO at Prospect Capital]

I mentioned we've sold 55 properties. We have another 50 or so to go. Returns on recent exits, sort of backward-looking, are fairly similar to the overall returns we've generated on the other 50 or so exits with IRRs in the low 20% and a multiple of invested capital, generally above two times cash on cash. The extant book, after giving effect within real estate to appreciation of value, is generating about a 5% income yield. That, of course, is much lower than what we can achieve in the market for new originations. We are focused on smaller companies, increasingly sub-$50 million EBITDA, and really sub-$25 million to $35 million, because there's so much competition in the upper middle market that has bid away spreads, that has bid away floors, that has bid away covenants, that has bid away earnings quality, that has bid away strong documents.

[Grier Eliasek, President and COO at Prospect Capital]

so many problems there that we intensely dislike. We are focused on the harder to originate, but well worth it when you do, smaller end. Our last dozen or so deals closed have had an average spread in the 700s compared to the upper middle market, which is decidedly with a four handle by comparison. We are getting much higher floors, generally above 300 basis points on those deals. Look at what is happening with short-term rates. We are down to about 375, and folks are cutting distributions out there and experiencing lower yields. What went up can and almost certainly will go down again from a floating rate perspective. We can put money out at, call it, 10-12% unlevered in the lower middle market.

[Grier Eliasek, President and COO at Prospect Capital]

We lever that in our S200 facility at a 50-60% advance rate, and we're talking about a 15% plus income yield return before giving effect to any equity-linked benefit. That 15%, of course, is vastly superior on an income yield perspective to the 5% I was quoting on real estate. We view that as an earnings powerhouse that we're unleashing through that rotation that we're pursuing. That doesn't mean we're going to dispose of the real estate portfolio liquidity split. We're doing so on a thoughtful, value-maximizing basis on a bottoms-up look at different geographies, different properties. We've concluded you maximize value by selling individual assets or smaller groups of assets as opposed to the whole. There's just a lot more buyers who can transact with individual assets as opposed to cut a multi-billion dollar check.

[Grier Eliasek, President and COO at Prospect Capital]

Usually, those guys look for significant bargains that we're not too interested in parting with. That is what's going on with real estate. We're seeing solid NOI growth. We've had about 7% NOI growth, and we're seeing tailwinds there as supply has diminished and look for us to continue to monetize assets in coming quarters. You have other assets on the corporate side. I'll divide that into non-financials and financials that you mentioned. We have a number of very successful non-financial deals where we have some equity linked positions that have appreciated significantly. Again, when you look at it on a foregone yield and IRR basis, we say, "Okay, we think it could make sense at the right price." The deal business is dynamic, and you never know exactly what the outcome will be. At the right price, there's a potential transaction there.

[Grier Eliasek, President and COO at Prospect Capital]

We've got various processes that are ongoing there, and we'll disclose that at the appropriate point should we find interesting exit points. Again, an unleashing of earnings power by rotating those appreciated assets into more and a diversified way of income-producing properties. In the financial book that you talked about, those are really, for the most part, long-term holds for multiple reasons. I mean, that doesn't mean we would say no if some huge outlier bid came along. We have substantial tax advantages that aren't enjoyed by other public companies because we're a BDC, we're a RIC, we pay no corporate taxes as long as, of course, we meet the regulatory requirements, which we have for our 20+ year history and intend on continuing to do. We hold these financials as tax partnerships. There's no taxes at the underlying portfolio company level.

[Grier Eliasek, President and COO at Prospect Capital]

If these companies, say, First Tower, for example, were to become its own public company and it's large enough business that perhaps it could or could someday, it would need to be a corporate taxpayer under the regs, and that would be an erosion of value. Any potential buyer would keep that in mind for their eventual exit. We enjoy a very low cost of capital as a natural resting ground for financials. More important than that, we've had terrific success focusing on areas that are highly recurring and recession resilient. I'm talking about installment lending, which is what First Tower and Credit Central and our latest deal, which is QCHI, are all transacting. We do have a small auto book, very small. That's been a tougher business. That's a scale business.

[Grier Eliasek, President and COO at Prospect Capital]

It's less of a customer loyalty, recurring cash flow business because an automobile purchase is episodic. For these installment lenders, they're doing 50-75% plus of their business with current customers. There's a substantial loyalty element that grounds the business and really creates low volatility. As short-term rates are starting now to subside, that's a further tailwind for those businesses that utilize third-party ABL that's floating rate in nature. I think with Tower, something like every 100 basis point reduction in SOFR increases pre-tax net income by somewhere in the range of $5 million-$10 million. Of course, there's a valuation benefit from that as well. That's what we're after. We've made a lot of progress in the last year, Finian. Exiting our structured credit book was a big part of that process.

[Grier Eliasek, President and COO at Prospect Capital]

That book had become low yielding on a GAAP basis as well. We are rotating and having great success with deals like The Ridge, deals like Verified Diagnostics, deals like Druid City and Discovery Point, Towse and QCHI as equity-linked deals have had substantial write-ups year to date since we closed each of them. The strategy is working well, and we are going to continue to execute on that game plan.

[Finian O'Shea, Director and Senior Equity Research Analyst at Wells Fargo]

I very appreciate that. A lot of color there. Just as a follow-up, progress as well on the liability front. Can you talk about the Israeli bond? Is that sort of a one-off or a new channel? If you anticipate or are planning more meaningful movements on the unsecured front? Thank you.

[Grier Eliasek, President and COO at Prospect Capital]

Sure. It's a new channel. It's not a one-off. It's something we've evaluated for a very long time, and we thought the timing made sense for us. We've been utilizing our revolver to retire liabilities. We utilized our 48-bank-strong $2.1 billion revolver a few months ago to take out our first half of 2026 original issue $400 million bond and could utilize that as well for our next maturity, which isn't until the tail end of 2026. This was an interesting and strategic place to issue. We have strong relationships there. We've had institutional support from that market on other types of issuance and Prospect. It just made a lot of sense. Something like 40+ institutional investors came into that bond. That's a decent-sized market. I think you'll see us on a thoughtful basis continue to expand our presence there.

[Grier Eliasek, President and COO at Prospect Capital]

That does not mean that is going to be our only source of financing. We are big, big believers in diversified financing. The fact that we have almost 50 banks in our facility shows we are not taking substantial counterparty risk, which can be problematic, especially in downturns. We saw that happen in the GFC with folks. That is a big reason why we were able to buy Patriot Capital, for example, and what happened to that business when we did the first BDC acquisition in history. Prospect, of course, created the bond market for BDCs. We are the first to issue convertible bonds going back to 2010 and then straight institutional bonds in 2012 and first and only to issue medium-term notes. We have been doing this for a very long time and are big believers in diversified access to funding.

[Grier Eliasek, President and COO at Prospect Capital]

We think that creates a strong credit profile for all, including, of course, equity investors that benefit from that diversified funding.

[Finian O'Shea, Director and Senior Equity Research Analyst at Wells Fargo]

Awesome. Thank you, everybody. Congrats on the quarter.

[Grier Eliasek, President and COO at Prospect Capital]

Thank you, Finian.

[Operator]

This concludes our question and answer session. I would like to turn the conference back over to John Barry for closing remarks.

[John Barry, Chairman and CEO at Prospect Capital]

Okay. Thank you, everyone. Have a wonderful day. Bye now.

[Grier Eliasek, President and COO at Prospect Capital]

Thanks, all.

[Operator]

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

Participants

Executives

• Kristin Van Dask, CFO
• John Barry, Chairman and CEO
• Grier Eliasek, President and COO

Analysts

• Finian O'Shea, Director and Senior Equity Research Analyst at Wells Fargo