Prospect Capital Q2 2026 Earnings Results & Report

Prospect Capital EPS Results

• Actual EPS: $0.19
• Consensus EPS: $0.10
• Beat/Miss: Beat by +$0.09
• One Year Ago EPS: N/A
• EPS Beat Rate: 8 of last 8 quarters

Prospect Capital Revenue Results

• Actual Revenue: $176.00 million
• Expected Revenue: $156.34 million
• Beat/Miss: Beat by +$19.67 million
• YoY Revenue Growth: N/A

Prospect Capital (NASDAQ:PSEC) is a business development company that provides financing to privately held, middle-market companies. The company primarily invests in first-lien and second-lien loans, subordinated debt, and other debt and equity securities. Its investments are designed to support acquisitions, recapitalizations, growth initiatives, refinancings, and other corporate purposes.

Through its investment platform, Prospect Capital also participates in specialized finance and structured investment activities, including investments in real estate-related assets and other operating businesses. The company typically seeks to invest in established companies across a range of industries rather than focusing on a single sector.

Prospect Capital was founded in 2004 and operates primarily in the United States. It is externally managed by Prospect Capital Management LLC and has elected to be regulated as a business development company under the Investment Company Act of 1940. Its shares trade on the Nasdaq Stock Market under the symbol PSEC.

Prospect Capital Q2 2026 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: The company has materially rotated its portfolio toward first‑lien senior secured middle‑market loans (first‑lien mix up ~728 bps to ~71.4% since June 2024), while reducing second‑lien exposure to 12.7% and largely exiting subordinated structured notes and targeted equity‑linked assets.
• Positive Sentiment: Reported net investment income of $91 million ($0.19 per share) and NAV of approximately $3.0 billion ($6.21 per share), and declared monthly common distributions of $0.04 for February–April.
• Positive Sentiment: Balance sheet and liquidity appear strong with $1.6 billion of combined cash and undrawn revolver, $4.2 billion of unencumbered assets (≈64% of portfolio), $2.12 billion in bank commitments from 48 banks, and a laddered unsecured funding profile (weighted average unsecured cost ~4.68%).
• Positive Sentiment: Portfolio credit metrics show low stress: 91 portfolio companies across 32 industries, non‑accruals ~0.7% of assets, payment‑in‑kind interest down 46% YoY to 8.6% of investment income, and middle‑market lending now ~85% of investments at cost.
• Neutral Sentiment: Management reiterated standard forward‑looking cautions that results may vary materially and noted interest‑rate and market dynamics (e.g., shifting investor demand for fixed vs. floating rate products) could affect future yields and investor behavior.

Presentation

[Operator]

Welcome to the Prospect Capital second fiscal quarter 2026 earnings release and conference call. All participants will be in 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 telephone keypad. 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 F. Barry III, Chairman and CEO at Prospect Capital Management]

Thank you, Michael. Joining me on the call today, once again, 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 Management]

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 10-Q filed previously and available on our website, prospectstreet.com. Now I'll turn the call back over to John.

[John F. Barry III, Chairman and CEO at Prospect Capital Management]

Okay. Thank you, Kristin. In our December quarter, our net investment income was $91 million, or $0.19 per common share. Our NAV was approximately $3 billion, $6.21 per common share. At December 31st, our net debt-to-total assets ratio was 28.2%. Unsecured debt plus unsecured perpetual preferred was 85.3% of total debt plus preferred. We are announcing monthly common shareholder distributions of $0.04 per share for each of February, March, and April. Since our IPO nearly 22 years ago through our April 2026 declared distribution, we will have distributed $4.7 billion, or $21.93 per share. Our preferred shareholder cash distributions continue at their contract rates. We continue to make progress with our strategic priorities, including: Number one, rotation of assets into our core business of first lien senior secured middle market loans, with our first lien mix increasing 728 basis points. Two, 71.4% since June 2024.

[John F. Barry III, Chairman and CEO at Prospect Capital Management]

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. Number two, reduction in second lien senior secured, middle market loans, with our second lien mix decreasing 371 basis points to 12.7% since June 2024. Number three, exiting subordinated structured notes, with our subordinated structured notes mix decreasing 818 basis points to near zero since June 2024. Number four, exiting targeted equity-linked assets, including real estate, with five additional real estate properties sold in the current fiscal year, more targeted, and certain corporate investments sold, including significant assets within Echelon Transportation in July and December 2025 and other exits targeted.

[John F. Barry III, Chairman and CEO at Prospect Capital Management]

Number five, enhancement of portfolio company operations, especially where we hold equity-linked investments. Number six, utilization of our cost-efficient floating rate revolver, which significantly matches our floating rate assets. Thank you. I'll now turn the call over to Grier.

[M. Grier Eliasek, President and COO at Prospect Capital Management]

Thank you, John. Over the past 2 decades+, Prospect Capital Corporation has invested approximately $13.1 billion in over 350 exited investments out of over $22 billion in over 450 total investments that have earned a 12% unlevered investment-level gross cash 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. In Prospect's primary business of middle market lending over the same nearly 22-year time period, Prospect's exited investments resulted in an investment-level exited gross IRR of approximately 14.5% based on total capital invested of about $11.2 billion and total proceeds from such exited investments of about $14.3 billion, with an annualized realized loss rate of 0.2%.

[M. Grier Eliasek, President and COO at Prospect Capital Management]

In Prospect's core targeted business of middle market lending to companies with less than $50 million of EBITDA over the same nearly 22-year time period, Prospect's exited investments resulted in an investment-level exited gross IRR of approximately 17.2% based on total capital invested of about $6.3 billion and total proceeds from such exited investments of about $8.3 billion, with an annualized net realized loss rate in this segment of 0.1%. Prospect's EBITDA to interest coverage for our primary business of middle market lending is about 210%, which increases to about 230% for Prospect's core targeted middle market lending to companies with less than $50 million of EBITDA. As of December 2025, we held 91 portfolio companies across 32 different industries with an aggregate fair value of $6.4 billion.

[M. Grier Eliasek, President and COO at Prospect Capital Management]

Our portfolio at cost included 2.8% of investments in software companies, which is significantly less than the 22% average across business development companies with publicly traded unsecured bonds from a recent Wall Street fixed income research report. We primarily focus on senior unsecured debt, which was 84% of our portfolio at cost as of December. Our middle market lending strategy is the primary focus of our company, with such strategy as of December representing 85% of our investments at cost, an increase of 878 basis points from June 2024. Middle market lending comprised 100% of our originations during the December quarter, with a continued prioritization of first lien senior secured loans. Investments during the quarter included follow-on investments in existing portfolio companies to support acquisitions, working capital needs, organic growth initiatives, and other objectives.

[M. Grier Eliasek, President and COO at Prospect Capital Management]

We've essentially completed the exit of our subordinated structured notes portfolio as of December, with such portfolio representing only 0.2% of our investment portfolio at cost, which represents a reduction of 818 basis points from 8.4% in June 2024. Our real estate property portfolio at National Property REIT Corp., NPRC, totaled 14% of our investments at cost as of December and continued its focus on developed and occupied cash flow multifamily investments. Since the inception of this strategy, 14 years ago in 2012 and through December 2025, we've exited 56 property investments, earning an unlevered investment-level gross cash IRR of 24% and cash-on-cash multiple of 2.4x. We exited four property investments in the current fiscal year through December 2025 that earned an unlevered investment-level gross cash IRR of 21% and cash-on-cash multiple of 2.4x.

[M. Grier Eliasek, President and COO at Prospect Capital Management]

NPRC exited one additional property investment after December 31st, 2025, and has multiple additional properties in various stages of an exit process. The remaining real estate property portfolio included 54 properties and paid us an income yield of 5.4% for the December quarter, providing an opportunity for potential income enhancement from a portfolio rotation strategy. Prospect's aggregate investments in NPRC included a $270 million unrealized gain as of December. We expect to continue to redeploy future real estate property exit proceeds primarily into more first lien senior secured loans with selected equity-linked investments. Our interest income for the 12-month period ending December 2025 was 92% of our total investment income, reflecting a strong recurring revenue profile for our business.

[M. Grier Eliasek, President and COO at Prospect Capital Management]

Payment-in-kind interest income for the last 12-month period ending December 2025 was reduced by 46% from the 12-month period ending December 2024 and was 8.6% of total investment income for the December 2025 quarter. Non-accruals as a percentage of total assets as of December stood at approximately 0.7% based on fair market value. Investment originations in the December quarter aggregated $80 million and consisted of 100% middle market investments, with a significant majority of first lien senior secured loans. We also experienced $79 million in repayments and exits as a validation of our capital preservation objective, resulting in net repayments of $1 million. Thank you. I'll now turn the call over to Kristin. Kristin?

[Kristin Van Dask, CFO at Prospect Capital Management]

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 30th, 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 31st, 2030. Our unfunded eligible commitments to portfolio companies total approximately $34 million, of which $23 million are considered at our sole discretion, representing approximately 0.5% and 0.3% of our total assets as of December 2025, respectively.

[Kristin Van Dask, CFO at Prospect Capital Management]

Our combined balance sheet cash and undrawn revolving credit facility commitments stood at $1.6 billion as of December, and we held $4.2 billion of our assets as unencumbered assets, representing approximately 64% 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+ 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 Management]

All of these types of unsecured debt have no financial covenants, no asset restrictions, and no cross-defaults with our revolver. We've 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 December 31st, 2025, our weighted average cost of unsecured debt financing was 4.68%. Now I'll turn the call back over to John.

[John F. Barry III, Chairman and CEO at Prospect Capital Management]

Thank you, Kristin. We will now answer any questions.

[Operator]

We will now begin the question and answer session. To ask a question, you may press star, then one on your telephone keypad. If you are 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. At this time, we will pause momentarily to assemble our roster. Your first question today comes from Finian O'Shea with Wells Fargo. Please go ahead.

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

Hey, everyone. Good morning. Wanted to ask on Tower, sort of a two-parter. Part one is to the extent that tax refunds are higher this year, do you anticipate that's a headwind to loan balances? And then seeing Tower, it's been a really big winner for you. Is that part of the optimization strategy to, say, exit the equity-linked types of investments, or is that still one of, you know, sort of a firm hold for now, one that you definitely want to keep? Thank you.

[John F. Barry III, Chairman and CEO at Prospect Capital Management]

Well, hey, Finian, and this is John. I would say that we want to stick with our great winners, and First Tower is absolutely one of them. We have a fabulous CEO there. Frankly, it'd be very hard to find a better CEO. So we have no current plans to do anything but continue to work with Frank. Grier?

[M. Grier Eliasek, President and COO at Prospect Capital Management]

Sure. Thank you for your questions, Finian. And on the second one, on potentially exiting Tower, we have no such plans, as John mentioned. Recall that we have substantial tax advantages as a regulated investment company under Subchapter M, paying no income taxes, as a business development company. And the income generated by First Tower is quite favorable, good income, under our tax regime. So we're able to hold First Tower as a tax partnership rather than a C Corporation, thereby avoiding an extra level of taxation. Any prospective buyer of Tower, given its scale, would, you know, quite likely either be a C Corp or have potential future plans to maybe IPO the business, to become a-and that would require a C Corp under the tax law, which would immediately create significantly tax drag.

[M. Grier Eliasek, President and COO at Prospect Capital Management]

So that's a way of saying that we are the logical lowest cost of capital, most tax-efficient owner of that business. On top of it, it's a very yieldy strategy that we like in our business. Whenever we open up a new branch, it has an expected IRR typically of well over 30%. You know, it's attractive income type of business with low-cost, third-party ABL financing that's going lower still, enhancing the yield as SOFR continues to drop, also part of the forward curve. The business is also firing on all cylinders with in recent periods record low on a multi-decade basis delinquencies, record low on a multi-decade basis charge-offs.

[M. Grier Eliasek, President and COO at Prospect Capital Management]

The company has optimized its strategy, not overexpanding but expandingly expanding prudently and thoughtfully, into new states and new offices within existing and new states. Florida and Tennessee, for example, are significant opportunities for expansion on top of Texas, which has been a more recent area for expansion. So the business is doing well, and again, we have no plans to rotate out of it. In terms of your first question, from a tax refund standpoint, yes, the dynamic of consumers borrowing money for holiday spending in the December quarter and then, you know, repaying some of those borrowings in the first half of the following calendar year based on tax refunds is, is not a new phenomenon at all. That's, you know, been the case for decades. Creates a little bit of seasonality, which is fine and not problematic.

[M. Grier Eliasek, President and COO at Prospect Capital Management]

I hadn't heard that tax refunds would necessarily be, you know, abnormally large or cause any distortions to Tower's business in any way. And of course, there are multiple drivers of consumer demand, not just holiday spending but other aspects as well, including what's going on in the bank and non-bank borrower and lender markets. There's a very high barrier to entry in the non-bank installment finance business. There's not a whole lot of new lending going on to new entrants. This is a fairly well-defined existing group of banks that are lenders to that business and don't tend to, from our observation, be that desirous of expanding into new entrants but rather sticking with incumbents, creating a benefit to being already in that business with an established bank group and a history in the case of Tower that spans over 40 years. So, we see strong demand.

[M. Grier Eliasek, President and COO at Prospect Capital Management]

We also see a phenomenon in which Tower and other companies have determined this over time. Tower's not alone in this, and some of our other companies have also optimized on this basis. The best indicator you have of consumer credit is your existing customers and your existing credit experience with those customers. So as they demonstrate a strong history over time of repayment and delevering, providing additional financing to those solid credit customers in the form of larger loans becomes a very smart way to enhance profitability. Not the only way, but a meaningful driver to avoid potential charge-offs or reduce that risk for new borrowers for which one does not necessarily have a prior credit experience. So, hopefully, that's a little bit of context on First Tower, which we first invested in in 2012, 2013 timeframe.

[M. Grier Eliasek, President and COO at Prospect Capital Management]

We're going on 12 years, 13 years, 14 years roughly of a history with that management team, which is outstanding, which is very well aligned with us, has made additional growth investments in the business right alongside us, and we couldn't be more pleased with how that business and team is performing.

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

It's great. I appreciate the color. Follow-up on the preps. Conversions are stable. One thing you've touched on in the past, you've given us color on that market, in terms of impacts from other products in the non-traded channel. So today, as we all know, there are a lot of headlines sort of hitting the larger non-traded BDC market. Does that have an impact, you know, good or bad, on your convertible prep product line?

[M. Grier Eliasek, President and COO at Prospect Capital Management]

I mean, not really directly. I think that interest rates are a meaningful factor, Finian. And in the current environment, you know, some folks are, you know, deprioritizing floating-rate investments or vehicles that have significant underlying floating-rate exposure. Everybody likes to float up and get a higher yield. They don't necessarily like to float down and get paid less. Right? So you see that dynamic, not just with non-traded BDCs that, of course, rode the wave up from 6 yields to 10 yields to investors and now have been riding the wave a bit downward with distribution reductions based on underlying loans, paying less with prevailing SOFR going down. You see that dynamic with interval funds and, you know, anything that's floating rate in nature. I think it makes fixed-rate investments to our sector, no matter what that form might be, all the more compelling.

[M. Grier Eliasek, President and COO at Prospect Capital Management]

I'm talking not just about fixed-rate preferreds, which is essentially what all our extant preferreds are and newly issued preferreds, but also bonds for BDCs. Prioritization of investors from what we see is rotating back towards fixed rate and wanting to lock in a nice yield, should rates continue to decline, at least on a short-term basis, as evidenced by the forward curve. I think that's a non-trivial dynamic at play here, which maybe keeps folks in their seats when it comes to sitting on fixed-rate paper.

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

That's helpful as well. Thanks. I try to stay disciplined according to convention. But if I could throw in a bonus question, you guys have avoided software historically, which is, you know, pretty favorable to you at this point. That's causing a lot of the market consternation. Curious if you have any view on those sort of that sort of overhang being too heavy. Is it time to maybe pivot into enterprise SaaS software that's sort of a mainstay of a lot of your BDC peers' portfolios? And that'll be all from me. Thanks.

[M. Grier Eliasek, President and COO at Prospect Capital Management]

Sure.

[John F. Barry III, Chairman and CEO at Prospect Capital Management]

Hey, Finney.

[M. Grier Eliasek, President and COO at Prospect Capital Management]

Well.

[John F. Barry III, Chairman and CEO at Prospect Capital Management]

Hey, Grier, just one second. Hey, Finian, thank you for your questions. I always hesitate to comment on what other people are doing, their investment strategies, whether I have an opinion or not. I'm very focused on our company. So I really don't know what's happening or going to happen with AI software. And I don't think anybody else does. So I just want to preface anything that anyone has to say here with intellectual modesty and admitting that not only am I unable to forecast what might be happening in that sector, I have no firsthand information about what any of our competitors are doing. So that's my two cents on that, an admission of intense ignorance, if you will. All right, Grier.

[M. Grier Eliasek, President and COO at Prospect Capital Management]

Sure. Yeah, we can only speak as to our own underwriting and thoughts. It's really a big difference in private credit compared to the broadly syndicated market for what the exposures are for software in the two. In the broadly syndicated market, there's, you know, a non-trivial amount of software, I think, you know, 10% or so, give or take, last I saw. In that market, they tend to be cash-flowing software companies. The reason for that is you need to get a rating. It's a very rating-centric market. With the BDC market, less rating-centric. What a lot of folks have done is to invest in annual recurring revenue loans that have less than a 1.0x fixed charge coverage.

[M. Grier Eliasek, President and COO at Prospect Capital Management]

Those loans, when you go get a rating, whether it's credit estimate or private rating or what have you, tend to come back as CCCs and, you know, the lower type of rating. And of course, there's risk attached to that because, there's no cash flow exit, when you're below 1.0x fixed charge coverage. You're consuming cash, and you need growth of the business to enable repayment, you know, coupled with liquidity of a burgeoning software market. And that was always antithetical or has been to date to our underwriting culture of seeking multiple sources of repayment, seeking downside protection, principal protection in the loans we make. We'd like to see delevering occur from the underlying cash flow available for debt service, out of the business. We historically have underwritten with around a 1.5x fixed charge coverage or better with each deal.

[M. Grier Eliasek, President and COO at Prospect Capital Management]

And those annual recurring revenue or ARR deals never offered those. And we thought looked quite risky from our point of view. So we passed on every single one of them. We've never done a single such deal. We understand that others in the industry have pursued that sector. And we'll see what happens. I don't think we're in position to prognosticate on what's going to happen with AI impacting those software companies. We'll just note that if anyone, whether an equity investor or a bond investor, is worried about software exposure, they need not worry about it when it comes to Prospect Capital Corporation. We are the absolute lowest with software exposure at less than 3%, compared to the BDC average, which is around 22% for bond issuers.

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

Appreciate that, everybody. Thanks so much.

[M. Grier Eliasek, President and COO at Prospect Capital Management]

Thank you, Finian.

[John F. Barry III, Chairman and CEO at Prospect Capital Management]

Thank you, Finian. Thank you, Finian. Appreciate the questions.

[Operator]

Seeing no additional questions, this concludes our question-and-answer session. I would like to turn the conference back over to John Barry for any closing remarks.

[John F. Barry III, Chairman and CEO at Prospect Capital Management]

Okay. Well, thank you, everyone. Have a wonderful day now. Bye.

[Operator]

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

Participants

Executives

• John F. Barry III, Chairman and CEO
• Kristin Van Dask, CFO
• M. Grier Eliasek, President and COO

Analysts

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