Prospect Capital Q3 Earnings Call Highlights

Key Points

• Prospect Capital reported Q3 net investment income of $78 million, or $0.16 per share, and maintained a monthly common dividend of $0.035 per share for May through August.
• Management said the company is continuing a strategic shift toward first-lien senior secured middle-market lending, with that mix up to 72% since June 2024 while second-lien and structured note exposure have been sharply reduced.
• The balance sheet remained solid, with $1.8 billion of cash and undrawn revolver capacity, a 27% net debt-to-total-assets ratio, and non-accruals at about 0.7% of total assets.

Prospect Capital NASDAQ: PSEC reported net investment income of $78 million, or $0.16 per common share, for its March quarter, as management emphasized a continuing shift toward first-lien senior secured middle-market lending and away from structured notes, real estate and other targeted equity-linked assets.

Chairman and CEO John Barry said the business development company’s net asset value was approximately $3 billion, or $6.05 per common share, as of March 31. Prospect’s net debt-to-total-assets ratio stood at 27%, while unsecured debt plus unsecured perpetual preferred stock represented 88% of total debt plus preferred.

The company also announced monthly common shareholder distributions of $0.035 per share for each of May, June, July and August. Barry said that since Prospect’s initial public offering nearly 22 years ago through its declared August 2026 distribution, the company will have distributed approximately $4.8 billion, or $22.07 per share. Preferred shareholder cash distributions continue at their contract rates, he said.

Portfolio Rotation Remains a Central Focus

Barry said Prospect continues to make progress on several strategic priorities, led by asset rotation into what management described as its core business: first-lien, senior secured, middle-market loans. He said the company’s first-lien mix has increased 790 basis points to 72% since June 2024.

Prospect is focusing new investments on companies with less than $50 million of EBITDA, including businesses backed by smaller private equity sponsors, independent sponsors and companies without third-party financial sponsors, Barry said. At the same time, he said Prospect has reduced its second-lien senior secured middle-market loan exposure, with the second-lien mix down 404 basis points to 12.4% since June 2024.

Barry also highlighted the company’s exit from subordinated structured notes, saying that exposure has declined 837 basis points to “near zero” since June 2024. He said Prospect is also exiting targeted equity-linked assets, including real estate and certain corporate investments. The company sold five additional properties in the current fiscal year and exited Echelon Transportation in February 2026, with other exits “targeted and in progress,” Barry said.

Management also pointed to initiatives aimed at improving portfolio company operating performance and profitability, including adoption of artificial intelligence and automation focused on increasing revenue and lowering costs.

Middle-Market Lending Dominates Originations

After Barry turned the call over to President and Chief Operating Officer Grier Eliasek, the company said it held 89 portfolio companies across 31 industries with an aggregate fair value of $6.3 billion as of March 2026.

Prospect said senior and secured debt accounted for 84% of the portfolio at cost as of March. Its middle-market lending strategy represented 85% of investments at cost, up 875 basis points from June 2024. Middle-market lending accounted for 94% of originations during the March quarter, with a continued focus on first-lien senior secured loans.

Investment originations in the quarter totaled $115 million, consisting of 94% middle-market investments, with a significant majority in first-lien senior secured loans. The company also reported $222 million in repayments and exits, resulting in net repayments of $107 million.

Prospect said follow-on investments during the quarter supported existing portfolio companies with acquisitions, working capital needs, organic growth initiatives and other objectives.

Real Estate and Structured Notes Exposure Declines

Prospect said it has “essentially completed” the exit of its subordinated structured notes portfolio as of March, with that portfolio representing nearly 0% of the investment portfolio at cost.

The company’s real estate property portfolio at National Property REIT Corp., or NPRC, totaled 14% of investments at cost as of March and continued to focus on developed and occupied cash-flow multifamily investments. Since the strategy began in 2012 through March 2026, Prospect said it exited 57 property investments, earning an unlevered investment-level gross cash internal rate of return of 24% and a cash-on-cash multiple of 2.4 times.

In the current fiscal year through March 2026, Prospect exited five property investments, earning an unlevered investment-level gross cash IRR of 18% and a cash-on-cash multiple of 2.3 times. The remaining real estate property portfolio included 53 properties and paid Prospect an income yield of 5.2% for the March quarter.

Prospect said its aggregate investments in NPRC included a $229 million unrealized gain as of March. The company expects to continue redeploying future real estate property exit proceeds primarily into additional first-lien senior secured loans, along with selected equity-linked investments.

Recurring Income and Credit Metrics

Prospect said interest income for the 12-month period ended March 2026 represented 92% of total investment income, which management characterized as a strong recurring revenue profile. Payment-in-kind interest income for the last 12-month period was down 41% from the prior 12-month period and represented 11% of total investment income for the quarter.

Non-accruals as a percentage of total assets were approximately 0.7% based on fair market value as of March, consistent with the prior quarter, the company said.

Prospect also cited its long-term investment record, saying that over nearly 22 years it has invested approximately $13.4 billion in more than 350 exited investments, out of more than $22 billion invested in over 450 total investments. The company said those exited investments produced a 12% unlevered investment-level gross cash IRR.

Liquidity and Funding Position

Chief Financial Officer Kristin Van Dask said Prospect believes its leverage, funding access, unsecured fixed-rate debt profile and low level of unfunded commitments demonstrate balance sheet strength and liquidity.

Van Dask said the company completed the institutional issuance of approximately $168 million in aggregate principal amount of senior unsecured 5.5% notes due 2030 on Oct. 30, 2025. Prospect’s unfunded eligible commitments to portfolio companies totaled approximately $20 million, of which $17 million were considered at the company’s sole discretion.

As of March, combined balance sheet cash and undrawn revolving credit facility commitments stood at $1.8 billion. Prospect held $4.2 billion of assets as unencumbered assets, representing approximately 65% of the portfolio, Van Dask said. The company had $2.12 billion of commitments from 48 banks under a facility that matures in June 2029 and revolves until June 2028, with drawn pricing at SOFR plus 2.05%.

Van Dask said Prospect’s weighted average cost of unsecured debt financing was 4.71% at March 31, 2026. The conference call ended without any analyst questions during the question-and-answer session.

About Prospect Capital NASDAQ: PSEC

Prospect Capital Corporation is a publicly traded business development company listed on the Nasdaq stock exchange that specializes in providing private debt and equity financing solutions to middle-market companies across the United States. Structured as a closed-end, non-diversified management investment company under the Investment Company Act of 1940, Prospect Capital offers investors access to a diversified portfolio of senior secured loans, subordinated debt and selective equity interests in privately held businesses.

Since its founding in 2004, Prospect Capital has focused on tailoring financing structures to meet the growth, acquisition and recapitalization needs of its portfolio companies.

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