Prospect Capital Q4 Earnings Call Highlights

Key Points

• Prospect Capital reported stable quarterly results, with net investment income of $78 million, or $0.15 per share, and net asset value of $5.71 per share. It declared monthly distributions of $0.035 per share for September and October.
• The company completed the $328 million sale of Valley Electric, generating a 20.5% annualized gross IRR and a 4.8x multiple on invested capital. Quarterly originations totaled $166 million, producing $120 million of net originations, primarily in middle-market lending.
• Prospect’s portfolio remains concentrated in relatively defensive assets: first-lien senior secured debt accounted for 84% of investments at cost, while nonaccruals were only 0.7% of assets at fair value. Management plans to redeploy real estate-sale proceeds into first-lien loans and is pursuing AI and automation initiatives that it believes could generate tens of millions of dollars in annual cash-flow benefits.

Prospect Capital NASDAQ: PSEC reported net investment income of $78 million, or $0.15 per common share, for the June quarter, matching the prior quarter, Chairman and Chief Executive Officer John Barry said during the company’s first-quarter 2026 earnings call.

Net asset value totaled approximately $2.9 billion, or $5.71 per common share, as of June 30. The company’s net debt-to-total-assets ratio was 28.6%, while unsecured debt plus unsecured perpetual preferred securities represented 83.7% of total debt plus preferred equity.

The business development company also announced monthly common-shareholder distributions of $0.035 per share for September and October. Barry said Prospect Capital will have distributed more than $4.8 billion, or $22.14 per share, from its initial public offering 22 years ago through the October 2026 declared distribution.

Valley Electric Sale and Portfolio Activity

On July 1, Prospect Capital closed the sale of portfolio company Valley Electric Company Inc. for total consideration of approximately $328 million. Barry said the investment, held since 2012, generated a realized gross annualized internal rate of return of 20.5% and a 4.8-times multiple of invested capital, including expected net exit proceeds of about $281 million as well as prior interest, equity distributions and other cash flows.

Barry said that if the cash received from the Valley Electric sale had been available on June 30 and used to repay revolving-credit borrowings, the company’s revolver balance would have been $323 million on a pro forma basis.

During the June quarter, investment originations totaled $166 million, led by middle-market investments. Repayments and exits were $46 million, resulting in net originations of $120 million, President and Chief Operating Officer Grier Eliasek said.

Middle-market lending accounted for 91% of originations during the quarter. New first-lien senior secured loan investments included Safety Solutions Financing, a provider of fire security products and services; Abacus Dermatology Management, a management services organization; and Eyefive, a provider of on-demand product and order-fulfillment services.

Credit Portfolio Remains Focused on First-Lien Loans

As of June, Prospect held 91 portfolio companies across 31 industries with an aggregate fair value of $6.3 billion. First-lien senior secured debt represented 84% of the portfolio at cost, while middle-market lending represented 85% of investments at cost.

Eliasek said Prospect’s middle-market portfolio companies had average net leverage of 4.9 turns, compared with 6.1 turns for peers, and cash interest coverage of 223%, compared with 160% for peers. He also cited an annualized net realized loss rate of 20 basis points for Prospect’s exited middle-market investments, compared with 100 basis points for peers.

Over the past 22 years, Prospect has invested approximately $23 billion across more than 450 investments and exited more than 350 investments, Eliasek said. Those exited investments produced a 12% unlevered investment-level gross cash internal rate of return. In middle-market lending specifically, exited investments generated an approximately 14.4% gross IRR based on about $11.5 billion of capital invested and $14.7 billion of proceeds, he said.

Software companies represented 2.3% of the portfolio at fair value as of June, compared with a 22% average across business development companies cited in a June equity research report, according to Eliasek.

The company has also substantially exited its subordinated structured notes portfolio. That strategy represented approximately 0% of investments at cost as of June, down from 8.4% in June 2024.

Nonaccruals were approximately 0.7% of total assets at fair value as of June, unchanged from the prior quarter. Interest income represented 91% of total investment income during the 12 months ended June 2026. Payment-in-kind interest income declined 53% from the 12-month period ended June 2024 and represented 10% of total investment income for fiscal 2026.

Real Estate Rotation and Liquidity

Prospect’s real estate property portfolio at National Property REIT Corp., or NPRC, represented 14% of investments at cost as of June. The portfolio consisted of developed, occupied cash-flow multifamily investments.

Since the strategy began in 2012 through June 2026, Prospect exited nearly 60 property investments, producing an unlevered investment-level gross cash IRR of 24% and a 2.4-times cash-on-cash multiple, Eliasek said. The company exited six properties in the fiscal year ended June 2026, generating an 18% IRR and a 2.3-times multiple.

The remaining real estate portfolio included 52 properties and generated a 5.3% income yield during the June quarter. Prospect had an aggregate unrealized gain of $185 million in NPRC investments as of June and expects to redeploy future property-sale proceeds primarily into first-lien senior secured corporate loans, with selected equity-linked investments.

Chief Financial Officer Kristin Van Dask said the company had $1.6 billion of combined cash and undrawn revolving credit facility commitments as of June, before the Valley Electric sale. Unencumbered assets totaled $4.2 billion, representing approximately 66% of the portfolio.

Prospect’s revolving credit facility has $2.12 billion of commitments from 48 banks, matures in June 2029 and revolves through June 2028. Drawn pricing is SOFR plus 2.05%. The company’s weighted average cost of unsecured debt financing was 4.78% as of June 30.

Barry also said Prospect is deploying artificial intelligence and automation tools across its businesses and portfolio companies. He said the company believes those efforts could create tens of millions of dollars in annualized cash-flow benefits, though he did not provide a timeline or specific financial targets.

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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