Prospect Capital Q1 Earnings Call Highlights

Key Points

• Prospect Capital reported $76 million in net investment income, or $0.15 per share, for its fiscal first quarter. It declared monthly distributions of $0.035 per share for November through January and authorized up to $200 million in share repurchases.
• The portfolio had nearly $6 billion in investments across 85 companies; quarterly repayments and exits exceeded originations by $167 million. Non-accruals were 0.2% of investments at fair value, and the company said it is emphasizing first-lien secured lending.
• Prospect reported $1.9 billion in cash and available credit commitments. It priced $300 million of notes due in 2031, primarily to refinance existing debt, including its $263.2 million of November 2026 notes.

Prospect Capital NASDAQ: PSEC reported net investment income of $76 million, or $0.15 per common share, for its fiscal first quarter ended September 30, and announced monthly common shareholder distributions of $0.035 per share for November, December and January.

Chairman and CEO John Barry said net asset value stood at approximately $2.9 billion, or $5.36 per common share, at quarter-end. The company’s board also approved a $200 million common share repurchase authorization.

Barry said Prospect’s net debt-to-total-assets ratio was 25%. Unsecured debt and unsecured perpetual preferred securities represented 90.7% of total debt and preferred securities. Preferred shareholder cash distributions will continue at their contractual rate, he said.

Portfolio activity and credit quality

President and Chief Operating Officer Grier Eliasek said Prospect held investments in 85 portfolio companies across 31 industries as of September, with an aggregate fair value just under $6 billion. Middle-market lending represented 84% of investments at cost, while senior and secured debt accounted for 83%.

Quarterly investment originations totaled $90 million, of which 83% were middle-market investments, Eliasek said. Repayments and exits totaled $257 million, resulting in net repayments of $167 million. Follow-on investments supported portfolio company acquisitions, working capital and organic growth, among other objectives.

Since September 30, Prospect has received $69.4 million in second-lien debt repayments. Those repayments would bring second-lien debt to 10% of investments at cost on a pro forma basis, Eliasek said, as the company continues to emphasize first-lien senior secured lending for new originations.

Non-accrual investments represented approximately 0.2% of total investments at fair market value and 1.8% at cost as of September. Eliasek said payment-in-kind interest income fell 53% in the 12 months ended September 2026 compared with the 12 months ended September 2024. Payment-in-kind income accounted for 11% of total investment income in the September quarter.

Eliasek also said Prospect had completed its exit from its subordinated structured notes portfolio, reducing that category to essentially zero as a percentage of investments at cost, from 8.4% in June 2024.

Real estate and historical returns

Prospect’s real estate property portfolio at National Property REIT Corp. represented 15% of investments at cost as of September. The remaining portfolio included 50 properties, while six property investments had been exited in the preceding 12 months, Eliasek said.

Since the strategy began in 2012 through September 2026, the company exited 60 property investments, earning an unlevered investment-level gross cash internal rate of return of 23% and a 2.4-times cash-on-cash multiple, according to Eliasek. Aggregate investments in National Property REIT Corp. included a $159 million unrealized gain as of September.

Eliasek said Prospect expects to redeploy future real estate exit proceeds primarily into first-lien senior secured loans, alongside selected equity-linked investments.

Funding and liquidity

Chief Financial Officer Kristin Van Dask said Prospect had $1.9 billion in combined balance sheet cash and undrawn revolving credit facility commitments as of September. Unencumbered assets totaled $4 billion, or approximately 66% of total assets.

On October 14, Prospect gave notice that it would redeem all $263.2 million principal amount of its outstanding November 2026 notes, Van Dask said. On October 29, the company priced a $300 million offering of notes due in 2031 and intends to use the proceeds primarily to refinance existing debt, including the November notes and borrowings under its revolving credit facility.

The revolving facility had $2.12 billion in commitments from 48 banks, Van Dask said. It matures in June 2029 and revolves until June 2028. Prospect’s weighted-average cost of unsecured debt financing was 4.84% at September 30.

No analysts asked questions during the call’s question-and-answer session.

About Prospect Capital (NASDAQ:PSEC)

Prospect Capital Corporation NASDAQ: PSEC is a business development company that provides financing and investment capital to middle-market companies. The company primarily invests in privately held businesses through first-lien and second-lien loans, mezzanine debt, and other debt securities, while also making equity and equity-related investments in selected companies.

Prospect Capital invests across a range of industries and has additional exposure to areas such as real estate, structured credit, and financial services.

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