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Prospect Capital's (NASDAQ:PSEC) most recent quarter was mildly disappointing. The company reported lower than expected net investment income ("NII") and saw a small decline in book value. As of this writing, Prospect Capital is down about 2% in early trading. Prospect Capital offers about a $0.11 per share monthly dividend and at current prices yields about 11.90%.

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On May 6, Prospect Capital reported its fiscal Q3 2013 results. During the quarter, Prospect Capital's NII was $59.6M, or $0.26 per share, lower than the previously estimated range of $0.27 to $0.31 per share. During fiscal Q3 2012, Prospect Capital reported NII of $58.1M, or $0.51 per share. For the nine months ended March 31 2013, Prospect Capital's NII was $232.8M or $1.20 per share, a 90% increase from the $122.5M, or $1.10 per share, reported for the similar period last year. On per share basis, Prospect Capital saw its NII increase 9%.

As of March 31, 2013, Prospect Capital's total portfolio consisted of 120 long-term investments with a fair value of $3.71B, an increase from the 85 long-term investments with a fair value of $2.10B as of June 30, 2012. Prospect Capital's book value was $10.71 per share as of quarter end, a $0.10 decline from last quarter. As of March 31 and excluding equity positions, the annualized yield on Prospect Capital's portfolio was 13.9%.

During the quarter, Prospect Capital completed 23 new and follow-on investments totaling $784.4M, which was five times the origination volume in the prior year quarter. Also, during the quarter, Prospect Capital sold four investments and received repayment on another investment, for total repayments of $102.5M. Net new investments net of repayments were $681.9M during the quarter. The majority of Prospect Capital's investments were weighted towards the last month of the quarter and therefore Prospect Capital expects to generate the full positive impacts of these investments during the June 2013 quarter and estimates that their NII for the June 2013 quarter will range from $0.26 to $0.32 per share.

During January 2013, Prospect Capital made about $142.4M in net new investments, with the largest being a $30.3M follow-on investment in APH Property Holdings, consisting of $27.6M in debt and $2.7M in equity.

  • On January 11, 2013, we provided $27.1 million of debt financing to Correctional Healthcare Holding Company, Inc., a national provider of correctional medical and behavioral healthcare solutions.

  • On January 17, 2013, we made a $30.3 million follow-on investment in APH Property Holdings, LLC ("APH"), to acquire 5100 Live Oaks Blvd, LLC, a multi-family residential property located in Tampa, Florida. We invested $2.7 million of equity and $27.6 million of debt in APH.

  • On January 24, 2013, we made an investment of $24.9 million to purchase subordinated notes in Cent 17 CLO Limited.

  • On January 24, 2013, we made an investment of $26.9 million to purchase subordinated notes in Octagon Investment Partners XV, Ltd.

  • On January 29, 2013 we provided $8.0 million of secured second lien financing to TGG Medical Transitory, Inc., a developer of technologies for extracorporeal photopheresis treatments.

  • On January 31, 2013, we funded the acquisition of the subsidiaries of Nationwide Acceptance Holdings, LLC, an auto finance business, with $25.2 million of combined debt and equity financing.

During February 2013, Prospect Capital made about $106.3M in net new investments, with the largest being a $39.6M of senior secured first-lien financing to Atlantis Healthcare Group.

  • On February 5, 2013, we received a distribution of $3.3 million related to our investment in NRG Manufacturing, Inc., for which we realized a gain of the same amount.

  • On February 5, 2013, we made a secured debt investment of $2.0 million in Healogics, Inc., a provider of outpatient wound care management services.

  • On February 13, 2013, we made an investment of $35.0 million to purchase subordinated notes in Galaxy XV CLO, Ltd.

  • On February 14, 2013, we made a $2.0 million secured first-lien debt investment in J.G. Wentworth, LLC, the largest purchaser of structured settlement and annuity payments in the United States.

  • On February 14, 2013, we provided $15.0 million of senior secured financing to Speedy Group Holdings Corp., a leading provider of short-term loans and financial services in the United States, United Kingdom, and Canada.

  • On February 15, 2013, we made a $6.0 million secured second-lien debt investment in SESAC Holdco II LLC, a performing rights organization based in Nashville, Tennessee.

  • On February 21, 2013, we provided $39.6 million of senior secured first-lien financing to Atlantis Healthcare Group (Puerto Rico), Inc., a leading owner and operator of dialysis stations.

  • On February 25, 2013, we made a $10.0 million secured second-lien loan and a $2.0 million secured first-lien loan to Transaction Networks Services, Inc., an international data communications company that provides networking, data communications, and other value added services. On the same day we sold the $2.0 million secured first-lien debt instrument and realized a gain of $20,000 on this investment.

During March 2013, Prospect Capital made about $457.0M in net new investments, with the largest being a $197.3M first-lien senior secured credit facility to support the refinancing of Capstone Logistics.

  • On March 1, 2013, we made a $70.0 million secured term loan investment in a subsidiary of Cinedigm DC Holdings, LLC, the leading provider of digital cinema services, software, and content marketing and distribution.

  • On March 6, 2013, we made a $5.0 million follow-on investment in Rocket Software, Inc.

  • On March 7, 2013, we made a secured second-lien follow-on investment of $60.0 million in United Sporting Companies, Inc.

  • On March 8, 2013, we made an investment of $40.4 million to purchase subordinated notes in Halcyon Loan Advisors Funding 2013-I Ltd.

  • On March 12, 2013, we provided $12.0 million of secured second-lien financing to ALG USA Holdings, LLC, a vertically integrated travel company that focuses on providing all-inclusive vacations in Mexico and the Caribbean to the U.S. customer.

  • On March 15, 2013, we made an investment of $44.1 million to purchase subordinated notes in Apidos CLO XII, Ltd.

  • On March 18, 2013, we sold our $2.0 million investment in J.G. Wentworth and realized a gain of $75,000 on this investment.

  • On March 18, 2013, we provided a $197.3 million first-lien senior secured credit facility to support the refinancing of Capstone Logistics, LLC, a logistics services portfolio company. After the financing, we received repayment of the $30.7 million and $38.4 million loans previously outstanding.

  • On March 27, 2013, we provided $100.0 million of senior secured debt financing to support the recapitalization of Broder Bros., Co., a leading distributor of imprintable sportswear and accessories in the United States.

  • On March 28, 2013, we sold our investment in New Meatco Provisions, LLC for net proceeds of approximately $2.0 million, recognizing a realized loss of $10.8 million on the sale.

  • On March 29, 2013, we received net proceeds of $1.3 million for the partial sale of our equity investment in Caleel + Hayden, LLC, realizing a gain of $900,000 on the sale.

Prospect Capital also announced its upcoming monthly dividends, which would be their 58th, 59th, 60th, and 61st consecutive dividends to shareholders. Since 2004, Prospect Capital has returned more than $11.49 per share, or $785M, in distributions to shareholders.

11.0125 cents per share for May 2013 (record date of May 31, 2013 and payment date of June 20, 2013);

11.0150 cents per share for June 2013 (record date of June 28, 2013 and payment date of July 18, 2013);

11.0175 cents per share for July 2013 (record date of July 31, 2013 and payment date of August 22, 2013); and

11.0200 cents per share for August 2013 (record date of August 30, 2013 and payment date of September 19, 2013).

Conclusion

Prospect Capital remains one of the smarter BDCs out there, with only 1.3% of its total assets currently in nonaccrual status. The company has not seen any of its loans go into non-accrual status in nearly six years. In addition, many of its investment companies are generating year-over-year and sequential growth in top-line revenues and bottom-line profits. Prospect Capital's dividend is also buffered by having generated cumulative NII in excess of cumulative distributions to shareholders in the current fiscal year of $42.5M, or $0.22 per share.

Prospect Capital is one of the better stocks out there for those looking for monthly income. While a quarter over quarter book value decline is unfortunate, it was nothing major, and only represented about one month of income.

Disclaimer: The opinions in this article are for informational purposes only and should not be construed as a recommendation to buy or sell the stocks mentioned. Please do your own due diligence before making any investment decision.

Source: Prospect Capital: The Recent Weakness May Be A Buying Opportunity