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Renewed Share Buying, Attractive Valuations Put Prospect Capital Back In Focus
- Prospect earnings results holding up well despite initial fears.
- NAV declines not enough to justify current share values.
- Massive share buying signals opportunities for long-term dividend investors.
Prospect Capital: Insiders Are Loading Up The 'Prospect Truck', And So Should You
- Insiders are buying Prospect Capital and are taking advantage of the recent price slide.
- Large-scale insider buying is a bullish indicator.
- Investors can now buy Prospect Capital at around the same price as management.
- This article provides information about dividend coverage for new shares issued by Prospect Capital.
- Prospect Capital has been maintaining its current underwriting standards and is experiencing yield compression similar to other BDCs.
- The price of new shares issued and the yield of the invested proceeds will impact dividend coverage.
Prospect Capital: Two Reasons Why Prospect Capital Is A Strong Buy Below $10
- Prospect Capital is a resilient, high-yield income vehicle suitable for long-term oriented income investors.
- The BDC has a convincing outperformance record, and has delivered rising revenues and earnings in the past.
- Net asset value discount and low historical P/B valuation reflect high margin of safety.
- Prospect Capital offers capital appreciation potential in addition to a very juicy dividend yield.
- Business Development Companies are not well understood by their investors.
- Prospect has been justifiably criticized for their lack of transparency and obscure reporting methods.
- The challenges of the company present opportunities to enhance shareholder value through reduction in fees, stock buybacks, and enhanced reporting.
- Prospect Capital has not covered its dividend with net investment income over the last five quarters.
- One of the reasons for its lack of dividend coverage is its higher operating cost structure.
- Some BDCs have reduced or waived management fees to ensure dividend coverage.
- Is Prospect Capital dividend in danger?
- Why is the company using taxable income over NII for its dividend policy?
- At current prices, Prospect Capital yields 13.7% and trades at a 7.5% discount to its NAV per share.
I Don't Care About A Net Asset Value Decline... Prospect Capital Is A Strong Buy
- Prospect Capital reported first quarter 2015 earnings last week.
- Net investment income is on track to exceed 2014 levels.
- Shares are down 15% year-to-date.
- The BDC still trades at a respectable discount to its net asset value.
- I discuss four reasons why investors find decent value in shares of Prospect Capital.
- On 11/6/2014, PSEC reported results for the fiscal first quarter of 2015.
- PSEC reported NII of $0.275 per share and earnings of $0.245 per share.
- In this article, I will summarize my previous account projections versus actual results.
- I believe there are several important topics to discuss from the quarter which includes PSEC’s proposed “spinoffs”, recent equity offerings, and dividends.
- My buy, sell, or hold recommendation for PSEC is stated in the “Conclusions Drawn” paragraph.
- Prospect Capital reports its Q3 2014 results.
- NII comes in higher than expected, but still below the dividend.
- NAV sees a minor dip to $10.47 per share.
- The company also announced plans to spin off certain business units.
Prospect Capital Corp.'s Upcoming Fiscal Q1 2015 Net Asset Value Projection
- I am projecting PSEC will report a minor decrease in NAV during the fiscal first quarter of 2015 (NAV per share projection is stated within the article).
- A majority of the projected minor decrease in NAV during the fiscal first quarter of 2015 is due to PSEC distributing quarterly dividends in excess of NII.
- However, I am also projecting PSEC will generate an economic return of 2.39% for the fiscal first quarter of 2015.
- Compared to the prior quarter, valuation losses on PSEC’s investment portfolio should be less severe.
- My buy, sell, or hold recommendation for PSEC is stated in the “Conclusions Drawn” section of the article.
- This article discusses pricing for Prospect Capital.
- Prospect Capital will most likely cut dividends by 10% to 20% in early 2015.
- If the upcoming financial results indicate continued declines in portfolio yield and inadequate amounts of non-interest income, I believe the stock price will continue to fall.
Prospect's Ongoing Below-NAV Sales Reach 7mm Shares In A Single Month. Should You Sell Too?
- Prospect continues to sell shares at significant discounts to NAV via its ATM program.
- This is an extremely expensive source of capital, costing nearly 14%.
- It is unlikely Prospect can invest funds so raised in a manner which exceeds capital costs, regardless of leverage applied.
- While PSEC shares have fallen quite a bit, they are not attractive at current levels.
- Lower rates negate the benefits of its floating rate portfolio.
- Its lower stock price also makes its cost of funding prohibitive.
- Its dividend is likely not sustainable, and investors should avoid PSEC.
- Prospect Capital trades at the lowest level since December 2011.
- Its net asset value discount has increased to more than 11% last week.
- Investors who buy Prospect Capital could benefit from a 14%+ dividend yield, a monthly payment schedule, and even capital appreciation.
- High-yield income structures like Prospect Capital have great value for investors in periods of rising anxiety and economic troubles.
Prospect Capital's Dividend And Net Asset Value Sustainability Analysis (Post-Fiscal Q4 2014 Earnings) - Part 2
- Part 2 of this article discusses three additional topics/trends impacting PSEC’s future dividend and NAV sustainability.
- First, PSEC’s upcoming consolidation of the company’s wholly-owned and substantially wholly-owned holding companies will have specific NII and net ICTI impacts.
- Second, I have classified 96% of PSEC’s investment portfolio performing near or above expectations as of 6/30/2014 (4% of the portfolio was performing slightly, modestly, or materially below expectations).
- Third, PSEC’s investment portfolio continues to have several portfolio companies with moderate unrealized FMV losses (capital depreciation), thus modestly raising the risk of the company’s future NAV sustainability.
- Projections for PSEC’s monthly dividends for the fiscal fourth quarter of 2015 and NAV per share ranges for the fiscal year 2015 are stated at the end of the article.
Prospect Capital: Moving Towards Bigger Investments
- Prospect Capital provides a large $215 million loan to Pacific World.
- This is one of Prospect’s largest deals in months, continue a trend of $100M+ originations.
- Prospect yields over 13% at current prices.
- This article compares expected, projected and actual returns for PSEC and HTGC.
- Both companies have had recent stock declines and could potentially be undervalued.
- PSEC and HTGC have management teams with meaningful amounts of ‘skin in the game’ but one is clearly more invested in the company.
Prospect's Aircraft Monetization Event And Flight MH17: Meet Echelon Aviation
- Prospect’s $38mm in taxable income from an “aircraft monetization event” in Q1:2015 (Sep) may have resulted from an insurance recoverable.
- We document the ownership chain of the Boeing 777 aircraft operated as MH17 to Prospect portfolio company Echelon Aviation.
- Prospect should provide additional disclosure on how such an event resulted in taxable income for Prospect shareholders, as represented in yesterday’s press release, and its relation to dividend coverage.
Fri, Nov. 7, 12:22 PM
- "We're not giving away the crown jewels on this call," says one of Prospect Capital's (PSEC +2.2%) executives on a contentious earnings call following its plan to try and unlock value by spinning of certain of its businesses.
- Analysts/investors on the call are frustrated by a lack of detail, but the Prospect executive (presumably CEO John Barry or COO Grier Eliasek) notes the company's plans/ideas have been outright stolen by competitors in the past. Management, however, believes the parts - its CLO structured credit, online lending, and real estate businesses - are greater than the market currently values the sum.
- Still nicely higher on the session, Prospect has given back about one-third of its gains since the call started.
- Previously: Prospect Capital up 2.6% after announcing spinoff strategy
Thu, Nov. 6, 4:51 PM
- Prospect (NASDAQ:PSEC) hopes to "unlock value" by spinning off certain "pure play" business strategies to shareholders. Those to be spun are strategies which have grown faster than the company's overall growth rate over the past few years, and that need something less constraining than a BDC structure to continue that growth.
- Initial focus will be on three separate companies consisting of portions of Prospect's CLO structured credit, online lending, and real estate businesses. The goal is to complete the spinoffs in early 2015.
- Turning to Q3 operations, NII of $94.5M or $0.28 per share vs. $82.3M and $0.32 one year ago. NII rose and NII per share fell Y/Y thanks to non-recurring dividend and prepayment income in the year-ago period. Dividend is roughly $0.33.
- Net increase in net assets from operations of $84.1M or $0.24 per share vs. $79.9M and $0.31 one year ago.
- Net asset value per share of $10.47 vs. $10.56 at the end of Q2.
- Shares +2.6% after-hours
- Conference call tomorrow at 11 ET
- Previously: Prospect Capital NII in-line, misses on revenue
Wed, Oct. 15, 11:05 AM
- The spread of the junk bond index over Treasurys was below 300 basis points around the start of the summer, and around 400 bps near Labor Day. With today's sharp drop in Treasury yields (without a comparable move down in junk), the spread has blown out to more than 500 basis points.
- HYG -0.25%, JNK -0.3%
- Rough publicly traded equity proxies for high-yield, if you will, BDCs remain stuck in a bear market. Prospect Capital (PSEC -3.6%), Fifth Street Finance (FSC -2%), Main Street Capital (MAIN -3.8%), Blackrock Kelso (BKCC -2.6%), TICC Capital (TICC -5.1%), KCAP Financial (KCAP -4.7%).
- BDC ETFs: BDCL, BDCS, BIZD
- High-yield ETFs: HYG, JNK, HYLD, SJB, ANGL, HYLS, UJB, XOVR, QLTC
Fri, Oct. 10, 4:24 PM
- "The sector's drawdown is 50% of what occurred in the 2011 euro-crisis without anything like the accompanying conditions," writes a bullish BDC Reporter, noting the sector is lower by about 14% since its February high, and stalwart Ares Capital (ARCC -3.1%) is trading at a discount to book value for the first time in years.
- Another example is TCP Capital (TCPC -2.5%), down about 15% from a high hit three months ago. The company has paid out a steadily-increasing dividend since going public, current and future earnings are in excess of the payout, the balance sheet was recently strengthened with medium-term debt capital, the average cost of debt is 2.63%. and its investments yield 9.2%. What's not to like?
- If the current benign business and credit cycle is indeed over, then BDCs have further to fall. If, as BDC Reporter believes, low rates are here to stay for awhile (and even if rates rise the BDC sector should prosper), BDCs are reaching bargain levels.
- ETFs: BDCL, BDCS, BIZD
- Today's action: Prospect Capital (PSEC -2.9%), Fifth Street Finance (FSC -3.5%), FS Investment (FSIC -3%), Apollo Investment (AINV -2.1%), Triangle Capital (TCAP -1.6%), THL Credit (TCRD -2%), OHA Investment (OHAI -4.2%).
Mon, Sep. 22, 2:55 PM
- As income favorites, business development companies often catch a bid during broader market selloffs (and bond market rallies), but the small caps (IWM -1.3%) are bearing the brunt of today's selling and the BDCs tend to fall into the that sector (though excluded from Russell indices).
- Fifth Street Finance (FSC -1.1%) has a market cap of $1.3B; Main Street Capital (MAIN -2.6%) - market cap of $1.4B; Apollo Investment (AINV -2%) - $2B; Triangle Capital (TCAP -1.3%) - $730M; Ares Capital (ARCC -0.4%) - $5.1B. Hanging in there better than the rest is Prospect Capital (PSEC -0.1%), with a $3.45B market cap.
- ETFs: BDCL, BDCS, BIZD
Tue, Sep. 2, 10:27 AM
- It's a mixed securities shelf with common and preferred stock, along with debt as being possible vehicles for a capital raise. Up about 1.3% early in the session, Prospect (NASDAQ:PSEC) is ahead by 0.6% at the moment.
- Previously: Prospect Capital improves size and terms of credit facility
Tue, Aug. 26, 11:48 AM
- Noting this quarter's earnings report contained no usual announcement of future distributions, one caller asks whether a dividend cut is in the cards (the company has previously announced payouts of about $0.11 per month for the rest of the year).
- Another analyst notes there have been several consecutive quarters now when NII didn't match the dividend, and by his calculations, the portfolio yield (now at 12.1%, down from 12.5% the previous quarter) would need to rise 100 basis points for NII to rise to the level of the payout. Will a return of capital be necessary to fund the dividend? Management responds that it wants to fund the dividend out of income, and earlier in the call noted - without giving numbers - that the company still has spillover income to help fund payouts.
- Also noted by management as ways to boost income would be higher leverage, cutting costs, and finding deals with higher yields.
- Previously: Prospect Capital results hurt by slow origination activity
- Down more than 5% earlier, PSEC has been bouncing through the call, now off 2.7%
Mon, Aug. 25, 5:15 PM
- FQ4 net investment income of $84.1M or $0.25 per share is well south of expectations for $0.32 and stands against $98.5M and $0.31 one year ago. Originations slipped to $444M in FQ4 from $1.3B a quarter previous.
- The quarterly dividend is roughly $0.33 per share.
- The debt-to-equity ratio of 72.9% is up from 67.9% at the end of last quarter and 55.7% a year ago. Annualized yield of portfolio of 12.1% slides 40 basis points from the March quarter.
- Net asset value of $10.56 per share slips from $10.68 at end of March quarter. Today's closing stock price was $10.98.
- Conference call at 11 ET
- Previously: Prospect Capital misses by $0.07, misses on revenue
- PSEC -1.9% AH
Mon, Aug. 18, 11:30 AM
- Prospect Capital's (PSEC +0.9%) sizable $210M lending deal announced this morning and 9 booked deals over $100M in the last year suggest it and many of its larger brethren are competing for larger borrowers who don't fit the mold of the larger syndicated loan market BDCs typically play in, writes Nicholas Marshi.
- On the good side, these "story credits" allow Prospect and other BDCs to charge higher rates and fees than are available in the "dirt cheap" syndicated loan market. And Prospect (and others) have become so big that typical middle market deals aren't enough to move the needle on their portfolios anymore.
- Ideally, though, no individual loan would represent more than a tiny fraction of the portfolio, so while "big fish" deals allow for good earnings and maintenance of the distribution today, Marshi worries about the impact of the blow-up of an individual company or of wider credit issues when the next economic downturn hits.
- Other large players today: Ares Capital (ARCC +0.8%), FS Investment (FSIC), American Capital (ACAS +1.4%), Apollo Investment (AINV +0.4%), Main Street Capital (MAIN +0.1%).
- ETFs: BDCL, BDCS, BIZD
Thu, Jun. 26, 3:48 PM
- Leading the way are THL Credit (TCRD +4.1%), Fidus Investment (FDUS +4.6%), NGP Capital Resources (NGPC +3.2%), and BlackRock Kelso (BKCC +3.2%), but the entire BDC sector is lit up bright green a day ahead of its stocks being removed from the Russell indices.
- A selection of others: Prospect Capital (PSEC +0.5%), Ares Capital (ARCC +1.9%), TPG Specialty Lending (TSLX +0.8%), Triangle Capital (TCAP +3.7%), TICC Capital (TICC +2.2%), PennantPark (PNNT +2.7%), Medley Capital (MCC +2.1%), TCP Capital (TCPC +2.2%), Gladstone Commerical (GLAD +2.8%), Capitala Finance (CPTA +2.7%).
- Previously: London Stock Exchange to acquire Frank Russell for $2.7B
- ETFs: BDCL, BDCS, BIZD
Mon, Jun. 16, 7:55 AM
- Prospect Capital (PSEC) is lower by another 1.5% premarket after Friday's 2.1% decline behind the Chapter 7 bankruptcy filing by portfolio company New Century Transportation.
- The carrying value of the loan of $35.9M (was originally $44M) pales in comparison to Prospect's $6B loan portfolio, but - as SA's Lawrence Zack Galler points out - the speed at which the investment progressed from performing to bankruptcy (less than 2 quarters) should unnerve investors relying on Level 3 portfolio marks when economic times get tough.
Thu, Jun. 12, 3:05 PM
- With certain conditions required to consummate the sale of the company to Prospect Capital (PSEC +0.7%) not met ahead of the June 12 termination deadline, Nicholas Financial (NICK -6%) pulls the plug on the deal.
- Prosepct had previously said it didn't expect to close on the transaction as a result of the SEC investigation into its accounting methods, but had hoped to amend its agreement with Nicholas.
- Source: Press Release
- Previously: Prospect wins appeal with SEC; no restatement necessary
Tue, Jun. 10, 4:34 PM
- Prospect Capital (PSEC) is up 3.4% to $10.15 in after-hours action after coming off trading halt.
- Previously: Prospect wins appeal with SEC; no restatement necessary
Tue, Jun. 10, 4:08 PM
- Prospect Capital (PSEC) has been in the penalty box for a few weeks after the SEC asserted certain wholly-owned holding companies needed to be consolidated into its results, but on appeal the SEC staff has agreed with Propsect's rebuttal of that conclusion.
- Shares are currently halted.
- Source: Press Release
Wed, May. 7, 10:05 AM
- Prospect Capital (PSEC -1.3%) opens lower after ho-hum earnings and the disclosure of the SEC's order to restate financials to consolidate on its balance sheet those companies in which Prospect has more than a 50% interest.
- The disclosure was dug out of Prospect's 10-Q by Seeking Alpha author Lawrence Zack Galler, who finds it curious the company has not done so previously. Not only does Prospect not consolidate these entities, says Geller, but it says it should be able to count interest income on loans owed effectively to itself.
- Prospect also elects not to consolidate debt owed to others by these companies which stands senior to Prospect's claims, says Geller. "Such debt is material."
- Prospect intends to appeal the SEC ruling.
- In light of the SEC action, Prospect does not expect the Nicholas Financial (NICK -0.9%) deal to close before the termination date of June 12. Prospect is in talks to amend the current agreement.
- The company earnings call is set for 11 ET.
- Previously: More on Prospect Capital Q1 results
Thu, Apr. 10, 7:13 AM
PSEC vs. ETF Alternatives
Prospect Capital Corporation Prospect Capital Corporation is a closed-end investment company. It invests in senior and subordinated debt and equity of companies in need of capital for acquisitions, divestitures, growth, development, recapitalizations and o
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