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- 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.
Update: Prospect Capital Declares January 2015 Dividend In Line With My Projection And Discloses A Material 'Monetization Event'
- On 9/24/2014, PSEC declared a January 2015 monthly dividend of $0.110625 per share.
- This dividend declaration was what I projected in a previous PSEC dividend and NAV sustainability article.
- In addition, PSEC stated there was a “monetization event” with one of the company’s control investments which impacts ICTI.
- However, there are two specific taxation classifications that could occur in regards to this event which would materially change PSEC's net ICTI figures.
- This article briefly explains these two different taxation classifications and the net ICTI impacts.
- Prospect Capital declares a $0.110625 per share monthly dividend for January 2015.
- NII fell sharply last quarter, leading to intense speculation on the sustainability of Prospect’s dividend.
- At current prices, Prospect yields north of 13%.
Prospect Capital: Should You Go All In If Shares Fall Below $10 Again?
- Shares of Prospect Capital have experienced a minor sell-off thanks to disappointing second quarter results.
- Prospect Capital's past has shown, that sell-offs make for extraordinary attractive investment opportunities.
- Insider purchases send a clear signal as to how insiders see the value of Prospect Capital.
- Will the $10 mark hold this time?
Prospect Capital Corp.'s Dividend And Net Asset Value Sustainability Analysis (Post-Fiscal Q4 2014 Earnings) - Part 1
- PSEC’s net investment income ("NII") figures are based on GAAP methodologies, while the company’s net investment company taxable income ("ICTI") figures are based on IRC methodologies.
- As I have always stated, a BDC’s net ICTI is more important versus NII regarding dividend sustainability metrics. In PSEC’s 2014 10-K, the company increased its IRC disclosures.
- During the fiscal fourth quarter of 2014, PSEC reported disappointing NII and net ICTI figures. Due to heightened demand, I have expanded this analysis to perform four dividend sustainability tests.
- Summarized results from the four tests performed within this analysis, in regards to PSEC’s dividend sustainability, are stated within the “Conclusions Drawn” section of the article.
- Part 2 of this analysis will discuss some additional topics/trends that will impact PSEC’s future dividend and net asset value (NAV) sustainability.
Prospect Capital: A High-Yield BDC Play With A Strong Growth Record As An Alternative To MLPs
- Prospect Capital is the second largest business development company in the sector.
- The company convinces in terms of growth, dividend yield and earnings outlook.
- With a near 13% dividend yield, Prospect Capital is an interesting yield play and offers investors diversification benefits.
- This article discusses dividend coverage for Prospect Capital.
- The company has a few initiatives to increase returns and improve dividend coverage over the coming quarters.
- Most likely Prospect Capital will cut dividends by 10% to 20% once its spillover is used up.
Prospect Capital: Insiders Are Taking Advantage Of The Buying Opportunity In This 13% Yielder
- This stock is undervalued after a recent pullback and now trades at a discount to book value which is around $10.60 per share.
- The pullback was due to an earnings miss, but earnings could be poised to improve in coming quarters.
- Multiple insiders have been buying the pullback in this stock which is another positive sign.
- This pullback is a buying opportunity due to the 13% yield and potential capital appreciation that could come with a $13 price target.
Analyzing Prospect Capital Corp.'s Recently Restructured Control Investments And Its Impact On NII
- PSEC reported disappointing NII of $0.25 per share for the fiscal fourth quarter of 2014 which led me to question what occurred within the company’s investment portfolio.
- Within PSEC’s 10-K for the fiscal year-ended 6/30/2014, management disclosed the company had restructured most of its control investment portfolio during the fiscal fourth quarter of 2014.
- This restructuring was in anticipation of the adoption of an update to ASC 946 where PSEC will consolidate certain wholly-owned and substantially wholly-owned holding companies to be GAAP compliant.
- Debt investments at the holding company level would need to be consolidated per the update to ASC 946 whereas debt investments at the operating company level do not.
- This analysis will show the impacts of several debt/equity conversions in association with the restructured control investment portfolio and explain how this event directly affects NII.
- The dividend payout is manageable.
- The debt ratio is a little high but is being used for its complex business deals.
- Cash flow from operations is being used to grow assets and net income.
Update: Prospect Capital Earnings - All Eyes Are On The Dividend
- During its fiscal Q4 conference call, Prospect Capital was bombarded with questions regarding its dividend.
- Analysts were honed in on the declining NII and weakening coverage ratio.
- As I noted in a recent article, the company is trying to assuage investors' fears.
- However, the market is still not content, sending shares lower 5% for the week.
Yesterday, 7:45 AM
- In three deals totaling $55.4M, Prospect Capital (NASDAQ:PSEC) purchased nine garden-style apartment properties ($44.8M) and seven self-storage properties ($10.6M).
- Deal #1 involved the purchase of an eight-property portfolio in Columbus, OH managed by a 25% equity co-investor. Deal #2 was for a property in Fort Wayne, Indiana managed by a co-investment property manager with whom Prospect has previously co-invested. Deal #3 was a seven self-storage property portfolio in Michigan.
- The company structures its real estate investments as investments of debt and equity into multiple REITs. Prospect currently has three of these, each with different operating managers and co-investors. In the past two years, Prospect has invested $365M in 16 different deals.
- Source: Press Release
Mon, Oct. 20, 7:51 AM
- Onyx is the world's leading processor of hotel payment disbursement and reconciliation solutions, says Prospect. Prospect (NASDAQ:PSEC) has upsized its existing credit facilities to Onyx by $86.1M to help with Onyx's recapitalization and acquisitions of Net Trans Services AS and Worldwide Payment Systems SA.
- Source: Press Release
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
Tue, Oct. 14, 12:11 PM
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. 29, 7:33 AM
- The financing is being used to support the recapitalization of Pacific World, an innovator and supplier of proprietary nail and beauty care products to the food, drug, mass, and value retail channels worldwide.
- The transaction marks the 11th time in the last two years Prospect (NASDAQ:PSEC) has invested more than $100M in a single deal. The company has closed more than $2B in new originations YTD.
- Source: Press Release
Wed, Sep. 24, 7:44 AM
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, Sep. 2, 7:36 AM
- The revolving credit facility for subsidiary Prospect Capital (NASDAQ:PSEC) Funding LLC has been increased to $1.5B, with the term extended to 5.5 years from today, and the pricing cut 50 basis points to 30-day Libor plus 2.25%.
- The facility has closed $800M in commitments to date.
- Source: Press Release
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. 25, 5:08 PM| 15 Comments
Sun, Aug. 24, 5:35 PM
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
Mon, Aug. 18, 7:41 AM
- Prospect Capital (NASDAQ:PSEC) provides a $210M first lien senior secured credit facility to support the recapitalization of a leading food services company in the H.I.G. portfolio. The deal marks the ninth time in the last two years Prospect has invested over $100M in a single transaction.
- Separately, Prospect announces the sale of AMU Holdings and Airmall resulting in a gross 16.7% IRR and 1.61x cash-on-cash return.
- Source: Press Release
PSEC vs. ETF Alternatives
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 other purposes.
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