A Record Quarter For Prospect Capital

Albert Alfonso profile picture
Albert Alfonso


  • Over the past few days, Prospect Capital has invested over $550 million via two separate first-lien senior secured debt transactions.
  • This marks a return for Prospect Capital to its typical modus operandi of investing in private company debt and equity.
  • The company had previously been focusing more on rental properties and other unrelated businesses in a search for IRR.
  • Concerns regarding ETFs selling BDCs has put increased selling pressure on Prospect Capital’s stock.
  • Prospect Capital remains a decent choice for income, with the stock now trading right around its NAV.

Prospect Capital (NASDAQ:PSEC) finally seems to be returning to form. The company is a business development company, or BDC, which typically invests in private company debt and equity. Over the past few months, Prospect Capital has seen its loan originations steadily tick higher, with a record $1.3 billion for Q1 2014. Prospect Capital also offers a significantly high monthly dividend of about $0.1104 per share, for an annualized yield of slightly under 12.30%.

Loan Originations are on the rise

As noted in the intro, Prospect Capital closed over $1.3 billion loan originations for its March 2014 quarter. This is a record amount for the company, well exceeding last quarter's $607.7 million and last year's $681.9 million.

Over the past two days, Prospect Capital announced two large investments into senior secured debt, its bread and butter. Below is a summary of the transactions:

  • $277.5 million of first-lien floating-rate debt to support the refinancing of IWCO Direct, a leading provider of direct marketing solutions. link
  • $279 million of first-lien senior secured debt and equity to recapitalize Harbortouch Payments, a leading provider of transaction processing services and point-of-sale ("POS") equipment. link

In regards to Harbortouch, Prospect Capital had previously been solely a lender, and has now shifted to become both a lender and a shareholder.

Prospect Capital is likely benefiting from a combination of increased demand for its capital as well as a cool down in the overall BDC market. In late 2013, many BDCs were flush with cash, oftentimes fiercely competing for the same loans and chasing ever smaller rate of returns. This increased competition may have led Prospect Capital to start investing large sums into non-core assets such as rental properties and auto lending.

However, this situation seems to have reversed this quarter, with Prospect Capital more than doubling its sequential loan originations. Indeed, the

This article was written by

Albert Alfonso profile picture
Long term investor focused on dividend growth, income stocks and the energy space.

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