Prospect Capital (PSEC) 9 May 192019 Q3 Earnings call transcript

Good day and welcome to the Prospect Capital Corporation Third Fiscal Quarter Earnings Release and Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to John Barry, Chairman and CEO. ahead. go Please

Good Sean. Thank morning, you, everyone.

on Eliasek, Grier me our Financial today Kristin are President and Chief Kristin? call our Officer. Chief Dask, Joining Van the Operating and Officer;

of John. subject Prospect prohibited. Thanks, to call do statements securities of forward-looking outcomes those the contains is of intended laws protection. call the that Actual by This and undertake Capital We Unauthorized are use This forecasts Corporation. is meaning many the within to property to harbor differ required from results our safe materially update impact due the factors. unless forward-looking be not to could statements law.

tab see our earnings previously on filed on additional release, our prospectstreet.com. Relations available our our corporate disclosures, website, presentation XX-Q, and and For Investor press the

to call turn John. Now, over I'll the back

Thank you, Kristin.

of March and the or million the per For income investment quarter, our $X.XX. net exceeding was current per prior XXXX or $X.XX $XX.X NII rate share, $X.XX from quarter share down by $X.XX our dividend

Our XX.X%, ratio net ratio XXX%. equity In debt the to NII quarter, was was March XXXX the X.X% quarter. our from prior to down of distributions

Our net or of per million from was income quarter increase quarter. an the the prior $XX.X $X.XX share, $X.XX for

our to share XXXX announcing announcing original all our distributions ago, paid years for August next cash Since $X.XX We series our XXX aggregating are billion shareholder per through XX will at $X.X June, shareholders in July August, shareholders, on per to count, to our have current IPO of each distribution in out shareholders. $XX.XX aggregating of cumulative We shareholder we monthly distributions share and May, distributions. August. of consecutive plan distributions shareholder

from quarter. per stood up March, the at NAV in share Our prior $X.XX $X.XX

fixed XXXX, consisted Our balance rate XX.X% interest XX% of earning liabilities. as and assets of rate floating sheet March

between on stock greater particularly Our basis believe the to significant XXXX from than for shareholders purchased the is quarter. shareholder combined has no management an management open XX.X% stock total of March We in prior sold investment interest purchase on there affiliates X.X% when over other quarter, $XXX a purchased has stock, same cost the of of and is and income alignment and shareholders in at was management never in market. income increase a from Management Prospect percentage have the a as largest Prospect. basis share. million the management of in amount Prospect

Our economic management by both investment in been team has provided handling rate for the and and decades dynamic experience opportunities business interest with cycles. challenges

productive, is purchase reach more reduce Thank the reserved. believe for those We time, now will current we substantial attractive dry call with future and we to At over utilizing assets, opportunities time have the to And have built is powder when risk and I'll turn same learned, the yield. us to to the environment it Eliasek. you. one provide of periods. Grier

Thank you, John.

with deliver business $X scaled continues and of billion assets credit over solid Our performance. undrawn to

and to groups buyouts, focus structured representing operating covers With experienced sponsor-related consists yield private longevity, Prospect-sponsored XXX and experience continue diversified estate bench, that deep our Our strategy online investing direct of professionals, and one scale, the non-sponsor lending, third-party on largest the team industry. credit middle financial market credit, of we and in lending. a investment real approximately equity

us range we the to broad risk-adjusted disciplined the XX% diversity investments opportunities our allows of to As at basis. a source and prior of high of volume on manner then select fair stood This controlled up the bottoms-up March most attractive deem XXXX, be quarter. our value in a from portfolio, opportunities, at a X.X%

opportunities. percentage disciplined manner and annually a in evaluates typically such of team invests Our opportunities a low-single-digit thousands of in

for Our of multiple the with preference capital senior corporate levels secured the in to invest stack loans. non-bank us gives structure lending the flexibility and

comprised our value X.X% fair X.X% at second portfolio our secured benefiting debt risk-adjusted secured attractive yields. rated Prospect’s yield an XXXX, lien XX.X% March underlying unsecured first that approach structured borrower structured XX.X% lien, XX.X% of collateral. debt underlying from XX% performing secured first with lien, and generating of is bearing one collateral, notes secured being secured XX.X% pledge investments, in with March XX.X% annualized as resulting And notes, subordinated of investments interest were assets generates our XXXX. As investments equity of

contributors also differentiated as We've in against downside to yields and origination achieving that through debt selection still can approach. secured generate yield distributions. risk, capital or act certain positions investments equity continued discipline such prioritize our to We while hold senior as enhancers above-market credit protect positions with a originations gains and

XXXX, of quarter, down with held $X.X a the X a March prior portfolio of value companies, from As fair we billion. XXX

also continued portfolio invest across the fashion to in industry industries, diversified no We many a with different largest company concentration, XX.X%. is significant

stood asset in the X%, the total XXXX, percentage X.X% quarter. of as industry stood down March concentration at prior the X.X% our and at approximately of assets Non-accruals zero. in in As XXXX, retail energy stood our for concentration March a sector at

at down net quarterly the portfolio from decrease. leverage the prior EBITDA straight average stood X.XX fourth weighted times and X.XX Our quarter,

be largest average from syndicated opportunities, higher years, investor weighted efforts. consists reward anchor to of and company, the segment agented self-originated XXXX, us self-originated of the proactive stood sourcing to causing for our at March portfolio In EBITDA market $XX.X market, prioritize recent in up compared to $XX.X and million per non-anchor agented, prior we loans. quarter. sole our risk-adjusted the have Our million perceived middle The broadly portfolio

XXXX in for our Our differentiated Originations center the continues initiative call deal to $XX proprietary drive March million. quarter aggregated flow business.

of and capital repayments experienced sell net resulting as of our repayments objectives, and $XXX down in validation $XXX larger credit of million. exposures, million a preservation of exits, We also

anchoring yield in have estate XXX%, attractive benefited has estate acquisitions debt quarter, investments this To-date, and yields stabilized multifamily, During rising value-added that strong multiple acquisitions property the our portfolio XX-or-more-year a XXXX through look validation NPRC REIT financing. March objective private real programs, real with club occupancies, as a credit is our private our originations attractive largely investments. strategy, focused an with REIT repeat from comprised on XX we high our including new to cash made the early arena exited and increase alongside resulting non-agented rents, renovation of properties income capital property relationships. into corporate with redeploy including in recapitalizations, growth businesses. has financing business in NPRC, returning completely an manager

properties our exits for identified and multiple year We exit expect and potential continue, beyond. additional XXXX calendar in to we’ve

and majority risk-adjusted opportunities. delivered structured teams, with strong primary on world-class has Our working providing management underwriting through focusing attractive attractive cash credit demonstrating business pursuing of issuance the stakes, benefits yields, collateral

asset of $XXX March notes subordinated over portfolios of comprised billion. held across loans non-recourse a million base credit underlying we As structured XX and X,XXX structured XXXX, investments. total $XX These over

XX XXXX, up the basis of down and As quarter, prior the structured an XX quarter quarter. than prior credit points syndicated points. March generated this points default from of of of the the portfolio a experienced yield portfolio annualized basis XX trailing the XXXX rate market broadly March from XX-month less basis points, X.X% XX basis In XX.X%, rate default GAAP

we've of generated $XXX and XX.X% exited of of structured cash of cash As our to distributions XXXX, with also totaling around subordinated cash an our multiple in X on Through billion XX% March cumulative XXXX, credit X.XX representing over portfolio investments, realized has $X.XX IRR times. million, investment. us, original March average

consists many Such our majority-owned compared entirely can minority the credit In position. rebates, same structured of subordinate Our positions. of enjoy portfolio we receive positions holdings to majority fee benefits in significant tranche. cases, because

substantial transaction call to holder, we options add in the a discretion we control majority in And portfolio. ability As the to value our future. our believe such sole

have period We can terms, rather option remove exchange advantageous liabilities when to as in call majority be or investor, a the refis We bond We've refinance years on reset optimal loan and terms an more low. XXXX. XX of investors than completed the for and valuations better in asset enhance resets from the December value. temporarily deal, might to extend waiting baskets since debt in transaction investment fashion,

excluding the and us ended credit Our equity redeeming portfolio XX.X% in deal. new average structured paid cash months has December XX yield XXXX, an

the $XX in June and million current of originations resulting $XX XXXX million, $XX quarter, booked million. received repayments in of repayments far So we’ve in net

comprised I'll to Kristin. now XX% over the have and non-agented originations call debt Thank turn Our you. debt. agented sponsored XX%

diversified unsecured liquidity fixed toward believe Thanks, leverage, matched-book to sheet prudent both as rate unencumbered weighting to We Grier. opportunities. access funding, substantial strengths, diversified access debt balance on well substantial our attractive and demonstrate majority assets, of as capitalize

the majority into to in ladder extending years locked loans significant of LIBOR, interest float the fixed potential upside has with future, XX Company Our rise. rates shareholders while rate of as providing liabilities, a our

a taken issue appreciate develop bond in and the a our creditors leader of We our Shareholders We a right-hand marketplace. program, in construction in industry, acquire and issue notes firsts. we under side unsecured should and industry thoughtful are BDC, differentiated were our of another a bond, convertible sheet. to approach many the first ATM, have company of toward our the balance lists other alike innovator which

our XXXX, extension the XX feature reducing option. billion XXX our have size where The unencumbered basis $X.XX accordion assets, X.X banks of As of one-month completed Funding plus billion XX% of of recently rate $X.X commitments by We LIBOR with amounts our held revolver we points. from assets interest Prospect drawn on pledged billion our currently portfolio. years, approximately are approximately as $X.XX total assets to an of at March representing we remaining to Capital

March Corporation, followed adding of issued are two including bonds, revolver facility grade notes. types of be by years Capital convertible more targeting we’ve at and including from bonds, our of us. continuing allowed commitments interest from institutional benefiting bonds, to amortization assets, and to program lenders. The revolves Outside XXXX unencumbered recently unsecured We our baby distributions additional until Prospect debt, with investment multiple

from market our asset rating unsecured investment these no unsecured an our with of our enjoy financial types so investment liability maturities of rating from BAAX rating BBB We grade no an Egan-Jones, ladder now grade and negative covenants, total investment rating debt duration years. investment out Kroll, an XX on occasions cross debt multiple the investment of of ratings. Moody's, revolver. to We’ve tapped from rating to from grade and restrictions, an grade no four BBB extend grade and have defaults All a S&P BBB term

reduced years. so as we we quarter, maturities notes repurchased our substantially many With Our million XXXX banks debt and the as many counterparty of across our over debt well tranches, have notes. XXXX risk In of March through $XX debt million $XXX the program April XXXX. our extend investors so

first the $XXX believe issued leverage we continued internet million bonds issuances. our arise could programmatic XXXX the in bond, allow our issuances ATM not to in also of including to our XXXX exists come eight weekly We should We we extending of baby half billion, have If June XXXX. ratio, $X.X notes, issued of course, through maturities ordinary debt with and and as demonstrated convertible slow now the volatility. unsecured $XX our separate repayments to market million March calendar program need program, a and decrease during year originations we during aggregating

we of staggering with $XXX outstanding notes had October through As million March of program XXXX, XXXX. maturities

I'll turn Now, to John. over back call the

Kristin. you, Thank

Okay.

We are for questions. ready

Our Instructions] comes ahead. first James. question [Operator Please Dodd go Robert with Raymond from

guys. Hi,

the On in X to from X decline the dividend last dividend quarter, this. REIT obviously, quarter the

rebound, past. You from year? kind expect low on near-term I just is be of more or that's in in guess, a to dividend the we later run-rate exits to this get the size new you obviously the talked properties of that would a additional do I identifying that business about decent a do, to properties. trying I'm quite if contributor feel mean,

John, do take me that? you want

Robert Actually, think wants I Grier. from you, to hear

Okay.

sharply increased We’ve So, -- Robert. as the quite the NPRC didn't one because or flows, actually actually income, out at properties. in against dividend recapped XX as that we portfolio of -- performance of the change have the consider so series the strong to from basically looking investments book our amount or row, just our around growth might company. NPRC in cash investment distributions of We

December Corporation of operating actually quarter, the our which status companies. sustainability visibility signed income given the being of income coming terms our net pending reflects in some Capital which of underlying I as some quarter, which of We through think from the there's are in sold, the income on we've marketed. very performing are would on, these March the confidence interest of difference exit And portfolio different now how some of assets Prospect more as in of contracts processes, expect, being well so, as

i.e. to and want these recall, model, fuss properties, as buyer rate, low cap the Our to that time with sell and upgrading up value multiple fix common areas, years substantial the hard that individual is units. an to hard work, attractive, optimizing. optimize essentially a them, improvements to at as spent the and And adding then, the high we well doesn't operating hard

pretty the and So, it’s a feel we next way about sustainability Robert. long year, of good saying visibility for

we Beyond getting in the for things class started as to X asset our NPRC that, to as as say as tough predecessors, on years cycle. optimizing possible financing are from we financing first long the up where as to years within a sources from refinancing, of to financing the to X locked years we continues try well. basis, do for risk be very only, now much and an X the by get as is of in We that financing. goes attractive two and getting fixed getting years likelihood especially remove interest closer like asset interest selling any as and course, term. or maybe financing, multi-year And We're were it's end, side we financing, of of equation, purchasing only. assets course much the XX given these to of it What rate the long-term other

in maturities So, helpful, then be can about timetable at any Is and to there, that program have Robert? optimal very patient the on optimize and don't we point. really envision and sell that pressing we worry the

very that is your at I not markets right you’re is actually helpful, leads about debt. control carrying pretty talked that some mean recapitalizing But, Tower, for When doing elite. cost I now and still market well. high you like the next other the out That It's question, of look the are there, though. about financing very into I obviously debt favorable equity they paying you is Electric really Electric, Valley First et or mean, cetera. some are positions Valley obviously dividends,

to -- the pretty So, of successful thought given increase now, those right process on and of debt why lower or cheap is the value? what's cost process equity debt businesses the some maybe third-party thought your their what's refinancing not

tackle anything has Sure. see as on to I'll NPRC. if John those add and as well then that

time a each regarding that that There an In the U.S. the over but been the business render, and Tower installment bit different it's amortized of look in CEO, different. asset in industry for -- team, the a of management spends well, well. time relatively decades short-term not business of obvious place nothing one's long markets. So, First the securitization quite sort -- our states, it's all for as a team this case in We management the Ron of half of little to founder, do standing to dozen team, as management side, as already and different the financing Prospect and third-party a long financing business group to the are fully a lot to substantial drawbacks from do addition perform. market, diversified healthy optimize uses or we including financing honor us think our from supportive aligned the of on team, ABL base. We models on the of to issuance that bank a alongside, be company and which explore amount a costs knows time need

credit costs, costs, general So costs, fully the over rating quite long or six prepayments, higher you duration only amortize the so a And setup over longer a in different where And is is that of say CLO amortizing from Tower legal a It's a nature that duration of you're that their substantially a the makes arranger much year. expect cost amortizing fixed which amortizing compare not life front years. that. liabilities, nontrivial. looks such costs the are in issuance, the say contrast less costs time and arranging cost two-year with than to loans structured market whatever similar is

infrastructure in like options. of not to we We So, to them that Pacific distribution allows have in ratios, and some kind But us grown keeps needed ABL to pivot to, continue of that corporate in that's market the distributions, some base does could ways successfully feel model we right explore And can with business the we That And lenders move. more It we you're it getting et of bit accounts from it's have but you if ABL terms third-parties. financing we on utilize Northwest. doesn't we rates to governmental, tend negotiate to that have continue been Valley, sure in it, We have little the certain financing attached as helps business at pointed It's tangible benefit and surety, it’s as financing bonding And third-party candidly. nice amortization check and company's that case lenders. the count, and net they tends short-term of and it's look locking a worth tricky like addition surety and big some In the front. It's to that maximized our that well. favorable out. largely a the do cetera. we're quite have nontrivial an like equity institutional in financing. market. fully from also, and relatively performing we But, have not management grow requirements well, there's ABL, long-term sureties we ABL to with to actually limit that diversify the course. of

NPRC, the John? see, John Tower. if has to Okay. and three those commentary Let's companies, for anything add Valley to

that? for follow-ups While we’ll wait to him. Robert, any

I on Hold was Yes. was mute. just second. to I going say a

when is I done add. blessings answering question, of anything to of working the great a of think One can't Eliasek Grier just he's with that

them. So, any you have me, love Robert, take I'd for to if questions softball

one. last the was That

appreciate Thank you. it. I So,

All I right. No? thought Okay. you had another.

No, sorry.

very Thank much, Robert. you Okay.

any over to conference our session. remarks. question-and-answer like back John Barry would turn the to will for conclude closing This I

the And much approximately answering It's did. any you now. Thanks hope you Well, in completely months. I you see for right. everyone They four seem don't very to be a day. Grier, All has as questions. we'll more. wonderful Bye all. thank

Bye. Thanks all.

The now today's disconnect. Thank for conference now And has concluded. may presentation. you you attending