Prospect Capital (PSEC) 10 Nov 222023 Q1 Earnings call transcript

Good day and welcome to the Prospect Capital First Quarter Fiscal Year 2023 Earnings Release and Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note that this event is being recorded. And I would now like to turn the conference over to Mr. CEO. and Chairman Barry, John Please go sir. ahead,

Thank Chuck. you,

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

forward-looking and call to property This John. Unauthorized unless prohibited. to that statements to be call likely intended the safe update Actual materially, contains Thanks, results of harbor are statements forward-looking law. highly we protection. is by use undertake Prospect. is to our do subject not are This required developments vary and

For additional XX-Q on prospectstreet.com. disclosure, see press release our our filed and earnings available previously and website,

Now I’ll the back over to turn call John.

you, million, our per common Thank investment $XX.X or net basic XX%. our share by NII distribution rate $X.XX per September In exceeding Kristin. and of quarter, share was income, or NII, $X.XX the common

Our mark to basic a due $XXX.X million, stockholders share, market $X.XX loss to to conditions. depreciation of was largely net per macro common applicable or unrealized common income from

cent in at to NAV common the market mark quarter, largely September, X.X% and depreciation per from to Our down unrealized macro due $X.XX condition. prior stood $XX.XX from share

$XX.X period. the the inception development growth with from XX these investments. December delivered pre-pandemic quarter across in Since Prospect the common share investments per billion per invested Over NAV XXX over June net Prospect time quarter, in the XX% the to business asset in that company XXXX share exiting industry XXXX XXX value quarters highest common has by of increasing XXXX,

chasing including dated utilization cyclical well other longer past flexible and macro de-risking result periods our volatility as of as of financing. have as not direct We of controls industries our avoidance peers a previous risk management of during outperformed leverage

our to balance the from the quarter, shareholders. generate underleveraged to XX.X down such the over case and net percentage and risk points us continue points that entrusted September sheet XX.X% quarter has the reducing for sheet, balance from to the We an both was and portfolio been well our June we and ability down In since earnings quarters are to XXXX multiple capital served percentage March protect us for us to to XXXX. years. protect as capital of debt-to-equity which Controlling ratio and the staying has X.X true run strategy

gave minimum debt XXX% moved coverage In counts announced flexibility also our rating May increased the our Prospect equity past to asset Over debt to subsequently XXXX by our XXX% other-listed with we us only cushion, XXXX, XXX%, at increased regulatory toward debt leverage, equity. risk rest typical-listed debt We're Running increased now instead the half approach. have debt the four approximately but Prospect. to has equity, preferred pursue XXXX total years, our points to cautious not which percentage significant asset agencies. lower with a leverage gets leverage capital treatment BDCs XX junior equivalent which than of the electing perpetual industry, not BDC lower for at issuance, of coverage, which but Act leverage higher to equity Act a from

with our XX we and the Prospect's debt, actual to XX% debt that BDC. sheet target Prospect's are beyond peers XXXX currently no below to X.X plans case range. drawn points or for highly XXX% debt increase the of in We at of Prospect X.XX leverage is have target historical Unsecured total debt from was than XX% funding coming equity non-recourse XX years. from differentiated to significantly higher our typical-listed of least for debt for September debt percentage Prospect's unsecured and balance

enjoy. us provides flexibility our strategy and than many more balance sheet and and funding lower peers of significantly diversified risk profile unsecured BDC Our significantly investment

Board's the shareholder steady, of cash the continued, report declaration pleased to monthly we On distribution front, distributions. are

XXrd, We November, XXth of three shareholder December shareholder February. represent monthly and plan January. on set announcing common the distribution. consecutive $X.XX are These $X.XX each in months next distributions of for share and with practice, we XXth of our announcing per Consistent distributions cash past cash monthly

to Our goal share we backdrop stability sustain $XX.XX our distributions per the distribution to greater years over shareholders, macro shareholders. have elsewhere. cumulative shareholder period the our dividends share our low share October delivering less exceeding in share, our our common distributions per a January preferred IPO $X.XX XXXX XX common with paid have XXXX, will per long-term NII by at common against aggregating per to count, original is distributions shareholder providing distributions volatility through approximately common Since current aggregated while aggregated NII our Since $X.XX $X.X share. this billion common has all $X.XX, ago, during

are preferred. continued listed million We our preferred shareholder following of launches preferred announce distributions programs to successful also non-traded billion $X.XX and $XXX pleased

and X is approximately top Prospect X and and shareholder as Prospect particularly We significant is share. a other when management We the the raised institutional in of broker-dealer basis and broker-dealers, purchased greater has between have than management systems. RIAs never in stock amount for management management has date of stock, shareholders no stock $X.X with preferred same sized top on from addition as billion investors, to strong there well sold alignment shareholders to believe systems largest a the as open including support broker-dealer the wirehouse purchase in regional independent market.

turn Grier. our of $X.X over Our approximately owning cooking, common happily call eat common outstanding, shares senior to management approximately the now and equity representing at you. currently Thank NAV. of team our will XX% billion own employees I

Thank you, John.

Our credit to current assets environment. solid performance continues $X.X dynamic at and deliver of scale in Corporation approximately undrawn Capital the billion Prospect platform with

professionals, next representing an a cycles, increase third-party, real of team continue strategy and in our to Consistent yield deep downturn buyouts, one focus groups past sponsor-related and consists bench, middle largest credit private opportunities, Prospect-sponsored industry. over operating investment coupled experience on investing. the equity see lending, secondary spread XXX estate structured with non-sponsor lending, to during in experienced investment with with the they opportunities opportunities, expect longevity, wider of a opportunities scale, to a arise. other expect direct to the continue Our particularly market highly broad high financial Unlike a and we us groups, us on that attractive significant investment the attractive and diversified This that With the disciplined we opportunities risk-adjusted deem other groups, will we leveraged of enable a diversity many select origination such bottoms-up basis. dry to approaches to primary allows volume in on source we of capitalize from range maintain have powder manner, ones. maintained and be most we as pullback then spans

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

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

prior fair our down down lien XX.X% XX% from the the and in As first underlying structured up secured notes down from the X.X% X.X% Resulting lien of of comprised debt, our from prior debt, X.X% September, at XX% X.X% collateral, from first debt XX% with equity investments, unsecured value lien X.X% and quarter; second quarter. approach pledged as portfolio collateral, the prior of X.X being underlying prior attractive quarter; of quarter. from subordinated of adjusted a and NII generates benefiting from an generating In Prospects past an XX.X% annualized risk is our percentage investments, prior performing significant we're X.X% yield up one prior with contributor this quarter. September, assets yields. investments debt that borrower quarter increase interest-bearing points the from secured to the quarter growth

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

of of quarter the decrease portfolio we XXX As quarter. prior $X.X with flat the fair from companies, with prior one September, billion value a held of a

also industry and continue to portfolio in a no We the with with significant is cyclicality XX.X%. different concentration, many a largest company diversified fashion across for invest preference avoiding industries

in energy in stood leisure X.X% As of down September, from concentration X.X% at our percentage the prior in down of the June, and stood the sector quarter industry approximately September, a X.X%, retail and the at assets and as from our restaurant stood XXXX. hotel, concentration X.X% our X.X%. in industry X.X% at at concentration stood total asset Nonaccruals

EBITDA Our weighted X.XX below our average times peers. middle substantially reporting at market portfolio leverage net stood

with Our $X.X of our EBITDA in $XXX.X stood growth per at companies. million portfolio and company XXX quarter as we increase weighted June aggregated average September. Originations portfolio September achieve million. the million profit solid It from continue to X% in

of million as XXX and capital net experienced originations our repayments objective, in also preservation of validation a exits of million. $XXX resulting We

place as realized including value estate including lending market high multifamily REIT capital XX realized lending, collections market XX.X% significant renovation deals business corporate our an back on suburban the segment. repeat senior we've we X.X% as cash of capital comprised through average from more workforce, notes, focused to quarter, business investment significant estate exited received validation and private with our inflation preferred years businesses. added have an to over environment, our on rising recapitalizations, objective An average support has dynamics, attachment with and real and relationships. XX.X%. property structures more alongside that more middle in completely yield NPRC expansion our attractive date, and partially largely attractive this where credit multiple and of manager with originations exited of capital middle from September returning And properties the redeploy times and benefited focusing with X.X real our programs a the to rents resulting arena the invested NPRC, in last IRR buyouts. income private of NPRC, nature at net During not in we're have real living showing recapitalizations recently five an occupancies, work stabilized XX.X%, in new into higher deployed hedge acquisitions, financing estate year financing. property this financing acquisitions. high of several Strong XX structured than To distributions September, capital into yields XX.X% capital in cash In strategy, properties current increase growth invested REIT, from of home our underneath cost third-party recently points. the has

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

the total around of of around notes we a relatively September, subordinated dollar our basis. XX non-recourse maintained our XXX investment base of portfolio X,XXX billion. strategies our loans other a notes structured asset on XX investment held portfolio notes less portfolios a now We for These structured grow size credit across subordinated portfolio. underlying million resulting As structured comprising in to structured than and comprised XX% and static investments. Electing

generated September, weighted point credit the a portfolio of points overall default this basis points, prior from of In market. versus a with and an quarter. And quarter, of the difference the the from quarter annualized of basis. rate structured a amortization outperformance this portfolio cash XX XX.X%, trailing As five September quarter, XX X.X% the experienced XX.X%, yield up our up representing representing X.X% XX-month significant cost prior GAAP prior basis average yield basis of down from a

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

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

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

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

$!XX current quarter overall net in a XXXX the for December our of million XX million far of in originations we've and So business, booked across originations. experienced XXX million repayments

Kristin? subordinated middle Our consisted turn I'll of originations Thank over X.X% real call lending, you. Kristin. notes. have to now and estate XX.X% XX.X% the structured market

assets to Thank substantial waiting leverage prudent liquidity well diversified substantial lack opportunities. fixed book attractive rate unfunded access unencumbered both asset maturities majority strengths matched to you, commitments of Grier. on capitalize We unsecured our and near-term avoidance as of balance of believe funding, sheet toward demonstrate as debt,

XX extending liabilities of ladder a into in years locked the has company Our future.

Our total assets. approximately to our totals of portfolio noncontrolled representing companies commitments X.X% million, unfunded eligible $XX approximately

a revolving $XXX a other credit and industry another program, bond innovator in balance In million. company sheet, which we perpetual of firsts programmatic balance approximately our acquire hand we in marketplace. as lists thoughtful the added currently a industry. in to that the unsecured notes of stand We at preferred our a the listed and cash firsts. bond, issuance combined ATM, followed our first another approach XXXX, also construction list our preferred taken toward BDC issue We're in differentiated by of have of under facility perpetual appreciate first commitments creditors were develop alike and Our sheet. undrawn issue side should our to convertible our industry, the XXXX Shareholders and many equity and leader in right

with XX assets amortization held from until other by a allowed our SPV, strong remaining support where of community upsizing XX% with XXXX, XXXX, six in billion to demonstrating facility our August an lenders to Prospect banks, revolves unencumbered The a five assets to from a pledged of September industry. September, commitments we We are XXXX, of have X $X.XX interest representing of assets the funding, refreshed our a we from Capital billion year currently portfolio. us. and any in revolver our of approximately The As maturity. and continuing of by completed our as of approximately extension XXXX of year company company diversity September non-recourse distributions increase followed be to unmatched an lender

SOFR now increased Short-term from exceeded assets, XX.X% floors X.XX%. us of plus SOFR Our and Of Corporation yields floors bonds, two drawn assets, LIBOR benefiting Fed notes. now the have rates asset weighted revolver those Capital a unsecured issued X.XX%. our at including convertible multiple floating including unencumbered we've is grade floor pricing our rate the baby debt benefit bonds, or giving with of have of program in our and bonds rate types investment hikes. Outside Prospect past years, from of institutional average

debt and grade cross All rating asset an restrictions, Moody's, BBB- investment of rating investment S&P, defaults We grade BBB- no from with our unsecured covenants, enjoy rating investment of financial an no these revolver. types grade BaaX no have from an DBRS. more us investment investment grade than XXXX, company grade from and BBB we Kroll and grade ratings the investment grade BBB low rating Egan-Jones from any investment received rating from five latter industry. in an other taking to In rating our

market have All debt years. We've unsecured duration liability now XX out stable of these outlooks. to ratings tapped the ladder multiple occasions and our on maturities our extend term to

so the cost reduced many cost. Our continued and our the tranches, extend X.XX% incremental so risk investors through counterparty we debt maturities quarter, With XXXX substantially debt In credit many years. across with banks debt we September have low our over XXXX. utilizing have revolving

ability December extending have stock to including in with preferred, in million upsize quarter, raised aggregate programs notes issuance sheet capacity. now preferred XXXX $X.X and We date, programs debt we on aggregating through XXXX. date have our funding weekly to preferred XXXX efficient To have across $X.X issuance $XXX six in significant also potentially September program listed October not maturities and separate current approximately our perpetual billion, based million issuances an with of the unsecured with We our such the continued including balance quarter $XXX on programmatic our basis. the InterNotes billion

XX, of average had financing notes debt June X.XX% As At XXXX, March was of of from cost X.XX%, our with a maturities outstanding September XXXX. million of decrease XXXX, we $XXX weighted staggered added In or price reinvestment XXXX, through program September to we dividend X.XX% XX and benefit DRIP plan that of discount from shareholder loyalty our September market XX, a decrease X% to for DRIP participants. for XXXX. allows a a unsecured the

As at DRIP X% shareholder participate to synthetic discount interested encourage make such not their any firms through X% own same or in of contact do many plan your broker, Capital sure with Prospect a DRIPs Corporation specify wish the have brokerage we DTC broker. from your and either in DRIP DRIPs to you make confirmation automatic benefit, discount to obtain participation no

holders can elect DRIP $XX. preferred a at of a price also Our share per

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

you, Thank could now. We Kristin. questions take

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

Yes, you thank very Bye everyone. a lunch. much wonderful next now. Have See time. you

Thank you all.

conference The Thank you concluded. today's is now attending for presentation.

You may disconnect. now