Prospect Capital (PSEC) 10 May 232023 Q3 Earnings call transcript

Good morning and welcome to Prospect Capital Third Quarter Fiscal Year 2023 Earnings Release and Conference Call. [Operator Instructions] Please note, this event is being recorded.

I would now like to turn the conference over to John Barry, Chairman and CEO. Please go ahead.

Thank you, Jordan.

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

you, Thank John.

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

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

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

you, Thank Kristin.

In NII the our of income, common our investment basic common was per per or exceeding share NII March quarter, $X.XX distribution or $X.XX. $XXX.X by million, rate net share

of our now coverage is distribution NII XXX%. common basic Our

NII is and price close. a book basic on May annualized on yield X basis our X.X% stock based XX.X% Our

demonstrating at model. XXXX, income, level since Prospect's in income XX.X% percent XXXX March strong investment interest of the highest total Prospect's as recurring was a September revenue

Our basic per loss shareholders, common share. common or to $XXX.X applicable million was $X.XX net income, net

common $XX stood investments XXX to in Since NAV of in depreciation. investments. unrealized per has largely X.X% share prior XXX $X.XX at and mark-to-market March, down due Prospect XXXX, inception billion from the across Our invested $X.XX quarter, those exiting

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

cash June, monthly distributions $X.XX share XX months of distributions. share consecutive shareholder announcing XX, common August. July the and per May, are These each XXnd We & $X.XX XX, of represent per for cash four

March August distribution common paid NAV, in will Since in and to over count, share cumulative billion ago set we at of distributions X.Xx with years the aggregating common common share shareholders, our have distributions XXXX announcing current our all XX IPO practice, next representing original shareholders. per past Consistent through our X.XX to $XX.XX August. plan on we shareholder

this common our million dividends NII was our with while aggregated share of have aggregated common period, common $X.XX per $X.XX, coverage. has common share, representing $X.XX, shareholder per XXXX, NII distributions distributions XXX% share by October our during preferred NII per Since excess exceeding $XXX

to with RIAs strong well million institutional programs, shareholder We've X.X stock support announce broker preferred. $X the dealer five successful raised investors, as independent addition following preferred broker $XXX billion and two from as and billion including our regional and continued to-date pleased dealers, top size also non-traded listed in We're over of distributions launches preferred warehouses preferred dealer systems. systems, broker top of

call turn now you, Grier. to will Thank I over the

John. you, Thank

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

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

of to we select the a basis. manner such then opportunities, us deemed high volume broad powder to coupled opportunities origination cycles, groups, the opportunities arise. will and secondary have approaches attractive to risk investment with an we maintained as a other expect disciplined range capitalize continued pullback wider primary a significant during highly they source with from attractive past downturn particularly allows with on next and ones. increase expect that we be maintain a on opportunities most the see to Consistent other many low leveraged spread to Unlike in opportunities, diversity bottoms adjusted enable us in leverage we dry This groups, up and of

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

invest secured to senior flexibility and strategy, the with our us the gives Consistent investment first increase. lending a loans. secured levels in and our capital structure of lending continued preference with multiple non-bank stack, lien for corporate Our has to mix

collateral. the underlying As X.X% of from point from lien XX.X% debt lien comprised subordinated assets the lien fair debt first X% prior That's XX.X% of prior investments from the from quarter, prior up X.X% second structured X.X% secured with quarter, debt borrower March in and underlying quarter. down value debt, prior being the resulting XX.X% quarter, benefiting and down with prior investments equity XX.X% unsecured up at the our notes from collateral, secured from our first quarter, pledge portfolio X.X% X.X% up

attractive Prospect's X.X one were of percentage March, generating of prior short-term the are investments, XX.X% as annualized from yield an yields risk performing to of from and adjusted increase points an generates quarter, that approach continue benefit we in rates. increases is interest bearing as

yield also as act positions We equity certain contributors hold or that as in distributions. enhancers can such gains positions generate investments capital

still debt while risk, above yields our origination protect credit to differentiated secured discipline, with a to against continued senior through We've originations and achieving and selection approach. market prioritize downside

down a XXX of the we of fair with million. value decrease a held XXX prior portfolio approximately of quarter from As three March, companies, X.X billion,

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

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

peers. below Our weighted average is at net X.Xx our market leverage stood reporting middle portfolio substantially which EBITDA,

company weighted EBITDA million. Our XXX portfolio per stood average at

aggregated March million. Originations in quarter XX the

as a experienced given of we in resulting as preservation XXX repayments macroeconomic XX validation of cautious underwriting exits new million, approach million of objective, net a to conditions. repayments and our continue take also toward We credit capital cautious

real REIT yield focused acquisitions capital multifamily in arena originations the our estate deployed largely into middle the estate year market workforce comprised an and our we've During XX.X% the stabilized lending in real private middle and and market XX.X% Today, on buyouts. living. March past quarter, through expansion XX.X% lending. significant senior strategy,

across acquired billion properties, preferred housing, In in properties. points. on X financing. senior X.X XXX attractive significant current self-storage, we're With properties our and living XX date properties five To higher place properties third-party multifamily, eight the with structures in attachment environment, investment financing focusing support to XX we've student cost XX-year capital underneath

nature growth our from benefited more private business high corporate recapitalizations credit inflation NPRC, have dynamics, real yields this this showing cash increase an Strong years businesses. occupancies, alongside several of the suburban home high work resulting returning as renovation REIT, business rising collections, from properties our in programs, that the validation in and has of financing income and estate over hedge attractive recently segment. last value-added rents a

of received we where from NPRC as and not of capital invested partially an manager back multiple of with And completely acquisitions, to realized exited average our cash than and average relationships. into invested realized XX.X%. new with more net IRR an X.Xx, repeat at including property March properties, objective an recapitalizations to as of distributions deals NPRC including have property capital XX redeploy exited capital

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

to maintained more structured investment on resulting across basis investments. notes XX% comprised structured million grow loans. we static comprising XXX portfolio March, and notes subordinated These now underlying non-recourse notes structured in held than portfolios investment dollar We of XX of our XXXX structured electing a strategies portfolio relatively less our size our a As than other a subordinated portfolio. for credit

portfolio a this quarter, XX.X%, generated March the the In from yield gap down X.X% prior quarter. of

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

in positions. benefits can credit entirely Our of tranche. compared minority owned positions significant same majority subordinates structured holdings to consists Such portfolio the enjoy

many fee we rebates In because our position. of majority cases, received

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

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

XX far So our originations we the for quarter XXX repayments overall originations. across of booked in million million current business, million net XXX experienced of and June in XXXX

market and real Our XX.X% buyouts. market have middle lending, of consisted lending XX.X% XX%, originations and middle estate,

the Thank over call you. I'll to turn Kristin. now Kristin?

Grier. Thanks,

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

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

non-control unfunded total commitments our approximately Our totaled companies portfolio eligible million, assets. approximately XX to X.X% of representing

million. revolving currently and balance undrawn sheet credit cash commitments approximately at combined facility Our stand XXX

leader in lists another BDC a to were a We bond, We issue other innovator first firsts. notes the acquire bond equity are under and develop ATM, and program, industry and convertible a a marketplace. issue company our of our in many

and as which the XXXX programmatic of list In perpetual to in followed industry, our balance XXXX, our construction perpetual preferred right-hand industry. toward side we listed taken the Shareholders should in added another we sheet. thoughtful unsecured the have creditors in appreciate alike approach preferred issuance the that first first also of our by differentiated of

assets, an XX% to SPV have demonstrating to extension lenders of support funding, over held and a completed lender by unencumbered The diversity in any of company we capital XXXX, increase in upsizing, X.XX the XXXX of maturity. XXXX, community September were our billion are other banks, company assets currently March of assets with We XX five-year over commitments from of from non-recourse unmatched billion our representing of an an a from Prospect our we the industry. strong of as our As portfolio. August X.X revolver pledged our remaining refreshed nine

and bank by to XXXX, of allowed we our to distributions well-publicized with new failures the bank facility. credit be March, two banks facility us. until interest after existing continuing Shortly followed That September amortization, an within in year upsized revolved added a

average have asset LIBOR is with floor Fed weighted us giving pricing floors our plus from floors, X.XX%. the rate rate have floating increased these of SOFR Short-term hikes. drawn benefit assets of a now X.XX%. Our rates SOFR Of yields exceeded XX% or now

assets, revolver and unencumbered our unsecured bonds, we've benefiting past grade the investment bonds, baby multiple program few debt, of Corporation, convertible of issued types our Outside including Prospect and notes. Capital institutional at from bonds, in years, including

these with no and types restrictions, unsecured no asset default of covenants, no cross financial revolver. of All debt have our

from Moody's, minus rating minus investment investment an BBB and investment BBB BBB Kroll, from an grade low rating rating investment grade from an enjoy BBB grade from an rating grade three grade S&P, We DBRS. investment from BAA Egan-Jones, an rating

received taking we than company industry. more rating, the investment five XXXX, ratings, us to grade in In investment-grade any our ladder other

outlooks. of stable ratings All these have

We've out now ladder liability our tapped unsecured extend to multiple and occasions the years. on our debt to market term maturities duration XX

XXXX. risk over the debt banks debt across Our tranches, so non-recourse and investors reduced unsecured debt and years. many through maturities extend counterparty we've many substantially With so our

quarter, In XXXX the incremental revolving an our we have low-cost X.XX% continued credit utilizing March cost. with

the including the basis. continued over XX our stock our XXX with preferred of billion across current To X.X issuance XXXX in our in quarter. date InterNotes programs funding issuance on efficient preferred, preferred We XXXX also to raised aggregate date, million million have weekly we quarter in perpetual and and June an have March listed programmatic

With capacity. significant upsize sheet to such balance on based potentially the ability programs

notes, October unsecured X.X with issuances We separate aggregating our now maturities through XXXX. debt program not billion, extending five have including

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

XXXX At from average our X.XX% unsecured X.XX% a X.XX% from of a March was debt decrease XX, March XX, decrease XXXX. of cost and XX, financing of XXXX, weighted December

plan, participants. market In XXXX, DRIP a the dividend we DRIP to price or discount benefit added loyalty that shareholder X% our to a for for reinvestment allows

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

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

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

question. Thank you. We can any take now

Instructions]. [Operator

comes question Please Raymond first James. Our from with Adams ahead. Sean go

is, do you as pipeline, quarters only My gains about any in have guys question earnings incremental looking forward? for such realized the the

Grier, that? Hey, don't take why you

-- future be realization a in would on -- gain future realized Well, Sure. the based hasn't a happened yet.

but it executed aware we're and equity-oriented closing, quote years same. with any right in now, pending already lending book, a that middle the an maybe if would category the in call we of Not So market pipeline, our have agreement in over buyouts.

have generated debt percent all capital as around IRR as equity. Our of realizations well across our mid-XXs that a includes

And work business, is prepared to Corporation. back flows although NPRC a mid-XXs. little differently, those the have then, in estate But in coming been the our within just discussed our real Prospect IRRs within bit Capital remarks

with actually last our So been we've smaller bit prioritizing spending XXX to of deals, EBITDA average over two they over an or be the little portfolio more tend year company time than million. a

mind Logistics necessarily linked to equity, half. two been year and middle majority market, but we've So middle or than in [Luxaire] and last that equity, equity RK more deals not we evaluating equity we've that come minority the market purchase even also a closed lower are deals, can [ph]

acquisitions We've buyers particular we quite of M&A that many bear deals frothy It's perhaps know platform segment are with with for Until are hesitant bring prohibitively that in our previously these our time. we expensive, on also to been been hands our their buyers market, financing more are financing investments. add-on recently, portfolio. for and a own act some active have sitting to or costs as because competing

and economic business stop get in would expect to equity sort opportunities, markets cetera. We flexibility seized of fewer when more linked have not bit one more general et in buyout, have their a up downturns more that or

Anything segment prioritizing nothing we're but but future the John? realization. add to say would is again particular think comes imminent, for I promising to at to we that mind So

nothing have I Well, to add.

So how next question? about the

time. would at the over conference There are turn session. no the to remarks. like back I closing more questions this John This Barry concludes to question-and-answer for

Have everyone. wonderful now. you, a Bye day. Thank Okay.

Thank you all. Bye.

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

now You may disconnect.