Prospect Capital (PSEC) 30 Aug 232023 Q4 Earnings call transcript

Hello and welcome to Prospect Capital’s Fourth Quarter Fiscal Year 2023 Earnings Release and Conference Call. All participants will be in listen-only mode. [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.

MJ. you, Thank

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

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

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

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

Thank you, Kristin.

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

income now coverage distribution investment common our XXX%. net is of basic Our

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

to X.X% Our $X.XX prior quarter, NAV common June, in due stood mark-to-market $X.XX at or the from share unrealized depreciation. down per largely

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

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

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

Grier. to call now I’ll you. Thank the over turn

Thank you, John.

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

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

invested of with investment across next other we ones. has with maintained us significant and expect secondary groups, Prospect XXXX, from enable groups, flexibility an XXX on during particularly pullback $XX.X in wider many expect sheet investments. primary investments, Consistent inception with dry see to opportunities they coupled other spread exiting will in that leveraged such to Unlike and XXX a highly arise. continue billion increase balance to downturn Since we opportunities, opportunities past powder as attractive capitalize maintain cycles, the we those

a of points Prospects, have five Over other BDCs than at less lower or approximately lower instead typical rest approach equity leverage a the past of from leverage than half higher cautious now debt XX increased XXX% running at years, the for with percentage the risk to with listed debt Prospect increased debt BDC electing the leverage, macro not given dynamics. has leverage industry, total debt

most attractive broad select the risk-adjusted Our of volume manner we origination on source to then high us a disciplined of opportunities, the approaches deem to opportunities bottoms-up range a in diversity and a allows be basis.

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

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

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

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

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

is $X.X increase billion, prior from we fair companies, increase an at June, XXX portfolio an As the of a of quarter X held approximately million. which of of value $XXX

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

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

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

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

quarter million. Originations June aggregated in $XXX the

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

our X.X% XX% middle-market quarter, XX.X% XX% lending, June middle-market notes. estate, the structured originations real buyouts, During and lending comprised and

with XX-year real strategy, stabilized X- cumulative on arena workforce, our date, date, acquired XX largely higher properties, we’ve and in-place capital a in on across focusing support properties, in focused billion In structures $X points. estate properties, significant X which third-party preferred XXX the capital To investment student to are housing attachment significant underneath private attractive living, nearly storage self we’ve in on the multifamily properties. multifamily, basis, past financing XX we’re living environment, expansion through an financing. year, acquisitions, senior X the and senior properties cost with our REIT yield To equity deployed into current

NPRC and over dynamics, occupancies, estate as value-added high-returning years real alongside net as more of attractive we capital recapitalizations, an including validation benefited XX renovation has our relationships. realized increase credit XX.X%, realized programs deals this in repeat the with from capital exited IRR several recapitalization, NPRC an work-from-home multiple suburban cash and our property distributions new strong have segment, resulting inflation business of a of completely and with REIT, redeploy into the manager has growth X.X rents, collections, of including nature exited capital private times, partially an cash where that rising hedge have business average June, recently last to and of corporate showing an high properties our income of businesses. acquisitions, back objective invested to at not than yields average this in property financing properties more invested NPRC, received from

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

we X% strategies to $XXX subordinated other held We’ve for As investments. grow static XX less now in across than notes of maintained basis, size a notes notes relatively of investment portfolio structured our nonrecourse the and structured our dollar resulting electing a million investment portfolio structured portfolio. June, our comprising on subordinated

this X% from In X,XXX comprise more XX.X%, a credit prior than quarter, These underlying the quarter. portfolios June the down loans. generated portfolio GAAP structured of yield

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

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

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

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

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

since of XX XXXX, six and completed resets ago. refinancings We’ve over December years

$XX sales of far current XXXX the repayments our million net of we experienced quarter, So in $XX in and $X booked million business, about overall and sales. million repayments for and September across originations

lending. consisted real Our and XX% have estate of middle-market XX% originations

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

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

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

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

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

develop a ATM, another a our in were industry innovator company issue a other XXXX, notes and We under program, and programmatic first in many first acquire of followed we issue industry. lists are firsts. firsts, a bond, our equity to and issuance by perpetual leader of that We the to as our also marketplace. in convertible BDC another XXXX list perpetual preferred added the in In preferred listed our bond

which the and taken of differentiated appreciate sheet. balance toward we Shareholders the side unsecured construction in creditors have right-hand our our should of thoughtful industry, alike approach

we nonrecourse pledged completed As approximately Funding, assets unencumbered of to assets SPV The XX% refreshed our we are representing $X.X revolver billion as XXXX, our an upsizing, of in Capital portfolio. an September of June to assets, where maturity. of five-year held a a XXXX, approximately our remaining extension Prospect

revolves new facility. followed to an March, our amortization until commitments XXXX, an unmatched increase us. other failures bank XXXX and Shortly by of year our support continuing well-publicized lenders in We The lender the be from our facility after allowed billion company upsized of the company a with demonstrating with in two to existing interest and XX diversity from of bank currently community distributions strong within banks from September the $X.XX industry. August banks, by XX have added credit of any we

is Our drawn SOFR now X.XX%. pricing plus

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

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

BBB XXXX, investment-grade BBB an Kroll and BBB in enjoy company more industry. investment-grade rating rating In from Egan-Jones to investment-grade we than X rating Moody’s, investment-grade minus our an us and from investment-grade the an S&P, DBRS. minus We rating, rating ratings, rating any an investment-grade investment-grade latter from received taking from from low other BBB BaaX

these have outlooks. of All ratings stable

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

revolving debt Our risk party credit counter and XXXX extend over debt so and our debt quarter, weekly many issuance banks June programmatic across have on nonrecourse with and years. tranches, reduced continued we an the unsecured many maturities InterNotes the our basis. our efficient have substantially so continued XXXX. investors through With we have utilizing In funding

potentially our preferred, date, raised and preferred billion our such across stock extending date we September and on We upsize ability current programs now $XX over X million XXXX $XXX have maturities To sheet the XXXX including separate including to in program issuance $X.X balance the unsecured perpetual $X.X quarter capacity. XXXX. issuances, in to not quarter, based aggregate billion, of have June million with with through programs preferred aggregating October listed the significant in our notes, debt

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

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

discount to elect value also of to $XX. a can DRIP holders per share at preferred Our the X% stated

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

Kristin. you, can any Thank now We answer questions.

first question with Finian Today’s comes Please Instructions] [Operator Wells from O’Shea ahead. Fargo. go

you with also, plain you of year’s? and valuation? talk in Can the Hey sort if XX-K, a was And control CLO year us morning. everyone. any of the difference Thank issue description this delay the the has there between that auditor can English last about give you. Good the

try to take I Sure. Hi question. that can Finian.

paperwork for So, to documentation. time do, we’re any there year, more no we or there. this than other almost and is need issue to just reason There’s finalize additional

or as issues issues, -- any anticipate issues repeat And changes as your we’re any don’t to if planning don’t we or we our file possible. earnings quickly So, answers the and expect far numbers question. to release, as that in new

it’s but control The the I last effectiveness delay year would release part of -- expect the mentioned the of part in settled. does mention audit there’s which still also Company’s the think of in internal to be you

is guess, there on to the statement? half I So, of see that anything

Yes.

I is expectation. anticipate, but year, until filed, than think is I different filed done, that and and we’re no things done had last and it’s of wrapping matter up current our we a we not just everything we’re issues think getting

extend? equity be also, Thank And view say, also current resets. CLOs, potential those sort for And book What’s into the the prospect for that? on, on or would Grier’s feel but your vehicles more CLO you. a to capital comments follow-up Thank you. investing your on have Okay. what facilitate maybe on to you reset of potential to the

book the our from CLO of ago. significant driver our is context it segments, many was for at where peak down X% by far economic not the It’s book, about smallest only a Sure. maybe two-thirds years all business anymore. of

few that not whether basis expected loan Whenever market of reset analysis well meaning a investment, now. is call with new environment last an spread we status been not stay has relatively particular tenure. number changing course, analyze In deal. that’s liabilities weeks time There or it’s resets deal, ongoing, or XX whether a occurring. issue within or quo, really in four, a the we small we without all deal, or a tightening we’re terms it’s related nonrecourse or robust change months. The the the we and portfolio, the with not whether and whether deals, not diversified and NPV we right to refinance or the Then the maturity

these was maximizes abated to over The the held highest space is structured from Obviously, credit NPV can choose within loan within well different we’d pandemic So, option generally, the an floating still. this get floating structured prepared my the mentioned folks portion a liabilities comments yes, rate value that significantly but many goal space vary. each as given bond business will in know, our But loan from assets, there expect, overall, quite last rate credit, and that of fixed that smallest in also experience up smaller that’s shareholder I months. the case the has market. XX are to and rate quite as our impact continue

Please question with comes James. next ahead. The from Dodd Raymond Robert go

Hi.

on the I needs to first Just BDC going mean is can time? the on done row. time? again, I the office the second filings in get are is cetera issue, this XX-K not an to a expenses? is year their to you is incremental so question, I data, mean getting I understaffed, see what Because in shareholders back faster, why get information change to mean process -- et that time. back likely mean, things the increase more the need

can work an And I driven take bit and not question. is dramatic taking requirements, really there’s you, audit additional just I sure. this going with, past of we’re stab and in what is increase deadline. documentation extensions the expenses -- us handling John documentation not think at struggling Yes, but and increase assure a been a in PCOB There’s and to forward. lot from struggling a I plan that’s this that little year, the our with can a have the Grier,

and are already on handle sure filings going we our time a that on expenses minimum. how our keep make to at are And strategizing to so, forward

I is was us the we markdowns the up on any quality, guess XX-K what’s I increase going on because us depreciation you part. nonaccruals color the the et PTX. my Can give the obviously, all details. drivers in Can Thank in any the bit largest give unrealized or don’t not have nonaccrual book, you. The of credit little it. On lead, ticked with a marginal were? much largest side? X.X%. credit Got on non-control you mean, the the to color not at cetera, what mean the

that, Thank you. take I’ll Robert.

have one for is for increase but evaluation spot -- an on. It the had Your estimate would quarter. is company, we

it’s have with -- And there floating, number how a dealing don’t where are relationship then, cases, that, sponsor cash companies rates whether obviously, are then than last your rates or but if a proportion the to that? pay up, still have right And fair on you in rate cash of portfolio the you got interest? instances companies are that’s one, of flow your sponsor their portfolio some overall, are rather floating of fixed you’ve now exposure. What

A couple of items.

First, of is our rate portfolio floating over XX% assets.

benefited has, with to going sub asking fixed course, imagine, with well. of as charge the we of about. those correct net would that coverage, exercise Number about levers, up. were So, rates rates cost the and book for our actually pulling two, X.X Only course, what just an is business last initiatives. due going we from growth of lending uptick to completed are up as income which, have through fiscal an middle-market over quarter year investment in And you X% on you cutting companies spot

bps if would doesn’t to year the that as to XX found to X% stressing and And go number, I another X% what happen fiscal that for done another rates also We’ve bps. change. number were that XX up

things despite these a degradation reflects performance flow. EBITDA, type middle-market And -- half-empty lending attachment is report way, of X.Xx, how by peers very few see encourage of our below when peers it higher. larger is and and it than all perspective $XXX other significantly is our downturns our And We just So, leverage, larger average comes originally the equal, cash leverage about do, more is during very I portfolios, is in our that much know, you we book. credit, that which below EBITDA low. though the other even That’s is we the point a which not credits others And we’re that peers when to leverage, protective having underwrote to disclosed in glass a deals, during being the do, any as general. you we’re lender in happy with at think overall assuming we keeping saw million resilient, so. report you But were others, pandemic can bigger do many certainly that the better. maybe

down go have up But much have has structured overall, I’d while well benefited quite amidst rates. have rate becomes That’s rate recession increased portfolio up say, down? our a We do model say just portion concerned rate. comes volatile floating of leverage. Because XXX% a weather estate all now vis-à-vis increase not others portfolio zero-sum would less what holding have in that an course, rates we I’m go credit book. inflation or the much as as a is the we book, Folks, others, that also book. deals and pure as has which, business I And a as will into are about equity, we in credit much our not may from hearing about others compared abated exposure. as of play. real That’s not own That’s gone nature to with

with thing good And Thank BDCs you, general. I disclosure also timely more in Grier. a you. you, appreciate Thank would be color. agree that I from

Thanks.

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

on now. wonderful next And everyone. day we’ll the you. you call. Okay, a Bye. Have see Thank

all. you Thank

Conference you has now Thank your participation. concluded. for

your lines. disconnect now may You