PROSPECT CAPITAL CORPORATION (All figures in this item are in thousands except share, per share and other data.) The following discussion should be read in conjunction with our consolidated financial statements and related notes and other financial information appearing elsewhere in this Quarterly Report. In addition to historical information, the following discussion and other parts of this Quarterly Report contain forward-looking information that involves risks and uncertainties. Our actual results may differ significantly from any results expressed or implied by these forward-looking statements due to the factors discussed in Part II, "Item 1A. Risk Factors" and "Forward-Looking Statements" appearing elsewhere herein. Overview The terms "Prospect," "the Company," "we," "us" and "our" meanProspect Capital Corporation and its subsidiaries unless the context specifically requires otherwise. Prospect is a financial services company that primarily lends to and invests in middle market privately-held companies. We are a closed-end investment company incorporated inMaryland . We have elected to be regulated as a business development company ("BDC") under the Investment Company Act of 1940 (the "1940 Act"). As a BDC, we have elected to be treated as a regulated investment company ("RIC"), under Subchapter M of the Internal Revenue Code of 1986 (the "Code"). We were organized onApril 13, 2004 , and were funded in an initial public offering completed onJuly 27, 2004 . OnMay 15, 2007 , we formed a wholly owned subsidiaryProspect Capital Funding LLC ("PCF"), aDelaware limited liability company and a bankruptcy remote special purpose entity, which holds certain of our portfolio loan investments that are used as collateral for the revolving credit facility at PCF. Our wholly owned subsidiaryProspect Small Business Lending, LLC ("PSBL") was formed onJanuary 27, 2014 , and purchased small business whole loans from online small business loan originators, includingOn Deck Capital, Inc. ("OnDeck"). OnSeptember 30, 2014 , we formed a wholly-owned subsidiaryProspect Yield Corporation, LLC ("PYC") and effectiveOctober 23, 2014 , PYC holds a portion of our collateralized loan obligations ("CLOs"), which we also refer to as subordinated structured notes ("SSNs"). Each of these subsidiaries have been consolidated since operations commenced. We consolidate certain of our wholly owned and substantially wholly owned holding companies formed by us in order to facilitate our investment strategy. The following companies are included in our consolidated financial statements and are collectively referred to as the "Consolidated Holding Companies":CP Holdings of Delaware LLC ("CP Holdings ");Credit Central Holdings of Delaware, LLC ("Credit Central Delaware");Energy Solutions Holdings Inc. ;First Tower Holdings of Delaware LLC ("First Tower Delaware");MITY Holdings of Delaware Inc. ("MITY Delaware");Nationwide Acceptance Holdings LLC ;NMMB Holdings, Inc. ("NMMB Holdings ");NPH Property Holdings, LLC ("NPH");Prospect Opportunity Holdings I, Inc. ("POHI");SB Forging Company, Inc. ("SB Forging");STI Holding, Inc. ;UTP Holdings Group Inc. ("UTP Holdings ");Valley Electric Holdings I, Inc. ("Valley Holdings I"); andValley Electric Holdings II, Inc. ("Valley Holdings II"). We are externally managed by our investment adviser,Prospect Capital Management L.P. ("Prospect Capital Management " or the "Investment Adviser").Prospect Administration LLC ("Prospect Administration "), a wholly-owned subsidiary of the Investment Adviser, provides administrative services and facilities necessary for us to operate. Our investment objective is to generate both current income and long-term capital appreciation through debt and equity investments. We invest primarily in senior and subordinated secured debt and equity of private companies in need of capital for acquisitions, divestitures, growth, development, recapitalizations and other purposes. We work with the management teams or financial sponsors to seek investments with historical cash flows, asset collateral or contracted pro-forma cash flows. We currently have four primary strategies that guide our origination of investment opportunities: (1) lending to companies, including companies controlled by private equity sponsors and not controlled by private equity sponsors, and including both directly-originated loans and syndicated loans, (2) lending to companies and purchasing controlling equity positions in such companies, including both operating companies and financial services companies, (3) purchasing controlling equity positions and lending to real estate companies, and (4) investing in structured credit. We may also invest in other strategies and opportunities from time to time that we view as attractive. We continue to evaluate other origination strategies in the ordinary course of business with no specific top-down allocation to any single origination strategy. 106 -------------------------------------------------------------------------------- Lending to Companies - We make directly-originated, agented loans to companies, including companies which are controlled by private equity sponsors and companies that are not controlled by private equity sponsors (such as companies that are controlled by the management team, the founder, a family or public shareholders). This debt can take the form of first lien, second lien, unitranche or unsecured loans. These loans typically have equity subordinate to our loan position. We may also purchase selected equity co-investments in such companies. In addition to directly-originated, agented loans, we also invest in senior and secured loans syndicated loans and high yield bonds that have been sold to a club or syndicate of buyers, both in the primary and secondary markets. These investments are often purchased with a long term, buy-and-hold outlook, and we often look to provide significant input to the transaction by providing anchoring orders. Historically, this strategy has comprised approximately 40%-60% of our portfolio. Lending to Companies and Purchasing Controlling Equity Positions in Such Companies - This strategy involves purchasing senior and secured yield-producing debt and controlling equity positions in operating companies across various industries. We believe this strategy provides enhanced certainty of closure to sellers and the opportunity for management to continue on in their current roles. These investments are often structured in tax-efficient partnerships, enhancing returns. Historically, this strategy has comprised approximately 15%-25% of our portfolio. Purchasing Controlling Equity Positions and Lending to Real Estate Companies - We purchase debt and controlling equity positions in tax-efficient real estate investment trusts ("REIT" or "REITs"). The real estate investments ofNational Property REIT Corp. ("NPRC") are in various classes of developed and occupied real estate properties that generate current yields, including multi-family properties, and student housing. NPRC seeks to identify properties that have historically significant occupancy rates and recurring cash flow generation. NPRC generally co-invests with established and experienced property management teams that manage such properties after acquisition. Additionally, NPRC makes investments in rated secured structured notes (primarily debt of structured credit). NPRC also purchases loans originated by certain consumer loan facilitators. It purchases each loan in its entirety (i.e., a "whole loan"). The borrowers are consumers, and the loans are typically serviced by the facilitators of the loans. Historically, this overall investment strategy has comprised approximately 10%-20% of our business. Investing in Structured Credit - We make investments in structured credit, often taking a significant position in subordinated structured notes (equity) and rated secured structured notes (debt). The underlying portfolio of each structured credit investment is diversified across approximately 100 to 200 broadly syndicated loans and does not have direct exposure to real estate, mortgages, or consumer-based credit assets. The structured credit portfolios in which we invest are managed by established collateral management teams with many years of experience in the industry. Historically, this overall strategy has comprised approximately 10%-20% of our portfolio. We invest primarily in first and second lien secured loans and unsecured debt, which in some cases includes an equity component. First and second lien secured loans generally are senior debt instruments that rank ahead of unsecured debt of a given portfolio company. These loans also have the benefit of security interests on the assets of the portfolio company, which may rank ahead of or be junior to other security interests. Our investments in structured credit are subordinated to senior loans and are generally unsecured. We invest in debt and equity positions of structured credit which are a form of securitization in which the cash flows of a portfolio of loans are pooled and passed on to different classes of owners in various tranches. Our structured credit investments are derived from portfolios of corporate debt securities which are generally risk rated from BB to B. We hold many of our control investments in a two-tier structure consisting of a holding company and one or more related operating companies for tax purposes. These holding companies serve various business purposes including concentration of management teams, optimization of third-party borrowing costs, improvement of supplier, customer, and insurance terms, and enhancement of co-investments by the management teams. In these cases, our investment, which is generally equity in the holding company, the holding company's equity investment in the operating company and any debt from us directly to the operating company structure represents our total exposure for the investment. As ofSeptember 30, 2021 , as shown in our Consolidated Schedule of Investments, the cost basis and fair value of our investments in controlled companies was$2,486,474 and$3,046,090 , respectively. This structure gives rise to several of the risks described in our public documents and highlighted elsewhere in this Quarterly Report. We consolidate all wholly owned and substantially wholly owned holding companies formed by us for the purpose of holding our controlled investments in operating companies. There is no significant effect of consolidating these holding companies as they hold minimal assets other than their investments in the controlled operating companies. Investment company accounting prohibits the consolidation of any operating companies. OnJune 11, 2021 , at a special meeting of our stockholders, our stockholders authorized us to sell shares of our common stock (during the next 12 months) at a price or prices below our net asset value per share at the time of sale in one or more offerings, subject to certain conditions as set forth in the proxy statement relating to the special meeting (including that the number of shares sold on any given date does not exceed 25% of its outstanding common stock immediately prior to such sale). 107 -------------------------------------------------------------------------------- First Quarter Highlights Investment Transactions We seek to be a long-term investor with our portfolio companies. During the three months endedSeptember 30, 2021 , we acquired$315,156 of new investments, completed follow-on investments in existing portfolio companies totaling approximately$86,722 , funded$4,000 of revolver advances, and recorded PIK interest of$18,790 , resulting in gross investment originations of$424,668 . During the three months endedSeptember 30, 2021 , we received full repayments totaling$269,230 , received$32 of revolver paydowns, and received$54,738 in partial prepayments, scheduled principal amortization payments, and return of capital distributions, resulting in net repayments of$324,000 . Debt Issuances and Redemptions During the three months endedSeptember 30, 2021 , we repaid$671 aggregate principal amount of Prospect Capital InterNotes® at par in accordance with the Survivor's Option, as defined in the InterNotes® Offering prospectus. In order to replace short maturity debt with longer-term debt, we redeemed$213,533 aggregate principal amount of Prospect Capital InterNotes® at par with a weighted average interest rate of 5.10%. As a result of these transactions, we recorded a loss in the amount of the unamortized debt issuance costs. The net loss on the extinguishment of Prospect Capital InterNotes® in the three months endedSeptember 30, 2021 was$3,719 . During the three months endedSeptember 30, 2021 , we issued$87,657 aggregate principal amount of Prospect Capital InterNotes® with a weighted average stated interest rate of 3.35%, to extend our borrowing base. The newly issued notes mature betweenJuly 15, 2026 andSeptember 15, 2051 and generated net proceeds of$85,472 . During the three months endedSeptember 30, 2021 , we increased total commitments to the Revolving Credit Facility by$170,000 to$1,277,500 in the aggregate. OnAugust 26, 2021 , we commenced a tender offer to purchase for cash up to$60,000 aggregate principal outstanding amount of the 2022 Notes at the purchase price of$102.50 , plus accrued and unpaid interest ("2022 NotesAugust 2021 Tender Offer"). OnSeptember 24, 2021 ,$50,554 aggregate principal amount of the 2022 Notes, representing 45.52% of the previously outstanding 2022 Notes, were validly tendered and accepted. The 2022 NotesAugust 2021 Tender Offer resulted in our recognizing a loss of$1,584 . OnSeptember 30, 2021 , we issued$300,000 aggregate principal amount of unsecured notes that mature onOctober 15, 2028 (the "3.437% 2028 Notes"). The 3.437% 2028 Notes bear interest at a rate of 3.437% per year, payable semi-annually onApril 15 andOctober 15 of each year, beginning onApril 15, 2022 . Total proceeds from the issuance of the 3.437% 2028 Notes, net of underwriting discounts and offering costs, were$291,798 . Equity Issuances OnJuly 12, 2021 , we entered into an underwriting agreement by and among us,Prospect Capital Management L.P. ,Prospect Administration LLC , and Morgan Stanley & Co.LLC, RBC Capital Markets, LLC andUBS Securities LLC , as representatives of the underwriters, relating to the offer and sale of 6,000,000 shares, or$150,000 in aggregate liquidation preference, of our 5.35% Series A Fixed Rate Cumulative Perpetual Preferred Stock, par value$0.001 per share (the "Series A Preferred Stock" or "5.35% Preferred Stock"), at a public offering price of$25.00 per share. Pursuant to the Underwriting Agreement, we also granted the underwriters a 30-day option to purchase up to an additional 900,000 shares of Series A Preferred Stock solely to cover over-allotments. The offering closed onJuly 19, 2021 . OnJuly 22, 2021 ,August 19, 2021 , andSeptember 23, 2021 , we issued 339,245, 360,741, and 379,182 shares of our common stock in connection with the dividend reinvestment plan, respectively. At any time prior to the listing of the 5.50% Series A1 Preferred Stock ("Series A1 Preferred Stock"), the 5.50% Series M1 Preferred Stock ("Series M1 Preferred Stock"), the 5.50% Series M2 Preferred Stock ("Series M2 Preferred Stock"), the 5.50% Series AA1 Preferred Stock ("Series AA1 Preferred Stock") and the 5.50% Series A2 Preferred Stock ("Series A2 Preferred Stock," and collectively, the "5.50% Preferred Stock") on a national securities exchange, shares of the 5.50% Preferred Stock are convertible, at the option of the holder of the 5.50% Preferred Stock (the "Holder Optional Conversion"). During the three months endedSeptember 30, 2021 , 2,150 shares of our Series A1 Preferred Stock were converted to 5,972 shares of our common stock, in connection with Holder Optional Conversions. 108 -------------------------------------------------------------------------------- During the three months endedSeptember 30, 2021 , we issued 2,946,568 shares of our Series A1 Preferred Stock for net proceeds of$66,614 , 173,506 shares of our Series M1 Preferred Stock for net proceeds of$4,234 , and 6,000,000 shares of our Series A Preferred Stock for net proceeds of$145,275 , each excluding offering costs and preferred stock dividend reinvestments.Investment Holdings AtSeptember 30, 2021 , we have$6,430,707 , or 163.1%, of our net assets applicable to common shares invested in 124 long-term portfolio investments and CLOs. Our annualized current yield was 11.6% and 11.7% as ofSeptember 30, 2021 andJune 30, 2021 , respectively, across all performing interest bearing investments, excluding equity investments and non-accrual loans. Our annualized current yield was 9.0% and 9.2% as ofSeptember 30, 2021 andJune 30, 2021 , respectively, across all investments. Monetization of equity positions that we hold and loans on non-accrual status are not included in this yield calculation. In many of our portfolio companies we hold equity positions, ranging from minority interests to majority stakes, which we expect over time to contribute to our investment returns. Some of these equity positions include features such as contractual minimum internal rates of returns, preferred distributions, flip structures and other features expected to generate additional investment returns, as well as contractual protections and preferences over junior equity, in addition to the yield and security offered by our cash flow and collateral debt protections. We are a non-diversified company within the meaning of the 1940 Act. As required by the 1940 Act, we classify our investments by level of control. As defined in the 1940 Act, "Control Investments" are those where there is the ability or power to exercise a controlling influence over the management or policies of a company. Control is generally deemed to exist when a company or individual possesses or has the right to acquire within 60 days or less, a beneficial ownership of 25% or more of the voting securities of an investee company. Under the 1940 Act, "Affiliate Investments" are defined by a lesser degree of influence and are deemed to exist through the possession outright or via the right to acquire within 60 days or less, beneficial ownership of 5% or more of the outstanding voting securities of another person. "Non-Control/Non-Affiliate Investments" are those that are neither Control Investments nor Affiliate Investments. As ofSeptember 30, 2021 , we own controlling interests in the following portfolio companies:CP Energy Services Inc. ("CP Energy");Credit Central Loan Company, LLC ("Credit Central");Echelon Transportation, LLC ("Echelon");First Tower Finance Company LLC ("First Tower Finance");Freedom Marine Solutions, LLC ("Freedom Marine");InterDent, Inc. ("InterDent");Kickapoo Ranch Pet Resort ("Kickapoo");MITY, Inc. ("MITY"); NPRC;Nationwide Loan Company LLC ("Nationwide");NMMB, Inc. ("NMMB");Pacific World Corporation ("Pacific World ");R-V Industries, Inc. ("R-V");Universal Turbine Parts, LLC ("UTP");USES Corp. ("United States Environmental Services" or "USES"); andValley Electric Company, Inc. ("Valley Electric "). InJune 2019 ,CP Energy purchased a controlling interest of the common equity ofSpartan Energy Holdings, Inc. ("Spartan Holdings "), which owns 100% ofSpartan Energy Services, LLC ("Spartan"), a portfolio company of Prospect with$15,656 in senior secured term loans (the "Spartan Term Loan A") due to us as ofSeptember 30, 2021 . As a result ofCP Energy's purchase, and given Prospect's controlling interest inCP Energy , we report our investments in Spartan as control investment. Spartan remains the direct borrow and guarantor to Prospect for the Spartan Term Loan A. As ofSeptember 30, 2021 , we also own affiliated interests inNixon, Inc. ("Nixon"),PGX Holdings, Inc. ("PGX"),RGIS Services, LLC , ("RGIS"), andTargus Cayman HoldCo Limited ("Targus"). The following shows the composition of our investment portfolio by level of control as ofSeptember 30, 2021 andJune 30, 2021 : September 30, 2021 June 30, 2021 Level of Control Cost % of Portfolio Fair Value % of Portfolio Cost
% of Portfolio Fair Value % of Portfolio Control Investments
$ 2,486,474 40.4 %$ 3,046,090 47.4 %$ 2,482,431 41.0 %$ 2,919,717 47.1 % Affiliate Investments 219,229 3.6 % 379,057 5.9 % 202,943 3.3 % 356,734 5.8 % Non-Control/Non-Affiliate Investments 3,444,630 56.0 % 3,005,560 46.7 % 3,372,750 55.7 % 2,925,327 47.1 % Total Investments$ 6,150,333 100.0 %$ 6,430,707 100.0 %$ 6,058,124 100.0 %$ 6,201,778 100.0 % 109
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The following shows the composition of our investment portfolio by type of
investment as of
September 30, 2021
Type of Investment Cost % of Portfolio Fair Value % of Portfolio Cost % of Portfolio Fair Value % of Portfolio
Revolving Line of Credit $ 31,490 0.5 % $ 31,479 0.5 % $ 27,522 0.5 % $ 27,503 0.4 %
Senior Secured Debt 3,188,781 51.8 % 3,145,295 48.9 % 3,166,861 52.2 % 3,128,845 50.5 %
Subordinated Secured Debt 1,151,509 18.7 % 1,061,102 16.5 % 1,069,767 17.7 % 981,425 15.8 %
Subordinated Unsecured Debt 7,200 0.1 % 4,114 0.1 % 7,200 0.1 % 3,715 0.1 %
Subordinated Structured Notes 1,074,751 17.6 % 750,769 11.6 % 1,090,175 18.0 % 756,109 12.2 %
Preferred Stock 308,713 5.0 % 19,404 0.3 % 308,713 5.1 % 23,056 0.4 %
Common Stock 207,662 3.4 % 1,010,026 15.7 % 207,661 3.4 % 894,819 14.4 %
Membership Interest 180,227 2.9 % 366,388 5.7 % 180,225 3.0 % 349,942 5.6 %
Participating Interest(1) - - % 42,130 0.7 % - - % 36,364 0.6 %
Total Investments $ 6,150,333 100.0 % $ 6,430,707 100.0 % $ 6,058,124 100.0 % $ 6,201,778 100.0 %
(1)Participating Interest includes our participating equity investments, such as
net profits interests, net operating income interests, net revenue interests,
and overriding royalty interests.
The following shows our investments in interest bearing securities by type of
investment as of September 30, 2021 and June 30, 2021 :
September 30, 2021 June 30, 2021
Type of Investment Cost % of Portfolio Fair Value % of Portfolio Cost % of Portfolio Fair Value % of Portfolio
First Lien $ 3,220,271 59.0 % $ 3,176,774 63.6 % $ 3,194,383 59.7 % $ 3,156,348 64.4 %
1.5 Lien - - % - - % 18,164 0.3 % 18,164 0.4 %
Second Lien 1,147,559 21.0 % 1,057,162 21.2 % 1,047,653 19.5 % 959,311 19.6 %
Third Lien 3,950 0.1 % 3,940 0.1 % 3,950 0.1 % 3,950 0.1 %
Unsecured 7,200 0.1 % 4,114 0.1 % 7,200 0.1 % 3,715 0.1 %
Subordinated Structured Notes 1,074,751 19.8 % 750,769 15.0 % 1,090,175 20.3 % 756,109 15.4 %
Total Interest Bearing
Investments $ 5,453,731 100.0 % $ 4,992,759 100.0 % $ 5,361,525 100.0 % $ 4,897,597 100.0 %
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The following shows the composition of our investment portfolio by industry as
of
September 30, 2021 June 30, 2021
Industry Cost % of Portfolio Fair Value % of Portfolio Cost % of Portfolio Fair Value % of Portfolio
Aerospace & Defense $ 103,248 1.7 % $ 81,621 1.3 % $ 98,144 1.6 % $ 84,240 1.4 %
Air Freight & Logistics - - % - - % 12,500 0.2 % 12,500 0.2 %
Auto Components 95,231 1.5 % 96,431 1.5 % 75,323 1.2 % 76,520 1.2 %
Chemicals - - % - - % 28,745 0.5 % 28,863 0.5 %
Commercial Services & Supplies 272,373 4.4 % 207,684 3.2 % 257,617 4.3 % 196,117 3.3 %
Communications Equipment 59,727 1.0 % 59,662 0.9 % 59,709 1.0 % 58,881 0.9 %
Construction & Engineering 69,935 1.1 % 142,919 2.2 % 69,935 1.2 % 149,695 2.4 %
Consumer Finance 560,129 9.1 % 821,494 12.9 % 531,844 8.8 % 771,601 12.4 %
Distributors 272,194 4.4 % 175,092 2.7 % 272,672 4.5 % 175,768 2.8 %
Diversified Consumer Services 227,488 3.7 % 356,310 5.5 % 211,193 3.5 % 339,633 5.5 %
Diversified Financial Services 30,165 0.5 % 30,165 0.5 % 30,165 0.5 % 30,165 0.5 %
Diversified Telecommunication Services 68,245 1.1 % 69,498 1.1 % 66,333 1.1 % 67,448 1.1 %
Energy Equipment & Services 278,499 4.5 % 83,832 1.3 % 277,227 4.6 % 83,204 1.3 %
Entertainment 34,578 0.6 % 34,851 0.5 % 40,585 0.7 % 40,928 0.7 %
Equity Real Estate Investment Trusts
(REITs) 636,801 10.4 % 1,146,696 17.9 % 656,911 10.8 % 1,092,955 17.7 %
Food Products 66,379 1.1 % 66,948 1.0 % 61,409 1.0 % 61,948 1.0 %
Health Care Equipment & Supplies 7,480 0.1 % 6,970 0.1 % 7,478 0.1 % 6,721 0.1 %
Health Care Providers & Services 591,655 9.6 % 748,991 11.7 % 583,369 9.6 % 714,107 11.5 %
Hotels, Restaurants & Leisure 24,277 0.4 % 23,730 0.4 % 24,502 0.4 % 23,624 0.4 %
Household Durables 35,690 0.6 % 38,511 0.6 % 12,913 0.2 % 15,403 0.2 %
Household Products 21,124 0.3 % 21,124 0.3 % 21,186 0.3 % 21,186 0.3 %
Insurance 21,925 0.4 % 22,280 0.3 % 21,911 0.4 % 22,280 0.4 %
Interactive Media & Services 174,977 2.8 % 174,977 2.7 % 180,127 3.0 % 180,127 2.9 %
Internet & Direct Marketing Retail 60,295 1.0 % 60,398 0.9 % 54,677 0.9 % 56,114 0.9 %
IT Services 278,403 4.5 % 279,437 4.4 % 260,899 4.3 % 261,718 4.3 %
Leisure Products 31,702 0.5 % 31,564 0.5 % 20,242 0.3 % 20,287 0.3 %
Machinery 102,708 1.7 % 120,443 1.9 % 97,853 1.6 % 111,682 1.8 %
Media 102,043 1.7 % 120,695 1.9 % 105,958 1.7 % 107,819 1.7 %
Online Lending 2,700 - % 2,700 - % 6,600 0.1 % 6,600 0.1 %
Paper & Forest Products 15,866 0.3 % 15,735 0.2 % 15,847 0.3 % 15,815 0.3 %
Personal Products 251,928 4.1 % 70,770 1.1 % 249,245 4.1 % 71,097 1.1 %
Professional Services 130,990 2.1 % 131,120 2.0 % 132,015 2.2 % 132,058 2.1 %
Real Estate Management & Development - - % - - % - - % - - %
Software 22,253 0.4 % 22,500 0.3 % 22,240 0.4 % 22,500 0.4 %
Technology Hardware, Storage & Peripherals 12,435 0.2 % 12,500 0.2 % 12,431 0.2 % 12,500 0.2 %
Textiles, Apparel & Luxury Goods 226,284 3.7 % 253,673 3.9 % 202,312 3.3 % 225,359 3.6 %
Trading Companies & Distributors 65,240 1.1 % 27,517 0.4 % 65,248 1.1 % 27,106 0.4 %
Transportation Infrastructure 30,415 0.5 % 30,900 0.5 % 30,384 0.5 % 30,900 0.5 %
Subtotal $ 4,985,382 81.1 % $ 5,589,738 86.8 % $ 4,877,749 80.5 % $ 5,355,469 86.4 %
Structured Finance(1) $ 1,164,951 18.9 % $ 840,969 13.2 % $ 1,180,375 19.5 % $ 846,309 13.6 %
Total Investments $ 6,150,333 100.0 % $ 6,430,707 100.0 % $ 6,058,124 100.0 % $ 6,201,778 100.0 %
(1) Our SSN investments do not have industry concentrations and as such have
been separated in the tables above. As of September 30, 2021 and June 30, 2021 ,
Structured Finance includes $90,200 and $90,200 , respectively, of senior secured
debt investments held through our investment in NPRC and its wholly-owned
subsidiary.
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Portfolio Investment Activity
Our origination efforts are focused primarily on secured lending to non-control
investments to reduce the risk in the portfolio by investing primarily in first
lien loans, though we also continue to close select junior debt and equity
investments. For information regarding investment activity for the three months
ended September 30, 2021 and September 30, 2020 are presented below:
Three
months ended
2021 2020
Investments made in new portfolio companies $ 315,156 $ 101,411
Follow-on investments made in existing portfolio
companies (1) 86,722 53,389
Revolver advances 4,000 2,000
PIK interest 18,790 20,341
Total acquisitions $ 424,668 $ 177,141
Acquisitions by portfolio composition
1st Lien Term Loan $ 178,026 $ 128,695
Subordinated Secured Debt 246,642 20,959
Subordinated Unsecured Debt - 1,294
Equity - 26,193
Total acquisitions by portfolio composition $ 424,668 $ 177,141
Investments sold - $ -
Partial repayments (2) 54,738 47,145
Full repayments 269,230 97,488
Revolver paydowns 32 777
Total dispositions $ 324,000 $ 145,410
Dispositions by portfolio composition
1st Lien Term Loan $ 156,443 $ 130,346
Subordinated Secured Debt 167,557 14,918
Subordinated Unsecured Debt - 145
Equity - 1
Total dispositions by portfolio composition $ 324,000 $ 145,410
Weighted average interest rates for new investments by portfolio composition (3) 1st Lien Term Loan 8.10 % 9.54 % Subordinated Secured Debt 11.47 % 8.61 %
(1) Includes follow-on investments in existing portfolio companies and refinancings, if any.
(2) Includes partial prepayments of principal, scheduled amortization
payments, and refinancings, if any.
(3) Weighted average interest rates for new investments by portfolio composition
is calculated with the current rate at the end of the period. In addition,
Revolving Line of Credit and Delayed Draw Term Loans are excluded from the
calculation.
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Investment Valuation
Investments for which market quotations are readily available are typically
valued at such market quotations. In order to validate market quotations,
management and the independent valuation firm look at a number of factors to
determine if the quotations are representative of fair value, including the
source and nature of the quotations. In determining the range of values for debt
instruments where market quotations are not available, except CLOs and debt
investments in controlling portfolio companies, management and the independent
valuation firm estimated corporate and security credit ratings and identified
corresponding yields to maturity for each loan from relevant market data. A
discounted cash flow technique was then applied using the appropriate yield to
maturity as the discount rate, to determine a range of values. In determining
the range of values for debt investments of controlled companies and equity
investments, the enterprise value was determined by applying a market approach
such as using earnings before interest, taxes, depreciation and amortization
("EBITDA") multiples, net income and/or book value multiples for similar
guideline public companies and/or similar recent investment transactions and/or
an income approach, such as the discounted cash flow technique. The enterprise
value technique may also be used to value debt investments which are credit
impaired. For stressed debt and equity investments, asset recovery analysis was
used.
In determining the range of values for our investments in CLOs, the independent
valuation firm uses a discounted multi-path cash flow model. The valuations were
accomplished through the analysis of the CLO deal structures to identify the
risk exposures from the modeling point of view as well as to determine an
appropriate call date (i.e., expected maturity). These risk factors are
sensitized in the multi-path cash flow model using Monte Carlo simulations,
which are simulations used to model the probability of different outcomes, to
generate probability-weighted (i.e., multi-path) cash flows for the underlying
assets and liabilities. These cash flows are discounted using appropriate market
discount rates, and relevant data in the CLO market and certain benchmark credit
indices are considered, to determine the value of each CLO investment. In
addition, we generate a single-path cash flow utilizing our best estimate of
expected cash receipts, and assess the reasonableness of the implied discount
rate that would be effective for the value derived from the corresponding
multi-path cash flow model.
With respect to our online consumer and SME lending initiative, we invest
primarily in marketplace loans through marketplace lending platforms. We do not
conduct loan origination activities ourselves. Therefore, our ability to
purchase consumer and SME loans, and our ability to grow our portfolio of
consumer and SME loans, are directly influenced by the business performance and
competitiveness of the marketplace loan origination business of the marketplace
lending platforms from which we purchase consumer and SME loans. In addition,
our ability to analyze the risk-return profile of consumer and SME loans is
significantly dependent on the marketplace platforms' ability to effectively
evaluate a borrower's credit profile and likelihood of default. If we are unable
to effectively evaluate borrowers' credit profiles or the credit decisioning and
scoring models implemented by each platform, we may incur unanticipated losses
which could adversely impact our operating results.
The Board of Directors looked at several factors in determining where within the
range to value the asset including: recent operating and financial trends for
the asset, independent ratings obtained from third parties, comparable multiples
for recent sales of companies within the industry and discounted cash flow
models for our investments in CLOs. The composite of all these various valuation
techniques, applied to each investment, was a total valuation of $6,430,707 .
Our portfolio companies are generally lower middle-market companies, outside of
the financial sector, with less than $100,000 of annual EBITDA. We believe our
investment portfolio has experienced less volatility than others because we
believe there are more buy and hold investors who own these less liquid
investments.
Impact of the novel coronavirus (the "COVID-19") pandemic
As of September 30, 2021 , there remains to be global uncertainty surrounding the
COVID-19 pandemic, which has caused severe disruptions in the global economy and
has negatively impacted the fair value and performance of certain investments
since the pandemic began. For the three months ended September 30, 2021 , the
aggregate increases in fair value and net unrealized depreciation on investments
were driven by the expansion of comparable company trading multiples and/or
tightened credit spreads as the level of market volatility generated by the
COVID-19 pandemic declined over the three month period. For certain investments
in our portfolio, the valuations continue to reflect factors such as specific
industry concerns, uncertainty about the duration of business shutdowns and
near-term liquidity needs.
113
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Control Company Investments
Control investments offer increased risk and reward over straight debt
investments. Operating results and changes in market multiples can result in
dramatic changes in values from quarter to quarter. Significant downturns in
operations can further result in our looking to recoveries on sales of assets
rather than the enterprise value of the investment. Equity positions in our
portfolio are susceptible to potentially significant changes in value, both
increases as well as decreases, due to changes in operating results and market
multiples. Our controlled companies discussed below experienced such changes and
we recorded corresponding fluctuations in valuations during the three months
ended September 30, 2021 .
First Tower Finance Company LLC
Prospect owns 100% of the equity of First Tower Delaware, a consolidated holding
company. First Tower Delaware owns 80.1% of First Tower Finance. First Tower
Finance owns 100% of First Tower, LLC ("First Tower"), a multiline specialty
finance company.
The fair value of our investment in First Tower increased to $611,228 as of
September 30, 2021 , representing a premium of $251,905 to its amortized cost
basis compared to a fair value of $592,356 as of June 30, 2021 , a premium of
$236,502 to its amortized cost. The increase in premium to amortized cost was
driven by strong financial performance.
During the year endedJune 30, 2018 , Prospect exercised its rights and remedies under its loan documents to exercise the shareholder voting rights in respect of the stock of InterDent and to appoint a new Board of Directors of InterDent, all the members of which are our Investment Adviser's professionals. As a result, Prospect's investment in InterDent is classified as a control investment. The fair value of our investment in InterDent increased to$451,344 as ofSeptember 30, 2021 , a premium of$156,583 to its amortized cost basis compared to a fair value of$412,339 as ofJune 30, 2021 , a premium of$129,650 to its amortized cost. The increase in premium to amortized cost was driven by strong financial performance.National Property REIT Corp. NPRC is aMaryland corporation and a qualified REIT for federal income tax purposes. NPRC is held for purposes of investing, operating, financing, leasing, managing and selling a portfolio of real estate assets and engages in any and all other activities that may be necessary, incidental, or convenient to perform the foregoing. NPRC acquires real estate assets, including, but not limited to, industrial, commercial, and multi-family properties, self-storage, and student housing properties. NPRC may acquire real estate assets directly or through joint ventures by making a majority equity investment in a property-owning entity. Additionally, through its wholly owned subsidiaries, NPRC invests in online consumer loans and RSSNs. As ofSeptember 30, 2021 , we own 100% of the fully-diluted common equity of NPRC. During the three months endedSeptember 30, 2021 , we received partial repayments of$33,900 of our loans previously outstanding with NPRC and provided$9,890 of debt financing to NPRC to provide working capital. The online consumer loan investments held by certain of NPRC's wholly owned subsidiaries are unsecured obligations of individual borrowers that are issued in amounts ranging from$1 to$50 , with fixed terms ranging from 36 to 84 months. As ofSeptember 30, 2021 , the outstanding investment in online consumer loans by certain of NPRC's wholly-owned subsidiaries was comprised of 1,140 individual loans and residual interest in two securitizations, and had an aggregate fair value of$6,701 . The average outstanding individual loan balance is approximately$4 and the loans mature on dates ranging fromOctober 1, 2021 toApril 19, 2025 with a weighted-average outstanding term of 16 months as ofSeptember 30, 2021 . Fixed interest rates range from 6.0% to 36.0% with a weighted-average current interest rate of 20.3%. As ofSeptember 30, 2021 , our investment in NPRC and its wholly-owned subsidiaries relating to online consumer lending had a fair value of$2,700 . As ofSeptember 30, 2021 , based on outstanding principal balance, 20.7% of the portfolio was invested in super prime loans (borrowers with a Fair Isaac Corporation ("FICO") score, of 720 or greater), 40.2% of the portfolio in prime loans (borrowers with a FICO score of 660 to 719) and 39.1% of the portfolio in near prime loans (borrowers with a FICO score of 580 to 659, a portion of which are considered sub-prime). 114 --------------------------------------------------------------------------------
Outstanding Principal Weighted Average
Loan Type Balance Fair Value Interest Rate Range Interest Rate*
Super Prime $ 987 $ 969 7.0% - 20.5% 12.3%
Prime 1,914 1,840 6.0% - 32.0% 18.1%
Near Prime 1,863 1,872 6.0% - 36.0% 26.8%
*Weighted by outstanding principal balance of the online consumer loans.
The rated secured structured note investments held by certain of NPRC's wholly owned subsidiaries are subordinated debt interests in broadly syndicated loans managed by established collateral management teams with many years of experience in the industry. As ofSeptember 30, 2021 , the outstanding investment in rated secured structured notes by certain of NPRC's wholly owned subsidiaries was comprised of 37 investments with a fair value of$212,520 and face value of$221,942 . The average outstanding note is approximately$5,998 with an expected maturity date ranging fromApril 2026 toApril 2029 and weighted-average expected maturity of 6 years as ofSeptember 30, 2021 . Coupons range from three-month LIBOR ("3ML") plus 5.45% to 9.45% with a weighted-average coupon of 3ML + 7.16%. As ofSeptember 30, 2021 , our investment in NPRC and its wholly-owned subsidiaries relating to rated secured structured notes had a fair value of$90,200 . As ofSeptember 30, 2021 , based on outstanding notional balance, 24% of the portfolio was invested in Single - B rated tranches and 76% of the portfolio in BB rated tranches. As ofSeptember 30, 2021 , our investment in NPRC and its wholly-owned subsidiaries had an amortized cost of$729,701 and a fair value of$1,239,596 , including our investment in online consumer lending and rated secured structured notes as discussed above. The fair value of$1,146,696 related to NPRC's real estate portfolio was comprised of fifty-one multi-family properties, eight student housing properties and three commercial properties. The following table shows the location, acquisition date, purchase price, and mortgage outstanding due to other parties for each of the properties held by NPRC as ofSeptember 30, 2021 . Mortgage No. Property Name City Acquisition Date Purchase Price Outstanding 1 Filet of Chicken Forest Park, GA 10/24/2012$ 7,400 $ - 2 Arlington Park Marietta, LLC Marietta, GA 5/8/2013 14,850 13,495 3 Cordova Regency, LLC Pensacola, FL 11/15/2013 13,750 10,925 4 Crestview at Oakleigh, LLC Pensacola, FL 11/15/2013 17,500 13,297 5 Inverness Lakes, LLC Mobile, AL 11/15/2013 29,600 23,722 6 Kings Mill Pensacola, LLC Pensacola, FL 11/15/2013 20,750 16,855 7 Plantations at Pine Lake, LLC Tallahassee, FL 11/15/2013 18,000 13,534 8 Verandas at Rocky Ridge, LLC Birmingham, AL 11/15/2013 15,600 18,410 9 Crestview at Cordova, LLC Pensacola, FL 1/17/2014 8,500 12,952 10 Taco Bell, OK Yukon, OK 6/4/2014 1,719 - 11 Taco Bell, MO Marshall, MO 6/4/2014 1,405 - Canterbury Green Apartments 12 Holdings LLC Fort Wayne, IN 9/29/2014 85,500 84,048 13 Abbie Lakes OH Partners, LLC Canal Winchester, OH 9/30/2014 12,600 15,339 14 Kengary Way OH Partners, LLC Reynoldsburg, OH 9/30/2014 11,500 15,505 15 Lakeview Trail OH Partners, LLC Canal Winchester, OH 9/30/2014 26,500 29,581 16 Lakepoint OH Partners, LLC Pickerington, OH 9/30/2014 11,000 16,831 17 Sunbury OH Partners, LLC Columbus, OH 9/30/2014 13,000 17,066 18 Heatherbridge OH Partners, LLC Blacklick, OH 9/30/2014 18,416 24,411 19 Jefferson Chase OH Partners, LLC Blacklick, OH 9/30/2014 13,551 18,984 20 Goldenstrand OH Partners, LLC Hilliard, OH 10/29/2014 7,810 11,577 21 SSIL I, LLC Aurora, IL 11/5/2015 34,500 25,821 22 Vesper Tuscaloosa, LLC Tuscaloosa, AL 9/28/2016 54,500 43,052 23 Vesper Iowa City, LLC Iowa City, IA 9/28/2016 32,750 24,825 24 Vesper Corpus Christi, LLC Corpus Christi, TX 9/28/2016 14,250 10,800 25 Vesper Campus Quarters, LLC Corpus Christi, TX 9/28/2016 18,350 14,175 26 Vesper College Station, LLC College Station, TX 9/28/2016 41,500 32,058 27 Vesper Kennesaw, LLC Kennesaw, GA 9/28/2016 57,900 51,087 28 Vesper Statesboro, LLC Statesboro, GA 9/28/2016 7,500 7,480 29 Vesper Manhattan KS, LLC Manhattan, KS 9/28/2016 23,250 14,679 115
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No. Property Name City Acquisition Date Purchase Price Mortgage Outstanding
30 9220 Old Lantern Way, LLC Laurel, MD 1/30/2017 187,250 153,580
7915 Baymeadows Circle Owner,
31 LLC Jacksonville, FL 10/31/2017 95,700 76,560
8025 Baymeadows Circle Owner,
32 LLC Jacksonville, FL 10/31/2017 15,300 12,240
33 23275 Riverside Drive Owner, LLC Southfield, MI 11/8/2017 52,000 54,722
34 23741 Pond Road Owner, LLC Southfield, MI 11/8/2017 16,500 18,993
35 150 Steeplechase Way Owner, LLC Largo, MD 1/10/2018 44,500 36,668
36 Laurel Pointe Holdings, LLC Forest Park, GA 5/9/2018 33,005 26,400
37 Bradford Ridge Holdings, LLC Forest Park, GA 5/9/2018 12,500 10,000
38 Olentangy Commons Owner LLC Columbus, OH 6/1/2018 113,000 92,876
Villages of Wildwood Holdings
39 LLC Fairfield, OH 7/20/2018 46,500 39,525
40 Falling Creek Holdings LLC Richmond, VA 8/8/2018 25,000 19,335
41 Crown Pointe Passthrough LLC Danbury, CT 8/30/2018 108,500 89,400
42 Ashwood Ridge Holdings LLC Jonesboro, GA 9/21/2018 9,600 7,300
43 Lorring Owner LLC Forestville, MD 10/30/2018 58,521 47,680
44 Hamptons Apartments Owner, LLC Beachwood, OH 1/9/2019 96,500 79,520
45 5224 Long Road Holdings, LLC Orlando, FL 6/28/2019 26,500 21,200
46 Druid Hills Holdings LLC Atlanta, GA 7/30/2019 96,000 79,104
47 Bel Canto NPRC Parcstone LLC Fayetteville, NC 10/15/2019 45,000 30,127
48 Bel Canto NPRC Stone Ridge LLC Fayetteville, NC 10/15/2019 21,900 14,662
49 Sterling Place Holdings LLC Columbus, OH 10/28/2019 41,500 34,196
50 SPCP Hampton LLC Dallas, TX 11/2/2020 36,000 27,590
51 Palmetto Creek Holdings LLC North Charleston, SC 11/10/2020 33,182 25,865
52 Valora at Homewood Holdings LLC Homewood, AL 11/19/2020 81,250 63,844
53 NPRC Fairburn LLC Fairburn, GA 12/14/2020 52,140 39,105
54 NPRC Grayson LLC Grayson, GA 12/14/2020 47,860 35,895
55 NPRC Taylors LLC Taylors, SC 1/27/2021 18,762 14,075
Parkside at Laurel West Owner
56 LLC Spartanburg, SC 2/26/2021 57,005 42,025
57 Willows at North End Owner LLC Spartanburg, SC 2/26/2021 23,255 19,000
58 SPCP Edge CL Owner LLC Webster, TX 3/12/2021 34,000 25,496
59 Jackson Pear Orchard LLC Ridgeland, MS 6/28/2021 50,900 38,175
60 Jackson Lakeshore Landing LLC Ridgeland, MS 6/28/2021 22,600 16,950
61 Jackson Reflection Pointe LLC Flowood, MS 6/28/2021 45,100 31,050
62 Jackson Crosswinds LLC Pearl, MS 6/28/2021 41,400 33,825
2,322,181 1,937,492
The fair value of our investment in NPRC increased to $1,239,596 as of September
30, 2021 , a premium of $509,895 from its amortized cost basis compared to a fair
value of $1,189,755 as of June 30, 2021 , representing a premium of $436,044 . The
increase in premium is primarily driven by compression of capitalization rates
and, to a lesser extent, growth in net operating income in our real estate
portfolio.
Prospect owns 100% of the equity ofNMMB Holdings, Inc. ("NMMB Holdings "), aConsolidated Holding Company .NMMB Holdings owns 95.17% and 94.82% of the fully-diluted equity ofNMMB, Inc. (f/k/aNMMB Acquisition, Inc. ) ("NMMB") as ofSeptember 30, 2021 andJune 30, 2021 , respectively, withNMMB management owning the remaining equity.NMMB owns 100% ofRefuel Agency, Inc. ("Refuel Agency ").Refuel Agency owns 100% ofArmed Forces Communications, Inc. ("Armed Forces").NMMB is an advertising media buying business. The fair value of our investment inNMMB increased to$63,726 as ofSeptember 30, 2021 , representing a premium of$46,021 to its amortized cost basis, compared to a fair value of$46,888 as ofJune 30, 2021 , representing a premium of$29,145 to its amortized cost basis. The increase to the premium was driven by strong financial performance.
Our controlled investments, including those discussed above, are valued at
116
--------------------------------------------------------------------------------Affiliate and Non-Control Company Investments
We hold three affiliate investments atSeptember 30, 2021 with a total fair value of$379,057 , a premium of$159,828 from their combined amortized cost, compared to a fair value of$356,734 as ofJune 30, 2020 , representing a$153,791 premium to its amortized cost. The increase in premium is primarily driven by our investment inTargus Cayman HoldCo Limited ("Targus"), which is valued at a premium of$28,493 as ofSeptember 30, 2021 compared to a premium of$23,400 as ofJune 30, 2021 . The increase in Targus's premium to amortized cost was driven by strong financial performance. With the non-control/non-affiliate investments, generally, there is less volatility related to our total investments because our equity positions tend to be smaller than with our control/affiliate investments, and debt investments are generally not as susceptible to large swings in value as equity investments. For debt investments, the fair value is generally limited on the high side to each loan's par value, plus any prepayment premium that could be imposed. However, as ofSeptember 30, 2021 , two of our non-control/ non-affiliate investments,Engine Group, Inc. ("Engine") andUSC are valued at discounts to amortized cost of$27,369 and$96,818 , respectively. As ofSeptember 30, 2021 , our CLO investment portfolio is valued at a$323,982 discount to amortized cost. Excluding Engine,USC , and the CLO investment portfolio, the fair value of our non-control/non-affiliate investments atSeptember 30, 2021 are valued at$9,099 above their amortized cost and did not experience significant changes in operating performance or value.
Capitalization
Our investment activities are capital intensive and the availability and cost of capital is a critical component of our business. We capitalize our business with a combination of debt and equity. Our debt as ofSeptember 30, 2021 consists of: a Revolving Credit Facility availing us of the ability to borrow debt subject to borrowing base determinations; Convertible Notes which we issued inApril 2017 (with a follow-on issuance inMay 2018 ) andMarch 2019 ; Public Notes which we issued inMarch 2013 ,October 2018 ,December 2018 (and from time to time through our 2029 Notes Follow-on Program),January 2021 ,May 2021 andSeptember 2021 ; and Prospect Capital InterNotes® which we issue from time to time. As ofSeptember 30, 2021 , our equity capital is comprised of common and preferred equity. The following table shows our outstanding debt as ofSeptember 30, 2021 . Unamortized Principal Discount & Debt Net Carrying Effective Interest Outstanding Issuance Costs Value Fair Value(1) Rate
Revolving Credit Facility(2)$ 84,537 $ 10,945$ 84,537 (3)$ 84,537 1ML+2.05% (6) 2022 Notes 60,501 324 60,177 62,014 (4) 5.64 % (7) 2025 Notes 156,168 3,092 153,076 170,759 (4) 6.63 % (7) Convertible Notes 216,669 213,253 232,773 6.375% 2024 Notes 81,389 426 80,963 88,238 (4) 6.57 % (7) 2023 Notes 284,219 1,202 283,017 301,778 (4) 6.07 % (7) 2026 Notes 400,000 8,469 391,531 412,060 (4) 3.98 % (7) 3.364% 2026 Notes 300,000 6,969 293,031 305,097 (4) 3.60 % (7) 3.437% 2028 Notes 300,000 8,202 291,798 291,852 (4) 3.60 % (7) 2029 Notes 69,170 2,100 67,070 70,346 (4) 7.38 % (7) Public Notes 1,434,778 1,407,410 1,469,371 Prospect Capital InterNotes® 382,164 8,814 373,350 445,191 (5) 6.17 % (8) Total$ 2,118,148 $ 2,078,550 $ 2,231,872 (1)As permitted by ASC 825-10-25, we have not elected to value our Revolving Credit Facility, Convertible Notes,Public Notes and Prospect Capital InterNotes® at fair value. The fair value of these debt obligations are categorized as Level 2 under ASC 820 as ofSeptember 30, 2021 . (2)The maximum draw amount of the Revolving Credit facility as ofSeptember 30, 2021 is$1,277,500 . (3)Net Carrying Value excludes deferred financing costs associated with the Revolving Credit Facility. See Critical Accounting Policies and Estimates for accounting policy details. 117 -------------------------------------------------------------------------------- (4)We use available market quotes to estimate the fair value of the Convertible Notes and Public Notes. (5)The fair value of Prospect Capital InterNotes® is estimated by discounting remaining payments using currentTreasury rates plus spread based on observable market inputs. (6)Represents the rate on drawn down and outstanding balances. Deferred debt issuance costs are amortized on a straight-line method over the stated life of the obligation. (7)The effective interest rate is equal to the effect of the stated interest, the accretion of original issue discount and amortization of debt issuance costs. For the 2029 Notes, the rate presented is a combined effective interest rate of their respective original Note issuances and Note Follow-on Programs. (8)For the Prospect Capital InterNotes®, the rate presented is the weighted average effective interest rate. Interest expense and deferred debt issuance costs, which are amortized on a straight-line method over the stated life of the obligation which approximates level yield, are weighted against the average year-to-date principal balance. The following table shows the contractual maturities of our Revolving Credit Facility, Convertible Notes, Public Notes and Prospect Capital InterNotes® as ofSeptember 30, 2021 .
Payments Due by Period
Total Less than 1 Year 1 - 3 Years 3 - 5 Years After 5 Years
Revolving Credit Facility $ 84,537 $ - $ - $ 84,537 $ -
Convertible Notes 216,669 60,501 - 156,168 -
Public Notes 1,434,778 - 365,608 400,000 669,170
Prospect Capital InterNotes® 382,164 - 662 48,454 333,048
Total Contractual Obligations $ 2,118,148 $
60,501
The following table shows the contractual maturities of our Revolving Credit Facility, Convertible Notes, Public Notes and Prospect Capital InterNotes® as ofJune 30, 2021 :
Payments Due by Period
Total Less than 1 Year 1 - 3 Years 3 - 5 Years After 5 Years
Revolving Credit Facility $ 356,937 $ - $ - $ 356,937 $ -
Convertible Notes 267,223 - 111,055 156,168 -
Public Notes 1,134,778 - 365,608 400,000 369,170
Prospect Capital InterNotes® 508,711 - 11,744 51,822 445,145
Total Contractual Obligations $ 2,267,649 $
-
We may from time to time seek to cancel or purchase our outstanding debt through cash purchases and/or exchanges, in open market purchases, privately negotiated transactions or otherwise. The amounts involved may be material. In addition, we may from time to time enter into additional debt facilities, increase the size of existing facilities or issue additional debt securities, including secured debt, unsecured debt and/or debt securities convertible into common stock. Any such purchases or exchanges of outstanding debt would be subject to prevailing market conditions, our liquidity requirements, contractual and regulatory restrictions and other factors. Historically, we have funded a portion of our cash needs through borrowings from banks, issuances of senior securities, including secured, unsecured and convertible debt securities, or issuances of common equity. For flexibility, we maintain a universal shelf registration statement that allows for the public offering and sale of our debt securities, common stock, preferred stock, subscription rights, and warrants and units to purchase such securities up to an indeterminate amount. We may from time to time issue securities pursuant to the shelf registration statement or otherwise pursuant to private offerings. The issuance of debt or equity securities will depend on future market conditions, funding needs and other factors and there can be no assurance that any such issuance will occur or be successful. Each of our Convertible Notes,Public Notes and Prospect Capital InterNotes® (collectively, our "Unsecured Notes") are our general, unsecured obligations and rank equal in right of payment with all of our existing and future unsecured indebtedness and will be senior in right of payment to any of our subordinated indebtedness that may be issued in the future. The Unsecured Notes are effectively subordinated to our existing secured indebtedness, such as our credit facility, and future secured 118 -------------------------------------------------------------------------------- indebtedness to the extent of the value of the assets securing such indebtedness and structurally subordinated to any existing and future liabilities and other indebtedness of any of our subsidiaries. Revolving Credit Facility OnAugust 29, 2014 , we renegotiated our previous credit facility and closed an expanded five and a half year revolving credit facility (the "2014 Facility"). The lenders had extended commitments of$885,000 under the 2014 Facility as ofJune 30, 2018 . The 2014 Facility included an accordion feature which allowed commitments to be increased up to$1,500,000 in the aggregate. Interest on borrowings under the 2014 Facility was one-month LIBOR plus 225 basis points. Additionally, the lenders charged a fee on the unused portion of the 2014 Facility equal to either 50 basis points if at least 35% of the credit facility was drawn or 100 basis points otherwise. OnAugust 1, 2018 , we renegotiated the 2014 Facility and closed an expanded five and a half year revolving credit facility (the "2018 Facility"). The lenders have extended commitments of$1,132,500 as ofJune 30, 2019 . The 2018 Facility included an accordion feature which allowed commitments to be increased up to$1,500,000 in the aggregate. OnSeptember 9, 2019 , we amended the 2018 Facility and closed an expanded revolving credit facility (the "2019 Facility"). The lenders had extended commitments of$1,077,500 as ofMarch 31, 2021 . The 2019 Facility included an accordion feature which allowed commitments to be increased up to$1,500,000 in the aggregate. OnApril 28, 2021 , we amended the 2019 Facility and closed an expanded five year revolving credit facility (the "2021 Facility" and collectively with the 2014 Facility, the 2018 Facility, and the 2019 Facility, the "Revolving Credit Facility"). The lenders had extended commitments of$1,277,500 as ofSeptember 30, 2021 . The 2021 Facility includes an accordion feature which allows commitments to be increased up to$1,500,000 in the aggregate. The Revolving Credit Facility matures onApril 27, 2026 . It includes a revolving period that extends throughApril 27, 2025 , followed by an additional one-year amortization period, with distributions allowed to Prospect after the completion of the revolving period. During such one-year amortization period, all principal payments on the pledged assets will be applied to reduce the balance. At the end of the one-year amortization period, the remaining balance will become due, if required by the lenders. The Revolving Credit Facility contains restrictions pertaining to the geographic and industry concentrations of funded loans, maximum size of funded loans, interest rate payment frequency of funded loans, maturity dates of funded loans and minimum equity requirements. The Revolving Credit Facility also contains certain requirements relating to portfolio performance, including required minimum portfolio yield and limitations on delinquencies and charge-offs, violation of which could result in the early termination of the Revolving Credit Facility. The Revolving Credit Facility also requires the maintenance of a minimum liquidity requirement. As ofSeptember 30, 2021 , we were in compliance with the applicable covenants. Interest on borrowings under the 2021 Facility is one-month LIBOR plus 205 basis points. Additionally, the lenders charge a fee on the unused portion of the credit facility equal to either 40 basis points if more than 60% of the credit facility is drawn, or 70 basis points if more than 35% and an amount less than or equal to 60% of the credit facility is drawn, or 150 basis points if an amount less than or equal to 35% of the credit facility is drawn. The 2021 Facility requires us to pledge assets as collateral in order to borrow under the credit facility. For the three months endedSeptember 30, 2021 andSeptember 30, 2020 , the average stated interest rate (i.e., rate in effect plus the spread) and average outstanding borrowings for the Revolving Credit Facility were as follows: Three Months Ended September
30,
2021 2020
Average stated interest rate 2.14 % 2.37 %
Average outstanding balance $436,780 As ofSeptember 30, 2021 andJune 30, 2021 , we had$1,021,769 and$640,853 , respectively, available to us for borrowing under the Revolving Credit Facility, net of$84,537 and$356,937 outstanding borrowings as of the respective balance sheet dates. As ofSeptember 30, 2021 , the investments, including cash and cash equivalents, used as collateral for the Revolving Credit Facility had an aggregate fair value of$1,871,007 , which represents 28.9% of our total investments, including cash and cash equivalents. These assets are held and owned by PCF, a bankruptcy remote special purpose entity, and, as such, these investments are not available to our general creditors. As additional eligible investments are transferred to PCF and pledged under the Revolving Credit Facility, PCF will generate additional availability up to the current commitment amount of$1,277,500 . The release of any assets from PCF requires the approval of the facility agent. 119 -------------------------------------------------------------------------------- In connection with the origination and amendments of the Revolving Credit Facility, we incurred$15,978 of new fees and$7,509 were carried over from the previous facilities, all of which are being amortized over the term of the facility in accordance with ASC 470-50. As ofSeptember 30, 2021 ,$10,945 remains to be amortized and is reflected as deferred financing costs on the Consolidated Statements of Assets and Liabilities. During the three months endedSeptember 30, 2021 andSeptember 30, 2020 , we recorded$4,569 and$4,633 , respectively, of interest costs, unused fees and amortization of financing costs on the Revolving Credit Facility as interest expense. Convertible Notes OnApril 11, 2017 , we issued$225,000 aggregate principal amount of convertible notes that mature onJuly 15, 2022 (the "Original 2022 Notes"), unless previously converted or repurchased in accordance with their terms. The Original 2022 Notes bear interest at a rate of 4.95% per year, payable semi-annually onJanuary 15 andJuly 15 each year, beginningJuly 15, 2017 . Total proceeds from the issuance of the Original 2022 Notes, net of underwriting discounts and offering costs, were$218,010 . OnMay 18, 2018 , we issued an additional$103,500 aggregate principal amount of convertible notes that mature onJuly 15, 2022 (the "Additional 2022 Notes," and together with the Original 2022 Notes, the "2022 Notes"), unless previously converted or repurchased in accordance with their terms. The Additional 2022 Notes were a further issuance of, and are fully fungible and rank equally in right of payment with, the Original 2022 Notes and bear interest at a rate of 4.95% per year, payable semi-annually onJanuary 15 andJuly 15 each year, beginningJuly 15, 2018 . Total proceeds from the issuance of the Additional 2022 Notes, net of underwriting discounts and offering costs, were$100,749 . OnOctober 18, 2019 , we repurchased$22,941 aggregate principal amount of the 2022 Notes at a price of$102.8 including commissions. As a result of this transaction, we recorded a loss of$1,072 in the amount of the difference between the reacquisition price and the net carrying amount of the 2022 Notes, net of the proportionate amount of unamortized debt issuance costs. OnNovember 7, 2019 , we commenced a tender offer to purchase for cash up to$50,000 aggregate principal amount of the 2022 Notes ("2022 Notes November Tender Offer"). OnDecember 7, 2019 ,$13,432 aggregate principal amount of the 2022 Notes, representing 4.4% of the previously outstanding 2022 Notes, were validly tendered and accepted. The 2022 Notes November Tender Offer resulted in our recognizing a loss of$599 , in the amount of the difference between the reacquisition price and the net carrying amount of the 2022 Notes, net of the proportionate amount of unamortized debt issuance costs. OnDecember 23, 2019 , we commenced a tender offer to purchase for cash up to$25,000 aggregate principal amount of the 2022 Notes ("2022 Notes December Tender Offer"). OnJanuary 22, 2020 ,$1,302 aggregate principal amount of the 2022 Notes, representing 0.5% of the previously outstanding 2022 Notes, were validly tendered and accepted. The 2022 Notes December Tender Offer resulted in our recognizing a loss of$51 during the three months endedMarch 31, 2020 . During the three months endedMarch 31, 2020 , we repurchased an additional$32,585 aggregate principal amount of the 2022 Notes at a weighted average price of 89.1 including commissions. As a result of this transaction, we recorded a gain of$3,045 , in the amount of the difference between the reacquisition price and the net carrying amount of the 2022 Notes, net of the proportionate amount of unamortized debt issuance costs. OnJuly 23, 2020 , we commenced a tender offer to purchase for cash up to$100,000 aggregate principal amount of the 2022 Notes ("2022 Notes July Tender Offer"). OnAugust 19, 2020 ,$29,420 aggregate principal amount of the 2022 Notes, representing 11.4% of the previously outstanding 2022 Notes, were validly tendered and accepted. The 2022 Notes July Tender Offer resulted in our recognizing a loss of$396 during the three months endedSeptember 30, 2020 . OnSeptember 3, 2020 , we commenced a tender offer to purchase for cash up to$228,820 aggregate principal amount of the 2022 Notes at the purchase price of$101.00 , plus accrued and unpaid interest ("2022 Notes September Tender Offer"). OnOctober 1, 2020 ,$6,035 aggregate principal amount of the 2022 Notes, representing 2.64% of the previously outstanding 2022 Notes, were validly tendered and accepted. OnOctober 19, 2020 , we commenced a tender offer to purchase for cash any and all of the$222,785 aggregate principal amount outstanding of the 2022 Notes at the purchase price of$102.625 , plus accrued and unpaid interest ("2022 Notes October Tender Offer"). OnNovember 16, 2020 ,$59,863 aggregate principal amount of the 2022 Notes, representing 26.87% of the previously outstanding 2022 Notes, were validly tendered and accepted. The 2022 Notes September Tender Offer and the 2022 Notes October Tender Offer resulted in our recognizing a loss of$2,433 during the three months endedDecember 31, 2020 . OnDecember 16, 2020 , we commenced a tender offer to purchase for cash any and all of the$162,922 aggregate principal outstanding amount of the 2022 Notes at the purchase price of$103.50 , plus accrued and unpaid interest ("2022 NotesDecember 2020 Tender Offer"). OnJanuary 15, 2021 ,$26,694 aggregate principal amount of the 2022 Notes, representing 16.38% of the previously outstanding 2022 Notes, were validly tendered and accepted. OnFebruary 1, 2021 , we commenced a tender offer to purchase for cash up to$30,000 aggregate principal outstanding amount of the 2022 Notes at the purchase price 120 -------------------------------------------------------------------------------- of$103.00 , plus accrued and unpaid interest ("2022 NotesFebruary 2021 Tender Offer"). OnMarch 2, 2021 ,$25,123 aggregate principal amount of the 2022 Notes, representing 18.44% of the previously outstanding 2022 Notes, were validly tendered and accepted. The 2022 NotesDecember 2020 Tender Offer and the 2022 NotesFebruary 2021 Tender Offer resulted in our recognizing a loss of$2,225 during the three months endedMarch 31, 2021 . OnMarch 16, 2021 , we commenced a tender offer to purchase for cash up to$30,000 aggregate principal outstanding amount of the 2022 Notes at the purchase price of$102.00 , plus accrued and unpaid interest ("2022 NotesMarch 2021 Tender Offer"). OnApril 13, 2021 ,$50 aggregate principal amount of the 2022 Notes, representing 0.05% of the previously outstanding 2022 Notes, were validly tendered and accepted. The 2022 NotesMarch 2021 Tender Offer resulted in our recognizing a loss of$1 . OnAugust 26, 2021 , we commenced a tender offer to purchase for cash up to$60,000 aggregate principal outstanding amount of the 2022 Notes at the purchase price of$102.50 , plus accrued and unpaid interest ("2022 NotesAugust 2021 Tender Offer"). OnSeptember 24, 2021 ,$50,554 aggregate principal amount of the 2022 Notes, representing 45.52% of the previously outstanding 2022 Notes, were validly tendered and accepted. The 2022 NotesAugust 2021 Tender Offer resulted in our recognizing a loss of$1,584 . As ofSeptember 30, 2021 , the outstanding aggregate principal amount of the 2022 Notes is$60,501 . OnMarch 1, 2019 , we issued$175,000 aggregate principal amount of senior convertible notes that mature onMarch 1, 2025 (the "2025 Notes"), unless previously converted or repurchased in accordance with their terms. We granted the underwriters a 13-day over-allotment option to purchase up to an additional$26,250 aggregate principal amount of the 2025 Notes. The underwriters fully exercised the over-allotment option onMarch 11, 2019 and we issued$26,250 aggregate principal amount of 2025 Notes at settlement onMarch 13, 2019 . The 2025 Notes bear interest at a rate of 6.375% per year, payable semi-annually onMarch 1 andSeptember 1 each year, beginningSeptember 1, 2019 . Total proceeds from the issuance of the 2025 Notes, net of underwriting discounts and offering costs, were$198,674 . OnDecember 28, 2020 , we commenced a tender offer to purchase for cash up to$20,000 aggregate principal amount of the 2025 Notes at the purchase price of$111.00 , plus accrued and unpaid interest ("2025 NotesDecember 2020 Tender Offer"). OnJanuary 27, 2021 ,$20,000 aggregate principal amount of the 2025 Notes, representing 9.94% of the previously outstanding 2025 Notes, were validly tendered and accepted. The 2025 NotesDecember 2020 Tender Offer resulted in our recognizing a loss of$2,676 during the three months endedMarch 31, 2021 . OnFebruary 16, 2021 , we repurchased an additional$25,082 aggregate principal amount of the 2025 Notes, representing 13.84% of the previously outstanding 2025 Notes, at a price of$107.50 , including commissions. As a result of this transaction, we recorded a loss of$2,466 , in the amount of the difference between the reacquisition price and the net carrying amount of the 2025 Notes, net of the proportionate amount of unamortized debt issuance costs. As ofSeptember 30, 2021 , the outstanding aggregate principal amount of the 2025 Notes is$156,168 .
Certain key terms related to the convertible features for the 2022 Notes, and the 2025 Notes (collectively, the "Convertible Notes") are listed below.
2022 Notes 2025 Notes
Initial conversion rate(1) 100.2305 110.7420
Initial conversion price $ 9.98
Conversion rate at September 30, 2021 (1)(2) 100.2305 110.7420
Conversion price at September 30, 2021(2)(3) $ 9.98 $ 9.03
Last conversion price calculation date 4/11/2021 3/1/2021
Dividend threshold amount (per share)(4) $ 0.083330 (1)Conversion rates denominated in shares of common stock per$1 principal amount of the Convertible Notes converted. (2)Represents conversion rate and conversion price, as applicable, taking into account certain de minimis adjustments that will be made on the conversion date. (3)The conversion price will increase only if the current monthly dividends (per share) exceed the dividend threshold amount (per share). (4)The conversion rate is increased if monthly cash dividends paid to common shares exceed the monthly dividend threshold amount, subject to adjustment. Current dividend rates are at or below the minimum dividend threshold amount for further conversion rate adjustments for all bonds. 121 -------------------------------------------------------------------------------- Interest accrues from the date of the original issuance of the Convertible Notes or from the most recent date to which interest has been paid or duly provided. Upon conversion, the holder will receive a separate cash payment with respect to the notes surrendered for conversion representing accrued and unpaid interest to, but not including, the conversion date. Any such payment will be made on the settlement date applicable to the relevant conversion on the Convertible Notes. If a holder converts the Convertible Notes after a record date for an interest payment but prior to the corresponding interest payment date, the holder will receive shares of our common stock based on the conversion formula described above, a cash payment representing accrued and unpaid interest through the record date in the normal course and a separate cash payment representing accrued and unpaid interest from the record date to the conversion date. No holder of Convertible Notes will be entitled to receive shares of our common stock upon conversion to the extent (but only to the extent) that such receipt would cause such converting holder to become, directly or indirectly, a beneficial owner (within the meaning of Section 13(d) of the Securities Exchange Act of 1934 and the rules and regulations promulgated thereunder) of more than 5.0% of the shares of our common stock outstanding at such time. The 5.0% limitation shall no longer apply following the effective date of any fundamental change. We will not issue any shares in connection with the conversion or redemption of the Convertible Notes which would equal or exceed 20% of the shares outstanding at the time of the transaction in accordance with NASDAQ rules. Subject to certain exceptions, holders may require us to repurchase, for cash, all or part of their Convertible Notes upon a fundamental change at a price equal to 100% of the principal amount of the Convertible Notes being repurchased plus any accrued and unpaid interest up to, but excluding, the fundamental change repurchase date. In addition, upon a fundamental change that constitutes a non-stock change of control we will also pay holders an amount in cash equal to the present value of all remaining interest payments (without duplication of the foregoing amounts) on such Convertible Notes through and including the maturity date. In connection with the issuance of the Convertible Notes, we recorded a discount of$3,369 and debt issuance costs of$9,035 which are being amortized over the terms of the Convertible Notes. As ofSeptember 30, 2021 ,$1,905 of the original issue discount and$1,511 of the debt issuance costs remain to be amortized and is included as a reduction within Convertible Notes on the Consolidated Statement of Assets and Liabilities. During the three months endedSeptember 30, 2021 andSeptember 30, 2020 , we recorded$4,235 and$6,865 , respectively, of interest costs and amortization of financing costs on the Convertible Notes as interest expense. Public Notes OnMarch 15, 2013 , we issued$250,000 aggregate principal amount of unsecured notes that mature onMarch 15, 2023 (the "Original 2023 Notes"). The Original 2023 Notes bear interest at a rate of 5.875% per year, payable semi-annually onMarch 15 andSeptember 15 of each year, beginningSeptember 15, 2013 . Total proceeds from the issuance of the Original 2023 Notes, net of underwriting discounts and offering costs, were$243,641 . OnJune 20, 2018 , we issued an additional$70,000 aggregate principal amount of unsecured notes that mature onMarch 15, 2023 (the "Additional 2023 Notes", and together with the Original 2023 Notes, the "2023 Notes"). The Additional 2023 Notes were a further issuance of, and are fully fungible and rank equally in right of payment with, the Original 2023 Notes and bear interest at a rate of 5.875% per year, payable semi-annually onMarch 15 andSeptember 15 of each year, beginningSeptember 15, 2018 . Total proceeds from the issuance of the Additional 2023 Notes, net of underwriting discounts, were$69,403 . OnNovember 17, 2020 , we commenced a tender offer to purchase for cash up to$30,000 aggregate principal amount of the 2023 Notes at the purchase price of$105.00 , plus accrued and unpaid interest ("2023 Notes November Tender Offer"). OnDecember 15, 2020 ,$36,644 aggregate principal amount of the 2023 Notes were tendered, of which,$30,000 aggregate principal amount, representing 9.38% of the previously outstanding 2023 Notes, were validly accepted pursuant to the applicable 2023 Notes November Tender Offer (applying a proration factor of approximately 82.27%). The 2023 Notes November Tender Offer resulted in our recognizing a loss of$1,694 during the three months endedDecember 31, 2020 . OnMarch 9, 2021 , we commenced a tender offer to purchase for cash any and all of the$290,000 aggregate principal amount of the 2023 Notes at the purchase price of$104.25 , plus accrued and unpaid interest ("2023 NotesMarch 9, 2021 Tender Offer"). OnMarch 15, 2021 ,$4,219 aggregate principal amount of the 2023 Notes were tendered, representing 1.45% of the previously outstanding 2023 Notes. OnMarch 23, 2021 , we commenced a tender offer to purchase for cash any and all of the$285,781 aggregate principal amount of the 2023 Notes at the purchase price of$104.20 , plus accrued and unpaid interest ("2023 NotesMarch 23, 2021 Tender Offer"). OnMarch 29, 2021 ,$726 aggregate principal amount of the 2023 Notes were tendered, representing 0.25% of the previously outstanding 2023 Notes. The 2023 NotesMarch 9, 2021 Tender Offer and the 2023 NotesMarch 23, 2021 Tender Offer resulted in our recognizing a loss of$234 during the three months endedMarch 31, 2021 . 122 -------------------------------------------------------------------------------- OnApril 7, 2021 , we commenced a tender offer to purchase for cash up to$30,000 aggregate principal amount of the 2023 Notes at the purchase price of$104.15 , plus accrued and unpaid interest ("2023 NotesApril 2021 Tender Offer"). OnMay 4, 2021 ,$836 aggregate principal amount of the 2023 Notes were tendered, representing 0.29% of the previously outstanding 2023 Notes. The 2023 NotesApril 2021 Tender Offer resulted in our recognizing a loss of$43 during the three months endedJune 30, 2021 . As ofSeptember 30, 2021 , the outstanding aggregate principal amount of the 2023 Notes is$284,219 . OnDecember 10, 2015 , we issued$160,000 aggregate principal amount of unsecured notes that mature onJune 15, 2024 (the "2024 Notes"). The 2024 Notes bore interest at a rate of 6.25% per year, payable quarterly onMarch 15 ,June 15 ,September 15 andDecember 15 of each year, beginningMarch 15, 2016 . Total proceeds from the issuance of the 2024 Notes, net of underwriting discounts and offering costs, were$155,043 . OnJune 16, 2016 , we entered into an at-the-market ("ATM") program withFBR Capital Markets & Co. , through which we could sell, by means of ATM offerings, from time to time, up to$100,000 in aggregate principal amount of our existing 2024 Notes ("Initial 2024 Notes ATM"). Following the Initial 2024 Notes ATM, the aggregate principal amount of the 2024 Notes issued was$199,281 for net proceeds of$193,253 , after commissions and offering costs. OnJuly 2, 2018 , we entered into a second ATM program withB. Riley FBR, Inc. andBB&T Capital Markets , and onAugust 31, 2018 withComerica Securities, Inc. , through which we could sell, by means of ATM offerings, up to$100,000 in aggregate principal amount of the 2024 Notes ("Second 2024 Notes ATM"). Prior to theFebruary 2021 full redemption discussed below, the 2024 Notes were listed on theNew York Stock Exchange ("NYSE") and traded thereon under the ticker "PBB". During the year endedJune 30, 2019 , we issued an additional$35,162 aggregate principal amount under the Second 2024 Notes ATM, for net proceeds of$34,855 , after commissions and offering costs. OnMarch 20, 2020 , we commenced a tender offer to purchase for cash any and all of the$234,443 aggregate principal amount of the 2024 Notes ("2024 Notes March Tender Offer"). OnMarch 31, 2020 ,$655 aggregate principal amount of the 2024 Notes, representing 0.3% of the previously outstanding 2024 Notes, were validly tendered and accepted. The 2024 Notes March Tender Offer resulted in our recognizing a gain of$203 during the three months endedMarch 31, 2020 . OnFebruary 16, 2021 , we redeemed$233,788 of the aggregate principal amount of the 2024 Notes. The transaction resulted in our recognizing a loss of$3,391 during the three months endedMarch 31, 2021 . Following the redemption, none of the 2024 Notes remained outstanding. OnJune 7, 2018 , we issued$55,000 aggregate principal amount of unsecured notes that mature onJune 15, 2028 (the "2028 Notes"). The 2028 Notes bear interest at a rate of 6.25% per year, payable quarterly onMarch 15 ,June 15 ,September 15 , andDecember 15 of each year, beginningSeptember 15, 2018 . Total proceeds from the issuance of the 2028 Notes, net of underwriting discounts and offering costs were$53,119 . OnJuly 2, 2018 , we entered into an ATM program withB. Riley FBR, Inc. andBB&T Capital Markets , and onAugust 31, 2018 withComerica Securities, Inc. , through which we could sell, by means of ATM offerings, up to$100,000 in aggregate principal amount of our existing 2028 Notes ("2028 Notes ATM" or "2028 Notes Follow-on Program"). The 2028 Notes are listed on the NYSE and trade thereon under the ticker "PBY." During the year endedJune 30, 2019 , we issued an additional$15,761 aggregate principal amount under the 2028 Notes ATM, for net proceeds of$15,530 , after commissions and offering costs. OnJune 15, 2021 , we redeemed$70,761 of the aggregate principal amount of the 2028 Notes. The transaction resulted in our recognizing a loss of$1,934 during the three months endedJune 30, 2021 . Following the redemption, none of the 2028 Notes remained outstanding. OnOctober 1, 2018 , we issued$100,000 aggregate principal amount of unsecured notes that mature onJanuary 15, 2024 (the "6.375% 2024 Notes"). The 6.375% 2024 Notes bear interest at a rate of 6.375% per year, payable semi-annually onJanuary 15 andJuly 15 of each year, beginningJanuary 15, 2019 . Total proceeds from the issuance of the 6.375% 2024 Notes, net of underwriting discounts and offering costs, were$98,985 . OnNovember 17, 2020 , we commenced a tender offer to purchase for cash up to$10,000 aggregate principal amount of the 6.375% 2024 Notes at the purchase price of$108.00 , plus accrued and unpaid interest ("6.375% 2024 Notes November Tender Offer"). OnDecember 15, 2020 ,$11,848 aggregate principal amount of the 6.375% 2024 Notes were tendered, of which,$10,000 aggregate principal amount, representing 10% of the previously outstanding 6.375% 2024 Notes, were validly accepted pursuant to the applicable 6.375% 2024 Notes Tender Offer (applying a proration factor of approximately 84.56%). The 6.375% 2024 Notes November Tender Offer resulted in our recognizing a loss of$866 during the three months endedDecember 31, 2020 . 123 -------------------------------------------------------------------------------- OnMarch 2, 2021 , we commenced a tender offer to purchase for cash any and all of the$90,000 aggregate principal amount of the 6.375% 2024 Notes at the purchase price of$109.00 , plus accrued and unpaid interest ("6.375% 2024 NotesMarch 2, 2021 Tender Offer"). OnMarch 8, 2021 ,$7,738 aggregate principal amount of the 6.375% 2024 Notes, representing 8.60% of the previously outstanding 6.375% 2024 Notes, were validly tendered and accepted. OnMarch 16, 2021 , we commenced a tender offer to purchase for cash any and all of the$82,262 aggregate principal amount of the 6.375% 2024 Notes at the purchase price of$108.75 , plus accrued and unpaid interest ("6.375% 2024 NotesMarch 16, 2021 Tender Offer"). OnMarch 22, 2021 ,$647 aggregate principal amount of the 6.375% 2024 Notes, representing 0.79% of the previously outstanding 6.375% 2024 Notes, were validly tendered and accepted. The 6.375% 2024 NotesMarch 2, 2021 Tender Offer and the 6.375% 2024 NotesMarch 16, 2021 Tender Offer resulted in our recognizing a loss of$806 during the three months endedMarch 31, 2021 . OnApril 7, 2021 , we commenced a tender offer to purchase for cash up to$30,000 aggregate principal amount of the 6.375% 2024 Notes at the purchase price of$107.50 , plus accrued and unpaid interest ("6.375% 2024 NotesApril 2021 Tender Offer"). OnMay 4, 2021 ,$226 aggregate principal amount of the 6.375% 2024 notes, representing 0.28% of the previously outstanding 6.375% 2024 Notes, were validly tendered and accepted. The 6.375% 2024 NotesApril 2021 Tender Offer resulted in our recognizing a loss of$18 during the three months endedJune 30, 2021 . As ofSeptember 30, 2021 , the outstanding aggregate principal amount of the 6.375% 2024 Notes is$81,389 . OnDecember 5, 2018 , we issued$50,000 aggregate principal amount of unsecured notes that mature onJune 15, 2029 (the "2029 Notes"). The 2029 Notes bear interest at a rate of 6.875% per year, payable quarterly onMarch 15 ,June 15 ,September 15 , andDecember 15 of each year, beginningMarch 15, 2019 . Total proceeds from the issuance of the 2029 Notes, net of underwriting discounts and offering costs, were$48,057 . OnFebruary 9, 2019 , we entered into an ATM program withB. Riley FBR, Inc. ,BB&T Capital Markets , andComerica Securities, Inc. , through which we could sell, by means of ATM offerings, up to$100,000 in aggregate principal amount of our existing 2029 Notes ("2029 Notes ATM" or "2029 Notes Follow-on Program"). The 2029 Notes are listed on the NYSE and trade thereon under the ticker "PBC." During the year endedJune 30, 2019 , we issued an additional$19,170 aggregate principal amount under the 2029 Notes ATM, for net proceeds of$18,523 , after commissions and offering costs. As ofSeptember 30, 2021 , the outstanding aggregate principal amount of the 2029 Notes is$69,170 . OnJanuary 22, 2021 , we issued$325,000 aggregate principal amount of unsecured notes that mature onJanuary 22, 2026 (the "Original 2026 Notes"). The Original 2026 Notes bear interest at a rate of 3.706% per year, payable semi-annually onJuly 22 , andJanuary 22 of each year, beginning onJuly 22, 2021 . Total proceeds from the issuance of the 2026 Notes, net of underwriting discounts and offering costs, were$317,720 . OnFebruary 19, 2021 , we issued an additional$75,000 aggregate principal amount of unsecured notes that mature onJanuary 22, 2026 (the "Additional 2026 Notes", and together with the Original 2026 Notes, the "2026 Notes"). The Additional 2026 Notes were a further issuance of, and are fully fungible and rank equally in right of payment with, the Original 2026 Notes and bear interest at a rate of 3.706% per year, payable semi-annually onJuly 22 andJanuary 22 of each year, beginningJuly 22, 2021 . Total proceeds from the issuance of the Additional 2026 Notes, net of underwriting discounts and offering costs, were$74,061 . As ofSeptember 30, 2021 , the outstanding aggregate principal amount of the 2026 Notes is$400,000 . OnMay 27, 2021 , we issued$300,000 aggregate principal amount of unsecured notes that mature onNovember 15, 2026 (the "3.364% 2026 Notes"). The 3.364% 2026 Notes bear interest at a rate of 3.364% per year, payable semi-annually onNovember 15 , andMay 15 of each year, beginning onNovember 15, 2021 . Total proceeds from the issuance of the 3.364% 2026 Notes, net of underwriting discounts and offering costs, were$293,283 . As ofSeptember 30, 2021 , the outstanding aggregate principal amount of the 3.364% 2026 Notes is$300,000 . OnSeptember 30, 2021 , we issued$300,000 aggregate principal amount of unsecured notes that mature onOctober 15, 2028 (the "3.437% 2028 Notes"). The 3.437% 2028 Notes bear interest at a rate of 3.437% per year, payable semi-annually onApril 15 andOctober 15 of each year, beginning onApril 15, 2022 . Total proceeds from the issuance of the 3.437% 2028 Notes, net of underwriting discounts and offering costs, were$291,798 . As ofSeptember 30, 2021 , the outstanding aggregate principal amount of the 3.437% 2028 Notes is$300,000 . The 2023 Notes, the 6.375% 2024 Notes, the 2029 Notes, the 2026 Notes, the 3.364% 2026 Notes, and the 3.437% 2028 Notes (collectively, the "Public Notes") are direct unsecured obligations and rank equally with all of our unsecured indebtedness from time to time outstanding. In connection with the issuance of the Public Notes we recorded a discount of$16,318 and debt issuance costs of$19,008 , which are being amortized over the term of the notes. As ofSeptember 30, 2021 ,$13,486 of the original issue discount and 124 --------------------------------------------------------------------------------$13,882 of the debt issuance costs remain to be amortized and are included as a reduction within Public Notes on the Consolidated Statement of Assets and Liabilities. During the three months endedSeptember 30, 2021 andSeptember 30, 2020 , we recorded$13,932 and$12,843 , respectively, of interest costs and amortization of financing costs on the Public Notes as interest expense. Prospect Capital InterNotes® OnFebruary 16, 2012 , we entered into a selling agent agreement (the "Original Selling Agent Agreement") withInspereX LLC (formerly known as "Incapital LLC "), as purchasing agent for our issuance and sale from time to time of up to$500,000 of Prospect Capital InterNotes®, which was increased to$1,500,000 inMay 2014 . OnMay 10, 2019 , the Original Selling Agent Agreement was terminated, and we entered into a new selling agent agreement withInspereX LLC (the "May 2019 Selling Agent Agreement"), authorizing the issuance and sale from time to time of up to$1,000,000 of Prospect Capital InterNotes®. OnSeptember 16, 2019 , theMay 2019 Selling Agent Agreement was terminated, and we entered into a new selling agent agreement withInspereX LLC (the "September 2019 Selling Agent Agreement"), authorizing the issuance and sale from time to time of up to$500,000 of Prospect Capital InterNotes®. We sold approximately$1,700,000 in aggregate principal amount of Prospect Capital InterNotes® under the Original Selling Agent Agreement,May 2019 Selling Agent Agreement, andSeptember 2019 Selling Agent Agreement (collectively the "Previous Selling Agent Agreements"). OnFebruary 13, 2020 , theSeptember 2019 Selling Agent Agreement was terminated, and we entered into a new selling agent agreement withInspereX LLC (the "Selling Agent Agreement"), authorizing the issuance and sale from time to time of up to$1,000,000 of Prospect Capital InterNotes® (collectively with the previously authorized selling agent agreements, the "InterNotes® Offerings"). Additional agents may be appointed by us from time to time in connection with the InterNotes® Offering and become parties to the Selling Agent Agreement. We have, from time to time, repurchased certain notes issued through the InterNotes® Offerings and, therefore, as ofSeptember 30, 2021 ,$382,164 aggregate principal amount of Prospect Capital InterNotes® were outstanding. These notes are direct unsecured obligations and rank equally with all of our unsecured indebtedness from time to time outstanding. Each series of notes will be issued by a separate trust. These notes bear interest at fixed interest rates and offer a variety of maturities no less than twelve months from the original date of issuance. During the three months endedSeptember 30, 2021 , we issued$87,657 aggregate principal amount of Prospect Capital InterNotes® for net proceeds of$85,472 . These notes were issued with stated interest rates ranging from 2.25% to 4.00% with a weighted average interest rate of 3.35%. These notes mature betweenJuly 15, 2026 andSeptember 15, 2051 .
The following table summarizes the Prospect Capital InterNotes® issued during
the three months ended
Tenor at Weighted
Origination Principal Interest Rate Average
(in years) Amount Range Interest Rate Maturity Date Range
5 $ 15,681 2.25% - 2.50% 2.42 % July 15, 2026 - September 15, 2026
7 17,016 2.75% - 3.00% 2.96 % July 15, 2028 - September 15, 2028
10 17,027 3.15% - 3.40% 3.29 % July 15, 2031 - September 15, 2031
12 2,422 3.70 % 3.70 % July 15, 2033
15 12,317 3.50% - 4.00% 3.82 % July 15, 2036 - September 15, 2036
30 23,194 4.00 % 4.00 % July 15, 2051 - September 15, 2051
$ 87,657
125-------------------------------------------------------------------------------- During the three months endedSeptember 30, 2020 , we issued$38,657 aggregate principal amount of our Prospect Capital InterNotes® for net proceeds of$38,070 . These notes were issued with stated interest rates ranging from 4.75% to 6.00% with a weighted average interest rate of 5.42%. These notes mature betweenJuly 15, 2025 andOctober 15, 2030 .
The following table summarizes the Prospect Capital InterNotes® issued during
the three months ended
Tenor at Weighted
Origination Principal Interest Rate Average
(in years) Amount Range Interest Rate Maturity Date Range
5 $ 24,906 4.75% - 5.50% 5.31 % July 15, 2025 - October 15, 2025
7 5,884 5.00% - 5.75% 5.490 % July 15, 2027 - October 15, 2027
10 7,867 5.25% - 6.00% 5.75 % July 15, 2030 - October 15, 2030
$ 38,657
During the three months ended September 30, 2021 , we repaid $671 aggregate
principal amount of Prospect Capital InterNotes® at par in accordance with the
Survivor's Option, as defined in the InterNotes® Offering prospectus. In order
to replace short maturity debt with longer-term debt, we redeemed $213,533
aggregate principal amount of Prospect Capital InterNotes® at par with a
weighted average interest rate of 5.09%. As a result of these transactions, we
recorded a loss in the amount of the unamortized debt issuance costs. The net
loss on the extinguishment of Prospect Capital InterNotes® in the three months
ended September 30, 2021 was $3,719 .
The following table summarizes the Prospect Capital InterNotes® outstanding as
of September 30, 2021 :
Tenor at Weighted
Origination Principal Interest Rate Average
(in years) Amount Range Interest Rate Maturity Date Range
3 $ 662 1.50 % 1.50 % January 15, 2024
January 15, 2026 - September 15,
5 45,974 2.25% - 3.00% 2.80 % 2026
6 15,107 3.00 % 3.00 % June 15, 2027 - July 15, 2027
January 15, 2028 - September 15,
7 25,339 2.75% - 4.00% 3.15 % 2028
8 3,511 3.40% - 3.50% 3.45 % June 15, 2029 - July 15, 2029
November 15, 2025 - September 15,
10 72,600 3.15% - 6.00% 3.88 % 2031
12 16,854 3.70% - 6.00% 4.17 % November 15, 2025 - July 15, 2033
15 29,118 3.50% - 6.00% 4.96 % May 15, 2028 - September 15, 2036
December 15, 2030 - August 15,
18 18,467 4.50% - 6.25% 5.59 % 2031
November 15, 2032 - October 15,
20 3,777 5.75% - 6.00% 5.89 % 2033
25 30,209 6.25% - 6.50% 6.39 % August 15, 2038 - May 15, 2039
November 15, 2042 - September 15,
30 120,546 4.00% - 6.75% 5.82 % 2051
$ 382,164
126-------------------------------------------------------------------------------- During the three months endedSeptember 30, 2020 , we repaid$565 aggregate principal amount of Prospect Capital InterNotes® at par in accordance with the Survivor's Option, as defined in the InterNotes® Offering prospectus. As a result of these transactions, we recorded a loss in the amount of the unamortized debt issuance costs. The net loss on the extinguishment of Prospect Capital InterNotes® in the three months endedSeptember 30, 2020 was$14 . The following table summarizes the Prospect Capital InterNotes® outstanding as ofJune 30, 2021 : Tenor at Weighted Origination Principal Interest Rate Average (in years) Amount Range Interest Rate Maturity Date Range September 15, 2023 - October 15, 5$ 243,146 3.75% - 5.75% 4.86 % 2025 7 110,348 4.00% - 6.00% 5.13 % July 15, 2024 - October 15, 2027 8 24,325 4.50% - 5.75% 4.67 % August 15, 2025 - July 15, 2026 January 15, 2024 - October 15, 10 167,479 3.75% - 6.25% 5.34 % 2030 November 15, 2025 - December 15, 12 2,978 6.00% 6.00 % 2025 15 16,851 5.75% - 6.00% 5.79 % May 15, 2028 - November 15, 2028 December 15, 2030 - August 15, 18 18,721 4.50% - 6.25% 5.58 % 2031 November 15, 2032 - October 15, 20 3,812 5.75% - 6.00% 5.89 % 2033 25 30,710 6.25% - 6.50% 6.39 % August 15, 2038 - May 15, 2039 November 15, 2042 - October 15, 30 99,951 5.50% - 6.75% 6.25 % 2043$ 718,321 In connection with the issuance of Prospect Capital InterNotes®, we incurred$26,776 of fees which are being amortized over the term of the notes, of which$8,814 remains to be amortized and is included as a reduction within Prospect Capital InterNotes® on the Consolidated Statement of Assets and Liabilities as ofSeptember 30, 2021 . During the three months endedSeptember 30, 2021 andSeptember 30, 2020 , we recorded$5,302 and$9,708 , respectively, of interest costs and amortization of financing costs on the Prospect Capital InterNotes® as interest expense. Net Asset Value Attributable to Common Stockholders During the three months endedSeptember 30, 2021 , our net asset value attributable to common shares increased by$134,786 $0.31 per common share. The increase was primarily attributable to an increase in net realized and net change in unrealized gains of$130,762 , or$0.33 per basic weighted average common share. During the three months endedSeptember 30, 2021 , net investment income of$81,369 , or$0.21 per basic weighted average common share, also exceeded distributions to common and preferred stockholders of$72,450 (including distributions classified as return of capital distributions to common stockholders), or$0.19 per basic weighted average common share, resulting in a net increase of$0.02 per basic weighted average common share. The increase was primarily offset by$0.01 of dilution per common share related to common stock issuances through our common stock and dividend reinvestment program and by$0.03 of dilution per common share related to the preferred stock issuances for the three months endedSeptember 30, 2021 . The following table shows the calculation of net asset value per common share as ofSeptember 30, 2021 andJune 30, 2021 . September 30, 2021 June 30, 2021 Net assets $ 3,943,263$ 3,945,517 Less: Preferred Stock - (137,040)
Net assets available to common stockholders $ 3,943,263
Shares of common stock issued and outstanding 389,504,713
388,419,573
Net asset value per common share $ 10.12 $ 9.81
127-------------------------------------------------------------------------------- Results of Operations Operating results for the three months endedSeptember 30, 2021 andSeptember 30, 2020 were as follows: Three Months Ended September 30, 2021 2020 Investment income $ 169,474$ 142,880 Operating expenses (88,105) (85,335) Net investment income 81,369 57,545 Net realized gains (losses) from investments (601) 2,843 Net change in unrealized gains from investments 136,720 107,844 Net realized losses on extinguishment of debt (5,357) (486) Net increase in net assets resulting from operations 212,131 167,746 Preferred stock dividend (2,407) -
Net Increase in Net Assets Resulting from Operations attributable to Common Stockholders
$
209,724
While we seek to maximize gains and minimize losses, our investments in
portfolio companies can expose our capital to risks greater than those we may
anticipate. These companies typically do not issue securities rated investment
grade, and have limited resources, limited operating history, and concentrated
product lines or customers. These are generally private companies with limited
operating information available and are likely to depend on a small core of
management talents. Changes in any of these factors can have a significant
impact on the value of the portfolio company. These changes, along with those
discussed in Investment Valuation above, can cause significant fluctuations in
our net change in unrealized gains (losses) from investments, and therefore our
net increase (decrease) in net assets resulting from operations attributable to
common stockholders, quarter over quarter.
Investment Income
We generate revenue in the form of interest income on the debt securities that
we own, dividend income on any common or preferred stock that we own, and fees
generated from the structuring of new deals. Our investments, if in the form of
debt securities, will typically have a term of one to ten years and bear
interest at a fixed or floating rate. To the extent achievable, we will seek to
collateralize our investments by obtaining security interests in our portfolio
companies' assets. We also may acquire minority or majority equity interests in
our portfolio companies, which may pay cash or in-kind dividends on a recurring
or otherwise negotiated basis. In addition, we may generate revenue in other
forms including prepayment penalties and possibly consulting fees. Any such fees
generated in connection with our investments are recognized as earned.
Investment income consists of interest income, including accretion of loan
origination fees and prepayment penalty fees, dividend income and other income,
including settlement of net profits interests, overriding royalty interests and
structuring fees.
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--------------------------------------------------------------------------------The following table describes the various components of investment income and the related levels of debt investments:
Three Months Ended September 30,
2021 2020
Interest income $ 146,271 $ 132,239
Dividend income 1,267 25
Other income 21,936 10,616
Total investment income $ 169,474 $ 142,880 Average debt principal of performing interest bearing investments(1)
$ 5,777,799 $ 5,395,867
Weighted average interest rate earned on performing interest bearing investments(1)
9.91 % 9.59 %
Average debt principal of all interest bearing investments(2)
$ 5,825,885
Weighted average interest rate earned on all interest bearing investments(2)
9.45 % 8.88 %
(1) Excludes equity investments and non-accrual loans. (2) Excludes equity investments.
The average interest earned on interest bearing performing assets increased from 9.59% for the three months endedSeptember 30, 2020 to 9.91% for the three months endedSeptember 30, 2021 . The increase is primarily driven by an increase in interest income from early repayments causing an increase in accelerated income and prepayment premium income, and an increase due to originations in higher yielding investments, offset by a decrease in income from our structured credit investments due to lower future expected cash flows. The average interest earned on all interest bearing performing assets increased from 8.88% for the three months endedSeptember 30, 2020 to 9.45% for the three months endedSeptember 30, 2021 . The increase is primarily due to decreases in non-accrual loans. Investment income is also generated from dividends and other income which is less predictable than interest income. The following table describes dividend income earned for the three and three months endedSeptember 30, 2021 andSeptember 30, 2020 , respectively: Three Months Ended September 30, 2021 2020 Dividend income Nationwide Loan Company LLC $ 1,250 $ - Other, net 17 25 Total dividend income $ 1,267$ 25 129
-------------------------------------------------------------------------------- Other income is comprised of structuring fees, advisory fees, amendment fees, royalty interests, settlement of net profits interests, settlement of residual profits interests, administrative agent fees and structured credit rebate income. The following table describes other income earned for the three months endedSeptember 30, 2021 andSeptember 30, 2020 , respectively:
Three Months Ended
2021 2020
Structuring, advisory and amendment fees
First Tower Finance Company LLC $7,234 $-
PGX Holdings, Inc. 3,779 -
Eze Castle Integration, Inc. - 1,250
Other, net 810 176
Total structuring, advisory and amendment fees $11,823 $1,426
Royalty and net revenue interests
National Property REIT Corp. $9,625 $8,898
Other, net 181 168
Total royalty and net revenue interests $9,806 $9,066
Administrative agent fees
Other, net $168 $124
Total administrative agent fees 168 124
Structured Credit rebate income
Other, net $139 $-
Total structured credit rebate income 139 -
Total other income $21,936 $10,616
Operating Expenses
Our primary operating expenses consist of investment advisory fees (base
management and income incentive fees), borrowing costs, legal and professional
fees, overhead-related expenses and other operating expenses. These expenses
include our allocable portion of overhead under the Administration Agreement
with Prospect Administration under which Prospect Administration provides
administrative services and facilities for us. Our investment advisory fees
compensate the Investment Adviser for its work in identifying, evaluating,
negotiating, closing and monitoring our investments. We bear all other costs and
expenses of our operations and transactions.
The following table describes the various components of our operating expenses:
Three Months Ended September 30,
2021 2020
Base management fee $ 32,203 $ 26,850
Income incentive fee 19,740 14,386
Interest and credit facility expenses 28,038 34,049
Allocation of overhead from Prospect Administration 4,526 4,657
Audit, compliance and tax related fees 617 938
Directors' fees 116 113
Other general and administrative expenses 2,865 4,342
Total operating expenses $ 88,105 $ 85,335
Total gross and net base management fee was $32,203 and $26,850 for the three
months ended September 30, 2021 and September 30, 2020 , respectively. The
increase in total gross base management fee is directly related to an increase
in average total assets.
130
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For the three months ended September 30, 2021 and September 30, 2020 , we
incurred $19,740 and $14,386 of income incentive fees, respectively. This
increase was driven by a corresponding increase in pre-incentive fee net
investment income from $71,931 for the three months ended September 30, 2020 to
$101,109 for the three months ended September 30, 2021 . No capital gains
incentive fee has yet been incurred pursuant to the Investment Advisory
Agreement.
During the three months ended September 30, 2021 and September 30, 2020 , we
incurred $28,038 and $34,049 respectively, of interest and credit facility
expenses related to our Revolving Credit Facility, Convertible Notes, Public
Notes and Prospect Capital InterNotes® (collectively, our "Notes"). These
expenses are related directly to the leveraging capacity put into place for each
of those periods and the levels of indebtedness actually undertaken in those
periods.
The table below describes the various expenses of our Notes and the related
indicators of leveraging capacity and indebtedness during these years:
Three Months Ended
2021 2020
Interest on borrowings $ 24,245 $ 30,058
Amortization of deferred financing costs 1,915 1,921
Accretion of discount on unsecured debt 573 269
Facility commitment fees 1,305 1,801
Total interest and credit facility expenses $ 28,038 $ 34,049
Average principal debt outstanding $ 2,278,761 $ 2,314,135 Annualized weighted average stated interest rate on borrowings(1)
4.26 % 5.20 %
Annualized weighted average interest rate on borrowings(2) 4.92 % 5.89 %
(1)Includes only the stated interest expense.
(2)Includes the stated interest expense, amortization of deferred financing
costs, accretion of discount on Public Notes and commitment fees on the undrawn
portion of our Revolving Credit Facility.
Interest expense decreased from $34,049 for the three months ended September 30,
2020 to $28,038 for the three months ended September 30, 2021 . The weighted
average stated interest rate on borrowings (excluding amortization, accretion
and undrawn facility fees) decreased from 5.20% for the three months ended
September 30, 2020 to 4.26% for the three months ended September 30, 2021 ,
primarily due to redemptions of our Prospect Capital InterNotes®, as well as
repurchases of our Convertible Notes, June 2024 Baby Bond and June 2028 Baby
Bond. In addition to Prospect Capital InterNotes®, the 2026 Notes and 3.364%
2026 Notes were issued this quarter at lower rates.
The allocation of net overhead expense from Prospect Administration was $4,526
and $4,657 for the three months ended September 30, 2021 and September 30, 2020 ,
respectively. Prospect Administration received estimated payments of $2,298 and
$66 directly from our portfolio companies, and certain funds managed by the
Investment Adviser for legal services during the three months ended September
30, 2021 and September 30, 2020 , respectively. We were given a credit for these
payments as a reduction of the administrative services cost payable by us to
Prospect Administration . Had Prospect Administration not received these
payments, Prospect Administration's charges for its administrative services
would have increased by this amount.
Total operating expenses, excluding investment advisory fees, interest and
credit facility expenses, and allocation of overhead from Prospect
Administration ("Other Operating Expenses"), net of any expense reimbursements,
were $3,598 and $5,393 for the three months ended September 30, 2021 and
September 30, 2020 , respectively. The decrease was primarily attributable to a
decrease in general and administrative expenses and legal fees.
Net Realized Gains (Losses)
The following table details net realized gains (losses) from investments for the
three months ended September 30, 2021 and September 30, 2020 :
131
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Three Months Ended September 30,
Portfolio Company 2021 2020
Spartan Energy Services, LLC - Term Loan B - 2,832
Other, net (601) 11
Net realized gains (losses) $
(601)
Net Realized Loss from Extinguishment of Debt During the three months endedSeptember 30, 2021 andSeptember 30, 2020 , we recorded a net realized loss from the extinguishment of debt of$5,357 and$486 , respectively. Refer to Capitalization for additional discussion. Change in Unrealized Gains (Losses) The following table details net change in unrealized (losses) gains for our portfolio for the three months endedSeptember 30, 2021 andSeptember 30, 2020 , respectively: Three Months Ended September 30, 2021 2020 Control investments $ 122,330$ 13,535 Affiliate investments 6,037 66,473 Non-control/non-affiliate investments 8,353
27,836
Net change in unrealized gains (losses) $ 136,720
The following table details reflects net change in unrealized gains (losses) on
investments for the three months ended
Net Change in Unrealized Gains (Losses)
National Property REIT Corp. $ 73,851
InterDent, Inc. 26,932
NMMB, Inc. 16,876
First Tower Finance Company LLC 15,403
Subordinated Structured Notes
10,084
Credit Central Loan Company, LLC
8,554
Targus Cayman HoldCo Limited 5,093 Other, net (1,193)USES Corp. (4,381)Valley Electric Company, Inc.
(6,776)
Echelon Transportation, LLC
(7,723)
Net change in unrealized gains $
136,720
132
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The following table reflects net change in unrealized gains (losses) on
investments for the three months ended
Net Change in Unrealized Gains (Losses)
PGX Holdings, Inc. $ 57,771
Other, net 22,428
National Property REIT Corp. 11,430
Subordinated Structured Notes 9,689
First Tower Finance Company LLC 6,546
Pacific World Corporation 6,433
USES Corp. 5,137
Edmentum Ultimate Holdings, LLC 4,924
Valley Electric Company, Inc.
4,328
Engine Group, Inc.
4,076
Targus Cayman HoldCo Limited 3,778MITY, Inc. (3,632)NMMB, Inc. (5,530)CP Energy Services Inc. (19,534) Net change in unrealized gains $
107,844
Financial Condition, Liquidity and Capital Resources OnJuly 27, 2017 , theFinancial Conduct Authority ("FCA") announced that it will no longer persuade or compel banks to submit rates for the calculation of the LIBOR rates after 2021 (the "FCA Announcement"). Furthermore, inthe United States , efforts to identify a set of alternativeU.S. dollar reference interest rates include proposals by theAlternative Reference Rates Committee of the Federal Reserve Board ("ARRC") and theFederal Reserve Bank of New York . OnAugust 24, 2017 , theFederal Reserve Board requested public comment on a proposal by theFederal Reserve Bank of New York , in cooperation with theOffice of Financial Research , to produce three new reference rates intended to serve as alternatives to LIBOR. These alternative rates are based on overnight repurchase agreement transactions secured byU.S. Treasury Securities . OnDecember 12, 2017 , following consideration of public comments, theFederal Reserve Board concluded that the public would benefit if theFederal Reserve Bank of New York published the three proposed reference rates as alternatives to LIBOR (the "Federal Reserve Board Notice"). InApril 2018 , theFederal Reserve System , in conjunction with the ARRC, announced the replacement of LIBOR with a new index, calculated by short term repurchase agreements collateralized byU.S. Treasury securities, called the Secured Overnight Financing Rate ("SOFR"). OnJune 12, 2019 , the Staff from theSEC's Division of Corporate Finance ,Division of Investment Management ,Division of Trading and Markets , andOffice of the Chief Accountant issued a statement about the potentially significant effects on financial markets and market participants when LIBOR is discontinued in 2021 and no longer available as a reference benchmark rate. The Staff encouraged all market participants to identify contracts that reference LIBOR and begin transitions to alternative rates. Although SOFR appears to be the preferred replacement rate forU.S. dollar LIBOR, at this time, it is not possible to predict the effect of any such changes, any establishment of alternative reference rates or other reforms to LIBOR that may be enacted inthe United States ,United Kingdom or elsewhere or, whether the COVID-19 will have further effect on LIBOR transition plans. The elimination of LIBOR or any other changes or reforms to the determination or supervision of LIBOR could have an adverse impact on the market for or value of any LIBOR-linked securities, loans, and other financial obligations or extensions of credit held by or due to us or on our overall financial condition or results of operations. At this time, it is not possible to predict the effect of the FCA Announcement or other regulatory changes or announcements, any establishment of any alternative reference rates, including SOFR and its market acceptance, or any other reforms to LIBOR that may be enacted in theUnited Kingdom ,the United States or elsewhere. As such, the potential effect of any such event on our net investment income cannot yet be determined. The CLOs in which the Company is invested generally contemplate a scenario where LIBOR is no longer available by requiring the CLO administrator to calculate a replacement rate primarily through dealer polling on the applicable measurement date. However, there is uncertainty regarding the effectiveness of the dealer polling processes, including the willingness of banks to provide such quotations, which could adversely impact our net investment income. Recently, the CLOs we are invested in have included, or have been amended to include, language permitting the CLO investment manager to implement a market replacement rate (like SOFR) upon the occurrence of certain material disruption events. However, we cannot ensure that all CLOs in which we are invested will have such provisions, nor 133 -------------------------------------------------------------------------------- can we ensure the CLO investment managers will undertake the suggested amendments when able. In addition, the effect of a phase out of LIBOR onU.S. senior secured loans, the underlying assets of the CLOs in which we invest, is currently unclear. To the extent that any replacement rate utilized for senior secured loans differs from that utilized for a CLO that holds those loans, the CLO would experience an interest rate mismatch between its assets and liabilities which could have an adverse impact on the Company's net investment income and portfolio returns. For the three months endedSeptember 30, 2021 andSeptember 30, 2020 , our operating activities used$10,115 and provided$4,567 of cash, respectively. The change is primarily driven by net originations for the current quarter, which out-paced the cash components of net investment income. There were no investing activities for the three months endedSeptember 30, 2021 andSeptember 30, 2020 . Financing activities used$11,339 and$20,825 of cash during the three months endedSeptember 30, 2021 andSeptember 30, 2020 , respectively, which included dividend payments of$64,034 and$42,265 , respectively.
Our primary uses of funds have been to continue to invest in portfolio companies, through both debt and equity investments, repay outstanding borrowings and to make cash distributions to our stockholders.
Our primary sources of funds have historically been issuances of debt and equity. More recently, we have and may continue to fund a portion of our cash needs through repayments and opportunistic sales of our existing investment portfolio. We may also securitize a portion of our investments in unsecured or senior secured loans or other assets. Our objective is to put in place such borrowings in order to enable us to expand our portfolio. During the three months endedSeptember 30, 2021 , we borrowed$417,618 and we made repayments totaling$690,018 under the Revolving Credit Facility. As ofSeptember 30, 2021 , our outstanding balance on the Revolving Credit Facility was$84,537 . As ofSeptember 30, 2021 , we had, net of unamortized discount and debt issuance costs,$213,253 outstanding on the Convertible Notes,$1,407,410 outstanding on the Public Notes and$373,350 outstanding on the Prospect Capital InterNotes® (See "Capitalization" above). Undrawn committed revolvers and delayed draw term loans to our portfolio companies incur commitment and unused fees ranging from 0.00% to 7.25%. As ofSeptember 30, 2021 andJune 30, 2021 , we had$41,564 and$67,385 , respectively, of undrawn revolver and delayed draw term loan commitments to our portfolio companies. The fair value of our undrawn committed revolvers and delayed draw term loans was zero as ofSeptember 30, 2021 andJune 30, 2021 . We have guaranteed$2,737 in standby letters of credit issued through a financial intermediary and$2,152 of equipment lease obligations on behalf ofInterDent, Inc. ("InterDent") as ofSeptember 30, 2021 . Under these arrangements, we would be required to make payments to the financial intermediary or equipment lease provider, respectively, if InterDent was to default on their related payment obligations. As ofSeptember 30, 2021 , we have not recorded a liability on the statement of assets and liabilities for these guarantees as the likelihood of default on the standby letters of credit or equipment lease is deemed to be remote. OnFebruary 13, 2020 , we filed a registration statement on Form N-2 (File No. 333-236415) that was effective upon filing pursuant to Rule 462(e) under the Securities Act as permitted under the Small Business Credit Availability Act. The registration statement permits us to issue, through one or more transactions, an indeterminate amount of securities, consisting of common stock, preferred stock, debt securities, subscription rights to purchase our securities, warrants representing rights to purchase our securities or separately tradeable units combining two or more of our securities. Preferred Stock OnAugust 3, 2020 , we entered into a Dealer Manager Agreement withPreferred Capital Securities, LLC ("PCS"), pursuant to which PCS has agreed to serve as the Company's agent, principal distributor and dealer manager for the Company's offering of up to 40,000,000 shares, par value$0.001 per share, of preferred stock, with a liquidation preference of$25.00 per share. Such preferred stock will initially be issued in multiple series, including the 5.50% Series A1 Preferred Stock ("Series A1 Preferred Stock"), the 5.50% Series M1 Preferred Stock ("Series M1 Preferred Stock"), and the 5.50% Series M2 Preferred Stock ("Series M2 Preferred Stock", and together with the Series M1 Preferred Stock, the "Series M Preferred Stock"). In connection with such offering, onAugust 3, 2020 , we filed Articles Supplementary with theState Department of Assessments and Taxation of Maryland ("SDAT"), reclassifying and designating 120,000,000 shares of the Company's authorized and unissued shares of common stock into shares of preferred stock as "Convertible Preferred Stock." OnOctober 30, 2020 , we entered into a Dealer Manager Agreement withInspereX LLC , pursuant to whichInspereX LLC has agreed to serve as the Company's agent and dealer manager for the Company's offering of up to 10,000,000 shares, par value$0.001 per share, of 5.50% Series AA1 Preferred Stock, with a liquidation preference of$25.00 per share (the "Series AA1 Preferred Stock"). In connection with such offering, onOctober 30, 2020 , we filed Articles Supplementary with the SDAT, reclassifying and designating an additional 20,000,000 shares of the Company's authorized and unissued shares of common stock into shares of preferred stock as Convertible Preferred Stock. OnMay 19, 2021 , we entered into an Underwriting Agreement withUBS Securities LLC , relating to the offer and sale of 187,000 shares, par value$0.001 per share, of 5.50% Series A2 Preferred Stock, with a liquidation preference of$25.00 per share (the "Series A2 Preferred Stock", and together with the Series A1 Preferred Stock, 134 -------------------------------------------------------------------------------- Series M1 Preferred Stock, Series M2 Preferred Stock and Series AA1 Preferred Stock, the "5.50% Preferred Stock"). The issuance of the Series A2 Preferred Stock settled onMay 26, 2021 . In connection with such offering, onMay 19, 2021 , we filed Articles Supplementary with the SDAT, reclassifying and designating an additional 1,000,000 shares of the Company's authorized and unissued shares of common stock into shares of preferred stock as Convertible Preferred Stock. In connection with the offerings of the 5.50% Preferred Stock, we adopted and amended, respectively, a preferred stock dividend reinvestment plan (the "Preferred Stock Plan" or the "Preferred Stock DRIP"), pursuant to which holders of the 5.50% Preferred Stock will have dividends on their 5.50% Preferred Stock automatically reinvested in additional shares of such 5.50% Preferred Stock at a price per share of$25.00 , if they elect. Each series of 5.50% Preferred Stock ranks (with respect to the payment of dividends and rights upon liquidation, dissolution or winding up) (a) senior to our common stock, (b) on parity with each other series of our preferred stock, and (c) junior to our existing and future secured and unsecured indebtedness. See Note 8, Fair Value and Maturity of Debt Outstanding for further discussion on our senior securities. At any time prior to the listing of the 5.50% Preferred Stock on a national securities exchange, shares of the 5.50% Preferred Stock are convertible, at the option of the holder of the 5.50% Preferred Stock (the "Holder Optional Conversion"). We will settle any Holder Optional Conversion by paying or delivering, as the case may be, (A) any portion of the Settlement Amount (as defined below) that we elect to pay in cash and (B) a number of shares of our common stock at a conversion rate equal to (1) (a) the Settlement Amount, minus (b) any portion of the Settlement Amount that we elect to pay in cash, divided by (2) the arithmetic average of the daily volume weighted average price of shares of our common stock over each of the five consecutive trading days ending on the Holder Conversion Exercise Date (such arithmetic average, the "5-day VWAP"). For the Series A1 Preferred Stock, the Series AA1 Preferred Stock, and the Series A2 Preferred Stock, "Settlement Amount" means (A)$25.00 per share (the "Stated Value"), plus (B) unpaid dividends accrued to, but not including, the Holder Conversion Exercise Date, minus (C) the applicable 5.50% Holder Optional Conversion Fee for the respective Holder Conversion Deadline. For the Series M Preferred Stock, "Settlement Amount" means (A) the Stated Value, plus (B) unpaid dividends accrued to, but not including, the Holder Conversion Exercise Date, minus (C) the applicable Series M Clawback, if any. "Series M Clawback", if applicable, means an amount equal to the aggregate amount of all dividends, whether paid or accrued, on such share of Series M Stock in the three full months prior to the Holder Conversion Exercise Date. Subject to certain limited exceptions, we will not pay any portion of the Settlement Amount in cash (other than cash in lieu of fractional shares of our common stock) until the five year anniversary of the date on which a share of 5.50% Preferred Stock has been issued. Beginning on the five year anniversary of the date on which a share of 5.50% Preferred Stock is issued, we may elect to settle all or a portion of any Holder Optional Conversion in cash without limitation or restriction. The right of holders to convert a share of 5.50% Preferred Stock will terminate upon the listing of such share on a national securities exchange. Subject to certain limited exceptions allowing earlier redemption, beginning on the earlier of the five year anniversary of the date on which a share of 5.50% Preferred Stock has been issued, or, for listed shares of 5.50% Preferred Stock, five years from the earliest date on which any series that has been listed was first issued (the earlier of such dates, the "Redemption Eligibility Date"), such share of 5.50% Preferred Stock may be redeemed at any time or from time to time at our option (the "Issuer Optional Redemption"), at a redemption price of 100% of the Stated Value of the shares of 5.50% Preferred Stock to be redeemed plus unpaid dividends accrued to, but not including, the date fixed for redemption. Subject to certain limitations, each share of 5.50% Preferred Stock may be converted at our option (the "Issuer Optional Conversion"). We will settle any Issuer Optional Conversion by paying or delivering, as the case may be, (A) any portion of the IOC Settlement Amount (as defined below) that we elect to pay in cash and (B) a number of shares of our common stock at a conversion rate equal to (1) (a) the IOC Settlement Amount, minus (b) any portion of theIOC Settlement Amount that we elect to pay in cash, divided by (2) the 5-day VWAP, subject to our ability to obtain or maintain any stockholder approval that may be required under the 1940 Act to permit us to sell our common stock below net asset value if the 5-day VWAP represents a discount to our net asset value per share of common stock. For the 5.50% Preferred Stock, "IOC Settlement Amount" means (A) the Stated Value, plus (B) unpaid dividends accrued to, but not including, the date fixed for conversion. In connection with an Issuer Optional Conversion, we will use commercially reasonable efforts to obtain or maintain any stockholder approval that may be required under the 1940 Act to permit us to sell our common stock below net asset value. If we do not have or obtain any required stockholder approval under the 1940 Act to sell our common stock below net asset value and the 5-day VWAP is at a discount to our net asset value per share of common stock, we will settle any conversions in connection with an Issuer Optional Conversion by paying or delivering, as the case may be, (A) any portion of the IOC Settlement Amount that we elect to pay in cash and (B) a number of shares of our common stock at a conversion rate equal to (1) (a) the IOC Settlement Amount, minus (b) any portion of the IOC Settlement Amount that we elect to pay in cash, divided by (2) the NAV per share of common stock at the close of business on the business day immediately preceding the date of conversion. We will not pay any portion of the IOC Settlement Amount from an Issuer Optional Conversion in cash (other than cash in lieu of fractional shares of our common stock) until the Redemption Eligibility Date. Beginning on the Redemption Eligibility Date, we may elect to settle any Issuer Optional Conversion in cash without limitation or restriction. In the event that we exercise an Issuer Optional 135 -------------------------------------------------------------------------------- Conversion with respect to any shares of 5.50% Preferred Stock, the holder of such 5.50% Preferred Stock may instead elect a Holder Optional Conversion with respect to such 5.50% Preferred Stock provided that the date of conversion for such Holder Optional Conversion would occur prior to the date of conversion for an Issuer Optional Conversion. OnJuly 12, 2021 , we entered into an underwriting agreement by and among us,Prospect Capital Management L.P. ,Prospect Administration LLC , and Morgan Stanley & Co.LLC, RBC Capital Markets, LLC andUBS Securities LLC , as representatives of the underwriters, relating to the offer and sale of 6,000,000 shares, or$150,000 in aggregate liquidation preference, of our 5.35% Series A Fixed Rate Cumulative Perpetual Preferred Stock, par value$0.001 per share (the "Series A Preferred Stock" or "5.35% Preferred Stock"), at a public offering price of$25.00 per share. Pursuant to the Underwriting Agreement, we also granted the underwriters a 30-day option to purchase up to an additional 900,000 shares of Series A Preferred Stock solely to cover over-allotments. The offer settled onJuly 19, 2021 , and no additional shares of Series A Preferred Stock were issued pursuant to the option. In connection with such offering, onJuly 15, 2021 , we filed Articles Supplementary with SDAT, reclassifying and designating 6,900,000 shares of the Company's authorized and unissued shares of Common Stock into shares of Series A Preferred Stock. The Series A Preferred Stock ranks (with respect to the payment of dividends and rights upon liquidation, dissolution or winding up) (a) senior to our common stock, (b) on parity with each other series of our preferred stock, and (c) junior to our existing and future secured and unsecured indebtedness. See Note 8, Fair Value and Maturity of Debt Outstanding for further discussion on our senior securities. Subject to certain limited exceptions allowing earlier redemption, at any time after the close of business onJuly 19, 2026 (any such date, an "Optional Redemption Date"), at our sole option, we may redeem the Series A Preferred Stock in whole or, from time to time, in part, out of funds legally available for such redemption, at a price per share equal to the liquidation preference of$25.00 per share, plus an amount equal to all unpaid dividends on such shares (whether or not earned or declared, but excluding interest thereon) accumulated up to, but excluding, the date fixed for redemption. We may also redeem the Series A Preferred Stock at any time, in whole or, from time to time, in part, including prior to the Optional Redemption Date, pro rata, based on liquidation preference, with all other series of our then outstanding preferred stock, in the event that our Board determines to redeem any series of our preferred stock, in whole or, from time to time, in part, because such redemption is deemed necessary by the Board to comply with the asset coverage requirements of the 1940 Act or for us to maintain RIC status. In the event of a Change of Control Triggering Event (as defined below), we may, at our option, exercise our special optional redemption right to redeem the Series A Preferred Stock, in whole or in part, within 120 days after the first date on which such Change of Control Triggering Event has occurred by paying the liquidation preference, plus an amount equal to all unpaid dividends on such shares (whether or not earned or declared, but excluding interest thereon) accumulated up to, but excluding, the date fixed for such redemption. To the extent that we exercise our optional redemption right or our special optional redemption right relating to the Series A Preferred Stock, the holders of Series A Preferred Stock will not be permitted to exercise the conversion right described below in respect of their shares called for redemption. Except to the extent that we have elected to exercise our optional redemption right or our special optional redemption right by providing notice of redemption prior to the Change of Control Conversion Date (as defined below), upon the occurrence of a Change of Control Triggering Event, each holder of Series A Preferred Stock will have the right to convert some or all of the Series A Preferred Stock held by such holder on the Change of Control Conversion Date into a number of our shares of common stock per Series A Preferred Stock to be converted equal to the lesser of: •the quotient obtained by dividing (i) the sum of the Liquidation Preference per share plus an amount equal to all unpaid dividends thereon (whether or not earned or declared, but excluding interest thereon) accumulated up to, but excluding, the Change of Control Conversion Date (unless the Change of Control Conversion Date is after a Record Date for a Series A Preferred Stock dividend payment and prior to the corresponding Series A Preferred Stock dividend payment date, in which case no additional amount for such accrued and unpaid dividends will be included in this sum) by (ii) the Common Stock Price (as defined below); and •6.03865, subject to certain adjustments, subject, in each case, to provisions for the receipt of alternative consideration upon conversion as described in the applicable prospectus supplement. If we have provided or provide a redemption notice with respect to some or all of the Series A Preferred Stock, holders of any Series A Preferred Stock that we have called for redemption will not be permitted to exercise their Change of Control Conversion Right in respect of any of their Series A Preferred Stock that have been called for redemption, and any Series A Preferred Stock subsequently called for redemption that have been tendered for conversion will be redeemed on the applicable date of redemption instead of converted on the Change of Control Conversion Date. 136 -------------------------------------------------------------------------------- For purposes of the foregoing discussion of a redemption upon the occurrence of a Change of Control Triggering Event, the following definitions are applicable: "Change of Control Triggering Event" means the occurrence of any of the following: •the direct or indirect sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation and other than an Excluded Transaction) in one or a series of related transactions, of all or substantially all of the assets of the Company and its Controlled Subsidiaries taken as a whole to any "person" or "group" (as those terms are used in Section 13(d)(3) of the Exchange Act) (other than to any Permitted Holders); provided that, for the avoidance of doubt, a pledge of assets pursuant to any of our secured debt instruments or the secured debt instruments of our Controlled Subsidiaries shall not be deemed to be any such sale, lease, transfer, conveyance or disposition; or •the consummation of any transaction (including, without limitation, any merger or consolidation and other than an Excluded Transaction) the result of which is that any "person" or "group" (as those terms are used in Section 13(d)(3) of the Exchange Act) (other than any Permitted Holders) becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly or indirectly, of more than 50% of our outstanding Voting Stock, measured by voting power rather than number of shares. Notwithstanding the foregoing, the consummation of any of the transactions referred to in the bullet points above will not be deemed a Change of Control Triggering Event if we or the acquiring or surviving consolidated entity has or continues to have a class of common securities (or ADRs representing such securities) listed on the NYSE, the NYSE American or NASDAQ, or listed or quoted on an exchange or quotation system that is a successor to the NYSE, the NYSE American or NASDAQ, or is otherwise listed or quoted on a national securities exchange. The "Change of Control Conversion Date" is the date the shares of Series A Preferred Stock are to be converted, which will be a business day selected by us that is no fewer than 20 days nor more than 35 days after the date on which we provide the notice described above to the holders of Series A Preferred Stock. The "Common Stock Price" will be (i) if the consideration to be received in the Change of Control Triggering Event by the holders of our common stock is solely cash, the amount of cash consideration per share of our common stock or (ii) if the consideration to be received in the Change of Control Triggering Event by holders of our common stock is other than solely cash (x) the average of the closing sale prices per share of our common stock (or, if no closing sale price is reported, the average of the closing bid and ask prices or, if more than one in either case, the average of the average closing bid and the average closing ask prices) for the ten consecutive trading days immediately preceding, but not including, the effective date of the Change of Control Triggering Event as reported on the principalU.S. securities exchange on which our common stock is then traded, or (y) the average of the last quoted bid prices for our common stock in the over-the-counter market as reported by OTC Markets Group Inc. or similar organization for the ten consecutive trading days immediately preceding, but not including, the effective date of the Change of Control Triggering Event, if our common stock is not then listed for trading on aU.S. securities exchange. "Controlled Subsidiary" means any of our subsidiaries, 50% or more of the outstanding equity interests of which are owned by us and our direct or indirect subsidiaries and of which we possess, directly or indirectly, the power to direct or cause the direction of the management or policies, whether through the ownership of voting equity interests, by agreement or otherwise. "Excluded Transaction" means (i) any transaction that does not result in any reclassification, conversion, exchange or cancellation of all or substantially all of the outstanding shares of our Voting Stock; (ii) any changes resulting from a subdivision or combination or a change solely in par value; (iii) any transaction where the shares of our Voting Stock outstanding immediately prior to such transaction constitute, or are converted into or exchanged for, a majority of the Voting Stock of the surviving "person" (as that term is used in Section 13(d)(3) of the Exchange Act) or any direct or indirect parent company of the surviving "person" (as that term is used in Section 13(d)(3) of the Exchange Act) immediately after giving effect to such transaction; (iv) any transaction if (A) we become a direct or indirect wholly-owned subsidiary of a holding company and (B)(1) the direct or indirect holders of the Voting Stock of such holding company immediately following that transaction are substantially the same as the holders of our Voting Stock immediately prior to that transaction or (2) immediately following that transaction no "person" (as that term is used in Section 13(d)(3) of the Exchange Act) is the beneficial owner, directly or indirectly, of more than 50% of the Voting Stock of such holding company; or (v) any transaction primarily for the purpose of changing our jurisdiction of incorporation or form of organization. "Permitted Holders" means (i) us, (ii) one or more of our Controlled Subsidiaries and (iii)Prospect Capital Management or any affiliate ofProspect Capital Management that is organized under the laws of a jurisdiction located inthe United States of America and in the business of managing or advising clients. "Voting Stock" as applied to stock of any person, means shares, interests, participations or other equivalents in the equity interest (however designated) in such person having ordinary voting power for the election of the directors (or the equivalent) of such person, other than shares, interests, participations or other equivalents having such power only by reason of the occurrence of a contingency. 137 -------------------------------------------------------------------------------- Except as provided above in connection with a Change of Control Triggering Event, the Series A Preferred Stock is not convertible into or exchangeable for any other securities or property. For so long as the Series A Preferred Stock is outstanding, we will not exercise any option we have to convert any other series of our outstanding preferred stock to common stock, including the Issuer Optional Conversion, or any other security ranking junior to such preferred stock. As a result, and in accordance with ASC 480, we have presented both our 5.50% Preferred Stock and Series A Preferred Stock within temporary equity on our Consolidated Statement of Assets and Liabilities as ofSeptember 30, 2021 . We determined the estimated value as ofSeptember 30, 2021 of our Preferred Stock, with a$25.00 stated value per share. We engaged a third-party valuation service to assist in our determination based on the calculation resulting from the total equity on our Consolidated Statements of Assets and Liabilities in our Quarterly Report on Form 10-Q for the quarter endedSeptember 30, 2021 (the "Form 10-Q"), which was prepared in accordance withU.S. generally accepted accounting principles inthe United States of America , adjusted for the fair value of our investments (i.e. from our Consolidated Schedule of Investments) and total liabilities, divided by the number of shares of our Preferred Stock outstanding. Based on this methodology and because the result from the calculation above is greater than the$25.00 per share stated value of our Preferred Stock, the estimated value of our Preferred Stock as ofSeptember 30, 2021 is$25.00 per share. Common Stock Our common stockholders' equity accounts as ofSeptember 30, 2021 andJune 30, 2021 reflect cumulative shares issued, net of shares repurchased, as of those respective dates. Our common stock has been issued through public offerings, a registered direct offering, the exercise of over-allotment options on the part of the underwriters, our dividend reinvestment plan and in connection with the acquisition of certain controlled portfolio companies. When our common stock is issued, the related offering expenses have been charged against paid-in capital in excess of par. All underwriting fees and offering expenses were borne by us. We did not repurchase any shares of our common stock for the three months endedSeptember 30, 2021 orSeptember 30, 2020 . Off-Balance Sheet Arrangements As ofSeptember 30, 2021 , we did not have any off-balance sheet liabilities or other contractual obligations that are reasonably likely to have a current or future material effect on our financial condition, other than those which originate from 1) the investment advisory and management agreement and the administration agreement and 2) the portfolio companies. Recent Developments OnOctober 8, 2021 , we commenced a tender offer to purchase for cash any and all of the$81,389 aggregate principal amount of our outstanding 6.375% 2024 Notes at a purchase price of$107.750 , plus accrued and unpaid interest (the "6.375% 2024 Notes October Tender Offer"). The 6.375% 2024 Notes October Tender Offer expired at5:00 p.m. ,New York City time, onOctober 15, 2021 . As of the settlement date,$149 aggregate principal amount of the 6.375% 2024 Notes were validly tendered and accepted. Following settlement of the 6.375% 2024 Notes October Tender Offer onOctober 20, 2021 , approximately$81,240 aggregate principal amount of the 6.375% 2024 Notes remains outstanding. OnOctober 18, 2021 , we provided a new$65,000 First Lien Term Loan investment, a new$22,609 Delayed Draw Term Loan commitment, and a new$4,239 Revolving Line of Credit commitment toBCPE Osprey Buyer, Inc. , a provider of marketplace and software solutions to hospitals and health systems. The Delayed Draw Term Loan and Revolving Line of Credit were unfunded at close. OnOctober 21, 2021 , we amended our investment inPeopleConnect Intermediate, LLC whereby we provided an incremental$60,775 Senior Secured Term Loan investment, purchased an additional$21,230 Senior Secured Term Loan investment from a third party, and eliminated our$8,918 unfunded revolving line of credit commitment. During the period fromOctober 21, 2021 throughOctober 27, 2021 , we received partial repayments of$83,581 of our Senior Secured Term Loan A outstanding with NPRC and its wholly-owned subsidiaries. 138 -------------------------------------------------------------------------------- OnNovember 8, 2021 , we announced the declaration of monthly dividends for our 5.50% Preferred Stock for holders of record on the following dates based on an annual rate equal to 5.50% of the Stated Value of$25 per share as set forth in the Articles Supplementary for the Preferred Stock, from the date of issuance or, if later from the most recent dividend payment date (the first business day of the month, with no additional dividend accruing in January as a result), as follows:
Monthly Amount ($ per share),
Monthly Cash 5.50% Preferred Shareholder
before pro ration for partial
Distribution Record Date Payment Date periods
December 2021 12/15/2021 1/3/2022 $0.114583
January 2022 1/19/2022 2/1/2022 $0.114583
February 2022 2/16/2022 3/1/2022 $0.114583
On November 8, 2021 , we announced the declaration of quarterly dividends for our
5.35% Preferred Stock for holders of record on the following dates based on an
annual rate equal to 5.35% of the Stated Value of $25.00 per share as set forth
in the Articles Supplementary for the 5.35% Preferred Stock, from the date of
issuance or, if later from the most recent dividend payment date, as follows:
Quarterly Cash 5.35% Preferred Shareholder
Distribution Record Date Payment Date Amount ($ per share)
November 2021 - January 2022 1/19/2022 2/1/2022 $0.334375 On
Monthly Cash Common Shareholder
Distribution Record Date Payment Date Amount ($ per share)
November 2021 11/26/2021 12/23/2021 $0.0600
December 2021 12/29/2021 1/20/2022 $0.0600
January 2022 1/27/2022 2/17/2022 $0.0600
Critical Accounting Policies and Estimates
For discussion of critical accounting policies and estimates, refer to our
Annual Report on Form 10-K for the year ended June 30, 2021 .
Recent Accounting Pronouncements
For discussion of recent accounting pronouncements, refer to Note 2 within the
accompanying notes to the consolidated financial statements.
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