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" mean
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. 114 -------------------------------------------------------------------------------- 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 ofMarch 31, 2022 , as shown in our Consolidated Schedule of Investments, the cost basis and fair value of our investments in controlled companies was$2,588,661 and$3,378,505 , 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). 115 -------------------------------------------------------------------------------- OnMarch 14, 2022 , we filed a notice of meeting and the definitive proxy statement in connection with a special meeting of our stockholders that is scheduled to be held onJune 10, 2022 for the purpose of asking our stockholders to vote on a proposal to authorize us, with approval of our Board of Directors, to sell shares of our common stock at a price or prices below our then current net asset value per share in one or more offerings during the next 12 months following such approval, subject to certain conditions.
Third Quarter Highlights
Investment Transactions
We seek to be a long-term investor with our portfolio companies. During the three months endedMarch 31, 2022 , we acquired$187,393 of new investments, completed follow-on investments in existing portfolio companies totaling approximately$351,117 , and recorded PIK interest of$26,317 , resulting in gross investment originations of$564,827 . During the three months endedMarch 31, 2022 , we received full repayments totaling$96,824 , received$4,451 in sales, received$1,552 of revolver paydowns, and received$81,734 in partial prepayments, scheduled principal amortization payments, and return of capital distributions, resulting in net repayments of$184,561 .
Debt Issuances and Redemptions
During the three months endedMarch 31, 2022 , we repaid$266 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$35,084 aggregate principal amount of Prospect Capital InterNotes® at par with a weighted average interest rate of 6.38%. 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 endedMarch 31, 2022 was$941 . During the three months endedMarch 31, 2022 , we issued$35,587 aggregate principal amount of Prospect Capital InterNotes® with a weighted average stated interest rate of 4.03%, to extend our borrowing base. The newly issued notes mature betweenFebruary 15, 2025 andMarch 15, 2052 and generated net proceeds of$34,999 .
During the three months ended
Equity Issuances
OnJanuary 20, 2022 ,February 17, 2022 , andMarch 22, 2022 , we issued 357,288, 378,344, and 384,588 shares of our common stock in connection with the dividend reinvestment plan, respectively.
During the three months ended
During the three months endedMarch 31, 2022 , we issued 4,641,270 shares of our Series A1 Preferred Stock and 862,920 shares of our Series M1 Preferred Stock for net proceeds of$125,355 , each excluding offering costs and preferred stock dividend reinvestment. OnJanuary 1, 2022 ,February 1, 2022 , andMarch 1, 2022 , we issued 876, 1,672, and 1,721 shares of our Series A1 and M1 Preferred Stock in connection with the dividend reinvestment plan, respectively. OnMarch 14, 2022 , we filed a notice of meeting and the definitive proxy statement in connection with a special meeting of our stockholders that is scheduled to be held onJune 10, 2022 for the purpose of asking our stockholders to vote on a proposal to authorize us, with approval of our Board of Directors, to sell shares of our common stock at a price or prices below our then current net asset value per share in one or more offerings during the next 12 months following such approval, subject to certain conditions.
At
116
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Our annualized current yield was 10.6% and 11.7% as of March 31, 2022 and June
30, 2021 , respectively, across all performing interest bearing investments,
excluding equity investments and non-accrual loans. Our annualized current yield
was 8.1% and 9.2% as of March 31, 2022 and June 30, 2021 , respectively, across
all investments. 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 of March 31, 2022 , 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"); and Valley
Electric Company, Inc. ("Valley Electric "). In June 2019 , CP Energy purchased a
controlling interest of the common equity of Spartan Energy Holdings, Inc.
("Spartan Holdings "), which owns 100% of Spartan Energy Services, LLC
("Spartan"), a portfolio company of Prospect with $26,258 in senior secured term
loans (the "Spartan Term Loan A") due to us as of March 31, 2022 . As a result of
CP Energy's purchase, and given Prospect's controlling interest in CP 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 of
The following shows the composition of our investment portfolio by level of
control as of
March 31, 2022 June 30, 2021
Level of Control Cost % of Portfolio Fair Value % of Portfolio Cost % of Portfolio Fair Value % of Portfolio Control Investments
$ 2,588,661 37.6 %$ 3,378,505 45.5 %$ 2,482,431 41.0 %$ 2,919,717 47.1 % Affiliate Investments 237,845 3.5 % 417,652 5.6 % 202,943 3.3 % 356,734 5.8 % Non-Control/Non-Affiliate Investments 4,061,431 58.9 % 3,633,774 48.9 % 3,372,750 55.7 % 2,925,327 47.1 % Total Investments$ 6,887,937 100.0 %$ 7,429,931 100.0 %$ 6,058,124 100.0 %$ 6,201,778 100.0 % 117
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The following shows the composition of our investment portfolio by type of
investment as of
March 31, 2022 June
30, 2021
Type of Investment Cost % of Portfolio Fair Value % of Portfolio Cost % of Portfolio Fair Value % of Portfolio
First Lien Revolving Line of Credit $ 36,235 0.5 % $ 36,214 0.5 % $ 27,522 0.5 % $ 27,503 0.4 %
First Lien Debt 3,629,580 52.7 % 3,561,170 47.9 % 3,166,861 52.2 % 3,128,845 50.4 %
1.5 Lien Debt - - % - - % 18,164 0.3 % 18,164 0.3 %
Second Lien Debt 1,480,241 21.5 % 1,373,240 18.5 % 1,047,653 17.3 % 959,311 15.5 %
Third Lien Debt - - % - - % 3,950 0.1 % 3,950 0.1 %
Unsecured Debt 7,200 0.1 % 5,719 0.1 % 7,200 0.1 % 3,715 0.1 %
Subordinated Structured Notes 1,016,280 14.8 % 728,833 9.8 % 1,090,175 18.0 % 756,109 12.2 %
Preferred Stock 345,602 5.0 % 62,826 0.8 % 308,713 5.1 % 23,056 0.4 %
Common Stock 192,573 2.8 % 1,223,201 16.5 % 207,661 3.4 % 894,819 14.4 %
Membership Interest 180,226 2.6 % 373,551 5.0 % 180,225 3.0 % 349,942 5.6 %
Participating Interest - - % 65,177 0.9 % - - % 36,364 0.6 %
Total Investments $ 6,887,937 100.0 % $ 7,429,931 100.0 % $ 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
March 31, 2022 June
30, 2021
Type of Investment Cost % of Portfolio Fair Value % of Portfolio Cost % of Portfolio Fair Value % of Portfolio
First Lien $ 3,665,815 59.4 % $ 3,597,384 63.1 % $ 3,194,383 59.7 % $ 3,156,348 64.4 %
1.5 Lien - - % - - % 18,164 0.3 % 18,164 0.4 %
Second Lien 1,480,241 24.0 % 1,373,240 24.1 % 1,047,653 19.5 % 959,311 19.6 %
Third Lien - - % - - % 3,950 0.1 % 3,950 0.1 %
Unsecured 7,200 0.1 % 5,719 0.1 % 7,200 0.1 % 3,715 0.1 %
Subordinated Structured Notes 1,016,280 16.5 % 728,833 12.7 % 1,090,175 20.3 % 756,109 15.4 %
Total Interest Bearing
Investments $ 6,169,536 100.0 % $ 5,705,176 100.0 % $ 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
March 31, 2022 June 30, 2021
Industry Cost % of Portfolio Fair Value % of Portfolio Cost % of Portfolio Fair Value % of Portfolio
Aerospace & Defense $ 108,790 1.6 % $ 67,959 0.9 % $ 98,144 1.6 % $ 84,240 1.4 %
Air Freight & Logistics 125,566 1.8 % 125,566 1.7 % 12,500 0.2 % 12,500 0.2 %
Auto Components 95,334 1.4 % 87,682 1.2 % 75,323 1.2 % 76,520 1.2 %
Building Products 35,000 0.5 % 35,000 0.5 % - - % - - %
Capital Markets 42,500 0.6 % 42,500 0.6 % - - % - - %
Chemicals - - % - - % 28,745 0.5 % 28,863 0.5 %
Commercial Services & Supplies 397,655 5.8 % 336,179 4.5 % 257,617 4.3 % 196,117 3.3 %
Communications Equipment 59,763 0.9 % 59,496 0.8 % 59,709 1.0 % 58,881 0.9 %
Construction & Engineering 67,618 1.0 % 148,367 2.0 % 69,935 1.2 % 149,695 2.4 %
Consumer Finance 559,699 8.1 % 822,754 11.1 % 531,844 8.8 % 771,601 12.4 %
Distributors 275,634 4.0 % 177,819 2.4 % 272,672 4.5 % 175,768 2.8 %
Diversified Consumer Services 246,126 3.6 % 389,013 5.2 % 211,193 3.5 % 339,633 5.5 %
Diversified Financial Services 36,971 0.5 % 36,971 0.5 % 30,165 0.5 % 30,165 0.5 %
Diversified Telecommunication Services 147,233 2.1 % 148,270 2.0 % 66,333 1.1 % 67,448 1.1 %
Energy Equipment & Services 291,730 4.2 % 130,399 1.8 % 277,227 4.6 % 83,204 1.3 %
Entertainment 21,857 0.3 % 22,093 0.3 % 40,585 0.7 % 40,928 0.7 %
Equity Real Estate Investment Trusts
(REITs) 574,116 8.3 % 1,358,696 18.2 % 656,911 10.8 % 1,092,955 17.7 %
Food Products 130,959 1.9 % 128,983 1.7 % 61,409 1.0 % 61,948 1.0 %
Health Care Equipment & Supplies 7,482 0.1 % 6,900 0.1 % 7,478 0.1 % 6,721 0.1 %
Health Care Providers & Services 637,437 9.3 % 733,779 9.9 % 583,369 9.6 % 714,107 11.5 %
Health Care Technology 64,838 0.9 % 64,838 0.9 % - - % - - %
Hotels, Restaurants & Leisure 23,514 0.3 % 23,119 0.3 % 24,502 0.4 % 23,624 0.4 %
Household Durables 118,712 1.7 % 119,650 1.6 % 12,913 0.2 % 15,403 0.2 %
Household Products 20,999 0.3 % 20,999 0.3 % 21,186 0.3 % 21,186 0.3 %
Insurance 21,952 0.3 % 22,280 0.3 % 21,911 0.4 % 22,280 0.4 %
Interactive Media & Services 242,681 3.5 % 242,681 3.3 % 180,127 3.0 % 180,127 2.9 %
Internet & Direct Marketing Retail 59,695 0.9 % 59,298 0.8 % 54,677 0.9 % 56,114 0.9 %
IT Services 286,711 4.2 % 286,667 3.9 % 260,899 4.3 % 261,718 4.3 %
Leisure Products 44,869 0.7 % 44,705 0.6 % 20,242 0.3 % 20,287 0.3 %
Machinery 109,065 1.6 % 127,878 1.7 % 97,853 1.6 % 111,682 1.8 %
Media 108,551 1.6 % 132,239 1.8 % 105,958 1.7 % 107,819 1.7 %
Online Lending 29,080 0.4 % 29,080 0.4 % 6,600 0.1 % 6,600 0.1 %
Paper & Forest Products 11,454 0.2 % 9,457 0.1 % 15,847 0.3 % 15,815 0.3 %
Personal Products 259,108 3.8 % 56,787 0.8 % 249,245 4.1 % 71,097 1.1 %
Professional Services 111,955 1.6 % 111,368 1.5 % 132,015 2.2 % 132,058 2.1 %
Software 52,281 0.8 % 52,500 0.7 % 22,240 0.4 % 22,500 0.4 %
Technology Hardware, Storage & Peripherals 12,443 0.2 % 12,500 0.2 % 12,431 0.2 % 12,500 0.2 %
Textiles, Apparel & Luxury Goods 226,255 3.3 % 260,059 3.5 % 202,312 3.3 % 225,359 3.6 %
Trading Companies & Distributors 65,224 0.9 % 25,767 0.3 % 65,248 1.1 % 27,106 0.4 %
Transportation Infrastructure - - % - - % 30,384 0.5 % 30,900 0.5 %
Subtotal $ 5,730,857 83.2 % $ 6,560,298 88.4 % $ 4,877,749 80.5 % $ 5,355,469 86.4 %
Structured Finance(1) $ 1,157,080 16.8 % $ 869,633 11.6 % $ 1,180,375 19.5 % $ 846,309 13.6 %
Total Investments $ 6,887,937 100.0 % $ 7,429,931 100.0 % $ 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
119
--------------------------------------------------------------------------------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 nine months endedMarch 31, 2022 andMarch 31, 2021 are presented below: Nine
months ended
2022 2021
Investments made in new portfolio companies $ 997,817 $ 459,277
Follow-on investments made in existing portfolio
companies (1) 777,022 259,111
Revolver advances 9,000 4,000
PIK interest (2) 61,030 58,750
Total acquisitions $ 1,844,869 $ 781,138
Acquisitions by portfolio composition
First Lien Debt $ 1,021,834 $ 575,545
Second Lien Debt 796,351 176,780
Subordinated Structured Notes 9,518 -
Unsecured Debt - 2,620
Equity 17,166 26,193
Total acquisitions by portfolio composition $ 1,844,869 $ 781,138
Investments sold $ 4,451 $ -
Partial repayments (3) 401,201 148,951
Full repayments 545,333 513,636
Revolver paydowns 1,636 3,291
Total dispositions $ 952,621 $ 665,878
Dispositions by portfolio composition
First Lien Debt $ 592,601 $ 364,083
1.5 Lien Debt 18,164 -
Second Lien Debt 300,292 249,421
Third Lien Debt 3,950 -
Unsecured Debt - 53,738
Subordinated Structured Notes 9,406 -
Equity 28,208 (1,364)
Total dispositions by portfolio composition $ 952,621 $ 665,878
Weighted average interest rates for new investments by portfolio composition (4) First Lien Debt 8.30 % 9.32 % Second Lien Debt 9.54 % 9.41 %
(1) Includes follow-on investments in existing portfolio companies and refinancings, if any.
(2) During the nine months endedMarch 31, 2022 , approximately$56,824 of PIK interest capitalized was accrued as interest income and the remaining$4,206 is included due to the timing of interest payment dates and resulting capitalization occurring in the current year. During the nine months endedMarch 31, 2021 , approximately$53,729 of PIK interest capitalized was accrued as interest income and the remaining$5,021 was included due to the timing of interest payment dates and resulting capitalization occurring during the prior year.
(3) Includes partial prepayments of principal, scheduled amortization payments, impairments, and refinancings, if any.
(4) 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.
120
--------------------------------------------------------------------------------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 $7,429,931 .
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 ofMarch 31, 2022 , 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 endedMarch 31, 2022 , 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. 121 --------------------------------------------------------------------------------
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 nine months endedMarch 31, 2022 .
Prospect owns 100% of the equity ofCP Holdings , aConsolidated Holding Company .CP Holdings owns 99.8% of the equity ofCP Energy , and the remaining equity is owned byCP Energy management.CP Energy provides oilfield flowback services and fluid hauling and disposal services through its subsidiaries. InJune 2019 ,CP Energy purchased a controlling interest in the common equity ofSpartan Energy Holdings, Inc. ("Spartan Holdings "), which owns 100% ofSpartan Energy Services, LLC ("Spartan") a portfolio company of Prospect with$26,258 in first lien term loans (the "Spartan Term Loans") due to us as ofMarch 31, 2022 . As a result ofCP Energy's purchase, and given Prospect's controlling interest inCP Energy , our Spartan Term Loans are presented as control investments underCP Energy beginningJune 30, 2019 . Spartan remains the direct borrow and guarantor to Prospect for the Spartan Term Loans. The fair value of our investment inCP Energy increased to$118,461 as ofMarch 31, 2022 , which is a discount of$128,777 from its amortized cost, compared to a fair value of$71,487 as ofJune 30, 2021 , representing a discount of$161,249 to its amortized cost. The decrease in discount to amortized cost resulted from improved performance and increased activity in the oil and gas industry
Prospect owns 100% of the equity of Echelon, a consolidated holding company. Echelon owns 60.7% of the equity of AerLift. Echelon is an aircraft leasing company.
The fair value of our investment in Echelon decreased to$67,959 as ofMarch 31, 2022 , representing a discount of$40,831 to its amortized cost basis, compared to a fair value of$84,240 as ofJune 30, 2021 , representing a discount of$13,904 to its amortized cost basis. The increase in discount to amortized cost resulted from lower aircraft residual values.
Prospect owns 100% of the equity of First Tower Delaware, a consolidated holding company. First Tower Delaware owns 80.03% of First Tower Finance. First Tower Finance owns 100% ofFirst Tower, LLC ("First Tower"), a multiline specialty finance company. The fair value of our investment inFirst Tower increased to$645,156 as ofMarch 31, 2022 , representing a premium of$265,526 to its amortized cost basis compared to a fair value of$592,356 as ofJune 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. InterDent is a dental support organization ("DSO"). InterDent provides business and administrative support services to a regionally-diversified set of dental practices so that dentists can focus on delivering high-quality clinical care and patient satisfaction. The fair value of our investment in InterDent decreased to$409,757 as ofMarch 31, 2022 , a premium of$95,973 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 decrease in premium to amortized cost was driven by a decline in financial performance.
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 122 -------------------------------------------------------------------------------- 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 ofMarch 31, 2022 , we own 100% of the fully-diluted common equity of NPRC. During the nine months endedMarch 31, 2022 , we received partial repayments of$289,882 of our loans previously outstanding with NPRC and provided$268,547 of debt financing and$11,620 of equity financing to NPRC for the acqusition of real estate properties, to fund capital expenditures for existing real estate properties, to provide working capital, to fund purchases of rated secured structured notes, and to support the purchase of high yield corporate debt. 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 ofMarch 31, 2022 , the outstanding investment in online consumer loans by certain of NPRC's wholly-owned subsidiaries was comprised of 626 individual loans, residual interest in four securitizations, and one high yield corporate bond, and had an aggregate fair value of$40,279 . The average outstanding individual loan balance is approximately$4 and the loans mature on dates ranging fromApril 1, 2022 toApril 19, 2025 with a weighted-average outstanding term of 14 months as ofMarch 31, 2022 . Fixed interest rates range from 6.0% to 36.0% with a weighted-average current interest rate of 20.0%. As ofMarch 31, 2022 , our investment in NPRC and its wholly-owned subsidiaries relating to online consumer lending had a fair value of$29,080 . As ofMarch 31, 2022 , based on outstanding principal balance, 24.1% of the portfolio was invested in super prime loans (borrowers with a Fair Isaac Corporation ("FICO") score, of 720 or greater), 38.5% of the portfolio in prime loans (borrowers with a FICO score of 660 to 719) and 37.5% of the portfolio in near prime loans (borrowers with a FICO score of 580 to 659, a portion of which are considered sub-prime). Outstanding Principal Weighted Average Loan Type Balance Fair Value Interest Rate Range Interest Rate* Super Prime $ 545$ 539 8.0% - 20.5% 12.4% Prime 871 841 6.0% - 25.0% 18.3% Near Prime 848 854 17.0% - 36.0% 26.7%
*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 ofMarch 31, 2022 , the outstanding investment in rated secured structured notes by certain of NPRC's wholly owned subsidiaries was comprised of 58 investments with a fair value of$303,060 and face value of$315,813 . The average outstanding note is approximately$5,445 with an expected maturity date ranging fromApril 2026 toJanuary 2032 and weighted-average expected maturity of 7 years as ofMarch 31, 2022 . Coupons range from three-month LIBOR ("3ML") plus 5.31% to 9.45% with a weighted-average coupon of 3ML + 7.1%. As ofMarch 31, 2022 , our investment in NPRC and its wholly-owned subsidiaries relating to rated secured structured notes had a fair value of$140,800 .
As of
As ofMarch 31, 2022 , our investment in NPRC and its wholly-owned subsidiaries had an amortized cost of$743,996 and a fair value of$1,528,576 , including our investment in online consumer lending and rated secured structured notes as discussed above. The fair value of$1,358,696 related to NPRC's real estate portfolio was comprised of forty-seven multi-family properties, eight student housing properties and three commercial properties. The following table shows the location, acquisition date, purchase price, and mortgage outstanding due to other parties for each of the properties held by NPRC as ofMarch 31, 2022 Mortgage No. Property Name City Acquisition Date Purchase Price Outstanding 1 Filet of Chicken Forest Park, GA 10/24/2012$ 7,400 $ - 2 Arlington Park Marietta, LLC Marietta, GA 5/8/2013 14,850 13,494 3 Taco Bell, OK Yukon, OK 6/4/2014 1,719 - 4 Taco Bell, MO Marshall, MO 6/4/2014 1,405 - 5 Abbie Lakes OH Partners, LLC Canal Winchester, OH 9/30/2014 12,600 15,144 6 Kengary Way OH Partners, LLC Reynoldsburg, OH 9/30/2014 11,500 15,310 Lakeview Trail OH Partners, 7 LLC Canal Winchester, OH 9/30/2014 26,500 29,207 123
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Mortgage
No. Property Name City Acquisition Date Purchase Price Outstanding
8 Lakepoint OH Partners, LLC Pickerington, OH 9/30/2014 11,000 16,620
9 Sunbury OH Partners, LLC Columbus, OH 9/30/2014 13,000 16,852
10 Heatherbridge OH Partners, LLC Blacklick, OH 9/30/2014 18,416 24,093
11 Jefferson Chase OH Partners, LLC Blacklick, OH 9/30/2014 13,551 18,749
12 Goldenstrand OH Partners, LLC Hilliard, OH 10/29/2014 7,810 11,431
13 SSIL I, LLC Aurora, IL 11/5/2015 34,500 25,488
14 Vesper Tuscaloosa, LLC Tuscaloosa, AL 9/28/2016 54,500 42,748
15 Vesper Iowa City, LLC Iowa City, IA 9/28/2016 32,750 24,654
16 Vesper Corpus Christi, LLC Corpus Christi, TX 9/28/2016 14,250 10,726
17 Vesper Campus Quarters, LLC Corpus Christi, TX 9/28/2016 18,350 14,077
18 Vesper College Station, LLC College Station, TX 9/28/2016 41,500 31,837
19 Vesper Kennesaw, LLC Kennesaw, GA 9/28/2016 57,900 50,704
20 Vesper Statesboro, LLC Statesboro, GA 9/28/2016 7,500 7,480
21 Vesper Manhattan KS, LLC Manhattan, KS 9/28/2016 23,250 14,679
22 9220 Old Lantern Way, LLC Laurel, MD 1/30/2017 187,250 153,580
7915 Baymeadows Circle Owner,
23 LLC Jacksonville, FL 10/31/2017 95,700 76,560
8025 Baymeadows Circle Owner,
24 LLC Jacksonville, FL 10/31/2017 15,300 12,240
25 23275 Riverside Drive Owner, LLC Southfield, MI 11/8/2017 52,000 54,591
26 23741 Pond Road Owner, LLC Southfield, MI 11/8/2017 16,500 18,934
27 150 Steeplechase Way Owner, LLC Largo, MD 1/10/2018 44,500 36,668
28 Olentangy Commons Owner LLC Columbus, OH 6/1/2018 113,000 92,876
Villages of Wildwood Holdings
29 LLC Fairfield, OH 7/20/2018 46,500 39,525
30 Falling Creek Holdings LLC Richmond, VA 8/8/2018 25,000 25,374
31 Crown Pointe Passthrough LLC Danbury, CT 8/30/2018 108,500 89,400
32 Lorring Owner LLC Forestville, MD 10/30/2018 58,521 47,680
33 Hamptons Apartments Owner, LLC Beachwood, OH 1/9/2019 96,500 79,520
34 5224 Long Road Holdings, LLC Orlando, FL 6/28/2019 26,500 21,200
35 Druid Hills Holdings LLC Atlanta, GA 7/30/2019 96,000 79,104
36 Bel Canto NPRC Parcstone LLC Fayetteville, NC 10/15/2019 45,000 42,793
37 Bel Canto NPRC Stone Ridge LLC Fayetteville, NC 10/15/2019 21,900 21,545
38 Sterling Place Holdings LLC Columbus, OH 10/28/2019 41,500 34,196
39 SPCP Hampton LLC Dallas, TX 11/2/2020 36,000 27,590
40 Palmetto Creek Holdings LLC North Charleston, SC 11/10/2020 33,182 25,865
41 Valora at Homewood Holdings LLC Homewood, AL 11/19/2020 81,250 63,844
42 NPRC Fairburn LLC Fairburn, GA 12/14/2020 52,140 43,900
43 NPRC Grayson LLC Grayson, GA 12/14/2020 47,860 40,500
44 NPRC Taylors LLC Taylors, SC 1/27/2021 18,762 14,075
Parkside at Laurel West Owner
45 LLC Spartanburg, SC 2/26/2021 57,005 42,025
46 Willows at North End Owner LLC Spartanburg, SC 2/26/2021 23,255 19,000
47 SPCP Edge CL Owner LLC Webster, TX 3/12/2021 34,000 25,496
48 Jackson Pear Orchard LLC Ridgeland, MS 6/28/2021 50,900 38,175
49 Jackson Lakeshore Landing LLC Ridgeland, MS 6/28/2021 22,600 16,950
50 Jackson Reflection Pointe LLC Flowood, MS 6/28/2021 45,100 31,050
51 Jackson Crosswinds LLC Pearl, MS 6/28/2021 41,400 33,825
52 Elliot Apartments Norcross, LLC Norcross, GA 11/30/2021 128,000 98,800
Orlando 442 Owner, LLC (West Vue
53 Apartments) Orlando, FL 12/30/2021 97,500 73,000
54 NPRC Wolfchase LLC Memphis, TN 3/18/2022 82,100 60,000
55 NPRC Twin Oaks LLC Hattiesburg. MS 3/18/2022 44,850 33,830
56 NPRC Lancaster LLC Birmingham, AL 3/18/2022 37,550 28,350
57 NPRC Rutland LLC Macon, GA 3/18/2022 29,750 22,500
Southport Owner LLC (Southport
58 Crossing) Indianapolis, IN 3/29/2022 48,100 36,075
$ 2,525,726 $ 2,083,929
124-------------------------------------------------------------------------------- The fair value of our investment in NPRC increased to$1,528,576 as ofMarch 31, 2022 , a premium of$784,580 from its amortized cost basis compared to a fair value of$1,189,755 as ofJune 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 90.42% and 94.82% of the fully-diluted equity ofNMMB, Inc. (f/k/aNMMB Acquisition, Inc. ) ("NMMB") as ofMarch 31, 2022 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$80,268 as ofMarch 31, 2022 , representing a premium of$50,508 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.Pacific World Corporation OnMay 29, 2018 , Prospect exercised its rights and remedies under its loan documents to exercise the shareholder voting rights in respect of the stock ofPacific World Corporation ("Pacific World ") and to appoint a new Board of Directors ofPacific World . As a result, as ofJune 30, 2018 , Prospect's investment inPacific World is classified as a control investment.Pacific World supplies nail and beauty care products to food, drug, mass, and value retail channels worldwide. The fair value of our investment inPacific World decreased to$56,787 as ofMarch 31, 2022 , representing a discount of$202,321 to its amortized cost basis, compared to a fair value of$71,097 as ofJune 30, 2021 , representing discount of$178,148 to its amortized cost. The increase in discount to amortized cost resulted from a decline in financial performance.
Our controlled investments, including those discussed above, are valued at
Affiliate and Non-Control Company Investments
We hold four affiliate investments atMarch 31, 2022 (PGX Holdings, Inc. ("Progrexion"),Nixon, Inc. ,RGIS Services, LLC , ("RGIS"), andTargus Cayman HoldCo Limited ("Targus")) with a total fair value of$417,652 , a premium of$179,807 from their combined amortized cost as ofMarch 31, 2022 , compared to a fair value of$356,734 as ofJune 30, 2021 , representing a$153,791 premium to its amortized cost. The increase in premium is primarily driven by our investment inProgrexion , which is valued at a premium of$141,123 atMarch 31, 2022 compared to a premium of$126,933 as ofJune 30, 2021 . The increase inProgrexion'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 ofMarch 31, 2022 , two of our non-control/ non-affiliate investments,Engine Group, Inc. ("Engine") andUSC are valued at discounts to amortized cost of$26,820 and$97,446 , respectively. As ofMarch 31, 2022 , our CLO investment portfolio is valued at a$287,447 discount to amortized cost. Excluding Engine,USC , and the CLO investment portfolio, the fair value of our non-control/non-affiliate investments atMarch 31, 2022 are valued at$15,944 below their amortized cost and did not experience significant changes in operating performance or value. Our largest non-control/non-affiliate investment isPeopleConnect Holdings, LLC ("PeopleConnect"), which has a fair value equal to its amortized cost basis of$242,681 and represents approximately 5.7% of our Net Asset Value as ofMarch 31, 2022 .PeopleConnect is an online information commerce company.
Capitalization
Our investment activities are capital intensive and the availability and cost of capital is a critical component of our business. We capitalize our business with a combination of debt and equity. Our debt as ofMarch 31, 2022 consists of: a Revolving Credit Facility availing us of the ability to borrow debt subject to borrowing base determinations; Convertible Notes which we issued inApril 2017 (with a follow-on issuance inMay 2018 ) andMarch 2019 ; Public Notes which we issued inMarch 2013 ,October 2018 ,January 2021 ,May 2021 andSeptember 2021 ; and Prospect Capital InterNotes® which we issue from time to time. As ofMarch 31, 2022 , our equity capital is comprised of common and preferred equity. 125 --------------------------------------------------------------------------------
The following table shows our outstanding debt as of
Unamortized
Principal Discount & Debt Net Carrying Effective Interest
Outstanding Issuance Costs Value Fair Value(1) RateRevolving Credit Facility(2)$ 699,440 $ 11,504$ 699,440 (3)$ 699,440 1ML+2.05% (6) 2022 Notes 60,501 121 60,380 60,751 (4) 5.63 % (7) 2025 Notes 156,168 2,673 153,495 167,009 (4) 6.63 % (7) Convertible Notes 216,669 213,875 227,760 2023 Notes 284,219 804 283,415 290,847 (4) 6.07 % (7) 6.375% 2024 Notes 81,240 339 80,901 83,502 (4) 6.57 % (7) 2026 Notes 400,000 7,600 392,400 378,172 (4) 3.98 % (7) 3.364% 2026 Notes 300,000 6,342 293,658 275,646 (4) 3.60 % (7) 3.437% 2028 Notes 300,000 8,516 291,484 258,249 (4) 3.64 % (7) Public Notes 1,365,459 1,341,858 1,286,416 Prospect Capital InterNotes® 340,774 7,196 333,578 361,624 (5) 5.73 % (8) Total$ 2,622,342 $ 2,588,751 $ 2,575,240
(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 of
(2)The maximum draw amount of the Revolving Credit facility as of
(3)Net Carrying Value excludes deferred financing costs associated with the Revolving Credit Facility. See Critical Accounting Policies and Estimates for accounting policy details.
(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.
(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 ofMarch 31, 2022 :
Payments Due by Period
Total Less than 1 Year 1 - 3 Years 3 - 5 Years After 5 Years
Revolving Credit Facility $ 699,440 $ - $ - $ 699,440 $ -
Convertible Notes 216,669 60,501 156,168 - -
Public Notes 1,365,459 284,219 81,240 700,000 300,000
Prospect Capital InterNotes® 340,774 - 2,161 88,361 250,252
Total Contractual Obligations $ 2,622,342 $ 344,720 $ 239,569 $ 1,487,801 $ 550,252
126-------------------------------------------------------------------------------- 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 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$1,500,000 as ofMarch 31, 2022 . 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. 127 -------------------------------------------------------------------------------- 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 ofMarch 31, 2022 , 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 nine months endedMarch 31, 2022 andMarch 31, 2021 , 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 March 31, Nine Months Ended March 31, 2022 2021 2022 2021 Average stated interest rate 2.14% 2.32% 2.14%
2.35%
Average outstanding balance$737,280 $373,734 $546,080 $376,646 As ofMarch 31, 2022 andJune 30, 2021 , we had$730,410 and$640,853 , respectively, available to us for borrowing under the Revolving Credit Facility, net of$699,440 and$356,937 outstanding borrowings as of the respective balance sheet dates. As ofMarch 31, 2022 , the investments, including cash and cash equivalents, used as collateral for the Revolving Credit Facility had an aggregate fair value of$2,559,645 , which represents 34.3% 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$1,500,000 . The release of any assets from PCF requires the approval of the facility agent. In connection with the origination and amendments of the Revolving Credit Facility, we incurred$18,746 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 ofMarch 31, 2022 ,$11,504 remains to be amortized and is reflected as deferred financing costs on the Consolidated Statements of Assets and Liabilities. During the three months endedMarch 31, 2022 andMarch 31, 2021 , we recorded$6,452 and$4,509 , respectively, of interest costs, unused fees and amortization of financing costs on the Revolving Credit Facility as interest expense. During the nine months endedMarch 31, 2022 andMarch 31, 2021 , we recorded$16,153 and$13,772 , 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 128 -------------------------------------------------------------------------------- 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 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 ofMarch 31, 2022 , 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 . 129 -------------------------------------------------------------------------------- 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 ofMarch 31, 2022 , 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 March 31, 2022 (1)(2) 100.2305 110.7420
Conversion price at
Last conversion price calculation date 4/11/2021
Dividend threshold amount (per share)(4)
(1)Conversion rates denominated in shares of common stock per
(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. 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 ofMarch 31, 2022 ,$1,643 of the original issue discount 130 -------------------------------------------------------------------------------- and$1,151 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 endedMarch 31, 2022 andMarch 31, 2021 , we recorded$3,550 and$4,870 , respectively, of interest costs and amortization of financing costs on the Convertible Notes as interest expense. During the nine months endedMarch 31, 2022 andMarch 31, 2021 , we recorded$11,333 and$17,905 , respectively, of interest costs and amortization of financing costs on the Covertible 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 . 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 ofMarch 31, 2022 , 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". 131 -------------------------------------------------------------------------------- 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 . 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 . OnOctober 8, 2021 , we commenced a tender offer to purchase for cash any and all of the$81,389 aggregate principal amount of the 6.375% 2024 Notes at a purchase price of$107.75 , plus accrued and unpaid interest ("6.375% 2024 NotesOctober 2021 Tender Offer"). OnOctober 15, 2021 ,$149 aggregate principal amount of the 6.375% 2024 Notes, representing 0.18% of the previously outstanding 6.375% 2024 Notes, were validly tendered and accepted. The 6.375% 2024 NotesOctober 2021 Tender Offer resulted in our recognizing a loss of$12 . As ofMarch 31, 2022 , the outstanding aggregate principal amount of the 6.375% 2024 Notes is$81,240 . 132 -------------------------------------------------------------------------------- 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. OnDecember 30, 2021 , we redeemed$69,170 of the aggregate principal amount of the 2029 Notes. The transaction resulted in our recognizing a loss of$2,044 during the three months endedDecember 31, 2021 . Following the redemption, none of the 2029 Notes remained outstanding. 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 ofMarch 31, 2022 , 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 ofMarch 31, 2022 , 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 ofMarch 31, 2022 , the outstanding aggregate principal amount of the 3.437% 2028 Notes is$300,000 . The 2023 Notes, the 6.375% 2024 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$15,802 and debt issuance costs of$17,834 , which are being amortized over the term of the notes. As ofMarch 31, 2022 ,$11,854 of the original issue discount and$11,747 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 endedMarch 31, 2022 andMarch 31, 2021 , we recorded$15,581 and$12,879 , respectively, of interest costs and amortization of financing costs on the Public Notes as interest expense. During the nine months endedMarch 31, 2022 andMarch 31, 2021 , we recorded$46,336 and$38,441 , 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 133 --------------------------------------------------------------------------------
Prospect Capital InterNotes® under the Original Selling Agent Agreement,
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 ofMarch 31, 2022 ,$340,774 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 nine months endedMarch 31, 2022 , we issued$155,909 aggregate principal amount of Prospect Capital InterNotes® for net proceeds of$152,441 . These notes were issued with stated interest rates ranging from 2.25% to 4.63% with a weighted average interest rate of 3.48%. These notes mature betweenFebruary 15, 2025 andMarch 15, 2052 .
The following table summarizes the Prospect Capital InterNotes® issued during
the nine months ended
Tenor at Weighted
Origination Principal Interest Rate Average
(in years) Amount Range Interest Rate Maturity Date Range
3 $ 1,499 2.50% 2.50% February 15, 2025 - March 15, 2025
5 58,068 2.25% - 4.50% 3.26% July 15, 2026 - March 15, 2027
7 20,929 2.75% - 4.25% 3.02% July 15, 2028 - February 15, 2029
10 22,435 3.15% - 4.50% 3.38% July 15, 2031 - March 15, 2032
12 2,422 3.70% 3.70% July 15, 2033
15 15,041 3.50% - 4.50% 3.84% July 15, 2036 - February 15, 2037
30 35,515 4.00% - 4.63% 4.06% July 15, 2051 - March 15, 2052
$ 155,909 During the nine months ended
The following table summarizes the Prospect Capital InterNotes® issued during
the nine months ended
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
5 62,567 3.00% - 5.50% 4.60%
7 16,921 3.25% - 5.75% 4.84%
10 29,412 3.50% - 6.00% 4.90% $ 109,562 During the nine months endedMarch 31, 2022 , we repaid$1,223 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$322,623 aggregate principal amount of Prospect Capital InterNotes® at par with a weighted average interest rate of 5.45%. 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 nine months endedMarch 31, 2022 was$6,403 . 134 -------------------------------------------------------------------------------- The following table summarizes the Prospect Capital InterNotes® outstanding as ofMarch 31, 2022 : Tenor at Weighted Origination Principal Interest Rate Average (in years) Amount Range Interest Rate Maturity Date Range 3$ 2,161 1.50% - 2.50% 2.19% January 15, 2024 - March 15, 2025 5 88,361 2.25% - 4.50% 3.17% January 15, 2026 - March 15, 2027 6 15,107 3.00% 3.00% June 15, 2027 - July 15, 2027 January 15, 2028 - February 15, 7 29,252 2.75% - 4.25% 3.17% 2029 8 3,511 3.40% - 3.50% 3.45% June 15, 2029 - July 15, 2029 10 77,185 3.15% - 4.50% 3.85% August 15, 2029 - March 15, 2032 12 15,066 3.70% - 4.00% 3.95% June 15, 2033 - July 15, 2033 15 15,041 3.50% - 4.50% 3.84% July 15, 2036 - February 15, 2037 18 3,085 4.50% - 5.00% 4.73% January 15, 2031 - April 15, 2031 20 1,597 5.75% 5.75% November 15, 2032 25 8,036 6.25% - 6.50% 6.37% November 15, 2038 - May 15, 2039 30 82,372 4.00% - 6.63% 5.29% November 15, 2042 - March 15, 2052$ 340,774 During the nine months endedMarch 31, 2021 , we repaid$4,022 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$112,489 aggregate principal amount of Prospect Capital InterNotes® at par with a weighted average interest rate of 5.45%. 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 nine months endedMarch 31, 2021 was$1,100 . The following table summarizes the Prospect Capital InterNotes® outstanding as ofJune 30, 2021 : Tenor at Weighted Origination Principal Interest Rate Average (in years) Amount Range Interest Rate Maturity Date Range 3$ 662 1.50% 1.50% January 15, 2024 5 46,968 3.00% - 4.25% 3.28% August 15, 2024 - May 15, 2026 6 15,107 3.00% 3.00% June 15, 2027 - July 15, 2027 7 59,729 3.25% - 5.75% 4.31% July 15, 2024 - May 15, 2028 8 3,511 3.40% - 3.50% 3.45% June 15, 2029 - July 15, 2029 10 201,285 3.50% - 6.25% 5.09% January 15, 2024 - July 15, 2031 12 14,432 4.00% - 6.00% 4.25% November 15, 2025 - July 15, 2033 15 16,801 5.75% - 6.00% 5.79% May 15, 2028 - November 15, 2028 December 15, 2030 - August 15, 18 18,487 4.50% - 6.25% 5.59% 2031 November 15, 2032 - October 15, 20 3,777 5.75% - 6.00% 5.89% 2033 25 30,344 6.25% - 6.50% 6.39% August 15, 2038 - May 15, 2039 November 15, 2042 - October 15, 30 97,608 5.50% - 6.75% 6.25% 2043$ 508,711 In connection with the issuance of Prospect Capital InterNotes®, we incurred$25,485 of fees which are being amortized over the term of the notes, of which$7,196 remains to be amortized and is included as a reduction within Prospect Capital InterNotes® on the Consolidated Statement of Assets and Liabilities as ofMarch 31, 2022 . During the three months endedMarch 31, 2022 andMarch 31, 2021 , we recorded$3,652 and$10,515 , respectively, of interest costs and amortization of financing costs on the Prospect Capital InterNotes® as interest expense. During the nine months endedMarch 31, 2022 andMarch 31, 2021 , we recorded$13,130 and$30,431 , respectively, of interest costs and amortization of financing costs on the Prospect Capital InterNotes® as interest expense. 135 --------------------------------------------------------------------------------
Net Asset Value Applicable to Common Stockholders
During the nine months endedMarch 31, 2022 , our net asset value applicable to common shares increased by$427,534 or$1.00 per common share. The increase was primarily attributable to an increase in net realized and net change in unrealized gains of$376,109 , or$0.96 per basic weighted average common share. During the nine months endedMarch 31, 2022 , net investment income of$253,931 , or$0.65 per basic weighted average common share, also exceeded distributions to common and preferred stockholders of$227,470 (including distributions classified as return of capital distributions to common stockholders), or$0.58 per basic weighted average common share, resulting in a net increase of$0.07 per basic weighted average common share. The increase was primarily offset by$0.03 of dilution per common share related to common stock issuances through our dividend reinvestment program for the nine months endedMarch 31, 2022 . The following table shows the calculation of net asset value per common share as ofMarch 31, 2022 andJune 30, 2021 . March 31, 2022 June 30, 2021 Net assets$ 4,236,011 $ 3,945,517 Less: Preferred Stock - (137,040)
Net assets available to common stockholders
Shares of common stock issued and outstanding 391,718,136
388,419,573
Net asset value per common share $ 10.81 $ 9.81 Results of Operations
Operating results for the three and nine months ended
Three Months Ended
2022 2021 2022 2021
Investment income $ 181,431 $ 159,456 $ 526,281 $ 474,628
Operating expenses 94,426 86,054 272,350 262,120
Net investment income 87,005 73,402 253,931 212,508
Net realized (losses) gains from investments (2,254) 881 (12,082) 7,451
Net change in unrealized gains from investments 80,486 184,960 398,340 518,577
Net realized losses on extinguishment of debt (941) (12,835) (10,149) (18,415)
Net increase in net assets resulting from
operations 164,296 246,408 630,040 720,121
Preferred stock dividend 7,139 400 16,748 446
Net Increase in Net Assets Resulting from
Operations applicable to Common Stockholders
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 applicable to
common stockholders, quarter over quarter.
136
--------------------------------------------------------------------------------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.
The following table describes the various components of investment income and the related levels of debt investments:
Three Months Ended March 31, Nine Months Ended March 31,
2022 2021 2022 2021
Interest income $ 142,489 $ 139,583 $ 430,933 $ 416,609
Dividend income 5,306 1,402 12,277 3,707
Other income 33,636 18,471 83,071 54,312
Total investment income $ 181,431 $
159,456
Average debt principal of performing interest bearing investments(1)$ 6,371,203 $
5,483,233
8.95 % 10.18 % 9.35 % 10.08 %
Average debt principal of all interest bearing
investments(2) $ 6,658,993 $
5,800,685
8.56 % 9.63 % 8.94 % 9.45 %
(1) Excludes equity investments and non-accrual loans. (2) Excludes equity investments.
The average interest earned on interest bearing performing assets decreased from 10.18% for the three months endedMarch 31, 2021 to 8.95% for the three months endedMarch 31, 2022 . The average interest earned on all interest bearing assets decreased from 9.63% for the three months endedMarch 31, 2021 to 8.56% for the three months endedMarch 31, 2022 . The decrease is primarily due to reduced returns from our structured credit investments. The average interest earned on interest bearing performing assets decreased from 10.08% for the nine months endedMarch 31, 2021 to 9.35% for the nine months endedMarch 31, 2022 . The average interest earned on all interest bearing assets decreased from 9.45% for the nine months endedMarch 31, 2021 to 8.94% for the nine months endedMarch 31, 2022 . The decrease is primarily due to reduced returns from our structured credit investments. 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 nine months endedMarch 31, 2022 andMarch 31, 2021 , respectively: Three Months Ended March 31, Nine Months Ended March 31, 2022 2021 2022 2021 Dividend income NMMB, Inc.$ 3,988 $ - $ 7,034 $ - Valley Electric Company, Inc. 809 - 2,509 2,261 Nationwide Loan Company LLC 400 1,384 2,150 1,384 R-V Industries, Inc. - - 441 - Other, net 109 18 143 62 Total dividend income$ 5,306 $ 1,402 $ 12,277 $ 3,707 137
-------------------------------------------------------------------------------- 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 other miscellaneous and sundry cash receipts. The following table describes other income earned for the three and nine months endedMarch 31, 2022 andMarch 31, 2021 , respectively: Three Months Ended March 31, Nine Months Ended March 31, 2022 2021 2022 2021 Structuring, advisory and amendment fees Belnick, LLC $ 1,750 $ -$ 1,750 $ - National Property REIT Corp. 1,593 904 2,815 2,337 Global Tel*Link Corporation 1,500 - 1,500 - SEOTownCenter, Inc. 1,040 - 1,040 - USG Intermediate, LLC 687 - 687 - Magnate Worldwide, LLC 666 - 3,516 - First Tower Finance Company LLC 664 5,443 7,898 15,443 PeopleConnect Intermediate, LLC - - 2,495 - Broder - - 2,239 - DRI Holding Inc. - - 2,238 - BCPE Osprey Buyer, Inc. - - 1,812 - BCPE North Star US Holdco 2, Inc. - - 1,463 - Victor Technology, LLC - - 600 - Medical Solutions Holdings, Inc. - - 530 - PGX Holdings, Inc. - - 3,779 - Ahead Data Blue, LLC - - - 1,725 Interventional Management Services, LLC - 1,510 - 1,510 Orva Buyer, LLC - - - 810 Thermal Product Solutions, Inc. - - - 689 H.I.G. KM2 Investor, LLC - - - 500Atlantis Health Care Group (Puerto Rico ), Inc. - - - 445 Eze Castle Integration, Inc. - - - 1,250 OneTouchPoint Corp. - 810 - 810 Other, net 2,249 208 4,601 774 Total structuring, advisory and amendment fees$ 10,149 $
8,875
$ 23,112 $
9,297
173 167 527 504
Total royalty and net revenue interests
$ 202 $ 132 $ 529 $ 381
Total administrative agent fees $ 202 $ 132 $ 529 $ 381
Total other income $ 33,636 $ 18,471 $ 83,071 $ 54,312
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.
138
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The following table describes the various components of our operating expenses:
Three Months Ended March 31, Nine Months Ended March 31,
2022 2021 2022 2021
Base management fee $ 36,426 $ 29,183 $ 102,472 $ 83,866
Income incentive fee 19,967 18,251 59,296 53,354
Interest and credit facility expenses 29,235 32,773 86,952 100,549
Allocation of overhead from Prospect
Administration 4,126 2,685 10,891 10,768
Audit, compliance and tax related
fees 994 989 1,940 2,267
Directors' fees 131 113 360 339
Other general and administrative
expenses 3,547 2,060 10,439 10,977
Total operating expenses $ 94,426 $ 86,054 $ 272,350 $ 262,120
Total gross and net base management fee was $36,426 and $29,183 for the three
months ended March 31, 2022 and March 31, 2021 , respectively. The increase in
total gross base management fee is directly related to a increase in average
total assets.
Total gross base management fee was $102,472 and $83,866 for the nine months
ended March 31, 2022 and March 31, 2021 , respectively. The increase in total
gross base management fee is directly related to a increase in average total
assets.
For the three months ended March 31, 2022 and March 31, 2021 , we incurred
$19,967 and $18,251 of income incentive fees, respectively. This increase was
driven by a corresponding increase in pre-incentive fee net investment income
(net of preferred stock dividends) from $91,253 for the three months ended March
31, 2021 to $99,833 for the three months ended March 31, 2022 . No capital gains
incentive fee has yet been incurred pursuant to the Investment Advisory
Agreement. Income incentive fee for the nine months ended March 31, 2021
includes a $264 adjustment for fees earned in prior periods that were neither
expensed nor paid to the Investment Adviser.
For the nine months ended March 31, 2022 and March 31, 2021 , we incurred $59,296
and $53,354 of income incentive fees, respectively. This increase was driven by
a corresponding increase in pre-incentive fee net investment income (net of
preferred stock dividends) from $265,416 for the nine months ended March 31,
2021 to $296,479 for the nine months ended March 31, 2022 . No capital gains
incentive fee has yet been incurred pursuant to the Investment Advisory
Agreement.
During the three months ended March 31, 2022 and March 31, 2021 , we incurred
$29,235 and $32,773 respectively, of interest and credit facility expenses
related to our Revolving Credit Facility, Convertible Notes, Public Notes and
Prospect Capital InterNotes® (collectively, our "Notes"). During the nine months
ended March 31, 2022 and March 31, 2021 , we incurred $86,952 and $100,549 ,
respectively, of interest expenses related to 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 March 31, Nine Months Ended March 31,
2022 2021 2022 2021
Interest on borrowings $ 25,131
2,137 1,756 6,242 5,526
Accretion of discount on unsecured debt 744 365 2,063 903
Facility commitment fees 1,223 1,803 3,979 5,411
Total interest and credit facility expenses
Average principal debt outstanding$ 2,657,523
3.78 % 4.82 % 4.03 % 5.07 %
Annualized weighted average interest rate on
borrowings(2) 4.40 % 5.47 % 4.69 % 5.74 %
(1)Includes only the stated interest expense.
139
--------------------------------------------------------------------------------(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$28,849 for the three months endedMarch 31, 2021 to$25,131 for the three months endedMarch 31, 2022 . The weighted average stated interest rate on borrowings (excluding amortization, accretion and undrawn facility fees) decreased from 4.82% for the three months endedMarch 31, 2021 to 3.78% for the three months endedMarch 31, 2022 , primarily due to redemptions of our Prospect Capital InterNotes®, increased utilization of our Revolving Credit Facility, and repurchases of our Convertible Notes,June 2024 Baby Bond ,June 2028 Baby Bond andJune 2029 Baby Bond. In addition to Prospect Capital InterNotes®, the 2026 Notes, 3.364% 2026 Notes, and the 2028 Bond were issued at lower rates. Interest expense decreased from$88,709 for the nine months endedMarch 31, 2021 to$74,668 for the nine months endedMarch 31, 2022 . The weighted average stated interest rate on borrowings (excluding amortization, accretion and undrawn facility fees) decreased from 5.07% for the nine months endedMarch 31, 2021 to 4.03% for the nine months endedMarch 31, 2022 . This decrease is primarily due to redemptions of our Prospect Capital InterNotes®, increased utilization of our Revolving Credit Facility, and repurchases of our Convertible Notes,June 2024 Baby Bond ,June 2028 Baby Bond andJune 2029 Baby Bond. In addition to Prospect Capital InterNotes®, the 2026 Notes and 3.364% 2026 Notes, and the 2028 Bond were issued at lower rates. The allocation of net overhead expense fromProspect Administration was$4,126 and$2,685 for the three months endedMarch 31, 2022 andMarch 31, 2021 , respectively. In addition, during the three months endedMarch 31, 2021 , we were given a credit in the amount of$3,522 for legal expenses incurred on behalf of our portfolio companies that were subsequently remitted toProspect Administration in the subsequent quarter. The allocation of net overhead expense fromProspect Administration was$10,891 and$10,768 for the nine months endedMarch 31, 2022 andMarch 31, 2021 , respectively.Prospect Administration received estimated payments of$5,391 and$1,038 directly from our portfolio companies, and certain funds managed by the Investment Adviser for legal services during the nine months endedMarch 31, 2022 andMarch 31, 2021 , respectively. In addition, during the nine months endedMarch 31, 2021 , we were given a credit in the amount of$3,522 for legal expenses incurred on behalf of our portfolio companies that were subsequently remitted toProspect Administration in the subsequent quarter. We were given a credit for these payments as a reduction of the administrative services cost payable by us toProspect Administration .Had Prospect Administration not received these payments,Prospect Administration's charges for its administrative services would have increased by this amount. We were given no such credit during the nine months endedMarch 31, 2022 . Total operating expenses, excluding investment advisory fees, interest and credit facility expenses, and allocation of overhead fromProspect Administration ("Other Operating Expenses"), net of any expense reimbursements, were$4,672 and$3,162 for the three months endedMarch 31, 2022 andMarch 31, 2021 , respectively. The increase was primarily attributable to a increase in legal fees offset by a decrease in general and administrative expenses. Total operating expenses, excluding investment advisory fees, interest and credit facility expenses, and allocation of overhead fromProspect Administration ("Other Operating Expenses"), net of any expense reimbursements, were$12,739 and$13,583 for the nine months endedMarch 31, 2022 andMarch 31, 2021 , respectively. The decrease was primarily attributable to a decrease in general and administrative expenses.
Net Realized Gains (Losses)
The following table details net realized gains (losses) from investments for the
three months ended
Three Months Ended March 31 ,
Portfolio Company 2022 2021
Edmentum Ultimate Holdings, LLC $ -$ 745 Sudbury Mill CLO, Ltd. 516 - Brookside Mill CLO (7,683) - Dunn Paper, Inc. (385) NMMB Inc. 5,294 - Other, net 4 136 Net realized (losses) gains $ (2,254)$ 881 140
--------------------------------------------------------------------------------
The following table details net realized gains (losses) from investments for the
nine months ended
Nine Months Ended March 31,
Portfolio Company 2022 2021
Edmentum Ultimate Holdings, LLC $ - $ 4,469
Spartan - Term Loan B - 2,832
Brookside Mill CLO (7,683) -
Sudbury Mill CLO, Ltd. (8,890) -
Dunn Paper, Inc. (385) -
NMMB Inc. 5,294 -
Other, net (418) 150
Net realized (losses) gains $ (12,082) $ 7,451 Net Realized Loss from Extinguishment of Debt
During the three months endedMarch 31, 2022 andMarch 31, 2021 , we recorded a net realized loss from the extinguishment of debt of$941 and$12,835 , respectively. During the nine months endedMarch 31, 2022 andMarch 31, 2021 , we recorded a net realized loss from the extinguishment of debt of$10,149 and$18,415 , respectively. Refer to Capitalization for additional discussion.
Change in Unrealized Gains (Losses)
The following table details net change in unrealized (losses) gains for our portfolio for the three and nine months endedMarch 31, 2022 andMarch 31, 2021 , respectively: Three Months Ended March 31, Nine Months Ended March 31, 2022 2021 2022 2021 Control investments$ 96,162 $ 142,379 $ 352,558 $ 323,967 Affiliate investments (11,610) 21,876 26,016 107,582 Non-control/non-affiliate investments (4,066) 20,705 19,766 87,028 Net change in unrealized gains (losses)$ 80,486
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. $ 149,967
CP Energy Services Inc. 31,164
Subordinated Structured Notes 18,874
Other, net 4,367
Curo Group Holdings Corp. (6,254)
Credit Central Loan Company, LLC (6,531)
K&N Parent, Inc. (8,110)
Pacific World Corporation (9,258)
NMMB, Inc. (10,540)
PGX Holdings, Inc. (12,636)
Echelon Transportation, LLC (17,588)
InterDent, Inc.
(52,969)
Net change in unrealized gains $ 80,486
141--------------------------------------------------------------------------------
The following table reflects net change in unrealized gains (losses) on
investments for the three months ended
Net Change in Unrealized Gains (Losses)
InterDent, Inc. $
54,955
First Tower Finance Company LLC 47,983National Property REIT Corp. 36,628PGX Holdings, Inc. 19,457 Other, net 16,853 Subordinated Structured Notes 11,527CP Energy Services Inc. 5,306NMMB, Inc. 5,161Credit Central Loan Company, LLC
(6,091)
Echelon Transportation, LLC
(6,819)
Net change in unrealized gains $
184,960
The following table details net change in unrealized gains (losses) on
investments for the nine months ended
Net Change in Unrealized Gains (Losses)
National Property REIT Corp. $ 348,536
Subordinated Structured Notes 46,619
CP Energy Services Inc. 32,471
First Tower Finance Company LLC 29,024
NMMB, Inc. 21,363
PGX Holdings, Inc. 14,189
Targus Cayman HoldCo Limited 10,331
MITY, Inc. 6,432
R-V Industries, Inc. 4,062
Other, net (5,257)
USES Corp. (7,899)
K&N Parent, Inc. (8,189)
Curo Group Holdings Corp. (8,565)
Pacific World Corporation (24,173)
Echelon Transportation, LLC (26,927)
InterDent, Inc. (33,677)
Net change in unrealized gains $ 398,340
142--------------------------------------------------------------------------------
The following table details net change in unrealized gains (losses) on
investments for the nine months ended
Net Change in Unrealized Gains (Losses)
InterDent, Inc. $ 121,247
PGX Holdings, Inc. 107,828
National Property REIT Corp. 107,149
First Tower Finance Company LLC 75,057
Subordinated Structured Notes 36,791 Other, net 36,303USES Corp. 18,076Valley Electric Company, Inc. 15,350R-V Industries, Inc. 9,798Pacific World Corporation 9,634NMMB, Inc. 9,101Securus Technologies Holdings, Inc. 6,935ACE Cash Express, Inc. 5,348Targus Cayman HoldCo Limited 5,225Engine Group, Inc. 4,452Edmentum Ultimate Holdings, LLC
(5,471)
MITY, Inc.
(8,702)
Credit Central Loan Company, LLC
(10,145)
Echelon Transportation, LLC
(12,456)
CP Energy Services, Inc.
(12,943)
Net change in unrealized gains $
518,577
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 143 --------------------------------------------------------------------------------
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 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, even if certain statutory regimes may apply, e.g.,N.Y. Gen . Oblig. Law § 18-401 or the Adjustable Interest Rate (LIBOR) Act. 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 nine months endedMarch 31, 2022 andMarch 31, 2021 , our operating activities used$589,727 and provided$131,003 of cash, respectively. The change in our operating activities is primarily driven by an increase in net originations for the nine months endedMarch 31, 2022 . There were no investing activities for the nine months endedMarch 31, 2022 andMarch 31, 2021 . Financing activities provided$562,519 and used$74,575 of cash during the nine months endedMarch 31, 2022 andMarch 31, 2021 , respectively, which included dividend payments of$199,697 and$132,671 , respectively. The change in our financing activities is primarily driven by an increase in proceeds from issuance of preferred stock used to finance our increase in net originations for the nine months endedMarch 31, 2022 .
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. 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 nine months endedMarch 31, 2022 , we borrowed$1,627,051 and we made repayments totaling$1,284,548 under the Revolving Credit Facility. As ofMarch 31, 2022 , our outstanding balance on the Revolving Credit Facility was$699,440 . As ofMarch 31, 2022 , we had, net of unamortized discount and debt issuance costs,$213,875 outstanding on the Convertible Notes,$1,341,858 outstanding on the Public Notes and$333,578 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 ofMarch 31, 2022 andJune 30, 2021 , we had$43,351 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 ofMarch 31, 2022 andJune 30, 2021 . We have guaranteed$2,737 in standby letters of credit issued through a financial intermediary and$1,835 of equipment lease obligations on behalf ofInterDent, Inc. ("InterDent") as ofMarch 31, 2022 . 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 ofMarch 31, 2022 , 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 144 -------------------------------------------------------------------------------- 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"). 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 , and amended onFebruary 18, 2022 , 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 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 AA1 Preferred Stock (the "Series AA1 Preferred Stock") and the 5.50% Series MM1 Preferred Stock (the "Series MM1 Preferred Stock" and together with the Series M1 Preferred Stock and the Series M2 Preferred Stock, the "Series M Preferred Stock"). In connection with such offering, onOctober 30, 2020 andFebruary 17, 2022 , we filed Articles Supplementary with the SDAT, reclassifying and designating an additional 40,000,000 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, Series M1 Preferred Stock, Series M2 Preferred Stock, Series AA1 Preferred Stock, and Series MM1 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 145 -------------------------------------------------------------------------------- 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 the IOC 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) theIOC 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 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: 146 -------------------------------------------------------------------------------- •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.
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 147 -------------------------------------------------------------------------------- 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.
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 ofMarch 31, 2022 . We determined the estimated value as ofMarch 31, 2022 of our 5.50% 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 endedMarch 31, 2022 (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 5.50% Preferred Stock, the estimated value of our 5.50% Preferred Stock as ofMarch 31, 2022 is$25.00 per share. Common Stock Our common stockholders' equity accounts as ofMarch 31, 2022 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 and in connection with our 5.50% Preferred Stock Holder Optional Conversion. 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 nine months ended
Recent Developments
OnApril 26, 2022 , we made a new$18,500 First Lien Term Loan investment and a$75,000 Second Lien Term Loan investment inDTI Holdco, Inc. , a technology-enabled e-discovery legal service provider, offering solutions to both corporate and law firm clients. Our investment settled onMay 2, 2022 . 148 -------------------------------------------------------------------------------- OnMay 9, 2022 , 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$25 per share as set forth in the Articles Supplementary for the Preferred Stock, from the date of issuance or, if later from the most recent dividend payment date, as follows:
Monthly Amount ($ per share),
Monthly Cash 5.50% Preferred Shareholder
before pro ration for partial
Distribution Record Date Payment Date periods
June 2022 6/22/2022 7/1/2022 $0.114583
July 2022 7/20/2022 8/1/2022 $0.114583
August 2022 8/17/2022 9/1/2022 $0.114583
On February 8, 2022 , 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)
May 2022 - July 2022 7/20/2022 8/1/2022 $0.334375 On
Monthly Cash Common Shareholder
Distribution Record Date Payment Date Amount ($ per share)
May 2022 5/27/2022 6/21/2022 $0.0600
June 2022 6/28/2022 7/20/2022 $0.0600
July 2022 7/27/2022 8/18/2022 $0.0600
August 2022 8/29/2022 9/21/2022 $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
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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