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. 112 -------------------------------------------------------------------------------- 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 ofDecember 31, 2022 , as shown in our Consolidated Schedule of Investments, the cost basis and fair value of our investments in controlled companies was$2,821,034 and$3,457,698 , 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. 113 --------------------------------------------------------------------------------
Second Quarter Highlights
Investment Transactions
We seek to be a long-term investor with our portfolio companies. During the three months endedDecember 31, 2022 , we acquired$228,220 of new investments, completed follow-on investments in existing portfolio companies totaling approximately$45,520 , funded$7,409 of revolver advances, and recorded PIK interest of$26,832 , resulting in gross investment originations of$307,981 . During the three months endedDecember 31, 2022 , we received full repayments totaling$20,874 , received$6,805 in sales, received$73 of revolver paydowns, and received$48,980 in partial prepayments, scheduled principal amortization payments, and return of capital distributions, resulting in net repayments of$76,732 .
Debt Issuances and Redemptions
During the three months endedDecember 31, 2022 , we repaid$1,851 aggregate principal amount of Prospect Capital InterNotes® at par in accordance with the Survivor's Option, as defined in the InterNotes® Offering prospectus. As a result of these transactions, we recorded a loss in the amount of the unamortized debt issuance costs. The net loss on the extinguishment of Prospect Capital InterNotes® in the three months endedDecember 31, 2022 was$46 . During the three months endedDecember 31, 2022 , we issued$2,852 aggregate principal amount of Prospect Capital InterNotes® with a weighted average stated interest rate of 5.53%, to extend our borrowing base. The newly issued notes mature betweenOctober 15, 2025 andDecember 15, 2032 and generated net proceeds of$2,820 .
During the three months ended
OnOctober 17, 2022 , we commenced a tender offer to purchase for cash any and all of the$283,872 then outstanding aggregate principal amount of the 2023 Notes at a price of 98.50%, plus accrued and unpaid interest ("2023 Notes October Tender Offer"). OnOctober 26, 2022 ,$1,508 aggregate principal amount of the 2023 Notes were validly tendered and accepted. OnNovember 14, 2022 , we commenced a tender offer to purchase for cash any and all of the$282,364 then outstanding aggregate principal amount of the 2023 Notes at a price of 98.75%, plus accrued and unpaid interest ("2023 Notes November Tender Offer"). OnNovember 23, 2022 ,$249 aggregate principal amount of the 2023 Notes were validly tendered and accepted. The 2023 Notes October and November Tender Offers resulted in our recognizing a loss of$5 .
Equity Issuances
On
During the three months endedDecember 31, 2022 , 72,711 shares of our Series A1 Preferred Stock, 2,813 shares of our Series A3 Preferred Stock, 34,085 shares of our Series M1 Preferred Stock, and 600 shares of our Series M3 Preferred Stock were converted to 368,877 shares of our common stock, in connection with Holder Optional Conversions and Optional Redemptions Following Death of a Holder. During the three months endedDecember 31, 2022 , we issued 453,539 shares of our Series A1 Preferred Stock for net proceeds of$10,205 , 10,187,160 shares of our Series A3 Preferred Stock for net proceeds of$229,211 , 105,204 shares of our Series M1 Preferred Stock for net proceeds of$2,551 , and 1,157,619 shares of our Series M3 Preferred Stock for net proceeds of$28,072 , each excluding offering costs and preferred stock dividend reinvestment. In connection with our Preferred Stock Dividend Reinvestment Plan, we issued additional Series A1 Preferred Stock and Series M1 Preferred Stock of 2,742, 4,059, and 4,599 shares throughout October, November andDecember 2022 .
At
Our annualized current yield was 12.9% and 11.1% as ofDecember 31, 2022 andJune 30, 2022 , respectively, across all performing interest bearing investments, excluding equity investments and non-accrual loans. Our annualized current yield was 10.3% and 8.7% as ofDecember 31, 2022 andJune 30, 2022 , 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 114 -------------------------------------------------------------------------------- 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 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 owning, controlling, or holding with power to vote, 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 ofDecember 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"); andValley Electric Company, Inc. ("Valley Electric "). InJune 2019 ,CP Energy purchased a controlling interest of the common equity ofSpartan Energy Holdings, Inc. ("Spartan Holdings "), which owns 100% ofSpartan Energy Services, LLC ("Spartan"), a portfolio company of Prospect with$27,347 in senior secured term loans (the "Spartan Term Loan A") due to us as ofDecember 31, 2022 . As a result ofCP Energy's purchase, and given Prospect's controlling interest inCP Energy , we report our investments in Spartan as control investment. Spartan remains the direct borrower 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
December 31, 2022 June 30, 2022
Level of Control Cost % of Portfolio Fair Value % of Portfolio Cost % of Portfolio Fair Value % of Portfolio Control Investments
$ 2,821,034 37.2 %$ 3,457,698 44.5 %$ 2,732,906 38.0 %$ 3,438,317 45.2 % Affiliate Investments 8,996 0.1 % 7,944 0.1 % 242,101 3.4 % 393,264 5.2 % Non-Control/Non-Affiliate Investments 4,753,800 62.7 % 4,304,694 55.4 % 4,221,824 58.6 % 3,770,929 49.6 % Total Investments$ 7,583,830 100.0 %$ 7,770,336 100.0 %$ 7,196,831 100.0 %$ 7,602,510 100.0 %
The following shows the composition of our investment portfolio by type of
investment as of
December 31, 2022
Type of Investment Cost % of Portfolio Fair Value % of Portfolio Cost % of Portfolio Fair Value % of Portfolio
First Lien Revolving Line of Credit $ 43,861 0.6 % $ 43,944 0.6 % $ 39,775 0.6 % $ 39,746 0.5 %
First Lien Debt 4,180,835 55.1 % 4,076,155 52.4 % 3,839,553 53.3 % 3,757,960 49.4 %
Second Lien Revolving Line of
Credit 5,135 0.1 % 4,961 0.1 % - - % - - %
Second Lien Debt 1,614,431 21.3 % 1,429,086 18.4 % 1,588,557 22.1 % 1,471,336 19.4 %
Unsecured Debt 12,999 0.2 % 12,860 0.2 % 7,200 0.1 % 7,200 0.1 %
Subordinated Structured Notes 996,512 13.0 % 698,957 9.0 % 997,703 13.9 % 711,429 9.4 %
Preferred Stock 355,581 4.7 % 39,527 0.5 % 345,602 4.8 % 47,719 0.6 %
Common Stock 194,557 2.6 % 1,102,742 14.1 % 197,215 2.7 % 1,187,620 15.6 %
Membership Interest 179,919 2.4 % 303,665 3.9 % 181,226 2.5 % 316,970 4.2 %
Participating Interest - - % 58,439 0.8 % - - % 62,530 0.8 %
Total Investments $ 7,583,830 100.0 % $ 7,770,336 100.0 % $ 7,196,831 100.0 % $ 7,602,510 100.0 %
115-------------------------------------------------------------------------------- (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
December 31, 2022
Type of Investment Cost % of Portfolio Fair Value % of Portfolio Cost % of Portfolio Fair Value % of Portfolio
First Lien Debt and First Lien
Revolving Line of Credit $ 4,224,696 61.6 % $ 4,120,099 65.8 % $ 3,879,328 59.9 % $ 3,797,706 63.4 %
Second Lien Debt and Second Lien
Revolving Line of Credit 1,619,566 23.7 % 1,434,047 22.9 % 1,588,557 24.5 % 1,471,336 24.6 %
Unsecured 12,999 0.2 % 12,860 0.2 % 7,200 0.1 % 7,200 0.1 %
Subordinated Structured Notes 996,512 14.5 % 698,957 11.1 % 997,703 15.5 % 711,429 11.9 %
Total Interest Bearing Investments $ 6,853,773 100.0 % $ 6,265,963 100.0 % $ 6,472,788 100.0 % $ 5,987,671 100.0 %
116--------------------------------------------------------------------------------
The following shows the composition of our investment portfolio by industry as
of
December 31, 2022 June 30, 2022
Industry Cost % of Portfolio Fair Value % of Portfolio Cost % of Portfolio Fair Value % of Portfolio
Aerospace & Defense $ 110,378 1.5 % $ 55,564 0.7 % $ 108,790 1.5 % $ 65,766 0.9 %
Air Freight & Logistics 188,719 2.5 % 189,769 2.4 % 178,077 2.5 % 178,414 2.3 %
Auto Components 134,511 1.8 % 109,801 1.4 % 104,499 1.5 % 103,536 1.4 %
Building Products 35,000 0.5 % 33,817 0.4 % 35,000 0.5 % 34,697 0.5 %
Capital Markets 42,500 0.6 % 40,769 0.5 % 42,500 0.6 % 41,574 0.5 %
Commercial Services & Supplies 479,800 6.3 % 415,538 5.4 % 424,795 5.9 % 356,965 4.7 %
Communications Equipment 59,816 0.8 % 50,128 0.6 % 59,780 0.8 % 57,556 0.8 %
Construction & Engineering 68,806 0.9 % 142,582 1.8 % 68,259 0.9 % 145,983 1.9 %
Consumer Finance 590,725 7.8 % 765,892 9.9 % 568,739 7.9 % 765,168 10.1 %
Distributors 291,500 3.8 % 249,571 3.2 % 278,530 3.9 % 180,108 2.4 %
Diversified Consumer Services 270,428 3.6 % 317,750 4.1 % 250,393 3.5 % 365,669 4.8 %
Diversified Financial Services 42,490 0.6 % 42,351 0.5 % 36,878 0.5 % 36,878 0.5 %
Diversified Telecommunication Services 164,103 2.2 % 161,831 2.1 % 165,966 2.3 % 166,356 2.2 %
Electrical Equipment 64,167 0.8 % 64,167 0.8 % - - % - - %
Energy Equipment & Services 303,248 4.0 % 126,666 1.6 % 300,496 4.2 % 126,600 1.7 %
Equity Real Estate Investment Trusts
(REITs) 670,754 8.7 % 1,376,006 17.7 % 647,316 9.0 % 1,399,857 18.3 %
Food & Staples Retailing 27,337 0.4 % 27,675 0.4 % 9,262 0.1 % 9,440 0.1 %
Food Products 136,009 1.8 % 126,849 1.6 % 130,998 1.8 % 127,436 1.7 %
Health Care Equipment & Supplies 7,485 0.1 % 6,765 0.1 % 7,483 0.1 % 6,966 0.1 %
Health Care Providers & Services 670,494 8.8 % 764,562 9.8 % 660,976 9.2 % 748,591 9.8 %
Health Care Technology 128,513 1.7 % 127,623 1.6 % 89,675 1.2 % 89,675 1.2 %
Hotels, Restaurants & Leisure 22,629 0.3 % 21,125 0.3 % 23,359 0.3 % 22,651 0.3 %
Household Durables 127,873 1.7 % 122,100 1.6 % 123,175 1.7 % 122,652 1.6 %
Household Products - - % - - % 20,936 0.3 % 20,936 0.3 %
Insurance - - % - - % 21,966 0.3 % 22,280 0.3 %
Interactive Media & Services 218,904 2.9 % 218,904 2.8 % 233,204 3.2 % 233,204 3.1 %
Internet & Direct Marketing Retail 20,017 0.3 % 14,209 0.2 % 20,212 0.3 % 17,454 0.2 %
IT Services 360,073 4.7 % 337,707 4.4 % 305,311 4.2 % 303,681 4.0 %
Leisure Products 60,010 0.8 % 58,776 0.8 % 39,015 0.5 % 38,757 0.5 %
Machinery 108,063 1.4 % 126,470 1.6 % 108,780 1.5 % 124,458 1.6 %
Media 106,757 1.4 % 149,372 1.9 % 108,062 1.5 % 161,140 2.1 %
Online Lending 23,080 0.3 % 21,798 0.3 % 29,080 0.4 % 29,080 0.4 %
Paper & Forest Products - - % - - % 11,445 0.2 % 4,952 0.1 %
Personal Products 274,697 3.6 % 73,023 0.9 % 260,396 3.6 % 59,179 0.8 %
Pharmaceuticals 100,515 1.3 % 100,505 1.3 % 25,557 0.4 % 25,962 0.3 %
Professional Services 190,259 2.5 % 176,388 2.3 % 205,032 2.8 % 203,256 2.7 %
Software 52,322 0.7 % 48,267 0.6 % 52,295 0.7 % 52,500 0.7 %
Technology Hardware, Storage & Peripherals - - % - - % 12,447 0.2 % 12,398 0.2 %
Textiles, Apparel & Luxury Goods 169,536 2.2 % 168,235 2.2 % 178,428 2.5 % 211,359 2.8 %
Trading Companies & Distributors 65,200 0.9 % 38,224 0.5 % 65,216 0.9 % 31,147 0.4 %
Subtotal 6,386,718 84.2 % 6,870,779 88.3 % 6,012,328 83.4 % 6,704,281 88.3 %
Structured Finance(1) 1,197,112 15.8 % 899,557 11.7 % 1,184,503 16.6 % 898,229 11.7 %
Total Investments $ 7,583,830 100.0 % $ 7,770,336 100.0 % $ 7,196,831 100.0 % $ 7,602,510 100.0 %
(1) Our SSN investments do not have industry concentrations and as such have
been separated in the tables above. As of December 31, 2022 and June 30, 2022 ,
Structured Finance includes 200,600 and $186,800 , respectively, of senior
secured debt investments held through our investment in NPRC and its
wholly-owned subsidiary.
117
--------------------------------------------------------------------------------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 and second lien loans, though we also continue to close select equity investments. For information regarding investment activity for the three months endedDecember 31, 2022 andDecember 31, 2021 are presented below: Six
months ended
2022 2021
Investments in portfolio companies
Investments in new portfolio companies $ 338,473 $ 810,424
Follow-on investments in existing portfolio companies
(1) 215,103 425,905
Revolver advances 7,909 9,000
PIK interest (2) 51,026 34,712
Total investments in portfolio companies $ 612,511 Investments by portfolio composition First Lien Debt $ 526,903 $ 541,452 Second Lien Debt 76,209 721,825 Subordinated Structured Notes - 9,518 Unsecured Debt 5,799 - Equity 3,600 7,246 Total investments by portfolio composition $ 612,511$ 1,280,041 Investments repaid or sold Partial repayments (3) $ 134,928 $ 319,467 Full repayments 73,888 448,509 Investments sold 18,250 - Revolver paydowns 129 84 Total investments repaid or sold $ 227,195
$ 768,060
Investments repaid or sold by portfolio composition First Lien Debt $ 173,205 $ 472,013 1.5 Lien Debt - 18,164 Second Lien Debt 46,425 268,477 Subordinated Structured Notes - 9,406 Equity 7,565 - Total investments repaid or sold by portfolio composition $ 227,195
$ 768,060
Weighted average interest rates for new investments by portfolio composition (4) First Lien Debt 10.52 % 7.61 % Second Lien Debt 12.49 % 9.30 %
(1) Includes follow-on investments in existing portfolio companies and refinancings, if any.
(2) During the six months endedDecember 31, 2022 , approximately$49,728 of PIK interest capitalized was accrued as interest income and the remaining$1,298 was included due to the timing of interest payment dates and resulting capitalization occurring during the prior year. During the six months endedDecember 31, 2021 , approximately$30,506 of PIK interest capitalized was accrued as interest income and the remaining$4,206 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 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.
118
--------------------------------------------------------------------------------Investment Valuation
Investments for which market quotations are readily available must be 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. These investments are classified as Level 1 or Level 2 in the
fair value hierarchy.
The fair value of debt investments specifically classified as Level 2 in the
fair value hierarchy are generally valued by an independent pricing agent or
more than one principal market maker, if available, otherwise a principal market
maker or a primary market dealer. We generally value over-the-counter securities
by using the prevailing bid and ask prices from dealers during the relevant
period end, which were provided by an independent pricing agent and screened for
validity by such service.
In determining the range of values for debt instruments where market quotations
are not readily available, and are therefore classified as Level 3 in the fair
value hierarchy, 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 $7,770,336 .
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.
119
--------------------------------------------------------------------------------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 six months endedDecember 31, 2022 .
Prospect owns 100% of the equity of Credit Central Delaware, a consolidated holding company. CreditCentral Delaware owns 99.81% of Credit Central, with entities owned by Credit Central management owning the remaining 0.19% of the equity. Credit Central is a branch-based provider of installment loans. The fair value of our investment in Credit Central decreased to$72,486 as ofDecember 31, 2022 , which represents a discount of$27,097 from its amortized cost, compared to a fair value of$76,935 as ofJune 30, 2022 , representing a discount of$16,298 to its amortized cost basis. The increase in discount to amortized cost resulted from a decline in financial performance.
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$55,564 as ofDecember 31, 2022 , representing a discount of$54,814 to its amortized cost basis, compared to a fair value of$65,766 as ofJune 30, 2022 , representing a discount of$43,024 to its amortized cost basis. The increase in discount to amortized cost resulted from lower aircraft residual values and a transfer of assets that occurred after the valuation date, but for which conditions existed as of the valuation date.
NPRC is aMaryland corporation and a qualified REIT for federal income tax purposes. NPRC is held for purposes of investing, operating, financing, leasing, managing and selling a portfolio of real estate assets and engages in any and all other activities that may be necessary, incidental, or convenient to perform the foregoing. NPRC acquires real estate assets, including, but not limited to, industrial, commercial, and multi-family properties, self-storage, and student housing properties. NPRC may acquire real estate assets directly or through joint ventures by making a majority equity investment in a property-owning entity. Additionally, through its wholly owned subsidiaries, NPRC invests in online consumer loans and RSSNs. As ofDecember 31, 2022 , we own 100% of the fully-diluted common equity of NPRC. During the six months endedDecember 31, 2022 , we received partial repayments of$72,852 of our loans previously outstanding with NPRC and its wholly owned subsidiaries and$4,000 as a return of capital on our equity investment in NPRC. During the six months endedDecember 31, 2022 , we provided$104,471 of debt financing and$3,600 of equity financing to NPRC to invest in real estate property, to provide working capital, and to fund purchases of rated secured structured notes. 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 60 months to 84 months. As ofDecember 31, 2022 , the outstanding investment in online consumer loans by certain of NPRC's wholly-owned subsidiaries was comprised of 216 individual loans, residual interest in three securitizations, and one high yield corporate bond, and had an aggregate fair value of$20,678 . The average outstanding individual loan balance is approximately$2 and the loans mature on dates ranging fromJanuary 1, 2023 toApril 11, 2025 with a weighted-average outstanding term of 11 months as ofDecember 31, 2022 . Fixed interest rates range from 8.0% to 36.0% with a weighted-average current interest rate of 18.6%. As ofDecember 31, 2022 , our investment in NPRC and its wholly-owned subsidiaries relating to online consumer lending had a fair value of$21,798 . As ofDecember 31, 2022 , based on outstanding principal balance, 34.8% of the online consumer loan portfolio held by certain of NPRC's wholly-owned subsidiaries was invested in super prime loans (borrowers with a Fair Isaac Corporation ("FICO") score, of 720 or greater), 40.2% of the portfolio in prime loans (borrowers with a FICO score of 660 to 719) and 25.0% of the portfolio in near prime loans (borrowers with a FICO score of 580 to 659, a portion of which are considered sub-prime). 120 -------------------------------------------------------------------------------- Outstanding Principal Weighted Average Loan Type Balance Fair Value Interest Rate Range Interest Rate* Super Prime $ 183$ 182 8.0% - 20.5% 12.2% Prime 211$ 204 13.0% - 25.0% 19.1% Near Prime 131$ 134 20.0% - 36.0% 26.8%
*Weighted by outstanding principal balance of the online consumer loans.
The rated secured structured note investments held by certain of NPRC's wholly owned subsidiaries are subordinated debt interests in broadly syndicated loans managed by established collateral management teams with many years of experience in the industry. As ofDecember 31, 2022 , the outstanding investment in rated secured structured notes by certain of NPRC's wholly owned subsidiaries was comprised of 94 investments with a fair value of$424,746 and face value of$448,235 . The average outstanding note is approximately$4,768 with an expected maturity date ranging fromApril 2026 toOctober 2033 and weighted-average expected maturity of 6 years as ofDecember 31, 2022 . Coupons range from three-month LIBOR ("3ML") plus 5.20% to 9.23% with a weighted-average coupon of 3ML + 6.93%. As ofDecember 31, 2022 , our investment in NPRC and its wholly-owned subsidiaries relating to rated secured structured notes had a fair value of$200,600 . As ofDecember 31, 2022 , based on outstanding notional balance, 12.6% of the portfolio was invested in Single - B rated tranches and 87.4% of the portfolio in BB rated tranches. As ofDecember 31, 2022 , our investment in NPRC and its wholly owned subsidiaries had an amortized cost of$894,434 and a fair value of$1,598,404 , including our investment in online consumer lending and rated secured structured notes as discussed above. The fair value of$1,376,006 related to NPRC's real estate portfolio was comprised of forty-eight multi-family properties, eight student housing properties, four senior living properties, and three commercial properties. The following table shows the location, acquisition date, purchase price, and mortgage outstanding due to other parties for each of the properties held by NPRC as ofDecember 31, 2022 : Mortgage No. Property Name City Acquisition Date Purchase Price Outstanding 1 Filet of Chicken Forest Park, GA 10/24/2012$ 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 14,947 6 Kengary Way OH Partners, LLC Reynoldsburg, OH 9/30/2014 11,500 15,111 7 Lakeview Trail OH Partners, LLC Canal Winchester, OH 9/30/2014 26,500 28,827 8 Lakepoint OH Partners, LLC Pickerington, OH 9/30/2014 11,000 16,405 9 Sunbury OH Partners, LLC Columbus, OH 9/30/2014 13,000 16,635 10 Heatherbridge OH Partners, LLC Blacklick, OH 9/30/2014 18,416 23,771 11 Jefferson Chase OH Partners, LLC Blacklick, OH 9/30/2014 13,551 18,511 12 Goldenstrand OH Partners, LLC Hilliard, OH 10/29/2014 7,810 11,282 13 SSIL I, LLC Aurora, IL 11/5/2015 34,500 25,149 14 Vesper Tuscaloosa, LLC Tuscaloosa, AL 9/28/2016 54,500 42,220 15 Vesper Iowa City, LLC Iowa City, IA 9/28/2016 32,750 24,348 16 Vesper Corpus Christi, LLC Corpus Christi, TX 9/28/2016 14,250 10,593 17 Vesper Campus Quarters, LLC Corpus Christi, TX 9/28/2016 18,350 13,903 18 Vesper College Station, LLC College Station, TX 9/28/2016 41,500 31,442 19 Vesper Kennesaw, LLC Kennesaw, GA 9/28/2016 57,900 50,076 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 90,649 8025 Baymeadows Circle Owner, 24 LLC Jacksonville, FL 10/31/2017 15,300 15,764 25 23275 Riverside Drive Owner, LLC Southfield, MI 11/8/2017 52,000 54,458 26 23741 Pond Road Owner, LLC Southfield, MI 11/8/2017 16,500 18,874 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 58,393 30 Falling Creek Holdings LLC Richmond, VA 8/8/2018 25,000 25,374 121
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Mortgage
No. Property Name City Acquisition Date Purchase Price Outstanding
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 42,975
49 Jackson Lakeshore Landing LLC Ridgeland, MS 6/28/2021 22,600 17,955
50 Jackson Reflection Pointe LLC Flowood, MS 6/28/2021 45,100 33,203
51 Jackson Crosswinds LLC Pearl, MS 6/28/2021 41,400 38,601
52 Elliot Apartments Norcross, LLC Norcross, GA 11/30/2021 128,000 101,124
Orlando 442 Owner, LLC (West
53 Vue 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 33,960
56 NPRC Lancaster LLC Birmingham, AL 3/18/2022 37,550 28,536
57 NPRC Rutland LLC Macon, GA 3/18/2022 29,750 22,710
Southport Owner LLC (Southport
58 Crossing) Indianapolis, IN 3/29/2022 48,100 36,075
59 TP Cheyenne, LLC Cheyenne, WY 5/26/2022 27,500 17,656
60 TP Pueblo, LLC Pueblo, CO 5/26/2022 31,500 20,166
61 TP Stillwater, LLC Stillwater, OK 5/26/2022 26,100 15,328
62 TP Kokomo, LLC Kokomo, IN 5/26/2022 20,500 12,753
63 Terraces at Perkins Rowe JV LLC Baton Rouge, LA 11/14/2022 41,400 29,566
$ 2,672,726 $ 2,226,850
The fair value of our investment in NPRC increased to $1,598,404 as of December
31, 2022 , a premium of $703,970 from its amortized cost basis compared to a fair
value of $1,615,737 as of June 30, 2022 , representing a premium of $752,541 . The
decrease in premium is primarily driven by a decrease in like-for-like property
values due to a rise in discount rates and terminal capitalization rates,
partially offset by an increase in market interest rates and growth in net
operating income in our real estate portfolio.
Our controlled investments, including those discussed above, are valued at
Affiliate and Non-Control Company Investments
We hold two affiliate investments atDecember 31, 2022 (Nixon, Inc. andRGIS Services, LLC , ("RGIS")) with a total fair value of$7,944 , a discount of$1,052 from their combined amortized cost. We held four affiliate investments atJune 30, 2022 (Nixon, Inc. , RGIS,Targus Cayman HoldCo Limited ("Targus"), andPGX Holdings, Inc. ("PGX")) with a total fair value of$393,264 , representing a$151,163 premium to its amortized cost. The decrease in premium is primarily driven by our equity sale of Targus and the restructuring of PGX, which drove a transfer of PGX's investment classification from affiliate to non-control/non-affiliate as ofDecember 31, 2022 . 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 122 -------------------------------------------------------------------------------- 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 ofDecember 31, 2022 , four of our non-control/ non-affiliate investments,United Sporting Companies, Inc. ("USC"),Engine Group, Inc. ("Engine"), Curo Group Holdings Corp. ("Curo"), and K&N ("K&N Parent, Inc. ) are valued at discounts to amortized cost of$81,169 ,$29,727 ,$25,003 , and$24,377 , respectively. As ofDecember 31, 2022 , our CLO investment portfolio is valued at a$297,555 discount to amortized cost. ExcludingUSC , Engine, Curo, K&N, and the CLO investment portfolio, the fair value of our non-control/non-affiliate investments atDecember 31, 2022 are valued at$8,725 above their amortized cost and did not experience significant changes in operating performance or value.
Our largest non-control/non-affiliate investment is PGX, which is valued at
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 ofDecember 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 inMarch 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 ofDecember 31, 2022 , our equity capital is comprised of common and preferred equity.
The following table shows our outstanding debt as of
Unamortized
Principal Discount & Debt Net Carrying
Outstanding Issuance Costs Value Fair Value Effective Interest Rate
Revolving Credit Facility $ 754,305 $ 14,895 $ 754,305 $ 754,305 1M SOFR + 2.05%
2025 Notes 156,168 2,024 154,144 156,543 6.63%
Convertible Notes 156,168 154,144 156,543
2023 Notes 282,115 174 281,941 282,391 6.07%
6.375% 2024 Notes 81,240 208 81,032 81,109 6.57%
2026 Notes 400,000 6,197 393,803 352,964 3.98%
3.364% 2026 Notes 300,000 5,384 294,616 250,581 3.60%
3.437% 2028 Notes 300,000 7,626 292,374 233,637 3.64%
Public Notes 1,363,355 1,343,766 1,200,682
Prospect Capital InterNotes® 350,045 6,931 343,114 295,587 5.74%
Total $ 2,623,873 $ 2,595,329 $ 2,407,117 The following table shows our outstanding debt as of
123
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Unamortized
Principal Discount & Debt Net Carrying
Outstanding Issuance Costs Value Fair Value Effective Interest Rate
Revolving Credit Facility $ 839,464 $ 10,801 $ 839,464 $ 839,464 1ML + 2.05 %
2022 Notes 60,501 18 60,483 60,753 5.63%
2025 Notes 156,168 2,459 153,709 158,094 6.63%
Convertible Notes 216,669 214,192 218,847
2023 Notes 284,219 600 283,619 286,101 6.07%
6.375% 2024 Notes 81,240 299 80,941 82,084 6.57%
2026 Notes 400,000 7,134 392,866 355,316 3.98%
3.364% 2026 Notes 300,000 6,026 293,974 254,931 3.60%
3.437% 2028 Notes 300,000 8,222 291,778 229,866 3.64%
Public Notes 1,365,459 1,343,178 1,208,298
0
Prospect Capital InterNotes® 347,564 7,122 340,442 285,822 5.71%
Total $ 2,769,156 $ 2,737,276 $ 2,552,431
The following table shows the contractual maturities of our Revolving Credit
Facility, Convertible Notes, Public Notes and Prospect Capital InterNotes® as of
December 31, 2022 :
Payments Due by Fiscal Year
Remainder of
Total 2023 2024 2025 2026 2027 After 5Years
Revolving Credit Facility
$ - $ - $ - $ 754,305
Convertible Notes 156,168 - - 156,168 - - -
Public Notes 1,363,355 282,115 81,240 - 400,000 300,000 300,000
Prospect Capital
InterNotes® 350,045 - 662 1,499 32,678 75,070 240,136
Total Contractual
Obligations $ 2,623,873 $ 282,115 $ 81,902 $ 157,667 $ 432,678 $ 375,070 $ 1,294,441
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.
124
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OnMay 15, 2007 , we formed our wholly owned subsidiary,Prospect 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. Since origination of the revolving credit facility, we have renegotiated the terms and extended the commitments of the revolving credit facility several times. Most recently, effectiveSeptember 15, 2022 , we completed an extension and upsizing of the revolving credit facility (the "2022 Facility" or the "Revolving Credit Facility"). The lenders have extended commitments of$1,701,500 as ofDecember 31, 2022 . The 2022 Facility includes an accordion feature which allows commitments to be increased up to$2,000,000 in the aggregate. The extension and upsizing of the Revolving Credit Facility extends the maturity date toSeptember 15, 2027 and the revolving period throughSeptember 15, 2026 , 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. As ofDecember 31, 2022 andJune 30, 2022 , we had$805,571 and$660,536 , respectively, available to us for borrowing under the Revolving Credit Facility, net of$754,305 and$839,464 outstanding borrowings as of the respective balance sheet dates. Refer to Note 4. Revolving Credit Facility within our consolidated financial statements for additional details.
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 .
As of
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 . As ofDecember 31, 2022 andJune 30, 2022 , the outstanding principal amount of the 2025 Notes were$156,168 and$156,168 , respectively. Refer to Note 5. Convertible Notes within our consolidated financial statements for additional details. 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 .
As of
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On October 1, 2018 , we issued $100,000 aggregate principal amount of unsecured
notes that mature on January 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 on
January 15 and July 15 of each year, beginning January 15, 2019 . Total proceeds
from the issuance of the 6.375% 2024 Notes, net of underwriting discounts and
offering costs, were $98,985 .
As of
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 of
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 of
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 of
The 2023 Notes, the 6.375% 2024 Notes, 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. Refer to Note 6. Public Notes within our consolidated financial statements for additional details.
Prospect Capital InterNotes®
OnFebruary 13, 2020 , we entered into a new selling agent agreement withInspereX LLC (formerly known as "Incapital 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 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 ofDecember 31, 2022 andJune 30, 2022 , the aggregate principal amount of Prospect Capital InterNotes® outstanding were$350,045 and$347,564 , respectively. Refer to Note 7.Prospect Capital InterNotes® within our consolidated financial statements for additional details.
Net Asset Value Applicable to Common Stockholders
During the six months endedDecember 31, 2022 , our net asset value applicable to common shares decreased by$152,732 or$0.54 per common share. The decrease was primarily attributable to a decrease in net realized and net change in unrealized losses of$226,132 , or$0.57 per basic weighted average common share. During the six months endedDecember 31, 2022 , net investment income of$205,970 , or$0.52 per basic weighted average common share, also exceeded distributions to common and preferred stockholders of$172,156 (including distributions classified as return of capital distributions to common 126 -------------------------------------------------------------------------------- stockholders), or$0.43 per basic weighted average common share, resulting in a net increase of$0.09 per basic weighted average common share. The increase was partially offset by$0.06 of dilution per common share related to common stock issuances through our dividend reinvestment program for the six months endedDecember 31, 2022 . The following table shows the calculation of net asset value per common share as ofDecember 31, 2022 andJune 30, 2022 :December 31, 2022
Net assets available to common stockholders
Shares of common stock issued and outstanding 398,852,478
393,164,437
Net asset value per common share $ 9.94$ 10.48 Results of Operations
Operating results for the three and six months ended
Three Months Ended December 31, Six Months Ended December 31,
2022 2021 2022 2021
Investment income $ 212,916 $ 175,376 $ 415,590 $ 344,850
Operating expenses 106,212 89,819 209,620 177,924
Net investment income 106,704 85,557 205,970 166,926
Net realized gains (losses) from investments 16,298 (9,227) (6,879) (9,828)
Net change in unrealized (losses) gains from
investments (50,673) 181,134 (219,173) 317,854
Net realized (losses) on extinguishment of debt (52) (3,851) (80) (9,208)
Net increase (decrease) in net assets resulting
from operations 72,277 253,613 (20,162) 465,744
Preferred stock dividend 16,654 7,202 29,414 9,609
Net Increase (Decrease) 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.
Investment Income
We generate revenue in the form of interest income on the debt securities that
we own, dividend income on any common or preferred stock that we own, and fees
generated from the structuring of new deals. Our investments, if in the form of
debt securities, will typically have a term of one to ten years and bear
interest at a fixed or floating rate. To the extent achievable, we will seek to
collateralize our investments by obtaining security interests in our portfolio
companies' assets. We also may acquire minority or majority equity interests in
our portfolio companies, which may pay cash or in-kind dividends on a recurring
or otherwise negotiated basis. In addition, we may generate revenue in other
forms including prepayment penalties and possibly consulting fees. Any such fees
generated in connection with our investments are recognized as earned.
Investment income consists of interest income, including accretion of loan
origination fees and prepayment penalty fees, dividend income and other income,
including settlement of net profits interests, overriding royalty interests and
structuring fees.
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The following table describes the various components of investment income and the related levels of debt investments:
Three Months Ended December 31, Six Months Ended December 31,
2022 2021 2022 2021
Interest income $ 190,876 $ 142,173 $ 365,194 $ 288,444
Dividend income 2,217 5,704 5,118 6,971
Other income 19,823 27,499 45,278 49,435
Total investment income $ 212,916 $ 175,376 $ 415,590 $ 344,850
Average debt principal of performing interest
bearing investments(1) $ 7,161,357 $ 6,014,947 $ 7,070,235 $ 5,896,373
Weighted average interest rate earned on
performing interest bearing investments(1) 10.43 % 9.25 % 10.11 % 9.57 %
Average debt principal of all interest
bearing investments(2) $ 7,493,214 $ 6,298,175 $ 7,390,275 $ 6,177,381
Weighted average interest rate earned on all
interest bearing investments(2) 9.97 % 8.83 % 9.67 % 9.14 %
(1) Excludes equity investments and non-accrual loans. (2) Excludes equity investments.
The average interest earned on interest bearing performing assets increased from 9.25% for the three months endedDecember 31, 2021 to 10.43% for the three months endedDecember 31, 2022 . The average interest earned on all interest bearing assets increased from 8.83% for the three months endedDecember 31, 2021 to 9.97% for the three months endedDecember 31, 2022 . The weighted average interest rate earned on our portfolio increased by 1.18% due to a increase in the weighted average interest rate earned on our portfolio primarily due to LIBOR/SOFR rates rising above our floors amongst our interest-bearing investments, for which interest income increased from$117,709 to$163,418 , for the three months endedDecember 31, 2021 and 2022, respectively. This was partially offset by a decline in early repayments, which caused an increase in accelerated income and prepayment premium income in the prior year, resulting in a decline in interest income from$6,208 to$1,410 , for the three months endedDecember 31, 2021 and 2022, respectively. The weighted average interest rate also increased by 0.23% for our structured credit investments which was due to an increase in income from$18,256 to$26,047 , for the three months endedDecember 31, 2021 and 2022, respectively which was caused by a decrease in the reinvestment price. The average interest earned on interest bearing performing assets increased from 9.57% for the six months endedDecember 31, 2021 to 10.11% for the six months endedDecember 31, 2022 . The average interest earned on all interest bearing assets increased from 9.14% for the six months endedDecember 31, 2021 to 9.67% for the six months endedDecember 31, 2022 . The weighted average interest rate earned on our portfolio increased by 0.54% due to a increase in the weighted average interest rate earned on our portfolio primarily due to LIBOR/SOFR rates rising above our floors amongst our interest-bearing investments, for which interest income increased from$231,102 to$312,804 , for the six months endedDecember 31, 2021 and 2022, respectively. This was partially offset by a decline in early repayments, which caused an increase in accelerated income and prepayment premium income in the prior year, resulting in a decline in interest income from$16,253 to$3,447 , for the six months endedDecember 31, 2021 and 2022, respectively. 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 six months endedDecember 31, 2022 andDecember 31, 2021 , respectively: Three Months Ended December 31, Six Months Ended December 31, 2022 2021 2022 2021 Dividend income NMMB, Inc. $ 617$ 3,046 $ 1,710$ 3,046 Valley Electric Company, Inc. 503 1,700 547 1,700 RGIS Services, LLC - - 1,374 - Nationwide Loan Company LLC - 500 - 1,750 R-V Industries, Inc. - 441 - 441 Other, net 1,097 17 1,487 34 Total dividend income $ 2,217$ 5,704 $ 5,118$ 6,971 128
-------------------------------------------------------------------------------- Other income is comprised of structuring 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 six months endedDecember 31, 2022 andDecember 31, 2021 , respectively: Three Months Ended December 31, Six Months Ended December 31, 2022 2021 2022 2021 Structuring and amendment fees NH Kronos Buyer, Inc. $ 2,063 $ - $ 2,063 $ - Faraday Buyer, LLC 2,012 - 2,012 WatchGuard Technologies, Inc. - - 2,275 $ - Burgess Point Purchaser Corporation - - 1,200 - USG Intermediate, LLC - - 600 - First Tower Finance Company LLC - - - 7,234 PGX Holdings, Inc. - - - 3,779 OneTouchPoint Corp. - - - - Magnate Worldwide, LLC - 2,850 - 2,850 PeopleConnect Intermediate, LLC - 2,495 - 2,495 Broder - 2,239 - 2,239 DRI Holding Inc. - 2,238 - 2,238 BCPE Osprey Buyer, Inc. - 1,812 - 1,812 BCPE North Star US Holdco 2, Inc. - 1,463 - 1,463 National Property REIT Corp. - 1,222 - 1,222 Victor Technology, LLC - 600 - 600 Medical Solutions Holdings, Inc. - 530 - 530 Other, net 1,028 1,404 1,580 2,352
Total structuring and amendment fees $ 5,103
$ 9,730 $ 28,814
Royalty and net revenue interests
National Property REIT Corp. $ 14,269 $ 10,315 $ 34,934 $ 19,940
Other, net 340 172 353 354
Total royalty and net revenue interests $ 14,609
$ 35,287 $ 20,294 Administrative agent fees Other, net $ 111$ 159 $ 261$ 327 Total administrative agent fees $ 111$ 159 $ 261$ 327 Total other income $ 19,823$ 27,499 $ 45,278 $ 49,435 Other income for the three months endedDecember 31, 2022 decreased by$7,676 compared to the three months endedDecember 31, 2021 primarily due to an$11,750 decrease in structuring fees offset by an increase of$3,954 in net revenue interests from NPRC as a result of real estate asset sales. Other income for the six months endedDecember 31, 2022 decreased by$4,157 compared to the six months endedDecember 31, 2021 primarily due to a$19,084 decrease in structuring fees offset by an increase of$14,994 in net revenue interests from NPRC as a result of real estate asset sales. Income recognized from dividend income, prepayment premium from early repayments, structuring fees and amendment fees related to specific loan positions is considered to be non-recurring income. For the three months endedDecember 31, 2022 andDecember 31, 2021 , we recognized$7,419 and$24,992 of non-recurring income, respectively. The$17,573 decrease in non-recurring income during three months endedDecember 31, 2022 is primarily due to the$11,750 decrease in structuring and amendment fees discussed above. In addition to a decrease of$3,487 in dividend income and a decrease of$2,336 in prepayment premium income. Income recognized from dividend income, prepayment premium from early repayments, structuring fees and amendment fees related to specific loan positions is considered to be non-recurring income. For the six months endedDecember 31, 2022 andDecember 31, 2021 , we recognized$15,418 and$41,299 of non-recurring income, respectively. The$25,881 decrease in non-recurring income during six months endedDecember 31, 2022 is primarily due to the$19,084 decrease in structuring and amendment fees discussed above. In addition to a decrease of$4,944 in prepayment premium income and a decrease of$1,853 in dividend income 129 --------------------------------------------------------------------------------
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 withProspect Administration under whichProspect Administration provides administrative services and facilities for us. Our investment advisory fees compensate the Investment Adviser for its work in identifying, evaluating, negotiating, closing and monitoring our investments. We bear all other costs and expenses of our operations and transactions. The following table describes the various components of our operating expenses: Three Months Ended December 31, Six Months Ended December 31, 2022 2021 2022 2021 Base management fee $ 38,882$ 33,843 $ 77,196 $ 66,046 Income incentive fee 22,505 19,589 44,131 39,329 Interest and credit facility expenses 37,783 29,679 71,653 57,717 Allocation of overhead from Prospect Administration 3,618 2,239 6,717 6,765 Audit, compliance and tax related fees 236 329 2,537 946 Directors' fees 131 113 262 229 Other general and administrative expenses 3,057 4,027 7,124 6,892 Total operating expenses $ 106,212 $
89,819
Total gross and net base management fee was$38,882 and$33,843 for the three months endedDecember 31, 2022 andDecember 31, 2021 , respectively. The increase in total gross base management fee is directly related to an increase in average total assets. Total gross base management fee was$77,196 and$66,046 for the six months endedDecember 31, 2022 andDecember 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 endedDecember 31, 2022 andDecember 31, 2021 , we incurred$22,505 and 19,589 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$97,944 for the three months endedDecember 31, 2021 to$112,555 for the three months endedDecember 31, 2022 . No capital gains incentive fee has yet been incurred pursuant to the Investment Advisory Agreement. For the six months endedDecember 31, 2022 andDecember 31, 2021 , we incurred$44,131 and$39,329 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$196,646 for the six months endedDecember 31, 2021 to$220,687 for the six months endedDecember 31, 2022 . No capital gains incentive fee has yet been incurred pursuant to the Investment Advisory Agreement. During the three months endedDecember 31, 2022 andDecember 31, 2021 , we incurred$37,783 and$29,679 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 six months endedDecember 31, 2022 andDecember 31, 2021 , we incurred$71,653 and$57,717 , 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:
130
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Three Months Ended December 31, Six Months Ended December 31,
2022 2021 2022 2021
Interest on borrowings $ 34,255 $ 25,292 $ 65,066 $ 49,537
Amortization of deferred financing costs 1,790 2,190 3,482 4,105
Accretion of discount on unsecured debt 772 746 1,539 1,319
Facility commitment fees 966 1,451 1,566 2,756
Total interest and credit facility expenses
$ 57,717 Average principal debt outstanding$ 2,840,667 $ 2,477,511 $ 2,843,085 $ 2,378,136 Annualized weighted average stated interest rate on borrowings(1) 4.82 % 4.08 % 4.58 % 4.17 % Annualized weighted average interest rate on borrowings(2) 5.32 % 4.79 % 5.04 % 4.85 %
(1)Includes only the stated interest expense.
(2)Includes the stated interest expense, amortization of deferred financing costs, accretion of discount on Public Notes and commitment fees on the undrawn portion of our Revolving Credit Facility.
Interest expense increased from$25,292 for the three months endedDecember 31, 2021 to$34,255 for the three months endedDecember 31, 2022 . The weighted average stated interest rate on borrowings (excluding amortization, accretion and undrawn facility fees) increased from 4.08% for the three months endedDecember 31, 2021 to 4.82% for the three months endedDecember 31, 2022 . The weighted average interest rate on borrowings increased from 4.79% for the three months endedDecember 31, 2021 to 5.32% for the three months endedDecember 31, 2022 . Both increases are primarily due to an increase of interest expense from increased LIBOR rates for our Revolving Credit Facility offset by a decrease of interest expense from redemptions of our Prospect Capital InterNotes® and issuances of these notes at lower rates, as well as repurchases of our Convertible Notes andJune 2029 Baby Bond. Interest expense increased from$49,537 for the six months endedDecember 31, 2021 to$65,066 for the six months endedDecember 31, 2022 . The weighted average stated interest rate on borrowings (excluding amortization, accretion and undrawn facility fees) increased from 4.17% for the six months endedDecember 31, 2021 to 4.58% for the six months endedDecember 31, 2022 . The weighted average interest rate on borrowings increased from 4.85% for the three months endedDecember 31, 2021 to 5.04% for the three months endedDecember 31, 2022 . Both increases are primarily due to an increase of interest expense from increased LIBOR rates for our Revolving Credit Facility offset by a decrease of interest expense from redemptions of our Prospect Capital InterNotes® and issuances of these notes at lower rates, as well as repurchases of our Convertible Notes andJune 2029 Baby Bond. The allocation of net overhead expense fromProspect Administration was$3,618 and$2,239 for the three months endedDecember 31, 2022 andDecember 31, 2021 , respectively. The allocation of net overhead expense fromProspect Administration was$6,717 and$6,765 for the six months endedDecember 31, 2022 andDecember 31, 2021 , respectively.Prospect Administration received estimated payments of$271 and$4,315 directly from our portfolio companies, and certain funds managed by the Investment Adviser for legal services during the six months endedDecember 31, 2022 andDecember 31, 2021 , respectively. In addition, we were given a credit in the amount of$1,212 for legal expenses incurred on behalf of our portfolio companies that were remitted toProspect Administration during the six months endedDecember 31, 2022 . 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. 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$3,424 and$4,469 for the three months endedDecember 31, 2022 andDecember 31, 2021 , respectively. The decrease was primarily attributable to a decrease in other general and administrative expenses offset by an increase in legal fees. 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$9,923 and$8,067 for the six months endedDecember 31, 2022 andDecember 31, 2021 , respectively. The increase was primarily attributable to an increase in audit, compliance and tax related fees. 131 --------------------------------------------------------------------------------
Net Realized Gains (Losses)
The following table details net realized gains (losses) from investments for the
three months ended
Three Months Ended December 31 ,
Portfolio Company 2022 2021
Targus Group International, Inc. 16,143 - NMMB Inc. (618) - Sudbury Mill CLO, Ltd. 759 (9,406) Other, net 14 179 Net realized (losses) gains $ 16,298$ (9,227) Six Months Ended December 31, Portfolio Company 2022 2021 Venio LLC$ (14,472) $ - Dunn Paper, Inc. (8,791) - NMMB Inc. (1,711) - Targus Group International, Inc. 16,143 - Sudbury Mill CLO, Ltd. 1,065 (9,406) Voya CLO 2012-2, Ltd. 433 - Voya CLO 2012-3, Ltd. 440 - Other, net 14 (422) Net realized (losses) $ (6,879)$ (9,828)
Net Realized Loss from Extinguishment of Debt
During the three months endedDecember 31, 2022 andDecember 31, 2021 , we recorded a net realized loss from the extinguishment of debt of$52 and$3,851 , respectively. During the six months endedDecember 31, 2022 andDecember 31, 2021 , we recorded a net realized loss from the extinguishment of debt of$80 and$9,208 , respectively. Refer to Capitalization for additional discussion.
Change in Unrealized Gains (Losses)
The following table details net change in unrealized (losses) gains for our portfolio for the six months endedDecember 31, 2022 andDecember 31, 2021 , respectively: Three Months Ended December 31, Six Months Ended December 31, 2022 2021 2022 2021 Control investments$ (21,458) $ 134,066 $ (68,747) $ 256,396 Affiliate investments (18,248) 31,589 (89,034) 37,626 Non-control/non-affiliate investments (10,967) 15,479 (61,392) 23,832 Net change in unrealized gains (losses)$ (50,673)
132
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The following table reflects net change in unrealized gains (losses) on
investments for the three months ended
Net Change in Unrealized Gains
(Losses)
Town & Country Holdings, Inc. $ 44,268
United Sporting Companies, Inc. 16,485
InterDent, Inc. 13,374
First Tower Finance Company LLC 12,901
CP Energy Services Inc. 6,665
(6,434)
Echelon Transportation, LLC (6,458)
Securus Technologies Holdings, Inc. (6,496)
Rising Tide Holdings, Inc. (8,494)
NMMB, Inc. (12,629)
K&N Parent, Inc. (12,734)
Targus Cayman HoldCo Limited (16,964)
Other, net (34,125)
National Property REIT Corp. (40,032)
Net change in unrealized losses $ (50,673)
The following table reflects net change in unrealized gains (losses) on
investments for the three months ended
Net Change in Unrealized Gains (Losses)
National Property REIT Corp. $ 124,718
PGX Holdings, Inc. 26,723
Subordinated Structured Notes 17,661
NMMB, Inc. 15,027
First Tower Finance Company LLC 11,247
Other, net 5,303
InterDent, Inc. (7,640)
Pacific World Corporation (11,905)
Net change in unrealized gains $ 181,134
The following table reflects net change in unrealized gains (losses) on
investments for the six months ended
133
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Net Change in Unrealized Gains
(Losses)
Town & Country Holdings, Inc. $ 39,785
United Sporting Companies, Inc. 16,454
InterDent, Inc. 9,733
The RK Logistics Group, Inc. 7,379
Universal Turbine Parts, LLC 7,093
Dunn Paper, Inc. 6,493
Securus Technologies Holdings, Inc. (7,464)
Precisely Software Incorporated (f/k/a Vision Solutions,
Inc.) (7,871)
NMMB, Inc. (7,878)
Curo Group Holdings Corp. (8,524)
Redstone Holdco 2 LP (9,917)
Rising Tide Holdings, Inc. (10,373)
(10,431)
Credit Central Loan Company, LLC (10,799)
Subordinated Structured Notes (11,281)
Echelon Transportation, LLC (11,790)
K&N Parent, Inc. (23,017)
Targus Cayman HoldCo Limited (33,202)
Other, net (48,298)
National Property REIT Corp. (48,571)
PGX Holdings, Inc. (56,694)
Net change in unrealized losses $ (219,173)
The following table reflects net change in unrealized gains (losses) on
investments for the six months ended
Net Change in Unrealized Gains (Losses)
National Property REIT Corp. $
198,569
NMMB, Inc.
31,903
Subordinated Structured Notes
27,745
PGX Holdings, Inc.
26,825
First Tower Finance Company LLC 26,650InterDent, Inc. 19,292Targus Cayman HoldCo Limited 9,305Credit Central Loan Company, LLC 7,661 Other, net 2,266USES Corp. (8,108)Echelon Transportation, LLC
(9,339)
Pacific World Corporation
(14,915)
Net change in unrealized gains $
317,854
Financial Condition, Liquidity and Capital Resources
For the six months endedDecember 31, 2022 andDecember 31, 2021 , our operating activities used$197,422 and$301,585 of cash, respectively. The$104,163 decrease is primarily driven by a$677,705 decrease in originations offset by a$537,916 increase in repayments for the six months endedDecember 31, 2022 compared to the six months endedDecember 31, 2021 . There were no investing activities for the six months endedDecember 31, 2022 andDecember 31, 2021 . Financing activities provided$232,144 and$283,001 of cash during the six months endedDecember 31, 2022 andDecember 31, 2021 , respectively, which included dividend payments of$140,516 and$131,356 , respectively. The$50,857 decrease in cash provided by our financing activities is primarily driven by a$266,386 decrease in net debt repayments, offset by a$227,585 134 --------------------------------------------------------------------------------
increase in issuance of preferred stock, for the six months ended
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 six months endedDecember 31, 2022 , we borrowed 628,400 and we made repayments totaling 713,559 under the Revolving Credit Facility. As ofDecember 31, 2022 , our outstanding balance on the Revolving Credit Facility was$754,305 . As ofDecember 31, 2022 , we had, net of unamortized discount and debt issuance costs,$154,144 outstanding on the Convertible Notes,$1,343,766 outstanding on the Public Notes and$343,114 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 ofDecember 31, 2022 andJune 30, 2022 , we had$85,075 and$43,934 , 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 ofDecember 31, 2022 andJune 30, 2022 . 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 tradable 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"), as amended onJune 9, 2022 andOctober 7, 2022 , pursuant to which PCS has agreed to serve as the Company's agent, principal distributor and dealer manager for the Company's offering of up to 60,000,000 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"), the 5.50% Series M2 Preferred Stock ("Series M2 Preferred Stock"), the 6.50% Series A3 Preferred Stock ("Series A3 Preferred Stock"), and the 6.50% Series M3 Preferred Stock ("Series M3 Preferred Stock"). In connection with such offering, onAugust 3, 2020 ,June 9, 2022 and Octoebr 11, 2022, we filed Articles Supplementary with theState Department of Assessments and Taxation of Maryland ("SDAT"), reclassifying and designating 120,000,000, 60,000,000 and 120,000,000 shares, respectively, of the Company's authorized and unissued shares of common stock into shares of preferred stock as "Convertible Preferred Stock." OnOctober 30, 2020 , and as amended onFebruary 18, 2022 andOctober 7, 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"), the 5.50% Series MM1 Preferred Stock (the "Series MM1 Preferred Stock"), the 6.50% Series AA2 Preferred Stock (the "Series AA2 Preferred Stock"), and the 6.50% Series MM2 Preferred Stock (the "Series MM2 Preferred Stock" and together with the Series M1 Preferred Stock, the Series M2 Preferred Stock, and the Series M3 Preferred Stock, the "Series M Preferred Stock" and the Series MM2 Preferred Stock, together with the Series AA2 Preferred Stock, the Series A3 Preferred Stock and the Series M3 Preferred Stock, the "6.50% Preferred Stock"). In connection with such offering, onOctober 30, 2020 ,February 17, 2022 andOctober 11, 2022 , we filed Articles Supplementary with the SDAT, reclassifying and designating an additional 80,000,000 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. 135 -------------------------------------------------------------------------------- In connection with the offerings of the 5.50% Preferred Stock and the 6.50% 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 and the 6.50% Preferred Stock will have dividends on their 5.50% Preferred Stock and 6.50% Preferred Stock automatically reinvested in additional shares of such 5.50% Preferred Stock and 6.50% Preferred Stock, at a price per share of$25.00 , if they elect. Each series of 5.50% Preferred Stock and 6.50% 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 and 6.50% 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 and the 6.50% 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 A3 Preferred Stock, the Series AA1 Preferred Stock, the Series AA2 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 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 or 6.50% 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 or 6.50% 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 or 6.50% 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 or 6.50% 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 or 6.50% 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 or 6.50% Preferred Stock may be converted at our option (the "Issuer Optional Conversion"). We will settle any Issuer Optional Conversion by paying or delivering, as the case may be, (A) any portion of the IOC Settlement Amount (as defined below) that we elect to pay in cash and (B) a number of shares of our common stock at a conversion rate equal to (1) (a) the IOC Settlement Amount, minus (b) any portion of 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 and 6.50% 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 136 -------------------------------------------------------------------------------- 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 or 6.50% 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 the Series A Preferred Stock were issued pursuant to the option. In connection with such offering, onJuly 15, 2021 , we filed Articles Supplementary with SDAT, reclassifying and designating 6,900,000 shares of the Company's authorized and unissued shares of Common Stock into shares of Series A Preferred Stock. The Series A Preferred Stock ranks (with respect to the payment of dividends and rights upon liquidation, dissolution or winding up) (a) senior to our common stock, (b) on parity with each other series of our preferred stock, and (c) junior to our existing and future secured and unsecured indebtedness. See Note 8, Fair Value and Maturity of Debt Outstanding for further discussion on our senior securities. Subject to certain limited exceptions allowing earlier redemption, at any time after the close of business onJuly 19, 2026 (any such date, an "Optional Redemption Date"), at our sole option, we may redeem the Series A Preferred Stock in whole or, from time to time, in part, out of funds legally available for such redemption, at a price per share equal to the liquidation preference of$25.00 per share, plus an amount equal to all unpaid dividends on such shares (whether or not earned or declared, but excluding interest thereon) accumulated up to, but excluding, the date fixed for redemption. We may also redeem the Series A Preferred Stock at any time, in whole or, from time to time, in part, including prior to the Optional Redemption Date, pro rata, based on liquidation preference, with all other series of our then outstanding preferred stock, in the event that our Board determines to redeem any series of our preferred stock, in whole or, from time to time, in part, because such redemption is deemed necessary by the Board to comply with the asset coverage requirements of the 1940 Act or for us to maintain RIC status. In the event of a Change of Control Triggering Event (as defined below), we may, at our option, exercise our special optional redemption right to redeem the Series A Preferred Stock, in whole or in part, within 120 days after the first date on which such Change of Control Triggering Event has occurred by paying the liquidation preference, plus an amount equal to all unpaid dividends on such shares (whether or not earned or declared, but excluding interest thereon) accumulated up to, but excluding, the date fixed for such redemption. To the extent that we exercise our optional redemption right or our special optional redemption right relating to the Series A Preferred Stock, the holders of Series A Preferred Stock will not be permitted to exercise the conversion right described below in respect of their shares called for redemption. Except to the extent that we have elected to exercise our optional redemption right or our special optional redemption right by providing notice of redemption prior to the Change of Control Conversion Date (as defined below), upon the occurrence of a Change of Control Triggering Event, each holder of Series A Preferred Stock will have the right to convert some or all of the Series A Preferred Stock held by such holder on the Change of Control Conversion Date into a number of our shares of common stock per Series A Preferred Stock to be converted equal to the lesser of: •the quotient obtained by dividing (i) the sum of the Liquidation Preference per share plus an amount equal to all unpaid dividends thereon (whether or not earned or declared, but excluding interest thereon) accumulated up to, but excluding, the Change of Control Conversion Date (unless the Change of Control Conversion Date is after a Record Date for a Series A Preferred Stock dividend payment and prior to the corresponding Series A Preferred Stock dividend payment date, in which case no additional amount for such accrued and unpaid dividends will be included in this sum) by (ii) the Common Stock Price (as defined below); and
•6.03865, subject to certain adjustments,
subject, in each case, to provisions for the receipt of alternative consideration upon conversion as described in the applicable prospectus supplement.
If we have provided or provide a redemption notice with respect to some or all
of the Series A Preferred Stock, holders of any Series A Preferred Stock that we
have called for redemption will not be permitted to exercise their Change of
Control Conversion Right in respect of any of their Series A Preferred Stock
that have been called for redemption, and any Series A Preferred Stock
subsequently called for redemption that have been tendered for conversion will
be redeemed on the applicable date of redemption instead of converted on the
Change of Control Conversion Date.
137
--------------------------------------------------------------------------------For purposes of the foregoing discussion of a redemption upon the occurrence of a Change of Control Triggering Event, the following definitions are applicable:
"Change of Control Triggering Event" means the occurrence of any of the following:
•the direct or indirect sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation and other than an Excluded Transaction) in one or a series of related transactions, of all or substantially all of the assets of the Company and its Controlled Subsidiaries taken as a whole to any "person" or "group" (as those terms are used in Section 13(d)(3) of the Exchange Act) (other than to any Permitted Holders); provided that, for the avoidance of doubt, a pledge of assets pursuant to any of our secured debt instruments or the secured debt instruments of our Controlled Subsidiaries shall not be deemed to be any such sale, lease, transfer, conveyance or disposition; or •the consummation of any transaction (including, without limitation, any merger or consolidation and other than an Excluded Transaction) the result of which is that any "person" or "group" (as those terms are used in Section 13(d)(3) of the Exchange Act) (other than any Permitted Holders) becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly or indirectly, of more than 50% of our outstanding Voting Stock, measured by voting power rather than number of shares. Notwithstanding the foregoing, the consummation of any of the transactions referred to in the bullet points above will not be deemed a Change of Control Triggering Event if we or the acquiring or surviving consolidated entity has or continues to have a class of common securities (or ADRs representing such securities) listed on the NYSE, the NYSE American or NASDAQ, or listed or quoted on an exchange or quotation system that is a successor to the NYSE, the NYSE American or NASDAQ, or is otherwise listed or quoted on a national securities exchange. The "Change of Control Conversion Date" is the date the shares of Series A Preferred Stock are to be converted, which will be a business day selected by us that is no fewer than 20 days nor more than 35 days after the date on which we provide the notice described above to the holders of Series A Preferred Stock. The "Common Stock Price" will be (i) if the consideration to be received in the Change of Control Triggering Event by the holders of our common stock is solely cash, the amount of cash consideration per share of our common stock or (ii) if the consideration to be received in the Change of Control Triggering Event by holders of our common stock is other than solely cash (x) the average of the closing sale prices per share of our common stock (or, if no closing sale price is reported, the average of the closing bid and ask prices or, if more than one in either case, the average of the average closing bid and the average closing ask prices) for the ten consecutive trading days immediately preceding, but not including, the effective date of the Change of Control Triggering Event as reported on the principalU.S. securities exchange on which our common stock is then traded, or (y) the average of the last quoted bid prices for our common stock in the over-the-counter market as reported by OTC Markets Group Inc. or similar organization for the ten consecutive trading days immediately preceding, but not including, the effective date of the Change of Control Triggering Event, if our common stock is not then listed for trading on aU.S. securities exchange. "Controlled Subsidiary" means any of our subsidiaries, 50% or more of the outstanding equity interests of which are owned by us and our direct or indirect subsidiaries and of which we possess, directly or indirectly, the power to direct or cause the direction of the management or policies, whether through the ownership of voting equity interests, by agreement or otherwise. "Excluded Transaction" means (i) any transaction that does not result in any reclassification, conversion, exchange or cancellation of all or substantially all of the outstanding shares of our Voting Stock; (ii) any changes resulting from a subdivision or combination or a change solely in par value; (iii) any transaction where the shares of our Voting Stock outstanding immediately prior to such transaction constitute, or are converted into or exchanged for, a majority of the Voting Stock of the surviving "person" (as that term is used in Section 13(d)(3) of the Exchange Act) or any direct or indirect parent company of the surviving "person" (as that term is used in Section 13(d)(3) of the Exchange Act) immediately after giving effect to such transaction; (iv) any transaction if (A) we become a direct or indirect wholly-owned subsidiary of a holding company and (B)(1) the direct or indirect holders of the Voting Stock of such holding company immediately following that transaction are substantially the same as the holders of our Voting Stock immediately prior to that transaction or (2) immediately following that transaction no "person" (as that term is used in Section 13(d)(3) of the Exchange Act) is the beneficial owner, directly or indirectly, of more than 50% of the Voting Stock of such holding company; or (v) any transaction primarily for the purpose of changing our jurisdiction of incorporation or form of organization. "Permitted Holders" means (i) us, (ii) one or more of our Controlled Subsidiaries and (iii)Prospect Capital Management or any affiliate ofProspect Capital Management that is organized under the laws of a jurisdiction located inthe United States of America and in the business of managing or advising clients. "Voting Stocks" 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. 138 --------------------------------------------------------------------------------
Except as provided above in connection with a Change of Control Triggering Event, the Series A Preferred Stock is not convertible into or exchangeable for any other securities or property.
For so long as the Series A Preferred Stock is outstanding, we will not exercise any option we have to convert any other series of our outstanding preferred stock to common stock, including the Issuer Optional Conversion, or any other security ranking junior to such preferred stock. As a result, and in accordance with ASC 480, we have presented both our 5.50% Preferred Stock and Series A Preferred Stock within temporary equity on our Consolidated Statement of Assets and Liabilities as ofSeptember 30, 2022 . We determined the estimated value as ofDecember 31, 2022 of our 5.50% Preferred Stock and 6.50% 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 endedDecember 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 and 6.50% Preferred Stock, the estimated value of our 5.50% Preferred Stock and 6.50% Preferred Stock as ofDecember 31, 2022 is$25.00 per share. Common Stock Our common stockholders' equity accounts as ofDecember 31, 2022 andJune 30, 2022 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% and 6.50% Preferred Stock Holder Optional Conversion and Optional Redemption Following Death of a Holder. 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 six months endedDecember 31, 2022 orDecember 31, 2021 . As ofDecember 31, 2022 , the approximate dollar value of shares that may yet be purchased under the Repurchase Program is$65,860 . OnJune 10, 2022 , at a special meeting of 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).
Recent Developments
OnFebruary 8, 2023 , 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$25.00 per share as set forth in the Articles Supplementary for the Preferred Stock, from the date of issuance or, if later from the most recent dividend payment date (the first business day of the month, with no additional dividend accruing in January as a result), as follows:
Monthly Amount ($ per share),
Monthly Cash 5.50% Preferred Shareholder
before pro ration for partial
Distribution Record Date Payment Date periods
March 2023 3/22/2023 4/3/2023 $0.114583
April 2023 4/19/2023 5/1/2023 $0.114583
May 2023 5/17/2023 6/1/2023 $0.114583
139-------------------------------------------------------------------------------- OnFebruary 8, 2023 , we announced the declaration of monthly dividends for our 6.50% Preferred Stock for holders of record on the following dates based on an annual rate equal to 6.50% of the Stated Value of$25.00 per share as set forth in the Articles Supplementary for the Preferred Stock, from the date of issuance or, if later from the most recent dividend payment date (the first business day of the month, with no additional dividend accruing in January as a result), as follows:
Monthly Amount ($ per share),
Monthly Cash 6.50% Preferred Shareholder
before pro ration for partial
Distribution Record Date Payment Date periods
March 2023 3/22/2023 4/3/2023 $0.135417
April 2023 4/19/2023 5/1/2023 $0.135417
May 2023 5/17/2023 6/1/2023 $0.135417
On February 8, 2023 , 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)
February 2023 - April 2023 4/19/2023 5/1/2023 $0.334375 On
Monthly Cash Common Shareholder
Distribution Record Date Payment Date Amount ($ per share)
February 2023 2/24/2023 3/22/2023 $0.0600
March 2023 3/29/2023 4/19/2023 $0.0600
April 2023 4/26/2023 5/18/2023 $0.0600 Critical Accounting 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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