Prospect Capital Is Building a Portfolio Based on Yield and Risk

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Robert Karr

Tue, Nov 24, 2015, 7:32 PM

Higher Yields Benefited Prospect Capital's Stock in Fiscal 1Q16

Portfolio strengthening

Prospect Capital (PSEC) made portfolio investments of $438 million in fiscal 1Q16 (September end 2015), down from $460 million in fiscal 4Q15. These were deployed in six new and several follow-on investments.

The company closed over $2 billion in investments in 2015. It believes there’s a better chance for risk-adjusted reward in agented and self-originated opportunities, as opposed to the syndicated loan market. As a result, it’s directing its resources accordingly.

In fiscal 1Q15, the company invested a total of $438 million. Here’s how its investments break down:

third-party sponsored deals: 39%
syndicated debt: 25%
online lending: 28%
structured credit: 6%
non-sponsored direct lending: 1%
real estate: 1%

Prospect Capital’s exits in the form of sales, repayments, and scheduled amortization payments stood at $528.8 million in the September quarter. The company’s net investment exits totaled $91.2 million.

As of September 30, 2015, Prospect Capital’s control investments at fair value formed 31.3% of its total portfolio as compared to 29.9% in the previous quarter.

Origination through innovation

Prospect Capital deploys multiple strategies for origination, including non-controlled agented and syndicated lending in private equity sponsored and non-sponsored transactions, control investments in operating and financial companies, structured credit investments, real estate investments, and online lending.

The company launched a call center initiative in 2013 to attract new clients. The initiative has helped the company to expand its portfolio and clientele. The company expects the center to continue contributing to an expansion of its credit portfolio. The majority of its portfolio investments consist of agented middle-market loans.

Prospect Capital continues to look for better opportunities in non-controlled investments. The company is leveraging its capability to provide multiple financing options through its large-scale balance sheet.

Here’s the year-over-year revenue growth of Prospect’s peer companies in investment management: