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Prospect Capital Reports Strong 4Q15 Operating Performance

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Part 3
Prospect Capital Reports Strong 4Q15 Operating Performance PART 3 OF 7

Prospect Capital Alters Its Portfolio for Better Returns

Building their portfolio

Prospect Capital (PSEC) made portfolio investments of $460 million in 4Q15, up from $219 million in 3Q15. The company closed investments over $2 billion in 2015. The company 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.

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In 4Q15, the company invested a total of $460 million. Here’s how its investments break down:

  • third-party sponsor deals: 29%
  • syndicated debt: 22%
  • online lending: 19%
  • structured credit: 18%
  • nonsponsor direct lending: 10%
  • real estate: 1%
  • operating buyouts: 1%

Prospect Capital’s exits in the form of sales, repayments, and scheduled amortization payments stood at $437.7 million in the June quarter. The company made investments net of exits totaling $22.2 million. As of June 30, 2015, Prospect Capital’s control investments at fair value formed 29.9% of their total portfolio as compared to 27.7% in the previous quarter.

Origination through innovation

Prospect Capital 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 their credit portfolio. The majority of the company’s portfolio investments consist of agented middle-market loans.

Prospect Capital continues to look for better opportunities in non-controlled investments. In June 2015, the company made three investments in non-controlled, third-party-sponsored companies. 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 peer companies in investment management:

  • Ares Capital Corporation (ARCC): 12%
  • BlackRock (BKCC): 2%
  • Blackstone (BX): 12%
  • KKR & Co. (KKR): 8%

Together, these companies form 1.36% of the Financial Select Sector SPDR Fund (XLF).

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