Prospect Capital's Originations Rise, Interest Rates Key for 2017

1 2 3 4 5 6 7
Part 4
Prospect Capital's Originations Rise, Interest Rates Key for 2017 PART 4 OF 7

Prospect Capital Focusing on Structured, Controlled Investments

Taking equity

Prospect Capital (PSEC) has deployed money for equity investments and a majority stake when there’s an opportunity to invest in growing businesses. In fiscal 1Q17, the company’s controlled investments rose to 30.6% of its total portfolio compared to 29.7% in the previous quarter.

The company targets selective monetization of holdings when it has found attractive pricing and invests proceeds into controlled investments and non-controlled investments, including first-lien and structured notes.

Prospect Capital Focusing on Structured, Controlled Investments

Interested in PSEC? Don't miss the next report.

Receive e-mail alerts for new research on PSEC

Success! You are now receiving e-mail alerts for new research. A temporary password for your new Market Realist account has been sent to your e-mail address.

Success! has been added to your Ticker Alerts.

Success! has been added to your Ticker Alerts. Subscriptions can be managed in your user profile.

Prospect Capital continues to invest and generate loans through online lending. In the September quarter, the company saw 20.0% of its total originations through an online platform. Prospect’s total business through its online platform currently stands at $577.0 million across securitization interests, loans, and underwriting platforms.

The company’s online business currently delivers an expected leveraged yield of 14.0% in fiscal 1Q17, which is lower than 15.0% in the previous quarter. Below are the rises in EPS (earnings per share) for its investment management competitors:

  • American Capital (ACAS): 157.0%
  • United Rentals (URI): 33.8%
  • CIT Group (CIT): 78.0%

Together, these companies make up 13.5% of the ProShares Global Listed Private Equity (PEX).

Structured credit

Prospect Capital has investments in 40 structured credit investments as of September 30, 2016. These investments carried a fair value of just more than $1.0 billion with a downside capped at the net investment amount. The structured credit portfolio consisted of more than 2,900 loans, with total assets of more than $19.6 billion. The portfolio had a default rate of ~1.4% over the past year, lower by 56 basis points than the broadly syndicated market rate of ~2.0%.

In the September quarter, Prospect’s structured credit portfolio generated an annualized cash yield of 26.1%. The portfolio has generated cumulative cash distributions of $758.9 million, forming approximately 58.1% of the original investment. Prospect has exited seven structured credit investments for a total of $153.6 million, with an average internal rate of return of 16.8% and a cash-on-cash multiple of 1.42x.

In the next part of the series, we’ll look at Prospect Capital’s leverage and balance sheet strength.


Please select a profession that best describes you: