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Understanding Prospect Capital’s Operating Expenses

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Total operating expenses

Prospect Capital (PSEC) incurred total operating expenses of $89.2 million in fiscal 2Q18 compared to $99 million in fiscal 2Q17. The company experienced a fall in its total gross base management fees in fiscal 2Q18 compared to fiscal 2Q17.

There’s a direct relationship between gross base management fees and average total assets. For this reason, the fall in Prospect’s average total assets likely caused the fall in its total gross base management fees.

In fiscal 2Q18, Prospect Capital incurred income incentive fees of $18.2 million compared to $21.1 million in fiscal 2Q17, reflecting a marginal decline.

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Interest, credit facility expenses

Prospect Capital incurred total interest and credit facility expenses of $39.3 million in fiscal 2Q18 compared to $40.8 million in fiscal 2Q17. The company incurred interest expenses on borrowings (which form a part of interest and credit facility expenses) of $34.1 million in fiscal 2Q18 compared to $35.4 million in fiscal 2Q17.

Prospect capital incurred audit, compliance, and tax-related fees of $1.8 million in fiscal 2Q18 compared to $1 million a year ago. The company’s directors’ fees remained flat in fiscal 2Q18 compared to fiscal 2Q17. However, the company witnessed a fall in its other general and administrative expenses in fiscal 2Q18 compared to fiscal 2Q17.

Prospect Capital’s net income margin stands at 31.2% on a trailing-12-month basis. Its peers (XLF) FS Investment (FSIC), BlackRock Capital Investment (BKCC), and Apollo Investment (AINV) have net income margins of 52.1%, 18.3%, and 28.0%, respectively, on a trailing-12-month basis.

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