What to Expect for Prospect Capital’s Deployments in Fiscal 3Q16

Can Prospect Capital Build on Its Strong Platform in Fiscal 3Q16?

(Continued from Prior Part)

Portfolio strengthening

Prospect Capital (PSEC) made portfolio investments of $692 million in fiscal 2Q16, which ended December 31, 2015. That was an increase of $438 million from fiscal 1Q16. In fiscal 3Q16, deployments are expected to be in line with the previous quarter, with a special focus on structured and retail lending.

Prospect deployed in five new and several follow-on investments. The company’s exits in the form of sales, repayments, and scheduled amortization payments stood at $731 million in fiscal 2Q16, and its net investment exits totaled $38.7 million. As of December 31, 2015, Prospect Capital’s control investments at fair value formed 32.5% of its total portfolio, compared to 31.1% in the previous quarter.

The company believes there’s a better chance for risk-adjusted reward in agented and self-originated opportunities compared to the syndicated loan market. As a result, it directs its resources accordingly.

In fiscal 2Q16, the company invested $692 million. Here’s how its investments break down:

• third-party sponsored deals: 45%

• syndicated debt: 7%

• online lending: 40%

• operating buyout: 3%

• real estate: 5%

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

• Ares Capital (ARCC): 12%

• BlackRock Capital Investment (BKCC): 2%

• Blackstone (BX): 12%

• KKR & Company (KKR): 8%

Together, these companies form 1.4% of the Financial Select Sector SPDR ETF (XLF).

Multiple strategies

Prospect Capital deploys multiple strategies for origination, including the following:

• 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

• online lending

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

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

In the next part, we’ll discuss Prospect Capital’s portfolio building strategy.

Continue to Next Part

Browse this series on Market Realist:

• Part 1 - What Could Prospect Capital’s Fiscal 3Q16 Earnings Look Like?

• Part 3 - Expectations for Prospect Capital’s Yield in Fiscal 3Q16

• Part 4 - Real Estate and Wage Growth: Impact on Prospect’s Originations