GlobeNewswire Inc | Nov 9, 2020 04:04PM EST

November 09, 2020

NEW YORK, Nov. 09, 2020 (GLOBE NEWSWIRE) -- Prospect Capital Corporation (NASDAQ: PSEC) (Prospect, our, or we) today announced financial results for our fiscal quarter ended September 30, 2020.

FINANCIAL RESULTS

Quarter Ended Quarter Quarter EndedAll amounts in $000?s except Endedper share amounts (on weighted average September 30, September 30,basis for period numbers) 2020 June 30, 2019 2020 Net Investment Income (?NII?) $57,545 $58,273 $71,060Interest as % of Total Investment Income 92.6% 88.8% 90.2% NII per Common Share $0.15 $0.16 $0.19 Net Income $167,746 $162,613 $18,065Net Income per Common Share $0.45 $0.44 $0.05 Distributions to Common Shareholders $67,861 $66,823 $66,111Distributions per Common Share $0.18 $0.18 $0.18 Since October 2017 NII per Common Share $2.34 $2.19 $1.66Since Oct 2017 Distributions per Common $2.16 $1.98 $1.44ShareSince Oct 2017 NII Less Distributions $0.18 $0.21 $0.22per Common Share NAV per Common Share at Period End $8.40 $8.18 $8.87 Net of Cash Debt to Equity Ratio 69.8% 69.6% 66.3%Net of Cash Asset Coverage of Debt Ratio 247% 244% 243% Unsecured Debt as % of Total Debt 88.6% 89.1% 95.2%Unsecured and Non-Recourse Debt as % of 100% 100% 100%Total Debt

CASH COMMON SHAREHOLDER DISTRIBUTION DECLARATION

Prospect is declaring distributions to common shareholders as follows:

Monthly Cash Common Shareholder Record Payment Amount ($ perDistribution Date Date share)November 2020 11/30/2020 12/24/2020 $0.0600December 2020 12/31/2020 01/21/2021 $0.0600January 2021 01/29/2021 02/18/2021 $0.0600

These monthly cash distributions represent the 39th, 40th, and 41st consecutive $0.06 per share distributions to common shareholders.

Prospect expects to declare February 2021, March 2021, and April 2021 distributions to common shareholders in February 2021.

Based on the declarations above, Prospects closing stock price of $4.97 at November 6, 2020 delivers to our common shareholders an annualized distribution yield of 14.5%.

Taking into account past distributions and our current share count for declared distributions, Prospect since inception through our January 2021 distribution will have distributed $18.36 per share to original common shareholders, aggregating over $3.2 billion in cumulative distributions to all common shareholders.

Since October 2017, our NII per share has aggregated $2.34 while our common shareholder distributions per share have aggregated $2.16, resulting in our NII exceeding distributions during this period by $0.18 per share.

Initiatives focused on enhancing accretive NII per share growth include (1) our recently announced $1 billion targeted perpetual preferred equity program, (2) a greater utilization of our cost efficient revolving credit facility (with an incremental cost of approximately 1.3% at todays one month Libor), (3) retirement of higher cost liabilities, and (4) increased originations in senior secured debt and selected equity investments to deliver targeted risk-adjusted yields and total returns as we deploy available capital from our current underleveraged balance sheet.

Our senior management team and employee insider ownership is currently over 27% of shares outstanding, representing over $850 million of our net asset value.

CASH PREFERRED SHAREHOLDER DISTRIBUTION DECLARATION

Prospect is declaring distributions to preferred shareholders based on an annual rate equal to 5.50% of the stated value of $25 per share, from the date of issuance or, if later, from the most recent dividend payment date, as follows:

Monthly Cash Preferred Record Payment Monthly Amount ($ per share), beforeShareholder Distribution Date Date pro ration for partial periodsOctober and November 2020 11/18/ 12/1/ $0.114583 2020 2020

PORTFOLIO UPDATE AND INVESTMENT ACTIVITY

All amounts in $000?s except As of As ofper unit amounts September 30, June 30, 2020 2020 Total Investments (at fair value) $5,386,385 $5,232,328Number of Portfolio Companies 122 121% Controlled Investments (at fair value) 42.8% 43.2% Secured First Lien 45.9% 46.9%Other Senior Secured Debt 24.1% 24.4%Subordinated Structured Notes 13.6% 13.5%Unsecured and Other Debt 1.0% 1.0%Equity Investments 15.4% 14.2%Mix of Investments with Underlying Collateral 83.6% 84.8%Security Annualized Current Yield ? All Investments 9.7% 9.7%Annualized Current Yield ? Performing Interest 11.6% 11.4%Bearing Investments Top Industry Concentration^(1) 15.4% 15.2%Retail Industry Concentration^(1) 0% 0%Energy Industry Concentration^(1) 1.2% 1.6%Hotels, Restaurants & Leisure Concentration^(1) 0.4% 0.4% Non-Accrual Loans as % of Total Assets ^(2) 0.7% 0.9% Weighted Average Portfolio Net Leverage^(3) 4.40x 4.51xWeighted Average Portfolio EBITDA^(3) $78,548 $71,970

(1)Excluding our underlying industry-diversified structured credit portfolio.(2)Calculated at fair value.(3)For additional disclosure see Weighted Average Portfolio EBITDA and Net Leverage at the end of this release.

During the September 2020 and June 2020 quarters, our investment origination and repayment activity was as follows:

All amounts in $000?s Quarter Ended Quarter Ended September 30, 2020 June 30, 2020 Total Originations $177,141 $56,867 Real Estate 10.4% 52.8%Agented Sponsor Debt 31.4% 35.8%Non-Agented Debt 28.2% 0.0%Corporate Yield Buyouts 16.3% 8.5%Rated Secured Structured Notes 13.7% 2.9%Total Repayments $145,410 $72,382 Originations, Net of Repayments $31,731 ($15,515)

Note: Agented debt refers to non-control debt investments where Prospect acts as the administrative agent or similar role, while Non-agented debt refers to non-control debt investments where Prospect has no such role. Sponsor refers to third-party institutional ownership.

We have invested in structured credit investments benefiting from individual standalone financings non-recourse to Prospect with our risk limited in each case to our net investment. At September 30, 2020 and June 30, 2020, our subordinated structured note portfolio at fair value consisted of the following:

All amounts in $000?s except As of As ofper unit amounts September 30, 2020 June 30, 2020 Total Subordinated Structured Notes $730,514 $708,961 # of Investments 39 39 TTM Average Cash Yield^(1)(2) 13.8% 17.4%Annualized Cash Yield^(1)(2)^(3) 7.1% 13.0%Annualized GAAP Yield on Fair Value^(1)(2) 13.6% 12.5%Annualized GAAP Yield on Amortized Cost^(2) 9.0% 8.1% Cumulative Cash Distributions $1,224,434 $1,211,395% of Original Investment 87.5% 86.6% # of Underlying Collateral Loans 1,658 1,658Total Asset Base of Underlying Portfolio $17,348,603 $17,530,303 Prospect TTM Default Rate 2.20% 1.46%Broadly Syndicated Market TTM Default Rate 4.17% 3.23%Prospect Default Rate Outperformance vs. 1.97% 1.77%Market

(1)Calculation based on fair value.(2)Excludes investments being redeemed.(3)In the current quarter ending 12/31/2020, we have so far received scheduled quarterly payments on 37 out of 39 subordinated structured notes we hold. If we calculated the Annualized Cash Yield using these most recent payments, such cash yield would be 17.5% vs. the 7.1% shown in the table above for the quarter ended 9/30/2020.

To date, including called investments being liquidated, we have exited nine subordinated structured notes totaling $263.4 million with an expected pooled average realized IRR of 16.7% and cash on cash multiple of 1.48 times.

Since December 31, 2017 through today, 27 of our structured credit investments have completed multi-year extensions of their reinvestment periods (typically at reduced liability spreads and with increased weighted average life asset benefits). We believe further long-term optionality upside exists in our structured credit portfolio through additional refinancings and reinvestment period extensions.

To date during the December 2020 quarter, we have completed new and follow-on investments as follows:

All amounts in $000?s Quarter Ended December 31, 2020 Total Originations $89,246 Agented Sponsor Debt 64.4%Non-Agented Debt 21.6%Real Estate 14.0% Total Repayments $82,265Originations, Net of Repayments $6,981

CAPITAL AND LIQUIDITY

Our laddered funding profile includes a revolving credit facility (with 30 lenders), program notes, listed baby bonds, institutional bonds, convertible bonds, and our newly launched preferred stock. We have retired upcoming maturities, including a recent retirement in April 2020, and as of today have zero debt maturing until July 2022. On September 9, 2019, we completed an amendment of our existing revolving credit facility (the Facility) for Prospect Capital Funding, extending the term 5.0 years from such date. Pricing for amounts drawn under the Facility is one-month Libor plus 2.20%.

The combined amount of our balance sheet cash and undrawn revolving credit facility commitments currently stands at approximately $501 million. Our total unfunded eligible commitments to non-control portfolio companies totals approximately $22 million.

All amounts in $000?s As of As of September 30, 2020 June 30, 2020Net of Cash Debt to Equity Ratio 69.8% 69.6%% of Interest-Bearing Assets at Floating Rates 85.9% 85.9%% of Liabilities at Fixed Rates 88.6% 89.1% % of Floating Loans with Libor Floors 83.5% 85.2%Weighted Average Libor Floor 1.66% 1.67% Unencumbered Assets $3,907,362 $3,772,478% of Total Assets 71.9% 71.2%

The below table summarizes our September 2020 quarter term debt issuance and repurchase/repayment activity:

All amounts in $000?s Principal Rate MaturityDebt Issuances Prospect Capital $38,657 4.75% - July 15, 2025 ? October 15,InterNotes 6.00% 2030Debt Repurchases/ Repayments2022 Notes $29,420 4.95% July 2022Prospect Capital $565 4.75% - July 2024 ? September 2043InterNotes 6.75%

$1.0775 billion of Facility commitments have closed to date with 30 lenders. An accordion feature allows the Facility, at Prospect's discretion, to accept up to $1.5 billion of commitments. The Facility matures September 9, 2024. The Facility includes a revolving period that extends through September 9, 2023, followed by an additional one-year amortization period, with distributions allowed to Prospect after the completion of the revolving period.

On November 7, 2019, we commenced a tender offer to purchase up to $50.0 million of our convertible notes that mature in July 2022 (2022 Notes). On December 7, 2019, $13.4 million was validly tendered and accepted, representing 4.4% of the outstanding notes. On December 23, 2019, we commenced a tender offer to purchase up to $25.0 million of the 2022 Notes. On January 22, 2020, $1.3 million was validly tendered and accepted, representing 0.5% of the outstanding notes. We repurchased an additional $32.6 million of the 2022 Notes during the March 2020 quarter. On July 23, 2020, we commenced a tender offer to purchase up to $100.0 million of the 2022 Notes during the September 2020 quarter. On August 20, 2020, $29.4 million was validly tendered and accepted, representing 11.4% of the outstanding notes. On September 3, 2020, we commenced a tender offer to purchase for cash any and all of the 2022 Notes during the September 2020 quarter. On October 2, 2020, $6.035 million was validly tendered and accepted representing 2.64% of the outstanding notes.

On March 20, 2020, we commenced a tender offer to purchase up to $234.4 million of our unsecured notes that mature in June 2024 (2024 Notes). On March 31, 2020, $655 thousand was validly tendered and accepted.

We currently have seven separate unsecured debt issuances aggregating $1.2 billion outstanding, not including our program notes, with laddered maturities extending to June 2029. At September 30, 2020, $718.3 million of program notes were outstanding with laddered maturities through October 2043.

On August 3, 2020, we launched a $1 billion 5.50% perpetual preferred stock offering. Prospect expects to use the net proceeds from the Offering to maintain and enhance balance sheet liquidity, including repaying our credit facility and purchasing high quality short-term debt instruments, and to make long-term investments in accordance with our investment objective. The preferred stock provides Prospect with a diversified source of accretive fixed-rate capital without creating maturity risk due to the perpetual term.

Prospect holds recently reaffirmed investment grade company ratings from Standard & Poors (BBB-), Moodys (Baa3), Kroll (BBB-), and Egan-Jones (BBB). Maintaining our investment grade ratings with prudent asset, liability, and risk management is an important objective for Prospect.

DIVIDEND REINVESTMENT PLAN

We have adopted a dividend reinvestment plan (also known as a DRIP) that provides for reinvestment of our distributions on behalf of our shareholders, unless a shareholder elects to receive cash. On April 17, 2020, our board of directors approved amendments to the Companys DRIP, effective May 21, 2020. These amendments principally provide for the number of newly-issued shares pursuant to the DRIP to be determined by dividing (i) the total dollar amount of the distribution payable by (ii) 95% of the closing market price per share of our stock on the valuation date of the distribution (providing a 5% discount to the market price of our common stock), a benefit to shareholders who participate.

HOW TO PARTICIPATE IN OUR DIVIDEND REINVESTMENT PLAN

Shares held with a broker or financial institution

Many shareholders have been automatically opted out of our DRIP by their brokers. Even if you have elected to automatically reinvest your PSEC stock with your broker, your broker may have opted out of our DRIP (which utilizes DTCs dividend reinvestment service), and you may therefore not be receiving the 5% pricing discount. Shareholders interested in participating in our DRIP to receive the 5% discount should contact their brokers to make sure each such DRIP participation election has been made through DTC. In making such DRIP election, each shareholder should specify to ones broker the desire to participate in the "Prospect Capital Corporation DRIP through DTC" that issues shares based on 95% of the market price (a 5% discount to the market price) and not the broker's own "synthetic DRIP plan (if any) that offers no such discount. Each shareholder should not assume ones broker will automatically place such shareholder in our DRIP through DTC. Each shareholder will need to make this election proactively with ones broker or risk not receiving the 5% discount. Each shareholder may also consult with a representative of such shareholders broker to request that the number of shares the shareholder wishes to enroll in our DRIP be re-registered by the broker in the shareholders own name as record owner in order to participate directly in our DRIP.

Shares registered directly with our transfer agent

If a shareholder holds shares registered in the shareholders own name with our transfer agent (less than 0.1% of our shareholders hold shares this way) and wants to make a change to how the shareholder receives dividends, please contact our plan administrator, American Stock Transfer and Trust Company LLC by calling (888) 888-0313 or by mailing American Stock Transfer and Trust Company LLC, 6201 15th Avenue, Brooklyn, New York 11219.

EARNINGS CONFERENCE CALL

Prospect will host an earnings call on Tuesday, November 10, 2020 at 1100 am. Eastern Time. Dial 888-338-7333. For a replay prior to December 9, 2020 visitwww.prospectstreet.com or call 877-344-7529 with passcode 10149913.

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES(in thousands, except share and per share data)

September 30, June 30, 2020 2020Assets Investments at fair value: Control investments (amortized cost of $2,321,471 $ 2,307,572 $ 2,259,292 and $2,286,725, respectively)Affiliate investments (amortized cost of $171,649 262,175 187,537 and $163,484, respectively)Non-control/non-affiliate investments (amortized 2,816,638 2,785,499 cost of $3,335,811 and $3,332,509, respectively)Total investments at fair value (amortized cost 5,386,385 5,232,328 of $5,828,931 and $5,782,718, respectively)Cash 28,303 44,561 Receivables for: Interest, net 11,011 11,712 Other 938 106 Deferred financing costs on Revolving Credit 8,596 9,145 FacilityPrepaid expenses 907 1,248 Due from broker 1,892 1,063 Due from Affiliate 38 ? Total Assets 5,438,070 5,300,163 Liabilities Revolving Credit Facility 250,993 237,536 Public Notes (less unamortized discount and debtissuance costs of $11,011 and 782,708 782,106 $11,613,respectively)Prospect Capital InterNotes(less unamortizeddebt issuance costs of $12,959 and 705,362 667,427 $12,802,respectively)Convertible Notes (less unamortized debt issuance 422,171 450,598 costs of $7,899 and $8,892, respectively)Due to Prospect Capital Management 41,232 42,481 Interest payable 17,374 29,066 Dividends payable 22,727 22,412 Due to Prospect Administration 8,164 7,000 Accrued expenses 5,654 3,648 Due to broker ? 1 Other liabilities 658 2,027 Total Liabilities 2,257,043 2,244,302 Commitments and Contingencies Net Assets $ 3,181,027 $ 3,055,861 Components of Net Assets Common stock, par value $0.001 per share(1,880,000,000 common shares authorized; $ 379 $ 374 378,776,958 and 373,538,499 issued andoutstanding, respectively)Paid-in capital in excess of par 4,096,150 4,070,874 Total distributable earnings (loss) (915,502) (1,015,387 )Net Assets $ 3,181,027 $ 3,055,861 Net Asset Value Per Share $ 8.40 $ 8.18

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS(in thousands, except share and per share data)

Three Months Ended September 30, 2020 2019Investment Income Interest income: Control investments $ 48,727 $ 50,866 Affiliate investments 7,362 239 Non-control/non-affiliate investments 51,250 61,950 Structured credit securities 24,900 32,901 Total interest income 132,239 145,956 Dividend income: Control investments ? 3,800 Non-control/non-affiliate investments 25 454 Total dividend income 25 4,254 Other income: Control investments 9,071 11,383 Non-control/non-affiliate investments 1,545 290 Total other income 10,616 11,673 Total Investment Income 142,880 161,883 Operating Expenses Base management fee 26,850 28,463 Income incentive fee 14,386 17,765 Interest and credit facility expenses 34,049 38,898 Allocation of overhead from Prospect Administration 4,657 3,494 Audit, compliance and tax related fees 938 375 Directors? fees 113 113 Other general and administrative expenses 4,342 1,715 Total Operating Expenses 85,335 90,823 Net Investment Income 57,545 71,060 Net Realized and Net Change in Unrealized (Losses) Gains from InvestmentsNet realized (losses) gains Control investments 2,832 ? Non-control/non-affiliate investments 11 (2,198 )Net realized (losses) gains 2,843 (2,198 )Net change in unrealized (losses) gains Control investments 13,535 (39,021 )Affiliate investments 66,473 18,020 Non-control/non-affiliate investments 27,836 (27,458 )Net change in unrealized (losses) gains 107,844 (48,459 )Net Realized and Net Change in Unrealized (Losses) 110,687 (50,657 )Gains from InvestmentsNet realized gains (losses) on extinguishment of debt (486 ) (2,338 )Net (Decrease) Increase in Net Assets Resulting from $ 167,746 $ 18,065 OperationsNet increase in net assets resulting from operations $ 0.45 $ 0.05 per shareDividends declared per share $ (0.18 ) $ (0.18 )

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIESROLLFORWARD OF NET ASSET VALUE PER SHARE(in actual dollars)

Three Months Ended September 30, 2020 2019Per Share Data Net asset value at beginning of period $ 8.18 $ 9.01 Net investment income(1) 0.15 0.19 Net realized and change in unrealized gains (losses) (1) 0.30 (0.14 )Net increase (decrease) from operations 0.45 0.05 Distributions of net investment income (0.18 ) (0.18 )Common stock transactions(2) (0.05 ) (0.01 )Net asset value at end of period $ 8.40 $ 8.87

(1)Per share data amount is based on the weighted average number of common shares outstanding for the period presented (except for dividends to shareholders which is based on actual rate per share).

(2)Common stock transactions include the effect of issuances and repurchases of common stock, if any.

WEIGHTED AVERAGE PORTFOLIO EBITDA AND NET LEVERAGE

Weighted Average Portfolio Net Leverage (Portfolio Net Leverage) and Weighted Average Portfolio EBITDA (Portfolio EBITDA) provide clarity into the underlying capital structure of our portfolio debt investments and the likelihood that our overall portfolio will make interest payments and repay principal.

Portfolio Net Leverage reflects the net leverage of each of our portfolio company debt investments, weighted based on the current debt principal outstanding of such investments. The net leverage for each portfolio company is calculated based on our investment in the capital structure of such portfolio company, with a maximum limit of 10.0x adjusted EBITDA. This calculation excludes debt subordinate to our position within the capital structure because our exposure to interest payment and principal repayment risk is limited beyond that point. Additionally, structured credit residual interests and equity investments, for which principal repayment is not fixed, are also not included in the calculation. The calculation does not exceed 10.0x adjusted EBITDA for any individual investment because 10.0x captures the highest level of risk to us. Portfolio Net Leverage provides us with some guidance as to our exposure to the interest payment and principal repayment risk of our overall debt portfolio. We monitor our Portfolio Net Leverage on a quarterly basis.

Portfolio EBITDA is used by Prospect to supplement Portfolio Net Leverage and generally indicates a portfolio companys ability to make interest payments and repay principal. Portfolio EBITDA is calculated using the weighted average dollar amount EBITDA of each of our portfolio company debt investments. The calculation provides us with insight into profitability and scale of the portfolio companies within our overall debt investments.

These calculations include addbacks that are typically negotiated and documented in the applicable investment documents, including but not limited to transaction costs, share-based compensation, management fees, foreign currency translation adjustments and other nonrecurring transaction expenses.

Together, Portfolio Net Leverage and Portfolio EBITDA assist us in assessing the likelihood that we will timely receive interest and principal payments. However, these calculations are not meant to substitute for an analysis of our underlying portfolio company debt investments, but to supplement such analysis.

ABOUT PROSPECT CAPITAL CORPORATION

Prospect Capital Corporation (www.prospectstreet.com) is a business development company that focuses on lending to and investing in private businesses. Our investment objective is to generate both current income and long-term capital appreciation through debt and equity investments.

We have elected to be treated as a business development company under the Investment Company Act of 1940 (1940 Act). We are required to comply with regulatory requirements under the 1940 Act as well as applicable NASDAQ, federal and state rules and regulations. We have elected to be treated as a regulated investment company under the Internal Revenue Code of 1986.

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, whose safe harbor for forward-looking statements does not apply to business development companies. Any such statements, other than statements of historical fact, are highly likely to be affected by other unknowable future events and conditions, including elements of the future that are or are not under our control, and that we may or may not have considered; accordingly, such statements cannot be guarantees or assurances of any aspect of future performance. Actual developments and results are highly likely to vary materially from any forward-looking statements. Such statements speak only as of the time when made. We undertake no obligation to update any such statement now or in the future.

For additional information, contact:

Grier Eliasek, President and Chief Operating Officergrier@prospectcap.comTelephone (212) 448-0702