Prospect Capital Q1 2027 Earnings Call Transcript

Prospect Capital (NASDAQ:PSEC) reported first-quarter financial results on Thursday. The transcript from the company’s first-quarter earnings call has been provided below.

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Summary

Prospect Capital Corporation reported a net investment income of $76 million or $0.15 per common share for the September quarter, with a net asset value of approximately $2.9 billion.

The company announced monthly common shareholder distributions of 3.5 cents per share for November, December, and January, and a $200 million share repurchase authorization.

Prospect Capital’s portfolio boasts a strong credit profile with a net leverage of 4.8 times EBITDA, lower than the market average, and a high cash interest coverage ratio.

The company focuses on middle market lending, with 83% of its September quarter originations in first lien senior secured loans.

Prospect Capital exited its subordinated structured notes portfolio, reducing its investment portfolio cost by 840 basis points since June 2024.

The real estate property portfolio at National Property REIT Corp. represents 15% of investments and has shown significant returns with a 23% IRR since 2012.

Prospect Capital maintains strong liquidity with $1.9 billion in cash and undrawn credit commitments, and has diversified funding sources with a weighted average cost of unsecured debt financing at 4.84%.

Full Transcript

OPERATOR

Good day and welcome to the Prospect Capital first quarter 2027 earnings release and conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today’s presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on a touchtone phone. To withdraw your question, please press star then two.

Please note this event is being recorded. I would now like to turn the conference call over to Mr. John Barry, Chairman and CEO. Mr. Barry, the floor is yours.

John F Barry (Chief Executive Officer)

Thank you, Michael, for that excellent introduction. Joining me on the call today are M. Grier Eliasek, our President and Chief Operating Officer, and Kristin L. Van Dask, our Chief Financial Officer. Kristin.

Kristin L. Van Dask (Chief Financial Officer)

Thanks, John. This call contains forward-looking statements intended to be subject to safe harbor protection. Future results are highly likely to vary materially. We do not undertake to update our forward-looking statements. For additional disclosure, see our earnings press release and 10-Q filed previously and available on our website prospectstreet.com. John.

John F Barry (Chief Executive Officer)

Thank you, Kristin. In the September quarter our net investment income, or NII, was $76 million, or $0.15 per common share. At September 30th our NAV was approximately $2.9 billion, or $5.36 per common share. Our net debt to total assets ratio was 25%. Unsecured debt plus unsecured perpetual preferred was 90.7% of total debt plus preferred. We are announcing monthly common shareholder distributions of 3.5 cents per share for each of November, December, and January.

Our board has approved a common share repurchase authorization of $200 million. Our preferred shareholder cash distributions continue at their contractual rate. Thank you. I’ll now turn the call over to Grier Eliasek.

M. Grier Eliasek (Chief Operating Officer)

Thank you, John. Over the past 22 plus years Prospect Capital Corporation has invested approximately $13.7 billion in over 350 exited investments out of around $23 billion invested in over 450 total investments that have earned a 12% unlevered investment-level gross cash IRR to Prospect Capital Corporation. This multi-decade time period includes the GFC and has been dominated in general by low prevailing market interest rates and Prospect’s primary business of middle market lending.

Over the same 22-year time period, Prospect’s exited investments resulted in an investment-level exited gross IRR of around 14.5% based on total capital invested of around $11.5 billion and total proceeds from such exited investments of around $14.8 billion, with an annualized realized loss rate of only 20 basis points. Prospect’s middle market portfolio compares favorably to peers across key credit metrics, with more than a turn lower net leverage at the portfolio company level, 4.8 times for us versus 6.1 times EBITDA for the market.

We also have stronger cash interest coverage, 211% for the Prospect portfolio companies versus 160% for the market, and we have an 80% lower annualized net realized loss rate, 20 basis points for us compared to 100 basis points per annum for the market. Together, these credit metrics demonstrate that Prospect’s portfolio has a stronger credit profile and performance than industry benchmarks. As of September, we held 85 portfolio companies across 31 different industries with an aggregate fair value of just under $6 billion. Our portfolio at fair market value included 1.8%—so less than 2%—of investments in software companies, which is significantly less by an order of magnitude than the 22% average across business development companies from an industry equity research report in June. At Prospect, we primarily focus on senior and secured debt, which is 83% of our portfolio at cost in September.

Our middle market lending strategy is the primary focus of our company, with such strategy as of September representing 84% of our investments at cost. Middle market lending comprised 83% of our originations during the September quarter with a continued focus on first lien senior secured loans. Investments during the quarter included follow-on investments in existing portfolio companies to support acquisitions, working capital needs, organic growth initiatives, and other objectives.

We’ve completed the exit of our subordinated structured notes portfolio, with such portfolio representing essentially 0% of our investment portfolio cost, a reduction of 840 basis points since June 2024. Our real estate property portfolio at National Property REIT Corp. (NPRC) totaled 15% of our investments at cost as of September and continued to focus on developed, occupied, and cash-flowing multifamily investments. Since the inception of this strategy 14 years ago in 2012 and through September of 2026, we have exited 60 property investments, earning an unlevered investment-level gross cash IRR of 23% and a cash-on-cash multiple of 2.4 times.

We exited six property investments in the last 12 months ended September. The remaining real estate property portfolio included 50 properties, providing an opportunity for income enhancement from a portfolio rotation strategy. Our aggregate investments in NPRC included a $159 million unrealized gain as of September, and we expect to continue to redeploy future real estate property exit proceeds primarily into more first lien senior secured loans with selected equity-linked investments, thereby providing substantial potential upside in our portfolio.

Our interest income for the 12-month period ending September was 89% of total investment income, reflecting a strong recurring revenue profile for our business. Payment-in-kind interest income for the 12-month period ended September 2026 was reduced by 53% from the 12-month period ended September 2024. It was down to 11% of total investment income for the September 2026 quarter. Non-accruals as a percentage of total investments as of September stood at around 0.2% based on fair market value and 1.8% at cost.

Those are down 0.5% and 2.9%, respectively, from the prior quarter. Investment originations in the September quarter aggregated $90 million and consisted of 83% middle market investments, with a significant majority of first lien senior secured loans. We also experienced $257 million of repayments and exits, resulting in net repayments of $167 million. Since the quarter ended September 30, we have received $69.4 million of second lien debt repayments, which would bring our second lien debt mix to 10% of our investments at cost on a pro forma basis as we continue to emphasize first lien senior secured lending for new originations.

Thank you. I’ll now turn the call over to Kristin.

Kristin L. Van Dask (Chief Financial Officer)

Thanks, Grier. We believe our prudent leverage, dependence on diversified access to matched book funding, substantial majority of unencumbered assets, weighting toward unsecured fixed-rate debt, and low unfunded asset commitments all demonstrate balance sheet strength as well as substantial liquidity to capitalize on attractive opportunities. Our company has locked in a ladder of liabilities extending 25 years into the future. We have retired multiple upcoming maturities.

On October 14, 2026, we gave notice of our election to redeem all $263.2 million aggregate principal amount of our outstanding November 2026 notes. Following the redemption, none of the November 2026 notes will remain outstanding, and our track record of repaying unsecured bondholders since inception increases to $5.5 billion across nearly 1,000 tranches, including institutional, retail, and medium-term notes. On October 30, 2025, we successfully completed the institutional issuance of approximately $168 million in aggregate principal amount of senior unsecured 5.5% notes due 2030, which mature on December 31, 2030.

On October 29, 2026, we priced an institutional offering of $300 million in aggregate principal amount of notes due 20. We intend to use the net proceeds primarily to refinance existing indebtedness, including the November 2026 notes and borrowings under the revolving credit facility. Our unfunded eligible commitments to portfolio companies total approximately $58 million, of which $6 million is considered outside our sole discretion, representing approximately 1% and 0.1% of our total assets as of September 2026, respectively. Our combined balance sheet cash and undrawn revolving credit facility commitments stood at $1.9 billion as of September, and we held $4.0 billion of our assets as unencumbered assets, representing approximately 66% of our total assets.

The remaining assets are pledged to Prospect Capital Funding, a non-recourse SPV. We currently have $2.12 billion of commitments from 48 banks, demonstrating strong support of our company from the lender community with a diversity unmatched by any other company in our industry. The facility does not mature until June 2029 and revolves until June 2028. Our drawn pricing continues to be SOFR plus 2.05%. Outside of our revolver, we have access to diversified funding sources across multiple investor types and have successfully issued securities in an array of markets, both domestic and international. Prospect has issued multiple types of unsecured debt: institutional non-convertible bonds, institutional convertible bonds, retail baby bonds, and retail program notes. All of these types of unsecured debt had no asset restrictions and no cross-defaults.

With our revolver, we have tapped the unsecured term debt market on multiple occasions to ladder our maturities and to extend our liability duration out 25 years, with our debt maturities extending through 2052. With so many banks and debt investors across so many unsecured and non-recourse debt tranches, we have substantially reduced our counterparty risk. At September 30, 2026, our weighted average cost of unsecured debt financing was 4.84%. Now I’ll turn the call back over to John.

John F Barry (Chief Executive Officer)

Thank you, Kristin. We can answer questions now. Thank you.

OPERATOR

Thank you, sir. We will now begin the question-and-answer session. To ask a question, you may press star then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time a question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will just pause momentarily to assemble our roster. Well, this time we’re showing no questions.

We will go ahead and conclude the question-and-answer session. I would now like to turn the conference call back over to Mr. Barry for any closing remarks, sir.

John F Barry (Chief Executive Officer)

Okay, thank you everyone. Have a wonderful weekend. Bye now.

OPERATOR

Thank you. Thank you, sir. Thank you, everyone, and thank you for your time today. The conference call has now concluded. At this time, you may disconnect your lines. Take care and have a great day.

Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company’s SEC filings and official press releases. Corporate participants’ and analysts’ statements reflect their views as of the date of this call and are subject to change without notice.