Prospect Capital's (PSEC) CEO John Barry on Q2 2016 Results - Earnings Call Transcript

Category: Credit Matters Published: Monday, 22 February 2016 Written by Admin


Good morning and welcome to the Prospect Capital Corporation Second Fiscal Quarter Earnings Release and Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded.

I would now like to turn the conference over to Mr. John Barry, Chairman and CEO of Prospect Capital. Please go ahead.

John Barry

Thank you, Carrie. Joining me on the call today are Grier Eliasek, our President and Chief Operating Officer; and Brian Oswald, our Chief Financial Officer. Brian?

Brian Oswald

Thanks, John. This call is the property of Prospect Capital Corporation. Unauthorized use is prohibited. This call contains forward-looking statements within the meaning of the securities laws that are intended to be subject to Safe Harbor protection. Actual outcomes and results could differ materially from those forecasts due to the impact of many factors.

We do not undertake to update our forward-looking statements unless required by law. For additional disclosure, see our earnings press release, our 10-Q, and our corporate presentation filed previously and available on the Investor Relations tab of our website,

Now I'll turn the call back over to John.

John Barry

Thank you, Brian. Our net investment income or NII in the December quarter was $100.9 million or $0.28 per share, up $0.02 from the prior quarter and $0.03 more than our recently declared dividends. For the first six fiscal months of the year, our net investment income was $192.1 million or $0.54 per share, $0.04 more than our dividend.

While regulated investment companies may utilize spillback dividends in the subsequent tax quarter to count toward prior-year distribution requirements, distributable income consistently in excess of dividends enhances the possibility of future special dividends in order to maintain regulated investment company status.

We have previously announced monthly cash dividends to shareholders of $$0.08333 per share for February, March, and April 2016, with the latter representing our 93rd consecutive shareholder distribution in our Companys history. We plan on announcing our next series of shareholder distribution in May.

We have generated cumulative distributable income in excess of cumulative dividends to shareholders since Prospect's IPO 12 years ago. Since our IPO 12 years ago through our April 2016 distribution at the current share count, we will fit out over $14.62 per share to initial continuing shareholders and over $1.85 billion in cumulative distributions to all shareholders. We have delivered solid returns while keeping leverage prudent. Net of cash and equivalents our debt-to-equity ratio was 77.9% in December, close to 77.6% in June.

Our NAV stood at $9.65 per share on December 31, down $0.52 from the prior quarter. We estimate approximately 74% of the unrealized write-down we experienced this quarter related to macro changes in the capital markets as opposed to specific portfolio credit issues. We estimate 18% related to energy and the remaining 8% related to specific non-energy individual credit matters. Our energy asset concentration at December 31, stood at 3.2%.

Our objective is to drive future earnings through prudent levels of matched-book funding. We are currently pursuing initiatives to lower our funding costs, including refinancing of existing liabilities at lower rates. Opportunistically harvest certain controlled investments at a gain, optimize our origination strategy mix, including increasing our mix of online loans, repurchase shares at a discount to net asset value, and rotate our portfolio out of lower-yielding assets into higher-yielding assets while maintaining a significant focus on first lien senior secured lending.

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