Profile: Prospect Capital Corp (PSEC.OQ)
27 Mar 2015
Prospect Capital Corporation, incorporated on April 13, 2004, is a financial services company that primarily lends to and invests in middle market privately-held companies. The Company is a closed-end investment company which invests primarily in first and second lien secured loans and unsecured debt, senior and subordinated debt and equity of companies in need of capital for acquisitions, divestitures, growth, development, recapitalizations and other purposes. The Company is a non-diversified company and also focuses on making investments in private companies. The Company’s activities include; lending in private equity sponsored transactions, lending directly to companies not owned by private equity firms, control investments in corporate operating companies, control investments in financial companies, investments in structured credit, real estate investments, investments in syndicated debt, aircraft leasing and online lending.
Lending in private equity sponsored transactions
The Company makes loans to companies which are controlled by private equity firms. The debt comprises of first lien, second lien, unitranche or unsecured loans. This segment has comprised approximately 50%-60% of its business.
Lending Directly to Companies
The Company provides debt financing to companies owned by non-private equity firms, the company founder, a management team or a family. Here, in addition to the strengths the Company looks for in a sponsored transaction, it also looks for the alignment with the management team with significant invested capital. This segment has comprised approximately 5%-15% of its business.
Control Investments in Corporate Operating Companies
It involves acquiring controlling stakes in non-financial operating companies. The Company’s investments in these companies are generally structured as a combination of yield-producing debt and equity. This segment has comprised approximately 10%-15% of its business.
Control Investments in Financial Companies
It involves acquiring controlling stakes in financial companies, including consumer direct lending, sub-prime auto lending and other strategies. The Company’s investments in these companies are generally structured as a combination of yield-producing debt and equity. These investments are often structured in a tax-efficient RIC-compliant partnership, enhancing returns. This segment has comprised approximately 5%-15% of its business.
Investments in Structured Credit
The Company makes investments in collateralized loan obligations (CLOs), generally taking a significant position in the subordinated interests (equity) of the CLOs. The CLOs include a diversified portfolio of syndicated loans and do not have direct exposure to real estate, mortgages, sub-prime debt, or consumer based debt. This segment has comprised approximately 10%-20% of its business.
Real Estate Investments
The Company makes investments in real estate through its three wholly-owned tax-efficient real estate investment trusts ("REITs"), American Property REIT Corp., National Property REIT Corp. and United Property REIT Corp. This segment has comprised approximately 5%-10% of its business.
Investments in Syndicated Debt
The Company makes investments in loans and high yield bonds that have been sold to a syndicate of buyers in which it looks for investments with risk-adjusted returns after completing a fundamental credit analysis. These investments are purchased with a long term, buy-and-hold outlook and it looks to provide significant structuring input by providing anchoring orders. This segment has comprised approximately 5%-10% of its business.
The Company invests debt as well as equity in aircraft assets subject to commercial leases to credit-worthy airlines across the globe. The Company’s target portfolio includes both in-production and out-of-production jet and turboprop aircraft and engines, operated by airlines across the globe. This segment comprises 1.5% of its business as of June 30, 2014.
The Company makes investments in loans originated by certain consumer loan and small and medium sized business (SME) originators. It purchases each loan in its entirety. The borrowers are consumers and SMEs. The loans are typically serviced by the originators of the loans. This segment comprised approximately 1% of its business as of June 30, 2014.
Prospect Capital Management is the Company’s investment adviser.
Prospect Capital Corp
10 E 40th St Fl 44
NEW YORK NY 10016-0301