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SEC Filings, Earing Reports, Press Releases
Prospect Capital Corp. Reports Operating Results (10-K)
Posted by: gurufocus (IP Logged)
Date: August 29, 2011 05:45PM
Prospect Capital Corp. (PSEC) filed Annual Report for the period ended 2011-06-30.
Highlight of Business Operations:
The aggregate market value of common stock held by non-affiliates of the Registrant on December 31, 2010 based on the closing price on that date of $10.80 on the NASDAQ Global Select Market was $926.3 million. For the purposes of calculating this amount only, all directors and executive officers of the Registrant have been treated as affiliates.
On December 2, 2009, we completed our acquisition of Patriot Capital Funding, Inc. ("Patriot"). We acquired Patriot for $201.1 million comprised of our common stock and cash to repay all of Patriot's outstanding debt, which amounted to $107.3 million. In the merger, each outstanding share of Patriot common stock was converted into the right to receive 0.363992 shares of common stock of Prospect, representing 8,444,068 shares of the Company's common stock, and the payment of cash in lieu of fractional shares of Prospect common stock of less than $200 resulting from the application of the foregoing exchange ratio.
The merger has been accounted for as an acquisition of Patriot by Prospect Capital in accordance with acquisition method of accounting as detailed in ASC 805, Business Combinations ("ASC 805"). The fair value of the consideration paid was allocated to the assets acquired and liabilities assumed based on their fair values as the date of acquisition. As described in more detail in ASC 805, goodwill, if any, would have been recognized as of the acquisition date, if the consideration transferred exceeded the fair value of identifiable net assets acquired. As of the acquisition date, the fair value of the identifiable net assets acquired exceeded the fair value of the consideration transferred, and we recognized the excess as a gain. A preliminary gain of $5.7 million was recorded by Prospect in the quarter ended December 31, 2009 related to the acquisition of Patriot, which was revised in the fourth quarter of the fiscal year ended June 30, 2010, to $7.7 million, when we settled severance accruals related to certain members of Patriot's top management, and finalized during the first quarter of the fiscal year ended June 30, 2011, to $8.6 million, when we settled the remaining severance accruals related to the last two members of Patriot's top management. Under ASC 805, the adjustment to our preliminary estimates is
We invest primarily in first and second lien senior loans and mezzanine debt, which in some cases includes an equity component. First and second lien senior loans generally are senior debt instruments that rank ahead of subordinated debt of a given portfolio company. These loans also have the benefit of security interests on the assets of the portfolio company, which may rank ahead of or be junior to other security interests. Mezzanine debt is subordinated to senior loans and is generally unsecured. Our investments have generally ranged between $5 million and $75 million each, although the investment size may be more or less than this range. Our investment sizes are expected to grow as our capital base expands.
We believe that the dislocation in the credit markets that began in 2007 resulted in reduced competition, a widening of interest spreads, increased fees and generally more conservative capital structures and deal terms. These previous market conditions may continue to create favorable opportunities to invest at attractive risk-adjusted returns. We believe that many senior lenders have, in recent years, de-emphasized their service and product offerings to middle-market businesses in favor of lending to large corporate clients and managing capital markets transactions. In addition, commercial and investment banks are limited in their ability to underwrite and syndicate bank loans and high yield securities for middle-market issuers as they seek to build capital and reduce leverage, resulting in opportunities for alternative funding sources and therefore higher new-issue market opportunities. We believe there is a large pool of un-invested private equity capital for middle-market businesses. We expect private equity firms will seek to leverage their investments by combining equity capital with senior secured loans and mezzanine debt from other sources. A high volume of senior secured and high yield debt was originated in the calendar years 2004 through 2007 and will come due in the near term and, accordingly, we believe that new financing opportunities will increase as many companies seek to refinance this indebtedness. To capitalize on these opportunities, expansion of the capital base may be necessary. We have demonstrated our continuing access capital markets in several equity and debt transactions during the year ended June 30, 2011. From July 1, 2010 to December 15, 2010, we raised $181.9 million of equity capital through our at the market program. On December 21, 2010 and February 18, 2011, we issued $150.0 million and $172.5 million, respectively, of senior convertible notes. On April 7, 2011, we completed a public stock offering for 9,000,000 shares of our common stock raising $102.6 million of gross proceeds. On June 24, 2011, we completed a public stock offering for 10,000,000 shares of our common stock at $10.15 per share, raising $101.5 million of gross proceeds.