Prospect Capital reports Q3 EPS (38c) vs. 23c last year

“We are rightsizing our common shareholder distribution rate as we continue to execute our long-term income and total return strategy by rotating structured credit CLO equity and real estate investments into our core business of first lien senior secured middle market loans, including sometimes with selected equity co-investments,” said John Barry, CEO. “Our preferred shareholder cash distributions continue at the contractual rates of such distributions. CLO equity and real estate investments have generated solid unlevered investment-level gross cash IRRs, but with more variability compared to our core business. As we rotate into lower variability middle-market corporate investments, our recurring income as shown by interest income as a percent of total income has reached 94%, an increase of over 800 basis points for the year-over-year quarterly period. We still perceive CLO equity and real estate investments as attractive risk-adjusted strategies. We expect another fund managed by an affiliate of Prospect Capital (PSEC) Management L.P. to continue to focus on new CLO equity investments, with less targeted Prospect Capital Corporation balance sheet investment in this strategy going forward. CLO equity has decreased to 6% of our assets as we execute on our rotation strategy to emphasize first lien senior secured lending, with such mix growing significantly for us. CLO equity typically generates attractive cash-on-cash yields, but such yields tend to be higher in the initial years while lower in the later years, thereby resulting in variability that we seek to dampen by focusing more on our core business at Prospect Capital Corporation. Real estate investing is a total return strategy that has been a solid fit for Prospect Capital Corporation during periods of low short-term and medium-term interest rates.”