10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarter Ended March 31, 2010
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number: 814-00659
PROSPECT CAPITAL CORPORATION
(Exact name of registrant as specified in its charter)
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Maryland
(State or other jurisdiction of incorporation or organization)
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43-2048643
(I.R.S. Employer Identification No.) |
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10 East 40th Street
44th Floor
New York, New York
(Address of principal executive offices)
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10016
(Zip Code) |
(212) 448-0702
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. þ Yes o No
Indicate by check mark
whether the registrant has submitted electronically and posted on its corporate
Web site, if any, every Interactive Data File required to be submitted and
posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to
submit and post such files). o Yes o No
Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
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Large accelerated filer o |
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Accelerated filer þ
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Non-accelerated filer o (Do not check if a smaller reporting
company) |
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Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). oYes þ No
The number of shares of the registrants common stock, $0.001 par value, outstanding as
of May 10, 2010 was 67,281,662.
PROSPECT CAPITAL CORPORATION
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2010
TABLE OF CONTENTS
2
PART I: FINANCIAL INFORMATION
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Item 1. |
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Financial Statements |
PROSPECT CAPITAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES
March 31, 2010 and June 30, 2009
(in thousands, except share and per share data)
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March 31, 2010 |
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June 30, 2009 |
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(Unaudited) |
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(Audited) |
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Assets (Note 10) |
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Investments at fair value (cost of $675,534 and $531,424, respectively, Note 4) |
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Control investments (cost of $181,894 and $187,105, respectively) |
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$ |
194,647 |
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$ |
206,332 |
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Affiliate investments (cost of $63,197 and $33,544, respectively) |
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73,516 |
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32,254 |
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Non-control/Non-affiliate investments (cost of $430,443 and $310,775,
respectively) |
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428,838 |
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308,582 |
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Total investments at fair value |
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697,001 |
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547,168 |
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Investments in money market funds |
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23,011 |
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98,735 |
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Cash |
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21,249 |
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9,942 |
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Receivables for: |
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Interest, net |
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3,233 |
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3,562 |
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Dividends |
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1 |
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28 |
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Other |
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404 |
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571 |
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Prepaid expenses |
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146 |
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68 |
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Deferred financing costs, net |
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4,948 |
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6,951 |
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Other assets |
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534 |
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Total Assets |
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$ |
750,527 |
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$ |
667,025 |
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Liabilities |
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Credit facility payable (Note 10) |
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54,200 |
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124,800 |
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Dividend payable |
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26,403 |
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Due to Prospect Administration (Note 8) |
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243 |
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842 |
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Due to Prospect Capital Management (Note 8) |
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9,246 |
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5,871 |
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Due to broker |
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1,743 |
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Accrued expenses |
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7,640 |
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2,381 |
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Other liabilities |
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1,566 |
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535 |
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Total Liabilities |
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101,041 |
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134,429 |
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Net Assets |
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$ |
649,486 |
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$ |
532,596 |
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Components of Net Assets |
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Common stock, par value $0.001 per share (100,000,000 and 100,000,000
common shares authorized, respectively; 64,398,231 and 42,943,084 issued
and outstanding, respectively) |
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$ |
64 |
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$ |
43 |
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Paid-in capital in excess of par |
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753,992 |
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545,707 |
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Under/(over) distributed net investment income |
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(21,756 |
) |
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24,152 |
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Accumulated realized losses on investments |
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(104,281 |
) |
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(53,050 |
) |
Unrealized appreciation on investments |
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21,467 |
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15,744 |
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Net Assets |
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$ |
649,486 |
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$ |
532,596 |
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Net Asset Value Per Share |
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$ |
10.09 |
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$ |
12.40 |
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See notes to consolidated financial statements.
3
PROSPECT CAPITAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
For The Three and Nine Months Ended March 31, 2010 and 2009
(in thousands, except share and per share data)
(Unaudited)
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For The Three Months Ended |
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For The Nine Months Ended |
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March 31, |
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March 31, |
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2010 |
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2009 |
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2010 |
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2009 |
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Investment Income |
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Interest Income (Note 4) |
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Control investments (Net of foreign withholding tax of
$0, $28, ($19), and $137, respectively) |
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$ |
4,494 |
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$ |
5,503 |
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$ |
14,137 |
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$ |
17,300 |
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Affiliate investments |
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2,731 |
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730 |
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5,119 |
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2,365 |
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Non-control/non-affiliate investments |
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20,722 |
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9,832 |
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42,065 |
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31,197 |
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Total interest income |
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27,947 |
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16,065 |
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61,321 |
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50,862 |
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Dividend income |
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Control investments |
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2,300 |
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4,400 |
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12,660 |
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13,568 |
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Money market funds |
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1 |
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45 |
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29 |
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265 |
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Total dividend income |
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2,301 |
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4,445 |
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12,689 |
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13,833 |
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Other income: (Note 5) |
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Control/affiliate investments |
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241 |
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316 |
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831 |
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Gain on Patriot acquisition (Note 2) |
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5,714 |
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Non-control/non-affiliate investments |
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1,516 |
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159 |
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2,365 |
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13,155 |
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Total other income |
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1,757 |
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159 |
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8,395 |
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13,986 |
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Total Investment Income |
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32,005 |
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20,669 |
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82,405 |
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78,681 |
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Operating Expenses |
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Investment advisory fees: |
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Base management fee (Note 8) |
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3,576 |
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2,977 |
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9,962 |
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8,740 |
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Income incentive fee (Note 8) |
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4,744 |
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2,930 |
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12,054 |
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11,795 |
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Total investment advisory fees |
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8,320 |
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5,907 |
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22,016 |
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20,535 |
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Interest and credit facility expenses |
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2,111 |
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1,345 |
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5,480 |
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4,828 |
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Sub-administration fees |
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177 |
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|
644 |
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Legal fees |
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146 |
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107 |
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469 |
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|
590 |
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Valuation services |
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231 |
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139 |
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|
504 |
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561 |
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Audit, compliance and tax related fees |
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181 |
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219 |
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|
681 |
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|
848 |
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Allocation of overhead from Prospect Administration (Note 8) |
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840 |
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588 |
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2,520 |
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1,764 |
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Insurance expense |
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64 |
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61 |
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190 |
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185 |
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Directors fees |
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64 |
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61 |
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|
192 |
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|
204 |
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Potential merger expenses (Note 11) |
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925 |
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1,148 |
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Other general and administrative expenses |
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|
149 |
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|
345 |
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|
988 |
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|
807 |
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Tax expense |
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533 |
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Total Operating Expenses |
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13,031 |
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8,949 |
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34,188 |
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31,499 |
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Net Investment Income |
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18,974 |
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|
11,720 |
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|
48,217 |
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|
47,182 |
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Net realized (loss) gain on investments |
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(2 |
) |
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(51,231 |
) |
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|
1,661 |
|
Net change in unrealized appreciation/depreciation on
investments |
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6,968 |
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|
3,611 |
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5,723 |
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(12,990 |
) |
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Net Increase in Net Assets Resulting from Operations |
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$ |
25,940 |
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$ |
15,331 |
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$ |
2,709 |
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$ |
35,853 |
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Net increase in net assets resulting from operations per
share: (Note 7) |
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$ |
0.41 |
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$ |
0.51 |
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$ |
0.05 |
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$ |
1.21 |
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Dividends/distributions declared per share: |
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$ |
0.41 |
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$ |
0.41 |
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$ |
1.23 |
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$ |
1.21 |
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See notes to consolidated financial statements.
4
PROSPECT CAPITAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
For The Nine Months Ended March 31, 2010 and 2009
(in thousands, except share data)
(Unaudited)
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For The Nine Months Ended |
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March 31, 2010 |
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March 31, 2009 |
|
Increase in Net Assets from Operations: |
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Net investment income |
|
$ |
48,217 |
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|
$ |
47,182 |
|
Net realized (loss) gain on investments |
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(51,231 |
) |
|
|
1,661 |
|
Net change in unrealized depreciation on investments |
|
|
5,723 |
|
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|
(12,990 |
) |
|
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|
|
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|
Net Increase in Net Assets Resulting from Operations |
|
|
2,709 |
|
|
|
35,853 |
|
|
|
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|
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Dividends/Distributions to Shareholders: |
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(94,125 |
) |
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(36,519 |
) |
|
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Capital Share Transactions: |
|
|
|
|
|
|
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|
Net proceeds from capital shares sold |
|
|
108,858 |
|
|
|
12,300 |
|
Less: Offering costs of public share offerings |
|
|
(1,606 |
) |
|
|
(513 |
) |
Fair value of equity issued in conjunction with Patriot acquisition |
|
|
92,800 |
|
|
|
|
|
Reinvestment of dividends/distributions |
|
|
8,254 |
|
|
|
3,280 |
|
|
|
|
|
|
|
|
Net Increase in Net Assets Resulting from Capital Share
Transactions |
|
|
208,306 |
|
|
|
15,067 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Increase in Net Assets: |
|
|
116,890 |
|
|
|
14,401 |
|
Net assets at beginning of period |
|
|
532,596 |
|
|
|
429,623 |
|
|
|
|
|
|
|
|
Net Assets at End of Period |
|
$ |
649,486 |
|
|
$ |
444,024 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Share Activity: |
|
|
|
|
|
|
|
|
Shares sold |
|
|
12,243,297 |
|
|
|
1,500,000 |
|
Shares issued for Patriot acquisition |
|
|
8,444,068 |
|
|
|
|
|
Shares issued through reinvestment of dividends/distributions |
|
|
767,782 |
|
|
|
265,749 |
|
|
|
|
|
|
|
|
Net increase in capital share activity |
|
|
21,455,147 |
|
|
|
1,765,749 |
|
Shares outstanding at beginning of period |
|
|
42,943,084 |
|
|
|
29,520,379 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Shares Outstanding at End of Period |
|
|
64,398,231 |
|
|
|
31,286,128 |
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
5
PROSPECT CAPITAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Nine Months Ended March 31, 2010 and 2009
(in thousands, except share data)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
For The Nine Months Ended March 31, |
|
|
|
2010 |
|
|
2009 |
|
Cash Flows from Operating Activities: |
|
|
|
|
|
|
|
|
Net increase in net assets resulting from operations |
|
$ |
2,709 |
|
|
$ |
35,853 |
|
Net realized loss (gain) on investments |
|
|
51,231 |
|
|
|
(1,661 |
) |
Net change in unrealized depreciation on investments |
|
|
(5,723 |
) |
|
|
12,990 |
|
Accretion of original issue discount on investments |
|
|
(15,865 |
) |
|
|
(2,323 |
) |
Amortization of deferred financing costs |
|
|
3,427 |
|
|
|
540 |
|
Gain on settlement of net profits interest |
|
|
|
|
|
|
(12,576 |
) |
Gain on Patriot acquisition |
|
|
(5,714 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Payments for purchases of investments |
|
|
(64,390 |
) |
|
|
(89,052 |
) |
Payment-in-kind interest |
|
|
(4,299 |
) |
|
|
(1,324 |
) |
Proceeds from sale of investments and collection of investment principal |
|
|
96,338 |
|
|
|
36,435 |
|
Purchases of cash equivalents |
|
|
(199,997 |
) |
|
|
(29,999 |
) |
Sales of cash equivalents |
|
|
199,997 |
|
|
|
29,999 |
|
Net decrease of investments in money market funds |
|
|
75,724 |
|
|
|
(6,254 |
) |
Decrease (increase) in interest receivable |
|
|
2,653 |
|
|
|
(1,835 |
) |
Decrease in dividends receivable |
|
|
27 |
|
|
|
4,232 |
|
Decrease in loan principal receivable |
|
|
|
|
|
|
71 |
|
Increase in receivable for managerial assistance |
|
|
|
|
|
|
(93 |
) |
Increase in receivable for potential deal expenses |
|
|
|
|
|
|
(86 |
) |
Decrease in other receivables |
|
|
167 |
|
|
|
78 |
|
Decrease (increase) in prepaid expenses |
|
|
(43 |
) |
|
|
52 |
|
Decrease in due from Prospect Administration |
|
|
1,500 |
|
|
|
|
|
Increase in other assets |
|
|
(534 |
) |
|
|
|
|
(Decrease) increase in due to Prospect Administration |
|
|
(599 |
) |
|
|
47 |
|
Increase (decrease) in due to Prospect Capital Management |
|
|
3,375 |
|
|
|
(133 |
) |
Increase in due to broker |
|
|
1,743 |
|
|
|
|
|
(Decrease) increase in accrued expenses |
|
|
(626 |
) |
|
|
220 |
|
Increase (decrease) in other liabilities |
|
|
1,031 |
|
|
|
(733 |
) |
|
|
|
|
|
|
|
Net Cash Provided By (Used In) Operating Activities: |
|
|
142,132 |
|
|
|
(25,552 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities: |
|
|
|
|
|
|
|
|
Acquisition of Patriot, net of cash acquired (Note 2) |
|
|
(106,586 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net Cash Used In Investing Activities: |
|
|
(106,586 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities: |
|
|
|
|
|
|
|
|
Borrowings under credit facility |
|
|
115,000 |
|
|
|
54,500 |
|
Payments under credit facility |
|
|
(185,600 |
) |
|
|
(8,100 |
) |
Financing costs paid and deferred |
|
|
(1,424 |
) |
|
|
(328 |
) |
Net proceeds from issuance of common stock |
|
|
108,858 |
|
|
|
12,300 |
|
Offering costs from issuance of common stock |
|
|
(1,606 |
) |
|
|
(513 |
) |
Dividends/distributions paid |
|
|
(59,467 |
) |
|
|
(32,413 |
) |
|
|
|
|
|
|
|
Net Cash (Used In) Provided By Financing Activities: |
|
|
(24,239 |
) |
|
|
25,446 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Increase (Decrease) in Cash |
|
|
11,307 |
|
|
|
(106 |
) |
Cash balance at beginning of period |
|
|
9,942 |
|
|
|
555 |
|
|
|
|
|
|
|
|
Cash Balance at End of Period |
|
$ |
21,249 |
|
|
$ |
449 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Paid For Interest |
|
$ |
865 |
|
|
$ |
4,015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Cash Financing Activity: |
|
|
|
|
|
|
|
|
Value of shares issued in connection with Patriot acquisition |
|
$ |
92,800 |
|
|
$ |
|
|
|
|
|
|
|
|
|
Value of shares issued in connection with dividend reinvestment plan |
|
$ |
8,254 |
|
|
$ |
3,280 |
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
6
PROSPECT CAPITAL CORPORATION AND SUBSIDIARY
CONSOLIDATED SCHEDULE OF INVESTMENTS
March 31, 2010 and June 30, 2009
(in thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of |
|
|
|
|
|
|
|
Principal |
|
|
|
|
|
|
Fair |
|
|
Net |
|
Portfolio Company |
|
Locale / Industry |
|
Investments(1) |
|
Value |
|
|
Cost |
|
|
Value(2) |
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LEVEL 3 PORTFOLIO INVESTMENTS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Control Investments (25.00% or greater of voting control) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ajax Rolled Ring & Machine, Inc. |
|
South Carolina / Manufacturing |
|
Senior Secured Note Tranche A (10.50%, due 4/01/2013)(3), (4) |
|
$ |
21,157 |
|
|
$ |
21,157 |
|
|
$ |
21,157 |
|
|
|
3.3 |
% |
|
|
Subordinated Secured Note Tranche B (11.50% plus 6.00% PIK, due 4/01/2013)(3), (4) |
|
|
15,605 |
|
|
|
15,605 |
|
|
|
7,285 |
|
|
|
1.1 |
% |
|
|
|
|
Subordinated Secured Note Tranche B (15.00%, due 10/30/2010) |
|
|
500 |
|
|
|
500 |
|
|
|
|
|
|
|
0.0 |
% |
|
|
|
|
Convertible Preferred Stock Series A (6,143 shares) |
|
|
|
|
|
|
6,057 |
|
|
|
|
|
|
|
0.0 |
% |
|
|
|
|
Unrestricted Common Stock (6 shares) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43,319 |
|
|
|
28,442 |
|
|
|
4.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AWCNC, LLC(20) |
|
North Carolina / Machinery |
|
Members Units Class A (1,800,000 units) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.0 |
% |
|
|
|
Members Units Class B-1 (1 unit) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.0 |
% |
|
|
|
Members Units Class B-2 (7,999,999 units) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borga, Inc. |
|
California / Manufacturing |
|
Revolving Line of Credit $1,000 Commitment (5.00% plus 3.00% default interest, due 5/06/2010)(4), (26) |
|
|
800 |
|
|
|
770 |
|
|
|
680 |
|
|
|
0.1 |
% |
|
|
|
Senior Secured Term Loan B (8.50% plus 3.00% default interest, due 5/06/2010)(4) |
|
|
1,612 |
|
|
|
1,551 |
|
|
|
1,330 |
|
|
|
0.2 |
% |
|
|
|
|
Senior Secured Term Loan C (12.00% plus 4.00% PIK plus 3.00% default interest, due 5/06/2010) |
|
|
8,537 |
|
|
|
736 |
|
|
|
|
|
|
|
0.0 |
% |
|
|
|
|
Common Stock (100 shares)(22) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.0 |
% |
|
|
|
|
Warrants (33,750 warrants)(22) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,057 |
|
|
|
2,010 |
|
|
|
0.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
C&J Cladding LLC |
|
Texas / Metal Services and Minerals |
|
Membership Interest (400 units)(23) |
|
|
|
|
|
|
580 |
|
|
|
3,972 |
|
|
|
0.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
580 |
|
|
|
3,972 |
|
|
|
0.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change Clean Energy Holdings, Inc. (CCEHI)(5) |
|
Maine / Biomass Power |
|
Common Stock (1,000 shares) |
|
|
|
|
|
|
2,825 |
|
|
|
1,928 |
|
|
|
0.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,825 |
|
|
|
1,928 |
|
|
|
0.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fischbein, LLC |
|
North Carolina / Machinery |
|
Senior Subordinated Debt (13.00% plus 5.50% PIK, due 5/01/2013) |
|
|
3,758 |
|
|
|
3,569 |
|
|
|
3,769 |
|
|
|
0.6 |
% |
|
|
Membership Interest(25) |
|
|
|
|
|
|
1,898 |
|
|
|
3,210 |
|
|
|
0.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,467 |
|
|
|
6,979 |
|
|
|
1.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Freedom Marine Services LLC |
|
Louisiana / Shipping Vessels |
|
Subordinated Secured Note (16.00% PIK, due 12/31/2011)(3) |
|
|
9,258 |
|
|
|
9,204 |
|
|
|
4,118 |
|
|
|
0.6 |
% |
|
|
Net Profits Interest (22.50% payable on Equity distributions)(3), (7) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,204 |
|
|
|
4,118 |
|
|
|
0.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gas Solutions Holdings, Inc.(8) |
|
Texas / Gas Gathering and Processing |
|
Senior Secured Note (18.00%, due 12/11/2016)(3) |
|
|
25,000 |
|
|
|
25,000 |
|
|
|
25,000 |
|
|
|
3.9 |
% |
|
|
Junior Secured Note (18.00%, due 12/12/2016)(3) |
|
|
5,000 |
|
|
|
5,000 |
|
|
|
5,000 |
|
|
|
0.8 |
% |
|
|
Common Stock (100 shares)(3) |
|
|
|
|
|
|
5,003 |
|
|
|
60,596 |
|
|
|
9.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35,003 |
|
|
|
90,596 |
|
|
|
14.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
7
PROSPECT CAPITAL CORPORATION AND SUBSIDIARY
CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)
March 31, 2010 and June 30, 2009
(in thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of |
|
|
|
|
|
|
|
Principal |
|
|
|
|
|
|
Fair |
|
|
Net |
|
Portfolio Company |
|
Locale / Industry |
|
Investments(1) |
|
Value |
|
|
Cost |
|
|
Value(2) |
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LEVEL 3 PORTFOLIO INVESTMENTS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Control Investments (25.00% or greater of voting control) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Integrated Contract Services, Inc.(9) |
|
North Carolina / Contracting |
|
Senior Demand Note (15.00%, due 12/31/2009)(10) |
|
$ |
1,170 |
|
|
$ |
1,170 |
|
|
$ |
1,170 |
|
|
|
0.2 |
% |
|
|
Senior Secured Note (7.00% plus 7.00% PIK plus 6.00% default interest, in non-accrual status effective 10/09/2007, past due) |
|
|
927 |
|
|
|
800 |
|
|
|
928 |
|
|
|
0.1 |
% |
|
|
|
|
Junior Secured Note (7.00% plus 7.00% PIK plus 6.00% default interest, in non-accrual status effective 10/09/2007, past due) |
|
|
14,003 |
|
|
|
14,003 |
|
|
|
2,551 |
|
|
|
0.4 |
% |
|
|
|
|
Preferred Stock Series A (10 shares) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.0 |
% |
|
|
|
|
Common Stock (49 shares) |
|
|
|
|
|
|
679 |
|
|
|
|
|
|
|
0.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,652 |
|
|
|
4,649 |
|
|
|
0.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Iron Horse Coiled Tubing, Inc.(24) |
|
Alberta, Canada / Production Services |
|
Senior Secured Tranche 1 (Zero Coupon, in non-accrual status effective 1/01/2010, due 12/31/2016) |
|
|
615 |
|
|
|
396 |
|
|
|
615 |
|
|
|
0.1 |
% |
|
|
Senior Secured Tranche 2 (Zero Coupon, in non-accrual status effective 1/01/2010, due 12/31/2016) |
|
|
2,337 |
|
|
|
2,338 |
|
|
|
2,338 |
|
|
|
0.4 |
% |
|
|
Senior Secured Tranche 3 (1.00%, in non-accrual status effective 1/01/2010, due 12/31/2016) |
|
|
18,000 |
|
|
|
18,000 |
|
|
|
9,372 |
|
|
|
1.4 |
% |
|
|
|
|
Common Stock (1,781 shares) |
|
|
|
|
|
|
268 |
|
|
|
|
|
|
|
0.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,002 |
|
|
|
12,325 |
|
|
|
1.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manx Energy, Inc. (Manx)(12) |
|
Kansas / Oil & Gas Production |
|
Appalachian Energy Holdings, LLC (AEH) Senior Secured Note (8.00%, in non-accrual status effective 1/19/2010, due 1/19/2013) |
|
|
2,032 |
|
|
|
2,000 |
|
|
|
849 |
|
|
|
0.1 |
% |
|
|
Coalbed, LLC Senior Secured Note (8.00%, in non-accrual status effective 1/19/2010, due 1/19/2013)(6) |
|
|
6,095 |
|
|
|
5,991 |
|
|
|
2,547 |
|
|
|
0.4 |
% |
|
|
Manx Senior Secured Note (13.00%, in non-accrual status effective 1/19/2010, due 1/19/2013) |
|
|
2,800 |
|
|
|
2,800 |
|
|
|
2,800 |
|
|
|
0.4 |
% |
|
|
|
|
Manx Preferred Stock (6,635 shares) |
|
|
|
|
|
|
6,308 |
|
|
|
|
|
|
|
0.0 |
% |
|
|
|
|
Manx Common Stock (3,416,335 shares) |
|
|
|
|
|
|
1,171 |
|
|
|
|
|
|
|
0.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,270 |
|
|
|
6,196 |
|
|
|
0.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NRG Manufacturing, Inc. |
|
Texas / Manufacturing |
|
Senior Secured Note (16.50%, due 8/31/2011)(3), (4) |
|
|
13,080 |
|
|
|
13,080 |
|
|
|
13,080 |
|
|
|
2.0 |
% |
|
|
Common Stock (800 shares) |
|
|
|
|
|
|
2,317 |
|
|
|
7,400 |
|
|
|
1.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,397 |
|
|
|
20,480 |
|
|
|
3.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nupla Corporation |
|
California / Home & Office Furnishings, Housewares & Durable |
|
Revolving Line of Credit $2,000 Commitment (7.25% plus 2.00% default interest, due 9/04/2012)(4), (26) |
|
|
1,093 |
|
|
|
945 |
|
|
|
929 |
|
|
|
0.1 |
% |
|
|
Senior Secured Term Loan A (8.00% plus 2.00% default interest, due 9/04/2012)(4) |
|
|
5,139 |
|
|
|
1,503 |
|
|
|
1,972 |
|
|
|
0.3 |
% |
|
|
Senior Subordinated Debt (10.00% plus 5.00% PIK, in non-accrual status effective 4/01/2009, due 3/04/2013) |
|
|
3,325 |
|
|
|
|
|
|
|
|
|
|
|
0.0 |
% |
|
|
|
|
Preferred Stock Class A (2,850 shares) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.0 |
% |
|
|
|
|
Preferred Stock Class B (1,330 shares) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.0 |
% |
|
|
|
|
Common Stock (2,360,743 shares) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,448 |
|
|
|
2,901 |
|
|
|
0.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
R-V Industries, Inc. |
|
Pennsylvania / Manufacturing |
|
Warrants (200,000 warrants, expiring 6/30/2017) |
|
|
|
|
|
|
1,682 |
|
|
|
2,278 |
|
|
|
0.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock (545,107 shares) |
|
|
|
|
|
|
5,086 |
|
|
|
6,210 |
|
|
|
1.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,768 |
|
|
|
8,488 |
|
|
|
1.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
8
PROSPECT CAPITAL CORPORATION AND SUBSIDIARY
CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)
March 31, 2010 and June 30, 2009
(in thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of |
|
|
|
|
|
|
|
Principal |
|
|
|
|
|
|
Fair |
|
|
Net |
|
Portfolio Company |
|
Locale / Industry |
|
Investments(1) |
|
Value |
|
|
Cost |
|
|
Value(2) |
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LEVEL 3 PORTFOLIO INVESTMENTS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Control Investments (25.00% or greater of voting control) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sidumpr Trailer Company, Inc. |
|
Nebraska / Automobile |
|
Revolving Line of Credit $2,000 Commitment (7.25%, in non-accrual status effective 11/01/2008, due 1/10/2011)(4), (26) |
|
$ |
950 |
|
|
$ |
404 |
|
|
$ |
404 |
|
|
|
0.1 |
% |
|
|
Senior Secured Term Loan A (7.25%, in non-accrual status effective 11/01/2008, due 1/10/2011)(4) |
|
|
2,048 |
|
|
|
463 |
|
|
|
124 |
|
|
|
0.0 |
% |
|
|
Senior Secured Term Loan B (8.75%, in-non-accrual status effective 11/01/2008, due 1/10/2011)(4) |
|
|
2,321 |
|
|
|
|
|
|
|
|
|
|
|
0.0 |
% |
|
|
|
|
Senior Secured Term Loan C (16.50% PIK, in non-accrual status effective 9/27/2008, due 7/10/2011) |
|
|
2,960 |
|
|
|
|
|
|
|
|
|
|
|
0.0 |
% |
|
|
|
|
Senior Secured Term Loan D (7.25%, in non-accrual status effective 11/01/2008, due 7/10/2011)(4) |
|
|
1,700 |
|
|
|
|
|
|
|
|
|
|
|
0.0 |
% |
|
|
|
|
Preferred Stock (49,843 shares) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.0 |
% |
|
|
|
|
Common Stock (64,050 shares) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
867 |
|
|
|
528 |
|
|
|
0.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Yatesville Coal Holdings, Inc.(11) |
|
Kentucky / Mining, Steel, Iron and Non-Precious Metals and Coal Production |
|
Senior Secured Note (Non-accrual status effective 1/01/2009, due 12/31/2010)(4) |
|
|
10,000 |
|
|
|
1,035 |
|
|
|
1,035 |
|
|
|
0.2 |
% |
|
|
Junior Secured Note (Non-accrual status effective 1/01/2009, due 12/31/2010)(4) |
|
|
41,836 |
|
|
|
|
|
|
|
|
|
|
|
0.0 |
% |
|
|
Common Stock (1,000 shares) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,035 |
|
|
|
1,035 |
|
|
|
0.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Control Investments |
|
|
|
181,894 |
|
|
|
194,647 |
|
|
|
30.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Affiliate Investments (5.00% to 24.99% voting control) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Biotronic NeuroNetwork(17) |
|
Michigan / Healthcare |
|
Senior Secured Note (11.50% plus 1.00% PIK, due 2/21/2013)(3), (4) |
|
|
26,227 |
|
|
|
26,227 |
|
|
|
27,014 |
|
|
|
4.2 |
% |
|
|
Preferred Stock (9,925 shares)(13) |
|
|
|
|
|
|
2,300 |
|
|
|
3,450 |
|
|
|
0.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,527 |
|
|
|
30,464 |
|
|
|
4.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Boxercraft Incorporated |
|
Georgia / Textiles & Leather |
|
Revolving Line of Credit $1,000 Commitment (9.50%, due 9/16/2013)(26), (27) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.0 |
% |
|
|
Senior Secured Term Loan A (9.50%, due 9/16/2013)(3), (4) |
|
|
3,843 |
|
|
|
3,269 |
|
|
|
3,290 |
|
|
|
0.5 |
% |
|
|
Senior Secured Term Loan B (10.00%, due 9/16/2013)(3), (4) |
|
|
4,822 |
|
|
|
3,789 |
|
|
|
4,356 |
|
|
|
0.7 |
% |
|
|
|
|
Subordinated Secured Term Loan (12.00% plus 6.50% PIK, due 3/16/2014)(3) |
|
|
7,118 |
|
|
|
5,618 |
|
|
|
6,555 |
|
|
|
1.0 |
% |
|
|
|
|
Preferred Stock (1,000,000 shares) |
|
|
|
|
|
|
|
|
|
|
208 |
|
|
|
0.0 |
% |
|
|
|
|
Common Stock (10,000 shares) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,676 |
|
|
|
14,409 |
|
|
|
2.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
KTPS Holdings, LLC |
|
Colorado / Textiles & Leather |
|
Revolving Line of Credit $1,500 Commitment (10.50%, due 1/31/2012)(26), (27) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.0 |
% |
|
|
Senior Secured Term Loan A (10.50%, due 1/31/2012)(3), (4) |
|
|
3,330 |
|
|
|
2,995 |
|
|
|
2,858 |
|
|
|
0.4 |
% |
|
|
Senior Secured Term Loan B (12.00%, due 1/31/2012)(3) |
|
|
440 |
|
|
|
374 |
|
|
|
399 |
|
|
|
0.1 |
% |
|
|
|
|
Senior Secured Term Loan C (12.00% plus 6.00% PIK, due 3/31/2012)(3) |
|
|
4,796 |
|
|
|
4,150 |
|
|
|
4,205 |
|
|
|
0.7 |
% |
|
|
|
|
Membership Interest Class A (730 units) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.0 |
% |
|
|
|
|
Membership Interest Common (199,795 units) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,519 |
|
|
|
7,462 |
|
|
|
1.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
9
PROSPECT CAPITAL CORPORATION AND SUBSIDIARY
CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)
March 31, 2010 and June 30, 2009
(in thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of |
|
|
|
|
|
|
|
Principal |
|
|
|
|
|
|
Fair |
|
|
Net |
|
Portfolio Company |
|
Locale / Industry |
|
Investments(1) |
|
Value |
|
|
Cost |
|
|
Value(2) |
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LEVEL 3 PORTFOLIO INVESTMENTS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Affiliate Investments (5.00% to 24.99% voting control) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Miller Petroleum, Inc. |
|
Tennessee / Oil & Gas Production |
|
Warrants, Common Stock (2,208,772 warrants, expiring 5/04/2010 to 3/31/2015)(14) |
|
|
|
|
|
$ |
150 |
|
|
$ |
4,086 |
|
|
|
0.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
150 |
|
|
|
4,086 |
|
|
|
0.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Smart, LLC(15) |
|
New York / Diversified / Conglomerate Service |
|
Membership Interest Class B (1,218 units) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.0 |
% |
|
|
|
Membership Interest Class D (1 unit) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sport Helmets Holdings, LLC(15) |
|
New York / Personal & Nondurable Consumer Products |
|
Revolving Line of Credit $3,000 Commitment (4.25%, due 12/14/2013)(26), (27) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.0 |
% |
|
|
Senior Secured Term Loan A (4.26%, due 12/14/2013)(3), (4) |
|
$ |
3,750 |
|
|
|
2,231 |
|
|
|
2,875 |
|
|
|
0.4 |
% |
|
|
Senior Secured Term Loan B (4.76%, due 12/14/2013)(3), (4) |
|
|
7,406 |
|
|
|
5,059 |
|
|
|
5,656 |
|
|
|
0.9 |
% |
|
|
|
|
Senior Subordinated Debt Series A (12.00% plus 3.00% PIK, due 6/14/2014)(3) |
|
|
7,269 |
|
|
|
5,753 |
|
|
|
5,986 |
|
|
|
0.9 |
% |
|
|
|
|
Senior Subordinated Debt Series B (10.00% plus 5.00% PIK, due 6/14/2014)(3) |
|
|
1,340 |
|
|
|
924 |
|
|
|
1,048 |
|
|
|
0.2 |
% |
|
|
|
|
Common Stock (20,000 shares) |
|
|
|
|
|
|
358 |
|
|
|
1,530 |
|
|
|
0.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,325 |
|
|
|
17,095 |
|
|
|
2.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Affiliate Investments |
|
|
|
63,197 |
|
|
|
73,516 |
|
|
|
11.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-control/Non-affiliate Investments (less than 5.00% of voting control)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ADAPCO, Inc. |
|
Florida / Ecological |
|
Common Stock (5,000 shares) |
|
|
|
|
|
|
141 |
|
|
|
344 |
|
|
|
0.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
141 |
|
|
|
344 |
|
|
|
0.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aircraft Fasteners International, LLC |
|
California / Machinery |
|
Revolving Line of Credit $500 Commitment (9.50%, due 11/01/2012)(26), (27) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.0 |
% |
|
|
Senior Secured Term Loan (9.50%, due 11/01/2012)(3), (4) |
|
|
4,870 |
|
|
|
4,870 |
|
|
|
4,339 |
|
|
|
0.7 |
% |
|
|
Junior Secured Term Loan (12.00% plus 6.00% PIK, due 5/01/2013)(3) |
|
|
5,262 |
|
|
|
5,262 |
|
|
|
4,954 |
|
|
|
0.7 |
% |
|
|
|
|
Convertible Preferred Stock (32,500 units) |
|
|
|
|
|
|
396 |
|
|
|
110 |
|
|
|
0.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,528 |
|
|
|
9,403 |
|
|
|
1.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
American Gilsonite Company |
|
Utah / Specialty Minerals |
|
Senior Subordinated Note (12.00% plus 3.00% PIK, due 3/14/2013)(3) |
|
|
14,783 |
|
|
|
14,783 |
|
|
|
14,931 |
|
|
|
2.3 |
% |
|
|
Membership Interest Units in AGC/PEP, LLC (99.9999%)(16) |
|
|
|
|
|
|
1,031 |
|
|
|
2,841 |
|
|
|
0.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,814 |
|
|
|
17,772 |
|
|
|
2.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Arrowhead General Insurance Agency, Inc.(17) |
|
California / Insurance |
|
Senior Secured Term Loan (8.50%, due 2/08/2013) |
|
|
873 |
|
|
|
825 |
|
|
|
827 |
|
|
|
0.1 |
% |
|
|
Junior Secured Term Loan (10.25% plus 2.50% PIK, due 2/08/2013) |
|
|
6,138 |
|
|
|
4,886 |
|
|
|
4,872 |
|
|
|
0.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,711 |
|
|
|
5,699 |
|
|
|
0.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
10
PROSPECT CAPITAL CORPORATION AND SUBSIDIARY
CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)
March 31, 2010 and June 30, 2009
(in thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of |
|
|
|
|
|
|
|
Principal |
|
|
|
|
|
|
Fair |
|
|
Net |
|
Portfolio Company |
|
Locale / Industry |
|
Investments(1) |
|
Value |
|
|
Cost |
|
|
Value(2) |
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LEVEL 3 PORTFOLIO INVESTMENTS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-control/Non-affiliate Investments (less than 5.00% of voting control)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Caleel + Hayden,
LLC (15) |
|
Colorado / Personal & Nondurable Consumer Products |
|
Junior Secured Term Loan B (9.25%, due 11/10/2011)(4) |
|
$ |
6,409 |
|
|
$ |
6,386 |
|
|
$ |
6,409 |
|
|
|
1.0 |
% |
|
|
Senior Subordinated Debt (12.00% plus 4.50% PIK, due 11/10/2012) |
|
|
6,250 |
|
|
|
5,808 |
|
|
|
6,250 |
|
|
|
1.0 |
% |
|
|
Common Stock (7,500 shares) |
|
|
|
|
|
|
351 |
|
|
|
773 |
|
|
|
0.1 |
% |
|
|
|
|
Options in Mineral Fusion Natural Brands, LLC (11,662 options) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,545 |
|
|
|
13,432 |
|
|
|
2.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Castro Cheese Company, Inc. |
|
Texas / Food Products |
|
Subordinated Secured Note (11.00% plus 2.00% PIK, due 2/28/2013)(3) |
|
|
7,654 |
|
|
|
7,551 |
|
|
|
7,807 |
|
|
|
1.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,551 |
|
|
|
7,807 |
|
|
|
1.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copernicus Group |
|
North Carolina / Healthcare |
|
Revolving Line of Credit $500 Commitment (10.00%, due 10/08/2013)(4), (26) |
|
|
150 |
|
|
|
13 |
|
|
|
|
|
|
|
0.0 |
% |
|
|
|
Senior Secured Term Loan A (10.00%, due 10/08/2013)(3), (4) |
|
|
6,050 |
|
|
|
5,165 |
|
|
|
5,389 |
|
|
|
0.9 |
% |
|
|
|
Senior Subordinated Debt (10.00% plus 10.00% PIK, due 4/08/2014) |
|
|
13,060 |
|
|
|
11,032 |
|
|
|
12,479 |
|
|
|
1.9 |
% |
|
|
|
|
Preferred Stock Series A (1,000,000 shares) |
|
|
|
|
|
|
67 |
|
|
|
148 |
|
|
|
0.0 |
% |
|
|
|
|
Preferred Stock Series C (212,121 shares) |
|
|
|
|
|
|
212 |
|
|
|
229 |
|
|
|
0.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,489 |
|
|
|
18,245 |
|
|
|
2.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Custom Direct, Inc. (17) |
|
Maryland / Printing & Publishing |
|
First Lien Debt (3.06%, due 12/31/2013)(4) |
|
|
1,601 |
|
|
|
1,177 |
|
|
|
1,601 |
|
|
|
0.2 |
% |
|
|
Second Lien Debt (6.31%, due 12/31/2014)(4) |
|
|
2,000 |
|
|
|
1,267 |
|
|
|
2,000 |
|
|
|
0.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,444 |
|
|
|
3,601 |
|
|
|
0.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deb Shops, Inc.(17) |
|
Pennsylvania / Retail |
|
Second Lien Debt (14.00% PIK, in non-accrual status effective 2/24/2009, due 10/23/2014) |
|
|
16,961 |
|
|
|
14,606 |
|
|
|
2,449 |
|
|
|
0.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,606 |
|
|
|
2,449 |
|
|
|
0.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diamondback Operating, LP |
|
Oklahoma / Oil & Gas Production |
|
Net Profits Interest (15.00% payable on Equity distributions)(7) |
|
|
|
|
|
|
|
|
|
|
308 |
|
|
|
0.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
308 |
|
|
|
0.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EXL Acquisition Corporation |
|
South Carolina / Electronics |
|
Revolving Line of Credit $1,500 Commitment (3.56%, due 3/15/2012)(26), (27) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.0 |
% |
|
|
Senior Secured Term Loan A (3.56% 5.50%, due 3/15/2011)(3), (4), (28) |
|
|
1,348 |
|
|
|
1,156 |
|
|
|
1,095 |
|
|
|
0.2 |
% |
|
|
|
|
Senior Secured Term Loan B (3.81%, due 3/15/2012)(3), (4) |
|
|
3,760 |
|
|
|
3,426 |
|
|
|
3,571 |
|
|
|
0.5 |
% |
|
|
|
|
Senior Secured Term Loan C (4.31%, due 3/15/2012)(3), (4) |
|
|
2,319 |
|
|
|
2,135 |
|
|
|
2,224 |
|
|
|
0.3 |
% |
|
|
|
|
Senior Secured Term Loan D (12.00% plus 3.00% PIK, due 3/15/2012)(3) |
|
|
5,550 |
|
|
|
5,615 |
|
|
|
5,550 |
|
|
|
0.9 |
% |
|
|
|
|
Common Stock Class A (2,475 shares) |
|
|
|
|
|
|
509 |
|
|
|
530 |
|
|
|
0.1 |
% |
|
|
|
|
Common Stock Class B (25 shares) |
|
|
|
|
|
|
306 |
|
|
|
315 |
|
|
|
0.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,147 |
|
|
|
13,285 |
|
|
|
2.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fairchild Industrial Products, Co.(2) |
|
North Carolina / Electronics |
|
Preferred Stock Class A (378 shares) |
|
|
|
|
|
|
377 |
|
|
|
400 |
|
|
|
0.1 |
% |
|
|
Common Stock Class B (28 shares) |
|
|
|
|
|
|
211 |
|
|
|
200 |
|
|
|
0.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
588 |
|
|
|
600 |
|
|
|
0.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
11
PROSPECT CAPITAL CORPORATION AND SUBSIDIARY
CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)
March 31, 2010 and June 30, 2009
(in thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of |
|
|
|
|
|
|
|
Principal |
|
|
|
|
|
|
Fair |
|
|
Net |
|
Portfolio Company |
|
Locale / Industry |
|
Investments(1) |
|
Value |
|
|
Cost |
|
|
Value(2) |
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LEVEL 3 PORTFOLIO INVESTMENTS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-control/Non-affiliate Investments (less than 5.00% of voting control)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
H&M Oil & Gas, LLC |
|
Texas / Oil & Gas Production |
|
Senior Secured Note (13.00% plus 3.00% PIK, due 9/30/2010) |
|
$ |
58,661 |
|
|
$ |
58,661 |
|
|
$ |
52,554 |
|
|
|
8.1 |
% |
|
|
Net Profits
Interest (8.00% payable on Equity
distributions)(7) |
|
|
|
|
|
|
|
|
|
|
563 |
|
|
|
0.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
58,661 |
|
|
|
53,117 |
|
|
|
8.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hudson Products Holdings, Inc.(17) |
|
Texas / Manufacturing |
|
Senior Secured Term Loan (8.00%, due 8/24/2015)(3), (4) |
|
|
7,388 |
|
|
|
6,733 |
|
|
|
6,839 |
|
|
|
1.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,733 |
|
|
|
6,839 |
|
|
|
1.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IEC Systems LP (IEC) /Advanced Rig Services LLC (ARS) |
|
Texas / Oilfield Fabrication |
|
IEC Senior Secured Note (12.00% plus 3.00% PIK, due 11/20/2012)(3), (4) |
|
|
19,608 |
|
|
|
19,608 |
|
|
|
19,608 |
|
|
|
3.0 |
% |
|
|
ARS Senior Secured Note (12.00% plus 3.00% PIK, due 11/20/2012)(3), (4) |
|
|
11,775 |
|
|
|
11,775 |
|
|
|
11,775 |
|
|
|
1.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,383 |
|
|
|
31,383 |
|
|
|
4.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact Products, LLC |
|
Ohio / Home & Office Furnishings, Housewares & Durable |
|
Junior Secured Term Loan (6.25%, due 9/09/2012)(4) |
|
|
8,800 |
|
|
|
7,757 |
|
|
|
8,492 |
|
|
|
1.3 |
% |
|
|
Senior Subordinated Debt (10.00% plus 5.00% PIK, due 9/09/2012) |
|
|
5,548 |
|
|
|
5,279 |
|
|
|
5,548 |
|
|
|
0.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,036 |
|
|
|
14,040 |
|
|
|
2.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Label Corp Holdings, Inc. |
|
Nebraska / Printing & Publishing |
|
Senior Secured Term Loan (8.50%, due 8/08/2014)(3), (4) |
|
|
5,823 |
|
|
|
5,222 |
|
|
|
5,284 |
|
|
|
0.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,222 |
|
|
|
5,284 |
|
|
|
0.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LHC Holdings Corp.(17) |
|
Florida / Healthcare |
|
Revolving Line of Credit $1,000 Commitment (4.31%, due 11/30/2012)(26), (27) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.0 |
% |
|
|
Senior Secured Term Loan A (4.31%, due 11/30/2012)(3), (4) |
|
|
2,390 |
|
|
|
1,681 |
|
|
|
1,865 |
|
|
|
0.3 |
% |
|
|
|
|
Senior Subordinated Debt (12.00% plus 2.50% PIK, due 5/31/2013)(3) |
|
|
4,565 |
|
|
|
4,177 |
|
|
|
4,209 |
|
|
|
0.7 |
% |
|
|
|
|
Membership Interest (125 units) |
|
|
|
|
|
|
216 |
|
|
|
213 |
|
|
|
0.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,074 |
|
|
|
6,287 |
|
|
|
1.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mac & Massey Holdings, LLC |
|
Georgia / Food Products |
|
Senior Subordinated Debt (10.00% plus 5.75% PIK, due 2/10/2013) |
|
|
8,547 |
|
|
|
7,150 |
|
|
|
8,143 |
|
|
|
1.3 |
% |
|
|
Membership Interest (250 units) |
|
|
|
|
|
|
157 |
|
|
|
348 |
|
|
|
0.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,307 |
|
|
|
8,491 |
|
|
|
1.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maverick Healthcare, LLC |
|
Arizona / Healthcare |
|
Second Lien Debt (12.50% plus 3.50% PIK, due 4/30/2014)(3) |
|
|
13,006 |
|
|
|
13,006 |
|
|
|
13,006 |
|
|
|
2.0 |
% |
|
|
Preferred Units (1,250,000 units) |
|
|
|
|
|
|
1,252 |
|
|
|
2,081 |
|
|
|
0.3 |
% |
|
|
|
|
Common Units (1,250,000 units) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,258 |
|
|
|
15,087 |
|
|
|
2.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Northwestern Management Services, LLC |
|
Florida / Healthcare |
|
Revolving Line of Credit $1,000 Commitment (4.25%, due 12/13/2012)(26), (27) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.0 |
% |
|
|
Senior Secured Term Loan A (4.25%, due 12/13/2012)(3), (4) |
|
|
4,534 |
|
|
|
3,638 |
|
|
|
3,513 |
|
|
|
0.5 |
% |
|
|
Senior Secured Term Loan B (4.75%, due 12/13/2012)(3), (4) |
|
|
1,222 |
|
|
|
882 |
|
|
|
956 |
|
|
|
0.1 |
% |
|
|
|
|
Subordinated Secured Term Loan (12.00% plus 3.00%, due 6/13/2013)(3) |
|
|
2,949 |
|
|
|
2,418 |
|
|
|
2,415 |
|
|
|
0.4 |
% |
|
|
|
|
Common Stock (50 shares) |
|
|
|
|
|
|
371 |
|
|
|
450 |
|
|
|
0.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,309 |
|
|
|
7,334 |
|
|
|
1.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
12
PROSPECT CAPITAL CORPORATION AND SUBSIDIARY
CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)
March 31, 2010 and June 30, 2009
(in thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of |
|
|
|
|
|
|
|
Principal |
|
|
|
|
|
Fair |
|
|
Net |
|
Portfolio Company |
|
Locale / Industry |
|
Investments(1) |
|
Value |
|
Cost |
|
|
Value(2) |
|
|
Assets |
|
|
LEVEL 3 PORTFOLIO INVESTMENTS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-control/Non-affiliate Investments (less than 5.00% of voting control)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prince Mineral Company, Inc. |
|
New York / Metal Services and Minerals |
|
Junior Secured Term Loan (9.00%, due 12/21/2012)(4) |
|
$ 11,150 |
|
$ |
11,150 |
|
|
$ |
9,156 |
|
|
|
1.4 |
% |
|
|
Senior Subordinated Debt (13.00% plus 1.00%, due 7/21/2013) |
|
12,198 |
|
|
1,327 |
|
|
|
10,402 |
|
|
|
1.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,477 |
|
|
|
19,558 |
|
|
|
3.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Qualitest Pharmaceuticals, Inc.(17) |
|
Alabama / Pharmaceuticals |
|
Second Lien Debt (7.75%, due 4/30/2015)(3), (4) |
|
12,000 |
|
|
11,954 |
|
|
|
12,000 |
|
|
|
1.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,954 |
|
|
|
12,000 |
|
|
|
1.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Regional Management Corp. |
|
South Carolina / Financial Services |
|
Second Lien Debt (12.00% plus 2.00% PIK, due 6/29/2012)(3) |
|
25,814 |
|
|
25,814 |
|
|
|
25,124 |
|
|
|
3.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,814 |
|
|
|
25,124 |
|
|
|
3.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
R-O-M Corporation |
|
Missouri / Manufacturing |
|
Revolving Line of Credit $1,750 Commitment (4.50%, due 2/08/2013)(26), (27) |
|
|
|
|
|
|
|
|
|
|
|
|
0.0 |
% |
|
|
|
Senior Secured Term Loan A (4.50%, due 2/08/2013)(3), (4) |
|
5,040 |
|
|
4,315 |
|
|
|
4,148 |
|
|
|
0.6 |
% |
|
|
|
|
Senior Secured Term Loan B (8.00%, due 5/08/2013)(3), (4) |
|
8,272 |
|
|
8,272 |
|
|
|
7,633 |
|
|
|
1.2 |
% |
|
|
|
|
Senior Subordinated Debt (12.00% plus 3.00% PIK due 8/08/2013)(3) |
|
7,336 |
|
|
7,000 |
|
|
|
6,217 |
|
|
|
1.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,587 |
|
|
|
17,998 |
|
|
|
2.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shearers Foods, Inc. |
|
Ohio / Food Products |
|
Junior Secured Debt (12.00% plus 3.00% PIK, due 3/31/2016) |
|
35,000 |
|
|
35,000 |
|
|
|
35,000 |
|
|
|
5.4 |
% |
|
|
|
Membership Interest Units in Mistral Chip Holdings, LLC (2,000 units)(18) |
|
|
|
|
2,000 |
|
|
|
6,084 |
|
|
|
0.9 |
% |
|
|
|
|
Membership Interest Units in Mistral Chip Holdings, LLC 2 (595 units)(18) |
|
|
|
|
1,322 |
|
|
|
1,810 |
|
|
|
0.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38,322 |
|
|
|
42,894 |
|
|
|
6.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stryker Energy, LLC |
|
Ohio / Oil & Gas Production |
|
Subordinated Secured Revolving Credit Facility (12.00%, due 12/01/2011)(3), (4) |
|
29,500 |
|
|
29,249 |
|
|
|
28,137 |
|
|
|
4.3 |
% |
|
|
|
Overriding Royalty Interests(19) |
|
|
|
|
|
|
|
|
2,727 |
|
|
|
0.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,249 |
|
|
|
30,864 |
|
|
|
4.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TriZetto Group(17) |
|
California / Healthcare |
|
Subordinated Unsecured Note (12.00% plus 1.50% PIK, due 10/01/2016)(3) |
|
15,376 |
|
|
15,245 |
|
|
|
15,838 |
|
|
|
2.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,245 |
|
|
|
15,838 |
|
|
|
2.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unitek(17) |
|
Pennsylvania / Technical Services |
|
Second Lien Debt (13.08%, due 12/31/2013)(3), (4) |
|
11,500 |
|
|
11,380 |
|
|
|
11,615 |
|
|
|
1.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,380 |
|
|
|
11,615 |
|
|
|
1.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wind River Resources Corp. and Wind River II Corp. |
|
Utah / Oil & Gas Production |
|
Senior Secured Note (13.00% plus 3.00% default interest, in non-accrual status effective 12/01/2008, due 7/31/2010)(4) |
|
15,000 |
|
|
15,000 |
|
|
|
10,410 |
|
|
|
1.6 |
% |
|
|
|
Net Profits Interest (5.00% payable on Equity distributions)(7) |
|
|
|
|
|
|
|
|
|
|
|
|
0.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,000 |
|
|
|
10,410 |
|
|
|
1.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Non-Control/Non-Affiliate Investments (Level 3 Investments)
|
|
|
428,575 |
|
|
|
427,108 |
|
|
|
65.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Level 3 Portfolio Investments |
|
|
673,666 |
|
|
|
695,271 |
|
|
|
107.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
13
PROSPECT CAPITAL CORPORATION AND SUBSIDIARY
CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)
March 31, 2010 and June 30, 2009
(in thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of |
|
|
|
|
|
|
|
Principal |
|
|
|
|
|
Fair |
|
|
Net |
|
Portfolio Company |
|
Locale / Industry |
|
Investments(1) |
|
Value |
|
Cost |
|
|
Value(2) |
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LEVEL 2 PORTFOLIO INVESTMENTS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-control/Non-affiliate Investments (less than 5.00% of voting control)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LyondellBasell Industries N.V. (Lyondell)(22) |
|
The Netherlands / Chemical Company |
|
Dutch Revolver (3.73%, due 1/29/2010) |
|
$ 33 |
|
$ |
29 |
|
|
$ |
26 |
|
|
|
0.0 |
% |
|
|
Dutch Tr-A Term Loan (3.73%, due 1/29/2010) |
|
73 |
|
|
65 |
|
|
|
57 |
|
|
|
0.0 |
% |
|
|
German Tr-B1 Term Loan (3.98%, due 1/29/2010) |
|
95 |
|
|
84 |
|
|
|
74 |
|
|
|
0.0 |
% |
|
|
|
|
German Tr-B2 Term Loan (3.98%, due 1/29/2010) |
|
95 |
|
|
84 |
|
|
|
74 |
|
|
|
0.0 |
% |
|
|
|
|
German Tr-B3 Term Loan (3.98%, due 1/29/2010) |
|
95 |
|
|
84 |
|
|
|
74 |
|
|
|
0.0 |
% |
|
|
|
|
Primary Revolver (3.73%, due 1/29/2010) |
|
123 |
|
|
110 |
|
|
|
97 |
|
|
|
0.0 |
% |
|
|
|
|
US Tr-A Term Loan (3.73%, due 1/29/2010) |
|
218 |
|
|
195 |
|
|
|
171 |
|
|
|
0.0 |
% |
|
|
|
|
US Tr-B1 Term Loan (7.00%, due 1/29/2010) |
|
410 |
|
|
366 |
|
|
|
322 |
|
|
|
0.1 |
% |
|
|
|
|
US Tr-B2 Term Loan (7.00%, due 1/29/2010) |
|
410 |
|
|
366 |
|
|
|
322 |
|
|
|
0.1 |
% |
|
|
|
|
US Tr-B3 Term Loan (7.00%, due 1/29/2010) |
|
410 |
|
|
366 |
|
|
|
322 |
|
|
|
0.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Non-Control/Non-Affiliate Investments (Level 2 Investments)
|
|
|
1,749 |
|
|
|
1,539 |
|
|
|
0.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LEVEL 1 PORTFOLIO INVESTMENTS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-control/Non-affiliate Investments (less than 5.00% of voting control)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allied Defense Group, Inc. |
|
Virginia / Aerospace & Defense |
|
Common Stock (10,000 shares) |
|
|
|
|
56 |
|
|
|
72 |
|
|
|
0.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
56 |
|
|
|
72 |
|
|
|
0.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dover Saddlery, Inc. |
|
Massachusetts / Retail |
|
Common Stock (30,974 shares) |
|
|
|
|
63 |
|
|
|
119 |
|
|
|
0.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63 |
|
|
|
119 |
|
|
|
0.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Non-Control/Non-Affiliate Investments (Level 1 Investments)
|
|
|
119 |
|
|
|
191 |
|
|
|
0.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Portfolio Investments |
|
|
675,534 |
|
|
|
697,001 |
|
|
|
107.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SHORT TERM INVESTMENTS: Money Market Funds (Level 2 Investments)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fidelity Institutional Money Market Funds Government Portfolio (Class I)
|
|
|
|
|
12,370 |
|
|
|
12,370 |
|
|
|
1.9 |
% |
Fidelity Institutional Money Market Funds Government Portfolio (Class I)(3)
|
|
|
|
|
6,639 |
|
|
|
6,639 |
|
|
|
1.0 |
% |
Victory Government Money Market Funds |
|
|
|
|
4,002 |
|
|
|
4,002 |
|
|
|
0.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Money Market Funds |
|
|
23,011 |
|
|
|
23,011 |
|
|
|
3.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Investments |
|
|
698,545 |
|
|
|
720,012 |
|
|
|
110.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
14
PROSPECT CAPITAL CORPORATION AND SUBSIDIARY
CONSOLIDATED SCHEDULE OF INVESTMENTS
March 31, 2010 and June 30, 2009
(in thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of |
|
|
|
|
|
|
|
Principal |
|
|
|
|
|
|
Fair |
|
|
Net |
|
Portfolio Company |
|
Locale / Industry |
|
Investments(1) |
|
Value |
|
|
Cost |
|
|
Value(2) |
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LEVEL 3 INVESTMENTS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Control Investments (25.00% or greater of voting control) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ajax Rolled Ring & Machine, Inc. |
|
South Carolina / Manufacturing |
|
Senior Secured Note Tranche A (10.50%, due 4/01/2013)(3), (4) |
|
$ |
21,487 |
|
|
$ |
21,487 |
|
|
$ |
21,487 |
|
|
|
4.0 |
% |
|
|
|
|
Subordinated Secured Note Tranche B (11.50% plus 6.00% PIK, due 4/01/2013)(3), (4) |
|
|
11,675 |
|
|
|
11,675 |
|
|
|
10,151 |
|
|
|
1.9 |
% |
|
|
|
|
Convertible Preferred Stock Series A (6,143 shares) |
|
|
|
|
|
|
6,057 |
|
|
|
|
|
|
|
0.0 |
% |
|
|
|
|
Unrestricted Common Stock (6 shares) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39,219 |
|
|
|
31,638 |
|
|
|
5.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
C&J Cladding LLC |
|
Texas / Metal Services and |
|
Senior Secured Note (14.00%, due 3/30/2012)(3), (4) |
|
|
3,150 |
|
|
|
2,722 |
|
|
|
3,308 |
|
|
|
0.6 |
% |
|
|
Minerals |
|
Warrants (400 warrants, expiring 3/30/2014) |
|
|
|
|
|
|
580 |
|
|
|
3,825 |
|
|
|
0.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,302 |
|
|
|
7,133 |
|
|
|
1.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
Clean Energy Holdings, Inc. (CCEHI)(5) |
|
Maine / Biomass Power |
|
Common Stock (1,000 shares) |
|
|
|
|
|
|
2,530 |
|
|
|
2,530 |
|
|
|
0.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,530 |
|
|
|
2,530 |
|
|
|
0.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gas Solutions Holdings, Inc.(8) |
|
Texas / Gas Gathering and |
|
Senior Secured Note (18.00%, due 12/22/2018)(3) |
|
|
25,000 |
|
|
|
25,000 |
|
|
|
25,000 |
|
|
|
4.7 |
% |
|
Processing |
|
Junior Secured Note (18.00%, due 12/23/2018)(3) |
|
|
5,000 |
|
|
|
5,000 |
|
|
|
5,000 |
|
|
|
0.9 |
% |
|
|
|
|
Common Stock (100 shares)(3) |
|
|
|
|
|
|
5,003 |
|
|
|
55,187 |
|
|
|
10.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35,003 |
|
|
|
85,187 |
|
|
|
16.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Integrated Contract Services, Inc.(9) |
|
North Carolina / |
|
Senior Demand Note (15.00%, due 6/30/2009)(10) |
|
|
1,170 |
|
|
|
1,170 |
|
|
|
1,170 |
|
|
|
0.2 |
% |
|
Contracting |
|
Senior Secured Note (7.00% plus 7.00% PIK plus 6.00% default interest, in non-accrual status effective 10/09/2007, past due) |
|
|
800 |
|
|
|
800 |
|
|
|
800 |
|
|
|
0.1 |
% |
|
|
|
|
Junior Secured Note (7.00% plus 7.00% PIK plus 6.00% default interest, in non-accrual status effective 10/09/2007, past due) |
|
|
14,003 |
|
|
|
14,003 |
|
|
|
3,030 |
|
|
|
0.6 |
% |
|
|
|
|
Preferred Stock Series A (10 shares) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.0 |
% |
|
|
|
|
Common Stock (49 shares) |
|
|
|
|
|
|
679 |
|
|
|
|
|
|
|
0.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,652 |
|
|
|
5,000 |
|
|
|
0.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Iron Horse Coiled Tubing, Inc. |
|
Alberta, Canada / |
|
Bridge Loan (15.00% plus 3.00% PIK, due 12/31/2009) |
|
|
9,826 |
|
|
|
9,826 |
|
|
|
9,602 |
|
|
|
1.8 |
% |
|
Production Services |
|
Senior Secured Note (15.00%, due 12/31/2009) |
|
|
9,250 |
|
|
|
9,250 |
|
|
|
3,004 |
|
|
|
0.6 |
% |
|
|
|
|
Common Stock (1,781 shares) |
|
|
|
|
|
|
268 |
|
|
|
|
|
|
|
0.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,344 |
|
|
|
12,606 |
|
|
|
2.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NRG
Manufacturing, Inc. |
|
Texas / Manufacturing |
|
Senior Secured Note (16.50%, due 8/31/2011)(3), (4) |
|
|
13,080 |
|
|
|
13,080 |
|
|
|
13,080 |
|
|
|
2.5 |
% |
|
|
|
Common Stock (800 shares) |
|
|
|
|
|
|
2,317 |
|
|
|
19,294 |
|
|
|
3.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,397 |
|
|
|
32,374 |
|
|
|
6.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
R-V Industries, Inc. |
|
Pennsylvania / |
|
Warrants (200,000 warrants, expiring 6/30/2017) |
|
|
|
|
|
|
1,682 |
|
|
|
4,500 |
|
|
|
0.8 |
% |
|
|
Manufacturing |
|
Common Stock (545,107 shares) |
|
|
|
|
|
|
5,086 |
|
|
|
12,267 |
|
|
|
2.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,768 |
|
|
|
16,767 |
|
|
|
3.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Yatesville
Coal Holdings, Inc.(11) |
|
Kentucky / Mining, Steel, Iron and Non-Precious Metals and Coal Production |
|
Senior Secured Note (15.72%, in non-accrual status effective 1/01/2009, due 12/31/2010)(4) |
|
|
10,000 |
|
|
|
10,000 |
|
|
|
10,000 |
|
|
|
1.9 |
% |
|
|
Junior Secured Note (15.72%, in non-accrual status effective 1/01/2009, due 12/31/2010)(4) |
|
|
38,463 |
|
|
|
38,463 |
|
|
|
3,097 |
|
|
|
0.6 |
% |
|
|
|
|
Common Stock (1,000 shares) |
|
|
|
|
|
|
427 |
|
|
|
|
|
|
|
0.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48,890 |
|
|
|
13,097 |
|
|
|
2.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Control Investments |
|
|
|
187,105 |
|
|
|
206,332 |
|
|
|
38.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
15
PROSPECT CAPITAL CORPORATION AND SUBSIDIARY
CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)
March 31, 2010 and June 30, 2009
(in thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of |
|
|
|
|
|
|
|
Principal |
|
|
|
|
|
|
Fair |
|
|
Net |
|
Portfolio Company |
|
Locale / Industry |
|
Investments(1) |
|
Value |
|
|
Cost |
|
|
Value(2) |
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LEVEL 3 INVESTMENTS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Affiliate Investments (5.00% to 24.99% voting control)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Appalachian Energy Holdings LLC(21) |
|
West Virginia / Construction Services |
|
Senior Secured Debt Tranche A (14.00% plus 3.00% PIK plus 3.00% default interest, in non-accrual status effective 11/01/2008, due 1/31/2011) |
|
$ |
1,997 |
|
|
$ |
1,891 |
|
|
$ |
2,052 |
|
|
|
0.4 |
% |
|
|
|
|
Senior Secured Debt Tranche B (14.00% plus 3.00% PIK plus 3.00% default interest, in non-accrual status effective 11/01/2008, past due) |
|
|
2,050 |
|
|
|
1,955 |
|
|
|
356 |
|
|
|
0.1 |
% |
|
|
|
|
Preferred Stock Series A (200 units) |
|
|
|
|
|
|
82 |
|
|
|
|
|
|
|
0.0 |
% |
|
|
|
|
Preferred Stock Series B (241 units) |
|
|
|
|
|
|
241 |
|
|
|
|
|
|
|
0.0 |
% |
|
|
|
|
Preferred Stock Series C (500 units) |
|
|
|
|
|
|
500 |
|
|
|
|
|
|
|
0.0 |
% |
|
|
|
|
Warrants (6,065 warrants, expiring 2/13/2016) |
|
|
|
|
|
|
176 |
|
|
|
|
|
|
|
0.0 |
% |
|
|
|
|
Warrants (6,025 warrants, expiring 6/17/2018) |
|
|
|
|
|
|
172 |
|
|
|
|
|
|
|
0.0 |
% |
|
|
|
|
Warrants (25,000 warrants, expiring 11/30/2018) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,017 |
|
|
|
2,408 |
|
|
|
0.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Biotronic NeuroNetwork(17) |
|
Michigan / Healthcare |
|
Senior Secured Note (11.50% plus 1.00% PIK, due 2/21/2013)(3), (4) |
|
|
26,227 |
|
|
|
26,227 |
|
|
|
27,007 |
|
|
|
5.1 |
% |
|
|
|
|
Preferred Stock (9,925 shares)(13) |
|
|
|
|
|
|
2,300 |
|
|
|
2,839 |
|
|
|
0.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,527 |
|
|
|
29,846 |
|
|
|
5.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Affiliate Investments |
|
|
|
33,544 |
|
|
|
32,254 |
|
|
|
6.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-control/Non-affiliate Investments (less than 5.00% of voting control)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
American Gilsonite Company |
|
Utah / Specialty Minerals |
|
Senior Subordinated Note (12.00% plus 3.00% PIK, due 3/14/2013)(3) |
|
|
14,783 |
|
|
|
14,783 |
|
|
|
15,073 |
|
|
|
2.8 |
% |
|
|
|
|
Membership Interest Units in AGC/PEP, LLC (99.9999%)(16) |
|
|
|
|
|
|
1,031 |
|
|
|
3,851 |
|
|
|
0.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,814 |
|
|
|
18,924 |
|
|
|
3.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Castro Cheese Company, Inc. |
|
Texas / Food Products |
|
Junior Secured Note (11.00% plus 2.00% PIK, due 2/28/2013)(3) |
|
|
7,538 |
|
|
|
7,413 |
|
|
|
7,637 |
|
|
|
1.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,413 |
|
|
|
7,637 |
|
|
|
1.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conquest Cherokee, LLC(6) |
|
Tennessee / Oil & Gas Production |
|
Senior Secured Note (13.00% plus 4.00% default interest, in non-accrual status effective 4/01/2009, past due)(4) |
|
|
10,200 |
|
|
|
10,191 |
|
|
|
6,855 |
|
|
|
1.3 |
% |
|
|
|
|
Overriding Royalty Interests(19) |
|
|
|
|
|
|
|
|
|
|
565 |
|
|
|
0.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,191 |
|
|
|
7,420 |
|
|
|
1.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deb Shops, Inc.(17) |
|
Pennsylvania / Retail |
|
Second Lien Debt (8.67%, due 10/23/2014) |
|
|
15,000 |
|
|
|
14,623 |
|
|
|
6,272 |
|
|
|
1.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,623 |
|
|
|
6,272 |
|
|
|
1.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diamondback Operating, LP |
|
Oklahoma / Oil & Gas Production |
|
Net Profits Interest (15.00% payable on Equity distributions)(7) |
|
|
|
|
|
|
|
|
|
|
458 |
|
|
|
0.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
458 |
|
|
|
0.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Freedom Marine Services LLC |
|
Louisiana / Shipping Vessels |
|
Subordinated Secured Note (12.00% plus 4.00% PIK, due 12/31/2011)(3) |
|
|
7,234 |
|
|
|
7,160 |
|
|
|
7,152 |
|
|
|
1.4 |
% |
|
|
|
|
Net Profits Interest (22.50% payable on Equity distributions)(3), (7) |
|
|
|
|
|
|
|
|
|
|
229 |
|
|
|
0.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,160 |
|
|
|
7,381 |
|
|
|
1.4 |
% |
See notes to consolidated financial statements.
16
PROSPECT CAPITAL CORPORATION AND SUBSIDIARY
CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)
March 31, 2010 and June 30, 2009
(in thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of |
|
|
|
|
|
|
|
Principal |
|
|
|
|
|
|
Fair |
|
|
Net |
|
Portfolio Company |
|
Locale / Industry |
|
Investments(1) |
|
Value |
|
|
Cost |
|
|
Value(2) |
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LEVEL 3 INVESTMENTS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-control/Non-affiliate Investments (less than 5.00% of voting control)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
H&M Oil & Gas, LLC |
|
Texas / Oil & Gas |
|
Senior Secured Note (13.00%, due 6/30/2010)(3) |
|
$ |
49,688 |
|
|
$ |
49,688 |
|
|
$ |
49,697 |
|
|
|
9.3 |
% |
|
Production |
|
Net Profits Interest (8.00% payable on Equity distributions)(3), (7) |
|
|
|
|
|
|
|
|
|
|
1,682 |
|
|
|
0.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49,688 |
|
|
|
51,379 |
|
|
|
9.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IEC Systems LP (IEC) /Advanced Rig Services LLC (ARS) |
|
Texas / Oilfield Fabrication |
|
IEC Senior Secured Note (12.00% plus 3.00% PIK, due 11/20/2012)(3), (4) |
|
|
21,411 |
|
|
|
21,411 |
|
|
|
21,839 |
|
|
|
4.1 |
% |
|
|
|
ARS Senior Secured Note (12.00% plus 3.00% PIK, due 11/20/2012)(3), (4) |
|
|
12,836 |
|
|
|
12,836 |
|
|
|
13,092 |
|
|
|
2.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34,247 |
|
|
|
34,931 |
|
|
|
6.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maverick Healthcare, LLC |
|
Arizona / Healthcare |
|
Second Lien Debt (12.00% plus 1.50% PIK, due 4/30/2014)(3) |
|
|
12,691 |
|
|
|
12,691 |
|
|
|
12,816 |
|
|
|
2.4 |
% |
|
|
|
|
Preferred Units (1,250,000 units) |
|
|
|
|
|
|
1,252 |
|
|
|
1,300 |
|
|
|
0.2 |
% |
|
|
|
|
Common Units (1,250,000 units) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,943 |
|
|
|
14,116 |
|
|
|
2.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Miller Petroleum, Inc. |
|
Tennessee / Oil & Gas Production |
|
Warrants, Common Stock (1,935,523 warrants, expiring 5/04/2010 to 6/30/2014)(14) |
|
|
|
|
|
|
150 |
|
|
|
241 |
|
|
|
0.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
150 |
|
|
|
241 |
|
|
|
0.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Peerless Manufacturing |
|
Texas / Manufacturing |
|
Subordinated Secured Note (11.50% plus 3.50% PIK, due 4/29/2013)(3) |
|
|
20,000 |
|
|
|
20,000 |
|
|
|
20,400 |
|
|
|
3.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,000 |
|
|
|
20,400 |
|
|
|
3.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Qualitest Pharmaceuticals, Inc.(17) |
|
Alabama / Pharmaceuticals |
|
Second Lien Debt (8.10%, due 4/30/2015)(3), (4) |
|
|
12,000 |
|
|
|
11,949 |
|
|
|
11,452 |
|
|
|
2.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,949 |
|
|
|
11,452 |
|
|
|
2.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Regional Management Corp. |
|
South Carolina / Financial Services |
|
Second Lien Debt (12.00% plus 2.00% PIK, due 6/29/2012)(3) |
|
|
25,424 |
|
|
|
25,424 |
|
|
|
23,073 |
|
|
|
4.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,424 |
|
|
|
23,073 |
|
|
|
4.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Resco Products, Inc. |
|
Pennsylvania / Manufacturing |
|
Second Lien Debt (8.67%, due 6/22/2014)(3), (4) |
|
|
9,750 |
|
|
|
9,594 |
|
|
|
9,750 |
|
|
|
1.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,594 |
|
|
|
9,750 |
|
|
|
1.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shearers Foods, Inc. |
|
Ohio / Food Products |
|
Second Lien Debt (14.00%, due 10/31/2013)(3) |
|
|
18,000 |
|
|
|
18,000 |
|
|
|
18,360 |
|
|
|
3.5 |
% |
|
|
|
|
Membership Interest Units in Mistral Chip Holdings, LLC (2,000 units)(18) |
|
|
|
|
|
|
2,000 |
|
|
|
3,419 |
|
|
|
0.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,000 |
|
|
|
21,779 |
|
|
|
4.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stryker Energy, LLC |
|
Ohio / Oil & Gas Production |
|
Subordinated Secured Revolving Credit Facility (12.00%, due 12/01/2011)(3), (4) |
|
|
29,500 |
|
|
|
29,154 |
|
|
|
29,554 |
|
|
|
5.5 |
% |
|
|
|
|
Overriding Royalty Interests(19) |
|
|
|
|
|
|
|
|
|
|
2,918 |
|
|
|
0.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,154 |
|
|
|
32,472 |
|
|
|
6.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TriZetto Group(17) |
|
California / Healthcare |
|
Subordinated Unsecured Note (12.00% plus 1.50% PIK, due 10/01/2016)(3) |
|
|
15,205 |
|
|
|
15,065 |
|
|
|
16,331 |
|
|
|
3.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,065 |
|
|
|
16,331 |
|
|
|
3.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unitek(17) |
|
Pennsylvania / Technical Services |
|
Second Lien Debt (13.08%, due 12/31/2013)(3), (4) |
|
|
11,500 |
|
|
|
11,360 |
|
|
|
11,730 |
|
|
|
2.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,360 |
|
|
|
11,730 |
|
|
|
2.2 |
% |
See notes to consolidated financial statements.
17
PROSPECT CAPITAL CORPORATION AND SUBSIDIARY
CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)
March 31, 2010 and June 30, 2009
(in thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of |
|
|
|
|
|
|
|
Principal |
|
|
|
|
|
Fair |
|
|
Net |
|
Portfolio Company |
|
Locale / Industry |
|
Investments(1) |
|
Value |
|
Cost |
|
|
Value(2) |
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LEVEL 3 INVESTMENTS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-control/Non-affiliate Investments (less than 5.00% of voting control)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wind River Resources Corp. and Wind River II Corp. |
|
Utah / Oil & Gas Production |
|
Senior Secured Note (13.00% plus 3.00% default interest, in non-accrual status effective 12/01/2008, due 7/31/2010)(4) |
|
$ 15,000 |
|
$ |
15,000 |
|
|
$ |
12,644 |
|
|
|
2.4 |
% |
|
|
|
Net Profits Interest (5.00% payable on Equity distributions)(7) |
|
|
|
|
|
|
|
|
192 |
|
|
|
0.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,000 |
|
|
|
12,836 |
|
|
|
2.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Non-Control/Non-Affiliate Investments |
|
|
310,775 |
|
|
|
308,582 |
|
|
|
57.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Level 3 Portfolio Investments |
|
|
531,424 |
|
|
|
547,168 |
|
|
|
102.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LEVEL 2 INVESTMENTS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money Market Funds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fidelity Institutional Money Market Funds Government Portfolio (Class I)
|
|
|
|
|
94,753 |
|
|
|
94,753 |
|
|
|
17.8 |
% |
Fidelity Institutional Money Market Funds Government Portfolio (Class I)(3)
|
|
|
|
|
3,982 |
|
|
|
3,982 |
|
|
|
0.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Money Market Funds (Level 2 Investments) |
|
|
98,735 |
|
|
|
98,735 |
|
|
|
18.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Investments |
|
|
|
|
630,159 |
|
|
|
645,903 |
|
|
|
121.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
18
PROSPECT CAPITAL CORPORATION AND SUBSIDIARY
CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)
March 31, 2010 and June 30, 2009
(in thousands, except share data)
Endnote Explanations for the Consolidated Schedule of Investments as of March 31, 2010 and June
30, 2009
|
|
|
(1) |
|
The securities in which Prospect Capital Corporation (we,
us or our) has invested were acquired in transactions that were
exempt from registration under the Securities Act of 1933, as
amended, or the Securities Act. These securities may be resold
only in transactions that are exempt from registration under the
Securities Act. |
|
(2) |
|
Fair value is determined by or under the direction of our Board
of Directors. As of March 31, 2010, two of our portfolio
investments, Allied Defense Group, Inc. and Dover Saddlery, Inc.,
were publically traded and classified as Level 1 within the
valuation hierarchy established by Accounting Standards
Codification 820, Fair Value Measurements and Disclosures (ASC
820). One of our portfolio investments, Lyondell, classified as
Level 2 within the valuation hierarchy established by ASC 820. As
of March 31, 2010 and June 30, 2009, the fair value of our
remaining portfolio investments was determined using significant
unobservable inputs. ASC 820 classifies such inputs used to measure
fair value as Level 3 within the valuation hierarchy. Our
investments in money market funds are classified as Level 2. See
Note 3 and Note 4 within the accompanying consolidated financial
statements for further discussion. |
|
(3) |
|
Security, or portion thereof, is held as collateral for the
revolving credit facility (see Note 10). The market values of these
investments at March 31, 2010 and June 30, 2009 were $437,159 and
$434,069, respectively; they represent 60.7% and 67.2% of total
investments at fair value, respectively. |
|
(4) |
|
Security, or portion thereof, has a floating interest rate.
Stated interest rate was in effect at March 31, 2010 and June 30,
2009. |
|
(5) |
|
There are several entities involved in the Biomass investment.
We own 100 shares of common stock in Worcester Energy Holdings,
Inc. (WEHI), representing 100% of the issued and outstanding
common stock. WEHI, in turn, owns 51 membership certificates in
Biochips LLC (Biochips), which represents a 51% ownership stake. |
|
|
|
We own 282 shares of common stock in Worcester Energy Co., Inc.
(WECO), which represents 51% of the issued and outstanding common
stock. We own directly 1,665 shares of common stock in Change Clean
Energy Inc. (CCEI), f/k/a Worcester Energy Partners, Inc., which
represents 51% of the issued and outstanding common stock and the
remaining 49% is owned by WECO. CCEI owns 100 shares of common
stock in Precision Logging and Landclearing, Inc. (Precision),
which represents 100% of the issued and outstanding common stock. |
|
|
|
During the quarter ended March 31, 2009, we created two new
entities in anticipation of the foreclosure proceedings against the
co-borrowers (WECO, CCEI and Biochips) Change Clean Energy
Holdings, Inc. (CCEHI) and DownEast Power Company, LLC (DEPC).
We own 1,000 shares of CCEHI, representing 100% of the issued and
outstanding stock, which in turn, owns a 100% of the membership
interests in DEPC. |
|
|
|
On March 11, 2009, we foreclosed on the assets formerly held by
CCEI and Biochips with a successful credit bid of $6,000 to acquire
the assets. The assets were subsequently assigned to DEPC. WECO,
CCEI and Biochips are joint borrowers on the term note issued to
Prospect Capital. Effective July 1, 2008, this loan was placed on
non-accrual status. |
|
|
|
Biochips, WECO, CCEI, Precision and WEHI currently have no material
operations and no significant assets. As of June 30, 2009, our
Board of Directors assessed a fair value of $0 for all of these
equity positions and the loan position. We determined that the
impairment of both CCEI and CCEHI as of June 30, 2009 was other
than temporary and recorded a realized loss for the amount that the
amortized cost exceeds the fair value at June 30, 2009. Our Board
of Directors set the value of the remaining CCEHI investment at
$1,928 and $2,530 as of March 31, 2010 and June 30, 2009,
respectively. |
|
(6) |
|
During the three months ended December 31, 2009, we created two
new entities, Coalbed Inc. and Coalbed LLC, to foreclose on the
outstanding senior secured loan and assigned rights and interests
of Conquest Cherokee, LLC (Conquest), as a result of the
deterioration of Conquests financial performance and inability to
service debt payments. We own 1,000 shares of common stock in
Coalbed Inc., representing 100% of the issued and outstanding
common stock. Coalbed Inc., in turn owns 100% of the membership
interest in Coalbed LLC. |
|
|
|
On October 21, 2009, Coalbed LLC foreclosed on the loan formerly
made to Conquest. On January 19, 2010, as part of the Manx rollup,
the Coalbed LLC assets and loan was assigned to Manx, the holding
company (refer to footnote 12). As of March 31, 2010, our Board of
Directors assessed a fair value of $2,547 for the loan position in
Coalbed LLC. |
|
(7) |
|
In addition to the stated returns, the net profits interest
held will be realized upon sale of the borrower or a sale of the
interests. |
|
(8) |
|
Gas Solutions Holdings, Inc. is a wholly-owned investment of us. |
|
(9) |
|
Entity was formed as a result of the debt restructuring of ESA
Environmental Specialist, Inc. In early 2009, we foreclosed on the
two loans on non-accrual status and purchased the underlying
personal and real property. We own 1,000 shares of common stock in
The Healing Staff (THS), f/k/a Lisamarie Fallon, Inc.
representing 100% ownership. We own 1,500 shares of Vets Securing
America, Inc. (VSA), representing 100% ownership. VSA is a
holding company for the real property of Integrated Contract
Services, Inc. (ICS) purchased during the foreclosure process. |
19
PROSPECT CAPITAL CORPORATION AND SUBSIDIARY
CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)
March 31, 2010 and June 30, 2009
(in thousands, except share data)
Endnote Explanations for the Consolidated Schedule of Investments as of March 31, 2010 and June
30, 2009 (Continued)
|
|
|
(10) |
|
Loan is with THS an affiliate of ICS. |
|
(11) |
|
On June 30, 2008, we consolidated our holdings in four coal companies into Yatesville Coal Holdings, Inc.
(Yatesville), and consolidated the operations under one management team. As part of the transaction, the debt that
we held of C&A Construction, Inc. (C&A), Genesis Coal Corp. (Genesis), North Fork Collieries LLC (North Fork)
and Unity Virginia Holdings LLC (Unity) were exchanged for newly issued debt from Yatesville, and our ownership
interests in C&A, E&L Construction, Inc. (E&L), Whymore Coal Company Inc. (Whymore) and North Fork were
exchanged for 100% of the equity of Yatesville. This reorganization allows for a better utilization of the assets in
the consolidated group. |
|
|
|
At March 31, 2010 and at June 30, 2009, Yatesville owned 100% of the membership interest of North Fork. In addition,
Yatesville held a $9,325 and $8,062, respectively, note receivable from North Fork as of those two respective dates. |
|
|
|
At March 31, 2010 and at June 30, 2009, we owned 96% and 87%, respectively, of the common stock of Genesis and held
a note receivable of $20,897 and $20,802, respectively, as of those two respective dates. |
|
|
|
Yatesville held a note receivable of $4,261 from Unity at March 31, 2010 and at June 30, 2009. |
|
|
|
There are several entities involved in Yatesvilles investment in Whymore at June 30, 2009. As of June 30, 2009,
Yatesville owned 10,000 shares of common stock or 100% of the equity and held a $14,973 senior secured debt
receivable from C&A, which owns the equipment. Yatesville owned 10,000 shares of common stock or 100% of the equity
of E&L, which leases the equipment from C&A, employs the workers, is listed as the operator with the Commonwealth of
Kentucky, mines the coal, receives revenues and pays all operating expenses. Yatesville owned 4,900 shares of common
stock or 49% of the equity of Whymore, which applies for and holds permits on behalf of E&L. Yatesville also owned
4,285 Series A convertible preferred shares in each of C&A, E&L and Whymore. Whymore and E&L are guarantors under
the C&A credit agreement with Yatesville. |
|
|
|
In August 2009, Yatesville sold its 49% ownership interest in the common shares of Whymore to the 51% holder of the
Whymore common shares (Whymore Purchaser). All reclamation liability was transferred to the Whymore Purchaser. In
September 2009, Yatesville completed an auction for all of its equipment. |
|
|
|
Yatesville currently has no material operations. As of March 31, 2010, our Board of Directors determined that the
impairment of Yatesville was other than temporary and we recorded a realized loss for the amount that the amortized
cost exceeds the fair value. Our Board of Directors set the value of the remaining Yatesville investment at $1,035
as of March 31, 2010. |
|
(12) |
|
On January 19, 2010, we modified the terms of our senior secured debt in AEH and Coalbed in conjunction with the
formation of Manx Energy, a new entity consisting in the assets of AEH, Coalbed and Kinley Exploration. The assets
of the three companies were brought under new common management. We funded $2,800 at closing to Manx to provide for
working capital. A portion of our loans to AEH and Coalbed was exchanged for Manx preferred equity, while our AEH
equity interest was converted into Manx common stock. There was no change to fair value at the time of
restructuring, and we continue to fully reserve any income accrued for Manx. |
|
(13) |
|
On a fully diluted basis represents, 11.677% of voting common shares. |
|
(14) |
|
Total common shares outstanding of 27,145,539 as of March 9, 2010 from Miller Petroleum, Inc.s Quarterly Report
on Form 10-Q filed on March 22, 2010 as applicable to our March 31, 2010 reporting date. Total common shares
outstanding of 15,811,856 as of March 11, 2009 from Millers Quarterly Report on Form 10-Q filed on March 16, 2009. |
|
(15) |
|
A portion of the positions listed were issued by an affiliate of the portfolio company. |
|
(16) |
|
We own 99.9999% of AGC/PEP, LLC. AGC/PEP, LLC owns 2,038 out of a total of 83,639 shares (including 4,932 vested
an unvested management options) of American Gilsonite Holding Company which owns 100% of American Gilsonite Company. |
|
(17) |
|
Syndicated investment which had been originated by another financial institution and broadly distributed. |
|
(18) |
|
At March 31, 2010, Mistral Chip Holdings, LLC owns 44,800 shares of Chip Holdings, Inc. and Mistral Chip
Holdings 2, LLC owns 11,975 shares in Chip Holdings, Inc. Chip Holdings, Inc. is the parent company of Shearers
Foods, Inc. and has 67,936 shares outstanding before adjusting for management options. |
|
|
|
At June 30, 2009, Mistral Chip Holdings, LLC owns 44,800 shares out of 50,650 total shares outstanding of Chip
Holdings, Inc., before adjusting for management options. |
|
(19) |
|
The overriding royalty interests held receive payments at the stated rates based upon operations of the borrower. |
20
PROSPECT CAPITAL CORPORATION AND SUBSIDIARY
CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)
March 31, 2010 and June 30, 2009
(in thousands, except share data)
Endnote Explanations for the Consolidated Schedule of Investments as of March 31, 2010 and June
30, 2009 (Continued)
|
|
|
(20) |
|
On December 31, 2009, we sold our investment in Aylward Enterprises, LLC. AWCNC, LLC is the remaining
holding company with zero assets and our remaining outstanding debt has no value of March 31, 2010. |
|
(21) |
|
There are several entities involved in the Appalachian Energy Holdings LLC (AEH) investment. We own
warrants, the exercise of which will permit us to purchase 37,090 Class A common units of AEH at a nominal
cost and in near-immediate fashion. We own 200 units of Series A preferred equity, 241 units of Series B
preferred equity, and 500 units of Series C preferred equity of AEH. The senior secured notes are with C&S
Operating LLC and East Cumberland L.L.C., both operating companies owned by AEH. |
|
(22) |
|
We own warrants to purchase 33,750 shares of common stock in Metal Buildings Holding Corporation (Metal
Buildings), the former holding company of Borga, Inc. Metal Buildings Holding Corporation owned 100% of
Borga, Inc.
On March 8, 2010, we foreclosed on the stock in Borga, Inc. that was held by Metal Buildings, obtaining 100%
ownership of Borga, Inc. |
|
(23) |
|
We own 100% of C&J Cladding Holding Company, Inc., which owns 40% of the membership interests in C&J
Cladding, LLC. |
|
(24) |
|
On January 1, 2010, we restructured our senior secured and bridge loans investment in Iron Horse Coiled
Tubing, Inc. (Iron Horse) and we reorganized Iron Horses management structure. The senior secured loan and
bridge loan were replaced with three new tranches of senior secured debt. From June 30, 2010 to March 31,
2010, our total ownership of Iron Horse decreased from 80.0% to 70.4%, respectively. |
|
|
|
As of March 31, 2010 and June 30, 2009, our Board of Directors assessed a fair value in Iron Horse of $12,325
and $12,606, respectively. |
|
(25) |
|
We own 2,800,000 units in Class A Membership Interests and 372,094 units in Class A-1 Membership Interests. |
|
(26) |
|
Undrawn committed revolvers incur a 0.50% commitment fee. |
|
(27) |
|
Stated interest rates are based on March 31, 2010 one month LIBOR rates plus applicable spreads based on
the respective credit agreements. Interest rates are subject to change based on actual elections by the
borrower for a LIBOR rate contract or Base Rate contract when drawing on the revolver. |
|
(28) |
|
Position is split into two LIBOR contracts and one Base Rate loan with different interest rates. As of
March 31, 2010, the 3-month $325 principal LIBOR contract yields 3.56%, the 6-month $1,000 LIBOR contract
yields 3.69% and the $22 principal Base Rate contract yields 5.50%. |
21
PROSPECT CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2010
(Unaudited)
(In thousands, except share and per share data)
Note 1. Organization
References herein to we, us or our refer to Prospect Capital Corporation (Prospect) and its
subsidiary unless the context specifically requires otherwise.
We were formerly known as Prospect Energy Corporation, a Maryland corporation. We were organized on
April 13, 2004 and were funded in an initial public offering (IPO), completed on July 27, 2004.
We are a closed-end investment company that has filed an election to be treated as a Business
Development Company (BDC), under the Investment Company Act of 1940 (the 1940 Act). As a BDC,
we have qualified and have elected to be treated as a regulated investment company (RIC), under
Subchapter M of the Internal Revenue Code. We invest primarily in senior and subordinated debt and
equity of companies in need of capital for acquisitions, divestitures, growth, development, project
financings, recapitalizations, and other purposes.
On May 15, 2007, we formed a wholly-owned subsidiary, Prospect Capital Funding, LLC, a Delaware
limited liability company, for the purpose of holding certain of our loan investments in the
portfolio which are used as collateral for our credit facility.
Note 2. Patriot Acquisition
On December 2, 2009, we acquired the outstanding shares of Patriot Capital Funding, Inc.
(Patriot) common stock for $201,083. Under the terms of the merger agreement, Patriot common
shareholders received 0.363992 shares of our common stock for each share of Patriot common stock,
resulting in 8,444,068 shares of common stock being issued by us. In connection with the
transaction, we repaid all the outstanding borrowings of Patriot, in compliance with the merger
agreement.
On December 2, 2009, Patriot made a final dividend payment equal to its undistributed net ordinary
income and capital gains of $0.38 per share. In accordance with a recent IRS revenue procedure, the
dividend was paid 10% in cash and 90% in newly issued shares of Patriots common stock. The
exchange ratio was adjusted to give effect to the final income distribution.
The merger has been accounted for as an acquisition of Patriot by Prospect in accordance with
acquisition method of accounting as detailed in Accounting Standards
Codification (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 of 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 gain of $5,714 was recorded by
Prospect in the quarter ended December 31, 2009 related to the acquisition of Patriot. The
acquisition of Patriot was negotiated in July 2009 with the purchase agreement being signed on
August 3, 2009. Between July 2009 and December 2, 2009, our valuation of certain of the investments
acquired from Patriot increased due to market improvement, which resulted in the recognition of the
gain at closing.
22
Preliminary Purchase Price Allocation
The purchase price has been allocated to the assets acquired and the liabilities assumed based on
their estimated fair values as summarized in the following table:
|
|
|
|
|
Cash (to repay Patriot debt) |
|
$ |
107,313 |
|
Cash (to fund purchase of restricted stock from former Patriot employees) |
|
|
970 |
|
Common stock issued (1) |
|
|
92,800 |
|
|
|
|
|
Total purchase price |
|
|
201,083 |
|
|
|
|
|
Assets acquired: |
|
|
|
|
Investments (2) |
|
|
207,126 |
|
Cash and cash equivalents |
|
|
1,697 |
|
Other assets |
|
|
3,859 |
|
|
|
|
|
Assets acquired |
|
|
212,682 |
|
Other liabilities assumed |
|
|
(5,885 |
) |
|
|
|
|
Net assets acquired |
|
|
206,797 |
|
|
|
|
|
Preliminary gain on Patriot acquisition (3) |
|
$ |
5,714 |
|
|
|
|
|
|
|
|
(1) |
|
The value of the shares of common stock exchanged with the
Patriot common shareholders was based upon the closing price of our common
stock on December 2, 2009, the price immediately prior to the closing of
the transaction. |
|
(2) |
|
The fair value of Patriots investments were determined by the
Board of Directors in conjunction with an independent valuation agent. This
valuation resulted in a purchase price which was $98,150 below the
amortized cost of such investments. For those assets which are performing,
Prospect will record the accretion to par value in interest income over the
remaining term of the investment. |
|
(3) |
|
The preliminary gain has been determined based upon the estimated
value of certain liabilities which are not yet settled. Any changes to such
accruals will be recoded in future periods as an adjustment to such gain.
We do not believe such adjustments will be material. |
Preliminary Condensed Statement of Net Assets Acquired
The following condensed statement of net assets acquired reflects the preliminary values assigned
to Patriots net assets as of the acquisition date, December 2, 2009.
|
|
|
|
|
Investment securities |
|
$ |
207,126 |
|
Cash and cash equivalents |
|
|
1,697 |
|
Other assets |
|
|
3,859 |
|
|
|
|
|
Total assets |
|
|
212,682 |
|
|
|
|
|
|
Other liabilities |
|
|
(5,885 |
) |
|
|
|
|
Preliminary fair value of net assets acquired |
|
$ |
206,797 |
|
|
|
|
|
The following unaudited pro forma condensed combined financial information does not purport to be
indicative of actual financial position or results of our operations had the Patriot acquisition
actually been consummated at the beginning of each period presented. Certain one-time charges have
been eliminated. The pro forma adjustments reflecting the allocation of the purchase price of
Patriot and the gain of $5,714 recognized on the Patriot Acquisition have been eliminated from all
periods presented. Management expects to realize net operating synergies from this transaction. The
pro forma condensed combined financial information does not reflect the potential impact of these
synergies and does not reflect any impact of additional accretion which would have been recognized
on the transaction, except for that which was recorded after the transaction was consummated on
December 2, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Nine months ended |
|
|
|
March 31, |
|
|
March 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Total Investment Income |
|
$ |
32,005 |
|
|
$ |
29,204 |
|
|
$ |
90,022 |
|
|
$ |
107,616 |
|
Net Investment Income |
|
|
18,974 |
|
|
|
15,321 |
|
|
|
48,899 |
|
|
|
60,245 |
|
Net Increase (Decrease) in Net Assets Resulting from Operations |
|
|
25,940 |
|
|
|
3,357 |
|
|
|
(2,465 |
) |
|
|
3,567 |
|
Net Increase (Decrease) in Net Assets Resulting from Operations per share |
|
|
0.41 |
|
|
|
0.06 |
|
|
|
(0.40 |
) |
|
|
0.07 |
|
23
Note 3. Significant Accounting Policies
The following are significant accounting policies consistently applied by us:
Basis of Presentation
The accompanying interim financial statements, which are not audited, have been prepared in
accordance with accounting principles generally accepted in the United States of America (GAAP)
for interim financial information and pursuant to the requirements for reporting on Form 10-Q and
Article 6 and 10 of Regulation S-X, as appropriate.
Use of Estimates
The preparation of GAAP financial statements requires us to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reported period. Changes in the economic
environment, financial markets, creditworthiness of our portfolio companies and any other
parameters used in determining these estimates could cause actual results to differ, and these
differences could be material.
Basis of Consolidation
Under the 1940 Act rules, the regulations pursuant to Article 6 of Regulation S-X and the American
Institute of Certified Public Accountants Audit and Accounting Guide for Investment Companies, we
are precluded from consolidating any entity other than another investment company or an operating
company which provides substantially all of its services and benefits to us. Our financial
statements include our accounts and the accounts of Prospect Capital Funding, LLC, our only
wholly-owned, closely-managed subsidiary that is also an investment company. All intercompany
balances and transactions have been eliminated in consolidation.
Investment Classification
We are a non-diversified company within the meaning of the 1940 Act. We classify our investments by
level of control. As defined in the 1940 Act, control investments are those where there is the
ability or power to exercise a controlling influence over the management or policies of a company.
Control is generally deemed to exist when a company or individual possesses or has the right to
acquire within 60 days or less, a beneficial ownership of 25% or more of the voting securities of
an investee company. Affiliated investments and affiliated companies are defined by a lesser degree
of influence and are deemed to exist through the possession outright or via the right to acquire
within 60 days or less, beneficial ownership of 5% or more of the outstanding voting securities of
another person.
Investments are recognized when we assume an obligation to acquire a financial instrument and
assume the risks for gains or losses related to that instrument. Investments are derecognized when
we assume an obligation to sell a financial instrument and forego the risks for gains or losses
related to that instrument. Specifically, we record all security transactions on a trade date
basis. Investments in other, non-security financial instruments are recorded on the basis of
subscription date or redemption date, as applicable. Amounts for investments recognized or
derecognized but not yet settled are reported as receivables for investments sold and payables for
investments purchased, respectively, in the Consolidated Statements of Assets and Liabilities.
Investment Risks
The Companys investments are subject to a variety of risks. Those risks include the following:
Market Risk
Market risk represents the potential loss that can be caused by a change in the fair value
of the financial instrument.
Credit Risk
Credit risk
represents the risk that the Company would incur if the counterparties
failed to perform pursuant to the terms of their agreements with the Company.
Liquidity Risk
Liquidity risk
represents the possibility that the Company may not be able to rapidly adjust the size of its
positions in times of high volatility and financial stress at a reasonable price.
24
Interest Rate Risk
Interest rate risk represents a change in interest rates, which could result in an adverse
change in the fair value of an interest-bearing financial instrument.
Prepayment Risk
Most of the Companys debt investments allow for prepayment of principal without penalty.
Downward changes in interest rates may cause prepayments to occur at a faster than expected
rate, thereby effectively shortening the maturity of the security and making the security
less likely to be an income producing instrument.
Investment Valuation
Our Board of Directors has established procedures for the valuation of our investment portfolio.
These procedures are detailed below.
Investments for which market quotations are readily available are valued at such market quotations.
For most of our investments, market quotations are not available. With respect to investments for
which market quotations are not readily available or when such market quotations are deemed not to
represent fair value, our Board of Directors has approved a multi-step valuation process each
quarter, as described below:
|
1) |
|
Each portfolio company or investment is reviewed by our investment professionals with the independent valuation firm; |
|
|
2) |
|
the independent valuation firm engaged by our Board of Directors conducts independent appraisals and makes their own independent assessment; |
|
|
3) |
|
the audit committee of our Board of Directors reviews and discusses the preliminary valuation of our Investment Adviser and that of the independent valuation firm; and |
|
|
4) |
|
the Board of Directors discusses valuations and determines the fair value of each investment in our portfolio in good faith based on the input of
our Investment Adviser, the respective independent valuation firm and the audit committee. |
Investments are valued utilizing a market approach, an income approach, or both approaches, as
appropriate. The market approach uses prices and other relevant information generated by market
transactions involving identical or comparable assets or liabilities (including a business). The
income approach uses valuation techniques to convert future amounts (for example, cash flows or
earnings) to a single present value amount (discounted) calculated based on an appropriate discount
rate. The measurement is based on the net present value indicated by current market expectations
about those future amounts. In following these approaches, the types of factors that we may take
into account in fair value pricing our investments include, as relevant: available current market
data, including relevant and applicable market trading and transaction comparables, applicable
market yields and multiples, security covenants, call protection provisions, information rights,
the nature and realizable value of any collateral, the portfolio companys ability to make
payments, its earnings and discounted cash flows, the markets in which the portfolio company does
business, comparisons of financial ratios of peer companies that are public, M&A comparables, the
principal market and enterprise values, among other factors.
In
September 2006, the Financial Accounting Standards Board
(FASB) issued ASC 820, Fair Value Measurements and
Disclosures (ASC 820). ASC 820 defines fair
value, establishes a framework for measuring fair value in GAAP, and
expands disclosures about fair value measurements. We adopted ASC
820 on a prospective basis beginning in the quarter ended
September 30, 2008.
ASC 820 classifies the inputs used to measure these fair values into the following hierarchy:
Level 1: Quoted prices in active markets for identical assets or liabilities, accessible by us
at the measurement date.
Level 2: Quoted prices for similar assets or liabilities in active markets, or quoted prices for
identical or similar assets or liabilities in markets that are not active, or other observable
inputs other than quoted prices.
Level 3: Unobservable inputs for the asset or liability.
25
In all cases, the level in the fair value hierarchy within which the fair value measurement in its
entirety falls has been determined based on the lowest level of input that is significant to the
fair value measurement. Our assessment of the significance of a particular input to the fair value
measurement in its entirety requires judgment and considers factors specific to each investment.
The changes to GAAP from the application of ASC 820 relate to the definition of fair value,
framework for measuring fair value, and the expanded disclosures about fair value measurements. ASC
820 applies to fair value measurements already required or permitted by other standards. In
accordance with ASC 820, the fair value of our investments is defined as the price that we would
receive upon selling an investment in an orderly transaction to an independent buyer in the
principal or most advantageous market in which that investment is transacted.
In April 2009, the FASB issued ASC Subtopic 820-10-65, Determining Fair Value When the Volume and
Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying
Transactions That Are Not Orderly (ASC 820-10). This update provides further clarification for
ASC 820 in markets that are not active and provides additional guidance for determining when the
volume of trading level of activity for an asset or liability has significantly decreased and for
identifying circumstances that indicate a transaction is not orderly. ASC 820-10-65 is effective
for interim and annual reporting periods ending after June 15, 2009. The adoption of ASC 820-10-65
for the three and nine months ended March 31, 2010, did not have any effect on our net asset value,
financial position or results of operations as there was no change to the fair value measurement
principles set forth in ASC 820.
Valuation of Other Financial Assets and Financial Liabilities
In February 2007, FASB issued ASC Subtopic 820-10-05-1, The Fair Value Option for Financial Assets
and Financial Liabilities (ASC 820-10-05-1). ASC 820-10-05-1 permits an entity to elect fair
value as the initial and subsequent measurement attribute for many of assets and liabilities for
which the fair value option has been elected and similar assets and liabilities measured using
another measurement attribute. We adopted this statement on July 1, 2008 and have elected not to
value other assets and liabilities at fair value as would be permitted by ASC 820-10-05-1.
Revenue Recognition
Realized gains or losses on the sale of investments are calculated using the specific
identification method.
Interest income, adjusted for amortization of premium and accretion of discount, is recorded on an
accrual basis. Origination, closing and/or commitment fees associated with investments in portfolio
companies are accreted into interest income over the respective terms of the applicable loans.
Accretion of such purchase discounts or premiums is calculated by the effective interest method as
of the purchase date and adjusted only for material amendments or prepayments. Upon the prepayment
of a loan or debt security, any prepayment penalties and unamortized loan origination, closing and
commitment fees are recorded as interest income. The purchase discount for portfolio investments
acquired from Patriot was determined based on the difference between par value and fair market
value as of December 2, 2009, and will continue to accrete until maturity or repayment of the
respective loans.
Dividend income is recorded on the ex-dividend date.
Structuring fees and similar fees are recognized as income as earned, usually when paid.
Structuring fees, excess deal deposits, net profits interests and overriding royalty interests are
included in other income.
Loans are placed on non-accrual status when principal or interest payments are past due 90 days or
more or when there is reasonable doubt that principal or interest will be collected. Accrued
interest is generally reversed when a loan is placed on non-accrual status. Interest payments
received on non-accrual loans may be recognized as income or applied to principal depending upon
managements judgment. Non-accrual loans are restored to accrual status when past due principal and
interest is paid and in managements judgment, are likely to remain current.
Federal and State Income Taxes
We have elected to be treated as a regulated investment company and intend to continue to comply
with the requirements of the Internal Revenue Code of 1986 (the Code), applicable to regulated
investment companies. We are required to distribute at least 90% of our investment company taxable
income and intend to distribute (or retain through a deemed distribution) all of our investment
company taxable income and net capital gain to stockholders; therefore, we have made no provision
for income taxes. The character of income and gains that we will distribute is determined in
accordance with income tax regulations that may differ from GAAP. Book and tax basis differences
relating to stockholder dividends and distributions and other permanent book and tax differences
are reclassified to paid-in capital.
26
If we do not distribute (or are not deemed to have distributed) at least 98% of our annual taxable
income in the calendar year it is earned, we will generally be required to pay an excise tax equal
to 4% of the amount by which 98% of our annual taxable income exceeds the distributions from such
taxable income for the year. To the extent that we determine that our estimated current year annual
taxable income will be in excess of estimated current year dividend distributions from such taxable
income, we accrue excise taxes, if any, on estimated excess taxable income as taxable income is
earned using an annual effective excise tax rate. The annual effective excise tax rate is
determined by dividing the estimated annual excise tax by the estimated annual taxable income.
We adopted FASB ASC 740, Income Taxes (ASC 740). ASC 740 provides guidance for how uncertain tax
positions should be recognized, measured, presented, and disclosed in the financial statements. ASC
740 requires the evaluation of tax positions taken or expected to be taken in the course of
preparing our tax returns to determine whether the tax positions are more-likely-than-not of
being sustained by the applicable tax authority. Tax positions not deemed to meet the
more-likely-than-not threshold are recorded as a tax benefit or expense in the current year.
Adoption of ASC 740 was applied to all open tax years as of July 1, 2007. The adoption of ASC 740
did not have an effect on our net asset value, financial condition or results of operations as
there was no liability for unrecognized tax benefits and no change to our beginning net asset
value. As of March 31, 2010 and for the three and nine months then ended, we did not have a
liability for any unrecognized tax benefits. Managements determinations regarding ASC 740 may be
subject to review and adjustment at a later date based upon factors including, but not limited to,
an on-going analysis of tax laws, regulations and interpretations thereof.
Dividends and Distributions
Dividends and distributions to common stockholders are recorded on the ex-dividend date. The
amount, if any, to be paid as a dividend or distribution is approved by our Board of Directors each
quarter and is generally based upon our managements estimate of our earnings for the quarter. Net
realized capital gains, if any, are distributed at least annually.
Financing Costs
We record origination expenses related to our credit facility as deferred financing costs. These
expenses are deferred and amortized as part of interest expense using the effective interest method
over the stated life of the facility.
We record registration expenses related to shelf filings as prepaid assets. These expenses consist
principally of Securities and Exchange Commission (SEC) registration fees, legal fees and
accounting fees incurred. These prepaid assets will be charged to capital upon the receipt of an
equity offering proceeds or charged to expense if no offering completed.
Guarantees and Indemnification Agreements
We follow FASB ASC 460, Guarantees (ASC 460). ASC 460 elaborates on the disclosure requirements
of a guarantor in its interim and annual financial statements about its obligations under certain
guarantees that it has issued. It also requires a guarantor to recognize, at the inception of a
guarantee, for those guarantees that are covered by ASC 460, the fair value of the obligation
undertaken in issuing certain guarantees. ASC 460 did not have a material effect on the financial
statements. Refer to Note 4, Note 8 and Note 12 for further discussion of guarantees and
indemnification agreements.
Per Share Information
Net increase or decrease in net assets resulting from operations per common share are calculated
using the weighted average number of common shares outstanding for the period presented. Diluted
net increase or decrease in net assets resulting from operations per share are not presented as
there are no potentially dilutive securities outstanding.
Recent Accounting Pronouncements
In May 2009, the FASB issued ASC 855, Subsequent Events (ASC 855). ASC 855 establishes general
standards of accounting for and disclosure of events that occur after the balance sheet date but
before financial statements are issued or are available to be issued. The standard, which includes
a new required disclosure of the date through which an entity has evaluated subsequent events, is
effective for interim or annual periods ending after June 15, 2009. We evaluated all events or
transactions that occurred after March 31, 2010 up through the date we issued the accompanying
financial statements. During this period, we did not have any material recognizable subsequent
events other than those disclosed in our financial statements.
27
In June 2009, the FASB issued ASC 105, Generally Accepted Accounting Principles (ASC 105), which
establishes the FASB Codification which supersedes all existing accounting standard documents and
will become the single source of authoritative non-governmental U.S. GAAP. All other accounting
literature not included in the Codification will be considered non-authoritative. The Codification
did not change GAAP but reorganizes the literature. ASC 105 is effective for interim and annual
periods ending after September 15, 2009. We have conformed our financial statements and related
Notes to the new Codification.
In June 2009, the FASB issued ASC 860, Accounting for Transfers of Financial Assets an amendment
to FAS 140 (ASC 860). ASC 860 improves the relevance, representational faithfulness, and
comparability of the information that a reporting entity provides in its financial statements about
a transfer of financial assets: the effects of a transfer on its financial position, financial
performance, and cash flows: and a transferors continuing involvement, if any, in transferred
financial assets. ASC 860 is effective as of the beginning of each reporting entitys first annual
reporting period that begins after November 15, 2009, for interim periods within that first annual
reporting period and for interim and annual reporting periods thereafter. Our management does not
believe that the adoption of the amended guidance in ASC 860 will have a significant effect on our
financial statements.
In
June 2009, the FASB issued ASC 810, Consolidation (ASC 810). ASC
810 is intended to (1) address the effects on certain provisions of FASB Interpretation No. 46
(revised December 2003), Consolidation of Variable Interest Entities, as a result of the
elimination of the qualifying special-purpose entity concept in ASC 860, and (2) constituent
concerns about the application of certain key provisions of Interpretation 46(R), including those
in which the accounting and disclosures under the Interpretation do not always provided timely and
useful information about an enterprises involvement in a variable interest entity. ASC 810 is
effective as of the beginning of our first annual reporting period that begins after November 15,
2009. Our management does not believe that the adoption of the amended guidance in ASC 860 will
have a significant effect on our financial statements.
In August 2009, the FASB issued Accounting Standards Update (ASU) 2009-05, Measuring Liabilities
at Fair Value, to amend FASB Accounting Standards Codification ASC 820, Fair Value Measurements and
Disclosures (ASC 820), to clarify how entities should estimate the fair value of liabilities. ASC
820, as amended, includes clarifying guidance for circumstances in which a quoted price in an
active market is not available, the effect of the existence of liability transfer restrictions, and
the effect of quoted prices for the identical liability, including when the identical liability is
traded as an asset. We adopted ASU 2009-05 effective October 1, 2009. The amended guidance in ASC
820 does not have a significant effect on our financial statements for the quarter ended March 31,
2010.
In September 2009, the FASB issued ASU 2009-12, Measuring Fair Value of Certain Investments (ASU
2009-12). This update provides further amendments to ASC 820 to offer investors a practical
expedient for measuring the fair value of investments in certain entities that calculate net asset
value per share. Specifically, measurement using net asset value per share is reasonable for
investments within the scope of ASU 2009-12. We adopted ASU 2009-12 effective October 1, 2009. The
amended guidance in ASC 820 does not have a significant effect on our financial statements for the
quarter ended March 31, 2010.
In January 2010, the FASB issued Accounting Standards Update 2010-06, Fair Value Measurements and
Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements (ASC 2010-06). ASU
2010-06 amends ASC 820-10 and clarifies and provides additional disclosure requirements related to
recurring and non-recurring fair value measurements and employers disclosures about postretirement
benefit plan assets. ASU 2010-06 is effective December 15, 2009, except for the disclosure about
purchase, sales, issuances and settlements in the roll forward of activity in level 3 fair value
measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010
and for interim periods within those fiscal years. Our management does not believe that the
adoption of the amended guidance in ASC 820-10 will have a significant effect on our financial
statements.
In February 2010, the FASB issued Accounting Standards Update 2010-09, Subsequent Events (Topic
855) Amendments to Certain Recognition and Disclosure Requirements (ASU 2010-09), which amends
ASC Subtopic 855-10. ASU 2010-09 requires an entity that is an SEC filer to evaluate subsequent
events through the date that the financial statements are issued and removes the requirement that
an SEC filer disclose the date through which subsequent events have been evaluated. ASC 2010-09 was
effective upon issuance. The adoption of this standard had no effect on our results of operation or
our financial position.
In February 2010, the FASB issued Accounting Standards Update 2010-10, Consolidation (Topic 810) -
Amendments for Certain Investments Funds (ASU 2010-10), which defers the application of the
consolidation guidance in ASC 810 for certain investments funds. The disclosure requirements
continue to apply to all entities. ASU 2010-10 is effective as of the beginning of the first annual
period that begins after November 15, 2009 and for interim periods within that first
annual period. Our management does not believe that the adoption of the amended guidance in ASU
2010-10 will have a significant effect on our financial statements.
28
Note 4. Portfolio Investments
At March 31, 2010, we had invested in 55 long-term portfolio investments, which had an amortized
cost of $675,534 and a fair value of $697,001. At June 30, 2009, we had invested in 30 long-term
portfolio investments, which had an amortized cost of $531,424 and a fair value of $547,168.
As of March 31, 2010, we own controlling interests in Ajax Rolled Ring & Machine (Ajax), AWCNC,
LLC, Borga, Inc., C&J Cladding, LLC (C&J), Change Clean Energy Holdings, Inc. (CCEHI),
Fischbein, LLC (Fischbein), Freedom Marine Services LLC (Freedom Marine), Gas Solutions
Holdings, Inc. (GSHI), Integrated Contract Services, Inc. (ICS), Iron Horse Coiled Tubing, Inc.
(Iron Horse), Manx Energy, Inc. (Manx), NRG Manufacturing, Inc. (NRG), Nupla Corporation
(Nupla), R-V Industries, Inc. (R-V), Sidumpr Trailer Company, Inc. (Sidumpr) and Yatesville
Coal Holdings, Inc. (Yatesville). We also own an affiliated interest in Biotronic NeuroNetwork
(Biotronic), Boxercraft Incorporated (Boxercraft), KTPS Holdings, LLC (KTPS), Miller
Petroleum, Inc. (Miller), Smart, LLC (Smart) and Sport Helmets Holdings, LLC (Sport Helmets).
The fair value hierarchy of our portfolio investments as of March 31, 2010 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Hierarchy |
|
|
|
|
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
Investments at fair value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Control investments |
|
$ |
|
|
|
$ |
|
|
|
$ |
194,647 |
|
|
$ |
194,647 |
|
Affiliate investments |
|
|
|
|
|
|
|
|
|
|
73,516 |
|
|
|
73,516 |
|
Non-control/non-affiliate investments |
|
|
191 |
|
|
|
1,539 |
|
|
|
427,108 |
|
|
|
428,838 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
191 |
|
|
|
1,539 |
|
|
|
695,271 |
|
|
|
697,001 |
|
Investments in money market funds |
|
|
|
|
|
|
23,011 |
|
|
|
|
|
|
|
23,011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets reported at fair value |
|
$ |
191 |
|
|
$ |
24,550 |
|
|
$ |
695,271 |
|
|
$ |
720,012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The aggregate values of Level 3 portfolio investments changed during the nine months ended March
31, 2010 as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using Unobservable Inputs (Level 3) |
|
|
|
|
|
|
|
|
|
|
|
Non-Control/ |
|
|
|
|
|
|
Control |
|
|
Affiliate |
|
|
Non-Affiliate |
|
|
|
|
|
|
Investments |
|
|
Investments |
|
|
Investments |
|
|
Total |
|
Fair value as of June 30, 2009 |
|
$ |
206,332 |
|
|
$ |
32,254 |
|
|
$ |
308,582 |
|
|
$ |
547,168 |
|
Total realized losses |
|
|
(51,228 |
) |
|
|
|
|
|
|
|
|
|
|
(51,228 |
) |
Change in unrealized appreciation (depreciation) |
|
|
(5,888 |
) |
|
|
11,609 |
|
|
|
1,642 |
|
|
|
7,363 |
(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized and unrealized (loss) gain |
|
|
(57,116 |
) |
|
|
11,609 |
|
|
|
1,642 |
|
|
|
(43,865 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets acquired in the Patriot acquisition |
|
|
10,534 |
|
|
|
36,400 |
|
|
|
160,073 |
|
|
|
207,007 |
|
Purchases of portfolio investments |
|
|
12,940 |
|
|
|
750 |
|
|
|
48,904 |
|
|
|
62,594 |
|
Payment-in-kind interest |
|
|
1,747 |
|
|
|
449 |
|
|
|
2,103 |
|
|
|
4,299 |
|
Accretion of original issue discount |
|
|
3,580 |
|
|
|
867 |
|
|
|
11,414 |
|
|
|
15,861 |
|
Dispositions of portfolio investments |
|
|
(8,843 |
) |
|
|
(3,935 |
) |
|
|
(85,015 |
) |
|
|
(97,793 |
) |
Transfers within Level 3 |
|
|
25,473 |
|
|
|
(4,878 |
) |
|
|
(20,595 |
) |
|
|
|
|
Transfers in (out) of Level 3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value as of March 31, 2010 |
|
$ |
194,647 |
|
|
$ |
73,516 |
|
|
$ |
427,108 |
|
|
$ |
695,271 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Relates to assets held at March 31, 2010 |
At March 31, 2010, eight loan investments were on non-accrual status: Deb Shops, Inc., ICS,
Iron Horse, Nupla, Manx, Sidumpr, Wind River Resources Corp. and Wind River II Corp. (Wind
River), and Yatesville. At June 30, 2009, five loan investments were on non-accrual status:
Appalachian Energy Holdings, LLC (AEH), Coalbed LLC./Coalbed Inc. (Coalbed), ICS, Wind River
and Yatesville. The loan principal of these loans amounted to $143,910 and $92,513 as of
March 31, 2010 and June 30, 2009, respectively. The fair values of these investments represent
approximately 5.6% and 7.3% of our net assets as of March 31, 2010 and June 30, 2009, respectively.
For the three months ended March 31, 2010 and March 31, 2009, the income forgone as a result of not
accruing interest on non-accrual debt investments amounted to $4,027 and $3,940, respectively. For
the nine months ended March 31, 2010 and March 31, 2009, the income forgone as a result of not
accruing interest on non-accrual debt investments amounted to $16,604 and $11,270, respectively.
29
During the quarter ended December 31, 2009, we discontinued operations at Yatesville. At December
31, 2009, consistent with the decision to discontinue operations, we determined that the impairment
of Yatesville was other-than-temporary and recorded a realized loss of $51,228 for the amount that
the amortized cost exceeded the fair market value. As of March 31, 2010 and June 30, 2009,
Yatesville is valued at $1,035 and $13,097, respectively.
GSHI has indemnified us against any legal action arising from its investment in Gas Solutions, LP.
We have incurred approximately $2,093 from the inception of the investment in GSHI through March
31, 2010 for fees associated with a legal action, and GSHI has reimbursed us for the entire amount.
Of the $2,093 reimbursement, $67 and $249 was reflected as dividend income: control investments in
the Consolidated Statements of Operations for the three and nine months ended March 31, 2009,
respectively. There were no such legal fees incurred or reimbursed for the three and nine months
ended March 31, 2010. Additionally, certain other expenses incurred by us which are attributable to
GSHI have been reimbursed by GSHI and are reflected as dividend income: control investments in the
Consolidated Statements of Operations. For the three months ended March 31, 2010 and March 31,
2009, such reimbursements totaled as $527 and $1,878, respectively. For the nine months ended March
31, 2010 and March 31, 2009, such reimbursements totaled as $2,558 and $5,386, respectively.
The original cost basis of debt placements and equity securities acquired (including purchases of
portfolio investments, follow-on investments and payment-in-kind interest) totaled to approximately
$59,311 and $6,356 during the three months ended March 31, 2010 and March 31, 2009, respectively.
These placements and acquisitions totaled to approximately $275,815 and $90,376 during the nine
months ended March 31, 2010 and March 31, 2009, respectively. The $275,815 for the nine months
ended March 31, 2010 includes $207,126 of portfolio investments acquired from Patriot. Debt
repayments and sales of equity securities with a cost basis of approximately $26,603 and $10,782
were received during the three months ended March 31, 2010 and March 31, 2009, respectively. These
repayments and sales amounted to $96,338 and $22,198 during the nine months ended March 31, 2010
and March 31, 2009, respectively.
During the three months ended March 31, 2010, we restructured our loans to Aircraft Fasteners
International, LLC, Prince Mineral Company, Inc. and R-O-M Corporation. The revised terms were more
favorable than the original terms and increased the present value of the future cash flows. In
accordance with ASC 320-20-35 the cost basis of the new loans were recorded at par value, which
included $6,735 of accelerated original purchase discount recognized as interest income.
Note 5. Other Investment Income
Other investment income consists of the gain on our acquisition of Patriot, structuring and
amendment fees, overriding royalty interests, settlement of net profit interests, deal deposits,
administrative agent fee, and other miscellaneous and sundry cash receipts. Income from such
sources for the three and nine months ended March 31, 2010 and March 31, 2009 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For The Three Months Ended |
|
|
For The Nine Months Ended |
|
|
|
March 31, |
|
|
March 31, |
|
Income Source |
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on Patriot acquisition |
|
$ |
|
|
|
$ |
|
|
|
$ |
5,714 |
|
|
$ |
|
|
Structuring and amendment fees |
|
|
1,688 |
|
|
|
|
|
|
|
2,091 |
|
|
|
774 |
|
Overriding royalty interests |
|
|
49 |
|
|
|
141 |
|
|
|
137 |
|
|
|
472 |
|
Settlement of net profits interests |
|
|
|
|
|
|
|
|
|
|
10 |
|
|
|
12,576 |
|
Miscellaneous |
|
|
20 |
|
|
|
18 |
|
|
|
443 |
|
|
|
164 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Investment Income |
|
$ |
1,757 |
|
|
$ |
159 |
|
|
$ |
8,395 |
|
|
$ |
13,986 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30
Note 6. Equity Offerings and Related Expenses
We issued 12,243,297 shares of our common stock in public and private offerings, and through our
newly implemented at-the-market program, during the nine months ended March 31, 2010. We issued
1,500,000 shares of our common stock in a public offering during the nine months ended March 31,
2009. The proceeds raised, the related underwriting fees, the offering expenses and the prices at
which these shares were issued are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
|
|
|
Number of |
|
|
Offering |
|
|
Proceeds |
|
|
Underwriting |
|
|
Offering |
|
Issuances of Common Stock |
|
Shares Issued |
|
|
Price |
|
|
Raised |
|
|
Fees |
|
|
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the nine months ended March 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 23,2010 March 31, 2010(1) |
|
|
811,500 |
|
|
$ |
12.600 |
|
|
$ |
10,230 |
|
|
$ |
205 |
|
|
$ |
449 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 7, 2009 |
|
|
5,175,000 |
|
|
$ |
9.000 |
|
|
$ |
46,575 |
|
|
$ |
2,329 |
|
|
$ |
200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 20, 2009 (2) |
|
|
3,449,686 |
|
|
$ |
8.500 |
|
|
$ |
29,322 |
|
|
$ |
|
|
|
$ |
117 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 24, 2009 (2) |
|
|
2,807,111 |
|
|
$ |
9.000 |
|
|
$ |
25,264 |
|
|
$ |
|
|
|
$ |
840 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the nine months ended March 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 19, 2009 |
|
|
1,500,000 |
|
|
$ |
8.200 |
|
|
$ |
12,300 |
|
|
$ |
|
|
|
$ |
513 |
|
|
|
|
(1) |
|
On March 17, 2010, we established an at-the-market program through which we may
sell, from time to time and at our sole discretion, 8,000,000 shares of our common stock.
Through this program we issued 811,500 shares of our common stock at an average price of $12.60
per share, raising $10,230 of gross proceeds, from March 23, 2010 through March 31, 2010. |
|
(2) |
|
Concurrent with the sale of these shares, we entered into a registration
rights agreement in which we granted the purchasers certain registration rights with respect to
the shares. We have filed with the SEC a post-effective amendment to the registration statement
on Form N-2 which has been declared effective by the SEC. |
Our shareholders equity accounts at March 31, 2010 and June 30, 2009 reflect cumulative shares
issued as of those respective dates. Our common stock has been issued through public offerings, a
registered direct offering, private offerings, the exercise of over-allotment options on the part
of the underwriters, our dividend reinvestment plan and business combinations. When our common
stock is issued, the related offering expenses have been charged against paid-in capital in excess
of par. All underwriting fees and offering expenses were borne by us.
On December 2, 2009, we issued 8,444,068 shares of common stock to acquire Patriot. This
transaction is described in further detail in Note 2.
On July 20, 2009,
October 19, 2009 and January 25, 2010, we issued shares of our common stock in
connection with the dividend reinvestment plan of 297,274 shares, 233,523 shares and 236,985
shares, respectively.
On March 4, 2010, our Registration Statement on Form N-2 was declared effective by the SEC. Under
this Shelf Registration Statement, we can issue up to $489,770 of additional equity securities as
of March 31, 2010.
On October 9, 2008, our Board of Directors approved a share repurchase plan under which we may
repurchase up to $20,000 of our common stock at prices below our net asset value as reported in our
financial statements published for the year ended June 30, 2008. We have not made any purchases of
our common stock during the period from October 9, 2008 to March 31, 2010 pursuant to this plan.
31
Note 7. Net Increase in Net Assets per Common Share
The following information sets forth the computation of net increase in net assets resulting from
operations per common share for the three and nine months ended March 31, 2010 and March 31, 2009,
respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For The Three Months Ended |
|
|
For The Nine Months Ended |
|
|
|
March 31, |
|
|
March 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Net increase in net assets
resulting from operations |
|
$ |
25,940 |
|
|
$ |
15,331 |
|
|
$ |
2,709 |
|
|
$ |
35,853 |
|
Weighted average common
shares outstanding |
|
|
63,569,663 |
|
|
|
29,971,508 |
|
|
|
56,948,036 |
|
|
|
29,708,458 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in net assets resulting
from operations per common share |
|
$ |
0.41 |
|
|
$ |
0.51 |
|
|
$ |
0.05 |
|
|
$ |
1.21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 8. Related Party Agreements and Transactions
Investment Advisory Agreement
We have entered into an investment advisory and management agreement with Prospect Capital
Management (the Investment Advisory Agreement) under which the Investment Adviser, subject to the
overall supervision of our Board of Directors, manages the day-to-day operations of, and provides
investment advisory services to us. Under the terms of the Investment Advisory Agreement, our
Investment Adviser: (i) determines the composition of our portfolio, the nature and timing of the
changes to our portfolio and the manner of implementing such changes, (ii) identifies, evaluates
and negotiates the structure of the investments we make (including performing due diligence on our
prospective portfolio companies); and (iii) closes and monitors investments we make.
Prospect Capital Managements services under the Investment Advisory Agreement are not exclusive,
and it is free to furnish similar services to other entities so long as its services to us are not
impaired. For providing these services the Investment Adviser receives a fee from us, consisting of
two components: a base management fee and an incentive fee. The base management fee is calculated
at an annual rate of 2.00% on our gross assets (including amounts borrowed). For services currently
rendered under the Investment Advisory Agreement, the base management fee is payable quarterly in
arrears. The base management fee is calculated based on the average value of our gross assets at
the end of the two most recently completed calendar quarters and appropriately adjusted for any
share issuances or repurchases during the current calendar quarter.
The total base management fees incurred to the favor of the Investment Adviser for the three months
ended March 31, 2010 and March 31, 2009 were $3,576, and $2,977, respectively. The fees incurred
for the nine months ended March 31, 2010 and March 31, 2009 were $9,962, and $8,740, respectively.
The incentive fee has two parts. The first part, the income incentive fee, is calculated and
payable quarterly in arrears based on our pre-incentive fee net investment income for the
immediately preceding calendar quarter. For this purpose, pre-incentive fee net investment income
means interest income, dividend income and any other income (including any other fees (other than
fees for providing managerial assistance), such as commitment, origination, structuring, diligence
and consulting fees and other fees that we receive from portfolio companies) accrued during the
calendar quarter, minus our operating expenses for the quarter (including the base management fee,
expenses payable under the Administration Agreement described below, and any interest expense and
dividends paid on any issued and outstanding preferred stock, but excluding the incentive fee).
Pre-incentive fee net investment income includes, in the case of investments with a deferred
interest feature (such as original issue discount, debt instruments with payment in kind interest
and zero coupon securities), accrued income that we have not yet received in cash. Pre-incentive
fee net investment income does not include any realized capital gains, realized capital losses or
unrealized capital appreciation or depreciation. Pre-incentive fee net investment income, expressed
as a rate of return on the value of our net assets at the end of the immediately preceding calendar
quarter, is compared to a hurdle rate of 1.75% per quarter (7.00% annualized).
32
The net investment income used to calculate this part of the incentive fee is also included in the
amount of the gross assets used to calculate the 2.00% base management fee. We pay the Investment
Adviser an income incentive fee with respect to our pre-incentive fee net investment income in each
calendar quarter as follows:
|
|
|
no incentive fee in any calendar quarter in which our pre-incentive fee net investment
income does not exceed the hurdle rate; |
|
|
|
100.00% of our pre-incentive fee net investment income with respect to that portion of
such pre-incentive fee net investment income, if any, that exceeds the hurdle rate but is
less than 125.00% of the quarterly hurdle rate in any calendar quarter (8.75% annualized
assuming a 7.00% annualized hurdle rate); and |
|
|
|
20.00% of the amount of our pre-incentive fee net investment income, if any, that
exceeds 125.00% of the quarterly hurdle rate in any calendar quarter (8.75% annualized
assuming a 7.00% annualized hurdle rate). |
These calculations are appropriately prorated for any period of less than three months and adjusted
for any share issuances or repurchases during the current quarter.
The second part of the incentive fee, the capital gains incentive fee, is determined and payable in
arrears as of the end of each calendar year (or upon termination of the Investment Advisory
Agreement, as of the termination date), and equals 20.00% of our realized capital gains for the
calendar year, if any, computed net of all realized capital losses and unrealized capital
depreciation at the end of such year. In determining the capital gains incentive fee payable to the
Investment Adviser, we calculate the aggregate realized capital gains, aggregate realized capital
losses and aggregate unrealized capital depreciation, as applicable, with respect to each
investment that has been in its portfolio. For the purpose of this calculation, an investment is
defined as the total of all rights and claims which maybe asserted against a portfolio company
arising from our participation in the debt, equity, and other financial instruments issued by that
company. Aggregate realized capital gains, if any, equal the sum of the differences between the
aggregate net sales price of each investment and the aggregate cost basis of such investment when
sold or otherwise disposed. Aggregate realized capital losses equal the sum of the amounts by which
the aggregate net sales price of each investment is less than the aggregate cost basis of such
investment when sold or otherwise disposed. Aggregate unrealized capital depreciation equals the
sum of the differences, if negative, between the aggregate valuation of each investment and the
aggregate cost basis of such investment as of the applicable calendar year-end. At the end of the
applicable calendar year, the amount of capital gains that serves as the basis for our calculation
of the capital gains incentive fee involves netting aggregate realized capital gains against
aggregate realized capital losses on a since-inception basis and then reducing this amount by the
aggregate unrealized capital depreciation. If this number is positive, then the capital gains
incentive fee payable is equal to 20.00% of such amount, less the aggregate amount of any capital
gains incentive fees paid since inception.
For the three months ended March 31, 2010 and March 31, 2009, income incentive fees of $4,744 and
$2,930, respectively, were incurred. For the nine months ended March 31, 2010 and March 31, 2009,
income incentive fees of $12,054 and $11,795, respectively, were incurred. No capital gains
incentive fees were incurred for the three or nine months ended March 31, 2010 and March 31, 2009.
Administration Agreement
We have also entered into an Administration Agreement with Prospect Administration, LLC (Prospect
Administration) under which Prospect Administration, among other things, provides (or arranges for
the provision of) administrative services and facilities for us. For providing these services, we
reimburse Prospect Administration for our allocable portion of overhead incurred by Prospect
Administration in performing its obligations under the Administration Agreement, including rent and
our allocable portion of the costs of our chief compliance officer and chief financial officer and
their respective staffs. For the three months ended March 31, 2010 and 2009, the reimbursement was
approximately $840 and $588, respectively. For the nine months ended March 31, 2010 and 2009, the
reimbursement was approximately $2,520 and $1,764, respectively. Under this agreement, Prospect
Administration furnishes us with office facilities, equipment and clerical, bookkeeping and record
keeping services at such facilities. Prospect Administration also performs, or oversees the
performance of, our required administrative services, which include, among other things, being
responsible for the financial records that we are required to maintain and preparing reports to our
stockholders and reports filed with the SEC. In addition, Prospect Administration assists us in
determining and publishing our net asset value, overseeing the preparation and filing of our tax
returns and the printing and dissemination of reports to our stockholders, and generally oversees
the payment of our expenses and the performance of administrative and professional services
rendered to us by others. Under the Administration Agreement, Prospect Administration also provides
on our behalf managerial assistance to those portfolio companies to which we are required
to provide such assistance. The Administration Agreement may be terminated by either party without
penalty upon 60 days written notice to the other party. Prospect Administration is a wholly owned
subsidiary of our Investment Adviser.
33
The Administration Agreement provides that, absent willful misfeasance, bad faith or negligence in
the performance of its duties or by reason of the reckless disregard of its duties and obligations,
Prospect Administration and its officers, managers, partners, agents, employees, controlling
persons, members and any other person or entity affiliated with it are entitled to indemnification
from us for any damages, liabilities, costs and expenses (including reasonable attorneys fees and
amounts reasonably paid in settlement) arising from the rendering of Prospect Administrations
services under the Administration Agreement or otherwise as administrator for us.
Prior to July 1, 2009, Prospect Administration, pursuant to the approval of our Board of Directors,
engaged Vastardis Fund Services LLC (Vastardis) to serve as our sub-administrator to perform
certain services required of Prospect Administration. Under the sub-administration agreement,
Vastardis provided us with office facilities, equipment, clerical, bookkeeping and record keeping
services at such facilities. Vastardis also conducted relations with custodians, depositories,
transfer agents, dividend disbursing agents, other stockholder servicing agents, accountants,
attorneys, underwriters, brokers and dealers, corporate fiduciaries, insurers, banks and such other
persons in any such other capacity deemed to be necessary or desirable. Vastardis provided reports
to the Administrator and the Directors of its performance of obligations and furnished advice and
recommendations with respect to such other aspects of our business and affairs as it shall
determine to be desirable. Under the sub-administration agreement, Vastardis also provided the
service of William E. Vastardis as our Chief Financial Officer (CFO). We compensated Vastardis
for providing us these services by the payment of an asset-based fee with a $400 annual minimum,
payable monthly. Our service agreement was amended on September 28, 2008 so that Mr. Vastardis no
longer served as our CFO effective as of November 11, 2008. At that time, Brian H. Oswald, a
managing director at Prospect Administration, assumed the role of CFO.
We terminated our agreement with Vastardis to provide sub-administration services effective June
30, 2009. We entered into a new consulting services agreement for the period from July 1, 2009
until the filing of our Form 10-K for the year ended June 30, 2009. We paid Vastardis a total of
$30 for services rendered in conjunction with preparation of Form 10-K under the new agreement.
This amount was accrued during the quarter ended June 30, 2009. All services previously provided by
Vastardis were assumed by Prospect Administration beginning on July 1, 2009 for the fiscal year
ending June 30, 2010 and thereafter.
Managerial Assistance
As a business development company, we offer, and must provide upon request, managerial assistance
to certain of our portfolio companies. This assistance could involve, among other things,
monitoring the operations of our portfolio companies, participating in board and management
meetings, consulting with and advising officers of portfolio companies and providing other
organizational and financial guidance. We billed $216 and $215 of managerial assistance fees for
the three months ended March 31, 2010 and June 30, 2009, respectively, of which $188 and $60
remains on the consolidated statement of assets and liabilities as of March 31, 2010, and June 30,
2009, respectively. We billed $676 and $431 of managerial assistance fees for the nine months ended
March 31, 2010 and June 30, 2009, respectively. These fees are paid to the Administrator when
received. We simultaneously accrue a payable to the Administrator for the same amounts, which
remain on the consolidated statements of assets and liabilities.
34
Note 9. Financial Highlights
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For The Three Months Ended |
|
|
For The Nine Months Ended |
|
|
|
March 31, 2010 |
|
|
March 31, 2009 |
|
|
March 31, 2010 |
|
|
March 31, 2009 |
|
Per Share Data(1): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net asset value at beginning of period |
|
$ |
10.06 |
|
|
$ |
14.43 |
|
|
$ |
12.40 |
|
|
$ |
14.55 |
|
Net investment income |
|
|
0.30 |
|
|
|
0.39 |
|
|
|
0.85 |
|
|
|
1.59 |
|
Net realized (loss) gain |
|
|
|
|
|
|
|
|
|
|
(0.90 |
) |
|
|
0.06 |
|
Net unrealized appreciation (depreciation) |
|
|
0.11 |
|
|
|
0.12 |
|
|
|
0.10 |
|
|
|
(0.44 |
) |
Net increase (decrease) in net assets as a
result of public offerings and DRIP issuance |
|
|
0.03 |
|
|
|
(0.34 |
) |
|
|
(0.85 |
) |
|
|
(0.36 |
) |
Net increase in net assets as a result of shares
issued for Patriot acquisition |
|
|
|
|
|
|
|
|
|
|
0.14 |
|
|
|
|
|
Dividends declared |
|
|
(0.41 |
) |
|
|
(0.41 |
) |
|
|
(1.65 |
) |
|
|
(1.21 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net asset value at end of period |
|
$ |
10.09 |
|
|
$ |
14.19 |
|
|
$ |
10.09 |
|
|
$ |
14.19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per share market value at end of period |
|
$ |
12.15 |
|
|
$ |
8.52 |
|
|
$ |
12.15 |
|
|
$ |
8.52 |
|
Total return based on market value(2) |
|
|
6.35 |
% |
|
|
(25.44 |
%) |
|
|
46.62 |
% |
|
|
(27.80 |
%) |
Total return based on net asset value(2) |
|
|
3.68 |
% |
|
|
3.01 |
% |
|
|
(9.66 |
%) |
|
|
8.93 |
% |
Shares outstanding at end of period |
|
|
64,398,231 |
|
|
|
31,286,128 |
|
|
|
64,398,231 |
|
|
|
31,286,128 |
|
Average weighted shares outstanding for period |
|
|
63,659,663 |
|
|
|
29,971,508 |
|
|
|
56,948,036 |
|
|
|
29,708,458 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio / Supplemental Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets at end of period (in thousands) |
|
$ |
649,486 |
|
|
$ |
444,024 |
|
|
$ |
649,486 |
|
|
$ |
444,024 |
|
Annualized ratio of operating expenses
to average net assets |
|
|
8.14 |
% |
|
|
8.32 |
% |
|
|
7.56 |
% |
|
|
9.62 |
% |
Annualized ratio of net operating income
to average net assets |
|
|
11.75 |
% |
|
|
10.64 |
% |
|
|
10.54 |
% |
|
|
14.59 |
% |
35
Note 9. Financial Highlights (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year |
|
|
Year |
|
|
Year |
|
|
Year |
|
|
Year |
|
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
June 30, |
|
|
June 30, |
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
Per Share Data(1): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net asset value at beginning of period |
|
$ |
14.55 |
|
|
$ |
15.04 |
|
|
$ |
15.31 |
|
|
$ |
14.59 |
|
|
$ |
(0.01 |
) |
Costs related to the initial public offering |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.01 |
|
|
|
(0.21 |
) |
Costs related to the secondary public offering |
|
|
|
|
|
|
(0.07 |
) |
|
|
(0.06 |
) |
|
|
|
|
|
|
|
|
Net investment income |
|
|
1.87 |
|
|
|
1.91 |
|
|
|
1.47 |
|
|
|
1.21 |
|
|
|
0.34 |
|
Realized (loss) gain |
|
|
(1.24 |
) |
|
|
(0.69 |
) |
|
|
0.12 |
|
|
|
0.04 |
|
|
|
|
|
Net unrealized appreciation (depreciation) |
|
|
0.48 |
|
|
|
(0.05 |
) |
|
|
(0.52 |
) |
|
|
0.58 |
|
|
|
0.90 |
|
Net (decrease) increase in net assets as a result
of public offering |
|
|
(2.11 |
) |
|
|
|
|
|
|
0.26 |
|
|
|
|
|
|
|
13.95 |
|
Dividends declared and paid |
|
|
(1.15 |
) |
|
|
(1.59 |
) |
|
|
(1.54 |
) |
|
|
(1.12 |
) |
|
|
(0.38 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net asset value at end of period |
|
$ |
12.40 |
|
|
$ |
14.55 |
|
|
$ |
15.04 |
|
|
$ |
15.31 |
|
|
$ |
14.59 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per share market value at end of period |
|
$ |
9.20 |
|
|
$ |
13.18 |
|
|
$ |
17.47 |
|
|
$ |
16.99 |
|
|
$ |
12.60 |
|
Total return based on market value(2) |
|
|
(22.04 |
%) |
|
|
(15.90 |
%) |
|
|
12.65 |
% |
|
|
44.90 |
% |
|
|
(13.46 |
%) |
Total return based on net asset value(2) |
|
|
(4.81 |
%) |
|
|
7.84 |
% |
|
|
7.62 |
% |
|
|
12.76 |
% |
|
|
7.40 |
% |
Shares outstanding at end of period |
|
|
42,943,084 |
|
|
|
29,520,379 |
|
|
|
19,949,065 |
|
|
|
7,069,873 |
|
|
|
7,055,100 |
|
Average weighted shares outstanding for period |
|
|
31,559,905 |
|
|
|
23,626,642 |
|
|
|
15,724,095 |
|
|
|
7,056,846 |
|
|
|
7,055,100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio / Supplemental Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets at end of period |
|
$ |
532,596 |
|
|
$ |
429,623 |
|
|
$ |
300,048 |
|
|
$ |
108,270 |
|
|
$ |
102,967 |
|
Annualized ratio of operating expenses to average
net assets |
|
|
9.03 |
% |
|
|
9.62 |
% |
|
|
7.36 |
% |
|
|
8.19 |
% |
|
|
5.52 |
% |
Annualized ratio of net investment income to
average net assets |
|
|
13.14 |
% |
|
|
12.66 |
% |
|
|
9.71 |
% |
|
|
7.90 |
% |
|
|
8.50 |
% |
|
|
|
(1) |
|
Financial highlights are based on weighted average shares. |
|
(2) |
|
Total return based on market value is based on the change in market price
per share between the opening and ending market prices per share in each period and assumes
that dividends are reinvested in accordance with our dividend reinvestment plan. Total return
based on net asset value is based upon the change in net asset value per share between the
opening and ending net asset values per share in each period and assumes that dividends are
reinvested in accordance with our dividend reinvestment plan. |
Note 10. Revolving Credit Agreements
On June 6, 2007, we, through a consolidated wholly-owned, bankruptcy remote, special purpose
subsidiary of ours, closed on a $200,000 three-year revolving credit facility (as amended on
December 31, 2007) with Rabobank Nederland (Rabobank) as administrative agent and sole lead
arranger (the Rabobank Facility). Until November 14, 2008, interest on the Rabobank Facility was
charged at LIBOR plus 175 basis points; thereafter, under the terms of a commitment letter with
Rabobank to arrange and structure a new rated credit facility, we agreed to an immediate increase
in the current borrowing rate on the Rabobank Facility to LIBOR plus 250 basis points.
Additionally, Rabobank charged a fee on the unused portion of the facility. This fee is assessed at
the rate of 37.5 basis points per annum of the amount of that unused portion.
On June 25, 2009, we completed a first closing on an expanded $250,000 revolving credit facility
(the Syndicated Facility). The new Syndicated Facility, which had $210,000 and $175,000 total
commitments as of March 31, 2010 and June 30, 2009, respectively, includes an accordion feature
which allows the Syndicated Facility to accept up to an aggregate total of $250,000 of commitments.
The revolving period extends through June 24, 2010. If not renewed or extended by the participant
banks, a one year amortization period would commence whereby we may not borrow additional funds.
Thereafter for ten years, all principal, interest and fee payments received in conjunction with
collateral pledged to the Syndicated Facility, less a monthly servicing fee payable to us, are
required to be used to repay outstanding borrowings under the Syndicated Facility. Any remaining
outstanding borrowings would be due and payable on the commitment termination date, which is
currently June 24, 2011. On April 30, 2010, we entered into an
engagement with Rabobank and Key Equipment Finance, Inc. to syndicate and Rabobank to structure a
new syndicated credit facility.
36
The Syndicated Facility contains restrictions pertaining to the geographic and industry
concentrations of funded loans, maximum size of funded loans, interest rate payment frequency of
funded loans, maturity dates of funded loans and minimum equity requirements. The Syndicated
Facility also contains certain requirements relating to portfolio performance, including required
minimum portfolio yield and limitations on delinquencies and charge-offs, violation of which could
result in the early termination of the Syndicated Facility. The Syndicated Facility also requires
the maintenance of a minimum liquidity requirement. At March 31, 2010 and June 30, 2009, we were in
compliance with the applicable covenants.
Interest on borrowings under the credit facility is one-month LIBOR plus 400 basis points, subject
to a minimum Libor floor of 200 basis points. Additionally, the banks charge a fee on the unused
portion of the credit facility equal to 100 basis points. As of March 31, 2010 and June 30, 2009,
we had $54,200 and $124,800 outstanding under our credit facility, respectively. As of March 31,
2010 and June 30, 2009, $62,457 and $946 was available to us for additional borrowing under our
credit facility, respectively. As we make additional investments which are eligible to be pledged
under the credit facility, we will generate additional availability to the extent such investments
are eligible to be placed into the borrowing base. At March 31, 2010 and June 30, 2009, the
investments used as collateral for the Syndicated Facility had an aggregate market value of
$437,159 and $434,069, which represents 67.3% and 81.5% of net assets, respectively.
In connection with the origination and amendment of the Syndicated Facility, we incurred
approximately $9,847 of fees which are being amortized over the term of the facility.
Note 11. Merger Proposal to Allied Capital Corporation
In January 2010, we delivered a proposal letter to Allied Capital Corporation (Allied) noting our
opposition to Allieds proposed merger with Ares Capital Corporation (Ares) and containing an
offer to acquire each outstanding Allied share in exchange for 0.385 of a share of our common
stock. Allied expressed that our offer did not constitute a Superior Proposal as defined in their
Merger Agreement with Ares and declined our January 2010 offer. In February 2010, we increased our
offer to 0.4416 of a share of our common stock. This final offer was also declined by Allied. On
March 5, 2010, following Allieds announcement of a special dividend to shareholders, we terminated
our solicitation in opposition of the proposed merger with Ares. We incurred $925 of administrative
and legal expense for advice relating to this potential acquisition for the quarter ended March 31,
2010.
Note 12. Commitments and Off-Balance Sheet Risks
From time to time, we provide guarantees for portfolio companies for payments to counterparties,
usually as an alternative to investing additional capital. We provide indemnifications to Prospect
Administration in accordance with our respective agreements with that service provider. These
indemnifications are described in further detail in Note 8. As of March 31, 2010, no other material
contingency agreements exist.
As of
March 31, 2010, we have $13,757 of undrawn revolver commitments to our portfolio companies.
37
Note 13. Litigation
From time to time, we may become involved in various investigations, claims and legal proceedings
that arise in the ordinary course of our business. These matters may relate to intellectual
property, employment, tax, regulation, contract or other matters. The resolution of these matters
as they arise will be subject to various uncertainties and, even if such claims are without merit,
could result in the expenditure of significant financial and managerial resources.
On December 6, 2004, Dallas Gas Partners, L.P. (DGP) served us with a complaint filed November
30, 2004 in the U.S. District for the Southern District of Texas, Galveston Division. DGP alleges
that DGP was defrauded and that we breached our fiduciary duty to DGP and tortiously interfered
with DGPs contract to purchase Gas Solutions, Ltd. (a subsidiary of our portfolio company, GSHI)
in connection with our alleged agreement in September 2004 to loan DGP funds with which DGP
intended to buy Gas Solutions, Ltd. for approximately $26,000. The complaint sought relief not
limited to $100,000. On November 30, 2005, U.S. Magistrate Judge John R. Froeschner of the U.S.
District Court for the Southern District of Texas, Galveston Division, issued a recommendation that
the court grant our Motion for Summary Judgment dismissing all claims by DGP. On February 21, 2006,
U.S. District Judge Samuel Kent of the U.S. District
Court for the Southern District of Texas, Galveston Division issued an order granting our Motion
for Summary Judgment dismissing all claims by DGP, against us. On May 16, 2007, the Court also
granted us summary judgment on DGPs liability to us on our counterclaim for DGPs breach of a
release and covenant not to sue. On January 4, 2008, the Court, Judge Melinda Harmon presiding,
granted our motion to dismiss all DGPs claims asserted against certain of our officers and
affiliates. On August 20, 2008, Judge Harmon entered a Final Judgment dismissing all of DGPs
claims. DGP appealed to the U.S. Court of Appeals for the Fifth Circuit, which affirmed the Final
Judgment on June 24, 2009. DGP then moved for rehearing on July 8, 2009, which the Fifth Circuit
denied on August 6, 2009. Our damage claims against DGP remain pending.
In May 2006, based in part on unfavorable due diligence and the absence of investment committee
approval, we declined to extend a loan for $10,000 to a potential borrower (plaintiff). Plaintiff
was subsequently sued by its own attorney in a local Texas court for plaintiffs failure to pay
fees owed to its attorney. In December 2006, plaintiff filed a cross-action against us and certain
affiliates (the defendants) in the same local Texas court, alleging, among other things, tortuous
interference with contract and fraud. We petitioned the United States District Court for the
Southern District of New York (the District Court) to compel arbitration and to enjoin the Texas
action. In February 2007, our motions were granted. Plaintiff appealed that decision. On July 24,
2008, the Second Circuit Court of Appeals affirmed the judgment of the District Court. The
arbitration commenced in July 2007 and concluded in late November 2007. Post-hearing briefings were
completed in February 2008. On April 14, 2008, the arbitrator rendered an award in our favor,
rejecting all of plaintiffs claims. On April 18, 2008, we filed a petition before the District
Court to confirm the award. On October 8, 2008, the District Court granted the Companys petition
to confirm the award, confirmed the awards and subsequently entered judgment thereon in favor of
the Company in the amount of $2,288. After filing a defective notice of appeal to the United States
Court of Appeals for the Second Circuit on November 5, 2008, plaintiffs counsel resubmitted a new
notice of appeal on January 9, 2009. The plaintiff subsequently requested that the Company agree to
stipulate to the withdrawal of plaintiffs appeal to the Second Circuit. Such a stipulation was
filed with the Second Circuit on or about April 14, 2009. Based on this stipulation, the Second
Circuit issued a mandate terminating the appeal, which was transmitted to the District Court on
April 23, 2009. Post-judgment discovery against plaintiff is continuing and we have filed a motion
for sanctions against plaintiffs counsel. Argument for the motion for sanctions was held on
November 19, 2009 and a decision from the court is pending. On March 19, 2010, Judge Leonard Sands
granted our motion for sanctions against plaintiffs counsel.
38
Note 14. Selected Quarterly Financial Data (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Realized and |
|
|
Net Increase (Decrease) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized |
|
|
in Net Assets from |
|
|
|
Investment Income |
|
|
Net Investment Income |
|
|
Gains (Losses) |
|
|
Operations |
|
Quarter Ended |
|
Total |
|
|
Per Share(1) |
|
|
Total |
|
|
Per Share(1) |
|
|
Total |
|
|
Per Share(1) |
|
|
Total |
|
|
Per Share(1) |
|
September 30, 2006 |
|
$ |
6,432 |
|
|
$ |
0.65 |
|
|
$ |
3,274 |
|
|
$ |
0.33 |
|
|
$ |
690 |
|
|
$ |
0.07 |
|
|
$ |
3,964 |
|
|
$ |
0.40 |
|
December 31, 2006 |
|
|
8,171 |
|
|
|
0.60 |
|
|
|
4,493 |
|
|
|
0.33 |
|
|
|
(1,553 |
) |
|
|
(0.11 |
) |
|
|
2,940 |
|
|
|
0.22 |
|
March 31, 2007 |
|
|
12,069 |
|
|
|
0.61 |
|
|
|
7,015 |
|
|
|
0.36 |
|
|
|
(2,039 |
) |
|
|
(0.10 |
) |
|
|
4,976 |
|
|
|
0.26 |
|
June 30, 2007 |
|
|
14,009 |
|
|
|
0.70 |
|
|
|
8,349 |
|
|
|
0.42 |
|
|
|
(3,501 |
) |
|
|
(0.18 |
) |
|
|
4,848 |
|
|
|
0.24 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2007 |
|
|
15,391 |
|
|
|
0.77 |
|
|
|
7,865 |
|
|
|
0.39 |
|
|
|
685 |
|
|
|
0.04 |
|
|
|
8,550 |
|
|
|
0.43 |
|
December 31, 2007 |
|
|
18,563 |
|
|
|
0.80 |
|
|
|
10,660 |
|
|
|
0.46 |
|
|
|
(14,346 |
) |
|
|
(0.62 |
) |
|
|
(3,686 |
) |
|
|
(0.16 |
) |
March 31, 2008 |
|
|
22,000 |
|
|
|
0.92 |
|
|
|
12,919 |
|
|
|
0.54 |
|
|
|
(14,178 |
) |
|
|
(0.59 |
) |
|
|
(1,259 |
) |
|
|
(0.05 |
) |
June 30, 2008 |
|
|
23,448 |
|
|
|
0.85 |
|
|
|
13,669 |
|
|
|
0.50 |
|
|
|
10,317 |
|
|
|
0.38 |
|
|
|
23,986 |
|
|
|
0.88 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2008(2) |
|
|
35,799 |
|
|
|
1.21 |
|
|
|
23,502 |
|
|
|
0.80 |
|
|
|
(9,504 |
) |
|
|
(0.33 |
) |
|
|
13,998 |
|
|
|
0.47 |
|
December 31, 2008 |
|
|
22,213 |
|
|
|
0.75 |
|
|
|
11,960 |
|
|
|
0.40 |
|
|
|
(5,436 |
) |
|
|
(0.18 |
) |
|
|
6,524 |
|
|
|
0.22 |
|
March 31, 2009 |
|
|
20,669 |
|
|
|
0.69 |
|
|
|
11,720 |
|
|
|
0.39 |
|
|
|
3,611 |
|
|
|
0.12 |
|
|
|
15,331 |
|
|
|
0.51 |
|
June 30, 2009 |
|
|
21,800 |
|
|
|
0.59 |
|
|
|
11,981 |
|
|
|
0.32 |
|
|
|
(12,730 |
) |
|
|
(0.34 |
) |
|
|
(749 |
) |
|
|
(0.02 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009 |
|
|
21,517 |
|
|
|
0.43 |
|
|
|
12,318 |
|
|
|
0.25 |
|
|
|
(18,696 |
) |
|
|
(0.38 |
) |
|
|
(6,378 |
) |
|
|
(0.13 |
) |
December 31, 2009 |
|
|
28,883 |
|
|
|
0.50 |
|
|
|
16,925 |
|
|
|
0.29 |
|
|
|
(33,778 |
) |
|
|
(0.59 |
) |
|
|
(16,853 |
) |
|
|
(0.29 |
) |
March 31, 2010 |
|
|
32,005 |
|
|
|
0.50 |
|
|
|
18,974 |
|
|
|
0.30 |
|
|
|
6,966 |
|
|
|
0.11 |
|
|
|
25,940 |
|
|
|
0.41 |
|
|
|
|
(1) |
|
Per share amounts are calculated using weighted average shares during period. |
|
(2) |
|
Additional income for this quarter was driven by other investment income
from the settlement of net profits interests on IEC Systems LP and Advanced Rig Services LLC. |
Note 15. Subsequent Events
On April 23, 2010, we issued 248,731 shares of our common stock in connection with the dividend
reinvestment plan.
On April 7, 2010, we purchased $12,296 of second lien notes in Seaton Corporation, a human
resources services company. The second lien notes bear interest in cash at the greater of 12.5% or
Libor plus 9.0% and have a final maturity on March 14, 2011.
During the period from April 1, 2010 to May 10, 2010 we issued 2,634,700 shares of our common stock
at an average price of $11.93 per share, and raised $31,432 of gross proceeds, under our
at-the-market program.
39
|
|
|
Item 2. |
|
Managements Discussion and Analysis of Financial Condition and Results of Operations |
(All figures in this item are in thousands except share, per share and other data)
References herein to we, us or our refer to Prospect Capital Corporation and its subsidiary
unless the context specifically requires otherwise.
The following discussion should be read in conjunction with the consolidated financial statements
and notes thereto appearing elsewhere in this quarterly report on Form 10-Q. Historical results set
forth are not necessarily indicative of our future financial position and results of operations.
Note on Forward Looking Statements
Some of the statements in this report constitute forward-looking statements, which relate to future
events or our future performance or financial condition. The forward-looking statements contained
herein involve risks and uncertainties, including statements as to:
|
|
|
our future operating results; |
|
|
|
our business prospects and the prospects of our portfolio companies; |
|
|
|
the impact of investments that we expect to make; |
|
|
|
our contractual arrangements and relationships with third parties; |
|
|
|
the dependence of our future success on the general economy and its impact on the
industries in which we invest; |
|
|
|
the ability of our portfolio companies to achieve their objectives; |
|
|
|
our expected financings and investments; |
|
|
|
the adequacy of our cash resources and working capital; and |
|
|
|
the timing of cash flows, if any, from the operations of our portfolio companies. |
We generally use words such as anticipates, believes, expects, intends and similar
expressions to identify forward-looking statements. Our actual results could differ materially from
those projected in the forward-looking statements for any reason, including the factors set forth
in Risk Factors and elsewhere in this report.
We have based the forward-looking statements included in this report on information available to us
on the date of this report, and we assume no obligation to update any such forward-looking
statements. Although we undertake no obligation to revise or update any forward-looking statements,
whether as a result of new information, future events or otherwise, you are advised to consult any
additional disclosures that we may make directly to you or through reports that we in the future
may file with the Securities and Exchange Commission (SEC), including any annual reports on Form
10-K, quarterly reports on Form 10-Q and current reports on Form 8-K.
General
We are a financial services company that primarily lends to and invests in middle market
privately-held companies. We are a closed-end investment company that has filed an election to be
treated as a business development company under the Investment Company Act of 1940, or the 1940
Act. We invest primarily in senior and subordinated debt and equity of companies in need of capital
for acquisitions, divestitures, growth, development, project financing and recapitalization. We
work with the management teams or financial sponsors to seek investments with historical cash
flows, asset collateral or contracted pro-forma cash flows.
We seek to be a long-term investor with our portfolio companies. From our July 27, 2004 inception
to the fiscal year ended June 30, 2007, we invested primarily in industries related to the
industrial/energy economy. Since then, we have widened our strategy to focus in other sectors of
the economy and continue to diversify our portfolio holdings.
40
Patriot Acquisition
On December 2, 2009, we acquired the outstanding shares of Patriot Capital Funding, Inc.
(Patriot) common stock for $201,083. Under the terms of the merger agreement, Patriot common
shareholders received 0.363992 shares of our common stock for each share of Patriot common stock,
resulting in 8,444,068 shares of common stock being issued by us. In connection with the
transaction, we repaid all the outstanding borrowings of Patriot, in compliance with the merger
agreement.
On December 2, 2009, Patriot made a final dividend equal to its undistributed net ordinary income
and capital gains of $0.38 per share. In accordance with a recent IRS revenue procedure, the
dividend was paid 10% in cash and 90% in newly issued shares of Patriots common stock. The
exchange ratio was adjusted to give effect to the tax distribution.
The merger has been accounted for as an acquisition of Patriot by Prospect Capital Corporation
(Prospect) 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 gain of $5,714 was recorded by Prospect in the quarter ended December 31, 2009 related to
the acquisition of Patriot. The acquisition of Patriot was negotiated in July 2009 with the
purchase agreement being signed on August 3, 2009. Between July 2009 and December 2, 2009, our
valuation of certain of the investments acquired from Patriot increased due to market improvement,
which resulted in the recognition of the gain at closing.
The purchase price has been allocated to the assets acquired and the liabilities assumed based on
their estimated fair values as summarized in the following table:
|
|
|
|
|
Cash (to repay Patriot debt) |
|
$ |
107,313 |
|
Cash (to fund purchase of restricted stock from former Patriot employees) |
|
|
970 |
|
Common stock issued (1) |
|
|
92,800 |
|
|
|
|
|
Total purchase price |
|
|
201,083 |
|
|
|
|
|
Assets acquired: |
|
|
|
|
Investments (2) |
|
|
207,126 |
|
Cash and cash equivalents |
|
|
1,697 |
|
Other assets |
|
|
3,859 |
|
|
|
|
|
Assets acquired |
|
|
212,682 |
|
Other liabilities assumed |
|
|
(5,885 |
) |
|
|
|
|
Net assets acquired |
|
|
206,797 |
|
|
|
|
|
Preliminary gain on Patriot acquisition (3) |
|
$ |
5,714 |
|
|
|
|
|
|
|
|
(1) |
|
The value of the shares of common stock exchanged with the
Patriot common shareholders was based upon the closing price of our common
stock on December 2, 2009, the price immediately prior to the closing of
the transaction. |
|
(2) |
|
The fair value of Patriots investments were determined by the
Board of Directors in conjunction with an independent valuation agent. This
valuation resulted in a purchase price which was $98,150 below the
amortized cost of such investments. For those assets which are performing,
Prospect will record the accretion to par value in interest income over the
remaining term of the investment. |
|
(3) |
|
The preliminary gain has been determined based upon the estimated
value of certain liabilities which are not yet settled. Any changes to such
accruals will be recoded in future periods as an adjustment to such gain.
We do not believe such adjustments will be material. |
During the period from the acquisition of Patriot on December 2, 2009 to March 31, 2010, and
for the quarter ended March 31, 2010, we recognized $14,454 and $9,133, respectively, of interest
income due to purchase discount accretion from the assets acquired from Patriot. Included in these
amounts is $11,462 and $7,213 for the quarters ended December 31, 2009 and March 31, 2010,
respectively, resulting from the acceleration of purchase discounts from the early repayments of
three loans, three revolving lines of credit, sale of one investment position and restructuring of
three loans.
41
Merger Discussions with Allied Capital Corporation
In January 2010, we delivered a proposal letter to Allied Capital Corporation (Allied) noting our
opposition to Allieds proposed merger with Ares Capital Corporation (Ares) and containing an
offer to acquire each outstanding Allied share in exchange for 0.385 of a share of our common
stock. Allied expressed that our offer did not constitute a Superior Proposal as defined in their
Merger Agreement with Ares and declined our January 2010 offer. In February 2010, we increased our
offer to 0.4416 of a share of our common stock. This final offer was also declined by Allied. On
March 5, 2010, following Allieds announcement of a special dividend to shareholders, we terminated
our solicitation in opposition of the proposed merger with Ares. We incurred $925 of administrative
and legal expense for advice relating to this potential acquisition for the quarter ended March 31,
2010.
Market Conditions
While the economy continues to show signs of recovery from the deteriorating credit markets of 2008
and 2009, there is still a level of uncertainty and volatility in the capital markets. The growth
and improvement in the capital markets that began during the second half of 2009 carried over into
the first quarter of 2010. While encouraged by the signs of improvement, we operate in a
challenging environment that is still recovering from a recession and financial services industry
negatively affected by the deterioration of credit quality in subprime residential mortgages that
spread rapidly to other credit markets. Market liquidity and credit quality conditions continue to
remain weaker today than three years ago.
We believe that Prospect is well positioned to navigate through these adverse market conditions. As
a business development company, we are limited to a maximum 1 to 1 debt to equity ratio, and as of
March 31, 2010, we had $116,657 available under our credit facility, of which $54,200 was
outstanding. Further, as we make additional investments that are eligible to be pledged under the
credit facility, we will generate additional credit facility availability. The revolving period for
our credit facility continues until June 25, 2010, with an amortization running to June 25, 2011,
with interest distributions to us allowed. We expect to enter into a new extended three-year
revolving facility prior to June 25, 2010. While we are optimistic and have made substantial
progress, we cannot guarantee the completion of such extension.
We also continue to generate liquidity through public and private stock offerings. On July 7, 2009,
we completed a public stock offering for 5,175,000 shares of our common stock at $9.00 per share,
raising $46,575 of gross proceeds. On August 20, 2009 and September 24, 2009, we issued 3,449,686
shares and 2,807,111 shares, respectively, of our common stock at $8.50 and $9.00 per share,
respectively, in private stock offerings, raising $29,322, and $25,264 of gross proceeds,
respectively. Concurrent with the sale of these shares, we entered into a registration rights
agreement in which we granted the purchasers certain registration rights with respect to the
shares. Under the terms and conditions of the registration rights agreement, we filed with the SEC
a post-effective amendment to the registration statement on Form N-2 on November 6, 2009. Such
amendment was declared effective by the SEC on November 9, 2009.
On March 4, 2010, our Registration Statement on Form N-2 was declared effective by the SEC. Under
this Shelf Registration Statement, we can issue up to $489,770 of additional equity securities as
of March 31, 2010.
On March 17, 2010, we established an at-the-market program through which we may sell, from time to
time and at our discretion, 8,000,000 shares of our common stock. An at-the-market offering is a
registered offering by a publicly traded issuer of its listed equity securities selling shares
directly into the market at market prices. We have engaged two broker-dealers to act as potential
agents and sell our common stock directly into the market over a period of time. We currently pay a
2% commission to the broker-dealer on shares sold. Through this program we issued 811,500 shares of
our common stock at an average price of $12.60 per share, raising $10,230 of gross proceeds, from
March 23, 2010 through March 31, 2010. During the period from April 1, 2010 to May 10, 2010 we
issued 2,634,700 shares of our common stock at an average price of $11.93 per share, and raised
$31,432 of gross proceeds, under our at-the-market program.
The preparation of financial statements in conformity with accounting principles generally accepted
in the United States of America (GAAP) requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reported period. Changes in the economic
environment, financial markets and any other parameters used in determining these estimates could
cause actual results to differ.
42
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations are based upon our
financial statements, which have been prepared in accordance with GAAP. The preparation of these
financial statements requires management to make estimates and assumptions that affect the reported
amounts of assets, liabilities, revenues and expenses. Changes in the economic environment,
financial markets and any other parameters used in determining such estimates could cause actual
results to differ materially. In addition to the discussion below, our critical accounting policies
are further described in the notes to the financial statements.
Basis of Consolidation
Under the 1940 Act rules, the regulations pursuant to Article 6 of Regulation S-X, and the American
Institute of Certified Public Accountants Audit and Accounting Guide for Investment Companies, we
are precluded from consolidating any entity other than another investment company or an operating
company which provides substantially all of its services and benefits to us. Our March 31, 2010 and
June 30, 2009 financial statements include our accounts and the accounts of Prospect Capital
Funding, LLC, our only wholly-owned, closely-managed subsidiary that is also an investment company.
All intercompany balances and transactions have been eliminated in consolidation.
Investment Classification
We are a non-diversified company within the meaning of the 1940 Act. We classify our investments by
level of control. As defined in the 1940 Act, control investments are those where there is the
ability or power to exercise a controlling influence over the management or policies of a company.
Control is generally deemed to exist when a company or individual possesses or has the right to
acquire within 60 days or less, a beneficial ownership of 25% or more of the voting securities of
an investee company. Affiliated investments and affiliated companies are defined by a lesser degree
of influence and are deemed to exist through the possession outright or via the right to acquire
within 60 days or less, beneficial ownership of 5% or more of the outstanding voting securities of
another person.
Investments are recognized when we assume an obligation to acquire a financial instrument and
assume the risks for gains or losses related to that instrument. Investments are derecognized when
we assume an obligation to sell a financial instrument and forego the risks for gains or losses
related to that instrument. Specifically, we record all security transactions on a trade date
basis. Investments in other, non-security financial instruments are recorded on the basis of
subscription date or redemption date, as applicable. Amounts for investments recognized or
derecognized but not yet settled are reported as Receivables for investments sold and Payables for
investments purchased, respectively, in the Consolidated Statements of Assets and Liabilities.
Investment Valuation
Our Board of Directors has established procedures for the valuation of our investment portfolio.
These procedures are detailed below.
Investments for which market quotations are readily available are valued at such market quotations.
For most of our investments, market quotations are not available. With respect to investments for
which market quotations are not readily available or when such market quotations are deemed not to
represent fair value, our Board of Directors has approved a multi-step valuation process each
quarter, as described below:
1) Each portfolio company or investment is reviewed by our investment professionals with the
independent valuation firm engaged by our Board of Directors;
2) the independent valuation firm conducts independent appraisals and makes their own
independent assessment;
3) the audit committee of our Board of Directors reviews and discusses the preliminary valuation
of our Investment Adviser and that of the independent valuation firm; and
4) the Board of Directors discusses the valuations and determines the fair value of each
investment in our portfolio in good faith based on the input of our Investment Adviser, the
independent valuation firm and the audit committee.
In September 2006, the Financial Accounting Standards Board (FASB) issued Accounting Standards
Codification (ASC or Codification) 820, Fair Value Measurements and Disclosures (ASC 820).
ASC 820 defines fair value, establishes a framework for measuring fair value in GAAP, and expands
disclosures about fair value measurements. We adopted ASC 820 on a prospective basis beginning in
the quarter ended September 30, 2008.
43
ASC 820 classifies the inputs used to measure these fair values into the following hierarchy:
Level 1: Quoted prices in active markets for identical assets or liabilities, accessible by
us at the measurement date.
Level 2: Quoted prices for similar assets or liabilities in active markets, or quoted
prices for identical or similar assets or liabilities in markets that are not active, or
other observable inputs other than quoted prices.
Level 3: Unobservable inputs for the asset or liability.
In all cases, the level in the fair value hierarchy within which the fair value measurement in its
entirety falls has been determined based on the lowest level of input that is significant to the
fair value measurement. Our assessment of the significance of a particular input to the fair value
measurement in its entirety requires judgment and considers factors specific to each investment.
The changes to GAAP from the application of ASC 820 relate to the definition of fair value,
framework for measuring fair value, and the expanded disclosures about fair value measurements. ASC
820 applies to fair value measurements already required or permitted by other standards.
In accordance with ASC 820, the fair value of our investments is defined as the price that we would
receive upon selling an investment in an orderly transaction to an independent buyer in the
principal or most advantageous market in which that investment is transacted.
In April 2009, the FASB issued ASC 820-10-65, Determining Fair Value When the Volume and Level of
Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That
Are Not Orderly (ASC 820-10-65). This update provides further clarification for ASC 820 in
markets that are not active and provides additional guidance for determining when the volume of
trading level of activity for an asset or liability has significantly decreased and for identifying
circumstances that indicate a transaction is not orderly. ASC 820-10-65 is effective for interim
and annual reporting periods ending after June 15, 2009. The adoption of ASC 820-10-65 for the
three and nine months ended March 31, 2010, did not have any effect on our net asset value,
financial position or results of operations as there was no change to the fair value measurement
principles set forth in ASC 820.
In January 2010, the FASB issued Accounting Standards Update 2010-06, Fair Value Measurements and
Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements (ASC 2010-06). ASU
2010-06 amends ASC 820-10 and clarifies and provides additional disclosure requirements related to
recurring and non-recurring fair value measurements and employers disclosures about postretirement
benefit plan assets. ASU 2010-06 is effective for interim and annual reporting periods beginning
after December 15, 2009. Our management does not believe that the adoption of the amended guidance
in ASC 820-10 will have a significant effect on our financial statements.
Federal and State Income Taxes
We have elected to be treated as a regulated investment company and intend to continue to comply
with the requirements of the Internal Revenue Code of 1986 (the Code), applicable to regulated
investment companies. We are required to distribute at least 90% of our investment company taxable
income and intend to distribute (or retain through a deemed distribution) all of our investment
company taxable income and net capital gain to stockholders; therefore, we have made no provision
for income taxes. The character of income and gains that we will distribute is determined in
accordance with income tax regulations that may differ from GAAP. Book and tax basis differences
relating to stockholder dividends and distributions and other permanent book and tax differences
are reclassified to paid-in capital.
If we do not distribute (or are not deemed to have distributed) at least 98% of our annual taxable
income in the calendar year earned, we will generally be required to pay an excise tax equal to 4%
of the amount by which 98% of our annual taxable income exceeds the distributions from such taxable
income for the year. To the extent that we determine that our estimated current year annual taxable
income will be in excess of estimated current year dividend distributions from such taxable income,
we accrue excise taxes, if any, on estimated excess taxable income as taxable income is earned
using an annual effective excise tax rate. The annual effective excise tax rate is determined by
dividing the estimated annual excise tax by the estimated annual taxable income.
44
We adopted FASB ASC 740, Income Taxes (ASC 740). ASC 740 provides guidance for how uncertain tax
positions should be recognized, measured, presented, and disclosed in the financial statements. ASC
740 requires the evaluation of tax positions taken or expected to be taken in the course of
preparing our tax returns to determine whether the tax
positions are more-likely-than-not of being sustained by the applicable tax authority. Tax
positions not deemed to meet the more-likely-than-not threshold are recorded as a tax benefit or
expense in the current year. Adoption of ASC 740 was applied to all open tax years as of July 1,
2007. The adoption of ASC 740 did not have an effect on our net asset value, financial condition or
results of operations as there was no liability for unrecognized tax benefits and no change to our
beginning net asset value. As of March 31, 2010 and for the three and nine months then ended, we
did not have a liability for any unrecognized tax benefits. Managements determinations regarding
ASC 740 may be subject to review and adjustment at a later date based upon factors including, but
not limited to, an on-going analysis of tax laws, regulations and interpretations thereof.
Revenue Recognition
Realized gains or losses on the sale of investments are calculated using the specific
identification method.
Interest income, adjusted for amortization of premium and accretion of discount, is recorded on an
accrual basis. Origination, closing and/or commitment fees associated with investments in portfolio
companies are accreted into interest income over the respective terms of the applicable loans. Upon
the prepayment of a loan or debt security, any prepayment penalties and unamortized loan
origination, closing and commitment fees are recorded as interest income.
Loans are placed on non-accrual status when principal or interest payments are past due 90 days or
more or when there is reasonable doubt that principal or interest will be collected. Unpaid accrued
interest is generally reversed when a loan is placed on non-accrual status. Interest payments
received on non-accrual loans may be recognized as income or applied to principal depending upon
managements judgment. Non-accrual loans are restored to accrual status when past due principal and
interest is paid and in managements judgment, are likely to remain current. As of March 31, 2010,
approximately 5.8% of our net assets are in non-accrual status.
Dividend income is recorded on the ex-dividend date.
Structuring fees and similar fees are recognized as income as earned, usually when paid.
Structuring fees, excess deal deposits, net profits interests and overriding royalty interests are
included in other income.
Statement of Assets and Liabilities Overview
During the nine months ended March 31, 2010, net assets have increased by $116,890 from $532,596 as
of June 30, 2009 to $649,486 as of March 31, 2010. This net increase in assets primarily resulted
from $208,306 of capital share transactions including 8,444,068 of shares issued in conjunction
with the Patriot Acquisition, offset by $94,125 in dividends declared to our stockholders. During
this nine month period we recognized net investment income of $48,217, a decrease in net assets due
to realized losses of $51,231 and an increase in net assets due to changes in unrealized
depreciation of investments of $5,723.
The aggregate fair value of our portfolio investments was $697,001 and $547,168 as of March 31,
2010 and June 30, 2009, respectively. During the nine months ended March 31, 2010, our net cost of
investments increased by $144,110, or 27.1%, primarily from the acquisition of Patriot. At March
31, 2010, we were invested in 55 long-term portfolio investments.
Investment Activity
During the nine months ended March 31, 2010, we acquired $207,126 of investments from Patriot,
completed follow-on investments in existing portfolio companies totaling approximately $64,390, and
recorded PIK interest of $4,299, resulting in gross investment originations with a cost basis of
$275,815. The more significant of these investments are described briefly in the following:
During the nine months ended March 31, 2010, we made follow-on secured debt investments of
$1,708 in Iron Horse Coiled Tubing, Inc. (Iron Horse) in support of the build out of
additional equipment and to fund working capital requirements. Effective January 1, 2010, we
restructured our senior secured and bridge loans to Iron Horse. Our loans were replaced with
three new tranches of senior secured debt.
During the nine months ended March 31, 2010, we provided additional fundings of $3,376 to
Yatesville Coal Holdings, Inc. (Yatesville) to fund ongoing operations.
45
During the nine months ended March 31, 2010, we made follow-on secured subordinated debt
investments of $3,530 in Ajax Rolled Ring & Machine (Ajax).
On October 5, 2009 we purchased an additional secured debt investment of $1,675 in Resco
Products, Inc. (Resco) at a discount of $670, increasing our cost basis by $1,005 in this
investment.
On December 2, 2009, we acquired portfolio investments with a face amount of $289,030 for
$207,126 from Patriot.
On March 31, 2010, we made a follow-on secured debt investment of $9,000 in H&M Oil & Gas
(H&M) to fund ongoing operations including completion of several previously drilled oil wells.
On March 31, 2010, we made a $36,322 investment in Shearers Foods, Inc. (Shearers) for which
we received $35,000 of junior secured debt and $1,322 of membership interests.
On January 19, 2010, we restructured our debt investment in Appalachian Energy Holdings LLC
(AEH) and Coalbed, LLC (Coalbed) under Manx Energy, Inc. (Manx), a newly formed entity. We
funded $2,800 at closing to Manx to provide working capital.
During the nine months ended March 31, 2010, we closed-out eight positions which are briefly
described below.
On August 31, 2009, C&J Cladding, LLC (C&J) repaid the $3,150 loan receivable to us and we
received an additional 5% prepayment penalty totaling $158. We continue to hold warrants for
common units in this investment.
On September 4, 2009, Peerless Manufacturing Co. repaid the $20,000 loan receivable to us.
On December 4, 2009, CS Operating, LLC repaid the $4,460 loan receivable to us.
On December 10, 2009, Resco repaid the $11,425 loan receivable to us.
On December 17, 2009, ADAPCO, Inc. repaid the $7,466 loan receivable to us. We continue to hold
warrants for common stock in this investment.
On December 18, 2009, Quartermaster, Inc. repaid the $11,274 loan receivable to us.
On December 31, 2009, we sold our investment in Aylward Enterprises, LLC for net amount of
$4,775.
On March 31, 2010, Shearers repaid the $18,000 loan receivable to us.
During the nine months ended March 31, 2010, we also received principal amortization payments of
$15,743 on several loans.
During the three months ended March 31, 2010, we restructured our loans to Aircraft Fasteners
International, LLC (AFI), Prince Mineral Company, Inc. (Prince) and R-O-M Corporation (ROM).
The revised terms were more favorable than the original terms and increased the present value of
the future cash flows. In accordance with ASC 320-20-35 the cost basis of the new loans were
recorded at par value, which included $6,735 of accelerated original purchase discount recognized
as interest income.
On September 30, 2008, we settled our net profits interests (NPIs) in IEC Systems LP (IEC) and
Advanced Rig Services LLC (ARS) with the companies for a combined $12,576. IEC and ARS originally
issued the NPIs to us when we loaned a combined $25,600 to IEC and ARS on November 20, 2007. In
conjunction with the NPI realization, we recognized other income of $12,576 and simultaneously
reinvested the $12,576 as incremental senior secured debt in IEC and ARS. The incremental debt will
amortize over the period ending November 20, 2010.
46
The following is a quarter-by-quarter summary of our investment activity:
|
|
|
|
|
|
|
|
|
Quarter-End |
|
Acquisitions(1) |
|
|
Dispositions(2) |
|
March 31, 2010 |
|
$ |
59,311 |
|
|
$ |
26,603 |
|
December 31, 2009(3) |
|
|
210,438 |
|
|
|
45,494 |
|
September 30, 2009 |
|
|
6,066 |
|
|
|
24,241 |
|
June 30, 2009 |
|
|
7,929 |
|
|
|
3,148 |
|
March 31, 2009 |
|
|
6,356 |
|
|
|
10,782 |
|
December 31, 2008 |
|
|
13,564 |
|
|
|
2,128 |
|
September 30, 2008 |
|
|
70,456 |
|
|
|
10,949 |
|
June 30, 2008 |
|
|
118,913 |
|
|
|
61,148 |
|
March 31, 2008 |
|
|
31,794 |
|
|
|
28,891 |
|
December 31, 2007 |
|
|
120,846 |
|
|
|
19,223 |
|
September 30, 2007 |
|
|
40,394 |
|
|
|
17,949 |
|
June 30, 2007 |
|
|
130,345 |
|
|
|
9,857 |
|
March 31, 2007 |
|
|
19,701 |
|
|
|
7,731 |
|
December 31, 2006 |
|
|
62,679 |
|
|
|
17,796 |
|
September 30, 2006 |
|
|
24,677 |
|
|
|
2,781 |
|
June 30, 2006 |
|
|
42,783 |
|
|
|
5,752 |
|
March 31, 2006 |
|
|
15,732 |
|
|
|
901 |
|
December 31, 2005 |
|
|
|
|
|
|
3,523 |
|
September 30, 2005 |
|
|
25,342 |
|
|
|
|
|
June 30, 2005 |
|
|
17,544 |
|
|
|
|
|
March 31, 2005 |
|
|
7,332 |
|
|
|
|
|
December 31, 2004 |
|
|
23,771 |
|
|
|
32,083 |
|
September 30, 2004 |
|
|
30,371 |
|
|
|
|
|
|
|
|
|
|
|
|
Since inception |
|
$ |
1,086,344 |
|
|
$ |
330,980 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes new deals, additional fundings, refinancings and PIK interest. |
|
(2) |
|
Includes scheduled principal payments, prepayments and refinancings. |
|
(3) |
|
The $210,438 of acquisitions for the quarter ended December 31, 2009
includes $207,126 of portfolio investments acquired from Patriot. |
Investment Holdings
As of March 31, 2010, we continue to pursue our investment strategy. Despite our name change to
Prospect Capital Corporation and the termination of our policy to invest at least 80% of our net
assets in energy companies in May 2007, we currently have a concentration of investments in
companies in the energy and energy related industries. This concentration continues to decrease as
we make investments outside of the energy and energy related industries. Some of the companies in
which we invest have relatively short or no operating histories. These companies are and will be
subject to all of the business risk and uncertainties associated with any new business enterprise,
including the risk that these companies may not reach their investment objective or the value of
our investment in them may decline substantially or fall to zero.
Our portfolio had an annualized current yield of 14.6% and 15.1% across all our long-term debt and
certain equity investments as of March 31, 2010 and 2009, respectively. At March 31, 2010, this
yield includes interest from all of our long-term investments as well as dividends from Gas
Solutions Holdings, Inc. (GSHI). We expect the current yield to decline over time as we add to
the portfolio. Monetization of other equity positions that we hold is not included in this yield
calculation. In each of our portfolio companies, we hold equity positions, ranging from minority
interests to majority stakes, which we expect over time to contribute to our investment returns.
Some of these equity positions include features such as contractual minimum internal rates of
returns, preferred distributions, flip structures and other features expected to generate
additional investment returns, as well as contractual protections and preferences over junior
equity, in addition to the yield and security offered by our cash flow and collateral debt
protections.
47
We classify our investments by level of control. As defined in the 1940 Act, control investments
are those where there is the ability or power to exercise a controlling influence over the
management or policies of a company. Control is generally deemed to exist when a company or
individual possesses or has the right to acquire within 60 days or less, a beneficial ownership of
25% or more of the voting securities of an investee company. Affiliated investments and
affiliated companies are defined by a lesser degree of influence and are deemed to exist through
the possession outright or via the right to acquire within 60 days or less, beneficial ownership of
5% or more of the outstanding voting securities of another person.
As of March 31, 2010, we own controlling interests in Ajax, AWCNC, LLC, Borga, Inc., C&J, Change
Clean Energy Holdings, Inc. (CCEHI), Fischbein, LLC (Fischbein), Freedom Marine Services LLC
(Freedom Marine), GSHI, Integrated Contract Services, Inc. (ICS), Iron Horse, Manx, NRG
Manufacturing, Inc. (NRG), Nupla Corporation, R-V Industries, Inc. (R-V), Sidumpr Trailer
Company, Inc. and Yatesville. We also own an affiliated interest in Biotronic NeuroNetwork,
Boxercraft Incorporated (Boxercraft), KTPS Holdings, LLC (KTPS), Miller Petroleum, Inc.
(Miller), Smart, LLC and Sport Helmets Holdings, LLC (Sport Helmets).
The following is a summary of our investment portfolio by level of control:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 |
|
|
June 30, 2009 |
|
|
|
|
|
|
|
Percent |
|
|
|
|
|
|
Percent |
|
|
|
|
|
|
Percent |
|
|
|
|
|
Percent |
|
|
|
|
|
|
|
of |
|
|
Fair |
|
|
of |
|
|
|
|
|
|
of |
|
|
Fair |
|
|
of |
|
Level of Control |
|
Cost |
|
|
Portfolio |
|
|
Value |
|
|
Portfolio |
|
|
Cost |
|
|
Portfolio |
|
|
Value |
|
|
Portfolio |
|
Control |
|
$ |
181,894 |
|
|
|
26.1 |
% |
|
$ |
194,647 |
|
|
|
27.0 |
% |
|
$ |
187,105 |
|
|
|
29.7 |
% |
|
$ |
206,332 |
|
|
|
31.9 |
% |
Affiliate |
|
|
63,197 |
|
|
|
9.0 |
% |
|
|
73,516 |
|
|
|
10.2 |
% |
|
|
33,544 |
|
|
|
5.3 |
% |
|
|
32,254 |
|
|
|
5.0 |
% |
Non-control/Non-affiliate |
|
|
430,443 |
|
|
|
61.6 |
% |
|
|
428,838 |
|
|
|
59.6 |
% |
|
|
310,775 |
|
|
|
49.3 |
% |
|
|
308,582 |
|
|
|
47.8 |
% |
Money Market Funds |
|
|
23,011 |
|
|
|
3.3 |
% |
|
|
23,011 |
|
|
|
3.2 |
% |
|
|
98,735 |
|
|
|
15.7 |
% |
|
|
98,735 |
|
|
|
15.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Portfolio |
|
$ |
698,545 |
|
|
|
100.0 |
% |
|
$ |
720,012 |
|
|
|
100.0 |
% |
|
$ |
630,159 |
|
|
|
100.0 |
% |
|
$ |
645,903 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48
The following is our investment portfolio presented by type of investment at March 31, 2010
and June 30, 2009, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 |
|
|
June 30, 2009 |
|
|
|
|
|
|
|
Percent |
|
|
|
|
|
|
Percent |
|
|
|
|
|
|
Percent |
|
|
|
|
|
|
Percent |
|
|
|
|
|
|
|
of |
|
|
Fair |
|
|
of |
|
|
|
|
|
|
of |
|
|
Fair |
|
|
of |
|
Level of Control |
|
Cost |
|
|
Portfolio |
|
|
Value |
|
|
Portfolio |
|
|
Cost |
|
|
Portfolio |
|
|
Value |
|
|
Portfolio |
|
Money Market Funds |
|
$ |
23,011 |
|
|
|
3.3 |
% |
|
$ |
23,011 |
|
|
|
3.2 |
% |
|
$ |
98,735 |
|
|
|
15.7 |
% |
|
$ |
98,735 |
|
|
|
15.3 |
% |
Revolving Line of Credit |
|
|
2,271 |
|
|
|
0.3 |
% |
|
|
2,136 |
|
|
|
0.3 |
% |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
Senior Secured Debt |
|
|
307,880 |
|
|
|
44.1 |
% |
|
|
285,567 |
|
|
|
39.6 |
% |
|
|
232,534 |
|
|
|
36.9 |
% |
|
|
220,993 |
|
|
|
34.2 |
% |
Subordinated Secured Debt |
|
|
304,418 |
|
|
|
43.6 |
% |
|
|
277,927 |
|
|
|
38.6 |
% |
|
|
251,292 |
|
|
|
39.9 |
% |
|
|
194,547 |
|
|
|
30.1 |
% |
Subordinated Unsecured Debt |
|
|
15,245 |
|
|
|
2.2 |
% |
|
|
15,838 |
|
|
|
2.2 |
% |
|
|
15,065 |
|
|
|
2.4 |
% |
|
|
16,331 |
|
|
|
2.5 |
% |
Preferred Stock |
|
|
16,969 |
|
|
|
2.4 |
% |
|
|
6,626 |
|
|
|
0.9 |
% |
|
|
10,432 |
|
|
|
1.6 |
% |
|
|
4,139 |
|
|
|
0.7 |
% |
Common Stock |
|
|
19,715 |
|
|
|
2.8 |
% |
|
|
80,467 |
|
|
|
11.2 |
% |
|
|
16,310 |
|
|
|
2.6 |
% |
|
|
89,278 |
|
|
|
13.8 |
% |
Membership Interests |
|
|
7,204 |
|
|
|
1.0 |
% |
|
|
18,478 |
|
|
|
2.6 |
% |
|
|
3,031 |
|
|
|
0.5 |
% |
|
|
7,270 |
|
|
|
1.1 |
% |
Overriding Royalty Interests |
|
|
|
|
|
|
|
% |
|
|
2,727 |
|
|
|
0.4 |
% |
|
|
|
|
|
|
|
% |
|
|
3,483 |
|
|
|
0.5 |
% |
Net Profit Interests |
|
|
|
|
|
|
|
% |
|
|
871 |
|
|
|
0.1 |
% |
|
|
|
|
|
|
|
% |
|
|
2,561 |
|
|
|
0.4 |
% |
Warrants |
|
|
1,832 |
|
|
|
0.3 |
% |
|
|
6,364 |
|
|
|
0.9 |
% |
|
|
2,760 |
|
|
|
0.4 |
% |
|
|
8,566 |
|
|
|
1.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Portfolio |
|
$ |
698,545 |
|
|
|
100.0 |
% |
|
$ |
720,012 |
|
|
|
100.0 |
% |
|
$ |
630,159 |
|
|
|
100.0 |
% |
|
$ |
645,903 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following is our investment portfolio presented by geographic location of the investment
at March 31, 2010 and June 30, 2009, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 |
|
|
June 30, 2009 |
|
|
|
|
|
|
|
Percent |
|
|
|
|
|
|
Percent |
|
|
|
|
|
|
Percent |
|
|
|
|
|
|
Percent |
|
|
|
|
|
|
|
of |
|
|
Fair |
|
|
of |
|
|
|
|
|
|
of |
|
|
Fair |
|
|
of |
|
Level of Control |
|
Cost |
|
|
Portfolio |
|
|
Value |
|
|
Portfolio |
|
|
Cost |
|
|
Portfolio |
|
|
Value |
|
|
Portfolio |
|
Canada |
|
$ |
21,002 |
|
|
|
3.0 |
% |
|
$ |
12,325 |
|
|
|
1.7 |
% |
|
$ |
19,344 |
|
|
|
3.1 |
% |
|
$ |
12,606 |
|
|
|
2.0 |
% |
Netherlands |
|
|
1,749 |
|
|
|
0.2 |
% |
|
|
1,539 |
|
|
|
0.2 |
% |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
Midwest US |
|
|
153,080 |
|
|
|
21.9 |
% |
|
|
148,268 |
|
|
|
20.6 |
% |
|
|
77,681 |
|
|
|
12.3 |
% |
|
|
84,097 |
|
|
|
13.0 |
% |
Northeast US |
|
|
64,888 |
|
|
|
9.3 |
% |
|
|
64,853 |
|
|
|
9.0 |
% |
|
|
44,875 |
|
|
|
7.1 |
% |
|
|
47,049 |
|
|
|
7.3 |
% |
Southeast US |
|
|
177,382 |
|
|
|
25.4 |
% |
|
|
155,500 |
|
|
|
21.6 |
% |
|
|
164,652 |
|
|
|
26.1 |
% |
|
|
101,710 |
|
|
|
15.7 |
% |
Southwest US |
|
|
189,630 |
|
|
|
27.2 |
% |
|
|
250,483 |
|
|
|
34.8 |
% |
|
|
178,993 |
|
|
|
28.4 |
% |
|
|
253,615 |
|
|
|
39.3 |
% |
Western US |
|
|
67,803 |
|
|
|
9.7 |
% |
|
|
64,033 |
|
|
|
8.9 |
% |
|
|
45,879 |
|
|
|
7.3 |
% |
|
|
48,091 |
|
|
|
7.4 |
% |
Money Market Funds |
|
|
23,011 |
|
|
|
3.3 |
% |
|
|
23,011 |
|
|
|
3.2 |
% |
|
|
98,735 |
|
|
|
15.7 |
% |
|
|
98,735 |
|
|
|
15.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Portfolio |
|
$ |
698,545 |
|
|
|
100.0 |
% |
|
$ |
720,012 |
|
|
|
100.0 |
% |
|
$ |
630,159 |
|
|
|
100.0 |
% |
|
$ |
645,903 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49
The following is our investment portfolio presented by industry sector of the investment at
March 31, 2010 and June 30, 2009, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 |
|
|
June 30, 2009 |
|
|
|
|
|
|
|
Percent |
|
|
|
|
|
|
Percent |
|
|
|
|
|
|
Percent |
|
|
|
|
|
|
Percent |
|
|
|
|
|
|
|
of |
|
|
Fair |
|
|
of |
|
|
|
|
|
|
of |
|
|
Fair |
|
|
of |
|
Level of Control |
|
Cost |
|
|
Portfolio |
|
|
Value |
|
|
Portfolio |
|
|
Cost |
|
|
Portfolio |
|
|
Value |
|
|
Portfolio |
|
Aerospace and Defense |
|
$ |
56 |
|
|
|
|
% |
|
$ |
72 |
|
|
|
|
% |
|
$ |
|
|
|
|
|
% |
|
$ |
|
|
|
|
|
% |
Automobile |
|
|
867 |
|
|
|
0.1 |
% |
|
|
528 |
|
|
|
0.1 |
% |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
Biomass Power |
|
|
2,825 |
|
|
|
0.4 |
% |
|
|
1,928 |
|
|
|
0.3 |
% |
|
|
2,530 |
|
|
|
0.4 |
% |
|
|
2,530 |
|
|
|
0.4 |
% |
Chemical |
|
|
1,749 |
|
|
|
0.3 |
% |
|
|
1,539 |
|
|
|
0.2 |
% |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
Construction Services |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
|
|
5,017 |
|
|
|
0.8 |
% |
|
|
2,408 |
|
|
|
0.4 |
% |
Contracting |
|
|
16,652 |
|
|
|
2.4 |
% |
|
|
4,649 |
|
|
|
0.6 |
% |
|
|
16,652 |
|
|
|
2.6 |
% |
|
|
5,000 |
|
|
|
0.8 |
% |
Ecological |
|
|
141 |
|
|
|
|
% |
|
|
344 |
|
|
|
|
% |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
Electronics |
|
|
13,735 |
|
|
|
2.0 |
% |
|
|
13,885 |
|
|
|
1.9 |
% |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
Financial Services |
|
|
25,814 |
|
|
|
3.7 |
% |
|
|
25,124 |
|
|
|
3.5 |
% |
|
|
25,424 |
|
|
|
4.0 |
% |
|
|
23,073 |
|
|
|
3.6 |
% |
Food Products |
|
|
53,180 |
|
|
|
7.6 |
% |
|
|
59,192 |
|
|
|
8.2 |
% |
|
|
27,413 |
|
|
|
4.4 |
% |
|
|
29,416 |
|
|
|
4.6 |
% |
Gas Gathering and Processing |
|
|
35,003 |
|
|
|
5.0 |
% |
|
|
90,596 |
|
|
|
12.6 |
% |
|
|
35,003 |
|
|
|
5.6 |
% |
|
|
85,187 |
|
|
|
13.2 |
% |
Healthcare |
|
|
87,902 |
|
|
|
12.6 |
% |
|
|
93,255 |
|
|
|
13.0 |
% |
|
|
57,535 |
|
|
|
9.1 |
% |
|
|
60,293 |
|
|
|
9.3 |
% |
Home and Office Furnishings,
Housewares and Durable |
|
|
15,484 |
|
|
|
2.2 |
% |
|
|
16,941 |
|
|
|
2.4 |
% |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
Insurance |
|
|
5,711 |
|
|
|
0.8 |
% |
|
|
5,699 |
|
|
|
0.8 |
% |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
Machinery |
|
|
15,995 |
|
|
|
2.3 |
% |
|
|
16,382 |
|
|
|
2.2 |
% |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
Manufacturing |
|
|
94,861 |
|
|
|
13.6 |
% |
|
|
84,257 |
|
|
|
11.7 |
% |
|
|
90,978 |
|
|
|
14.4 |
% |
|
|
110,929 |
|
|
|
17.2 |
% |
Metal Services and Minerals |
|
|
13,057 |
|
|
|
1.9 |
% |
|
|
23,530 |
|
|
|
3.3 |
% |
|
|
3,302 |
|
|
|
0.5 |
% |
|
|
7,133 |
|
|
|
1.1 |
% |
Mining, Steel, Iron and Non-Precious Metals and Coal
Production |
|
|
1,035 |
|
|
|
0.1 |
% |
|
|
1,035 |
|
|
|
0.1 |
% |
|
|
48,890 |
|
|
|
7.8 |
% |
|
|
13,097 |
|
|
|
2.0 |
% |
Oil and Gas Production |
|
|
121,330 |
|
|
|
17.4 |
% |
|
|
104,981 |
|
|
|
14.6 |
% |
|
|
104,183 |
|
|
|
16.5 |
% |
|
|
104,806 |
|
|
|
16.2 |
% |
Oilfield Fabrication |
|
|
31,383 |
|
|
|
4.5 |
% |
|
|
31,383 |
|
|
|
4.4 |
% |
|
|
34,247 |
|
|
|
5.4 |
% |
|
|
34,931 |
|
|
|
5.4 |
% |
Personal and Nondurable
Consumer Products |
|
|
26,870 |
|
|
|
3.8 |
% |
|
|
30,527 |
|
|
|
4.2 |
% |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
Pharmaceuticals |
|
|
11,954 |
|
|
|
1.7 |
% |
|
|
12,000 |
|
|
|
1.7 |
% |
|
|
11,949 |
|
|
|
2.0 |
% |
|
|
11,452 |
|
|
|
1.8 |
% |
Printing and Publishing |
|
|
7,666 |
|
|
|
1.1 |
% |
|
|
8,885 |
|
|
|
1.2 |
% |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
Production Services |
|
|
21,002 |
|
|
|
3.0 |
% |
|
|
12,325 |
|
|
|
1.7 |
% |
|
|
19,344 |
|
|
|
3.1 |
% |
|
|
12,606 |
|
|
|
1.9 |
% |
Retail |
|
|
14,669 |
|
|
|
2.1 |
% |
|
|
2,568 |
|
|
|
0.4 |
% |
|
|
14,623 |
|
|
|
2.3 |
% |
|
|
6,272 |
|
|
|
1.0 |
% |
Shipping Vessels |
|
|
9,204 |
|
|
|
1.3 |
% |
|
|
4,118 |
|
|
|
0.6 |
% |
|
|
7,160 |
|
|
|
1.1 |
% |
|
|
7,381 |
|
|
|
1.1 |
% |
Specialty Minerals |
|
|
15,814 |
|
|
|
2.3 |
% |
|
|
17,772 |
|
|
|
2.5 |
% |
|
|
15,814 |
|
|
|
2.5 |
% |
|
|
18,924 |
|
|
|
2.9 |
% |
Technical Services |
|
|
11,380 |
|
|
|
1.6 |
% |
|
|
11,615 |
|
|
|
1.6 |
% |
|
|
11,360 |
|
|
|
1.8 |
% |
|
|
11,730 |
|
|
|
1.8 |
% |
Textiles and Leather |
|
|
20,195 |
|
|
|
2.9 |
% |
|
|
21,871 |
|
|
|
3.0 |
% |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
Money Market Funds |
|
|
23,011 |
|
|
|
3.3 |
% |
|
|
23,011 |
|
|
|
3.2 |
% |
|
|
98,735 |
|
|
|
15.7 |
% |
|
|
98,735 |
|
|
|
15.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Portfolio |
|
$ |
698,545 |
|
|
|
100.0 |
% |
|
$ |
720,012 |
|
|
|
100.0 |
% |
|
$ |
630,159 |
|
|
|
100.0 |
% |
|
$ |
645,903 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50
Investment Valuation
In determining the fair value of our portfolio investments at March 31, 2010, the Audit Committee
considered valuations from the independent valuation firm and from management having an aggregate
range of $668,037 to $731,462, excluding money market funds.
In determining the range of value for debt instruments, management and the independent valuation
firm generally shadow rated the investment and then, based upon the range of ratings, determined
appropriate yields to maturity for a loan rated as such. A discounted cash flow analysis was then
prepared using the appropriate yield to maturity as the discount rate, yielding the ranges. For
equity investments, the enterprise value was determined by applying EBITDA multiples for similar
recent investment sales and trading comparables. For stressed equity investments, a liquidation
analysis was prepared.
The Board of Directors looked at several factors in determining where within the range to value
such asset, including: recent operating and financial trends for the asset, independent ratings
obtained from third parties and comparable multiples for recent sales and trading values of
companies within the industry. The end result of these analyses was a total valuation of $697,001,
excluding money market investments.
Our portfolio companies are generally lower middle market companies, outside of the financial
sector, with less than $50,000 of annual EBITDA. We believe our market has experienced less
volatility than others because we believe there are more buy and hold investors who own these less
liquid investments.
During the nine months ended March 31, 2010, there has been a general improvement in the markets in
which we operate, and market rates of interest negotiated for middle market loans have decreased.
Control investments often offer increased risk and reward over straight debt investments. Operating
results and changes in market multiples can result in significant changes in values from quarter to
quarter. Significant downturns in operations can further result in our looking to recoveries on
sales of assets rather than the enterprise value of the investment. A few of the control
investments in our portfolio are discussed below.
Ajax Rolled Ring & Machine, Inc.
We acquired a controlling equity interest in Ajax in a recapitalization of the company that was
closed on April 4, 2008. We funded $22,000 of senior secured term debt, $11,500 of subordinated
term debt and $6,300 of equity as of that closing. During 2010, we funded an additional $3,530 of
secured subordinated debt to refinance a third-party revolver provider and provide working capital.
As of March 31, 2010, we control 78.1% of the fully-diluted common and preferred equity.
Ajax forges seamless steel rings sold to various customers. The rings are used in a range of
industrial applications, including in construction equipment and wind power turbines. Ajaxs
business is cyclical, and the business experienced a significant decline in the first half of 2009
in light of the global macroeconomic crisis. The second half of 2009 and to-date 2010 show steady
improvement versus the first half of 2009. At March 31, 2010, Ajax had a backlog of new business
that would indicate continued improvement for 2010.
The Board of Directors decreased the fair value of our investment in Ajax to $28,442 as of March
31, 2010, a reduction of $14,877 from its amortized cost, compared to the $14,059 unrealized
depreciation at December 31, 2009 and the $7,581 unrealized depreciation recorded at June 30, 2009.
Change Clean Energy Holdings Inc. and Change Clean Energy, Inc., f/k/a Worcester Energy Partners,
Inc.
Change Clean Energy, Inc. (CCEI) is an investment, that we originated in September 2005, which
owns and operated a biomass energy plant. In March 2009, CCEI ceased operations, as the business
became uneconomic based on the cost of materials and the price being received for the electricity
generated. During that quarter, we instituted foreclosure proceedings against the co-borrowers of
our debt. In anticipation of such proceedings, CCEHI was established. On March 11, 2009, the
foreclosure was completed and the assets were assigned to a wholly owned subsidiary of CCEHI.
During the nine months ended March 31, 2010, we provided additional funding of $296 to CCEHI to
fund ongoing operations. CCEI currently has no material operations. At June 30, 2009 we determined
that the impairment at both CCEI and CCEHI was other than temporary and recognized a realized loss
of $41,134, which was the amount by which the amortized cost exceeded the fair value. At March 31,
2010, our Board of Directors, under recommendation from
senior management, has set the value of the CCEHI investment at $1,928, a reduction of $897 from
its amortized cost after the recognized depreciation.
51
Gas Solutions Holdings, Inc.
GSHI is an investment that we completed in September 2004 in which we own 100% of the equity. GSHI
is a midstream gathering and processing business located in east Texas. GSHI has improved its
operations and we have experienced an increase in revenue, gross margin, and EBITDA (the later two
metrics on both an absolute and a percentage of revenues basis) over the past five years.
During the past two years, we have held discussions with multiple interested purchasers for Gas
Solutions. While we wish to unlock the value in Gas Solutions, we do not wish to enter into any
agreement at any time that does not recognize the long term value we see in Gas Solutions. As a
well-hedged midstream asset, which we expect to generate recurring cash flows to us, Gas Solutions
is a valuable asset that we wish to sell at a value-maximizing price, or not at all. In addition, a
sale of the assets, rather than the stock of GSHI, might result in a significant tax liability at
the GSHI level which would need to be paid prior to any distribution to us.
In February 2010, we hired Robert Bourne as President and CEO of Gas Solutions. Mr. Bourne has over
30 years of experience in the midstream sector, including gathering and processing, gas purchasing,
storing and trading; producer services; and business development mergers and acquisitions. He
served most recently at Energy Transfer, where he managed Houston Pipeline, among other activities.
Mr. Bourne is focusing on our upside plant projects and seeking new opportunities to help Gas
Solutions grow beyond its existing footprint.
In April 2010, Gas Solutions purchased a series of propane puts with strike prices of $1.00 per
gallon and $0.95 per gallon covering the periods May 1, 2010, through April 30, 2011, and May 1,
2011, through April 30, 2012, respectively. Gas Solutions hedged approximately 85% of its current
exposure to natural gas liquids based on current plant volumes. These hedges will reduce the
volatility on earnings associated with lower prices of natural gas liquids without limiting the
upside from higher prices, helping GSHI to continue to generate sufficient cash flow to make
interest and dividend payments.
In determining the value of GSHI, we have utilized two valuation techniques to determine the value
of the investment. Our Board of Directors has determined the value to be $90,596 for our debt and
equity positions at March 31, 2010 based upon a combination of a discounted cash flow analysis and
a public comparables analysis. At March 31, 2010, December 31, 2009 and June 30, 2009, GSHI was
valued $55,593, $50,184 and $50,184 above its amortized cost, respectively.
Integrated Contract Services, Inc.
ICS is an investment that we completed in April 2007. Prior to January 2009, ICS owned the assets
of ESA Environmental Specialists, Inc. (ESA) and 100% of the stock of The Healing Staff (THS).
ESA originally defaulted under our contract governing our investment in ESA, prompting us to
commence foreclosure actions with respect to certain ESA assets in respect of which we have a
priority lien. In response to our actions, ESA filed voluntarily for reorganization under the
bankruptcy code on August 1, 2007. On September 20, 2007, the U.S. Bankruptcy Court approved a
Section 363 Asset Sale from ESA to us. To complete this transaction, we contributed our ESA debt to
a newly-formed entity, ICS, and provided funds for working capital on October 9, 2007. In return
for the ESA debt, we received senior secured debt in ICS of equal amount to our ESA debt, preferred
stock of ICS, and 49% of the ICS common stock. ICS subsequently ceased operations and assigned the
collateral back to us. ICS is in default of both payment and financial covenants. During September
and October 2007, we provided $1,170 to THS for working capital.
In January 2009, we foreclosed on the real and personal property of ICS. Through this foreclosure
process, we gained 100% ownership of THS and certain ESA assets. Based upon an analysis of the
liquidation value of the ESA assets and the enterprise value of THS, our Board of Directors
determined the fair value of our investment in ICS to be $4,649 at March 31, 2010, a reduction of
$12,003 from its amortized cost, compared to the $11,377 and $11,652 unrealized loss recorded at
December 31, 2009 and June 30, 2009, respectively.
Iron Horse Coiled Tubing, Inc.
Iron Horse is an investment that we completed in April 2006. Iron Horse had been a provider of
coiled tubing subcontractor services prior to making a strategic decision in late 2007 to directly
service natural gas and oil producers in the Western Canadian Sedimentary Basin (WCSB) as a
fracturing services provider. As a result of the business
transition, the Companys 2008 financial performance declined significantly from 2007 levels. Iron
Horse completed its transition from a subcontractor to a direct service provider in 2009, but
natural gas prices declined to trough levels due to the recession and heightened natural gas
inventory levels. Since November 2009, Iron Horse has experienced increased activity in the WCSB
and is now completing wells for several large producers in the WCSB.
52
Prior to December 31, 2007, we owned 8.5% of the common stock in Iron Horse. On December 31, 2007,
we received an additional 50.3% of the common stock in Iron Horse, which increased our total
ownership to 58.8%. Through a series of subsequent loans that were used to construct equipment and
facilitate the transition from a subcontractor to a direct service provider, we secured an
additional 21.0% of the common stock in Iron Horse in September 2008, which increased our total
ownership to 79.8% of the common stock in Iron Horse.
Effective January 1, 2010, we restructured our senior secured and bridge loans to Iron Horse and we
reorganized Iron Horses management structure. Our loans were replaced with three new tranches of
senior secured debt and our total ownership of Iron Horse decreased to 70.4%. Our equity ownership
will incrementally decrease as debt tranches are repaid upon maturity. There was no change to fair
value at the time of restructuring, and we continue to fully reserve any income accrued for Iron
Horse.
The Board of Directors wrote-down the fair value of our investment in Iron Horse to $12,325 as of
March 31, 2010, a reduction of $8,677 from its amortized cost, compared to the $8,399 and $6,738
unrealized depreciation recorded at December 31, 2009 and June 30, 2009, respectively.
Manx Energy, Inc.
On January 19, 2010, we modified the terms of our senior secured debt in AEH and Coalbed in
conjunction with the formation of Manx Energy, a new entity consisting of the assets of AEH,
Coalbed and Kinley Exploration. The assets of the three companies were combined under new common
management. We funded $2,800 at closing to Manx to provide for working capital. A portion of our
loans to AEH and Coalbed was exchanged for Manx preferred equity, while our AEH equity interest was
converted into Manx common stock. There was no change to fair value at the time of restructuring,
and we continue to fully reserve any income accrued for Manx.
The Board of Directors wrote-down the fair value of our investment in Manx to $6,196 as of March
31, 2010, a reduction of $12,074 from its amortized cost, compared to the $10,618 and $5,380
unrealized depreciation, for AEH and Coalbed combined, recorded at December 31, 2009 and June 30,
2009, respectively.
Yatesville Coal Holdings, Inc.
All of our coal holdings have been consolidated under the Yatesville entity. Yatesville delivered
improved operating results after the consolidation of the coal holdings, but the company mined its
permitted reserves in December 2008 and has not produced meaningful revenues since then. We
continue to evaluate strategies for Yatesville, such as soliciting indications of interest
regarding a transaction involving part or all of recoverable reserves. During the nine months ended
March 31, 2010, we provided additional funding of $3,376 to Yatesville to fund ongoing operations,
including new permitting. During the quarter ended December 31, 2009, we discontinued operations at
Yatesville. At December 31, 2009, our Board of Directors determined that, consistent with the
decision to discontinue operations, the impairment of Yatesville was other than temporary, and we
recorded a realized loss of $51,228, which was the amount that the amortized cost exceeded the fair
value at December 31, 2009. Our Board of Directors set the value of the remaining Yatesville
investment at $1,035, which represents the residual value of recoverable reserves, as of March 31,
2010 and December 31, 2010, a reduction of $12,062 from its value as of June 30, 2009.
Equity positions in the portfolio are susceptible to potentially significant changes in value, both
increases as well as decreases, due to changes in operating results. Four control investments have
experienced such volatility C&J and Fischbein with improved operating results and NRG and R-V
with declining operating results. The remaining four controlled investments have experienced
operating challenges and have been valued at significant discounts to the original investment.
The affiliate investments continue to report strong operating results, with valuations increasing
significantly for three investments Boxercraft, KTPS and Sport Helmets. For one investment,
Miller, we have held warrants in the company, and there has been a significant increase in the
price per share of the companys stock, driving the increase in the value of our investment.
53
With the non-control/non-affiliate investments, generally, there is less volatility related to our
total investments because our equity positions tend to be smaller than with our control/affiliate
investments, and debt investments are generally not as susceptible to large swings in value as
equity investments. For debt investments, the fair value is limited on the high side to each loans
par value, plus any prepayment premia that could be imposed. Many of the debt investments in this
category have not experienced a significant change in value, as they were previously valued at or
near par value. The exception to this categorization relates to investments which were acquired in
the Patriot Acquisition, many of which were acquired at significant discounts to par value, and any
changes in operating results or interest rates can have a significant effect on the value of such
investments. Caleel + Hayden, LLC, Copernicus Group, Custom Direct, Inc., Impact Products, LLC, Mac
& Massey Holdings, LLC and Prince experienced meaningful increases in valuations. AFI, H&M, and ROM
experienced decreases in valuations due to declines in their operating results. Shearers completed
a significant acquisition, which is driving the operating results and the increase in the value of
the investment. The remaining investments did not experience significant changes in operations or
valuation.
During the quarter, we restructured our loans to AFI, Prince and ROM. The revised terms were more
favorable than the original terms and increased the present value of the future cash flows. The
cost basis of the new loans were recorded at par value, which included $6,735 of accelerated
original purchase discount recognized as interest income.
Capitalization
Our investment activities are capital intensive, and the availability and cost of capital is a
critical component of our business. We capitalize our business with a combination of debt and
equity. Our debt currently consists of a revolving credit facility availing us of the ability to
borrow debt subject to borrowing base determinations, and our equity capital is currently comprised
entirely of common equity.
On June 25, 2009, we completed a first closing on an expanded $250,000 syndicated revolving credit
facility (the Facility). The new Facility, for which six lenders have closed on $210,000 to date,
includes an accordion feature which allows the Facility to accept up to an aggregate total of
$250,000 of commitments. The revolving period of the Facility extends through June 2010, with an
additional one year amortization period after the completion of the revolving period. As of March
31, 2010 and June 30, 2009, we had $54,200 and $124,800 of borrowings outstanding under our credit
facility, respectively.
Interest on borrowings under the credit facility is one-month Libor plus 400 basis points, subject
to a minimum Libor floor of 200 basis points after that date. The maintenance of this facility
requires us to pay a fee for the amount not drawn upon. This fee assessed at the rate of 100 basis
points per annum. The following table shows the facility amounts and outstanding borrowings at
March 31, 2010 and June 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2010 |
|
|
As of June 30, 2009 |
|
|
|
Facility |
|
|
Amount |
|
|
Facility |
|
|
Amount |
|
|
|
Amount |
|
|
Outstanding |
|
|
Amount |
|
|
Outstanding |
|
Revolving Credit Facility |
|
$ |
210,000 |
|
|
$ |
54,200 |
|
|
$ |
175,000 |
|
|
$ |
124,800 |
|
The following table shows the contractual maturity of our revolving credit facility at March 31,
2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due By Period |
|
|
|
Less Than |
|
|
|
|
|
|
More Than |
|
|
|
1 Year |
|
|
1 - 3 Years |
|
|
3 Years |
|
Credit Facility Payable |
|
$ |
54,200 |
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
During the nine months ended March 31, 2010, we completed public and private offerings, and
implemented our at-the-market program, and raised $107,701 of additional equity by issuing
12,243,297 shares of our common stock diluting shareholder value by $0.82 per share. We also issued
8,444,068 shares to acquire Patriot increasing net asset value to shareholders by $0.14 per share.
The following table shows the calculation of net asset value per share as of March 31, 2010 and
June 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2010 |
|
|
As of June 30, 2009 |
|
Net Assets |
|
$ |
649,486 |
|
|
$ |
532,596 |
|
Shares of common stock outstanding |
|
|
64,398,231 |
|
|
|
42,943,084 |
|
|
|
|
|
|
|
|
Net asset value per share |
|
$ |
10.09 |
|
|
$ |
12.40 |
|
|
|
|
|
|
|
|
54
At March 31, 2010, we had 64,398,231 of our common stock issued and outstanding.
Results of Operations
For the three months ended March 31, 2010 and March 31, 2009, the net increase in net assets
resulting from operations was $25,940 and $15,331, respectively, representing $0.41 and $0.51 per
share, respectively. We experienced a net realized and unrealized
gain of $6,966, or approximately
$0.11 per share in the three months ended March 31, 2010. This compares with the net realized and
unrealized gain of $3,611 during the three months ended March 31, 2009, or approximately $0.12 per
share.
For the nine months ended March 31, 2010 and March 31, 2009, the net increase in net assets
resulting from operations was $2,709 and $35,853, respectively, representing $0.05 and $1.21 per
share, respectively. We experienced a net realized and unrealized loss of $45,508 or approximately
$0.80 per share in the nine months ended March 31, 2010. This compares with the net realized and
unrealized loss of $11,329 during the nine months ended March 31, 2009 or approximately $0.38 per
share.
During the last quarter of the fiscal year ended June 30, 2009 and the first three quarters of the
fiscal year ended June 30, 2010, we have raised a significant amount of equity capital, which was
used in part to fund the Patriot Acquisition, but has not yet been fully invested. As a result,
our use of the credit facility has been less in 2010 and the excess cash on hand tends to depress
our earnings per share. We continue to deploy our debt and equity raised into new investments.
To further illustrate the effects, for the three months ended March 31, 2010 compared to the three
months ended March 31, 2009, weighted average shares outstanding have increased from 29,971,508 to
63,659,663, or 112.4%, while the average debt principal of investments increased from $537,277 to
$676,780, or 26.0%. Partially offsetting this effect on EPS is the increase in the weighted
interest rate earning on debt investments from 12.13% for the three months ended March 31, 2009 to
16.75% for the three months ended March 31, 2010.
While we seek to maximize gains and minimize losses, our investments in portfolio companies can
expose our capital to risks greater than those we may anticipate. These companies are typically not
issuing securities rated investment grade, have limited resources, have limited operating history,
have concentrated product lines or customers, are generally private companies with limited
operating information available and are likely to depend on a small core of management talents.
Changes in any of these factors can have a significant impact on the value of the portfolio
company.
Investment Income
We generate revenue in the form of interest income on the debt securities that we own, dividend
income on any common or preferred stock that we own, and amortized loan origination fees on the
structuring of new deals. Our investments, if in the form of debt securities, will typically have a
term of one to ten years and bear interest at a fixed or floating rate. To the extent achievable,
we will seek to collateralize our investments by obtaining security interests in our portfolio
companies assets. We also may acquire minority or majority equity interests in our portfolio
companies, which may pay cash or in-kind dividends on a recurring or otherwise negotiated basis. In
addition, we may generate revenue in other forms including prepayment penalties and possibly
consulting fees. Any such fees generated in connection with our investments are recognized as
earned.
55
Investment income consists of interest income, including accretion of loan origination fees and
prepayment penalty fees, dividend income and other income, including net profits interest,
overriding royalties interest and structuring fees. The following table details the various
components of investment income and the related levels of debt investments for the three months
ended March 31, 2010 and March 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For The Three Months Ended |
|
|
For The Nine Months Ended |
|
|
|
March 31, |
|
|
March 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
$ |
27,947 |
|
|
$ |
16,065 |
|
|
$ |
61,321 |
|
|
$ |
50,862 |
|
Dividend income |
|
|
2,301 |
|
|
|
4,445 |
|
|
|
12,689 |
|
|
|
13,833 |
|
Other income |
|
|
1,757 |
|
|
|
159 |
|
|
|
8,395 |
|
|
|
13,986 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment income |
|
$ |
32,005 |
|
|
$ |
20,669 |
|
|
$ |
82,405 |
|
|
$ |
78,681 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average debt principal of investments |
|
$ |
676,780 |
|
|
$ |
537,277 |
|
|
$ |
579,835 |
|
|
$ |
523,363 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average interest rate earned |
|
|
16.75 |
% |
|
|
12.13 |
% |
|
|
14.09 |
% |
|
|
12.95 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment income increased significantly from $20,669 for the three months ended March 31,
2009 to $32,005 for the three months ended March 31, 2010. This $11,336 increase is primarily due
to the additional revenue generated from assets acquired in the Patriot acquisition. In conjunction
with the refinancing of three assets, we recognized accelerated purchase discount accretion of
$6,735 during the three months ended March 31, 2010.
Total investment income has increased for the nine months ended March 31, 2010 from the amount
reported for the nine months ended March 31, 2009. This $3,724 increase is primarily due to the
additional revenue generated from assets acquired in the Patriot acquisition along with the $5,714
gain recognized from the Patriot acquisition, partially offset by increased forgone interest on
non-accrual loans during the nine months ended March 31, 2010 and the settlement of our net profits
interests in IEC/ARS for $12,576 during the nine months ended March 31, 2009. During the nine
months ended March 31, 2010, we recognized $16,604 of forgone interest on non-accrual loans compared
to $11,270 during the nine months ended March 31, 2009. In conjunction with the refinancing of
three assets and the repayment/sale of four other loans, we recognized accelerated purchase
discount accretion of $11,075 during the nine months ended March 31, 2010.
Average
principal balances of debt investments have increased from $537,277 for the three months
ended March 31, 2009 to $676,780 for the three months ended March 31, 2010. For the nine months
ended March 31, 2009 and 2010, average principal balances of debt investments increased from
$523,363 to $579,835, respectively. These increases are primarily due to the Patriot acquisition
which resulted in an additional $289,030 of debt principal to our portfolio.
The weighted-average interest rate earned increased from 12.13% for the three months ended March
31, 2009 to 16.75% for the three months ended March 31, 2010. This increase is primarily the result
of higher interest rates earned on the assets acquired in the Patriot acquisition (including
discount accretion). For the nine months ended March 31, 2009 and 2010, weighted-average interest
rate earned increased from 12.95% to 14.09%, respectively. This increase is primarily the result of
higher interest rates earned on the assets acquired in the Patriot acquisition (including discount
accretion) offset by forgone interest on non-accrual loans. During the nine month period ended
March 31, 2010, interest of $16,604 was forgone on non-accrual debt investments compared to $11,270
of forgone interest for the nine months ended March 31, 2009.
Operating Expenses
Our primary operating expenses consist of investment advisory fees (base management and income
incentive fees), credit facility costs, legal and professional fees and other operating and
overhead-related expenses. These expenses include our allocable portion of overhead under the
Administration Agreement with Prospect Administration under which Prospect Administration provides
administrative services and facilities for us. Our investment advisory fees compensate our
Investment Adviser for its work in identifying, evaluating, negotiating, closing and monitoring our
investments. We bear all other costs and expenses of our operations and transactions in accordance
with our Administration Agreement with Prospect Administration. Operating expenses were $13,031 and
$8,949 for the three months ended March 31, 2010 and March 31, 2009, respectively. Operating
expenses were $34,188 and $31,499 for the nine months ended March 31, 2010 and March 31, 2009,
respectively.
56
The base management fee was $3,576 and $2,977 for the three months ended March 31, 2010 and March
31, 2009, respectively. The base management fee was $9,962 and $8,740 for the nine months ended
March 31, 2010 and March 31, 2009, respectively. The increase in this expense for the three and nine months ended March 31,
2010 is directly related to our growth in total assets.
For the three months ended March 31, 2010 and March 31, 2009, we incurred $4,744 and $2,930,
respectively, of income incentive fees. The $1,814 increase in the income incentive fee for the
respective three-month period is driven by an increase in pre-incentive fee net investment income
from $14,650 for the three months ended March 31, 2009 to $23,718 for the three months ended March
31, 2010, primarily the result of additional investment income from the Patriot acquisition. For
the nine months ended March 31, 2010 and March 31, 2009 we incurred $12,054 and $11,795,
respectively, of income incentive fees.
During the three and nine months ended March 31, 2010, we incurred $2,111 and $5,480 of expenses
related to our credit facility. This compares with expenses of $1,345 and $4,828 incurred during
the three and nine months ended March 31, 2009. These expenses are related directly to the
leveraging capacity put into place for each of those periods and the levels of indebtedness
actually undertaken during those quarters. The table below describes the various credit facility
expenses and the related indicators of leveraging capacity and indebtedness during these periods.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For The Three Months Ended |
|
|
For The Nine Months Ended |
|
|
|
March 31, |
|
|
March 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on borrowings |
|
$ |
327 |
|
|
$ |
1,101 |
|
|
$ |
720 |
|
|
$ |
4,043 |
|
Amortization of deferred financing costs |
|
|
1,322 |
|
|
|
180 |
|
|
|
3,428 |
|
|
|
540 |
|
Commitment and other fees |
|
|
462 |
|
|
|
64 |
|
|
|
1,332 |
|
|
|
245 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
2,111 |
|
|
$ |
1,345 |
|
|
$ |
5,480 |
|
|
$ |
4,828 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average debt outstanding |
|
$ |
22,040 |
|
|
$ |
144,887 |
|
|
$ |
15,972 |
|
|
$ |
132,099 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average interest rate on
borrowings |
|
|
6.00 |
% |
|
|
3.08 |
% |
|
|
6.00 |
% |
|
|
4.08 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Facility amount at beginning of period |
|
$ |
195,000 |
|
|
$ |
200,000 |
|
|
$ |
175,000 |
|
|
$ |
200,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in our interest rate incurred is primarily due to an increase of 150 basis points in
our current borrowing rate effective June 25, 2009 and the concurrent introduction of a Libor floor
at 200 basis points.
As our asset base has grown and we have added complexity to our capital raising activities, due, in
part, to our assumption of the sub-administration role from Vastardis, we have commensurately
increased the size of our administrative and financial staff, accounting for a significant increase
in the overhead allocation from Prospect Administration. Over the last two years, Prospect
Administration has added several additional staff members, including a senior finance professional,
a controller, two corporate counsels and other finance professionals. As our portfolio continues to
grow, we expect to continue to increase the size of our administrative and financial staff on a
basis that provides increasing returns to scale. However, initial investments in administrative and
financial staff may not provide returns to scale immediately, perhaps not until the portfolio
increases to a greater size. Other allocated expenses from Prospect Administration have, as
expected, increased alongside with the increase in staffing and asset base.
Total operating expenses, net of management fees and interest costs (Other Operating Expenses),
were $2,600 and $1,697 for the three months ended March 31, 2010 and 2009, respectively, and $6,692
and $6,136 for the nine months ended March 31, 2010 and 2009, respectively. The increase in Other
Operating Expenses during the three month period ended March 31, 2010 when compared to the three
months ended March 31, 2009 is primarily the result of the costs incurred in connection with merger
discussions with Allied Capital Corporation expensed in the 2010 period. These merger costs offset
by the taxes paid in the prior year are the primary drivers of the increase during the nine month
period. At December 31, 2008, we elected to retain a portion of our annual taxable income and
accrued $533 for the excise tax that was paid with the filing of the return.
57
Net Investment Income, Net Realized (Loss) Gains, Increase in Net Assets from Net Change in
Unrealized Depreciation/Appreciation and Net (Decrease) Increase in Net Assets Resulting from
Operations
Net investment income was $18,974 and $11,720 for the three months ended March 31, 2010 and March
31, 2009, respectively. This $7,254 increase was due primarily to accelerated purchase discount
accretion and an increase in interest bearing assets as a result of the Patriot acquisition,
partially offset by increased advisory fees and a decrease in dividend income. Net investment
income was $48,217 and $47,182 for the nine months ended March 31, 2010 and March 31, 2009,
respectively.
There were no significant realized gains or losses during the three months ended March 31, 2010 and
March 31, 2009. Net realized (loss) gains were ($51,231) and $1,661 for the nine months ended March
31, 2010 and March 31, 2009, respectively. The net realized loss of $51,231 for the nine months
ended March 31, 2010 was due primarily to the impairment of Yatesville. See Investment Valuations
for further discussion.
Net increase in net assets from changes in unrealized appreciation/depreciation was $6,968 and
$3,611 for the three months ended March 31, 2010 and March 31, 2009, respectively. For the three
months ended March 31, 2010, the $6,968 increase in net assets from the net change in unrealized
appreciation/depreciation was driven primarily by write-ups of our investments in GSHI, Prince and
Miller, partially offset by unrealized depreciation of our investments in NRG and Freedom Marine.
For the three months ended March 31, 2009, the $3,611 increase in net assets from the net change in
unrealized appreciation/depreciation was driven primarily by write-ups of our investments in GSHI,
H&M, and NRG which were partially offset by unrealized depreciation of our investments in Ajax, Deb
Shops, Inc. (Deb Shops), CCEI, and Yatesville.
For the nine months ended March 31, 2010 and March 31, 2009, net assets increased (decreased) from
changes in unrealized appreciation/depreciation by $5,723 and $(12,990), respectively. The $18,713
increase occurring during the nine months ended March 31, 2010 was primarily attributable to
unrealized depreciation recognized for our investments in Ajax, Freedom Marine, H&M, Manx, NRG, and
R-V partially offset by the impairment of our investment in Yatesville of $51,228. The $12,990
decrease occurring during the nine months ended March 31, 2009 was attributable to unrealized
depreciation recognized for our investments in Ajax, AEH, R-V, Deb Shops, CCEI, and Yatesville
partially offset by write-ups of our investments in GSHI and NRG.
Financial Condition, Liquidity and Capital Resources
For the nine months ended March 31, 2010 and March 31, 2009, our operating activities provided
(used) $142,132 and ($25,552) of cash, respectively. Investing activities for the Patriot
acquisition used $106,586 and zero for the nine months ended March 31, 2010 and March 31, 2009,
respectively. Financing activities (used) provided ($24,239) and $25,446 of cash during the nine
months ended March 31, 2010 and March 31, 2009, respectively, which included the payments of
dividends of $59,467 and $32,413, during the nine months ended March 31, 2010 and March 31, 2009,
respectively.
Our primary uses of funds have been to continue to invest in our investments in portfolio
companies, to add new companies to our investment portfolio, acquire Patriot, repay outstanding
borrowings and to make cash distributions to holders of our common stock.
We have and may continue to fund a portion of our cash needs through borrowings from banks,
issuances of senior securities or secondary offerings. We may also securitize a portion of our
investments in mezzanine or senior secured loans or other assets. Our objective is to put in place
such borrowings in order to enable us to expand our portfolio. At March 31, 2010, we had $54,200
outstanding borrowings on our $210,000 revolving credit facility.
On March 4, 2010, our Registration Statement on Form N-2 was declared effective by the SEC. Under
this Shelf Registration Statement, we can issue up to $489,770 of additional equity securities as
of March 31, 2010.
We also continue to generate liquidity through public and private stock offerings. On July 7, 2009
we completed a public stock offering for 5,175,000 shares of our common stock at $9.00 per share,
raising $46,575 of gross proceeds. On August 20, 2009 and September 24, 2009, we issued 3,449,686
shares and 2,807,111 shares, respectively, of our common stock at $8.50 and $9.00 per share,
respectively, in private stock offerings, raising $29,322, and $25,264 of gross proceeds,
respectively. Concurrent with the sale of these shares, we entered into a registration rights
agreement in which we granted the purchasers certain registration rights with respect to the
shares. Under the terms and conditions of the registration rights agreement, we filed with the SEC a post-effective amendment to the
registration statement on Form N-2 on November 6, 2009. Such amendment was declared effective by
the SEC on November 9, 2009.
58
On December 2, 2009 we acquired the outstanding shares of Patriot common stock for approximately
$201,083. Under the terms of the merger agreement, Patriot common shareholders received 0.363992
shares of our common stock for each share of Patriot common stock, resulting in 8,444,068 shares of
common stock being issued by us. In connection with the transaction, we repaid all the outstanding
borrowings of Patriot, in compliance with the merger agreement.
On March 17, 2010, we established an at-the-market program through which we may sell, from time to
time and at our discretion, 8,000,000 shares of our common stock. Through this program we issued
811,500 shares of our common stock at an average price of $12.60 per share, raising $10,230 of
gross proceeds, from March 23, 2010 through March 31, 2010.
Off-Balance Sheet Arrangements
At March 31, 2010, we did not have any off-balance sheet liabilities or other contractual
obligations that are reasonably likely to have a current or future material effect on our financial
condition, other than those which originate from 1) the investment advisory and management
agreement and the administration agreement and 2) the portfolio companies.
As of
March 31, 2010, we have $13,757 of undrawn revolver commitments to our portfolio companies.
Developments Since the End of the Fiscal Quarter
On April 23, 2010, we issued 248,731 shares of our common stock in connection with the dividend
reinvestment plan.
On April 7, 2010, we purchased $12,296 of second lien notes in Seaton Corporation, a human
resources services company. The second lien notes bear interest in cash at the greater of 12.5% or
Libor plus 9.0% and have a final maturity on March 14, 2011.
During the period from April 1, 2010 to May 10, 2010 we issued 2,634,700 shares of our common stock
at an average price of $11.93 per share, and raised $31,432 of gross proceeds, under our
at-the-market program.
|
|
|
Item 3. |
|
Quantitative and Qualitative Disclosures about Market Risk |
We are subject to financial market risks, including changes in interest rates and equity price
risk. At March 31, 2010, most of the loans in our portfolio bore interest at fixed interest rates.
Several of our floating rate loans have floors which have effectively converted the loans to fixed
rate loans in the current interest rate environment. At March 31, 2010, the principal value of
loans totaling $72,886 bear interest at floating rates.
If we continue to invest in fixed rate loans, we may hedge against interest rate fluctuations by
using standard hedging instruments such as futures, options and forward contracts subject to the
requirements of the 1940 Act. While hedging activities may insulate us against adverse changes in
interest rates, they may also limit our ability to participate in the benefits of lower interest
rates with respect to our portfolio of investments. During the three months ended March 31, 2010,
we did not engage in interest rate hedging activities.
|
|
|
Item 4. |
|
Controls and Procedures |
As of the end of the period covered by this quarterly report on Form 10-Q, the Companys Chief
Executive Officer and Chief Financial Officer conducted an evaluation of the Companys disclosure
controls and procedures (as defined in Rules 13a-15 and 15d-15 of the Securities Exchange Act of
1934). Based upon this evaluation, the Companys Chief Executive Officer and Chief Financial
Officer concluded that the Companys disclosure controls and procedures are effective to allow
timely decisions regarding required disclosure of any material information relating to the Company
that is required to be disclosed by the Company in the reports it files or submits under the
Securities Exchange Act of 1934.
There have been no changes in the Companys internal controls over financial reporting that
occurred during the quarter ended March 31, 2010 that have materially affected, or are reasonably
likely to materially affect, the Companys internal control over financial reporting.
59
PART II: OTHER INFORMATION
|
|
|
Item 1. |
|
Legal Proceedings |
From time to time, we may become involved in various investigations, claims and legal proceedings
that arise in the ordinary course of our business. These matters may relate to intellectual
property, employment, tax, regulation, contract or other matters. The resolution of such of these
matters as may arise will be subject to various uncertainties and, even if such claims are without
merit, could result in the expenditure of significant financial and managerial resources.
On December 6, 2004, Dallas Gas Partners, L.P. (DGP) served us with a complaint filed November
30, 2004 in the U.S. District for the Southern District of Texas, Galveston Division. DGP alleges
that DGP was defrauded and that we breached our fiduciary duty to DGP and tortiously interfered
with DGPs contract to purchase Gas Solutions, Ltd. (a subsidiary of our portfolio company, GSHI)
in connection with our alleged agreement in September 2004 to loan DGP funds with which DGP
intended to buy Gas Solutions, Ltd. for approximately $26,000. The complaint sought relief not
limited to $100,000. On November 30, 2005, U.S. Magistrate Judge John R. Froeschner of the U.S.
District Court for the Southern District of Texas, Galveston Division, issued a recommendation that
the court grant our Motion for Summary Judgment dismissing all claims by DGP. On February 21, 2006,
U.S. District Judge Samuel Kent of the U.S. District Court for the Southern District of Texas,
Galveston Division issued an order granting our Motion for Summary Judgment dismissing all claims
by DGP, against us. On May 16, 2007, the Court also granted us summary judgment on DGPs liability
to us on our counterclaim for DGPs breach of a release and covenant not to sue. On January 4,
2008, the Court, Judge Melinda Harmon presiding, granted our motion to dismiss all DGPs claims
asserted against certain of our officers and affiliates. On August 20, 2008, Judge Harmon entered a
Final Judgment dismissing all of DGPs claims. DGP appealed to the U.S. Court of Appeals for the
Fifth Circuit, which affirmed the Final Judgment on June 24, 2009. DGP then moved for rehearing on
July 8, 2009, which the Fifth Circuit denied on August 6, 2009. Our damage claims against DGP
remain pending.
In May 2006, based in part on unfavorable due diligence and the absence of investment committee
approval, we declined to extend a loan for $10,000 to a potential borrower (plaintiff). Plaintiff
was subsequently sued by its own attorney in a local Texas court for plaintiffs failure to pay
fees owed to its attorney. In December 2006, plaintiff filed a cross-action against us and certain
affiliates (the defendants) in the same local Texas court, alleging, among other things, tortuous
interference with contract and fraud. We petitioned the United States District Court for the
Southern District of New York (the District Court) to compel arbitration and to enjoin the Texas
action. In February 2007, our motions were granted. Plaintiff appealed that decision. On July 24,
2008, the Second Circuit Court of Appeals affirmed the judgment of the District Court. The
arbitration commenced in July 2007 and concluded in late November 2007. Post-hearing briefings were
completed in February 2008. On April 14, 2008, the arbitrator rendered an award in our favor,
rejecting all of plaintiffs claims. On April 18, 2008, we filed a petition before the District
Court to confirm the award. On October 8, 2008, the District Court granted the Companys petition
to confirm the award, confirmed the awards and subsequently entered judgment thereon in favor of
the Company in the amount of $2,288. After filing a defective notice of appeal to the United States
Court of Appeals for the Second Circuit on November 5, 2008, plaintiffs counsel resubmitted a new
notice of appeal on January 9, 2009. The plaintiff subsequently requested that the Company agree to
stipulate to the withdrawal of plaintiffs appeal to the Second Circuit. Such a stipulation was
filed with the Second Circuit on or about April 14, 2009. Based on this stipulation, the Second
Circuit issued a mandate terminating the appeal, which was transmitted to the District Court on
April 23, 2009. Post-judgment discovery against plaintiff is continuing and we have filed a motion
for sanctions against plaintiffs counsel. Argument for the motion for sanctions was held on
November 19, 2009 and a decision from the court is pending. On March 19, 2010, Judge Leonard Sands
granted our motion for sanctions against plaintiffs counsel.
There have been no material changes to our risk factors as previously disclosed in our most recent
10-K filing.
60
|
|
|
Item 2. |
|
Unregistered Sales of Equity Securities and Use of Proceeds |
The following table reflects the history of shares issued under the dividend reinvestment plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate Offering Price |
|
|
|
|
Record Date/Issuance Date |
|
Shares Issued |
|
|
(in 000s) |
|
|
% of Dividend |
|
March 23, 2006 / March 30, 2006 |
|
|
6,841 |
|
|
$ |
111 |
|
|
|
5.2 |
% |
June 23, 2006 / June 30, 2006 |
|
|
7,932 |
|
|
|
130 |
|
|
|
5.4 |
% |
September 22, 2006 / September 29, 2006 |
|
|
80,818 |
|
|
|
1,273 |
|
|
|
26.2 |
% |
|