Prospect Capital Corporation (NASDAQ:PSEC) Q1 2019 Earnings Conference Call Transcript

Nov 07, 2018 • 10:00 am ET


Prospect Capital Corporation (NASDAQ:PSEC) Q1 2019 Earnings Conference Call Transcript


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Michael Grier Eliasek

total assets stood at approximately 2.4% in September, down 0.1% from the prior quarter. Our weighted average portfolio net leverage stood at 4.58x EBITDA, down from 4.60x the prior quarter and the second straight quarterly decrease. Our weighted average EBITDA per portfolio company stood at $56.5 million in September, up from $55.4 million the prior quarter.

The largest segment of our portfolio consists of sole-agented and self-originated middle market loans. In recent years we perceived the risk-adjusted reward to be higher for agented self-originated and anchor investor opportunities compared to the non-anchor broadly syndicated market causing us to prioritize our proactive sourcing efforts. Our differentiated call center initiative continues to drive proprietary deal flow for our business. Originations in the September quarter aggregated $255 million. We also experienced $55 million of repayments and exits as a validation of our capital preservation objective, resulting on a rounded basis in net originations of $199 million.

During the September quarter, our originations comprised 64% agented sponsor debt; 21% non-agented debt including early look anchoring and club investments; 9% structured credit; 4% real estate and 2% corporate yield buyouts. To-date, we've made multiple investments in the real estate arena through our private REIT strategy largely focused on multifamily stabilized yield acquisitions with attractive 10-plus year financing.

NPRC or private REIT as a real estate portfolio that has benefited from rising rents, strong occupancies, high-returning value-added renovation programs and attractive financing recapitalizations resulting in an increase in cash yields as a validation of this income growth business alongside our corporate credit businesses. NPRC has exited completely certain properties, including Vista, Abbington, Bexley, Mission Gate, Hillcrest, Central Park, St. Marin, Matthews and Amberley with an objective to redeploy capital into new property acquisitions, including with repeat property manager relationships. We expect both recapitalizations and exits to continue.

Our structured credit business has delivered attractive cash yields demonstrating the benefits of pursuing majority stakes, working with world-class management teams, providing strong collateral underwriting through primary issuance and focusing on attractive risk-adjusted opportunities. As of September, we held $965 million across 46 non-recourse structured credit investments primarily in the subordinated tranche. The underlying structured credit portfolios comprised over 1,900 loans and a total asset base of over $19 billion.

As of September, our structured credit portfolio experienced a trailing 12-month default rate of 113 basis points, down 2 basis points from the prior quarter and 68 basis points less than the broadly syndicated market default rate of 181 basis points. In the September quarter, this portfolio generated an annualized cash yield of 14.3% excluding recently reset deals with short-term yield compression and a GAAP yield of 14.4%, down 0.1% from the prior quarter. Cash yield includes all cash distributions from an investment, while GAAP yield subtracts out amortization of cost basis. As of September 2018, our existing structured credit portfolio has generated over $1.19 billion in cumulative cash distributions to us, representing around 78% of our original investment. Through September, we've also exited 11 investments, totaling just under