PROSPECT CAPITAL CORP Q3 FY2025 earnings call

• John Francis Barry introduced the call, mentioning net investment income, NAV, debt ratio, and distributions. - Kristin Van Dask noted forward-looking statements and discussed balance sheet strength, funding sources, and debt structure. - Michael Grier Eliasek discussed portfolio composition over two decades, including investments in 114 portfolio companies, portfolio yield, originations/repayments, and the focus on lower middle market lending and real estate portfolio rotation.

In the March quarter, Prospect Capital's segment performance included: Middle market lending: Originations aggregated $196 million, with $149 million of first lien loans (76% of total originations). Subordinated structured notes: Represented 4.2% of the investment portfolio, a reduction from 7.3% the prior year. Since inception in 2011, 15 subordinated structured note investments were exited with an unlevered investment level gross cash IRR of 12.1%. The remaining portfolio had a trailing 12-month average cash yield of 30.2% and an annualized GAAP yield of 4.4%. Real estate (NPRC): The remaining real estate portfolio includes 58 properties that paid an income yield of 4.5% for the March quarter. Aggregate investments in NPRC had a $460 million unrealized gain as of March. Performing interest bearing investments: Generated an annualized yield of 11.5% as of March. Interest income in the March quarter was 93% of total investment income. Payment in kind income for the quarter ended March was $19.5 million, down nearly 50% from the prior quarter. Non-accruals as a percentage of total assets stood at approximately 0.6% in March. Weighted average EBITDA per portfolio company was just under $100 million. Investment originations in March aggregated $196 million, with $149 million of first lien loans (76% of total originations). There were $192 million of repayments and exits, resulting in net originations of $4.5 million. In the current June 2025 quarter, originations totaled $65 million with $20 million of repayments, consisting of 75.5% middle market lending and 21.3% real estate.

• Expect to continue amortizing and exiting the subordinated structured notes portfolio and reinvest primarily in first lien senior secured middle market loans. - Plan to redeploy future asset sale proceeds from real estate primarily into property value add capital investment and first lien middle market loans. - Prioritize lower middle market lending for wider spreads, higher SOFR floors, and better covenants. - Look to rotate real estate assets selectively in an orderly, value-maximizing way to boost yields. - Consider leveraging opportunities to enhance net investment income, including potential unsecured debt and preferred financing issuance.

• Volatility in macroeconomic indices can affect the pacing of real estate asset exits. - Fluctuations in financing issuance volumes due to market volatility. - Counterparty risk associated with diverse debt and bank exposure across various unsecured and non-recourse debt tranches.

Q: About other income from NP REIT being low, how to think about it?

A: The pacing of real estate exits slowed due to Fed hikes and sharp movements in macro indices causing buyers and sellers to pause. Expect an orderly reduction in the size of the real estate portfolio and potential future activity with asset exits.

Q: Regarding dividend coverage and levers to pull?

A: Prioritize lower middle market lending for wider spreads, higher SOFR floors, and better covenants. Engage in portfolio rotation, such as moving from lower-yielding real estate to higher-returning loans. Leverage under-leveraged status and consider financing issuance to enhance net investment income.

Q: Thoughts on program notes and preferred raises?

A: Prospect has a history of diversified financing avenues, including programmatic issuance. Volumes may fluctuate, but there are various financing avenues available, and the company's history of pioneering different note types makes the issuance sticky and valuable during volatile periods.