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PROSPECT CAPITAL CORPORATIONNASDAQ: PSEC
MIDDLE MARKET FINANCE AND PRIVATE EQUITY
1
FORWARD-LOOKING STATEMENTS AND DISCLAIMERS
Certain statements made by us in this presentation that are not historical facts or that relate to future plans, events or performances are forward-
looking statements within the meaning of the federal securities laws. Forward-looking statements predict or describe our future operations, business
plans, business and investment strategies and portfolio management and the performance of our investments and our investment management
business. Our actual results or actions may differ materially from those expressed in any forward-looking statements made by us. Forward-looking
statements involve a number of risks of uncertainties including, but not limited to, the risks described under headings such as “Risk Factors” in our
SEC filings. All forward-looking statements are qualified by those risk factors. All statements made by us in this presentation are further qualified in all
respects by the information disclosed in our SEC filings. We disclaim any obligation to update our forward looking statements unless required by law.
Certain information discussed in this presentation (including information relating to portfolio companies) was derived from third-party sources and has
not been independently verified and, accordingly, Prospect Capital Corporation makes no representation or warranty in respect of this information.
The following slides contain summaries of certain financial and statistical information about Prospect Capital Corporation. The information contained
in this presentation is summary information that is intended to be considered in the context of our SEC filings and other public announcements that
we may make, by press release or otherwise, from time to time. We undertake no duty or obligation to publicly update or revise the information
contained in this presentation. In addition, information related to past performance, while helpful as an evaluative tool, is not necessarily indicative of
future results, the achievement of which cannot be assured. You should not view the past performance of Prospect Capital Corporation, or
information about the market, as indicative of Prospect Capital Corporation’s future results. This presentation does not constitute an offer to sell or
the solicitation of an offer to buy any securities of Prospect Capital Corporation.
2
SIGNIFICANT
SCALE
►Founded in 2004, PSEC is one of the largest BDCs with ~$5.8 billion in capital under management(1)
►Scale allows us to target larger, more credit-worthy middle-market companies with one-stop financing solutions
►One of the largest teams in the industry focused on middle market lending (90+ professionals)
Source: Company filings, investor presentations and management.(1) Total assets as of 6/30/2020 plus estimated debt capacity.(2) Pricing data as of 8/21/2020.
Prospect Capital is one of the largest multi-line Business Development Companies (BDCs), providing debt financing to private middle-market companies and investing in other credit-related strategies
WHY PROSPECT?
BROAD
ORIGINATION
MIX
►Multiple yield-oriented origination strategies with upside potential
►Differentiated strategies drive high net yields
►Superior and proprietary deal flow channels
PROVEN
INVESTMENT
PHILOSOPHY
►Intensive screening process (<5% book-to-look ratio) with a majority focus on senior and secured lending
►Diverse portfolio of 121 investments across 39 industries and low non-accruals
►Independent third-party portfolio valuations
SOLID
FINANCIAL
FOUNDATION
►Investment grade ratings from S&P, Moody’s, Kroll, and Egan-Jones
►Laddered liability structure with long-term matched-book funding with no debt maturities until July 2022
►Approximately 71.2% of assets unencumbered and prudent leverage
ATTRACTIVE
VALUATION
►Fully covered monthly dividend of $0.06/share; current annualized dividend yield ~14.1%(2)
►Potential for capital appreciation based on the ~38% discount to NAV as of 8/21/2020
►Established historical track record and strong insider ownership
3
SIGNIFICANT SCALE PROVIDES COMPETITIVE ADVANTAGE
►PSEC is one of the largest publicly traded BDCs with total assets of ~$5.3 billion
►Strategy focused on risk reduction, capital preservation, and avoidance of “yield chasing” investments
Source: Company filings
(FY as of 6/30, $ in millions)
TOTAL EQUITY
$3,436 $3,355 $3,407$3,306
$3,056
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
$4,000
FY2016 FY2017 FY2018 FY2019 FY2020
4
Source: Company filings, management.As of 6/30/2020.
EXPERIENCED AND BROAD TEAM
SENIOR EXECUTIVES
John Barry – Chairman and CEO
►Co-founder of Prospect Capital Corporation
►Over 41 years of experience, including Merrill Lynch, Rothschild and Davis Polk
►JD Harvard, AB Princeton
Grier Eliasek – President and COO
►Co-founder of Prospect Capital Corporation
►Over 22 years of experience; previously a consultant at Bain & Company
►MBA Harvard, BS Chemical Engineering University of Virginia
Daria Becker – MD and Head of Admin
►Joined Prospect Capital Management in 1998
►Over 34 years of experience, including Lexington, Citigroup and a family office
►BA Wellesley College
ADMINISTRATION
Administration Professionals 13
ACCOUNTING
& TAX
Accounting and Tax Professionals 21
LEGAL
Legal Professionals 11
With approximately 90 professionals, the Prospect team is one of the largest focused on the middle market
90+ person organization helps drive originations through superior scale and market coverage
INVESTMENT TEAM
Investment Professionals 38
BUSINESS
DEVELOPMENT & IR
Business Development & Investor Relations Professionals
7
5
FLEXIBLE ORIGINATION MIX
PRIVATE EQUITY SPONSOR FINANCE
(Non-Control)
9-12%Target IRRs
►Senior secured debt with significant junior / equity capital
►Stronger management / larger businesses
►Repeat business26.6% of
Portfolio
ONE-STOP YIELD BUYOUTS – FINANCECOS
(Control)
15-25%Target IRRs
►Consumer installment lending and auto finance
►Tax-efficient structure
►Strategic buyouts (Patriot Capital)
11.9% of
Portfolio
ONLINE LENDING
(Non-Control)
10-12%Target IRRs
►Online consumer loans and small business loans
►1-5 year term
►Relationships with multiple platforms
0.9% of
Portfolio
DIRECT NON-SPONSOR LENDING
(Non-Control)
11-16%Target IRRs
►Senior secured debt with lower leverage
►Higher yields from fewer lender competitors
►Proprietary call center
0.6% of
Portfolio
STRUCTURED CREDIT
(Hybrid)
13-17%Target IRRs
►Diversified credit exposure, with default rate well below market
►Large, more liquid credits andattractively priced AAA funding
►Call control strategy 15.3% of
Portfolio
AIRCRAFT LEASING
(Control)
10-18%Target IRRs
►Current-yielding equity in aircraft-ownership companies and aircraft securitizations
►Diversity by aircraft type, geography, and operator
1.6% of
Portfolio
ONE-STOP YIELD BUYOUTS – OPERATINGCOS
(Control)
14-25%Target IRRs
►One stop advantage (PSEC provides term debt)
►Current yield plus equity upside
►Management control6.1% of
Portfolio
REAL ESTATE
(Control)
14-18%Target IRRs
►Multi-family residential, student housing and self storage focus on fully developed properties
►Long-term fixed GSE funding
►Diversified tenants14.2% of
Portfolio
SYNDICATED DEBT
(Non-Control)
10-12%Target IRRs
►Senior secured debt of larger borrowers in liquid market
►Active during market dislocation
►Less active during bull markets22.9% of
Portfolio
Source: Company filings, management. PSEC portfolio data as of 6/30/2020.
Multiple origination channels allow PSEC to be selective in funding new investment opportunities
6
SUPERIOR DEAL FLOW AND DISCIPLINED EXECUTION
Source: Company filings, management.
ORIGINATE SCREEN
3,000+/year
STRUCTURE
200-300/year
CLOSE
30-50/year
MONITOR
121 portfolio
investments
EXITS
Over 200
since
inception
SYSTEMATIC
CALLING EFFORT
►PE sponsors
• ~200 Tier 1 relationships
►Other intermediaries
• ~4,000 total
►Syndication/Club relationships
COLD-CALLING
EFFORT
►Small-to-mid cap companies with identified financing needs
►Dedicated in-house call center
►Proprietary deal flow
MANAGEMENT
RELATIONSHIPS
►From 200+ past and present portfolio companies
►Add-on investments, new investments, assistance with due diligence and post-closing value add
CONTACT
DATABASE
►50,000+ contacts built over two decades
►Receive all transaction announcements, resulting in both in-bound opportunities and top-of-mind awareness
IN-BOUND
OPPORTUNITIES
►From scale, longevity, and visibility of Prospect
►~$5.8 billion of capital under management
Disciplined underwriting and execution helps to keep credit losses low
3,000+ opportunities sourced annually with <5% of initially screened investments advancing to closing
7
CONSERVATIVE APPROACH DRIVES CAPITAL PRESERVATION
Source: Company filings, management.(1) Includes debt through Prospect’s investment and excludes 3rd party debt.
Quarterly Portfolio Activity
Weighted Average Portfolio Company EBITDA and Net Leverage(1)
$59.8 $60.7 $62.0$69.5 $72.3 $72.0
$0.0
$10.0
$20.0
$30.0
$40.0
$50.0
$60.0
$70.0
$80.0
3/31/2019 6/30/2019 9/30/2019 12/31/2019 3/31/2020 6/30/2020
Weighted Average EBITDA ($ millions)
$35.7
$187.9
$94.5
$326.6
$402.4
$36.6
$195.1$212.8
$245.2
$431.5
$266.5
$64.1
$0
$50
$100
$150
$200
$250
$300
$350
$400
$450
$500
3/31/2019 6/30/2019 9/30/2019 12/31/2019 3/31/2020 6/30/2020
Investments ($ millions) Repayments/exits ($ millions)
4.51x 4.67x 4.69x 4.75x 4.63x 4.51x
0.00x
1.00x
2.00x
3.00x
4.00x
5.00x
6.00x
7.00x
8.00x
3/31/2019 6/30/2019 9/30/2019 12/31/2019 3/31/2020 6/30/2020
Weighted Average Net Leverage
PSEC generally invests in middle market companies with $5 - $150 million of annual EBITDA
8
10.6%10.2%
10.3% 10.1%
9.7%
Jun-19 Sep-19 Dec-19 Mar-20 Jun-20
Portfolio Yield
PORTFOLIO OVERVIEW: $5.3 BILLION IN ASSETS ACROSS 121 INVESTMENTS
Source: Company filings, management. PSEC portfolio data as of 6/30/2020.
(1) Excludes control investments, affiliated investments, and structured finance.
(2) Annualized current yield across all investments.
(3) Includes 50 separately capitalized properties.
2012,
0.3%2013,
4.0%
2014,
14.0%
2015,
3.8%
2016,
5.0%
2017,
8.4%
2018,
29.7%
2019,
18.3%
2020,
16.5%
Portfolio Vintage
Top 10 Investments
Portfolio Company % Assets Type
National Property REIT Corp.(3) 16.8% Real Estate
First Tower Finance Company LLC 9.7% Buyout
Interdent, Inc. 4.4% 1st Lien
PeopleConnect Holdings, LLC 3.8% 1st Lien
Broder Bros., Co. 3.1% 1st Lien
Town & Country Holdings, Inc. 3.1% 1st Lien
Valley Electric Company, Inc. 2.5% Buyout
PGX Holdings, Inc. 2.0% 2nd Lien
Capstone Logistics Acquisition, Inc. 1.9% 2nd Lien
Echelon Transportation, LLC 1.6% 1st Lien
(2)
First Lien
46.9%
Other Senior
Secured Debt
24.4%
Subordinated
Structured
Notes 13.5%
Equity 14.2%
Unsecured
Debt 1.0%
Senior and Secured Lending Focus
2.9%2.4%
1.6% 1.6%
0.9%
Jun-19 Sep-19 Dec-19 Mar-20 Jun-20
Non-accruals (FV)/Total Assets(1)
83.3%82.3% 81.2%
82.1%
84.8%
Jun-19 Sep-19 Dec-19 Mar-20 Jun-20
Secured Asset Mix
9
WELL DIVERSIFIED PORTFOLIO INVESTED IN 39 DIFFERENT INDUSTRIES
Source: Company filings, management.
PSEC’s portfolio at fair value (6/30/2020)
Low energy/hotel/restaurant/leisure/retail concentration of 2.0%, the majority of which is secured debt
Structured Finance 15.2%
Equity Real Estate Investment
Trusts (REITs) 14.4%
Consumer Finance 12.3%
Health Care Providers &
Services 9.5%Commercial Services & Supplies 5.6%
Textiles, Apparel & Luxury
Goods 4.2%
IT Services 3.9%
Interactive Media & Services
3.8%
Distributors 3.4%
Diversified Consumer Services
3.2%
Construction & Engineering
2.5%
Professional Services 2.0%
Other 20.0%
10
SENIOR
PORTFOLIO
MANAGER
►Preliminary valuation discussions are documented and discussed with senior Prospect management
AUDIT
COMMITTEE
►Prospect’s Independent Audit Committee reviews the preliminary valuations
►Prospect Capital Management and the third-party valuation agent respond to and supplement any information required by Prospect’s Audit Committee
PROSPECT’S
BOARD OF
DIRECTORS
►Prospect’s majority independent board of directors determines the fair value of each investment in the portfolio based on the third-party valuations and recommendations from Prospect’s Audit Committee
►To date, the Board’s final valuations have never been outside the range provided by the third-party valuation firm
RIGOROUS AND INDEPENDENT VALUATION PROCESS
Source: Company filings, management.
INDEPENDENT
THIRD-PARTY
VALUATION
►Every investment is marked quarterly and has been marked since inception at fair value by a third-party
►Third-party valuation agents complete a review of all assets with positive assurance (i.e., not merely a “negative assurance” process)
11
Source: Company filings and management. As of 6/30/2020 and as adjusted for a tender offer settled on 8/24/2020 in which $29.4 million of the 2022 Convertible Notes were validly tendered and accepted as disclosed in the 6/30/2020 10-K.(1) Includes $0 of floating rate notes. (2) $1,077.5 million of commitments from 30 lenders(3) Weighted average interest rate excluding amortization, accretion, and undrawn facility fees as of 6/30/2020.
DIVERSIFIED FUNDING SOURCES
►Access to diversified funding sources across multiple investor bases
►Emphasis on unsecured term debt with no financial covenants or cross defaults with revolving credit facility
►Prospect’s corporate credit rating is BBB- by Kroll, BBB by Egan-Jones, Baa3 by Moody’s, and BBB- by S&P
►No Debt Maturities until July 2022
ISSUANCE COUPONORIGINAL AMOUNT (millions)
OUTSTANDING(millions)
MATURITY
SR. UNSECURED CONVERTIBLE NOTES
►April 2017 - $9.98
►February 2019 - $9.03
4.950%
6.375%
$328.5
$201.3
$228.8
$201.3
7/15/2022
3/1/2025
SR. UNSECURED RETAIL NOTES
►Prospect Capital InterNotes®
►Prospect Baby Bond (NYSE: PBB)
►Prospect Baby Bond (NYSE: PBY)
►Prospect Baby Bond (NYSE: PBC)
3.75% - 6.75%(1)
6.25%
6.25%
6.875%
$725.5
$234.4
$70.8
$69.2
$680.2
$233.8
$70.8
$69.2
Sep 2023 - Oct 2043
6/15/2024
6/15/2028
6/15/2029
SR. UNSECURED INSTITUTIONAL TERM DEBT
►March 2013
►September 2018
5.875%
6.375%
$320.0
$100.0
$320.0
$100.0
3/15/2023
1/15/2024
SR. SECURED CREDIT FACILITY 1ML + 2.20% $1,077.5(2) $237.5 9/9/2024
5.37%(3) $2,141.6
12
Source: Company filings and management. As of 6/30/2020.(1) Funding maturity in 2024 includes revolving credit facility. The facility, for which $1,077.5 million of commitments have been closed to date from 30 lenders, matures in September 2024 with a revolving period extending through September 2023 followed by a one-year amortization period. Pricing for amounts drawn under the new facility is one-month Libor plus 2.20%. (2) Includes investments, equity capital, and debt capital maturing after 2025.
LONG-TERM, MATCHED-BOOK FUNDING LOCKS IN ATTRACTIVE SPREADS
PSEC’s well-laddered funding sources match the tenor of its investments
►Maturity date for revolving credit facility extended to September 2024; average daily utilization rate of ~13.3% since 2011
►Approximately $3.1 billion of Prospect’s funding is in the form of equity, which does not mature
►Repurchased or redeemed $549.4 million of debt maturing between 2018-2021 during the year ended 6/30/19 and $551.0 million of debt maturing between 2019-2024 for the year ended 6/30/20
$326 $230
$545
$993
$674
$654
$1,809
$0 $0
$258 $339
$748
$285
$3,597
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
$4,000
2020 2021 2022 2023 2024 2025 No Maturity
Mill
ions
Asset Maturities Funding Maturities Cumulative Funding Maturities Cumulative Asset Maturities
(2)(1)
13
UNENCUMBERED ASSETS PROVIDE FINANCIAL FLEXIBILITY
$4,122 $4,020 $3,944$3,562 $3,772
$5,800 $5,585 $5,509
$5,218 $5,300
$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
$8,000
6/30/19 9/30/19 12/31/19 3/31/20 6/30/20
Tota
l A
ssets
($M
)
Unencumbered Assets Encumbered Assets
High level of unencumbered assets reduces risk in the event of a market downturn
Source: Company filings and management.
Approximately $3.8 billion of unencumbered assets, representing ~71.2% of total assets
14
PRUDENT NET LEVERAGE CONSISTENTLY WITHIN TARGET RANGE
Source: Company filings and management.
0.69x0.67x
0.75x 0.75x0.69x 0.70x
0.66x 0.64x
0.74x0.70x
0.00x
0.20x
0.40x
0.60x
0.80x
1.00x
1.20x
1.40x
1.60x
1.80x
2.00x
3/31/2018 6/30/2018 9/30/2018 12/31/2018 3/31/2019 6/30/2019 9/30/2019 12/31/2019 3/31/2020 6/30/2020
PSEC continues to target net leverage of 0.70x - 0.85x
15Source: Company filings, management.Note: Declared dividends are through the October 2020 distribution
PSEC CUMULATIVE DISTRIBUTIONS TO SHAREHOLDERS
Declared cumulative distributions of $18.24 per share totaling approximately $3.2 billion since 2004 IPO($ in millions)
0
500
1,000
1,500
2,000
2,500
3,000
Mar
-05
Jun-0
5Se
p-0
5D
ec-
05
Mar
-06
Jun-0
6Se
p-0
6D
ec-
06
Mar
-07
Jun-0
7Se
p-0
7D
ec-
07
Mar
-08
Jun-0
8Se
p-0
8D
ec-
08
Mar
-09
Jun-0
9Se
p-0
9D
ec-
09
Mar
-10
Jun-1
0Se
p-1
0D
ec-
10
Mar
-11
Jun-1
1Se
p-1
1D
ec-
11
Mar
-12
Jun-1
2Se
p-1
2D
ec-
12
Mar
-13
Jun-1
3Se
p-1
3D
ec-
13
Mar
-14
Jun-1
4Se
p-1
4D
ec-
14
Mar
-15
Jun-1
5Se
p-1
5D
ec-
15
Mar
-16
Jun-1
6Se
p-1
6D
ec-
16
Mar
-17
Jun-1
7Se
p-1
7D
ec-
17
Mar
-18
Jun-1
8Se
p-1
8D
ec-
18
Mar
-19
Jun-1
9Se
p-1
9D
ec-
19
Mar
-20
Jun-2
0Se
p-2
0
PSE
C C
um
ula
tive
Dis
trib
utions
to S
har
ehold
ers
Oct
-20
1616
DIFFERENTIATED PERFORMANCE
17
PSEC HAS POSTED AN AVERAGE ANNUAL RETURN ON NET ASSETS OF 8.2% WITH POSITIVE RETURNS IN ~84% OF THE FULL QUARTERLY PERIODS
Source: Company filings. Quarterly returns based on the line item “net increase in net assets resulting from operations” on the income statement. To calculate a quarterly return rate, quarterly returns were divided by the sum of the net asset value from the prior quarter’s filing (beginning net asset value) and half of the change in paid-in capital between the prior quarter and the then-current quarter. Annual and cumulative figures derived from compounding of quarterly returns.1. Total return average was calculated by taking the geometric average of all quarterly returns and then annualizing by compounding over four periods.
March June September December Annualized Cumulative
2004 - - (0.9%) 1.3% 0.4%
2005 0.9% 7.3% 1.4% 2.5% 12.5% 12.9%
2006 2.8% 5.7% 2.6% 1.2% 12.9% 27.5%
2007 1.7% 1.6% 2.8% (1.1%) 5.1% 34.0%
2008 (0.3%) 6.1% 3.3% 1.5% 10.8% 48.4%
2009 3.5% (0.2%) (1.1%) (2.2%) (0.0%) 48.4%
2010 4.0% 2.2% 3.4% 3.8% 14.0% 69.2%
2011 3.7% 2.7% 3.6% 5.7% 16.5% 97.1%
2012 4.1% 2.6% 2.8% 2.2% 12.1% 120.9%
2013 1.8% 3.2% 2.9% 2.8% 11.0% 145.3%
2014 2.4% 2.0% 2.3% 2.3% 9.3% 168.2%
2015 2.2% 2.6% 0.8% (2.6%) 2.8% 175.8%
2016 2.2% 2.8% 2.4% 2.9% 10.7% 205.3%
2017 0.6% 1.5% 0.4% 3.7% 6.2% 224.3%
2018 1.5% 3.4% 2.5% (2.0%) 5.5% 242.1%
2019 2.7% 1.2% 0.5% (0.3%) 4.1% 256.1%
2020 (5.8%) 5.5% (0.6%) 253.8%
Total Return Average 2004 – 2020 8.2%(1)
18
0%
5%
10%
15%
20%
25%
30%
3/31/16 3/31/17 3/31/18 3/31/19 3/31/20
Cum
ulat
ive
Ret
urns
Compounded Dividends Plus Change in NAV Per Share
Publicly-Traded BDC Median PSEC
PSEC HAS GENERATED SUPERIOR OPERATING RETURNS COMPARED WITH PUBLICLY-TRADED BDC MEDIAN OVER THE PAST 5 YEARS
Note: Dividends plus change in net asset value compounded on a quarterly basis. Investors purchase and sell shares of PSEC common stock at prevailing market prices, which may be higher or lower than NAV.
Information related to past performance, while potentially helpful as an evaluative tool, is not indicative of future results. Source: PSEC analysis of Capital IQ data as of 8/19/2020 for the 46 BDCs for which there is
quarterly data for the five years ended 3/31/2020.
PSEC Performance
Percentile:
58%
21.7%
19.6%
19
PSEC’S RETURN ON EQUITY HAS OUTPERFORMED PUBLICLY-TRADED BDC MEDIAN ON AVERAGE OVER THE PAST FIVE YEARS
3.6%
4.2%
3.5%
4.5%
Publicly-Traded BDC Median PSEC
Average Annual Return on Equity
Note: Return on equity defined as change in net assets resulting from operations per share divided by average of beginning and ending book value of common equity. Information related to past performance, while
potentially helpful as an evaluative tool, is not indicative of future results. Source: PSEC analysis of Capital IQ data as of 8/19/2020 for the 48 BDCs for which there is quarterly data for the five years ended 3/31/2020.
20
PSEC HAS GENERATED SUPERIOR RISK-ADJUSTED OPERATING RETURNS OVER THE PAST FIVE YEARS
0.5x
0.9x
Publicly-Traded BDC Median PSEC
Returns / Volatility –Trailing 5 Years
Note: Returns calculated as change in net asset value per share plus dividends. Volatility measured as one standard deviation in returns. Returns and volatility are measured on a quarterly basis and annualized to calculate
returns / volatility ratio. Information related to past performance, while potentially helpful as an evaluative tool, is not indicative of future results. Source: PSEC analysis of Capital IQ data as of 8/19/2020 for the 46 BDCs for
which there is quarterly data for the five years ended 3/31/2020.
21
SENIOR MANAGEMENT HAS MADE SIGNIFICANT INVESTMENTS IN PSEC
$542.4M
$64.0M$33.5M $18.8M $3.9M $9.3M
PSEC HTGC MAIN ARCC AINV BDC Median
5 Largest Publicly-Traded BDCs by NAV
Insider Filings Purchases (January 2010 to June 2020)
Source: PSEC analysis of 23 BDCs that have been active during this period. PSEC senior management has not sold any of such investments.
* Includes $160.2 million in open market purchases through the John and Daria Barry Foundation.
*
22
SENIOR MANAGEMENT IS A SIGNIFICANT INVESTOR IN PSEC
2.4%
26.4%
Publicly-Traded BDC Median PSEC
*
Source: PSEC analysis of Capital IQ data as of 8/19/2020 for 49 BDCs. PSEC senior management has not sold any of such investments in PSEC.
* Includes 6.8% share ownership through the John and Daria Barry Foundation.
Insider Ownership as of 6/30/20
2323
BDC OVERVIEW
24
PUBLICLY TRADED BDCs
TOPIC KEY CHARACTERISTICS
INVESTMENT
STRATEGY
► Current-yielding credit investments primarily in middle-market companies
► To a lesser extent, other current-yielding investments
REGULATION ► Regulated as a Business Development Company (“BDC”) under Investment Company Act of 1940
► Generally BDCs elect to be treated as a Regulated Investment Company (“RIC”) for U.S. federal income tax purposes
INVESTMENTS
LIMITATIONS
► Generally, at least 70% of a BDC’s assets must be investments in U.S. non-financial sector operating companies that either have (a) no class of securities listed on a national securities exchange (i.e., private) or (b) a market cap less than $250 million
LEVERAGE
LIMITATION(1)► 2:1 debt-to-equity ratio (i.e. gross asset coverage must be at least 150%)
DIVERSIFICATION
REQUIREMENTS(2)
► At least 50% of a BDC’s assets must consist of securities of an issuer in which the BDC owns less than 10% of the voting stock and in which the investment is less than 5% of the value of the BDC’s assets
INCOME
RESTRICTIONS(2)
► At least 90% of BDC income must be from investment sources such as interest, dividends, and gains / losses associated with investments in equity, debt, or other securities
DISTRIBUTION
REQUIREMENTS(2)
► Must distribute at least 90% of taxable income to avoid U.S. federal income tax on all taxable income
► Not subject to U.S. federal income tax on the income and net capital gains distributed to stockholders (provided that the above distribution requirement is met)
VALUATION ► Must mark portfolio to fair value on a quarterly basis for GAAP(3) purposes
(1) Effective 3/23/2018, the Small Business Credit Availability Act permits a BDC to change its asset coverage ratio from 200% to 150%.
(2) Above criteria apply to BDCs that elect RIC treatment for U.S. federal income tax purposes.
(3) GAAP is defined as Generally Accepted Accounting Principles.
25
$0 BN
$10 BN
$20 BN
$30 BN
$40 BN
$50 BN
$60 BN
$70 BN
$80 BN
Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Dec-18 Dec-19
Total Assets
Total MarketCapitalization
BDC PUBLIC MARKET LANDSCAPE
BDCs are benefitting from the reduction of capital provided by traditional lenders
► Reduced bank lending driven by regulation and consolidation
► Post-crisis shift of institutional debt investor demand to larger credits with greater liquidity
Source: S&P
Public BDC Group – Total Assets and Market CapNumber of Public BDCs
25
28
36
41
45
51 52 52 51 50 51
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
26
549
395
300
350
400
450
500
550
600
Middle-Market Large Corporate
Avera
ge N
om
inal S
read
10-YEAR AVERAGE SPREADS(2)(3)
HIGHER RISK-ADJUSTED RETURNS ON A CONSISTENT BASIS
Middle Market Offers More Conservative Structures, Higher Yields, and Stronger Covenants
► U.S. middle market consists of ~200,000 companies across diverse industries(1)
► Represents one-third of U.S. Private Sector GDP(1)
► $6.0 trillion – 3rd largest economy globally(1)
► Continuous need for access to debt capital
► Hundreds of middle-market private equity sponsors
► Provides increased returns and enhanced risk protections relative to syndicated credit
(1) National Center for the Middle Market and U.S. government websites and reports(2) Spread premium for middle-market leveraged loans over large-corporate leveraged loans.(3) Source: S&P LCD Q2 2020 High-End Middle Market Lending Review. S&P LCD defines middle market as EBITDA of $50 million or less and large corporate as EBITDA of more than $50 million.
5.0x
5.6x
4.0x
4.5x
5.0x
5.5x
6.0x
Middle-Market Large Corporate
Tota
l Deb
t M
ult
iple
10-YEAR AVERAGE LEVERAGE(3)
48%
42%
35%
40%
45%
50%
Middle-Market Large Corporate
Equ
ity
Cap
ital
izat
ion
10-YEAR AVERAGE EQUITY CAPITALIZATION(3)
154bpsaverage spread premium over 10 years
2727
APPENDIX
28
FINANCIAL HIGHLIGHTS
Source: Company filings.
In thousands, except per share data
Statement of OperationsQuarter ended
June 30, 2020
Quarter ended
March 31, 2020
Quarter ended
December 31, 2019
Quarter ended
September 30, 2019
Quarter ended
June 30, 2019
Total investment income $145,229 $154,501 $161,917 $161,883 $164,353
Total operating expenses 86,956 86,025 94,032 90,823 94,726
Net investment income 58,273 68,476 67,885 71,060 69,627
Net realized and unrealized gain (loss)
on investments & extinguishment of debt
104,340 (254,175) (79,088) (52,995) (30,741)
Net increase (decrease) in net assets
resulting from operations
162,613 (185,699) (11,203) 18,065 38,886
Net increase (decrease) in net assets
resulting from operations per share
0.44 (0.51) (0.03) 0.05 0.11
Net investment income per share 0.16 0.19 0.18 0.19 0.19
Distributions per share $0.18 $0.18 $0.18 $0.18 $0.18
Statement of Assets and
Liabilities June 30, 2020 March 31, 2020 December 31, 2019 September 30, 2019 June 30, 2019
Total investments at fair value $5,232,328 $5,144,542 $5,268,545 $5,450,560 $5,653,553
Cash and cash equivalents 44,561 46,646 137,867 106,174 107,098
Total assets 5,300,163 5,217,596 5,432,293 5,585,098 5,800,063
Revolving credit facility borrowings 237,536 165,600 92,000 108,000 167,000
Total liabilities 2,244,302 2,284,221 2,248,428 2,325,325 2,493,788
Net assets 3,055,861 2,933,375 3,183,865 3,259,773 3,306,275
Net asset value per share $8.18 $7.98 $8.66 $8.87 $9.01
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