Prospect Capital Q4 2025 Earnings Report

Prospect Capital EPS Results

• Actual EPS: $0.17
• Consensus EPS: $0.13
• Beat/Miss: Beat by +$0.04
• One Year Ago EPS: N/A

Prospect Capital Revenue Results

• Actual Revenue: $166.95 million
• Expected Revenue: $167.08 million
• Beat/Miss: Missed by -$134.00 thousand
• YoY Revenue Growth: N/A

Prospect Capital Announcement Details

• Quarter: Q4 2025
• Date: 8/26/2025
• Time: After Market Closes
• Conference Call Date: Wednesday, August 27, 2025
• Conference Call Time: 9:00AM ET

Prospect Capital (NASDAQ:PSEC) is a publicly traded business development company listed on the Nasdaq stock exchange that specializes in providing private debt and equity financing solutions to middle-market companies across the United States. Structured as a closed-end, non-diversified management investment company under the Investment Company Act of 1940, Prospect Capital offers investors access to a diversified portfolio of senior secured loans, subordinated debt and selective equity interests in privately held businesses.

Since its founding in 2004, Prospect Capital has focused on tailoring financing structures to meet the growth, acquisition and recapitalization needs of its portfolio companies. The firm’s lending strategies include first lien senior secured loans, second lien loans and mezzanine debt, while its opportunistic equity investments allow participation in potential upside. As an externally managed vehicle, Prospect Capital leverages the resources and investment capabilities of its advisor, Prospect Capital Management, L.P., to execute sourcing, underwriting and portfolio monitoring activities.

Headquartered in New York City, Prospect Capital serves U.S.-based businesses operating in a broad range of industries, including manufacturing, business services, healthcare, energy and technology. By targeting established companies with proven cash flows and experienced management teams, the firm seeks to deliver financing solutions that may not be readily available from traditional lenders, helping clients achieve strategic objectives and navigate transitional periods.

The company’s leadership is spearheaded by Joseph R. Idzfenco, President and Chief Executive Officer, who brings extensive experience in private credit and investment management. Under his direction, a seasoned investment team employs a disciplined underwriting process and active portfolio oversight to pursue stable, risk-adjusted returns for shareholders. Through deep industry relationships and a commitment to partnership, Prospect Capital aims to foster long-term value creation for both its investors and portfolio companies.

Prospect Capital Q4 2025 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Reported Q4 net investment income of $79 million ($0.17 per share), NAV of $6.56 per share, and announced $0.45 per share distributions for September and October, bringing total distributions since IPO to $4.6 billion.
• Positive Sentiment: Enhanced portfolio quality with first-lien senior secured middle-market loans rising to 70.5% of assets (up 642 bps), while second lien exposure fell to 14.4% and subordinated notes were nearly exited at 0.6%.
• Positive Sentiment: Delivered strong long-term performance, investing $12.6 billion across 350+ exits for a 12% unlevered gross IRR, and realizing a 24% IRR and 2.4× cash multiple on 52 real estate properties.
• Positive Sentiment: Generated a 12.2% yield on performing investments in the quarter (95% of total income), reduced PIK income by over 50%, and maintained non-accruals at just 0.3% of assets.
• Positive Sentiment: Maintained strong liquidity and funding diversity with $1.3 billion in cash and undrawn revolver, $4.2 billion of unencumbered assets (62% of portfolio), and $2.12 billion in bank commitments, with liabilities laddered through 2052 and no debt covenants.

Presentation

[Operator]

Good day, and welcome to the Prospect Capital Fourth Quarter and Fiscal Year End Earnings Release and Conference Call. All participants will be in a listen only mode. Please note this event is being recorded. I would now like to turn the conference over to Mr. John Barry, Chairman and CEO. Please go ahead.

[John Francis Barry, CEO & Chairman of Board at Prospect Capital]

Thank you, Betsy. Joining me on the call today are Grier Isaac, our President and Chief Operating Officer and Kristin Van Dask, our Chief Financial Officer. Kristin?

[Kristin Van Dask, CFO, Treasurer, Secretary & Chief Compliance Officer at Prospect Capital]

Thanks, John. This call contains forward looking statements that are intended to be subject to safe harbor protection. Future results are highly likely to vary materially. We do not undertake to update our forward looking statements. For additional disclosure, see our earnings press release and 10 ks filed previously and available on our website, prospectstreet.com. Now I'll turn the call back over to John.

[John Francis Barry, CEO & Chairman of Board at Prospect Capital]

Thank you, Kristen. In the June, our net investment income or NII was $79,000,000.00 $17 per common share. Our NAV was $3000000000.6.56 dollars per common share. At June 30, our net debt to total assets ratio was 30.4. Unsecured debt plus unsecured preferred is 77.1% of total debt plus preferred.

[John Francis Barry, CEO & Chairman of Board at Prospect Capital]

We are announcing monthly common shareholder distributions of $0.45 per share for each of September and October. We plan on announcing our next set of shareholder distributions in November. Since our IPO twenty years ago through October 2025 declared distribution, we will have distributed approximately $4,600,000,000 or $21.66 per share. Our preferred shareholder cash distributions continue at their contract rates. We continue to make progress repositioning our business including rotation of assets into an increased focus on our core business of first lien senior secured middle market loans with our first lien mix increasing six forty two basis points to 70.5% from last year.

[John Francis Barry, CEO & Chairman of Board at Prospect Capital]

This rotation includes selected equity linked investments. For new investments, we are focusing on companies with less than $50,000,000 of EBITDA, a market with more than 200,000 companies in The United States, including companies sponsored by smaller private equity sponsors, independent sponsors and direct loans to companies without financial sponsors. Number two, reduction in our second lien senior secured middle market loans with our second lien mix decreasing two zero two basis points to 14.4% from last year and with two additional second lien loans having been repaid since 06/30/2025, further reducing our second lien mix 69 basis points to 13.7% based on the investment portfolio as of 06/30/2025. Number three, selling our subordinated structure notes. With our subordinated structure notes, mix decreasing seven eighty one basis points to 0.6% from last year.

[John Francis Barry, CEO & Chairman of Board at Prospect Capital]

Number four, prudent exits of equity linked assets including real estate with six properties sold in the last six quarters and corporate investments, including the sale of Echelon assets in July 2025 with extra exits targeted. Number five, enhancement of portfolio company operations. And number six, greater utilization of our cost efficient floating rate revolver, which largely matches our floating rate assets. Thank you. I will now turn the call over to Greer.

[M. Grier Eliasek, President & COO at Prospect Capital]

Thank you, John. Over the past two decades, Prospect Capital Corporation has invested $12,600,000,000 in over three fifty exited investments that have earned a 12% unlevered investment level gross cash IRR to Prospect Capital Corporation. This over two decade time period includes the GFC and has been dominated in general by low prevailing market interest rates. As of June 2025, we held 97 portfolio companies across 33 different industries with an aggregate fair value of $6,700,000,000 For the June, our portfolio at cost comprised seventy point five percent first lien debt, up six forty two basis points in the prior year, fourteen point four percent second lien debt, almost entirely secured, down two zero two basis points from the prior year, 0.6% subordinated structured notes with underlying secured first lien collateral, down seven eighty one basis points in the prior year and nearly completely exited and 14.5% unsecured debt in equity investments, resulting in 85% of our investments being senior and secured debt. Our middle market lending strategy is the primary focus of our company, with such strategy as of June representing 85% of our investments at cost, an increase of eight seventy eight basis points in the prior year.

[M. Grier Eliasek, President & COO at Prospect Capital]

In our middle market core lending strategy, we continue our focus on first lien senior secured loans during the quarter with such investments totaling $167,000,000 of originations during the quarter. Investments during the quarter included a new investment in Verified Diagnostics, a provider of advanced molecular diagnostic testing, a new investment in QC Holdings, a provider of consumer credit and other follow on investments in existing portfolio companies to support acquisitions, working capital needs, organic growth initiatives and other objectives. We've substantially completed the exit of our subordinated structured notes portfolio as of June 30, with such portfolio representing 0.6 of our investment portfolio at cost, representing a reduction of seven eighty one basis points from 8.4% the prior year. In our real estate property portfolio at National Property REIT Corp, or NPRC, which represented 14% of our investments at cost as of June and which is focused on developed and occupied cash flow multifamily investments. Since the inception of this strategy in 2012 and through 06/30/2025, we've exited 52 property investments that have earned an unlevered investment level gross cash IRR of 24% and cash on cash multiple of 2.4 times.

[M. Grier Eliasek, President & COO at Prospect Capital]

The remaining real estate property portfolio included 58 properties that paid us an income yield of 4.5% for the June. Prospect's aggregate investments in NPRC included a $378,000,000 unrealized gain as of June. We expect to continue to redeploy future asset sale proceeds primarily into first lien senior secured middle market loans. Prospect's approach is one that generates attractive risk adjusted yields. In our performing interest bearing investments, we're generating an annualized yield of 12.2% for the quarter ended June 2025.

[M. Grier Eliasek, President & COO at Prospect Capital]

Our interest income in the June quarter was 95% of total investment income, reflecting a strong recurring revenue profile for our business. Payment in kind income for the quarter ended June 2025 was reduced by over 50% from the quarter ended June 2024. Non accruals as a percentage of total assets as of June 2025 stood at approximately 0.3% based on fair market value and 4% based on cost, representing a reduction from the prior quarter of 30 basis and 65 basis points respectively. Investment originations in the June aggregated $271,000,000 and were comprised with 91% middle market investment with a significant majority of first lien senior secured loans. We also experienced $445,000,000 of repayments and exits as a validation of our capital preservation objective, resulting in net repayments of $174,000,000 Thank you. I'll now turn the call over to Kristin. Kristin?

[Kristin Van Dask, CFO, Treasurer, Secretary & Chief Compliance Officer at Prospect Capital]

Thanks, Greer. We believe our prudent leverage, diversified access to matched book funding, substantial majority of unencumbered assets, weighting toward unsecured fixed rate debt and avoidance of unfunded asset commitments all demonstrate balance sheet strength as well as substantial liquidity to capitalize on attractive opportunities. Our company has locked in a ladder of liabilities extending twenty six years into the future. Our unfunded eligible commitments to portfolio companies totals approximately $41,000,000 of which $16,000,000 are considered at our sole discretion, representing approximately 0.60.2% of our total assets as of June 2025, respectively. Our combined balance sheet cash and undrawn revolving credit facility commitments stood at $1,300,000,000 as of June, and we held $4,200,000,000 of our assets as unencumbered assets, representing approximately 62% of our portfolio.

[Kristin Van Dask, CFO, Treasurer, Secretary & Chief Compliance Officer at Prospect Capital]

The remaining assets are pledged to Prospect Capital Funding, a nonrecourse SPV. We currently have $2,120,000,000 of commitments from 48 banks, demonstrating strong support of our company from the lender community with a diversity unmatched by any other company in our industry. The facility does not mature until 2029 and revolves until 2028. Our drawn pricing continues to be SOFR plus 2.05 percent. Outside of our revolver, we have access to diversified funding sources across multiple investor types and have successfully issued securities in an array of markets.

[Kristin Van Dask, CFO, Treasurer, Secretary & Chief Compliance Officer at Prospect Capital]

Prospect has issued multiple types of unsecured debt, institutional non convertible bonds, institutional convertible bonds, retail baby bonds and retail program notes. All of these types of unsecured debt have no financial covenants, no asset restrictions and no cross defaults with our revolver. We've tapped the unsecured term debt market on multiple occasions to ladder our maturities and to extend our liability duration out twenty six years with our debt maturities extending through two thousand and fifty two. With so many banks and debt investors across so many unsecured and nonrecourse debt tranches, we have substantially reduced our counterparty risk. At 06/30/2025, our weighted average cost of unsecured debt financing was 4.52%. Now I'll turn the call back over to John.

[John Francis Barry, CEO & Chairman of Board at Prospect Capital]

Okay. We're ready to take questions.

[Operator]

We will now begin the question and answer session. The first question today comes from Finian O'Shea with Wells Fargo. Please go ahead.

[Finian O'shea, Director - WFS Research at Wells Fargo Securities]

Hey, everyone. Good morning. We wanted to ask about the REIT. You've seen industry challenges in multifamily, both on inflation hitting OpEx and it's also been hard to raise rents to our understanding. Where do you think we are in terms of getting through those headwinds and seeing if you could give some outlook for the income trajectory, if it should improve sooner or later or if today's income rate is sort of appropriate to model out? Thanks.

[M. Grier Eliasek, President & COO at Prospect Capital]

Thank you, Finian. I think you articulated many of the prior headwinds within multifamily, but we're seeing a substantial turning the corner occur in our portfolio. And I'll take each of those in turn. First, it's widely diversified from a geographic standpoint. Many of our assets are located in areas in the Midwest and Mid Atlantic or more sort of tertiary areas of the Sunbelt, which weren't as targeted for development and actually have some fairly healthy rent growth.

[M. Grier Eliasek, President & COO at Prospect Capital]

For certain assets in larger cities in the Sunbelt, where there were supply additions in the market in the last few years, that is now abating substantially. There's a lag effect for new development. So developments that were started prior to 2022 when rates shot up, didn't get completed until 2023, 2024, even a little bit at the beginning of 2025. Now much of that new supply has ground to a halt because of higher interest rates and higher development costs, which is very good for incumbent landlords like in our portfolio. That's on the revenue, rents and occupancy side.

[M. Grier Eliasek, President & COO at Prospect Capital]

In terms of the cost equation, we've seen a significant slowdown in inflation, property taxes, insurance and payroll and all of that is quite favorable. Our book has had a like for like sort of same property net operating income increase of 7% in the last year. And we anticipate that accelerating to double digit growth going forward. We are strategically focused as a middle market first lien senior secured lender. Real estate is substantially lower yielding than our middle market book.

[M. Grier Eliasek, President & COO at Prospect Capital]

We are selectively exiting investments at a value maximizing price over time in a careful and prudent way. Of course, if we expect substantial NOI growth in certain properties, it may make sense to exit in a year or two as opposed to this second. It also makes sense to exit in a methodical bottoms up singular asset or mini portfolio way to maximize buyer interest. There are a lot fewer buyers that can stroke $1,000,000,000 check plus for the entire portfolio compared to ones that can buy individual assets or many portfolio. So we're very pleased with the direction of our real estate business.

[M. Grier Eliasek, President & COO at Prospect Capital]

We view the rotation from that 4.5% yielding a part of our book into middle market senior secured loans as a huge value driver for our business. Our last 10 or so deals in the middle market, which have been focused, as John mentioned, on sub-fifty million dollars EBITDA companies have had an average spread of around $750,000,000 and an average floor of 300 basis points. So we're talking about double digit yields in an all weather fashion, even if rates get cut to zero or near zero where they were only three point five years ago. So we've been resisting the upper middle market urge to jump into deals with tight spreads, with loose covenants, with lender liability management exercises, low to no floors, no maintenance covenants, significant problems. And we're staying away from those Wall Street ask or larger club deals where so much capital has been focused.

[M. Grier Eliasek, President & COO at Prospect Capital]

There's maybe 230,000 middle market companies, between 5,000,000 and $150,000,000 of EBITDA. The upper middle market where there's so many problems in the 50,000,000 to 150,000,000 range has only about 10,000 of those companies and the other $220,000 are sub-fifty million That's where we're focused. They're harder deals to originate, to underwrite, to close, but we originate thousands of deals per annum and have a low 0.5% book to look ratio with our 150 person strong team. So we're well equipped to do that. We've already unlocked value and streamlined and simplified our business by exiting our CLO book.

[M. Grier Eliasek, President & COO at Prospect Capital]

You're not seeing this company message itself as we have in the past as a multiline player. We are focused on middle market lending, first lien senior secured with a portion of our assets from time to time purchasing selected equity that in many cases is highly synergistic with our debt and helps to command better debt terms, plus of course give us upside in many cases without trade offs through warrants, through convertible debt and other types of liquidation preference, security attached to our position. So that's what we're doing strategically and as it relates to real estate, Finian.

[Finian O'shea, Director - WFS Research at Wells Fargo Securities]

That's very helpful. Appreciate all the color. That's all for me. Thank you.

[M. Grier Eliasek, President & COO at Prospect Capital]

Thank you.

[John Francis Barry, CEO & Chairman of Board at Prospect Capital]

Thank you, Finian.

[Operator]

This concludes our question and answer session. I would like to turn the conference back over for any closing remarks.

[John Francis Barry, CEO & Chairman of Board at Prospect Capital]

Okay. Well, there are my closing remarks right there. Thank you everyone. Have a wonderful afternoon. Bye now.

[Operator]

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

Participants

Executives

• John Francis Barry, CEO & Chairman of Board
• Kristin Van Dask, CFO, Treasurer, Secretary & Chief Compliance Officer
• M. Grier Eliasek, President & COO

Analysts

• Finian O'shea, Director - WFS Research at Wells Fargo Securities