Kroll Bond Rating Agency (KBRA) assigns a BBB rating to Prospect Capital Corporations (PSEC) $100 million 6.375% senior unsecured notes maturing January 15, 2024 (the Notes). The Outlook is Negative. PSEC expects to use the proceeds to paydown a portion of its outstanding bank loans, repurchase existing unsecured notes and for near term investment opportunities. The Notes rank equally with existing and future senior unsecured notes issued by PSEC.
Formed in 2004, Prospect Capital Corporation is the second largest publicly traded business development company with a $5.7 billion investment portfolio as of June 30, 2018. Prospect Capital is externally managed by its investment adviser, Prospect Capital Management. PSEC invests primarily in senior secured loans of private middle-market companies. Relative to its peers, PSEC maintains a high concentration of CLO and equity investments at 33.4% of total investments as of June 30, 2018. The Company has experienced a continued decline in net interest income stemming from high prepayments in both CLOs and secured debt investments as well as overall margin compression in the current market.
Counter-balancing these credit negatives is KBRAs view that PSECs overall market position within the broader network of competitors is favorable as the second largest publicly traded BDC with an investment portfolio valued at roughly $5.7 billion. Furthermore, the Company is focused on underwriting senior secured debt investments, has a strong and stable management team and has adequate leverage metrics that are below the BDC regulatory limits at 0.68 times.
The rating is based on KBRAs Global Finance Company Rating Methodology, published November 28, 2017.
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Riggi, Senior Managing Director