PROSPECT CAPITAL Q4 FY26 earnings call PSEC

As of June 2026, Prospect Capital's portfolio comprised 91 companies across 31 industries, with an aggregate fair value of $6.3 billion. The company's core focus on middle market lending represented 85% of investments at cost and 91% of originations during the June quarter, primarily in first lien senior secured loans. The middle market portfolio demonstrates superior credit metrics compared to peers, including lower net leverage of 4.9 turns versus 6.1 turns, stronger cash interest coverage of 223% compared to 160%, and a lower annualized net realized loss rate of 20 basis points versus 100 basis points.

The real estate property portfolio, focused on cash flow multifamily investments, constituted 14% of investments at cost. Since its inception in 2012, this strategy has generated a 24% unlevered investment level gross cash IRR and a 2.4x cash-on-cash multiple from nearly 60 exited properties. In the most recent fiscal year, six property exits yielded an 18% IRR and 2.3x multiple. The company plans to redeploy future real estate exit proceeds predominantly into first lien senior secured corporate loans, complemented by selected equity-linked investments.

Management is actively deploying large language models, generative AI, machine learning, and other automation tools across all business segments and investment portfolios, including majority equity-owned companies. These initiatives are projected to drive significant economic upside through profit enhancements, impacting both revenues and costs. The company anticipates tens of millions of dollars in annualized cash flow benefits and a greater multiple-driven value, aiming to be a leader in applying transformative AI tools within its industry.

Prospect Capital maintains a prudent leverage profile, with a net debt to total assets ratio of 28.6% as of June 30, 2026. The balance sheet is characterized by diversified access to matched book funding, a substantial portion of unencumbered assets totaling $4.2 billion (66% of the portfolio), and a strategic weighting towards unsecured fixed-rate debt. Combined cash and undrawn revolving credit facility commitments stood at $1.6 billion as of June, prior to the Valley Electric sale, underscoring robust liquidity.

The company has strategically laddered its liabilities, extending maturities 25 years into the future through 2052. This includes a successful institutional issuance of approximately $168 million in senior unsecured 5.5% notes due 2030. Prospect's $2.12 billion revolving credit facility, supported by 48 banks, matures in June 2029 and revolves until June 2028, with drawn pricing at SOFR plus 2.05%. The weighted average cost of unsecured debt financing was 4.78% at June 30, 2026.