PROSPECT CAPITAL CORP - FORM 10-Q - November 6, 2014

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
ý
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2014
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 Commission File Number: 814-00659 
PROSPECT CAPITAL CORPORATION
(Exact name of Registrant as specified in its charter)
Maryland
43-2048643
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
10 East 40th Street, 42nd Floor
 
New York, New York
10016
(Address of principal executive offices)
(Zip Code)
Registrant's telephone number, including area code: (212) 448-0702
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). Yes o    No o
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer ý
Accelerated filer o
Non-accelerated filer o
Smaller reporting company o
 (Do not check if a smaller reporting company)
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o    No ý
Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date.
Class of Common Stock
 
Outstanding at November 5, 2014
$0.001 par value
 
352,597,291


PROSPECT CAPITAL CORPORATION
Table of Contents
 
 
Page
 
PART I
FINANCIAL INFORMATION
 
 
 
 
 
 
 
PART II
OTHER INFORMATION
 
 


FORWARD-LOOKING STATEMENTS
This report contains information that may constitute "forward-looking statements." Generally, the words "believe," "expect," "intend," "estimate," "anticipate," "project," "will" and similar expressions identify forward-looking statements, which generally are not historical in nature. However, the absence of these words or similar expressions does not mean that a statement is not forward-looking. All statements that address operating performance, events or developments that we expect or anticipate will occur in the future—including statements relating to volume growth, share of sales and earnings per share growth, and statements expressing general views about future operating results—are forward-looking statements. Management believes that these forward-looking statements are reasonable as and when made. However, caution should be taken not to place undue reliance on any such forward-looking statements because such statements speak only as of the date when made. Our Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. In addition, forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our Company's historical experience and our present expectations or projections. These risks and uncertainties include, but are not limited to, those described in Part II, "Item 1A. Risk Factors" and elsewhere in this report and in our Annual Report on Form 10-K for the year ended June 30, 2014, and those described from time to time in our future reports filed with the Securities and Exchange Commission.


PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES
(in thousands, except share and per share data)
 
September 30, 2014
 
June 30, 2014
 
(Unaudited)
 
(Audited)
Assets
 

 
 

Investments at fair value:
 

 
 

Control investments (amortized cost of $1,721,493 and $1,719,242, respectively)
$
1,659,997

 
$
1,640,454

Affiliate investments (amortized cost of $46,659 and $31,829, respectively)
46,456

 
32,121

Non-control/non-affiliate investments (amortized cost of $4,590,568 and $4,620,451, respectively)
4,547,040

 
4,581,164

Total investments at fair value (amortized cost of $6,358,720 and $6,371,522, respectively)
6,253,493

 
6,253,739

Cash and cash equivalents
488,106

 
134,225

Receivables for:
 
 
 
Interest, net
20,523

 
21,997

Other
2,765

 
2,587

Prepaid expenses
2,805

 
2,828

Deferred financing costs
65,373

 
61,893

Total Assets 
6,833,065

 
6,477,269

 
 
 
 
Liabilities 
 

 
 

Revolving Credit Facility (Notes 4 and 8)
411,000

 
92,000

Convertible Notes (Notes 5 and 8)
1,247,500

 
1,247,500

Public Notes (Notes 6 and 8)
647,950

 
647,881

Prospect Capital InterNotes® (Notes 7 and 8)
784,305

 
785,670

Due to broker
1,787

 
—

Dividends payable
38,518

 
37,843

Due to Prospect Administration (Note 13)
2,272

 
2,208

Due to Prospect Capital Management (Note 13)
3,915

 
3

Accrued expenses
5,877

 
4,790

Interest payable
35,950

 
37,459

Other liabilities
6,232

 
3,733

Total Liabilities 
3,185,306

 
2,859,087

Net Assets 
$
3,647,759

 
$
3,618,182

 
 
 
 
Components of Net Assets 
 

 
 

Common stock, par value $0.001 per share (1,000,000,000 common shares authorized; 348,504,375 and 342,626,637 issued and outstanding, respectively) (Note 9)
$
349

 
$
343

Paid-in capital in excess of par (Note 9)
3,883,527

 
3,814,634

Undistributed net investment income
17,966

 
42,086

Accumulated realized losses on investments
(148,856
)
 
(121,098
)
Unrealized depreciation on investments
(105,227
)
 
(117,783
)
Net Assets 
$
3,647,759

 
$
3,618,182

 
 
 
 
Net Asset Value Per Share (Note 16) 
$
10.47

 
$
10.56



2
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
(Unaudited)

 
Three Months Ended September 30,
 
2014
 
2013
Investment Income
 

 
 

Interest income:
 

 
 

Control investments
$
45,128

 
$
32,633

Affiliate investments
837

 
1,496

Non-control/non-affiliate investments
98,778

 
78,112

CLO fund securities
39,397

 
26,180

Total interest income
184,140

 
138,421

Dividend income:
 
 
 
Control investments
759

 
7,075

Affiliate investments
1,429

 
—

Non-control/non-affiliate investments
22

 
3

Money market funds
15

 
11

Total dividend income
2,225

 
7,089

Other income:
 
 
 
Control investments
5,663

 
9,221

Affiliate investments
226

 
2

Non-control/non-affiliate investments
9,767

 
6,301

Total other income (Note 10)
15,656

 
15,524

Total Investment Income
202,021

 
161,034

 
 
 
 
Operating Expenses
 
 
 
Investment advisory fees:
 
 
 
Base management fee (Note 13)
33,165

 
23,045

Income incentive fee (Note 13)
23,616

 
20,584

Total investment advisory fees
56,781

 
43,629

Interest and credit facility expenses
42,914

 
27,407

Legal fees
1,163

 
219

Valuation services
450

 
439

Audit, compliance and tax related fees
667

 
623

Allocation of overhead from Prospect Administration (Note 13)
2,416

 
3,986

Insurance expense
131

 
93

Directors’ fees
94

 
75

Excise tax
—

 
1,000

Other general and administrative expenses
2,942

 
1,226

Total Operating Expenses
107,558

 
78,697

Net Investment Income
94,463

 
82,337

 
 
 
 
Net realized (loss) gain on investments
(22,911
)
 
3,789

Net change in unrealized appreciation (depreciation) on investments
12,556

 
(6,226
)
Net Increase in Net Assets Resulting from Operations
$
84,108

 
$
79,900

 
 
 
 
Net increase in net assets resulting from operations per share
$
0.24

 
$
0.31

Dividends declared per share
$
(0.33
)
 
$
(0.33
)


See notes to consolidated financial statements.
3

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
(in thousands, except share data)
(Unaudited)

 
Three Months Ended September 30,
 
2014
 
2013
Operations
 

 
 

Net investment income
$
94,463

 
$
82,337

Net realized (loss) gain on investments
(22,911
)
 
3,789

Net change in unrealized appreciation (depreciation) on investments
12,556

 
(6,226
)
Net Increase in Net Assets Resulting from Operations 
84,108

 
79,900

 
 
 
 
Distributions to Shareholders
 
 
 
Distribution from net investment income
(114,266
)
 
(86,676
)
Distribution of return of capital
—

 
—

Net Decrease in Net Assets Resulting from Distributions to Shareholders
(114,266
)
 
(86,676
)
 
 
 
 
Common Stock Transactions 
 
 
 
Issuance of common stock, net of underwriting costs
56,305

 
235,830

Less: Offering costs from issuance of common stock
(210
)
 
(793
)
Value of shares issued to acquire controlled investments
—

 
21,006

Value of shares issued through reinvestment of dividends
3,640

 
3,994

Net Increase in Net Assets Resulting from Common Stock Transactions 
59,735

 
260,037

 
 
 
 
Total Increase in Net Assets 
29,577

 
253,261

Net assets at beginning of period
3,618,182

 
2,656,494

Net Assets at End of Period
$
3,647,759

 
$
2,909,755

 
 
 
 
Common Stock Activity
 
 
 
Shares sold
5,536,780

 
21,293,338

Shares issued to acquire controlled investments
—

 
1,918,342

Shares issued through reinvestment of dividends
340,958

 
355,644

Total shares issued due to common stock activity
5,877,738

 
23,567,324

Shares issued and outstanding at beginning of period
342,626,637

 
247,836,965

Shares Issued and Outstanding at End of Period
348,504,375

 
271,404,289

 


See notes to consolidated financial statements.
4

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, except share data)
(Unaudited)


 
Three Months Ended September 30,
 
2014
 
2013
Operating Activities
 
 
 
Net increase in net assets resulting from operations
$
84,108

 
$
79,900

Net realized loss (gain) on investments
22,911

 
(3,789
)
Net change in unrealized (appreciation) depreciation on investments
(12,556
)
 
6,226

Amortization of discounts and premiums, net
13,952

 
9,954

Accretion of discount on Public Notes (Note 6)
69

 
36

Amortization of deferred financing costs
3,829

 
2,435

Payment-in-kind interest
(5,887
)
 
(4,581
)
Structuring fees
(10,515
)
 
(8,660
)
Change in operating assets and liabilities:
 
 
 
Payments for purchases of investments
(870,803
)
 
(522,595
)
Proceeds from sale of investments and collection of investment principal
863,144

 
164,167

Decrease in interest receivable, net
1,474

 
1,393

(Increase) decrease in other receivables
(178
)
 
2,402

Decrease in prepaid expenses
23

 
158

Increase in due to broker
1,787

 
44,074

Increase (decrease) in due to Prospect Administration
64

 
(1,311
)
Increase (decrease) in due to Prospect Capital Management
3,912

 
(3,590
)
Increase in accrued expenses
1,087

 
655

Decrease in interest payable
(1,509
)
 
(5,697
)
Increase in other liabilities
2,499

 
2,108

Net Cash Used in Operating Activities 
97,411

 
(236,715
)
 
 
 
 
Financing Activities
 
 
 
Borrowings under Revolving Credit Facility (Note 4)
547,000

 
96,000

Principal payments under Revolving Credit Facility (Note 4)
(228,000
)
 
(151,000
)
Issuance of Prospect Capital InterNotes® (Note 7)
—

 
98,255

Redemptions of Prospect Capital InterNotes® (Note 7)
(1,365
)
 
(55
)
Financing costs paid and deferred
(7,309
)
 
(2,300
)
Proceeds from issuance of common stock, net of underwriting costs
56,305

 
235,830

Offering costs from issuance of common stock
(210
)
 
(793
)
Dividends paid
(109,951
)
 
(80,064
)
Net Cash Provided by Financing Activities
256,470

 
195,873

 
 
 
 
Total Increase (Decrease) in Cash and Cash Equivalents
353,881

 
(40,842
)
Cash and cash equivalents at beginning of period
134,225

 
203,236

Cash and Cash Equivalents at End of Period
$
488,106

 
$
162,394

 
 
 
 
Supplemental Disclosures
 
 
 
Cash paid for interest
$
40,524

 
$
30,165

 
 
 
 
Non-Cash Financing Activities
 
 
 
Value of shares issued through reinvestment of dividends
$
3,640

 
$
3,994

Value of shares issued to acquire controlled investments
$
—

 
$
21,006

 

See notes to consolidated financial statements.
5

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS
(in thousands, except share data)


 
 
 
September 30, 2014 (Unaudited)
Portfolio Company
Locale / Industry
Investments(1)
Principal Value
Cost
Fair
Value(2)
% of Net Assets
 
 
 
 
 
 
 
LEVEL 3 PORTFOLIO INVESTMENTS
 
 
 
 
 
 
 
 
 
 
 
Control Investments (greater than 25.00% voting control)(44)
 
 
 
 
 
 
 
 
 
 
 
American Property
REIT Corp.(32)
Various /
Real Estate
Senior Term Loan (6.00% (LIBOR + 4.00% with 2.00% LIBOR floor) plus 5.50% PIK, due 4/1/2019)(4)
$
169,511

$
169,511

$
169,511

4.6%
Common Stock (272,116 shares)
 
35,006

28,178

0.8%
 
 
 
 
204,517

197,689

5.4%
Arctic Energy
Services, LLC(30)
Wyoming / Oil & Gas Production
Senior Secured Term Loan (12.00% (LIBOR + 9.00% with 3.00% LIBOR floor), due 5/5/2019)(3)(4)
31,640

31,640

31,640

0.9%
Senior Subordinated Term Loan (14.00% (LIBOR + 11.00% with 3.00% LIBOR floor), due 5/5/2019)(3)(4)
20,230

20,230

20,230

0.5%
Class A Units (700 units)
 
9,006

9,505

0.3%
 
 
 
 
60,876

61,375

1.7%
ARRM Services, Inc.(42)
South Carolina / Manufacturing
Senior Secured Note to Ajax Rolled Ring & Machine, LLC (10.50% (LIBOR + 7.50% with 3.00% LIBOR floor), due 3/30/2018)(4)
19,337

19,337

19,337

0.5%
Series B Preferred Stock (25,000 shares)
 
21,156

9,399

0.3%
Series A Convertible Preferred Stock (6,142.60 shares)
 
6,057

—

—%
Common Stock (6.00 shares)
 
—

—

—%
 
 
 
 
46,550

28,736

0.8%
CCPI Inc.(33)
Ohio / Manufacturing
Senior Secured Term Loan A (10.00%, due 12/31/2017)(3)
17,100

17,100

17,100

0.5%
Senior Secured Term Loan B (12.00% plus 7.00% PIK, due 12/31/2017)
8,390

8,390

8,390

0.2%
Common Stock (14,857 shares)
 
8,553

7,143

0.2%
 
 
 
 
34,043

32,633

0.9%
Change Clean Energy Company, LLC(8)
Maine / Energy
Membership Interest (100%)
 
—

—

—%
 
 
 
 
—

—

—%
Coalbed, LLC(12)
Tennessee / Oil & Gas Production
Senior Secured Note (8.00%, in non-accrual status effective 1/19/2010, past due)(6)
8,771

5,991

—

—%
Membership Interest (100%)
 
—

—

—%
 
 
 
 
5,991

—

—%
CP Energy
Services Inc.(38)
Oklahoma / Oil & Gas Production
Senior Secured Term Loan A to CP Well Testing, LLC (7.00% (LIBOR + 5.00% with 2.00% LIBOR floor), due 4/1/2019)(4)
11,035

11,035

11,035

0.3%
Senior Secured Term Loan B to CP Well Testing, LLC (10.00% (LIBOR + 8.00% with 2.00% LIBOR floor) plus 7.50% PIK, due 4/1/2019)(4)
72,238

72,238

72,238

2.0%
Second Lien Term Loan to CP Well Testing, LLC (9.00% (LIBOR + 7.00% with 2.00% LIBOR floor) plus 9.00% PIK, due 4/1/2019)(4)
15,000

15,000

15,000

0.4%
Common Stock (2,924 shares)
 
15,227

30,913

0.8%
 
 
 
 
113,500

129,186

3.5%
Credit Central Loan
Company, LLC(22)(34)
Ohio / Consumer Finance
Subordinated Term Loan (10.00% plus 10.00% PIK, due 6/26/2019)
36,333

36,333

36,333

1.0%
Class A Shares (7,500,000 shares)
 
11,632

10,548

0.3%
 
 
 
 
47,965

46,881

1.3%
Echelon Aviation LLC
New York / Aerospace & Defense
Senior Secured Revolving Credit Facility – $150,000 Commitment (11.75% (LIBOR + 9.75% with 2.00% LIBOR floor) plus 2.25% PIK, due 3/31/2022)(4)(25)
40,808

40,808

40,808

1.1%
Class A Shares (11,335,318 shares)
 
19,907

10,896

0.3%
 
 
 
 
60,715

51,704

1.4%

See notes to consolidated financial statements.
6

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)
(in thousands, except share data)

 
 
 
September 30, 2014 (Unaudited)
Portfolio Company
Locale / Industry
Investments(1)
Principal Value
Cost
Fair
Value(2)
% of Net Assets
 
 
 
 
 
 
 
LEVEL 3 PORTFOLIO INVESTMENTS
 
 
 
 
 
 
 
 
 
 
 
Control Investments (greater than 25.00% voting control)(44)
 
 
 
 
 
 
 
 
 
 
 
First Tower Finance Company LLC(22)(29)
Mississippi / Consumer Finance
Subordinated Term Loan to First Tower, LLC (10.00% plus 7.00% PIK, due 6/24/2019)
$
251,246

$
251,246

$
251,246

6.9%
Class A Shares (83,729,323 shares)
 
64,544

73,729

2.0%
 
 
 
 
315,790

324,975

8.9%
Freedom Marine Solutions, LLC(8)
Louisiana / Energy
Senior Secured Note to Vessel Company, LLC (18.00%, due 12/12/2016)
3,500

3,500

3,500

0.1%
Senior Secured Note to Vessel Company II, LLC (13.00%, due 11/25/2018)
13,000

12,504

12,504

0.3%
Senior Secured Note to Vessel Company III, LLC (13.00%, due 12/3/2018)
16,000

16,000

16,000

0.4%
Membership Interest (100%)
 
7,807

2,905

0.1%
 
 
 
 
39,811

34,909

0.9%
Gulf Coast Machine & Supply Company
Texas / Manufacturing
Senior Secured Term Loan (10.50% (LIBOR + 8.50% with 2.00% LIBOR floor), due 10/12/2017)(4)
19,500

19,500

13,674

0.4%
Series A Convertible Preferred Stock (99,900 shares)
 
25,950

—

—%
 
 
 
 
45,450

13,674

0.4%
Harbortouch
Payments, LLC(43)
Pennsylvania / Business Services
Senior Secured Term Loan A (9.00% (LIBOR + 7.00% with 2.00% LIBOR floor), due 9/30/2017)(4)
130,589

130,589

130,589

3.6%
Senior Secured Term Loan B (5.50% (LIBOR + 4.00% with 1.50% LIBOR floor) plus 5.50% PIK, due 3/31/2018)(4)
137,226

137,226

137,226

3.8%
Senior Secured Term Loan C (13.00% (LIBOR + 9.00% with 4.00% LIBOR floor), due 9/29/2018)(4)
26,431

26,431

26,431

0.7%
Class A Shares (535 shares)
 
7,489

24,005

0.6%
 
 
 
 
301,735

318,251

8.7%
The Healing Staff, Inc.(9)
North Carolina / Contracting
Secured Promissory Notes to The Healing Staff, Inc. and Vets Securing America, Inc. (15.00%, in non-accrual status effective 12/22/2010, past due)
1,688

1,687

—

—%
Senior Demand Note to The Healing Staff, Inc. (15.00%, in non-accrual status effective 11/1/2010, past due)
1,170

1,170

—

—%
Common Stock of The Healing Staff, Inc. (1,000 shares)
 
—

—

—%
Common Stock of Vets Securing America, Inc. (1 share)
 
975

—

—%
 
 
 
 
3,832

—

—%
Manx Energy, Inc.(6)(12)
Kansas / Oil & Gas Production
Senior Secured Note (13.00%, in non-accrual status effective 1/19/2010, past due)
50

50

—

—%
Series A-1 Preferred Stock (6,635 shares)
 
—

—

—%
Common Stock (17,082 shares)
 
—

—

—%
 
 
 
 
50

—

—%
MITY, Inc.(17)
Utah / Durable Consumer Products
Revolving Line of Credit – $7,500 Commitment (9.50% (LIBOR + 7.00% with 2.50% LIBOR floor), due 12/23/2014)(4)(25)
500

500

500

—%
Senior Secured Note A (10.00% (LIBOR + 7.00% with 3.00% LIBOR floor), due 3/19/2019)(3)(4)
18,250

18,250

18,250

0.5%
Senior Secured Note B (10.00% (LIBOR + 7.00% with 3.00% LIBOR floor) plus 10.00% PIK, due 3/19/2019)(4)
15,769

15,769

15,769

0.4%
Subordinated Unsecured Note to Broda Enterprises ULC (10.00%, due on demand)
6,593

6,593

6,593

0.2%
Common Stock (42,053 shares)
 
7,456

11,415

0.3%
 
 
 
 
48,568

52,527

1.4%
 
 
 
 
 
 
 

See notes to consolidated financial statements.
7

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)
(in thousands, except share data)

 
 
 
September 30, 2014 (Unaudited)
Portfolio Company
Locale / Industry
Investments(1)
Principal Value
Cost
Fair
Value(2)
% of Net Assets
 
 
 
 
 
 
 
LEVEL 3 PORTFOLIO INVESTMENTS
 
 
 
 
 
 
 
 
 
 
 
Control Investments (greater than 25.00% voting control)(44)
 
 
 
 
 
 
 
 
 
 
 
National Property
REIT Corp.(40)
Various /
Real Estate
Senior Term Loan (6.00% (LIBOR + 4.00% with 2.00% LIBOR floor) plus 5.50% PIK, due 4/1/2019)(4)
$
138,367

$
138,367

$
138,367

3.8%
Common Stock (84,567 shares)
 
26,913

28,463

0.8%
 
 
 
 
165,280

166,830

4.6%
Nationwide Acceptance LLC(22)(36)
Illinois / Consumer Finance
Subordinated Term Loan (10.00% plus 10.00% PIK, due 6/18/2019)
14,820

14,820

14,820

0.4%
Class A Shares (24,029,326 shares)
 
12,248

13,012

0.4%
 
 
 
 
27,068

27,832

0.8%
NMMB, Inc.(24)
New York / Media
Senior Secured Note (14.00%, due 5/6/2016)
3,714

3,714

1,864

0.1%
Senior Secured Note to Armed Forces Communications, Inc. (14.00%, due 5/6/2016)
7,000

7,000

3,514

0.1%
Series A Preferred Stock (7,200 shares)
 
12,486

—

—%
 
 
 
 
23,200

5,378

0.2%
R-V Industries, Inc.
Pennsylvania / Manufacturing
Senior Subordinated Note (10.00% (LIBOR + 9.00% with 1.00% LIBOR floor), due 6/12/2018)(3)(4)
30,411

30,411

30,411

0.8%
Common Stock (545,107 shares)
 
5,087

18,876

0.5%
Warrant (to purchase 200,000 shares of Common Stock, expires 6/30/2017)
 
1,682

6,926

0.2%
 
 
 
 
37,180

56,213

1.5%
United Property
REIT Corp.(41)
Various /
Real Estate
Senior Term Loan (6.00% (LIBOR + 4.00% with 2.00% LIBOR floor) plus 5.50% PIK, due 4/1/2019)(4)
66,704

66,704

66,704

1.8%
Common Stock (70,689 shares)
 
13,421

12,930

0.4%
 
 
 
 
80,125

79,634

2.2%
Valley Electric
Company, Inc.(35)
Washington / Construction & Engineering
Senior Secured Note to Valley Electric Co. of Mt. Vernon, Inc. (8.00% (LIBOR + 5.00% with 3.00% LIBOR floor) plus 2.50% PIK, due 12/31/2017)(3)(4)
10,146

10,146

10,146

0.3%
Senior Secured Note (10.00% plus 8.50% PIK, due 12/31/2018)
20,935

20,935

19,285

0.5%
Common Stock (50,000 shares)
 
26,205

—

—%
 
 
 
 
57,286

29,431

0.8%
Wolf Energy, LLC(12)
Kansas / Oil & Gas Production
Senior Secured Promissory Note secured by assets formerly owned by H&M (18.00%, in non-accrual status effective 4/15/2013, due 4/15/2018)(37)
26,966

—

2,110

0.1%
Membership Interest (100%)
 
512

—

—%
Net Profits Interest (8% of Equity Distributions)(7)
 
—

29

—%
 
 
 
 
512

2,139

0.1%
Yatesville Coal
Company, LLC(8)
Kentucky / Energy
Senior Secured Note (in non-accrual status effective 1/1/2009)
1,449

1,449

—

—%
Membership Interest (100%)
 
—

—

—%
 
 
 
 
1,449

—

—%
Total Control Investments
 
$
1,721,493

$
1,659,997

45.5%
Affiliate Investments (5.00% to 24.99% voting control)(45)
 
 
 
 
 
 
 
 
 
 
 
BNN Holdings Corp.
Michigan / Healthcare
Senior Term Loan A (6.50% (LIBOR + 5.50% with 1.00% LIBOR floor), due 8/29/2019)(3)(4)
21,835

21,835

21,835

0.6%
Senior Term Loan B (11.50% (LIBOR + 10.50% with 1.00% LIBOR floor), due 8/29/2019)(3)(4)
21,945

21,945

21,945

0.6%
Series A Preferred Stock (9,925.455 shares)(13)
 
2,879

2,676

0.1%
Series B Preferred Stock (1,753.636 shares)(13)
 
—

—

—%
 
 
 
 
46,659

46,456

1.3%
Total Affiliate Investments
 
$
46,659

$
46,456

1.3%

See notes to consolidated financial statements.
8

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)
(in thousands, except share data)

 
 
 
September 30, 2014 (Unaudited)
Portfolio Company
Locale / Industry
Investments(1)
Principal Value
Cost
Fair
Value(2)
% of Net Assets
 
 
 
 
 
 
 
LEVEL 3 PORTFOLIO INVESTMENTS
 
 
 
 
 
 
 
 
 
 
 
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
 
 
 
 
 
 
 
 
 
 
 
Aderant North America, Inc.(16)
Georgia / Software & Computer Services
Second Lien Term Loan (10.00% (LIBOR + 8.75% with 1.25% LIBOR floor), due 6/20/2019)(4)
$
7,000

$
6,917

$
7,000

0.2%
 
 
 
 
6,917

7,000

0.2%
AFI Shareholder, LLC
(f/k/a Aircraft Fasteners International, LLC)
California / Machinery
Class A Units (32,500 units)
 
396

498

—%
 
 
 
 
396

498

—%
Airmall Inc.(27)
Pennsylvania / Property Management
Escrow Receivable
 
5,881

3,601

0.1%
 
 
 
 
5,881

3,601

0.1%
ALG USA Holdings, LLC(16)
Pennsylvania / Hotels, Restaurants & Leisure
Second Lien Term Loan (10.25% (LIBOR + 9.00% with 1.25% LIBOR floor), due 2/28/2020)(4)
12,000

11,799

12,000

0.3%
 
 
 
 
11,799

12,000

0.3%
Allied Defense Group, Inc.
Virginia / Aerospace & Defense
Common Stock (10,000 shares)
 
5

—

—%
 
 
 
 
5

—

—%
American Broadband Holding Company and Cameron Holdings of NC, Inc.
North Carolina / Telecommunication Services
Senior Secured Term Loan B (11.00% (LIBOR + 9.75% with 1.25% LIBOR floor), due 9/30/2018)(3)(4)
74,654

74,654

74,654

2.0%
 
 
 
 
74,654

74,654

2.0%
American Gilsonite Company
Utah / Metal Services & Minerals
Second Lien Term Loan (11.50%, due 9/1/2017)
38,500

38,500

38,500

1.1%
Membership Interest (99.9999%)(15)
 
—

4,018

0.1%
 
 
 
 
38,500

42,518

1.2%
Apidos CLO IX(22)
Cayman Islands / Diversified Financial Services
Subordinated Notes (Residual Interest, current yield 17.90%)(11)
20,525

18,324

19,659

0.5%
 
 
 
 
18,324

19,659

0.5%
Apidos CLO XI(22)
Cayman Islands / Diversified Financial Services
Subordinated Notes (Residual Interest, current yield 14.79%)(11)
38,340

33,440

36,790

1.0%
 
 
 
 
33,440

36,790

1.0%
Apidos CLO XII(22)
Cayman Islands / Diversified Financial Services
Subordinated Notes (Residual Interest, current yield 16.16%)(11)
44,063

40,964

42,344

1.2%
 
 
 
 
40,964

42,344

1.2%
Apidos CLO XV(22)
Cayman Islands / Diversified Financial Services
Subordinated Notes (Residual Interest, current yield 14.43%)(11)
36,515

36,403

36,496

1.0%
 
 
 
 
36,403

36,496

1.0%
Arctic Glacier U.S.A., Inc.
Minnesota / Food Products
Second Lien Term Loan (10.50% (LIBOR + 9.25% with 1.25% LIBOR floor), due 11/10/2019)(3)(4)
150,000

150,000

150,000

4.1%
 
 
 
 
150,000

150,000

4.1%
Ark-La-Tex Wireline Services, LLC
Louisiana / Oil and Gas Production
Senior Secured Term Loan A (6.50% (LIBOR + 5.50% with 1.00% LIBOR floor), due 4/8/2019)(4)
26,831

26,831

26,831

0.7%
Senior Secured Term Loan B (10.50% (LIBOR + 9.50% with 1.00% LIBOR floor), due 4/8/2019)(4)
26,831

26,831

26,831

0.7%
Delayed Draw Term Loan – $5,000 Commitment (due 4/8/2019)(25)
—

—

—

—%
 
 
 
 
53,662

53,662

1.4%

See notes to consolidated financial statements.
9

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)
(in thousands, except share data)

 
 
 
September 30, 2014 (Unaudited)
Portfolio Company
Locale / Industry
Investments(1)
Principal Value
Cost
Fair
Value(2)
% of Net Assets
 
 
 
 
 
 
 
LEVEL 3 PORTFOLIO INVESTMENTS
 
 
 
 
 
 
 
 
 
 
 
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
 
 
 
 
 
 
 
 
 
 
 
Armor Holding II LLC(16)
New York / Diversified Financial Services
Second Lien Term Loan (10.25% (LIBOR + 9.00% with 1.25% LIBOR floor), due 12/26/2020)(3)(4)
$
7,000

$
6,878

$
6,878

0.2%
 
 
 
 
6,878

6,878

0.2%
Atlantis Health Care Group (Puerto Rico), Inc.
Puerto Rico / Healthcare
Revolving Line of Credit – $4,000 Commitment (13.00% (LIBOR + 11.00% with 2.00% LIBOR floor), due 8/21/2015)(4)(25)(26)
2,350

2,350

2,350

0.1%
Senior Term Loan (10.00% (LIBOR + 8.00% with 2.00% LIBOR floor), due 2/21/2018)(3)(4)
38,858

38,858

34,128

0.9%
 
 
 
 
41,208

36,478

1.0%
Babson CLO Ltd. 2011-I(22)
Cayman Islands / Diversified Financial Services
Subordinated Notes (Residual Interest, current yield 5.76%)(11)
35,000

34,541

31,433

0.9%
 
 
 
 
34,541

31,433

0.9%
Babson CLO Ltd. 2012-I(22)
Cayman Islands / Diversified Financial Services
Subordinated Notes (Residual Interest, current yield 13.60%)(11)
29,075

22,950

25,167

0.7%
 
 
 
 
22,950

25,167

0.7%
Babson CLO Ltd. 2012-II(22)
Cayman Islands / Diversified Financial Services
Subordinated Notes (Residual Interest, current yield 11.71%)(11)
27,850

26,329

27,113

0.7%
 
 
 
 
26,329

27,113

0.7%
Blue Coat Systems, Inc.(16)
Massachusetts / Software & Computer Services
Second Lien Term Loan (9.50% (LIBOR + 8.50% with 1.00% LIBOR floor), due 6/28/2020)(3)(4)
11,000

10,905

11,000

0.3%
 
 
 
 
10,905

11,000

0.3%
Broder Bros., Co.
Pennsylvania / Textiles, Apparel & Luxury Goods
Senior Secured Notes (10.25% (LIBOR + 9.00% with 1.25% LIBOR floor), due 4/8/2019)(3)(4)
256,275

256,275

256,275

7.0%
 
 
 
 
256,275

256,275

7.0%
Brookside Mill CLO Ltd.(22)
Cayman Islands / Diversified Financial Services
Subordinated Notes (Residual Interest, current yield 19.56%)(11)
26,000

22,677

25,139

0.7%
 
 
 
 
22,677

25,139

0.7%
Caleel + Hayden, LLC(14)(31)
Colorado / Personal & Nondurable Consumer Products
Membership Interest
 
—

183

—%
 
 
 
 
—

183

—%
Cent CLO 17 Limited(22)
Cayman Islands / Diversified Financial Services
Subordinated Notes (Residual Interest, current yield 10.40%)(11)
24,870

21,569

23,720

0.7%
 
 
 
 
21,569

23,720

0.7%
Cent CLO 20 Limited(22)
Cayman Islands / Diversified Financial Services
Subordinated Notes (Residual Interest, current yield 10.90%)(11)
40,275

38,140

39,310

1.1%
 
 
 
 
38,140

39,310

1.1%
Cent CLO 21 Limited(22)
Cayman Islands / Diversified Financial Services
Subordinated Notes (Residual Interest, current yield 15.07%)(11)
48,528

47,070

46,287

1.3%
 
 
 
 
47,070

46,287

1.3%
CIFC Funding 2011-I, Ltd.(22)
Cayman Islands / Diversified Financial Services
Class D Senior Secured Notes (5.32% (LIBOR + 5.00%, due 1/19/2023)(4)
19,000

15,377

18,048

0.5%
Class E Subordinated Notes (7.32% (LIBOR + 7.00%, due 1/19/2023)(4)
15,400

12,862

15,171

0.4%
 
 
 
 
28,239

33,219

0.9%

See notes to consolidated financial statements.
10

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)
(in thousands, except share data)

 
 
 
September 30, 2014 (Unaudited)
Portfolio Company
Locale / Industry
Investments(1)
Principal Value
Cost
Fair
Value(2)
% of Net Assets
 
 
 
 
 
 
 
LEVEL 3 PORTFOLIO INVESTMENTS
 
 
 
 
 
 
 
 
 
 
 
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
 
 
 
 
 
 
 
 
 
 
 
CIFC Funding 2013-III, Ltd.(22)
Cayman Islands / Diversified Financial Services
Subordinated Notes (Residual Interest, current yield 13.96%)(11)
$
44,100

$
38,415

$
42,745

1.2%
 
 
 
 
38,415

42,745

1.2%
CIFC Funding 2013-IV, Ltd.(22)
Cayman Islands / Diversified Financial Services
Subordinated Notes (Residual Interest, current yield 12.66%)(11)
45,500

39,150

40,625

1.1%
 
 
 
 
39,150

40,625

1.1%
CIFC Funding 2014-IV Investor, Ltd.(22)
Cayman Islands / Diversified Financial Services
Income Notes (Residual Interest, current yield 13.98%)(11)
41,500

39,505

39,222

1.1%
 
 
 
 
39,505

39,222

1.1%
Cinedigm DC Holdings, LLC
New York / Software & Computer Services
Senior Secured Term Loan (11.00% (LIBOR + 9.00% with 2.00% LIBOR floor) plus 2.50% PIK, due 3/31/2021)(4)
68,975

68,925

68,975

1.9%
 
 
 
 
68,925

68,975

1.9%
The Copernicus Group, Inc.
North Carolina / Healthcare
Escrow Receivable
 
—

117

—%
 
 
 
 
—

117

—%
Coverall North America, Inc.
Florida / Commercial Services
Senior Secured Term Loan (11.50% (LIBOR + 8.50% with 3.00% LIBOR floor), due 12/17/2017)(3)(4)
50,888

50,888

50,888

1.4%
 
 
 
 
50,888

50,888

1.4%
Crosman Corporation
New York / Manufacturing
Second Lien Term Loan (12.00% (LIBOR + 10.50% with 1.50% LIBOR floor), due 12/30/2019)(3)(4)
40,000

40,000

39,245

1.1%
 
 
 
 
40,000

39,245

1.1%
CRT MIDCO, LLC
Wisconsin / Media
Senior Secured Term Loan (10.50% (LIBOR + 7.50% with 3.00% LIBOR floor), due 6/30/2017)(3)(4)
47,129

47,129

47,129

1.3%
 
 
 
 
47,129

47,129

1.3%
Deltek, Inc.(16)
Virginia / Software & Computer Services
Second Lien Term Loan (10.00% (LIBOR + 8.75% with 1.25% LIBOR floor), due 10/10/2019)(3)(4)
12,000

11,857

12,000

0.3%
 
 
 
 
11,857

12,000

0.3%
Diamondback Operating, LP
Oklahoma / Oil & Gas Production
Net Profits Interest (15% of Equity Distributions)
 
—

—

—%
 
 
 
 
—

—

—%
Edmentum, Inc.(16)
Minnesota / Consumer Services
Second Lien Term Loan (11.25% (LIBOR + 9.75% with 1.50% LIBOR floor), due 5/17/2019)(3)(4)
50,000

48,499

50,000

1.4%
 
 
 
 
48,499

50,000

1.4%
Empire Today, LLC
Illinois / Durable Consumer Products
Senior Secured Note (11.375%, due 2/1/2017)
15,700

15,443

15,700

0.4%
 
 
 
 
15,443

15,700

0.4%
Fischbein, LLC
North Carolina / Machinery
Escrow Receivable
 
—

118

—%
 
 
 
 
—

118

—%
Fleetwash, Inc.
New Jersey / Business Services
Senior Secured Term Loan A (6.50% (LIBOR + 5.50% with 1.00% LIBOR floor), due 4/30/2019)(4)
24,875

24,875

24,875

0.7%
Senior Secured Term Loan B (10.50% (LIBOR + 9.50% with 1.00% LIBOR floor), due 4/30/2019)(4)
25,000

25,000

25,000

0.7%
Delayed Draw Term Loan – $15,000 Commitment (9.50% (LIBOR + 8.50% with 1.00% LIBOR floor), due 4/30/2019)(4)(25)
—

—

—

—%
 
 
 
 
49,875

49,875

1.4%
 
 
 
 
 
 
 

See notes to consolidated financial statements.
11

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)
(in thousands, except share data)

 
 
 
September 30, 2014 (Unaudited)
Portfolio Company
Locale / Industry
Investments(1)
Principal Value
Cost
Fair
Value(2)
% of Net Assets
 
 
 
 
 
 
 
LEVEL 3 PORTFOLIO INVESTMENTS
 
 
 
 
 
 
 
 
 
 
 
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
 
 
 
 
 
 
 
 
 
 
 
Focus Brands, Inc.(16)
Georgia / Consumer Services
Second Lien Term Loan (10.25% (LIBOR + 9.00% with 1.25% LIBOR floor), due 8/21/2018)(4)
$
18,000

$
17,787

$
18,000

0.5%
 
 
 
 
17,787

18,000

0.5%
Focus Products Group International, LLC
Illinois / Durable Consumer Products
Senior Secured Term Loan (12.00% (LIBOR + 11.00% with 1.00% LIBOR floor), due 1/20/2017)(3)(4)
20,021

20,021

17,805

0.5%
Common Stock (5,638 shares)
 
27

—

—%
 
 
 
 
20,048

17,805

0.5%
Galaxy XII CLO, Ltd.(22)
Cayman Islands / Diversified Financial Services
Subordinated Notes (Residual Interest, current yield 13.50%)(11)
22,000

19,238

20,427

0.6%
 
 
 
 
19,238

20,427

0.6%
Galaxy XV CLO, Ltd.(22)
Cayman Islands / Diversified Financial Services
Subordinated Notes (Residual Interest, current yield 14.80%)(11)
35,025

29,152

31,835

0.9%
 
 
 
 
29,152

31,835

0.9%
Galaxy XVI CLO, Ltd.(22)
Cayman Islands / Diversified Financial Services
Subordinated Notes (Residual Interest, current yield 13.06%)(11)
22,575

20,407

20,818

0.6%
 
 
 
 
20,407

20,818

0.6%
Galaxy XVII CLO, Ltd.(22)
Cayman Islands / Diversified Financial Services
Subordinated Notes (Residual Interest, current yield 14.76%)(11)
39,905

38,194

36,485

1.0%
 
 
 
 
38,194

36,485

1.0%
Global Employment Solutions, Inc.
Colorado / Business Services
Senior Secured Term Loan (10.00% (LIBOR + 9.00% with 1.00% LIBOR floor), due 3/25/2019)(3)(4)
28,429

28,429

28,429

0.8%
 
 
 
 
28,429

28,429

0.8%
Grocery Outlet, Inc.(16)
California / Retail
Second Lien Term Loan (11.50% (PRIME + 8.25% with 3.25% PRIME floor), due 6/17/2019)(4)
14,457

14,179

14,746

0.4%
 
 
 
 
14,179

14,746

0.4%
GTP Operations, LLC(10)
Texas / Software & Computer Services
Senior Secured Term Loan (10.00% (LIBOR + 5.00% with 5.00% LIBOR floor), due 12/11/2018)(3)(4)
112,258

112,258

112,258

3.1%
 
 
 
 
112,258

112,258

3.1%
Halcyon Loan Advisors Funding 2012-1 Ltd.(22)
Cayman Islands / Diversified Financial Services
Subordinated Notes (Residual Interest, current yield 24.62%)(11)
23,188

20,376

22,889

0.6%
 
 
 
 
20,376

22,889

0.6%
Halcyon Loan Advisors Funding 2013-1 Ltd.(22)
Cayman Islands / Diversified Financial Services
Subordinated Notes (Residual Interest, current yield 18.47%)(11)
40,400

37,466

41,136

1.1%
 
 
 
 
37,466

41,136

1.1%
Halcyon Loan Advisors Funding 2014-1 Ltd.(22)
Cayman Islands / Diversified Financial Services
Subordinated Notes (Residual Interest, current yield 14.45%)(11)
24,500

23,685

23,025

0.6%
 
 
 
 
23,685

23,025

0.6%
Halcyon Loan Advisors Funding 2014-2 Ltd.(22)
Cayman Islands / Diversified Financial Services
Subordinated Notes (Residual Interest, current yield 16.07%)(11)
41,164

39,174

38,900

1.1%
 
 
 
 
39,174

38,900

1.1%
Harley Marine Services, Inc.(16)
Washington / Transportation
Second Lien Term Loan (10.50% (LIBOR + 9.25% with 1.25% LIBOR floor), due 12/20/2019)(3)(4)
9,000

8,832

8,832

0.2%
 
 
 
 
8,832

8,832

0.2%
ICON Health & Fitness, Inc.
Utah / Durable Consumer Products
Senior Secured Note (11.875%, due 10/15/2016)
21,850

21,986

21,850

0.6%
 
 
 
 
21,986

21,850

0.6%

See notes to consolidated financial statements.
12

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)
(in thousands, except share data)

 
 
 
September 30, 2014 (Unaudited)
Portfolio Company
Locale / Industry
Investments(1)
Principal Value
Cost
Fair
Value(2)
% of Net Assets
 
 
 
 
 
 
 
LEVEL 3 PORTFOLIO INVESTMENTS
 
 
 
 
 
 
 
 
 
 
 
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
 
 
 
 
 
 
 
 
 
 
 
ICV-CSI Holdings, LLC
New York / Transportation
Membership Units (1.6 units)
 
$
1,639

$
1,789

—%
 
 
 
 
1,639

1,789

—%
IDQ Holdings, Inc.
Texas / Automobile
Senior Secured Note (11.50%, due 4/1/2017)
$
12,500

12,356

12,500

0.3%
 
 
 
 
12,356

12,500

0.3%
Ikaria, Inc.(16)
New Jersey / Healthcare
Second Lien Term Loan (8.75% (LIBOR + 7.75% with 1.00% LIBOR floor), due 2/12/2022)(4)
25,000

24,443

25,000

0.7%
 
 
 
 
24,443

25,000

0.7%
Instant Web, LLC
Minnesota / Media
Senior Secured Term Loan A (5.50% (LIBOR + 4.50% with 1.00% LIBOR floor), due 3/28/2019)(4)
125,929

125,929

125,929

3.5%
Senior Secured Term Loan B (12.00% (LIBOR + 11.00% with 1.00% LIBOR floor), due 3/28/2019)(3)(4)
128,000

128,000

128,000

3.5%
Senior Secured Term Loan C (12.75% (LIBOR + 11.75% with 1.00% LIBOR floor), due 3/28/2019)(4)
12,500

12,500

12,500

0.3%
 
 
 
 
266,429

266,429

7.3%
InterDent, Inc.
California / Healthcare
Senior Secured Term Loan A (7.25% (LIBOR + 5.75% with 1.50% LIBOR floor), due 8/3/2017)(4)
62,881

62,881

62,881

1.7%
Senior Secured Term Loan B (12.25% (LIBOR + 9.25% with 3.00% LIBOR floor), due 8/3/2017)(3)(4)
67,625

67,625

67,625

1.9%
 
 
 
 
130,506

130,506

3.6%
JAC Holding Corporation(16)
Michigan / Transportation
Senior Secured Note (11.50%, due 10/1/2019)
3,000

3,000

3,000

0.1%
 
 
 
 
3,000

3,000

0.1%
JHH Holdings, Inc.
Texas / Healthcare
Second Lien Term Loan (11.25% (LIBOR + 10.00% with 1.25% LIBOR floor) plus 0.50% PIK, due 3/30/2019)(3)(4)
35,164

35,164

35,164

1.0%
 
 
 
 
35,164

35,164

1.0%
LaserShip, Inc.
Virginia / Transportation
Revolving Line of Credit – $5,000 Commitment (10.25% (LIBOR + 8.25% with 2.00% LIBOR floor), due 12/21/2014)(4)(25)
—

—

—

—%
Senior Secured Term Loan A (10.25% (LIBOR + 8.25% with 2.00% LIBOR floor), due 3/18/2019)(3)(4)
36,094

36,094

36,094

1.0%
Senior Secured Term Loan B (10.25% (LIBOR + 8.25% with 2.00% LIBOR floor), due 3/18/2019)(3)(4)
22,111

22,111

22,111

0.6%
Delayed Draw Term Loan – $6,000 Commitment (2.00%, due 12/31/2015)(4)(25)
—

—

—

—%
 
 
 
 
58,205

58,205

1.6%
LCM XIV Ltd.(22)
Cayman Islands / Diversified Financial Services
Income Notes (Residual Interest, current yield 15.39%)(11)
26,500

24,393

24,699

0.7%
 
 
 
 
24,393

24,699

0.7%
LHC Holdings Corp.
Florida / Healthcare
Revolving Line of Credit – $750 Commitment (8.50% (LIBOR + 6.00% with 2.50% LIBOR floor), due 5/31/2015)(4)(25)(26)
—

—

—

—%
Senior Subordinated Debt (10.50%, due 5/31/2015)(3)
1,565

1,565

1,565

—%
Membership Interest (125 units)
 
216

230

—%
 
 
 
 
1,781

1,795

—%
Madison Park Funding IX, Ltd.(22)
Cayman Islands / Diversified Financial Services
Subordinated Notes (Residual Interest, current yield 13.58%)(11)
31,110

24,271

27,127

0.7%
 
 
 
 
24,271

27,127

0.7%

See notes to consolidated financial statements.
13

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)
(in thousands, except share data)

 
 
 
September 30, 2014 (Unaudited)
Portfolio Company
Locale / Industry
Investments(1)
Principal Value
Cost
Fair
Value(2)
% of Net Assets
 
 
 
 
 
 
 
LEVEL 3 PORTFOLIO INVESTMENTS
 
 
 
 
 
 
 
 
 
 
 
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
 
 
 
 
 
 
 
 
 
 
 
Matrixx Initiatives, Inc.
New Jersey / Pharmaceuticals
Senior Secured Term Loan A (7.50% (LIBOR + 6.00% with 1.50% LIBOR floor) plus 2.00% PIK, due 8/9/2018)(3)(4)
$
37,233

$
37,233

$
36,141

1.0%
Senior Secured Term Loan B (12.50% (LIBOR + 11.00% with 1.50% LIBOR floor) plus 2.00% PIK, due 8/9/2018)(3)(4)
40,155

40,155

39,033

1.1%
 
 
 
 
77,388

75,174

2.1%
Maverick Healthcare Equity, LLC
Arizona / Healthcare
Preferred Units (1,250,000 units)
 
1,252

682

—%
Class A Common Units (1,250,000 units)
 
—

—

—%
 
 
 
 
1,252

682

—%
Mountain View CLO 2013-I Ltd.(22)
Cayman Islands / Diversified Financial Services
Subordinated Notes (Residual Interest, current yield 15.98%)(11)
43,650

39,935

43,468

1.2%
 
 
 
 
39,935

43,468

1.2%
NCP Finance Limited Partnership(16)(22)(23)
Ohio / Consumer Finance
Subordinated Secured Term Loan (11.00% (LIBOR + 9.75% with 1.25% LIBOR floor), due 9/30/2018)(3)(4)
13,694

13,457

13,694

0.4%
 
 
 
 
13,457

13,694

0.4%
New Century Transportation, Inc.
New Jersey / Transportation
Senior Subordinated Term Loan (12.00% (LIBOR + 10.00% with 2.00% LIBOR floor) plus 4.00% PIK, in non-accrual status effective 4/1/2014, due 2/3/2018)(4)
44,000

44,000

—

—%
 
 
 
 
44,000

—

—%
Nixon, Inc.(16)
California / Durable Consumer Products
Senior Secured Term Loan (8.75% plus 2.75% PIK, due 4/16/2018)
13,638

13,434

13,434

0.4%
 
 
 
 
13,434

13,434

0.4%
NRG Manufacturing, Inc.
Texas / Manufacturing
Escrow Receivable
 
—

1,128

—%
 
 
 
 
—

1,128

—%
Octagon Investment Partners XV, Ltd.(22)
Cayman Islands / Diversified Financial Services
Income Notes (Residual Interest, current yield 20.50%)(11)
26,901

24,071

26,616

0.7%
 
 
 
 
24,071

26,616

0.7%
Onyx Payments
Texas / Diversified Financial Services
Revolving Line of Credit – $5,000 Commitment (9.00% (LIBOR + 7.75% with 1.25% LIBOR floor), due 9/10/2015)(4)(25)
—

—

—

—%
Senior Secured Term Loan A (6.50% (LIBOR + 5.50% with 1.00% LIBOR floor), due 9/10/2019)(4)
39,950

39,950

39,950

1.1%
Senior Secured Term Loan B (13.50% (LIBOR + 12.50% with 1.00% LIBOR floor), due 9/10/2019)(4)
41,778

41,778

41,778

1.1%
 
 
 
 
81,728

81,728

2.2%
Pacific World Corporation
California / Personal & Nondurable Consumer Products
Revolving Line of Credit – $15,000 Commitment (8.00% (LIBOR + 7.00% with 1.00% LIBOR floor), due 9/26/2020)(4)(25)
2,500

2,500

2,500

0.1%
Senior Secured Term Loan (8.00% (LIBOR + 7.00% with 1.00% LIBOR floor), due 9/26/2020)(4)
200,000

200,000

200,000

5.5%
 
 
 
 
202,500

202,500

5.6%
Pelican Products, Inc.(16)
California / Durable Consumer Products
Second Lien Term Loan (9.25% (LIBOR + 8.25% with 1.00% LIBOR floor), due 4/9/2021)(4)
17,500

17,482

17,500

0.5%
 
 
 
 
17,482

17,500

0.5%
Photonis Technologies SAS(16)(22)
France / Aerospace & Defense
First Lien Term Loan (8.50% (LIBOR + 7.50% with 1.00% LIBOR floor), due 9/18/2019)(4)
10,421

10,157

10,157

0.3%
 
 
 
 
10,157

10,157

0.3%
Pinnacle (US) Acquisition Co. Limited(16)
Texas / Software & Computer Services
Second Lien Term Loan (10.50% (LIBOR + 9.25% with 1.25% LIBOR floor), due 8/3/2020)(4)
7,037

6,875

7,037

0.2%
 
 
 
 
6,875

7,037

0.2%

See notes to consolidated financial statements.
14

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)
(in thousands, except share data)

 
 
 
September 30, 2014 (Unaudited)
Portfolio Company
Locale / Industry
Investments(1)
Principal Value
Cost
Fair
Value(2)
% of Net Assets
 
 
 
 
 
 
 
LEVEL 3 PORTFOLIO INVESTMENTS
 
 
 
 
 
 
 
 
 
 
 
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
 
 
 
 
 
 
 
 
 
 
 
PrimeSport, Inc.
Georgia / Hotels, Restaurants & Leisure
Revolving Line of Credit – $15,000 Commitment (10.00% (LIBOR + 9.50% with 0.50% LIBOR floor), due 12/23/2014)(4)(25)
$
6,000

$
6,000

$
6,000

0.2%
Senior Secured Term Loan A (7.50% (LIBOR + 6.50% with 1.00% LIBOR floor), due 12/23/2019)(3)(4)
64,145

64,145

64,145

1.8%
Senior Secured Term Loan B (11.50% (LIBOR + 10.50% with 1.00% LIBOR floor) plus 1.00% PIK, due 12/23/2019)(3)(4)
64,912

64,912

64,912

1.8%
 
 
 
 
135,057

135,057

3.8%
Prince Mineral Holding Corp.
New York / Metal Services & Minerals
Senior Secured Term Loan (11.50%, due 12/15/2019)
10,000

9,905

10,000

0.3%
 
 
 
 
9,905

10,000

0.3%
Progrexion Holdings, Inc.(28)
Utah / Consumer Services
Second Lien Term Loan (10.00% (LIBOR + 9.00% with 1.00% LIBOR floor), due 9/29/2021)(4)
144,000

144,000

144,000

3.9%
 
 
 
 
144,000

144,000

3.9%
Rocket Software, Inc.(16)
Massachusetts / Software & Computer Services
Second Lien Term Loan (10.25% (LIBOR + 8.75% with 1.50% LIBOR floor), due 2/8/2019)(3)(4)
20,000

19,768

20,000

0.5%
 
 
 
 
19,768

20,000

0.5%
Royal Adhesives & Sealants, LLC(16)
Indiana / Chemicals
Second Lien Term Loan (9.75% (LIBOR + 8.50% with 1.25% LIBOR floor), due 1/31/2019)(4)
20,000

19,663

20,000

0.5%
 
 
 
 
19,663

20,000

0.5%
Ryan, LLC
Texas / Business Services
Subordinated Unsecured Notes (12.00% (LIBOR + 9.00% with 3.00% LIBOR floor) plus 3.00% PIK, due 6/30/2018)(4)
71,072

71,072

71,072

1.9%
 
 
 
 
71,072

71,072

1.9%
Sandow Media, LLC
Florida / Media
Senior Secured Term Loan (12.00%, due 5/8/2018)(3)
25,018

25,018

23,759

0.7%
 
 
 
 
25,018

23,759

0.7%
Small Business Whole Loan Portfolio(19)
New York / Diversified Financial Services
291 small business loans issued by Direct Capital Corporation
6,188

6,188

7,384

0.2%
211 small business loans issued by OnDeck Capital, Inc.
5,572

5,572

5,155

0.1%
 
 
 
 
11,760

12,539

0.3%
Spartan Energy Services, Inc.
Louisiana / Energy
Senior Secured Term Loan (10.50% (LIBOR + 9.00% with 1.50% LIBOR floor), due 12/28/2017)(3)(4)
35,402

35,402

35,402

1.0%
 
 
 
 
35,402

35,402

1.0%
Speedy Group Holdings Corp.(22)
Canada / Consumer Finance
Senior Unsecured Notes (12.00%, due 11/15/2017)
15,000

15,000

15,000

0.4%
 
 
 
 
15,000

15,000

0.4%
Sport Helmets Holdings, LLC(14)
New York / Personal & Nondurable Consumer Products
Escrow Receivable
 
—

130

—%
 
 
 
 
—

130

—%
Stauber Performance Ingredients, Inc.
California / Food Products
Senior Secured Term Loan (10.50% (LIBOR + 7.50% with 3.00% LIBOR floor), due 1/21/2016)(3)(4)
12,488

12,488

12,488

0.3%
Senior Secured Term Loan (10.50% (LIBOR + 7.50% with 3.00% LIBOR floor), due 5/21/2017)(3)(4)
9,844

9,844

9,844

0.3%
 
 
 
 
22,332

22,332

0.6%
 
 
 
 
 
 
 

See notes to consolidated financial statements.
15

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)
(in thousands, except share data)

 
 
 
September 30, 2014 (Unaudited)
Portfolio Company
Locale / Industry
Investments(1)
Principal Value
Cost
Fair
Value(2)
% of Net Assets
 
 
 
 
 
 
 
LEVEL 3 PORTFOLIO INVESTMENTS
 
 
 
 
 
 
 
 
 
 
 
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
 
 
 
 
 
 
 
 
 
 
 
Stryker Energy, LLC
Ohio / Oil & Gas Production
Subordinated Secured Revolving Credit Facility – $50,300 Commitment (12.25% (LIBOR + 10.75% with 1.50% LIBOR floor) plus 3.75% PIK, in non-accrual status effective 12/1/2011, due 12/1/2015)(4)(25)
$
36,429

$
32,710

$
—

—%
Overriding Royalty Interests(18)
 
—

—

—%
 
 
 
 
32,710

—

—%
Sudbury Mill CLO Ltd.(22)
Cayman Islands / Diversified Financial Services
Subordinated Notes (Residual Interest, current yield 15.79%)(11)
28,200

23,409

26,354

0.7%
 
 
 
 
23,409

26,354

0.7%
Symphony CLO IX Ltd.(22)
Cayman Islands / Diversified Financial Services
Preference Shares (Residual Interest, current yield 18.83%)(11)
45,500

37,211

43,520

1.2%
 
 
 
 
37,211

43,520

1.2%
Symphony CLO XIV Ltd.(22)
Cayman Islands / Diversified Financial Services
Subordinated Notes (Residual Interest, current yield 10.08%)(11)
49,250

50,399

47,723

1.3%
 
 
 
 
50,399

47,723

1.3%
System One Holdings, LLC
Pennsylvania / Business Services
Senior Secured Term Loan (11.00% (LIBOR + 9.50% with 1.50% LIBOR floor), due 12/31/2018)(3)(4)
44,646

44,646

44,646

1.2%
 
 
 
 
44,646

44,646

1.2%
Targus Group International, Inc.(16)
California / Durable Consumer Products
First Lien Term Loan (11.00% (LIBOR + 9.50% with 1.50% LIBOR floor) plus 1.0% PIK, due 5/24/2016)(3)(4)
21,680

21,491

19,591

0.5%
 
 
 
 
21,491

19,591

0.5%
TB Corp.
Texas / Hotels, Restaurants & Leisure
Senior Subordinated Note (12.00% plus 1.50% PIK, due 12/19/2018)(3)
23,628

23,628

23,628

0.6%
 
 
 
 
23,628

23,628

0.6%
Therakos, Inc.(16)
New Jersey / Healthcare
Second Lien Term Loan (11.25% (LIBOR + 10.00% with 1.25% LIBOR floor), due 6/27/2018)(4)
13,000

12,773

13,000

0.4%
 
 
 
 
12,773

13,000

0.4%
Tolt Solutions, Inc.
South Carolina / Business Services
Senior Secured Term Loan A (7.00% (LIBOR + 6.00% with 1.00% LIBOR floor), due 3/7/2019)(3)(4)
48,460

48,460

48,460

1.3%
Senior Secured Term Loan B (12.00% (LIBOR + 11.00% with 1.00% LIBOR floor), due 3/7/2019)(3)(4)
48,900

48,900

48,900

1.3%
 
 
 
 
97,360

97,360

2.6%
Traeger Pellet Grills LLC
Oregon / Durable Consumer Products
Senior Secured Term Loan A (6.50% (LIBOR + 4.50% with 2.00% LIBOR floor), due 6/18/2018)(3)(4)
29,100

29,100

29,100

0.8%
Senior Secured Term Loan B (11.50% (LIBOR + 9.50% with 2.00% LIBOR floor), due 6/18/2018)(3)(4)
29,700

29,700

29,700

0.8%
 
 
 
 
58,800

58,800

1.6%
Transaction Network Services, Inc.(16)
Virginia / Telecommunication Services
Second Lien Term Loan (9.00% (LIBOR + 8.00% with 1.00% LIBOR floor), due 8/14/2020)(4)
5,000

4,976

5,000

0.1%
 
 
 
 
4,976

5,000

0.1%
Trinity Services Group, Inc.
Florida / Food Products
Revolving Line of Credit – $10,000 Commitment (9.00% (LIBOR + 8.00% with 1.00% LIBOR floor), due 2/13/2015)(4)(25)
—

—

—

—%
Senior Secured Term Loan A (6.50% (LIBOR + 5.50% with 1.00% LIBOR floor), due 8/13/2019)(4)
100,000

100,000

100,000

2.7%
Senior Secured Term Loan B (11.50% (LIBOR + 10.50% with 1.00% LIBOR floor), due 8/13/2019)(4)
100,000

100,000

100,000

2.7%
 
 
 
 
200,000

200,000

5.4%
 
 
 
 
 
 
 

See notes to consolidated financial statements.
16

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)
(in thousands, except share data)

 
 
 
September 30, 2014 (Unaudited)
Portfolio Company
Locale / Industry
Investments(1)
Principal Value
Cost
Fair
Value(2)
% of Net Assets
 
 
 
 
 
 
 
LEVEL 3 PORTFOLIO INVESTMENTS
 
 
 
 
 
 
 
 
 
 
 
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
 
 
 
 
 
 
 
 
 
 
 
United Sporting Companies, Inc.(5)
South Carolina / Durable Consumer Products
Second Lien Term Loan (12.75% (LIBOR + 11.00% with 1.75% LIBOR floor), due 5/16/2018)(3)(4)
$
160,000

$
160,000

$
160,000

4.4%
 
 
 
 
160,000

160,000

4.4%
United States Environmental Services, LLC
Texas / Commercial Services
Senior Secured Term Loan A (6.50% (LIBOR + 5.50% with 1.00% LIBOR floor), due 3/31/2019)(3)(4)
23,700

23,700

21,748

0.6%
Senior Secured Term Loan B (11.50% (LIBOR + 10.50% with 1.00% LIBOR floor), due 3/31/2019)(3)(4)
36,000

36,000

31,338

0.9%
 
 
 
 
59,700

53,086

1.5%
Venio LLC
Pennsylvania / Business Services
Second Lien Term Loan (12.00% (LIBOR + 9.50% with 2.50% LIBOR floor), due 2/19/2020)(3)(4)
17,000

17,000

16,487

0.5%
 
 
 
 
17,000

16,487

0.5%
Voya CLO 2012-2, Ltd.(22)
Cayman Islands / Diversified Financial Services
Income Notes (Residual Interest, current yield 14.35%)(11)
38,070

30,526

35,342

1.0%
 
 
 
 
30,526

35,342

1.0%
Voya CLO 2012-3, Ltd.(22)
Cayman Islands / Diversified Financial Services
Income Notes (Residual Interest, current yield 13.03%)(11)
46,632

38,504

43,523

1.2%
 
 
 
 
38,504

43,523

1.2%
Voya CLO 2012-4, Ltd.(22)
Cayman Islands / Diversified Financial Services
Income Notes (Residual Interest, current yield 15.41%)(11)
40,613

34,230

39,141

1.1%
 
 
 
 
34,230

39,141

1.1%
Voya CLO 2014-1, Ltd.(22)
Cayman Islands / Diversified Financial Services
Subordinated Notes (Residual Interest, current yield 12.87%)(11)
32,383

33,101

32,250

0.9%
 
 
 
 
33,101

32,250

0.9%
Washington Mill CLO Ltd.(22)
Cayman Islands / Diversified Financial Services
Subordinated Notes (Residual Interest, current yield 13.80%)(11)
22,600

21,984

21,954

0.6%
 
 
 
 
21,984

21,954

0.6%
Water Pik, Inc.(16)
Colorado / Personal & Nondurable Consumer Products
Second Lien Term Loan (9.75% (LIBOR + 8.75% with 1.00% LIBOR floor), due 1/8/2021)(4)
9,726

9,341

9,355

0.3%
 
 
 
 
9,341

9,355

0.3%
Wheel Pros, LLC
Colorado / Business Services
Senior Subordinated Secured Note (11.00% (LIBOR + 7.00% with 4.00% LIBOR floor), due 6/29/2020)(4)
12,000

12,000

12,000

0.3%
Delayed Draw Term Loan – $3,000 Commitment (11.00% (LIBOR + 7.00% with 4.00% LIBOR floor), due 12/30/2015)(4)(25)
—

—

—

—%
 
 
 
 
12,000

12,000

0.3%
Wind River Resources Corporation(39)
Utah / Oil & Gas Production
Senior Secured Note (13.00% (LIBOR + 7.50% with 5.50% LIBOR floor) plus 3.00% default interest on principal and 16.00% default interest on past due interest, in non-accrual status effective 12/1/2008, past due)(4)
15,000

14,650

—

—%
Net Profits Interest (5% of Equity Distributions)(7)
 
—

—

—%
 
 
 
 
14,650

—

—%
Total Non-Control/Non-Affiliate Investments (Level 3)
 
$
4,590,505

$
4,546,881

124.6%
 
 
 
 
 
Total Level 3 Portfolio Investments
 
$
6,358,657

$
6,253,334

171.4%


See notes to consolidated financial statements.
17

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)
(in thousands, except share data)

 
 
 
September 30, 2014
Portfolio Company
Locale / Industry
Investments(1)
Principal Value
Cost
Fair
Value(2)
% of Net Assets
LEVEL 1 PORTFOLIO INVESTMENTS
 
 
 
 
 
 
 
 
 
 
 
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
 
 
 
 
 
 
 
 
 
 
 
Dover Saddlery, Inc.
Massachusetts / Retail
Common Stock (30,974 shares)
 
$
63

$
159

—%
 
 
 
 
63

159

—%
Total Non-Control/Non-Affiliate Investments (Level 1)
$
63

$
159

—%
 
 
 
 
 
Total Non-Control/Non-Affiliate Investments
$
4,590,568

$
4,547,040

124.6%
 
 
 
 
 
Total Portfolio Investments
$
6,358,720

$
6,253,493

171.4%

See notes to consolidated financial statements.
18

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)
(in thousands, except share data)

 
 
 
June 30, 2014 (Audited)
Portfolio Company
Locale / Industry
Investments(1)
Principal Value
Cost
Fair
Value(2)
% of Net Assets
 
 
 
 
 
 
 
LEVEL 3 PORTFOLIO INVESTMENTS
 
 
 
 
 
 
 
 
 
 
 
Control Investments (greater than 25.00% voting control)(46)
 
 
 
 
 
 
 
 
 
 
 
AMU Holdings Inc.(27)
Pennsylvania / Property Management
Senior Secured Term Loan A to Airmall Inc. (12.00% (LIBOR + 9.00% with 3.00% LIBOR floor), due 6/30/2015)(3)(4)
$
27,587

$
27,587

$
27,587

0.8%
Senior Secured Term Loan B to Airmall Inc. (12.00% plus 6.00% PIK, due 12/31/2015)
19,993

19,993

17,697

0.5%
Series A Preferred Stock of AMU Holdings Inc. (9,919.684 shares)
 
9,920

—

—%
Common Stock of AMU Holdings Inc. (100 shares)
 
—

—

—%
 
 
 
 
57,500

45,284

1.3%
APH Property
Holdings, LLC(32)
Florida /
Real Estate
Senior Term Loan to American Property REIT Corp. (6.00% (LIBOR + 4.00% with 2.00% LIBOR floor) plus 5.50% PIK, due 4/1/2019)(4)
167,743

167,743

167,743

4.6%
Membership Interest in APH Property Holdings, LLC
 
35,024

38,416

1.1%
 
 
 
 
202,767

206,159

5.7%
Arctic Oilfield Equipment USA, Inc.(30)
Wyoming / Oil & Gas Production
Senior Secured Term Loan to Arctic Energy Services, LLC (12.00% (LIBOR + 9.00% with 3.00% LIBOR floor), due 5/5/2019)(4)
31,640

31,640

31,640

0.9%
Senior Subordinated Term Loan to Arctic Energy Services, LLC (14.00% (LIBOR + 11.00% with 3.00% LIBOR floor), due 5/5/2019)(4)
20,230

20,230

20,230

0.6%
Common Stock of Arctic Oilfield Equipment USA, Inc. (100 shares)
 
9,006

9,244

0.2%
 
 
 
 
60,876

61,114

1.7%
ARRM Services, Inc.(42)
South Carolina / Manufacturing
Senior Secured Note to Ajax Rolled Ring & Machine, LLC (10.50% (LIBOR + 7.50% with 3.00% LIBOR floor), due 3/30/2018)(4)
19,337

19,337

19,337

0.5%
Series B Preferred Stock of ARRM Services, Inc. (25,000 shares)
 
21,156

6,199

0.2%
Series A Convertible Preferred Stock of ARRM Services, Inc. (6,142.60 shares)
 
6,057

—

—%
Common Stock of ARRM Services, Inc. (6.00 shares)
 
—

—

—%
 
 
 
 
46,550

25,536

0.7%
BXC Company, Inc.
(f/k/a BXC Holding Company)(20)
Georgia / Textiles, Apparel & Luxury Goods
Senior Secured Term Loan A to Boxercraft Incorporated (10.00% plus 1.00% PIK, in non-accrual status effective 1/1/2014, due 9/15/2015)
1,629

1,621

1,629

0.1%
Senior Secured Term Loan B to Boxercraft Incorporated (10.00% plus 1.00% PIK, in non-accrual status effective 1/1/2014, due 9/15/2015)
4,942

4,917

486

—%
Senior Secured Term Loan C to Boxercraft Incorporated (10.00% plus 1.00% PIK, in non-accrual status effective 1/1/2014, due 9/15/2015)
2,395

2,383

—

—%
Senior Secured Term Loan D to Boxercraft Incorporated (10.00% plus 1.00% PIK, in non-accrual status effective 4/18/2014, due 9/15/2015)
301

300

—

—%
Senior Secured Term Loan to Boxercraft Incorporated (10.00% plus 1.00% PIK, in non-accrual status effective 1/1/2014, due 9/15/2015)
8,410

8,227

—

—%
Series A Preferred Stock of BXC Company, Inc. (12,520,000 shares)
 
—

—

—%
Series B Preferred Stock of BXC Company, Inc. (2,400,000 shares)
 
—

—

—%
Common Stock of BXC Company, Inc.
(138,250 shares)
 
—

—

—%
Warrant (to purchase 15% of all classes of equity of BXC Company, Inc., expires 8/31/2022)
 
—

—

—%
 
 
 
 
17,448

2,115

0.1%

See notes to consolidated financial statements.
19

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)
(in thousands, except share data)

 
 
 
June 30, 2014 (Audited)
Portfolio Company
Locale / Industry
Investments(1)
Principal Value
Cost
Fair
Value(2)
% of Net Assets
 
 
 
 
 
 
 
LEVEL 3 PORTFOLIO INVESTMENTS
 
 
 
 
 
 
 
 
 
 
 
Control Investments (greater than 25.00% voting control)(46)
 
 
 
 
 
 
 
 
 
 
 
CCPI Holdings Inc.(33)
Ohio / Manufacturing
Senior Secured Term Loan A to CCPI Inc. (10.00%, due 12/31/2017)(3)
$
17,213

$
17,213

$
17,213

0.5%
Senior Secured Term Loan B to CCPI Inc. (12.00% plus 7.00% PIK, due 12/31/2017)
8,245

8,245

8,245

0.2%
Common Stock of CCPI Holdings Inc. (100 shares)
 
8,579

7,136

0.2%
 
 
 
 
34,037

32,594

0.9%
CP Holdings of
Delaware LLC(38)
Oklahoma / Oil & Gas Production
Senior Secured Term Loan A to CP Well Testing, LLC (7.00% (LIBOR + 5.00% with 2.00% LIBOR floor), due 4/1/2019)(4)
11,035

11,035

11,035

0.3%
Senior Secured Term Loan B to CP Well Testing, LLC (10.00% (LIBOR + 8.00% with 2.00% LIBOR floor) plus 7.50% PIK, due 4/1/2019)(4)
72,238

72,238

72,238

2.0%
Second Lien Term Loan to CP Well Testing, LLC (9.00% (LIBOR + 7.00% with 2.00% LIBOR floor) plus 9.00% PIK, due 4/1/2019)(4)
15,000

15,000

15,000

0.4%
Membership Interest in CP Holdings of Delaware LLC
 
15,228

31,846

0.9%
 
 
 
 
113,501

130,119

3.6%
Credit Central Holdings of Delaware, LLC(22)(34)
Ohio / Consumer Finance
Subordinated Term Loan to Credit Central Loan Company, LLC (10.00% plus 10.00% PIK, due 6/26/2019)
36,333

36,333

36,333

1.0%
Membership Interest in Credit Central Holdings of Delaware, LLC
 
13,670

14,099

0.4%
 
 
 
 
50,003

50,432

1.4%
Echelon Aviation LLC
New York / Aerospace & Defense
Senior Secured Revolving Credit Facility to Echelon Aviation LLC – $150,000 Commitment (11.75% (LIBOR + 9.75% with 2.00% LIBOR floor) plus 2.25% PIK, due 3/31/2022)(4)(25)
78,521

78,521

78,521

2.2%
Membership Interest in Echelon Aviation LLC
 
14,107

14,107

0.4%
 
 
 
 
92,628

92,628

2.6%
Energy Solutions Holdings Inc.(8)
Texas / Energy
Senior Secured Note to Vessel Company, LLC (18.00%, due 12/12/2016)
3,500

3,500

3,500

0.1%
Senior Secured Note to Vessel Company II, LLC (13.00%, due 11/25/2018)
13,000

12,504

12,504

0.4%
Senior Secured Note to Vessel Company III, LLC (13.00%, due 12/3/2018)
16,000

16,000

16,000

0.4%
Senior Secured Note to Yatesville Coal Company, LLC (in non-accrual status effective 1/1/2009, past due)
1,449

1,449

—

—%
Common Stock of Energy Solutions Holdings Inc. (100 shares)
 
8,293

—

—%
 
 
 
 
41,746

32,004

0.9%
First Tower Holdings of Delaware LLC(22)(29)
Mississippi / Consumer Finance
Subordinated Term Loan to First Tower, LLC (10.00% plus 7.00% PIK, due 6/24/2019)
251,246

251,246

251,246

6.9%
Membership Interest in First Tower Holdings of Delaware LLC
 
68,405

75,539

2.1%
 
 
 
 
319,651

326,785

9.0%
Gulf Coast Machine & Supply Company
Texas / Manufacturing
Senior Secured Term Loan to Gulf Coast Machine & Supply Company (10.50% (LIBOR + 8.50% with 2.00% LIBOR floor) plus 2.00% default interest on principal, due 10/12/2017)(4)
17,500

17,500

14,459

0.4%
Series A Convertible Preferred Stock of Gulf Coast Machine & Supply Company (99,900 shares)
 
25,950

—

—%
 
 
 
 
43,450

14,459

0.4%

See notes to consolidated financial statements.
20

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)
(in thousands, except share data)

 
 
 
June 30, 2014 (Audited)
Portfolio Company
Locale / Industry
Investments(1)
Principal Value
Cost
Fair
Value(2)
% of Net Assets
 
 
 
 
 
 
 
LEVEL 3 PORTFOLIO INVESTMENTS
 
 
 
 
 
 
 
 
 
 
 
Control Investments (greater than 25.00% voting control)(46)
 
 
 
 
 
 
 
 
 
 
 
Harbortouch Holdings of Delaware Inc.(43)
Pennsylvania / Business Services
Senior Secured Term Loan A to Harbortouch Payments, LLC (9.00% (LIBOR + 7.00% with 2.00% LIBOR floor), due 9/30/2017)(4)
$
130,796

$
130,796

$
130,796

3.6%
Senior Secured Term Loan B to Harbortouch Payments, LLC (5.50% (LIBOR + 4.00% with 1.50% LIBOR floor) plus 5.50% PIK, due 3/31/2018)(4)
137,226

137,226

137,226

3.8%
Common Stock of Harbortouch Holdings of Delaware Inc. (100 shares)
 
10,672

23,292

0.6%
 
 
 
 
278,694

291,314

8.0%
The Healing Staff, Inc.(9)
North Carolina / Contracting
Secured Promissory Notes to The Healing Staff, Inc. and Vets Securing America, Inc. (15.00%, in non-accrual status effective 12/22/2010, past due)
1,688

1,686

—

—%
Senior Demand Note to The Healing Staff, Inc. (15.00%, in non-accrual status effective 11/1/2010, past due)
1,170

1,170

—

—%
Common Stock of The Healing Staff, Inc. (1,000 shares)
 
—

—

—%
Common Stock of Vets Securing America, Inc. (1 share)
 
975

—

—%
 
 
 
 
3,831

—

—%
Manx Energy, Inc.(6)(12)
Kansas / Oil & Gas Production
Senior Secured Note to Manx Energy, Inc. (13.00%, in non-accrual status effective 1/19/2010, past due)
50

50

—

—%
Series A-1 Preferred Stock of Manx Energy, Inc. (6,635 shares)
 
—

—

—%
Common Stock of Manx Energy, Inc. (17,082 shares)
 
—

—

—%
 
 
 
 
50

—

—%
MITY Holdings of Delaware Inc.(17)
Utah / Durable Consumer Products
Revolving Line of Credit to MITY, Inc. – $7,500 Commitment (9.50% (LIBOR + 7.00% with 2.50% LIBOR floor), due 12/23/2014)(4)(25)
—

—

—

—%
Senior Secured Note A to MITY, Inc. (10.00% (LIBOR + 7.00% with 3.00% LIBOR floor), due 3/19/2019)(3)(4)
18,250

18,250

18,250

0.5%
Senior Secured Note B to MITY, Inc. (10.00% (LIBOR + 7.00% with 3.00% LIBOR floor) plus 10.00% PIK, due 3/19/2019)(4)
15,769

15,769

15,769

0.4%
Common Stock of MITY Holdings of Delaware Inc. (100 shares)
 
14,143

15,270

0.4%
 
 
 
 
48,162

49,289

1.3%
Nationwide Acceptance Holdings LLC(22)(36)
Illinois / Consumer Finance
Subordinated Term Loan to Nationwide Acceptance LLC (10.00% plus 10.00% PIK, due 6/18/2019)
14,820

14,820

14,820

0.4%
Membership Interest in Nationwide Acceptance Holdings LLC
 
14,331

15,103

0.4%
 
 
 
 
29,151

29,923

0.8%
NMMB Holdings, Inc.(24)
New York / Media
Senior Secured Note to NMMB, Inc. (14.00%, due 5/6/2016)
3,714

3,714

2,183

0.1%
Senior Secured Note to Armed Forces Communications, Inc. (14.00%, due 5/6/2016)
7,000

7,000

4,114

0.1%
Series B Convertible Preferred Stock of NMMB Holdings, Inc. (8,086 shares)
 
8,086

—

—%
Series A Preferred Stock of NMMB Holdings, Inc. (4,400 shares)
 
4,400

—

—%
 
 
 
 
23,200

6,297

0.2%
NPH Property
Holdings, LLC(40)
Texas / Real Estate
Senior Term Loan to National Property REIT Corp. (6.00% (LIBOR + 4.00% with 2.00% LIBOR floor) plus 5.50% PIK, due 4/1/2019)(4)
105,309

105,309

105,309

2.9%
Membership Interest in NPH Property Holdings, LLC
 
21,290

19,202

0.5%
 
 
 
 
126,599

124,511

3.4%

See notes to consolidated financial statements.
21

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)
(in thousands, except share data)

 
 
 
June 30, 2014 (Audited)
Portfolio Company
Locale / Industry
Investments(1)
Principal Value
Cost
Fair
Value(2)
% of Net Assets
 
 
 
 
 
 
 
LEVEL 3 PORTFOLIO INVESTMENTS
 
 
 
 
 
 
 
 
 
 
 
Control Investments (greater than 25.00% voting control)(46)
 
 
 
 
 
 
 
 
 
 
 
R-V Industries, Inc.
Pennsylvania / Manufacturing
Senior Subordinated Note to R-V Industries, Inc. (10.00% (LIBOR + 9.00% with 1.00% LIBOR floor), due 6/12/2018)(3)(4)
$
30,411

$
30,411

$
30,411

0.8%
Common Stock of R-V Industries, Inc. (545,107 shares)
 
5,087

19,989

0.6%
Warrant (to purchase 200,000 shares of Common Stock of R-V Industries, expires 6/30/2017)
 
1,682

7,334

0.2%
 
 
 
 
37,180

57,734

1.6%
STI Holding, Inc.(21)
California / Manufacturing
Revolving Line of Credit to Borga, Inc. – $1,150 Commitment (5.00% (PRIME + 1.75%), in non-accrual status effective 3/2/2010, past due)(4)(25)
1,150

1,095

436

—%
Senior Secured Term Loan B to Borga, Inc. (8.50% (PRIME + 5.25%), in non-accrual status effective 3/2/2010, past due)(4)
1,612

1,501

—

—%
Senior Secured Term Loan C to Borga, Inc. (12.00% plus 4.00% PIK, in non-accrual status effective 3/2/2010, past due)
10,016

581

—

—%
Common Stock of STI Holding, Inc. (100 shares)
 
—

—

—%
Warrant (to purchase 33,750 shares of Common Stock of Borga, Inc., expires 5/6/2015)
 
—

—

—%
 
 
 
 
3,177

436

—%
UPH Property
Holdings, LLC(41)
Georgia /
Real Estate
Senior Term Loan to United Property REIT Corp. (6.00% (LIBOR + 4.00% with 2.00% LIBOR floor) plus 5.50% PIK, due 4/1/2019)(4)
19,027

19,027

19,027

0.5%
Membership Interest in UPH Property Holdings, LLC
 
5,113

5,539

0.2%
 
 
 
 
24,140

24,566

0.7%
Valley Electric
Holdings I, Inc.(35)
Washington / Construction & Engineering
Senior Secured Note to Valley Electric Co. of Mt. Vernon, Inc. (8.00% (LIBOR + 5.00% with 3.00% LIBOR floor) plus 2.50% PIK, due 12/31/2017)(3)(4)
10,081

10,081

10,081

0.3%
Senior Secured Note to Valley Electric Company, Inc. (10.00% plus 8.5% PIK, due 12/31/2018)
20,500

20,500

20,500

0.6%
Common Stock of Valley Electric Holdings I, Inc. (100 shares)
 
26,279

2,975

—%
 
 
 
 
56,860

33,556

0.9%
Wolf Energy
Holdings Inc.(12)
Kansas / Oil & Gas Production
Senior Secured Promissory Note to Wolf Energy, LLC secured by assets formerly owned by H&M (18.00%, in non-accrual status effective 4/15/2013, due 4/15/2018)(37)
22,000

—

3,386

0.1%
Senior Secured Note to Appalachian Energy LLC (8.00%, in non-accrual status effective 1/19/2010, past due)
2,865

2,000

—

—%
Senior Secured Note to Appalachian Energy LLC (8.00%, in non-accrual status, past due)
56

50

—

—%
Senior Secured Note to Coalbed, LLC (8.00%, in non-accrual status effective 1/19/2010, past due)(6)
8,595

5,991

—

—%
Common Stock of Wolf Energy Holdings Inc.
(100 shares)
 
—

—

—%
Net Profits Interest in Wolf Energy, LLC (8% of Equity Distributions)(7)
 
—

213

—%
 
 
 
 
8,041

3,599

0.1%
Total Control Investments
 
$
1,719,242

$
1,640,454

45.3%

See notes to consolidated financial statements.
22

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)
(in thousands, except share data)

 
 
 
June 30, 2014 (Audited)
Portfolio Company
Locale / Industry
Investments(1)
Principal Value
Cost
Fair
Value(2)
% of Net Assets
 
 
 
 
 
 
 
LEVEL 3 PORTFOLIO INVESTMENTS
 
 
 
 
 
 
 
 
 
 
 
Affiliate Investments (5.00% to 24.99% voting control)(47)
 
 
 
 
 
 
 
 
 
 
 
BNN Holdings Corp.
Michigan / Healthcare
Senior Secured Note (10.00% (LIBOR + 8.00% with 2.00% LIBOR floor), due 12/17/2017)(3)(4)
$
28,950

$
28,950

$
28,950

0.8%
Series A Preferred Stock (9,925.455 shares)(13)
 
2,879

3,171

0.1%
Series B Preferred Stock (1,753.636 shares)(13)
 
—

—

—%
 
 
 
 
31,829

32,121

0.9%
Total Affiliate Investments
 
$
31,829

$
32,121

0.9%
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
 
 
 
 
 
 
 
 
 
 
 
Aderant North America, Inc.(16)
Georgia /
Software & Computer Services
Second Lien Term Loan (10.00% (LIBOR + 8.75% with 1.25% LIBOR floor), due 6/20/2019)(4)
$
7,000

$
6,914

$
7,000

0.2%
 
 
 
 
6,914

7,000

0.2%
Aircraft Fasteners International, LLC
California / Machinery
Class A Units (32,500 units)
 
396

505

—%
 
 
 
 
396

505

—%
ALG USA Holdings, LLC(16)
Pennsylvania / Hotels, Restaurants & Leisure
Second Lien Term Loan (10.25% (LIBOR + 9.00% with 1.25% LIBOR floor), due 2/28/2020)(4)
12,000

11,792

12,000

0.3%
 
 
 
 
11,792

12,000

0.3%
Allied Defense Group, Inc.
Virginia / Aerospace & Defense
Common Stock (10,000 shares)
 
5

—

—%
 
 
 
 
5

—

—%
American Broadband Holding Company and Cameron Holdings of NC, Inc.
North Carolina / Telecommunication Services
Senior Secured Term Loan B (11.00% (LIBOR + 9.75% with 1.25% LIBOR floor), due 9/30/2018)(3)(4)
74,654

74,654

74,654

2.1%
 
 
 
 
74,654

74,654

2.1%
American Gilsonite Company
Utah /
Metal Services & Minerals
Second Lien Term Loan (11.50%, due 9/1/2017)
38,500

38,500

38,500

1.1%
Membership Interest (99.9999%)(15)
 
—

3,477

0.1%
 
 
 
 
38,500

41,977

1.2%
Apidos CLO IX(22)
Cayman Islands / Diversified Financial Services
Subordinated Notes (Residual Interest, current yield 18.84%)(11)
20,525

18,444

19,903

0.5%
 
 
 
 
18,444

19,903

0.5%
Apidos CLO XI(22)
Cayman Islands / Diversified Financial Services
Subordinated Notes (Residual Interest, current yield 15.02%)(11)
38,340

33,937

37,087

1.0%
 
 
 
 
33,937

37,087

1.0%
Apidos CLO XII(22)
Cayman Islands / Diversified Financial Services
Subordinated Notes (Residual Interest, current yield 15.82%)(11)
44,063

42,042

42,499

1.2%
 
 
 
 
42,042

42,499

1.2%
Apidos CLO XV(22)
Cayman Islands / Diversified Financial Services
Subordinated Notes (Residual Interest, current yield 14.21%)(11)
36,515

37,038

36,715

1.0%
 
 
 
 
37,038

36,715

1.0%
Arctic Glacier U.S.A., Inc.
Minnesota /
Food Products
Second Lien Term Loan (10.50% (LIBOR + 9.25% with 1.25% LIBOR floor), due 11/10/2019)(3)(4)
150,000

150,000

150,000

4.1%
 
 
 
 
150,000

150,000

4.1%

See notes to consolidated financial statements.
23

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)
(in thousands, except share data)

 
 
 
June 30, 2014 (Audited)
Portfolio Company
Locale / Industry
Investments(1)
Principal Value
Cost
Fair
Value(2)
% of Net Assets
 
 
 
 
 
 
 
LEVEL 3 PORTFOLIO INVESTMENTS
 
 
 
 
 
 
 
 
 
 
 
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
 
 
 
 
 
 
 
 
 
 
 
Ark-La-Tex Wireline Services, LLC(4)
Louisiana / Oil and Gas Production
Senior Secured Term Loan A (6.50% (LIBOR + 5.50% with 1.00% LIBOR floor), due 4/8/2019)
$
26,831

$
26,831

$
26,831

0.7%
Senior Secured Term Loan B (10.50% (LIBOR + 9.50% with 1.00% LIBOR floor), due 4/8/2019)
26,831

26,831

26,831

0.7%
Delayed Draw Term Loan – $5,000 Commitment
(due 4/8/2019)(25)
—

—

—

—%
 
 
 
 
53,662

53,662

1.4%
Armor Holding
II LLC(16)
New York / Diversified Financial Services
Second Lien Term Loan (10.25% (LIBOR + 9.00% with 1.25% LIBOR floor), due 12/26/2020)(3)(4)
7,000

6,874

6,874

0.2%
 
 
 
 
6,874

6,874

0.2%
Atlantis Health Care Group (Puerto Rico), Inc.
Puerto Rico / Healthcare
Revolving Line of Credit – $3,000 Commitment (13.00% (LIBOR + 11.00% with 2.00% LIBOR floor), due 8/21/2014)(4)(25)(26)
2,350

2,350

2,350

0.1%
Senior Term Loan (10.00% (LIBOR + 8.00% with 2.00% LIBOR floor), due 2/21/2018)(3)(4)
38,957

38,957

34,102

0.9%
 
 
 
 
41,307

36,452

1.0%
Babson CLO Ltd.
2011-I(22)
Cayman Islands / Diversified Financial Services
Subordinated Notes (Residual Interest, current yield 12.44%)(11)
35,000

33,591

33,801

0.9%
 
 
 
 
33,591

33,801

0.9%
Babson CLO Ltd.
2012-I(22)
Cayman Islands / Diversified Financial Services
Subordinated Notes (Residual Interest, current yield 13.35%)(11)
29,075

23,471

26,401

0.7%
 
 
 
 
23,471

26,401

0.7%
Babson CLO Ltd.
2012-II(22)
Cayman Islands / Diversified Financial Services
Subordinated Notes (Residual Interest, current yield 11.33%)(11)
27,850

26,764

27,230

0.8%
 
 
 
 
26,764

27,230

0.8%
Blue Coat
Systems, Inc.(16)
Massachusetts / Software & Computer Services
Second Lien Term Loan (9.50% (LIBOR + 8.50% with 1.00% LIBOR floor), due 6/28/2020)(3)(4)
11,000

10,902

11,000

0.3%
 
 
 
 
10,902

11,000

0.3%
Broder Bros., Co.
Pennsylvania / Textiles, Apparel & Luxury Goods
Senior Secured Notes (10.25% (LIBOR + 9.00% with 1.25% LIBOR floor), due 4/8/2019)(3)(4)
257,575

257,575

257,575

7.1%
 
 
 
 
257,575

257,575

7.1%
Brookside Mill
CLO Ltd.(22)
Cayman Islands / Diversified Financial Services
Subordinated Notes (Residual Interest, current yield 19.62%)(11)
26,000

22,613

25,081

0.7%
 
 
 
 
22,613

25,081

0.7%
Byrider Systems Acquisition Corp.(22)
Indiana / Auto Finance
Senior Subordinated Notes (12.00% plus 2.00% PIK, due 11/3/2016)(3)
11,139

11,139

11,139

0.3%
 
 
 
 
11,139

11,139

0.3%
Caleel + Hayden, LLC(14)(31)
Colorado / Personal & Nondurable Consumer Products
Membership Interest
 
—

182

—%
Escrow Receivable
 
—

118

—%
 
 
 
 
—

300

—%
Capstone Logistics, LLC
Georgia / Commercial Services
Senior Secured Term Loan A (6.50% (LIBOR + 5.00% with 1.50% LIBOR floor), due 9/16/2016)(4)
92,085

92,085

92,085

2.6%
Senior Secured Term Loan B (11.50% (LIBOR + 10.00% with 1.50% LIBOR floor), due 9/16/2016)(3)(4)
98,465

98,465

98,465

2.7%
 
 
 
 
190,550

190,550

5.3%
 
 
 
 
 
 
 

See notes to consolidated financial statements.
24

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)
(in thousands, except share data)

 
 
 
June 30, 2014 (Audited)
Portfolio Company
Locale / Industry
Investments(1)
Principal Value
Cost
Fair
Value(2)
% of Net Assets
 
 
 
 
 
 
 
LEVEL 3 PORTFOLIO INVESTMENTS
 
 
 
 
 
 
 
 
 
 
 
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
 
 
 
 
 
 
 
 
 
 
 
Cent CLO 17 Limited(22)
Cayman Islands / Diversified Financial Services
Subordinated Notes (Residual Interest, current yield 10.10%)(11)
$
24,870

$
21,999

$
23,896

0.7%
 
 
 
 
21,999

23,896

0.7%
Cent CLO 20 Limited(22)
Cayman Islands / Diversified Financial Services
Subordinated Notes (Residual Interest, current yield 10.83%)(11)
40,275

40,483

40,259

1.1%
 
 
 
 
40,483

40,259

1.1%
Cent CLO 21 Limited(22)
Cayman Islands / Diversified Financial Services
Subordinated Notes (Residual Interest, current yield 15.47%)(11)
48,528

46,597

46,154

1.3%
 
 
 
 
46,597

46,154

1.3%
CIFC Funding
2011-I, Ltd.(22)
Cayman Islands / Diversified Financial Services
Class D Senior Secured Notes (5.23% (LIBOR + 5.00%, due 1/19/2023)(4)
19,000

15,304

18,037

0.5%
Class E Subordinated Notes (7.23% (LIBOR + 7.00%, due 1/19/2023)(4)
15,400

12,814

15,162

0.4%
 
 
 
 
28,118

33,199

0.9%
CIFC Funding
2013-III, Ltd.(22)
Cayman Islands / Diversified Financial Services
Subordinated Notes (Residual Interest, current yield 14.01%)(11)
44,100

39,534

43,217

1.2%
 
 
 
 
39,534

43,217

1.2%
CIFC Funding
2013-IV, Ltd.(22)
Cayman Islands / Diversified Financial Services
Subordinated Notes (Residual Interest, current yield 12.52%)(11)
45,500

40,255

40,934

1.1%
 
 
 
 
40,255

40,934

1.1%
Cinedigm DC
Holdings, LLC
New York / Software & Computer Services
Senior Secured Term Loan (11.00% (LIBOR + 9.00% with 2.00% LIBOR floor) plus 2.50% PIK, due 3/31/2021)(4)
68,714

68,664

68,714

1.9%
 
 
 
 
68,664

68,714

1.9%
The Copernicus
Group, Inc.
North Carolina / Healthcare
Escrow Receivable
 
—

115

—%
 
 
 
 
—

115

—%
Correctional Healthcare Holding Company, Inc.
Colorado / Healthcare
Second Lien Term Loan (11.25%, due 1/11/2020)(3)
27,100

27,100

27,642

0.8%
 
 
 
 
27,100

27,642

0.8%
Coverall North
America, Inc.
Florida / Commercial Services
Senior Secured Term Loan (11.50% (LIBOR + 8.50% with 3.00% LIBOR floor), due 12/17/2017)(3)(4)
51,210

51,210

51,210

1.4%
 
 
 
 
51,210

51,210

1.4%
Crosman Corporation
New York / Manufacturing
Second Lien Term Loan (12.00% (LIBOR + 10.50% with 1.50% LIBOR floor), due 12/30/2019)(3)(4)
40,000

40,000

39,708

1.1%
 
 
 
 
40,000

39,708

1.1%
CRT MIDCO, LLC
Wisconsin / Media
Senior Secured Term Loan (10.50% (LIBOR + 7.50% with 3.00% LIBOR floor), due 6/30/2017)(3)(4)
47,504

47,504

47,504

1.3%
 
 
 
 
47,504

47,504

1.3%
Deltek, Inc.(16)
Virginia /
Software & Computer Services
Second Lien Term Loan (10.00% (LIBOR + 8.75% with 1.25% LIBOR floor), due 10/10/2019)(3)(4)
12,000

11,852

12,000

0.3%
 
 
 
 
11,852

12,000

0.3%
Diamondback
Operating, LP
Oklahoma / Oil & Gas Production
Net Profits Interest (15% of Equity Distributions)
 
—

—

—%
 
 
 
 
—

—

—%
Edmentum, Inc.(16)
Minnesota / Consumer Services
Second Lien Term Loan (11.25% (LIBOR + 9.75% with 1.50% LIBOR floor), due 5/17/2019)(3)(4)
50,000

48,439

50,000

1.4%
 
 
 
 
48,439

50,000

1.4%

See notes to consolidated financial statements.
25

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)
(in thousands, except share data)

 
 
 
June 30, 2014 (Audited)
Portfolio Company
Locale / Industry
Investments(1)
Principal Value
Cost
Fair
Value(2)
% of Net Assets
 
 
 
 
 
 
 
LEVEL 3 PORTFOLIO INVESTMENTS
 
 
 
 
 
 
 
 
 
 
 
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
 
 
 
 
 
 
 
 
 
 
 
Empire Today, LLC
Illinois / Durable Consumer Products
Senior Secured Note (11.375%, due 2/1/2017)
$
15,700

$
15,419

$
15,700

0.4%
 
 
 
 
15,419

15,700

0.4%
Fischbein, LLC
North Carolina / Machinery
Escrow Receivable
 
—

116

—%
 
 
 
 
—

116

—%
Fleetwash, Inc.(4)
New Jersey / Business Services
Senior Secured Term Loan A (6.50% (LIBOR + 5.50% with 1.00% LIBOR floor), due 4/30/2019)
25,000

25,000

25,000

0.7%
Senior Secured Term Loan B (10.50% (LIBOR + 9.50% with 1.00% LIBOR floor), due 4/30/2019)
25,000

25,000

25,000

0.7%
Delayed Draw Term Loan – $15,000 Commitment (9.50% (LIBOR + 8.50% with 1.00% LIBOR floor), due 4/30/2019)(25)
—

—

—

—%
 
 
 
 
50,000

50,000

1.4%
Focus Brands, Inc.(16)
Georgia / Consumer Services
Second Lien Term Loan (10.25% (LIBOR + 9.00% with 1.25% LIBOR floor), due 8/21/2018)(4)
18,000

17,776

18,000

0.5%
 
 
 
 
17,776

18,000

0.5%
Focus Products Group International, LLC
Illinois /
Durable Consumer Products
Senior Secured Term Loan (12.00% (LIBOR + 11.00% with 1.00% LIBOR floor), due 1/20/2017)(3)(4)
20,297

20,297

19,886

0.5%
Common Stock (5,638 shares)
 
27

—

—%
 
 
 
 
20,324

19,886

0.5%
Galaxy XII CLO, Ltd.(22)
Cayman Islands / Diversified Financial Services
Subordinated Notes (Residual Interest, current yield 13.31%)(11)
22,000

19,498

20,449

0.6%
 
 
 
 
19,498

20,449

0.6%
Galaxy XV CLO, Ltd.(22)
Cayman Islands / Diversified Financial Services
Subordinated Notes (Residual Interest, current yield 14.27%)(11)
35,025

29,777

31,824

0.9%
 
 
 
 
29,777

31,824

0.9%
Galaxy XVI CLO, Ltd.(22)
Cayman Islands / Diversified Financial Services
Subordinated Notes (Residual Interest, current yield 12.19%)(11)
22,575

20,790

20,573

0.6%
 
 
 
 
20,790

20,573

0.6%
Galaxy XVII CLO, Ltd.(22)
Cayman Islands / Diversified Financial Services
Subordinated Notes (Residual Interest, current yield 14.79%)(11)
39,905

36,811

36,589

1.0%
 
 
 
 
36,811

36,589

1.0%
Global Employment Solutions, Inc.
Colorado / Business Services
Senior Secured Term Loan (10.00% (LIBOR + 9.00% with 1.00% LIBOR floor), due 3/25/2019)(3)(4)
28,464

28,464

28,464

0.8%
 
 
 
 
28,464

28,464

0.8%
Grocery Outlet, Inc.(16)
California / Retail
Second Lien Term Loan (10.50% (LIBOR + 9.25% with 1.25% LIBOR floor), due 6/17/2019)(4)
14,457

14,168

14,457

0.4%
 
 
 
 
14,168

14,457

0.4%
GTP Operations, LLC(10)
Texas / Software & Computer Services
Senior Secured Term Loan (10.00% (LIBOR + 5.00% with 5.00% LIBOR floor), due 12/11/2018)(3)(4)
112,546

112,546

112,546

3.1%
 
 
 
 
112,546

112,546

3.1%
Halcyon Loan Advisors Funding 2012-1 Ltd.(22)
Cayman Islands / Diversified Financial Services
Subordinated Notes (Residual Interest, current yield 21.35%)(11)
23,188

20,600

22,570

0.6%
 
 
 
 
20,600

22,570

0.6%
Halcyon Loan Advisors Funding 2013-1 Ltd.(22)
Cayman Islands / Diversified Financial Services
Subordinated Notes (Residual Interest, current yield 18.49%)(11)
40,400

38,460

41,509

1.1%
 
 
 
 
38,460

41,509

1.1%

See notes to consolidated financial statements.
26

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)
(in thousands, except share data)

 
 
 
June 30, 2014 (Audited)
Portfolio Company
Locale / Industry
Investments(1)
Principal Value
Cost
Fair
Value(2)
% of Net Assets
 
 
 
 
 
 
 
LEVEL 3 PORTFOLIO INVESTMENTS
 
 
 
 
 
 
 
 
 
 
 
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
 
 
 
 
 
 
 
 
 
 
 
Halcyon Loan Advisors Funding 2014-1 Ltd.(22)
Cayman Islands / Diversified Financial Services
Subordinated Notes (Residual Interest, current yield 15.28%)(11)
$
24,500

$
23,471

$
23,110

0.6%
 
 
 
 
23,471

23,110

0.6%
Halcyon Loan Advisors Funding 2014-2 Ltd.(22)
Cayman Islands / Diversified Financial Services
Subordinated Notes (Residual Interest, current yield 16.06%)(11)
41,164

38,630

38,066

1.1%
 
 
 
 
38,630

38,066

1.1%
Harley Marine Services, Inc.(16)
Washington / Transportation
Second Lien Term Loan (10.50% (LIBOR + 9.25% with 1.25% LIBOR floor), due 12/20/2019)(3)(4)
9,000

8,832

8,832

0.2%
 
 
 
 
8,832

8,832

0.2%
ICON Health & Fitness, Inc.
Utah / Durable Consumer Products
Senior Secured Note (11.875%, due 10/15/2016)
21,850

22,005

20,889

0.6%
 
 
 
 
22,005

20,889

0.6%
ICV-CSI Holdings, LLC
New York / Transportation
Common Equity (1.6 units)
 
1,639

2,079

0.1%
 
 
 
 
1,639

2,079

0.1%
IDQ Holdings, Inc.
Texas / Automobile
Senior Secured Note (11.50%, due 4/1/2017)
12,500

12,344

12,500

0.3%
 
 
 
 
12,344

12,500

0.3%
Ikaria, Inc.(16)
New Jersey / Healthcare
Second Lien Term Loan (8.75% (LIBOR + 7.75% with 1.00% LIBOR floor), due 2/12/2022)(4)
25,000

24,430

25,000

0.7%
 
 
 
 
24,430

25,000

0.7%
Injured Workers Pharmacy, LLC
Massachusetts / Healthcare
Second Lien Term Loan (11.50% (LIBOR + 7.00% with 4.50% LIBOR floor) plus 1.00% PIK, due 5/31/2019)(3)(4)
22,678

22,678

22,904

0.6%
 
 
 
 
22,678

22,904

0.6%
Instant Web, LLC(4)
Minnesota / Media
Senior Secured Term Loan A (5.50% (LIBOR + 4.50% with 1.00% LIBOR floor), due 3/28/2019)
126,453

126,453

126,453

3.5%
Senior Secured Term Loan B (12.00% (LIBOR + 11.00% with 1.00% LIBOR floor), due 3/28/2019)(3)
128,000

128,000

128,000

3.6%
Senior Secured Term Loan C (12.75% (LIBOR + 11.75% with 1.00% LIBOR floor), due 3/28/2019)
12,500

12,500

12,500

0.3%
 
 
 
 
266,953

266,953

7.4%
InterDent, Inc.
California / Healthcare
Senior Secured Term Loan A (7.25% (LIBOR + 5.75% with 1.50% LIBOR floor), due 8/3/2017)(4)
63,225

63,225

63,225

1.7%
Senior Secured Term Loan B (12.25% (LIBOR + 9.25% with 3.00% LIBOR floor), due 8/3/2017)(3)(4)
67,625

67,625

67,625

1.9%
 
 
 
 
130,850

130,850

3.6%
JHH Holdings, Inc.
Texas / Healthcare
Second Lien Term Loan (11.25% (LIBOR + 10.00% with 1.25% LIBOR floor) plus 0.50% PIK, due 3/30/2019)(3)(4)
35,119

35,119

35,119

1.0%
 
 
 
 
35,119

35,119

1.0%
LaserShip, Inc.
Virginia / Transportation
Revolving Line of Credit – $5,000 Commitment (10.25% (LIBOR + 8.25% with 2.00% LIBOR floor), due 12/21/2014)(4)(25)
—

—

—

—%
Senior Secured Term Loan A (10.25% (LIBOR + 8.25% with 2.00% LIBOR floor), due 3/18/2019)(3)(4)
36,094

36,094

36,094

1.0%
Senior Secured Term Loan B (10.25% (LIBOR + 8.25% with 2.00% LIBOR floor), due 3/18/2019)(3)(4)
22,111

22,111

22,111

0.6%
Delayed Draw Term Loan – $6,000 Commitment (2.00%, due 12/31/2015)(4)(25)
—

—

—

—%
 
 
 
 
58,205

58,205

1.6%
 
 
 
 
 
 
 

See notes to consolidated financial statements.
27

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)
(in thousands, except share data)

 
 
 
June 30, 2014 (Audited)
Portfolio Company
Locale / Industry
Investments(1)
Principal Value
Cost
Fair
Value(2)
% of Net Assets
 
 
 
 
 
 
 
LEVEL 3 PORTFOLIO INVESTMENTS
 
 
 
 
 
 
 
 
 
 
 
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
 
 
 
 
 
 
 
 
 
 
 
LCM XIV Ltd.(22)
Cayman Islands / Diversified Financial Services
Income Notes (Residual Interest, current yield 16.02%)(11)
$
26,500

$
24,914

$
25,124

0.7%
 
 
 
 
24,914

25,124

0.7%
LHC Holdings Corp.
Florida / Healthcare
Revolving Line of Credit – $750 Commitment (8.50% (LIBOR + 6.00% with 2.50% LIBOR floor), due 5/31/2015)(4)(25)(26)
—

—

—

—%
Senior Subordinated Debt (10.50%, due 5/31/2015)(3)
1,865

1,865

1,865

0.1%
Membership Interest (125 units)
 
216

253

—%
 
 
 
 
2,081

2,118

0.1%
Madison Park
Funding IX, Ltd.(22)
Cayman Islands / Diversified Financial Services
Subordinated Notes (Residual Interest, current yield 12.97%)(11)
31,110

24,546

27,266

0.8%
 
 
 
 
24,546

27,266

0.8%
Matrixx Initiatives, Inc.
New Jersey / Pharmaceuticals
Senior Secured Term Loan A (7.50% (LIBOR + 6.00% with 1.50% LIBOR floor), due 8/9/2018)(3)(4)
38,319

38,319

36,839

1.0%
Senior Secured Term Loan B (12.50% (LIBOR + 11.00% with 1.50% LIBOR floor), due 8/9/2018)(3)(4)
39,750

39,750

36,851

1.0%
 
 
 
 
78,069

73,690

2.0%
Maverick Healthcare Equity, LLC
Arizona / Healthcare
Preferred Units (1,250,000 units)
 
1,252

821

—%
Class A Common Units (1,250,000 units)
 
—

—

—%
 
 
 
 
1,252

821

—%
Mountain View CLO 2013-I Ltd.(22)
Cayman Islands / Diversified Financial Services
Subordinated Notes (Residual Interest, current yield 15.64%)(11)
43,650

40,754

43,555

1.2%
 
 
 
 
40,754

43,555

1.2%
NCP Finance Limited Partnership(22)(23)
Ohio /
Consumer Finance
Subordinated Secured Term Loan (11.00% (LIBOR + 9.75% with 1.25% LIBOR floor), due 9/30/2018)(3)(4)(16)
11,910

11,692

12,208

0.3%
 
 
 
 
11,692

12,208

0.3%
New Century Transportation, Inc.
New Jersey / Transportation
Senior Subordinated Term Loan (12.00% (LIBOR + 10.00% with 2.00% LIBOR floor) plus 4.00% PIK, in non-accrual status effective 4/1/2014, due 2/3/2018)(4)
44,000

44,000

—

—%
 
 
 
 
44,000

—

—%
Nixon, Inc.
California / Durable Consumer Products
Senior Secured Term Loan (8.75% plus 2.75% PIK, due 4/16/2018)(16)
13,532

13,316

13,316

0.4%
 
 
 
 
13,316

13,316

0.4%
NRG Manufacturing, Inc.
Texas / Manufacturing
Escrow Receivable
 
—

1,110

—%
 
 
 
 
—

1,110

—%
Octagon Investment Partners XV, Ltd.(22)
Cayman Islands / Diversified Financial Services
Income Notes (Residual Interest, current yield 20.60%)(11)
26,901

24,338

26,732

0.7%
 
 
 
 
24,338

26,732

0.7%
Onyx Payments
Texas / Diversified Financial Services
Senior Secured Term Loan A (6.75% (LIBOR + 5.50% with 1.25% LIBOR floor), due 4/18/2018)(4)
15,125

15,125

15,125

0.4%
Senior Secured Term Loan B (13.75% (LIBOR + 12.50% with 1.25% LIBOR floor), due 4/18/2018)(4)
15,938

15,938

15,938

0.4%
 
 
 
 
31,063

31,063

0.8%
Pelican Products, Inc.(16)
California / Durable Consumer Products
Second Lien Term Loan (9.25% (LIBOR + 8.25% with 1.00% LIBOR floor), due 4/9/2021)(4)
17,500

17,482

17,500

0.5%
 
 
 
 
17,482

17,500

0.5%
Photonis Technologies SAS(16)(22)
France / Aerospace & Defense
First Lien Term Loan (8.50% (LIBOR + 7.50% with 1.00% LIBOR floor), due 9/18/2019)(4)
10,448

10,170

10,339

0.3%
 
 
 
 
10,170

10,339

0.3%

See notes to consolidated financial statements.
28

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)
(in thousands, except share data)

 
 
 
June 30, 2014 (Audited)
Portfolio Company
Locale / Industry
Investments(1)
Principal Value
Cost
Fair
Value(2)
% of Net Assets
 
 
 
 
 
 
 
LEVEL 3 PORTFOLIO INVESTMENTS
 
 
 
 
 
 
 
 
 
 
 
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
 
 
 
 
 
 
 
 
 
 
 
Pinnacle (US) Acquisition Co. Limited(16)
Texas / Software & Computer Services
Second Lien Term Loan (10.50% (LIBOR + 9.25% with 1.25% LIBOR floor), due 8/3/2020)(4)
$
10,000

$
9,833

$
10,000

0.3%
 
 
 
 
9,833

10,000

0.3%
PrimeSport, Inc.
Georgia / Hotels, Restaurants & Leisure
Revolving Line of Credit – $15,000 Commitment (10.00% (LIBOR + 9.50% with 0.50% LIBOR floor), due 12/23/2014)(4)(25)
—

—

—

—%
Senior Secured Term Loan A (7.50% (LIBOR + 6.50% with 1.00% LIBOR floor), due 12/23/2019)(3)(4)
43,263

43,263

43,263

1.2%
Senior Secured Term Loan B (11.50% (LIBOR + 10.50% with 1.00% LIBOR floor) plus 1.00% PIK, due 12/23/2019)(3)(4)
43,700

43,700

43,700

1.2%
 
 
 
 
86,963

86,963

2.4%
Prince Mineral
Holding Corp.
New York / Metal Services & Minerals
Senior Secured Term Loan (11.50%, due 12/15/2019)
10,000

9,902

10,000

0.3%
 
 
 
 
9,902

10,000

0.3%
Progrexion
Holdings, Inc.(28)
Utah / Consumer Services
Senior Secured Term Loan (10.50% (LIBOR + 8.50% with 2.00% LIBOR floor), due 9/14/2017)(3)(4)
436,647

436,647

436,647

12.1%
 
 
 
 
436,647

436,647

12.1%
Rocket Software, Inc.(16)
Massachusetts / Software & Computer Services
Second Lien Term Loan (10.25% (LIBOR + 8.75% with 1.50% LIBOR floor), due 2/8/2019)(3)(4)
20,000

19,758

20,000

0.6%
 
 
 
 
19,758

20,000

0.6%
Royal Adhesives & Sealants, LLC(16)
Indiana / Chemicals
Second Lien Term Loan (9.75% (LIBOR + 8.50% with 1.25% LIBOR floor), due 1/31/2019)(4)
20,000

19,648

19,713

0.5%
 
 
 
 
19,648

19,713

0.5%
Ryan, LLC
Texas / Business Services
Subordinated Unsecured Notes (12.00% (LIBOR + 9.00% with 3.00% LIBOR floor) plus 3.00% PIK, due 6/30/2018)(4)
70,531

70,531

70,531

1.9%
 
 
 
 
70,531

70,531

1.9%
Sandow Media, LLC
Florida / Media
Senior Secured Term Loan (12.00%, due 5/8/2018)(3)
25,081

25,081

23,524

0.7%
 
 
 
 
25,081

23,524

0.7%
Small Business Whole Loan Portfolio(19)
New York / Diversified Financial Services
144 small business loans issued by OnDeck Capital, Inc.
4,637

4,637

4,252

0.1%
 
 
 
 
4,637

4,252

0.1%
Snacks Parent Corporation
Minnesota / Food Products
Series A Preferred Stock (4,021.45 shares)
 
—

—

—%
Series B Preferred Stock (1,866.10 shares)
 
—

—

—%
Warrant (to purchase 31,196.52 shares of Common Stock, expires 11/12/2020)
 
591

1,819

0.1%
 
 
 
 
591

1,819

0.1%
Spartan Energy Services, Inc.
Louisiana / Energy
Senior Secured Term Loan (10.50% (LIBOR + 9.00% with 1.50% LIBOR floor), due 12/28/2017)(3)(4)
35,633

35,633

35,633

1.0%
 
 
 
 
35,633

35,633

1.0%
Speedy Group Holdings Corp.(22)
Canada / Consumer Finance
Senior Unsecured Notes (12.00%, due 11/15/2017)
15,000

15,000

15,000

0.4%
 
 
 
 
15,000

15,000

0.4%
Sport Helmets Holdings, LLC(14)
New York / Personal & Nondurable Consumer Products
Escrow Receivable
 
—

130

—%
 
 
 
 
—

130

—%

See notes to consolidated financial statements.
29

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)
(in thousands, except share data)

 
 
 
June 30, 2014 (Audited)
Portfolio Company
Locale / Industry
Investments(1)
Principal Value
Cost
Fair
Value(2)
% of Net Assets
 
 
 
 
 
 
 
LEVEL 3 PORTFOLIO INVESTMENTS
 
 
 
 
 
 
 
 
 
 
 
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
 
 
 
 
 
 
 
 
 
 
 
Stauber Performance Ingredients, Inc.
California / Food Products
Senior Secured Term Loan (10.50% (LIBOR + 7.50% with 3.00% LIBOR floor), due 1/21/2016)(3)(4)
$
12,809

$
12,809

$
12,809

0.4%
Senior Secured Term Loan (10.50% (LIBOR + 7.50% with 3.00% LIBOR floor), due 5/21/2017)(3)(4)
9,975

9,975

9,975

0.3%
 
 
 
 
22,784

22,784

0.7%
Stryker Energy, LLC
Ohio / Oil & Gas Production
Subordinated Secured Revolving Credit Facility – $50,300 Commitment (12.25% (LIBOR + 10.75% with 1.50% LIBOR floor) plus 3.75% PIK, in non-accrual status effective 12/1/2011, due 12/1/2015)(4)(25)
36,080

32,710

—

—%
Overriding Royalty Interests(18)
 
—

—

—%
 
 
 
 
32,710

—

—%
Sudbury Mill
CLO Ltd.(22)
Cayman Islands / Diversified Financial Services
Subordinated Notes (Residual Interest, current yield 16.25%)(11)
28,200

26,914

26,140

0.7%
 
 
 
 
26,914

26,140

0.7%
Symphony CLO
IX Ltd.(22)
Cayman Islands / Diversified Financial Services
Preference Shares (Residual Interest, current yield 19.76%)(11)
45,500

37,734

44,294

1.2%
 
 
 
 
37,734

44,294

1.2%
Symphony CLO
XIV Ltd.(22)
Cayman Islands / Diversified Financial Services
Subordinated Notes (Residual Interest, current yield 14.03%)(11)
49,250

49,858

49,025

1.4%
 
 
 
 
49,858

49,025

1.4%
System One
Holdings, LLC
Pennsylvania / Business Services
Senior Secured Term Loan (11.00% (LIBOR + 9.50% with 1.50% LIBOR floor), due 12/31/2018)(3)(4)
44,646

44,646

44,646

1.2%
 
 
 
 
44,646

44,646

1.2%
Targus Group International, Inc.(16)
California / Durable Consumer Products
First Lien Term Loan (11.00% (LIBOR + 9.50% with 1.50% LIBOR floor) plus 1.0% PIK, due 5/24/2016)(3)(4)
21,911

21,697

19,949

0.6%
 
 
 
 
21,697

19,949

0.6%
TB Corp.
Texas / Hotels, Restaurants & Leisure
Senior Subordinated Note (12.00% plus 1.50% PIK, due 12/19/2018)(3)
23,628

23,628

23,628

0.7%
 
 
 
 
23,628

23,628

0.7%
Tectum
Holdings, Inc.(16)
Michigan / Automobile
Second Lien Term Loan (9.00% (LIBOR + 8.00% with 1.00% LIBOR floor), due 3/12/2019)(4)
10,000

9,952

9,952

0.3%
 
 
 
 
9,952

9,952

0.3%
Therakos, Inc.
New Jersey / Healthcare
Second Lien Term Loan (11.25% (LIBOR + 10.00% with 1.25% LIBOR floor), due 6/27/2018)(4)
13,000

12,762

13,000

0.4%
 
 
 
 
12,762

13,000

0.4%
Tolt Solutions, Inc.
South Carolina / Business Services
Senior Secured Term Loan A (7.00% (LIBOR + 6.00% with 1.00% LIBOR floor), due 3/7/2019)(3)(4)
48,705

48,705

48,705

1.3%
Senior Secured Term Loan B (12.00% (LIBOR + 11.00% with 1.00% LIBOR floor), due 3/7/2019)(3)(4)
48,900

48,900

48,900

1.4%
 
 
 
 
97,605

97,605

2.7%
Traeger Pellet Grills LLC
Oregon / Durable Consumer Products
Senior Secured Term Loan A (6.50% (LIBOR + 4.50% with 2.00% LIBOR floor), due 6/18/2018)(3)(4)
29,100

29,100

29,100

0.8%
Senior Secured Term Loan B (11.50% (LIBOR + 9.50% with 2.00% LIBOR floor), due 6/18/2018)(3)(4)
29,700

29,700

29,700

0.8%
 
 
 
 
58,800

58,800

1.6%
Transaction Network Services, Inc.(16)
Virginia / Telecommunication Services
Second Lien Term Loan (9.00% (LIBOR + 8.00% with 1.00% LIBOR floor), due 8/14/2020)(4)
5,000

4,976

5,000

0.1%
 
 
 
 
4,976

5,000

0.1%

See notes to consolidated financial statements.
30

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)
(in thousands, except share data)

 
 
 
June 30, 2014 (Audited)
Portfolio Company
Locale / Industry
Investments(1)
Principal Value
Cost
Fair
Value(2)
% of Net Assets
 
 
 
 
 
 
 
LEVEL 3 PORTFOLIO INVESTMENTS
 
 
 
 
 
 
 
 
 
 
 
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
 
 
 
 
 
 
 
 
 
 
 
TriMark USA, LLC(16)
Massachusetts / Hotels, Restaurants & Leisure
Second Lien Term Loan (10.00% (LIBOR + 9.00% with 1.00% LIBOR floor), due 8/11/2019)(4)
$
10,000

$
9,810

$
9,810

0.3%
 
 
 
 
9,810

9,810

0.3%
United Sporting Companies, Inc.(5)
South Carolina / Durable Consumer Products
Second Lien Term Loan (12.75% (LIBOR + 11.00% with 1.75% LIBOR floor), due 5/16/2018)(3)(4)
160,000

160,000

160,000

4.4%
 
 
 
 
160,000

160,000

4.4%
United States Environmental Services, LLC
Texas / Commercial Services
Senior Secured Term Loan A (6.50% (LIBOR + 5.50% with 1.00% LIBOR floor), due 3/31/2019)(3)(4)
23,850

23,850

23,850

0.7%
Senior Secured Term Loan B (11.50% (LIBOR + 10.50% with 1.00% LIBOR floor), due 3/31/2019)(3)(4)
36,000

36,000

36,000

1.0%
 
 
 
 
59,850

59,850

1.7%
Venio LLC
Pennsylvania / Business Services
Second Lien Term Loan (12.00% (LIBOR + 9.50% with 2.50% LIBOR floor), due 2/19/2020)(3)(4)
17,000

17,000

16,726

0.5%
 
 
 
 
17,000

16,726

0.5%
Voya CLO 2012-2, Ltd.(22)
Cayman Islands / Diversified Financial Services
Income Notes (Residual Interest, current yield 14.69%)(11)
38,070

31,058

35,843

1.0%
 
 
 
 
31,058

35,843

1.0%
Voya CLO 2012-3, Ltd.(22)
Cayman Islands / Diversified Financial Services
Income Notes (Residual Interest, current yield 12.97%)(11)
46,632

39,368

43,960

1.2%
 
 
 
 
39,368

43,960

1.2%
Voya CLO 2012-4, Ltd.(22)
Cayman Islands / Diversified Financial Services
Income Notes (Residual Interest, current yield 15.28%)(11)
40,613

34,941

39,647

1.1%
 
 
 
 
34,941

39,647

1.1%
Voya CLO 2014-1, Ltd.(22)
Cayman Islands / Diversified Financial Services
Subordinated Notes (Residual Interest, current yield 14.49%)(11)
32,383

33,825

32,949

0.9%
 
 
 
 
33,825

32,949

0.9%
Washington Mill CLO Ltd.(22)
Cayman Islands / Diversified Financial Services
Subordinated Notes (Residual Interest, current yield 17.43%)(11)
22,600

21,601

21,583

0.6%
 
 
 
 
21,601

21,583

0.6%
Water Pik, Inc.(16)
Colorado / Personal & Nondurable Consumer Products
Second Lien Term Loan (9.75% (LIBOR + 8.75% with 1.00% LIBOR floor), due 1/8/2021)(4)
11,000

10,604

10,604

0.3%
 
 
 
 
10,604

10,604

0.3%
Wheel Pros, LLC(4)
Colorado / Business Services
Senior Subordinated Secured Note (11.00% (LIBOR + 7.00% with 4.00% LIBOR floor), due 6/29/2020)
12,000

12,000

12,000

0.3%
Delayed Draw Term Loan – $3,000 Commitment (11.00% (LIBOR + 7.00% with 4.00% LIBOR floor), due 12/30/2015)(25)
—

—

—

—%
 
 
 
 
12,000

12,000

0.3%
Wind River Resources Corporation(39)
Utah / Oil & Gas Production
Senior Secured Note (13.00% (LIBOR + 7.50% with 5.50% LIBOR floor) plus 3.00% default interest on principal and 16.00% default interest on past due interest, in non-accrual status effective 12/1/2008, past due)(4)
15,000

14,650

—

—%
Net Profits Interest (5% of Equity Distributions)(7)
 
—

—

—%
 
 
 
 
14,650

—

—%
Total Non-Control/Non-Affiliate Investments (Level 3)
 
$
4,620,388

$
4,580,996

126.6%
 
 
 
 
 
Total Level 3 Portfolio Investments
 
$
6,371,459

$
6,253,571

172.8%

See notes to consolidated financial statements.
31

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)
(in thousands, except share data)

 
 
 
June 30, 2014 (Audited)
Portfolio Company
Locale / Industry
Investments(1)
Principal Value
Cost
Fair
Value(2)
% of Net Assets
 
 
 
 
 
 
 
LEVEL 1 PORTFOLIO INVESTMENTS
 
 
 
 
 
 
 
 
 
 
 
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
 
 
 
 
 
 
 
 
 
 
 
Dover Saddlery, Inc.
Massachusetts / Retail
Common Stock (30,974 shares)
 
$
63

$
168

—%
 
 
 
 
63

168

—%
Total Non-Control/Non-Affiliate Investments (Level 1)
$
63

$
168

—%
 
 
 
 
 
Total Non-Control/Non-Affiliate Investments
$
4,620,451

$
4,581,164

126.6%
 
 
 
 
 
Total Portfolio Investments
$
6,371,522

$
6,253,739

172.8%



See notes to consolidated financial statements.
32

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)
(in thousands, except share data)

Endnote Explanations as of September 30, 2014 (Unaudited) and June 30, 2014 (Audited)

(1)
The terms “Prospect,” “we,” “us” and “our” mean Prospect Capital Corporation and its subsidiaries unless the context specifically requires otherwise. The securities in which Prospect has invested were acquired in transactions that were exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”). These securities may be resold only in transactions that are exempt from registration under the Securities Act.
(2)
Fair value is determined by or under the direction of our Board of Directors. As of September 30, 2014 and June 30, 2014, one of our portfolio investments, Dover Saddlery, Inc., was publicly traded and classified as Level 1 within the valuation hierarchy established by ASC 820, Fair Value Measurement (“ASC 820”). As of September 30, 2014 and June 30, 2014, the fair value of our remaining portfolio investments was determined using significant unobservable inputs. ASC 820 classifies such inputs used to measure fair value as Level 3 within the valuation hierarchy. See Notes 2 and 3 within the accompanying notes to consolidated financial statements for further discussion.
(3)
Security, or a portion thereof, is held by Prospect Capital Funding LLC (“PCF”), our wholly-owned subsidiary and a bankruptcy remote special purpose entity, and is pledged as collateral for the Revolving Credit Facility and such security is not available as collateral to our general creditors (see Note 4). The fair values of these investments held by PCF at September 30, 2014 and June 30, 2014 were $1,362,888 and $1,500,897, respectively; they represent 21.8% and 24.0% of our total investments, respectively.
(4)
Security, or portion thereof, has a floating interest rate which may be subject to a LIBOR or PRIME floor. Stated interest rate was in effect at September 30, 2014 and June 30, 2014.
(5)
Ellett Brothers, LLC, Evans Sports, Inc., Jerry’s Sports, Inc., Simmons Gun Specialties, Inc., Bonitz Brothers, Inc., and Outdoor Sports Headquarters, Inc. are joint borrowers on our second lien loan. United Sporting Companies, Inc. is a parent guarantor of this debt investment.
(6)
During the quarter ended December 31, 2009, we created two new entities, Coalbed, Inc. and Coalbed, LLC, to foreclose on the outstanding senior secured loan and assigned rights and interests of Conquest Cherokee, LLC (“Conquest”) as a result of the deterioration of Conquest’s financial performance and inability to service debt payments. We owned 1,000 shares of common stock in Coalbed, Inc., representing 100% of the issued and outstanding common stock. Coalbed, Inc., in turn, owned 100% of the membership interest in Coalbed, LLC. On October 21, 2009, Coalbed, LLC foreclosed on the loan formerly made to Conquest. On January 19, 2010, as part of the Manx Energy, Inc. ("Manx") rollup, the Coalbed, LLC assets and loan were assigned to Manx, the holding company. On June 30, 2012, Manx contributed our investment in Coalbed, LLC to Wolf Energy Holdings Inc. ("Wolf Energy Holdings"), a newly-formed, separately owned holding company. Our Board of Directors set the fair value at zero for the loan position in Coalbed, LLC investment as of September 30, 2014 and June 30, 2014. As of September 30, 2014 and June 30, 2014, Prospect owns 41% of the equity of Manx.
(7)
In addition to the stated returns, the net profits interest held will be realized upon sale of the borrower or a sale of the interests.
(8)
During the quarter ended December 31, 2011, our ownership of Change Clean Energy Holdings, LLC, Change Clean Energy, LLC, Freedom Marine Services Holdings, LLC (“Freedom Marine”), and Yatesville Coal Holdings, LLC was transferred to Energy Solutions Holdings Inc. (f/k/a Gas Solutions Holdings, Inc.) (“Energy Solutions”) to consolidate all of our energy holdings under one management team. We own 100% of Energy Solutions. On December 28, 2011, we made a $3,500 debt investment in Vessel Holdings, LLC, a subsidiary of Freedom Marine. On November 25, 2013, we provided $13,000 in senior secured debt financing for the recapitalization of our investment in Jettco Marine Services, LLC (“Jettco”), a subsidiary of Freedom Marine. The subordinated secured loan to Jettco was replaced with a senior secured note to Vessel Holdings II, LLC, a new subsidiary of Freedom Marine. On December 3, 2013, we made a $16,000 senior secured investment in Vessel Holdings III, LLC, another new subsidiary of Freedom Marine. In June 2014, Freedom Marine Services Holdings, LLC was renamed Freedom Marine Solutions, LLC; Vessel Holdings, LLC was renamed Vessel Company, LLC; Vessel Holdings II, LLC was renamed Vessel Company II, LLC; Vessel Holdings III, LLC was renamed Vessel Company III, LLC; Yatesville Coal Holdings, LLC was renamed Yatesville Coal Company, LLC; and Change Clean Energy Holdings, LLC was renamed Change Clean Energy Company, LLC. Energy Solutions continues to own 100% of all entities as of September 30, 2014. On July 1, 2014, we began consolidating Energy Solutions and as a result, we now report separately our investments in Change Clean Energy Company, LLC, Freedom Marine Solutions, LLC and Yatesville Coal Company, LLC as separate controlled companies.
(9)
We own 100% of the equity of The Healing Staff, Inc. ("THS") and 100% of the equity of Vets Securing America, Inc., which is operated by THS management.
(10)
GTP Operations, LLC, Transplace, LLC, CI (Transplace) International, LLC, Transplace Freight Services, LLC, Transplace Texas, LP, Transplace Stuttgart, LP, Transplace International, Inc., Celtic International, LLC, and Treetop Merger Sub, LLC are joint borrowers on our senior secured investment.

See notes to consolidated financial statements.
33

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)
(in thousands, except share data)

Endnote Explanations as of September 30, 2014 (Unaudited) and June 30, 2014 (Audited) (Continued)


(11)
The CLO equity investments are entitled to recurring distributions which are generally equal to the excess cash flow generated from the underlying investments after payment of the contractual payments to debt holders and fund expenses. The current estimated yield is based on the current projections of this excess cash flow taking into account assumptions which have been made regarding expected prepayments, losses and future reinvestment rates. These assumptions are periodically reviewed and adjusted. Ultimately, the actual yield may be higher or lower than the estimated yield if actual results differ from those used for the assumptions.
(12)
On January 19, 2010, we modified the terms of our senior secured debt in Appalachian Energy Holdings, LLC ("AEH") and Coalbed, LLC ("Coalbed") in conjunction with the formation of Manx, a new entity consisting of the assets of AEH, Coalbed and Kinley Exploration. The assets of the three companies were brought under new common management. We funded $2,800 at closing to Manx to provide for working capital. A portion of our loans to AEH and Coalbed was exchanged for Manx preferred equity, while our AEH equity interest was converted into Manx common stock. There was no change to fair value at the time of restructuring. On June 30, 2012, Manx returned the investments in Coalbed and AEH to us and we contributed these investments along with Wolf Energy, LLC to Wolf Energy Holdings, a newly-formed, separately owned holding company. Effective June 6, 2014, Appalachian Energy Holdings, LLC was renamed Appalachian Energy LLC. We continue to fully reserve any income accrued for Manx. During the quarter ended June 30, 2013, we determined that the impairment of Manx was other-than-temporary and recorded a realized loss of $9,397 for the amount that the amortized cost exceeded the fair value. The Board of Directors set the fair value of our investment in Manx at zero as of September 30, 2014 and June 30, 2014. On July 1, 2014, we began consolidating Wolf Energy Holdings and as a result, we now report separately our investments in Appalachian Energy LLC, Coalbed, LLC and Wolf Energy, LLC as separate controlled companies. During the three months ended September 30, 2014, we determined that the impairment of Appalachian Energy LLC was other-than-temporary and recorded a realized loss of $2,042 for the amount that the amortized cost exceeded the fair value.
(13)
On a fully diluted basis represents 10.00% of voting common shares.
(14)
A portion of the positions listed was issued by an affiliate of the portfolio company.
(15)
We own 99.9999% of AGC/PEP, LLC. AGC/PEP, LLC owns 2,037.65 out of a total of 83,818.69 shares (including 5,111 vested and unvested management options) of American Gilsonite Holding Company which owns 100% of American Gilsonite Company.
(16)
Syndicated investment which had been originated by another financial institution and broadly distributed.
(17)
MITY Holdings of Delaware Inc. (“MITY Delaware”), an entity in which we own 100% of the common stock, owns 94.99% of the equity of MITY, Inc. (f/k/a MITY Enterprises, Inc.) (“MITY”). MITY owns 100% of each of MITY-Lite, Inc., Broda Enterprises USA, Inc. and Broda Enterprises ULC ("Broda Canada"). On June 23, 2014, Prospect made a new $15,769 debt investment in MITY and MITY distributed proceeds to MITY Delaware as a return of capital. MITY Delaware used this distribution to pay down the senior secured debt of MITY Delaware to Prospect by the same amount. The remaining amount of the senior secured debt due from MITY Delaware to Prospect, $7,200, was then contributed to the capital of MITY Delaware. As a result of this transaction, Prospect held the $15,769 MITY note. Effective June 23, 2014, Mity Enterprises, Inc. was renamed MITY, Inc. and Broda Enterprises USA, Inc. was renamed Broda USA, Inc. On June 23, 2014, Prospect also extended a new $7,500 senior secured revolving facility to MITY, of which none was funded at closing. On July 1, 2014, we began consolidating MITY Delaware and as a result, we now report MITY, Inc. as a separate controlled company. MITY Delaware has a subordinated unsecured note issued and outstanding to Broda Canada that is denominated in Canadian Dollars (CAD). As of September 30, 2014, the principal balance of this note was CAD 7,371. In accordance with ASC 830, Foreign Currency Matters, this note was remeasured into our functional currency, US Dollars (USD), using an exchange rate of 0.89451CAD/USD, and is presented on our Consolidated Schedules of Investments in USD.
(18)
The overriding royalty interests held receive payments at the stated rates based upon operations of the borrower.
(19)
Our wholly-owned subsidiary Prospect Small Business Lending, LLC purchases a series of small business whole loans on a recurring basis, originated by OnDeck Capital, Inc. and Direct Capital Corporation, online small business lenders.

See notes to consolidated financial statements.
34

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)
(in thousands, except share data)

Endnote Explanations as of September 30, 2014 (Unaudited) and June 30, 2014 (Audited) (Continued)


(20)
Boxercraft Incorporated ("Boxercraft") and BXC Company, Inc. (f/k/a BXC Holding Company) ("BXC") are joint borrowers on our senior secured investments. Effective as of March 28, 2014, we acquired voting control of BXC pursuant to a voting agreement and irrevocable proxy. Effective May 8, 2014, we acquired control of BXC by transferring shares held by the other equity holders of BXC to Prospect pursuant to an assignment agreement entered into with such other equity holders. As of June 30, 2014, we owned 86.7% of Series A preferred stock, 96.8% of Series B preferred stock, and 83.1% of the fully-diluted common stock of BXC. BXC owned 100% of the common stock of Boxercraft. We owned a warrant to purchase 15% of all classes of equity of BXC, which consisted of 3,755,000 shares of Series A preferred stock, 625,000 shares of Series B preferred stock, and 43,800 shares of voting common stock as of June 30, 2014. On August 25, 2014, we sold Boxercraft, a wholly-owned subsidiary of BXC, for net proceeds of $750 and realized a net loss of $16,949 on the sale.
(21)
We owned warrants to purchase 33,750 shares of common stock in Metal Buildings Holding Corporation (“Metal Buildings”), the former holding company of Borga, Inc. ("Borga"). Metal Buildings owned 100% of Borga. On March 8, 2010, we foreclosed on the stock in Borga that was held by Metal Buildings, obtaining 100% ownership of Borga. On January 24, 2014, we contributed our holdings in Borga to STI Holding, Inc. ("STI"), a wholly-owned holding company. On July 1, 2014, we began consolidating STI and as a result, we reported Borga, Inc. as a separate controlled company from July 1, 2014 until its sale on August 20, 2014. On August 20, 2014, we sold the assets of Borga, a wholly-owned subsidiary of STI, for net proceeds of $382 and realized a loss of $2,589 on the sale.
(22)
Investment has been designated as an investment not “qualifying” under Section 55(a) of the Investment Company Act of 1940 (the “1940 Act”). Under the 1940 Act, we may not acquire any non-qualifying asset unless, at the time such acquisition is made, qualifying assets represent at least 70% of our total assets. We monitor the status of these assets on an ongoing basis.
(23)
NCP Finance Limited Partnership, NCP Finance Ohio, LLC and certain affiliates thereof, are joint borrowers on our subordinated secured investment.
(24)
On May 6, 2011, we made a secured first lien $24,250 debt investment to NMMB, Inc. (f/k/a NMMB Acquisition, Inc.) ("NMMB" ), a $2,800 secured debt and $4,400 equity investment to NMMB Holdings, Inc ("NMMB Holdings"). We owned 100% of the Series A Preferred Stock in NMMB Holdings. NMMB Holdings owned 100% of the Convertible Preferred Stock in NMMB. On December 13, 2013, we provided $8,086 in preferred equity for the recapitalization of NMMB Holdings. After the restructuring, we received repayment of $2,800 secured debt outstanding. We own 100% of the equity of NMMB Holdings as of September 30, 2014 and June 30, 2014. NMMB Holdings owns 92.93% and 83.48% of the fully diluted equity of NMMB as of September 30, 2014 and June 30, 2014, respectively. NMMB owns 100% of Refuel Agency, Inc (“Refuel Agency”), which owns 100% of Armed Forces Communications, Inc. (“Armed Forces”). On June 12, 2014, Prospect made a new $7,000 senior secured term loan to Armed Forces. Armed Forces distributed this amount to Refuel Agency as a return of capital. Refuel Agency distributed this amount to NMMB as a return of capital, which was used to pay down $7,000 of NMMB’s $10,714 senior secured term loan to Prospect. On July 1, 2014, we began consolidating NMMB Holdings and as a result, we now report NMMB, Inc. as a separate controlled company.
(25)
Undrawn committed revolvers and delayed draw term loans to our portfolio companies incur commitment and unused fees ranging from 0.00% to 2.00%. As of September 30, 2014 and June 30, 2014, we had $202,963 and $143,597, respectively, of undrawn revolver and delayed draw term loan commitments to our portfolio companies.
(26)
Stated interest rates are based on September 30, 2014 and June 30, 2014 one month or three month LIBOR rates plus applicable spreads based on the respective credit agreements. Interest rates are subject to change based on actual elections by the borrower for a LIBOR rate contract or Base Rate contract when drawing on the revolver.
(27)
On July 30, 2010, we made a $30,000 senior secured debt investment in Airmall Inc. ("Airmall" ), a $12,500 secured second lien in AMU Holdings Inc. ("AMU"), and acquired 100% of the Series A preferred stock and common stock of AMU. Our preferred stock in AMU has a 12.0% dividend rate which is paid from the dividends received from its operating subsidiary, Airmall. AMU owns 100% of the common stock in Airmall. On December 4, 2013, we sold a $972 participation in both debt investments, equal to 2% of the outstanding principal amount of loans on that date. On June 13, 2014, Prospect made a new $19,993 investment as a senior secured loan to Airmall. Airmall then distributed this amount to AMU as a return of capital, which AMU used to pay down the senior subordinated loan in the same amount. The minority interest held by a third party in AMU was exchanged for common stock of Airmall. As of June 30, 2014, we owned 100% of the equity of AMU, which owns 98% of Airmall. On July 1, 2014, we began consolidating AMU and as a result, we reported Airmall Inc. as a separate controlled company from July 1, 2014 until its sale on August 1, 2014. On August 1, 2014, we sold our investments in Airmall for net proceeds of $51,379 and realized a loss of $3,473 on the sale. In addition, there is $6,000 being held in escrow, of which 98% is due to Prospect, which will be recognized as an additional realized loss if it is not received.

See notes to consolidated financial statements.
35

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)
(in thousands, except share data)

Endnote Explanations as of September 30, 2014 (Unaudited) and June 30, 2014 (Audited) (Continued)


(28)
Progrexion Marketing, Inc., Progrexion Teleservices, Inc., Progrexion ASG, Inc., Progrexion IP, Inc. and Efolks, LLC are joint borrowers on our senior secured investment. Progrexion Holdings, Inc. and eFolks Holdings, Inc. are the guarantors of this debt investment.
(29)
First Tower Holdings of Delaware LLC (“First Tower Delaware”), an entity that we own 100% of the membership interests, owns 80.1% of First Tower Finance Company LLC (“First Tower Finance”), which owns 100% of First Tower, LLC (“First Tower”), the operating company. On June 24, 2014, Prospect made a new $251,246 second lien term loan to First Tower. First Tower distributed this amount to First Tower Finance, which distributed this amount to First Tower Delaware as a return of capital. First Tower Delaware used the distribution to partially pay down the Senior Secured Revolving Credit Facility. The remaining $23,712 of the Senior Secured Revolving Credit Facility was then converted to additional membership interests held by Prospect in First Tower Delaware. On July 1, 2014, we began consolidating First Tower Delaware and as a result, we now report First Tower Finance Company LLC as a separate controlled company.
(30)
Arctic Oilfield Equipment USA, Inc. (“Arctic Equipment”), an entity that we own 100% of the common equity, owns 70% of the equity of Arctic Energy Services, LLC (“Arctic Energy”), the operating company. On July 1, 2014, we began consolidating Arctic Equipment and as a result, we now report Arctic Energy Services, LLC as a separate controlled company.
(31)
We own 2.8% (13,220 shares) of the Mineral Fusion Natural, LLC, a subsidiary of Caleel + Hayden, LLC, common and preferred interest.
(32)
APH Property Holdings, LLC (“APH”), an entity that we own 100% of the membership interests, owns 100% of the common equity of American Property REIT Corp. (f/k/a American Property Holdings Corp.) ("APRC"), a qualified REIT which holds investments in several real estate properties. Effective as of April 1, 2014, Prospect made a new $167,162 senior term loan to APRC. APRC then distributed this amount to APH as a return of capital which was used to pay down the Senior Term Loan from APH by the same amount. See Note 3 for further discussion of the properties held by APRC. On July 1, 2014, we began consolidating APH and as a result, we now report American Property REIT Corp. as a separate controlled company.
(33)
CCPI Holdings Inc. ("CCPI Holdings"), an entity that we own 100% of the common stock, owns 94.98% and 95.13% of CCPI Inc. ("CCPI"), the operating company, at September 30, 2014 and June 30, 2014, respectively. On June 13, 2014, Prospect made a new $8,218 senior secured note to CCPI. CCPI then distributed this amount to CCPI Holdings as a return of capital which was used to pay down the $8,216 senior secured note from CCPI Holdings to Prospect. The remaining $2 was distributed to Prospect as a return of capital of Prospect's equity investment in CCPI Holdings. On July 1, 2014, we began consolidating CCPI Holdings and as a result, we now report CCPI Inc. as a separate controlled company.
(34)
Credit Central Holdings of Delaware, LLC ("Credit Central Delaware"), an entity that we own 100% of the membership interests, owns 74.75% of Credit Central Loan Company, LLC (f/k/a Credit Central Holdings, LLC) ("Credit Central"), which owns 100% of each of Credit Central, LLC, Credit Central South, LLC, Credit Central of Texas, LLC, and Credit Central of Tennessee, LLC, the operating companies. On June 26, 2014, Prospect made a new $36,333 second lien term loan to Credit Central. Credit Central then distributed this amount to Credit Central Delaware as a return of capital which was used to pay down the Senior Secured Revolving Credit Facility from Credit Central Delaware by the same amount. The remaining amount of the Senior Secured Revolving Credit Facility, $3,874, was then converted into additional membership interests in Credit Central Delaware. On July 1, 2014, we began consolidating Credit Central Delaware and as a result, we now report Credit Central Loan Company, LLC as a separate controlled company.
(35)
Valley Electric Holdings I, Inc. (“Valley Holdings I”), an entity that we own 100% of the common stock, owns 100% of Valley Electric Holdings II, Inc. (“Valley Holdings II”). Valley Holdings II owns 94.99% of Valley Electric Company, Inc. (“Valley Electric”), as of September 30, 2014 and June 30, 2014. Valley Electric owns 100% of the equity of VE Company, Inc., which owns 100% of the equity of Valley Electric Co. of Mt. Vernon, Inc. (“Valley”). On June 24, 2014, Valley Holdings II and management of Valley formed Valley Electric and contributed their shares of Valley stock to Valley Electric. Prospect made a new $20,471 senior secured loan to Valley Electric. Valley Electric then distributed this amount to Valley Holdings I, via Valley Holdings II, as a return of capital which was used to pay down the senior secured note of Valley Holdings I by the same amount. The remaining principal amount of the senior secured note, $16,754, was then contributed to the capital of Valley Holdings I. On July 1, 2014, we began consolidating Valley Holdings I and Valley Holdings II and as a result, we now report Valley Electric Company, Inc. as a separate controlled company.

See notes to consolidated financial statements.
36

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)
(in thousands, except share data)

Endnote Explanations as of September 30, 2014 (Unaudited) and June 30, 2014 (Audited) (Continued)


(36)
Nationwide Acceptance Holdings LLC ("Nationwide Holdings"), an entity that we own 100% of the membership interests, owns 93.79% of Nationwide Acceptance LLC ("Nationwide"), the operating company. On June 18, 2014, Prospect made a new $14,820 second lien term loan to Nationwide. Nationwide distributed this amount to Nationwide Holdings as a return of capital. Nationwide Holdings used the distribution to pay down the Senior Secured Revolving Credit Facility. The remaining $9,888 of the Senior Secured Revolving Credit Facility was then converted into additional membership interests in Nationwide Holdings. On July 1, 2014, we began consolidating Nationwide Holdings and as a result, we now report Nationwide Acceptance LLC as a separate controlled company.
(37)
On April 15, 2013, assets previously held by H&M Oil & Gas, LLC ("H&M") were assigned to Wolf Energy, LLC ("Wolf Energy") in exchange for a $66,000 term loan secured by the assets. The cost basis in this loan of $44,632 was determined in accordance with ASC 310-40, Troubled Debt Restructurings by Creditors, and was equal to the fair value of assets at the time of transfer resulting in a capital loss of $19,647 in connection with the foreclosure on the assets. On May 17, 2013, Wolf Energy sold the assets located in Martin County, which were previously held by H&M, for $66,000. Proceeds from the sale were primarily used to repay the loan and net profits interest receivable due to us resulting in a realized capital gain of $11,826. We received $3,960 of structuring and advisory fees from Wolf Energy during the year ended June 30, 2013 related to the sale and $991 under the net profits interest agreement which was recognized as other income during the fiscal year ended June 30, 2013.
(38)
CP Holdings of Delaware LLC ("CP Holdings"), an entity that we own 100% of the membership interests, owns 82.9% of CP Energy Services Inc. ("CP Energy), which owns 100% of several other subsidiaries. CP Energy owns directly or indirectly 100% of each of CP Well Testing Services, LLC (“CP Well Testing”), CP Well Testing, LLC, Fluid Management Services, Inc., Fluid Management Services LLC, Wright Transport, Inc., Wright Foster Disposals, LLC, Foster Testing Co, Inc., ProHaul Transports, LLC, Artexoma Logistics, LLC, and Wright Trucking, Inc. On April 1, 2014, Prospect made new loans to CP Well, ProHaul Transports, LLC and Wright Trucking, Inc. and Foster Testing Co, Inc. as co-borrowers, comprised of two first lien loans in the amount of $11,035 and $72,238 and a second lien loan in the amount of $15,000. The proceeds of these loans were used to repay CP Well Testing’s senior secured term loan and CP Energy’s senior secured term loan from Prospect. CP Holdings continues to own 82.9% of the equity of CP Energy at September 30, 2014. On July 1, 2014, we began consolidating CP Holdings and as a result, we now report CP Energy Services Inc. as a separate controlled company.
(39)
Wind River Resources Corporation and Wind River II Corporation are joint borrowers on our senior secured loan.
(40)
NPH Property Holdings, LLC (“NPH”), an entity that we own 100% of the membership interests, owns 100% of the common equity of National Property REIT Corp. (f/k/a National Property Holdings Corp.) ("NPRC"), a property REIT which holds investments in several real estate properties. Additionally, through its wholly-owned subsidiaries, NPRC invests in peer-to-peer consumer loans. Effective as of April 1, 2014, Prospect made a new $104,460 senior term loan to NPRC. NPRC then distributed this amount to NPH as a return of capital which was used to pay down the Senior Term Loan from NPH by the same amount. See Note 3 for further discussion of the properties held by NPRC. On July 1, 2014, we began consolidating NPH and as a result, we now report National Property REIT Corp. as a separate controlled company.
(41)
UPH Property Holdings, LLC (“UPH”), an entity that we own 100% of the membership interests, owns 100% of the common equity of United Property REIT Corp. (f/k/a United Property Holdings Corp.) ("UPRC"), a property REIT which holds investments in several real estate properties. Effective as of April 1, 2014, Prospect made a new $19,027 senior term loan to UPRC. UPRC then distributed this amount to UPH as a return of capital which was used to pay down the Senior Term Loan from UPH by the same amount. See Note 3 for further discussion of the properties held by UPRC. On July 1, 2014, we began consolidating UPH and as a result, we now report United Property REIT Corp. as a separate controlled company.
(42)
On April 4, 2008, we acquired a controlling equity interest in ARRM Services, Inc. ("ARRM"), which owns 100% of Ajax Rolled Ring & Machine, LLC ("Ajax"), the operating company. As of September 30, 2014 and June 30, 2014, we control 79.53% of the fully-diluted common, 85.76% of the Series A Preferred and 100% of the Series B Preferred equity of ARRM.
(43)
Harbortouch Holdings of Delaware Inc. ("Harbortouch Delaware"), an entity that we own 100% of the common stock, owns 100% of the Class C voting units of Harbortouch Payments, LLC (“Harbortouch”), which provide for a 53.5% residual profits allocation. Harbortouch management owns 100% of the Class B and Class D voting units of Harbortouch, which provide for a 46.5% residual profits allocation. Harbortouch owns 100% of Credit Card Processing USA, LLC. On April 1, 2014, Prospect made a new $137,226 senior secured term loan to Harbortouch. Harbortouch then distributed this amount to Harbortouch Delaware as a return of capital which was used to pay down the $123,000 senior secured note from Harbortouch Delaware to Prospect. The remaining $14,226 was distributed to Prospect as a return of capital of Prospect’s equity investment in Harbortouch Delaware. On July 1, 2014, we began consolidating Harbortouch Delaware and as a result, we now report Harbortouch Payments, LLC as a separate controlled company.

See notes to consolidated financial statements.
37

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)
(in thousands, except share data)

Endnote Explanations as of September 30, 2014 (Unaudited) and June 30, 2014 (Audited) (Continued)


(44)
As defined in the 1940 Act, we are deemed to "Control" these portfolio companies because we own more than 25% of the portfolio company's outstanding voting securities. Transactions during the three months ended September 30, 2014 with these controlled investments were as follows:
Portfolio Company
Purchases*
Redemptions*
Sales
Interest
income
Dividend
income
Other
income
Net realized
gains (losses)
Net unrealized
gains (losses)
Airmall Inc.
$
—

$
(47,580
)
$
(9,920
)
$
576

$
—

$
3,000

$
(3,473
)
$
12,216

American Property REIT Corp.
13

(31
)
—

4,930

—

403

—

(10,220
)
Appalachian Energy LLC
—

(2,050
)
—

—

—

—

(2,042
)
2,050

Arctic Energy Services, LLC
—

—

—

1,694

—

—

—

261

ARRM Services, Inc.
—

—

—

519

—

—

—

3,200

Borga, Inc.
—

(588
)
(2,589
)
—

—

—

(2,589
)
2,741

BXC Company, Inc.
250

(750
)
(16,949
)
—

—

5

(16,949
)
15,333

CCPI Inc.
—

(138
)
—

824

—

—

—

33

Change Clean Energy Company, LLC
—

—

—

—

—

—

—

—

Coalbed, LLC
—

—

—

—

—

—

—

—

CP Energy Services Inc.
—

(1
)
—

4,118

—

—

—

(932
)
Credit Central Loan Company, LLC
—

(2,038
)
—

1,857

—

—

—

(1,513
)
Echelon Aviation LLC
5,800

(37,313
)
(400
)
2,563

—

—

—

(9,011
)
First Tower Finance Company LLC
—

(3,861
)
—

10,916

—

—

—

2,051

Freedom Marine Solutions, LLC
—

(486
)
—

1,126

—

—

—

3,391

Gulf Coast Machine & Supply Company
2,000

—

—

523

—

—

—

(2,785
)
Harbortouch Payments, LLC
26,431

(3,390
)
—

6,874

14

579

—

3,896

The Healing Staff, Inc.
—

—

—

—

—

—

650

(1
)
Manx Energy, Inc.
—

—

—

—

—

—

—

—

MITY, Inc.
500

(94
)
—

1,463

—

—

—

2,832

National Property REIT Corp.
37,500

(2
)
—

3,309

—

293

—

3,638

Nationwide Acceptance LLC
938

(3,021
)
—

758

671

—

—

(8
)
NMMB, Inc.
—

—

—

406

—

—

—

(919
)
R-V Industries, Inc.
—

—

—

760

74

—

—

(1,521
)
United Property REIT Corp.
55,895

(72
)
—

693

—

1,383

—

(917
)
Valley Electric Company, Inc.
—

(74
)
—

1,219

—

—

—

(4,551
)
Wolf Energy, LLC
—

512

—

—

—

—

—

(1,972
)
Yatesville Coal Company, LLC
—

—

—

—

—

—

—

—

Total
$
129,327

$
(100,977
)
$
(29,858
)
$
45,128

$
759

$
5,663

$
(24,403
)
$
17,292

(45)
As defined in the 1940 Act, we are deemed to be an “Affiliated company” of these portfolio companies because we own more than 5% of the portfolio company’s outstanding voting securities. Transactions during the three months ended September 30, 2014 with these affiliated investments were as follows:
Portfolio Company
Purchases*
Redemptions*
Sales
Interest
income
Dividend
income
Other
income
Net realized
gains (losses)
Net unrealized
gains (losses)
BNN Holdings Corp.
$
44,000

$
(29,170
)
$
—

$
837

$
1,429

$
226

$
—

$
(495
)
Total
$
44,000

$
(29,170
)
$
—

$
837

$
1,429

$
226

$
—

$
(495
)


See notes to consolidated financial statements.
38

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)
(in thousands, except share data)

Endnote Explanations as of September 30, 2014 (Unaudited) and June 30, 2014 (Audited) (Continued)


(46)
As defined in the 1940 Act, we are deemed to "Control" these portfolio companies because we own more than 25% of the portfolio company's outstanding voting securities. Transactions during the year ended June 30, 2014 with these controlled investments were as follows:
Portfolio Company
Purchases*
Redemptions*
 
Sales
Interest
income
Dividend
income
Other
income
Net realized
gains (losses)
Net unrealized
gains (losses)
AMU Holdings Inc.
$
7,600

$
(593
)
 
$
(972
)
$
6,579

$
12,000

$
—

$
—

$
(15,694
)
APH Property Holdings, LLC
163,747

(118,186
)
**
—

18,788

—

5,946

—

3,393

Arctic Oilfield Equipment USA, Inc.
60,876

—

 
—

1,050

—

1,713

—

238

ARRM Services, Inc.
25,000

(24,251
)
 
—

(733
)
—

148

—

(14,957
)
BXC Company, Inc.
(f/k/a BXC Holding Company)***
300

—

 
—

—

—

—

—

(3,796
)
CCPI Holdings Inc.
—

(450
)
 
—

3,312

500

71

—

(1,443
)
CP Holdings of Delaware LLC
113,601

(100
)
 
—

13,858

—

1,864

—

16,618

Credit Central Holdings of Delaware, LLC
2,500

(159
)
 
—

7,845

4,841

521

—

(2,371
)
Echelon Aviation LLC
92,628

—

 
—

2,809

—

2,771

—

—

Energy Solutions Holdings Inc.
16,000

(8,525
)
 
—

8,245

—

2,480

—

(2,168
)
First Tower Holdings of Delaware LLC
10,000

—

 
—

54,320

—

10,560

—

17,003

Gulf Coast Machine & Supply Company
28,450

(26,213
)
 
—

1,449

—

—

—

(777
)
Harbortouch Holdings of Delaware Inc.
278,694

—

 
—

6,879

—

7,536

—

12,620

The Healing Staff, Inc.
—

—

 
—

—

—

5,825

—

—

Manx Energy, Inc.
—

(450
)
 
—

—

—

—

—

104

MITY Holdings of Delaware Inc.
47,985

—

 
—

4,693

—

1,049

—

1,127

Nationwide Acceptance Holdings LLC
4,000

—

 
—

4,429

5,000

1,854

—

772

NMMB Holdings, Inc.
8,086

(8,086
)
 
—

2,051

—

—

—

(6,852
)
NPH Property Holdings, LLC
40,425

85,724

**
—

5,973

—

1,029

—

(2,088
)
R-V Industries, Inc.
—

(2,339
)
 
—

3,188

1,100

—

—

2,005

STI Holding, Inc.
—

(125
)
 
—

—

3,246

—

—

(25
)
UPH Property Holdings, LLC
1,405

22,562

**
—

1,101

—

156

—

426

Valley Electric Holdings I, Inc.
—

(200
)
 
—

7,471

—

148

—

(23,304
)
Wolf Energy Holdings Inc.
—

—

 
—

—

—

—

—

(1,350
)
Total
$
901,297

$
(81,391
)
 
$
(972
)
$
153,307

$
26,687

$
43,671

$
—

$
(20,519
)
(47)
As defined in the 1940 Act, we are deemed to be an “Affiliated company” of these portfolio companies because we own more than 5% of the portfolio company’s outstanding voting securities. Transactions during the year ended June 30, 2014 with these affiliated investments were as follows:
Portfolio Company
Purchases*
Redemptions*
 
Sales
Interest
income
Dividend
income
Other
income
Net realized
gains (losses)
Net unrealized
gains (losses)
BNN Holdings Corp.
$
—

$
(600
)
 
$
—

$
2,974

$
—

$
—

$
—

$
(194
)
BXC Holding Company***
—

(100
)
 
—

1,384

—

17

—

(4,163
)
Smart, LLC
—

—

 
—

—

—

—

—

(143
)
Total
$
—

$
(700
)
 
$
—

$
4,358

$
—

$
17

$
—

$
(4,500
)
*Purchase amounts do not include payment-in-kind interest. Repayment amounts include impairments.
**These amounts represent the investments transferred from APH to NPH and UPH, respectively.
***During the year ended June 30, 2014, we acquired control of BXC Company, Inc. (f/k/a BXC Holding Company). As such, this investment was a controlled investment for part of the year and an affiliated investment for part of the year. See Note 14 for further discussion of this transaction.


See notes to consolidated financial statements.
39

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
(Unaudited)

 
Note 1. Organization
In this report, the terms “Prospect,” “we,” “us” and “our” mean Prospect Capital Corporation and its subsidiaries unless the context specifically requires otherwise.
We were organized on April 13, 2004 and were funded in an initial public offering completed on July 27, 2004. We are a closed-end investment company incorporated in Maryland. We have elected to be regulated as a business development company (“BDC”) under the Investment Company Act of 1940 (the “1940 Act”). As a BDC, we have elected to be treated as a regulated investment company (“RIC”), under Subchapter M of the Internal Revenue Code of 1986 (the “Code”). We invest primarily in senior and subordinated debt and equity of companies in need of capital for acquisitions, divestitures, growth, development, recapitalizations and other purposes.
On May 15, 2007, we formed a wholly-owned subsidiary Prospect Capital Funding LLC (“PCF”), a Delaware limited liability company and a bankruptcy remote special purpose entity, which holds certain of our portfolio loan investments that are used as collateral for the revolving credit facility at PCF. Our wholly-owned subsidiary Prospect Small Business Lending, LLC (“PSBL”) was formed on January 27, 2014 and purchases a series of small business whole loans on a recurring basis, which are originated by OnDeck Capital, Inc. (“OnDeck”) and Direct Capital Corporation ("Direct Capital"), online small business lenders. Both of these subsidiaries have been consolidated since their formation.
Effective July 1, 2014, we began consolidating certain of our wholly-owned and substantially wholly-owned holding companies formed by us in order to facilitate our investment strategy. As of and for the three months ended September 30, 2014, the following companies are included in our consolidated financial statements: AMU Holdings Inc.; APH Property Holdings, LLC; Arctic Oilfield Equipment USA, Inc.; CCPI Holdings Inc.; CP Holdings of Delaware LLC; Credit Central Holdings of Delaware, LLC; Energy Solutions Holdings Inc.; First Tower Holdings of Delaware LLC; Harbortouch Holdings of Delaware Inc.; MITY Holdings of Delaware Inc.; Nationwide Acceptance Holdings LLC; NMMB Holdings, Inc.; NPH Property Holdings, LLC; STI Holding, Inc.; UPH Property Holdings, LLC; Valley Electric Holdings I, Inc.; Valley Electric Holdings II, Inc.; and Wolf Energy Holdings Inc. We collectively refer to these entities as the "Consolidated Holding Companies."
Note 2. Significant Accounting Policies
Basis of Presentation and Consolidation
The accompanying consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (“GAAP”) pursuant to the requirements for reporting on Form 10-Q, ASC 946, Financial Services—Investment Companies (“ASC 946”), and Articles 6 and 10 of Regulation S-X. Under the 1940 Act, ASC 946, and the regulations pursuant to Article 6 of Regulation S-X, we are precluded from consolidating any entity other than another investment company or an operating company which provides substantially all of its services to benefit us. Our consolidated financial statements include the accounts of Prospect, PCF, PSBL, and the Consolidated Holding Companies. All intercompany balances and transactions have been eliminated in consolidation. The financial results of our non-substantially wholly-owned holding companies and operating portfolio company investments are not consolidated in the financial statements. Any operating companies owned by the Consolidated Holding Companies are not consolidated.
Use of Estimates
The preparation of the consolidated financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of income, expenses, and gains and losses during the reported period. Changes in the economic environment, financial markets, creditworthiness of our portfolio companies and any other parameters used in determining these estimates could cause actual results to differ, and these differences could be material.
Cash and Cash Equivalents
Cash and cash equivalents include funds deposited with financial institutions and short-term, highly-liquid overnight investments in money market funds. Cash and cash equivalents are carried at cost which approximates fair value.

40

Investment Classification
We are a non-diversified company within the meaning of the 1940 Act. As required by the 1940 Act, we classify our investments by level of control. As defined in the 1940 Act, "Control Investments" are those where there is the ability or power to exercise a controlling influence over the management or policies of a company. Control is generally deemed to exist when a company or individual possesses or has the right to acquire within 60 days or less, a beneficial ownership of 25% or more of the voting securities of an investee company. Under the 1940 Act, "Affiliate Investments" are defined by a lesser degree of influence and are deemed to exist through the possession outright or via the right to acquire within 60 days or less, beneficial ownership of 5% or more of the outstanding voting securities of another person. "Non-Control/Non-Affiliate Investments" are those that are neither Control Investments nor Affiliate Investments.
Investments are recognized when we assume an obligation to acquire a financial instrument and assume the risks for gains or losses related to that instrument. Investments are derecognized when we assume an obligation to sell a financial instrument and forego the risks for gains or losses related to that instrument. Specifically, we record all security transactions on a trade date basis. Amounts for investments recognized or derecognized but not yet settled are reported as receivables for investments sold and payables for investments purchased, respectively, in the Consolidated Statements of Assets and Liabilities.
Investment Risks
Our investments are subject to a variety of risks. Those risks include the following:
Market Risk
Market risk represents the potential loss that can be caused by a change in the fair value of the financial instrument.
Credit Risk
Credit risk represents the risk that we would incur if the counterparties failed to perform pursuant to the terms of their agreements with us.
Liquidity Risk
Liquidity risk represents the possibility that we may not be able to rapidly adjust the size of our investment positions in times of high volatility and financial stress at a reasonable price.
Interest Rate Risk
Interest rate risk represents a change in interest rates, which could result in an adverse change in the fair value of an interest-bearing financial instrument.
Prepayment Risk
Many of our debt investments allow for prepayment of principal without penalty. Downward changes in interest rates may cause prepayments to occur at a faster than expected rate, thereby effectively shortening the maturity of the security and making the security less likely to be an income producing instrument.
Investment Valuation
To value our investments, we follow the guidance of ASC 820, Fair Value Measurement ("ASC 820"), that defines fair value, establishes a framework for measuring fair value in conformity with GAAP, and requires disclosures about fair value measurements. In accordance with ASC 820, the fair value of our investments is defined as the price that we would receive upon selling an investment in an orderly transaction to an independent buyer in the principal or most advantageous market in which that investment is transacted.
ASC 820 classifies the inputs used to measure these fair values into the following hierarchy:
Level 1: Quoted prices in active markets for identical assets or liabilities, accessible by us at the measurement date.
Level 2: Quoted prices for similar assets or liabilities in active markets, or quoted prices for identical or similar assets or liabilities in markets that are not active, or other observable inputs other than quoted prices.
Level 3: Unobservable inputs for the asset or liability.

41

In all cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to each investment.
Our Board of Directors has established procedures for the valuation of our investment portfolio. These procedures are detailed below.
Investments for which market quotations are readily available are valued at such market quotations.
For most of our investments, market quotations are not available. With respect to investments for which market quotations are not readily available or when such market quotations are deemed not to represent fair value, our Board of Directors has approved a multi-step valuation process each quarter, as described below.
1.
Each portfolio company or investment is reviewed by our investment professionals with independent valuation firms engaged by our Board of Directors.
2.
The independent valuation firms conduct independent valuations and make their own independent assessments.
3.
The Audit Committee of our Board of Directors reviews and discusses the preliminary valuation of Prospect Capital Management LLC (the “Investment Adviser”) and that of the independent valuation firms.
4.
The Board of Directors discusses valuations and determines the fair value of each investment in our portfolio in good faith based on the input of the Investment Adviser, the respective independent valuation firm and the Audit Committee.
Investments are valued utilizing a yield analysis, enterprise value (“EV”) analysis, net asset value analysis, liquidation analysis, discounted cash flow analysis, or a combination of methods, as appropriate. The yield analysis uses loan spreads and other relevant information implied by market data involving identical or comparable assets or liabilities. Under the EV analysis, the EV of a portfolio company is first determined and allocated over the portfolio company’s securities in order of their preference relative to one another (i.e., “waterfall” allocation). To determine the EV, we typically use a market multiples approach that considers relevant and applicable market trading data of guideline public companies, transaction metrics from precedent M&A transactions and/or a discounted cash flow analysis. The net asset value analysis is used to derive a value of an underlying investment (such as real estate property) by dividing a relevant earnings stream by an appropriate capitalization rate. For this purpose, we consider capitalization rates for similar properties as may be obtained from guideline public companies and/or relevant transactions. The liquidation analysis is intended to approximate the net recovery value of an investment based on, among other things, assumptions regarding liquidation proceeds based on a hypothetical liquidation of a portfolio company’s assets. The discounted cash flow analysis uses valuation techniques to convert future cash flows or earnings to a range of fair values from which a single estimate may be derived utilizing an appropriate discount rate. The measurement is based on the net present value indicated by current market expectations about those future amounts.
In applying these methodologies, additional factors that we consider in fair value pricing our investments may include, as we deem relevant: security covenants, call protection provisions, and information rights; the nature and realizable value of any collateral; the portfolio company’s ability to make payments; the principal markets in which the portfolio company does business; publicly available financial ratios of peer companies; the principal market; and enterprise values, among other factors.
Our investments in CLOs are classified as ASC 820 Level 3 securities and are valued using a discounted cash flow model. The valuations have been accomplished through the analysis of the CLO deal structures to identify the risk exposures from the modeling point of view. For each CLO security, the most appropriate valuation approach has been chosen from alternative approaches to ensure the most accurate valuation for such security. To value a CLO, both the assets and the liabilities of the CLO capital structure are modeled. We use a waterfall engine to store the collateral data, generate collateral cash flows from the assets based on various assumptions for the risk factors, distribute the cash flows to the liability structure based on the payment priorities, and discount them back using current market discount rates. The main risk factors are: default risk, interest rate risk, downgrade risk, and credit spread risk.
Valuation of Other Financial Assets and Financial Liabilities
ASC 825, Financial Instruments, specifically ASC 825-10-25, permits an entity to choose, at specified election dates, to measure eligible items at fair value (the "Fair Value Option"). We have not elected the Fair Value Option to report selected financial assets and financial liabilities. See Note 8 for further discussion of our financial liabilities that are measured using another measurement attribute.

42

Convertible Notes
We have recorded the Convertible Notes at their contractual amounts. The Convertible Notes were analyzed for any features that would require bifurcation and such features were determined to be immaterial. See Note 5 for further discussion.
Revenue Recognition
Realized gains or losses on the sale of investments are calculated using the specific identification method.
Interest income, adjusted for amortization of premium and accretion of discount, is recorded on an accrual basis. Origination, closing and/or commitment fees associated with investments in portfolio companies are accreted into interest income over the respective terms of the applicable loans. Accretion of such purchase discounts or amortization of premiums is calculated by the effective interest method as of the purchase date and adjusted only for material amendments or prepayments. Upon the prepayment of a loan or debt security, any prepayment penalties and unamortized loan origination, closing and commitment fees are recorded as interest income. The purchase discount for portfolio investments acquired from Patriot Capital Funding, Inc. (“Patriot”) was determined based on the difference between par value and fair value as of December 2, 2009, and continued to accrete until maturity or repayment of the respective loans. As of March 31, 2014, the purchase discount for the assets acquired from Patriot had been fully accreted. See Note 3 for further discussion.
Loans are placed on non-accrual status when there is reasonable doubt that principal or interest will be collected. Unpaid accrued interest is generally reversed when a loan is placed on non-accrual status. Interest payments received on non-accrual loans may be recognized as income or applied to principal depending upon management’s judgment. Non-accrual loans are restored to accrual status when past due principal and interest is paid and in management’s judgment, are likely to remain current. As of September 30, 2014, less than 0.1% of our total assets are in non-accrual status.
Interest income from investments in the “equity” class of security of CLO funds (typically income notes or subordinated notes) is recorded based upon an estimation of an effective yield to expected maturity utilizing assumed cash flows in accordance with ASC 325-40, Beneficial Interests in Securitized Financial Assets. We monitor the expected cash inflows from our CLO equity investments, including the expected residual payments, and the effective yield is determined and updated periodically.
Dividend income is recorded on the ex-dividend date.
Structuring fees and similar fees are recognized as income as earned, usually when paid. Structuring fees, excess deal deposits, net profits interests and overriding royalty interests are included in other income. See Note 10 for further discussion.
Federal and State Income Taxes
We have elected to be treated as a regulated investment company and intend to continue to comply with the requirements of the Code applicable to regulated investment companies. We are required to distribute at least 90% of our investment company taxable income and intend to distribute (or retain through a deemed distribution) all of our investment company taxable income and net capital gain to stockholders; therefore, we have made no provision for income taxes. The character of income and gains that we will distribute is determined in accordance with income tax regulations that may differ from GAAP. Book and tax basis differences relating to stockholder dividends and distributions and other permanent book and tax differences are reclassified to paid-in capital.
If we do not distribute (or are not deemed to have distributed) at least 98% of our annual ordinary income and 98.2% of our capital gains in the calendar year earned, we will generally be required to pay an excise tax equal to 4% of the amount by which 98% of our annual ordinary income and 98.2% of our capital gains exceed the distributions from such taxable income for the year. To the extent that we determine that our estimated current year annual taxable income will be in excess of estimated current year dividend distributions from such taxable income, we accrue excise taxes, if any, on estimated excess taxable income. As of September 30, 2014, we had a deposit with the IRS for excise taxes as we have made estimated excise tax payments in excess of our expected excise tax liability for the calendar year ending December 31, 2014.

43

If we fail to satisfy the annual distribution requirement or otherwise fail to qualify as a RIC in any taxable year, we would be subject to tax on all of our taxable income at regular corporate rates. We would not be able to deduct distributions to stockholders, nor would we be required to make distributions. Distributions would generally be taxable to our individual and other non-corporate taxable stockholders as ordinary dividend income eligible for the reduced maximum rate applicable to qualified dividend income to the extent of our current and accumulated earnings and profits, provided certain holding period and other requirements are met. Subject to certain limitations under the Code, corporate distributions would be eligible for the dividends-received deduction. To qualify again to be taxed as a RIC in a subsequent year, we would be required to distribute to our shareholders our accumulated earnings and profits attributable to non-RIC years reduced by an interest charge of 50% of such earnings and profits payable by us as an additional tax. In addition, if we failed to qualify as a RIC for a period greater than two taxable years, then, in order to qualify as a RIC in a subsequent year, we would be required to elect to recognize and pay tax on any net built-in gain (the excess of aggregate gain, including items of income, over aggregate loss that would have been realized if we had been liquidated) or, alternatively, be subject to taxation on such built-in gain recognized for a period of ten years.
We follow ASC 740, Income Taxes (“ASC 740”). ASC 740 provides guidance for how uncertain tax positions should be recognized, measured, presented, and disclosed in the consolidated financial statements. ASC 740 requires the evaluation of tax positions taken or expected to be taken in the course of preparing our tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold are recorded as a tax benefit or expense in the current year. As of September 30, 2014 and for the three months then ended, we did not have a liability for any unrecognized tax benefits, respectively. Management’s determinations regarding ASC 740 may be subject to review and adjustment at a later date based upon factors including, but not limited to, an on-going analysis of tax laws, regulations and interpretations thereof. Although we file both federal and state income tax returns, our major tax jurisdiction is federal. Our tax returns for each of our federal tax years since 2010 remain subject to examination by the Internal Revenue Service.
Dividends and Distributions
Dividends and distributions to common stockholders are recorded on the ex-dividend date. The amount, if any, to be paid as a monthly dividend or distribution is approved by our Board of Directors quarterly and is generally based upon our management’s estimate of our future earnings. Net realized capital gains, if any, are distributed at least annually.
Financing Costs
We record origination expenses related to our Revolving Credit Facility and Convertible Notes, Public Notes and Prospect Capital InterNotes® (collectively, our “Unsecured Notes”) as deferred financing costs. These expenses are deferred and amortized as part of interest expense using the straight-line method for our Revolving Credit Facility and the effective interest method for our Unsecured Notes over the respective expected life or maturity.
We record registration expenses related to shelf filings as prepaid assets. These expenses consist principally of SEC registration fees, legal fees and accounting fees incurred. These prepaid assets are charged to capital upon the receipt of proceeds from an equity offering or charged to expense if no offering is completed.
Guarantees and Indemnification Agreements
We follow ASC 460, Guarantees (“ASC 460”). ASC 460 elaborates on the disclosure requirements of a guarantor in its interim and annual consolidated financial statements about its obligations under certain guarantees that it has issued. It also requires a guarantor to recognize, at the inception of a guarantee, for those guarantees that are covered by ASC 460, the fair value of the obligation undertaken in issuing certain guarantees.
Per Share Information
Net increase or decrease in net assets resulting from operations per share is calculated using the weighted average number of common shares outstanding for the period presented. In accordance with ASC 946, convertible securities are not considered in the calculation of net asset value per share.
Recent Accounting Pronouncements
In August 2014, the FASB issued Accounting Standards Update 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (“ASU 2014-15”). ASU 2014-15 will explicitly require management to assess an entity’s ability to continue as a going concern, and to provide related footnote disclosure in certain circumstances. The new standard will be effective for all entities in the first annual period ending after December 15, 2016. Earlier adoption is permitted. The adoption of the amended guidance in ASU 2014-15 is not expected to have a significant effect on our consolidated financial statements and disclosures.

44

Note 3. Portfolio Investments
At September 30, 2014, we had investments in 140 long-term portfolio investments, which had an amortized cost of $6,358,720 and a fair value of $6,253,493. At June 30, 2014, we had investments in 142 long-term portfolio investments, which had an amortized cost of $6,371,522 and a fair value of $6,253,739.
The original cost basis of debt placements and equity securities acquired, including follow-on investments for existing portfolio companies, totaled $887,205 and $556,843 during the three months ended September 30, 2014 and September 30, 2013, respectively. Debt repayments and proceeds from sales of equity securities of approximately $863,144 and $164,167 were received during the three months ended September 30, 2014 and September 30, 2013, respectively.
The following table shows the composition of our investment portfolio as of September 30, 2014 and June 30, 2014.
 
September 30, 2014
 
June 30, 2014
 
Cost
 
Fair Value
 
Cost
 
Fair Value
Revolving Line of Credit
$
11,350

 
$
11,350

 
$
3,445

 
$
2,786

Senior Secured Debt
3,460,788

 
3,406,566

 
3,578,339

 
3,514,198

Subordinated Secured Debt
1,333,038

 
1,259,671

 
1,272,275

 
1,200,221

Subordinated Unsecured Debt
92,665

 
92,665

 
85,531

 
85,531

Small Business Whole Loans
11,760

 
12,539

 
4,637

 
4,252

CLO Debt
28,239

 
33,219

 
28,118

 
33,199

CLO Residual Interest
1,069,203

 
1,123,282

 
1,044,656

 
1,093,985

Equity
351,677

 
314,201

 
354,521

 
319,567

Total Investments
$
6,358,720

 
$
6,253,493

 
$
6,371,522

 
$
6,253,739

In the table above and throughout the remainder of this footnote, we aggregate our portfolio investments by type of investment, which may differ slightly from the nomenclature used by the constituent instruments defining the rights of holders of the investment, as disclosed on our Consolidated Schedules of Investments ("SOI"). The following investments are included in each category:
•
Senior Secured Debt includes investments listed on the SOI such as senior secured term loans, senior term loans, secured promissory notes, senior demand notes, and first lien term loans.
•
Subordinated Secured Debt includes investments listed on the SOI such as subordinated secured term loans, subordinated term loans, senior subordinated notes, and second lien term loans.
•
Subordinated Unsecured Debt includes investments listed on the SOI such as subordinated unsecured notes and senior unsecured notes.
•
Small Business Whole Loans includes our investments in small business whole loans originated by OnDeck and Direct Capital.
•
CLO Debt includes our investments in the "debt" class of security of CLO funds.
•
CLO Residual Interest includes our investments in the "equity" class of security of CLO funds such as income notes, preference shares, and subordinated notes.
•
Equity includes our investments in preferred stock, common stock, membership interests, net profits interests, overriding royalty interests, escrows receivable, and warrants, unless specifically stated otherwise. 

45

The following table shows the fair value of our investments disaggregated into the three levels of the ASC 820 valuation hierarchy as of September 30, 2014.
 
Level 1
 
Level 2
 
Level 3
 
Total
Revolving Line of Credit
$
—

 
$
—

 
$
11,350

 
$
11,350

Senior Secured Debt
—

 
—

 
3,406,566

 
3,406,566

Subordinated Secured Debt
—

 
—

 
1,259,671

 
1,259,671

Subordinated Unsecured Debt
—

 
—

 
92,665

 
92,665

Small Business Whole Loans
—

 
—

 
12,539

 
12,539

CLO Debt
—

 
—

 
33,219

 
33,219

CLO Residual Interest
—

 
—

 
1,123,282

 
1,123,282

Equity
159

 
—

 
314,042

 
314,201

Total Investments
$
159

 
$
—

 
$
6,253,334

 
$
6,253,493

The following table shows the fair value of our investments disaggregated into the three levels of the ASC 820 valuation hierarchy as of June 30, 2014.
 
Level 1
 
Level 2
 
Level 3
 
Total
Revolving Line of Credit
$
—

 
$
—

 
$
2,786

 
$
2,786

Senior Secured Debt
—

 
—

 
3,514,198

 
3,514,198

Subordinated Secured Debt
—

 
—

 
1,200,221

 
1,200,221

Subordinated Unsecured Debt
—

 
—

 
85,531

 
85,531

Small Business Whole Loans
—

 
—

 
4,252

 
4,252

CLO Debt
—

 
—

 
33,199

 
33,199

CLO Residual Interest
—

 
—

 
1,093,985

 
1,093,985

Equity
168

 
—

 
319,399

 
319,567

Total Investments
$
168

 
$
—

 
$
6,253,571

 
$
6,253,739


46

The following tables show the aggregate changes in the fair value of our Level 3 investments during the three months ended September 30, 2014.
 
Fair Value Measurements Using Unobservable Inputs (Level 3)
 
Control
 Investments
 
Affiliate
 Investments
 
Non-Control/
 Non-Affiliate
 Investments
 
Total
Fair value as of June 30, 2014
$
1,640,454

 
$
32,121

 
$
4,580,996

 
$
6,253,571

Net realized (loss) gain on investments
(24,403
)
 
—

 
1,492

 
(22,911
)
Net change in unrealized appreciation (depreciation)
17,292

 
(495
)
 
(4,232
)
 
12,565

Net realized and unrealized loss
(7,111
)
 
(495
)
 
(2,740
)
 
(10,346
)
Purchases of portfolio investments
129,327

 
44,000

 
707,991

 
881,318

Payment-in-kind interest
3,759

 
—

 
2,128

 
5,887

Amortization of discounts and premiums
—

 
—

 
(13,952
)
 
(13,952
)
Repayments and sales of portfolio investments
(106,432
)
 
(29,170
)
 
(727,542
)
 
(863,144
)
Transfers within Level 3(1)
—

 
—

 
—

 
—

Transfers in (out) of Level 3(1)
—

 
—

 
—

 
—

Fair value as of September 30, 2014
$
1,659,997

 
$
46,456

 
$
4,546,881

 
$
6,253,334

 
Revolving Line of Credit
 
Senior Secured
Debt
 
Subordinated Secured Debt
 
Subordinated Unsecured Debt
 
Small Business Loans
 
CLO
Debt
 
CLO 
Residual Interest
 
Equity
 
Total
Fair value as of June 30, 2014
$
2,786

 
$
3,514,198

 
$
1,200,221

 
$
85,531

 
$
4,252

 
$
33,199

 
$
1,093,985

 
$
319,399

 
$
6,253,571

Net realized loss on investments
(1,095
)
 
(15,063
)
 
—

 
—

 
—

 
—

 
—

 
(6,753
)
 
(22,911
)
Net change in unrealized appreciation (depreciation)
659

 
9,920

 
(1,316
)
 
—

 
1,163

 
(100
)
 
4,752

 
(2,513
)
 
12,565

Net realized and unrealized (loss) gain
(436
)
 
(5,143
)
 
(1,316
)
 
—

 
1,163

 
(100
)
 
4,752

 
(9,266
)
 
(10,346
)
Purchases of portfolio investments
9,000

 
648,140

 
145,787

 
6,593

 
12,651

 
—

 
39,105

 
20,042

 
881,318

Payment-in-kind interest
—

 
5,263

 
83

 
541

 
—

 
—

 
—

 
—

 
5,887

Accretion (amortization) of discounts and premiums
—

 
70

 
418

 
—

 
—

 
120

 
(14,560
)
 
—

 
(13,952
)
Repayments and sales of portfolio investments
—

 
(755,962
)
 
(85,522
)
 
—

 
(5,527
)
 
—

 
—

 
(16,133
)
 
(863,144
)
Transfers within Level 3(1)
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Transfers in (out) of Level 3(1)
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Fair value as of September 30, 2014
$
11,350

 
$
3,406,566

 
$
1,259,671

 
$
92,665

 
$
12,539

 
$
33,219

 
$
1,123,282

 
$
314,042

 
$
6,253,334

(1)
Transfers are assumed to have occurred at the beginning of the quarter during which the asset was transferred.

47

The following tables show the aggregate changes in the fair value of our Level 3 investments during the three months ended September 30, 2013.
 
Fair Value Measurements Using Unobservable Inputs (Level 3)
 
Control
 Investments
 
Affiliate
 Investments
 
Non-Control/
 Non-Affiliate
 Investments
 
Total
Fair value as of June 30, 2013
$
811,634

 
$
42,443

 
$
3,318,663

 
$
4,172,740

Net realized gain on investments
—

 
—

 
3,789

 
3,789

Net change in unrealized (depreciation) appreciation
(4,311
)
 
(5,153
)
 
3,213

 
(6,251
)
Net realized and unrealized (loss) gain
(4,311
)
 
(5,153
)
 
7,002

 
(2,462
)
Purchases of portfolio investments
141,999

 
—

 
410,263

 
552,262

Payment-in-kind interest
2,913

 
45

 
1,623

 
4,581

Accretion (amortization) of discounts and premiums
—

 
240

 
(10,194
)
 
(9,954
)
Repayments and sales of portfolio investments
(4,663
)
 
(150
)
 
(159,354
)
 
(164,167
)
Transfers within Level 3(1)
—

 
—

 
—

 
—

Transfers in (out) of Level 3(1)
—

 
—

 
—

 
—

Fair value as of September 30, 2013
$
947,572

 
$
37,425

 
$
3,568,003

 
$
4,553,000

 
Revolving Line of Credit
 
Senior Secured
Debt
 
Subordinated Secured Debt
 
Subordinated Unsecured Debt
 
Small Business Loans
 
CLO
Debt
 
CLO 
Residual Interest
 
Equity
 
Total
Fair value as of June 30, 2013
$
8,729

 
$
2,207,091

 
$
1,024,901

 
$
88,827

 
$
—

 
$
28,589

 
$
658,086

 
$
156,517

 
$
4,172,740

Net realized gain on investments
—

 
45

 
40

 
—

 
—

 
—

 
—

 
3,704

 
3,789

Net change in unrealized (depreciation) appreciation
(24
)
 
(24,321
)
 
(6,626
)
 
(11,637
)
 
—

 
622

 
31,193

 
4,542

 
(6,251
)
Net realized and unrealized (loss) gain
(24
)
 
(24,276
)
 
(6,586
)
 
(11,637
)
 
—

 
622

 
31,193

 
8,246

 
(2,462
)
Purchases of portfolio investments
4,000

 
355,021

 
74,568

 
—

 
—

 
—

 
98,987

 
19,686

 
552,262

Payment-in-kind interest
—

 
3,409

 
836

 
336

 
—

 
—

 
—

 
—

 
4,581

Accretion (amortization) of discounts and premiums
—

 
295

 
227

 
3

 
—

 
109

 
(10,588
)
 
—

 
(9,954
)
Repayments and sales of portfolio investments
—

 
(96,593
)
 
(35,365
)
 
(28,364
)
 
—

 
—

 
—

 
(3,845
)
 
(164,167
)
Transfers within Level 3(1)
—

 
—

 
(70,000
)
 
70,000

 
—

 
—

 
—

 
—

 
—

Transfers in (out) of Level 3(1)
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Fair value as of September 30, 2013
$
12,705

 
$
2,444,947

 
$
988,581

 
$
119,165

 
$
—

 
$
29,320

 
$
777,678

 
$
180,604

 
$
4,553,000

(1)
Transfers are assumed to have occurred at the beginning of the quarter during which the asset was transferred.
For the three months ended September 30, 2014 and September 30, 2013, the net change in unrealized depreciation on the investments that use Level 3 inputs was $17,779 and $4,575 for investments still held as of September 30, 2014 and September 30, 2013, respectively.

48

The ranges of unobservable inputs used in the fair value measurement of our Level 3 investments as of September 30, 2014 were as follows:
 
 
 
 
 
 
Unobservable Input
Asset Category
 
Fair Value
 
Primary Valuation Technique
 
Input
 
Range
 
Weighted
Average
Senior Secured Debt
 
$
2,420,574

 
Yield Analysis
 
Market Yield
 
6.4%-21.2%
 
10.7%
Senior Secured Debt
 
547,838

 
EV Analysis
 
EBITDA Multiple
 
3.5x-9.0x
 
 7.1x
Senior Secured Debt
 
72,812

 
EV Analysis
 
N/A
 
N/A
 
N/A
Senior Secured Debt
 
2,110

 
Liquidation Analysis
 
N/A
 
N/A
 
N/A
Senior Secured Debt
 
374,582

 
Net Asset Value Analysis
 
Capitalization Rate
 
5.5%-10.1%
 
7.4%
Subordinated Secured Debt
 
891,631

 
Yield Analysis
 
Market Yield
 
7.7%-14.8%
 
11.4%
Subordinated Secured Debt
 
353,220

 
EV Analysis
 
EBITDA Multiple
 
4.5x-8.5x
 
 7.4x
Subordinated Secured Debt
 
14,820

 
EV Analysis
 
Book Value Multiple
 
1.2x-1.4x
 
1.3x
Subordinated Unsecured Debt
 
86,072

 
Yield Analysis
 
Market Yield
 
7.2%-14.8%
 
12.7%
Subordinated Unsecured Debt
 
6,593

 
EV Analysis
 
EBITDA Multiple
 
5.8x-6.3x
 
6.0x
Small Business Whole Loans(1)

 
7,384

 
Discounted Cash Flow
 
Loss-Adjusted Discount Rate
 
18.0%-28.1%
 
20.7%
Small Business Whole Loans(2)
 
5,155

 
Discounted Cash Flow

 
Loss-Adjusted Discount Rate
 
27.6%-50.8%
 
33.4%
CLO Debt
 
33,219

 
Discounted Cash Flow
 
Discount Rate
 
4.2%-6.1%
 
5.0%
CLO Residual Interest
 
1,123,282

 
Discounted Cash Flow
 
Discount Rate
 
6.4%-19.8%
 
14.9%
Equity
 
209,859

 
EV Analysis
 
EBITDA Multiple
 
2.0x-9.0x
 
 6.9x
Equity
 
13,012

 
EV Analysis
 
Book Value Multiple
 
1.2x-1.4x
 
 1.3x
Equity
 
2,676

 
Yield Analysis
 
Market Yield
 
19.8%-24.7%
 
22.2%
Equity
 
69,571

 
Net Asset Value Analysis
 
Capitalization Rate
 
5.5%-10.1%
 
7.4%
Equity
 
2,905

 
Current Value Method
 
N/A
 
N/A
 
N/A
Equity
 
10,896

 
Discounted Cash Flow
 
Discount Rate
 
7.0%-9.0%
 
8.0%
Net Profits Interest
 
29

 
Liquidation Analysis
 
N/A
 
N/A
 
N/A
Escrow Receivable
 
5,094

 
Discounted Cash Flow
 
Discount Rate
 
6.9%-8.1%
 
7.5%
Total Level 3 Investments
 
$
6,253,334

 
 
 
 
 
 
 
 
(1)
Includes our investments in small business whole loans originated by Direct Capital. Valuation also used projected loss rates as an unobservable input ranging from 3.0%-12.0%, with a weighted average of 4.0%.
(2)
Includes our investments in small business whole loans originated by OnDeck. Valuation also used projected loss rates as an unobservable input ranging from 3.5%-12.0%, with a weighted average of 6.4%.

49

The ranges of unobservable inputs used in the fair value measurement of our Level 3 investments as of June 30, 2014 were as follows:
 
 
 
 
 
 
Unobservable Input
Asset Category
 
Fair Value
 
Primary Valuation Technique
 
Input
 
Range
 
Weighted
Average
Senior Secured Debt
 
$
2,550,073

 
Yield Analysis
 
Market Yield
 
5.5%-20.3%
 
11.1%
Senior Secured Debt
 
560,485

 
EV Analysis
 
EBITDA Multiple
 
3.5x-9.0x
 
7.1x
Senior Secured Debt
 
110,525

 
EV Analysis
 
N/A
 
N/A
 
N/A
Senior Secured Debt
 
3,822

 
Liquidation Analysis
 
N/A
 
N/A
 
N/A
Senior Secured Debt
 
292,079

 
Net Asset Value Analysis
 
Capitalization Rate
 
4.5%-10.0%
 
7.4%
Subordinated Secured Debt
 
832,181

 
Yield Analysis
 
Market Yield
 
8.7%-14.7%
 
10.9%
Subordinated Secured Debt
 
353,220

 
EV Analysis
 
EBITDA Multiple
 
4.5x-8.2x
 
6.2x
Subordinated Secured Debt
 
14,820

 
EV Analysis
 
Book Value Multiple
 
1.2x-1.4x
 
1.3x
Subordinated Unsecured Debt
 
85,531

 
Yield Analysis
 
Market Yield
 
7.4%-14.4%
 
12.1%
Small Business Whole Loans
 
4,252

 
Yield Analysis
 
Market Yield
 
75.5%-79.5%
 
77.5%
CLO Debt
 
33,199

 
Discounted Cash Flow
 
Discount Rate
 
4.2%-5.8%
 
4.9%
CLO Residual Interest
 
1,093,985

 
Discounted Cash Flow
 
Discount Rate
 
10.4%-23.7%
 
16.8%
Equity
 
222,059

 
EV Analysis
 
EBITDA Multiple
 
2.0x-15.3x
 
5.3x
Equity
 
15,103

 
EV Analysis
 
Book Value Multiple
 
1.2x-1.4x
 
1.3x
Equity
 
3,171

 
Yield Analysis
 
Market Yield
 
13.7%-16.5%
 
15.1%
Equity
 
63,157

 
Net Asset Value Analysis
 
Capitalization Rate
 
4.5%-10.0%
 
7.4%
Equity
 
14,107

 
Discounted Cash Flow
 
Discount Rate
 
8.0%-10.0%
 
9.0%
Net Profits Interest
 
213

 
Liquidation Analysis
 
N/A
 
N/A
 
N/A
Escrow Receivable
 
1,589

 
Discounted Cash Flow
 
Discount Rate
 
6.6%-7.8%
 
7.2%
Total Level 3 Investments
 
$
6,253,571

 
 
 
 
 
 
 
 
 
In determining the range of value for debt instruments except CLOs, management and the independent valuation firm generally estimated corporate and security credit ratings and identified corresponding yields to maturity for each loan from relevant market data. A discounted cash flow analysis was then prepared using the appropriate yield to maturity as the discount rate, to determine range of value. For non-traded equity investments, the enterprise value was determined by applying earnings before income tax, depreciation and amortization (“EBITDA”) multiples for similar guideline public companies and/or similar recent investment transactions. For stressed equity investments, a liquidation analysis was prepared. For the private REIT investments, enterprise values were determined based on an average of results from a net asset value analysis of the underlying property investments and a dividend yield analysis utilizing capitalization rates and dividend yields, respectively, for similar guideline companies and/or similar recent investment transactions.
In determining the range of value for our investments in CLOs, management and the independent valuation firm used a discounted cash flow model. The valuations were accomplished through the analysis of the CLO deal structures to identify the risk exposures from the modeling point of view. For each CLO security, the most appropriate valuation approach was chosen from alternative approaches to ensure the most accurate valuation for such security. A waterfall engine was used to store the collateral data, generate collateral cash flows from the assets based on various assumptions for the risk factors, distribute the cash flows to the liability structure based on the payment priorities, and discount them back using proper discount rates.
CLO investments may be riskier and less transparent to us than direct investments in underlying companies. CLOs typically will have no significant assets other than their underlying senior secured loans. Therefore, payments on CLO investments are and will be payable solely from the cash flows from such senior secured loans. Our CLO investments are exposed to leveraged credit risk. If certain minimum collateral value ratios and/or interest coverage ratios are not met by a CLO, primarily due to senior secured loan defaults, then cash flow that otherwise would have been available to pay distributions to us on our CLO investments may instead be used to redeem any senior notes or to purchase additional senior secured loans, until the ratios again exceed the minimum required levels or any senior notes are repaid in full. Our CLO investments and/or the underlying senior secured loans may prepay more quickly than expected, which could have an adverse impact on our value. We are not responsible for and have no influence over the asset management of the portfolios underlying the CLO investments we hold as those portfolios are managed by non-affiliated third party CLO collateral managers.

50

The significant unobservable input used to value our investments based on the yield analysis and discounted cash flow analysis is the market yield (or applicable discount rate) used to discount the estimated future cash flows expected to be received from the underlying investment, which includes both future principal and interest payments. Increases or decreases in the discount rate would result in a decrease or increase, respectively, in the fair value measurement. Management and the independent valuation firm consider the following factors when selecting market yields or discount rates: risk of default, rating of the investment and comparable company investments, and call provisions.
The significant unobservable inputs used to value our investments based on the EV analysis may include market multiples of specified financial measures such as EBITDA of identified guideline public companies, implied valuation multiples from precedent M&A transactions, and/or discount rates applied in a discounted cash flow analysis. The independent valuation firm identifies a population of publicly traded companies with similar operations and key attributes to that of the portfolio company. Using valuation and operating metrics of these guideline public companies and/or as implied by relevant precedent transactions, a range of multiples of the latest twelve months EBITDA, or other measure, is typically calculated. The independent valuation firm utilizes the determined multiples to estimate the portfolio company’s EV generally based on the latest twelve months EBITDA of the portfolio company (or other meaningful measure). Increases or decreases in the multiple may result in an increase or decrease, respectively, in EV which may increase or decrease the fair value measurement of the debt and/or equity investment, as applicable. In certain instances, a discounted cash flow analysis may be considered in estimating EV, in which case, discount rates based on a weighted average cost of capital and application of the Capital Asset Pricing Model may be utilized.
The significant unobservable input used to value our investments based on the net asset value analysis is the capitalization rate applied to earnings measure of the underlying property. Increases or decreases in the discount rate would result in a decrease or increase, respectively, in the fair value measurement.
Changes in market yields, discount rates, capitalization rates or EBITDA multiples, each in isolation, may change the fair value measurement of certain of our investments. Generally, an increase in market yields, discount rates or capitalization rates, or a decrease in EBITDA multiples may result in a decrease in the fair value measurement of certain of our investments.
Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of our investments may fluctuate from period to period. Additionally, the fair value of our investments may differ significantly from the values that would have been used had a ready market existed for such investments and may differ materially from the values that we may ultimately realize. Further, such investments are generally subject to legal and other restrictions on resale or otherwise are less liquid than publicly traded securities. If we were required to liquidate a portfolio investment in a forced or liquidation sale, we could realize significantly less than the value at which we have recorded it.
In addition, changes in the market environment and other events that may occur over the life of the investments may cause the gains or losses ultimately realized on these investments to be different than the unrealized gains or losses reflected in the valuations currently assigned.

51

During the three months ended September 30, 2014, we did not provide any additional financing to American Property REIT Corp. ("APRC") for the acquisition of real estate properties. As of September 30, 2014, our investment in APRC had an amortized cost of $204,517 and a fair value of $197,689.
As of September 30, 2014, APRC’s real estate portfolio was comprised of fourteen multi-family properties and one commercial property. The following table shows the location, acquisition date, purchase price, and mortgage outstanding due to other parties for each of the properties held by APRC as of September 30, 2014.
No.
 
Property Name
 
City
 
Acquisition
Date
 
Purchase
Price
 
Mortgage
Outstanding
1
 
1557 Terrell Mill Road, LLC
 
Marietta, GA
 
12/28/2012
 
$
23,500

 
$
15,275

2
 
5100 Live Oaks Blvd, LLC
 
Tampa, FL
 
1/17/2013
 
63,400

 
39,600

3
 
Lofton Place, LLC
 
Tampa, FL
 
4/30/2013
 
26,000

 
16,965

4
 
Vista Palma Sola, LLC
 
Bradenton, FL
 
4/30/2013
 
27,000

 
17,550

5
 
Arlington Park Marietta, LLC
 
Marietta, GA
 
5/8/2013
 
14,850

 
9,650

6
 
APH Carroll Resort, LLC
 
Pembroke Pines, FL
 
6/24/2013
 
225,000

 
157,500

7
 
Cordova Regency, LLC
 
Pensacola, FL
 
11/15/2013
 
13,750

 
9,026

8
 
Crestview at Oakleigh, LLC
 
Pensacola, FL
 
11/15/2013
 
17,500

 
11,488

9
 
Inverness Lakes, LLC
 
Mobile, AL
 
11/15/2013
 
29,600

 
19,400

10
 
Kings Mill Pensacola, LLC
 
Pensacola, FL
 
11/15/2013
 
20,750

 
13,622

11
 
Plantations at Pine Lake, LLC
 
Tallahassee, FL
 
11/15/2013
 
18,000

 
11,817

12
 
Verandas at Rocky Ridge, LLC
 
Birmingham, AL
 
11/15/2013
 
15,600

 
10,205

13
 
Plantations at Hillcrest, LLC
 
Mobile, AL
 
1/17/2014
 
6,930

 
5,038

14
 
Crestview at Cordova, LLC
 
Pensacola, FL
 
1/17/2014
 
8,500

 
5,016

15
 
Taco Bell, OK
 
Yukon, OK
 
6/4/2014
 
1,719

 
—

 
 
 
 
 
 
 
 
$
512,099

 
$
342,152

During the three months ended September 30, 2014, we provided $31,875 and $5,625 of debt and equity financing, respectively, to National Property REIT Corp. ("NPRC") to invest in peer-to-peer consumer loans. As of September 30, 2014, our investment in NPRC had an amortized cost of $165,280 and a fair value of $166,830.
NPRC’s peer-to-peer consumer loan investments are unsecured obligations of individual borrowers that are issued in amounts ranging from $1,000 to $35,000, with fixed interest rates and original maturities of three or five years. As of September 30, 2014, NPRC’s investment in peer-to-peer lending had a fair value of $91,252. The average individual loan balance is $12 and the loans mature on dates ranging from October 31, 2016 to October 2, 2019 with fixed terms of either 36 or 60 months. Fixed interest rates range from 6.1% to 28.5% with a weighted-average current interest rate of 16.4%.
As of September 30, 2014, NPRC’s real estate portfolio was comprised of nine multi-family properties and one commercial property. The following table shows the location, acquisition date, purchase price, and mortgage outstanding due to other parties for each of the properties held by NPRC as of September 30, 2014.
No.
 
Property Name
 
City
 
Acquisition
Date
 
Purchase
Price
 
Mortgage
Outstanding
1
 
146 Forest Parkway, LLC
 
Forest Park, GA
 
10/24/2012
 
$
7,400

 
$
—

2
 
APH Carroll 41, LLC
 
Marietta, GA
 
11/1/2013
 
30,600

 
22,330

3
 
Matthews Reserve II, LLC
 
Matthews, NC
 
11/19/2013
 
22,063

 
17,571

4
 
City West Apartments II, LLC
 
Orlando, FL
 
11/19/2013
 
23,562

 
18,533

5
 
Vinings Corner II, LLC
 
Smyrna, GA
 
11/19/2013
 
35,691

 
26,640

6
 
Uptown Park Apartments II, LLC
 
Altamonte Springs, FL
 
11/19/2013
 
36,590

 
27,471

7
 
Mission Gate II, LLC
 
Plano, TX
 
11/19/2013
 
47,621

 
36,148

8
 
St. Marin Apartments II, LLC
 
Coppell, TX
 
11/19/2013
 
73,078

 
53,863

9
 
APH Carroll Bartram Park, LLC
 
Jacksonville, FL
 
12/31/2013
 
38,000

 
28,500

10
 
APH Carroll Atlantic Beach, LLC
 
Atlantic Beach, FL
 
1/31/2014
 
13,025

 
9,013

 
 
 
 
 
 
 
 
$
327,630

 
$
240,069


52

During the three months ended September 30, 2014, we provided $47,515 and $8,365 of debt and equity financing, respectively, to United Property REIT Corp. ("UPRC") for the acquisition of certain properties. As of September 30, 2014, our investment in UPRC had an amortized cost of $80,125 and a fair value of $79,634.
As of September 30, 2014, UPRC’s real estate portfolio was comprised of fourteen multi-families properties and eight commercial properties. The following table shows the location, acquisition date, purchase price, and mortgage outstanding due to other parties for each of the properties held by UPRC as of September 30, 2014.
No.
 
Property Name
 
City
 
Acquisition
Date
 
Purchase
Price
 
Mortgage
Outstanding
1
 
Atlanta Eastwood Village LLC
 
Stockbridge, GA
 
12/12/2013
 
$
25,957

 
$
19,785

2
 
Atlanta Monterey Village LLC
 
Jonesboro, GA
 
12/12/2013
 
11,501

 
9,193

3
 
Atlanta Hidden Creek LLC
 
Morrow, GA
 
12/12/2013
 
5,098

 
3,619

4
 
Atlanta Meadow Springs LLC
 
College Park, GA
 
12/12/2013
 
13,116

 
10,180

5
 
Atlanta Meadow View LLC
 
College Park, GA
 
12/12/2013
 
14,354

 
11,141

6
 
Atlanta Peachtree Landing LLC
 
Fairburn, GA
 
12/12/2013
 
17,224

 
13,575

7
 
Taco Bell, MO
 
Marshall, MO
 
6/4/2014
 
1,405

 
—

8
 
23 Mile Road Self Storage, LLC
 
Chesterfield, MI
 
8/19/2014
 
5,804

 
4,350

9
 
36th Street Self Storage, LLC
 
Wyoming, MI
 
8/19/2014
 
4,800

 
3,600

10
 
Ball Avenue Self Storage, LLC
 
Grand Rapids, MI
 
8/19/2014
 
7,281

 
5,460

11
 
Ford Road Self Storage, LLC
 
Westland, MI
 
8/29/2014
 
4,642

 
3,480

12
 
Ann Arbor Kalamazoo Self Storage, LLC
 
Ann Arbor, MI
 
8/29/2014
 
4,458

 
3,345

13
 
Ann Arbor Kalamazoo Self Storage, LLC
 
Scio, MI
 
8/29/2014
 
8,927

 
6,695

14
 
Ann Arbor Kalamazoo Self Storage, LLC
 
Kalamazoo, MI
 
8/29/2014
 
2,363

 
1,775

15
 
Canterbury Green Apartments Holdings LLC
 
Fort Wayne, IN
 
9/29/2014
 
85,500

 
65,825

16
 
Abbie Lakes OH Partners, LLC
 
Canal Winchester, OH
 
9/30/2014
 
12,600

 
10,440

17
 
Kengary Way OH Partners, LLC
 
Reynoldsburg, OH
 
9/30/2014
 
11,500

 
11,000

18
 
Lakeview Trail OH Partners, LLC
 
Canal Winchester, OH
 
9/30/2014
 
26,500

 
20,142

19
 
Lakepoint OH Partners, LLC
 
Pickerington, OH
 
9/30/2014
 
11,000

 
10,080

20
 
Sunbury OH Partners, LLC
 
Columbus, OH
 
9/30/2014
 
13,000

 
10,480

21
 
Heatherbridge OH Partners, LLC
 
Blacklick, OH
 
9/30/2014
 
18,416

 
15,480

22
 
Jefferson Chase OH Partners, LLC
 
Blacklick, OH
 
9/30/2014
 
13,551

 
12,240

 
 
 
 
 
 
 
 
$
318,997

 
$
251,885

During the three months ended September 30, 2013, Energy Solutions Holdings Inc. repaid $4,250 of our subordinated secured debt to us. In addition to the repayment of principal, we received $2,409 of make-whole fees for early repayment of the outstanding loan receivables, which was recorded as additional interest income during the three months ended September 30, 2013.
On August 6, 2013, we received a distribution of $3,252 related to our investment in NRG Manufacturing, Inc. for which we realized a gain of the same amount. This was a partial release of the amount held in escrow.
On August 1, 2014, we sold our investments in Airmall Inc. ("Airmall") for net proceeds of $51,379 and realized a loss of $3,473 on the sale. In addition, there is $6,000 being held in escrow, of which 98% is due to Prospect, which will be recognized as an additional realized loss if it is not received. Included in the net proceeds were $3,000 of structuring fees from Airmall related to the sale of the operating company which was recognized as other income during the three months ended September 30, 2014.
On August 20, 2014, we sold the assets of Borga, Inc., a wholly-owned subsidiary of STI Holding, Inc., for net proceeds of $382 and realized a loss of $2,589 on the sale.
On August 25, 2014, we sold Boxercraft Incorporated, a wholly-owned subsidiary of BXC Company, Inc., for net proceeds of $750 and realized a net loss of $16,949 on the sale.
On September 15, 2014, Echelon Aviation LLC repaid $37,313 of the $78,121 loan receivable to us.

53

On September 30, 2014, we made a $26,431 follow-on investment in Harbortouch Payments, LLC ("Harbortouch") to support an acquisition. As part of the transaction, we received $530 of structuring fee income and $50 of amendment fee income from Harbortouch.
During the three months ended September 30, 2014, we determined that the impairment of Appalachian Energy LLC was other-than-temporary and recorded a realized loss of $2,042 for the amount that the amortized cost exceeded the fair value.
During the three months ended September 30, 2013, we recognized $240 of interest income due to purchase discount accretion for the assets acquired from Patriot. As of March 31, 2014, the purchase discount for the assets acquired from Patriot had been fully accreted. As such, no such income was recognized during the three months ended September 30, 2014.
As of September 30, 2014, $4,518,855 of our loans, at fair value, bear interest at floating rates and $4,485,636 of those loans have LIBOR floors ranging from 1.0% to 5.5%. As of June 30, 2014, $4,499,955 of our loans, at fair value, bore interest at floating rates and $4,466,756 of those loans had LIBOR floors ranging from 1.25% to 6.00%.
At September 30, 2014, eight loan investments were on non-accrual status: Coalbed, LLC; The Healing Staff, Inc.; Manx Energy, Inc.; New Century Transportation, Inc.; Stryker Energy, LLC; Wind River Resources Corporation; Wolf Energy, LLC; and Yatesville Coal Company, LLC. At June 30, 2014, nine loan investments were on non-accrual status: BXC Company, Inc.; The Healing Staff, Inc.; Manx Energy, Inc.; New Century Transportation, Inc.; STI Holding, Inc.; Stryker Energy, LLC; Wind River Resources Corporation; Wolf Energy Holdings Inc.; and Yatesville Coal Company, LLC. Principal balances of these loans amounted to $135,523 and $163,408 as of September 30, 2014 and June 30, 2014, respectively. The fair value of these loans amounted to $2,110 and $5,937 as of September 30, 2014 and June 30, 2014, respectively. The fair values of these investments represent less than 0.1% and approximately 0.1% of our total assets as of September 30, 2014 and June 30, 2014, respectively. For the three months ended September 30, 2014 and September 30, 2013, the income foregone as a result of not accruing interest on non-accrual debt investments amounted to $7,994 and $5,570, respectively.
Undrawn committed revolvers and delayed draw term loans to our portfolio companies incur commitment and unused fees ranging from 0.00% to 2.00%. As of September 30, 2014 and June 30, 2014, we had $202,963 and $143,597, respectively, of undrawn revolver and delayed draw term loan commitments to our portfolio companies.
Unconsolidated Significant Subsidiaries
Our investments are generally in small and mid-sized companies in a variety of industries. In accordance with Rules 3-09 and 4-08(g) of Regulation S-X, we must determine which of our unconsolidated majority-owned portfolio companies, if any, are considered "significant subsidiaries." In evaluating these investments, there are three tests utilized to determine if any of our investments are considered "significant subsidiaries": the investment test, the asset test and the income test. Rule 3-09 of Regulation S-X, as interpreted by the SEC, requires separate audited financial statements of an unconsolidated majority-owned subsidiary in an annual report if any of the three tests exceed 20% and Rule 4-08(g) of Regulation S-X requires summarized financial information in an annual report if any of the three tests exceed 10%.
At September 30, 2014 and June 30, 2014, we had no single investment that represented greater than 10% of our total investment portfolio at fair value. At September 30, 2014 and June 30, 2014, we had no single investment whose assets represented greater than 10% of our total assets. Income, consisting of interest, dividends, fees, other investment income and realization of gains or losses, can fluctuate upon repayment or sale of an investment or the marking to fair value of an investment in any given year can be highly concentrated among several investments. After performing the analysis at June 30, 2014, we determined that First Tower Holdings of Delaware LLC and its subsidiaries ("First Tower Delaware") generated more than 10% of our income, but less than 20% of our income, primarily due to the unrealized gain that was recognized on the investment for the year ended June 30, 2014. As such, we provide summarized financial information as follows:
 
 
June 30, 2014
Balance Sheet Data
 
 
Cash and short-term investments
 
$
60,368

Finance receivables, net
 
385,875

Intangibles, including goodwill
 
137,696

Other assets
 
14,066

Total liabilities
 
611,237

Member's equity/(deficit)
 
(13,233
)

54

 
 
Three Months Ended 
 September 30, 2013
Summary of Operations
 
 
Total revenue
 
$
51,336

Total expenses
 
51,232

Net income
 
$
104

On July 1, 2014, we began consolidating First Tower Delaware and as a result, we now report First Tower Finance Company LLC as a separate controlled company. As such, we provide summarized financial information for First Tower Finance Company LLC, the unconsolidated operating company, as follows:
 
 
September 30, 2014
Balance Sheet Data
 
 
Cash and short-term investments
 
$
62,929

Finance receivables, net
 
411,901

Intangibles, including goodwill
 
133,699

Other assets
 
14,526

Total liabilities
 
640,528

Member's equity/(deficit)
 
(17,473
)
 
 
Three Months Ended 
 September 30, 2014
Summary of Operations
 
 
Total revenue
 
$
53,130

Total expenses
 
52,730

Net income
 
$
400

As the SEC has not released details on the mechanics of how the calculations related to Rules 3-09 and 4-08(g) of Regulation S-X are to be completed, there is diversity in practice for the calculation. Based on our interpretation of Rule 3-09 of Regulation S-X and related calculations, we do not believe that audited financial statements are required for First Tower Delaware on an annual basis. We expect that the SEC will clarify the calculation method in the future.
Note 4. Revolving Credit Facility
On March 27, 2012, we closed on an extended and expanded credit facility with a syndicate of lenders through PCF (the "2012 Facility"). The lenders had extended commitments of $857,500 under the 2012 Facility as of June 30, 2014, which was increased to $877,500 in July 2014. The 2012 Facility included an accordion feature which allowed commitments to be increased up to $1,000,000 in the aggregate. Interest on borrowings under the 2012 Facility was one-month Libor plus 275 basis points with no minimum Libor floor. Additionally, the lenders charged a fee on the unused portion of the 2012 Facility equal to either 50 basis points if at least half of the credit facility is drawn or 100 basis points otherwise.
On August 29, 2014, we renegotiated the 2012 Facility and closed an expanded five and a half year $800,000 revolving credit facility (the "2014 Facility" and collectively with the 2012 Facility, the "Revolving Credit Facility"). The lenders have extended commitments of $810,000 under the 2014 Facility as of September 30, 2014. The 2014 Facility includes an accordion feature which allows commitments to be increased up to $1,500,000 in the aggregate. The revolving period of the 2014 Facility extends through March 2019, with an additional one year amortization period (with distributions allowed) after the completion of the revolving period. During such one year amortization period, all principal payments on the pledged assets will be applied to reduce the balance. At the end of the one year amortization period, the remaining balance will become due, if required by the lenders.
The 2014 Facility contains restrictions pertaining to the geographic and industry concentrations of funded loans, maximum size of funded loans, interest rate payment frequency of funded loans, maturity dates of funded loans and minimum equity requirements. The 2014 Facility also contains certain requirements relating to portfolio performance, including required minimum portfolio yield and limitations on delinquencies and charge-offs, violation of which could result in the early termination of the 2014 Facility. The 2014 Facility also requires the maintenance of a minimum liquidity requirement. As of September 30, 2014, we were in compliance with the applicable covenants.

55

Interest on borrowings under the 2014 Facility is one-month Libor plus 225 basis points with no minimum Libor floor. Additionally, the lenders charge a fee on the unused portion of the 2014 Facility equal to either 50 basis points if at least 35% of the credit facility is drawn or 100 basis points otherwise. The 2014 Facility requires us to pledge assets as collateral in order to borrow under the credit facility.
As of September 30, 2014 and June 30, 2014, we had $627,712 and $780,620, respectively, available to us for borrowing under the Revolving Credit Facility, of which the amount outstanding was $411,000 and $92,000, respectively. As additional eligible investments are transferred to PCF and pledged under the Revolving Credit Facility, PCF will generate additional availability up to the current commitment amount of $810,000. As of September 30, 2014, the investments used as collateral for the Revolving Credit Facility had an aggregate fair value of $1,443,687, which represents 21.7% of our total investments and money market funds. These assets are held and owned by PCF, a bankruptcy remote special purpose entity, and as such, these investments are not available to our general creditors. The release of any assets from PCF requires the approval of the facility agent.
In connection with the origination and amendments of the Revolving Credit Facility, we incurred $7,422 of new fees and $3,539 of fees carried over for continuing participants from the previous facility, which are being amortized over the term of the facility in accordance with ASC 470-50, Debt Modifications and Extinguishments, of which $10,663 remains to be amortized and is included within deferred financing costs on the Consolidated Statements of Assets and Liabilities as of September 30, 2014. $332 of fees were expensed relating to credit providers in the 2012 Facility who did not commit to the 2014 Facility.

During the three months ended September 30, 2014 and September 30, 2013, we recorded $4,011 and $2,476, respectively, of interest costs, unused fees and amortization of financing costs on the Revolving Credit Facility as interest expense.
Note 5. Convertible Notes
On December 21, 2010, we issued $150,000 aggregate principal amount of convertible notes that mature on December 15, 2015 (the “2015 Notes”), unless previously converted or repurchased in accordance with their terms. The 2015 Notes bear interest at a rate of 6.25% per year, payable semi-annually on June 15 and December 15 of each year, beginning June 15, 2011. Total proceeds from the issuance of the 2015 Notes, net of underwriting discounts and offering costs, were $145,200.
On February 18, 2011, we issued $172,500 aggregate principal amount of convertible notes that mature on August 15, 2016 (the “2016 Notes”), unless previously converted or repurchased in accordance with their terms. The 2016 Notes bear interest at a rate of 5.50% per year, payable semi-annually on February 15 and August 15 of each year, beginning August 15, 2011. Total proceeds from the issuance of the 2016 Notes, net of underwriting discounts and offering costs, were $167,325. Between January 30, 2012 and February 2, 2012, we repurchased $5,000 of the 2016 Notes at a price of 97.5, including commissions. The transactions resulted in our recognizing $10 of loss in the year ended June 30, 2012.
On April 16, 2012, we issued $130,000 aggregate principal amount of convertible notes that mature on October 15, 2017 (the “2017 Notes”), unless previously converted or repurchased in accordance with their terms. The 2017 Notes bear interest at a rate of 5.375% per year, payable semi-annually on April 15 and October 15 of each year, beginning October 15, 2012. Total proceeds from the issuance of the 2017 Notes, net of underwriting discounts and offering costs, were $126,035.
On August 14, 2012, we issued $200,000 aggregate principal amount of convertible notes that mature on March 15, 2018 (the “2018 Notes”), unless previously converted or repurchased in accordance with their terms. The 2018 Notes bear interest at a rate of 5.75% per year, payable semi-annually on March 15 and September 15 of each year, beginning March 15, 2013. Total proceeds from the issuance of the 2018 Notes, net of underwriting discounts and offering costs, were $193,600.
On December 21, 2012, we issued $200,000 aggregate principal amount of convertible notes that mature on January 15, 2019 (the “2019 Notes”), unless previously converted or repurchased in accordance with their terms. The 2019 Notes bear interest at a rate of 5.875% per year, payable semi-annually on January 15 and July 15 of each year, beginning July 15, 2013. Total proceeds from the issuance of the 2019 Notes, net of underwriting discounts and offering costs, were $193,600.
On April 11, 2014, we issued $400,000 aggregate principal amount of convertible notes that mature on April 15, 2020 (the “2020 Notes”), unless previously converted or repurchased in accordance with their terms. The 2020 Notes bear interest at a rate of 4.75% per year, payable semi-annually on April 15 and October 15 each year, beginning October 15, 2014. Total proceeds from the issuance of the 2020 Notes, net of underwriting discounts and offering costs, were $387,500.

56

Certain key terms related to the convertible features for the 2015 Notes, the 2016 Notes, the 2017 Notes, the 2018 Notes, the 2019 Notes and the 2020 Notes (collectively, the "Convertible Notes") are listed below.
 
2015 Notes

 
2016 Notes

 
2017 Notes

 
2018 Notes

 
2019 Notes

 
2020 Notes

Initial conversion rate(1)
88.0902

 
78.3699

 
85.8442

 
82.3451

 
79.7766

 
80.6647

Initial conversion price
$
11.35

 
$
12.76

 
$
11.65

 
$
12.14

 
$
12.54

 
$
12.40

Conversion rate at September 30, 2014(1)(2)
89.0157

 
79.3176

 
86.9426

 
83.6661

 
79.7865

 
80.6647

Conversion price at September 30, 2014(2)(3)
$
11.23

 
$
12.61

 
$
11.50

 
$
11.95

 
$
12.53

 
$
12.40

Last conversion price calculation date
12/21/2013

 
2/18/2014

 
4/16/2014

 
8/14/2014

 
12/21/2013

 
4/11/2014

Dividend threshold amount (per share)(4)
$
0.101125

 
$
0.101150

 
$
0.101500

 
$
0.101600

 
$
0.110025

 
$
0.110525

(1)
Conversion rates denominated in shares of common stock per $1 principal amount of the Convertible Notes converted. 
(2)
Represents conversion rate and conversion price, as applicable, taking into account certain de minimis adjustments that will be made on the conversion date.
(3)
The conversion price in effect at September 30, 2014 was calculated on the last anniversary of the issuance and will be adjusted again on the next anniversary, unless the exercise price shall have changed by more than 1% before the anniversary.
(4)
The conversion rate is increased if monthly cash dividends paid to common shares exceed the monthly dividend threshold amount, subject to adjustment.
In no event will the total number of shares of common stock issuable upon conversion exceed 96.8992 per $1 principal amount of the 2015 Notes (the “conversion rate cap”), except that, to the extent we receive written guidance or a no-action letter from the staff of the Securities and Exchange Commission (the "Guidance") permitting us to adjust the conversion rate in certain instances without regard to the conversion rate cap and to make the 2015 Notes convertible into certain reference property in accordance with certain reclassifications, business combinations, asset sales and corporate events by us without regard to the conversion rate cap, we will make such adjustments without regard to the conversion rate cap and will also, to the extent that we make any such adjustment without regard to the conversion rate cap pursuant to the Guidance, adjust the conversion rate cap accordingly. We will use our commercially reasonable efforts to obtain such Guidance as promptly as practicable.
Prior to obtaining the Guidance, we will not engage in certain transactions that would result in an adjustment to the conversion rate increasing the conversion rate beyond what it would have been in the absence of such transaction unless we have engaged in a reverse stock split or share combination transaction such that in our reasonable best estimation, the conversion rate following the adjustment for such transaction will not be any closer to the conversion rate cap than it would have been in the absence of such transaction.
Upon conversion, unless a holder converts after a record date for an interest payment but prior to the corresponding interest payment date, the holder will receive a separate cash payment with respect to the notes surrendered for conversion representing accrued and unpaid interest to, but not including, the conversion date. Any such payment will be made on the settlement date applicable to the relevant conversion on the Convertible Notes.
No holder of Convertible Notes will be entitled to receive shares of our common stock upon conversion to the extent (but only to the extent) that such receipt would cause such converting holder to become, directly or indirectly, a beneficial owner (within the meaning of Section 13(d) of the Securities Exchange Act of 1934 and the rules and regulations promulgated thereunder) of more than 5.0% of the shares of our common stock outstanding at such time. The 5.0% limitation shall no longer apply following the effective date of any fundamental change. We will not issue any shares in connection with the conversion or redemption of the Convertible Notes which would equal or exceed 20% of the shares outstanding at the time of the transaction in accordance with NASDAQ rules.
Subject to certain exceptions, holders may require us to repurchase, for cash, all or part of their Convertible Notes upon a fundamental change at a price equal to 100% of the principal amount of the Convertible Notes being repurchased plus any accrued and unpaid interest up to, but excluding, the fundamental change repurchase date. In addition, upon a fundamental change that constitutes a non-stock change of control we will also pay holders an amount in cash equal to the present value of all remaining interest payments (without duplication of the foregoing amounts) on such Convertible Notes through and including the maturity date.
In connection with the issuance of the Convertible Notes, we incurred $39,385 of fees which are being amortized over the terms of the notes, of which $26,019 remains to be amortized and is included within deferred financing costs on the Consolidated Statements of Assets and Liabilities as of September 30, 2014.

57

During the three months ended September 30, 2014 and September 30, 2013, we recorded $18,589 and $13,310, respectively, of interest costs and amortization of financing costs on the Convertible Notes as interest expense.
Note 6. Public Notes
On May 1, 2012, we issued $100,000 aggregate principal amount of unsecured notes that mature on November 15, 2022 (the “2022 Notes”). The 2022 Notes bear interest at a rate of 6.95% per year, payable quarterly on February 15, May 15, August 15 and November 15 of each year, beginning August 15, 2012. Total proceeds from the issuance of the 2022 Notes, net of underwriting discounts and offering costs, were $97,000.
On March 15, 2013, we issued $250,000 aggregate principal amount of unsecured notes that mature on March 15, 2023 (the “2023 Notes”). The 2023 Notes bear interest at a rate of 5.875% per year, payable semi-annually on March 15 and September 15 of each year, beginning September 15, 2013. Total proceeds from the issuance of the 2023 Notes, net of underwriting discounts and offering costs, were $245,885.
On April 7, 2014, we issued $300,000 aggregate principal amount of unsecured notes that mature on July 15, 2019 (the “5.00% 2019 Notes”). Included in the issuance is $45,000 of Prospect Capital InterNotes® that were exchanged for the 5.00% 2019 Notes. The 5.00% 2019 Notes bear interest at a rate of 5.00% per year, payable semi-annually on January 15 and July 15 of each year, beginning July 15, 2014. Total proceeds from the issuance of the 5.00% 2019 Notes, net of underwriting discounts and offering costs, were $250,775.
The 2022 Notes, the 2023 Notes and the 5.00% 2019 Notes (collectively, the “Public Notes”) are direct unsecured obligations and rank equally with all of our unsecured indebtedness from time to time outstanding.
In connection with the issuance of the Public Notes, we incurred $11,366 of fees which are being amortized over the term of the notes, of which $10,075 remains to be amortized and is included within deferred financing costs on the Consolidated Statements of Assets and Liabilities as of September 30, 2014.
During the three months ended September 30, 2014 and September 30, 2013, we recorded $9,458 and $5,577, respectively, of interest costs and amortization of financing costs on the Public Notes as interest expense.
Note 7. Prospect Capital InterNotes® 
On February 16, 2012, we entered into a Selling Agent Agreement (the “Selling Agent Agreement”) with Incapital LLC, as purchasing agent for our issuance and sale from time to time of up to $500,000 of Prospect Capital InterNotes® (the “InterNotes® Offering”), which was increased to $1,500,000 in May 2014. Additional agents may be appointed by us from time to time in connection with the InterNotes® Offering and become parties to the Selling Agent Agreement.
These notes are direct unsecured obligations and rank equally with all of our unsecured indebtedness from time to time outstanding. Each series of notes will be issued by a separate trust. These notes bear interest at fixed interest rates and offer a variety of maturities no less than twelve months from the original date of issuance.
During the three months ended September 30, 2014, we did not issue any Prospect Capital InterNotes®.

58

During the three months ended September 30, 2013, we issued $98,255 aggregate principal amount of our Prospect Capital InterNotes® for net proceeds of $96,189. These notes were issued with stated interest rates ranging from 4.75% to 6.75% with a weighted average interest rate of 5.48%. These notes mature between July 15, 2018 and September 15, 2043. The following table summarizes the Prospect Capital InterNotes® issued during the three months ended September 30, 2013.
Tenor at
Origination
(in years)
 
Principal
Amount
 
Interest Rate
Range
 
Weighted
Average
Interest Rate
 
Maturity Date Range
5
 
$
51,537

 
4.75%–5.00%
 
4.99
%
 
July 15, 2018 – September 15, 2018
5.5
 
3,820

 
5.00%
 
5.00
%
 
February 15, 2019
6.5
 
1,800

 
5.50%
 
5.50
%
 
February 15, 2020
7
 
14,399

 
5.50%–5.75%
 
5.59
%
 
July 15, 2020 – September 15, 2020
7.5
 
1,996

 
5.75%
 
5.75
%
 
February 15, 2021
15
 
940

 
6.00%
 
6.00
%
 
August 15, 2028
18
 
4,062

 
6.00%–6.25%
 
6.21
%
 
July 15, 2031 – August 15, 2031
20
 
1,127

 
6.00%
 
6.00
%
 
September 15, 2033
25
 
3,372

 
6.50%
 
6.50
%
 
August 15, 2038
30
 
15,202

 
6.50%–6.75%
 
6.63
%
 
July 15, 2043 – September 15, 2043
 
 
$
98,255

 
 
 
 
 
 
During the three months ended September 30, 2014, we repaid $1,365 aggregate principal amount of our Prospect Capital InterNotes® in accordance with the Survivor’s Option, as defined in the InterNotes® Offering prospectus. The following table summarizes the Prospect Capital InterNotes® outstanding as of September 30, 2014.
Tenor at
Origination
 (in years)
 
Principal
Amount
 
Interest Rate
Range
 
Weighted
Average
Interest Rate
 
Maturity Date Range
3
 
$
5,710

 
4.00%
 
4.00
%
 
October 15, 2016
3.5
 
3,149

 
4.00%
 
4.00
%
 
April 15, 2017
4
 
45,751

 
3.75%–4.00%
 
3.92
%
 
November 15, 2017 – May 15, 2018
5
 
212,905

 
4.25%–5.00%
 
4.91
%
 
July 15, 2018 – August 15, 2019
5.5
 
3,820

 
5.00%
 
5.00
%
 
February 15, 2019
6.5
 
1,800

 
5.50%
 
5.50
%
 
February 15, 2020
7
 
256,724

 
4.00%–6.55%
 
5.39
%
 
June 15, 2019 – May 15, 2021
7.5
 
1,996

 
5.75%
 
5.75
%
 
February 15, 2021
10
 
41,867

 
3.24%–7.00%
 
6.19
%
 
March 15, 2022 – May 15, 2024
12
 
2,978

 
6.00%
 
6.00
%
 
November 15, 2025 – December 15, 2025
15
 
17,465

 
5.00%–6.00%
 
5.14
%
 
May 15, 2028 – November 15, 2028
18
 
25,274

 
4.125%–6.25%
 
5.49
%
 
December 15, 2030 – August 15, 2031
20
 
5,817

 
5.625%–6.00%
 
5.85
%
 
November 15, 2032 – October 15, 2033
25
 
34,823

 
6.25%–6.50%
 
6.39
%
 
August 15, 2038 – May 15, 2039
30
 
124,226

 
5.50%–6.75%
 
6.23
%
 
November 15, 2042 – October 15, 2043
 
 
$
784,305

 
 
 
 

 
 

59

During the three months ended September 30, 2013, we repaid $55 aggregate principal amount of our Prospect Capital InterNotes® in accordance with the Survivor’s Option, as defined in the InterNotes® Offering prospectus. During the year ended June 30, 2014, we repaid $6,869 aggregate principal amount of our Prospect Capital InterNotes® in accordance with the Survivor’s Option, as defined in the InterNotes® Offering prospectus. In connection with the issuance of the 5.00% 2019 Notes, $45,000 of previously-issued Prospect Capital InterNotes® were exchanged for the 5.00% 2019 Notes. The following table summarizes the Prospect Capital InterNotes® outstanding as of June 30, 2014.
Tenor at
Origination
(in years)
 
Principal
Amount
 
Interest Rate
Range
 
Weighted
Average
Interest Rate
 
Maturity Date Range
3
 
$
5,710

 
4.00%
 
4.00
%
 
October 15, 2016
3.5
 
3,149

 
4.00%
 
4.00
%
 
April 15, 2017
4
 
45,751

 
3.75%–4.00%
 
3.92
%
 
November 15, 2017 – May 15, 2018
5
 
212,915

 
4.25%–5.00%
 
4.91
%
 
July 15, 2018 – August 15, 2019
5.5
 
3,820

 
5.00%
 
5.00
%
 
February 15, 2019
6.5
 
1,800

 
5.50%
 
5.50
%
 
February 15, 2020
7
 
256,903

 
4.00%–6.55%
 
5.39
%
 
June 15, 2019 – May 15, 2021
7.5
 
1,996

 
5.75%
 
5.75
%
 
February 15, 2021
10
 
41,952

 
3.23%–7.00%
 
6.18
%
 
March 15, 2022 – May 15, 2024
12
 
2,978

 
6.00%
 
6.00
%
 
November 15, 2025 – December 15, 2025
15
 
17,465

 
5.00%–6.00%
 
5.14
%
 
May 15, 2028 – November 15, 2028
18
 
25,435

 
4.125%–6.25%
 
5.49
%
 
December 15, 2030 – August 15, 2031
20
 
5,847

 
5.625%–6.00%
 
5.85
%
 
November 15, 2032 – October 15, 2033
25
 
34,886

 
6.25%–6.50%
 
6.39
%
 
August 15, 2038 – May 15, 2039
30
 
125,063

 
5.50%–6.75%
 
6.22
%
 
November 15, 2042 – October 15, 2043
 
 
$
785,670

 
 
 
 
 
 
In connection with the issuance of the Prospect Capital InterNotes®, we incurred $20,259 of fees which are being amortized over the term of the notes, of which $18,616 remains to be amortized and is included within deferred financing costs on the Consolidated Statements of Assets and Liabilities as of September 30, 2014.
During the three months ended September 30, 2014 and September 30, 2013, we recorded $10,856 and $6,044, respectively, of interest costs and amortization of financing costs on the Prospect Capital InterNotes® as interest expense.
Note 8. Fair Value and Maturity of Debt Outstanding 
The following table shows the maximum draw amounts and outstanding borrowings of our Revolving Credit Facility, Convertible Notes, Public Notes and Prospect Capital InterNotes® as of September 30, 2014 and June 30, 2014.
 
September 30, 2014
 
June 30, 2014
 
Maximum Draw Amount
 
Amount Outstanding
 
Maximum Draw Amount
 
Amount Outstanding
Revolving Credit Facility
$
810,000

 
$
411,000

 
$
857,500

 
$
92,000

Convertible Notes
1,247,500

 
1,247,500

 
1,247,500

 
1,247,500

Public Notes
647,950

 
647,950

 
647,881

 
647,881

Prospect Capital InterNotes®
784,305

 
784,305

 
785,670

 
785,670

Total
$
3,489,755

 
$
3,090,755

 
$
3,538,551

 
$
2,773,051


60

The following table shows the contractual maturities of our Revolving Credit Facility, Convertible Notes, Public Notes and Prospect Capital InterNotes® as of September 30, 2014.
 
Payments Due by Period
 
Total
 
Less than 1 Year
 
1 – 3 Years
 
3 – 5 Years
 
After 5 Years
Revolving Credit Facility
$
411,000

 
$
—

 
$
—

 
$
—

 
$
411,000

Convertible Notes
1,247,500

 
—

 
317,500

 
530,000

 
400,000

Public Notes
647,950

 
—

 
—

 
300,000

 
347,950

Prospect Capital InterNotes®
784,305

 
—

 
8,859

 
334,078

 
441,368

Total Contractual Obligations
$
3,090,755

 
$
—

 
$
326,359

 
$
1,164,078

 
$
1,600,318

The following table shows the contractual maturities of our Revolving Credit Facility, Convertible Notes, Public Notes and Prospect Capital InterNotes® as of June 30, 2014.
 
Payments Due by Period
 
Total
 
Less than 1 Year
 
1 – 3 Years
 
3 – 5 Years
 
After 5 Years
Revolving Credit Facility
$
92,000

 
$
—

 
$
92,000

 
$
—

 
$
—

Convertible Notes
1,247,500

 
—

 
317,500

 
530,000

 
400,000

Public Notes
647,881

 
—

 
—

 
—

 
647,881

Prospect Capital InterNotes®
785,670

 
—

 
8,859

 
261,456

 
515,355

Total Contractual Obligations
$
2,773,051

 
$
—

 
$
418,359

 
$
791,456

 
$
1,563,236

As permitted by ASC 825-10-25, we have not elected to value our Revolving Credit Facility, Convertible Notes, Public Notes and Prospect Capital InterNotes® at fair value. The following table shows the fair value of these financial liabilities disaggregated into the three levels of the ASC 820 valuation hierarchy as of September 30, 2014.
 
Fair Value Hierarchy
 
 
 
Level 1
 
Level 2
 
Level 3
 
Total
Revolving Credit Facility(1)
$
—

 
$
411,000

 
$
—

 
$
411,000

Convertible Notes(2)
—

 
1,281,107

 
—

 
1,281,107

Public Notes(2)
—

 
683,536

 
—

 
683,536

Prospect Capital InterNotes®(3)
—

 
799,934

 
—

 
799,934

Total
$
—

 
$
3,175,577

 
$
—

 
$
3,175,577

(1)
The carrying value of our Revolving Credit Facility approximates the fair value.
(2)
We use available market quotes to estimate the fair value of the Convertible Notes and Public Notes.
(3)
The fair value of our Prospect Capital InterNotes® is estimated by discounting remaining payments using current Treasury rates.
The following table shows the fair value of these financial liabilities disaggregated into the three levels of the ASC 820 valuation hierarchy as of June 30, 2014.
 
Fair Value Hierarchy
 
 
 
Level 1
 
Level 2
 
Level 3
 
Total
Revolving Credit Facility(1)
$
—

 
$
92,000

 
$
—

 
$
92,000

Convertible Notes(2)
—

 
1,293,495

 
—

 
1,293,495

Public Notes(2)
—

 
679,816

 
—

 
679,816

Prospect Capital InterNotes®(3)
—

 
799,631

 
—

 
799,631

Total
$
—

 
$
2,864,942

 
$
—

 
$
2,864,942

(1)
The carrying value of our Revolving Credit Facility approximates the fair value.
(2)
We use available market quotes to estimate the fair value of the Convertible Notes and Public Notes. 
(3)
The fair value of our Prospect Capital InterNotes® is estimated by discounting remaining payments using current Treasury rates.

61

Note 9. Equity Offerings, Offering Expenses, and Distributions
Excluding dividend reinvestments, we issued 5,536,780 and 23,211,680 shares of our common stock during the three months ended September 30, 2014 and September 30, 2013, respectively. The following table summarizes our issuances of common stock during the three months ended September 30, 2013 and September 30, 2014.
Issuances of Common Stock
 
Number of
Shares Issued
 
Gross
Proceeds
 
Underwriting
Fees
 
Offering
Expenses
 
Average
Offering Price
During the three months ended September 30, 2013:
 
 

 
 

 
 

 
 

July 5, 2013 – August 21, 2013(1)
 
9,818,907

 
$
107,725

 
$
903

 
$
169

 
$
10.97

August 2, 2013(2)
 
1,918,342

 
21,006

 
—

 
—

 
$
10.95

August 29, 2013 – September 30, 2013(1)
 
11,474,431

 
130,311

 
1,303

 
624

 
$
11.36

 
 
 
 
 
 
 
 
 
 
 
During the three months ended September 30, 2014:
 
 

 
 

 
 

 
 

September 11, 2014 – September 30, 2014(1)
 
5,536,780

 
56,575

 
270

 
210

 
$
10.22

(1)
Shares were issued in connection with our at-the-market offering program which we enter into from time to time with various counterparties.
(2)
On August 2, 2013, we issued 1,918,342 shares of our common stock in conjunction with investments in CP Holdings of Delaware LLC, a controlled portfolio company.
Our shareholders’ equity accounts as of September 30, 2014 and June 30, 2014 reflect cumulative shares issued as of those respective dates. Our common stock has been issued through public offerings, a registered direct offering, the exercise of over-allotment options on the part of the underwriters and our dividend reinvestment plan. When our common stock is issued, the related offering expenses have been charged against paid-in capital in excess of par. All underwriting fees and offering expenses were borne by us.
On August 24, 2011, our Board of Directors approved a share repurchase plan under which we may repurchase up to $100,000 of our common stock at prices below our net asset value. We have not made any purchases of our common stock during the period from August 24, 2011 to September 30, 2014 pursuant to this plan. Prior to any repurchase, we are required to notify shareholders of our intention to purchase our common stock. This notice lasts for six months after notice is given. Our last notice was delivered with our annual proxy mailing on September 10, 2014.
Our Board of Directors, pursuant to the Maryland General Corporation Law, executed Articles of Amendment to increase the number of shares authorized for issuance from 500,000,000 to 1,000,000,000 in the aggregate. The amendment became effective May 6, 2014.
On October 15, 2013, our Registration Statement on Form N-2 was declared effective by the SEC. Under this Shelf Registration Statement, we can issue up to $3,635,217 of additional debt and equity securities in the public market as of September 30, 2014.  See Note 18 for updates to our Registration Statement subsequent to September 30, 2014.
During the three months ended September 30, 2014 and September 30, 2013, we distributed approximately $114,266 and $86,676, respectively, to our stockholders. The following table summarizes our distributions declared and payable for the three months ended September 30, 2013 and September 30, 2014.
Declaration Date
 
Record Date
 
Payment Date
 
Amount Per Share
 
Amount Distributed (in thousands)
5/6/2013
 
7/31/2013
 
8/22/2013
 
$
0.110175

 
$
28,001

5/6/2013
 
8/30/2013
 
9/19/2013
 
0.110200

 
28,759

6/17/2013
 
9/30/2013
 
10/24/2013
 
0.110225

 
29,916

Total declared and payable for the three months ended September 30, 2013
 
 
$
86,676

 
 
 
 
 
 
 
 
 
2/3/2014
 
7/31/2014
 
8/21/2014
 
$
0.110475

 
$
37,863

2/3/2014
 
8/29/2014
 
9/18/2014
 
0.110500

 
37,885

2/3/2014
 
9/30/2014
 
10/22/2014
 
0.110525

 
38,518

Total declared and payable for the three months ended September 30, 2014
 
 
$
114,266


62

Dividends and distributions to common stockholders are recorded on the ex-dividend date. As such, the table above includes distributions with record dates during the three months ended September 30, 2014 and September 30, 2013. It does not include distributions previously declared to stockholders of record on any future dates, as those amounts are not yet determinable. The following dividends were previously declared and will be payable subsequent to September 30, 2014:
•
$0.110550 per share for October 2014 to holders of record on October 31, 2014 with a payment date of November 20, 2014;
•
$0.110575 per share for November 2014 to holders of record on November 28, 2014 with a payment date of December 18, 2014; and
•
$0.110600 per share for December 2014 to holders of record on December 31, 2014 with a payment date of January 22, 2015.
•
$0.110625 per share for January 2015 to holders of record on January 30, 2015 with a payment date of February 19, 2015.
During the three months ended September 30, 2014 and September 30, 2013, we issued 340,958 and 355,644 shares of our common stock, respectively, in connection with the dividend reinvestment plan.
As of September 30, 2014, we have reserved 103,202,157 shares of our common stock for issuance upon conversion of the Convertible Notes (see Note 5).
Note 10. Other Income
Other income consists of structuring fees, overriding royalty interests, revenue receipts related to net profit interests, deal deposits, administrative agent fees, and other miscellaneous and sundry cash receipts. The following table shows income from such sources for the three months ended September 30, 2014 and September 30, 2013.
 
 
Three Months Ended September 30,
 
 
2014
 
2013
Structuring and amendment fees (refer to Note 3)
 
$
14,705

 
$
9,078

Recovery of legal costs from prior periods from legal settlement
 
—

 
5,000

Royalty interests
 
803

 
1,339

Administrative agent fees
 
148

 
107

Total Other Income
 
$
15,656

 
$
15,524

Note 11. Net Increase in Net Assets per Share 
The following information sets forth the computation of net increase in net assets resulting from operations per share for the three months ended September 30, 2014 and September 30, 2013.
 
 
Three Months Ended September 30,
 
 
2014
 
2013
Net increase in net assets resulting from operations
 
$
84,108

 
$
79,900

Weighted average common shares outstanding
 
343,359,061

 
258,084,153

Net increase in net assets resulting from operations per share
 
$
0.24

 
$
0.31


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Note 12. Income Taxes
While our fiscal year end for financial reporting purposes is June 30 of each year, our tax year end is August 31 of each year. The information presented in this footnote is based on our tax year end for each period presented, unless otherwise specified. The tax return for the tax year ended August 31, 2014 has not been filed. Taxable income and all amounts related to taxable income for the tax year ended August 31, 2014 are estimates and will not be fully determined until the Company's tax return is filed.
For income tax purposes, dividends paid and distributions made to shareholders are reported as ordinary income, capital gains, non-taxable return of capital, or a combination thereof. The tax character of dividends paid to shareholders during the tax years ended August 31, 2014, 2013 and 2012 were as follows:
 
 
Tax Year Ended August 31,
 
 
2014
 
2013
 
2012
Ordinary income
 
$
413,051

 
$
282,621

 
$
147,204

Capital gain
 
—

 
—

 
—

Return of capital
 
—

 
—

 
—

Total dividends paid to shareholders
 
$
413,051

 
$
282,621

 
$
147,204

For the tax year ending August 31, 2015, the tax character of dividends paid to shareholders through September 30, 2014 is expected to be ordinary income. Because of the difference between our fiscal and tax year ends, the final determination of the tax character of dividends will not be made until we file our tax return for the tax year ending August 31, 2015.
Taxable income generally differs from net increase in net assets resulting from operations for financial reporting purposes due to temporary and permanent differences in the recognition of income and expenses, and generally excludes net unrealized gains or losses, as unrealized gains or losses are generally not included in taxable income until they are realized. The following reconciles the net increase in net assets resulting from operations to taxable income for the tax years ended August 31, 2014, 2013 and 2012:
 
 
Tax Year Ended August 31,
 
 
2014
 
2013
 
2012
Net increase in net assets resulting from operations
 
$
321,566

 
$
238,721

 
$
208,331

Net realized loss (gain) on investments
 
28,244

 
24,632

 
(38,363
)
Net unrealized depreciation (appreciation) on investments
 
24,638

 
77,835

 
32,367

Other temporary book-to-tax differences
 
8,399

 
(6,138
)
 
(1,078
)
Permanent differences
 
(4,317
)
 
5,939

 
(6,103
)
Taxable income before deductions for distributions
 
$
378,530

 
$
340,989

 
$
195,154

Capital losses in excess of capital gains earned in a tax year may generally be carried forward and used to offset capital gains, subject to certain limitations. The Regulated Investment Company Modernization Act (the “RIC Modernization Act”) was enacted on December 22, 2010. Under the RIC Modernization Act, capital losses incurred by taxpayers in taxable years beginning after the date of enactment will be allowed to be carried forward indefinitely and are allowed to retain their character as either short-term or long-term losses. As such, the capital loss carryforwards generated by us after the August 31, 2011 tax year will not be subject to expiration. Any losses incurred in post-enactment tax years will be required to be utilized prior to the losses incurred in pre-enactment tax years. As of August 31, 2014, we had capital loss carryforwards of approximately $102,262 available for use in later tax years. Of the amount available as of August 31, 2014, $582, $33,096 and $34,471 will expire on August 31, 2016, 2017 and 2018, respectively, and $34,113 is not subject to expiration. The unused balance each year will be carried forward and utilized as gains are realized, subject to limitations. While our ability to utilize losses in the future depends upon a variety of factors that cannot be known in advance, substantially all of the Company's capital loss carryforwards may become permanently unavailable due to limitations by the Code.
Under current tax law, capital losses and specific ordinary losses realized after October 31st and December 31st, respectively, may be deferred and treated as occurring on the first business day of the following tax year. As of August 31, 2014, we had deferred $26,091 of long-term capital losses which will be treated as arising on the first day of the tax year ending August 31, 2015.
For the tax year ended August 31, 2014, we had distributions in excess of taxable income from the current tax year. After the excess distributions, we still had cumulative taxable income in excess of cumulative distributions, and therefore, we will elect to carry forward the excess for distribution to shareholders in the tax year ending August 31, 2015. The amount carried forward to 2015 will be approximately $71,797. For the tax year ended August 31, 2013, we had taxable income in excess of the distributions made from such taxable income during the year, and therefore, we elected to carry forward the excess for distribution to shareholders

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in the tax year ended August 31, 2014. The amount carried forward to 2014 was approximately $106,318. For the tax year ended August 31, 2012, we had taxable income in excess of the distributions made from such taxable income during the year, and therefore, we elected to carry forward the excess for distribution to shareholders in the tax year ended August 31, 2013. The amount carried forward to 2013 was approximately $47,950.
As of September 30, 2014, the cost basis of investments for tax purposes was $6,344,658 resulting in estimated gross unrealized appreciation and depreciation of $151,146 and $242,310, respectively. As of June 30, 2014, the cost basis of investments for tax purposes was $6,349,060 resulting in estimated gross unrealized appreciation and depreciation of $139,620 and $234,941, respectively. Due to the difference between our fiscal year end and tax year end, the cost basis of our investments for tax purposes as of September 30, 2014 and June 30, 2014 was calculated based on the book cost of investments as of September 30, 2014 and June 30, 2014, respectively, with cumulative book-to-tax adjustments for investments through August 31, 2014 and 2013, respectively.
In general, we may make certain adjustments to the classification of net assets as a result of permanent book-to-tax differences, which may include merger-related items, differences in the book and tax basis of certain assets and liabilities, and nondeductible federal taxes, among other items. During the tax year ended August 31, 2014, we decreased accumulated undistributed net investment income by $4,317, increased accumulated net realized loss on investments by $4,847 and increased capital in excess of par value by $9,164. During the tax year ended August 31, 2013, we increased accumulated undistributed net investment income by $5,939, increased accumulated net realized loss on investments by $2,621 and decreased capital in excess of par value by $3,318. Due to the difference between our fiscal and tax year end, the reclassifications for the taxable year ended August 31, 2014 will be recorded in the fiscal year ending June 30, 2015 and the reclassifications for the taxable year ended August 31, 2013 were recorded in the fiscal year ended June 30, 2014.
Note 13. Related Party Agreements and Transactions
Investment Advisory Agreement
We have entered into an investment advisory and management agreement with the Investment Adviser (the “Investment Advisory Agreement”) under which the Investment Adviser, subject to the overall supervision of our Board of Directors, manages the day-to-day operations of, and provides investment advisory services to, us. Under the terms of the Investment Advisory Agreement, the Investment Adviser: (i) determines the composition of our portfolio, the nature and timing of the changes to our portfolio and the manner of implementing such changes, (ii) identifies, evaluates and negotiates the structure of the investments we make (including performing due diligence on our prospective portfolio companies); and (iii) closes and monitors investments we make.
The Investment Adviser’s services under the Investment Advisory Agreement are not exclusive, and it is free to furnish similar services to other entities so long as its services to us are not impaired. For providing these services the Investment Adviser receives a fee from us, consisting of two components:  a base management fee and an incentive fee. The base management fee is calculated at an annual rate of 2.00% on our gross assets (including amounts borrowed). For services currently rendered under the Investment Advisory Agreement, the base management fee is payable quarterly in arrears. The base management fee is calculated based on the average value of our gross assets at the end of the two most recently completed calendar quarters and appropriately adjusted for any share issuances or repurchases during the current calendar quarter.
The total base management fee incurred to the favor of the Investment Adviser was $33,165 and $23,045 for the three months ended September 30, 2014 and September 30, 2013, respectively.
The incentive fee has two parts. The first part, the income incentive fee, is calculated and payable quarterly in arrears based on our pre-incentive fee net investment income for the immediately preceding calendar quarter. For this purpose, pre-incentive fee net investment income means interest income, dividend income and any other income (including any other fees (other than fees for providing managerial assistance), such as commitment, origination, structuring, diligence and consulting fees and other fees that we receive from portfolio companies) accrued during the calendar quarter, minus our operating expenses for the quarter (including the base management fee, expenses payable under the Administration Agreement described below, and any interest expense and dividends paid on any issued and outstanding preferred stock, but excluding the incentive fee). Pre-incentive fee net investment income includes, in the case of investments with a deferred interest feature (such as original issue discount, debt instruments with payment-in-kind interest and zero coupon securities), accrued income that we have not yet received in cash. Pre-incentive fee net investment income does not include any realized capital gains, realized capital losses or unrealized capital appreciation or depreciation. Pre-incentive fee net investment income, expressed as a rate of return on the value of our net assets at the end of the immediately preceding calendar quarter, is compared to a “hurdle rate” of 1.75% per quarter (7.00% annualized).

65

The net investment income used to calculate this part of the incentive fee is also included in the amount of the gross assets used to calculate the 2.00% base management fee. We pay the Investment Adviser an income incentive fee with respect to our pre-incentive fee net investment income in each calendar quarter as follows: 
•
No incentive fee in any calendar quarter in which our pre-incentive fee net investment income does not exceed the hurdle rate;
•
100.00% of our pre-incentive fee net investment income with respect to that portion of such pre-incentive fee net investment income, if any, that exceeds the hurdle rate but is less than 125.00% of the quarterly hurdle rate in any calendar quarter (8.75% annualized assuming a 7.00% annualized hurdle rate); and
•
20.00% of the amount of our pre-incentive fee net investment income, if any, that exceeds 125.00% of the quarterly hurdle rate in any calendar quarter (8.75% annualized assuming a 7.00% annualized hurdle rate).
These calculations are appropriately prorated for any period of less than three months and adjusted for any share issuances or repurchases during the current quarter.
The second part of the incentive fee, the capital gains incentive fee, is determined and payable in arrears as of the end of each calendar year (or upon termination of the Investment Advisory Agreement, as of the termination date), and equals 20.00% of our realized capital gains for the calendar year, if any, computed net of all realized capital losses and unrealized capital depreciation at the end of such year. In determining the capital gains incentive fee payable to the Investment Adviser, we calculate the aggregate realized capital gains, aggregate realized capital losses and aggregate unrealized capital depreciation, as applicable, with respect to each investment that has been in its portfolio. For the purpose of this calculation, an “investment” is defined as the total of all rights and claims which maybe asserted against a portfolio company arising from our participation in the debt, equity, and other financial instruments issued by that company. Aggregate realized capital gains, if any, equal the sum of the differences between the aggregate net sales price of each investment and the aggregate cost basis of such investment when sold or otherwise disposed. Aggregate realized capital losses equal the sum of the amounts by which the aggregate net sales price of each investment is less than the aggregate cost basis of such investment when sold or otherwise disposed. Aggregate unrealized capital depreciation equals the sum of the differences, if negative, between the aggregate valuation of each investment and the aggregate cost basis of such investment as of the applicable calendar year-end. At the end of the applicable calendar year, the amount of capital gains that serves as the basis for our calculation of the capital gains incentive fee involves netting aggregate realized capital gains against aggregate realized capital losses on a since-inception basis and then reducing this amount by the aggregate unrealized capital depreciation. If this number is positive, then the capital gains incentive fee payable is equal to 20.00% of such amount, less the aggregate amount of any capital gains incentive fees paid since inception.
The total income incentive fee incurred was $23,616 and $20,584 for the three months ended September 30, 2014 and September 30, 2013, respectively. No capital gains incentive fee was incurred for the three months ended September 30, 2014 and September 30, 2013.
Administration Agreement
We have also entered into an Administration Agreement with Prospect Administration LLC (“Prospect Administration”) under which Prospect Administration, among other things, provides (or arranges for the provision of) administrative services and facilities for us. For providing these services, we reimburse Prospect Administration for our allocable portion of overhead incurred by Prospect Administration in performing its obligations under the Administration Agreement, including rent and our allocable portion of the costs of our Chief Financial Officer and Chief Compliance Officer and his staff. For the three months ended September 30, 2014 and September 30, 2013, the reimbursement was approximately $2,416 and $3,986, respectively. Under this agreement, Prospect Administration furnishes us with office facilities, equipment and clerical, bookkeeping and record keeping services at such facilities. Prospect Administration also performs, or oversees the performance of, our required administrative services, which include, among other things, being responsible for the financial records that we are required to maintain and preparing reports to our stockholders and reports filed with the SEC. In addition, Prospect Administration assists us in determining and publishing our net asset value, overseeing the preparation and filing of our tax returns and the printing and dissemination of reports to our stockholders, and generally oversees the payment of our expenses and the performance of administrative and professional services rendered to us by others. Under the Administration Agreement, Prospect Administration also provides on our behalf managerial assistance to those portfolio companies to which we are required to provide such assistance (see "Managerial Assistance" below). The Administration Agreement may be terminated by either party without penalty upon 60 days’ written notice to the other party. Prospect Administration is a subsidiary of the Investment Adviser.

66

During the three months ended September 30, 2014 and September 30, 2013, Prospect Administration received payments of $1,055 and $1,078, respectively, directly from our portfolio companies for legal, tax and portfolio level accounting services. We were given a credit for these payments as a reduction of the administrative services cost payable by us to Prospect Administration. Had Prospect Administration not received these payments, Prospect Administration's charges for its administrative services would have increased by these amounts.
The Administration Agreement provides that, absent willful misfeasance, bad faith or negligence in the performance of its duties or by reason of the reckless disregard of its duties and obligations, Prospect Administration and its officers, managers, partners, agents, employees, controlling persons, members and any other person or entity affiliated with it are entitled to indemnification from us for any damages, liabilities, costs and expenses (including reasonable attorneys’ fees and amounts reasonably paid in settlement) arising from the rendering of Prospect Administration’s services under the Administration Agreement or otherwise as administrator for us.
Managerial Assistance
As a BDC, we are obligated under the 1940 Act to make available to certain of our portfolio companies significant managerial assistance. "Making available significant managerial assistance" refers to any arrangement whereby we provide significant guidance and counsel concerning the management, operations, or business objectives and policies of a portfolio company. We are also deemed to be providing managerial assistance to all portfolio companies that we control, either by ourselves or in conjunction with others. The nature and extent of significant managerial assistance provided by us to controlled and non-controlled portfolio companies will vary according to the particular needs of each portfolio company. Examples of such activities include advice on (i) recruiting, hiring, management and termination of employees, officers and directors, succession planning and other human resource matters; (ii) capital raising, capital budgeting, and capital expenditures; (iii) advertising, marketing, and sales; (iv) fulfillment, operations, and execution; (v) managing relationships with unions and other personnel organizations, financing sources, vendors, customers, lessors, lessees, lawyers, accountants, regulators and other important counterparties; (vi) evaluating acquisition and divestiture opportunities, plant expansions and closings, and market expansions; (vii) participating in audit committee, nominating committee, board and management meetings; (viii) consulting with and advising board members and officers of portfolio companies (on overall strategy and other matters); and (ix) providing other organizational, operational, managerial and financial guidance.
Prospect Administration, when performing a managerial assistance agreement executed with each portfolio company to which we provide managerial assistance, arranges for the provision of such managerial assistance on our behalf. When doing so, Prospect Administration utilizes personnel of our Investment Adviser. We, on behalf of Prospect Administration, invoice portfolio companies receiving and paying for managerial assistance, and we remit to Prospect Administration its cost of providing such services, including the charges deemed appropriate by our Investment Adviser for providing such managerial assistance. Our payments to Prospect Administration are periodically reviewed by our Board of Directors.
During the three months ended September 30, 2014 and September 30, 2013, we received payments of $1,290 and $1,450, respectively, from our controlled portfolio companies for managerial assistance and subsequently remitted these amounts to Prospect Administration. During the three months ended September 30, 2014, we incurred $600 of managerial assistance expense related to our consolidated entity First Tower Delaware. This amount is included within other general and administrative expenses on our Consolidated Statements of Operations and is separated as a payable included within due to Prospect Administration on our Consolidated Statements of Assets and Liabilities.
Co-Investments
On February 10, 2014, we received an exemptive order from the SEC (the "Order") that gave us the ability to negotiate terms other than price and quantity of co-investment transactions with other funds managed by the Investment Adviser or certain affiliates, including Priority Income Fund, Inc. and Pathway Energy Infrastructure Fund, Inc., subject to the conditions included therein. Under the terms of the relief permitting us to co-invest with other funds managed by our Investment Adviser or its affiliates, a “required majority” (as defined in Section 57(o) of the 1940 Act) of our independent directors must make certain conclusions in connection with a co-investment transaction, including that (1) the terms of the proposed transaction, including the consideration to be paid, are reasonable and fair to us and our stockholders and do not involve overreaching of us or our stockholders on the part of any person concerned and (2) the transaction is consistent with the interests of our stockholders and is consistent with our investment objective and strategies. In certain situations where co-investment with one or more funds managed by the Investment Adviser or its affiliates is not covered by the Order, such as when there is an opportunity to invest in different securities of the same issuer, the personnel of the Investment Adviser or its affiliates will need to decide which fund will proceed with the investment. Such personnel will make these determinations based on policies and procedures, which are designed to reasonably ensure that investment opportunities are allocated fairly and equitably among affiliated funds over time and in a manner that is consistent with applicable

67

laws, rules and regulations. Moreover, except in certain circumstances, when relying on the Order, we will be unable to invest in any issuer in which one or more funds managed by the Investment Adviser or its affiliates has previously invested.
As of September 30, 2014, we had co-investments with Priority Income Fund, Inc. in the following CLO funds: Cent CLO 21 Limited; CIFC Funding 2014-IV Investor, Ltd.; Galaxy XVII CLO, Ltd.; Halcyon Loan Advisors Funding 2014-2 Ltd.; Symphony CLO XIV Ltd.; Voya CLO 2014-1, Ltd.; and Washington Mill CLO Ltd.
Note 14. Transactions with Controlled Companies
The descriptions below detail the transactions which Prospect Capital Corporation ("Prospect") has entered into with each of our controlled companies. Certain of the controlled entities discussed below were consolidated effective July 1, 2014 (see Note 1). As such, transactions with these Consolidated Holding Companies for the three months ended September 30, 2014 are presented on a consolidated basis.
Airmall Inc.
At June 30, 2014, Prospect owned 100% of the equity of AMU Holdings Inc. (“AMU”), a Consolidated Holding Company. AMU owned 98% of Airmall Inc. (“Airmall”). Airmall is a developer and manager of airport retail operations.
On July 30, 2010, Prospect made a $22,420 investment in AMU, of which $12,500 was a senior subordinated note and $9,920 was used to purchase 100% of the preferred and common equity of AMU. AMU used its combined debt and equity proceeds of $22,420 to purchase 100% of Airmall’s common stock for $18,000, to pay $1,573 of structuring fees from AMU to Prospect (which was recognized by Prospect as structuring fee income), $836 of third party expenses, $11 of legal services provided by attorneys at Prospect Administration, and $2,000 of withholding tax. Prospect then purchased for $30,000 two loans of Airmall payable to unrealized third parties, one for $10,000 and the other $20,000. Prospect and Airmall subsequently refinanced the two loans into a single $30,000 loan from Airmall to Prospect.
On October 1, 2013, Prospect made an additional $2,600 investment in the senior subordinated note, of which $575 was utilized by AMU to pay interest due to Prospect and $2,025 was retained by AMU for working capital. On December 4, 2013, Prospect sold 2% of the outstanding principal balance of the senior secured term loan to Airmall and 2% of the outstanding principal balance of the senior subordinated note to AMU for $972. On November 25, 2013, Prospect funded an additional $5,000 to the senior subordinated note, which was utilized by AMU to pay a $5,000 of dividend to Prospect.
On June 13, 2014, Prospect made a new $19,993 investment as a senior secured loan to Airmall. Airmall then distributed this amount to AMU as a return of capital, which AMU used to pay down the senior subordinated loan in the same amount. The minority interest held by a third party in AMU was exchanged for common stock of Airmall.
On July 1, 2014, Prospect began consolidating AMU. As a result, any transactions between AMU and Prospect are eliminated in consolidation and as such, transactions after July 1, 2014 are not presented below.
On August 1, 2014, Prospect sold its investments in Airmall for net proceeds of $51,379 and realized a loss of $3,473 on the sale. In addition, there is $6,000 being held in escrow, of which 98% is due to Prospect, which will be recognized as an additional realized loss if it is not received. Included in the net proceeds were $3,000 of structuring fees from Airmall related to the sale of the operating company which was recognized as other income during the three months ended September 30, 2014.

The following dividends were declared and paid from Airmall to AMU and recorded as dividend income by AMU:
July 1, 2013 to September 30, 2013
$
7,000

July 1, 2014 to September 30, 2014
N/A

The following dividends were declared and paid from AMU to Prospect and recorded as dividend income by Prospect:
July 1, 2013 to September 30, 2013
$
7,000

July 1, 2014 to September 30, 2014
N/A

All dividends were paid from earnings and profits of Airmall and AMU.

68

The following cash payments from Airmall to Prospect were recorded as a repayment of loan receivable from Airmall:
July 1, 2013 to September 30, 2013
$
150

July 1, 2014 to September 30, 2014
27,587

The following interest payments were accrued and paid to Prospect from Airmall for interest due and recognized by Prospect as interest income:
July 1, 2013 to September 30, 2013
$
878

July 1, 2014 to September 30, 2014
576

The following interest payments were paid from AMU to Prospect and recognized by Prospect as interest income:
July 1, 2013 to September 30, 2013
$
579

July 1, 2014 to September 30, 2014
N/A

The following managerial assistance payments were paid from AMU to Prospect and subsequently remitted to Prospect Administration (no income was recognized by Prospect):
July 1, 2013 to September 30, 2013
$
75

July 1, 2014 to September 30, 2014
N/A

The following managerial assistance payments were paid from Airmall to Prospect and subsequently remitted to Prospect Administration (no income was recognized by Prospect):
July 1, 2013 to September 30, 2013
$
—

July 1, 2014 to September 30, 2014
75

At June 30, 2014 and September 30, 2014, $45 and $75 of managerial assistance recognized had not yet been paid by Airmall to Prospect and was included by Prospect within other receivables due from Airmall and other liabilities due to Prospect Administration, respectively.
The following payments were paid from Airmall to Prospect Administration as reimbursement for legal, tax and portfolio level accounting services provided directly to Airmall (no direct income was recognized by Prospect, but Prospect was given credit for these payments as a reduction of the administrative services costs payable by Prospect to Prospect Administration):
July 1, 2013 to September 30, 2013
$
—

July 1, 2014 to September 30, 2014
730

American Property REIT Corp.
Prospect owns 100% of the equity of APH Property Holdings, LLC (“APH”), a Consolidated Holding Company. APH owns 100% of the common equity of American Property Holdings Corp. (“APRC”). APRC is a Maryland corporation and a qualified REIT for federal income tax purposes. In order to qualify as a REIT, APRC issued 125 shares of Series A Cumulative Non-Voting Preferred Stock to 125 accredited investors. The preferred stockholders are entitled to receive cumulative dividends semi-annually at an annual rate of 12.5% and do not have the ability to participate in the management or operation of APRC.
APRC was formed to acquire, operate, finance, lease, manage, and sell a portfolio of real estate assets and engage in any and all other activities as may be necessary, incidental or convenient to carry out the foregoing. APRC acquires real estate assets, including, but not limited to, industrial, commercial, and multi-family properties.
On October 24, 2012, Prospect initially made a $7,808 investment in APH, of which $6,000 was a Senior Term Loan and $1,808 was used to purchase the membership interests of APH. The proceeds were utilized by APH to purchase APRC common equity for $7,806, with $2 retained by APH for working capital. The proceeds were utilized by APRC to purchase a 100% ownership interest in 146 Forest Parkway, LLC for $7,326, with $480 retained by APRC for working capital. 146 Forest Parkway, LLC was purchased by APRC for $7,400. The remaining proceeds were used to pay $222 of structuring fees to Prospect (which was recognized by Prospect as structuring fee income), $178 of third party expenses and $5 of legal services provided by attorneys at Prospect Administration. The investment was subsequently contributed to NPRC.

69

On December 28, 2012, Prospect made a $9,593 investment in APH, of which $6,400 was a Senior Term Loan and $3,193 was used to purchase additional membership interests of APH. The proceeds were utilized by APH to purchase additional APRC common equity for $9,594, with $1 retained by APH for working capital. The proceeds were utilized by APRC to purchase a 92.7% ownership interest in 1557 Terrell Mill Road, LLC for $9,548, with $46 retained by APRC for other expenses. 1557 Terrell Mill Road, LLC was purchased by APRC for $23,500 which included debt financing and minority interest of $15,275 and $757, respectively. The remaining proceeds were used to pay $286 of structuring fees to Prospect (which was recognized by Prospect as structuring fee income) and $1,652 of third party expenses, with $142 retained by APRC for working capital.
On January 17, 2013, Prospect made a $30,348 investment in APH, of which $27,600 was a Senior Term Loan and $2,748 was used to purchase additional membership interests of APH. The proceeds were utilized by APH to purchase additional APRC common equity for $29,348, with $1,000 retained by APH for working capital. The proceeds were utilized by APRC to purchase a 97.7% ownership interest in 5100 Live Oaks Blvd, LLC for $29,348. 5100 Live Oaks Blvd, LLC was purchased by APRC for $63,400 which included debt financing and minority interest of $39,600 and $686, respectively. The remaining proceeds were used to pay $880 of structuring fees to Prospect (which was recognized by Prospect as structuring fee income), $4,265 of third party expenses, $14 of legal services provided by attorneys at Prospect Administration, and $1,030 of pre-paid assets, with $45 retained by APRC for working capital.
On April 30, 2013, Prospect made a $10,383 investment in APH, of which $9,000 was a Senior Term Loan and $1,383 was used to purchase additional membership interests of APH. The proceeds were utilized by APH to purchase additional APRC common equity for $10,233, with $150 retained by APH for working capital. The proceeds were utilized by APRC to purchase a 93.2% ownership interest in Lofton Place, LLC for $10,233. Lofton Place, LLC was purchased by APRC for $26,000 which included debt financing and minority interest of $16,965 and $745, respectively. The remaining proceeds were used to pay $306 of structuring fees to Prospect (which was recognized by Prospect as structuring fee income), $1,223 of third party expenses, $5 of legal services provided by attorneys at Prospect Administration, and $364 of pre-paid assets, with $45 retained by APRC for working capital.
On April 30, 2013, Prospect made a $10,863 investment in APH, of which $9,000 was a Senior Term Loan and $1,863 was used to purchase additional membership interests of APH. The proceeds were utilized by APH to purchase additional APRC common equity for $10,708, with $155 retained by APH for working capital. The proceeds were utilized by APRC to purchase a 93.2% ownership interest in Vista Palma Sola, LLC for $10,708. Vista Palma Sola, LLC was purchased by APRC for $27,000 which included debt financing and minority interest of $17,550 and $785, respectively. The remaining proceeds were used to pay $321 of structuring fees to Prospect (which was recognized by Prospect as structuring fee income), $1,272 of third party expenses, $4 of legal services provided by attorneys at Prospect Administration, and $401 of pre-paid assets with $45 retained by APRC for working capital.
On May 8, 2013, Prospect made a $6,118 investment in APH, of which $4,000 was a Senior Term Loan and $2,118 was used to purchase additional membership interests of APH. The proceeds were utilized by APH to purchase additional APRC common equity for $6,028, with $90 retained by APH for working capital. The proceeds were utilized by APRC to purchase a 93.3% ownership interest in Arlington Park Marietta, LLC for $6,028. Arlington Park Marietta, LLC was purchased by APRC for $14,850 which included debt financing and minority interest of $9,650 and $437, respectively. The remaining proceeds were used to pay $181 of structuring fees to Prospect (which was recognized by Prospect as structuring fee income), $911 of third party expenses and $128 of pre-paid assets with $45 retained by APRC for working capital.
On June 24, 2013, Prospect made a $76,533 investment in APH, of which $63,000 was a Senior Term Loan and $13,533 was used to purchase additional membership interests of APH. The proceeds were utilized by APH to purchase additional APRC common equity for $75,233, with $1,300 retained by APH for working capital. The proceeds were utilized by APRC to purchase a 95.0% ownership interest in APH Carroll Resort, LLC for $74,398 and $835 was used to pay structuring fees (which was recognized by Prospect as structuring fee income). APH Carroll Resort, LLC was purchased by APRC for $225,000 which included debt financing and minority interest of $157,500 and $3,916, respectively. The remaining proceeds were used to pay $1,436 of structuring fees to Prospect (which was recognized by Prospect as structuring fee income), $7,687 of third party expenses, $8 of legal services provided by attorneys at Prospect Administration and $1,683 of pre-paid assets.
Between October 29, 2013 and December 4, 2013, Prospect made an $11,000 investment in APH, of which $9,350 was a Senior Term Loan and $1,650 was used to purchase additional membership interests of APH. The proceeds were utilized by APH to purchase consumer loans from a third party. The investment was subsequently contributed to NPRC.

70

On November 1, 2013, Prospect made a $9,869 investment in APH, of which $8,200 was a Senior Term Loan and $1,669 was used to purchase additional membership interests of APH. The proceeds were utilized by APH to purchase additional APRC common equity for $9,869. The proceeds were utilized by APRC to purchase a 94.0% ownership interest in APH Carroll 41, LLC for $9,548 and to pay $102 of structuring fees to Prospect (which was recognized by Prospect as structuring fee income), with $219 retained by APRC for working capital. APH Carroll 41, LLC was purchased by APRC for $30,600 which included debt financing and minority interest of $22,497 and $609, respectively. The remaining proceeds were used to pay structuring fees of $190 to Prospect (which was recognized by Prospect as structuring fee income), $1,589 of third party expenses, $5 of legal services provided by attorneys at Prospect Administration, and $270 of pre-paid assets. The investment was subsequently contributed to NPRC.
On November 15, 2013, Prospect made a $45,900 investment in APH, of which $38,500 was a Senior Term Loan and $7,400 was used to purchase additional membership interests of APH. The proceeds were utilized by APH to purchase additional APRC common equity for $45,900. The proceeds were utilized by APRC to purchase a 99.3% ownership interest in APH Gulf Coast Holdings, LLC for $45,024 and to pay $364 of structuring fees to Prospect (which was recognized by Prospect as structuring fee income), with $511 retained by APRC for working capital. APH Gulf Coast Holdings, LLC was purchased by APRC for $115,200 which included debt financing and minority interest of $75,558 and $337, respectively. The remaining proceeds were used to pay $1,013 of structuring fees to Prospect (which was recognized by Prospect as structuring fee income), $2,590 of third party expenses, $23 of legal services provided by attorneys at Prospect Administration, and $2,023 of pre-paid assets, with $70 retained by APRC for working capital.
On November 19, 2013, Prospect made a $66,188 investment in APH, of which $55,000 was a Senior Term Loan and $11,188 was used to purchase additional membership interests of APH. The proceeds were utilized by APH to purchase additional APRC common equity for $66,188. The proceeds were utilized by APRC to purchase a 90.0% ownership interest in NPH McDowell, LLC for $64,392 and to pay $695 of structuring fees to Prospect (which was recognized by Prospect as structuring fee income), with $1,101 retained by APRC for working capital. NPH McDowell, LLC was purchased by APRC for $238,605 which included debt financing and minority interest of $180,226 and $7,155, respectively. The remaining proceeds were used to pay $1,290 of structuring fees to Prospect (which was recognized by Prospect as structuring fee income), $9,205 of third party expenses, $23 of legal services provided by attorneys at Prospect Administration, and $1,160 of pre-paid assets, with $1,490 retained by APRC for working capital. The investment was subsequently contributed to NPRC.
On December 12, 2013, Prospect made a $22,507 investment in APH, of which $18,800 was a Senior Term Loan and $3,707 was used to purchase additional membership interests of APH. The proceeds were utilized by APH to purchase additional APRC common equity for $22,507. The proceeds were utilized by APRC to purchase a 92.6% ownership interest in South Atlanta Portfolio Holding Company, LLC for $21,874 and to pay $238 of structuring fees to Prospect (which was recognized by Prospect as structuring fee income), with $395 retained by APRC for working capital. South Atlanta Portfolio Holding Company, LLC was purchased by APRC for $87,250 which included debt financing and minority interest of $67,493 and $1,756, respectively. The remaining proceeds were used to pay $437 of structuring fees to Prospect (which was recognized by Prospect as structuring fee income), $2,920 of third party expenses, and $116 of pre-paid assets, with $400 retained by APRC for working capital. The investment was subsequently contributed to UPH.
On December 31, 2013, APRC distributed its majority interests in five joint ventures (“JVs”) holding real estate assets to APH. APH then distributed these JV interests to Prospect in a transaction characterized as a return of capital. Prospect, on the same day, contributed certain of these JV interests to NPH Property Holdings, LLC and the remainder to UPH Property Holdings, LLC (each wholly-owned subsidiaries of Prospect). Each of NPH and UPH immediately thereafter contributed these JV interests to NPRC and UPRC, respectively. The total investments in the JVs transferred consisted of $98,164 and $20,022 of debt and equity financing, respectively. There was no material gain or loss realized on these transactions.
On January 17, 2014, Prospect made a $6,565 investment in APH, of which $5,500 was a Senior Term Loan and $1,064 was used to purchase additional membership interests of APH. The proceeds were utilized by APH to purchase additional APRC common equity for $6,565. The proceeds were utilized by APRC to purchase a 99.3% ownership interest in APH Gulf Coast Holdings, LLC for $6,336 and to pay $216 of structuring fees to Prospect (which was recognized by Prospect as structuring fee income), with $13 retained by APRC for working capital and other expenses. APH Gulf Coast Holdings, LLC was purchased by APRC for $15,430 which included debt financing and minority interest of $10,167 and $48, respectively. The remaining proceeds were used to pay $143 of structuring fees to Prospect (which was recognized by Prospect as structuring fee income), $627 of third party expenses, $4 of legal services provided by attorneys at Prospect Administration, and $312 of pre-paid assets, with $35 retained by APRC for working capital.
Effective as of April 1, 2014, Prospect made a new $167,162 senior term loan to APRC. APRC then distributed this amount to APH as a return of capital which was used to pay down the Senior Term Loan from APH by the same amount. Effective April 1, 2014, American Property Holdings Corp. was renamed American Property REIT Corp. (continues as “APRC”).

71

On June 4, 2014, Prospect made a $1,719 investment in APH to purchase additional membership interests of APH. The proceeds were utilized by APH to purchase additional APRC common equity for $1,719. The proceeds were utilized by APRC to acquire the real property located at 975 South Cornwell, Yukon, OK (“Taco Bell, OK”) for $1,719.
On July 1, 2014, Prospect began consolidating APH. As a result, any transactions between APH and Prospect are eliminated in consolidation and as such, transactions after July 1, 2014 are not presented below.
The following interest income was accrued and paid from APH to Prospect and recognized by Prospect as interest income:
July 1, 2013 to September 30, 2013
$
3,700

July 1, 2014 to September 30, 2014
N/A

The following interest income was accrued and subsequently paid from APRC to Prospect and recognized by Prospect as interest income:
July 1, 2013 to September 30, 2013
N/A

July 1, 2014 to September 30, 2014
4,930

At June 30, 2014 and September 30, 2014, $53 and $54 of interest recognized had not yet been paid by APRC to Prospect and was included by Prospect within interest receivable.
At September 30, 2014, $1,768 of interest from APRC was capitalized payment-in-kind interest and was included by Prospect in the investment cost basis.
The following royalty payments were paid from APH to Prospect and recognized by Prospect as other income:
July 1, 2013 to September 30, 2013
$
320

July 1, 2014 to September 30, 2014
N/A

The following royalty payments were paid from APRC to Prospect and recognized by Prospect as other income:
July 1, 2013 to September 30, 2013
$
—

July 1, 2014 to September 30, 2014
403

The following managerial assistance payments were paid from APRC to Prospect and subsequently remitted to Prospect Administration (no income was recognized by Prospect):
July 1, 2013 to September 30, 2013
$
125

July 1, 2014 to September 30, 2014
148

The following amounts were due from Prospect to Prospect Administration for managerial assistance payments (no direct income was recognized by Prospect):
June 30, 2014
$
148

September 30, 2014
148

The following payments were paid from APRC to Prospect Administration as reimbursement for legal, tax and portfolio level accounting services provided directly to APRC (no direct income was recognized by Prospect, but Prospect was given credit for these payments as a reduction of the administrative services costs payable by Prospect to Prospect Administration):
July 1, 2013 to September 30, 2013
$
—

July 1, 2014 to September 30, 2014
106

The following amounts were due from APH to Prospect for reimbursement of expenses paid by Prospect on behalf of APH and included by Prospect within other receivables on the respective Consolidated Statement of Assets and Liabilities:
June 30, 2014
$
13

September 30, 2014
N/A


72

The following amounts were due from APRC to Prospect for reimbursement of expenses paid by Prospect on behalf of APRC and included by Prospect within other receivables on the respective Consolidated Statement of Assets and Liabilities:
June 30, 2014
$
—

September 30, 2014
182

The following amounts were due to APRC from Prospect for reimbursement of expenses paid by APRC on behalf of Prospect and included by Prospect within other liabilities on the respective Consolidated Statement of Assets and Liabilities:
June 30, 2014
$
—

September 30, 2014
148

Arctic Energy Services, LLC
Prospect owns 100% of the equity of Arctic Oilfield Equipment USA, Inc. (“Arctic Equipment”), a Consolidated Holding Company. Arctic Equipment owns 70% of the equity of Arctic Energy Services, LLC (“Arctic Energy”), with Ailport Holdings, LLC (“Ailport”) (100% owned and controlled by Arctic Energy management) owning the remaining 30% of the equity of Arctic Energy. Arctic Energy provides oilfield service personnel, well testing flowback equipment, frac support systems and other services to exploration and development companies in the Rocky Mountains.
On May 5, 2014, Prospect initially purchased 100% of the common shares of Arctic Equipment for $9,006. Proceeds were utilized by Arctic Equipment to purchase 70% of Arctic Energy as described in the following paragraph.
On May 5, 2014, Prospect made an additional $51,870 investment (including in exchange for 1,102,313 common shares of Prospect at fair value of $11,916) in Arctic Energy in exchange for a $31,640 senior secured loan and a $20,230 subordinated loan. Total proceeds received by Arctic Energy of $60,876 were used to purchase 70% of the equity interests in Arctic Energy from Ailport for $47,516, pay $875 of third-party expenses, $1,713 of structuring fees to Prospect (which was recognized as structuring fee income), $445 of legal services provided by attorneys at Prospect Administration and $10,327 was retained as working capital.
On July 1, 2014, Prospect began consolidating Arctic Equipment. As a result, any transactions between Arctic Equipment and Prospect are eliminated in consolidation and as such, transactions after July 1, 2014 are not presented below.
The following interest income was accrued and subsequently paid from Arctic Energy to Prospect for interest due and recognized by Prospect as interest income:
July 1, 2013 to September 30, 2013
$
—

July 1, 2014 to September 30, 2014
1,694

At June 30, 2014 and September 30, 2014, $18 of interest had not yet been paid by Arctic Energy to Prospect and was included by Prospect within interest receivable.  
The following managerial assistance payments were paid from Arctic Energy to Prospect and subsequently remitted to Prospect Administration (no income was recognized by Prospect):
July 1, 2013 to September 30, 2013
$
—

July 1, 2014 to September 30, 2014
25

At June 30, 2014 and September 30, 2014, $15 and $14 was included by Prospect in Due to Prospect Administration on the respective Consolidated Statement of Assets and Liabilities, respectively.
The following amounts were due from Arctic Energy to Prospect for reimbursement of expenses paid by Prospect on behalf of Arctic Energy and included by Prospect within other receivables on the respective Consolidated Statement of Assets and Liabilities (no income was recognized by Prospect):
June 30, 2014
$
6

September 30, 2014
16


73

ARRM Services, Inc.
Prospect owns 79.53% of the fully-diluted common, 85.76% of the Series A Preferred and 100% of the Series B Preferred equity of ARRM Holdings, Inc. (“ARRM”). ARRM owns 100% of the equity of Ajax Rolled Ring & Machine, LLC (“Ajax LLC”). Ajax forges large seamless steel rings on two forging mills in the company’s York, South Carolina facility. The rings are used in a range of industrial applications, including in construction equipment and power turbines. Ajax also provides machining and other ancillary services.
As of July 1, 2011, the cost basis of Prospect’s total debt and equity investment in Ajax, Inc., including capitalized payment-in-kind interest of $3,535, was $41,699, consisting of $20,607 for senior secured term loans, $15,035 for subordinated secured term debt and $6,057 for common equity. The equity of Ajax Inc. was exchanged for equity in ARRM on October 4, 2011, and Ajax Inc. was converted to a limited liability company and became Ajax LLC. On December 28, 2012, Prospect funded $3,600 of unsecured debt to ARRM.
On April 1, 2013, Prospect refinanced the existing $19,837 and $18,635 senior loans to Ajax LLC and ARRM, respectively, increasing the total size of the debt investment to $38,537. Concurrent with the refinancing, Prospect received repayment of the $18,635 loans that Prospect previously outstanding. On October 11, 2013, Prospect provided $25,000 in preferred equity for the recapitalization of ARRM. After the financing, Prospect received repayment of the $20,009 subordinated unsecured loan previously outstanding.
On June 12, 2014, ARRM was renamed to ARRM Services, Inc.
The following cash payments from Ajax LLC to Prospect were recorded as a repayment of loan receivable by Prospect:
July 1, 2013 to September 30, 2013
$
100

July 1, 2014 to September 30, 2014
—

The following interest income was accrued and subsequently paid from ARRM to Prospect for interest due and recognized by Prospect as interest income:
July 1, 2013 to September 30, 2013
$
881

July 1, 2014 to September 30, 2014
—

The following interest income, including prepayment penalty fees, was accrued and subsequently paid from Ajax LLC to Prospect for interest due and recognized by Prospect as interest income:
July 1, 2013 to September 30, 2013
$
627

July 1, 2014 to September 30, 2014
519

At June 30, 2014 and September 30, 2014, $6 of interest had not yet been paid by Ajax LLC to Prospect and was included by Prospect within interest receivable, respectively.
The following payment-in-kind interest was capitalized in the senior secured note to Ajax LLC and recorded as interest income by Prospect:
July 1, 2013 to September 30, 2013
$
309

July 1, 2014 to September 30, 2014
—

As of June 30, 2014, due to a pending sale transaction, we reversed $3,844 of previously recognized payment-in-kind interest of which we do not expect to receive.
At June 30, 2014 and September 30, 2014, $0 and $45 of managerial assistance had not yet been paid by Ajax LLC to Prospect and was included by Prospect within other receivables due from Ajax LLC and other liabilities due to Prospect Administration, respectively.


74

The following payments were paid from ARRM to Prospect Administration as reimbursement for legal, tax and portfolio level accounting services provided directly to ARRM (no direct income was recognized by Prospect, but Prospect was given credit for these payments as a reduction of the administrative services costs payable by Prospect to Prospect Administration):
July 1, 2013 to September 30, 2013
$
2

July 1, 2014 to September 30, 2014
—

Borga, Inc.
Prospect owns 100% of the equity of STI Holding, Inc. (“STI”), a Consolidated Holding Company. STI owns 100% of the equity of Borga, Inc. (“Borga”). Borga manufactures pre-engineered metal buildings and components for the agricultural and light industrial markets.
On May 6, 2005, Patriot Capital Funding, Inc. (previously acquired by Prospect) provided $14,000 in senior secured debt to Borga. The debt was comprised of $1,000 Senior Secured Revolver, $3,500 Senior Secured Term Loan A, $2,500 Senior Secured Term Loan B and $7,000 Senior Secured Term Loan C. On March 31, 2009, Borga made its final amortization payment on the Senior Secured Term Loan A. The other loans remained outstanding. Prospect owned warrants to purchase 33,750 shares of common stock in Metal Buildings Holding Corporation (“Metal Buildings”), the former holding company of Borga. Metal Buildings owned 100% of Borga, Inc.
On March 8, 2010, Prospect acquired the remaining common stock of Borga.
On January 24, 2014, Prospect contributed its holdings in Borga to STI. STI also holds $3,371 of proceeds from the sale of a minority equity interest in SMART LLC (“Smart”). Prospect initially acquired membership interests in SMART indirectly as part of the Patriot acquisition on December 2, 2009 recording a zero cost basis for the equity investment. The $3,371 was distributed to Prospect on May 29, 2014, of which $3,246 was paid from earnings and profits of STI and was recognized as dividend income by Prospect. The remaining $125 was recognized as return of capital by Prospect.
On July 1, 2014, Prospect began consolidating STI. As a result, any transactions between STI and Prospect are eliminated in consolidation and as such, transactions after July 1, 2014 are not presented below.
On August 20, 2014, Prospect sold the assets of Borga, a wholly-owned subsidiary of STI, for net proceeds of $382 and realized a loss of $2,589 on the sale.
BXC Company, Inc.
Prospect owns 86.7% of Series A Preferred Stock, 96.8% of Series B Preferred Stock, and 83.1% of fully diluted common stock of BXC Company, Inc. (“BXC”). BXC owns 100% of the common stock of Boxercraft Incorporated (“Boxercraft”).
As of July 1, 2011, the cost basis of Prospect’s total debt and equity investment in Boxercraft, including capitalized payment-in-kind interest of $763, was $12,931. On September 28, 2012 and April 18, 2014, Prospect issued additional debt to BXC in the amount of $2,293 and $300, respectively. From inception to date, Prospect received a total of $4,684 in repayments of the combined debt and capitalized a total of $1,674 of paid-in-kind interest.
Effective as of March 28, 2014, Prospect acquired voting control of BXC pursuant to a voting agreement and irrevocable proxy. Effective May 8, 2014, Prospect acquired control of BXC by transferring shares held by the other equity holders of BXC to Prospect pursuant to an assignment agreement entered into with such other equity holders.
On July 2, 2014, Prospect made a new $250 of senior secured term loan to provide liquidity to Boxercraft.
On July 17, 2014, Prospect restructured the investments in BXC and Boxercraft. The existing Senior Secured Term Loan A and a portion of the existing Senior Secured Term Loan B were replaced with a new Senior Secured Term Loan A to Boxercraft. The remainder of the existing Senior Secured Term Loan B and the existing Senior Secured Term Loan C, Senior Secured Term Loan D, and Senior Secured Term Loan E were replaced with a new Senior Secured Term Loan B to Boxercraft. The existing Senior Secured Term Loan to Boxercraft was converted into Series D Preferred Stock in BXC.
On August 25, 2014, Prospect sold Boxercraft, a wholly-owned subsidiary of BXC, for net proceeds of $750 and realized a net loss of $16,949 on the sale.
There was no income recognized by Prospect from the time BXC became a controlled company through September 30, 2014 due to the non-accrual status.

75

CCPI Inc.
Prospect owns 100% of the equity of CCPI Holdings Inc. (“CCPI Holdings”), a Consolidated Holding Company. CCPI Holdings owns 94.98% of the equity of CCPI Inc. (“CCPI”), with CCPI management owning the remaining 5.02% of the equity. CCPI owns 100% of each of CCPI Europe Ltd., and MEFEC B.V., and 45% of Gulf Temperature Sensors W.L.L.
On December 13, 2012, Prospect initially made a $15,921 investment (including 467,928 common shares of Prospect at fair value of $5,021) in CCPI Holdings, $7,500 senior secured note and $8,443 equity interest. The proceeds received by CCPI Holdings were partially utilized to purchase 95.13% of CCPI common stock for $14,878. The remaining proceeds were used to pay $395 of structuring fees from CCPI Holdings to Prospect (which were recognized by Prospect as structuring fee income), $215 for legal services provided by attorneys at Prospect Administration, $137 for third party expenses and $318 was retained by CCPI Holdings for working capital.
On December 13, 2012, Prospect made an additional investment of $18,000 in CCPI senior secured debt. The proceeds of the Prospect loan along with $14,878 of equity financing from CCPI Holdings, Inc. (mentioned above) were used to purchase 95.13% of CCPI equity from the sellers for $31,829, provide $120 of debt financing to CCPI management (to partially fund a purchase by management of CCPI stock), fund $180 of structuring fees from CCPI to Prospect (which were recognized by Prospect as structuring fee income), pay $548 of third-party expenses, reimburse $12 for reimbursement of expenses paid by Prospect on behalf of CCPI (no income was recognized by Prospect) and $189 was retained by CCPI as working capital.
On June 13, 2014, Prospect made a new $8,218 senior secured note to CCPI. CCPI then distributed this amount to CCPI Holdings as a return of capital which was used to pay down the $8,216 senior secured note from CCPI Holdings to Prospect. The remaining $2 was distributed to Prospect as a return of capital of Prospect's equity investment in CCPI Holdings.
On July 1, 2014, Prospect began consolidating CCPI Holdings. As a result, any transactions between CCPI Holdings and Prospect are eliminated in consolidation and as such, transactions after July 1, 2014 are not presented below.
The following interest income was accrued and paid from CCPI Holdings to Prospect for interest due and recognized by Prospect as interest income:
July 1, 2013 to September 30, 2013
$
379

July 1, 2014 to September 30, 2014
N/A

The following payment-in-kind interest was capitalized in the senior secured note to CCPI Holdings and recorded as interest income by Prospect:
July 1, 2013 to September 30, 2013
$
273

July 1, 2014 to September 30, 2014
N/A

The following interest income was accrued and paid from CCPI to Prospect for interest due and recognized by Prospect as interest income:
July 1, 2013 to September 30, 2013
$
447

July 1, 2014 to September 30, 2014
824

The following payment-in-kind interest was capitalized in the senior secured note to CCPI and recorded as interest income by Prospect:
July 1, 2013 to September 30, 2013
$
—

July 1, 2014 to September 30, 2014
145

The following royalty payments were paid from CCPI Holdings to Prospect and recognized by Prospect as other income:
July 1, 2013 to September 30, 2013
$
35

July 1, 2014 to September 30, 2014
N/A


76

The following cash payments from CCPI to Prospect were recorded as repayments of loans receivable by Prospect:
July 1, 2013 to September 30, 2013
$
113

July 1, 2014 to September 30, 2014
113

The following managerial assistance payments were paid from CCPI to Prospect and subsequently remitted to Prospect Administration (no income was recognized by Prospect):
July 1, 2013 to September 30, 2013
$
60

July 1, 2014 to September 30, 2014
60

At June 30, 2014 and September 30, 2014, $0 and $60 of managerial assistance had been received by Prospect from CCPI and had not yet been paid to Prospect Administration, respectively. These amounts were included by Prospect in Due to Prospect Administration on the respective Consolidated Statement of Assets and Liabilities (no income was recognized by Prospect).
The following amounts were due from CCPI Holdings to Prospect for reimbursement of expenses and included by Prospect within other receivables on the respective Consolidated Statement of Assets and Liabilities (no income was recognized by Prospect): 
June 30, 2014
$
10

September 30, 2014
N/A

The following amounts were due from CCPI to Prospect for reimbursement of expenses and included by Prospect within other receivables on the respective Consolidated Statement of Assets and Liabilities (no income was recognized by Prospect): 
June 30, 2014
$
—

September 30, 2014
3

CP Energy Services Inc.
Prospect owns 100% of the equity of CP Holdings of Delaware LLC. (“CP Holdings”), a Consolidated Holding Company. CP Holdings owns 82.9% of the equity of CP Energy Services Inc. (“CP Energy”), and the remaining 17.1% of the equity is owned by CP Energy management. CP Energy owns directly or indirectly 100% of each of CP Well Testing Services, LLC (“CP Well Testing”), CP Well Testing, LLC (“CP Well”), Fluid Management Services, Inc., Fluid Management Services LLC, Wright Transport, Inc., Wright Foster Disposals, LLC, Foster Testing Co, Inc., ProHaul Transports, LLC, Artexoma Logistics, LLC, and Wright Trucking, Inc. CP Energy provides oilfield flowback services and fluid hauling and disposal services through its subsidiaries.
On October 3, 2012, Prospect initially made a $21,500 senior secured debt investment in CP Well. As part of the transaction, Prospect received $430 of structuring fees from CP Well (which was recognized by Prospect as structuring fee income) and $7 was paid by CP Well to Prospect Administration for legal services provided by attorneys at Prospect Administration.
On August 2, 2013, Prospect invested $94,014 (including 1,918,342 unregistered shares of Prospect common stock at a fair value of $21,006) to support the recapitalization of CP Energy where Prospect acquired a controlling interest in CP Energy.
On August 2, 2013, Prospect invested $12,741 into CP Holdings to purchase 100% of the common stock in CP Holdings. The proceeds were used by CP Holdings to purchase 82.9% of the common stock in CP Energy for $12,135 and pay $606 of legal services provided by attorneys at Prospect Administration.
On August 2, 2013, Prospect made a senior secured debt investment of $22,500 in CP Well Testing. Proceeds were used by CP Well Testing to partially fund the recapitalization of CP Energy and pay $450 of structuring fees from CP Well Testing to Prospect (which was recognized by Prospect as structuring fee income).
On August 2, 2013, Prospect made an additional senior secured debt investment of $58,773 in CP Energy. CP Energy also received $2,505 management co-investment in exchange for 17.1% of CP Energy common stock. Total proceeds received at CP Well Testing and CP Energy of $95,913 (including the $12,135 of equity financing from CP Holdings mentioned above) were used to purchase 100% of the equity interests in CP Well Testing Holding Company, LLC and Fluid Management Holdings, Inc. (subsequently renamed CP Well Testing and Fluid Management Services, LLC) for a combined $70,423, to repay the principal, interest and fees of $19,803 on the loan previously outstanding from Prospect to CP Well, pay $1,414 of structuring fees from CP Energy to Prospect (which was recognized by Prospect as structuring fee income), $823 of third-party expenses and $3,000 was retained by CP Energy as working capital.

77

On October 11, 2013, Prospect made a $746 follow-on investment in CP Holdings to fund equity into CP Energy and made an additional senior secured loan to CP Energy of $5,100. Management invested an additional $154 of equity in CP Energy, and the percentage ownership of CP Energy did not change. Total proceeds of $6,000 were used to purchase flowback equipment and expand the CP Well operations in West Texas.
On December 26, 2013, Prospect made an additional $1,741 follow-on investment in CP Holdings to fund equity into CP Energy and made an additional senior secured loan to CP Energy of $11,900. Management invested an additional $359 of equity in CP Energy, and the percentage ownership of CP Energy did not change. Total proceeds of $14,000 were used to purchase additional equipment.
On April 1, 2014, Prospect made new loans to CP Well, ProHaul Transports, LLC Wright Trucking, Inc. and Foster Testing Co, Inc. as co-borrowers, two first lien loans in the amount of $11,035 and $72,238 and a second lien loan in the amount of $15,000. The proceeds of these loans were used to repay CP Well Testing’s senior secured term loan and CP Energy’s senior secured term loan from Prospect. 
On July 1, 2014, Prospect began consolidating CP Holdings. As a result, any transactions between CP Holdings and Prospect are eliminated in consolidation and as such, transactions after July 1, 2014 are not presented below.
The following interest income was accrued and paid from CP Energy to Prospect and recognized by Prospect as interest income:
July 1, 2013 to September 30, 2013
$
1,763

July 1, 2014 to September 30, 2014
—

The following interest income was accrued and paid from CP Well Testing to Prospect and recognized by Prospect as interest income:
July 1, 2013 to September 30, 2013
$
413

July 1, 2014 to September 30, 2014
—

The following interest income was accrued and subsequently paid from CP Well to Prospect and recognized by Prospect as interest income:
July 1, 2013 to September 30, 2013
$
—

July 1, 2014 to September 30, 2014
4,118

At June 30, 2014 and September 30, 2014, $45 and $26 of interest recognized had not yet been paid by CP Well to Prospect and was included by Prospect within interest receivable.
The following managerial assistance payments were paid from CP Energy to Prospect and subsequently remitted to Prospect Administration (no income was recognized by Prospect):
July 1, 2013 to September 30, 2013
$
50

July 1, 2014 to September 30, 2014
—

The following managerial assistance payments were paid from CP Well to Prospect and subsequently remitted to Prospect Administration (no income was recognized by Prospect):
July 1, 2013 to September 30, 2013
$
—

July 1, 2014 to September 30, 2014
75

The following amounts were due from Prospect to Prospect Administration for managerial assistance for CP Well for which Prospect received payment on behalf of Prospect Administration (no direct income was recognized by Prospect):
June 30, 2014
$
75

September 30, 2014
13


78

The following payments were paid from CP Holdings to Prospect Administration as reimbursement for legal, tax and portfolio level accounting services provided directly to CP Holdings (no direct income was recognized by Prospect, but Prospect was given credit for these payments as a reduction of the administrative services costs payable to Prospect Administration resulting in a reduction of the overhead allocation from Prospect Administration):
July 1, 2013 to September 30, 2013
$
606

July 1, 2014 to September 30, 2014
N/A

Credit Central Loan Company, LLC
Prospect owns 100% of the equity of Credit Central Holdings of Delaware, LLC (“Credit Central Delaware”), a Consolidated Holding Company. Credit Central Delaware owns 74.75% of the equity of Credit Central Holdings, LLC (“Credit Central”), with entities owned by Credit Central management owning the remaining 25.25% of the equity. Credit Central owns 100% of each of Credit Central, LLC, Credit Central South, LLC, Credit Central of Texas, LLC, and Credit Central of Tennessee, LLC. Credit Central is a branch-based provider of installment loans.
On December 28, 2012, Prospect initially made a $47,663 investment (including the fair value of 897,906 common shares of Prospect for $9,581 on that date, which were included in the purchase cost paid to acquire Credit Central) in Credit Central Delaware, of which $38,082 was a Senior Secured Revolving Credit Facility and $9,581 to purchase the membership interests of Credit Central Delaware. The proceeds were partially utilized to purchase 74.75% of Credit Central’s membership interests for $43,293. The remaining proceeds were used to pay $1,440 of structuring fees from Credit Central Delaware to Prospect (which was recognized by Prospect as structuring fee income), $638 for third party expenses, $292 for legal services provided by attorneys at Prospect Administration and $2,000 was retained by Credit Central Delaware for working capital. On March 28, 2014, Prospect funded an additional $2,500 ($2,125 to the Senior Secured Revolving Credit Facility and $375 to purchase additional membership interests of Credit Central Delaware) which was utilized by Credit Central Delaware to pay a $2,000 dividend to Prospect and $500 was retained by Credit Central Delaware for working capital.
On June 26, 2014, Prospect made a new $36,333 second lien term loan to Credit Central. Credit Central then distributed this amount to Credit Central Delaware as a return of capital which was used to pay down the Senior Secured Revolving Credit Facility from Credit Central Delaware by the same amount. The remaining amount of the Senior Secured Revolving Credit Facility, $3,874, was then converted to additional membership interests in Credit Central Delaware. Effective June 26, 2014, Credit Central Holdings, LLC was renamed Credit Central Loan Company, LLC (continues as “Credit Central”).
On July 1, 2014, Prospect began consolidating Credit Central Delaware. As a result, any transactions between Credit Central Delaware and Prospect are eliminated in consolidation and as such, transactions after July 1, 2014 are not presented below.
The following interest payments were paid from Credit Central Delaware to Prospect and recognized by Prospect as interest income:
July 1, 2013 to September 30, 2013
$
1,968

July 1, 2014 to September 30, 2014
N/A

The following interest payments were paid from Credit Central to Prospect and recognized by Prospect as interest income:
July 1, 2013 to September 30, 2013
$
—

July 1, 2014 to September 30, 2014
1,857

The following royalty payments were paid from Credit Central Delaware to Prospect and recognized by Prospect as other income:
July 1, 2013 to September 30, 2013
$
119

July 1, 2014 to September 30, 2014
N/A

The following managerial assistance payments were paid from Credit Central to Prospect and subsequently remitted to Prospect Administration (no income was recognized by Prospect):
July 1, 2013 to September 30, 2013
$
175

July 1, 2014 to September 30, 2014
175


79

The following amounts were due from Credit Central Delaware to Prospect for interest and included by Prospect within other receivables on the respective Consolidated Statement of Assets and Liabilities: 
June 30, 2014
$
20

September 30, 2014
N/A

The following amounts were due from Credit Central to Prospect for interest and included by Prospect within other receivables on the respective Consolidated Statement of Assets and Liabilities: 
June 30, 2014
$
—

September 30, 2014
10

At June 30, 2014 and September 30, 2014, $10 of interest recognized had not been paid by Credit Central to Prospect and was included by Prospect within interest receivable.

The following amounts were due to Credit Central from Prospect for reimbursement of expenses and included by Prospect within other liabilities on the respective Consolidated Statement of Assets and Liabilities: 
June 30, 2014
$
—

September 30, 2014
35

The following amounts were due from Prospect to Prospect Administration as reimbursement for legal, tax and portfolio level accounting services provided directly to Credit Central Delaware for which Prospect received payment on behalf of Prospect Administration (no direct income was recognized by Prospect, but Prospect was given credit for these payments as a reduction of the expenses of Prospect Administration resulting in a reduction of the overhead allocation from Prospect Administration):
June 30, 2014
$
175

September 30, 2014
N/A

Echelon Aviation LLC
Prospect owns 100% of the membership interests of Echelon Aviation LLC (“Echelon”). Echelon owns 60.7% of the equity of AerLift Leasing Limited (“AerLift”).
On March 31, 2014, Prospect initially made a $92,628 investment in Echelon, of which $78,521 was a Senior Secured Revolving Credit Facility and $14,107 to purchase the membership interests of Echelon. The proceeds were partially utilized to purchase 60.7% of AerLift’s membership interests for $83,657. The remaining proceeds were used to pay $2,771 of structuring fees from Echelon to Prospect (which was recognized by Prospect as structuring fee income), $540 for third party expenses, $664 for legal and tax services provided by Prospect Administration and $4,996 was retained by Echelon for working capital.
On July 1, 2014, Prospect sold a $400 participation in the Senior Secured Revolving Credit Facility, equal to 0.51% of the outstanding principal amount on that date.
On September 15, 2014, Echelon made an optional partial prepayment of $37,313 of the Senior Secured Revolving Credit Facility outstanding.
On September 30, 2014, Prospect made an additional $5,800 investment in the membership interests of Echelon.
The following interest payments were paid from Echelon to Prospect and recognized by Prospect as interest income:
July 1, 2013 to September 30, 2013
$
—

July 1, 2014 to September 30, 2014
2,563

The following managerial assistance payments were paid from Echelon to Prospect and subsequently remitted to Prospect Administration (no income was recognized by Prospect):
July 1, 2013 to September 30, 2013
$
—

July 1, 2014 to September 30, 2014
63


80

At June 30, 2014 and September 30, 2014, $63 and $0 of managerial assistance had been received by Prospect from Echelon and had not yet been paid to Prospect Administration, respectively. These amounts were included by Prospect in Due to Prospect Administration on the respective Consolidated Statement of Assets and Liabilities (no income was recognized by Prospect).

The following amounts were due from Echelon to Prospect for reimbursement of expenses paid by Prospect on behalf of Echelon and included by Prospect within other receivables on the respective Consolidated Statement of Assets and Liabilities (no income was recognized by Prospect): 
June 30, 2014
$
78

September 30, 2014
72

The following payments were paid from Echelon to Prospect Administration as reimbursement for legal, tax and portfolio level accounting services provided directly to Echelon (no direct income was recognized by Prospect, but Prospect was given credit for these payments as a reduction of the expenses of Prospect Administration resulting in a reduction of the overhead allocation from Prospect Administration):
July 1, 2014 to September 30, 2014
$
5

The following amounts were due from Prospect to Prospect Administration for managerial assistance for Echelon for which Prospect received payment on behalf of Prospect Administration (no direct income was recognized by Prospect):
July 1, 2014 to September 30, 2014
$
125


Energy Solutions Holdings Inc.
Prospect owns 100% of the equity of Energy Solutions Holdings Inc. (f/k/a Gas Solutions Holdings Inc.) (“Energy Solutions”), a Consolidated Holding Company. Energy Solutions owns 100% of each of Change Clean Energy Holdings, LLC (“Change Clean”), Freedom Marine Solutions Holdings, LLC (“Freedom Marine”) and Yatesville Coal, LLC (“Yatesville”). Freedom Marine owns 100% of each of Vessel Holdings, LLC ("Vessel"), Vessel Holdings II, LLC (“Vessel II”) and Vessel Holdings III, LLC (“Vessel III”). Yatesville owns 100% of North Fork Collieries, LLC. Change Clean owns 100% of Change Clean Energy, LLC, Down East Power Company, LLC and 50.1% of BioChips LLC. Energy Solutions owns interests in companies operating in the energy sector. These include companies operating offshore supply vessels, ownership of a non-operating biomass electrical generation plant and several coal mines. Energy Solutions subsidiaries formerly owned interests in gathering and processing business in east Texas. As of July 1, 2011, the cost basis of our investment in Energy Solutions, including debt and equity, was $42,003.
In December 2011, Prospect completed a reorganization of Gas Solutions Holdings Inc. renaming the company Energy Solutions and transferring ownership of other operating companies owned by Prospect and operating within the energy industry. As part of the reorganization, Prospect transferred our debt and equity interests with cost basis of $2,540 in Change Clean Energy Holdings, Inc., Change Clean Energy, Inc., $12,504 in Freedom Marine Holdings, Inc. and $1,449 of Yatesville Coal Holdings, Inc. to Change Clean, Freedom Marine, and Yatesville, respectively. Each of these entities is wholly owned (directly or indirectly) by Energy Solutions.
On December 28, 2011, Prospect made a follow-on $1,250 equity investment in Energy Solutions and a $3,500 debt investment in Vessel, a subsidiary of Freedom Marine. On November 25, 2013, Prospect restructured our investment in Freedom Marine. The $12,504 subordinated secured loan to Jettco Marine Services, LLC, a subsidiary of Freedom Marine, was replaced with a senior secured note to Vessel II, a new subsidiary of Freedom Marine. On December 3, 2013, Prospect made a $16,000 senior secured investment in Vessel III, a new subsidiary of Freedom Marine. Overall, the restructuring of our investment in Freedom Marine provided approximately $16,000 net new senior secured debt financing to support the acquisition of two new vessels. Prospect received $2,480 of structuring fees from Energy Solutions related to the Freedom Marine restructuring which was recognized as other income.
On November 28, 2012 and January 1, 2014, Prospect received $475 and $25 of litigation settlement proceeds related to Change Clean and recorded a reduction in our equity investment cost basis for Energy Solutions, respectively.

81

On January 4, 2012, Energy Solutions sold its gas gathering and processing assets held in Gas Solutions Ltd. (“Gas Solutions”) for a sale price of $199,805, adjusted for the final working capital settlement, including a potential earnout of $28,000 that may be paid based on the future performance of Gas Solutions. Through June 30, 2014, Prospect has not accrued income for any portion of the $28,000 potential payment. After expenses, including structuring fees of $9,966 paid to us, and $3,152 of third-party expenses, Gas Solutions LP LLC and Gas Solutions GP LLC, subsidiaries of Gas Solutions, received $157,100 and $1,587 in cash, respectively, subsequently distributed these amounts, $158,687 in total, to Energy Solutions. The sale of Gas Solutions by Energy Solutions resulted in significant earnings and profits, as defined by the Code, at Energy Solutions for calendar year 2012. As a result, 2012 distributions from Energy Solutions to us were required to be recognized as dividend income, in accordance with ASC 946, as there were current year earnings and profits sufficient to support such recognition.
In June 2014, Yatesville Coal Holdings, LLC was renamed Yatesville Coal Company, LLC (continues as “Yatesville”) and Change Clean Energy Holdings, LLC was renamed Change Clean Energy Company, LLC (continues as “Change Clean”).
On July 1, 2014, Prospect began consolidating Energy Solutions. As a result, any transactions between Energy Solutions and Prospect are eliminated in consolidation and as such, transactions after July 1, 2014 are not presented below.
The following cash payments from Energy Solutions to Prospect were recorded as a repayment of loan receivable by Prospect:
July 1, 2013 to September 2013
$
4,250

July 1, 2014 to September 2014
N/A

The following interest income, including prepayment penalty fees, was accrued and paid from Energy Solutions to Prospect for interest due and recognized by Prospect as interest income:
July 1, 2013 to September 2013
$
2,773

July 1, 2014 to September 2014
N/A

The following managerial assistance payments were paid from Energy Solutions to Prospect and subsequently remitted to Prospect Administration (no income was recognized by Prospect):
July 1, 2013 to September 2013
$
45

July 1, 2014 to September 2014
N/A

The following amounts were due from Prospect to Prospect Administration for reimbursement of managerial assistance payments for which Prospect received payment on behalf of Prospect Administration (no direct income was recognized by Prospect):
June 30, 2014
$
45

September 30, 2014
N/A

First Tower Finance Company LLC
Prospect owns 100% of the equity of First Tower Holdings of Delaware LLC (“First Tower Delaware”), a Consolidated Holding Company. First Tower Delaware owns 80.1% of First Tower Finance Company LLC (“First Tower Finance”). First Tower Finance owns 100% of First Tower, LLC (“First Tower”), a multiline specialty finance company.
On June 15, 2012, Prospect made a $287,953 investment (including 14,518,207 common shares of Prospect at a fair value of $160,571) in First Tower Delaware, of which $244,760 was a Senior Secured Revolving Credit Facility and $43,193 of membership interest in First Tower Delaware. $282,968 of the proceeds were utilized by First Tower Delaware to purchase 80.1% of the membership interests in First Tower Finance. The remaining proceeds at First Tower Delaware were used to pay $4,038 of structuring fees from First Tower Delaware to Prospect (which was recognized by Prospect as structuring fee income), $940 of legal services provided by attorneys at Prospect Administration, and $7 of third party expenses. Prospect received an additional $4,038 of structuring fees from First Tower (which was recognized by Prospect as structuring fee income). Management purchased the additional 19.9% of First Tower Finance common stock for $70,300. The combined proceeds received by First Tower Finance of $353,268 ($282,968 equity financing from First Tower Delaware mentioned above and $70,300 equity financing from management) were used to purchase 100% of the common stock of First Tower for $338,042, pay $11,188 of third-party expenses and $4,038 of structuring fees from First Tower mentioned above (which was recognized by Prospect as structuring fee income).

82

On October 18, 2012, Prospect made an additional $20,000 investment through the Senior Secured Revolving Credit Facility, $12,008 of which was invested by First Tower Delaware in First Tower Finance as equity and $7,992 of which was retained by First Tower Delaware as working capital. On December 30, 2013, Prospect funded an additional $10,000 into First Tower Delaware, $8,500 through the Senior Secured Revolving Credit Facility and $1,500 through the purchase of additional membership interests in First Tower Delaware. $8,000 of the proceeds were utilized by First Tower Delaware to pay structuring fees to Prospect for the renegotiation and expansion of First Tower’s third-party revolver, and $2,000 of the proceeds were retained by First Tower Delaware for working capital.
On June 24, 2014, Prospect made a new $251,246 second lien term loan to First Tower. First Tower distributed this amount to First Tower Finance, which distributed this amount to First Tower Delaware as a return of capital. First Tower Delaware used the distribution to partially pay down the Senior Secured Revolving Credit Facility. The remaining $23,712 of the Senior Secured Revolving Credit Facility was then converted to additional membership interests held by Prospect in First Tower Delaware.
On July 1, 2014, Prospect began consolidating First Tower Delaware. As a result, any transactions between First Tower Delaware and Prospect are eliminated in consolidation and as such, transactions after July 1, 2014 are not presented below.
The following dividends were declared and paid from First Tower Finance to First Tower Delaware and recognized as dividend income by First Tower Delaware:
July 1, 2013 to September 2013
$
13,760

July 1, 2014 to September 2014
N/A

All dividends were paid from earnings and profits of First Tower Finance.
The following cash distributions were declared and paid from First Tower Finance to First Tower Delaware and recorded as a return of capital by Prospect:
July 1, 2013 to September 2013
$
—

July 1, 2014 to September 2014
3,851

The following interest income was accrued and paid from First Tower Delaware to Prospect for interest due and recognized by Prospect as interest income:
July 1, 2013 to September 2013
$
13,532

July 1, 2014 to September 2014
N/A

The following interest income was accrued and subsequently paid from First Tower to Prospect for interest due and recognized by Prospect as interest income:
July 1, 2013 to September 2013
N/A

July 1, 2014 to September 2014
10,916

At June 30, 2014 and September 30, 2014, $147 and $119 of interest recognized above had not yet been paid by First Tower to Prospect and was included by Prospect within interest receivable.
The following royalty payments were paid from First Tower Delaware to Prospect and recognized by Prospect as other income:
July 1, 2013 to September 2013
$
699

July 1, 2014 to September 2014
N/A

The following managerial assistance payments were paid from First Tower Delaware to Prospect and subsequently remitted to Prospect Administration (no income was recognized by Prospect):
July 1, 2013 to September 30, 2013
$
600

July 1, 2014 to September 30, 2014
—

At September 30, 2014, $600 of managerial assistance had not yet been paid by First Tower Delaware to Prospect. This was recognized as an expense by Prospect and was included within Due to Prospect Administration.

83

The following amounts were due from First Tower Delaware to Prospect for reimbursement of expenses paid by Prospect on behalf of First Tower Delaware and included by Prospect within other receivables on the respective Consolidated Statement of Assets and Liabilities: 
June 30, 2014
$
37

September 30, 2014
N/A

The following amounts were due from First Tower to Prospect for reimbursement of expenses paid by Prospect on behalf of First Tower and included by Prospect within other receivables on the respective Consolidated Statement of Assets and Liabilities: 
June 30, 2014
$
—

September 30, 2014
13

Freedom Marine Solutions, LLC
Prospect owns 100% of the equity of Energy Solutions Holdings Inc. (f/k/a Gas Solutions Holdings Inc.) (“Energy Solutions”), a Consolidated Holding Company. Energy Solutions owns 100% of Freedom Marine Solutions Holdings, LLC (“Freedom Marine”). Freedom Marine owns 100% of each of Vessel Holdings, LLC ("Vessel"), Vessel Holdings II, LLC (“Vessel II”) and Vessel Holdings III, LLC (“Vessel III”).
On December 28, 2011, Prospect made a follow-on $1,250 equity investment in Energy Solutions and a $3,500 debt investment in Vessel, a subsidiary of Freedom Marine. On November 25, 2013, Prospect restructured our investment in Freedom Marine. The $12,504 subordinated secured loan to Jettco Marine Services, LLC, a subsidiary of Freedom Marine, was replaced with a senior secured note to Vessel II, a new subsidiary of Freedom Marine. On December 3, 2013, Prospect made a $16,000 senior secured investment in Vessel III, a new subsidiary of Freedom Marine. Overall, the restructuring of our investment in Freedom Marine provided approximately $16,000 net new senior secured debt financing to support the acquisition of two new vessels. Prospect received $2,480 of structuring fees from Energy Solutions related to the Freedom Marine restructuring which was recognized as other income.
In June 2014, Freedom Marine Services Holdings, LLC was renamed Freedom Marine Solutions, LLC (continues as “Freedom Marine”), Vessel Holdings, LLC was renamed Vessel Company, LLC (continues as “Vessel”), Vessel Holdings II, LLC was renamed Vessel Company II, LLC (continues as “Vessel II”), Vessel Holdings III, LLC was renamed Vessel Company III, LLC (continues as “Vessel III”), Yatesville Coal Holdings, LLC was renamed Yatesville Coal Company, LLC (continues as “Yatesville”) and Change Clean Energy Holdings, LLC was renamed Change Clean Energy Company, LLC (continues as “Change Clean”).
The following interest income was accrued and subsequently paid from Vessel to Prospect for interest due and recognized by Prospect as interest income:
July 1, 2013 to September 2013
$
163

July 1, 2014 to September 2014
162

At June 30, 2014 and September 30, 2014, $2 and $163 of interest recognized above had not yet been paid by Vessel to Prospect and was included by Prospect within interest receivable.
The following interest payments were accrued and subsequently paid from Vessel II to Prospect and recognized by Prospect as interest income:
July 1, 2013 to September 2013
$
—

July 1, 2014 to September 2014
432

At June 30, 2014 and September 30, 2014, $5 and $437 of interest recognized above had not yet been paid by Vessel II to Prospect and was included by Prospect within interest receivable.
The following interest payments were accrued and subsequently paid from Vessel III to Prospect and recognized by Prospect as interest income:
July 1, 2013 to September 2013
$
—

July 1, 2014 to September 2014
532


84

At June 30, 2014 and September 30, 2014, $6 and $537 of interest recognized above had not yet been paid by Vessel III to Prospect and was included by Prospect within interest receivable.
At September 30, 2014, $75 of managerial assistance had not yet been paid by Freedom Marine to Prospect and was included by Prospect within other receivables due from Freedom Marine and other liabilities due to Prospect Administration.
Gulf Coast Machine & Supply Company
Prospect owns 100% of the preferred equity of Gulf Coast Machine & Supply Company (“Gulf Coast”). Gulf Coast is a provider of value-added forging solutions to energy and industrial end markets.
On October 12, 2012, Prospect initially made a $42,000 first lien term loan to Gulf Coast, of which $840 was used to pay structuring fees from Gulf Coast to Prospect (which was recognized by Prospect as structuring fee income).
On November 8, 2013, Gulf Coast issued $25,950 of convertible preferred stock to Prospect (representing 99.9% of the voting securities of Gulf Coast) in exchange for crediting the same amount to the first lien term loan previously outstanding, leaving a first lien loan balance of $15,000. Prior to this conversion, Prospect was just a lender to Gulf Coast and the investment was not a controlled investment. On November 29, 2013 and December 16, 2013, Prospect provided an additional $1,000 and $1,500, respectively, to fund working capital needs, increasing the first lien loan balance to $17,500.
On August 21, 2014, Prospect made an additional $2,000 investment in the first lien term loan to Gulf Coast.
The following interest income was accrued and subsequently paid from Gulf Coast to Prospect for interest due and recognized by Prospect as interest income:
July 1, 2013 to September 30, 2013
N/A

July 1, 2014 to September 30, 2014
523

At June 30, 2014 and September 30, 2014, $6 of interest recognized had not yet been paid by Gulf Coast to Prospect and was included by Prospect within interest receivable.
The following amounts were due from Gulf Coast to Prospect for reimbursement of expenses paid by Prospect on behalf of Gulf Coast and included by Prospect within other receivables on the respective Consolidated Statement of Assets and Liabilities (no income recognized by Prospect): 
June 30, 2014
$
—

September 30, 2014
384

Harbortouch Payments, LLC
Prospect owns 100% of the equity of Harbortouch Holdings of Delaware Inc. (“Harbortouch Delaware”), a Consolidated Holding Company. Harbortouch Delaware owns 100% of the Class C voting units of Harbortouch Payments, LLC (“Harbortouch”), which provide for a 53.5% residual profits allocation. Harbortouch management owns 100% of the Class B and D voting units of Harbortouch, which provide for a 46.5% residual profits allocation. Harbortouch owns 100% of Credit Card Processing USA, LLC. Harbortouch is a provider of transaction processing services and point-of sale equipment used by merchants across the United States.
On March 31, 2014, Prospect made a $147,898 investment (including 2,306,294 common shares of Prospect at a fair value of $24,908) in Harbortouch Delaware. Of this amount, $123,000 was loaned in exchanged for a subordinated note and $24,898 was an equity contribution. Harbortouch Delaware utilized $137,972 to purchase 100% of the Harbortouch Class A voting preferred units which provided an 11% preferred return and a 53.5% interest in the residual profits. Harbortouch Delaware used the remaining proceeds to pay $4,920 of structuring fees to Prospect (which was recognized by Prospect as structuring fee income), $1,761 for legal services provided by attorneys at Prospect Administration and $3,245 was retained by Harbortouch Delaware for working capital. Additionally, on March 31, 2014, Prospect provided Harbortouch a senior secured loan of $130,796. Prospect received a structuring fee of $2,616 from Harbortouch (which was recognized by Prospect as structuring fee income).

85

On April 1, 2014, Prospect made a new $137,226 senior secured term loan to Harbortouch. Harbortouch then distributed this amount to Harbortouch Delaware as a return of capital which was used to pay down the $123,000 senior secured note from Harbortouch Delaware to Prospect. The remaining $14,226 was distributed to Prospect as a return of capital of Prospect’s equity investment in Harbortouch Delaware. Harbortouch Delaware continues to own 100% of Harbortouch’s Class C voting units, which provide for a 53.5% residual profits allocation from Harbortouch.
On July 1, 2014, Prospect began consolidating Harbortouch Delaware. As a result, any transactions between Harbortouch Delaware and Prospect are eliminated in consolidation and as such, transactions after July 1, 2014 are not presented below.
On September 30, 2014, Prospect made a new $26,431 senior secured term loan to Harbortouch to support an acquisition. As part of the transaction, Prospect received $530 of structuring fees (which was recognized by Prospect as structuring fee income) and $49 of amendment fees.
The following dividends were declared and paid from Harbortouch to Prospect and recognized as dividend income by Prospect:
July 1, 2013 to September 2013
N/A

July 1, 2014 to September 2014
14

The following interest income was accrued and subsequently paid from Harbortouch to Prospect for interest due and recognized by Prospect as interest income:
July 1, 2013 to September 30, 2013
N/A

July 1, 2014 to September 30, 2014
6,874

At June 30, 2014 and September 30, 2014, $1,962 and $3,900 of interest recognized had not yet been paid by Harbortouch to Prospect and was included by Prospect within interest receivable, respectively.
The following managerial assistance payments were paid from Harbortouch to Prospect and subsequently remitted to Prospect Administration (no income was recognized by Prospect):
July 1, 2013 to September 30, 2013
N/A

July 1, 2014 to September 30, 2014
125

At June 30, 2014 and September 30, 2014, $125 was included by Prospect in Due to Prospect Administration on the respective Consolidated Statement of Assets and Liabilities.
The following payments were paid from Harbortouch to Prospect Administration as reimbursement for legal, tax and portfolio level accounting services provided directly to Harbortouch (no direct income was recognized by Prospect, but Prospect was given credit for these payments as a reduction of the administrative services costs payable by Prospect to Prospect Administration):
July 1, 2013 to September 30, 2013
N/A

July 1, 2014 to September 30, 2014
31

The Healing Staff, Inc.
Prospect owns 100% of the equity of The Healing Staff, Inc. (“THS”). Prospect owns 100% of the equity of Vets Securing America, Inc. (“VSA”), which is operated by THS management. VSA provides out-sourced security guards staffing.
As of July 1, 2011, the cost basis of Prospect’s investment in THS and VSA, including debt and equity, was $18,220. During the year ended June 30, 2012, Prospect made follow-on secured debt investments of $773 in THS to support the ongoing operations of THS and VSA. In October 2011, Prospect sold a previously acquired building from ESA for $894. In early May 2012, Prospect made short-term secured debt investments of $118 and $42 to support the operations of THS and VSA, respectively, which was repaid in early June 2012. In January 2012, Prospect received $2,250 towards a litigation settlement. The proceeds from both of these transactions were used to reduce the outstanding loan by $3,144.
In May 2012, in connection with the implementation of accounts receivable based funding programs for THS and VSA with a third party provider, Prospect agreed to subordinate Prospect’s first priority security interest in all of the accounts receivable and other assets of THS and VSA to the third party provider of that accounts receivable based funding.

86

During the three months ended December 31, 2012, Prospect determined that the impairment of THS and VSA was other-than-temporary and decreased Prospect’s cost basis by $12,834 and recorded a realized loss of $12,117 for the amount that the amortized cost exceeded the fair market value.
Manx Energy, Inc.
As of June 30, 2014, Prospect owns 41% of the equity of Manx Energy, Inc. (“Manx”). Manx was formed on January 19, 2010 for the purpose of rolling up the assets of existing Prospect portfolio companies, Coalbed, LLC (“Coalbed”), Appalachian Energy Holdings, LLC (“AEH”) and Kinley Exploration LLC. The three companies were combined under new common management.
On January 19, 2010, Prospect made a $2,800 investment at closing to Manx to provide for working capital. On the same date, Prospect exchanged $2,100 and $4,500 of the loans to AEH and Coalbed, respectively, for Manx preferred equity, and Prospect’s AEH equity interest was converted into Manx common stock. There was no change to fair value at the time of restructuring, and Prospect continued to fully reserve any income accrued for Manx. On October 15, 2010 and May 26, 2011, Prospect increased its loan to Manx in the amount of $500 and $250, respectively, to provide additional working capital. As of June 30, 2011, the cost basis of Prospect’s investment in Manx, including debt and equity, was $19,019.
On June 30, 2012, AEH and Coalbed loans held by Manx with a cost basis of $7,991 were removed from Manx and contributed by Prospect to Wolf Energy Holdings Inc., a separate holding company wholly owned by Prospect. On June 30, 2013, Prospect determined the remaining debt and equity investment in Manx was other-than-temporarily impaired and wrote-off $10,528 of the investment cost basis, leaving a cost basis in the remaining debt balance of $500.
MITY, Inc.
Prospect owns 100% of the equity of MITY Holdings of Delaware Inc. (“MITY Delaware”), a Consolidated Holding Company. MITY Delaware holds 94.99% of the equity of MITY Enterprises, Inc. (“MITY”), with management of MITY owning the remaining 5.01% of the equity of MITY. MITY owns 100% of each of MITY-Lite, Inc. (“MITY-Lite”), Broda Enterprises USA, Inc. (“Broda USA”) and Broda Enterprises ULC (“Broda Canada”). MITY is a designer, manufacturer and seller of multipurpose room furniture and specialty healthcare seating products.
On September 19, 2013, Prospect made a $29,735 investment in MITY Delaware, of which $22,792 was a senior secured debt to MITY Delaware and $6,943 was a capital contribution to the equity of MITY Delaware. The proceeds were partially utilized to purchase 97.7% of MITY common stock for $21,027. The remaining proceeds were used to issue a $7,200 note from Broda Canada to MITY Delaware, pay $684 of structuring fees from MITY Delaware to Prospect (which was recognized by Prospect as structuring fee income), $311 for legal services provided by attorneys employed by Prospect Administration and $513 was retained by MITY Delaware for working capital.
On September 19, 2013, Prospect made an additional $18,250 senior secured debt investment in MITY. The proceeds were used to repay existing third-party indebtedness, pay $365 of structuring fees from MITY to Prospect (which was recognized by Prospect as structuring fee income), pay $1,143 of third party expenses and $2,580 was retained by MITY for working capital. Members of management of MITY purchased additional shares of common stock of MITY, reducing MITY Delaware’s ownership to 94.99%. MITY, MITY-Lite and Broda USA are joint borrowers on the senior secured debt of MITY.
On June 23, 2014, Prospect made a new $15,769 debt investment in MITY and MITY distributed proceeds to MITY Delaware as a return of capital. MITY Delaware used this distribution to pay down the senior secured debt of MITY Delaware to Prospect by the same amount. The remaining amount of the senior secured debt due from MITY Delaware to Prospect, $7,200, was then contributed to the capital of MITY Delaware. As a result of this transaction, Prospect held the $15,769 MITY note. Effective June 23, 2014, MITY Enterprises, Inc. was renamed MITY, Inc. (continues as “MITY”) and Broda Enterprises USA, Inc. was renamed Broda USA, Inc. (continues as “Broda”).
On June 23, 2014, Prospect also extended a new $7,500 senior secured revolving facility to MITY, of which none was funded at closing.
On July 1, 2014, Prospect began consolidating MITY Delaware. As a result, any transactions between MITY Delaware and Prospect are eliminated in consolidation and as such, transactions after July 1, 2014 are not presented below.
On July 17, 2014, Prospect funded $500 of MITY's senior secured revolving facility.

87

The following interest payments were paid from Broda to MITY Delaware and recognized by Prospect as interest income:
July 1, 2013 to September 30, 2013
$
—

July 1, 2014 to September 30, 2014
172

The following interest income was accrued by Prospect for interest due from MITY Delaware and recognized by Prospect as interest income:
July 1, 2013 to September 30, 2013
$
137

July 1, 2014 to September 30, 2014
N/A

The following interest income was accrued by Prospect for interest due from MITY and recognized by Prospect as interest income:
July 1, 2013 to September 30, 2013
$
61

July 1, 2014 to September 30, 2014
1,291

At June 30, 2014 and September 30, 2014, $14 of interest recognized above had not yet been paid by MITY to Prospect and was included by Prospect within interest receivable.
The following managerial assistance payments were paid from MITY to Prospect and subsequently remitted to Prospect Administration (no income was recognized by Prospect):
July 1, 2013 to September 30, 2013
$
—

July 1, 2014 to September 30, 2014
85

At June 30, 2014 and September 30, 2014, $10 and $0 of managerial assistance recognized had not yet been paid by MITY to Prospect and was included by Prospect within other receivables due from MITY and other liabilities due to Prospect Administration.

The following payments were paid from MITY Delaware to Prospect Administration as reimbursement for legal, tax and portfolio level accounting services provided directly to MITY Delaware (no direct income was recognized by Prospect, but Prospect was given credit for these payments as a reduction of the administrative services costs payable by Prospect to Prospect Administration):
July 1, 2013 to September 30, 2013
$
311

July 1, 2014 to September 30, 2014
N/A

The following amounts were due from Prospect to Prospect Administration for reimbursement for legal, tax and portfolio level accounting services provided directly to MITY for which Prospect received payment on behalf of Prospect Administration (no direct income was recognized by Prospect, but Prospect was given credit for these payments as a reduction of the administrative services costs payable by Prospect to Prospect Administration):
June 30, 2014
$
75

September 30, 2014
N/A

The following amounts were due from MITY Delaware to Prospect for reimbursement of expenses and included by Prospect within other receivables on the respective Consolidated Statement of Assets and Liabilities (no income was recognized by Prospect): 
June 30, 2014
$
3

September 30, 2014
N/A

The following amounts were due from MITY to Prospect for reimbursement of expenses and included by Prospect within other receivables on the respective Consolidated Statement of Assets and Liabilities (no income was recognized by Prospect): 
June 30, 2014
$
—

September 30, 2014
3

At September 30, 2014, Prospect had a $7 payable to MITY for reimbursement in excess of expenses which was subsequently utilized to pay other expenses by Prospect on behalf of MITY.

88

National Property REIT, Corp.
Prospect owns 100% of the equity of NPH Property Holdings, LLC (“NPH”), a Consolidated Holding Company. NPH owns 100% of the common equity of National Property Holdings Corp. (“NPRC”). NPRC is a Maryland corporation and a qualified REIT for federal income tax purposes. In order to qualify as a REIT, NPRC issued 125 shares of Series A Cumulative Non-Voting Preferred Stock to 125 accredited investors. The preferred stockholders are entitled to receive cumulative dividends semi-annually at an annual rate of 12.5% and do not have the ability to participate in the management or operation of NPRC.
NPRC was formed to acquire, operate, finance, lease, manage, and sell a portfolio of real estate assets and engage in any and all other activities as may be necessary, incidental or convenient to carry out the foregoing. NPRC acquires real estate assets, including, but not limited to, industrial, commercial, and multi-family properties. Additionally, through its wholly-owned subsidiaries, NPRC invests in peer-to-peer consumer loans.
On December 31, 2013, APRC distributed its majority interests in five JVs holding real estate assets to APH. APH then distributed these JV interests to Prospect in a transaction characterized as a return of capital. Prospect, on the same day, contributed certain of these JV interests to NPH and the remainder to UPH (each wholly-owned subsidiaries of Prospect). Each of NPH and UPH immediately thereafter contributed these JV interests to NPRC and UPRC, respectively. The total investments in the JVs transferred to NPH and from NPH to NPRC consisted of $79,309 and $16,315 of debt and equity financing, respectively. There was no material gain or loss realized on these transactions.
On December 31, 2013, Prospect made a $10,620 investment in NPH, of which $8,800 was a Senior Term Loan and $1,820 was used to purchase additional membership interests of NPH. The proceeds were utilized by NPH to purchase additional NPRC common equity for $10,620. The proceeds were utilized by NPRC to purchase a 93.0% ownership interest in APH Carroll Bartram Park, LLC for $10,288 and to pay $113 of structuring fees to Prospect (which was recognized by Prospect as structuring fee income), with $219 retained by NPRC for working capital. APH Carroll Bartram Park, LLC was purchased by NPRC for $38,000 which included debt financing and minority interest of $28,500 and $774, respectively. The remaining proceeds were used to pay $206 of structuring fees to Prospect (which was recognized by Prospect as structuring fee income), $1,038 of third party expenses, $5 of legal services provided by attorneys at Prospect Administration, and $304 of pre-paid assets, with $9 retained by NPRC for working capital.
Between January 7, 2014 and March 13, 2014, Prospect made a $14,000 investment in NPH, of which $11,900 was a Senior Term Loan and $2,100 was used to purchase additional membership interests of NPH. The proceeds were utilized by NPRC to purchase consumer loans from a third party.
On January 31, 2014, Prospect made a $4,805 investment in NPH, of which $4,000 was a Senior Term Loan and $805 used to purchase additional membership interests of NPH. The proceeds were utilized by NPH to purchase additional NPRC common equity for $4,805. The proceeds were utilized by NPRC to purchase a 93.0% ownership interest in APH Carroll Atlantic Beach, LLC for $4,603 and to pay $52 of structuring fees to Prospect (which was recognized by Prospect as structuring fee income), with $150 retained by NPRC for working capital. APH Carroll Atlantic Beach, LLC was purchased by NPRC for $13,025 which included debt financing and minority interest of $9,118 and $346, respectively. The remaining proceeds were used to pay $92 of structuring fees to Prospect (which was recognized by Prospect as structuring fee income), $681 of third party expenses, $7 of legal services provided by attorneys at Prospect Administration, and $182 of pre-paid assets, with $80 retained by NPRC for working capital.
Effective as of April 1, 2014, Prospect made a new $104,460 senior term loan to NPRC. NPRC then distributed this amount to NPH as a return of capital which was used to pay down the Senior Term Loan from NPH by the same amount. Effective April 1, 2014, National Property Holdings Corp. was renamed National Property REIT Corp. (continues as “NPRC”).
Between April 3, 2014 and May 21, 2014, Prospect made an $11,000 investment in NPH and NPRC, of which $9,350 was a Senior Term Loan to NPRC and $1,650 was used to purchase additional membership interests of NPH. The proceeds were utilized by NPH to purchase additional NPRC common equity for $1,650. The proceeds were utilized by NPRC to purchase consumer loans from a third party.
On July 1, 2014, Prospect began consolidating NPH. As a result, any transactions between NPH and Prospect are eliminated in consolidation and as such, transactions after July 1, 2014 are not presented below.
During the three months ended September 30, 2014, Prospect made nine follow-on investments in NPRC totaling $37,500 to support the online lending initiative. Prospect invested $5,625 of equity through NPH and $31,875 of debt directly to NPRC.

89

The following interest income was accrued and subsequently paid by NPRC to Prospect and recognized by Prospect as interest income:
July 1, 2013 to September 30, 2013
N/A

July 1, 2014 to September 30, 2014
3,309

At June 30, 2014 and September 30, 2014, $0 and $44 of interest recognized had not yet been paid by NPRC to Prospect and was included by Prospect within interest receivable, respectively.
At June 30, 2014 and September 30, 2014, $0 and $1,183 of interest from NPRC was capitalized payment-in-kind interest and was included by Prospect in the investment cost basis, respectively.
The following royalty payments were paid from NPRC to Prospect and recognized by Prospect as other income:
July 1, 2013 to September 30, 2013
N/A

July 1, 2014 to September 30, 2014
293

The following managerial assistance payments were paid from NPRC to Prospect and subsequently remitted to Prospect Administration (no income was recognized by Prospect):
July 1, 2013 to September 30, 2013
N/A

July 1, 2014 to September 30, 2014
128

The following amounts were due from Prospect to Prospect Administration for managerial assistance payments for which Prospect received payment on behalf of Prospect Administration (no direct income was recognized by Prospect):
June 30, 2014
$
128

September 30, 2014
128

The following payments were paid from NPRC to Prospect Administration as reimbursement for legal, tax and portfolio level accounting services provided directly to NPRC (no direct income was recognized by Prospect, but Prospect was given credit for these payments as a reduction of the administrative services costs payable by Prospect to Prospect Administration):
July 1, 2013 to September 30, 2013
N/A

July 1, 2014 to September 30, 2014
60

The following amounts were due from NPH to Prospect for reimbursement of expenses paid by Prospect on behalf of NPH and included by Prospect within other receivables on the respective Consolidated Statement of Assets and Liabilities:
June 30, 2014
$
7

September 30, 2014
N/A

The following amounts were due from NPRC to Prospect for reimbursement of expenses paid by Prospect on behalf of NPRC and included by Prospect within other receivables on the respective Consolidated Statement of Assets and Liabilities:
June 30, 2014
N/A

September 30, 2014
14


90

Nationwide Acceptance LLC
Prospect owns 100% of the membership interests of Nationwide Acceptance Holdings LLC (“Nationwide Holdings”), a Consolidated Holding Company. Nationwide Holdings owns 93.79% of the equity of Nationwide Acceptance LLC (“Nationwide”), with members of Nationwide management owning the remaining 6.21% of the equity.
On January 31, 2013, Prospect initially made a $25,151 investment in Nationwide Holdings, of which $21,308 was a Senior Secured Revolving Credit Facility and $3,843 was in the form of membership interests in Nationwide Holdings. $21,885 of the proceeds were utilized to purchase 93.79% of the membership interests in Nationwide. Proceeds were also used to pay $753 of structuring fees from Nationwide Holdings to Prospect (which was recognized by Prospect as structuring fee income), $350 of third party expenses and $163 of legal services provided by attorneys at Prospect Administration. The remaining $2,000 was retained by Nationwide Holdings as working capital. On March 28, 2014, Prospect funded an additional $4,000 to Nationwide Holdings ($3,400 through the Senior Secured Revolving Credit Facility and $600 to purchase additional membership interests in Nationwide Holdings). The additional funding along with cash on hand was utilized by Nationwide Holdings to fund a $5,000 dividend to Prospect.
On June 18, 2014, Prospect made a new $14,820 second lien term loan to Nationwide. Nationwide distributed this amount to Nationwide Holdings as a return of capital. Nationwide Holdings used the distribution to pay down the Senior Secured Revolving Credit Facility. The remaining $9,888 of the Senior Secured Revolving Credit Facility was then converted to additional membership interests in Nationwide Holdings.
On July 1, 2014, Prospect began consolidating Nationwide Holdings. As a result, any transactions between Nationwide Holdings and Prospect are eliminated in consolidation and as such, transactions after July 1, 2014 are not presented below.
On September 30, 2014, Prospect made an additional $938 equity investment in Nationwide.
The following dividends were declared and paid from Nationwide to Nationwide Holdings and recorded as dividend income by Nationwide Holdings:
July 1, 2013 to September 30, 2013
$
2,113

July 1, 2014 to September 30, 2014
N/A

The following dividends were paid from Nationwide to Nationwide Holdings and recognized by Prospect as dividend income:
July 1, 2013 to September 30, 2013
$
—

July 1, 2014 to September 30, 2014
671

All dividends were paid from earnings and profits of the company paying the dividend.
The following interest income was accrued and subsequently paid from Nationwide Holdings to Prospect for interest due and recognized by Prospect as interest income:
July 1, 2013 to September 30, 2013
$
1,089

July 1, 2014 to September 30, 2014
N/A

The following interest income was accrued and subsequently paid from Nationwide to Prospect for interest due and recognized by Prospect as interest income:
July 1, 2013 to September 30, 2013
$
—

July 1, 2014 to September 30, 2014
758

At June 30, 2014 and September 30, 2014, $58 of interest recognized had not yet been paid by Nationwide to Prospect and was included by Prospect within interest receivable.
The following royalty payments were paid from Nationwide Holdings to Prospect and recognized by Prospect as other income:
July 1, 2013 to September 30, 2013
$
106

July 1, 2014 to September 30, 2014
N/A


91

The following managerial assistance payments were paid from Nationwide to Prospect and subsequently remitted to Prospect Administration (no income was recognized by Prospect):
July 1, 2013 to September 30, 2013
$
100

July 1, 2014 to September 30, 2014
100

At June 30, 2014 and September 30, 2014, $100 and $100 of managerial assistance had been received by Prospect from Nationwide and had not yet been paid to Prospect Administration, respectively. These amounts were included by Prospect in Due to Prospect Administration on the respective Consolidated Statement of Assets and Liabilities.
The following amounts were due from Nationwide Holdings to Prospect for reimbursement of expenses paid by Prospect and included by Prospect within other receivables on the respective Consolidated Statement of Assets and Liabilities (no income was recognized by Prospect): 
June 30, 2014
$
2

September 30, 2014
N/A

The following amounts were due from Nationwide to Prospect for reimbursement of expenses paid by Prospect and included by Prospect within other receivables on the respective Consolidated Statement of Assets and Liabilities (no income was recognized by Prospect): 
June 30, 2014
$
—

September 30, 2014
1

NMMB, Inc.
Prospect owns 100% of the equity of NMMB Holdings, Inc. (“NMMB Holdings”), a Consolidated Holding Company. NMMB Holdings owns 92.93% of the fully-diluted equity of NMMB, Inc. (“NMMB,” previously NMMB Acquisition, Inc.), with NMMB management owning the remaining 7.07% of the equity. NMMB owns 100% of Refuel Agency, Inc. (“Refuel Agency”). Refuel Agency owns 100% of Armed Forces Communications, Inc. (“Armed Forces”). NMMB is an advertising media buying business.
On May 6, 2011, Prospect initially made a $34,450 investment (of which $31,750 was funded at closing) in NMMB Holdings and NMMB, of which $24,250 was a senior secured term loan to NMMB, $3,000 was a senior secured revolver to NMMB (of which $300 was funded at closing), $2,800 was a senior subordinated term loan to NMMB Holdings and $4,400 to purchase 100% of the Series A Preferred Stock of NMMB Holdings. The proceeds received by NMMB were used to purchase 100% of the equity of Refuel Agency and assets related to the business for $30,069, pay $1,035 of structuring fees to Prospect (which was recognized by Prospect as structuring fee income), pay $396 for third party expenses and $250 was retained by NMMB for working capital. On May 31, 2011, NMMB repaid the $300 senior secured revolver.
During the year ended June 30, 2012, NMMB repaid $2,550 of the senior secured term loan. During the year ended June 30, 2013, NMMB repaid $5,700 of the senior secured term loan due.
On December 13, 2013, Prospect invested $8,086 for preferred equity to recapitalize NMMB Holdings. The proceeds were used by NMMB Holdings to repay in full the $2,800 outstanding under the subordinated term loan and the remaining $5,286 of proceeds from Prospect were used by NMMB Holdings to purchase preferred equity in NMMB. NMMB used the proceeds from the preferred equity issuance to pay down the senior term loan.
On June 12, 2014, Prospect made a new $7,000 senior secured term loan to Armed Forces. Armed Forces distributed this amount to Refuel Agency as a return of capital. Refuel Agency distributed this amount to NMMB as a return of capital, which was used to pay down $7,000 of NMMB’s $10,714 senior secured term loan to Prospect. As of June 30, 2014, Prospect held $3,714 of senior secured term loan NMMB and $7,000 senior secured term loan of Armed Forces. Effective June 12, 2014, NMMB Acquisition, Inc. was renamed NMMB, Inc. (continues as “NMMB”).
On July 1, 2014, Prospect began consolidating NMMB Holdings. As a result, any transactions between NMMB Holdings and Prospect are eliminated in consolidation and as such, transactions after July 1, 2014 are not presented below.

92

The following interest income was accrued and subsequently paid to Prospect for interest due from NMMB Holdings and recognized by Prospect as interest income:
July 1, 2013 to September 30, 2013
$
107

July 1, 2014 to September 30, 2014
N/A

The following interest income was accrued by Prospect for interest due from NMMB and recognized by Prospect as interest income:
July 1, 2013 to September 30, 2013
$
571

July 1, 2014 to September 30, 2014
406

At June 30, 2014 and September 30, 2014, $4 and $411 of interest recognized above had not yet been paid by NMMB to Prospect and was included by Prospect within interest receivable.
The following managerial assistance payments were paid from NMMB Holdings to Prospect and subsequently remitted to Prospect Administration (no income was recognized by Prospect):
July 1, 2013 to September 30, 2013
$
100

July 1, 2014 to September 30, 2014
N/A

At June 30, 2014 and September 30, 2014, $300 and $400 of managerial assistance due had not yet been paid by NMMB to Prospect and was included by Prospect within other receivables.
R-V Industries, Inc.
As of July 1, 2011 and continuing through September 30, 2014, Prospect owns 88.27% of the fully-diluted equity of R-V Industries, Inc. (“R-V”), with R-V management owning the remaining 11.73% of the equity. As of June 30, 2011, Prospect’s equity investment cost basis was $1,682 and $5,087 for warrants and common stock, respectively.
On November 30, 2012, Prospect made a $9,500 second lien term loan to R-V and R-V received an additional $4,000 of senior secured financing from a third-party lender. The combined $13,500 of proceeds was partially utilized by R-V to pay a dividend to its common stockholders in an aggregate amount equal to $13,288 (including $11,073 to Prospect recognized by Prospect as a dividend). The remaining proceeds were used by R-V to pay $142 of structuring fees to Prospect (which was recognized by Prospect as structuring fee income), $47 for third party expenses and $23 for legal services provided by attorneys at Prospect Administration.
On June 12, 2013, Prospect provided an additional $23,250 to the second lien term loan to R-V. The proceeds were partially utilized by R-V to pay a dividend to the common stockholders in an aggregate amount equal to $15,000 (including $13,240 dividend to Prospect). The remaining proceeds were used to pay off $7,835 of outstanding debt due from R-V to a third-party, $11 for legal services provided by attorneys at Prospect Administration and $404 was retained by R-V for working capital. On February 28, 2014, R-V repaid $2,339 of the second lien term loan due to Prospect.
The following dividends were paid from R-V to Prospect and recognized by Prospect as dividend income:
July 1, 2013 to September 30, 2013
$
75

July 1, 2014 to September 30, 2014
74

All dividends were paid from earnings and profits of R-V.
The following income was accrued and subsequently paid from R-V to Prospect and recognized by Prospect as interest income:
July 1, 2013 to September 30, 2013
$
819

July 1, 2014 to September 30, 2014
760

The following managerial assistance payments were paid from R-V to Prospect and subsequently remitted to Prospect Administration (no income was recognized by Prospect):
July 1, 2013 to September 30, 2013
$
45

July 1, 2014 to September 30, 2014
45


93

The following amounts were due from Prospect to Prospect Administration for reimbursement of managerial assistance payments for which Prospect received payment on behalf of Prospect Administration (no direct income was recognized by Prospect):
June 30, 2014
$
45

September 30, 2014
45

United Property REIT Corp.
Prospect owns 100% of the equity of UPH Property Holdings, LLC (“UPH”), a Consolidated Holding Company. UPH owns 100% of the common equity of United Property Holdings Corp. (“UPRC”). UPRC is a Maryland corporation and a qualified REIT for federal income tax purposes. In order to qualify as a REIT, UPRC issued 125 shares of Series A Cumulative Non-Voting Preferred Stock to 125 accredited investors. The preferred stockholders are entitled to receive cumulative dividends semi-annually at an annual rate of 12.5% and do not have the ability to participate in the management or operation of UPRC.
UPRC was formed to acquire, operate, finance, lease, manage, and sell a portfolio of real estate assets and engage in any and all other activities as may be necessary, incidental or convenient to carry out the foregoing. UPRC acquires real estate assets, including, but not limited to, industrial, commercial, and multi-family properties.
On December 31, 2013, APRC distributed its majority interests in five JVs holding real estate assets to APH. APH then distributed these JV interests to Prospect in a transaction characterized as a return of capital. Prospect, on the same day, contributed certain of these JV interests to NPH and the remainder to UPH (each wholly-owned subsidiaries of Prospect). Each of NPH and UPH immediately thereafter contributed these JV interests to NPRC and UPRC, respectively. The total investments in the JVs transferred to UPH and from UPH to UPRC consisted of $18,855 and $3,707 of debt and equity financing, respectively. There was no material gain or loss realized on these transactions.
Effective as of April 1, 2014, Prospect made a new $19,027 senior term loan to UPRC. UPRC then distributed this amount to UPH as a return of capital which was used to pay down the Senior Term Loan from UPH by the same amount. Effective April 1, 2014, United Property Holdings Corp. was renamed United Property REIT Corp. (continues as “UPRC”).
On June 4, 2014, Prospect made a $1,405 investment in UPH to purchase additional membership interests of UPH. The proceeds were utilized by UPH to purchase additional UPRC common equity for $1,405. The proceeds were utilized by UPRC to acquire the real property located at 1201 West College, Marshall, MO (“Taco Bell, MO”) for $1,405.
On July 1, 2014, Prospect began consolidating UPH. As a result, any transactions between UPH and Prospect are eliminated in consolidation and as such, transactions after July 1, 2014 are not presented below.
On August 19,  2014, Prospect made a $5,287 investment in UPRC, of which $4,494 was a Senior Term Loan directly to UPRC and $793 was used to purchase additional membership interests of UPH. The proceeds were utilized by UPH to purchase additional UPRC common equity for $793. The proceeds were utilized by UPRC to purchase an 85.0% ownership interest in Michigan Storage, LLC for $4,886 with $401 retained by UPRC for working capital. Michigan Storage, LLC was purchased by UPRC for $17,885 which included debt financing and minority interest of $13,410 and $926, respectively. The remaining proceeds were used to pay $97 of structuring fees to Prospect (which was recognized by Prospect as structuring fee income), $1,142 of third party expenses, $1 for legal services provided by attorneys at Prospect Administration, and $97 retained by UPRC for working capital.
On August 27, 2014, Prospect made a $5,759 investment in UPRC, of which $4,895 was a Senior Term Loan directly to UPRC and $864 was used to purchase additional membership interests of UPH. The proceeds were utilized by UPH to purchase additional UPRC common equity for $864. The proceeds were utilized by UPRC to purchase an 85.0% ownership interest in Michigan Storage, LLC for $5,755 with $4 retained by UPRC for working capital. Michigan Storage, LLC was purchased by UPRC for $20,390 which included debt financing and minority interest of $15,295 and $1,013, respectively. The remaining proceeds were used to pay $114 of structuring fees to Prospect (which was recognized by Prospect as structuring fee income), $1,523 of third party expenses and $36 retained by UPRC for working capital.

94

On September 29, 2014, Prospect made a $22,618 investment in UPRC, of which $19,225 was a Senior Term Loan and $3,393 was used to purchase additional membership interests of UPH. The proceeds were utilized by UPH to purchase additional UPRC common equity for $3,393. The proceeds were utilized by UPRC to purchase a 85.0% ownership interest in Canterbury Green Apartments Holdings, LLC for $22,036 with $582 retained by UPRC for working capital. Canterbury Green Apartments Holdings, LLC was purchased by UPRC for $85,500 which included debt financing and minority interest of $65,825 and $1,787, respectively. The remaining proceeds were used to pay $432 of structuring fees to Prospect (which was recognized by Prospect as structuring fee income), $1,537 of third party expenses, $82 of legal services provided by attorneys at Prospect Administration, and $1,248 of pre-paid assets, with $849 retained by UPRC for working capital.
On September 30, 2014, Prospect made a $22,216 investment in UPRC, of which $18,900 was a Senior Term Loan and $3,316 was used to purchase additional membership interests of UPH. The proceeds were utilized by UPH to purchase additional UPRC common equity for $3,316. The proceeds were utilized by UPRC to purchase a 65.4% ownership interest in Columbus OH Apartment Holdco, LLC for $20,804 and to pay $666 of structuring fees to Prospect (which was recognized by Prospect as structuring fee income), with $746 retained by UPRC for working capital. Columbus OH Apartment Holdco, LLC was purchased by UPRC for $106,567 which included debt financing and minority interest of $89,862 and $11,250, respectively. The remaining proceeds were used to pay $7,603 of third party expenses and $7,746 of pre-paid assets.
The following interest income was accrued and subsequently paid by UPRC to Prospect and recognized by Prospect as interest income:
July 1, 2013 to September 30, 2013
N/A

July 1, 2014 to September 30, 2014
693

At June 30, 2014 and September 30, 2014, $6 and $21 of interest recognized above had not yet been paid by UPRC to Prospect and was included by Prospect within interest receivable.
At June 30, 2014 and September 30, 2014, $173 and $162 of interest from UPRC was capitalized payment-in-kind interest and was included by Prospect in the investment cost basis.
The following royalty payments were paid from UPRC to Prospect and recognized by Prospect as other income:
July 1, 2013 to September 30, 2013
N/A

July 1, 2014 to September 30, 2014
74

The following managerial assistance payments were paid from UPRC to Prospect and subsequently remitted to Prospect Administration (no income was recognized by Prospect):
July 1, 2013 to September 30, 2013
N/A

July 1, 2014 to September 30, 2014
50

The following payments were paid from UPRC to Prospect Administration as reimbursement for legal, tax and portfolio level accounting services provided directly to UPRC (no direct income was recognized by Prospect, but Prospect was given credit for these payments as a reduction of the administrative services costs payable by Prospect to Prospect Administration):
July 1, 2013 to September 30, 2013
N/A

July 1, 2014 to September 30, 2014
59

Valley Electric Company, Inc.
As of September 30, 2014, Prospect owns 100% of the common stock of Valley Electric Holdings I, Inc. (“Valley Holdings I”), a Consolidated Holding Company. Valley Holdings I owns 100% of Valley Electric Holdings II, Inc. (“Valley Holdings II”), a Consolidated Holding Company. Valley Holdings II owns 94.99% of Valley Electric Company, Inc. (“Valley Electric”), with Valley Electric management owning the remaining 5.01% of the equity. Valley Electric owns 100% of the equity of VE Company, Inc., which owns 100% of the equity of Valley Electric Co. of Mt. Vernon, Inc. (“Valley”), a leading provider of specialty electrical services in the state of Washington and among the top 50 electrical contractors in the United States.

95

On December 31, 2012, Prospect initially invested $52,098 (including 4,141,547 common shares of Prospect at a fair value of $44,650) in exchange for $32,572 was in the form of a senior secured note to Valley Holdings I, a $10,000 senior secured note to Valley (discussed below) and $9,526 to purchase the common stock of Valley Holdings I. The proceeds were partially utilized by Valley Holdings I to purchase 100% of Valley Holdings II common stock for $40,528. The remaining proceeds at Valley Holdings I were used to pay $977 of structuring fees from Valley Holdings I to Prospect (which were recognized by Prospect as structuring fee income), $345 for legal services provided by attorneys at Prospect Administration and $248 was retained by Valley Holdings I for working capital. The $40,528 of proceeds received by Valley Holdings II were subsequently used to purchase 96.3% of Valley Electric’s common stock. The $40,528 proceeds received by Valley Electric, in addition to $1,500 co-invest from management, were used to fund an equity investment in Valley.
On December 31, 2012, Prospect invested $10,000 (as mentioned above) into Valley in the form of senior secured debt. Total proceeds of $52,028 received by Valley (including $42,028 equity investment mentioned above) were used to purchase the equity of Valley from third-party sellers for $45,650, pay $4,628 of third-party transaction expenses (including bonuses to Valley’s management of $2,320), pay $250 from Valley to Prospect (which were recognized by Prospect as structuring fee income) and $1,500 was retained by Valley for working capital.
On June 24, 2014, Valley Holdings II and management of Valley formed Valley Electric and contributed their shares of Valley stock to Valley Electric. Prospect made a new $20,471 senior secured loan to Valley Electric. Valley Electric then distributed this amount to Valley Holdings I, via Valley Holdings II, as a return of capital which was used to pay down the senior secured note of Valley Holdings I by the same amount. The remaining principal amount of the senior secured note, $16,754, was then contributed to the capital of Valley Holdings I.
On July 1, 2014, Prospect began consolidating Valley Holdings I and Valley Holdings II. As a result, any transactions between Valley Holdings I, Valley Holdings II and Prospect are eliminated in consolidation and as such, transactions after July 1, 2014 are not presented below.
The following dividends were declared and paid from Valley to Valley Holdings II, which were subsequently distributed to and recognized as dividend income by Valley Holdings I:
July 1, 2013 to September 30, 2013
$
581

July 1, 2014 to September 30, 2014
N/A

All dividends were paid from earnings and profits of Valley and Valley Holdings II.
The following cash payments from Valley to Prospect were recorded as a repayment of loan receivable by Prospect:
July 1, 2013 to September 30, 2013
$
50

July 1, 2014 to September 30, 2014
—

The following interest income was accrued and subsequently paid from Valley Holdings I to Prospect and recognized by Prospect as interest income:
July 1, 2013 to September 30, 2013
$
1,576

July 1, 2014 to September 30, 2014
N/A

The following payment-in-kind interest was capitalized in the senior secured note to Valley Holdings I and recognized as interest income by Prospect:
July 1, 2013 to September 30, 2013
$
783

July 1, 2014 to September 30, 2014
N/A

The following interest income was accrued by Prospect for interest due from Valley and recognized by Prospect as interest income:
July 1, 2013 to September 30, 2013
$
272

July 1, 2014 to September 30, 2014
272

At June 30, 2014 and September 30, 2014, $3 and $3 of interest recognized above had not yet been paid by Valley to Prospect and was included by Prospect within interest receivable.

96

The following payment-in-kind interest was capitalized in the senior secured note to Valley and recognized as interest income by Prospect:
June 30, 2014
$
65

September 30, 2014
65

The following interest income was accrued and subsequently paid from Valley Electric to Prospect for interest due and recognized by Prospect as interest income:
July 1, 2013 to September 30, 2013
$
—

July 1, 2014 to September 30, 2014
948

At June 30, 2014 and September 30, 2014, $45 and $11 of interest recognized above had not yet been paid by Valley Electric to Prospect and was included by Prospect within interest receivable.
The following payment-in-kind interest was capitalized in the senior secured note to Valley Electric and recognized as interest income by Prospect:
July 1, 2013 to September 30, 2013
$
—

July 1, 2014 to September 30, 2014
436

The following royalty payments were paid from Valley Holdings I to Prospect and recognized by Prospect as other income:
July 1, 2013 to September 30, 2013
$
28

July 1, 2014 to September 30, 2014
N/A

The following managerial assistance payments were paid from Valley to Prospect and subsequently remitted to Prospect Administration (no income was recognized by Prospect):
July 1, 2013 to September 30, 2013
$
75

July 1, 2014 to September 30, 2014
75

At September 30, 2014, Prospect had a $5 payable to Valley for reimbursement in excess of expenses which was subsequently utilized to pay other expenses by Prospect on behalf of Valley.
Wolf Energy, LLC
Prospect owns 100% of the equity of Wolf Energy Holdings Inc. (“Wolf Energy Holdings”), a Consolidated Holding Company. Wolf Energy Holdings owns 100% of each of Appalachian Energy Holdings, LLC (“AEH”), Coalbed, LLC (“Coalbed”) and Wolf Energy, LLC (“Wolf Energy”). AEH owns 100% of C&S Operating, LLC and Coalbed owns 100% of Coalbed Operator, LLC.
Wolf Energy Holdings is a holding company formed to hold 100% of the outstanding membership interests of each of AEH and Coalbed. The membership interests and associated operating company debt of AEH and Coalbed, which were previously owned by Manx Energy, Inc. (“Manx”), were assigned to Wolf Energy Holdings effective June 30, 2012. The purpose of assignment was to remove those activities from Manx deemed non-core by the Manx convertible debt investors who were not interested in funding those operations. In addition, effective June 29, 2012, C&J Cladding Holding Company, Inc. (“C&J Holdings”) merged with and into Wolf Energy Holdings, with Wolf Energy Holdings as the surviving entity. At the time of the merger, C&J Holdings held the remaining undistributed proceeds in cash from the sale of its membership interests in C&J Cladding, LLC (“C&J”) (discussed below). The merger was effectuated in connection with the broader simplification of Prospect’s energy investment holdings.
On June 1, 2012, Prospect sold the membership interests in C&J for $5,500. Proceeds from the sale were used to pay a $3,000 distribution to Prospect ($580 reduction in cost basis and $2,420 realized gain recognized by Prospect), an advisory fee of $1,500 from C&J to Prospect (which was recognized by Prospect as other income) and $978 was retained by C&J as working capital to pay $22 of legal services provided by attorneys at Prospect Administration and third-party expenses.
On June 30, 2012, AEH and Coalbed loans with a cost basis of $7,991 were assigned by Prospect to Wolf Energy Holdings Inc. from Manx Energy, Inc.
On February 27, 2013, Prospect made a $50 senior secured debt investment senior secured to East Cumberland, L.L.C. (“East Cumberland”), a former wholly-owned subsidiary of AEH with AEH as guarantor. Proceeds were used to pay off vendors.

97

On April 15, 2013, Prospect foreclosed on the assets of H&M Oil & Glass, LLC (“H&M”). At the time of foreclosure, H&M was in default on loans receivables due to Prospect with a cost basis of $64,449. The assets previously held by H&M were assigned by Prospect to Wolf Energy in exchange for a $66,000 term loan secured by the assets. The cost basis in this loan of $44,632 was determined in accordance with ASC 310-40, Troubled Debt Restructurings by Creditors, and was equal to the fair value of assets at the time of transfer resulting in a capital loss of $19,647 in connection with the foreclosure on the assets. On May 17, 2013, Wolf Energy sold the assets located in Martin County, which were previously held by H&M, for $66,000. Proceeds from the sale were primarily used to repay the loan and net profits interest receivable due to us resulting in a realized capital gain of $11,826 offsetting the previously recognized loss. Prospect received $3,960 of structuring and advisory fees from Wolf Energy during the year ended June 30, 2013 related to the sale and $991 under the net profits interest agreement which was recognized as other income during the fiscal year ended June 30, 2013.
Effective June 6, 2014, Appalachian Energy Holdings, LLC was renamed Appalachian Energy LLC (continues as “AEH”).
On July 1, 2014, Prospect began consolidating Wolf Energy Holdings. As a result, any transactions between Wolf Energy Holdings and Prospect are eliminated in consolidation and as such, transactions after July 1, 2014 are not presented below.
During the three months ended September 30, 2014, Prospect determined that the impairment of AEH was other-than temporary and decreased Prospect’s cost basis by $2,050 and recorded a realized loss of $2,042 for the amount that the amortized cost exceeded the fair market value.
There was no income recognized by Prospect from the time Wolf Energy Holdings became a controlled company through September 30, 2014 due to the non-accrual status.
Note 15. Litigation
From time to time, we may become involved in various investigations, claims and legal proceedings that arise in the ordinary course of our business. These matters may relate to intellectual property, employment, tax, regulation, contract or other matters. The resolution of these matters as they arise will be subject to various uncertainties and, even if such claims are without merit, could result in the expenditure of significant financial and managerial resources. We are not aware of any other material litigation as of the date of this report.

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Note 16. Financial Highlights
The following is a schedule of financial highlights for the three months ended September 30, 2014 and September 30, 2013:
 
Three Months Ended September 30,
 
2014
 
2013
Per Share Data
 
 
 
Net asset value at beginning of period
$
10.56

 
$
10.72

Net investment income(1)
0.28

 
0.32

Net realized (loss) gain on investments(1)
(0.07
)
 
0.01

Net change in unrealized appreciation (depreciation) on investments(1)
0.03

 
(0.02
)
Dividends to shareholders
(0.33
)
 
(0.33
)
Common stock transactions(2)
—

 
0.02

Net asset value at end of period
$
10.47

 
$
10.72

 
 
 
 
Per share market value at end of period
$
9.90

 
$
11.17

Total return based on market value(3)
(3.94
%)
 
6.49
%
Total return based on net asset value(3)
2.24
%
 
2.96
%
Shares of common stock outstanding at end of period
348,504,375

 
271,404,289

Weighted average shares of common stock outstanding
343,359,061

 
258,084,153

 
 
 
 
Ratios/Supplemental Data
 

 
 

Net assets at end of period
$
3,647,759

 
$
2,909,755

Portfolio turnover rate
13.80
%
 
3.76
%
Annualized ratio of operating expenses to average net assets
11.84
%
 
11.31
%
Annualized ratio of net investment income to average net assets
10.40
%
 
11.83
%
The following is a schedule of financial highlights for each of the five years in the period ended June 30, 2014:
 
Year Ended June 30,
 
2014
 
2013
 
2012
 
2011
 
2010
Per Share Data
 
 
 
 
 
 
 
 
 
Net asset value at beginning of year
$
10.72

 
$
10.83

 
$
10.36

 
$
10.30

 
$
12.40

Net investment income(1)
1.19

 
1.57

 
1.63

 
1.10

 
1.13

Net realized (loss) gain on investments(1)
(0.01
)
 
(0.13
)
 
0.32

 
0.19

 
(0.87
)
Net change in unrealized (depreciation) appreciation on investments(1)
(0.12
)
 
(0.37
)
 
(0.28
)
 
0.09

 
0.07

Dividends to shareholders
(1.32
)
 
(1.28
)
 
(1.22
)
 
(1.21
)
 
(1.33
)
Common stock transactions(2)
0.10

 
0.10

 
0.02

 
(0.11
)
 
(1.22
)
Fair value of equity issued for Patriot acquisition
—

 
—

 
—

 
—

 
0.12

Net asset value at end of year
$
10.56

 
$
10.72

 
$
10.83

 
$
10.36

 
$
10.30

 
 
 
 
 
 
 
 
 
 
Per share market value at end of year
$
10.63

 
$
10.80

 
$
11.39

 
$
10.11

 
$
9.65

Total return based on market value(3)
10.88
%
 
6.24
%
 
27.21
%
 
17.22
%
 
17.66
%
Total return based on net asset value(3)
10.97
%
 
10.91
%
 
18.03
%
 
12.54
%
 
(6.82
%)
Shares of common stock outstanding at end of year
342,626,637

 
247,836,965

 
139,633,870

 
107,606,690

 
69,086,862

Weighted average shares of common stock outstanding
300,283,941

 
207,069,971

 
114,394,554

 
85,978,757

 
59,429,222

 
 
 
 
 
 
 
 
 
 
Ratios/Supplemental Data
 

 
 

 
 

 
 

 
 

Net assets at end of year
$
3,618,182

 
$
2,656,494

 
$
1,511,974

 
$
1,114,357

 
$
711,424

Portfolio turnover rate
15.21
%
 
29.24
%
 
29.06
%
 
27.63
%
 
21.61
%
Annualized ratio of operating expenses to average net assets
11.11
%
 
11.50
%
 
10.73
%
 
8.47
%
 
7.54
%
Annualized ratio of net investment income to average net assets
11.18
%
 
14.86
%
 
14.92
%
 
10.60
%
 
10.69
%
(1)
Financial highlights are based on the weighted average number of common shares outstanding for the period presented (except for dividends to shareholders which is based on actual rate per share).

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(2)
Common stock transactions include the effect of our issuance of common stock in public offerings (net of underwriting and offering costs), shares issued in connection with our dividend reinvestment plan and shares issued to acquire investments. The fair value of equity issued to acquire portfolio investments from Patriot has been presented separately for the year ended June 30, 2010.
(3)
Total return based on market value is based on the change in market price per share between the opening and ending market prices per share in each period and assumes that dividends are reinvested in accordance with our dividend reinvestment plan. Total return based on net asset value is based upon the change in net asset value per share between the opening and ending net asset values per share in each period and assumes that dividends are reinvested in accordance with our dividend reinvestment plan. For periods less than a year, the return is not annualized.
Note 17. Selected Quarterly Financial Data (Unaudited)
The following table sets forth selected financial data for each quarter within the three years ending June 30, 2015.
 
 
Investment Income
 
Net Investment Income
 
Net Realized and Unrealized Losses
 
Net Increase in Net Assets
from Operations
Quarter Ended
 
Total
 
Per Share(1)
 
Total
 
Per Share(1)
 
Total
 
Per Share(1)
 
Total
 
Per Share(1)
September 30, 2012
 
123,636

 
0.76

 
74,027

 
0.46

 
(26,778
)
 
(0.17
)
 
47,249

 
0.29

December 31, 2012
 
166,035

 
0.85

 
99,216

 
0.51

 
(52,727
)
 
(0.27
)
 
46,489

 
0.24

March 31, 2013
 
120,195

 
0.53

 
59,585

 
0.26

 
(15,156
)
 
(0.07
)
 
44,429

 
0.20

June 30, 2013
 
166,470

 
0.68

 
92,096

 
0.38

 
(9,407
)
 
(0.04
)
 
82,689

 
0.34

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
September 30, 2013
 
161,034

 
0.62

 
82,337

 
0.32

 
(2,437
)
 
(0.01
)
 
79,900

 
0.31

December 31, 2013
 
178,090

 
0.62

 
92,215

 
0.32

 
(6,853
)
 
(0.02
)
 
85,362

 
0.30

March 31, 2014
 
190,327

 
0.60

 
98,523

 
0.31

 
(16,422
)
 
(0.06
)
 
82,101

 
0.26

June 30, 2014
 
182,840

 
0.54

 
84,148

 
0.25

 
(12,491
)
 
(0.04
)
 
71,657

 
0.21

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
September 30, 2014
 
202,021

 
0.59

 
94,463

 
0.28

 
(10,355
)
 
(0.04
)
 
84,108

 
0.24

(1)
Per share amounts are calculated using the weighted average number of common shares outstanding for the period presented. As such, the sum of the quarterly per share amounts above will not necessarily equal the per share amounts for the fiscal year.
Note 18. Subsequent Events
During the period from September 26, 2014 through October 29, 2014 (with settlement dates of October 1, 2014 to November 3, 2014), we sold 3,954,195 shares of our common stock at an average price of $9.76 per share, and raised $38,574 of gross proceeds, under the ATM Program. Net proceeds were $38,377 after commissions to the broker-dealer on shares sold and offering costs.
On October 3, 2014, we sold our $35,000 investment in Babson CLO Ltd. 2011-I and realized a loss on the sale.
On October 6, 2014, we made a $35,221 follow-on investment in Onyx Payments to fund an acquisition.
On October 7, 2014, Grocery Outlet, Inc. repaid the $14,457 loan receivable to us.
On October 8, 2014, we made a $65,000 secured debt investment in Capstone Logistics, LLC, a logistics services portfolio company.
On October 9, 2014, we made an investment of $50,743 to purchase 83.60% of the subordinated notes in Babson CLO Ltd. 2014-III in a co-investment transaction with Priority Income Fund, Inc.
On October 10, 2014, Ajax Rolled Ring & Machine, LLC repaid the $19,337 loan receivable to us.
On October 17, 2014, we made an investment of $48,994 to purchase 90.54% of the subordinated notes in Symphony CLO XV, Ltd.
On October 20, 2014, we sold our $22,000 investment in Galaxy XII CLO, Ltd. and realized a loss on the sale.
On October 21, 2014, we made a $22,500 secured debt investment in Hollander Sleep Products, a manufacturer of bed pillows and mattress pads in the United States.
On October 22, 2014, we issued 138,721 shares of our common stock in connection with the dividend reinvestment plan.
On November 4, 2014, our Registration Statement on Form N-2 was declared effective by the SEC. Under this Shelf Registration Statement, we can issue up to $5,000,000 of additional debt and equity securities in the public market.

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In addition to the transactions noted above, during the period from October 1, 2014 through November 6, 2014, we made seven follow-on investments in NPRC totaling $55,000 to support the online lending initiative. We invested $8,250 of equity through NPH and $46,750 of debt directly to NPRC. In addition, during this period, we received a partial repayment of $10,965 of the NPRC loan previously outstanding and $1,935 as a return of capital on the equity investment in NPRC.

101

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
(All figures in this item are in thousands except share, per share and other data.)
The following discussion should be read in conjunction with our consolidated financial statements and related notes and other financial information appearing elsewhere in this quarterly report. In addition to historical information, the following discussion and other parts of this quarterly report contain forward-looking information that involves risks and uncertainties. Our actual results could differ materially from those anticipated by such forward-looking information due to the factors discussed in Part II, "Item 1A. Risk Factors" and "Forward-Looking Statements" appearing elsewhere herein.
Overview
In this report, the terms “Prospect,” “we,” “us” and “our” mean Prospect Capital Corporation and its subsidiaries unless the context specifically requires otherwise.
We are a financial services company that primarily lends to and invests in middle market privately-held companies. We are a closed-end investment company incorporated in Maryland. We have elected to be regulated as a business development company ("BDC") under the Investment Company Act of 1940 (the "1940 Act"). As a BDC, we have elected to be treated as a regulated investment company ("RIC"), under Subchapter M of the Internal Revenue Code of 1986 (the "Code"). We invest primarily in senior and subordinated debt and equity of companies in need of capital for acquisitions, divestitures, growth, development, recapitalizations and other purposes. We work with the management teams or financial sponsors to seek investments with historical cash flows, asset collateral or contracted pro-forma cash flows.
On May 15, 2007, we formed a wholly-owned subsidiary Prospect Capital Funding LLC (“PCF”), a Delaware limited liability company and a bankruptcy remote special purpose entity, which holds certain of our portfolio loan investments that are used as collateral for the revolving credit facility at PCF. Our wholly-owned subsidiary Prospect Small Business Lending, LLC (“PSBL”) was formed on January 27, 2014 and purchases a series of small business whole loans on a recurring basis, which are originated by OnDeck Capital, Inc. (“OnDeck”) and Direct Capital Corporation ("Direct Capital"), online small business lenders. Both of these subsidiaries have been consolidated since their formation.
Effective July 1, 2014, we began consolidating certain of our wholly-owned and substantially wholly-owned holding companies formed by us in order to facilitate our investment strategy. As of and for the three months ended September 30, 2014, the following companies are included in our consolidated financial statements: AMU Holdings Inc.; APH Property Holdings, LLC; Arctic Oilfield Equipment USA, Inc.; CCPI Holdings Inc.; CP Holdings of Delaware LLC; Credit Central Holdings of Delaware, LLC; Energy Solutions Holdings Inc.; First Tower Holdings of Delaware LLC; Harbortouch Holdings of Delaware Inc.; MITY Holdings of Delaware Inc.; Nationwide Acceptance Holdings LLC; NMMB Holdings, Inc.; NPH Property Holdings, LLC; STI Holding, Inc.; UPH Property Holdings, LLC; Valley Electric Holdings I, Inc.; Valley Electric Holdings II, Inc.; and Wolf Energy Holdings Inc. We collectively refer to these entities as the "Consolidated Holding Companies."
We currently have nine origination strategies in which we make investments: (1) lending in private equity sponsored transactions, (2) lending directly to companies not owned by private equity firms, (3) control investments in corporate operating companies, (4) control investments in financial companies, (5) investments in structured credit, (6) real estate investments, (7) investments in syndicated debt, (8) aircraft leasing and (9) online lending. We continue to evaluate other origination strategies in the ordinary course of business with no specific tops-down allocation to any single origination strategy.
Lending in Private Equity Sponsored Transactions – We make loans to companies which are controlled by leading private equity firms. This debt can take the form of first lien, second lien, unitranche or unsecured loans. In making these investments, we look for a diversified customer base, recurring demand for the product or service, barriers to entry, strong historical cash flow and experienced management teams. These loans typically have significant equity subordinate to our loan position. Historically, this strategy has comprised approximately 50%-60% of our business, but more recently it is less than 50% of our business.
Lending Directly to Companies – We provide debt financing to companies owned by non-private equity firms, the company founder, a management team or a family. Here, in addition to the strengths we look for in a sponsored transaction, we also look for the alignment with the management team with significant invested capital. This strategy often has less competition than the private equity sponsor strategy because such company financing needs are not easily addressed by banks and often require more diligence preparation. Direct lending can result in higher returns and lower leverage than sponsor transactions and may include warrants or equity to us. Historically, this strategy has comprised approximately 5%-15% of our business, but more recently it is less than 5% of our business.

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Control Investments in Corporate Operating Companies – This strategy involves acquiring controlling stakes in non-financial operating companies. Our investments in these companies are generally structured as a combination of yield-producing debt and equity.  We provide certainty of closure to our counterparties, give the seller personal liquidity and generally look for management to continue on in their current roles. This strategy has comprised approximately 10%-15% of our business.
Control Investments in Financial Companies – This strategy involves acquiring controlling stakes in financial companies, including consumer direct lending, sub-prime auto lending and other strategies. Our investments in these companies are generally structured as a combination of yield-producing debt and equity. These investments are often structured in a tax-efficient RIC-compliant partnership, enhancing returns. This strategy has comprised approximately 5%-15% of our business.
Investments in Structured Credit – We make investments in collateralized loan obligations (“CLOs”), generally taking a significant position in the subordinated interests (equity) of the CLOs. The CLOs include a diversified portfolio of broadly syndicated loans and do not have direct exposure to real estate, mortgages, sub-prime debt, or consumer based debt. The CLOs in which we invest are managed by top-tier collateral managers that have been thoroughly diligenced prior to investment. This strategy has comprised approximately 10%-20% of our business.
Real Estate Investments – We make investments in real estate through our three wholly-owned tax-efficient real estate investment trusts ("REITs"), American Property REIT Corp., National Property REIT Corp. and United Property REIT Corp. (collectively, "our REITs"). Our real estate investments are in various classes of fully developed and occupied real estate properties that generate current yields. We seek to identify properties that have historically high occupancy and steady cash flow generation. Our REITs partner with established property managers with experience in managing the property type to manage such properties after acquisition. This is a more recent investment strategy that has comprised approximately 5%-10% of our business.
Investments in Syndicated Debt – On an opportunistic basis, we make investments in loans and high yield bonds that have been sold to a syndicate of buyers. Here we look for investments with attractive risk-adjusted returns after we have completed a fundamental credit analysis. These investments are purchased with a long term, buy-and-hold outlook and we look to provide significant structuring input by providing anchoring orders. This strategy has comprised approximately 5%-10% of our business.
Aircraft Leasing – We invest debt as well as equity in aircraft assets subject to commercial leases to credit-worthy airlines across the globe. These investments present attractive return opportunities due to cash flow consistency from long-lived assets coupled with hard asset collateral. We seek to deliver risk-adjusted returns with strong downside protection by analyzing relative value characteristics across the spectrum of aircraft types of all vintages. Our target portfolio includes both in-production and out-of-production jet and turboprop aircraft and engines, operated by airlines across the globe. This strategy comprised approximately 1.5% of our business in the fiscal year ended June 30, 2014 and less than 1% as of September 30, 2014.
Online Lending – We make investments in loans originated by certain consumer loan and small and medium sized business (“SME”) originators. We purchase each loan in its entirety (i.e., a “whole loan”). The borrowers are consumers and SMEs. The loans are typically serviced by the originators of the loans. This strategy comprised approximately 1% of our business in the fiscal year ended June 30, 2014 and less than 1% as of September 30, 2014.
We invest primarily in first and second lien secured loans and unsecured debt, which in some cases includes an equity component. First and second lien secured loans generally are senior debt instruments that rank ahead of unsecured debt of a given portfolio company. These loans also have the benefit of security interests on the assets of the portfolio company, which may rank ahead of or be junior to other security interests. Our investments in CLOs are subordinated to senior loans and are generally unsecured. We invest in debt and equity positions of CLOs which are a form of securitization in which the cash flows of a portfolio of loans are pooled and passed on to different classes of owners in various tranches. Our CLO investments are derived from portfolios of corporate debt securities which are generally risk rated from BB to B.
We hold many of our control investments in a two-tier structure consisting of a holding company and one or more related operating companies for tax purposes. These holding companies serve various business purposes including concentration of management teams, optimization of third party borrowing costs, improvement of supplier, customer, and insurance terms, and enhancement of co-investments by the management teams. In these cases, our investment in the holding company, generally as equity, its equity investment in the operating company and along with any debt from us directly to the operating company structure represents our total exposure for the investment. As of September 30, 2014, as shown in our Consolidated Schedule of Investments, the cost basis and fair value of our investments in controlled companies is $1,721,493 and $1,659,997, respectively. This structure gives rise to several of the risks described in our public documents and highlighted in Part I, Item 1A of our Annual Report on Form 10-K for the year ended June 30, 2014. On July 1, 2014, we began consolidating all wholly-owned and substantially wholly-owned holding companies formed by us for the purpose of holding our controlled investments in operating companies. There were no significant effects of consolidating these holding companies as they hold minimal assets other than their investments in the controlled operating companies. Investment company accounting prohibits the consolidation of any operating companies.

103

We seek to be a long-term investor with our portfolio companies. The aggregate fair value of our portfolio investments was $6,253,493 and $6,253,739 as of September 30, 2014 and June 30, 2014, respectively. During the three months ended September 30, 2014, our net cost of investments decreased by $12,802, or 0.2%, as a result of the following: six new investments, several follow-on investments, and three revolver advances totaling $881,318 (including structuring fees of $10,515); payment-in-kind interest of $5,887; net amortization of discounts and premiums of $13,952; and full repayments on eight investments, sale of four investments, and several partial prepayments and amortization payments totaling $863,144, net of realized losses totaling $22,911.
Compared to the end of last fiscal year (ended June 30, 2014), net assets increased by $29,577, or 0.8%, during the three months ended September 30, 2014, from $3,618,182 to $3,647,759. This increase resulted from the issuance of new shares of our common stock (less offering costs) in the amount of $56,095, dividend reinvestments of $3,640, and $84,108 from operations. These increases, in turn, were offset by $114,266 in dividend distributions to our stockholders. The $84,108 from operations is net of the following: net investment income of $94,463, net realized loss on investments of $22,911, and net change in unrealized appreciation on investments of $12,556.
First Quarter Highlights
Investment Transactions
During the three months ended September 30, 2014, we acquired $457,383 of new investments, completed follow-on investments in existing portfolio companies totaling approximately $414,935, funded $9,000 of revolver advances, and recorded PIK interest of $5,887, resulting in gross investment originations of $887,205. During the three months ended September 30, 2014, we received full repayments on eight investments, sold four investments, and received several partial prepayments and amortization payments totaling $863,144. The more significant of these transactions are discussed in "Portfolio Investment Activity."
Equity Issuance
During the three months ended September 30, 2014, we sold 5,536,780 shares of our common stock at an average price of $10.22 per share, and raised $56,575 of gross proceeds, under our at-the-market offering program (the "ATM Program"). Net proceeds were $56,095 after commissions to the broker-dealer on shares sold and offering costs.
On July 24, 2014, August 21, 2014 and September 18, 2014, we issued 98,503, 129,435 and 113,020 shares of our common stock in connection with the dividend reinvestment plan, respectively.
Dividend
On September 24, 2014, we announced the declaration of monthly dividends in the following amounts and with the following dates:
•
$0.110625 per share for January 2015 to holders of record on January 30, 2015 with a payment date of February 19, 2015.
Revolving Credit Facility
On July 11, 2014 and July 23, 2014, we increased total commitments to the 2012 Facility by $10,000 and $10,000, respectively. On August 29, 2014, we renegotiated the 2012 Facility (as defined below) and closed an expanded five and a half year $800,000 revolving credit facility (the "2014 Facility"). On September 30, 2014, we increased total commitments to the 2014 Facility by $10,000. The lenders have extended total commitments of $810,000 as of September 30, 2014.
Investment Holdings
As of September 30, 2014, we continue to pursue our investment strategy. At September 30, 2014, approximately $6,253,493, or 171.4%, of our net assets are invested in 140 long-term portfolio investments and CLOs.
During the three months ended September 30, 2014, we originated $887,205 of new investments, primarily composed of $715,014 of debt and equity financing to non-controlled investments, $133,086 of debt and equity financing to controlled investments, and $39,105 of subordinated notes in CLOs. Our origination efforts are focused primarily on secured lending to non-control investments to reduce the risk in the portfolio by investing primarily in first lien loans, though we also continue to close select junior debt and equity investments. Our annualized current yield was 12.1% and 11.9% as of June 30, 2014 and September 30, 2014, respectively, across all performing interest bearing investments. The decrease in our current yield is primarily the result of originations at lower rates than our average existing portfolio yield. Monetization of equity positions that we hold and loans on non-accrual status are not included in this yield calculation. In many of our portfolio companies we hold equity positions, ranging from minority interests to majority stakes, which we expect over time to contribute to our investment returns. Some of these equity positions include

104

features such as contractual minimum internal rates of returns, preferred distributions, flip structures and other features expected to generate additional investment returns, as well as contractual protections and preferences over junior equity, in addition to the yield and security offered by our cash flow and collateral debt protections.
We are a non-diversified company within the meaning of the 1940 Act. As required by the 1940 Act, we classify our investments by level of control. As defined in the 1940 Act, "Control Investments" are those where there is the ability or power to exercise a controlling influence over the management or policies of a company. Control is generally deemed to exist when a company or individual possesses or has the right to acquire within 60 days or less, a beneficial ownership of 25% or more of the voting securities of an investee company. Under the 1940 Act, "Affiliate Investments" are defined by a lesser degree of influence and are deemed to exist through the possession outright or via the right to acquire within 60 days or less, beneficial ownership of 5% or more of the outstanding voting securities of another person. "Non-Control/Non-Affiliate Investments" are those that are neither Control Investments nor Affiliate Investments.
As of September 30, 2014, we own controlling interests in the following portfolio companies: American Property REIT Corp.; Arctic Energy Services, LLC; ARRM Services, Inc.; CCPI Inc.; Change Clean Energy Company, LLC; Coalbed, LLC; CP Energy Services Inc.; Credit Central Loan Company, LLC; Echelon Aviation LLC; First Tower Finance Company LLC; Freedom Marine Solutions, LLC; Gulf Coast Machine & Supply Company; Harbortouch Payments, LLC.; The Healing Staff, Inc.; Manx Energy, Inc.; MITY, Inc.; National Property REIT Corp.; Nationwide Acceptance LLC; NMMB, Inc.; R-V Industries, Inc.; United Property REIT Corp.; Valley Electric Company, Inc.; Wolf Energy, LLC; and Yatesville Coal Company, LLC. We also own an affiliated interest in BNN Holdings Corp.
The following shows the composition of our investment portfolio by level of control as of September 30, 2014 and June 30, 2014:
 
September 30, 2014
 
June 30, 2014
Level of Control
Cost
% of Portfolio
Fair Value
% of Portfolio
 
Cost
% of Portfolio
Fair Value
% of Portfolio
Control Investments
$
1,721,493

27.1
%
$
1,659,997

26.6
%
 
$
1,719,242

27.0
%
$
1,640,454

26.2
%
Affiliate Investments
46,659

0.7
%
46,456

0.7
%
 
31,829

0.5
%
32,121

0.5
%
Non-Control/Non-Affiliate Investments
4,590,568

72.2
%
4,547,040

72.7
%
 
4,620,451

72.5
%
4,581,164

73.3
%
Total Investments
$
6,358,720

100.0
%
$
6,253,493

100.0
%
 
$
6,371,522

100.0
%
$
6,253,739

100.0
%
The following shows the composition of our investment portfolio by type of investment as of September 30, 2014 and June 30, 2014:
 
September 30, 2014
 
June 30, 2014
Type of Investment
Cost
% of Portfolio
Fair Value
% of Portfolio
 
Cost
% of Portfolio
Fair Value
% of Portfolio
Revolving Line of Credit
$
11,350

0.2
%
$
11,350

0.2
%
 
$
3,445

0.1
%
$
2,786

—
%
Senior Secured Debt
3,460,788

54.4
%
3,406,566

54.5
%
 
3,578,339

56.2
%
3,514,198

56.2
%
Subordinated Secured Debt
1,333,038

21.0
%
1,259,671

20.1
%
 
1,272,275

20.0
%
1,200,221

19.2
%
Subordinated Unsecured Debt
92,665

1.5
%
92,665

1.5
%
 
85,531

1.3
%
85,531

1.4
%
Small Business Whole Loans
11,760

0.2
%
12,539

0.2
%
 
4,637

0.1
%
4,252

0.1
%
CLO Debt
28,239

0.4
%
33,219

0.5
%
 
28,118

0.4
%
33,199

0.5
%
CLO Residual Interest
1,069,203

16.8
%
1,123,282

18.0
%
 
1,044,656

16.4
%
1,093,985

17.5
%
Preferred Stock
70,176

1.1
%
13,255

0.2
%
 
80,096

1.3
%
10,696

0.2
%
Common Stock
256,397

4.0
%
272,056

4.3
%
 
84,768

1.3
%
80,153

1.3
%
Membership Interest
17,541

0.3
%
16,841

0.3
%
 
187,384

2.9
%
217,763

3.5
%
Net Profits Interest
—

—
%
29

—
%
 
—

—
%
213

—
%
Escrow Receivable
5,881

0.1
%
5,094

0.1
%
 
—

—
%
1,589

—
%
Warrants
1,682

—
%
6,926

0.1
%
 
2,273

—
%
9,153

0.1
%
Total Investments
$
6,358,720

100.0
%
$
6,253,493

100.0
%
 
$
6,371,522

100.0
%
$
6,253,739

100.0
%

105

The following shows our investments in interest bearing securities by type of investment as of September 30, 2014 and June 30, 2014:
 
September 30, 2014
 
June 30, 2014
Type of Investment
Cost
% of Portfolio
Fair Value
% of Portfolio
 
Cost
% of Portfolio
Fair Value
% of Portfolio
First Lien
$
3,472,138

57.8
%
$
3,417,916

57.5
%
 
$
3,581,784

59.5
%
$
3,516,984

59.3
%
Second Lien
1,333,038

22.2
%
1,259,671

21.2
%
 
1,272,275

21.1
%
1,200,221

20.2
%
Unsecured
92,665

1.5
%
92,665

1.6
%
 
85,531

1.4
%
85,531

1.4
%
Small Business Whole Loans
11,760

0.2
%
12,539

0.2
%
 
4,637

0.1
%
4,252

0.1
%
CLO Debt
28,239

0.5
%
33,219

0.6
%
 
28,118

0.5
%
33,199

0.6
%
CLO Residual Interest
1,069,203

17.8
%
1,123,282

18.9
%
 
1,044,656

17.4
%
1,093,985

18.4
%
Total Debt Investments
$
6,007,043

100.0
%
$
5,939,292

100.0
%
 
$
6,017,001

100.0
%
$
5,934,172

100.0
%
The following shows the composition of our investment portfolio by geographic location as of September 30, 2014 and June 30, 2014:
 
September 30, 2014
 
June 30, 2014
Geographic Location
Cost
% of Portfolio
Fair Value
% of Portfolio
 
Cost
% of Portfolio
Fair Value
% of Portfolio
Canada
$
15,000

0.2
%
$
15,000

0.2
%
 
$
15,000

0.2
%
$
15,000

0.2
%
Cayman Islands
1,097,442

17.3
%
1,156,501

18.5
%
 
1,072,774

16.8
%
1,127,184

18.0
%
France
10,157

0.2
%
10,157

0.2
%
 
10,170

0.2
%
10,339

0.2
%
Midwest US
772,675

12.2
%
739,698

11.8
%
 
787,482

12.4
%
753,543

12.0
%
Northeast US
1,136,753

17.9
%
1,098,319

17.6
%
 
1,224,403

19.2
%
1,181,533

18.9
%
Puerto Rico
41,208

0.6
%
36,478

0.6
%
 
41,307

0.7
%
36,452

0.6
%
Southeast US
1,834,134

28.8
%
1,801,460

28.8
%
 
1,491,554

23.4
%
1,461,516

23.4
%
Southwest US
778,033

12.2
%
757,940

12.1
%
 
759,630

11.9
%
737,271

11.8
%
Western US
673,318

10.6
%
637,940

10.2
%
 
969,202

15.2
%
930,901

14.9
%
Total Investments
$
6,358,720

100.0
%
$
6,253,493

100.0
%
 
$
6,371,522

100.0
%
$
6,253,739

100.0
%

106

The following shows the composition of our investment portfolio by industry as of September 30, 2014 and June 30, 2014:
 
September 30, 2014
 
June 30, 2014
Industry
Cost
% of Portfolio
Fair Value
% of Portfolio
 
Cost
% of Portfolio
Fair Value
% of Portfolio
Aerospace & Defense
$
70,877

1.1
%
$
61,861

1.0
%
 
$
102,803

1.6
%
$
102,967

1.6
%
Auto Finance
—

—
%
—

—
%
 
11,139

0.2
%
11,139

0.2
%
Automobile
12,356

0.2
%
12,500

0.2
%
 
22,296

0.4
%
22,452

0.4
%
Business Services
622,117

9.8
%
638,120

10.2
%
 
598,940

9.4
%
611,286

9.8
%
Chemicals
19,663

0.3
%
20,000

0.3
%
 
19,648

0.3
%
19,713

0.3
%
Commercial Services
110,588

1.7
%
103,974

1.7
%
 
301,610

4.7
%
301,610

4.8
%
Construction & Engineering
57,286

0.9
%
29,431

0.5
%
 
56,860

0.9
%
33,556

0.5
%
Consumer Finance
419,280

6.6
%
428,382

6.9
%
 
425,497

6.7
%
434,348

6.9
%
Consumer Services
210,286

3.3
%
212,000

3.4
%
 
502,862

7.9
%
504,647

8.1
%
Contracting
3,832

0.1
%
—

—
%
 
3,831

0.1
%
—

—
%
Diversified Financial Services(1)
100,366

1.6
%
101,145

1.6
%
 
42,574

0.7
%
42,189

0.7
%
Durable Consumer Products
377,252

5.9
%
377,207

6.0
%
 
377,205

5.9
%
375,329

6.0
%
Energy
76,662

1.2
%
70,311

1.1
%
 
77,379

1.2
%
67,637

1.1
%
Food Products
372,332

5.9
%
372,332

6.0
%
 
173,375

2.7
%
174,603

2.8
%
Healthcare
293,786

4.6
%
289,198

4.6
%
 
329,408

5.2
%
326,142

5.2
%
Hotels, Restaurants & Leisure
170,484

2.7
%
170,685

2.7
%
 
132,193

2.1
%
132,401

2.1
%
Machinery
396

—
%
616

—
%
 
396

—
%
621

—
%
Manufacturing
203,223

3.2
%
171,629

2.7
%
 
204,394

3.2
%
171,577

2.7
%
Media
361,776

5.7
%
342,695

5.5
%
 
362,738

5.7
%
344,278

5.5
%
Metal Services & Minerals
48,405

0.8
%
52,518

0.8
%
 
48,402

0.8
%
51,977

0.8
%
Oil & Gas Production
281,951

4.4
%
246,362

4.0
%
 
283,490

4.4
%
248,494

4.0
%
Personal & Nondurable Consumer Products
211,841

3.3
%
212,168

3.4
%
 
10,604

0.2
%
11,034

0.2
%
Pharmaceuticals
77,388

1.2
%
75,174

1.2
%
 
78,069

1.2
%
73,690

1.2
%
Property Management
5,881

0.1
%
3,601

0.1
%
 
57,500

0.9
%
45,284

0.7
%
Real Estate
449,922

7.1
%
444,153

7.1
%
 
353,506

5.5
%
355,236

5.7
%
Retail
14,242

0.2
%
14,905

0.2
%
 
14,231

0.2
%
14,625

0.2
%
Software & Computer Services
237,505

3.7
%
238,270

3.8
%
 
240,469

3.8
%
241,260

3.9
%
Telecommunication Services
79,630

1.3
%
79,654

1.3
%
 
79,630

1.2
%
79,654

1.3
%
Textiles, Apparel & Luxury Goods
256,275

4.0
%
256,275

4.1
%
 
275,023

4.3
%
259,690

4.2
%
Transportation
115,676

1.8
%
71,826

1.1
%
 
112,676

1.8
%
69,116

1.1
%
Subtotal
$
5,261,278

82.7
%
$
5,096,992

81.5
%
 
$
5,298,748

83.2
%
$
5,126,555

82.0
%
CLO Investments(1)
1,097,442

17.3
%
1,156,501

18.5
%
 
1,072,774

16.8
%
1,127,184

18.0
%
Total Investments
$
6,358,720

100.0
%
$
6,253,493

100.0
%
 
$
6,371,522

100.0
%
$
6,253,739

100.0
%
(1)
Although designated as Diversified Financial Services within our Schedules of Investments in Item 1 of this report, our CLO investments do not have industry concentrations and as such have been separated in the table above.
Portfolio Investment Activity
During the three months ended September 30, 2014, we acquired $457,383 of new investments, completed follow-on investments in existing portfolio companies totaling approximately $414,935, funded $9,000 of revolver advances, and recorded PIK interest of $5,887, resulting in gross investment originations of $887,205. The more significant of these transactions are briefly described below.

107


On July 17, 2014, we restructured our investments in BXC Company, Inc. ("BXC") and Boxercraft Incorporated ("Boxercraft"), a wholly-owned subsidiary of BXC. The existing Senior Secured Term Loan A and a portion of the existing Senior Secured Term Loan B were replaced with a new Senior Secured Term Loan A to Boxercraft. The remainder of the existing Senior Secured Term Loan B and the existing Senior Secured Term Loan C, Senior Secured Term Loan D, and Senior Secured Term Loan E were replaced with a new Senior Secured Term Loan B to Boxercraft. The existing Senior Secured Term Loan to Boxercraft was converted into Series D Preferred Stock in BXC.
On August 5, 2014, we made an investment of $39,105 to purchase 70.94% of the subordinated notes in CIFC Funding 2014-IV, Ltd.
On August 13, 2014, we provided $210,000 of senior secured financing, of which $200,000 was funded at closing, to support the recapitalization of Trinity Services Group, Inc. ("Trinity"), a leading food services company in the H.I.G. Capital portfolio. The $100,000 Term Loan A note bears interest in cash at the greater of 6.5% or Libor plus 5.5% and has a final maturity of August 13, 2019. The $100,000 Term Loan B note bears interest in cash at the greater of 11.5% or Libor plus 10.5% and has a final maturity of August 13, 2019. The $10,000 senior secured revolver, which was unfunded at closing, bears interest in cash at the greater of 9.0% or Libor plus 8.0% and has a final maturity of February 13, 2015.
On August 19, 2014 and August 27, 2014, we made a combined $11,046 investment in UPRC (as defined below) to acquire Michigan Storage, LLC, a portfolio of seven self-storage facilities located in Michigan. We invested $1,657 of equity through UPH Property Holdings, LLC and $9,389 of debt directly to UPRC. The senior secured note bears interest at the greater of 6.0% or Libor plus 4.0% and interest payment in kind of 5.5% and has a final maturity of April 1, 2019.
On August 29, 2014, we made a $44,000 follow-on investment in BNN Holdings Corp. ("Biotronic") in connection with a corporate recapitalization. As part of the recapitalization, we received repayment of the $28,950 loan previously outstanding. The $22,000 Term Loan A note bears interest in cash at the greater of 6.5% or Libor plus 5.5% and has a final maturity of August 29, 2019. The $22,000 Term Loan B note bears interest in cash at the greater of 11.5% or Libor plus 10.5% and has a final maturity of August 29, 2019.
On September 10, 2014, we made a $55,869 follow-on investment in Onyx Payments, of which $50,869 was funded at closing, to fund an acquisition. The $25,028 Term Loan A note bears interest in cash at the greater of 6.5% or Libor plus 5.5% and has a final maturity of September 10, 2019. The $25,841 Term Loan B note bears interest in cash at the greater of 13.5% or Libor plus 12.5% and has a final maturity of September 10, 2019. The $5,000 senior secured revolver, which was unfunded at closing, bears interest in cash at the greater of 9.0% or Libor plus 7.75% and has a final maturity of September 10, 2015.
On September 26, 2014, we provided $215,000 of senior secured financing, of which $202,500 was funded at closing, to Pacific World Corporation ("Pacific World"), a supplier of nail and beauty care products to food, drug, mass, and value retail channels worldwide. The $200,000 Term Loan bears interest in cash at the greater of 8.0% or Libor plus 7.0% and has a final maturity of September 26, 2020. The $15,000 senior secured revolver, of which $2,500 was funded at closing, bears interest in cash at the greater of 8.0% or Libor plus 7.0% and has a final maturity of September 26, 2020.
On September 29, 2014, we made a secured second lien investment of $144,000 to support the recapitalization of Progrexion Holdings, Inc. ("Progrexion"). As part of the recapitalization, we received repayment of the $436,647 loan previously outstanding. The second lien term loan bears interest in cash at the greater of 10.0% or Libor plus 9.0% and has a final maturity of September 29, 2021.
On September 29, 2014, we made a $22,618 follow-on investment in UPRC to acquire Canterbury Green Apartment Holdings, LLC, a multi-family property located in Fort Wayne, Indiana. We invested $3,393 of equity through UPH and $19,225 of debt directly to UPRC. The senior secured note bears interest at the greater of 6.0% or Libor plus 4.0% and interest payment in kind of 5.5% and has a final maturity of April 1, 2019.
On September 30, 2014, we made a $26,431 follow-on investment in Harbortouch Payments, LLC ("Harbortouch") to support an acquisition. The senior secured Term Loan C bears interest in cash at the greater of 13.0% or Libor plus 9.0% and has a final maturity of September 29, 2018.
On September 30, 2014, we made a $42,200 follow-on investment in PrimeSport, Inc. ("PrimeSport") to fund a dividend recapitalization. The $21,100 Term Loan A note bears interest in cash at the greater of 7.5% or Libor plus 6.5% and has a final maturity of December 23, 2019. The $21,100 Term Loan B note bears interest in cash at the greater of 11.5% or Libor plus 10.5% and has a final maturity of December 23, 2019.

108

On September 30, 2014, we made a $22,216 follow-on investment in UPRC to acquire Columbus OH Apartment Holdco, LLC, a portfolio of seven multi-family residential properties located in Ohio. We invested $3,316 of equity through UPH and $18,900 of debt directly to UPRC. The senior secured note bears interest at the greater of 6.0% or Libor plus 4.0% and interest payment in kind of 5.5% and has a final maturity of April 1, 2019.
In addition to the purchases noted above, during the three months ended September 30, 2014, we made nine follow-on investments in NPRC (as defined below) totaling $37,500 to support the online lending initiative. We invested $5,625 of equity through NPH Property Holdings, LLC and $31,875 of debt directly to NPRC. Additionally, during the three months ended September 30, 2014, our wholly-owned subsidiary PSBL purchased a series of small business whole loans originated by OnDeck Capital, Inc. and Direct Capital Corporation, online small business lenders, totaling $12,651.
During the three months ended September 30, 2014, we received full repayments on eight investments, sold four investments investments, and received several partial prepayments and amortization payments totaling totaling $863,144. The more significant of these transactions are briefly described below.
On July 22, 2014, Injured Workers Pharmacy, LLC repaid the $22,678 loan receivable to us.
On July 23, 2014, Correctional Healthcare Holding Company, Inc. repaid the $27,100 loan receivable to us.
On July 28, 2014, Tectum Holdings, Inc. repaid the $10,000 loan receivable to us.
On August 1, 2014, we sold our investments in Airmall Inc. ("Airmall") for net proceeds of $51,379 and realized a loss of $3,473 on the sale. In addition, there is $6,000 being held in escrow, of which 98% is due to Prospect, which will be recognized as an additional realized loss if it is not received.
On August 20, 2014, we sold the assets of Borga, Inc. ("Borga"), a wholly-owned subsidiary of STI Holding, Inc., for net proceeds of $382 and realized a loss of $2,589 on the sale.
On August 22, 2014, Byrider Systems Acquisition Corp. repaid the $11,177 loan receivable to us.
On August 22, 2014, Capstone Logistics, LLC repaid the $189,941 loans receivable to us.
On August 22, 2014, TriMark USA, LLC repaid the $10,000 loan receivable to us.
On August 25, 2014, we sold Boxercraft, a wholly-owned subsidiary of BXC, for net proceeds of $750 and realized a net loss of $16,949 on the sale.
On September 15, 2014, Echelon Aviation LLC ("Echelon") repaid $37,313 of the $78,121 loan receivable to us.
The following table provides a summary of our investment activity for each quarter within the three years ending June 30, 2015:
Quarter Ended
 
Acquisitions(1)
 
Dispositions(2)
September 30, 2012
 
747,937

 
158,123

December 31, 2012
 
772,125

 
349,269

March 31, 2013
 
784,395

 
102,527

June 30, 2013
 
798,760

 
321,615

 
 
 
 
 
September 30, 2013
 
556,843

 
164,167

December 31, 2013
 
608,153

 
255,238

March 31, 2014
 
1,343,356

 
198,047

June 30, 2014
 
444,104

 
169,617

 
 
 
 
 
September 30, 2014
 
887,205

 
863,144

(1)
Includes investments in new portfolio companies, follow-on investments in existing portfolio companies, refinancings and PIK interest.
(2)
Includes sales, scheduled principal payments, prepayments and refinancings.

109

Investment Valuation
In determining the fair value of our portfolio investments at September 30, 2014, the Audit Committee considered valuations from the independent valuation firms and from management having an aggregate range of $6,041,476 to $6,418,563, excluding money market investments.
In determining the range of value for debt instruments except CLOs, management and the independent valuation firm generally estimate corporate and security credit ratings and identify corresponding yields to maturity for each loan from relevant market data. A discounted cash flow analysis was then prepared using the appropriate yield to maturity as the discount rate, to determine range of value. For non-traded equity investments, the enterprise value was determined by applying EBITDA multiples for similar guideline public companies and/or similar recent investment transactions. For stressed equity investments, a liquidation analysis was prepared.
In determining the range of value for our investments in CLOs, management and the independent valuation firm used a discounted cash flow model. The valuations were accomplished through the analysis of the CLO deal structures to identify the risk exposures from the modeling point of view. For each CLO security, the most appropriate valuation approach was chosen from alternative approaches to ensure the most accurate valuation for such security. A waterfall engine is used to store the collateral data, generate collateral cash flows from the assets based on various assumptions for the risk factors, and distribute the cash flows to the liability structure based on the payment priorities, and discount them back using proper discount rates.
The Board of Directors looked at several factors in determining where within the range to value the asset including: recent operating and financial trends for the asset, independent ratings obtained from third parties, comparable multiples for recent sales of companies within the industry and discounted cash flow models for our investments in CLOs. The composite of all these analyses, applied to each investment, was a total valuation of $6,253,493.
Our portfolio companies are generally lower middle market companies, outside of the financial sector, with less than $150,000 of annual EBITDA. We believe our market has experienced less volatility than others because we believe there are more buy and hold investors who own these less liquid investments.
Control investments offer increased risk and reward over straight debt investments. Operating results and changes in market multiples can result in dramatic changes in values from quarter to quarter. Significant downturns in operations can further result in our looking to recoveries on sales of assets rather than the enterprise value of the investment. Transactions between our controlled investments and us have been detailed in Note 14 to the accompanying consolidated financial statements. Several control investments in our portfolio are under enhanced scrutiny by our senior management and our Board of Directors and are discussed below.
American Property REIT Corp.
American Property REIT Corp. (“APRC”) is a Maryland corporation and a qualified REIT for federal income tax purposes. APRC was formed to acquire, operate, finance, lease, manage and sell a portfolio of real estate assets. As of September 30, 2014, we own 100% of the fully-diluted common equity of APRC.
During the three months ended September 30, 2014, we did not provide any additional financing to APRC for the acquisition of real estate properties. As of September 30, 2014, our investment in APRC had an amortized cost of $204,517 and a fair value of $197,689.

110

As of September 30, 2014, APRC’s real estate portfolio was comprised of fourteen multi-family properties and one commercial property. The following table shows the location, acquisition date, purchase price, and mortgage outstanding due to other parties for each of the properties held by APRC as of September 30, 2014.
No.
 
Property Name
 
City
 
Acquisition
Date
 
Purchase
Price
 
Mortgage
Outstanding
1
 
1557 Terrell Mill Road, LLC
 
Marietta, GA
 
12/28/2012
 
$
23,500

 
$
15,275

2
 
5100 Live Oaks Blvd, LLC
 
Tampa, FL
 
1/17/2013
 
63,400

 
39,600

3
 
Lofton Place, LLC
 
Tampa, FL
 
4/30/2013
 
26,000

 
16,965

4
 
Vista Palma Sola, LLC
 
Bradenton, FL
 
4/30/2013
 
27,000

 
17,550

5
 
Arlington Park Marietta, LLC
 
Marietta, GA
 
5/8/2013
 
14,850

 
9,650

6
 
APH Carroll Resort, LLC
 
Pembroke Pines, FL
 
6/24/2013
 
225,000

 
157,500

7
 
Cordova Regency, LLC
 
Pensacola, FL
 
11/15/2013
 
13,750

 
9,026

8
 
Crestview at Oakleigh, LLC
 
Pensacola, FL
 
11/15/2013
 
17,500

 
11,488

9
 
Inverness Lakes, LLC
 
Mobile, AL
 
11/15/2013
 
29,600

 
19,400

10
 
Kings Mill Pensacola, LLC
 
Pensacola, FL
 
11/15/2013
 
20,750

 
13,622

11
 
Plantations at Pine Lake, LLC
 
Tallahassee, FL
 
11/15/2013
 
18,000

 
11,817

12
 
Verandas at Rocky Ridge, LLC
 
Birmingham, AL
 
11/15/2013
 
15,600

 
10,205

13
 
Plantations at Hillcrest, LLC
 
Mobile, AL
 
1/17/2014
 
6,930

 
5,038

14
 
Crestview at Cordova, LLC
 
Pensacola, FL
 
1/17/2014
 
8,500

 
5,016

15
 
Taco Bell, OK
 
Yukon, OK
 
6/4/2014
 
1,719

 
—

 
 
 
 
 
 
 
 
$
512,099

 
$
342,152

The Board of Directors set the fair value of our investment in APRC at $197,689 as of September 30, 2014, a discount of $6,828 from its amortized cost, compared to the $3,392 unrealized appreciation recorded at June 30, 2014
Ajax Rolled Ring & Machine, LLC
Ajax Rolled Ring & Machine, LLC ("Ajax") forges large seamless steel rings on two forging mills in Ajax’s York, South Carolina facility. The rings are used in a range of industrial applications, including in construction equipment and power turbines. Ajax also provides machining and other ancillary services.
On April 4, 2008, we acquired a controlling equity interest in ARRM Services, Inc. ("ARRM"), which owns 100% of Ajax, the operating company. We funded $22,000 of senior secured term debt, $11,500 of subordinated term debt and $6,300 of equity as of that closing. During the fiscal year ended June 30, 2010, we funded an additional $3,530 of secured subordinated debt to refinance a third-party revolver provider and provide working capital. Ajax repaid $3,461 of this secured subordinated debt during the quarter ended September 30, 2010. During the quarter ended December 31, 2012, we funded an additional $3,600 of unsecured debt to refinance first lien debt held by Wells Fargo.
On April 1, 2013, we refinanced our existing $38,472 senior loans to Ajax, increasing the size of our debt investment to $38,537. Concurrent with the refinancing, we received repayment of the $18,635 loans that were previously outstanding. On October 11, 2013, we provided $25,000 in preferred equity for the recapitalization of Ajax. After the financing, we received repayment of the $20,008 subordinated unsecured loan previously outstanding. As of September 30, 2014, we control 79.53% of the fully-diluted common and preferred equity.
Due to the anticipated sale of Ajax, the Board of Directors increased the fair value of our investment in Ajax to $28,736 as of September 30, 2014, a discount of $17,814 from its amortized cost, compared to the $21,014 unrealized depreciation recorded at June 30, 2014.

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First Tower Finance Company LLC
We own 80.1% of First Tower Finance Company LLC (“First Tower Finance”), which owns 100% of First Tower, LLC (“First Tower”), the operating company. First Tower is a multiline specialty finance company based in Flowood, Mississippi with over 170 branch offices.
On June 15, 2012, we acquired 80.1% of First Tower businesses for $110,200 in cash and 14,518,207 unregistered shares of our common stock. Based on our share price of $11.06 at the time of issuance, we acquired our 80.1% interest in First Tower for approximately $270,771. The assets of First Tower acquired include, among other things, the subsidiaries owned by First Tower, which hold finance receivables, leaseholds, and tangible property associated with First Tower’s businesses. As part of the transaction, we received $4,038 in structuring fee income from First Tower. On October 18, 2012, we funded an additional $20,000 of senior secured debt to support seasonally high demand during the holiday season. On December 30, 2013, we funded an additional $10,000 to again support seasonal demand and received $8,000 of structuring fees related to the renegotiation and expansion of First Tower’s revolver with a third party which was recognized as other income. As of September 30, 2014, First Tower had total assets of approximately $623,056 including $411,901 of finance receivables net of unearned charges. As of September 30, 2014, First Tower’s total debt outstanding to parties senior to us was $269,774.
The Board of Directors decreased the fair value of our investment in First Tower to $324,975 as of September 30, 2014, a premium of $9,185 from its amortized cost, compared to the $7,134 unrealized appreciation recorded at June 30, 2014.
Harbortouch Payments, LLC
Harbortouch Payments, LLC ("Harbortouch") is a merchant processor headquartered in Allentown, Pennsylvania. The company offers a range of payment processing equipment and services that facilitate the exchange of goods and services provided by small to medium-sized merchants located in the United States for payments made by credit, debit, prepaid, electronic gift, and loyalty cards. Harbortouch provides point-of-sale equipment free of cost to merchants and then manages the process whereby transaction information is sent to a consumer’s bank from the point-of-sale (front-end processing), and then funds are transferred from the consumer’s account to the merchant’s account (back-end processing).
On March 31, 2014, we acquired a controlling interest in Harbortouch for $147,898 in cash and 2,306,294 unregistered shares of our common stock. We funded $130,796 of senior secured term debt, $123,000 of subordinated term debt and $24,898 of equity at closing. As part of the transaction, we received $7,536 of structuring fee income from Harbortouch. On April 1, 2014, we restructured our investment in Harbortouch and $14,226 of equity was converted into additional debt investment. On September 30, 2014, we made a $26,431 follow-on investment in Harbortouch to support an acquisition. As part of the transaction, we received $530 of structuring fee income and $50 of amendment fee income from Harbortouch. As of September 30, 2014, we own 100% of the Class C voting units of Harbortouch, which provide for a 53.5% residual profits allocation.
Due to improved operating results, the Board of Directors increased the fair value of our investment in Harbortouch to $318,251 as of September 30, 2014, a premium of $16,516 from its amortized cost, compared to the $12,620 unrealized appreciation recorded at June 30, 2014.

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National Property REIT Corp.
National Property REIT Corp. (“NPRC”) is a Maryland corporation and a qualified REIT for federal income tax purposes. NPRC was formed to acquire, operate, finance, lease, manage and sell a portfolio of real estate assets. Additionally, through its wholly-owned subsidiaries, NPRC invests in peer-to-peer consumer loans. As of September 30, 2014, we own 100% of the fully-diluted common equity of NPRC.
During the three months ended September 30, 2014, we provided $31,875 and $5,625 of debt and equity financing, respectively, to NPRC to invest in peer-to-peer consumer loans. As of September 30, 2014, our investment in NPRC had an amortized cost of $165,280 and a fair value of $166,830.
NPRC’s peer-to-peer consumer loan investments are unsecured obligations of individual borrowers that are issued in amounts ranging from $1,000 to $35,000, with fixed interest rates and original maturities of three or five years. As of September 30, 2014, NPRC’s investment in peer-to-peer lending had a fair value of $91,252. The average individual loan balance is $12 and the loans mature on dates ranging from October 31, 2016 to October 2, 2019 with fixed terms of either 36 or 60 months. Fixed interest rates range from 6.1% to 28.5% with a weighted-average current interest rate of 16.4%.
As of September 30, 2014, NPRC’s real estate portfolio was comprised of nine multi-family properties and one commercial property. The following table shows the location, acquisition date, purchase price, and mortgage outstanding due to other parties for each of the properties held by NPRC as of September 30, 2014.
No.
 
Property Name
 
City
 
Acquisition
Date
 
Purchase
Price
 
Mortgage
Outstanding
1
 
146 Forest Parkway, LLC
 
Forest Park, GA
 
10/24/2012
 
$
7,400

 
$
—

2
 
APH Carroll 41, LLC
 
Marietta, GA
 
11/1/2013
 
30,600

 
22,330

3
 
Matthews Reserve II, LLC
 
Matthews, NC
 
11/19/2013
 
22,063

 
17,571

4
 
City West Apartments II, LLC
 
Orlando, FL
 
11/19/2013
 
23,562

 
18,533

5
 
Vinings Corner II, LLC
 
Smyrna, GA
 
11/19/2013
 
35,691

 
26,640

6
 
Uptown Park Apartments II, LLC
 
Altamonte Springs, FL
 
11/19/2013
 
36,590

 
27,471

7
 
Mission Gate II, LLC
 
Plano, TX
 
11/19/2013
 
47,621

 
36,148

8
 
St. Marin Apartments II, LLC
 
Coppell, TX
 
11/19/2013
 
73,078

 
53,863

9
 
APH Carroll Bartram Park, LLC
 
Jacksonville, FL
 
12/31/2013
 
38,000

 
28,500

10
 
APH Carroll Atlantic Beach, LLC
 
Atlantic Beach, FL
 
1/31/2014
 
13,025

 
9,013

 
 
 
 
 
 
 
 
$
327,630

 
$
240,069

The Board of Directors set the fair value of our investment in NPRC at $166,830 as of September 30, 2014, a premium of $1,550 from its amortized cost, compared to the $2,088 unrealized depreciation recorded at June 30, 2014.

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United Property REIT Corp.
United Property REIT Corp. (“UPRC”) is a Delaware limited liability company and a qualified REIT for federal income tax purposes. UPRC was formed to acquire, operate, finance, lease, manage and sell a portfolio of real estate assets. As of September 30, 2014, we own 100% of the fully-diluted common equity of UPRC.
During the three months ended September 30, 2014, we provided $47,515 and $8,365 of debt and equity financing, respectively, to UPRC for the acquisition of certain properties. As of September 30, 2014, our investment in UPRC had an amortized cost of $80,125 and a fair value of $79,634.
As of September 30, 2014, UPRC’s real estate portfolio was comprised of fourteen multi-families properties and eight commercial properties. The following table shows the location, acquisition date, purchase price, and mortgage outstanding due to other parties for each of the properties held by UPRC as of September 30, 2014.
No.
 
Property Name
 
City
 
Acquisition
Date
 
Purchase
Price
 
Mortgage
Outstanding
1
 
Atlanta Eastwood Village LLC
 
Stockbridge, GA
 
12/12/2013
 
$
25,957

 
$
19,785

2
 
Atlanta Monterey Village LLC
 
Jonesboro, GA
 
12/12/2013
 
11,501

 
9,193

3
 
Atlanta Hidden Creek LLC
 
Morrow, GA
 
12/12/2013
 
5,098

 
3,619

4
 
Atlanta Meadow Springs LLC
 
College Park, GA
 
12/12/2013
 
13,116

 
10,180

5
 
Atlanta Meadow View LLC
 
College Park, GA
 
12/12/2013
 
14,354

 
11,141

6
 
Atlanta Peachtree Landing LLC
 
Fairburn, GA
 
12/12/2013
 
17,224

 
13,575

7
 
Taco Bell, MO
 
Marshall, MO
 
6/4/2014
 
1,405

 
—

8
 
23 Mile Road Self Storage, LLC
 
Chesterfield, MI
 
8/19/2014
 
5,804

 
4,350

9
 
36th Street Self Storage, LLC
 
Wyoming, MI
 
8/19/2014
 
4,800

 
3,600

10
 
Ball Avenue Self Storage, LLC
 
Grand Rapids, MI
 
8/19/2014
 
7,281

 
5,460

11
 
Ford Road Self Storage, LLC
 
Westland, MI
 
8/29/2014
 
4,642

 
3,480

12
 
Ann Arbor Kalamazoo Self Storage, LLC
 
Ann Arbor, MI
 
8/29/2014
 
4,458

 
3,345

13
 
Ann Arbor Kalamazoo Self Storage, LLC
 
Scio, MI
 
8/29/2014
 
8,927

 
6,695

14
 
Ann Arbor Kalamazoo Self Storage, LLC
 
Kalamazoo, MI
 
8/29/2014
 
2,363

 
1,775

15
 
Canterbury Green Apartments Holdings LLC
 
Fort Wayne, IN
 
9/29/2014
 
85,500

 
65,825

16
 
Abbie Lakes OH Partners, LLC
 
Canal Winchester, OH
 
9/30/2014
 
12,600

 
10,440

17
 
Kengary Way OH Partners, LLC
 
Reynoldsburg, OH
 
9/30/2014
 
11,500

 
11,000

18
 
Lakeview Trail OH Partners, LLC
 
Canal Winchester, OH
 
9/30/2014
 
26,500

 
20,142

19
 
Lakepoint OH Partners, LLC
 
Pickerington, OH
 
9/30/2014
 
11,000

 
10,080

20
 
Sunbury OH Partners, LLC
 
Columbus, OH
 
9/30/2014
 
13,000

 
10,480

21
 
Heatherbridge OH Partners, LLC
 
Blacklick, OH
 
9/30/2014
 
18,416

 
15,480

22
 
Jefferson Chase OH Partners, LLC
 
Blacklick, OH
 
9/30/2014
 
13,551

 
12,240

 
 
 
 
 
 
 
 
$
318,997

 
$
251,885

The Board of Directors set the fair value of our investment in UPRC at $79,634 as of September 30, 2014, a discount of $491 from its amortized cost, compared to the $426 unrealized appreciation recorded at June 30, 2014.
Valley Electric Company, Inc.
We own 94.99% of Valley Electric Company, Inc. (“Valley Electric”) as of September 30, 2014. Valley Electric owns 100% of the equity of VE Company, Inc., which owns 100% of the equity of Valley Electric Co. of Mt. Vernon, Inc. (“Valley”). Valley Electric is a leading provider of specialty electrical services in the state of Washington and is among the top 50 electrical contractors in the U.S. The company, with its headquarters in Everett, Washington, offers a comprehensive array of contracting services, primarily for commercial, industrial, and transportation infrastructure applications, including new installation, engineering and design, design-build, traffic lighting and signalization, low to medium voltage power distribution, construction management, energy management and control systems, 24-hour electrical maintenance and testing, as well as special projects and tenant improvement services. Valley Electric was founded in 1982 by the Ward family, who held the company until the end of 2012.

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On December 31, 2012, we acquired 100% of the outstanding shares of Valley. We funded the recapitalization of Valley with $42,572 of debt and $9,526 of equity financing. Through the recapitalization, we acquired a controlling interest in Valley for $7,449 in cash and 4,141,547 unregistered shares of our common stock. As of September 30, 2014, we control 96.3% of the common equity.
Due to soft operating results, the Board of Directors decreased the fair value of our investment in Valley Electric to $29,431 as of September 30, 2014, a discount of $27,855 from its amortized cost, compared to the $23,304 unrealized depreciation recorded at June 30, 2014.
Equity positions in the portfolio are susceptible to potentially significant changes in value, both increases as well as decreases, due to changes in operating results. Seven of our controlled companies, APRC, Credit Central Loan Company, LLC ("Credit Central"), Echelon, Gulf Coast Machine & Supply Company ("Gulf Coast"), Valley Electric, R-V Industries, Inc. ("R-V") and Wolf Energy, LLC ("Wolf Energy"), experienced such volatility and experienced fluctuations in valuations during the three months ended September 30, 2014. See above for discussion regarding the fluctuations in APRC and Valley Electric. During the three months ended September 30, 2014, the value of Credit Central decreased by $1,513 due to a decline in future expectations; Echelon decreased by $9,011 due to declines in future expectations; Gulf Coast decreased by $2,785 due to a decline in operating results; R-V decreased by $1,521 due to a decline in operating results; and Wolf Energy decreased by $1,972 due to a decrease in the value of the company's assets. Four of the other controlled investments have been valued at discounts to the original investment. Thirteen of the control investments are valued at the original investment amounts or higher. Overall, at September 30, 2014, control investments are valued at $61,496 below their amortized cost.
We hold one affiliate investment at September 30, 2014. Our affiliate portfolio company did not experience a significant change in valuation during the three months ended September 30, 2014.
With the non-control/non-affiliate investments, generally, there is less volatility related to our total investments because our equity positions tend to be smaller than with our control/affiliate investments, and debt investments are generally not as susceptible to large swings in value as equity investments. For debt investments, the fair value is generally limited on the high side to each loan’s par value, plus any prepayment premia that could be imposed. Many of the debt investments in this category have not experienced a significant change in value, as they were previously valued at or near par value. Non-control/non-affiliate investments did not experience significant changes in valuation and are generally performing as expected or better than expected. Two of our Non-control/non-affiliate investments, Stryker Energy, LLC (“Stryker”) and Wind River Resources Corporation (“Wind River”), are valued at a discount to amortized cost due to a decline in the operating results of the operating companies from those originally underwritten. In June 2014, New Century Transportation, Inc. ("NCT") filed for bankruptcy. As we hold a second lien position and do not expect liquidation proceeds to exceed the first lien liability, we decreased the fair value of our debt investment to zero. Overall, at September 30, 2014, other non-control/non-affiliate investments are valued at $47,832 above their amortized cost, excluding our investments in NCT, Stryker and Wind River, as the remaining companies are generally performing as or better than expected.
Capitalization
Our investment activities are capital intensive and the availability and cost of capital is a critical component of our business. We capitalize our business with a combination of debt and equity. Our debt as of September 30, 2014 consists of: a Revolving Credit Facility availing us of the ability to borrow debt subject to borrowing base determinations; Convertible Notes which we issued in December 2010, February 2011, April 2012, August 2012, December 2012 and April 2014; Public Notes which we issued in May 2012, March 2013 and April 2014; and Prospect Capital InterNotes® which we may issue from time to time. Our equity capital is comprised entirely of common equity.
The following table shows the maximum draw amounts and outstanding borrowings of our Revolving Credit Facility, Convertible Notes, Public Notes and Prospect Capital InterNotes® as of September 30, 2014 and June 30, 2014.
 
September 30, 2014
 
June 30, 2014
 
Maximum Draw Amount
 
Amount Outstanding
 
Maximum Draw Amount
 
Amount Outstanding
Revolving Credit Facility
$
810,000

 
$
411,000

 
$
857,500

 
$
92,000

Convertible Notes
1,247,500

 
1,247,500

 
1,247,500

 
1,247,500

Public Notes
647,950

 
647,950

 
647,881

 
647,881

Prospect Capital InterNotes®
784,305

 
784,305

 
785,670

 
785,670

Total
$
3,489,755

 
$
3,090,755

 
$
3,538,551

 
$
2,773,051


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The following table shows the contractual maturities of our Revolving Credit Facility, Convertible Notes, Public Notes and Prospect Capital InterNotes® as of September 30, 2014.
 
Payments Due by Period
 
Total
 
Less than 1 Year
 
1 – 3 Years
 
3 – 5 Years
 
After 5 Years
Revolving Credit Facility
$
411,000

 
$
—

 
$
—

 
$
—

 
$
411,000

Convertible Notes
1,247,500

 
—

 
317,500

 
530,000

 
400,000

Public Notes
647,950

 
—

 
—

 
300,000

 
347,950

Prospect Capital InterNotes®
784,305

 
—

 
8,859

 
334,078

 
441,368

Total Contractual Obligations
$
3,090,755

 
$
—

 
$
326,359

 
$
1,164,078

 
$
1,600,318

The following table shows the contractual maturities of our Revolving Credit Facility, Convertible Notes, Public Notes and Prospect Capital InterNotes® as of June 30, 2014.
 
Payments Due by Period
 
Total
 
Less than 1 Year
 
1 – 3 Years
 
3 – 5 Years
 
After 5 Years
Revolving Credit Facility
$
92,000

 
$
—

 
$
92,000

 
$
—

 
$
—

Convertible Notes
1,247,500

 
—

 
317,500

 
530,000

 
400,000

Public Notes
647,881

 
—

 
—

 
—

 
647,881

Prospect Capital InterNotes®
785,670

 
—

 
8,859

 
261,456

 
515,355

Total Contractual Obligations
$
2,773,051

 
$
—

 
$
418,359

 
$
791,456

 
$
1,563,236

We have and expect to continue to fund a portion of our cash needs through borrowings from banks, issuances of senior securities, including secured, unsecured and convertible debt securities, or issuances of common equity. For flexibility, we maintain a universal shelf registration statement that allows for the public offering and sale of our debt securities, common stock, preferred stock, subscription rights, and warrants and units to purchase such securities in an amount up to $5,000,000 less issuances to date. As of September 30, 2014, we can issue up to $3,635,217 of additional debt and equity securities in the public market under this shelf registration. On November 4, 2014, our updated shelf registration was declared effective and we can issue up to $5,000,000 of additional debt and equity securities in the public market. We may from time to time issue securities pursuant to the shelf registration statement or otherwise pursuant to private offerings. The issuance of debt or equity securities will depend on future market conditions, funding needs and other factors and there can be no assurance that any such issuance will occur or be successful.
Each of our Unsecured Notes (as defined below) are our general, unsecured obligations and rank equal in right of payment with all of our existing and future unsecured indebtedness and will be senior in right of payment to any of our subordinated indebtedness that may be issued in the future. The Unsecured Notes are effectively subordinated to our existing secured indebtedness, such as our credit facility, and future secured indebtedness to the extent of the value of the assets securing such indebtedness and structurally subordinated to any existing and future liabilities and other indebtedness of any of our subsidiaries.
Revolving Credit Facility
On March 27, 2012, we closed on an extended and expanded credit facility with a syndicate of lenders through PCF (the "2012 Facility"). The lenders had extended commitments of $857,500 under the 2012 Facility as of June 30, 2014, which was increased to $877,500 in July 2014. The 2012 Facility included an accordion feature which allowed commitments to be increased up to $1,000,000 in the aggregate. Interest on borrowings under the 2012 Facility was one-month Libor plus 275 basis points with no minimum Libor floor. Additionally, the lenders charged a fee on the unused portion of the 2012 Facility equal to either 50 basis points, if at least half of the credit facility is drawn, or 100 basis points otherwise.
On August 29, 2014, we renegotiated the 2012 Facility and closed an expanded five and a half year $800,000 revolving credit facility (the "2014 Facility" and collectively with the 2012 Facility, the "Revolving Credit Facility"). The lenders have extended commitments of $810,000 under the 2014 Facility as of September 30, 2014. The 2014 Facility includes an accordion feature which allows commitments to be increased up to $1,500,000 in the aggregate. The revolving period of the 2014 Facility extends through March 2019, with an additional one year amortization period (with distributions allowed) after the completion of the revolving period. During such one year amortization period, all principal payments on the pledged assets will be applied to reduce the balance. At the end of the one year amortization period, the remaining balance will become due, if required by the lenders.

116

The 2014 Facility contains restrictions pertaining to the geographic and industry concentrations of funded loans, maximum size of funded loans, interest rate payment frequency of funded loans, maturity dates of funded loans and minimum equity requirements. The 2014 Facility also contains certain requirements relating to portfolio performance, including required minimum portfolio yield and limitations on delinquencies and charge-offs, violation of which could result in the early termination of the 2014 Facility. The 2014 Facility also requires the maintenance of a minimum liquidity requirement. As of September 30, 2014, we were in compliance with the applicable covenants.
Interest on borrowings under the 2014 Facility is one-month Libor plus 225 basis points with no minimum Libor floor. Additionally, the lenders charge a fee on the unused portion of the 2014 Facility equal to either 50 basis points, if at least 35% of the credit facility is drawn, or 100 basis points otherwise. The 2014 Facility requires us to pledge assets as collateral in order to borrow under the credit facility.
As of September 30, 2014 and June 30, 2014, we had $627,712 and $780,620, respectively, available to us for borrowing under the Revolving Credit Facility, of which the amount outstanding was $411,000 and $92,000, respectively. As additional eligible investments are transferred to PCF and pledged under the Revolving Credit Facility, PCF will generate additional availability up to the current commitment amount of $810,000. As of September 30, 2014, the investments used as collateral for the Revolving Credit Facility had an aggregate fair value of $1,443,687, which represents 21.7% of our total investments and money market funds. These assets are held and owned by PCF, a bankruptcy remote special purpose entity, and as such, these investments are not available to our general creditors. The release of any assets from PCF requires the approval of the facility agent.
In connection with the origination and amendments of the Revolving Credit Facility, we incurred $7,422 of new fees and $3,539 of fees carried over for continuing participants from the previous facility, which are being amortized over the term of the facility in accordance with ASC 470-50, Debt Modifications and Extinguishments, of which $10,663 remains to be amortized and is included within deferred financing costs on the Consolidated Statements of Assets and Liabilities as of September 30, 2014. $332 of fees were expensed relating to credit providers in the 2012 Facility who did not commit to the 2014 Facility.

During the three months ended September 30, 2014 and September 30, 2013, we recorded $4,011 and $2,476, respectively, of interest costs, unused fees and amortization of financing costs on the Revolving Credit Facility as interest expense.
Convertible Notes
On December 21, 2010, we issued $150,000 aggregate principal amount of convertible notes that mature on December 15, 2015 (the “2015 Notes”), unless previously converted or repurchased in accordance with their terms. The 2015 Notes bear interest at a rate of 6.25% per year, payable semi-annually on June 15 and December 15 of each year, beginning June 15, 2011. Total proceeds from the issuance of the 2015 Notes, net of underwriting discounts and offering costs, were $145,200.
On February 18, 2011, we issued $172,500 aggregate principal amount of convertible notes that mature on August 15, 2016 (the “2016 Notes”), unless previously converted or repurchased in accordance with their terms. The 2016 Notes bear interest at a rate of 5.50% per year, payable semi-annually on February 15 and August 15 of each year, beginning August 15, 2011. Total proceeds from the issuance of the 2016 Notes, net of underwriting discounts and offering costs, were $167,325. Between January 30, 2012 and February 2, 2012, we repurchased $5,000 of the 2016 Notes at a price of 97.5, including commissions. The transactions resulted in our recognizing $10 of loss in the year ended June 30, 2012.
On April 16, 2012, we issued $130,000 aggregate principal amount of convertible notes that mature on October 15, 2017 (the “2017 Notes”), unless previously converted or repurchased in accordance with their terms. The 2017 Notes bear interest at a rate of 5.375% per year, payable semi-annually on April 15 and October 15 of each year, beginning October 15, 2012. Total proceeds from the issuance of the 2017 Notes, net of underwriting discounts and offering costs, were $126,035.
On August 14, 2012, we issued $200,000 aggregate principal amount of convertible notes that mature on March 15, 2018 (the “2018 Notes”), unless previously converted or repurchased in accordance with their terms. The 2018 Notes bear interest at a rate of 5.75% per year, payable semi-annually on March 15 and September 15 of each year, beginning March 15, 2013. Total proceeds from the issuance of the 2018 Notes, net of underwriting discounts and offering costs, were $193,600.
On December 21, 2012, we issued $200,000 aggregate principal amount of convertible notes that mature on January 15, 2019 (the “2019 Notes”), unless previously converted or repurchased in accordance with their terms. The 2019 Notes bear interest at a rate of 5.875% per year, payable semi-annually on January 15 and July 15 of each year, beginning July 15, 2013. Total proceeds from the issuance of the 2019 Notes, net of underwriting discounts and offering costs, were $193,600.

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On April 11, 2014, we issued $400,000 aggregate principal amount of convertible notes that mature on April 15, 2020 (the “2020 Notes”), unless previously converted or repurchased in accordance with their terms. The 2020 Notes bear interest at a rate of 4.75% per year, payable semi-annually on April 15 and October 15 each year, beginning October 15, 2014. Total proceeds from the issuance of the 2020 Notes, net of underwriting discounts and offering costs, were $387,500.
Certain key terms related to the convertible features for the 2015 Notes, the 2016 Notes, the 2017 Notes, the 2018 Notes, the 2019 Notes and the 2020 Notes (collectively, the "Convertible Notes") are listed below.
 
2015 Notes

 
2016 Notes

 
2017 Notes

 
2018 Notes

 
2019 Notes

 
2020 Notes

Initial conversion rate(1)
88.0902

 
78.3699

 
85.8442

 
82.3451

 
79.7766

 
80.6647

Initial conversion price
$
11.35

 
$
12.76

 
$
11.65

 
$
12.14

 
$
12.54

 
$
12.40

Conversion rate at September 30, 2014(1)(2)
89.0157

 
79.3176

 
86.9426

 
83.6661

 
79.7865

 
80.6647

Conversion price at September 30, 2014(2)(3)
$
11.23

 
$
12.61

 
$
11.50

 
$
11.95

 
$
12.53

 
$
12.40

Last conversion price calculation date
12/21/2013

 
2/18/2014

 
4/16/2014

 
8/14/2014

 
12/21/2013

 
4/11/2014

Dividend threshold amount (per share)(4)
$
0.101125

 
$
0.101150

 
$
0.101500

 
$
0.101600

 
$
0.110025

 
$
0.110525

(1)
Conversion rates denominated in shares of common stock per $1 principal amount of the Convertible Notes converted. 
(2)
Represents conversion rate and conversion price, as applicable, taking into account certain de minimis adjustments that will be made on the conversion date.
(3)
The conversion price in effect at September 30, 2014 was calculated on the last anniversary of the issuance and will be adjusted again on the next anniversary, unless the exercise price shall have changed by more than 1% before the anniversary.
(4)
The conversion rate is increased if monthly cash dividends paid to common shares exceed the monthly dividend threshold amount, subject to adjustment.
In no event will the total number of shares of common stock issuable upon conversion exceed 96.8992 per $1 principal amount of the 2015 Notes (the “conversion rate cap”), except that, to the extent we receive written guidance or a no-action letter from the staff of the Securities and Exchange Commission (the “Guidance”) permitting us to adjust the conversion rate in certain instances without regard to the conversion rate cap and to make the 2015 Notes convertible into certain reference property in accordance with certain reclassifications, business combinations, asset sales and corporate events by us without regard to the conversion rate cap, we will make such adjustments without regard to the conversion rate cap and will also, to the extent that we make any such adjustment without regard to the conversion rate cap pursuant to the Guidance, adjust the conversion rate cap accordingly. We will use our commercially reasonable efforts to obtain such Guidance as promptly as practicable.
Prior to obtaining the Guidance, we will not engage in certain transactions that would result in an adjustment to the conversion rate increasing the conversion rate beyond what it would have been in the absence of such transaction unless we have engaged in a reverse stock split or share combination transaction such that in our reasonable best estimation, the conversion rate following the adjustment for such transaction will not be any closer to the conversion rate cap than it would have been in the absence of such transaction.
Upon conversion, unless a holder converts after a record date for an interest payment but prior to the corresponding interest payment date, the holder will receive a separate cash payment with respect to the notes surrendered for conversion representing accrued and unpaid interest to, but not including, the conversion date. Any such payment will be made on the settlement date applicable to the relevant conversion on the Convertible Notes.
No holder of Convertible Notes will be entitled to receive shares of our common stock upon conversion to the extent (but only to the extent) that such receipt would cause such converting holder to become, directly or indirectly, a beneficial owner (within the meaning of Section 13(d) of the Securities Exchange Act of 1934 and the rules and regulations promulgated thereunder) of more than 5.0% of the shares of our common stock outstanding at such time. The 5.0% limitation shall no longer apply following the effective date of any fundamental change. We will not issue any shares in connection with the conversion or redemption of the Convertible Notes which would equal or exceed 20% of the shares outstanding at the time of the transaction in accordance with NASDAQ rules.
Subject to certain exceptions, holders may require us to repurchase, for cash, all or part of their Convertible Notes upon a fundamental change at a price equal to 100% of the principal amount of the Convertible Notes being repurchased plus any accrued and unpaid interest up to, but excluding, the fundamental change repurchase date. In addition, upon a fundamental change that constitutes a non-stock change of control we will also pay holders an amount in cash equal to the present value of all remaining interest payments (without duplication of the foregoing amounts) on such Convertible Notes through and including the maturity date.

118

In connection with the issuance of the Convertible Notes, we incurred $39,385 of fees which are being amortized over the terms of the notes, of which $26,019 remains to be amortized and is included within deferred financing costs on the Consolidated Statements of Assets and Liabilities as of September 30, 2014.
During the three months ended September 30, 2014 and September 30, 2013, we recorded $18,589 and $13,310, respectively, of interest costs and amortization of financing costs on the Convertible Notes as interest expense.
Public Notes
On May 1, 2012, we issued $100,000 aggregate principal amount of unsecured notes that mature on November 15, 2022 (the “2022 Notes”). The 2022 Notes bear interest at a rate of 6.95% per year, payable quarterly on February 15, May 15, August 15 and November 15 of each year, beginning August 15, 2012. Total proceeds from the issuance of the 2022 Notes, net of underwriting discounts and offering costs, were $97,000.
On March 15, 2013, we issued $250,000 aggregate principal amount of unsecured notes that mature on March 15, 2023 (the “2023 Notes”). The 2023 Notes bear interest at a rate of 5.875% per year, payable semi-annually on March 15 and September 15 of each year, beginning September 15, 2013. Total proceeds from the issuance of the 2023 Notes, net of underwriting discounts and offering costs, were $245,885.
On April 7, 2014, we issued $300,000 aggregate principal amount of unsecured notes that mature on July 15, 2019 (the “5.00% 2019 Notes”). Included in the issuance is $45,000 of Prospect Capital InterNotes® that were exchanged for the 5.00% 2019 Notes. The 5.00% 2019 Notes bear interest at a rate of 5.00% per year, payable semi-annually on January 15 and July 15 of each year, beginning July 15, 2014. Total proceeds from the issuance of the 5.00% 2019 Notes, net of underwriting discounts and offering costs, were $250,775.
The 2022 Notes, the 2023 Notes and the 5.00% 2019 Notes (collectively, the “Public Notes”) are direct unsecured obligations and rank equally with all of our unsecured indebtedness from time to time outstanding.
In connection with the issuance of the Public Notes, we incurred $11,366 of fees which are being amortized over the term of the notes, of which $10,075 remains to be amortized and is included within deferred financing costs on the Consolidated Statements of Assets and Liabilities as of September 30, 2014.
During the three months ended September 30, 2014 and September 30, 2013, we recorded $9,458 and $5,577, respectively, of interest costs and amortization of financing costs on the Public Notes as interest expense.
Prospect Capital InterNotes®
On February 16, 2012, we entered into a Selling Agent Agreement (the “Selling Agent Agreement”) with Incapital LLC, as purchasing agent for our issuance and sale from time to time of up to $500,000 of Prospect Capital InterNotes® (the “InterNotes® Offering”), which was increased to $1,500,000 in May 2014. Additional agents may be appointed by us from time to time in connection with the InterNotes® Offering and become parties to the Selling Agent Agreement.
These notes are direct unsecured obligations and rank equally with all of our unsecured indebtedness from time to time outstanding. Each series of notes will be issued by a separate trust. These notes bear interest at fixed interest rates and offer a variety of maturities no less than twelve months from the original date of issuance.
During the three months ended September 30, 2014, we did not issue any Prospect Capital InterNotes®.

119

During the three months ended September 30, 2013, we issued $98,255 aggregate principal amount of our Prospect Capital InterNotes® for net proceeds of $96,189. These notes were issued with stated interest rates ranging from 4.75% to 6.75% with a weighted average interest rate of 5.48%. These notes mature between July 15, 2018 and September 15, 2043. The following table summarizes the Prospect Capital InterNotes® issued during the three months ended September 30, 2013.
Tenor at
Origination
(in years)
 
Principal
Amount
 
Interest Rate
Range
 
Weighted
Average
Interest Rate
 
Maturity Date Range
5
 
$
51,537

 
4.75%–5.00%
 
4.99
%
 
July 15, 2018 – September 15, 2018
5.5
 
3,820

 
5.00%
 
5.00
%
 
February 15, 2019
6.5
 
1,800

 
5.50%
 
5.50
%
 
February 15, 2020
7
 
14,399

 
5.50%–5.75%
 
5.59
%
 
July 15, 2020 – September 15, 2020
7.5
 
1,996

 
5.75%
 
5.75
%
 
February 15, 2021
15
 
940

 
6.00%
 
6.00
%
 
August 15, 2028
18
 
4,062

 
6.00%–6.25%
 
6.21
%
 
July 15, 2031 – August 15, 2031
20
 
1,127

 
6.00%
 
6.00
%
 
September 15, 2033
25
 
3,372

 
6.50%
 
6.50
%
 
August 15, 2038
30
 
15,202

 
6.50%–6.75%
 
6.63
%
 
July 15, 2043 – September 15, 2043
 
 
$
98,255

 
 
 
 
 
 
During the three months ended September 30, 2014, we repaid $1,365 aggregate principal amount of our Prospect Capital InterNotes® in accordance with the Survivor’s Option, as defined in the InterNotes® Offering prospectus. The following table summarizes the Prospect Capital InterNotes® outstanding as of September 30, 2014.
Tenor at
Origination
 (in years)
 
Principal
Amount
 
Interest Rate
Range
 
Weighted
Average
Interest Rate
 
Maturity Date Range
3
 
$
5,710

 
4.00%
 
4.00
%
 
October 15, 2016
3.5
 
3,149

 
4.00%
 
4.00
%
 
April 15, 2017
4
 
45,751

 
3.75%–4.00%
 
3.92
%
 
November 15, 2017 – May 15, 2018
5
 
212,905

 
4.25%–5.00%
 
4.91
%
 
July 15, 2018 – August 15, 2019
5.5
 
3,820

 
5.00%
 
5.00
%
 
February 15, 2019
6.5
 
1,800

 
5.50%
 
5.50
%
 
February 15, 2020
7
 
256,724

 
4.00%–6.55%
 
5.39
%
 
June 15, 2019 – May 15, 2021
7.5
 
1,996

 
5.75%
 
5.75
%
 
February 15, 2021
10
 
41,867

 
3.24%–7.00%
 
6.19
%
 
March 15, 2022 – May 15, 2024
12
 
2,978

 
6.00%
 
6.00
%
 
November 15, 2025 – December 15, 2025
15
 
17,465

 
5.00%–6.00%
 
5.14
%
 
May 15, 2028 – November 15, 2028
18
 
25,274

 
4.125%–6.25%
 
5.49
%
 
December 15, 2030 – August 15, 2031
20
 
5,817

 
5.625%–6.00%
 
5.85
%
 
November 15, 2032 – October 15, 2033
25
 
34,823

 
6.25%–6.50%
 
6.39
%
 
August 15, 2038 – May 15, 2039
30
 
124,226

 
5.50%–6.75%
 
6.23
%
 
November 15, 2042 – October 15, 2043
 
 
$
784,305

 
 
 
 

 
 

120

During the three months ended September 30, 2013, we repaid $55 aggregate principal amount of our Prospect Capital InterNotes® in accordance with the Survivor’s Option, as defined in the InterNotes® Offering prospectus. During the year ended June 30, 2014, we repaid $6,869 aggregate principal amount of our Prospect Capital InterNotes® in accordance with the Survivor’s Option, as defined in the InterNotes® Offering prospectus. In connection with the issuance of the 5.00% 2019 Notes, $45,000 of previously-issued Prospect Capital InterNotes® were exchanged for the 5.00% 2019 Notes. The following table summarizes the Prospect Capital InterNotes® outstanding as of June 30, 2014.
Tenor at
Origination
(in years)
 
Principal
Amount
 
Interest Rate
Range
 
Weighted
Average
Interest Rate
 
Maturity Date Range
3
 
$
5,710

 
4.00%
 
4.00
%
 
October 15, 2016
3.5
 
3,149

 
4.00%
 
4.00
%
 
April 15, 2017
4
 
45,751

 
3.75%–4.00%
 
3.92
%
 
November 15, 2017 – May 15, 2018
5
 
212,915

 
4.25%–5.00%
 
4.91
%
 
July 15, 2018 – August 15, 2019
5.5
 
3,820

 
5.00%
 
5.00
%
 
February 15, 2019
6.5
 
1,800

 
5.50%
 
5.50
%
 
February 15, 2020
7
 
256,903

 
4.00%–6.55%
 
5.39
%
 
June 15, 2019 – May 15, 2021
7.5
 
1,996

 
5.75%
 
5.75
%
 
February 15, 2021
10
 
41,952

 
3.23%–7.00%
 
6.18
%
 
March 15, 2022 – May 15, 2024
12
 
2,978

 
6.00%
 
6.00
%
 
November 15, 2025 – December 15, 2025
15
 
17,465

 
5.00%–6.00%
 
5.14
%
 
May 15, 2028 – November 15, 2028
18
 
25,435

 
4.125%–6.25%
 
5.49
%
 
December 15, 2030 – August 15, 2031
20
 
5,847

 
5.625%–6.00%
 
5.85
%
 
November 15, 2032 – October 15, 2033
25
 
34,886

 
6.25%–6.50%
 
6.39
%
 
August 15, 2038 – May 15, 2039
30
 
125,063

 
5.50%–6.75%
 
6.22
%
 
November 15, 2042 – October 15, 2043
 
 
$
785,670

 
 
 
 
 
 
In connection with the issuance of the Prospect Capital InterNotes®, we incurred $20,259 of fees which are being amortized over the term of the notes, of which $18,616 remains to be amortized and is included within deferred financing costs on the Consolidated Statements of Assets and Liabilities as of September 30, 2014.
During the three months ended September 30, 2014 and September 30, 2013, we recorded $10,856 and $6,044, respectively, of interest costs and amortization of financing costs on the Prospect Capital InterNotes® as interest expense.
Net Asset Value
During the three months ended September 30, 2014, we issued $59,735 of additional equity, net of underwriting and offering costs, by issuing 5,877,738 shares of our common stock. During the three months ended September 30, 2014, we sold 5,536,780 shares of our common stock at an average price of $10.22 per share, and raised $56,575 of gross proceeds, under our ATM Program. Net proceeds were $56,095 after commissions to the broker-dealer on shares sold and offering costs. On July 24, 2014, August 21, 2014 and September 18, 2014, we issued 98,503, 129,435 and 113,020 shares of our common stock in connection with the dividend reinvestment plan, respectively. The following table shows the calculation of net asset value per share as of September 30, 2014 and June 30, 2014.
 
 
September 30, 2014
 
June 30, 2014
Net assets
 
$
3,647,759

 
$
3,618,182

Shares of common stock issued and outstanding
 
348,504,375

 
342,626,637

Net asset value per share
 
$
10.47

 
$
10.56

Results of Operations
Net increase in net assets resulting from operations for the three months ended September 30, 2014 and September 30, 2013 was $84,108 and $79,900, respectively. During the three months ended September 30, 2014, the $4,208 increase is due to a $12,126 increase in net investment income driven by a larger asset producing portfolio partially offset by an increase in interest expense due to additional debt financing. This increase is partially offset by a $7.918 unfavorable increase in net realized and unrealized gains and losses on investments. (See "Net Realized (Loss) Gain" and "Net Changes in Unrealized Appreciation (Depreciation)" for further discussion.)

121

Net increase in net assets resulting from operations for the three months ended September 30, 2014 and September 30, 2013 was $0.24 and $0.31 per weighted average share, respectively. During the three months ended September 30, 2014, the decrease is primarily due to a $0.03 per weighted average share decrease in dividend income received from our investment in Airmall and a $0.03 per weighted average share unfavorable increase in net realized and unrealized gains and losses on investments. (See "Net Realized (Loss) Gain" and "Net Changes in Unrealized Appreciation (Depreciation)" for further discussion.)
While we seek to maximize gains and minimize losses, our investments in portfolio companies can expose our capital to risks greater than those we may anticipate. These companies are typically not issuing securities rated investment grade, have limited resources, have limited operating history, have concentrated product lines or customers, are generally private companies with limited operating information available and are likely to depend on a small core of management talents. Changes in any of these factors can have a significant impact on the value of the portfolio company.
Investment Income
We generate revenue in the form of interest income on the debt securities that we own, dividend income on any common or preferred stock that we own, and fees generated from the structuring of new deals. Our investments, if in the form of debt securities, will typically have a term of one to ten years and bear interest at a fixed or floating rate. To the extent achievable, we will seek to collateralize our investments by obtaining security interests in our portfolio companies’ assets. We also may acquire minority or majority equity interests in our portfolio companies, which may pay cash or in-kind dividends on a recurring or otherwise negotiated basis. In addition, we may generate revenue in other forms including prepayment penalties and possibly consulting fees. Any such fees generated in connection with our investments are recognized as earned.
Investment income, which consists of interest income, including accretion of loan origination fees and prepayment penalty fees, dividend income and other income, including settlement of net profits interests, overriding royalty interests and structuring fees, was $202,021 and $161,034 for the three months ended September 30, 2014 and September 30, 2013, respectively. During the three months ended September 30, 2014, the increase in investment income is primarily the result of a larger income producing portfolio.
The following table describes the various components of investment income and the related levels of debt investments:
 
 
Three Months Ended September 30,
 
 
2014
 
2013
Interest income
 
$
184,140

 
$
138,421

Dividend income
 
2,225

 
7,089

Other income
 
15,656

 
15,524

Total investment income
 
$
202,021


$
161,034

 
 
 
 
 
Average debt principal of performing investments
 
$
5,998,511

 
$
4,179,192

Weighted average interest rate earned on performing assets
 
12.01
%
 
12.96
%
Average interest income producing assets have increased from $4,179,192 for the three months ended September 30, 2013 to $5,998,511 for the three months ended September 30, 2014. The average earned on interest bearing performing assets decreased from 13.0% for the three months ended September 30, 2013 to 12.6% for the year ended June 30, 2014 to 12.0% for the three months ended September 30, 2014. The decrease in returns during the comparable period is primarily due to originations at lower rates than our average existing portfolio yield.
Investment income is also generated from dividends and other income. Dividend income decreased from $7,089 for the three months ended September 30, 2013 to $2,225 for the three months ended September 30, 2014. The decrease in dividend income is primarily attributed to a $7,000 decrease in the level of dividends received from our investment in Airmall. We received dividends of $7,000 from Airmall during the three months ended September 30, 2013. No such dividends were received during the three months ended September 30, 2014 related to our investment in Airmall. The decrease in dividend income was partially offset by dividends of $1,430 and $671 received from our investments in Biotronic and Nationwide, respectively, during the three months ended September 30, 2014. The dividends received from Biotronic and Nationwide include distributions as part of follow-on financings in August and September 2014, as discussed above. No dividends were received from Biotronic or Nationwide during the three months ended September 30, 2013.

122

Other income has come primarily from structuring fees, royalty interests, and settlement of net profits interests. Income from other sources increased from $15,524 for the three months ended September 30, 2013 to $15,656 for the three months ended September 30, 2014. The slight increase is primarily due to a $5,498 increase in structuring fees. These fees are primarily generated from originations and will fluctuate as levels of originations fluctuate. During the three months ended September 30, 2014 and September 30, 2013, we recognized structuring fees of $14,158 and $8,660, respectively, from new originations, restructurings and follow-on investments. Included within the $14,158 of structuring fees recognized during the three months ended September 30, 2014 is a $3,000 fee from Airmall related to the sale of the operating company for which a fee was received in August 2014. The remaining $11,158 of structuring fees recognized during the three months ended September 30, 2014 resulted from follow-on investments and new originations, primarily from our investments in Pacific World, Trinity and UPRC, as discussed above. The increase in other income was partially offset by a decrease in miscellaneous income due to the receipt of $5,000 of legal cost reimbursement from a litigation settlement during the three months ended September 30, 2013 which had been expensed in prior years. No such income was received during the three months ended September 30, 2014.
Operating Expenses
Our primary operating expenses consist of investment advisory fees (base management and income incentive fees), borrowing costs, legal and professional fees and other operating and overhead-related expenses. These expenses include our allocable portion of overhead under the Administration Agreement with Prospect Administration under which Prospect Administration provides administrative services and facilities for us. Our investment advisory fees compensate Prospect Capital Management (the “Investment Adviser”) for its work in identifying, evaluating, negotiating, closing and monitoring our investments. We bear all other costs and expenses of our operations and transactions. Operating expenses were $107,558 and $78,697 for the three months ended September 30, 2014 and September 30, 2013, respectively.
The base management fee was $33,165 and $23,045 for the three months ended September 30, 2014 and September 30, 2013, respectively. The increase is directly related to our growth in total assets. For the three months ended September 30, 2014 and September 30, 2013, we incurred $23,616 and $20,584 of income incentive fees, respectively. This increase was driven by a corresponding increase in pre-incentive fee net investment income from $102,921 for the three months ended September 30, 2013 to $118,079 for the three months ended September 30, 2014, primarily due to an increase in interest income from a larger asset base. No capital gains incentive fee has yet been incurred pursuant to the Investment Advisory Agreement.
During the three months ended September 30, 2014 and September 30, 2013, we incurred $42,914 and $27,407, respectively, of expenses related to our Revolving Credit Facility, Convertible Notes, Public Notes and Prospect Capital InterNotes® (collectively, our "Notes"). These expenses are related directly to the leveraging capacity put into place for each of those periods and the levels of indebtedness actually undertaken in those periods. The table below describes the various expenses of our Notes and the related indicators of leveraging capacity and indebtedness during these periods.
 
 
Three Months Ended September 30,
 
 
2014
 
2013
Interest on borrowings
 
$
37,010

 
$
23,524

Amortization of deferred financing costs
 
3,829

 
2,435

Accretion of discount on Public Notes
 
69

 
36

Facility commitment fees
 
2,006

 
1,412

Total interest and credit facility expenses
 
$
42,914

 
$
27,407

 
 
 
 
 
Average principal debt outstanding
 
$
2,731,720

 
$
1,615,894

Weighted average stated interest rate on borrowings(1)
 
5.30
%
 
5.70
%
Weighted average interest rate on borrowings(2)
 
5.85
%
 
6.29
%
Revolving Credit Facility amount at beginning of year
 
$
857,500

 
$
552,500

(1)
Includes only the stated interest expense.
(2)
Includes the stated interest expense, amortization of deferred financing costs, accretion of discount on Public Notes and commitment fees on the undrawn portion of our Revolving Credit Facility.

123

The increase in interest expense for the three months ended September 30, 2014 is primarily due to the issuance of additional Prospect Capital InterNotes® during the final three quarters of the prior fiscal year, the 5.00% 2019 Notes, and the 2020 Notes for which we incurred an incremental $13,842 of collective interest expense. The weighted average interest rate on borrowings (excluding amortization, accretion and undrawn facility fees) decreased from 5.70% for the three months ended September 30, 2013 to 5.30% for the three months ended September 30, 2014. This decrease is primarily due to issuances of debt at lower coupon rates. For example, the weighted average interest rate on our Prospect Capital InterNotes® decreased from 5.62% as of September 30, 2013 to 5.38% as of September 30, 2014.
The allocation of overhead expense from Prospect Administration was $2,416 and $3,986 for the three months ended September 30, 2014 and September 30, 2013, respectively. During the three months ended September 30, 2014 and September 30, 2013, Prospect Administration received payments of $1,055 and $1,078, respectively, directly from our portfolio companies for legal, tax and portfolio level accounting services. We were given a credit for these payments as a reduction of the administrative services cost payable by us to Prospect Administration. Had Prospect Administration not received these payments, Prospect Administration's charges for its administrative services would have increased by these amounts.
Excise tax decreased from an expense of $1,000 for the three months ended September 30, 2013 to zero for the three months ended September 30, 2014. As of June 30, 2013, we accrued $5,000 as an estimate of the excise tax due for continuing to retain a portion of our annual taxable income for the calendar year ended December 31, 2013. We previously paid $4,500 for the undistributed ordinary income retained at December 31, 2012. During the year ended June 30, 2014, we amended our excise tax returns resulting in the $4,200 reversal of previously recognized expense and we recorded a $2,200 prepaid asset for the amount our $4,500 excise tax payment exceeded the excise tax liability estimated through June 30, 2014. There was no excise tax expense for the three months ended September 30, 2014.
Total operating expenses, net of investment advisory fees, interest and credit facility expenses, allocation of overhead from Prospect Administration and excise tax (“Other Operating Expenses”) were $5,447 and $2,675 for the three months ended September 30, 2014 and September 30, 2013, respectively. The increase of $2,772 during the three months ended September 30, 2014 is primarily due to an increase in our legal fees related to the discussions with the SEC regarding consolidation.
Net Investment Income
Net investment income was $94,463 and $82,337 for the three months ended September 30, 2014 and September 30, 2013, respectively ($0.28 and $0.32 per weighted average share, respectively). The $12,126 increase during the three months ended September 30, 2014 is primarily the result of a $40,987 increase in investment income partially offset by a $28,861 increase in operating expenses. The $0.04 per weighted average share decrease in net investment income for the three months ended September 30, 2014 is primarily due to a $0.01 per weighted average share decrease in other income primarily due to legal costs recovered during the three months ended September 30, 2013 and, to a lesser extent, a decrease in dividend income due to a decline in the level of dividends received from our investment in Airmall. (Refer to "Investment Income" and "Operating Expenses" above for further discussion.)
Net Realized (Loss) Gain
Net realized (loss) gain was $(22,911) and $3,789 for the three months ended September 30, 2014 and September 30, 2013, respectively. The net realized loss during the three months ended September 30, 2014 was primarily due to the sale of our investments in Airmall, Borga and BXC for which we recognized total realized losses of $23,011, as discussed above. During the three months ended September 30, 2014, we determined that the impairment of Appalachian Energy LLC ("AEH") was other-than-temporary and recorded a realized loss of $2,042 for the amount that the amortized cost exceeded the fair value. These losses were partially offset by net realized gains from the proceeds collected on warrants redeemed from Snacks Parent Corporation, litigation settlements and the release of escrowed amounts due to us from several portfolio companies for which we recognized total realized gains of of $2,142.
Net Change in Unrealized Appreciation (Depreciation)
Net change in unrealized appreciation (depreciation) was $12,556 and $(6,226) for the three months ended September 30, 2014 and September 30, 2013, respectively. The variability in results is primarily due to the valuation of equity positions in our portfolio susceptible to significant changes in value, both increases as well as decreases, due to operating results. For the three months ended September 30, 2014, the $12,556 net change in unrealized appreciation was driven by the sale of our investments in Airmall, Borga and BXC for which we eliminated the unrealized depreciation balances related to these investments. We also experienced significant write-ups in our investments in Ajax, Harbortouch, MITY and NPRC. These instances of unrealized appreciation were partially offset by unrealized depreciation related to APRC, Echelon, Gulf Coast, Valley Electric and our CLO equity investments.

124

Financial Condition, Liquidity and Capital Resources
For the three months ended September 30, 2014 and September 30, 2013, our operating activities used $97,411 and $236,715 of cash, respectively. There were no investing activities for the three months ended September 30, 2014 and September 30, 2013. Financing activities provided $256,470 and $195,873 of cash during the three months ended September 30, 2014 and September 30, 2013, respectively, which included dividend payments of $109,951 and $80,064, respectively.
Our primary uses of funds have been to continue to invest in portfolio companies, through both debt and equity investments, repay outstanding borrowings and to make cash distributions to holders of our common stock.
Our primary sources of funds have been issuances of debt and equity. We have and may continue to fund a portion of our cash needs through borrowings from banks, issuances of senior securities or secondary offerings. We may also securitize a portion of our investments in unsecured or senior secured loans or other assets. Our objective is to put in place such borrowings in order to enable us to expand our portfolio. During the three months ended September 30, 2014, we borrowed $547,000 and made repayments totaling $228,000 under our Revolving Credit Facility. As of September 30, 2014, we had $411,000 outstanding on our Revolving Credit Facility, $1,247,500 outstanding on our Convertible Notes, Public Notes with a carrying value of $647,950 and $784,305 outstanding on our Prospect Capital InterNotes®. (See "Capitalization" above.)
Undrawn committed revolvers and delayed draw term loans to our portfolio companies incur commitment and unused fees ranging from 0.00% to 2.00%. As of September 30, 2014 and June 30, 2014, we had $202,963 and $143,597, respectively, of undrawn revolver and delayed draw term loan commitments to our portfolio companies.
Our Board of Directors, pursuant to the Maryland General Corporation Law, executed Articles of Amendment to increase the number of shares authorized for issuance from 500,000,000 to 1,000,000,000 in the aggregate. The amendment became effective May 6, 2014.
On October 15, 2013, our Registration Statement on Form N-2 was declared effective by the SEC. Under this Shelf Registration Statement, we can issue up to $3,635,217 of additional debt and equity securities in the public market as of September 30, 2014.  See "Recent Developments" for updates to our Registration Statement subsequent to September 30, 2014.
We also continue to generate liquidity through public and private stock offerings.
On August 29, 2014, we entered into an ATM Program with BB&T Capital Markets, Goldman Sachs, KeyBanc Capital Markets, and RBC Capital Markets through which we could sell, by means of at-the-market offerings from time to time, up to 50,000,000 shares of our common stock. During the period from September 8, 2014 through September 25, 2014 (with settlement dates of September 11, 2014 to September 30, 2014), we sold 5,536,780 shares of our common stock at an average price of $10.22 per share, and raised $56,575 of gross proceeds, under the ATM Program. Net proceeds were $56,095 after commissions to the broker-dealer on shares sold and offering costs. See "Recent Developments" for issuances under the ATM Program subsequent to September 30, 2014.
Off-Balance Sheet Arrangements
As of September 30, 2014, we did not have any off-balance sheet liabilities or other contractual obligations that are reasonably likely to have a current or future material effect on our financial condition, other than those which originate from 1) the investment advisory and management agreement and the administration agreement and 2) the portfolio companies.
Recent Developments
During the period from September 26, 2014 through October 29, 2014 (with settlement dates of October 1, 2014 to November 3, 2014), we sold 3,954,195 shares of our common stock at an average price of $9.76 per share, and raised $38,574 of gross proceeds, under the ATM Program. Net proceeds were $38,377 after commissions to the broker-dealer on shares sold and offering costs.
On October 3, 2014, we sold our $35,000 investment in Babson CLO Ltd. 2011-I and realized a loss on the sale.
On October 6, 2014, we made a $35,221 follow-on investment in Onyx Payments to fund an acquisition.
On October 7, 2014, Grocery Outlet, Inc. repaid the $14,457 loan receivable to us.
On October 8, 2014, we made a $65,000 secured debt investment in Capstone Logistics, LLC, a logistics services portfolio company.

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On October 9, 2014, we made an investment of $50,743 to purchase 83.60% of the subordinated notes in Babson CLO Ltd. 2014-III in a co-investment transaction with Priority Income Fund, Inc.
On October 10, 2014, Ajax Rolled Ring & Machine, LLC repaid the $19,337 loan receivable to us.
On October 17, 2014, we made an investment of $48,994 to purchase 90.54% of the subordinated notes in Symphony CLO XV, Ltd.
On October 20, 2014, we sold our $22,000 investment in Galaxy XII CLO, Ltd. and realized a loss on the sale.
On October 21, 2014, we made a $22,500 secured debt investment in Hollander Sleep Products, a manufacturer of bed pillows and mattress pads in the United States.
On October 22, 2014, we issued 138,721 shares of our common stock in connection with the dividend reinvestment plan.
On November 4, 2014, our Registration Statement on Form N-2 was declared effective by the SEC. Under this Shelf Registration Statement, we can issue up to $5,000,000 of additional debt and equity securities in the public market.
In addition to the transactions noted above, during the period from October 1, 2014 through November 6, 2014, we made seven follow-on investments in NPRC totaling $55,000 to support the online lending initiative. We invested $8,250 of equity through NPH and $46,750 of debt directly to NPRC. In addition, during this period, we received a partial repayment of $10,965 of the NPRC loan previously outstanding and $1,935 as a return of capital on the equity investment in NPRC.
Critical Accounting Policies and Estimates
Basis of Presentation and Consolidation
The accompanying consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (“GAAP”) pursuant to the requirements for reporting on Form 10-Q, ASC 946, Financial Services—Investment Companies (“ASC 946”), and Articles 6 and 10 of Regulation S-X. Under the 1940 Act, ASC 946, and the regulations pursuant to Article 6 of Regulation S-X, we are precluded from consolidating any entity other than another investment company or an operating company which provides substantially all of its services to benefit us. Our consolidated financial statements include the accounts of Prospect, PCF, PSBL, and the Consolidated Holding Companies. All intercompany balances and transactions have been eliminated in consolidation. The financial results of our non-substantially wholly-owned holding companies and operating portfolio company investments are not consolidated in the financial statements. Any operating companies owned by the Consolidated Holding Companies are not consolidated.
Use of Estimates
The preparation of the consolidated financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of income, expenses, and gains and losses during the reported period. Changes in the economic environment, financial markets, creditworthiness of our portfolio companies and any other parameters used in determining these estimates could cause actual results to differ, and these differences could be material.
Cash and Cash Equivalents
Cash and cash equivalents include funds deposited with financial institutions and short-term, highly-liquid overnight investments in money market funds. Cash and cash equivalents are carried at cost which approximates fair value.
Investment Classification
We are a non-diversified company within the meaning of the 1940 Act. As required by the 1940 Act, we classify our investments by level of control. As defined in the 1940 Act, "Control Investments" are those where there is the ability or power to exercise a controlling influence over the management or policies of a company. Control is generally deemed to exist when a company or individual possesses or has the right to acquire within 60 days or less, a beneficial ownership of 25% or more of the voting securities of an investee company. Under the 1940 Act, "Affiliate Investments" are defined by a lesser degree of influence and are deemed to exist through the possession outright or via the right to acquire within 60 days or less, beneficial ownership of 5% or more of the outstanding voting securities of another person. "Non-Control/Non-Affiliate Investments" are those that are neither Control Investments nor Affiliate Investments.

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Investments are recognized when we assume an obligation to acquire a financial instrument and assume the risks for gains or losses related to that instrument. Investments are derecognized when we assume an obligation to sell a financial instrument and forego the risks for gains or losses related to that instrument. Specifically, we record all security transactions on a trade date basis. Amounts for investments recognized or derecognized but not yet settled are reported as receivables for investments sold and payables for investments purchased, respectively, in the Consolidated Statements of Assets and Liabilities.
Investment Risks
Our investments are subject to a variety of risks. Those risks include the following:
Market Risk
Market risk represents the potential loss that can be caused by a change in the fair value of the financial instrument.
Credit Risk
Credit risk represents the risk that we would incur if the counterparties failed to perform pursuant to the terms of their agreements with us.
Liquidity Risk
Liquidity risk represents the possibility that we may not be able to rapidly adjust the size of our investment positions in times of high volatility and financial stress at a reasonable price.
Interest Rate Risk
Interest rate risk represents a change in interest rates, which could result in an adverse change in the fair value of an interest-bearing financial instrument.
Prepayment Risk
Many of our debt investments allow for prepayment of principal without penalty. Downward changes in interest rates may cause prepayments to occur at a faster than expected rate, thereby effectively shortening the maturity of the security and making the security less likely to be an income producing instrument.
Investment Valuation
To value our investments, we follow the guidance of ASC 820, Fair Value Measurement ("ASC 820"), that defines fair value, establishes a framework for measuring fair value in conformity with GAAP, and requires disclosures about fair value measurements. In accordance with ASC 820, the fair value of our investments is defined as the price that we would receive upon selling an investment in an orderly transaction to an independent buyer in the principal or most advantageous market in which that investment is transacted.
ASC 820 classifies the inputs used to measure these fair values into the following hierarchy:
Level 1: Quoted prices in active markets for identical assets or liabilities, accessible by us at the measurement date.
Level 2: Quoted prices for similar assets or liabilities in active markets, or quoted prices for identical or similar assets or liabilities in markets that are not active, or other observable inputs other than quoted prices.
Level 3: Unobservable inputs for the asset or liability.
In all cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to each investment.
Our Board of Directors has established procedures for the valuation of our investment portfolio. These procedures are detailed below.
Investments for which market quotations are readily available are valued at such market quotations.

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For most of our investments, market quotations are not available. With respect to investments for which market quotations are not readily available or when such market quotations are deemed not to represent fair value, our Board of Directors has approved a multi-step valuation process each quarter, as described below.
1.
Each portfolio company or investment is reviewed by our investment professionals with independent valuation firms engaged by our Board of Directors.
2.
The independent valuation firms conduct independent valuations and make their own independent assessments.
3.
The Audit Committee of our Board of Directors reviews and discusses the preliminary valuation of Prospect Capital Management LLC (the “Investment Adviser”) and that of the independent valuation firms.
4.
The Board of Directors discusses valuations and determines the fair value of each investment in our portfolio in good faith based on the input of the Investment Adviser, the respective independent valuation firm and the Audit Committee.
Investments are valued utilizing a yield analysis, enterprise value (“EV”) analysis, net asset value analysis, liquidation analysis, discounted cash flow analysis, or a combination of methods, as appropriate. The yield analysis uses loan spreads and other relevant information implied by market data involving identical or comparable assets or liabilities. Under the EV analysis, the EV of a portfolio company is first determined and allocated over the portfolio company’s securities in order of their preference relative to one another (i.e., “waterfall” allocation). To determine the EV, we typically use a market multiples approach that considers relevant and applicable market trading data of guideline public companies, transaction metrics from precedent M&A transactions and/or a discounted cash flow analysis. The net asset value analysis is used to derive a value of an underlying investment (such as real estate property) by dividing a relevant earnings stream by an appropriate capitalization rate. For this purpose, we consider capitalization rates for similar properties as may be obtained from guideline public companies and/or relevant transactions. The liquidation analysis is intended to approximate the net recovery value of an investment based on, among other things, assumptions regarding liquidation proceeds based on a hypothetical liquidation of a portfolio company’s assets. The discounted cash flow analysis uses valuation techniques to convert future cash flows or earnings to a range of fair values from which a single estimate may be derived utilizing an appropriate discount rate. The measurement is based on the net present value indicated by current market expectations about those future amounts.
In applying these methodologies, additional factors that we consider in fair value pricing our investments may include, as we deem relevant: security covenants, call protection provisions, and information rights; the nature and realizable value of any collateral; the portfolio company’s ability to make payments; the principal markets in which the portfolio company does business; publicly available financial ratios of peer companies; the principal market; and enterprise values, among other factors.
Our investments in CLOs are classified as ASC 820 Level 3 securities and are valued using a discounted cash flow model. The valuations have been accomplished through the analysis of the CLO deal structures to identify the risk exposures from the modeling point of view. For each CLO security, the most appropriate valuation approach has been chosen from alternative approaches to ensure the most accurate valuation for such security. To value a CLO, both the assets and the liabilities of the CLO capital structure are modeled. We use a waterfall engine to store the collateral data, generate collateral cash flows from the assets based on various assumptions for the risk factors, distribute the cash flows to the liability structure based on the payment priorities, and discount them back using current market discount rates. The main risk factors are: default risk, interest rate risk, downgrade risk, and credit spread risk.
Valuation of Other Financial Assets and Financial Liabilities
ASC 825, Financial Instruments, specifically ASC 825-10-25, permits an entity to choose, at specified election dates, to measure eligible items at fair value (the "Fair Value Option"). We have not elected the Fair Value Option to report selected financial assets and financial liabilities. See Note 8 for further discussion of our financial liabilities that are measured using another measurement attribute.
Convertible Notes
We have recorded the Convertible Notes at their contractual amounts. The Convertible Notes were analyzed for any features that would require bifurcation and such features were determined to be immaterial. See Note 5 for further discussion.

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Revenue Recognition
Realized gains or losses on the sale of investments are calculated using the specific identification method.
Interest income, adjusted for amortization of premium and accretion of discount, is recorded on an accrual basis. Origination, closing and/or commitment fees associated with investments in portfolio companies are accreted into interest income over the respective terms of the applicable loans. Accretion of such purchase discounts or amortization of premiums is calculated by the effective interest method as of the purchase date and adjusted only for material amendments or prepayments. Upon the prepayment of a loan or debt security, any prepayment penalties and unamortized loan origination, closing and commitment fees are recorded as interest income. The purchase discount for portfolio investments acquired from Patriot Capital Funding, Inc. (“Patriot”) was determined based on the difference between par value and fair value as of December 2, 2009, and continued to accrete until maturity or repayment of the respective loans. As of March 31, 2014, the purchase discount for the assets acquired from Patriot had been fully accreted. See Note 3 for further discussion.
Loans are placed on non-accrual status when there is reasonable doubt that principal or interest will be collected. Unpaid accrued interest is generally reversed when a loan is placed on non-accrual status. Interest payments received on non-accrual loans may be recognized as income or applied to principal depending upon management’s judgment. Non-accrual loans are restored to accrual status when past due principal and interest is paid and in management’s judgment, are likely to remain current. As of September 30, 2014, less than 0.1% of our total assets are in non-accrual status.
Interest income from investments in the “equity” class of security of CLO funds (typically income notes or subordinated notes) is recorded based upon an estimation of an effective yield to expected maturity utilizing assumed cash flows in accordance with ASC 325-40, Beneficial Interests in Securitized Financial Assets. We monitor the expected cash inflows from our CLO equity investments, including the expected residual payments, and the effective yield is determined and updated periodically.
Dividend income is recorded on the ex-dividend date.
Structuring fees and similar fees are recognized as income as earned, usually when paid. Structuring fees, excess deal deposits, net profits interests and overriding royalty interests are included in other income. See Note 10 for further discussion.
Federal and State Income Taxes
We have elected to be treated as a regulated investment company and intend to continue to comply with the requirements of the Code applicable to regulated investment companies. We are required to distribute at least 90% of our investment company taxable income and intend to distribute (or retain through a deemed distribution) all of our investment company taxable income and net capital gain to stockholders; therefore, we have made no provision for income taxes. The character of income and gains that we will distribute is determined in accordance with income tax regulations that may differ from GAAP. Book and tax basis differences relating to stockholder dividends and distributions and other permanent book and tax differences are reclassified to paid-in capital.
If we do not distribute (or are not deemed to have distributed) at least 98% of our annual ordinary income and 98.2% of our capital gains in the calendar year earned, we will generally be required to pay an excise tax equal to 4% of the amount by which 98% of our annual ordinary income and 98.2% of our capital gains exceed the distributions from such taxable income for the year. To the extent that we determine that our estimated current year annual taxable income will be in excess of estimated current year dividend distributions from such taxable income, we accrue excise taxes, if any, on estimated excess taxable income. As of September 30, 2014, we had a deposit with the IRS for excise taxes as we have made estimated excise tax payments in excess of our expected excise tax liability for the calendar year ending December 31, 2014.
If we fail to satisfy the annual distribution requirement or otherwise fail to qualify as a RIC in any taxable year, we would be subject to tax on all of our taxable income at regular corporate rates. We would not be able to deduct distributions to stockholders, nor would we be required to make distributions. Distributions would generally be taxable to our individual and other non-corporate taxable stockholders as ordinary dividend income eligible for the reduced maximum rate applicable to qualified dividend income to the extent of our current and accumulated earnings and profits, provided certain holding period and other requirements are met. Subject to certain limitations under the Code, corporate distributions would be eligible for the dividends-received deduction. To qualify again to be taxed as a RIC in a subsequent year, we would be required to distribute to our shareholders our accumulated earnings and profits attributable to non-RIC years reduced by an interest charge of 50% of such earnings and profits payable by us as an additional tax. In addition, if we failed to qualify as a RIC for a period greater than two taxable years, then, in order to qualify as a RIC in a subsequent year, we would be required to elect to recognize and pay tax on any net built-in gain (the excess of aggregate gain, including items of income, over aggregate loss that would have been realized if we had been liquidated) or, alternatively, be subject to taxation on such built-in gain recognized for a period of ten years.

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We follow ASC 740, Income Taxes (“ASC 740”). ASC 740 provides guidance for how uncertain tax positions should be recognized, measured, presented, and disclosed in the consolidated financial statements. ASC 740 requires the evaluation of tax positions taken or expected to be taken in the course of preparing our tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold are recorded as a tax benefit or expense in the current year. As of September 30, 2014 and for the three months then ended, we did not have a liability for any unrecognized tax benefits, respectively. Management’s determinations regarding ASC 740 may be subject to review and adjustment at a later date based upon factors including, but not limited to, an on-going analysis of tax laws, regulations and interpretations thereof. Although we file both federal and state income tax returns, our major tax jurisdiction is federal. Our tax returns for each of our federal tax years since 2010 remain subject to examination by the Internal Revenue Service.
Dividends and Distributions
Dividends and distributions to common stockholders are recorded on the ex-dividend date. The amount, if any, to be paid as a monthly dividend or distribution is approved by our Board of Directors quarterly and is generally based upon our management’s estimate of our future earnings. Net realized capital gains, if any, are distributed at least annually.
Financing Costs
We record origination expenses related to our Revolving Credit Facility and Convertible Notes, Public Notes and Prospect Capital InterNotes® (collectively, our “Unsecured Notes”) as deferred financing costs. These expenses are deferred and amortized as part of interest expense using the straight-line method for our Revolving Credit Facility and the effective interest method for our Unsecured Notes over the respective expected life or maturity.
We record registration expenses related to shelf filings as prepaid assets. These expenses consist principally of SEC registration fees, legal fees and accounting fees incurred. These prepaid assets are charged to capital upon the receipt of proceeds from an equity offering or charged to expense if no offering is completed.
Guarantees and Indemnification Agreements
We follow ASC 460, Guarantees (“ASC 460”). ASC 460 elaborates on the disclosure requirements of a guarantor in its interim and annual consolidated financial statements about its obligations under certain guarantees that it has issued. It also requires a guarantor to recognize, at the inception of a guarantee, for those guarantees that are covered by ASC 460, the fair value of the obligation undertaken in issuing certain guarantees.
Per Share Information
Net increase or decrease in net assets resulting from operations per share is calculated using the weighted average number of common shares outstanding for the period presented. In accordance with ASC 946, convertible securities are not considered in the calculation of net asset value per share.
Recent Accounting Pronouncements
In August 2014, the FASB issued Accounting Standards Update 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (“ASU 2014-15”). ASU 2014-15 will explicitly require management to assess an entity’s ability to continue as a going concern, and to provide related footnote disclosure in certain circumstances. The new standard will be effective for all entities in the first annual period ending after December 15, 2016. Earlier adoption is permitted. The adoption of the amended guidance in ASU 2014-15 is not expected to have a significant effect on our consolidated financial statements and disclosures.

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Item 3. Quantitative and Qualitative Disclosures about Market Risk
We have no material changes to the disclosures on this matter made in our Annual Report on Form 10-K for the year ended June 30, 2014.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As of September 30, 2014, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the 1934 Act). Based on that evaluation, our management, including the Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures were effective and provided reasonable assurance that information required to be disclosed in our periodic SEC filings is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. However, in evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of such possible controls and procedures.
Changes in Internal Control Over Financial Reporting
There have been no changes in the Company’s internal control over financial reporting during the quarter ended September 30, 2014 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, we may become involved in various investigations, claims and legal proceedings that arise in the ordinary course of our business. These matters may relate to intellectual property, employment, tax, regulation, contract or other matters. The resolution of such of these matters as may arise will be subject to various uncertainties and, even if such claims are without merit, could result in the expenditure of significant financial and managerial resources. We are not aware of any such litigation as of September 30, 2014.
Item 1A. Risk Factors
In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year ended June 30, 2014, which could materially affect our business, financial condition or future results. The risks described in this report and in our Annual Report on Form 10-K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or future results.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
Not applicable.

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Item 6. Exhibits
The following exhibits are filed as part of this report or hereby incorporated by reference to exhibits previously filed with the SEC (according to the number assigned to them in Item 601 of Regulation S-K):
Exhibit No.
3.1
Articles of Amendment and Restatement, as amended(1)
3.2
Amended and Restated Bylaws(2)
10.1
Fifth Amended and Restated Loan and Servicing Agreement, dated August 29, 2014, among Prospect Capital Funding LLC, Prospect Capital Corporation, the lenders from time to time party thereto, the managing agents from time to time party thereto, KeyBank National Association and Royal Bank of Canada as Syndication Agents, U.S. Bank National Association as Calculation Agent, Paying Agent and Documentation Agent, KeyBank National Association as Facility Agent, and KeyBank National Association as Structuring Agent, Sole Lead Arranger and Sole Bookrunner(3)
10.2
Amended and Restated Custody Agreement, dated as of September 23, 2014, by and between the Registrant and U.S. Bank National Association(4)
11
Computation of Per Share Earnings (included in the notes to the financial statements contained in this report)
12
Computation of Ratios (included in the notes to the financial statements contained in this report)
31.1
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended*
31.2
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended*
32.1
Certification of Chief Executive Officer pursuant to Section 906 of The Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350)*
32.2
Certification of Chief Financial Officer pursuant to Section 906 of The Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350)*
*
Filed herewith.
(1)
Incorporated by reference from the Registrant's Form 8-K filed on May 9, 2014.
(2)
Incorporated by reference from the Registrant's Form 8-K filed on August 26, 2011.
(3)
Incorporated by reference to Exhibit 10.1 of the Registrant's Form 8-K filed on September 4, 2014.
(4)
Incorporated by reference from Pre-Effective Amendment No. 1 to the Registrant's Registration Statement, filed on October 14, 2014.


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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
PROSPECT CAPITAL CORPORATION
 
 
 
Date:
November 6, 2014
By:
/s/ JOHN F. BARRY III
 
 
 
John F. Barry III
 
 
 
Chairman of the Board and Chief Executive Officer
 
 
 
 
Date:
November 6, 2014
By:
/s/ BRIAN H. OSWALD
 
 
 
Brian H. Oswald
 
 
 
Chief Financial Officer


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