PROSPECT CAPITAL CORP - FORM 10-Q - February 10, 2020

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2019
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
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading symbols
Name of each exchange on which registered
Common Stock, $0.001 par value
PSEC
NASDAQ Global Select Market
6.25% Notes due 2024, par value $25
PBB
New York Stock Exchange
6.25% Notes due 2028, par value $25
PBY
New York Stock Exchange
6.875% Notes due 2029, par value $25
PBC
New York Stock Exchange
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 every Interactive Data File required to be submitted 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 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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ý
 
Accelerated filer o
Non-accelerated filer o
 
Smaller reporting company o
 
 
Emerging growth company o
 (Do not check if a smaller reporting company)
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o    No ý
As of February 7, 2020, there were 367,658,352 shares of the registrant’s common stock, $0.001 par value per share, outstanding.


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. We undertake 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 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, 2019, and those described from time to time in our future reports filed with the Securities and Exchange Commission.

The forward-looking statements contained in this report involve a number of risks and uncertainties, including statements concerning:

•
our future operating results;
•
our business prospects and the prospects of our portfolio companies;
•
the impact of investments that we expect to make;
•
our contractual arrangements and relationships with third parties;
•
the dependence of our future success on the general economy and its impact on the industries in which we invest;
•
the ability of our portfolio companies to achieve their objectives;
•
difficulty in obtaining financing or raising capital, especially in the current credit and equity environment;
•
the level and volatility of prevailing interest rates and credit spreads, magnified by the current turmoil in the credit markets;
•
adverse developments in the availability of desirable loan and investment opportunities whether they are due to competition, regulation or otherwise;
•
a compression of the yield on our investments and the cost of our liabilities, as well as the level of leverage available to us;
•
our regulatory structure and tax treatment, including our ability to operate as a business development company and a regulated investment company;
•
the adequacy of our cash resources and working capital;
•
the timing of cash flows, if any, from the operations of our portfolio companies;
•
the ability of the Investment Adviser to locate suitable investments for us and to monitor and administer our investments; and
•
authoritative generally accepted accounting principles or policy changes from such standard-setting bodies as the Financial Accounting Standards Board, the Securities and Exchange Commission, Internal Revenue Service, the NASDAQ Global Select Market, and other authorities that we are subject to, as well as their counterparts in any foreign jurisdictions where we might do business.


3

PART I
Item 1. Financial Statements
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES
(in thousands, except share and per share data)
 
December 31, 2019
 
June 30, 2019
 
 
 
(Unaudited)
 
(Audited)
Assets
 
 
 

Investments at fair value:
 

 
 

Control investments (amortized cost of $2,397,025 and $2,385,806, respectively)
$
2,412,260

 
$
2,475,924

Affiliate investments (amortized cost of $158,295 and $177,616, respectively)
87,623

 
76,682

Non-control/non-affiliate investments (amortized cost of $3,118,324 and $3,368,880, respectively)
2,768,662

 
3,100,947

Total investments at fair value (amortized cost of $5,673,644 and $5,932,302, respectively)
5,268,545

 
5,653,553

Cash
137,867

 
107,098

Receivables for:
 
 
 
Interest, net
11,872

 
26,504

Other
159

 
3,326

Deferred financing costs on Revolving Credit Facility (Note 4)
10,232

 
8,529

Due from broker
3,140

 
—

Prepaid expenses
478

 
1,053

Total Assets 
5,432,293

 
5,800,063

Liabilities 
 

 
 

Revolving Credit Facility (Notes 4 and 8)
92,000

 
167,000

Public Notes (less unamortized discount and debt issuance costs of $12,796 and $13,826,
  respectively) (Notes 6 and 8)
781,578

 
780,548

Convertible Notes (less unamortized debt issuance costs of $11,310 and $13,867, respectively) (Notes 5 and 8)
657,104

 
739,997

Prospect Capital InterNotes® (less unamortized debt issuance costs of $12,457 and $12,349,
respectively) (Notes 7 and 8)
609,952

 
695,350

Due to Prospect Capital Management (Note 13)
44,515

 
46,525

Interest payable
30,837

 
34,104

Dividends payable
22,055

 
22,028

Accrued expenses
6,213

 
5,414

Due to Prospect Administration (Note 13)
2,929

 
1,885

Other liabilities
1,245

 
937

Total Liabilities 
2,248,428

 
2,493,788

Commitments and Contingencies (Note 3)


 
 
Net Assets 
$
3,183,865

 
$
3,306,275

 
 
 
 
Components of Net Assets 
 

 
 

Common stock, par value $0.001 per share (1,000,000,000 common shares authorized; 367,584,244 and 367,131,025 issued and outstanding, respectively) (Note 9)
$
367

 
$
367

Paid-in capital in excess of par (Note 9)
4,042,785

 
4,039,872

Total distributable earnings (loss)
(859,287
)
 
(733,964
)
Net Assets 
$
3,183,865

 
$
3,306,275

Net Asset Value Per Share (Note 16) 
$
8.66

 
$
9.01


See notes to consolidated financial statements.
4

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

 
Three Months Ended December 31,
 
Six Months Ended December 31,
 
2019
 
2018
 
2019
 
2018
Investment Income
 
 
 
 
 
 
 
Interest income:
 
 
 
 
 
 
 
Control investments
$
49,602

 
$
53,674

 
$
100,468

 
$
110,128

Affiliate investments
2,463

 
174

 
2,702

 
401

Non-control/non-affiliate investments
59,152

 
68,679

 
121,102

 
137,288

Structured credit securities
29,442

 
35,467

 
62,343

 
69,619

Total interest income
140,659

 
157,994

 
286,615

 
317,436

Dividend income:
 
 
 
 
 
 
 
Control investments
3,268

 
13,000

 
7,068

 
27,665

Non-control/non-affiliate investments
241

 
266

 
695

 
528

Total dividend income
3,509

 
13,266

 
7,763

 
28,193

Other income:
 
 
 
 
 
 
 
Control investments
13,189

 
15,741

 
24,572

 
18,532

Non-control/non-affiliate investments
4,560

 
882

 
4,850

 
4,144

Total other income (Note 10)
17,749

 
16,623

 
29,422

 
22,676

Total Investment Income
161,917

 
187,883

 
323,800

 
368,305

Operating Expenses
 
 
 
 
 
 
 
Base management fee (Note 13)
27,543

 
33,187

 
56,006

 
63,144

Income incentive fee (Note 13)
16,971

 
20,203

 
34,736

 
41,493

Interest and credit facility expenses
37,059

 
40,656

 
75,957

 
78,564

Allocation of overhead from Prospect Administration (Note 13)
6,011

 
5,642

 
9,505

 
9,007

Audit, compliance and tax related fees
1,933

 
2,389

 
2,308

 
2,782

Directors’ fees
113

 
150

 
226

 
229

Other general and administrative expenses
4,402

 
4,845

 
6,117

 
7,116

Total Operating Expenses
94,032

 
107,072

 
184,855

 
202,335

Net Investment Income
67,885

 
80,811

 
138,945

 
165,970

Net Realized and Net Change in Unrealized Gains (Losses) from Investments
 
 
 
 
 
 
 
Net realized gains (losses)
 
 
 
 
 
 
 
Control investments
—

 
2,801

 
—

 
2,802

Non-control/non-affiliate investments
1,909

 
192

 
(289
)
 
1,232

Net realized gains (losses)
1,909

 
2,993

 
(289
)
 
4,034

Net change in unrealized (losses) gains
 
 
 
 
 
 
 
Control investments
(35,863
)
 
(85,733
)
 
(74,884
)
 
(33,815
)
Affiliate investments
12,242

 
(5,894
)
 
30,262

 
(19,649
)
Non-control/non-affiliate investments
(54,271
)
 
(59,069
)
 
(81,729
)
 
(96,183
)
Net change in unrealized (losses) gains
(77,892
)
 
(150,696
)
 
(126,351
)
 
(149,647
)
Net Realized and Net Change in Unrealized (Losses) Gains from Investments
(75,983
)
 
(147,703
)
 
(126,640
)
 
(145,613
)
Net realized losses on extinguishment of debt
(3,105
)
 
(497
)
 
(5,443
)
 
(3,951
)
Net (Decrease) Increase in Net Assets Resulting from Operations
$
(11,203
)
 
$
(67,389
)
 
$
6,862

 
$
16,406

Net (decrease) increase in net assets resulting from operations per share
$
(0.03
)
 
$
(0.18
)
 
$
0.02

 
$
0.04

Dividends declared per share
$
(0.18
)
 
$
(0.18
)
 
$
(0.36
)
 
$
(0.36
)

See notes to consolidated financial statements.
5

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

 
 
Common Stock
 
 
 
 
Six Months Ended December 31, 2018
 
Shares
 
Par
 
Paid-in capital in excess of par
 
Distributable earnings (loss)(1)
 
Total Net Assets
Balance as of June 30, 2018
 
364,409,938


$
364


$
4,021,541


$
(614,858
)

$
3,407,047

Net Decrease in Net Assets resulting from Operations:
 














Net investment income
 








165,970


165,970

Net realized gains
 








83


83

Net change in unrealized losses
 








(149,647
)

(149,647
)
Distributions to Shareholders
 












—

Distributions from earnings
 








(131,531
)

(131,531
)
Shares issued through reinvestment of dividends
 
1,646,028


2


11,251





11,253

Tax reclassifications of net assets (Note 12)
 






(31
)

31


—

Total increase (decrease) for the six months ended December 31, 2018
 
1,646,028


2


11,220


(115,094
)

(103,872
)
Balance as of December 31, 2018
 
366,055,966


$
366


$
4,032,761


$
(729,952
)

$
3,303,175


 
 
Common Stock
 
 
 
 
Six Months Ended December 31, 2019
 
Shares
 
Par
 
Paid-in capital in excess of par
 
Distributable earnings (loss)
 
Total Net Assets
Balance as of June 30, 2019

367,131,025


$
367


$
4,039,872


$
(733,964
)

$
3,306,275

Net Decrease in Net Assets resulting from Operations:















Net investment income









138,945


138,945

Net realized losses









(5,732
)

(5,732
)
Net change in unrealized losses









(126,351
)

(126,351
)
Distributions to Shareholders













—

Distributions from earnings









(132,263
)

(132,263
)
Shares issued through reinvestment of dividends

453,219


—


2,991





2,991

Tax reclassifications of net assets (Note 12)







(78
)

78


—

Total increase (decrease) for the six months ended December 31, 2019

453,219


—


2,913


(125,323
)

(122,410
)
Balance as of December 31, 2019

367,584,244


$
367


$
4,042,785


$
(859,287
)

$
3,183,865


(1) See Note 2. Significant Accounting Policies and Recent Accounting Updates.


See notes to consolidated financial statements.
6

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


 
 
Common Stock
 
 
 
 
Three Months Ended December 31, 2018
 
Shares
 
Par
 
Paid-in capital in excess of par
 
Distributable earnings (loss)(1)
 
Total Net Assets
Balance as of September 30, 2018
 
365,225,139

 
$
365

 
$
4,027,305

 
$
(596,726
)
 
$
3,430,944

Net Decrease in Net Assets resulting from Operations:
 
 
 
 
 
 
 
 
 
 
Net investment income
 
 
 
 
 
 
 
80,811

 
80,811

Net realized gains
 
 
 
 
 
 
 
2,496

 
2,496

Net change in unrealized losses
 
 
 
 
 
 
 
(150,696
)
 
(150,696
)
Distributions to Shareholders
 
 
 
 
 
 
 
 
 
—

Distributions from earnings
 
 
 
 
 
 
 
(65,837
)
 
(65,837
)
Shares issued through reinvestment of dividends
 
830,827

 
1

 
5,456

 
 
 
5,457

Total increase (decrease) for the three months ended December 31, 2018
 
830,827

 
1

 
5,456

 
(133,226
)
 
(127,769
)
Balance as of December 31, 2018
 
366,055,966

 
$
366

 
$
4,032,761

 
$
(729,952
)
 
$
3,303,175


 
 
Common Stock
 
 
 
 
Three Months Ended December 31, 2019
 
Shares
 
Par
 
Paid-in capital in excess of par
 
Distributable earnings (loss)
 
Total Net Assets
Balance as of September 30, 2019
 
367,363,872

 
$
367

 
$
4,041,338

 
$
(781,932
)
 
$
3,259,773

Net Decrease in Net Assets resulting from Operations:
 
 
 
 
 
 
 
 
 
 
Net investment income
 
 
 
 
 
 
 
67,885

 
67,885

Net realized losses
 
 
 
 
 
 
 
(1,196
)
 
(1,196
)
Net change in unrealized losses
 
 
 
 
 
 
 
(77,892
)
 
(77,892
)
Distributions to Shareholders
 
 
 
 
 
 
 
 
 
—

Distributions from earnings
 
 
 
 
 
 
 
(66,152
)
 
(66,152
)
Shares issued through reinvestment of dividends
 
220,372

 
—

 
1,447

 
 
 
1,447

Total increase (decrease) for the three months ended December 31, 2019
 
220,372

 
—

 
1,447

 
(77,355
)
 
(75,908
)
Balance as of December 31, 2019
 
367,584,244

 
$
367

 
$
4,042,785

 
$
(859,287
)
 
$
3,183,865



See notes to consolidated financial statements.
7

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

 
Six Months Ended December 31,
 
2019
 
2018
Operating Activities
 
 
 
Net increase in net assets resulting from operations
$
6,862

 
$
16,406

Net realized losses on extinguishment of debt
5,443

 
3,951

Net realized losses (gains) on investments
289

 
(4,034
)
Net change in net unrealized losses (gains) on investments
126,351

 
149,647

Amortization of discounts (accretion of premiums), net
2,858

 
(120
)
Accretion of discount on Public Notes (Note 6)
515

 
235

Amortization of deferred financing costs
4,110

 
6,343

Payment-in-kind interest
(21,175
)
 
(19,306
)
Structuring fees
(5,177
)
 
(3,434
)
Change in operating assets and liabilities:
 
 
 
Payments for purchases of investments
(344,587
)
 
(458,154
)
Proceeds from sale of investments and collection of investment principal
626,450

 
220,110

Decrease in due to broker
—

 
(6,159
)
(Decrease) increase in due to Prospect Capital Management
(2,010
)
 
2,256

Decrease in interest receivable, net
14,632

 
12,120

Decrease in interest payable
(3,267
)
 
(766
)
Increase in accrued expenses
799

 
79

(Increase) decrease in due from broker
(3,140
)
 
2,449

Increase (Decrease) in other liabilities
308

 
(144
)
Decrease in other receivables
3,167

 
1,630

Decrease in prepaid expenses
575

 
416

Increase (decrease) in due to Prospect Administration
1,044

 
(427
)
Net Cash Provided by (Used in) Operating Activities
414,047

 
(76,902
)
Financing Activities
 
 
 
Borrowings under Revolving Credit Facility (Note 4)
398,000

 
746,791

Principal payments under Revolving Credit Facility (Note 4)
(473,000
)
 
(486,791
)
Issuances of Public Notes, net of original issue discount (Note 6)
—

 
182,427

Redemptions of Public Notes (Note 6)
—

 
(153,536
)
Redemptions of Convertible Notes, net (Note 5)
(87,244
)
 
(13,433
)
Issuances of Prospect Capital InterNotes® (Note 7)
158,078

 
69,586

Redemptions of Prospect Capital InterNotes®, net (Note 7)
(243,368
)
 
(104,851
)
Financing costs paid and deferred
(6,497
)
 
(17,201
)
Dividends paid
(129,247
)
 
(120,180
)
Net Cash (Used in) Provided by Financing Activities
(383,278
)
 
102,812

Net Increase in Cash
30,769

 
25,910

Cash at beginning of period
107,098

 
83,758

Cash at End of Period
$
137,867

 
$
109,668

Supplemental Disclosures
 
 
 
Cash paid for interest
$
74,599

 
$
72,752

Purchases of investments settled net of proceeds from sale of investments
$
50,237

 
$
—

Non-Cash Financing Activities
 
 
 
Value of shares issued through reinvestment of dividends
$
2,991

 
$
11,253

Cost basis of investments written off as worthless
$
2,420

 
$
—


See notes to consolidated financial statements.
8

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS AS OF DECEMBER 31, 2019 (Unaudited)
(in thousands, except share data)






December 31, 2019 (Unaudited)
Portfolio Company
Industry
Investments(1)(44)
Acquisition Date(51)
Principal Value
Amortized Cost
Fair
Value(2)
% of Net Assets
 
 
 
 
 
 
 
 
Control Investments (greater than 25.00% voting control)(49)
 
 
 
 
 
 
 
 
 
 
 
 
 
CP Energy Services Inc.(20)
Energy Equipment & Services
Senior Secured Term Loan (12.95% (LIBOR + 11.00% with 1.00% LIBOR floor), due 12/29/2022)(11)
10/1/2017
$
35,048

$
35,048

$
35,048

1.1%
Senior Secured Term Loan A to Spartan Energy Services, Inc. (9.80% (LIBOR + 8.00% with 1.00% LIBOR floor), due 12/31/2022)(13)
10/20/2014
13,156

13,156

13,156

0.4%
Senior Secured Term Loan B to Spartan Energy Services, Inc. (15.80% PIK (LIBOR + 14.00% with 1.00% LIBOR floor), due 12/31/2022)(13)(46)
10/20/2014
23,361

23,361

20,801

0.7%
Series B Convertible Preferred Stock (16.00%, 790 shares)(16)
10/30/2015


63,225

32,716

1.0%
Common Stock (102,924 shares)(16)
8/2/2013


86,241

—

—%






221,031

101,721

3.2%
Credit Central Loan Company, LLC(21)
Consumer Finance
Subordinated Term Loan (10.00% plus 10.00% PIK, due 6/26/2024)(14)(46)
12/28/2012
56,862

53,696

56,862

1.8%
Class A Units (14,867,312 units)(14)(16)
12/28/2012


19,331

20,020

0.6%
Net Revenues Interest (25% of Net Revenues)(14)(16)
1/28/2015


—

—

—%






73,027

76,882

2.4%
Echelon Transportation, LLC
Aerospace & Defense
Senior Secured Term Loan (11.99% (LIBOR + 9.75% with 2.00% LIBOR floor) plus 2.25% PIK, due 3/31/2022)(13)(46)
3/31/2014
39,917

39,917

39,917

1.3%
Senior Secured Term Loan (11.24% (LIBOR + 9.00% with 2.00% LIBOR floor) plus 1.00% PIK, due 12/7/2024)(13)(46)
12/9/2016
19,198

19,198

19,198

0.6%
Membership Interest (100%)(16)
3/31/2014


22,738

31,950

1.0%






81,853

91,065

2.9%
First Tower Finance Company LLC(23)
Consumer Finance
Subordinated Term Loan to First Tower, LLC (10.00% plus 10.50% PIK, due 6/24/2024)(14)(46)
6/24/2014
277,987

277,987

277,987

8.7%
Class A Units (95,709,910 units)(14)(16)
6/14/2012


81,146

224,798

7.1%






359,133

502,785

15.8%
Freedom Marine Solutions, LLC(24)
Energy Equipment & Services
Membership Interest (100%)(16)
11/9/2006


43,892

14,920

0.5%






43,892

14,920

0.5%
InterDent, Inc.(29)
Health Care Providers & Services
Senior Secured Term Loan A/B (6.85% (LIBOR + 5.05% with 0.75% LIBOR floor), due 9/5/2020)(13)
8/1/2018
14,000

14,000

14,000

0.4%
Senior Secured Term Loan A (7.30% (LIBOR + 5.50% with 0.75% LIBOR floor), due 9/5/2020)(13)
8/3/2012
77,994

77,994

77,994

2.5%
Senior Secured Term Loan B (10.00% PIK, due 9/5/2020)(46)
8/3/2012
122,188

122,188

104,977

3.3%
Senior Secured Term Loan C (18.00% PIK, in non-accrual status effective 10/1/2018, due 9/5/2020)
3/22/2018
44,763

35,766

—

—%
Senior Secured Term Loan D (1.00% PIK, in non-accrual status effective 10/1/2018, due 9/5/2020)
9/19/2018
5,065

5,001

—

—%
Common Stock (99,900 shares)(16)
5/3/2019


1

—

—%






254,950

196,971

6.2%

See notes to consolidated financial statements.
9

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS AS OF DECEMBER 31, 2019 (Unaudited)
(in thousands, except share data)





December 31, 2019 (Unaudited)
Portfolio Company
Industry
Investments(1)(44)
Acquisition Date(51)
Principal Value
Amortized Cost
Fair
Value(2)
% of Net Assets
 
 
 
 
 
 
 
 
Control Investments (greater than 25.00% voting control)(49)
 
 
 
 
 
 
 
 
 
 
 
 
 
Kickapoo Ranch Pet Resort
Diversified Consumer Services
Membership Interest (100%)(16)
8/26/2019


$
2,378

$
4,361

0.1%






2,378

4,361

0.1%
MITY, Inc.(25)
Commercial Services & Supplies
Senior Secured Note A (10.00% (LIBOR + 7.00% with 3.00% LIBOR floor), due 6/30/2020)(3)(11)
9/19/2013
$
26,250

26,250

26,250

0.8%
Senior Secured Note B (10.00% (LIBOR + 7.00% with 3.00% LIBOR floor) plus 10.00% PIK, due 6/30/2020)(3)(11)(46)
9/19/2013
31,386

31,386

29,936

1.0%
Subordinated Unsecured Note to Broda Enterprises ULC (10.00%, due 1/1/2028)(14)
9/19/2013
5,683

6,627

—

—%
Common Stock (42,053 shares)(16)
9/19/2013


6,849

—

—%






71,112

56,186

1.8%
National Property REIT Corp.(26)
Equity Real Estate Investment Trusts (REITs) / Online Lending / Structured Finance
Senior Secured Term Loan A (6.50% (LIBOR + 3.50% with 3.00% LIBOR floor) plus 5.00% PIK, due 12/31/2023)(11)(46)
12/31/2018
433,553

433,553

433,553

13.6%
Senior Secured Term Loan B (5.00% (LIBOR + 2.00% with 3.00% LIBOR floor) plus 5.50% PIK, due 12/31/2023)(11)(46)
12/31/2018
79,000

79,000

79,000

2.5%
Senior Secured Term Loan C (15.00% (LIBOR + 12.00% with 3.00% LIBOR floor) plus 2.25% PIK, due 12/31/2023)(11)(46)
10/31/2019
51,428

51,428

51,428

1.6%
Residual Profit Interest(37)
12/31/2018


—

37,562

1.2%
Common Stock (3,203,927 shares)(52)
12/31/2013


176,693

425,345

13.4%






740,674

1,026,888

32.3%
Nationwide Loan Company LLC(27)
Consumer Finance
Senior Subordinated Term Loan to Nationwide Acceptance LLC (10.00% plus 10.00% PIK, due 6/18/2020)(14)(46)
6/18/2014
19,420

19,420

19,420

0.6%
Class A Units (32,456,159 units)(14)
1/31/2013


21,962

16,807

0.5%






41,382

36,227

1.1%
NMMB, Inc.(28)
Media
Senior Secured Note (10.50% (LIBOR + 8.50% with 2.00% LIBOR floor), due 12/30/2024)(11)
12/30/2019
15,100

15,100

15,100

0.5%
Common Stock (21,419 shares)(16)
12/30/2019
—

12,869

22,818

0.7%






27,969

37,918

1.2%
Pacific World Corporation(40)
Personal Products
Revolving Line of Credit – $26,000 Commitment (9.06% (LIBOR + 7.25% with 1.00% LIBOR floor), in non-accrual status effective 10/1/2019, due 9/26/2020)(13)(15)
9/26/2014
20,825

20,825

20,825

0.7%
Senior Secured Term Loan A (7.06% PIK (LIBOR + 5.25% with 1.00% LIBOR floor), in non-accrual status effective 10/24/2018, due 9/26/2020)(13)
12/31/2014
105,045

96,000

41,785

1.3%
Senior Secured Term Loan B (11.06% PIK (LIBOR + 9.25% with 1.00% LIBOR floor), in non-accrual status effective 5/21/2018, due 9/26/2020)(13)
12/31/2014
116,671

96,500

—

—%
Convertible Preferred Equity (227,330shares)(16)
6/15/2018


34,100

—

—%
Common Stock (6,778,414 shares)(16)
9/29/2017


—

—

—%






247,425

62,610

2.0%
R-V Industries, Inc.
Machinery
Senior Subordinated Note (10.95% (LIBOR + 9.00% with 1.00% LIBOR floor), due 3/31/2022)(3)(11)
6/12/2013
28,622

28,622

28,622

0.9%
Common Stock (745,107 shares)(16)
6/26/2007


6,866

7,881

0.2%






35,488

36,503

1.1%

See notes to consolidated financial statements.
10

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS AS OF DECEMBER 31, 2019 (Unaudited)
(in thousands, except share data)





December 31, 2019 (Unaudited)
Portfolio Company
Industry
Investments(1)(44)
Acquisition Date(51)
Principal Value
Amortized Cost
Fair
Value(2)
% of Net Assets
 
 
 
 
 
 
 
 
Control Investments (greater than 25.00% voting control)(49)
 
 
 
 
 
 
 
 
 
 
 
 
 
Universal Turbine Parts, LLC(34)
Trading Companies & Distributors
Delayed Draw Term Loan – $5,000 Commitment (10.25% (LIBOR + 7.75% with 2.50% LIBOR floor), due 7/22/2021)(13)(15)
2/28/2019
$
998

$
998

$
998

—%
Senior Secured Term Loan A (7.70% (LIBOR + 5.75% with 1.00% LIBOR floor), due 7/22/2021)(11)
7/22/2016
30,388

30,388

27,624

0.9%
Senior Secured Term Loan B (13.70% PIK (LIBOR + 11.75% with 1.00% LIBOR floor), in non-accrual status effective 7/1/2018, due 7/22/2021)(11)
7/22/2016
40,163

32,500

—

—%
Common Stock (10,000 units)(16)
12/10/2018


—

—

—%






63,886

28,622

0.9%
USES Corp.(30)
Commercial Services & Supplies
Senior Secured Term Loan A (9.00% PIK, in non-accrual status effective 4/1/2016, due 7/29/2022)
3/31/2014
42,013

30,651

16,101

0.5%
Senior Secured Term Loan B (15.50% PIK, in non-accrual status effective 4/1/2016, due 7/29/2022)
3/31/2014
61,318

35,568

—

—%
Common Stock (268,962 shares)(16)
6/15/2016


—

—

—%






66,219

16,101

0.5%
Valley Electric Company, Inc.(31)
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 12/31/2024)(3)(11)(46)
12/31/2012
10,430

10,430

10,430

0.3%
Senior Secured Note (8.00% plus 10.00% PIK, due 6/23/2024)(46)
6/24/2014
33,301

33,301

33,301

1.0%
Consolidated Revenue Interest (2.0%)(38)
6/22/2018


—

2,746

0.1%
Common Stock (50,000 shares)
12/31/2012


22,875

76,023

2.4%






66,606

122,500

3.8%
Total Control Investments
 
$
2,397,025

$
2,412,260

75.8%

 
 
 
 
December 31, 2019 (Unaudited)
Portfolio Company
Industry
Investments(1)(44)
Acquisition Date(51)
Principal Value
Amortized Cost
Fair
Value(2)
% of Net Assets
 
 
 
 
 
 
 
 
Affiliate Investments (5.00% to 24.99% voting control)(48)
 
 
 
 
 
 
 
 
 
 
 
 
 
Edmentum Ultimate Holdings, LLC(22)
Diversified Consumer Services
Second Lien Revolving Credit Facility to Edmentum, Inc. – $7,834 Commitment (5.00% PIK, due 12/9/2021)(15)(46)
6/9/2015
$
8,033

$
8,033

$
8,033

0.2%
Unsecured Senior PIK Note (8.50% PIK, due 12/9/2021)(46)
6/9/2015
8,548

8,548

8,548

0.3%
Unsecured Junior PIK Note (10.00% PIK, due 12/9/2021)(46)
6/9/2015
40,952

25,303

40,338

1.3%
Class A Units (370,964 units)(16)
6/9/2015
—

6,577

8,123

0.3%
 
 
 
 
 
48,461

65,042

2.1%
Nixon, Inc.(39)
Textiles, Apparel & Luxury Goods
Common Stock (857 units)(16)
5/12/2017
—

—

—

—%
 
 
 
 
 
—

—

—%
Targus Cayman HoldCo Limited(33)
Textiles, Apparel & Luxury Goods
Common Stock (7,383,395 shares)
2/12/2016
—

2,805

16,224

0.5%
 
 
 
 
 
2,805

16,224

0.5%
United Sporting Companies, Inc.(18)
Distributors
Second Lien Term Loan (12.80% (LIBOR + 11.00% with 1.75% LIBOR floor) plus 2.00% PIK, in non-accrual status effective 4/1/2017, due 11/16/2019)(13)
9/28/2012
147,991

107,029

6,357

0.2%
Common Stock (218,941 shares)(16)
5/2/2017
—

—

—

—%
 
 
 
 
 
107,029

6,357

0.2%
Total Affiliate Investments
 
$
158,295

$
87,623

2.8%

See notes to consolidated financial statements.
11

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS AS OF DECEMBER 31, 2019 (Unaudited)
(in thousands, except share data)





December 31, 2019 (Unaudited)
Portfolio Company
Industry
Investments(1)(44)
Acquisition Date(51)
Principal Value
Amortized Cost
Fair
Value(2)
% of Net Assets
 
 
 
 
 
 
 
 
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
 
 
 
 
 
 
 
 
 
 
 
 
 
8th Avenue Food & Provisions, Inc.
Food Products
Second Lien Term Loan (9.49% (LIBOR + 7.75%), due 10/1/2026)(3)(8)(13)
10/10/2018
$
25,000

$
24,841

$
24,841

0.8%





24,841

24,841

0.8%
ACE Cash Express, Inc.
Consumer Finance
Senior Secured Note (12.00%, due 12/15/2022)(8)(10)(14)
12/15/2017
30,000

28,563

25,491

0.8%





28,563

25,491

0.8%
Ahead Data Blue, LLC
IT Services
Second Lien Term Loan (10.30% (LIBOR + 8.50% with 1.50% LIBOR floor), due 11/8/2025)(13)
12/13/2019
70,000

70,000

70,000

2.2%





70,000

70,000

2.2%
AmeriLife Group, LLC
Insurance
Second Lien Term Loan (10.80% (LIBOR + 9.00%), due 6/11/2027)(3)(8)(13)
6/24/2019
10,000

10,000

10,000

0.3%





10,000

10,000

0.3%
Apidos CLO XI
Structured Finance
Subordinated Structured Note (Residual Interest, current yield 10.94%, due 10/17/2030)(5)(14)
1/17/2013
40,500

33,349

27,462

0.9%





33,349

27,462

0.9%
Apidos CLO XII
Structured Finance
Subordinated Structured Note (Residual Interest, current yield 15.64%, due 4/15/2031)(5)(14)
4/18/2013
52,203

37,154

30,457

1.0%





37,154

30,457

1.0%
Apidos CLO XV
Structured Finance
Subordinated Structured Note (Residual Interest, current yield 15.00%, due 4/21/2031)(5)(14)
10/16/2013
48,515

38,601

29,519

0.9%





38,601

29,519

0.9%
Apidos CLO XXII
Structured Finance
Subordinated Structured Note (Residual Interest, current yield 7.32%, due 10/20/2027)(5)(14)
10/14/2015
31,350

28,147

23,446

0.7%





28,147

23,446

0.7%
Ark-La-Tex Wireline Services, LLC
Energy Equipment & Services
Escrow Receivable
4/8/2014


—

—

—%





—

—

—%
Atlantis Health Care Group (Puerto Rico), Inc.
Health Care Providers & Services
Revolving Line of Credit – $6,000 Commitment (10.75% (LIBOR + 8.75% with 2.00% LIBOR floor), due 2/21/2020)(11)(15)
2/21/2013
2,000

2,000

2,000

0.1%
Senior Secured Term Loan (10.75% (LIBOR + 8.75% with 2.00% LIBOR floor), due 2/21/2020)(3)(11)
2/21/2013
73,919

73,919

73,919

2.3%





75,919

75,919

2.4%
Barings CLO 2018-III
Structured Finance
Subordinated Structured Note (Residual Interest, current yield 9.42%, due 7/20/2029)(5)(14)
11/18/2014
83,098

49,380

34,711

1.1%





49,380

34,711

1.1%
Broder Bros., Co.
Textiles, Apparel & Luxury Goods
Senior Secured Note (10.47% (LIBOR + 8.50% with 1.25% LIBOR floor), due 12/02/2022)(3)(11)
12/4/2017
172,844

172,844

172,844

5.4%





172,844

172,844

5.4%
Brookside Mill CLO Ltd.
Structured Finance
Subordinated Structured Note (Residual Interest, current yield 5.43%, due 1/17/2028)(5)(14)
5/23/2013
36,300

18,044

12,763

0.4%





18,044

12,763

0.4%
California Street CLO IX Ltd.
Structured Finance
Subordinated Structured Note (Residual Interest, current yield 10.64%, due 7/16/2032)(5)(14)
5/8/2012
58,915

41,473

31,743

1.0%





41,473

31,743

1.0%
Candle-Lite Company, LLC
Household Products
Senior Secured Term Loan A (7.42% (LIBOR + 5.50% with 1.25% LIBOR floor), due 1/23/2023)(3)(11)
1/23/2018
12,063

12,063

12,061

0.4%
Senior Secured Term Loan B (11.42% (LIBOR + 9.50% with 1.25% LIBOR floor), due 1/23/2023)(3)(11)
1/23/2018
12,500

12,500

12,500

0.4%






24,563

24,561

0.8%

See notes to consolidated financial statements.
12

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS AS OF DECEMBER 31, 2019 (Unaudited)
(in thousands, except share data)





December 31, 2019 (Unaudited)
Portfolio Company
Industry
Investments(1)(44)
Acquisition Date(51)
Principal Value
Amortized Cost
Fair
Value(2)
% of Net Assets
 
 
 
 
 
 
 
 
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
 
 
 
 
 
 
 
 
 
 
 
 
 
Capstone Logistics Acquisition, Inc.
Commercial Services & Supplies
Second Lien Term Loan (10.05% (LIBOR + 8.25% with 1.00% LIBOR floor), due 10/7/2022)(3)(8)(13)
10/7/2014
$
98,982

$
98,748

$
98,982

3.1%





98,748

98,982

3.1%
Carlyle C17 CLO Limited
Structured Finance
Subordinated Structured Note (Residual Interest, current yield 20.27%, due 4/30/2031)(5)(14)
2/21/2013
24,870

15,023

12,792

0.4%





15,023

12,792

0.4%
Carlyle Global Market Strategies CLO 2014-4-R, Ltd.
Structured Finance
Subordinated Structured Note (Residual Interest, current yield 21.30%, due 7/15/2030)(5)(14)
4/12/2017
25,534

17,750

17,577

0.5%






17,750

17,577

0.5%
Carlyle Global Market Strategies CLO 2016-3, Ltd.
Structured Finance
Subordinated Structured Note (Residual Interest, current yield 11.59%, due 10/20/2029)(5)(14)
9/13/2016
32,200

34,555

26,208

0.8%






34,555

26,208

0.8%
CCPI Inc.(19)
Electronic Equipment, Instruments & Components
Escrow Receivable
2/28/2019


—

2,307

0.1%






—

2,307

0.1%
CCS-CMGC Holdings, Inc.
Health Care Providers & Services
First Lien Term Loan (7.30% (LIBOR + 5.50%), due 10/1/2025)(3)(8)(13)
5/23/2019
6,033

5,945

5,945

0.2%
First Lien Term Loan (7.43% (LIBOR + 5.50%), due 10/1/2025)(3)(8)(11)
5/23/2019
3,639

3,586

3,586

0.1%
Second Lien Term Loan (10.93% (LIBOR + 9.00%), due 10/1/2026)(3)(8)(11)
10/12/2018
37,000

36,399

36,399

1.1%






45,930

45,930

1.4%
Cent CLO 21 Limited
Structured Finance
Subordinated Structured Note (Residual Interest, current yield 13.37%, due 7/27/2030)(5)(14)
6/18/2014
49,552

38,609

28,433

0.9%





38,609

28,433

0.9%
CIFC Funding 2013-III-R, Ltd.
Structured Finance
Subordinated Structured Note (Residual Interest, current yield 12.15%, due 4/24/2031)(5)(14)
9/12/2013
44,100

29,748

22,814

0.7%





29,748

22,814

0.7%
CIFC Funding 2013-IV, Ltd.
Structured Finance
Subordinated Structured Note (Residual Interest, current yield 14.09%, due 4/28/2031)(5)(14)
11/14/2013
45,500

32,707

28,641

0.9%





32,707

28,641

0.9%
CIFC Funding 2014-IV-R, Ltd.
Structured Finance
Subordinated Structured Note (Residual Interest, current yield 13.42%, due 10/17/2030)(5)(14)
9/3/2014
44,467

30,913

25,457

0.8%





30,913

25,457

0.8%
CIFC Funding 2016-I, Ltd.
Structured Finance
Subordinated Structured Note (Residual Interest, current yield 11.55%, due 10/21/2031)(5)(14)
12/21/2016
34,000

31,031

27,479

0.9%





31,031

27,479

0.9%
Cinedigm DC Holdings, LLC
Entertainment
Senior Secured Term Loan (11.00% (LIBOR + 9.00% with 2.00% LIBOR floor) plus 2.50% PIK, due 3/31/2021)(11)(46)
2/28/2013
12,559

12,509

12,559

0.4%






12,509

12,559

0.4%
Class Valuation, LLC
Real Estate Management & Development
Revolving Line of Credit – $1,500 Commitment (10.20% (LIBOR + 8.25% with 1.50% LIBOR floor), due 3/12/2020)(11)(15)
3/12/2018
—

—

—

—%
Senior Secured Term Loan (10.20% (LIBOR + 8.25% with 1.50% LIBOR floor), due 3/10/2023)(3)(11)
3/12/2018
38,432

38,432

38,432

1.2%






38,432

38,432

1.2%
Collections Acquisition Company, Inc.
Diversified Financial Services
Senior Secured Term Loan (10.15% (LIBOR + 7.65% with 2.50% LIBOR floor), due 6/3/2024)(3)(11)
12/3/2019
30,433

30,433

30,433

1.0%






30,433

30,433

1.0%

See notes to consolidated financial statements.
13

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS AS OF DECEMBER 31, 2019 (Unaudited)
(in thousands, except share data)





December 31, 2019 (Unaudited)
Portfolio Company
Industry
Investments(1)(44)
Acquisition Date(51)
Principal Value
Amortized Cost
Fair
Value(2)
% of Net Assets
 
 
 
 
 
 
 
 
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
 
 
 
 
 
 
 
 
 
 
 
 
 
Columbia Cent CLO 27 Limited
Structured Finance
Subordinated Structured Note (Residual Interest, current yield 17.36%, due 10/25/2028)(5)(14)
1/15/2014
$
40,275

$
22,646

$
24,635

0.8%






22,646

24,635

0.8%
Coverall North America, Inc.
Commercial Services & Supplies
Senior Secured Term Loan A (7.95% (LIBOR + 6.00% with 1.00% LIBOR floor), due 11/02/2020)(3)(11)
11/2/2015
5,100

5,100

5,100

0.2%
Senior Secured Term Loan B (12.95% (LIBOR + 11.00% with 1.00% LIBOR floor), due 11/02/2020)(3)(11)
11/2/2015
23,000

23,000

23,000

0.7%





28,100

28,100

0.9%
CP VI Bella Midco
IT Services
Second Lien Term Loan (8.55% (LIBOR + 6.75%), due 12/29/2025)(3)(8)(13)
2/26/2018
15,750

15,707

15,750

0.5%





15,707

15,750

0.5%
Digital Room, LLC
Commercial Services & Supplies
First Lien Term Loan (6.80% (LIBOR + 5.00%), due 5/21/2026)(3)(8)(13)
5/29/2019
9,950

9,819

9,819

0.3%
Second Lien Term Loan (10.80% (LIBOR + 9.00%), due 5/21/2027)(3)(8)(13)
5/30/2019
70,000

70,000

69,477

2.2%





79,819

79,296

2.5%
Dunn Paper, Inc.
Paper & Forest Products
First Lien Term Loan (6.55% (LIBOR + 4.75% with 1.00% LIBOR floor), due 8/26/2022)(8)(13)
11/27/2019
4,488

4,371

4,371

0.1%
Second Lien Term Loan (10.55% (LIBOR + 8.75% with 1.00% LIBOR floor), due 8/26/2023)(3)(8)(13)
10/7/2016
11,500

11,379

11,379

0.4%





15,750

15,750

0.5%
Easy Gardener Products, Inc.
Household Durables
Senior Secured Term Loan (11.95% (LIBOR + 10.00% with 0.25% LIBOR floor), in non-accrual status effective 10/1/2019, due 09/30/2020)(11)
10/2/2015
15,719

15,719

4,353

0.1%





15,719

4,353

0.1%
Engine Group, Inc.(7)
Media
Senior Secured Term Loan (6.94% (LIBOR + 5.00% with 1.00% LIBOR floor), due 9/15/2022)(8)(11)
9/25/2017
4,220

4,220

4,031

0.1%
Second Lien Term Loan (10.94% (LIBOR + 9.00% with 1.00% LIBOR floor), due 9/15/2023)(3)(8)(11)
9/25/2017
35,000

35,000

31,305

1.0%





39,220

35,336

1.1%
EXC Holdings III Corp
Technology Hardware, Storage & Peripherals
Second Lien Term Loan (9.59% (LIBOR + 7.50% with 1.00% LIBOR floor), due 12/01/2025)(3)(8)(11)
12/5/2017
12,500

12,408

12,408

0.4%





12,408

12,408

0.4%
Galaxy XV CLO, Ltd.
Structured Finance
Subordinated Structured Note (Residual Interest, current yield 9.86%, due 10/15/2030)(5)(14)
3/14/2013
50,525

35,944

25,468

0.8%





35,944

25,468

0.8%
Galaxy XXVII CLO, Ltd.
Structured Finance
Subordinated Structured Note (Residual Interest, current yield 8.24%, due 5/16/2031)(5)(14)
11/5/2013
24,575

16,516

11,463

0.4%





16,516

11,463

0.4%
Galaxy XXVIII CLO, Ltd.
Structured Finance
Subordinated Structured Note (Residual Interest, current yield 7.75%, due 7/15/2031)(5)(14)
6/27/2014
39,905

28,720

18,207

0.6%





28,720

18,207

0.6%
GEON Performance Solutions, LLC
Chemicals
Revolving Line of Credit – $3,621 Commitment (7.96% (LIBOR+6.25% with 1.63% LIBOR floor), due10/25/2024)(13)(15)
12/12/2019
—

—

—

—%
First Lien Term Loan (7.96% (LIBOR+6.25% with 1.63% LIBOR floor), due10/25/2024)(13)
12/12/2019
31,379

31,207

31,207

1.0%





31,207

31,207

1.0%

See notes to consolidated financial statements.
14

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS AS OF DECEMBER 31, 2019 (Unaudited)
(in thousands, except share data)





December 31, 2019 (Unaudited)
Portfolio Company
Industry
Investments(1)(44)
Acquisition Date(51)
Principal Value
Amortized Cost
Fair
Value(2)
% of Net Assets
 
 
 
 
 
 
 
 
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
 
 
 
 
 
 
 
 
 
 
 
 
 
Global Tel*Link Corporation
Diversified Telecommunication Services
First Lien Term Loan (6.05% (LIBOR + 4.25%), due 11/29/2025)(3)(8)(13)
8/20/2019
$
9,950

$
9,561

$
9,490

0.3%
Second Lien Term Loan (10.05% (LIBOR + 8.25%), due 11/29/2026)(3)(8)(13)
12/4/2018
40,170

39,334

38,674

1.2%





48,895

48,164

1.5%
GlobalTranz Enterprises, Inc.
Air Freight & Logistics
Second Lien Term Loan (10.04% (LIBOR + 8.25%), due 5/15/2027)(3)(8)(13)
5/15/2019
12,500

12,500

12,385

0.4%





12,500

12,385

0.4%
H.I.G. ECI Merger Sub, Inc.
IT Services
Senior Secured Term Loan A (7.45% (LIBOR + 5.50% with 1.50% LIBOR floor), due 5/31/2023)(3)(11)
5/31/2018
44,016

44,016

44,016

1.4%
Senior Secured Term Loan B (12.45% (LIBOR + 10.50% with 1.50% LIBOR floor), due 5/31/2023)(3)(11)
5/31/2018
29,900

29,900

29,900

0.9%





73,916

73,916

2.3%
Halcyon Loan Advisors Funding 2012-1 Ltd.
Structured Finance
Subordinated Structured Note (Residual Interest, current yield 0.00%, due 8/15/2023)(5)(14)(17)
8/15/2012
23,188

3,758

—

—%





3,758

—

—%
Halcyon Loan Advisors Funding 2013-1 Ltd.
Structured Finance
Subordinated Structured Note (Residual Interest, current yield 0.00%, due 4/15/2025)(5)(14)(17)
3/28/2013
40,400

19,984

1,347

—%





19,984

1,347

—%
Halcyon Loan Advisors Funding 2014-1 Ltd.
Structured Finance
Subordinated Structured Note (Residual Interest, current yield 0.00%, due 4/18/2026)(5)(14)(17)
3/6/2014
24,500

11,822

1,244

—%





11,822

1,244

—%
Halcyon Loan Advisors Funding 2014-2 Ltd.
Structured Finance
Subordinated Structured Note (Residual Interest, current yield 0.00%, due 4/28/2025)(5)(14)(17)
4/28/2014
41,164

21,322

—

—%





21,322

—

—%
Halcyon Loan Advisors Funding 2015-3 Ltd.
Structured Finance
Subordinated Structured Note (Residual Interest, current yield 5.48%, due 10/18/2027)(5)(14)
9/3/2015
39,598

30,617

23,126

0.7%





30,617

23,126

0.7%
Halyard MD OpCo, LLC
Media
Revolving Line of Credit – $2,000 Commitment (9.94% (LIBOR + 8.00%), due 2/6/2020)(11)(15)
8/6/2018
—

—

—

—%
First Lien Term Loan (10.00% (LIBOR + 8.00% with 2.00% LIBOR floor), due 8/6/2023)(3)(11)
8/6/2018
11,250

11,250

11,250

0.4%





11,250

11,250

0.4%
HarbourView CLO VII-R, Ltd.
Structured Finance
Subordinated Structured Note (Residual Interest, current yield 11.35%, due 7/18/2031)(5)(14)
6/10/2015
19,025

13,016

10,796

0.3%





13,016

10,796

0.3%
Help/Systems Holdings, Inc.
Software
First Lien Term Loan (6.55% (LIBOR + 4.75% with 1.00% LIBOR floor), due 11/19/2027)(3)(8)(13)
11/29/2019
8,500

8,416

8,416

0.3%
Second Lien Term Loan (9.80% (LIBOR + 8.00% with 1.00% LIBOR floor), due 11/19/2027)(3)(8)(13)
11/22/2019
17,500

17,157

17,157

0.5%





25,573

25,573

0.8%
Inpatient Care Management Company, LLC
Health Care Providers & Services
Senior Secured Term Loan (9.95% (LIBOR + 8.00% with 1.00% LIBOR floor), due 6/8/2021)(3)(11)
6/8/2016
16,729

16,729

16,568

0.5%





16,729

16,568

0.5%
Jefferson Mill CLO Ltd.
Structured Finance
Subordinated Structured Note (Residual Interest, current yield 11.33%, due 10/20/2031)(5)(14)
7/28/2015
23,594

18,864

12,525

0.4%





18,864

12,525

0.4%

See notes to consolidated financial statements.
15

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS AS OF DECEMBER 31, 2019 (Unaudited)
(in thousands, except share data)





December 31, 2019 (Unaudited)
Portfolio Company
Industry
Investments(1)(44)
Acquisition Date(51)
Principal Value
Amortized Cost
Fair
Value(2)
% of Net Assets
 
 
 
 
 
 
 
 
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
 
 
 
 
 
 
 
 
 
 
 
 
 
K&N Parent, Inc.
Auto Components
Second Lien Term Loan (10.55% (LIBOR + 8.75% with 1.00% LIBOR floor), due 10/21/2024)(3)(8)(13)
10/28/2016
$
25,887

$
25,491

$
25,491

0.8%





25,491

25,491

0.8%
Keystone Acquisition Corp.(36)
Health Care Providers & Services
Second Lien Term Loan (11.19% (LIBOR + 9.25% with 1.00% LIBOR floor), due 5/1/2025)(3)(8)(11)
5/18/2017
50,000

50,000

50,000

1.6%





50,000

50,000

1.6%
LCM XIV Ltd.
Structured Finance
Subordinated Structured Note (Residual Interest, current yield 12.43%, due 7/21/2031)(5)(14)
7/11/2013
49,934

28,163

19,141

0.6%





28,163

19,141

0.6%
Maverick Healthcare Equity, LLC
Health Care Providers & Services
Preferred Units (10.00%, 1,250,000 units)(16)
10/31/2007


—

—

—%
Class A Common Units (1,250,000 units)(16)
10/31/2007


—

—

—%





—

—

—%
Medusind Acquisition, Inc.(9)
Health Care Providers & Services
First Lien Term Loan (10.25% (LIBOR + 8.25% with 1.00% LIBOR floor), due 4/8/2024)(3)(11)
9/30/2019
23,657

23,302

23,302

0.7%





23,302

23,302

0.7%
Mountain View CLO 2013-I Ltd.
Structured Finance
Subordinated Structured Note (Residual Interest, current yield 8.54%, due 10/15/2030)(5)(14)
5/1/2013
43,650

29,045

18,882

0.6%





29,045

18,882

0.6%
Mountain View CLO IX Ltd.
Structured Finance
Subordinated Structured Note (Residual Interest, current yield 17.73%, due 7/15/2031)(5)(14)
6/25/2015
47,830

29,179

29,285

0.9%





29,179

29,285

0.9%
Octagon Investment Partners XV, Ltd.
Structured Finance
Subordinated Structured Note (Residual Interest, current yield 11.41%, due 7/19/2030)(5)(14)
2/20/2013
42,064

33,179

24,320

0.8%





33,179

24,320

0.8%
Octagon Investment Partners 18-R Ltd.
Structured Finance
Subordinated Structured Note (Residual Interest, current yield 14.15%, due 4/16/2031)(5)(14)
8/17/2015
46,016

26,422

21,652

0.7%





26,422

21,652

0.7%
Pearl Intermediate Parent LLC
Health Care Providers & Services
Second Lien Term Loan (8.05% (LIBOR + 6.25%), due 2/15/2026)(3)(8)(13)
2/28/2018
5,000

4,980

4,978

0.1%





4,980

4,978

0.1%
PeopleConnect Intermediate, LLC
Interactive Media & Services
Revolving Line of Credit – $1,000 Commitment (11.45% (LIBOR + 9.50% with 1.00% LIBOR floor), due 7/1/2020)(11)(15)
7/1/2015
—

—

—

—%
Senior Secured Term Loan A (8.45% (LIBOR + 6.50% with 1.00% LIBOR floor), due 7/1/2020)(3)(11)
7/1/2015
17,328

17,328

17,328

0.5%
Senior Secured Term Loan B (14.45% (LIBOR + 12.50% with 1.00% LIBOR floor), due 7/1/2020)(3)(11)
7/1/2015
19,413

19,413

19,413

0.6%





36,741

36,741

1.1%
PG Dental Holdings New Jersey, LLC
Health Care Providers & Services
Delayed Draw Term Loan – $5,000 Commitment (10.00% (LIBOR + 7.25% with 2.75% LIBOR floor), due 5/31/2024)(3)(11)(15)
5/31/2019
2,000

2,000

2,000

0.1%
Senior Secured Term Loan (10.00% (LIBOR + 7.25% with 2.75% LIBOR floor), due 5/31/2024)(3)(11)
5/31/2019
22,530

22,530

22,530

0.7%





24,530

24,530

0.8%
PGX Holdings, Inc.
Diversified Consumer Services
Second Lien Term Loan (10.80% (LIBOR + 9.00% with 1.00% LIBOR floor), due 9/29/2021)(3)(13)
9/29/2014
100,091

100,091

85,332

2.7%





100,091

85,332

2.7%

See notes to consolidated financial statements.
16

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS AS OF DECEMBER 31, 2019 (Unaudited)
(in thousands, except share data)





December 31, 2019 (Unaudited)
Portfolio Company
Industry
Investments(1)(44)
Acquisition Date(51)
Principal Value
Amortized Cost
Fair
Value(2)
% of Net Assets
 
 
 
 
 
 
 
 
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
 
 
 
 
 
 
 
 
 
 
 
 
 
PlayPower, Inc.
Leisure Products
First Lien Term Loan (7.46% (LIBOR + 5.50%), due 5/10/2026)(3)(8)(11)
5/16/2019
$
6,468

$
6,408

$
6,408

0.2%





6,408

6,408

0.2%
Research Now Group, Inc. & Survey Sampling International LLC
Professional Services
First Lien Term Loan (7.41% (LIBOR + 5.50% with 1.00% LIBOR floor), due 12/20/2024)(3)(8)(11)
1/5/2018
9,800

9,426

9,800

0.3%
Second Lien Term Loan (11.41% (LIBOR + 9.50% with 1.00% LIBOR floor), due 12/20/2025)(3)(8)(11)
1/5/2018
50,000

47,397

50,000

1.6%





56,823

59,800

1.9%
RGIS Services, LLC
Commercial Services & Supplies
Senior Secured Term Loan (9.43% (LIBOR + 7.50% with 1.00% LIBOR floor), due 3/31/2023)(3)(8)(11)
4/20/2017
4,407

4,258

3,800

0.1%
Senior Secured Term Loan (9.41% (LIBOR + 7.50% with 1.00% LIBOR floor), due 3/31/2023)(3)(8)(11)
4/20/2017
5,021

4,852

4,329

0.1%
Senior Secured Term Loan (9.44% (LIBOR + 7.50% with 1.00% LIBOR floor), due 3/31/2023)(3)(8)(11)
4/20/2017
10,136

9,794

8,739

0.3%





18,904

16,868

0.5%
RME Group Holding Company
Media
Senior Secured Term Loan A (7.95% (LIBOR + 6.00% with 1.00% LIBOR floor), due 5/4/2022)(3)(11)
5/4/2017
28,021

28,021

28,021

0.9%
Senior Secured Term Loan B (12.95% (LIBOR + 11.00% with 1.00% LIBOR floor), due 5/4/2022)(3)(11)
5/4/2017
22,474

22,474

22,474

0.7%





50,495

50,495

1.6%
Rocket Software, Inc.
Software
Second Lien Term Loan (10.05% (LIBOR + 8.25%), due 11/27/2026)(3)(8)(13)
12/7/2018
50,000

49,568

49,568

1.6%





49,568

49,568

1.6%
Romark WM-R Ltd.
Structured Finance
Subordinated Structured Note (Residual Interest, current yield 11.68%, due 4/20/2031)(5)(14)
5/15/2014
27,725

22,752

15,618

0.5%





22,752

15,618

0.5%
Rosa Mexicano
Hotels, Restaurants & Leisure
Revolving Line of Credit– $500 Commitment (9.45% (LIBOR + 7.50% with 1.50% LIBOR floor), due 3/29/2023)(11)(15)
3/29/2018
—

—

—

—%
Senior Secured Term Loan (9.45% (LIBOR + 7.50% with 1.50% LIBOR floor), due 3/29/2023)(3)(11)
3/29/2018
23,064

23,064

21,310

0.7%





23,064

21,310

0.7%
Securus Technologies Holdings, Inc.
Communications Equipment
First Lien Term Loan (6.30% (LIBOR + 4.50% with 1.00% LIBOR floor), due 11/1/2024)(8)(13)
9/3/2019
9,949

9,086

8,418

0.3%
Second Lien Term Loan (10.05% (LIBOR + 8.25% with 1.00% LIBOR floor), due 11/01/2025)(3)(8)(13)
11/3/2017
50,662

50,516

41,279

1.3%





59,602

49,697

1.6%
SEOTownCenter, Inc.
IT Services
Senior Secured Term Loan A (9.50% (LIBOR + 7.50% with 2.00% LIBOR floor), due 4/07/2023)(3)(11)
4/10/2018
25,000

25,000

25,000

0.8%
Senior Secured Term Loan B (14.50% (LIBOR + 12.50% with 2.00% LIBOR floor), due 4/07/2023)(3)(11)
4/10/2018
19,000

19,000

19,000

0.6%





44,000

44,000

1.4%
Shutterfly, Inc.
Internet & Direct Marketing Retail
First Lien Term Loan (7.80% (LIBOR + 6.00% with 1.00% LIBOR floor), due 9/25/2026)(8)(13)
12/9/2019
2,581

2,341

2,400

0.1%
First Lien Term Loan (7.94% (LIBOR + 6.00% with 1.00% LIBOR floor), due 9/25/2026)(8)(11)
12/9/2019
17,419

15,808

16,208

0.5%
 
 
 
 
 
18,149

18,608

0.6%

See notes to consolidated financial statements.
17

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS AS OF DECEMBER 31, 2019 (Unaudited)
(in thousands, except share data)





December 31, 2019 (Unaudited)
Portfolio Company
Industry
Investments(1)(44)
Acquisition Date(51)
Principal Value
Amortized Cost
Fair
Value(2)
% of Net Assets
 
 
 
 
 
 
 
 
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
 
 
 
 
 
 
 
 
 
 
 
 
 
SMG US Midco
Hotels, Restaurants & Leisure
Second Lien Term Loan (8.80% (LIBOR + 7.00%), due 1/23/2026)(3)(8)(13)
1/23/2018
$
7,500

$
7,486

$
7,500

0.2%





7,486

7,500

0.2%
Sorenson Communications, LLC
Diversified Telecommunication Services
First Lien Term Loan (8.44% (LIBOR + 6.50%), due 4/29/2024)(3)(8)(11)
5/8/2019
9,286

9,216

9,216

0.3%





9,216

9,216

0.3%
Spectrum Holdings III Corp
Health Care Equipment & Supplies
Second Lien Term Loan (8.80% (LIBOR + 7.00% with 1.00% LIBOR floor), due 1/31/2026)(3)(8)(13)
2/13/2018
7,500

7,471

6,151

0.2%





7,471

6,151

0.2%
Staples, Inc.
Distributors
First Lien Term Loan (6.69% (LIBOR + 5.00%), due 4/16/2026)(3)(8)(10)(13)
12/3/2019
9,000

8,911

8,897

0.3%
 
 
 
 
 
8,911

8,897

0.3%
Strategic Materials
Household Durables
Second Lien Term Loan (9.68% (LIBOR + 7.75% with 1.00% LIBOR floor), due 11/1/2025)(3)(8)(11)
11/1/2017
7,000

6,949

5,590

0.2%





6,949

5,590

0.2%
Stryker Energy, LLC
Energy Equipment & Services
Overriding Royalty Interests(43)
12/4/2006


—

—

—%





—

—

—%
Sudbury Mill CLO Ltd.
Structured Finance
Subordinated Structured Note (Residual Interest, current yield 0.00%, due 1/17/2026)(5)(14)(17)
12/5/2013
28,200

14,230

4,194

0.1%





14,230

4,194

0.1%
Symphony CLO XIV, Ltd.
Structured Finance
Subordinated Structured Note (Residual Interest, current yield 0.00%, due 7/14/2026)(5)(14)(17)
5/29/2014
49,250

30,556

18,512

0.6%





30,556

18,512

0.6%
Symphony CLO XV, Ltd.
Structured Finance
Subordinated Structured Note (Residual Interest, current yield 9.66%, due 1/17/2032)(5)(14)
11/17/2014
63,831

42,907

23,550

0.7%





42,907

23,550

0.7%
TGP HOLDINGS III LLC
Household Durables
Second Lien Term Loan (10.30% (LIBOR + 8.50% with 1.00% LIBOR floor), due 9/25/2025)(8)(13)
10/3/2017
3,000

2,968

2,968

0.1%





2,968

2,968

0.1%
TouchTunes Interactive Networks, Inc.
Entertainment
Second Lien Term Loan (9.95% (LIBOR + 8.25% with 1.00% LIBOR floor), due 5/29/2022)(3)(8)(13)
6/5/2015
12,194

12,148

12,194

0.4%





12,148

12,194

0.4%
Town & Country Holdings, Inc.
Distributors
First Lien Term Loan (10.45% (LIBOR + 8.50% with 1.50% LIBOR floor), due 1/26/2023)(3)(11)
1/26/2018
164,898

164,898

162,268

5.1%






164,898

162,268

5.1%
Transplace Holdings, Inc.
Transportation Infrastructure
Second Lien Term Loan (10.55% (LIBOR + 8.75% with 1.00% LIBOR floor), due 10/6/2025)(3)(8)(13)
10/16/2017
28,104

27,620

28,104

0.9%





27,620

28,104

0.9%
Universal Fiber Systems, LLC
Textiles, Apparel & Luxury Goods
Second Lien Term Loan (11.43% (LIBOR + 9.50% with 1.00% LIBOR floor), due 10/02/2022)(3)(8)(11)
10/16/2015
37,000

36,710

36,710

1.1%






36,710

36,710

1.1%

See notes to consolidated financial statements.
18

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS AS OF DECEMBER 31, 2019 (Unaudited)
(in thousands, except share data)





December 31, 2019 (Unaudited)
Portfolio Company
Industry
Investments(1)(44)
Acquisition Date(51)
Principal Value
Amortized Cost
Fair
Value(2)
% of Net Assets
 
 
 
 
 
 
 
 
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
 
 
 
 
 
 
 
 
 
 
 
 
 
Upstream Newco, Inc.
Health Care Providers & Services
First Lien Term Loan (6.30% (LIBOR + 4.50%), due 11/20/2026)(8)(13)
12/2/2019
$
8,250

$
8,209

$
8,209

0.2%
Second Lien Term Loan (10.30% (LIBOR + 8.50%), due 11/20/2027)(8)(13)
12/2/2019
22,000

21,797

21,797

0.7%
 
 
 
 
 
30,006

30,006

0.9%
USG Intermediate, LLC
Leisure Products
Revolving Line of Credit – $1,300 Commitment (11.05% (LIBOR + 9.25% with 1.00% LIBOR floor), due 8/24/2020)(13)(15)
4/15/2015
1,300

1,300

1,300

—%
Senior Secured Term Loan A (8.55% (LIBOR + 6.75% with 1.00% LIBOR floor), due 8/24/2022)(3)(13)
4/15/2015
3,159

3,159

3,159

0.1%
Senior Secured Term Loan B (13.55% (LIBOR + 11.75% with 1.00% LIBOR floor), due 8/24/2022)(3)(13)
4/15/2015
18,283

18,283

18,283

0.6%
Equity(16)
4/15/2015


1

—

—%





22,743

22,742

0.7%
Venio LLC
Professional Services
Second Lien Term Loan (4.00% plus 10.00% PIK (LIBOR + 7.50% with 2.50% LIBOR floor), due 2/19/2020)(11)(46)
2/19/2014
26,291

25,848

25,416

0.8%






25,848

25,416

0.8%
Versant Health Holdco, Inc. (f/k/a Wink Holdco, Inc.)
Insurance
Second Lien Term Loan (8.55% (LIBOR + 6.75% with 1.00% LIBOR floor), due 12/1/2025)(3)(8)(13)
12/12/2017
3,000

2,989

2,989

0.1%






2,989

2,989

0.1%
Voya CLO 2012-4, Ltd.
Structured Finance
Subordinated Structured Note (Residual Interest, current yield 11.56%, due 10/16/2028)(5)(14)
11/29/2012
40,613

30,305

25,983

0.8%






30,305

25,983

0.8%
Voya CLO 2014-1, Ltd.
Structured Finance
Subordinated Structured Note (Residual Interest, current yield 10.80%, due 4/18/2031)(5)(14)
3/13/2014
40,773

29,965

21,733

0.7%






29,965

21,733

0.7%
Voya CLO 2016-3, Ltd.
Structured Finance
Subordinated Structured Note (Residual Interest, current yield 10.03%, due 10/20/2031)(5)(14)
10/27/2016
28,100

26,686

20,019

0.6%






26,686

20,019

0.6%
Voya CLO 2017-3, Ltd.
Structured Finance
Subordinated Structured Note (Residual Interest, current yield 10.45%, due 7/20/2030)(5)(14)
7/12/2017
44,885

50,585

40,255

1.2%






50,585

40,255

1.2%
VT Topco, Inc.
Commercial Services & Supplies
Second Lien Term Loan (8.94% (LIBOR + 7.00%), due 8/17/2026)(3)(8)(11)
8/23/2018
7,000

6,971

6,971

0.2%
 
 
 
 
 
6,971

6,971

0.2%
Total Non-Control/Non-Affiliate Investments
 
$
3,118,324

$
2,768,662

86.9%
 
 
 
 
 
Total Portfolio Investments
 
$
5,673,644

$
5,268,545

165.5%

See notes to consolidated financial statements.
19

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS AS OF JUNE 30, 2019
(in thousands, except share data)






June 30, 2019
Portfolio Company
 Industry
Investments(1)(45)
Acquisition Date(51)
Principal Value
Amortized Cost
Fair
Value(2)
% of Net Assets
 
 
 
 
 
 
 
 
LEVEL 3 PORTFOLIO INVESTMENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
Control Investments (greater than 25.00% voting control)(49)
 
 
 
 
 
 
 
 
 
 
 
 
 
CP Energy Services Inc.(20)
Energy Equipment & Services
Senior Secured Term Loan (13.60% (LIBOR + 11.00% with 1.00% LIBOR floor), due 12/29/2022)(11)
10/1/2017
$
35,048

$
35,048

$
35,048

1.1%
Senior Secured Term Loan A to Spartan Energy Services, LLC (10.44% (LIBOR + 8.00% with 1.00% LIBOR floor), due 12/2/2019)(13)
10/20/2014
13,156

13,156

13,156

0.4%
Senior Secured Term Loan B to Spartan Energy Services, LLC (16.44% PIK (LIBOR + 14.00% with 1.00% LIBOR floor), due 12/2/2019)(13)(46)
10/20/2014
21,243

21,243

21,243

0.6%
Series B Convertible Preferred Stock (16.00%, 790 shares)(16)
10/30/2015


63,225

63,225

1.9%
Common Stock (102,924 shares)(16)
8/2/2013


81,203

6,259

0.2%






213,875

138,931

4.2%
Credit Central Loan Company, LLC(21)
Consumer Finance
Subordinated Term Loan (10.00% plus 10.00% PIK, due 6/26/2024)(14)(46)
12/28/2012
55,899

52,579

55,899

1.7%
Class A Units (10,640,642 units)(14)(16)
12/28/2012


13,731

15,518

0.5%
Net Revenue Interest (25% of Net Revenues)(14)(16)
1/28/2015


—

—

—%






66,310

71,417

2.2%
Echelon Transportation, LLC
Aerospace & Defense
Senior Secured Term Loan (12.25% (LIBOR + 9.75% with 2.00% LIBOR floor) plus 2.25% PIK, due 3/31/2022)(13)(46)
3/31/2014
36,778

36,778

36,778

1.1%
Senior Secured Term Loan (11.50% (LIBOR + 9.00% with 2.00% LIBOR floor) plus 1.00% PIK, due 12/7/2024)(13)(46)
12/9/2016
18,063

18,063

18,063

0.5%
Membership Interest (100%)(16)
3/31/2014


22,738

34,860

1.1%






77,579

89,701

2.7%
First Tower Finance Company LLC(23)
Consumer Finance
Subordinated Term Loan to First Tower, LLC (10.00% plus 10.50% PIK, due 6/24/2024)(14)(46)
6/24/2014
277,411

277,411

277,411

8.4%
Class A Units (95,709,910 units)(14)(16)
6/14/2012


81,146

216,625

6.6%






358,557

494,036

15.0%
Freedom Marine Solutions, LLC(24)
Energy Equipment & Services
Membership Interest (100%)(16)
11/9/2006


43,892

14,920

0.5%






43,892

14,920

0.5%
InterDent, Inc.(29)
Health Care Providers & Services
Senior Secured Term Loan A/B (2.66% (LIBOR + 0.25% with 0.75% LIBOR floor), due 9/5/2020)(13)
8/1/2018
14,000

14,000

14,000

0.4%
Senior Secured Term Loan A (7.91% (LIBOR + 5.50% with 0.75% LIBOR floor), due 9/5/2020)(13)
8/3/2012
77,994

77,994

77,994

2.4%
Senior Secured Term Loan B (16.00% PIK, due 9/5/2020)(46)
8/3/2012
116,111

116,111

116,111

3.5%
Senior Secured Term Loan C (18.00% PIK, in non-accrual status effective 10/1/2018, due 9/5/2020)
3/22/2018
40,873

35,766

16,771

0.5%
Senior Secured Term Loan D (1.00% PIK, in non-accrual status effective 10/1/2018, due 9/5/2020)
9/19/2018
5,039

5,001

—

—%
Common Stock (99,900 shares)(16)
5/3/2019


1

—

—%






248,873

224,876

6.8%

See notes to consolidated financial statements.
20

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS AS OF JUNE 30, 2019
(in thousands, except share data)






June 30, 2019
Portfolio Company
 Industry
Investments(1)(45)
Acquisition Date(51)
Principal Value
Amortized Cost
Fair
Value(2)
% of Net Assets
 
 
 
 
 
 
 
 
LEVEL 3 PORTFOLIO INVESTMENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
Control Investments (greater than 25.00% voting control)(49)
 
 
 
 
 
 
 
 
 
 
 
 
 
MITY, Inc.(25)
Commercial Services & Supplies
Senior Secured Note A (10.00% (LIBOR + 7.00% with 3.00% LIBOR floor), due 1/30/2020)(3)(11)
9/19/2013
$
26,250

$
26,250

$
26,250

0.8%
Senior Secured Note B (10.00% (LIBOR + 7.00% with 3.00% LIBOR floor) plus 10.00% PIK, due 6/30/2020)(3)(11)(46)
9/19/2013
29,586

29,586

20,652

0.6%
Subordinated Unsecured Note to Broda Enterprises ULC (10.00%, due 1/1/2028)(14)
9/19/2013
5,635

6,915

—

—%
Common Stock (42,053 shares)(16)
9/19/2013


6,849

—

—%






69,600

46,902

1.4%
National Property REIT Corp.(26)
Equity Real Estate Investment Trusts (REITs) / Online Lending
Senior Secured Term Loan A (6.50% (LIBOR + 3.50% with 3.00% LIBOR floor) plus 5.00% PIK, due 12/31/2023)(11)(46)
12/31/2018
433,553

433,553

433,553

13.1%
Senior Secured Term Loan B (5.00% (LIBOR + 2.00% with 3.00% LIBOR floor) plus 5.50% PIK, due 12/31/2023)(11)(46)
12/31/2018
172,000

172,000

172,000

5.2%
Residual Profit Interest (25% of Residual Profit)(37)
12/31/2018


—

96,609

2.9%
Common Stock (3,110,101 shares)(52)
12/31/2013


163,836

302,303

9.2%






769,389

1,004,465

30.4%
Nationwide Loan Company LLC(27)
Consumer Finance
Senior Subordinated Term Loan to Nationwide Acceptance LLC (10.00% plus 10.00% PIK, due 6/18/2020)(14)(46)
6/18/2014
18,616

18,616

18,616

0.6%
Class A Units (32,456,159 units)(14)
1/31/2013


21,962

14,359

0.4%






40,578

32,975

1.0%
NMMB, Inc.(28)
Media
Senior Secured Note (14.00%, due 5/6/2021)(3)
5/6/2011
3,114

3,114

3,114

0.1%
Series A Preferred Stock (7,200 shares)(16)
5/6/2011


7,200

11,788

0.3%
Series B Preferred Stock (5,669 shares)(16)
5/6/2011


5,669

9,281

0.3%






15,983

24,183

0.7%
Pacific World Corporation(40)
Personal Products
Revolving Line of Credit – $26,000 Commitment (9.66% (LIBOR + 7.25% with 1.00% LIBOR floor), due 9/26/2020)(13)(15)
9/26/2014
20,825

20,469

20,825

0.6%
Senior Secured Term Loan A (7.66% PIK (LIBOR + 5.25% with 1.00% LIBOR floor), in non-accrual status effective 10/24/2018, due 9/26/2020)(13)
12/31/2014
101,186

96,000

91,602

2.8%
Senior Secured Term Loan B (11.66% PIK (LIBOR + 9.25% with 1.00% LIBOR floor), in non-accrual status effective 5/21/2018, due 9/26/2020)(13)
12/31/2014
110,116

96,500

—

—%
Convertible Preferred Equity (166,666 shares)(16)
6/15/2018


25,000

—

—%
Common Stock (6,778,414 shares)(16)
9/29/2017


—

—

—%






237,969

112,427

3.4%
R-V Industries, Inc.
Machinery
Senior Subordinated Note (11.32% (LIBOR + 9.00% with 1.00% LIBOR floor), due 3/31/2022)(3)(11)
6/12/2013
28,622

28,622

28,622

0.9%
Common Stock (745,107 shares)(16)
6/26/2007


6,866

5,002

0.1%






35,488

33,624

1.0%

See notes to consolidated financial statements.
21

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS AS OF JUNE 30, 2019
(in thousands, except share data)






June 30, 2019
Portfolio Company
 Industry
Investments(1)(45)
Acquisition Date(51)
Principal Value
Amortized Cost
Fair
Value(2)
% of Net Assets
 
 
 
 
 
 
 
 
LEVEL 3 PORTFOLIO INVESTMENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
Control Investments (greater than 25.00% voting control)(49)
 
 
 
 
 
 
 
 
 
 
 
 
 
Universal Turbine Parts, LLC(34)
Trading Companies & Distributors
Delayed Draw Term Loan – $5,000 Commitment (10.25% (LIBOR + 7.75% with 2.50% LIBOR floor), due 9/30/2020)(13)(15)
2/28/2019
$
—

$
—

$
—

—%
Senior Secured Term Loan A (8.36% (LIBOR + 5.75% with 1.00% LIBOR floor), due 7/22/2021)(11)
7/22/2016
30,713

30,713

28,043

0.8%
Senior Secured Term Loan B (14.36% PIK (LIBOR + 11.75% with 1.00% LIBOR floor), in non-accrual status effective 7/1/2018, due 7/22/2021)(11)
7/22/2016
36,144

32,500

—

—%
Common Stock (10,000 units)(16)
12/10/2018


—

—

—%






63,213

28,043

0.8%
USES Corp.(30)
Commercial Services & Supplies
Senior Secured Term Loan A (9.00% PIK, in non-accrual status effective 4/1/2016, due 7/22/2020)
3/31/2014
44,134

35,101

15,725

0.5%
Senior Secured Term Loan B (15.50% PIK, in non-accrual status effective 4/1/2016, due 7/22/2020)
3/31/2014
55,955

35,568

—

—%
Common Stock (268,962 shares)(16)
6/15/2016


—

—

—%






70,669

15,725

0.5%
Valley Electric Company, Inc.(31)
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 12/31/2024)(3)(11)(46)
12/31/2012
10,430

10,430

10,430

0.3%
Senior Secured Note (8.00% plus 10.00% PIK, due 6/23/2024)(46)
6/24/2014
33,301

33,301

33,301

1.0%
Consolidated Revenue Interest (2.0%)(38)
6/22/2018


—

3,032

0.1%
Common Stock (50,000 shares)
12/31/2012


26,204

96,922

2.9%






69,935

143,685

4.3%
Wolf Energy, LLC(32)
Energy Equipment & Services
Membership Interest (100%)(16)
7/1/2014


—

—

—%
Membership Interest in Wolf Energy Services Company, LLC (100%)(16)
3/14/2017


3,896

—

—%
Net Profits Interest (8% of Equity Distributions)(4)(16)
4/15/2013


—

14

—%






3,896

14

—%
Total Control Investments (Level 3)
 
$
2,385,806

$
2,475,924

74.9%

See notes to consolidated financial statements.
22

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS AS OF JUNE 30, 2019
(in thousands, except share data)






June 30, 2019
Portfolio Company
Industry
Investments(1)(45)
Acquisition Date(51)
Principal Value
Amortized Cost
Fair
Value(2)
% of Net Assets
 
 
 
 
 
 
 
 
LEVEL 3 PORTFOLIO INVESTMENTS















Affiliate Investments (5.00% to 24.99% voting control)(50)





 
 
 
 
 
 
 
 
Edmentum Ultimate Holdings, LLC(22)
Diversified Consumer Services
Second Lien Revolving Credit Facility to Edmentum, Inc. – $7,834 Commitment (5.00% PIK, due 12/9/2021)(15)(46)
6/9/2015
$
8,159

$
8,159

$
8,159

0.2%
Unsecured Senior PIK Note (8.50% PIK, due 12/9/2021)(46)
6/9/2015
8,189

8,189

8,189

0.2%
Unsecured Junior PIK Note (10.00% PIK, in non-accrual status effective 1/1/2017, due 12/9/2021)
6/9/2015
38,936

23,829

24,869

0.8%
Class A Units (370,964 units)(16)
6/9/2015


6,577

—

—%






46,754

41,217

1.2%
Nixon, Inc.(39)
Textiles, Apparel & Luxury Goods
Common Stock (857 units)(16)
5/12/2017


—

—

—%






—

—

—%
Targus Cayman HoldCo Limited(33)
Textiles, Apparel & Luxury Goods
Common Stock (7,383,395 shares)
2/12/2016


3,771

16,599

0.5%






3,771

16,599

0.5%
United Sporting Companies, Inc.(18)
Distributors
Second Lien Term Loan (13.40% (LIBOR + 11.00% with 1.75% LIBOR floor) plus 2.00% PIK, in non-accrual status effective 4/1/2017, due 11/16/2019)(13)
9/28/2012
168,052

127,091

18,866

0.6%
Common Stock (218,941 shares)(16)
5/2/2017


—

—

—%






127,091

18,866

0.6%
Total Affiliate Investments (Level 3)
 
$
177,616

$
76,682

2.3%


See notes to consolidated financial statements.
23

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS AS OF JUNE 30, 2019
(in thousands, except share data)






June 30, 2019
Portfolio Company
Industry
Investments(1)(45)
Acquisition Date(51)
Principal Value
Amortized Cost
Fair Value(2)
% of Net Assets
 
 
 
 
 
 
 
 
LEVEL 3 PORTFOLIO INVESTMENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
 
 
 
 
 
 
 
 
 
 
 
 
 
8th Avenue Food & Provisions, Inc.
Food Products
Second Lien Term Loan (10.17% (LIBOR + 7.75%), due 10/1/2026)(3)(8)(13)
10/10/2018
$
25,000

$
24,829

$
24,829

0.8%





24,829

24,829

0.8%
ACE Cash Express, Inc.
Consumer Finance
Senior Secured Note (12.00%, due 12/15/2022)(8)(14)
12/15/2017
23,000

22,333

20,555

0.6%





22,333

20,555

0.6%
AgaMatrix, Inc.
Health Care Equipment & Supplies
Senior Secured Term Loan (11.33% (LIBOR + 9.00% with 1.25% LIBOR floor), due 9/29/2022)(3)(11)
9/29/2017
33,673

33,673

34,010

1.0%





33,673

34,010

1.0%
AmeriLife Group, LLC
Insurance
Second Lien Term Loan (11.40% (LIBOR + 9.00%), due 6/11/2027(8)(13)
6/24/2019
10,000

10,000

10,000

0.3%





10,000

10,000

0.3%
Apidos CLO IX
Structured Finance
Subordinated Structured Note (Residual Interest, current yield 0.00%, due 7/15/2023)(5)(14)(17)
7/11/2012
23,525

21

26

—%





21

26

—%
Apidos CLO XI
Structured Finance
Subordinated Structured Note (Residual Interest, current yield 9.96%, due 10/17/2028)(5)(14)
1/17/2013
40,500

33,572

27,982

0.8%





33,572

27,982

0.8%
Apidos CLO XII
Structured Finance
Subordinated Structured Note (Residual Interest, current yield 15.45%, due 4/15/2031)(5)(14)
4/18/2013
52,203

36,307

29,123

0.9%





36,307

29,123

0.9%
Apidos CLO XV
Structured Finance
Subordinated Structured Note (Residual Interest, current yield 14.77%, due 4/21/2031)(5)(14)
10/16/2013
48,515

37,777

29,018

0.9%





37,777

29,018

0.9%
Apidos CLO XXII
Structured Finance
Subordinated Structured Note (Residual Interest, current yield 9.95%, due 10/20/2027)(5)(14)
10/14/2015
31,350

28,691

24,948

0.8%





28,691

24,948

0.8%
Ark-La-Tex Wireline Services, LLC
Energy Equipment & Services
Escrow Receivable
4/8/2014


—

—

—%





—

—

—%
Atlantis Health Care Group (Puerto Rico), Inc.
Health Care Providers & Services
Revolving Line of Credit – $6,000 Commitment (11.34% (LIBOR + 8.75% with 2.00% LIBOR floor), due 2/21/2020)(11)(15)
2/21/2013
4,000

4,000

3,955

0.1%
Senior Secured Term Loan (11.34% (LIBOR + 8.75% with 2.00% LIBOR floor), due 2/21/2020)(3)(11)
2/21/2013
74,327

74,327

73,495

2.2%





78,327

77,450

2.3%
Barings CLO 2018-III
Structured Finance
Subordinated Structured Note (Residual Interest, current yield 12.58%, due 7/20/2029)(5)(14)
11/18/2014
83,098

51,040

39,031

1.2%





51,040

39,031

1.2%
Broder Bros., Co.
Textiles, Apparel & Luxury Goods
Senior Secured Note (10.83% (LIBOR + 8.50% with 1.25% LIBOR floor), due 12/02/2022)(3)(11)
12/4/2017
190,678

190,678

189,725

5.7%





190,678

189,725

5.7%
Brookside Mill CLO Ltd.
Structured Finance
Subordinated Structured Note (Residual Interest, current yield 8.36%, due 1/17/2028)(5)(14)
5/23/2013
36,300

18,560

13,611

0.4%





18,560

13,611

0.4%
California Street CLO IX Ltd.
Structured Finance
Subordinated Structured Note (Residual Interest, current yield 10.96%, due 10/16/2028)(5)(14)
5/8/2012
58,915

41,808

34,672

1.0%





41,808

34,672

1.0%

See notes to consolidated financial statements.
24

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS AS OF JUNE 30, 2019
(in thousands, except share data)






June 30, 2019
Portfolio Company
Industry
Investments(1)(45)
Acquisition Date(51)
Principal Value
Amortized Cost
Fair Value(2)
% of Net Assets
 
 
 
 
 
 
 
 
LEVEL 3 PORTFOLIO INVESTMENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
 
 
 
 
 
 
 
 
 
 
 
 
 
Candle-Lite Company, LLC
Household Products
Senior Secured Term Loan A (8.03% (LIBOR + 5.50% with 1.25% LIBOR floor), due 1/23/2023)(3)(11)
1/23/2018
$
12,188

$
12,188

$
12,188

0.4%
Senior Secured Term Loan B (12.03% (LIBOR + 9.50% with 1.25% LIBOR floor), due 1/23/2023)(3)(11)
1/23/2018
12,500

12,500

12,500

0.4%






24,688

24,688

0.8%
Capstone Logistics Acquisition, Inc.
Commercial Services & Supplies
Second Lien Term Loan (10.65% (LIBOR + 8.25% with 1.00% LIBOR floor), due 10/7/2022)(3)(8)(13)
10/7/2014
98,982

98,705

98,982

3.0%





98,705

98,982

3.0%
Carlyle C17 CLO Limited
Structured Finance
Subordinated Structured Note (Residual Interest, current yield 20.73%, due 4/30/2031)(5)(14)
2/21/2013
24,870

14,748

12,920

0.4%





14,748

12,920

0.4%
Carlyle Global Market Strategies CLO 2014-4-R, Ltd.
Structured Finance
Subordinated Structured Note (Residual Interest, current yield 21.84%, due 7/15/2030)(5)(14)
4/12/2017
25,534

17,282

18,293

0.6%






17,282

18,293

0.6%
Carlyle Global Market Strategies CLO 2016-3, Ltd.
Structured Finance
Subordinated Structured Note (Residual Interest, current yield 15.47%, due 10/20/2029)(5)(14)
9/13/2016
32,200

33,812

27,918

0.8%






33,812

27,918

0.8%
CCPI Inc.(19)
Electronic Equipment, Instruments & Components
Escrow Receivable
2/28/2019
—

—

2,239

0.1%






—

2,239

0.1%
CCS-CMGC Holdings, Inc.
Health Care Providers & Services
First Lien Term Loan (7.90% (LIBOR + 5.50%), due 10/1/2025)(3)(8)(13)
5/23/2019
4,987

4,865

4,865

0.2%
Second Lien Term Loan (11.40% (LIBOR + 9.00%), due 10/1/2026)(3)(8)(13)
10/12/2018
35,000

34,362

34,362

1.0%






39,227

39,227

1.2%
Cent CLO 21 Limited
Structured Finance
Subordinated Structured Note (Residual Interest, current yield 13.77%, due 7/27/2030)(5)(14)
6/18/2014
49,552

38,392

29,335

0.9%





38,392

29,335

0.9%
Cent CLO 21 Limited
Structured Finance
Rated Secured Structured Note - Class E (11.23% (LIBOR + 8.65%), due 7/27/2030)(6)(11)(14)
7/27/2018
10,591

9,997

10,569

0.3%





9,997

10,569

0.3%
Centerfield Media Holding Company(35)
IT Services
Senior Secured Term Loan A (9.60% (LIBOR + 7.00% with 2.00% LIBOR floor), due 1/17/2022)(3)(11)
1/17/2017
73,474

73,474

73,474

2.2%
Senior Secured Term Loan B (15.10% (LIBOR + 12.50% with 2.00% LIBOR floor), due 1/17/2022)(11)
1/17/2017
78,100

78,100

78,100

2.4%






151,574

151,574

4.6%
CIFC Funding 2013-III-R, Ltd.
Structured Finance
Subordinated Structured Note (Residual Interest, current yield 14.98%, due 4/24/2031)(5)(14)
9/12/2013
44,100

29,748

25,748

0.8%





29,748

25,748

0.8%
CIFC Funding 2013-IV, Ltd.
Structured Finance
Subordinated Structured Note (Residual Interest, current yield 16.76%, due 4/28/2031)(5)(14)
11/14/2013
45,500

32,654

28,569

0.9%





32,654

28,569

0.9%
CIFC Funding 2014-IV-R, Ltd.
Structured Finance
Subordinated Structured Note (Residual Interest, current yield 14.92%, due 10/17/2030)(5)(14)
9/3/2014
44,467

30,860

24,709

0.7%





30,860

24,709

0.7%

See notes to consolidated financial statements.
25

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS AS OF JUNE 30, 2019
(in thousands, except share data)






June 30, 2019
Portfolio Company
Industry
Investments(1)(45)
Acquisition Date(51)
Principal Value
Amortized Cost
Fair Value(2)
% of Net Assets
 
 
 
 
 
 
 
 
LEVEL 3 PORTFOLIO INVESTMENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
 
 
 
 
 
 
 
 
 
 
 
 
 
CIFC Funding 2014-V, Ltd.
Structured Finance
Rated Secured Structured Note - Class F (11.09% (LIBOR + 8.50%), due 10/17/2031)(6)(11)(14)
9/27/2018
$
10,250

$
9,958

$
10,248

0.3%





9,958

10,248

0.3%
CIFC Funding 2016-I, Ltd.
Structured Finance
Subordinated Structured Note (Residual Interest, current yield 14.63%, due 10/21/2028)(5)(14)
12/21/2016
34,000

31,333

29,989

0.9%





31,333

29,989

0.9%
Cinedigm DC Holdings, LLC
Entertainment
Senior Secured Term Loan (11.53% (LIBOR + 9.00% with 2.00% LIBOR floor) plus 2.50% PIK, due 3/31/2021)(11)(46)
2/28/2013
16,178

16,128

16,178

0.5%






16,128

16,178

0.5%
Class Valuation, LLC (f/k/a Class Appraisal, LLC)
Real Estate Management & Development
Revolving Line of Credit – $1,500 Commitment (10.58% (LIBOR + 8.25% with 1.50% LIBOR floor), due 3/12/2020)(11)(15)
3/12/2018
—

—

—

—%
Senior Secured Term Loan (10.58% (LIBOR + 8.25% with 1.50% LIBOR floor), due 3/10/2023)(3)(11)
3/12/2018
38,852

38,852

38,852

1.2%






38,852

38,852

1.2%
Columbia Cent CLO 27 Limited
Structured Finance
Rated Secured Structured Note - Class E (10.87% (LIBOR + 8.29%), due 10/25/2028)(6)(11)(14)
10/25/2018
7,450

7,235

7,436

0.2%






7,235

7,436

0.2%
Columbia Cent CLO 27 Limited
Structured Finance
Subordinated Structured Note (Residual Interest, current yield 16.18%, due 10/25/2028)(5)(14)
1/15/2014
40,275

22,206

23,808

0.7%






22,206

23,808

0.7%
Coverall North America, Inc.
Commercial Services & Supplies
Senior Secured Term Loan A (8.60% (LIBOR + 6.00% with 1.00% LIBOR floor), due 11/02/2020)(3)(11)
11/2/2015
8,475

8,475

8,475

0.3%
Senior Secured Term Loan B (13.60% (LIBOR + 11.00% with 1.00% LIBOR floor), due 11/02/2020)(3)(11)
11/2/2015
23,375

23,375

23,375

0.7%





31,850

31,850

1.0%
CP VI Bella Midco
IT Services
Second Lien Term Loan (9.15% (LIBOR + 6.75%), due 12/29/2025)(3)(8)(13)
2/26/2018
15,750

15,703

15,703

0.5%





15,703

15,703

0.5%
Digital Room, LLC
Commercial Services & Supplies
First Lien Term Loan (7.40% (LIBOR + 5.00%), due 5/21/2026)(3)(8)(13)
5/29/2019
10,000

9,852

10,000

0.3%
Second Lien Term Loan (11.40% (LIBOR + 9.00%), due 5/21/2027)(3)(8)(13)
5/30/2019
70,000

70,000

70,000

2.1%





79,852

80,000

2.4%
Dunn Paper, Inc.
Paper & Forest Products
Second Lien Term Loan (11.15% (LIBOR + 8.75% with 1.00% LIBOR floor), due 8/26/2023)(3)(8)(13)
10/7/2016
11,500

11,361

11,500

0.3%





11,361

11,500

0.3%
Dynatrace, LLC
Software
Second Lien Term Loan (9.40% (LIBOR + 7.00%), due 8/23/2026)(3)(8)(13)
8/31/2018
2,735

2,729

2,735

0.1%





2,729

2,735

0.1%
Easy Gardener Products, Inc.
Household Durables
Senior Secured Term Loan (12.60% (LIBOR + 10.00% with 0.25% LIBOR floor), due 09/30/2020)(3)(11)
10/2/2015
15,888

15,888

10,252

0.3%





15,888

10,252

0.3%

See notes to consolidated financial statements.
26

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS AS OF JUNE 30, 2019
(in thousands, except share data)






June 30, 2019
Portfolio Company
Industry
Investments(1)(45)
Acquisition Date(51)
Principal Value
Amortized Cost
Fair Value(2)
% of Net Assets
 
 
 
 
 
 
 
 
LEVEL 3 PORTFOLIO INVESTMENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
 
 
 
 
 
 
 
 
 
 
 
 
 
Engine Group, Inc.(7)
Media
Senior Secured Term Loan (7.33% (LIBOR + 5.00% with 1.00% LIBOR floor), due 9/15/2022)(8)(11)
9/25/2017
$
4,334

$
4,334

$
3,921

0.1%
Second Lien Term Loan (11.33% (LIBOR + 9.00% with 1.00% LIBOR floor), due 9/15/2023)(3)(8)(11)
9/25/2017
35,000

35,000

30,580

0.9%





39,334

34,501

1.0%
EXC Holdings III Corp
Technology Hardware, Storage & Peripherals
Second Lien Term Loan (10.10% (LIBOR + 7.50% with 1.00% LIBOR floor), due 12/01/2025)(3)(8)(11)
12/5/2017
12,500

12,400

12,400

0.4%





12,400

12,400

0.4%
Galaxy XV CLO, Ltd.
Structured Finance
Subordinated Structured Note (Residual Interest, current yield 12.11%, due 10/15/2030)(5)(14)
3/14/2013
50,525

36,037

28,398

0.9%





36,037

28,398

0.9%
Galaxy XXVII CLO, Ltd.
Structured Finance
Subordinated Structured Note (Residual Interest, current yield 9.63%, due 5/16/2031)(5)(14)
11/5/2013
24,575

16,644

12,275

0.4%





16,644

12,275

0.4%
Galaxy XXVIII CLO, Ltd.
Structured Finance
Rated Secured Structured Note - Class F (11.08% (LIBOR + 8.48%), due 7/15/2031)(6)(11)(14)
7/16/2018
6,658

6,188

6,648

0.2%





6,188

6,648

0.2%
Galaxy XXVIII CLO, Ltd.
Structured Finance
Subordinated Structured Note (Residual Interest, current yield 10.33%, due 7/15/2031)(5)(6)(14)
6/27/2014
39,905

29,850

19,976

0.6%





29,850

19,976

0.6%
Global Tel*Link Corporation
Diversified Telecommunication Services
Second Lien Term Loan (10.65% (LIBOR + 8.25%), due 11/29/2026)(3)(8)(13)
12/4/2018
26,750

26,311

26,311

0.8%





26,311

26,311

0.8%
GlobalTranz Enterprises, Inc.
Air Freight & Logistics
Second Lien Term Loan (10.64% (LIBOR + 8.25%), due 5/15/2027)(3)(8)(13)
5/15/2019
12,500

12,500

12,233

0.4%





12,500

12,233

0.4%
H.I.G. ECI Merger Sub, Inc.
IT Services
Senior Secured Term Loan A (8.10% (LIBOR + 5.50% with 1.50% LIBOR floor), due 5/31/2023)(3)(11)
5/31/2018
44,240

44,240

44,240

1.3%
Senior Secured Term Loan B (13.10% (LIBOR + 10.50% with 1.50% LIBOR floor), due 5/31/2023)(3)(11)
5/31/2018
29,900

29,900

28,843

0.9%





74,140

73,083

2.2%
Halcyon Loan Advisors Funding 2012-1 Ltd.
Structured Finance
Subordinated Structured Note (Residual Interest, current yield 0.00%, due 8/15/2023)(5)(14)(17)
8/15/2012
23,188

3,786

—

—%





3,786

—

—%
Halcyon Loan Advisors Funding 2013-1 Ltd.
Structured Finance
Subordinated Structured Note (Residual Interest, current yield 0.00%, due 4/15/2025)(5)(14)(17)
3/28/2013
40,400

19,984

5,563

0.2%





19,984

5,563

0.2%
Halcyon Loan Advisors Funding 2014-1 Ltd.
Structured Finance
Subordinated Structured Note (Residual Interest, current yield 0.00%, due 4/18/2026)(5)(14)(17)
3/6/2014
24,500

11,822

4,243

0.1%





11,822

4,243

0.1%
Halcyon Loan Advisors Funding 2014-2 Ltd.
Structured Finance
Subordinated Structured Note (Residual Interest, current yield 0.00%, due 4/28/2025)(5)(14)(17)
4/28/2014
41,164

21,322

3,921

0.1%





21,322

3,921

0.1%

See notes to consolidated financial statements.
27

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS AS OF JUNE 30, 2019
(in thousands, except share data)






June 30, 2019
Portfolio Company
Industry
Investments(1)(45)
Acquisition Date(51)
Principal Value
Amortized 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 2015-3 Ltd.
Structured Finance
Subordinated Structured Note (Residual Interest, current yield 12.87%, due 10/18/2027)(5)(14)
9/3/2015
$
39,598

$
32,784

$
27,783

0.8%





32,784

27,783

0.8%
HALYARD MD OPCO, LLC
Media
Revolving Line of Credit – $2,000 Commitment (10.33% (LIBOR + 8.00%), due 2/6/2020)(11)(15)
8/6/2018
—

—

—

—%
First Lien Term Loan (10.33% (LIBOR + 8.00% with 2.00% LIBOR floor), due 8/6/2023)(3)(11)
8/6/2018
11,550

11,550

11,550

0.3%





11,550

11,550

0.3%
HarbourView CLO VII-R, Ltd.
Structured Finance
Subordinated Structured Note (Residual Interest, current yield 19.31%, due 7/18/2031)(5)(14)
6/10/2015
19,025

13,507

12,690

0.4%





13,507

12,690

0.4%
Help/Systems Holdings, Inc.
Software
Second Lien Term Loan (10.08% (LIBOR + 7.75%), due 3/27/2026)(3)(8)(11)
4/17/2018
12,499

12,457

12,457

0.4%





12,457

12,457

0.4%
Inpatient Care Management Company, LLC
Health Care Providers & Services
Senior Secured Term Loan (10.60% (LIBOR + 8.00% with 1.00% LIBOR floor), due 6/8/2021)(3)(11)
6/8/2016
19,313

19,313

19,000

0.6%





19,313

19,000

0.6%
Janus International Group, LLC
Building Products
Second Lien Term Loan (10.15% (LIBOR + 7.75% with 1.00% LIBOR floor), due 2/12/2026)(3)(8)(13)
2/22/2018
20,000

19,842

19,842

0.6%





19,842

19,842

0.6%
JD Power and Associates
Capital Markets
Second Lien Term Loan (10.90% (LIBOR + 8.50% with 1.00% LIBOR floor), due 9/7/2024)(3)(8)(13)
9/16/2016
25,222

25,084

25,222

0.8%





25,084

25,222

0.8%
Jefferson Mill CLO Ltd.
Structured Finance
Subordinated Structured Note (Residual Interest, current yield 13.08%, due 10/20/2031)(5)(14)
7/28/2015
23,594

18,306

12,172

0.4%





18,306

12,172

0.4%
K&N Parent, Inc.
Auto Components
Second Lien Term Loan (11.15% (LIBOR + 8.75% with 1.00% LIBOR floor), due 10/21/2024)(3)(8)(13)
10/28/2016
25,887

25,450

25,450

0.8%





25,450

25,450

0.8%
Keystone Acquisition Corp.(36)
Health Care Providers & Services
Second Lien Term Loan (11.58% (LIBOR + 9.25% with 1.00% LIBOR floor), due 5/1/2025)(3)(8)(11)
5/18/2017
50,000

50,000

50,000

1.5%





50,000

50,000

1.5%
LCM XIV Ltd.
Structured Finance
Subordinated Structured Note (Residual Interest, current yield 14.10%, due 7/21/2031)(5)(14)
7/11/2013
49,934

27,938

20,663

0.6%





27,938

20,663

0.6%
Madison Park Funding IX, Ltd.
Structured Finance
Subordinated Structured Note (Residual Interest, current yield 0.00%, due 8/15/2022)(5)(14)(17)
7/18/2012
43,110

1,949

1,109

—%





1,949

1,109

—%
Maverick Healthcare Equity, LLC
Health Care Providers & Services
Preferred Units (10.00%, 1,250,000 units)(16)
10/31/2007
—

—

—

—%
Class A Common Units (1,250,000 units)(16)
10/31/2007
—

—

—

—%





—

—

—%
MedMark Services, Inc.(41)
Health Care Providers & Services
Second Lien Term Loan (10.77% (LIBOR + 8.25% with 1.00% LIBOR floor), due 3/1/2025)(3)(8)(13)
3/16/2018
7,000

6,943

6,943

0.2%





6,943

6,943

0.2%
Mobile Posse, Inc.
Media
First Lien Term Loan (10.83% (LIBOR + 8.50% with 2.00% LIBOR floor), due 4/3/2023)(3)(11)
4/3/2018
20,500

20,500

20,500

0.6%





20,500

20,500

0.6%

See notes to consolidated financial statements.
28

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS AS OF JUNE 30, 2019
(in thousands, except share data)






June 30, 2019
Portfolio Company
Industry
Investments(1)(45)
Acquisition Date(51)
Principal Value
Amortized Cost
Fair Value(2)
% of Net Assets
 
 
 
 
 
 
 
 
LEVEL 3 PORTFOLIO INVESTMENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
 
 
 
 
 
 
 
 
 
 
 
 
 
Mountain View CLO 2013-I Ltd.
Structured Finance
Subordinated Structured Note (Residual Interest, current yield 10.70%, due 10/15/2030)(5)(14)
5/1/2013
$
43,650

$
29,166

$
20,919

0.6%





29,166

20,919

0.6%
Mountain View CLO IX Ltd.
Structured Finance
Subordinated Structured Note (Residual Interest, current yield 18.79%, due 7/15/2031)(5)(14)
6/25/2015
47,830

29,152

31,107

0.9%





29,152

31,107

0.9%
MRP Holdco, Inc.
Professional Services
Senior Secured Term Loan A (7.41% (LIBOR + 5.00% with 1.50% LIBOR floor), due 4/17/2024)(3)(13)
4/17/2018
53,963

53,963

53,963

1.6%
Senior Secured Term Loan B (11.41% (LIBOR + 9.00% with 1.50% LIBOR floor), due 4/17/2024)(13)
4/17/2018
55,000

55,000

55,000

1.7%





108,963

108,963

3.3%
Octagon Investment Partners XV, Ltd.
Structured Finance
Subordinated Structured Note (Residual Interest, current yield 12.68%, due 7/19/2030)(5)(14)
2/20/2013
42,064

33,148

26,239

0.8%





33,148

26,239

0.8%
Octagon Investment Partners 18-R Ltd.
Structured Finance
Subordinated Structured Note (Residual Interest, current yield 16.97%, due 4/16/2031)(5)(14)
8/17/2015
46,016

27,307

24,629

0.7%





27,307

24,629

0.7%
Pearl Intermediate Parent LLC
Health Care Providers & Services
Second Lien Term Loan (8.65% (LIBOR + 6.25%), due 2/15/2026)(3)(8)(13)
2/28/2018
5,000

4,979

4,979

0.2%





4,979

4,979

0.2%
PeopleConnect Intermediate, LLC
Interactive Media & Services
Revolving Line of Credit – $1,000 Commitment (12.10% (LIBOR + 9.50% with 1.00% LIBOR floor), due 7/1/2020)(11)(15)
7/1/2015
500

500

500

—%
Senior Secured Term Loan A (9.10% (LIBOR + 6.50% with 1.00% LIBOR floor), due 7/1/2020)(3)(11)
7/1/2015
17,741

17,741

17,741

0.5%
Senior Secured Term Loan B (15.10% (LIBOR + 12.50% with 1.00% LIBOR floor), due 7/1/2020)(3)(11)
7/1/2015
19,620

19,620

19,620

0.6%





37,861

37,861

1.1%
PG Dental Holdings New Jersey, LLC
Health Care Providers & Services
Delayed Draw Term Loan – $5,000 Commitment (10.00% (LIBOR + 7.25% with 2.75% LIBOR floor), due 5/31/2024)(11)(15)
5/31/2019
—

—

—

—%
Senior Secured Term Loan (10.00% (LIBOR + 7.25% with 2.75% LIBOR floor), due 5/31/2024)(3)(11)
5/31/2019
22,760

22,760

22,760

0.7%





22,760

22,760

0.7%
PGX Holdings, Inc.
Diversified Consumer Services
Second Lien Term Loan (11.41% (LIBOR + 9.00% with 1.00% LIBOR floor), due 9/29/2021)(3)(13)
9/29/2014
100,091

100,091

100,091

3.0%





100,091

100,091

3.0%
PlayPower, Inc.
Leisure Products
First Lien Term Loan (7.90% (LIBOR + 5.50%), due 5/10/2026)(3)(8)(13)
5/16/2019
6,500

6,436

6,436

0.2%





6,436

6,436

0.2%
Research Now Group, Inc. & Survey Sampling International LLC
Professional Services
First Lien Term Loan (8.08% (LIBOR + 5.50% with 1.00% LIBOR floor), due 12/20/2024)(3)(8)(13)
1/5/2018
9,850

9,440

9,850

0.3%
Second Lien Term Loan (12.08% (LIBOR + 9.50% with 1.00% LIBOR floor), due 12/20/2025)(3)(8)(13)
1/5/2018
50,000

47,176

49,850

1.5%





56,616

59,700

1.8%

See notes to consolidated financial statements.
29

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS AS OF JUNE 30, 2019
(in thousands, except share data)






June 30, 2019
Portfolio Company
Industry
Investments(1)(45)
Acquisition Date(51)
Principal Value
Amortized Cost
Fair Value(2)
% of Net Assets
 
 
 
 
 
 
 
 
LEVEL 3 PORTFOLIO INVESTMENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
 
 
 
 
 
 
 
 
 
 
 
 
 
RGIS Services, LLC
Commercial Services & Supplies
Senior Secured Term Loan (10.08% (LIBOR + 7.50% with 1.00% LIBOR floor), due 3/31/2023)(3)(8)(11)
4/20/2017
$
4,407

$
4,237

$
3,659

0.1%
Senior Secured Term Loan (10.02% (LIBOR + 7.50% with 1.00% LIBOR floor), due 3/31/2023)(3)(8)(11)
4/20/2017
5,021

4,828

4,169

0.1%
Senior Secured Term Loan (9.90% (LIBOR + 7.50% with 1.00% LIBOR floor), due 3/31/2023)(3)(8)(13)
4/20/2017
10,136

9,746

8,416

0.3%





18,811

16,244

0.5%
RME Group Holding Company
Media
Senior Secured Term Loan A (8.33% (LIBOR + 6.00% with 1.00% LIBOR floor), due 5/4/2022)(3)(11)
5/4/2017
28,396

28,396

28,302

0.8%
Senior Secured Term Loan B (13.33% (LIBOR + 11.00% with 1.00% LIBOR floor), due 5/4/2022)(3)(11)
5/4/2017
22,599

22,599

22,431

0.7%





50,995

50,733

1.5%
Rocket Software, Inc.
Software
Second Lien Term Loan (10.65% (LIBOR + 8.25%), due 11/27/2026)(3)(8)(13)
12/7/2018
50,000

49,537

49,537

1.5%





49,537

49,537

1.5%
Romark WM-R Ltd.
Structured Finance
Subordinated Structured Note (Residual Interest, current yield 12.39%, due 4/20/2031)(5)(14)
5/15/2014
27,725

22,708

16,046

0.5%





22,708

16,046

0.5%
Rosa Mexicano
Hotels, Restaurants & Leisure
Revolving Line of Credit – $1,000 Commitment (9.83% (LIBOR + 7.50% with 1.50% LIBOR floor), due 3/29/2023(11)(15)
3/29/2018
—

—

—

—%
Senior Secured Term Loan (9.83% (LIBOR + 7.50% with 1.50% LIBOR floor), due 3/29/2023(3)(11)
3/29/2018
27,252

27,252

27,252

0.8%





27,252

27,252

0.8%
SCS Merger Sub, Inc.
IT Services
Second Lien Term Loan (11.90% (LIBOR + 9.50% with 1.00% LIBOR floor), due 10/30/2023)(3)(8)(13)
11/6/2015
20,000

19,679

20,000

0.6%





19,679

20,000

0.6%
Securus Technologies Holdings, Inc.
Communications Equipment
Second Lien Term Loan (10.58% (LIBOR + 8.25% with 1.00% LIBOR floor), due 11/01/2025)(3)(8)(11)
11/3/2017
50,662

50,503

48,760

1.5%





50,503

48,760

1.5%
SEOTownCenter, Inc.
IT Services
Senior Secured Term Loan A (9.83% (LIBOR + 7.50% with 2.00% LIBOR floor), due 4/07/2023)(3)(11)
4/10/2018
26,000

26,000

26,000

0.8%
Senior Secured Term Loan B (14.83% (LIBOR + 12.50% with 2.00% LIBOR floor), due 4/07/2023)(3)(11)
4/10/2018
19,000

19,000

19,000

0.6%





45,000

45,000

1.4%
SESAC Holdco II LLC
Entertainment
Second Lien Term Loan (9.65% (LIBOR + 7.25% with 1.00% LIBOR floor), due 2/23/2025)(3)(8)(13)
3/2/2017
8,000

7,955

7,955

0.2%





7,955

7,955

0.2%
SMG US Midco
Hotels, Restaurants & Leisure
Second Lien Term Loan (9.40% (LIBOR + 7.00%), due 1/23/2026)(3)(8)(13)
1/23/2018
7,500

7,485

7,485

0.2%





7,485

7,485

0.2%
Sorenson Communications, LLC
Diversified Telecommunication Services
First Lien Term Loan (8.83% (LIBOR + 6.50%), due 4/29/2024(3)(8)(11)
5/8/2019
10,000

9,923

9,923

0.3%





9,923

9,923

0.3%

See notes to consolidated financial statements.
30

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS AS OF JUNE 30, 2019
(in thousands, except share data)






June 30, 2019
Portfolio Company
Industry
Investments(1)(45)
Acquisition Date(51)
Principal Value
Amortized Cost
Fair Value(2)
% of Net Assets
 
 
 
 
 
 
 
 
LEVEL 3 PORTFOLIO INVESTMENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
 
 
 
 
 
 
 
 
 
 
 
 
 
Spectrum Holdings III Corp
Health Care Equipment & Supplies
Second Lien Term Loan (9.40% (LIBOR + 7.00% with 1.00% LIBOR floor), due 1/31/2026)(3)(8)(13)
2/13/2018
$
7,500

$
7,469

$
7,144

0.2%





7,469

7,144

0.2%
Strategic Materials
Household Durables
Second Lien Term Loan (10.33% (LIBOR + 7.75% with 1.00% LIBOR floor), due 11/1/2025)(3)(8)(11)
11/1/2017
7,000

6,945

5,523

0.2%





6,945

5,523

0.2%
Stryker Energy, LLC
Energy Equipment & Services
Overriding Royalty Interests(43)
12/4/2006


—

—

—%





—

—

—%
Sudbury Mill CLO Ltd.
Structured Finance
Subordinated Structured Note (Residual Interest, current yield 0.00%, due 1/17/2026)(5)(14)(17)
12/5/2013
28,200

15,225

6,834

0.2%





15,225

6,834

0.2%
Symphony CLO XIV, Ltd.
Structured Finance
Subordinated Structured Note (Residual Interest, current yield 0.00%, due 7/14/2026)(5)(14)(17)
5/29/2014
49,250

31,246

18,847

0.6%





31,246

18,847

0.6%
Symphony CLO XV, Ltd.
Structured Finance
Rated Secured Structured Note - Class F (11.28% (LIBOR + 8.68%), due 1/17/2032)(6)(11)(14)
12/24/2018
12,000

11,396

11,950

0.4%





11,396

11,950

0.4%
Symphony CLO XV, Ltd.
Structured Finance
Subordinated Structured Note (Residual Interest, current yield 11.98%, due 1/17/2032)(5)(14)
11/17/2014
63,831

44,076

22,965

0.7%





44,076

22,965

0.7%
TGP HOLDINGS III LLC
Household Durables
Second Lien Term Loan (10.83% (LIBOR + 8.50% with 1.00% LIBOR floor), due 9/25/2025)(8)(11)
10/3/2017
3,000

2,965

2,965

0.1%





2,965

2,965

0.1%
TouchTunes Interactive Networks, Inc.
Entertainment
Second Lien Term Loan (10.68% (LIBOR + 8.25% with 1.00% LIBOR floor), due 5/29/2022)(3)(8)(13)
6/5/2015
12,194

12,138

12,194

0.4%





12,138

12,194

0.4%
Town & Country Holdings, Inc.
Distributors
First Lien Term Loan (10.83% (LIBOR + 8.50% with 1.50% LIBOR floor), due 1/26/2023)(3)(11)
1/26/2018
172,815

172,815

171,271

5.2%






172,815

171,271

5.2%
Transplace Holdings, Inc.
Transportation Infrastructure
Second Lien Term Loan (11.15% (LIBOR + 8.75% with 1.00% LIBOR floor), due 10/6/2025)(3)(8)(13)
10/16/2017
28,104

27,578

28,104

0.9%





27,578

28,104

0.9%
Turning Point Brands, Inc.(42)
Tobacco
Second Lien Term Loan (9.40% (LIBOR + 7.00%), due 3/7/2024)(3)(8)(13)
2/17/2017
14,500

14,419

14,500

0.4%





14,419

14,500

0.4%
Universal Fiber Systems, LLC
Textiles, Apparel & Luxury Goods
Second Lien Term Loan (11.91% (LIBOR + 9.50% with 1.00% LIBOR floor), due 10/02/2022)(3)(8)(13)
10/16/2015
37,000

36,657

36,657

1.1%






36,657

36,657

1.1%

See notes to consolidated financial statements.
31

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS AS OF JUNE 30, 2019
(in thousands, except share data)






June 30, 2019
Portfolio Company
Industry
Investments(1)(45)
Acquisition Date(51)
Principal Value
Amortized Cost
Fair Value(2)
% of Net Assets
 
 
 
 
 
 
 
 
LEVEL 3 PORTFOLIO INVESTMENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
 
 
 
 
 
 
 
 
 
 
 
 
 
USG Intermediate, LLC
Leisure Products
Revolving Line of Credit – $2,000 Commitment (11.66% (LIBOR + 9.25% with 1.00% LIBOR floor), due 8/24/2019)(13)(15)
4/15/2015
$
800

$
800

$
800

—%
Senior Secured Term Loan A (9.16% (LIBOR + 6.75% with 1.00% LIBOR floor), due 8/24/2022)(3)(13)
4/15/2015
6,387

6,387

6,387

0.2%
Senior Secured Term Loan B (14.16% (LIBOR + 11.75% with 1.00% LIBOR floor), due 8/24/2022)(3)(13)
4/15/2015
19,245

19,245

19,245

0.6%
Equity(16)
4/15/2015
—

1

—

—%





26,433

26,432

0.8%
UTZ Quality Foods, LLC
Food Products
Second Lien Term Loan (9.65% (LIBOR + 7.25%), due 11/21/2025)(3)(8)(13)
11/28/2017
10,000

9,900

9,900

0.3%






9,900

9,900

0.3%
VC GB Holdings, Inc.
Household Durables
Subordinated Secured Term Loan (10.40% (LIBOR + 8.00% with 1.00% LIBOR floor), due 2/28/2025)(3)(8)(13)
2/28/2017
3,720

3,493

3,720

0.1%






3,493

3,720

0.1%
Venio LLC
Professional Services
Second Lien Term Loan (4.00% plus 10.10% PIK (LIBOR + 7.50% with 2.50% LIBOR floor), due 2/19/2020)(11)(46)
2/19/2014
24,382

22,519

21,515

0.7%






22,519

21,515

0.7%
Voya CLO 2012-2, Ltd.
Structured Finance
Subordinated Structured Note (Residual Interest, current yield 0.00%, due 10/15/2022)(5)(14)(17)
8/28/2012
38,070

450

516

—%






450

516

—%
Voya CLO 2012-3, Ltd.
Structured Finance
Subordinated Structured Note (Residual Interest, current yield 0.00%, due 10/15/2022)(5)(14)(17)
10/18/2012
46,632

—

516

—%






—

516

—%
Voya CLO 2012-4, Ltd.
Structured Finance
Subordinated Structured Note (Residual Interest, current yield 10.37%, due 10/16/2028)(5)(14)
11/29/2012
40,613

31,046

27,193

0.8%






31,046

27,193

0.8%
Voya CLO 2014-1, Ltd.
Structured Finance
Subordinated Structured Note (Residual Interest, current yield 13.21%, due 4/18/2031)(5)(14)
3/13/2014
40,773

29,978

22,515

0.7%






29,978

22,515

0.7%
Voya CLO 2016-3, Ltd.
Structured Finance
Subordinated Structured Note (Residual Interest, current yield 12.29%, due 10/20/2031)(5)(14)
10/27/2016
28,100

27,265

21,003

0.6%






27,265

21,003

0.6%
Voya CLO 2017-3, Ltd.
Structured Finance
Subordinated Structured Note (Residual Interest, current yield 12.44%, due 7/20/2030)(5)(14)
7/12/2017
44,885

50,244

42,872

1.3%






50,244

42,872

1.3%
VT Topco, Inc.
Commercial Services & Supplies
Second Lien Term Loan (9.33% (LIBOR + 7.00%), due 8/17/2026)(3)(8)(11)
8/23/2018
7,000

6,969

6,969

0.2%






6,969

6,969

0.2%
Wink Holdco, Inc.
Insurance
Second Lien Term Loan (9.16% (LIBOR + 6.75% with 1.00% LIBOR floor), due 12/1/2025)(3)(8)(13)
12/12/2017
3,000

2,988

2,988

0.1%






2,988

2,988

0.1%
Total Non-Control/Non-Affiliate Investments (Level 3)
 
$
3,368,880

$
3,100,947

93.8%
 
 
 
 
 
Total Portfolio Investments (Level 3)
 
$
5,932,302

$
5,653,553

171.0%

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 December 31, 2019 (Unaudited) and June 30, 2019



(1)
The terms “Prospect,” “the Company,” “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. Unless otherwise indicated by endnote 10 below, all of our investments are valued using significant unobservable inputs. In accordance with ASC 820, such investments are classified as Level 3 within the fair value 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 the investments held by PCF at December 31, 2019 and June 30, 2019 were $1,447,727 and $1,636,067, respectively, representing 27.5% and 28.9% of our total investments, respectively.
(4)
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.
(5)
This investment is in the equity class of the collateralized loan obligation (“CLO”) security, which is referred to as “Subordinated Structured Note,” or “SSN”. The SSN 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, calculated using amortized cost, 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.
(6)
This investment is in the debt class of the CLO security, which is referred to as “Rated Secured Structured Note,” or “RSSN”.
(7)
Engine Group, Inc., Clearstream.TV, Inc., and ORC International, Inc., are joint borrowers on the senior secured and the second lien term loans.
(8)
Syndicated investment which was originated by a financial institution and broadly distributed.
(9)
Medusind Acquisition, Inc., Medusind Intermediate, Inc., Medusind Solutions Inc. and Medusind Inc. are joint borrowers.
(10)
This investment represents a Level 2 security in the ASC 820 table as of December 31, 2019. See Notes 2 and 3 within the accompanying notes to consolidated financial statements for further discussion.
(11)
The interest rate on these investments is subject to the base rate of 3-Month LIBOR, which was 1.91% and 2.32% at December 31, 2019 and June 30, 2019, respectively. The current base rate for each investment may be different from the reference rate on December 31, 2019 and June 30, 2019.
(12)
The interest rate on these investments is subject to the base rate of 2-Month LIBOR, which was 1.83% and 2.33% at December 31, 2019 and June 30, 2019, respectively. The current base rate for each investment may be different from the reference rate on December 31, 2019 and June 30, 2019.
(13)
The interest rate on these investments is subject to the base rate of 1-Month LIBOR, which was 1.76% and 2.40% at December 31, 2019 and June 30, 2019, respectively. The current base rate for each investment may be different from the reference rate on December 31, 2019 and June 30, 2019.
(14)
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. As of December 31, 2019 and June 30, 2019, our qualifying assets, as a percentage of total assets, stood at 73.62% and 73.85%, respectively. We monitor the status of these assets on an ongoing basis.
(15)
Undrawn committed revolvers and delayed draw term loans to our portfolio companies incur commitment and unused fees ranging from 0.00% to 5.00%. As of December 31, 2019 and June 30, 2019, we had $25,111 and $23,375, respectively, of undrawn revolver and delayed draw term loan commitments to our portfolio companies.

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 December 31, 2019 (Unaudited) and June 30, 2019 (Continued)

(16)
Represents non-income producing security that has not paid a dividend in the year preceding the reporting date.
(17)
The effective yield has been estimated to be 0% as expected future cash flows are anticipated to not be sufficient to repay the investment at cost. If the expected investment proceeds increase, there is a potential for future investment income from the investment. Distributions, once received, will be recognized as return of capital with any remaining unamortized investment costs written off if the actual distributions are less than the amortized investment cost. If an investment has been impaired upon being called, any future distributions will be recorded as a return of capital. To the extent that the impaired cost basis of the SSN is fully recovered, any future distributions will be recorded as realized gains.
(18)
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 the second lien term loan. United Sporting Companies, Inc. (“USC”) is a parent guarantor of this debt investment, and is 100% owned by SportCo Holdings, Inc. (“SportCo”). Prospect previously held a 3.48% equity interest in SportCo and following an additional issuance of common stock by SportCo, Prospect’s ownership increased to 22.0% as of September 30, 2018. As a result, Prospect’s investment in USC is classified as an affiliate investment beginning the period ended September 30, 2018. In June 2019, USC filed for Chapter 11 bankruptcy and began liquidating its remaining assets. During the six months ended December 31, 2019, USC used a portion of the proceeds from the ongoing liquidation to partially repay $20,061 of our Second Lien Term Loan.
(19)
CCPI Holdings Inc., a consolidated entity in which we own 100% of the common stock, held 94.59% of CCPI Inc. (“CCPI”), the operating company, as of June 30, 2018. On March 1, 2019, we sold our 94.59% common equity interest in CCPI for $18,865 in net proceeds. Concurrently, CCPI fully repaid the $2,797 Senior Secured Term Loan A and the $17,566 Senior Secured Term Loan B receivable to us. We recorded a realized gain of $12,105 on the sale of our equity position in CCPI. In connection with the sale, there is $2,364 being held in escrow that is due to us, which will be recognized as an additional realized gain when received.
(20)
CP Holdings of Delaware LLC (“CP Holdings”), a consolidated entity in which we own 100% of the membership interests, owns 99.83% of CP Energy Services Inc. (“CP Energy”) as of December 31, 2019 and June 30, 2019. CP Energy owns directly or indirectly 100% of each of CP Well Testing, LLC; Wright Foster Disposals, LLC; Foster Testing Co., Inc.; ProHaul Transports, LLC; and Wright Trucking, Inc. We report CP Energy as a separate controlled company. On April 6, 2018, Arctic Oilfield Equipment USA, Inc. (“Arctic Equipment”), a previously controlled portfolio company, merged with and into CP Energy, with CP Energy continuing as the surviving corporation. In June 2019, CP Energy purchased a controlling interest in the common equity of Spartan Energy Holdings, Inc. (“Spartan Holdings”), which owns 100% of Spartan Energy Services, LLC (“Spartan”), a portfolio company of Prospect with $34,399 in senior secured term loans (the “Spartan Term Loans”) due to us as of June 30, 2019. As a result of CP Energy’s purchase, and given Prospect’s controlling interest in CP Energy, we report our investments in Spartan as control investments beginning June 30, 2019. Spartan remains the direct borrower and guarantor to Prospect for the Spartan Term Loans. In December 2019, Wolf Energy Holdings, Inc. (“Wolf Energy Holdings”), our Consolidated Holding Company that previously owned 100% of Appalachian Energy LLC (“AEH”); Wolf Energy Services Company, LLC (Wolf Energy Services”); and Wolf Energy, LLC (collectively our previously controlled membership interest and net profit interest investments in “Wolf Energy”), merged with and into CP Energy, with CP Energy continuing as the surviving entity. CP Energy acquired 100% of our equity in Wolf Energy, which is reflected in our valuation of CP Energy common stock as of December 31, 2019. (See Note 14).
(21)
Credit Central Holdings of Delaware, LLC (“Credit Central Delaware”), a consolidated entity in which we own 100% of the membership interests, owns 98.63% and 98.41% of Credit Central Loan Company, LLC (f/k/a Credit Central Holdings, LLC (“Credit Central”)) as of December 31, 2019 and June 30, 2019, respectively. 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, the operating companies. We report Credit Central as a separate controlled company.
(22)
Prospect holds an 11.51% membership interest in Edmentum Ultimate Holdings, LLC (“Edmentum Holdings”), which owns 100% of the equity of Edmentum, Inc.
(23)
First Tower Holdings of Delaware LLC (“First Tower Delaware”), a consolidated entity in which 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, the operating company as of December 31, 2019 and June 30, 2019. We report First Tower Finance as a separate controlled company.

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 December 31, 2019 (Unaudited) and June 30, 2019 (Continued)

(24)
Energy Solutions Holdings Inc., a consolidated entity in which we own 100% of the equity, owns 100% of Freedom Marine Solutions, LLC (“Freedom Marine”), which owns Vessel Company, LLC, Vessel Company II, LLC and Vessel Company III, LLC. We report Freedom Marine as a separate controlled company.
(25)
MITY Holdings of Delaware Inc. (“MITY Delaware”), a consolidated entity in which we own 100% of the common stock, owns 100% of the equity of MITY, Inc. (f/k/a MITY Enterprises, Inc.) (“MITY”). MITY owns 100% of each of MITY-Lite, Inc. (“Mity-Lite”); Broda Enterprises USA, Inc.; and Broda Enterprises ULC (“Broda Canada”). We report MITY as a separate controlled company. Our subordinated unsecured note issued and outstanding to Broda Canada is denominated in Canadian Dollars (“CAD”). As of December 31, 2019 and June 30, 2019, the principal balance of this note was CAD 7,371. In accordance with ASC 830, Foreign Currency Matters (“ASC 830”), this note was remeasured into our functional currency, US Dollars (USD), and is presented on our Consolidated Schedule of Investments in USD. We formed a separate legal entity domiciled in the United States, MITY FSC, Inc., (“MITY FSC”) in which Prospect owns 100% of the equity. MITY FSC does not have material operations. This entity earns commission payments from MITY-Lite based on its sales to foreign customers, and distributes it to its shareholder. 
(26)
NPH Property Holdings, LLC (“NPH”), a consolidated entity in which we own 100% of the membership interests, owns 100% of the common equity of National Property REIT Corp. (“NPRC”) (f/k/a National Property Holdings Corp.), a property REIT which holds investments in several real estate properties. Additionally, NPRC invests in online consumer loans and rated secured structured notes through American Consumer Lending Limited (“ACLL”) and National General Lending Limited (“NGL”), respectively, its wholly owned subsidiaries. We report NPRC as a separate controlled company. See Note 3 for further discussion of the investments held by NPRC. During the period from July 1, 2018 to December 27, 2018, we received partial repayments of $21,181 for our loans previously outstanding with NPRC and its wholly owned subsidiaries and $15,000 as a return of capital on our equity investment. Effective December 31, 2018, we amended and restated the terms of our credit agreement with NPRC. As part of the amendment, we increased our investment through a New Term Loan A Secured Note (“New TLA”) in the aggregate principal amount of $433,553, a New Term Loan B Secured Note (“New TLB”) in the aggregate principal amount of $205,000, and our net operating income interest was revised to a residual profit interest (refer to endnote 37 for residual profit interest calculation). NPRC utilized a portion of the proceeds from the New TLA and New TLB to repay the previously outstanding Senior Secured Term Loan A and Senior Secured Term Loan E. The remaining proceeds of $140,351 were returned to us as a return of capital, reducing our equity investment in NPRC. Effective October 31, 2019, we amended the terms of our credit agreement to increase our investment in NPRC and its wholly-owned subsidiaries through a new Senior Secured Term Loan C (“TLC”). During the three months ended December 31, 2019, we provided $51,428 and $12,857 in TLC and equity financing, respectively.
(27)
Nationwide Acceptance Holdings LLC (“Nationwide Holdings”), a consolidated entity in which we own 100% of the membership interests, owns 94.48% of Nationwide Loan Company LLC (f/k/a Nationwide Acceptance LLC), the operating company, as of December 31, 2019 and June 30, 2019. We report Nationwide Loan Company LLC as a separate controlled company. On June 1, 2015, Nationwide Acceptance LLC completed a reorganization and was renamed Nationwide Loan Company LLC (“Nationwide”) and formed two new wholly owned subsidiaries: Pelican Loan Company LLC (“Pelican”) and Nationwide Consumer Loans LLC. Nationwide assigned 100% of the equity interests in its other subsidiaries to Pelican which, in turn, assigned these interests to a new operating company wholly owned by Pelican named Nationwide Acceptance LLC (“New Nationwide”). New Nationwide also assumed the existing senior subordinated term loan due to Prospect.
(28)
NMMB Holdings, Inc. (“NMMB Holdings”), a consolidated entity in which we own 100% of the equity, owns 92.42% and 94.10% of the fully diluted equity of NMMB, Inc. (“NMMB”) as of December 31, 2019 and June 30, 2019, respectively. NMMB owns 100% of Refuel Agency, Inc., which owns 100% of Armed Forces Communications, Inc. We report NMMB as a separate controlled company. On December 30, 2019, NMMB executed a dividend recapitalization whereby Prospect invested $15,100 of a first lien term loan to repay NMMB’s existing term loan, provide a shareholder distribution, and pay fees and expenses. As part of the recapitalization, Prospect converted its Series A and Series B preferred securities into 92.42% common equity and received a dividend distribution of $2,797.
(29)
During the year ended June 30, 2018, Prospect exercised its rights and remedies under its loan documents to exercise the shareholder voting rights in respect of the stock of InterDent, Inc. (“InterDent”) and to appoint a new Board of Directors of InterDent. As a result, Prospect’s investment in InterDent is classified as a control investment.
(30)
Prospect owns 99.96% of the equity of USES Corp. as of December 31, 2019 and June 30, 2019.
(31)
Valley Electric Holdings I, Inc., a consolidated entity in which we own 100% of the common stock, owns 100% of Valley Electric Holdings II, Inc. (“Valley Holdings II”), another consolidated entity. Valley Holdings II owns 94.99% of Valley

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 December 31, 2019 (Unaudited) and June 30, 2019 (Continued)

Electric Company, Inc. (“Valley Electric”). 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. We report Valley Electric as a separate controlled company.
(32)
On March 14, 2017, assets previously held by Ark-La-Tex Wireline Services, LLC (“Ark-La-Tex”) were assigned to Wolf Energy Services Company, LLC, a new wholly owned subsidiary of Wolf Energy Holdings, Inc. (“Wolf Energy Holdings”), in exchange for a full reduction of Ark-La-Tex’s Senior Secured Term Loan A and a partial reduction of the Senior Secured Term Loan B cost basis, in total equal to $22,145. The cost basis of the transferred assets is equal to the appraised fair value of assets at the time of transfer. During the three months ended June 30, 2017, Ark-La-Tex Term Loan B was written off and a loss of $19,818 was realized. On June 30, 2017, the 18.00% Senior Secured Promissory Note, due April 15, 2018, in Wolf Energy, LLC was contributed to the equity of Wolf Energy LLC. There was no impact from the transaction due to the note being on non-accrual status and having zero cost basis. In December 2019, Wolf Energy Holdings merged with and into CP Energy, with CP Energy continuing as the surviving entity. See endnote 20.
(33)
Prospect owns 9.67% of the equity in Targus Cayman HoldCo Limited (“Targus”), the parent company of Targus International LLC (“Targus International”), as of December 31, 2019 and June 30, 2019.
(34)
On December 10, 2018, UTP Holdings Group, Inc. (“UTP Holdings”) purchased all of the voting stock of Universal Turbine Parts, LLC (“UTP”) and appointed a new Board of Directors to UTP Holdings, consisting of three employees of the Investment Advisor. At the time UTP Holdings acquired UTP, UTP Holdings (f/k/a Harbortouch Holdings of Delaware) was a wholly owned holding company controlled by Prospect and therefore Prospect’s investment in UTP is classified as a control investment as of June 30, 2019.
(35)
Centerfield Media Holding Company and Oology Direct Holdings, Inc. are joint borrowers and guarantors on the senior secured loan facilities.
(36)
Keystone Acquisition Corp. is the parent borrower on the second lien term loan. Other joint borrowers on this debt investment include Keystone Peer Review Organization, Inc., KEPRO Acquisitions, Inc., APS Healthcare Bethesda, Inc., Ohio KEPRO, Inc., and APS Healthcare Quality Review, Inc.
(37)
As of June 30, 2019, the residual profit interest was equal to 25% of NPRC’s residual profit, calculated quarterly in arrears. Effective October 31, 2019, the residual profit interest was amended to include both 8.33% of New TLA residual profit and 100% of New TLC residual profits, calculated in arrears.
(38)
The consolidated revenue interest is equal to the lesser of (i) 2.0% of consolidated revenue for the twelve-month period ending on the last day of the prior fiscal quarter (or portion thereof) and (ii) 25% of the amount of interest accrued on the Notes at the cash interest rate for such fiscal quarter (or portion thereof).
(39)
As of December 31, 2019 and June 30, 2019, Prospect owns 8.57% of the equity in Encinitas Watches Holdco, LLC (f/k/a Nixon Holdco, LLC), the parent company of Nixon, Inc. On February 26, 2018, Prospect entered into a debt forgiveness agreement with Nixon, Inc., which terminated $17,472 Senior Secured Term Loan receivable due to us. We recorded a realized loss of $14,197 in our Consolidated Statement of Operations for the year ended June 30, 2018 as a result of this transaction.
(40)
On May 29, 2018, Prospect exercised its rights and remedies under its loan documents to exercise the shareholder voting rights in respect of the stock of Pacific World Corporation (“Pacific World”) and to appoint a new Board of Directors of Pacific World. As a result, Prospect’s investment in Pacific World is classified as a control investment.
(41)
BAART Programs, Inc. and MedMark Services, Inc. are joint borrowers of the second lien term loan.
(42)
Turning Point Brands, Inc. and North Atlantic Trading Company, Inc. are joint borrowers and guarantors on the secured loan facility.
(43)
The overriding royalty interests held receive payments at the stated rates based upon operations of the borrower.

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 December 31, 2019 (Unaudited) and June 30, 2019 (Continued)


(44)
The following shows the composition of our investment portfolio at cost by control designation, investment type and by industry as of December 31, 2019:
Industry
1st Lien
Term Loan
2nd Lien
Term Loan
Subordinated Structured Notes
Subordinated Unsecured Debt
Equity (B)
Cost Total
Control Investments
 
 
 
 
 
 
Aerospace & Defense
$
59,115

$
—

$
—

$
—

$
22,738

$
81,853

Commercial Services & Supplies
123,855

—

—

6,627

6,849

137,331

Construction & Engineering
43,731

—

—

—

22,875

66,606

Consumer Finance
—

351,103

—

—

122,439

473,542

Diversified Consumer Services
—

—

—

—

2,378

2,378

Energy Equipment & Services
71,565

—

—

—

193,358

264,923

Equity Real Estate Investment Trusts (REITs)
433,553

—

—

—

62,887

496,440

Health Care Providers & Services
254,949

—

—

—

1

254,950

Machinery
—

28,622

—

—

6,866

35,488

Media
15,100

—

—

—

12,869

27,969

Online Lending
79,000

—

—

—

100,949

179,949

Personal Products
213,325

—

—

—

34,100

247,425

Trading Companies & Distributors
63,886

—

—

—

—

63,886

Structured Finance (A)
51,428

—

—

—

12,857

64,285

Total Control Investments
$
1,409,507

$
379,725

$
—

$
6,627

$
601,166

$
2,397,025

Affiliate Investments






Distributors
$
—

$
107,029

$
—

$
—

$
—

$
107,029

Diversified Consumer Services
—

8,033

—

33,851

6,577

48,461

Textiles, Apparel & Luxury Goods
—


—

—

2,805

2,805

 Total Affiliate Investments
$
—

$
115,062

$
—

$
33,851

$
9,382

$
158,295

Non-Control/Non-Affiliate Investments
 
 
 
 
 
 
Air Freight & Logistics
$
—

$
12,500

$
—

$
—

$
—

$
12,500

Auto Components
—

25,491

—

—

—

25,491

Capital Markets
—

—

—

—

—

—

Commercial Services & Supplies
56,823

175,719

—

—

—

232,542

Communications Equipment
9,086

50,516

—

—

—

59,602

Consumer Finance
28,563

—

—

—

—

28,563

Distributors
173,809

—

—

—

—

173,809

Diversified Consumer Services
—

100,091

—

—

—

100,091

Diversified Financial Services
30,433

—

—

—

—

30,433

Diversified Telecommunication Services
18,777

39,334

—

—

—

58,111

Entertainment
12,509

12,148

—

—

—

24,657

Food Products
—

24,841

—

—

—

24,841

Health Care Equipment & Supplies
—

7,471

—

—

—

7,471

Health Care Providers & Services
158,220

113,176

—

—

—

271,396

Hotels, Restaurants & Leisure
23,064

7,486

—

—

—

30,550

Household Durables
15,719

9,917

—

—

—

25,636

Household Products
24,563

—

—

—

—

24,563

Insurance
—

12,989

—

—

—

12,989

Interactive Media & Services
36,741

—

—

—

—

36,741

Internet & Direct Marketing Retail
18,149

—

—

—

—

18,149

IT Services
117,916

85,707

—

—

—

203,623


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 December 31, 2019 (Unaudited) and June 30, 2019 (Continued)

Industry
1st Lien
Term Loan
2nd Lien
Term Loan
Subordinated Structured Notes
Subordinated Unsecured Debt
Equity (B)
Cost Total
Leisure Products
29,150

—

—

—

1

29,151

Media
65,965

35,000

—

—

—

100,965

Paper & Forest Products
4,371

11,379

—

—

—

15,750

Professional Services
9,426

73,245

—

—

—

82,671

Real Estate Management & Development
38,432


—

—

—

38,432

Software
8,416

66,725

—

—

—

75,141

Technology Hardware, Storage & Peripherals

12,408

—

—

—

12,408

Textiles, Apparel & Luxury Goods
172,844

36,710

—

—

—

209,554

Transportation Infrastructure
—

27,620

—

—

—

27,620

Structured Finance (A)
—

—

1,093,667

—

—

1,093,667

 Total Non-Control/Non-Affiliate
$
1,084,183

$
940,473

$
1,093,667

$
—

$
1

$
3,118,324

Total Portfolio Investment Cost
$
2,493,690

$
1,435,260

$
1,093,667

$
40,478

$
610,549

$
5,673,644

The following table shows the composition of our investment portfolio at fair value by control designation, investment type and by industry as of December 31, 2019:
Industry
1st Lien
Term Loan
2nd Lien
Term Loan
Subordinated Structured Notes
Subordinated Unsecured Debt
Equity (B)
Fair Value Total
Fair Value % of Net Assets
Control Investments













 Aerospace & Defense
$
59,115

$
—

$
—

$
—

$
31,950

$
91,065

2.9
%
 Commercial Services & Supplies
72,287

—

—

—

—

72,287

2.3
%
 Construction & Engineering
43,731

—

—

—

78,769

122,500

3.8
%
 Consumer Finance
—

354,269

—

—

261,625

615,894

19.3
%
 Diversified Consumer Services
—

—

—

—

4,361

4,361

0.1
%
 Energy Equipment & Services
69,005

—

—

—

47,636

116,641

3.7
%
Equity Real Estate Investment Trusts (REITs)
433,553

—

—

—

450,746

884,299

27.8
%
 Health Care Providers & Services
196,971

—

—

—

—

196,971

6.2
%
 Machinery
—

28,622

—

—

7,881

36,503

1.1
%
 Media
15,100

—

—

—

22,818

37,918

1.2
%
 Online Lending
79,000

—

—

—

1,291

80,291

2.5
%
 Personal Products
62,610

—

—

—

—

62,610

2.0
%
 Trading Companies & Distributors
28,622

—

—

—



28,622

0.9
%
Structured Finance (A)
51,428

—

—

—

10,870

62,298

2.0
%
Total Control Investments
$
1,111,422

$
382,891

$
—

$
—

$
917,947

$
2,412,260

75.8
%
Fair Value % of Net Assets
34.9
%
12.0
%
—
%
—
%
28.8
%
75.8
%

Affiliate Investments







Distributors
$
—

$
6,357

$
—

$
—

$
—

$
6,357

0.2
%
Diversified Consumer Services
—

8,033

—

48,886

8,123

65,042

2.0
%
Textiles, Apparel & Luxury Goods
—



—



16,224

16,224

0.5
%
Total Affiliate Investments
$
—

$
14,390

$
—

$
48,886

$
24,347

$
87,623

2.8
%
Fair Value % of Net Assets
—
%
0.5
%
—
%
1.5
%
0.8
%
2.8
%

Non-Control/Non-Affiliate Investments













Air Freight & Logistics
$
—

$
12,385

$
—

$
—

$
—

$
12,385

0.4
%
Auto Components
—

25,491

—

—

—

25,491

0.8
%
Capital Markets
—

—

—

—

—

—

—
%
Commercial Services & Supplies
54,787

175,430

—

—

—

230,217

7.2
%
Communications Equipment
8,418

41,279

—

—

—

49,697

1.6
%
Consumer Finance
25,491

—

—

—

—

25,491

0.8
%
Distributors
171,165

—

—

—

—

171,165

5.4
%

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 December 31, 2019 (Unaudited) and June 30, 2019 (Continued)

Industry
1st Lien
Term Loan
2nd Lien
Term Loan
Subordinated Structured Notes
Subordinated Unsecured Debt
Equity (B)
Fair Value Total
Fair Value % of Net Assets
Diversified Consumer Services
—

85,332

—

—

—

85,332

2.7
%
Diversified Financial Services
30,433

—

—

—

—

30,433

1.0
%
Diversified Telecommunication Services
18,706

38,674

—

—

—

57,380

1.8
%
Electronic Equipment, Instruments & Components
—

—

—

—

2,307

2,307

0.1
%
Entertainment
12,559

12,194

—

—

—

24,753

0.8
%
Food Products
—

24,841

—

—

—

24,841

0.8
%
Health Care Equipment & Supplies
—

6,151

—

—

—

6,151

0.2
%
Health Care Providers & Services
158,059

113,174

—

—

—

271,233

8.5
%
Hotels, Restaurants & Leisure
21,310

7,500

—

—

—

28,810

0.9
%
Household Durables
4,353

8,558

—

—

—

12,911

0.4
%
Household Products
24,561

—

—

—

—

24,561

0.8
%
Insurance
—

12,989

—

—

—

12,989

0.4
%
Interactive Media & Services
36,741

—

—

—

—

36,741

1.2
%
Internet & Direct Marketing Retail
18,608

—

—

—

—

18,608

0.6
%
IT Services
117,916

85,750

—

—

—

203,666

6.4
%
Leisure Products
29,150

—

—

—

—

29,150

0.9
%
Media
65,776

31,305

—

—

—

97,081

3.0
%
Paper & Forest Products
4,371

11,379

—

—

—

15,750

0.5
%
Professional Services
9,800

75,416

—

—

—

85,216

2.7
%
Real Estate Management & Development
38,432

—

—

—

—

38,432

1.2
%
Software
8,416

66,725

—

—

—

75,141

2.4
%
Technology Hardware, Storage & Peripherals
—

12,408

—

—

—

12,408

0.4
%
Textiles, Apparel & Luxury Goods
172,844

36,710

—

—

—

209,554

6.6
%
Transportation Infrastructure
—

28,104

—

—

—

28,104

0.9
%
Structured Finance (A)
—

—

791,457

—

—

791,457

24.9
%
Total Non-Control/Non-Affiliate
$
1,063,103

$
911,795

$
791,457

$
—

$
2,307

$
2,768,662

87.0
%
Fair Value % of Net Assets
33.4
%
28.6
%
24.9
%
—
%
0.1
%
87.0
%

Total Portfolio
$
2,174,525

$
1,309,076

$
791,457

$
48,886

$
944,601

$
5,268,545

165.5
%
Fair Value % of Net Assets
68.3
%
41.1
%
24.9
%
1.5
%
29.7
%
165.5
%

(A) Our SSN investments do not have industry concentrations and as such have been separated in the tables above.
(B) Equity, unless specifically stated otherwise, includes our investments in preferred stock, common stock, membership interests, net profits interests, net operating income interests, net revenue interests, overriding royalty interests, escrows receivable, and warrants.
(45)
The following table shows the composition of our investment portfolio at cost by control designation, investment type and by industry as of June 30, 2019:
Industry
1st Lien
Term Loan
2nd Lien
Term Loan
Rated Secured Structured Notes
Subordinated Structured Notes
Subordinated Unsecured Debt
Equity (B)
Cost Total
Control Investments
 
 
 
 
 
 
 
Aerospace & Defense
$
54,841

$
—

$
—

$
—

$
—

$
22,738

$
77,579

Commercial Services & Supplies
126,505

—

—

—

6,915

6,849

140,269

Construction & Engineering
43,731

—

—

—

—

26,204

69,935

Consumer Finance
—

348,606

—

—

—

116,839

465,445

Energy Equipment & Services
69,447

—

—

—

—

192,216

261,663

Equity Real Estate Investment Trusts (REITs)
433,553

—

—

—

—

62,887

496,440

Health Care Providers & Services
248,872

—

—

—

—

1

248,873


See notes to consolidated financial statements.
39

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

Endnote Explanations as of December 31, 2019 (Unaudited) and June 30, 2019 (Continued)

Industry
1st Lien
Term Loan
2nd Lien
Term Loan
Rated Secured Structured Notes
Subordinated Structured Notes
Subordinated Unsecured Debt
Equity (B)
Cost Total
Machinery
—

28,622

—

—

—

6,866

35,488

Media
3,114

—

—

—

—

12,869

15,983

Online Lending
172,000

—

—

—

—

100,949

272,949

Personal Products
212,969

—

—

—

—

25,000

237,969

Trading Companies & Distributors
63,213

—

—

—

—

—

63,213

    Total Control Investments
$
1,428,245

$
377,228

$
—

$
—

$
6,915

$
573,418

$
2,385,806

Affiliate Investments




 








Distributors
$
—

$
127,091

$
—

$
—

$
—

$
—

$
127,091

Diversified Consumer Services
—

8,159

—

—

32,018

6,577

46,754

Textiles, Apparel & Luxury Goods
—

—

—

—

—

3,771

3,771

Total Affiliate Investments
$
—

$
135,250

$
—

$
—

$
32,018

$
10,348

$
177,616

Non-Control/Non-Affiliate Investments














Air Freight & Logistics
$
—

$
12,500

$
—

$
—

$
—

$
—

$
12,500

Auto Components
—

25,450

—

—

—

—

25,450

Building Products
—

19,842

—

—

—

—

19,842

Capital Markets
—

25,084

—

—

—

—

25,084

Commercial Services & Supplies
60,513

175,674

—

—

—

—

236,187

Communications Equipment
—

50,503

—

—

—

—

50,503

Consumer Finance
22,333

—

—

—

—

—

22,333

Distributors
172,815

—

—

—

—

—

172,815

Diversified Consumer Services
—

100,091

—

—

—

—

100,091

Diversified Telecommunication Services
9,923

26,311

—

—

—

—

36,234

Entertainment
16,128

20,093

—

—

—

—

36,221

Food Products
—

34,729

—

—

—

—

34,729

Health Care Equipment & Supplies
33,673

7,469

—

—

—

—

41,142

Health Care Providers & Services
125,265

96,284

—

—

—

—

221,549

Hotels, Restaurants & Leisure
27,252

7,485

—

—

—

—

34,737

Household Durables
15,888

13,403

—

—

—

—

29,291

Household Products
24,688

—

—

—

—

—

24,688

Insurance
—

12,988

—

—

—

—

12,988

Interactive Media & Services
37,861

—

—

—

—

—

37,861

IT Services
270,714

35,382

—

—

—

—

306,096

Leisure Products
32,868

—

—

—

—

1

32,869

Media
87,379

35,000

—

—

—

—

122,379

Paper & Forest Products
—

11,361

—

—

—

—

11,361

Professional Services
118,403

69,695

—

—

—

—

188,098

Real Estate Management & Development
38,852

—

—

—

—

—

38,852

Software
—

64,723

—

—

—

—

64,723

Technology Hardware, Storage & Peripherals
—

12,400

—

—

—

—

12,400

Textiles, Apparel & Luxury Goods
190,678

36,657

—

—

—

—

227,335

Tobacco
—

14,419

—

—

—

—

14,419

Transportation Infrastructure
—

27,578

—

—

—

—

27,578

Structured Finance (A)
—

—

44,774

1,103,751

—

—

1,148,525

Total Non-Control/Non-Affiliate
$
1,285,233

$
935,121

$
44,774

$
1,103,751

$
—

$
1

$
3,368,880

Total Portfolio Investment Cost
$
2,713,478

$
1,447,599

$
44,774

$
1,103,751

$
38,933

$
583,767

$
5,932,302


See notes to consolidated financial statements.
40

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

Endnote Explanations as of December 31, 2019 (Unaudited) and June 30, 2019 (Continued)


The following table shows the composition of our investment portfolio at fair value by control designation, investment type and by industry as of June 30, 2019:
Industry
1st Lien
Term Loan
2nd Lien
Term Loan
Rated Secured Structured Notes
Subordinated Structured Notes
Subordinated Unsecured Debt
Equity (B)
Fair Value Total
Fair Value % of Net Assets
Control Investments
 
 
 
 
 
 
 
 
Aerospace & Defense
$
54,841

$
—

$
—

$
—

$
—

$
34,860

$
89,701

2.7
%
Commercial Services & Supplies
62,627

—

—

—

—

—

62,627

1.9
%
Construction & Engineering
43,731



—

—

—

99,954

143,685

4.3
%
Consumer Finance
—

351,926

—

—

—

246,502

598,428

18.1
%
Energy Equipment & Services
69,447

—

—

—

—

84,418

153,865

4.7
%
Equity Real Estate Investment Trusts (REITs)
433,553

—

—

—

—

394,134

827,687

25.0
%
Health Care Providers & Services
224,876

—

—

—

—

—

224,876

6.8
%
Machinery
—

28,622

—

—

—

5,002

33,624

1.0
%
Media
3,114

—

—

—

—

21,069

24,183

0.7
%
Online Lending
172,000

—

—

—

—

4,778

176,778

5.3
%
Personal Products
112,427

—

—

—

—

—

112,427

3.4
%
Trading Companies & Distributors
28,043

—

—

—

—

—

28,043

0.8
%
Total Control Investments
$
1,204,659

$
380,548

$
—

$
—

$
—

$
890,717

$
2,475,924

74.9
%
Fair Value % of Net Assets
36.4
%
11.5
%
—
%
—
%
—
%
26.9
%
74.9
%


Affiliate Investments
















Distributors
$
—

$
18,866

$
—

$
—

$
—

$
—

$
18,866

0.6
%
Diversified Consumer Services
—

8,159

—

—

33,058

—

41,217

1.2
%
Textiles, Apparel & Luxury Goods
—

—

—

—

—

16,599

16,599

0.5
%
Total Affiliate Investments
$
—

$
27,025

$
—

$
—

$
33,058

$
16,599

$
76,682

2.3
%
Fair Value % of Net Assets
—
%
0.8
%
—
%
—
%
1.0
%
0.5
%
2.3
%


Non-Control/Non-Affiliate Investments
















Air Freight & Logistics
$
—

$
12,233

$
—

$
—

$
—

$
—

$
12,233

0.4
%
Auto Components
—

25,450

—

—

—

—

25,450

0.8
%
Building Products
—

19,842

—

—

—

—

19,842

0.6
%
Capital Markets
—

25,222

—

—

—

—

25,222

0.8
%
Commercial Services & Supplies
58,094

175,951

—

—

—

—

234,045

7.1
%
Communications Equipment
—

48,760

—

—

—

—

48,760

1.5
%
Consumer Finance
20,555

—

—

—

—

—

20,555

0.6
%
Distributors
171,271

—

—

—

—

—

171,271

5.2
%
Diversified Consumer Services
—

100,091

—

—

—

—

100,091

3.0
%
Diversified Telecommunication Services
9,923

26,311

—

—

—

—

36,234

1.1
%
Electronic Equipment, Instruments & Components
—

—

—

—

—

2,239

2,239

0.1
%
Entertainment
16,178

20,149

—

—

—

—

36,327

1.1
%
Food Products
—

34,729

—

—

—

—

34,729

1.1
%
Health Care Equipment & Supplies
34,010

7,144

—

—

—

—

41,154

1.2
%
Health Care Providers & Services
124,075

96,284

—

—

—

—

220,359

6.7
%
Hotels, Restaurants & Leisure
27,252

7,485

—

—

—

—

34,737

1.1
%
Household Durables
10,252

12,208

—

—

—

—

22,460

0.7
%
Household Products
24,688

—

—

—

—

—

24,688

0.7
%
Insurance
—

12,988

—

—

—

—

12,988

0.4
%
Interactive Media & Services
37,861

—

—

—

—

—

37,861

1.1
%
IT Services
269,657

35,703

—

—

—

—

305,360

9.2
%

See notes to consolidated financial statements.
41

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

Endnote Explanations as of December 31, 2019 (Unaudited) and June 30, 2019 (Continued)

Industry
1st Lien
Term Loan
2nd Lien
Term Loan
Rated Secured Structured Notes
Subordinated Structured Notes
Subordinated Unsecured Debt
Equity (B)
Fair Value Total
Fair Value % of Net Assets
Leisure Products
32,868

—

—

—

—

—

32,868

1.0
%
Media
86,704

30,580

—

—

—

—

117,284

3.5
%
Paper & Forest Products
—

11,500

—

—

—

—

11,500

0.3
%
Professional Services
118,813

71,365

—

—

—

—

190,178

5.8
%
Real Estate Management & Development
38,852

—

—

—

—

—

38,852

1.2
%
Software
—

64,729

—

—

—

—

64,729

2.0
%
Technology Hardware, Storage & Peripherals
—

12,400

—

—

—

—

12,400

0.4
%
Textiles, Apparel & Luxury Goods
189,725

36,657

—

—

—

—

226,382

6.8
%
Tobacco
—

14,500

—

—

—

—

14,500

0.4
%
Transportation Infrastructure
—

28,104

—

—

—

—

28,104

0.9
%
Structured Finance (A)
—

—

46,851

850,694

—

—

897,545

27.1
%
Total Non-Control/Non-Affiliate
$
1,270,778

$
930,385

$
46,851

$
850,694

$
—

$
2,239

$
3,100,947

93.8
%
Fair Value % of Net Assets
38.4
%
28.1
%
1.4
%
25.7
%
—
%
0.1
%
93.8
%


Total Portfolio
$
2,475,437

$
1,337,958

$
46,851

$
850,694

$
33,058

$
909,555

$
5,653,553

171.0
%
Fair Value % of Net Assets
74.9
%
40.5
%
1.4
%
25.7
%
1.0
%
27.5
%
171.0
%


(A) Our RSSN and SSN investments do not have industry concentrations and as such have been separated in the tables above.
(B) Equity, unless specifically stated otherwise, includes our investments in preferred stock, common stock, membership interests, net profits interests, net operating income interests, net revenue interests, overriding royalty interests, escrows receivable, and warrants.

See notes to consolidated financial statements.
42

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

Endnote Explanations as of December 31, 2019 (Unaudited) and June 30, 2019 (Continued)


(46)
The interest rate on these investments, excluding those on non-accrual, contains a paid in kind (“PIK”) provision, whereby the issuer has either the option or the obligation to make interest payments with the issuance of additional securities. The interest rate in the schedule represents the current interest rate in effect for these investments.
The following table provides additional details on these PIK investments, including the maximum annual PIK interest rate allowed under the existing credit agreements, as of and for three months ended December 31, 2019:
Security Name
PIK Rate -
Capitalized
PIK Rate -
Paid as cash
Maximum
Current PIK Rate
 
Cinedigm DC Holdings, LLC
—
%
2.50
%
2.50
%
 
CP Energy - Spartan Energy Services, Inc. - Term Loan B
15.80
%
—
%
15.80
%
 
Credit Central Loan Company
—
%
10.00
%
10.00
%
(A)
Echelon Transportation, LLC
2.25
%
—
%
2.25
%
(B)
Echelon Transportation, LLC
1.00
%
—
%
1.00
%
(C)
Edmentum Ultimate Holdings, LLC - Revolver
5.00
%
—
%
5.00
%
 
Edmentum Ultimate Holdings, LLC - Senior PIK Note
8.50
%
—
%
8.50
%
 
Edmentum Ultimate Holdings, LLC - Junior PIK Note
10.00
%
—
%
10.00
%
 
First Tower Finance Company LLC
0.20
%
10.30
%
10.50
%
 
Interdent, Inc - Senior Secured Term Loan B
10.00
%
—
%
10.00
%
 
MITY, Inc. - Senior Secured Term Loan B
10.00
%
—
%
10.00
%
 
National Property REIT Corp. - Senior Secured Term Loan A
—
%
5.00
%
5.00
%
 
National Property REIT Corp. - Senior Secured Term Loan B
—
%
5.50
%
5.50
%
 
National Property REIT Corp. - Senior Secured Term Loan C
—
%
2.25
%
2.25
%
(D)
Nationwide Loan Company LLC
10.00
%
—
%
10.00
%
 
Valley Electric Co. of Mt. Vernon, Inc.
—
%
2.50
%
2.50
%
 
Valley Electric Company, Inc.
—
%
10.00
%
10.00
%
 
Venio LLC
10.00
%
—
%
10.00
%
 
(A) On December 17, 2018, the Credit Central Senior Subordinated Loan Agreement was amended to allow interest accruing in cash to be payable in kind resulting in a maximum current PIK rate of 20.00%.
(B) On January 31, 2018, the Echelon Fourth Amended and Restated Credit Agreement was amended to allow interest accruing in cash to be payable in kind resulting in a maximum current PIK rate of 14.50%.
(C) On January 31, 2018, the Echelon Fourth Amended and Restated Credit Agreement was amended to allow interest accruing in cash to be payable in kind resulting in a maximum current PIK rate of 12.50%.
(D) On October 31, 2019, the National Property REIT Corp. Eleventh Amended and Restated Credit Agreement was amended to increase our investment through a New Term Loan C Secured Note (“New TLC”) accruing interest payable in kind at a maximum current PIK rate of 2.25%.


See notes to consolidated financial statements.
43

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

Endnote Explanations as of December 31, 2019 (Unaudited) and June 30, 2019 (Continued)

The following table provides additional details on these PIK investments, including the maximum annual PIK interest rate allowed under the existing credit agreements, as of and for three months ended June 30, 2019:    
Security Name
PIK Rate -
Capitalized
PIK Rate -
Paid as cash
Maximum
Current PIK Rate
 
Cinedigm DC Holdings, LLC
—%
2.50%
2.50%
 
CP Energy - Spartan Energy Services, LLC Term Loan B
16.44%
—%
16.44%
 
Credit Central Loan Company
6.53%
3.47%
10.00%
(A)
Echelon Transportation, LLC
2.25%
—%
2.25%
(B)
Echelon Transportation, LLC
1.00%
—%
1.00%
(C)
Edmentum Ultimate Holdings, LLC - Revolver
5.00%
—%
5.00%
 
Edmentum Ultimate Holdings, LLC - Senior PIK Note
8.50%
—%
8.50%
 
First Tower Finance Company LLC
7.48%
3.02%
10.50%
 
Interdent, Inc - Senior Secured Term Loan B
16.00%
—%
16.00%
 
MITY, Inc.
10.00%
—%
10.00%
 
National Property REIT Corp. - Senior Secured Term Loan A
—%
5.00%
5.00%
 
National Property REIT Corp. - Senior Secured Term Loan B
—%
5.50%
5.50%
 
Nationwide Loan Company LLC
10.00%
—%
10.00%
 
Valley Electric Co. of Mt. Vernon, Inc.
—%
2.50%
2.50%
 
Valley Electric Company, Inc.
5.00%
5.00%
10.00%
 
Venio LLC
10.10%
—%
10.10%
 
(A) On December 17, 2018, the Credit Central Senior Subordinated Loan Agreement was amended to allow interest accruing in cash to be payable in kind resulting in a maximum current PIK rate of 20.00%.
(B) On January 31, 2018, the Echelon Fourth Amended and Restated Credit Agreement was amended to allow interest accruing in cash to be payable in kind resulting in a maximum current PIK rate of 14.50%. Next PIK payment/capitalization date was July 31, 2019.
(C) On January 31, 2018, the Echelon Fourth Amended and Restated Credit Agreement was amended to allow interest accruing in cash to be payable in kind resulting in a maximum current PIK rate of 12.50%. Next PIK payment/capitalization date was July 31, 2019.




See notes to consolidated financial statements.
44

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

Endnote Explanations as of December 31, 2019 (Unaudited) and June 30, 2019 (Continued)

(47)
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 six months ended December 31, 2019 with these controlled investments were as follows:
Portfolio Company
Fair Value at June 30, 2019
Gross Additions (Cost)(A)
Gross Reductions (Cost)(B)
Net unrealized
gains (losses)
Fair Value at December 31, 2019
Interest
income
Dividend
income
Other
income
Net realized
gains (losses)
 CP Energy Services Inc.
$
104,533

$
5,039

$
—

$
(41,808
)
$
67,764

$
2,367

$
—

$
—

$
—

 CP Energy - Spartan Energy Services, Inc.
34,398

2,119

—

(2,560
)
33,957

2,503

—

—

—

 Credit Central Loan Company, LLC
71,417

6,716

—

(1,251
)
76,882

5,967

—

112

—

 Echelon Aviation LLC
89,701

4,274

—

(2,910
)
91,065

4,074

—

—

—

 First Tower Finance Company LLC
494,036

2,849

(2,273
)
8,173

502,785

29,207

—

—

—

 Freedom Marine Solutions, LLC
14,920

—

—

—

14,920

—

—

—

—

 InterDent, Inc.
224,876

6,077

—

(33,982
)
196,971

9,416

—

—

—

Kickapoo Ranch Pet Resort
—

2,378

—

1,983

4,361

—

—

—

—

 MITY, Inc.
46,902

1,801

(289
)
7,772

56,186

4,458

—

293

—

 National Property REIT Corp.
1,004,465

64,285

(93,000
)
51,138

1,026,888

33,469

—

23,281

—

 Nationwide Loan Company LLC
32,975

804

—

2,448

36,227

1,930

—

—

—

 NMMB, Inc.
24,183

15,100

(3,114
)
1,749

37,918

138

2,797

453

—

 Pacific World Corporation
112,427

9,100

356

(59,273
)
62,610

527

—

—

—

 R-V Industries, Inc.
33,624

—

—

2,879

36,503

1,590

—

—

—

 Universal Turbine Parts, LLC
28,043

1,000

(327
)
(94
)
28,622

1,266

—

100

—

 USES Corp.
15,725

1,500

(5,950
)
4,826

16,101

—

—

—

—

 Valley Electric Company, Inc.
143,685

—

(3,329
)
(17,856
)
122,500

3,556

4,271

333

—

 Wolf Energy, LLC
14

(3,914
)
18

3,882

—

—

—

—

—

Total
$
2,475,924

$
119,128

$
(107,908
)
$
(74,884
)
$
2,412,260

$
100,468

$
7,068

$
24,572

$
—

(A) Gross additions include increases in the cost basis of the investments resulting from new portfolio investments, OID accretion and PIK interest, and any transfer of investments.
(B) Gross reductions include decreases in the cost basis of investments resulting from principal collections related to investments repayments or sales, impairments, and any transfer of investments.

(48)
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 six months ended December 31, 2019 with these affiliated investments were as follows:
Portfolio Company
Fair Value at June 30, 2019
Gross Additions (Cost)(A)
Gross Reductions (Cost)(B)
Net unrealized
gains (losses)
Fair Value at December 31, 2019
Interest
income
Dividend
income
Other
income
Net realized
gains (losses)
Edmentum Ultimate Holdings, LLC
$
41,217

$
3,699

$
(1,992
)
$
22,118

$
65,042

$
2,702

$
—

$
—

$
—

Nixon, Inc.
—

—

—

—

—

—

—

—

—

Targus Cayman HoldCo Limited
16,599

—

(967
)
592

16,224

—

—

—

—

United Sporting Companies, Inc.
18,866

—

(20,061
)
7,552

6,357

—

—

—

—

Total
$
76,682

$
3,699

$
(23,020
)
$
30,262

$
87,623

$
2,702

$
—

$
—

$
—

(A) Gross additions include increases in the cost basis of the investments resulting from new portfolio investments, PIK interest, and any transfer of investments.
(B) Gross reductions include decreases in the cost basis of investments resulting from principal collections related to investments repayments or sales, impairments, and any transfer of investments.



See notes to consolidated financial statements.
45

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

Endnote Explanations as of December 31, 2019 (Unaudited) and June 30, 2019 (Continued)

(49)
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, 2019 with these controlled investments were as follows:
Portfolio Company
Fair Value at June 30, 2018
Gross Additions (Cost)(A)
Gross Reductions (Cost)(B)
Net unrealized
gains (losses)
Fair Value at June 30, 2019
Interest
income
Dividend
income
Other
income
Net realized
gains (losses)
CCPI, Inc.
$
35,756

$
—

$
(27,459
)
$
(8,297
)
$
—

$
2,629

$
—

$
1,301

$
12,105

CP Energy Services Inc.(C)
123,261

34,184

—

(18,514
)
138,931

4,810

—

—

—

Credit Central Loan Company, LLC
76,677

5,081

—

(10,341
)
71,417

11,886

—

—

—

Echelon Transportation LLC
82,278

7,742

—

(319
)
89,701

7,102

—

—

—

First Tower Finance Company LLC
443,010

6,823

(2,478
)
46,681

494,036

56,125

—

—

—

Freedom Marine Solutions, LLC
13,037

300

—

1,583

14,920

—

—

—

—

InterDent, Inc.
197,621

36,173

—

(8,918
)
224,876

24,779

—

—

—

MITY, Inc.
58,894

5,143

(284
)
(16,851
)
46,902

8,149

—

276

—

National Property REIT Corp.
1,054,976

11,583

(69,181
)
7,087

1,004,465

75,249

21,000

33,634

—

Nationwide Loan Company LLC
33,853

1,206

—

(2,084
)
32,975

3,621

165

—

—

NMMB, Inc.
18,735

—

(5,500
)
10,948

24,183

958

—

—

—

Pacific World Corporation
165,020

19,000

(9,606
)
(61,987
)
112,427

3,762

—

—

—

R-V Industries, Inc.
31,886

—

—

1,738

33,624

3,295

—

—

—

SB Forging Company II, Inc.
2,194

—

—

(2,194
)
—

—

—

—

2,204

Universal Turbine Parts, LLC (D)
—

45,129

(488
)
(16,598
)
28,043

1,970

—

—

—

USES Corp.
16,319

3,500

—

(4,094
)
15,725

—

—

—

—

Valley Electric Company, Inc.
50,797

5,521

—

87,367

143,685

6,877

12,962

800

—

Wolf Energy, LLC
12

46

58

(102
)
14

—

—

—

—

Total
$
2,404,326

$
181,431

$
(114,938
)
$
5,105

$
2,475,924

$
211,212

$
34,127

$
36,011

$
14,309

(A) Gross additions include increases in the cost basis of the investments resulting from new portfolio investments, PIK interest, and any transfer of investments.
(B) Gross reductions include decreases in the cost basis of investments resulting from principal collections related to investments repayments or sales, impairments, and any transfer of investments.
(C)
In June 2019, CP Energy purchased approximately 67.2% (64.1% including options) of the common equity of Spartan Holdings, which owns 100% of Spartan, a portfolio company of Prospect. As a result of CP Energy’s purchase, and given Prospect’s controlling interest in CP Energy, our Spartan Term Loans are presented as control investments under CP Energy beginning June 30, 2019. Accordingly, Spartan was transferred from non-controlled/non-affiliate investments at $33,313, the fair market value at the beginning of the three month period ended June 30, 2019. Refer to endnote 20.
(D)
Investment was transferred from non-controlled/non-affiliate investments at $45,129, the fair market value at the beginning of the three month period ended December 31, 2018. Refer to endnote 34.
(50)
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, 2019 with these affiliated investments were as follows:
Portfolio Company
Fair Value at June 30, 2018
Gross Additions (Cost)(A)
Gross Reductions (Cost)(B)
Net unrealized
gains (losses)
Fair Value at June 30, 2019
Interest
income
Dividend
income
Other
income
Net realized
gains (losses)
Edmentum Ultimate Holdings, LLC
$
35,216

$
8,850

$
(7,855
)
$
5,006

$
41,217

$
943

$
—

$
—

$
—

Nixon, Inc.
—

—

—

—

—

—

—

—

—

Targus Cayman HoldCo Limited
23,220

—

(6,106
)
(515
)
16,599

—

659

—

—

United Sporting Companies, Inc. (C)
—

58,806

—

(39,940
)
18,866

—

—

—

—

Total
$
58,436

$
67,656

$
(13,961
)
$
(35,449
)
$
76,682

$
943

$
659

$
—

$
—

(A) Gross additions include increases in the cost basis of the investments resulting from new portfolio investments, PIK interest and any transfer of investments.
(B) Gross reductions include decreases in the cost basis of investments resulting from principal collections related to investments repayments or sales, impairments, and any transfer of investments.
(C) Investment was transferred from non-controlled/non-affiliate investments at $58,806, the fair market value at the beginning of the three month period ended September 30, 2018. Refer to endnote 18.

See notes to consolidated financial statements.
46

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

Endnote Explanations as of December 31, 2019 (Unaudited) and June 30, 2019 (Continued)

(51)
Acquisition date represents the date of PSEC's initial investment. Follow-on acquisitions have occurred on the following dates to arrive at PSEC's current investment (excluding effects of capitalized PIK interest, premium/original issue discount amortization/accretion, and partial repayments) (See endnote 52 for NPRC follow-on acquisitions):
Portfolio Company
Investment
Follow-On Acquisition Dates
Follow-On Acquisitions
(Excluding initial investment cost)
ACE Cash Express, Inc.
Senior Secured Note
5/24/2019, 7/16/2019, 12/20/2019
$
10,882

AgaMatrix, Inc.
Senior Secured Term Loan
4/11/2018
5,000

Apidos CLO IX
Subordinated Structured Note
2/26/2015
2,325

Apidos CLO XI
Subordinated Structured Note
11/10/2016
2,160

Apidos CLO XII
Subordinated Structured Note
2/22/2018
4,070

Apidos CLO XV
Subordinated Structured Note
4/20/2018
6,480

Atlantis Health Care Group (Puerto Rico), Inc.
Revolving Line of Credit
4/15/2013, 5/21/2013, 3/11/2014, 6/26/2017, 9/29/2017, 10/12/2017, 10/31/2017
7,500

Atlantis Health Care Group (Puerto Rico), Inc.
Senior Secured Term Loan
12/9/2016
42,000

Barings CLO 2018-III
Subordinated Structured Note
6/15/2018
9,255

Broder Bros., Co.
Senior Secured Note
1/29/2019, 2/28/2019
450

Brookside Mill CLO Ltd.
Subordinated Structured Note
7/2/2013, 2/15/2018
3,696

California Street CLO IX Ltd.
Subordinated Structured Note
9/9/2016, 10/17/2016
6,842

Capstone Logistics Acquisition, Inc.
Second Lien Term Loan
6/12/2015
37,500

CCS-CMGC Holdings, Inc.
First Lien Term Loan
10/8/2019
4,692

CCS-CMGC Holdings, Inc.
Second Lien Term Loan
8/20/2019
1,993

Cent CLO 21 Limited
Subordinated Structured Note
7/27/2018
1,024

Centerfield Media Holding Company
Senior Secured Term Loan A
9/14/2018
10,100

Centerfield Media Holding Company
Senior Secured Term Loan B
9/14/2018
10,100

CIFC Funding 2014-IV-R, Ltd.
Subordinated Structured Note
10/18/2018
1,158

Coverall North America, Inc.
Senior Secured Term Loan A
7/2/2018
13

Coverall North America, Inc.
Senior Secured Term Loan B
7/2/2018
2

CP Energy Services Inc.
Common Stock
10/11/2013, 12/26/2013, 4/6/2018, 12/31/2019
69,586

CP VI Bella Midco
Second Lien Term Loan
8/10/2018, 10/15/2018, 5/23/2019, 6/4/2019
13,711

Credit Central Loan Company, LLC
Class A Units
12/28/2012, 3/28/2014, 6/26/2014, 9/28/2016, 8/21/2019
11,975

Credit Central Loan Company, LLC
Subordinated Term Loan
6/26/2014, 9/28/2016
41,335

Echelon Transportation, LLC
Membership Interest
3/31/2014, 9/30/2014, 12/9/2016
22,488

Echelon Transportation, LLC
Senior Secured Term Loan
11/14/2018, 7/9/2019
2,100

Edmentum Ultimate Holdings, LLC
Second Lien Revolving Credit Facility to Edmentum, Inc.
2/19/2016, 3/17/2016, 4/20/2016, 5/19/2016, 6/22/2016, 1/31/2017, 2/14/2017, 3/1/2017, 3/14/2017, 3/28/2017, 4/11/2017, 4/25/2017, 5/10/2017, 10/30/2017, 11/8/2017, 11/21/2017, 12/20/2017, 1/3/2018, 1/17/2018, 1/30/2018, 12/12/2018, 12/21/2018, 1/15/2019, 2/1/2019, 2/26/2019, 2/28/2019, 3/18/2019, 4/9/2019,11/22/2019,12/17/2019
32,767

First Tower Finance Company LLC
Class A Units
12/30/2013, 6/24/2014, 12/15/2015, 11/21/2016, 3/9/2018
39,885

First Tower Finance Company LLC
Subordinated Term Loan to First Tower, LLC
12/15/2015, 3/9/2018
20,924

Freedom Marine Solutions, LLC
Membership Interest
10/1/2009, 12/22/2009, 1/13/2010, 3/30/2010, 5/13/2010, 2/14/2011, 4/28/2011, 7/7/2011, 10/20/2011, 10/30/2015, 1/7/2016, 4/11/2016, 8/11/2016, 1/30/2017, 4/20/2017, 6/13/2017, 8/30/2017, 1/17/2018, 2/15/2018, 5/8/2018, 10/31/2018
39,868

Galaxy XV CLO, Ltd.
Subordinated Structured Note
8/26/2015, 3/15/2017
9,161

Galaxy XXVII CLO, Ltd.
Subordinated Structured Note
6/16/2015
1,460

GEON Performance Solutions, LLC
Revolving Line of Credit
12/12/2019
724

Global Tel*Link Corporation
Second Lien Term Loan
4/10/2019, 8/22/2019, 9/20/2019
14,686

HELP/SYSTEMS HOLDINGS, INC.
First Lien Term Loan
11/29/2019
8,415

Help/Systems Holdings, Inc.
Second Lien Term Loan
5/10/2018, 3/11/2019, 11/22/2019
19,649

Inpatient Care Management Company, LLC
Senior Secured Term Loan
12/22/2016, 6/29/2018
10,003

Interdent, Inc.
Senior Secured Term Loan A
2/11/2014, 4/21/2014, 11/25/2014, 12/23/2014
76,125

Interdent, Inc.
Senior Secured Term Loan B
2/11/2014, 4/21/2014, 11/25/2014, 12/23/2014
76,125

Interdent, Inc.
Senior Secured Term Loan C
8/1/2018
31,558


See notes to consolidated financial statements.
47

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

Endnote Explanations as of December 31, 2019 (Unaudited) and June 30, 2019 (Continued)

Portfolio Company
Investment
Follow-On Acquisition Dates
Follow-On Acquisitions
(Excluding initial investment cost)
Janus International Group, LLC
Second Lien Term Loan
8/3/2018, 8/9/2018, 8/20/2018, 9/6/2018
9,915

JD Power and Associates
Second Lien Term Loan
8/10/2017, 8/31/2018, 3/11/2019, 4/10/2019
15,239

Jefferson Mill CLO Ltd.
Subordinated Structured Note
9/27/2018
2,047

K&N Parent, Inc.
Second Lien Term Loan
8/14/2018, 9/5/2018, 9/7/2018, 9/10/2018, 9/24/2018
12,695

Kickapoo Ranch Pet Resort
Membership Interest
10/21/2019, 12/4/2019
28

LCM XIV Ltd.
Subordinated Structured Note
11/2/2015, 6/6/2018
9,422

Madison Park Funding IX, Ltd.
Subordinated Structured Note
9/27/2018
7,320

MITY, Inc.
Common Stock
6/23/2014
7,200

MITY, Inc.
Senior Secured Note A
1/17/2017
8,000

MITY, Inc.
Senior Secured Note B
6/23/2014, 1/17/2017, 6/3/2019
26,769

MRP Holdco, Inc.
Senior Secured Term Loan A
12/7/2018
12,000

MRP Holdco, Inc.
Senior Secured Term Loan B
12/7/2018
12,000

Nationwide Loan Company LLC
Class A Units
3/28/2014, 6/18/2014, 9/30/2014, 6/29/2015, 3/31/2016, 8/31/2016, 5/31/2017, 10/31/2017
20,469

Nationwide Loan Company LLC
Senior Subordinated Term Loan to Nationwide Acceptance LLC
12/28/2015, 8/31/2016
1,999

National Property REIT Corp.
Senior Secured Term Loan C
10/31/2019
51,428

NMMB, Inc.
Senior Secured Term Loan
12/30/2019
15,100

NMMB, Inc.
Series A and B Preferred Stock
12/13/2013, 10/1/2014
8,469

Octagon Investment Partners XV, Ltd.
Subordinated Structured Note
4/30/2015, 8/6/2015, 6/30/2017
10,516

Octagon Investment Partners 18-R Ltd.
Subordinated Structured Note
4/20/2018
8,908

Pacific World Corporation
Revolving Line of Credit
10/21/2014, 12/19/2014, 4/7/2015, 4/22/2015, 8/12/2016, 10/18/2016, 2/7/2017, 2/21/2017, 4/26/2017, 10/11/2017, 10/17/2017, 1/16/2018, 12/27/2018, 3/15/2019, 7/2/2019, 8/15/2019
36,825

Pacific World Corporation
Convertible Preferred Equity
4/3/2019, 4/29/2019, 6/3/2019, 10/4/2019, 11/12/2019, 12/20/2019
17,100

PeopleConnect Intermediate, LLC
Revolving Line of Credit
12/18/2017
500

PeopleConnect Intermediate, LLC
Senior Secured Term Loan A
8/11/2015
6,500

PeopleConnect Intermediate, LLC
Senior Secured Term Loan B
8/11/2015
6,500

PG Dental Holdings New Jersey, LLC
Delayed Draw Term Loan
8/26/2019
2,000

PG Dental Holdings New Jersey, LLC
Senior Secured Term Loan
5/31/2019
20

PGX Holdings, Inc.
Second Lien Term Loan
12/23/2016, 12/28/2016
15,034

RGIS Services, LLC
Senior Secured Term Loan
7/19/2017, 8/2/2017, 8/9/2017, 8/16/2017, 9/11/2017, 4/10/2019, 5/1/2019
19,293

Romark WM-R Ltd.
Subordinated Structured Note
10/21/2014, 4/12/2018
5,313

R-V Industries, Inc.
Common Stock
12/27/2016
1,854

Securus Technologies Holdings, Inc.
Second Lien Term Loan
11/13/2017, 11/24/2017, 8/6/2018, 8/24/2018, 3/18/2019
22,750

SEOTownCenter, Inc.
Senior Secured Term Loan A
11/2/2018
3,000

SEOTownCenter, Inc.
Senior Secured Term Loan B
11/2/2018
2,000

SESAC Holdco II LLC
Second Lien Term Loan
4/5/2019
4,975

Sorenson Communications, LLC
First Lien Term Loan
5/14/2019
8,000

Symphony CLO XV, Ltd.
Subordinated Structured Note
12/24/2018
2,655

TouchTunes Interactive Networks, Inc.
Second Lien Term Loan
11/3/2016, 11/14/2016
9,000

Town & Country Holdings, Inc.
First Lien Term Loan
7/13/2018, 7/16/2018
105,000

Transplace Holdings, Inc.
Second Lien Term Loan
1/4/2018
3,518

United Sporting Companies, Inc.
Second Lien Term Loan
3/7/2013
58,650

Universal Turbine Parts, LLC
Delayed Draw Term Loan
10/24/2019
1,000

USES Corp.
Senior Secured Term Loan A
6/15/2016, 6/29/2016, 2/22/2017, 4/27/2017, 5/4/2017, 8/30/2017, 10/11/2017, 12/11/2018, 8/30/2019
14,100

USG Intermediate, LLC
Revolving Line of Credit
7/2/2015, 9/23/2015, 9/14/2017, 8/21/2019
5,200

USG Intermediate, LLC
Senior Secured Term Loan A
8/24/2017
2,025

USG Intermediate, LLC
Senior Secured Term Loan B
8/24/2017
2,975

Valley Electric Company, Inc.
Common Stock
12/31/2012, 6/24/2014
18,502


See notes to consolidated financial statements.
48

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

Endnote Explanations as of December 31, 2019 (Unaudited) and June 30, 2019 (Continued)

Portfolio Company
Investment
Follow-On Acquisition Dates
Follow-On Acquisitions
(Excluding initial investment cost)
Valley Electric Company, Inc.
Senior Secured Note
6/30/2014, 8/31/2018
5,129

VC GB Holdings, Inc.
Subordinated Secured Term Loan
3/13/2019
1,485

Voya CLO 2014-1, Ltd.
Subordinated Structured Note
4/19/2018
3,943

Voya CLO 2016-3, Ltd.
Subordinated Structured Note
7/1/2019
75

Wolf Energy, LLC
Membership Interest in Wolf Energy Services Company, LLC
5/17/2017
16

(52)
Since Prospect's initial common equity investment in NPRC on December 31, 2013, we have made numerous additional follow-on investments that have been used to invest in new and existing properties as well as online consumer loans and rated secured structured notes. These follow-on acquisitions are summarized by fiscal year below (excluding effects of return of capital distributions). Details of specific transactions are included in the respective fiscal year Form 10-K filing:
Fiscal Year
Follow-On Investments
(NPRC Common Stock, excluding cost of initial investment)
2014
$
4,555

2015
68,693

2016
93,857

2017
116,830

2018
137,024

2019
11,582

2020
12,857



See notes to consolidated financial statements.
49

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



Note 1. Organization
In this report, the terms “Prospect,” “the Company,” “we,” “us” and “our” mean Prospect Capital Corporation and its subsidiaries unless the context specifically requires otherwise.

Prospect is 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 were organized on April 13, 2004, and were funded in an initial public offering completed on July 27, 2004.

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 small business whole loans on a recurring basis from online small business loan originators, including On Deck Capital, Inc. (“OnDeck”). On September 30, 2014, we formed a wholly owned subsidiary Prospect Yield Corporation, LLC (“PYC”) and effective October 23, 2014, PYC holds a portion of our investments in Rated Secured Structured Notes (“RSSN”) and Subordinated Structured Notes (“SSN”) (collectively referred to as “collateralized loan obligations” or “CLOs”). Each of these subsidiaries have been consolidated since operations commenced.
We consolidate certain of our wholly owned and substantially wholly owned holding companies formed by us in order to facilitate our investment strategy. The following companies are included in our consolidated financial statements and are collectively referred to as the “Consolidated Holding Companies”: CP Holdings of Delaware LLC; Credit Central Holdings of Delaware, LLC; Energy Solutions Holdings Inc.; First Tower Holdings of Delaware LLC; MITY Holdings of Delaware Inc.; Nationwide Acceptance Holdings LLC; NMMB Holdings, Inc.; NPH Property Holdings, LLC; STI Holding, Inc.; UTP Holdings Group Inc.; Valley Electric Holdings I, Inc.; and Valley Electric Holdings II, Inc.
We are externally managed by our investment adviser, Prospect Capital Management L.P. (“Prospect Capital Management” or the “Investment Adviser”). Prospect Administration LLC (“Prospect Administration” or the “Administrator”), a wholly owned subsidiary of the Investment Adviser, provides administrative services and facilities necessary for us to operate.
Our investment objective is to generate both current income and long-term capital appreciation through debt and equity investments. We invest primarily in senior and subordinated debt and equity of private companies in need of capital for acquisitions, divestitures, growth, development, recapitalizations and other purposes. We work with the management teams or financial sponsors to identify investments with historical cash flows, asset collateral or contracted pro forma cash flows for investment.
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, 10 and 12 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, PYC, 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.
Reclassifications

Certain reclassifications have been made in the presentation of prior consolidated financial statements and accompanying notes to conform to the presentation as of and for the six months ended December 31, 2019.

50
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)
(in thousands, except share and per share data)


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 the issuers of our investment portfolio and any other parameters used in determining these estimates could cause actual results to differ, and these differences could be material.
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 more than 25% 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 a BDC, we must not acquire any assets other than “qualifying assets” specified in the 1940 Act unless, at the time the acquisition is made, at least 70% of our total assets are qualifying assets (with certain limited exceptions). As of December 31, 2019 and June 30, 2019, our qualifying assets as a percentage of total assets, stood at 73.62% and 73.85%, respectively.
Investment Transactions
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. Specifically, we record all security transactions on a trade date basis. 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. In accordance with ASC 325-40, Beneficial Interest in Securitized Financial Assets, investments in CLOs are periodically assessed for other-than-temporary impairment (“OTTI”). When the Company determines that a CLO has OTTI, the amortized cost basis of the CLO is written down to its fair value as of the date of the determination based on events and information evaluated and that write-down is recognized as a realized loss. Amounts for investments traded but not yet settled are reported in Due to Broker or Due from Broker, in the Consolidated Statements of Assets and Liabilities.
Foreign Currency
Foreign currency amounts are translated into US Dollars (USD) on the following basis:
i.
fair value of investment securities, other assets and liabilities—at the spot exchange rate on the last business day of the period; and
ii.
purchases and sales of investment securities, income and expenses—at the rates of exchange prevailing on the respective dates of such investment transactions, income or expenses.
We do not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in fair values of investments held or disposed of during the period. Such fluctuations are included within the net realized and net change in unrealized gains or losses from investments in the Consolidated Statements of Operations.
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.

51
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)
(in thousands, except share and per share data)


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 us less likely to fully earn all of the expected income of that security and reinvesting in a lower yielding instrument.
Structured Credit Related Risk

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. 
Online Small-and-Medium-Sized Business Lending Risk
With respect to our online small-and-medium-sized business (“SME”) lending initiative, we invest primarily in marketplace loans through marketplace lending platforms (e.g. OnDeck). We do not conduct loan origination activities ourselves. Therefore, our ability to purchase SME loans, and our ability to grow our portfolio of SME loans, is directly influenced by the business performance and competitiveness of the marketplace loan origination business of the marketplace lending platforms from which we purchase SME loans. In addition, our ability to analyze the risk-return profile of SME loans is significantly dependent on the marketplace platforms’ ability to effectively evaluate a borrower's credit profile and likelihood of default. If we are unable to effectively evaluate borrowers' credit profiles or the credit decisioning and scoring models implemented by each platform, we may incur unanticipated losses which could adversely impact our operating results.
Foreign Currency
Investments denominated in foreign currencies and foreign currency transactions may involve certain considerations and risks not typically associated with those of domestic origin. These risks include, but are not limited to, currency fluctuations and revaluations and future adverse political, social and economic developments, which could cause investments in foreign markets to be less liquid and prices more volatile than those of comparable U.S. companies or U.S. government securities.
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.

52
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)
(in thousands, except share and per share data)


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.
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 prepare independent valuations for each investment based on their own independent assessments and issue their report.
3.
The Audit Committee of our Board of Directors reviews and discusses with the independent valuation firms the valuation reports, and then makes a recommendation to the Board of Directors of the value for each investment.
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.
Our non-CLO investments are valued utilizing a yield technique, enterprise value (“EV”) technique, net asset value technique, asset recovery technique, discounted cash flow technique, or a combination of techniques, as appropriate. The yield technique uses loan spreads for loans and other relevant information implied by market data involving identical or comparable assets or liabilities. Under the EV technique, 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) valuation approach that considers relevant and applicable market trading data of guideline public companies, transaction metrics from precedent merger and acquisitions transactions, and/or a discounted cash flow technique. The net asset value technique, an income approach, 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 asset recovery technique 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 technique converts 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 fair value 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 valuing 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 Level 3 fair value measured securities under ASC 820 and are valued using a discounted multi-path cash flow model. The CLO structures are analyzed to identify the risk exposures and to determine an appropriate call date (i.e., expected maturity). These risk factors are sensitized in the multi-path cash flow model using Monte Carlo simulations, which is a simulation used to model the probability of different outcomes, to generate probability-weighted (i.e., multi-path) cash flows from the underlying assets and liabilities.  These cash flows are discounted using appropriate market discount rates, and

53
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)
(in thousands, except share and per share data)


relevant data in the CLO market as well as certain benchmark credit indices are considered, to determine the value of each CLO investment.  In addition, we generate a single-path cash flow utilizing our best estimate of expected cash receipts, and assess the reasonableness of the implied discount rate that would be effective for the value derived from the multi-path cash flows.  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. The main risk factors are default risk, prepayment 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 the disclosure of the fair value of our outstanding debt and the market observable inputs used in determining fair value.
Convertible Notes
We have recorded the Convertible Notes at their contractual amounts. We have determined that the embedded conversion options in the Convertible Unsecured Notes are not required to be separately accounted for as a derivative under ASC 815, Derivatives and Hedging. 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. Loan origination fees, original issue discount, and market discounts are capitalized and accreted into interest income over the respective terms of the applicable loans using the effective interest method or straight-line, as applicable, and adjusted only for material amendments or prepayments. Upon a prepayment of a loan, prepayment premiums, original issue discount, or market discounts are recorded as interest income.
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 are either applied to the cost basis or interest income, depending upon management’s judgment of the collectibility of the loan receivable. Non-accrual loans are restored to accrual status when past due principal and interest is paid and in management’s judgment, is likely to remain current and future principal and interest collections when due are probable. Interest received and applied against cost while a loan is on non-accrual, and PIK interest capitalized but not recognized while on non-accrual, is recognized prospectively on the effective yield basis through maturity of the loan when placed back on accrual status, to the extent deemed collectible by management. As of December 31, 2019, approximately 1.6% of our total assets at fair value are in non-accrual status.
Some of our loans and other investments may have contractual payment-in-kind (“PIK”) interest or dividends. PIK income computed at the contractual rate is accrued into income and reflected as receivable up to the capitalization date. PIK investments offer issuers the option at each payment date of making payments in cash or in additional securities. When additional securities are received, they typically have the same terms, including maturity dates and interest rates as the original securities issued. On these payment dates, we capitalize the accrued interest (reflecting such amounts in the basis as additional securities received). PIK generally becomes due at maturity of the investment or upon the investment being called by the issuer. At the point that we believe PIK is not fully expected to be realized, the PIK investment will be placed on non-accrual status. When a PIK investment is placed on non-accrual status, the accrued, uncapitalized interest or dividends are reversed from the related receivable through interest or dividend income, respectively. We do not reverse previously capitalized PIK interest or dividends. Upon capitalization, PIK is subject to the fair value estimates associated with their related investments. PIK investments on non-accrual status are restored to accrual status if we believe that PIK is expected to be realized.
Interest income from investments in Subordinated Structured Notes (typically preferred shares, income notes or subordinated notes of CLO funds) and “equity” class of security of securitized trust 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 and securitized trust 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.

54
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)
(in thousands, except share and per share data)


Other income generally includes amendment fees, commitment fees, administrative agent fees and structuring fees which are recorded when earned. 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 RIC 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 December 31, 2019, we do not expect to have any excise tax due for the 2019 calendar year. Thus, we have not accrued any excise tax for this period.
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 income tax 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. 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 five 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 December 31, 2019, we did not record any unrecognized tax benefits or liabilities. 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 federal tax returns for the tax years ended August 31, 2016 and thereafter 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 taxable 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 over the stated life of the obligation for our Revolving Credit Facility. The same methodology is used to approximate the effective yield method for our Prospect Capital InterNotes® and our at-the-market offerings of our existing unsecured notes that mature on June 15, 2024 (“2024 Notes Follow-on Program”), June 15, 2028 (“2028 Notes Follow-on Program”), and June 15, 2029 (“2029 Follow-on Program”). The effective interest method is used to amortize deferred

55
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)
(in thousands, except share and per share data)


financing costs for our remaining Unsecured Notes over the respective expected life or maturity. In the event that we modify or extinguish our debt before maturity, we follow the guidance in ASC 470-50, Modification and Extinguishments (“ASC 470-50”). For modifications to or exchanges of our Revolving Credit Facility, any unamortized deferred costs relating to lenders who are not part of the new lending group are expensed. For extinguishments of our Unsecured Notes, any unamortized deferred costs are deducted from the carrying amount of the debt in determining the gain or loss from the extinguishment.
Unamortized deferred financing costs are presented as a direct deduction to the respective Unsecured Notes (see Notes 5, 6, and 7).
We may record registration expenses related to shelf filings as prepaid expenses. These expenses consist principally of the Securities and Exchange Commission (“SEC”) registration fees, legal fees and accounting fees incurred. These prepaid expenses are charged to capital upon the receipt of proceeds from an equity offering or charged to expense if no offering is completed. As of December 31, 2019 and June 30, 2019, there are no prepaid expenses related to registration expenses and all amounts incurred have been expensed.
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 June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which amends the financial instruments impairment guidance so that an entity is required to measure expected credit losses for financial assets based on historical experience, current conditions and reasonable and supportable forecasts. As such, an entity will use forward-looking information to estimate credit losses. ASU 2016-13 also amends the guidance in FASB ASC Subtopic No. 325-40, Investments-Other, Beneficial Interests in Securitized Financial Assets, related to the subsequent measurement of accretable yield recognized as interest income over the life of a beneficial interest in securitized financial assets under the effective yield method. ASU 2016-13 is effective for financial statements issued for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted as of the fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. We are currently evaluating the impact, if any, of adopting this ASU on our consolidated financial statements.

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement. The standard will modify the disclosure requirements for fair value measurements by removing, modifying, or adding certain disclosures. ASU No. 2018-13 is effective for annual reporting periods beginning after December 15, 2019, including interim periods within that reporting period. Early adoption is permitted upon issuance of this ASU. We are currently evaluating the impact of adopting this ASU on our consolidated financial statements.

SEC Disclosure Update and Simplification
In August 2018, the SEC adopted the final rule under SEC Release No. 33-10532, Disclosure Update and Simplification, amending certain disclosure requirements that were redundant, duplicative, overlapping, outdated or superseded. The amendments are intended to facilitate the disclosure of information to investors and simplify compliance. We have adopted the amendments and have retrospectively applied the presentation amendments to the prior period statements presented. 
Prior to adoption and in accordance with previous SEC rules, we presented distributable earnings (loss) on the Consolidated Statements of Assets and Liabilities, as three components: 1) accumulated overdistributed net investment income; 2) accumulated net unrealized gain (loss) on investments; and 3) accumulated net realized gain (loss) on investments. We also presented distributions from earnings on the Consolidated Statements of Changes in Net Assets as distributions from net investment income. In accordance with the SEC Release, distributable earnings and distributions from distributable earnings are shown in total on the Consolidated Statements of Assets and Liabilities and Consolidated Statements of Changes in Net Assets, respectively.

56
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)
(in thousands, except share and per share data)


The following table provides the reconciliation of the components of distributable earnings (loss) to conform to the current period presentation for the six months ended December 31, 2018:

Overdistributed net investment income

Realized gains (losses)

Net unrealized loss

Distributable earnings (loss)
Balance as of June 30, 2018
$
(45,186
)

$
(465,493
)

$
(104,179
)

$
(614,858
)
Net Increase in Net Assets Resulting from Operations:







Net investment income
165,970


—


—


165,970

Net realized gains
—


83


—


83

Net change in net unrealized losses
—


—


(149,647
)

(149,647
)
Distributions to Shareholders:







Distributions from net investment income
(131,531
)

—


—


(131,531
)
Tax reclassifications of net assets (Note 12)
31


—


—


31

Balance as of December 31, 2018
$
(10,716
)

$
(465,410
)

$
(253,826
)

$
(729,952
)
 
Tax Cuts and Jobs Act
On December 22, 2017, the President signed into law the Tax Cuts and Jobs Act (the “Tax Act”), which significantly changed the Code, including, a reduction in the corporate income tax rate, a new limitation on the deductibility of interest expense, and significant changes to the taxation of income earned from foreign sources and foreign subsidiaries. The Tax Act also authorizes the IRS to issue regulations with respect to the new provisions. We cannot predict how the changes in the Tax Act, or regulations or other guidance issued under it, might affect us, our business or the business of our portfolio companies. However, our portfolio companies may or may not make certain elections under the Tax Act that could materially increase their taxable earnings and profits. Any such increase in the earnings and profits of a portfolio company may result in the characterization of certain distributions sourced from sale proceeds as dividend income, which may increase our distributable taxable income.
Note 3. Portfolio Investments
At December 31, 2019, we had investments in 120 long-term portfolio investments, which had an amortized cost of $5,673,644 and a fair value of $5,268,545. At June 30, 2019, we had investments in 135 long-term portfolio investments, which had an amortized cost of $5,932,302 and a fair value of $5,653,553.
The original cost basis of debt placement and equity securities acquired, including follow-on investments for existing portfolio companies, payment-in-kind interest, and structuring fees, totaled $421,176 and $480,894 during the six months ended December 31, 2019 and December 31, 2018, respectively. Debt repayments and considerations from sales of equity securities of approximately $676,687 and $220,110 were received during the six months ended December 31, 2019 and December 31, 2018, respectively.
The following table shows the composition of our investment portfolio as of December 31, 2019 and June 30, 2019:
 
December 31, 2019
 
June 30, 2019
 
Cost

Fair Value

Cost

Fair Value
Revolving Line of Credit
$
35,156


$
35,156


$
33,928


$
34,239

Senior Secured Debt
2,466,567


2,147,402


2,687,709


2,449,357

Subordinated Secured Debt
1,427,227


1,301,043


1,439,440


1,329,799

Subordinated Unsecured Debt
40,478


48,886


38,933


33,058

Rated Secured Structured Notes
—

 
—

 
44,774

 
46,851

Subordinated Structured Notes
1,093,667


791,457


1,103,751


850,694

Equity
610,549


944,601


583,767


909,555

Total Investments
$
5,673,644


$
5,268,545


$
5,932,302


$
5,653,553


57
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)
(in thousands, except share and per share data)


In the previous table 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:
•
Revolving Line of Credit includes our investments in delayed draw term loans.
•
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 Loans includes our investments in SME whole loans purchased from OnDeck.
•
Rated Secured Structured Notes includes our investments in the “debt” class of security of CLO funds.
•
Subordinated Structured Notes includes our investments in the “equity” security class of CLO funds such as income notes, preference shares, and subordinated notes.
•
Equity, unless specifically stated otherwise, includes our investments in preferred stock, common stock, membership interests, net profits interests, net operating income interests, net revenue interests, overriding royalty interests, escrows receivable, and warrants.
The following table shows the fair value of our investments disaggregated into the three levels of the ASC 820 valuation hierarchy as of December 31, 2019:
 
Level 1
 
Level 2
 
Level 3
 
Total
Revolving Line of Credit
$
—

 
$
—

 
$
35,156

 
$
35,156

Senior Secured Debt
—

 
34,388

 
2,113,014

 
2,147,402

Subordinated Secured Debt
—

 
—

 
1,301,043

 
1,301,043

Subordinated Unsecured Debt
—

 
—

 
48,886

 
48,886

Rated Secured Structured Notes
—

 
—

 
—

 
—

Subordinated Structured Notes
—

 
—

 
791,457

 
791,457

Equity
—

 
—

 
944,601

 
944,601

Total Investments
$
—

 
$
34,388

 
$
5,234,157

 
$
5,268,545

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, 2019:
 
Level 1
 
Level 2
 
Level 3
 
Total
Revolving Line of Credit
$
—

 
$
—

 
$
34,239

 
$
34,239

Senior Secured Debt
—

 
—

 
2,449,357

 
2,449,357

Subordinated Secured Debt
—

 
—

 
1,329,799

 
1,329,799

Subordinated Unsecured Debt
—

 
—

 
33,058

 
33,058

Rated Secured Structured Notes
—

 
—

 
46,851

 
46,851

Subordinated Structured Notes
—

 
—

 
850,694

 
850,694

Equity
—

 
—

 
909,555

 
909,555

Total Investments
$
—

 
$
—

 
$
5,653,553

 
$
5,653,553


58
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)
(in thousands, except share and per share data)


The following tables show the aggregate changes in the fair value of our Level 3 investments during the six months ended December 31, 2019:
 
Fair Value Measurements Using Unobservable Inputs (Level 3)
 
Control
 Investments
 
Affiliate
 Investments
 
Non-Control/
 Non-Affiliate
 Investments
 
Total
Fair value as of June 30, 2019
$
2,475,924

 
$
76,682

 
$
3,100,947

 
$
5,653,553

Net realized losses on investments
$
—

 
$
—

 
$
(616
)
 
$
(616
)
Net change in unrealized (losses) gains(1)
(74,884
)
 
30,262

 
(80,422
)
 
(125,044
)
Net realized and unrealized (losses) gains
$
(74,884
)
 
$
30,262

 
$
(81,038
)
 
$
(125,660
)
Purchases of portfolio investments
100,586

 
2,820

 
281,590

 
384,996

Payment-in-kind interest
18,387

 
879

 
1,909

 
21,175

Accretion (amortization) of discounts and premiums, net
155

 
1,141

 
(4,289
)
 
(2,993
)
Repayments and sales of portfolio investments
(107,908
)
 
(24,161
)
 
(544,290
)
 
(676,359
)
Transfers within Level 3
—

 
—

 
—

 
—

Transfers in (out) of Level 3(1)
—

 
—

 
(20,555
)
 
(20,555
)
Fair value as of December 31, 2019
$
2,412,260

 
$
87,623

 
$
2,734,274

 
$
5,234,157

 
Revolving Line of Credit
 
Senior Secured
Debt
 
Subordinated Secured Debt
 
Subordinated Unsecured Debt
 
Rated Secured Structured Notes
 
Subordinated Structured Notes
 
Equity
 
Total
Fair value as of June 30, 2019
$
34,239

 
$
2,449,357

 
$
1,329,799

 
$
33,058

 
$
46,851

 
$
850,694

 
$
909,555

 
$
5,653,553

Net realized (losses) gains on investments
—

 
(120
)
 
15

 
—

 
1,885

 
(2,396
)
 
—

 
(616
)
Net change in unrealized (losses) gains(1)
(311
)
 
(79,506
)
 
(16,545
)
 
14,284

 
(2,078
)
 
(49,153
)
 
8,265

 
(125,044
)
Net realized and unrealized (losses) gains
(311
)
 
(79,626
)
 
(16,530
)
 
14,284

 
(193
)
 
(51,549
)
 
8,265

 
(125,660
)
Purchases of portfolio investments
7,044

 
217,452

 
123,908

 
—

 
5,534

 
—

 
31,058

 
384,996

Payment-in-kind interest
187

 
13,770

 
6,526

 
692

 
—

 
—

 
—

 
21,175

Accretion (amortization) of discounts and premiums, net
—

 
295

 
3,304

 
1,141

 
(70
)
 
(7,663
)
 
—

 
(2,993
)
Repayments and sales of portfolio investments
(6,003
)
 
(467,679
)
 
(145,964
)
 
(289
)
 
(52,122
)
 
(25
)
 
(4,277
)
 
(676,359
)
Transfers within Level 3
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Transfers in (out) of Level 3(1)
—

 
(20,555
)
 
—

 
—

 
—

 
—

 
—

 
(20,555
)
Fair value as of December 31, 2019
$
35,156

 
$
2,113,014

 
$
1,301,043

 
$
48,886

 
$
—

 
$
791,457

 
$
944,601

 
$
5,234,157

(1)
Transfers are assumed to have occurred at the beginning of the quarter during which the asset was transferred. During the three months ended September 30, 2019 one of our senior secured notes transferred from Level 3 to Level 2 because the inputs to the valuation became observable.


59
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)
(in thousands, except share and per share data)


The following tables show the aggregate changes in the fair value of our Level 3 investments during the six months ended December 31, 2018:
 
Fair Value Measurements Using Unobservable Inputs (Level 3)
 
Control
 Investments
 
Affiliate
 Investments
 
Non-Control/
 Non-Affiliate
 Investments
 
Total
Fair value as of June 30, 2018
$
2,404,326

 
$
58,436

 
$
3,264,517

 
$
5,727,279

Net realized gains on investments
2,802

 
—

 
48

 
2,850

Net change in unrealized (losses)(1)
(33,815
)
 
(19,649
)
 
(96,183
)
 
(149,647
)
Net realized and unrealized (losses)
(31,013
)
 
(19,649
)
 
(96,135
)
 
(146,797
)
Purchases of portfolio investments
46,129

 
1,567

 
413,892

 
461,588

Payment-in-kind interest
15,440

 
556

 
3,310

 
19,306

Accretion (amortization) of discounts and premiums, net
907

 
—

 
(787
)
 
120

Repayments and sales of portfolio investments
(48,152
)
 
(7,855
)
 
(162,919
)
 
(218,926
)
Transfers within Level 3(1)
45,129

 
58,806

 
(103,935
)
 
—

Transfers in (out) of Level 3(1)
—

 
—

 
—

 
—

Fair value as of December 31, 2018
$
2,432,766

 
$
91,861

 
$
3,317,943

 
$
5,842,570

 
Revolving Line of Credit
 
Senior Secured
Debt
 
Subordinated Secured Debt
 
Subordinated Unsecured Debt
 
Small Business Loans
 
Rated Secured Structured Notes
 
Subordinated Structured Notes
 
Equity
 
Total
Fair value as of June 30, 2018
$
38,559

 
$
2,481,353

 
$
1,260,525

 
$
32,945

 
$
17

 
$
6,159

 
$
954,035

 
$
953,686

 
$
5,727,279

Net realized gains on investments
—

 
—

 
—

 
—

 
22

 
—

 
—

 
2,828

 
2,850

Net change in unrealized gains (losses)
10

 
(69,884
)
 
(32,575
)
 
(7,243
)
 
13

 
2,853

 
(65,606
)
 
22,785

 
(149,647
)
Net realized and unrealized gains (losses)
10

 
(69,884
)
 
(32,575
)
 
(7,243
)
 
35

 
2,853

 
(65,606
)
 
25,613

 
(146,797
)
Purchases of portfolio investments
6,568

 
335,751

 
202,283

 
—

 
—

 
38,524

 
6,887

 
(128,425
)
 
461,588

Payment-in-kind interest
226

 
13,233

 
5,516

 
331

 
—

 
—

 
—

 
—

 
19,306

Accretion (amortization) of discounts and premiums, net
—

 
2,324

 
3,521

 
—

 
—

 
100

 
(5,825
)
 
—

 
120

Repayments and sales of portfolio investments
(16,855
)
 
(92,339
)
 
(91,911
)
 
—

 
(52
)
 
—

 
—

 
(17,769
)
 
(218,926
)
Transfers within Level 3
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Transfers in (out) of Level 3
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Fair value as of December 31, 2018
$
28,508

 
$
2,670,438

 
$
1,347,359

 
$
26,033

 
$
—

 
$
47,636

 
$
889,491

 
$
833,105

 
$
5,842,570

(1)
Transfers are assumed to have occurred at the beginning of the quarter during which the asset was transferred.
For the six months ended December 31, 2019 and December 31, 2018, the net change in unrealized losses on the investments that use Level 3 inputs was ($114,964) and ($144,551) for investments still held as of December 31, 2019 and December 31, 2018, respectively.


60
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)
(in thousands, except share and per share data)


The ranges of unobservable inputs used in the fair value measurement of our Level 3 investments as of December 31, 2019 were as follows:
 
 
 
 
 
 
Unobservable Input
Asset Category
 
Fair Value

 
Primary Valuation Approach or Technique
 
Input
 
Range
 
Weighted
Average
Senior Secured Debt
 
$
1,024,362

 
Discounted cash flow
(Yield analysis)
 
Market yield
 
5.7% to 19.0%
 
10.3%
Senior Secured Debt
 
380,993

 
Enterprise value waterfall (Market approach)
 
EBITDA multiple
 
3.5x to 9.5x
 
7.2x
Senior Secured Debt
 
83,064

 
Enterprise value waterfall (Market approach)
 
Revenue multiple
 
0.5x to 1.1x
 
0.8x
Senior Secured Debt
 
59,115

 
Enterprise value waterfall (Discounted cash flow)
 
Discount rate
 
7.5% to 10.4%
 
8.8%
Senior Secured Debt
 
28,622

 
Asset recovery analysis
 
N/A
 
N/A
 
N/A
Senior Secured Debt (1)
 
79,000

 
Enterprise value waterfall
 
Loss-adjusted discount rate
 
4.2% to 15.6%
 
10.6%
Senior Secured Debt (2)
 
51,428

 
Enterprise value waterfall
 
Discount rate (3)
 
8.9% to 12.7%
 
10.4%
Senior Secured Debt
 
433,553

 
Enterprise value waterfall (NAV analysis)
 
Capitalization Rate
 
3.9% to 8.1%
 
6.0%
Subordinated Secured Debt
 
911,795

 
Discounted cash flow
(Yield analysis)
 
Market yield
 
5.8% to 25.7%
 
12.0%
Subordinated Secured Debt
 
36,655

 
Enterprise value waterfall (Market approach)
 
EBITDA multiple
 
7.5x to 12.0x
 
8.8x
Subordinated Secured Debt
 
6,357

 
Asset recovery analysis
 
N/A
 
N/A
 
N/A
Subordinated Secured Debt (4)
 
354,269

 
Enterprise value waterfall (Market approach)
 
Tangible book value multiple
 
0.9x to 3.0x
 
2.2x
Subordinated Unsecured Debt
 
48,886

 
Enterprise value waterfall (Market approach)
 
EBITDA multiple
 
11.0x to 12.0x
 
11.5x
Subordinated Structured Notes
 
791,457

 
Discounted cash flow
 
Discount rate (3)
 
1.6% to 26.0%
 
20.0%
Preferred Equity
 
32,716

 
Enterprise value waterfall (Market approach)
 
EBITDA multiple
 
5.5x to 6.5x
 
6.0x
Common Equity/Interests/Warrants
 
131,069

 
Enterprise value waterfall (Market approach)
 
EBITDA multiple
 
3.8x to 12.0x
 
5.1x
Common Equity/Interests/Warrants (1)
 
1,291

 
Enterprise value waterfall
 
Loss-adjusted discount rate
 
4.2% to 15.6%
 
10.6%
Common Equity/Interests/Warrants (2)
 
10,870

 
Enterprise value waterfall
 
Discount rate (3)
 
8.9% to 12.7%
 
10.4%
Common Equity/Interests/Warrants
 
413,184

 
Enterprise value waterfall (NAV analysis)
 
Capitalization Rate
 
3.9% to 8.1%
 
6.0%
Common Equity/Interests/Warrants
 
4,361

 
Enterprise value waterfall (Market approach)
 
Revenue multiple
 
0.5x to 1.1x
 
0.8x
Common Equity/Interests/Warrants (5)
 
261,625

 
Enterprise value waterfall (Market approach)
 
Tangible book value multiple
 
0.9x to 3.0x
 
2.8x
Common Equity/Interests/Warrants (6)
 
37,562

 
Enterprise value waterfall (NAV analysis)
 
Capitalization Rate
 
3.9% to 8.1%
 
6.0%
Common Equity/Interests/Warrants
 
34,696

 
Enterprise value waterfall (Discounted cash flow)
 
Discount rate
 
7.8% to 9.8%
 
9.3%
Common Equity/Interests/Warrants
 
14,920

 
Asset recovery analysis
 
N/A
 
N/A
 
N/A
Escrow Receivable
 
2,307

 
Discounted cash flow
 
Discount rate
 
6.1% to 7.2%
 
6.7%
Total Level 3 Investments
 
$
5,234,157

 
 
 
 
 
 
 
 


61
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)
(in thousands, except share and per share data)


(1)
Represents an investment in a Real Estate Investment Trust subsidiary. The Enterprise Value analysis includes the fair value of our investments in such indirect subsidiary’s consumer loans purchased from online consumer lending platforms, which are valued using a discounted cash flow valuation technique. The key unobservable input to the discounted cash flow analysis is noted above. In addition, the valuation also used projected loss rates as an unobservable input ranging from 0.0% to 8.8%, with a weighted average of 0.7%.
(2)
Represents an investment in a Real Estate Investment Trust subsidiary. The Enterprise Value analysis includes the fair value of our investments in such indirect subsidiary’s rated secured structured notes, which are valued using a discounted cash flow valuation technique. The key unobservable input to the discounted cash flow analysis is noted above.
(3)
Represents the implied discount rate based on our internally generated single-cash flow model that is derived from the fair value estimated by the corresponding multi-path cash flow model utilized by the independent valuation firm.
(4)
Represents investments in consumer finance subsidiaries. The enterprise value waterfall methodology utilizes book value multiples as noted above. In addition, the valuation of certain consumer finance companies utilizes the enterprise value waterfall technique whereby the significant unobservable input is the earnings multiple and the discounted cash flow technique whereby the significant unobservable input is the discount rate. For these companies the earnings multiple ranges from 8.5x to 12.0x with a weighted average of 11.1x and the discount rate ranges from 12.6% to 14.6% with a weighted average of 13.3%.
(5)
Represents investments in consumer finance subsidiaries. The enterprise value waterfall methodology utilizes book value multiples as noted above. In addition, the valuation of certain consumer finance companies utilizes the enterprise value waterfall technique whereby the significant unobservable input is the earnings multiple and the discounted cash flow technique whereby the significant unobservable input is the discount rate. For these companies the earnings multiple ranges from 8.5x to 12.0x with a weighted average of 11.3x and the discount rate ranges from 12.6% to 14.6% with a weighted average of 13.3%.
(6)
Represents Residual Profit Interests in Real Estate Investments.

62
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)
(in thousands, except share and per share data)


The ranges of unobservable inputs used in the fair value measurement of our Level 3 investments as of June 30, 2019 were as follows:
 
 
 
 
 
 
Unobservable Input
Asset Category
 
Fair Value
 
Primary Valuation Approach or Technique
 
Input
 
Range
 
Weighted
Average
Senior Secured Debt
 
$
1,260,526

 
Discounted Cash Flow
(Yield analysis)
 
Market yield
 
5.6% - 19.1%
 
10.3%
Senior Secured Debt
 
434,524

 
Enterprise Value Waterfall (Market approach)
 
EBITDA multiple
 
3.0x - 9.5x
 
7.7x
Senior Secured Debt
 
128,152

 
Enterprise Value Waterfall (Market approach)
 
Revenue multiple
 
0.5x - 1.3x
 
1.1x
Senior Secured Debt
 
54,841

 
Enterprise Value Waterfall (Discounted cash flow)
 
Discount rate
 
7.6% - 10.5%
 
8.9%
Senior Secured Debt (1)
 
172,000

 
Enterprise Value Waterfall
 
Loss-adjusted discount rate
 
3.9% - 14.1%
 
10.6%
Senior Secured Debt (2)
 
433,553

 
Enterprise Value Waterfall (NAV Analysis)
 
Capitalization Rate
 
3.9% - 7.9%
 
5.9%
 
Discounted Cash Flow
 
Discount rate
 
6.5% - 7.5%
 
7.0%
Subordinated Secured Debt
 
930,385

 
Discounted Cash Flow
 (Yield analysis)
 
Market yield
 
6.1% - 26.4%
 
11.5%
Subordinated Secured Debt
 
28,622

 
Enterprise Value Waterfall (Market approach)
 
EBITDA multiple
 
8.0x - 9.0x
 
8.5x
Subordinated Secured Debt
 
18,866

 
Liquidation Analysis
 
N/A
 
N/A
 
N/A
Subordinated Secured Debt (3)
 
351,926

 
Enterprise Value Waterfall (Market approach)
 
Book value multiple
 
0.8x - 3.0x
 
2.7x
Subordinated Unsecured Debt
 
33,058

 
Enterprise Value Waterfall (Market approach)
 
EBITDA multiple
 
5.8x - 11.3x
 
10.8x
Rated Secured Structured Notes
 
46,851

 
Discounted Cash Flow
 
Discount rate (4)
 
10.7% - 11.1%
 
10.9%
Subordinated Structured Notes
 
850,694

 
Discounted Cash Flow
 
Discount rate (4)
 
2.2% - 34.2%
 
19.8%
Preferred Equity
 
84,294

 
Enterprise Value Waterfall (Market approach)
 
EBITDA multiple
 
4.0x - 8.5x
 
7.1x
Common Equity/Interests/Warrants
 
127,814

 
Enterprise value waterfall (Market approach)
 
EBITDA multiple
 
5.8x - 9.0x
 
6.5x
Common Equity/Interests/Warrants (1)
 
4,778

 
Enterprise value waterfall
 
Loss-adjusted discount rate
 
3.9% - 14.1%
 
10.6%
Common Equity/Interests/Warrants (2)
 
297,525

 
Enterprise value waterfall (NAV analysis)
 
Capitalization rate
 
3.9% - 7.9%
 
5.9%
 
Discounted cash flow
 
Discount rate
 
6.5% - 7.5%
 
7.0%
Common Equity/Interests/Warrants (5)
 
246,502

 
Enterprise value waterfall (Market approach)
 
Book value multiple
 
0.8x - 3.0x
 
2.6x
Common Equity/Interests/Warrants (6)
 
96,609

 
Discounted cash flow
 
Capitalization rate
 
3.9% - 7.9%
 
5.9%
Common Equity/Interests/Warrants
 
34,860

 
Discounted cash flow
 
Discount rate
 
7.1% - 14.6%
 
8.4%
Common Equity/Interests/Warrants
 
14,934

 
Liquidation analysis
 
N/A
 
N/A
 
N/A
Escrow Receivable
 
2,239

 
Discounted cash flow
 
Discount rate
 
6.1% - 7.2%
 
6.7%
Total Level 3 Investments
 
$
5,653,553

 
 
 
 
 
 
 
 


63
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)
(in thousands, except share and per share data)


(1)
Represents an investment in a Real Estate Investment Trust subsidiary. The Enterprise Value analysis includes the fair value of our investments in such indirect subsidiary’s consumer loans purchased from online consumer lending platforms, which are valued using a discounted cash flow valuation technique. The key unobservable input to the discounted cash flow analysis is noted above. In addition, the valuation also used projected loss rates as an unobservable input ranging from 0.0%-12.5%, with a weighted average of 1.3%.
(2)
Represents Real Estate Investments. Enterprise Value Waterfall methodology uses both the net asset value analysis and discounted cash flow technique, which are weighted equally (50%).
(3)
Represents investments in consumer finance subsidiaries. The enterprise value waterfall methodology utilizes tangible book value multiples as noted above. In addition, the valuation of certain consumer finance companies utilizes the enterprise value waterfall technique whereby the significant unobservable input is the earnings multiple and the discounted cash flow technique whereby the significant unobservable input is the discount rate. For these companies the earnings multiple ranges from 8.8x to 12.5x with a weighted average of 11.5x and the discount rate ranges from 12.7% to 14.6% with a weighted average of 13.3%.
(4)
Represents the implied discount rate based on our internally generated single-cash flow model that is derived from the fair value estimated by the corresponding multi-path cash flow model utilized by the independent valuation firm.
(5)
Represents investments in consumer finance subsidiaries. The enterprise value waterfall methodology utilizes book value multiples as noted above. In addition, the valuation of certain consumer finance companies utilizes the enterprise value waterfall technique whereby the significant unobservable input is the earnings multiple and the discounted cash flow technique whereby the significant unobservable input is the discount rate. For these companies the earnings multiple ranges from 8.8x to 12.5x with a weighted average of 11.8x and the discount rate ranges from 12.7% to 14.6% with a weighted average of 13.3%.
(6)
Represents Residual Profit Interests in Real Estate Investments.
Investments for which market quotations are readily available are typically valued at such market quotations. In order to validate market quotations, management and the independent valuation firm look at a number of factors to determine if the quotations are representative of fair value, including the source and nature of the quotations. In determining the range of values for debt instruments where market quotations are not available, except CLOs and debt investments in controlling portfolio companies, management and the independent valuation firm estimated corporate and security credit ratings and identified corresponding yields to maturity for each loan from relevant market data. A discounted cash flow technique was then applied using the appropriate yield to maturity as the discount rate, to determine a range of values. In determining the range of values for debt investments of controlled companies and equity investments, the enterprise value was determined by applying a market approach such as using earnings before income interest, tax, depreciation and amortization (“EBITDA”) multiples, net income and/or book value multiples for similar guideline public companies and/or similar recent investment transactions and/or an income approach, such as the discounted cash flow technique. The enterprise value technique may also be used to value debt investments which are credit impaired. For stressed debt and equity investments, an asset recovery analysis was used.
In determining the range of values for our investments in CLOs, the independent valuation firm uses a discounted multi-path 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 as well as to determine an appropriate call date (i.e., expected maturity). These risk factors are sensitized in the multi-path cash flow model using Monte Carlo simulations to generate probability-weighted (i.e., multi-path) cash flows for the underlying assets and liabilities. These cash flows are discounted using appropriate market discount rates, and relevant data in the CLO market and certain benchmark credit indices are considered, to determine the value of each CLO investment. In addition, we generate a single-path cash flow utilizing our best estimate of expected cash receipts, and assess the reasonableness of the implied discount rate that would be effective for the value derived from the corresponding multi-path cash flow model.
Our portfolio consists of residual interests and debt investments in CLOs, which involve a number of significant risks. CLOs are typically very highly levered (10 - 14 times), and therefore the residual interest tranches that we invest in are subject to a higher degree of risk of total loss. In particular, investors in CLO residual interests indirectly bear risks of the underlying loan investments held by such CLOs. We generally have the right to receive payments only from the CLOs, and generally do not have direct rights against the underlying borrowers or the entity that sponsored the CLOs. While the CLOs we target generally enable the investor to acquire interests in a pool of senior loans without the expenses associated with directly holding the same investments, the prices of indices and securities underlying our CLOs will rise or fall. These prices (and, therefore, the prices of the CLOs) will be influenced by the same types of political and economic events that affect issuers of securities and capital markets generally. The failure by a CLO investment in which we invest to satisfy financial covenants, including with respect to adequate collateralization and/or interest coverage tests, could lead to a reduction in its payments to us. In the event that a CLO fails certain tests, holders of debt senior to us would be entitled to additional payments that would, in turn, reduce the payments we would otherwise be entitled to receive. Separately, we may incur expenses to the extent necessary to seek recovery upon default or to negotiate new

64
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)
(in thousands, except share and per share data)


terms with a defaulting CLO or any other investment we may make. If any of these occur, it could materially and adversely affect our operating results and cash flows.
The interests we have acquired in CLOs are generally thinly traded or have only a limited trading market. CLOs are typically privately offered and sold, even in the secondary market. As a result, investments in CLOs may be characterized as illiquid securities. In addition to the general risks associated with investing in debt securities, CLO residual interests carry additional risks, including, but not limited to: (i) the possibility that distributions from collateral securities will not be adequate to make interest or other payments; (ii) the quality of the collateral may decline in value or default; (iii) our investments in CLO tranches will likely be subordinate to other senior classes of note tranches thereof; and (iv) the complex structure of the security may not be fully understood at the time of investment and may produce disputes with the CLO investment or unexpected investment results. Our net asset value may also decline over time if our principal recovery with respect to CLO residual interests is less than the cost of those investments. Our CLO investments and/or the CLOs’ underlying senior secured loans may prepay more quickly than expected, which could have an adverse impact on our value.
An increase in LIBOR would materially increase the CLO’s financing costs. Since most of the collateral positions within the CLOs have LIBOR floors, there may not be corresponding increases in investment income (if LIBOR increases but stays below the LIBOR floor rate of such investments) resulting in materially smaller distribution payments to the residual interest investors.
On July 27, 2017, the Financial Conduct Authority (“FCA”) announced that it will no longer persuade or compel banks to submit rates for the calculation of the LIBOR rates after 2021 (the “FCA Announcement”). Furthermore, in the United States, efforts to identify a set of alternative U.S. dollar reference interest rates include proposals by the Alternative Reference Rates Committee of the Federal Reserve Board and the Federal Reserve Bank of New York. On August 24, 2017, the Federal Reserve Board requested public comment on a proposal by the Federal Reserve Bank of New York, in cooperation with the Office of Financial Research, to produce three new reference rates intended to serve as alternatives to LIBOR. These alternative rates are based on overnight repurchase agreement transactions secured by U.S. Treasury Securities. On December 12, 2017, following consideration of public comments, the Federal Reserve Board concluded that the public would benefit if the Federal Reserve Bank of New York published the three proposed reference rates as alternatives to LIBOR (the “Federal Reserve Board Notice”). The Federal Reserve Bank of New York said that the publication of these alternative rates is targeted to commence by mid-2018.
At this time, it is not possible to predict the effect of the FCA Announcement, the Federal Reserve Board Notice, or other regulatory changes or announcements, any establishment of alternative reference rates or any other reforms to LIBOR that may be enacted in the United Kingdom, the United States or elsewhere. As such, the potential effect of any such event on our net investment income cannot yet be determined. The CLOs in which the Company is invested generally contemplate a scenario where LIBOR is no longer available by requiring the CLO administrator to calculate a replacement rate primarily through dealer polling on the applicable measurement date. However, there is uncertainty regarding the effectiveness of the dealer polling processes, including the willingness of banks to provide such quotations, which could adversely impact our net investment income. In addition, the effect of a phase out of LIBOR on U.S. senior secured loans, the underlying assets of the CLOs in which we invest, is currently unclear. To the extent that any replacement rate utilized for senior secured loans differs from that utilized for a CLO that holds those loans, the CLO would experience an interest rate mismatch between its assets and liabilities which could have an adverse impact on the Company’s net investment income and portfolio returns.
We hold more than a 10% interest in certain foreign corporations that are treated as controlled foreign corporations (“CFC”) for U.S. federal income tax purposes (including our residual interest tranche investments in CLOs). Therefore, we are treated as receiving a deemed distribution (taxable as ordinary income) each year from such foreign corporations in an amount equal to our pro rata share of the corporation’s income for that tax year (including both ordinary earnings and capital gains). We are required to include such deemed distributions from a CFC in our taxable income and we are required to distribute at least 90% of such income to maintain our RIC status, regardless of whether or not the CFC makes an actual distribution during such year.
If we acquire shares in “passive foreign investment companies” (“PFICs”) (including residual interest tranche investments in CLOs that are PFICs), we may be subject to federal income tax on a portion of any “excess distribution” or gain from the disposition of such shares even if such income is distributed as a taxable dividend to our stockholders. Certain elections may be available to mitigate or eliminate such tax on excess distributions, but such elections (if available) will generally require us to recognize our share of the PFIC’s income for each year regardless of whether we receive any distributions from such PFICs. We must nonetheless distribute such income to maintain our status as a RIC.
Legislation enacted in 2010 imposes a withholding tax of 30% on payments of U.S. source interest and dividends paid after December 31, 2013, or gross proceeds from the disposition of an instrument that produces U.S. source interest or dividends paid after December 31, 2016, to certain non-U.S. entities, including certain non-U.S. financial institutions and investment funds, unless

65
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)
(in thousands, except share and per share data)


such non-U.S. entity complies with certain reporting requirements regarding its United States account holders and its United States owners. Most CLOs in which we invest will be treated as non-U.S. financial entities for this purpose, and therefore will be required to comply with these reporting requirements to avoid the 30% withholding. If a CLO in which we invest fails to properly comply with these reporting requirements, it could reduce the amounts available to distribute to residual interest and junior debt holders in such CLO vehicle, which could materially and adversely affect our operating results and cash flows.
If we are required to include amounts in income prior to receiving distributions representing such income, we may have to sell some of our investments at times and/or at prices management would not consider advantageous, raise additional debt or equity capital or forgo new investment opportunities for this purpose.
The significant unobservable input used to value our investments based on the yield technique and discounted cash flow technique 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/dividend payments. Increases or decreases in the market yield (or applicable discount rate) would result in a decrease or increase, respectively, in the fair value measurement. Management and the independent valuation firms 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, net income, or book value of identified guideline public companies, implied valuation multiples from precedent M&A transactions, and/or discount rates applied in a discounted cash flow technique. 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 such as net income or book value, 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 would result in an increase or decrease, respectively, in EV which would result in an increase or decrease in the fair value measurement of the debt of controlled companies 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 private REIT investments based on the net asset value analysis is the capitalization rate applied to the earnings measure of the underlying property. Increases or decreases in the capitalization 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 (or other) 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 currently assigned valuations.
During the six months ended December 31, 2019, the valuation methodology for Engine Group, Inc. (“Engine”) changed to remove the waterfall analysis. As a result of the company’s performance and decrease in observed market spreads, the fair value of our investment in Engine increased to $35,336 as of December 31, 2019, a discount of $3,884 from its amortized cost, compared to the $4,833 unrealized depreciation recorded at June 30, 2019.

During the six months ended December 31, 2019, the valuation methodology for Pacific World Corporation (“Pacific World”) changed to incorporate an asset recovery analysis. As a result of the company’s performance, the fair value of our investment in Pacific World decreased to $62,610 as of December 31, 2019, a discount of $184,815 from its amortized cost, compared to the $125,542 unrealized depreciation recorded at June 30, 2019.

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


During the six months ended December 31, 2019, the valuation methodology for Easy Gardener Products, Inc. (“Easy Gardener”) changed to incorporate an asset recovery analysis. As a result of the company’s performance, the fair value of our investment in Easy Gardener decreased to $4,353 as of December 31, 2019, a discount of $11,366 from its amortized cost, compared to the $5,636 unrealized depreciation recorded at June 30, 2019.
During the six months ended December 31, 2019, the valuation methodology for Rocket Software, Inc. (“Rocket”) changed to incorporate a shadow method. As a result of the company’s performance, the fair value of our investment in Rocket increased to $49,568 as of December 31, 2019, equivalent to its amortized cost, same as recorded at June 30, 2019.
During the six months ended December 31, 2019, four of our Subordinated Structured Notes were deemed to have an other-than-temporary loss. In accordance with ASC 325-40, Beneficial Interest in Securitized Financial Assets, we recorded a total loss of $2,420 related to these investments for the amount our amortized cost exceeded fair value as of the respective determination dates. During the six months ended December 31, 2018, there was no OTTI assessed for any Subordinated Structured Notes within our portfolio.
During the six months ended December 31, 2019, the valuation methodology for National Property REIT Corporation (“NPRC”) and its wholly owned subsidiaries relating to the real estate portfolio changed to remove the Discounted Cash Flow Method. Management utilizes the Enterprise Value Waterfall (NAV Analysis) to value its investment in NPRC and its wholly owned subsidiaries relating to the real estate portfolio as this method is aligned with current industry practice and with Management’s experience in buying and selling income producing real estate assets. The fair value of our investment in NPRC and its wholly owned subsidiaries relating to the real estate portfolio increased by $56,612, to $884,299, during the six months ended December 31, 2019, attributable to both an improvement in property operations and values, and the change in methodology.

During the six months ended December 31, 2019, we received partial repayments of $93,000 of our loans previously outstanding with NPRC, and provided $12,857 of equity financing and $51,428 of debt financing to NPRC to fund purchases of rated secured structured notes, expenses and structuring fees.
The online consumer loan investments held by certain of NPRC’s wholly owned subsidiaries are unsecured obligations of individual borrowers that are issued in amounts ranging from $1 to $50, with fixed terms ranging from 24 to 84 months. As of December 31, 2019, the outstanding investment in online consumer loans by certain of NPRC’s wholly owned subsidiaries was comprised of 16,769 individual loans and residual interest in four securitizations, and had an aggregate fair value of $75,560. The average outstanding individual loan balance is approximately $3 and the loans mature on dates ranging from January 1, 2020 to April 19, 2025 with a weighted-average outstanding term of 20 months as of December 31, 2019. Fixed interest rates range from 4.0% to 36.0% with a weighted-average current interest rate of 22.8%. As of December 31, 2019, our investment in NPRC and its wholly-owned subsidiaries relating to online consumer lending had a fair value of $80,291.
As of December 31, 2019, based on outstanding principal balance, 10.3% of the portfolio was invested in super prime loans (borrowers with a Fair Isaac Corporation (“FICO”) score, of 720 or greater), 27.0% of the portfolio in prime loans (borrowers with a FICO score of 660 to 719) and 62.7% of the portfolio in near prime loans (borrowers with a FICO score of 580 to 659, a portion of which are considered sub-prime).
Loan Type
 
Outstanding Principal Balance
 
Fair Value
 
Interest Rate Range
 
Weighted Average Interest Rate*
Super Prime
 
$
5,843

 
$
4,976

 
4.0% - 24.1%
 
12.5%
Prime
 
15,374

 
12,085

 
6.0% - 36.0%
 
17.6%
Near Prime
 
35,739

 
36,539

 
6.0% - 36.0%
 
26.6%
*Weighted by outstanding principal balance of the online consumer loans.

The rated secured structured note investments held by certain of NPRC’s wholly owned subsidiaries are subordinated debt interests in broadly syndicated loans managed by established collateral management teams with many years of experience in the industry. As of December 31, 2019, the outstanding investment in rated secured structured notes by certain of NPRC’s wholly owned subsidiaries was comprised of 24 investments with a fair value of $129,053 and face value of $136,849. The average outstanding note is approximately $5,702 with a stated maturity date ranging from April 2027 to October 2032 and weighted-average stated maturity of 11.3 years as of December 31, 2019. Coupons range from three-month Libor (“3ML”) plus 5.45% to 9.45% with a weighted-average coupon of 3ML + 7.38%. As of December 31, 2019, our investment in NPRC and its wholly-owned subsidiaries relating to rated secured structured notes had a fair value of $62,298.

67
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)
(in thousands, except share and per share data)


As of December 31, 2019, based on outstanding notional balance, 38.7% of the portfolio was invested in Single - B rated tranches and 61.3% of the portfolio in BB rated tranches.
As of December 31, 2019, our investment in NPRC and its wholly owned subsidiaries had an amortized cost of $740,674 and a fair value of $1,026,888, including our investment in online consumer lending and rated secured structured notes as discussed above. As of December 31, 2019, our investment in NPRC and its wholly owned subsidiaries relating to the real estate portfolio had a fair value of $884,299. This portfolio was comprised of thirty-nine multi-families properties, twelve self-storage properties, eight student housing properties and three 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 NPRC as of December 31, 2019.
No.
 
Property Name
 
City
 
Acquisition Date
 
Purchase Price
 
Mortgage Outstanding
1
 
Filet of Chicken
 
Forest Park, GA
 
10/24/2012
 
$
7,400

 
$
—

2
 
Arlington Park Marietta, LLC
 
Marietta, GA
 
5/8/2013
 
14,850

 
—

3
 
Cordova Regency, LLC
 
Pensacola, FL
 
11/15/2013
 
13,750

 
11,201

4
 
Crestview at Oakleigh, LLC
 
Pensacola, FL
 
11/15/2013
 
17,500

 
13,633

5
 
Inverness Lakes, LLC
 
Mobile, AL
 
11/15/2013
 
29,600

 
24,322

6
 
Kings Mill Pensacola, LLC
 
Pensacola, FL
 
11/15/2013
 
20,750

 
17,281

7
 
Plantations at Pine Lake, LLC
 
Tallahassee, FL
 
11/15/2013
 
18,000

 
13,876

8
 
Verandas at Rocky Ridge, LLC
 
Birmingham, AL
 
11/15/2013
 
15,600

 
10,048

9
 
Crestview at Cordova, LLC
 
Pensacola, FL
 
1/17/2014
 
8,500

 
7,509

10
 
Taco Bell, OK
 
Yukon, OK
 
6/4/2014
 
1,719

 
—

11
 
Taco Bell, MO
 
Marshall, MO
 
6/4/2014
 
1,405

 
—

12
 
23 Mile Road Self Storage, LLC
 
Chesterfield, MI
 
8/19/2014
 
5,804

 
4,333

13
 
36th Street Self Storage, LLC
 
Wyoming, MI
 
8/19/2014
 
4,800

 
3,586

14
 
Ball Avenue Self Storage, LLC
 
Grand Rapids, MI
 
8/19/2014
 
7,281

 
5,439

15
 
Ford Road Self Storage, LLC
 
Westland, MI
 
8/29/2014
 
4,642

 
3,467

16
 
Ann Arbor Kalamazoo Self Storage, LLC
 
Ann Arbor, MI
 
8/29/2014
 
4,458

 
3,332

17
 
Ann Arbor Kalamazoo Self Storage, LLC
 
Ann Arbor, MI
 
8/29/2014
 
8,927

 
6,669

18
 
Ann Arbor Kalamazoo Self Storage, LLC
 
Kalamazoo, MI
 
8/29/2014
 
2,363

 
1,768

19
 
Canterbury Green Apartments Holdings LLC
 
Fort Wayne, IN
 
9/29/2014
 
85,500

 
86,131

20
 
Abbie Lakes OH Partners, LLC
 
Canal Winchester, OH
 
9/30/2014
 
12,600

 
15,704

21
 
Kengary Way OH Partners, LLC
 
Reynoldsburg, OH
 
9/30/2014
 
11,500

 
15,872

22
 
Lakeview Trail OH Partners, LLC
 
Canal Winchester, OH
 
9/30/2014
 
26,500

 
30,284

23
 
Lakepoint OH Partners, LLC
 
Pickerington, OH
 
9/30/2014
 
11,000

 
17,230

24
 
Sunbury OH Partners, LLC
 
Columbus, OH
 
9/30/2014
 
13,000

 
17,467

25
 
Heatherbridge OH Partners, LLC
 
Blacklick, OH
 
9/30/2014
 
18,416

 
25,009

26
 
Jefferson Chase OH Partners, LLC
 
Blacklick, OH
 
9/30/2014
 
13,551

 
19,424

27
 
Goldenstrand OH Partners, LLC
 
Hilliard, OH
 
10/29/2014
 
7,810

 
11,853

28
 
Jolly Road Self Storage, LLC
 
Okemos, MI
 
1/16/2015
 
7,492

 
5,620

29
 
Eaton Rapids Road Self Storage, LLC
 
Lansing West, MI
 
1/16/2015
 
1,741

 
1,305

30
 
Haggerty Road Self Storage, LLC
 
Novi, MI
 
1/16/2015
 
6,700

 
5,025

31
 
Waldon Road Self Storage, LLC
 
Lake Orion, MI
 
1/16/2015
 
6,965

 
5,225

32
 
Tyler Road Self Storage, LLC
 
Ypsilanti, MI
 
1/16/2015
 
3,507

 
2,630

33
 
SSIL I, LLC
 
Aurora, IL
 
11/5/2015
 
34,500

 
26,450

34
 
Vesper Tuscaloosa, LLC
 
Tuscaloosa, AL
 
9/28/2016
 
54,500

 
43,087

35
 
Vesper Iowa City, LLC
 
Iowa City, IA
 
9/28/2016
 
32,750

 
24,825

36
 
Vesper Corpus Christi, LLC
 
Corpus Christi, TX
 
9/28/2016
 
14,250

 
10,800

37
 
Vesper Campus Quarters, LLC
 
Corpus Christi, TX
 
9/28/2016
 
18,350

 
14,175

38
 
Vesper College Station, LLC
 
College Station, TX
 
9/28/2016
 
41,500

 
32,058

39
 
Vesper Kennesaw, LLC
 
Kennesaw, GA
 
9/28/2016
 
57,900

 
48,600

40
 
Vesper Statesboro, LLC
 
Statesboro, GA
 
9/28/2016
 
7,500

 
7,480

41
 
Vesper Manhattan KS, LLC
 
Manhattan, KS
 
9/28/2016
 
23,250

 
15,459

42
 
JSIP Union Place, LLC
 
Franklin, MA
 
12/7/2016
 
64,750

 
51,800


68
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)
(in thousands, except share and per share data)


No.
 
Property Name
 
City
 
Acquisition Date
 
Purchase Price
 
Mortgage Outstanding
43
 
9220 Old Lantern Way, LLC
 
Laurel, MD
 
1/30/2017
 
187,250

 
153,580

44
 
7915 Baymeadows Circle Owner, LLC
 
Jacksonville, FL
 
10/31/2017
 
95,700

 
76,560

45
 
8025 Baymeadows Circle Owner, LLC
 
Jacksonville, FL
 
10/31/2017
 
15,300

 
12,240

46
 
23275 Riverside Drive Owner, LLC
 
Southfield, MI
 
11/8/2017
 
52,000

 
44,044

47
 
23741 Pond Road Owner, LLC
 
Southfield, MI
 
11/8/2017
 
16,500

 
14,185

48
 
150 Steeplechase Way Owner, LLC
 
Largo, MD
 
1/10/2018
 
44,500

 
36,668

49
 
Laurel Pointe Holdings, LLC
 
Forest Park, GA
 
5/9/2018
 
33,005

 
26,400

50
 
Bradford Ridge Holdings, LLC
 
Forest Park, GA
 
5/9/2018
 
12,500

 
10,000

51
 
Olentangy Commons Owner LLC
 
Columbus, OH
 
6/1/2018
 
113,000

 
92,876

52
 
Villages of Wildwood Holdings LLC
 
Fairfield, OH
 
7/20/2018
 
46,500

 
39,525

53
 
Falling Creek Holdings LLC
 
Richmond, VA
 
8/8/2018
 
25,000

 
19,335

54
 
Crown Pointe Passthrough LLC
 
Danbury, CT
 
8/30/2018
 
108,500

 
89,400

55
 
Ashwood Ridge Holdings LLC
 
Jonesboro, GA
 
9/21/2018
 
9,600

 
7,300

56
 
Lorring Owner LLC
 
Forestville, MD
 
10/30/2018
 
58,521

 
47,680

57
 
Hamptons Apartments Owner, LLC
 
Beachwood, OH
 
1/9/2019
 
96,500

 
79,520

58

5224 Long Road Holdings, LLC

Orlando, FL

6/28/2019

26,500


21,200

59

Druid Hills Holdings LLC

Atlanta, GA

7/30/2019

96,000


79,104

60

Bel Canto NPRC Parcstone LLC

Fayetteville, NC

10/15/2019

45,000


30,127

61

Bel Canto NPRC Stone Ridge LLC

Fayetteville, NC

10/15/2019

21,900


14,662

62

Sterling Place Holdings LLC

Columbus, OH

10/28/2019

41,500


34,196

 
 

 
 
 
 
 
$
1,908,157

 
$
1,588,579

On December 10, 2018, we received a final distribution from our investment in American Gilsonite Company and recorded a realized gain of $24, as a result of this transaction.

On December 31, 2018, we liquidated our investment in SB Forging Company II, we recorded a realized gain of $2,802, as a result of this transaction.
On July 16, 2019, we sold $16,000, or 8.39%, of the outstanding principal balance of the senior secured note investment in Broder Bros., Co. We recorded a realized loss of $120 as a result of these transactions.
On August 6, 2019, Medmark repaid the $7,000 subordinated secured loan receivable to us. We recorded a realized gain of $13 as a result of these transactions.
On November 1, 2019, we sold six of our rated secured structured notes to NPRC’s wholly-owned subsidiary National General Lending Limited (“NGL”) at fair value. We recorded a realized gain of $1,885 as a result of these transactions.
As of December 31, 2019, $2,941,429 of our loans to portfolio companies, at fair value, bear interest at floating rates and have LIBOR floors ranging from 0.0% - 3.0%. As of December 31, 2019, $591,058 of our loans to portfolio companies, at fair value, bear interest at fixed rates ranging from 1.0% - 20.5%. As of June 30, 2019, $3,294,584 of our loans to portfolio companies, at fair value, bore interest at floating rates and have LIBOR floors ranging from 0.0% - 3.0%. As of June 30, 2019, $598,720 of our loans to portfolio companies, at fair value, bore interest at fixed rates ranging from 1.0% - 20.5%.
At December 31, 2019, ten loan investments were on non-accrual status: Easy Gardener Products, Inc., Interdent (the Senior Secured Term Loan C and the Senior Secured Term Loan D), Pacific World Corporation (the Revolving Line of Credit, the Senior Secured Term Loan A and the Senior Secured Term Loan B), United Sporting Companies, Inc. (“USC”), USES Corp. (“USES,” the Senior Secured Term Loan A and the Senior Secured Term Loan B), and UTP (the Senior Secured Term Loan B). At June 30, 2019, nine loan investments were on non-accrual status: Edmentum (the Unsecured Junior PIK Note), InterDent (the Senior Secured Term Loan C and the Senior Secured Term Loan D), Pacific World Corporation (the Senior Secured Term Loan A and the Senior Secured Term Loan B), USC, USES (the Senior Secured Term Loan A and the Senior Secured Term Loan B), and UTP (the Senior Secured Term Loan B). Cost balances of these loans amounted to $475,559 and $487,356 as of December 31, 2019 and June 30, 2019, respectively. The fair value of these loans amounted to $89,421 and $167,833 as of December 31, 2019 and June 30, 2019, respectively. The fair values of these investments represent approximately 1.6% and 2.9% of our total assets at fair value as of December 31, 2019 and June 30, 2019, respectively.

69
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)
(in thousands, except share and per share data)


Undrawn committed revolvers and delayed draw term loans to our portfolio companies incur commitment and unused fees ranging from 0.00% to 5.00%. As of December 31, 2019 and June 30, 2019, we had $25,111 and $23,375, respectively, of undrawn revolver and delayed draw term loan commitments to our portfolio companies. The fair value of our undrawn committed revolvers and delayed draw term loans was zero as of December 31, 2019 and June 30, 2019.
We have guaranteed $2,487 in standby letters of credit issued through a financial intermediary and $2,919 of equipment lease obligations on behalf of InterDent, Inc. (“InterDent”) as of December 31, 2019. Under these arrangements, we would be required to make payments to the financial intermediary or equipment lease provider, respectively, if InterDent was to default on their related payment obligations. As of December 31, 2019, we have not recorded a liability on the statement of assets and liabilities for these guarantees as the likelihood of default on the standby letters of credit or equipment lease is deemed to be remote.
Unconsolidated Significant Subsidiaries
Our investments are generally in small and mid-sized companies in a variety of industries. In accordance with Regulation S-X 3-09 and Regulation S-X 4-08(g), we must determine which of our unconsolidated controlled portfolio companies are considered “significant subsidiaries,” if any. In evaluating these investments, there are three tests utilized to determine if any of our controlled investments are considered significant subsidiaries: the asset test, the income test and the investment test. Regulation S-X 3-09 requires separate audited financial statements of an unconsolidated subsidiary in an annual report if any of the three tests exceed 20%. Regulation S-X 4-08(g) requires summarized financial information in an annual report if any of the three tests exceeds 10%.
Pursuant to Regulation S-X 10-01(b), Interim Financial Statements, summarized interim income statement information is required for an unconsolidated subsidiary within a quarterly report if the unconsolidated subsidiary would otherwise require separate audited financial statements within an annual report pursuant to Regulation S-X 3-09.
CP Energy Services Inc. (“CP Energy”) is a significant subsidiary due to income for the six months ended December 31, 2019. The following table shows summarized income statement information for CP Energy for the periods included in this quarterly report:
 
One Month Ended October 31,
 
Three Months Ended December 31,
 
Four Months Ended October 31,
 
Six Months Ended December 31,
Summary Statement of Operations
2019
 
2018
 
2019
 
2018
Total revenue
$
3,259

 
$
13,143

 
$
16,448

 
$
33,530

Cost of sales
2,635

 
10,964

 
12,788

 
24,778

Operating expenses
668

 
3,230

 
2,941

 
5,354

Other expenses (including tax expense)
1,859

 
6,453

 
9,320

 
13,519

Net loss
$
(1,903
)
 
$
(7,504
)
 
$
(8,601
)
 
$
(10,121
)
Credit Central Loan Company, LLC (“Credit Central”) is a significant subsidiary due to income for the six months ended December 31, 2019. The following table shows summarized income statement information for Credit Central for the periods included in this quarterly report:
 
Three Months Ended December 31,
 
Six Months Ended December 31,
Summary Statement of Operations
2019
 
2018
 
2019
 
2018
Total revenue
$
19,614


$
19,907


$
38,471


$
38,802

Cost of sales
7,199


6,356


12,806


11,492

Operating expenses
10,882


11,677


23,283


23,597

Net income
$
1,533


$
1,874


$
2,382


$
3,713



70
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)
(in thousands, except share and per share data)


First Tower Finance Company LLC (“First Tower Finance”), which was a significant subsidiary due to income for our fiscal years ending June 30, 2019 and June 30, 2018, is a significant subsidiary due to income for the six months ended December 31, 2019. The following table shows summarized income statement information for First Tower Finance for the periods included in this quarterly report:
 
Two Months Ended November 30,
 
Three Months Ended December 31,
 
Five Months Ended November 30,
 
Six Months Ended December 31,
Summary Statement of Operations
2019
 
2018
 
2019
 
2018
Total revenue
$
47,046

 
$
72,445

 
$
116,235


$
139,062

Total expenses
11,987

 
22,965

 
27,924


37,722

Loss before income tax
34,996

 
52,592

 
89,544


105,382

Income tax
(38
)
 
(88
)
 
(20
)

(38
)
Net income (loss)
$
101

 
$
(3,024
)
 
$
(1,213
)

$
(4,004
)
InterDent, Inc. (“InterDent”) is a significant subsidiary due to income for the six months ended December 31, 2019. The following table shows summarized income statement information for InterDent for the periods included in this quarterly report:
 
Three Months Ended December 31,
 
Six Months Ended December 31,
Summary Statement of Operations
2019
 
2018
 
2019
 
2018
Total revenue
$
73,297


$
73,393


$
146,570


$
153,005

Cost of sales
56,076


54,078


107,957


108,675

Operating expenses
20,221


25,683


44,372


52,278

Other expenses (including tax expense)
8,145


5,574


16,492


13,793

Net loss
$
(11,145
)

$
(11,942
)

$
(22,251
)

$
(21,739
)
MITY, Inc. (“MITY”) is a significant subsidiary due to income for the six months ended December 31, 2019. The following table shows summarized income statement information for MITY for the periods included in this quarterly report:
 
Three Months Ended December 31,
 
Six Months Ended December 31,
Summary Statement of Operations
2019
 
2018
 
2019
 
2018
Total revenue
$
31,138

 
$
33,821

 
$
76,116

 
$
64,632

Cost of sales
25,247

 
29,275

 
59,697

 
53,267

Operating expenses
5,761

 
4,906

 
12,854

 
9,999

Other expenses (including tax expense)
4,034

 
2,896

 
9,325

 
6,548

Net loss
$
(3,904
)
 
$
(3,256
)
 
$
(5,760
)
 
$
(5,182
)

National Property REIT Corp. (“NPRC”), which was a significant subsidiary due to assets and income for our fiscal years ending June 30, 2019 and June 30, 2018, is a significant subsidiary due to assets and income for the six months ended December 31, 2019. The following table shows summarized income statement information for NPRC for the periods included in this quarterly report:
 
Three Months Ended December 31,
 
Six Months Ended December 31,
Summary Statement of Operations
2019
 
2018
 
2019
 
2018
Total revenue
$
72,994


$
168,614

 
$
289,595

 
$
269,258

Operating expenses
80,633


101,507

 
184,630

 
184,577

Operating income
$
(7,639
)

$
67,107

 
$
104,965

 
$
84,681

Depreciation and amortization
(25,203
)

(22,901
)
 
(49,046
)
 
(41,099
)
Fair value adjustment
(2,088
)

(11,641
)
 
(4,957
)
 
(19,720
)
Net (loss) income
$
(34,930
)

$
32,565

 
$
50,962

 
$
23,862


71
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)
(in thousands, except share and per share data)


Nationwide Loan Company LLC (“Nationwide”) is a significant subsidiary due to income for the six months ended December 31, 2019. The following table shows summarized income statement information for Nationwide for the periods included in this quarterly report:
 
Three Months Ended December 31,
 
Six Months Ended December 31,
Summary Statement of Operations
2019
 
2018
 
2019
 
2018
Total revenue
$
7,864


$
8,836


$
16,024


$
17,872

Total expenses
9,247


9,793


18,259


19,861

Net loss
$
(1,383
)

$
(957
)

$
(2,235
)

$
(1,989
)

NMMB, Inc. (“NMMB”) is a significant subsidiary due to income for the six months ended December 31, 2019. The following table shows summarized income statement information for NMMB for the periods included in this quarterly report:
 
Two Months Ended November 30,
 
Three Months Ended December 31,
 
Five Months Ended November 30,
 
Six Months Ended December 31,
Summary Statement of Operations
2019
 
2018
 
2019
 
2018
Total revenue
$
6,253


$
11,179


$
13,696


$
18,760

Cost of sales
3,315


6,642


6,656


11,111

Operating expenses
1,242


2,263


3,146


4,224

Other expenses (including tax expense)
422


852


1,098


1,735

Net income
$
1,274


$
1,422


$
2,796


$
1,690


Pacific World Corporation (“Pacific World”), which was a significant subsidiary due to income for our fiscal year ending June 30, 2019, is a significant subsidiary due to income for the six months ended December 31, 2019. The following table shows summarized income statement information for Pacific World for the periods included in this quarterly report:
 
Two Months Ended November 30,
 
                        Three Months Ended December 31,
 
Five Months Ended November 30,
 
                                         Six Months Ended December 31,
Summary Statement of Operations
2019
 
2018
 
2019
 
2018
Net Sales
$
13,403


$
20,527


$
31,108


$
44,948

Cost of sales
10,818


18,076


25,412


36,376

Selling, general and administrative expenses
7,304


19,557


17,841


39,812

Interest expense
4,012


6,135


10,121


11,756

Other expense (income), net
(1,012
)

774


128


1,547

Income tax expense (benefit)
50


109


130


210

Net loss
$
(7,768
)

$
(24,124
)

$
(22,524
)

$
(44,754
)
R-V Industries, Inc. (“R-V”) is a significant subsidiary due to income for the six months ended December 31, 2019. The following table shows summarized income statement information for R-V for the periods included in this quarterly report:
 
Three Months Ended December 31,
 
Six Months Ended December 31,
Summary Statement of Operations
2019
 
2018
 
2019
 
2018
Total revenue
$
11,926


$
12,000


$
22,786


$
23,061

Cost of sales
9,101


9,097


16,675


17,570

Operating expenses
2,318


2,363


4,555


4,592

Other expenses (including tax expense)
984


686


2,156


1,674

Net loss
$
(477
)

$
(146
)

$
(600
)

$
(775
)

72
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)
(in thousands, except share and per share data)



USES Corp. (“USES”) is a significant subsidiary due to income for the six months ended December 31, 2019. The following table shows summarized income statement information for USES for the periods included in this quarterly report:
 
One Month Ended October 31,
 
Three Months Ended December 31,
 
Four Months Ended October 31,
 
Six Months Ended December 31,
Summary Statement of Operations
2019
 
2018
 
2019
 
2018
Total revenue
$
4,507


$
13,940


$
15,818


$
27,430

Cost of sales
3,448


12,533


13,076


25,830

Operating expenses
1,066


2,911


4,058


6,089

Other expenses (including tax expense)
1,480


9,719


7,413


18,007

Net loss
$
(1,487
)

$
(11,223
)

$
(8,729
)

$
(22,496
)

Valley Electric Company, Inc. (“Valley Electric”), which was a significant subsidiary due to income for our fiscal year ending June 30, 2019, is a significant subsidiary due to income for the six months ended December 31, 2019. The following table shows summarized income statement information for Valley Electric for the periods included in this quarterly report:
 
Three Months Ended December 31,
 
Six Months Ended December 31,
Summary Statement of Operations
2019
 
2018
 
2019
 
2018
Total revenue
$
65,500


$
62,191


$
134,779


$
115,671

Cost of sales
57,315


51,375


116,984


93,262

Operating expenses
2,304


3,956


6,060


7,626

Other expenses (including tax expense)
3,845


2,005


6,035


3,879

Net income
$
2,036


$
4,855


$
5,700


$
10,904

The SEC has requested comments on the proper mechanics of how the calculations related to Regulation S-X 3-09 and Regulation S-X 4-08(g) should be completed. There is currently diversity in practice for the calculations. We expect that the SEC will clarify the calculation methods in the future.
Note 4. Revolving Credit Facility
On August 29, 2014, we renegotiated our previous credit facility and closed an expanded five and a half year revolving credit facility (the “2014 Facility”). The lenders had extended commitments of $885,000 under the 2014 Facility as of June 30, 2018. The 2014 Facility included an accordion feature which allowed commitments to be increased up to $1,500,000 in the aggregate. Interest on borrowings under the 2014 Facility was one-month LIBOR plus 225 basis points. Additionally, the lenders charged a fee on the unused portion of the 2014 Facility equal to either 50 basis points if at least 35% of the credit facility was drawn or 100 basis points otherwise.
On August 1, 2018, we renegotiated the 2014 Facility and closed an expanded five and a half year revolving credit (the “2018 Facility”). The lenders had extended commitments of $1,132,500 as of June 30, 2019. The 2018 Facility included an accordion feature which allowed commitments to be increased up to $1,500,000 in the aggregate.

On September 9, 2019, we amended the 2018 Facility and closed an expanded revolving credit facility (the “2019 Facility” and collectively with the 2014 Facility and the 2018 Facility, the “Revolving Credit Facility”). The lenders had extended commitments of $1,077,500 as of December 31, 2019. The Revolving Credit Facility includes an accordion feature which allows commitments to be increased up to $1,500,000 in the aggregate. The Revolving Credit Facility Facility matures on September 9, 2024. It includes a revolving period that extends through September 9, 2023, followed by an additional one-year amortization period, with distributions allowed to Prospect 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 Revolving Credit 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 Revolving Facility also contains certain requirements relating to portfolio performance, including required

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


minimum portfolio yield and limitations on delinquencies and charge-offs, violation of which could result in the early termination of the Revolving Credit Facility. The Revolving Credit Facility also requires the maintenance of a minimum liquidity requirement. As of December 31, 2019, we were in compliance with the applicable covenants.
Interest on borrowings under the 2019 Facility is one-month LIBOR plus 220 basis points. Additionally, the lenders charge a fee on the unused portion of the credit facility equal to either 50 basis points if more than 60% of the credit facility is drawn, or 100 basis points if more than 35% and an amount less than or equal to 60% of the credit facility is drawn, or 150 basis points if an amount less than or equal to 35% of the credit facility is drawn. The 2019 Facility requires us to pledge assets as collateral in order to borrow under the credit facility.
For the six months ended December 31, 2019 and December 31, 2018, the average stated interest rate (i.e., rate in effect plus the spread) and average outstanding borrowings for the Revolving Credit Facility were as follows:

Three Months Ended December 31,

Six Months Ended December 31,

2019

2018

2019

2018
Average stated interest rate
4.03
%

4.50
%

4.19
%

4.43
%
Average outstanding balance
$135,359

$308,424

$111,565

$237,283
As of December 31, 2019 and June 30, 2019, we had $607,513 and $684,212, respectively, available to us for borrowing under the Revolving Credit Facility, of which $92,000 and $167,000 was outstanding as of December 31, 2019 and June 30, 2019, respectively. As of December 31, 2019, the investments, including cash and cash equivalents, used as collateral for the Revolving Credit Facility had an aggregate fair value of $1,475,727, which represents 27.3% of our total investments, including cash and cash equivalents. 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. 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 $1,077,500. 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 $10,904 of new fees and $7,787 were carried over for continuing participants from the previous facilities, all of which are being amortized over the term of the facility in accordance with ASC 470-50. As of December 31, 2019, $10,232 remains to be amortized and is reflected as deferred financing costs on the Consolidated Statements of Assets and Liabilities. During the six months ended December 31, 2019, $398 of fees were expensed relating to credit providers in the 2018 Facility who did not commit to the 2019 Facility.
During the three months ended December 31, 2019 and December 31, 2018, we recorded $5,552 and $6,960, respectively, of interest costs, unused fees and amortization of financing costs on the Revolving Credit Facility as interest expense. During the six months ended December 31, 2019 and December 31, 2018, we recorded $10,974 and $11,326, respectively, of interest costs, unused fees and amortization of financing costs on the Revolving Credit Facility as interest expense.
Note 5. Convertible Notes
2017 Notes
On April 16, 2012, we issued $130,000 aggregate principal amount of convertible notes that matured on October 15, 2017 (the “2017 Notes”). The 2017 Notes bore 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 March 28, 2016, we repurchased $500 aggregate principal amount of the 2017 Notes at a price of 98.25, including commissions. The transaction resulted in our recognizing a $9 gain for the period ended March 31, 2016. On April 6, 2017, we repurchased $78,766 aggregate principal amount of the 2017 Notes at a price of 102.0, including commissions. The transaction resulted in our recognizing a $1,786 loss during the three months ended June 30, 2017. On October 15, 2017, we repaid the outstanding principal amount of $50,734 of the 2017 Notes, plus interest. No gain or loss was realized on the transaction.

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


2018 Notes
On August 14, 2012, we issued $200,000 aggregate principal amount of convertible notes that matured on March 15, 2018 (the “2018 Notes”). The 2018 Notes bore 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 April 6, 2017, we repurchased $114,581 aggregate principal amount of the 2018 Notes at a price of 103.5, including commissions. The transaction resulted in our recognizing a $4,700 loss during the three months ended June 30, 2017. On March 15, 2018, we repaid the outstanding principal amount of $85,419 of the 2018 Notes, plus interest. No gain or loss was realized on the transaction.
2019 Notes
On December 21, 2012, we issued $200,000 aggregate principal amount of convertible notes that matured on January 15, 2019 (the “2019 Notes”). The 2019 Notes bore 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 May 30, 2018, we repurchased $98,353 aggregate principal amount of the 2019 Notes at a price of 102.0, including commissions. The transaction resulted in our recognizing a $2,383 loss during the three months ended June 30, 2018. On January 15, 2019, we repaid the outstanding principal amount of $101,647 of the 2019 Notes, plus interest. No gain or loss was realized on the transaction.
2020 Notes
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. On January 30, 2015, we repurchased $8,000 aggregate principal amount of the 2020 Notes at a price of 93.0, including commissions. As a result of this transaction, we recorded a gain of $332, in the amount of the difference between the reacquisition price and the net carrying amount of the 2020 Notes, net of the proportionate amount of unamortized debt issuance cost. During the three months ended December 31, 2018, we repurchased an additional $13,500 aggregate principal amount of the 2020 Notes at a price of 99.5, including commissions. As a result of this transaction, we recorded a loss of $41, in the amount of the difference between the reacquisition price and the net carrying amount of the 2020 Notes, net of the proportionate amount of unamortized debt issuance costs. During the three months ended March 31, 2019, we repurchased an additional $129,798 aggregate principal amount of the 2020 Notes at a weighted average price of 101.4, including commission. As a result of these transactions, we recorded a net loss of $2,787 during the three months ended March 31, 2019, in the amount of the difference between the reacquisition price and the net carrying amounts of the 2020 Notes, net of the proportionate amount of unamortized debt issuance costs. During the three months ended June 30, 2019, we repurchased an additional $24,588 aggregate principal amount of the 2020 Notes at a weighted average price of $101.10, including commissions. As a result of these transactions, we recorded a net loss of $414 during the three months ended June 30, 2019, in the amount of the difference of the reacquisition price and the net carrying amounts of the 2020 Notes, net of the proportionate amount of unamortized debt issuance costs.
On June 28, 2019, we commenced a tender offer to purchase for cash any and all of the $224,114 then outstanding aggregate principal amount of the 2020 Notes (“June Tender Offer”). On July 27, 2019, $32,948 aggregate principal amount of the 2020 Notes, representing 14.7% of the previously outstanding 2020 Notes, were validly tendered and accepted. On August 12, 2019, we commenced a tender offer to purchase for cash up to $60,000 aggregate principal amount of the 2020 Notes (“August Tender Offer”). On September 10, 2019, $13,597 aggregate principal amount of the 2020 Notes, representing 7.1% of the previously outstanding 2020 Notes, were validly tendered and accepted. The June Tender Offer and August Tender Offer, resulted in our recognizing a loss of $668 during the three month ended September 30, 2019.
On September 24, 2019, we commenced a tender offer to purchase for cash up to $40,000 outstanding aggregate principal amount of the 2020 Notes (“2020 Notes September Tender Offer”). On October 23, 2019, $2,140 aggregate principal amount of the 2020 Notes, representing 1.2% of the previously outstanding 2020 Notes, were validly tendered and accepted. On November 7, 2019, we commenced a tender offer to purchase for cash up to $10,000 aggregate principal amount of the 2020 Notes (“2020 Notes November Tender Offer”). On December 7, 2019, $392 aggregate principal amount of the 2020 Notes, representing 0.2% of the previously outstanding 2020 Notes, were validly tendered and accepted. The 2020 Notes September Tender Offer and 2020 Notes November Tender Offer resulted in our recognizing a loss of $31 during the three months ended December 31, 2019.
On December 23, 2019, we commenced a tender offer to purchase for cash up to $10,000 aggregate principal amount of the 2020 Notes (“2020 Notes December Tender Offer”). The 2020 Notes December Tender Offer expired at 12:00 midnight, New York City

75
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)
(in thousands, except share and per share data)


time, on January 23, 2020 (one minute after 11:59 p.m., New York City time, on January 22, 2020) (Note 18). As of December 31, 2019, the outstanding aggregate principal amount of the 2020 Notes is $175,037.
2022 Notes
On April 11, 2017, we issued $225,000 aggregate principal amount of convertible notes that mature on July 15, 2022 (the “Original 2022 Notes”), unless previously converted or repurchased in accordance with their terms. The Original 2022 Notes bear interest at a rate of 4.95% per year, payable semi-annually on January 15 and July 15 each year, beginning July 15, 2017. Total proceeds from the issuance of the Original 2022 Notes, net of underwriting discounts and offering costs, were $218,010. On May 18, 2018, we issued an additional $103,500 aggregate principal amount of convertible notes that mature on July 15, 2022 (the “Additional 2022 Notes,” and together with the Original 2022 Notes, the “2022 Notes”), unless previously converted or repurchased in accordance with their terms. The Additional 2022 Notes were a further issuance of, and are fully fungible and rank equally in right of payment with, the Original 2022 Notes and bear interest at a rate of 4.95% per year, payable semi-annually on January 15 and July 15 each year, beginning July 15, 2018. Total proceeds from the issuance of the Additional 2022 Notes, net of underwriting discounts and offering costs, were $100,749.
On October 18, 2019, we repurchased $22,941 aggregate principal amount of the 2022 Notes at a price of 102.8 including commissions. As a result of this transaction, we recorded a loss of $1,072 in the amount of the difference between the reacquisition price and the net carrying amount of the 2022 Notes, net of the proportionate amount of unamortized debt issuance costs. On November 7, 2019, we commenced a tender offer to purchase for cash up to $50,000 aggregate principal amount of the 2022 Notes (“2022 Notes November Tender Offer”). On December 7, 2019, $13,432 aggregate principal amount of the 2022 Notes, representing 4.4% of the previously outstanding 2022 Notes, were validly tendered and accepted. The 2022 Notes November Tender Offer resulted in our recognizing a loss of $599, in the amount of the difference between the reacquisition price and the net carrying amount of the 2022 Notes, net of the proportionate amount of unamortized debt issuance costs.
On December 23, 2019, we commenced a tender offer to purchase for cash up to $25,000 aggregate principal amount of the 2022 Notes (“2022 Notes December Tender Offer”). The 2022 Notes December Tender Offer expired at 12:00 midnight, New York City time, on January 23, 2020 (one minute after 11:59 p.m., New York City time, on January 22, 2020) (Note 18). As of December 31, 2019, the outstanding aggregate principal amount of the 2022 Notes is $292,127.
2025 Notes
On March 1, 2019, we issued $175,000 aggregate principal amount of senior convertible notes that mature on March 1, 2025 (the “2025 Notes”), unless previously converted or repurchased in accordance with their terms. We granted the underwriters a 13-day over-allotment option to purchase up to an additional $26,250 aggregate principal amount of the 2025 Notes. The underwriters fully exercised the over-allotment option on March 11, 20l9 and we issued $26,250 aggregate principal amount of 2025 Notes at settlement on March 13, 2019. The 2025 Notes bear interest at a rate of 6.375% per year, payable semi-annually on March 1 and September 1 each year, beginning September 1, 2019. Total proceeds from the issuance of the 2025 Notes, net of underwriting discounts and offering costs, were $198,674. As of December 31, 2019, the outstanding aggregate principal amount of the 2025 Notes is $201,250.

Certain key terms related to the convertible features for the 2020 Notes, the 2022 Notes, and the 2025 Notes (collectively, the “Convertible Notes”) are listed below:
 
 
2020 Notes

 
2022 Notes

 
2025 Notes

Initial conversion rate(1)
 
80.6647

 
100.2305

 
110.7420

Initial conversion price
 
$
12.40

 
$
9.98

 
$
9.03

Conversion rate at December 31, 2019(1)(2)
 
80.6670

 
100.2305

 
110.7420

Conversion price at December 31, 2019(2)(3)
 
$
12.40

 
$
9.98

 
$
9.03

Last conversion price calculation date
 
4/11/2019

 
4/11/2019

 
3/1/2019

Dividend threshold amount (per share)(4)
 
$
0.110525

 
$
0.083330

 
$
0.060000

(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 will increase only if the current monthly dividends (per share) exceed the dividend threshold amount (per share).

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


(4)
The conversion rate is increased if monthly cash dividends paid to common shares exceed the monthly dividend threshold amount, subject to adjustment. Current dividend rates are at or below the minimum dividend threshold amount for further conversion rate adjustments for all bonds.
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 recorded a discount of $4,025 and debt issuance costs of $21,655 which are being amortized over the terms of the Convertible Notes. As of December 31, 2019, $3,557 of the original issue discount and $7,753 of the debt issuance costs remain to be amortized and are included as a reduction within Convertible Notes on the Consolidated Statement of Assets and Liabilities.
During the three months ended December 31, 2019 and December 31, 2018, we recorded $9,706 and $11,457, respectively, of interest costs and amortization of financing costs on the Convertible Notes as interest expense. During the six months ended December 31, 2019 and December 31, 2018, we recorded $20,361 and $22,892, respectively, of interest costs and amortization of financing costs on the Convertible Notes as interest expense.
Note 6. Public Notes
2023 Notes
On March 15, 2013, we issued $250,000 aggregate principal amount of unsecured notes that mature on March 15, 2023 (the “Original 2023 Notes”). The Original 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 Original 2023 Notes, net of underwriting discounts and offering costs, were $243,641. On June 20, 2018, we issued an additional $70,000 aggregate principal amount of unsecured notes that mature on March 15, 2023 (the “Additional 2023 Notes,” and together with the Original 2023 Notes, the “2023 Notes”). The Additional 2023 Notes were a further issuance of, and are fully fungible and rank equally in right of payment with, the Original 2023 Notes and 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, 2018. Total proceeds from the issuance of the Additional 2023 Notes, net of underwriting discounts, were $69,403. As of December 31, 2019, the outstanding aggregate principal amount of the 2023 Notes is $320,000.

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


5.00% 2019 Notes
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 $295,998. On June 7, 2018, we commenced a tender offer to purchase for cash any and all of the $300,000 aggregate principal amount outstanding of the 5.00% 2019 Notes. On June 20, 2018, $146,464 aggregate principal amount of the 5.00% 2019 Notes, representing 48.8% of the previously outstanding 5.00% 2019 Notes, were validly tendered and accepted. The transaction resulted in our recognizing a loss of $3,705 during the three months ended June 30, 2018. On September 26, 2018, we repurchased the remaining $153,536 aggregate principal amount of the 5.00% 2019 Notes at a price of 101.645, including commissions. The transaction resulted in our recognizing a loss of $2,874 during the three months ended September 30, 2018.
2024 Notes
On December 10, 2015, we issued $160,000 aggregate principal amount of unsecured notes that mature on June 15, 2024 (the “2024 Notes”). The 2024 Notes bear interest at a rate of 6.25% per year, payable quarterly on March 15, June 15, September 15 and December 15 of each year, beginning March 15, 2016. Total proceeds from the issuance of the 2024 Notes, net of underwriting discounts and offering costs, were $155,043. On June 16, 2016, we entered into an at-the-market (“ATM”) program with FBR Capital Markets & Co. through which we could sell, by means of ATM offerings, from time to time, up to $100,000 in aggregate principal amount of our existing 2024 Notes (“Initial 2024 Notes ATM”). Following the initial 2024 Notes ATM, the aggregate principal amount of the 2024 Notes issued was $199,281 for net proceeds of $193,253, after commissions and offering costs. On July 2, 2018, we entered into a second ATM program with B. Riley FBR, Inc. and BB&T Capital Markets, and on August 31, 2018 with Comerica Securities, Inc., through which we could sell, by means of ATM offerings, up to $100,000 in aggregate principal amount of the 2024 Notes (“Second 2024 Notes ATM,” and together with the Initial 2024 Notes ATM, the “2024 Notes Follow-on Program”). The 2024 Notes are listed on the New York Stock Exchange (“NYSE”) and trade thereon under the ticker “PBB”. During the year ended June 30, 2019, we issued an additional $35,162 aggregate principal amount under the Second 2024 Notes ATM, for net proceeds of $34,855, after commissions and offering costs. As of December 31, 2019, the outstanding aggregate principal amount of the 2024 Notes is $234,443.
2028 Notes
On June 7, 2018, we issued $55,000 aggregate principal amount of unsecured notes that mature on June 15, 2028 (the “2028 Notes”). The 2028 Notes bear interest at a rate of 6.25% per year, payable quarterly on March 15, June 15, September 15, and December 15 of each year, beginning September 15, 2018. Total proceeds from the issuance of the 2028 Notes, net of underwriting discounts and offering costs were $53,119. On July 2, 2018, we entered into an ATM program with B. Riley FBR, Inc. and BB&T Capital Markets, and on August 31, 2018 with Comerica Securities, Inc., through which we could sell, by means of ATM offerings, up to $100,000 in aggregate principal amount of our existing 2028 Notes (“2028 Notes ATM” or “2028 Notes Follow-on Program”). The 2028 Notes are listed on the NYSE and trade thereon under the ticker “PBY”. During the year ended June 30, 2019, we issued an additional $15,761 aggregate principal amount under the 2028 Notes ATM, for net proceeds of $15,530, after commissions and offering costs. As of December 31, 2019, the outstanding aggregate principal amount of the 2028 Notes is $70,761.
6.375% 2024 Notes
On October 1, 2018, we issued $100,000 aggregate principal amount of unsecured notes that mature on January 15, 2024 (the “6.375% 2024 Notes”). The 6.375% 2024 Notes bear interest at a rate of 6.375% per year, payable semi-annually on January 15 and July 15 of each year, beginning January 15, 2019. Total proceeds from the issuance of the 6.375% 2024 Notes, net of underwriting discounts and offering costs, were $98,985. As of December 31, 2019, the outstanding aggregate principal amount of the 6.375% 2024 Notes is $100,000.

78
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)
(in thousands, except share and per share data)


2029 Notes
On December 5, 2018, we issued $50,000 aggregate principal amount of unsecured notes that mature on June 15, 2029 (the “2029 Notes”). The 2029 Notes bear interest at a rate of 6.875% per year, payable quarterly on March 15, June 15, September 15, and December 15 of each year, beginning March 15, 2019. Total proceeds from the issuance of the 2029 Notes, net of underwriting discounts and offering costs, were $48,057. On February 9, 2019, we entered into an ATM program with B. Riley FBR, Inc., BB&T Capital Markets, and Comerica Securities, Inc., through which we could sell, by means of ATM offerings, up to $100,000 in aggregate principal amount of our existing 2029 Notes (“2029 Notes ATM” or “2029 Notes Follow-on Program”). The 2029 Notes are listed on the NYSE and trade thereon under the ticker “PBC”. During the year ended June 30, 2019, we issued an additional $19,170 aggregate principal amount under the 2029 Notes ATM, for net proceeds of $18,523, after commissions and offering costs. As of December 31, 2019, the outstanding aggregate principal amount of the 2029 Notes is $69,170.

The 2023 Notes, the 2024 Notes, the 2028 Notes, the 6.375% 2024 Notes, and the 2029 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 recorded a discount of $4,112 and debt issuance costs of $16,226, which are being amortized over the terms of the notes. As of December 31, 2019, $2,287 of the original issue discount and $10,509 of the debt issuance costs remain to be amortized and are included as a reduction within Public Notes on the Consolidated Statement of Assets and Liabilities.
During the three months ended December 31, 2019 and December 31, 2018, we recorded $12,829 and $11,467, respectively, of interest costs and amortization of financing costs on the Public Notes as interest expense. During the six months ended December 31, 2019 and December 31, 2018, we recorded $25,647 and $22,830, 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 “Original 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®, which was increased to $1,500,000 in May 2014. We sold approximately $1,454,466 in aggregate principal amount of Prospect Capital InterNotes® under the Original Selling Agent Agreement. On May 10, 2019, the Original Selling Agent Agreement was terminated, and we entered into a new selling agent agreement with Incapital LLC (the “May 2019 Selling Agent Agreement”), authorizing the issuance and sale from time to time of up to $1,000,000 of Prospect Capital InterNotes® (the “InterNotes® Offering”).
On September 16, 2019, the May 2019 Selling Agent Agreement was terminated, and we entered into a new selling agent agreement with Incapital LLC (the “Selling Agent Agreement”), authorizing the issuance and sale from time to time of up to $500,000 of Prospect Capital InterNotes® (the “InterNotes® Offering”). 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. 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 six months ended December 31, 2019, we issued $158,078 aggregate principal amount of Prospect Capital InterNotes® for net proceeds of $155,409. These notes were issued with stated interest rates ranging from 3.75% to 5.50% with a weighted average interest rate of 4.35%. These notes mature between July 15, 2024 and January 15, 2030. The following table summarizes the Prospect Capital InterNotes® issued during the six months ended December 31, 2019:
Tenor at
Origination
(in years)
 
Principal
Amount
 
Interest Rate
Range
 
Weighted
Average
Interest Rate
 
Maturity Date Range
5
 
$
67,426

 
3.75%–5.00%
 
4.19
%
 
July 15, 2024 – January 15, 2025
7
 
35,277

 
4.00%–5.25%
 
4.27
%
 
July 15, 2026 – January 15, 2027
10
 
55,375

 
3.75%–5.50%
 
4.59
%
 
July 15, 2029 – January 15, 2030
 
 
$
158,078

 
 
 
 
 
 

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


During the six months ended December 31, 2018, we issued $69,586 aggregate principal amount of our Prospect Capital InterNotes® for net proceeds of $68,439. These notes were issued with stated interest rates ranging from 5.00% to 6.25% with a weighted average interest rate of 5.64%. These notes mature between July 15, 2023 and November 15, 2028. The following table summarizes the Prospect Capital InterNotes® issued during the six months ended December 31, 2018:
Tenor at
Origination
(in years)
 
Principal
Amount
 
Interest Rate
Range
 
Weighted
Average
Interest Rate
 
Maturity Date Range
5
 
$
33,295

 
5.00%-5.75%
 
5.29
%
 
July 15, 2023 – January 15, 2024
7
 
14,718

 
5.50%–6.00%
 
5.84
%
 
July 15, 2025 – January 15, 2026
8
 
385

 
5.75%
 
5.75
%
 
July 15, 2026
10
 
21,188

 
6.00%–6.25%
 
6.06
%
 
July 15, 2028 – November 15, 2028
 
 
$
69,586

 
 
 
 
 
 
During the six months ended December 31, 2019, we redeemed, prior to maturity, $240,188 aggregate principal amount of Prospect Capital InterNotes® at par with a weighted average interest rate of 5.07% in order to replace shorter maturity debt with longer-term debt. During the six months ended December 31, 2019, we repaid $3,180 aggregate principal amount of Prospect Capital InterNotes® at par in accordance with the Survivor’s Option, as defined in the InterNotes® Offering prospectus. As a result of these transactions, we recorded a loss in the amount of the unamortized debt issuance costs. The net loss on the extinguishment of Prospect Capital InterNotes® in the six months ended December 31, 2019 was $2,279.

The following table summarizes the Prospect Capital InterNotes® outstanding as of December 31, 2019:
Tenor at
Origination
(in years)
 
Principal
Amount
 
Interest Rate
Range
 
Weighted
Average
Interest Rate
 
Maturity Date Range
5
 
$
188,296

 
3.75% – 5.75%
 
4.97
%
 
April 15, 2022 – January 15, 2025
7
 
94,811

 
4.00% – 6.00%
 
5.19
%
 
July 15, 2024 – January 15, 2027
8
 
24,475

 
4.50% – 5.75%
 
4.67
%
 
August 15, 2025 – July 15, 2026
10
 
139,528

 
3.75% – 6.25%
 
5.43
%
 
January 15, 2024 – January 15, 2030
12
 
2,978

 
6.00%
 
6.00
%
 
November 15, 2025 – December 15, 2025
15
 
17,063

 
5.25% – 6.00%
 
5.35
%
 
May 15, 2028 – November 15, 2028
18
 
18,902

 
4.13% – 6.25%
 
5.58
%
 
December 15, 2030 – August 15, 2031
20
 
3,847

 
5.75% – 6.00%
 
5.89
%
 
November 15, 2032 – October 15, 2033
25
 
31,126

 
6.25% – 6.50%
 
6.39
%
 
August 15, 2038 – May 15, 2039
30
 
101,383

 
5.50% – 6.75%
 
6.25
%
 
November 15, 2042 – October 15, 2043
 
 
$
622,409

 
 
 
 

 
 

80
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)
(in thousands, except share and per share data)


During the six months ended December 31, 2018, we redeemed, prior to maturity $99,432 aggregate principal amount of Prospect Capital InterNotes® at par with a weighted average interest rate of 4.86% in order to replace debt with shorter maturity dates. During the six months ended December 31, 2018, we repaid $5,419 aggregate principal amount of Prospect Capital InterNotes® at par in accordance with the Survivor’s Option, as defined in the InterNotes® Offering prospectus. As a result of these transactions, we recorded a loss in the amount of the unamortized debt issuance costs. The net loss on the extinguishment of Prospect Capital InterNotes® in the six months ended December 31, 2018 was $711.
The following table summarizes the Prospect Capital InterNotes® outstanding as of June 30, 2019:
Tenor at
Origination
(in years)
 
Principal
Amount
 
Interest Rate
Range
 
Weighted
Average
Interest Rate
 
Maturity Date Range
5
 
$
283,450

 
4.00% – 5.75%
 
5.10
%
 
July 15, 2021 - June 15, 2024
5.5
 
1,399

 
4.25%
 
4.25
%
 
July 15, 2020
6.5
 
34,745

 
5.10% – 5.25%
 
5.24
%
 
January 15, 2022 - May 15, 2022
7.0
 
83,731

 
4.00% – 6.00%
 
5.56
%
 
January 15, 2020 - June 15, 2026
8
 
1,996

 
5.75%
 
5.75
%
 
February 15, 2021
8
 
24,500

 
4.50% – 5.75%
 
4.67
%
 
August 15, 2025 - July 15, 2026
10
 
99,529

 
5.50% – 7.00%
 
6.09
%
 
March 15, 2022 - June 15, 2029
12
 
2,978

 
6.00%
 
6.00
%
 
November 15, 2025 - December 15, 2025
15
 
17,077

 
5.25% – 6.00%
 
5.35
%
 
May 15, 2028 - November 15, 2028
18
 
19,306

 
4.13% – 6.25%
 
5.58
%
 
December 15, 2030 - August 15, 2031
20
 
3,887

 
5.75% – 6.00%
 
5.90
%
 
November 15, 2032 - October 15, 2033
25
 
31,855

 
6.25% – 6.50%
 
6.39
%
 
August 15, 2038 - May 15, 2039
30
 
103,246

 
5.50% – 6.75%
 
6.24
%
 
November 15, 2042 - October 15, 2043
 
 
$
707,699

 
 
 
 

 
 
In connection with the issuance of Prospect Capital InterNotes®, we incurred $27,696 of fees which are being amortized over the term of the notes, of which $12,457 remains to be amortized and is included as a reduction within Prospect Capital InterNotes® on the Consolidated Statement of Assets and Liabilities as of December 31, 2019.
During the three months ended December 31, 2019 and December 31, 2018, we recorded $8,972 and $10,771, respectively, of interest costs and amortization of financing costs on the Prospect Capital InterNotes® as interest expense. During the six months ended December 31, 2019 and December 31, 2018, we recorded $18,975 and $21,516, respectively, of interest costs and amortization of financing costs on the Prospect Capital InterNotes® as interest expense.

81
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)
(in thousands, except share and per share data)


Note 8. Fair Value and Maturity of Debt Outstanding 
The following table shows our outstanding debt as of December 31, 2019.
 
Principal Outstanding
 
Unamortized Discount & Debt Issuance Costs
 
Net Carrying Value
 
Fair Value(1)
 
Effective Interest Rate
 
Revolving Credit Facility(2)
$
92,000

 
$
10,232

 
$
92,000

(3)
$
92,000

 
1ML+2.20%

(6)
 
 
 
 
 
 
 
 
 
 
 
2020 Notes
175,037

 
583

 
174,454

 
175,914

(4)
5.79
%
(7)
2022 Notes
292,127

 
4,975

 
287,152

 
300,353

(4)
5.68
%
(7)
2025 Notes
201,250

 
5,752

 
195,498

 
214,818

(4)
6.63
%
(7)
Convertible Notes
668,414

 


 
657,104

 
691,085

 
 
 
 
 
 
 
 
 
 
 
 
 
 
6.375% 2024 Notes
100,000

 
893

 
99,107

 
105,648

(4)
6.64
%
(7)
2023 Notes
320,000

 
2,854

 
317,146

 
341,997

(4)
6.09
%
(7)
2024 Notes
234,443

 
4,370

 
230,073

 
237,256

(4)
6.76
%
(7)
2028 Notes
70,761

 
2,243

 
68,518

 
73,142

(4)
6.77
%
(7)
2029 Notes
69,170


2,436


66,734


72,850

(4)
7.38
%
(7)
Public Notes
794,374

 


 
781,578

 
830,893

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Prospect Capital InterNotes®
622,409

 
12,457

 
609,952

 
677,900

(5)
6.19
%
(8)
Total
$
2,177,197

 


 
$
2,140,634

 
$
2,291,878

 
 
 
(1)
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 fair value of these debt obligations are categorized as Level 2 under ASC 820 as of December 31, 2019.
(2)
The maximum draw amount of the Revolving Credit facility as of December 31, 2019 is $1,077,500.
(3)
Net Carrying Value excludes deferred financing costs associated with the Revolving Credit Facility. See Note 2 for accounting policy details.
(4)
We use available market quotes to estimate the fair value of the Convertible Notes and Public Notes.
(5)
The fair value of Prospect Capital InterNotes® is estimated by discounting remaining payments using current Treasury rates plus spread based on observable market inputs.
(6)
Represents the rate on drawn down and outstanding balances. Deferred debt issuance costs are amortized on a straight-line method over the stated life of the obligation.
(7)
The effective interest rate is equal to the effect of the stated interest, the accretion of original issue discount and amortization of debt issuance costs. For the 2024 Notes, the 2028 Notes, and the 2029 Notes, the rate presented is a combined effective interest rate of their respective original Note issuances and Note Follow-on Programs.
(8)
For the Prospect Capital InterNotes®, the rate presented is the weighted average effective interest rate. Interest expense and deferred debt issuance costs, which are amortized on a straight-line method over the stated life of the obligation which approximates level yield, are weighted against the average year-to-date principal balance.

82
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)
(in thousands, except share and per share data)


The following table shows our outstanding debt as of June 30, 2019:
 
Principal Outstanding
 
Unamortized Discount & Debt Issuance Costs
 
Net Carrying Value
 
Fair Value (1)
 
Effective Interest Rate
 
Revolving Credit Facility(2)
$
167,000

 
$
8,529

 
$
167,000

(3)
$
167,000

 
1ML+2.20%

(6)
 
 
 
 
 
 
 
 
 
 
 
2020 Notes
224,114

 
1,012

 
223,102

 
226,933

(4)
5.38
%
(7)
2022 Notes
328,500

 
6,681

 
321,819

 
330,964

(4)
5.71
%
(7)
2025 Notes
201,250

 
6,174

 
195,076

 
207,847

(4)
6.63
%
(7)
Convertible Notes
753,864

 


 
739,997

 
765,744

 
 
 
 
 
 
 
 
 
 
 
 
 
 
6.375% 2024 Notes
100,000

 
1,020

 
98,980

 
106,747

(4)
5.29
%
(7)
2023 Notes
320,000

 
3,270

 
316,730

 
340,314

(4)
6.09
%
(7)
2024 Notes
234,443

 
4,746

 
229,697

 
239,788

(4)
6.74
%
(7)
2028 Notes
70,761

 
2,303

 
68,458

 
73,025

(4)
6.72
%
(7)
2029 Notes
69,170

 
2,487

 
66,683

 
71,245

(4)
7.38
%
(7)
Public Notes
794,374

 


 
780,548

 
831,119

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Prospect Capital InterNotes®
707,699

 
12,349

 
695,350

 
741,227

(5)
6.16
%
(8)
Total
$
2,422,937

 


 
$
2,382,895

 
$
2,505,090

 
 
 

(1)
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 fair value of these debt obligations are categorized as Level 2 under ASC 820 as of June 30, 2019.
(2)
The maximum draw amount of the Revolving Credit facility as of June 30, 2019 is $1,132,500.
(3)
Net Carrying Value excludes deferred financing costs associated with the Revolving Credit Facility. See Note 2 for accounting policy details.
(4)
We use available market quotes to estimate the fair value of the Convertible Notes and Public Notes.
(5)
The fair value of Prospect Capital InterNotes® is estimated by discounting remaining payments using current Treasury rates plus spread based on observable market inputs.
(6)
Represents the rate on drawn down and outstanding balances. Deferred debt issuance costs are amortized on a straight-line method over the stated life of the obligation.
(7)
The effective interest rate is equal to the effect of the stated interest, the accretion of original issue discount and amortization of debt issuance costs. For the 2024 Notes, the 2028 Notes, and the 2029 Notes, the rate presented is a combined effective interest rate of their respective original Note issuances and Note Follow-on Programs.
(8)
For the Prospect Capital InterNotes®, the rate presented is the weighted average effective interest rate. Interest expense and deferred debt issuance costs, which are amortized on a straight-line method over the stated life of the obligation which approximates level yield, are weighted against the average year-to-date principal balance.
The following table shows the contractual maturities of our Revolving Credit Facility, Convertible Notes, Public Notes and Prospect Capital InterNotes® as of December 31, 2019:
 
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
668,414

 
175,037

 
292,127

 
—

 
201,250

Public Notes
794,374

 
—

 
—

 
654,443

 
139,931

Prospect Capital InterNotes®
622,409

 
—

 
15,634

 
194,550

 
412,225

Total Contractual Obligations
$
2,177,197

 
$
175,037

 
$
307,761

 
$
940,993

 
$
753,406


83
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)
(in thousands, except share and per share data)


The following table shows the contractual maturities of our Revolving Credit Facility, Convertible Notes, Public Notes and Prospect Capital InterNotes® as of June 30, 2019:
 
Payments Due by Period
 
Total
 
Less than 1 Year
 
1 – 3 Years
 
3 – 5 Years
 
After 5 Years
Revolving Credit Facility
$
167,000

 
$
—

 
$
—

 
$
167,000

 
$
—

Convertible Notes
753,864

 
224,114

 
—

 
328,500

 
201,250

Public Notes
794,374

 
—

 
—

 
654,443

 
139,931

Prospect Capital InterNotes®
707,699

 
4,402

 
188,037

 
189,795

 
325,465

Total Contractual Obligations
$
2,422,937

 
$
228,516

 
$
188,037

 
$
1,339,738

 
$
666,646

Note 9. Stock Repurchase Program, Equity Offerings, Offering Expenses, and Distributions
On August 24, 2011, our Board of Directors approved a share repurchase plan (the “Repurchase Program”) under which we may repurchase up to $100,000 of our common stock at prices below our net asset value per share. Prior to any repurchase, we are required to notify shareholders of our intention to purchase our common stock. Our last notice was delivered with our annual proxy mailing on September 19, 2019.
We did not repurchase any shares of our common stock during the six months ended December 31, 2019 and December 31, 2018. As of December 31, 2019, the approximate dollar value of shares that may yet be purchased under the Repurchase Program is $65,860.
Excluding dividend reinvestments, during the six months ended December 31, 2019 and December 31, 2018, we did not issue any shares of our common stock.
During the six months ended December 31, 2019 and December 31, 2018, we distributed approximately $132,263 and $131,531, respectively, to our stockholders. The following table summarizes our distributions declared and payable for the six months ended December 31, 2018 and December 31, 2019.
Declaration Date
 
Record Date
 
Payment Date
 
Amount Per Share
 
Amount Distributed (in thousands)
5/9/2018

7/31/2018

8/23/2018

$
0.060


$
21,882

5/9/2018

8/31/2018

9/20/2018

0.060


21,898

8/28/2018

9/28/2018

10/18/2018

0.060


21,914

8/28/2018

10/31/2018

11/21/2018

0.060


21,930

11/6/2018

11/30/2018

12/20/2018

0.060


21,945

11/6/2018

1/2/2019

1/24/2019

0.060


21,962

Total declared and payable for the six months ended December 31, 2018
 

$
131,531

 
 
 
 
 
 
 
 
 
5/8/2019

7/31/2019

8/22/2019

$
0.060


$
22,032

5/8/2019

8/30/2019

9/19/2019

0.060


22,037

8/27/2019

9/30/2019

10/24/2019

0.060


22,042

8/27/2019

10/31/2019

11/20/2019

0.060


22,046

11/6/2019

11/29/2019

12/19/2019

0.060


22,051

11/6/2019

1/2/2020

1/23/2020

0.060


22,055

Total declared and payable for the six months ended December 31, 2019
 
 
$
132,263

Dividends and distributions to common stockholders are recorded on the ex-dividend date. As such, the table above includes distributions with record dates during six months ended December 31, 2019 and December 31, 2018. 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 recorded and payable subsequent to December 31, 2019:
•
$0.06 per share for January 2020 holders of record on January 31, 2020 with a payment date of February 20, 2020.

84
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)
(in thousands, except share and per share data)


During the six months ended December 31, 2019 and December 31, 2018, we issued 453,219 and 1,646,028 shares of our common stock, respectively, in connection with the dividend reinvestment plan.
On February 9, 2016, we amended our dividend reinvestment plan that provided for reinvestment of our dividends or distributions on behalf of our stockholders, unless a stockholder elects to receive cash, to add the ability of stockholders to purchase additional shares by making optional cash investments. Under the revised dividend reinvestment and direct stock repurchase plan, stockholders may elect to purchase additional shares through our transfer agent in the open market or in negotiated transactions.

During the six months ended December 31, 2019, Prospect officers and directors purchased 639,452 shares of our stock, or 0.17% of total outstanding shares as of December 31, 2019, both through the open market transactions and shares issued in connection with our dividend reinvestment plan.
As of December 31, 2019, we have reserved 65,686,577 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 during the three and six months ended December 31, 2019 and December 31, 2018.
 
Three Months Ended December 31,
 
Six Months Ended December 31,
 
2019
 
2018
 
2019
 
2018
Structuring, advisory, and amendment fees
$
8,050

 
$
14,339

 
$
16,360

 
$
18,444

Royalty and net revenue interests
9,600

 
2,107

 
12,833

 
3,930

Administrative agent fees
99

 
177

 
229

 
302

Total other income
$
17,749

 
$
16,623

 
$
29,422

 
$
22,676

Note 11. Net Increase (Decrease) in Net Assets per Share
The following information sets forth the computation of net increase in net assets resulting from operations per share during the three and six months ended December 31, 2019 and December 31, 2018:
 
Three Months Ended December 31,
 
Six Months Ended December 31,
 
2019
 
2018
 
2019
 
2018
Net (decrease) increase in net assets resulting from operations
$
(11,203
)
 
$
(67,389
)
 
$
6,862

 
$
16,406

Weighted average common shares outstanding
367,459,411
 
365,591,722

 
367,349,087
 
365,187,429

Net (decrease) increase in net assets resulting from operations per share
$
(0.03
)
 
$
(0.18
)
 
$
0.02

 
$
0.04

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, 2019 has not been filed. Taxable income and all amounts related to taxable income for the tax year ended August 31, 2019 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, 2019, 2018, and 2017 were as follows:

85
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)
(in thousands, except share and per share data)


 
 
Tax Year Ended August 31,
 
 
2019
 
2018
 
2017
Ordinary income
 
$
263,773

 
$
269,095

 
$
359,215

Capital gain
 
—

 
—

 
—

Return of capital
 
—

 
—

 
—

Total dividends paid to shareholders
 
$
263,773

 
$
269,095

 
$
359,215

We generate certain types of income that may be exempt from U.S. withholding tax when distributed to non-U.S. shareholders. Under IRC Section 871(k), a RIC is permitted to designate distributions of qualified interest income and short-term capital gains as exempt from U.S. withholding tax when paid to non-U.S. shareholders with proper documentation. For the 2019 calendar year, 42.18% of our distributions as of December 31, 2019 qualified as interest related dividends which are exempt from U.S. withholding tax applicable to non-U.S. shareholders.

For the tax year ending August 31, 2020, the tax character of dividends paid to shareholders through December 31, 2019 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, 2020.

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, 2019, 2018, and 2017:
 
 
Tax Year Ended August 31,
 
 
2019
 
2018
 
2017
Net increase in net assets resulting from operations
 
$
422,090

 
$
389,732

 
$
254,904

Net realized (gains) losses on investments
 
(5,923
)
 
26,762

 
100,765

Net unrealized (gains) on investments
 
(111,838
)
 
(105,599
)
 
(61,939
)
Other temporary book-to-tax differences
 
(66,859
)
 
(42,583
)
 
(32,117
)
Permanent differences
 
78

 
31

 
(772
)
Taxable income before deductions for distributions
 
$
237,548

 
$
268,343

 
$
260,841

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. As of August 31, 2019, we had capital loss carryforwards of approximately $193,893 available for use in later tax years. 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, some of the Company’s capital loss carryforwards may become permanently unavailable due to limitations by the Code.
For the tax year ended August 31, 2019, we had no cumulative taxable income in excess of cumulative distributions.
As of December 31, 2019, the cost basis of investments for tax purposes was $5,688,388 resulting in an estimated net unrealized loss of $419,843. As of December 31, 2019, the gross unrealized gains and losses were $652,130 and $1,071,973, respectively. As of June 30, 2019, the cost basis of investments for tax purposes was $5,905,269 resulting in an estimated net unrealized loss of $251,716. As of June 30, 2019, the gross unrealized gains and losses were $595,002 and $846,718, 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 December 31, 2019 and June 30, 2019 was calculated based on the book cost of investments as of December 31, 2019 and June 30, 2019, respectively, with cumulative book-to-tax adjustments for investments through August 31, 2019 and 2018, 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 excise taxes, among other items. During the tax year ended August 31, 2019, we decreased overdistributed net investment income by $78 and decreased capital in excess of par value by $78. During the tax year ended August 31, 2018, we decreased overdistributed net investment income by $31 and decreased capital in excess of par value by $31. Due to the difference between our fiscal and tax year end, the reclassifications for the taxable year ended August 31, 2019 is being recorded in the fiscal year ending June 30, 2020 and the reclassifications for the taxable year ended August 31, 2018 were recorded in the fiscal year ended June 30, 2019.

86
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)
(in thousands, except share and per share data)


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 total assets. 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 gross base management fee incurred to the favor of the Investment Adviser was $27,543 and $33,187 during the three months ended December 31, 2019 and December 31, 2018, respectively. The total gross base management fee for three months ended December 31, 2018 included a $2,757 adjustment for fees earned in prior periods that were neither expensed nor paid to the Investment Adviser, for which we incurred $64 in accrued interest on those past due amounts. The interest on the amount owed to the Investment Adviser was calculated using the average of 1-month LIBOR rates from September 2010 through the date of payment. The total gross base management fee incurred to the favor of the Investment Advisor was $56,006 and $63,282 during the six months ended December 31, 2019 and December 31, 2018, respectively. The Investment Adviser has entered into a servicing agreement with certain institutions that purchased loans with us, where we serve as the agent and collect a servicing fee on behalf of the Investment Adviser. We receive payments from these institutions on behalf of the Investment Adviser, for providing such services under the servicing agreement. We were given a credit for these payments as a reduction of the base management fee payable by us to the Investment Adviser. We received payments of $138 from these institutions for the six months ended December 31, 2018, resulting in a net base management fee of $63,144 for the prior year to date period. There was no such adjustment in the six months ended December 31, 2019.
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 gains or losses. 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).
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).

87
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)
(in thousands, except share and per share data)


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 our portfolio. For the purpose of this calculation, an “investment” is defined as the total of all rights and claims which may be 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 amortized 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 amortized 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 amortized 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 $16,971 and $20,203 during the three months ended December 31, 2019 and December 31, 2018, respectively. The fees incurred for the six months ended December 31, 2019 and December 31, 2018 were $34,736 and $41,493, respectively. No capital gains incentive fee was incurred during the three or six months ended December 31, 2019 and December 31, 2018.
Administration Agreement
We have also entered into an administration agreement (the “Administration Agreement”) with 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 her staff, including the internal legal staff. 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 section 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 wholly owned subsidiary of the Investment Adviser.
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. Our payments to Prospect Administration are reviewed quarterly by our Board of Directors.
The allocation of net overhead expense from Prospect Administration was $6,011 and $5,642 for the three months ended December 31, 2019 and December 31, 2018, respectively.
The allocation of net overhead expense from Prospect Administration was $9,505 and $9,007 for the six months ended December 31, 2019 and December 31, 2018, respectively. Prospect Administration received estimated payments of $584 directly from our portfolio companies, and certain funds managed by the Investment Adviser for legal services during the six months ended December 31, 2019. No such payments were received during the six months ended December 31, 2018. We were given a credit for these

88
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)
(in thousands, except share and per share data)


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 this amount.
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 (i) advice on recruiting, hiring, management and termination of employees, officers and directors, succession planning and other human resource matters; (ii) advice on capital raising, capital budgeting, and capital expenditures; (iii) advice on advertising, marketing, and sales; (iv) advice on fulfillment, operations, and execution; (v) advice on 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. No income is recognized by Prospect.
During the three months ended December 31, 2019 and December 31, 2018, we received payments of $600 and $2,994, respectively, from our portfolio companies for managerial assistance and subsequently remitted these amounts to Prospect Administration. During the six months ended December 31, 2019 and December 31, 2018, we received payments of $1,300 and $4,947, respectively, from our portfolio companies for managerial assistance and subsequently remitted these amounts to Prospect Administration.
Co-Investments
On January 13, 2020, we received an exemptive order from the SEC (the “Order”), which superseded a prior co-investment exemptive order granted on February 10, 2014, that gave us the ability to negotiate terms other than price and quantity of co-investment transactions with other funds managed or owned by the Investment Adviser or certain affiliates, including Priority Income Fund, Inc. and TP Flexible Income Fund, Inc.,where co-investing would otherwise be prohibited under the 1940 Act, subject to the conditions included therein. 
Under the terms of the Order, 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 a co-investment with one or more funds managed or owned 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 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 or owned by the Investment Adviser or its affiliates has previously invested.
We reimburse CLO investment valuation services fees initially incurred by Priority Income Fund, Inc. During the three months ended December 31, 2019 and December 31, 2018, we recognized expenses that were reimbursed for valuation services of $39 and $51, respectively. During the six months ended December 31, 2019 and December 31, 2018, we recognized expenses that were reimbursed for valuation services of $87 and $103, respectively. Conversely, Priority Income Fund, Inc. and TP Flexible Income Fund, Inc. reimburse us for software fees, expenses which were initially incurred by Prospect. As of December 31, 2019

89
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)
(in thousands, except share and per share data)


and June 30, 2019, we accrued a receivable from Priority Income Fund, Inc. and TP Flexible Income Fund, Inc. for software fees of $37 and $32, respectively, which will be reimbursed to us.
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 are presented on a consolidated basis.
Arctic Energy Services, LLC
Prospect owned 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. As of June 30, 2017, we reported Arctic Energy as a separate controlled company. On April 6, 2018, Arctic Equipment merged with CP Energy Services, Inc. (“CP Energy”) and our equity interest was exchanged for newly issued common shares of CP Energy. Refer to discussion on CP Energy ownership below.
CCPI Inc.
Prospect owns 100% of the equity of CCPI Holdings Inc. (“CCPI Holdings”), a Consolidated Holding Company. CCPI Holdings held 94.59% of the equity of CCPI Inc. (“CCPI”) as of June 30, 2018, with CCPI management owning the remaining 5.41% 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 March 1, 2019, we converted the $2,797 Senior Secured Term Loan A and the $17,566 Senior Secured Term Loan B to preferred equity and subsequently sold our $6,759 common equity interest in CCPI, Inc. and our new $20,363 preferred shares. We recorded a realized gain of $12,105 on the sale of our equity position in CCPI, Inc. In addition, there is $2,364 being held in escrow that is due to us, which will be recognized as an additional realized gain when received.
 
Three Months Ended
 
Six Months Ended
 
December 31, 2019
 
December 31, 2018
 
December 31, 2019
 
December 31, 2018
Interest Income
$
—

 
$
909

 
$
—

 
$
1,823

Other Income
 
 
 
 
 
 
 
Advisory Fee
—

 
—

 
—

 
1,301

Total Other Income
$
—

 
$
—

 
$
—

 
$
1,301

Managerial Assistance (1)
$
—

 
$
69

 
$
—

 
$
129

Reimbursement of Legal, Tax, etc.(2)
—

 
—

 
54

 
—

(1) No income recognized by Prospect. MA payments were paid from CCPI to Prospect and subsequently remitted to PA.
(2) Paid from CCPI to PA as reimbursement for legal, tax, and portfolio level accounting services provided directly to CCPI (No direct income recognized by Prospect, but we were given a credit for these payments as a reduction to the administrative services payable by Prospect to PA).
 
Three Months Ended
 
Six Months Ended
 
December 31, 2019
 
December 31, 2018
 
December 31, 2019
 
December 31, 2018
Repayment of loan receivable
$
—

 
$
114

 
$
—

 
$
337

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 99.8% of the equity of CP Energy Services, Inc. (“CP Energy”), and the remaining equity is owned by CP Energy management. CP Energy owns directly or indirectly 100% of each of CP Well; Wright Foster Disposals, LLC; Foster Testing Co., Inc.; ProHaul Transports, LLC; and Wright Trucking, Inc. CP Energy provides oilfield flowback services and fluid hauling and disposal services through its subsidiaries.

90
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)
(in thousands, except share and per share data)


On October 1, 2017, we restructured our investment in CP Energy. Concurrent with the restructuring, we exchanged $35,048 of Series B Convertible Preferred Stock for $35,048 of senior secured debt. We received $228 of an advisory fee related to the above transaction, which we recognized as other income.
On January 18, 2018, CP Energy redeemed common shares belonging to senior management, which increased our ownership percentage from 82.3% to 94.2% as of March 31, 2018.
On April 6, 2018, Arctic Oilfield Equipment USA, Inc. (“Arctic Equipment”), a previously controlled portfolio company, merged with and into CP Energy, with CP Energy continuing as the surviving corporation. On the date of the merger, our common equity investment cost in the amount of $60,876 in Arctic Equipment was exchanged for newly issued common shares of CP Energy. As a result of this merger between these controlled portfolio companies, our equity ownership percentage in CP Energy increased to 99.8%. There were no realized gain or loss recognized by us since this was a merger amongst two portfolio companies under our control.
In June 2019, CP Energy purchased a controlling interest in the common equity of Spartan Energy Holdings, Inc. (“Spartan Holdings”), which owns 100% of Spartan Energy Services, LLC (“Spartan”) a portfolio company of Prospect with $34,399 in senior secured term loans (the “Spartan Term Loans”) due to us as of June 30, 2019. As a result of CP Energy’s purchase, and given Prospect’s controlling interest in CP Energy, our Spartan Term Loans are presented as control investments under CP Energy beginning June 30, 2019. Spartan remains the direct borrow and guarantor to Prospect for the Spartan Term Loans.
In December 2019, Wolf Energy Holdings, Inc. (“Wolf Energy Holdings”), our Consolidated Holding Company that previously owned 100% of Appalachian Energy LLC (“AEH”); Wolf Energy Services Company, LLC (Wolf Energy Services”); and Wolf Energy, LLC (collectively our previously controlled membership interest and net profit interest investments in “Wolf Energy”), merged with and into CP Energy, with CP Energy continuing as the surviving entity. CP Energy acquired 100% of our equity investment in Wolf Energy, which is reflected in our valuation of the CP Energy common stock as of December 31, 2019.
 
Three Months Ended
 
Six Months Ended
 
December 31, 2019
 
December 31, 2018
 
December 31, 2019
 
December 31, 2018
Interest Income

 
 
 
 
 
 
  Interest Income from CP Energy
$
1,174

 
$
1,200

 
$
2,367

 
$
2,395

  Interest Income from Spartan
1,252

 
—

 
2,503

 
—

Total Interest Income
$
2,426

 
$
1,200

 
$
4,870

 
$
2,395

Managerial Assistance (1)
$
—

 
$
300

 
$
150

 
$
300

(1) No income recognized by Prospect. MA payments were paid from CP Energy to Prospect and subsequently remitted to PA.

 
Three Months Ended
 
Six Months Ended
 
December 31, 2019
 
December 31, 2018
 
December 31, 2019
 
December 31, 2018
Additions
$
5,039

 
$
—

 
$
5,039

 
$
—

Interest Income Capitalized as PIK
921


—

 
2,119


—

 
As of
 
December 31, 2019
 
June 30, 2019
Interest Receivable (2)
$
1,201

 
$
1,624

Other Receivables - Due to PA (3)
—

 
150

Other Receivables (4)
14

 
35

(2) Interest income recognized but not yet paid.
(3) Managerial assistance recognized but not yet paid by CP Energy and is included by Prospect within Other Receivable and Due to PA.
(4) Represents amounts due from CP Energy and Spartan to Prospect for reimbursement of expenses paid by Prospect on behalf of CP Energy and Spartan.


91
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)
(in thousands, except share and per share data)


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 98.63% of the equity of Credit Central Loan Company, LLC (f/k/a Credit Central Holdings, LLC) (“Credit Central”), with entities owned by Credit Central management owning the remaining 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.
 
Three Months Ended
 
Six Months Ended
 
December 31, 2019
 
December 31, 2018
 
December 31, 2019
 
December 31, 2018
Interest Income
$
2,986

 
$
2,733

 
$
5,967

 
$
6,232

Other Income

 

 

 

Structuring Fee
$
—

 
$
—

 
$
112

 
$
—

Total Other Income
$
—

 
$
—

 
$
112

 
$
—

Managerial Assistance (1)
$
—

 
$
175

 
$
—

 
$
350

Reimbursement of Legal, Tax, etc.(2)
—

 
—

 
7

 
—

(1) No income recognized by Prospect. MA payments were paid from Credit Central to Prospect and subsequently remitted to PA.
(2) Paid from Credit Central to PA as reimbursement for legal, tax, and portfolio level accounting services provided directly to Credit Central (No direct income recognized by Prospect, but we were given a credit for these payments as a reduction to the administrative services payable by Prospect to PA).
 
Three Months Ended
 
Six Months Ended
 
December 31, 2019
 
December 31, 2018
 
December 31, 2019
 
December 31, 2018
Additions (3)
$
—

 
$
—

 
$
5,600


$
—

Accreted Original Issue Discount
80

 
60

 
153


908

Interest Income Capitalized as PIK
—

 
1,775

 
963


1,775

(3) During the three months ended September 30, 2019, Prospect provided $5,600 of equity financing to support growth in Credit Central’s loan portfolio.
 
As of
 
December 31, 2019
 
June 30, 2019
Interest Receivable (4)
$
32

 
$
963

Other Receivables - Due to PA (5)
—

 
175

(4) Interest income recognized but not yet paid.
(5) Managerial assistance recognized but not yet paid by Credit Central and is included by Prospect within Other Receivable and Due to PA.
Echelon Transportation LLC (f/k/a Echelon Aviation LLC)
Prospect owns 100% of the membership interests of Echelon Transportation LLC (“Echelon”). Echelon owns 60.7% of the equity of AerLift Leasing Limited (“AerLift”).
 
Three Months Ended
 
Six Months Ended
 
December 31, 2019
 
December 31, 2018
 
December 31, 2019
 
December 31, 2018
Interest Income
$
2,053

 
$
1,725

 
$
4,074

 
$
3,383

Managerial Assistance (1)
—

 
125

 
—

 
125

Reimbursement of Legal, Tax, etc.(2)
—

 
735

 
—

 
735

(1) No income recognized by Prospect. MA payments were paid from Echelon to Prospect and subsequently remitted to PA.
(2) Paid from Echelon to PA as reimbursement for legal, tax, and portfolio level accounting services provided directly to Echelon (No direct income recognized by Prospect, but we were given a credit for these payments as a reduction to the administrative services payable by Prospect to PA).

92
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)
(in thousands, except share and per share data)


 
Three Months Ended
 
Six Months Ended
 
December 31, 2019
 
December 31, 2018
 
December 31, 2019
 
December 31, 2018
Additions (3)
$
—

 
$
—

 
$
500


$
—

Interest Income Capitalized as PIK
—

 
—

 
3,774


2,125

(3) During the six months ended December 31, 2019, Prospect made a follow-on $500 first lien senior secured debt.
 
As of
 
December 31, 2019
 
June 30, 2019
Interest Receivable (4)
$
3,437

 
$
3,162

Other Receivables - Due to PA (5)
—

 
63

Other Receivables (6)
5

 
3

(4) Interest income recognized but not yet paid.
(5) Managerial assistance recognized but not yet paid by Echelon and is included by Prospect within Other Receivable and Due to PA.
(6) Represents amounts due from Echelon to Prospect for reimbursement of expenses paid by Prospect on behalf of Echelon.
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 Company, LLC (f/k/a Change Clean Energy Holdings, LLC) (“Change Clean”); Freedom Marine Solutions, LLC (f/k/a Freedom Marine Services Holdings, LLC) (“Freedom Marine”); and Yatesville Coal Company, LLC (f/k/a Yatesville Coal Holdings, LLC) (“Yatesville”). Change Clean owns 100% of each of Change Clean Energy, LLC and Down East Power Company, LLC, and 50.1% of BioChips LLC. Freedom Marine owns 100% of each of Vessel Company, LLC (f/k/a Vessel Holdings, LLC) (“Vessel”); Vessel Company II, LLC (f/k/a Vessel Holdings II, LLC) (“Vessel II”); and Vessel Company III, LLC (f/k/a Vessel Holdings III, LLC) (“Vessel III”). Yatesville owns 100% of North Fork Collieries, 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.

Transactions between Prospect and Freedom Marine are separately discussed below under “Freedom Marine Solutions, LLC.”
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 (f/k/a First Tower Holdings LLC) (“First Tower Finance”). First Tower Finance owns 100% of First Tower, LLC (“First Tower”), a multiline specialty finance company.

 
Three Months Ended
 
Six Months Ended
 
December 31, 2019
 
December 31, 2018
 
December 31, 2019

 
December 31, 2018

Interest Income
$
14,570

 
$
13,917

 
$
29,207

 
$
27,879

Managerial Assistance (1)
600

 
1,200

 
1,200

 
1,200

Reimbursement of Legal, Tax, etc. (2)
—

 
—

 
1

 
—

(1) No income recognized by Prospect. MA payments were paid from First Tower to Prospect and subsequently remitted to PA.
(2) Paid from First Tower to PA as reimbursement for legal, tax, and portfolio level accounting services provided directly to First Tower (No direct income recognized by Prospect, but we were given a credit for these payments as a reduction to the administrative services payable by Prospect to PA).

93
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)
(in thousands, except share and per share data)


 
Three Months Ended
 
Six Months Ended
 
December 31, 2019
 
December 31, 2018
 
December 31, 2019
 
December 31, 2018
Interest Income Capitalized as PIK
$
183

 
$
324


$
2,849


$
1,582

Repayment of loan receivable
239

 
324


2,273


2,478

 
As of
 
December 31, 2019
 
June 30, 2019
Interest Receivable (3)
$
77

 
$
4,897

Other Receivables (4)
3

 
7

(3) Interest income recognized but not yet paid.
(4) Represents amounts due from Credit Central to Prospect for reimbursement of expenses paid by Prospect on behalf of Credit Central.

Freedom Marine Solutions, LLC
As discussed above, Prospect owns 100% of the equity of Energy Solutions, a Consolidated Holding Company. Energy Solutions owns 100% of Freedom Marine. Freedom Marine owns 100% of each of Vessel, Vessel II, and Vessel III.
During the year ended June 30, 2018, Prospect purchased an additional $982 in membership interests in Freedom Marine to support its ongoing operations and liquidity needs.
During the year ended June 30, 2019, Prospect purchased an additional $300 in membership interests in Freedom Marine to
support its ongoing operations and liquidity needs.

 
As of
 
December 31, 2019
 
June 30, 2019
Other Receivables (1)
$
—

 
$
1,125

(1) Represents amounts due from Freedom Marine to Prospect for reimbursement of expenses paid by Prospect on behalf of Freedom Marine.

InterDent, Inc.
Following our assumption of assuming control, Prospect exercised its rights and remedies under its loan documents to exercise the shareholder voting rights in respect of the stock of InterDent, Inc. (“InterDent”) and to appoint a new Board of Directors of InterDent, all the members of which are our Investment Adviser’s professionals. As a result, as of June 30, 2018, Prospect’s investment in InterDent is classified as a control investment.
During the six months ended December 31, 2018, Prospect purchased $14,000 of first lien Senior Secured Term Loan A/B from a third-party. In addition, Prospect purchased $5,000 of first lien Senior Secured Term Loan D and transferred $31,558 from Senior Secured Term Loan B to Senior Secured Term Loan C.
On May 3, 2019 Prospect executed warrants to purchase 99.9% of the 100,000 shares of common stock outstanding of
InterDent Inc. at a purchase price of $0.01 per share.
 
Three Months Ended
 
Six Months Ended
 
December 31, 2019
 
December 31, 2018
 
December 31, 2019
 
December 31, 2018
Interest Income
$
4,757

 
$
5,809

 
$
9,416

 
$
12,630



94
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)
(in thousands, except share and per share data)


 
Three Months Ended
 
Six Months Ended
 
December 31, 2019
 
December 31, 2018
 
December 31, 2019
 
December 31, 2018
Additions (1)
$
—

 
$
—


$
—


$
19,000

Interest Income Capitalized as PIK
3,045

 
4,307


6,077


8,457

(1) During the six months ended December 31, 2018, Prospect purchased $14,000 of first lien Senior Secured Term Loan A/B from a third-party. In addition, Prospect purchased $5,000 of first lien Senior Secured Term Loan D and transferred $31,558 from Senior Secured Term Loan B to Senior Secured Term Loan C.
 
As of
 
December 31, 2019
 
June 30, 2019
Interest Receivable (2)
$
53

 
$
209

Other Receivables (3)
1

 
6

(2) Interest income recognized but not yet paid.
(3) Represents amounts due from InterDent to Prospect for reimbursement of expenses paid by Prospect on behalf of InterDent.

Kickapoo Ranch Pet Resort
Prospect owns 100% of the Membership Interest of Kickapoo Ranch Pet Resort (“Kickapoo”). Kickapoo is a luxury pet boarding facility.
During the six months ended December 31, 2019, we provided $2,378 of equity financing to Kickapoo.
MITY, Inc.
Prospect owns 100% of the equity of MITY Holdings of Delaware Inc. (“MITY Delaware”), a Consolidated Holding Company.
As of June 30, 2018, MITY Delaware owns 95.58% of the equity of MITY, Inc. (f/k/a MITY Enterprises, Inc.) (“MITY”). Effective March 13, 2019, MITY Delaware’s equity ownership of MITY increased to 100%. MITY owns 100% of each of MITY-Lite, Inc. (“MITY-Lite”); Broda USA, Inc. (f/k/a 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.

During the three months ended December 31, 2016, Prospect formed a separate legal entity, MITY FSC, Inc., (“MITY FSC”) in which Prospect owns 100% of the equity. MITY FSC does not have material operations. This entity earns commission payments from MITY-Lite based on its sales to foreign customers, and distributes it to Prospect as its shareholder. We recognize such commission, if any, as other income.
 
Three Months Ended
 
Six Months Ended
 
December 31, 2019
 
December 31, 2018
 
December 31, 2019
 
December 31, 2018
Interest Income
 
 
 
 
 
 
 
  Interest Income from MITY-Lite
$
2,103

 
$
1,952

 
$
4,169

 
$
3,876

  Interest Income from Broda Canada
146

 
143

 
289

 
287

Total Interest Income
$
2,249

 
$
2,095

 
$
4,458

 
$
4,163

Other Income

 

 

 

Advisory Fee
$
293

 
$
—

 
$
293

 
$
201

Managerial Assistance (1)
—

 
75

 
—

 
150

(1) No income recognized by Prospect. MA payments were paid from MITY to Prospect and subsequently remitted to PA.
 
Three Months Ended
 
Six Months Ended
 
December 31, 2019
 
December 31, 2018
 
December 31, 2019
 
December 31, 2018
Interest Income Capitalized as PIK
$
788

 
$
845

 
$
1,801

 
$
1,056

Repayment of loan receivable
146

 
—

 
289

 
—


95
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)
(in thousands, except share and per share data)


 
As of
 
December 31, 2019
 
June 30, 2019
Interest Receivable (3)
$
25

 
$
252

Other Receivables - Due to PA (4)
—

 
75

Other Receivables (5)
1

 
1

(3) Interest income recognized but not yet paid.
(4) Managerial assistance recognized but not yet paid by MITY and is included by Prospect within Other Receivable and Due to PA.
(5) Represents amounts due from MITY to Prospect for reimbursement of expenses paid by Prospect on behalf of MITY.
National Property REIT Corp.
Prospect owns 100% of the equity of NPH, a Consolidated Holding Company. NPH owns 100% of the common equity of NPRC. Effective May 23, 2016, in connection with the merger of APRC and UPRC with and into NPRC, APH and UPH merged with and into NPH, and were dissolved.
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 hold for investment, 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. NPRC may acquire real estate assets directly or through joint ventures by making a majority equity investment in a property-owning entity (the “JV”). Additionally, through its wholly owned subsidiaries, NPRC invests in online consumer loans.
On July 19, 2018, Prospect purchased additional common equity of NPRC through NPH for $6,921. NPRC utilized $138 of proceeds provided to pay a structuring fee to Prospect (which was recognized by Prospect as structuring fee income). NPRC utilized $6,697 of proceeds provided by Prospect to purchase a 90% interest in Falling Creek Holdings LLC. The remaining $86 was retained as working capital by NPRC. The minority interest holder purchased ownership interest in the JV for $744. The JV utilized the total proceeds, which included debt financing of $19,335, to acquire a $25,000 multi-family real estate asset. The remaining proceeds were used by the JV to pay $134 of structuring fees to NPRC, $709 of third-party expenses, $430 of pre-funded capital expenditures, $312 of prepaid assets, and $191 was retained by the JV as working capital.
On September 20, 2018, Prospect purchased additional common equity of NPRC through NPH for $3,285. NPRC utilized $66 of proceeds provided to pay a structuring fee to Prospect (which was recognized by Prospect as structuring fee income). NPRC applied the remaining proceeds provided by Prospect to purchase $3,284 of additional ownership interest in a JV entity. The JV utilized the total proceeds, which included debt financing of $7,300, to acquire a $9,600 multi-family real estate asset. The remaining proceeds were used by the JV to pay $79 of structuring fees to NPRC, $277 of third-party expenses, $20 of pre-funded capital expenditures, $482 of prepaid assets, and $126 was retained by the JV as working capital.

On October 19, 2018, Prospect purchased additional common equity of NPRC through NPH for $1,376. NPRC applied the proceeds to purchase $1,376 of additional ownership interest in multiple JV entities that own 9 multi-family properties and retained $1 as working capital. The minority interest holder also contributed $35 of additional capital in the JV entities. The proceeds were utilized by the JV entities to fund $1,411 of capital expenditures.

Effective December 31, 2018, we amended and restated the terms of our credit agreement with NPRC. As part of the amendment, we increased our investment through a New Term Loan A Secured Note (“New TLA”) in the aggregate principal amount of $433,553 and a New Term Loan B Secured Note (“New TLB”) in the aggregate principal amount of $205,000. NPRC utilized a portion of the proceeds from the New TLA and New TLB to repay the previously outstanding Senior Secured Term Loan A and Senior Secured Term Loan E. The remaining proceeds of $140,351 were returned to us as a return of capital, reducing our equity investment in NPRC.



96
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)
(in thousands, except share and per share data)


During the year ended June 30, 2019, we provided $10,206 of equity financing to NPRC for the acquisition of real estate properties and $1,377 of equity financing to NPRC to fund capital expenditures for existing real estate properties.
During the year ended June 30, 2019, we received partial repayments of $54,181 of our loans previously outstanding with NPRC and its wholly owned subsidiary and $15,000 as a return of capital on our equity investment in NPRC.

During the six months ended December 31, 2019, we received partial repayments of $93,000 of our loans previously outstanding with NPRC, and provided $12,857 of equity financing and $51,428 of debt financing to NPRC to fund purchases of rated secured structured notes, expenses and structuring fees.
Effective October 31, 2019, we amended the terms of our credit agreement to increase our investment in NPRC and its wholly-owned subsidiaries through a new Senior Secured Term Loan C (“TLC”). During the three months ended December 31, 2019, we provided $51,428 and $12,857 in TLC and equity financing, respectively. NPRC used the proceeds to fund purchases of rated secured structured notes.
 
Three Months Ended
Six Months Ended
 
December 31, 2019
 
December 31, 2018
 
December 31, 2019
 
December 31, 2018
Interest Income
$
16,877

 
$
19,954

 
$
33,469

 
$
40,352

Dividend Income (1)
—

 
9,000

 
—

 
20,000

Other Income

 

 

 

Structuring Fee
$
2,744

 
$
13,141

 
$
3,190

 
$
13,765

Advisory Fee
—

 
—

 
7,595

 
—

Royalty/Net Interest
9,266

 
1,935

 
12,496

 
3,598

Total Other Income
$
12,010

 
$
15,076

 
$
23,281

 
$
17,363

Managerial Assistance (2)
$
—

 
$
525

 
$
—

 
$
1,050

Reimbursement of Legal, Tax, etc.(3)
101

 
93

 
447

 
225

(1) All dividends were paid from earnings and profits.
(2) No income recognized by Prospect. MA payments were paid from NPRC to Prospect and subsequently remitted to PA.
(3) Paid from NPRC to PA as reimbursement for legal, tax, and portfolio level accounting services provided directly to NPRC (No direct income recognized by Prospect, but we were given a credit for these payments as a reduction to the administrative services payable by Prospect to PA).
 
Three Months Ended
 
Six Months Ended
 
December 31, 2019

 
December 31, 2018

 
December 31, 2019

 
December 31, 2018

Additions (4)
$
64,285

 
$
1,376

 
$
64,285


$
11,582

Repayment of loan receivable
32,317

 
12,960

 
93,000


21,180

(4) During the six months ended December 31, 2018, we provided $10,206 of equity financing to NPRC for the acquisition of real estate properties and $1,376 of equity financing to NPRC to fund capital expenditures for existing real estate properties.
 
As of
 
December 31, 2019
 
June 30, 2019
Interest Receivable (5)
$
1,433

 
$
4,565

Other Receivables - Due to PA (6)
—

 
2,100

Other Receivables (7)
12

 
32

(5) Interest income recognized but not yet paid.
(6) Managerial assistance recognized but not yet paid by NPRC and is included by Prospect within Other Receivable and Due to PA.
(7) Represents amounts due from NPRC to Prospect for reimbursement of expenses paid by Prospect on behalf of NPRC.

97
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)
(in thousands, except share and per share data)


Nationwide Loan Company LLC
Prospect owns 100% of the membership interests of Nationwide Acceptance Holdings LLC (“Nationwide Holdings”), a Consolidated Holding Company. Nationwide Holdings owns 94.48% of the equity of Nationwide Loan Company LLC (f/k/a Nationwide Acceptance LLC) (“Nationwide”), with members of Nationwide management owning the remaining equity.
On October 31, 2017, Prospect made an additional equity investment totaling $3,779, and Prospect’s ownership in Nationwide did not change.
 
Three Months Ended
 
Six Months Ended
 
December 31, 2019
 
December 31, 2018
 
December 31, 2019
 
December 31, 2018
Interest Income
$
976

 
$
897

 
$
1,930

 
$
1,787

Dividend Income (1)
—

 
—

 
—

 
165

Managerial Assistance (2)
—

 
100

 
100

 
200

(1) All dividends were paid from earnings and profits of Nationwide.
(2) No income recognized by Prospect. MA payments were paid from Nationwide to Prospect and subsequently remitted to PA.

 
Three Months Ended
 
Six Months Ended
 
December 31, 2019
 
December 31, 2018
 
December 31, 2019
 
December 31, 2018
Interest Income Capitalized as PIK
$
487

 
$
444

 
$
804

 
$
444

 
As of
 
December 31, 2019
 
June 30, 2019
Interest Receivable (3)
$
11

 
$
—

Other Receivables - Due to PA (4)
—

 
100

Other Receivables (5)
3

 
4

(3) Interest income recognized but not yet paid.
(4) Managerial assistance recognized but not yet paid by Nationwide and is included by Prospect within Other Receivable and Due to PA.
(5) Represents amounts due from Nationwide to Prospect for reimbursement of expenses paid by Prospect on behalf of Nationwide.
NMMB, Inc.
Prospect owns 100% of the equity of NMMB Holdings, Inc. (“NMMB Holdings”), a Consolidated Holding Company. NMMB Holdings owns 92.42% and 94.10% of the fully-diluted equity of NMMB, Inc. (f/k/a NMMB Acquisition, Inc.) (“NMMB”) as of December 31, 2019 and June 30, 2019, with NMMB management owning the remaining 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 December 30, 2019, NMMB executed a dividend recapitalization whereby Prospect invested $15,100 of a first lien term loan to repay NMMB’s existing term loan, provide a shareholder distribution, and pay fees and expenses. As part of the recapitalization, Prospect converted its Series A and Series B preferred securities into 92.42% common equity and received a dividend distribution of $2,797.

98
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)
(in thousands, except share and per share data)


 
Three Months Ended
 
Six Months Ended
 
December 31, 2019
 
December 31, 2018
 
December 31, 2019
 
December 31, 2018
Interest Income
 
 
 
 
 
 
 
Interest Income from Armed Forces
$
—

 
$
140

 
$
—

 
$
316

  Interest Income from NMMB
47

 
133

 
138

 
267

Total Interest Income
$
47

 
$
273

 
$
138

 
$
583

Dividend Income (1)
$
2,797

 
$
—

 
$
2,797

 
$
—

Other Income

 

 

 

Structuring Fee
$
453

 
$
—

 
$
453

 
$
—

Total Other Income
$
453

 
$
—

 
$
453

 
$
—

Managerial Assistance (1)
$
—

 
$
100

 
$
—

 
$
200

(1) No income recognized by Prospect. MA payments were paid from NMMB to Prospect and subsequently remitted to PA.

 
Three Months Ended
 
Six Months Ended
 
December 31, 2019
 
December 31, 2018
 
December 31, 2019
 
December 31, 2018
Repayment of loan receivable
 
 
 
 
 
 
 
   Repayment from Armed Forces
$
—

 
$
—

 
$
—

 
$
1,000

   Repayment from NMMB
1,614

 
—

 
3,114

 
—

Total Repayment of loan receivable
$
1,614

 
$
—

 
$
3,114

 
$
1,000

 
As of
 
December 31, 2019
 
June 30, 2019
Interest Receivable (2)
$
9

 
$
4

Other Receivables - Due to PA (3)
—

 
100

(2) Interest income recognized but not yet paid.
(3) Managerial assistance recognized but not yet paid by NMMB and is included by Prospect within Other Receivable and Due to PA.
Pacific World Corporation
On May 29, 2018, Prospect exercised its rights and remedies under its loan documents to exercise the shareholder voting rights in respect of the stock of Pacific World Corporation (“Pacific World”) and to appoint a new Board of Directors of Pacific World. As a result, as of June 30, 2018, Prospect’s investment in Pacific World is classified as a control investment.
On June 15, 2018, we made a $15,000 convertible preferred equity investment in Pacific World.
During the year ended June 30, 2019, we funded $9,000 in revolver draws and received $9,250 in repayments from Pacific World.

During the year ended June 30, 2019, we made an additional $10,000 convertible preferred equity investment in Pacific World.
 
Three Months Ended
 
Six Months Ended
 
December 31, 2019
 
December 31, 2018
 
December 31, 2019
 
December 31, 2018
Interest Income
$
(536
)
 
$
922

 
$
527

 
$
3,253



99
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)
(in thousands, except share and per share data)


 
Three Months Ended
 
Six Months Ended
 
December 31, 2019
 
December 31, 2018
 
December 31, 2019
 
December 31, 2018
Additions (1)
$
7,100

 
$
5,000


$
9,456


$
5,000

Repayment of loan receivable
—

 
5,000


—


5,250

(1) During the six months ended December 31, 2019, Prospect provided $9,100 of equity financing to Pacific World to fund working capital needs.
 
As of
 
December 31, 2019
 
June 30, 2019
Interest Receivable (2)
$
—

 
$
—

Other Receivables (3)
62

 
46

(2) Interest income recognized but not yet paid.
(3) Represents amounts due from Pacific World to Prospect for reimbursement of expenses paid by Prospect on behalf of Pacific World.
R-V Industries, Inc.
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.
During the year ended June 30, 2017, cash distributions of $76 that were declared and paid from R-V to Prospect were recognized as a return of capital by Prospect.
 
Three Months Ended
 
Six Months Ended
 
December 31, 2019
 
December 31, 2018
 
December 31, 2019
 
December 31, 2018
Interest Income
$
786

 
$
826

 
$
1,590

 
$
1,628

Managerial Assistance (1)
—

 
45

 
—

 
90

Reimbursement of Legal, Tax, etc.(2)
—

 
—

 
12

 
—

(1) No income recognized by Prospect. MA payments were paid from R-V to Prospect and subsequently remitted to PA.
(2) Paid from R-V to PA as reimbursement for legal, tax, and portfolio level accounting services provided directly to R-V (No direct income recognized by Prospect, but we were given a credit for these payments as a reduction to the administrative services payable by Prospect to PA).
 
As of
 
December 31, 2019
 
June 30, 2019
Interest Receivable (3)
$
9

 
$
9

Other Receivables - Due to PA (4)
—

 
46

(3) Interest income recognized but not yet paid.
(4) Managerial assistance recognized but not yet paid by R-V and is included by Prospect within Other Receivable and Due to PA.
SB Forging Company, Inc.
As of June 30, 2014, Prospect owned 79.53% of the fully-diluted common, 85.76% of the Series A Preferred and 100% of the Series B Preferred equity of ARRM Services, Inc. (f/k/a ARRM Holdings, Inc.) (“ARRM”). ARRM owned 100% of the equity of Ajax Rolled Ring & Machine, LLC (f/k/a Ajax Rolled Ring & Machine, Inc.) (“Ajax”). 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.

100
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)
(in thousands, except share and per share data)


SB Forging Company II, Inc. (f/k/a 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 June 28, 2017, Gulf Coast was renamed to SB Forging Company II, Inc.
On November 14, 2017, we received proceeds of $1,363 from our insurance carrier related to our investment in Gulfco. The $1,363 reimbursed us for covered third-party legal expenses incurred and expensed in prior periods, for which we recorded the amount received as a reduction to our legal fees for the current period. Prospect Administration also received $1,430 from the insurance carrier related to covered legal services provided by Prospect Administration which was recorded as a reduction of allocation of overhead from Prospect Administration.

In June 2018, SB Forging Company II, Inc. received escrow proceeds of $2,050 related to the sale. The escrow proceeds and $154 of excess cash held at SB Forging Company II, Inc. were subsequently distributed and in connection with the liquidation of our investment, we recorded a realized gain of $2,204 in our Consolidated Statement of Operations during the year ended June 30, 2019.

Universal Turbine Parts, LLC

On December 10, 2018, UTP Holdings Group, Inc. (“UTP Holdings”) purchased all of the voting stock of Universal Turbine Parts, LLC (“UTP”) and appointed a new Board of Directors to UTP Holdings, consisting of three employees of the Investment Advisor. At the time UTP Holdings acquired UTP, UTP Holdings (f/k/a Harbortouch Holdings of Delaware) was a wholly-owned holding company controlled by Prospect and therefore Prospect’s investment in UTP is classified as a control investment.
 
Three Months Ended
 
Six Months Ended
 
December 31, 2019

 
December 31, 2018

 
December 31, 2019

 
December 31, 2018

Interest Income
$
633


$
654


$
1,266


$
654

Other Income

 


 

 


Structuring Fee
$
100

 
 N/A

 
$
100

 
 N/A

Total Other Income
$
—

 
N/A

 
$
—

 
N/A

Managerial Assistance (2)
3

 
 N/A

 
3

 
 N/A

 
Three Months Ended
 
Six Months Ended
 
December 31, 2019

 
December 31, 2018

 
December 31, 2019

 
December 31, 2018

Additions (1)
$
1,000

 
$
—

 
$
1,000


$
—

Repayment of loan receivable
164

 
162


327


162

(1) During the six months ended December 31, 2019, Prospect provided $1,000 of Delayed Draw Term Loan financing to UTP.
 
As of
 
December 31, 2019
 
June 30, 2019
Interest Receivable (4)
$
6

 
$
—

Other Receivables - Due to PA (2)
—

 
3

Other Receivables (3)
1

 
1

(2) Managerial assistance recognized but not yet paid by UTP and is included by Prospect within Other Receivable and Due to PA.
(3) Represents amounts due from UTP to Prospect for reimbursement of expenses paid by Prospect on behalf of UTP.
USES Corp.
On June 15, 2016, we provided additional $1,300 debt financing to USES Corp. (“USES”) and its subsidiaries in the form of additional Term Loan A debt and, in connection with such Term Loan A debt financing, USES issued to us 99,900 shares of its common stock. On June 29, 2016, we provided additional $2,200 debt financing to USES and its subsidiaries in the form of additional Term Loan A debt and, in connection with such Term Loan A debt financing, USES issued to us 169,062 shares of its

101
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)
(in thousands, except share and per share data)


common stock. As a result of such debt financing and recapitalization, as of June 29, 2016, we held 268,962 shares of USES common stock representing a 99.96% common equity ownership interest in USES. As such, USES became a controlled company on June 30, 2016.
During the year ended June 30, 2018, Prospect provided additional $3,000 debt financing to USES and its subsidiaries in the form of additional Term Loan A debt.
During the year ended June 30, 2018, we entered into a participation agreement with USES management, and sold $3 of Prospect’s investment in the Term Loan A debt.
During the six months ended December 31, 2018, Prospect provided additional $3,500 debt financing to USES and its subsidiaries in the form of additional Term Loan A debt.
During the year ended June 30, 2019, Prospect provided additional $3,500 debt financing to USES and its subsidiaries in the form of additional Term Loan A debt.
 
Three Months Ended
 
Six Months Ended
 
December 31, 2019
 
December 31, 2018
 
December 31, 2019
 
December 31, 2018
Additions (1)
$
—

 
$
3,500

 
$
1,500

 
$
3,500

Repayment of loan receivable (2)
5,950

 
—

 
5,950

 
—

(1) During the six months ended December 31, 2019, Prospect provided $1,500 of equity financing to USES to fund capital expenditures and repayment of accounts payable.
(2) During the six months ended December 31, 2019, Prospect received $5,950 of Senior Secured Term Loan A repayment.

 
As of
 
December 31, 2019
 
June 30, 2019
Other Receivables - Due to PA (3)
$
—

 
$
925

(3) Represents amounts due from USES to Prospect for reimbursement of expenses paid by Prospect on behalf of USES.

Valley Electric Company, Inc.
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.
During the six months ended December 31, 2018, Prospect provided $5,100 of additional debt financing to Valley Electric. In addition, distributions of $3,329 that were declared and paid from Valley to Prospect were recognized as a return of capital by Prospect.

102
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)
(in thousands, except share and per share data)


 
Three Months Ended
 
Six Months Ended
 
December 31, 2019
 
December 31, 2018
 
December 31, 2019
 
December 31, 2018
Interest Income
 
 
 
 

 

Interest Income from Valley
$
280

 
$
274

 
$
560

 
$
560

Interest Income from Valley Electric
1,498

 
1,487

 
2,996

 
2,806

Total Interest Income
$
1,778

 
$
1,761

 
$
3,556

 
$
3,366

Dividend Income (1)
$
471

 
$
4,000

 
$
4,271

 
$
7,500

Other Income

 

 

 

Structuring Fee
$
—

 
$
—

 
$
—

 
$
153

Royalty/Net Interest
333

 
169

 
333

 
319

Total Other Income
$
333

 
$
169

 
$
—

 
$
472

Managerial Assistance (2)
$
—

 
$
150

 
$
—

 
$
225

Reimbursement of Legal, Tax, etc. (3)
29

 
—

 
29

 
—

(1) All dividends were paid from earnings and profits.
(2) No income recognized by Prospect. MA payments were paid from Valley Electric to Prospect and subsequently remitted to PA.
(3) Paid from Valley to PA as reimbursement for legal, tax, and portfolio level accounting services provided directly to Valley (No direct income recognized by Prospect, but we were given a credit for these payments as a reduction to the administrative services payable by Prospect to PA).

 
Three Months Ended
 
Six Months Ended
 
December 31, 2019
 
December 31, 2018
 
December 31, 2019
 
December 31, 2018
Additions
$
—

 
$
—


$
—


$
5,100


 
As of
 
December 31, 2019
 
June 30, 2019
Interest Receivable (4)
$
19

 
$
17

Other Receivables (5)
10

 
9

(4) Interest income recognized but not yet paid.
(5) Represents amounts due from Valley Electric to Prospect for reimbursement of expenses paid by Prospect on behalf of Valley Electric.

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 LLC (f/k/a Appalachian Energy Holdings, LLC) (“AEH”);
Coalbed, LLC (“Coalbed”); and Wolf Energy, LLC (“Wolf Energy”). AEH owns 100% of C&S Operating, 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. On June 30, 2012, AEH and Coalbed loans, with a cost basis of $7,991, were assigned by Prospect to Wolf Energy Holdings from Manx.

During the six months ended December 31, 2018, Wolf Energy Services received $58 from the sale of assets.

In December 2019, Wolf Energy Holdings, Inc. (“Wolf Energy Holdings”), our Consolidated Holding Company that previously owned 100% of Appalachian Energy LLC (“AEH”); Wolf Energy Services Company, LLC (Wolf Energy Services”); and Wolf

103
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)
(in thousands, except share and per share data)


Energy, LLC (collectively our previously controlled membership interest and net profit interest investments in “Wolf Energy”), merged with and into CP Energy, with CP Energy continuing as the surviving entity. CP Energy acquired 100% of our equity in Wolf Energy, which is reflected in our valuation of CP Energy common stock as of December 31, 2019. During the six months ended December 31, 2019, the cost basis in Wolf Energy Holdings of $3,914 was transferred to CP Energy.

During the six months ended December 31, 2019, cash distributions of $18 that were declared and paid from Wolf to Prospect were recognized as a return of capital by Prospect.
 
As of
 
December 31, 2019
 
June 30, 2019
Other Receivables - Due to PA (1)
$
—

 
$
41

Other Receivables (2)
—

 
15

(1) Managerial assistance recognized but not yet paid by Wolf and is included by Prospect within Other Receivable and Due to PA.
(2) Represents amounts due from Wolf to Prospect for reimbursement of expenses paid by Prospect on behalf of Wolf.
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 such 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 material legal proceedings as of December 31, 2019.
Note 16. Financial Highlights
The following is a schedule of financial highlights for the three and six months ended December 31, 2019 and December 31, 2018:
 
Three Months Ended December 31,
 
Six Months Ended December 31,
 
2019
 
2018
 
2019
 
2018
Per Share Data
 

 
 

 
 
 
 
Net asset value at beginning of period
$
8.87

 
$
9.39

 
$
9.01

 
$
9.35

Net investment income(1)
0.18

 
0.22

 
0.37

 
0.45

Net realized and change in unrealized losses(1)
(0.21
)
 
(0.40
)
(4)
(0.35
)
 
(0.41
)
  Net increase from operations
(0.03
)
 
(0.18
)
 
0.02

 
0.04

Distributions of net investment income
(0.18
)
 
(0.18
)
 
(0.36
)
 
(0.36
)
Common stock transactions(2)
—

 
(0.01
)
 
(0.01
)
 
(0.01
)
  Net asset value at end of period
$
8.66

 
$
9.02

 
$
8.66

 
$
9.02

 
 
 
 
 
 
 
 
Per share market value at end of period
$
6.44

 
$
6.31

 
$
6.44

 
$
6.31

Total return based on market value(3)
0.43
%
 
(11.54
%)
 
4.13
%
 
(0.90
%)
Total return based on net asset value(3)
0.33
%
 
(1.29
%)
 
1.48
%
 
1.67
%
Shares of common stock outstanding at end of period
367,584,244

 
366,055,966

 
367,584,244

 
366,055,966

Weighted average shares of common stock outstanding
367,459,411

 
365,591,722

 
367,349,087

 
365,187,429

 
 
 
 
 
 
 
 
Ratios/Supplemental Data
 
 
 
 
 
 
 
Net assets at end of period
$
3,183,865

 
$
3,303,175

 
$
3,183,865

 
$
3,303,175

Portfolio turnover rate
6.09
%
 
2.78
%
 
7.72
%
 
3.77
%
Annualized ratio of operating expenses to average net assets
11.67
%
 
12.72
%
 
11.38
%
 
11.97
%
Annualized ratio of net investment income to average net assets
8.43
%
 
9.60
%
 
8.55
%
 
9.82
%

104
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)
(in thousands, except share and per share data)


The following is a schedule of financial highlights for each of the five years ended in the period ended June 30, 2019:
 
Year Ended June 30,
 
2019
 
2018
 
2017
 
2016
 
2015
Per Share Data
 

 
 
 
 
 
 

 
 

Net asset value at beginning of year
$
9.35

 
$
9.32

 
$
9.62

 
$
10.31

 
$
10.56

Net investment income(1)
0.85

 
0.79

 
0.85

 
1.04

 
1.03

Net realized and change in unrealized (losses) gains(1)
(0.46
)
 
0.04

 
(0.15
)
 
(0.75
)
 
(0.05
)
  Net increase from operations
0.39

 
0.83

 
0.70

 
0.29

 
0.98

Distributions of net investment income
(0.72
)
 
(0.77
)
 
(1.00
)
 
(1.00
)
 
(1.19
)
Common stock transactions(2)
(0.01
)
 
(0.03
)
 
—

(4)
0.02

 
(0.04
)
  Net asset value at end of year
$
9.01

 
$
9.35

 
$
9.32

 
$
9.62

 
$
10.31

 
 
 
 
 
 
 
 
 
 
Per share market value at end of year
$
6.53

 
$
6.71

 
$
8.12

 
$
7.82

 
$
7.37

Total return based on market value(3)
8.23
%
 
(7.42
%)
 
16.80
%
 
21.84
%
 
(20.84
%)
Total return based on net asset value(3)
7.17
%
 
12.39
%
 
8.98
%
 
7.15
%
 
11.47
%
Shares of common stock outstanding at end of year
367,131,025

 
364,409,938

 
360,076,933

 
357,107,231

 
359,090,759

Weighted average shares of common stock outstanding
365,984,541

 
361,456,075

 
358,841,714

 
356,134,297

 
353,648,522

 
 
 
 
 
 
 
 
 
 
Ratios/Supplemental Data
 
 
 
 
 
 
 
 
 

Net assets at end of year
$
3,306,275

 
$
3,407,047

 
$
3,354,952

 
$
3,435,917

 
$
3,703,049

Portfolio turnover rate
10.86
%
 
30.70
%
 
23.65
%
 
15.98
%
 
21.89
%
Ratio of operating expenses to average net assets
11.65
%
 
11.08
%
 
11.57
%
 
11.95
%
 
11.66
%
Ratio of net investment income to average net assets
9.32
%
 
8.57
%
 
8.96
%
 
10.54
%
 
9.87
%
(1)
Per share data amount is based on the weighted average number of common shares outstanding for the year/period presented (except for dividends to shareholders which is based on actual rate per share).
(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, shares issued to acquire investments and shares repurchased below net asset value pursuant to our Repurchase Program.
(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, total return is not annualized.
(4)
Amount is less than $0.01.

105
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)
(in thousands, except share and per share data)


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, 2020:
 
 
Investment 
Income
 
Net Investment 
Income
 
Net Realized and 
Unrealized (Losses) Gains
 
Net Increase (Decrease) 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, 2017
 
$
158,579

 
$
0.44

 
$
63,732

 
$
0.18

 
$
(51,759
)
 
$
(0.15
)
 
$
11,973

 
$
0.03

December 31, 2017
 
162,400

 
0.45

 
73,192

 
0.20

 
48,535

 
0.14

 
121,727

 
0.34

March 31, 2018
 
162,835

 
0.45

 
70,446

 
0.19

 
(18,587
)
 
(0.04
)
 
51,859

 
0.14

June 30, 2018
 
174,031

 
0.48

 
79,480

 
0.22

 
34,823

 
0.09

 
114,304

 
0.31

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
September 30, 2018
 
$
180,422

 
$
0.49

 
$
85,159

 
$
0.23

 
$
(1,364
)
 
$
—

(2)
$
83,795

 
$
0.23

December 31, 2018
 
187,883

 
0.51

 
80,811

 
0.22

 
(148,200
)
 
(0.40
)
 
(67,389
)
 
(0.18
)
March 31, 2019
 
171,109

 
0.47

 
77,262

 
0.21

 
11,933

 
0.03

 
89,195

 
0.24

June 30, 2019
 
164,353

 
0.45

 
69,627

 
0.19

 
(30,741
)
 
(0.08
)
 
38,886

 
0.11

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
September 30, 2019
 
$
161,883

 
$
0.44

 
$
71,060

 
$
0.19

 
$
(52,995
)
 
$
(0.14
)
 
$
18,065

 
$
0.05

December 31, 2019
 
161,917

 
0.44

 
67,885

 
0.18

 
(79,088
)
 
(0.21
)
 
(11,203
)
 
(0.03
)
(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.
(2)
Amount is less than $0.01.
Note 18. Subsequent Events
During the period from January 1, 2020 through February 6, 2020 we issued $41,406 aggregate principal amount of Prospect Capital InterNotes® for net proceeds of $40,748.
During the period of January 1, 2020 through February 6, 2020, we provided notice to call or settled previous notices to call certain of our Prospect Capital InterNotes® at par with the following terms:
Notice Date
Settlement Date
Maturity Date Range
Interest Rate Range
Principal
12/11/2019
1/15/2020
July 15, 2022
4.500% - 4.750%
$
3,918

On January 10, 2020, we made a new $20,000 First Lien Term Loan investment in EDSCO Holding Company LLC, a manufacturer of foundation anchoring systems for large infrastructure installations such as power transmission poles and electrical substation structures.
On January 22, 2020, PeopleConnect Intermediate, LLC (“PeopleConnect”) fully repaid the $17,328 Senior Secured Term Loan A and the $19,413 Senior Secured Term Loan B receivable to us at par. Concurrent with the repayment, our $1,000 unfunded revolving line of credit to PeopleConnect was terminated.
On January 22, 2020, we provided $246,000 of Senior Secured investments to PeopleConnect Holdings, Inc. and PubRec Holdings, Inc., online information commerce companies. Included in this investment is a $10,000 Revolving Line of Credit and a $5,000 Delayed Draw term loan, which were unfunded at close. On January 28, 2020, we sold $24,994 of our Senior Secured Term Loan investment and $1,082 of our Revolving Line of Credit commitment, or 10.6% of our initial investment, at a price of 98.0. As a result of the sale, we recorded a realized loss of $522 for the three months ended March 31, 2020.
On January 23, 2020, we provided $18,252 and $4,563 of Senior Secured Term Loan C and equity financing, respectively, to National Property REIT Corp. (“NPRC”) and its wholly-owned subsidiaries to support investments in rated secured structured notes. On January 31, 2020, we received partial repayments of $7,500 of our Senior Secured Term Loan B outstanding with NPRC and its wholly-owned subsidiaries.

106
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)
(in thousands, except share and per share data)


The 2020 Notes December Tender Offer and the 2022 Notes December Tender Offer (collectively the “December Tender Offers”) expired at 12:00 midnight, New York City time, on January 23, 2020 (one minute after 11:59 p.m., New York City time, on January 22, 2020). As of the expiration date of the December Tender Offers, (i) $2,215 aggregate principal amount of the 2020 Notes, representing approximately 1.27% of the outstanding 2020 Notes, and (ii) $1,302 aggregate principal amount of the 2022 Notes, representing approximately 0.45% of the outstanding 2022 Notes, were validly tendered and accepted. Following the settlement of the December Tender Offers, (i) approximately $172,822 aggregate principal amount of the 2020 Notes remains outstanding, and (ii) approximately $290,825 aggregate principal amount of the 2022 Notes remains outstanding.
On January 24, 2020, we made a $30,000 first lien term loan investment in LGC US Finco, LLC, a manufacturer of industrial gaskets and fasteners.
On February 10, 2020, we announced the declaration of monthly dividends in the following amounts and with the following dates:
•
$0.06 per share for February 2020 to holders of record on February 28, 2020 with a payment date of March 19, 2020.
•
$0.06 per share for March 2020 to holders of record on March 31, 2020 with a payment date of April 23, 2020.
•
$0.06 per share for April 2020 to holders of record on April 30, 2020 with a payment date of May 21, 2020.

107

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 may differ significantly from any results expressed or implied by these forward-looking statements due to the factors discussed in Part II, “Item 1A. Risk Factors” and “Forward-Looking Statements” appearing elsewhere herein.
Overview
The terms “Prospect,” “the Company,” “we,” “us” and “our” mean Prospect Capital Corporation and its subsidiaries unless the context specifically requires otherwise.

Prospect is 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 were organized on April 13, 2004, and were funded in an initial public offering completed on July 27, 2004.

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 small business whole loans on a recurring basis from online small business loan originators, including On Deck Capital, Inc. (“OnDeck”). On September 30, 2014, we formed a wholly owned subsidiary Prospect Yield Corporation, LLC (“PYC”) and effective October 23, 2014, PYC holds a portion of our investments in Rated Secured Structured Notes (“RSSN”) and Subordinated Structured Notes (“SSN”) (collectively referred to as “collateralized loan obligations” or “CLOs”). Each of these subsidiaries have been consolidated since operations commenced.
We consolidate certain of our wholly owned and substantially wholly owned holding companies formed by us in order to facilitate our investment strategy. The following companies are included in our consolidated financial statements and are collectively referred to as the “Consolidated Holding Companies”: CP Holdings of Delaware LLC (“CP Holdings”); Credit Central Holdings of Delaware, LLC (“Credit Central Delaware”); Energy Solutions Holdings Inc.; First Tower Holdings of Delaware LLC (“First Tower Delaware”); MITY Holdings of Delaware Inc. (“MITY Delaware”); Nationwide Acceptance Holdings LLC; NMMB Holdings, Inc. (“NMMB Holdings”); NPH Property Holdings, LLC (“NPH”); STI Holding, Inc.; UTP Holdings Group Inc. ( “UTP Holdings”; Valley Electric Holdings I, Inc. (“Valley Holdings I”); and Valley Electric Holdings II, Inc. (“Valley Holdings II”).
We are externally managed by our investment adviser, Prospect Capital Management L.P. (“Prospect Capital Management” or the “Investment Adviser”). Prospect Administration LLC (“Prospect Administration”), a wholly owned subsidiary of the Investment Adviser, provides administrative services and facilities necessary for us to operate.
Our investment objective is to generate both current income and long-term capital appreciation through debt and equity investments. We invest primarily in senior and subordinated debt and equity of private 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.
We currently have nine strategies that guide our origination of investment opportunities: (1) lending to companies controlled by private equity sponsors, (2) lending to companies not controlled by private equity sponsors, (3) purchasing controlling equity positions and lending to operating companies, (4) purchasing controlling equity positions and lending to financial services companies, (5) purchasing controlling equity positions and lending to real estate companies, (6) purchasing controlling equity positions and lending to aircraft leasing companies, (7) investing in structured credit, (8) investing in syndicated debt, and (9) investing in consumer and small business loans and asset-backed securitizations. We may also invest in other strategies and opportunities from time to time that we view as attractive. We continue to evaluate other origination strategies in the ordinary course of business with no specific top-down allocation to any single origination strategy.
Lending to Companies Controlled by Private Equity Sponsors - We make agented loans to companies which are controlled by private equity sponsors. This debt can take the form of first lien, second lien, unitranche or unsecured loans. These loans typically have equity subordinate to our loan position. Historically, this strategy has comprised approximately 25%-50% of our portfolio.

108

Lending to Companies not Controlled by Private Equity Sponsors - We make loans to companies which are not controlled by private equity sponsors, such as companies that are controlled by the management team, the founder, a family or public shareholders. This origination strategy may have less competition to provide debt financing than the private-equity-sponsor origination strategy because such company financing needs are not easily addressed by banks and often require more diligence preparation. This origination strategy can result in investments with higher returns or lower leverage than the private-equity-sponsor origination strategy. Historically, this strategy has comprised less than 5% of our portfolio.
Purchasing Controlling Equity Positions and Lending to Operating Companies - This strategy involves purchasing yield-producing debt and controlling equity positions in non-financial-services operating companies. We believe that we can provide enhanced certainty of closure and liquidity to sellers and we look for management to continue on in their current roles. This strategy has comprised approximately 5%-10% of our portfolio.
Purchasing Controlling Equity Positions and Lending to Financial Services Companies - This strategy involves purchasing yield-producing debt and control equity investments in financial services companies, including consumer direct lending, sub-prime auto lending and other strategies. These investments are often structured in tax-efficient partnerships, enhancing returns. This strategy has comprised approximately 5%-15% of our portfolio.
Purchasing Controlling Equity Positions and Lending to Real Estate Companies - We purchase debt and controlling equity positions in tax-efficient real estate investment trusts (“REIT” or “REITs”). The real estate investments of National Property REIT Corp. (“NPRC”) are in various classes of developed and occupied real estate properties that generate current yields, including multi-family properties, student housing, and self-storage. NPRC seeks to identify properties that have historically significant occupancy rates and recurring cash flow generation. NPRC generally co-invests with established and experienced property management teams that manage such properties after acquisition. Additionally, NPRC purchases loans originated by certain consumer loan facilitators. It purchases each loan in its entirety (i.e., a “whole loan”). The borrowers are consumers, and the loans are typically serviced by the facilitators of the loans. This investment strategy has comprised approximately 10%-20% of our business.
Purchasing Controlling Equity Positions and Lending to Aircraft Leasing Companies - We invest in debt as well as equity in companies with aircraft assets subject to commercial leases to airlines across the globe. We believe that these investments can present attractive return opportunities due to cash flow consistency from long-term leases coupled with hard asset residual value. We believe that these investment companies seek to deliver risk-adjusted returns with strong downside protection by analyzing relative value characteristics across a variety of aircraft types and vintages. This strategy historically has comprised less than 5% of our portfolio.
Investing in Structured Credit - We make investments in CLOs, often taking a significant position in the subordinated interests (equity) and debt of the CLOs. The underlying portfolio of each CLO investment is diversified across approximately 100 to 200 broadly syndicated loans and does not have direct exposure to real estate, mortgages, or consumer-based credit assets. The CLOs in which we invest are managed by established collateral management teams with many years of experience in the industry. This strategy has comprised approximately 10%-20% of our portfolio.
Investing in Syndicated Debt - On a primary or secondary basis, we purchase primarily senior and secured loans and high yield bonds that have been sold to a club or syndicate of buyers. These investments are often purchased with a long term, buy-and-hold outlook, and we often look to provide significant input to the transaction by providing anchoring orders. This strategy has comprised approximately 10%-25% of our portfolio.
Investing in Consumer and Small Business Loans and Asset-Backed Securitizations - We purchase loans originated by certain consumer and small-and-medium-sized business (“SME”) loan platforms. We generally purchase each loan in its entirety (i.e., a “whole loan”) and we invest in asset-backed securitizations collateralized by consumer or small business loans. The borrowers are consumers and SMEs and the loans are typically serviced by the platforms of the loans. This investment strategy has comprised up to approximately 0% of our portfolio.
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.

109

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, which is generally equity in the holding company, the holding company’s equity investment in the operating company and any debt from us directly to the operating company structure represents our total exposure for the investment. As of December 31, 2019, as shown in our Consolidated Schedule of Investments, the cost basis and fair value of our investments in controlled companies was $2,397,025 and $2,412,260, respectively. This structure gives rise to several of the risks described in our public documents and highlighted elsewhere in this Quarterly Report. We consolidate all wholly owned and substantially wholly owned holding companies formed by us for the purpose of holding our controlled investments in operating companies. There is no significant effect 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.
Second Quarter Highlights
Investment Transactions
We seek to be a long-term investor with our portfolio companies. During the three months ended December 31, 2019, we acquired $193,222 of new investments, completed follow-on investments in existing portfolio companies totaling approximately $122,193, funded $4,544 of revolver advances, and recorded paid in kind (“PIK”) interest of $6,677, resulting in gross investment originations of $326,636. During the three months ended December 31, 2019, we received full repayments totaling $345,332, received $2,000 of revolver paydowns, and received several partial prepayments, scheduled principal amortization payments, and return of capital distributions, resulting in net repayments of $431,514.

Debt Issuances and Redemptions
During the three months ended December 31, 2019, we repaid $1,701 aggregate principal amount of Prospect Capital InterNotes® at par in accordance with the Survivor’s Option, as defined in the InterNotes® Offering prospectus. In order to replace short maturity debt with longer-term debt, we redeemed prior to maturity $96,208 aggregate principal amount of Prospect Capital InterNotes® at par with a weighted average interest rate of 4.78%. As a result of these transactions, we recorded a loss in the amount of the unamortized debt issuance costs. The net loss on the extinguishment of Prospect Capital InterNotes® in the three months ended December 31, 2019 was $1,086.
During the three months ended December 31, 2019, we issued $62,943 aggregate principal amount of Prospect Capital InterNotes® with a stated and weighted average interest rate of 4.09%, to extend our borrowing base. The newly issued notes mature between October 15, 2024 and January 15, 2030 and generated net proceeds of $61,950.
On October 18, 2019, we repurchased $22,941 of the 4.950% convertible notes that mature on July 15, 2022 (“2022 Notes”) at a price of 102.80, including commissions. As a result of this transaction, we recorded a net loss of $1,072 during the three months ended December 31, 2019, in the amount of the difference of the reacquisition price and the net carrying amounts of the 2022 Notes, net of the proportionate amount of unamortized debt issuance costs.
On September 24, 2019, we commenced a tender offer to purchase for cash up to $40,000 aggregate principal amount of the 2020 Notes (“2020 Notes September Tender Offer”), of which $177,569 was then outstanding. The 2020 Notes September Tender Offer expired at 12:00 midnight on October 23, 2019 (one minute after 11:59 p.m. New York City time, on October 22, 2019). On October 23, 2019, we announced the expiration and results of the 2020 Notes September Tender Offer. On October 25, 2019, $2,140 aggregate principal amount of such notes, representing approximately 1.21% of the outstanding 2020 Notes, were validly tendered and accepted. The 2020 Notes September Tender Offer resulted in our recognizing a loss of $27.
On November 7, 2019, we commenced a tender offer to purchase for cash (i) up to $10,000 aggregate principal amount of our 4.75% Senior Convertible Notes due 2020 (the “2020 Notes November Tender Offer”), of which $175,429 aggregate principal amount of the 2020 Notes were then outstanding, and (ii) up to $50,000 aggregate principal amount of our 4.95% Senior Convertible Notes due 2022 (the “2022 Notes November Tender Offer”, and together with the 2020 Notes November Tender Offer, the “November Tender Offers”), of which $305,559 aggregate principal amount of the 2022 Notes were then outstanding. On December 7, 2019, we announced the expiration and results of the November Tender Offers. On December 11, 2019, $392 aggregate principal amount of the 2020 Notes, representing approximately 0.22% of the outstanding 2020 Notes, and $13,432 aggregate principal amount of the 2022 Notes, representing approximately 4.40% of the outstanding 2022 Notes, were validly tendered and accepted. The November Tender Offers resulted in our recognizing a loss of $4 and $599 for the 2020 Notes and the 2022 Notes, respectively. The November Tender Offers each expired at 12:00 midnight, New York City time, on December 7, 2019 (one minute after 11:59 p.m. New York City time, on December 6, 2019).

110

On December 23, 2019, we commenced two separate tender offers to purchase for cash (i) up to $10,000 aggregate principal amount of the 2020 Notes (the “2020 Notes December Tender Offer”) and (ii) up to $25,000 aggregate principal amount of the 2022 Notes (the “2022 Notes December Tender Offer”, and together with the 2020 Notes December Tender Offer, the “December Tender Offers”). The December Tender Offers will each expire at 12:00 midnight, New York City time, on January 23, 2020 (one minute after 11:59 p.m. New York City time, on January 22, 2020).

Equity Issuances
On October 24, 2019, November 20, 2019, and December19, 2019 we issued 63,076, 82,501, and 74,795 shares of our common stock in connection with the dividend reinvestment plan, respectively.
Investment Holdings
At December 31, 2019, we have $5,268,545, or 165.5%, of our net assets invested in 120 long-term portfolio investments and CLOs.
Our annualized current yield was 12.8% and 13.1% as of December 31, 2019 and June 30, 2019, respectively, across all performing interest bearing investments, excluding equity investments and non-accrual loans. Our annualized current yield was 10.3% and 10.6% as of December 31, 2019 and June 30, 2019, respectively, across all investments. 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 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 December 31, 2019, we own controlling interests in the following portfolio companies: CP Energy Services Inc. (“CP Energy”); Credit Central Loan Company, LLC (“Credit Central”); Echelon Transportation, LLC (“Echelon”); First Tower Finance Company LLC (“First Tower Finance”); Freedom Marine Solutions, LLC (“Freedom Marine”); InterDent, Inc. (“InterDent”); Kickapoo Ranch Pet Resort (“Kickapoo”); MITY, Inc. (“MITY”); NPRC; Nationwide Loan Company LLC (“Nationwide”); NMMB, Inc. (“NMMB”); Pacific World Corporation (“Pacific World”); R-V Industries, Inc. (“R-V”); Universal Turbine Parts, LLC (“UTP”); USES Corp. (“USES”); and Valley Electric Company, Inc. (“Valley Electric”). In June 2019, CP Energy purchased a controlling interest in the common equity of Spartan Energy Holdings, Inc. (“Spartan Holdings”), which owns 100% of Spartan Energy Services, LLC (“Spartan”), a portfolio company of Prospect with $34,399 in senior secured term loans (the “Spartan Term Loans”) due to us as of June 30, 2019. As a result of CP Energy’s purchase, and given Prospect’s controlling interest in CP Energy, we report our investments in Spartan as control investments beginning June 30, 2019. Spartan remains the direct borrow and guarantor to Prospect for the Spartan Term Loans.
As of December 31, 2019, we also own affiliated interests in Edmentum Ultimate Holdings, LLC (“Edmentum”), Nixon, Inc. (“Nixon”), Targus Cayman HoldCo Limited (“Targus”), and United Sporting Companies, Inc. (“USC”).
The following shows the composition of our investment portfolio by level of control as of December 31, 2019 and June 30, 2019:
 
December 31, 2019
 
June 30, 2019
Level of Control
Cost
% of Portfolio
Fair Value
% of Portfolio
 
Cost
% of Portfolio
Fair Value
% of Portfolio
Control Investments
$
2,397,025

42.2
%
$
2,412,260

45.8
%
 
$
2,385,806

40.2
%
$
2,475,924

43.8
%
Affiliate Investments
158,295

2.8
%
87,623

1.7
%
 
177,616

3.0
%
76,682

1.4
%
Non-Control/Non-Affiliate Investments
3,118,324

55.0
%
2,768,662

52.5
%
 
3,368,880

56.8
%
3,100,947

54.8
%
Total Investments
$
5,673,644

100.0
%
$
5,268,545

100.0
%
 
$
5,932,302

100.0
%
$
5,653,553

100.0
%

111

The following shows the composition of our investment portfolio by type of investment as of December 31, 2019 and June 30, 2019:
 
December 31, 2019
 
June 30, 2019
Type of Investment
Cost
% of Portfolio
Fair Value
% of Portfolio
 
Cost
% of Portfolio
Fair Value
% of Portfolio
Revolving Line of Credit
$
35,156

0.6
%
$
35,156

0.7
%
 
$
33,928

0.6
%
$
34,239

0.6
%
Senior Secured Debt
2,466,567

43.5
%
2,147,402

40.8
%
 
2,687,709

45.3
%
2,449,357

43.3
%
Subordinated Secured Debt
1,427,227

25.2
%
1,301,043

24.7
%
 
1,439,440

24.3
%
1,329,799

23.5
%
Subordinated Unsecured Debt
40,478

0.6
%
48,886

0.9
%
 
38,933

0.7
%
33,058

0.6
%
Rated Secured Structured Notes
—

—
%
—

—
%
 
44,774

0.8
%
46,851

0.8
%
Subordinated Structured Notes
1,093,667

19.3
%
791,457

15.0
%
 
1,103,751

18.4
%
850,694

15.1
%
Preferred Stock
97,325

1.7
%
32,716

0.6
%
 
101,094

1.7
%
84,294

1.5
%
Common Stock
315,200

5.6
%
548,291

10.4
%
 
288,731

4.9
%
427,085

7.6
%
Membership Interest
198,024

3.5
%
320,979

6.1
%
 
193,942

3.3
%
296,282

5.2
%
Participating Interest(1)
—

—
%
40,308

0.8
%
 
—

—
%
99,655

1.8
%
Escrow Receivable
—

—
%
2,307

—
%
 
—

—
%
2,239

—
%
Total Investments
$
5,673,644

100.0
%
$
5,268,545

100.0
%
 
$
5,932,302

100.0
%
$
5,653,553

100.0
%
(1)
Participating Interest includes our participating equity investments, such as net profits interests, net operating income interests, net revenue interests, and overriding royalty interests.
The following shows our investments in interest bearing securities by type of investment as of December 31, 2019 and June 30, 2019:
 
December 31, 2019
 
June 30, 2019
Type of Investment
Cost
%
Fair Value
%
 
Cost
%
Fair Value
%
First Lien
$
2,493,690

49.3
%
$
2,174,525

50.3
%
 
$
2,713,478

50.7
%
$
2,475,437

52.2
%
Second Lien
1,435,260

28.3
%
1,309,076

30.3
%
 
1,447,599

27.1
%
1,337,958

28.2
%
Unsecured
40,478

0.8
%
48,886

1.1
%
 
38,933

0.7
%
33,058

0.7
%
Rated Secured Structured Notes
—

—
%
—

—
%
 
44,774

0.9
%
46,851

1.0
%
Subordinated Structured Notes
1,093,667

21.6
%
791,457

18.3
%
 
1,103,751

20.6
%
850,694

17.9
%
Total Interest Bearing Investments
$
5,063,095

100.0
%
$
4,323,944

100.0
%
 
$
5,348,535

100.0
%
$
4,743,998

100.0
%
The following shows the composition of our investment portfolio by industry as of December 31, 2019 and June 30, 2019:
 
December 31, 2019
 
June 30, 2019
Industry
Cost
% of Portfolio
Fair Value
% of Portfolio
 
Cost
% of Portfolio
Fair Value
% of Portfolio
Aerospace & Defense
$
81,853

1.4
%
$
91,065

1.7
%
 
$
77,579

1.3
%
$
89,701

1.6
%
Air Freight & Logistics
12,500

0.2
%
12,385

0.2
%
 
12,500

0.2
%
12,233

0.2
%
Auto Components
25,491

0.4
%
25,491

0.5
%
 
25,450

0.4
%
25,450

0.5
%
Building Products
—

—
%
—

—
%
 
19,842

0.3
%
19,842

0.4
%
Capital Markets
—

—
%
—

—
%
 
25,084

0.4
%
25,222

0.4
%
Chemicals
31,207

0.6
%
31,207

0.6
%
 
—

—
%
—

—
%
Commercial Services & Supplies
369,873

6.6
%
302,504

5.7
%
 
376,456

6.3
%
296,672

5.2
%
Communications Equipment
59,602

1.1
%
49,697

0.9
%
 
50,503

0.9
%
48,760

0.9
%
Construction & Engineering
66,606

1.2
%
122,500

2.3
%
 
69,935

1.2
%
143,685

2.5
%
Consumer Finance
502,105

8.8
%
641,385

12.2
%
 
487,778

8.2
%
618,983

10.9
%
Distributors
280,838

4.9
%
177,522

3.4
%
 
299,906

5.1
%
190,137

3.4
%
Diversified Consumer Services
150,930

2.8
%
154,735

2.9
%
 
146,845

2.5
%
141,308

2.5
%
Diversified Financial Services
30,433

0.5
%
30,433

0.7
%
 
—

—
%
—

—
%

112

 
December 31, 2019
 
June 30, 2019
Industry
Cost
% of Portfolio
Fair Value
% of Portfolio
 
Cost
% of Portfolio
Fair Value
% of Portfolio
Diversified Telecommunication Services
58,111

1.0
%
57,380

1.2
%
 
36,234

0.6
%
36,234

0.6
%
Electronic Equipment, Instruments & Components
—

—
%
2,307

—
%
 
—

—
%
2,239

—
%
Energy Equipment & Services
264,923

4.7
%
116,641

2.2
%
 
261,663

4.4
%
153,865

2.7
%
Entertainment
24,657

0.4
%
24,753

0.5
%
 
36,221

0.6
%
36,327

0.6
%
Equity Real Estate Investment Trusts (REITs)
496,440

8.7
%
884,299

16.8
%
 
496,440

8.4
%
827,687

14.6
%
Food Products
24,841

0.4
%
24,841

0.5
%
 
34,729

0.6
%
34,729

0.6
%
Health Care Equipment & Supplies
7,471

0.1
%
6,151

0.1
%
 
41,142

0.7
%
41,154

0.7
%
Health Care Providers & Services
526,346

9.4
%
468,204

8.9
%
 
470,422

7.9
%
445,235

7.9
%
Hotels, Restaurants & Leisure
30,550

0.5
%
28,810

0.5
%
 
34,737

0.6
%
34,737

0.7
%
Household Durables
25,636

0.5
%
12,911

0.2
%
 
29,291

0.5
%
22,460

0.4
%
Household Products
24,563

0.4
%
24,561

0.5
%
 
24,688

0.4
%
24,688

0.4
%
Insurance
12,989

0.2
%
12,989

0.2
%
 
12,988

0.2
%
12,988

0.2
%
Interactive Media & Services
36,741

0.6
%
36,741

0.7
%
 
37,861

0.6
%
37,861

0.7
%
Internet & Direct Marketing Retail
18,149

0.3
%
18,608

0.4
%
 
—

—
%
—

—
%
IT Services
203,623

3.6
%
203,666

3.9
%
 
306,096

5.2
%
305,360

5.4
%
Leisure Products
29,151

0.5
%
29,150

0.6
%
 
32,869

0.6
%
32,868

0.6
%
Machinery
35,488

0.6
%
36,503

0.7
%
 
35,488

0.6
%
33,624

0.6
%
Media
128,934

2.3
%
134,999

2.6
%
 
138,362

2.3
%
141,467

2.5
%
Online Lending
179,949

3.2
%
80,291

1.5
%
 
272,949

4.6
%
176,778

3.1
%
Paper & Forest Products
15,750

0.3
%
15,750

0.3
%
 
11,361

0.2
%
11,500

0.2
%
Personal Products
247,425

4.4
%
62,610

1.2
%
 
237,969

4.0
%
112,427

2.0
%
Professional Services
82,671

1.5
%
85,216

1.6
%
 
188,098

3.2
%
190,178

3.4
%
Real Estate Management & Development
38,432

0.7
%
38,432

0.7
%
 
38,852

0.7
%
38,852

0.7
%
Software
75,141

1.3
%
75,141

1.4
%
 
64,723

1.1
%
64,729

1.1
%
Technology Hardware, Storage & Peripherals
12,408

0.2
%
12,408

0.2
%
 
12,400

0.2
%
12,400

0.2
%
Textiles, Apparel & Luxury Goods
212,359

3.7
%
225,778

4.3
%
 
231,106

3.9
%
242,981

4.3
%
Tobacco
—

—
%
—

—
%
 
14,419

0.2
%
14,500

0.4
%
Trading Companies & Distributors
63,886

1.1
%
28,622

0.5
%
 
63,213

1.1
%
28,043

0.5
%
Transportation Infrastructure
27,620

0.5
%
28,104

0.5
%
 
27,578

0.5
%
28,104

0.5
%
Subtotal
$
4,515,692

79.6
%
$
4,414,790

83.8
%
 
$
4,783,777

80.7
%
$
4,756,008

84.1
%
Structured Finance(1)
$
1,157,952

20.4
%
$
853,755

16.2
%
 
$
1,148,525

19.3
%
$
897,545

15.9
%
Total Investments
$
5,673,644

100.0
%
$
5,268,545

100.0
%
 
$
5,932,302

100.0
%
$
5,653,553

100.0
%
(1) Our RSSN and SSN investments do not have industry concentrations and as such have been separated in the tables above. As of December 31, 2019, Structured Finance includes $62,298 of senior secured debt and equity investments held through our investment in NPRC and it’s wholly-owned subsidiary.

113

Portfolio Investment Activity
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 gross investment activity for the six months ended December 31, 2019 and December 31, 2018 are presented below:
 
Six months ended December 31,
 
2019
 
2018
Investments made in new portfolio companies
$
225,731

 
$
209,041

Follow-on investments made in existing portfolio companies (1)
169,226

 
245,980

Revolver advances
5,044

 
6,567

PIK interest
21,175

 
19,306

Total acquisitions
$
421,176

 
$
480,894

 
 
 
 
Acquisitions by portfolio composition
 
 
 
1st Lien Term Loan
$
250,450

 
$
213,633

2nd Lien Term Loan
133,441

 
209,592

Rated Secured Structured Notes
5,534

 
38,524

Subordinated Structured Notes
—

 
6,887

Subordinated Unsecured Debt
693

 
330

Equity
31,058

 
11,928

Total acquisitions by portfolio composition
$
421,176

 
$
480,894

 


 
 
Investments sold
$
16,000

 
$
—

Partial repayments (2)
178,459

 
94,781

Full repayments
477,824

 
104,440

Revolver paydowns
4,693

 
16,855

Total dispositions
$
676,976

 
$
216,076

 


 
 
Dispositions by portfolio composition
 
 
 
1st Lien Term Loan
$
470,666

 
$
101,340

2nd Lien Term Loan
149,087

 
99,764

Rated Secured Structured Notes
50,237

 
—

Small Business Whole Loan Portfolio
—

 
30

Subordinated Structured Notes
2,420

 
—

Subordinated Unsecured Debt
289

 
—

Equity
4,277

 
14,942

Total dispositions by portfolio composition
$
676,976

 
$
216,076

 


 
 
Weighted average interest rates for new investments by portfolio composition (3)
 
 
 
1st Lien Term Loan
8.88
%
 
10.81
%
2nd Lien Term Loan
10.30
%
 
10.77
%
Rated Secured Structured Notes
N/A

 
12.31
%
(1) Includes follow-on investments in existing portfolio companies and refinancings, if any.
(2) Includes partial prepayments of principal, scheduled amortization payments, return of capital, and refinancings, if any.
(3) Weighted average interest rates for new investments by portfolio composition is calculated with the current rate at the end of the period.


114

Investment Valuation
Investments for which market quotations are readily available are typically valued at such market quotations. In order to validate market quotations, management and the independent valuation firm look at a number of factors to determine if the quotations are representative of fair value, including the source and nature of the quotations. In determining the range of values for debt instruments where market quotations are not available, except CLOs and debt investments in controlling portfolio companies, management and the independent valuation firm estimated corporate and security credit ratings and identified corresponding yields to maturity for each loan from relevant market data. A discounted cash flow technique was then applied using the appropriate yield to maturity as the discount rate, to determine a range of values. In determining the range of values for debt investments of controlled companies and equity investments, the enterprise value was determined by applying a market approach such as using earnings before income interest, tax, depreciation and amortization (“EBITDA”) multiples, net income and/or book value multiples for similar guideline public companies and/or similar recent investment transactions and/or an income approach, such as the discounted cash flow technique. The enterprise value technique may also be used to value debt investments which are credit impaired. For stressed debt and equity investments, an asset recovery analysis was used.
In determining the range of values for our investments in CLOs, the independent valuation firm uses a discounted multi-path 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 as well as to determine an appropriate call date (i.e., expected maturity). These risk factors are sensitized in the multi-path cash flow model using Monte Carlo simulations, which are simulations used to model the probability of different outcomes, to generate probability-weighted (i.e., multi-path) cash flows for the underlying assets and liabilities. These cash flows are discounted using appropriate market discount rates, and relevant data in the CLO market and certain benchmark credit indices are considered, to determine the value of each CLO investment. In addition, we generate a single-path cash flow utilizing our best estimate of expected cash receipts, and assess the reasonableness of the implied discount rate that would be effective for the value derived from the corresponding multi-path cash flow model.
With respect to our online consumer and SME lending initiative, we invest primarily in marketplace loans through marketplace lending platforms.  We do not conduct loan origination activities ourselves. Therefore, our ability to purchase consumer and SME loans, and our ability to grow our portfolio of consumer and SME loans, are directly influenced by the business performance and competitiveness of the marketplace loan origination business of the marketplace lending platforms from which we purchase consumer and SME loans. In addition, our ability to analyze the risk-return profile of consumer and SME loans is significantly dependent on the marketplace platforms’ ability to effectively evaluate a borrower's credit profile and likelihood of default. If we are unable to effectively evaluate borrowers’ credit profiles or the credit decisioning and scoring models implemented by each platform, we may incur unanticipated losses which could adversely impact our operating results.
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 various valuation techniques, applied to each investment, was a total valuation of $5,268,545.
Our portfolio companies are generally lower middle market companies, outside of the financial sector, with less than $100,000 of annual EBITDA. We believe our investment portfolio 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. Equity positions in our portfolio are susceptible to potentially significant changes in value, both increases as well as decreases, due to changes in operating results and market multiples. Several of our controlled companies discussed below experienced such changes and we recorded corresponding fluctuations in valuations during the six months ended December 31, 2019.
CP Energy Services Inc.
Prospect owns 100% of the equity of CP Holdings, a Consolidated Holding Company. CP Holdings owns 99.8% of the equity of CP Energy, and the remaining equity is owned by CP Energy management. CP Energy provides oilfield flowback services and fluid hauling and disposal services through its subsidiaries.
On April 6, 2018, Arctic Oilfield Equipment USA, Inc. (“Arctic Equipment”), a previously controlled portfolio company, merged with and into CP Energy, with CP Energy continuing as the surviving corporation. In June 2019, CP Energy purchased approximately 64.1% of the common equity of Spartan Holdings, which owns 100% of Spartan, a portfolio company of Prospect with $34,399 in senior secured term loans due to us as of June 30, 2019. As a result of CP Energy’s purchase, and given Prospect’s controlling

115

interest in CP Energy, our Spartan Term Loans are presented as control investments under CP Energy beginning June 30, 2019. Spartan remains the direct borrower and guarantor to Prospect for the Spartan Term Loans. On December 30, 2019, Wolf Energy LLC, Wolf Energy Services LLC, and AEH LLC (collectively referred to as “Wolf Energy”), a previously controlled portfolio company, merged with and into CP Energy, with CP Energy continuing as the surviving corporation. See Note 14 in our Consolidated Financial Statements for further discussion.
The fair value of our investment in CP Energy decreased to $101,721 as of December 31, 2019, which is a discount of $119,310 from its amortized cost, compared to a fair value of $138,931 as of June 30, 2019, representing a discount of $74,944 to its amortized cost. The increase in discount to amortized cost resulted from a decline in financial performance.
First Tower Finance Company LLC
Prospect owns 100% of the equity of First Tower Delaware, a consolidated holding company. First Tower Delaware owns 80.1% of First Tower Finance. First Tower Finance owns 100% of First Tower, LLC (“First Tower”), a multiline specialty finance company.
The fair value of our investment in First Tower increased to $502,785 as of December 31, 2019, representing a premium of $143,652 to its amortized cost basis compared to a fair value of $494,036 as of June 30, 2019, representing a premium of $135,479 to its amortized cost. The increase in premium to amortized cost was driven by strong financial performance due to growth in receivables and positive impact of the acquisition completed in the quarter ending March 31, 2018.
InterDent, Inc.
Following assumption of control, Prospect exercised its rights and remedies under its loan documents to exercise the shareholder voting rights in respect of the stock of InterDent, Inc. (“InterDent”) and to appoint a new Board of Directors of InterDent, all the members of which are our Investment Adviser’s professionals. As a result, as of June 30, 2018, Prospect’s investment in InterDent is classified as a control investment.
The fair value of our investment in InterDent decreased to $196,971 as of December 31, 2019, representing a discount of $57,979 to its amortized cost basis, compared to a fair value of $224,876 as of June 30, 2019, representing a discount of $23,997 to its amortized cost basis. The increase in discount to amortized cost was driven by investments in operating initiatives as well as cost inflation.
MITY, Inc.
Prospect owns 100% of the equity of MITY Delaware, a consolidated holding company. MITY Delaware holds 95.58% of the equity of MITY. Effective March 13, 2019, MITY Delaware’s equity ownership of MITY increased to 100%. MITY owns 100% of each of MITY-Lite, Inc. (“Mity-Lite”); Broda Enterprises USA, Inc.; and Broda Enterprises ULC (“Broda Canada”).
The fair value of our investment in Mity increased to $56,186 as of December 31, 2019, a discount of $14,926 to its amortized cost basis compared to a fair value of $46,902 as of June 30, 2019, a discount of $22,698 to its amortized cost. The decrease to the discount was driven by stronger financial performance.
National Property REIT Corp.
NPRC is a Maryland corporation and a qualified REIT for federal income tax purposes. NPRC is held for purposes of investing, operating, financing, leasing, managing and selling a portfolio of real estate assets and engages in any and all other activities that may be necessary, incidental, or convenient to perform the foregoing. NPRC acquires real estate assets, including, but not limited to, industrial, commercial, and multi-family properties. NPRC may acquire real estate assets directly or through joint ventures by making a majority equity investment in a property-owning entity. Additionally, through its wholly owned subsidiaries, NPRC invests in online consumer loans. Effective May 23, 2016, APRC and UPRC merged with and into NPRC, to consolidate all of our real estate holdings, with NPRC as the surviving entity. As of December 31, 2019, we own 100% of the fully-diluted common equity of NPRC.
During the six months ended December 31, 2019, we received partial repayments of $93,000 of our loans previously outstanding with NPRC.
The online consumer loan investments held by certain of NPRC’s wholly owned subsidiaries are unsecured obligations of individual borrowers that are issued in amounts ranging from $1 to $50, with fixed terms ranging from 24 to 84 months. As of December 31, 2019, the outstanding investment in online consumer loans by certain of NPRC’s wholly owned subsidiaries was comprised of 16,769 individual loans and residual interest in four securitizations, and had an aggregate fair value of $75,560. The average outstanding individual loan balance is approximately $3 and the loans mature on dates ranging from January 1, 2020 to April 19,

116

2025 with a weighted-average outstanding term of 20 months as of December 31, 2019. Fixed interest rates range from 4.0% to 36.0% with a weighted-average current interest rate of 22.8%. As of December 31, 2019, our investment in NPRC and its wholly-owned subsidiaries relating to online consumer lending had a fair value of $80,291.
As of December 31, 2019, based on outstanding principal balance, 10.3% of the portfolio was invested in super prime loans (borrowers with a Fair Isaac Corporation (“FICO”) score, of 720 or greater), 27.0% of the portfolio in prime loans (borrowers with a FICO score of 660 to 719) and 62.7% of the portfolio in near prime loans (borrowers with a FICO score of 580 to 659, a portion of which are considered sub-prime).
Loan Type
 
Outstanding Principal Balance
 
Fair Value
 
Interest Rate Range
 
Weighted Average Interest Rate*
Super Prime
 
$
5,843

 
$
4,976

 
4.0% - 24.1%
 
12.5%
Prime
 
15,374

 
12,085

 
6.0% - 36.0%
 
17.6%
Near Prime
 
35,739

 
36,539

 
6.0% - 36.0%
 
26.6%
*Weighted by outstanding principal balance of the online consumer loans.

The rated secured structured note investments held by certain of NPRC’s wholly owned subsidiaries are subordinated debt interests in broadly syndicated loans managed by established collateral management teams with many years of experience in the industry. As of December 31, 2019, the outstanding investment in rated secured structured notes by certain of NPRC’s wholly owned subsidiaries was comprised of 24 investments with a fair value of $129,053 and face value of $136,849. The average outstanding note is approximately $5,702 with a stated maturity date ranging from April 2027 to October 2032 and weighted-average stated maturity of 11.3 years as of December 31, 2019. Coupons range from three-month Libor (“3ML”) plus 5.45% to 9.45% with a weighted-average coupon of 3ML + 7.38%. As of December 31, 2019, our investment in NPRC and its wholly-owned subsidiaries relating to rated secured structured notes had a fair value of $62,298.
As of December 31, 2019, based on outstanding notional balance, 38.7% of the portfolio was invested in Single - B rated tranches and 61.3% of the portfolio in BB rated tranches.
As of December 31, 2019, our investment in NPRC and its wholly owned subsidiaries had an amortized cost of $740,674 and a fair value of $1,026,888, including our investment in online consumer lending and rated secured structured notes as discussed above. As of December 31, 2019, our investment in NPRC and its wholly owned subsidiaries relating to the real estate portfolio had a fair value of $884,299. This portfolio was comprised of thirty-nine multi-families properties, twelve self-storage properties, eight student housing properties and three 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 NPRC as of December 31, 2019.
No.
 
Property Name
 
City
 
Acquisition Date
 
Purchase Price
 
Mortgage Outstanding
1
 
Filet of Chicken
 
Forest Park, GA
 
10/24/2012
 
$
7,400

 
$
—

2
 
Arlington Park Marietta, LLC
 
Marietta, GA
 
5/8/2013
 
14,850

 
—

3
 
Cordova Regency, LLC
 
Pensacola, FL
 
11/15/2013
 
13,750

 
11,201

4
 
Crestview at Oakleigh, LLC
 
Pensacola, FL
 
11/15/2013
 
17,500

 
13,633

5
 
Inverness Lakes, LLC
 
Mobile, AL
 
11/15/2013
 
29,600

 
24,322

6
 
Kings Mill Pensacola, LLC
 
Pensacola, FL
 
11/15/2013
 
20,750

 
17,281

7
 
Plantations at Pine Lake, LLC
 
Tallahassee, FL
 
11/15/2013
 
18,000

 
13,876

8
 
Verandas at Rocky Ridge, LLC
 
Birmingham, AL
 
11/15/2013
 
15,600

 
10,048

9
 
Crestview at Cordova, LLC
 
Pensacola, FL
 
1/17/2014
 
8,500

 
7,509

10
 
Taco Bell, OK
 
Yukon, OK
 
6/4/2014
 
1,719

 
—

11
 
Taco Bell, MO
 
Marshall, MO
 
6/4/2014
 
1,405

 
—

12
 
23 Mile Road Self Storage, LLC
 
Chesterfield, MI
 
8/19/2014
 
5,804

 
4,333

13
 
36th Street Self Storage, LLC
 
Wyoming, MI
 
8/19/2014
 
4,800

 
3,586

14
 
Ball Avenue Self Storage, LLC
 
Grand Rapids, MI
 
8/19/2014
 
7,281

 
5,439

15
 
Ford Road Self Storage, LLC
 
Westland, MI
 
8/29/2014
 
4,642

 
3,467

16
 
Ann Arbor Kalamazoo Self Storage, LLC
 
Ann Arbor, MI
 
8/29/2014
 
4,458

 
3,332

17
 
Ann Arbor Kalamazoo Self Storage, LLC
 
Ann Arbor, MI
 
8/29/2014
 
8,927

 
6,669

18
 
Ann Arbor Kalamazoo Self Storage, LLC
 
Kalamazoo, MI
 
8/29/2014
 
2,363

 
1,768

19
 
Canterbury Green Apartments Holdings LLC
 
Fort Wayne, IN
 
9/29/2014
 
85,500

 
86,131


117

No.
 
Property Name
 
City
 
Acquisition Date
 
Purchase Price
 
Mortgage Outstanding
20
 
Abbie Lakes OH Partners, LLC
 
Canal Winchester, OH
 
9/30/2014
 
12,600

 
15,704

21
 
Kengary Way OH Partners, LLC
 
Reynoldsburg, OH
 
9/30/2014
 
11,500

 
15,872

22
 
Lakeview Trail OH Partners, LLC
 
Canal Winchester, OH
 
9/30/2014
 
26,500

 
30,284

23
 
Lakepoint OH Partners, LLC
 
Pickerington, OH
 
9/30/2014
 
11,000

 
17,230

24
 
Sunbury OH Partners, LLC
 
Columbus, OH
 
9/30/2014
 
13,000

 
17,467

25
 
Heatherbridge OH Partners, LLC
 
Blacklick, OH
 
9/30/2014
 
18,416

 
25,009

26
 
Jefferson Chase OH Partners, LLC
 
Blacklick, OH
 
9/30/2014
 
13,551

 
19,424

27
 
Goldenstrand OH Partners, LLC
 
Hilliard, OH
 
10/29/2014
 
7,810

 
11,853

28
 
Jolly Road Self Storage, LLC
 
Okemos, MI
 
1/16/2015
 
7,492

 
5,620

29
 
Eaton Rapids Road Self Storage, LLC
 
Lansing West, MI
 
1/16/2015
 
1,741

 
1,305

30
 
Haggerty Road Self Storage, LLC
 
Novi, MI
 
1/16/2015
 
6,700

 
5,025

31
 
Waldon Road Self Storage, LLC
 
Lake Orion, MI
 
1/16/2015
 
6,965

 
5,225

32
 
Tyler Road Self Storage, LLC
 
Ypsilanti, MI
 
1/16/2015
 
3,507

 
2,630

33
 
SSIL I, LLC
 
Aurora, IL
 
11/5/2015
 
34,500

 
26,450

34
 
Vesper Tuscaloosa, LLC
 
Tuscaloosa, AL
 
9/28/2016
 
54,500

 
43,087

35
 
Vesper Iowa City, LLC
 
Iowa City, IA
 
9/28/2016
 
32,750

 
24,825

36
 
Vesper Corpus Christi, LLC
 
Corpus Christi, TX
 
9/28/2016
 
14,250

 
10,800

37
 
Vesper Campus Quarters, LLC
 
Corpus Christi, TX
 
9/28/2016
 
18,350

 
14,175

38
 
Vesper College Station, LLC
 
College Station, TX
 
9/28/2016
 
41,500

 
32,058

39
 
Vesper Kennesaw, LLC
 
Kennesaw, GA
 
9/28/2016
 
57,900

 
48,600

40
 
Vesper Statesboro, LLC
 
Statesboro, GA
 
9/28/2016
 
7,500

 
7,480

41
 
Vesper Manhattan KS, LLC
 
Manhattan, KS
 
9/28/2016
 
23,250

 
15,459

42
 
JSIP Union Place, LLC
 
Franklin, MA
 
12/7/2016
 
64,750

 
51,800

43
 
9220 Old Lantern Way, LLC
 
Laurel, MD
 
1/30/2017
 
187,250

 
153,580

44
 
7915 Baymeadows Circle Owner, LLC
 
Jacksonville, FL
 
10/31/2017
 
95,700

 
76,560

45
 
8025 Baymeadows Circle Owner, LLC
 
Jacksonville, FL
 
10/31/2017
 
15,300

 
12,240

46
 
23275 Riverside Drive Owner, LLC
 
Southfield, MI
 
11/8/2017
 
52,000

 
44,044

47
 
23741 Pond Road Owner, LLC
 
Southfield, MI
 
11/8/2017
 
16,500

 
14,185

48
 
150 Steeplechase Way Owner, LLC
 
Largo, MD
 
1/10/2018
 
44,500

 
36,668

49
 
Laurel Pointe Holdings, LLC
 
Forest Park, GA
 
5/9/2018
 
33,005

 
26,400

50
 
Bradford Ridge Holdings, LLC
 
Forest Park, GA
 
5/9/2018
 
12,500

 
10,000

51
 
Olentangy Commons Owner LLC
 
Columbus, OH
 
6/1/2018
 
113,000

 
92,876

52
 
Villages of Wildwood Holdings LLC
 
Fairfield, OH
 
7/20/2018
 
46,500

 
39,525

53
 
Falling Creek Holdings LLC
 
Richmond, VA
 
8/8/2018
 
25,000

 
19,335

54
 
Crown Pointe Passthrough LLC
 
Danbury, CT
 
8/30/2018
 
108,500

 
89,400

55
 
Ashwood Ridge Holdings LLC
 
Jonesboro, GA
 
9/21/2018
 
9,600

 
7,300

56
 
Lorring Owner LLC
 
Forestville, MD
 
10/30/2018
 
58,521

 
47,680

57
 
Hamptons Apartments Owner, LLC
 
Beachwood, OH
 
1/9/2019
 
96,500

 
79,520

58
 
5224 Long Road Holdings, LLC
 
Orlando, FL
 
6/28/2019
 
26,500

 
21,200

59
 
Druid Hills Holdings LLC
 
Atlanta, GA
 
7/30/2019
 
96,000

 
79,104

60
 
Bel Canto NPRC Parcstone LLC
 
Fayetteville, NC
 
10/15/2019
 
45,000

 
30,127

61
 
Bel Canto NPRC Stone Ridge LLC
 
Fayetteville, NC
 
10/15/2019
 
21,900

 
14,662

62
 
Sterling Place Holdings LLC
 
Columbus, OH
 
10/28/2019
 
41,500

 
34,196

 
 
 
 
 
 
 
 
$
1,908,157

 
$
1,588,579

During the six months ended December 31, 2019, the valuation methodology for National Property REIT Corporation (“NPRC”) and its wholly owned subsidiaries relating to the real estate portfolio changed to remove the Discounted Cash Flow Method. Management utilizes the Enterprise Value Waterfall (NAV Analysis) to value its investment in NPRC and its wholly owned subsidiaries relating to the real estate portfolio as this method is aligned with current industry practice and with Management’s experience in buying and selling income producing real estate assets. The fair value of our investment in NPRC and its wholly owned subsidiaries relating to the real estate portfolio increased by $56,612, to $884,299, during the six months ended December 31, 2019, attributable to both an improvement in property operations and values, and the change in methodology.


118

The fair value of our investment in NPRC increased to $1,026,888 as of December 31, 2019, representing a premium of $286,214 to its amortized cost basis, compared to a fair value of $1,004,465 as of June 30, 2019, representing a premium of $235,076. The increase in premium to amortized cost is primarily due to the increase in property values and change in methodology discussed above.
NMMB, Inc.
Prospect owns 100% of the equity of NMMB Holdings, a consolidated holding company. NMMB Holdings owns 92.40% and 94.10% of the fully-diluted equity of NMMB as of December 31, 2019 and June 30, 2019, respectively, with NMMB management owning the remaining equity. NMMB owns 100% of Refuel Agency, Inc. (“Refuel Agency”). Refuel Agency owns 100% of Armed Forces Communications, Inc. NMMB is an advertising media buying business.
The fair value of our investment in NMMB increased to $37,918 as of December 31, 2019, representing a premium of $9,949 to its amortized cost basis, compared to a fair value of $24,183 as of June 30, 2019, representing a premium of $8,200 to its amortized cost basis. The increase to the premium was driven by improved financial performance, including revenue growth and higher gross profit and operating margins.

Pacific World Corporation
On May 29, 2018, Prospect exercised its rights and remedies under its loan documents to exercise the shareholder voting rights in respect of the stock of Pacific World Corporation (“Pacific World”) and to appoint a new Board of Directors of Pacific World. As a result, as of June 30, 2018, Prospect’s investment in Pacific World is classified as a control investment. Pacific World supplies nail and beauty care products to food, drug, mass, and value retail channels worldwide.
The fair value of our investment in Pacific World decreased to $62,610 as of December 31, 2019, representing a discount of $184,815 to its amortized cost basis, compared to a fair value of $112,427 as of June 30, 2019, representing a discount of $125,542 to its amortized cost basis. The increase in discount to amortized cost resulted from a deterioration in financial performance.
Valley Electric Company, Inc.

Prospect owns 100% of the common stock of Valley Holdings I, a Consolidated Holding Company. Valley Holdings I owns 100% of Valley Holdings II, a Consolidated Holding Company. Valley Holdings II owns 94.99% of 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 electrical contractors in the United States.

The fair value of our investment in Valley Electric decreased to $122,500 as of December 31, 2019, a premium of $55,894 from its amortized cost, compared to a fair value of $143,685 as of June 30, 2019, representing a $73,750 premium to its amortized cost. While Valley Electric’s financial performance remains strong, the decrease in premium to amortized cost was driven by adverse market conditions.
Our controlled investments, other than those discussed above, are valued at $103,444 below cost and did not experience significant changes in operating performance or value during the six months ended December 31, 2019. This discount is primarily driven by our controlled investments in Freedom Marine, Universal Turbine Parts, and USES, which are valued at a discount to amortized cost of $28,972, $35,264, and $50,118, respectively. Overall, combined with those portfolio companies discussed above, our controlled investments at December 31, 2019 are valued at $15,235 above their amortized cost.
We hold four affiliate investments at December 31, 2019, which are valued at $70,672 below their amortized cost. This discount is primarily driven by our affiliate investment in USC, which is valued at a discount to amortized cost of $100,672. In June, 2019, USC filed for Chapter 11 bankruptcy and began liquidating its remaining assets. During the six months ended December 31, 2019, USC used a portion of the proceeds from the ongoing liquidation to partially repay $20,061 of our Second Lien Term Loan. Excluding USC, our affiliate investments are valued at $30,000 above their amortized cost as of December 31, 2019.

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 premium that could be imposed. As of December 31, 2019, our CLO investment portfolio is valued at a $302,210 discount to amortized cost. Excluding the CLO investment portfolio, non-control/non-affiliate investments at December 31, 2019 are valued at $47,452 below their amortized cost and did not experience significant changes in operating performance or value.

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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 December 31, 2019 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 April 2014, April 2017 (with a follow-on issuance in May 2018), and March 2019; Public Notes which we issued in March 2013, December 2015 (and from time to time through our 2024 Notes Follow-on Program), June 2018 (and from time to time through our 2028 Notes Follow-on Program), October 2018, and December 2018 (and from time to time through our 2029 Notes Follow-on Program); and Prospect Capital InterNotes® which we issue from time to time. Our equity capital is comprised entirely of common equity.
The following table shows our outstanding debt as of December 31, 2019:
 
Principal Outstanding
 
Unamortized Discount & Debt Issuance Costs
 
Net Carrying Value
 
Fair Value(1)
 
Effective Interest Rate
 
Revolving Credit Facility(2)
$
92,000

 
$
10,232

 
$
92,000

(3
)
$
92,000

 
1ML+2.20%

(6
)
 
 
 
 
 
 
 
 
 
 
 
2020 Notes
175,037

 
583

 
174,454

 
175,914

(4
)
5.79
%
(7
)
2022 Notes
292,127

 
4,975

 
287,152

 
300,353

(4
)
5.68
%
(7
)
2025 Notes
201,250

 
5,752

 
195,498

 
214,818

(4
)
6.63
%
(7
)
Convertible Notes
668,414

 


 
657,104

 
691,085

 
 
 
 
 
 
 
 
 
 
 
 
 
 
6.375% 2024 Notes
100,000

 
893

 
99,107

 
105,648

(4
)
6.64
%
(7
)
2023 Notes
320,000

 
2,854

 
317,146

 
341,997

(4
)
6.09
%
(7
)
2024 Notes
234,443

 
4,370

 
230,073

 
237,256

(4
)
6.76
%
(7
)
2028 Notes
70,761

 
2,243

 
68,518

 
73,142

(4
)
6.77
%
(7
)
2029 Notes
69,170

 
2,436

 
66,734

 
72,850

(4
)
7.38
%
(7
)
Public Notes
794,374

 


 
781,578

 
830,893

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Prospect Capital InterNotes®
622,409

 
12,457

 
609,952

 
677,900

(5
)
6.19
%
(8
)
Total
$
2,177,197

 


 
$
2,140,634

 
$
2,291,878

 
 
 
(1)
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 fair value of these debt obligations are categorized as Level 2 under ASC 820 as of December 31, 2019.
(2)
The maximum draw amount of the Revolving Credit facility as of December 31, 2019 is $1,077,500.
(3)
Net Carrying Value excludes deferred financing costs associated with the Revolving Credit Facility. See Critical Accounting Policies and Estimates for accounting policy details.
(4)
We use available market quotes to estimate the fair value of the Convertible Notes and Public Notes.
(5)
The fair value of Prospect Capital InterNotes® is estimated by discounting remaining payments using current Treasury rates plus spread based on observable market inputs.
(6)
Represents the rate on drawn down and outstanding balances. Deferred debt issuance costs are amortized on a straight-line method over the stated life of the obligation.
(7)
The effective interest rate is equal to the effect of the stated interest, the accretion of original issue discount and amortization of debt issuance costs. For the 2024 Notes, the 2028 Notes, and the 2029 Notes, the rate presented is a combined effective interest rate of their respective original Note issuances and Note Follow-on Programs.
(8)
For the Prospect Capital InterNotes®, the rate presented is the weighted average effective interest rate. Interest expense and deferred debt issuance costs, which are amortized on a straight-line method over the stated life of the obligation which approximates level yield, are weighted against the average year-to-date principal balance.

120

The following table shows the contractual maturities of our Revolving Credit Facility, Convertible Notes, Public Notes and Prospect Capital InterNotes® as of December 31, 2019:
 
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
668,414

 
175,037

 
292,127

 
—

 
201,250

Public Notes
794,374

 
—

 
—

 
654,443

 
139,931

Prospect Capital InterNotes®
622,409

 
—

 
15,634

 
194,550

 
412,225

Total Contractual Obligations
$
2,177,197

 
$
175,037

 
$
307,761

 
$
940,993

 
$
753,406

The following table shows the contractual maturities of our Revolving Credit Facility, Convertible Notes, Public Notes and Prospect Capital InterNotes® as of June 30, 2019:
 
Payments Due by Period
 
Total
 
Less than 1 Year
 
1 – 3 Years
 
3 – 5 Years
 
After 5 Years
Revolving Credit Facility
$
167,000

 
$
—

 
$
—

 
$
167,000

 
$
—

Convertible Notes
753,864

 
224,114

 
—

 
328,500

 
201,250

Public Notes
794,374

 
—

 
—

 
654,443

 
139,931

Prospect Capital InterNotes®
707,699

 
4,402

 
188,037

 
189,795

 
325,465

Total Contractual Obligations
$
2,422,937

 
$
228,516

 
$
188,037

 
$
1,339,738

 
$
666,646

Historically, we have funded 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 shelf registration statement that allows for the public offering and sale of our Prospect Capital InterNotes®, on a continuous basis, in an amount up to $500,000 less issuances to date. As of December 31, 2019, we can issue up to $417,152 of additional InterNotes® debt securities in the public market under this shelf registration. 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 Convertible Notes, Public Notes and Prospect Capital InterNotes® (collectively, our “Unsecured Notes”) 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 August 29, 2014, we renegotiated our previous credit facility and closed an expanded five and a half year revolving credit facility (the “2014 Facility”). The lenders had extended commitments of $885,000 under the 2014 Facility as of June 30, 2018. The 2014 Facility included an accordion feature which allowed commitments to be increased up to $1,500,000 in the aggregate. Interest on borrowings under the 2014 Facility was one-month LIBOR plus 225 basis points. Additionally, the lenders charged a fee on the unused portion of the 2014 Facility equal to either 50 basis points if at least 35% of the credit facility was drawn or 100 basis points otherwise.
On August 1, 2018, we renegotiated the 2014 Facility and closed an expanded five and a half year revolving credit (the “2018 Facility”). The lenders had extended commitments of $1,132,500 as of June 30, 2019. The 2018 Facility included an accordion feature which allowed commitments to be increased up to $1,500,000 in the aggregate.

On September 9, 2019, we amended the 2018 Facility and closed an expanded revolving credit facility (the “2019 Facility” and collectively with the 2014 Facility and the 2018 Facility, the “Revolving Credit Facility”). The lenders had extended commitments of $1,077,500 as of December 31, 2019. The Revolving Credit Facility includes an accordion feature which allows commitments to be increased up to $1,500,000 in the aggregate. The Revolving Credit Facility Facility matures on September 9, 2024. It includes a revolving period that extends through September 9, 2023, followed by an additional one-year amortization period, with distributions allowed to Prospect after the completion of the revolving period. During such one-year amortization period, all

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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 Revolving Credit 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 Revolving 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 Revolving Credit Facility. The Revolving Credit Facility also requires the maintenance of a minimum liquidity requirement. As of December 31, 2019, we were in compliance with the applicable covenants.
Interest on borrowings under the 2019 Facility is one-month LIBOR plus 220 basis points. Additionally, the lenders charge a fee on the unused portion of the credit facility equal to either 50 basis points if more than 60% of the credit facility is drawn, or 100 basis points if more than 35% and an amount less than or equal to 60% of the credit facility is drawn, or 150 basis points if an amount less than or equal to 35% of the credit facility is drawn. The 2019 Facility requires us to pledge assets as collateral in order to borrow under the credit facility.
For the six months ended December 31, 2019 and December 31, 2018, the average stated interest rate (i.e., rate in effect plus the spread) and average outstanding borrowings for the Revolving Credit Facility were as follows:

Three Months Ended December 31,

Six Months Ended December 31,

2019

2018

2019

2018
Average stated interest rate
4.03
%

4.50
%

4.19
%

4.43
%
Average outstanding balance
$135,359

$308,424

$111,565

$237,283

As of December 31, 2019 and June 30, 2019, we had $607,513 and $684,212, respectively, available to us for borrowing under the Revolving Credit Facility, of which $92,000 and $167,000 was outstanding as of December 31, 2019 and June 30, 2019, respectively. As of December 31, 2019, the investments, including cash and cash equivalents, used as collateral for the Revolving Credit Facility had an aggregate fair value of $1,475,727, which represents 27.3% of our total investments, including cash and cash equivalents. 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. 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 $1,077,500. 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 $10,904 of new fees and $7,787 were carried over for continuing participants from the previous facilities, all of which are being amortized over the term of the facility in accordance with ASC 470-50. As of December 31, 2019, $10,232 remains to be amortized and is reflected as deferred financing costs on the Consolidated Statements of Assets and Liabilities. During the six months ended December 31, 2019, $398 of fees were expensed relating to credit providers in the 2018 Facility who did not commit to the 2019 Facility.
During the three months ended December 31, 2019 and December 31, 2018, we recorded $5,552 and $6,960, respectively, of interest costs, unused fees and amortization of financing costs on the Revolving Credit Facility as interest expense.
Convertible Notes
On April 16, 2012, we issued $130,000 aggregate principal amount of convertible notes that matured on October 15, 2017 (the “2017 Notes”). The 2017 Notes bore 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 March 28, 2016, we repurchased $500 aggregate principal amount of the 2017 Notes at a price of 98.25, including commissions. The transaction resulted in our recognizing a $9 gain for the period ended March 31, 2016. On April 6, 2017, we repurchased $78,766 aggregate principal amount of the 2017 Notes at a price of 102.0, including commissions. The transaction resulted in our recognizing a $1,786 loss during the three months ended June 30, 2017. On October 15, 2017, we repaid the outstanding principal amount of $50,734 of the 2017 Notes, plus interest. No gain or loss was realized on the transaction.

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On August 14, 2012, we issued $200,000 aggregate principal amount of convertible notes that matured on March 15, 2018 (the “2018 Notes”). The 2018 Notes bore 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 April 6, 2017, we repurchased $114,581 aggregate principal amount of the 2018 Notes at a price of 103.5, including commissions. The transaction resulted in our recognizing a $4,700 loss during the three months ended June 30, 2017. On March 15, 2018, we repaid the outstanding principal amount of $85,419 of the 2018 Notes, plus interest. No gain or loss was realized on the transaction.
On December 21, 2012, we issued $200,000 aggregate principal amount of convertible notes that matured on January 15, 2019 (the “2019 Notes”). The 2019 Notes bore 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 May 30, 2018, we repurchased $98,353 aggregate principal amount of the 2019 Notes at a price of 102.0, including commissions. The transaction resulted in our recognizing a $2,383 loss during the three months ended June 30, 2018. On January 15, 2019, we repaid the outstanding principal amount of $101,647 of the 2019 Notes, plus interest. No gain or loss was realized on the transaction.
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. On January 30, 2015, we repurchased $8,000 aggregate principal amount of the 2020 Notes at a price of 93.0, including commissions. As a result of this transaction, we recorded a gain of $332, in the amount of the difference between the reacquisition price and the net carrying amount of the 2020 Notes, net of the proportionate amount of unamortized debt issuance cost. During the three months ended December 31, 2018, we repurchased an additional $13,500 aggregate principal amount of the 2020 Notes at a price of 99.5, including commissions. As a result of this transaction, we recorded a loss of $41, in the amount of the difference between the reacquisition price and the net carrying amount of the 2020 Notes, net of the proportionate amount of unamortized debt issuance costs. During the three months ended March 31, 2019, we repurchased an additional $129,798 aggregate principal amount of the 2020 Notes at a weighted average price of 101.4, including commission. As a result of these transactions, we recorded a net loss of $2,787 during the three months ended March 31, 2019, in the amount of the difference between the reacquisition price and the net carrying amounts of the 2020 Notes, net of the proportionate amount of unamortized debt issuance costs. During the three months ended June 30, 2019, we repurchased an additional $24,588 aggregate principal amount of the 2020 Notes at a weighted average price of $101.10, including commissions. As a result of these transactions, we recorded a net loss of $414 during the three months ended June 30, 2019, in the amount of the difference of the reacquisition price and the net carrying amounts of the 2020 Notes, net of the proportionate amount of unamortized debt issuance costs.
On June 28, 2019, we commenced a tender offer to purchase for cash any and all of the $224,114 then outstanding aggregate principal amount of the 2020 Notes (“June Tender Offer”). On July 27, 2019, $32,948 aggregate principal amount of the 2020 Notes, representing 14.7% of the previously outstanding 2020 Notes, were validly tendered and accepted. On August 12, 2019, we commenced a tender offer to purchase for cash up to $60,000 aggregate principal amount of the 2020 Notes (“August Tender Offer”). On September 10, 2019, $13,597 aggregate principal amount of the 2020 Notes, representing 7.1% of the previously outstanding 2020 Notes, were validly tendered and accepted. The June Tender Offer and August Tender Offer, resulted in our recognizing a loss of $668 during the three month ended September 30, 2019.
On September 24, 2019, we commenced a tender offer to purchase for cash up to $40,000 outstanding aggregate principal amount of the 2020 Notes (“2020 Notes September Tender Offer”). On October 23, 2019, $2,140 aggregate principal amount of the 2020 Notes, representing 1.2% of the previously outstanding 2020 Notes, were validly tendered and accepted. On November 7, 2019, we commenced a tender offer to purchase for cash up to $10,000 aggregate principal amount of the 2020 Notes (“2020 Notes November Tender Offer”). On December 7, 2019, $392 aggregate principal amount of the 2020 Notes, representing 0.2% of the previously outstanding 2020 Notes, were validly tendered and accepted. The 2020 Notes September Tender Offer and 2020 Notes November Tender Offer resulted in our recognizing a loss of $31 during the three months ended December 31, 2019.
On December 23, 2019, we commenced a tender offer to purchase for cash up to $10,000 aggregate principal amount of the 2020 Notes (“2020 Notes December Tender Offer”). The 2020 Notes December Tender Offer expired at 12:00 midnight, New York City time, on January 23, 2020 (one minute after 11:59 p.m., New York City time, on January 22, 2020) (Note 18). As of December 31, 2019, the outstanding aggregate principal amount of the 2020 Notes is $175,037.
On April 11, 2017, we issued $225,000 aggregate principal amount of convertible notes that mature on July 15, 2022 (the “Original 2022 Notes”), unless previously converted or repurchased in accordance with their terms. The Original 2022 Notes bear interest at a rate of 4.95% per year, payable semi-annually on January 15 and July 15 each year, beginning July 15, 2017. Total proceeds from the issuance of the Original 2022 Notes, net of underwriting discounts and offering costs, were $218,010. On May 18, 2018,

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we issued an additional $103,500 aggregate principal amount of convertible notes that mature on July 15, 2022 (the “Additional 2022 Notes,” and together with the Original 2022 Notes, the “2022 Notes”), unless previously converted or repurchased in accordance with their terms. The Additional 2022 Notes were a further issuance of, and are fully fungible and rank equally in right of payment with, the Original 2022 Notes and bear interest at a rate of 4.95% per year, payable semi-annually on January 15 and July 15 each year, beginning July 15, 2018. Total proceeds from the issuance of the Additional 2022 Notes, net of underwriting discounts and offering costs, were $100,749.
On October 18, 2019, we repurchased $22,941 aggregate principal amount of the 2022 Notes at a price of 102.8 including commissions. As a result of this transaction, we recorded a loss of $1,072 in the amount of the difference between the reacquisition price and the net carrying amount of the 2022 Notes, net of the proportionate amount of unamortized debt issuance costs. On November 7, 2019, we commenced a tender offer to purchase for cash up to $50,000 aggregate principal amount of the 2022 Notes (“2022 Notes November Tender Offer”). On December 7, 2019, $13,432 aggregate principal amount of the 2022 Notes, representing 4.4% of the previously outstanding 2022 Notes, were validly tendered and accepted. The 2022 Notes November Tender Offer resulted in our recognizing a loss of $599, in the amount of the difference between the reacquisition price and the net carrying amount of the 2022 Notes, net of the proportionate amount of unamortized debt issuance costs.
On December 23, 2019, we commenced a tender offer to purchase for cash up to $25,000 aggregate principal amount of the 2022 Notes (“2022 Notes December Tender Offer”). The 2022 Notes December Tender Offer expired at 12:00 midnight, New York City time, on January 23, 2020 (one minute after 11:59 p.m., New York City time, on January 22, 2020) (Note 18). As of December 31, 2019, the outstanding aggregate principal amount of the 2022 Notes is $292,127.
On March 1, 2019, we issued $175,000 aggregate principal amount of senior convertible notes that mature on March 1, 2025 (the “2025 Notes”), unless previously converted or repurchased in accordance with their terms. We granted the underwriters a 13-day over-allotment option to purchase up to an additional $26,250 aggregate principal amount of the 2025 Notes. The underwriters fully exercised the over-allotment option on March 11, 20l9 and we issued $26,250 aggregate principal amount of 2025 Notes at settlement on March 13, 2019. The 2025 Notes bear interest at a rate of 6.375% per year, payable semi-annually on March 1 and September 1 each year, beginning September 1, 2019. Total proceeds from the issuance of the 2025 Notes, net of underwriting discounts and offering costs, were $198,674. As of December 31, 2019, the outstanding aggregate principal amount of the 2025 Notes is $201,250.
Certain key terms related to the convertible features for the 2020 Notes, the 2022 Notes, and the 2025 Notes (collectively, the “Convertible Notes”) are listed below:
 
 
2020 Notes

 
2022 Notes

 
2025 Notes

Initial conversion rate(1)
 
80.6647

 
100.2305

 
110.7420

Initial conversion price
 
$
12.40

 
$
9.98

 
$
9.03

Conversion rate at December 31, 2019(1)(2)
 
80.6670

 
100.2305

 
110.7420

Conversion price at December 31, 2019(2)(3)
 
$
12.40

 
$
9.98

 
$
9.03

Last conversion price calculation date
 
4/11/2019

 
4/11/2019

 
3/1/2019

Dividend threshold amount (per share)(4)
 
$
0.110525

 
$
0.083330

 
$
0.060000

(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 will increase only if the current monthly dividends (per share) exceed the dividend threshold amount (per share).
(4)
The conversion rate is increased if monthly cash dividends paid to common shares exceed the monthly dividend threshold amount, subject to adjustment. Current dividend rates are at or below the minimum dividend threshold amount for further conversion rate adjustments for all bonds.
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

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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 recorded a discount of $4,025 and debt issuance costs of $21,655 which are being amortized over the terms of the Convertible Notes. As of December 31, 2019, $3,557 of the original issue discount and $7,753 of the debt issuance costs remain to be amortized and are included as a reduction within Convertible Notes on the Consolidated Statement of Assets and Liabilities.
During the three months ended December 31, 2019 and December 31, 2018, we recorded $9,706 and $11,457, respectively, of interest costs and amortization of financing costs on the Convertible Notes as interest expense. During the six months ended December 31, 2019 and December 31, 2018, we recorded $20,361 and $22,892, respectively, of interest costs and amortization of financing costs on the Convertible Notes as interest expense.

Public Notes
On March 15, 2013, we issued $250,000 aggregate principal amount of unsecured notes that mature on March 15, 2023 (the “Original 2023 Notes”). The Original 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 Original 2023 Notes, net of underwriting discounts and offering costs, were $243,641. On June 20, 2018, we issued an additional $70,000 aggregate principal amount of unsecured notes that mature on March 15, 2023 (the “Additional 2023 Notes,” and together with the Original 2023 Notes, the “2023 Notes”). The Additional 2023 Notes were a further issuance of, and are fully fungible and rank equally in right of payment with, the Original 2023 Notes and 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, 2018. Total proceeds from the issuance of the Additional 2023 Notes, net of underwriting discounts, were $69,403. As of December 31, 2019, the outstanding aggregate principal amount of the 2023 Notes is $320,000.

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 $295,998. On June 7, 2018, we commenced a tender offer to purchase for cash any and all of the $300,000 aggregate principal amount outstanding of the 5.00% 2019 Notes. On June 20, 2018, $146,464 aggregate principal amount of the 5.00% 2019 Notes, representing 48.8% of the previously outstanding 5.00% 2019 Notes, were validly tendered and accepted. The transaction resulted in our recognizing a loss of $3,705 during the three months ended June 30, 2018. On September 26, 2018, we repurchased the remaining $153,536 aggregate principal amount of the 5.00% 2019 Notes at a price of 101.645, including commissions. The transaction resulted in our recognizing a loss of $2,874 during the three months ended September 30, 2018.
On December 10, 2015, we issued $160,000 aggregate principal amount of unsecured notes that mature on June 15, 2024 (the “2024 Notes”). The 2024 Notes bear interest at a rate of 6.25% per year, payable quarterly on March 15, June 15, September 15 and December 15 of each year, beginning March 15, 2016. Total proceeds from the issuance of the 2024 Notes, net of underwriting discounts and offering costs, were $155,043. On June 16, 2016, we entered into an at-the-market (“ATM”) program with FBR Capital Markets & Co. through which we could sell, by means of ATM offerings, from time to time, up to $100,000 in aggregate principal amount of our existing 2024 Notes (“Initial 2024 Notes ATM”). Following the initial 2024 Notes ATM, the aggregate principal amount of the 2024 Notes issued was $199,281 for net proceeds of $193,253, after commissions and offering costs. On July 2, 2018, we entered into a second ATM program with B. Riley FBR, Inc. and BB&T Capital Markets, and on August 31, 2018 with Comerica Securities, Inc., through which we could sell, by means of ATM offerings, up to $100,000 in aggregate principal amount of the 2024 Notes (“Second 2024 Notes ATM,” and together with the Initial 2024 Notes ATM, the “2024 Notes Follow-on Program”). The 2024 Notes are listed on the New York Stock Exchange (“NYSE”) and trade thereon under the ticker “PBB”. During the year ended June 30, 2019, we issued an additional $35,162 aggregate principal amount under the Second 2024 Notes ATM, for net proceeds of $34,855, after commissions and offering costs. As of December 31, 2019, the outstanding aggregate principal amount of the 2024 Notes is $234,443.

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On June 7, 2018, we issued $55,000 aggregate principal amount of unsecured notes that mature on June 15, 2028 (the “2028 Notes”). The 2028 Notes bear interest at a rate of 6.25% per year, payable quarterly on March 15, June 15, September 15, and December 15 of each year, beginning September 15, 2018. Total proceeds from the issuance of the 2028 Notes, net of underwriting discounts and offering costs were $53,119. On July 2, 2018, we entered into an ATM program with B. Riley FBR, Inc. and BB&T Capital Markets, and on August 31, 2018 with Comerica Securities, Inc., through which we could sell, by means of ATM offerings, up to $100,000 in aggregate principal amount of our existing 2028 Notes (“2028 Notes ATM” or “2028 Notes Follow-on Program”). The 2028 Notes are listed on the NYSE and trade thereon under the ticker “PBY”. During the year ended June 30, 2019, we issued an additional $15,761 aggregate principal amount under the 2028 Notes ATM, for net proceeds of $15,530, after commissions and offering costs. As of December 31, 2019, the outstanding aggregate principal amount of the 2028 Notes is $70,761.
On October 1, 2018, we issued $100,000 aggregate principal amount of unsecured notes that mature on January 15, 2024 (the “6.375% 2024 Notes”). The 6.375% 2024 Notes bear interest at a rate of 6.375% per year, payable semi-annually on January 15 and July 15 of each year, beginning January 15, 2019. Total proceeds from the issuance of the 6.375% 2024 Notes, net of underwriting discounts and offering costs, were $98,985. As of December 31, 2019, the outstanding aggregate principal amount of the 6.375% 2024 Notes is $100,000.
On December 5, 2018, we issued $50,000 aggregate principal amount of unsecured notes that mature on June 15, 2029 (the “2029 Notes”). The 2029 Notes bear interest at a rate of 6.875% per year, payable quarterly on March 15, June 15, September 15, and December 15 of each year, beginning March 15, 2019. Total proceeds from the issuance of the 2029 Notes, net of underwriting discounts and offering costs, were $48,057. On February 9, 2019, we entered into an ATM program with B. Riley FBR, Inc., BB&T Capital Markets, and Comerica Securities, Inc., through which we could sell, by means of ATM offerings, up to $100,000 in aggregate principal amount of our existing 2029 Notes (“2029 Notes ATM” or “2029 Notes Follow-on Program”). The 2029 Notes are listed on the NYSE and trade thereon under the ticker “PBC”. During the year ended June 30, 2019, we issued an additional $19,170 aggregate principal amount under the 2029 Notes ATM, for net proceeds of $18,523, after commissions and offering costs. As of December 31, 2019, the outstanding aggregate principal amount of the 2029 Notes is $69,170.

The 2023 Notes, the 2024 Notes, the 2028 Notes, the 6.375% 2024 Notes, and the 2029 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 recorded a discount of $4,112 and debt issuance costs of $16,226, which are being amortized over the terms of the notes. As of December 31, 2019, $2,287 of the original issue discount and $10,509 of the debt issuance costs remain to be amortized and are included as a reduction within Public Notes on the Consolidated Statement of Assets and Liabilities.
During the three months ended December 31, 2019 and December 31, 2018, we recorded $12,829 and $11,467, respectively, of interest costs and amortization of financing costs on the Public Notes as interest expense. During the six months ended December 31, 2019 and December 31, 2018, we recorded $25,647 and $22,830, 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 “Original 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®, which was increased to $1,500,000 in May 2014. We sold approximately $1,454,466 in aggregate principal amount of Prospect Capital InterNotes® under the Original Selling Agent Agreement. On May 10, 2019, the Original Selling Agent Agreement was terminated, and we entered into a new selling agent agreement with Incapital LLC (the “May 2019 Selling Agent Agreement”), authorizing the issuance and sale from time to time of up to $1,000,000 of Prospect Capital InterNotes® (the “InterNotes® Offering”).
On September 16, 2019, the May 2019 Selling Agent Agreement was terminated, and we entered into a new selling agent agreement with Incapital LLC (the “Selling Agent Agreement”), authorizing the issuance and sale from time to time of up to $500,000 of Prospect Capital InterNotes® (the “InterNotes® Offering”). 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. 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.

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During the six months ended December 31, 2019, we issued $158,078 aggregate principal amount of Prospect Capital InterNotes® for net proceeds of $155,409. These notes were issued with stated interest rates ranging from 3.75% to 5.50% with a weighted average interest rate of 4.35%. These notes mature between July 15, 2024 and January 15, 2030.

The following table summarizes the Prospect Capital InterNotes® issued during the six months ended December 31, 2019:
Tenor at
Origination
(in years)
 
Principal
Amount
 
Interest Rate
Range
 
Weighted
Average
Interest Rate
 
Maturity Date Range
5
 
$
67,426

 
3.75%–5.00%
 
4.19
%
 
July 15, 2024 – January 15, 2025
7
 
35,277

 
4.00%–5.25%
 
4.27
%
 
July 15, 2026 – January 15, 2027
10
 
55,375

 
3.75%–5.50%
 
4.59
%
 
July 15, 2029 – January 15, 2030
 
 
$
158,078

 
 
 
 
 
 
During the six months ended December 31, 2018, we issued $69,586 aggregate principal amount of our Prospect Capital InterNotes® for net proceeds of $68,439. These notes were issued with stated interest rates ranging from 5.00% to 6.25% with a weighted average interest rate of 5.64%. These notes mature between July 15, 2023 and November 15, 2028.

The following table summarizes the Prospect Capital InterNotes® issued during the six months ended December 31, 2018:
Tenor at
Origination
(in years)
 
Principal
Amount
 
Interest Rate
Range
 
Weighted
Average
Interest Rate
 
Maturity Date Range
5
 
$
33,295

 
5.00%-5.75%
 
5.29
%
 
July 15, 2023 – January 15, 2024
7
 
14,718

 
5.50%–6.00%
 
5.84
%
 
July 15, 2025 – January 15, 2026
8
 
385

 
5.75%
 
5.75
%
 
July 15, 2026
10
 
21,188

 
6.00%-6.25%
 
6.06
%
 
July 15, 2028 – November 15, 2028
 
 
$
69,586

 
 
 
 
 
 
During the six months ended December 31, 2019, we redeemed, prior to maturity, $240,188 aggregate principal amount of Prospect Capital InterNotes® at par with a weighted average interest rate of 5.07% in order to replace shorter maturity debt with longer-term debt. During the six months ended December 31, 2019, we repaid $3,180 aggregate principal amount of Prospect Capital InterNotes® at par in accordance with the Survivor’s Option, as defined in the InterNotes® Offering prospectus. As a result of these transactions, we recorded a loss in the amount of the unamortized debt issuance costs. The net loss on the extinguishment of Prospect Capital InterNotes® in the six months ended December 31, 2019 was $2,279.

The following table summarizes the Prospect Capital InterNotes® outstanding as of December 31, 2019:
Tenor at
Origination
(in years)
 
Principal
Amount
 
Interest Rate
Range
 
Weighted
Average
Interest Rate
 
Maturity Date Range
5
 
$
188,296

 
3.75% – 5.75%
 
4.97
%
 
April 15, 2022 – January 15, 2025
7
 
94,811

 
4.00% – 6.00%
 
5.19
%
 
July 15, 2024 – January 15, 2027
8
 
24,475

 
4.50% – 5.75%
 
4.67
%
 
August 15, 2025 – July 15, 2026
10
 
139,528

 
3.75% – 6.25%
 
5.43
%
 
January 15, 2024 – January 15, 2030
12
 
2,978

 
6.00%
 
6.00
%
 
November 15, 2025 – December 15, 2025
15
 
17,063

 
5.25% – 6.00%
 
5.35
%
 
May 15, 2028 – November 15, 2028
18
 
18,902

 
4.13% – 6.25%
 
5.58
%
 
December 15, 2030 – August 15, 2031
20
 
3,847

 
5.75% – 6.00%
 
5.89
%
 
November 15, 2032 – October 15, 2033
25
 
31,126

 
6.25% – 6.50%
 
6.39
%
 
August 15, 2038 – May 15, 2039
30
 
101,383

 
5.50% – 6.75%
 
6.25
%
 
November 15, 2042 – October 15, 2043
 
 
$
622,409

 
 
 
 

 
 

127

During the six months ended December 31, 2018, we redeemed, prior to maturity $99,432 aggregate principal amount of Prospect Capital InterNotes® at par with a weighted average interest rate of 4.86% in order to replace debt with shorter maturity dates. During the six months ended December 31, 2018, we repaid $5,419 aggregate principal amount of Prospect Capital InterNotes® at par in accordance with the Survivor’s Option, as defined in the InterNotes® Offering prospectus. As a result of these transactions, we recorded a loss in the amount of the unamortized debt issuance costs. The net loss on the extinguishment of Prospect Capital InterNotes® in the six months ended December 31, 2018 was $711.

The following table summarizes the Prospect Capital InterNotes® outstanding as of June 30, 2019:
Tenor at
Origination
(in years)
 
Principal
Amount
 
Interest Rate
Range
 
Weighted
Average
Interest Rate
 
Maturity Date Range
5
 
$
283,450

 
4.00% – 5.75%
 
5.10
%
 
July 15, 2021 - June 15, 2024
5.5
 
1,399

 
4.25%
 
4.25
%
 
July 15, 2020
6.5
 
34,745

 
5.10% – 5.25%
 
5.24
%
 
January 15, 2022 - May 15, 2022
7
 
83,731

 
4.00% – 6.00%
 
5.56
%
 
January 15, 2020 - June 15, 2026
8
 
1,996

 
5.75%
 
5.75
%
 
February 15, 2021
8
 
24,500

 
4.50% – 5.75%
 
4.67
%
 
August 15, 2025 - July 15, 2026
10
 
99,529

 
5.50% – 7.00%
 
6.09
%
 
March 15, 2022 - June 15, 2029
12
 
2,978

 
6.00%
 
6.00
%
 
November 15, 2025 - December 15, 2025
15
 
17,077

 
5.25% – 6.00%
 
5.35
%
 
May 15, 2028 - November 15, 2028
18
 
19,306

 
4.13% – 6.25%
 
5.58
%
 
December 15, 2030 - August 15, 2031
20
 
3,887

 
5.75% – 6.00%
 
5.90
%
 
November 15, 2032 - October 15, 2033
25
 
31,855

 
6.25% – 6.50%
 
6.39
%
 
August 15, 2038 - May 15, 2039
30
 
103,246

 
5.50% – 6.75%
 
6.24
%
 
November 15, 2042 - October 15, 2043
 
 
$
707,699

 
 
 
 

 
 
In connection with the issuance of Prospect Capital InterNotes®, we incurred $27,696 of fees which are being amortized over the term of the notes, of which $12,457 remains to be amortized and is included as a reduction within Prospect Capital InterNotes® on the Consolidated Statement of Assets and Liabilities as of December 31, 2019.
During the three months ended December 31, 2019 and December 31, 2018, we recorded $8,972 and $10,771, respectively, of interest costs and amortization of financing costs on the Prospect Capital InterNotes® as interest expense. During the six months ended December 31, 2019 and December 31, 2018 we recorded $18,975 and $21,516, respectively, of interest costs and amortization of financing costs on the Prospect Capital InterNotes® as interest expense.
Net Asset Value
During the six months ended December 31, 2019, our net asset value decreased by $122,410, or $0.35 per share. The decrease was primarily attributable to an increase in net realized and net change in unrealized losses of $132,083, or $0.35 per weighted average share, coupled with a decrease of $0.01 per weighted average share as a result of reinvestment of our dividends on behalf of our stockholders at current market prices. This decrease was partially offset by net investment income of $138,945, or $0.37 per weighted average share, exceeding dividends of $132,263, or $0.36 per weighted average share, resulting in a net increase of $0.01 per weighted average share for the six months ended December 31, 2019. The following table shows the calculation of net asset value per share as of December 31, 2019 and June 30, 2019.
 
 
December 31, 2019
 
June 30, 2019
Net assets
 
$
3,183,865

 
$
3,306,275

Shares of common stock issued and outstanding
 
367,584,244

 
367,131,025

Net asset value per share
 
$
8.66

 
$
9.01


128

Results of Operations
Operating results for the three and six months ended December 31, 2019 and December 31, 2018 were as follows:
 
Three Months Ended December 31,
 
Six Months Ended December 31,
 
2019
 
2018
 
2019
 
2018
Investment income
$
161,917

 
$
187,883

 
$
323,800

 
$
368,305

Operating expenses
94,032

 
107,072

 
184,855

 
202,335

Net investment income
67,885

 
80,811

 
138,945

 
165,970

Net realized gains (losses)
1,909

 
2,993

 
(289
)
 
4,034

Net change in unrealized (losses) gains from investments
(77,892
)
 
(150,696
)
 
(126,351
)
 
(149,647
)
Net realized losses on extinguishment of debt
(3,105
)
 
(497
)
 
(5,443
)
 
(3,951
)
Net (decrease) increase in net assets resulting from operations
$
(11,203
)
 
$
(67,389
)
 
$
6,862

 
$
16,406

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 typically do not issue securities rated investment grade, and have limited resources, limited operating history, and concentrated product lines or customers. These 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.
The following table describes the various components of investment income and the related levels of debt investments:
 
Three Months Ended December 31,
 
Six Months Ended December 31,
 
2019
 
2018
 
2019
 
2018
Interest income
$
140,659

 
$
157,994

 
$
286,615

 
$
317,436

Dividend income
3,509

 
13,266

 
7,763

 
28,193

Other income
17,749

 
16,623

 
29,422

 
22,676

Total investment income
$
161,917

 
$
187,883

 
$
323,800

 
$
368,305

 
 
 
 
 
 
 
 
Average debt principal of performing interest bearing investments(1)
$
5,180,789

 
$
5,504,149

 
$
5,277,676

 
$
5,503,842

Weighted average interest rate earned on performing interest bearing investments(1)
10.62
%
 
11.23
%
 
10.63
%
 
11.28
%
Average debt principal of all interest bearing investments(2)
$
5,771,741

 
$
6,058,947

 
$
5,872,360

 
$
5,994,970

Weighted average interest rate earned on all interest bearing investments(2)
9.54
%
 
10.20
%
 
9.55
%
 
10.36
%
(1) Excludes equity investments and non-accrual loans.
(2) Excludes equity investments.


129

Average interest income producing assets decreased from $5,504,149 for the three months ended December 31, 2018 to $5,180,789 for the three months ended December 31, 2019. The decrease in average income producing assets was a result of repayments. The average interest earned on performing interest bearing performing assets decreased from 11.23% for the three months ended December 31, 2018 to 10.62% for the three months ended December 31, 2019. The decrease is primarily due to an increase in foregone interest due to non-accrual investments, decline in LIBOR and reduced returns from our structured credit investments. The average interest earned on all interest bearing performing assets decreased from 10.20% for the three months ended December 31, 2018 to 9.54% for the three months ended December 31, 2019. The decrease is primarily due to a decline in LIBOR and reduced returns from our structured credit investments.
Average interest income producing assets decreased from $5,503,842 for the six months ended December 31, 2018 to $5,277,676 for the six months ended December 31, 2019. The average interest earned on interest bearing performing assets decreased from 11.28% for the six months ended December 31, 2018 to 10.63% for the six months ended December 31, 2019. The decrease is primarily due to an increase in foregone interest due to non-accrual investments, decline in LIBOR and reduced returns from our structured credit investments. The average interest earned on all interest bearing performing assets decreased from 10.36% for the six months ended December 31, 2018 to 9.55% for the six months ended December 31, 2019. The decrease is primarily due to an increase in foregone interest due to a decline in LIBOR and reduced returns from our structured credit investments.
Investment income is also generated from dividends and other income which is less predictable than interest income. The following table describes dividend income earned for the three and six months ended December 31, 2019 and December 31, 2018, respectively:
 
Three Months Ended December 31,
 
Six Months Ended December 31,
 
2019
 
2018
 
2019
 
2018
Dividend income
 
 
 
 
 
 
 
National Property REIT Corp.
$
—

 
$
9,000

 
$
—

 
$
20,000

Valley Electric Company, Inc.
471

 
4,000

 
4,271

 
7,500

NMMB, Inc.
2,797

 
—

 
2,797

 
—

Other, net
241

 
266

 
695

 
693

Total dividend income
$
3,509

 
$
13,266

 
$
7,763

 
$
28,193


Other income is comprised of structuring fees, advisory fees, royalty interests, settlement of net profits interests and settlement of residual profits interests. The following table describes other income earned for the three and six months ended December 31, 2019 and December 31, 2018, respectively:
 
Three Months Ended December 31,
 
Six Months Ended December 31,
 
2019
 
2018
 
2019
 
2018
Structuring, advisory and amendment fees
 
 
 
 
 
 
 
National Property REIT Corp.
$
2,744

 
$
13,637

 
$
10,785

 
$
14,195

Town & Country Holdings, Inc.
—

 
—

 
—

 
2,100

PeopleConnect Intermediate, LLC
2,410

 
—

 
2,410

 
—

Ahead Data Blue, LLC
1,400

 
—

 
1,400

 
—

Other, net
1,496

 
702

 
1,765

 
2,149

Total structuring, advisory and amendment fees
$
8,050

 
$
14,339

 
$
16,360

 
$
18,444

Royalty and net revenue interests
 
 
 
 
 
 
 
National Property REIT Corp.
9,265

 
1,935

 
12,496

 
3,737

Other, net
335

 
172

 
337

 
193

Total royalty and net revenue interests
9,600

 
2,107

 
12,833

 
3,930

Administrative agent fees
 
 
 
 
 
 
 
Other, net
99

 
177

 
229

 
302

Total administrative agent fees
99

 
177

 
229

 
302

Total other income
$
17,749

 
$
16,623

 
$
29,422


$
22,676



Operating Expenses
Our primary operating expenses consist of investment advisory fees (base management and income incentive fees), borrowing costs, legal and professional fees, overhead-related expenses and other operating 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 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.
The following table describes the various components of our operating expenses:
 
Three Months Ended December 31,
 
Six Months Ended December 31,
 
2019
 
2018
 
2019
 
2018
Base management fee
$
27,543

 
$
33,187

 
$
56,006

 
$
63,144

Income incentive fee
16,971

 
20,203

 
34,736

 
41,493

Interest and credit facility expenses
37,059

 
40,656

 
75,957

 
78,564

Allocation of overhead from Prospect Administration
6,011

 
5,642

 
9,505

 
9,007

Audit, compliance and tax related fees
1,933

 
2,389

 
2,308

 
2,782

Directors' fees
113

 
150

 
226

 
229

Other general and administrative expenses
4,402

 
4,845

 
6,117

 
7,116

Total operating expenses
$
94,032

 
$
107,072

 
$
184,855

 
$
202,335

Total gross and net base management fee was $27,543 and $33,187 for the three months ended December 31, 2019 and December 31, 2018, respectively. The decrease in total gross base management fee is directly related to a decrease in average total assets as well as a $2,757 adjustment for fees included for the three months ended December 31, 2018, earned in prior periods that were neither expensed nor paid to the Investment Adviser. The Investment Adviser has entered into a servicing agreement with certain institutions that purchased loans with us, where we serve as the agent and collect a servicing fee on behalf of the Investment Adviser. We receive payments from these institutions on behalf of the Investment Adviser, for providing such services under the servicing agreement. We are given a credit for these payments as a reduction of the base management fee payable by us to the Investment Adviser. No such payments were received for the three months ended December 31, 2019 and December 31, 2018.
Total gross base management fee was $56,006 and $63,282 for the six months ended December 31, 2019 and December 31, 2018, respectively. The decrease in total gross base management fee is directly related to a decrease in average total assets as well as a $2,757 adjustment for fees earned in prior periods that were neither expensed nor paid to the Investment Adviser, for which we incurred $64 in accrued interest on those past due amounts. The interest on the amount owed to the Investment Adviser was calculated using the average of 1-month LIBOR rates from September 2010 through the date of payment. The Investment Adviser has entered into a servicing agreement with certain institutions that purchased loans with us, where we serve as the agent and collect a servicing fee on behalf of the Investment Adviser. We receive payments from these institutions on behalf of the Investment Adviser, for providing such services under the servicing agreement. We are given a credit for these payments as a reduction of the base management fee payable by us to the Investment Adviser. We received payments of $138 from these institutions for the six months ended December 31, 2018. No such payments were received for the six months ended December 31, 2019. We were given a credit for these payments as a reduction of base management fee payable by us to the Investment Adviser resulting in net base management fee of $56,006 and $63,114 for the six months ended December 31, 2019 and December 31, 2018, respectively.
For the three months ended December 31, 2019 and December 31, 2018, we incurred $16,971 and $20,203 of income incentive fees, respectively. This decrease was driven by a corresponding decrease in pre-incentive fee net investment income from $101,014 for the three months ended December 31, 2018 to $84,856 for the three months ended December 31, 2019. No capital gains incentive fee has yet been incurred pursuant to the Investment Advisory Agreement.
For the six months ended December 31, 2019 and December 31, 2018, we incurred $34,736 and $41,493 of income incentive fees, respectively. This decrease was driven by a corresponding decrease in pre-incentive fee net investment income from $207,463 for the six months ended December 31, 2018 to $173,681 for the six months ended December 31, 2019. No capital gains incentive fee has yet been incurred pursuant to the Investment Advisory Agreement.

130

During the three months ended December 31, 2019 and December 31, 2018, we incurred $37,059 and $40,656 respectively, of interest and credit facility expenses related to our Revolving Credit Facility, Convertible Notes, Public Notes and Prospect Capital InterNotes® (collectively, our “Notes”). During the six months ended December 31, 2019 and December 31, 2018, we incurred $75,957 and $78,564, respectively, of interest expenses related to our Notes. These expenses are related directly to the leveraging capacity 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 years:
 
Three Months Ended December 31,
 
Six Months Ended December 31,
 
2019
 
2018
 
2019
 
2018
Interest on borrowings
$
31,318

 
$
34,998

 
$
63,767

 
$
67,983

Amortization of deferred financing costs
1,869

 
3,627

 
4,110

 
6,343

Accretion of discount on unsecured debt
261

 
104

 
515

 
235

Facility commitment fees
3,611

 
1,927

 
7,565

 
4,003

Total interest and credit facility expenses
$
37,059

 
$
40,656

 
$
75,957

 
$
78,564

 
 
 
 
 
 
 
 
Average principal debt outstanding
$
2,242,390

 
$
2,600,363

 
$
2,274,070

 
$
2,548,458

Annualized weighted average stated interest rate on borrowings(1)
5.59
%
 
5.38
%
 
5.61
%
 
5.34
%
Annualized weighted average interest rate on borrowings(2)
6.61
%
 
6.25
%
 
6.68
%
 
6.17
%
(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.
Interest expense is relatively stable on a dollars basis for the three months ended December 31, 2019 as compared to the three months ended December 31, 2018. The weighted average stated interest rate on borrowings (excluding amortization, accretion and undrawn facility fees) increased from 5.38% for the three months ended December 31, 2018 to 5.59% for the three months ended December 31, 2019. This increase is primarily due to issuances of Public Notes and 2025 Notes at higher rates, partially offset by repurchases of our Convertible Notes and increased utilization of our Revolving Credit Facility, which bears a lower rate than our remaining debt.
Interest expense is relatively stable on a dollars basis for the six months ended December 31, 2019 as compared to the six months ended December 31, 2018 . The weighted average stated interest rate on borrowings (excluding amortization, accretion and undrawn facility fees) increased from 5.34% for the six months ended December 31, 2018 to 5.61% for the six months ended December 31, 2019. This increase is primarily due to issuances of Public Notes and the 2025 Notes during the second half of the prior year at higher rates, partially offset by repurchases of our Convertible Notes and increased utilization of our Revolving Credit Facility, which bears a lower rate than our remaining debt.
The allocation of net overhead expense from Prospect Administration was $6,011 and $5,642 for the three months ended December 31, 2019 and December 31, 2018, respectively.
The allocation of net overhead expense from Prospect Administration was $9,505 and $9,007 for the six months ended December 31, 2019 and December 31, 2018, respectively. Prospect Administration received estimated payments of $584 directly from our portfolio companies, and certain funds managed by the Investment Adviser for legal services during the six months ended December 31, 2019. No such payments were received during the six months ended December 31, 2018. 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 this amount.
Total operating expenses, excluding investment advisory fees, interest and credit facility expenses, and allocation of overhead from Prospect Administration (“Other Operating Expenses”), net of any expense reimbursements, were $6,448 and $7,384 for the three months ended December 31, 2019 and December 31, 2018, respectively. The $936 decrease was primarily attributable to decreases in legal fees and audit, compliance and tax related fees.
Total operating expenses, excluding investment advisory fees, interest and credit facility expenses, and allocation of overhead from Prospect Administration (“Other Operating Expenses”), net of any expense reimbursements, were $8,651 and $10,127 for

131

the six months ended December 31, 2019 and December 31, 2018, respectively. The $1,476 decrease was primarily attributable to decreases in legal fees and audit, compliance and tax related fees.

132

Net Investment Income
Net investment income represents the difference between investment income and operating expenses. Net investment income was $67,885 and $80,811 for the three months ended December 31, 2019 and December 31, 2018, respectively. The decrease of $12,926 was primarily due to a decrease in investment income of $25,966 partially offset by a decrease in operating expenses of $13,040. Refer to above Investment Income and Operating Expenses discussions for detail.
Net investment income was $138,945 and $165,970 for the six months ended December 31, 2019 and December 31, 2018, respectively. The decrease of $27,025 was primarily due to a decrease in investment income of $44,505 partially offset by a decrease in operating expenses of $17,480. Refer to above Investment Income and Operating Expenses discussions for detail.
Net Realized (Losses) Gains
The following table details net realized gains from investments for the three months ended December 31, 2019 and December 31, 2018:
 
Three Months Ended December 31,
Portfolio Company
2019
 
2018
Gulf Coast
$
—

 
$
2,802

Rated Secured Structured Note Portfolio
1,885

 
—

Other, net
24

 
191

Net realized gains
$
1,909

 
$
2,993

The following table details net realized (losses) gains from investments for the six months ended December 31, 2019 and December 31, 2018:
 
Six Months Ended December 31,
Portfolio Company
2019
 
2018
Gulf Coast
$
—

 
$
2,802

Rated Secured Structured Note Portfolio
1,885

 
—

New Century Transportation, Inc.
—

 
1,000

Madison Park Funding XI, Ltd.
(1,949
)
 
—

Voya CLO 2012-2, Ltd.
(450
)
 
—

Other, net
225

 
232

Net realized (losses) gains
$
(289
)
 
$
4,034

The following table details net realized (losses) on extinguishment of debt for the three months ended December 31, 2019 and December 31, 2018:
 
Three Months Ended December 31,
Debt Extinguished
2019
 
2018
2022 Convertible Notes
$
(1,671
)
 
$
—

Prospect Capital InterNotes®
(1,086
)
 
(456
)
2020 Convertible Notes
(31
)
 
(41
)
Other, net
(317
)
 
—

Net realized gains
$
(3,105
)
 
$
(497
)

133

The following table details net realized (losses) on extinguishment of debt for the six months ended December 31, 2019 and December 31, 2018:
 
Six Months Ended December 31,
Debt Extinguished
2019
 
2018
5.00% 2019 Notes
$
—

 
$
(2,874
)
Prospect Capital InterNotes®
(2,279
)
 
(712
)
2022 Convertible Notes
(1,671
)
 
—

2020 Convertible Notes
(699
)
 
(41
)
Other, net
(794
)
 
(324
)
Net realized gains
$
(5,443
)
 
$
(3,951
)
Change in Unrealized (Losses) Gains, Net
The following table details net change in unrealized (losses) gains for our portfolio for the three months ended and six months ended December 31, 2019 and December 31, 2018, respectively:
 
Three Months Ended December 31,
 
Six Months Ended December 31,
 
2019
 
2018
 
2019
 
2018
Control investments
$
(35,863
)
 
$
(85,733
)
 
$
(74,884
)
 
$
(33,815
)
Affiliate investments
12,242

 
(5,894
)
 
30,262

 
(19,649
)
Non-control/non-affiliate investments
(54,271
)
 
(59,069
)
 
(81,729
)
 
(96,183
)
Net change in unrealized (losses) gains
$
(77,892
)
 
$
(150,696
)
 
$
(126,351
)
 
$
(149,647
)
The following table details net change in unrealized gains (losses) on investments for the three months ended December 31, 2019:
 
 
 
Net Change in Unrealized Gains (Losses)
National Property REIT Corp.
 
 
$
25,938

Edmentum Ultimate Holdings, LLC
 
 
9,146

MITY, Inc.
 
 
8,180

USES Corp.
 
 
6,961

First Tower Finance Company LLC
 
 
5,822

Securus Technologies Holdings, Inc.
 
 
(5,685
)
InterDent, Inc.
 
 
(12,956
)
PGX Holdings, Inc.
 
 
(14,759
)
Subordinated Structured Notes
 
 
(22,860
)
CP Energy Services Inc.
 
 
(30,103
)
Pacific World Corporation
 
 
(44,935
)
Other, net
 
 
(2,641
)
Net change in unrealized (losses)
 
 
$
(77,892
)
The following table details net change in unrealized gains (losses) on investments for the three months ended December 31, 2018:

134

 
 
Net Change in Unrealized Gains (Losses)
Valley Electric Company, Inc.
 
$
7,815

CCPI Inc.
 
6,706

MITY, Inc.
 
(6,372
)
United Sporting Companies, Inc.
 
(7,700
)
Universal Turbine Parts, LLC
 
(8,135
)
CP Energy Services Inc.
 
(12,422
)
National Property REIT Corp.
 
(28,921
)
Pacific World Corporation
 
(31,628
)
Subordinated Structured Notes
 
(39,765
)
Other, net
 
(30,274
)
Net change in unrealized (losses)
 
$
(150,696
)

135


The following table details net change in unrealized gains (losses) on investments for the six months ended December 31, 2019:
 
 
 
Net Change in Unrealized Gains (Losses)
National Property REIT Corp.
 
 
$
51,138

Edmentum Ultimate Holdings, LLC
 
 
22,118

First Tower Finance Company LLC
 
 
8,173

MITY, Inc.
 
 
7,772

United Sporting Companies, Inc.
 
 
7,552

Easy Gardener Products, Inc.
 
 
(5,730
)
Securus Technologies Holdings, Inc.
 
 
(8,161
)
PGX Holdings, Inc.
 
 
(14,759
)
Valley Electric Company, Inc.
 
 
(17,856
)
InterDent, Inc.
 
 
(33,982
)
CP Energy Services Inc.
 
 
(40,486
)
Subordinated Structured Notes
 
 
(49,153
)
Pacific World Corporation
 
 
(59,273
)
Other, net
 
 
6,296

Net change in unrealized (losses)
 
 
$
(126,351
)

The following table details net change in unrealized gains (losses) on investments for the six months ended December 31, 2018:
 
 
Net Change in Unrealized Gains (Losses)
Valley Electric Company, Inc.
 
$
33,861

CP Energy Services Inc.
 
6,957

NMMB, Inc.
 
6,311

CCPI Inc.
 
5,863

Echelon Aviation LLC
 
5,817

Engine Group, Inc.
 
(5,067
)
R-V Industries, Inc.
 
(7,216
)
MITY, Inc.
 
(7,751
)
Credit Central Loan Company, LLC
 
(10,499
)
National Property REIT Corp.
 
(13,918
)
United Sporting Companies, Inc.
 
(15,836
)
Universal Turbine Parts, LLC
 
(19,043
)
Pacific World Corporation
 
(32,240
)
Subordinated Structured Notes
 
(64,477
)
Other, net
 
(32,409
)
Net change in unrealized (losses)
 
$
(149,647
)

Financial Condition, Liquidity and Capital Resources
For the six months ended December 31, 2019 and December 31, 2018, our operating activities provided $414,047 and used $76,902 of cash, respectively. There were no investing activities for the six months ended December 31, 2019 and December 31, 2018. Financing activities used $383,278 and provided $102,812 of cash during the six months ended December 31, 2019 and December 31, 2018, respectively, which included dividend payments of $129,247 and $120,180, 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.


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Our primary sources of funds have historically been issuances of debt and equity. More recently, we have and may continue to fund a portion of our cash needs through repayments and opportunistic sales of our existing investment portfolio. 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 six months ended December 31, 2019, we borrowed $398,000 and we made repayments totaling $473,000 under the Revolving Credit Facility. As of December 31, 2019, our outstanding balance on the Revolving Credit Facility was $92,000. As of December 31, 2019, we had, net of unamortized discount and debt issuance costs, $657,104 outstanding on the Convertible Notes, $781,578 outstanding on the Public Notes and $609,952 outstanding on the 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 5.00%. As of December 31, 2019 and June 30, 2019, we had $25,111 and $23,375, respectively, of undrawn revolver and delayed draw term loan commitments to our portfolio companies. The fair value of our undrawn committed revolvers and delayed draw term loans was zero as of December 31, 2019 and June 30, 2019.
We have guaranteed $2,487 in standby letters of credit issued through a financial intermediary and $2,919 of equipment lease obligations on behalf of InterDent, Inc. (“InterDent”) as of December 31, 2019. Under these arrangements, we would be required to make payments to the financial intermediary or equipment lease provider, respectively, if InterDent was to default on their related payment obligations. As of December 31, 2019, we have not recorded a liability on the statement of assets and liabilities for these guarantees as the likelihood of default on the standby letters of credit or equipment lease is deemed to be remote.
Our shareholders’ equity accounts as of December 31, 2019 and June 30, 2019 reflect cumulative shares issued, net of shares repurchased, 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, our dividend reinvestment plan and in connection with the acquisition of certain controlled portfolio companies. 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.
As part of our Repurchase Program, we delivered a notice with our annual proxy mailing on September 19, 2019. We did not repurchase any shares of our common stock for the six months ended December 31, 2019 or December 31, 2018.
Off-Balance Sheet Arrangements
As of December 31, 2019, 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 January 1, 2020 through February 6, 2020 we issued $41,406 aggregate principal amount of Prospect Capital InterNotes® for net proceeds of $40,748.
During the period of January 1, 2020 through February 6, 2020, we provided notice to call or settled previous notices to call certain of our Prospect Capital InterNotes® at par with the following terms:
Notice Date
Settlement Date
Maturity Date Range
Interest Rate Range
Principal
12/11/2019
1/15/2020
July 15, 2022
4.500% - 4.750%
$
3,918

On January 10, 2020, we made a new $20,000 First Lien Term Loan investment in EDSCO Holding Company LLC, a manufacturer of foundation anchoring systems for large infrastructure installations such as power transmission poles and electrical substation structures.
On January 22, 2020, PeopleConnect Intermediate, LLC (“PeopleConnect”) fully repaid the $17,328 Senior Secured Term Loan A and the $19,413 Senior Secured Term Loan B receivable to us at par. Concurrent with the repayment, our $1,000 unfunded revolving line of credit to PeopleConnect was terminated.
On January 22, 2020, we provided $246,000 of Senior Secured investments to PeopleConnect Holdings, Inc. and PubRec Holdings, Inc., online information commerce companies. Included in this investment is a $10,000 Revolving Line of Credit and a $5,000 Delayed Draw term loan, which were unfunded at close. On January 28, 2020, we sold $24,994 of our Senior Secured Term Loan investment and $1,082 of our Revolving Line of Credit commitment, or 10.6% of our initial investment, at a price of 98.0. As a result of the sale, we recorded a realized loss of $522 for the three months ended March 31, 2020.

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On January 23, 2020, we provided $18,252 and $4,563 of Senior Secured Term Loan C and equity financing, respectively, to National Property REIT Corp. (“NPRC”) and its wholly-owned subsidiaries to support investments in rated secured structured notes. On January 31, 2020, we received partial repayments of $7,500 of our Senior Secured Term Loan B outstanding with NPRC and its wholly-owned subsidiaries.
The 2020 Notes December Tender Offer and the 2022 Notes December Tender Offer (collectively the “December Tender Offers”) expired at 12:00 midnight, New York City time, on January 23, 2020 (one minute after 11:59 p.m., New York City time, on January 22, 2020). As of the expiration date of the December Tender Offers, (i) $2,215 aggregate principal amount of the 2020 Notes, representing approximately 1.27% of the outstanding 2020 Notes, and (ii) $1,302 aggregate principal amount of the 2022 Notes, representing approximately 0.45% of the outstanding 2022 Notes, were validly tendered and accepted. Following the settlement of the December Tender Offers, (i) approximately $172,822 aggregate principal amount of the 2020 Notes remains outstanding, and (ii) approximately $290,825 aggregate principal amount of the 2022 Notes remains outstanding.
On January 24, 2020, we made a $30,000 first lien term loan investment in LGC US Finco, LLC, a manufacturer of industrial gaskets and fasteners.
On February 10, 2020, we announced the declaration of monthly dividends in the following amounts and with the following dates:
•
$0.06 per share for February 2020 to holders of record on February 28, 2020 with a payment date of March 19, 2020.
•
$0.06 per share for March 2020 to holders of record on March 31, 2020 with a payment date of April 23, 2020.
•
$0.06 per share for April 2020 to holders of record on April 30, 2020 with a payment date of May 21, 2020.
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, 10 and 12 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, PYC, 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.
Reclassifications

Certain reclassifications have been made in the presentation of prior consolidated financial statements and accompanying notes to conform to the presentation as of and for the six months ended December 31, 2019.
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 the issuers of our investment portfolio and any other parameters used in determining these estimates could cause actual results to differ, and these differences could be material.
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 more than 25% 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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As a BDC, we must not acquire any assets other than “qualifying assets” specified in the 1940 Act unless, at the time the acquisition is made, at least 70% of our total assets are qualifying assets (with certain limited exceptions). As of December 31, 2019 and June 30, 2019, our qualifying assets as a percentage of total assets, stood at 73.62% and 73.85%, respectively.
Investment Transactions
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. Specifically, we record all security transactions on a trade date basis. 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. In accordance with ASC 325-40, Beneficial Interest in Securitized Financial Assets, investments in CLOs are periodically assessed for other-than-temporary impairment (“OTTI”). When the Company determines that a CLO has OTTI, the amortized cost basis of the CLO is written down to its fair value as of the date of the determination based on events and information evaluated and that write-down is recognized as a realized loss. Amounts for investments traded but not yet settled are reported in Due to Broker or Due from Broker, in the Consolidated Statements of Assets and Liabilities.
Foreign Currency
Foreign currency amounts are translated into US Dollars (USD) on the following basis:
i.
fair value of investment securities, other assets and liabilities—at the spot exchange rate on the last business day of the period; and
ii.
purchases and sales of investment securities, income and expenses—at the rates of exchange prevailing on the respective dates of such investment transactions, income or expenses.
We do not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in fair values of investments held or disposed of during the period. Such fluctuations are included within the net realized and net change in unrealized gains or losses from investments in the Consolidated Statements of Operations.
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 us less likely to fully earn all of the expected income of that security and reinvesting in a lower yielding instrument.

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Structured Credit Related Risk

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. 
Online Small-and-Medium-Sized Business Lending Risk
With respect to our online small-and-medium-sized business (“SME”) lending initiative, we invest primarily in marketplace loans through marketplace lending platforms (e.g. OnDeck). We do not conduct loan origination activities ourselves. Therefore, our ability to purchase SME loans, and our ability to grow our portfolio of SME loans, is directly influenced by the business performance and competitiveness of the marketplace loan origination business of the marketplace lending platforms from which we purchase SME loans. In addition, our ability to analyze the risk-return profile of SME loans is significantly dependent on the marketplace platforms’ ability to effectively evaluate a borrower's credit profile and likelihood of default. If we are unable to effectively evaluate borrowers' credit profiles or the credit decisioning and scoring models implemented by each platform, we may incur unanticipated losses which could adversely impact our operating results.
Foreign Currency
Investments denominated in foreign currencies and foreign currency transactions may involve certain considerations and risks not typically associated with those of domestic origin. These risks include, but are not limited to, currency fluctuations and revaluations and future adverse political, social and economic developments, which could cause investments in foreign markets to be less liquid and prices more volatile than those of comparable U.S. companies or U.S. government securities.
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.
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 prepare independent valuations for each investment based on their own independent assessments and issue their report.

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3.
The Audit Committee of our Board of Directors reviews and discusses with the independent valuation firms the valuation reports, and then makes a recommendation to the Board of Directors of the value for each investment.
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.
Our non-CLO investments are valued utilizing a yield technique, enterprise value (“EV”) technique, net asset value technique, asset recovery technique, discounted cash flow technique, or a combination of techniques, as appropriate. The yield technique uses loan spreads for loans and other relevant information implied by market data involving identical or comparable assets or liabilities. Under the EV technique, 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) valuation approach that considers relevant and applicable market trading data of guideline public companies, transaction metrics from precedent merger and acquisitions transactions, and/or a discounted cash flow technique. The net asset value technique, an income approach, 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 asset recovery technique 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 technique converts 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 fair value 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 valuing 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 Level 3 fair value measured securities under ASC 820 and are valued using a discounted multi-path cash flow model. The CLO structures are analyzed to identify the risk exposures and to determine an appropriate call date (i.e., expected maturity). These risk factors are sensitized in the multi-path cash flow model using Monte Carlo simulations, which is a simulation used to model the probability of different outcomes, to generate probability-weighted (i.e., multi-path) cash flows from the underlying assets and liabilities.  These cash flows are discounted using appropriate market discount rates, and relevant data in the CLO market as well as certain benchmark credit indices are considered, to determine the value of each CLO investment.  In addition, we generate a single-path cash flow utilizing our best estimate of expected cash receipts, and assess the reasonableness of the implied discount rate that would be effective for the value derived from the multi-path cash flows.  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. The main risk factors are default risk, prepayment 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 in the accompanying Consolidated Financial Statements for the disclosure of the fair value of our outstanding debt and the market observable inputs used in determining fair value.
Convertible Notes
We have recorded the Convertible Notes at their contractual amounts. We have determined that the embedded conversion options in the Convertible Unsecured Notes are not required to be separately accounted for as a derivative under ASC 815, Derivatives and Hedging. See Note 5 in the accompanying Consolidated Financial Statements 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. Loan origination fees, original issue discount, and market discounts are capitalized and accreted into interest income over the respective terms of the applicable loans using the effective interest method or straight-line, as applicable, and adjusted only for material amendments or prepayments. Upon a prepayment of a loan, prepayment premiums, original issue discount, or market discounts are recorded as interest income.

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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 are either applied to the cost basis or interest income, depending upon management’s judgment of the collectibility of the loan receivable. Non-accrual loans are restored to accrual status when past due principal and interest is paid and in management’s judgment, is likely to remain current and future principal and interest collections when due are probable. Interest received and applied against cost while a loan is on non-accrual, and PIK interest capitalized but not recognized while on non-accrual, is recognized prospectively on the effective yield basis through maturity of the loan when placed back on accrual status, to the extent deemed collectible by management. As of December 31, 2019, approximately 1.6% of our total assets at fair value are in non-accrual status.
Some of our loans and other investments may have contractual payment-in-kind (“PIK”) interest or dividends. PIK income computed at the contractual rate is accrued into income and reflected as receivable up to the capitalization date. PIK investments offer issuers the option at each payment date of making payments in cash or in additional securities. When additional securities are received, they typically have the same terms, including maturity dates and interest rates as the original securities issued. On these payment dates, we capitalize the accrued interest (reflecting such amounts in the basis as additional securities received). PIK generally becomes due at maturity of the investment or upon the investment being called by the issuer. At the point that we believe PIK is not fully expected to be realized, the PIK investment will be placed on non-accrual status. When a PIK investment is placed on non-accrual status, the accrued, uncapitalized interest or dividends are reversed from the related receivable through interest or dividend income, respectively. We do not reverse previously capitalized PIK interest or dividends. Upon capitalization, PIK is subject to the fair value estimates associated with their related investments. PIK investments on non-accrual status are restored to accrual status if we believe that PIK is expected to be realized.
Interest income from investments in Subordinated Structured Notes (typically preferred shares, income notes or subordinated notes of CLO funds) and “equity” class of security of securitized trust 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 and securitized trust 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.
Other income generally includes amendment fees, commitment fees, administrative agent fees and structuring fees which are recorded when earned. Excess deal deposits, net profits interests and overriding royalty interests are included in other income. See Note 10 in the accompanying Consolidated Financial Statements for further discussion.
Federal and State Income Taxes
We have elected to be treated as a RIC 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 December 31, 2019, we do not expect to have any excise tax due for the 2019 calendar year. Thus, we have not accrued any excise tax for this period.
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 income tax 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. 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

142

realized if we had been liquidated) or, alternatively, be subject to taxation on such built-in gain recognized for a period of five 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 December 31, 2019, we did not record any unrecognized tax benefits or liabilities. 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 federal tax returns for the tax years ended August 31, 2016 and thereafter 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 taxable 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 the Unsecured Notes as deferred financing costs. These expenses are deferred and amortized as part of interest expense using the straight-line method over the stated life of the obligation for our Revolving Credit Facility. The same methodology is used to approximate the effective yield method for our Prospect Capital InterNotes® and our 2024, 2028, and 2029 Notes Follow-on Programs. The effective interest method is used to amortize deferred financing costs for our remaining Unsecured Notes over the respective expected life or maturity. In the event that we modify or extinguish our debt before maturity, we follow the guidance in ASC 470-50, Modification and Extinguishments (“ASC 470-50”). For modifications to or exchanges of our Revolving Credit Facility, any unamortized deferred costs relating to lenders who are not part of the new lending group are expensed. For extinguishments of our Unsecured Notes, any unamortized deferred costs are deducted from the carrying amount of the debt in determining the gain or loss from the extinguishment.
Unamortized deferred financing costs are presented as a direct deduction to the respective Unsecured Notes (see Notes 5, 6, and 7 in the accompanying Consolidated Financial Statements for further discussion).
We may record registration expenses related to shelf filings as prepaid expenses. These expenses consist principally of SEC registration fees, legal fees and accounting fees incurred. These prepaid expenses are charged to capital upon the receipt of proceeds from an equity offering or charged to expense if no offering is completed. As of December 31, 2019 and June 30, 2019, there are no prepaid expenses related to registration expenses and all amounts incurred have been expensed.
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 June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which amends the financial instruments impairment guidance so that an entity is required to measure expected credit losses for financial assets based on historical experience, current conditions and reasonable and supportable forecasts. As such, an entity will use forward-looking information to estimate credit losses. ASU 2016-13 also amends the guidance in FASB ASC Subtopic No. 325-40, Investments-Other, Beneficial Interests in Securitized Financial Assets, related to the subsequent measurement of accretable yield recognized as interest income over the life of a beneficial interest in securitized financial assets under the effective yield method. ASU 2016-13 is effective for financial statements issued for fiscal

143

years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted as of the fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. We are currently evaluating the impact, if any, of adopting this ASU on our consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement. The standard will modify the disclosure requirements for fair value measurements by removing, modifying, or adding certain disclosures. ASU No. 2018-13 is effective for annual reporting periods beginning after December 15, 2019, including interim periods within that reporting period. Early adoption is permitted upon issuance of this ASU. We are currently evaluating the impact of adopting this ASU on our consolidated financial statements.

SEC Disclosure Update and Simplification
In August 2018, the SEC adopted the final rule under SEC Release No. 33-10532, Disclosure Update and Simplification, amending certain disclosure requirements that were redundant, duplicative, overlapping, outdated or superseded. The amendments are intended to facilitate the disclosure of information to investors and simplify compliance. We have adopted the amendments and have retrospectively applied the presentation amendments to the prior period statements presented. 
Prior to adoption and in accordance with previous SEC rules, we presented distributable earnings (loss) on the Consolidated Statements of Assets and Liabilities, as three components: 1) accumulated overdistributed net investment income; 2) accumulated net unrealized gain (loss) on investments; and 3) accumulated net realized gain (loss) on investments. We also presented distributions from earnings on the Consolidated Statements of Changes in Net Assets as distributions from net investment income. In accordance with the SEC Release, distributable earnings and distributions from distributable earnings are shown in total on the Consolidated Statements of Assets and Liabilities and Consolidated Statements of Changes in Net Assets, respectively.
The following table provides the reconciliation of the components of distributable earnings (loss) to conform to the current period presentation for the six months ended December 31, 2018:

Overdistributed net investment income

Realized gains (losses)

Net unrealized loss

Distributable earnings (loss)
Balance as of June 30, 2018
$
(45,186
)

$
(465,493
)

$
(104,179
)

$
(614,858
)
Net Increase in Net Assets Resulting from Operations:







Net investment income
165,970


0

0

165,970

Net realized gains
0

83


0

83

Net change in net unrealized losses
0

0

(149,647
)

(149,647
)
Distributions to Shareholders:







Distributions from net investment income
(131,531
)

0

0

(131,531
)
Tax reclassifications of net assets (Note 12)
31


0

0

31

Balance as of December 31, 2018
$
(10,716
)

$
(465,410
)

$
(253,826
)

$
(729,952
)

Tax Cuts and Jobs Act
On December 22, 2017, the President signed into law the Tax Cuts and Jobs Act (the “Tax Act”), which significantly changed the Code, including, a reduction in the corporate income tax rate, a new limitation on the deductibility of interest expense, and significant changes to the taxation of income earned from foreign sources and foreign subsidiaries. The Tax Act also authorizes the IRS to issue regulations with respect to the new provisions. We cannot predict how the changes in the Tax Act, or regulations or other guidance issued under it, might affect us, our business or the business of our portfolio companies. However, our portfolio companies may or may not make certain elections under the Tax Act that could materially increase their taxable earnings and profits. Any such increase in the earnings and profits of a portfolio company may result in the characterization of certain distributions sourced from sale proceeds as dividend income, which may increase our distributable taxable income.

144

Item 3. Quantitative and Qualitative Disclosures about Market Risk
We are subject to financial market risks, including changes in interest rates and equity price risk. Interest rate sensitivity refers to the change in our earnings that may result from changes in the level of interest rates impacting some of the loans in our portfolio which have floating interest rates. Additionally, because we fund a portion of our investments with borrowings, our net investment income is affected by the difference between the rate at which we invest and the rate at which we borrow. As a result, there can be no assurance that a significant change in market interest rates will not have a material adverse effect on our net investment income. See “Risk Factors - Risks Relating to Our Business - Changes in interest rates may affect our cost of capital and net investment income”.
Our debt investments may be based on floating rates or fixed rates. For our floating rate loans the rates are determined from the LIBOR, EURO Interbank Offer Rate, the Federal Funds Rate or the Prime Rate. The floating interest rate loans may be subject to a LIBOR floor. Our loans typically have durations of one to three months after which they reset to current market interest rates. As of December 31, 2019, 86.33% of the interest earning investments in our portfolio, at fair value, bore interest at floating rates.
We also have a revolving credit facility and certain Prospect Capital InterNotes® issuances that are based on floating LIBOR rates. Interest on borrowings under the revolving credit facility is one-month LIBOR plus 220 basis points with no minimum LIBOR floor and an outstanding balance of $92,000 as of December 31, 2019. The Convertible Notes, Public Notes and Prospect Capital InterNotes® bear interest at fixed rates.
The following table shows the approximate annual impact on net investment income of base rate changes in interest rates (considering interest rate flows for floating rate instruments, excluding our investments in Subordinated Structured Notes) to our loan portfolio and outstanding debt as of December 31, 2019, assuming no changes in our investment and borrowing structure:
(in thousands)
Basis Point Change
 
Interest Income
 
Interest Expense
 
Net Investment Income
 
Net Investment Income (1)
Up 300 basis points
 
$
80,268

 
$
3

 
$
80,265

 
$
64,212

Up 200 basis points
 
$
51,034

 
$
2

 
$
51,033

 
$
40,826

Up 100 basis points
 
$
21,801

 
$
1

 
$
21,800

 
$
17,440

Down 100 basis points
 
$
(16,963
)
 
$
—

 
$
(16,963
)
 
$
(13,570
)
Down 200 basis points
 
$
(20,146
)
 
$
(1
)
 
$
(20,145
)
 
$
(16,116
)
Down 300 basis points
 
$
(20,146
)
 
$
(2
)
 
$
(20,144
)
 
$
(16,115
)
(1)
Includes the impact of income incentive fees. See Note 13 in the accompanying Consolidated Financial Statements for more information on income incentive fees.

As of December 31, 2019, one, two and three month LIBOR were 1.76%, 1.83% and 1.91%, respectively.

We may hedge against interest rate fluctuations by using standard hedging instruments such as futures, options and forward contracts subject to the requirements of the 1940 Act. While hedging activities may insulate us against adverse changes in interest rates, they may also limit our ability to participate in the benefits of higher interest rates with respect to our portfolio of investments. During the year ended December 31, 2019, we did not engage in hedging activities.

145

Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As of December 31, 2019, 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 our internal control over financial reporting during the quarter ended December 31, 2019, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

146

PART II
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 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 material legal proceedings as of December 31, 2019.
Item 1A. Risk Factors
In addition to the other information set forth in this report, you should carefully consider the factors discussed below and the risk factors in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended June 30, 2019, 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.
Changes relating to the LIBOR calculation process may adversely affect the value of the LIBOR-indexed, floating-rate debt securities in our portfolio or issued by us.
In the recent past, concerns have been publicized that some of the member banks surveyed by the British Bankers’ Association, or the “BBA,” in connection with the calculation of LIBOR across a range of maturities and currencies may have been under-reporting or otherwise manipulating the inter-bank lending rate applicable to them in order to profit on their derivatives positions or to avoid an appearance of capital insufficiency or adverse reputational or other consequences that may have resulted from reporting inter-bank lending rates higher than those they actually submitted. A number of BBA member banks entered into settlements with their regulators and law enforcement agencies with respect to alleged manipulation of LIBOR, and investigations by regulators and governmental authorities in various jurisdictions are ongoing.
In July 2017, the head of the United Kingdom Financial Conduct Authority announced the desire to phase out the use of LIBOR by the end of 2021. The announcement indicates that the continuation of LIBOR on the current basis cannot and will not be guaranteed after 2021. It is impossible to predict whether and to what extent banks will continue to provide LIBOR submissions to the administrator of LIBOR or whether any additional reforms to LIBOR may be enacted in the United Kingdom or elsewhere. Actions by the British Bankers’ Association, the United Kingdom Financial Conduct Authority or other regulators or law enforcement agencies as a result of these or future events, may result in changes to the manner in which LIBOR is determined. In addition, any further changes or reforms to the determination or supervision of LIBOR may result in a sudden or prolonged increase or decrease in reported LIBOR, which could have an adverse impact on the market for LIBOR-based securities or the value of our portfolio of LIBOR-indexed, floating-rate debt securities
At this time, no consensus exists as to what rate or rates will become accepted alternatives to LIBOR, although the U.S. Federal Reserve, in connection with the Alternative Reference Rates Committee, a steering committee comprised of large U.S. financial institutions, is considering replacing U.S. dollar LIBOR with the Secured Overnight Financing Rate (“SOFR”). Given the inherent differences between LIBOR and SOFR, or any other alternative benchmark rate that may be established, there are many uncertainties regarding a transition from LIBOR, including but not limited to the need to amend all contracts with LIBOR as the referenced rate and how this will impact the cost of variable rate debt and certain derivative financial instruments. In addition, SOFR or other replacement rates may fail to gain market acceptance. Any failure of SOFR or alternative reference rates to gain market acceptance could adversely affect the return on, value of and market for securities linked to such rates.
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.

147

Item 5. Other Information
Not applicable.
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
3.2
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
4.10
4.11
4.12
4.13
4.14
4.15
4.16
4.17
4.18
4.19
4.20
4.21

148

Exhibit No.
4.22
4.23
4.24
4.25
4.26
4.27
4.28
4.29
4.30
4.31
4.32
4.33
4.34
4.35
4.36
4.37
4.38
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
31.2
32.1
32.2
________________________

149

(6)
(7)
(8)
(9)
(10)
(11)
(12)
(13)
(14)

150

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
 
 
 
February 10, 2020
 
By:
/s/ JOHN F. BARRY III
Date
 
 
John F. Barry III
 
 
 
Chairman of the Board and Chief Executive Officer
 
 
 
 
February 10, 2020
 
By:
/s/ KRISTIN L. VAN DASK
Date
 
 
Kristin L. Van Dask
 
 
 
Chief Financial Officer






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