Private Credit Fund Prospect Capital Corp. Takes a Hit
Dividend Cut Sparks Share Price Plummet
Prospect Capital Corp., a $7.6 billion publicly-traded private credit fund, saw its shares tumble by more than 16% on Friday after announcing a 25% dividend cut, the first in seven years. This drastic measure is aimed at shifting the company’s focus towards its core business of first-lien senior-secured loans and equity stakes in mid-sized companies, moving away from riskier investments.
Shifting Focus Amidst Scrutiny
The firm has faced intense scrutiny in recent months over its lending practices, including the share of borrowers who pay by accumulating more debt with the fund. Additionally, its relationship with a real estate investment trust it fully controls and its reliance on retail investors for financing have raised concerns. Moody’s Ratings recently cut the outlook on its Baa3 credit grade to negative, prompting analysts to speculate that the dividend cut is an effort to maintain its investment-grade rating.
Earnings Report Reveals Challenging Quarter
Prospect reported a 28% drop in net investment income to $89.9 million for its first fiscal quarter, compared to the same period last year. Its net asset value per share, a measure of the value of its investments, plummeted to $8.10 at the end of the quarter, the lowest reading since 2020. The company also significantly marked down several loans on its book, including those to National Property REIT Corp. and InterDent Inc.
CEO Apologizes for Previous Outburst
During the earnings call, CEO John F. Barry III apologized to Wells Fargo & Co. analyst Finian O’Shea for lashing out at him during the previous earnings call. Barry acknowledged that his response was unwarranted and deferred questions to Prospect’s president and COO Grier Eliasek.
Challenging Times Ahead
The dividend cut and shift in focus signal a challenging period ahead for Prospect Capital Corp. As the company navigates the current economic landscape, it remains to be seen how its new strategy will impact its performance and investor confidence. One thing is certain – the road ahead will be closely watched by investors and analysts alike.
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