I have covered Prospect Capital Corporation (NASDAQ:PSEC) a few times in the past. There is now another piece of good news that I would like to share regarding the company. For those who are reading about the company for the first time, allow me to provide a brief introduction.
Prospect Capital is a business development company. Basically, it helps fund new enterprises in the hopes of getting a return. Think of it as a loan shark for lack of a better word. It specializes in middle market, mature, mezzanine finance, later stage, emerging growth, buyouts, recapitalizations, turnaround, growth capital, development, subordinated debt tranches of collateralized loan obligations, cash-flow term loans, and bridge transactions. It also makes real estate investments particularly in multi-family residential real estate asset class. The fund makes secured debt, senior debt, unitranche debt, first-lien and second lien, private debt, mezzanine debt, and equity investments in private and microcap public businesses.
It typically invests across all industry sectors, with a particular expertise in the energy and industrial sectors. The fund invests in aerospace and defense, chemicals, conglomerate services, consumer services, ecological, electronics, financial services, machinery, manufacturing, media, pharmaceuticals, retail, software, specialty minerals, textiles and leather, transportation, oil and gas production, coal production, materials, industrials, consumer discretionary, information technology, utilities, pipeline, storage, power generation and distribution, renewable and clean energy, oilfield services, healthcare, food and beverage, education, business services, and other select sectors. It prefers to invest in the United States and Canada.
The fund seeks to invest between $10 million to $250 million per transaction in companies with EBITDA between $5 million and $150 million, sales value between $25 million and $500 million, and enterprise value between $5 million and $1.0 billion.
Please see my recent articles on Prospect to learn more about why this stock, in my opinion, is a buy. For those who know all about the company and have suffered through my rendition of the company’s business structure, here is the reason you are reading this article — a small, but important piece of news: Prospect now has more ability to make and fund deals. That’s right, the company recently has increased total commitments to its five-year $1.0 billion revolving credit facility by $10.0 million to $867.5 million in the aggregate.
Why does this matter? Well, the credit facility includes what is known as an accordion feature that allows Prospect to accept up to an aggregate of $1.0 billion of revolving commitments, a target Prospect expects to reach with additional and existing lenders. The $10.0 million commitment comes from one existing lender. The total number of lenders in the facility is now up to 28, more lenders than in any other business development company revolving credit facility. What’s more, the facility has an investment grade Moody’s rating of AA3. Thus, Prospect has shown yet again why it is the best, most stable growing business development company on the market. Steven Stone, Chief Credit Officer of Prospect, stated:
“The upsizing by an existing lender demonstrates continued support of the facility within the bank community. We continue to identify potential new participants for the facility and look forward to increasing the commitments to our $1.0 billion target.”
With a company like Prospect escaping recent SEC inquiries, overcoming a few bad business deals, expanding its credit facility and raising its dividends this year, I reiterate that this stock is a buy.
Disclosure: Christopher F. Davis is long Prospect Capital. He has a buy rating on the stock and a $12.50 price target.