Prospect Capital Corporation (PSEC): Business Model Canvas [11-2024 Updated]

Understanding the business model of Prospect Capital Corporation (PSEC) reveals how this company navigates the complex world of private finance. By leveraging key partnerships and a robust framework, PSEC provides tailored financing solutions that cater to private equity-backed firms and small to mid-sized enterprises. Dive deeper to explore each component of their Business Model Canvas, from their value propositions to revenue streams, and discover how they create value in the financial landscape.

Prospect Capital Corporation (PSEC) - Business Model: Key Partnerships

Collaboration with Financial Sponsors

Prospect Capital Corporation collaborates with various financial sponsors to enhance its investment capabilities. These partnerships are critical in accessing capital and co-investment opportunities. As of September 30, 2024, the total investment income from control investments was $52,382, while the total investment income from non-control/non-affiliate investments was $94,910. This collaboration allows Prospect to leverage the expertise and resources of its financial sponsors, facilitating a diversified investment strategy across various sectors.

Partnerships with Portfolio Companies

Prospect Capital maintains strategic partnerships with its portfolio companies, which include significant equity stakes and debt financing arrangements. For instance, during the three months ended September 30, 2024, Prospect provided $21,615 of debt financing to National Property REIT Corp (NPRC) to support capital expenditures and working capital needs. The fair value of the investment in NPRC was reported at $1,629,967, reflecting the importance of this partnership in the overall investment strategy of Prospect.

Portfolio Company	Debt Financing Provided (in thousands)	Fair Value of Investment (in thousands)
National Property REIT Corp	$21,615	$1,629,967
Nationwide Loan Company LLC	$1,748	$11,735
NMMB, Inc.	$1,070	$21,658

Relationships with Banks and Credit Institutions

Prospect Capital has established robust relationships with banks and credit institutions, which serve as a vital source of funding. As of September 30, 2024, the outstanding balance on its Revolving Credit Facility was $547,231. The effective interest rate on this facility is one-month SOFR plus 205 basis points, indicating a reliance on variable-rate debt financing. These relationships not only provide necessary liquidity but also facilitate strategic financial planning and risk management.

Debt Type	Principal Outstanding (in thousands)	Effective Interest Rate
Revolving Credit Facility	$547,231	1M SOFR + 2.05%
Convertible Notes	$156,168	6.63%
Public Notes	$976,504	3.98% - 6.53%

Prospect Capital Corporation (PSEC) - Business Model: Key Activities

Directly originating and managing loans

Prospect Capital Corporation (PSEC) primarily engages in the origination and management of loans for middle-market privately-held companies. As of September 30, 2024, the company reported total interest income of $184,615,000, which includes both control investments and non-control/non-affiliate investments. The company has been active in providing debt financing, with $290,639,000 in gross investment originations during the three months ended September 30, 2024. The firm’s strategy includes a focus on floating-rate loans, with $4,510,871,000 of loans at fair value bearing interest at floating rates as of the same date.

Conducting due diligence on investment opportunities

Due diligence is a critical component of PSEC’s investment process. The company conducts thorough assessments of potential investment opportunities to evaluate the financial health and operational capabilities of target companies. For the three months ended September 30, 2024, PSEC provided $21,615,000 in debt financing specifically to its portfolio company, National Property REIT Corp. (NPRC), to fund capital expenditures and acquisitions. This diligence process is essential in mitigating risks associated with credit quality, as evidenced by the fair value of loans on non-accrual status amounting to $206,889,000 as of September 30, 2024.

Monitoring portfolio performance and risk management

Monitoring the performance of its investment portfolio is vital for PSEC. The company reported a net investment income of $89,877,000 for the three months ended September 30, 2024. Risk management strategies include evaluating the credit quality of loans and maintaining compliance with covenants associated with their Revolving Credit Facility, which had an outstanding balance of $547,231,000 as of September 30, 2024. The company also assesses the fair value of its investments, which totaled $7,476,641,000 as of the same date.

Key Financial Metrics	September 30, 2024
Total Interest Income	$184,615,000
Gross Investment Originations	$290,639,000
Debt Financing to NPRC	$21,615,000
Net Investment Income	$89,877,000
Outstanding Revolving Credit Facility	$547,231,000
Fair Value of Investments	$7,476,641,000
Loans on Non-Accrual Status	$206,889,000

Prospect Capital Corporation (PSEC) - Business Model: Key Resources

Investment capital from debt and equity

As of September 30, 2024, Prospect Capital Corporation had a total outstanding debt of $2,294,376, which includes:

• Revolving Credit Facility: $547,231
• Convertible Notes: $156,168
• Public Notes: $987,715
• Prospect Capital InterNotes®: $603,262

The effective interest rates on these debts varied, with the Revolving Credit Facility set at 1M SOFR + 205 basis points. The company also reported net assets available to common stockholders of $3,510,813 as of the same date.

Experienced management team and advisors

Prospect Capital's management team consists of experienced professionals with backgrounds in finance, investment management, and operational leadership. The team has demonstrated significant expertise in managing complex investment portfolios, making strategic decisions, and navigating market conditions.

Technology systems for investment analysis and tracking

Prospect Capital employs advanced technology systems for investment analysis and tracking. These systems enable the firm to conduct thorough due diligence on investment opportunities, monitor portfolio performance, and manage risk effectively. The integration of technology in its operations supports the firm’s ability to make informed investment decisions and optimize its portfolio management strategies.

Debt Instrument	Principal Outstanding	Effective Interest Rate	Maturity Date
Revolving Credit Facility	$547,231	1M SOFR + 205 bps	June 2029
Convertible Notes	$156,168	6.63%	2025
Public Notes	$987,715	3.98% - 6.63%	2026-2028
Prospect Capital InterNotes®	$603,262	3.15% - 8.00%	2025-2043

Prospect Capital Corporation (PSEC) - Business Model: Value Propositions

Providing tailored financing solutions for private companies

Prospect Capital Corporation specializes in offering customized financing solutions primarily targeted at middle-market privately-held companies. As of September 30, 2024, the company's total investments amounted to approximately $7.48 billion, with a significant portion allocated to control investments which totaled $3.74 billion in fair value. The firm’s loans to portfolio companies bear interest rates that range from 3.0% to 16.0%. This broad spectrum allows PSEC to address diverse funding needs, accommodating various business models and growth stages.

Generating attractive returns through diversified investments

Prospect Capital aims to generate attractive returns through a diversified investment strategy. As of September 30, 2024, the net asset value (NAV) applicable to common stockholders was reported at $3.51 billion, translating to a NAV per common share of $8.10. The company's investment income for the three months ending September 30, 2024, was approximately $196.31 million, showcasing its ability to generate substantial revenue streams. The diversification across various industries mitigates risks while enhancing the potential for higher returns on investments.

Offering both debt and equity investment options

Prospect Capital provides a mix of debt and equity investment options to cater to the varying needs of its clients. As of September 30, 2024, the company had outstanding debt instruments including $603.26 million in Prospect Capital InterNotes®. This flexibility allows PSEC to engage with portfolio companies at different levels of their capital structure, offering solutions that range from senior secured loans to equity investments, thus maximizing the potential for returns while supporting the growth of its portfolio companies.

Investment Type	Outstanding Amount (in millions)	Interest Rate Range	Investment Fair Value (in millions)
Prospect Capital InterNotes®	$603.26	7.14%	N/A
Control Investments	N/A	N/A	$3,744.51
Floating Rate Loans	$4,510.87	0.0% - 5.5%	N/A
Fixed Rate Loans	$1,172.53	3.0% - 16.0%	N/A

Prospect Capital Corporation (PSEC) - Business Model: Customer Relationships

Building long-term partnerships with portfolio companies

Prospect Capital Corporation (PSEC) focuses on fostering long-term relationships with its portfolio companies. As of September 30, 2024, the cost basis of investments in controlled companies stood at $3,326,598, with a fair value of $3,744,510. This structure facilitates collaboration and support, enhancing the operational capabilities of these companies.

Providing ongoing support and advisory services

PSEC provides continuous support and advisory services to its portfolio companies. During the three months ended September 30, 2024, the company recorded $38,489 in PIK (Payment-in-Kind) interest, demonstrating its engagement with portfolio companies. Additionally, PSEC acquired $213,056 of new investments and completed follow-on investments totaling approximately $32,875 during the same period.

Maintaining transparent communication with investors

PSEC emphasizes transparent communication with its investors. As of September 30, 2024, the Net Asset Value (NAV) per common share was reported at $8.10. The company has also declared monthly cash distributions to common stockholders, amounting to $0.0450 per share for November 2024. This ongoing communication is vital for maintaining investor trust and confidence.

Financial Metric	Value (as of September 30, 2024)
Cost Basis of Controlled Investments	$3,326,598
Fair Value of Controlled Investments	$3,744,510
PIK Interest	$38,489
New Investments Acquired	$213,056
Follow-on Investments	$32,875
Net Asset Value per Common Share	$8.10
Monthly Cash Distribution (Common Stock)	$0.0450

Prospect Capital Corporation (PSEC) - Business Model: Channels

Direct outreach to private companies seeking capital

Prospect Capital Corporation (PSEC) primarily engages in direct outreach to middle-market private companies in need of capital. During the three months ended September 30, 2024, PSEC reported gross investment originations of $290,639, which included $213,056 of new investments and $32,875 in follow-on investments. The company focuses on providing tailored financial solutions, which allows them to capture opportunities directly from companies that require financing for growth, acquisitions, or operational improvements.

Digital platforms for investor relations and updates

PSEC utilizes digital platforms to maintain communication with its investors and stakeholders. As of September 30, 2024, the company had a total net asset value per common share of $8.10, down from $8.74 a year earlier. The company provides regular updates on its financial performance, including quarterly reports that detail investment income, operating expenses, and net investment income. In the three months ended September 30, 2024, total investment income was reported at $196,308. These digital channels not only enhance transparency but also facilitate engagement with current and potential investors.

Industry conferences and networking events for sourcing deals

PSEC actively participates in industry conferences and networking events to source new deals and partnerships. The company’s strategy includes leveraging these events to build relationships with potential portfolio companies and other investors. This approach is crucial for identifying investment opportunities in the competitive middle-market sector. The firm’s investment strategy is evidenced by a significant focus on debt and equity investments, with outstanding borrowings under its Revolving Credit Facility amounting to $547,231 as of September 30, 2024.

Channel Type	Details	Financial Metrics
Direct Outreach	Engagement with private companies for capital needs	Gross Investment Originations: $290,639
Digital Platforms	Investor relations and financial updates	Net Asset Value per Common Share: $8.10
Industry Conferences	Networking for sourcing investment opportunities	Revolving Credit Facility Outstanding Balance: $547,231

Prospect Capital Corporation (PSEC) - Business Model: Customer Segments

Private equity-backed companies

Prospect Capital Corporation (PSEC) primarily targets private equity-backed companies for investment opportunities. As of September 30, 2024, PSEC had invested approximately $3.74 billion in control investments, which includes significant stakes in various private equity-backed entities. The firm focuses on providing tailored financial solutions that support growth and operational enhancements in these companies.

Real estate companies and REITs

PSEC has a dedicated strategy for investing in real estate companies and Real Estate Investment Trusts (REITs). The National Property REIT Corp. (NPRC), a subsidiary of PSEC, focuses on acquiring, operating, and managing a diversified portfolio of real estate assets, including industrial, commercial, and multi-family properties. As of September 30, 2024, PSEC provided $21.6 million in debt financing to NPRC to fund capital expenditures and working capital needs.

Type of Investment	Investment Amount ($ millions)	Focus Areas	Investment Strategy
Private Equity	3,740	Growth, Operational Enhancements	Control Investments, Debt Financing
Real Estate (NPRC)	21.6	Industrial, Commercial, Multi-Family	Debt Financing, Capital Expenditures

Small to mid-sized enterprises in need of capital

PSEC also serves small to mid-sized enterprises (SMEs) that require capital for various operational and growth initiatives. The firm provides flexible financing solutions tailored to the unique needs of these businesses. In the three months ended September 30, 2024, PSEC engaged in new investments totaling $213 million, focusing on SMEs and supporting their expansion strategies.

Category	Investment Amount ($ millions)	Type of Financing	Target Enterprises
Small to Mid-Sized Enterprises	213	Debt Financing, Equity Investments	Growth-Oriented SMEs

Prospect Capital Corporation (PSEC) - Business Model: Cost Structure

Administrative and management fees

For the three months ended September 30, 2024, Prospect Capital Corporation incurred base management fees amounting to $38,606 thousand and income incentive fees of $15,680 thousand.

The total operating expenses related to administrative and management activities for the same period were $106,431 thousand.

Interest expenses on borrowed capital

As of September 30, 2024, the total outstanding debt of Prospect Capital Corporation was $2,294,376 thousand. This includes:

• Revolving Credit Facility: $547,231 thousand with an effective interest rate of 1M SOFR + 2.05%
• 2025 Notes: $156,168 thousand with an effective interest rate of 6.63%
• Convertible Notes: $156,168 thousand
• 2026 Notes: $400,000 thousand with an effective interest rate of 3.98%
• Public Notes: $987,715 thousand
• Prospect Capital InterNotes®: $603,262 thousand with an effective interest rate of 6.53%

The total interest and credit facility expenses for the three months ended September 30, 2024, amounted to $39,760 thousand.

Costs related to due diligence and investment analysis

Costs associated with due diligence and investment analysis are typically embedded within the operating expenses. For the three months ended September 30, 2024, audit, compliance, and tax-related fees were $1,720 thousand. Other general and administrative expenses amounted to $4,807 thousand.

The overall costs related to due diligence and investment analysis contribute to the total operating expenses of $106,431 thousand.

Cost Category	Amount (in thousands)
Base Management Fees	$38,606
Income Incentive Fees	$15,680
Total Operating Expenses	$106,431
Interest and Credit Facility Expenses	$39,760
Audit, Compliance, and Tax Related Fees	$1,720
Other General and Administrative Expenses	$4,807

Prospect Capital Corporation (PSEC) - Business Model: Revenue Streams

Interest income from loans provided

As of September 30, 2024, Prospect Capital Corporation's interest income from loans provided amounted to approximately $196.3 million for the three months ending on that date. The company primarily engages in providing first lien and second lien term loans to various portfolio companies, with interest rates typically ranging from 6.00% to 15.00%. The portfolio includes loans with principal amounts and interest rates as follows:

Loan Type	Principal Amount (in thousands)	Interest Rate (%)	Maturity Date
First Lien First Out Term Loan	8,056	10.88% (3M SOFR + 5.50%)	10/15/2028
First Lien Second Out Term Loan	5,674	12.00% (PIK)	6/13/2028
Payment-In-Kind (PIK) Interest	33,144	N/A	Various

Capital gains from equity investments

Prospect Capital Corporation also generates revenue through capital gains from equity investments. For the three months ended September 30, 2024, the net realized losses from investments were approximately $100.4 million. The portfolio consists of various equity stakes in companies across multiple sectors, contributing to potential capital gains upon exit or sale of these investments. The breakdown of equity investments includes:

Investment Type	Principal Value (in thousands)	Fair Value (in thousands)	% of Net Assets
Control Investments	3,326,598	3,744,510	50.0%
Affiliate Investments	11,735	21,658	0.3%
Non-Control/Non-Affiliate Investments	3,991,005	3,710,473	49.7%

Fees from advisory services and fund management

In addition to interest income and capital gains, Prospect Capital Corporation earns fees from advisory services and fund management. The total income for the three months ended September 30, 2024, was approximately $78.4 million. The company charges fees for managing funds and providing advisory services to portfolio companies, which contribute to its overall revenue stream.

Revenue Source	Amount (in thousands)	Percentage of Total Income
Advisory Fees	15,000	19.1%
Management Fees	63,397	80.9%

Updated on 16 Nov 2024

Resources:

1. Prospect Capital Corporation (PSEC) Financial Statements – Access the full quarterly financial statements for Q1 2025 to get an in-depth view of Prospect Capital Corporation (PSEC)' financial performance, including balance sheets, income statements, and cash flow statements.
2. SEC Filings – View Prospect Capital Corporation (PSEC)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.