Prospect Capital Corp. (PSEC) saw its shares tumble approximately 9.6% on Friday, following the release of its March-quarter earnings that revealed a decline in net investment income and a reduction in its monthly common dividend. The stock was trading near $2.49, significantly below its net asset value of $6.05 per share as of March 31.
The business development company reported net investment income of $78.5 million, or $0.16 per share, for the quarter ended March 31. This was down from $90.9 million, or $0.19 per share, in the previous quarter and also below the $83.5 million, or $0.19 per share, recorded in the same period last year. Despite beating the FactSet consensus of $0.11, investors focused on the weaker income and the dividend reset.
The company announced a monthly common distribution of $0.035 per share for May through August, a reduction from the $0.045 per share paid for February to April. This move reflects the lower earnings and the ongoing portfolio repositioning. Net asset value per share declined to $6.05 from $6.21 at December 31 and $7.25 a year earlier, underscoring the challenges facing the firm.
Total assets also contracted to $6.38 billion, down from $6.53 billion as of December 31 and below the roughly $7.0 billion reported a year ago. Net income available to common shareholders swung to a positive $26.4 million, or $0.05 per share, compared to a loss of $6.6 million in the prior quarter and a loss of $171.3 million in the year-ago period.
Prospect Capital continued to shift its portfolio toward first-lien senior secured middle-market loans, which carry collateral and sit at the top of the capital structure. First-lien exposure increased to 72.0% of investments at cost, while second-lien exposure fell to 12.4% and subordinated structured notes were reduced to zero. Originations for the March quarter totaled $115.3 million, but repayments and sales reached $222.2 million, resulting in net repayments of approximately $107 million. This indicates the portfolio is still contracting as management works to redeploy capital.
Chairman and CEO John Barry told investors on Friday that the company remains focused on shifting its portfolio into first-lien loans and reducing its exposure to second-lien and structured-note positions. President and COO Grier Eliasek noted that the portfolio included 89 companies across 31 industries, with a fair value near $6.3 billion.
Barry highlighted ongoing artificial intelligence initiatives at Prospect and across its portfolio, describing AI as “the most transformational game changer” in a generation. He mentioned projects underway at portfolio companies such as First Tower, Town & Country, InterDent, Pacific World, and Ubique. However, the company did not provide specific financial impact estimates from these efforts.
On the liquidity front, Prospect reported $1.75 billion in balance-sheet cash and unused revolver credit, with net cash debt at 27.0% of total assets and $4.18 billion in unencumbered assets. CFO Kristin Van Dask stated that the company had “substantially reduced our counterparty risk” by diversifying its funding sources among banks and debt instruments.
The decline in Prospect’s shares was steeper than that of its peers. Ares Capital shares were nearly flat, FS KKR Capital slipped about 2%, and Main Street Capital lost roughly 4.5% during the afternoon session. The lower dividend and ongoing portfolio contraction may continue to weigh on the stock if net asset value keeps declining or repayments outpace new loan origination.