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 September 30, 2020
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 November 6, 2020, there were 380,592,543 shares of the registrant’s common stock, $0.001 par value per share, outstanding.


Table of Contents
 
 
Page
 
3
PART I
FINANCIAL INFORMATION
 
 
 
4
 
5
 
6
 
7
 
8
 
48
104
137
139
PART II
OTHER INFORMATION
 
140
140
144
144
144
145
148
 
 



FORWARD-LOOKING STATEMENTS
This report contains information that may constitute “forward-looking statements.” Generally, the words “believe,” “expect,”
“intend,” “estimate,” “anticipate,” “project,” “will,” “should,” “could,” “may,” “plan” 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, 2020, and those described from time to time in reports that we have filed or in the future may file 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 impact of global health epidemics, including, but not limited to, the recent and ongoing novel coronavirus (“Wuhan Virus”) pandemic, on our and our portfolio companies’ business and the global economy;
•
uncertainty surrounding the financial stability of the United States, Europe, and China;
•
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, and the impact of a protracted decline in the liquidity of credit markets on our and our portfolio companies’ business;
•
the level and volatility of prevailing interest rates and credit spreads, magnified by the current turmoil in the credit markets;
•
the impact of changes in London Interbank Offered Rate (“LIBOR”) on our operating results;
•
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)
 
September 30, 2020
 
June 30, 2020
 
 
 
(Unaudited)
 
(Audited)
Assets
 
 
 

Investments at fair value:
 

 
 

Control investments (amortized cost of $2,321,471 and $2,286,725, respectively)
$
2,307,572

 
$
2,259,292

Affiliate investments (amortized cost of $171,649 and $163,484, respectively)
262,175

 
187,537

Non-control/non-affiliate investments (amortized cost of $3,335,811 and $3,332,509, respectively)
2,816,638

 
2,785,499

Total investments at fair value (amortized cost of $5,828,931 and $5,782,718, respectively)
5,386,385

 
5,232,328

Cash
28,303

 
44,561

Receivables for:
 
 
 
Interest, net
11,011

 
11,712

Other
938

 
106

Deferred financing costs on Revolving Credit Facility (Note 4)
8,596

 
9,145

Due from broker
1,892

 
1,063

Prepaid expenses
907

 
1,248

Due from Affiliate (Note 13)
38

 
—

Total Assets 
5,438,070

 
5,300,163

Liabilities 
 

 
 

Revolving Credit Facility (Notes 4 and 8)
250,993

 
237,536

Public Notes (less unamortized discount and debt issuance costs of $11,011 and $11,613,
  respectively) (Notes 6 and 8)
782,708

 
782,106

Prospect Capital InterNotes® (less unamortized debt issuance costs of $12,959 and $12,802,
respectively) (Notes 7 and 8)
705,362

 
667,427

Convertible Notes (less unamortized debt issuance costs of $7,899 and $8,892,
respectively) (Notes 5 and 8)
422,171

 
450,598

Due to Prospect Capital Management (Note 13)
41,232

 
42,481

Interest payable
17,374

 
29,066

Dividends payable
22,727

 
22,412

Accrued expenses
5,654

 
3,648

Due to Prospect Administration (Note 13)
8,164

 
7,000

Due to broker
—

 
1

Other liabilities
658

 
2,027

Total Liabilities 
2,257,043

 
2,244,302

Commitments and Contingencies (Note 3)


 
 
Net Assets 
$
3,181,027

 
$
3,055,861

 
 
 
 
Components of Net Assets 
 

 
 

Common stock, par value $0.001 per share (1,880,000,000 common shares authorized; 378,776,958 and 373,538,499 issued and outstanding, respectively) (Note 9)
$
379

 
$
374

Paid-in capital in excess of par (Note 9)
4,096,150

 
4,070,874

Total distributable loss
(915,502
)
 
(1,015,387
)
Net Assets 
$
3,181,027

 
$
3,055,861

Net Asset Value Per Share (Note 16) 
$
8.40

 
$
8.18


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 September 30,
 
2020
 
2019
Investment Income
 
 
 
Interest income:
 
 
 
Control investments
$
48,727

 
$
50,866

Affiliate investments
7,362

 
239

Non-control/non-affiliate investments
51,250

 
61,950

Structured credit securities
24,900

 
32,901

Total interest income
132,239

 
145,956

Dividend income:
 
 
 
Control investments
—

 
3,800

Non-control/non-affiliate investments
25

 
454

Total dividend income
25

 
4,254

Other income:
 
 
 
Control investments
9,071

 
11,383

Non-control/non-affiliate investments
1,545

 
290

Total other income (Note 10)
10,616

 
11,673

Total Investment Income
142,880

 
161,883

Operating Expenses
 
 
 
Base management fee (Note 13)
26,850

 
28,463

Income incentive fee (Note 13)
14,386

 
17,765

Interest and credit facility expenses
34,049

 
38,898

Allocation of overhead from Prospect Administration (Note 13)
4,657

 
3,494

Audit, compliance and tax related fees
938

 
375

Directors’ fees
113

 
113

Other general and administrative expenses
4,342

 
1,715

Total Operating Expenses
85,335

 
90,823

Net Investment Income
57,545

 
71,060

Net Realized and Net Change in Unrealized Gains (Losses) from Investments
 
 
 
Net realized gains (losses)
 
 
 
Control investments
2,832

 
—

Non-control/non-affiliate investments
11

 
(2,198
)
Net realized gains (losses)
2,843

 
(2,198
)
Net change in unrealized gains (losses)
 
 
 
Control investments
13,535

 
(39,021
)
Affiliate investments
66,473

 
18,020

Non-control/non-affiliate investments
27,836

 
(27,458
)
Net change in unrealized gains (losses)
107,844

 
(48,459
)
Net Realized and Net Change in Unrealized Gains (Losses) from Investments
110,687

 
(50,657
)
Net realized losses on extinguishment of debt
(486
)
 
(2,338
)
Net Increase in Net Assets Resulting from Operations
$
167,746

 
$
18,065

Net increase in net assets resulting from operations per share
$
0.45

 
$
0.05

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

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
 
 
 
 
Three Months Ended September 30, 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 Increase in Net Assets resulting from Operations:
 














Net investment income
 








71,060


71,060

Net realized losses
 








(4,536
)

(4,536
)
Net change in unrealized losses
 








(48,459
)

(48,459
)
Distributions to Shareholders
 














Distributions from earnings
 








(66,111
)

(66,111
)
Shares issued through reinvestment of dividends
 
232,847





1,544





1,544

Tax reclassifications of net assets (Note 12)
 






(78
)

78


—

Total increase (decrease) for the three months ended September 30, 2019
 
232,847


—


1,466


(47,968
)

(46,502
)
Balance as of September 30, 2019
 
367,363,872


$
367


$
4,041,338


$
(781,932
)

$
3,259,773


 
 
Common Stock
 
 
 
 
Three Months Ended September 30, 2020
 
Shares
 
Par
 
Paid-in capital in excess of par
 
Distributable earnings (loss)
 
Total Net Assets
Balance as of June 30, 2020

373,538,499


$
374


$
4,070,874


$
(1,015,387
)

$
3,055,861

Net Increase in Net Assets resulting from Operations:















Net investment income









57,545


57,545

Net realized gains









2,357


2,357

Net change in unrealized gains









107,844


107,844

Distributions to Shareholders















Distributions from earnings









(67,861
)

(67,861
)
Shares issued through reinvestment of dividends

5,238,459


5


25,276





25,281

Total increase for the three months ended September 30, 2020

5,238,459


5


25,276


99,885


125,166

Balance as of September 30, 2020

378,776,958


$
379


$
4,096,150


$
(915,502
)

$
3,181,027






See notes to consolidated financial statements.
6

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

 
Three Months Ended September 30,
 
2020
 
2019
Operating Activities
 
 
 
Net increase in net assets resulting from operations
$
167,746

 
$
18,065

Net realized losses on extinguishment of debt
486

 
2,338

Net realized (gains) losses on investments
(2,843
)
 
2,198

Net change in unrealized (gains) losses on investments
(107,844
)
 
48,459

Amortization of (accretion of premiums) discounts, net
(14,482
)
 
1,704

Accretion of original issue discount
269

 
254

Amortization of deferred financing costs
1,921

 
2,241

Payment-in-kind interest
(20,341
)
 
(14,498
)
Structuring fees
(170
)
 
(612
)
Change in operating assets and liabilities:
 
 
 
Payments for purchases of investments
(156,630
)
 
(79,430
)
Proceeds from sale of investments and collection of investment principal
148,253

 
245,173

Decrease in due to broker
(1
)
 
—

Decrease in due to Prospect Capital Management
(1,249
)
 
(297
)
Decrease in interest receivable, net
701

 
13,978

Decrease in interest payable
(11,692
)
 
(11,740
)
Increase (decrease) in accrued expenses
2,006

 
(726
)
Increase in due from broker
(829
)
 
(4,121
)
(Decrease) increase in other liabilities
(1,369
)
 
39

(Increase) decrease in other receivables
(832
)
 
3,126

Increase in due from affiliate
(38
)
 
—

Decrease in prepaid expenses
341

 
281

Increase (decrease) in due to Prospect Administration
1,164

 
(1,374
)
Net Cash Provided by Operating Activities
4,567

 
225,058

Financing Activities
 
 
 
Borrowings under Revolving Credit Facility (Note 4)
212,900

 
211,000

Principal payments under Revolving Credit Facility (Note 4)
(199,443
)
 
(270,000
)
Redemptions of Convertible Notes, net (Note 5)
(29,420
)
 
(47,016
)
Issuances of Prospect Capital InterNotes® (Note 7)
38,657

 
95,135

Redemptions of Prospect Capital InterNotes®, net (Note 7)
(565
)
 
(145,459
)
Financing costs paid and deferred
(689
)
 
(5,088
)
Dividends paid
(42,265
)
 
(64,554
)
Net Cash Used in Financing Activities
(20,825
)
 
(225,982
)
Net Decrease in Cash
(16,258
)
 
(924
)
Cash at beginning of period
44,561

 
107,098

Cash at End of Period
$
28,303

 
$
106,174

Supplemental Disclosures
 
 
 
Cash paid for interest
$
43,551

 
$
48,143

Non-Cash Financing Activities
 
 
 
Value of shares issued through reinvestment of dividends
$
25,281

 
$
1,544

Cost basis of investments written off as worthless
$
—

 
$
2,420


See notes to consolidated financial statements.
7

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS AS OF SEPTEMBER 30, 2020 (Unaudited)
(in thousands, except share data)





 
 
 

September 30, 2020 (Unaudited)
 
 
Portfolio Company
Industry
Investments(1)(37)
Acquisition Date(44)
Coupon/Yield
Floor
Legal Maturity
Principal Value
Amortized Cost
Fair
Value(2)
% of Net Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
Control Investments (greater than 25.00% voting control)(40)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CP Energy Services Inc. (20)
Energy Equipment & Services
Senior Secured Term Loan
10/1/2017
12.00% (3ML+ 11.00%)
1.00

12/29/2022
$
37,870

$
37,870

$
34,894

1.1
%
(10)(39)
Senior Secured Term Loan A to Spartan Energy Services, LLC
10/20/2014
9.00% (1ML+ 8.00%)
1.00

12/31/2022
13,156

13,156

13,156

0.3
%
(10)
Series A Preferred Units to Spartan Energy Holdings, Inc. (10,000 shares)
9/25/2020

—

N/A
—

26,193

6,259

0.2
%
(16)
Series B Convertible Preferred Stock (790 shares)
10/30/2015

—

N/A
—

63,225

—

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

—

N/A
—

86,240

—

—
%
(16)








  

226,684

54,309

1.6
%

Credit Central Loan Company, LLC (21)
Consumer Finance
Subordinated Term Loan
12/28/2012
10.00% plus 10.00% PIK
—

6/26/2024
66,126

63,239

66,126

2.1
%
(14)(39)
Class A Units (14,867,312 units)
12/28/2012

—

N/A
—

19,331

12,198

0.4
%
(14)(16)
Net Revenues Interest (25% of Net Revenues)
1/28/2015

—

N/A
—

—

—

—
%
(14)(16)








  

82,570

78,324

2.5
%

Echelon Transportation, LLC
Aerospace & Defense
Senior Secured Term Loan
3/31/2014
11.75% (1ML+ 9.75%) plus 2.25% PIK
2.00

3/31/2022
48,160

48,160

48,160

1.5
%
(10)(39)
Senior Secured Term Loan
12/9/2016
11.00% (1ML+ 9.00%) plus 1.00% PIK
2.00

12/7/2024
21,637

21,637

21,637

0.7
%
(10)(39)
Membership Interest (100%)
3/31/2014

—

N/A
—

22,738

22,327

0.7
%
(16)








  

92,535

92,124

2.9
%

First Tower Finance Company LLC (23)
Consumer Finance
Subordinated Term Loan to First Tower, LLC
6/24/2014
10.00% plus 12.00% PIK
—

6/24/2024
272,158

272,158

272,158

8.6
%
(14)(39)
Class A Units (95,709,910 units)
6/14/2012

—

N/A
—

81,146

237,942

7.5
%
(14)(16)








  

353,304

510,100

16.1
%

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

—

N/A
—

43,892

12,351

0.4
%
(16)








  

43,892

12,351

0.4
%

InterDent, Inc. (29)
Health Care Providers & Services
Senior Secured Term Loan A/B
8/1/2018
11.85% (1ML+ 9.85%)
2.00

9/5/2022
14,250

14,249

14,249

0.4
%
(10)(39)
Senior Secured Term Loan A
8/3/2012
6.50% (1ML+ 5.50%)
1.00

9/5/2022
79,242

79,242

79,242

2.5
%
-10
Senior Secured Term Loan B
8/3/2012
10.00% PIK
—

9/5/2022
131,725

131,725

131,725

4.1
%

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

—

N/A
—

45,118

11,768

0.4
%
(16)








  

270,334

236,984

7.4
%

Kickapoo Ranch Pet Resort
Diversified Consumer Services
Membership Interest (100%)
8/26/2019

—

N/A
—

2,378

3,000

0.1
%
(16)








  

2,378

3,000

0.1
%

MITY, Inc. (25)
Commercial Services & Supplies
Senior Secured Note A
9/19/2013
10.00% (3ML+ 7.00%)
3.00

4/30/2025
26,250

26,250

26,250

0.8
%
(10)
Senior Secured Note B
6/23/2014
10.00% (3ML+ 7.00%) plus 10.00% PIK
3.00

4/30/2025
33,859

33,859

22,729

0.7
%
(10)(39)
Subordinated Unsecured Note to Broda Enterprises ULC
9/19/2013
10.00%
—

1/1/2028
7,200

6,205

—

—
%
(14)
Common Stock (42,053 shares)
9/19/2013

—

N/A
—

6,849

—

—
%
(16)








  

73,163

48,979

1.5
%

National Property REIT Corp. (26)
Equity Real Estate Investment Trusts (REITs) / Online Lending / Structured Finance
Senior Secured Term Loan A
12/31/2018
4.44% (3ML+ 1.44%) plus 3.53% PIK
3.00

12/31/2023
319,379

319,379

319,379

10.0
%
(10)(39)
Senior Secured Term Loan B
12/31/2018
5.00% (3ML+ 2.00%) plus 5.50% PIK
3.00

12/31/2023
30,621

30,621

30,621

1.0
%
(10)(39)
Senior Secured Term Loan C
10/31/2019
11.00% (3ML+ 10.00%) plus 2.25% PIK
1.00

12/31/2023
101,200

101,200

101,200

3.2
%
(10)(39)
Senior Secured Term Loan D
6/19/2020
3.50% (3ML+ 0.50%) plus 2.50% PIK
3.00

12/31/2023
183,425

183,425

183,425

5.8
%
(10)(39)
Residual Profit Interest
12/31/2018

—

N/A
—

—

—

—
%
(35)
Common Stock (3,254,594 shares)
12/31/2013

—

N/A
—

210

278,955

8.8
%
(45)








  

634,835

913,580

28.8
%


See notes to consolidated financial statements.
8

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS AS OF SEPTEMBER 30, 2020 (Unaudited)
(in thousands, except share data)




 
 
 

September 30, 2020 (Unaudited)
 
 
Portfolio Company
Industry
Investments(1)(37)
Acquisition Date(44)
Coupon/Yield
Floor
Legal Maturity
Principal Value
Amortized Cost
Fair
Value(2)
% of Net Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
Control Investments (greater than 25.00% voting control)(40)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nationwide Loan Company LLC (27)
Consumer Finance
Senior Subordinated Term Loan to Nationwide Acceptance LLC
6/18/2014
10.00% plus 10.00% PIK
—

6/18/2021
$
20,260

$
20,260

$
20,260

0.6
%
(14)(39)
Class A Units (38,550,460 units)
1/31/2013

—

N/A
—

20,462

16,836

0.5
%
(14)(16)








  

40,722

37,096

1.1
%

NMMB, Inc. (28)
Media
Delayed Draw Term Loan - $10,000 Commitment
3/25/2020
10.50% (3ML+ 8.50%)
2.00

12/30/2024
—

—

—

—
%
(10)(15)
Senior Secured Note
12/30/2019
10.50% (3ML+ 8.50%)
2.00

12/30/2024
4,987

4,987

4,987

0.2
%
(3)(10)
Common Stock (21,419 shares)
12/30/2019

—

N/A
—

12,869

23,113

0.7
%









  

17,856

28,100

0.9
%

Pacific World Corporation (36)
Personal Products
Revolving Line of Credit - $26,000 Commitment
9/26/2014
8.25% (1ML+ 7.25%)
1.00

9/26/2025
20,825

20,825

20,825

0.7
%
(10)(15)
Senior Secured Term Loan A
12/31/2014
6.25% PIK (1ML+ 5.25%)
1.00

9/26/2025
39,716

39,716

39,716

1.2
%
(10)(39)
Convertible Preferred Equity (273,400 shares)
6/15/2018

—

N/A
—

186,795

6,433

0.2
%
(16)
Common Stock (6,778,414 shares)
9/29/2017

—

N/A
—

—

—

—
%
(16)








  

247,336

66,974

2.1
%

R-V Industries, Inc.
Machinery
Senior Subordinated Note
6/12/2013
10.00% (3ML+ 9.00%)
1.00

3/31/2022
28,623

28,623

28,622

0.9
%
(3)(10)
Common Stock (745,107 shares)
6/26/2007

—

N/A
—

6,866

12,477

0.4
%
(16)








  

35,489

41,099

1.3
%

Universal Turbine Parts, LLC (34)
Trading Companies & Distributors
Delayed Draw Term Loan - $5,000 Commitment
2/28/2019
10.25% (1ML+ 7.75%)
2.50

7/22/2021
2,880

2,880

2,880

0.1
%
(10)(15)
Senior Secured Term Loan A
7/22/2016
6.75% (3ML+ 5.75%)
1.00

7/22/2021
29,900

29,900

25,586

0.8
%
(10)
Senior Secured Term Loan B
7/22/2016
12.75% PIK (3ML+ 11.75%)
1.00

7/22/2021
44,340

32,500

—

—
%
(9)(10)
Common Stock (10,000 units)
12/10/2018

—

N/A
—

—

—

—
%
(16)








  

65,280

28,466

0.9
%

USES Corp. (30)
Commercial Services & Supplies
Senior Secured Term Loan A
3/31/2014
9.00% PIK
—

7/29/2022
51,493

30,651

22,462

0.7
%
(9)
Senior Secured Term Loan B
3/31/2014
15.50% PIK
—

7/29/2022
68,943

35,568

—

—
%
(9)
Common Stock (268,962 shares)
6/15/2016

—

N/A
—

—

—

—
%
(16)








  

66,219

22,462

0.7
%

Valley Electric Company, Inc. (31)
Construction & Engineering
Senior Secured Note to Valley Electric Co. of Mt. Vernon, Inc.
12/31/2012
8.00% (3ML+ 5.00%) plus 2.50% PIK
3.00

12/31/2024
10,430

10,430

10,430

0.3
%
(3)(10)(39)
Senior Secured Note
6/24/2014
8.00% plus 10.00% PIK
—

6/23/2024
33,301

33,301

33,301

1.0
%
(39)
Consolidated Revenue Interest (2.0%)
6/22/2018

—

N/A
—

—

2,332

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

—

N/A
—

25,143

87,561

2.8
%




 
 
 

  

68,874

133,624

4.2
%
 
Total Control Investments (Level 3)
 
$
2,321,471

$
2,307,572

72.5
%
 


See notes to consolidated financial statements.
9

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS AS OF SEPTEMBER 30, 2020 (Unaudited)
(in thousands, except share data)

 
 
 
 
 
 
 
September 30, 2020 (Unaudited)
 
 
Portfolio Company
Industry
Investments(1)(37)
Acquisition Date(44)
Coupon/Yield
Floor
Legal Maturity
Principal Value
Amortized Cost
Fair
Value(2)
% of Net Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
Affiliate Investments (5.00% to 24.99% voting control)(41)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Edmentum Ultimate Holdings, LLC (22)
Diversified Consumer Services
Second Lien Revolving Credit Facility to Edmentum, Inc. - $7,834 Commitment
6/9/2015
5.00% PIK
—

12/9/2021
$
8,648

$
8,648

$
8,648

0.2
%
(15)(39)
Unsecured Senior PIK Note
6/9/2015
8.50% PIK
—

12/9/2021
9,114

9,114

9,114

0.3
%
(39)
Unsecured Junior PIK Note
6/9/2015
10.00% PIK
—

12/9/2021
44,148

32,875

44,148

1.4
%
(39)
Class A Units (370,964 units)
6/9/2015

—

N/A
—

6,577

5,698

0.2
%
(16)
 
 
 





 
57,214

67,608

2.1
%

 Nixon, Inc. (32)
 Textiles, Apparel & Luxury Goods
Common Stock (857 units)
5/12/2017

—

N/A
—

—

—

—
%
(16)
 
 
 





 
—

—

—
%

PGX Holdings, Inc. (6)
Diversified Consumer Services
1.5 Lien Term Loan
5/27/2020
11.50% PIK (12ML+ 10.50%)
1.00

3/29/2024
2,873

2,873

2,873

0.1
%
(10)(39)
Second Lien Term Loan
9/29/2014
15.75% PIK (1ML+ 14.75%)
1.00

9/29/2024
108,758

108,757

108,757

3.4
%
(10)(39)
Common Stock (40,780,359 shares)
5/27/2020

—

N/A
—

—

57,951

1.8
%
(16)
 
 
 





 
111,630

169,581

5.3
%

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

—

N/A
—

2,805

24,986

0.8
%
(16)
 
 
 
 
 
 
 
 
2,805

24,986

0.8
%
 
Total Affiliate Investments (Level 3)
 
$
171,649

$
262,175

8.2
%
 

See notes to consolidated financial statements.
10

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS AS OF SEPTEMBER 30, 2020 (Unaudited)
(in thousands, except share data)





 
 
 
September 30, 2020 (Unaudited)
 
 
Portfolio Company
Industry
Investments(1)(37)
Acquisition Date(44)
Coupon/Yield
Floor
Legal Maturity
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
10/10/2018
7.90% (1ML+ 7.75%)
—

10/1/2026
$
25,000

$
24,859

$
25,000

0.8
%
(3)(8)(10)



 
 
 
 
  

24,859

25,000

0.8
%

ACE Cash Express, Inc.
Consumer Finance
Senior Secured Note
12/15/2017
12.00%
—

12/15/2022
34,498

32,156

29,210

0.9
%
(8)(14)



 
 
 
 
  

32,156

29,210

0.9
%

Ahead Data Blue, LLC
IT Services
Second Lien Term Loan
12/13/2019
10.00% (1ML+ 8.50%)
1.50

11/8/2025
70,000

70,000

70,000

2.2
%
(3)(10)



 
 
 
 
  

70,000

70,000

2.2
%

AmeriLife Holdings, LLC
Insurance
Second Lien Term Loan
4/2/2020
9.50% (6ML+ 8.50%)
1.00

3/18/2028
14,250

13,978

13,978

0.4
%
(8)(10)



 
 
 
 
  

13,978

13,978

0.4
%

Apidos CLO XI
Structured Finance
Subordinated Structured Note
12/6/2012
Residual Interest, current yield 10.40%
—

10/17/2030
40,500

32,862

26,231

0.8
%
(5)(14)



 
 
 
 
  

32,862

26,231

0.8
%

Apidos CLO XII
Structured Finance
Subordinated Structured Note
3/15/2013
Residual Interest, current yield 14.79%
—

4/15/2031
52,203

39,315

30,351

1.0
%
(5)(14)



 
 
 
 
  

39,315

30,351

1.0
%

Apidos CLO XV
Structured Finance
Subordinated Structured Note
9/13/2013
Residual Interest, current yield 13.20%
—

4/21/2031
48,515

40,149

28,846

0.9
%
(5)(14)



 
 
 
 
  

40,149

28,846

0.9
%

Apidos CLO XXII
Structured Finance
Subordinated Structured Note
9/16/2015
Residual Interest, current yield 16.74%
—

4/21/2031
35,855

30,678

25,133

0.8
%
(5)(14)



 
 
 
 
  

30,678

25,133

0.8
%

Atlantis Health Care Group (Puerto Rico), Inc.
Health Care Providers & Services
Revolving Line of Credit - $3,000 Commitment
2/21/2013
10.75% (3ML+ 8.75%)
2.00

4/30/2021
—

—

—

—
%
(10)(15)
Senior Secured Term Loan
2/21/2013
10.75% (3ML+ 8.75%)
2.00

4/30/2021
71,205

71,205

71,205

2.2
%
(3)(10)



 
 
 
 
  

71,205

71,205

2.2
%

Barings CLO 2018-III
Structured Finance
Subordinated Structured Note
10/9/2014
Residual Interest, current yield 5.58%
—

7/20/2029
83,098

47,714

31,875

1.0
%
(5)(14)



 
 
 
 
  

47,714

31,875

1.0
%

Broder Bros., Co.
Textiles, Apparel & Luxury Goods
Senior Secured Note
12/4/2017
9.75% (3ML+ 8.50%)
1.25

12/2/2022
165,390

165,390

165,390

5.2
%
(3)(10)



 
 
 
 
  

165,390

165,390

5.2
%

Brookside Mill CLO Ltd.
Structured Finance
Subordinated Structured Note
4/25/2013
Residual Interest, current yield 0.00%
—

1/17/2028
36,300

17,033

12,204

0.4
%
(5)(14)(17)



 
 
 
 
  

17,033

12,204

0.4
%

California Street CLO IX Ltd.
Structured Finance
Subordinated Structured Note
4/19/2012
Residual Interest, current yield 8.25%
—

7/16/2032
58,915

41,677

27,920

0.9
%
(5)(14)



 
 
 
 
  

41,677

27,920

0.9
%

Candle-Lite Company, LLC
Household Products
Senior Secured Term Loan A
1/23/2018
6.75% (3ML+ 5.50%)
1.25

1/23/2023
11,875

11,875

11,875

0.4
%
(3)(10)
Senior Secured Term Loan B
1/23/2018
10.75% (3ML+ 9.50%)
1.25

1/23/2023
12,500

12,500

12,500

0.4
%
(3)(10)



 
 
 
 
  

24,375

24,375

0.8
%
 
Capstone Logistics Acquisition, Inc.
Commercial Services & Supplies
Second Lien Term Loan
10/7/2014
9.25% (1ML+ 8.25%)
1.00

10/7/2022
98,982

98,811

98,982

3.1
%
(3)(8)(10)



 
 
 
 
  

98,811

98,982

3.1
%
 
Carlyle C17 CLO Limited
Structured Finance
Subordinated Structured Note
1/24/2013
Residual Interest, current yield 19.82%
—

4/30/2031
24,870

15,599

13,480

0.4
%
(5)(14)



 
 
 
 
  

15,599

13,480

0.4
%
 
Carlyle Global Market Strategies CLO 2014-4-R, Ltd.
Structured Finance
Subordinated Structured Note
4/7/2017
Residual Interest, current yield 16.36%
—

7/15/2030
25,534

19,436

16,156

0.5
%
(5)(14)



 
 
 
 
  

19,436

16,156

0.5
%
 
Carlyle Global Market Strategies CLO 2016-3, Ltd.
Structured Finance
Subordinated Structured Note
8/9/2016
Residual Interest, current yield 10.76%
—

10/22/2029
32,200

34,433

26,191

0.8
%
(5)(14)



 
 
 
 
  

34,433

26,191

0.8
%
 

See notes to consolidated financial statements.
11

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS AS OF SEPTEMBER 30, 2020 (Unaudited)
(in thousands, except share data)





 
 
 
September 30, 2020 (Unaudited)
 
 
Portfolio Company
Industry
Investments(1)(37)
Acquisition Date(44)
Coupon/Yield
Floor
Legal Maturity
Principal Value
Amortized Cost
Fair
Value(2)
% of Net Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CCS-CMGC Holdings, Inc.
Health Care Providers & Services
First Lien Term Loan
5/23/2019
5.76% (3ML+ 5.50%)
—

10/1/2025
$
3,615

$
3,568

$
3,615

0.1
%
(3)(8)(10)
First Lien Term Loan
5/23/2019
5.72% (3ML+ 5.50%)
—

10/1/2025
5,984

5,908

5,984

0.2
%
(3)(8)(10)
Second Lien Term Loan
10/12/2018
9.26% (3ML+ 9.00%)
—

10/1/2026
37,000

36,466

37,000

1.2
%
(3)(8)(10)



 
 
 
 
  

45,942

46,599

1.5
%
 
Cent CLO 21 Limited
Structured Finance
Subordinated Structured Note
5/15/2014
Residual Interest, current yield 7.79%
—

7/29/2030
49,552

39,083

27,016

0.8
%
(5)(14)



 
 
 
 
  

39,083

27,016

0.8
%
 
CIFC Funding 2013-III-R, Ltd.
Structured Finance
Subordinated Structured Note
8/2/2013
Residual Interest, current yield 12.54%
—

4/24/2031
44,100

30,064

22,175

0.7
%
(5)(14)



 
 
 
 
  

30,064

22,175

0.7
%
 
CIFC Funding 2013-IV, Ltd.
Structured Finance
Subordinated Structured Note
10/22/2013
Residual Interest, current yield 15.49%
—

4/28/2031
45,500

33,730

28,626

0.9
%
(5)(14)



 
 
 
 
  

33,730

28,626

0.9
%
 
CIFC Funding 2014-IV-R, Ltd.
Structured Finance
Subordinated Structured Note
8/5/2014
Residual Interest, current yield 10.76%
—

10/17/2030
44,467

31,478

21,047

0.7
%
(5)(14)



 
 
 
 
  

31,478

21,047

0.7
%
 
CIFC Funding 2016-I, Ltd.
Structured Finance
Subordinated Structured Note
12/9/2016
Residual Interest, current yield 9.78%
—

10/21/2031
34,000

30,301

27,045

0.9
%
(5)(14)



 
 
 
 
  

30,301

27,045

0.9
%
 
Cinedigm DC Holdings, LLC
Entertainment
Senior Secured Term Loan
2/28/2013
11.00% (3ML+ 9.00%) plus 2.50% PIK
2.00

3/31/2021
12,107

12,057

12,038

0.4
%
(10)(39)



 
 
 
 
  

12,057

12,038

0.4
%
 
Class Valuation, LLC
Real Estate Management & Development
Senior Secured Term Loan
3/12/2018
9.75% (3ML+ 8.25%)
1.50

3/10/2023
31,537

31,537

31,537

1.0
%
(3)(10)



 
 
 
 
  

31,537

31,537

1.0
%
 
Collections Acquisition Company, Inc.
Diversified Financial Services
Senior Secured Term Loan
12/3/2019
10.15% (3ML+ 7.65%)
2.50

6/3/2024
30,165

30,165

30,165

0.9
%
(3)(10)



 
 
 
 
  

30,165

30,165

0.9
%
 
Columbia Cent CLO 27 Limited
Structured Finance
Subordinated Structured Note
12/18/2013
Residual Interest, current yield 6.24%
—

10/25/2028
40,275

23,202

18,935

0.6
%
(5)(14)



 
 
 
 
  

23,202

18,935

0.6
%

Coverall North America, Inc.
Commercial Services & Supplies
Senior Secured Term Loan A
11/2/2015
7.00% (3ML+ 6.00%)
1.00

5/3/2021
—

—

—

—
%
(3)(10)
 
 
 
 
 
 
 
 
21,872

21,872

0.7
%
 
CP VI Bella Midco
IT Services
Second Lien Term Loan
2/26/2018
6.90% (1ML+ 6.75%)
—

12/29/2025
15,750

15,712

15,750

0.5
%
(3)(8)(10)



 
 
 
 
  

15,712

15,750

0.5
%

Curo Group Holdings Corp.
Consumer Finance
Second Lien Term Loan
7/30/2020
—
—

9/1/2025
3,421

2,757

2,870

0.1
%

 
 
 
 
 
 
 
 
2,757

2,870

0.1
%

Digital Room, LLC
Commercial Services & Supplies
First Lien Term Loan
5/29/2019
5.27% (6ML+ 5.00%)
—

5/21/2026
9,875

9,769

9,631

0.3
%
(3)(8)(10)
Second Lien Term Loan
5/30/2019
9.27% (6ML+ 9.00%)
—

5/21/2027
70,000

70,000

68,199

2.1
%
(3)(8)(10)



 
 
 
 
  

79,769

77,830

2.4
%
 
Dunn Paper, Inc.
Paper & Forest Products
First Lien Term Loan
11/27/2019
5.75% (2ML+ 4.75%)
1.00

8/26/2022
3,541

3,475

3,475

0.1
%
(3)(8)(10)
First Lien Term Loan
11/27/2019
5.75% (1ML+ 4.75%)
1.00

8/26/2022
947

929

929

—
%
(3)(8)(10)
Second Lien Term Loan
10/7/2016
9.75% (1ML+ 8.75%)
1.00

8/26/2023
11,500

11,404

11,404

0.4
%
(3)(8)(10)




 
 
 
  

15,808

15,808

0.5
%
 
Easy Gardener Products, Inc.
Household Durables
Third Lien Term Loan
6/11/2020
10.25% (3ML+ 10.00%)
0.25

9/30/2024
3,980

3,980

3,980

0.1
%
(10)
Class A Units of EZG Holdings, Inc. (200 units)
6/11/2020

—

N/A
—

312

781

—
%
(16)
Class B Units of EZG Holdings, Inc. (12,525 units)
6/11/2020

—

N/A
—

1,688

5,029

0.2
%
(16)








  

5,980

9,790

0.3
%


See notes to consolidated financial statements.
12

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS AS OF SEPTEMBER 30, 2020 (Unaudited)
(in thousands, except share data)





 
 
 
September 30, 2020 (Unaudited)
 
 
Portfolio Company
Industry
Investments(1)(37)
Acquisition Date(44)
Coupon/Yield
Floor
Legal Maturity
Principal Value
Amortized Cost
Fair
Value(2)
% of Net Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
EDSCO Holding Company LLC
Machinery
Senior Secured Term Loan
1/10/2020
7.50% (1ML+ 6.00%)
1.50

1/10/2025
$
17,703

$
17,703

$
17,703

0.6
%
(3)(10)








  

17,703

17,703

0.6
%

Engine Group, Inc. (7)
Media
Senior Secured Term Loan
9/25/2017
6.00% (1ML+ 5.00%)
1.00

9/15/2022
4,220

4,220

3,204

0.1
%
(8)(9)(10)
Second Lien Term Loan
9/25/2017
10.00% (1ML+ 9.00%)
1.00

9/15/2023
35,000

35,000

7,386

0.2
%
(8)(9)(10)








  

39,220

10,590

0.3
%

EXC Holdings III Corp
Technology Hardware, Storage & Peripherals
Second Lien Term Loan
12/5/2017
8.50% (3ML+ 7.50%)
1.00

12/1/2025
12,500

12,419

12,377

0.4
%
(3)(8)(10)








  

12,419

12,377

0.4
%

First Brands Group
Auto Components
First Lien Term Loan
8/6/2020
8.50% (2ML+ 7.50%)
1.00

2/2/2024
27,179

25,724

26,477

0.8
%
(3)(8)(10)








  

25,724

26,477

0.8
%

Galaxy XV CLO, Ltd.
Structured Finance
Subordinated Structured Note
2/13/2013
Residual Interest, current yield 13.37%
—

10/15/2030
50,525

35,931

25,611

0.8
%
(5)(14)








  

35,931

25,611

0.8
%

Galaxy XXVII CLO, Ltd.
Structured Finance
Subordinated Structured Note
9/30/2013
Residual Interest, current yield 12.40%
—

5/16/2031
24,575

16,679

11,559

0.4
%
(5)(14)








  

16,679

11,559

0.4
%

Galaxy XXVIII CLO, Ltd.
Structured Finance
Subordinated Structured Note
5/30/2014
Residual Interest, current yield 11.41%
—

7/15/2031
39,905

29,154

16,170

0.5
%
(5)(14)








  

29,154

16,170

0.5
%

GEON Performance Solutions, LLC
Chemicals
Revolving Line of Credit - $3,621 Commitment
12/12/2019
7.88% (1ML+ 6.25%)
1.63

10/25/2024
—

—

—

—
%
(10)(15)
First Lien Term Loan
12/12/2019
7.88% (1ML+ 6.25%)
1.63

10/25/2024
31,222

31,077

31,222

1.0
%
(3)(10)








  

31,077

31,222

1.0
%

Global Tel*Link Corporation
Diversified Telecommunication Services
First Lien Term Loan
8/20/2019
4.40% (1ML+ 4.25%)
—

11/29/2025
9,874

9,536

9,471

0.3
%
(3)(8)(10)
Second Lien Term Loan
12/4/2018
8.40% (1ML+ 8.25%)
—

11/29/2026
40,170

39,424

39,082

1.2
%
(3)(8)(10)








  

48,960

48,553

1.5
%

GlobalTranz Enterprises, Inc.
Air Freight & Logistics
Second Lien Term Loan
5/15/2019
8.39% (1ML+ 8.25%)
—

5/15/2027
12,500

12,500

10,386

0.3
%
(3)(8)(10)








  

12,500

10,386

0.3
%

Eze Castle Integration, Inc. (f/k/a/ H.I.G. ECI Merger Sub, Inc.)
IT Services
First Lien Term Loan
7/15/2020
10.00% (1ML+ 8.50%)
1.50

7/15/2025
48,094

48,094

48,094

1.5
%
(3)(10)
Delayed Draw Term Loan - $1,786 Commitment
7/15/2020
10.00% (1ML+ 8.50%)
1.50

7/15/2025
—

—

—

—
%
(3)(10)(15)








  

48,094

48,094

1.5
%

Halcyon Loan Advisors Funding 2012-1 Ltd.
Structured Finance
Subordinated Structured Note
8/7/2012
Residual Interest, current yield 0.00%
—

8/15/2023
23,188

3,726

—

—
%
(5)(14)(17)








  

3,726

—

—
%

Halcyon Loan Advisors Funding 2013-1 Ltd.
Structured Finance
Subordinated Structured Note
3/8/2013
Residual Interest, current yield 0.00%
—

4/15/2025
40,400

19,984

—

—
%
(5)(14)(17)








  

19,984

—

—
%

Halcyon Loan Advisors Funding 2014-1 Ltd.
Structured Finance
Subordinated Structured Note
2/7/2014
Residual Interest, current yield 0.00%
—

4/20/2026
24,500

11,822

—

—
%
(5)(14)(17)








  

11,822

—

—
%

Halcyon Loan Advisors Funding 2014-2 Ltd.
Structured Finance
Subordinated Structured Note
4/14/2014
Residual Interest, current yield 0.00%
—

4/28/2025
41,164

21,322

—

—
%
(5)(14)(17)








  

21,322

—

—
%

Halcyon Loan Advisors Funding 2015-3 Ltd.
Structured Finance
Subordinated Structured Note
7/23/2015
Residual Interest, current yield 0.00%
—

10/18/2027
39,598

29,671

15,189

0.5
%
(5)(14)(17)








  

29,671

15,189

0.5
%


See notes to consolidated financial statements.
13

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS AS OF SEPTEMBER 30, 2020 (Unaudited)
(in thousands, except share data)





 
 
 
September 30, 2020 (Unaudited)
 
 
Portfolio Company
Industry
Investments(1)(37)
Acquisition Date(44)
Coupon/Yield
Floor
Legal Maturity
Principal Value
Amortized Cost
Fair
Value(2)
% of Net Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Halyard MD OpCo, LLC
Media
First Lien Term Loan
8/6/2018
10.00% (3ML+ 8.00%)
2.00

8/6/2023
$
10,265

$
10,265

$
10,265

0.3
%
(3)(10)








  

10,265

10,265

0.3
%

HarbourView CLO VII-R, Ltd.
Structured Finance
Subordinated Structured Note
6/5/2015
Residual Interest, current yield 0.00%
—

7/18/2031
19,025

12,817

5,010

0.2
%
(5)(14)(17)








  

12,817

5,010

0.2
%

Help/Systems Holdings, Inc.
Software
First Lien Term Loan
11/29/2019
5.75% (3ML+ 4.75%)
1.00

11/19/2026
8,458

8,386

8,458

0.3
%
(3)(8)(10)
Second Lien Term Loan
11/22/2019
9.00% (3ML+ 8.00%)
1.00

11/19/2027
17,500

17,198

17,198

0.5
%
(3)(8)(10)








  

25,584

25,656

0.8
%

Inpatient Care Management Company, LLC
Health Care Providers & Services
Senior Secured Term Loan
6/8/2016
9.00% (3ML+ 8.00%)
1.00

6/8/2021
14,000

14,000

13,973

0.4
%
(3)(10)








  

14,000

13,973

0.4
%

Jefferson Mill CLO Ltd.
Structured Finance
Subordinated Structured Note
6/26/2015
Residual Interest, current yield 10.39%
—

10/20/2031
23,594

19,760

12,476

0.4
%
(5)(14)








  

19,760

12,476

0.4
%

K&N Parent, Inc.
Auto Components
First Lien Term Loan
3/3/2020
5.75% (1ML+ 4.75%)
1.00

10/20/2023
1,431

1,255

1,382

—
%
(3)(8)(10)
Second Lien Term Loan
10/28/2016
9.75% (1ML+ 8.75%)
1.00

10/21/2024
25,887

25,553

24,160

0.8
%
(3)(8)(10)








  

26,808

25,542

0.8
%

Keystone Acquisition Corp. (4)
Health Care Providers & Services
Second Lien Term Loan
5/18/2017
10.25% (3ML+ 9.25%)
1.00

5/1/2025
50,000

50,000

49,692

1.6
%
(3)(8)(10)








  

50,000

49,692

1.6
%

LCM XIV Ltd.
Structured Finance
Subordinated Structured Note
6/25/2013
Residual Interest, current yield 12.46%
—

7/21/2031
49,934

28,707

19,322

0.6
%
(5)(14)








  

28,707

19,322

0.6
%

Legility, LLC
Professional Services
First Lien Term Loan
2/28/2020
7.00% (6ML+ 6.00%)
1.00

12/17/2025
19,750

19,390

19,750

0.6
%
(3)(8)(10)








  

19,390

19,750

0.6
%

LGC US FINCO, LLC
Machinery
First Lien Term Loan
1/24/2020
7.50% (1ML+ 6.50%)
1.00

12/20/2025
29,550

28,758

26,562

0.8
%
(3)(8)(10)








  

28,758

26,562

0.8
%

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

—

N/A
—

—

—

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

—

N/A
—

—

—

—
%
(16)








  

—

—

—
%

Medusind Acquisition, Inc. (19)
Health Care Providers & Services
First Lien Term Loan
9/30/2019
9.00% (3ML+ 8.00%)
1.00

4/8/2024
24,324

24,032

23,674

0.7
%
(3)(10)








  

24,032

23,674

0.7
%

Mountain View CLO 2013-I Ltd.
Structured Finance
Subordinated Structured Note
4/17/2013
Residual Interest, current yield 1.15%
—

10/15/2030
43,650

28,516

15,324

0.5
%
(5)(14)








  

28,516

15,324

0.5
%

Mountain View CLO IX Ltd.
Structured Finance
Subordinated Structured Note
5/13/2015
Residual Interest, current yield 14.50%
—

7/15/2031
47,830

29,590

26,834

0.8
%
(5)(14)








  

29,590

26,834

0.8
%

Octagon Investment Partners XV, Ltd.
Structured Finance
Subordinated Structured Note
1/24/2013
Residual Interest, current yield 11.73%
—

7/19/2030
42,064

32,969

24,504

0.8
%
(5)(14)








  

32,969

24,504

0.8
%

Octagon Investment Partners 18-R Ltd.
Structured Finance
Subordinated Structured Note
8/12/2015
Residual Interest, current yield 16.00%
—

4/16/2031
46,016

25,925

18,360

0.6
%
(5)(14)








  

25,925

18,360

0.6
%

Pearl Intermediate Parent LLC
Health Care Providers & Services
Second Lien Term Loan
2/28/2018
6.40% (1ML+ 6.25%)
—

2/15/2026
5,000

4,983

4,994

0.2
%
(3)(8)(10)








  

4,983

4,994

0.2
%


See notes to consolidated financial statements.
14

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS AS OF SEPTEMBER 30, 2020 (Unaudited)
(in thousands, except share data)





 
 
 
September 30, 2020 (Unaudited)
 
 
Portfolio Company
Industry
Investments(1)(37)
Acquisition Date(44)
Coupon/Yield
Floor
Legal Maturity
Principal Value
Amortized Cost
Fair
Value(2)
% of Net Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
PeopleConnect Holdings, LLC (11)
Interactive Media & Services
Revolving Line of Credit - $8,918 Commitment
1/22/2020
10.00% (1ML+ 8.25%)
1.75

1/22/2025
$
—

$
—

$
—

—
%
(10)(15)
Delayed Draw Term Loan - $5,000 Commitment
1/22/2020
10.00% (3ML+ 8.25%)
1.75

1/22/2021
—

—

—

—
%
(10)(15)
Senior Secured Term Loan
1/22/2020
10.00% (3ML+ 8.25%)
1.75

1/22/2025
195,577

195,577

195,577

6.1
%
(3)(10)








  

195,577

195,577

6.1
%

PG Dental Holdings New Jersey, LLC
Health Care Providers & Services
Delayed Draw Term Loan - $5,000 Commitment
5/31/2019
10.00% (3ML+ 7.25%)
2.75

5/31/2024
2,500

2,500

2,500

0.1
%
(3)(10)(15)
Senior Secured Term Loan
5/31/2019
10.00% (3ML+ 7.25%)
2.75

5/31/2024
22,185

22,185

22,185

0.7
%
(3)(10)








  

24,685

24,685

0.8
%

PlayPower, Inc.
Leisure Products
First Lien Term Loan
5/16/2019
5.72% (3ML+ 5.50%)
—

5/10/2026
6,246

6,194

5,993

0.2
%
(3)(8)(10)








  

6,194

5,993

0.2
%

Research Now Group, Inc. & Survey Sampling International LLC
Professional Services
First Lien Term Loan
1/5/2018
6.50% (6ML+ 5.50%)
1.00

12/20/2024
9,725

9,404

9,619

0.3
%
(3)(8)(10)
Second Lien Term Loan
1/5/2018
10.50% (6ML+ 9.50%)
1.00

12/20/2025
50,000

47,727

49,167

1.5
%
(3)(8)(10)








  

57,131

58,786

1.8
%

RGIS Services, LLC
Commercial Services & Supplies
Senior Secured Term Loan
6/25/2020
8.50% (3ML+ 7.50%)
1.00

6/25/2025
8,822

8,822

8,822

0.2
%
(8)(10)
Membership Interest (4.34%)
6/25/2020

—

N/A
—

10,303

8,419

0.3
%
(16)








  

19,125

17,241

0.5
%

RME Group Holding Company
Media
Senior Secured Term Loan A
5/4/2017
7.00% (3ML+ 6.00%)
1.00

5/4/2022
27,459

27,458

27,153

0.8
%
(3)(10)
Senior Secured Term Loan B
5/4/2017
12.00% (3ML+ 11.00%)
1.00

5/4/2022
22,286

22,286

22,032

0.7
%
(3)(10)








  

49,744

49,185

1.5
%

Rocket Software, Inc.
Software
Second Lien Term Loan
12/7/2018
8.51% (3ML+ 8.25%)
—

11/27/2026
50,000

49,615

48,730

1.5
%
(3)(8)(10)








  

49,615

48,730

1.5
%

Romark WM-R Ltd.
Structured Finance
Subordinated Structured Note
4/11/2014
Residual Interest, current yield 10.90%
—

4/21/2031
27,725

23,604

14,940

0.5
%
(5)(14)








  

23,604

14,940

0.5
%

Rosa Mexicano
Hotels, Restaurants & Leisure
Revolving Line of Credit - $500 Commitment
3/29/2018
6.50% (3ML+ 5.25%) plus 2.25% PIK
1.25

3/29/2023
510

510

465

—
%
(10)(15)(39)
Senior Secured Term Loan
3/29/2018
6.50% (3ML+ 5.25%) plus 2.25% PIK
1.25

3/29/2023
23,324

23,324

21,256

0.7
%
(10)(39)








  

23,834

21,721

0.7
%

Securus Technologies Holdings, Inc.
Communications Equipment
First Lien Term Loan
9/3/2019
5.50% (6ML+ 4.50%)
1.00

11/1/2024
9,898

9,142

9,007

0.3
%
(8)(10)
Second Lien Term Loan
11/3/2017
9.25% (6ML+ 8.25%)
1.00

11/1/2025
50,662

50,539

45,184

1.4
%
(3)(8)(10)








  

59,681

54,191

1.7
%

SEOTownCenter, Inc.
IT Services
Senior Secured Term Loan A
4/10/2018
7.73% (3ML+ 7.50%)
—

4/7/2023
24,644

24,643

24,644

0.8
%
(3)(10)(39)
Senior Secured Term Loan B
4/10/2018
12.73% (3ML+ 12.50%)
—

4/7/2023
19,119

19,119

19,119

0.6
%
(3)(10)(39)








  

43,762

43,763

1.4
%

Shearer’s Foods, LLC
Food Products
Second Lien Term Loan
9/28/2020
8.75% (3ML+ 7.75%)
1.00

9/23/2028
5,000

4,900

4,938

0.2
%
(8)(10)








  

4,900

4,938

0.2
%

Shutterfly, Inc.
Internet & Direct Marketing Retail
First Lien Term Loan
12/9/2019
7.00% (3ML+ 6.00%)
1.00

9/25/2026
17,419

15,775

16,562

0.5
%
(3)(8)(10)








  

15,775

16,562

0.5
%

Sorenson Communications, LLC
Diversified Telecommunication Services
First Lien Term Loan
5/8/2019
6.72% (3ML+ 6.50%)
—

4/29/2024
7,564

7,507

7,564

0.2
%
(3)(8)(10)








  

7,507

7,564

0.2
%


See notes to consolidated financial statements.
15

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS AS OF SEPTEMBER 30, 2020 (Unaudited)
(in thousands, except share data)





 
 
 
September 30, 2020 (Unaudited)
 
 
Portfolio Company
Industry
Investments(1)(37)
Acquisition Date(44)
Coupon/Yield
Floor
Legal Maturity
Principal Value
Amortized Cost
Fair
Value(2)
% of Net Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Spectrum Holdings III Corp
Health Care Equipment & Supplies
Second Lien Term Loan
2/13/2018
8.00% (6ML+ 7.00%)
1.00

1/31/2026
$
7,500

$
7,475

$
5,845

0.2
%
(3)(8)(10)








  

7,475

5,845

0.2
%

Staples, Inc.
Distributors
First Lien Term Loan
12/3/2019
5.25% (3ML+ 5.00%)
—

4/16/2026
8,932

8,854

8,438

0.3
%
(3)(8)(10)








  

8,854

8,438

0.3
%

Strategic Materials
Household Durables
Second Lien Term Loan
11/1/2017
8.75% (3ML+ 7.75%)
1.00

11/1/2025
7,000

6,956

5,249

0.2
%
(3)(8)(10)








  

6,956

5,249

0.2
%

Sudbury Mill CLO Ltd.
Structured Finance
Subordinated Structured Note
11/14/2013
Residual Interest, current yield 0.00%
—

1/19/2026
28,200

13,875

3,135

0.1
%
(5)(14)(17)








  

13,875

3,135

0.1
%

Symphony CLO XIV, Ltd.
Structured Finance
Subordinated Structured Note
5/6/2014
Residual Interest, current yield 0.00%
—

7/14/2026
49,250

29,076

15,318

0.5
%
(5)(14)(17)








  

29,076

15,318

0.5
%

Symphony CLO XV, Ltd.
Structured Finance
Subordinated Structured Note
10/17/2014
Residual Interest, current yield 8.04%
—

1/19/2032
63,831

43,830

22,567

0.7
%
(5)(14)








  

43,830

22,567

0.7
%

TGP HOLDINGS III LLC
Household Durables
Second Lien Term Loan
10/3/2017
9.50% (3ML+ 8.50%)
1.00

9/25/2025
3,000

2,972

3,000

0.1
%
(8)(10)








  

2,972

3,000

0.1
%

The Octave Music Group, Inc. (f/k/a Touchtunes Interactive Networks, Inc.)
Entertainment
First Lien Term Loan
3/6/2020
6.25% (1ML+ 5.25%) plus 0.75% PIK
1.00

5/29/2025
38,573

38,225

37,002

1.2
%
(8)(10)(39)








  

38,225

37,002

1.2
%

Town & Country Holdings, Inc.
Distributors
First Lien Term Loan
1/26/2018
8.73% (3ML+ 8.50%)
—

1/26/2023
163,521

163,521

163,521

5.1
%
(3)(10)(39)








  

163,521

163,521

5.1
%

Transplace Holdings, Inc.
Transportation Infrastructure
Second Lien Term Loan
10/16/2017
9.75% (6ML+ 8.75%)
1.00

10/6/2025
28,104

27,683

27,683

0.9
%
(3)(8)(10)








  

27,683

27,683

0.9
%

United Sporting Companies, Inc. (18)
Distributors
Second Lien Term Loan
9/28/2012
12.75% (1ML+ 11.00%) plus 2.00% PIK
1.75

11/16/2019
147,423

105,431

6,580

0.2
%
(9)(10)








  

105,431

6,580

0.2
%

Universal Fiber Systems, LLC
Textiles, Apparel & Luxury Goods
Second Lien Term Loan
10/16/2015
10.50% (1ML+ 9.50%)
1.00

10/2/2022
37,000

36,789

34,797

1.1
%
(3)(8)(10)








  

36,789

34,797

1.1
%

Upstream Newco, Inc.
Health Care Providers & Services
First Lien Term Loan
12/2/2019
4.65% (1ML+ 4.50%)
—

11/20/2026
8,210

8,172

8,018

0.2
%
(3)(8)(10)
Second Lien Term Loan
12/2/2019
8.65% (1ML+ 8.50%)
—

11/20/2027
22,000

21,816

21,869

0.7
%
(3)(8)(10)








  

29,988

29,887

0.9
%

USG Intermediate, LLC
Leisure Products
Revolving Line of Credit - $3,000 Commitment
4/15/2015
10.25% (1ML+ 9.25%)
1.00

8/24/2021
3,000

3,000

3,000

0.1
%
(10)(15)
Senior Secured Term Loan B
4/15/2015
12.75% (1ML+ 11.75%)
1.00

8/24/2022
16,393

16,393

16,393

0.5
%
(3)(10)
Equity
4/15/2015

—

N/A
—

1

—

—
%
(16)








  

19,394

19,393

0.6
%

Venio LLC
Professional Services
Second Lien Term Loan
2/19/2014
4.00% plus 10.00% PIK (3ML + 7.50%)
—

2/19/2020
18,196

18,196

18,196

0.6
%
(10)(39)








  

18,196

18,196

0.6
%

Versant Health Holdco, Inc. (f/k/a Wink Holdco, Inc.)
Insurance
Second Lien Term Loan
12/12/2017
7.75% (1ML+ 6.75%)
1.00

12/1/2025
3,000

2,990

3,000

0.1
%
(3)(8)(10)








  

2,990

3,000

0.1
%

Voya CLO 2012-4, Ltd.
Structured Finance
Subordinated Structured Note
11/5/2012
Residual Interest, current yield 5.31%
—

10/15/2030
40,613

30,399

23,584

0.7
%
(5)(14)








  

30,399

23,584

0.7
%


See notes to consolidated financial statements.
16

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS AS OF SEPTEMBER 30, 2020 (Unaudited)
(in thousands, except share data)





 
 
 
September 30, 2020 (Unaudited)
 
 
Portfolio Company
Industry
Investments(1)(37)
Acquisition Date(44)
Coupon/Yield
Floor
Legal Maturity
Principal Value
Amortized Cost
Fair
Value(2)
% of Net Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Voya CLO 2014-1, Ltd.
Structured Finance
Subordinated Structured Note
2/5/2014
Residual Interest, current yield 4.95%
—

4/18/2031
$
40,772

$
30,683

$
18,428

0.6
%
(5)(14)








  

30,683

18,428

0.6
%

Voya CLO 2016-3, Ltd.
Structured Finance
Subordinated Structured Note
9/30/2016
Residual Interest, current yield 8.36%
—

10/20/2031
28,100

26,204

19,485

0.6
%
(5)(14)








  

26,204

19,485

0.6
%

Voya CLO 2017-3, Ltd.
Structured Finance
Subordinated Structured Note
6/13/2017
Residual Interest, current yield 9.80%
—

7/22/2030
44,885

49,945

39,467

1.3
%
(5)(14)








  

49,945

39,467

1.3
%

VT Topco, Inc.
Commercial Services & Supplies
Second Lien Term Loan
8/23/2018
7.15% (1ML+ 7.00%)
—

8/17/2026
7,000

6,974

6,688

0.2
%
 








  

6,974

6,688

0.2
%
 
Total Non-Control/Non-Affiliate Investments (Level 3)
 
$
3,335,811

$
2,816,638

88.5
%
 
 
 
 
 
 
 
Total Portfolio Investments (Level 3)
 
$
5,828,931

$
5,386,385

169.2
%
 

See notes to consolidated financial statements.
17

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS AS OF JUNE 30, 2020
(in thousands, except share data)


 
 
 
 
 
 
 
June 30, 2020
 
Portfolio Company
Industry
Investments(1)(38)
Acquisition Date(44)
Coupon/Yield
Floor
Legal Maturity
Principal Value
Amortized Cost
Fair
Value(2)
% of 
Net Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
LEVEL 3 PORTFOLIO INVESTMENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Control Investments (greater than 25.00% voting control)(42)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CP Energy Services Inc. (20)
Energy Equipment & Services
Senior Secured Term Loan
10/1/2017
12.00% (3ML+ 11.00%)
1.00

12/29/2022
$
36,744

$
36,744

$
36,744

1.2%
(10)(39)
Senior Secured Term Loan A to Spartan Energy Services, LLC
10/20/2014
9.00% (1ML+ 8.00%)
1.00

12/31/2022
13,156

13,156

13,156

0.4%
(10)
Senior Secured Term Loan B to Spartan Energy Services, LLC
10/20/2014
15.00% PIK (1ML+ 14.00%)
1.00

12/31/2022
25,234

23,360

5,555

0.1%

Series B Convertible Preferred Stock (790 shares)
10/30/2015
 
—

N/A
—

63,225

14,430

0.5%
(16)
Common Stock (102,924 shares)
8/2/2013
 
—

N/A
—

86,241

—

—%
(16)
 
 
 
 
 
 
 
 
222,726

69,885

2.2%
 
Credit Central Loan Company, LLC (21)
Consumer Finance
Subordinated Term Loan
12/28/2012
10.00% plus 10.00% PIK
—

6/26/2024
62,859

59,870

62,859

2.1%
(14)(39)
Class A Units (14,867,312 units)
12/28/2012
 
—

N/A
—

19,331

12,826

0.4%
(14)(16)
Net Revenues Interest (25% of Net Revenues)
1/28/2015
 
—

N/A
—

—

—

—%
(14)(16)
 
 
 
 
 
 
 
 
79,201

75,685

2.5%
 
Echelon Transportation, LLC
Aerospace & Defense
Senior Secured Term Loan
3/31/2014
11.75% (1ML+ 9.75%) plus 2.25% PIK
2.00

3/31/2022
45,072

45,072

45,072

1.4%
(10)(39)
Senior Secured Term Loan
12/9/2016
11.00% (1ML+ 9.00%) plus 1.00% PIK
2.00

12/7/2024
20,399

20,399

20,399

0.7%
(10)(39)
Membership Interest (100%)
3/31/2014
 
—

N/A
—

22,737

20,156

0.7%
(16)
 
 
 
 
 
 
 
 
88,208

85,627

2.8%
 
First Tower Finance Company LLC (23)
Consumer Finance
Subordinated Term Loan to First Tower, LLC
6/24/2014
10.00% plus 10.50% PIK
—

6/24/2024
277,069

277,069

277,069

9.0%
(14)(39)
Class A Units (95,709,910 units)
6/14/2012
 
—

N/A
—

81,146

231,396

7.6%
(14)(16)
 
 
 
 
 
 
 
 
358,215

508,465

16.6%
 
Freedom Marine Solutions, LLC (24)
Energy Equipment & Services
Membership Interest (100%)
11/9/2006
 
—

N/A
—

43,892

12,351

0.4%
(16)
 
 
 
 
 
 
 
 
43,892

12,351

0.4%
 
InterDent, Inc. (29)
Health Care Providers & Services
Senior Secured Term Loan A/B
8/1/2018
7.05% (1ML+ 5.05%)
2.00

9/5/2020
14,249

14,249

14,249

0.5%
(10)(39)
Senior Secured Term Loan A
8/3/2012
6.25% (1ML+ 5.50%)
0.75

9/5/2020
79,242

79,242

79,242

2.6%
(10)(39)
Senior Secured Term Loan B
8/3/2012
10.00% PIK
—

9/5/2020
128,443

128,443

128,443

4.2%
(39)
Senior Secured Term Loan C
3/22/2018
18.00% PIK
—

9/5/2020
48,929

35,767

8,823

0.3%

Senior Secured Term Loan D
9/19/2018
1.00% PIK
—

9/5/2020
9,458

9,351

—

—%

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

N/A
—

1

—

—%
(16)
 
 
 
 
 
 
 
 
267,053

230,757

7.6%
 
Kickapoo Ranch Pet Resort
Diversified Consumer Services
Membership Interest (100%)
8/26/2019
 
—

N/A
—

2,378

3,286

0.1%
(16)
 
 
 
 
 
 
 
 
2,378

3,286

0.1%
 
MITY, Inc. (25)
Commercial Services & Supplies
Senior Secured Note A
9/19/2013
10.00% (3ML+ 7.00%)
3.00

4/30/2025
26,250

26,250

26,250

0.9%
(10)
Senior Secured Note B
6/23/2014
10.00% (3ML+ 7.00%) plus 10.00% PIK
3.00

4/30/2025
33,008

33,008

25,655

0.8%
(10)(39)
Subordinated Unsecured Note to Broda Enterprises ULC
9/19/2013
10.00%
—

1/1/2028
7,200

6,350

—

—%
(14)
Common Stock (42,053 shares)
9/19/2013
 
—

N/A
—

6,849

—

—%
(16)
 
 
 
 
 
 
 
 
72,457

51,905

1.7%
 

See notes to consolidated financial statements.
18

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS AS OF JUNE 30, 2020
(in thousands, except share data)


 
 
 
 
 
 
 
June 30, 2020
 
Portfolio Company
Industry
Investments(1)(38)
Acquisition Date(44)
Coupon/Yield
Floor
Legal Maturity
Principal Value
Amortized Cost
Fair
Value(2)
% of 
Net Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
LEVEL 3 PORTFOLIO INVESTMENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Control Investments (greater than 25.00% voting control)(42)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
National Property REIT Corp. (26)
Equity Real Estate Investment Trusts (REITs) / Online Lending / Structured Finance
Senior Secured Term Loan A
12/31/2018
4.44% (3ML+ 1.44%) plus 3.53% PIK
3.00

12/31/2023
$
302,633

$
302,633

$
302,633

9.9%
(10)(39)
Senior Secured Term Loan B
12/31/2018
5.00% (3ML+ 2.00%) plus 5.50% PIK
3.00

12/31/2023
45,950

45,950

45,950

1.5%
(10)(39)
Senior Secured Term Loan C
10/31/2019
11.00% (3ML+ 10.00%) plus 2.25% PIK
1.00

12/31/2023
79,200

79,200

79,200

2.6%
(10)(39)
Senior Secured Term Loan D
6/19/2020
3.50% (3ML+ 0.50%) plus 2.50% PIK
3.00

12/31/2023
183,425

183,425

183,425

6.0%
(10)(39)
Residual Profit Interest
12/31/2018
 
—

N/A
—

—

21,461

0.7%
(35)
Common Stock (3,254,594 shares)
12/31/2013
 
—

N/A
—

210

246,064

8.1%
(45)
 
 
 
 
 
 
 
 
611,418

878,733

28.8%
 
Nationwide Loan Company LLC (27)
Consumer Finance
Senior Subordinated Term Loan to Nationwide Acceptance LLC
6/18/2014
10.00% plus 10.00% PIK
—

6/18/2021
20,087

20,087

20,087

0.6%
(14)(39)
Class A Units (38,550,460 units)
1/31/2013
 
—

N/A
—

20,462

17,151

0.6%
(14)(16)
 
 
 
 
 
 
 
 
40,549

37,238

1.2%
 
NMMB, Inc. (28)
Media
Delayed Draw Term Loan - $10,000 Commitment
3/25/2020
10.50% (3ML+ 8.50%)
2.00

12/30/2024
—

—

—

—%
(10)(15)
Senior Secured Note
12/30/2019
10.50% (3ML+ 8.50%)
2.00

12/30/2024
5,025

5,025

5,025

0.2%
(3)(10)
Common Stock (21,419 shares)
12/30/2019
 
—

N/A
—

12,869

28,643

0.9%
 
 
 
 
 
 
 
 
 
17,894

33,668

1.1%
 
Pacific World Corporation (36)
Personal Products
Revolving Line of Credit - $26,000 Commitment
9/26/2014
8.25% (1ML+ 7.25%)
1.00

9/26/2020
20,825

20,825

20,825

0.7%
(10)(15)
Senior Secured Term Loan A
12/31/2014
6.25% PIK (1ML+ 5.25%)
1.00

9/26/2020
39,082

39,082

39,082

1.3%
(10)(39)
Convertible Preferred Equity (247,330 shares)
6/15/2018
 
—

N/A
—

186,795

—

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

N/A
—

—

—

—%
(16)
 
 
 
 
 
 
 
 
246,702

59,907

2.0%
 
R-V Industries, Inc.
Machinery
Senior Subordinated Note
6/12/2013
10.00% (3ML+ 9.00%)
1.00

3/31/2022
28,622

28,622

28,622

0.9%
(3)(10)
Common Stock (745,107 shares)
6/26/2007
 
—

N/A
—

6,867

9,943

0.3%
(16)
 
 
 
 
 
 
 
 
35,489

38,565

1.2%
 
Universal Turbine Parts, LLC (34)
Trading Companies & Distributors
Delayed Draw Term Loan - $5,000 Commitment
2/28/2019
10.25% (1ML+ 7.75%)
2.50

7/22/2021
2,887

2,887

2,887

0.1%
(10)(15)
Senior Secured Term Loan A
7/22/2016
6.75% (3ML+ 5.75%)
1.00

7/22/2021
30,063

30,063

23,712

0.8%
(10)
Senior Secured Term Loan B
7/22/2016
12.75% PIK (3ML+ 11.75%)
1.00

7/22/2021
42,941

32,500

—

—%
(9)(10)
Common Stock (10,000 units)
12/10/2018
 
—

N/A
—

—

—

—%
(16)
 
 
 
 
 
 
 
 
65,450

26,599

0.9%
 
USES Corp. (30)
Commercial Services & Supplies
Senior Secured Term Loan A
3/31/2014
9.00% PIK
—

7/29/2022
50,327

30,651

17,325

0.6%
(9)
Senior Secured Term Loan B
3/31/2014
15.50% PIK
—

7/29/2022
66,283

35,568

—

—%
(9)
Common Stock (268,962 shares)
6/15/2016
 
—

N/A
—

—

—

—%
(16)
 
 
 
 
 
 
 
 
66,219

17,325

0.6%
 

See notes to consolidated financial statements.
19

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS AS OF JUNE 30, 2020
(in thousands, except share data)


 
 
 
 
 
 
 
June 30, 2020
 
Portfolio Company
Industry
Investments(1)(38)
Acquisition Date(44)
Coupon/Yield
Floor
Legal Maturity
Principal Value
Amortized Cost
Fair
Value(2)
% of 
Net Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
LEVEL 3 PORTFOLIO INVESTMENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Control Investments (greater than 25.00% voting control)(42)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Valley Electric Company, Inc. (31)
Construction & Engineering
Senior Secured Note to Valley Electric Co. of Mt. Vernon, Inc.
12/31/2012
8.00% (3ML+ 5.00%) plus 2.50% PIK
3.00

12/31/2024
$
10,430

$
10,430

$
10,430

0.3%
(3)(10)(39)
Senior Secured Note
6/24/2014
8.00% plus 10.00% PIK
—

6/23/2024
33,301

33,301

33,301

1.1%
(39)
Consolidated Revenue Interest (2.0%)
6/22/2018
 
—

N/A
—

—

2,448

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

N/A
—

25,143

83,117

2.7%
 
 
 
 
 
 
 
 
 
68,874

129,296

4.2%
 
Total Control Investments (Level 3)
 
$
2,286,725

$
2,259,292

73.9%
 

See notes to consolidated financial statements.
20

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS AS OF JUNE 30, 2020
(in thousands, except share data)


 
 
 
 
 
 
 
June 30, 2020
 
Portfolio Company
Industry
Investments(1)(38)
Acquisition Date(44)
Coupon/Yield
Floor
Legal Maturity
Principal Value
Amortized Cost
Fair
Value(2)
% of 
Net Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
LEVEL 3 PORTFOLIO INVESTMENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Affiliate Investments (5.00% to 24.99% voting control)(43)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Edmentum Ultimate Holdings, LLC (22)
Diversified Consumer Services
Second Lien Revolving Credit Facility to Edmentum, Inc. - $7,834 Commitment
6/9/2015
5.00% PIK
—

12/9/2021
$
8,539

$
9,986

$
8,539

0.2%
(15)(39)
Unsecured Senior PIK Note
6/9/2015
8.50% PIK
—

12/9/2021
8,920

8,920

8,920

0.3%
(39)
Unsecured Junior PIK Note
6/9/2015
10.00% PIK
—

12/9/2021
43,048

28,665

42,159

1.4%
(39)
Class A Units (370,964 units)
6/9/2015
 
—

N/A
—

6,577

—

—%
(16)
 
 
 
 
 
 
 
 
54,148

59,618

1.9%
 
Nixon, Inc. (32)
Textiles, Apparel & Luxury Goods
Common Stock (857 units)
5/12/2017
 
—

N/A
—

—

—

—%
(16)
 
 
 
 
 
 
 
 
—

—

—%
 
PGX Holdings, Inc. (6)
Diversified Consumer Services
1.5 Lien Term Loan
5/27/2020
11.50% PIK (3ML+ 10.50%)
1.00

3/29/2024
1,981

1,981

1,981

0.1%
(10)(39)
Second Lien Term Loan
9/29/2014
15.75% PIK (1ML+ 14.75%)
1.00

9/29/2024
104,550

104,550

98,873

3.2%
(10)(39)
Common Stock (28,961,715 shares)
5/27/2020
 
—

N/A
—

—

5,857

0.2%
(16)
 
 
 
 
 
 
 
 
106,531

106,711

3.5%
 
Targus Cayman HoldCo Limited (33)
Textiles, Apparel & Luxury Goods
Common Stock (7,383,395 shares)
2/12/2016
 
—

N/A
—

2,805

21,208

0.7%
(16)
 
 
 
 
 
 
 
 
2,805

21,208

0.7%
 
Total Affiliate Investments (Level 3)
 
$
163,484

$
187,537

6.1%
 


See notes to consolidated financial statements.
21

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS AS OF JUNE 30, 2020
(in thousands, except share data)










June 30, 2020

Portfolio Company
Industry
Investments(1)(38)
Acquisition Date(44)
Coupon/Yield
Floor
Legal Maturity
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
10/10/2018
7.93% (1ML+ 7.75%)
—

10/1/2026
$
25,000

$
24,853

$
25,000

0.8
%
(3)(8)(10)





  


  

24,853

25,000

0.8
%

ACE Cash Express, Inc.
Consumer Finance
Senior Secured Note
12/15/2017
12.00%
—

12/15/2022
30,000

28,806

24,338

0.8
%
(8)(14)





  


  

28,806

24,338

0.8
%

Ahead Data Blue, LLC
IT Services
Second Lien Term Loan
12/13/2019
10.00% (3ML+ 8.50%)
1.50

11/8/2025
70,000

70,000

70,000

2.3
%
(3)(10)





  


  

70,000

70,000

2.3
%

AmeriLife Holdings, LLC
Insurance
Second Lien Term Loan
4/2/2020
9.50% (3ML+ 8.50%)
1.00

3/18/2028
10,000

9,806

9,806

0.3
%
(8)(10)





  


  

9,806

9,806

0.3
%

Apidos CLO XI
Structured Finance
Subordinated Structured Note
12/6/2012
Residual Interest, current yield 8.74%
—

10/17/2030
40,500

32,650

25,211

0.8
%
(5)(14)





  


  

32,650

25,211

0.8
%

Apidos CLO XII
Structured Finance
Subordinated Structured Note
3/15/2013
Residual Interest, current yield 14.25%
—

4/15/2031
52,202

38,099

29,275

1.0
%
(5)(14)





  


  

38,099

29,275

1.0
%

Apidos CLO XV
Structured Finance
Subordinated Structured Note
9/13/2013
Residual Interest, current yield 12.38%
—

4/21/2031
48,515

39,270

27,793

0.9
%
(5)(14)





  


  

39,270

27,793

0.9
%

Apidos CLO XXII
Structured Finance
Subordinated Structured Note
9/16/2015
Residual Interest, current yield 15.58%
—

4/21/2031
35,855

30,035

24,192

0.8
%
(5)(14)





  


  

30,035

24,192

0.8
%

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

—

N/A
—

—

—

—
%






  


  

—

—

—
%

Atlantis Health Care Group (Puerto Rico), Inc.
Health Care Providers & Services
Revolving Line of Credit - $3,000 Commitment
2/21/2013
10.75% (3ML+ 8.75%)
2.00

4/30/2021
—

—

—

—
%
(10)(15)
Senior Secured Term Loan
2/21/2013
10.75% (3ML+ 8.75%)
2.00

4/30/2021
71,409

71,409

71,409

2.3
%
(3)(10)





  


  

71,409

71,409

2.3
%

Barings CLO 2018-III
Structured Finance
Subordinated Structured Note
10/9/2014
Residual Interest, current yield 3.93%
—

7/20/2029
83,098

48,464

30,106

1.0
%
(5)(14)





  


  

48,464

30,106

1.0
%

Broder Bros., Co.
Textiles, Apparel & Luxury Goods
Senior Secured Note
12/4/2017
9.75% (3ML+ 8.50%)
1.25

12/2/2022
166,307

166,307

164,656

5.4
%
(3)(10)





  


  

166,307

164,656

5.4
%

Brookside Mill CLO Ltd.
Structured Finance
Subordinated Structured Note
4/25/2013
Residual Interest, current yield 0.00%
—

1/17/2028
36,300

17,033

11,920

0.4
%
(5)(14)(17)





  


  

17,033

11,920

0.4
%

California Street CLO IX Ltd.
Structured Finance
Subordinated Structured Note
4/19/2012
Residual Interest, current yield 6.69%
—

7/16/2032
58,915

40,994

27,579

0.9
%
(5)(14)





  


  

40,994

27,579

0.9
%

Candle-Lite Company, LLC
Household Products
Senior Secured Term Loan A
1/23/2018
6.75% (3ML+ 5.50%)
1.25

1/23/2023
11,937

11,937

11,937

0.4
%
(3)(10)
Senior Secured Term Loan B
1/23/2018
10.75% (3ML+ 9.50%)
1.25

1/23/2023
12,500

12,500

12,425

0.4
%
(3)(10)





  


  

24,437

24,362

0.8
%

Capstone Logistics Acquisition, Inc.
Commercial Services & Supplies
Second Lien Term Loan
10/7/2014
9.32% (6ML+ 8.25%)
1.00

10/7/2022
98,982

98,790

98,982

3.2
%
(3)(8)(10)





  


  

98,790

98,982

3.2
%

Carlyle C17 CLO Limited
Structured Finance
Subordinated Structured Note
1/24/2013
Residual Interest, current yield 20.31%
—

4/30/2031
24,870

15,391

13,009

0.4
%
(5)(14)





  


  

15,391

13,009

0.4
%


See notes to consolidated financial statements.
22

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS AS OF JUNE 30, 2020
(in thousands, except share data)










June 30, 2020

Portfolio Company
Industry
Investments(1)(38)
Acquisition Date(44)
Coupon/Yield
Floor
Legal Maturity
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)





























Carlyle Global Market Strategies CLO 2014-4-R, Ltd.
Structured Finance
Subordinated Structured Note
4/7/2017
Residual Interest, current yield 17.05%
—

7/15/2030
$
25,534

$
18,656

$
15,534

0.5
%
(5)(14)





  


  

18,656

15,534

0.5
%

Carlyle Global Market Strategies CLO 2016-3, Ltd.
Structured Finance
Subordinated Structured Note
8/9/2016
Residual Interest, current yield 12.42%
—

10/22/2029
32,200

33,536

25,358

0.8
%
(5)(14)





  


  

33,536

25,358

0.8
%

CCS-CMGC Holdings, Inc.
Health Care Providers & Services
First Lien Term Loan
5/23/2019
6.57% (6ML+ 5.50%)
—

10/1/2025
6,010

5,929

5,929

0.2
%
(3)(8)(10)
First Lien Term Loan
5/23/2019
6.26% (3ML+ 5.50%)
—

10/1/2025
3,615

3,566

3,566

0.1
%
(3)(8)(10)
Second Lien Term Loan
10/12/2018
9.76% (3ML+ 9.00%)
—

10/1/2026
37,000

36,443

36,443

1.2
%
(3)(8)(10)





  


  

45,938

45,938

1.5
%

Cent CLO 21 Limited
Structured Finance
Subordinated Structured Note
5/15/2014
Residual Interest, current yield 7.80%
—

7/29/2030
49,552

38,806

26,006

0.9
%
(5)(14)





  


  

38,806

26,006

0.9
%

CIFC Funding 2013-III-R, Ltd.
Structured Finance
Subordinated Structured Note
8/2/2013
Residual Interest, current yield 10.23%
—

4/24/2031
44,100

29,717

21,373

0.7
%
(5)(14)





  


  

29,717

21,373

0.7
%

CIFC Funding 2013-IV, Ltd.
Structured Finance
Subordinated Structured Note
10/22/2013
Residual Interest, current yield 13.44%
—

4/28/2031
45,500

33,090

27,518

0.9
%
(5)(14)





  


  

33,090

27,518

0.9
%

CIFC Funding 2014-IV-R, Ltd.
Structured Finance
Subordinated Structured Note
8/5/2014
Residual Interest, current yield 9.49%
—

10/17/2030
44,467

31,238

22,711

0.7
%
(5)(14)





  


  

31,238

22,711

0.7
%

CIFC Funding 2016-I, Ltd.
Structured Finance
Subordinated Structured Note
12/9/2016
Residual Interest, current yield 9.57%
—

10/21/2031
34,000

30,096

26,209

0.9
%
(5)(14)





  


  

30,096

26,209

0.9
%

Cinedigm DC Holdings, LLC
Entertainment
Senior Secured Term Loan
2/28/2013
11.00% (3ML+ 9.00%) plus 2.50% PIK
2.00

3/31/2021
12,107

12,057

12,107

0.4
%
(10)(39)





  


  

12,057

12,107

0.4
%

Class Valuation, LLC
Real Estate Management & Development
Senior Secured Term Loan
3/12/2018
9.75% (3ML+ 8.25%)
1.50

3/10/2023
31,747

31,747

31,747

1.0
%
(3)(10)





  


  

31,747

31,747

1.0
%

Collections Acquisition Company, Inc.
Diversified Financial Services
Senior Secured Term Loan
12/3/2019
10.15% (3ML+ 7.65%)
2.50

6/3/2024
30,165

30,165

30,165

1.0
%
(3)(10)





  


  

30,165

30,165

1.0
%

Columbia Cent CLO 27 Limited
Structured Finance
Subordinated Structured Note
12/18/2013
Residual Interest, current yield 7.78%
—

10/25/2028
40,275

23,099

18,356

0.6
%
(5)(14)





  


  

23,099

18,356

0.6
%

Coverall North America, Inc.
Commercial Services & Supplies
Senior Secured Term Loan A
11/2/2015
7.00% (3ML+ 6.00%)
1.00

5/3/2021
2,622

2,622

2,622

0.1
%
(3)(10)
Senior Secured Term Loan B
11/2/2015
12.00% (3ML+ 11.00%)
1.00

5/3/2021
22,750

22,750

22,750

0.7
%
(3)(10)





  


  

25,372

25,372

0.8
%

CP VI Bella Midco
IT Services
Second Lien Term Loan
2/26/2018
6.93% (1ML+ 6.75%)
—

12/29/2025
15,750

15,711

15,750

0.5
%
(3)(8)(10)





  


  

15,711

15,750

0.5
%

Digital Room, LLC
Commercial Services & Supplies
First Lien Term Loan
5/29/2019
6.07% (6ML+ 5.00%)
—

5/21/2026
9,900

9,785

9,359

0.3
%
(3)(8)(10)
Second Lien Term Loan
5/30/2019
10.07% (6ML+ 9.00%)
—

5/21/2027
70,000

70,000

66,761

2.2
%
(3)(8)(10)





  


  

79,785

76,120

2.5
%

Dunn Paper, Inc.
Paper & Forest Products
First Lien Term Loan
11/27/2019
5.75% (1ML+ 4.75%)
1.00

8/26/2022
4,488

4,393

4,393

0.1
%
(3)(8)(10)
Second Lien Term Loan
10/7/2016
9.75% (1ML+ 8.75%)
1.00

8/26/2023
11,500

11,395

11,395

0.4
%
(3)(8)(10)





  


  

15,788

15,788

0.5
%


See notes to consolidated financial statements.
23

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS AS OF JUNE 30, 2020
(in thousands, except share data)










June 30, 2020

Portfolio Company
Industry
Investments(1)(38)
Acquisition Date(44)
Coupon/Yield
Floor
Legal Maturity
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)





























Easy Gardener Products, Inc.
Household Durables
Third Lien Term Loan
6/11/2020
10.31% (3ML+ 10.00%)
0.25

9/30/2024
$
3,990

$
3,990

$
3,990

0.2
%
(10)
Class A Units of EZG Holdings, Inc. (200 units)
6/11/2020

—

N/A
—

313

781

—
%
(16)
Class B Units of EZG Holdings, Inc. (12,525 units)
6/11/2020

—

N/A
—

1,688

3,072

0.1
%
(16)





  


  

5,991

7,843

0.3
%

EDSCO Holding Company LLC
Machinery
Senior Secured Term Loan
1/10/2020
7.50% (1ML+ 6.00%)
1.50

1/10/2025
19,875

19,875

19,875

0.7
%
(3)(10)





  


  

19,875

19,875

0.7
%

Engine Group, Inc. (7)
Media
Senior Secured Term Loan
9/25/2017
6.00% (1ML+ 5.00%)
1.00

9/15/2022
4,220

4,220

3,760

0.1
%
(8)(9)(10)
Second Lien Term Loan
9/25/2017
10.00% (1ML+ 9.00%)
1.00

9/15/2023
35,000

35,000

2,754

0.1
%
(8)(9)(10)





  


  

39,220

6,514

0.2
%

EXC Holdings III Corp
Technology Hardware, Storage & Peripherals
Second Lien Term Loan
12/5/2017
8.94% (3ML+ 7.50%)
1.00

12/1/2025
12,500

12,415

12,318

0.4
%
(3)(8)(10)





  


  

12,415

12,318

0.4
%

Galaxy XV CLO, Ltd.
Structured Finance
Subordinated Structured Note
2/13/2013
Residual Interest, current yield 11.47%
—

10/15/2030
50,525

35,451

24,637

0.8
%
(5)(14)





  


  

35,451

24,637

0.8
%

Galaxy XXVII CLO, Ltd.
Structured Finance
Subordinated Structured Note
9/30/2013
Residual Interest, current yield 10.18%
—

5/16/2031
24,575

16,647

11,093

0.4
%
(5)(14)





  


  

16,647

11,093

0.4
%

Galaxy XXVIII CLO, Ltd.
Structured Finance
Subordinated Structured Note
5/30/2014
Residual Interest, current yield 9.89%
—

7/15/2031
39,905

28,584

16,973

0.6
%
(5)(14)





  


  

28,584

16,973

0.6
%

GEON Performance Solutions, LLC
Chemicals
Revolving Line of Credit - $3,621 Commitment
12/12/2019
7.88% (1ML+ 6.25%)
1.63

10/25/2024
769

769

767

—
%
(10)(15)
First Lien Term Loan
12/12/2019
7.88% (1ML+ 6.25%)
1.63

10/25/2024
31,223

31,068

31,124

1.0
%
(3)(10)





  


  

31,837

31,891

1.0
%

Global Tel*Link Corporation
Diversified Telecommunication Services
First Lien Term Loan
8/20/2019
4.43% (1ML+ 4.25%)
—

11/29/2025
9,893

9,538

9,237

0.3
%
(3)(8)(10)
Second Lien Term Loan
12/4/2018
8.43% (1ML+ 8.25%)
—

11/29/2026
40,170

39,394

37,908

1.2
%
(3)(8)(10)





  


  

48,932

47,145

1.5
%

GlobalTranz Enterprises, Inc.
Air Freight & Logistics
Second Lien Term Loan
5/15/2019
8.43% (1ML+ 8.25%)
—

5/15/2027
12,500

12,500

10,755

0.4
%
(3)(8)(10)





  


  

12,500

10,755

0.4
%

H.I.G. ECI Merger Sub, Inc.
IT Services
Senior Secured Term Loan A
5/31/2018
7.00% (3ML+ 5.50%)
1.50

5/31/2023
43,792

43,792

44,230

1.4
%
(3)(10)
Senior Secured Term Loan B
5/31/2018
12.00% (3ML+ 10.50%)
1.50

5/31/2023
29,900

29,900

30,199

1.0
%
(3)(10)





  


  

73,692

74,429

2.4
%

Halcyon Loan Advisors Funding 2012-1 Ltd.
Structured Finance
Subordinated Structured Note
8/7/2012
Residual Interest, current yield 0.00%
—

8/15/2023
23,187

3,736

—

—
%
(5)(14)(17)





  


  

3,736

—

—
%

Halcyon Loan Advisors Funding 2013-1 Ltd.
Structured Finance
Subordinated Structured Note
3/8/2013
Residual Interest, current yield 0.00%
—

4/15/2025
40,400

19,984

—

—
%
(5)(14)(17)





  


  

19,984

—

—
%

Halcyon Loan Advisors Funding 2014-1 Ltd.
Structured Finance
Subordinated Structured Note
2/7/2014
Residual Interest, current yield 0.00%
—

4/20/2026
24,500

11,822

—

—
%
(5)(14)(17)





  


  

11,822

—

—
%

Halcyon Loan Advisors Funding 2014-2 Ltd.
Structured Finance
Subordinated Structured Note
4/14/2014
Residual Interest, current yield 0.00%
—

4/28/2025
41,164

21,322

—

—
%
(5)(14)(17)





  


  

21,322

—

—
%

Halcyon Loan Advisors Funding 2015-3 Ltd.
Structured Finance
Subordinated Structured Note
7/23/2015
Residual Interest, current yield 0.00%
—

10/18/2027
39,597

29,716

16,694

0.5
%
(5)(14)(17)





  


  

29,716

16,694

0.5
%


See notes to consolidated financial statements.
24

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS AS OF JUNE 30, 2020
(in thousands, except share data)










June 30, 2020

Portfolio Company
Industry
Investments(1)(38)
Acquisition Date(44)
Coupon/Yield
Floor
Legal Maturity
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)





























Halyard MD OpCo, LLC
Media
First Lien Term Loan
8/6/2018
10.00% (3ML+ 8.00%)
2.00

8/6/2023
$
10,415

$
10,415

$
10,415

0.3
%
(3)(10)





  


  

10,415

10,415

0.3
%

HarbourView CLO VII-R, Ltd.
Structured Finance
Subordinated Structured Note
6/5/2015
Residual Interest, current yield 0.00%
—

7/18/2031
19,025

12,817

5,814

0.2
%
(5)(14)(17)





  


  

12,817

5,814

0.2
%

Help/Systems Holdings, Inc.
Software
First Lien Term Loan
11/29/2019
5.75% (1ML+ 4.75%)
1.00

11/19/2026
8,500

8,425

8,425

0.3
%
(3)(8)(10)
Second Lien Term Loan
11/22/2019
9.00% (1ML+ 8.00%)
1.00

11/19/2027
17,500

17,184

17,184

0.6
%
(3)(8)(10)





  


  

25,609

25,609

0.9
%

Inpatient Care Management Company, LLC
Health Care Providers & Services
Senior Secured Term Loan
6/8/2016
9.00% (3ML+ 8.00%)
1.00

6/8/2021
14,930

14,930

14,746

0.5
%
(3)(10)





  


  

14,930

14,746

0.5
%

Jefferson Mill CLO Ltd.
Structured Finance
Subordinated Structured Note
6/26/2015
Residual Interest, current yield 9.08%
—

10/20/2031
23,594

19,252

11,962

0.4
%
(5)(14)





  


  

19,252

11,962

0.4
%

K&N Parent, Inc.
Auto Components
First Lien Term Loan
3/3/2020
5.82% (6ML+ 4.75%)
1.00

10/20/2023
1,434

1,244

1,373

—
%
(3)(8)(10)
Second Lien Term Loan
10/28/2016
9.82% (6ML+ 8.75%)
1.00

10/21/2024
25,887

25,532

23,494

0.8
%
(3)(8)(10)





  


  

26,776

24,867

0.8
%

Keystone Acquisition Corp. (36)
Health Care Providers & Services
Second Lien Term Loan
5/18/2017
10.25% (3ML+ 9.25%)
1.00

5/1/2025
50,000

50,000

49,435

1.6
%
(3)(8)(10)





  


  

50,000

49,435

1.6
%

LCM XIV Ltd.
Structured Finance
Subordinated Structured Note
6/25/2013
Residual Interest, current yield 10.41%
—

7/21/2031
49,934

28,237

18,634

0.6
%
(5)(14)





  


  

28,237

18,634

0.6
%

Legility, LLC
Professional Services
First Lien Term Loan
2/28/2020
7.00% (3ML+ 6.00%)
1.00

12/17/2025
774

759

764

—
%
(3)(8)(10)
First Lien Term Loan
2/28/2020
7.00% (6ML+ 6.00%)
1.00

12/17/2025
19,101

18,739

18,860

0.6
%
(3)(8)(10)





  


  

19,498

19,624

0.6
%

LGC US FINCO, LLC
Machinery
First Lien Term Loan
1/24/2020
7.50% (1ML+ 6.50%)
1.00

12/20/2025
29,700

28,870

28,780

0.9
%
(3)(8)(10)





  


  

28,870

28,780

0.9
%

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

—

N/A
—

—

—

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

—

N/A
—

—

—

—
%
(16)





  


  

—

—

—
%

Medusind Acquisition, Inc. (19)
Health Care Providers & Services
First Lien Term Loan
9/30/2019
9.00% (3ML+ 8.00%)
1.00

4/8/2024
24,387

24,074

23,800

0.8
%
(3)(10)(39)





  


  

24,074

23,800

0.8
%

Mountain View CLO 2013-I Ltd.
Structured Finance
Subordinated Structured Note
4/17/2013
Residual Interest, current yield 2.19%
—

10/15/2030
43,650

28,479

14,794

0.5
%
(5)(14)





  


  

28,479

14,794

0.5
%

Mountain View CLO IX Ltd.
Structured Finance
Subordinated Structured Note
5/13/2015
Residual Interest, current yield 14.53%
—

7/15/2031
47,830

29,046

25,909

0.8
%
(5)(14)





  


  

29,046

25,909

0.8
%

Octagon Investment Partners XV, Ltd.
Structured Finance
Subordinated Structured Note
1/24/2013
Residual Interest, current yield 9.72%
—

7/19/2030
42,064

32,798

23,572

0.8
%
(5)(14)





  


  

32,798

23,572

0.8
%

Octagon Investment Partners 18-R Ltd.
Structured Finance
Subordinated Structured Note
8/12/2015
Residual Interest, current yield 13.38%
—

4/16/2031
46,016

25,700

19,111

0.6
%
(5)(14)





  


  

25,700

19,111

0.6
%

Pearl Intermediate Parent LLC
Health Care Providers & Services
Second Lien Term Loan
2/28/2018
6.43% (1ML+ 6.25%)
—

2/15/2026
5,000

4,982

4,943

0.2
%
(3)(8)(10)





  


  

4,982

4,943

0.2
%


See notes to consolidated financial statements.
25

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS AS OF JUNE 30, 2020
(in thousands, except share data)










June 30, 2020

Portfolio Company
Industry
Investments(1)(38)
Acquisition Date(44)
Coupon/Yield
Floor
Legal Maturity
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)





























PeopleConnect Holdings, LLC (11)
Interactive Media & Services
Revolving Line of Credit - $8,918 Commitment
1/22/2020
10.00% (1ML+ 8.25%)
1.75

1/22/2025
$
—

$
—

$
—

—
%
(10)(15)
Delayed Draw Term Loan - $5,000 Commitment
1/22/2020
10.00% (3ML+ 8.25%)
1.75

1/22/2021
—

—

—

—
%
(10)(15)
Senior Secured Term Loan
1/22/2020
10.00% (3ML+ 8.25%)
1.75

1/22/2025
200,728

200,728

200,728

6.6
%
(3)(10)





  


  

200,728

200,728

6.6
%

PG Dental Holdings New Jersey, LLC
Health Care Providers & Services
Delayed Draw Term Loan - $5,000 Commitment
5/31/2019
10.00% (3ML+ 7.25%)
2.75

5/31/2024
2,500

2,500

2,477

0.1
%
(3)(10)(15)
Senior Secured Term Loan
5/31/2019
10.00% (3ML+ 7.25%)
2.75

5/31/2024
22,300

22,300

22,095

0.7
%
(3)(10)





  


  

24,800

24,572

0.8
%

PlayPower, Inc.
Leisure Products
First Lien Term Loan
5/16/2019
5.81% (3ML+ 5.50%)
—

5/10/2026
6,341

6,286

6,087

0.2
%
(3)(8)(10)





  


  

6,286

6,087

0.2
%

Research Now Group, Inc. & Survey Sampling International LLC
Professional Services
First Lien Term Loan
1/5/2018
6.50% (3ML+ 5.50%)
1.00

12/20/2024
9,750

9,412

9,651

0.4
%
(3)(8)(10)
Second Lien Term Loan
1/5/2018
10.50% (3ML+ 9.50%)
1.00

12/20/2025
50,000

47,617

50,000

1.6
%
(3)(8)(10)





  


  

57,029

59,651

2.0
%

RGIS Services, LLC
Commercial Services & Supplies
Senior Secured Term Loan
6/25/2020
8.50% (3ML+ 7.50%)
1.00

6/25/2025
8,678

8,678

8,678

0.3
%
(8)(10)
Membership Interest (4.34%)
6/25/2020

—

N/A
—

10,303

9,233

0.3
%
(16)





  


  

18,981

17,911

0.6
%

RME Group Holding Company
Media
Senior Secured Term Loan A
5/4/2017
7.00% (3ML+ 6.00%)
1.00

5/4/2022
27,646

27,646

27,646

0.9
%
(3)(10)
Senior Secured Term Loan B
5/4/2017
12.00% (3ML+ 11.00%)
1.00

5/4/2022
22,349

22,349

22,349

0.7
%
(3)(10)





  


  

49,995

49,995

1.6
%

Rocket Software, Inc.
Software
Second Lien Term Loan
12/7/2018
9.01% (3ML+ 8.25%)
—

11/27/2026
50,000

49,599

48,136

1.6
%
(3)(8)(10)





  


  

49,599

48,136

1.6
%

Romark WM-R Ltd.
Structured Finance
Subordinated Structured Note
4/11/2014
Residual Interest, current yield 8.32%
—

4/21/2031
27,725

22,967

14,374

0.5
%
(5)(14)





  


  

22,967

14,374

0.5
%

Rosa Mexicano
Hotels, Restaurants & Leisure
Revolving Line of Credit - $500 Commitment
3/29/2018
2.75% (3ML+ 1.50%) plus 6.00% PIK
1.25

3/29/2023
502

502

449

—
%
(10)(15)(39)
Senior Secured Term Loan
3/29/2018
2.75% (3ML+ 1.50%) plus 6.00% PIK
1.25

3/29/2023
22,999

22,999

20,559

0.7
%
(10)(39)





  


  

23,501

21,008

0.7
%

Securus Technologies Holdings, Inc.
Communications Equipment
First Lien Term Loan
9/3/2019
5.50% (1ML+ 4.50%)
1.00

11/1/2024
9,898

9,105

8,671

0.3
%
(8)(10)
Second Lien Term Loan
11/3/2017
9.25% (3ML+ 8.25%)
1.00

11/1/2025
50,662

50,533

42,166

1.4
%
(3)(8)(10)





  


  

59,638

50,837

1.7
%

SEOTownCenter, Inc.
IT Services
Senior Secured Term Loan A
4/10/2018
9.50% (3ML+ 7.50%)
2.00

4/7/2023
24,763

24,763

24,763

0.8
%
(3)(10)(39)
Senior Secured Term Loan B
4/10/2018
14.50% (3ML+ 12.50%)
2.00

4/7/2023
19,119

19,119

19,119

0.6
%
(3)(10)(39)





  


  

43,882

43,882

1.4
%

Shutterfly, Inc.
Internet & Direct Marketing Retail
First Lien Term Loan
12/9/2019
7.00% (3ML+ 6.00%)
1.00

9/25/2026
17,419

15,706

16,440

0.5
%
(3)(8)(10)





  


  

15,706

16,440

0.5
%

Sorenson Communications, LLC
Diversified Telecommunication Services
First Lien Term Loan
5/8/2019
6.81% (3ML+ 6.50%)
—

4/29/2024
8,227

8,166

8,166

0.3
%
(3)(8)(10)





  


  

8,166

8,166

0.3
%

Spectrum Holdings III Corp
Health Care Equipment & Supplies
Second Lien Term Loan
2/13/2018
8.07% (6ML+ 7.00%)
1.00

1/31/2026
7,500

7,474

5,606

0.2
%
(3)(8)(10)





  


  

7,474

5,606

0.2
%

Staples, Inc.
Distributors
First Lien Term Loan
12/3/2019
5.69% (3ML+ 5.00%)
—

4/16/2026
8,955

8,873

8,135

0.3
%
(3)(8)(10)





  


  

8,873

8,135

0.3
%

Strategic Materials
Household Durables
Second Lien Term Loan
11/1/2017
8.75% (3ML+ 7.75%)
1.00

11/1/2025
7,000

6,953

5,223

0.2
%
(3)(8)(10)





  


  

6,953

5,223

0.2
%


See notes to consolidated financial statements.
26

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS AS OF JUNE 30, 2020
(in thousands, except share data)










June 30, 2020

Portfolio Company
Industry
Investments(1)(38)
Acquisition Date(44)
Coupon/Yield
Floor
Legal Maturity
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)





























Stryker Energy, LLC
Energy Equipment & Services
Overriding Royalty Interests
12/4/2006

—

N/A
$
—

$
—

$
—

—
%
(13)





  


  

—

—

—
%

Sudbury Mill CLO Ltd.
Structured Finance
Subordinated Structured Note
11/14/2013
Residual Interest, current yield 0.00%
—

1/19/2026
28,200

13,875

2,632

0.1
%
(5)(14)(17)





  


  

13,875

2,632

0.1
%

Symphony CLO XIV, Ltd.
Structured Finance
Subordinated Structured Note
5/6/2014
Residual Interest, current yield 0.00%
—

7/14/2026
49,250

29,171

13,608

0.4
%
(5)(14)(17)





  


  

29,171

13,608

0.4
%

Symphony CLO XV, Ltd.
Structured Finance
Subordinated Structured Note
10/17/2014
Residual Interest, current yield 3.91%
—

1/19/2032
63,831

43,104

20,287

0.7
%
(5)(14)





  


  

43,104

20,287

0.7
%

TGP HOLDINGS III LLC
Household Durables
Second Lien Term Loan
10/3/2017
9.50% (3ML+ 8.50%)
1.00

9/25/2025
3,000

2,971

3,000

0.1
%
(8)(10)





  


  

2,971

3,000

0.1
%

The Octave Music Group, Inc. (f/k/a Touchtunes Interactive Networks, Inc.)
Entertainment
First Lien Term Loan
3/6/2020
6.25% (3ML+ 5.25%) plus 0.75% PIK
1.00

5/29/2025
38,912

38,544

36,910

1.2
%
(8)(10)(39)





  


  

38,544

36,910

1.2
%

Town & Country Holdings, Inc.
Distributors
First Lien Term Loan
1/26/2018
8.81% (3ML+ 8.50%)
—

1/26/2023
163,980

163,980

160,830

5.3
%
(3)(10)(39)





  


  

163,980

160,830

5.3
%

Transplace Holdings, Inc.
Transportation Infrastructure
Second Lien Term Loan
10/16/2017
9.82% (6ML+ 8.75%)
1.00

10/6/2025
28,104

27,662

27,662

0.9
%
(3)(8)(10)





  


  

27,662

27,662

0.9
%

United Sporting Companies, Inc. (18)
Distributors
Second Lien Term Loan
9/28/2012
12.75% (1ML+ 11.00%) plus 2.00% PIK
1.75

11/16/2019
147,470

105,478

6,966

0.2
%
(9)(10)





  


  

105,478

6,966

0.2
%

Universal Fiber Systems, LLC
Textiles, Apparel & Luxury Goods
Second Lien Term Loan
10/16/2015
10.50% (1ML+ 9.50%)
1.00

10/2/2022
37,000

36,762

35,363

1.2
%
(3)(8)(10)





  


  

36,762

35,363

1.2
%

Upstream Newco, Inc.
Health Care Providers & Services
First Lien Term Loan
12/2/2019
4.68% (1ML+ 4.50%)
—

11/20/2026
8,229

8,192

7,802

0.3
%
(3)(8)(10)
Second Lien Term Loan
12/2/2019
9.57% (6ML+ 8.50%)
—

11/20/2027
22,000

21,810

22,000

0.7
%
(3)(8)(10)





  


  

30,002

29,802

1.0
%

USG Intermediate, LLC
Leisure Products
Revolving Line of Credit - $1,000 Commitment
4/15/2015
10.25% (1ML+ 9.25%)
1.00

8/24/2020
1,000

1,000

1,000

—
%
(10)(15)
Senior Secured Term Loan B
4/15/2015
12.75% (1ML+ 11.75%)
1.00

8/24/2022
17,232

17,232

17,232

0.6
%
(3)(10)
Equity
4/15/2015

—

N/A
—

1

—

—
%
(16)





  


  

18,233

18,232

0.6
%

Venio LLC
Professional Services
Second Lien Term Loan
2/19/2014
4.00% plus 10.00% PIK (3ML + 7.50%)
2.50

2/19/2020
27,637

27,637

27,267

0.9
%
(10)(39)





  


  

27,637

27,267

0.9
%

Versant Health Holdco, Inc. (f/k/a Wink Holdco, Inc.)
Insurance
Second Lien Term Loan
12/12/2017
7.75% (3ML+ 6.75%)
1.00

12/1/2025
3,000

2,990

2,938

0.1
%
(3)(8)(10)





  


  

2,990

2,938

0.1
%

Voya CLO 2012-4, Ltd.
Structured Finance
Subordinated Structured Note
11/5/2012
Residual Interest, current yield 7.00%
—

10/15/2030
40,613

29,996

22,509

0.7
%
(5)(14)





  


  

29,996

22,509

0.7
%

Voya CLO 2014-1, Ltd.
Structured Finance
Subordinated Structured Note
2/5/2014
Residual Interest, current yield 4.39%
—

4/18/2031
40,773

30,303

17,668

0.6
%
(5)(14)





  


  

30,303

17,668

0.6
%

Voya CLO 2016-3, Ltd.
Structured Finance
Subordinated Structured Note
9/30/2016
Residual Interest, current yield 8.35%
—

10/20/2031
28,100

26,253

18,680

0.6
%
(5)(14)





  


  

26,253

18,680

0.6
%


See notes to consolidated financial statements.
27

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS AS OF JUNE 30, 2020
(in thousands, except share data)










June 30, 2020

Portfolio Company
Industry
Investments(1)(38)
Acquisition Date(44)
Coupon/Yield
Floor
Legal Maturity
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)





























Voya CLO 2017-3, Ltd.
Structured Finance
Subordinated Structured Note
6/13/2017
Residual Interest, current yield 9.24%
—

7/22/2030
$
44,885

$
49,645

$
37,860

1.2
%
(5)(14)





  


  

49,645

37,860

1.2
%

VT Topco, Inc.
Commercial Services & Supplies
Second Lien Term Loan
8/23/2018
7.18% (1ML+ 7.00%)
—

8/17/2026
7,000

6,973

6,662

0.2
%
(3)(8)(10)





  


  

6,973

6,662

0.2
%

Total Non-Control/Non-Affiliate Investments (Level 3)
 
$
3,332,509

$
2,785,499

91.2
%


 







Total Portfolio Investments (Level 3)
 
$
5,782,718

$
5,232,328

171.3
%


See notes to consolidated financial statements.
28

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

Endnote Explanations as of September 30, 2020 (Unaudited) and June 30, 2020



(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 September 30, 2020 and June 30, 2020 were $1,498,393 and $1,491,022, respectively, representing 27.8% and 28.5% of our total investments, respectively.
(4)
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.
(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)
During the year ended June 30, 2020, we increased our investment in PGX Holdings, Inc. (“PGX”) through a new 1.5 Lien Term Loan in the aggregate principal amount of $1,981. Attached to the incremental term loan investment were shares of common stock representing an 11.4% equity interest in PGX. As a result, our investment in PGX was transferred from non-control/non-affiliate to affiliate classification as of June 30, 2020.
(7)
Engine Group, Inc., EMX Digital, Inc. (f/k/a Clearstream.TV, Inc.), and Engine 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)
Investment on non-accrual status as of the reporting date (See Note 2).
(10)
Certain variable rate securities in our portfolio bear interest at a rate determined by a publicly disclosed base rate plus a basis point spread. The 1-Month LIBOR, or “1ML”, was 0.15% as of September 30, 2020 and 0.16% as of June 30, 2020. The 2-Month LIBOR, or “2ML”, was 0.19% as of September 30, 2020 and 0.23% as of June 30, 2020. The 3-Month LIBOR, or “3ML”, was 0.23% as of September 30, 2020 and 0.30% as of June 30, 2020. The 6-Month LIBOR, or “6ML”, was 0.26% as of September 30, 2020 and 0.37% as of June 30, 2020. The 12-Month LIBOR, or “12ML”, was 0.36% as of September 30, 2020 and 0.55% as of June 30, 2020.
(11)
PeopleConnect Holdings, Inc. and Pubrec Holdings, Inc. are joint borrowers
(12)
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).
(13)
The overriding royalty interests held receive payments at the stated rates based upon operations of the borrower.
(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 September 30, 2020 and June 30, 2020, our qualifying

See notes to consolidated financial statements.
29

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

Endnote Explanations as of September 30, 2020 (Unaudited) and June 30, 2020 (Continued)

assets, as a percentage of total assets, stood at 74.53% and 74.44%, 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 September 30, 2020 and June 30, 2020, we had $42,099 and $41,487, respectively, of undrawn revolver and delayed draw term loan commitments to our portfolio companies.
(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 year ended June 30, 2020, USC used a portion of the proceeds from the ongoing liquidation to partially repay $20,594 of our Second Lien Term Loan and our 22.0% equity interest was canceled, resulting in a transfer of our investment to non-control/non-affiliate classification as of June 30, 2020.
(19)
Medusind Acquisition, Inc., Medusind Intermediate, Inc., Medusind Solutions Inc. and Medusind Inc. are joint borrowers.
(20)
CP Holdings of Delaware LLC (“CP Holdings”), a consolidated entity in which we own 100% of the membership interests, owns 99.8% of CP Energy Services Inc. (“CP Energy”) as of September 30, 2020 and June 30, 2020. 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 $13,156 in senior secured term loans (the “Spartan Term Loans”) due to us as of June 30, 2020. 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 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). In September 2020, we made a new $26,193 Series A preferred stock investment in Spartan Energy Holdings, Inc., which equates to 100% of the Series A non-voting non-convertible preferred stock outstanding. In September 2020, Spartan Energy Services, LLC fully repaid the $26,193 Senior Secured Term Loan B receivable to us at par. We recorded a realized gain of $2,832 in our Consolidated Statement of Operations for the quarter ended September 30, 2020 as a result of this transaction.
(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% of Credit Central Loan Company, LLC (f/k/a Credit Central Holdings, LLC (“Credit Central”)) as of September 30, 2020 and June 30, 2020. 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.

See notes to consolidated financial statements.
30

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

Endnote Explanations as of September 30, 2020 (Unaudited) and June 30, 2020 (Continued)

(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 September 30, 2020 and June 30, 2020. We report First Tower Finance as a separate controlled company.
(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 September 30, 2020 and June 30, 2020, 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. 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 $51,428 Senior Secured Term Loan C (“TLC”) and $12,857 in equity financing. Effective June 19, 2020, 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 D secured note (“TLD”) in the aggregate principal amount of $183,425 and the proceeds were returned to us as a return of capital, reducing our equity investment in NPRC.
(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 September 30, 2020 and June 30, 2020. 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 92.25% of the fully diluted equity of NMMB, Inc. (“NMMB”) as of September 30, 2020 and June 30, 2020. 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.

See notes to consolidated financial statements.
31

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

Endnote Explanations as of September 30, 2020 (Unaudited) and June 30, 2020 (Continued)

(30)
Prospect owns 99.96% of the equity of USES Corp. as of September 30, 2020 and June 30, 2020.
(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 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)
As of September 30, 2020 and June 30, 2020, 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.
(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 September 30, 2020 and June 30, 2020.
(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 became classified as a control investment during the year ended June 30, 2019.
(35)
As of September 30, 2020 and June 30, 2020, the residual profit interest includes both (i) 8.33% of New TLA and TLD residual profit and (ii) 100% of TLC residual profits, with both calculated quarterly in arrears
(36)
Prospect owns 100% of the preferred equity of Pacific World Corporation (“Pacific World”), which represents a 99.96% ownership interest of Pacific World as of September 30, 2020 and June 30, 2020, respectively. As a result, Prospect’s investment in Pacific World is classified as a control investment.

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 September 30, 2020 (Unaudited) and June 30, 2020 (Continued)


(37)
The following shows the composition of our investment portfolio at cost by control designation, investment type and by industry as of September 30, 2020:
Industry
1st Lien
Term Loan
1.5 Lien Term Loan
2nd Lien
Term Loan
3rd Lien Term Loan
Subordinated Structured Notes
Subordinated Unsecured Debt
Equity (B)
Cost Total
Control Investments
 
 
 
 
 
 
 
 
Aerospace & Defense
$
69,797

$
—

$
—

$
—

$
—

$
—

$
22,738

$
92,535

Commercial Services & Supplies
126,328

—

—

—

—

6,205

6,849

139,382

Construction & Engineering
43,731

—

—

—

—

—

25,143

68,874

Consumer Finance
—

—

355,657

—

—

—

120,939

476,596

Diversified Consumer Services
—

—

—

—

—

—

2,378

2,378

Energy Equipment & Services
51,026

—

—

—

—

—

219,550

270,576

Equity Real Estate Investment Trusts (REITs)
502,804

—

—

—

—

—

210

503,014

Health Care Providers & Services
225,216

—

—

—

—

—

45,118

270,334

Machinery
—

—

28,623

—

—

—

6,866

35,489

Media
4,987

—

—

—

—

—

12,869

17,856

Online Lending
30,621

—

—

—

—

—

—

30,621

Personal Products
60,541

—

—

—

—

—

186,795

247,336

Trading Companies & Distributors
65,280

—

—

—

—

—

—

65,280

Structured Finance (A)
101,200

—

—

—

—

—

—

101,200

Total Control Investments
$
1,281,531

$
—

$
384,280

$
—

$
—

$
6,205

$
649,455

$
2,321,471

Affiliate Investments

 

 




Diversified Consumer Services
$
—

$
2,873

$
117,405

$
—

$
—

$
41,989

$
6,577

$
168,844

Textiles, Apparel & Luxury Goods
—

—

—

—

—

—

2,805

2,805

 Total Affiliate Investments
$
—

$
2,873

$
117,405

$
—

$
—

$
41,989

$
9,382

$
171,649

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

—

$
12,500

—

$
—

$
—

$
—

$
12,500

Auto Components
26,979

—

25,553

—

—

—

—

52,532

Chemicals
31,077

—

—

—

—

—

—

31,077

Commercial Services & Supplies
40,463

—

175,785

—

—

—

10,303

226,551

Communications Equipment
9,142

—

50,539

—

—

—

—

59,681

Consumer Finance
32,156

—

2,757

—

—

—

—

34,913

Distributors
172,375

—

105,431

—

—

—

—

277,806

Diversified Financial Services
30,165

—

—

—

—

—

—

30,165

Diversified Telecommunication Services
17,043

—

39,424

—

—

—

—

56,467

Entertainment
50,282

—

—

—

—

—

—

50,282

Food Products
—

—

29,759

—

—

—

—

29,759

Health Care Equipment & Supplies
—

—

7,475

—

—

—

—

7,475

Health Care Providers & Services
151,569

—

113,265

—

—

—

—

264,834

Hotels, Restaurants & Leisure
23,834

—

—

—

—

—

—

23,834

Household Durables
—

—

9,928

3,979

—

—

2,001

15,908

Household Products
24,375

—

—

—

—

—

—

24,375

Insurance
—

—

16,968

—

—

—

—

16,968

Interactive Media & Services
195,577

—

—

—

—

—

—

195,577

Internet & Direct Marketing Retail
15,775

—

—

—

—

—

—

15,775

IT Services
91,856

—

85,712

—

—

—

—

177,568

Leisure Products
25,587

—

—

—

—

—

1

25,588


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 September 30, 2020 (Unaudited) and June 30, 2020 (Continued)

Industry
1st Lien
Term Loan
1.5 Lien Term Loan
2nd Lien
Term Loan
3rd Lien Term Loan
Subordinated Structured Notes
Subordinated Unsecured Debt
Equity (B)
Cost Total
Machinery
46,461

—

—

—

—

—

—

46,461

Media
64,229

—

35,000

—

—

—

—

99,229

Paper & Forest Products
4,404

—

11,404

—

—

—

—

15,808

Professional Services
28,794

—

65,923

—

—

—

—

94,717

Real Estate Management & Development
31,537

—

—

—

—

—

—

31,537

Software
8,386

—

66,813

—

—

—

—

75,199

Technology Hardware, Storage & Peripherals
—

—

12,419

—

—

—

—

12,419

Textiles, Apparel & Luxury Goods
165,390

—

36,789

—

—

—

—

202,179

Transportation Infrastructure
—

—

27,683

—

—

—

—

27,683

Structured Finance (A)
—

—

—

—

1,100,944

—

—

1,100,944

 Total Non-Control/Non-Affiliate
$
1,287,456

$
—

$
931,127

$
3,979

$
1,100,944

$
—

$
12,305

$
3,335,811

Total Portfolio Investment Cost
$
2,568,987

$
2,873

$
1,432,812

$
3,979

$
1,100,944

$
48,194

$
671,142

$
5,828,931

The following table shows the composition of our investment portfolio at fair value by control designation, investment type and by industry as of September 30, 2020:
Industry
1st Lien
Term Loan
1.5 Lien Term Loan
2nd Lien
Term Loan
3rd Lien Term Loan
Subordinated Structured Notes
Subordinated Unsecured Debt
Equity (B)
Fair Value Total
Fair Value % of Net Assets
Control Investments


 


 









 Aerospace & Defense
$
69,797

—

$
—

$
—

$
—

$
—

$
22,327

$
92,124

2.9
%
 Commercial Services & Supplies
71,441

—

—

—

—

—

—

71,441

2.2
%
 Construction & Engineering
43,731

—

—

—

—

—

89,893

133,624

4.2
%
 Consumer Finance
—

—

358,544

—

—

—

266,976

625,520

19.7
%
 Diversified Consumer Services
—

—

—

—

—

—

3,000

3,000

0.1
%
 Energy Equipment & Services
48,050

—

—

—

—

—

18,610

66,660

2.1
%
Equity Real Estate Investment Trusts (REITs)
502,804

—

—

—

—

—

278,955

781,759

24.6
%
 Health Care Providers & Services
225,216

—

—

—

—

—

11,768

236,984

7.4
%
 Machinery
—

—

28,622

—

—

—

12,477

41,099

1.3
%
 Media
4,987

—

—

—

—

—

23,113

28,100

0.9
%
 Online Lending
30,621

—

—

—

—

—

—

30,621

1.0
%
 Personal Products
60,541

—

—

—

—

—

6,433

66,974

2.1
%
 Trading Companies & Distributors
28,466

—

—

—

—

—

—

28,466

0.9
%
Structured Finance (A)
101,200

—

—

—

—

—

—

101,200

3.2
%
Total Control Investments
$
1,186,854

$
—

$
387,166

$
—

$
—

$
—

$
733,552

$
2,307,572

72.5
%
Fair Value % of Net Assets
37.3
%
—
%
12.1
%
—
%
—
%
—
%
23.1
%
72.5
%


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 September 30, 2020 (Unaudited) and June 30, 2020 (Continued)

Industry
1st Lien
Term Loan
1.5 Lien Term Loan
2nd Lien
Term Loan
3rd Lien Term Loan
Subordinated Structured Notes
Subordinated Unsecured Debt
Equity (B)
Fair Value Total
Fair Value % of Net Assets
Affiliate Investments

 

 





Distributors
$
—

$
—

$
—

$
—

$
—

$
—

$
—

$
—

—
%
Diversified Consumer Services
—

2,873

117,405

—

—

53,262

63,649

237,189

7.5
%
Textiles, Apparel & Luxury Goods
—

—

—

—

—

—

24,986

24,986

0.8
%
Total Affiliate Investments
$
—

$
2,873

$
117,405

$
—

$
—

$
53,262

$
88,635

$
262,175

8.2
%
Fair Value % of Net Assets
—
%
0.1
%
3.6
%
—
%
—
%
1.7
%
2.8
%
8.2
%

Non-Control/Non-Affiliate Investments


 


 









Air Freight & Logistics
$
—

$
—

$
10,386

$
—

$
—

$
—

$
—

$
10,386

0.3
%
Auto Components
27,859

—

24,160

—

—

—

—

52,019

1.6
%
Chemicals
31,222

—

—

—

—

—

—

31,222

1.0
%
Commercial Services & Supplies
40,325

—

173,869

—

—

—

8,419

222,613

7.0
%
Communications Equipment
9,007

—

45,184

—

—

—

—

54,191

1.7
%
Consumer Finance
29,210

—

2,870

—

—

—

—

32,080

1.0
%
Distributors
171,959

—

6,580

—

—

—

—

178,539

5.6
%
Diversified Financial Services
30,165

—

—

—

—

—

—

30,165

0.9
%
Diversified Telecommunication Services
17,035

—

39,082

—

—

—

—

56,117

1.8
%
Entertainment
49,040

—

—

—

—

—

—

49,040

1.5
%
Food Products
—

—

29,938

—

—

—

—

29,938

0.9
%
Health Care Equipment & Supplies
—

—

5,845

—

—

—

—

5,845

0.2
%
Health Care Providers & Services
151,154

—

113,555

—

—

—

—

264,709

8.3
%
Hotels, Restaurants & Leisure
21,721

—

—

—

—

—

—

21,721

0.7
%
Household Durables
—

—

8,249

3,980

—

—

5,810

18,039

0.6
%
Household Products
24,375

—

—

—

—

—

—

24,375

0.8
%
Insurance
—

—

16,978

—

—

—

—

16,978

0.5
%
Interactive Media & Services
195,577

—

—

—

—

—

—

195,577

6.1
%
Internet & Direct Marketing Retail
16,562

—

—

—

—

—

—

16,562

0.5
%
IT Services
91,857

—

85,750

—

—

—

—

177,607

5.6
%
Leisure Products
25,386

—

—

—

—

—

—

25,386

0.8
%
Machinery
44,265

—

—

—

—

—

—

44,265

1.4
%
Media
62,654

—

7,386

—

—

—

—

70,040

2.2
%
Paper & Forest Products
4,404

—

11,404

—

—

—

—

15,808

0.5
%
Professional Services
29,369

—

67,363

—

—

—

—

96,732

3.0
%
Real Estate Management & Development
31,537

—

—

—

—

—

—

31,537

1.0
%
Software
8,458

—

65,928

—

—

—

—

74,386

2.3
%
Technology Hardware, Storage & Peripherals
—

—

12,377

—

—

—

—

12,377

0.4
%
Textiles, Apparel & Luxury Goods
165,390

—

34,797

—

—

—

—

200,187

6.3
%
Transportation Infrastructure
—

—

27,683

—

—

—

—

27,683

0.9
%

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 September 30, 2020 (Unaudited) and June 30, 2020 (Continued)

Industry
1st Lien
Term Loan
1.5 Lien Term Loan
2nd Lien
Term Loan
3rd Lien Term Loan
Subordinated Structured Notes
Subordinated Unsecured Debt
Equity (B)
Fair Value Total
Fair Value % of Net Assets
Structured Finance (A)
—

—

—

—

730,514

—

—

730,514

23.0
%
Total Non-Control/Non-Affiliate
$
1,278,531

$
—

$
789,384

$
3,980

$
730,514

$
—

$
14,229

$
2,816,638

88.5
%
Fair Value % of Net Assets
40.2
%
—
%
24.8
%
0.1
%
23.0
%
—
%
0.4
%
88.5
%

Total Portfolio
$
2,465,385

$
2,873

$
1,293,955

$
3,980

$
730,514

$
53,262

$
836,416

$
5,386,385

169.3
%
Fair Value % of Net Assets
77.5
%
0.1
%
40.7
%
0.1
%
22.9
%
1.7
%
26.3
%
169.3
%

(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.
(38)
The following table shows the composition of our investment portfolio at cost by control designation, investment type and by industry as of June 30, 2020:
Industry
1st Lien
Term Loan
1.5 Lien Term Loan
2nd Lien
Term Loan
3rd Lien Term Loan
Subordinated Structured Notes
Subordinated Unsecured Debt
Equity (B)
Cost Total
Control Investments
 
 
 
 
 
 
 
 
Aerospace & Defense
$
65,471

$
—

$
—

$
—

$
—

$
—

$
22,737

$
88,208

Commercial Services & Supplies
125,477

—

—

—

—

6,350

6,849

138,676

Construction & Engineering
43,731

—

—

—

—

—

25,143

68,874

Consumer Finance
—

—

357,026

—

—

—

120,939

477,965

Diversified Consumer Finance
—

—

—

—

—

—

2,378

2,378

Energy Equipment & Services
73,260

—

—

—

—

—

193,358

266,618

Equity Real Estate Investment Trusts (REITs)
486,058

—

—

—

—

—

210

486,268

Health Care Providers & Services
267,052

—

—

—

—

—

1

267,053

Machinery
—

—

28,622

—

—

—

6,867

35,489

Media
5,025

—

—

—

—

—

12,869

17,894

Online Lending
45,950

—

—

—

—

—

—

45,950

Personal Products
59,907

—

—

—

—

—

186,795

246,702

Trading Companies & Distributors
65,450

—

—

—

—

—

—

65,450

Structured Finance (A)
79,200

—

—

—

—

—

—

79,200

    Total Control Investments
$
1,316,581

$
—

$
385,648

$
—

$
—

$
6,350

$
578,146

$
2,286,725

Affiliate Investments


 


 








Diversified Consumer Services
$
—

$
1,981

$
114,536

$
—

$
—

$
37,585

$
6,577

$
160,679

Textiles, Apparel & Luxury Goods
—

—

—

—

—

—

2,805

2,805

Total Affiliate Investments
$
—

$
1,981

$
114,536

$
—

$
—

$
37,585

$
9,382

$
163,484

Non-Control/Non-Affiliate Investments


 


 








Air Freight & Logistics
$
—

$
—

$
12,500

$
—

$
—

$
—

$
—

$
12,500

Auto Components
1,244

—

25,532

—

—

—

—

26,776

Chemicals
31,837

—

—

—

—

—

—

31,837

Commercial Services & Supplies
43,835

—

175,763



—

—

10,303

229,901

Communications Equipment
9,105

—

50,533



—

—

—

59,638

Consumer Finance
28,806

—

—

—

—

—

—

28,806

Distributors
172,853

—

105,478

—

—

—

—

278,331

Diversified Financial Services
30,165

—

—

—

—

—

—

30,165

Diversified Telecommunication Services
17,704

—

39,394

—

—

—

—

57,098


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 September 30, 2020 (Unaudited) and June 30, 2020 (Continued)

Industry
1st Lien
Term Loan
1.5 Lien Term Loan
2nd Lien
Term Loan
3rd Lien Term Loan
Subordinated Structured Notes
Subordinated Unsecured Debt
Equity (B)
Cost Total
Entertainment
50,601

—

—

—

—

—

—

50,601

Food Products
—

—

24,853

—

—

—

—

24,853

Health Care Equipment & Supplies
—

—

7,474

—

—

—

—

7,474

Health Care Providers & Services
152,900

—

113,235

—

—

—

—

266,135

Hotels, Restaurants & Leisure
23,501

—

—

—

—

—

—

23,501

Household Durables
—

—

9,924

3,990

—

—

2,001

15,915

Household Products
24,437

—

—

—

—

—

—

24,437

Insurance
—

—

12,796

—

—

—

—

12,796

Interactive Media & Services
200,728

—

—

—

—

—

—

200,728

Internet & Direct Marketing Retail
15,706

—

—

—

—

—

—

15,706

IT Services
117,574

—

85,711

—

—

—

—

203,285

Leisure Products
24,518

—

—

—

—

—

1

24,519

Machinery
48,745

—

—

—

—

—

—

48,745

Media
64,630

—

35,000

—

—

—

—

99,630

Paper & Forest Products
4,393

—

11,395

—

—

—

—

15,788

Professional Services
28,910

—

75,254

—

—

—

—

104,164

Real Estate Management & Development
31,747

—

—

—

—

—

—

31,747

Software
8,425

—

66,783

—

—

—

—

75,208

Technology Hardware, Storage & Peripherals
—

—

12,415

—

—

—

—

12,415

Textiles, Apparel & Luxury Goods
166,307

—

36,762

—

—

—

—

203,069

Transportation Infrastructure
—

—

27,662

—

—

—

—

27,662

Structured Finance (A)
—

—

—

—

1,089,079

—

—

1,089,079

Total Non-Control/Non-Affiliate
$
1,298,671

$
—

$
928,464

$
3,990

$
1,089,079

$
—

$
12,305

$
3,332,509

Total Portfolio Investment Cost
$
2,615,252

$
1,981

$
1,428,648

$
3,990

$
1,089,079

$
43,935

$
599,833

$
5,782,718


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, 2020:
Industry
1st Lien
Term Loan
1.5 Lien Term Loan
2nd Lien
Term Loan
3rd Lien Term Loan
Subordinated Structured Notes
Subordinated Unsecured Debt
Equity (B)
Fair Value Total
Fair Value % of Net Assets
Control Investments
 
 
 
 
 
 
 
 
 
Aerospace & Defense
$
65,471

$
—

$
—

$
—

$
—

$
—

$
20,156

$
85,627

2.8
%
Commercial Services & Supplies
69,230

—

—

—

—

—

—

69,230

2.3
%
Construction & Engineering
43,731

—

—

—

—

—

85,565

129,296

4.2
%
Consumer Finance
—

—

360,015

—

—

—

261,373

621,388

20.3
%
Diversified Consumer Services
—

—

—

—

—

—

3,286

3,286

0.1
%
Energy Equipment & Services
55,455

—

—

—

—

—

26,781

82,236

2.7
%
Equity Real Estate Investment Trusts (REITs)
486,058

—

—

—

—

—

267,525

753,583

24.7
%
Health Care Providers & Services
230,757

—

—

—

—

—

—

230,757

7.6
%
Machinery
—

—

28,622

—

—

—

9,943

38,565

1.3
%
Media
5,025

—

—

—

—

—

28,643

33,668

1.1
%
Online Lending
45,950

—

—

—

—

—

—

45,950

1.5
%
Personal Products
59,907

—

—

—

—

—

—

59,907

2.0
%
Trading Companies & Distributors
26,599

—

—

—

—

—

—

26,599

0.9
%

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 September 30, 2020 (Unaudited) and June 30, 2020 (Continued)

Industry
1st Lien
Term Loan
1.5 Lien Term Loan
2nd Lien
Term Loan
3rd Lien Term Loan
Subordinated Structured Notes
Subordinated Unsecured Debt
Equity (B)
Fair Value Total
Fair Value % of Net Assets
Structured Finance (A)
79,200

—

—

—

—

—

—

79,200

2.6
%
Total Control Investments
$
1,167,383

$
—

$
388,637

$
—

$
—

$
—

$
703,272

$
2,259,292

73.9
%
Fair Value % of Net Assets
38.2
%
 
12.7
%
—
%
—
%
—
%
23.0
%
73.9
%


Affiliate Investments


 


 










Diversified Consumer Services
$
—

$
1,981

$
107,412

$
—

$
—

$
51,079

$
5,857

$
166,329

5.4
%
Textiles, Apparel & Luxury Goods
—

—

—

—

—

—

21,208

21,208

0.7
%
Total Affiliate Investments
$
—

$
1,981

$
107,412

$
—

$
—

$
51,079

$
27,065

$
187,537

6.1
%
Fair Value % of Net Assets
—
%
0.1
%
3.5
%
—
%
—
%
1.7
%
0.9
%
6.1
%


Non-Control/Non-Affiliate Investments


 


 










Air Freight & Logistics
$
—

$
—

$
10,755

$
—

$
—

$
—

$
—

$
10,755

0.4
%
Auto Components
1,373

—

23,494

—

—

—

—

24,867

0.8
%
Chemicals
31,891

—

—

—

—

—

—

31,891

1.0
%
Commercial Services & Supplies
43,409

—

172,405

—

—

—

9,233

225,047

7.4
%
Communications Equipment
8,671

—

42,166

—

—

—

—

50,837

1.7
%
Consumer Finance
24,338

—

—

—

—

—

—

24,338

0.8
%
Distributors
168,965

—

6,966

—

—

—

—

175,931

5.8
%
Diversified Financial Services
30,165

—

—

—

—

—

—

30,165

1.0
%
Diversified Telecommunication Services
17,403

—

37,908

—

—

—

—

55,311

1.8
%
Entertainment
49,017

—

—

—

—

—

—

49,017

1.6
%
Food Products
—

—

25,000

—

—

—

—

25,000

0.8
%
Health Care Equipment & Supplies
—

—

5,606

—

—

—

—

5,606

0.2
%
Health Care Providers & Services
151,824

—

112,821

—

—

—

—

264,645

8.7
%
Hotels, Restaurants & Leisure
21,008

—

—

—

—

—

—

21,008

0.7
%
Household Durables
—

—

8,223

3,990

—

—

3,853

16,066

0.5
%
Household Products
24,362

—

—

—

—

—

—

24,362

0.8
%
Insurance
—

—

12,744

—

—

—

—

12,744

0.4
%
Interactive Media & Services
200,728

—

—

—

—

—

—

200,728

6.6
%
Internet & Direct Marketing Retail
16,440

—

—

—

—

—

—

16,440

0.5
%
IT Services
118,311

—

85,750

—

—

—

—

204,061

6.7
%
Leisure Products
24,319

—

—

—

—

—

—

24,319

0.8
%
Machinery
48,655

—

—

—

—

—

—

48,655

1.6
%
Media
64,170

—

2,754

—

—

—

—

66,924

2.2
%
Paper & Forest Products
4,393

—

11,395

—

—

—

—

15,788

0.5
%
Professional Services
29,275

—

77,267

—

—

—

—

106,542

3.5
%
Real Estate Management & Development
31,747

—

—

—

—

—

—

31,747

1.0
%
Software
8,425

—

65,320

—

—

—

—

73,745

2.4
%
Technology Hardware, Storage & Peripherals
—

—

12,318

—

—

—

—

12,318

0.4
%
Textiles, Apparel & Luxury Goods
164,656

—

35,363

—

—

—

—

200,019

6.5
%
Transportation Infrastructure
—

—

27,662

—

—

—

—

27,662

0.9
%

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 September 30, 2020 (Unaudited) and June 30, 2020 (Continued)

Industry
1st Lien
Term Loan
1.5 Lien Term Loan
2nd Lien
Term Loan
3rd Lien Term Loan
Subordinated Structured Notes
Subordinated Unsecured Debt
Equity (B)
Fair Value Total
Fair Value % of Net Assets
Structured Finance (A)
—

—

—

—

708,961

—

—

708,961

23.2
%
Total Non-Control/Non-Affiliate
$
1,283,545

$
—

$
775,917

$
3,990

$
708,961

$
—

$
13,086

$
2,785,499

91.2
%
Fair Value % of Net Assets
42.0
%
—
%
25.4
%
0.1
%
23.2
%
—
%
0.4
%
91.2
%


Total Portfolio
$
2,450,928

$
1,981

$
1,271,966

$
3,990

$
708,961

$
51,079

$
743,423

$
5,232,328

171.2
%
Fair Value % of Net Assets
80.2
%
0.1
%
41.6
%
0.1
%
23.2
%
1.7
%
24.3
%
171.2
%


(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.

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 September 30, 2020 (Unaudited) and June 30, 2020 (Continued)


(39)
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 September 30, 2020:
Security Name
PIK Rate -
Capitalized
PIK Rate -
Paid as cash
Maximum
Current PIK Rate
 
Cinedigm DC Holdings, LLC - Senior Secured Term Loan
—
%
2.50
%
2.50
%
 
CP Energy Services Inc. - Senior Secured Term Loan
12.00
%
—
%
12.00
%
(A)
Credit Central Loan Company, LLC - Subordinated Term Loan
10.00
%
—
%
10.00
%
(B)
Echelon Transportation, LLC - Senior Secured Term Loan
2.25
%
—
%
2.25
%
(C)
Echelon Transportation, LLC - Senior Secured Term Loan
1.00
%
—
%
1.00
%
(D)
Edmentum Ultimate Holdings, LLC - Second Lien Revolving Credit Facility
5.00
%
—
%
5.00
%
 
Edmentum Ultimate Holdings, LLC - Unsecured Senior PIK Note
8.50
%
—
%
8.50
%
 
Edmentum Ultimate Holdings, LLC - Unsecured Junior PIK Note
10.00
%
—
%
10.00
%
 
First Tower Finance Company LLC - Subordinated Term Loan
—
%
12.00
%
12.00
%
 
InterDent, Inc. - Senior Secured Term Loan B
10.00
%
—
%
10.00
%
 
MITY, Inc. - Senior Secured Note B
10.00
%
—
%
10.00
%
 
National Property REIT Corp. - Senior Secured Term Loan A-2
—
%
3.53
%
3.53
%
 
National Property REIT Corp. - Senior Secured Term Loan B-2
—
%
5.50
%
5.50
%
 
National Property REIT Corp. - Senior Secured Term Loan C
—
%
2.25
%
2.25
%
 
National Property REIT Corp. - Senior Secured Term Loan D
—
%
2.50
%
2.50
%
 
Nationwide Loan Company LLC - Senior Subordinated Term Loan
3.35
%
6.65
%
10.00
%
 
Pacific World Corporation - Senior Secured Term Loan A
6.25
%
—
%
6.25
%
 
PGX Holdings, Inc. - Second Lien Term Loan
15.75
%
—
%
15.75
%
 
PGX Holdings, Inc. - 1.5 Lien
11.50
%
—
%
11.50
%
 
Rosa Mexicano - Revolving Line of Credit
5.50
%
—
%
5.50
%
(E)
Rosa Mexicano - Senior Secured Term Loan
5.50
%
—
%
5.50
%
(E)
RGIS Services, LLC - Senior Secured Term Loan
6.50
%
—
%
6.50
%
 
SEOTOWNCENTER, INC. - Senior Secured Term Loan A
—
%
4.00
%
4.00
%
(F)
SEOTOWNCENTER, INC. - Senior Secured Term Loan B
—
%
9.00
%
9.00
%
(G)
The Octave Music Group, Inc. (fka Touchtunes) - First Lien Term Loan
—
%
0.75
%
0.75
%
 
Town & Country Holdings, Inc. - First Lien Term Loan
—
%
5.00
%
5.00
%
(H)
Valley Electric Co. of Mt. Vernon, Inc. - Senior Secured Note
—
%
2.50
%
2.50
%
 
Valley Electric Company, Inc. - Senior Secured Note
—
%
10.00
%
10.00
%
 
Venio LLC - Second Lien Term Loan
5.00
%
5.00
%
10.00
%
 
(A) On August 28, 2020, the CP Energy Sixth Amendment to Loan Agreement was amended to allow 100% of the September 30, 2020 interest accruing in cash to be payable in kind resulting in a current PIK rate capitalized of 12.00%.
(B) 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%.
(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 14.00%.
(D) 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 12.00%.
(E) On April 29, 2020, the Rosa Mexicano Fifth Amendment and Waiver to Loan Agreement was amended to allow interest accruing in cash to be payable in kind resulting in a maximum current PIK rate of 5.50%.
(F) On May 20, 2020, the SEOTownCenter Limited Waiver and Fourth Amendment to Loan Agreement was amended to allow a Maximum Term Loan A PIK Rate of 4.00% for the interest accruing in cash to be payable in kind, at the borrowers election.
(G) On May 20, 2020, the SEOTownCenter Limited Waiver and Fourth Amendment to Loan Agreement was amended to allow a Maximum Term Loan B PIK Rate of 9.00% for the interest accruing in cash to be payable in kind, at the borrowers election.
(H) On March 31, 2020, the Town & Country Fourth Amendment to Loan Agreement was amended to allow a Maximum Term Loan PIK Rate of 5.00% for the interest accruing in cash to be payable in kind, at the borrowers election.


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 September 30, 2020 (Unaudited) and June 30, 2020 (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, 2020:    
Security Name
PIK Rate -
Capitalized
PIK Rate -
Paid as cash
Maximum
Current PIK Rate
 
Cinedigm DC Holdings, LLC - Senior Secured Term Loan
—%
2.50%
2.50%
 
CP Energy Services Inc. - Senior Secured Term Loan
12.00%
—%
12.00%
(A)
Credit Central Loan Company, LLC - Subordinated Term Loan
10.00%
—%
10.00%
(B)
Echelon Transportation, LLC - Senior Secured Term Loan
2.25%
—%
2.25%
(C)
Echelon Transportation, LLC - Senior Secured Term Loan
1.00%
—%
1.00%
(D)
Edmentum Ultimate Holdings, LLC - Second Lien Revolving Credit Facility
5.00%
—%
5.00%
 
Edmentum Ultimate Holdings, LLC - Unsecured Senior PIK Note
8.50%
—%
8.50%
 
Edmentum Ultimate Holdings, LLC - Unsecured Junior PIK Note
10.00%
—%
10.00%
 
First Tower Finance Company LLC - Subordinated Term Loan
4.40%
6.10%
10.50%
 
InterDent, Inc. - Senior Secured Term Loan A
6.25%
—%
6.25%
(E)
InterDent, Inc. - Senior Secured Term Loan A/B
7.05%
—%
7.05%
(F)
InterDent, Inc. - Senior Secured Term Loan B
10.00%
—%
10.00%
 
Medusind Acquisition, Inc - First Lien Term Loan
5.49%
3.51%
9.00%
(G)
MITY, Inc. - Senior Secured Note B
10.00%
—%
10.00%
 
National Property REIT Corp. - Senior Secured Term Loan A
—%
3.53%
3.53%
 
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%
 
National Property REIT Corp. - Senior Secured Term Loan D
—%
2.50%
2.50%
 
Nationwide Loan Company LLC - Senior Subordinated Term Loan
10.00%
—%
10.00%
 
Pacific World Corporation - Senior Secured Term Loan A
—%
—%
6.25%
(H)
PGX Holdings, Inc. - 1.5 Lien
11.50%
—%
11.50%
(I)
PGX Holdings, Inc. - Second Lien Term Loan
15.75%
—%
15.75%
(J)
Rosa Mexicano - Revolver
6.00%
—%
6.00%
(K)
Rosa Mexicano - Senior Secured Term Loan
6.00%
—%
6.00%
(L)
SEOTOWNCENTER, INC. - Senior Secured Term Loan A
—%
4.00%
4.00%
(M)
SEOTOWNCENTER, INC. - Senior Secured Term Loan B
—%
9.00%
9.00%
(N)
The Octave Music Group, Inc. (fka Touchtunes) - First Lien Term Loan
—%
0.75%
0.75%
 
Town & Country Holdings, Inc. - First Lien Term Loan
—%
5.00%
5.00%
(O)
Valley Electric Co. of Mt. Vernon, Inc. - Senior Secured Note
—%
2.50%
2.50%
 
Valley Electric Company, Inc. - Senior Secured Note
—%
10.00%
10.00%
 
Venio LLC - Second Lien Term Loan
10.00%
—%
10.00%
 
(A) On March 30, 2020, the CP Energy Fourth Amendment to Loan Agreement was amended to allow 100% of the June 30, 2020 interest accruing in cash to be payable in kind resulting in a current PIK rate capitalized of 12.00%.
(B) 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%.
(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 14.50%.
(D) 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%.
(E) On April 6, 2020, the Interdent Sixteenth Amendment was amended to allow interest accruing in cash to be payable in kind resulting in a maximum current PIK rate of 6.25%.
(F) On April 6, 2020, the Interdent Sixteenth Amendment was amended to allow interest accruing in cash to be payable in kind resulting in a maximum current PIK rate of 7.05%.
(G) On April 13, 2020, the Medusind Fourth Amendment to Credit and Guaranty Agreement was amended to allow $409 of the June 30, 2020 interest accruing in cash to be payable in kind resulting in a current PIK rate capitalized of 5.49%.
(H) Pacific World Term Loan A was placed on accrual status effective June 29, 2020. The next Term Loan A PIK interest payment/capitalization date is July 29, 2020.
(I) On May 27, 2020, the PGX 1.5 Lien Credit Agreement was entered to allow interest accrue and be payable in kind resulting in a maximum current PIK rate of 11.50%. The 1.5 Lien PIK interest will not capitalize until September 30, 2020.
(J) On May 27, 2020, the PGX Third Amendment to the Second Lien Credit Agreement was amended to allow interest accrue and be payable in kind resulting in a maximum current PIK rate of 15.75%.

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 September 30, 2020 (Unaudited) and June 30, 2020 (Continued)

(K) On April 29, 2020, the Rosa Mexicano Fifth Amendment and Waiver to Loan Agreement was amended to allow interest accruing in cash to be payable in kind resulting in a maximum current PIK rate of 6.00%.
(L) On April 29, 2020, the Rosa Mexicano Fifth Amendment and Waiver to Loan Agreement was amended to allow interest accruing in cash to be payable in kind resulting in a maximum current PIK rate of 6.00%.
(M) On May 20, 2020, the SEOTownCenter Limited Waiver and Fourth Amendment to Loan Agreement was amended to allow a Maximum Term Loan A PIK Rate of 4.00% for the interest accruing in cash to be payable in kind, at the borrowers election.
(N) On May 20, 2020, the SEOTownCenter Limited Waiver and Fourth Amendment to Loan Agreement was amended to allow a Maximum Term Loan B PIK Rate of 9.00% for the interest accruing in cash to be payable in kind, at the borrowers election.
(O) On March 31, 2020, the Town & Country Fourth Amendment to Loan Agreement was amended to allow a Maximum Term Loan PIK Rate of 5.00% for the interest accruing in cash to be payable in kind, at the borrowers election.

(40)
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 three months ended September 30, 2020 with these controlled investments were as follows:
Portfolio Company
Fair Value at June 30, 2020
Gross Additions (Cost)(A)
Gross Reductions (Cost)(B)
Net unrealized
gains (losses)
Fair Value at September 30, 2020
Interest
income
Dividend
income
Other
income
Net realized
gains (losses)
 CP Energy Services Inc.
$
51,174

$
1,127

$
(1
)
$
(17,406
)
$
34,894

$
1,127

$
—

$
—

$
—

 CP Energy - Spartan Energy Services, Inc.
18,711

26,193

(23,361
)
(2,128
)
19,415

303

—

6

2,832

 Credit Central Loan Company, LLC
75,685

3,369

—

(730
)
78,324

3,370

—

—

—

 Echelon Transportation, LLC
85,627

4,325

—

2,172

92,124

2,338

—

—

—

 First Tower Finance Company LLC
508,465

—

(4,911
)
6,546

510,100

15,480

—

—

—

 Freedom Marine Solutions, LLC
12,351

—

—

—

12,351

—

—

—

—

 InterDent, Inc.
230,757

3,282

—

2,945

236,984

4,937

—

—

—

Kickapoo Ranch Pet Resort
3,286

—

—

(286
)
3,000

—

—

—

—

 MITY, Inc.
51,905

851

(145
)
(3,632
)
48,979

2,373

—

—

—

 National Property REIT Corp.
878,733

38,746

(15,329
)
11,430

913,580

13,402

—

8,898

—

 Nationwide Loan Company LLC
37,238

173

—

(315
)
37,096

1,033

—

—

—

 NMMB, Inc.
33,668

—

(38
)
(5,530
)
28,100

135

—

—

—

 Pacific World Corporation
59,907

634

—

6,433

66,974

1,141

—

—

—

 R-V Industries, Inc.
38,565

—

—

2,534

41,099

716

—

—

—

 Universal Turbine Parts, LLC
26,599

—

(170
)
2,037

28,466

594

—

—

—

 USES Corp.
17,325

—

—

5,137

22,462

—

—

—

—

 Valley Electric Company, Inc.
129,296

—

—

4,328

133,624

1,778

—

167

—

Total
$
2,259,292

$
78,700

$
(43,955
)
$
13,535

$
2,307,572

$
48,727

$
—

$
9,071

$
2,832

(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.


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 September 30, 2020 (Unaudited) and June 30, 2020 (Continued)

(41)
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 three months ended September 30, 2020 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 September 30, 2020
Interest
income
Dividend
income
Other
income
Net realized
gains (losses)
Edmentum Ultimate Holdings, LLC
$
59,618

$
3,066

$
—

$
4,924

$
67,608

$
3,090

$
—

$
—

$
—

Nixon, Inc.
—

—

—

—

—

—

—

—

—

PGX Holdings, Inc.
106,711

5,099

—

57,771

169,581

4,272

—

—

—

Targus Cayman HoldCo Limited
21,208

—

—

3,778

24,986

—

—

—

—

Total
$
187,537

$
8,165

$
—

$
66,473

$
262,175

$
7,362

$
—

$
—

$
—

(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.
43

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

Endnote Explanations as of September 30, 2020 (Unaudited) and June 30, 2020 (Continued)

(42)
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, 2020 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 June 30, 2020
Interest
income
Dividend
income
Other
income
Net realized
gains (losses)
CP Energy Services Inc.
$
104,533

$
6,735

$
—

$
(60,094
)
$
51,174

$
4,636

$
—

$
—

$
—

CP Energy - Spartan Energy Services, LLC
34,398

2,119

—

(17,806
)
18,711

3,115

—

13

—

Credit Central Loan Company, LLC
71,417

12,891

—

(8,623
)
75,685

12,145

—

112

—

Echelon Transportation LLC
89,701

10,630

—

(14,704
)
85,627

8,349

—

—

—

First Tower Finance Company LLC
494,036

6,178

(6,518
)
14,769

508,465

57,802

—

—

—

Freedom Marine Solutions, LLC
14,920

—

—

(2,569
)
12,351

—

—

—

—

InterDent, Inc.
224,876

18,180

—

(12,299
)
230,757

18,823

—

—

—

Kickapoo Ranch Pet Resort
—

2,378

—

908

3,286

—

—

36

—

MITY, Inc.
46,902

3,421

(566
)
2,148

51,905

9,027

—

587

—

National Property REIT Corp.
1,004,465

118,309

(276,279
)
32,238

878,733

67,303

—

45,345

—

Nationwide Loan Company LLC
32,975

1,470

(1,500
)
4,293

37,238

3,917

—

—

—

NMMB, Inc.
24,183

15,100

(13,190
)
7,575

33,668

653

2,797

453

—

Pacific World Corporation
112,427

12,100

(3,366
)
(61,254
)
59,907

2,457

—

—

—

R-V Industries, Inc.
33,624

—

—

4,941

38,565

3,087

—

—

—

Universal Turbine Parts, LLC
28,043

2,900

(664
)
(3,680
)
26,599

2,528

—

100

—

USES Corp.
15,725

1,500

(5,950
)
6,050

17,325

—

—

—

—

Valley Electric Company, Inc.
143,685

—

(1,062
)
(13,327
)
129,296

7,106

7,538

665

—

Wolf Energy, LLC
14

(3,914
)
18

3,882

—

—

—

—

—

Total
$
2,475,924

$
209,997

$
(309,077
)
$
(117,552
)
$
2,259,292

$
200,948

$
10,335

$
47,311

$
—

(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.
(43)
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, 2020 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 June 30, 2020
Interest
income
Dividend
income
Other
income
Net realized
gains (losses)
Edmentum Ultimate Holdings, LLC
$
41,217

$
10,528

$
(3,133
)
$
11,006

$
59,618

$
8,150

$
—

$
—

$
—

Nixon, Inc.
—

—

—

—

—

—

—

—

—

PGX Holdings, Inc. (C)
—

63,679

—

43,032

106,711

4,499

—

38

—

Targus Cayman HoldCo Limited
16,599

—

(967
)
5,576

21,208

—

—

—

—

United Sporting Companies, Inc. (D)
18,866

(4,716
)
(21,613
)
7,463

—

—

—

—

—

Total
$
76,682

$
69,491

$
(25,713
)
$
67,077

$
187,537

$
12,649

$
—

$
38

$
—

(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 $57,239, the fair market value at the beginning of the three month period ended June 30, 2020.
(D)
Investment was transferred to non-controlled/non-affiliate investments at $4,716, the fair market value at the beginning of the three month period ended June 30, 2020. Refer to endnote 18.

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 September 30, 2020 (Unaudited) and June 30, 2020 (Continued)


(44)
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 45 for NPRC equity 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, 8/27/2020, 9/30/2020
$
14,095

Amerilife Group, LLC
Second Lien Term Loan
9/3/2020
4,165

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

Apidos CLO XII
Subordinated Structured Note
1/26/2018
4,070

Apidos CLO XV
Subordinated Structured Note
3/29/2018
6,480

Apidos CLO XXII
Subordinated Structured Note
2/24/2020
1,912

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
5/18/2018
9,255

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

Brookside Mill CLO Ltd.
Subordinated Structured Note
1/29/2018
3,605

California Street CLO IX Ltd.
Subordinated Structured Note
9/6/2016, 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
7/12/2018
1,024

CIFC Funding 2014-IV-R, Ltd.
Subordinated Structured Note
10/12/2018
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

Curo Group Holdings Corp.
Second Lien Term Loan
7/31/2020
841

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, 5/5/2020
4,600

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, 1/21/2020
33,080

First Brands Group
First Lien Term Loan
8/19/2020
5,615

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
8/21/2015, 3/10/2017
9,161

Galaxy XXVII CLO, Ltd.
Subordinated Structured Note
6/11/2015
1,460

GEON Performance Solutions, LLC
Revolving Line of Credit
12/12/2019, 1/10/2020, 2/3/2020, 2/6/2020, 3/2/2020, 3/6/2020, 4/9/2020, 5/7/2020, 6/3/2020
3,796

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


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 September 30, 2020 (Unaudited) and June 30, 2020 (Continued)

Portfolio Company
Investment
Follow-On Acquisition Dates
Follow-On Acquisitions
(Excluding initial investment cost)
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

Interdent, Inc.
Senior Secured Term Loan D
2/3/2020, 4/6/2020
4,350

Jefferson Mill CLO Ltd.
Subordinated Structured Note
9/21/2018
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
9/25/2015, 5/18/2018
9,422

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
1/17/2017, 6/3/2019
11,000

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 A
4/3/2020, 5/15/2020, 6/10/2020, 7/29/2020, 8/14/2020, 9/15/2020
36,054

National Property REIT Corp.
Senior Secured Term Loan C
10/23/2019, 1/23/2020, 3/31/2020, 4/8/2020, 8/4/2020
101,200

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

Octagon Investment Partners XV, Ltd.
Subordinated Structured Note
4/27/2015, 8/3/2015, 6/27/2017
10,516

Octagon Investment Partners 18-R Ltd.
Subordinated Structured Note
3/23/2018
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, 1/7/2020, 3/5/2020
20,100

PeopleConnect Holdings, LLC
Revolving Line of Credit
1/31/2020
1,115

PG Dental Holdings New Jersey, LLC
Delayed Draw Term Loan
8/26/2019, 4/3/2020
2,500

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

PGX Holdings, Inc.
1.5 Lien Loan
9/18/2020
809

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

Romark WM-R Ltd.
Subordinated Structured Note
3/29/2018
5,125

Rosa Mexicano
Revolving Line of Credit
3/27/2020
500

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

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

Symphony CLO XV, Ltd.
Subordinated Structured Note
12/7/2018
2,655

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, 2/7/2020, 2/26/2020
2,900

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, 9/17/2020
7,200

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

Valley Electric Company, Inc.
Senior Secured Note
6/30/2014, 8/31/2018
5,129

Voya CLO 2014-1, Ltd.
Subordinated Structured Note
3/29/2018
3,943


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 September 30, 2020 (Unaudited) and June 30, 2020 (Continued)

(45)
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 (refer to endnote 44 for NPRC term loan follow-on investments):
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
19,800






See notes to consolidated financial statements.
47

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 collateralized loan obligations ("CLOs"), which we also refer to as subordinated structured notes ("SSNs"). 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; Energy Solutions Holdings Inc.; First Tower Holdings of Delaware LLC (“First Tower Delaware”); MITY Holdings of Delaware Inc.; Nationwide Acceptance Holdings LLC; NMMB Holdings, Inc. (“NMMB Holdings”); NPH Property Holdings, LLC (“NPH”); Prospect Opportunity Holdings I, Inc. (“POHI”); SB Forging Company, Inc. (“SB Forging”); 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” 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 three months ended September 30, 2020.

48
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 September 30, 2020 and June 30, 2020, our qualifying assets as a percentage of total assets, stood at 74.53% and 74.44%, 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. 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.

49
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)
(in thousands, except share and per share data)


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.
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.

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


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 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.

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


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 September 30, 2020, approximately 0.7% 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 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.

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


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 September 30, 2020, we do not expect to have any excise tax due for the 2020 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 stockholders 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 September 30, 2020, 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, 2017 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 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 September 30, 2020 and June 30, 2020, there are no prepaid expenses related to registration expenses and all amounts incurred have been expensed.

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


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. The effectiveness of the amended guidance in ASU 2016-13 did not have a material effect on our consolidated financial statements and disclosures.
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. The effectiveness of the amended guidance in ASU 2018-13 did not have a material effect on our consolidated financial statements and disclosures.
In May 2020, the SEC adopted rule amendments that will impact the requirement of investment companies, including BDCs, to disclose the financial statements of certain of their portfolio companies or certain acquired funds (the “Final Rules”). The Final Rules adopted a new definition of “significant subsidiary” set forth in Rule 1-02(w)(2) of Regulation S-X under the Securities Act. Rules 3-09 and 4-08(g) of Regulation S-X require investment companies to include separate financial statements or summary financial information, respectively, in such investment company’s periodic reports for any portfolio company that meets the definition of “significant subsidiary.” The Final Rules adopt a new definition of “significant subsidiary” applicable only to investment companies that (i) modifies the investment test and the income test, and (ii) eliminates the asset test currently in the definition of “significant subsidiary” in Rule 1-02(w) of Regulation S-X. The new Rule 1-02(w)(2) of Regulation S-X is intended to more accurately capture these portfolio companies that are more likely to materially impact the financial condition of an investment company. The Final Rules will be effective on January 1, 2021, but voluntary compliance is permitted in advance of the effective date. We evaluated the impact of adopting the Final Rules on our consolidated financial statements and because the new definition of “significant subsidiary” contained therein is specific to investment companies, we elected to early adopt the Final Rules for our year ended June 30, 2020. Refer to Note 3. Portfolio Investments - Unconsolidated Significant Subsidiaries for disclosure.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform. The amendments in ASU 2020-04 provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The standard is effective as of March 12, 2020 through December 31, 2022. Management is currently evaluating the impact of the optional guidance on the Company's consolidated financial statements and disclosures. The Company did not utilize the optional expedients and exceptions provided by ASU 2020-04 during the three months ended September 30, 2020.
In August 2020, FASB issued ASU 2020-06, Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies the accounting for convertible instruments by removing the separation models for (1) convertible debt with a cash conversion feature and (2) convertible instruments with a beneficial conversion feature. As a result,

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


after adoption, a convertible debt instrument will be accounted for as a single liability measured at its amortized cost. Additionally, ASU 2020-06 requires the application of the if-converted method to calculate the impact of convertible instruments on diluted earnings per share. ASU 2020-06 is effective for fiscal years beginning after December 15, 2021, with early adoption permitted.
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 and Jobs 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. Additional uncertainty is anticipated particularly in light of the current presidential election in the United States and the impact the presidential and congressional elections may have on federal regulation and taxation. We will continue to monitor and account for the future impacts of federal regulatory and state guidance in the interim period in which such additional guidance is issued.
Note 3. Portfolio Investments
At September 30, 2020, we had investments in 122 long-term portfolio investments and CLOs, which had an amortized cost of $5,828,931 and a fair value of $5,386,385. At June 30, 2020, we had investments in 121 long-term portfolio investments and CLOs, which had an amortized cost of $5,782,718 and a fair value of $5,232,328.
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 $177,141 and $94,540 during the three months ended September 30, 2020 and September 30, 2019, respectively. Debt repayments and considerations from sales of equity securities of approximately $145,410 and $247,371 were received during the three months ended September 30, 2020 and September 30, 2019, respectively.
The following table shows the composition of our investment portfolio as of September 30, 2020 and June 30, 2020:
 
September 30, 2020
 
June 30, 2020
 
Cost

Fair Value

Cost

Fair Value
Revolving Line of Credit
$
38,363


$
38,318


$
38,469


$
36,944

Senior Secured Debt
2,539,272


2,435,715


2,586,769


2,422,523

Subordinated Secured Debt
1,431,016


1,292,160


1,424,633


1,269,398

Subordinated Unsecured Debt
48,194


53,262


43,935


51,079

Subordinated Structured Notes
1,100,944


730,514


1,089,079


708,961

Equity
671,142


836,416


599,833


743,423

Total Investments
$
5,828,931


$
5,386,385


$
5,782,718


$
5,232,328


55
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, 1.5 lien term loans, second lien term loans, and third 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 September 30, 2020:
 
Level 1
 
Level 2
 
Level 3
 
Total
Revolving Line of Credit
$
—

 
$
—

 
$
38,318

 
$
38,318

Senior Secured Debt
—

 
—

 
2,435,715

 
2,435,715

Subordinated Secured Debt
—

 
—

 
1,292,160

 
1,292,160

Subordinated Unsecured Debt
—

 
—

 
53,262

 
53,262

Subordinated Structured Notes
—

 
—

 
730,514

 
730,514

Equity
—

 
—

 
836,416

 
836,416

Total Investments
$
—

 
$
—

 
$
5,386,385

 
$
5,386,385

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, 2020:
 
Level 1
 
Level 2
 
Level 3
 
Total
Revolving Line of Credit
$
—

 
$
—

 
$
36,944

 
$
36,944

Senior Secured Debt
—

 
—

 
2,422,523

 
2,422,523

Subordinated Secured Debt
—

 
—

 
1,269,398

 
1,269,398

Subordinated Unsecured Debt
—

 
—

 
51,079

 
51,079

Subordinated Structured Notes
—

 
—

 
708,961

 
708,961

Equity
—

 
—

 
743,423

 
743,423

Total Investments
$
—

 
$
—

 
$
5,232,328

 
$
5,232,328


56
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 three months ended September 30, 2020:
 
Fair Value Measurements Using Unobservable Inputs (Level 3)
 
Control
 Investments
 
Affiliate
 Investments
 
Non-Control/
 Non-Affiliate
 Investments
 
Total
Fair value as of June 30, 2020
$
2,259,292

 
$
187,537

 
$
2,785,499

 
$
5,232,328

Net realized losses on investments
$
2,832

 
$
—

 
$
—

 
$
2,832

Net change in unrealized (losses) gains(1)
13,535

 
66,473

 
27,836

 
107,844

Net realized and unrealized (losses) gains
16,367

 
66,473

 
27,836

 
110,676

Purchases of portfolio investments
64,939

 
808

 
91,053

 
156,800

Payment-in-kind interest
13,660

 
5,694

 
987

 
20,341

Accretion (amortization) of discounts and premiums, net
101

 
1,663

 
12,718

 
14,482

Repayments and sales of portfolio investments
(46,787
)
 
—

 
(101,455
)
 
(148,242
)
Fair value as of September 30, 2020
$
2,307,572

 
$
262,175

 
$
2,816,638

 
$
5,386,385

 
Revolving Line of Credit
 
Senior Secured
Debt
 
Subordinated Secured Debt
 
Subordinated Unsecured Debt
 
Subordinated Structured Notes
 
Equity
 
Total
Fair value as of June 30, 2020
$
36,944

 
$
2,422,523

 
$
1,269,398

 
$
51,079

 
$
708,961

 
$
743,423

 
$
5,232,328

Net realized (losses) gains on investments


 
2,832

 


 


 


 
—

 
2,832

Net change in unrealized (losses) gains(1)
35

 
60,684

 
16,380

 
(629
)
 
9,692

 
21,682

 
107,844

Net realized and unrealized (losses) gains
35

 
63,516

 
16,380

 
(629
)
 
9,692

 
21,682

 
110,676

Purchases of portfolio investments
2,000

 
115,998

 
12,607

 
—

 
—

 
26,195

 
156,800

Payment-in-kind interest
116

 
10,689

 
8,242

 
1,294

 
—

 
—

 
20,341

Accretion (amortization) of discounts and premiums, net
—

 
507

 
451

 
1,663

 
11,861

 
—

 
14,482

Repayments and sales of portfolio investments
(777
)
 
(132,401
)
 
(14,918
)
 
(145
)
 
—

 
(1
)
 
(148,242
)
Transfers within Level 3(1)
—

 
(45,117
)
 
—

 
—

 
—

 
45,117

 
—

Fair value as of September 30, 2020
$
38,318

 
$
2,435,715

 
$
1,292,160

 
$
53,262

 
$
730,514

 
$
836,416

 
$
5,386,385

(1)
Transfers are assumed to have occurred at the beginning of the quarter during which the asset was transferred.




57
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 three months ended September 30, 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 gains on investments
—

 
—

 
(2,490
)
 
(2,490
)
Net change in unrealized (losses)(1)
(39,021
)
 
18,020

 
(29,610
)
 
(50,611
)
Net realized and unrealized (losses)
(39,021
)
 
18,020

 
(32,100
)
 
(53,101
)
Purchases of portfolio investments
11,950

 
—

 
66,297

 
78,247

Payment-in-kind interest
12,962

 
283

 
1,253

 
14,498

Accretion (amortization) of discounts and premiums, net
73

 
—

 
(1,838
)
 
(1,765
)
Repayments and sales of portfolio investments
(64,158
)
 
(21,722
)
 
(159,000
)
 
(244,880
)
Transfers in (out) of Level 3(1)
—

 
—

 
(20,555
)
 
(20,555
)
Fair value as of September 30, 2019
$
2,397,730

 
$
73,263

 
$
2,955,004

 
$
5,425,997

 
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, 2019
$
34,239

 
$
2,449,357

 
$
1,329,799

 
$
33,058

 
$
—

 
$
46,851

 
$
850,694

 
$
909,555

 
$
5,653,553

Net realized gains on investments
—

 
(120
)
 
12

 
—

 
36

 
—

 
(2,418
)
 
—

 
(2,490
)
Net change in unrealized gains (losses)
(401
)
 
(37,849
)
 
2,596

 
9,429

 
—

 
(193
)
 
(26,295
)
 
2,102

 
(50,611
)
Net realized and unrealized gains (losses)
(401
)
 
(37,969
)
 
2,608

 
9,429

 
36

 
(193
)
 
(28,713
)
 
2,102

 
(53,101
)
Purchases of portfolio investments
2,500

 
45,299

 
14,964

 
—

 
—

 
5,534

 
—

 
9,950

 
78,247

Payment-in-kind interest
104

 
9,016

 
5,200

 
178

 
—

 
—

 
—

 
—

 
14,498

Accretion (amortization) of discounts and premiums, net
—

 
104

 
1,897

 
—

 
—

 
(53
)
 
(3,713
)
 
—

 
(1,765
)
Repayments and sales of portfolio investments
(2,337
)
 
(144,899
)
 
(97,474
)
 
(143
)
 
(36
)
 
—

 
—

 
9

 
(244,880
)
Transfers in (out) of Level 3
—

 
(20,555
)
 
—

 
—

 
—

 
—

 
—

 
—

 
(20,555
)
Fair value as of September 30, 2019
$
34,105

 
$
2,300,353

 
$
1,256,994

 
$
42,522

 
$
—

 
$
52,139

 
$
818,268

 
$
921,616

 
$
5,425,997

(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.
The net change in unrealized gains (losses) on the investments that use Level 3 inputs was $54,481 and ($49,639) for investments still held as of September 30, 2020 and September 30, 2019, respectively.

Impact of the novel coronavirus (“Wuhan Virus”) pandemic
The U.S. capital markets are experiencing a period of extreme volatility and disruption. In December 2019, a novel strain of coronavirus (the "Wuhan Virus") surfaced in Wuhan, China. The Wuhan Virus has been declared a pandemic by the World Health Organization and, in response to the outbreak, the U.S. Health and Human Services Secretary has declared a public health emergency in the United States. The Wuhan Virus has had a devastating impact on the global economy, including the U.S. economy, and has resulted in a global economic rescission.
Many states, including those in which we and our portfolio companies operate, have issued orders requiring the closure of non-essential businesses and/or requiring residents to stay at home. The Wuhan Virus pandemic and preventative measures taken to contain or mitigate its spread have caused, and are continuing to cause, business shutdowns, or the reintroduction of business shutdowns, cancellations of and restrictions on events and travel, significant reductions in demand for certain goods and services, reductions in and restrictions on business activity and financial transactions, supply chain interruptions and overall economic and financial market instability both globally and in the United States. Such effects will likely continue for the duration of the pandemic, which is uncertain, and for some period thereafter. While several countries, as well as certain states, counties and cities in the United States, have begun to lift the public health restrictions with a view to reopening their economies, recurring Wuhan Virus

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


outbreaks have led to the re-introduction of such restrictions in certain states in the United States and globally and could continue to lead to the re-introduction of such restrictions elsewhere. Additionally, the absence of viable treatment options or a vaccine could lead people to continue to self-isolate and not participate in the economy at prepandemic levels for a prolonged period of time. Further, the extent and strength of any economic recovery after the Wuhan Virus pandemic abates, including following any "second wave" or other intensifying of the pandemic, is uncertain and subject to various factors and conditions. Even after the Wuhan Virus pandemic subsides, the U.S. economy and most other major global economies may continue to experience a recession.
The Wuhan Virus pandemic (including the preventative measures taken in response thereto) has to date (i) created significant business disruption issues for certain of our portfolio companies, and (ii) materially and adversely impacted the value and performance of certain of our portfolio companies and SSN investments. The Wuhan Virus pandemic is having a particularly adverse impact on industries in which certain of our portfolio companies operate, including energy, hospitality, travel, retail and restaurants. Certain of our portfolio companies in other industries have also been significantly impacted. The Wuhan Virus pandemic is continuing as of the filing date of this Quarterly Report, and its extended duration may have further adverse impacts on our portfolio companies and SSN investments after September 30, 2020, including for the reasons described herein. Although on March 27, 2020, the U.S. government enacted the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which contains provisions intended to mitigate the adverse economic effects of the Wuhan Virus pandemic, it is uncertain whether, or how much, our portfolio companies will be able to benefit from the CARES Act or any other subsequent legislation intended to provide financial relief or assistance. As a result of this disruption and the pressures on their liquidity, certain of our portfolio companies have been, or may continue to be, incentivized to draw on most, if not all, of the unfunded portion of any revolving or delayed draw term loans made by us, subject to availability under the terms of such loans.
As a BDC, we are required to carry our investments at fair value as determined in good faith by our Board of Directors. Depending on market conditions, we could incur substantial losses in future periods, which could have a material adverse impact on our business, financial condition, and results of operations.     
Although it is difficult to predict the extent of the impact of the Wuhan Virus outbreak on the underlying CLO vehicles we invest in, the failure by a CLO vehicle to satisfy certain 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 the CLO vehicle fails certain tests, holders of debt senior to us may 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 terms with a defaulting CLO vehicle 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 Wuhan Virus pandemic has adversely impacted the fair value of our investments as of September 30, 2020, and the values assigned as of this date may differ materially from the values that we may ultimately realize with respect to our investments. The impact of the Wuhan Virus pandemic may not yet be fully reflected in the valuation of our investments as our valuations, and particularly valuations of private investments and private companies, are inherently uncertain, may fluctuate over short periods of time and are often based on estimates, comparisons and qualitative evaluations of private information that is often from a time period earlier, generally two to three months, than the quarter for which we are reporting. Additionally, we may not have yet received information or certifications from our portfolio companies that indicate any or the full extent of declining performance or non-compliance with debt covenants, as applicable, as a result of the Wuhan Virus pandemic. As a result, our valuations at September 30, 2020 may not show the complete or continuing impact of the Wuhan Virus pandemic and the resulting measures taken in response thereto. In addition, write downs in the value of our investments have reduced, and any additional write downs may further reduce, our net asset value (and, as a result, our asset coverage calculation). Accordingly, we may continue to incur additional net unrealized losses or may incur realized losses after September 30, 2020, which could have a material adverse effect on our business, financial condition and results of operations.



59
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 September 30, 2020 were as follows:
 
 
 
 
 
 
Unobservable Input
Asset Category
 
Fair Value

 
Primary Valuation Approach or Technique
 
Input
 
Range
 
Weighted
Average
Senior Secured Debt
 
$
1,278,531

 
Discounted cash flow (Yield analysis)
 
Market yield
 
4.8% to 21.7%
 
10.3%
Senior Secured Debt
 
357,807

 
Enterprise value waterfall (Market approach)
 
EBITDA multiple
 
4.3x to 9.9x
 
8.1x
Senior Secured Debt
 
124,625

 
Enterprise value waterfall (Market approach)
 
Revenue multiple
 
0.5x to 1.2x
 
0.9x
Senior Secured Debt
 
69,797

 
Enterprise value waterfall (Discounted cash flow)
 
Discount rate
 
8.2% to 11.1%
 
9.5%
Senior Secured Debt (1)
 
30,621

 
Enterprise value waterfall
 
Loss-adjusted discount rate
 
5.0% to 17.5%
 
11.8%
Senior Secured Debt (2)
 
101,200

 
Enterprise value waterfall
 
Discount rate (3)
 
7.7% to 14.0%
 
9.9%
Senior Secured Debt
 
502,804

 
Enterprise value waterfall (NAV analysis)
 
Capitalization Rate
 
4.2% to 8.1%
 
6.2%
Subordinated Secured Debt
 
876,238

 
Discounted cash flow (Yield analysis)
 
Market yield
 
6.4% to 20.1%
 
10.8%
Subordinated Secured Debt
 
37,270

 
Enterprise value waterfall (Market approach)
 
EBITDA multiple
 
7.0x to 12.5x
 
8.5x
Subordinated Secured Debt
 
22,176

 
Enterprise value waterfall (Market approach)
 
Revenue multiple
 
0.3x to 0.5x
 
0.4x
Subordinated Secured Debt (4)
 
358,544

 
Enterprise value waterfall (Market approach)
 
Tangible book value multiple
 
0.8x to 2.7x
 
2.5x
Subordinated Secured Debt
 
6,580

 
Asset recovery analysis
 
n/a
 
n/a
 
n/a
Subordinated Unsecured Debt
 
53,262

 
Enterprise value waterfall (Market approach)
 
EBITDA multiple
 
5.3x to 12.5x
 
12.0x
Subordinated Structured Notes
 
730,514

 
Discounted cash flow
 
Discount rate (3)
 
2.7% to 32.5%
 
22.2%
Preferred Equity
 
12,692

 
Enterprise value waterfall (Market approach)
 
Revenue multiple
 
0.5x to 1.1x
 
0.8x
Common Equity/Interests/Warrants
 
231,973

 
Enterprise value waterfall (Market approach)
 
EBITDA multiple
 
4.3x to 12.5x
 
6.6x
Common Equity/Interests/Warrants
 
5,810

 
Enterprise value waterfall (Market approach)
 
Revenue multiple
 
0.4x to 0.5x
 
0.4x
Common Equity/Interests/Warrants (2)
 
12,082

 
Enterprise value waterfall
 
Discount rate (3)
 
7.7% to 14.0%
 
9.9%
Common Equity/Interests/Warrants
 
244,634

 
Enterprise value waterfall (NAV analysis)
 
Capitalization Rate
 
4.2% to 8.1%
 
6.2%
Common Equity/Interests/Warrants (4)
 
266,976

 
Enterprise value waterfall (Market approach)
 
Tangible book value multiple
 
0.8x to 2.7x
 
2.5x
Common Equity/Interests/Warrants (5)
 
22,239

 
Enterprise value waterfall (NAV analysis)
 
Capitalization Rate
 
4.2% to 8.1%
 
6.2%
Common Equity/Interests/Warrants
 
27,659

 
Enterprise value waterfall (Discounted cash flow)
 
Discount rate
 
8.5% to 30.0%
 
11.6%
Common Equity/Interests/Warrants
 
12,351

 
Asset recovery analysis
 
n/a
 
n/a
 
n/a
Total Level 3 Investments
 
$
5,386,385

 
 
 
 
 
 
 
 


60
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%-4.5%, with a weighted average of 0.2%.
(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 6.8x to 8.0x with a weighted average of 7.5x and the discount rate ranges from 13.1% to 14.1% with a weighted average of 13.6%.
(5)
Represents Residual Profit Interests in Real Estate Investments.

61
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, 2020 were as follows:
 
 
 
 
 
 
Unobservable Input
Asset Category
 
Fair Value
 
Primary Valuation Approach or Technique
 
Input
 
Range
 
Weighted
Average
Senior Secured Debt
 
$
1,283,545

 
Discounted cash flow
(Yield analysis)
 
Market yield
 
5.6% to 22.6%
 
10.7%
Senior Secured Debt
 
395,412

 
Enterprise value waterfall (Market approach)
 
EBITDA multiple
 
4.0x to 12.5x
 
8.0x
Senior Secured Debt
 
103,831

 
Enterprise value waterfall (Market approach)
 
Revenue multiple
 
0.4x to 1.2x
 
0.9x
Senior Secured Debt
 
65,471

 
Enterprise value waterfall (Discounted cash flow)
 
Discount rate (3)
 
8.6% to 11.4%
 
9.8%
Senior Secured Debt (1)
 
45,950

 
Enterprise value waterfall
 
Loss-adjusted discount rate
 
5.0% to 16.5%
 
11.2%
Senior Secured Debt (2)
 
79,200

 
Enterprise value waterfall
 
Discount rate (3)
 
7.3% to 12.8%
 
9.6%
Senior Secured Debt
 
486,058

 
Enterprise value waterfall (NAV analysis)
 
Capitalization Rate
 
4.0% to 8.1%
 
6.1%
Subordinated Secured Debt
 
839,784

 
Discounted cash flow
 (Yield analysis)
 
Market yield
 
7.0% to 20.8%
 
11.9%
Subordinated Secured Debt
 
58,643

 
Enterprise value waterfall (Market approach)
 
EBITDA multiple
 
7.0x to 10.5x
 
8.2x
Subordinated Secured Debt
 
3,990

 
Enterprise value waterfall (Market approach)
 
Revenue multiple
 
0.4x to 0.5x
 
0.4x
Subordinated Secured Debt (4)
 
360,015

 
Enterprise value waterfall (Market approach)
 
Tangible book value multiple
 
0.9x to 2.9x
 
2.6x
Subordinated Secured Debt
 
6,966

 
Asset recovery analysis
 
n/a
 
n/a
 
n/a
Subordinated Unsecured Debt
 
51,079

 
Enterprise value waterfall (Market approach)
 
EBITDA multiple
 
5.0x to 12.5x
 
12.0x
Subordinated Structured Notes
 
708,961

 
Discounted cash flow
 
Discount rate (3)
 
4.1% to 26.9%
 
20.6%
Preferred Equity
 
14,430

 
Enterprise value waterfall (Market approach)
 
EBITDA multiple
 
5.4x to 6.4x
 
5.9x
Common Equity/Interests/Warrants
 
158,001

 
Enterprise value waterfall (Market approach)
 
EBITDA multiple
 
4.0x to 12.5x
 
5.4x
Common Equity/Interests/Warrants
 
3,853

 
Enterprise value waterfall (Market approach)
 
Revenue multiple
 
0.4x to 0.5x
 
0.4x
Common Equity/Interests/Warrants (2)
 
9,987

 
Enterprise value waterfall
 
Discount rate (3)
 
7.3% to 12.8%
 
9.6%
Common Equity/Interests/Warrants
 
236,077

 
Enterprise value waterfall (NAV analysis)
 
Capitalization Rate
 
4.0% to 8.1%
 
6.1%
Common Equity/Interests/Warrants (4)
 
261,373

 
Enterprise value waterfall (Market approach)
 
Tangible book value multiple
 
0.9x to 2.9x
 
2.6x
Common Equity/Interests/Warrants (5)
 
21,461

 
Enterprise value waterfall (NAV analysis)
 
Capitalization Rate
 
4.0% to 8.1%
 
6.1%
Common Equity/Interests/Warrants
 
25,890

 
Enterprise value waterfall (Discounted cash flow)
 
Discount rate (3)
 
8.9% to 30.0%
 
12.2%
Common Equity/Interests/Warrants
 
12,351

 
Asset recovery analysis
 
n/a
 
n/a
 
n/a
Total Level 3 Investments
 
$
5,232,328

 
 
 
 
 
 
 
 


62
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%-4.8%, with a weighted average of 0.3%.
(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 7.3x to 8.4x with a weighted average of 7.9x and the discount rate ranges from 13.1% to 14.1% with a weighted average of 13.6%.
(5)
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 interest, taxes, 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, 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 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,

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


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 (“ARRC”) 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”). In April 2018, the Federal Reserve System, in conjunction with the ARRC, announced the replacement of LIBOR with a new index, calculated by short term repurchase agreements collateralized by U.S. Treasury securities, called the Secured Overnight Financing Rate (“SOFR”). On June 12, 2019, the Staff from the SEC’s Division of Corporate Finance, Division of Investment Management, Division of Trading and Markets, and Office of the Chief Accountant issued a statement about the potentially significant effects on financial markets and market participants when LIBOR is discontinued in 2021 and no longer available as a reference benchmark rate. The Staff encouraged all market participants to identify contracts that reference LIBOR and begin transitions to alternative rates.
At this time, it is not possible to predict the effect of the FCA Announcement or other regulatory changes or announcements, any establishment of any alternative reference rates, including SOFR and its market acceptance, 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. Recently, the CLOs we are invested in have included, or have been amended to include, language permitting the CLO investment manager to implement a market replacement rate (like SOFR) upon the occurrence of certain material disruption events. However, we cannot ensure that all CLOs in which we are invested will have such provisions, nor can we ensure the CLO investment managers will undertake the suggested amendments when able. 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.

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


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 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 three months ended September 30, 2020, the valuation methodology for Ahead Data Blue, LLC (“Ahead Data Blue”) changed to incorporate the take-out technique. As a result of the company’s continued performance, the fair value of our investment in Ahead Data Blue remained at $70,000 as of September 30, 2020, which is equal to its amortized cost.
During the three months ended September 30, 2020, the valuation methodology for Engine Group, Inc. (“Engine”) for the Second Lien Term Loan changed to incorporate the yield technique. As a result of the company’s impending restructuring transaction, the

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


fair value of our investment in the Engine Second Lien Term Loan increased to $7,386 as of September 30, 2020, a discount of $27,614 from its amortized cost, compared to the $32,246 unrealized depreciation recorded at June 30, 2020.
During the three months ended September 30, 2020, the valuation methodology for EXC Holdings III Corp (“EXC”) changed to incorporate Markit quotes. As a result of the company’s performance and tightened market spreads, the fair value of our investment in EXC increased to $12,377 as of September 30, 2020, a discount of $42 from its amortized cost, compared to the $97 unrealized depreciation recorded at June 30, 2020.

During the three months ended September 30, 2020, the valuation methodology for Global Tel*Link Corporation (“Global Tel”) for the First Lien Term Loan changed to incorporate Markit quotes. As a result of tightened market spreads, the fair value of our investment in Global Tel First Lien Term Loan increased to $9,471 as of September 30, 2020, a discount of $65 from its amortized cost, compared to the $301 unrealized depreciation recorded at June 30, 2020.

During the three months ended September 30, 2020, the valuation methodology for Research Now Group, Inc. & Survey Sampling International LLC (“Research Now”) for the First Lien Term Loan changed to incorporate Markit quotes. As a result of the company’s performance, the fair value of our investment in Research Now First Lien Term Loan decreased to $9,619 as of September 30, 2020, a premium of $214 from its amortized cost, compared to the $239 unrealized appreciation recorded at June 30, 2020.

During the three months ended September 30, 2020, the valuation methodology for Rosa Mexicano changed to incorporate the Current Value Method (“CVM”). As a result of tightened market spreads, the fair value of our investment in Rosa Mexicano increased to $21,721 as of September 30, 2020, a discount of $2,113 from its amortized cost, compared to the $2,493 unrealized depreciation recorded at June 30, 2020.
During the three months ended September 30, 2020, the valuation methodology for Shutterfly, Inc. (“Shutterfly”) changed to remove Markit quotes. As a result of tightened market spreads, the fair value of our investment in Shutterfly increased to $16,562 as of September 30, 2020, a premium of $787 from its amortized cost, compared to the $734 unrealized appreciation recorded at June 30, 2020.
During the three months ended September 30, 2020, the valuation methodology for Venio LLC (“Venio”) changed to remove the yield method. As a result of the company’s sale of the Reporting and Consulting business, the fair value of our investment in Venio increased to $18,196 as of September 30, 2020.

During the three months ended September 30, 2019, we recorded a realized loss of $2,420 related to four of our Subordinated Structured Notes. During the three months ended September 30, 2020, we did not record any such loss.
During the three months ended September 30, 2020, we received partial repayments of $15,329 of our loans previously outstanding with NPRC, and $38,746 of debt financing to NPRC to provide working capital and support real estate capital expenditures and to fund purchases of rated secured structured notes.
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 September 30, 2020, the outstanding investment in online consumer loans by certain of NPRC’s wholly-owned subsidiaries was comprised of 6,354 individual loans and residual interest in four securitizations, and had an aggregate fair value of $30,644. The average outstanding individual loan balance is approximately $3 and the loans mature on dates ranging from October 1, 2020 to April 19, 2025 with a weighted-average outstanding term of 18 months as of September 30, 2020. Fixed interest rates range from 6.0% to 36.0% with a weighted-average current interest rate of 22.0%. As of September 30, 2020, our investment in NPRC and its wholly-owned subsidiaries relating to online consumer lending had a fair value of $30,621.
As of September 30, 2020, based on outstanding principal balance, 13.6% of the portfolio was invested in super prime loans (borrowers with a Fair Isaac Corporation (“FICO”) score, of 720 or greater), 32.8% of the portfolio in prime loans (borrowers with a FICO score of 660 to 719) and 53.6% 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
 
$
2,785

 
$
2,691

 
6.0% - 24.1%
 
12.5%
Prime
 
6,731

 
6,334

 
6.0% - 36.0%
 
18.0%
Near Prime
 
11,024

 
10,608

 
6.0% - 36.0%
 
26.8%

66
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)
(in thousands, except share and per share data)


*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 September 30, 2020, the outstanding investment in rated secured structured notes by certain of NPRC’s wholly owned subsidiaries was comprised of 34 investments with a fair value of $188,885 and face value of $208,342. The average outstanding note is approximately $6,128 with an expected maturity date ranging from April 2026 to April 2029 and weighted-average expected maturity of 8 years as of September 30, 2020. Coupons range from three-month Libor (“3ML”) plus 5.45% to 9.45% with a weighted-average coupon of 3ML + 7.16%. As of September 30, 2020, our investment in NPRC and its wholly-owned subsidiaries relating to rated secured structured notes had a fair value of $101,200.
As of September 30, 2020, based on outstanding notional balance, 25% of the portfolio was invested in Single - B rated tranches and 75% of the portfolio in BB rated tranches.
As of September 30, 2020, our investment in NPRC and its wholly owned subsidiaries had an amortized cost of $634,835 and a fair value of $913,580, including our investment in online consumer lending and rated secured structured notes as discussed above. The fair value of $781,759 related to NPRC’s real estate portfolio was comprised of thirty-nine multi-families 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 September 30, 2020.
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


11,068

4

Crestview at Oakleigh, LLC

Pensacola, FL

11/15/2013

17,500


13,470

5

Inverness Lakes, LLC

Mobile, AL

11/15/2013

29,600


24,030

6

Kings Mill Pensacola, LLC

Pensacola, FL

11/15/2013

20,750


17,074

7

Plantations at Pine Lake, LLC

Tallahassee, FL

11/15/2013

18,000


13,710

8

Verandas at Rocky Ridge, LLC

Birmingham, AL

11/15/2013

15,600


9,928

9

Crestview at Cordova, LLC

Pensacola, FL

1/17/2014

8,500


12,952

10

Taco Bell, OK

Yukon, OK

6/4/2014

1,719


—

11

Taco Bell, MO

Marshall, MO

6/4/2014

1,405


—

12

Canterbury Green Apartments Holdings LLC

Fort Wayne, IN

9/29/2014

85,500


85,118

13

Abbie Lakes OH Partners, LLC

Canal Winchester, OH

9/30/2014

12,600


15,527

14

Kengary Way OH Partners, LLC

Reynoldsburg, OH

9/30/2014

11,500


15,694

15

Lakeview Trail OH Partners, LLC

Canal Winchester, OH

9/30/2014

26,500


29,942

16

Lakepoint OH Partners, LLC

Pickerington, OH

9/30/2014

11,000


17,036

17

Sunbury OH Partners, LLC

Columbus, OH

9/30/2014

13,000


17,272

18

Heatherbridge OH Partners, LLC

Blacklick, OH

9/30/2014

18,416


24,718

19

Jefferson Chase OH Partners, LLC

Blacklick, OH

9/30/2014

13,551


19,210

20

Goldenstrand OH Partners, LLC

Hilliard, OH

10/29/2014

7,810


11,719

21

SSIL I, LLC

Aurora, IL

11/5/2015

34,500


26,144

22

Vesper Tuscaloosa, LLC

Tuscaloosa, AL

9/28/2016

54,500


43,070

23

Vesper Iowa City, LLC

Iowa City, IA

9/28/2016

32,750


24,825

24

Vesper Corpus Christi, LLC

Corpus Christi, TX

9/28/2016

14,250


10,800

25

Vesper Campus Quarters, LLC

Corpus Christi, TX

9/28/2016

18,350


14,175

26

Vesper College Station, LLC

College Station, TX

9/28/2016

41,500


32,058

27

Vesper Kennesaw, LLC

Kennesaw, GA

9/28/2016

57,900


51,160

28

Vesper Statesboro, LLC

Statesboro, GA

9/28/2016

7,500


7,480

29

Vesper Manhattan KS, LLC

Manhattan, KS

9/28/2016

23,250


14,679

30

JSIP Union Place, LLC

Franklin, MA

12/7/2016

64,750


51,800

31

9220 Old Lantern Way, LLC

Laurel, MD

1/30/2017

187,250


153,580

32

7915 Baymeadows Circle Owner, LLC

Jacksonville, FL

10/31/2017

95,700


76,560

33

8025 Baymeadows Circle Owner, LLC

Jacksonville, FL

10/31/2017

15,300


12,240


67
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
34

23275 Riverside Drive Owner, LLC

Southfield, MI

11/8/2017

52,000


44,044

35

23741 Pond Road Owner, LLC

Southfield, MI

11/8/2017

16,500


14,185

36

150 Steeplechase Way Owner, LLC

Largo, MD

1/10/2018

44,500


36,668

37

Laurel Pointe Holdings, LLC

Forest Park, GA

5/9/2018

33,005


26,400

38

Bradford Ridge Holdings, LLC

Forest Park, GA

5/9/2018

12,500


10,000

39

Olentangy Commons Owner LLC

Columbus, OH

6/1/2018

113,000


92,876

40

Villages of Wildwood Holdings LLC

Fairfield, OH

7/20/2018

46,500


39,525

41

Falling Creek Holdings LLC

Richmond, VA

8/8/2018

25,000


19,335

42

Crown Pointe Passthrough LLC

Danbury, CT

8/30/2018

108,500


89,400

43

Ashwood Ridge Holdings LLC

Jonesboro, GA

9/21/2018

9,600


7,300

44

Lorring Owner LLC

Forestville, MD

10/30/2018

58,521


47,680

45

Hamptons Apartments Owner, LLC

Beachwood, OH

1/9/2019

96,500


79,520

46

5224 Long Road Holdings, LLC

Orlando, FL

6/28/2019

26,500


21,200

47

Druid Hills Holdings LLC

Atlanta, GA

7/30/2019

96,000


79,104

48

Bel Canto NPRC Parcstone LLC

Fayetteville, NC

10/15/2019

45,000


30,127

49

Bel Canto NPRC Stone Ridge LLC

Fayetteville, NC

10/15/2019

21,900


14,662

50

Sterling Place Holdings LLC

Columbus, OH

10/28/2019

41,500


34,196

 
 

 
 
 
 
 
$
1,843,477

 
$
1,543,261

On September 28 2020, Spartan Energy Services, LLC fully repaid the $26,193 Senior Secured Term Loan B receivable to us at par. We recorded a realized gain of $2,832 as a result of this transaction.
As of September 30, 2020, $3,179,433 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 September 30, 2020, $640,022 of our loans to portfolio companies, at fair value, bear interest at fixed rates ranging from 5.0% - 22.0%. As of June 30, 2020, $3,148,081 of our loans to portfolio companies, at fair value, bore interest at floating rates and have LIBOR floors ranging from 0.0% to 3.0%. As of June 30, 2020, $631,863 of our loans to portfolio companies, at fair value, bore interest at fixed rates ranging from 1.0% to 20.5%.
As of September 30, 2020 and June 30, 2020, the cost basis of our loans on non-accrual status amounted to $243,370 and $311,895, respectively, with fair value of $39,632 and $45,183, respectively. The fair values of these investments represent approximately 0.7% and 0.9% of our total assets at fair value as of September 30, 2020 and June 30, 2020, respectively.
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 September 30, 2020 and June 30, 2020, we had $42,099 and $41,487, 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 September 30, 2020 and June 30, 2020.
We have guaranteed $2,487 in standby letters of credit issued through a financial intermediary and $4,186 of equipment lease obligations on behalf of InterDent, Inc. (“InterDent”) as of September 30, 2020. 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 September 30, 2020, 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, we have voluntarily adopted the SEC’s new definition of “significant subsidiary” as set forth in Rule 1-02(w)(2) for BDC’s and closed end investment companies. Refer to Note 2. Significant Accounting policies - Recent Accounting Pronouncements for our assessment of the Final Rules and early adoption. Regulation S-X 3-09 requires separate audited financial statements of an unconsolidated subsidiary in an annual report. Regulation S-X 4-08(g) requires summarized financial information in an annual report.

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


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.
During three months ended September 30, 2020, NPRC was deemed to be a significant subsidiary. The following table shows summarized income statement information for NPRC for the periods included in this quarterly report:
 
Three Months Ended September 30,
Summary Statement of Operations
2020
 
2019
Total revenue
$
70,474

 
$
216,601

Operating expenses
76,142

 
103,997

Operating income
(5,668
)
 
112,604

Depreciation and amortization
(16,356
)
 
(23,843
)
Fair value adjustment
506

 
(2,869
)
Net income (loss)
(21,518
)
 
85,892

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 facility (the “2018 Facility”). The lenders have 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 September 30, 2020. 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 Credit 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 September 30, 2020, 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 three months ended September 30, 2020 and September 30, 2019, 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:

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



Three Months Ended September 30,

2020

2019
Average stated interest rate
2.37
%

4.45
%
Average outstanding balance
$377,113

$87,772
As of September 30, 2020 and June 30, 2020, we had $512,615 and $545,496, respectively, available to us for borrowing under the Revolving Credit Facility, net of $250,993 and $237,536 outstanding borrowings as of the respective balance sheet dates. As of September 30, 2020, the investments, including cash and cash equivalents, used as collateral for the Revolving Credit Facility had an aggregate fair value of $1,519,658, which represents 28.1% 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 September 30, 2020, $8,596 remains to be amortized and is reflected as deferred financing costs on the Consolidated Statements of Assets and Liabilities.
During the three months ended September 30, 2020 and September 30, 2019, we recorded $4,633 and $5,422, respectively, of interest costs, unused fees and amortization of financing costs on the Revolving Credit Facility as interest expense.
Note 5. Convertible Notes
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,

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


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 months 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”). On January 22, 2020, $2,215 aggregate principal amount of the 2020 Notes, representing 1.3% of the previously outstanding 2020 Notes, were validly tendered and accepted. The 2020 Notes December Tender Offer resulted in our recognizing a loss of $14 during the three months ended March 31, 2020. During the three months ended March 31, 2020, we repurchased an additional $45,111 aggregate principal amount of the 2020 Notes at a weighted average price of 100.5 including commissions. As a result of this transaction, we recorded a loss of $220, 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.
On April 15, 2020, we repaid the outstanding principal amount of $127,711 of the 2020 Notes, plus interest. No gain or loss was realized on the transaction.

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”). On January 22, 2020, $1,302 aggregate principal amount of the 2022 Notes, representing 0.5% of the previously outstanding 2022 Notes, were validly tendered and accepted. The 2022 Notes December Tender Offer resulted in our recognizing a loss of $51 during the three months ended March 31, 2020. During the three months ended March 31, 2020, we repurchased an additional $32,585 aggregate principal amount of the 2022 Notes at a weighted average price of 89.1 including commissions. As a result of this transaction, we recorded a gain of $3,045, 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 July 23, 2020, we commenced a tender offer to purchase for cash up to $100,000 aggregate principal amount of the 2022 Notes (“2022 Notes July Tender Offer”). On August 19, 2020, $29,420 aggregate principal amount of the 2022 Notes, representing

71
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)
(in thousands, except share and per share data)


11.4% of the previously outstanding 2022 Notes, were validly tendered and accepted. The 2022 Notes July Tender Offer resulted in our recognizing a loss of $396 during the three months ended September 30, 2020.
On September 3, 2020, we commenced a tender offer to purchase for cash up to $228,820 aggregate principal amount of the 2022 Notes (“2022 Notes September Tender Offer”). The 2022 Notes September Tender Offer expired at 12:00 midnight, New York City time, on October 2, 2020 (one minute after 11:59 PM, on October 1, 2020). As of September 30, 2020, the outstanding aggregate principal amount of the 2022 Notes is $228,820.
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 September 30, 2020, 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.
 
 
2022 Notes

 
2025 Notes

Initial conversion rate(1)
 
100.2305

 
110.7420

Initial conversion price
 
$
9.98

 
$
9.03

Conversion rate at September 30, 2020(1)(2)
 
100.2305

 
110.7420

Conversion price at September 30, 2020(2)(3)
 
$
9.98

 
$
9.03

Last conversion price calculation date
 
4/11/2020

 
3/1/2020

Dividend threshold amount (per share)(4)
 
$
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 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.

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


In connection with the issuance of the Convertible Notes, we recorded a discount of $4,025 and debt issuance costs of $20,751 which are being amortized over the terms of the Convertible Notes. As of September 30, 2020, $3,113 of the original issue discount and $4,786 of the debt issuance costs remain to be amortized and is included as a reduction within Convertible Notes on the Consolidated Statement of Assets and Liabilities.
During the three months ended September 30, 2020 and September 30, 2019, we recorded $6,865 and $10,655, 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 September 30, 2020, the outstanding aggregate principal amount of the 2023 Notes is $320,000.
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 $3,705 loss 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 year ended June 30, 2019.
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. On March 20, 2020, we commenced a tender offer to purchase for cash any and all of the $234,443 aggregate principal amount of the 2024 Notes (“2024 Notes March Tender Offer”). On March 31, 2020, $655 aggregate principal amount of the 2024 Notes, representing 0.3% of the previously outstanding 2024 Notes, were validly tendered and accepted. The 2024 Notes March Tender Offer, resulted in our recognizing a gain of $203 during the three months ended March 31, 2020. As of September 30, 2020, the outstanding aggregate principal amount of the 2024 Notes is $233,788.


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


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 September 30, 2020, 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 September 30, 2020, the outstanding aggregate principal amount of the 6.375% 2024 Notes is $100,000.
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 September 30, 2020, 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 term of the notes. As of September 30, 2020, $1,935 of the original issue discount and $9,076 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 September 30, 2020 and September 30, 2019, we recorded $12,843 and $12,818, 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. 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®.
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 “September 2019 Selling Agent Agreement”), authorizing the issuance and sale from time to time of up to $500,000 of Prospect Capital InterNotes®. We sold approximately $1,700,000 in aggregate principal amount of Prospect Capital InterNotes® under the Original Selling Agent Agreement, May 2019 Selling Agent Agreement, and September 2019 Selling Agent Agreement (collectively the “Previous Selling Agent Agreements”).
On February 13, 2020, the September 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 $1,000,000 of Prospect Capital InterNotes® (collectively with the previously authorized selling agent agreements, the

74
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)
(in thousands, except share and per share data)


“InterNotes® Offerings”). 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. We have, from time to time, repurchased certain notes issued through the InterNotes® Offerings and, therefore, as of September 30, 2020, $718,321 aggregate principal amount of Prospect Capital InterNotes® were outstanding.
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 three months ended September 30, 2020, we issued $38,657 aggregate principal amount of Prospect Capital InterNotes® for net proceeds of $38,070. These notes were issued with stated interest rates ranging from 4.75% to 6.00% with a weighted average interest rate of 5.42%. These notes mature between July 15, 2025 and October 15, 2030. The following table summarizes the Prospect Capital InterNotes® issued during the three months ended September 30, 2020:
Tenor at
Origination
(in years)
 
Principal
Amount
 
Interest Rate
Range
 
Weighted
Average
Interest Rate
 
Maturity Date Range
5
 
$
24,906

 
4.75%–5.50%
 
5.31
%
 
July 15, 2025 – October 15, 2025
7
 
5,884

 
5.00%–5.75%
 
5.49
%
 
July 15, 2027 – October 15, 2027
10
 
7,867

 
5.25%–6.00%
 
5.75
%
 
July 15, 2030 – October 15, 2030
 
 
$
38,657

 
 
 
 
 
 
During the three months ended September 30, 2019, we issued $95,135 aggregate principal amount of our Prospect Capital InterNotes® for net proceeds of $93,459. These notes were issued with stated interest rates ranging from 3.75% to 5.50% with a weighted average interest rate of 4.51%. These notes mature between July 15, 2024 and October 15, 2029. The following table summarizes the Prospect Capital InterNotes® issued during the three months ended September 30, 2019:
Tenor at
Origination
(in years)
 
Principal
Amount
 
Interest Rate
Range
 
Weighted
Average
Interest Rate
 
Maturity Date Range
5
 
$
32,479

 
3.75%-5.00%
 
4.44
%
 
July 15, 2024 – October 15, 2024
7
 
24,020

 
4.00%–5.25%
 
4.32
%
 
July 15, 2026 – October 15, 2026
10
 
38,636

 
3.75%–5.50%
 
4.69
%
 
July 15, 2029 – October 15, 2029
 
 
$
95,135

 
 
 
 
 
 
During the three months ended September 30, 2020, we repaid $565 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 three months ended September 30, 2020 was $14.

The following table summarizes the Prospect Capital InterNotes® outstanding as of September 30, 2020:
Tenor at
Origination
(in years)
 
Principal
Amount
 
Interest Rate
Range
 
Weighted
Average
Interest Rate
 
Maturity Date Range
5
 
$
243,146

 
3.75% – 5.75%
 
4.86
%
 
September 15, 2023 – October 15, 2025
7
 
110,348

 
4.00% – 6.00%
 
5.13
%
 
July 15, 2024 – October 15, 2027
8
 
24,325

 
4.50% – 5.75%
 
4.67
%
 
August 15, 2025 – July 15, 2026
10
 
167,479

 
3.75% – 6.25%
 
5.34
%
 
January 15, 2024 – October 15, 2030
12
 
2,978

 
6.00%
 
6.00
%
 
November 15, 2025 – December 15, 2025
15
 
16,851

 
5.75% – 6.00%
 
5.79
%
 
May 15, 2028 – November 15, 2028
18
 
18,721

 
4.50% – 6.25%
 
5.58
%
 
December 15, 2030 – August 15, 2031
20
 
3,812

 
5.75% – 6.00%
 
5.89
%
 
November 15, 2032 – October 15, 2033
25
 
30,710

 
6.25% – 6.50%
 
6.39
%
 
August 15, 2038 – May 15, 2039
30
 
99,951

 
5.50% – 6.75%
 
6.25
%
 
November 15, 2042 – October 15, 2043
 
 
$
718,321

 
 
 
 

 
 

75
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)
(in thousands, except share and per share data)


During the three months ended September 30, 2019, we redeemed, prior to maturity $143,980 aggregate principal amount of Prospect Capital InterNotes® at par with a weighted average interest rate of 5.26% in order to replace shorter maturity debt with longer-term debt. During the three months ended September 30, 2019, we repaid $1,479 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 three months ended September 30, 2019 was $1,193.
The following table summarizes the Prospect Capital InterNotes® outstanding as of June 30, 2020:
Tenor at
Origination
(in years)
 
Principal
Amount
 
Interest Rate
Range
 
Weighted
Average
Interest Rate
 
Maturity Date Range
5
 
$
218,240

 
3.75% – 5.75%
 
4.81
%
 
September 15, 2023 - July 15, 2025
7
 
104,529

 
4.00% – 6.00%
 
5.11
%
 
July 15, 2024 - July 15, 2027
8
 
24,325

 
4.50% – 5.75%
 
4.67
%
 
August 15, 2025 - July 15, 2026
10
 
159,802

 
3.75% – 6.25%
 
5.32
%
 
January 15, 2024 - July 15, 2030
12
 
2,978

 
6.00%
 
6.00
%
 
November 15, 2025 - December 15, 2025
15
 
16,851

 
5.75% – 6.00%
 
5.79
%
 
May 15, 2028 - November 15, 2028
18
 
18,741

 
4.50% – 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
 
30,710

 
6.25% – 6.50%
 
6.39
%
 
August 15, 2038 - May 15, 2039
30
 
100,206

 
5.50% – 6.75%
 
6.25
%
 
November 15, 2042 - October 15, 2043
 
 
$
680,229

 
 
 
 

 
 
In connection with the issuance of Prospect Capital InterNotes®, we incurred $29,477 of fees which are being amortized over the term of the notes, of which $12,959 remains to be amortized and is included as a reduction within Prospect Capital InterNotes® on the Consolidated Statement of Assets and Liabilities as of September 30, 2020.
During the three months ended September 30, 2020 and September 30, 2019, we recorded $9,708 and $10,003, respectively, of interest costs and amortization of financing costs on the Prospect Capital InterNotes® as interest expense.
Note 8. Fair Value and Maturity of Debt Outstanding 
As of September 30, 2020, our asset coverage stood at 243.6% based on outstanding senior securities of $2,193,103. As of June 30, 2020, our asset coverage stood at 239.2% based on outstanding senior securities of $2,170,974.
Information about our senior securities is shown in the following table as of the end of each of the last ten fiscal years and as of September 30, 2020. (All figures in this item are in thousands except per unit data)
 
 
Total Amount
Outstanding(1)
 
Asset
Coverage per
Unit(2)
 
Involuntary
Liquidating
Preference per
Unit(3)
 
Average
Market
Value per
Unit(4)
Credit Facility
 
 
 
 
 
 
 
 
Fiscal 2021 (as of September 30, 2020)
 
$
250,993

 
$
21,408

 
—

 
—

Fiscal 2020 (as of June 30, 2020)
 
237,536

 
22,000

 
—

 
—

Fiscal 2019 (as of June 30, 2019)
 
167,000

 
34,298

 
—

 
—

Fiscal 2018 (as of June 30, 2018)
 
37,000

 
155,503

 
—

 
—

Fiscal 2017 (as of June 30, 2017)
 
—

 
—

 
—

 
—

Fiscal 2016 (as of June 30, 2016)
 
—

 
—

 
—

 
—

Fiscal 2015 (as of June 30, 2015)
 
368,700

 
18,136

 
—

 
—

Fiscal 2014 (as of June 30, 2014)
 
92,000

 
69,470

 
—

 
—

Fiscal 2013 (as of June 30, 2013)
 
124,000

 
34,996

 
—

 
—

Fiscal 2012 (as of June 30, 2012)
 
96,000

 
22,668

 
—

 
—

Fiscal 2011 (as of June 30, 2011)
 
84,200

 
18,065

 
—

 
—


76
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)
(in thousands, except share and per share data)


Fiscal 2010 (as of June 30, 2010)
 
100,300

 
8,093

 
—

 
—

 
 
 
 
 
 
 
 
 
2015 Notes(5)
 
 
 
 
 
 
 
 
Fiscal 2015 (as of June 30, 2015)
 
$
150,000

 
$
2,241

 
—

 
—

Fiscal 2014 (as of June 30, 2014)
 
150,000

 
2,305

 
—

 
—

Fiscal 2013 (as of June 30, 2013)
 
150,000

 
2,578

 
—

 
—

Fiscal 2012 (as of June 30, 2012)
 
150,000

 
3,277

 
—

 
—

Fiscal 2011 (as of June 30, 2011)
 
150,000

 
3,740

 
—

 
—

 
 
 
 
 
 
 
 
 
2016 Notes(6)
 
 
 
 
 
 
 
 
Fiscal 2016 (as of June 30, 2016)
 
$
167,500

 
$
2,269

 
—

 
—

Fiscal 2015 (as of June 30, 2015)
 
167,500

 
2,241

 
—

 
—

Fiscal 2014 (as of June 30, 2014)
 
167,500

 
2,305

 
—

 
—

Fiscal 2013 (as of June 30, 2013)
 
167,500

 
2,578

 
—

 
—

Fiscal 2012 (as of June 30, 2012)
 
167,500

 
3,277

 
—

 
—

Fiscal 2011 (as of June 30, 2011)
 
172,500

 
3,740

 
—

 
—

 
 
 
 
 
 
 
 
 
2017 Notes(7)
 
 
 
 
 
 
 
 
Fiscal 2017 (as of June 30, 2017)
 
$
50,734

 
$
2,251

 
—

 
—

Fiscal 2016 (as of June 30, 2016)
 
129,500

 
2,269

 
—

 
—

Fiscal 2015 (as of June 30, 2015)
 
130,000

 
2,241

 
—

 
—

Fiscal 2014 (as of June 30, 2014)
 
130,000

 
2,305

 
—

 
—

Fiscal 2013 (as of June 30, 2013)
 
130,000

 
2,578

 
—

 
—

Fiscal 2012 (as of June 30, 2012)
 
130,000

 
3,277

 
—

 
—

 
 
 
 
 
 
 
 
 
2018 Notes(8)
 
 
 
 
 
 
 
 
Fiscal 2017 (as of June 30, 2017)
 
$
85,419

 
$
2,251

 
—

 
—

Fiscal 2016 (as of June 30, 2016)
 
200,000

 
2,269

 
—

 
—

Fiscal 2015 (as of June 30, 2015)
 
200,000

 
2,241

 
—

 
—

Fiscal 2014 (as of June 30, 2014)
 
200,000

 
2,305

 
—

 
—

Fiscal 2013 (as of June 30, 2013)
 
200,000

 
2,578

 
—

 
—

 
 
 
 
 
 
 
 
 
2019 Notes(10)
 
 

 
 

 
 

 
 

Fiscal 2018 (as of June 30, 2018)
 
$
101,647

 
$
2,452

 
—

 
—

Fiscal 2017 (as of June 30, 2017)
 
200,000

 
2,251

 
—

 
—

Fiscal 2016 (as of June 30, 2016)
 
200,000

 
2,269

 
—

 
—

Fiscal 2015 (as of June 30, 2015)
 
200,000

 
2,241

 
—

 
—

Fiscal 2014 (as of June 30, 2014)
 
200,000

 
2,305

 
—

 
—

Fiscal 2013 (as of June 30, 2013)
 
200,000

 
2,578

 
—

 
—

 
 
 
 
 
 
 
 
 
5.00% 2019 Notes(11)
 
 
 
 
 
 
 
 
Fiscal 2018 (as of June 30, 2018)
 
$
153,536

 
$
2,452

 
—

 
—

Fiscal 2017 (as of June 30, 2017)
 
300,000

 
2,251

 
—

 
—

Fiscal 2016 (as of June 30, 2016)
 
300,000

 
2,269

 
—

 
—

Fiscal 2015 (as of June 30, 2015)
 
300,000

 
2,241

 
—

 
—

Fiscal 2014 (as of June 30, 2014)
 
300,000

 
2,305

 
—

 
—

 
 
 
 
 
 
 
 
 
2020 Notes (14)
 
 
 
 
 
 
 
 
Fiscal 2019 (as of June 30, 2019)
 
$
224,114

 
$
2,365

 
—

 
—

Fiscal 2018 (as of June 30, 2018)
 
392,000

 
2,452

 
—

 
—

Fiscal 2017 (as of June 30, 2017)
 
392,000

 
2,251

 
—

 
—

Fiscal 2016 (as of June 30, 2016)
 
392,000

 
2,269

 
—

 
—


77
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)
(in thousands, except share and per share data)


Fiscal 2015 (as of June 30, 2015)
 
392,000

 
2,241

 
—

 
—

Fiscal 2014 (as of June 30, 2014)
 
400,000

 
2,305

 
—

 
—

 
 
 
 
 
 
 
 
 
6.95% 2022 Notes(9)
 
 
 
 
 
 
 
 
Fiscal 2014 (as of June 30, 2014)
 
$
100,000

 
$
2,305

 
—

 
$
1,038

Fiscal 2013 (as of June 30, 2013)
 
100,000

 
2,578

 
—

 
1,036

Fiscal 2012 (as of June 30, 2012)
 
100,000

 
3,277

 
—

 
996

 
 
 
 
 
 
 
 
 
2022 Notes
 
 
 
 
 
 
 
 
Fiscal 2021 (as of September 30, 2020)
 
$
228,820

 
$
2,451

 
—

 
—

Fiscal 2020 (as of June 30, 2020)
 
258,240

 
2,408

 
—

 
—

Fiscal 2019 (as of June 30, 2019)
 
328,500

 
2,365

 
—

 
—

Fiscal 2018 (as of June 30, 2018)
 
328,500

 
2,452

 
—

 
—

Fiscal 2017 (as of June 30, 2017)
 
225,000

 
2,251

 
—

 
—

 
 
 
 
 
 
 
 
 
2023 Notes(12)
 
 
 
 
 
 
 
 
Fiscal 2021 (as of September 30, 2020)
 
$
319,218

 
$
2,451

 
—

 
—

Fiscal 2020 (as of June 30, 2020)
 
319,145

 
$
2,408

 
—

 
—

Fiscal 2019 (as of June 30, 2019)
 
318,863

 
2,365

 
—

 
—

Fiscal 2018 (as of June 30, 2018)
 
318,675

 
2,452

 
—

 
—

Fiscal 2017 (as of June 30, 2017)
 
248,507

 
2,251

 
—

 
—

Fiscal 2016 (as of June 30, 2016)
 
248,293

 
2,269

 
—

 
—

Fiscal 2015 (as of June 30, 2015)
 
248,094

 
2,241

 
—

 
—

Fiscal 2014 (as of June 30, 2014)
 
247,881

 
2,305

 
—

 
—

Fiscal 2013 (as of June 30, 2013)
 
247,725

 
2,578

 
—

 
—

 
 
 
 
 
 
 
 
 
2024 Notes
 
 
 
 
 
 
 
 
Fiscal 2021 (as of September 30, 2020)
 
$
233,788

 
$
2,451

 
—

 
$
1,030

Fiscal 2020 (as of June 30, 2020)
 
233,788

 
2,408

 
—

 
959

Fiscal 2019 (as of June 30, 2019)
 
234,443

 
2,365

 
—

 
1,002

Fiscal 2018 (as of June 30, 2018)
 
199,281

 
2,452

 
—

 
1,029

Fiscal 2017 (as of June 30, 2017)
 
199,281

 
2,251

 
—

 
1,027

Fiscal 2016 (as of June 30, 2016)
 
161,364

 
2,269

 
—

 
951

 
 
 
 
 
 
 
 
 
6.375% 2024 Notes(12)
 
 
 
 
 
 
 
 
Fiscal 2021 (as of September 30, 2020)
 
$
99,794

 
$
2,451

 
—

 
—

Fiscal 2020 (as of June 30, 2020)
 
99,780

 
2,408

 
—

 
—

Fiscal 2019 (as of June 30, 2019)
 
99,726

 
2,365

 
—

 
—

 
 
 
 
 
 
 
 
 
2025 Notes
 
 
 
 
 
 
 
 
Fiscal 2021 (as of September 30, 2020)
 
$
201,250

 
$
2,451

 
—

 
—

Fiscal 2020 (as of June 30, 2020)
 
201,250

 
2,408

 
—

 
—

Fiscal 2019 (as of June 30, 2019)
 
201,250

 
2,365

 
—

 
—

 
 
 
 
 
 
 
 
 
2028 Notes
 
 
 
 
 
 
 
 
Fiscal 2021 (as of September 30, 2020)
 
$
70,761

 
$
2,451

 
—

 
$
1,002

Fiscal 2020 (as of June 30, 2020)
 
70,761

 
2,408

 
—

 
950

Fiscal 2019 (as of June 30, 2019)
 
70,761

 
2,365

 
—

 
984

Fiscal 2018 (as of June 30, 2018)
 
55,000

 
2,452

 
—

 
1,004


78
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)
(in thousands, except share and per share data)


 
 
 
 
 
 
 
 
 
2029 Notes
 
 
 
 
 
 
 
 
Fiscal 2021 (as of September 30, 2020)
 
$
69,170

 
$
2,451

 
—

 
$
1,016

Fiscal 2020 (as of June 30, 2020)
 
69,170

 
2,408

 
—

 
970

Fiscal 2019 (as of June 30, 2019)
 
69,170

 
2,365

 
 
 
983

 
 
 
 
 
 
 
 
 
Prospect Capital InterNotes®
 
 
 
 
 
 
 
 
Fiscal 2021 (as of September 30, 2020)
 
$
718,321

 
$
2,451

 
—

 
—

Fiscal 2020 (as of June 30, 2020)
 
680,229

 
2,408

 
—

 
—

Fiscal 2019 (as of June 30, 2019)
 
707,699

 
2,365

 
—

 
—

Fiscal 2018 (as of June 30, 2018)
 
760,924

 
2,452

 
—

 
—

Fiscal 2017 (as of June 30, 2017)
 
980,494

 
2,251

 
—

 
—

Fiscal 2016 (as of June 30, 2016)
 
908,808

 
2,269

 
—

 
—

Fiscal 2015 (as of June 30, 2015)
 
827,442

 
2,241

 
—

 
—

Fiscal 2014 (as of June 30, 2014)
 
785,670

 
2,305

 
—

 
—

Fiscal 2013 (as of June 30, 2013)
 
363,777

 
2,578

 
—

 
—

Fiscal 2012 (as of June 30, 2012)
 
20,638

 
3,277

 
—

 
—

 
 
 
 
 
 
 
 
 
All Senior Securities(12)(13)
 
 
 
 
 
 
 
 
Fiscal 2021 (as of September 30, 2020)
 
$
2,192,115

 
$
2,451

 
—

 
—

Fiscal 2020 (as of June 30, 2020)
 
2,169,899

 
2,408

 
—

 
—

Fiscal 2019 (as of June 30, 2019)
 
2,421,526

 
2,365

 
—

 
—

Fiscal 2018 (as of June 30, 2018)
 
2,346,563

 
2,452

 
—

 
—

Fiscal 2017 (as of June 30, 2017)
 
2,681,435

 
2,251

 
—

 
—

Fiscal 2016 (as of June 30, 2016)
 
2,707,465

 
2,269

 
—

 
—

Fiscal 2015 (as of June 30, 2015)
 
2,983,736

 
2,241

 
—

 
—

Fiscal 2014 (as of June 30, 2014)
 
2,773,051

 
2,305

 
—

 
—

Fiscal 2013 (as of June 30, 2013)
 
1,683,002

 
2,578

 
—

 
—

Fiscal 2012 (as of June 30, 2012)
 
664,138

 
3,277

 
—

 
—

Fiscal 2011 (as of June 30, 2011)
 
406,700

 
3,740

 
—

 
—

Fiscal 2010 (as of June 30, 2010)
 
100,300

 
8,093

 
—

 
—


(1)
Except as noted, the total amount of each class of senior securities outstanding at the end of the year/period presented (in 000’s).
(2)
The asset coverage ratio for a class of secured senior securities representing indebtedness is calculated as our consolidated total assets, less all liabilities and indebtedness not represented by senior securities, divided by secured senior securities representing indebtedness. The asset coverage ratio for a class of unsecured senior securities is inclusive of all senior securities. This asset coverage ratio is multiplied by $1,000 to determine the Asset Coverage Per Unit.
(3)
This column is inapplicable.
(4)
This column is inapplicable, except for the 6.95% 2022 Notes, the 2024 Notes, the 2028 Notes and the 2029 Notes. The average market value per unit is calculated as an average of quarter-end prices and shown as the market value per $1,000 of indebtedness.
(5)
We repaid the outstanding principal amount of the 2015 Notes on December 15, 2015.
(6)
We repaid the outstanding principal amount of the 2016 Notes on August 15, 2016.
(7)
We repaid the outstanding principal amount of the 2017 Notes on October 15, 2017.
(8)
We repaid the outstanding principal amount of the 2018 Notes on March 15, 2018.
(9)
We redeemed the 6.95% 2022 Notes on May 15, 2015.
(10)
We repaid the outstanding principal amount of the 2019 Notes on January 15, 2019.
(11)
We redeemed the 5.00% 2019 Notes on September 26, 2018.
(12)
For the period ended September 30, 2020 and all fiscal years ended June 30th, the notes are presented net of unamortized discount.
(13)
While we do not consider commitments to fund under revolving arrangements to be Senior Securities, if we were to elect to treat such unfunded commitments, which were $42,009 as of September 30, 2020 as Senior Securities for purposes of Section 18 of the 1940 Act, our asset coverage per unit would be $2,405.
(14)
We repaid the outstanding principal amount of the 2020 Notes on April 15, 2020.

79
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 September 30, 2020.
 
Principal Outstanding
 
Unamortized Discount & Debt Issuance Costs
 
Net Carrying Value
 
Fair Value(1)
 
Effective Interest Rate
 
Revolving Credit Facility(2)
$
250,993

 
$
8,596

 
$
250,993

(3)
$
250,993

 
1ML+2.20%

(6)
 
 
 
 
 
 
 
 
 
 
 
2022 Notes
228,820

 
2,864

 
225,956

 
231,799

(4)
5.65
%
(7)
2025 Notes
201,250

 
5,035

 
196,215

 
207,076

(4)
6.63
%
(7)
Convertible Notes
430,070

 


 
422,171

 
438,875

 
 
 
 
 
 
 
 
 
 
 
 
 
 
6.375% 2024 Notes
100,000

 
695

 
99,305

 
104,389

(4)
6.64
%
(7)
2023 Notes
320,000

 
2,207

 
317,793

 
331,581

(4)
6.09
%
(7)
2024 Notes
233,788

 
3,721

 
230,067

 
240,708

(4)
6.76
%
(7)
2028 Notes
70,761

 
2,091

 
68,670

 
70,837

(4)
6.77
%
(7)
2029 Notes
69,170


2,297


66,873


70,277

(4)
7.38
%
(7)
Public Notes
793,719

 


 
782,708

 
817,792

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Prospect Capital InterNotes®
718,321

 
12,959

 
705,362

 
740,257

(5)
6.04
%
(8)
Total
$
2,193,103

 


 
$
2,161,234

 
$
2,247,917

 
 
 
(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 September 30, 2020.
(2)
The maximum draw amount of the Revolving Credit facility as of September 30, 2020 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.


80
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, 2020:
 
Principal Outstanding
 
Unamortized Discount & Debt Issuance Costs
 
Net Carrying Value
 
Fair Value (1)
 
Effective Interest Rate
 
Revolving Credit Facility(2)
$
237,536

 
$
9,145

 
$
237,536

(3)
$
237,536

 
1ML+2.20%

(6)
 
 
 
 
 
 
 
 
 
 
 
2022 Notes
258,240

 
3,615

 
254,625

 
247,133

(4)
5.65
%
(7)
2025 Notes
201,250

 
5,277

 
195,973

 
194,279

(4)
6.63
%
(7)
Convertible Notes
459,490

 


 
450,598

 
441,412

 
 
 
 
 
 
 
 
 
 
 
 
 
 
6.375% 2024 Notes
100,000

 
762

 
99,238

 
100,771

(4)
6.64
%
(7)
2023 Notes
320,000

 
2,426

 
317,574

 
325,395

(4)
6.09
%
(7)
2024 Notes
233,788

 
3,939

 
229,849

 
229,580

(4)
6.76
%
(7)
2028 Notes
70,761

 
2,142

 
68,619

 
66,842

(4)
6.77
%
(7)
2029 Notes
69,170

 
2,344

 
66,826

 
67,233

(4)
7.38
%
(7)
Public Notes
793,719

 


 
782,106

 
789,821

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Prospect Capital InterNotes®
680,229

 
12,802

 
667,427

 
658,292

(5)
6.06
%
(8)
Total
$
2,170,974

 


 
$
2,137,667

 
$
2,127,061

 
 
 

(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, 2020.
(2)
The maximum draw amount of the Revolving Credit facility as of June 30, 2020 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.
The following table shows the contractual maturities of our Revolving Credit Facility, Convertible Notes, Public Notes and Prospect Capital InterNotes® as of September 30, 2020:
 
Payments Due by Period
 
Total
 
Less than 1 Year
 
1 – 3 Years
 
3 – 5 Years
 
After 5 Years
Revolving Credit Facility
$
250,993

 
—

 
$
—

 
$
250,993

 
$
—

Convertible Notes
430,070

 
—

 
228,820

 
201,250

 
—

Public Notes
793,719

 
—

 
320,000

 
333,788

 
139,931

Prospect Capital InterNotes®
718,321

 
—

 
4,478

 
277,855

 
435,988

Total Contractual Obligations
$
2,193,103

 
$
—

 
$
553,298

 
$
1,063,886

 
$
575,919


81
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, 2020:
 
Payments Due by Period
 
Total
 
Less than 1 Year
 
1 – 3 Years
 
3 – 5 Years
 
After 5 Years
Revolving Credit Facility
$
237,536

 
$
—

 
$
—

 
$
237,536

 
$
—

Convertible Notes
459,490

 
—

 
258,240

 
201,250

 
—

Public Notes
793,719

 
—

 
320,000

 
333,788

 
139,931

Prospect Capital InterNotes®
680,229

 
—

 
—

 
243,062

 
437,167

Total Contractual Obligations
$
2,170,974

 
$
—

 
$
578,240

 
$
1,015,636

 
$
577,098

We may from time to time seek to cancel or purchase our outstanding debt through cash purchases and/or exchanges, in open market purchases, privately negotiated transactions or otherwise. The amounts involved may be material. In addition, we may from time to time enter into additional debt facilities, increase the size of existing facilities or issue additional debt securities, including secured debt, unsecured debt and/or debt securities convertible into common stock. Any such purchases or exchanges of outstanding debt would be subject to prevailing market conditions, our liquidity requirements, contractual and regulatory restrictions and other factors.
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 stockholders of our intention to purchase our common stock.
We did not repurchase any shares of our common stock under the Repurchase Program for the three months ended September 30, 2020 and September 30, 2019. As of September 30, 2020, the approximate dollar value of shares that may yet be purchased under the Repurchase Program is $65,860.
On February 13, 2020, we filed a registration statement on Form N-2 (File No. 333-236415) that was effective upon filing pursuant to Rule 462(e) under the Securities Act as permitted under the Small Business Credit Availability Act. The registration statement permits us to issue, through one or more transactions, an indeterminate amount of securities, consisting of common stock, preferred stock, debt securities, subscription rights to purchase our securities, warrants representing rights to purchase our securities or separately tradeable units combining two or more of our securities.
Our stockholders’ equity accounts as of September 30, 2020 and September 30, 2019 reflect cumulative shares issued 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.
On June 12, 2020, we entered into equity distribution agreements with each of RBC Capital Markets, LLC, Barclays Capital Inc., and KeyBanc Capital Markets Inc. pursuant to which we may offer and sell, by means of at-the-market offerings, up to 50,000,000 shares of our $0.001 par value Common Stock.
Excluding dividend reinvestments, during the three months ended September 30, 2020 and September 30, 2019, we did not issue any shares of our common stock.
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.
On April 17, 2020, our Board of Directors approved further amendments to our dividend reinvestment plan, effective May 21, 2020, that principally provide for the number of newly-issued shares of our common stock to be credited to a stockholder’s account shall be determined by dividing the total dollar amount of the distribution payable to such stockholder by 95% of the market price per share of our common stock at the close of regular trading on the Nasdaq Global Select Market on the date fixed by the Board of Directors for such distribution.

82
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)
(in thousands, except share and per share data)


On August 3, 2020, we entered into a Dealer Manager Agreement with Preferred Capital Securities, LLC (the “Dealer Manager”) (the “Dealer Manager Agreement”), pursuant to which the Dealer Manager has agreed to serve as the Company’s agent, principal distributor and exclusive dealer manager for the Company’s offering of up to 40,000,000 shares, par value $0.001 per share, of preferred stock, with a $1,000,000 aggregate liquidation preference. Such Preferred Stock will initially be issued in multiple series, including the 5.50% Series A1 Preferred Stock (“Series A1 Preferred Stock”), the 5.50% Series M1 Preferred Stock (“Series M1 Preferred Stock”), and the 5.50% Series M2 Preferred Stock (“Series M2 Preferred Stock”, and together with the Series M1 Preferred Stock, the “Series M Preferred Stock”). In connection with such offering, on August 3, 2020, we filed Articles Supplementary with the State Department of Assessments and Taxation of Maryland, reclassifying and designating 120,000,000 shares of the Company’s authorized and unissued shares of common stock into shares of Preferred Stock as “Convertible Preferred Stock.”
During the three months ended September 30, 2020 and September 30, 2019, we distributed approximately $67,861 and $66,111, respectively, to our stockholders. The following table summarizes our distributions declared and payable for the three months ended September 30, 2019 and September 30, 2020.
Declaration Date
 
Record Date
 
Payment Date
 
Amount Per Share
 
Amount Distributed (in thousands)
5/8/2019

7/31/2019

8/22/2019

$
0.06


$
22,032

5/8/2019

8/30/2019

9/19/2019

0.06


22,037

8/27/2019

9/30/2019

10/24/2019

0.06


22,042

Total declared and payable for the three months ended September 30, 2019
 

$
66,111

 
 
 
 
 
 
 
 
 
5/11/2020

7/31/2020

8/20/2020

$
0.06


$
22,515

5/11/2020

8/31/2020

9/17/2020

0.06


22,619

8/26/2020

9/30/2020

10/22/2020

0.06


22,727

Total declared and payable for the three months ended September 30, 2020
 
 
$
67,861

Dividends and distributions to common stockholders are recorded on the ex-dividend date. As such, the table above includes distributions with record dates during three months ended September 30, 2020 and September 30, 2019. 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 September 30, 2020:
•
$0.06 per share for October 2020 holders of record on October 30, 2020 with a payment date of November 19, 2020.
During the three months ended September 30, 2020 and September 30, 2019, we issued 5,238,459 and 232,847 shares of our common stock, respectively, in connection with the dividend reinvestment plan.
During the three months ended September 30, 2020, Prospect officers and directors purchased 2,768,819 shares of our stock, or 0.73% of total outstanding shares as of September 30, 2020, both through the open market transactions and shares issued in connection with our dividend reinvestment plan.
As of September 30, 2020, we have reserved 45,221,571 shares of our common stock for issuance upon conversion of the Convertible Notes (see Note 5) and 1,000,000,000 shares of our common stock for issuance upon conversion of the Preferred Stock (as defined in Note 18 below).

83
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)
(in thousands, except share and per share data)


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 months ended September 30, 2020 and September 30, 2019.
 
Three Months Ended September 30,
 
2020
 
2019
Structuring, advisory, and amendment fees
$
1,426

 
$
8,310

Royalty and net revenue interests
9,066

 
3,232

Administrative agent fees
124

 
131

Total other income
$
10,616

 
$
11,673

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 months ended September 30, 2020 and September 30, 2019:
 
Three Months Ended September 30,
 
2020
 
2019
Net increase in net assets resulting from operations
$
167,746

 
$
18,065

Weighted average common shares outstanding
375,910,891
 
367,238,762

Net increase in net assets resulting from operations per share
$
0.45

 
$
0.05

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.
For income tax purposes, dividends paid and distributions made to stockholders are reported as ordinary income, capital gains, non-taxable return of capital, or a combination thereof. The tax character of dividends paid to stockholders during the tax years ended August 31, 2020, 2019, and 2018 were as follows:
 
 
Tax Year Ended August 31,
 
 
2020
 
2019
 
2018
Ordinary income
 
$
207,989

 
$
263,773

 
$
269,095

Capital gain
 
—

 
—

 
—

Return of capital
 
57,772

 
—

 
—

Total dividends paid to stockholders
 
$
265,761

 
$
263,773

 
$
269,095

We generate certain types of income that may be exempt from U.S. withholding tax when distributed to non-U.S. stockholders. 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. stockholders with proper documentation. For the 2020 calendar year, 50.50% of our distributions as of September 30, 2020 qualified as interest related dividends which are exempt from U.S. withholding tax applicable to non-U.S. stockholders.

For the tax year ending August 31, 2021, the tax character of dividends paid to stockholders through September 30, 2020 is expected to be ordinary income and return of capital however due to the difference between our fiscal and tax year ends, the final determination of the tax character of dividends between ordinary income, capital gains, and return of capital will not be made until we file our tax return for the tax year ending August 31, 2021.

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

84
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)
(in thousands, except share and per share data)


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, 2020, 2019, and 2018:
 
 
Tax Year Ended August 31,
 
 
2020
 
2019
 
2018
Net increase (decrease) in net assets resulting from operations
 
$
(78,949
)
 
$
93,093

 
$
389,732

Net realized (gains) losses on investments
 
10,139

 
(5,923
)
 
26,762

Net unrealized (gains) losses on investments
 
328,997

 
217,159

 
(105,599
)
Other temporary book-to-tax differences
 
(88,670
)
 
(87,511
)
 
(42,583
)
Permanent differences
 
57

 
78

 
31

Taxable income before deductions for distributions
 
$
171,574

 
$
216,896

 
$
268,343

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, 2020, we had capital loss carryforwards of approximately $104,108 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, 2020, we had no cumulative taxable income in excess of cumulative distributions.
As of September 30, 2020, the cost basis of investments for tax purposes was $5,833,754 resulting in an estimated net unrealized loss of $447,369. As of September 30, 2020, the gross unrealized gains and losses were $728,752 and $1,176,121, respectively. As of June 30, 2020, the cost basis of investments for tax purposes was $5,778,417 resulting in an estimated net unrealized loss of $546,088. As of June 30, 2020, the gross unrealized gains and losses were $654,709 and $1,200,797, 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 September 30, 2020 and June 30, 2020 was calculated based on the book cost of investments as of September 30, 2020 and June 30, 2020, respectively, with cumulative book-to-tax adjustments for investments through August 31, 2020 and 2019, 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, 2020, we decreased overdistributed net investment income by $57 and decreased capital in excess of par value by $57. 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. 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.
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 $26,850 and $28,463 during the three months ended September 30, 2020 and September 30, 2019, respectively.

85
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)
(in thousands, except share and per share data)


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).
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 $14,386 and $17,765 during the three months ended September 30, 2020 and September 30, 2019, respectively. No capital gains incentive fee was incurred during the three or three months ended September 30, 2020 and September 30, 2019.

86
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)
(in thousands, except share and per share data)


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 $4,657 and $3,494 for the three months ended September 30, 2020 and September 30, 2019, respectively. Prospect Administration received estimated payments of $66 and $584 directly from our portfolio companies, and certain funds managed by the Investment Adviser for legal services during the three months ended September 30, 2020 and September 30, 2019, respectively. 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.
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.

87
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)
(in thousands, except share and per share data)


During the three months ended September 30, 2020 and September 30, 2019, we received payments of $1,848 and $700, 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 suspended 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 by the Investment Adviser or certain affiliates, including Priority Income Fund, Inc. and Prospect Flexible Income Fund, Inc. (f/k/a 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 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 September 30, 2020 and September 30, 2019, we recognized expenses that were reimbursed for valuation services of $31 and $48, respectively. Conversely, Priority Income Fund, Inc. and Prospect Flexible Income Fund, Inc. (f/k/a TP Flexible Income Fund, Inc.) reimburse us for software fees, expenses which were initially incurred by Prospect. As of September 30, 2020 and June 30, 2020, we accrued a receivable from Priority Income Fund, Inc. and Prospect Flexible Income Fund, Inc. (f/k/a TP Flexible Income Fund, Inc.) for software fees of $0 and $8, 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.
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. 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

88
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)
(in thousands, except share and per share data)


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
 
September 30, 2020
 
September 30, 2019
Interest Income

 
 
  Interest Income from CP Energy
$
1,127

 
$
1,193

  Interest Income from Spartan
303

 
1,251

Total Interest Income
$
1,430

 
$
2,444

Other Income
 
 
 
Administrative Agent
$
6

 
$
—

Total Other Income
6

 
—

Managerial Assistance (1)
—

 
150

Realized Gain
2,832

 
—

(1) No income recognized by Prospect. MA payments were paid from CP Energy to Prospect and subsequently remitted to PA.

 
Three Months Ended
 
September 30, 2020
 
September 30, 2019
Additions
$
26,193

 
$
—

Interest Income Capitalized as PIK
1,127


1,198

Repayment of Loan Receivable
23,361

 
—

Return of Capital
1


—

 
As of
 
September 30, 2020
 
June 30, 2020
Interest Receivable (2)
$
16

 
$
15

Other Receivables (3)
17

 
16

(2) Interest income recognized but not yet paid.
(3) Represents amounts due from CP Energy and Spartan to Prospect for reimbursement of expenses paid by Prospect on behalf of CP Energy and Spartan.


89
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
 
September 30, 2020
 
September 30, 2019
Interest Income
$
3,370

 
$
2,981

Other Income

 

Structuring Fee
$
—

 
$
112

Total Other Income
$
—

 
$
112

Managerial Assistance (1)
$
175

 
$
—

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
 
September 30, 2020
 
September 30, 2019
Additions (3)
$
—

 
$
5,600

Accreted Original Issue Discount
101

 
73

Interest Income Capitalized as PIK
3,268

 
963

(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
 
September 30, 2020
 
June 30, 2020
Interest Receivable (4)
$
37

 
$
35

Other Receivables (5)
2

 
2

(4) Interest income recognized but not yet paid.
(5) Represents amounts due from Credit Central to Prospect for reimbursement of expenses paid by Prospect on behalf of Credit Central.
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
 
September 30, 2020
 
September 30, 2019
Interest Income
$
2,338

 
$
2,021

 
Three Months Ended
 
September 30, 2020
 
September 30, 2019
Additions (1)
$
—

 
$
500

Interest Income Capitalized as PIK
4,325

 
3,774

(1) During the three months ended September 30, 2019, Prospect made a follow-on $500 first lien senior secured debt.

90
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)
(in thousands, except share and per share data)


 
As of
 
September 30, 2020
 
June 30, 2020
Interest Receivable (2)
$
1,608

 
$
3,606

Other Receivables - Due to PA (3)
63

 
—

Other Receivables (4)
7

 
7

(2) Interest income recognized but not yet paid.
(3) Managerial assistance recognized but not yet paid by Echelon and is included by Prospect within Other Receivable and Due to PA.
(4) 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
 
September 30, 2020
 
September 30, 2019
Interest Income
$
15,480

 
$
14,637

Managerial Assistance (1)
600

 
600

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).
 
Three Months Ended
 
September 30, 2020
 
September 30, 2019
Interest Income Capitalized as PIK
$
—

 
$
2,666

Repayment of loan receivable
4,911

 
2,034

 
As of
 
September 30, 2020
 
June 30, 2020
Interest Receivable (3)
$
166

 
$
158

Other Receivables (4)
10

 
10


91
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)
(in thousands, except share and per share data)


(3) Interest income recognized but not yet paid.
(4) Represents amounts due from First Tower to Prospect for reimbursement of expenses paid by Prospect on behalf of First Tower.

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.
InterDent, Inc.
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, all the members of which are our Investment Adviser’s professionals. As a result, Prospect’s investment in InterDent is classified as a control investment.
Effective September 30, 2020, we restructured our investment in InterDent whereby we contributed 100% of the outstanding aggregate principal amount of our Senior Secured Term Loan C and Senior Secured Term Loan D to the capital of InterDent. The principal contributions were made gross of all previously accrued and unpaid interest paid-in-kind.
 
Three Months Ended
 
September 30, 2020
 
September 30, 2019
Interest Income
$
4,937

 
$
4,659

 
Three Months Ended
 
September 30, 2020
 
September 30, 2019
Interest Income Capitalized as PIK
3,282

 
3,032

 
As of
 
September 30, 2020
 
June 30, 2020
Interest Receivable (1)
$
65

 
$
52

Other Receivables (2)
10

 
—

(1) Interest income recognized but not yet paid.
(2) 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.
 
Three Months Ended
 
September 30, 2020
 
September 30, 2019
Additions (1)
$
—

 
$
2,350

(1) During the three months ended September 30, 2019, we provided $2,350 of equity financing to Kickapoo.
 
As of
 
September 30, 2020
 
June 30, 2020
Other Receivables (2)
$
2

 
$
—

(2) Represents amounts due from Kickapoo to Prospect for reimbursement of expenses paid by Prospect on behalf of Kickapoo.

92
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)
(in thousands, except share and per share data)



MITY, Inc.
Prospect owns 100% of the equity of MITY Holdings of Delaware Inc. (“MITY Delaware”), a Consolidated Holding Company.
MITY Delaware 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 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 its shareholder. We recognize such commission, if any, as other income.
 
Three Months Ended
 
September 30, 2020
 
September 30, 2019
Interest Income
 
 
 
  Interest Income from MITY-Lite
$
2,373

 
$
2,066

  Interest Income from Broda Canada
—

 
143

Total Interest Income
$
2,373

 
$
2,209

Managerial Assistance (1)
75

 
—

(1) No income recognized by Prospect. MA payments were paid from MITY to Prospect and subsequently remitted to PA.
 
Three Months Ended
 
September 30, 2020
 
September 30, 2019
Interest Income Capitalized as PIK
$
851

 
$
1,013

Repayment of loan receivable
145

 
143

 
As of
 
September 30, 2020
 
June 30, 2020
Interest Receivable (2)
$
26

 
$
26

Other Receivables (3)
1

 
1

(2) Interest income recognized but not yet paid.
(3) 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 Property Holdings, LLC (“NPH”), a consolidated holding company. NPH owns 100% of the common equity of National Property REIT Corp. (“NPRC”).
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 and rated secured structured notes (“RSSN”).

93
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)
(in thousands, except share and per share data)


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.
Effective June 19, 2020, we amended and restated the terms of our credit agreement with NPRC, as part of the amendment we increased out investment through a new Term Loan D secured note in the aggregate principal amount of $183,425 and the proceeds were returned to us as a return of capital, reducing our equity investment in NPRC. We received structuring fees of $3,669 as a result of the amendment.
During the three months ended September 30, 2020, we received partial repayments of $15,329 of our loans previously outstanding with NPRC, and provided $38,746 of debt financing to NPRC to provide working capital and support real estate capital expenditures and to fund purchases of rated secured structured notes.

 
Three Months Ended
 
September 30, 2020
 
September 30, 2019
Interest Income
$
13,402

 
$
16,592

Other Income

 

Structuring Fee
$
—

 
$
446

Advisory Fee
—

 
7,595

Royalty/Net Interest
8,898

 
3,230

Total Other Income
$
8,898

 
$
11,271

Managerial Assistance (1)
$
525

 
$
—

Reimbursement of Legal, Tax, etc.(2)
164

 
346

(1) No income recognized by Prospect. MA payments were paid from NPRC to Prospect and subsequently remitted to PA.
(2) 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
 
September 30, 2020
 
September 30, 2019
Additions
$
38,746

 
$
—

Repayment of loan receivable
15,329

 
60,683


 
As of
 
September 30, 2020
 
June 30, 2020
Interest Receivable (3)
$
216

 
$
212

Other Receivables (4)
1

 
2

(3) Interest income recognized but not yet paid.
(4) Represents amounts due from NPRC to Prospect for reimbursement of expenses paid by Prospect on behalf of NPRC.
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 5.52% of the equity.
On March 24, 2020, Prospect received distributions of $1,500 that were paid from Nationwide Holdings to Prospect and were recognized as a return of capital by Prospect.

94
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)
(in thousands, except share and per share data)


 
Three Months Ended
 
September 30, 2020
 
September 30, 2019
Interest Income
$
1,033

 
$
954

Managerial Assistance (1)
100

 
100

(1) No income recognized by Prospect. MA payments were paid from Nationwide to Prospect and subsequently remitted to PA.

 
Three Months Ended
 
September 30, 2020
 
September 30, 2019
Interest Income Capitalized as PIK
$
173

 
$
316

 
As of
 
September 30, 2020
 
June 30, 2020
Interest Receivable (2)
$
11

 
$
11

Other Receivables (3)
2

 
2

(2) Interest income recognized but not yet paid.
(3) 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 92.25% and 92.50% of the fully-diluted equity of NMMB, Inc. (f/k/a NMMB Acquisition, Inc.) (“NMMB”) as of September 30, 2020 and June 30, 2020, 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.
 
Three Months Ended
 
September 30, 2020
 
September 30, 2019
Interest Income
 
 
 
  Interest Income from NMMB
135

 
91

Total Interest Income
$
135

 
$
91

Managerial Assistance (1)
$
100

 
$
—

(1) No income recognized by Prospect. MA payments were paid from NMMB to Prospect and subsequently remitted to PA.

 
Three Months Ended
 
September 30, 2020
 
September 30, 2019
Repayment of loan receivable
 
 
 
   Repayment from Armed Forces
$
—

 
$
1,500

   Repayment from NMMB
38

 
—

Total Repayment of loan receivable (2)
$
38

 
$
1,500

(2) During the three months ended September 30, 2020, Prospect received partial repayments totaling $38 for our Senior Secured Notes outstanding with NMMB, Inc.

95
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)
(in thousands, except share and per share data)


 
As of
 
September 30, 2020
 
June 30, 2020
Interest Receivable (3)
$
1

 
$
1

Other Receivables  (4)
—

 
2

(3) Interest income recognized but not yet paid.
(4) Represents amounts due from NMMB to Prospect for reimbursement of expenses paid by Prospect on behalf of NMMB.

Pacific World Corporation
Prospect owns 100% of the preferred equity of Pacific World Corporation (“Pacific World”), which represents a 99.96% ownership interest of Pacific World as of September 30, 2020 and June 30, 2020, respectively. As a result, Prospect’s investment in Pacific World is classified as a control investment.
Effective June 30, 2020, we restructured our investment in Pacific World whereby we contributed 100% of the outstanding aggregate principal amount of our Senior Secured Term Loan B and all but $39,082 of the outstanding aggregate principal amount of our Senior Secured Term Loan A to the capital of Pacific World. The principal contributions were made gross of all previously accrued and unpaid interest paid-in-kind.
 
Three Months Ended
 
September 30, 2020
 
September 30, 2019
Interest Income
$
1,141

 
$
1,063


 
Three Months Ended
 
September 30, 2020
 
September 30, 2019
Additions (1)
$
—

 
$
2,000

Interest Income Capitalized as PIK
634

 
—

(1) During the three months ended September 30, 2019, Prospect provided $2,000 of equity financing to Pacific World to fund working capital needs.

 
As of
 
September 30, 2020
 
June 30, 2020
Interest Receivable (2)
$
72

 
$
10

Other Receivables (3)
29

 
19

(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.
 
Three Months Ended
 
September 30, 2020
 
September 30, 2019
Interest Income
$
716

 
$
804

Managerial Assistance (1)
45

 
—

Reimbursement of Legal, Tax, etc.(2)
—

 
12


96
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)
(in thousands, except share and per share data)


(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
 
September 30, 2020
 
June 30, 2020
Interest Receivable (3)
$
8

 
$
8

(3) Interest income recognized but not yet paid.

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.
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 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
 
September 30, 2020
 
September 30, 2019
Interest Income
$
594


$
633

Managerial Assistance (1)
3

 
—

(1) No income recognized by Prospect. MA payments were paid from UTP to Prospect and subsequently remitted to PA.
 
Three Months Ended
 
September 30, 2020
 
September 30, 2019
Repayment of loan receivable
170

 
163



97
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)
(in thousands, except share and per share data)


 
As of
 
September 30, 2020
 
June 30, 2020
Interest Receivable (2)
$
6

 
$
6

Other Receivables (3)
1

 
1

(2) Interest income recognized by not yet paid.
(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 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.
 
Three Months Ended
 
September 30, 2020
 
September 30, 2019
Additions (1)
$
—

 
$
1,500

(1) During the three months ended September 30, 2019, Prospect provided $1,500 of equity financing to USES to fund capital expenditures and repayment of accounts payable.


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.
 
Three Months Ended
 
September 30, 2020
 
September 30, 2019
Interest Income
 
 
 
Interest Income from Valley
$
280

 
$
280

Interest Income from Valley Electric
1,498

 
1,498

Total Interest Income
$
1,778

 
$
1,778

Dividend Income (1)
$
—

 
$
3,800

Other Income

 

Residual Profit Interest
167

 
—

Total Other Income
$
167

 
$
—

Managerial Assistance (2)
$
150

 
$
—

(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.


98
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)
(in thousands, except share and per share data)


 
As of
 
September 30, 2020
 
June 30, 2020
Interest Receivable (3)
$
15

 
$
15

Other Receivables (4)
2

 
2

(3) Interest income recognized but not yet paid.
(4) 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.

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. During the six months ended December 31, 2019, the cost basis in Wolf Energy Holdings of $3,914 was transferred to CP Energy.


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 September 30, 2020.


99
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)
(in thousands, except share and per share data)


Note 16. Financial Highlights
The following is a schedule of financial highlights for the three months ended September 30, 2020 and September 30, 2019:
 
Three Months Ended September 30,
 
2020
 
2019
Per Share Data
 

 
 

Net asset value at beginning of period
$
8.18

 
$
9.01

Net investment income(1)
0.15

 
0.19

Net realized and change in unrealized (losses) gains(1)
0.30

 
(0.14
)
  Net increase from operations
0.45

 
0.05

Distributions of net investment income
(0.18
)
 
(0.18
)
Common stock transactions(2)
(0.05
)
 
(0.01
)
  Net asset value at end of period
$
8.40

 
$
8.87

 
 
 
 
Per share market value at end of period
$
5.03

 
$
6.59

Total return based on market value(3)
2.15
%
 
3.69
%
Total return based on net asset value(3)
6.57
%
 
1.14
%
Shares of common stock outstanding at end of period
378,776,958

 
367,363,872

Weighted average shares of common stock outstanding
375,910,891

 
367,238,762

 
 
 
 
Ratios/Supplemental Data
 
 
 
Net assets at end of period
$
3,181,027

 
$
3,259,773

Portfolio turnover rate
2.79
%
 
1.70
%
Annualized ratio of operating expenses to average net assets
10.95
%
 
11.07
%
Annualized ratio of net investment income to average net assets
7.38
%
 
8.66
%

100
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, 2020:
 
Year Ended June 30,
 
2020
 
2019
 
2018
 
2017
 
2016
Per Share Data
 

 
 
 
 
 
 

 
 

Net asset value at beginning of year
$
9.01

 
$
9.35

 
$
9.32

 
$
9.62

 
$
10.31

Net investment income(1)
0.72

 
0.85

 
0.79

 
0.85

 
1.04

Net realized and change in unrealized (losses) gains(1)
(0.76
)
 
(0.46
)
 
0.04

 
(0.15
)
 
(0.75
)
  Net (decrease) increase from operations
(0.04
)
 
0.39

 
0.83

 
0.70

 
0.29

Distributions of net investment income
(0.72
)
 
(0.72
)
 
(0.77
)
 
(1.00
)
 
(1.00
)
Common stock transactions(2)
(0.07
)
 
(0.01
)
 
(0.03
)
 
—

(4)
0.02

  Net asset value at end of year
$
8.18

 
$
9.01

 
$
9.35

 
$
9.32

 
$
9.62

 
 
 
 
 
 
 
 
 
 
Per share market value at end of year
$
5.11

 
$
6.53

 
$
6.71

 
$
8.12

 
$
7.82

Total return based on market value(3)
(11.35
%)
 
8.23
%
 
(7.42
%)
 
16.80
%
 
21.84
%
Total return based on net asset value(3)
2.84
%
 
7.17
%
 
12.39
%
 
8.98
%
 
7.15
%
Shares of common stock outstanding at end of year
373,538,499

 
367,131,025

 
364,409,938

 
360,076,933

 
357,107,231

Weighted average shares of common stock outstanding
368,094,299

 
365,984,541

 
361,456,075

 
358,841,714

 
356,134,297

 
 
 
 
 
 
 
 
 
 
Ratios/Supplemental Data
 
 
 
 
 
 
 
 
 
Net assets at end of year
$
3,055,861

 
$
3,306,275

 
$
3,407,047

 
$
3,354,952

 
$
3,435,917

Portfolio turnover rate
16.46
%
 
10.86
%
 
30.70
%
 
23.65
%
 
15.98
%
Ratio of operating expenses to average net assets
11.37
%
 
11.65
%
 
11.08
%
 
11.57
%
 
11.95
%
Ratio of net investment income to average net assets
8.44
%
 
9.32
%
 
8.57
%
 
8.96
%
 
10.54
%
(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 stockholders 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.

101
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, 2021:
 
 
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, 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
)
March 31, 2020
 
154,501

 
0.42

 
68,476

 
0.19

 
(254,175
)
 
(0.70
)
 
(185,699
)
 
(0.51
)
June 30, 2020
 
145,229

 
0.39

 
58,273

 
0.16

 
104,340

 
0.28

 
162,613

 
0.44

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
September 30, 2020
 
$
142,880

 
$
0.38

 
$
57,545

 
$
0.15

 
$
110,201

 
$
0.30

 
$
167,746

 
$
0.45

(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 October 5, 2020 through November 5, 2020 we issued $11,616 aggregate principal amount of Prospect Capital InterNotes® for net proceeds of $11,435.
The 2022 Notes September Tender Offer expired at 12:00 midnight, New York City time, on October 2, 2020 (one minute after 11:59 p.m., New York City time, on October 1, 2020). As of the expiration date, $6,035 aggregate principal amount of the 2022 Notes, representing 2.64% of the previously outstanding 2022 Notes, were validly tendered and accepted at the purchase price of 101.00, plus accrued and unpaid interest, pursuant to the 2022 Notes September Tender Offer. Following settlement of the 2022 Notes September Tender Offer on October 6, 2020, approximately $222,785 aggregate principal amount of the 2022 Notes remain outstanding.
During the period of October 15, 2020 through October 30, 2020, we provided $12,451 of Senior Secured Term Loan A funding to NPRC and its wholly-owned subsidiaries to fund the acquisition of a real estate property and support capital expenditures for existing real estate properties.
On October 16, 2020, Ahead Data Blue, LLC (“Ahead Data Blue”) fully repaid the $70,000 Second Lien Term Loan receivable to us at par. Concurrent with the repayment, we made a new $57,500 Second Lien Term Loan investment in Ahead Data Blue to support a change of control transaction.
On October 19, 2020, we commenced a tender offer to purchase for cash any and all of the aggregate outstanding 2022 Notes at the purchase price of 102.625, plus accrued and unpaid interest (the “2022 Notes October Tender Offer”), of which $222,785 aggregate principal amount was then outstanding following the settlement of the 2022 Notes September Tender Offer. The 2022 Notes October Tender Offer will expire at 12:00 midnight, New York City time, on November 17, 2020 (one minute after 11:59 p.m., New York City time, on November 16, 2020), or any other date and time to which the Company extends the 2022 Notes October Tender Offer.
On October 30, 2020, we entered into a Dealer Manager Agreement with Incapital LLC, pursuant to which Incapital LLC has agreed to serve as the Company’s agent and dealer manager for the Company’s offering of up to 10,000,000 shares, par value $0.001 per share, of 5.50% Series AA1 Preferred Stock, with a $250,000 aggregate liquidation preference (the “Series AA1 Preferred Stock”, and together with the Series A1 Preferred Stock, Series M1 Preferred Stock and Series M2 Preferred Stock for

102
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)
(in thousands, except share and per share data)


purposes of Note 18, the “Preferred Stock”). In connection with such offering, on October 30, 2020, we filed Articles Supplementary with the State Department of Assessments and Taxation of Maryland, reclassifying and designating 20,000,000 shares of the Company’s authorized and unissued shares of common stock into shares of Preferred Stock as “Convertible Preferred Stock.”
On October 30, 2020, Halyard MD OpCo, LLC fully repaid the $10,265 First Lien Term Loan receivable to us at par.
On November 9, 2020, we announced the declaration of monthly dividends for our Preferred Stock for holders of record on the following dates based on an annual rate equal to 5.50% of the stated value of $25 per share as set forth in the Articles Supplementary for the Preferred Stock, from the date of issuance or, if later from the most recent dividend payment date, as follows:
Monthly Cash Preferred Shareholder Distribution
Record Date
Payment Date
Monthly Amount ($ per share), before pro ration for partial periods
October and November 2020
11/18/2020
12/1/2020
$0.114583

On November 9, 2020, we announced the declaration of monthly dividends on our common stock as follows:
Monthly Cash Common Shareholder Distribution
Record Date
Payment Date
Amount ($ per share)
November 2020
11/30/2020
12/24/2020
$0.0600
December 2020
12/31/2020
01/21/2021
$0.0600
January 2021
01/29/2021
02/18/2021
$0.0600


103

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 collateralized loan obligations ("CLOs"), which we also refer to as subordinated structured notes ("SSNs"). 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”); Prospect Opportunity Holdings I, Inc. (“POHI”); SB Forging Company, Inc. (“SB Forging”); 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 eight 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, and (8) investing in syndicated debt. 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.

104

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 10%-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 makes investments in rated secured structured notes (debt of structured credit). The underlying portfolio of each rated secured structured note 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 rated secured structured notes in which NPRC invests are managed by established collateral management teams with many years of experience in the industry. 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 structured credit, often taking a significant position in subordinated structured notes (equity) and rated secured structured notes (debt). The underlying portfolio of each structured credit 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 structured credit 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.
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 structured credit are subordinated to senior loans and are generally unsecured. We invest in debt and equity positions of structured credit 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 structured credit investments are derived from portfolios of corporate debt securities which are generally risk rated from BB to B.

105

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 September 30, 2020, as shown in our Consolidated Schedule of Investments, the cost basis and fair value of our investments in controlled companies was $2,321,471 and $2,307,572, 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.
First Quarter Highlights
Investment Transactions
We seek to be a long-term investor with our portfolio companies. During the three months ended September 30, 2020, we acquired $101,411 of new investments, completed follow-on investments in existing portfolio companies totaling approximately $53,389, funded $2,000 of revolver advances, and recorded PIK interest of $20,341, resulting in gross investment originations of $177,141. During the three months ended September 30, 2020, we received full repayments totaling $97,488, received $777 of revolver paydowns, and received several partial prepayments, scheduled principal amortization payments, and return of capital distributions, resulting in net repayments of $145,410.

Debt Issuances and Redemptions
During the three months ended September 30, 2020, we repaid $565 aggregate principal amount of Prospect Capital InterNotes® at par in accordance with the Survivor’s Option, as defined in the InterNotes® Offering prospectus.
During the three months ended September 30, 2020, we issued $38,657 aggregate principal amount of Prospect Capital InterNotes® with a weighted average stated interest rate of 5.42%, to extend our borrowing base. The newly issued notes mature between July 15, 2025 and October 15, 2030 and generated net proceeds of $38,070.
On July 23, 2020, we commenced a tender offer to purchase for cash up to $100,000 aggregate principal amount of the convertible notes that mature on July 15, 2022 (“2022 Notes July Tender Offer”), of which $258,240 aggregate principal amount of the 2022 Notes were then outstanding. On August 19, 2020, we announced the expiration and results of the 2022 Notes July Tender Offer. On August 24, 2020, $29,420 aggregate principal amount of the 2022 Notes, representing 11.39% of the previously outstanding 2022 Notes, were validly tendered and accepted. The 2022 July Tender Offer resulted in our recognizing a loss of $396. The 2022 Notes July Tender Offer expired at 12:00 midnight, New York City time, on August 19, 2020 (one minute after 11:59 p.m. New York City time on August 18, 2020).

On September 3, 2020, we commenced a tender offer to purchase for cash up to $228,820 aggregate principal amount of the 2022 Notes (“2022 Notes September Tender Offer”), of which $228,820 aggregate principal amount of the 2022 Notes were then outstanding. The 2022 Notes September Tender Offer will expire at 12:00 midnight, New York City time, on October 2, 2020 (one minute after 11:59 PM, on October 1, 2020).

Equity Issuances
On July 23, 2020, August 20, 2020, and September 17, 2020 we issued 1,716,619, 1,742,536, and 1,779,304 shares of our common stock in connection with the dividend reinvestment plan, respectively.
On August 3, 2020, we entered into a Dealer Manager Agreement with Preferred Capital Securities, LLC (the “Dealer Manager”) (the “Dealer Manager Agreement”), pursuant to which the Dealer Manager has agreed to serve as the Company’s agent, principal distributor and exclusive dealer manager for the Company’s offering of up to 40,000,000 shares, par value $0.001 per share, of preferred stock, with a $1,000,000 aggregate liquidation preference. Such Preferred Stock will initially be issued in multiple series, including the 5.50% Series A1 Preferred Stock (“Series A1 Preferred Stock”), the 5.50% Series M1 Preferred Stock (“Series M1 Preferred Stock”), and the 5.50% Series M2 Preferred Stock (“Series M2 Preferred Stock”, and together with the Series M1 Preferred Stock, the “Series M Preferred Stock”).

106

Investment Holdings
At September 30, 2020, we have $5,386,385, or 169.2%, of our net assets invested in 122 long-term portfolio investments and CLOs.
Our annualized current yield was 11.6% and 11.4% as of September 30, 2020 and June 30, 2020, respectively, across all performing interest bearing investments, excluding equity investments and non-accrual loans. Our annualized current yield was 9.7% and 9.7% as of September 30, 2020 and June 30, 2020, 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 September 30, 2020, 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 of 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 $13,156 in senior secured term loans (the “Spartan Term Loan A”) due to us as of September 30, 2020. 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 investment. Spartan remains the direct borrow and guarantor to Prospect for the Spartan Term Loan A.
As of September 30, 2020, we also own affiliated interests in Edmentum Ultimate Holdings, LLC (“Edmentum”); Nixon, Inc. (“Nixon”), PGX Holdings, Inc. (“PGX”), and Targus Cayman HoldCo Limited (“Targus”).
The following shows the composition of our investment portfolio by level of control as of September 30, 2020 and June 30, 2020:
 
September 30, 2020
 
June 30, 2020
Level of Control
Cost
% of Portfolio
Fair Value
% of Portfolio
 
Cost
% of Portfolio
Fair Value
% of Portfolio
Control Investments
$
2,321,471

39.9
%
$
2,307,572

42.8
%
 
$
2,286,725

39.5
%
$
2,259,292

43.2
%
Affiliate Investments
171,649

2.9
%
262,175

4.9
%
 
163,484

2.8
%
187,537

3.6
%
Non-Control/Non-Affiliate Investments
3,335,811

57.2
%
2,816,638

52.3
%
 
3,332,509

57.7
%
2,785,499

53.2
%
Total Investments
$
5,828,931

100.0
%
$
5,386,385

100.0
%
 
$
5,782,718

100.0
%
$
5,232,328

100.0
%

107

The following shows the composition of our investment portfolio by type of investment as of September 30, 2020 and June 30, 2020:
 
September 30, 2020
 
June 30, 2020
Type of Investment
Cost
% of Portfolio
Fair Value
% of Portfolio
 
Cost
% of Portfolio
Fair Value
% of Portfolio
Revolving Line of Credit
$
38,363

0.7
%
$
38,318

0.7
%
 
$
38,469

0.7
%
$
36,944

0.7
%
Senior Secured Debt
2,539,272

43.6
%
2,435,715

45.3
%
 
2,586,769

44.8
%
2,422,523

46.3
%
Subordinated Secured Debt
1,431,016

24.6
%
1,292,160

24.0
%
 
1,424,633

24.6
%
1,269,398

24.3
%
Subordinated Unsecured Debt
48,194

0.8
%
53,262

1.0
%
 
43,935

0.8
%
51,079

1.0
%
Subordinated Structured Notes
1,100,944

18.8
%
730,514

13.6
%
 
1,089,079

18.8
%
708,961

13.5
%
Preferred Stock
276,213

4.7
%
12,692

0.2
%
 
250,020

4.3
%
14,430

0.3
%
Common Stock
186,101

3.2
%
496,811

9.2
%
 
140,986

2.4
%
394,832

7.5
%
Membership Interest
208,828

3.6
%
324,581

6.0
%
 
208,827

3.6
%
310,252

5.9
%
Participating Interest(1)
—

—
%
2,332

—
%
 
—

—
%
23,909

0.5
%
Total Investments
$
5,828,931

100.0
%
$
5,386,385

100.0
%
 
$
5,782,718

100.0
%
$
5,232,328

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 September 30, 2020 and June 30, 2020:
 
September 30, 2020
 
June 30, 2020
Type of Investment
Cost
% of Portfolio
Fair Value
% of Portfolio
 
Cost
% of Portfolio
Fair Value
% of Portfolio
First Lien
$
2,568,987

49.8
%
$
2,465,385

54.2
%
 
$
2,615,252

50.5
%
$
2,450,928

54.7
%
1.5 Lien
2,873

0.1
%
2,873

0.1
%
 
1,981

—
%
1,981

—
%
Second Lien(1)
1,432,812

27.8
%
1,293,955

28.4
%
 
1,428,648

27.6
%
1,271,966

28.3
%
Third Lien
3,979

0.1
%
3,980

0.1
%
 
3,990

0.1
%
3,990

0.1
%
Unsecured
48,194

0.9
%
53,262

1.2
%
 
43,935

0.8
%
51,079

1.1
%
Subordinated Structured Notes
1,100,944

21.3
%
730,514

16.0
%
 
1,089,079

21.0
%
708,961

15.8
%
Total Interest Bearing Investments
$
5,157,789

100.0
%
$
4,549,969

100.0
%
 
$
5,182,885

100.0
%
$
4,488,905

100.0
%
(1)
Includes the Second Lien Revolving Credit Facility to Edmentum, Inc., which is otherwise classified as Revolving Line of Credit.


108

The following shows the composition of our investment portfolio by industry as of September 30, 2020 and June 30, 2020:
 
September 30, 2020
 
June 30, 2020
Industry
Cost
% of Portfolio
Fair Value
% of Portfolio
 
Cost
% of Portfolio
Fair Value
% of Portfolio
Aerospace & Defense
$
92,535

1.6
%
$
92,124

1.7
%
 
$
88,208

1.5
%
$
85,627

1.6
%
Air Freight & Logistics
12,500

0.2
%
10,386

0.2
%
 
12,500

0.2
%
10,755

0.2
%
Auto Components
52,532

0.9
%
52,019

1.0
%
 
26,776

0.5
%
24,867

0.5
%
Chemicals
31,077

0.5
%
31,222

0.6
%
 
31,837

0.6
%
31,891

0.6
%
Commercial Services & Supplies
365,933

6.4
%
294,054

5.5
%
 
368,577

6.4
%
294,277

5.6
%
Communications Equipment
59,681

1.0
%
54,191

1.0
%
 
59,638

1.0
%
50,837

1.0
%
Construction & Engineering
68,874

1.2
%
133,624

2.5
%
 
68,874

1.2
%
129,296

2.5
%
Consumer Finance
511,509

8.8
%
657,600

12.2
%
 
506,771

8.8
%
645,726

12.3
%
Distributors
277,806

4.8
%
178,539

3.3
%
 
278,331

4.8
%
175,931

3.4
%
Diversified Consumer Services
171,222

2.9
%
240,189

4.5
%
 
163,057

2.8
%
169,615

3.2
%
Diversified Financial Services
30,165

0.5
%
30,165

0.6
%
 
30,165

0.5
%
30,165

0.6
%
Diversified Telecommunication Services
56,467

1.0
%
56,117

1.0
%
 
57,098

1.0
%
55,311

1.1
%
Energy Equipment & Services
270,576

4.6
%
66,660

1.2
%
 
266,618

4.6
%
82,236

1.6
%
Entertainment
50,282

0.9
%
49,040

0.9
%
 
50,601

0.9
%
49,017

0.9
%
Equity Real Estate Investment Trusts (REITs)
503,014

8.7
%
781,759

14.5
%
 
486,268

8.4
%
753,583

14.4
%
Food Products
29,759

0.5
%
29,938

0.6
%
 
24,853

0.4
%
25,000

0.5
%
Health Care Equipment & Supplies
7,475

0.1
%
5,845

0.1
%
 
7,474

0.1
%
5,606

0.1
%
Health Care Providers & Services
535,168

9.2
%
501,693

9.3
%
 
533,188

9.2
%
495,402

9.5
%
Hotels, Restaurants & Leisure
23,834

0.4
%
21,721

0.4
%
 
23,501

0.4
%
21,008

0.4
%
Household Durables
15,908

0.3
%
18,039

0.3
%
 
24,437

0.4
%
24,362

0.5
%
Household Products
24,375

0.4
%
24,375

0.5
%
 
15,915

0.3
%
16,066

0.3
%
Insurance
16,968

0.3
%
16,978

0.3
%
 
12,796

0.2
%
12,744

0.2
%
Interactive Media & Services
195,577

3.4
%
195,577

3.6
%
 
200,728

3.5
%
200,728

3.8
%
Internet & Direct Marketing Retail
15,775

0.3
%
16,562

0.3
%
 
15,706

0.3
%
16,440

0.3
%
IT Services
177,568

3.0
%
177,607

3.3
%
 
203,285

3.5
%
204,061

3.9
%
Leisure Products
25,588

0.4
%
25,386

0.5
%
 
24,519

0.4
%
24,319

0.5
%
Machinery
81,950

1.4
%
85,364

1.6
%
 
84,234

1.5
%
87,220

1.7
%
Media
117,085

2.0
%
98,140

1.8
%
 
117,524

2.0
%
100,592

1.9
%
Online Lending
30,621

0.5
%
30,621

0.6
%
 
45,950

0.8
%
45,950

0.9
%
Paper & Forest Products
15,808

0.3
%
15,808

0.3
%
 
15,788

0.3
%
15,788

0.3
%
Personal Products
247,336

4.2
%
66,974

1.2
%
 
246,702

4.3
%
59,907

1.1
%
Professional Services
94,717

1.6
%
96,732

1.8
%
 
104,164

1.8
%
106,542

2.0
%
Real Estate Management & Development
31,537

0.5
%
31,537

0.6
%
 
31,747

0.5
%
31,747

0.6
%
Software
75,199

1.3
%
74,386

1.4
%
 
75,208

1.3
%
73,745

1.4
%
Technology Hardware, Storage & Peripherals
12,419

0.2
%
12,377

0.2
%
 
12,415

0.2
%
12,318

0.2
%
Textiles, Apparel & Luxury Goods
204,984

3.5
%
225,173

4.2
%
 
205,874

3.6
%
221,227

4.2
%
Trading Companies & Distributors
65,280

1.1
%
28,466

0.5
%
 
65,450

1.1
%
26,599

0.5
%
Transportation Infrastructure
27,683

0.5
%
27,683

0.5
%
 
27,662

0.5
%
27,662

0.5
%
Subtotal
$
4,626,787

79.4
%
$
4,554,671

84.6
%
 
$
4,614,439

79.8
%
$
4,444,167

84.8
%
Structured Finance(1)
$
1,202,144

20.6
%
$
831,714

15.4
%
 
$
1,168,279

20.2
%
$
788,161

15.2
%
Total Investments
$
5,828,931

100.0
%
$
5,386,385

100.0
%
 
$
5,782,718

100.0
%
$
5,232,328

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 September 30, 2020 and June 30, 2020, Structured Finance includes $101,200 and $79,200, respectively, of senior secured debt investments held through our investment in NPRC and it’s wholly-owned subsidiary.

109

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. For information regarding investment activity for the three months ended September 30, 2020 and September 30, 2019 are presented below:
 
Three months ended September 30,
 
2020
 
2019
Investments made in new portfolio companies
$
101,411

 
$
32,509

Follow-on investments made in existing portfolio companies (1)
53,389

 
47,033

Revolver advances
2,000

 
500

PIK interest
20,341

 
14,498

Total acquisitions
$
177,141

 
$
94,540

 
 
 
 
Acquisitions by portfolio composition
 
 
 
1st Lien Term Loan
$
128,695

 
$
58,610

Subordinated Secured Debt
20,959

 
20,268

Rated Secured Structured Notes
—

 
5,534

Subordinated Unsecured Debt
1,294

 
178

Equity
26,193

 
9,950

Total acquisitions by portfolio composition
$
177,141

 
$
94,540

 


 
 
Investments sold
$
—

 
$
16,000

Partial repayments (2)
47,145

 
96,408

Full repayments
97,488

 
130,072

Revolver paydowns
777

 
2,693

Total dispositions
$
145,410

 
$
245,173

 


 
 
Dispositions by portfolio composition
 
 
 
1st Lien Term Loan
$
130,346

 
$
145,502

Subordinated Secured Debt
14,918

 
99,671

Subordinated Unsecured Debt
145

 
—

Equity
1

 
—

Total dispositions by portfolio composition
$
145,410

 
$
245,173

 


 
 
Weighted average interest rates for new investments by portfolio composition (3)
 
 
 
1st Lien Term Loan
9.54
%
 
9.25
%
Subordinated Secured Debt
8.61
%
 
N/A

(1) Includes follow-on investments in existing portfolio companies and refinancings, if any.
(2) Includes partial prepayments of principal, scheduled amortization payments, 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. In addition, Revolving Line of Credit and Delayed Draw Term Loans are excluded from the calculation.


110

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 interest, taxes, 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, 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 $5,386,385.
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.
Impact of the novel coronavirus (the “Wuhan Virus”) pandemic
As of September 30, 2020, there remains to be global uncertainty surrounding the Wuhan Virus pandemic, which has caused severe disruptions in the global economy and has negatively impacted the fair value and performance of certain investments since the pandemic began. For the three months ended September 30, 2020, the resulting changes in net unrealized depreciation on investments were largely due to widening credit spreads as market participants expected a higher yield on similar investments given the significant market volatility generated by the Wuhan Virus pandemic. To a lesser extent, the changes in net unrealized depreciation on investments for certain of our portfolio companies also reflected other factors such as specific industry concerns, uncertainty about the duration of business shutdowns and near-term liquidity needs. For additional information concerning the Wuhan Virus pandemic and its potential impact on our business and our operating results, see Part II, Item 1A. Risk Factors, “Risk Factors - The Wuhan Virus pandemic has caused severe disruptions in the global economy, which has had, and may continue to have, a negative impact on our portfolio companies and our business and operations.”

111

Control Company 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. Our controlled companies discussed below experienced such changes and we recorded corresponding fluctuations in valuations during the three months ended September 30, 2020.
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 a controlling interest in the common equity of Spartan Holdings, which owns 100% of Spartan, a portfolio company of Prospect with $13,156 in senior secured term loans due to us as of September 30, 2020. As a result of CP Energy’s purchase, and given Prospect’s controlling interest in CP Energy, our Spartan Term Loan A is 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 $54,309 as of September 30, 2020, which is a discount of $172,375 from its amortized cost, compared to a fair value of $69,885 as of June 30, 2020, representing a discount of $152,841 to its amortized cost. The increase in discount to amortized cost resulted from a decline in financial performance and corresponding valuation multiples as a result of headwinds in the oil and gas industry, primarily associated with the demand imbalance stemming from the novel coronavirus.
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, self-storage, and student housing 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 and RSSNs. As of September 30, 2020, we own 100% of the fully-diluted common equity of NPRC.
During the three months ended September 30, 2020, we received partial repayments of $15,329 of our loans previously outstanding with NPRC, and $38,746 of debt financing to NPRC to provide working capital and support real estate capital expenditures and to fund purchases of rated secured structured notes.
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 September 30, 2020, the outstanding investment in online consumer loans by certain of NPRC’s wholly-owned subsidiaries was comprised of 6,354 individual loans and residual interest in four securitizations, and had an aggregate fair value of $30,644. The average outstanding individual loan balance is approximately $3 and the loans mature on dates ranging from October 1, 2020 to April 19, 2025 with a weighted-average outstanding term of 18 months as of September 30, 2020. Fixed interest rates range from 6.0% to 36.0% with a weighted-average current interest rate of 22.0%. As of September 30, 2020, our investment in NPRC and its wholly-owned subsidiaries relating to online consumer lending had a fair value of $30,621.
As of September 30, 2020, based on outstanding principal balance, 13.6% of the portfolio was invested in super prime loans (borrowers with a Fair Isaac Corporation (“FICO”) score, of 720 or greater), 32.8% of the portfolio in prime loans (borrowers with a FICO score of 660 to 719) and 53.6% of the portfolio in near prime loans (borrowers with a FICO score of 580 to 659, a portion of which are considered sub-prime).

112

Loan Type
 
Outstanding Principal Balance
 
Fair Value
 
Interest Rate Range
 
Weighted Average Interest Rate*
Super Prime
 
$
2,785

 
$
2,691

 
6.0% - 24.1%
 
12.5%
Prime
 
6,731

 
6,334

 
6.0% - 36.0%
 
18.0%
Near Prime
 
11,024

 
10,608

 
6.0% - 36.0%
 
26.8%
*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 September 30, 2020, the outstanding investment in rated secured structured notes by certain of NPRC’s wholly owned subsidiaries was comprised of 34 investments with a fair value of $188,885 and face value of $208,342. The average outstanding note is approximately $6,128 with an expected maturity date ranging from April 2026 to April 2029 and weighted-average expected maturity of 8 years as of September 30, 2020. Coupons range from three-month Libor (“3ML”) plus 5.45% to 9.45% with a weighted-average coupon of 3ML + 7.16%. As of September 30, 2020, our investment in NPRC and its wholly-owned subsidiaries relating to rated secured structured notes had a fair value of $101,200.
As of September 30, 2020, based on outstanding notional balance, 25% of the portfolio was invested in Single - B rated tranches and 75% of the portfolio in BB rated tranches.
As of September 30, 2020, our investment in NPRC and its wholly owned subsidiaries had an amortized cost of $634,835 and a fair value of $913,580, including our investment in online consumer lending and rated secured structured notes as discussed above. The fair value of $781,759 related to NPRC’s real estate portfolio was comprised of thirty-nine multi-families 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 September 30, 2020.
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


11,068

4

Crestview at Oakleigh, LLC

Pensacola, FL

11/15/2013

17,500


13,470

5

Inverness Lakes, LLC

Mobile, AL

11/15/2013

29,600


24,030

6

Kings Mill Pensacola, LLC

Pensacola, FL

11/15/2013

20,750


17,074

7

Plantations at Pine Lake, LLC

Tallahassee, FL

11/15/2013

18,000


13,710

8

Verandas at Rocky Ridge, LLC

Birmingham, AL

11/15/2013

15,600


9,928

9

Crestview at Cordova, LLC

Pensacola, FL

1/17/2014

8,500


12,952

10

Taco Bell, OK

Yukon, OK

6/4/2014

1,719


—

11

Taco Bell, MO

Marshall, MO

6/4/2014

1,405


—

12

Canterbury Green Apartments Holdings LLC

Fort Wayne, IN

9/29/2014

85,500


85,118

13

Abbie Lakes OH Partners, LLC

Canal Winchester, OH

9/30/2014

12,600


15,527

14

Kengary Way OH Partners, LLC

Reynoldsburg, OH

9/30/2014

11,500


15,694

15

Lakeview Trail OH Partners, LLC

Canal Winchester, OH

9/30/2014

26,500


29,942

16

Lakepoint OH Partners, LLC

Pickerington, OH

9/30/2014

11,000


17,036

17

Sunbury OH Partners, LLC

Columbus, OH

9/30/2014

13,000


17,272

18

Heatherbridge OH Partners, LLC

Blacklick, OH

9/30/2014

18,416


24,718

19

Jefferson Chase OH Partners, LLC

Blacklick, OH

9/30/2014

13,551


19,210

20

Goldenstrand OH Partners, LLC

Hilliard, OH

10/29/2014

7,810


11,719

21

SSIL I, LLC

Aurora, IL

11/5/2015

34,500


26,144

22

Vesper Tuscaloosa, LLC

Tuscaloosa, AL

9/28/2016

54,500


43,070

23

Vesper Iowa City, LLC

Iowa City, IA

9/28/2016

32,750


24,825

24

Vesper Corpus Christi, LLC

Corpus Christi, TX

9/28/2016

14,250


10,800

25

Vesper Campus Quarters, LLC

Corpus Christi, TX

9/28/2016

18,350


14,175

26

Vesper College Station, LLC

College Station, TX

9/28/2016

41,500


32,058

27

Vesper Kennesaw, LLC

Kennesaw, GA

9/28/2016

57,900


51,160

28

Vesper Statesboro, LLC

Statesboro, GA

9/28/2016

7,500


7,480


113

No.

Property Name

City

Acquisition Date

Purchase Price

Mortgage Outstanding
29

Vesper Manhattan KS, LLC

Manhattan, KS

9/28/2016

23,250


14,679

30

JSIP Union Place, LLC

Franklin, MA

12/7/2016

64,750


51,800

31

9220 Old Lantern Way, LLC

Laurel, MD

1/30/2017

187,250


153,580

32

7915 Baymeadows Circle Owner, LLC

Jacksonville, FL

10/31/2017

95,700


76,560

33

8025 Baymeadows Circle Owner, LLC

Jacksonville, FL

10/31/2017

15,300


12,240

34

23275 Riverside Drive Owner, LLC

Southfield, MI

11/8/2017

52,000


44,044

35

23741 Pond Road Owner, LLC

Southfield, MI

11/8/2017

16,500


14,185

36

150 Steeplechase Way Owner, LLC

Largo, MD

1/10/2018

44,500


36,668

37

Laurel Pointe Holdings, LLC

Forest Park, GA

5/9/2018

33,005


26,400

38

Bradford Ridge Holdings, LLC

Forest Park, GA

5/9/2018

12,500


10,000

39

Olentangy Commons Owner LLC

Columbus, OH

6/1/2018

113,000


92,876

40

Villages of Wildwood Holdings LLC

Fairfield, OH

7/20/2018

46,500


39,525

41

Falling Creek Holdings LLC

Richmond, VA

8/8/2018

25,000


19,335

42

Crown Pointe Passthrough LLC

Danbury, CT

8/30/2018

108,500


89,400

43

Ashwood Ridge Holdings LLC

Jonesboro, GA

9/21/2018

9,600


7,300

44

Lorring Owner LLC

Forestville, MD

10/30/2018

58,521


47,680

45

Hamptons Apartments Owner, LLC

Beachwood, OH

1/9/2019

96,500


79,520

46

5224 Long Road Holdings, LLC

Orlando, FL

6/28/2019

26,500


21,200

47

Druid Hills Holdings LLC

Atlanta, GA

7/30/2019

96,000


79,104

48

Bel Canto NPRC Parcstone LLC

Fayetteville, NC

10/15/2019

45,000


30,127

49

Bel Canto NPRC Stone Ridge LLC

Fayetteville, NC

10/15/2019

21,900


14,662

50

Sterling Place Holdings LLC

Columbus, OH

10/28/2019

41,500


34,196

 
 
 
 
 
 
 
 
$
1,843,477

 
$
1,543,261

The fair value of our investment in NPRC increased to $913,580 as of September 30, 2020, a premium of $278,745 from its amortized cost basis compared to a fair value of $878,733 as of June 30, 2020, representing a premium of $267,315. The increase in premium to amortized cost is primarily due to an increase in property values and change in methodology discussed above.
Our controlled investments, including those discussed above, are valued at $13,899 below their amortized cost as of September 30, 2020.
Affiliate and Non-Control Company Investments

We hold four affiliate investments at September 30, 2020 with a total fair value of $262,175, a premium of $90,526 from their combined amortized cost, compared to a fair value of $187,537 as of June 30, 2020, representing a $24,053 premium to its amortized cost. The increase in premium is primarily driven by our investment in PGX Holdings, Inc. (“Progrexion”), which is valued at a premium of $57,951 at September 30, 2020 compared to a premium of $180 as of June 30, 2020. Progrexion’s increase in premium was driven by strong financial performance.

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. However, as of September 30, 2020, two of our non-control/ non-affiliate investments, Engine Group, Inc. (“Engine”) and USC are valued at discounts to amortized cost of $28,630 and $98,851, respectively. As of September 30, 2020, our CLO investment portfolio is valued at a $370,430 discount to amortized cost. Excluding Engine, USC, and the CLO investment portfolio, non-control/non-affiliate investments at September 30, 2020 are valued at $21,262 below their amortized cost largely due to widening credit spreads as market participants expected a higher yield on similar investments given the significant market volatility generated by the Wuhan Virus pandemic. For more information on change in unrealized, see “Results of Operations - Change in Unrealized Gains/Losses.”


114

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 September 30, 2020 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 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. As of September 30, 2020, our equity capital is comprised entirely of common equity.
The following table shows our outstanding debt as of September 30, 2020.
 
Principal Outstanding
 
Unamortized Discount & Debt Issuance Costs
 
Net Carrying Value
 
Fair Value(1)
 
Effective Interest Rate
 
Revolving Credit Facility(2)
$
250,993

 
$
8,596

 
$
250,993

(3
)
$
250,993

 
1ML+2.20%

(6
)
 
 
 
 
 
 
 
 
 
 
 
2022 Notes
228,820

 
2,864

 
225,956

 
231,799

(4
)
5.65
%
(7
)
2025 Notes
201,250

 
5,035

 
196,215

 
207,076

(4
)
6.63
%
(7
)
Convertible Notes
430,070

 


 
422,171

 
438,875

 
 
 
 
 
 
 
 
 
 
 
 
 
 
6.375% 2024 Notes
100,000

 
695

 
99,305

 
104,389

(4
)
6.64
%
(7
)
2023 Notes
320,000

 
2,207

 
317,793

 
331,581

(4
)
6.09
%
(7
)
2024 Notes
233,788

 
3,721

 
230,067

 
240,708

(4
)
6.76
%
(7
)
2028 Notes
70,761

 
2,091

 
68,670

 
70,837

(4
)
6.77
%
(7
)
2029 Notes
69,170

 
2,297

 
66,873

 
70,277

(4
)
7.38
%
(7
)
Public Notes
793,719

 


 
782,708

 
817,792

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Prospect Capital InterNotes®
718,321

 
12,959

 
705,362

 
740,257

(5
)
6.04
%
(8
)
Total
$
2,193,103

 


 
$
2,161,234

 
$
2,247,917

 
 
 
(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 September 30, 2020.
(2)
The maximum draw amount of the Revolving Credit facility as of September 30, 2020 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.

115

The following table shows the contractual maturities of our Revolving Credit Facility, Convertible Notes, Public Notes and Prospect Capital InterNotes® as of September 30, 2020.
 
Payments Due by Period
 
Total
 
Less than 1 Year
 
1 – 3 Years
 
3 – 5 Years
 
After 5 Years
Revolving Credit Facility
$
250,993

 
$
—

 
$
—

 
$
250,993

 
$
—

Convertible Notes
430,070

 
—

 
228,820

 
201,250

 
—

Public Notes
793,719

 
—

 
320,000

 
333,788

 
139,931

Prospect Capital InterNotes®
718,321

 
—

 
4,478

 
277,855

 
435,988

Total Contractual Obligations
$
2,193,103

 
$
—

 
$
553,298

 
$
1,063,886

 
$
575,919

The following table shows the contractual maturities of our Revolving Credit Facility, Convertible Notes, Public Notes and Prospect Capital InterNotes® as of June 30, 2020:
 
Payments Due by Period
 
Total
 
Less than 1 Year
 
1 – 3 Years
 
3 – 5 Years
 
After 5 Years
Revolving Credit Facility
$
237,536

 
$
—

 
$
—

 
$
237,536

 
$
—

Convertible Notes
459,490

 
—

 
258,240

 
201,250

 
—

Public Notes
793,719

 
—

 
320,000

 
333,788

 
139,931

Prospect Capital InterNotes®
680,229

 
—

 
—

 
243,062

 
437,167

Total Contractual Obligations
$
2,170,974

 
$
—

 
$
578,240

 
$
1,015,636

 
$
577,098

We may from time to time seek to cancel or purchase our outstanding debt through cash purchases and/or exchanges, in open market purchases, privately negotiated transactions or otherwise. The amounts involved may be material. In addition, we may from time to time enter into additional debt facilities, increase the size of existing facilities or issue additional debt securities, including secured debt, unsecured debt and/or debt securities convertible into common stock. Any such purchases or exchanges of outstanding debt would be subject to prevailing market conditions, our liquidity requirements, contractual and regulatory restrictions and other factors.
 
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 universal shelf registration statement that allows for the public offering and sale of our debt securities, common stock, preferred stock, subscription rights, and warrants and units to purchase such securities up to an indeterminate amount. 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 facility (the “2018 Facility”). The lenders have 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.

116


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 September 30, 2020. 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 Credit 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 September 30, 2020, 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 three months ended September 30, 2020 and September 30, 2019, 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 September 30,

2020

2019
Average stated interest rate
2.37
%

4.45
%
Average outstanding balance
$377,113

$87,772

As of September 30, 2020 and June 30, 2020, we had $512,615 and $545,496, respectively, available to us for borrowing under the Revolving Credit Facility, net of $250,993 and $237,536 outstanding borrowings as of the respective balance sheet dates. As of September 30, 2020, the investments, including cash and cash equivalents, used as collateral for the Revolving Credit Facility had an aggregate fair value of $1,519,658, which represents 28.1% 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 September 30, 2020, $8,596 remains to be amortized and is reflected as deferred financing costs on the Consolidated Statements of Assets and Liabilities.
During the three months ended September 30, 2020 and September 30, 2019, we recorded $4,633 and $5,422, respectively, of interest costs, unused fees and amortization of financing costs on the Revolving Credit Facility as interest expense.
Convertible 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.

117

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 months 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”). On January 22, 2020, $2,215 aggregate principal amount of the 2020 Notes, representing 1.3% of the previously outstanding 2020 Notes, were validly tendered and accepted. The 2020 Notes December Tender Offer resulted in our recognizing a loss of $14 during the three months ended March 31, 2020. During the three months ended March 31, 2020, we repurchased an additional $45,111 aggregate principal amount of the 2020 Notes at a weighted average price of 100.5 including commissions. As a result of this transaction, we recorded a loss of $220, 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.
On April 15, 2020, we repaid the outstanding principal amount of $127,711 of the 2020 Notes, plus interest. No gain or loss was realized on the transaction.

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.

118

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”). On January 22, 2020, $1,302 aggregate principal amount of the 2022 Notes, representing 0.5% of the previously outstanding 2022 Notes, were validly tendered and accepted. The 2022 Notes December Tender Offer resulted in our recognizing a loss of $51 during the three months ended March 31, 2020. During the three months ended March 31, 2020, we repurchased an additional $32,585 aggregate principal amount of the 2022 Notes at a weighted average price of 89.1 including commissions. As a result of this transaction, we recorded a gain of $3,045, 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 July 23, 2020, we commenced a tender offer to purchase for cash up to $100,000 aggregate principal amount of the 2022 Notes (“2022 Notes July Tender Offer”). On August 19, 2020, $29,420 aggregate principal amount of the 2022 Notes, representing 11.4% of the previously outstanding 2022 Notes, were validly tendered and accepted. The 2022 Notes July Tender Offer resulted in our recognizing a loss of $396 during the three months ended September 30, 2020.
On September 3, 2020, we commenced a tender offer to purchase for cash up to $228,820 aggregate principal amount of the 2022 Notes (“2022 Notes September Tender Offer”). The 2022 Notes September Tender Offer expired at 12:00 midnight, New York City time, on October 2, 2020 (one minute after 11:59 PM, on October 1, 2020). As of September 30, 2020, the outstanding aggregate principal amount of the 2022 Notes is $228,820.
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 September 30, 2020, 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.
 
 
2022 Notes

 
2025 Notes

Initial conversion rate(1)
 
100.2305

 
110.7420

Initial conversion price
 
$
9.98

 
$
9.03

Conversion rate at September 30, 2020(1)(2)
 
100.2305

 
110.7420

Conversion price at September 30, 2020(2)(3)
 
$
9.98

 
$
9.03

Last conversion price calculation date
 
4/11/2020

 
3/1/2020

Dividend threshold amount (per share)(4)
 
$
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.

119

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 $20,751 which are being amortized over the terms of the Convertible Notes. As of September 30, 2020, $3,113 of the original issue discount and $4,786 of the debt issuance costs remain to be amortized and is included as a reduction within Convertible Notes on the Consolidated Statement of Assets and Liabilities.
During the three months ended September 30, 2020 and September 30, 2019, we recorded $6,865 and $10,655, 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 September 30, 2020, 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 $3,705 loss 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 year ended June 30, 2019.

120

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. On March 20, 2020, we commenced a tender offer to purchase for cash any and all of the $234,443 aggregate principal amount of the 2024 Notes (“2024 Notes March Tender Offer”). On March 31, 2020, $655 aggregate principal amount of the 2024 Notes, representing 0.3% of the previously outstanding 2024 Notes, were validly tendered and accepted. The 2024 Notes March Tender Offer, resulted in our recognizing a gain of $203 during the three months ended March 31, 2020. As of September 30, 2020, the outstanding aggregate principal amount of the 2024 Notes is $233,788.

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 September 30, 2020, 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 September 30, 2020, 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 September 30, 2020, 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 term of the notes. As of September 30, 2020, $1,935 of the original issue discount and $9,076 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 September 30, 2020 and September 30, 2019, we recorded $12,843 and $12,818, respectively, of interest costs and amortization of financing costs on the Public Notes as interest expense.

121

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. 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®.
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 “September 2019 Selling Agent Agreement”), authorizing the issuance and sale from time to time of up to $500,000 of Prospect Capital InterNotes®. We sold approximately $1,700,000 in aggregate principal amount of Prospect Capital InterNotes® under the Original Selling Agent Agreement, May 2019 Selling Agent Agreement, and September 2019 Selling Agent Agreement (collectively the “Previous Selling Agent Agreements”).
On February 13, 2020, the September 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 $1,000,000 of Prospect Capital InterNotes® (collectively with the previously authorized selling agent agreements, the “InterNotes® Offerings”). 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. We have, from time to time, repurchased certain notes issued through the InterNotes® Offerings and, therefore, as of September 30, 2020, $718,321 aggregate principal amount of Prospect Capital InterNotes® were outstanding.
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 three months ended September 30, 2020, we issued $38,657 aggregate principal amount of Prospect Capital InterNotes® for net proceeds of $38,070. These notes were issued with stated interest rates ranging from 4.75% to 6.00% with a weighted average interest rate of 5.42%. These notes mature between July 15, 2025 and October 15, 2030.

The following table summarizes the Prospect Capital InterNotes® issued during the three months ended September 30, 2020:
Tenor at
Origination
(in years)
 
Principal
Amount
 
Interest Rate
Range
 
Weighted
Average
Interest Rate
 
Maturity Date Range
5
 
$
24,906

 
4.75%–5.50%
 
5.31
%
 
July 15, 2025 – October 15, 2025
7
 
5,884

 
5.00%–5.75%
 
5.49
%
 
July 15, 2027 – October 15, 2027
10
 
7,867

 
5.25%–6.00%
 
5.75
%
 
July 15, 2030 – October 15, 2030
 
 
$
38,657

 
 
 
 
 
 
During the three months ended September 30, 2019, we issued $95,135 aggregate principal amount of our Prospect Capital InterNotes® for net proceeds of $93,459. These notes were issued with stated interest rates ranging from 3.75% to 5.50% with a weighted average interest rate of 4.51%. These notes mature between July 15, 2024 and October 15, 2029.

The following table summarizes the Prospect Capital InterNotes® issued during the three months ended September 30, 2019:
Tenor at
Origination
(in years)
 
Principal
Amount
 
Interest Rate
Range
 
Weighted
Average
Interest Rate
 
Maturity Date Range
5
 
$
32,479

 
3.75%-5.00%
 
4.44
%
 
July 15, 2024 – October 15, 2024
7
 
24,020

 
4.00%–5.25%
 
4.32
%
 
July 15, 2026 – October 15, 2026
10
 
38,636

 
6.00%-6.25%
 
6.13
%
 
July 15, 2028 – March 15, 2029
 
 
$
95,135

 
 
 
 
 
 
During the three months ended September 30, 2020, we repaid $565 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 three months ended September 30, 2020 was $14.


122

The following table summarizes the Prospect Capital InterNotes® outstanding as of September 30, 2020:
Tenor at
Origination
(in years)
 
Principal
Amount
 
Interest Rate
Range
 
Weighted
Average
Interest Rate
 
Maturity Date Range
5
 
$
243,146

 
3.75% – 5.75%
 
4.86
%
 
September 15, 2023 – October 15, 2025
7
 
110,348

 
4.00% – 6.00%
 
5.13
%
 
July 15, 2024 – October 15, 2027
8
 
24,325

 
4.50% – 5.75%
 
4.67
%
 
August 15, 2025 – July 15, 2026
10
 
167,479

 
3.75% – 6.25%
 
5.34
%
 
January 15, 2024 – October 15, 2030
12
 
2,978

 
6.00%
 
6.00
%
 
November 15, 2025 – December 15, 2025
15
 
16,851

 
5.75% – 6.00%
 
5.79
%
 
May 15, 2028 – November 15, 2028
18
 
18,721

 
4.50% – 6.25%
 
5.58
%
 
December 15, 2030 – August 15, 2031
20
 
3,812

 
5.75% – 6.00%
 
5.89
%
 
November 15, 2032 – October 15, 2033
25
 
30,710

 
6.25% – 6.50%
 
6.39
%
 
August 15, 2038 – May 15, 2039
30
 
99,951

 
5.50% – 6.75%
 
6.25
%
 
November 15, 2042 – October 15, 2043
 
 
$
718,321

 
 
 
 

 
 
During the three months ended September 30, 2019, we redeemed, prior to maturity $143,980 aggregate principal amount of Prospect Capital InterNotes® at par with a weighted average interest rate of 5.26% in order to replace shorter maturity debt with longer-term debt. During the three months ended September 30, 2019, we repaid $1,479 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 three months ended September 30, 2019 was $1,193.

The following table summarizes the Prospect Capital InterNotes® outstanding as of June 30, 2020:
Tenor at
Origination
(in years)
 
Principal
Amount
 
Interest Rate
Range
 
Weighted
Average
Interest Rate
 
Maturity Date Range
5
 
$
218,240

 
3.75% – 5.75%
 
4.81
%
 
September 15, 2023 - July 15, 2025
7.0
 
104,529

 
4.00% – 6.00%
 
5.11
%
 
July 15, 2024 - July 15, 2027
8.0
 
24,325

 
4.50% – 5.75%
 
4.67
%
 
August 15, 2025 - July 15, 2026
10
 
159,802

 
3.75% – 6.25%
 
5.32
%
 
January 15, 2024 - July 15, 2030
12
 
2,978

 
6.00%
 
6.00
%
 
November 15, 2025 - December 15, 2025
15
 
16,851

 
5.75% – 6.00%
 
5.79
%
 
May 15, 2028 - November 15, 2028
18
 
18,741

 
4.50% – 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
 
30,710

 
6.25% – 6.50%
 
6.39
%
 
August 15, 2038 - May 15, 2039
30
 
100,206

 
5.50% – 6.75%
 
6.25
%
 
November 15, 2042 - October 15, 2043
 
 
$
680,229

 
 
 
 

 
 
In connection with the issuance of Prospect Capital InterNotes®, we incurred $29,477 of fees which are being amortized over the term of the notes, of which $12,959 remains to be amortized and is included as a reduction within Prospect Capital InterNotes® on the Consolidated Statement of Assets and Liabilities as of September 30, 2020.
During the three months ended September 30, 2020 and September 30, 2019, we recorded $9,708 and $10,003, respectively, of interest costs and amortization of financing costs on the Prospect Capital InterNotes® as interest expense.
Net Asset Value
During the three months ended September 30, 2020, our net asset value increased by $125,166, or $0.22 per share. The increase was primarily attributable to an increase in net realized and net change in unrealized gains of $110,201, or $0.30 per weighted average share. The increase was primarily offset by $0.05 of dilution per share related to common stock issuances through our dividend reinvestment program, and further offset by distributions of $67,861, or $0.18 per weighted average share, exceeding net investment income of $57,545, or $0.15 per weighted average share, resulting in a net decrease of $0.03 per weighted average share for the three months ended September 30, 2020. The following table shows the calculation of net asset value per share as of September 30, 2020 and June 30, 2020.

123

 
 
September 30, 2020
 
June 30, 2020
Net assets
 
$
3,181,027

 
$
3,055,861

Shares of common stock issued and outstanding
 
378,776,958

 
373,538,499

Net asset value per share
 
$
8.40

 
$
8.18

Results of Operations
Operating results for the three months ended September 30, 2020 and September 30, 2019 were as follows:
 
Three Months Ended September 30,
 
2020
 
2019
Investment income
$
142,880

 
$
161,883

Operating expenses
85,335

 
90,823

Net investment income
57,545

 
71,060

Net realized gains (losses) from investments
2,843

 
(2,198
)
Net change in unrealized gains (losses) from investments
107,844

 
(48,459
)
Net realized losses on extinguishment of debt
(486
)
 
(2,338
)
Net increase in net assets resulting from operations
$
167,746

 
$
18,065

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.
Investment income consists of interest income, including accretion of loan origination fees and prepayment penalty fees, dividend income and other income, including settlement of net profits interests, overriding royalty interests and structuring fees.
The following table describes the various components of investment income and the related levels of debt investments:
 
Three Months Ended September 30,
 
2020
 
2019
Interest income
$
132,239

 
$
145,956

Dividend income
25

 
4,254

Other income
10,616

 
11,673

Total investment income
$
142,880

 
$
161,883

 
 
 
 
Average debt principal of performing interest bearing investments(1)
$
5,395,867

 
$
5,374,563

Weighted average interest rate earned on performing interest bearing investments(1)
9.59
%
 
10.63
%
Average debt principal of all interest bearing investments(2)
$
5,825,885

 
$
5,972,978

Weighted average interest rate earned on all interest bearing investments(2)
8.88
%
 
9.56
%
(1) Excludes equity investments and non-accrual loans.
(2) Excludes equity investments.

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Average interest income producing assets increased from $5,374,563 for the three months ended September 30, 2019 to $5,395,867 for the three months ended September 30, 2020. The average interest earned on interest bearing performing assets decreased from 10.63% for the three months ended September 30, 2019 to 9.59% for the three months ended September 30, 2020. The average interest earned on all interest bearing performing assets decreased from 9.56% for the three months ended September 30, 2019 to 8.88% for the three months ended September 30, 2020. The decrease in both is primarily 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 months ended September 30, 2020 and September 30, 2019, respectively:
 
Three Months Ended September 30,
 
2020
 
2019
Dividend income
 
 
 
Valley Electric Company, Inc.
$
—

 
$
3,800

Other, net
25

 
454

Total dividend income
$
25

 
$
4,254


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 months ended September 30, 2020 and September 30, 2019, respectively:
 
Three Months Ended September 30,
 
2020
 
2019
Structuring, advisory and amendment fees
 
 
 
National Property REIT Corp.
$
—

 
$
8,039

Eze Castle Integration, Inc.
1,250

 
—

Other, net
176

 
271

Total structuring, advisory and amendment fees
$
1,426

 
$
8,310

Royalty and net revenue interests
 
 
 
National Property REIT Corp.
$
8,898

 
$
3,232

Other, net
168

 
—

Total royalty and net revenue interests
$
9,066

 
$
3,232

Administrative agent fees
 
 
 
Other, net
$
124

 
$
131

Total administrative agent fees
124

 
131

Total other income
$
10,616

 
$
11,673



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.

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The following table describes the various components of our operating expenses:
 
Three Months Ended September 30,
 
2020
 
2019
Base management fee
$
26,850

 
$
28,463

Income incentive fee
14,386

 
17,765

Interest and credit facility expenses
34,049

 
38,898

Allocation of overhead from Prospect Administration
4,657

 
3,494

Audit, compliance and tax related fees
938

 
375

Directors’ fees
113

 
113

Other general and administrative expenses
4,342

 
1,715

Total operating expenses
$
85,335

 
$
90,823

Total gross and net base management fee was $26,850 and 28,463 for the three months ended September 30, 2020 and September 30, 2019, respectively. The decrease in total gross base management fee is directly related to a decrease in average total assets.
For the three months ended September 30, 2020 and September 30, 2019, we incurred $14,386 and $17,765 of income incentive fees, respectively. This decrease was driven by a corresponding decrease in pre-incentive fee net investment income from $88,825 for the three months ended September 30, 2019 to $71,931 for the three months ended September 30, 2020. No capital gains incentive fee has yet been incurred pursuant to the Investment Advisory Agreement.
During the three months ended September 30, 2020 and September 30, 2019, we incurred $34,049 and $38,898 respectively, of interest and credit facility expenses related to our Revolving Credit Facility, Convertible Notes, Public Notes and Prospect Capital InterNotes® (collectively, our “Notes”). These expenses are related directly to the leveraging capacity put into place for each of those periods 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 September 30,
 
2020
 
2019
Interest on borrowings
$
30,058

 
$
32,449

Amortization of deferred financing costs
1,920

 
2,241

Accretion of discount on unsecured debt
269

 
254

Facility commitment fees
1,802

 
3,954

Total interest and credit facility expenses
$
34,049

 
$
38,898

 
 
 
 
Average principal debt outstanding
$
2,314,135

 
$
2,305,797

Annualized weighted average stated interest rate on borrowings(1)
5.20
%
 
5.63
%
Annualized weighted average interest rate on borrowings(2)
5.89
%
 
6.75
%
(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 decreased from $38,898 for the three months ended September 30, 2019 to $34,049 for the three months ended September 30, 2020. The weighted average stated interest rate on borrowings (excluding amortization, accretion and undrawn facility fees) decreased from 5.63% for the three months ended September 30, 2019 to 5.20% for the three months ended September 30, 2020. This decrease is primarily due to a decrease in the amount of additional InterNotes issued, increase in repurchased InterNotes in 2020 fiscal year, as well as repurchases of our Convertible Notes.
The allocation of net overhead expense from Prospect Administration was $4,657 and $3,494 for the three months ended September 30, 2020 and September 30, 2019, respectively. Prospect Administration received estimated payments of $66 and $584 directly from our portfolio companies, and certain funds managed by the Investment Adviser for legal services during the three months ended September 30, 2020 and September 30, 2019, respectively. We were given a credit for these payments as a reduction of the

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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 $5,393 and $2,203 for the three months ended September 30, 2020 and September 30, 2019, respectively. The $3,190 increase was primarily attributable to an increase in legal fees and investor relations related fees.
Net Investment Income
Net investment income represents the difference between investment income and operating expenses. Net investment income was $57,545 and $71,060 for the three months ended September 30, 2020 and September 30, 2019, respectively. The decrease of $13,515 was primarily due to a decrease in investment income of $19,003 partially offset by a decrease in operating expenses of $5,488. Refer to above Investment Income and Operating Expenses discussions for detail.
Net Realized (Losses) Gains
The following table details net realized gains (losses) from investments for the three months ended September 30, 2020 and September 30, 2019:
 
Three Months Ended September 30,
Portfolio Company
2020
 
2019
Spartan - Term Loan B
$
2,832

 
$
—

Madison Park Funding IX, Ltd.
—

 
(1,949
)
Voya CLO 2012-2 Ltd.
—

 
(450
)
Other, net
11

 
201

Net realized gains (losses)
$
2,843

 
$
(2,198
)

The following table details net realized losses on extinguishment of debt for the three months ended September 30, 2020 and September 30, 2019:
 
Three Months Ended September 30,
Debt Extinguished
2020
 
2019
2022 Notes
$
(396
)
 
$
—

Prospect Capital InterNotes®
(14
)
 
(1,193
)
2020 Notes
—

 
(668
)
Other, net
(76
)
 
(477
)
Net realized losses
$
(486
)
 
$
(2,338
)
Change in Unrealized (Losses) Gains
The following table details net change in unrealized (losses) gains for our portfolio for the three months ended September 30, 2020 and September 30, 2019, respectively:
 
Three Months Ended September 30,
 
2020(1)
 
2019
Control investments
$
13,535

 
$
(39,021
)
Affiliate investments
66,473

 
18,020

Non-control/non-affiliate investments
27,836

 
(27,458
)
Net change in unrealized gains (losses)
$
107,844

 
$
(48,459
)
(1) For the three months ended September 30, 2020, the fair value of our investments was negatively impacted by the uncertainty surrounding the impact of the Wuhan Virus pandemic. For more information, see “Investment Valuation”.

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The following table details reflects net change in unrealized gains (losses) on investments for the three months ended September 30, 2020:
 
 
 
Net Change in Unrealized Gains (Losses)
PGX Holdings, Inc.
 
 
$
57,771

Other, net
 
 
22,428

National Property REIT Corp.
 
 
11,430

Subordinated Structured Notes
 
 
9,689

First Tower Finance Company LLC
 
 
6,546

Pacific World Corporation
 
 
6,433

USES Corp.
 
 
5,137

Edmentum Ultimate Holdings, LLC
 
 
4,924

Valley Electric Company, Inc.
 
 
4,328

Engine Group, Inc.
 
 
4,076

Targus Cayman HoldCo Limited
 
 
3,778

MITY, Inc.
 
 
(3,632
)
NMMB, Inc.
 
 
(5,530
)
CP Energy Services Inc.
 
 
(19,534
)
Net change in unrealized gains
 
 
$
107,844

The following table reflects net change in unrealized gains (losses) on investments for the three months ended September 30, 2019:
 
 
Net Change in Unrealized Gains (Losses)
National Property REIT Corp.
 
$
25,200

Edmentum Ultimate Holdings, LLC
 
12,972

Other, net
 
7,015

CP Energy Services Inc.
 
(10,376
)
Pacific World Corporation
 
(14,338
)
InterDent, Inc.
 
(21,026
)
Valley Electric Company, Inc.
 
(21,611
)
Subordinated Structured Notes
 
(26,295
)
Net change in unrealized (losses)
 
$
(48,459
)

Financial Condition, Liquidity and Capital Resources
For the three months ended September 30, 2020 and September 30, 2019, our operating activities provided $4,567 and provided $225,058 of cash, respectively. There were no investing activities for the three months ended September 30, 2020 and September 30, 2019. Financing activities used $20,825 and $225,982 of cash during the three months ended September 30, 2020 and September 30, 2019, respectively, which included dividend payments of $42,265 and $64,554, 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.

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 three months ended September 30, 2020, we borrowed $212,900 and we made repayments totaling $199,443 under the Revolving Credit Facility. As of September 30, 2020, our outstanding balance on the Revolving Credit Facility was $250,993. As of September 30, 2020, we had, net of unamortized discount and debt issuance costs, $422,171 outstanding on the Convertible Notes, $782,708 outstanding on the Public Notes and $705,362 outstanding on the Prospect Capital InterNotes® (See “Capitalization” above).

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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 September 30, 2020 and June 30, 2020, we had $42,099 and $41,487, 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 September 30, 2020 and June 30, 2020.
We have guaranteed $2,487 in standby letters of credit issued through a financial intermediary and $4,186 of equipment lease obligations on behalf of InterDent, Inc. (“InterDent”) as of September 30, 2020. 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 September 30, 2020, 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.
On February 13, 2020, we filed a registration statement on Form N-2 (File No. 333-236415) that was effective upon filing pursuant to Rule 462(e) under the Securities Act as permitted under the Small Business Credit Availability Act. The registration statement permits us to issue, through one or more transactions, an indeterminate amount of securities, consisting of common stock, preferred stock, debt securities, subscription rights to purchase our securities, warrants representing rights to purchase our securities or separately tradeable units combining two or more of our securities.

Our stockholders’ equity accounts as of September 30, 2020 and June 30, 2020 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.
We did not repurchase any shares of our common stock for the three months ended September 30, 2020 or September 30, 2019.
Off-Balance Sheet Arrangements
As of September 30, 2020, 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 October 5, 2020 through November 5, 2020 we issued $11,616 aggregate principal amount of Prospect Capital InterNotes® for net proceeds of $11,435.
The 2022 Notes September Tender Offer expired at 12:00 midnight, New York City time, on October 2, 2020 (one minute after 11:59 p.m., New York City time, on October 1, 2020). As of the expiration date, $6,035 aggregate principal amount of the 2022 Notes, representing 2.64% of the previously outstanding 2022 Notes, were validly tendered and accepted at the purchase price of 101.00, plus accrued and unpaid interest, pursuant to the 2022 Notes September Tender Offer. Following settlement of the 2022 Notes September Tender Offer on October 6, 2020, approximately $222,785 aggregate principal amount of the 2022 Notes remain outstanding.
During the period of October 15, 2020 through October 30, 2020, we provided $12,451 of Senior Secured Term Loan A funding to NPRC and its wholly-owned subsidiaries to fund the acquisition of a real estate property and support capital expenditures for existing real estate properties.
On October 16, 2020, Ahead Data Blue, LLC (“Ahead Data Blue”) fully repaid the $70,000 Second Lien Term Loan receivable to us at par. Concurrent with the repayment, we made a new $57,500 Second Lien Term Loan investment in Ahead Data Blue to support a change of control transaction.
On October 19, 2020, we commenced a tender offer to purchase for cash any and all of the aggregate outstanding 2022 Notes at the purchase price of 102.625, plus accrued and unpaid interest (the “2022 Notes October Tender Offer”), of which $222,785 aggregate principal amount was then outstanding following the settlement of the 2022 Notes September Tender Offer. The 2022 Notes October Tender Offer will expire at 12:00 midnight, New York City time, on November 17, 2020 (one minute after 11:59 p.m., New York City time, on November 16, 2020), or any other date and time to which the Company extends the 2022 Notes October Tender Offer.
On October 30, 2020, we entered into a Dealer Manager Agreement with Incapital LLC, pursuant to which Incapital LLC has agreed to serve as the Company’s agent and dealer manager for the Company’s offering of up to 10,000,000 shares, par value $0.001 per share, of 5.50% Series AA1 Preferred Stock, with a $250,000 aggregate liquidation preference (the “Series AA1

129

Preferred Stock”, and together with the Series A1 Preferred Stock, Series M1 Preferred Stock and Series M2 Preferred Stock for purposes of “Recent Developments”, the “Preferred Stock”). In connection with such offering, on October 30, 2020, we filed Articles Supplementary with the State Department of Assessments and Taxation of Maryland, reclassifying and designating 20,000,000 shares of the Company’s authorized and unissued shares of common stock into shares of Preferred Stock as “Convertible Preferred Stock.”
On October 30, 2020, Halyard MD OpCo, LLC fully repaid the $10,265 First Lien Term Loan receivable to us at par.
On November 9, 2020, we announced the declaration of monthly dividends for our Preferred Stock for holders of record on the following dates based on an annual rate equal to 5.50% of the stated value of $25 per share as set forth in the Articles Supplementary for the Preferred Stock, from the date of issuance or, if later from the most recent dividend payment date, as follows:
Monthly Cash Preferred Shareholder Distribution
Record Date
Payment Date
Monthly Amount ($ per share), before pro ration for partial periods
October and November 2020
11/18/2020
12/1/2020
$0.114583
On November 9, 2020, we announced the declaration of monthly dividends on our common stock as follows:
Monthly Cash Common Shareholder Distribution
Record Date
Payment Date
Amount ($ per share)
November 2020
11/30/2020
12/24/2020
$0.0600
December 2020
12/31/2020
1/21/2021
$0.0600
January 2021
1/29/2021
2/18/2021
$0.0600

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 three months ended September 30, 2020.
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.

130

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 September 30, 2020 and June 30, 2020, our qualifying assets as a percentage of total assets, stood at 74.53% and 74.44%, 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. 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.

131

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.
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.

132

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 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.

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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 September 30, 2020, approximately 0.7% 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 September 30, 2020, we do not expect to have any excise tax due for the 2020 calendar year. Thus, we have not accrued any excise tax for this period.

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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 stockholders 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 September 30, 2020, 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, 2017 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 September 30, 2020 and June 30, 2020, 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.

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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. The effectiveness of the amended guidance in ASU 2016-13 did not have a material effect on our consolidated financial statements and disclosures.
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. The effectiveness of the amended guidance in ASU 2018-13 did not have a material effect on our consolidated financial statements and disclosures.
In May 2020, the SEC adopted rule amendments that will impact the requirement of investment companies, including BDCs, to disclose the financial statements of certain of their portfolio companies or certain acquired funds (the “Final Rules”). The Final Rules adopted a new definition of “significant subsidiary” set forth in Rule 1-02(w)(2) of Regulation S-X under the Securities Act. Rules 3-09 and 4-08(g) of Regulation S-X require investment companies to include separate financial statements or summary financial information, respectively, in such investment company’s periodic reports for any portfolio company that meets the definition of “significant subsidiary.” The Final Rules adopt a new definition of “significant subsidiary” applicable only to investment companies that (i) modifies the investment test and the income test, and (ii) eliminates the asset test currently in the definition of “significant subsidiary” in Rule 1-02(w) of Regulation S-X. The new Rule 1-02(w)(2) of Regulation S-X is intended to more accurately capture these portfolio companies that are more likely to materially impact the financial condition of an investment company. The Final Rules will be effective on January 1, 2021, but voluntary compliance is permitted in advance of the effective date. We evaluated the impact of adopting the Final Rules on our consolidated financial statements and because the new definition of “significant subsidiary” contained therein is specific to investment companies, we elected to early adopt the Final Rules for our year ended June 30, 2020. Refer to Note 3. Portfolio Investments - Unconsolidated Significant Subsidiaries for disclosure.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform. The amendments in ASU 2020-04 provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The standard is effective as of March 12, 2020 through December 31, 2022. Management is currently evaluating the impact of the optional guidance on the Company's consolidated financial statements and disclosures. The Company did not utilize the optional expedients and exceptions provided by ASU 2020-04 during the three months ended September 30, 2020.
In August 2020, FASB issued ASU 2020-06, Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies the accounting for convertible instruments by removing the separation models for (1) convertible debt with a cash conversion feature and (2) convertible instruments with a beneficial conversion feature. As a result, after adoption, a convertible debt instrument will be accounted for as a single liability measured at its amortized cost. Additionally, ASU 2020-06 requires the application of the if-converted method to calculate the impact of convertible instruments on diluted earnings per share. ASU 2020-06 is effective for fiscal years beginning after December 15, 2021, with early adoption permitted.


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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 and Jobs 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. Additional uncertainty is anticipated particularly in light of the current presidential election in the United States and the impact the presidential and congressional elections may have on federal regulation and taxation. We will continue to monitor and account for the future impacts of federal regulatory and state guidance in the interim period in which such additional guidance is issued.
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. Uncertainty with respect to the economic effects of the Wuhan Virus outbreak has introduced significant volatility in the financial markets, and the effects of this volatility could materially impact our market risks, including those listed below. For additional information concerning the Wuhan Virus pandemic and its potential impact on our business and our operating results, see Part I, Item 1A. Risk Factors, “Risks Relating to Our Business - The Wuhan Virus pandemic has caused severe disruptions in the global economy, which has had, and may continue to have, a negative impact on our portfolio companies and our business and operations” in our Annual Report on Form 10-K.
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 Part II, Item 1A. Risk Factors, “Risks Relating to Our Business - Rising interest rates may adversely affect the value of our portfolio investments which could have an adverse effect on our business, financial condition and results of operations”.
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, three or six months after which they reset to current market interest rates. As of September 30, 2020, 85.93% of the interest earning investments in our portfolio, at fair value, bore interest at floating rates.
We also have a revolving credit facility that is 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 $250,993 as of September 30, 2020. 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 September 30, 2020, 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
 
$
58,486

 
$
7,530

 
$
50,956

 
$
40,765

Up 200 basis points
 
$
31,321

 
$
5,020

 
$
26,301

 
$
21,041

Up 100 basis points
 
$
8,651

 
$
2,510

 
$
6,141

 
$
4,913

Down 100 basis points
 
$
(1,208
)
 
$
(382
)
 
$
(826
)
 
$
(661
)
(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 September 30, 2020, one, two, three, six, and twelve month LIBOR were 0.15%, 0.19%, 0.23%, 0.26%, and 0.36% respectively.


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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 September 30, 2020, we did not engage in hedging activities.

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Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As of September 30, 2020, 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. We are continually monitoring and assessing the Wuhan Virus pandemic to determine any potential impact on the design and operating effectiveness of our internal control over financial reporting.

Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting during the quarter ended September 30, 2020, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II
Item 1. Legal Proceedings
(All figures in this item are in thousands except share, per share and other data.)
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 September 30, 2020.
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, 2020, 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. (All figures in this item are in thousands except share, per share and other data.)
Risks Relating to Business
The Wuhan Virus pandemic has caused severe disruptions in the global economy, which has had, and may continue to have, a negative impact on our portfolio companies and our business and operations.
As of the filing date of this Quarterly Report, there is an outbreak of a highly contagious form of a novel coronavirus (“Wuhan Virus”). The Wuhan Virus has been declared a pandemic by the World Health Organization and, in response to the outbreak, the U.S. Health and Human Services Secretary has declared a public health emergency in the United States. The Wuhan Virus has had a devastating impact on the global economy, including the U.S. economy, and has resulted in a global economic rescission.
Many states, including those in which we and our portfolio companies operate, have issued orders requiring the closure of non-essential businesses and/or requiring or encouraging residents to stay at home. The Wuhan Virus pandemic and preventative measures taken to contain or mitigate its spread have caused, and are continuing to cause, business shutdowns, or the re-introduction of business shutdowns, cancellations of and restrictions on events and travel, significant reductions in demand for certain goods and services, reductions in and restrictions on business activity and financial transactions, supply chain interruptions and overall economic and financial market instability both globally and in the United States. Such effects will likely continue for the duration of the pandemic, which is uncertain, and for some period thereafter. While several countries, as well as certain states, counties and cities in the United States, have begun to lift the public health restrictions with a view to reopening their economies, recurring Wuhan Virus outbreaks have led to the re-introduction of such restrictions in certain states in the United States and globally and could continue to lead to the re-introduction of such restrictions elsewhere. Additionally, the absence of viable treatment options or a vaccine could lead people to continue to self-isolate and not participate in the economy at pre-pandemic levels for a prolonged period of time. Potential consequences of the current unprecedented measures taken in response to the spread of Wuhan Virus, and current market disruptions and volatility on our business include, but are not limited to:
•
sudden, unexpected and/or severe declines in the market price of our securities or net asset value;
•
inability of the Company to accurately or reliably value its portfolio;
•
inability of the Company to comply with certain asset coverage ratios that would prevent the Company from paying dividends to our common stockholders and that could result in breaches of covenants or events of default under our credit agreement or debt indentures;
•
inability of the Company to pay any dividends and distributions or service its debt;
•
inability of the Company to maintain its status as a regulated investment company under the Code;
•
potentially severe, sudden and unexpected declines in the value of our investments;
•
increased risk of default or bankruptcy by the companies in which we invest;
•
increased risk of companies in which we invest being unable to weather an extended cessation of normal economic activity and thereby impairing their ability to continue functioning as a going concern;
•
reduced economic demand resulting from mass employee layoffs or furloughs in response to governmental action taken to slow the spread of Wuhan Virus, which could impact the continued viability of the companies in which we invest;

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•
companies in which we invest being disproportionally impacted by governmental action aimed at slowing the spread of Wuhan Virus or mitigating its economic effects;
•
limited availability of new investment opportunities;
•
inability for us to replace our existing leverage when it becomes due or replace it on terms as favorable as our existing leverage;
•
a reduction in interest rates, including interest rates based on LIBOR and similar benchmarks, which may adversely impact our ability to lend money at attractive rates; and
•
general threats to the Company’s ability to operate successfully as a business development company.

The Wuhan Virus pandemic (including the preventative measures taken in response thereto) has to date (i) created significant business disruption issues for certain of our portfolio companies, and (ii) materially and adversely impacted the value and performance of certain of our portfolio companies. The Wuhan Virus pandemic is having a particularly adverse impact on industries in which certain of our portfolio companies operate, including aircraft leasing, energy, hospitality, travel, retail and restaurants. Certain of our portfolio companies in other industries have also been significantly impacted. The Wuhan Virus pandemic is continuing as of the filing date of this Quarterly Report, and its extended duration may have further adverse impacts on our portfolio companies after September 30, 2020, including for the reasons described below. Although on March 27, 2020, the U.S. government enacted the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which contains provisions intended to mitigate the adverse economic effects of the Wuhan Virus pandemic, it is uncertain whether, or how much, our portfolio companies will be able to benefit from the CARES Act or any other subsequent legislation intended to provide financial relief or assistance. As a result of this disruption and the pressures on their liquidity, certain of our portfolio companies have been, or may continue to be, incentivized to draw on most, if not all, of the unfunded portion of any revolving or delayed draw term loans made by us, subject to availability under the terms of such loans.
The effects described above on our portfolio companies have, for certain of our portfolio companies to date, impacted their ability to make payments on their loans on a timely basis and in some cases have required us to amend certain terms, including payment terms. In addition, an extended duration of the Wuhan Virus pandemic may impact the ability of our portfolio companies to continue making their loan payments on a timely basis or meeting their loan covenants. The inability of portfolio companies to make timely payments or meet loan covenants may in the future require us to undertake similar amendment actions with respect to other of our investments or to restructure our investments. The amendment or restructuring of our investments may include the need for us to make additional investments in our portfolio companies (including debt or equity investments) beyond any existing commitments, exchange debt for equity, or change the payment terms of our investments to permit a portfolio company to pay a portion of its interest through payment-in-kind, which would defer the cash collection of such interest and add it to the principal balance, which would generally be due upon repayment of the outstanding principal.
The Wuhan Virus pandemic has adversely impacted the fair value of our investments as of September 30, 2020, and the values assigned as of this date may differ materially from the values that we may ultimately realize with respect to our investments. The impact of the Wuhan Virus pandemic may not yet be fully reflected in the valuation of our investments as our valuations, and particularly valuations of private investments and private companies, are inherently uncertain, may fluctuate over short periods of time and are often based on estimates, comparisons and qualitative evaluations of private information that is often from a time period earlier, generally two to three months, than the period for which we are reporting. Additionally, we may not have yet received information or certifications from our portfolio companies that indicate any or the full extent of declining performance or non-compliance with debt covenants, as applicable, as a result of the Wuhan Virus pandemic. As a result, our valuations at September 30, 2020 may not show the complete or continuing impact of the Wuhan Virus pandemic and the resulting measures taken in response thereto. In addition, write downs in the value of our investments have reduced, and any additional write downs may further reduce, our net asset value (and, as a result, our asset coverage calculation). Accordingly, we may continue to incur additional net unrealized losses or may incur realized losses after September 30, 2020, which could have a material adverse effect on our business, financial condition and results of operations.
The volatility and disruption to the global economy from the Wuhan Virus pandemic has affected, and is expected to continue to affect, the pace of our investment activity, which may have a material adverse impact on our results of operations. Such volatility and disruption have also led to the increased credit spreads in the private debt capital markets.
In response to the Wuhan Virus pandemic, Prospect Capital Management L.P. (“Prospect Capital Management” or our “Investment Adviser”) instituted a work from home policy. Although certain employees are currently allowed to return to their offices in certain circumstances, subject to health and safety protocols, it is expected that most employees will continue to work remotely for the foreseeable future. Extended periods of an extended period of remote working could strain our technology resources and introduce operational risks, including heightened cybersecurity risk. Remote working environments may be less secure and more susceptible to hacking attacks, including phishing and social engineering attempts that seek to exploit the Wuhan Virus pandemic.

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Despite actions of the U.S. federal government and foreign governments, the uncertainty surrounding the Wuhan Virus pandemic and other factors has contributed to significant volatility and declines in the global public equity markets and global debt capital markets, including the market price of shares of our common stock and the trading prices of our issued debt securities. Shares of our common stock are trading below our net asset value as of the filing date of this Quarterly Report. Market conditions may make it difficult for us to raise equity capital because, subject to some limited exceptions, as a BDC, we are generally not able to issue additional shares of our common stock at a price less than net asset value without general approval by our stockholders, which we currently have until June 12, 2021, and approval of the specific issuance by our Board of Directors. Moreover, these market conditions may make it difficult to access or obtain new indebtedness with similar terms to our existing indebtedness or otherwise have a negative effect on our cost of capital. See “Risk Factors-Risks Relating to Our Business-Capital markets may experience periods of disruption and instability. Such market conditions may materially and adversely affect debt and equity capital markets in the United States and abroad, which may have a negative impact on our business and operations” in our Annual Report on Form 10-K for the fiscal year ended June 30, 2020.
It is virtually impossible to determine the ultimate impact of Wuhan Virus at this time. Further, the extent and strength of any economic recovery after the Wuhan Virus pandemic abates, including following any “second wave” or other intensifying of the pandemic, is uncertain and subject to various factors and conditions. Even after the Wuhan Virus pandemic subsides, the U.S. economy and most other major global economies may continue to experience a recession.
Accordingly, an investment in the Company is subject to an elevated degree of risk as compared to other market environments.
Risks Relating to Our Securities
Senior securities, including debt and preferred equity, expose us to additional risks, including the typical risks associated with leverage and could adversely affect our business, financial condition and results of operations.
We use our revolving credit facility to leverage our portfolio and we expect in the future to borrow from and issue senior debt securities to banks and other lenders and may securitize certain of our portfolio investments. We also have the Unsecured Notes outstanding and have launched a convertible preferred share offering program, which are forms of leverage and are senior in payment rights to our common stock.
Business development companies are generally able to issue senior securities such that their asset coverage, as defined in the 1940 Act, equals at least 200% of gross assets less all liabilities and indebtedness not represented by senior securities, after each issuance of senior securities. In March 2018, the Small Business Credit Availability Act added Section 61(a)(2) to the 1940 Act, a successor provision to Section 61(a)(1) referenced therein, which reduces the asset coverage requirement applicable to business development companies from 200% to 150% so long as the business development company meets certain disclosure requirements and obtains certain approvals. On May 5, 2020, the Company's stockholders voted to approve the application of the reduced asset coverage requirements in Section 61(a) (2) to the Company effective as of May 6, 2020. As a result of the stockholder approval, effective May 6, 2020, the asset coverage ratio under the 1940 Act applicable to the Company decreased to 150% from 200%. In other words, under the 1940 Act, the Company is now able to borrow $2 for investment purposes for every $1 of investor equity, as opposed to borrowing $1 for investment purposes for every $1 of investor equity. As a result, the Company will be able to incur additional indebtedness in the future and investors in the Company may face increased investment risk. In addition, the Company’s management fee payable to the Investment Adviser is based on the Company's average adjusted gross assets, which includes leverage and, as a result, if the Company incurs additional leverage, management fees paid to the Investment Adviser would increase.
With certain limited exceptions, as a BDC, we are only allowed to borrow amounts or otherwise issue senior securities such that our asset coverage, as defined in the 1940 Act, is at least 150% after such borrowing or other issuance. The amount of leverage that we employ will depend on the Investment Adviser’s and our Board of Directors’ assessment of market conditions and other factors at the time of any proposed borrowing. There is no assurance that a leveraging strategy will be successful. Leverage involves risks and special considerations for stockholders, any of which could adversely affect our business, financial condition and results of operations, including the following:
•
A likelihood of greater volatility in the net asset value and market price of our common stock;
•
Diminished operating flexibility as a result of asset coverage or investment portfolio composition requirements required by lenders or investors that are more stringent than those imposed by the 1940 Act;
•
The possibility that investments will have to be liquidated at less than full value or at inopportune times to comply with debt covenants or to pay interest or dividends on the leverage;
•
Increased operating expenses due to the cost of leverage, including issuance and servicing costs;

142

•
Convertible or exchangeable securities, such as the Convertible Notes outstanding or those issued in the future (including the Preferred Stock (as defined herein)) may have rights, preferences and privileges more favorable than those of our common stock including, the case of the Preferred Stock, the statutory right under the 1940 Act to vote, as a separate class, on the election of two of our directors and approval of certain fundamental transactions in certain circumstances;
•
Subordination to lenders’ superior claims on our assets as a result of which lenders will be able to receive proceeds available in the case of our liquidation before any proceeds will be distributed to our stockholders;
•
Difficulty meeting our payment and other obligations under the Unsecured Notes and our other outstanding debt or preferred equity;
•
The occurrence of an event of default if we fail to comply with the financial and/or other restrictive covenants contained in our debt agreements, including the credit agreement and each indenture governing the Unsecured Notes, which event of default could result in all or some of our debt becoming immediately due and payable;
•
Reduced availability of our cash flow to fund investments, acquisitions and other general corporate purposes, and limiting our ability to obtain additional financing for these purposes;
•
The risk of increased sensitivity to interest rate increases on our indebtedness with variable interest rates, including borrowings under our amended senior credit facility; and
•
Reduced flexibility in planning for, or reacting to, and increasing our vulnerability to, changes in our business, the industry in which we operate and the general economy.

For example, the amount we may borrow under our revolving credit facility is determined, in part, by the fair value of our investments. If the fair value of our investments declines, we may be forced to sell investments at a loss to maintain compliance with our borrowing limits. Other debt facilities we may enter into in the future may contain similar provisions. Any such forced sales would reduce our net asset value and also make it difficult for the net asset value to recover. The Investment Adviser and our Board of Directors in their best judgment nevertheless may determine to use leverage if they expect that the benefits to our stockholders of maintaining the leveraged position will outweigh the risks.
•
In addition, our ability to meet our payment and other obligations of the Preferred Stock, the Unsecured Notes and our credit facility depends on our ability to generate significant cash flow in the future. This, to some extent, is subject to general economic, financial, competitive, legislative and regulatory factors as well as other factors that are beyond our control. We cannot provide assurance that our business will generate cash flow from operations, or that future borrowings will be available to us under our existing credit facility or otherwise, in an amount sufficient to enable us to meet our payment obligations under the Preferred Stock, the Unsecured Notes and our other debt and to fund other liquidity needs. If we are not able to generate sufficient cash flow to service our debt and preferred equity obligations, we may need to refinance or restructure our debt or preferred equity, including the Unsecured Notes, sell assets, reduce or delay capital investments, or seek to raise additional capital. If we are unable to implement one or more of these alternatives, we may not be able to meet our payment obligations under the Preferred Stock, the Unsecured Notes and our other debt.

Illustration.    The following tables illustrate the effect of leverage on returns from an investment in our common stock assuming various annual returns, net of interest expense. The calculations in the tables below are hypothetical and actual returns may be higher or lower than those appearing below.
The below calculation assumes (i) $6.5 billion in total assets, (ii) an average cost of funds of 5.39% (including preferred dividend payments of 5.50% per annum), (iii) $2.0 billion in debt outstanding, (iv) $1.3 billion in liquidation preference of Preferred Stock outstanding, and (v) $3.2 billion of common stockholders’ equity.
Assumed Return on Our Portfolio (net of expenses)
(10)%
(5)%
0%
5%
10%
Corresponding Return to Common Stockholder(1)
(25.9)%
(15.7)%
(5.6)%
4.6%
14.8%

143

The below calculation assumes (i) $6.5 billion in total assets, (ii) an average cost of funds of 5.33%, (iii) $2.2 billion in debt outstanding and (iv) $4.3 billion of common stockholders’ equity.
Assumed Return on Our Portfolio (net of expenses)
(10)%
(5)%
0%
5%
10%
Corresponding Return to Common Stockholder(2)
(17.8)%
(10.3)%
(2.7%)
4.8%
12.4%

(1) Assumes no conversion of Preferred Stock to common stock.
(2) Assumes conversion rate based on the 5-day VWAP of our common stock on September 30, 2020, which was $5.04, and a Holder Optional Conversion Fee (as defined in the prospectus supplement relating to the applicable offering) of 9.50% and 9.00% on Series A Preferred Stock and Series AA Preferred Stock, respectively, of the maximum public offering price disclosed within the applicable prospectus supplements. The actual 5-day VWAP of our common stock on a Holder Conversion Exercise Date may be more or less than $5.04, which may result in more or less shares of common stock issued.
The assumed portfolio return is required by regulation of the SEC and is not a prediction of, and does not represent, our projected or actual performance. Actual returns may be greater or less than those appearing in the table.
Pursuant to SEC regulations, this table is calculated as of September 30, 2020. As a result, it has not been updated to take into account any changes in assets or leverage since September 30, 2020.
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.

144

Item 5. Other Information
Our common stock is traded on the NASDAQ Global Select Market under the symbol “PSEC.”
The following table sets forth, for the quarterly reporting periods indicated, the net asset value per share of our common stock and the high and low sales prices for our common stock, as reported on the NASDAQ Global Select Market. Our common stock historically has traded at prices both above and below its net asset value. There can be no assurance, however, that such premium or discount, as applicable, to net asset value will be maintained. See also “Item 1A. Risk Factors” in Part I of our Annual Report on Form 10-K for the year ended June 30, 2020 for additional information about the risks and uncertainties we face.

 
 
 
 
Stock Price
 
Premium (Discount)
of High to NAV
 
Premium
(Discount)
of Low to NAV
 
 
 
NAV(1)
 
High(2)
 
Low(2)
 
Year Ended June 30, 2019
 
 
 
 
 
 
 
 
 
 
 
First quarter
 
$
9.39

 
 
$
7.58

 
 
$
6.67

 
 
(19.3
)%
 
(29.0
)%
 
Second quarter
 
 
9.02

 
 
 
7.27

 
 
 
5.77

 
 
(19.4
)%
 
(36.0
)%
 
Third quarter
 
 
9.08

 
 
 
6.93

 
 
 
6.27

 
 
(23.7
)%
 
(30.9
)%
 
Fourth quarter
 
 
9.01

 
 
 
6.83

 
 
 
6.24

 
 
(24.2
)%
 
(30.7
)%
 
Year Ended June 30, 2020
 
 
 
 
 
 
 
 
 
 
 
First quarter
 
$
8.87

 
 
$
6.73

 
 
$
6.30

 
 
(24.1
)%
 
(29.0
)%
 
Second quarter
 
 
8.66

 
 
 
6.70

 
 
 
6.37

 
 
(22.6
)%
 
(26.4
)%
 
Third quarter
 
 
7.98

 
 
 
6.61

 
 
 
4.04

 
 
(17.2
)%
 
(49.4
)%
 
Fourth quarter
 
 
8.18

 
 
 
5.74
 
 
 
3.78

 
 
(29.8
)%
 
(53.8
)%
 
Twelve Months Ending June 30, 2021
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
First quarter
 
$
8.40

 
 
$
5.17

 
 
$
4.69

 
 
(38.5
)%
 
(44.2
)%
 
(1) Net asset value per share is determined as of the last day in the relevant quarter and therefore may not reflect the net asset value per share on the date of the high or low sales price. The NAVs shown are based on outstanding shares of our common stock at the end of each period.
(2) The High/Low Stock Price is calculated as of the closing price on a given day in the applicable quarter.
Recent Sales of Common Stock Below Net Asset Value
At our 2009, 2010, 2011, 2012 and 2013 annual meeting of stockholders, and at a special meeting of stockholders held on June 12, 2020, our stockholders approved our ability to sell shares of our common stock at a price or prices below our NAV per share at the time of sale in one or more offerings. The current approval to sell shares of our common stock below our NAV per share is valid until June 12, 2021 and subject to certain conditions as set forth in the proxy statement relating to the special meeting (including that the number of shares sold on any given date does not exceed 25% of our outstanding common stock immediately prior to such sale). Accordingly, we may make offerings of our common stock without any limitation on the total amount of dilution to stockholders. Our prospectus supplement and accompanying prospectus relating to this offering contains additional information about these offerings. Pursuant to the authority granted at our June 12, 2020 special meeting of stockholders and the approval of our Board of Directors, we have made the following offerings:
Date of Offering
Price Per Share to Investors
Shares Issued
Estimated Net Asset Value per Share(1)
Percentage Dilution
June 15, 2020 to June 22, 2020(2)
$5.29 - $5.40
1,158,222
$7.93 - 7.94
0.10%
(1) The data for sales of common shares below NAV pursuant to our equity distribution agreements are estimates based on our last reported NAV prior to the respective period adjusted for capital events occurring during the period since the last calculated NAV. All amounts presented are approximations based on the best available data at the time of issuance.
(2) At the market offering. Dates of offering represent the sales dates of the stock. The settlement dates are two business days later than the sale dates.



145

FEES AND EXPENSES
The following tables are intended to assist you in understanding the costs and expenses that an investor in shares of common stock will bear directly or indirectly. We caution you that some of the percentages indicated in the table below are estimates and may vary. These tables are based on our assets and common stock outstanding as of September 30, 2020, except that we assume that we have issued $1.25 billion in Preferred Stock paying dividends of 5.50% per annum, we have borrowed $1.08 billion under our credit facility, which is the maximum amount available under the credit facility with the current levels of other debt, in addition to our other indebtedness of $1.9 billion. Except where the context suggests otherwise, any reference to fees or expenses paid by “you” or “us” or that “we” will pay fees or expenses, the Company will pay such fees and expenses out of our net assets and, consequently, you will indirectly bear such fees or expenses as an investor in the Company’s common stock. However, you will not be required to deliver any money or otherwise bear personal liability or responsibility for such fees or expenses.
Stockholder transaction expenses:
A Shares
M Shares
AA Shares
Sales Load (as a percentage of offering price)
10.00%(1)
3.00%(2)
10.00%(3)
Offering expenses borne by the Company (as a percentage of offering price)
(4)
(4)
(5)
Preferred Stock Dividend reinvestment plan expenses (6)
None
None
None
Total stockholder transaction expenses (as a percentage of offering price):
11.5%
4.5%
10.5%
Annual expenses (as a percentage of net assets attributable to common stock):
 
 
 
Management fees (7)
4.66%
Incentive fees payable under Investment Advisory Agreement (20% of realized capital gains and 20% of pre-incentive fee net investment income) (8)
1.82%
Total advisory fees
6.48%
Total interest expenses (9)
4.56%
Other expenses (10)
1.27%
Total annual expenses (8)(10)(11)
12.31%
Dividends on Preferred Stock(12)
2.17%
Total annual expenses after dividends on Preferred Stock (13)
14.48%
Example
The following table demonstrates the projected dollar amount of cumulative expenses we would pay out of net assets and that you would indirectly bear over various periods with respect to a hypothetical investment in our common stock. In calculating the following expense amounts, we have assumed we have issued $1.25 billion in Preferred Stock paying dividends of 5.50% per annum, we have borrowed $251.0 million available under our line of credit, in addition to our other indebtedness of $1.9 billion, and that our annual operating expenses would remain at the levels set forth in the table above and that we would pay the costs shown in the table above.
 
 
1 Year
 
3 Years
 
5 Years
 
10 Years
A Shares and AA Shares - You would pay the following expenses on a $1,000 investment in shares of our common stock, assuming a 5% annual return on our portfolio*
 
$
149

 
$
340

 
$
508

 
$
850

A Shares and AA Shares - You would pay the following expenses on a $1,000 investment in shares of our common stock, assuming a 5% annual return on our portfolio**
 
$
159

 
$
363

 
$
541

 
$
887

* Assumes that we will not realize any capital gains computed net of all realized capital losses and unrealized capital depreciation on our portfolio.
** Assumes no unrealized capital depreciation or realized capital losses and 5% annual return on our portfolio resulting entirely from net realized capital gains (and therefore subject to the capital gains incentive fee).
While the example assumes, as required by the SEC, a 5% annual return on our portfolio, our performance will vary and may result in a return greater or less than 5%. The income incentive fee under our Investment Advisory Agreement with Prospect Capital Management is unlikely to be material assuming a 5% annual return on our portfolio and is not included in the

146

example. If we achieve sufficient returns on our portfolio, including through the realization of capital gains, to trigger an incentive fee of a material amount, our distributions to our common stockholders and our expenses would likely be higher. In addition, while the example assumes reinvestment of all dividends and other distributions at NAV, common stockholders that participate in our common stock dividend reinvestment plan will receive a number of shares of our common stock determined by dividing the total dollar amount of the distribution payable to a participant by 95% of the market price per share of our common stock at the close of trading on the valuation date for the distribution.
This example and the expenses in the table above should not be considered a representation of our future expenses. Actual expenses (including the cost of debt, if any, and other expenses) may be greater or less than those shown.

(1)    Includes up to a 7.0% selling commission on the $25.00 per share (the “Stated Value”) paid by the Company and a dealer manager fee equal to 3.0% of the Stated Value paid by the Company. Reductions in selling commissions will be reflected in reduced public offering prices as described in the “Plan of Distribution” section of the applicable prospectus supplement and the net proceeds to us will not be impacted by such reductions; therefore, we will bear a reduction in net proceeds to us up to 7.0% of the Stated Value on all A Shares although the selling commission compensation paid by us to our dealer manager may represent less than 7.0% of the Stated Value. We may, through the Holder Optional Conversion Fee, recoup a portion of the Sales Load if stockholders exercise a Holder Optional Conversion (as defined in the prospectus supplement relating to the applicable offering) of their Preferred Stock prior to the 5-year anniversary of the original issue date. The Holder Optional Conversion Fee is 9.00% of the maximum public offering price disclosed herein prior to the first anniversary of the issuance of such Preferred Stock, 8.00% of the maximum public offering price disclosed herein on or after the first anniversary but prior to the second anniversary, 7.00% of the maximum public offering price disclosed herein on or after the second anniversary but prior to the third anniversary, 6.00% of the maximum public offering price disclosed herein on or after the third anniversary but prior to the fourth anniversary, 5.00% of the maximum public offering price disclosed herein on or after the fourth anniversary but prior to the fifth anniversary and 0.00% on or after the fifth anniversary.

(2)    Includes a dealer manager fee equal to 3.0% of the Stated Value paid by the Company.

(3)    Includes a 10% selling concession on the Stated Value paid by the Company. We may, through the Holder Optional Conversion Fee, recoup a portion of the Sales Load if stockholders exercise a Holder Optional Conversion of their Preferred Stock prior to the 5-year anniversary of the original issue date. The Holder Optional Conversion Fee is 9.50% of the maximum public offering price disclosed herein prior to the first anniversary of the issuance of such Preferred Stock, 8.50% of the maximum public offering price disclosed herein on or after the first anniversary but prior to the second anniversary, 7.50% of the maximum public offering price disclosed herein on or after the second anniversary but prior to the third anniversary, 6.50% of the maximum public offering price disclosed herein on or after the third anniversary but prior to the fifth anniversary and 0.00% on or after the fifth anniversary.

(4)    The selling commission and dealer manager fee, when combined with organization and offering expenses (including due diligence expenses and fees for establishing servicing arrangements for new stockholder accounts), are not expected to exceed 11.5% of the gross offering proceeds. Our Board of Directors may, in its discretion, authorize the Company to incur underwriting and other offering expenses in excess of 11.5% of the gross offering proceeds. In no event will the combined selling commission, dealer manager fee and offering expenses exceed FINRA’s limit on underwriting and other offering expenses.

(5)    The selling concession, when combined with organization and offering expenses (including due diligence expenses), are not expected to exceed 10.5% of the gross offering proceeds. Our Board of Directors may, in its discretion, authorize the Company to incur underwriting and other offering expenses in excess of 10.5% of the gross offering proceeds. In no event will the combined selling concession and offering expenses exceed FINRA’s limit on underwriting and other offering expenses.

(6)    The expenses of the dividend reinvestment plan are included in “other expenses.” See “Capitalization” in the applicable prospectus supplement.

(7)    Our base management fee is 2% of our gross assets (which include any amount borrowed, i.e., total assets without deduction for any liabilities, including any borrowed amounts for non-investment purposes, for which purpose we have not and have no intention of borrowing). Although no plans are in place to borrow the full amount under our line of credit, assuming that we borrowed $1.1 billion, the 2% management fee of gross assets equals approximately 4.66% of net assets.

(8)    Based on our net investment income and realized capital gains, less realized and unrealized capital losses, earned on our portfolio for the year ended September 30, 2020, all of which consisted of an income incentive fee. This historical amount

147

has been adjusted to reflect the issuance of 50,000,000 shares of Preferred Stock. The capital gain incentive fee is paid without regard to pre-incentive fee income. For a more detailed discussion of the calculation of the two-part incentive fee, see “Management Services-Investment Advisory Agreement” in the applicable prospectus.

(9)    As of September 30, 2020, we had $1.9 billion outstanding of Unsecured Notes (as defined below) in various maturities, ranging from September 15, 2023 to October 15, 2043, and interest rates, ranging from 3.75% to 6.88%, some of which are convertible into shares of Company common stock at various conversion rates.

(10)    “Other expenses” are based on estimated amounts for the current fiscal year. The amount shown above represents annualized expenses during our year ended September 30, 2020 representing all of our estimated recurring operating expenses (except fees and expenses reported in other items of this table) that are deducted from our operating income and reflected as expenses in our Statement of Operations. The estimate of our overhead expenses, including payments under an administration agreement with Prospect Administration, or the Administration Agreement is based on our projected allocable portion of overhead and other expenses incurred by Prospect Administration in performing its obligations under the Administration Agreement. See “Business-Management Services-Administration Agreement” in the applicable prospectus.

(11)    If all 50,000,000 shares of Preferred Stock were converted into common stock and assuming all the Series A and Series AA Shares of Preferred Stock pay a Holder Optional Conversion Fee of 9.00% and 9.50%, respectively, of the maximum public offering price disclosed within the applicable prospectus supplement and are converted at a conversion rate based on the 5-day VWAP of our common stock on September 30, 2020, which was $5.04, then management fees would be 3.44%, incentive fees payable under our Investment Advisory Agreement would be 1.34%, total advisory fees would be 4.78%, total interest expenses would be 3.36%, other expenses would be 0.94%, and total annual expenses would be 9.00% of net assets attributable to our common stock. The actual 5-day VWAP of our common stock on a conversion date may be more or less than $5.04, which may result in fees that are higher or lower than those described herein. These figures are based on the same assumptions described in the other notes to this fee table.

(12)    Based on the 5.50% per annum dividend rate applicable to the A Shares, M Shares, and AA Shares. Other series of preferred stock, including other series of preferred stock being sold in different offerings, may bear different annual dividend rates. No dividend will be paid on shares of Preferred Stock after they have been converted to shares of common stock.

(13)     The indirect expenses associated with the Company’s investments in collateralized loan obligations are not included in the fee table presentation, but if such expenses were included in the fee table presentation then the Company’s total annual expenses would have been 13.10%, or 15.27% after dividends on Preferred Stock.
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

148

Exhibit No.
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
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
10.1

149

Exhibit No.
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
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
________________________
*
Filed herewith.
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
(12)
(13)
(14)
(15)
(16)
(17)
(18)
(19)
(20)

150


151

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
 
 
 
November 9, 2020
 
By:
/s/ JOHN F. BARRY III
Date
 
 
John F. Barry III
 
 
 
Chairman of the Board and Chief Executive Officer
 
 
 
 
November 9, 2020
 
By:
/s/ KRISTIN L. VAN DASK
Date
 
 
Kristin L. Van Dask
 
 
 
Chief Financial Officer








EXHIBIT 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO RULE 13a-14(a)/15d-14(a)
I, John F. Barry III, Chairman of the Board and Chief Executive Officer of Prospect Capital Corporation, certify that:
1.
I have reviewed this quarterly report on Form 10-Q of Prospect Capital Corporation;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a 15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over the financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date:
November 9, 2020
 
 
/s/ JOHN F. BARRY III
John F. Barry III
Chairman of the Board and Chief Executive Officer





EXHIBIT 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO RULE 13a-14(a)/15d-14(a)
I, Kristin L. Van Dask, Chief Financial Officer and Treasurer of Prospect Capital Corporation, certify that:
1.
I have reviewed this quarterly report on Form 10-Q of Prospect Capital Corporation;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a 15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over the financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date:
November 9, 2020
 
 
/s/ KRISTIN L. VAN DASK
Kristin L. Van Dask
Chief Financial Officer





EXHIBIT 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C. 1350)
In connection with the quarterly report on Form 10-Q for the period ended September 30, 2020 (the “Report”) of Prospect Capital Corporation (the “Registrant”), as filed with the Securities and Commission on the date hereof, I, John F. Barry III, Chairman of the Board and Chief Executive Officer of the Registrant, hereby certify, to the best of my knowledge, that:
1.
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
2.
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.
Date:
November 9, 2020
 
 
/s/ JOHN F. BARRY III
John F. Barry III
Chairman of the Board and Chief Executive Officer
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Prospect Capital Corporation and will be retained by Prospect Capital Corporation and furnished to the Securities and Exchange Commission or its staff upon request.
The foregoing certification is being furnished solely to accompany the Report pursuant to 18 U.S.C. ss. 1350, and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and are not to be incorporated by reference into any filing of the Registrant, whether made before or after the date hereof, regardless of any general incorporation language in such filing.




EXHIBIT 32.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C. 1350)
In connection with the quarterly report on Form 10-Q for the period ended September 30, 2020 (the “Report”) of Prospect Capital Corporation (the “Registrant”), as filed with the Securities and Commission on the date hereof, I, Kristin L. Van Dask, Chief Financial Officer of the Registrant, hereby certify, to the best of my knowledge, that:
1.
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
2.
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.
Date:
November 9, 2020
 
 
/s/ KRISTIN L. VAN DASK
Kristin L. Van Dask
Chief Financial Officer
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Prospect Capital Corporation and will be retained by Prospect Capital Corporation and furnished to the Securities and Exchange Commission or its staff upon request.
The foregoing certification is being furnished solely to accompany the Report pursuant to 18 U.S.C. ss. 1350, and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and are not to be incorporated by reference into any filing of the Registrant, whether made before or after the date hereof, regardless of any general incorporation language in such filing.