Purchase of bonds by Prospect Capital Corp. due in 2025- Issuer: Prospect Capital Corporation
- ISIN: US74348GKE97
- Coupon: 5.5% (in US dollars), paid twice a year
- Repayment: December 15, 2025
- Yield to maturity: 11.7%
- Rating: BBB-
- Premium: About 6 basis points for securities of similar quality
Justification of the purchase:
Prospect Capital Corporation** (PSEC) is one of the largest players in the medium-term loans segment for medium-sized businesses, offering structured loans, share buybacks and secured loans. In 2024, the company showed positive financial results, despite certain legal and financial challenges.
Key financial indicators:
- Revenue: $861.66 million, an increase of 1.11% compared to the previous year.
- Operating profit: $580.08 million.
- Net profit: $262.83 million, but it was partially reduced due to losses from the sale of investments.
- Debt: reduction of debt–to-assets ratio to 30.5% and equity ratio to 44.7%.
- Free cash flow: $279.98 million.
The reasons for the discount:
1. Law risks: Prospect Capital Corporation has been involved in several lawsuits, including a dispute with the law firm Morgan Lewis & Bockius LLP over the issue of subordination, as well as an investigation by the US Department of Justice related to the company's medical assets. These factors put pressure on the company's reputation and assets.
2.Financial problems: Issues identified during the investigation made it difficult to sell some assets, which also affected investor confidence.
Growth prospects:
Prospect Capital intends to restructure its portfolio, focusing on senior secured loans. The key advantage of the company is a $2.1 billion credit line, which provides high liquidity and the ability to flexibly respond to market changes.
Conclusion:
We recommend the purchase of Prospect Capital Corporation bonds maturing in 2025, as the current discount and high yield of 11.7% per annum provide an attractive opportunity for investors who are ready for moderate risks.
