(Bloomberg) — Shares of Prospect Capital Corp., a $7.6 billion publicly traded private credit fund, fell more than 16% on Friday after the company cut its dividend for the first time in seven years.
Most read from Bloomberg
Prospect said in a statement that the 25% dividend cut is necessary because it shifts exposure from the riskiest parts of collateralized loan obligations and real estate investments to its core business of senior-secured first-lien loans and equity stakes in mid-market companies. .
The company also attributed the dividend cut to the Federal Reserve’s recent interest rate cuts, which will reduce the amount of interest it receives from making variable-rate loans.
Prospect has faced increasing criticism in recent months over the share of borrowers it pays off by racking up more debt with the fund, its relationship with a real estate investment trust it wholly controls and its reliance on private investors for financing. At the end of September, Moody’s Ratings downgraded its Baa3 rating outlook to negative, the second revision by a rating agency in as many weeks.
Analysts say the dividend cut – from 6 cents per share to 4.5 cents per share per month – is likely partly an attempt by the private credit fund to maintain its investment-grade rating.
Shares in the fund, which trades under the PSEC ticker, fell 16% to $4.41 at 1:01 p.m. New York time on Friday, the lowest level since May 2020.
Prospect reported net investment income of $89.9 million for the fiscal first quarter, down 28% from the same period last year. Its net asset value per share, a measure of the value of its investments, fell to $8.10 at the end of the quarter, the lowest since 2020, according to data compiled by Bloomberg.
Prospect has also significantly written down several loans in its portfolio, including to real estate investment trust National Property REIT Corp. and InterDent Inc., a dental practice services provider. The private credit firm has written down its investment in market research firm Dynata, formerly known as Research Now SSI. , after the company emerged from Chapter 11 and paid off nearly 40% of its total debt.
A Bloomberg News analysis of data from fixed income specialist Solve, which collects data from listed private credit funds, previously found that Prospect was among the most reluctant companies to write down their loans compared to peers.
Prospect Chief Executive Officer John F. Barry III also apologized to Wells Fargo & Co. analyst Finian O’Shea after Barry lashed out at him during the company’s previous earnings call for asking under what circumstances Prospect would consider converting a number of his preference shares. in ordinary shares.
“If the love of your life tells you after an earnings call, John, you shouldn’t have said that, you know right away you shouldn’t have said that,” Barry said. “When you’ve been doing this for 37 years, like me, and you founded Prospect from scratch, criticism of our people can sometimes feel unfair.”
When O’Shea asked a question during Friday’s earnings call, Barry said he wasn’t allowed to ask any more questions. He then moved on to Prospect president and COO Grier Eliasek, who took over.
(Updates with earnings call details in final paragraph. An earlier version of this story corrected the new dividend amount)
Most read from Bloomberg Businessweek
©2024 BloombergLP
