(Bloomberg) — John F. Barry III, CEO and founder of Prospect Capital Corp., blasted a Wall Street analyst during a quarterly earnings conference call. He defended the investment firm’s track record and called some of the analyst’s questions “absurd.”
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The skirmish arose after Finian O’Shea of Wells Fargo & Co. asked under what circumstances Prospect would force the conversion of some of its preferred stock into common stock. Barry said the company had no reason to think about doing so.
“No, we’re not running out here and looking at broken glass. I’m just puzzled by these questions,” Barry said in a heated exchange, a rare occurrence during corporate earnings calls. “Is the house on fire? Why are we talking about this?”
He then began questioning O’Shea about the company’s financials, interrupting him repeatedly as he tried to answer.
“Why don’t you do the world a favor and do a little research before you show up on a profit call with absurd questions like this?” Barry said toward the end of the exchange. “You don’t even know what you’re talking about.”
Prospect, which manages an $8 billion publicly traded private credit fund, has come under increasing criticism in recent months for its heavy use of so-called “payment-in-kind” arrangements, which allow borrowers to pay interest with more debt, as well as its reliance on individual investors for funding.
Prospect did not respond to a request for comment about Thursday’s conversation. A representative for Wells Fargo declined to comment.
During the call and in previous statements on its website, Prospect defended its 20-year track record, stressed that it has access to diversified sources of financing, and believes PIK schemes are appropriate for certain borrowers.
NAV decline
Prospect reported net investment income of $102.9 million for its fiscal fourth quarter, down 8.7% from the same period last year. Net asset value per share, a measure of the value of its investments, fell to $8.74 at the end of the quarter, the lowest since 2020, according to data compiled by Bloomberg.
Shares in the fund, which trades under the PSEC ticker, were little changed at $5.01 as of 1:29 p.m. in New York on Thursday. That represents a discount of about 43% to the value of the fund’s assets at the end of the June quarter.
In addition to the preferred shares, O’Shea also raised questions about a write-down on Prospect’s portfolio of secured loan obligations and about investments by a real estate investment company wholly controlled by Prospect and representing one-fifth of the fund’s assets.
“Here we go again, here we go again,” Barry snapped back. “The REIT owns a huge portfolio of multifamily properties. Huge. The REIT generates huge cash flows up to PSEC. You probably don’t even know what they are.”
Prospect has been criticized for what some analysts see as a circular financing arrangement with the REIT. Hedgeye Risk Management, a research firm that makes short-term recommendations to investors, has argued that the REIT does not generate any free cash of its own and relies on financing from Prospect to generate the bulk of its revenue.
During fiscal 2024, Prospect provided $248 million in debt financing and $4.6 million in equity financing to the REIT and received $108.9 million in repayments, according to quarterly reports.
Following the exchange, Grier Eliasek, president and chief operating officer at Prospect, answered some questions from O’Shea.
He attributed the conversion of some preferred stock in the past quarter to a large institutional holder in Israel that needed liquidity. He said that certain provisions for future conversions are old language in deal documents that Prospect cannot effectively rely on. He also explained that the REIT acquired multi-family properties in the most recent quarter and used the money it received from Prospect for capital expenditures.
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