Prospect Capital plunges as it cuts dividend for first time since 2017

(Bloomberg) — Shares of Prospect Capital Corp., a $7.6 billion publicly traded private credit fund, fell more than 16% on Friday after it cut its dividend for the first time in seven years.

Prospect said in a statement that the 25% dividend cut was needed as the company shifts its holdings away from its riskiest mortgage debt and real estate investment segments toward its core businesses of first-lien senior secured loans and mid-cap company equity.

The company also attributed the dividend cut to the Federal Reserve’s recent interest rate cuts, which will reduce the interest it earns on its floating-rate loans.

Prospect has faced increasing scrutiny in recent months over the proportion of borrowers it pays by accumulating more debt in the fund, its relationship with real estate investment trusts it fully controls and its financing of retail investors. dependence. In late September, Moody’s Ratings downgraded its Baa3 credit rating outlook to negative, the second such change by the rating company in as many weeks.

Analysts said the dividend was cut to 4.5 cents a month from 6 cents a share, possibly in part because the private credit fund maintained its investment-grade rating.

As of 1:01 p.m. New York time, the fund, whose shares trade under the ticker PSEC, fell 16% on Friday to $4.41, its lowest level since May 2020.

Prospect reported first-quarter net investment income of $89.9 million, down 28% from the same period last year. The company’s net asset value per share, a measure of the value of its investments, fell to $8.10 at the end of the quarter, its lowest level since 2020, according to data compiled by Bloomberg.

Prospect also took significant writedowns on several loans on its books, including real estate investment trust National Property REIT Corp. and dental clinic support provider InterDent Inc. The private credit firm wrote down its investment in market research firm Dynata (formerly Research Now SSI). , after the company emerged from Chapter 11 bankruptcy and paid off nearly 40% of its total debt.

A Bloomberg News analysis of data from fixed income specialist Solve, which collects filings from publicly traded private credit funds, previously found Prospect to be among the companies least willing to cut loans compared with peers.

Prospect Chief Executive John F. Barry III also apologized to Wells Fargo & Co. analyst Finian O’Shea over Barry’s previous role at the company. He blasted a question on the earnings call asking under what circumstances Prospect would force a conversion of some of its preferred stock. Converted into common stock.

“When the love of your life tells you after an earnings call, John, you shouldn’t have said that, you know right away that you shouldn’t have said that,” Barry said. “When you’ve been building Prospect from scratch for 37 years, as I have, sometimes criticism of our employees can feel unfair.”

When O’Shea asked questions on Friday’s earnings call, Barry said he was no longer allowed to answer questions. He was subsequently succeeded by Grier Eliasek, Prospect’s president and chief operating officer.

(Updated earnings call details in last paragraph. Previous version of this article corrected new dividend amount)

More stories like this can be found at Bloomberg.com