Prospect Capital Q2 Earnings Call Highlights

Prospect Capital (NASDAQ:PSEC) reported net investment income of $91 million, or $0.19 per common share, for its fiscal second quarter ended in December. Net asset value was approximately $3 billion, or $6.21 per common share, Chairman and CEO John Barry said on the company’s earnings call.

Barry also highlighted balance sheet positioning, including a net debt-to-total assets ratio of 28.2% as of December 31, and said unsecured debt plus unsecured perpetual preferred represented 85.3% of total debt plus preferred.

Distributions and long-term payout history

The company announced monthly common shareholder distributions of $0.04 per share for each of February, March, and April. Barry said that from the company’s IPO nearly 22 years ago through the declared April 2026 distribution, Prospect Capital will have distributed $4.7 billion, or $21.93 per share, to common shareholders. Preferred shareholder cash distributions will continue at their contract rates, he said.

Portfolio rotation and strategic priorities

Management emphasized progress on a set of strategic priorities centered on portfolio rotation toward first lien middle-market lending and away from legacy or non-core exposures.

• Increase in first lien focus: Barry said the first lien mix increased 728 basis points to 71.4% since June 2024, reflecting a rotation into “first lien senior secured middle market loans.” He said the company is focusing new investments on businesses with less than $50 million of EBITDA, including those with smaller funded private equity sponsors, independent sponsors, and no third-party financial sponsors.
• Reduction in second lien exposure: Barry said the second lien mix decreased 371 basis points to 12.7% since June 2024.
• Exit of subordinated structured notes: Barry said the mix of subordinated structured notes declined 818 basis points to near zero since June 2024.
• Exiting targeted equity-linked assets including real estate: Barry said five additional real estate properties were sold in the current fiscal year, along with select corporate investments, including “significant assets within Echelon Transportation” in July and December 2025. He added that other exits are targeted.
• Operational enhancements and funding strategy: Barry pointed to ongoing efforts to enhance operations at portfolio companies where Prospect holds equity-linked investments, and continued use of the firm’s “cost-efficient floating rate revolver,” which he said matches floating-rate assets.

Investment performance and portfolio metrics

President and COO Grier Eliasek reviewed long-term performance, stating that over more than two decades Prospect has invested about $22 billion across more than 450 investments, including roughly $13.1 billion in over 350 exited investments. Those exited investments generated a 12% unlevered investment-level gross cash internal rate of return (IRR), he said, spanning periods that included the global financial crisis and generally low interest rates.

Within the company’s “primary business of middle market lending,” Eliasek said exited investments produced an investment-level exited gross IRR of approximately 14.5% on total capital invested of about $11.2 billion and total proceeds of about $14.3 billion, with an annualized realized loss rate of 0.2%.

For its “core targeted business” of lending to companies with less than $50 million of EBITDA, Eliasek said exited investments generated an investment-level exited gross IRR of approximately 17.2% based on about $6.3 billion invested and about $8.3 billion of proceeds, with an annualized net realized loss rate of 0.1%.

As of December 2025, Prospect held 91 portfolio companies across 32 industries with an aggregate fair value of $6.4 billion, Eliasek said. He also highlighted that software represented 2.8% of investments at cost, which he contrasted with a 22% average across business development companies with publicly traded unsecured bonds cited in a Wall Street fixed income research report.

Eliasek said middle market lending represented 85% of investments at cost as of December, up 878 basis points from June 2024, and that middle market lending comprised 100% of originations during the quarter with a continued emphasis on first lien senior secured loans. Quarterly originations totaled $80 million, while repayments and exits totaled $79 million, resulting in net repayments of $1 million, he said.

On credit trends, Eliasek said non-accruals were approximately 0.7% of total assets as of December based on fair market value. He also said payment-in-kind interest income for the 12-month period ended December 2025 was down 46% from the prior 12-month period and represented 8.6% of total investment income for the December 2025 quarter. Interest income represented 92% of total investment income over the 12 months ended December 2025, he said.

Real estate portfolio and redeployment plans

Eliasek said the company’s real estate property portfolio held in National Property REIT Corp. (NPRC) represented 14% of investments at cost as of December, with a focus on developed and occupied cash-flow multifamily investments.

Since inception of the strategy in 2012 through December 2025, the company exited 56 property investments and earned an unlevered investment-level gross cash IRR of 24% and a 2.4x cash-on-cash multiple, he said. In the current fiscal year through December 2025, NPRC exited four properties with an unlevered gross cash IRR of 21% and a 2.4x cash-on-cash multiple. Eliasek added that NPRC exited one additional property after December 31, 2025 and has multiple additional properties in various stages of the exit process.

The remaining real estate property portfolio included 54 properties and paid Prospect an income yield of 5.4% for the December quarter, Eliasek said. He also noted Prospect’s aggregate investments in NPRC included a $270 million unrealized gain as of December. Management said it expects to redeploy future real estate property exit proceeds primarily into first lien senior secured loans with selected equity-linked investments.

Liquidity, funding, and debt profile

Chief Financial Officer Kristin Van Dask described what she called a “prudent” leverage profile and a diversified funding approach. She said Prospect has “locked in a ladder of liabilities extending 26 years into the future.”

Van Dask said the company completed an institutional issuance on Oct. 30, 2025 of approximately $168 million in senior unsecured 5.5% notes due 2030, maturing on Dec. 31, 2030.

Unfunded eligible commitments to portfolio companies totaled about $34 million as of December 2025, with $23 million at the company’s sole discretion, representing about 0.5% and 0.3% of total assets, respectively, she said. Combined cash and undrawn revolving credit facility commitments totaled $1.6 billion as of December, and the company held $4.2 billion of unencumbered assets, representing about 64% of its portfolio, she said. Remaining assets are pledged to Prospect Capital Funding, a non-recourse special purpose vehicle.

Van Dask said the company has $2.12 billion of commitments from 48 banks, with the revolving credit facility maturing in June 2029 and revolving until June 2028. Drawn pricing was SOFR plus 2.05%, she said. As of Dec. 31, 2025, weighted average cost of unsecured debt financing was 4.68%, according to Van Dask.

She also noted that Prospect has issued various forms of unsecured debt, including institutional non-convertible bonds, institutional convertible bonds, retail baby bonds, and retail program notes, and said these unsecured debt instruments have no financial covenants, no asset restrictions, and no cross-defaults with the revolver.

Q&A: First Tower and software exposure

During the question-and-answer portion, management addressed First Tower, which was described as a strong performer. Barry said the company plans to “stick with our great winners” and stated it has no current plans to exit its Tower investment. Eliasek added that Prospect’s structure as a regulated investment company and business development company provides tax advantages, and said Prospect can hold Tower as a tax partnership rather than a C corporation, which he suggested could be a disadvantage for prospective buyers due to tax “drag.”

On seasonality in consumer lending tied to tax refunds, Eliasek said the dynamic of holiday borrowing followed by repayment from tax refunds is long-standing and “not problematic,” adding he had not heard of abnormally large refunds that would distort the business.

Management also discussed industry concerns related to software exposure. Eliasek said Prospect has historically avoided annual recurring revenue (ARR) loans with less than 1.0x fixed charge coverage and emphasized the firm’s underwriting preference for multiple sources of repayment and delevering from cash flow. He said Prospect has never done an ARR loan and highlighted the company’s software exposure as less than 3% of investments at cost.

About Prospect Capital (NASDAQ:PSEC)

Prospect Capital Corporation is a publicly traded business development company listed on the Nasdaq stock exchange that specializes in providing private debt and equity financing solutions to middle-market companies across the United States. Structured as a closed-end, non-diversified management investment company under the Investment Company Act of 1940, Prospect Capital offers investors access to a diversified portfolio of senior secured loans, subordinated debt and selective equity interests in privately held businesses.

Since its founding in 2004, Prospect Capital has focused on tailoring financing structures to meet the growth, acquisition and recapitalization needs of its portfolio companies.