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1 PROSPECT CAPITAL CORPORATION NASDAQ: PSEC MIDDLE MARKET FINANCE
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2 FORWARD-LOOKING STATEMENTS AND DISCLAIMERS Certain statements made by us in this presentation that are not historical facts or that relate to future plans, events or performances are forward- looking statements within the meaning of the federal securities laws. Forward-looking statements predict or describe our future operations, business plans, business and investment strategies and portfolio management and the performance of our investments and our investment management business. Our actual results or actions may differ materially from those expressed in any forward-looking statements made by us. Forward-looking statements involve a number of risks of uncertainties including, but not limited to, the risks described under headings such as “Risk Factors” in our SEC filings. All forward-looking statements are qualified by those risk factors. All statements made by us in this presentation are further qualified in all respects by the information disclosed in our SEC filings. We disclaim any obligation to update our forward looking statements unless required by law. Certain information discussed in this presentation (including information relating to portfolio companies) was derived from third-party sources and has not been independently verified and, accordingly, Prospect Capital Corporation makes no representation or warranty in respect of this information. The following slides contain summaries of certain financial and statistical information about Prospect Capital Corporation. The information contained in this presentation is summary information that is intended to be considered in the context of our SEC filings and other public announcements that we may make, by press release or otherwise, from time to time. We undertake no duty or obligation to publicly update or revise the information contained in this presentation. In addition, information related to past performance, while helpful as an evaluative tool, is not necessarily indicative of future results, the achievement of which cannot be assured. You should not view the past performance of Prospect Capital Corporation, or information about the market, as indicative of Prospect Capital Corporation’s future results. This presentation does not constitute an offer to sell or the solicitation of an offer to buy any securities of Prospect Capital Corporation. All data in this presentation is as of 12/31/2024 unless noted.
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3Source: Company filings, investor presentations and management. LONG HISTORY LARGE SCALE ►With $7.2B in total assets and a team of 130+ professionals, PSEC is one of the longest running and largest publicly traded BDCs ►Established 21-year track record that predates the Global Financial Crisis ►Invested over $21B since inception across over 400 investments, exiting over 300 of these investments ►BDC industry innovator with a long list of firsts by a BDC – convertible bond, medium term program notes, bond ATM, equity ATM, BDC acquisition, traded perpetual preferred, programmatic perpetual preferred, and others INVESTMENT PORTFOLIO ►Strategy focused on risk reduction, capital preservation, and avoidance of “yield chasing” investments ►Drivers focused on optimizing our business include: • Rotation of assets into and increased focus on core business of first lien senior secured middle-market loans (including sometimes with selected equity investments) • Continued amortization of our subordinated structured notes portfolio • Prudent exits of equity linked assets (including real estate properties and corporate investments) • Enhancement of portfolio company operating performance • Greater utilization of our cost efficient revolving floating rate credit facility ►Intensive screening process (<2% book-to-look ratio) with a majority focus on senior and secured lending ►114 portfolio investments in 33 different industries (with a particular focus on less cyclical industries) ►Portfolio comprised of 81% first lien, secured, or underlying secured assets ►Non-accrual loans remain low at 0.4% ►Payment-in-kind interest income reduced by nearly 50% to $20M in the 12/31/2024 quarter from $39M in the 6/30/2024 quarter Prospect Capital Corporation (PSEC) is the One of the Longest Running and Largest BDCs PSEC OVERVIEW
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4 Prospect Capital Corporation (PSEC) is the One of the Longest Running and Largest BDCs PSEC OVERVIEW (CONTINUED) SOLID FINANCIAL FOUNDATION ►Laddered liability structure with long-term matched-book funding ►48 credit facility lenders (recently extended credit facility – 5-year term to 2029) ►Access to diversified funding sources across multiple investor basis and have successfully issued securities in an array of markets: • Emphasis on unsecured term debt, representing 85% of all PSEC’s indebtedness • Institutional bonds, institutional convertible bonds, retail baby bonds, and retail program notes • Traded perpetual preferred and non-traded perpetual preferred ►Net debt leverage has remained low at 0.40x(1) ►Low unfunded commitments at 0.9% of total assets (0.4% of which are considered at the Company’s sole discretion) ATTRACTIVE RETURNS ►Net investment income less preferred dividends exceeded cash common distributions by 103% for LTM December 2024 ►93% of total investment income for 1H FY 2025 from interest income ►Monthly dividend of $0.045/common share; current annualized dividend yield 12.8%(2) ►Since PSEC’s inception in 2004 through April 2025 declared distribution, PSEC will have distributed $4.4B and $21.39 per share to common shareholders – 2.7x December 2024 NAV per share(3) ►Strong insider ownership of 29% (approximately $1.0B of net asset value) Source: Company filings, investor presentations and management. (1) Including preferred stock as equity. (2) Pricing data as of 2/7/2025. (3) Includes past distributions and declared distributions based on PSEC’s shares outstanding as of 2/7/2025.
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5 PSEC HIGHLIGHTS Source: Company filings, investor presentations and management. See Appendix “Middle-Market Loan Portfolio Company Weighted Average EBITDA and Net Leverage” herein for further information. Management Team (30+ Years, 29% Ownership) Rigorous Risk Management with Low 0.4% Non-Accrual Loans and <2% Book to Look Ratio Highly Institutionalized Organization with 130+ Employees 6.0x Middle-Market Portfolio Net Leverage and $102M EBITDA Avg $1.9B undrawn revolver commitments plus cash Investment Portfolio with 114 Investments Across 33 Industries Over $21B Cumulative Investments with over 300 Exits $7.2B Total Assets Low 40% Company Net Debt to Equity Leverage Diversified, Well Laddered, and Unsecured Funding with $4.8B of Unencumbered Assets
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6 SIGNIFICANT SCALE PROVIDES COMPETITIVE ADVANTAGE ►PSEC is one of the oldest and largest publicly traded BDCs with capital of $9.1 billion(1) ►Strategy focused on risk reduction, capital preservation, and avoidance of “yield chasing” investments Source: Company filings. Total equity is inclusive of preferred stock. (1) Total assets as of 12/31/2024 plus undrawn revolving credit facility, which includes $2,121.5 million of commitments from 48 lenders. (FY as of 6/30), $ in millions) TOTAL EQUITY $3,946 $4,811 $5,151 $5,298 $5,071 $0 $500 $1,000 $1,500 $2,000 $2,500 $3,000 $3,500 $4,000 $4,500 $5,000 $5,500 FY2021 FY2022 FY2023 FY 2024 12/31/2024
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7Source: Company filings, management. EXPERIENCED AND BROAD TEAM SENIOR EXECUTIVES John Barry – Chairman and CEO ► Co-founder of PSEC ► 46 years of experience, including Merrill Lynch, Rothschild and Davis Polk ► JD Harvard, AB Princeton Grier Eliasek – President and COO ► Co-founder of PSEC ► 28 years of experience; previously a consultant at Bain & Company ► MBA Harvard, BS Chemical Engineering University of Virginia Kristin Van Dask – CFO ► Joined Prospect Capital Management in 2008 ► 24 years of experience, including an investment advisor, E&Y and Arthur Andersen ► BS Towson University Daria Becker – Head of Administration ► Joined Prospect Capital Management in 1998 ► 39 years of experience, including Lexington, Citigroup and a family office ► BA Wellesley College ADMINISTRATION Administration Professionals 29 ACCOUNTING & TAX Accounting and Tax Professionals 23 LEGAL Legal Professionals 13 130+ person organization helps drive originations through superior scale and market coverage INVESTMENT TEAM Investment Professionals 53 With Over 130 Professionals, Prospect has One of the Largest T eams Focused on the Middle Market CLIENT ADVISORY & IR Business Development & Investor Relations Professionals 14
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8 LOW CORRELATION INVESTMENT STRATEGIES MIDDLE-MARKET LENDING – 50% SUBORDINATED STRUCTURED NOTES – 6% MIDDLE-MARKET LENDING / BUYOUT – 21% REAL ESTATE – 20% • U.S. companies with EBITDA typically up to $150M • Senior and secured loans with third-party first loss equity • Sole / lead investor focus with repeat business • Sponsor-owned and non-sponsor-owned companies • Diverse portfolios by borrower and industry • Primary and secondary investments – relative value • Majority and minority investments – benefits to each • Diverse underlying portfolios, BDC 30% basket • Prospect LTM default rate 36% lower than market(1) • U.S. companies with EBITDA typically up to $150M • Senior and secured loans plus control private equity • High current income plus equity upside (barbell income) • Primarily multifamily properties with value-add potential • Class B/C properties in secondary/tertiary markets • Garden-style low-rise and mid-rise properties • Subordination of third-party cash flows • High current income plus equity upside (51 exits) $1.7B INVESTED 14 YEAR TRACK RECORD 48 INVESTMENTS $1.6B INVESTED 21 YEAR TRACK RECORD 16 INVESTMENTS $1.6B INVESTED 13 YEAR TRACK RECORD 110 INVESTMENTS (1) Management for PSEC and S&P Capital IQ for leveraged loan market. Totals may not add to 100% given there are other smaller and non-core investment strategies. Real estate investment count by distinct properties. $15.1B INVESTED 19 YEAR TRACK RECORD 340 INVESTMENTS
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9 MIDDLE-MARKET LENDING INVESTMENT STRATEGY Source: Company filings, management. Focus on Capital Preservation and Attractive Current Yields MIDDLE MARKET ►U.S. companies with EBITDA typically up to $150M • Less competitive than large-cap direct / syndicated loans ►Sponsor-owned and non-sponsor-owned companies ►Proprietary origination ►Customized investment solution for each borrower PRINCIPAL PROTECTION ►Senior – Focus on senior payment rights – no contractual subordination ►Secured – 95% of middle-market lending portfolio is first lien or second lien ►Industries – Focus on stable, recession-resistant industries with risk mitigants; broad industry expertise ►Sole or Lead Investor – Control diligence, documentation and portfolio management ►Documentation – protective legal documentation with covenants (often including maintenance covenants) RETURNS ►Credit Spreads – Middle-market credit spreads often higher than large-cap direct / syndicated loans ►Floating Rates – 86% of middle-market lending portfolio • Benefits from interest rate / inflation protection as well as SOFR floors ►Equity Linked Investments – Sometimes make equity-linked investments alongside senior secured loans • Senior secured convertible term loans, preferred equity (liquidation preferences), common equity • Invest alongside management teams with long-term alignment of interests
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10 MIDDLE-MARKET LENDING SELECT RECENT INVESTMENTS Source: Company filings, management. Includes selected middle-market lending investments with equity linked investments. It should not be assumed that recommendations made in the future will be profitable or will equal the performance of the investments in this list. Past performance does not guarantee future results. INDUSTRY Pharmaceuticals Commercial Services & Supplies Health Care Providers & Services Professional Services BUSINESS DESCRIPTION Provider of comprehensive home infusion therapies Provides third party logistics services specializing in turnkey inventory management and manufacturing logistics solutions Offers residential inpatient treatment, partial hospital programs, and intensive outpatient care Provides customer experience services and business process outsourcing services including customer care, technical support, accounts receivable management, and scalable training STRUCTURE First Lien Term Loan and First Lien Convertible Note First Lien Term Loan and Common Equity First Lien Term Loan and Preferred Equity First Lien Term Loan and Common Equity ORIGINAL INVESTMENT DATE September 2024 March 2022 June 2024 June 2024 ORIGINAL FIRST LIEN TERM LOAN $50.0 million $15.8 million $17.0 million $50.0 million ORIGINAL FIRST LIEN OTHER $19.0 million NA $2.5 million NA ORIGINAL PREFERRED EQUITY NA NA $8.0 million NA ORIGINAL COMMON EQUITY NA $1.5 million NA $10.5 million ADD-ON INVESTMENT DATE(S) NA June 2024, December 2023 NA NA ADD-ON AMOUNT(S) NA $37.3 million NA NA ORIGINAL TERM LOAN COUPON S + 7.50% (3.00% floor) L + 10.50% (1.00% floor) S + 7.75% (3.25% floor) S + 7.50% (2.50% floor) ORIGINAL TERM LOAN FEE 2.00% 2.00% 2.50% 3.00% ORIGINAL TERM LOAN MATURITY 5 years 5 years 5 years 5 years
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11 SUPERIOR DEAL FLOW AND DISCIPLINED EXECUTION ORIGINATE SCREEN 3,000+/year STRUCTURE 200-300/year CLOSE 20-40/year MONITOR 114 portfolio investments EXITS Over 300 since inception SYSTEMATIC CALLING EFFORT ►PE sponsors • 100+ top tier relationships ►Other intermediaries • ~3,200 total ►Syndication/Club relationships COLD-CALLING EFFORT ►Small-to-mid cap companies with identified financing needs ►Dedicated in-house call center ►Proprietary deal flow MANAGEMENT RELATIONSHIPS ►From past and present portfolio companies ►Add-on investments, new investments, assistance with due diligence and post- closing value add CONTACT DATABASE ►40,000+ contacts built over two decades ►Receive all transaction announcements, resulting in both in- bound opportunities and top-of-mind awareness IN-BOUND OPPORTUNITIES ►From scale, longevity, and visibility of PSEC ►$9.1 billion of capital(1) Disciplined underwriting and execution helps to keep credit losses low 3,000+ Opportunities Sourced Annually with <2% of Initially Screened Investments Advancing to Closing Source: Company filings, management. (1) Total assets as of 12/31/2024 plus undrawn revolving credit facility, which includes $2,121.5 million of commitments from 48 lenders.
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12 PORTFOLIO OVERVIEW Source: Company filings, management. All data as of, or for the quarter ended, 12/31/2024 (1) Includes portfolio company debt through PSEC’s investment in portfolio company capital structure. See Appendix “Middle-Market Loan Portfolio Company Weighted Average EBITDA and Net Leverage” herein for further information. ► $7.2 billion total assets, including 114 investments ► Secured investment focus with 75% of portfolio comprised of 1st lien and other secured debt ► 81% underlying secured asset mix ► 11.2% annualized current yield across performing interest bearing investments ► 9.1% annualized current yield across all investments ► 93% interest income as a percentage of total investment income for 1H FY 2025 ► 6.0x middle-market portfolio net leverage(1) ► $102 million middle-market portfolio EBITDA(1) ► Portfolio is invested across 33 industries ► PSEC is the sole or lead investor in 78% of overall portfolio
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13 PORTFOLIO INVESTED IN 33 DIFFERENT INDUSTRIES PSEC’s Portfolio at Fair Value (12/31/2024) Real Estate 20.0% Consumer Finance 11.1% Health Care Providers & Services 10.0% Commercial Services & Supplies 7.0%Subordinated Structured Notes (Diversified Industries) 5.8% Construction & Engineering 4.3% Distributors 4.3% Air Freight & Logistics 2.7% Software 2.4% Media 2.4% Machinery 2.2% Food Products 2.1% Diversified Telecommunication Services 2.1% Health Care Technology 1.9% Pharmaceuticals 1.8% Other 19.9% Source: Company filings, management.
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14 RIGOROUS AND INDEPENDENT VALUATION PROCESS Source: Company filings, management. INDEPENDENT THIRD-PARTY VALUATION ►Every investment is valued quarterly and has been valued since inception at fair value by a third-party ►Third-party valuation agents complete a review of all investments on an independent basis (i.e., not merely on a “positive / negative assurance review” or “sampling” basis) SENIOR PORTFOLIO MANAGER ►Preliminary valuation discussions are documented and discussed with senior Prospect Capital Corporation management AUDIT COMMITTEE ►PSEC’s Independent Audit Committee reviews the preliminary valuations, including asking questions and receiving supplemental information as required by PSEC’s Audit Committee ►PSEC’s Independent Audit Committee approves all valuations PSEC’S BOARD OF DIRECTORS ►PSEC’s majority independent board of directors determines the fair value of each investment in the portfolio based on the third-party valuations and recommendations from PSEC’s Audit Committee ►To date, the Board’s final valuations have never been outside the range provided by the third-party valuation firm
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15 Source: Company filings and management. (1) Includes $2,121.5 million of commitments from 48 lenders. (2) $350.7 million outstanding as of 1/31/2025. DIVERSIFIED FUNDING SOURCES ►Access to diversified funding sources across multiple investor bases ►Emphasis on unsecured term debt with no financial covenants or cross defaults with revolving credit facility ISSUANCE ORIGINAL AMOUNT (millions) OUTSTANDING (millions) MATURITY SENIOR SECURED CREDIT FACILITY(1) $2,121.5 $301.5 6/28/2029 SENIOR UNSECURED INSTITUTIONAL TERM DEBT ►January 2021 ►May 2021 ►September 2021 $400.0 $300.0 $300.0 $376.3(2) $300.0 $300.0 1/22/2026 11/15/2026 10/15/2028 SENIOR UNSECURED CONVERTIBLE NOTES ►February 2019 $201.3 $156.2 3/1/2025 SENIOR UNSECURED RETAIL NOTES ►Prospect Capital InterNotes® $687.0 $643.8 Feb 2025 - Mar 2052
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16 Source: Company filings and management. (1) Includes investments, equity capital, and debt capital maturing after 2029. Funding maturity includes revolving credit facility. The facility, for which $2,121.5 million of commitments from 48 lenders, matures in June 2029 with a revolving period extending through June 2028 followed by a one-year amortization period. Pricing for amounts drawn under the facility is one-month SOFR plus 2.05%. LONG-TERM, MATCHED-BOOK FUNDING LOCKS IN ATTRACTIVE SPREADS PSEC’s Well-Laddered Funding Sources Match the T enor of its Investments ►Maturity date for revolving credit facility is June 2029; average daily utilization rate of 23.9% since 2011 ►$5.1 billion of PSEC’s funding is in the form of equity, which does not mature ►Unsecured bonds have 3.7 year weighted average remaining term $843 $1,555 $957 $957 $947 $1,874 $160 $757 $146 $336 $413 $5,336 $0 $1,000 $2,000 $3,000 $4,000 $5,000 $6,000 2025 2026 2027 2028 2029 Later or No Maturity Millions Asset Maturities Funding Maturities Cumulative Asset Maturities Cumulative Funding Maturities (1)
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17 UNENCUMBERED ASSETS PROVIDE FINANCIAL FLEXIBILITY High level of unencumbered assets reduces risk in the event of a market downturn Approximately $4.8 Billion of Unencumbered Assets, Representing 66% of T otal Assets as of 12/31/2024 Source: Company filings, management. $4,808 $4,727 $4,891 $4,978 $4,853 $4,764 $7,854 $7,781 $7,906 $7,857 $7,593 $7,235 $0 $1,000 $2,000 $3,000 $4,000 $5,000 $6,000 $7,000 $8,000 Sep-23 Dec-23 Mar-24 Jun-24 Sep-24 Dec-24 Millions Unencumbered Assets Encumbered Assets
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18 PRUDENT NET DEBT LEVERAGE 0.49x 0.47x 0.49x 0.47x 0.46x 0.46x 0.45x 0.44x 0.40x 0.00x 0.20x 0.40x 0.60x 0.80x 1.00x 1.20x 1.40x 1.60x 1.80x 2.00x Dec-22 Mar-23 Jun-23 Sep-23 Dec-23 Mar-24 Jun-24 Sep-24 Dec-24 Source: Company filings, management. Calculated as total principal debt minus cash and cash equivalents divided by total equity (including preferred stock). PSEC’s Net Debt Leverage Has Remained Low at 0.40x as of 12/31/2024
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19 LOW NON-ACCRUALS 0.5% 0.2% 1.1% 0.2% 0.2% 0.4% 0.3% 0.5% 0.4% 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0% 90.0% 100.0% Dec-22 Mar-23 Jun-23 Sep-23 Dec-23 Mar-24 Jun-24 Sep-24 Dec-24 Source: Company filings, management. As a percentage of total assets (at fair market value). PSEC’s Non-Accrual Loans Have Remained Low at 0.4% as of 12/31/2024
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20 Source: Company filings, management. Note: Declared dividends are through the April 2025 distribution. February 2025 through April 2025 distributions are based shares outstanding as of 2/7/2025. PSEC CUMULATIVE DISTRIBUTIONS TO SHAREHOLDERS Declared Cumulative Distributions of $21.39 per Common Share T otaling $4.4 Billion Since 2004 IPO $1 $6 $23 $55 $101 $156 $264 $388 $577 $918 $1,370 $1,737 $2,094 $2,421 $2,683 $2,947 $3,217 $3,497 $3,780 $4,072 $4,366 $4,445 $0 $500 $1,000 $1,500 $2,000 $2,500 $3,000 $3,500 $4,000 $4,500Millions
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21 21 DIFFERENTIATED PERFORMANCE
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22 PSEC’S SIGNIFICANT SCALE PROVIDES COMPETITIVE ADVANTAGE $1,645M $7,235M Publicly-Traded BDC Median PSEC T otal Assets Source: PSEC analysis of S&P Capital IQ data for 49 listed BDCs. PSEC as of 12/31/2024. Peer data for the quarter ending 9/30/2024; data may be materially different for the quarter ending 12/31/2024.
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23 PSEC’S SIGNIFICANT SCALE PROVIDES COMPETITIVE ADVANTAGE $757M $5,071M Publicly-Traded BDC Median PSEC T otal Equity Source: PSEC analysis of S&P Capital IQ data for 49 listed BDCs. PSEC as of 12/31/2024. Peer data for the quarter ending 9/30/2024; data may be materially different for the quarter ending 12/31/2024. Total equity is inclusive of preferred stock.
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24 PRUDENT ASSET SELECTION TO PROTECT NAV 67% 76% Large BDC Peer Mean PSEC Source: PSEC analysis of public filings including the 5 largest listed BDC peers by total assets. PSEC as of 12/31/2024. Peer data for the quarter ending 9/30/2024; data may be materially different for the quarter ending 12/31/2024. Non-cyclical investments produce or distribute a good or service with recurring demand, and therefore are not correlated with the business cycle volatility. See Appendix “Non-Cyclical Investments” herein for further information. Non-Cyclical investments calculated as a percentage of total investment portfolio, measured by fair market value. Non-Cyclical Investments
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25Source: Raymond James 3Q24 ROE Quarterly Analysis. Relative BDC Average for historical risk adjusted (GAAP) ROE is the average of peers over the same time frame. PSEC HAS GENERATED HIGHER EQUITY RETURNS 6.8% 8.5% Publicly-Traded Relative BDC Average PSEC Historical GAAP ROE
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26 SENIOR MANAGEMENT IS A SIGNIFICANT INVESTOR IN PSEC 1.8% 28.7% Publicly-Traded BDC Median PSEC Source: For PSEC as of 12/31/2024 and includes 10.0% share ownership through the John and Daria Barry Foundation. PSEC senior management has not sold any of such investments in PSEC. PSEC analysis of S&P Capital IQ data for 48 listed BDC peers as of 2/4/2025. Insider Ownership – Percentage
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27 SENIOR MANAGEMENT IS A SIGNIFICANT INVESTOR IN PSEC $9M $987M Publicly-Traded BDC Median PSEC Source: For PSEC as of 12/31/2024 and includes 10.0% share ownership through the John and Daria Barry Foundation. PSEC senior management has not sold any of such investments in PSEC. PSEC analysis of S&P Capital IQ data for 48 listed BDC peers as of 2/4/2025. Peers based on insider ownership percentages multiplied by NAV as of 9/30/2024; data may be materially different for the quarter ending 12/31/2024. Insider Ownership – Based on NAV
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28 28 APPENDIX
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29 FINANCIAL HIGHLIGHTS In thousands, except per share data Statement of Operations Quarter ended December 31, 2024 Quarter ended September 30, 2024 Quarter ended June 30, 2024 Quarter ended March 31, 2024 Quarter ended December 31, 2023 Total investment income $185,466 $196,308 $212,260 $202,215 $210,942 Total operating expenses 99,035 106,431 109,338 107,840 114,015 Net investment income 86,431 89,877 102,922 94,375 96,927 Net realized and unrealized gain (loss) on investments & extinguishment of debt (86,497) (223,889) (73,366) 49,986 (124,671) Net increase (decrease) in net assets resulting from operations attributable to common stockholders (30,993) (165,069) (9,050) 113,891 (51,436) Net increase (decrease) in net assets resulting from operations per common share (basic and diluted) (0.07) (0.07) (0.38) (0.38) (0.02) (0.02) 0.27 0.20 (0.13) (0.13) Net investment income per common share 0.20 0.21 0.25 0.23 0.24 Distributions per common share $0.15 $0.18 $0.18 $0.18 $0.18 Statement of Assets and Liabilities Quarter ended December 31, 2024 September 30, 2024 June 30, 2024 March 31,2024 December 31, 2023 Total investments at fair value $7,132,928 $7,476,641 $7,718,243 $7,806,712 $7,631,846 Cash and cash equivalents 59,760 57,022 85,872 53,480 97,289 Total assets 7,234,855 7,592,705 7,857,092 7,905,794 7,781,214 Revolving credit facility borrowings 301,522 547,231 794,796 906,376 864,049 Total liabilities 2,164,305 2,469,590 2,559,171 2,603,811 2,596,824 Total equity 5,070,550 5,123,115 5,297,921 5,301,983 5,184,390 Net asset value per common share 7.84 8.10 8.74 $8.99 $8.92 Source: Company filings. Total equity is inclusive of preferred stock. Total liabilities excludes preferred stock.
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30 PUBLICLY TRADED BDCs TOPIC KEY CHARACTERISTICS INVESTMENT STRATEGY ► Current-yielding credit investments primarily in middle-market companies ► To a lesser extent, other current-yielding investments REGULATION ► Regulated as a Business Development Company (“BDC”) under Investment Company Act of 1940 ► Generally BDCs elect to be treated as a Regulated Investment Company (“RIC”) for U.S. federal income tax purposes INVESTMENTS LIMITATIONS ► Generally, at least 70% of a BDC’s assets must be investments in U.S. non-financial sector operating companies that either have (a) no class of securities listed on a national securities exchange (i.e., private) or (b) a market cap less than $250 million LEVERAGE LIMITATION(1) ► 2:1 debt-to-equity ratio (i.e., gross asset coverage must be at least 150%) DIVERSIFICATION REQUIREMENTS(2) ► At least 50% of a BDC’s assets must consist of securities of an issuer in which the BDC owns less than 10% of the voting stock and in which the investment is less than 5% of the value of the BDC’s assets INCOME RESTRICTIONS(2) ► At least 90% of BDC income must be from investment sources such as interest, dividends, and gains / losses associated with investments in equity, debt, or other securities DISTRIBUTION REQUIREMENTS(2) ► Must distribute at least 90% of taxable income to avoid U.S. federal income tax on all taxable income ► Not subject to U.S. federal income tax on the income and net capital gains distributed to stockholders (provided that the above distribution requirement is met) VALUATION ► Must mark portfolio to fair value on a quarterly basis for GAAP(3) purposes (1) Effective 3/23/2018, the Small Business Credit Availability Act permits a BDC to change its asset coverage ratio from 200% to 150%. (2) Above criteria apply to BDCs that elect RIC treatment for U.S. federal income tax purposes. (3) GAAP is defined as Generally Accepted Accounting Principles.
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31 MIDDLE-MARKET LOAN PORTFOLIO COMPANY WEIGHTED AVERAGE EBITDA AND NET LEVERAGE Middle-Market Loan Portfolio Company Weighted Average Net Leverage (“Middle-Market Portfolio Net Leverage”) and Middle-Market Loan Portfolio Company Weighted Average EBITDA (“Middle-Market Portfolio EBITDA”) provide clarity into the underlying capital structure of PSEC’s middle-market loan portfolio investments and the likelihood that PSEC’s overall portfolio will make interest payments and repay principal. Middle-Market Portfolio Net Leverage reflects the net leverage of each of PSEC’s middle-market loan portfolio company debt investments, weighted based on the current fair market value of such debt investments. The net leverage for each middle-market loan portfolio company is calculated based on PSEC’s investment in the capital structure of such portfolio company, with a maximum limit of 10.0x adjusted EBITDA. This calculation excludes debt subordinate to PSEC’s position within the capital structure because PSEC’s exposure to interest payment and principal repayment risk is limited beyond that point. Additionally, subordinated structured notes, other structured credit, real estate investments, investments for which EBITDA is not available, and equity investments, for which principal repayment is not fixed, are also not included in the calculation. The calculation does not exceed 10.0x adjusted EBITDA for any individual investment because 10.0x captures the highest level of risk to PSEC. Middle-Market Portfolio Net Leverage provides PSEC with some guidance as to PSEC’s exposure to the interest payment and principal repayment risk of PSEC’s overall debt portfolio. PSEC monitors its Middle-Market Portfolio Net Leverage on a quarterly basis. Middle-Market Portfolio EBITDA is used by PSEC to supplement Middle-Market Portfolio Net Leverage and generally indicates a portfolio company’s ability to make interest payments and repay principal. Middle-Market Portfolio EBITDA is calculated using the EBITDA of each of PSEC’s middle-market loan portfolio companies, weighted based on the current fair market value of the related investments. The calculation provides PSEC with insight into profitability and scale of the portfolio companies within our overall debt investments. These calculations include addbacks that are typically negotiated and documented in the applicable investment documents, including but not limited to transaction costs, share- based compensation, management fees, foreign currency translation adjustments and other nonrecurring transaction expenses. Together, Middle-Market Portfolio Net Leverage and Middle-Market Portfolio EBITDA assist PSEC in assessing the likelihood that PSEC will timely receive interest and principal payments. However, these calculations are not meant to substitute for an analysis of PSEC’s our underlying portfolio company debt investments, but to supplement such analysis.
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32 NON-CYCLICAL INVESTMENTS Non-Cyclical investments provide insight into the composition of an investment portfolio. Non-cyclical investments produce or distribute a good or service with recurring demand, and therefore are not correlated with the business cycle volatility. Non-Cyclical investments are calculated as a percentage of a total investment portfolio across the peers described below measured by fair market value. BDC peers use varying industry classifications to define their respective portfolio’s. PSEC management views the following industries as non-cyclical: • PSEC industry classifications: Capital markets, commercial services & supplies, consumer finance, diversified consumer services, diversified telecommunication services, equity real estate investment trusts (REITs), food products, health care providers & services, health care technology, interactive media & services, IT services, media, personal care products, pharmaceuticals, professional services, software, and structured finance. • BDC A industry classifications: Commercial services & supplies, containers and packaging, diversified consumer services, diversified telecommunication services, electric utilities, health care equipment & supplies, health care providers & services, health care technology, insurance, interactive media & services, IT services, media, professional services, and software. • BDC B industry classifications: Beverages, biotechnology, capital markets, commercial services and supplies, containers and packaging, diversified consumer services, diversified telecommunications services, food and staples retailing, food products, healthcare equipment and supplies, healthcare providers and services, health care technology, household products, insurance, IT services, life sciences tools & services, media, personal products, pharmaceuticals, professional services, software, and water utilities. • BDC C industry classifications: Advertising and media, buildings and real estate, business services, consumer products, containers and packaging, education, food and beverage, healthcare equipment and services, healthcare providers and services, healthcare technology, household products, insurance, internet software and services, professional services, and telecommunications. • BDC D industry classifications: Software & services, healthcare services, commercial & professional services, insurance services, consumer durables & apparel, consumer services, media & entertainment, food & beverage, and consumer staples distribution and retail. • BDC E industry classifications: Commercial & professional services, consumer durables & apparel, consumer services, consumer staples distribution and retail, equity real estate investment trusts (REITs), food, beverage & tobacco, health care equipment & services, household & personal products, insurance, media & entertainment, pharmaceuticals, biotechnology & life sciences, software & services, and telecommunication services.