Managing Director Christopher Nolan of MLV & Co is impressed by Prospect Capital Corporation’s (PSEC) superior yield as well as how the company approaches risk.
“For example, liquidity risk — Prospect has 24 banks in its bank credit facility. As for interest rate risk, almost all of Prospect’s loans are adjustable rate, almost all of its funding is fixed rate. So if interest rates were to go up, earnings yields would generally benefit,” Nolan said.
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Nolan adds that Prospect Capital has roughly $6 billion in assets, and approximately $4.5 billion of those assets are completely unencumbered. Additionally, the company benefits from using a 100% external valuation process for valuing its investment portfolio.
“Every quarter they can deliver all the records from the investment portfolio and they turn it over to an outside firm,” Nolan said. “Furthermore the same Prospect team that finds a deal and persuades the company to invest in also has to manage the investment afterward, and live with it through good and bad. All these things, you start adding them up and it’s an attractive name.”
Nolan also reports that Prospect Capital is now offering a 13% dividend yield, which is paid monthly.
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