Prospect Capital (PSEC) Reports Q1 EPS of 44c, Plans Spin-Off

Prospect Capital (NASDAQ: PSEC) reported Q1 EPS of $0.44, may not compare to the analyst estimate of $0.28. It also announced a spin-off.

"We also announced that we intend to unlock value by spinning off certain "pure play" business strategies to our shareholders. We desire through these spinoffs to (i) expand business strategies we have successfully grown and developed inside Prospect into pure play public companies with the potential for increased earnings multiples, (ii) allow for continued revenue and earnings growth through more flexible non-business development company ("BDC") formats (given such non-BDC formats are expected to benefit from not having one or more of the (a) 30% basket, (b) leverage, and (c) control basket constraints with which BDCs must comply), and (iii) free up our 30% basket and leverage capacity for new originations at Prospect.

The business strategies we intend to spin off to our shareholders have grown faster than our overall growth rate in the past few years, with outlets in less constraining structures required to continue this strong growth. We anticipate these non-BDC spinoffs will have tax efficient structures.

We initially intend on focusing our spinoff efforts on three separate companies consisting of portions of our (i) collateralized loan obligation ("CLO") structured credit business, (ii) online lending business, and (iii) real estate business.

We would likely seek to spin off these businesses in conjunction with capital raises for each such business, with the goal of leverage and earnings neutrality for Prospect. The size and likelihood of such spinoffs, which may be partial rather than complete spinoffs, remain to be determined. We may seek to file non-registered investment company spinoffs with confidential treatment with parallel registration progress to be made in the coming weeks toward the goal of consummating these initial spinoffs in early 2015.

We expect Prospect as a BDC to continue in the future to pursue our multi-line origination strategy (including continuing to invest in the strategies also being spun off to our shareholders) as a value-added differentiating factor compared with other BDCs."

For earnings history and earnings-related data on Prospect Capital (PSEC) click here.

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