Giant Business Development Company (BDC) Prospect Capital Sells Notes Due in 2024
By: Tim McPartland,
Large business development company Prospect Capital Corporation sold a new $25 baby bond (any bond with a par value under $1,000 is technically a “baby bond”) issue with a maturity date in 2024.
Prospect Capital Corporation (ticker: PSEC), one of the whales in the BDC arena with assets of over $6 billion, has shares that are trading at a large discount to the NAV (net asset value — the value of their portfolio). The BDC also has a low investment grade rating by Standard and Poor’s.
The new note issue has a coupon (the stated yield one receives at its par value of $25) of 6.25%. While not a high yield, it is representative of the coupons available for a investment grade instrument with a relatively short duration, also known as the the time until maturity.
Upon review of PSEC’s financials, we noted that the company has $285 million invested in the energy area. While likely low quality investments at this time, energy investments represent less than 5% of the company’s assets.
Prospect Capital, as a BDC, is a Closed End Fund that must abide by Section 18 of the Securities and Exchange Commission’s Investment Company Act of 1940 relative to leverage that requires they must maintain coverage ratios of 200% of their debt. This is an added layer of security for debt holders.
Being a debt issue this issue will not trade on the OTC grey market prior to big board trading. Additionally the ticker symbol for this issue has not yet been assigned and potential buyers will need to watch their broker website for the start of trading in the next week or so.
At this time we will not be buying this issue, but we will have it on our watch list as it has a medium length duration which should not be as sensitive to interest rate movements in the future.