The Quarterly
PSEC Q3 2017 10-Q

Prospect Capital Corp (PSEC) SEC Quarterly Report (10-Q) for Q4 2017

PSEC Q1 2018 10-Q
PSEC Q3 2017 10-Q PSEC Q1 2018 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

ý

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2017

OR

o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 814-00659

PROSPECT CAPITAL CORPORATION

(Exact name of Registrant as specified in its charter)

Maryland

43-2048643

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

10 East 40th Street, 42nd Floor

New York, New York

10016

(Address of principal executive offices)

(Zip Code)

Registrant's telephone number, including area code: (212) 448-0702

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  ý     No  o

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). Yes  o     No  o

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer  ý

Accelerated filer  o

Non-accelerated filer  o

Smaller reporting company  o

 (Do not check if a smaller reporting company)

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes  o     No  ý

Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date.

Class of Common Stock

Outstanding at February 7, 2018

$0.001 par value

361,527,348



Table of Contents

Page

Forward-Looking Statements

3

PART I

FINANCIAL INFORMATION

Item 1.

Financial Statements

Consolidated Statements of Assets and Liabilities as of December 31, 2017 (unaudited) and June 30, 2017

4

Consolidated Statements of Operations for the three and six months ended December 31, 2017 and December 31, 2016 (unaudited)

5

Consolidated Statements of Changes in Net Assets for the six months ended December 31, 2017 and December 31, 2016 (unaudited)

6

Consolidated Statements of Cash Flows for the six months ended December 31, 2017 and December 31, 2016 (unaudited)

7

Consolidated Schedules of Investments as of December 31, 2017 (unaudited) and June 30, 2017

8

Notes to Consolidated Financial Statements

41

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

96

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

128

Item 4.

Controls and Procedures

130

PART II

OTHER INFORMATION

Item 1.

Legal Proceedings

131

Item 1A.

Risk Factors

131

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

131

Item 3.

Defaults Upon Senior Securities

131

Item 4.

Mine Safety Disclosures

131

Item 5.

Other Information

131

Item 6.

Exhibits

131

Signatures




FORWARD-LOOKING STATEMENTS

This report contains information that may constitute "forward-looking statements." Generally, the words "believe," "expect,"

"intend," "estimate," "anticipate," "project," "will" and similar expressions identify forward-looking statements, which generally are not historical in nature. However, the absence of these words or similar expressions does not mean that a statement is not forward-looking. All statements that address operating performance, events or developments that we expect or anticipate will occur in the future-including statements relating to volume growth, share of sales and earnings per share growth, and statements expressing general views about future operating results-are forward-looking statements. Management believes that these forward-looking statements are reasonable as and when made. However, caution should be taken not to place undue reliance on any such forward-looking statements because such statements speak only as of the date when made. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. In addition, forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our historical experience and our present expectations or projections. These risks and uncertainties include, but are not limited to, those described in Part II, "Item 1A. Risk Factors" and elsewhere in this report and in our Annual Report on Form 10-K for the year ended June 30, 2017 , and those described from time to time in our future reports filed with the Securities and Exchange Commission.


3


PART I

Item 1. Financial Statements

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES

(in thousands, except share and per share data)

December 31, 2017

June 30, 2017

(Unaudited)

(Audited)

Assets


Investments at fair value:



Control investments (amortized cost of $1,895,360 and $1,840,731, respectively)

$

2,011,922


$

1,911,775


Affiliate investments (amortized cost of $24,075 and $22,957, respectively)

19,272


11,429


Non-control/non-affiliate investments (amortized cost of $3,643,003 and $4,117,868, respectively)

3,389,938


3,915,101


Total investments at fair value (amortized cost of $5,562,438 and $5,981,556, respectively)

5,421,132


5,838,305


Cash

474,476


318,083


Receivables for:

Interest, net

14,432


9,559


Other

763


924


Prepaid expenses

546


1,125


Due from Broker

600


-


Due from Prospect Administration (Note 13)

2,082


-


Due from Affiliate (Note 13)

88


14


Deferred financing costs on Revolving Credit Facility (Note 4)

3,394


4,779


Total Assets

5,917,513


6,172,789


Liabilities



Revolving Credit Facility (Notes 4 and 8)

-


-


Prospect Capital InterNotes® (less unamortized debt issuance costs of $13,114 and $14,240,
respectively) (Notes 7 and 8)

824,383


966,254


Convertible Notes (less unamortized debt issuance costs of $13,186 and $15,512, respectively)
(Notes 5 and 8)

889,233


937,641


Public Notes (less unamortized discount and debt issuance costs of $9,963 and $10,981,
respectively) (Notes 6 and 8)

739,318


738,300


Due to Prospect Capital Management (Note 13)

47,629


48,249


Interest payable

39,180


38,630


Dividends payable

21,659


30,005


Due to Prospect Administration (Note 13)

1,935


1,910


Accrued expenses

3,615


4,380


Other liabilities

2,149


2,097


Due to Broker

-


50,371


Total Liabilities

2,569,101


2,817,837


Commitments and Contingencies (Note 3)

-


-


Net Assets 

$

3,348,412


$

3,354,952


Components of Net Assets



Common stock, par value $0.001 per share (1,000,000,000 common shares authorized; 360,980,752 and 360,076,933 issued and outstanding, respectively) (Note 9)

$

361


$

360


Paid-in capital in excess of par (Note 9)

3,998,406


3,991,317


Accumulated overdistributed net investment income

(64,446

)

(54,039

)

Accumulated net realized loss

(444,603

)

(439,435

)

Net unrealized loss

(141,306

)

(143,251

)

Net Assets 

$

3,348,412


$

3,354,952


Net Asset Value Per Share (Note 16)

$

9.28


$

9.32



See notes to consolidated financial statements.

4


PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share data)

(Unaudited)


Three Months Ended December 31,

Six Months Ended December 31,

2017

2016

2017

2016

Investment Income

Interest income:

Control investments

$

47,418


$

48,281


$

93,448


$

94,190


Affiliate investments

-


-


205


-


Non-control/non-affiliate investments

75,833


87,465


148,263


174,125


Structured credit securities

30,131


39,045


59,551


78,126


Total interest income

153,382


174,791


301,467


346,441


Dividend income:

Control investments

-


1,282


-


3,522


Non-control/non-affiliate investments

326


97


870


241


Total dividend income

326


1,379


870


3,763


Other income:

Control investments

4,038


3,856


6,129


6,796


Non-control/non-affiliate investments

4,654


3,454


12,513


6,312


Total other income (Note 10)

8,692


7,310


18,642


13,108


Total Investment Income

162,400


183,480


320,979


363,312


Operating Expenses

Base management fee (Note 13)

29,559


30,886


59,722


61,678


Income incentive fee (Note 13)

18,298


21,101


34,231


40,831


Interest and credit facility expenses

39,347


40,848


80,382


82,517


Allocation of overhead from Prospect Administration (Note 13)

(824

)

2,657


2,704


6,190


Audit, compliance and tax related fees

1,866


1,058


2,954


2,453


Directors' fees

112


112


225


225


Other general and administrative expenses

850


2,413


3,837


6,094


Total Operating Expenses

89,208


99,075


184,055


199,988


Net Investment Income

73,192


84,405


136,924


163,324


Net Realized and Change in Unrealized Gains (Losses) from Investments

Net realized gains (losses)

Control investments

2


178


11


183


Affiliate investments

-


-


846


137


Non-control/non-affiliate investments

(5,675

)

(260

)

(5,093

)

312


Net realized (losses) gains

(5,673

)

(82

)

(4,236

)

632


Net change in unrealized gains (losses)

Control investments

44,425


(11,068

)

45,518


2,298


Affiliate investments

1,533


853


6,726


(1,273

)

Non-control/non-affiliate investments

8,737


26,896


(50,300

)

17,450


Net change in unrealized gains (losses)

54,695


16,681


1,944


18,475


Net Realized and Net Change in Unrealized Gains (Losses) from Investments

49,022


16,599


(2,292

)

19,107


Net realized losses on extinguishment of debt

(487

)

(124

)

(932

)

(185

)

Net Increase in Net Assets Resulting from Operations

$

121,727


$

100,880


$

133,700


$

182,246


Net increase in net assets resulting from operations per share

$

0.34


$

0.28


$

0.37


$

0.51


Dividends declared per share

$

(0.18

)

$

(0.25

)

$

(0.41

)

$

(0.50

)


See notes to consolidated financial statements.

5


PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS

(in thousands, except share data)

(Unaudited)


Six Months Ended December 31,


2017

2016

Operations



Net investment income

$

136,924


$

163,324


Net realized (losses) gains

(5,168

)

447


Net change in net unrealized losses

1,944


18,475


Net Increase in Net Assets Resulting from Operations

133,700


182,246


Distributions to Shareholders

Distribution from net investment income

(146,559

)

(179,097

)

Net Decrease in Net Assets Resulting from Distributions to Shareholders

(146,559

)

(179,097

)

Common Stock Transactions

Value of shares issued through reinvestment of dividends

6,319


15,530


Net Increase in Net Assets Resulting from Common Stock Transactions

6,319


15,530


Total (Decrease) Increase in Net Assets

(6,540

)

18,679


Net assets at beginning of period

3,354,952


3,435,917


Net Assets at End of Period (Accumulated Under (Overdistributed) Net Investment Income of ($64,446) and ($16,907), respectively)

$

3,348,412


$

3,454,596


Common Stock Activity

Shares issued through reinvestment of dividends

903,819


1,893,049


Net shares issued due to common stock activity

903,819


1,893,049


Shares issued and outstanding at beginning of period

360,076,933


357,107,231


Shares Issued and Outstanding at End of Period

360,980,752


359,000,280




See notes to consolidated financial statements.

6


PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands, except share data)

(Unaudited)


Six Months Ended December 31,

2017

2016

Operating Activities

Net increase in net assets resulting from operations

$

133,700


$

182,246


Net realized losses on extinguishment of debt

932


185


Net realized losses (gains) on investments

4,236


(632

)

Net change in net unrealized (gains) losses on investments

(1,944

)

(18,475

)

Amortization of discounts and (accretion of premiums), net

22,607


37,178


Accretion of discount on Public Notes (Note 6)

141


132


Amortization of deferred financing costs

6,219


6,758


Payment-in-kind interest

(3,980

)

(9,196

)

Structuring fees

(5,531

)

(5,693

)

Change in operating assets and liabilities:

Payments for purchases of investments

(951,377

)

(801,798

)

Proceeds from sale of investments and collection of investment principal

1,353,163


759,326


Decrease in due to Broker

(50,371

)

(957

)

Decrease in due to Prospect Capital Management

(620

)

(1,937

)

Increase in interest receivable, net

(4,873

)

(11,816

)

Increase (decrease) in interest payable

550


(2,385

)

(Decrease) increase in accrued expenses

(765

)

626


Increase in due from Broker

(600

)

-


Increase (Decrease) in other liabilities

52


(510

)

Decrease (Increase) in other receivables

161


(6,317

)

Increase in due from Prospect Administration

(2,082

)

-


Increase in due from affiliate

(74

)

-


Decrease in prepaid expenses

579


185


Increase in due to Prospect Administration

25


1,245


Net Cash Provided by Operating Activities

500,148


128,165


Financing Activities

Borrowings under Revolving Credit Facility (Note 4)

341,000


210,000


Principal payments under Revolving Credit Facility (Note 4)

(341,000

)

(210,000

)

Issuances of Public Notes, net of original issue discount (Note 6)

-


37,466


Redemptions of Convertible Notes (Note 5)

(50,734

)

(167,500

)

Issuances of Prospect Capital InterNotes® (Note 7)

52,177


64,731


Redemptions of Prospect Capital InterNotes®, net (Note 7)

(195,174

)

(11,440

)

Financing costs paid and deferred

(1,437

)

(1,900

)

Dividends paid

(148,587

)

(163,409

)

Net Cash Used in Financing Activities

(343,755

)

(242,052

)

Net Increase (Decrease) in Cash

156,393


(113,887

)

Cash at beginning of period

318,083


317,798


Cash at End of Period

$

474,476


$

203,911


Supplemental Disclosures

Cash paid for interest

$

73,472


$

78,012


Non-Cash Financing Activities

Value of shares issued through reinvestment of dividends

$

6,319


$

15,530


Cost basis of investments written off as worthless

$

5,662


$

1,720



See notes to consolidated financial statements.

7


PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULES OF INVESTMENTS

(in thousands, except share data)






December 31, 2017 (Unaudited)

Portfolio Company

Locale / Industry

Investments(1)(44)(45)

Principal Value

Amortized Cost

Fair
Value(2)

% of Net Assets











LEVEL 3 PORTFOLIO INVESTMENTS











Control Investments (greater than 25.00% voting control)(47)











Arctic Energy Services, LLC(37)

Wyoming / Energy Equipment & Services

Class D Units (12.00%, 32,915 units)(16)

-


$

31,640


$

24,158


0.7%

Class E Units (14.00%, 21,080 units)(16)

-


20,230


-


-%

Class A Units (14.00%, 700 units)(16)

-


9,006


-


-%

Class C Units (10 units)(16)

-


-


-


-%






60,876


24,158


0.7%

CCPI Inc.(19)

Ohio / Electronic Equipment, Instruments & Components

Senior Secured Term Loan A (10.00%, due 12/31/2020)(3)

2,909


2,909


2,909


0.1%

Senior Secured Term Loan B (12.00% plus 7.00% PIK, due 12/31/2020)(3)(46)

17,904


17,904


17,904


0.5%

Common Stock (14,857 shares)

-


6,759


17,824


0.5%






27,572


38,637


1.1%

CP Energy Services Inc.(20)

Oklahoma / Energy Equipment & Services

Senior Secured Term Loan (12.34% (LIBOR + 11.00% with 1.00% LIBOR floor), due 12/29/2022)(10)(11)

35,048


35,048


35,048


1.0%

Series B Convertible Preferred Stock (16.00%, 790 shares)(16)

-


63,225


51,509


1.5%

Common Stock (2,924 shares)(16)

-


15,227


-


-%






113,500


86,557


2.5%

Credit Central Loan Company, LLC(21)

South Carolina / Consumer Finance

Subordinated Term Loan (10.00% plus 10.00% PIK, due 6/26/2019)(14)(46)

51,855


46,195


51,855


1.4%

Class A Units (10,640,642 units)(14)(16)

-


13,731


20,190


0.6%

Net Revenues Interest (25% of Net Revenues)(14)

-


-


2,667


0.1%






59,926


74,712


2.1%

Echelon Aviation LLC

New York / Aerospace & Defense

Senior Secured Term Loan (11.75% (LIBOR + 9.75% with 2.00% LIBOR floor) plus 2.25% PIK, due 3/31/2022)(10)(13)(46)

31,055


31,055


31,055


0.9%

Senior Secured Term Loan (11.00% (LIBOR + 9.00% with 2.00% LIBOR floor) plus 1.00% PIK, due 12/7/2024)(10)(13)(46)

16,044


16,044


16,044


0.5%

Membership Interest (100%)(16)

-


22,738


29,478


0.9%






69,837


76,577


2.3%

Edmentum Ultimate Holdings, LLC(22)

Minnesota / Diversified Consumer Services

Second Lien Revolving Credit Facility to Edmentum, Inc. – $7,834 Commitment (5.00%, due 6/9/2020)(15)

5,092


5,092


5,092


0.2%

Unsecured Senior PIK Note (8.50% PIK, due 6/9/2020)(46)

7,208


7,208


7,208


0.2%

Unsecured Junior PIK Note (10.00% PIK, in non-accrual status effective 1/1/2017, due 6/9/2020)

33,520


23,828


19,062


0.6%

Class A Units (370,964 units)(16)

-


6,577


-


-%






42,705


31,362


1.0%

First Tower Finance Company LLC(23)

Mississippi / Consumer Finance

Subordinated Term Loan to First Tower, LLC (10.00% plus 7.00% PIK, due 6/24/2019)(14)(46)

258,772


258,772


258,772


7.7%

Class A Units (93,997,533 units)(14)(16)

-


78,481


146,258


4.4%






337,253


405,030


12.1%

Freedom Marine Solutions, LLC(24)

Louisiana / Energy Equipment & Services

Membership Interest (100%)(16)

-


42,812


25,266


0.8%






42,812


25,266


0.8%


See notes to consolidated financial statements.

8


PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)

(in thousands, except share data)





December 31, 2017 (Unaudited)

Portfolio Company

Locale / Industry

Investments(1)(44)(45)

Principal Value

Amortized Cost

Fair
Value(2)

% of Net Assets











LEVEL 3 PORTFOLIO INVESTMENTS











Control Investments (greater than 25.00% voting control)(47)











MITY, Inc.(25)

Utah / Commercial Services & Supplies

Senior Secured Note A (10.00% (LIBOR + 7.00% with 3.00% LIBOR floor), due 1/30/2020)(3)(10)(11)

$

26,250


$

26,250


$

26,250


0.8%

Senior Secured Note B (10.00% (LIBOR + 7.00% with 3.00% LIBOR floor) plus 10.00% PIK, due 1/30/2020)(3)(10)(11)(46)

24,442


24,442


24,442


0.7%

Subordinated Unsecured Note to Broda Enterprises ULC (10.00%, due on demand)(3)(14)

5,782


7,200


5,782


0.2%

Common Stock (42,053 shares)(16)

-


6,849


13,008


0.5%






64,741


69,482


2.2%

National Property REIT Corp.(26)

Various / Equity Real Estate Investment Trusts (REITs) / Online Lending

Senior Secured Term Loan A (6.00% (LIBOR + 4.00% with 2.00% LIBOR floor) plus 10.50% PIK, due 4/1/2019)(10)(11)(46)

293,203


293,203


293,203


8.8%

Senior Secured Term Loan E (11.00% (LIBOR + 9.00% with 2.00% LIBOR floor) plus 5.00% PIK, due 4/1/2019)(10)(11)(46)

113,240


113,240


113,240


3.4%

Senior Secured Term Loan C to ACL Loan Holdings, Inc. (11.00% (LIBOR + 9.00% with 2.00% LIBOR floor) plus 5.00% PIK, due 4/1/2019)(10)(11)(14)(46)

14,274


14,274


14,274


0.4%

Senior Secured Term Loan C to American Consumer Lending Limited (11.00% (LIBOR + 9.00% with 2.00% LIBOR floor) plus 5.00% PIK, due 12/15/2020)(10)(11)(14)(46)

132,578


132,578


132,578


4.0%

Common Stock (2,351,247 shares)(16)

-


290,564


400,362


12.0%

Net Operating Income Interest (5% of Net Operating Income)

-


-


94,718


2.8%






843,859


1,048,375


31.4%

Nationwide Loan Company LLC(27)

Illinois / Consumer Finance

Senior Subordinated Term Loan to Nationwide Acceptance LLC (10.00% plus 10.00% PIK, due 6/18/2019)(14)(46)

17,114


17,114


17,114


0.5%

Class A Units (32,456,159 units)(14)(16)

-


21,962


13,141


0.4%






39,076


30,255


0.9%

NMMB, Inc.(28)

New York / Media

Senior Secured Note (14.00%, due 5/6/2021)(3)

3,714


3,714


3,714


0.1%

Senior Secured Note to Armed Forces Communications, Inc. (14.00%, due 5/6/2021)(3)

6,900


6,900


6,900


0.2%

Series A Preferred Stock (7,200 shares)(3)(16)

-


12,869


10,614


0.3%






23,483


21,228


0.6%

R-V Industries, Inc.

Pennsylvania / Machinery

Senior Subordinated Note (10.69% (LIBOR + 9.00% with 1.00% LIBOR floor), due 3/31/2022)(3)(10)(11)

28,622


28,622


28,622


0.9%

Common Stock (745,107 shares)(16)

-


6,866


2,786


0.1%






35,488


31,408


1.0%

SB Forging Company II, Inc. (f/k/a Gulf Coast Machine & Supply Company)(29)

Texas / Energy Equipment & Services

Series A Convertible Preferred Stock (6.50%, 99,000 shares)(16)

-


-


996


-%

Common Stock (100 shares)(16)

-


-


-


-%






-


996


-%


See notes to consolidated financial statements.

9


PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)

(in thousands, except share data)





December 31, 2017 (Unaudited)

Portfolio Company

Locale / Industry

Investments(1)(44)(45)

Principal Value

Amortized Cost

Fair
Value(2)

% of Net Assets











LEVEL 3 PORTFOLIO INVESTMENTS











Control Investments (greater than 25.00% voting control)(47)











USES Corp.(30)

Texas / Commercial Services & Supplies

Senior Secured Term Loan A (9.00% PIK, in non-accrual status effective 4/1/2016, due 7/22/2020)

$

35,326


$

31,602


$

6,655


0.2%

Senior Secured Term Loan B (15.50% PIK, in non-accrual status effective 4/1/2016, due 7/22/2020)

44,281


35,568


-


-%

Common Stock (268,962 shares)(16)

-


-


-


-%






67,170


6,655


0.2%

Valley Electric Company, Inc.(31)

Washington / Construction & Engineering

Senior Secured Note to Valley Electric Co. of Mt. Vernon, Inc. (8.00% (LIBOR + 5.00% with 3.00% LIBOR floor) plus 2.50% PIK, due 12/31/2024)(3)(10)(11)(46)

10,430


10,430


10,430


0.3%

Senior Secured Note (10.00% plus 8.50% PIK, due 6/23/2024)(46)

26,724


26,724


26,724


0.8%

Common Stock (50,000 shares)(16)

-


26,204


3,777


0.1%






63,358


40,931


1.2%

Wolf Energy, LLC(32)

Kansas / Energy Equipment & Services

Membership Interest (100%)(16)

-


-


-


-%

Membership Interest in Wolf Energy Services Company, LLC (100%)(16)

-


3,704


283


-%

Net Profits Interest (8% of Equity Distributions)(4)(16)

-


-


10


-%






3,704


293


-%

Total Control Investments (Level 3)

$

1,895,360


$

2,011,922


60.1%


Affiliate Investments (5.00% to 24.99% voting control)(48)

Nixon, Inc.(39)

California / Textiles, Apparel & Luxury Goods

Senior Secured Term Loan (11.50% PIK, in non-accrual status effective 7/1/2016, due 11/12/2022)(8)

$

17,472


$

14,197


$

-


-%

Common Stock (857 units)(16)

-


-


-


-%

14,197


-


-%

Targus Cayman HoldCo Limited(33)

California / Textiles, Apparel & Luxury Goods

Common Stock (7,383,395 shares)(16)

-


9,878


19,272


0.6%

9,878


19,272


0.6%

Total Affiliate Investments (Level 3)

$

24,075


$

19,272


0.6%


See notes to consolidated financial statements.

10


PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)

(in thousands, except share data)


December 31, 2017 (Unaudited)

Portfolio Company

Locale / Industry

Investments(1)(44)(45)

Principal Value

Amortized Cost

Fair
Value(2)

% of Net Assets

LEVEL 3 PORTFOLIO INVESTMENTS

Non-Control/Non-Affiliate Investments (less than 5.00% voting control)

Ability Network Inc.

Minnesota / Health Care Technology

Second Lien Term Loan (9.21% (LIBOR + 7.75% with 1.00% LIBOR floor), due 12/13/2025)(8)(10)(11)

$

15,000


$

14,926


$

14,926


0.4%

14,926


14,926


0.4%

ACE Cash Express, Inc.

Texas / Consumer Finance

Senior Secured Note (12.00%, due 12/15/2022)(8)(14)

20,000


19,702


20,000


0.6%

19,702


20,000


0.6%

AgaMatrix, Inc.

New Hampshire / Healthcare Equipment and Supplies

Senior Secured Term Loan (10.44% (LIBOR + 8.75% with 1.25% LIBOR floor), due 9/29/2022)(3)(10)(11)

31,625


31,625


31,625


0.9%

31,625


31,625


0.9%

Apidos CLO IX

Cayman Islands / Structured Finance

Subordinated Notes (Residual Interest, current yield 0.00%, due 7/15/2023)(5)(14)(17)

23,525


66


66


-%

66


66


-%

Apidos CLO XI

Cayman Islands / Structured Finance

Subordinated Notes (Residual Interest, current yield 8.89%, due 10/17/28)(5)(14)

40,500


31,379


25,091


0.7%

31,379


25,091


0.7%

Apidos CLO XII

Cayman Islands / Structured Finance

Subordinated Notes (Residual Interest, current yield 0.00%, due 4/15/2025)(5)(14)(17)

44,063


29,043


17,865


0.5%

29,043


17,865


0.5%

Apidos CLO XV

Cayman Islands / Structured Finance

Subordinated Notes (Residual Interest, current yield 1.39%, due 10/20/2025)(5)(14)

36,515


28,041


20,984


0.6%

28,041


20,984


0.6%

Apidos CLO XXII

Cayman Islands / Structured Finance

Subordinated Notes (Residual Interest, current yield 13.57%, due 10/20/2027)(5)(6)(14)

31,350


27,293


24,907


0.7%

27,293


24,907


0.7%

Ark-La-Tex Wireline Services, LLC

Louisiana / Energy Equipment & Services

Senior Secured Term Loan B (13.19% (LIBOR + 11.50% with 1.00% LIBOR floor), in non-accrual status effective 4/1/2016, due 4/8/2019)(10)(13)

25,595


1,145


743


-%

1,145


743


-%

Armor Holding II LLC

New York / Commercial Services & Supplies

Second Lien Term Loan (10.70% (LIBOR + 9.00% with 1.25% LIBOR floor), due 12/26/2020)(3)(8)(10)(11)

7,000


6,938


7,000


0.2%

6,938


7,000


0.2%

Atlantis Health Care Group (Puerto Rico), Inc.

Puerto Rico / Health Care Providers & Services

Revolving Line of Credit – $7,000 Commitment (9.69% (LIBOR + 8.00% with 1.50% LIBOR floor), due 8/21/2018)(10)(11)(15)

7,000


7,000


6,779


0.2%

Senior Term Loan (9.69% (LIBOR + 8.00% with 1.50% LIBOR floor), due 2/21/2020)(10)(11)

79,153


79,153


76,649


2.3%

86,153


83,428


2.5%

Autodata, Inc./ Autodata Solutions, Inc.

Canada / Software

Second Lien Term Loan (8.82% (LIBOR + 7.25% with 1.00% LIBOR floor), due 12/14/2025)(8)(10)(11)

6,000


5,970


5,970


0.2%

5,970


5,970


-%

Babson CLO Ltd. 2014-III

Cayman Islands / Structured Finance

Subordinated Notes (Residual Interest, current yield 12.87%, due 1/15/2026)(5)(6)(14)

52,250


40,909


36,185


1.1%

40,909


36,185


1.1%

Broder Bros., Co.

Pennsylvania / Textiles, Apparel & Luxury Goods

Senior Secured Note (9.69% (LIBOR + 8.00% with 1.25% LIBOR floor), due 12/02/2022)(10)(11)

459,425


459,425


459,425


13.7%

459,425


459,425


13.7%


See notes to consolidated financial statements.

11


PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)

(in thousands, except share data)


December 31, 2017 (Unaudited)

Portfolio Company

Locale / Industry

Investments(1)(44)(45)

Principal Value

Amortized Cost

Fair
Value(2)

% of Net Assets

LEVEL 3 PORTFOLIO INVESTMENTS

Non-Control/Non-Affiliate Investments (less than 5.00% voting control)

Brookside Mill CLO Ltd.

Cayman Islands / Structured Finance

Subordinated Notes (Residual Interest, current yield 0.00%, due 4/17/2025)(5)(14)(17)

$

26,000


$

15,673


$

12,635


0.4%

15,673


12,635


0.4%

California Street CLO IX Ltd. (f/k/a Symphony CLO IX Ltd.)

Cayman Islands / Structured Finance

Preference Shares (Residual Interest, current yield 14.34%, due 10/16/2028)(5)(14)

58,915


41,046


36,239


1.1%

41,046


36,239


1.1%

Capstone Logistics Acquisition, Inc.

Georgia / Commercial Services & Supplies

Second Lien Term Loan (9.82% (LIBOR + 8.25% with 1.00% LIBOR floor), due 10/7/2022)(3)(8)(10)(13)

101,517


101,113


97,457


2.9%

101,113


97,457


2.9%

Carlyle Global Market Strategies CLO 2014-4, Ltd.

Cayman Islands / Structured Finance

Subordinated Notes (Residual Interest, current yield 20.85%, due 10/15/2026)(5)(6)(14)

25,534


19,701


19,766


0.6%

19,701


19,766


0.6%

Carlyle Global Market Strategies CLO 2016-3, Ltd.

Cayman Islands / Structured Finance

Subordinated Notes (Residual Interest, current yield 16.32%, due 10/20/2029)(5)(6)(14)

32,200


31,624


28,476


0.9%

31,624


28,476


0.9%

Cent CLO 17 Limited

Cayman Islands / Structured Finance

Subordinated Notes (Residual Interest, current yield 9.20%, due 1/30/2025)(5)(14)

24,870


17,813


17,264


0.5%

17,813


17,264


0.5%

Cent CLO 20 Limited

Cayman Islands / Structured Finance

Subordinated Notes (Residual Interest, current yield 16.79%, due 1/25/2026)(5)(14)

40,275


31,793


31,008


0.9%

31,793


31,008


0.9%

Cent CLO 21 Limited

Cayman Islands / Structured Finance

Subordinated Notes (Residual Interest, current yield 17.21%, due 7/27/2026)(5)(6)(14)

48,528


36,174


34,667


1.0%

36,174


34,667


1.0%

Centerfield Media Holding Company(35)

California / Internet Software and Services

Senior Secured Term Loan A (8.34% (LIBOR + 7.00% with 1.00% LIBOR floor), due 1/17/2022)(3)(8)(10)(11)

66,640


66,640


66,640


2.0%

Senior Secured Term Loan B (13.84% (LIBOR + 12.50% with 1.00% LIBOR floor), due 1/17/2022)(8)(10)(11)

68,000


68,000


68,000


2.0%

134,640


134,640


4.0%

CIFC Funding 2013-III, Ltd.

Cayman Islands / Structured Finance

Subordinated Notes (Residual Interest, current yield 7.16%, due 10/24/2025)(5)(14)

44,100


29,970


26,242


0.8%

29,970


26,242


0.8%

CIFC Funding 2013-IV, Ltd.

Cayman Islands / Structured Finance

Subordinated Notes (Residual Interest, current yield 9.67%, due 11/27/2024)(5)(14)

45,500


31,970


29,428


0.9%

31,970


29,428


0.9%

CIFC Funding 2014-IV Investor, Ltd.

Cayman Islands / Structured Finance

Income Notes (Residual Interest, current yield 7.43%, due 10/17/2026)(5)(6)(14)

41,500


29,064


24,456


0.7%

29,064


24,456


0.7%

CIFC Funding 2016-I, Ltd.

Cayman Islands / Structured Finance

Income Notes (Residual Interest, current yield 13.43%, due 10/21/2028)(5)(6)(14)

34,000


31,172


27,636


0.8%

31,172


27,636


0.8%

Cinedigm DC Holdings, LLC

New York / Media

Senior Secured Term Loan (11.00% (LIBOR + 9.00% with 2.00% LIBOR floor) plus 2.50% PIK, due 3/31/2021)(10)(11)(46)

40,210


40,160


40,210


1.2%

40,160


40,210


1.2%


See notes to consolidated financial statements.

12


PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)

(in thousands, except share data)


December 31, 2017 (Unaudited)

Portfolio Company

Locale / Industry

Investments(1)(44)(45)

Principal Value

Amortized Cost

Fair
Value(2)

% of Net Assets

LEVEL 3 PORTFOLIO INVESTMENTS

Non-Control/Non-Affiliate Investments (less than 5.00% voting control)

Coverall North America, Inc.

Florida / Commercial Services & Supplies

Senior Secured Term Loan A (7.34% (LIBOR + 6.00% with 1.00% LIBOR floor), due 11/02/2020)(3)(10)(11)

$

21,720


$

21,720


$

21,720


0.7%

Senior Secured Term Loan B (12.34% (LIBOR + 11.00% with 1.00% LIBOR floor), due 11/02/2020)(3)(10)(11)

24,875


24,875


24,875


0.7%

46,595


46,595


1.4%

CURO Financial Technologies Corp.

Canada / Consumer Finance

Senior Secured Notes (12.00%, due 3/1/2022)(8)(14)

12,500


12,433


12,500


0.4%

12,433


12,500


0.4%

Dunn Paper, Inc.

Georgia / Paper & Forest Products

Second Lien Term Loan (10.32% (LIBOR + 8.75% with 1.00% LIBOR floor), due 8/26/2023)(8)(10)(13)

11,500


11,312


11,500


0.3%

11,312


11,500


0.3%

Easy Gardener Products, Inc.

Texas / Household Durables

Senior Secured Term Loan (11.34% (LIBOR + 10.00% with .25% LIBOR floor), due 09/30/2020)(3)(10)(11)

17,106


17,106


16,643


0.5%

17,106


16,643


0.5%

Engine Group, Inc.(7)

California / Media

Senior Secured Term Loan (6.44% (LIBOR + 4.75% with 1.00% LIBOR floor), due 9/15/2022)(8)(9)(10)(11)

4,938


4,938


4,938


0.1%

Second Lien Term Loan (10.44% (LIBOR + 8.75% with 1.00% LIBOR floor), due 9/15/2023)(3)(8)(10)(11)

35,000


35,000


35,000


0.1%

39,938


39,938


1.1%

EXC Holdings III Corp

Massachusetts / Technology Hardware, Storage & Peripherals

Second Lien Term Loan (9.16% (LIBOR + 7.50% with 1.00% LIBOR floor), due 12/01/2025)(8)(10)(11)

12,500


12,376


12,376


0.4%

12,376


12,376


-%

Fleetwash, Inc.

New Jersey / Commercial Services & Supplies

Senior Secured Term Loan B (10.34% (LIBOR + 9.00% with 1.00% LIBOR floor), due 4/30/2022)(3)(10)(11)

21,544


21,544


21,544


0.6%

Delayed Draw Term Loan – $15,000 Commitment (9.84% (LIBOR + 8.50% with 1.00% LIBOR floor) expires 4/30/2022)(10)(11)(15)

-


-


-


-%

21,544


21,544


0.6%

Galaxy XV CLO, Ltd.

Cayman Islands / Structured Finance

Subordinated Notes (Residual Interest, current yield 11.89%, due 10/15/2030)(5)(14)

50,525


33,831


30,827


0.9%

33,831


30,827


0.9%

Galaxy XVI CLO, Ltd.

Cayman Islands / Structured Finance

Subordinated Notes (Residual Interest, current yield 6.26%, due 11/16/2025)(5)(14)

24,575


17,077


14,609


0.4%

17,077


14,609


0.4%

Galaxy XVII CLO, Ltd.

Cayman Islands / Structured Finance

Subordinated Notes (Residual Interest, current yield 6.66%, due 7/15/2026)(5)(6)(14)

39,905


28,497


24,072


0.7%

28,497


24,072


0.7%

Halcyon Loan Advisors Funding 2012-1 Ltd.

Cayman Islands / Structured Finance

Subordinated Notes (Residual Interest, current yield 0.00%, due 8/15/2023)(5)(14)(17)

23,188


3,987


5,510


0.2%

3,987


5,510


0.2%

Halcyon Loan Advisors Funding 2013-1 Ltd.

Cayman Islands / Structured Finance

Subordinated Notes (Residual Interest, current yield 2.23%, due 4/15/2025)(5)(14)

40,400


24,295


19,914


0.6%

24,295


19,914


0.6%

Halcyon Loan Advisors Funding 2014-1 Ltd.

Cayman Islands / Structured Finance

Subordinated Notes (Residual Interest, current yield 5.88%, due 4/18/2026)(5)(14)

24,500


15,129


13,325


0.4%

15,129


13,325


0.4%


See notes to consolidated financial statements.

13


PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)

(in thousands, except share data)


December 31, 2017 (Unaudited)

Portfolio Company

Locale / Industry

Investments(1)(44)(45)

Principal Value

Amortized Cost

Fair
Value(2)

% of Net Assets

LEVEL 3 PORTFOLIO INVESTMENTS

Non-Control/Non-Affiliate Investments (less than 5.00% voting control)

Halcyon Loan Advisors Funding 2014-2 Ltd.

Cayman Islands / Structured Finance

Subordinated Notes (Residual Interest, current yield 11.61%, due 4/28/2025)(5)(6)(14)

$

41,164


$

26,102


$

23,051


0.7%

26,102


23,051


0.7%

Halcyon Loan Advisors Funding 2015-3 Ltd.

Cayman Islands / Structured Finance

Subordinated Notes (Residual Interest, current yield 19.67%, due 10/18/2027)(5)(6)(14)

39,598


34,191


33,690


1.0%

34,191


33,690


1.0%

Harbortouch Payments, LLC

Pennsylvania / Commercial Services & Supplies

Escrow Receivable

-


-


856


-%

-


856


-%

HarbourView CLO VII, Ltd.

Cayman Islands / Structured Finance

Subordinated Notes (Residual Interest, current yield 18.00%, due 11/18/2026)(5)(6)(14)

19,025


15,187


13,988


0.4%

15,187


13,988


0.4%

Harley Marine Services, Inc.

Washington / Marine

Second Lien Term Loan (10.63% (LIBOR + 9.25% with 1.25% LIBOR floor), due 12/20/2019)(3)(8)(10)(11)

9,000


8,935


8,935


0.3%

8,935


8,935


0.3%

Ingenio, LLC

California / Internet Software and Services

Senior Secured Term Loan (8.88% (LIBOR + 7.50% with 1.25% LIBOR floor), due 9/26/2022)(3)(8)(10)(11)

10,000


10,000


10,000


0.3%

10,000


10,000


0.3%

Inpatient Care Management Company, LLC

Florida / Health Care Providers & Services

Senior Secured Term Loan (9.34% (LIBOR + 8.00% with 1.00% LIBOR floor), due 6/8/2021)(3)(10)(11)

24,927


24,927


24,927


0.7%

24,927


24,927


0.7%

InterDent, Inc.

California / Health Care Providers & Services

Senior Secured Term Loan A (7.07% (LIBOR + 5.50% with 0.75% LIBOR floor), due 12/31/2017)(10)(13)

78,215


78,215


78,215


2.3%

Senior Secured Term Loan B (12.07% (LIBOR + 10.50% with 0.75% LIBOR floor), due 12/31/2017)(3)(10)(13)

131,125


131,125


131,125


3.9%

209,340


209,340


6.2%

JD Power and Associates

California / Capital Markets

Second Lien Term Loan (10.19% (LIBOR + 8.50% with 1.00% LIBOR floor), due 9/7/2024)(3)(8)(10)(11)

20,000


19,785


20,000


0.6%

19,785


20,000


0.6%

Jefferson Mill CLO Ltd.

Cayman Islands / Structured Finance

Subordinated Notes (Residual Interest, current yield 7.72%, due 7/20/2027)(5)(6)(14)

19,500


16,244


12,518


0.4%

16,244


12,518


0.4%

K&N Parent, Inc.

California / Auto Components

Second Lien Term Loan (10.32% (LIBOR + 8.75% with 1.00% LIBOR floor), due 10/21/2024)(3)(8)(10)(13)

13,000


12,778


12,834


0.4%

12,778


12,834


0.4%

Keystone Acquisition Corp.(36)

Pennsylvania / Health Care Providers & Services

Second Lien Term Loan (10.94% (LIBOR + 9.25% with 1.00% LIBOR floor), due 5/1/2025)(3)(8)(10)(11)

50,000


50,000


50,000


1.5%

50,000


50,000


1.5%

LaserShip, Inc.

Virginia / Air Freight & Logistics

Senior Secured Term Loan A (9.07% (LIBOR + 7.50% with 1.25% LIBOR floor), due 11/22/2022)(3)(10)(13)

22,990


22,990


22,990


0.7%

Senior Secured Term Loan B (9.07% (LIBOR + 7.50% with 1.25% LIBOR floor), due 11/22/2022)(3)(10)(13)

14,124


14,124


14,124


0.4%

37,114


37,114


1.1%


See notes to consolidated financial statements.

14


PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)

(in thousands, except share data)


December 31, 2017 (Unaudited)

Portfolio Company

Locale / Industry

Investments(1)(44)(45)

Principal Value

Amortized Cost

Fair
Value(2)

% of Net Assets

LEVEL 3 PORTFOLIO INVESTMENTS

Non-Control/Non-Affiliate Investments (less than 5.00% voting control)

LCM XIV Ltd.

Cayman Islands / Structured Finance

Income Notes (Residual Interest, current yield 5.86%, due 7/15/2025)(5)(14)

$

30,500


$

20,157


$

17,876


0.5%

20,157


17,876


0.5%

Madison Park Funding IX, Ltd.

Cayman Islands / Structured Finance

Subordinated Notes (Residual Interest, current yield 16.67%, due 8/15/2022)(5)(14)

43,110


2,285


2,329


0.1%

2,285


2,329


0.1%

Maverick Healthcare Equity, LLC

Arizona / Health Care Providers & Services

Preferred Units (10.00%,1,250,000 units)(16)

1,252


555


-%

Class A Common Units (1,250,000 units)(16)

-


-


-%

1,252


555


-%

Memorial MRI & Diagnostic, LLC

Texas / Health Care Providers & Services

Senior Secured Term Loan (10.19% (LIBOR + 8.50% with 1.00% LIBOR floor), due 3/16/2022)(10)(11)

37,430


37,430


37,430


1.1%

37,430


37,430


1.1%

Mountain View CLO 2013-I Ltd.

Cayman Islands / Structured Finance

Subordinated Notes (Residual Interest, current yield 16.23%, due 10/12/2030)(5)(14)

43,650


27,017


23,861


0.8%

27,017


23,861


0.8%

Mountain View CLO IX Ltd.

Cayman Islands / Structured Finance

Subordinated Notes (Residual Interest, current yield 14.45%, due 7/15/2027)(5)(6)(14)

47,830


40,544


38,507


1.2%

40,544


38,507


1.2%

National Home Healthcare Corp.

Michigan / Health Care Providers & Services

Second Lien Term Loan (10.43% (LIBOR + 9.00% with 1.00% LIBOR floor), due 12/8/2022)(3)(8)(10)(13)

15,407


15,219


15,407


0.5%

15,219


15,407


0.5%

Octagon Investment Partners XV, Ltd.

Cayman Islands / Structured Finance

Income Notes (Residual Interest, current yield 15.04%, due 7/19/2030)(5)(14)

42,064


31,150


26,517


0.8%

31,150


26,517


0.8%

Octagon Investment Partners XVIII, Ltd.

Cayman Islands / Structured Finance

Income Notes (Residual Interest, current yield 8.98%, due 12/16/2024)(5)(6)(14)

28,200


17,439


15,398


0.5%

17,439


15,398


0.5%

Pacific World Corporation

California / Personal Products

Revolving Line of Credit – $21,000 Commitment (8.74% (LIBOR + 7.25% with 1.00% LIBOR floor), due 9/26/2020)(10)(13)(15)

19,225


19,225


19,225


0.6%

Senior Secured Term Loan A (6.74% (LIBOR + 5.25% with 1.00% LIBOR floor), due 9/26/2020)(3)(10)(13)

96,750


96,750


94,957


2.9%

Senior Secured Term Loan B (10.74% (LIBOR + 9.25% with 1.00% LIBOR floor), due 9/26/2020)(3)(10)(13)

96,750


96,750


68,954


2.1%

Common Stock (6,778,414 units)(16)

-


-


-


0.1%

212,725


183,136


5.6%

Pelican Products, Inc.

California / Chemicals

Second Lien Term Loan (9.94% (LIBOR + 8.25% with 1.00% LIBOR floor), due 4/9/2021)(3)(8)(10)(11)

17,500


17,491


17,077


0.5%

17,491


17,077


0.5%

PeopleConnect Intermediate, LLC (f/k/a Intelius, Inc.)

Washington / Internet Software & Services

Revolving Line of Credit – $1,000 Commitment (11.10% (LIBOR + 9.50% with 1.00% LIBOR floor), due 8/11/2018)(10)(11)(15)

500


500


500


-%

Senior Secured Term Loan A (7.84% (LIBOR + 6.50% with 1.00% LIBOR floor), due 7/1/2021)(3)(10)(11)

19,248


19,248


19,248


0.7%

Senior Secured Term Loan B (13.84% (LIBOR + 12.50% with 1.00% LIBOR floor), due 7/1/2021)(3)(10)(11)

20,373


20,373


20,373


0.7%

40,121


40,121


1.4%


See notes to consolidated financial statements.

15


PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)

(in thousands, except share data)


December 31, 2017 (Unaudited)

Portfolio Company

Locale / Industry

Investments(1)(44)(45)

Principal Value

Amortized Cost

Fair
Value(2)

% of Net Assets

LEVEL 3 PORTFOLIO INVESTMENTS

Non-Control/Non-Affiliate Investments (less than 5.00% voting control)

PGX Holdings, Inc.(40)

Utah / Diversified Consumer Services

Second Lien Term Loan (10.57% (LIBOR + 9.00% with 1.00% LIBOR floor), due 9/29/2021)(10)(13)

$

134,668


$

134,668


$

134,668


4.0%

134,668


134,668


4.0%

PharMerica Corporation

Kentucky / Pharmaceuticals

Second Lien Term Loan (9.25% (LIBOR + 7.75% with 1.00% LIBOR floor), due 12/07/2024)(8)(10)(13)

12,000


11,880


12,000


0.4%

11,880


12,000


0.4%

Photonis Technologies SAS

France / Electronic Equipment, Instruments & Components

First Lien Term Loan (9.19% (LIBOR + 7.50% with 1.00% LIBOR floor), due 9/18/2019)(8)(10)(11)(14)

12,872


12,325


11,283


0.3%

12,325


11,283


0.3%

PlayPower, Inc.

North Carolina / Leisure Products

Second Lien Term Loan (10.44% (LIBOR + 8.75% with 1.00% LIBOR floor), due 6/23/2022)(3)(8)(10)(11)

11,000


10,892


11,000


0.3%

10,892


11,000


0.3%

Prince Mineral Holding Corp.

New York / Metals & Mining

Senior Secured Term Loan (11.50%, due 12/15/2019)(8)

10,000


9,963


10,000


0.3%

9,963


10,000


0.3%

RGIS Services, LLC

Michigan / Commercial Services & Supplies

Senior Secured Term Loan (9.07% (LIBOR + 7.50% with 1.00% LIBOR floor), due 3/31/2023)(3)(8)(10)(11)

30,806


30,162


29,133


1.0%

30,162


29,133


1.0%

RME Group Holding Company

Florida / Media

Senior Secured Term Loan A (7.69% (LIBOR + 6.00% with 1.00% LIBOR floor), due 5/4/2022)(3)(10)(13)

37,125


37,125


37,125


1.2%

Senior Secured Term Loan B (12.69% (LIBOR + 11.00% with 1.00% LIBOR floor), due 5/4/2022)(3)(10)(11)

24,875


24,875


24,875


0.8%

62,000


62,000


2.0%

Rocket Software, Inc.

Massachusetts / Software

Second Lien Term Loan (11.13% (LIBOR + 9.50% with 1.00% LIBOR floor), due 10/14/2024)(3)(8)(10)(11)

50,000


49,157


50,000


1.6%

49,157


50,000


1.6%

SCS Merger Sub, Inc.

Texas / IT Services

Second Lien Term Loan (11.07% (LIBOR + 9.50% with 1.00% LIBOR floor), due 10/30/2023)(3)(8)(10)(13)

20,000


19,568


20,000


0.6%

19,568


20,000


0.6%

Securus Technologies Holdings, Inc.

Texas / Communications Equipment

Second Lien Term Loan (9.87% (LIBOR + 8.25% with 1.00% LIBOR floor), due 11/01/2025)(8)(10)(11)

40,000


39,851


39,851


1.2%

39,851


39,851


1.2%

SESAC Holdco II LLC

Tennessee / Media

Second Lien Term Loan (8.73% (LIBOR + 7.25% with 1.00% LIBOR floor), due 2/23/2025)(8)(10)(13)

3,000


2,973


2,973


0.1%

2,973


2,973


0.1%

Small Business Whole Loan Portfolio(41)

New York / Online Lending

124 Small Business Loans purchased from On Deck Capital, Inc.

1,484


1,484


1,365


-%

1,484


1,365


-%

Spartan Energy Services, Inc.

Louisiana / Energy Equipment & Services

Senior Secured Term Loan A (7.35% (LIBOR + 6.00% with 1.00% LIBOR floor), due 12/28/2018)(10)(13)

13,156


11,952


12,335


0.4%

Senior Secured Term Loan B (13.35% PIK (LIBOR + 12.00% with 1.00% LIBOR floor), due 12/28/2018)(3)(10)(13)

17,028


14,510


15,970


0.5%

26,462


28,305


0.9%


See notes to consolidated financial statements.

16


PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)

(in thousands, except share data)


December 31, 2017 (Unaudited)

Portfolio Company

Locale / Industry

Investments(1)(44)(45)

Principal Value

Amortized Cost

Fair
Value(2)

% of Net Assets

LEVEL 3 PORTFOLIO INVESTMENTS

Non-Control/Non-Affiliate Investments (less than 5.00% voting control)

Strategic Materials

Texas / Household Durables

Second Lien Term Loan (9.13% (LIBOR + 7.75% with 1.00% LIBOR floor)(11)

$

7,000


$

6,931


$

6,931


0.2%






6,931


6,931


0.2%

Sudbury Mill CLO Ltd.

Cayman Islands / Structured Finance

Subordinated Notes (Residual Interest, current yield 8.18%, due 1/17/2026)(5)(14)

28,200


18,803


15,077


0.5%

18,803


15,077


0.5%

Symphony CLO XIV Ltd.

Cayman Islands / Structured Finance

Subordinated Notes (Residual Interest, current yield 6.82%, due 7/14/2026)(5)(6)(14)

49,250


35,344


30,162


0.9%

35,344


30,162


0.9%

Symphony CLO XV, Ltd.

Cayman Islands / Structured Finance

Subordinated Notes (Residual Interest, current yield 10.51%, due 10/17/2026)(5)(14)

50,250


40,328


34,887


1.0%

40,328


34,887


1.0%

TouchTunes Interactive Networks, Inc.

New York / Internet Software & Services

Second Lien Term Loan (9.62% (LIBOR + 8.25% with 1.00% LIBOR floor), due 5/29/2022)(3)(8)(10)(11)

14,000


13,916


14,000


0.4%

13,916


14,000


0.4%

Transplace Holdings, Inc.

Texas / Transportation Infrastructure

Second Lien Term Loan (10.13% (LIBOR + 8.75% with 1.00% LIBOR floor), due 10/6/2025)(8)(10)(13)

27,500


26,830


26,830


0.8%

26,830


26,830


0.8%

TGP HOLDINGS III LLC

Oregon / Household Durables

Second Lien Term Loan (10.19% (LIBOR + 8.50% with 1.00% LIBOR floor), due 9/25/2025)(8)(10)(11)

3,000


2,956


3,000


0.1%

2,956


3,000


0.1%

Turning Point Brands, Inc.(42)

Kentucky / Tobacco

Second Lien Term Loan (11.00%, due 8/17/2022)(3)(8)

14,500


$

14,380


$

14,500


0.4%

14,380


14,500


0.4%

United Sporting Companies, Inc.(18)

South Carolina / Distributors

Second Lien Term Loan (12.75% (LIBOR + 11.00% with 1.75% LIBOR floor) plus 2.00% PIK, in non-accrual status effective 4/1/2017, due 11/16/2019)(10)(13)

142,994


131,699


46,914


1.4%

Common Stock (24,967 shares)(16)

-


-


-%

131,699


46,914


1.4%

Universal Fiber Systems, LLC

Virginia / Textiles, Apparel & Luxury Goods

Second Lien Term Loan (10.93% (LIBOR + 9.50% with 1.00% LIBOR floor), due 10/02/2022)(3)(8)(10)(13)

37,000


36,499


37,000


1.1%

36,499


37,000


1.1%

Universal Turbine Parts, LLC

Alabama / Trading Companies & Distributors

Senior Secured Term Loan A (6.99% (LIBOR + 5.75% with 1.00% LIBOR floor), due 7/22/2021)(3)(10)(13)

31,688


31,688


28,648


0.9%

Senior Secured Term Loan B (12.99% (LIBOR + 11.75% with 1.00% LIBOR floor), due 7/22/2021)(3)(10)(13)

32,500


32,500


27,321


0.9%

64,188


55,969


1.8%

USG Intermediate, LLC

Texas / Leisure Products

Revolving Line of Credit – $2,500 Commitment (10.82% (LIBOR + 9.25% with 1.00% LIBOR floor), due 8/24/2018)(3)(10)(13)(15)

2,500


2,500


2,500


0.1%

Senior Secured Term Loan A (8.32% (LIBOR + 6.75% with 1.00% LIBOR floor), due 8/24/2022)(3)(10)(13)

14,233


14,233


14,233


0.4%

Senior Secured Term Loan B (13.32% (LIBOR + 11.75% with 1.00% LIBOR floor), due 8/24/2022)(3)(10)(13)

21,591


21,591


21,591


0.6%

Equity(16)

1


-


-%

38,325


38,324


1.1%


See notes to consolidated financial statements.

17


PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)

(in thousands, except share data)


December 31, 2017 (Unaudited)

Portfolio Company

Locale / Industry

Investments(1)(44)(45)

Principal Value

Amortized Cost

Fair
Value(2)

% of Net Assets

LEVEL 3 PORTFOLIO INVESTMENTS

Non-Control/Non-Affiliate Investments (less than 5.00% voting control)

UTZ Quality Foods, LLC

Pennsylvania / Food Products

Second Lien Term Loan (8.76% (LIBOR + 7.25% with 1.00% LIBOR floor, due 11/21/2025)(8)(10)(13)

$

10,000


$

9,876


$

9,876


0.3%

9,876


9,876


0.3%

VC GB Holdings, Inc.

Illinois / Household Durables

Subordinated Secured Term Loan (9.57% (LIBOR + 8.00% with 1.00% LIBOR floor), due 2/28/2025)(3)(8)(10)(13)

18,667


18,397


18,667


0.6%

18,397


18,667


0.6%

Venio LLC

Pennsylvania / Professional Services

Second Lien Term Loan (4.00% plus PIK 10.00% (LIBOR + 7.50% with 2.50% LIBOR floor), due 2/19/2020)(10)(11)(46)

20,976


16,287


17,076


0.5%

16,287


17,076


0.5%

Voya CLO 2012-2, Ltd.

Cayman Islands / Structured Finance

Income Notes (Residual Interest, current yield 0.00%, due 10/15/2022)(5)(14)(17)

38,070


1,067


1,270


-%

1,067


1,270


-%

Voya CLO 2012-3, Ltd.

Cayman Islands / Structured Finance

Income Notes (Residual Interest, current yield 0.00%, due 10/15/2022)(5)(14)(17)

46,632


440


1,288


-%

440


1,288


-%

Voya CLO 2012-4, Ltd.

Cayman Islands / Structured Finance

Income Notes (Residual Interest, current yield 12.30%, due 10/15/2028)(5)(14)

40,613


30,813


28,802


0.9%

30,813


28,802


0.9%

Voya CLO 2014-1, Ltd.

Cayman Islands / Structured Finance

Subordinated Notes (Residual Interest, current yield 13.16%, due 4/18/2026)(5)(6)(14)

32,383


23,910


22,775


0.7%

23,910


22,775


0.7%

Voya CLO 2016-3, Ltd.

Cayman Islands / Structured Finance

Subordinated Notes (Residual Interest, current yield 12.62%, due 10/18/2027)(5)(6)(14)

28,100


27,091


22,321


0.8%

27,091


22,321


0.8%

Voya CLO 2017-3, Ltd.

Cayman Islands / Structured Finance

Subordinated Notes (Residual Interest, current yield 14.01%, due 7/20/2030)(5)(6)(14)

44,885


47,996


43,114


1.3%

47,996


43,114


1.3%

Washington Mill CLO Ltd.

Cayman Islands / Structured Finance

Subordinated Notes (Residual Interest, current yield 1.82%, due 4/20/2026)(5)(6)(14)

22,600


15,716


11,673


0.3%

15,716


11,673


0.3%

Wheel Pros, LLC

Colorado / Auto Components

Senior Subordinated Secured Note (11.00% (LIBOR + 7.00% with 4.00% LIBOR floor), due 6/29/2020)(3)(10)(11)

15,300


15,300


15,300


0.5%

Senior Subordinated Secured Note (11.00% (LIBOR + 7.00% with 4.00% LIBOR floor), due 6/29/2020)(3)(10)(11)

5,460


5,460


5,460


0.2%

20,760


20,760


0.7%

Wink Holdco, Inc.

Texas / Insurance

Second Lien Term Loan (8.24% (LIBOR + 6.75% with 1% LIBOR floor), due 12/1/2025)(8)(10)(11)

3,000


2,985


2,985


0.1%

2,985


2,985


0.1%

Total Non-Control/Non-Affiliate Investments (Level 3)

$

3,643,003


$

3,389,938


101.2%

Total Portfolio Investments (Level 3)

$

5,562,438


$

5,421,132


161.9%


See notes to consolidated financial statements.

18


PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)

(in thousands, except share data)


June 30, 2017

Portfolio Company

Locale / Industry

Investments(1)(44)(45)

Principal Value

Amortized Cost

Fair
Value(2)

% of Net Assets

LEVEL 3 PORTFOLIO INVESTMENTS

Control Investments (greater than 25.00% voting control)(49)

Arctic Energy Services, LLC(37)

Wyoming / Energy Equipment & Services

Class D Units (12.00%, 32,915 units)(16)

$

31,640


$

17,370


0.5%

Class E Units (14.00%, 21,080 units)(16)

20,230


-


-%

Class A Units (14.00%, 700 units)(16)

9,006


-


-%

Class C Units (10 units)(16)

-


-


-%

60,876


17,370


0.5%

CCPI Inc.(19)

Ohio / Electronic Equipment, Instruments & Components

Senior Secured Term Loan A (10.00%, due 12/31/2020)(3)

2,966


2,966


2,966


0.1%

Senior Secured Term Loan B (12.00% plus 7.00% PIK, due 12/31/2020)(3)(46)

18,216


18,216


18,216


0.5%

Common Stock (14,857 shares)

6,759


21,870


0.7%

27,941


43,052


1.3%

CP Energy Services Inc.(20)

Oklahoma / Energy Equipment & Services

Series B Convertible Preferred Stock (16.00%, 1,043 shares)(16)

98,273


72,216


2.2%

Common Stock (2,924 shares)(16)

15,227


-


-%

113,500


72,216


2.2%

Credit Central Loan Company, LLC(21)

South Carolina / Consumer Finance

Subordinated Term Loan (10.00% plus 10.00% PIK, due 6/26/2019)(14)(46)

51,855


45,255


51,855


1.5%

Class A Units (10,640,642 units)(14)(16)

13,731


9,881


0.3%

Net Revenues Interest (25% of Net Revenues)(14)(16)

-


2,699


0.1%

58,986


64,435


1.9%

Echelon Aviation LLC

New York / Aerospace & Defense

Senior Secured Term Loan (11.75% (LIBOR + 9.75% with 2.00% LIBOR floor) plus 2.25% PIK, due 3/31/2022)(10)(13)(46)

31,055


31,055


31,055


0.9%

Senior Secured Term Loan (11.00% (LIBOR + 9.00% with 2.00% LIBOR floor) plus 1.00% PIK, due 12/7/2024)(10)(13)(46)

16,044


16,044


16,044


0.5%

Membership Interest (99%)

22,738


24,219


0.7%

69,837


71,318


2.1%

Edmentum Ultimate Holdings, LLC(22)

Minnesota / Diversified Consumer Services

Second Lien Revolving Credit Facility to Edmentum, Inc. – $7,834 Commitment (5.00%, due 6/9/2020)(15)

7,834


7,834


7,834


0.2%

Unsecured Senior PIK Note (8.50% PIK, due 6/9/2020)(46)

6,905


6,905


6,905


0.2%

Unsecured Junior PIK Note (10.00% PIK, in non-accrual status effective 1/1/2017, due 6/9/2020)

31,870


23,829


31,870


1.0%

Class A Units (370,964 units)(16)

6,577


286


-%

45,145


46,895


1.4%

First Tower Finance Company LLC(23)

Mississippi / Consumer Finance

Subordinated Term Loan to First Tower, LLC (10.00% plus 7.00% PIK, due 6/24/2019)(14)(46)

261,114


261,114


261,114


7.8%

Class A Units (93,997,533 units)(14)(16)

78,481


104,474


3.1%

339,595


365,588


10.9%

Freedom Marine Solutions, LLC(24)

Louisiana / Energy Equipment & Services

Membership Interest (100%)(16)

42,610


23,994


0.7%

42,610


23,994


0.7%


See notes to consolidated financial statements.

19


PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)

(in thousands, except share data)


June 30, 2017

Portfolio Company

Locale / Industry

Investments(1)(44)(45)

Principal Value

Amortized Cost

Fair
Value(2)

% of Net Assets

LEVEL 3 PORTFOLIO INVESTMENTS

Control Investments (greater than 25.00% voting control)(49)

MITY, Inc.(25)

Utah / Commercial Services & Supplies

Senior Secured Note A (10.00% (LIBOR + 7.00% with 3.00% LIBOR floor), due 1/30/2020)(3)(10)(11)

$

26,250


$

26,250


$

26,250


0.8%

Senior Secured Note B (10.00% (LIBOR + 7.00% with 3.00% LIBOR floor) plus 10.00% PIK, due 1/30/2020)(3)(10)(11)(46)

24,442


24,442


24,442


0.7%

Subordinated Unsecured Note to Broda Enterprises ULC (10.00%, due on demand)(14)

5,659


7,200


5,659


0.2%

Common Stock (42,053 shares)

6,849


20,161


0.6%

64,741


76,512


2.3%

National Property REIT Corp.(26)

Various / Equity Real Estate Investment Trusts (REITs) / Online Lending

Senior Secured Term Loan A (6.00% (LIBOR + 4.00% with 2.00% LIBOR floor) plus 5.50% PIK, due 4/1/2019)(10)(11)(46)

291,315


291,315


291,315


8.7%

Senior Secured Term Loan E (11.00% (LIBOR + 9.00% with 2.00% LIBOR floor) plus 5.00% PIK, due 4/1/2019)(10)(11)(46)

122,314


122,314


122,314


3.6%

Senior Secured Term Loan C to ACL Loan Holdings, Inc. (11.00% (LIBOR + 9.00% with 2.00% LIBOR floor) plus 5.00% PIK, due 4/1/2019)(10)(11)(14)(46)

59,722


59,722


59,722


1.8%

Senior Secured Term Loan C to American Consumer Lending Limited (11.00% (LIBOR + 9.00% with 2.00% LIBOR floor) plus 5.00% PIK, due 12/15/2020)(10)(11)(14)(46)

87,130


87,130


87,130


2.6%

Common Stock (2,280,992 shares)(16)

229,815


338,046


10.1%

Net Operating Income Interest (5% of Net Operating Income)

-


88,777


2.6%

790,296


987,304


29.4%

Nationwide Loan Company LLC(27)

Illinois / Consumer Finance

Senior Subordinated Term Loan to Nationwide Acceptance LLC (10.00% plus 10.00% PIK, due 6/18/2019)(14)(46)

16,819


16,819


16,819


0.5%

Class A Units (32,456,159 units)(14)

18,183


20,126


0.6%

35,002


36,945


1.1%

NMMB, Inc.(28)

New York / Media

Senior Secured Note (14.00%, due 5/6/2021)

3,714


3,714


3,714


0.1%

Senior Secured Note to Armed Forces Communications, Inc. (14.00%, due 5/6/2021)

6,900


6,900


6,900


0.2%

Series A Preferred Stock (7,200 shares)(16)

7,200


5,713


0.2%

Series B Preferred Stock (5,669 shares)(16)

5,669


4,498


0.1%

23,483


20,825


0.6%

R-V Industries, Inc.

Pennsylvania / Machinery

Senior Subordinated Note (10.30% (LIBOR + 9.00% with 1.00% LIBOR floor), due 3/31/2022)(3)(10)(11)

28,622


28,622


28,622


0.9%

Common Stock (745,107 shares)

6,866


4,056


0.1%

35,488


32,678


1.0%

SB Forging Company II, Inc. (f/k/a Gulf Coast Machine & Supply Company)(29)

Texas / Energy Equipment & Services

Series A Convertible Preferred Stock (6.50%, 99,000 shares)(16)

-


1,940


0.1%

Common Stock (100 shares)(16)

-


-


-%

-


1,940


0.1%


See notes to consolidated financial statements.

20


PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)

(in thousands, except share data)


June 30, 2017

Portfolio Company

Locale / Industry

Investments(1)(44)(45)

Principal Value

Amortized Cost

Fair
Value(2)

% of Net Assets

LEVEL 3 PORTFOLIO INVESTMENTS

Control Investments (greater than 25.00% voting control)(49)

USES Corp.(30)

Texas / Commercial Services & Supplies

Senior Secured Term Loan A (9.00% PIK, in non-accrual status effective 4/1/2016, due 7/22/2020)

$

31,068


$

28,604


$

12,517


0.4%

Senior Secured Term Loan B (15.50% PIK, in non-accrual status effective 4/1/2016, due 7/22/2020)

41,475


35,568


-


-%

Common Stock (268,962 shares)(16)

-


-


-%

64,172


12,517


0.4%

Valley Electric Company, Inc.(31)

Washington / Construction & Engineering

Senior Secured Note to Valley Electric Co. of Mt. Vernon, Inc. (8.00% (LIBOR + 5.00% with 3.00% LIBOR floor) plus 2.50% PIK, due 12/31/2024)(3)(10)(11)(46)

10,430


10,430


10,430


0.3%

Senior Secured Note (10.00% plus 8.50% PIK, due 6/23/2024)(46)

25,624


25,624


22,079


0.7%

Common Stock (50,000 shares)(16)

26,204


-


-%

62,258


32,509


1.0%

Wolf Energy, LLC(32)

Kansas / Energy Equipment & Services

Membership Interest (100%)(16)

-


-


-%

Membership Interest in Wolf Energy Services Company, LLC (100%)(16)

6,801


5,662


0.1%

Net Profits Interest (8% of Equity Distributions)(4)(16)

-


15


-%

6,801


5,677


0.1%

Total Control Investments (Level 3)

$

1,840,731


$

1,911,775


57.0%

Affiliate Investments (5.00% to 24.99% voting control)(50)

Nixon, Inc.(39)

California / Textiles, Apparel & Luxury Goods

Senior Secured Term Loan (11.50% PIK, in non-accrual status effective 7/1/2016, due 11/12/2022)(8)

$

16,499


$

14,197


$

-


-%

Common Stock (857 units)(16)

-


-


-


-%

14,197


-


-%

Targus Cayman HoldCo Limited (33)

California / Textiles, Apparel & Luxury Goods

Senior Secured Term Loan A (15.00% PIK, due 12/31/2019)(8)(46)

1,532


1,320


1,532


-%

Senior Secured Term Loan B (15.00% PIK, due 12/31/2019)(8)(46)

4,596


3,961


4,596


0.1%

Common Stock (1,262,737 shares)(16)



3,479


5,301


0.1%

8,760


11,429


0.3%

Total Affiliate Investments (Level 3)

$

22,957


$

11,429


0.3%



See notes to consolidated financial statements.

21


PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)

(in thousands, except share data)


June 30, 2017

Portfolio Company

Locale / Industry

Investments(1)

Principal Value

Amortized Cost

Fair
Value(2)

% of Net Assets

LEVEL 3 PORTFOLIO INVESTMENTS

Non-Control/Non-Affiliate Investments (less than 5.00% voting control)

American Gilsonite Company(34)

Utah / Chemicals

Membership Interest (1.93%)(16)

$

-


$

-


-%

-


-


-%

Apidos CLO IX

Cayman Islands / Structured Finance

Subordinated Notes (Residual Interest, current yield 0.00%, due 7/15/2023)(5)(14)(17)

23,525


7,597


7,597


0.2%

7,597


7,597


0.2%

Apidos CLO XI

Cayman Islands / Structured Finance

Subordinated Notes (Residual Interest, current yield 9.54%, due 10/17/2028)(5)(14)

40,500


30,494


24,777


0.7%

30,494


24,777


0.7%

Apidos CLO XII

Cayman Islands / Structured Finance

Subordinated Notes (Residual Interest, current yield 5.73%, due 4/15/2025)(5)(14)

44,063


30,745


26,047


0.8%

30,745


26,047


0.8%

Apidos CLO XV

Cayman Islands / Structured Finance

Subordinated Notes (Residual Interest, current yield 12.29%, due 10/20/2025)(5)(14)

36,515


29,491


26,083


0.8%

29,491


26,083


0.8%

Apidos CLO XXII

Cayman Islands / Structured Finance

Subordinated Notes (Residual Interest, current yield 14.51%, due 10/20/2027)(5)(6)(14)

31,350


26,991


25,432


0.8%

26,991


25,432


0.8%

Ark-La-Tex Wireline Services, LLC(32)

Louisiana / Energy Equipment & Services

Senior Secured Term Loan B (12.73% (LIBOR + 11.50% with 1.00% LIBOR floor), in non-accrual status effective 4/1/2016, due 4/8/2019)(10)(13)

26,080


1,630


1,630


-%

1,630


1,630


-%

Armor Holding II LLC

New York / Commercial Services & Supplies

Second Lien Term Loan (10.30% (LIBOR + 9.00% with 1.25% LIBOR floor), due 12/26/2020)(3)(8)(10)(11)

7,000


6,928


7,000


0.2%

6,928


7,000


0.2%

Atlantis Health Care Group (Puerto Rico), Inc.

Puerto Rico / Health Care Providers & Services

Revolving Line of Credit – $7,000 Commitment (9.50% (LIBOR + 8.00% with 1.50% LIBOR floor), due 8/21/2018)(10)(11)(15)

3,850


3,850


3,850


0.1%

Senior Term Loan (9.50% (LIBOR + 8.00% with 1.50% LIBOR floor), due 2/21/2020)(3)(10)(11)

79,560


79,560


79,560


2.4%

83,410


83,410


2.5%

Babson CLO Ltd. 2014-III

Cayman Islands / Structured Finance

Subordinated Notes (Residual Interest, current yield 15.01%, due 1/15/2026)(5)(6)(14)

52,250


42,101


39,001


1.2%

42,101


39,001


1.2%

Broder Bros., Co.

Pennsylvania / Textiles, Apparel & Luxury Goods

Senior Secured Term Loan A (7.05% (LIBOR + 5.75% with 1.25% LIBOR floor), due 6/03/2021)(3)(10)(11)

110,876


110,876


110,876


3.3%

Senior Secured Term Loan B (13.55% (LIBOR + 12.25% with 1.25% LIBOR floor), due 6/03/2021)(10)(11)

114,901


114,901


114,901


3.4%

225,777


225,777


6.7%

Brookside Mill CLO Ltd.

Cayman Islands / Structured Finance

Subordinated Notes (Residual Interest, current yield 1.29%, due 4/17/2025)(5)(14)

26,000


17,178


14,022


0.4%

17,178


14,022


0.4%


See notes to consolidated financial statements.

22


PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)

(in thousands, except share data)


June 30, 2017

Portfolio Company

Locale / Industry

Investments(1)

Principal Value

Amortized Cost

Fair
Value(2)

% of Net Assets

LEVEL 3 PORTFOLIO INVESTMENTS

Non-Control/Non-Affiliate Investments (less than 5.00% voting control)

California Street CLO IX Ltd. (f/k/a Symphony CLO IX Ltd.)

Cayman Islands / Structured Finance

Preference Shares (Residual Interest, current yield 13.82%, due 10/16/2028)(5)(14)

$

58,915


$

40,792


$

35,758


1.1%

40,792


35,758


1.1%

Capstone Logistics Acquisition, Inc.

Georgia / Commercial Services & Supplies

Second Lien Term Loan (9.48% (LIBOR + 8.25% with 1.00% LIBOR floor), due 10/7/2022)(3)(8)(10)(13)

101,517


101,071


98,468


2.9%

101,071


98,468


2.9%

Carlyle Global Market Strategies CLO 2014-4, Ltd.

Cayman Islands / Structured Finance

Subordinated Notes (Residual Interest, current yield 21.61%, due 10/15/2026)(5)(6)(14)

25,534


19,494


19,757


0.6%

19,494


19,757


0.6%

Carlyle Global Market Strategies CLO 2016-3, Ltd.

Cayman Islands / Structured Finance

Subordinated Notes (Residual Interest, current yield 15.04%, due 10/20/2029)(5)(6)(14)

32,200


31,449


26,745


0.8%

31,449


26,745


0.8%

Cent CLO 17 Limited

Cayman Islands / Structured Finance

Subordinated Notes (Residual Interest, current yield 10.00%, due 1/30/2025)(5)(14)

24,870


18,100


16,708


0.5%

18,100


16,708


0.5%

Cent CLO 20 Limited

Cayman Islands / Structured Finance

Subordinated Notes (Residual Interest, current yield 15.81%, due 1/25/2026)(5)(14)

40,275


32,105


32,148


1.0%

32,105


32,148


1.0%

Cent CLO 21 Limited

Cayman Islands / Structured Finance

Subordinated Notes (Residual Interest, current yield 15.47%, due 7/27/2026)(5)(6)(14)

48,528


36,659


36,178


1.1%

36,659


36,178


1.1%

Centerfield Media Holding Company(35)

California / Internet Software and Services

Senior Secured Term Loan A (8.30% (LIBOR + 7.00% with 1.00% LIBOR floor), due 1/17/2022)(3)(8)(10)(11)

67,320


67,320


67,320


2.0%

Senior Secured Term Loan B (13.80% (LIBOR + 12.50% with 1.00% LIBOR floor), due 1/17/2022)(8)(10)(11)

68,000


68,000


68,000


2.0%

135,320


135,320


4.0%

CIFC Funding 2013-III, Ltd.

Cayman Islands / Structured Finance

Subordinated Notes (Residual Interest, current yield 15.42%, due 10/24/2025)(5)(14)

44,100


31,233


30,265


0.9%

31,233


30,265


0.9%

CIFC Funding 2013-IV, Ltd.

Cayman Islands / Structured Finance

Subordinated Notes (Residual Interest, current yield 16.16%, due 11/27/2024)(5)(14)

45,500


32,859


32,708


1.0%

32,859


32,708


1.0%

CIFC Funding 2014-IV Investor, Ltd.

Cayman Islands / Structured Finance

Income Notes (Residual Interest, current yield 13.85%, due 10/17/2026)(5)(6)(14)

41,500


30,002


29,139


0.9%

30,002


29,139


0.9%

CIFC Funding 2016-I, Ltd.

Cayman Islands / Structured Finance

Income Notes (Residual Interest, current yield 16.33%, due 10/21/2028)(5)(6)(14)

34,000


31,780


29,513


0.9%

31,780


29,513


0.9%

Cinedigm DC Holdings, LLC

New York / Media

Senior Secured Term Loan (11.00% (LIBOR + 9.00% with 2.00% LIBOR floor) plus 2.50% PIK, due 3/31/2021)(10)(11)(46)

49,156


49,106


49,156


1.5%

49,106


49,156


1.5%


See notes to consolidated financial statements.

23


PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)

(in thousands, except share data)


June 30, 2017

Portfolio Company

Locale / Industry

Investments(1)

Principal Value

Amortized Cost

Fair
Value(2)

% of Net Assets

LEVEL 3 PORTFOLIO INVESTMENTS

Non-Control/Non-Affiliate Investments (less than 5.00% voting control)

Coverall North America, Inc.

Florida / Commercial Services & Supplies

Senior Secured Term Loan A (7.30% (LIBOR + 6.00% with 1.00% LIBOR floor), due 11/02/2020)(3)(10)(11)

$

22,658


$

22,658


$

22,658


0.7%

Senior Secured Term Loan B (12.30% (LIBOR + 11.00% with 1.00% LIBOR floor), due 11/02/2020)(3)(10)(11)

24,938


24,938


24,938


0.7%

47,596


47,596


1.4%

CURO Financial Technologies Corp.

Canada / Consumer Finance

Senior Secured Notes (12.00%, due 3/1/2022)(8)(14)

10,000


9,831


10,000


0.3%

9,831


10,000


0.3%

Digital Room LLC

California / Commercial Services & Supplies

Second Lien Term Loan (11.23% (LIBOR + 10.00% with 1.00% LIBOR floor), due 5/21/2023)(3)(8)(10)(13)

34,000


33,389


33,389


1.0%

33,389


33,389


1.0%

Dunn Paper, Inc.

Georgia / Paper & Forest Products

Second Lien Term Loan (9.98% (LIBOR + 8.75% with 1.00% LIBOR floor), due 8/26/2023)(3)(8)(10)(13)

11,500


11,295


11,500


0.3%

11,295


11,500


0.3%

Easy Gardener Products, Inc.

Texas / Household Durables

Senior Secured Term Loan (11.30% (LIBOR + 10.00% with .25% LIBOR floor), due 9/30/2020)(3)(10)(11)

17,194


17,194


17,066


0.5%

17,194


17,066


0.5%

EZShield Parent, Inc.

Maryland / Internet Software & Services

Senior Secured Term Loan A (7.98% (LIBOR + 6.75% with 1.00% LIBOR floor), due 2/26/2021)(3)(10)(13)

14,963


14,963


14,963


0.4%

Senior Secured Term Loan B (12.98% (LIBOR + 11.75% with 1.00% LIBOR floor), due 2/26/2021)(3)(10)(13)

15,000


15,000


15,000


0.5%

29,963


29,963


0.9%

Fleetwash, Inc.

New Jersey / Commercial Services & Supplies

Senior Secured Term Loan B (10.30% (LIBOR + 9.00% with 1.00% LIBOR floor), due 4/30/2022)(3)(10)(11)

21,544


21,544


21,544


0.6%

Delayed Draw Term Loan – $15,000 Commitment (9.80% (LIBOR + 8.50% with 1.00% LIBOR floor)expires 4/30/2022)(10)(11)(15)

-


-


-


-%

21,544


21,544


0.6%

Galaxy XV CLO, Ltd.

Cayman Islands / Structured Finance

Subordinated Notes (Residual Interest, current yield 12.14%, due 4/15/2025)(5)(14)

50,525


33,887


33,794


1.0%

33,887


33,794


1.0%

Galaxy XVI CLO, Ltd.

Cayman Islands / Structured Finance

Subordinated Notes (Residual Interest, current yield 11.71%, due 11/16/2025)(5)(14)

24,575


17,854


16,611


0.5%

17,854


16,611


0.5%

Galaxy XVII CLO, Ltd.

Cayman Islands / Structured Finance

Subordinated Notes (Residual Interest, current yield 10.14%, due 7/15/2026)(5)(6)(14)

39,905


29,502


26,833


0.8%

29,502


26,833


0.8%

Global Employment Solutions, Inc.

Colorado / Professional Services

Senior Secured Term Loan (10.48% (LIBOR + 9.25% with 1.00% LIBOR floor), due 6/26/2020)(3)(10)(13)

48,131


48,131


48,131


1.4%

48,131


48,131


1.4%

Halcyon Loan Advisors Funding 2012-1 Ltd.

Cayman Islands / Structured Finance

Subordinated Notes (Residual Interest, current yield 0.00%, due 8/15/2023)(5)(14)(17)

23,188


5,086


5,086


0.2%

5,086


5,086


0.2%

Halcyon Loan Advisors Funding 2013-1 Ltd.

Cayman Islands / Structured Finance

Subordinated Notes (Residual Interest, current yield 5.76%, due 4/15/2025)(5)(14)

40,400


26,949


23,937


0.7%

26,949


23,937


0.7%


See notes to consolidated financial statements.

24


PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)

(in thousands, except share data)


June 30, 2017

Portfolio Company

Locale / Industry

Investments(1)

Principal Value

Amortized Cost

Fair
Value(2)

% of Net Assets

LEVEL 3 PORTFOLIO INVESTMENTS

Non-Control/Non-Affiliate Investments (less than 5.00% voting control)

Halcyon Loan Advisors Funding 2014-1 Ltd.

Cayman Islands / Structured Finance

Subordinated Notes (Residual Interest, current yield 9.70%, due 4/18/2026)(5)(14)

$

24,500


$

15,982


$

15,984


0.5%

15,982


15,984


0.5%

Halcyon Loan Advisors Funding 2014-2 Ltd.

Cayman Islands / Structured Finance

Subordinated Notes (Residual Interest, current yield 14.39%, due 4/28/2025)(5)(6)(14)

41,164


27,617


27,869


0.8%

27,617


27,869


0.8%

Halcyon Loan Advisors Funding 2015-3 Ltd.

Cayman Islands / Structured Finance

Subordinated Notes (Residual Interest, current yield 15.09%, due 10/18/2027)(5)(6)(14)

39,598


34,205


34,938


1.0%

34,205


34,938


1.0%

Harbortouch Payments, LLC

Pennsylvania / Commercial Services & Supplies

Escrow Receivable

-


864


-%

-


864


-%

HarbourView CLO VII, Ltd.

Cayman Islands / Structured Finance

Subordinated Notes (Residual Interest, current yield 19.25%, due 11/18/2026)(5)(6)(14)

19,025


14,955


14,047


0.4%

14,955


14,047


0.4%

Harley Marine Services, Inc.

Washington / Marine

Second Lien Term Loan (10.50% (LIBOR + 9.25% with 1.25% LIBOR floor), due 12/20/2019)(3)(8)(10)(11)

9,000


8,919


8,800


0.3%

8,919


8,800


0.3%

Inpatient Care Management Company, LLC

Florida / Health Care Providers & Services

Senior Secured Term Loan (10.30% (LIBOR + 9.00% with 1.00% LIBOR floor), due 6/8/2021(3)(10)(11)

25,467


25,467


25,467


0.8%

25,467


25,467


0.8%

Instant Web, LLC

Minnesota / Media

Senior Secured Term Loan A (5.80% (LIBOR + 4.50% with 1.00% LIBOR floor), due 3/28/2019)(10)(11)

120,948


120,948


120,948


3.6%

Senior Secured Term Loan B (12.30% (LIBOR + 11.00% with 1.00% LIBOR floor), due 3/28/2019)(3)(10)(11)

158,100


158,100


158,100


4.7%

Senior Secured Term Loan C-1 (13.05% (LIBOR + 11.75% with 1.00% LIBOR floor), due 3/28/2019)(10)(11)

27,000


27,000


27,000


0.8%

Senior Secured Term Loan C-2 (13.80% (LIBOR + 12.50% with 1.00% LIBOR floor), due 3/28/2019)(10)(11)

25,000


25,000


25,000


0.8%

331,048


331,048


9.9%

InterDent, Inc.

California / Health Care Providers & Services

Senior Secured Term Loan A (6.73% (LIBOR + 5.50% with 0.75% LIBOR floor), due 8/3/2017)(10)(13)

78,656


78,656


78,656


2.3%

Senior Secured Term Loan B (11.73% (LIBOR + 10.50% with 0.75% LIBOR floor), due 8/3/2017)(3)(10)(13)

131,125


131,125


129,857


3.9%

209,781


208,513


6.2%

JD Power and Associates

California / Capital Markets

Second Lien Term Loan (9.80% (LIBOR + 8.50% with 1.00% LIBOR floor), due 9/7/2024)(3)(8)(10)(11)

15,000


14,796


15,000


0.4%

14,796


15,000


0.4%

Jefferson Mill CLO Ltd.

Cayman Islands / Structured Finance

Subordinated Notes (Residual Interest, current yield 10.45%, due 7/20/2027)(5)(6)(14)

19,500


16,501


13,507


0.4%

16,501


13,507


0.4%

K&N Parent, Inc.

California / Auto Components

Second Lien Term Loan (9.98% (LIBOR + 8.75% with 1.00% LIBOR floor), due 10/20/2024)(3)(8)(10)(13)

13,000


12,762


13,000


0.4%

12,762


13,000


0.4%


See notes to consolidated financial statements.

25


PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)

(in thousands, except share data)


June 30, 2017

Portfolio Company

Locale / Industry

Investments(1)

Principal Value

Amortized Cost

Fair
Value(2)

% of Net Assets

LEVEL 3 PORTFOLIO INVESTMENTS

Non-Control/Non-Affiliate Investments (less than 5.00% voting control)

Keystone Acquisition Corp.(36)

Pennsylvania / Health Care Providers & Services

Second Lien Term Loan (10.55% (LIBOR + 9.25% with 1.00% LIBOR floor), due 5/1/2025)(3)(8)(10)(11)

$

50,000


$

50,000


$

50,000


1.5%

50,000


50,000


1.5%

LaserShip, Inc.

Virginia / Air Freight & Logistics

Senior Secured Term Loan A (10.25% (LIBOR + 8.25% with 2.00% LIBOR floor), due 3/18/2019)(3)(10)(13)

32,184


32,184


32,184


1.0%

Senior Secured Term Loan B (10.25% (LIBOR + 8.25% with 2.00% LIBOR floor), due 3/18/2019)(3)(10)(13)

19,768


19,768


19,768


0.5%

51,952


51,952


1.5%

LCM XIV Ltd.

Cayman Islands / Structured Finance

Income Notes (Residual Interest, current yield 14.99%, due 7/15/2025)(5)(14)

30,500


21,243


21,567


0.6%

21,243


21,567


0.6%

Madison Park Funding IX, Ltd.

Cayman Islands / Structured Finance

Subordinated Notes (Residual Interest, current yield 11.49%, due 8/15/2022)(5)(14)

43,110


8,558


8,472


0.3%

8,558


8,472


0.3%

Matrixx Initiatives, Inc.

New Jersey / Pharmaceuticals

Senior Secured Term Loan A (7.80% (LIBOR + 6.50% with 1.00% LIBOR floor), due 2/24/2020)(3)(10)(11)

65,427


65,427


65,427


2.0%

Senior Secured Term Loan B (12.80% (LIBOR + 11.50% with 1.00% LIBOR floor), due 2/24/2020)(3)(10)(11)

52,562


52,562


52,562


1.6%

117,989


117,989


3.6%

Maverick Healthcare Equity, LLC

Arizona / Health Care Providers & Services

Preferred Units (10.00%, 1,250,000 units)(16)

1,252


782


-%

Class A Common Units (1,250,000 units)(16)

-


-


-%

1,252


782


-%

Memorial MRI & Diagnostic, LLC

Texas / Health Care Providers & Services

Senior Secured Term Loan (9.80% (LIBOR + 8.50% with 1.00% LIBOR floor), due 3/16/2022)(10)(11)

37,810


37,810


37,810


1.1%

37,810


37,810


1.1%

Mountain View CLO 2013-I Ltd.

Cayman Islands / Structured Finance

Subordinated Notes (Residual Interest, current yield 9.43%, due 4/12/2024)(5)(14)

43,650


28,554


26,314


0.8%

28,554


26,314


0.8%

Mountain View CLO IX Ltd.

Cayman Islands / Structured Finance

Subordinated Notes (Residual Interest, current yield 14.70%, due 7/15/2027)(5)(6)(14)

47,830


40,832


39,857


1.2%

40,832


39,857


1.2%

National Home Healthcare Corp.

Michigan / Health Care Providers & Services

Second Lien Term Loan (10.08% (LIBOR + 9.00% with 1.00% LIBOR floor), due 12/8/2022)(3)(8)(10)(13)

15,407


15,199


15,407


0.5%

15,199


15,407


0.5%

NCP Finance Limited Partnership(38)

Ohio / Consumer Finance

Subordinated Secured Term Loan (11.00% (LIBOR + 9.75% with 1.25% LIBOR floor), due 9/30/2018)(3)(8)(10)(13)(14)

26,880


26,455


25,973


0.8%

26,455


25,973


0.8%

Octagon Investment Partners XV, Ltd.

Cayman Islands / Structured Finance

Income Notes (Residual Interest, current yield 13.13%, due 1/19/2025)(5)(14)

42,064


29,704


24,250


0.7%

29,704


24,250


0.7%

Octagon Investment Partners XVIII, Ltd.

Cayman Islands / Structured Finance

Income Notes (Residual Interest, current yield 15.36%, due 12/16/2024)(5)(6)(14)

28,200


18,468


17,415


0.5%

18,468


17,415


0.5%


See notes to consolidated financial statements.

26


PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)

(in thousands, except share data)


June 30, 2017

Portfolio Company

Locale / Industry

Investments(1)

Principal Value

Amortized Cost

Fair
Value(2)

% of Net Assets

LEVEL 3 PORTFOLIO INVESTMENTS

Non-Control/Non-Affiliate Investments (less than 5.00% voting control)

Pacific World Corporation

California / Personal Products

Revolving Line of Credit – $15,000 Commitment (8.23% (LIBOR + 7.00% with 1.00% LIBOR floor), due 9/26/2020)(10)(13)(15)

$

14,725


$

14,725


$

14,725


0.4%

Senior Secured Term Loan A (6.23% (LIBOR + 5.00% with 1.00% LIBOR floor), due 9/26/2020)(3)(10)(13)

97,250


97,250


94,834


2.8%

Senior Secured Term Loan B (10.23% (LIBOR + 9.00% with 1.00% LIBOR floor), due 9/26/2020)(3)(10)(13)

97,250


97,250


69,450


2.1%

209,225


179,009


5.3%

Pelican Products, Inc.

California / Chemicals

Second Lien Term Loan (9.55% (LIBOR + 8.25% with 1.00% LIBOR floor), due 4/9/2021)(3)(8)(10)(11)

17,500


17,489


16,699


0.5%

17,489


16,699


0.5%

PeopleConnect Intermediate, LLC (f/k/a Intelius, Inc.)

Washington / Internet Software & Services

Revolving Line of Credit – $1,000 Commitment (9.80% (LIBOR + 8.50% with 1.00% LIBOR floor), due 8/11/2017)(10)(11)(15)

-


-


-


-%

Senior Secured Term Loan A (6.80% (LIBOR + 5.50% with 1.00% LIBOR floor), due 7/1/2020)(3)(10)(11)

19,606


19,606


19,606


0.6%

Senior Secured Term Loan B (12.80% (LIBOR + 11.50% with 1.00% LIBOR floor), due 7/1/2020)(3)(10)(11)

20,552


20,552


20,552


0.6%

40,158


40,158


1.2%

PGX Holdings, Inc.(40)

Utah / Diversified Consumer Services

Second Lien Term Loan (10.23% (LIBOR + 9.00% with 1.00% LIBOR floor), due 9/29/2021)(3)(10)(13)

143,767


143,767


143,767


4.3%

143,767


143,767


4.3%

Photonis Technologies SAS

France / Electronic Equipment, Instruments & Components

First Lien Term Loan (8.80% (LIBOR + 7.50% with 1.00% LIBOR floor), due 9/18/2019)(8)(10)(11)(14)

9,872


9,755


8,794


0.3%

9,755


8,794


0.3%

Pinnacle (US) Acquisition Co. Limited

Texas / Software

Second Lien Term Loan (10.55% (LIBOR + 9.25% with 1.25% LIBOR floor), due 8/3/2020)(8)(10)(11)

7,037


6,947


5,150


0.2%

6,947


5,150


0.2%

PlayPower, Inc.

North Carolina / Leisure Products

Second Lien Term Loan (10.05% (LIBOR + 8.75% with 1.00% LIBOR floor), due 6/23/2022)(3)(8)(10)(11)

11,000


10,880


11,000


0.3%

10,880


11,000


0.3%

PrimeSport, Inc.

Georgia / Hotels, Restaurants & Leisure

Senior Secured Term Loan A (8.30% (LIBOR + 7.00% with 1.00% LIBOR floor), due 2/11/2021)(3)(10)(11)

53,138


53,138


49,312


1.5%

Senior Secured Term Loan B (13.30% (LIBOR + 12.00% with 1.00% LIBOR floor), due 2/11/2021)(3)(10)(11)

74,500


74,500


54,585


1.6%

127,638


103,897


3.1%

Prince Mineral Holding Corp.

New York / Metals & Mining

Senior Secured Term Loan (11.50%, due 12/15/2019)(8)

10,000


9,953


10,000


0.3%

9,953


10,000


0.3%

RGIS Services, LLC

Michigan / Commercial Services & Supplies

Senior Secured Term Loan (8.80% (LIBOR + 7.50% with 1.00% LIBOR floor), due 3/31/2023)(8)(10)(11)

14,963


14,744


14,744


0.4%

14,744


14,744


0.4%


See notes to consolidated financial statements.

27


PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)

(in thousands, except share data)


June 30, 2017

Portfolio Company

Locale / Industry

Investments(1)

Principal Value

Amortized Cost

Fair
Value(2)

% of Net Assets

LEVEL 3 PORTFOLIO INVESTMENTS

Non-Control/Non-Affiliate Investments (less than 5.00% voting control)

RME Group Holding Company

Florida / Media

Revolving Line of Credit – $2,000 Commitment (9.30% (LIBOR + 8.00% with 1.00% LIBOR floor), due 8/4/2017)(10)(11)(15)

$

-


$

-


$

-


-%

Senior Secured Term Loan A (7.30% (LIBOR + 6.00% with 1.00% LIBOR floor), due 5/4/2022)(3)(10)(11)

37,500


37,500


37,500


1.1%

Senior Secured Term Loan B (12.30% (LIBOR + 11.00% with 1.00% LIBOR floor), due 5/4/2022)(3)(10)(11)

25,000


25,000


25,000


0.8%

62,500


62,500


1.9%

Rocket Software, Inc.

Massachusetts / Software

Second Lien Term Loan (10.80% (LIBOR + 9.50% with 1.00% LIBOR floor), due 10/14/2024)(3)(8)(10)(11)

50,000


49,094


50,000


1.5%

49,094


50,000


1.5%

SCS Merger Sub, Inc.

Texas / IT Services

Second Lien Term Loan (10.73% (LIBOR + 9.50% with 1.00% LIBOR floor), due 10/30/2023)(3)(8)(10)(13)

20,000


19,531


20,000


0.6%

19,531


20,000


0.6%

SESAC Holdco II LLC

Tennessee / Media

Second Lien Term Loan (8.37% (LIBOR + 7.25% with 1.00% LIBOR floor), due 2/23/2025)(8)(10)(12)

3,000


2,971


2,971


0.1%

2,971


2,971


0.1%

Small Business Whole Loan Portfolio(41)

New York / Online Lending

781 Small Business Loans purchased from On Deck Capital, Inc.

8,434


8,434


7,964


0.2%

8,434


7,964


0.2%

Spartan Energy Services, Inc.

Louisiana / Energy Equipment & Services

Senior Secured Term Loan A (7.23% (LIBOR + 6.00% with 1.00% LIBOR floor), in non-accrual status effective 4/1/2016, due 12/28/2018)(10)(13)

13,156


11,933


8,833


0.3%

Senior Secured Term Loan B (13.23% (LIBOR + 12.00% with 1.00% LIBOR floor), in non-accrual status effective 4/1/2016, due 12/28/2018)(10)(13)

16,101


13,669


-


-%

25,602


8,833


0.3%

Stryker Energy, LLC

Ohio / Oil, Gas & Consumable Fuels

Overriding Royalty Interests(43)

-


-


-%

-


-


-%

Sudbury Mill CLO Ltd.

Cayman Islands / Structured Finance

Subordinated Notes (Residual Interest, current yield 10.70%, due 1/17/2026)(5)(14)

28,200


19,519


17,304


0.5%

19,519


17,304


0.5%

Symphony CLO XIV Ltd.

Cayman Islands / Structured Finance

Subordinated Notes (Residual Interest, current yield 10.41%, due 7/14/2026)(5)(6)(14)

49,250


36,668


33,744


1.0%

36,668


33,744


1.0%

Symphony CLO XV, Ltd.

Cayman Islands / Structured Finance

Subordinated Notes (Residual Interest, current yield 13.68%, due 10/17/2026)(5)(14)

50,250


41,383


38,123


1.1%

41,383


38,123


1.1%

TouchTunes Interactive Networks, Inc.

New York / Internet Software & Services

Second Lien Term Loan (9.47% (LIBOR + 8.25% with 1.00% LIBOR floor), due 5/29/2022)(3)(8)(10)(11)

14,000


13,907


13,907


0.4%

13,907


13,907


0.4%

Traeger Pellet Grills LLC

Oregon / Household Durables

Senior Secured Term Loan A (6.50% (LIBOR + 4.50% with 2.00% LIBOR floor), due 6/18/2019)(3)(10)(11)

53,094


53,094


53,094


1.6%

Senior Secured Term Loan B (11.50% (LIBOR + 9.50% with 2.00% LIBOR floor), due 6/18/2019)(3)(10)(11)

56,031


56,031


56,031


1.6%

109,125


109,125


3.2%


See notes to consolidated financial statements.

28


PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)

(in thousands, except share data)


June 30, 2017

Portfolio Company

Locale / Industry

Investments(1)

Principal Value

Amortized Cost

Fair
Value(2)

% of Net Assets

LEVEL 3 PORTFOLIO INVESTMENTS

Non-Control/Non-Affiliate Investments (less than 5.00% voting control)

Transaction Network Services, Inc.

Virginia / Diversified Telecommunication Services

Second Lien Term Loan (9.23% (LIBOR + 8.00% with 1.00% LIBOR floor), due 8/14/2020)(3)(8)(10)(13)

$

4,410


$

4,395


$

4,410


0.1%

4,395


4,410


0.1%

Turning Point Brands, Inc.(42)

Kentucky / Tobacco

Second Lien Term Loan (11.00%, due 8/17/2022)(3)(8)

14,500


14,365


14,431


0.4%

14,365


14,431


0.4%

United Sporting Companies, Inc.(18)

South Carolina / Distributors

Second Lien Term Loan (12.75% (LIBOR + 11.00% with 1.75% LIBOR floor) plus 2.00% PIK, in non-accrual status effective 4/1/2017, due 11/16/2019)(3)(10)(13)

141,559


140,847


83,225


2.5%

Common Stock (24,967 shares)(16)

-


-


-%

140,847


83,225


2.5%

Universal Fiber Systems, LLC

Virginia / Textiles, Apparel & Luxury Goods

Second Lien Term Loan (10.76% (LIBOR + 9.50% with 1.00% LIBOR floor), due 10/02/2022)(3)(8)(10)(12)

37,000


36,446


37,000


1.1%

36,446


37,000


1.1%

Universal Turbine Parts, LLC

Alabama / Trading Companies & Distributors

Senior Secured Term Loan A (6.98% (LIBOR + 5.75% with 1.00% LIBOR floor), due 7/22/2021)(3)(10)(13)

32,013


32,013


32,013


1.0%

Senior Secured Term Loan B (12.98% (LIBOR + 11.75% with 1.00% LIBOR floor), due 7/22/2021)(3)(10)(13)

32,500


32,500


32,500


0.9%

64,513


64,513


1.9%

USG Intermediate, LLC

Texas / Leisure Products

Revolving Line of Credit – $2,500 Commitment (10.98% (LIBOR + 9.75% with 1.00% LIBOR floor), due 4/15/2018)(10)(13)(15)

1,000


1,000


1,000


-%

Senior Secured Term Loan A (8.48% (LIBOR + 7.25% with 1.00% LIBOR floor), due 4/15/2020)(3)(10)(13)

13,307


13,307


13,307


0.4%

Senior Secured Term Loan B (13.48% (LIBOR + 12.25% with 1.00% LIBOR floor), due 4/15/2020)(3)(10)(13)

18,897


18,897


18,897


0.6%

Equity(16)

1


-


-%

33,205


33,204


1.0%

VC GB Holdings, Inc.

Illinois / Household Durables

Subordinated Secured Term Loan (9.23% (LIBOR + 8.00% with 1.00% LIBOR floor), due 2/28/2025)(8)(10)(13)

20,000


19,712


19,992


0.6%

19,712


19,992


0.6%

Venio LLC

Pennsylvania / Professional Services

Second Lien Term Loan (4.00% plus PIK 10.00% (LIBOR + 7.50% with 2.50% LIBOR floor), in non-accrual status effective 12/31/15, due 2/19/2020)(10)(11)

20,442


16,111


16,342


0.5%

16,111


16,342


0.5%

Voya CLO 2012-2, Ltd.

Cayman Islands / Structured Finance

Income Notes (Residual Interest, current yield 0.00%, due 10/15/2022)(5)(14)(17)

38,070


22,667


22,667


0.7%

22,667


22,667


0.7%

Voya CLO 2012-3, Ltd.

Cayman Islands / Structured Finance

Income Notes (Residual Interest, current yield 0.00%, due 10/15/2022)(5)(14)(17)

46,632


26,445


26,445


0.8%

26,445


26,445


0.8%

Voya CLO 2012-4, Ltd.

Cayman Islands / Structured Finance

Income Notes (Residual Interest, current yield 14.13%, due 10/15/2028)(5)(14)

40,613


31,018


30,544


0.9%

31,018


30,544


0.9%


See notes to consolidated financial statements.

29


PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)

(in thousands, except share data)


June 30, 2017

Portfolio Company

Locale / Industry

Investments(1)

Principal Value

Amortized Cost

Fair
Value(2)

% of Net Assets

LEVEL 3 PORTFOLIO INVESTMENTS

Non-Control/Non-Affiliate Investments (less than 5.00% voting control)

Voya CLO 2014-1, Ltd.

Cayman Islands / Structured Finance

Subordinated Notes (Residual Interest, current yield 15.96%, due 4/18/2026)(5)(6)(14)

$

32,383


$

24,613


$

26,177


0.8%

24,613


26,177


0.8%

Voya CLO 2016-3, Ltd.

Cayman Islands / Structured Finance

Subordinated Notes (Residual Interest, current yield 12.55%, due 10/18/2027)(5)(6)(14)

28,100


27,130


23,497


0.7%

27,130


23,497


0.7%

Voya CLO 2017-3, Ltd.

Cayman Islands / Structured Finance

Subordinated Notes (Residual Interest, current yield 14.89%, due 7/20/2030)(5)(6)(14)

44,885


44,885


44,670


1.3%

44,885


44,670


1.3%

Washington Mill CLO Ltd.

Cayman Islands / Structured Finance

Subordinated Notes (Residual Interest, current yield 8.53%, due 4/20/2026)(5)(6)(14)

22,600


16,711


14,182


0.4%

16,711


14,182


0.4%

Water Pik, Inc.

Colorado / Personal Products

Second Lien Term Loan (10.05% (LIBOR + 8.75% with 1.00% LIBOR floor), due 1/8/2021)(3)(8)(10)(11)

13,739


13,473


13,739


0.4%

13,473


13,739


0.4%

Wheel Pros, LLC

Colorado / Auto Components

Senior Subordinated Secured Note (11.00% (LIBOR + 7.00% with 4.00% LIBOR floor), due 6/29/2020)(3)(10)(11)

12,000


12,000


12,000


0.4%

Senior Subordinated Secured Note (11.00% (LIBOR + 7.00% with 4.00% LIBOR floor), due 6/29/2020)(3)(10)(11)

5,460


5,460


5,460


0.2%

17,460


17,460


0.6%

Total Non-Control/Non-Affiliate Investments (Level 3)

$

4,117,868


$

3,915,101


116.7%

Total Portfolio Investments (Level 3)

$

5,981,556


$

5,838,305


174.0%


See notes to consolidated financial statements.

30


PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)

(in thousands, except share data)


Endnote Explanations as of December 31, 2017 (Unaudited) and June 30, 2017


(1)

The terms "Prospect," "we," "us" and "our" mean Prospect Capital Corporation and its subsidiaries unless the context specifically requires otherwise. The securities in which Prospect has invested were acquired in transactions that were exempt from registration under the Securities Act of 1933, as amended (the "Securities Act"). These securities may be resold only in transactions that are exempt from registration under the Securities Act.

(2)

Fair value is determined by or under the direction of our Board of Directors. As of December 31, 2017 and June 30, 2017 , all of our investments were classified as Level 3. ASC 820 classifies such unobservable inputs used to measure fair value as Level 3 within the valuation hierarchy. See Notes 2 and 3 within the accompanying notes to consolidated financial statements for further discussion.

(3)

Security, or a portion thereof, is held by Prospect Capital Funding LLC ("PCF"), our wholly-owned subsidiary and a bankruptcy remote special purpose entity, and is pledged as collateral for the Revolving Credit Facility and such security is not available as collateral to our general creditors (see Note 4). The fair values of the investments held by PCF at December 31, 2017 and June 30, 2017 were $1,217,565 and $1,513,413 , respectively, representing 22.5% and 25.9% of our total investments, respectively.

(4)

In addition to the stated returns, the net profits interest held will be realized upon sale of the borrower or a sale of the interests.

(5)

This investment is in the equity class of the collateralized loan obligation ("CLO") security. The CLO equity investments are entitled to recurring distributions which are generally equal to the excess cash flow generated from the underlying investments after payment of the contractual payments to debt holders and fund expenses. The current estimated yield, calculated using amortized cost, is based on the current projections of this excess cash flow taking into account assumptions which have been made regarding expected prepayments, losses and future reinvestment rates. These assumptions are periodically reviewed and adjusted. Ultimately, the actual yield may be higher or lower than the estimated yield if actual results differ from those used for the assumptions.

(6)

Co-investment with another fund managed by an affiliate of our investment adviser, Prospect Capital Management L.P. See Note 13 for further discussion.

(7)

Engine Group. Inc., Clearstream.TV. Inc., and ORC International, Inc., are joint borrowers on the senior secured and the second lien term loans.

(8)

Syndicated investment which was originated by a financial institution and broadly distributed.

(9)

Autodata, Inc. and Autodata Solutions, Inc. are joint borrowers.

(10)

Security, or a portion thereof, has a floating interest rate which may be subject to a LIBOR or PRIME floor. The interest rate was in effect at December 31, 2017 and June 30, 2017 .

(11)

The interest rate on these investments is subject to the base rate of 3-Month LIBOR, which was 1.69% and 1.30% at December 31, 2017 and June 30, 2017 , respectively. The current base rate for each investment may be different from the reference rate on December 31, 2017 and June 30, 2017 .

(12)

The interest rate on these investments is subject to the base rate of 2-Month LIBOR, which was 1.62% and 1.25% at December 31, 2017 and June 30, 2017 , respectively. The current base rate for each investment may be different from the reference rate on December 31, 2017 and June 30, 2017 .

(13)

The interest rate on these investments is subject to the base rate of 1-Month LIBOR, which was 1.56% and 1.23% at December 31, 2017 and June 30, 2017 , respectively. The current base rate for each investment may be different from the reference rate on December 31, 2017 and June 30, 2017 .

(14)

Investment has been designated as an investment not "qualifying" under Section 55(a) of the Investment Company Act of 1940 (the "1940 Act"). Under the 1940 Act, we may not acquire any non-qualifying asset unless, at the time such acquisition is made, qualifying assets represent at least 70% of our total assets. As of December 31, 2017 and June 30, 2017 , our qualifying assets as a percentage of total assets, stood at 72.16% and 71.75% , respectively. We monitor the status of these assets on an ongoing basis.

(15)

Undrawn committed revolvers and delayed draw term loans to our portfolio companies incur commitment and unused fees ranging from 0.00% to 4.00% . As of December 31, 2017 and June 30, 2017 , we had $20,017 and $22,925 , respectively, of undrawn revolver and delayed draw term loan commitments to our portfolio companies.

(16)

Represents non-income producing security that has not paid a dividend in the year preceding the reporting date.


See notes to consolidated financial statements.

31


PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)

(in thousands, except share data)


Endnote Explanations as of December 31, 2017 (Unaudited) and June 30, 2017 (Continued)



(17)

The effective yield has been estimated to be 0% as expected future cash flows are anticipated to not be sufficient to repay the investment at cost. If the expected investment proceeds increase, there is a potential for future investment income from the investment. Distributions, once received, will be recognized as return of capital with any remaining unamortized investment costs written off if the actual distributions are less than the amortized investment cost.

(18)

Ellett Brothers, LLC, Evans Sports, Inc., Jerry's Sports, Inc., Simmons Gun Specialties, Inc., Bonitz Brothers, Inc., and Outdoor Sports Headquarters, Inc. are joint borrowers on the second lien term loan. United Sporting Companies, Inc. is a parent guarantor of this debt investment.

(19)

CCPI Holdings Inc., a consolidated entity in which we own 100% of the common stock, owns 94.59% of CCPI Inc. ("CCPI"), the operating company, as of December 31, 2017 and June 30, 2017 . We report CCPI as a separate controlled company.

(20)

CP Holdings of Delaware LLC, a consolidated entity in which we own 100% of the membership interests, owns 82.3% of CP Energy Services Inc. ("CP Energy") as of December 31, 2017 and June 30, 2017 . CP Energy owns directly or indirectly 100% of each of CP Well Testing, LLC; Wright Foster Disposals, LLC; Foster Testing Co., Inc.; ProHaul Transports, LLC; and Wright Trucking, Inc. We report CP Energy as a separate controlled company. Effective December 31, 2014, CP Energy underwent a corporate reorganization in order to consolidate certain of its wholly-owned subsidiaries. On October 30, 2015, we restructured our investment in CP Energy. Concurrent with the restructuring, we exchanged our $86,965 senior secured loan and $15,924 subordinated loan for Series B Convertible Preferred Stock in CP Energy. On October 1, 2017 we restructured our investment in CP Energy. Concurrent with the restructuring, we exchanged $35,048 of Series B Convertible Preferred Stock for $35,048 of senior secured debt.

(21)

Credit Central Holdings of Delaware, LLC, a consolidated entity in which we own 100% of the membership interests, owns 98.26% and 74.93% of Credit Central Loan Company, LLC (f/k/a Credit Central Holdings, LLC ("Credit Central")) as of December 31, 2017 and June 30, 2017 , respectively. Credit Central owns 100% of each of Credit Central, LLC; Credit Central South, LLC; Credit Central of Texas, LLC; and Credit Central of Tennessee, LLC, the operating companies. We report Credit Central as a separate controlled company. On September 28, 2016, we made an additional $12,523 second lien debt and $2,098 equity investment in Credit Central, increasing its ownership to 99.91%.

(22)

Prospect owns 37.1% of the equity of Edmentum Ultimate Holdings, LLC as of December 31, 2017 and June 30, 2017 .

(23)

First Tower Holdings of Delaware LLC, a consolidated entity in which we own 100% of the membership interests, owns 80.1% of First Tower Finance Company LLC ("First Tower Finance"), which owns 100% of First Tower, LLC, the operating company as of December 31, 2017 and June 30, 2017 . We report First Tower Finance as a separate controlled company.

(24)

Energy Solutions Holdings Inc., a consolidated entity in which we own 100% of the equity, owns 100% of Freedom Marine Solutions, LLC ("Freedom Marine"), which owns Vessel Company, LLC, Vessel Company II, LLC and Vessel Company III, LLC. We report Freedom Marine as a separate controlled company. On October 30, 2015, we restructured our investment in Freedom Marine. Concurrent with the restructuring, we exchanged our $32,500 senior secured loans for additional membership interest in Freedom Marine.

(25)

MITY Holdings of Delaware Inc. ("MITY Delaware"), a consolidated entity in which we own 100% of the common stock, owns 95.48% and 95.83% of the equity of MITY, Inc. (f/k/a MITY Enterprises, Inc.) ("MITY"), as of December 31, 2017 and June 30, 2017 , respectively. MITY owns 100% of each of MITY-Lite, Inc. ("Mity-Lite"); Broda Enterprises USA, Inc.; and Broda Enterprises ULC ("Broda Canada"). We report MITY as a separate controlled company. MITY Delaware has a subordinated unsecured note issued and outstanding to Broda Canada that is denominated in Canadian Dollars ("CAD"). As of December 31, 2017 and June 30, 2017 , the principal balance of this note was CAD 7,371. In accordance with ASC 830, Foreign Currency Matters ("ASC 830"), the principal and fair value of this note was remeasured into our functional currency, US Dollars (USD), and is presented on our Consolidated Schedule of Investments in USD. We formed a separate legal entity domiciled in the United States, MITY FSC, Inc., ("MITY FSC") in which Prospect owns 96.88% of the equity, and MITY-Lite management owns the remaining portion.  MITY FSC does not have material operations.  This entity earns commission payments from MITY-Lite based on its sales to foreign customers, and distribute it to its shareholders based on pro-rata ownership.  During the three months ended December 31, 2017 , we received $211 of such commission, which we recognized as other income. On January 17, 2017, we invested an additional $8,000 of Senior Secured Term Loan A and $8,000 of Senior Secured Term Loan B debt investments in MITY, to fund an acquisition.

(26)

NPH Property Holdings, LLC, a consolidated entity in which we own 100% of the membership interests, owns 100% of the common equity of National Property REIT Corp. ("NPRC") (f/k/a National Property Holdings Corp.), a property REIT which holds investments in several real estate properties. Additionally, NPRC invests in online consumer loans through ACL Loan Holdings, Inc. ("ACLLH") and American Consumer Lending Limited ("ACLL"), its wholly-owned subsidiaries. We report NPRC


See notes to consolidated financial statements.

32


PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)

(in thousands, except share data)


Endnote Explanations as of December 31, 2017 (Unaudited) and June 30, 2017 (Continued)



as a separate controlled company. See Note 3 for further discussion of the properties held by NPRC. On August 1, 2016, we made an investment into ACLL, under the ACLL credit agreement, for senior secured term loans, Term Loan C, with the same terms as the existing ACLLH Term Loan C due to us. On January 1, 2017, we restructured our investment in NPRC and exchanged $55,000 of Senior Secured Term Loan E for common stock.

(27)

Nationwide Acceptance Holdings LLC, a consolidated entity in which we own 100% of the membership interests, owns 94.48% and 93.79% of Nationwide Loan Company LLC (f/k/a Nationwide Acceptance LLC), the operating company, as of December 31, 2017 and June 30, 2017 , respectively. We report Nationwide Loan Company LLC as a separate controlled company. On June 1, 2015, Nationwide Acceptance LLC completed a reorganization and was renamed Nationwide Loan Company LLC ("Nationwide") and formed two new wholly-owned subsidiaries: Pelican Loan Company LLC ("Pelican") and Nationwide Consumer Loans LLC. Nationwide assigned 100% of the equity interests in its other subsidiaries to Pelican which, in turn, assigned these interests to a new operating company wholly-owned by Pelican named Nationwide Acceptance LLC ("New Nationwide"). New Nationwide also assumed the existing senior subordinated term loan due to Prospect.

(28)

NMMB Holdings, a consolidated entity in which we own 100% of the equity, owns 96.33% of the fully diluted equity of NMMB, Inc. ("NMMB") as of December 31, 2017 and June 30, 2017 . NMMB owns 100% of Refuel Agency, Inc., which owns 100% of Armed Forces Communications, Inc. We report NMMB as a separate controlled company.

(29)

On June 3, 2017, Gulf Coast Machine & Supply Company ("Gulf Coast") sold all of its assets to a third party, for total consideration of $10,250, including escrowed amounts. The proceeds from the sale were primarily used to repay a $6,115 third party revolving credit facility, and the remainder was used to pay other legal and administrative costs incurred by Gulf Coast. As no proceeds were allocated to Prospect our debt and equity investment in Gulfco was written-off and we recorded a realized loss of $66,103. Gulf Coast holds $2,050 in escrow related to the sale, which will be distributed to Prospect once released to Gulf Coast, and will be recognized as a realized gain if and when it is received. On June 28, 2017, Gulf Coast was renamed to SB Forging Company II, Inc.

(30)

Prospect owns 99.96% of the equity of USES Corp. as of December 31, 2017 and June 30, 2017 .

(31)

Valley Electric Holdings I, Inc., a consolidated entity in which we own 100% of the common stock, owns 100% of Valley Electric Holdings II, Inc. ("Valley Holdings II"), another consolidated entity. Valley Holdings II owns 94.99% of Valley Electric Company, Inc. ("Valley Electric"). Valley Electric owns 100% of the equity of VE Company, Inc., which owns 100% of the equity of Valley Electric Co. of Mt. Vernon, Inc. We report Valley Electric as a separate controlled company.

(32)

On March 14, 2017, assets previously held by Ark-La-Tex Wireline Services, LLC ("Ark-La-Tex") were assigned to Wolf Energy Services Company, LLC, a new wholly-owned subsidiary of Wolf Energy Holdings, in exchange for a full reduction of Ark-La-Tex's Senior Secured Term Loan A and a partial reduction of the Senior Secured Term Loan B cost basis, in total equal to $22,145. The cost basis of the transferred assets is equal to the appraised fair value of assets at the time of transfer. During the three months ended June 30, 2017, Ark-La-Tex Term Loan B was written-off and a loss of $19,818 was realized. On June 30, 2017, the 18.00% Senior Secured Promissory Note, due April 15, 2018, in Wolf Energy, LLC was contributed to equity of Wolf Energy LLC. There was no impact from the transaction due to the note being on non-accrual status and having zero cost basis.

(33)

Prospect owns 16.04% and 12.63% of the equity in Targus Cayman HoldCo Limited, the parent company of Targus International LLC ("Targus") as of December 31, 2017 and June 30, 2017 , respectively. On September 25, 2017, Prospect exchanged $1,600 of Senior Secured Term Loan A and $4,799 of Senior Secured Term Loan B investments in Targus into 6,120,658 of common shares, and recorded a realized gain of $846, as a result of this transaction.

(34)

As of December 31, 2017 and June 30, 2017 , we own 99.9999% of AGC/PEP, LLC ("AGC/PEP"). As of 9/30/16, AGC/PEP, owned 2,038 out of a total of 93,485 shares (including 7,456 vested and unvested management options) of American Gilsonite Holding Company ("AGC Holdco") which owns 100% of American Gilsonite Company ("AGC"). On October 24, 2016, AGC filed for a joint prepackaged plan of reorganization under Chapter 11 of the bankruptcy code. As of June 30, 2017, AGC has emerged from bankruptcy and AGC Holdco was dissolved. AGC/PEP received a total of 131 shares in AGC, representing a total ownership stake of 0.05% in AGC.

(35)

Centerfield Media Holding Company and Oology Direct Holdings, Inc. are joint borrowers and guarantors on the senior secured loan facilities.

(36)

Keystone Acquisition Corp. is the parent borrower on the second lien term loan. Other joint borrowers on this debt investment include Keystone Peer Review Organization, Inc., KEPRO Acquisitions, Inc., APS Healthcare Bethesda, Inc., Ohio KEPRO, Inc. and APS Healthcare Quality Review, Inc.


See notes to consolidated financial statements.

33


PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)

(in thousands, except share data)


Endnote Explanations as of December 31, 2017 (Unaudited) and June 30, 2017 (Continued)



(37)

Arctic Oilfield Equipment USA, Inc., a consolidated entity in which we own 100% of the common equity, owns 70% of the equity units of Arctic Energy Services, LLC ("Arctic Energy"), the operating company. We report Arctic Energy as a separate controlled company. On September 30, 2015, we restructured our investment in Arctic Energy. Concurrent with the restructuring, we exchanged our $31,640 senior secured loan and our $20,230 subordinated loan for Class D and Class E Units in Arctic Energy. Our ownership of Arctic Energy includes a preferred interest in their holdings of all the Class D, Class E, Class C, and Class A Units (in order of priority returns). These unit classes are senior to management's interests in the F and B Units.

(38)

NCP Finance Limited Partnership, NCP Finance Ohio, LLC, and certain affiliates thereof are joint borrowers on the subordinated secured term loan.

(39)

As of December 31, 2017 and June 30, 2017 , Prospect owns 8.57% of the equity in Nixon Holdco, LLC, the parent company of Nixon, Inc.

(40)

As of December 31, 2017 and June 30, 2017 , PGX Holdings, Inc. is the sole borrower on the second lien term loan.

(41)

Our wholly-owned subsidiary Prospect Small Business Lending, LLC purchases small business whole loans from small business loan originators, including On Deck Capital, Inc.

(42)

Turning Point Brands, Inc. and North Atlantic Trading Company, Inc. are joint borrowers and guarantors on the secured loan facility.

(43)

The overriding royalty interests held receive payments at the stated rates based upon operations of the borrower.

(44)

The following shows the composition of our investment portfolio by type of investment as of December 31, 2017 and June 30, 2017 :

December 31, 2017

June 30, 2017

Type of Investment

Cost

Fair Value

% of Net Assets

Cost

Fair Value

% of Net Assets

Revolving Line of Credit

$

34,317


$

34,096


1.0

%

$

27,409


$

27,409


0.8

%

Senior Secured Debt

2,497,404


2,381,739


71.1

%

2,940,163


2,798,796


83.4

%

Subordinated Secured Debt

1,233,051


1,153,876


34.5

%

1,160,019


1,107,040


33.0

%

Subordinated Unsecured Debt

38,236


32,052


1.0

%

37,934


44,434


1.3

%

Small Business Loans

1,484


1,365


-

%

8,434


7,964


0.2

%

CLO Residual Interest

1,067,371


940,276


28.1

%

1,150,006


1,079,712


32.2

%

Preferred Stock

77,346


62,678


1.9

%

112,394


83,209


2.5

%

Common Stock

362,348


458,025


13.7

%

295,200


391,374


11.7

%

Membership Interest

250,881


258,774


7.7

%

249,997


206,012


6.2

%

Participating Interest(A)

-


97,395


2.9

%

-


91,491


2.7

%

Escrow Receivable

-


856


-

%

-


864


-

%

Total Investments

$

5,562,438


$

5,421,132


161.9

%

$

5,981,556


$

5,838,305


174.0

%

(A) Participating Interest includes our participating equity investments, such as net profits interests, net operating income interests, net revenue interests, and overriding royalty interests.







See notes to consolidated financial statements.

34


PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)

(in thousands, except share data)


Endnote Explanations as of December 31, 2017 (Unaudited) and June 30, 2017 (Continued)




(45)

The following shows the composition of our investment portfolio by industry as of December 31, 2017 and June 30, 2017 :

December 31, 2017

June 30, 2017

Industry

Cost

Fair Value

% of Net Assets

Cost

Fair Value

% of Net Assets

Aerospace & Defense

$

69,837


$

76,577


2.3

%

$

69,837


$

71,318


2.1

%

Air Freight & Logistics

37,114


37,114


1.1

%

51,952


51,952


1.5

%

Auto Components

33,538


33,594


1.0

%

30,222


30,460


0.9

%

Capital Markets

19,785


20,000


0.6

%

14,796


15,000


0.4

%

Chemicals

17,491


17,077


0.5

%

17,489


16,699


0.5

%

Commercial Services & Supplies

338,263


278,723


8.3

%

354,185


312,634


9.3

%

Communications Equipment

39,851


39,851


1.2

%

-


-


-

%

Construction & Engineering

63,358


40,930


1.2

%

62,258


32,509


1.0

%

Consumer Finance

468,390


542,497


16.2

%

469,869


502,941


15.0

%

Distributors

591,124


506,339


15.1

%

140,847


83,225


2.5

%

Diversified Consumer Services

187,373


176,030


5.3

%

188,912


190,662


5.7

%

Diversified Telecommunication Services

-


-


-

%

4,395


4,410


0.1

%

Electronic Equipment, Instruments & Components

39,897


49,920


1.5

%

37,696


51,846


1.5

%

Energy Equipment & Services

248,499


166,318


5.0

%

251,019


131,660


3.9

%

Equity Real Estate
Investment Trusts
(REITs)

437,063


718,356


21.5

%

374,380


624,337


18.6

%

Food Products

9,876


9,876


0.3

%

-


Health Care Providers & Services

455,946


452,712


13.5

%

422,919


421,389


12.6

%

Health Care Technology

14,926


14,926


0.4

%

-


-


-

%

Hotels, Restaurants & Leisure

-


-


-

%

127,638


103,897


3.1

%

Household Durables

45,390


45,241


1.4

%

146,031


146,183


4.4

%

Insurance

2,985


2,985


0.1

%

-


-


-

%

Internet Software & Services

228,615


228,699


6.8

%

219,348


219,348


6.6

%

IT Services

19,568


20,000


0.6

%

19,531


20,000


0.6

%

Leisure Products

49,217


49,324


1.5

%

44,085


44,204


1.3

%

Machinery

35,488


31,408


0.9

%

35,488


32,678


1.0

%

Marine (A)

8,935


8,935


0.3

%

8,919


8,800


0.3

%

Media

128,616


126,411


3.8

%

469,108


466,500


13.9

%

Metals & Mining

9,963


10,000


0.3

%

9,953


10,000


0.3

%

Online Lending

408,280


331,384


9.7

%

424,350


370,931


11.1

%

Paper & Forest Products

11,312


11,500


0.3

%

11,295


11,500


0.3

%

Personal Products

212,725


183,136


5.5

%

222,698


192,748


5.8

%

Pharmaceuticals

11,880


12,000


0.4

%

117,989


117,989


3.5

%

Professional Services

16,287


17,076


0.5

%

64,242


64,473


1.9

%

Software

55,127


55,970


1.7

%

56,041


55,150


1.6

%

Technology Hardware, Storage & Peripherals

12,376


12,376


0.4

%

-


-


-

%

Textiles, Apparel & Luxury Goods

60,574


56,272


1.7

%

285,180


274,206


8.2

%

Tobacco

14,380


14,500


0.4

%

14,365


14,431


0.4

%


See notes to consolidated financial statements.

35


PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)

(in thousands, except share data)


Endnote Explanations as of December 31, 2017 (Unaudited) and June 30, 2017 (Continued)



Trading Companies & Distributors

64,188


55,969


1.7

%

64,513


64,513


1.9

%

Transportation Infrastructure

26,830


26,830


0.8

%

-


-


-

%

Subtotal

$

4,495,067


$

4,480,856


133.8

%

$

4,831,550


$

4,758,593


141.8

%

Structured Finance (B)

$

1,067,371


$

940,276


28.1

%

$

1,150,006


$

1,079,712


32.2

%

Total Investments

$

5,562,438


$

5,421,132


161.9

%

$

5,981,556


$

5,838,305


174.0

%

(A) Industry includes exposure to the energy markets through our investments in Harley Marine Services, Inc. Including this investment, our overall fair value exposure to the broader energy industry, including energy equipment and services as noted above, as of December 31, 2017 and June 30, 2017 is $175,253 and $140,460 , respectively.

(B) Our CLO investments do not have industry concentrations and as such have been separated in the table above.


(46)

The interest rate on these investments, excluding those on non-accrual, contains a paid in kind ("PIK") provision, whereby the issuer has either the option or the obligation to make interest payments with the issuance of additional securities. The interest rate in the schedule represents the current interest rate in effect for these investments.

The following table provides additional details on these PIK investments, including the maximum annual PIK interest rate allowed under the existing credit agreements, as of and for three months ended December 31, 2017 :

Security Name

PIK Rate -
Capitalized

PIK Rate -
Paid as cash

Maximum
Current PIK Rate

CCPI Inc.

-%

7.00%

7.00%

Cinedigm DC Holdings, LLC

-%

2.50%

2.50%

Credit Central Loan Company

-%

10.00%

10.00%

Echelon Aviation LLC

-%

2.25%

2.25%

Echelon Aviation LLC

-%

1.00%

1.00%

Edmentum Ultimate Holdings, LLC - Unsecured Senior PIK Note

8.50%

-%

8.50%

First Tower Finance Company LLC

-%

7.00%

7.00%

MITY, Inc.

-%

10.00%

10.00%

National Property REIT Corp. - Senior Secured Term Loan A

1.05%

9.45%

10.50%

National Property REIT Corp. - Senior Secured Term Loan E

-%

5.00%

5.00%

National Property REIT Corp. - Senior Secured Term Loan C to ACL Loan Holdings, Inc.

-%

5.00%

5.00%

National Property REIT Corp. - Senior Secured Term Loan C to American Consumer Lending Limited

-%

5.00%

5.00%

Nationwide Loan Company LLC

3.50%

6.50%

10.00%

Spartan Energy Services, Inc.

13.35%

-%

13.35%

Valley Electric Co. of Mt. Vernon, Inc.

-%

2.50%

2.50%

Valley Electric Company, Inc.

8.50%

-%

8.50%

Venio LLC

N/A

N/A

N/A

(A)

(A) The issuer capitalized 10.00% PIK on the next payment/capitalization date, which was January 2, 2018.







See notes to consolidated financial statements.

36


PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)

(in thousands, except share data)


Endnote Explanations as of December 31, 2017 (Unaudited) and June 30, 2017 (Continued)









The following table provides additional details on these PIK investments, including the maximum annual PIK interest rate allowed under the existing credit agreements, as of and for three months ended June 30, 2017:

Security Name

PIK Rate -
Capitalized

PIK Rate -
Paid as cash

Maximum
Current PIK Rate

CCPI Inc.

-%

7.00%

7.00%

Cinedigm DC Holdings, LLC

-%

2.50%

2.50%

Credit Central Loan Company

-%

10.00%

10.00%

Echelon Aviation LLC

N/A

N/A

2.25%

(B)

Echelon Aviation LLC

N/A

N/A

1.00%

(C)

Edmentum Ultimate Holdings, LLC - Unsecured Senior PIK Note

8.50%

-%

8.50%

First Tower Finance Company LLC

3.92%

3.08%

7.00%

MITY, Inc.

-%

10.00%

10.00%

National Property REIT Corp. - Senior Secured Term Loan A

-%

5.50%

5.50%

National Property REIT Corp. - Senior Secured Term Loan E

-%

5.00%

5.00%

National Property REIT Corp. - Senior Secured Term Loan C to ACL Loan Holdings, Inc.

-%

5.00%

5.00%

National Property REIT Corp. - Senior Secured Term Loan C to American Consumer Lending Limited

-%

5.00%

5.00%

Nationwide Loan Company LLC

-%

10.00%

10.00%

Targus Cayman HoldCo Limited - Senior Secured Term Loan A

15.00%

-%

15.00%

Targus Cayman HoldCo Limited - Senior Secured Term Loan B

15.00%

-%

15.00%

Valley Electric Co. of Mt. Vernon, Inc.

-%

2.50%

2.50%

Valley Electric Company, Inc.

8.50%

-%

8.50%

(B) Next PIK payment/capitalization date was July 31, 2017. The company paid 2.25% PIK in cash.

(C) Next PIK payment/capitalization date was July 31, 2017. The company paid 1.00% PIK in cash.


See notes to consolidated financial statements.

37


PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)

(in thousands, except share data)


Endnote Explanations as of December 31, 2017 (Unaudited) and June 30, 2017 (Continued)



(47)

As defined in the 1940 Act, we are deemed to "Control" these portfolio companies because we own more than 25% of the portfolio company's outstanding voting securities. Transactions during the six months ended December 31, 2017 with these controlled investments were as follows:

Portfolio Company

Fair Value at June 30, 2017

Gross Additions (Cost)*

Gross Reductions (Cost)**

Net unrealized
gains (losses)

Fair Value at December 31, 2017

Interest
income

Dividend
income

Other
income

Net realized
gains (losses)

Arctic Energy Services, LLC

$

17,370


$

-


$

-


$

6,788


$

24,158


$

-


$

-


$

-


$

-


CCPI Inc.

43,052


-


(369

)

(4,046

)

38,637


1,863


-


-


-


CP Energy Services Inc.

72,216


-


-


14,341


86,557


1,105


-


228


-


Credit Central Loan Company, LLC

64,435


940


-


9,337


74,712


6,241


-


317


-


Echelon Aviation LLC

71,318


-


-


5,259


76,577


3,206


-


-


-


Edmentum Ultimate Holdings, LLC

46,895


5,394


(7,834

)

(13,093

)

31,362


415


-


-


-


First Tower Finance Company LLC

365,588


869


(3,211

)

41,784


405,030


22,603


-


-


-


Freedom Marine Solutions, LLC

23,994


200


-


1,072


25,266


-


-


-


-


MITY, Inc.

76,512


-


-


(7,030

)

69,482


4,139


-


1,094


11


National Property REIT Corp.

987,304


92,272


(38,709

)

7,508


1,048,375


46,945


-


4,490


-


Nationwide Loan Company LLC

36,945


4,074


-


(10,764

)

30,255


1,737


-


-


-


NMMB, Inc.

20,825


-


-


403


21,228


759


-


-


-


R-V Industries, Inc.

32,678


-


-


(1,270

)

31,408


1,479


-


-


-


SB Forging Company II, Inc. (f/k/a Gulf Coast Machine & Supply Company)

1,940


-


-


(944

)

996


-


-


-


-


USES Corp.

12,517


3,000


(3

)

(8,859

)

6,655


-


-


-


-


Valley Electric Company, Inc.

32,509


1,103


-


7,319


40,931


2,956


-


-


-


Wolf Energy, LLC

5,677


-


(3,097

)

(2,287

)

293


-


-


-


-


Total

$

1,911,775


$

107,852


$

(53,223

)

$

45,518


$

2,011,922


$

93,448


$

-


$

6,129


$

11


* Gross additions include increases in the cost basis of the investments resulting from new portfolio investments, OID accretion and PIK interest.

** Gross reductions include decreases in the cost basis of investments resulting from principal collections related to investments repayments or sales and impairments.


See notes to consolidated financial statements.

38


PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)

(in thousands, except share data)


Endnote Explanations as of December 31, 2017 (Unaudited) and June 30, 2017 (Continued)



(48)

As defined in the 1940 Act, we are deemed to be an "Affiliated company" of these portfolio companies because we own more than 5% of the portfolio company's outstanding voting securities. Transactions during the six months ended December 31, 2017 with these affiliated investments were as follows:

Portfolio Company

Fair Value at June 30, 2017

Gross Additions (Cost)*

Gross Reductions (Cost)**

Net unrealized
gains (losses)

Fair Value at December 31, 2017

Interest
income

Dividend
income

Other
income

Net realized
gains (losses)

Nixon, Inc.

$

-


$

-


$

-


$

-


$

-


$

-


$

-


$

-


$

-


Targus Cayman HoldCo Limited

11,429


1,117


-


6,726


19,272


205


-


-


846


Total

$

11,429


$

1,117


$

-


$

6,726


$

19,272


$

205


$

-


$

-


$

846


* Gross additions include increases in the cost basis of the investments resulting from new portfolio investments and PIK interest.

** Gross reductions include decreases in the cost basis of investments resulting from principal collections related to investments repayments or sales and impairments.

(49)

As defined in the 1940 Act, we are deemed to "Control" these portfolio companies because we own more than 25% of the portfolio company's outstanding voting securities. Transactions during the year ended June 30, 2017 with these controlled investments were as follows:


Portfolio Company

Fair Value at June 30, 2016

Gross Additions (Cost)*

Gross Reductions (Cost)**

Net unrealized
gains (losses)

Fair Value at June 30, 2017

Interest
income

Dividend
income

Other
income

Net realized
gains (losses)

Arctic Energy Services, LLC

$

38,340


$

-


$

-


$

(20,970

)

$

17,370


$

-


$

-


$

-


$

-


CCPI Inc.

41,356


-


(327

)

2,023


43,052


2,992


123


153


-


CP Energy Services Inc.

76,002


-


-


(3,786

)

72,216


-


-


-


-


Credit Central Loan Company, LLC

52,254


10,826


(403

)

1,758


64,435


10,873


-


-


-


Echelon Aviation LLC

60,821


18,875


(6,800

)

(1,578

)

71,318


5,734


200


1,121


-


Edmentum Ultimate Holdings, LLC

44,346


9,892


(6,424

)

(919

)

46,895


1,726


-


-


-


First Tower Finance Company LLC

352,666


15,577


(2,220

)

(435

)

365,588


51,116


-


-


-


Freedom Marine Solutions, LLC

26,618


1,801


-


(4,425

)

23,994


-


-


-


-


MITY, Inc.

54,049


16,000


-


6,463


76,512


6,848


468


886


16


National Property REIT Corp.

843,933


237,851


(174,931

)

80,451


987,304


84,777


-


9,186


-


Nationwide Loan Company LLC

35,813


2,104


-


(972

)

36,945


3,406


4,310


-


-


NMMB, Inc.

10,007


-


(100

)

10,918


20,825


1,518


-


-


-


R-V Industries, Inc.

36,877


-


96


(4,295

)

32,678


2,877


149


124


172


SB Forging Company II, Inc. (f/k/a Gulf Coast Machine & Supply Company)

7,312


8,750


(69,125

)

55,003


1,940


-


-


-


(66,103

)

USES Corp.

40,286


2,599


(154

)

(30,214

)

12,517


-


-


-


-


Valley Electric Company, Inc.

31,091


1,821


-


(403

)

32,509


5,629


-


-


-


Wolf Energy, LLC

678


22,145


(15,344

)

(1,802

)

5,677


-


-


-


-


Total

$

1,752,449


$

348,241


$

(275,732

)

$

86,817


$

1,911,775


$

177,496


$

5,250


$

11,470


$

(65,915

)

* Gross additions include increases in the cost basis of the investments resulting from new portfolio investments and PIK interest.

** Gross reductions include decreases in the cost basis of investments resulting from principal collections related to investments repayments or sales and impairments.


See notes to consolidated financial statements.

39


PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)

(in thousands, except share data)


Endnote Explanations as of December 31, 2017 (Unaudited) and June 30, 2017 (Continued)



(50)

As defined in the 1940 Act, we are deemed to be an "Affiliated company" of these portfolio companies because we own more than 5% of the portfolio company's outstanding voting securities. Transactions during the year ended June 30, 2017 with these affiliated investments were as follows:

Portfolio Company

Fair Value at June 30, 2016

Gross Additions (Cost)*

Gross Reductions (Cost)**

Net unrealized
gains (losses)

Fair Value at June 30, 2017

Interest
income

Dividend
income

Other
income

Net realized
gains (losses)

BNN Holdings Corp.

$

2,842


$

-


$

(2,227

)

$

(615

)

$

-


$

-


$

-


$

-


$

137


Nixon, Inc.***

-


1,552


-


(1,552

)

-


-


-


-


-


Targus Cayman HoldCo Limited

8,478


231


-


2,720


11,429


297


-


-


-


Total

$

11,320


$

1,783


$

(2,227

)

$

553


$

11,429


$

297


$

-


$

-


$

137


* Gross additions include increases in the cost basis of the investments resulting from new portfolio investments and PIK interest.

** Gross reductions include decreases in the cost basis of investments resulting from principal collections related to investments repayments or sales and impairments.


***Investment was transferred at fair market value at the beginning of the three month period ended June 30, 2017.


See notes to consolidated financial statements.

40


PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)



Note 1. Organization

In this report, the terms "Prospect," "we," "us" and "our" mean Prospect Capital Corporation and its subsidiaries unless the context specifically requires otherwise.


Prospect is a financial services company that primarily lends to and invests in middle market privately-held companies. We are a closed-end investment company incorporated in Maryland. We have elected to be regulated as a business development company ("BDC") under the Investment Company Act of 1940 (the "1940 Act"). As a BDC, we have elected to be treated as a regulated investment company ("RIC"), under Subchapter M of the Internal Revenue Code of 1986 (the "Code"). We were organized on April 13, 2004 and were funded in an initial public offering completed on July 27, 2004.


On May 15, 2007, we formed a wholly-owned subsidiary Prospect Capital Funding LLC ("PCF"), a Delaware limited liability company and a bankruptcy remote special purpose entity, which holds certain of our portfolio loan investments that are used as collateral for the revolving credit facility at PCF. Our wholly-owned subsidiary Prospect Small Business Lending, LLC ("PSBL") was formed on January 27, 2014 and purchases small business whole loans on a recurring basis from online small business loan originators, including On Deck Capital, Inc. ("OnDeck"). On September 30, 2014, we formed a wholly-owned subsidiary Prospect Yield Corporation, LLC ("PYC") and effective October 23, 2014, PYC holds our investments in collateralized loan obligations ("CLOs"). Each of these subsidiaries have been consolidated since operations commenced.

We consolidate certain of our wholly-owned and substantially wholly-owned holding companies formed by us in order to facilitate our investment strategy. The following companies are included in our consolidated financial statements: APH Property Holdings, LLC ("APH"); Arctic Oilfield Equipment USA, Inc.; CCPI Holdings Inc.; CP Holdings of Delaware LLC; Credit Central Holdings of Delaware, LLC; Energy Solutions Holdings Inc.; First Tower Holdings of Delaware LLC; Harbortouch Holdings of Delaware Inc.; MITY Holdings of Delaware Inc.; Nationwide Acceptance Holdings LLC; NMMB Holdings, Inc.; NPH Property Holdings, LLC ("NPH"); STI Holding, Inc.; UPH Property Holdings, LLC ("UPH"); Valley Electric Holdings I, Inc.; Valley Electric Holdings II, Inc.; and Wolf Energy Holdings Inc. ("Wolf Energy Holdings"). On October 10, 2014, concurrent with the sale of the operating company, our ownership increased to 100% of the outstanding equity of ARRM Services, Inc. ("ARRM") which was renamed SB Forging Company, Inc. ("SB Forging"). As such, we began consolidating SB Forging on October 11, 2014. Effective May 23, 2016, in connection with the merger of American Property REIT Corp. ("APRC") and United Property REIT Corp. ("UPRC") with and into National Property REIT Corp. ("NPRC"), APH and UPH merged with and into NPH, and were dissolved. We collectively refer to these entities as the "Consolidated Holding Companies."

We are externally managed by our investment adviser, Prospect Capital Management L.P. ("Prospect Capital Management" or the "Investment Adviser"). Prospect Administration LLC ("Prospect Administration" or the "Administrator"), a wholly-owned subsidiary of the Investment Adviser, provides administrative services and facilities necessary for us to operate.

Our investment objective is to generate both current income and long-term capital appreciation through debt and equity investments. We invest primarily in senior and subordinated debt and equity of private companies in need of capital for acquisitions, divestitures, growth, development, recapitalizations and other purposes. We work with the management teams or financial sponsors to identify investments with historical cash flows, asset collateral or contracted pro-forma cash flows for investment.

Note 2. Significant Accounting Policies

Basis of Presentation and Consolidation

The accompanying consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles ("GAAP") pursuant to the requirements for reporting on Form 10-Q, ASC 946, Financial Services-Investment Companies ("ASC 946"), and Articles 6, 10 and 12 of Regulation S-X. Under the 1940 Act, ASC 946, and the regulations pursuant to Article 6 of Regulation S-X, we are precluded from consolidating any entity other than another investment company or an operating company which provides substantially all of its services to benefit us. Our consolidated financial statements include the accounts of Prospect, PCF, PSBL, PYC, and the Consolidated Holding Companies. All intercompany balances and transactions have been eliminated in consolidation. The financial results of our non-substantially wholly-owned holding companies and operating portfolio company investments are not consolidated in the financial statements. Any operating companies owned by the Consolidated Holding Companies are not consolidated.


41


Reclassifications


Certain reclassifications have been made in the presentation of prior consolidated financial statements and accompanying notes to conform to the presentation as of and for the three and six months ended December 31, 2017 .

Use of Estimates

The preparation of the consolidated financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of income, expenses, and gains and losses during the reported period. Changes in the economic environment, financial markets, creditworthiness of the issuers of our investment portfolio and any other parameters used in determining these estimates could cause actual results to differ, and these differences could be material.

Investment Classification

We are a non-diversified company within the meaning of the 1940 Act. As required by the 1940 Act, we classify our investments by level of control. As defined in the 1940 Act, "Control Investments" are those where there is the ability or power to exercise a controlling influence over the management or policies of a company. Control is generally deemed to exist when a company or individual possesses or has the right to acquire within 60 days or less, a beneficial ownership of more than 25% of the voting securities of an investee company. Under the 1940 Act, "Affiliate Investments" are defined by a lesser degree of influence and are deemed to exist through the possession outright or via the right to acquire within 60 days or less, beneficial ownership of 5% or more of the outstanding voting securities of another person. "Non-Control/Non-Affiliate Investments" are those that are neither Control Investments nor Affiliate Investments.

As a BDC, we must not acquire any assets other than "qualifying assets" specified in the 1940 Act unless, at the time the acquisition is made, at least 70% of our total assets are qualifying assets (with certain limited exceptions). As of December 31, 2017 and June 30, 2017 , our qualifying assets as a percentage of total assets, stood at 72.16% and 71.75% , respectively.

Investment Transactions

Investments are recognized when we assume an obligation to acquire a financial instrument and assume the risks for gains or losses related to that instrument. Specifically, we record all security transactions on a trade date basis. Investments are derecognized when we assume an obligation to sell a financial instrument and forego the risks for gains or losses related to that instrument. In accordance with ASC 325-40, Beneficial Interest in Securitized Financial Assets , investments in CLOs are periodically assessed for other-than-temporary impairment ("OTTI"). When the Company determines that a CLO has OTTI, the amortized cost basis of the CLO is written down to its fair value as of the date of the determination based on events and information evaluated and that write-down is recognized as a realized loss. Amounts for investments traded but not yet settled are reported in Due to Broker or Due from Broker, in the Consolidated Statements of Assets and Liabilities .

Foreign Currency

Foreign currency amounts are translated into US Dollars (USD) on the following basis:

i.

fair value of investment securities, other assets and liabilities-at the spot exchange rate on the last business day of the period; and

ii.

purchases and sales of investment securities, income and expenses-at the rates of exchange prevailing on the respective dates of such investment transactions, income or expenses.

We do not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in fair values of investments held or disposed of during the period. Such fluctuations are included within the net realized and net change in unrealized gains or losses from investments in the Consolidated Statements of Operations.

Investment Risks

Our investments are subject to a variety of risks. Those risks include the following:

Market Risk

Market risk represents the potential loss that can be caused by a change in the fair value of the financial instrument.


42


Credit Risk

Credit risk represents the risk that we would incur if the counterparties failed to perform pursuant to the terms of their agreements with us.

Liquidity Risk

Liquidity risk represents the possibility that we may not be able to rapidly adjust the size of our investment positions in times of high volatility and financial stress at a reasonable price.

Interest Rate Risk

Interest rate risk represents a change in interest rates, which could result in an adverse change in the fair value of an interest-bearing financial instrument.

Prepayment Risk

Many of our debt investments allow for prepayment of principal without penalty. Downward changes in interest rates may cause prepayments to occur at a faster than expected rate, thereby effectively shortening the maturity of the security and making us less likely to fully earn all of the expected income of that security and reinvesting in a lower yielding instrument.

Structured Credit Related Risk


CLO investments may be riskier and less transparent to us than direct investments in underlying companies. CLOs typically will have no significant assets other than their underlying senior secured loans. Therefore, payments on CLO investments are and will be payable solely from the cash flows from such senior secured loans. 

Online Small-and-Medium-Sized Business Lending Risk

With respect to our online small-and-medium-sized business ("SME") lending initiative, we invest primarily in marketplace loans through marketplace lending facilitators.  We do not conduct loan origination activities ourselves. Therefore, our ability to purchase SME loans, and our ability to grow our portfolio of SME loans, is directly influenced by the business performance and competitiveness of the marketplace loan origination business of the marketplace lending facilitators from which we purchase SME loans. In addition, our ability to analyze the risk-return profile of SME loans is significantly dependent on the marketplace facilitators' ability to effectively evaluate a borrower's credit profile and likelihood of default. If we are unable to effectively evaluate borrowers' credit profiles or the credit decisioning and scoring models implemented by each facilitator, we may incur unanticipated losses which could adversely impact our operating results.

Foreign Currency

Investments denominated in foreign currencies and foreign currency transactions may involve certain considerations and risks not typically associated with those of domestic origin. These risks include, but are not limited to, currency fluctuations and revaluations and future adverse political, social and economic developments, which could cause investments in foreign markets to be less liquid and prices more volatile than those of comparable U.S. companies or U.S. government securities.

Investment Valuation

To value our investments, we follow the guidance of ASC 820, Fair Value Measurement ("ASC 820"), that defines fair value, establishes a framework for measuring fair value in conformity with accounting principles generally accepted in the United States of America ("GAAP"), and requires disclosures about fair value measurements. In accordance with ASC 820, the fair value of our investments is defined as the price that we would receive upon selling an investment in an orderly transaction to an independent buyer in the principal or most advantageous market in which that investment is transacted.

ASC 820 classifies the inputs used to measure these fair values into the following hierarchy:

Level 1 : Quoted prices in active markets for identical assets or liabilities, accessible by us at the measurement date.

Level 2 : Quoted prices for similar assets or liabilities in active markets, or quoted prices for identical or similar assets or liabilities in markets that are not active, or other observable inputs other than quoted prices.

Level 3 : Unobservable inputs for the asset or liability.


43


In all cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to each investment.

Our Board of Directors has established procedures for the valuation of our investment portfolio. These procedures are detailed below.

Investments for which market quotations are readily available are valued at such market quotations.

For most of our investments, market quotations are not available. With respect to investments for which market quotations are not readily available or when such market quotations are deemed not to represent fair value, our Board of Directors has approved a multi-step valuation process each quarter, as described below.

1.

Each portfolio company or investment is reviewed by our investment professionals with independent valuation firms engaged by our Board of Directors.

2.

The independent valuation firms prepare independent valuations for each investment based on their own independent assessments and issue their report.

3.

The Audit Committee of our Board of Directors reviews and discusses with the independent valuation firms the valuation reports, and then makes a recommendation to the Board of Directors of the value for each investment.

4.

The Board of Directors discusses valuations and determines the fair value of each investment in our portfolio in good faith based on the input of the Investment Adviser, the respective independent valuation firm and the Audit Committee.

Our non-CLO investments are valued utilizing a yield technique, enterprise value ("EV") technique, net asset value technique, liquidation technique, discounted cash flow technique, or a combination of techniques, as appropriate. The yield technique uses loan spreads for loans and other relevant information implied by market data involving identical or comparable assets or liabilities. Under the EV technique, the EV of a portfolio company is first determined and allocated over the portfolio company's securities in order of their preference relative to one another (i.e., "waterfall" allocation). To determine the EV, we typically use a market (multiples) valuation approach that considers relevant and applicable market trading data of guideline public companies, transaction metrics from precedent merger and acquisitions transactions, and/or a discounted cash flow technique. The net asset value technique, an income approach, is used to derive a value of an underlying investment (such as real estate property) by dividing a relevant earnings stream by an appropriate capitalization rate. For this purpose, we consider capitalization rates for similar properties as may be obtained from guideline public companies and/or relevant transactions. The liquidation technique is intended to approximate the net recovery value of an investment based on, among other things, assumptions regarding liquidation proceeds based on a hypothetical liquidation of a portfolio company's assets. The discounted cash flow technique converts future cash flows or earnings to a range of fair values from which a single estimate may be derived utilizing an appropriate discount rate. The fair value measurement is based on the net present value indicated by current market expectations about those future amounts.

In applying these methodologies, additional factors that we consider in valuing our investments may include, as we deem relevant: security covenants, call protection provisions, and information rights; the nature and realizable value of any collateral; the portfolio company's ability to make payments; the principal markets in which the portfolio company does business; publicly available financial ratios of peer companies; the principal market; and enterprise values, among other factors.

Our investments in CLOs are classified as Level 3 fair value measured securities under ASC 820 and are valued using both a discounted single-path cash flow model and a discounted multi-path cash flow model. The CLO structures are analyzed to identify the risk exposures and to determine an appropriate call date (i.e., expected maturity). These risk factors are sensitized in the multi-path cash flow model using Monte Carlo simulations, which is a simulation used to model the probability of different outcomes, to generate probability-weighted (i.e., multi-path) cash flows from the underlying assets and liabilities.  These cash flows, after payments to debt tranches senior to our equity positions, are discounted using appropriate market discount rates, and relevant data in the CLO market as well as certain benchmark credit indices are considered, to determine the value of each CLO investment.  In addition, we generate a single-path cash flow utilizing our best estimate of expected cash receipts, and assess the reasonableness of the implied discount rate that would be effective for the value derived from the multi-path cash flows.  We are not responsible for and have no influence over the asset management of the portfolios underlying the CLO investments we hold, as those portfolios are managed by non-affiliated third party CLO collateral managers. The main risk factors are default risk, prepayment risk, interest rate risk, downgrade risk, and credit spread risk.


44


Valuation of Other Financial Assets and Financial Liabilities

ASC 825, Financial Instruments , specifically ASC 825-10-25, permits an entity to choose, at specified election dates, to measure eligible items at fair value (the "Fair Value Option"). We have not elected the Fair Value Option to report selected financial assets and financial liabilities. See Note 8 for the disclosure of the fair value of our outstanding debt and the market observable inputs used in determining fair value.

Convertible Notes

We have recorded the Convertible Notes at their contractual amounts. We have determined that the embedded conversion options in the Convertible Unsecured Notes are not required to be separately accounted for as a derivative under ASC 815, Derivatives and Hedging . See Note 5 for further discussion.

Revenue Recognition

Realized gains or losses on the sale of investments are calculated using the specific identification method.

Interest income, adjusted for amortization of premium and accretion of discount, is recorded on an accrual basis. Loan origination fees, original issue discount, and market discounts are capitalized and accreted into interest income over the respective terms of the applicable loans using the effective interest method or straight-line, as applicable, and adjusted only for material amendments or prepayments. Upon a prepayment of a loan, prepayment premiums, original issue discount, or market discounts are recorded as interest income.

Loans are placed on non-accrual status when there is reasonable doubt that principal or interest will be collected. Unpaid accrued interest is generally reversed when a loan is placed on non-accrual status. Interest payments received on non-accrual loans are either applied to the cost basis or interest income, depending upon management's judgment of the collectibility of the loan receivable. Non-accrual loans are restored to accrual status when past due principal and interest is paid and in management's judgment, is likely to remain current and future principal and interest collections when due are probable. Interest received and applied against cost while a loan is on non-accrual, and PIK interest capitalized but not recognized while on non-accrual, is recognized prospectively on the effective yield basis through maturity of the loan when placed back on accrual status, to the extent deemed collectible by management. As of December 31, 2017 , approximately 1.2% of our total assets at fair value are in non-accrual status.

Some of our loans and other investments may have contractual payment-in-kind ("PIK") interest or dividends. PIK income computed at the contractual rate is accrued into income and reflected as receivable up to the capitalization date. PIK investments offer issuers the option at each payment date of making payments in cash or in additional securities. When additional securities are received, they typically have the same terms, including maturity dates and interest rates as the original securities issued. On these payment dates, we capitalize the accrued interest (reflecting such amounts in the basis as additional securities received). PIK generally becomes due at maturity of the investment or upon the investment being called by the issuer. At the point that we believe PIK is not fully expected to be realized, the PIK investment will be placed on non-accrual status. When a PIK investment is placed on non-accrual status, the accrued, uncapitalized interest or dividends are reversed from the related receivable through interest or dividend income, respectively. We do not reverse previously capitalized PIK interest or dividends. Upon capitalization, PIK is subject to the fair value estimates associated with their related investments. PIK investments on non-accrual status are restored to accrual status if we believe that PIK is expected to be realized.

Interest income from investments in the "equity" class of security of CLO funds (typically preferred shares, income notes or subordinated notes) and "equity" class of security of securitized trust is recorded based upon an estimation of an effective yield to expected maturity utilizing assumed cash flows in accordance with ASC 325-40, Beneficial Interests in Securitized Financial Assets . We monitor the expected cash inflows from our CLO and securitized trust equity investments, including the expected residual payments, and the effective yield is determined and updated periodically.

Dividend income is recorded on the ex-dividend date.

Other income generally includes amendment fees, commitment fees, administrative agent fees and structuring fees which are recorded when earned. Excess deal deposits, net profits interests and overriding royalty interests are included in other income. See Note 10 for further discussion.

Federal and State Income Taxes

We have elected to be treated as a RIC and intend to continue to comply with the requirements of the Code applicable to regulated investment companies. We are required to distribute at least 90% of our investment company taxable income and intend to distribute (or retain through a deemed distribution) all of our investment company taxable income and net capital gain to stockholders;


45


therefore, we have made no provision for income taxes. The character of income and gains that we will distribute is determined in accordance with income tax regulations that may differ from GAAP. Book and tax basis differences relating to stockholder dividends and distributions and other permanent book and tax differences are reclassified to paid-in capital.

If we do not distribute (or are not deemed to have distributed) at least 98% of our annual ordinary income and 98.2% of our capital gains in the calendar year earned, we will generally be required to pay an excise tax equal to 4% of the amount by which 98% of our annual ordinary income and 98.2% of our capital gains exceed the distributions from such taxable income for the year. To the extent that we determine that our estimated current year annual taxable income will be in excess of estimated current year dividend distributions from such taxable income, we accrue excise taxes, if any, on estimated excess taxable income. As of December 31, 2017, we do not expect to have any excise tax due for the 2017 calendar year. Thus, we have not accrued any excise tax for this period.

If we fail to satisfy the annual distribution requirement or otherwise fail to qualify as a RIC in any taxable year, we would be subject to tax on all of our taxable income at regular corporate income tax rates. We would not be able to deduct distributions to stockholders, nor would we be required to make distributions. Distributions would generally be taxable to our individual and other non-corporate taxable stockholders as ordinary dividend income eligible for the reduced maximum rate applicable to qualified dividend income to the extent of our current and accumulated earnings and profits, provided certain holding period and other requirements are met. Subject to certain limitations under the Code, corporate distributions would be eligible for the dividends-received deduction. To qualify again to be taxed as a RIC in a subsequent year, we would be required to distribute to our shareholders our accumulated earnings and profits attributable to non-RIC years. In addition, if we failed to qualify as a RIC for a period greater than two taxable years, then, in order to qualify as a RIC in a subsequent year, we would be required to elect to recognize and pay tax on any net built-in gain (the excess of aggregate gain, including items of income, over aggregate loss that would have been realized if we had been liquidated) or, alternatively, be subject to taxation on such built-in gain recognized for a period of five years.


We follow ASC 740, Income Taxes ("ASC 740"). ASC 740 provides guidance for how uncertain tax positions should be recognized, measured, presented, and disclosed in the consolidated financial statements. ASC 740 requires the evaluation of tax positions taken or expected to be taken in the course of preparing our tax returns to determine whether the tax positions are "more-likely-than-not" of being sustained by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold are recorded as a tax benefit or expense in the current year. As of December 31, 2017 and for the three and six months then ended, we did not record any unrecognized tax benefits or liabilities. Management's determinations regarding ASC 740 may be subject to review and adjustment at a later date based upon factors including, but not limited to, an on-going analysis of tax laws, regulations and interpretations thereof. Although we file both federal and state income tax returns, our major tax jurisdiction is federal. Our federal tax returns for the tax years ended August 31, 2014 and thereafter remain subject to examination by the Internal Revenue Service.

Dividends and Distributions

Dividends and distributions to common stockholders are recorded on the ex-dividend date. The amount, if any, to be paid as a monthly dividend or distribution is approved by our Board of Directors quarterly and is generally based upon our management's estimate of our future taxable earnings. Net realized capital gains, if any, are distributed at least annually.

Financing Costs

We record origination expenses related to our Revolving Credit Facility, and Convertible Notes, Public Notes and Prospect Capital InterNotes® (collectively, our "Unsecured Notes") as deferred financing costs. These expenses are deferred and amortized as part of interest expense using the straight-line method over the stated life of the obligation for our Revolving Credit Facility. The same methodology is used to approximate the effective yield method for our Prospect Capital InterNotes® and our at-the-market offering of our existing unsecured notes that mature on June 15, 2024 ("2024 Notes Follow-on Program"). The effective interest method is used to amortize deferred financing costs for our remaining Unsecured Notes over the respective expected life or maturity. In the event that we modify or extinguish our debt before maturity, we follow the guidance in ASC 470-50, Modification and Extinguishments ("ASC 470-50"). For modifications to or exchanges of our Revolving Credit Facility, any unamortized deferred costs relating to lenders who are not part of the new lending group are expensed. For extinguishments of our Unsecured Notes, any unamortized deferred costs are deducted from the carrying amount of the debt in determining the gain or loss from the extinguishment.

Unamortized deferred financing costs are presented as a direct deduction to the respective Unsecured Notes (see Notes 5, 6, and 7).


46


We may record registration expenses related to shelf filings as prepaid expenses. These expenses consist principally of the Securities and Exchange Commission ("SEC") registration fees, legal fees and accounting fees incurred. These prepaid expenses are charged to capital upon the receipt of proceeds from an equity offering or charged to expense if no offering is completed. As of December 31, 2017 and June 30, 2017 , there are no prepaid expenses related to registration expenses and all amounts incurred have been expensed.

Guarantees and Indemnification Agreements

We follow ASC 460, Guarantees ("ASC 460"). ASC 460 elaborates on the disclosure requirements of a guarantor in its interim and annual consolidated financial statements about its obligations under certain guarantees that it has issued. It also requires a guarantor to recognize, at the inception of a guarantee, for those guarantees that are covered by ASC 460, the fair value of the obligation undertaken in issuing certain guarantees.

Per Share Information

Net increase or decrease in net assets resulting from operations per share is calculated using the weighted average number of common shares outstanding for the period presented. In accordance with ASC 946, convertible securities are not considered in the calculation of net asset value per share.

Recent Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"), which amends the financial instruments impairment guidance so that an entity is required to measure expected credit losses for financial assets based on historical experience, current conditions and reasonable and supportable forecasts. As such, an entity will use forward-looking information to estimate credit losses. ASU 2016-13 also amends the guidance in FASB ASC Subtopic No. 325-40, Investments-Other, Beneficial Interests in Securitized Financial Assets , related to the subsequent measurement of accretable yield recognized as interest income over the life of a beneficial interest in securitized financial assets under the effective yield method. ASU 2016-13 is effective for financial statements issued for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted as of the fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. We are currently evaluating the impact, if any, of adopting this ASU on our consolidated financial statements .


In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments ("ASU 2016-15"), which addresses certain aspects of cash flow statement classification. One such amendment requires cash payments for debt prepayment or debt extinguishment costs to be classified as cash outflows for financing activities. ASU 2016-15 is effective for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity that elects early adoption must adopt all of the amendments in the same period. The adoption of the amended guidance in ASU 2016-15 is not expected to have a significant effect on our consolidated financial statements and disclosures.


Note 3. Portfolio Investments

At December 31, 2017 , we had investments in 122 long-term portfolio investments, which had an amortized cost of $5,562,438 and a fair value of $5,421,132 . At June 30, 2017 , we had investments in 121 long-term portfolio investments, which had an amortized cost of $5,981,556 and a fair value of $5,838,305.

The original cost basis of debt placement and equity securities acquired, including follow-on investments for existing portfolio companies, payment-in-kind interest, and structuring fees, totaled $960,888 and $816,687 during the six months ended December 31, 2017 and December 31, 2016 , respectively. Debt repayments and considerations from sales of equity securities of approximately $1,353,163 and $759,326 were received during the six months ended December 31, 2017 and December 31, 2016 , respectively.

The following table shows the composition of our investment portfolio as of December 31, 2017 and June 30, 2017 .


47


December 31, 2017

June 30, 2017

Cost

Fair Value

Cost

Fair Value

Revolving Line of Credit

$

34,317


$

34,096


$

27,409


$

27,409


Senior Secured Debt

2,497,404


2,381,739


2,940,163


2,798,796


Subordinated Secured Debt

1,233,051


1,153,876


1,160,019


1,107,040


Subordinated Unsecured Debt

38,236


32,052


37,934


44,434


Small Business Loans

1,484


1,365


8,434


7,964


CLO Residual Interest

1,067,371


940,276


1,150,006


1,079,712


Equity

690,575


877,728


657,591


772,950


Total Investments

$

5,562,438


$

5,421,132


$

5,981,556


$

5,838,305


In the previous table and throughout the remainder of this footnote, we aggregate our portfolio investments by type of investment, which may differ slightly from the nomenclature used by the constituent instruments defining the rights of holders of the investment, as disclosed on our Consolidated Schedules of Investments ("SOI"). The following investments are included in each category:

Revolving Line of Credit includes our investments in delayed draw term loans.

Senior Secured Debt includes investments listed on the SOI such as senior secured term loans, senior term loans, secured promissory notes, senior demand notes, and first lien term loans.

Subordinated Secured Debt includes investments listed on the SOI such as subordinated secured term loans, subordinated term loans, senior subordinated notes, and second lien term loans.

Subordinated Unsecured Debt includes investments listed on the SOI such as subordinated unsecured notes and senior unsecured notes.

Small Business Loans includes our investments in SME whole loans purchased from OnDeck.

CLO Residual Interest includes our investments in the "equity" security class of CLO funds such as income notes, preference shares, and subordinated notes.

Equity, unless specifically stated otherwise, includes our investments in preferred stock, common stock, membership interests, net profits interests, net operating income interests, net revenue interests, overriding royalty interests, escrows receivable, and warrants.


48


The following table shows the fair value of our investments disaggregated into the three levels of the ASC 820 valuation hierarchy as of December 31, 2017 .

Level 1

Level 2

Level 3

Total

Revolving Line of Credit

$

-


$

-


$

34,096


$

34,096


Senior Secured Debt

-


-


2,381,739


2,381,739


Subordinated Secured Debt

-


-


1,153,876


1,153,876


Subordinated Unsecured Debt

-


-


32,052


32,052


Small Business Loans

-


-


1,365


1,365


CLO Residual Interest

-


-


940,276


940,276


Equity

-


-


877,728


877,728


Total Investments

$

-


$

-


$

5,421,132


$

5,421,132


The following table shows the fair value of our investments disaggregated into the three levels of the ASC 820 valuation hierarchy as of June 30, 2017 .

Level 1

Level 2

Level 3

Total

Revolving Line of Credit

$

-


$

-


$

27,409


$

27,409


Senior Secured Debt

-


-


2,798,796


2,798,796


Subordinated Secured Debt

-


-


1,107,040


1,107,040


Subordinated Unsecured Debt

-


-


44,434


44,434


Small Business Loans

-


-


7,964


7,964


CLO Residual Interest

-


-


1,079,712


1,079,712


Equity

-


-


772,950


772,950


Total Investments

$

-


$

-


$

5,838,305


$

5,838,305


The following tables show the aggregate changes in the fair value of our Level 3 investments during the six months ended December 31, 2017 .

Fair Value Measurements Using Unobservable Inputs (Level 3)

Control

Investments

Affiliate

Investments

Non-Control/

Non-Affiliate

Investments

Total

Fair value as of June 30, 2017

$

1,911,775


$

11,429


$

3,915,101


$

5,838,305


Net realized gains (losses) on investments

11


846


(5,774

)

(4,917

)

Net change in unrealized gains (losses)

45,518


6,726


(50,300

)

1,944


Net realized and unrealized gains (losses)

45,529


7,572


(56,074

)

(2,973

)

Purchases of portfolio investments

103,567


846


852,495


956,908


Payment-in-kind interest

3,345


271


364


3,980


Accretion (amortization) of discounts and premiums, net

940


-


(23,547

)

(22,607

)

Repayments and sales of portfolio investments

(53,234

)

(846

)

(1,298,401

)

(1,352,481

)

Transfers within Level 3(1)

-


-


-


-


Transfers in (out) of Level 3(1)

-


-


-


-


Fair value as of December 31, 2017

$

2,011,922


$

19,272


$

3,389,938


$

5,421,132



49


Revolving Line of Credit

Senior Secured
Debt

Subordinated Secured Debt

Subordinated Unsecured Debt

Small Business Loans

CLO 
Residual Interest

Equity

Total

Fair value as of June 30, 2017

$

27,409


$

2,798,796


$

1,107,040


$

44,434


$

7,964


$

1,079,712


$

772,950


$

5,838,305


Net realized gains (losses) on investments

-


(2,174

)

-


10


(297

)

(2,494

)

38


(4,917

)

Net change in unrealized (losses) gains

(221

)

25,703


(26,197

)

(12,685

)

351


(56,802

)

71,795


1,944


Net realized and unrealized (losses) gains

(221

)

23,529


(26,197

)

(12,675

)

54


(59,296

)

71,833


(2,973

)

Purchases of portfolio investments

14,967


710,078


177,830


-


7,551


-


46,482


956,908


Payment-in-kind interest

-


2,511


1,166


303


-


-


-


3,980


Accretion (amortization) of discounts and premiums, net

-


1,312


2,718


-


-


(26,637

)

-


(22,607

)

Repayments and sales of portfolio investments

(8,059

)

(1,148,359

)

(108,681

)

(10

)

(14,204

)

(53,503

)

(19,665

)

(1,352,481

)

Transfers within Level 3(1)

-


(6,128

)

-


-


-


-


6,128


-


Transfers in (out) of Level 3(1)

-


-


-


-


-


-


-


-


Fair value as of December 31, 2017

$

34,096


$

2,381,739


$

1,153,876


$

32,052


$

1,365


$

940,276


$

877,728


$

5,421,132


(1)

Transfers, if any, are assumed to have occurred at the beginning of the quarter during which the asset was transferred.

The following tables show the aggregate changes in the fair value of our Level 3 investments during the six months ended December 31, 2016 .

Fair Value Measurements Using Unobservable Inputs (Level 3)

Control

Investments

Affiliate

Investments

Non-Control/

Non-Affiliate

Investments

Total

Fair value as of June 30, 2016

$

1,752,449


$

11,320


$

4,133,939


$

5,897,708


Net realized gains (losses) on investments

183


137


(678

)

(358

)

Net change in unrealized gains (losses)

2,298


(1,273

)

17,450


18,475


Net realized and unrealized gains (losses)

2,481


(1,136

)

16,772


18,117


Purchases of portfolio investments

213,029


-


594,462


807,491


Payment-in-kind interest

7,837


-


1,359


9,196


Accretion (amortization) of discounts and premiums, net

264


-


(37,442

)

(37,178

)

Repayments and sales of portfolio investments

(108,650

)

(2,365

)

(647,320

)

(758,335

)

Transfers within Level 3(1)

-


-


-


-


Transfers in (out) of Level 3(1)

-


-


-


-


Fair value as of December 31, 2016

$

1,867,410


$

7,819


$

4,061,770


$

5,936,999


Revolving Line of Credit

Senior Secured
Debt

Subordinated Secured Debt

Subordinated Unsecured Debt

Small Business Loans

CLO 
Residual Interest

Equity

Total

Fair value as of June 30, 2016

$

13,274


$

2,941,722


$

1,209,604


$

68,358


$

14,215


$

1,009,696


$

640,839


$

5,897,708


Net realized gains (losses) on investments

-


239


145


5


(1,618

)

-


871


(358

)

Net change in unrealized gains (losses)

-


(13,411

)

18,375


5,518


(248

)

16,027


(7,786

)

18,475


Net realized and unrealized gains (losses)

-


(13,172

)

18,520


5,523


(1,866

)

16,027


(6,915

)

18,117


Purchases of portfolio investments

5,500


326,042


289,126


-


30,642


102,320


53,861


807,491


Payment-in-kind interest

-


1,885


5,541


1,770


-


-


-


9,196


Accretion (amortization) of discounts and premiums, net

-


473


1,360


-


-


(39,011

)

-


(37,178

)

Repayments and sales of portfolio investments

(7,424

)

(543,811

)

(125,266

)

(25,005

)

(28,699

)

-


(28,130

)

(758,335

)

Transfers within Level 3(1)

-


-


-


-


-


-


-


-


Transfers in (out) of Level 3(1)

-


-


-


-


-


-


-


-


Fair value as of December 31, 2016

$

11,350


$

2,713,139


$

1,398,885


$

50,646


$

14,292


$

1,089,032


$

659,655


$

5,936,999


(1)

Transfers, if any, are assumed to have occurred at the beginning of the quarter during which the asset was transferred.

The net change in unrealized (losses) gains on the investments that use Level 3 inputs was ($23,809) and $17,737 for investments still held as of December 31, 2017 and December 31, 2016 , respectively.


50


The ranges of unobservable inputs used in the fair value measurement of our Level 3 investments as of December 31, 2017 were as follows:

Unobservable Input

Asset Category

Fair Value

Primary Valuation Approach or Technique

Input

Range

Weighted

Average

Senior Secured Debt

$

1,522,368


Discounted Cash Flow

(Yield analysis)

Market Yield

6.5%-27.8%

11.8%

Senior Secured Debt

257,370


Enterprise Value Waterfall (Market approach)

EBITDA Multiple

4.0x-9.5x

7.2x

Senior Secured Debt

34,960


Enterprise Value Waterfall (Market approach)

Revenue Multiple

0.3x-1.1x

0.4x

Senior Secured Debt

47,099


Enterprise Value Waterfall (Discounted cash flow)

Discount Rate

7.9%-16.5%

12.2%

Senior Secured Debt

743


Liquidation Analysis

N/A

N/A

N/A

Senior Secured Debt (1)

260,092


Enterprise Value Waterfall

Loss-adjusted discount rate

3.0%-14.5%

11.5%

Senior Secured Debt (2)

293,203


Enterprise Value Waterfall (NAV Analysis)

Capitalization Rate

3.8%-7.6%

5.7%

Senior Secured Debt (2)

Discounted Cash Flow

Discount Rate

6.5%-7.5%

7.0%

Subordinated Secured Debt

750,599


Discounted Cash Flow

 (Yield analysis)

Market Yield

6.4%-25.5%

11.7%

Subordinated Secured Debt

28,622


Enterprise Value Waterfall (Market approach)

EBITDA Multiple

6.8x-7.8x

7.3x

Subordinated Secured Debt

46,914


Enterprise Value Waterfall (Market approach)

Revenue Multiple

0.3x-0.4x

0.3x

Subordinated Secured Debt (3)

327,741


Enterprise Value Waterfall (Market approach)

Book Value Multiple

0.8x-3.1x

2.5x

Subordinated Secured Debt (3)

Enterprise Value Waterfall (Market approach)

Earnings Multiple

8.0x-12.5x

9.3x

Subordinated Unsecured Debt

32,052


Enterprise Value Waterfall (Market approach)

EBITDA Multiple

5.8x-10.8x

9.7x

Small Business Loans (4)

1,365


Discounted Cash Flow

Loss-adjusted Discount Rate

13.8%-28.6%

16.2%

CLO Residual Interest (5)

940,276


Discounted Cash Flow

Discount Rate

1.4%-21.7%

16.1%

Preferred Equity

11,169


Enterprise Value Waterfall (Market approach)

EBITDA Multiple

4.0x-8.0x

4.6x

Preferred Equity

51,509


Enterprise Value Waterfall (Market approach)

Revenue Multiple

2.5x-3.0x

2.7x

Common Equity/Interests/Warrants

37,395


Enterprise Value Waterfall (Market approach)

EBITDA Multiple

5.0x-7.8x

5.8x

Common Equity/Interests/Warrants

43,430


Enterprise Value Waterfall (Market approach)

Revenue Multiple

0.4x-3.0x

0.9x

Common Equity/Interests/Warrants (1)

69,927


Enterprise Value Waterfall

Loss-adjusted discount rate

3.0%-14.5%

11.5%

Common Equity/Interests/Warrants (2)

330,435


Enterprise Value Waterfall (NAV analysis)

Capitalization Rate

3.8%-7.6%

5.7%

Common Equity/Interests/Warrants (2)

Discounted Cash Flow

Discount Rate

6.5%-7.5%

7.0%

Common Equity/Interests/Warrants (3)

179,589


Enterprise Value Waterfall (Market approach)

Book Value Multiple

0.8x-3.1x

2.4x

Common Equity/Interests/Warrants (3)

Enterprise Value Waterfall (Market approach)

Earnings Multiple

8.0x-12.5x

8.8x

Common Equity/Interests/Warrants (6)

94,718


Discounted Cash Flow

Discount Rate

6.5%-7.5%

7.0%

Common Equity/Interests/Warrants

32,145


Discounted Cash Flow

Discount Rate

7.9%-16.5%

12.3%

Common Equity/Interests/Warrants

26,555


Liquidation Analysis

N/A

N/A

N/A

Escrow Receivable

856


Discounted Cash Flow

Discount Rate

6.9%-8.0%

7.5%

Total Level 3 Investments

$

5,421,132




51


(1)

Represents an investment in a subsidiary of our controlled investment NPRC. The Enterprise Value Waterfall analysis of NPRC includes the fair value of the investments in such indirect subsidiary's consumer loans purchased from online consumer lending platforms, which are valued using a discounted cash flow valuation technique. The key unobservable input to the discounted cash flow analysis is noted in the table. In addition, the valuation also used projected loss rates as an unobservable input ranging from 0.01-22.7%, with a weighted average of 7.82%.

(2)

Represents our REIT investments. EV waterfall methodology uses both the net asset value analysis and discounted cash flow analysis, which are weighted equally (50%).

(3)

Represents investments in consumer finance subsidiaries. The enterprise value waterfall methodology utilizes book value and earnings multiples, as noted above. In addition, the valuation of certain consumer finance companies utilizes the discounted cash flow technique whereby the significant unobservable input is the discount rate. For these companies the book value multiple and earnings multiple techniques are weighted 37.5% and the discounted cash flow technique is weighted 25%. For these companies the discount rate ranged from 13.5% to 16.5% with a weighted average of 14.7%.

(4)

Includes our investments in small business whole loans purchased from OnDeck. Valuation also used projected loss rates as an unobservable input ranging from 0.00%-0.82%, with a weighted average of 0.13%.

(5)

Discount rate range and weighted average calculations exclude investments called for redemption.

(6)

Represents net operating income interests in our REIT investments.








































52



The ranges of unobservable inputs used in the fair value measurement of our Level 3 investments as of June 30, 2017 were as follows:

Unobservable Input

Asset Category

Fair Value

Primary Valuation Approach or Technique

Input

Range

Weighted

Average

Senior Secured Debt

$

1,977,660


Discounted Cash Flow

(Yield analysis)

Market Yield

5.1%-27.0%

10.7%

Senior Secured Debt

211,856


Enterprise Value Waterfall (Market approach)

EBITDA Multiple

4.0x-9.0x

6.7x

Senior Secured Debt

27,479


Enterprise Value Waterfall (Market approach)

Revenue Multiple

0.3x-0.6x

0.4x

Senior Secured Debt

47,099


Enterprise Value Waterfall (Discounted cash flow)

Discount Rate

7.3%-15.9%

11.6%

Senior Secured Debt

1,630


Liquidation Analysis

N/A

N/A

N/A

Senior Secured Debt (1)

269,166


Enterprise Value Waterfall

Loss-adjusted discount rate

3.0%-14.2%

10.6%

Senior Secured Debt (2)

291,315


Enterprise Value Waterfall (NAV Analysis)

Capitalization Rate

3.4%-8.0%

6.1%

Senior Secured Debt (2)

Discounted Cash Flow

Discount Rate

6.5%-7.5%

7.0%

Subordinated Secured Debt

665,405


Discounted Cash Flow

 (Yield analysis)

Market Yield

5.9%-27.0%

11.4%

Subordinated Secured Debt

111,847


Enterprise Value Waterfall (Market approach)

EBITDA Multiple

6.3x-8.0x

7.3x

Subordinated Secured Debt (3)

329,788


Enterprise Value Waterfall (Market approach)

Book Value Multiple

1.2x-2.8x

2.4x

Subordinated Secured Debt (3)

Enterprise Value Waterfall (Market approach)

Earnings Multiple

7.5x-12.0x

11.0x

Subordinated Unsecured Debt

44,434


Enterprise Value Waterfall (Market approach)

EBITDA Multiple

5.8x-8.5x

7.7x

Small Business Loans (4)

7,964


Discounted Cash Flow

Loss-adjusted Discount Rate

3.0%-25.9%

25.9%

CLO Residual Interest (5)

1,079,712


Discounted Cash Flow

Discount Rate

12.0%-21.9%

17.0%

Preferred Equity

10,992


Enterprise Value Waterfall (Market approach)

EBITDA Multiple

4.0x-9.0x

4.8x

Preferred Equity

72,216


Enterprise Value Waterfall (Market approach)

Revenue Multiple

2.3x-2.8x

2.6x

Common Equity/Interests/Warrants

46,373


Enterprise Value Waterfall (Market approach)

EBITDA Multiple

4.0x-8.5x

6.0x

Common Equity/Interests/Warrants

22,671


Enterprise Value Waterfall (Market approach)

Revenue Multiple

0.3x-2.8x

1.2x

Common Equity/Interests/Warrants (1)

93,801


Enterprise Value Waterfall

Loss-adjusted discount rate

3.0%-14.2%

10.6%

Common Equity/Interests/Warrants (2)

244,245


Enterprise Value Waterfall (NAV analysis)

Capitalization Rate

3.4%-8.0%

6.1%

Common Equity/Interests/Warrants (2)

Discounted Cash Flow

Discount Rate

6.5%-7.5%

7.0%

Common Equity/Interests/Warrants (3)

134,481


Enterprise Value Waterfall (Market approach)

Book Value Multiple

1.2x-2.8x

2.3x

Common Equity/Interests/Warrants (3)

Enterprise Value Waterfall (Market approach)

Earnings Multiple

7.5x-12.0x

10.8x

Common Equity/Interests/Warrants (6)

88,777


Discounted Cash Flow

Discount Rate

6.5%-7.5%

7.0%

Common Equity/Interests/Warrants

28,858


Discounted Cash Flow

Discount Rate

6.4%-18.0%

11.8%

Common Equity/Interests/Warrants

29,672


Liquidation Analysis

N/A

N/A

N/A

Escrow Receivable

864


Discounted Cash Flow

Discount Rate

6.4%-7.5%

7.0%

Total Level 3 Investments

$

5,838,305





53


(1)

Represents an investment in a subsidiary of our controlled investment NPRC. The Enterprise Value Waterfall analysis of NPRC includes the fair value of the investments in such indirect subsidiary's consumer loans purchased from online consumer lending platforms, which are valued using a discounted cash flow valuation technique. The key unobservable input to the discounted cash flow analysis is noted in the table. In addition, the valuation also used projected loss rates as an unobservable input ranging from 0.16-18.46%, with a weighted average of 8.57%.

(2)

Represents our REIT investments. EV waterfall methodology uses both the net asset value analysis and discounted cash flow analysis, which are weighted equally (50%).

(3)

Represents investments in consumer finance subsidiaries. The enterprise value waterfall methodology utilizes book value and earnings multiples, as noted above. In addition, the valuation of certain consumer finance companies utilizes the discounted cash flow technique whereby the significant unobservable input is the discount rate. For these companies each valuation technique (book value multiple, earnings multiple and discounted cash flow) is weighted equally. For these companies the discount rate ranged from 13.5% to 18.0% with a weighted average of 14.7%.

(4)

Includes our investments in small business whole loans purchased from OnDeck. Valuation also used projected loss rates as an unobservable input ranging from 0.01%-1.16%, with a weighted average of 0.88%.

(5)

Discount rate range and weighted average calculations exclude investments called for redemption.

(6)

Represents net operating income interests in our REIT investments.

In determining the range of values for debt instruments, except CLOs and debt investments in controlling portfolio companies, management and the independent valuation firm estimated corporate and security credit ratings and identified corresponding yields to maturity for each loan from relevant market data. A discounted cash flow technique was then applied using the appropriate yield to maturity as the discount rate, to determine a range of values. In determining the range of values for debt investments of controlled companies and equity investments, the enterprise value was determined by applying a market approach such as using earnings before income interest, tax, depreciation and amortization ("EBITDA") multiples, net income and/or book value multiples for similar guideline public companies and/or similar recent investment transactions and/or an income approach, such as the discounted cash flow technique. For stressed debt and equity investments, a liquidation analysis was used.

In determining the range of values for our investments in CLOs, the independent valuation firm use both a discounted single-path cash flow model and a discounted multi-path cash flow model. The valuations were accomplished through the analysis of the CLO deal structures to identify the risk exposures from the modeling point of view as well as to determine an appropriate call date (i.e., expected maturity). These risk factors are sensitized in the multi-path cash flow model using Monte Carlo simulations to generate probability-weighted (i.e., multi-path) cash flows for the underlying assets and liabilities. These cash flows are discounted using appropriate market discount rates, and relevant data in the CLO market and certain benchmark credit indices are considered, to determine the value of each CLO investment. In addition, we generate a single-path cash flow utilizing our best estimate of expected cash receipts, and assess the reasonableness of the implied discount rate that would be effective for the value derived from the corresponding multi-path cash flow model.

Our portfolio consists of residual interests in CLOs, which involve a number of significant risks. CLOs are typically very highly levered (10 - 14 times), and therefore the residual interest tranches that we invest in are subject to a higher degree of risk of total loss. In particular, investors in CLO residual interests indirectly bear risks of the underlying loan investments held by such CLOs. We generally have the right to receive payments only from the CLOs, and generally do not have direct rights against the underlying borrowers or the entity that sponsored the CLOs. While the CLOs we target generally enable the investor to acquire interests in a pool of senior loans without the expenses associated with directly holding the same investments, the prices of indices and securities underlying our CLOs will rise or fall. These prices (and, therefore, the prices of the CLOs) will be influenced by the same types of political and economic events that affect issuers of securities and capital markets generally. The failure by a CLO investment in which we invest to satisfy financial covenants, including with respect to adequate collateralization and/or interest coverage tests, could lead to a reduction in its payments to us. In the event that a CLO fails certain tests, holders of debt senior to us would be entitled to additional payments that would, in turn, reduce the payments we would otherwise be entitled to receive. Separately, we may incur expenses to the extent necessary to seek recovery upon default or to negotiate new terms with a defaulting CLO or any other investment we may make. If any of these occur, it could materially and adversely affect our operating results and cash flows.


The interests we have acquired in CLOs are generally thinly traded or have only a limited trading market. CLOs are typically privately offered and sold, even in the secondary market. As a result, investments in CLOs may be characterized as illiquid securities. In addition to the general risks associated with investing in debt securities, CLO residual interests carry additional risks, including, but not limited to: (i) the possibility that distributions from collateral securities will not be adequate to make interest or other payments; (ii) the quality of the collateral may decline in value or default; (iii) the investments in CLO tranches will likely


54


be subordinate to other senior classes of note tranches thereof; and (iv) the complex structure of the security may not be fully understood at the time of investment and may produce disputes with the CLO investment or unexpected investment results. Our net asset value may also decline over time if our principal recovery with respect to CLO residual interests is less than the cost of those investments. Our CLO investments and/or the underlying senior secured loans may prepay more quickly than expected, which could have an adverse impact on our value.


We hold more than a 10% interest in certain foreign corporations that are treated as controlled foreign corporations ("CFC") for U.S. federal income tax purposes (including our residual interest tranche investments in CLOs). Therefore, we are treated as receiving a deemed distribution (taxable as ordinary income) each year from such foreign corporations in an amount equal to our pro rata share of the corporation's income for that tax year (including both ordinary earnings and capital gains). We are required to include such deemed distributions from a CFC in our taxable income and we are required to distribute at least 90% of such income to maintain our RIC status, regardless of whether or not the CFC makes an actual distribution during such year.


If we acquire shares in "passive foreign investment companies" ("PFICs") (including residual interest tranche investments in CLOs that are PFICs), we may be subject to federal income tax on a portion of any "excess distribution" or gain from the disposition of such shares even if such income is distributed as a taxable dividend to our stockholders. Certain elections may be available to mitigate or eliminate such tax on excess distributions, but such elections (if available) will generally require us to recognize our share of the PFICs income for each year regardless of whether we receive any distributions from such PFICs. We must nonetheless distribute such income to maintain our status as a RIC.


Legislation enacted in 2010 imposes a withholding tax of 30% on payments of U.S. source interest and dividends paid after December 31, 2013, or gross proceeds from the disposition of an instrument that produces U.S. source interest or dividends paid after December 31, 2016, to certain non-U.S. entities, including certain non-U.S. financial institutions and investment funds, unless such non-U.S. entity complies with certain reporting requirements regarding its United States account holders and its United States owners. Most CLOs in which we invest will be treated as non-U.S. financial entities for this purpose, and therefore will be required to comply with these reporting requirements to avoid the 30% withholding. If a CLO in which we invest fails to properly comply with these reporting requirements, it could reduce the amounts available to distribute to residual interest and junior debt holders in such CLO vehicle, which could materially and adversely affect our operating results and cash flows.


If we are required to include amounts in income prior to receiving distributions representing such income, we may have to sell some of our investments at times and/or at prices management would not consider advantageous, raise additional debt or equity capital or forgo new investment opportunities for this purpose.


The significant unobservable input used to value our investments based on the yield technique and discounted cash flow technique is the market yield (or applicable discount rate) used to discount the estimated future cash flows expected to be received from the underlying investment, which includes both future principal and interest/dividend payments. Increases or decreases in the market yield (or applicable discount rate) would result in a decrease or increase, respectively, in the fair value measurement. Management and the independent valuation firms consider the following factors when selecting market yields or discount rates: risk of default, rating of the investment and comparable company investments, and call provisions.

The significant unobservable inputs used to value our investments based on the EV analysis may include market multiples of specified financial measures such as EBITDA, net income, or book value of identified guideline public companies, implied valuation multiples from precedent M&A transactions, and/or discount rates applied in a discounted cash flow technique. The independent valuation firm identifies a population of publicly traded companies with similar operations and key attributes to that of the portfolio company. Using valuation and operating metrics of these guideline public companies and/or as implied by relevant precedent transactions, a range of multiples of the latest twelve months EBITDA, or other measure such as net income or book value, is typically calculated. The independent valuation firm utilizes the determined multiples to estimate the portfolio company's EV generally based on the latest twelve months EBITDA of the portfolio company (or other meaningful measure). Increases or decreases in the multiple would result in an increase or decrease, respectively, in EV which would result in an increase or decrease in the fair value measurement of the debt of controlled companies and/or equity investment, as applicable. In certain instances, a discounted cash flow analysis may be considered in estimating EV, in which case, discount rates based on a weighted average cost of capital and application of the capital asset pricing model may be utilized.

The significant unobservable input used to value our private REIT investments based on the net asset value analysis is the capitalization rate applied to the earnings measure of the underlying property.

Changes in market yields, discount rates, capitalization rates or EBITDA multiples, each in isolation, may change the fair value measurement of certain of our investments. Generally, an increase in market yields, discount rates or capitalization rates, or a decrease in EBITDA (or other) multiples may result in a decrease in the fair value measurement of certain of our investments.


55


Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of our investments may fluctuate from period to period. Additionally, the fair value of our investments may differ significantly from the values that would have been used had a ready market existed for such investments and may differ materially from the values that we may ultimately realize. Further, such investments are generally subject to legal and other restrictions on resale or otherwise are less liquid than publicly traded securities. If we were required to liquidate a portfolio investment in a forced or liquidation sale, we could realize significantly less than the value at which we have recorded it.

In addition, changes in the market environment and other events that may occur over the life of the investments may cause the gains or losses ultimately realized on these investments to be different than the unrealized gains or losses reflected in the currently assigned valuations.

During the six months ended December 31, 2017 , the valuation methodology for Arctic Energy Services, LLC ("Arctic Energy") changed to remove the liquidation analysis. As a result of the company's performance and current market conditions, the fair value of our investment in Arctic Energy increased to $ 24,158 as of December 31, 2017 , a discount of $ 36,718 from its amortized cost, compared to the $ 43,506 unrealized depreciation recorded at June 30, 2017 .

During the six months ended December 31, 2017 , the valuation methodology for Spartan Energy Services, Inc. ("Spartan") changed to remove the waterfall and liquidation analysis and incorporated an income method approach. As a result of the company's improved performance and current market conditions, the fair value of our investment in Spartan increased to $ 28,305 as of December 31, 2017 , a premium of $ 1,843 from its amortized cost, compared to the $ 16,769 unrealized depreciation recorded at June 30, 2017 .

During the six months ended December 31, 2017 , one of our CLO investments was deemed to have an other-than-temporary impairment. In accordance with ASC 325-40, we recorded a total loss of $ 2,495 related to this investment for the amount our amortized cost exceeded fair value as of the respective determination dates.


During the six months ended December 31, 2017 , we provided $52,914 of equity financing to NPRC for the acquisition of real estate properties and $1,112 of debt and $7,881 of equity financing to NPRC to fund capital expenditures for existing real estate properties.

During the six months ended December 31, 2017 , we provided $19,233 and $10,356 of debt and equity financing, respectively, to NPRC and its wholly-owned subsidiaries to support the online consumer loans and online consumer loan backed products. In addition, during the six months ended December 31, 2017 , we received partial repayments of $28,307 of our loans previously outstanding with NPRC and its wholly-owned subsidiaries and $10,403 as a return of capital on our equity investment in NPRC.

The online consumer loan investments held by certain of NPRC's wholly-owned subsidiaries are unsecured obligations of individual borrowers that are issued in amounts ranging from $1 to $50, with fixed terms ranging from 24 to 84 months. As of December 31, 2017 , the outstanding investment in online consumer loans by certain of NPRC's wholly-owned subsidiaries was comprised of 105,315 individual loans and one securitization equity residual, and had an aggregate fair value of $629,837. The average outstanding individual loan balance was approximately $6 and the loans mature on dates ranging from January 1, 2018 to January 3, 2025 with a weighted-average outstanding term of 29 months as of December 31, 2017 . Fixed interest rates range from 4.0% to 36.0% with a weighted-average current interest rate of 24.8%. As of December 31, 2017 , our investment in NPRC and its wholly-owned subsidiaries relating to online consumer lending had a fair value of $330,019 .

As of December 31, 2017 , based on outstanding principal balance, 4.5% of the portfolio was invested in super prime loans (borrowers with a Fair Isaac Corporation ("FICO") score, of 720 or greater), 14.1% of the portfolio in prime loans (borrowers with a FICO score of 660 to 719) and 81.4% of the portfolio in near prime loans (borrowers with a FICO score of 580 to 659, a portion of which are considered sub-prime).

Loan Type

Outstanding Principal Balance

Fair Value

Weighted Average Interest Rate*

Super Prime

$

28,643


$

27,730


13.3%

Prime

90,104


85,268


16.0%

Near Prime**

521,139


483,150


26.9%

*Weighted by outstanding principal balance of the online consumer loans.

**A portion of these loans are sub-prime borrowers.



56


As of December 31, 2017 , our investment in NPRC and its wholly-owned subsidiaries had an amortized cost of $ 843,859 and a fair value of $ 1,048,375 , including our investment in online consumer lending as discussed above. The fair value of $718,356 related to NPRC's real estate portfolio was comprised of forty multi-families properties, twelve self-storage units, eight student housing properties and three commercial properties. The following table shows the location, acquisition date, purchase price, and mortgage outstanding due to other parties for each of the properties held by NPRC as of December 31, 2017 .

No.

Property Name

City

Acquisition
Date

Purchase
Price

Mortgage
Outstanding

1

Filet of Chicken

Forest Park, GA

10/24/2012

$

7,400


$

-


2

5100 Live Oaks Blvd, LLC

Tampa, FL

1/17/2013

63,400


46,700


3

Lofton Place, LLC

Tampa, FL

4/30/2013

26,000


20,324


4

Arlington Park Marietta, LLC

Marietta, GA

5/8/2013

14,850


9,650


5

NPRC Carroll Resort, LLC

Pembroke Pines, FL

6/24/2013

225,000


177,455


6

Cordova Regency, LLC

Pensacola, FL

11/15/2013

13,750


11,375


7

Crestview at Oakleigh, LLC

Pensacola, FL

11/15/2013

17,500


13,845


8

Inverness Lakes, LLC

Mobile, AL

11/15/2013

29,600


24,700


9

Kings Mill Pensacola, LLC

Pensacola, FL

11/15/2013

20,750


17,550


10

Plantations at Pine Lake, LLC

Tallahassee, FL

11/15/2013

18,000


14,092


11

Verandas at Rocky Ridge, LLC

Birmingham, AL

11/15/2013

15,600


10,205


12

Matthews Reserve II, LLC

Matthews, NC

11/19/2013

22,063


19,918


13

City West Apartments II, LLC

Orlando, FL

11/19/2013

23,562


23,264


14

Vinings Corner II, LLC

Smyrna, GA

11/19/2013

35,691


32,901


15

Uptown Park Apartments II, LLC

Altamonte Springs, FL

11/19/2013

36,590


29,793


16

St. Marin Apartments II, LLC

Coppell, TX

11/19/2013

73,078


62,383


17

Atlanta Eastwood Village LLC

Stockbridge, GA

12/12/2013

25,957


22,729


18

Atlanta Monterey Village LLC

Jonesboro, GA

12/12/2013

11,501


11,059


19

Atlanta Hidden Creek LLC

Morrow, GA

12/12/2013

5,098


4,734


20

Atlanta Meadow Springs LLC

College Park, GA

12/12/2013

13,116


13,019


21

Atlanta Meadow View LLC

College Park, GA

12/12/2013

14,354


13,074


22

Atlanta Peachtree Landing LLC

Fairburn, GA

12/12/2013

17,224


15,486


23

NPH Carroll Bartram Park, LLC

Jacksonville, FL

12/31/2013

38,000


27,402


24

Crestview at Cordova, LLC

Pensacola, FL

1/17/2014

8,500


7,874


25

NPH Carroll Atlantic Beach, LLC

Atlantic Beach, FL

1/31/2014

13,025


8,527


26

Taco Bell, OK

Yukon, OK

6/4/2014

1,719


-


27

Taco Bell, MO

Marshall, MO

6/4/2014

1,405


-


28

23 Mile Road Self Storage, LLC

Chesterfield, MI

8/19/2014

5,804


4,350


29

36th Street Self Storage, LLC

Wyoming, MI

8/19/2014

4,800


3,600


30

Ball Avenue Self Storage, LLC

Grand Rapids, MI

8/19/2014

7,281


5,460


31

Ford Road Self Storage, LLC

Westland, MI

8/29/2014

4,642


3,480


32

Ann Arbor Kalamazoo Self Storage, LLC

Ann Arbor, MI

8/29/2014

4,458


3,345


33

Ann Arbor Kalamazoo Self Storage, LLC

Ann Arbor, MI

8/29/2014

8,927


6,695


34

Ann Arbor Kalamazoo Self Storage, LLC

Kalamazoo, MI

8/29/2014

2,363


1,775


35

Canterbury Green Apartments Holdings LLC

Fort Wayne, IN

9/29/2014

85,500


74,109


36

Abbie Lakes OH Partners, LLC

Canal Winchester, OH

9/30/2014

12,600


13,055


37

Kengary Way OH Partners, LLC

Reynoldsburg, OH

9/30/2014

11,500


13,502


38

Lakeview Trail OH Partners, LLC

Canal Winchester, OH

9/30/2014

26,500


23,256


39

Lakepoint OH Partners, LLC

Pickerington, OH

9/30/2014

11,000


14,480


40

Sunbury OH Partners, LLC

Columbus, OH

9/30/2014

13,000


14,115



57


No.

Property Name

City

Acquisition
Date

Purchase
Price

Mortgage
Outstanding

41

Heatherbridge OH Partners, LLC

Blacklick, OH

9/30/2014

18,416


18,328


42

Jefferson Chase OH Partners, LLC

Blacklick, OH

9/30/2014

13,551


17,200


43

Goldenstrand OH Partners, LLC

Hilliard, OH

10/29/2014

7,810


9,600


44

Jolly Road Self Storage, LLC

Okemos, MI

1/16/2015

7,492


5,620


45

Eaton Rapids Road Self Storage, LLC

Lansing West, MI

1/16/2015

1,741


1,305


46

Haggerty Road Self Storage, LLC

Novi, MI

1/16/2015

6,700


5,025


47

Waldon Road Self Storage, LLC

Lake Orion, MI

1/16/2015

6,965


5,225


48

Tyler Road Self Storage, LLC

Ypsilanti, MI

1/16/2015

3,507


2,630


49

SSIL I, LLC

Aurora, IL

11/5/2015

34,500


26,450


50

Vesper Tuscaloosa, LLC

Tuscaloosa, AL

9/28/2016

54,500


41,250


51

Vesper Iowa City, LLC

Iowa City, IA

9/28/2016

32,750


24,825


52

Vesper Corpus Christi, LLC

Corpus Christi, TX

9/28/2016

14,250


10,800


53

Vesper Campus Quarters, LLC

Corpus Christi, TX

9/28/2016

18,350


14,175


54

Vesper College Station, LLC

College Station, TX

9/28/2016

41,500


32,058


55

Vesper Kennesaw, LLC

Kennesaw, GA

9/28/2016

57,900


44,727


56

Vesper Statesboro, LLC

Statesboro, GA

9/28/2016

7,500


5,548


57

Vesper Manhattan KS, LLC

Manhattan, KS

9/28/2016

23,250


17,487


58

JSIP Union Place, LLC

Franklin, MA

12/7/2016

64,750


51,800


59

9220 Old Lantern Way, LLC

Laurel, MD

1/30/2017

187,250


153,580


60


7915 Baymeadows Circle Owner, LLC


Jacksonville, FL


10/31/2017


95,700



76,560


61


8025 Baymeadows Circle Owner, LLC


Jacksonville, FL


10/31/2017


15,300



12,240


62


23275 Riverside Drive Owner, LLC


Southfield, MI


11/8/2017


52,000



44,044


63


23741 Pond Road Owner, LLC


Southfield, MI


11/8/2017


16,500



14,185


$

1,773,290


$

1,453,943


On July 1, 2016, BNN Holdings Corp. was sold. The sale provided net proceeds for our minority position of $2,365, resulting in a realized gain of $137. During the three months ended December 31, 2016 we received remaining escrow proceeds, realizing an additional gain of $50.

On August 17, 2016, we made a $5,000 investment in BCD Acquisition, Inc. ("Big Tex"). On August 18, 2016, we sold our $5,000 investment in Big Tex and realized a gain of $138 on the sale.

On August 19, 2016, we sold our investment in Nathan's Famous, Inc. for net proceeds of $3,240 and realized a gain of $240 on the sale.

On September 27, 2016, we received additional bankruptcy proceeds for our previously impaired investment in New Century Transportation, Inc., and recorded a realized gain of $936, offsetting the previously recognized loss.

On October 18, 2016, we received additional proceeds of $434 related to the May 31, 2016 sale of Harbortouch Payments, LLC. We realized a gain for the same amount.

On December 27, 2016, we exercised our warrants in R-V Industries, Inc. ("R-V") to purchase additional common stock in R-V. As a result, we realized a gain of $172 on this transaction.

On September 25, 2017, Prospect exchanged $1,600 of Senior Secured Term Loan A and $4,799 of Senior Secured Term Loan B investments in Targus International, LLC into 6,120,658 of common shares of Targus Cayman HoldCo Limited, and recorded a realized gain of $846, as a result of this transaction.

On December 11, 2017, Primesport, Inc. repaid the $53,001 Senior Secured Term Loan A and $71,481 Senior Secured Term Loan B loan receivable to us, for which we agreed to a payment to satisfy the loan less than the par amount and recorded a realized loss of $3,019, as a result of this transaction.


58


As of December 31, 2017 , $3,115,072 of our loans to portfolio companies, at fair value, bear interest at floating rates and have LIBOR floors ranging from 0.3% to 4.0%. As of December 31, 2017 , $486,691 of our loans to portfolio companies, at fair value, bear interest at fixed rates ranging from 4.0% to 20.0%. As of June 30, 2017 , $3,488,672 of our loans to portfolio companies, at fair value, bear interest at floating rates and have LIBOR floors ranging from 0.3% to 4.0%. As of June 30, 2017, $489,007 of our loans to portfolio companies, at fair value, bear interest at fixed rates ranging from 4.0% to 20.0%.

At December 31, 2017 , five loan investments were on non-accrual status: Ark-La-Tex Wireline Services, LLC ("Ark-La-Tex"), Edmentum Ultimate Holdings, LLC Unsecured Junior PIK Note, Nixon, Inc. ("Nixon"), United Sporting Companies, Inc. ("USC"), and USES Corp. ("USES"). At June 30, 2017 , seven loan investments were on non-accrual status: Ark-La-Tex, Edmentum Ultimate Holdings, LLC Unsecured Junior PIK Note, Nixon, Spartan, USC, USES, and Venio. Cost balances of these loans amounted to $ 238,039 and $286,388 as of December 31, 2017 and June 30, 2017 , respectively. The fair value of these loans amounted to $ 73,375 and $154,417 as of December 31, 2017 and June 30, 2017 , respectively. The fair values of these investments represent approximately 1.2% and 2.5% of our total assets at fair value as of December 31, 2017 and June 30, 2017 , respectively.

Undrawn committed revolvers and delayed draw term loans to our portfolio companies incur commitment and unused fees ranging from 0.00% to 4.00%. As of December 31, 2017 and June 30, 2017 , we had $20,017 and $22,925 , respectively, of undrawn revolver and delayed draw term loan commitments to our portfolio companies. The fair value of our undrawn committed revolvers and delayed draw term loans was zero as of December 31, 2017 and June 30, 2017 .

During the six months ended December 31, 2017 and the six months ended December 31, 2016 , there were no sales of the senior secured Term Loan A investments. We serve as an agent for these loans and collect a servicing fee from the counterparties on behalf of the Investment Adviser. We receive a credit for these payments as a reduction of base management fee payable by us to the Investment Adviser. See Note 13 for further discussion.

Unconsolidated Significant Subsidiaries

Our investments are generally in small and mid-sized companies in a variety of industries. In accordance with Rules 3-09 and 4-08(g) of Regulation S-X, we must determine which of our unconsolidated controlled portfolio companies are considered "significant subsidiaries," if any. In evaluating these investments, there are three tests utilized to determine if any of our controlled investments are considered significant subsidiaries: the asset test, the income test and the investment test. Rule 3-09 of Regulation S-X requires separate audited financial statements of an unconsolidated subsidiary in an annual report if any of the three tests exceed 20%. Rule 4-08(g) of Regulation S-X requires summarized financial information in an annual report if any of the three tests exceeds 10%, and summarized financial information in a quarterly report if either the investment or income test exceeds 20% pursuant to Rule 10-01(b) of Regulation S-X.

The following table summarizes the results of our analysis for the three tests for the six months ended, December 31, 2017 and year ended June 30, 2017 .

Asset Test

Income Test

Investment Test

Greater than 10% but Less than 20%

Greater than 20%

Greater than 10% but Less than 20%

Greater than 20%

Greater than 10% but Less than 20%

Greater than 20%

Six Months Ended December 31, 2017

N/A

N/A

N/A

First Tower Finance

NPRC

N/A

-

Year Ended June 30, 2017

-

NPRC

First Tower Finance
USES

NPRC

NPRC

-

Income, consisting of interest, dividends, fees, other investment income and realization of gains or losses, can fluctuate upon repayment or sale of an investment or the marking to fair value of an investment in any given year can be highly concentrated among several investments. After performing the income analysis for the six months ended December 31, 2017 , as currently promulgated by the SEC, we determined that two of our controlled investments individually generated more than 20% of our income, primarily due to the unrealized gains that were recognized on the investments during the six months ended December 31, 2017 . We do not believe that the calculation promulgated by the SEC correctly identifies significant subsidiaries but have included First Tower Finance Company LLC ("First Tower Finance") and NPRC as significant subsidiaries. NPRC, an unconsolidated majority-owned portfolio company, was considered a significant subsidiary at the 20% level as of and during the period ended December 31, 2017 and year ended June 30, 2017 .


59


The following tables show summarized financial information for First Tower Finance, which met the 20% income test for the six months ended December 31, 2017 :

December 31, 2017

June 30, 2017

Balance Sheet Data

Cash and cash equivalents

$

73,895


$

77,058


Accounts receivable, net

487,322


432,278


Property, plant and equipment, net

27,126


24,919


Intangibles, including goodwill

83,285


90,897


Other assets

5,434


2,404


Notes payable, due to Prospect or Affiliate

337,254


339,595


Other liabilities

393,205


341,553


Total equity

(53,397

)

(53,592

)

Three Months Ended December 31,

Six Months Ended December 31,

2017

2016

2017

2016

Summary of Operations

Total revenue

$

59,659


$

58,157


117,202


$

114,735


Total expenses

60,238


63,047


118,366


123,579


Net loss

$

(579

)

$

(4,890

)

$

(1,164

)

$

(8,844

)

The following tables show summarized financial information for NPRC, which met the 20% income test for the six months ended December 31, 2017 :

December 31, 2017

June 30, 2017

Balance Sheet Data

 Cash and cash equivalents

$

98,235


$

94,394


 Real estate, net

1,602,128


1,452,424


 Unsecured consumer loans, at fair value

631,102


648,277


 Other assets

44,149


40,386


 Mortgages payable

1,450,235


1,310,462


 Revolving credit facilities and other secured financing

351,329


341,878


 Notes payable, due to Prospect or Affiliate

552,753


559,464


 Other liabilities

38,840


37,339


 Total equity

(17,543

)

(13,662

)

Three Months Ended December 31,

Six Months Ended December 31,

2017

2016

2017

2016

Summary of Operations

Total revenue

$

99,458


$

109,099


$

198,343


$

193,838


Total expenses

85,292


84,289


167,470


155,309


Operating income

14,166


24,810


30,873


38,529


Depreciation and amortization

(16,502

)

(20,275

)

(35,602

)

(33,296

)

Fair value adjustment

(29,441

)

(28,207

)

(60,255

)

(46,914

)

Net loss

$

(31,777

)

$

(23,672

)

$

(64,984

)

$

(41,681

)


60


The SEC has requested comments on the proper mechanics of how the calculations related to Rules 3-09 and 4-08(g) of Regulation S-X should be completed. There is currently diversity in practice for the calculations. We expect that the SEC will clarify the calculation methods in the future.

Note 4. Revolving Credit Facility

On August 29, 2014, we renegotiated our previous credit facility and closed an expanded five and a half year revolving credit facility (the "2014 Facility" or the "Revolving Credit Facility"). The lenders have extended commitments of $885,000 under the 2014 Facility as of December 31, 2017 . The 2014 Facility includes an accordion feature which allows commitments to be increased up to $1,500,000 in the aggregate. The revolving period of the 2014 Facility extends through March 2019, with an additional one year amortization period (with distributions allowed) after the completion of the revolving period. During such one year amortization period, all principal payments on the pledged assets will be applied to reduce the balance. At the end of the one year amortization period, the remaining balance will become due, if required by the lenders.

The 2014 Facility contains restrictions pertaining to the geographic and industry concentrations of funded loans, maximum size of funded loans, interest rate payment frequency of funded loans, maturity dates of funded loans and minimum equity requirements. The 2014 Facility also contains certain requirements relating to portfolio performance, including required minimum portfolio yield and limitations on delinquencies and charge-offs, violation of which could result in the early termination of the 2014 Facility. The 2014 Facility also requires the maintenance of a minimum liquidity requirement. As of December 31, 2017 , we were in compliance with the applicable covenants.

Interest on borrowings under the 2014 Facility is one-month LIBOR plus 225 basis points. Additionally, the lenders charge a fee on the unused portion of the 2014 Facility equal to either 50 basis points if at least 35% of the credit facility is drawn or 100 basis points otherwise. The 2014 Facility requires us to pledge assets as collateral in order to borrow under the credit facility.

As of December 31, 2017 and June 30, 2017 , we had $508,851 and $665,409 , respectively, available to us for borrowing under the Revolving Credit Facility, of which nothing was outstanding at either date. As additional eligible investments are transferred to PCF and pledged under the Revolving Credit Facility, PCF will generate additional availability up to the current commitment amount of $885,000 . As of December 31, 2017 , the investments, including cash and money market funds, used as collateral for the Revolving Credit Facility had an aggregate fair value of $1,305,210 , which represents 22.1% of our total investments, including cash and money market funds. These assets are held and owned by PCF, a bankruptcy remote special purpose entity, and as such, these investments are not available to our general creditors. The release of any assets from PCF requires the approval of the facility agent.

In connection with the origination and amendments of the Revolving Credit Facility, we incurred $12,405 of new fees and $3,539 were carried over for continuing participants from the previous facility, all of which are being amortized over the term of the facility in accordance with ASC 470-50. As of December 31, 2017 , $3,394 remains to be amortized and is reflected as deferred financing costs on the Consolidated Statements of Assets and Liabilities .

During the three months ended December 31, 2017 and December 31, 2016 , we recorded $3,387 and $3,066 , respectively, of interest costs, unused fees and amortization of financing costs on the Revolving Credit Facility as interest expense. During the six months ended December 31, 2017 and December 31, 2016 , we recorded $6,341 and $6,029 , respectively, of interest costs, unused fees and amortization of financing costs on the Revolving Credit Facility as interest expense.

Note 5. Convertible Notes

On February 18, 2011, we issued $172,500 aggregate principal amount of convertible notes that matured on August 15, 2016 (the "2016 Notes"). The 2016 Notes bore interest at a rate of 5.50% per year, payable semi-annually on February 15 and August 15 of each year, beginning August 15, 2011. Total proceeds from the issuance of the 2016 Notes, net of underwriting discounts and offering costs, were $167,325. Between January 30, 2012 and February 2, 2012, we repurchased $5,000 aggregate principal amount of the 2016 Notes at a price of 97.5, including commissions. The transactions resulted in our recognizing $10 of loss in the year ended June 30, 2012. On August 15, 2016, we repaid the outstanding principal amount of the 2016 Notes, plus interest. No gain or loss was realized on the transaction.

On April 16, 2012, we issued $130,000 aggregate principal amount of convertible notes that matured on October 15, 2017 (the "2017 Notes"). The 2017 Notes bore interest at a rate of 5.375% per year, payable semi-annually on April 15 and October 15 of each year, beginning October 15, 2012. Total proceeds from the issuance of the 2017 Notes, net of underwriting discounts and offering costs, were $126,035. On March 28, 2016, we repurchased $500 aggregate principal amount of the 2017 Notes at a price of 98.25, including commissions. The transaction resulted in our recognizing a $9 gain for the period ended March 31, 2016. On April 6, 2017, we repurchased $78,766 aggregate principal amount of the 2017 Notes at a price of 102.0, including commissions.


61


The transaction resulted in our recognizing a $1,786 loss during the three months ended June 30, 2017. On October 15, 2017, we repaid the outstanding principal amount of the 2017 Notes, plus interest. No gain or loss was realized on the transaction.

On August 14, 2012, we issued $200,000 aggregate principal amount of convertible notes that mature on March 15, 2018 (the "2018 Notes"), unless previously converted or repurchased in accordance with their terms. The 2018 Notes bear interest at a rate of 5.75% per year, payable semi-annually on March 15 and September 15 of each year, beginning March 15, 2013. Total proceeds from the issuance of the 2018 Notes, net of underwriting discounts and offering costs, were $193,600. On April 6, 2017, we repurchased $114,581 aggregate principal amount of the 2018 Notes at a price of 103.5, including commissions. The transaction resulted in our recognizing a $4,700 loss during the three months ended June 30, 2017.

On December 21, 2012, we issued $200,000 aggregate principal amount of convertible notes that mature on January 15, 2019 (the "2019 Notes"), unless previously converted or repurchased in accordance with their terms. The 2019 Notes bear interest at a rate of 5.875% per year, payable semi-annually on January 15 and July 15 of each year, beginning July 15, 2013. Total proceeds from the issuance of the 2019 Notes, net of underwriting discounts and offering costs, were $193,600.

On April 11, 2014, we issued $400,000 aggregate principal amount of convertible notes that mature on April 15, 2020 (the "2020 Notes"), unless previously converted or repurchased in accordance with their terms. The 2020 Notes bear interest at a rate of 4.75% per year, payable semi-annually on April 15 and October 15 each year, beginning October 15, 2014. Total proceeds from the issuance of the 2020 Notes, net of underwriting discounts and offering costs, were $387,500. On January 30, 2015, we repurchased $8,000 aggregate principal amount of the 2020 Notes at a price of 93.0, including commissions. As a result of this transaction, we recorded a gain of $332, in the amount of the difference between the reacquisition price and the net carrying amount of the notes, net of the proportionate amount of unamortized debt issuance costs.

On April 11, 2017, we issued $225,000 aggregate principal amount of convertible notes that mature on July 15, 2022 (the "2022 Notes"), unless previously converted or repurchased in accordance with their terms. The 2022 Notes bear interest at a rate of 4.95% per year, payable semi-annually on January 15 and July 15 each year, beginning July 15, 2017. Total proceeds from the issuance of the 2022 Notes, net of underwriting discounts and offering costs, were $218,010.

Certain key terms related to the convertible features for the 2018 Notes, the 2019 Notes, the 2020 Notes and the 2022 Notes (collectively, the "Convertible Notes") are listed below.

2018 Notes


2019 Notes


2020 Notes


2022 Notes


Initial conversion rate(1)

82.3451


79.7766


80.6647


100.2305


Initial conversion price

$

12.14


$

12.54


$

12.40


$

9.98


Conversion rate at December 31, 2017(1)(2)

84.1497


79.8360


80.6670


100.2305


Conversion price at December 31, 2017(2)(3)

$

11.88


$

12.53


$

12.40


$

9.98


Last conversion price calculation date

8/14/2017


12/21/2017


4/11/2017


4/11/2017


Dividend threshold amount (per share)(4)

$

0.101600


$

0.110025


$

0.110525


$

0.083330


(1)

Conversion rates denominated in shares of common stock per $1 principal amount of the Convertible Notes converted. 

(2)

Represents conversion rate and conversion price, as applicable, taking into account certain de minimis adjustments that will be made on the conversion date.

(3)

The conversion price will increase only if the current monthly dividends (per share) exceed the dividend threshold amount (per share).

(4)

The conversion rate is increased if monthly cash dividends paid to common shares exceed the monthly dividend threshold amount, subject to adjustment. Current dividend rates are at or below the minimum dividend threshold amount for further conversion rate adjustments for all bonds.

Upon conversion, unless a holder converts after a record date for an interest payment but prior to the corresponding interest payment date, the holder will receive a separate cash payment with respect to the notes surrendered for conversion representing accrued and unpaid interest to, but not including, the conversion date. Any such payment will be made on the settlement date applicable to the relevant conversion on the Convertible Notes.

No holder of Convertible Notes will be entitled to receive shares of our common stock upon conversion to the extent (but only to the extent) that such receipt would cause such converting holder to become, directly or indirectly, a beneficial owner (within the meaning of Section 13(d) of the Securities Exchange Act of 1934 and the rules and regulations promulgated thereunder) of more than 5.0% of the shares of our common stock outstanding at such time. The 5.0% limitation shall no longer apply following the effective date of any fundamental change. We will not issue any shares in connection with the conversion or redemption of the


62


Convertible Notes which would equal or exceed 20% of the shares outstanding at the time of the transaction in accordance with NASDAQ rules.

Subject to certain exceptions, holders may require us to repurchase, for cash, all or part of their Convertible Notes upon a fundamental change at a price equal to 100% of the principal amount of the Convertible Notes being repurchased plus any accrued and unpaid interest up to, but excluding, the fundamental change repurchase date. In addition, upon a fundamental change that constitutes a non-stock change of control we will also pay holders an amount in cash equal to the present value of all remaining interest payments (without duplication of the foregoing amounts) on such Convertible Notes through and including the maturity date.

In connection with the issuance of the Convertible Notes, we incurred $32,147 of fees which are being amortized over the terms of the notes, of which $13,186 remains to be amortized and is included as a reduction within Convertible Notes on the Consolidated Statement of Assets and Liabilities as of December 31, 2017 .

During the three months ended December 31, 2017 and December 31, 2016 , we recorded $13,003 and 13,477 , respectively, of interest costs and amortization of financing costs on the Convertible Notes as interest expense. During the six months ended December 31, 2017 and December 31, 2016, we recorded $26,659 and $28,190 , respectively, of interest costs and amortization of financing costs on the Convertible Notes as interest expense.

Note 6. Public Notes

On March 15, 2013, we issued $250,000 aggregate principal amount of unsecured notes that mature on March 15, 2023 (the "2023 Notes"). The 2023 Notes bear interest at a rate of 5.875% per year, payable semi-annually on March 15 and September 15 of each year, beginning September 15, 2013. Total proceeds from the issuance of the 2023 Notes, net of underwriting discounts and offering costs, were $243,641.


On April 7, 2014, we issued $300,000 aggregate principal amount of unsecured notes that mature on July 15, 2019 (the "5.00% 2019 Notes"). Included in the issuance is $45,000 of Prospect Capital InterNotes® that were exchanged for the 5.00% 2019 Notes. The 5.00% 2019 Notes bear interest at a rate of 5.00% per year, payable semi-annually on January 15 and July 15 of each year, beginning July 15, 2014. Total proceeds from the issuance of the 5.00% 2019 Notes, net of underwriting discounts and offering costs, were $295,998.

On December 10, 2015, we issued $160,000 aggregate principal amount of unsecured notes that mature on June 15, 2024 (the "2024 Notes"). The 2024 Notes bear interest at a rate of 6.25% per year, payable quarterly on March 15, June 15, September 15 and December 15 of each year, beginning March 15, 2016. Total proceeds from the issuance of the 2024 Notes, net of underwriting discounts and offering costs, were $155,043. On June 16, 2016, we entered into an at-the-market program with FBR Capital Markets & Co. through which we could sell, by means of at-the-market offerings, from time to time, up to $100,000 in aggregate principal amount of our existing 2024 Notes. As of December 31, 2017 , we issued $199,281 in aggregate principal amount of our 2024 Notes for net proceeds of $193,253 after commissions and offering costs.

The 2023 Notes, the 5.00% 2019 Notes, and the 2024 Notes (collectively, the "Public Notes") are direct unsecured obligations and rank equally with all of our unsecured indebtedness from time to time outstanding.

In connection with the issuance of the 2023 Notes, the 5.00% 2019 Notes, and the 2024 Notes, we incurred $13,613 of fees which are being amortized over the term of the notes, of which $8,214 remains to be amortized and is included as a reduction within Public Notes on the Consolidated Statement of Assets and Liabilities as of December 31, 2017 .

During the three months ended December 31, 2017 and December 31, 2016 , we recorded $11,048 and $11,058 , respectively, of interest costs and amortization of financing costs on the Public Notes as interest expense. During the six months ended December 31, 2017 and December 31, 2016, we recorded $22,089 and $21,838 , respectively, of interest costs and amortization of financing costs on the Public Notes as interest expense.

Note 7. Prospect Capital InterNotes® 

On February 16, 2012, we entered into a selling agent agreement (the "Selling Agent Agreement") with Incapital LLC, as purchasing agent for our issuance and sale from time to time of up to $500,000 of Prospect Capital InterNotes® (the "InterNotes® Offering"), which was increased to $1,500,000 in May 2014. Additional agents may be appointed by us from time to time in connection with the InterNotes® Offering and become parties to the Selling Agent Agreement.

These notes are direct unsecured obligations and rank equally with all of our unsecured indebtedness from time to time outstanding. Each series of notes will be issued by a separate trust. These notes bear interest at fixed interest rates and offer a variety of maturities no less than twelve months from the original date of issuance.


63


During the six months ended December 31, 2017 , we issued $52,177 aggregate principal amount of Prospect Capital InterNotes® for net proceeds of $51,398 . These notes were issued with stated interest rates ranging from 4.00% to 5.00% with a weighted average interest rate of 4.39% . These notes mature between July 15, 2022 and December 15, 2025 . The following table summarizes the Prospect Capital InterNotes® issued during the six months ended December 31, 2017 .

Tenor at
Origination
(in years)

Principal
Amount

Interest Rate
Range

Weighted
Average
Interest Rate

Maturity Date Range

5

$

31,950


4.00%–4.75%

4.23

%

July 15, 2022 – December 15, 2022

7

2,825


4.75%–5.00%

4.94

%

July 15, 2024

8

17,402


4.50%–5.00%

4.61

%

August 15, 2025 – December 15, 2025

$

52,177


During the six months ended December 31, 2016 , we issued $64,731 aggregate principal amount of our Prospect Capital InterNotes® for net proceeds of $63,926 . These notes were issued with stated interest rates ranging from 4.75% to 5.50% with a weighted average interest rate of 5.25% . These notes mature between July 15, 2021 and December 15, 2021 . The following table summarizes the Prospect Capital InterNotes® issued during the six months ended December 31, 2016 .

Tenor at
Origination
(in years)

Principal
Amount

Interest Rate
Range

Weighted
Average
Interest Rate

Maturity Date Range

5

$

64,731


4.75%–5.50%

5.25

%

July 15, 2021 – December 15, 2021

During the six months ended December 31, 2017 , we redeemed $181,538 aggregate principal amount of Prospect Capital InterNotes® at par with a weighted average interest rate of 4.85% in order to replace shorter maturity debt with longer-term debt. During the six months ended December 31, 2017 , we repaid $3,793 aggregate principal amount of Prospect Capital InterNotes® at par in accordance with the Survivor's Option, as defined in the InterNotes® Offering prospectus. As a result of these transactions, we recorded a loss in the amount of the unamortized debt issuance costs. The net loss on the extinguishment of Prospect Capital InterNotes® in the six months ended December 31, 2017 was $932 . The following table summarizes the Prospect Capital InterNotes® outstanding as of December 31, 2017 .

Tenor at
Origination
(in years)

Principal
Amount

Interest Rate
Range

Weighted
Average
Interest Rate

Maturity Date Range

4

$

9,750


4.00

%

4.00

%

January 15, 2018

5

266,923


4.00%–5.50%


4.96

%

July 15, 2018 – December 15, 2022

5.2

4,440


4.63

%

4.63

%

August 15, 2020 – September 15, 2020

5.3

2,636


4.63

%

4.63

%

September 15, 2020

5.4

5,000


4.75

%

4.75

%

August 15, 2019

5.5

104,790


4.25%–4.75%


4.63

%

May 15, 2020 – November 15, 2020

6

2,182


4.88

%

4.88

%

April 15, 2021 – May 15, 2021

6.5

40,652


5.10%–5.50%


5.24

%

February 15, 2020 – May 15, 2022

7

155,298


4.00%–5.75%


5.09

%

January 15, 2020 – July 15, 2024

7.5

1,996


5.75

%

5.75

%

February 15, 2021

8

17,402


4.50%–5.00%


4.61

%

August 15, 2025 – December 15, 2025

10

37,434


4.32%–7.00%


6.15

%

March 15, 2022 – December 15, 2025

12

2,978


6.00

%

6.00

%

November 15, 2025 – December 15, 2025

15

17,177


5.25%–6.00%


5.35

%

May 15, 2028 – November 15, 2028

18

21,098


4.13%–6.25%


5.54

%

December 15, 2030 – August 15, 2031

20

4,187


5.75%–6.00%


5.90

%

November 15, 2032 – October 15, 2033

25

33,711


6.25%–6.50%


6.39

%

August 15, 2038 – May 15, 2039

30

109,843


5.50%–6.75%


6.24

%

November 15, 2042 – October 15, 2043

$

837,497





64


During the six months ended December 31, 2016 , we repaid $5,730 aggregate principal amount of Prospect Capital InterNotes® at par in accordance with the Survivor's Option, as defined in the InterNotes® Offering prospectus. As a result of these transactions, we recorded a loss in the amount of the difference between the reacquisition price and the net carrying amount of the notes, net of the proportionate amount of unamortized debt issuance costs. The net loss on the extinguishment of Prospect Capital InterNotes® in the six months ended December 31, 2016 was $185.


The following table summarizes the Prospect Capital InterNotes® outstanding as of June 30, 2017 .

Tenor at
Origination
(in years)

Principal
Amount

Interest Rate
Range

Weighted
Average
Interest Rate

Maturity Date Range

4

$

39,038


3.75%-4.00%

3.92

%

November 15, 2017 – May 15, 2018

5

354,805


4.25%-5.50%

5.00

%

July 15, 2018 – June 15, 2022

5.2

4,440


4.63%

4.63

%

August 15, 2020 – September 15, 2020

5.3

2,686


4.63%

4.63

%

September 15, 2020

5.4

5,000


4.75%

4.75

%

August 15, 2019

5.5

109,068


4.25%-5.00%

4.67

%

February 15, 2019 – November 15, 2020

6

2,182


4.88%

4.88

%

April 15, 2021 – May 15, 2021

6.5

40,702


5.10%-5.50%

5.24

%

February 15, 2020 – May 15, 2022

7

191,356


4.00%-6.55%

5.38

%

June 15, 2019 – December 15, 2022

7.5

1,996


5.75%

5.75

%

February 15, 2021

10

37,509


4.27%-7.00%

6.20

%

March 15, 2022 – December 15, 2025

12

2,978


6.00%

6.00

%

November 15, 2025 – December 15, 2025

15

17,245


5.25%-6.00%

5.36

%

May 15, 2028 – November 15, 2028

18

21,532


4.13%-6.25%

5.47

%

December 15, 2030 – August 15, 2031

20

4,248


5.63%-6.00%

5.84

%

November 15, 2032 – October 15, 2033

25

34,218


6.25%-6.50%

6.39

%

August 15, 2038 – May 15, 2039

30

111,491


5.50%-6.75%

6.22

%

November 15, 2042 – October 15, 2043

$

980,494



In connection with the issuance of Prospect Capital InterNotes ® , we incurred $24,485 of fees which are being amortized over the term of the notes, of which $13,114 remains to be amortized and is included as a reduction within Prospect Capital InterNotes ® on the Consolidated Statement of Assets and Liabilities as of December 31, 2017 .

During the three months ended December 31, 2017 and December 31, 2016 , we recorded $11,910 and $13,247 , respectively, of interest costs and amortization of financing costs on the Prospect Capital InterNotes ®  as interest expense. During the six months ended December 31, 2017 and December 31, 2016, we recorded $25,294 and $26,460 , respectively, of interest costs and amortization of financing costs on the Prospect Capital InterNotes® as interest expense.


65


Note 8. Fair Value and Maturity of Debt Outstanding 

The following table shows our outstanding debt as of December 31, 2017 .

Principal Outstanding

Unamortized Discount & Debt Issuance Costs

Net Carrying Value

Fair Value
(1)

Effective Interest Rate

Revolving Credit Facility (2)

$

-


$

3,394


$

-


(3

)

$

-


1ML+2.25%


(6

)

2018 Notes

85,419


117


85,302


85,937


(4

)

6.42

%

(7

)

2019 Notes

200,000


1,266


198,734


205,474


(4

)

6.51

%

(7

)

2020 Notes

392,000


5,379


386,621


393,831


(4

)

5.38

%

(7

)

2022 Notes

225,000


6,424


218,576


225,621


(4

)

5.63

%

(7

)

Convertible Notes

902,419


13,186


889,233


910,863


5.00% 2019 Notes

300,000


1,303


298,697


307,974


(4

)

5.29

%

(7

)

2023 Notes

250,000


3,782


246,218


259,015


(4

)

6.09

%

(7

)

2024 Notes

199,281


4,878


194,403


206,455


(4

)

6.74

%

(7

)

Public Notes

749,281


9,963


739,318


773,444


Prospect Capital InterNotes ®

837,497


13,114


824,383


880,065


(5

)

5.55

%

(8

)

Total

$

2,489,197


$

39,657


$

2,452,934


$

2,564,372


(1)

As permitted by ASC 825-10-25, we have not elected to value our Revolving Credit Facility, Convertible Notes, Public Notes and Prospect Capital InterNotes® at fair value. The fair value of these debt obligations are categorized as Level 2 under ASC 820 as of December 31, 2017 .

(2)

The maximum draw amount of the Revolving Credit facility as of December 31, 2017 is $885,000 .

(3)

Net Carrying Value excludes deferred financing costs associated with the Revolving Credit Facility. See Note 2 for accounting policy details.

(4)

We use available market quotes to estimate the fair value of the Convertible Notes and Public Notes.

(5)

The fair value of Prospect Capital InterNotes® is estimated by discounting remaining payments using current Treasury rates plus spread.

(6)

Represents the rate on drawn down and outstanding balances. Deferred debt issuance costs are amortized on a straight-line method over the stated life of the obligation.

(7)

The effective interest rate is equal to the effect of the stated interest, the accretion of original issue discount and amortization of debt issuance costs. For the 2024 Notes, the rate presented is a combined effective interest rate of the 2024 Notes and 2024 Notes Follow-on Program.

(8)

For the Prospect Capital InterNotes®, the rate presented is the weighted average effective interest rate. Interest expense and deferred debt issuance costs, which are amortized on a straight-line method over the stated life of the obligation which approximates level yield, are weighted against the average year-to-date principal balance.


66


The following table shows our outstanding debt as of June 30, 2017 .

Principal Outstanding

Unamortized Discount & Debt Issuance Costs

Net Carrying Value

Fair Value
(1)

Effective Interest Rate

Revolving Credit Facility(2)

$

-


$

4,779


$

-


(3

)

$

-


1ML+2.25%


(6

)

2017 Notes

50,734


77


50,657


51,184


(4

)

5.91

%

(7

)

2018 Notes

85,419


394


85,025


87,660


(4

)

6.42

%

(7

)

2019 Notes

200,000


1,846


198,154


206,614


(4

)

6.51

%

(7

)

2020 Notes

392,000


6,458


385,542


394,689


(4

)

5.38

%

(7

)

2022 Notes

225,000


6,737


218,263


223,875


(4

)

5.63

%

(7

)

Convertible Notes

953,153


15,512


937,641


964,022


5.00% 2019 Notes

300,000


1,705


298,295


308,439


(4

)

5.29

%

(7

)

2023 Notes

250,000


4,087


245,913


258,045


(4

)

6.22

%

(7

)

2024 Notes

199,281


5,189


194,092


207,834


(4

)

6.72

%

(7

)

Public Notes

749,281


10,981


738,300


774,318


Prospect Capital InterNotes®

980,494


14,240


966,254


1,003,852


(5

)

5.55

%

(8

)

Total

$

2,682,928


$

45,512


$

2,642,195


$

2,742,192



(1)

As permitted by ASC 825-10-25, we have not elected to value our Revolving Credit Facility, Convertible Notes, Public Notes and Prospect Capital InterNotes® at fair value. The fair value of these debt obligations are categorized as Level 2 under ASC 820 as of June 30, 2017 .

(2)

The maximum draw amount of the Revolving Credit facility as of June 30, 2017 is $885,000 .

(3)

Net Carrying Value excludes deferred financing costs associated with the Revolving Credit Facility. See Note 2 for accounting policy details.

(4)

We use available market quotes to estimate the fair value of the Convertible Notes and Public Notes.

(5)

The fair value of Prospect Capital InterNotes® is estimated by discounting remaining payments using current Treasury rates plus spread.

(6)

Represents the rate on drawn down and outstanding balances. Deferred debt issuance costs are amortized on a straight-line method over the stated life of the obligation.

(7)

The effective interest rate is equal to the effect of the stated interest, the accretion of original issue discount and amortization of debt issuance costs. For the 2024 Notes, the rate presented is a combined effective interest rate of the 2024 Notes and 2024 Notes Follow-on Program.

(8)

For the Prospect Capital InterNotes®, the rate presented is the weighted average effective interest rate. Interest expense and deferred debt issuance costs, which are amortized on a straight-line method over the stated life of the obligation which approximates level yield, are weighted against the average year-to-date principal balance.

The following table shows the contractual maturities of our Revolving Credit Facility, Convertible Notes, Public Notes and Prospect Capital InterNotes® as of December 31, 2017 .

Payments Due by Period

Total

Less than 1 Year

1 – 3 Years

3 – 5 Years

After 5 Years

Revolving Credit Facility

$

-


$

-


$

-


$

-


$

-


Convertible Notes

902,419


85,419


592,000


225,000


-


Public Notes

749,281


-


300,000


-


449,281


Prospect Capital InterNotes®

837,497


28,197


294,936


281,595


232,769


Total Contractual Obligations

$

2,489,197


$

113,616


$

1,186,936


$

506,595


$

682,050



67


The following table shows the contractual maturities of our Revolving Credit Facility, Convertible Notes, Public Notes and Prospect Capital InterNotes® as of June 30, 2017 .

Payments Due by Period

Total

Less than 1 Year

1 – 3 Years

3 – 5 Years

After 5 Years

Revolving Credit Facility

$

-


$

-


$

-


$

-


$

-


Convertible Notes

953,153


136,153


592,000


-


225,000


Public Notes

749,281


-


300,000


-


449,281


Prospect Capital InterNotes ®

980,494


39,038


325,661


399,490


216,305


Total Contractual Obligations

$

2,682,928


$

175,191


$

1,217,661


$

399,490


$

890,586


Note 9. Stock Repurchase Program, Equity Offerings, Offering Expenses, and Distributions

On August 24, 2011, our Board of Directors approved a share repurchase plan (the "Repurchase Program") under which we may repurchase up to $100,000 of our common stock at prices below our net asset value per share. Prior to any repurchase, we are required to notify shareholders of our intention to purchase our common stock. Our last notice was delivered with our annual proxy mailing on September 22, 2017.

We did not repurchase any shares of our common stock during the six months ended December 31, 2017 and December 31, 2016 . As of December 31, 2017 , the approximate dollar value of shares that may yet be purchased under the plan is $65,860 .


Excluding dividend reinvestments, during the six months ended December 31, 2017 and December 31, 2016 , we did not issue any shares of our common stock.

On August 31, 2016, we filed a registration statement on Form N-2 (File No. 333-213391) with the SEC. We subsequently filed a Pre-Effective Amendment No. 2 thereto on November 1, 2016, which the SEC declared effective on November 3, 2016. On October 26, 2017, we filed Post-Effective Amendment No. 50 to the registration statement, which the SEC declared effective on October 30, 2017. The registration statement permits us to issue, through one or more transactions, up to an aggregate of $5,000,000 in securities, consisting of common stock, preferred stock, debt securities, subscription rights to purchase our securities, warrants representing rights to purchase our securities or separately tradeable units combining two or more of our securities. As of December 31, 2017, we have the ability to issue up to $4,639,035 in securities under the registration statement.

During the six months ended December 31, 2017 and December 31, 2016 , we distributed approximately $146,559 and $ 179,097 , respectively, to our stockholders. The following table summarizes our distributions declared and payable for the six months ended December 31, 2016 and December 31, 2017 .

Declaration Date

Record Date

Payment Date

Amount Per Share

Amount Distributed (in thousands)

5/9/2016

7/29/2016

8/18/2016

$

0.083330


$

29,783


5/9/2016

8/31/2016

9/22/2016

0.083330


29,809


8/25/2016

9/30/2016

10/20/2016

0.083330


29,837


8/25/2016

10/31/2016

11/17/2016

0.083330


29,863


11/8/2016

11/30/2016

12/22/2016

0.083330


29,890


11/8/2016

12/30/2016

1/19/2017

0.083330


29,915


Total declared and payable for the six months ended December 31, 2016

$

179,097


5/9/2017

7/31/2017

8/24/2017

$

0.083330


$

30,011


5/9/2017

8/31/2017

9/21/2017

0.083330


30,017


8/28/2017

9/29/2017

10/19/2017

0.060000


21,619


8/28/2017

10/31/2017

11/22/2017

0.060000


21,623


11/8/2017

11/30/2017

12/21/2017

0.060000


21,630


11/8/2017

12/29/2017

1/18/2018

0.060000


21,659


Total declared and payable for the six months ended December 31, 2017

$

146,559



68


Dividends and distributions to common stockholders are recorded on the ex-dividend date. As such, the table above includes distributions with record dates during six months ended December 31, 2017 and December 31, 2016 . It does not include distributions previously declared to stockholders of record on any future dates, as those amounts are not yet determinable. The following dividends were previously declared and will be recorded and payable subsequent to December 31, 2017 :

$0.06 per share for January 2018 to holders of record on January 31, 2018 with a payment date of February 15, 2018.

During the six months ended December 31, 2017 and December 31, 2016 , we issued 903,819 and 1,893,049 shares of our common stock, respectively, in connection with the dividend reinvestment plan.

On February 9, 2016, we amended our dividend reinvestment plan that provided for reinvestment of our dividends or distributions on behalf of our stockholders, unless a stockholder elects to receive cash, to add the ability of stockholders to purchase additional shares by making optional cash investments. Under the revised dividend reinvestment and direct stock repurchase plan, stockholders may elect to purchase additional shares through our transfer agent in the open market or in negotiated transactions.


During the six months ended December 31, 2017 , Prospect officers purchased 9,093,856 shares of our stock, or 2.52% of total outstanding shares as of December 31, 2017 , both through the open market transactions and shares issued in connection with our dividend reinvestment plan.

As of December 31, 2017 , we have reserved 77,328,527 shares of our common stock for issuance upon conversion of the Convertible Notes (see Note 5).

Note 10. Other Income

Other income consists of structuring fees, overriding royalty interests, revenue receipts related to net profit interests, deal deposits, administrative agent fees, and other miscellaneous and sundry cash receipts. The following table shows income from such sources during the three and six months ended December 31, 2017 and December 31, 2016 .

Three Months Ended December 31,

Six Months Ended December 31,

2017

2016

2017


2016

Structuring and amendment fees

$

6,751


$

5,797


$

14,958


$

10,273


Royalty and Net Revenue interests

1,872


1,333


3,450


2,503


Administrative agent fees

69


180


234


332


Total Other Income

$

8,692


$

7,310


$

18,642


$

13,108


Note 11. Net Increase in Net Assets per Share

The following information sets forth the computation of net increase in net assets resulting from operations per share during the three and six months ended December 31, 2017 and December 31, 2016 .

Three Months Ended December 31,

Six Months Ended December 31,

2017

2016

2017

2016

Net increase in net assets resulting from operations

121,727

$

100,880


133,700

$

182,246


Weighted average common shares outstanding

360,473,705

358,494,783


360,322,770

358,011,031


Net increase in net assets resulting from operations per share

0.34

$

0.28


0.37

$

0.51


Note 12. Income Taxes

While our fiscal year end for financial reporting purposes is June 30 of each year, our tax year end is August 31 of each year. The information presented in this footnote is based on our tax year end for each period presented, unless otherwise specified. The tax return for the tax year ended August 31, 2017 has not been filed. Taxable income and all amounts related to taxable income for the tax year ended August 31, 2017 are estimates and will not be final until the Company's tax return is filed.

For income tax purposes, dividends paid and distributions made to shareholders are reported as ordinary income, capital gains, non-taxable return of capital, or a combination thereof. The tax character of dividends paid to shareholders during the tax years ended August 31, 2017, 2016 and 2015 were as follows:


69


Tax Year Ended August 31,

2017

2016

2015

Ordinary income

$

359,215


$

355,985


$

413,640


Capital gain

-


-


-


Return of capital

-


-


-


Total distributions paid to shareholders

$

359,215


$

355,985


$

413,640


We generate certain types of income that may be exempt from U.S. withholding tax when distributed to non-U.S. shareholders. Under IRC Section 871(k), a RIC is permitted to designate distributions of qualified interest income and short-term capital gains as exempt from U.S. withholding tax when paid to non-U.S. shareholders with proper documentation. For the 2017 calendar year, 49.94% of our distributions as of December 31, 2017 qualified as interest related dividends which are exempt from U.S. withholding tax applicable to non-U.S. shareholders.


For the tax year ending August 31, 2018, the tax character of dividends paid to shareholders through December 31, 2017 is expected to be ordinary income. Because of the difference between our fiscal and tax year ends, the final determination of the tax character of dividends will not be made until we file our tax return for the tax year ending August 31, 2018.


Taxable income generally differs from net increase in net assets resulting from operations for financial reporting purposes due to temporary and permanent differences in the recognition of income and expenses, and generally excludes net unrealized gains or losses, as unrealized gains or losses are generally not included in taxable income until they are realized. The following reconciles the net increase in net assets resulting from operations to taxable income for the tax years ended August 31, 2017, 2016 and 2015:

Tax Year Ended August 31,

2017

2016

2015

Net increase in net assets resulting from operations

$

254,766


$

262,831


$

360,572


Net realized loss on investments

100,765


22,666


164,230


Net unrealized (gains) losses on investments

(61,939

)

73,181


(157,745

)

Other temporary book-to-tax differences

(27,112

)

(56,036

)

98,289


Permanent differences

(772

)

2,489


2,436


Taxable income before deductions for distributions

$

265,708


$

305,131


$

467,782


Capital losses in excess of capital gains earned in a tax year may generally be carried forward and used to offset capital gains, subject to certain limitations. The Regulated Investment Company Modernization Act (the "RIC Modernization Act") was enacted on December 22, 2010. Under the RIC Modernization Act, capital losses incurred by taxpayers in taxable years beginning after the date of enactment will be allowed to be carried forward indefinitely and are allowed to retain their character as either short-term or long-term losses. As such, the capital loss carryforwards generated by us after the August 31, 2011 tax year will not be subject to expiration. Any losses incurred in post-enactment tax years will be required to be utilized prior to the losses incurred in pre-enactment tax years. As of August 31, 2017, we had capital loss carryforwards of approximately $302,590 available for use in later tax years. Of the amount available as of August 31, 2017, $46,156 will expire on August 31, 2018, and $256,434 is not subject to expiration. The unused balance each year will be carried forward and utilized as gains are realized, subject to limitations. While our ability to utilize losses in the future depends upon a variety of factors that cannot be known in advance, some of our capital loss carryforwards may become permanently unavailable due to limitations by the Code.

For the tax year ended August 31, 2017, we had no cumulative taxable income in excess of cumulative distributions.

As of December 31, 2017 , the cost basis of investments for tax purposes was $5,647,330 resulting in estimated gross unrealized gains and losses of $408,072 and $634,270, respectively. As of June 30, 2017, the cost basis of investments for tax purposes was $5,999,218 resulting in estimated gross unrealized gains and losses of $337,903 and $498,816, respectively. Due to the difference between our fiscal year end and tax year end, the cost basis of our investments for tax purposes as of December 31, 2017 and June 30, 2017 was calculated based on the book cost of investments as of December 31, 2017 and June 30, 2017, respectively, with cumulative book-to-tax adjustments for investments through August 31, 2017 and 2016, respectively.

In general, we may make certain adjustments to the classification of net assets as a result of permanent book-to-tax differences, which may include merger-related items, differences in the book and tax basis of certain assets and liabilities, and nondeductible federal excise taxes, among other items. During the tax year ended August 31, 2017, we increased overdistributed net investment income by $772 and increased capital in excess of par value by $772. During the tax year ended August 31, 2016, we decreased overdistributed net investment income by $2,489, increased accumulated net realized loss on investments by $1,296 and decreased


70


capital in excess of par value by $1,193. Due to the difference between our fiscal and tax year end, the reclassifications for the taxable year ended August 31, 2017 is being recorded in the fiscal year ending June 30, 2018 and the reclassifications for the taxable year ended August 31, 2016 were recorded in the fiscal year ended June 30, 2017.

Note 13. Related Party Agreements and Transactions

Investment Advisory Agreement

We have entered into an investment advisory and management agreement with the Investment Adviser (the "Investment Advisory Agreement") under which the Investment Adviser, subject to the overall supervision of our Board of Directors, manages the day-to-day operations of, and provides investment advisory services to, us. Under the terms of the Investment Advisory Agreement, the Investment Adviser: (i) determines the composition of our portfolio, the nature and timing of the changes to our portfolio and the manner of implementing such changes, (ii) identifies, evaluates and negotiates the structure of the investments we make (including performing due diligence on our prospective portfolio companies); and (iii) closes and monitors investments we make.

The Investment Adviser's services under the Investment Advisory Agreement are not exclusive, and it is free to furnish similar services to other entities so long as its services to us are not impaired. For providing these services the Investment Adviser receives a fee from us, consisting of two components: a base management fee and an incentive fee. The base management fee is calculated at an annual rate of 2.00% on our total assets. For services currently rendered under the Investment Advisory Agreement, the base management fee is payable quarterly in arrears. The base management fee is calculated based on the average value of our gross assets at the end of the two most recently completed calendar quarters and appropriately adjusted for any share issuances or repurchases during the current calendar quarter.

The total gross base management fee incurred to the favor of the Investment Adviser was $ 29,742 and $31,095 during the three months ended December 31, 2017 and December 31, 2016 , respectively. The total gross base management fee incurred to the favor of the Investment Adviser was $ 60,121 and $62,435 during the six months ended December 31, 2017 and December 31, 2016 , respectively.

The Investment Adviser has entered into a servicing agreement with certain institutions that purchased loans with us, where we serve as the agent and collect a servicing fee on behalf of the Investment Adviser. During the three months ended December 31, 2017 and December 31, 2016 , we received payments of $183 and $209 , respectively, from these institutions, on behalf of the Investment Adviser, for providing such services under the servicing agreement. We were given a credit for these payments, which reduced the base management fees to $ 29,559 and $30,886 for the three months ended December 31, 2017 and December 31, 2016 , respectively. During the six months ended December 31, 2017 and December 31, 2016 , we received payments of $399 and $757 , respectively, from these institutions, on behalf of the Investment Adviser, for providing such services under the servicing agreement. We were given a credit for these payments, which reduced the base management fees to $59,722 and $61,678 for the six months ended December 31, 2017 and December 31, 2016 , respectively.

The incentive fee has two parts. The first part, the income incentive fee, is calculated and payable quarterly in arrears based on our pre-incentive fee net investment income for the immediately preceding calendar quarter. For this purpose, pre-incentive fee net investment income means interest income, dividend income and any other income (including any other fees (other than fees for providing managerial assistance), such as commitment, origination, structuring, diligence and consulting fees and other fees that we receive from portfolio companies) accrued during the calendar quarter, minus our operating expenses for the quarter (including the base management fee, expenses payable under the Administration Agreement described below, and any interest expense and dividends paid on any issued and outstanding preferred stock, but excluding the incentive fee). Pre-incentive fee net investment income includes, in the case of investments with a deferred interest feature (such as original issue discount, debt instruments with payment-in-kind interest and zero coupon securities), accrued income that we have not yet received in cash. Pre-incentive fee net investment income does not include any realized capital gains, realized capital losses or unrealized capital gains or losses. Pre-incentive fee net investment income, expressed as a rate of return on the value of our net assets at the end of the immediately preceding calendar quarter, is compared to a "hurdle rate" of 1.75% per quarter (7.00% annualized).

The net investment income used to calculate this part of the incentive fee is also included in the amount of the gross assets used to calculate the 2.00% base management fee. We pay the Investment Adviser an income incentive fee with respect to our pre-incentive fee net investment income in each calendar quarter as follows: 

No incentive fee in any calendar quarter in which our pre-incentive fee net investment income does not exceed the hurdle rate;


71


100.00% of our pre-incentive fee net investment income with respect to that portion of such pre-incentive fee net investment income, if any, that exceeds the hurdle rate but is less than 125.00% of the quarterly hurdle rate in any calendar quarter (8.75% annualized assuming a 7.00% annualized hurdle rate); and

20.00% of the amount of our pre-incentive fee net investment income, if any, that exceeds 125.00% of the quarterly hurdle rate in any calendar quarter (8.75% annualized assuming a 7.00% annualized hurdle rate).

These calculations are appropriately prorated for any period of less than three months and adjusted for any share issuances or repurchases during the current quarter.

The second part of the incentive fee, the capital gains incentive fee, is determined and payable in arrears as of the end of each calendar year (or upon termination of the Investment Advisory Agreement, as of the termination date), and equals 20.00% of our realized capital gains for the calendar year, if any, computed net of all realized capital losses and unrealized capital depreciation at the end of such year. In determining the capital gains incentive fee payable to the Investment Adviser, we calculate the aggregate realized capital gains, aggregate realized capital losses and aggregate unrealized capital depreciation, as applicable, with respect to each investment that has been in our portfolio. For the purpose of this calculation, an "investment" is defined as the total of all rights and claims which may be asserted against a portfolio company arising from our participation in the debt, equity, and other financial instruments issued by that company. Aggregate realized capital gains, if any, equal the sum of the differences between the aggregate net sales price of each investment and the aggregate amortized cost basis of such investment when sold or otherwise disposed. Aggregate realized capital losses equal the sum of the amounts by which the aggregate net sales price of each investment is less than the aggregate amortized cost basis of such investment when sold or otherwise disposed. Aggregate unrealized capital depreciation equals the sum of the differences, if negative, between the aggregate valuation of each investment and the aggregate amortized cost basis of such investment as of the applicable calendar year-end. At the end of the applicable calendar year, the amount of capital gains that serves as the basis for our calculation of the capital gains incentive fee involves netting aggregate realized capital gains against aggregate realized capital losses on a since-inception basis and then reducing this amount by the aggregate unrealized capital depreciation. If this number is positive, then the capital gains incentive fee payable is equal to 20.00% of such amount, less the aggregate amount of any capital gains incentive fees paid since inception.

The total income incentive fee incurred was $ 18,298 and $21,101 during the three months ended December 31, 2017 and December 31, 2016 , respectively. The fees incurred for the six months ended December 31, 2017 and December 31, 2016 were $34,231 and $40,831 , respectively. No capital gains incentive fee was incurred during the three or six months ended December 31, 2017 and December 31, 2016 .

Administration Agreement

We have also entered into an administration agreement (the "Administration Agreement") with Prospect Administration under which Prospect Administration, among other things, provides (or arranges for the provision of) administrative services and facilities for us. For providing these services, we reimburse Prospect Administration for our allocable portion of overhead incurred by Prospect Administration in performing its obligations under the Administration Agreement, including rent and our allocable portion of the costs of our Chief Financial Officer and Chief Compliance Officer and his staff, including the internal legal staff. Under this agreement, Prospect Administration furnishes us with office facilities, equipment and clerical, bookkeeping and record keeping services at such facilities. Prospect Administration also performs, or oversees the performance of, our required administrative services, which include, among other things, being responsible for the financial records that we are required to maintain and preparing reports to our stockholders and reports filed with the SEC. In addition, Prospect Administration assists us in determining and publishing our net asset value, overseeing the preparation and filing of our tax returns and the printing and dissemination of reports to our stockholders, and generally oversees the payment of our expenses and the performance of administrative and professional services rendered to us by others. Under the Administration Agreement, Prospect Administration also provides on our behalf managerial assistance to those portfolio companies to which we are required to provide such assistance (see Managerial Assistance section below). The Administration Agreement may be terminated by either party without penalty upon 60 days' written notice to the other party. Prospect Administration is a wholly-owned subsidiary of the Investment Adviser.

The Administration Agreement provides that, absent willful misfeasance, bad faith or negligence in the performance of its duties or by reason of the reckless disregard of its duties and obligations, Prospect Administration and its officers, managers, partners, agents, employees, controlling persons, members and any other person or entity affiliated with it are entitled to indemnification from us for any damages, liabilities, costs and expenses (including reasonable attorneys' fees and amounts reasonably paid in settlement) arising from the rendering of Prospect Administration's services under the Administration Agreement or otherwise as administrator for us. Our payments to Prospect Administration are reviewed quarterly by our Board of Directors.

The allocation of gross overhead expense from Prospect Administration was $3,827 and $3,566 for the three months ended December 31, 2017 and December 31, 2016 , respectively. Prospect Administration received estimated payments of $4,651 and


72


$909 directly from our portfolio companies, insurance carrier, and certain funds managed by the Investment Adviser for legal, tax and portfolio level accounting services during the three months ended December 31, 2017 and December 31, 2016 , respectively. We were given a credit for these payments as a reduction of the administrative services cost payable by us to Prospect Administration. Had Prospect Administration not received these payments, Prospect Administration's charges for its administrative services would have increased by these amounts. Net overhead during the three months ended December 31, 2017 and December 31, 2016 totaled $ (824) and $2,657, respectively.

The allocation of gross overhead expense from Prospect Administration was $8,496 and $8,437 for the six months ended December 31, 2017 and December 31, 2016 , respectively. Prospect Administration received estimated payments of $5,792 and $2,247 directly from our portfolio companies, insurance carrier, and certain funds managed by the Investment Adviser for legal, tax and portfolio level accounting services during the six months ended December 31, 2017 and December 31, 2016 , respectively. We were given a credit for these payments as a reduction of the administrative services cost payable by us to Prospect Administration. Had Prospect Administration not received these payments, Prospect Administration's charges for its administrative services would have increased by these amounts. Net overhead during the six months ended December 31, 2017 and December 31, 2016 totaled $ 2,704 and $6,190, respectively.

As of December 31, 2017 , we accrued a receivable from Prospect Administration of $2,170 that will be reimbursed to us.

Managerial Assistance

As a BDC, we are obligated under the 1940 Act to make available to certain of our portfolio companies significant managerial assistance. "Making available significant managerial assistance" refers to any arrangement whereby we provide significant guidance and counsel concerning the management, operations, or business objectives and policies of a portfolio company. We are also deemed to be providing managerial assistance to all portfolio companies that we control, either by ourselves or in conjunction with others. The nature and extent of significant managerial assistance provided by us to controlled and non-controlled portfolio companies will vary according to the particular needs of each portfolio company. Examples of such activities include (i) advice on recruiting, hiring, management and termination of employees, officers and directors, succession planning and other human resource matters; (ii) advice on capital raising, capital budgeting, and capital expenditures; (iii) advice on advertising, marketing, and sales; (iv) advice on fulfillment, operations, and execution; (v) advice on managing relationships with unions and other personnel organizations, financing sources, vendors, customers, lessors, lessees, lawyers, accountants, regulators and other important counterparties; (vi) evaluating acquisition and divestiture opportunities, plant expansions and closings, and market expansions; (vii) participating in audit committee, nominating committee, board and management meetings; (viii) consulting with and advising board members and officers of portfolio companies (on overall strategy and other matters); and (ix) providing other organizational, operational, managerial and financial guidance.

Prospect Administration, when performing a managerial assistance agreement executed with each portfolio company to which we provide managerial assistance, arranges for the provision of such managerial assistance on our behalf. When doing so, Prospect Administration utilizes personnel of our Investment Adviser. We, on behalf of Prospect Administration, invoice portfolio companies receiving and paying for managerial assistance, and we remit to Prospect Administration its cost of providing such services, including the charges deemed appropriate by our Investment Adviser for providing such managerial assistance. No income is recognized by Prospect.

During the three months ended December 31, 2017 and December 31, 2016 , we received payments of $493 and $1,179, respectively, from our portfolio companies for managerial assistance and subsequently remitted these amounts to Prospect Administration. During the six months ended December 31, 2017 and December 31, 2016, we received payments of $1,586 and $2,898, respectively, from our portfolio companies for managerial assistance and subsequently remitted these amounts to Prospect Administration. See Note 14 for further discussion.

Co-Investments

On February 10, 2014, we received an exemptive order from the SEC (the "Order") that gave us the ability to negotiate terms other than price and quantity of co-investment transactions with other funds managed by the Investment Adviser or certain affiliates, including Priority Income Fund, Inc. and Pathway Energy Infrastructure Fund, Inc., subject to the conditions included therein. Under the terms of the relief permitting us to co-invest with other funds managed by our Investment Adviser or its affiliates, a "required majority" (as defined in Section 57(o) of the 1940 Act) of our independent directors must make certain conclusions in connection with a co-investment transaction, including that (1) the terms of the proposed transaction, including the consideration to be paid, are reasonable and fair to us and our stockholders and do not involve overreaching of us or our stockholders on the part of any person concerned and (2) the transaction is consistent with the interests of our stockholders and is consistent with our investment objective and strategies. In certain situations where co-investment with one or more funds managed by the Investment Adviser or its affiliates is not covered by the Order, such as when there is an opportunity to invest in different securities of the same issuer,


73


the personnel of the Investment Adviser or its affiliates will need to decide which fund will proceed with the investment. Such personnel will make these determinations based on policies and procedures, which are designed to reasonably ensure that investment opportunities are allocated fairly and equitably among affiliated funds over time and in a manner that is consistent with applicable laws, rules and regulations. Moreover, except in certain circumstances, when relying on the Order, we will be unable to invest in any issuer in which one or more funds managed by the Investment Adviser or its affiliates has previously invested.

We reimburse CLO investment valuation services fees initially incurred by Priority Income Fund, Inc. During the three months ended December 31, 2017 and December 31, 2016 , we recognized expenses that were reimbursed for valuation services of $50 and $28, respectively. During the six months ended December 31, 2017 and December 31, 2016, we recognized expenses that were reimbursed for valuation services of $102 and $52, respectively. Conversely, Priority Income Fund, Inc. and Pathway Energy Infrastructure Fund, Inc. reimburse us for software fees, expenses which were initially incurred by Prospect. As of December 31, 2017 and June 30, 2017 we accrued a receivable from Priority Income Fund, Inc. and Pathway Energy Infrastructure Fund, Inc. for software fees of $88 and $14, respectively, which will be reimbursed to us.


As of December 31, 2017 , we had co-investments with Priority Income Fund, Inc. in the following CLO funds: Apidos CLO XXII, Babson CLO Ltd. 2014-III, Carlyle Global Market Strategies CLO 2016-3, Ltd., Cent CLO 21 Limited, CIFC Funding 2014-IV Investor, Ltd., CIFC Funding 2016-I, Ltd., Galaxy XVII CLO, Ltd., Halcyon Loan Advisors Funding 2014-2 Ltd., Halcyon Loan Advisors Funding 2015-3 Ltd., HarbourView CLO VII, Ltd., Jefferson Mill CLO Ltd., Mountain View CLO IX Ltd., Octagon Investment Partners XVIII, Ltd., Symphony CLO XIV Ltd., Voya IM CLO 2014-1 Ltd., Voya CLO 2016-3, Ltd., Voya CLO 2017-3, Ltd. and Washington Mill CLO Ltd; however HarbourView CLO VII, Ltd. and Octagon Investment Partners XVIII, Ltd. are not considered co-investments pursuant to the Order as they were purchased on the secondary market.

As of December 31, 2017 , we had a co-investment with Pathway Energy Infrastructure Fund, Inc. in Carlyle Global Market Strategies CLO 2014-4, Ltd.; however, this investment is not considered a co-investment pursuant to the Order as it was purchased on the secondary market.

Note 14. Transactions with Controlled Companies

The descriptions below detail the transactions which Prospect Capital Corporation ("Prospect") has entered into with each of our controlled companies. Certain of the controlled entities discussed below were consolidated effective July 1, 2014 (see Note 1). As such, transactions with these Consolidated Holding Companies are presented on a consolidated basis.

Airmall Inc.

Prospect owned 100% of the equity of AMU Holdings Inc. ("AMU"), a Consolidated Holding Company. AMU owned 98% of Airmall Inc. (f/k/a Airmall USA Holdings, Inc.) ("Airmall"). Airmall is a developer and manager of airport retail operations.

On August 1, 2014, Prospect sold its investments in Airmall. On August 2, 2016, Prospect received the remaining escrow proceeds of $3,916, reducing the cost basis to zero.


Arctic Energy Services, LLC

Prospect owns 100% of the equity of Arctic Oilfield Equipment USA, Inc. ("Arctic Equipment"), a Consolidated Holding Company. Arctic Equipment owns 70% of the equity of Arctic Energy Services, LLC ("Arctic Energy"), with Ailport Holdings, LLC ("Ailport") (100% owned and controlled by Arctic Energy management) owning the remaining 30% of the equity of Arctic Energy. Arctic Energy provides oilfield service personnel, well testing flowback equipment, frac support systems and other services to exploration and development companies in the Rocky Mountains.

The following managerial assistance recognized had not yet been paid by Arctic Energy to Prospect and was included by Prospect within other receivables and due to Prospect Administration:

June 30, 2017

$

150


December 31, 2017

175



74


CCPI Inc.

Prospect owns 100% of the equity of CCPI Holdings Inc. ("CCPI Holdings"), a Consolidated Holding Company. CCPI Holdings owns 94.95% of the equity of CCPI Inc. ("CCPI"), with CCPI management owning the remaining 5.05% of the equity. CCPI owns 100% of each of CCPI Europe Ltd. and MEFEC B.V., and 45% of Gulf Temperature Sensors W.L.L.

As of June 30, 2016, after the departure of a former CCPI executive, Prospect's ownership of CCPI increased to 94.59%.

During the three months ended June 30, 2017, Prospect recognized $153 in other income related to amendment fee income.


On August 1, 2017, we entered into a participation agreement with CCPI management, and sold $144 of Prospect's investment in the Term Loan B debt.


The following amounts were paid from CCPI to Prospect and recorded by Prospect as repayment of loan receivable:

Three Months Ended December 31, 2016

$

113


Three Months Ended December 31, 2017

112


Six Months Ended December 31, 2016

225


Six Months Ended December 31, 2017

225


During the six months ended December 31, 2016, Prospect reclassified $123 of return of capital received from CCPI in prior periods as dividend income.


The following interest payments were accrued and paid from CCPI to Prospect and recognized by Prospect as interest income:

Three Months Ended December 31, 2016

$

748


Three Months Ended December 31, 2017

928


Six Months Ended December 31, 2016

1,498


Six Months Ended December 31, 2017

1,863


The following managerial assistance payments were paid from CCPI to Prospect and subsequently remitted to Prospect Administration (no income was recognized by Prospect):

Three Months Ended December 31, 2016

$

60


Three Months Ended December 31, 2017

60


Six Months Ended December 31, 2016

120


Six Months Ended December 31, 2017

120


The following managerial assistance payments received by Prospect had not yet been remitted to Prospect Administration and were included by Prospect within due to Prospect Administration:

June 30, 2017

$

60


December 31, 2017

60


The following payments were paid from CCPI to Prospect Administration as reimbursement for legal, tax and portfolio level accounting services provided directly to CCPI (no direct income was recognized by Prospect, but Prospect was given credit for these payments as a reduction of the administrative services costs payable by Prospect to Prospect Administration):

Three Months Ended December 31, 2016

$

-


Three Months Ended December 31, 2017

-


Six Months Ended December 31, 2016

-


Six Months Ended December 31, 2017

45



75


The following amounts were due from CCPI to Prospect for reimbursement of expenses paid by Prospect on behalf of CCPI and were included by Prospect within other receivables:

June 30, 2017

$

1


December 31, 2017

23


CP Energy Services Inc.

Prospect owns 100% of the equity of CP Holdings of Delaware LLC ("CP Holdings"), a Consolidated Holding Company. CP Holdings owns 82.3% of the equity of CP Energy Services Inc. ("CP Energy"), and the remaining 17.7% of the equity is owned by CP Energy management. As of June 30, 2014, CP Energy owned directly or indirectly 100% of each of CP Well Testing Services, LLC (f/k/a CP Well Testing Holding Company LLC) ("CP Well Testing"); CP Well Testing, LLC ("CP Well"); Fluid Management Services, Inc. (f/k/a Fluid Management Holdings, Inc.) ("Fluid Management"); Fluid Management Services LLC (f/k/a Fluid Management Holdings LLC); Wright Transport, Inc. (f/k/a Wright Holdings, Inc.); Wright Foster Disposals, LLC; Foster Testing Co., Inc.; ProHaul Transports, LLC; Artexoma Logistics, LLC; and Wright Trucking, Inc. Effective December 31, 2014, CP Energy underwent a corporate reorganization in order to consolidate certain of its wholly-owned subsidiaries. As of June 30, 2015, CP Energy owned directly or indirectly 100% of each of CP Well; Wright Foster Disposals, LLC; Foster Testing Co., Inc.; ProHaul Transports, LLC; and Wright Trucking, Inc. CP Energy provides oilfield flowback services and fluid hauling and disposal services through its subsidiaries.

On October 1, 2017 we restructured our investment in CP Energy. Concurrent with the restructuring, we exchanged $35,048 of Series B Convertible Preferred Stock for $35,048 of senior secured debt. During the six months ended December 31, 2017, we received $228 of an advisory fee related to the above transaction, which we recognized as other income.


The following interest payments were accrued and paid from CP Energy to Prospect and recognized by Prospect as interest income:

Three Months Ended December 31, 2016

$

-


Three Months Ended December 31, 2017

1,105


Six Months Ended December 31, 2016

-


Six Months Ended December 31, 2017

1,105


The following interest income recognized had not yet been paid by CP Energy to Prospect and was included by Prospect within interest receivable:

June 30, 2017

$

-


December 31, 2017

12


The following managerial assistance payments received by Prospect had not yet been remitted to Prospect Administration and were included by Prospect within due to Prospect Administration:

June 30, 2017

$

75


December 31, 2017

100


Credit Central Loan Company, LLC

Prospect owns 100% of the equity of Credit Central Holdings of Delaware, LLC ("Credit Central Delaware"), a Consolidated Holding Company. Credit Central Delaware owns 74.93% of the equity of Credit Central Loan Company, LLC (f/k/a Credit Central Holdings, LLC) ("Credit Central"), with entities owned by Credit Central management owning the remaining 25.07% of the equity. Credit Central owns 100% of each of Credit Central, LLC; Credit Central South, LLC; Credit Central of Texas, LLC; and Credit Central of Tennessee, LLC. Credit Central is a branch-based provider of installment loans.

On September 28, 2016, Prospect performed a buyout of Credit Central management's ownership stake, purchasing additional subordinated debt of $12,523 at a discount of $7,521. Prospect also purchased $2,098 of additional shares, increasing its ownership to 99.91%.

During the six months ended December 31, 2017, $940 of the aforementioned original issue discount of $7,521 accreted.


76


The following interest payments were accrued and paid from Credit Central to Prospect and recognized by Prospect as interest income:

Three Months Ended December 31, 2016

$

2,868


Three Months Ended December 31, 2017

3,161


Six Months Ended December 31, 2016

4,988


Six Months Ended December 31, 2017

6,241


Included above, the following payment-in-kind interest from Credit Central was capitalized and recognized by Prospect as interest income:

Three Months Ended December 31, 2016

$

859


Three Months Ended December 31, 2017

-


Six Months Ended December 31, 2016

1,916


Six Months Ended December 31, 2017

-


The following interest income recognized had not yet been paid by Credit Central to Prospect and was included by Prospect within interest receivable:

June 30, 2017

$

29


December 31, 2017

-


The following net revenue interest payments were paid from Credit Central to Prospect and recognized by Prospect as other income:

Three Months Ended December 31, 2016

$

-


Three Months Ended December 31, 2017

317


Six Months Ended December 31, 2016

-


Six Months Ended December 31, 2017

317


The following managerial assistance payments were paid from Credit Central to Prospect and subsequently remitted to Prospect Administration (no income was recognized by Prospect):

Three Months Ended December 31, 2016

$

175


Three Months Ended December 31, 2017

175


Six Months Ended December 31, 2016

350


Six Months Ended December 31, 2017

350


The following managerial assistance payments received by Prospect had not yet been remitted to Prospect Administration and were included by Prospect within due to Prospect Administration:

June 30, 2017

$

175


December 31, 2017

175


The following amounts were due from Credit Central to Prospect for reimbursement of expenses paid by Prospect on behalf of CCPI and were included by Prospect within other receivables:

June 30, 2017

$

-


December 31, 2017

8



77


Echelon Aviation LLC

Prospect owns 100% of the membership interests of Echelon Aviation LLC ("Echelon"). Echelon owns 60.7% of the equity of AerLift Leasing Limited ("AerLift").

On September 28, 2016, Echelon made an optional partial prepayment of $6,800 of the Senior Secured Revolving Credit Facility outstanding.

During the six months ended December 31, 2016, Echelon issued 36,275 Class B shares to the company's President, decreasing Prospect's ownership to 98.56%.

On December 9, 2016, Prospect made a follow-on $16,044 first lien senior secured debt and $2,830 equity investment in Echelon to support an asset acquisition, increasing Prospect's ownership to 98.71%. Prospect also recognized $1,121 in structuring fee income as a result of the transaction.


The following dividends were declared and paid from Echelon to Prospect and recognized as dividend income by Prospect:

Three Months Ended December 31, 2016

$

-


Three Months Ended December 31, 2017

-


Six Months Ended December 31, 2016

200


Six Months Ended December 31, 2017

-


All dividends were paid from earnings and profits of Echelon.

The following interest payments were accrued and paid from Echelon to Prospect and recognized by Prospect as interest income:

Three Months Ended December 31, 2016

$

1,234


Three Months Ended December 31, 2017

1,603


Six Months Ended December 31, 2016

2,580


Six Months Ended December 31, 2017

3,206


The following interest income recognized had not yet been paid by Echelon to Prospect and was included by Prospect within interest receivable:

June 30, 2017

$

2,631


December 31, 2017

2,683


The following managerial assistance payments were paid from Echelon to Prospect and subsequently remitted to Prospect Administration (no income was recognized by Prospect):

Three Months Ended December 31, 2016

$

63


Three Months Ended December 31, 2017

63


Six Months Ended December 31, 2016

125


Six Months Ended December 31, 2017

125


The following managerial assistance payments received by Prospect had not yet been remitted to Prospect Administration and were included by Prospect within due to Prospect Administration:

June 30, 2017

$

63


December 31, 2017

63



78


The following payments were paid from Echelon to Prospect Administration as reimbursement for legal, tax and portfolio level accounting services provided directly to Echelon (no direct income was recognized by Prospect, but Prospect was given credit for these payments as a reduction of the administrative services costs payable by Prospect to Prospect Administration):

Three Months Ended December 31, 2016

$

-


Three Months Ended December 31, 2017

-


Six Months Ended December 31, 2016

120


Six Months Ended December 31, 2017

-


The following amounts were due from Credit Central to Prospect for reimbursement of expenses paid by Prospect on behalf of Echelon and were included by Prospect within other receivables:

June 30, 2017

$

-


December 31, 2017

39


Edmentum Ultimate Holdings, LLC

Prospect owns 37.1% of the equity of Edmentum Ultimate Holdings, LLC ("Edmentum Holdings"). Edmentum Holdings owns 100% of the equity of Edmentum, Inc. ("Edmentum"). Edmentum is the largest all subscription based, software as a service provider of online curriculum and assessments to the U.S. education market. Edmentum provides high-value, comprehensive online solutions that support educators to successfully transition learners from one stage to the next.

During the year ended June 30, 2016 , Prospect funded an additional $6,424 in the second lien revolving credit facility.

During the year ended June 30, 2017 , Prospect funded an additional $7,835 in the second lien revolving credit facility.

During the six months ended ended December 31, 2017, Prospect funded an additional $5,394 in the second lien revolving credit facility.

The following amounts were paid from Edmentum to Prospect and recorded by Prospect as repayment of loan receivable:

Three Months Ended December 31, 2016

$

-


Three Months Ended December 31, 2017

-


Six Months Ended December 31, 2016

6,424


Six Months Ended December 31, 2017

7,834


The following interest payments were accrued and paid from Edmentum to Prospect and recognized by Prospect as interest income:

Three Months Ended December 31, 2016

$

895


Three Months Ended December 31, 2017

203


Six Months Ended December 31, 2016

1,830


Six Months Ended December 31, 2017

415


Included above, the following payment-in-kind interest from Edmentum was capitalized and recognized by Prospect as interest income:

Three Months Ended December 31, 2016

$

896


Three Months Ended December 31, 2017

153


Six Months Ended December 31, 2016

1,771


Six Months Ended December 31, 2017

302


The following interest income recognized had not yet been paid by Edmentum to Prospect and was included by Prospect within interest receivable:

June 30, 2017

$

167


December 31, 2017

144



79


Energy Solutions Holdings Inc.

Prospect owns 100% of the equity of Energy Solutions Holdings Inc. (f/k/a Gas Solutions Holdings Inc.) ("Energy Solutions"), a Consolidated Holding Company. Energy Solutions owns 100% of each of Change Clean Energy Company, LLC (f/k/a Change Clean Energy Holdings, LLC) ("Change Clean"); Freedom Marine Solutions, LLC (f/k/a Freedom Marine Services Holdings, LLC) ("Freedom Marine"); and Yatesville Coal Company, LLC (f/k/a Yatesville Coal Holdings, LLC) ("Yatesville"). Change Clean owns 100% of each of Change Clean Energy, LLC and Down East Power Company, LLC, and 50.1% of BioChips LLC. Freedom Marine owns 100% of each of Vessel Company, LLC (f/k/a Vessel Holdings, LLC) ("Vessel"); Vessel Company II, LLC (f/k/a Vessel Holdings II, LLC) ("Vessel II"); and Vessel Company III, LLC (f/k/a Vessel Holdings III, LLC) ("Vessel III"). Yatesville owns 100% of North Fork Collieries, LLC.

Energy Solutions owns interests in companies operating in the energy sector. These include companies operating offshore supply vessels, ownership of a non-operating biomass electrical generation plant and several coal mines. Energy Solutions subsidiaries formerly owned interests in gathering and processing business in east Texas.

Transactions between Prospect and Freedom Marine are separately discussed below under "Freedom Marine Solutions, LLC."

First Tower Finance Company LLC

Prospect owns 100% of the equity of First Tower Holdings of Delaware LLC ("First Tower Delaware"), a Consolidated Holding Company. First Tower Delaware owns 80.1% of First Tower Finance Company LLC (f/k/a First Tower Holdings LLC) ("First Tower Finance"). First Tower Finance owns 100% of First Tower, LLC ("First Tower"), a multiline specialty finance company.

During the three months ended December 31, 2016, Prospect made an additional $8,005 equity investment to First Tower.

The following amounts were paid from First Tower to Prospect and recorded by Prospect as repayment of loan receivable:

Three Months Ended December 31, 2016

$

-


Three Months Ended December 31, 2017

1,301


Six Months Ended December 31, 2016

936


Six Months Ended December 31, 2017

3,211


The following interest payments were accrued and paid from First Tower to Prospect and recognized by Prospect as interest income:

Three Months Ended December 31, 2016

$

14,476


Three Months Ended December 31, 2017

11,261


Six Months Ended December 31, 2016

28,900


Six Months Ended December 31, 2017

22,603


Included above, the following payment-in-kind interest from First Tower was capitalized and recognized by Prospect as interest income:

Three Months Ended December 31, 2016

$

1,632


Three Months Ended December 31, 2017

-


Six Months Ended December 31, 2016

3,384


Six Months Ended December 31, 2017

869


The following interest income recognized had not yet been paid by First Tower to Prospect and was included by Prospect within interest receivable:

June 30, 2017

$

123


December 31, 2017

3,910


The following managerial assistance payments were paid from First Tower to Prospect and subsequently remitted to Prospect Administration (no income was recognized by Prospect):


80


Three Months Ended December 31, 2016

$

600


Three Months Ended December 31, 2017

-


Six Months Ended December 31, 2016

1,200


Six Months Ended December 31, 2017

-


The following managerial assistance payments received by Prospect have not yet been remitted to Prospect Administration and were included by Prospect within due to Prospect Administration:

June 30, 2017

$

600


December 31, 2017

-


The following managerial assistance recognized had not yet been paid by First Tower to Prospect and was included by Prospect within other receivables and due to Prospect Administration:

June 30, 2017

$

-


December 31, 2017

600


The following amounts were due from First Tower to Prospect for reimbursement of expenses paid by Prospect on behalf of First Tower and were included by Prospect within other receivables: 

June 30, 2017

$

1


December 31, 2017

11


Freedom Marine Solutions, LLC

As discussed above, Prospect owns 100% of the equity of Energy Solutions, a Consolidated Holding Company. Energy Solutions owns 100% of Freedom Marine. Freedom Marine owns 100% of each of Vessel, Vessel II, and Vessel III.

During the year ended June 30, 2017, Prospect purchased an additional $1,200 in membership interests in Freedom Marine to support its ongoing operations and liquidity needs.

During the six months ended December 31, 2017, Prospect purchased an additional $200 in membership interests in Freedom Marine to support its ongoing operations and liquidity needs.


The following managerial assistance recognized had not yet been paid by Freedom Marine to Prospect and was included by Prospect within other receivables and due to Prospect Administration:

June 30, 2017

$

525


December 31, 2017

675


MITY, Inc.

Prospect owns 100% of the equity of MITY Holdings of Delaware Inc. ("MITY Delaware"), a Consolidated Holding Company. MITY Delaware holds 94.99% of the equity of MITY, Inc. (f/k/a MITY Enterprises, Inc.) ("MITY"), with management of MITY owning the remaining 5.01% of the equity of MITY. MITY owns 100% of each of MITY-Lite, Inc. ("MITY-Lite"); Broda USA, Inc. (f/k/a Broda Enterprises USA, Inc.) ("Broda USA"); and Broda Enterprises ULC ("Broda Canada"). MITY is a designer, manufacturer and seller of multipurpose room furniture and specialty healthcare seating products.

During the three months ended December 31, 2016, Prospect formed a separate legal entity, MITY FSC, Inc., ("MITY FSC") in which Prospect owns 96.88% of the equity, and MITY-Lite management owns the remaining portion.  MITY FSC does not have material operations.  This entity earns commission payments from MITY-Lite based on its sales to foreign customers, and distribute it to its shareholders based on pro-rata ownership.  During the six months ended December 31, 2017, we received $1,094 of such commission, which we recognized as other income.

On January 17, 2017, Prospect invested an additional $8,000 of Senior Secured Note A and $8,000 of Senior Secured Term Loan B debt investments in MITY to fund an acquisition. Prospect recognized structuring fee income of $480 from this additional investment.


81


The following interest payments were accrued and paid from MITY to Prospect and recognized by Prospect as interest income:

Three Months Ended December 31, 2016

$

1,307


Three Months Ended December 31, 2017

1,920


Six Months Ended December 31, 2016

2,613


Six Months Ended December 31, 2017

3,840


The following interest income recognized had not yet been paid by MITY to Prospect and was included by Prospect within interest receivable:

June 30, 2017

$

21


December 31, 2017

-


The following interest payments were accrued and paid from Broda Canada to Prospect and recognized by Prospect as interest income:

Three Months Ended December 31, 2016

$

141


Three Months Ended December 31, 2017

148


Six Months Ended December 31, 2016

286


Six Months Ended December 31, 2017

299


The following interest income recognized had not yet been paid by Broda Canada to Prospect and was included by Prospect within interest receivable:

June 30, 2017

$

46


December 31, 2017

-


During the six months ended December 31, 2016, there was a favorable fluctuation in the foreign currency exchange rate and Prospect recognized $5 of realized gain related to its investment in Broda Canada. During the six months ended December 31, 2017, there was a favorable fluctuation in the foreign currency exchange rate and Prospect recognized $11 of realized gain related to its investment in Broda Canada.


The following managerial assistance payments were paid from MITY to Prospect and subsequently remitted to Prospect Administration (no income was recognized by Prospect):

Three Months Ended December 31, 2016

$

75


Three Months Ended December 31, 2017

75


Six Months Ended December 31, 2016

150


Six Months Ended December 31, 2017

150


The following managerial assistance payments received by Prospect had not yet been remitted to Prospect Administration and were included by Prospect within due to Prospect Administration:

June 30, 2017

$

75


December 31, 2017

75


The following amounts were due from MITY to Prospect for reimbursement of expenses paid by Prospect on behalf of MITY and included by Prospect within other receivables:

June 30, 2017

$

-


December 31, 2017

2


National Property REIT Corp.

Prospect owns 100% of the equity of NPH, a Consolidated Holding Company. NPH owns 100% of the common equity of NPRC. Effective May 23, 2016, in connection with the merger of APRC and United Property REIT Corp. UPRC with and into NPRC, APH and UPH merged with and into NPH.


82


NPRC is a Maryland corporation and a qualified REIT for federal income tax purposes. In order to qualify as a REIT, NPRC issued 125 shares of Series A Cumulative Non-Voting Preferred Stock to 125 accredited investors. The preferred stockholders are entitled to receive cumulative dividends semi-annually at an annual rate of 12.5% and do not have the ability to participate in the management or operation of NPRC.

NPRC was formed to hold for investment, operate, finance, lease, manage, and sell a portfolio of real estate assets and engage in any and all other activities as may be necessary, incidental or convenient to carry out the foregoing. NPRC acquires real estate assets, including, but not limited to, industrial, commercial, and multi-family properties. NPRC may acquire real estate assets directly or through joint ventures by making a majority equity investment in a property-owning entity (the "JV"). Additionally, through its wholly-owned subsidiaries, NPRC invests in online consumer loans.

On July 22, 2016 Prospect made a $2,700 investment in NPRC used to purchase additional common equity of NPRC through NPH. The proceeds were utilized by NPRC to purchase additional ownership interest in twelve multi-family properties for $2,698 and pay $2 of legal services provided by attorneys at Prospect Administration. The minority interest holder also invested an additional $49 in the JVs. The proceeds were used by the JVs to fund $2,747 of capital expenditures.

On August 4, 2016, Prospect made a $393 investment in NPRC used to purchase additional common equity of NPRC through NPH. The proceeds were utilized by NPRC to purchase additional ownership interest in four multi-family properties for $392 and pay $1 of legal services provided by attorneys at Prospect Administration. The minority interest holder also invested an additional $21 in the JVs. The proceeds were used by the JVs to fund $413 of capital expenditures.

On September 1, 2016, we made an investment into