The Quarterly
PSEC Q4 2017 10-Q

Prospect Capital Corp (PSEC) SEC Quarterly Report (10-Q) for Q1 2018

PSEC 2018 10-K
PSEC Q4 2017 10-Q PSEC 2018 10-K

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 March 31, 2018

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 May 9, 2018

$0.001 par value

363,265,564



Table of Contents

Page

Forward-Looking Statements

3

PART I

FINANCIAL INFORMATION

Item 1.

Financial Statements

Consolidated Statements of Assets and Liabilities as of March 31, 2018 (unaudited) and June 30, 2017

4

Consolidated Statements of Operations for the three and nine months ended March 31, 2018 and March 31, 2017 (unaudited)

5

Consolidated Statements of Changes in Net Assets for the nine months ended March 31, 2018 and March 31, 2017 (unaudited)

6

Consolidated Statements of Cash Flows for the nine months ended March 31, 2018 and March 31, 2017 (unaudited)

7

Consolidated Schedules of Investments as of March 31, 2018 (unaudited) and June 30, 2017

8

Notes to Consolidated Financial Statements

49

Item 2.

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

109

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

144

Item 4.

Controls and Procedures

145

PART II

OTHER INFORMATION

Item 1.

Legal Proceedings

146

Item 1A.

Risk Factors

146

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

146

Item 3.

Defaults Upon Senior Securities

146

Item 4.

Mine Safety Disclosures

146

Item 5.

Other Information

146

Item 6.

Exhibits

146

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)

March 31, 2018

June 30, 2017

(Unaudited)

(Audited)

Assets


Investments at fair value:



Control investments (amortized cost of $1,857,698 and $1,840,731, respectively)

$

1,986,984


$

1,911,775


Affiliate investments (amortized cost of $55,482 and $22,957, respectively)

52,288


11,429


Non-control/non-affiliate investments (amortized cost of $3,951,787 and $4,117,868, respectively)

3,680,532


3,915,101


Total investments at fair value (amortized cost of $5,864,967 and $5,981,556, respectively)

5,719,804


5,838,305


Cash

97,563


318,083


Receivables for:

Interest, net

29,511


9,559


Other

836


924


Prepaid expenses

566


1,125


Due from Broker

-


-


Due from Prospect Capital Management (Note 13)

60


-


Due from Affiliate (Note 13)

88


14


Deferred financing costs on Revolving Credit Facility (Note 4)

2,717


4,779


Total Assets

5,851,145


6,172,789


Liabilities



Revolving Credit Facility (Notes 4 and 8)

86,000


-


Convertible Notes (less unamortized debt issuance costs of $11,908 and $15,512, respectively)
(Notes 5 and 8)

805,092


937,641


Prospect Capital InterNotes® (less unamortized debt issuance costs of $12,342 and $14,240,
respectively) (Notes 7 and 8)

743,729


966,254


Public Notes (less unamortized discount and debt issuance costs of $9,445 and $10,981,
respectively) (Notes 6 and 8)

739,836


738,300


Due to Prospect Capital Management (Note 13)

47,009


48,249


Interest payable

29,588


38,630


Due to Broker

24,457


50,371


Dividends payable

21,759


30,005


Due to Prospect Administration (Note 13)

2,148


1,910


Accrued expenses

4,320


4,380


Other liabilities

811


2,097


Total Liabilities

2,504,749


2,817,837


Commitments and Contingencies (Note 3)

-


-


Net Assets 

$

3,346,396


$

3,354,952


Components of Net Assets



Common stock, par value $0.001 per share (1,000,000,000 common shares authorized; 362,657,362 and 360,076,933 issued and outstanding, respectively) (Note 9)

$

363


$

360


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

4,009,704


3,991,317


Accumulated overdistributed net investment income

(59,174

)

(54,039

)

Accumulated net realized loss

(459,334

)

(439,435

)

Net unrealized loss

(145,163

)

(143,251

)

Net Assets 

$

3,346,396


$

3,354,952


Net Asset Value Per Share (Note 16)

$

9.23


$

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 March 31,

Nine Months Ended March 31,

2018

2017

2018

2017

Investment Income

Interest income:

Control investments

$

45,944


$

41,353


$

139,392


$

135,543


Affiliate investments

271


-


476


-


Non-control/non-affiliate investments

68,376


83,794


216,639


257,919


Structured credit securities

31,271


36,564


90,822


114,690


Total interest income

145,862


161,711


447,329


508,152


Dividend income:

Control investments

5,639


728


5,639


4,250


Non-control/non-affiliate investments

648


89


1,518


330


Total dividend income

6,287


817


7,157


4,580


Other income:

Control investments

6,188


2,953


12,317


9,749


Non-control/non-affiliate investments

4,498


5,551


17,011


11,863


Total other income (Note 10)

10,686


8,504


29,328


21,612


Total Investment Income

162,835


171,032


483,814


534,344


Operating Expenses

Base management fee (Note 13)

29,268


30,549


88,990


92,227


Income incentive fee (Note 13)

17,612


18,270


51,843


59,101


Interest and credit facility expenses

37,479


41,464


117,861


123,981


Allocation of overhead from Prospect Administration (Note 13)

3,195


3,581


5,899


9,771


Audit, compliance and tax related fees

1,130


1,223


4,084


3,676


Directors' fees

113


113


338


338


Excise tax

-


-


-


(1,100

)

Other general and administrative expenses

3,592


2,752


7,429


9,946


Total Operating Expenses

92,389


97,952


276,444


297,940


Net Investment Income

70,446


73,080


207,370


236,404


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

Net realized gains (losses)

Control investments

2


1


13


184


Affiliate investments

(14,197

)

-


(13,351

)

137


Non-control/non-affiliate investments

(23

)

177


(5,116

)

489


Net realized (losses) gains

(14,218

)

178


(18,454

)

810


Net change in unrealized gains (losses)

Control investments

1,380


(33,235

)

46,898


(30,937

)

Affiliate investments

12,952


(581

)

19,678


(1,854

)

Non-control/non-affiliate investments

(18,188

)

(19,930

)

(68,488

)

(2,480

)

Net change in unrealized gains (losses)

(3,856

)

(53,746

)

(1,912

)

(35,271

)

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

(18,074

)

(53,568

)

(20,366

)

(34,461

)

Net realized losses on extinguishment of debt

(513

)

(20

)

(1,445

)

(205

)

Net Increase in Net Assets Resulting from Operations

$

51,859


$

19,492


$

185,559


$

201,738


Net increase in net assets resulting from operations per share

$

0.14


$

0.05


$

0.51


$

0.56


Dividends declared per share

$

(0.18

)

$

(0.25

)

$

(0.59

)

$

(0.75

)


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)


Nine Months Ended March 31,


2018

2017

Operations



Net investment income

$

207,370


$

236,404


Net realized (losses) gains

(19,899

)

605


Net change in net unrealized losses

(1,912

)

(35,271

)

Net Increase in Net Assets Resulting from Operations

185,559


201,738


Distributions to Shareholders

Distribution from net investment income

(211,733

)

(268,989

)

Net Decrease in Net Assets Resulting from Distributions to Shareholders

(211,733

)

(268,989

)

Common Stock Transactions

Value of shares issued through reinvestment of dividends

17,618


23,502


Net Increase in Net Assets Resulting from Common Stock Transactions

17,618


23,502


Total Decrease in Net Assets

(8,556

)

(43,749

)

Net assets at beginning of period

3,354,952


3,435,917


Net Assets at End of Period (Accumulated Overdistributed Net Investment Income of $59,174 and $33,719, respectively)

$

3,346,396


$

3,392,168


Common Stock Activity

Shares issued through reinvestment of dividends

2,580,429


2,778,472


  Shares issued and outstanding at beginning of period

360,076,933


357,107,231


Shares Issued and Outstanding at End of Period

362,657,362


359,885,703




See notes to consolidated financial statements.

6


PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands, except share data)

(Unaudited)


Nine Months Ended March 31,

2018

2017

Operating Activities

Net increase in net assets resulting from operations

$

185,559


$

201,738


Net realized losses on extinguishment of debt

1,445


205


Net realized losses (gains) on investments

18,454


(810

)

Net change in net unrealized (gains) losses on investments

1,912


35,271


Amortization of discounts and (accretion of premiums), net

17,706


42,937


Accretion of discount on Public Notes (Note 6)

212


200


Amortization of deferred financing costs

9,168


10,128


Payment-in-kind interest

(6,128

)

(14,326

)

Structuring fees

(9,135

)

(11,674

)

Change in operating assets and liabilities:

Payments for purchases of investments

(1,375,555

)

(1,240,294

)

Proceeds from sale of investments and collection of investment principal

1,471,247


1,061,839


Decrease in due to Broker

(25,914

)

(957

)

Decrease in due to Prospect Capital Management

(1,240

)

(5,051

)

(Increase) decrease in interest receivable, net

(19,952

)

1,872


Decrease in interest payable

(9,042

)

(7,041

)

(Decrease) increase in accrued expenses

(60

)

2,033


Decrease in other liabilities

(1,286

)

(1,615

)

Decrease in other receivables

88


68


Increase in due from Prospect Administration

(60

)

-


Increase in due from affiliate

(74

)

-


Decrease in prepaid expenses

559


139


Increase in due to Prospect Administration

238


82


Net Cash Provided by Operating Activities

258,142


74,744


Financing Activities

Borrowings under Revolving Credit Facility (Note 4)

427,000


557,000


Principal payments under Revolving Credit Facility (Note 4)

(341,000

)

(557,000

)

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

-


37,466


Redemptions of Convertible Notes (Note 5)

(136,153

)

(167,500

)

Issuances of Prospect Capital InterNotes® (Note 7)

69,428


109,221


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

(293,851

)

(12,170

)

Financing costs paid and deferred

(1,724

)

(2,500

)

Dividends paid

(202,362

)

(245,255

)

Net Cash Used in Financing Activities

(478,662

)

(280,738

)

Net Decrease in Cash

(220,520

)

(205,994

)

Cash at beginning of period

318,083


317,798


Cash at End of Period

$

97,563


$

111,804


Supplemental Disclosures

Cash paid for interest

$

117,523


$

120,694


Non-Cash Financing Activities

Value of shares issued through reinvestment of dividends

$

17,618


$

23,502


Cost basis of investments written off as worthless

$

20,235


$

2,535



See notes to consolidated financial statements.

7


PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULES OF INVESTMENTS

(in thousands, except share data)






March 31, 2018 (Unaudited)

Portfolio Company

Locale / Industry

Investments(1)(44)(47)

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


$

27,017


0.8%

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

-


23,800


-


-%

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

-


9,006


-


-%

Class C Units (10 units)(16)

-


-


-


-%






64,446


27,017


0.8%

CCPI Inc.(19)

Ohio / Electronic Equipment, Instruments & Components

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

2,881


2,881


2,881


0.1%

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

17,819


17,819


17,819


0.5%

Common Stock (14,857 shares)

-


6,759


15,557


0.5%






27,459


36,257


1.1%

CP Energy Services Inc.(20)

Oklahoma / Energy Equipment & Services

Senior Secured Term Loan (12.69% (LIBOR + 11.00% with 1.00% LIBOR floor), due 12/29/2022)(11)

35,048


35,048


35,048


1.0%

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

-


63,225


55,135


1.7%

Common Stock (2,924 shares)(16)

-


15,227


-


-%






113,500


90,183


2.7%

Credit Central Loan Company, LLC(21)

South Carolina / Consumer Finance

Subordinated Term Loan (20.00% (10.00% plus 10.00% PIK, due 6/26/2019)(14)(46)

51,855


46,788


51,855


1.5%

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

-


13,731


22,353


0.7%

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

-


-


2,249


0.1%






60,519


76,457


2.3%

Echelon Transportation, LLC (f/k/a 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)(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)(13)(46)

16,044


16,044


16,044


0.5%

Membership Interest (100%)(16)

-


22,738


32,202


1.0%






69,837


79,301


2.4%

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)

272,170


272,170


272,170


8.1%

Class A Units (95,709,910 units)(14)(16)

-


81,146


162,981


4.9%






353,316


435,151


13.0%

Freedom Marine Solutions, LLC(24)

Louisiana / Energy Equipment & Services

Membership Interest (100%)(16)

-


43,292


13,188


0.4%






43,292


13,188


0.4%

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)(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)(11)(46)

24,442


24,442


24,442


0.7%

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

5,716


7,200


5,716


0.2%

Common Stock (42,053 shares)(16)

-


6,849


5,715


0.2%






64,741


62,123


1.9%


See notes to consolidated financial statements.

8


PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)

(in thousands, except share data)





March 31, 2018 (Unaudited)

Portfolio Company

Locale / Industry

Investments(1)(44)(47)

Principal Value

Amortized Cost

Fair
Value(2)

% of Net Assets











LEVEL 3 PORTFOLIO INVESTMENTS











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











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)(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)(11)(46)

276,549


276,549


276,549


8.2%

Common Stock (2,748,812 shares)

-


257,527


369,123


11.0%

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

-


-


92,275


2.8%






827,279


1,031,150


30.8%

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)

17,410


17,410


17,410


0.5%

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

-


21,962


13,580


0.4%






39,372


30,990


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)(16)

-


7,200


5,503


0.2%

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

-


5,669


4,332


0.1%






23,483


20,449


0.6%

R-V Industries, Inc.

Pennsylvania / Machinery

Senior Subordinated Note (11.31% (LIBOR + 9.00% with 1.00% LIBOR floor), due 3/31/2022)(3)(11)

28,622


28,622


28,622


0.8%

Common Stock (745,107 shares)(16)

-


6,866


2,403


0.1%






35,488


31,025


0.9%

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)

-


-


1,011


-%

Common Stock (100 shares)(16)

-


-


-


-%






-


1,011


-%

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)

36,127


31,601


9,672


0.3%

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

46,019


35,568


-


-%

Common Stock (268,962 shares)(16)

-


-


-


-%






67,169


9,672


0.3%

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)(11)(46)

10,430


10,430


10,430


0.3%

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

27,292


27,292


27,292


0.8%

Common Stock (50,000 shares)(16)

-


26,204


4,740


0.2%






63,926


42,462


1.3%

Wolf Energy, LLC(32)

Kansas / Energy Equipment & Services

Membership Interest (100%)(16)

-


-


-


-%

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

-


3,871


537


-%

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

-


-


11


-%






3,871


548


-%

Total Control Investments (Level 3)

$

1,857,698


$

1,986,984


59.4%



See notes to consolidated financial statements.

9



March 31, 2018 (Unaudited)

Portfolio Company

Locale / Industry

Investments(1)(44)(48)

Principal Value

Cost

Fair
Value(2)

% of Net Assets

LEVEL 3 PORTFOLIO INVESTMENTS

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

Edmentum Ultimate Holdings, LLC(22)

Minnesota / Diversified Consumer Services

Second Lien Revolving Credit Facility to Edmentum, Inc. – $7,834 Commitment (5.00% PIK, due 12/9/2021)(15)

$

7,834


$

7,834


$

7,834


0.2%

Unsecured Senior PIK Note (8.50% PIK, due 12/9/2021)(46)

7,365


7,365


7,365


0.2%

Unsecured Junior PIK Note (10.00% PIK, in non-accrual status effective 1/1/2017, due 12/9/2021)

34,377


23,828


17,728


0.5%

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

-


6,577


-


-%

45,604


32,927


0.9%

Nixon, Inc.(39)

California / Textiles, Apparel & Luxury Goods

Common Stock (857 units)(16)

-


-


-


-%

-


-%

Targus Cayman HoldCo Limited(33)

California / Textiles, Apparel & Luxury Goods

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

-


9,878


19,361


0.6%

9,878


19,361


0.6%

Total Affiliate Investments (Level 3)

$

55,482


$

52,288


1.5%


PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)

(in thousands, except share data)


March 31, 2018 (Unaudited)

Portfolio Company

Locale / Industry

Investments(1)(44)

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 (9.54%. (LIBOR + 7.75% with 0.00% LIBOR floor), due 12/13/2025)(8)(13)

$

15,000


$

14,928


$

15,300


0.5%

14,928


15,300


0.5%

ACE Cash Express, Inc.

Texas / Consumer Finance

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

20,000


19,717


22,400


0.7%

19,717


22,400


0.7%

AgaMatrix, Inc.

New Hampshire / Healthcare Equipment and Supplies

Senior Secured Term Loan (11.06% (LIBOR + 8.75% with 1.25% LIBOR floor), due 9/29/2022)(3)(11)

31,250


31,250


31,250


0.9%

31,250


31,250


0.9%

American Gilsonite Company(34)

Utah / Chemicals

Membership Interest (0.05%, 131 shares)(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


21


74


-%

21


74


-%

Apidos CLO XI

Cayman Islands / Structured Finance

Subordinated Notes (Residual Interest, current yield 8.54%, due 10/17/2028)(5)(14)

40,500


31,872


25,091


0.8%

31,872


25,091


0.8%

Apidos CLO XII

Cayman Islands / Structured Finance

Subordinated Notes (Residual Interest, current yield 16.49%, due 4/15/2031)(5)(14)

52,203


33,708


26,824


0.8%

33,708


26,824


0.8%

Apidos CLO XV

Cayman Islands / Structured Finance

Subordinated Notes (Residual Interest, current yield 13.56%, due 4/20/2031)(5)(14)

48,515


35,161


27,452


0.8%

35,161


27,452


0.8%

Apidos CLO XXII

Cayman Islands / Structured Finance

Subordinated Notes (Residual Interest, current yield 14.40%, due 10/20/2027)(5)(6)(14)

31,350


27,638


25,150


0.8%

27,638


25,150


0.8%

Ark-La-Tex Wireline Services, LLC

Louisiana / Energy Equipment & Services

Senior Secured Term Loan B (14.50% (LIBOR + 13.50% with 1.00% LIBOR floor), in non-accrual status effective 4/1/2016, due 4/8/2019)(13)

25,595


1,145


787


-%

1,145


787


-%

Armor Holding II LLC

New York / Commercial Services & Supplies

Second Lien Term Loan (11.30% (LIBOR + 9.00% with 1.25% LIBOR floor), due 12/26/2020)(3)(8)(11)

7,000


6,943


7,000


0.2%

6,943


7,000


0.2%

Atlantis Health Care Group (Puerto Rico), Inc.

Puerto Rico / Health Care Providers & Services

Revolving Line of Credit – $7,000 Commitment (10.19% (LIBOR + 8.50% with 1.50% LIBOR floor), due 8/21/2019)(11)(15)

7,000


7,000


6,934


0.2%

Senior Term Loan (10.19% (LIBOR + 8.50% with 1.50% LIBOR floor), due 2/21/2020)(3)(11)

78,949


78,949


78,200


2.3%

85,949


85,134


2.5%

ATS Consolidated, Inc.

Arizona / Electronic Equipment, Instruments & Components

Second Lien Term Loan (9.40% (LIBOR + 7.75%, due 2/27/2026)(8)(13)

15,000


14,851


14,866


0.4%

14,851


14,866


0.4%

Autodata, Inc./ Autodata Solutions, Inc.(9)

Canada / Software

Second Lien Term Loan (9.01% (LIBOR + 7.25% with 1.00% LIBOR floor), due 12/14/2025)(8)(13)

6,000


5,971


5,971


0.2%

5,971


5,971


0.2%


See notes to consolidated financial statements.

11


PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)

(in thousands, except share data)


March 31, 2018 (Unaudited)

Portfolio Company

Locale / Industry

Investments(1)(44)

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)

Babson CLO Ltd. 2014-III

Cayman Islands / Structured Finance

Subordinated Notes (Residual Interest, current yield 12.43%, due 1/15/2026)(5)(6)(14)

$

52,250


$

40,709


$

34,638


1.0%

40,709


34,638


1.0%

Broder Bros., Co.

Pennsylvania / Textiles, Apparel & Luxury Goods

Senior Secured Note (10.31% (LIBOR + 8.00% with 1.25% LIBOR floor), due 12/02/2022)(3)(11)

455,400


455,400


455,400


13.6%

455,400


455,400


13.6%

Brookside Mill CLO Ltd.

Cayman Islands / Structured Finance

Subordinated Notes (Residual Interest, current yield 10.50%, due 1/18/2028)(5)(14)

36,300


18,873


13,613


0.4%

18,873


13,613


0.4%

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

Cayman Islands / Structured Finance

Preference Shares (Residual Interest, current yield 14.21%, due 10/16/2028)(5)(14)

58,915


41,236


36,145


1.1%

41,236


36,145


1.1%

Candle-Lite Company, LLC

Ohio / Household & Personal Products

Senior Secured Term Loan A (7.48% (LIBOR + 5.50% with 1.25% LIBOR floor), due 1/23/2023)(3)(11)

12,500


12,500


12,500


0.4%

Senior Secured Term Loan B (11.48% (LIBOR + 9.50% with 1.25% LIBOR floor), due 1/23/2023)(3)(11)

12,500


12,500


12,500


0.4%

25,000


25,000


0.8%

Capstone Logistics Acquisition, Inc.

Georgia / Commercial Services & Supplies

Second Lien Term Loan (10.13% (LIBOR + 8.25% with 1.00% LIBOR floor), due 10/7/2022)(3)(8)(13)

101,517


101,135


99,329


3.0%

101,135


99,329


3.0%

Carlyle Global Market Strategies CLO 2014-4, Ltd.

Cayman Islands / Structured Finance

Subordinated Notes (Residual Interest, current yield 21.22%, due 10/15/2026)(5)(6)(14)

25,534


20,031


19,340


0.6%

20,031


19,340


0.6%

Carlyle Global Market Strategies CLO 2016-3, Ltd.

Cayman Islands / Structured Finance

Subordinated Notes (Residual Interest, current yield 16.87%, due 10/20/2029)(5)(6)(14)

32,200


32,146


29,102


0.9%

32,146


29,102


0.9%

Cent CLO 17 Limited

Cayman Islands / Structured Finance

Subordinated Notes (Residual Interest, current yield 0.00%, due 1/30/2025)(5)(14)(17)

24,870


17,644


15,445


0.5%

17,644


15,445


0.5%

Cent CLO 20 Limited

Cayman Islands / Structured Finance

Subordinated Notes (Residual Interest, current yield 15.78%, due 1/25/2026)(5)(14)

40,275


31,811


28,471


0.9%

31,811


28,471


0.9%

Cent CLO 21 Limited

Cayman Islands / Structured Finance

Subordinated Notes (Residual Interest, current yield 19.00%, due 7/27/2026)(5)(6)(14)

48,528


36,585


34,166


1.0%

36,585


34,166


1.0%

Centerfield Media Holding Company(35)

California / Internet Software and Services

Senior Secured Term Loan A (8.69% (LIBOR + 7.00% with 1.00% LIBOR floor), due 1/17/2022)(3)(8)(11)

66,640


66,640


66,640


2.0%

Senior Secured Term Loan B (14.19% (LIBOR + 12.50% with 1.00% LIBOR floor), due 1/17/2022)(8)(11)

68,000


68,000


68,000


2.0%

134,640


134,640


4.0%

CIFC Funding 2013-III-R, Ltd. (f/k/a CIFC Funding 2013-III, Ltd.)

Cayman Islands / Structured Finance

Subordinated Notes (Residual Interest, current yield 12.89%, due 4/24/2031)(5)(14)

44,100


29,946


25,853


0.8%

29,946


25,853


0.8%


See notes to consolidated financial statements.

12


PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)

(in thousands, except share data)


March 31, 2018 (Unaudited)

Portfolio Company

Locale / Industry

Investments(1)(44)

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)

CIFC Funding 2013-IV, Ltd.

Cayman Islands / Structured Finance

Subordinated Notes (Residual Interest, current yield 8.34%, due 11/27/2024)(5)(14)

$

45,500


$

31,530


$

28,084


0.8%

31,530


28,084


0.8%

CIFC Funding 2014-IV Investor, Ltd.

Cayman Islands / Structured Finance

Income Notes (Residual Interest, current yield 7.39%, due 10/17/2026)(5)(6)(14)

41,500


28,832


23,982


0.7%

28,832


23,982


0.7%

CIFC Funding 2016-I, Ltd.

Cayman Islands / Structured Finance

Income Notes (Residual Interest, current yield 12.61%, due 10/21/2028)(5)(6)(14)

34,000


31,268


28,106


0.8%

31,268


28,106


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)(11)(46)

39,710


39,660


39,710


1.2%

39,660


39,710


1.2%

Class Appraisal, LLC

Michigan / Real Estate Management & Development

Revolving Line of Credit – $1,500 Commitment (5%, due 3/12/2020)(11)(15)

-


-


-


-%

Senior Secured Term Loan (10.56% (LIBOR + 8.25% with 1.50% LIBOR floor), due 3/10/2023)(11)

42,000


42,000


42,000


1.3%

42,000


42,000


1.3%

Coverall North America, Inc.

Florida / Commercial Services & Supplies

Senior Secured Term Loan A (7.69% (LIBOR + 6.00% with 1.00% LIBOR floor), due 11/02/2020)(3)(11)

21,720


21,720


21,720


0.7%

Senior Secured Term Loan B (12.69% (LIBOR + 11.00% with 1.00% LIBOR floor), due 11/02/2020)(3)(11)

24,875


24,875


24,875


0.8%

46,595


46,595


1.5%

CP VI Bella Midco

Pennsylvania / IT Services

Second Lien Term Loan (8.63% (LIBOR + 6.75%, due 12/29/2025)(8)(13)

2,000


1,990


1,990


0.1%

1,990


1,990


0.1%

CURO Financial Technologies Corp.

Canada / Consumer Finance

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

10,896


10,833


10,896


0.3%

10,833


10,896


0.3%

Digital Room, LLC

California / Commercial Services & Supplies

First Lien Term Loan (6.88% (LIBOR + 5.00% with 1.00% LIBOR floor), due 12/29/2023)(8)(13)

9,975


9,878


9,878


0.3%

Second Lien Term Loan (10.63% (LIBOR + 8.75% with 1.00% LIBOR floor), due 12/29/2024)(3)(8)(13)

57,100


56,264


56,264


1.7%

66,142


66,142


2.0%

Dunn Paper, Inc.

Georgia / Paper & Forest Products

Second Lien Term Loan (10.63% (LIBOR + 8.75% with 1.00% LIBOR floor), due 8/26/2023)(3)(8)(13)

11,500


11,320


11,500


0.3%

11,320


11,500


0.3%

Easy Gardener Products, Inc.

Texas / Household Durables

Senior Secured Term Loan (11.69% (LIBOR + 10.00% with 0.25% LIBOR floor), due 09/30/2020)(3)(11)

17,106


17,106


16,155


0.5%

17,106


16,155


0.5%

Engine Group, Inc.(7)

California / Media

Senior Secured Term Loan (7.05% (LIBOR + 4.75% with 1.00% LIBOR floor), due 9/15/2022)(8)(11)

4,875


4,875


4,875


0.2%

Second Lien Term Loan (11.05% (LIBOR + 8.75% with 1.00% LIBOR floor), due 9/15/2023)(3)(8)(11)

35,000


35,000


35,000


1.0%

39,875


39,875


1.2%


See notes to consolidated financial statements.

13


PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)

(in thousands, except share data)


March 31, 2018 (Unaudited)

Portfolio Company

Locale / Industry

Investments(1)(44)

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)

EXC Holdings III Corp.

Massachusetts / Technology Hardware, Storage & Peripherals

Second Lien Term Loan (9.71% (LIBOR + 7.50% with 1.00% LIBOR floor), due 12/01/2025)(8)(10)

$

12,500


$

12,380


$

12,500


0.4%

12,380


12,500


0.4%

Fleetwash, Inc.

New Jersey / Commercial Services & Supplies

Senior Secured Term Loan B (10.69% (LIBOR + 9.00% with 1.00% LIBOR floor), due 4/30/2022)(3)(11)

21,544


21,544


21,544


0.6%

Delayed Draw Term Loan – $15,000 Commitment (9.84% (LIBOR + 8.00% with 1.00% LIBOR floor), expires 4/30/2022)(11)(15)

-


-


-


-%

21,544


21,544


0.6%

Galaxy XV CLO, Ltd.

Cayman Islands / Structured Finance

Subordinated Notes (Residual Interest, current yield 11.81%, due 10/15/2030)(5)(14)

50,525


34,430


30,734


0.9%

34,430


30,734


0.9%

Galaxy XVI CLO, Ltd.

Cayman Islands / Structured Finance

Subordinated Notes (Residual Interest, current yield 4.64%, due 11/16/2025)(5)(14)

24,575


16,933


13,965


0.4%

16,933


13,965


0.4%

Galaxy XVII CLO, Ltd.

Cayman Islands / Structured Finance

Subordinated Notes (Residual Interest, current yield 5.40%, due 7/15/2026)(5)(6)(14)

39,905


27,977


22,618


0.7%

27,977


22,618


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


3,955


4,680


0.1%

3,955


4,680


0.1%

Halcyon Loan Advisors Funding 2013-1 Ltd.

Cayman Islands / Structured Finance

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

40,400


23,045


16,134


0.5%

23,045


16,134


0.5%

Halcyon Loan Advisors Funding 2014-1 Ltd.

Cayman Islands / Structured Finance

Subordinated Notes (Residual Interest, current yield 5.03%, due 4/18/2026)(5)(14)

24,500


14,476


12,075


0.4%

14,476


12,075


0.4%

Halcyon Loan Advisors Funding 2014-2 Ltd.

Cayman Islands / Structured Finance

Subordinated Notes (Residual Interest, current yield 8.31%, due 4/28/2025)(5)(6)(14)

41,164


25,092


19,801


0.6%

25,092


19,801


0.6%

Halcyon Loan Advisors Funding 2015-3 Ltd.

Cayman Islands / Structured Finance

Subordinated Notes (Residual Interest, current yield 19.19%, due 10/18/2027)(5)(6)(14)

39,598


34,934


32,959


1.0%

34,934


32,959


1.0%

Harbortouch Payments, LLC

Pennsylvania / Commercial Services & Supplies

Escrow Receivable

-


-


900


-%

-


900


-%

HarbourView CLO VII, Ltd.

Cayman Islands / Structured Finance

Subordinated Notes (Residual Interest, current yield 20.59%, due 11/18/2026)(5)(6)(14)

19,025


15,549


13,823


0.4%

15,549


13,823


0.4%

Harley Marine Services, Inc.

Washington / Marine

Second Lien Term Loan (12.00% (LIBOR + 10.25% with 1.25% LIBOR floor), due 12/20/2019)(3)(8)(11)

9,000


8,943


8,879


0.3%

8,943


8,879


0.3%

Ingenio, LLC

California / Internet Software and Services

Senior Secured Term Loan (9.50% (LIBOR + 7.50% with 1.25% LIBOR floor), due 9/26/2022)(3)(8)(11)

10,000


10,000


10,000


0.3%

10,000


10,000


0.3%


See notes to consolidated financial statements.

14


PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)

(in thousands, except share data)


March 31, 2018 (Unaudited)

Portfolio Company

Locale / Industry

Investments(1)(44)

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)

Inpatient Care Management Company, LLC

Florida / Health Care Providers & Services

Senior Secured Term Loan (9.69% (LIBOR + 8.00% with 1.00% LIBOR floor), due 6/8/2021)(3)(11)

$

24,657


$

24,657


$

24,657


0.7%

24,657


24,657


0.7%

InterDent, Inc.

California / Health Care Providers & Services

Senior Secured Term Loan A (7.39% (LIBOR + 5.50% with 0.75% LIBOR floor), due 12/31/2017, past due)(13)

77,994


77,994


77,950


2.3%

Senior Secured Term Loan B (12.39% (LIBOR + 10.50% with 0.75% LIBOR floor), due 12/31/2017, past due)(13)

131,125


131,125


128,039


3.8%

Senior Secured Term Loan C (18.00% PIK, due on demand)(46)

3,012


3,012


2,560


0.1%

Warrants (to purchase 4,900 shares of Common Stock, expires 3/22/2030)

-


-


-


-%

212,131


208,549


6.2%

Janus International Group, LLC

Georgia / Building Products

Second Lien Term Loan (9.49% (LIBOR + 7.75% with 1.00% LIBOR floor), due 2/12/2026)(13)

10,000


9,902


10,000


0.3%

9,902


10,000


0.3%

JD Power and Associates

California / Capital Markets

Second Lien Term Loan (10.38% (LIBOR + 8.50% with 1.00% LIBOR floor), due 9/7/2024)(3)(8)(13)

20,000


19,792


20,000


0.6%

19,792


20,000


0.6%

Jefferson Mill CLO Ltd.

Cayman Islands / Structured Finance

Subordinated Notes (Residual Interest, current yield 7.70%, due 7/20/2027)(5)(6)(14)

19,500


16,286


12,489


0.4%

16,286


12,489


0.4%

K&N Parent, Inc.

California / Auto Components

Second Lien Term Loan (10.63% (LIBOR + 8.75% with 1.00% LIBOR floor), due 10/21/2024)(3)(8)(13)

13,000


12,786


12,948


0.4%

12,786


12,948


0.4%

Keystone Acquisition Corp.(36)

Pennsylvania / Health Care Providers & Services

Second Lien Term Loan (11.55% (LIBOR + 9.25% with 1.00% LIBOR floor), due 5/1/2025)(3)(8)(11)

50,000


50,000


50,000


1.5%

50,000


50,000


1.5%

LCM XIV Ltd.

Cayman Islands / Structured Finance

Income Notes (Residual Interest, current yield 0.00%, due 7/15/2025)(5)(14)(17)

30,500


19,520


13,337


0.4%

19,520


13,337


0.4%

Madison Park Funding IX, Ltd.

Cayman Islands / Structured Finance

Subordinated Notes (Residual Interest, current yield 28.65%, due 8/15/2022)(5)(14)

43,110


1,829


1,890


0.1%

1,829


1,890


0.1%

Maverick Healthcare Equity, LLC

Arizona / Health Care Providers & Services

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

-


1,252


507


-%

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

-


-


-


-%

1,252


507


-%

MedMark Services, Inc. (51)

Texas / Health Care Providers & Services

Second Lien Term Loan (10.27% (LIBOR + 8.25% with 1.00% LIBOR floor), due 3/1/2025)(8)(11)

7,000


6,930


6,952


0.2%

6,930


6,952


0.2%

Memorial MRI & Diagnostic, LLC

Texas / Health Care Providers & Services

Senior Secured Term Loan (10.81% (LIBOR + 8.50% with 1.00% LIBOR floor), due 3/16/2022)(11)

37,240


37,240


37,240


1.1%

37,240


37,240


1.1%

Mountain View CLO 2013-I Ltd.

Cayman Islands / Structured Finance

Subordinated Notes (Residual Interest, current yield 15.87%, due 10/12/2030)(5)(14)

43,650


27,873


23,699


0.7%

27,873


23,699


0.7%


See notes to consolidated financial statements.

15


PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)

(in thousands, except share data)


March 31, 2018 (Unaudited)

Portfolio Company

Locale / Industry

Investments(1)(44)

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)

Mountain View CLO IX Ltd.

Cayman Islands / Structured Finance

Subordinated Notes (Residual Interest, current yield 13.94%, due 7/15/2027)(5)(6)(14)

$

47,830


$

40,436


$

37,445


1.1%

40,436


37,445


1.1%

National Home Healthcare Corp.

Michigan / Health Care Providers & Services

Second Lien Term Loan (10.74% (LIBOR + 9.00% with 1.00% LIBOR floor), due 12/8/2022)(3)(8)(13)

15,407


15,228


15,407


0.5%

15,228


15,407


0.5%

Octagon Investment Partners XV, Ltd.

Cayman Islands / Structured Finance

Income Notes (Residual Interest, current yield 14.76%, due 7/19/2030)(5)(14)

42,064


31,433


26,490


0.8%

31,433


26,490


0.8%

Octagon Investment Partners 18-R Ltd. (f/k/a Octagon Investment Partners XVIII, Ltd.)

Cayman Islands / Structured Finance

Income Notes (Residual Interest, current yield 15.86%, due 4/16/2031)(5)(6)(14)

46,016


26,236


23,418


0.7%

26,236


23,418


0.7%

Pacific World Corporation

California / Personal Products

Revolving Line of Credit – $21,000 Commitment (9.06% (LIBOR + 7.25% with 1.00% LIBOR floor), due 9/26/2020)(13)(15)

20,825


20,825


20,825


0.6%

Senior Secured Term Loan A (7.06% (LIBOR + 5.25% with 1.00% LIBOR floor), due 9/26/2020)(3)(13)

96,500


96,500


93,856


2.8%

Senior Secured Term Loan B (11.06% (LIBOR + 9.25% with 1.00% LIBOR floor), due 9/26/2020)(3)(13)

96,500


96,500


68,470


2.1%

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

-


-


-


-%

213,825


183,151


5.5%

Pearl Intermediate Parent LLC

Connecticut / Health Care Providers & Services

Second Lien Term Loan (8.03% (LIBOR + 6.25%, due 2/15/2026)(8)(13)

5,000


4,975


5,000


0.1%

4,975


5,000


0.1%

Pelican Products, Inc.

California / Chemicals

Second Lien Term Loan (10.13% (LIBOR + 8.25% with 1.00% LIBOR floor), due 4/9/2021)(3)(8)(13)

17,500


17,491


17,500


0.5%

17,491


17,500


0.5%

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

Washington / Internet Software & Services

Revolving Line of Credit – $1,000 Commitment (11.20% (LIBOR + 9.50% with 1.00% LIBOR floor), due 7/1/2020)(11)(15)

500


500


500


-%

Senior Secured Term Loan A (8.20% (LIBOR + 6.50% with 1.00% LIBOR floor), due 7/1/2020)(3)(11)

19,069


19,069


19,069


0.6%

Senior Secured Term Loan B (14.20% (LIBOR + 12.50% with 1.00% LIBOR floor), due 7/1/2020)(3)(11)

20,284


20,284


20,284


0.6%

39,853


39,853


1.2%

PGX Holdings, Inc.(40)

Utah / Diversified Consumer Services

Second Lien Term Loan (10.89% (LIBOR + 9.00% with 1.00% LIBOR floor), due 9/29/2021)(3)(13)

118,289


118,289


118,289


3.5%

118,289


118,289


3.5%

PharMerica Corporation

Kentucky / Pharmaceuticals

Second Lien Term Loan (9.46% (LIBOR + 7.75% with 1.00% LIBOR floor), due 12/7/2025)(8)(13)

12,000


11,881


12,000


0.4%

11,881


12,000


0.4%

Photonis Technologies SAS

France / Electronic Equipment, Instruments & Components

First Lien Term Loan (9.80% (LIBOR + 7.50% with 1.00% LIBOR floor), due 9/18/2019)(8)(11)(14)

12,872


12,407


11,518


0.3%

12,407


11,518


0.3%


See notes to consolidated financial statements.

16


PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)

(in thousands, except share data)


March 31, 2018 (Unaudited)

Portfolio Company

Locale / Industry

Investments(1)(44)

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)

PlayPower, Inc.

North Carolina / Leisure Products

Second Lien Term Loan (11.05% (LIBOR + 8.75% with 1.00% LIBOR floor), due 6/23/2022)(3)(8)(11)

$

11,000


$

10,898


$

11,000


0.3%

10,898


11,000


0.3%

Research Now Group, Inc.

Connecticut / Professional Services

First Lien Term Loan (7.86% (LIBOR + 5.50% with 1.00% LIBOR floor), due 12/20/2024)(8)(10)

10,000


9,518


9,649


0.3%

Second Lien Term Loan (11.86% (LIBOR + 9.50% with 1.00% LIBOR floor), due 12/20/2025)(8)(10)

50,000


46,610


47,229


1.4%

56,128


56,878


1.7%

RGIS Services, LLC

Michigan / Commercial Services & Supplies

Senior Secured Term Loan (9.38% (LIBOR + 7.50% with 1.00% LIBOR floor), due 3/31/2023)(3)(8)(13)

30,172


29,558


28,499


0.9%

29,558


28,499


0.9%

RME Group Holding Company

Florida / Media

Senior Secured Term Loan A (8.31% (LIBOR + 6.00% with 1.00% LIBOR floor), due 5/4/2022)(3)(11)

36,938


36,938


36,938


1.1%

Senior Secured Term Loan B (13.31% (LIBOR + 11.00% with 1.00% LIBOR floor), due 5/4/2022)(3)(11)

24,813


24,813


24,813


0.7%

61,751


61,751


1.8%

Rocket Software, Inc.

Massachusetts / Software

Second Lien Term Loan (11.38% (LIBOR + 9.50% with 1.00% LIBOR floor), due 10/14/2024)(3)(8)(11)

50,000


49,188


50,000


1.5%

49,188


50,000


1.5%

Romark WM-R Ltd.

(f/k/a Washington Mill CLO Ltd.)

Cayman Islands / Structured Finance

Subordinated Notes (Residual Interest, current yield 12.49%, due 4/20/2031)(5)(6)(14)

27,725


20,865


17,771


0.5%

20,865


17,771


0.5%

Rosa Mexicano

New York / Hotels, Restaurants & Leisure

Revolving Line of Credit – $2,500 Commitment (9.80% (LIBOR + 7.50% with 1.50% LIBOR floor), due 3/29/2023(8)(11)(15)

-


-


-


-%

Senior Secured Term Loan (9.80% (LIBOR + 7.50% with 1.50% LIBOR floor), due 3/29/2023(8)(11)

30,000


30,000


30,000


0.9%

30,000


30,000


0.9%

SCS Merger Sub, Inc.

Texas / IT Services

Second Lien Term Loan (11.38% (LIBOR + 9.50% with 1.00% LIBOR floor), due 10/30/2023)(3)(8)(13)

20,000


19,586


20,000


0.6%

19,586


20,000


0.6%

Securus Technologies Holdings, Inc.

Texas / Communications Equipment

Second Lien Term Loan (10.13% (LIBOR + 8.25% with 1.00% LIBOR floor), due 11/01/2025)(8)(13)

40,000


39,855


40,000


1.2%

39,855


40,000


1.2%

SESAC Holdco II LLC

Tennessee / Media

Second Lien Term Loan (9.13% (LIBOR + 7.25% with 1.00% LIBOR floor), due 2/23/2025)(8)(13)

3,000


2,974


2,974


0.1%

2,974


2,974


0.1%

Small Business Whole Loan Portfolio(41)

New York / Online Lending

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

288


288


199


-%

288


199


-%

SMG US Midco

Pennsylvania / Hotels, Restaurants & Leisure

Second Lien Term Loan (8.88% (LIBOR + 7.00%, due 1/23/2026)(8)(13)

7,500


7,482


7,482


0.2%

7,482


7,482


0.2%


See notes to consolidated financial statements.

17


PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)

(in thousands, except share data)


March 31, 2018 (Unaudited)

Portfolio Company

Locale / Industry

Investments(1)(44)

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)

Spartan Energy Services, Inc.

Louisiana / Energy Equipment & Services

Senior Secured Term Loan A (7.65% (LIBOR + 6.00% with 1.00% LIBOR floor), due 12/28/2018)(13)

$

13,156


$

12,232


$

12,988


0.4%

Senior Secured Term Loan B (13.65% PIK (LIBOR + 12.00% with 1.00% LIBOR floor)13.65% PIK, due 12/28/2018)(13)(46)

17,608


15,615


17,250


0.5%

27,847


30,238


0.9%

Spectrum Holdings III Corp.

Georgia / Health Care Equipment & Supplies

Second Lien Term Loan (8.88% (LIBOR + 7.00% with 1.00% LIBOR floor), due 1/31/2026)(8)(13)

7,500


7,463


7,500


0.2%

7,463


7,500


0.2%

Strategic Materials

Texas / Household Durables

Second Lien Term Loan (9.52% (LIBOR + 7.75% with 1.00% LIBOR floor), due 11/1/2025)(11)

7,000


6,934


6,934


0.2%

6,934


6,934


0.2%

Sudbury Mill CLO Ltd.

Cayman Islands / Structured Finance

Subordinated Notes (Residual Interest, current yield 8.10%, due 1/17/2026)(5)(14)

28,200


18,700


14,514


0.4%

18,700


14,514


0.4%

Symphony CLO XIV Ltd.

Cayman Islands / Structured Finance

Subordinated Notes (Residual Interest, current yield 6.70%, due 7/14/2026)(5)(6)(14)

49,250


34,875


28,075


0.8%

34,875


28,075


0.8%

Symphony CLO XV, Ltd.

Cayman Islands / Structured Finance

Subordinated Notes (Residual Interest, current yield 11.01%, due 10/17/2026)(5)(14)

50,250


40,170


32,967


1.0%

40,170


32,967


1.0%

TGP HOLDINGS III LLC

Oregon / Household Durables

Second Lien Term Loan (10.80% (LIBOR + 8.50% with 1.00% LIBOR floor), due 9/25/2025)(8)(11)

3,000


2,958


3,000


0.1%

2,958


3,000


0.1%

TouchTunes Interactive Networks, Inc.

New York / Internet Software & Services

Second Lien Term Loan (9.94% (LIBOR + 8.25% with 1.00% LIBOR floor), due 5/29/2022)(3)(8)(13)

14,000


13,921


14,000


0.4%

13,921


14,000


0.4%

Town & Country Holdings, Inc.

New York / Distributors

First Lien Term Loan (10.98% (LIBOR + 9.00% with 1.25% LIBOR floor), due 1/26/2023)(3)(8)(11)

70,000


70,000


70,000


2.1%

70,000


70,000


2.1%

Transplace Holdings, Inc.

Texas / Transportation Infrastructure

Second Lien Term Loan (10.46% (LIBOR + 8.75% with 1.00% LIBOR floor), due 10/6/2025)(8)(13)

30,923


30,291


30,923


0.9%

30,291


30,923


0.9%

Turning Point Brands, Inc.(42)

Kentucky / Tobacco

Second Lien Term Loan (8.70% (LIBOR + 7.00% with 0.00% LIBOR floor), due 3/7/2024)(3)(8)(13)

14,500


14,386


13,933


0.4%

14,386


13,933


0.4%

United Sporting Companies, Inc.(18)

South Carolina / Distributors

Second Lien Term Loan (12.89% (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)(13)

143,717


131,699


47,780


1.4%

Common Stock (24,967 shares)(16)

-


-


-


-%

131,699


47,780


1.4%

Universal Fiber Systems, LLC

Virginia / Textiles, Apparel & Luxury Goods

Second Lien Term Loan (11.29% (LIBOR + 9.50% with 1.00% LIBOR floor), due 10/02/2022)(3)(8)(12)

37,000


36,525


37,000


1.1%

36,525


37,000


1.1%


See notes to consolidated financial statements.

18


PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)

(in thousands, except share data)


March 31, 2018 (Unaudited)

Portfolio Company

Locale / Industry

Investments(1)(44)

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)

Universal Turbine Parts, LLC

Alabama / Trading Companies & Distributors

Senior Secured Term Loan A (7.32% (LIBOR + 5.75% with 1.00% LIBOR floor), due 7/22/2021)(3)(13)

$

31,525


$

31,525


$

29,080


0.9%

Senior Secured Term Loan B (13.32% (LIBOR + 11.75% with 1.00% LIBOR floor), due 7/22/2021)(3)(13)

32,500


32,500


28,530


0.9%

64,025


57,610


1.8%

USG Intermediate, LLC

Texas / Leisure Products

Revolving Line of Credit – $2,500 Commitment (11.14% (LIBOR + 9.25% with 1.50% LIBOR floor), due 8/24/2018)(13)(15)

2,500


2,500


2,500


0.1%

Senior Secured Term Loan A (8.64% (LIBOR + 6.75% with 1.00% LIBOR floor), due 8/24/2022)(3)(13)

14,070


14,070


14,070


0.4%

Senior Secured Term Loan B (13.64% (LIBOR + 11.75% with 1.00% LIBOR floor), due 8/24/2022)(3)(13)

21,537


21,537


21,537


0.6%

Equity(16)

-


1


-


-%

38,108


38,107


1.1%

UTZ Quality Foods, LLC

Pennsylvania / Food Products

Second Lien Term Loan (9.10% (LIBOR + 7.25%, due 11/21/2025)(8)(13)

10,000


9,880


9,880


0.3%

9,880


9,880


0.3%

VC GB Holdings, Inc.

Illinois / Household Durables

Subordinated Secured Term Loan (9.88% (LIBOR + 8.00% with 1.00% LIBOR floor), due 2/28/2025)(3)(8)(13)

18,667


18,407


18,667


0.6%

18,407


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)(11)(46)

21,510


17,122


18,285


0.5%

17,122


18,285


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


822


940


-%

822


940


-%

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


201


987


-%

201


987


-%

Voya CLO 2012-4, Ltd.

Cayman Islands / Structured Finance

Income Notes (Residual Interest, current yield 11.84%, due 10/15/2028)(5)(14)

40,613


30,965


28,434


0.8%

30,965


28,434


0.8%

Voya CLO 2014-1, Ltd.

Cayman Islands / Structured Finance

Subordinated Notes (Residual Interest, current yield 15.93%, due 4/18/2031)(5)(6)(14)

40,773


28,010


27,489


0.8%

28,010


27,489


0.8%

Voya CLO 2016-3, Ltd.

Cayman Islands / Structured Finance

Subordinated Notes (Residual Interest, current yield 11.82%, due 10/18/2027)(5)(6)(14)

28,100


27,178


22,980


0.7%

27,178


22,980


0.7%

Voya CLO 2017-3, Ltd.

Cayman Islands / Structured Finance

Subordinated Notes (Residual Interest, current yield 14.32%, due 7/20/2030)(5)(6)(14)

44,885


46,010


43,562


1.3%

46,010


43,562


1.3%

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)(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)(11)

5,460


5,460


5,460


0.2%

20,760


20,760


0.7%


See notes to consolidated financial statements.

19


PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)

(in thousands, except share data)


March 31, 2018 (Unaudited)

Portfolio Company

Locale / Industry

Investments(1)(44)

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)

Wink Holdco, Inc.

Texas / Insurance

Second Lien Term Loan (8.24% (LIBOR + 6.75% with 1.00% LIBOR floor), due 12/1/2025)(8)(13)

$

3,000


$

2,986


$

2,986


0.1%

2,986


2,986


0.1%

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

$

3,951,787


$

3,680,532


110.0%


Total Portfolio Investments (Level 3)

$

5,864,967


$

5,719,804


170.9%


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)(45)(49)

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)(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)(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.

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)(45)(49)

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)(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)(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)(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)(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)(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)(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)(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.

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)(45)(49)

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)(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.

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)

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)(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)(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)(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)(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)(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)(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.

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)

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)(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)(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)(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)(11)(46)

49,156


49,106


49,156


1.5%

49,106


49,156


1.5%


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)

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)(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)(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)(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)(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)(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)(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)(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)(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)(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)(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.

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)

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)(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)(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)(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)(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)(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)(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)(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)(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)(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)(13)

13,000


12,762


13,000


0.4%

12,762


13,000


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)

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)(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)(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)(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)(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)(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)(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)(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)(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.

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)

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)(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)(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)(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)(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)(11)(15)

-


-


-


-%

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

14,963


14,744


14,744


0.4%

14,744


14,744


0.4%


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)

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)(11)(15)

$

-


$

-


$

-


-%

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

56,031


56,031


56,031


1.6%

109,125


109,125


3.2%


See notes to consolidated financial statements.

30


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)(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)(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)(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)(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)(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)(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)(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)(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)(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)(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.

31


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)(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)(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)(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.

32


PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)

(in thousands, except share data)


Endnote Explanations as of March 31, 2018 (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 March 31, 2018 and June 30, 2017 , all of our investments were valued using significant unobservable inputs. In accordance with ASC 820, such investments are classified as Level 3 within the fair value 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 March 31, 2018 and June 30, 2017 were $1,202,305 and $1,513,413 , respectively, representing 21.0% 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)

The interest rate on these investments is subject to the base rate of 6-Month LIBOR, which was 2.45% and 1.45% at March 31, 2018 and June 30, 2017 , respectively. The current base rate for each investment may be different from the reference rate on March 31, 2018 and June 30, 2017 .

(11)

The interest rate on these investments is subject to the base rate of 3-Month LIBOR, which was 2.31% and 1.30% at March 31, 2018 and June 30, 2017 , respectively. The current base rate for each investment may be different from the reference rate on March 31, 2018 and June 30, 2017 .

(12)

The interest rate on these investments is subject to the base rate of 2-Month LIBOR, which was 2.00% and 1.25% at March 31, 2018 and June 30, 2017 , respectively. The current base rate for each investment may be different from the reference rate on March 31, 2018 and June 30, 2017 .

(13)

The interest rate on these investments is subject to the base rate of 1-Month LIBOR, which was 1.88% and 1.23% at March 31, 2018 and June 30, 2017 , respectively. The current base rate for each investment may be different from the reference rate on March 31, 2018 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 March 31, 2018 and June 30, 2017 , our qualifying assets as a percentage of total assets, stood at 73.72% 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 5.00% . As of March 31, 2018 and June 30, 2017 , we had $19,675 and $22,925 , respectively, of undrawn revolver and delayed draw term loan commitments to our portfolio companies.


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 March 31, 2018 (Unaudited) and June 30, 2017 (Continued)



(16)

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

(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 March 31, 2018 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 94.2% of CP Energy Services Inc. ("CP Energy") as of March 31, 2018 , which is an increase from 82.3% owned as of 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 ("Credit Central Delaware"), a consolidated entity in which we own 100% of the membership interests, owns 98.26% of Credit Central Loan Company, LLC (f/k/a Credit Central Holdings, LLC ("Credit Central")) as of March 31, 2018 and June 30, 2017 . 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.

(22)

As of June 30, 2017 , Prospect held a 37.1% membership interest in Edmentum Ultimate Holdings, LLC ("Edmentum Holdings"), which owns 100% of the equity of Edmentum, Inc. On February 23, 2018, certain participating members of Edmentum Holdings increased their revolving credit commitment and extended additional credit to Edmentum, Inc. in exchange for additional common units of Edmentum Holdings. As a result, Prospect's equity ownership was diluted to 11.5% and the investment was transferred from a controlled to an affiliate investment classification as of March 31, 2018 .

(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 March 31, 2018 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 March 31, 2018 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 March 31, 2018 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 nine months ended March 31, 2018 , 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.


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 March 31, 2018 (Unaudited) and June 30, 2017 (Continued)



(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 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. During the quarter ended March 31, 2018 , we restructured our investment in NPRC and exchanged $14,274 of ACLLH Senior Secured Term Loan C and $97,578 of ACLL Senior Secured Term Loan C for $111,852 of Senior Secured Term Loan E.

(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 March 31, 2018 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 91.52% and 96.33% of the fully diluted equity of NMMB, Inc. ("NMMB") as of March 31, 2018 and June 30, 2017 , respectively. 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 March 31, 2018 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 the 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 March 31, 2018 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 March 31, 2018 and June 30, 2017 , we own 99.9999% of AGC/PEP, LLC ("AGC/PEP"). As of September 30, 2016, 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.


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 March 31, 2018 (Unaudited) and June 30, 2017 (Continued)



(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.

(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 March 31, 2018 and June 30, 2017 , Prospect owns 8.57% of the equity in Encinitas Watches Holdco, LLC (f/k/a Nixon Holdco, LLC), the parent company of Nixon, Inc. On February 26, 2018, Prospect entered into a debt forgiveness agreement with Nixon, Inc., which terminated $17,472 Senior Secured Term Loan receivable due to us. We recorded a realized loss of $14,197 as a result of this transaction.

(40)

As of March 31, 2018 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 at cost by control designation, investment type and by industry as of March 31, 2018 :

Industry

1st Lien

Term Loan

2nd Lien

Term Loan

CLO Residual Interest

Unsecured Debt

Equity (C)

Cost Total

Control Investments

Aerospace & Defense

$

47,099


$

-


$

-


$

-


$

22,738


$

69,837


Commercial Services & Supplies

117,862


-


-


7,200


6,849


131,911


Construction & Engineering

37,722


-


-


-


26,204


63,926


Consumer Finance

-


336,367


-


-


116,839


453,206


Electronic Equipment, Instruments & Components

20,700


-


-


-


6,759


27,459


Energy Equipment & Services

35,048


-


-


-


190,061


225,109


Equity Real Estate
Investment Trusts
(REITs)

293,203


-


-


-


156,578


449,781


Machinery

-


28,622


-


-


6,866


35,488


Media

10,614


-


-


-


12,869


23,483


Online Lending

276,549


-


-


-


100,949


377,498


Total Control Investments

$

838,797


$

364,989


$

-


$

7,200


$

646,712


$

1,857,698


Affiliate Investments

Diversified Consumer Services

$

-


$

7,834


$

-


$

31,193


$

6,577


$

45,604



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 March 31, 2018 (Unaudited) and June 30, 2017 (Continued)



Textiles, Apparel & Luxury Goods

-


-


-


-


9,878


9,878


 Total Affiliate Investments

$

-


$

7,834


$

-


$

31,193


$

16,455


$

55,482


Non-Control/Non-Affiliate Investments

Air Freight & Logistics

$

-


$

-


$

-


$

-


$

-


$

-


Auto Components

-


33,546


-


-


-


33,546


Building Products

-


9,902


-


-


-


9,902


Capital Markets

-


19,792


-


-


-


19,792


Chemicals

-


17,491


-


-


-


17,491


Commercial Services & Supplies

107,576


164,342


-


-


-


271,918


Communications Equipment

-


39,855


-


-


-


39,855


Consumer Finance

30,550


-


-


-


-


30,550


Distributors

525,400


131,699


-


-


-


657,099


Diversified Consumer Services

10,000


118,289


-


-


-


128,289


Electronic Equipment, Instruments & Components

12,407


14,851


-


-


-


27,258


Energy Equipment & Services

28,992


-


-


-


28,992


Food Products

9,880


-


-


-


9,880


Health Care Equipment & Supplies

31,250


7,463


-


-


-


38,713


Health Care Providers & Services

359,977


77,134


-


-


1,252


438,363


Health Care Technology

14,928


-


-


-


14,928


Hotels, Restaurants & Leisure

30,000


7,482


-


-


-


37,482


Household & Personal Products

25,000


-


-


-


25,000


Household Durables

17,106


28,298


-


-


-


45,404


Insurance

2,986


-


-


-


2,986


Internet & Direct Marketing Retail

4,875


35,000


-


-


-


39,875


Internet Software & Services

174,493


13,921


-


-


-


188,414


IT Services

21,576


-


-


-


21,576


Leisure Products

38,107


10,898


-


-


1


49,006


Marine

8,943


-


-


-


8,943


Media

101,411


2,974


-


-


-


104,385


Metals & Mining

-


-


-


-


-


-


Online Lending

-


-


-


288


288


Paper & Forest Products

-


11,320


-


-


-


11,320


Personal Products

213,825


-


-


-


-


213,825


Pharmaceuticals

-


11,881


-


-


-


11,881


Professional Services

9,518


63,731


-


-


-


73,249


Real Estate Management & Development

42,000


-


-


-


-


42,000


Software

-


55,160


-


-


-


55,160


Technology Hardware, Storage & Peripherals

-


12,380


-


-


-


12,380


Textiles, Apparel & Luxury Goods

-


36,525


-


-


-


36,525


Tobacco

-


14,387


-


-


-


14,387


Trading Companies & Distributors

64,025


-


-


-


-


64,025


Transportation Infrastructure

-


30,291


-


-


-


30,291


Structured Finance (B)

-


-


1,096,809


-


-


1,096,809


 Total Non-Control/ Non-Affiliate

$

1,826,512


$

1,026,925


$

1,096,809


$

288


$

1,253


$

3,951,787


Total Portfolio Investment Cost

$

2,665,309


$

1,399,748


$

1,096,809


$

38,681


$

664,420


$

5,864,967



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 March 31, 2018 (Unaudited) and June 30, 2017 (Continued)



The following table shows the composition of our investment portfolio at fair value by control designation, investment type and by industry as of March 31, 2018 :

Industry

1st Lien

Term Loan

2nd Lien

Term Loan

CLO Residual Interest

Unsecured Debt

Equity (C)

Fair Value Total

% Net Assets

Control Investments

Aerospace & Defense

$

47,099


$

-


$

-


$

-


$

32,202


$

79,301


2.4

%

Commercial Services & Supplies

60,364


-


-


5,716


5,715


71,795


2.1

%

Construction & Engineering

37,722


-


-


-


4,740


42,462


1.3

%

Consumer Finance

-


341,435


-


-


201,163


542,598


16.2

%

Electronic Equipment, Instruments & Components

20,700


-


-


-


15,557


36,257


1.1

%

Energy Equipment & Services

35,048


-


-


-


96,899


131,947


3.9

%

Equity Real Estate
Investment Trusts
(REITs)

293,203


-


-


-


440,423


733,626


21.9

%

Machinery

-


28,622


-


-


2,403


31,025


0.9

%

Media

10,614


-


-


-


9,835


20,449


0.6

%

Online Lending

276,549


-


-


-


20,975


297,524


8.9

%

Total Control Investments

$

781,299


$

370,057


$

-


$

5,716


$

829,912


$

1,986,984


59.4

%

% of Net Assets

23.3

%

11.1

%

-

%

0.2

%

24.8

%

59.4

%

Affiliate Investments

Diversified Consumer Services

$

-


$

7,834


$

-


$

25,093


$

-


$

32,927


1.0

%

Textiles, Apparel & Luxury Goods

-


-


-


-


19,361


19,361


0.6

%

Total Affiliate Investments

$

-


$

7,834


$

-


$

25,093


$

19,361


$

52,288


1.6

%

% of Net Assets

-

%

0.2

%

-

%

0.7

%

0.6

%

1.6

%

Non-Control/Non-Affiliate Investments

Air Freight & Logistics

$

-


$

-


$

-


$

-


$

-


$

-


-

%

Auto Components

-


33,708


-


-


33,708


1.0

%

Building Products

-


10,000


-


-


-


10,000


0.3

%

Capital Markets

-


20,000


-


-


-


20,000


0.6

%

Chemicals

-


17,500


-


-


-


17,500


0.5

%

Commercial Services & Supplies

106,515


162,593


-


-


900


270,008


8.1

%

Communications Equipment

-


40,000


-


-


-


40,000


1.2

%

Consumer Finance

33,296


-


-


-


-


33,296


1.0

%

Distributors

525,400


47,780


-


-


-


573,180


17.1

%

Diversified Consumer Services

10,000


118,289


-


-


-


128,289


3.8

%

Electronic Equipment, Instruments & Components

11,518


14,866


-


-


-


26,384


0.8

%

Energy Equipment & Services

31,025


-


-


-


-


31,025


0.9

%

Food Products

-


9,880


-


-


-


9,880


0.3

%

Health Care Equipment & Supplies

31,250


7,500


-


-


-


38,750


1.2

%

Health Care Providers & Services

355,580


77,359


-


-


506


433,445


13.0

%

Health Care Technology

-


15,300


-


-


-


15,300


0.5

%

Hotels, Restaurants & Leisure

30,000


7,482


-


-


-


37,482


1.1

%

Household & Personal Products

25,000


-


-


-


-


25,000


0.7

%

Household Durables

16,155


28,600


-


-


-


44,755


1.3

%

Insurance

-


2,986


-


-


-


2,986


0.1

%

Internet & Direct Marketing Retail

4,875


35,000


-


-


-


39,875


1.2

%


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 March 31, 2018 (Unaudited) and June 30, 2017 (Continued)



Internet Software & Services

174,493


14,000


-


-


-


188,493


5.6

%

IT Services

-


21,990


-


-


-


21,990


0.7

%

Leisure Products

38,107


11,000


-


-


-


49,107


1.5

%

Marine (A)

-


8,879


-


-


-


8,879


0.3

%

Media

101,461


2,974


-


-


-


104,435


3.1

%

Metals & Mining

-


-


-


-


-


-


-

%

Online Lending

-


-


-


199


-


199


-

%

Paper & Forest Products

-


11,500


-


-


-


11,500


0.3

%

Personal Products

183,151


-


-


-


-


183,151


5.5

%

Pharmaceuticals

-


12,000


-


-


-


12,000


0.4

%

Professional Services

9,649


65,514


-


-


-


75,163


2.2

%

Real Estate Management & Development

42,000


-


-


-


-


42,000


1.3

%

Software

-


55,971


-


-


-


55,971


1.7

%

Technology Hardware, Storage & Peripherals

-


12,500


-


-


-


12,500


0.4

%

Textiles, Apparel & Luxury Goods

-


37,000


-


-


-


37,000


1.1

%

Tobacco

-


13,933


-


-


-


13,933


0.4

%

Trading Companies & Distributors

57,610


-


-


-


-


57,610


1.7

%

Transportation Infrastructure

-


30,923


-


-


-


30,923


0.9

%

Structured Finance (B)

-


-


944,815


-


-


944,815


28.2

%

Total Non-Control/ Non-Affiliate

$

1,787,085


$

947,027


$

944,815


$

199


$

1,406


$

3,680,532


110.0

%

% of Net Assets

53.4

%

28.3

%

28.2

%

-

%

-

%

110.0

%

Total Portfolio

$

2,568,384


$

1,324,918


$

944,815


$

31,008


$

850,679


$

5,719,804


170.9

%

% of Net Assets

76.8

%

39.6

%

28.2

%

0.9

%

25.4

%

170.9

%

(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 March 31, 2018 is $171,851 .

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

(C) 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.


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 March 31, 2018 (Unaudited) and June 30, 2017 (Continued)




(45)

The following table shows the composition of our investment portfolio at cost by control designation, investment type and by industry as of June 30, 2017 :

Industry

1st Lien

Term Loan

2nd Lien

Term Loan

CLO Residual Interest

Unsecured Debt

Equity (C)

Cost Total

Control Investments

Aerospace & Defense

$

47,099


$

-


$

-


$

-


$

22,738


$

69,837


Commercial Services & Supplies

114,864


-


-


7,200


6,849


128,913


Construction & Engineering

36,054


-


-


-


26,204


62,258


Consumer Finance

-


323,188


-


-


110,395


433,583


Diversified Consumer Services

-


7,834


-


30,734


6,577


45,145


Electronic Equipment, Instruments & Components

21,182


-


-


-


6,759


27,941


Energy Equipment & Services

-


-


-


-


223,787


223,787


Equity Real Estate
Investment Trusts
(REITs)

291,315


-


-


-


83,065


374,380


Machinery

-


28,622


-


-


6,866


35,488


Media

10,614


-


-


-


12,869


23,483


Online Lending

269,166


-


-


-


146,750


415,916


    Total Control Investments

$

790,294


$

359,644


$

-


$

37,934


$

652,859


$

1,840,731


Affiliate Investments

 Textiles, Apparel & Luxury Goods

$

19,478


$

-


$

-


$

-


$

3,479


$

22,957


   Total Affiliate Investments

$

19,478


$

-


$

-


$

-


$

3,479


$

22,957


Non-Control/Non-Affiliate Investments













Air Freight & Logistics

$

51,952


$

-


$

-


$

-


$

-


$

51,952


Auto Components

-


30,222


-


-


-


30,222


Capital Markets

-


14,796


-


-


-


14,796


Chemicals

-


17,489


-


-


-


17,489


Commercial Services & Supplies

83,884


141,388


-


-


-


225,272


Consumer Finance

9,831


26,455


-


-


-


36,286


Distributors

-


140,847


-


-


-


140,847


Diversified Consumer Services

-


143,767


-


-


-


143,767


Diversified Telecommunication Services

-


4,395


-


-


-


4,395


Electronic Equipment, Instruments & Components

9,755


-


-


-


-


9,755


Energy Equipment & Services

27,232


-


-


-


-


27,232


Health Care Providers & Services

356,468


65,199


-


-


1,252


422,919


Hotels, Restaurants & Leisure

127,638


-


-


-


-


127,638


Household Durables

126,319


19,712


-


-


-


146,031


Internet Software & Services

205,441


13,907


-


-


-


219,348


IT Services

-


19,531


-


-


-


19,531


Leisure Products

33,204


10,880


-


-


1


44,085


Marine

-


8,919


-


-


-


8,919


Media

442,654


2,971


-


-


-


445,625


Metals & Mining

9,953


-


-


-


-


9,953


Online Lending

-


-


-


8,434


-


8,434


Paper & Forest Products

-


11,295


-


-


-


11,295



See notes to consolidated financial statements.

40


PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)

(in thousands, except share data)


Endnote Explanations as of March 31, 2018 (Unaudited) and June 30, 2017 (Continued)



Personal Products

209,225


13,473


-


-


-


222,698


Pharmaceuticals

117,989


-


-


-


-


117,989


Professional Services

48,131


16,111


-


-


-


64,242


Software

-


56,041


-


-


-


56,041


Textiles, Apparel & Luxury Goods

225,777


36,446


-


-


-


262,223


Tobacco

-


14,365


-


-


-


14,365


Trading Companies & Distributors

64,513


-


-


-


-


64,513


Structured Finance (B)

-


-


1,150,006


-


-


1,150,006


Total Non-Control/ Non-Affiliate

$

2,149,966


$

808,209


$

1,150,006


$

8,434


$

1,253


$

4,117,868


Total Portfolio Investment Cost

$

2,959,738


$

1,167,853


$

1,150,006


$

46,368


$

657,591


$

5,981,556


The following table shows the composition of our investment portfolio at fair value by control designation, investment type and by industry as of June 30, 2017 :

Industry

1st Lien

Term Loan

2nd Lien

Term Loan

CLO Residual Interest

Unsecured Debt

Equity (C)

Fair Value Total

% Net Assets

Control Investments

Aerospace & Defense

$

47,099


$

-


$

-


$

-


$

24,219


$

71,318


2.1

%

Commercial Services & Supplies

63,209


-


-


5,659


20,161


89,029


2.7

%

Construction & Engineering

32,509


-


-


-


-


32,509


1.0

%

Consumer Finance

-


329,788


-


-


137,180


466,968


13.9

%

Diversified Consumer Services

-


7,834


-


38,775


286


46,895


1.4

%

Electronic Equipment, Instruments & Components

21,182


-


-


-


21,870


43,052


1.3

%

Energy Equipment & Services

-


-


-


-


121,197


121,197


3.6

%

Equity Real Estate
Investment Trusts
(REITs)

291,315


-


-


-


333,022


624,337


18.6

%

Machinery

-


28,622


-


-


4,056


32,678


1.0

%

Media

10,614


-


-


-


10,211


20,825


0.6

%

Online Lending

269,166


-


-


-


93,801


362,967


10.8

%

    Total Control Investments

$

735,094


$

366,244


$

-


$

44,434


$

766,003


$

1,911,775


57.0

%

% Net Assets

21.9

%

10.9

%

-

%

1.3

%

22.8

%

57.0

%

Affiliate Investments

Textiles, Apparel & Luxury Goods

$

6,128


$

-


$

-


$

-


$

5,301


$

11,429


0.3

%

Total Affiliate Investments

$

6,128


$

-


$

-


$

-


$

5,301


$

11,429


0.3

%

% of Net Assets

0.2

%

-

%

-

%

-

%

0.2

%

0.3

%

Non-Control/Non-Affiliate Investments













Air Freight & Logistics

$

51,952


$

-


$

-


$

-


$

-


$

51,952


1.5

%

Auto Components

-


30,460


-


-


-


30,460


0.9

%

Capital Markets

-


15,000


-


-




15,000


0.4

%

Chemicals

-


16,699


-


-


-


16,699


0.5

%

Commercial Services & Supplies

83,884


138,857


-


-


864


223,605


6.7

%

Consumer Finance

10,000


25,973


-


-


-


35,973


1.1

%

Distributors

-


83,225


-


-


-


83,225


2.5

%

Diversified Consumer Services

-


143,767


-


-


-


143,767


4.3

%

Diversified Telecommunication Services

-


4,410


-


-


-


4,410


0.1

%


See notes to consolidated financial statements.

41


PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)

(in thousands, except share data)


Endnote Explanations as of March 31, 2018 (Unaudited) and June 30, 2017 (Continued)



Electronic Equipment, Instruments & Components

8,794


-


-


-


-


8,794


0.3

%

Energy Equipment & Services

10,463


-


-


-


-


10,463


0.3

%

Health Care Providers & Services

355,200


65,407


-


-


782


421,389


12.6

%

Hotels, Restaurants & Leisure

103,897


-


-


-


-


103,897


3.1

%

Household Durables

126,191


19,992


-


-


-


146,183


4.4

%

Internet Software & Services

205,441


13,907


-


-


-


219,348


6.5

%

IT Services

-


20,000


-


-


-


20,000


0.6

%

Leisure Products

33,204


11,000


-


-


-


44,204


1.3

%

Marine (A)

-


8,800


-


-


-


8,800


0.3

%

Media

442,704


2,971


-


-


-


445,675


13.3

%

Metals & Mining

10,000


-


-


-


-


10,000


0.3

%

Online Lending

-


-


-


7,964


-


7,964


0.2

%

Paper & Forest Products

-


11,500


-


-


-


11,500


0.3

%

Personal Products

179,009


13,739


-


-


-


192,748


5.7

%

Pharmaceuticals

117,989


-


-


-


-


117,989


3.5

%

Professional Services

48,131


16,342


-


-


-


64,473


1.9

%

Software

-


55,150


-


-


-


55,150


1.6

%

Textiles, Apparel & Luxury Goods

225,777


37,000


-


-


-


262,777


7.8

%

Tobacco

-


14,431


-


-


-


14,431


0.4

%

Trading Companies & Distributors

64,513


-


-


-


-


64,513


1.9

%

Structured Finance (B)

-


-


1,079,712


-


-


1,079,712


32.2

%

Total Non-Control/ Non-Affiliate

$

2,077,149


$

748,630


$

1,079,712


$

7,964


$

1,646


$

3,915,101


116.7

%

       % of Net Assets

61.9

%

22.3

%

32.2

%

0.2

%

-

%

116.7

%



Total Portfolio

$

2,818,371


$

1,114,874


$

1,079,712


$

52,398


$

772,950


$

5,838,305


174.0

%

% of Net Assets

84.0

%

33.2

%

32.2

%

1.6

%

23.0

%

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 June 30, 2017 is $140,460 .

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

(C) 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.


See notes to consolidated financial statements.

42


PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)

(in thousands, except share data)


Endnote Explanations as of March 31, 2018 (Unaudited) and June 30, 2017 (Continued)



(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 March 31, 2018 :

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 Transportation LLC

-%

2.25%

2.25%

Echelon Transportation LLC

-%

1.00%

1.00%

Edmentum Ultimate Holdings, LLC - Revolving Credit Facility

N/A

N/A

N/A

(B)

Edmentum Ultimate Holdings, LLC - Unsecured Senior PIK Note

8.50%

-%

8.50%

First Tower Finance Company LLC

-%

7.00%

7.00%

InterDent, Inc.

18.00%

-%

18.00%

MITY, Inc.

-%

10.00%

10.00%

National Property REIT Corp. - Senior Secured Term Loan A

-%

10.50%

10.50%

National Property REIT Corp. - Senior Secured Term Loan E

-%

5.00%

5.00%

Nationwide Loan Company LLC

3.50%

6.50%

10.00%

Spartan Energy Services, Inc.

13.65%

-%

13.65%

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 April 2, 2018.

(B) The issuer capitalized 5.00% PIK on the next payment/capitalization date, which was April 30, 2018.


See notes to consolidated financial statements.

43


PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)

(in thousands, except share data)


Endnote Explanations as of March 31, 2018 (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%

(C)

Echelon Aviation LLC

N/A

N/A

1.00%

(D)

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%

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

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


See notes to consolidated financial statements.

44


PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)

(in thousands, except share data)


Endnote Explanations as of March 31, 2018 (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 nine months ended March 31, 2018 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 March 31, 2018

Interest
income

Dividend
income

Other
income

Net realized
gains (losses)

Arctic Energy Services, LLC

$

17,370


$

3,569


$

-


$

6,078


$

27,017


$

-


$

-


$

-


$

-


CCPI Inc.

43,052


-


(481

)

(6,314

)

36,257


2,776


-


-


-


CP Energy Services Inc.

72,216


-


-


17,967


90,183


2,217


-


228


-


Credit Central Loan Company, LLC

64,435


1,533


-


10,489


76,457


9,425


-


903


-


Echelon Transportation LLC (f/k/a Echelon Aviation LLC)

71,318


-


-


7,983


79,301


4,774


-


-


-


Edmentum Ultimate Holdings, LLC***

46,895


5,394


(39,196

)

(13,093

)

-


415


-


-


-


First Tower Finance Company LLC

365,588


20,456


(6,735

)

55,842


435,151


33,737


-


2,664


-


Freedom Marine Solutions, LLC

23,994


682


-


(11,488

)

13,188


-


-


-


-


MITY, Inc.

76,512


-


-


(14,389

)

62,123


6,156


-


1,093


13


National Property REIT Corp.

987,304


110,692


(73,709

)

6,863


1,031,150


69,436


5,639


6,207


-


Nationwide Loan Company LLC

36,945


4,370


-


(10,325

)

30,990


2,605


-


-


-


NMMB, Inc.

20,825


-


-


(376

)

20,449


1,131


-


-


-


R-V Industries, Inc.

32,678


-


-


(1,653

)

31,025


2,254


-


-


-


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

1,940


-


-


(929

)

1,011


-


-


-


-


USES Corp.

12,517


2,999


(3

)

(5,841

)

9,672


-


-


-


-


Valley Electric Company, Inc.

32,509


1,670


-


8,283


42,462


4,466


-


-


-


Wolf Energy, LLC

5,677


-


(2,930

)

(2,199

)

548


-


-


1,222


-


Total

$

1,911,775


$

151,365


$

(123,054

)

$

46,898


$

1,986,984


$

139,392


$

5,639


$

12,317


$

13


* 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, impairments, and any transfer of investments.

*** Investment was transferred to affiliated investments at $31,362, the fair market value at the beginning of the three month period ended March 31, 2018. Refer to endnote #22.



See notes to consolidated financial statements.

45


PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)

(in thousands, except share data)


Endnote Explanations as of March 31, 2018 (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 nine months ended March 31, 2018 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 March 31, 2018

Interest
income

Dividend
income

Other
income

Net realized
gains (losses)

Edmentum Ultimate Holdings, LLC***

$

-


$

34,261


$

-


$

(1,334

)

$

32,927


$

271


$

-


$

-


$

-


Nixon, Inc.

-


-


(14,197

)

14,197


-


-


-


-


(14,197

)

Targus Cayman HoldCo Limited

11,429


1,117


-


6,815


19,361


205


-


-


846


Total

$

11,429


$

35,378


$

(14,197

)

$

19,678


$

52,288


$

476


$

-


$

-


$

(13,351

)

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

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

*** Investment was transferred from controlled investments at $31,362, the fair market value at the beginning of the three month period ended March 31, 2018. Refer to endnote #22.


See notes to consolidated financial statements.

46


PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)

(in thousands, except share data)


Endnote Explanations as of March 31, 2018 (Unaudited) and June 30, 2017 (Continued)




(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, PIK interest, and any transfer of investments.

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


See notes to consolidated financial statements.

47


PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)

(in thousands, except share data)


Endnote Explanations as of March 31, 2018 (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, PIK interest and any transfer of investments.

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


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


(51)

BAART Programs, Inc. and MedMark Services, Inc. are joint borrowers of the second lien term loan.



See notes to consolidated financial statements.

48


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 ("CP Holdings"); Credit Central Holdings of Delaware, LLC; Energy Solutions Holdings Inc.; First Tower Holdings of Delaware LLC ("First Tower Delaware"); Harbortouch Holdings of Delaware Inc.; MITY Holdings of Delaware Inc.; Nationwide Acceptance Holdings LLC; NMMB Holdings, Inc. ("NMMB Holdings").; 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.


49


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 nine months ended March 31, 2018 .

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 March 31, 2018 and June 30, 2017 , our qualifying assets as a percentage of total assets, stood at 73.72% 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.


50


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.


51


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.


52


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 March 31, 2018 , approximately 1.3% 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 gains to stockholders;


53


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 March 31, 2018, we do not expect to have any excise tax due for the 2018 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 ten 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 March 31, 2018 and for the three and nine 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).

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


54


to capital upon the receipt of proceeds from an equity offering or charged to expense if no offering is completed. As of March 31, 2018 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.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which amends accounting guidance for revenue recognition arising from contracts with customers. Under the new guidance, an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration the entity expects to be entitled to in exchange for those goods or services. In August 2015, the FASB also issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date , which deferred the effective date of the standard for one year. As a result, the guidance 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 as of fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. We are currently evaluating the impact, if any, of adopting this ASU on our consolidated financial statements .


Note 3. Portfolio Investments

At March 31, 2018 , we had investments in 134 long-term portfolio investments, which had an amortized cost of $5,864,967 and a fair value of $5,719,804 . 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 $1,390,816 and $1,266,294 during the nine months ended March 31, 2018 and March 31, 2017 , respectively. Debt repayments and considerations from sales of equity securities of $1,471,246 and $1,061,839 were received during the nine months ended March 31, 2018 and March 31, 2017 , respectively.


55


The following table shows the composition of our investment portfolio as of March 31, 2018 and June 30, 2017 .

March 31, 2018

June 30, 2017

Cost


Fair Value


Cost


Fair Value

Revolving Line of Credit

$

38,659



$

38,593



$

27,409



$

27,409


Senior Secured Debt

2,634,484



2,537,625



2,940,163



2,798,796


Subordinated Secured Debt

1,391,914



1,317,084



1,160,019



1,107,040


Subordinated Unsecured Debt

38,393



30,809



37,934



44,434


Small Business Loans

288



199



8,434



7,964


CLO Residual Interest

1,096,809



944,815



1,150,006



1,079,712


Equity

664,420



850,679



657,591



772,950


Total Investments

$

5,864,967



$

5,719,804



$

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.


56


The following table shows the fair value of our investments disaggregated into the three levels of the ASC 820 valuation hierarchy as of March 31, 2018 .

Level 1

Level 2

Level 3

Total

Revolving Line of Credit

$

-


$

-


$

38,593


$

38,593


Senior Secured Debt

-


-


2,537,625


2,537,625


Subordinated Secured Debt

-


-


1,317,084


1,317,084


Subordinated Unsecured Debt

-


-


30,809


30,809


Small Business Loans

-


-


199


199


CLO Residual Interest

-


-


944,815


944,815


Equity

-


-


850,679


850,679


Total Investments

$

-


$

-


$

5,719,804


$

5,719,804


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 nine months ended March 31, 2018 .

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

13


(13,351

)

(5,800

)

(19,138

)

Net change in unrealized gains (losses)(1)

46,898


19,678


(68,488

)

(1,912

)

Net realized and unrealized gains (losses)

46,911


6,327


(74,288

)

(21,050

)

Purchases of portfolio investments

145,623


3,588


1,235,479


1,384,690


Payment-in-kind interest

4,210


428


1,490


6,128


Accretion (amortization) of discounts and premiums, net

1,532


-


(19,238

)

(17,706

)

Repayments and sales of portfolio investments

(91,705

)

(846

)

(1,378,012

)

(1,470,563

)

Transfers within Level 3(1)

(31,362

)

31,362


-


-


Transfers in (out) of Level 3(1)

-


-


-


-


Fair value as of March 31, 2018

$

1,986,984


$

52,288


$

3,680,532


$

5,719,804



57


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

-


(16,369

)

-


13


(322

)

(2,495

)

35


(19,138

)

Net change in unrealized gains (losses)(1)

(66

)

44,514


(21,855

)

(14,085

)

381


(81,704

)

70,903


(1,912

)

Net realized and unrealized gains (losses)

(66

)

28,145


(21,855

)

(14,072

)

59


(84,199

)

70,938


(21,050

)

Purchases of portfolio investments

19,308


902,101


354,603


-


7,551


32,134


68,993


1,384,690


Payment-in-kind interest

-


3,672


1,996


460


-


-


-


6,128


Accretion (amortization) of discounts and premiums, net

-


2,304


3,960


-


-


(23,970

)

-


(17,706

)

Repayments and sales of portfolio investments

(8,058

)

(1,240,097

)

(128,660

)

(13

)

(15,375

)

(58,862

)

(19,498

)

(1,470,563

)

Transfers within Level 3(1)

-


42,704


-


-


-


-


(42,704

)

-


Transfers in (out) of Level 3(1)

-


-


-


-


-


-


-


-


Fair value as of March 31, 2018

$

38,593


$

2,537,625


$

1,317,084


$

30,809


$

199


$

944,815


$

850,679


$

5,719,804


(1)

Transfers, if any, are assumed to have occurred at the beginning of the quarter during which the asset was transferred. Refer to Consolidated Schedule of Investment endnotes #47 and #48 for the fair value and change in unrealized transferred as a result of changes in control.

The following tables show the aggregate changes in the fair value of our Level 3 investments during the nine months ended March 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, 2016

$

1,752,449


$

11,320


$

4,133,939


$

5,897,708


Net realized gains (losses) on investments

184


137


(1,438

)

(1,117

)

Net change in unrealized gains (losses)

(30,937

)

(1,854

)

(2,480

)

(35,271

)

Net realized and unrealized gains (losses)

(30,753

)

(1,717

)

(3,918

)

(36,388

)

Purchases of portfolio investments

300,921


-


951,047


1,251,968


Payment-in-kind interest

11,003


-


3,323


14,326


Accretion (amortization) of discounts and premiums, net

563


-


(43,500

)

(42,937

)

Repayments and sales of portfolio investments

(163,609

)

(2,364

)

(893,938

)

(1,059,911

)

Transfers within Level 3(1)

22,145


-


(22,145

)

-


Transfers in (out) of Level 3(1)

-


-


-


-


Fair value as of March 31, 2017

$

1,892,719


$

7,239


$

4,124,808


$

6,024,766


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

-


238


146


5


(2,378

)

-


872


(1,117

)

Net change in unrealized gains (losses)

-


(37,062

)

10,610


11,723


(167

)

773


(21,148

)

(35,271

)

Net realized and unrealized gains (losses)

-


(36,824

)

10,756


11,728


(2,545

)

773


(20,276

)

(36,388

)

Purchases of portfolio investments

15,621


683,381


328,791


-


42,164


108,676


73,335


1,251,968


Payment-in-kind interest

-


4,364


8,048


1,914


-


-


-


14,326


Accretion (amortization) of discounts and premiums, net

-


499


3,192


-


-


(46,628

)

-


(42,937

)

Repayments and sales of portfolio investments

(7,424

)

(593,665

)

(329,714

)

(40,005

)

(43,313

)

-


(45,790

)

(1,059,911

)

Transfers within Level 3(1)

-


(77,145

)

-


-


-


-


77,145


-


Transfers in (out) of Level 3(1)

-


-


-


-


-


-


-


-


Fair value as of March 31, 2017

$

21,471


$

2,922,332


$

1,230,677


$

41,995


$

10,521


$

1,072,517


$

725,253


$

6,024,766


(1)

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

For the nine months ended March 31, 2018 and March 31, 2017 , the net change in unrealized (losses) gains on the investments that use Level 3 inputs was ($28,205) and ($46,678) for investments still held as of March 31, 2018 and March 31, 2017 , respectively.


58


The ranges of unobservable inputs used in the fair value measurement of our Level 3 investments as of March 31, 2018 were as follows:

Unobservable Input

Asset Category

Fair Value

Primary Valuation Approach or Technique

Input

Range

Weighted

Average

Senior Secured Debt

$

1,691,444


Discounted Cash Flow

(Yield analysis)

Market Yield

7.1% - 23.1%

11.7%

Senior Secured Debt

222,417


Enterprise Value Waterfall (Market approach)

EBITDA Multiple

4.0x - 9.8x

6.8x

Senior Secured Debt

44,719


Enterprise Value Waterfall (Market approach)

Revenue Multiple

0.3x - 3.0x

2.7x

Senior Secured Debt

47,099


Enterprise Value Waterfall (Discounted cash flow)

Discount Rate

7.4% - 16.0%

10.6%

Senior Secured Debt

787


Liquidation Analysis

N/A

N/A

N/A

Senior Secured Debt (1)

276,549


Enterprise Value Waterfall

Loss-adjusted discount rate

3.0% - 14.0%

10.8%

Senior Secured Debt (2)

293,203


Enterprise Value Waterfall (NAV Analysis)

Capitalization Rate

3.3% - 8.0%

5.6%

Senior Secured Debt (2)

Discounted Cash Flow

Discount Rate

6.5% - 7.5%

7.0%

Subordinated Secured Debt

899,248


Discounted Cash Flow

 (Yield analysis)

Market Yield

6.1% - 25.8%

11.6%

Subordinated Secured Debt

28,622


Enterprise Value Waterfall (Market approach)

EBITDA Multiple

6.8x - 9.5x

8.1x

Subordinated Secured Debt

47,780


Enterprise Value Waterfall (Market approach)

Revenue Multiple

0.3x - 0.4x

0.3x

Subordinated Secured Debt (3)

341,434


Enterprise Value Waterfall (Market approach)

Book Value Multiple

0.7x - 3.1x

2.5x

Subordinated Secured Debt (3)

Enterprise Value Waterfall (Market approach)

Earnings Multiple

7.5x - 13.0x

11.9x

Subordinated Unsecured Debt

30,809


Enterprise Value Waterfall (Market approach)

EBITDA Multiple

5.8x - 10.8x

9.1x

Small Business Loans (4)

199


Discounted Cash Flow

Loss-adjusted Discount Rate

4.4% - 27.7%

15.7%

CLO Residual Interest (5)

944,815


Discounted Cash Flow

Discount Rate

1.6% - 26.3%

17.9%

Preferred Equity

65,477


Enterprise Value Waterfall (Market approach)

EBITDA Multiple

2.5x - 7.5x

3.0x

Common Equity/Interests/Warrants

28,415


Enterprise Value Waterfall (Market approach)

EBITDA Multiple

2.5x - 8.5x

5.8x

Common Equity/Interests/Warrants

46,378


Enterprise Value Waterfall (Market approach)

Revenue Multiple

0.6x - 1.4x

0.9x

Common Equity/Interests/Warrants (1)

20,975


Enterprise Value Waterfall

Loss-adjusted discount rate

3.0% - 14.0%

10.8%

Common Equity/Interests/Warrants (2)

348,148


Enterprise Value Waterfall (NAV analysis)

Capitalization Rate

3.3% - 8.0%

5.6%

Common Equity/Interests/Warrants (2)

Discounted Cash Flow

Discount Rate

6.5% - 7.5%

7.0%

Common Equity/Interests/Warrants (3)

198,914


Enterprise Value Waterfall (Market approach)

Book Value Multiple

0.7x - 3.1x

2.4x

Common Equity/Interests/Warrants (3)

Enterprise Value Waterfall (Market approach)

Earnings Multiple

7.5x - 13.0x

11.9x

Common Equity/Interests/Warrants (6)

92,275


Discounted Cash Flow

Discount Rate

6.5% - 7.5%

7.0%

Common Equity/Interests/Warrants

35,462


Discounted Cash Flow

Discount Rate

7.4% - 16.0%

8.8%

Common Equity/Interests/Warrants

13,735


Liquidation Analysis

N/A

N/A

N/A

Escrow Receivable

900


Discounted Cash Flow

Discount Rate

7.4% - 8.5%

8.0%

Total Level 3 Investments

$

5,719,804




59


(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 0.00-21.53%, with a weighted average of 5.77%.

(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 13.0% to 16.0% with a weighted average of 14.2%.

(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%-0.62%, with a weighted average of 0.06%.

(5)

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

(6)

Represents net operating income interests in our REIT investments.








































60



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





61


(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 uses 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


62


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 PFIC's 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.


63


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 nine months ended March 31, 2018 , 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 $ 27,017 as of March 31, 2018 , a discount of $ 37,429 from its amortized cost, compared to the $ 43,506 unrealized depreciation recorded at June 30, 2017 .

During the nine months ended March 31, 2018 , 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 $ 30,238 as of March 31, 2018 , a premium of $ 2,391 from its amortized cost, compared to the $ 16,769 unrealized depreciation recorded at June 30, 2017 .

During the nine months ended March 31, 2018 , 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 by which amortized cost exceeded fair value as of the respective determination dates.


During the nine months ended March 31, 2018 , we provided $60,912 of equity financing to NPRC for the acquisition of real estate properties and $1,112 of debt and $12,601 of equity financing to NPRC to fund capital expenditures for existing real estate properties.

During the nine months ended March 31, 2018 , we provided $21,858 and $13,433 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 nine months ended March 31, 2018 , we received partial repayments of $63,307 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 March 31, 2018 , the outstanding investment in online consumer loans by certain of NPRC's wholly-owned subsidiaries was comprised of 73,663 individual loans and residual interests in two securitizations, and had an aggregate fair value of $441,123. The average outstanding individual loan balance was approximately $6 and the loans mature on dates ranging from April 1, 2018 to March 12, 2025 with a weighted-average outstanding term of 27 months as of March 31, 2018 . Fixed interest rates range from 4.0% to 36.0% with a weighted-average current interest rate of 24.0%. As of March 31, 2018 , our investment in NPRC and its wholly-owned subsidiaries relating to online consumer lending had a fair value of $297,524 .

As of March 31, 2018 , based on outstanding principal balance, 6.2% of the portfolio was invested in super prime loans (borrowers with a Fair Isaac Corporation ("FICO") score, of 720 or greater), 19.0% of the portfolio in prime loans (borrowers with a FICO score of 660 to 719) and 74.8% 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

$

24,957


$

24,319


13.2%

Prime

77,169


73,535


16.5%

Near Prime**

303,354


275,383


26.8%

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

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



64


As of March 31, 2018 , our investment in NPRC and its wholly-owned subsidiaries had an amortized cost of $ 827,279 and a fair value of $ 1,031,150 , including our investment in online consumer lending as discussed above. The fair value of $733,626 related to NPRC's real estate portfolio was comprised of thirty-nine 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 March 31, 2018 .

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


46,622


3

Lofton Place, LLC

Tampa, FL

4/30/2013

26,000


20,309


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


176,653


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


19,840


13

City West Apartments II, LLC

Orlando, FL

11/19/2013

23,562


23,170


14

Vinings Corner II, LLC

Smyrna, GA

11/19/2013

35,691


32,772


15

Atlanta Eastwood Village LLC

Stockbridge, GA

12/12/2013

25,957


22,635


16

Atlanta Monterey Village LLC

Jonesboro, GA

12/12/2013

11,501


11,013


17

Atlanta Hidden Creek LLC

Morrow, GA

12/12/2013

5,098


4,714


18

Atlanta Meadow Springs LLC

College Park, GA

12/12/2013

13,116


12,965


19

Atlanta Meadow View LLC

College Park, GA

12/12/2013

14,354


13,020


20

Atlanta Peachtree Landing LLC

Fairburn, GA

12/12/2013

17,224


15,422


21

NPH Carroll Bartram Park, LLC

Jacksonville, FL

12/31/2013

38,000


26,601


22

Crestview at Cordova, LLC

Pensacola, FL

1/17/2014

8,500


7,828


23

NPH Carroll Atlantic Beach, LLC

Atlantic Beach, FL

1/31/2014

13,025


8,234


24

Taco Bell, OK

Yukon, OK

6/4/2014

1,719


-


25

Taco Bell, MO

Marshall, MO

6/4/2014

1,405


-


26

23 Mile Road Self Storage, LLC

Chesterfield, MI

8/19/2014

5,804


4,350


27

36th Street Self Storage, LLC

Wyoming, MI

8/19/2014

4,800


3,600


28

Ball Avenue Self Storage, LLC

Grand Rapids, MI

8/19/2014

7,281


5,460


29

Ford Road Self Storage, LLC

Westland, MI

8/29/2014

4,642


3,480


30

Ann Arbor Kalamazoo Self Storage, LLC

Ann Arbor, MI

8/29/2014

4,458


3,345


31

Ann Arbor Kalamazoo Self Storage, LLC

Ann Arbor, MI

8/29/2014

8,927


6,695


32

Ann Arbor Kalamazoo Self Storage, LLC

Kalamazoo, MI

8/29/2014

2,363


1,775


33

Canterbury Green Apartments Holdings LLC

Fort Wayne, IN

9/29/2014

85,500


74,077


34

Abbie Lakes OH Partners, LLC

Canal Winchester, OH

9/30/2014

12,600


13,055


35

Kengary Way OH Partners, LLC

Reynoldsburg, OH

9/30/2014

11,500


13,502


36

Lakeview Trail OH Partners, LLC

Canal Winchester, OH

9/30/2014

26,500


23,256


37

Lakepoint OH Partners, LLC

Pickerington, OH

9/30/2014

11,000


14,480


38

Sunbury OH Partners, LLC

Columbus, OH

9/30/2014

13,000


14,115


39

Heatherbridge OH Partners, LLC

Blacklick, OH

9/30/2014

18,416


18,328


40

Jefferson Chase OH Partners, LLC

Blacklick, OH

9/30/2014

13,551


17,200



65


No.

Property Name

City

Acquisition
Date

Purchase
Price

Mortgage
Outstanding

41

Goldenstrand OH Partners, LLC

Hilliard, OH

10/29/2014

7,810


9,600


42

Jolly Road Self Storage, LLC

Okemos, MI

1/16/2015

7,492


5,620


43

Eaton Rapids Road Self Storage, LLC

Lansing West, MI

1/16/2015

1,741


1,305


44

Haggerty Road Self Storage, LLC

Novi, MI

1/16/2015

6,700


5,025


45

Waldon Road Self Storage, LLC

Lake Orion, MI

1/16/2015

6,965


5,225


46

Tyler Road Self Storage, LLC

Ypsilanti, MI

1/16/2015

3,507


2,630


47

SSIL I, LLC

Aurora, IL

11/5/2015

34,500


26,450


48

Vesper Tuscaloosa, LLC

Tuscaloosa, AL

9/28/2016

54,500


43,123


49

Vesper Iowa City, LLC

Iowa City, IA

9/28/2016

32,750


24,825


50

Vesper Corpus Christi, LLC

Corpus Christi, TX

9/28/2016

14,250


10,800


51

Vesper Campus Quarters, LLC

Corpus Christi, TX

9/28/2016

18,350


14,175


52

Vesper College Station, LLC

College Station, TX

9/28/2016

41,500


32,058


53

Vesper Kennesaw, LLC

Kennesaw, GA

9/28/2016

57,900


48,676


54

Vesper Statesboro, LLC

Statesboro, GA

9/28/2016

7,500


5,912


55

Vesper Manhattan KS, LLC

Manhattan, KS

9/28/2016

23,250


15,145


56

JSIP Union Place, LLC

Franklin, MA

12/7/2016

64,750


51,800


57

9220 Old Lantern Way, LLC

Laurel, MD

1/30/2017

187,250


153,580


58


7915 Baymeadows Circle Owner, LLC


Jacksonville, FL


10/31/2017


95,700



76,560


59


8025 Baymeadows Circle Owner, LLC


Jacksonville, FL


10/31/2017


15,300



12,240


60


23275 Riverside Drive Owner, LLC


Southfield, MI


11/8/2017


52,000



44,044


61


23741 Pond Road Owner, LLC


Southfield, MI


11/8/2017


16,500



14,185


62


150 Steeplechase Way Owner, LLC


Largo, MD


1/10/2018


44,500



36,668


$

1,708,122


$

1,399,579


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 March 14, 2017, assets previously held by Ark-La-Tex Wireline Services, LLC ("Ark-La-Tex") were assigned to Wolf Energy Services, 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.

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.


66


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.

On February 26, 2018, we entered into a debt forgiveness agreement with Nixon, Inc., which terminated the $17,472 Senior Secured Term Loan receivable due to us. We recorded a realized loss of $14,197 as a result of this transaction.

As of March 31, 2018 , $3,439,901 of our loans to portfolio companies, at fair value, bear interest at floating rates and have LIBOR floors ranging from 0.0% to 4.0%. As of March 31, 2018 , $484,210 of our loans to portfolio companies, at fair value, bear interest at fixed rates ranging from 5.0% 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 5.0% to 20.0%.

At March 31, 2018 , four loan investments were on non-accrual status: Ark-La-Tex, Edmentum Ultimate Holdings, LLC ("Edmentum") (the Unsecured Junior PIK Note), 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 (the Unsecured Junior PIK Note), Nixon, Spartan, USC, USES, and Venio LLC. Cost balances of these loans amounted to $ 223,842 and $286,388 as of March 31, 2018 and June 30, 2017 , respectively. The fair value of these loans amounted to $ 75,966 and $154,417 as of March 31, 2018 and June 30, 2017 , respectively. The fair values of these investments represent approximately 1.3% and 2.5% of our total assets at fair value as of March 31, 2018 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 5.00% . As of March 31, 2018 and June 30, 2017 , we had $19,675 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 March 31, 2018 and June 30, 2017 .

During the nine months ended March 31, 2018 and the nine months ended March 31, 2017 , 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 nine months ended March 31, 2018 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%

Nine Months Ended March 31, 2018

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 nine months ended March 31, 2018 , 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 nine months ended March 31, 2018 . We do not believe that the calculation promulgated by the SEC correctly identifies significant subsidiaries but have included


67


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 March 31, 2018 and year ended June 30, 2017 .

The following tables show summarized financial information for First Tower Finance, which met the 20% income test for the nine months ended March 31, 2018 :

March 31, 2018

June 30, 2017

Balance Sheet Data

Cash and invested assets

$

69,086


$

77,058


Accounts receivable, net

519,953


432,278


Property, plant and equipment, net

28,898


24,919


Intangibles, including goodwill

79,479


90,897


Other assets

4,702


2,404


Notes payable, due to Prospect or Affiliate

353,316


339,595


Other liabilities

406,865


341,553


Total equity

(58,063

)

(53,592

)

Three Months Ended March 31,

Nine Months Ended March 31,

2018


2017

2018


2017

Summary of Operations











Total revenue

$

56,941



$

54,299


$

174,143



$

169,034


Total expenses

64,615



60,688


182,981



184,267


Net loss

$

(7,674

)


$

(6,389

)

$

(8,838

)


$

(15,233

)

The following tables show summarized financial information for NPRC, which met the 20% income test for the nine months ended March 31, 2018 :

March 31, 2018

June 30, 2017

Balance Sheet Data

 Cash and cash equivalents

$

164,789


$

94,394


 Real estate, net

1,548,377


1,452,424


 Unsecured consumer loans, at fair value

442,387


648,277


 Other assets

37,128


40,386


 Mortgages payable

1,390,108


1,310,462


 Revolving credit facilities and other secured financing

227,533


341,878


 Notes payable, due to Prospect or Affiliate

569,752


559,464


 Other liabilities

49,145


37,339


 Total equity

(43,857

)

(13,662

)


68


Three Months Ended March 31,

Nine Months Ended March 31,

2018

2017

2018

2017

Summary of Operations

Total revenue

$

144,196



$

125,667


$

342,539



$

320,773


Total expenses

87,305



79,449


254,776



236,973


Operating income

56,891



46,218


87,763



83,800


Depreciation and amortization

(18,816

)


(21,380

)

(54,418

)


(55,650

)

Fair value adjustment

(15,883

)


(26,640

)

(76,137

)


(73,553

)

Net income (loss)

$

22,192



$

(1,802

)

$

(42,792

)


$

(45,403

)

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 March 31, 2018 . 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 March 31, 2018 , 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 March 31, 2018 and June 30, 2017 , we had $382,262 and $665,409 , respectively, available to us for borrowing under the Revolving Credit Facility, of which $86,000 was outstanding as of March 31, 2018. We did not have any borrowings outstanding under the Revolving Credit Facility as of June 30, 2017. 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 March 31, 2018 , the investments, including cash, used as collateral for the Revolving Credit Facility had an aggregate fair value of $1,225,288 , which represents 21.1% of our total investments, including cash. 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 March 31, 2018 , $2,717 remains to be amortized and is reflected as deferred financing costs on the Consolidated Statements of Assets and Liabilities .

During the three months ended March 31, 2018 and March 31, 2017 , we recorded $3,016 and $3,218 , respectively, of interest costs, unused fees and amortization of financing costs on the Revolving Credit Facility as interest expense. During the nine months ended March 31, 2018 and March 31, 2017 , we recorded $9,356 and $9,247 , 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


69


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. 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 matured on March 15, 2018 (the "2018 Notes"), unless previously converted or repurchased in accordance with their terms. The 2018 Notes bore 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 March 15, 2018, we repaid the outstanding principal amount of $85,419, plus interest, on the 2018 Notes. No gain or loss was realized on the transaction.

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 2019 Notes, the 2020 Notes and the 2022 Notes (collectively, the "Convertible Notes") are listed below.

2019 Notes


2020 Notes


2022 Notes


Initial conversion rate(1)

79.7766


80.6647


100.2305


Initial conversion price

$

12.54


$

12.40


$

9.98


Conversion rate at March 31, 2018(1)(2)

79.8360


80.6670


100.2305


Conversion price at March 31, 2018(2)(3)

$

12.53


$

12.40


$

9.98


Last conversion price calculation date

12/21/2017


4/11/2017


4/11/2017


Dividend threshold amount (per share)(4)

$

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).


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(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 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 $24,795 of fees which are being amortized over the terms of the notes, of which $11,908 remains to be amortized and is included as a reduction within Convertible Notes on the Consolidated Statement of Assets and Liabilities as of March 31, 2018 .

During the three months ended March 31, 2018 and March 31, 2017 , we recorded $12,664 and $13,484 , respectively, of interest costs and amortization of financing costs on the Convertible Notes as interest expense. During the nine months ended March 31, 2018 and March 31, 2017 , we recorded $39,323 and $41,674 , 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 March 31, 2018 , we have issued a total of $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 recorded a discount of $2,777 and debt issuance costs of $13,613 , which are being amortized over the terms of the notes. As of March 31, 2018 , $1,678 of the original issue discount and $7,767 of the debt issuance costs remain to be amortized and are included as a reduction within Public Notes on the Consolidated Statement of Assets and Liabilities .


71


During the three months ended March 31, 2018 and March 31, 2017 , we recorded $11,054 and $11,026 , respectively, of interest costs and amortization of financing costs on the Public Notes as interest expense. During the nine months ended March 31, 2018 and March 31, 2017 , we recorded $33,143 and $32,864 , 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.

During the nine months ended March 31, 2018 , we issued $69,428 aggregate principal amount of Prospect Capital InterNotes® for net proceeds of $68,396 . These notes were issued with stated interest rates ranging from 4.00% to 5.00% with a weighted average interest rate of 4.37% . These notes mature between July 15, 2022 and March 15, 2026 . The following table summarizes the Prospect Capital InterNotes® issued during the nine months ended March 31, 2018 :

Tenor at
Origination
(in years)

Principal
Amount

Interest Rate
Range

Weighted
Average
Interest Rate

Maturity Date Range

5

$

43,587


4.00%–4.75%

4.20

%

July 15, 2022 – March 15, 2023

7

2,825


4.75%–5.00%

4.93

%

July 15, 2024

8

23,016


4.50%–5.00%

4.62

%

August 15, 2025 – March 15, 2026

$

69,428


During the nine months ended March 31, 2017 , we issued $109,221 aggregate principal amount of our Prospect Capital InterNotes® for net proceeds of $107,860 . The following table summarizes the Prospect Capital InterNotes® issued during the nine months ended March 31, 2017 :

Tenor at
Origination
(in years)

Principal
Amount

Interest Rate
Range

Weighted
Average
Interest Rate

Maturity Date Range

5

$

109,221


4.75%–5.50%

5.15

%

July 15, 2021 – March 15, 2022

During the nine months ended March 31, 2018 , we redeemed, prior to maturity, $269,375 aggregate principal amount of Prospect Capital InterNotes® at par with a weighted average interest rate of 4.89% in order to replace shorter maturity debt with longer-term debt. During the nine months ended March 31, 2018 , we repaid $4,883 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 nine months ended March 31, 2018 was $1,445 . The following table summarizes the Prospect Capital InterNotes® outstanding as of March 31, 2018 :


72


Tenor at
Origination
(in years)

Principal
Amount

Interest Rate
Range

Weighted
Average
Interest Rate

Maturity Date Range

5

$

225,639


4.00%–5.50%


4.92

%

July 15, 2018 – March 15, 2023

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

5.5

86,218


4.25%–5.00%


4.61

%

February 15, 2019 – November 15, 2020

6

2,182


4.88

%

4.88

%

April 15, 2021 – May 15, 2021

6.5

38,852


5.10%–5.50%


5.23

%

February 15, 2020 – May 15, 2022

7

145,500


4.00%–6.55%


5.05

%

June 15, 2019 – July 15, 2024

7.5

1,996


5.75

%

5.75

%

February 15, 2021

8

23,016


4.50%-5.00%


4.62

%

August 15, 2025 – March 15, 2026

10

37,424


5.12%–7.00%


6.18

%

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

20,903


4.13%–6.25%


5.55

%

December 15, 2030 – August 15, 2031

20

4,170


5.63%–6.00%


5.89

%

November 15, 2032 – October 15, 2033

25

33,349


6.25%–6.50%


6.39

%

August 15, 2038 – May 15, 2039

30

109,591


5.50%–6.75%


6.24

%

November 15, 2042 – October 15, 2043

$

756,071




During the nine months ended March 31, 2017 , we repaid $6,460 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 nine months ended March 31, 2017 was $205.


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


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