UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ýý
oo
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended June 30, 2016
OR
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
(State
or
other
jurisdiction
of
incorporation
or
organization)
10 East 40th Street, 42nd Floor
New York, New York
(Address
of
principal
executive
offices)
43-2048643
(I.R.S.
Employer
Identification
No.)
10016
(Zip
Code)
Securities registered pursuant to Section 12(b) of the Act:
Registrant’s telephone number, including area code: (212) 448-0702
Title of each class
Name of each exchange on which registered
Common
Stock,
par
value
$0.001
per
share
NASDAQ
Global
Select
Market
Securities registered pursuant to Section 12(g) of the Act: None
Indicate
by
check
mark
if
the
Registrant
is
a
well-known
seasoned
issuer,
as
defined
in
Rule
405
of
the
Securities
Act.
Yes
o
No
ý
Indicate
by
check
mark
if
the
Registrant
is
not
required
to
file
reports
pursuant
to
Section
13
or
Section
15(d)
of
the
Act.
Yes
o
No
ý
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
if
disclosure
of
delinquent
filers
pursuant
to
Item
405
of
Regulation
S-K
(§229.405
of
this
chapter)
is
not
contained
herein,
and
will
not
be
contained,
to
the
best
of
Registrant’s
knowledge,
in
definitive
proxy
or
information
statements
incorporated
by
reference
in
Part
III
of
this
Form
10-K
or
any
amendment
to
this
Form
10-K.
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
The
aggregate
market
value
of
the
common
equity
held
by
non-affiliates
of
the
Registrant
as
of
December
31,
2015
was
$2.382
billion
(based
on
the
closing
price
on
that
date
of
$6.98
on
the
NASDAQ
Global
Select
Market).
For
the
purposes
of
calculating
this
amount
only,
all
executive
officers
and
Directors
are
“affiliates”
of
the
Registrant.
As
of
August
26,
2016
,
there
were
357,724,896
shares
of
the
Registrant’s
common
stock
outstanding.
Portions
of
the
Registrant’s
definitive
Proxy
Statement
relating
to
the
2016
Annual
Meeting
of
Stockholders,
to
be
filed
with
the
Securities
and
Exchange
Commission,
are
incorporated
by
reference
in
Part
III
of
this
Annual
Report
on
Form
10-K
to
the
extent
described
therein.
Documents Incorporated by Reference
Table of Contents
Forward-Looking
Statements
PART I
Item
1.
Business
Item
1A.
Risk
Factors
Item
1B.
Unresolved
Staff
Comments
Item
2.
Item
3.
Item
4.
PART II
Item
5.
Item
6.
Item
7.
Properties
Legal
Proceedings
Mine
Safety
Disclosures
Market
for
Registrant’s
Common
Equity,
Related
Stockholder
Matters
and
Issuer
Purchases
of
Equity
Securities
Selected
Financial
Data
Management’s
Discussion
and
Analysis
of
Financial
Condition
and
Results
of
Operations
Item
7A.
Quantitative
and
Qualitative
Disclosures
About
Market
Risk
Item
8.
Item
9.
Financial
Statements
and
Supplementary
Data
Changes
in
and
Disagreements
with
Accountants
on
Accounting
and
Financial
Disclosure
Item
9A.
Controls
and
Procedures
Item
9B.
Other
Information
PART III
Item
10.
Item
11.
Item
12.
Item
13.
Item
14.
Directors,
Executive
Officers
and
Corporate
Governance
Executive
Compensation
Security
Ownership
of
Certain
Beneficial
Owners
and
Management
and
Related
Stockholder
Matters
Certain
Relationships
and
Related
Transactions,
and
Director
Independence
Principal
Accountant
Fees
and
Services
PART IV
Item
15.
Exhibits
and
Financial
Statement
Schedules
Signatures
Page
1
2
25
57
57
57
57
58
63
64
98
100
225
225
227
227
227
227
227
227
228
255
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
I,
“Item
1A.
Risk
Factors”
and
elsewhere
in
this
report
and
those
described
from
time
to
time
in
our
future
reports
filed
with
the
Securities
and
Exchange
Commission.
The
forward-looking
statements
contained
in
this
report
involve
a
number
of
risks
and
uncertainties,
including
statements
concerning:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
our
future
operating
results;
our
business
prospects
and
the
prospects
of
our
portfolio
companies;
the
impact
of
investments
that
we
expect
to
make;
our
contractual
arrangements
and
relationships
with
third
parties;
the
dependence
of
our
future
success
on
the
general
economy
and
its
impact
on
the
industries
in
which
we
invest;
the
ability
of
our
portfolio
companies
to
achieve
their
objectives;
difficulty
in
obtaining
financing
or
raising
capital,
especially
in
the
current
credit
and
equity
environment;
the
level
and
volatility
of
prevailing
interest
rates
and
credit
spreads,
magnified
by
the
current
turmoil
in
the
credit
markets;
adverse
developments
in
the
availability
of
desirable
loan
and
investment
opportunities
whether
they
are
due
to
competition,
regulation
or
otherwise;
a
compression
of
the
yield
on
our
investments
and
the
cost
of
our
liabilities,
as
well
as
the
level
of
leverage
available
to
us;
our
regulatory
structure
and
tax
treatment,
including
our
ability
to
operate
as
a
business
development
company
and
a
regulated
investment
company;
the
adequacy
of
our
cash
resources
and
working
capital;
the
timing
of
cash
flows,
if
any,
from
the
operations
of
our
portfolio
companies;
the
ability
of
the
Investment
Adviser
to
locate
suitable
investments
for
us
and
to
monitor
and
administer
our
investments;
and
authoritative
generally
accepted
accounting
principles
or
policy
changes
from
such
standard-setting
bodies
as
the
Financial
Accounting
Standards
Board,
the
Securities
and
Exchange
Commission,
Internal
Revenue
Service,
the
NASDAQ
Global
Select
Market,
and
other
authorities
that
we
are
subject
to,
as
well
as
their
counterparts
in
any
foreign
jurisdictions
where
we
might
do
business.
1
Item 1. Business
PART I
In
this
report,
the
terms
“Prospect,”
“we,”
“us”
and
“our”
mean
Prospect
Capital
Corporation
and
all
entities
included
in
our
consolidated
financial
statements,
unless
the
context
specifically
requires
otherwise.
General
Prospect
Capital
Corporation
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.
We
are
one
of
the
largest
BDCs
with
approximately
$6.28
billion
of
total
assets
as
of
June
30,
2016
.
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
seek
investments
with
historical
cash
flows,
asset
collateral
or
contracted
pro-forma
cash
flows.
We
currently
have
nine
origination
strategies
in
which
we
make
investments:
(1)
lending
in
private
equity
sponsored
transactions,
(2)
lending
directly
to
companies
not
owned
by
private
equity
firms,
(3)
control
investments
in
corporate
operating
companies,
(4)
control
investments
in
financial
companies,
(5)
investments
in
structured
credit,
(6)
real
estate
investments,
(7)
investments
in
syndicated
debt,
(8)
aircraft
leasing
and
(9)
online
lending.
We
continue
to
evaluate
other
origination
strategies
in
the
ordinary
course
of
business
with
no
specific
top-down
allocation
to
any
single
origination
strategy.
Lending
in
Private
Equity
Sponsored
Transactions
–
We
make
loans
to
companies
which
are
controlled
by
leading
private
equity
firms.
This
debt
can
take
the
form
of
first
lien,
second
lien,
unitranche
or
unsecured
loans.
In
making
these
investments,
we
look
for
a
diversified
customer
base,
recurring
demand
for
the
product
or
service,
barriers
to
entry,
strong
historical
cash
flow
and
experienced
management
teams.
These
loans
typically
have
significant
equity
subordinate
to
our
loan
position.
Historically,
this
strategy
has
comprised
approximately
50%-60%
of
our
business,
but
more
recently
it
is
less
than
50%
of
our
business.
Lending
Directly
to
Companies
–
We
provide
debt
financing
to
companies
owned
by
non-private
equity
firms,
the
company
founder,
a
management
team
or
a
family.
Here,
in
addition
to
the
strengths
we
look
for
in
a
sponsored
transaction,
we
also
look
for
the
alignment
with
the
management
team
with
significant
invested
capital.
This
strategy
often
has
less
competition
than
the
private
equity
sponsor
strategy
because
such
company
financing
needs
are
not
easily
addressed
by
banks
and
often
require
more
diligence
preparation.
Direct
lending
can
result
in
higher
returns
and
lower
leverage
than
sponsor
transactions
and
may
include
warrants
or
equity
to
us.
Historically,
this
strategy
has
comprised
approximately
5%-15%
of
our
business,
but
more
recently
it
is
less
than
5%
of
our
business.
Control
Investments
in
Corporate
Operating
Companies
–
This
strategy
involves
acquiring
controlling
stakes
in
non-financial
operating
companies.
Our
investments
in
these
companies
are
generally
structured
as
a
combination
of
yield-producing
debt
and
equity.
We
provide
enhanced
certainty
of
closure
to
our
counterparties,
give
the
seller
personal
liquidity
and
generally
look
for
management
to
continue
on
in
their
current
roles.
This
strategy
has
comprised
approximately
10%-15%
of
our
business.
Control
Investments
in
Financial
Companies
–
This
strategy
involves
acquiring
controlling
stakes
in
financial
companies,
including
consumer
direct
lending,
sub-
prime
auto
lending
and
other
strategies.
Our
investments
in
these
companies
are
generally
structured
as
a
combination
of
yield-producing
debt
and
equity.
These
investments
are
often
structured
in
a
tax-efficient
RIC-compliant
partnership,
enhancing
returns.
This
strategy
has
comprised
approximately
5%-15%
of
our
business.
Investments
in
Structured
Credit
–
We
make
investments
in
CLOs,
generally
taking
a
significant
position
in
the
subordinated
interests
(equity)
of
the
CLOs.
The
CLOs
include
a
diversified
portfolio
of
broadly
syndicated
loans
and
do
not
have
direct
exposure
to
real
estate,
mortgages,
debt
or
consumer
based
debt.
The
CLOs
in
which
we
invest
are
managed
by
top-tier
collateral
managers
that
have
been
thoroughly
diligenced
prior
to
investment.
This
strategy
has
comprised
approximately
10%-20%
of
our
business.
2
Real
Estate
Investments
–
We
make
investments
in
real
estate
through
our
wholly-owned
tax-efficient
real
estate
investment
trust
(“REIT”)
National
Property
REIT
Corp.
(“NPRC”),
the
surviving
entity
of
the
May
23,
2016
merger
with
American
Property
REIT
Corp.
(“APRC”)
and
United
Property
REIT
Corp.
(“UPRC”).
Our
real
estate
investments
are
in
various
classes
of
fully
developed
and
occupied
real
estate
properties
that
generate
current
yields.
We
seek
to
identify
properties
that
have
historically
high
occupancy
and
steady
cash
flow
generation.
NPRC
co-invests
with
established
and
experienced
property
managers
that
manage
such
properties
after
acquisition.
This
investment
strategy
has
comprised
approximately
5%-10%
of
our
business.
Investments
in
Syndicated
Debt
–
On
an
opportunistic
basis,
we
make
investments
in
loans
and
high
yield
bonds
that
have
been
sold
to
a
syndicate
of
buyers.
Here
we
look
for
investments
with
attractive
risk-adjusted
returns
after
we
have
completed
a
fundamental
credit
analysis.
These
investments
are
purchased
with
a
long
term,
buy-and-hold
outlook
and
we
look
to
provide
significant
structuring
input
by
providing
anchoring
orders.
This
strategy
has
comprised
approximately
5%-
10%
of
our
business.
Aircraft
Leasing
–
We
invest
in
debt
as
well
as
equity
in
aircraft
assets
subject
to
commercial
leases
to
credit-worthy
airlines
across
the
globe.
These
investments
present
attractive
return
opportunities
due
to
cash
flow
consistency
from
long-lived
assets
coupled
with
hard
asset
collateral.
We
seek
to
deliver
risk-adjusted
returns
with
strong
downside
protection
by
analyzing
relative
value
characteristics
across
the
spectrum
of
aircraft
types
of
all
vintages.
Our
target
portfolio
includes
both
in-production
and
out-of-production
jet
and
turboprop
aircraft
and
engines,
operated
by
airlines
across
the
globe.
This
strategy
comprised
approximately
1%
of
our
business.
Online
Lending
–
We
make
investments
in
loans
originated
by
certain
consumer
loan
and
small
and
medium
sized
business
(“SME”)
loan
facilitators.
We
purchase
each
loan
in
its
entirety
(i.e.,
a
“whole
loan”).
The
borrowers
are
consumers
and
SMEs.
The
loans
are
typically
serviced
by
the
facilitators
of
the
loans.
This
investment
strategy
has
comprised
approximately
4%-7%
of
our
business.
We
invest
primarily
in
first
and
second
lien
secured
loans
and
unsecured
debt,
which
in
some
cases
includes
an
equity
component.
First
and
second
lien
secured
loans
generally
are
senior
debt
instruments
that
rank
ahead
of
unsecured
debt
of
a
given
portfolio
company.
These
loans
also
have
the
benefit
of
security
interests
on
the
assets
of
the
portfolio
company,
which
may
rank
ahead
of
or
be
junior
to
other
security
interests.
Our
investments
in
CLOs
are
subordinated
to
senior
loans
and
are
generally
unsecured.
We
invest
in
debt
and
equity
positions
of
CLOs
which
are
a
form
of
securitization
in
which
the
cash
flows
of
a
portfolio
of
loans
are
pooled
and
passed
on
to
different
classes
of
owners
in
various
tranches.
Our
CLO
investments
are
derived
from
portfolios
of
corporate
debt
securities
which
are
generally
risk
rated
from
BB
to
B.
Typically,
we
concentrate
on
making
investments
in
companies
with
annual
revenues
of
less
than
$750
million
and
enterprise
values
of
less
than
$1
billion.
Our
typical
investment
involves
a
secured
loan
of
less
than
$250
million.
We
also
acquire
controlling
interests
in
companies
in
conjunction
with
making
secured
debt
investments
in
such
companies.
In
most
cases,
companies
in
which
we
invest
are
privately
held
at
the
time
we
invest
in
them.
We
refer
to
these
companies
as
“target”
or
“middle
market”
companies
and
these
investments
as
“middle
market
investments.”
We
seek
to
maximize
total
returns
to
our
investors,
including
both
current
yield
and
equity
upside,
by
applying
rigorous
credit
analysis
and
asset-based
and
cash-
flow
based
lending
techniques
to
make
and
monitor
our
investments.
We
are
constantly
pursuing
multiple
investment
opportunities,
including
purchases
of
portfolios
from
private
and
public
companies,
as
well
as
originations
and
secondary
purchases
of
particular
securities.
We
also
regularly
evaluate
control
investment
opportunities
in
a
range
of
industries,
and
some
of
these
investments
could
be
material
to
us.
There
can
be
no
assurance
that
we
will
successfully
consummate
any
investment
opportunity
we
are
currently
pursuing.
If
any
of
these
opportunities
are
consummated,
there
can
be
no
assurance
that
investors
will
share
our
view
of
valuation
or
that
any
assets
acquired
will
not
be
subject
to
future
write
downs,
each
of
which
could
have
an
adverse
effect
on
our
stock
price.
“Spin-Offs” of Certain Business Strategies
We
previously
announced
that
we
intend
to
unlock
value
by
“spinning
off”
three
“pure
play”
business
strategies
-
our
consumer
online
lending
business,
real
estate
business
and
structured
credit
business
-
to
our
shareholders
in
conjunction
with
rights
offering
capital
raises
in
which
existing
Prospect
shareholders
could
elect
to
participate
in
each
offering
or
sell
their
rights.
The
goals
of
these
“spin-offs”
include
leverage
and
earnings
neutrality
for
Prospect.
Our
primary
objective
is
to
maximize
the
valuation
of
each
offering
(declining
to
proceed
with
any
offering
if
we
find
any
valuation
not
to
be
attractive).
The
size
and
likelihood
of
each
of
these
dispositions,
some
of
which
are
expected
to
be
partial
rather
than
complete
spin-offs,
remain
to
be
determined,
but
we
currently
expect
the
collective
size
of
these
three
dispositions,
if
any,
to
be
10%
or
less
of
our
asset
base.
Any
such
dispositions
cannot
occur
unless
and
until
our
application
for
exemptive
relief
is
granted
by
the
SEC.
Should
the
SEC
not
grant
our
application
for
exemptive
relief,
these
dispositions
will
not
occur
as
initially
planned.
The
consummation
of
any
of
the
dispositions
also
depends
upon,
among
other
things:
market
conditions,
regulatory
and
exchange
listing
approval,
and
sufficient
investor
demand.
There
can
be
no
assurance
that
we
will
consummate
any
of
these
dispositions.
3
Our Investment Objective and Policies
Our
investment
objective
is
to
generate
both
current
income
and
long-term
capital
appreciation
through
debt
and
equity
investments.
We
focus
on
making
investments
in
private
companies.
We
are
a
non-diversified
company
within
the
meaning
of
the
1940
Act.
We
invest
primarily
in
first
and
second
lien
secured
loans
and
unsecured
debt,
which
in
some
cases
includes
an
equity
component.
First
and
second
lien
secured
loans
generally
are
senior
debt
instruments
that
rank
ahead
of
unsecured
debt
of
a
given
portfolio
company.
These
loans
also
have
the
benefit
of
security
interests
on
the
assets
of
the
portfolio
company,
which
may
rank
ahead
of
or
be
junior
to
other
security
interests.
Our
investments
in
CLOs
are
subordinated
to
senior
loans
and
are
generally
unsecured.
We
invest
in
debt
and
equity
positions
of
CLOs
which
are
a
form
of
securitization
in
which
the
cash
flows
of
a
portfolio
of
loans
are
pooled
and
passed
on
to
different
classes
of
owners
in
various
tranches.
Our
CLO
investments
are
derived
from
portfolios
of
corporate
debt
securities
which
are
generally
risk
rated
from
BB
to
B.
We
also
acquire
controlling
interests
in
companies
in
conjunction
with
making
secured
debt
investments
in
such
companies.
These
may
be
in
several
industries,
including
industrial,
service,
aircraft
leasing,
real
estate
and
financial
businesses.
We
seek
to
maximize
returns
and
minimize
risk
for
our
investors
by
applying
rigorous
analysis
to
make
and
monitor
our
investments.
While
the
structure
of
our
investments
varies,
we
can
invest
in
senior
secured
debt,
senior
unsecured
debt,
subordinated
secured
debt,
subordinated
unsecured
debt,
convertible
debt,
convertible
preferred
equity,
preferred
equity,
common
equity,
warrants
and
other
instruments,
many
of
which
generate
current
yield.
While
our
primary
focus
is
to
seek
current
income
through
investment
in
the
debt
and/or
dividend-paying
equity
securities
of
eligible
privately-held,
thinly-traded
or
distressed
companies
and
long-term
capital
appreciation
by
acquiring
accompanying
warrants,
options
or
other
equity
securities
of
such
companies,
we
may
invest
up
to
30%
of
the
portfolio
in
opportunistic
investments
in
order
to
seek
enhanced
returns
for
stockholders.
Such
investments
may
include
investments
in
the
debt
and
equity
instruments
of
broadly-traded
public
companies.
We
expect
that
these
public
companies
generally
will
have
debt
securities
that
are
non-investment
grade.
Such
investments
may
also
include
purchases
(either
in
the
primary
or
secondary
markets)
of
the
equity
and
junior
debt
tranches
of
a
type
of
such
pools
known
as
CLOs.
Structurally,
CLOs
are
entities
that
are
formed
to
hold
a
portfolio
of
senior
secured
loans
made
to
companies
whose
debt
is
rated
below
investment
grade
or,
in
limited
circumstances,
unrated.
The
senior
secured
loans
within
a
CLO
are
limited
to
senior
secured
loans
which
meet
specified
credit
and
diversity
criteria
and
are
subject
to
concentration
limitations
in
order
to
create
an
investment
portfolio
that
is
diverse
by
senior
secured
loan,
borrower,
and
industry,
with
limitations
on
non-U.S.
borrowers.
Within
this
30%
basket,
we
have
and
may
make
additional
investments
in
debt
and
equity
securities
of
financial
companies
and
companies
located
outside
of
the
United
States.
Our
investments
may
include
other
equity
investments,
such
as
warrants,
options
to
buy
a
minority
interest
in
a
portfolio
company,
or
contractual
payment
rights
or
rights
to
receive
a
proportional
interest
in
the
operating
cash
flow
or
net
income
of
such
company.
When
determined
by
the
Investment
Adviser
to
be
in
our
best
interest,
we
may
acquire
a
controlling
interest
in
a
portfolio
company.
Any
warrants
we
receive
with
our
debt
securities
may
require
only
a
nominal
cost
to
exercise,
and
thus,
as
a
portfolio
company
appreciates
in
value,
we
may
achieve
additional
investment
return
from
this
equity
interest.
We
have
structured,
and
will
continue
to
structure,
some
warrants
to
include
provisions
protecting
our
rights
as
a
minority-interest
or,
if
applicable,
controlling-interest
holder,
as
well
as
puts,
or
rights
to
sell
such
securities
back
to
the
company,
upon
the
occurrence
of
specified
events.
In
many
cases,
we
obtain
registration
rights
in
connection
with
these
equity
interests,
which
may
include
demand
and
“piggyback”
registration
rights.
We
plan
to
hold
many
of
our
debt
investments
to
maturity
or
repayment,
but
will
sell
a
debt
investment
earlier
if
a
liquidity
event
takes
place,
such
as
the
sale
or
recapitalization
of
a
portfolio
company,
or
if
we
determine
a
sale
of
such
debt
investment
to
be
in
our
best
interest.
We
have
qualified
and
elected
to
be
treated
for
U.S.
federal
income
tax
purposes
as
a
RIC
under
Subchapter
M
of
the
Code.
As
a
RIC,
we
generally
do
not
have
to
pay
corporate-level
U.S.
federal
income
taxes
on
any
ordinary
income
or
capital
gains
that
we
distribute
to
our
stockholders
as
dividends.
To
continue
to
qualify
as
a
RIC,
we
must,
among
other
things,
meet
certain
source-of-income
and
asset
diversification
requirements
(as
described
below).
In
addition,
to
qualify
for
RIC
tax
treatment,
we
must
distribute
to
our
stockholders,
for
each
taxable
year,
at
least
90%
of
our
“investment
company
taxable
income,”
which
is
generally
our
ordinary
income
plus
the
excess
of
our
realized
net
short-term
capital
gains
over
our
realized
net
long-term
capital
losses.
For
a
discussion
of
the
risks
inherent
in
our
portfolio
investments,
see
“Risk
Factors
–
Risks
Relating
to
Our
Investments.”
Industry Sectors
Our
portfolio
is
invested
across
27
industry
categories.
Excluding
our
CLO
investments,
which
do
not
have
industry
concentrations,
no
individual
industry
comprises
more
than
8.2%
of
the
portfolio
on
either
a
cost
or
fair
value
basis.
4
Ongoing Relationships with Portfolio Companies
Monitoring
Prospect
Capital
Management
monitors
our
portfolio
companies
on
an
ongoing
basis.
Prospect
Capital
Management
will
continue
to
monitor
the
financial
trends
of
each
portfolio
company
to
determine
if
it
is
meeting
its
business
plan
and
to
assess
the
appropriate
course
of
action
for
each
company.
Prospect
Capital
Management
employs
several
methods
of
evaluating
and
monitoring
the
performance
and
value
of
our
investments,
which
may
include,
but
are
not
limited
to,
the
following:
•
•
•
•
•
Assessment
of
success
in
adhering
to
the
portfolio
company’s
business
plan
and
compliance
with
covenants;
Regular
contact
with
portfolio
company
management
and,
if
appropriate,
the
financial
or
strategic
sponsor
to
discuss
financial
position,
requirements
and
accomplishments;
Comparisons
to
other
portfolio
companies
in
the
industry,
if
any;
Attendance
at
and
participation
in
board
meetings
of
the
portfolio
company;
and
Review
of
monthly
and
quarterly
financial
statements
and
financial
projections
for
the
portfolio
company.
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
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.
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
issues
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.
5
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
analysis,
enterprise
value
(“EV”)
analysis,
net
asset
value
analysis,
liquidation
analysis,
discounted
cash
flow
analysis,
or
a
combination
of
methods,
as
appropriate.
The
yield
analysis
uses
loan
spreads
for
loans,
dividend
yields
for
certain
investments
and
other
relevant
information
implied
by
market
data
involving
identical
or
comparable
assets
or
liabilities.
Under
the
EV
analysis,
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
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
analysis.
The
net
asset
value
analysis
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
analysis
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
analysis
uses
valuation
techniques
to
convert
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
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
ASC
820
Level
3
securities
and
are
valued
using
a
discounted
cash
flow
model.
The
valuations
have
been
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).
For
each
CLO
security,
the
most
appropriate
valuation
approach
has
been
chosen
from
alternative
approaches
to
ensure
the
most
accurate
valuation
for
such
security.
To
value
a
CLO,
both
the
assets
and
the
liabilities
of
the
CLO
capital
structure
are
modeled.
Our
valuation
agent
utilizes
additional
methods
to
validate
the
results
from
the
discounted
cash
flow
method,
such
as
Monte
Carlo
simulations
of
key
model
variables,
analysis
of
relevant
data
observed
in
the
CLO
market,
and
review
of
certain
benchmark
credit
indices.
We
use
a
waterfall
engine
to
store
the
collateral
data,
generate
collateral
cash
flows
from
the
assets
based
on
various
assumptions
for
the
risk
factors,
distribute
the
cash
flows
to
the
liability
structure
based
on
the
payment
priorities,
and
discount
them
back
using
appropriate
market
discount
rates.
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,
interest
rate
risk,
downgrade
risk,
and
credit
spread
risk.
For
a
discussion
of
the
risks
inherent
in
determining
the
value
of
securities
for
which
readily
available
market
values
do
not
exist,
see
“Risk
Factors
–
Risks
Relating
to
Our
Business
–
Most
of
our
portfolio
investments
are
recorded
at
fair
value
as
determined
in
good
faith
under
the
direction
of
our
Board
of
Directors
and,
as
a
result,
there
is
uncertainty
as
to
the
value
of
our
portfolio
investments.”
Managerial Assistance
As
a
BDC,
we
are
obligated
under
the
1940
Act
to
make
available
to
certain
of
our
portfolio
companies
significant
managerial
assistance.
“Making
available
significant
managerial
assistance”
refers
to
any
arrangement
whereby
we
provide
significant
guidance
and
counsel
concerning
the
management,
operations,
or
business
objectives
and
policies
of
a
portfolio
company.
We
are
also
deemed
to
be
providing
managerial
assistance
to
all
portfolio
companies
that
we
control,
either
by
ourselves
or
in
conjunction
with
others.
The
nature
and
extent
of
significant
managerial
assistance
provided
by
us
to
controlled
and
non-controlled
portfolio
companies
will
vary
according
to
the
particular
needs
of
each
portfolio
company.
Examples
of
such
activities
include
(i)
advice
on
recruiting,
hiring,
management
and
termination
of
employees,
officers
and
directors,
succession
planning
and
other
human
resource
matters;
(ii)
advice
on
capital
raising,
capital
budgeting,
and
capital
expenditures;
(iii)
advice
on
advertising,
marketing,
and
sales;
(iv)
advice
on
fulfillment,
operations,
and
execution;
(v)
advice
on
managing
relationships
with
unions
and
other
personnel
organizations,
financing
sources,
vendors,
customers,
lessors,
lessees,
lawyers,
accountants,
regulators
and
other
important
counterparties;
(vi)
evaluating
acquisition
and
divestiture
opportunities,
plant
expansions
and
closings,
and
market
expansions;
(vii)
participating
in
audit
committee,
nominating
committee,
board
and
management
meetings;
(viii)
consulting
with
and
advising
board
members
and
officers
of
portfolio
companies
(on
overall
strategy
and
other
matters);
and
(ix)
providing
other
organizational,
operational,
managerial
and
financial
guidance.
Prospect
Administration,
when
performing
a
managerial
assistance
agreement
executed
with
each
portfolio
company
to
which
we
provide
managerial
assistance,
arranges
for
the
provision
of
such
managerial
assistance
on
our
behalf.
When
doing
so,
Prospect
6
Administration
utilizes
personnel
of
our
Investment
Adviser.
We,
on
behalf
of
Prospect
Administration,
invoice
portfolio
companies
receiving
and
paying
for
managerial
assistance,
and
we
remit
to
Prospect
Administration
its
cost
of
providing
such
services,
including
the
charges
deemed
appropriate
by
our
Investment
Adviser
for
providing
such
managerial
assistance.
No
income
is
recognized
by
Prospect.
Investment Adviser
Prospect
Capital
Management
manages
our
investments
as
the
Investment
Adviser.
Prospect
Capital
Management
is
a
Delaware
limited
partnership
that
has
been
registered
as
an
investment
adviser
under
the
Investment
Advisers
Act
of
1940
(the
“Advisers
Act”)
since
March
31,
2004.
Prospect
Capital
Management
is
led
by
John
F.
Barry
III
and
M.
Grier
Eliasek,
two
senior
executives
with
significant
investment
advisory
and
business
experience.
Both
Messrs.
Barry
and
Eliasek
spend
a
significant
amount
of
their
time
in
their
roles
at
Prospect
Capital
Management
working
on
our
behalf.
The
principal
executive
offices
of
Prospect
Capital
Management
are
10
East
40th
Street,
42nd
Floor,
New
York,
NY
10016.
We
depend
on
the
due
diligence,
skill
and
network
of
business
contacts
of
the
senior
management
of
the
Investment
Adviser.
We
also
depend,
to
a
significant
extent,
on
the
Investment
Adviser’s
investment
professionals
and
the
information
and
deal
flow
generated
by
those
investment
professionals
in
the
course
of
their
investment
and
portfolio
management
activities.
The
Investment
Adviser’s
senior
management
team
evaluates,
negotiates,
structures,
closes,
monitors
and
services
our
investments.
Our
future
success
depends
to
a
significant
extent
on
the
continued
service
of
the
senior
management
team,
particularly
John
F.
Barry
III
and
M.
Grier
Eliasek.
The
departure
of
any
of
the
senior
managers
of
the
Investment
Adviser
could
have
a
materially
adverse
effect
on
our
ability
to
achieve
our
investment
objective.
In
addition,
we
can
offer
no
assurance
that
Prospect
Capital
Management
will
remain
the
Investment
Adviser
or
that
we
will
continue
to
have
access
to
its
investment
professionals
or
its
information
and
deal
flow.
Under
the
Investment
Advisory
Agreement
(as
defined
below),
we
pay
Prospect
Capital
Management
investment
advisory
fees,
which
consist
of
an
annual
base
management
fee
based
on
our
gross
assets
as
well
as
a
two-part
incentive
fee
based
on
our
performance.
Mr.
Barry
currently
controls
Prospect
Capital
Management.
Investment Advisory Agreement
Terms
We
have
entered
into
an
investment
advisory
and
management
agreement
with
the
Investment
Adviser,
Prospect
Capital
Management
L.P.,
(the
“Investment
Advisory
Agreement”)
under
which
the
Investment
Adviser,
subject
to
the
overall
supervision
of
our
Board
of
Directors,
manages
the
day-to-day
operations
of,
and
provides
investment
advisory
services
to,
us.
Under
the
terms
of
the
Investment
Advisory
Agreement,
the
Investment
Adviser:
(i)
determines
the
composition
of
our
portfolio,
the
nature
and
timing
of
the
changes
to
our
portfolio
and
the
manner
of
implementing
such
changes,
(ii)
identifies,
evaluates
and
negotiates
the
structure
of
the
investments
we
make
(including
performing
due
diligence
on
our
prospective
portfolio
companies);
and
(iii)
closes
and
monitors
investments
we
make.
The
Investment
Adviser’s
services
under
the
Investment
Advisory
Agreement
are
not
exclusive,
and
it
is
free
to
furnish
similar
services
to
other
entities
so
long
as
its
services
to
us
are
not
impaired.
For
providing
these
services
the
Investment
Adviser
receives
a
fee
from
us,
consisting
of
two
components:
a
base
management
fee
and
an
incentive
fee.
The
base
management
fee
is
calculated
at
an
annual
rate
of
2.00%
on
our
total
assets.
For
services
currently
rendered
under
the
Investment
Advisory
Agreement,
the
base
management
fee
is
payable
quarterly
in
arrears.
The
base
management
fee
is
calculated
based
on
the
average
value
of
our
gross
assets
at
the
end
of
the
two
most
recently
completed
calendar
quarters
and
appropriately
adjusted
for
any
share
issuances
or
repurchases
during
the
current
calendar
quarter.
The
incentive
fee
has
two
parts.
The
first
part,
the
income
incentive
fee,
is
calculated
and
payable
quarterly
in
arrears
based
on
our
pre-incentive
fee
net
investment
income
for
the
immediately
preceding
calendar
quarter.
For
this
purpose,
pre-incentive
fee
net
investment
income
means
interest
income,
dividend
income
and
any
other
income
(including
any
other
fees
(other
than
fees
for
providing
managerial
assistance),
such
as
commitment,
origination,
structuring,
diligence
and
consulting
fees
and
other
fees
that
we
receive
from
portfolio
companies)
accrued
during
the
calendar
quarter,
minus
our
operating
expenses
for
the
quarter
(including
the
base
management
fee,
expenses
payable
under
the
Administration
Agreement
described
below,
and
any
interest
expense
and
dividends
paid
on
any
issued
and
outstanding
preferred
stock,
but
excluding
the
incentive
fee).
Pre-incentive
fee
net
investment
income
includes,
in
the
case
of
investments
with
a
deferred
interest
feature
(such
as
original
issue
discount,
debt
instruments
with
payment-in-kind
interest
and
zero
coupon
securities),
accrued
income
that
we
have
not
yet
received
in
cash.
Pre-incentive
fee
net
investment
income
does
not
include
any
realized
capital
gains,
realized
capital
losses
or
unrealized
capital
appreciation
or
depreciation.
Pre-incentive
fee
net
investment
income,
expressed
as
a
rate
of
return
on
the
value
of
our
net
assets
at
the
end
of
the
immediately
preceding
calendar
quarter,
is
compared
to
a
“hurdle
rate”
of
1.75%
per
quarter
(7.00%
annualized).
7
The
net
investment
income
used
to
calculate
this
part
of
the
incentive
fee
is
also
included
in
the
amount
of
the
gross
assets
used
to
calculate
the
2.00%
base
management
fee.
We
pay
the
Investment
Adviser
an
income
incentive
fee
with
respect
to
our
pre-incentive
fee
net
investment
income
in
each
calendar
quarter
as
follows:
•
•
•
No
incentive
fee
in
any
calendar
quarter
in
which
our
pre-incentive
fee
net
investment
income
does
not
exceed
the
hurdle
rate;
100.00%
of
our
pre-incentive
fee
net
investment
income
with
respect
to
that
portion
of
such
pre-incentive
fee
net
investment
income,
if
any,
that
exceeds
the
hurdle
rate
but
is
less
than
125.00%
of
the
quarterly
hurdle
rate
in
any
calendar
quarter
(8.75%
annualized
assuming
a
7.00%
annualized
hurdle
rate);
and
20.00%
of
the
amount
of
our
pre-incentive
fee
net
investment
income,
if
any,
that
exceeds
125.00%
of
the
quarterly
hurdle
rate
in
any
calendar
quarter
(8.75%
annualized
assuming
a
7.00%
annualized
hurdle
rate).
These
calculations
are
appropriately
prorated
for
any
period
of
less
than
three
months
and
adjusted
for
any
share
issuances
or
repurchases
during
the
current
quarter.
The
second
part
of
the
incentive
fee,
the
capital
gains
incentive
fee,
is
determined
and
payable
in
arrears
as
of
the
end
of
each
calendar
year
(or
upon
termination
of
the
Investment
Advisory
Agreement,
as
of
the
termination
date),
and
equals
20.00%
of
our
realized
capital
gains
for
the
calendar
year,
if
any,
computed
net
of
all
realized
capital
losses
and
unrealized
capital
depreciation
at
the
end
of
such
year.
In
determining
the
capital
gains
incentive
fee
payable
to
the
Investment
Adviser,
we
calculate
the
aggregate
realized
capital
gains,
aggregate
realized
capital
losses
and
aggregate
unrealized
capital
depreciation,
as
applicable,
with
respect
to
each
investment
that
has
been
in
our
portfolio.
For
the
purpose
of
this
calculation,
an
“investment”
is
defined
as
the
total
of
all
rights
and
claims
which
may
be
asserted
against
a
portfolio
company
arising
from
our
participation
in
the
debt,
equity,
and
other
financial
instruments
issued
by
that
company.
Aggregate
realized
capital
gains,
if
any,
equal
the
sum
of
the
differences
between
the
aggregate
net
sales
price
of
each
investment
and
the
aggregate
cost
basis
of
such
investment
when
sold
or
otherwise
disposed.
Aggregate
realized
capital
losses
equal
the
sum
of
the
amounts
by
which
the
aggregate
net
sales
price
of
each
investment
is
less
than
the
aggregate
cost
basis
of
such
investment
when
sold
or
otherwise
disposed.
Aggregate
unrealized
capital
depreciation
equals
the
sum
of
the
differences,
if
negative,
between
the
aggregate
valuation
of
each
investment
and
the
aggregate
cost
basis
of
such
investment
as
of
the
applicable
calendar
year-end.
At
the
end
of
the
applicable
calendar
year,
the
amount
of
capital
gains
that
serves
as
the
basis
for
our
calculation
of
the
capital
gains
incentive
fee
involves
netting
aggregate
realized
capital
gains
against
aggregate
realized
capital
losses
on
a
since-inception
basis
and
then
reducing
this
amount
by
the
aggregate
unrealized
capital
depreciation.
If
this
number
is
positive,
then
the
capital
gains
incentive
fee
payable
is
equal
to
20.00%
of
such
amount,
less
the
aggregate
amount
of
any
capital
gains
incentive
fees
paid
since
inception.
Examples of Quarterly Incentive Fee Calculation
Example
1:
Income
Incentive
Fee*
*The
hypothetical
amount
of
pre-incentive
fee
net
investment
income
shown
is
based
on
a
percentage
of
total
net
assets.
Alternative
1
Assumptions
•
•
•
•
•
Investment
income
(including
interest,
dividends,
fees,
etc.)
=
1.25%
Hurdle
rate(1)
=
1.75%
Base
management
fee(2)
=
0.50%
Other
expenses
(legal,
accounting,
custodian,
transfer
agent,
etc.)(3)
=
0.20%
Pre-incentive
fee
net
investment
income
(investment
income
–
(base
management
fee
+
other
expenses))
=
0.55%
Pre-incentive
net
investment
income
does
not
exceed
hurdle
rate,
therefore
there
is
no
income
incentive
fee.
8
Alternative
2
Assumptions
•
•
•
•
•
Investment
income
(including
interest,
dividends,
fees,
etc.)
=
2.70%
Hurdle
rate(1)
=
1.75%
Base
management
fee(2)
=
0.50%
Other
expenses
(legal,
accounting,
custodian,
transfer
agent,
etc.)(3)
=
0.20%
Pre-incentive
fee
net
investment
income
(investment
income
–
(base
management
fee
+
other
expenses))
=
2.00%
Pre-incentive
net
investment
income
exceeds
hurdle
rate,
therefore
there
is
an
income
incentive
fee
payable
by
us
to
the
Investment
Adviser.
The
Income
Incentive
Fee
would
be
calculated
as
follows:
=
100%
×
“Catch
Up”
+
the
greater
of
0%
AND
(20%
×
(pre-incentive
fee
net
investment
income
–
2.1875%)
=
(100%
×
(2.00%
-
1.75%))
+
0%
=
100%
×
0.25%
+
0%
=
0.25%
Alternative
3
Assumptions
•
•
•
•
•
Investment
income
(including
interest,
dividends,
fees,
etc.)
=
3.00%
Hurdle
rate(1)
=
1.75%
Base
management
fee(2)
=
0.50%
Other
expenses
(legal,
accounting,
custodian,
transfer
agent,
etc.)(3)
=
0.20%
Pre-incentive
fee
net
investment
income
(investment
income
–
(base
management
fee
+
other
expenses))
=
2.30%
Pre-incentive
net
investment
income
exceeds
hurdle
rate,
therefore
there
is
an
income
incentive
fee
payable
by
us
to
the
Investment
Adviser.
The
Income
Incentive
Fee
would
be
calculated
as
follows:
=
100%
×
“Catch
Up”
+
the
greater
of
0%
AND
(20%
×
(pre-incentive
fee
net
investment
income
–
2.1875%)
=
(100%
×
(2.1875%
–
1.75%))
+
the
greater
of
0%
AND
(20%
×
(2.30%
–
2.1875%))
=
(100%
×
0.4375%)
+
(20%
×
0.1125%)
=
0.4375%
+
0.0225%
=
0.46%
(1) Represents
7%
annualized
hurdle
rate.
(2) Represents
2%
annualized
base
management
fee.
(3) Excludes
organizational
and
offering
expenses.
9
Example
2:
Capital
Gains
Incentive
Fee
Alternative
1
Assumptions
•
•
•
•
Year
1:
$20
million
investment
made
Year
2:
Fair
market
value
(“FMV”)
of
investment
determined
to
be
$22
million
Year
3:
FMV
of
investment
determined
to
be
$17
million
Year
4:
Investment
sold
for
$21
million
The
impact,
if
any,
on
the
capital
gains
portion
of
the
incentive
fee
would
be:
•
•
•
•
Year
1:
No
impact
Year
2:
No
impact
Year
3:
Decrease
base
amount
on
which
the
second
part
of
the
incentive
fee
is
calculated
by
$3
million
(unrealized
capital
depreciation)
Year
4:
Increase
base
amount
on
which
the
second
part
of
the
incentive
fee
is
calculated
by
$4
million
($1
million
of
realized
capital
gain
and
$3
million
reversal in
unrealized
capital
depreciation)
Alternative
2
Assumptions
•
•
•
•
•
•
Year
1:
$20
million
investment
made
Year
2:
FMV
of
investment
determined
to
be
$17
million
Year
3:
FMV
of
investment
determined
to
be
$17
million
Year
4:
FMV
of
investment
determined
to
be
$21
million
Year
5:
FMV
of
investment
determined
to
be
$18
million
Year
6:
Investment
sold
for
$15
million
The
impact,
if
any,
on
the
capital
gains
portion
of
the
incentive
fee
would
be:
•
•
•
•
•
•
Year
1:
No
impact
Year
2:
Decrease
base
amount
on
which
the
second
part
of
the
incentive
fee
is
calculated
by
$3
million
(unrealized
capital
depreciation)
Year
3:
No
impact
Year
4:
Increase
base
amount
on
which
the
second
part
of
the
incentive
fee
is
calculated
by
$3
million
(
reversal in
unrealized
capital
depreciation)
Year
5:
Decrease
base
amount
on
which
the
second
part
of
the
incentive
fee
is
calculated
by
$2
million
(unrealized
capital
depreciation)
Year
6:
Decrease
base
amount
on
which
the
second
part
of
the
incentive
fee
is
calculated
by
$3
million
($5
million
of
realized
capital
loss
offset
by
a
$2
million
reversal in
unrealized
capital
depreciation)
10
Alternative
3
Assumptions
•
•
•
Year
1:
$20
million
investment
made
in
company
A
(“Investment
A”)
and
$20
million
investment
made
in
company
B
(“Investment
B”)
Year
2:
FMV
of
Investment
A
is
determined
to
be
$21
million
and
Investment
B
is
sold
for
$18
million
Year
3:
Investment
A
is
sold
for
$23
million
The
impact,
if
any,
on
the
capital
gains
portion
of
the
incentive
fee
would
be:
•
•
•
Year
1:
No
impact
Year
2:
Decrease
base
amount
on
which
the
second
part
of
the
incentive
fee
is
calculated
by
$2
million
(realized
capital
loss
on
Investment
B)
Year
3:
Increase
base
amount
on
which
the
second
part
of
the
incentive
fee
is
calculated
by
$3
million
(realized
capital
gain
on
Investment
A)
Alternative
4
Assumptions
•
•
•
•
•
Year
1:
$20
million
investment
made
in
company
A
(“Investment
A”)
and
$20
million
investment
made
in
company
B
(“Investment
B”)
Year
2:
FMV
of
Investment
A
is
determined
to
be
$21
million
and
FMV
of
Investment
B
is
determined
to
be
$17
million
Year
3:
FMV
of
Investment
A
is
determined
to
be
$18
million
and
FMV
of
Investment
B
is
determined
to
be
$18
million
Year
4:
FMV
of
Investment
A
is
determined
to
be
$19
million
and
FMV
of
Investment
B
is
determined
to
be
$21
million
Year
5:
Investment
A
is
sold
for
$17
million
and
Investment
B
is
sold
for
$23
million
The
impact,
if
any,
on
the
capital
gains
portion
of
the
incentive
fee
would
be:
•
•
•
•
•
Year
1:
No
impact
Year
2:
Decrease
base
amount
on
which
the
second
part
of
the
incentive
fee
is
calculated
by
$3
million
(unrealized
capital
depreciation
on
Investment
B)
Year
3:
Decrease
base
amount
on
which
the
second
part
of
the
incentive
fee
is
calculated
by
$1
million
($2
million
in
unrealized
capital
depreciation
on
Investment
A
and
$1
million
recovery
in
unrealized
capital
depreciation
on
Investment
B)
Year
4:
Increase
base
amount
on
which
the
second
part
of
the
incentive
fee
is
calculated
by
$3
million
($1
million
recovery
in
unrealized
capital
depreciation
on
Investment
A
and
$2
million
recovery
in
unrealized
capital
depreciation
on
Investment
B)
Year
5:
Increase
base
amount
on
which
the
second
part
of
the
incentive
fee
is
calculated
by
$1
million
($3
million
realized
capital
gain
on
Investment
B
offset
by
$3
million
realized
capital
loss
on
Investment
A
plus
a
$1
million
reversal
in
unrealized
capital
depreciation
on
Investment
A
from
Year
4)
11
Duration and Termination
The
Investment
Advisory
Agreement
was
originally
approved
by
our
Board
of
Directors
on
June
23,
2004
and
was
recently
re-approved
by
the
Board
of
Directors
on
June
21,
2016
for
an
additional
one-year
term
expiring
June
22,
2017.
Unless
terminated
earlier
as
described
below,
it
will
remain
in
effect
from
year
to
year
thereafter
if
approved
annually
by
our
Board
of
Directors
or
by
the
affirmative
vote
of
the
holders
of
a
majority
of
our
outstanding
voting
securities,
including,
in
either
case,
approval
by
a
majority
of
our
directors
who
are
not
interested
persons.
The
Investment
Advisory
Agreement
will
automatically
terminate
in
the
event
of
its
assignment.
The
Investment
Advisory
Agreement
may
be
terminated
by
either
party
without
penalty
upon
not
more
than
60
days’
written
notice
to
the
other.
See
“Risk
Factors
–
Risks
Relating
to
Our
Business
–
We
are
dependent
upon
Prospect
Capital
Management’s
key
management
personnel
for
our
future
success.”
Indemnification
The
Investment
Advisory
Agreement
provides
that,
absent
willful
misfeasance,
bad
faith
or
gross
negligence
in
the
performance
of
its
duties
or
by
reason
of
the
reckless
disregard
of
its
duties
and
obligations,
Prospect
Capital
Management
and
its
officers,
managers,
agents,
employees,
controlling
persons,
members
and
any
other
person
or
entity
affiliated
with
it
are
entitled
to
indemnification
from
us
for
any
damages,
liabilities,
costs
and
expenses
(including
reasonable
attorneys’
fees
and
amounts
reasonably
paid
in
settlement)
arising
from
the
rendering
of
Prospect
Capital
Management’s
services
under
the
Investment
Advisory
Agreement
or
otherwise
as
the
Investment
Adviser.
Administration Agreement
We
have
also
entered
into
an
administration
agreement
(the
“Administration
Agreement”)
with
Prospect
Administration
under
which
Prospect
Administration,
among
other
things,
provides
(or
arranges
for
the
provision
of)
administrative
services
and
facilities
for
us.
For
providing
these
services,
we
reimburse
Prospect
Administration
for
our
allocable
portion
of
overhead
incurred
by
Prospect
Administration
in
performing
its
obligations
under
the
Administration
Agreement,
including
rent
and
our
allocable
portion
of
the
costs
of
our
Chief
Financial
Officer
and
Chief
Compliance
Officer
and
his
staff,
including
the
internal
legal
staff.
Under
this
agreement,
Prospect
Administration
furnishes
us
with
office
facilities,
equipment
and
clerical,
bookkeeping
and
record
keeping
services
at
such
facilities.
Prospect
Administration
also
performs,
or
oversees
the
performance
of,
our
required
administrative
services,
which
include,
among
other
things,
being
responsible
for
the
financial
records
that
we
are
required
to
maintain
and
preparing
reports
to
our
stockholders
and
reports
filed
with
the
SEC.
In
addition,
Prospect
Administration
assists
us
in
determining
and
publishing
our
net
asset
value,
overseeing
the
preparation
and
filing
of
our
tax
returns
and
the
printing
and
dissemination
of
reports
to
our
stockholders,
and
generally
oversees
the
payment
of
our
expenses
and
the
performance
of
administrative
and
professional
services
rendered
to
us
by
others.
Under
the
Administration
Agreement,
Prospect
Administration
also
provides
on
our
behalf
managerial
assistance
to
those
portfolio
companies
to
which
we
are
required
to
provide
such
assistance
(see
Managerial Assistance section
below).
The
Administration
Agreement
may
be
terminated
by
either
party
without
penalty
upon
60
days’
written
notice
to
the
other
party.
Prospect
Administration
is
a
wholly-owned
subsidiary
of
the
Investment
Adviser.
The
Administration
Agreement
provides
that,
absent
willful
misfeasance,
bad
faith
or
negligence
in
the
performance
of
its
duties
or
by
reason
of
the
reckless
disregard
of
its
duties
and
obligations,
Prospect
Administration
and
its
officers,
managers,
partners,
agents,
employees,
controlling
persons,
members
and
any
other
person
or
entity
affiliated
with
it
are
entitled
to
indemnification
from
us
for
any
damages,
liabilities,
costs
and
expenses
(including
reasonable
attorneys’
fees
and
amounts
reasonably
paid
in
settlement)
arising
from
the
rendering
of
Prospect
Administration’s
services
under
the
Administration
Agreement
or
otherwise
as
administrator
for
us.
Our
payments
to
Prospect
Administration
are
periodically
reviewed
by
our
Board
of
Directors.
Payment of Our Expenses
All
investment
professionals
of
the
Investment
Adviser
and
its
respective
staff,
when
and
to
the
extent
engaged
in
providing
investment
advisory
and
management
services,
and
the
compensation
and
routine
overhead
expenses
of
such
personnel
allocable
to
such
services,
will
be
provided
and
paid
for
by
the
Investment
Adviser.
We
bear
all
other
costs
and
expenses
of
our
operations
and
transactions,
including
those
relating
to:
organization
and
offering;
calculation
of
our
net
asset
value
(including
the
cost
and
expenses
of
any
independent
valuation
firm);
expenses
incurred
by
Prospect
Capital
Management
payable
to
third
parties,
including
agents,
consultants
or
other
advisers
(such
as
independent
valuation
firms,
accountants
and
legal
counsel),
in
monitoring
our
financial
and
legal
affairs
and
in
monitoring
our
investments
and
performing
due
diligence
on
our
prospective
portfolio
companies;
interest
payable
on
debt,
if
any,
and
dividends
payable
on
preferred
stock,
if
any,
incurred
to
finance
our
investments;
offerings
of
our
debt,
our
preferred
shares,
our
common
stock
and
other
securities;
investment
advisory
fees;
fees
payable
to
third
parties,
including
agents,
consultants
or
other
advisors,
relating
to,
or
associated
with,
evaluating
and
making
investments;
transfer
agent
and
custodial
fees;
registration
fees;
listing
fees;
taxes;
independent
directors’
fees
and
expenses;
costs
of
preparing
and
filing
reports
or
other
documents
with
the
SEC;
the
costs
of
any
reports,
proxy
statements
or
other
notices
to
stockholders,
including
printing
costs;
our
allocable
portion
of
the
fidelity
bond,
directors
and
officers/errors
and
omissions
liability
insurance,
and
any
12
other
insurance
premiums;
direct
costs
and
expenses
of
administration,
including
auditor
and
legal
costs;
and
all
other
expenses
incurred
by
us,
by
the
Investment
Adviser
or
by
Prospect
Administration
in
connection
with
administering
our
business,
such
as
our
allocable
portion
of
overhead
under
the
Administration
Agreement,
including
rent
and
our
allocable
portion
of
the
costs
of
our
Chief
Financial
Officer
and
Chief
Compliance
Officer
and
his
staff.
License Agreement
We
entered
into
a
license
agreement
with
Prospect
Capital
Management
pursuant
to
which
Prospect
Capital
Management
agreed
to
grant
us
a
non-exclusive,
royalty
free
license
to
use
the
name
“Prospect
Capital.”
Under
this
agreement,
we
have
a
right
to
use
the
Prospect
Capital
name,
for
so
long
as
Prospect
Capital
Management
or
one
of
its
affiliates
remains
the
Investment
Adviser.
Other
than
with
respect
to
this
limited
license,
we
have
no
legal
right
to
the
Prospect
Capital
name.
This
license
agreement
will
remain
in
effect
for
so
long
as
the
Investment
Advisory
Agreement
with
the
Investment
Adviser
is
in
effect.
Determination of Net Asset Value
The
net
asset
value
per
share
of
our
outstanding
shares
of
common
stock
will
be
determined
quarterly
by
dividing
the
value
of
total
assets
minus
liabilities
by
the
total
number
of
shares
outstanding.
In
calculating
the
value
of
our
total
assets,
we
will
value
investments
for
which
market
quotations
are
readily
available
at
such
market
quotations.
Short-term
investments
which
mature
in
60
days
or
less,
such
as
U.S.
Treasury
bills,
are
valued
at
amortized
cost,
which
approximates
market
value.
The
amortized
cost
method
involves
recording
a
security
at
its
cost
(i.e.,
principal
amount
plus
any
premium
and
less
any
discount)
on
the
date
of
purchase
and
thereafter
amortizing/accreting
that
difference
between
the
principal
amount
due
at
maturity
and
cost
assuming
a
constant
yield
to
maturity
as
determined
at
the
time
of
purchase.
Short-term
securities
which
mature
in
more
than
60
days
are
valued
at
current
market
quotations
by
an
independent
pricing
service
or
at
the
mean
between
the
bid
and
ask
prices
obtained
from
at
least
two
brokers
or
dealers
(if
available,
or
otherwise
by
a
principal
market
maker
or
a
primary
market
dealer).
Investments
in
money
market
mutual
funds
are
valued
at
their
net
asset
value
as
of
the
close
of
business
on
the
day
of
valuation.
Most
of
the
investments
in
our
portfolio
do
not
have
market
quotations
which
are
readily
available,
meaning
the
investments
do
not
have
actively
traded
markets.
Debt
and
equity
securities
for
which
market
quotations
are
not
readily
available
are
valued
with
the
assistance
of
an
independent
valuation
service
using
a
documented
valuation
policy
and
a
valuation
process
that
is
consistently
applied
under
the
direction
of
our
Board
of
Directors.
For
a
discussion
of
the
risks
inherent
in
determining
the
value
of
securities
for
which
readily
available
market
values
do
not
exist,
see
“Risk
Factors
–
Risks
Relating
to
Our
Business
–
Most
of
our
portfolio
investments
are
recorded
at
fair
value
as
determined
in
good
faith
under
the
direction
of
our
Board
of
Directors
and,
as
a
result,
there
is
uncertainty
as
to
the
value
of
our
portfolio
investments.”
The
factors
that
may
be
taken
into
account
in
valuing
such
investments
include,
as
relevant,
the
portfolio
company’s
ability
to
make
payments,
its
estimated
earnings
and
projected
discounted
cash
flows,
the
nature
and
realizable
value
of
any
collateral,
the
financial
environment
in
which
the
portfolio
company
operates,
comparisons
to
securities
of
similar
publicly
traded
companies,
changes
in
interest
rates
for
similar
debt
instruments
and
other
relevant
factors.
Due
to
the
inherent
uncertainty
of
determining
the
fair
value
of
investments
that
do
not
have
readily
available
market
quotations,
the
fair
value
of
these
investments
may
differ
significantly
from
the
values
that
would
have
been
used
had
such
market
quotations
existed
for
such
investments,
and
any
such
differences
could
be
material.
As
part
of
the
fair
valuation
process,
the
independent
valuation
firms
engaged
by
the
Board
of
Directors
perform
a
review
of
each
debt
and
equity
investment
requiring
fair
valuation
and
provide
a
range
of
values
for
each
investment,
which,
along
with
management’s
valuation
recommendations,
is
reviewed
by
our
Audit
Committee.
Management
and
the
independent
valuation
firms
may
adjust
their
preliminary
evaluations
to
reflect
comments
provided
by
our
Audit
Committee.
The
Audit
Committee
reviews
the
final
valuation
reports
and
management’s
valuation
recommendations
and
makes
a
recommendation
to
the
Board
of
Directors
based
on
its
analysis
of
the
methodologies
employed
and
the
various
weights
that
should
be
accorded
to
each
portion
of
the
valuation
as
well
as
factors
that
the
independent
valuation
firms
and
management
may
not
have
included
in
their
evaluation
processes.
The
Board
of
Directors
then
evaluates
the
Audit
Committee
recommendations
and
undertakes
a
similar
analysis
to
determine
the
fair
value
of
each
investment
in
the
portfolio
in
good
faith.
Determination
of
fair
values
involves
subjective
judgments
and
estimates
not
susceptible
to
substantiation
by
auditing
procedures.
Accordingly,
under
current
accounting
standards,
the
notes
to
our
financial
statements
will
refer
to
the
uncertainty
with
respect
to
the
possible
effect
of
such
valuations,
and
any
change
in
such
valuations,
on
our
financial
statements.
13
Dividend Reinvestment Plan
We
have
adopted
a
dividend
reinvestment
and
direct
stock
purchase
plan
that
provides
for
reinvestment
of
our
dividends
or
distributions
on
behalf
of
our
stockholders,
unless
a
stockholder
elects
to
receive
cash
as
provided
below,
and
the
ability
to
purchase
additional
shares
by
making
optional
cash
investments.
As
a
result,
when
our
Board
of
Directors
authorizes,
and
we
declare,
a
cash
dividend
or
distribution,
then
our
stockholders
who
have
not
“opted
out”
of
our
dividend
reinvestment
and
direct
stock
purchase
plan
will
have
their
cash
dividends
or
distributions
automatically
reinvested
in
additional
shares
of
our
common
stock,
rather
than
receiving
the
cash
dividends
or
distributions.
If
you
are
not
a
current
stockholder
and
want
to
enroll
or
have
“opted
out”
and
wish
to
rejoin,
you
may
purchase
shares
directly
through
the
plan
or
opt
in
by
enrolling
online
or
submitting
to
the
plan
administrator
a
completed
enrollment
form
and,
if
you
are
not
a
current
stockholder,
making
an
initial
investment
of
at
least
$250.
No
action
is
required
on
the
part
of
a
registered
stockholder
to
have
their
cash
dividend
or
distribution
reinvested
in
shares
of
our
common
stock.
A
registered
stockholder
may
elect
to
receive
an
entire
dividend
or
distribution
in
cash
by
notifying
the
plan
administrator
and
our
transfer
agent
and
registrar,
in
writing
so
that
such
notice
is
received
by
the
plan
administrator
no
later
than
the
record
date
for
dividends
to
stockholders.
The
plan
administrator
will
set
up
a
dividend
reinvestment
account
for
shares
acquired
pursuant
to
the
plan
for
each
stockholder
who
has
not
so
elected
to
receive
dividends
and
distributions
in
cash
or
who
has
enrolled
in
the
plan
as
described
herein
(each,
a
“Participant”).
The
plan
administrator
will
hold
each
Participant’s
shares,
together
with
the
shares
of
other
Participants,
in
non-certificated
form
in
the
plan
administrator’s
name
or
that
of
its
nominee.
Upon
request
by
a
Participant
to
terminate
their
participation
in
the
plan,
received
in
writing,
via
the
internet
or
the
plan
administrator’s
toll
free
number
no
later
than
3
business
days
prior
to
a
dividend
or
distribution
payment
date,
such
dividend
or
distribution
will
be
paid
out
in
cash
and
not
be
reinvested.
If
such
request
is
received
fewer
than
3
business
days
prior
to
a
dividend
or
distribution
payment
date,
such
dividend
or
distribution
will
be
reinvested
but
all
subsequent
dividends
and
distributions
will
be
paid
to
the
stockholder
in
cash
on
all
balances.
Upon
such
termination
of
the
Participant’s
participation
in
the
plan,
all
whole
shares
owned
by
the
Participant
will
be
issued
to
the
Participant
in
certificated
form
and
a
check
will
be
issued
to
the
Participant
for
the
proceeds
of
fractional
shares
less
a
transaction
fee
of
$15.
Those
stockholders
whose
shares
are
held
by
a
broker
or
other
financial
intermediary
may
receive
dividends
or
distributions
in
cash
by
notifying
their
broker
or
other
financial
intermediary
of
their
election.
We
primarily
use
newly-issued
shares
to
implement
reinvestment
of
dividends
and
distributions
under
the
plan,
whether
our
shares
are
trading
at
a
premium
or
at
a
discount
to
net
asset
value.
However,
we
reserve
the
right
to
purchase
shares
in
the
open
market
in
connection
with
the
implementation
of
reinvestment
of
dividends
or
distributions
under
the
plan.
The
number
of
shares
to
be
issued
to
a
stockholder
is
determined
by
dividing
the
total
dollar
amount
of
the
dividend
or
distribution
payable
to
such
stockholder
by
the
market
price
per
share
of
our
common
stock
at
the
close
of
regular
trading
on
the
NASDAQ
Global
Select
Market
on
the
last
business
day
before
the
payment
date
for
such
dividend
or
distribution.
Market
price
per
share
on
that
date
will
be
the
closing
price
for
such
shares
on
the
NASDAQ
Global
Select
Market
or,
if
no
sale
is
reported
for
such
day,
at
the
average
of
their
reported
bid
and
asked
prices.
The
number
of
shares
of
our
common
stock
to
be
outstanding
after
giving
effect
to
payment
of
the
dividend
or
distribution
cannot
be
established
until
the
value
per
share
at
which
additional
shares
will
be
issued
has
been
determined
and
elections
of
our
stockholders
have
been
tabulated.
Stockholders
who
do
not
elect
to
receive
dividends
and
distributions
in
shares
of
common
stock
may
experience
accretion
to
the
net
asset
value
of
their
shares
if
our
shares
are
trading
at
a
premium
at
the
time
we
issue
new
shares
under
the
plan
and
dilution
if
our
shares
are
trading
at
a
discount.
The
level
of
accretion
or
discount
would
depend
on
various
factors,
including
the
proportion
of
our
stockholders
who
participate
in
the
plan,
the
level
of
premium
or
discount
at
which
our
shares
are
trading
and
the
amount
of
the
dividend
or
distribution
payable
to
a
stockholder.
There
are
no
brokerage
charges
or
other
charges
to
stockholders
who
participate
in
reinvestment
of
dividends
or
distributions
under
the
plan.
The
plan
administrator’s
fees
under
the
plan
are
paid
by
us.
If
a
participant
elects
by
written
notice
to
the
plan
administrator
to
have
the
plan
administrator
sell
part
or
all
of
the
shares
held
by
the
plan
administrator
in
the
participant’s
account
and
remit
the
proceeds
to
the
participant,
the
plan
administrator
is
authorized
to
deduct
a
$15
transaction
fee
plus
a
$0.10
per
share
brokerage
commissions
from
the
proceeds.
Stockholders
who
receive
dividends
or
distributions
in
the
form
of
stock
are
subject
to
the
same
U.S.
federal,
state
and
local
tax
consequences
as
are
stockholders
who
elect
to
receive
their
dividends
or
distributions
in
cash.
A
stockholder’s
basis
for
determining
gain
or
loss
upon
the
sale
of
stock
received
in
a
dividend
or
distribution
from
us
will
be
equal
to
the
total
dollar
amount
of
the
dividend
or
distribution
payable
to
the
stockholder.
Any
stock
received
in
a
dividend
or
distribution
will
have
a
new
holding
period
for
tax
purposes
commencing
on
the
day
following
the
day
on
which
the
shares
are
credited
to
the
U.S.
Stockholder’s
account
(as
defined
below).
Participants
in
the
plan
have
the
option
of
making
additional
cash
payments
to
the
plan
administrator
for
investment
in
the
shares
at
the
then
current
market
price.
Such
payments
may
be
made
in
any
amount
from
$25
to
$10,000
per
transaction.
Participants
in
the
plan
may
also
elect
to
have
funds
electronically
withdrawn
from
their
checking
or
savings
account
each
month.
Direct
debit
of
cash
will
be
performed
on
the
10th
of
each
month.
Participants
may
elect
this
option
by
submitting
a
written
authorization
form
or
by
enrolling
online
at
the
plan
administrator’s
website.
The
plan
administrator
will
use
all
funds
received
from
participants
14
since
the
prior
investment
of
funds
to
purchase
shares
of
our
common
stock
in
the
open
market.
We
will
not
use
newly-issued
shares
of
our
common
stock
to
implement
such
purchases.
Purchase
orders
will
be
submitted
daily.
The
Plan
Administrator
may,
at
its
discretion,
submit
purchase
orders
less
frequently
but
no
later
than
30
days
after
receipt.
The
plan
administrator
will
charge
each
stockholder
who
makes
such
additional
cash
payments
$2.50,
plus
a
$0.10
per
share
brokerage
commission.
Cash
dividends
and
distributions
payable
on
all
shares
credited
to
your
plan
account
will
be
automatically
reinvested
in
additional
shares
pursuant
to
the
terms
of
the
plan.
Brokerage
charges
for
some
purchases
are
expected
to
be
less
than
the
usual
brokerage
charge
for
such
transactions.
Instructions
sent
by
a
participant
to
the
plan
administrator
in
connection
with
such
participant’s
cash
payment
may
not
be
rescinded.
Participants
may
terminate
their
accounts
under
the
plan
by
notifying
the
plan
administrator
via
its
website
at
www.amstock.com
or
by
filling
out
the
transaction
request
form
located
at
the
bottom
of
their
statement
and
sending
it
to
the
plan
administrator
at
American
Stock
Transfer
&
Trust
Company,
P.O.
Box
922,
Wall
Street
Station,
New
York,
NY
10269-0560
or
by
calling
the
plan
administrator’s
Interactive
Voice
Response
System
at
(888)
888-0313.
Upon
termination,
the
stockholder
will
receive
certificates
for
the
full
shares
credited
to
your
plan
account.
If
you
elect
to
receive
cash,
the
plan
administrator
sells
such
shares
and
delivers
a
check
for
the
proceeds,
less
the
$0.10
per
share
commission
and
the
plan
administrator’s
transaction
fee
of
$15.
In
every
case
of
termination,
fractional
shares
credited
to
a
terminating
plan
account
are
paid
in
cash
at
the
then-current
market
price,
less
any
commission
and
transaction
fee.
The
plan
may
be
terminated
by
us
upon
notice
in
writing
mailed
to
each
participant
at
least
30
days
prior
to
any
payable
date
for
the
payment
of
any
dividend
by
us
or
distribution
pursuant
to
any
additional
cash
payment
made.
All
correspondence
concerning
the
plan
should
be
directed
to
the
plan
administrator
by
mail
at
American
Stock
Transfer
and
Trust
Company
LLC,
6201
15th
Avenue,
Brooklyn,
New
York
11219,
or
by
telephone
at
888-888-0313.
Stockholders
who
purchased
their
shares
through
or
hold
their
shares
in
the
name
of
a
broker
or
financial
institution
should
consult
with
a
representative
of
their
broker
or
financial
institution
with
respect
to
their
participation
in
our
dividend
reinvestment
plan
and
direct
stock
purchase
plan.
Such
holders
of
our
stock
may
not
be
identified
as
our
registered
stockholders
with
the
plan
administrator
and
may
not
automatically
have
their
cash
dividend
or
distribution
reinvested
in
shares
of
our
common
stock
by
the
plan
administrator.
Material U.S. Federal Income Tax Considerations
The
following
discussion
is
a
general
summary
of
the
material
U.S.
federal
income
tax
considerations
applicable
to
us
and
to
an
investment
in
our
shares.
This
summary
does
not
purport
to
be
a
complete
description
of
the
income
tax
considerations
applicable
to
us
or
our
investors
on
such
an
investment.
For
example,
we
have
not
described
tax
consequences
that
we
assume
to
be
generally
known
by
investors
or
certain
considerations
that
may
be
relevant
to
certain
types
of
holders
subject
to
special
treatment
under
U.S.
federal
income
tax
laws,
including
stockholders
subject
to
the
alternative
minimum
tax,
tax-exempt
organizations,
insurance
companies,
dealers
in
securities,
pension
plans
and
trusts,
financial
institutions,
U.S.
Stockholders
(as
defined
below)
whose
functional
currency
is
not
the
U.S.
dollar,
persons
who
mark-to-market
our
shares
and
persons
who
hold
our
shares
as
part
of
a
“straddle,”
“hedge”
or
“conversion”
transaction.
This
summary
assumes
that
investors
hold
our
common
stock
as
capital
assets
(within
the
meaning
of
the
Code).
The
discussion
is
based
upon
the
Code,
Treasury
regulations,
and
administrative
and
judicial
interpretations,
each
as
of
the
date
of
this
report
and
all
of
which
are
subject
to
change,
possibly
retroactively,
which
could
affect
the
continuing
validity
of
this
discussion.
This
summary
does
not
discuss
any
aspects
of
U.S.
estate
or
gift
tax
or
foreign,
state
or
local
tax.
It
does
not
discuss
the
special
treatment
under
U.S.
federal
income
tax
laws
that
could
result
if
we
invested
in
tax-exempt
securities
or
certain
other
investment
assets.
A
“U.S.
Stockholder”
is
a
beneficial
owner
of
shares
of
our
common
stock
that
is
for
U.S.
federal
income
tax
purposes:
•
•
•
•
A
citizen
or
individual
resident
of
the
United
States;
A
corporation,
or
other
entity
treated
as
a
corporation
for
U.S.
federal
income
tax
purposes,
created
or
organized
in
or
under
the
laws
of
the
United
States
or
any
state
thereof
or
the
District
of
Columbia;
An
estate,
the
income
of
which
is
subject
to
U.S.
federal
income
taxation
regardless
of
its
source;
or
A
trust
if
(1)
a
U.S.
court
is
able
to
exercise
primary
supervision
over
the
administration
of
such
trust
and
one
or
more
U.S.
persons
have
the
authority
to
control
all
substantial
decisions
of
the
trust
or
(2)
it
has
a
valid
election
in
place
to
be
treated
as
a
U.S.
person.
A
“Non-U.S.
Stockholder”
is
a
beneficial
owner
of
shares
of
our
common
stock
that
is
not
a
partnership
and
is
not
a
U.S.
Stockholder.
15
If
a
partnership
(including
an
entity
treated
as
a
partnership
for
U.S.
federal
income
tax
purposes)
holds
shares
of
our
common
stock,
the
tax
treatment
of
a
partner
in
the
partnership
will
generally
depend
upon
the
status
of
the
partner
and
the
activities
of
the
partnership.
A
prospective
stockholder
that
is
a
partner
of
a
partnership
holding
shares
of
our
common
stock
should
consult
its
tax
advisor
with
respect
to
the
purchase,
ownership
and
disposition
of
shares
of
our
common
stock.
Tax
matters
are
very
complicated
and
the
tax
consequences
to
an
investor
of
an
investment
in
our
shares
will
depend
on
the
facts
of
his,
her
or
its
particular
situation.
We
encourage
investors
to
consult
their
own
tax
advisors
regarding
the
specific
consequences
of
such
an
investment,
including
tax
reporting
requirements,
the
applicability
of
U.S.
federal,
state,
local
and
foreign
tax
laws,
eligibility
for
the
benefits
of
any
applicable
tax
treaty
and
the
effect
of
any
possible
changes
in
the
tax
laws.
Election to be Taxed as a RIC
As
a
business
development
company,
we
have
elected
and
intend
to
continue
to
qualify
to
be
treated
as
a
RIC
under
Subchapter
M
of
the
Code.
As
a
RIC,
we
generally
are
not
subject
to
corporate-level
U.S.
federal
income
taxes
on
any
ordinary
income
or
capital
gains
that
we
distribute
to
our
stockholders
as
dividends.
To
qualify
as
a
RIC,
we
must,
among
other
things,
meet
certain
source-of-income
and
asset
diversification
requirements
(as
described
below).
In
addition,
to
obtain
RIC
tax
treatment,
we
must
distribute
to
our
stockholders,
for
each
taxable
year,
at
least
90%
of
our
“investment
company
taxable
income,”
which
is
generally
our
ordinary
income
plus
the
excess
of
realized
net
short-term
capital
gains
over
realized
net
long-term
capital
losses
(the
“Annual
Distribution
Requirement”).
Taxation as a RIC
In
order
to
qualify
as
a
RIC
for
U.S.
federal
income
tax
purposes,
we
must,
among
other
things:
•
•
•
Qualify
to
be
treated
as
a
business
development
company
or
be
registered
as
a
management
investment
company
under
the
1940
Act
at
all
times
during
each
taxable
year;
Derive
in
each
taxable
year
at
least
90%
of
our
gross
income
from
dividends,
interest,
payments
with
respect
to
certain
securities
loans,
gains
from
the
sale
or
other
disposition
of
stock
or
other
securities
or
currencies
or
other
income
derived
with
respect
to
our
business
of
investing
in
such
stock,
securities
or
currencies
and
net
income
derived
from
an
interest
in
a
“qualified
publicly
traded
partnership”
(as
defined
in
the
Code)
(the
“90%
Income
Test”);
and
Diversify
our
holdings
so
that
at
the
end
of
each
quarter
of
the
taxable
year:
◦
◦
At
least
50%
of
the
value
of
our
assets
consists
of
cash,
cash
equivalents,
U.S.
government
securities,
securities
of
other
RICs,
and
other
securities
if
such
other
securities
of
any
one
issuer
do
not
represent
more
than
5%
of
the
value
of
our
assets
and
more
than
10%
of
the
outstanding
voting
securities
of
the
issuer
(which
for
these
purposes
includes
the
equity
securities
of
a
“qualified
publicly
traded
partnership”);
and
No
more
than
25%
of
the
value
of
our
assets
is
invested
in
the
securities,
other
than
U.S.
government
securities
or
securities
of
other
RICs,
(i)
of
one
issuer
(ii)
of
two
or
more
issuers
that
are
controlled,
as
determined
under
applicable
tax
rules,
by
us
and
that
are
engaged
in
the
same
or
similar
or
related
trades
or
businesses
or
(iii)
of
one
or
more
“qualified
publicly
traded
partnerships,”
(the
“Diversification
Tests”).
To
the
extent
that
we
invest
in
entities
treated
as
partnerships
for
U.S.
federal
income
tax
purposes
(other
than
a
“qualified
publicly
traded
partnership”),
we
generally
must
include
the
items
of
gross
income
derived
by
the
partnerships
for
purposes
of
the
90%
Income
Test,
and
the
income
that
is
derived
from
a
partnership
(other
than
a
“qualified
publicly
traded
partnership”)
will
be
treated
as
qualifying
income
for
purposes
of
the
90%
Income
Test
only
to
the
extent
that
such
income
is
attributable
to
items
of
income
of
the
partnership
which
would
be
qualifying
income
if
realized
by
us
directly.
In
addition,
we
generally
must
take
into
account
our
proportionate
share
of
the
assets
held
by
partnerships
(other
than
a
“qualified
publicly
traded
partnership”)
in
which
we
are
a
partner
for
purposes
of
the
Diversification
Tests.
If
the
partnership
is
a
“qualified
publicly
traded
partnership,”
the
net
income
derived
from
such
partnership
will
be
qualifying
income
for
purposes
of
the
90%
Income
Test,
and
interests
in
the
partnership
will
be
“securities”
for
purposes
of
the
Diversification
Tests.
We
monitor
our
investments
in
equity
securities
of
entities
that
are
treated
as
partnerships
for
U.S.
federal
income
tax
purposes
to
prevent
our
disqualification
as
a
RIC.
In
order
to
meet
the
90%
Income
Test,
we
may
establish
one
or
more
special
purpose
corporations
to
hold
assets
from
which
we
do
not
anticipate
earning
dividend,
interest
or
other
qualifying
income
under
the
90%
Income
Test.
Any
such
special
purpose
corporation
would
generally
be
subject
to
U.S.
federal
income
tax,
and
could
result
in
a
reduced
after-tax
yield
on
the
portion
of
our
assets
held
by
such
corporation.
16
Provided
that
we
qualify
as
a
RIC
and
satisfy
the
Annual
Distribution
Requirement,
we
will
not
be
subject
to
U.S.
federal
income
tax
on
the
portion
of
our
investment
company
taxable
income
and
net
capital
gain
(which
we
define
as
net
long-term
capital
gains
in
excess
of
net
short-term
capital
losses)
we
timely
distribute
to
stockholders.
We
will
be
subject
to
U.S.
federal
income
tax
at
the
regular
corporate
rates
on
any
income
or
capital
gain
not
distributed
(or
deemed
distributed)
to
our
stockholders.
Any
undistributed
taxable
income
is
subject
to
U.S.
federal
income
tax.
We
will
be
subject
to
a
4%
non-deductible
U.S.
federal
excise
tax
on
certain
undistributed
income
of
RICs
unless
we
distribute
in
a
timely
manner
an
amount
at
least
equal
to
the
sum
of
(i)
98%
of
our
ordinary
income
recognized
during
the
calendar
year,
(ii)
98.2%
of
our
capital
gain
net
income,
as
defined
by
the
Code,
recognized
for
the
one
year
period
ending
October
31
in
that
calendar
year
and
(iii)
any
income
recognized,
but
not
distributed,
in
preceding
years.
We
may
be
required
to
recognize
taxable
income
in
circumstances
in
which
we
do
not
receive
cash.
For
example,
if
we
hold
debt
obligations
that
are
treated
under
applicable
tax
rules
as
having
original
issue
discount,
we
must
include
in
income
each
year
a
portion
of
the
original
issue
discount
that
accrues
over
the
life
of
the
obligation,
regardless
of
whether
cash
representing
such
income
is
received
by
us
in
the
same
taxable
year.
Because
any
original
issue
discount
accrued
will
be
included
in
our
investment
company
taxable
income
for
the
year
of
accrual,
we
may
be
required
to
make
a
distribution
to
our
stockholders
in
order
to
satisfy
the
Annual
Distribution
Requirement,
even
though
we
will
not
have
received
any
corresponding
cash
amount.
Gain
or
loss
realized
by
us
from
warrants
acquired
by
us
as
well
as
any
loss
attributable
to
the
lapse
of
such
warrants
generally
will
be
treated
as
capital
gain
or
loss.
Such
gain
or
loss
generally
will
be
long-term
or
short-term,
depending
on
how
long
we
held
a
particular
warrant.
As
a
RIC,
we
are
not
allowed
to
carry
forward
or
carry
back
a
net
operating
loss
for
purposes
of
computing
our
investment
company
taxable
income
in
other
taxable
years.
Although
we
do
not
presently
expect
to
do
so,
we
are
authorized
to
borrow
funds
and
to
sell
assets
in
order
to
satisfy
distribution
requirements.
However,
under
the
1940
Act,
we
are
not
permitted
to
make
distributions
to
our
stockholders
while
our
debt
obligations
and
other
senior
securities
are
outstanding
unless
certain
“asset
coverage”
tests
are
met.
See
“Regulation
as
a
Business
Development
Company
–
Senior
Securities.”
Moreover,
our
ability
to
dispose
of
assets
to
meet
our
distribution
requirements
may
be
limited
by
(1)
the
illiquid
nature
of
our
portfolio
and/or
(2)
other
requirements
relating
to
our
status
as
a
RIC,
including
the
Diversification
Tests.
If
we
dispose
of
assets
in
order
to
meet
the
Annual
Distribution
Requirement
or
to
avoid
the
excise
tax,
we
may
make
such
dispositions
at
times
that,
from
an
investment
standpoint,
are
not
advantageous.
On
September
16,
2015,
we
received
a
private
letter
ruling
from
the
Internal
Revenue
Service
(the
“IRS”)
permitting
us
to
pay
up
to
80%
of
our
required
dividends
in
stock
for
the
tax
years
ending
August
31,
2016
and
August
31,
2017.
Any
dividends
paid
in
stock
will
be
taxable
to
the
shareholder
as
if
the
dividend
had
been
paid
in
cash
and
we
will
receive
a
dividend
paid
deduction
for
such
distribution.
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
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
distributees
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
reduced
by
an
interest
charge
on
50%
of
such
earnings
and
profits
payable
by
us
as
an
additional
tax.
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.
Certain
of
our
investment
practices
may
be
subject
to
special
and
complex
U.S.
federal
income
tax
provisions
that
may,
among
other
things,
(i)
disallow,
suspend
or
otherwise
limit
the
allowance
of
certain
losses
or
deductions,
(ii)
convert
lower
taxed
long-term
capital
gain
and
qualified
dividend
income
into
higher
taxed
short-term
capital
gain
or
ordinary
income,
(iii)
convert
an
ordinary
loss
or
a
deduction
into
a
capital
loss
(the
deductibility
of
which
is
more
limited),
(iv)
cause
us
to
recognize
income
or
gain
without
a
corresponding
receipt
of
cash,
(v)
adversely
affect
the
time
as
to
when
a
purchase
or
sale
of
stock
or
securities
is
deemed
to
occur,
(vi)
adversely
alter
the
characterization
of
certain
complex
financial
transactions,
and
(vii)
produce
income
that
will
not
be
qualifying
income
for
purposes
of
the
90%
Income
Test.
We
will
monitor
our
transactions
and
may
make
certain
tax
elections
in
order
to
mitigate
the
effect
of
these
provisions.
We
may
invest
in
preferred
securities
or
other
securities
the
U.S.
federal
income
tax
treatment
of
which
may
be
unclear
or
may
be
subject
to
recharacterization
by
the
IRS.
To
the
extent
the
tax
treatment
of
such
securities
or
the
income
from
such
securities
17
differs
from
the
expected
tax
treatment,
it
could
affect
the
timing
or
character
of
income
recognized,
requiring
us
to
purchase
or
sell
securities,
or
otherwise
change
our
portfolio,
in
order
to
comply
with
the
tax
rules
applicable
to
RICs
under
the
Code.
Taxation of U.S. Stockholders
Distributions
by
us
generally
are
taxable
to
U.S.
Stockholders
as
ordinary
income
or
capital
gains.
Distributions
of
our
“investment
company
taxable
income”
(which
is,
generally,
our
ordinary
income
plus
realized
net
short-term
capital
gains
in
excess
of
realized
net
long-term
capital
losses)
will
be
taxable
as
ordinary
income
to
U.S.
Stockholders
to
the
extent
of
our
current
or
accumulated
earnings
and
profits,
whether
paid
in
cash
or
reinvested
in
additional
common
stock.
Provided
that
certain
holding
period
and
other
requirements
are
met,
such
distributions
(if
designated
by
us)
may
qualify
(i)
for
the
dividends
received
deduction
available
to
corporations,
but
only
to
the
extent
that
our
income
consists
of
dividend
income
from
U.S.
corporations
and
(ii)
in
the
case
of
individual
shareholders,
as
qualified
dividend
income
eligible
to
be
taxed
at
long-term
capital
gain
rates
to
the
extent
that
we
receive
qualified
dividend
income
(generally,
dividend
income
from
taxable
domestic
corporations
and
certain
qualified
foreign
corporations).
There
can
be
no
assurance
as
to
what
portion,
if
any,
of
our
distributions
will
qualify
for
favorable
treatment
as
qualified
dividend
income.
Distributions
of
our
net
capital
gain
(which
is
generally
our
realized
net
long-term
capital
gains
in
excess
of
realized
net
short-term
capital
losses)
properly
designated
by
us
as
“capital
gain
dividends”
will
be
taxable
to
a
U.S.
Stockholder
as
long-term
capital
gains,
regardless
of
the
U.S.
Stockholder’s
holding
period
for
its
common
stock
and
regardless
of
whether
paid
in
cash
or
reinvested
in
additional
common
stock.
Distributions
in
excess
of
our
current
and
accumulated
earnings
and
profits
first
will
reduce
a
U.S.
Stockholder’s
adjusted
tax
basis
in
such
stockholder’s
common
stock
and,
after
the
adjusted
basis
is
reduced
to
zero,
will
constitute
capital
gains
to
such
U.S.
Stockholder.
Although
we
currently
intend
to
distribute
any
long-term
capital
gains
at
least
annually,
we
may
in
the
future
decide
to
retain
some
or
all
of
our
long-term
capital
gains,
and
designate
the
retained
amount
as
a
“deemed
distribution.”
In
that
case,
among
other
consequences,
we
will
pay
tax
on
the
retained
amount,
each
U.S.
Stockholder
will
be
required
to
include
his,
her
or
its
proportionate
share
of
the
deemed
distribution
in
income
as
if
it
had
been
actually
distributed
to
the
U.S.
Stockholder,
and
the
U.S.
Stockholder
will
be
entitled
to
claim
a
credit
equal
to
its
allocable
share
of
the
tax
paid
thereon
by
us.
The
amount
of
the
deemed
distribution
net
of
such
tax
will
be
added
to
the
U.S.
Stockholder’s
tax
basis
for
his,
her
or
its
common
stock.
Since
we
expect
to
pay
tax
on
any
retained
capital
gains
at
our
regular
corporate
tax
rate,
and
since
that
rate
is
in
excess
of
the
maximum
rate
currently
payable
by
individuals
on
long-term
capital
gains,
the
amount
of
tax
that
individual
stockholders
will
be
treated
as
having
paid
and
for
which
they
will
receive
a
credit
will
exceed
the
tax
they
owe
on
the
retained
net
capital
gain.
Such
excess
generally
may
be
claimed
as
a
credit
against
the
U.S.
Stockholder’s
other
U.S.
federal
income
tax
obligations
or
may
be
refunded
to
the
extent
it
exceeds
a
stockholder’s
liability
for
U.S.
federal
income
tax.
A
stockholder
that
is
not
subject
to
U.S.
federal
income
tax
or
otherwise
required
to
file
a
U.S.
federal
income
tax
return
would
be
required
to
file
a
U.S.
federal
income
tax
return
on
the
appropriate
form
in
order
to
claim
a
refund
for
the
taxes
we
paid.
In
order
to
utilize
the
deemed
distribution
approach,
we
must
provide
written
notice
to
our
stockholders
prior
to
the
expiration
of
60
days
after
the
close
of
the
relevant
taxable
year.
We
cannot
treat
any
of
our
investment
company
taxable
income
as
a
“deemed
distribution.”
For
purposes
of
determining
(1)
whether
the
Annual
Distribution
Requirement
is
satisfied
for
any
year
and
(2)
the
amount
of
capital
gain
dividends
paid
for
that
year,
we
may,
under
certain
circumstances,
elect
to
treat
a
dividend
that
is
paid
during
the
following
taxable
year
as
if
it
had
been
paid
during
the
taxable
year
in
question.
If
we
make
such
an
election,
the
U.S.
Stockholder
will
still
be
treated
as
receiving
the
dividend
in
the
taxable
year
in
which
the
distribution
is
made.
However,
any
dividend
declared
by
us
in
October,
November
or
December
of
any
calendar
year,
payable
to
stockholders
of
record
on
a
specified
date
in
any
such
month
and
actually
paid
during
January
of
the
following
year,
will
be
treated
as
if
it
had
been
received
by
our
U.S.
Stockholders
on
December
31
of
the
year
in
which
the
dividend
was
declared.
If
a
U.S.
Stockholder
purchases
shares
of
our
common
stock
shortly
before
the
record
date
of
a
distribution,
the
price
of
the
shares
will
include
the
value
of
the
distribution
and
the
investor
will
be
subject
to
tax
on
the
distribution
even
though
it
represents
a
return
of
its
investment.
A
U.S.
Stockholder
generally
will
recognize
taxable
gain
or
loss
if
such
U.S.
Stockholder
sells
or
otherwise
disposes
of
its
shares
of
our
common
stock.
Any
gain
or
loss
arising
from
such
sale
or
taxable
disposition
generally
will
be
treated
as
long-term
capital
gain
or
loss
if
the
U.S.
Stockholder
has
held
his,
her
or
its
shares
for
more
than
one
year.
Otherwise,
it
would
be
classified
as
short-term
capital
gain
or
loss.
However,
any
capital
loss
arising
from
the
sale
or
taxable
disposition
of
shares
of
our
common
stock
held
for
six
months
or
less
will
be
treated
as
long-term
capital
loss
to
the
extent
of
the
amount
of
capital
gain
dividends
received,
or
undistributed
capital
gain
deemed
received,
with
respect
to
such
shares.
In
addition,
all
or
a
portion
of
any
loss
recognized
upon
a
taxable
disposition
of
shares
of
our
common
stock
may
be
disallowed
if
other
substantially
identical
shares
are
purchased
(whether
through
reinvestment
of
distributions
or
otherwise)
within
30
days
before
or
after
the
disposition.
Capital
losses
are
deductible
18
only
to
the
extent
of
capital
gains
(subject
to
an
exception
for
individuals
under
which
a
limited
amount
of
capital
losses
may
be
offset
against
ordinary
income).
In
general,
individual
U.S.
Stockholders
currently
are
subject
to
a
preferential
rate
on
their
net
capital
gain,
or
the
excess
of
realized
net
long-term
capital
gain
over
realized
net
short-term
capital
loss
for
a
taxable
year,
including
long-term
capital
gain
derived
from
an
investment
in
our
shares.
Such
rate
is
lower
than
the
maximum
rate
on
ordinary
income
currently
payable
by
individuals.
Corporate
U.S.
Stockholders
currently
are
subject
to
U.S.
federal
income
tax
on
net
capital
gain
at
ordinary
income
rates.
Certain
U.S.
Stockholders
who
are
individuals,
estates
or
trusts
and
whose
income
exceeds
certain
thresholds
will
be
required
to
pay
a
3.8%
Medicare
tax
on
all
or
a
portion
of
their
“net
investment
income,”
which
includes
dividends
received
from
us
and
capital
gains
from
the
sale
or
other
disposition
of
our
stock.
We
will
make
available
to
each
of
our
U.S.
Stockholders,
as
promptly
as
possible
after
the
end
of
each
calendar
year,
a
notice
detailing,
on
a
per
share
basis,
the
amounts
includible
in
such
U.S.
Stockholder’s
taxable
income
for
such
year
as
ordinary
income
and
as
long-term
capital
gain
on
form
1099-DIV.
In
addition,
the
amount
and
the
U.S.
federal
tax
status
of
each
year’s
distributions
generally
will
be
reported
to
the
IRS.
Distributions
may
also
be
subject
to
additional
state,
local
and
foreign
taxes
depending
on
a
U.S.
Stockholder’s
particular
situation.
Payments
of
dividends,
including
deemed
payments
of
constructive
dividends,
or
the
proceeds
of
the
sale
or
other
taxable
disposition
of
our
common
stock
generally
are
subject
to
information
reporting
unless
the
U.S.
Stockholder
is
an
exempt
recipient.
Such
payments
may
also
be
subject
to
U.S.
federal
backup
withholding
at
the
applicable
rate
if
the
recipient
of
such
payment
fails
to
supply
a
taxpayer
identification
number
and
otherwise
comply
with
the
rules
for
establishing
an
exemption
from
backup
withholding.
Backup
withholding
is
not
an
additional
tax,
and
any
amounts
withheld
under
the
backup
withholding
rules
generally
will
be
allowed
as
a
refund
or
credit
against
the
holder’s
U.S.
federal
income
tax
liability,
provided
that
certain
information
is
provided
timely
to
the
IRS.
Taxation of Non-U.S. Stockholders
Whether
an
investment
in
our
common
stock
is
appropriate
for
a
Non-U.S.
Stockholder
will
depend
upon
that
person’s
particular
circumstances.
An
investment
in
our
common
stock
by
a
Non-U.S.
Stockholder
may
have
adverse
tax
consequences.
Non-U.S.
Stockholders
should
consult
their
tax
advisers
before
investing
in
our
common
stock.
Distributions
of
our
“investment
company
taxable
income”
to
Non-U.S.
Stockholders
that
are
not
“effectively
connected”
with
a
U.S.
trade
or
business
conducted
by
the
Non-U.S.
Stockholder,
will
generally
be
subject
to
withholding
of
U.S.
federal
income
tax
at
a
rate
of
30%
(or
lower
applicable
treaty
rate)
to
the
extent
of
our
current
and
accumulated
earnings
and
profits.
We
generally
are
not
required
to
withhold
federal
tax
for
distributions
to
non-U.S.
stockholders
if
(i)
the
distributions
are
properly
reported
to
our
stockholders
as
“interest-related
dividends”
or
“short-term
capital
gain
dividends,”
(ii)
the
distributions
are
derived
from
sources
specified
in
the
Code
for
such
dividends
and
(iii)
certain
other
requirements
were
satisfied.
However,
depending
on
our
circumstances,
we
may
report
all,
some
or
none
of
our
potentially
eligible
dividends
as
such
qualified
net
interest
income
or
as
qualified
short-term
capital
gains,
and/or
treat
such
dividends,
in
whole
or
in
part,
as
ineligible
for
this
exemption
from
withholding.
In
order
to
qualify
for
this
exemption
from
withholding,
a
Non-U.S.
Stockholder
needs
to
comply
with
applicable
certification
requirements
relating
to
its
non-U.S.
status
(including,
in
general,
furnishing
an
IRS
Form
W-8BEN
or
substitute
form).
In
the
case
of
shares
held
through
an
intermediary,
the
intermediary
may
withhold
even
if
we
report
the
payment
as
qualified
net
interest
income
or
qualified
short-term
capital
gain.
Non-U.S.
Stockholders
should
contact
their
intermediaries
with
respect
to
the
application
of
these
rules
to
their
accounts.
There
can
be
no
assurance
as
to
what
portion
of
our
distributions
will
qualify
for
favorable
treatment
as
qualified
net
interest
income
or
qualified
short-term
capital
gains.
Actual
or
deemed
distributions
of
our
net
capital
gain
to
a
Non-U.S.
Stockholder,
and
gains
recognized
by
a
Non-U.S.
Stockholder
upon
the
sale
of
our
common
stock,
that
are
not
effectively
connected
with
a
U.S.
trade
or
business
conducted
by
the
Non-U.S.
Stockholder,
will
generally
not
be
subject
to
U.S.
federal
withholding
tax
and
generally
will
not
be
subject
to
U.S.
federal
income
tax
unless
the
Non-U.S.
Stockholder
is
a
nonresident
alien
individual
and
is
physically
present
in
the
United
States
for
183
or
more
days
during
the
taxable
year
and
meets
certain
other
requirements.
Distributions
of
our
“investment
company
taxable
income”
and
net
capital
gain
(including
deemed
distributions)
to
Non-U.S.
Stockholders,
and
gains
realized
by
Non-U.S.
Stockholders
upon
the
sale
of
our
common
stock
that
are
effectively
connected
with
a
U.S.
trade
or
business
conducted
by
the
Non-U.S.
Stockholder,
will
be
subject
to
U.S.
federal
income
tax
at
the
graduated
rates
applicable
to
U.S.
citizens,
residents
and
domestic
corporations.
In
addition,
if
such
Non-U.S.
Stockholder
is
a
foreign
corporation,
it
may
also
be
subject
to
a
30%
(or
lower
applicable
treaty
rate)
branch
profits
tax
on
its
effectively
connected
earnings
and
profits
19
for
the
taxable
year,
subject
to
adjustments,
if
its
investment
in
our
common
stock
is
effectively
connected
with
its
conduct
of
a
U.S.
trade
or
business.
If
we
distribute
our
net
capital
gain
in
the
form
of
deemed
rather
than
actual
distributions
(which
we
may
do
in
the
future),
a
Non-U.S.
Stockholder
will
be
entitled
to
a
U.S.
federal
income
tax
credit
or
tax
refund
equal
to
the
stockholder’s
allocable
share
of
the
tax
we
pay
on
the
capital
gains
deemed
to
have
been
distributed.
In
order
to
obtain
the
refund,
the
Non-U.S.
Stockholder
must
obtain
a
U.S.
taxpayer
identification
number
and
file
a
U.S.
federal
income
tax
return
even
if
the
Non-
U.S.
Stockholder
would
not
otherwise
be
required
to
obtain
a
U.S.
taxpayer
identification
number
or
file
a
U.S.
federal
income
tax
return.
Foreign Account Tax Compliance Act
In
addition,
after
June
30,
2014,
withholding
at
a
rate
of
30%
will
be
required
on
interest
and
dividends,
and
after
December
31,
2018,
withholding
at
a
rate
of
30%
will
be
required
on
gross
proceeds
from
the
sale
of,
shares
of
our
stock
held
by
or
through
certain
foreign
financial
institutions
(including
investment
funds),
unless
such
institution
enters
into
an
agreement
with
the
Secretary
of
the
Treasury
to
report,
on
an
annual
basis,
information
with
respect
to
interests
in,
and
accounts
maintained
by,
the
institution
to
the
extent
such
interests
or
accounts
are
held
by
certain
U.S.
persons
or
by
certain
non-U.S.
entities
that
are
wholly
or
partially
owned
by
U.S.
persons
and
to
withhold
on
certain
payments.
Accordingly,
the
entity
through
which
our
shares
are
held
will
affect
the
determination
of
whether
such
withholding
is
required.
An
intergovernmental
agreement
between
the
United
States
and
an
applicable
foreign
country,
or
future
Treasury
regulations
or
other
guidance,
may
modify
these
requirements.
Similarly,
dividends
in
respect
of,
and
gross
proceeds
from
the
sale
of,
our
shares
held
by
an
investor
that
is
a
non-
financial
non-U.S.
entity
that
does
not
qualify
under
certain
exemptions
will
be
subject
to
withholding
at
a
rate
of
30%,
unless
such
entity
either
(i)
certifies
to
us
that
such
entity
does
not
have
any
“substantial
United
States
owners”
or
(ii)
provides
certain
information
regarding
the
entity’s
“substantial
United
States
owners,”
which
we
will
in
turn
provide
to
the
IRS.
We
will
not
pay
any
additional
amounts
to
stockholders
in
respect
of
any
amounts
withheld.
Non-U.S.
Stockholders
are
encouraged
to
consult
their
tax
advisors
regarding
the
possible
implications
of
the
legislation
on
their
investment
in
our
shares.
A
Non-U.S.
Stockholder
generally
will
be
required
to
comply
with
certain
certification
procedures
to
establish
that
such
holder
is
not
a
U.S.
person
in
order
to
avoid
backup
withholding
with
respect
to
payments
of
dividends,
including
deemed
payments
of
constructive
dividends,
or
the
proceeds
of
a
disposition
of
our
common
stock.
In
addition,
we
are
required
to
annually
report
to
the
IRS
and
each
Non-U.S.
Stockholder
the
amount
of
any
dividends
or
constructive
dividends
treated
as
paid
to
such
Non-U.S.
Stockholder,
regardless
of
whether
any
tax
was
actually
withheld.
Copies
of
the
information
returns
reporting
such
dividend
or
constructive
dividend
payments
and
the
amount
withheld
may
also
be
made
available
to
the
tax
authorities
in
the
country
in
which
a
Non-U.S.
Stockholder
resides
under
the
provisions
of
an
applicable
income
tax
treaty.
Backup
withholding
is
not
an
additional
tax,
and
any
amounts
withheld
under
the
backup
withholding
rules
generally
will
be
allowed
as
a
refund
or
credit
against
a
Non-U.S.
Stockholder’s
U.S.
federal
income
tax
liability,
if
any,
provided
that
certain
required
information
is
provided
timely
to
the
IRS.
Non-U.S.
persons
should
consult
their
tax
advisors
with
respect
to
the
U.S.
federal
income
tax
and
withholding
tax,
and
state,
local
and
foreign
tax
consequences
of
an
investment
in
our
common
stock.
Failure to Obtain RIC Tax Treatment
If
we
were
unable
to
obtain
tax
treatment
as
a
RIC,
we
would
be
subject
to
tax
on
all
of
our
taxable
income
at
regular
corporate
rates.
We
would
not
be
able
to
deduct
distributions
to
stockholders,
nor
would
they
be
required
to
be
made.
Distributions
would
generally
be
taxable
to
our
stockholders
as
ordinary
dividend
income
eligible
for
the
reduced
maximum
rate
applicable
for
qualified
dividend
income
to
the
extent
of
our
current
and
accumulated
earnings
and
profits.
Subject
to
certain
limitations
under
the
Code,
corporate
distributees
would
be
eligible
for
the
dividends-received
deduction.
Distributions
in
excess
of
our
current
and
accumulated
earnings
and
profits
would
be
treated
first
as
a
return
of
capital
to
the
extent
of
the
stockholder’s
tax
basis,
and
any
remaining
distributions
would
be
treated
as
a
capital
gain.
The
discussion
set
forth
herein
does
not
constitute
tax
advice,
and
potential
investors
should
consult
their
own
tax
advisors
concerning
the
tax
considerations
relevant
to
their
particular
situation.
Regulation as a Business Development Company
General
We
are
a
closed-end,
non-diversified
investment
company
that
has
filed
an
election
to
be
treated
as
a
BDC
under
the
1940
Act
and
has
elected
to
be
treated
as
a
RIC
under
Subchapter
M
of
the
Code.
The
1940
Act
contains
prohibitions
and
restrictions
relating
to
transactions
between
business
development
companies
and
their
affiliates
(including
any
investment
advisers
or
sub-advisers),
20
principal
underwriters
and
affiliates
of
those
affiliates
or
underwriters
and
requires
that
a
majority
of
the
directors
be
persons
other
than
“interested
persons,”
as
that
term
is
defined
in
the
1940
Act.
In
addition,
the
1940
Act
provides
that
we
may
not
change
the
nature
of
our
business
so
as
to
cease
to
be,
or
to
withdraw
our
election
as,
a
business
development
company
unless
approved
by
a
majority
of
our
outstanding
voting
securities.
We
may
invest
up
to
100%
of
our
assets
in
securities
acquired
directly
from
issuers
in
privately
negotiated
transactions.
With
respect
to
such
securities,
we
may,
for
the
purpose
of
public
resale,
be
deemed
an
“underwriter”
as
that
term
is
defined
in
the
Securities
Act
of
1933.
Our
intention
is
to
not
write
(sell)
or
buy
put
or
call
options
to
manage
risks
associated
with
the
publicly
traded
securities
of
our
portfolio
companies,
except
that
we
may
enter
into
hedging
transactions
to
manage
the
risks
associated
with
interest
rate,
foreign
currency
and
other
market
fluctuations.
However,
in
connection
with
an
investment
or
acquisition
financing
of
a
portfolio
company,
we
may
purchase
or
otherwise
receive
warrants
to
purchase
the
common
stock
of
the
portfolio
company.
Similarly,
in
connection
with
an
acquisition,
we
may
acquire
rights
to
require
the
issuers
of
acquired
securities
or
their
affiliates
to
repurchase
them
under
certain
circumstances.
We
also
do
not
intend
to
acquire
securities
issued
by
any
investment
company
that
exceed
the
limits
imposed
by
the
1940
Act.
Under
these
limits,
except
with
respect
to
money
market
funds,
we
generally
cannot
acquire
more
than
3%
of
the
voting
stock
of
any
regulated
investment
company,
invest
more
than
5%
of
the
value
of
our
total
assets
in
the
securities
of
one
investment
company
or
invest
more
than
10%
of
the
value
of
our
total
assets
in
the
securities
of
more
than
one
investment
company.
With
regard
to
that
portion
of
our
portfolio
invested
in
securities
issued
by
investment
companies,
it
should
be
noted
that
such
investments
subject
our
stockholders
indirectly
to
additional
expenses.
None
of
these
policies
are
fundamental
and
may
be
changed
without
stockholder
approval.
Qualifying Assets
Under
the
1940
Act,
a
business
development
company
may
not
acquire
any
asset
other
than
assets
of
the
type
listed
in
Section
55(a)
of
the
1940
Act,
which
are
referred
to
as
qualifying
assets,
unless,
at
the
time
the
acquisition
is
made,
qualifying
assets
represent
at
least
70%
of
the
company’s
total
assets.
The
principal
categories
of
qualifying
assets
relevant
to
our
business
are
the
following:
1. Securities
purchased
in
transactions
not
involving
any
public
offering
from
the
issuer
of
such
securities,
which
issuer
(subject
to
certain
limited
exceptions)
is
an
eligible
portfolio
company,
or
from
any
person
who
is,
or
has
been
during
the
preceding
13
months,
an
affiliated
person
of
an
eligible
portfolio
company,
or
from
any
other
person,
subject
to
such
rules
as
may
be
prescribed
by
the
SEC.
An
“eligible
portfolio
company”
is
defined
in
the
1940
Act
and
rules
adopted
pursuant
thereto
as
any
issuer
which:
a.
b.
is
organized
under
the
laws
of,
and
has
its
principal
place
of
business
in,
the
United
States;
is
not
an
investment
company
(other
than
a
small
business
investment
company
wholly
owned
by
the
business
development
company)
or
a
company
that
would
be
an
investment
company
but
for
certain
exclusions
under
the
1940
Act
for
certain
financial
companies
such
as
banks,
brokers,
commercial
finance
companies,
mortgage
companies
and
insurance
companies;
and
c.
satisfies
any
of
the
following:
i.
ii.
does
not
have
any
class
of
securities
with
respect
to
which
a
broker
or
dealer
may
extend
margin
credit;
is
controlled
by
a
business
development
company
or
a
group
of
companies
including
a
business
development
company
and
the
business
development
company
has
an
affiliated
person
who
is
a
director
of
the
eligible
portfolio
company;
iii.
is
a
small
and
solvent
company
having
total
assets
of
not
more
than
$4
million
and
capital
and
surplus
of
not
less
than
$2
million;
iv. does
not
have
any
class
of
securities
listed
on
a
national
securities
exchange;
or
v.
has
a
class
of
securities
listed
on
a
national
securities
exchange,
but
has
an
aggregate
market
value
of
outstanding
voting
and
non-voting
common
equity
of
less
than
$250
million.
2. Securities
in
companies
that
were
eligible
portfolio
companies
when
we
made
our
initial
investment
if
certain
other
requirements
are
satisfied.
3. Securities
of
any
eligible
portfolio
company
which
we
control.
21
4. Securities
purchased
in
a
private
transaction
from
a
U.S.
issuer
that
is
not
an
investment
company
or
from
an
affiliated
person
of
the
issuer,
or
in
transactions
incident
thereto,
if
the
issuer
is
in
bankruptcy
and
subject
to
reorganization
or
if
the
issuer,
immediately
prior
to
the
purchase
of
its
securities
was
unable
to
meet
its
obligations
as
they
came
due
without
material
assistance
other
than
conventional
lending
or
financing
agreements.
5. Securities
of
an
eligible
portfolio
company
purchased
from
any
person
in
a
private
transaction
if
there
is
no
ready
market
for
such
securities
and
we
already
own
60%
of
the
outstanding
equity
of
the
eligible
portfolio
company.
6. Securities
received
in
exchange
for
or
distributed
on
or
with
respect
to
securities
described
in
(1)
through
(4)
above,
or
pursuant
to
the
exercise
of
warrants
or
rights
relating
to
such
securities.
7. Cash,
cash
equivalents,
U.S.
government
securities
or
high-quality
debt
securities
maturing
in
one
year
or
less
from
the
time
of
investment.
In
addition,
a
business
development
company
must
have
been
organized
and
have
its
principal
place
of
business
in
the
United
States
and
must
be
operated
for
the
purpose
of
making
investments
in
the
types
of
securities
described
in
(1),
(2),
(3)
or
(4)
above.
Managerial Assistance to Portfolio Companies
In
order
to
count
portfolio
securities
as
qualifying
assets
for
the
purpose
of
the
70%
test,
a
business
development
company
must
either
control
the
issuer
of
the
securities
or
must
offer
to
make
available
to
the
issuer
of
the
securities
(other
than
small
and
solvent
companies
described
above)
significant
managerial
assistance;
except
that,
where
the
business
development
company
purchases
such
securities
in
conjunction
with
one
or
more
other
persons
acting
together,
one
of
the
other
persons
in
the
group
may
make
available
such
managerial
assistance.
“Making
available
significant
managerial
assistance”
refers
to
any
arrangement
whereby
we
provide
significant
guidance
and
counsel
concerning
the
management,
operations,
or
business
objectives
and
policies
of
a
portfolio
company.
We
are
also
deemed
to
be
providing
managerial
assistance
to
all
portfolio
companies
that
we
control,
either
by
ourselves
or
in
conjunction
with
others.
The
nature
and
extent
of
significant
managerial
assistance
provided
by
us
will
vary
according
to
the
particular
needs
of
each
portfolio
company.
Examples
of
such
activities
include
advice
on
marketing,
operations,
fulfillment
and
overall
strategy,
capital
budgeting,
managing
relationships
with
financing
sources,
recruiting
management
personnel,
evaluating
acquisition
and
divestiture
opportunities,
participating
in
board
and
management
meetings,
consulting
with
and
advising
officers
of
portfolio
companies,
and
providing
other
organizational
and
financial
guidance.
We
provide
significant
managerial
assistance
to
all
portfolio
companies
that
we
control,
either
by
ourselves
or
in
conjunction
with
others.
Prospect
Administration
provides
such
managerial
assistance
on
our
behalf
to
portfolio
companies,
including
controlled
companies,
when
we
are
required
to
provide
this
assistance,
utilizing
personnel
from
Prospect
Capital
Management.
Temporary Investments
Pending
investment
in
other
types
of
“qualifying
assets,”
as
described
above,
our
investments
may
consist
of
cash,
cash
equivalents,
including
money
market
funds,
U.S.
government
securities
or
high
quality
debt
securities
maturing
in
one
year
or
less
from
the
time
of
investment,
which
we
refer
to,
collectively,
as
temporary
investments,
so
that
70%
of
our
assets
are
qualifying
assets.
Typically,
we
will
invest
in
money
market
funds,
U.S.
Treasury
bills
or
in
repurchase
agreements
that
are
fully
collateralized
by
cash
or
securities
issued
by
the
U.S.
government
or
its
agencies.
A
repurchase
agreement
involves
the
purchase
by
an
investor,
such
as
us,
of
a
specified
security
and
the
simultaneous
agreement
by
the
seller
to
repurchase
it
at
an
agreed
upon
future
date
and
at
a
price
which
is
greater
than
the
purchase
price
by
an
amount
that
reflects
an
agreed-upon
interest
rate.
There
is
no
percentage
restriction
on
the
proportion
of
our
assets
that
may
be
invested
in
such
repurchase
agreements.
However,
if
more
than
25%
of
our
total
assets
constitute
repurchase
agreements
from
a
single
counterparty,
we
would
not
meet
the
Diversification
Tests
in
order
to
qualify
as
a
RIC
for
U.S.
federal
income
tax
purposes.
Thus,
we
do
not
intend
to
enter
into
repurchase
agreements
with
a
single
counterparty
in
excess
of
this
limit.
The
Investment
Adviser
will
monitor
the
creditworthiness
of
the
counterparties
with
which
we
enter
into
repurchase
agreement
transactions.
Senior Securities
We
are
permitted,
under
specified
conditions,
to
issue
multiple
classes
of
indebtedness
and
one
class
of
stock
senior
to
our
common
stock
if
our
asset
coverage,
as
defined
in
the
1940
Act,
is
at
least
equal
to
200%
immediately
after
each
such
issuance.
In
addition,
while
any
preferred
stock
or
public
debt
securities
remain
outstanding,
we
must
make
provisions
to
prohibit
any
distribution
to
our
stockholders
or
the
repurchase
of
such
securities
or
shares
unless
we
meet
the
applicable
asset
coverage
ratios
after
giving
effect
to
such
distribution
or
repurchase.
We
may
also
borrow
amounts
up
to
5%
of
the
value
of
our
total
assets
for
temporary
or
emergency
purposes
without
regard
to
asset
coverage.
For
a
discussion
of
the
risks
associated
with
leverage,
see
“Risk
Factors
–
Risks
Relating
to
Our
Securities.”
22
Code of Ethics
We,
Prospect
Capital
Management
and
Prospect
Administration
have
each
adopted
a
code
of
ethics
pursuant
to
Rule
17j-1
under
the
1940
Act
that
establishes
procedures
for
personal
investments
and
restricts
certain
personal
securities
transactions.
Personnel
subject
to
each
code
may
invest
in
securities
for
their
personal
investment
accounts,
including
securities
that
may
be
purchased
or
held
by
us,
so
long
as
such
investments
are
made
in
accordance
with
the
code’s
requirements.
For
information
on
how
to
obtain
a
copy
of
each
code
of
ethics,
see
“Available
Information.”
Compliance Policies and Procedures
We
and
the
Investment
Adviser
have
adopted
and
implemented
written
policies
and
procedures
reasonably
designed
to
prevent
violation
of
the
U.S.
federal
securities
laws
and
are
required
to
review
these
compliance
policies
and
procedures
annually
for
their
adequacy
and
the
effectiveness
of
their
implementation
and
to
designate
a
Chief
Compliance
Officer
to
be
responsible
for
administering
the
policies
and
procedures.
Brian
H.
Oswald
serves
as
our
Chief
Compliance
Officer.
Proxy Voting Policies and Procedures
We
have
delegated
our
proxy
voting
responsibility
to
Prospect
Capital
Management.
The
Proxy
Voting
Policies
and
Procedures
of
Prospect
Capital
Management
are
set
forth
below.
The
guidelines
are
reviewed
periodically
by
Prospect
Capital
Management
and
our
independent
directors,
and,
accordingly,
are
subject
to
change.
Introduction.
As
an
investment
adviser
registered
under
the
Advisers
Act,
Prospect
Capital
Management
has
a
fiduciary
duty
to
act
solely
in
the
best
interests
of
its
clients.
As
part
of
this
duty,
Prospect
Capital
Management
recognizes
that
it
must
vote
client
securities
in
a
timely
manner
free
of
conflicts
of
interest
and
in
the
best
interests
of
its
clients.
These
policies
and
procedures
for
voting
proxies
for
Prospect
Capital
Management’s
Investment
Advisory
clients
are
intended
to
comply
with
Section
206
of,
and
Rule
206(4)-6
under,
the
Advisers
Act.
Proxy policies.
These
policies
are
designed
to
be
responsive
to
the
wide
range
of
subjects
that
may
be
the
subject
of
a
proxy
vote.
These
policies
are
not
exhaustive
due
to
the
variety
of
proxy
voting
issues
that
Prospect
Capital
Management
may
be
required
to
consider.
In
general,
Prospect
Capital
Management
will
vote
proxies
in
accordance
with
these
guidelines
unless:
(1)
Prospect
Capital
Management
has
determined
to
consider
the
matter
on
a
case-by-case
basis
(as
is
stated
in
these
guidelines),
(2)
the
subject
matter
of
the
vote
is
not
covered
by
these
guidelines,
(3)
a
material
conflict
of
interest
is
present,
or
(4)
Prospect
Capital
Management
might
find
it
necessary
to
vote
contrary
to
its
general
guidelines
to
maximize
stockholder
value
and
vote
in
its
clients’
best
interests.
In
such
cases,
a
decision
on
how
to
vote
will
be
made
by
the
Proxy
Voting
Committee
(as
described
below).
In
reviewing
proxy
issues,
Prospect
Capital
Management
will
apply
the
following
general
policies:
Elections of directors.
In
general,
Prospect
Capital
Management
will
vote
in
favor
of
the
management-proposed
slate
of
directors.
If
there
is
a
proxy
fight
for
seats
on
the
Board
of
Directors
or
Prospect
Capital
Management
determines
that
there
are
other
compelling
reasons
for
withholding
votes
for
directors,
the
Proxy
Voting
Committee
will
determine
the
appropriate
vote
on
the
matter.
Prospect
Capital
Management
believes
that
directors
have
a
duty
to
respond
to
stockholder
actions
that
have
received
significant
stockholder
support.
Prospect
Capital
Management
may
withhold
votes
for
directors
that
fail
to
act
on
key
issues
such
as
failure
to
implement
proposals
to
declassify
boards,
failure
to
implement
a
majority
vote
requirement,
failure
to
submit
a
rights
plan
to
a
stockholder
vote
and
failure
to
act
on
tender
offers
where
a
majority
of
stockholders
have
tendered
their
shares.
Finally,
Prospect
Capital
Management
may
withhold
votes
for
directors
of
non-U.S.
issuers
where
there
is
insufficient
information
about
the
nominees
disclosed
in
the
proxy
statement.
Appointment of auditors.
Prospect
Capital
Management
believes
that
the
company
remains
in
the
best
position
to
choose
the
auditors
and
will
generally
support
management’s
recommendation.
Changes in capital structure.
Changes
in
a
company’s
charter,
articles
of
incorporation
or
by-laws
may
be
required
by
state
or
U.S.
federal
regulation.
In
general,
Prospect
Capital
Management
will
cast
its
votes
in
accordance
with
the
company’s
management
on
such
proposal.
However,
the
Proxy
Voting
Committee
will
review
and
analyze
on
a
case-by-case
basis
any
proposals
regarding
changes
in
corporate
structure
that
are
not
required
by
state
or
U.S.
federal
regulation.
Corporate restructurings, mergers and acquisitions.
Prospect
Capital
Management
believes
proxy
votes
dealing
with
corporate
reorganizations
are
an
extension
of
the
investment
decision.
Accordingly,
the
Proxy
Voting
Committee
will
analyze
such
proposals
on
a
case-by-case
basis.
23
Proposals affecting the rights of stockholders.
Prospect
Capital
Management
will
generally
vote
in
favor
of
proposals
that
give
stockholders
a
greater
voice
in
the
affairs
of
the
company
and
oppose
any
measure
that
seeks
to
limit
those
rights.
However,
when
analyzing
such
proposals,
Prospect
Capital
Management
will
weigh
the
financial
impact
of
the
proposal
against
the
impairment
of
the
rights
of
stockholders.
Corporate governance.
Prospect
Capital
Management
recognizes
the
importance
of
good
corporate
governance
in
ensuring
that
management
and
the
Board
of
Directors
fulfill
their
obligations
to
the
stockholders.
Prospect
Capital
Management
favors
proposals
promoting
transparency
and
accountability
within
a
company.
Anti-takeover measures.
The
Proxy
Voting
Committee
will
evaluate,
on
a
case-by-case
basis,
proposals
regarding
anti-takeover
measures
to
determine
the
measure’s
likely
effect
on
stockholder
value
dilution.
Stock splits.
Prospect
Capital
Management
will
generally
vote
with
the
management
of
the
company
on
stock
split
matters.
Limited liability of directors.
Prospect
Capital
Management
will
generally
vote
with
management
on
matters
that
would
affect
the
limited
liability
of
directors.
Social and corporate responsibility.
The
Proxy
Voting
Committee
may
review
and
analyze
on
a
case-by-case
basis
proposals
relating
to
social,
political
and
environmental
issues
to
determine
whether
they
will
have
a
financial
impact
on
stockholder
value.
Prospect
Capital
Management
may
abstain
from
voting
on
social
proposals
that
do
not
have
a
readily
determinable
financial
impact
on
stockholder
value.
Proxy voting procedures.
Prospect
Capital
Management
will
generally
vote
proxies
in
accordance
with
these
guidelines.
In
circumstances
in
which
(1)
Prospect
Capital
Management
has
determined
to
consider
the
matter
on
a
case-by-case
basis
(as
is
stated
in
these
guidelines),
(2)
the
subject
matter
of
the
vote
is
not
covered
by
these
guidelines,
(3)
a
material
conflict
of
interest
is
present,
or
(4)
Prospect
Capital
Management
might
find
it
necessary
to
vote
contrary
to
its
general
guidelines
to
maximize
stockholder
value
and
vote
in
its
clients’
best
interests,
the
Proxy
Voting
Committee
will
vote
the
proxy.
Proxy voting committee.
Prospect
Capital
Management
has
formed
a
proxy
voting
committee
to
establish
general
proxy
policies
and
consider
specific
proxy
voting
matters
as
necessary.
In
addition,
members
of
the
committee
may
contact
the
management
of
the
company
and
interested
stockholder
groups
as
necessary
to
discuss
proxy
issues.
Members
of
the
committee
will
include
relevant
senior
personnel.
The
committee
may
also
evaluate
proxies
where
we
face
a
potential
conflict
of
interest
(as
discussed
below).
Finally,
the
committee
monitors
adherence
to
guidelines,
and
reviews
the
policies
contained
in
this
statement
from
time
to
time.
Conflicts of interest.
Prospect
Capital
Management
recognizes
that
there
may
be
a
potential
conflict
of
interest
when
it
votes
a
proxy
solicited
by
an
issuer
that
is
its
advisory
client
or
a
client
or
customer
of
one
of
our
affiliates
or
with
whom
it
has
another
business
or
personal
relationship
that
may
affect
how
it
votes
on
the
issuer’s
proxy.
Prospect
Capital
Management
believes
that
adherence
to
these
policies
and
procedures
ensures
that
proxies
are
voted
with
only
its
clients’
best
interests
in
mind.
To
ensure
that
its
votes
are
not
the
product
of
a
conflict
of
interests,
Prospect
Capital
Management
requires
that:
(i)
anyone
involved
in
the
decision
making
process
(including
members
of
the
Proxy
Voting
Committee)
disclose
to
the
chairman
of
the
Proxy
Voting
Committee
any
potential
conflict
that
he
or
she
is
aware
of
and
any
contact
that
he
or
she
has
had
with
any
interested
party
regarding
a
proxy
vote;
and
(ii)
employees
involved
in
the
decision
making
process
or
vote
administration
are
prohibited
from
revealing
how
Prospect
Capital
Management
intends
to
vote
on
a
proposal
in
order
to
reduce
any
attempted
influence
from
interested
parties.
Proxy voting.
Each
account’s
custodian
will
forward
all
relevant
proxy
materials
to
Prospect
Capital
Management,
either
electronically
or
in
physical
form
to
the
address
of
record
that
Prospect
Capital
Management
has
provided
to
the
custodian.
Proxy recordkeeping.
Prospect
Capital
Management
must
retain
the
following
documents
pertaining
to
proxy
voting:
•
•
•
•
•
copies
of
its
proxy
voting
policies
and
procedures;
copies
of
all
proxy
statements;
records
of
all
votes
cast
by
Prospect
Capital
Management;
copies
of
all
documents
created
by
Prospect
Capital
Management
that
were
material
to
making
a
decision
how
to
vote
proxies
or
that
memorializes
the
basis
for
that
decision;
and
copies
of
all
written
client
requests
for
information
with
regard
to
how
Prospect
Capital
Management
voted
proxies
on
behalf
of
the
client
as
well
as
any
written
responses
provided.
24
All
of
the
above-referenced
records
will
be
maintained
and
preserved
for
a
period
of
not
less
than
five
years
from
the
end
of
the
fiscal
year
during
which
the
last
entry
was
made.
The
first
two
years
of
records
must
be
maintained
at
our
office.
Proxy voting records.
Clients
may
obtain
information
about
how
Prospect
Capital
Management
voted
proxies
on
their
behalf
by
making
a
written
request
for
proxy
voting
information
to:
Compliance
Officer,
Prospect
Capital
Management
LLC,
10
East
40th
Street,
42nd
Floor,
New
York,
NY
10016.
Sarbanes-Oxley Act of 2002
The
Sarbanes-Oxley
Act
of
2002
imposes
a
variety
of
regulatory
requirements
on
publicly-held
companies.
In
addition
to
our
Chief
Executive
and
Chief
Financial
Officers’
required
certifications
as
to
the
accuracy
of
our
financial
reporting,
we
are
also
required
to
disclose
the
effectiveness
of
our
disclosure
controls
and
procedures
as
well
as
report
on
our
assessment
of
our
internal
controls
over
financial
reporting,
the
latter
of
which
must
be
audited
by
our
independent
registered
public
accounting
firm.
The
Sarbanes-Oxley
Act
of
2002
also
requires
us
to
continually
review
our
policies
and
procedures
to
ensure
that
we
remain
in
compliance
with
all
rules
promulgated
thereunder.
Available Information
We
file
with
or
submit
to
the
SEC
annual,
quarterly
and
current
periodic
reports,
proxy
statements
and
other
information
meeting
the
informational
requirements
of
the
Securities
Exchange
Act
of
1934,
as
amended
(the
“Exchange
Act”).
This
information
is
available
free
of
charge
by
contacting
us
at
(212)
448-0702
or
on
our
website
at
www.prospectstreet.com .
Information
contained
on
our
website
is
not
incorporated
into
this
Annual
Report
and
you
should
not
consider
such
information
to
be
part
of
this
Annual
Report.
You
also
may
inspect
and
copy
these
reports,
proxy
statements
and
other
information,
as
well
as
the
Annual
Report
and
related
exhibits
and
schedules,
at
the
Public
Reference
Room
of
the
SEC
at
100
F
Street
NE,
Washington,
D.C.
20549.
Such
information
is
also
available
from
the
EDGAR
database
on
the
SEC’s
website
at
http://www.sec.gov .
You
also
can
obtain
copies
of
such
information,
after
paying
a
duplicating
fee,
by
sending
a
request
by
e-mail
to
publicinfo@sec.gov
or
by
writing
the
SEC’s
Public
Reference
Branch,
Office
of
Consumer
Affairs
and
Information
Services,
Securities
and
Exchange
Commission,
Washington,
D.C.
20549.
You
may
obtain
information
on
the
operation
of
the
SEC’s
Public
Reference
Room
by
calling
the
SEC
at
(202)
551-8090
or
(800)
SEC-0330.
Item 1A. Risk Factors
You
should
carefully
consider
the
risks
described
below,
together
with
all
of
the
other
information
included
in
this
Annual
Report,
before
you
decide
whether
to
make
an
investment
in
our
securities.
The
risks
set
forth
below
are
not
the
only
risks
we
face.
If
any
of
the
adverse
events
or
conditions
described
below
occurs,
our
business,
financial
condition
and
results
of
operations
could
be
materially
adversely
affected.
In
such
case,
our
NAV,
and
the
trading
price
of
our
common
stock
could
decline,
or
the
value
of
our
preferred
stock,
debt
securities,
and
warrants,
if
any
are
outstanding,
may
decline,
and
you
may
lose
all
or
part
of
your
investment.
Our
$167.5
million
of
5.50%
convertible
notes
due
2016
are
referred
to
as
the
2016
Notes.
Our
$129.5
million
of
5.375%
convertible
notes
due
2017
are
referred
to
as
the
2017
Notes.
Our
$200.0
million
of
5.75%
convertible
notes
due
2018
are
referred
to
as
the
2018
Notes.
Our
$200.0
million
of
5.875%
convertible
notes
due
2019
are
referred
to
as
the
2019
Notes.
Our
$392.0
million
of
4.75%
convertible
notes
due
2020
are
referred
to
as
the
2020
Notes,
and
collectively
with
the
2016
Notes,
the
2017
Notes,
the
2018
Notes
and
the
2019
Notes,
are
the
Convertible
Notes.
Our
$250.0
million
of
5.875%
unsecured
notes
due
2023
are
referred
to
as
the
2023
Notes.
Our
$161.4
million
of
6.25%
unsecured
notes
due
2024
are
referred
to
as
the
2024
Notes.
Our
$300.0
million
of
5.00%
unsecured
notes
due
2019
are
referred
to
as
the
5.00%
2019
Notes,
and
collectively
with
the
2023
Notes,
the
2024
Notes,
are
the
Public
Notes.
Any
corporate
notes
issued
pursuant
to
our
medium
term
notes
program
with
Incapital
LLC
are
referred
to
as
Prospect
Capital
InterNotes®.
25
Risks Relating to Our Business
Capital markets may experience periods of disruption and instability. Such market conditions may materially and adversely affect debt and equity capital
markets in the United States and abroad, which may have a negative impact on our business and operations.
From
time
to
time,
capital
markets
may
experience
periods
of
disruption
and
instability.
For
example,
between
2007
and
2009,
the
global
capital
markets
experienced
an
extended
period
of
disruption
as
evidenced
by
a
lack
of
liquidity
in
the
debt
capital
markets,
write-offs
in
the
financial
services
sector,
the
re-pricing
of
credit
risk
and
the
failure
of
certain
major
financial
institutions.
Despite
actions
of
the
United
States
federal
government
and
foreign
governments,
these
events
contributed
to
worsening
general
economic
conditions
that
materially
and
adversely
impacted
the
broader
financial
and
credit
markets
and
reduced
the
availability
of
debt
and
equity
capital
for
the
market
as
a
whole
and
financial
services
firms
in
particular.
While
the
adverse
effects
of
these
conditions
have
abated
to
a
degree,
global
financial
markets
experienced
significant
volatility
following
the
downgrade
by
Standard
&
Poor’s
on
August
5,
2011
of
the
long-term
credit
rating
of
U.S.
Treasury
debt
from
AAA
to
AA+.
These
market
conditions
have
historically
and
could
again
have
a
material
adverse
effect
on
debt
and
equity
capital
markets
in
the
United
States
and
Europe,
which
could
have
a
materially
negative
impact
on
our
business,
financial
condition
and
results
of
operations.
We
and
other
companies
in
the
financial
services
sector
may
have
to
access,
if
available,
alternative
markets
for
debt
and
equity
capital.
In
such
circumstances,
equity
capital
may
be
difficult
to
raise
because
subject
to
some
limited
exceptions,
as
a
BDC,
we
are
generally
not
able
to
issue
additional
shares
of
our
common
stock
at
a
price
less
than
net
asset
value
without
general
approval
by
our
stockholders,
which
we
currently
have,
and
approval
of
the
specific
issuance
by
our
Board
of
Directors.
In
addition,
our
ability
to
incur
indebtedness
or
issue
preferred
stock
is
limited
by
applicable
regulations
such
that
our
asset
coverage,
as
defined
in
the
1940
Act,
must
equal
at
least
200%
immediately
after
each
time
we
incur
indebtedness
or
issue
preferred
stock.
The
debt
capital
that
may
be
available,
if
at
all,
may
be
at
a
higher
cost
and
on
less
favorable
terms
and
conditions
in
the
future.
Any
inability
to
raise
capital
could
have
a
negative
effect
on
our
business,
financial
condition
and
results
of
operations.
Market
conditions
may
in
the
future
make
it
difficult
to
extend
the
maturity
of
or
refinance
our
existing
indebtedness,
including
the
final
maturity
of
our
credit
facility
in
March
2019,
and
any
failure
to
do
so
could
have
a
material
adverse
effect
on
our
business.
The
illiquidity
of
our
investments
may
make
it
difficult
for
us
to
sell
such
investments
if
required.
As
a
result,
we
may
realize
significantly
less
than
the
value
at
which
we
have
recorded
our
investments.
Given
the
extreme
volatility
and
dislocation
that
the
capital
markets
have
historically
experienced,
many
BDCs
have
faced,
and
may
in
the
future
face,
a
challenging
environment
in
which
to
raise
capital.
We
may
in
the
future
have
difficulty
accessing
debt
and
equity
capital,
and
a
severe
disruption
in
the
global
financial
markets
or
deterioration
in
credit
and
financing
conditions
could
have
a
material
adverse
effect
on
our
business,
financial
condition
and
results
of
operations.
In
addition,
significant
changes
in
the
capital
markets,
including
the
extreme
volatility
and
disruption,
have
had,
and
may
in
the
future
have,
a
negative
effect
on
the
valuations
of
our
investments
and
on
the
potential
for
liquidity
events
involving
our
investments.
An
inability
to
raise
capital,
and
any
required
sale
of
our
investments
for
liquidity
purposes,
could
have
a
material
adverse
impact
on
our
business,
financial
condition
or
results
of
operations.
The
Investment
Adviser
does
not
know
how
long
the
financial
markets
will
continue
to
be
affected
by
these
events
and
cannot
predict
the
effects
of
these
or
similar
events
in
the
future
on
the
United
States
economy
and
securities
markets
or
on
our
investments.
The
Investment
Adviser
monitors
developments
and
seeks
to
manage
our
investments
in
a
manner
consistent
with
achieving
our
investment
objective,
but
there
can
be
no
assurance
that
it
will
be
successful
in
doing
so;
and
the
Investment
Adviser
may
not
timely
anticipate
or
manage
existing,
new
or
additional
risks,
contingencies
or
developments,
including
regulatory
developments
in
the
current
or
future
market
environment.
We
are
required
to
record
certain
of
our
assets
at
fair
value,
as
determined
in
good
faith
by
our
Board
of
Directors
in
accordance
with
our
valuation
policy.
As
a
result,
volatility
in
the
capital
markets
may
have
a
material
adverse
effect
on
our
investment
valuations
and
our
net
asset
value,
even
if
we
plan
to
hold
investments
to
maturity.
26
The downgrade of the U.S. credit rating and economic crisis in Europe could negatively impact our business, financial condition and earnings.
Although
U.S.
lawmakers
passed
legislation
to
raise
the
federal
debt
ceiling
and
Standard
&
Poor’s
Ratings
Services
affirmed
its
AA+
long-term
sovereign
credit
rating
on
the
United
States
and
revised
the
outlook
on
the
long-term
rating
from
negative
to
stable
in
June
of
2013,
U.S.
debt
ceiling
and
budget
deficit
concerns
together
with
signs
of
deteriorating
sovereign
debt
conditions
in
Europe
continue
to
present
the
possibility
of
a
credit-rating
downgrade,
economic
slowdowns,
or
a
recession
for
the
United
States.
The
impact
of
any
further
downgrades
to
the
U.S.
government’s
sovereign
credit
rating
or
downgraded
sovereign
credit
ratings
of
European
countries
or
the
Russian
Federation,
or
their
perceived
creditworthiness
could
adversely
affect
the
U.S.
and
global
financial
markets
and
economic
conditions.
These
developments,
along
with
any
further
European
sovereign
debt
issues,
could
cause
interest
rates
and
borrowing
costs
to
rise,
which
may
negatively
impact
our
ability
to
access
the
debt
markets
on
favorable
terms.
Continued
adverse
economic
conditions
could
have
a
material
adverse
effect
on
our
business,
financial
condition
and
results
of
operations.
In
October
2014,
the
Federal
Reserve
announced
that
it
was
concluding
its
bond-buying
program.
It
is
unknown
what
effect,
if
any,
the
conclusion
of
this
program
will
have
on
credit
markets
and
the
value
of
our
investments.
These
and
any
future
developments
and
reactions
of
the
credit
markets
toward
these
developments
could
cause
interest
rates
and
borrowing
costs
to
rise,
which
may
negatively
impact
our
ability
to
obtain
debt
financing
on
favorable
terms.
Additionally,
in
January
2015,
the
Federal
Reserve
reaffirmed
its
view
that
the
current
target
range
for
the
federal
funds
rate
was
appropriate
based
on
current
economic
conditions.
However,
if
key
economic
indicators,
such
as
the
unemployment
rate
or
inflation,
do
not
progress
at
a
rate
consistent
with
the
Federal
Reserve’s
objectives,
the
target
range
for
the
federal
funds
rate
may
increase
and
cause
interest
rates
and
borrowing
costs
to
rise,
which
may
negatively
impact
our
ability
to
access
the
debt
markets
on
favorable
terms.
Rising interest rates may adversely affect the value of our portfolio investments which could have an adverse effect on our business, financial condition and
results of operations.
Our
debt
investments
may
be
based
on
floating
rates,
such
as
London
Interbank
Offer
Rate
(“LIBOR”),
EURIBOR,
the
Federal
Funds
Rate
or
the
Prime
Rate.
General
interest
rate
fluctuations
may
have
a
substantial
negative
impact
on
our
investments,
the
value
of
our
common
stock
and
our
rate
of
return
on
invested
capital.
A
reduction
in
the
interest
rates
on
new
investments
relative
to
interest
rates
on
current
investments
could
also
have
an
adverse
impact
on
our
net
interest
income.
An
increase
in
interest
rates
could
decrease
the
value
of
any
investments
we
hold
which
earn
fixed
interest
rates,
including
subordinated
loans,
senior
and
junior
secured
and
unsecured
debt
securities
and
loans
and
high
yield
bonds,
and
also
could
increase
our
interest
expense,
thereby
decreasing
our
net
income.
Also,
an
increase
in
interest
rates
available
to
investors
could
make
investment
in
our
common
stock
less
attractive
if
we
are
not
able
to
increase
our
dividend
rate,
which
could
reduce
the
value
of
our
common
stock.
Because
we
have
borrowed
money,
and
may
issue
preferred
stock
to
finance
investments,
our
net
investment
income
depends,
in
part,
upon
the
difference
between
the
rate
at
which
we
borrow
funds
or
pay
distributions
on
preferred
stock
and
the
rate
that
our
investments
yield.
As
a
result,
we
can
offer
no
assurance
that
a
significant
change
in
market
interest
rates
will
not
have
a
material
adverse
effect
on
our
net
investment
income.
In
periods
of
rising
interest
rates,
our
cost
of
funds
would
increase
except
to
the
extent
we
have
issued
fixed
rate
debt
or
preferred
stock,
which
could
reduce
our
net
investment
income.
You
should
also
be
aware
that
a
change
in
the
general
level
of
interest
rates
can
be
expected
to
lead
to
a
change
in
the
interest
rate
we
receive
on
many
of
our
debt
investments.
Accordingly,
a
change
in
the
interest
rate
could
make
it
easier
for
us
to
meet
or
exceed
the
performance
threshold
and
may
result
in
a
substantial
increase
in
the
amount
of
incentive
fees
payable
to
our
Investment
Adviser
with
respect
to
the
portion
of
the
Incentive
Fee
based
on
income.
Changes relating to the LIBOR calculation process may adversely affect the value of our portfolio of LIBOR-indexed, floating-rate debt securities.
In
the
recent
past,
concerns
have
been
publicized
that
some
of
the
member
banks
surveyed
by
the
British
Bankers’
Association
(“BBA”)
in
connection
with
the
calculation
of
LIBOR
across
a
range
of
maturities
and
currencies
may
have
been
under-reporting
or
otherwise
manipulating
the
inter-bank
lending
rate
applicable
to
them
in
order
to
profit
on
their
derivatives
positions
or
to
avoid
an
appearance
of
capital
insufficiency
or
adverse
reputational
or
other
consequences
that
may
have
resulted
from
reporting
inter-bank
lending
rates
higher
than
those
they
actually
submitted.
A
number
of
BBA
member
banks
entered
into
settlements
with
their
regulators
and
law
enforcement
agencies
with
respect
to
alleged
manipulation
of
LIBOR,
and
investigations
by
regulators
and
governmental
authorities
in
various
jurisdictions
are
ongoing.
27
Actions
by
the
BBA,
regulators
or
law
enforcement
agencies
as
a
result
of
these
or
future
events,
may
result
in
changes
to
the
manner
in
which
LIBOR
is
determined.
Potential
changes,
or
uncertainty
related
to
such
potential
changes
may
adversely
affect
the
market
for
LIBOR-based
securities,
including
our
portfolio
of
LIBOR-indexed,
floating-rate
debt
securities.
In
addition,
any
further
changes
or
reforms
to
the
determination
or
supervision
of
LIBOR
may
result
in
a
sudden
or
prolonged
increase
or
decrease
in
reported
LIBOR,
which
could
have
an
adverse
impact
on
the
market
for
LIBOR-based
securities
or
the
value
of
our
portfolio
of
LIBOR-indexed,
floating-rate
debt
securities.
Volatility in the global financial markets resulting from relapse of the Eurozone crisis, geopolitical developments in Eastern Europe, turbulence in the Chinese
stock markets and global commodity markets, the United Kingdom’s vote to leave the European Union or otherwise could have a material adverse effect on our
business, financial condition and results of operations.
Volatility
in
the
global
financial
markets
could
have
an
adverse
effect
on
the
economic
recovery
in
the
United
States
and
could
result
from
a
number
of
causes,
including
a
relapse
in
the
Eurozone
crisis,
geopolitical
developments
in
Eastern
Europe,
turbulence
in
the
Chinese
stock
markets
and
global
commodity
markets
or
otherwise.
The
effects
of
the
Eurozone
crisis,
which
began
in
late
2009
as
part
of
the
global
economic
and
financial
crisis,
continued
to
impact
the
global
financial
markets
through
2015.
Numerous
factors
continued
to
fuel
the
Eurozone
crisis,
including
continued
high
levels
of
government
debt,
the
undercapitalization
and
liquidity
problems
of
many
banks
in
the
Eurozone
and
relatively
low
levels
of
economic
growth.
These
factors
made
it
difficult
or
impossible
for
some
countries
in
the
Eurozone,
including
Greece,
Ireland
and
Portugal,
to
repay
or
refinance
their
debt
without
the
assistance
of
third
parties.
As
a
combination
of
austerity
programs,
debt
write-downs
and
the
European
Central
Bank’s
commitment
to
restore
financial
stability
to
the
Eurozone
and
the
finalization
of
the
primary
European
Stability
Mechanism
bailout
fund,
in
2013
and
into
2014
interest
rates
began
to
fall
and
stock
prices
began
to
increase.
Although
these
trends
helped
to
stabilize
the
effects
of
the
Eurozone
crisis
in
the
first
half
of
2014,
the
underlying
causes
of
the
crisis
were
not
completely
eliminated.
As
a
result,
the
financial
markets
relapsed
toward
the
end
of
2014.
In
particular,
Greece’s
newly
elected
government,
which
campaigned
against
austerity
measures,
has
been
unable
to
reach
an
acceptable
solution
to
the
country’s
debt
crisis
with
the
European
Union,
and
in
June
2015,
Greece
failed
to
make
a
scheduled
debt
repayment
to
the
International
Monetary
Fund,
falling
into
arrears.
Following
further
unsuccessful
negotiations
between
the
government
of
Greece
and
the
European
Union
to
solve
the
Greek
debt
crisis,
on
July
5,
2015,
Greek
voters
rejected
a
bailout
package
submitted
by
the
European
Commission,
the
European
Central
Bank
and
the
International
Monetary
Fund,
and
while
the
European
Central
Bank
continues
to
extend
credit
to
Greece,
it
is
uncertain
how
long
such
support
will
last,
whether
Greece
will
receive
and
accept
any
future
bailout
packages
and
whether
Greece
will
default
on
future
payments.
The
result
of
continued
defaults
and
the
removal
of
credit
support
for
Greek
banks
may
cause
Greece
to
exit
the
European
Union,
which
could
lead
to
significant
economic
uncertainty
and
abandonment
of
the
Euro
common
currency,
resulting
in
destabilization
in
the
financial
markets.
Continued
financial
instability
in
Greece
and
in
other
similarly
situated
Eurozone
countries
could
have
a
continued
contagion
effect
on
the
financial
markets.
Stock
prices
in
China
have
experienced
a
significant
drop
in
the
second
quarter
of
2015,
resulting
primarily
from
continued
sell-off
of
shares
trading
in
Chinese
markets.
The
volatility
has
been
followed
by
volatility
in
stock
markets
around
the
world,
including
in
the
United
States,
as
well
as
increased
turbulence
in
commodity
markets,
such
as
reductions
in
prices
of
crude
oil.
Although
the
Chinese
government
has
already
taken
steps
to
halt
the
collapse,
it
is
uncertain
what
effect
such
measures
will
have,
if
any.
Continued
sell-off
and
price
drops
in
the
Chinese
stock
markets
may
have
a
contagion
effect
across
the
financial
markets.
In
addition,
Russian
intervention
in
Ukraine
during
2014
significantly
increased
regional
geopolitical
tensions.
In
response
to
Russian
actions,
U.S.
and
European
governments
have
imposed
sanctions
on
a
limited
number
of
Russian
individuals
and
business
entities.
The
situation
remains
fluid
with
potential
for
further
escalation
of
geopolitical
tensions,
increased
severity
of
sanctions
against
Russian
interests,
and
possible
Russian
counter-measures.
Further
economic
sanctions
could
destabilize
the
economic
environment
and
result
in
increased
volatility.
On
June
23,
2016,
voters
in
the
United
Kingdom
referendum
(the
“Referendum”)
on
the
question
of
whether
to
remain
or
leave
the
European
Union
voted
in
a
majority
in
favor
of
leaving
the
European
Union
(“Brexit”).
This
historic
event
is
widely
expected
to
have
consequences
that
are
both
profound
and
uncertain
for
the
economic
and
political
future
of
the
United
Kingdom
and
the
European
Union,
and
those
consequences
include
significant
legal
and
business
uncertainties
pertaining
to
our
investments.
Due
to
the
very
recent
occurrence
of
Brexit,
the
full
scope
and
nature
of
the
consequences
are
not
at
this
time
known
and
are
unlikely
to
be
known
for
a
significant
period
of
time.
However,
Brexit
has
led
to
significant
uncertainty
in
the
business,
legal
and
political
environment.
Risks
associated
with
the
outcome
of
the
Referendum
include
short
and
long
term
market
volatility
and
currency
volatility
(including
volatility
of
the
value
of
the
British
pound
sterling
relative
to
the
United
States
dollar
and
other
currencies
and
volatility
in
global
currency
markets
generally),
macroeconomic
risk
to
the
United
Kingdom
and
European
economies,
impetus
for
further
disintegration
of
the
European
Union
and
related
political
stresses
(including
those
related
to
sentiment
against
cross
border
capital
movements
and
activities
of
investors
like
us),
prejudice
to
financial
services
businesses
that
are
conducting
business
in
the
European
Union
and
which
are
based
in
the
United
Kingdom,
legal
uncertainty
regarding
achievement
of
compliance
with
applicable
financial
and
commercial
laws
and
regulations
in
view
of
the
expected
steps
to
be
taken
pursuant
to
or
in
contemplation
of
Article
50
of
the
Treaty
on
European
Union
and
negotiations
undertaken
under
Article
218
of
the
Treaty
on
the
Functioning
of
the
European
Union,
and
the
unavailability
of
28
timely
information
as
to
expected
legal,
tax
and
other
regimes.
Should
the
economic
recovery
in
the
United
States
be
adversely
impacted
by
increased
volatility
in
the
global
financial
markets
caused
by
continued
contagion
from
the
Eurozone
crisis,
developments
in
respect
of
the
Russian
sanctions,
further
turbulence
in
Chinese
stock
markets
and
global
commodity
markets,
Brexit
or
for
any
other
reason,
loan
and
asset
growth
and
liquidity
conditions
at
U.S.
financial
institutions,
including
us,
may
deteriorate.
We may suffer credit losses.
Investment
in
small
and
middle-market
companies
is
highly
speculative
and
involves
a
high
degree
of
risk
of
credit
loss.
These
risks
are
likely
to
increase
during
volatile
economic
periods.
See
“Risks
Related
to
Our
Investments.”
Our financial condition and results of operations will depend on our ability to manage our future growth effectively.
Prospect
Capital
Management
has
been
registered
as
an
investment
adviser
since
March
31,
2004,
and
we
have
been
organized
as
a
closed-end
investment
company
since
April
13,
2004.
Our
ability
to
achieve
our
investment
objective
depends
on
our
ability
to
grow,
which
depends,
in
turn,
on
the
Investment
Adviser’s
ability
to
continue
to
identify,
analyze,
invest
in
and
monitor
companies
that
meet
our
investment
criteria.
Accomplishing
this
result
on
a
cost-effective
basis
is
largely
a
function
of
the
Investment
Adviser’s
structuring
of
investments,
its
ability
to
provide
competent,
attentive
and
efficient
services
to
us
and
our
access
to
financing
on
acceptable
terms.
As
we
continue
to
grow,
Prospect
Capital
Management
will
need
to
continue
to
hire,
train,
supervise
and
manage
new
employees.
Failure
to
manage
our
future
growth
effectively
could
have
a
materially
adverse
effect
on
our
business,
financial
condition
and
results
of
operations.
We are dependent upon Prospect Capital Management’s key management personnel for our future success.
We
depend
on
the
diligence,
skill
and
network
of
business
contacts
of
the
senior
management
of
the
Investment
Adviser.
We
also
depend,
to
a
significant
extent,
on
the
Investment
Adviser’s
access
to
the
investment
professionals
and
the
information
and
deal
flow
generated
by
these
investment
professionals
in
the
course
of
their
investment
and
portfolio
management
activities.
The
senior
management
team
of
the
Investment
Adviser
evaluates,
negotiates,
structures,
closes,
monitors
and
services
our
investments.
Our
success
depends
to
a
significant
extent
on
the
continued
service
of
the
senior
management
team,
particularly
John
F.
Barry
III
and
M.
Grier
Eliasek.
The
departure
of
any
of
the
senior
management
team
could
have
a
materially
adverse
effect
on
our
ability
to
achieve
our
investment
objective.
In
addition,
we
can
offer
no
assurance
that
Prospect
Capital
Management
will
remain
the
Investment
Adviser
or
that
we
will
continue
to
have
access
to
its
investment
professionals
or
its
information
and
deal
flow.
We operate in a highly competitive market for investment opportunities.
A
number
of
entities
compete
with
us
to
make
the
types
of
investments
that
we
make
in
middle-market
companies.
We
compete
with
other
BDCs,
public
and
private
funds,
commercial
and
investment
banks,
commercial
financing
companies,
insurance
companies,
hedge
funds,
and,
to
the
extent
they
provide
an
alternative
form
of
financing,
private
equity
funds.
Many
of
our
competitors
are
substantially
larger
and
have
considerably
greater
financial,
technical
and
marketing
resources
than
we
do.
Some
competitors
may
have
a
lower
cost
of
funds
and
access
to
funding
sources
that
are
not
available
to
us.
In
addition,
some
of
our
competitors
may
have
higher
risk
tolerances
or
different
risk
assessments,
which
could
allow
them
to
consider
a
wider
variety
of
investments
and
establish
more
relationships
than
us.
Furthermore,
many
of
our
competitors
are
not
subject
to
the
regulatory
restrictions
that
the
1940
Act
imposes
on
us
as
a
BDC
and
that
the
Code
imposes
on
us
as
a
RIC.
We
cannot
assure
you
that
the
competitive
pressures
we
face
will
not
have
a
material
adverse
effect
on
our
business,
financial
condition
and
results
of
operations.
Also,
as
a
result
of
this
competition,
we
may
not
be
able
to
pursue
attractive
investment
opportunities
from
time
to
time.
We
do
not
seek
to
compete
primarily
based
on
the
interest
rates
we
offer
and
we
believe
that
some
of
our
competitors
may
make
loans
with
interest
rates
that
are
comparable
to
or
lower
than
the
rates
we
offer.
Rather,
we
compete
with
our
competitors
based
on
our
existing
investment
platform,
seasoned
investment
professionals,
experience
and
focus
on
middle-market
companies,
disciplined
investment
philosophy,
extensive
industry
focus
and
flexible
transaction
structuring.
We
may
lose
investment
opportunities
if
we
do
not
match
our
competitors’
pricing,
terms
and
structure.
If
we
match
our
competitors’
pricing,
terms
and
structure,
we
may
experience
decreased
net
interest
income
and
increased
risk
of
credit
loss.
As
a
result
of
operating
in
such
a
competitive
environment,
we
may
make
investments
that
are
on
less
favorable
terms
than
what
we
may
have
originally
anticipated,
which
may
impact
our
return
on
these
investments.
29
We fund a portion of our investments with borrowed money, which magnifies the potential for gain or loss on amounts invested and may increase the risk of
investing in us.
Borrowings
and
other
types
of
financing,
also
known
as
leverage,
magnify
the
potential
for
gain
or
loss
on
amounts
invested
and,
therefore,
increase
the
risks
associated
with
investing
in
our
securities.
Our
lenders
have
fixed
dollar
claims
on
our
assets
that
are
superior
to
the
claims
of
our
common
stockholders
or
any
preferred
stockholders.
If
the
value
of
our
assets
increases,
then
leveraging
would
cause
the
net
asset
value
to
increase
more
sharply
than
it
would
have
had
we
not
leveraged.
Conversely,
if
the
value
of
our
assets
decreases,
leveraging
would
cause
net
asset
value
to
decline
more
sharply
than
it
otherwise
would
have
had
we
not
leveraged.
Similarly,
any
increase
in
our
income
in
excess
of
consolidated
interest
payable
on
the
borrowed
funds
would
cause
our
net
income
to
increase
more
than
it
would
without
the
leverage,
while
any
decrease
in
our
income
would
cause
net
income
to
decline
more
sharply
than
it
would
have
had
we
not
borrowed.
Such
a
decline
could
negatively
affect
our
ability
to
make
common
stock
dividend
payments.
Leverage
is
generally
considered
a
speculative
investment
technique.
Changes in interest rates may affect our cost of capital and net investment income.
A
portion
of
the
debt
investments
we
make
bears
interest
at
fixed
rates
and
other
debt
investments
bear
interest
at
variable
rates
with
floors
and
the
value
of
these
investments
could
be
negatively
affected
by
increases
in
market
interest
rates.
In
addition,
as
the
interest
rate
on
our
revolving
credit
facility
is
at
a
variable
rate
based
on
an
index,
an
increase
in
interest
rates
would
make
it
more
expensive
to
use
debt
to
finance
our
investments.
As
a
result,
an
increase
in
market
interest
rates
could
both
reduce
the
value
of
our
portfolio
investments
and
increase
our
cost
of
capital,
which
could
reduce
our
net
investment
income
or
net
increase
in
net
assets
resulting
from
operations.
We need to raise additional capital to grow because we must distribute most of our income.
We
need
additional
capital
to
fund
growth
in
our
investments.
A
reduction
in
the
availability
of
new
capital
could
limit
our
ability
to
grow.
We
must
distribute
at
least
90%
of
our
ordinary
income
and
realized
net
short-term
capital
gains
in
excess
of
realized
net
long-term
capital
losses,
if
any,
to
our
stockholders
to
maintain
our
status
as
a
regulated
investment
company,
or
RIC,
for
U.S.
federal
income
tax
purposes.
As
a
result,
such
earnings
are
not
available
to
fund
investment
originations.
We
have
sought
additional
capital
by
borrowing
from
financial
institutions
and
may
issue
debt
securities
or
additional
equity
securities.
If
we
fail
to
obtain
funds
from
such
sources
or
from
other
sources
to
fund
our
investments,
we
could
be
limited
in
our
ability
to
grow,
which
may
have
an
adverse
effect
on
the
value
of
our
common
stock.
In
addition,
as
a
business
development
company,
we
generally
may
not
borrow
money
or
issue
debt
securities
or
issue
preferred
stock
unless
immediately
thereafter
our
ratio
of
total
assets
to
total
borrowings
and
other
senior
securities
is
at
least
200%.
This
may
restrict
our
ability
to
obtain
additional
leverage
in
certain
circumstances.
We may experience fluctuations in our quarterly results.
We
could
experience
fluctuations
in
our
quarterly
operating
results
due
to
a
number
of
factors,
including
the
level
of
structuring
fees
received,
the
interest
or
dividend
rates
payable
on
the
debt
or
equity
securities
we
hold,
the
default
rate
on
debt
securities,
the
level
of
our
expenses,
variations
in
and
the
timing
of
the
recognition
of
realized
and
unrealized
gains
or
losses,
the
degree
to
which
we
encounter
competition
in
our
markets,
and
general
economic
conditions.
As
a
result
of
these
factors,
results
for
any
period
should
not
be
relied
upon
as
being
indicative
of
performance
in
future
periods.
Our most recent NAV was calculated on June 30, 2016 and our NAV when calculated effective September 30, 2016 and thereafter may be higher or lower.
Our
NAV
per
share
is
$9.62
as
of
June
30,
2016.
NAV
per
share
as
of
September
30,
2016
may
be
higher
or
lower
than
$9.62
based
on
potential
changes
in
valuations,
issuances
of
securities,
repurchases
of
securities,
dividends
paid
and
earnings
for
the
quarter
then
ended.
Our
Board
of
Directors
has
not
yet
determined
the
fair
value
of
portfolio
investments
at
any
date
subsequent
to
June
30,
2016.
Our
Board
of
Directors
determines
the
fair
value
of
our
portfolio
investments
on
a
quarterly
basis
in
connection
with
the
preparation
of
quarterly
financial
statements
and
based
on
input
from
independent
valuation
firms,
the
Investment
Adviser,
the
Administrator
and
the
Audit
Committee
of
our
Board
of
Directors.
30
The Investment Adviser’s liability is limited under the Investment Advisory Agreement, and we are required to indemnify the Investment Adviser against
certain liabilities, which may lead the Investment Adviser to act in a riskier manner on our behalf than it would when acting for its own account.
The
Investment
Adviser
has
not
assumed
any
responsibility
to
us
other
than
to
render
the
services
described
in
the
Investment
Advisory
Agreement,
and
it
will
not
be
responsible
for
any
action
of
our
Board
of
Directors
in
declining
to
follow
the
Investment
Adviser’s
advice
or
recommendations.
Pursuant
to
the
Investment
Advisory
Agreement,
the
Investment
Adviser
and
its
members
and
their
respective
officers,
managers,
partners,
agents,
employees,
controlling
persons
and
members
and
any
other
person
or
entity
affiliated
with
it
will
not
be
liable
to
us
for
their
acts
under
the
Investment
Advisory
Agreement,
absent
willful
misfeasance,
bad
faith,
gross
negligence
or
reckless
disregard
in
the
performance
of
their
duties.
We
have
agreed
to
indemnify,
defend
and
protect
the
Investment
Adviser
and
its
members
and
their
respective
officers,
managers,
partners,
agents,
employees,
controlling
persons
and
members
and
any
other
person
or
entity
affiliated
with
it
with
respect
to
all
damages,
liabilities,
costs
and
expenses
resulting
from
acts
of
the
Investment
Adviser
not
arising
out
of
willful
misfeasance,
bad
faith,
gross
negligence
or
reckless
disregard
in
the
performance
of
their
duties
under
the
Investment
Advisory
Agreement.
These
protections
may
lead
the
Investment
Adviser
to
act
in
a
riskier
manner
when
acting
on
our
behalf
than
it
would
when
acting
for
its
own
account.
Potential conflicts of interest could impact our investment returns.
Our
executive
officers
and
directors,
and
the
executive
officers
of
the
Investment
Adviser,
may
serve
as
officers,
directors
or
principals
of
entities
that
operate
in
the
same
or
related
lines
of
business
as
we
do
or
of
investment
funds
managed
by
our
affiliates.
Accordingly,
they
may
have
obligations
to
investors
in
those
entities,
the
fulfillment
of
which
might
not
be
in
our
best
interests
or
those
of
our
stockholders.
Nevertheless,
it
is
possible
that
new
investment
opportunities
that
meet
our
investment
objective
may
come
to
the
attention
of
one
of
these
entities
in
connection
with
another
investment
advisory
client
or
program,
and,
if
so,
such
opportunity
might
not
be
offered,
or
otherwise
made
available,
to
us.
However,
as
an
investment
adviser,
Prospect
Capital
Management
has
a
fiduciary
obligation
to
act
in
the
best
interests
of
its
clients,
including
us.
To
that
end,
if
Prospect
Capital
Management
or
its
affiliates
manage
any
additional
investment
vehicles
or
client
accounts
in
the
future,
Prospect
Capital
Management
will
endeavor
to
allocate
investment
opportunities
in
a
fair
and
equitable
manner
over
time
so
as
not
to
discriminate
unfairly
against
any
client.
If
Prospect
Capital
Management
chooses
to
establish
another
investment
fund
in
the
future,
when
the
investment
professionals
of
Prospect
Capital
Management
identify
an
investment,
they
will
have
to
choose
which
investment
fund
should
make
the
investment.
In
the
course
of
our
investing
activities,
under
the
Investment
Advisory
Agreement
we
pay
base
management
and
incentive
fees
to
Prospect
Capital
Management
and
reimburse
Prospect
Capital
Management
for
certain
expenses
it
incurs.
As
a
result
of
the
Investment
Advisory
Agreement,
there
may
be
times
when
the
senior
management
team
of
Prospect
Capital
Management
has
interests
that
differ
from
those
of
our
stockholders,
giving
rise
to
a
conflict.
The
Investment
Adviser
receives
a
quarterly
income
incentive
fee
based,
in
part,
on
our
pre-incentive
fee
net
investment
income,
if
any,
for
the
immediately
preceding
calendar
quarter.
This
income
incentive
fee
is
subject
to
a
fixed
quarterly
hurdle
rate
before
providing
an
income
incentive
fee
return
to
Prospect
Capital
Management.
This
fixed
hurdle
rate
was
determined
when
then
current
interest
rates
were
relatively
low
on
a
historical
basis.
Thus,
if
interest
rates
rise,
it
would
become
easier
for
our
investment
income
to
exceed
the
hurdle
rate
and,
as
a
result,
more
likely
that
Prospect
Capital
Management
will
receive
an
income
incentive
fee
than
if
interest
rates
on
our
investments
remained
constant
or
decreased.
Subject
to
the
receipt
of
any
requisite
stockholder
approval
under
the
1940
Act,
our
Board
of
Directors
may
adjust
the
hurdle
rate
by
amending
the
Investment
Advisory
Agreement.
The
income
incentive
fee
payable
by
us
is
computed
and
paid
on
income
that
may
include
interest
that
has
been
accrued
but
not
yet
received
in
cash.
If
a
portfolio
company
defaults
on
a
loan
that
has
a
deferred
interest
feature,
it
is
possible
that
interest
accrued
under
such
loan
that
has
previously
been
included
in
the
calculation
of
the
income
incentive
fee
will
become
uncollectible.
If
this
happens,
we
will
reverse
the
interest
that
was
recorded
but
Prospect
Capital
Management
is
not
required
to
reimburse
us
for
any
such
income
incentive
fee
payments
that
were
received
in
the
past
but
would
reduce
the
current
period
incentive
fee
for
the
effects
of
the
reversal,
if
any.
If
we
do
not
have
sufficient
liquid
assets
to
pay
this
incentive
fee
or
distributions
to
stockholders
on
such
accrued
income,
we
may
be
required
to
liquidate
assets
in
order
to
do
so.
This
fee
structure
could
give
rise
to
a
conflict
of
interest
for
Prospect
Capital
Management
to
the
extent
that
it
may
encourage
Prospect
Capital
Management
to
favor
debt
financings
that
provide
for
deferred
interest,
rather
than
current
cash
payments
of
interest.
31
We
have
entered
into
a
royalty-free
license
agreement
with
Prospect
Capital
Management.
Under
this
agreement,
Prospect
Capital
Management
agrees
to
grant
us
a
non-exclusive
license
to
use
the
name
“Prospect
Capital.”
Under
the
license
agreement,
we
have
the
right
to
use
the
“Prospect
Capital”
name
for
so
long
as
Prospect
Capital
Management
or
one
of
its
affiliates
remains
our
investment
adviser.
In
addition,
we
rent
office
space
from
Prospect
Administration,
an
affiliate
of
Prospect
Capital
Management,
and
pay
Prospect
Administration
our
allocable
portion
of
overhead
and
other
expenses
incurred
by
Prospect
Administration
in
performing
its
obligations
as
Administrator
under
the
Administration
Agreement,
including
rent
and
our
allocable
portion
of
the
costs
of
our
Chief
Financial
Officer
and
Chief
Compliance
Officer
and
their
respective
staffs.
This
may
create
conflicts
of
interest
that
our
Board
of
Directors
monitors.
Our incentive fee could induce Prospect Capital Management to make speculative investments.
The
incentive
fee
payable
by
us
to
Prospect
Capital
Management
may
create
an
incentive
for
the
Investment
Adviser
to
make
investments
on
our
behalf
that
are
more
speculative
or
involve
more
risk
than
would
be
the
case
in
the
absence
of
such
compensation
arrangement.
The
way
in
which
the
incentive
fee
payable
is
determined
(calculated
as
a
percentage
of
the
return
on
invested
capital)
may
encourage
the
Investment
Adviser
to
use
leverage
to
increase
the
return
on
our
investments.
Increased
use
of
leverage
and
this
increased
risk
of
replacement
of
that
leverage
at
maturity
would
increase
the
likelihood
of
default,
which
would
disfavor
holders
of
our
common
stock.
Similarly,
because
the
Investment
Adviser
will
receive
an
incentive
fee
based,
in
part,
upon
net
capital
gains
realized
on
our
investments,
the
Investment
Adviser
may
invest
more
than
would
otherwise
be
appropriate
in
companies
whose
securities
are
likely
to
yield
capital
gains,
as
compared
to
income
producing
securities.
Such
a
practice
could
result
in
our
investing
in
more
speculative
securities
than
would
otherwise
be
the
case,
which
could
result
in
higher
investment
losses,
particularly
during
economic
downturns.
The
incentive
fee
payable
by
us
to
Prospect
Capital
Management
could
create
an
incentive
for
the
Investment
Adviser
to
invest
on
our
behalf
in
instruments,
such
as
zero
coupon
bonds,
that
have
a
deferred
interest
feature.
Under
these
investments,
we
would
accrue
interest
income
over
the
life
of
the
investment
but
would
not
receive
payments
in
cash
on
the
investment
until
the
end
of
the
term.
Our
net
investment
income
used
to
calculate
the
income
incentive
fee,
however,
includes
accrued
interest.
For
example,
accrued
interest,
if
any,
on
our
investments
in
zero
coupon
bonds
will
be
included
in
the
calculation
of
our
incentive
fee,
even
though
we
will
not
receive
any
cash
interest
payments
in
respect
of
payment
on
the
bond
until
its
maturity
date.
Thus,
a
portion
of
this
incentive
fee
would
be
based
on
income
that
we
may
not
have
yet
received
in
cash
in
the
event
of
default
may
never
receive.
We may be obligated to pay our Investment Adviser incentive compensation even if we incur a loss.
The
Investment
Adviser
is
entitled
to
incentive
compensation
for
each
fiscal
quarter
based,
in
part,
on
our
pre-incentive
fee
net
investment
income
if
any,
for
the
immediately
preceding
calendar
quarter
above
a
performance
threshold
for
that
quarter.
Accordingly,
since
the
performance
threshold
is
based
on
a
percentage
of
our
net
asset
value,
decreases
in
our
net
asset
value
make
it
easier
to
achieve
the
performance
threshold.
Our
pre-incentive
fee
net
investment
income
for
incentive
compensation
purposes
excludes
realized
and
unrealized
capital
losses
or
depreciation
that
we
may
incur
in
the
fiscal
quarter,
even
if
such
capital
losses
or
depreciation
result
in
a
net
loss
on
our
statement
of
operations
for
that
quarter.
Thus,
we
may
be
required
to
pay
the
Investment
Adviser
incentive
compensation
for
a
fiscal
quarter
even
if
there
is
a
decline
in
the
value
of
our
portfolio
or
we
incur
a
net
loss
for
that
quarter.
The Investment Adviser and Administrator have the right to resign on 60 days’ notice, and we may not be able to find a suitable replacement within that time,
resulting in a disruption in our operations that could adversely affect our business, financial condition and results of operations.
The
Investment
Adviser
and
Administrator
have
the
right,
under
the
Investment
Advisory
Agreement
and
Administration
Agreement,
respectively,
to
resign
at
any
time
upon
not
less
than
60
days’
written
notice,
whether
we
have
found
a
replacement
or
not.
If
the
Investment
Adviser
or
Administrator
resigns,
we
may
not
be
able
to
find
a
replacement
or
hire
internal
management
or
administration
with
similar
expertise
and
ability
to
provide
the
same
or
equivalent
services
on
acceptable
terms
within
60
days,
or
at
all.
If
we
are
unable
to
do
so
quickly,
our
operations
are
likely
to
experience
a
disruption,
our
business,
financial
condition
and
results
of
operations
as
well
as
our
ability
to
pay
distributions
are
likely
to
be
adversely
affected
and
the
market
price
of
our
shares
may
decline.
In
addition,
the
coordination
of
our
internal
management
and
investment
activities
or
our
internal
administration
activities,
as
applicable,
is
likely
to
suffer
if
we
are
unable
to
identify
and
reach
an
agreement
with
a
single
institution
or
group
of
executives
having
the
expertise
possessed
by
the
Investment
Adviser
and
its
affiliates
or
the
Administrator
and
its
affiliates.
Even
if
we
are
able
to
retain
comparable
management
or
administration,
whether
internal
or
external,
the
integration
of
such
management
or
administration
and
their
lack
of
familiarity
with
our
investment
objective
may
result
in
additional
costs
and
time
delays
that
may
adversely
affect
our
business,
financial
condition
and
results
of
operations.
32
Changes in the laws or regulations governing our business or the businesses of our portfolio companies and any failure by us or our portfolio companies to
comply with these laws or regulations could negatively affect the profitability of our operations or the profitability of our portfolio companies.
We
are
subject
to
changing
rules
and
regulations
of
federal
and
state
governments,
as
well
as
the
stock
exchange
on
which
our
common
stock
is
listed.
These
entities,
including
the
Public
Company
Accounting
Oversight
Board,
the
SEC
and
the
NASDAQ
Global
Select
Market,
have
issued
a
significant
number
of
new
and
increasingly
complex
requirements
and
regulations
over
the
course
of
the
last
several
years
and
continue
to
develop
additional
regulations.
In
particular,
changes
in
the
laws
or
regulations
or
the
interpretations
of
the
laws
and
regulations
that
govern
BDCs,
RICs
or
non-depository
commercial
lenders
could
significantly
affect
our
operations
and
our
cost
of
doing
business.
We
are
subject
to
federal,
state
and
local
laws
and
regulations
and
are
subject
to
judicial
and
administrative
decisions
that
affect
our
operations,
including
our
loan
originations,
maximum
interest
rates,
fees
and
other
charges,
disclosures
to
portfolio
companies,
the
terms
of
secured
transactions,
collection
and
foreclosure
procedures
and
other
trade
practices.
If
these
laws,
regulations
or
decisions
change,
or
if
we
expand
our
business
into
jurisdictions
that
have
adopted
more
stringent
requirements
than
those
in
which
we
currently
conduct
business,
we
may
have
to
incur
significant
expenses
in
order
to
comply,
or
we
might
have
to
restrict
our
operations.
In
addition,
if
we
do
not
comply
with
applicable
laws,
regulations
and
decisions,
we
may
lose
licenses
needed
for
the
conduct
of
our
business
and
be
subject
to
civil
fines
and
criminal
penalties,
any
of
which
could
have
a
material
adverse
effect
upon
our
business,
financial
condition
and
results
of
operations.
Foreign and domestic political risk may adversely affect our business.
We
are
exposed
to
political
risk
to
the
extent
that
Prospect
Capital
Management,
on
its
behalf
and
subject
to
its
investment
guidelines,
transacts
in
securities
in
the
U.S.
and
foreign
markets.
The
governments
in
any
of
these
jurisdictions
could
impose
restrictions,
regulations
or
other
measures,
which
may
have
a
material
adverse
impact
on
our
strategy.
If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results or prevent
fraud. As a result, stockholders could lose confidence in our financial and other public reporting, which would harm our business and the trading price of our
common stock.
Effective
internal
controls
over
financial
reporting
are
necessary
for
us
to
provide
reliable
financial
reports
and,
together
with
adequate
disclosure
controls
and
procedures,
are
designed
to
prevent
fraud.
Any
failure
to
implement
required
new
or
improved
controls,
or
difficulties
encountered
in
their
implementation
could
cause
us
to
fail
to
meet
our
reporting
obligations.
In
addition,
any
testing
by
us
conducted
in
connection
with
Section
404
of
the
Sarbanes-Oxley
Act,
or
the
subsequent
testing
by
our
independent
registered
public
accounting
firm
(when
undertaken,
as
noted
below),
may
reveal
deficiencies
in
our
internal
controls
over
financial
reporting
that
are
deemed
to
be
material
weaknesses
or
that
may
require
prospective
or
retroactive
changes
to
our
consolidated
financial
statements
or
identify
other
areas
for
further
attention
or
improvement.
Inferior
internal
controls
could
also
cause
investors
and
lenders
to
lose
confidence
in
our
reported
financial
information,
which
could
have
a
negative
effect
on
the
trading
price
of
our
common
stock.
We face cyber-security risks.
Our
business
operations
rely
upon
secure
information
technology
systems
for
data
processing,
storage
and
reporting.
Despite
careful
security
and
controls
design,
implementation
and
updating,
our
information
technology
systems
could
become
subject
to
cyber-attacks.
Network,
system,
application
and
data
breaches
could
result
in
operational
disruptions
or
information
misappropriation,
which
could
have
a
material
adverse
effect
on
our
business,
results
of
operations
and
financial
condition.
The failure in cyber-security systems, as well as the occurrence of events unanticipated in our disaster recovery systems and management continuity planning,
could impair our ability to conduct business effectively.
The
occurrence
of
a
disaster
such
as
a
cyber-attack,
a
natural
catastrophe,
an
industrial
accident,
a
terrorist
attack
or
war,
events
unanticipated
in
our
disaster
recovery
systems,
or
a
support
failure
from
external
providers,
could
have
an
adverse
effect
on
our
ability
to
conduct
business
and
on
our
results
of
operations
and
financial
condition,
particularly
if
those
events
affect
our
computer-based
data
processing,
transmission,
storage,
and
retrieval
systems
or
destroy
data.
If
a
significant
number
of
our
managers
were
unavailable
in
the
event
of
a
disaster,
our
ability
to
effectively
conduct
our
business
could
be
severely
compromised.
33
We
depend
heavily
upon
computer
systems
to
perform
necessary
business
functions.
Despite
our
implementation
of
a
variety
of
security
measures,
our
computer
systems
could
be
subject
to
cyber-attacks
and
unauthorized
access,
such
as
physical
and
electronic
break-ins
or
unauthorized
tampering.
Like
other
companies,
we
may
experience
threats
to
our
data
and
systems,
including
malware
and
computer
virus
attacks,
unauthorized
access,
system
failures
and
disruptions.
If
one
or
more
of
these
events
occurs,
it
could
potentially
jeopardize
the
confidential,
proprietary
and
other
information
processed
and
stored
in,
and
transmitted
through,
our
computer
systems
and
networks,
or
otherwise
cause
interruptions
or
malfunctions
in
our
operations,
which
could
result
in
damage
to
our
reputation,
financial
losses,
litigation,
increased
costs,
regulatory
penalties
and/or
customer
dissatisfaction
or
loss.
We are dependent on information systems and systems failures could significantly disrupt our business, which may, in turn, negatively affect the market price
of our common stock and our ability to pay dividends.
Our
business
is
dependent
on
our
and
third
parties’
communications
and
information
systems.
Any
failure
or
interruption
of
those
systems,
including
as
a
result
of
the
termination
of
an
agreement
with
any
third-party
service
providers,
could
cause
delays
or
other
problems
in
our
activities.
Our
financial,
accounting,
data
processing,
backup
or
other
operating
systems
and
facilities
may
fail
to
operate
properly
or
become
disabled
or
damaged
as
a
result
of
a
number
of
factors
including
events
that
are
wholly
or
partially
beyond
our
control
and
adversely
affect
our
business.
There
could
be:
•
•
•
•
•
sudden
electrical
or
telecommunications
outages;
natural
disasters
such
as
earthquakes,
tornadoes
and
hurricanes;
disease
pandemics;
events
arising
from
local
or
larger
scale
political
or
social
matters,
including
terrorist
acts;
and
cyber-attacks.
These
events,
in
turn,
could
have
a
material
adverse
effect
on
our
operating
results
and
negatively
affect
the
market
price
of
our
common
stock
and
our
ability
to
pay
dividends
to
our
stockholders.
Risks Relating to Our Operation as a Business Development Company
If we do not invest a sufficient portion of our assets in qualifying assets, we could fail to qualify as a BDC or be precluded from investing according to our
current business strategy.
As
a
BDC,
we
may
not
acquire
any
assets
other
than
“qualifying
assets”
unless,
at
the
time
of
and
after
giving
effect
to
such
acquisition,
at
least
70%
of
our
total
assets
are
qualifying
assets.
We
may
be
precluded
from
investing
in
what
we
believe
are
attractive
investments
if
such
investments
are
not
qualifying
assets
for
purposes
of
the
1940
Act.
If
we
do
not
invest
a
sufficient
portion
of
our
assets
in
qualifying
assets,
we
could
be
found
to
be
in
violation
of
the
1940
Act
provisions
applicable
to
BDCs,
which
would
have
a
material
adverse
effect
on
our
business,
financial
condition
and
results
of
operations.
Similarly,
these
rules
could
prevent
us
from
making
follow-on
investments
in
existing
portfolio
companies
(which
could
result
in
the
dilution
of
our
position)
or
could
require
us
to
dispose
of
investments
at
inappropriate
times
in
order
to
come
into
compliance
with
the
1940
Act.
Because
most
of
our
investments
will
be
in
private
companies,
and
therefore
will
be
relatively
illiquid,
any
such
dispositions
could
be
made
at
disadvantageous
prices
and
could
result
in
substantial
losses.
If we fail to qualify as a RIC, we will have to pay corporate-level taxes on our income, and our income available for distribution would be reduced.
To
maintain
our
qualification
for
U.S.
federal
income
tax
purposes
as
a
RIC
under
Subchapter
M
of
the
Code
and
obtain
RIC
tax
treatment,
we
must
meet
certain
source
of
income,
annual
distribution
and
asset
diversification
requirements.
The
source
of
income
requirement
is
satisfied
if
we
derive
at
least
90%
of
our
annual
gross
income
from
interest,
dividends,
payments
with
respect
to
certain
securities
loans,
gains
from
the
sale
or
other
disposition
of
securities
or
options
thereon
or
foreign
currencies,
or
other
income
derived
with
respect
to
our
business
of
investing
in
such
securities
or
currencies,
and
net
income
from
interests
in
“qualified
publicly
traded
partnerships,”
as
defined
in
the
Code.
34
The
annual
distribution
requirement
for
a
RIC
is
satisfied
if
we
distribute
at
least
90%
of
our
ordinary
income
and
net
short-term
capital
gains
in
excess
of
net
long-
term
capital
losses,
if
any,
to
our
stockholders
on
an
annual
basis.
Because
we
use
debt
financing,
we
are
subject
to
certain
asset
coverage
ratio
requirements
under
the
1940
Act
and
financial
covenants
that
could,
under
certain
circumstances,
restrict
us
from
making
distributions
necessary
to
qualify
for
RIC
tax
treatment.
If
we
are
unable
to
obtain
cash
from
other
sources,
we
may
fail
to
qualify
for
RIC
tax
treatment
and,
thus,
may
be
subject
to
corporate-level
income
tax
on
all
of
our
taxable
income.
To
maintain
our
qualification
as
a
RIC,
we
must
also
meet
certain
asset
diversification
requirements
at
the
end
of
each
quarter
of
our
taxable
year.
Failure
to
meet
these
tests
may
result
in
our
having
to
dispose
of
certain
investments
quickly
in
order
to
prevent
the
loss
of
RIC
status.
Because
most
of
our
investments
are
in
private
companies,
any
such
dispositions
could
be
made
at
disadvantageous
prices
and
may
result
in
substantial
losses.
If
we
fail
to
qualify
as
a
RIC
for
any
reason
or
become
subject
to
corporate
income
tax,
the
resulting
corporate
taxes
would
substantially
reduce
our
net
assets,
the
amount
of
income
available
for
distribution,
and
the
actual
amount
of
our
distributions.
Such
a
failure
would
have
a
materially
adverse
effect
on
us
and
our
stockholders.
For
additional
information
regarding
asset
coverage
ratio
and
RIC
requirements,
see
“Business
–
Material
U.S.
Federal
Income
Tax
Considerations”
and
“Business
–
Regulation
as
a
Business
Development
Company.”
We may have difficulty paying our required distributions if we recognize income before or without receiving cash representing such income.
For
U.S.
federal
income
tax
purposes,
we
include
in
income
certain
amounts
that
we
have
not
yet
received
in
cash,
such
as
original
issue
discount
or
payment-in-
kind
interest,
which
represents
contractual
interest
added
to
the
loan
balance
and
due
at
the
end
of
the
loan
term.
Such
amounts
could
be
significant
relative
to
our
overall
investment
activities.
We
also
may
be
required
to
include
in
taxable
income
certain
other
amounts
that
we
do
not
receive
in
cash.
While
we
focus
primarily
on
investments
that
will
generate
a
current
cash
return,
our
investment
portfolio
currently
includes,
and
we
may
continue
to
invest
in,
securities
that
do
not
pay
some
or
all
of
their
return
in
periodic
current
cash
distributions.
Since
in
some
cases
we
may
recognize
taxable
income
before
or
without
receiving
cash
representing
such
income,
we
may
have
difficulty
distributing
at
least
90%
of
our
ordinary
income
and
realized
net
short-term
capital
gains
in
excess
of
realized
net
long-term
capital
losses,
if
any,
as
required
to
maintain
RIC
tax
treatment.
Accordingly,
we
may
have
to
sell
some
of
our
investments
at
times
we
would
not
consider
advantageous,
raise
additional
debt
or
equity
capital
or
reduce
new
investment
originations
to
meet
these
distribution
requirements.
If
we
are
not
able
to
obtain
cash
from
other
sources,
we
may
fail
to
qualify
for
RIC
treatment
and
thus
become
subject
to
corporate-level
income
tax.
See
“Business
–
Material
U.S.
Federal
Income
Tax
Considerations”
and
“Business
–
Regulation
as
a
Business
Development
Company.”
Regulations governing our operation as a business development company affect our ability to raise, and the way in which we raise, additional capital.
We
have
incurred
indebtedness
under
our
revolving
credit
facility
and
through
the
issuance
of
the
Unsecured
Notes
and,
in
the
future,
may
issue
preferred
stock
or
debt
securities
and/or
borrow
additional
money
from
banks
or
other
financial
institutions,
which
we
refer
to
collectively
as
“senior
securities,”
up
to
the
maximum
amount
permitted
by
the
1940
Act.
Under
the
provisions
of
the
1940
Act,
we
are
permitted,
as
a
BDC,
to
incur
indebtedness
or
issue
senior
securities
only
in
amounts
such
that
our
asset
coverage,
as
defined
in
the
1940
Act,
equals
at
least
200%
after
each
issuance
of
senior
securities.
If
the
value
of
our
assets
declines,
we
may
be
unable
to
satisfy
this
test,
which
would
prohibit
us
from
paying
dividends
in
cash
or
other
property
and
could
prohibit
us
from
qualifying
as
a
RIC.
If
we
cannot
satisfy
this
test,
we
may
be
required
to
sell
a
portion
of
our
investments
or
sell
additional
shares
of
common
stock
at
a
time
when
such
sales
may
be
disadvantageous
in
order
to
repay
a
portion
of
our
indebtedness
or
otherwise
increase
our
net
assets.
In
addition,
issuance
of
additional
common
stock
could
dilute
the
percentage
ownership
of
our
current
stockholders
in
us.
35
As
a
BDC
regulated
under
provisions
of
the
1940
Act,
we
are
not
generally
able
to
issue
and
sell
our
common
stock
at
a
price
below
the
current
net
asset
value
per
share
without
stockholder
approval.
If
our
common
stock
trades
at
a
discount
to
net
asset
value,
this
restriction
could
adversely
affect
our
ability
to
raise
capital.
We
may,
however,
sell
our
common
stock,
or
warrants,
options
or
rights
to
acquire
our
common
stock,
at
a
price
below
the
current
net
asset
value
of
our
common
stock
in
certain
circumstances,
including
if
(i)(1)
the
holders
of
a
majority
of
our
shares
(or,
if
less,
at
least
67%
of
a
quorum
consisting
of
a
majority
of
our
shares)
and
a
similar
majority
of
the
holders
of
our
shares
who
are
not
affiliated
persons
of
us
approve
the
sale
of
our
common
stock
at
a
price
that
is
less
than
the
current
net
asset
value,
and
(2)
a
majority
of
our
Directors
who
have
no
financial
interest
in
the
transaction
and
a
majority
of
our
independent
Directors
(a)
determine
that
such
sale
is
in
our
and
our
stockholders’
best
interests
and
(b)
in
consultation
with
any
underwriter
or
underwriters
of
the
offering,
make
a
good
faith
determination
as
of
a
time
either
immediately
prior
to
the
first
solicitation
by
us
or
on
our
behalf
of
firm
commitments
to
purchase
such
shares,
or
immediately
prior
to
the
issuance
of
such
shares,
that
the
price
at
which
such
shares
are
to
be
sold
is
not
less
than
a
price
which
closely
approximates
the
market
value
of
such
shares,
less
any
distributing
commission
or
discount
or
if
(ii)
a
majority
of
the
number
of
the
beneficial
holders
of
our
common
stock
entitled
to
vote
at
our
annual
meeting,
without
regard
to
whether
a
majority
of
such
shares
are
voted
in
favor
of
the
proposal,
approve
the
sale
of
our
common
stock
at
a
price
that
is
less
than
the
current
net
asset
value
per
share.
To
generate
cash
for
funding
new
investments,
we
pledged
a
substantial
portion
of
our
portfolio
investments
under
our
revolving
credit
facility.
These
assets
are
not
available
to
secure
other
sources
of
funding
or
for
securitization.
Our
ability
to
obtain
additional
secured
or
unsecured
financing
on
attractive
terms
in
the
future
is
uncertain.
Alternatively,
we
may
securitize
our
future
loans
to
generate
cash
for
funding
new
investments.
See
“Securitization
of
our
assets
subjects
us
to
various
risks.”
Securitization of our assets subjects us to various risks.
We
may
securitize
assets
to
generate
cash
for
funding
new
investments.
We
refer
to
the
term
securitize
to
describe
a
form
of
leverage
under
which
a
company
such
as
us
(sometimes
referred
to
as
an
“originator”
or
“sponsor”)
transfers
income
producing
assets
to
a
single-purpose,
bankruptcy-remote
subsidiary
(also
referred
to
as
a
“special
purpose
entity”
or
“SPE”),
which
is
established
solely
for
the
purpose
of
holding
such
assets
and
entering
into
a
structured
finance
transaction.
The
SPE
then
issues
notes
secured
by
such
assets.
The
special
purpose
entity
may
issue
the
notes
in
the
capital
markets
either
publicly
or
privately
to
a
variety
of
investors,
including
banks,
non-bank
financial
institutions
and
other
investors.
There
may
be
a
single
class
of
notes
or
multiple
classes
of
notes,
the
most
senior
of
which
carries
less
credit
risk
and
the
most
junior
of
which
may
carry
substantially
the
same
credit
risk
as
the
equity
of
the
SPE.
An
important
aspect
of
most
debt
securitization
transactions
is
that
the
sale
and/or
contribution
of
assets
into
the
SPE
be
considered
a
true
sale
and/or
contribution
for
accounting
purposes
and
that
a
reviewing
court
would
not
consolidate
the
SPE
with
the
operations
of
the
originator
in
the
event
of
the
originator’s
bankruptcy
based
on
equitable
principles.
Viewed
as
a
whole,
a
debt
securitization
seeks
to
lower
risk
to
the
note
purchasers
by
isolating
the
assets
collateralizing
the
securitization
in
an
SPE
that
is
not
subject
to
the
credit
and
bankruptcy
risks
of
the
originator.
As
a
result
of
this
perceived
reduction
of
risk,
debt
securitization
transactions
frequently
achieve
lower
overall
leverage
costs
for
originators
as
compared
to
traditional
secured
lending
transactions.
In
accordance
with
the
above
description,
to
securitize
loans,
we
may
create
a
wholly-owned
subsidiary
and
contribute
a
pool
of
our
assets
to
such
subsidiary.
The
SPE
may
be
funded
with,
among
other
things,
whole
loans
or
interests
from
other
pools
and
such
loans
may
or
may
not
be
rated.
The
SPE
would
then
sell
its
notes
to
purchasers
who
we
would
expect
to
be
willing
to
accept
a
lower
interest
rate
and
the
absence
of
any
recourse
against
us
to
invest
in
a
pool
of
income
producing
assets
to
which
none
of
our
creditors
would
have
access.
We
would
retain
all
or
a
portion
of
the
equity
in
the
SPE.
An
inability
to
successfully
securitize
portions
of
our
portfolio
or
otherwise
leverage
our
portfolio
through
secured
and
unsecured
borrowings
could
limit
our
ability
to
grow
our
business
and
fully
execute
our
business
strategy,
and
could
decrease
our
earnings.
However,
the
successful
securitization
of
portions
of
our
portfolio
exposes
us
to
a
risk
of
loss
for
the
equity
we
retain
in
the
SPE
and
might
expose
us
to
greater
risk
on
our
remaining
portfolio
because
the
assets
we
retain
may
tend
to
be
those
that
are
riskier
and
more
likely
to
generate
losses.
A
successful
securitization
may
also
impose
financial
and
operating
covenants
that
restrict
our
business
activities
and
may
include
limitations
that
could
hinder
our
ability
to
finance
additional
loans
and
investments
or
to
make
the
distributions
required
to
maintain
our
status
as
a
RIC
under
Subchapter
M
of
the
Code.
The
1940
Act
may
also
impose
restrictions
on
the
structure
of
any
securitizations.
36
Interests
we
hold
in
the
SPE,
if
any,
will
be
subordinated
to
the
other
interests
issued
by
the
SPE.
As
such,
we
will
only
receive
cash
distributions
on
such
interests
if
the
SPE
has
made
all
cash
interest
and
other
required
payments
on
all
other
interests
it
has
issued.
In
addition,
our
subordinated
interests
will
likely
be
unsecured
and
rank
behind
all
of
the
secured
creditors,
known
or
unknown,
of
the
SPE,
including
the
holders
of
the
senior
interests
it
has
issued.
Consequently,
to
the
extent
that
the
value
of
the
SPEs
portfolio
of
assets
has
been
reduced
as
a
result
of
conditions
in
the
credit
markets,
or
as
a
result
of
defaults,
the
value
of
the
subordinated
interests
we
retain
would
be
reduced.
Securitization
imposes
on
us
the
same
risks
as
borrowing
except
that
our
risk
in
a
securitization
is
limited
to
the
amount
of
subordinated
interests
we
retain,
whereas
in
a
borrowing
or
debt
issuance
by
us
directly
we
would
be
at
risk
for
the
entire
amount
of
the
borrowing
or
debt
issuance.
If
the
SPE
is
not
consolidated
with
us,
our
only
interest
will
be
the
value
of
our
retained
subordinated
interest
and
the
income
allocated
to
us,
which
may
be
more
or
less
than
the
cash
we
receive
from
the
SPE,
and
none
of
the
SPEs
liabilities
will
be
reflected
as
our
liabilities.
If
the
assets
of
the
SPE
are
not
consolidated
with
our
assets
and
liabilities,
then
our
interest
in
the
SPE
may
be
deemed
not
to
be
a
qualifying
asset
for
purposes
of
determining
whether
70%
of
our
assets
are
qualifying
assets
and
the
leverage
incurred
by
such
SPE
may
or
may
not
be
treated
as
borrowings
by
us
for
purposes
of
the
requirement
that
we
not
issue
senior
securities
in
an
amount
in
excess
of
our
net
assets.
We
may
also
engage
in
transactions
utilizing
SPEs
and
securitization
techniques
where
the
assets
sold
or
contributed
to
the
SPE
remain
on
our
balance
sheet
for
accounting
purposes.
If,
for
example,
we
sell
the
assets
to
the
SPE
with
recourse
or
provide
a
guarantee
or
other
credit
support
to
the
SPE,
its
assets
will
remain
on
our
balance
sheet.
Consolidation
would
also
generally
result
if
we,
in
consultation
with
the
SEC,
determine
that
consolidation
would
result
in
a
more
accurate
reflection
of
our
assets,
liabilities
and
results
of
operations.
In
these
structures,
the
risks
will
be
essentially
the
same
as
in
other
securitization
transactions
but
the
assets
will
remain
our
assets
for
purposes
of
the
limitations
described
above
on
investing
in
assets
that
are
not
qualifying
assets
and
the
leverage
incurred
by
the
SPE
will
be
treated
as
borrowings
incurred
by
us
for
purposes
of
our
limitation
on
the
issuance
of
senior
securities.
The
Investment
Adviser
may
have
conflicts
of
interest
with
respect
to
potential
securitizations
in
as
much
as
securitizations
that
are
not
consolidated
may
reduce
our
assets
for
purposes
of
determining
its
investment
advisory
fee
although
in
some
circumstances
the
Investment
Adviser
may
be
paid
certain
fees
for
managing
the
assets
of
the
SPE
so
as
to
reduce
or
eliminate
any
potential
bias
against
securitizations.
Our ability to invest in public companies may be limited in certain circumstances.
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).
Subject
to
certain
exceptions
for
follow-on
investments
and
distressed
companies,
an
investment
in
an
issuer
that
has
outstanding
securities
listed
on
a
national
securities
exchange
may
be
treated
as
qualifying
assets
only
if
such
issuer
has
a
market
capitalization
that
is
less
than
$250
million
at
the
time
of
such
investment.
Risks Relating to Our Investments
We may not realize gains or income from our investments.
We
seek
to
generate
both
current
income
and
capital
appreciation.
However,
the
securities
we
invest
in
may
not
appreciate
and,
in
fact,
may
decline
in
value,
and
the
issuers
of
debt
securities
we
invest
in
may
default
on
interest
and/or
principal
payments.
Accordingly,
we
may
not
be
able
to
realize
gains
from
our
investments,
and
any
gains
that
we
do
realize
may
not
be
sufficient
to
offset
any
losses
we
experience.
See
“Business
–
Our
Investment
Objective
and
Policies.”
Most of our portfolio investments are recorded at fair value as determined in good faith under the direction of our Board of Directors and, as a result, there is
uncertainty as to the value of our portfolio investments.
A
large
percentage
of
our
portfolio
investments
consist
of
securities
of
privately
held
companies.
Hence,
market
quotations
are
generally
not
readily
available
for
determining
the
fair
values
of
such
investments.
The
determination
of
fair
value,
and
thus
the
amount
of
unrealized
losses
we
may
incur
in
any
year,
is
to
a
degree
subjective,
and
the
Investment
Adviser
has
a
conflict
of
interest
in
making
the
determination.
We
value
these
securities
quarterly
at
fair
value
as
determined
in
good
faith
by
our
Board
of
Directors
based
on
input
from
the
Investment
Adviser,
our
Administrator,
a
third
party
independent
valuation
firm
and
our
Audit
Committee.
Our
Board
of
Directors
utilizes
the
services
of
an
independent
valuation
firm
to
aid
it
in
determining
the
fair
value
of
any
securities.
The
types
of
factors
that
may
be
considered
in
determining
the
fair
values
of
our
investments
include
the
nature
and
realizable
value
of
any
collateral,
the
portfolio
company’s
ability
to
make
payments
and
its
earnings,
the
markets
in
which
the
portfolio
company
does
business,
comparison
to
publicly
traded
companies,
discounted
cash
flow,
current
market
interest
rates
and
other
relevant
factors.
37
Because
such
valuations,
and
particularly
valuations
of
private
securities
and
private
companies,
are
inherently
uncertain,
the
valuations
may
fluctuate
significantly
over
short
periods
of
time
due
to
changes
in
current
market
conditions.
The
determinations
of
fair
value
by
our
Board
of
Directors
may
differ
materially
from
the
values
that
would
have
been
used
if
an
active
market
and
market
quotations
existed
for
these
investments.
Our
net
asset
value
could
be
adversely
affected
if
the
determinations
regarding
the
fair
value
of
our
investments
were
materially
higher
than
the
values
that
we
ultimately
realize
upon
the
disposal
of
such
securities.
In
addition,
decreases
in
the
market
values
or
fair
values
of
our
investments
are
recorded
as
unrealized
depreciation.
Declines
in
prices
and
liquidity
in
the
corporate
debt
markets
experienced
during
a
financial
crisis
will
result
in
significant
net
unrealized
depreciation
in
our
portfolio.
The
effect
of
all
of
these
factors
on
our
portfolio
will
reduce
our
NAV
by
increasing
net
unrealized
depreciation
in
our
portfolio.
Depending
on
market
conditions,
we
could
incur
substantial
realized
losses
which
could
have
a
material
adverse
impact
on
our
business,
financial
condition
and
results
of
operations.
We
have
no
policy
regarding
holding
a
minimum
level
of
liquid
assets.
As
such,
a
high
percentage
of
our
portfolio
generally
is
not
liquid
at
any
given
point
in
time.
See
“The
lack
of
liquidity
may
adversely
affect
our
business.”
Price declines and illiquidity in the corporate debt markets have adversely affected, and may in the future adversely affect, the fair value of our portfolio
investments, reducing our net asset value through increased net unrealized depreciation.
As
a
BDC,
we
are
required
to
carry
our
investments
at
market
value
or,
if
no
market
value
is
ascertainable,
at
fair
value
as
determined
in
good
faith
by
or
under
the
direction
of
our
Board
of
Directors.
As
part
of
the
valuation
process,
the
types
of
factors
that
we
may
take
into
account
in
determining
the
fair
value
of
our
investments
include,
as
relevant
and
among
other
factors:
available
current
market
data,
including
relevant
and
applicable
market
trading
and
transaction
comparables,
applicable
market
yields
and
multiples,
security
covenants,
call
protection
provisions,
information
rights,
the
nature
and
realizable
value
of
any
collateral,
the
portfolio
company’s
ability
to
make
payments,
its
earnings
and
discounted
cash
flows,
the
markets
in
which
the
portfolio
company
does
business,
comparisons
of
financial
ratios
of
peer
companies
that
are
public,
merger
and
acquisition
comparables,
our
principal
market
(as
the
reporting
entity)
and
enterprise
values.
Decreases
in
the
market
values
or
fair
values
of
our
investments
are
recorded
as
unrealized
depreciation.
The
effect
of
all
of
these
factors
on
our
portfolio
can
reduce
our
net
asset
value
by
increasing
net
unrealized
depreciation
in
our
portfolio.
Depending
on
market
conditions,
we
could
incur
substantial
realized
losses
and
may
suffer
additional
unrealized
losses
in
future
periods,
which
could
have
a
material
adverse
impact
on
our
business,
financial
condition
and
results
of
operations.
Our investments in prospective portfolio companies may be risky and we could lose all or part of our investment.
Some
of
our
portfolio
companies
have
relatively
short
or
no
operating
histories.
These
companies
are
and
will
be
subject
to
all
of
the
business
risk
and
uncertainties
associated
with
any
new
business
enterprise,
including
the
risk
that
these
companies
may
not
reach
their
investment
objective
and
the
value
of
our
investment
in
them
may
decline
substantially
or
fall
to
zero.
In
addition,
investment
in
the
middle
market
companies
that
we
are
targeting
involves
a
number
of
other
significant
risks,
including:
•
•
•
•
•
These
companies
may
have
limited
financial
resources
and
may
be
unable
to
meet
their
obligations
under
their
securities
that
we
hold,
which
may
be
accompanied
by
a
deterioration
in
the
value
of
their
securities
or
of
any
collateral
with
respect
to
any
securities
and
a
reduction
in
the
likelihood
of
our
realizing
on
any
guarantees
we
may
have
obtained
in
connection
with
our
investment.
They
may
have
shorter
operating
histories,
narrower
product
lines
and
smaller
market
shares
than
larger
businesses,
which
tend
to
render
them
more
vulnerable
to
competitors’
actions
and
market
conditions,
as
well
as
general
economic
downturns.
Because
many
of
these
companies
are
privately
held
companies,
public
information
is
generally
not
available
about
these
companies.
As
a
result,
we
will
depend
on
the
ability
of
the
Investment
Adviser
to
obtain
adequate
information
to
evaluate
these
companies
in
making
investment
decisions.
If
the
Investment
Adviser
is
unable
to
uncover
all
material
information
about
these
companies,
it
may
not
make
a
fully
informed
investment
decision,
and
we
may
lose
money
on
our
investments.
They
are
more
likely
to
depend
on
the
management
talents
and
efforts
of
a
small
group
of
persons;
therefore,
the
death,
disability,
resignation
or
termination
of
one
or
more
of
these
persons
could
have
a
materially
adverse
impact
on
our
portfolio
company
and,
in
turn,
on
us.
They
may
have
less
predictable
operating
results,
may
from
time
to
time
be
parties
to
litigation,
may
be
engaged
in
changing
businesses
with
products
subject
to
a
risk
of
obsolescence
and
may
require
substantial
additional
capital
to
support
their
operations,
finance
expansion
or
maintain
their
competitive
position.
38
•
•
•
They
may
have
difficulty
accessing
the
capital
markets
to
meet
future
capital
needs.
Changes
in
laws
and
regulations,
as
well
as
their
interpretations,
may
adversely
affect
their
business,
financial
structure
or
prospects.
Increased
taxes,
regulatory
expense
or
the
costs
of
changes
to
the
way
they
conduct
business
due
to
the
effects
of
climate
change
may
adversely
affect
their
business,
financial
structure
or
prospects.
We
acquire
majority
interests
in
operating
companies
engaged
in
a
variety
of
industries.
When
we
acquire
these
companies
we
generally
seek
to
apply
financial
leverage
to
them
in
the
form
of
debt.
In
most
cases
all
or
a
portion
of
this
debt
is
held
by
us,
with
the
obligor
being
either
the
operating
company
itself,
a
holding
company
through
which
we
own
our
majority
interest
or
both.
The
level
of
debt
leverage
utilized
by
these
companies
makes
them
susceptible
to
the
risks
identified
above.
In
addition,
our
executive
officers,
directors
and
the
Investment
Adviser
could,
in
the
ordinary
course
of
business,
be
named
as
defendants
in
litigation
arising
from
proposed
investments
or
from
our
investments
in
the
portfolio
companies.
The lack of liquidity in our investments may adversely affect our business.
We
make
investments
in
private
companies.
A
portion
of
these
investments
may
be
subject
to
legal
and
other
restrictions
on
resale,
transfer,
pledge
or
other
disposition
or
will
otherwise
be
less
liquid
than
publicly
traded
securities.
The
illiquidity
of
our
investments
may
make
it
difficult
for
us
to
sell
such
investments
if
the
need
arises.
In
addition,
if
we
are
required
to
liquidate
all
or
a
portion
of
our
portfolio
quickly,
we
may
realize
significantly
less
than
the
value
at
which
we
have
previously
recorded
our
investments.
In
addition,
we
face
other
restrictions
on
our
ability
to
liquidate
an
investment
in
a
business
entity
to
the
extent
that
we
or
the
Investment
Adviser
has
or
could
be
deemed
to
have
material
non-public
information
regarding
such
business
entity.
Economic recessions or downturns could impair our portfolio companies and harm our operating results.
Many
of
our
portfolio
companies
may
be
susceptible
to
economic
slowdowns
or
recessions
and
may
be
unable
to
repay
our
loans
or
meet
other
obligations
during
these
periods.
Therefore,
our
non-performing
assets
are
likely
to
increase,
and
the
value
of
our
portfolio
is
likely
to
decrease,
during
these
periods.
Adverse
economic
conditions
also
may
decrease
the
value
of
collateral
securing
some
of
our
loans
and
the
value
of
our
equity
investments.
Economic
slowdowns
or
recessions
could
lead
to
financial
losses
in
our
portfolio
and
a
decrease
in
revenues,
net
income
and
assets.
Unfavorable
economic
conditions
also
could
increase
our
funding
costs,
limit
our
access
to
the
capital
markets
or
result
in
a
decision
by
lenders
not
to
extend
credit
to
us.
These
events
could
prevent
us
from
increasing
investments
and
harm
our
operating
results.
A
portfolio
company’s
failure
to
satisfy
financial
or
operating
covenants
imposed
by
us
or
other
lenders
could
lead
to
defaults
and,
potentially,
termination
of
its
loans
and
foreclosure
on
its
secured
assets,
which
could
trigger
cross-defaults
under
other
agreements
and
jeopardize
a
portfolio
company’s
ability
to
meet
its
obligations
under
the
debt
or
equity
securities
that
we
hold.
We
may
incur
expenses
to
the
extent
necessary
to
seek
recovery
upon
default
or
to
negotiate
new
terms,
which
may
include
the
waiver
of
certain
financial
covenants,
with
a
defaulting
portfolio
company.
In
addition,
if
one
of
our
portfolio
companies
were
to
go
bankrupt,
even
though
we
may
have
structured
our
interest
as
senior
debt
or
preferred
equity,
depending
on
the
facts
and
circumstances,
including
the
extent
to
which
we
actually
provided
managerial
assistance
to
that
portfolio
company,
a
bankruptcy
court
might
re-characterize
our
debt
or
equity
holding
and
subordinate
all
or
a
portion
of
our
claim
to
those
of
other
creditors.
Investments in equity securities, many of which are illiquid with no readily available market, involve a substantial degree of risk.
We
may
purchase
common
and
other
equity
securities.
Although
common
stock
has
historically
generated
higher
average
total
returns
than
fixed
income
securities
over
the
long-term,
common
stock
has
significantly
more
volatility
in
those
returns
and
may
significantly
underperform
relative
to
fixed
income
securities.
The
equity
securities
we
acquire
may
fail
to
appreciate
and
may
decline
in
value
or
become
worthless
and
our
ability
to
recover
our
investment
will
depend
on
our
portfolio
company’s
success.
Investments
in
equity
securities
involve
a
number
of
significant
risks,
including:
•
•
Any
equity
investment
we
make
in
a
portfolio
company
could
be
subject
to
further
dilution
as
a
result
of
the
issuance
of
additional
equity
interests
and
to
serious
risks
as
a
junior
security
that
will
be
subordinate
to
all
indebtedness
(including
trade
creditors)
or
senior
securities
in
the
event
that
the
issuer
is
unable
to
meet
its
obligations
or
becomes
subject
to
a
bankruptcy
process.
To
the
extent
that
the
portfolio
company
requires
additional
capital
and
is
unable
to
obtain
it,
we
may
not
recover
our
investment.
39
•
In
some
cases,
equity
securities
in
which
we
invest
will
not
pay
current
dividends,
and
our
ability
to
realize
a
return
on
our
investment,
as
well
as
to
recover
our
investment,
will
be
dependent
on
the
success
of
the
portfolio
company.
Even
if
the
portfolio
company
is
successful,
our
ability
to
realize
the
value
of
our
investment
may
be
dependent
on
the
occurrence
of
a
liquidity
event,
such
as
a
public
offering
or
the
sale
of
the
portfolio
company.
It
is
likely
to
take
a
significant
amount
of
time
before
a
liquidity
event
occurs
or
we
can
otherwise
sell
our
investment.
In
addition,
the
equity
securities
we
receive
or
invest
in
may
be
subject
to
restrictions
on
resale
during
periods
in
which
it
could
be
advantageous
to
sell
them.
There
are
special
risks
associated
with
investing
in
preferred
securities,
including:
•
•
•
•
Preferred
securities
may
include
provisions
that
permit
the
issuer,
at
its
discretion,
to
defer
distributions
for
a
stated
period
without
any
adverse
consequences
to
the
issuer.
If
we
own
a
preferred
security
that
is
deferring
its
distributions,
we
may
be
required
to
report
income
for
tax
purposes
before
we
receive
such
distributions.
Preferred
securities
are
subordinated
to
debt
in
terms
of
priority
to
income
and
liquidation
payments,
and
therefore
will
be
subject
to
greater
credit
risk
than
debt.
Preferred
securities
may
be
substantially
less
liquid
than
many
other
securities,
such
as
common
stock
or
U.S.
government
securities.
Generally,
preferred
security
holders
have
no
voting
rights
with
respect
to
the
issuing
company,
subject
to
limited
exceptions.
Additionally,
when
we
invest
in
first
lien
senior
secured
loans
(including
unitranche
loans),
second
lien
senior
secured
loans
or
unsecured
debt,
we
may
acquire
warrants
or
other
equity
securities
as
well.
Our
goal
is
ultimately
to
dispose
of
such
equity
interests
and
realize
gains
upon
our
disposition
of
such
interests.
However,
the
equity
interests
we
receive
may
not
appreciate
in
value
and,
in
fact,
may
decline
in
value.
Accordingly,
we
may
not
be
able
to
realize
gains
from
our
equity
interests
and
any
gains
that
we
do
realize
on
the
disposition
of
any
equity
interests
may
not
be
sufficient
to
offset
any
other
losses
we
experience.
We
may
invest,
to
the
extent
permitted
by
law,
in
the
equity
securities
of
investment
funds
that
are
operating
pursuant
to
certain
exceptions
to
the
1940
Act
and
in
advisers
to
similar
investment
funds
and,
to
the
extent
we
so
invest,
will
bear
our
ratable
share
of
any
such
company’s
expenses,
including
management
and
performance
fees.
We
will
also
remain
obligated
to
pay
management
and
incentive
fees
to
Prospect
Capital
Management
with
respect
to
the
assets
invested
in
the
securities
and
instruments
of
such
companies.
With
respect
to
each
of
these
investments,
each
of
our
common
stockholders
will
bear
his
or
her
share
of
the
management
and
incentive
fee
of
Prospect
Capital
Management
as
well
as
indirectly
bearing
the
management
and
performance
fees
and
other
expenses
of
any
such
investment
funds
or
advisers.
There may be circumstances where our debt investments could be subordinated to claims of other creditors or we could be subject to lender liability claims.
If
one
of
our
portfolio
companies
were
to
go
bankrupt,
even
though
we
may
have
structured
our
interest
as
senior
debt,
depending
on
the
facts
and
circumstances,
a
bankruptcy
court
might
recharacterize
our
debt
holding
as
an
equity
investment
and
subordinate
all
or
a
portion
of
our
claim
to
that
of
other
creditors.
In
addition,
lenders
can
be
subject
to
lender
liability
claims
for
actions
taken
by
them
where
they
become
too
involved
in
the
borrower’s
business
or
exercise
control
over
the
borrower.
For
example,
we
could
become
subject
to
a
lender’s
liability
claim,
if,
among
other
things,
we
actually
render
significant
managerial
assistance.
Our portfolio companies may incur debt or issue equity securities that rank equally with, or senior to, our investments in such companies.
Our
portfolio
companies
may
have,
or
may
be
permitted
to
incur,
other
debt
or
issue
other
equity
securities
that
rank
equally
with
or
senior
to
our
investments.
By
their
terms,
such
instruments
may
provide
that
the
holders
are
entitled
to
receive
payment
of
dividends,
interest
or
principal
on
or
before
the
dates
on
which
we
are
entitled
to
receive
payments
in
respect
of
our
investments.
These
debt
instruments
would
usually
prohibit
the
portfolio
companies
from
paying
interest
on
or
repaying
our
investments
in
the
event
and
during
the
continuance
of
a
default
under
such
debt.
Also,
in
the
event
of
insolvency,
liquidation,
dissolution,
reorganization
or
bankruptcy
of
a
portfolio
company,
holders
of
securities
ranking
senior
to
our
investment
in
that
portfolio
company
typically
are
entitled
to
receive
payment
in
full
before
we
receive
any
distribution
in
respect
of
our
investment.
After
repaying
such
holders,
the
portfolio
company
may
not
have
any
remaining
assets
to
use
for
repaying
its
obligation
to
us.
In
the
case
of
securities
ranking
equally
with
our
investments,
we
would
have
to
share
on
an
equal
basis
any
distributions
with
other
security
holders
in
the
event
of
an
insolvency,
liquidation,
dissolution,
reorganization
or
bankruptcy
of
the
relevant
portfolio
company.
40
The
rights
we
may
have
with
respect
to
the
collateral
securing
any
junior
priority
loans
we
make
to
our
portfolio
companies
may
also
be
limited
pursuant
to
the
terms
of
one
or
more
intercreditor
agreements
(including
agreements
governing
“first
out”
and
“last
out”
structures)
that
we
enter
into
with
the
holders
of
senior
debt.
Under
such
an
intercreditor
agreement,
at
any
time
that
senior
obligations
are
outstanding,
we
may
forfeit
certain
rights
with
respect
to
the
collateral
to
the
holders
of
the
senior
obligations.
These
rights
may
include
the
right
to
commence
enforcement
proceedings
against
the
collateral,
the
right
to
control
the
conduct
of
such
enforcement
proceedings,
the
right
to
approve
amendments
to
collateral
documents,
the
right
to
release
liens
on
the
collateral
and
the
right
to
waive
past
defaults
under
collateral
documents.
We
may
not
have
the
ability
to
control
or
direct
such
actions,
even
if
as
a
result
our
rights
as
junior
lenders
are
adversely
affected.
This
risk
is
characteristic
of
many
of
the
majority-owned
operating
companies
in
our
portfolio
in
that
any
debt
to
us
from
a
holding
company
and
the
holding
company’s
substantial
equity
investments
in
the
related
operating
company
are
subordinated
to
any
creditors
of
the
operating
company.
When we are a debt or minority equity investor in a portfolio company, we are often not in a position to exert influence on the entity, and other debt holders,
other equity holders and portfolio company management may make decisions that could decrease the value of our portfolio holdings.
When
we
make
debt
or
minority
equity
investments,
we
are
subject
to
the
risk
that
a
portfolio
company
may
make
business
decisions
with
which
we
disagree
and
the
other
equity
holders
and
management
of
such
company
may
take
risks
or
otherwise
act
in
ways
that
do
not
serve
our
interests.
As
a
result,
a
portfolio
company
may
make
decisions
that
could
decrease
the
value
of
our
investment.
In
addition,
when
we
hold
a
subordinate
debt
position,
other
more
senior
debt
holders
may
make
decisions
that
could
decrease
the
value
of
our
investment.
Our portfolio companies may be highly leveraged.
Some
of
our
portfolio
companies
may
be
highly
leveraged,
which
may
have
adverse
consequences
to
these
companies
and
to
us
as
an
investor.
These
companies
may
be
subject
to
restrictive
financial
and
operating
covenants
and
the
leverage
may
impair
these
companies’
ability
to
finance
their
future
operations
and
capital
needs.
As
a
result,
these
companies’
flexibility
to
respond
to
changing
business
and
economic
conditions
and
to
take
advantage
of
business
opportunities
may
be
limited.
Further,
a
leveraged
company’s
income
and
net
assets
will
tend
to
increase
or
decrease
at
a
greater
rate
than
if
borrowed
money
were
not
used.
Our portfolio contains a limited number of portfolio companies, some of which comprise a substantial percentage of our portfolio, which subjects us to a
greater risk of significant loss if any of these companies defaults on its obligations under any of its debt securities.
A
consequence
of
the
limited
number
of
investments
in
our
portfolio
is
that
the
aggregate
returns
we
realize
may
be
significantly
adversely
affected
if
one
or
more
of
our
significant
portfolio
company
investments
perform
poorly
or
if
we
need
to
write
down
the
value
of
any
one
significant
investment.
Beyond
our
income
tax
diversification
requirements,
we
do
not
have
fixed
guidelines
for
diversification,
and
our
portfolio
could
contain
relatively
few
portfolio
companies.
Our failure to make follow-on investments in our existing portfolio companies could impair the value of our portfolio.
Following
an
initial
investment
in
a
portfolio
company,
we
may
make
additional
investments
in
that
portfolio
company
as
“follow-on”
investments,
in
order
to:
(1)
increase
or
maintain
in
whole
or
in
part
our
equity
ownership
percentage;
(2)
exercise
warrants,
options
or
convertible
securities
that
were
acquired
in
the
original
or
subsequent
financing
or
(3)
attempt
to
preserve
or
enhance
the
value
of
our
investment.
We
may
elect
not
to
make
follow-on
investments,
may
be
constrained
in
our
ability
to
employ
available
funds,
or
otherwise
may
lack
sufficient
funds
to
make
those
investments.
We
have
the
discretion
to
make
any
follow-on
investments,
subject
to
the
availability
of
capital
resources.
The
failure
to
make
follow-on
investments
may,
in
some
circumstances,
jeopardize
the
continued
viability
of
a
portfolio
company
and
our
initial
investment,
or
may
result
in
a
missed
opportunity
for
us
to
increase
our
participation
in
a
successful
operation.
Even
if
we
have
sufficient
capital
to
make
a
desired
follow-on
investment,
we
may
elect
not
to
make
a
follow-on
investment
because
we
may
not
want
to
increase
our
concentration
of
risk,
because
we
prefer
other
opportunities,
or
because
we
are
inhibited
by
compliance
with
BDC
requirements
or
the
desire
to
maintain
our
tax
status.
41
We may be unable to invest the net proceeds raised from offerings and repayments from investments on acceptable terms, which would harm our financial
condition and operating results.
Until
we
identify
new
investment
opportunities,
we
intend
to
either
invest
the
net
proceeds
of
future
offerings
and
repayments
from
investments
in
interest-bearing
deposits
or
other
short-term
instruments
or
use
the
net
proceeds
from
such
offerings
to
reduce
then-outstanding
obligations
under
our
credit
facility.
We
cannot
assure
you
that
we
will
be
able
to
find
enough
appropriate
investments
that
meet
our
investment
criteria
or
that
any
investment
we
complete
using
the
proceeds
from
an
offering
or
repayments
will
produce
a
sufficient
return.
We may have limited access to information about privately-held companies in which we invest.
We
invest
primarily
in
privately-held
companies.
Generally,
little
public
information
exists
about
these
companies,
and
we
are
required
to
rely
on
the
ability
of
the
Investment
Adviser’s
investment
professionals
to
obtain
adequate
information
to
evaluate
the
potential
returns
from
investing
in
these
companies.
These
companies
and
their
financial
information
are
not
subject
to
the
Sarbanes-Oxley
Act
of
2002
and
other
rules
that
govern
public
companies.
If
we
are
unable
to
uncover
all
material
information
about
these
companies,
we
may
not
make
a
fully
informed
investment
decision,
and
we
may
lose
money
on
our
investment.
We may not be able to fully realize the value of the collateral securing our debt investments.
Although
a
substantial
amount
of
our
debt
investments
are
protected
by
holding
security
interests
in
the
assets
or
equity
interests
of
the
portfolio
companies,
we
may
not
be
able
to
fully
realize
the
value
of
the
collateral
securing
our
investments
due
to
one
or
more
of
the
following
factors:
•
•
•
•
•
•
Our
debt
investments
may
be
in
the
form
of
unsecured
loans,
therefore
our
liens
on
the
collateral,
if
any,
are
subordinated
to
those
of
the
senior
secured
debt
of
the
portfolio
companies,
if
any.
As
a
result,
we
may
not
be
able
to
control
remedies
with
respect
to
the
collateral.
The
collateral
may
not
be
valuable
enough
to
satisfy
all
of
the
obligations
under
our
secured
loan,
particularly
after
giving
effect
to
the
repayment
of
secured
debt
of
the
portfolio
company
that
ranks
senior
to
our
loan.
Bankruptcy
laws
may
limit
our
ability
to
realize
value
from
the
collateral
and
may
delay
the
realization
process.
Our
rights
in
the
collateral
may
be
adversely
affected
by
the
failure
to
perfect
security
interests
in
the
collateral.
The
need
to
obtain
regulatory
and
contractual
consents
could
impair
or
impede
how
effectively
the
collateral
would
be
liquidated
and
could
affect
the
value
received.
Some
or
all
of
the
collateral
may
be
illiquid
and
may
have
no
readily
ascertainable
market
value.
The
liquidity
and
value
of
the
collateral
could
be
impaired
as
a
result
of
changing
economic
conditions,
competition,
and
other
factors,
including
the
availability
of
suitable
buyers.
Our investments in foreign securities may involve significant risks in addition to the risks inherent in U.S. investments.
Our
investment
strategy
contemplates
potential
investments
in
securities
of
foreign
companies,
including
those
located
in
emerging
market
countries.
Investing
in
foreign
companies
may
expose
us
to
additional
risks
not
typically
associated
with
investing
in
U.S.
companies.
These
risks
include
changes
in
exchange
control
regulations,
political
and
social
instability,
expropriation,
imposition
of
foreign
taxes,
less
liquid
markets
and
less
available
information
than
is
generally
the
case
in
the
United
States,
higher
transaction
costs,
less
government
supervision
of
exchanges,
brokers
and
issuers,
less
developed
bankruptcy
laws,
difficulty
in
enforcing
contractual
obligations,
lack
of
uniform
accounting
and
auditing
standards
and
greater
price
volatility.
Such
risks
are
more
pronounced
in
emerging
market
countries.
Although
currently
substantially
all
of
our
investments
are,
and
we
expect
that
most
of
our
investments
will
be,
U.S.
dollar-denominated,
investments
that
are
denominated
in
a
foreign
currency
will
be
subject
to
the
risk
that
the
value
of
a
particular
currency
will
change
in
relation
to
one
or
more
other
currencies.
Among
the
factors
that
may
affect
currency
values
are
trade
balances,
the
level
of
short-term
interest
rates,
differences
in
relative
values
of
similar
assets
in
different
currencies,
long-term
opportunities
for
investment
and
capital
appreciation,
and
political
developments.
42
We may expose ourselves to risks if we engage in hedging transactions.
We
may
employ
hedging
techniques
to
minimize
certain
investment
risks,
such
as
fluctuations
in
interest
and
currency
exchange
rates,
but
we
can
offer
no
assurance
that
such
strategies
will
be
effective.
If
we
engage
in
hedging
transactions,
we
may
expose
ourselves
to
risks
associated
with
such
transactions.
We
may
utilize
instruments
such
as
forward
contracts,
currency
options
and
interest
rate
swaps,
caps,
collars
and
floors
to
seek
to
hedge
against
fluctuations
in
the
relative
values
of
our
portfolio
positions
from
changes
in
currency
exchange
rates
and
market
interest
rates.
Hedging
against
a
decline
in
the
values
of
our
portfolio
positions
does
not
eliminate
the
possibility
of
fluctuations
in
the
values
of
such
positions
or
prevent
losses
if
the
values
of
such
positions
decline.
However,
such
hedging
can
establish
other
positions
designed
to
gain
from
those
same
developments,
thereby
offsetting
the
decline
in
the
value
of
such
portfolio
positions.
Such
hedging
transactions
may
also
limit
the
opportunity
for
gain
if
the
values
of
the
portfolio
positions
should
increase.
Moreover,
it
may
not
be
possible
to
hedge
against
an
exchange
rate
or
interest
rate
fluctuation
that
is
so
generally
anticipated
that
we
are
not
able
to
enter
into
a
hedging
transaction
at
an
acceptable
price.
Furthermore,
our
ability
to
engage
in
hedging
transactions
may
also
be
adversely
affected
by
rules
adopted
by
the
U.S.
Commodity
Futures
Trading
Commission.
The
success
of
our
hedging
transactions
depends
on
our
ability
to
correctly
predict
movements,
currencies
and
interest
rates.
Therefore,
while
we
may
enter
into
such
transactions
to
seek
to
reduce
currency
exchange
rate
and
interest
rate
risks,
unanticipated
changes
in
currency
exchange
rates
or
interest
rates
may
result
in
poorer
overall
investment
performance
than
if
we
had
not
engaged
in
any
such
hedging
transactions.
The
degree
of
correlation
between
price
movements
of
the
instruments
used
in
a
hedging
strategy
and
price
movements
in
the
portfolio
positions
being
hedged
may
vary.
Moreover,
for
a
variety
of
reasons,
we
may
not
seek
to
establish
a
perfect
correlation
between
such
hedging
instruments
and
the
portfolio
holdings
being
hedged.
Any
such
imperfect
correlation
may
prevent
us
from
achieving
the
intended
hedge
and
expose
us
to
risk
of
loss.
In
addition,
it
may
not
be
possible
to
hedge
fully
or
perfectly
against
currency
fluctuations
affecting
the
value
of
securities
denominated
in
non-U.S.
currencies.
We
have
no
current
intention
of
engaging
in
any
of
the
hedging
transaction
described
above,
although
it
reserves
the
right
to
do
so
in
the
future.
Our Board of Directors may change our operating policies and strategies without prior notice or stockholder approval, the effects of which may be adverse to
us and could impair the value of our stockholders’ investment.
Our
Board
of
Directors
has
the
authority
to
modify
or
waive
our
current
operating
policies
and
our
strategies
without
prior
notice
and
without
stockholder
approval.
We
cannot
predict
the
effect
any
changes
to
our
current
operating
policies
and
strategies
would
have
on
our
business,
financial
condition,
and
value
of
our
common
stock.
However,
the
effects
might
be
adverse,
which
could
negatively
impact
our
ability
to
pay
dividends
and
cause
stockholders
to
lose
all
or
part
of
their
investment.
Our investments in CLOs may be riskier and less transparent to us and our stockholders than direct investments in the underlying companies.
We
invest
in
CLOs.
Generally,
there
may
be
less
information
available
to
us
regarding
the
underlying
debt
investments
held
by
CLOs
than
if
we
had
invested
directly
in
the
debt
of
the
underlying
companies.
As
a
result,
our
stockholders
will
not
know
the
details
of
the
underlying
securities
of
the
CLOs
in
which
we
will
invest.
Our
CLO
investments
are
subject
to
the
risk
of
leverage
associated
with
the
debt
issued
by
such
CLOs
and
the
repayment
priority
of
senior
debt
holders
in
such
CLOs.
Our
investments
in
portfolio
companies
may
be
risky,
and
we
could
lose
all
or
part
of
our
investment.
CLOs typically will have no significant assets other than their underlying senior secured loans; payments on CLO investments are and will be payable solely
from the cash flows from such senior secured loans.
CLOs
typically
will
have
no
significant
assets
other
than
their
underlying
senior
secured
loans.
Accordingly,
payments
on
CLO
investments
are
and
will
be
payable
solely
from
the
cash
flows
from
such
senior
secured
loans,
net
of
all
management
fees
and
other
expenses.
Payments
to
us
as
a
holder
of
CLO
junior
securities
are
and
will
be
made
only
after
payments
due
on
the
senior
secured
notes,
and,
where
appropriate,
the
junior
secured
notes,
have
been
made
in
full.
This
means
that
relatively
small
numbers
of
defaults
of
senior
secured
loans
may
adversely
impact
our
returns.
Our CLO investments are exposed to leveraged credit risk.
Generally,
we
are
in
a
subordinated
position
with
respect
to
realized
losses
on
the
senior
secured
loans
underlying
our
investments
in
CLOs.
The
leveraged
nature
of
CLOs,
in
particular,
magnifies
the
adverse
impact
of
senior
secured
loan
defaults.
CLO
investments
represent
a
leveraged
investment
with
respect
to
the
underlying
senior
secured
loans.
Therefore,
changes
in
the
market
value
of
the
CLO
investments
could
be
greater
than
the
change
in
the
market
value
of
the
underlying
senior
secured
loans,
which
are
subject
to
credit,
liquidity
and
interest
rate
risk.
43
There is the potential for interruption and deferral of cash flow from CLO investments.
If
certain
minimum
collateral
value
ratios
and/or
interest
coverage
ratios
are
not
met
by
a
CLO,
primarily
due
to
senior
secured
loan
defaults,
then
cash
flow
that
otherwise
would
have
been
available
to
pay
distributions
to
us
on
our
CLO
investments
may
instead
be
used
to
redeem
any
senior
notes
or
to
purchase
additional
senior
secured
loans,
until
the
ratios
again
exceed
the
minimum
required
levels
or
any
senior
notes
are
repaid
in
full.
This
could
result
in
an
elimination,
reduction
or
deferral
in
the
distribution
and/or
principal
paid
to
the
holders
of
the
CLO
investments,
which
would
adversely
impact
our
returns.
Investments in foreign securities may involve significant risks in addition to the risks inherent in U.S. investments.
Our
CLO
investment
strategy
allows
investments
in
foreign
CLOs.
Investing
in
foreign
entities
may
expose
us
to
additional
risks
not
typically
associated
with
investing
in
U.S.
issuers.
These
risks
include
changes
in
exchange
control
regulations,
political
and
social
instability,
expropriation,
imposition
of
foreign
taxes,
less
liquid
markets
and
less
available
information
than
is
generally
the
case
in
the
United
States,
higher
transaction
costs,
less
government
supervision
of
exchanges,
brokers
and
issuers,
less
developed
bankruptcy
laws,
difficulty
in
enforcing
contractual
obligations,
lack
of
uniform
accounting
and
auditing
standards
and
greater
price
volatility.
Further,
we,
and
the
CLOs
in
which
we
invest,
may
have
difficulty
enforcing
creditor’s
rights
in
foreign
jurisdictions.
In
addition,
the
underlying
companies
of
the
CLOs
in
which
we
invest
may
be
foreign,
which
may
create
greater
exposure
for
us
to
foreign
economic
developments.
The payment of underlying portfolio manager fees and other charges on CLO investments could adversely impact our returns.
We
may
invest
in
CLO
investments
where
the
underlying
portfolio
securities
may
be
subject
to
management,
administration
and
incentive
or
performance
fees,
in
addition
to
those
payable
by
us.
Payment
of
such
additional
fees
could
adversely
impact
the
returns
we
achieve.
The inability of a CLO collateral manager to reinvest the proceeds of the prepayment of senior secured loans may adversely affect us.
There
can
be
no
assurance
that
for
any
CLO
investment,
in
the
event
that
any
of
the
senior
secured
loans
of
a
CLO
underlying
such
investment
are
prepaid,
the
CLO
collateral
manager
will
be
able
to
reinvest
such
proceeds
in
new
senior
secured
loans
with
equivalent
investment
returns.
If
the
CLO
collateral
manager
cannot
reinvest
in
new
senior
secured
loans
with
equivalent
investment
returns,
the
interest
proceeds
available
to
pay
interest
on
the
rated
liabilities
and
investments
may
be
adversely
affected.
Our CLO investments are subject to prepayments and calls, increasing re-investment risk.
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.
Prepayment
rates
are
influenced
by
changes
in
interest
rates
and
a
variety
of
economic,
geographic
and
other
factors
beyond
our
control
and
consequently
cannot
be
predicted
with
certainty.
In
addition,
for
a
CLO
collateral
manager
there
is
often
a
strong
incentive
to
refinance
well
performing
portfolios
once
the
senior
tranches
amortize.
The
yield
to
maturity
of
the
investments
will
depend
on
the
amount
and
timing
of
payments
of
principal
on
the
loans
and
the
price
paid
for
the
investments.
Such
yield
may
be
adversely
affected
by
a
higher
or
lower
than
anticipated
rate
of
prepayments
of
the
debt.
Furthermore,
our
CLO
investments
generally
do
not
contain
optional
call
provisions,
other
than
a
call
at
the
option
of
the
holders
of
the
equity
tranches
for
the
senior
notes
and
the
junior
secured
notes
to
be
paid
in
full
after
the
expiration
of
an
initial
period
in
the
deal
(referred
to
as
the
“non-call
period”).
The
exercise
of
the
call
option
is
by
the
relevant
percentage
(usually
a
majority)
of
the
holders
of
the
equity
tranches
and,
therefore,
where
we
do
not
hold
the
relevant
percentage
we
will
not
be
able
to
control
the
timing
of
the
exercise
of
the
call
option.
The
equity
tranches
also
generally
have
a
call
at
any
time
based
on
certain
tax
event
triggers.
In
any
event,
the
call
can
only
be
exercised
by
the
holders
of
equity
tranches
if
they
can
demonstrate
(in
accordance
with
the
detailed
provisions
in
the
transaction)
that
the
senior
notes
and
junior
secured
notes
will
be
paid
in
full
if
the
call
is
exercised.
Early
prepayments
and/or
the
exercise
of
a
call
option
otherwise
than
at
our
request
may
also
give
rise
to
increased
re-investment
risk
with
respect
to
certain
investments,
as
we
may
realize
excess
cash
earlier
than
expected.
If
we
are
unable
to
reinvest
such
cash
in
a
new
investment
with
an
expected
rate
of
return
at
least
equal
to
that
of
the
investment
repaid,
this
may
reduce
our
net
income
and,
consequently,
could
have
an
adverse
impact
on
our
ability
to
pay
dividends.
44
We have limited control of the administration and amendment of senior secured loans owned by the CLOs in which we invest.
We
are
not
able
to
directly
enforce
any
rights
and
remedies
in
the
event
of
a
default
of
a
senior
secured
loan
held
by
a
CLO
vehicle.
In
addition,
the
terms
and
conditions
of
the
senior
secured
loans
underlying
our
CLO
investments
may
be
amended,
modified
or
waived
only
by
the
agreement
of
the
underlying
lenders.
Generally,
any
such
agreement
must
include
a
majority
or
a
super
majority
(measured
by
outstanding
loans
or
commitments)
or,
in
certain
circumstances,
a
unanimous
vote
of
the
lenders.
Consequently,
the
terms
and
conditions
of
the
payment
obligations
arising
from
senior
secured
loans
could
be
modified,
amended
or
waived
in
a
manner
contrary
to
our
preferences.
We have limited control of the administration and amendment of any CLO in which we invest.
The
terms
and
conditions
of
target
securities
may
be
amended,
modified
or
waived
only
by
the
agreement
of
the
underlying
security
holders.
Generally,
any
such
agreement
must
include
a
majority
or
a
super
majority
(measured
by
outstanding
amounts)
or,
in
certain
circumstances,
a
unanimous
vote
of
the
security
holders.
Consequently,
the
terms
and
conditions
of
the
payment
obligation
arising
from
the
CLOs
in
which
we
invest
be
modified,
amended
or
waived
in
a
manner
contrary
to
our
preferences.
Senior secured loans of CLOs may be sold and replaced resulting in a loss to us.
The
senior
secured
loans
underlying
our
CLO
investments
may
be
sold
and
replacement
collateral
purchased
within
the
parameters
set
out
in
the
relevant
CLO
indenture
between
the
CLO
and
the
CLO
trustee
and
those
parameters
may
typically
only
be
amended,
modified
or
waived
by
the
agreement
of
a
majority
of
the
holders
of
the
senior
notes
and/or
the
junior
secured
notes
and/or
the
equity
tranche
once
the
CLO
has
been
established.
If
these
transactions
result
in
a
net
loss,
the
magnitude
of
the
loss
from
the
perspective
of
the
equity
tranche
would
be
increased
by
the
leveraged
nature
of
the
investment.
Our financial results may be affected adversely if one or more of our significant equity or junior debt investments in a CLO vehicle defaults on its payment
obligations or fails to perform as we expect.
We
expect
that
a
majority
of
our
portfolio
will
consist
of
equity
and
junior
debt
investments
in
CLOs,
which
involve
a
number
of
significant
risks.
CLOs
are
typically
highly
levered
up
to
approximately
10
times,
and
therefore
the
junior
debt
and
equity
tranches
that
we
will
invest
in
are
subject
to
a
higher
risk
of
total
loss.
In
particular,
investors
in
CLOs
indirectly
bear
risks
of
the
underlying
debt
investments
held
by
such
CLOs.
We
will
generally
have
the
right
to
receive
payments
only
from
the
CLOs,
and
will
generally
not
have
direct
rights
against
the
underlying
borrowers
or
the
entities
that
sponsored
the
CLOs.
Although
it
is
difficult
to
predict
whether
the
prices
of
indices
and
securities
underlying
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
investments
we
make
in
CLOs
are
thinly
traded
or
have
only
a
limited
trading
market.
CLO
investments
are
typically
privately
offered
and
sold,
in
the
primary
and
secondary
markets.
As
a
result,
investments
in
CLOs
may
be
characterized
as
illiquid
securities.
In
addition
to
the
general
risks
associated
with
investing
in
debt
securities,
CLOs
carry
additional
risks,
including,
but
not
limited
to:
(i)
the
possibility
that
distributions
from
the
underlying
senior
secured
loans
will
not
be
adequate
to
make
interest
or
other
payments;
(ii)
the
quality
of
the
underlying
senior
secured
loans
may
decline
in
value
or
default;
and
(iii)
the
complex
structure
of
the
security
may
not
be
fully
understood
at
the
time
of
investment
and
may
produce
disputes
with
the
CLO
or
unexpected
investment
results.
Further,
our
investments
in
equity
and
junior
debt
tranches
of
CLOs
are
subordinate
to
the
senior
debt
tranches
thereof.
Investments
in
structured
vehicles,
including
equity
and
junior
debt
instruments
issued
by
CLOs,
involve
risks,
including
credit
risk
and
market
risk.
Changes
in
interest
rates
and
credit
quality
may
cause
significant
price
fluctuations.
Additionally,
changes
in
the
underlying
senior
secured
loans
held
by
a
CLO
may
cause
payments
on
the
instruments
we
hold
to
be
reduced,
either
temporarily
or
permanently.
Structured
investments,
particularly
the
subordinated
interests
in
which
we
invest,
are
less
liquid
than
many
other
types
of
securities
and
may
be
more
volatile
than
the
senior
secured
loans
underlying
the
CLOs
in
which
we
invest.
Non-investment grade debt involves a greater risk of default and higher price volatility than investment grade debt.
The
senior
secured
loans
underlying
our
CLO
investments
typically
are
BB
or
B
rated
(non-investment
grade)
and
in
limited
circumstances,
unrated,
senior
secured
loans.
Non-investment
grade
securities
are
predominantly
speculative
with
respect
to
the
issuer’s
capacity
to
pay
interest
and
repay
principal
when
due
and
therefore
involve
a
greater
risk
of
default
and
higher
price
volatility
than
investment
grade
debt.
45
We will have no influence on management of underlying investments managed by non-affiliated third party CLO collateral managers.
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.
Similarly,
we
are
not
responsible
for
and
have
no
influence
over
the
day-to-day
management,
administration
or
any
other
aspect
of
the
issuers
of
the
individual
securities.
As
a
result,
the
values
of
the
portfolios
underlying
our
CLO
investments
could
decrease
as
a
result
of
decisions
made
by
third
party
CLO
collateral
managers.
The effects of compliance with the Volcker Rule may affect the CLO market in ways that we cannot currently anticipate.
Section
619
of
the
Dodd-Frank
Act
added
a
provision,
commonly
referred
to
as
the
“Volcker
Rule,”
to
federal
banking
laws
to
prohibit
covered
banking
entities
from
engaging
in
proprietary
trading
or
acquiring
or
retaining
an
ownership
interest
in,
sponsoring
or
having
certain
relationships
with
“covered
funds.”
Generally,
a
covered
fund
would
include
a
hedge
fund
or
a
private
equity
fund;
however,
the
definition
is
sufficiently
broad
that
it
may
include
certain
CLOs.
The
Volcker
Rule
provides
that
certain
loan
securitization
vehicles
are
not
considered
“covered
funds”
for
purposes
of
the
prohibitions.
In
order
to
meet
the
definition
of
a
loan
securitization,
the
assets
or
holdings
of
the
fund
must,
among
other
things,
consist
solely
of
loans
and
cannot
include
securities,
such
as
bonds.
In
an
effort
to
qualify
for
this
“loan
securitization”
exclusion,
many
current
CLOs
are
undertaking
amendments
to
their
related
transaction
documents
that
restrict
the
ability
of
the
issuer
to
acquire
bonds
and
certain
other
securities.
Such
an
amendment
may
have
the
effect
of
reducing
the
return
available
to
holders
of
CLO
equity
securities
because
bonds
are
generally
higher
yielding
assets
than
are
loans.
In
addition,
the
costs
associated
with
such
an
amendment
are
typically
paid
out
of
the
cash
flow
of
the
CLO,
which
could
impact
the
return
on
our
investment
in
any
CLO
equity
securities.
In
addition,
as
a
result
of
the
uncertainty
regarding
the
implementation
and
interpretation
of
the
Volcker
Rule,
it
is
likely
that
many
future
CLOs
will
contain
similar
restrictions
on
the
acquisition
of
bonds
and
certain
other
securities,
which
may
have
the
effect
of
lowering
returns
on
CLO
equity
securities.
Our
CLO
equity
portfolio
is
comprised
principally
of
non-Volcker
Rule
compliant
CLOs.
Generally,
due
to
the
lack
of
clarity
as
to
the
application
of
the
Volcker
Rule
and
the
availability
of
certain
exemptions,
certain
investors
that
are
subject
to
the
Volcker
Rule
may
not
be
as
interested
in
CLO
investments
in
the
future.
Any
decline
in
interest
may
adversely
affect
the
market
value
or
liquidity
of
any
or
all
of
the
CLO
investments
we
hold.
Similarly,
it
is
possible
that
uncertainty
regarding
the
treatment
of
CLOs
may
adversely
affect
the
volume
of
CLO
issuance.
With respect to our online consumer lending initiative, we are dependent on the business performance and competitiveness of marketplace lending facilitators
and our ability to assess loan underwriting performance and, if the marketplace lending facilitators from which we currently purchase consumer loans are
unable to maintain or increase consumer loan originations, or if such marketplace lending facilitators do not continue to sell consumer loans to us, or we are
unable to otherwise purchase additional loans, our business and results of operations will be adversely affected.
With
respect
to
our
online
consumer
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
consumer
loans,
and
our
ability
to
grow
our
portfolio
of
consumer
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
consumer
loans.
In
addition,
our
ability
to
analyze
the
risk-return
profile
of
consumer
loans
is
significantly
dependent
on
the
marketplace
facilitator's
ability
to
effectively
evaluate
a
borrower's
credit
profile
and
likelihood
of
default.
The
platforms
from
which
we
purchase
such
loans
utilize
credit
decisioning
and
scoring
models
that
assign
each
such
loan
offered
a
corresponding
interest
rate
and
origination
fee.
Our
returns
are
a
function
of
the
assigned
interest
rate
for
each
such
particular
loan
purchased
less
any
defaults
over
the
term
of
the
applicable
loan.
We
evaluate
the
credit
decisioning
and
scoring
models
implemented
by
each
platform
on
a
regular
basis
and
leverage
the
additional
data
on
loan
history
experience,
borrower
behavior,
economic
factors
and
prepayment
trends
that
we
accumulate
to
continually
improve
our
own
decisioning
model.
If
we
are
unable
to
effectively
evaluate
borrowers'
credit
profiles
or
the
credit
decisioning
and
scoring
models
implemented
by
each
platform
,
we
may
incur
unanticipated
losses
which
could
adversely
impact
our
operating
results.
Further,
if
the
interest
rates
for
consumer
loans
available
through
marketplace
lending
platforms
are
set
too
high
or
too
low,
it
may
adversely
impact
our
ability
to
receive
returns
on
our
investment
that
are
commensurate
with
the
risks
we
incur
in
purchasing
the
loans.
With
respect
to
our
online
consumer
lending
initiative,
we
rely
on
the
marketplace
lending
facilitators
to
service
loans
including
pursuing
collections
against
borrowers.
Personal
loans
facilitated
through
the
marketplace
lending
facilitators
are
not
secured
by
any
collateral,
are
not
guaranteed
or
insured
by
any
third-party
and
are
not
backed
by
any
governmental
authority
in
any
way.
Marketplace
lending
facilitators
are
therefore
limited
in
their
ability
to
collect
on
the
loans
if
a
borrower
is
unwilling
or
unable
to
repay.
A
borrower's
ability
to
repay
can
be
negatively
impacted
by
increases
in
their
payment
obligations
to
other
lenders
under
mortgage,
credit
card
and
other
loans,
including
student
loans
and
home
equity
lines
of
credit.
These
changes
can
result
from
46
increases
in
base
lending
rates
or
structured
increases
in
payment
obligations
and
could
reduce
the
ability
of
the
borrowers
to
meet
their
payment
obligations
to
other
lenders
and
under
the
loans
purchased
by
us.
If
a
borrower
defaults
on
a
loan,
the
marketplace
lending
facilitators
may
outsource
subsequent
servicing
efforts
to
third-party
collection
agencies,
which
may
be
unsuccessful
in
their
efforts
to
collect
the
amount
of
the
loan.
Marketplace
lending
facilitators
make
payments
ratably
on
an
investor's
investment
only
if
they
receive
the
borrower's
payments
on
the
corresponding
loan.
If
they
do
not
receive
payments
on
the
corresponding
loan
related
to
an
investment,
we
are
not
entitled
to
any
payments
under
the
terms
of
the
investment.
As
servicers
of
the
loans
we
purchase
as
part
of
our
online
consumer
lending
initiative,
the
marketplace
lending
facilitators
have
the
authority
to
waive
or
modify
the
terms
of
a
consumer
loan
without
our
consent
or
allow
the
postponement
of
strict
compliance
with
any
such
term
or
in
any
manner
grant
any
other
indulgence
to
any
borrower.
If
the
marketplace
lending
facilitators
approve
a
modification
to
the
terms
of
any
consumer
loan
it
may
adversely
impact
our
revenues.
To
continue
to
grow
our
online
consumer
lending
initiative
business,
we
rely
on
marketplace
lending
facilitators
from
which
we
purchase
loans
to
maintain
or
increase
their
consumer
loan
originations
and
to
agree
to
sell
their
consumer
loans
to
us.
However,
we
do
not
have
any
exclusive
arrangements
with
any
of
the
marketplace
lending
facilitators
and
have
no
agreements
with
them
to
provide
us
with
a
guaranteed
source
of
supply.
There
can
be
no
assurance
that
such
marketplace
lending
facilitators
will
be
able
to
maintain
or
increase
consumer
loan
originations
or
will
continue
to
sell
their
consumer
loans
to
us,
or
that
we
will
be
able
to
otherwise
purchase
additional
loans
and,
consequently,
there
can
be
no
assurance
that
we
will
be
able
to
grow
our
business
through
investment
in
additional
loans.
The
consumer
marketplace
lending
facilitators
could
elect
to
become
investors
in
their
own
marketplace
loans
which
would
limit
the
amount
of
supply
available
for
our
own
investments.
An
inability
to
expand
our
business
through
investments
in
additional
consumer
loans
would
reduce
the
return
on
investment
that
we
might
otherwise
be
able
to
realize
from
an
increased
portfolio
of
such
investments.
If
we
are
unable
to
expand
our
business
relating
to
our
online
consumer
lending
initiative,
this
may
have
a
material
adverse
effect
on
our
business,
financial
condition,
results
of
operations
and
prospects.
Additionally,
if
marketplace
lending
facilitators
are
unable
to
attract
qualified
borrowers
and
sufficient
investor
commitments
or
borrowers
and
investors
do
not
continue
to
participate
in
marketplace
lending
at
current
rates,
the
growth
of
loan
originations
will
slow
or
loan
originations
will
decrease.
As
a
result
of
any
of
these
factors,
we
may
be
unable
to
increase
our
consumer
loan
investments
and
our
revenue
may
grow
more
slowly
than
expected
or
decline,
which
could
have
a
material
adverse
effect
on
our
business,
financial
condition
and
results
of
operations.
Marketplace lending facilitators on which we rely as part of our online consumer lending initiative depend on issuing banks to originate all loans and to
comply with various federal, state and other laws.
Typically,
the
contracts
between
marketplace
lending
facilitators
and
their
loan
issuing
banks
are
non-exclusive
and
do
not
prohibit
the
issuing
banks
from
working
with
other
marketplace
lending
facilitators
or
from
offering
competing
services.
Issuing
banks
could
decide
that
working
with
marketplace
lending
facilitators
is
not
in
their
interests,
could
make
working
with
marketplace
lending
facilitators
cost
prohibitive
or
could
decide
to
enter
into
exclusive
or
more
favorable
relationships
with
other
marketplace
lending
facilitators
that
do
not
provide
consumer
loans
to
us.
In
addition,
issuing
banks
may
not
perform
as
expected
under
their
agreements.
Marketplace
lending
facilitators
could
in
the
future
have
disagreements
or
disputes
with
their
issuing
banks.
Any
of
these
factors
could
negatively
impact
or
threaten
our
ability
to
obtain
consumer
loans
and
consequently
could
have
a
material
adverse
effect
on
our
business,
financial
condition,
results
of
operations
and
prospects.
Issuing
banks
are
subject
to
oversight
by
the
FDIC
and
the
states
where
they
are
organized
and
operate
and
must
comply
with
complex
rules
and
regulations,
as
well
as
licensing
and
examination
requirements,
including
requirements
to
maintain
a
certain
amount
of
regulatory
capital
relative
to
their
outstanding
loans.
If
issuing
banks
were
to
suspend,
limit
or
cease
their
operations
or
the
relationship
between
the
marketplace
lending
facilitators
and
the
issuing
bank
were
to
otherwise
terminate,
the
marketplace
lending
facilitators
would
need
to
implement
a
substantially
similar
arrangement
with
another
issuing
bank,
obtain
additional
state
licenses
or
curtail
their
operations.
If
the
marketplace
lending
facilitators
are
required
to
enter
into
alternative
arrangements
with
a
different
issuing
bank
to
replace
their
existing
arrangements,
they
may
not
be
able
to
negotiate
a
comparable
alternative
arrangement.
This
may
result
in
their
inability
to
facilitate
loans
through
their
platform
and
accordingly
our
inability
to
operate
the
business
of
our
online
consumer
lending
initiative.
If
the
marketplace
lending
facilitators
were
unable
to
enter
into
an
alternative
arrangement
with
a
different
issuing
bank,
they
would
need
to
obtain
a
state
license
in
each
state
in
which
they
operate
in
order
to
enable
them
to
originate
loans,
as
well
as
comply
with
other
state
and
federal
laws,
which
would
be
costly
and
time-consuming
and
could
have
a
material
adverse
effect
on
our
business,
financial
condition,
results
of
operations
and
prospects.
If
the
marketplace
lending
facilitators
are
unsuccessful
in
maintaining
their
relationships
with
the
issuing
banks,
their
ability
to
provide
loan
products
could
be
materially
impaired
and
our
operating
results
could
suffer.
47
Credit and other information that is received about a borrower may be inaccurate or may not accurately reflect the borrower's creditworthiness, which may
cause the loans to be inaccurately priced.
The
marketplace
lending
facilitators
obtain
borrower
credit
information
from
consumer
reporting
agencies,
such
as
TransUnion,
Experian
or
Equifax,
and
assign
loan
grades
to
loan
requests
based
on
credit
decisioning
and
scoring
models
that
take
into
account
reported
credit
scores
and
the
requested
loan
amount,
in
addition
to
a
variety
of
other
factors.
A
credit
score
or
loan
grade
assigned
to
a
borrower
may
not
reflect
that
borrower's
actual
creditworthiness
because
the
credit
score
may
be
based
on
incomplete
or
inaccurate
consumer
reporting
data,
and
typically,
the
marketplace
lending
facilitators
do
not
verify
the
information
obtained
from
the
borrower's
credit
report.
Additionally,
there
is
a
risk
that,
following
the
date
of
the
credit
report
that
the
models
are
based
on,
a
borrower
may
have:
•
•
•
•
become
delinquent
in
the
payment
of
an
outstanding
obligation;
defaulted
on
a
pre-existing
debt
obligation;
taken
on
additional
debt;
or
sustained
other
adverse
financial
events.
Borrowers
supply
a
variety
of
information
to
the
marketplace
lending
facilitators
based
on
which
the
facilitators
price
the
loans.
In
a
number
of
cases,
marketplace
lending
facilitators
do
not
verify
all
of
this
information,
and
it
may
be
inaccurate
or
incomplete.
For
example,
marketplace
lending
facilitators
do
not
always
verify
a
borrower's
stated
tenure,
job
title,
home
ownership
status
or
intention
for
the
use
of
loan
proceeds.
Moreover,
we
do
not,
and
will
not,
have
access
to
financial
statements
of
borrowers
or
to
other
detailed
financial
information
about
the
borrowers.
If
we
invest
in
loans
through
the
marketplace
provided
by
the
marketplace
lending
facilitators
based
on
information
supplied
by
borrowers
or
third
parties
that
is
inaccurate,
misleading
or
incomplete,
we
may
not
receive
expected
returns
on
our
investments
and
this
could
have
a
material
adverse
impact
on
our
business,
financial
condition,
results
of
operations
and
prospects
and
our
reputation
may
be
harmed.
Marketplace lending is a relatively new lending method and the platforms of marketplace lending facilitators have a limited operating history relative to
established consumer banks. Borrowers may not view or treat their obligations under any such loans we purchase as having the same significance as loans
from traditional lending sources, such as bank loans.
The
return
on
our
investment
in
consumer
loans
depends
on
borrowers
fulfilling
their
payment
obligations
in
a
timely
and
complete
manner
under
the
corresponding
consumer
loan.
Borrowers
may
not
view
their
obligations
originated
on
the
lending
platforms
that
the
marketplace
lending
facilitators
provide
as
having
the
same
significance
as
other
credit
obligations
arising
under
more
traditional
circumstances,
such
as
loans
from
banks
or
other
commercial
financial
institutions.
If
a
borrower
neglects
his
or
her
payment
obligations
on
a
consumer
loan
or
chooses
not
to
repay
his
or
her
consumer
loan
entirely,
we
may
not
be
able
to
recover
any
portion
of
our
investment
in
the
consumer
loans.
This
will
adversely
impact
our
business,
financial
condition,
results
of
operations
and
prospects.
Risks affecting investments in real estate.
We
make
investments
in
commercial
and
multi-family
residential
real
estate
through
our
wholly-owned
tax-efficient
real
estate
investment
trust
NPRC,
the
surviving
entity
of
the
May
23,
2016
merger
of
APRC
and
UPRC.
A
number
of
factors
may
prevent
each
of
NPRC’s
properties
and
assets
from
generating
sufficient
net
cash
flow
or
may
adversely
affect
their
value,
or
both,
resulting
in
less
cash
available
for
distribution,
or
a
loss,
to
us.
These
factors
include:
•
•
•
•
•
•
•
national
economic
conditions;
regional
and
local
economic
conditions
(which
may
be
adversely
impacted
by
plant
closings,
business
layoffs,
industry
slow-downs,
weather
conditions,
natural
disasters,
and
other
factors);
local
real
estate
conditions
(such
as
over-supply
of
or
insufficient
demand
for
office
space);
changing
demographics;
perceptions
by
prospective
tenants
of
the
convenience,
services,
safety,
and
attractiveness
of
a
property;
the
ability
of
property
managers
to
provide
capable
management
and
adequate
maintenance;
the
quality
of
a
property’s
construction
and
design;
48
•
•
•
•
•
•
•
•
•
increases
in
costs
of
maintenance,
insurance,
and
operations
(including
energy
costs
and
real
estate
taxes);
changes
in
applicable
laws
or
regulations
(including
tax
laws,
zoning
laws,
or
building
codes);
potential
environmental
and
other
legal
liabilities;
the
level
of
financing
used
by
NPRC
in
respect
of
its
properties,
increases
in
interest
rate
levels
on
such
financings
and
the
risk
that
NPRC
will
default
on
such
financings,
each
of
which
increases
the
risk
of
loss
to
us;
the
availability
and
cost
of
refinancing;
the
ability
to
find
suitable
tenants
for
a
property
and
to
replace
any
departing
tenants
with
new
tenants;
potential
instability,
default
or
bankruptcy
of
tenants
in
the
properties
owned
by
NPRC;
potential
limited
number
of
prospective
buyers
interested
in
purchasing
a
property
that
NPRC
wishes
to
sell;
and
the
relative
illiquidity
of
real
estate
investments
in
general,
which
may
make
it
difficult
to
sell
a
property
at
an
attractive
price
or
within
a
reasonable
time
frame.
To the extent OID and PIK interest constitute a portion of our income, we will be exposed to typical risks associated with such income being required to be
included in taxable and accounting income prior to receipt of cash representing such income.
Our
investments
may
include
original
issue
discount,
or
OID,
instruments
and
payment
in
kind,
or
PIK,
interest
arrangements,
which
represents
contractual
interest
added
to
a
loan
balance
and
due
at
the
end
of
such
loan’s
term.
To
the
extent
OID
or
PIK
interest
constitute
a
portion
of
our
income,
we
are
exposed
to
typical
risks
associated
with
such
income
being
required
to
be
included
in
taxable
and
accounting
income
prior
to
receipt
of
cash,
including
the
following:
•
•
•
The
higher
interest
rates
of
OID
and
PIK
instruments
reflect
the
payment
deferral
and
increased
credit
risk
associated
with
these
instruments,
and
OID
and
PIK
instruments
generally
represent
a
significantly
higher
credit
risk
than
coupon
loans.
Even
if
the
accounting
conditions
for
income
accrual
are
met,
the
borrower
could
still
default
when
our
actual
collection
is
supposed
to
occur
at
the
maturity
of
the
obligation.
OID
and
PIK
instruments
may
have
unreliable
valuations
because
their
continuing
accruals
require
continuing
judgments
about
the
collectibility
of
the
deferred
payments
and
the
value
of
any
associated
collateral.
OID
and
PIK
income
may
also
create
uncertainty
about
the
source
of
our
cash
distributions.
For
accounting
purposes,
any
cash
distributions
to
shareholders
representing
OID
and
PIK
income
are
not
treated
as
coming
from
paid-in
capital,
even
if
the
cash
to
pay
them
comes
from
offering
proceeds.
As
a
result,
despite
the
fact
that
a
distribution
representing
OID
and
PIK
income
could
be
paid
out
of
amounts
invested
by
our
stockholders,
the
1940
Act
does
not
require
that
stockholders
be
given
notice
of
this
fact
by
reporting
it
as
a
return
of
capital.
Risks Relating to Our Securities
Our credit ratings may not reflect all risks of an investment in our debt securities.
Our
credit
ratings
are
an
assessment
by
third
parties
of
our
ability
to
pay
our
obligations.
Consequently,
real
or
anticipated
changes
in
our
credit
ratings
will
generally
affect
the
market
value
of
our
debt
securities.
Our
credit
ratings,
however,
may
not
reflect
the
potential
impact
of
risks
related
to
market
conditions
generally
or
other
factors
discussed
above
on
the
market
value
of
or
trading
market
for
the
publicly
issued
debt
securities.
Senior securities, including debt, expose us to additional risks, including the typical risks associated with leverage and could adversely affect our business,
financial condition and results of operations.
We
currently
use
our
revolving
credit
facility
to
leverage
our
portfolio
and
we
expect
in
the
future
to
borrow
from
and
issue
senior
debt
securities
to
banks
and
other
lenders
and
may
securitize
certain
of
our
portfolio
investments.
We
also
have
the
Unsecured
Notes
outstanding,
which
are
a
form
of
leverage
and
are
senior
in
payment
rights
to
our
common
stock.
With
certain
limited
exceptions,
as
a
BDC,
we
are
only
allowed
to
borrow
amounts
or
otherwise
issue
senior
securities
such
that
our
asset
coverage,
as
defined
in
the
1940
Act,
is
at
least
200%
after
such
borrowing
or
other
issuance.
The
amount
of
leverage
49
that
we
employ
will
depend
on
the
Investment
Adviser’s
and
our
Board
of
Directors’
assessment
of
market
conditions
and
other
factors
at
the
time
of
any
proposed
borrowing.
There
is
no
assurance
that
a
leveraging
strategy
will
be
successful.
Leverage
involves
risks
and
special
considerations
for
stockholders,
any
of
which
could
adversely
affect
our
business,
financial
condition
and
results
of
operations,
including
the
following:
•
•
•
•
•
•
•
•
•
•
•
A
likelihood
of
greater
volatility
in
the
net
asset
value
and
market
price
of
our
common
stock;
Diminished
operating
flexibility
as
a
result
of
asset
coverage
or
investment
portfolio
composition
requirements
required
by
lenders
or
investors
that
are
more
stringent
than
those
imposed
by
the
1940
Act;
The
possibility
that
investments
will
have
to
be
liquidated
at
less
than
full
value
or
at
inopportune
times
to
comply
with
debt
covenants
or
to
pay
interest
or
dividends
on
the
leverage;
Increased
operating
expenses
due
to
the
cost
of
leverage,
including
issuance
and
servicing
costs;
Convertible
or
exchangeable
securities,
such
as
the
Convertible
Notes
outstanding
or
those
issued
in
the
future
may
have
rights,
preferences
and
privileges
more
favorable
than
those
of
our
common
stock;
Subordination
to
lenders’
superior
claims
on
our
assets
as
a
result
of
which
lenders
will
be
able
to
receive
proceeds
available
in
the
case
of
our
liquidation
before
any
proceeds
will
be
distributed
to
our
stockholders;
Difficulty
meeting
our
payment
and
other
obligations
under
the
Unsecured
Notes
and
our
other
outstanding
debt;
The
occurrence
of
an
event
of
default
if
we
fail
to
comply
with
the
financial
and/or
other
restrictive
covenants
contained
in
our
debt
agreements,
including
the
credit
agreement
and
each
indenture
governing
the
Unsecured
Notes,
which
event
of
default
could
result
in
all
or
some
of
our
debt
becoming
immediately
due
and
payable;
Reduced
availability
of
our
cash
flow
to
fund
investments,
acquisitions
and
other
general
corporate
purposes,
and
limiting
our
ability
to
obtain
additional
financing
for
these
purposes;
The
risk
of
increased
sensitivity
to
interest
rate
increases
on
our
indebtedness
with
variable
interest
rates,
including
borrowings
under
our
amended
senior
credit
facility;
and
Reduced
flexibility
in
planning
for,
or
reacting
to,
and
increasing
our
vulnerability
to,
changes
in
our
business,
the
industry
in
which
we
operate
and
the
general
economy.
For
example,
the
amount
we
may
borrow
under
our
revolving
credit
facility
is
determined,
in
part,
by
the
fair
value
of
our
investments.
If
the
fair
value
of
our
investments
declines,
we
may
be
forced
to
sell
investments
at
a
loss
to
maintain
compliance
with
our
borrowing
limits.
Other
debt
facilities
we
may
enter
into
in
the
future
may
contain
similar
provisions.
Any
such
forced
sales
would
reduce
our
net
asset
value
and
also
make
it
difficult
for
the
net
asset
value
to
recover.
The
Investment
Adviser
and
our
Board
of
Directors
in
their
best
judgment
nevertheless
may
determine
to
use
leverage
if
they
expect
that
the
benefits
to
our
stockholders
of
maintaining
the
leveraged
position
will
outweigh
the
risks.
•
In
addition,
our
ability
to
meet
our
payment
and
other
obligations
of
the
Unsecured
Notes
and
our
credit
facility
depends
on
our
ability
to
generate
significant
cash
flow
in
the
future.
This,
to
some
extent,
is
subject
to
general
economic,
financial,
competitive,
legislative
and
regulatory
factors
as
well
as
other
factors
that
are
beyond
our
control.
We
cannot
provide
assurance
that
our
business
will
generate
cash
flow
from
operations,
or
that
future
borrowings
will
be
available
to
us
under
our
existing
credit
facility
or
otherwise,
in
an
amount
sufficient
to
enable
us
to
meet
our
payment
obligations
under
the
Unsecured
Notes
and
our
other
debt
and
to
fund
other
liquidity
needs.
If
we
are
not
able
to
generate
sufficient
cash
flow
to
service
our
debt
obligations,
we
may
need
to
refinance
or
restructure
our
debt,
including
the
Unsecured
Notes,
sell
assets,
reduce
or
delay
capital
investments,
or
seek
to
raise
additional
capital.
If
we
are
unable
to
implement
one
or
more
of
these
alternatives,
we
may
not
be
able
to
meet
our
payment
obligations
under
the
Unsecured
Notes
and
our
other
debt.
Illustration.
The
following
table
illustrates
the
effect
of
leverage
on
returns
from
an
investment
in
our
common
stock
assuming
various
annual
returns,
net
of
interest
expense.
The
calculations
in
the
table
below
are
hypothetical
and
actual
returns
may
be
higher
or
lower
than
those
appearing
below.
The
calculation
assumes
(i)
$6.3
billion
in
total
assets,
(ii)
an
average
cost
of
funds
of
5.38%,
(iii)
$2.9
billion
in
debt
outstanding
and
(iv)
$3.4
billion
of
shareholders’
equity.
Assumed Return on Our Portfolio (net of expenses)
Corresponding
Return
to
Stockholder
(10)%
(23.1)%
(5)%
(13.9)%
0 %
(4.6)%
5%
4.7%
10%
13.9%
50
The
assumed
portfolio
return
is
required
by
regulation
of
the
SEC
and
is
not
a
prediction
of,
and
does
not
represent,
our
projected
or
actual
performance.
Actual
returns
may
be
greater
or
less
than
those
appearing
in
the
table.
The Convertible Notes and the Public Notes present other risks to holders of our common stock, including the possibility that such notes could discourage an
acquisition of us by a third party and accounting uncertainty.
Certain
provisions
of
the
Convertible
Notes
and
the
Public
Notes
could
make
it
more
difficult
or
more
expensive
for
a
third
party
to
acquire
us.
Upon
the
occurrence
of
certain
transactions
constituting
a
fundamental
change,
holders
of
the
Convertible
Notes
and
the
Public
Notes
will
have
the
right,
at
their
option,
to
require
us
to
repurchase
all
of
their
notes
or
any
portion
of
the
principal
amount
of
such
notes
in
integral
multiples
of
$1,000.
We
may
also
be
required
to
increase
the
conversion
rate
or
provide
for
conversion
into
the
acquirer’s
capital
stock
in
the
event
of
certain
fundamental
changes
with
respect
to
the
Convertible
Notes.
These
provisions
could
discourage
an
acquisition
of
us
by
a
third
party.
The
accounting
for
convertible
debt
securities
is
subject
to
frequent
scrutiny
by
the
accounting
regulatory
bodies
and
is
subject
to
change.
We
cannot
predict
if
or
when
any
such
change
could
be
made
and
any
such
change
could
have
an
adverse
impact
on
our
reported
or
future
financial
results.
Any
such
impacts
could
adversely
affect
the
market
price
of
our
common
stock.
We may in the future determine to fund a portion of our investments with preferred stock, which would magnify the potential for gain or loss and the risks of
investing in us in the same way as our borrowings.
Preferred
stock,
which
is
another
form
of
leverage,
has
the
same
risks
to
our
common
stockholders
as
borrowings
because
the
dividends
on
any
preferred
stock
we
issue
must
be
cumulative.
Payment
of
such
dividends
and
repayment
of
the
liquidation
preference
of
such
preferred
stock
must
take
preference
over
any
dividends
or
other
payments
to
our
common
stockholders,
and
preferred
stockholders
are
not
subject
to
any
of
our
expenses
or
losses
and
are
not
entitled
to
participate
in
any
income
or
appreciation
in
excess
of
their
stated
preference.
Holders of any preferred stock we might issue would have the right to elect members of the board of directors and class voting rights on certain matters.
Holders
of
any
preferred
stock
we
might
issue,
voting
separately
as
a
single
class,
would
have
the
right
to
elect
two
members
of
the
board
of
directors
at
all
times
and
in
the
event
dividends
become
two
full
years
in
arrears
would
have
the
right
to
elect
a
majority
of
the
directors
until
such
arrearage
is
completely
eliminated.
In
addition,
preferred
stockholders
have
class
voting
rights
on
certain
matters,
including
changes
in
fundamental
investment
restrictions
and
conversion
to
open-end
status,
and
accordingly
can
veto
any
such
changes.
Restrictions
imposed
on
the
declarations
and
payment
of
dividends
or
other
distributions
to
the
holders
of
our
common
stock
and
preferred
stock,
both
by
the
1940
Act
and
by
requirements
imposed
by
rating
agencies
or
the
terms
of
our
credit
facilities,
might
impair
our
ability
to
maintain
our
qualification
as
a
RIC
for
federal
income
tax
purposes.
While
we
would
intend
to
redeem
our
preferred
stock
to
the
extent
necessary
to
enable
us
to
distribute
our
income
as
required
to
maintain
our
qualification
as
a
RIC,
there
can
be
no
assurance
that
such
actions
could
be
effected
in
time
to
meet
the
tax
requirements.
In addition to regulatory restrictions that restrict our ability to raise capital, our credit facility contains various covenants which, if not complied with, could
accelerate repayment under the facility, thereby materially and adversely affecting our liquidity, financial condition and results of operations.
The
agreement
governing
our
credit
facility
requires
us
to
comply
with
certain
financial
and
operational
covenants.
These
covenants
include:
•
•
Restrictions
on
the
level
of
indebtedness
that
we
are
permitted
to
incur
in
relation
to
the
value
of
our
assets;
Restrictions
on
our
ability
to
incur
liens;
and
• Maintenance
of
a
minimum
level
of
stockholders’
equity.
As
of
June
30,
2016
,
we
were
in
compliance
with
these
covenants.
However,
our
continued
compliance
with
these
covenants
depends
on
many
factors,
some
of
which
are
beyond
our
control.
Accordingly,
there
are
no
assurances
that
we
will
continue
to
comply
with
the
covenants
in
our
credit
facility.
Failure
to
comply
with
these
covenants
would
result
in
a
default
under
this
facility
which,
if
we
were
unable
to
obtain
a
waiver
from
the
lenders
thereunder,
could
result
in
an
acceleration
of
repayments
under
the
facility
and
thereby
have
a
material
adverse
impact
on
our
business,
financial
condition
and
results
of
operations.
Failure to extend our existing credit facility, the revolving period of which is currently scheduled to expire on March 27, 2019, could have a material adverse
effect on our results of operations and financial position and our ability to pay expenses and make distributions.
51
The
revolving
period
for
our
credit
facility
with
a
syndicate
of
lenders
is
currently
scheduled
to
terminate
on
March
27,
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.
If
the
credit
facility
is
not
renewed
or
extended
by
the
participant
banks
by
March
27,
2019,
we
will
not
be
able
to
make
further
borrowings
under
the
facility
after
such
date
and
the
outstanding
principal
balance
on
that
date
will
be
due
and
payable
on
March
27,
2020.
As
of
June
30,
2016
,
we
did
not
have
any
outstanding
borrowings
under
our
credit
facility.
Interest
on
borrowings
under
the
credit
facility
is
one-month
LIBOR
plus
225
basis
points
with
no
minimum
LIBOR
floor.
Additionally,
the
lenders
charge
a
fee
on
the
unused
portion
of
the
credit
facility
equal
to
either
50
basis
points
if
at
least
35%
of
the
credit
facility
is
drawn
or
100
basis
points
otherwise.
The
credit
facility
requires
us
to
pledge
assets
as
collateral
in
order
to
borrow
under
the
credit
facility.
If
we
are
unable
to
extend
our
facility
or
find
a
new
source
of
borrowing
on
acceptable
terms,
we
will
be
required
to
pay
down
the
amounts
outstanding
under
the
facility
during
the
two-year
term-out
period
through
one
or
more
of
the
following:
(1)
principal
collections
on
our
securities
pledged
under
the
facility,
(2)
at
our
option,
interest
collections
on
our
securities
pledged
under
the
facility
and
cash
collections
on
our
securities
not
pledged
under
the
facility,
or
(3)
possible
liquidation
of
some
or
all
of
our
loans
and
other
assets,
any
of
which
could
have
a
material
adverse
effect
on
our
results
of
operations
and
financial
position
and
may
force
us
to
decrease
or
stop
paying
certain
expenses
and
making
distributions
until
the
facility
is
repaid.
In
addition,
our
stock
price
could
decline
significantly,
we
would
be
restricted
in
our
ability
to
acquire
new
investments
and,
in
connection
with
our
year-end
audit,
our
independent
registered
accounting
firm
could
raise
an
issue
as
to
our
ability
to
continue
as
a
going
concern.
Failure to refinance our existing Unsecured Notes could have a material adverse effect on our results of operations and financial position.
The
Unsecured
Notes
mature
at
various
dates
from
August
15,
2016
to
October
15,
2043.
If
we
are
unable
to
refinance
the
Unsecured
Notes
or
find
a
new
source
of
borrowing
on
acceptable
terms,
we
will
be
required
to
pay
down
the
amounts
outstanding
at
maturity
under
the
facility
during
the
two-year
term-out
period
through
one
or
more
of
the
following:
(1)
borrowing
additional
funds
under
our
then
current
credit
facility,
(2)
issuance
of
additional
common
stock
or
(3)
possible
liquidation
of
some
or
all
of
our
loans
and
other
assets,
any
of
which
could
have
a
material
adverse
effect
on
our
results
of
operations
and
financial
position.
In
addition,
our
stock
price
could
decline
significantly;
we
would
be
restricted
in
our
ability
to
acquire
new
investments
and,
in
connection
with
our
year-end
audit,
our
independent
registered
accounting
firm
could
raise
an
issue
as
to
our
ability
to
continue
as
a
going
concern.
The trading market or market value of our publicly issued debt securities may fluctuate.
Our
publicly
issued
debt
securities
may
or
may
not
have
an
established
trading
market.
We
cannot
assure
our
noteholders
that
a
trading
market
for
our
publicly
issued
debt
securities
will
ever
develop
or
be
maintained
if
developed.
In
addition
to
our
creditworthiness,
many
factors
may
materially
adversely
affect
the
trading
market
for,
and
market
value
of,
our
publicly
issued
debt
securities.
These
factors
include,
but
are
not
limited
to,
the
following:
•
•
•
•
•
•
•
the
time
remaining
to
the
maturity
of
these
debt
securities;
the
outstanding
principal
amount
of
debt
securities
with
terms
identical
to
these
debt
securities;
the
ratings
assigned
by
national
statistical
ratings
agencies;
the
general
economic
environment;
the
supply
of
debt
securities
trading
in
the
secondary
market,
if
any;
the
redemption
or
repayment
features,
if
any,
of
these
debt
securities;
the
level,
direction
and
volatility
of
market
interest
rates
generally;
and
• market
rates
of
interest
higher
or
lower
than
rates
borne
by
the
debt
securities.
Our
noteholders
should
also
be
aware
that
there
may
be
a
limited
number
of
buyers
when
they
decide
to
sell
their
debt
securities.
This
too
may
materially
adversely
affect
the
market
value
of
the
debt
securities
or
the
trading
market
for
the
debt
securities.
52
Terms relating to redemption may materially adversely affect our noteholders return on any debt securities that we may issue.
If
our
noteholders’
debt
securities
are
redeemable
at
our
option,
we
may
choose
to
redeem
their
debt
securities
at
times
when
prevailing
interest
rates
are
lower
than
the
interest
rate
paid
on
their
debt
securities.
In
addition,
if
our
noteholders’
debt
securities
are
subject
to
mandatory
redemption,
we
may
be
required
to
redeem
their
debt
securities
also
at
times
when
prevailing
interest
rates
are
lower
than
the
interest
rate
paid
on
their
debt
securities.
In
this
circumstance,
our
noteholders
may
not
be
able
to
reinvest
the
redemption
proceeds
in
a
comparable
security
at
an
effective
interest
rate
as
high
as
their
debt
securities
being
redeemed.
Our shares of common stock currently trade at a discount from net asset value and may continue to do so in the future, which could limit our ability to raise
additional equity capital.
Shares
of
closed-end
investment
companies
frequently
trade
at
a
market
price
that
is
less
than
the
net
asset
value
that
is
attributable
to
those
shares.
This
characteristic
of
closed-end
investment
companies
is
separate
and
distinct
from
the
risk
that
our
net
asset
value
per
share
may
decline.
It
is
not
possible
to
predict
whether
any
shares
of
our
common
stock
will
trade
at,
above,
or
below
net
asset
value.
The
stocks
of
BDCs
as
an
industry,
including
shares
of
our
common
stock,
currently
trade
below
net
asset
value
as
a
result
of
concerns
over
liquidity,
interest
rate
changes,
leverage
restrictions
and
distribution
requirements.
When
our
common
stock
is
trading
below
its
net
asset
value
per
share,
we
will
not
be
able
to
issue
additional
shares
of
our
common
stock
at
its
market
price
without
first
obtaining
approval
for
such
issuance
from
our
stockholders
and
our
independent
directors.
At
our
2015
annual
meeting
of
stockholders
held
on
December
4,
2015
and
continued
until
January
8,
2016,
our
stockholders
approved
our
ability,
subject
to
the
condition
that
the
maximum
number
of
shares
salable
below
net
asset
value
pursuant
to
this
authority
in
any
particular
offering
that
could
result
in
such
dilution
is
limited
to
25%
of
our
then
outstanding
common
stock
immediately
prior
to
each
such
offering,
to
sell
shares
of
our
common
stock
at
any
level
of
discount
from
net
asset
value
per
share
during
the
12
month
period
following
January
8,
2016.
There is a risk that investors in our common stock may not receive dividends or that our dividends may not grow over time and investors in our debt securities
may not receive all of the interest income to which they are entitled.
We
intend
to
make
distributions
on
a
quarterly
basis
to
our
stockholders
out
of
assets
legally
available
for
distribution.
We
cannot
assure
you
that
we
will
achieve
investment
results
that
will
allow
us
to
make
a
specified
level
of
cash
distributions
or
year-to-year
increases
in
cash
distributions.
If
we
declare
a
dividend
and
if
more
stockholders
opt
to
receive
cash
distributions
rather
than
participate
in
our
dividend
reinvestment
plan,
we
may
be
forced
to
sell
some
of
our
investments
in
order
to
make
cash
dividend
payments.
In
addition,
due
to
the
asset
coverage
test
applicable
to
us
as
a
BDC,
we
may
be
limited
in
our
ability
to
make
distributions.
Further,
if
we
invest
a
greater
amount
of
assets
in
equity
securities
that
do
not
pay
current
dividends,
it
could
reduce
the
amount
available
for
distribution.
The
above-referenced
restrictions
on
distributions
may
also
inhibit
our
ability
to
make
required
interest
payments
to
holders
of
our
debt,
which
may
cause
a
default
under
the
terms
of
our
debt
agreements.
Such
a
default
could
materially
increase
our
cost
of
raising
capital,
as
well
as
cause
us
to
incur
penalties
under
the
terms
of
our
debt
agreements.
Investing in our securities may involve a high degree of risk and is highly speculative.
The
investments
we
make
in
accordance
with
our
investment
objective
may
result
in
a
higher
amount
of
risk
than
alternative
investment
options
and
volatility
or
loss
of
principal.
Our
investments
in
portfolio
companies
may
be
speculative
and
aggressive,
and
therefore,
an
investment
in
our
shares
may
not
be
suitable
for
someone
with
low
risk
tolerance.
Our stockholders will experience dilution in their ownership percentage if they opt out of our dividend reinvestment plan.
All
dividends
declared
in
cash
payable
to
stockholders
that
are
participants
in
our
dividend
reinvestment
plan
are
automatically
reinvested
in
shares
of
our
common
stock.
As
a
result,
our
stockholders
that
opt
out
of
our
dividend
reinvestment
plan
will
experience
dilution
in
their
ownership
percentage
of
our
common
stock
over
time.
Sales of substantial amounts of our common stock in the public market may have an adverse effect on the market price of our common stock.
Sales
of
substantial
amounts
of
our
common
stock,
or
the
availability
of
such
common
stock
for
sale
(including
as
a
result
of
the
conversion
of
the
Convertible
Notes
into
common
stock),
could
adversely
affect
the
prevailing
market
prices
for
our
common
stock.
If
this
occurs
and
continues,
it
could
impair
our
ability
to
raise
additional
capital
through
the
sale
of
securities
should
we
desire
to
do
so.
53
If we sell shares of our common stock or securities to subscribe for or are convertible into shares of our common stock at a discount to our net asset value per
share, stockholders who do not participate in such sale will experience immediate dilution in an amount that may be material.
At
our
2015
annual
meeting
of
stockholders
held
on
December
4,
2015
and
continued
until
January
8,
2016,
our
stockholders
approved
our
ability,
subject
to
the
condition
that
the
maximum
number
of
shares
salable
below
net
asset
value
pursuant
to
this
authority
in
any
particular
offering
that
could
result
in
such
dilution
is
limited
to
25%
of
our
then
outstanding
common
stock
immediately
prior
to
each
such
offering,
to
sell
shares
of
our
common
stock
at
any
level
of
discount
from
net
asset
value
per
share
during
the
12
month
period
following
January
8,
2016.
The
issuance
or
sale
by
us
of
shares
of
our
common
stock
or
securities
to
subscribe
for
or
are
convertible
into
shares
of
our
common
stock
at
a
discount
to
net
asset
value
poses
a
risk
of
dilution
to
our
stockholders.
In
particular,
stockholders
who
do
not
purchase
additional
shares
of
common
stock
at
or
below
the
discounted
price
in
proportion
to
their
current
ownership
will
experience
an
immediate
decrease
in
net
asset
value
per
share
(as
well
as
in
the
aggregate
net
asset
value
of
their
shares
of
common
stock
if
they
do
not
participate
at
all).
These
stockholders
will
also
experience
a
disproportionately
greater
decrease
in
their
participation
in
our
earnings
and
assets
and
their
voting
power
than
the
increase
we
experience
in
our
assets,
potential
earning
power
and
voting
interests
from
such
issuance
or
sale.
In
addition,
such
sales
may
adversely
affect
the
price
at
which
our
common
stock
trades.
We
have
sold
shares
of
our
common
stock
at
prices
below
net
asset
value
per
share
in
the
past
and
may
do
so
to
the
future.
We
have
not
sold
any
shares
of
our
common
stock
at
prices
below
net
asset
value
per
share
since
December
3,
2014.
Our ability to enter into transactions with our affiliates is restricted.
We
are
prohibited
under
the
1940
Act
from
knowingly
participating
in
certain
transactions
with
our
affiliates
without
the
prior
approval
of
our
independent
directors.
Any
person
that
owns,
directly
or
indirectly,
5%
or
more
of
our
outstanding
voting
securities
is
our
affiliate
for
purposes
of
the
1940
Act
and
we
are
generally
prohibited
from
buying
or
selling
any
security
or
other
property
from
or
to
such
affiliate,
absent
the
prior
approval
of
our
independent
directors.
The
1940
Act
also
prohibits
“joint”
transactions
with
an
affiliate,
which
could
include
investments
in
the
same
portfolio
company
(whether
at
the
same
or
different
times),
without
prior
approval
of
our
independent
directors.
Subject
to
certain
limited
exceptions,
we
are
prohibited
from
buying
or
selling
any
security
or
other
property
from
or
to
the
Investment
Adviser
and
its
affiliates
and
persons
with
whom
we
are
in
a
control
relationship,
or
entering
into
joint
transactions
with
any
such
person,
absent
the
prior
approval
of
the
SEC.
On
February
10,
2014,
we
received
an
exemptive
order
from
the
SEC
(the
“Order”)
that
gave
us
the
ability
to
negotiate
terms
other
than
price
and
quantity
of
co-
investment
transactions
with
other
funds
managed
by
the
Investment
Adviser
or
certain
affiliates,
including
Priority
Income
Fund,
Inc.
and
Pathway
Energy
Infrastructure
Fund,
Inc.,
subject
to
the
conditions
included
therein.
Under
the
terms
of
the
relief
permitting
us
to
co-invest
with
other
funds
managed
by
our
Investment
Adviser
or
its
affiliates,
a
“required
majority”
(as
defined
in
Section
57(o)
of
the
1940
Act)
of
our
independent
directors
must
make
certain
conclusions
in
connection
with
a
co-investment
transaction,
including
that
(1)
the
terms
of
the
proposed
transaction,
including
the
consideration
to
be
paid,
are
reasonable
and
fair
to
us
and
our
stockholders
and
do
not
involve
overreaching
of
us
or
our
stockholders
on
the
part
of
any
person
concerned
and
(2)
the
transaction
is
consistent
with
the
interests
of
our
stockholders
and
is
consistent
with
our
investment
objective
and
strategies.
In
certain
situations
where
co-investment
with
one
or
more
funds
managed
by
the
Investment
Adviser
or
its
affiliates
is
not
covered
by
the
Order,
such
as
when
there
is
an
opportunity
to
invest
in
different
securities
of
the
same
issuer,
the
personnel
of
the
Investment
Adviser
or
its
affiliates
will
need
to
decide
which
fund
will
proceed
with
the
investment.
Such
personnel
will
make
these
determinations
based
on
policies
and
procedures,
which
are
designed
to
reasonably
ensure
that
investment
opportunities
are
allocated
fairly
and
equitably
among
affiliated
funds
over
time
and
in
a
manner
that
is
consistent
with
applicable
laws,
rules
and
regulations.
Moreover,
except
in
certain
circumstances,
when
relying
on
the
Order,
we
will
be
unable
to
invest
in
any
issuer
in
which
one
or
more
funds
managed
by
the
Investment
Adviser
or
its
affiliates
has
previously
invested.
The market price of our securities may fluctuate significantly.
The
market
price
and
liquidity
of
the
market
for
our
securities
may
be
significantly
affected
by
numerous
factors,
some
of
which
are
beyond
our
control
and
may
not
be
directly
related
to
our
operating
performance.
These
factors
include:
•
•
•
•
significant
volatility
in
the
market
price
and
trading
volume
of
securities
of
business
development
companies
or
other
companies
in
the
energy
industry,
which
are
not
necessarily
related
to
the
operating
performance
of
these
companies;
price
and
volume
fluctuations
in
the
overall
stock
market
from
time
to
time;
changes
in
regulatory
policies
or
tax
guidelines,
particularly
with
respect
to
RICs
or
business
development
companies;
loss
of
RIC
qualification;
54
•
•
•
•
•
•
•
•
•
•
•
•
•
changes
in
earnings
or
variations
in
operating
results;
changes
in
the
value
of
our
portfolio
of
investments;
any
shortfall
in
revenue
or
net
income
or
any
increase
in
losses
from
levels
expected
by
investors
or
securities
analysts;
departure
of
one
or
more
of
Prospect
Capital
Management’s
key
personnel;
operating
performance
of
companies
comparable
to
us;
short-selling
pressure
with
respect
to
shares
of
our
common
stock
or
BDCs
generally;
future
sales
of
our
securities
convertible
into
or
exchangeable
or
exercisable
for
our
common
stock
or
the
conversion
of
such
securities,
including
the
Convertible
Notes;
uncertainty
surrounding
the
strength
of
the
U.S.
economic
recovery;
concerns
regarding
European
sovereign
debt;
changes
in
prevailing
interest
rates;
litigation
matters;
general
economic
trends
and
other
external
factors;
and
loss
of
a
major
funding
source.
In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has, from time to time, been brought
against that company.
If
our
stock
price
fluctuates
significantly,
we
may
be
the
target
of
securities
litigation
in
the
future.
Securities
litigation
could
result
in
substantial
costs
and
divert
management’s
attention
and
resources
from
our
business.
There is a risk that you may not receive distributions or that our distributions may not grow over time.
We
have
made
and
intend
to
continue
to
make
distributions
on
a
monthly
basis
to
our
stockholders
out
of
assets
legally
available
for
distribution.
We
cannot
assure
you
that
we
will
achieve
investment
results
or
maintain
a
tax
status
that
will
allow
or
require
any
specified
level
of
cash
distributions
or
year-to-year
increases
in
cash
distributions.
In
addition,
due
to
the
asset
coverage
test
applicable
to
us
as
a
business
development
company,
we
may
be
limited
in
our
ability
to
make
distributions.
Provisions of the Maryland General Corporation Law and of our charter and bylaws could deter takeover attempts and have an adverse impact on the price of
our common stock.
Our
charter
and
bylaws
and
the
Maryland
General
Corporation
Law
contain
provisions
that
may
have
the
effect
of
delaying,
deferring
or
preventing
a
transaction
or
a
change
in
control
that
might
involve
a
premium
price
for
our
stockholders
or
otherwise
be
in
their
best
interest.
These
provisions
may
prevent
stockholders
from
being
able
to
sell
shares
of
our
common
stock
at
a
premium
over
the
current
of
prevailing
market
prices.
Our
charter
provides
for
the
classification
of
our
Board
of
Directors
into
three
classes
of
directors,
serving
staggered
three-year
terms,
which
may
render
a
change
of
control
or
removal
of
our
incumbent
management
more
difficult.
Furthermore,
any
and
all
vacancies
on
our
Board
of
Directors
will
be
filled
generally
only
by
the
affirmative
vote
of
a
majority
of
the
remaining
directors
in
office,
even
if
the
remaining
directors
do
not
constitute
a
quorum,
and
any
director
elected
to
fill
a
vacancy
will
serve
for
the
remainder
of
the
full
term
until
a
successor
is
elected
and
qualifies.
Our
Board
of
Directors
is
authorized
to
create
and
issue
new
series
of
shares,
to
classify
or
reclassify
any
unissued
shares
of
stock
into
one
or
more
classes
or
series,
including
preferred
stock
and,
without
stockholder
approval,
to
amend
our
charter
to
increase
or
decrease
the
number
of
shares
of
common
stock
that
we
have
authority
to
issue,
which
could
have
the
effect
of
diluting
a
stockholder’s
ownership
interest.
Prior
to
the
issuance
of
shares
of
common
stock
of
each
class
or
series,
including
any
reclassified
series,
our
Board
of
Directors
is
required
by
our
governing
documents
to
set
the
terms,
preferences,
conversion
or
other
rights,
voting
powers,
restrictions,
limitations
as
to
dividends
or
other
distributions,
qualifications
and
terms
or
conditions
of
redemption
for
each
class
or
series
of
shares
of
stock.
55
Our
charter
and
bylaws
also
provide
that
our
Board
of
Directors
has
the
exclusive
power
to
adopt,
alter
or
repeal
any
provision
of
our
bylaws,
and
to
make
new
bylaws.
The
Maryland
General
Corporation
Law
also
contains
certain
provisions
that
may
limit
the
ability
of
a
third
party
to
acquire
control
of
us,
such
as:
•
•
The
Maryland
Business
Combination
Act,
which,
subject
to
certain
limitations,
prohibits
certain
business
combinations
between
us
and
an
“interested
stockholder”
(defined
generally
as
any
person
who
beneficially
owns
10%
or
more
of
the
voting
power
of
the
common
stock
or
an
affiliate
thereof)
for
five
years
after
the
most
recent
date
on
which
the
stockholder
becomes
an
interested
stockholder
and,
thereafter,
imposes
special
minimum
price
provisions
and
special
stockholder
voting
requirements
on
these
combinations.
The
Maryland
Control
Share
Acquisition
Act,
which
provides
that
“control
shares”
of
a
Maryland
corporation
(defined
as
shares
of
common
stock
which,
when
aggregated
with
other
shares
of
common
stock
controlled
by
the
stockholder,
entitles
the
stockholder
to
exercise
one
of
three
increasing
ranges
of
voting
power
in
electing
directors,
as
described
more
fully
below)
acquired
in
a
“control
share
acquisition”
(defined
as
the
direct
or
indirect
acquisition
of
ownership
or
control
of
“control
shares”)
have
no
voting
rights
except
to
the
extent
approved
by
stockholders
by
the
affirmative
vote
of
at
least
two-thirds
of
all
the
votes
entitled
to
be
cast
on
the
matter,
excluding
all
interested
shares
of
common
stock.
The
provisions
of
the
Maryland
Business
Combination
Act
will
not
apply,
however,
if
our
Board
of
Directors
adopts
a
resolution
that
any
business
combination
between
us
and
any
other
person
will
be
exempt
from
the
provisions
of
the
Maryland
Business
Combination
Act.
Our
Board
of
Directors
has
adopted
a
resolution
that
any
business
combination
between
us
and
any
other
person
is
exempted
from
the
provisions
of
the
Maryland
Business
Combination
Act,
provided
that
the
business
combination
is
first
approved
by
the
Board
of
Directors,
including
a
majority
of
the
directors
who
are
not
interested
persons
as
defined
in
the
1940
Act.
There
can
be
no
assurance
that
this
resolution
will
not
be
altered
or
repealed
in
whole
or
in
part
at
any
time.
If
the
resolution
is
altered
or
repealed,
the
provisions
of
the
Maryland
Business
Combination
Act
may
discourage
others
from
trying
to
acquire
control
of
us.
As
permitted
by
Maryland
law,
our
bylaws
contain
a
provision
exempting
from
the
Maryland
Control
Share
Acquisition
Act
any
and
all
acquisitions
by
any
person
of
our
common
stock.
Although
our
bylaws
include
such
a
provision,
such
a
provision
may
also
be
amended
or
eliminated
by
our
Board
of
Directors
at
any
time
in
the
future,
provided
that
we
will
notify
the
Division
of
Investment
Management
at
the
SEC
prior
to
amending
or
eliminating
this
provision.
However,
as
noted
above,
the
SEC
has
recently
taken
the
position
that
the
Maryland
Control
Share
Acquisition
Act
is
inconsistent
with
the
1940
Act
and
may
not
be
invoked
by
a
BDC.
It
is
the
view
of
the
staff
of
the
SEC
that
opting
into
the
Maryland
Control
Share
Acquisition
Act
would
be
acting
in
a
manner
inconsistent
with
section
18(i)
of
the
1940
Act.
Your interest in us may be diluted if you do not fully exercise your subscription rights in any rights offering. In addition, if the subscription price is less than
our net asset value per share, then you will experience an immediate dilution of the aggregate net asset value of your shares.
In
the
event
we
issue
subscription
rights,
stockholders
who
do
not
fully
exercise
their
subscription
rights
should
expect
that
they
will,
at
the
completion
of
a
rights
offering
pursuant
to
this
prospectus,
own
a
smaller
proportional
interest
in
us
than
would
otherwise
be
the
case
if
they
fully
exercised
their
rights.
We
cannot
state
precisely
the
amount
of
any
such
dilution
in
share
ownership
because
we
do
not
know
at
this
time
what
proportion
of
the
shares
will
be
purchased
as
a
result
of
such
rights
offering.
In
addition,
if
the
subscription
price
is
less
than
the
net
asset
value
per
share
of
our
common
stock,
then
our
stockholders
would
experience
an
immediate
dilution
of
the
aggregate
net
asset
value
of
their
shares
as
a
result
of
the
offering.
The
amount
of
any
decrease
in
net
asset
value
is
not
predictable
because
it
is
not
known
at
this
time
what
the
subscription
price
and
net
asset
value
per
share
will
be
on
the
expiration
date
of
a
rights
offering
or
what
proportion
of
the
shares
will
be
purchased
as
a
result
of
such
rights
offering.
Such
dilution
could
be
substantial.
56
We may in the future choose to pay dividends in our own stock, in which case our stockholders may be required to pay tax in excess of the cash they receive.
We
may
distribute
taxable
dividends
that
are
payable
in
part
in
our
stock.
The
IRS
has
issued
a
private
letter
ruling
on
cash/stock
dividends
paid
by
us
if
certain
requirements
are
satisfied,
and
the
ruling
permits
us
to
declare
such
taxable
cash/stock
dividends,
up
to
80%
in
stock,
with
respect
to
our
taxable
years
ending
August
31,
2016
and
August
31,
2017.
Taxable
stockholders
receiving
such
dividends
would
be
required
to
include
the
full
amount
of
the
dividend
as
ordinary
income
(or
as
long-term
capital
gain
to
the
extent
such
distribution
is
properly
designated
as
a
capital
gain
dividend)
to
the
extent
of
our
current
and
accumulated
earnings
and
profits
for
United
States
federal
income
tax
purposes.
As
a
result,
a
U.S.
Stockholder
(as
defined
in
“Material
U.S.
Federal
Income
Tax
Considerations”)
may
be
required
to
pay
tax
with
respect
to
such
dividends
in
excess
of
any
cash
received.
If
a
U.S.
Stockholder
sells
the
stock
it
receives
as
a
dividend
in
order
to
pay
this
tax,
it
may
be
subject
to
transaction
fees
(e.g.,
broker
fees
or
transfer
agent
fees)
and
the
sales
proceeds
may
be
less
than
the
amount
included
in
income
with
respect
to
the
dividend,
depending
on
the
market
price
of
its
stock
at
the
time
of
the
sale.
Furthermore,
with
respect
to
Non-U.S.
Stockholders
(as
defined
in
“Material
U.S.
Federal
Income
Tax
Considerations”),
we
may
be
required
to
withhold
U.S.
tax
with
respect
to
such
dividends,
including
in
respect
of
all
or
a
portion
of
such
dividend
that
is
payable
in
stock.
In
addition,
if
a
significant
number
of
our
stockholders
determine
to
sell
shares
of
our
stock
in
order
to
pay
taxes
owed
on
dividends,
it
may
put
downward
pressure
on
the
trading
price
of
our
stock.
It
is
unclear
whether
and
to
what
extent
we
will
be
able
to
pay
dividends
in
cash
and
our
stock.
Item 1B. Unresolved Staff Comments
Not
applicable.
Item 2. Properties
We
do
not
own
any
real
estate
or
other
physical
properties
materially
important
to
our
operation.
Our
principal
executive
offices
are
located
at
10
East
40th
Street,
New
York,
New
York
10016,
where
we
occupy
our
office
space
pursuant
to
our
Administration
Agreement
with
Prospect
Administration.
The
office
facilities,
which
are
shared
with
the
Investment
Adviser
and
Administrator,
consist
of
approximately
31,700
square
feet,
with
various
leases
expiring
up
to
and
through
2023.
We
believe
that
our
office
facilities
are
suitable
and
adequate
for
our
business
as
currently
conducted.
Item 3. Legal Proceedings
From
time
to
time,
we
may
become
involved
in
various
investigations,
claims
and
legal
proceedings
that
arise
in
the
ordinary
course
of
our
business.
These
matters
may
relate
to
intellectual
property,
employment,
tax,
regulation,
contract
or
other
matters.
The
resolution
of
such
matters
as
may
arise
will
be
subject
to
various
uncertainties
and,
even
if
such
claims
are
without
merit,
could
result
in
the
expenditure
of
significant
financial
and
managerial
resources.
We
are
not
aware
of
any
material
legal
proceedings
as
of
June
30,
2016
.
Our
Investment
Adviser
and
Administrator
have
been
named
as
defendants
in
a
lawsuit
filed
on
April
21,
2016
by
a
purported
shareholder
of
Prospect
in
the
United
States
District
Court
for
the
Southern
District
of
New
York
under
the
caption
Paskowitz
v.
Prospect
Capital
Management
and
Prospect
Administration.
The
complaint
alleges
that
the
defendants
received
purportedly
excessive
management
and
administrative
services
fees
from
us
in
violation
of
Section
36(b)
of
the
1940
Act.
The
plaintiff
seeks
to
recover
on
behalf
of
us
damages
in
an
amount
not
specified
in
the
complaint.
The
defendants
have
informed
us
that
they
believe
the
complaint
is
without
merit
and
intend
to
defend
themselves
vigorously
against
the
plaintiff’s
claims.
We
believe
that
the
lawsuit
is
not
likely
to
have
a
material
adverse
effect
on
Prospect.
On
June
30,
2016,
the
Investment
Adviser
and
the
Administrator
filed
a
motion
to
dismiss
the
complaint.
Item 4. Mine Safety Disclosures
Not
applicable.
57
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Our
common
stock
is
traded
on
the
NASDAQ
Global
Select
Market
under
the
symbol
“PSEC.”
PART II
The
following
table
sets
forth,
for
the
quarterly
reporting
periods
indicated,
the
net
asset
value
per
share
of
our
common
stock
and
the
high
and
low
sales
prices
for
our
common
stock,
as
reported
on
the
NASDAQ
Global
Select
Market.
Our
common
stock
historically
has
traded
at
prices
both
above
and
below
its
net
asset
value.
There
can
be
no
assurance,
however,
that
such
premium
or
discount,
as
applicable,
to
net
asset
value
will
be
maintained.
See
also
“Item
1A.
Risk
Factors”
in
Part
I
of
this
report
for
additional
information
about
the
risks
and
uncertainties
we
face.
Net Asset Value
Per Share(1)
Sales Price
High
Low
Premium (Discount)
of High Sales Price to
Net Asset Value
Premium (Discount) of
Low Sales Price to Net
Asset Value
Year Ended
June
30,
2015
First
quarter
$
10.47
$
11.00
$
Second
quarter
Third
quarter
Fourth
quarter
June
30,
2016
10.35
10.30
10.31
9.92
8.81
8.65
First
quarter
$
10.17
$
7.99
$
Second
quarter
Third
quarter
Fourth
quarter
9.65
9.61
9.62
7.63
7.48
7.86
9.90
8.11
8.23
7.22
6.98
6.20
5.26
7.15
5.1%
(4.2%)
(14.5%)
(16.1%)
(21.4%)
(20.9%)
(22.2%)
(18.3%)
(5.4%)
(21.6%)
(20.1%)
(30.0%)
(31.4%)
(35.8%)
(45.3%)
(25.7%)
(1) Net
asset
value
per
share
is
determined
as
of
the
last
day
in
the
relevant
quarter
and
therefore
may
not
reflect
the
net
asset
value
per
share
on
the
date
of
the
high
and
low
sales
prices.
The
net
asset
values
shown
are
based
on
outstanding
shares
at
the
end
of
the
relevant
quarter.
As
of
August
26,
2016
,
there
were
130
shareholders
of
record
of
our
common
stock.
This
figure
does
not
include
a
substantially
greater
number
of
beneficial
holders
of
our
common
stock,
whose
shares
are
held
in
the
names
of
brokers,
dealers
and
clearing
agencies.
Distribution Policy
Through
March
2010,
we
made
quarterly
distributions
to
our
stockholders
out
of
assets
legally
available
for
distribution.
In
June
2010,
we
changed
our
distribution
policy
from
a
quarterly
payment
to
a
monthly
payment.
To
the
extent
prudent
and
practicable,
we
currently
intend
to
continue
making
distributions
on
a
monthly
basis.
Our
ability
to
pay
distributions
could
be
affected
by
future
business
performance,
liquidity,
capital
needs,
alternative
investment
opportunities
and
loan
covenants.
Our
distributions,
if
any,
will
be
determined
by
our
Board
of
Directors.
Certain
amounts
of
the
monthly
distributions
may
from
time
to
time
be
paid
out
of
our
capital
rather
than
from
earnings
for
the
quarter
as
a
result
of
our
deliberate
planning
or
by
accounting
reclassifications.
As
a
RIC,
we
generally
are
not
subject
to
U.S.
federal
income
tax
on
income
and
gains
we
distribute
each
taxable
year
to
our
stockholders,
provided
that
in
such
taxable
year,
we
distribute
an
amount
equal
to
at
least
90%
of
our
investment
company
taxable
income
(as
defined
by
the
Code)
to
our
stockholders.
Any
undistributed
taxable
income
is
subject
to
U.S.
federal
income
tax.
In
addition,
we
will
be
subject
to
a
4%
non-deductible
U.S.
federal
excise
tax
on
certain
undistributed
income
unless
we
distribute
in
a
timely
manner
an
amount
at
least
equal
to
the
sum
of
(i)
98%
of
our
ordinary
income
recognized
during
the
calendar
year,
(ii)
98.2%
of
our
capital
gain
net
income,
as
defined
by
the
Code,
recognized
for
the
one
year
period
ending
October
31
in
that
calendar
year
and
(iii)
any
income
recognized,
but
not
distributed,
in
preceding
years.
We
had
an
excise
tax
liability
of
$305
for
the
calendar
year
ended
December
31,
2015.
Through
June
30,
2016,
we
have
an
accrued
excise
tax
payable
of
$1,100.
Tax
characteristics
of
all
distributions
will
be
reported
to
stockholders,
as
appropriate,
on
Form
1099-DIV
after
the
end
of
the
calendar
year.
58
In
addition,
although
we
currently
intend
to
distribute
realized
net
capital
gains
(which
we
define
as
net
long-term
capital
gains
in
excess
of
short-term
capital
losses),
if
any,
at
least
annually
out
of
the
assets
legally
available
for
such
distributions,
we
may
decide
in
the
future
to
retain
such
capital
gains
for
investment.
In
such
event,
the
consequences
of
our
retention
of
net
capital
gains
are
described
under
“Material
U.S.
Federal
Income
Tax
Considerations.”
We
can
offer
no
assurance
that
we
will
achieve
results
that
will
permit
the
payment
of
any
cash
distributions
and,
if
we
issue
senior
securities,
we
may
be
prohibited
from
making
distributions
if
doing
so
causes
us
to
fail
to
maintain
the
asset
coverage
ratios
stipulated
by
the
1940
Act
or
if
distributions
are
limited
by
the
terms
of
any
of
our
borrowings.
During
the
years
ended
June
30,
2016
and
June
30,
2015
,
we
distributed
approximately
$356.1
million
and
$421.6
million
,
respectively,
to
our
stockholders.
The
following
table
summarizes
our
distributions
declared
and
payable
for
the
years
ended
June
30,
2015
and
June
30,
2016
.
Declaration Date
Record Date
Payment Date
Amount Per Share
Amount Distributed (in
thousands)
2/3/2014
2/3/2014
2/3/2014
5/6/2014
5/6/2014
5/6/2014
9/24/2014
12/8/2014
12/8/2014
12/8/2014
5/6/2015
5/6/2015
5/6/2015
5/6/2015
8/24/2015
8/24/2015
11/4/2015
11/4/2015
11/4/2015
2/9/2016
2/9/2016
2/9/2016
5/9/2016
5/9/2016
7/31/2014
8/29/2014
9/30/2014
10/31/2014
11/28/2014
12/31/2014
1/30/2015
2/27/2015
3/31/2015
4/30/2015
5/29/2015
6/30/2015
8/21/2014
$
0.110475
$
9/18/2014
10/22/2014
11/20/2014
12/18/2014
1/22/2015
2/19/2015
3/19/2015
4/23/2015
5/21/2015
6/18/2015
7/23/2015
0.110500
0.110525
0.110550
0.110575
0.110600
0.110625
0.083330
0.083330
0.083330
0.083330
0.083330
37,863
37,885
38,519
38,977
39,583
39,623
39,648
29,878
29,887
29,898
29,910
29,923
Total
declared
and
payable
for
the
year
ended
June
30,
2015
$
421,594
7/31/2015
8/31/2015
9/30/2015
10/30/2015
11/30/2015
12/31/2015
1/29/2016
2/29/2016
3/31/2016
4/29/2016
5/31/2016
6/30/2016
8/20/2015
$
0.083330
$
9/17/2015
10/22/2015
11/19/2015
12/24/2015
1/21/2016
2/18/2016
3/24/2016
4/21/2016
5/19/2016
6/23/2016
7/21/2016
0.083330
0.083330
0.083330
0.083330
0.083330
0.083330
0.083330
0.083330
0.083330
0.083330
0.083330
29,909
29,605
29,601
29,600
29,611
29,616
29,641
29,663
29,674
29,702
29,730
29,758
Total
declared
and
payable
for
the
year
ended
June
30,
2016
$
356,110
Dividends
and
distributions
to
common
stockholders
are
recorded
on
the
ex-dividend
date.
As
such,
the
table
above
includes
distributions
with
record
dates
during
the
years
ended
June
30,
2016
and
June
30,
2015
.
It
does
not
include
distributions
previously
declared
to
stockholders
of
record
on
any
future
dates,
as
those
amounts
are
not
yet
determinable.
The
following
dividends
were
previously
declared
and
will
be
payable
subsequent
to
June
30,
2016
:
•
•
$0.08333
per
share
for
July
2016
to
holders
of
record
on
July
29,
2016
with
a
payment
date
of
August
18,
2016;
and
$0.08333
per
share
for
August
2016
to
holders
of
record
on
August
31,
2016
with
a
payment
date
of
September
22,
2016.
59
Dividend Reinvestment Plan
We
maintain
an
“opt
out”
dividend
reinvestment
plan
for
our
common
stockholders.
As
a
result,
if
we
declare
a
distribution
(as
discussed
above),
stockholders’
cash
distributions
will
be
automatically
reinvested
in
additional
shares
of
our
common
stock,
unless
they
specifically
opt
out
of
the
dividend
reinvestment
plan
so
as
to
receive
cash
distributions.
Stockholders
who
receive
distributions
in
the
form
of
stock
are
subject
to
the
same
U.S.
federal,
state
and
local
tax
consequences
as
are
stockholders
who
elect
to
receive
their
distributions
in
cash.
Stockholders
are
advised
to
consult
with
their
brokers
or
financial
institutions,
as
appropriate,
with
respect
to
the
administration
of
their
dividends
and
related
instructions.
See
also
“Dividend
Reinvestment
Plan”
in
Part
I
of
this
report
for
additional
information.
We
primarily
use
newly-issued
shares
to
implement
the
plan,
whether
our
shares
are
trading
at
a
premium
or
at
a
discount
to
net
asset
value.
However,
we
reserve
the
right
to
purchase
shares
in
the
open
market
in
connection
with
the
implementation
of
the
plan.
Our
Board
of
Directors
determines
how
the
stock
to
be
distributed
as
part
of
the
plan
is
made
available.
During
the
years
ended
June
30,
2016
and
June
30,
2015
,
we
distributed
2,725,222
and
1,618,566
shares
of
our
common
stock,
respectively,
in
connection
with
the
dividend
reinvestment
plan.
All
of
the
shares
distributed
were
new
issues.
The
following
table
summarizes
the
shares
issued
through
the
reinvestment
of
dividends
in
the
years
ended
June
30,
2015
and
June
30,
2016
.
Record Date
Payment Date
Shares Issued
Value of Shares
(in thousands)
% of Distribution
6/30/2014
7/31/2014
8/29/2014
9/30/2014
10/31/2014
11/28/2014
12/31/2014
1/30/2015
2/27/2015
3/31/2015
4/30/2015
5/29/2015
7/24/2014
8/21/2014
9/18/2014
10/22/2014
11/20/2014
12/18/2014
1/22/2015
2/19/2015
3/19/2015
4/23/2015
5/21/2015
6/18/2015
98,503
$
129,435
113,020
138,721
136,076
162,173
151,538
146,186
113,596
131,971
137,878
159,469
1,074
1,412
1,154
1,346
1,314
1,370
1,279
1,279
971
1,140
1,122
1,220
Total
issued
in
the
year
ended
June
30,
2015
1,618,566
$
14,681
6/30/2015
7/31/2015
8/31/2015
9/30/2015
10/30/2015
11/30/2015
12/31/2015
1/29/2016
2/29/2016
3/31/2016
4/29/2016
5/31/2016
7/23/2015
8/20/2015
9/17/2015
10/22/2015
11/19/2015
12/24/2015
1/21/2016
2/18/2016
3/24/2016
4/21/2016
5/19/2016
6/23/2016
193,892
$
152,896
143,685
189,172
182,331
167,727
299,423
255,743
146,899
324,060
338,027
331,367
1,425
1,115
1,142
1,402
1,349
1,211
1,749
1,685
1,027
2,430
2,522
2,581
Total
issued
in
the
year
ended
June
30,
2016
2,725,222
$
19,638
2.8%
3.7%
3.0%
3.5%
3.4%
3.5%
3.2%
3.2%
3.2%
3.8%
3.8%
4.1%
4.8%
3.7%
3.9%
4.7%
4.6%
4.1%
5.9%
5.7%
3.5%
8.2%
8.5%
8.7%
Registered
stockholders
who
opt
out
of
the
dividend
reinvestment
plan
must
notify
the
plan
administrator
prior
to
the
payment
date
in
order
for
that
distribution
to
be
paid
in
cash.
As
such,
the
table
above
includes
distributions
with
payment
dates
during
the
years
ended
June
30,
2016
and
June
30,
2015
.
It
does
not
include
distributions
previously
declared
and
recorded
as
payable
to
stockholders
on
any
future
dates,
as
those
amounts
are
not
yet
determinable.
60
On
February
9,
2016,
we
amended
our
dividend
reinvestment
plan
that
already
provides
for
reinvestment
of
our
dividends
or
distributions
on
behalf
of
our
stockholders,
unless
a
stockholder
elects
to
receive
cash,
to
add
the
ability
of
stockholders
to
purchase
additional
shares
by
making
optional
cash
investments.
Under
the
revised
dividend
reinvestment
and
direct
stock
repurchase
plan,
stockholders
may
elect
to
purchase
additional
shares
through
our
transfer
agent
in
the
open
market
or
in
negotiated
transactions.
Purchases of equity securities by the issuer and affiliated purchasers
On
August
24,
2011,
our
Board
of
Directors
approved
a
share
repurchase
plan
(the
“Repurchase
Program”)
under
which
we
may
repurchase
up
to
$100,000
of
our
common
stock
at
prices
below
our
net
asset
value
per
share.
Prior
to
any
repurchase,
we
are
required
to
notify
shareholders
of
our
intention
to
purchase
our
common
stock.
We
delivered
a
notice
with
our
annual
proxy
mailing
on
September
23,
2015
and
our
most
recent
notice
was
delivered
with
a
shareholder
letter
mailing
on
February
2,
2016.
This
notice
extends
for
six
months
after
the
date
that
notice
is
delivered.
During
the
year
ended
June
30,
2016
,
we
repurchased
4,708,750
shares
of
our
common
stock
pursuant
to
our
publicly
announced
Repurchase
Program
for
$34,140
,
or
approximately
$7.25
weighted
average
price
per
share
at
approximately
a
30%
discount
to
net
asset
value
as
of
June
30,
2015.
Our
NAV
per
share
was
increased
by
approximately
$0.02
for
the
year
ended
June
30,
2016
as
a
result
of
the
share
repurchases.
Repurchases of Common Stock
Year Ended June 30, 2016
Dollar
amount
repurchased
Shares
Repurchased
Weighted
average
price
per
share
$
7.25
Weighted
average
discount
to
June
30,
2015
net
asset
value
Approximate
dollar
value
of
shares
that
may
yet
be
purchased
under
the
plan
$
34,140
4,708,750
30%
65,860
There
were
no
repurchases
made
for
the
years
ended
June
30,
2015
and
2014
under
our
Repurchase
Program.
During
the
year
ended
June
30,
2016
,
Prospect
officers
purchased
16,909,556
shares
of
our
stock,
or
4.74%
of
total
outstanding
shares
as
of
June
30,
2016
,
both
through
the
open
market
transactions
and
shares
issued
in
connection
with
our
dividend
reinvestment
plan.
61
Stock Performance Graph
The
following
graph
compares
a
shareholder’s
cumulative
total
return
for
the
last
five
fiscal
years
as
if
such
amounts
had
been
invested
in:
(i)
our
common
stock;
(ii)
the
stocks
included
in
the
S&P
500
Index;
(iii)
the
stocks
included
in
the
S&P
500
Financials
Sector
Index;
and
(iv)
a
customized
BDC
Peer
Group
composed
of
Apollo
Investment
Corporation,
Ares
Capital
Corporation,
BlackRock
Capital
Investment
Corporation,
Gladstone
Capital
Corporation,
and
MVC
Capital,
Inc.
The
graph
is
based
on
historical
stock
prices
and
measures
total
shareholder
return,
which
takes
into
account
both
changes
in
stock
price
and
dividends.
The
total
return
assumes
that
dividends
were
reinvested
daily
and
is
based
on
a
$100
investment
on
June
30,
2011.
SOURCE:
S&P
Capital
IQ
The
graph
and
other
information
furnished
under
this
Part
II,
Item
5
of
this
Annual
Report
on
Form
10-K
shall
not
be
deemed
to
be
“soliciting
material”
or
to
be
“filed”
with
the
SEC
or
subject
to
Regulation
14A
or
14C,
or
to
the
liabilities
of
Section
18
of
the
Exchange
Act.
The
stock
price
performance
included
in
the
above
graph
is
not
necessarily
indicative
of
future
stock
performance.
62
Item 6. Selected Financial Data
The
following
selected
financial
data
should
be
read
in
conjunction
with
“Item
7.
Management’s
Discussion
and
Analysis
of
Financial
Condition
and
Results
of
Operations”
and
consolidated
financial
statements
and
notes
thereto
contained
in
“Item
8.
Financial
Statements
and
Supplementary
Data”
of
this
report.
All
amounts
are
in
thousands
except
per
share
data
and
number
of
portfolio
companies
at
year
end.
2016
2015
2014
2013
2012
Year Ended June 30,
Summary of Operations
Total
investment
income
$
791,973
$
791,084
$
Total
operating
expenses
Net
investment
income
Net
realized
and
unrealized
(losses)
gains
on
investments
Net
realized
gains
(losses)
on
extinguishment
of
debt
Net
increase
in
net
assets
resulting
from
operations
Per Share Data
420,845
371,128
428,337
362,747
712,291
355,068
357,223
$
576,336
$
320,910
251,412
324,924
134,226
186,684
(267,990)
(12,458)
(38,203)
(104,068)
4,220
224
(3,950)
—
—
—
103,362
346,339
319,020
220,856
190,904
Net
investment
income(1)
$
1.04
$
1.03
$
1.19
$
1.57
$
1.63
Net
increase
in
net
assets
resulting
from
operations(1)
Dividends
to
shareholders
Net
asset
value
at
end
of
year
Balance Sheet Data
Total
assets
Total
debt
outstanding
Net
assets
Other Data
0.29
(1.00)
9.62
0.98
(1.19)
10.31
1.06
(1.32)
10.56
1.07
(1.28)
10.72
1.67
(1.22)
10.83
$ 6,276,707
$ 6,798,054
$
6,477,269
$ 4,448,217
$ 2,255,254
2,707,465
3,435,917
2,983,736
3,703,049
2,773,051
3,618,182
1,683,002
2,656,494
664,138
1,511,974
Investment
purchases
for
the
year $
979,102
$ 1,867,477
$
2,933,365
$ 3,103,217
$ 1,120,659
Investment
sales
and
repayments
for
the
year
Number
of
portfolio
companies
at
year
end
Total
return
based
on
market
value(2)
Total
return
based
on
net
asset
value(2)
Weighted
average
yield
on
debt
portfolio
at
year
end(3)
$ 1,338,875
$ 1,411,562
$
767,978
$
931,534
$
500,952
125
131
142
124
85
21.8%
(20.8%)
10.9%
6.2%
27.2%
7.2%
11.5%
11.0%
10.9%
18.0%
13.2%
12.7%
12.1%
13.6%
13.9%
(1) Per
share
data
is
based
on
the
weighted
average
number
of
common
shares
outstanding
for
the
years
presented
(except
for
dividends
to
shareholders
which
is
based
on
actual
rate
per
share).
(2) Total
return
based
on
market
value
is
based
on
the
change
in
market
price
per
share
between
the
opening
and
ending
market
prices
per
share
in
each
year
and
assumes
that
dividends
are
reinvested
in
accordance
with
our
dividend
reinvestment
plan.
Total
return
based
on
net
asset
value
is
based
upon
the
change
in
net
asset
value
per
share
between
the
opening
and
ending
net
asset
values
per
share
in
each
year
and
assumes
that
dividends
are
reinvested
in
accordance
with
our
dividend
reinvestment
plan.
(3) Excludes
equity
investments
and
non-performing
loans.
63
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
(All figures in this item are in thousands except share, per share and other data.)
The
following
discussion
should
be
read
in
conjunction
with
our
consolidated
financial
statements
and
related
notes
and
other
financial
information
appearing
elsewhere
in
this
Annual
Report.
In
addition
to
historical
information,
the
following
discussion
and
other
parts
of
this
Annual
Report
contain
forward-looking
information
that
involves
risks
and
uncertainties.
Our
actual
results
may
differ
significantly
from
any
results
expressed
or
implied
by
these
forward-looking
statements
due
to
the
factors
discussed
in
Part
II,
“Item
1A.
Risk
Factors”
and
“Forward-Looking
Statements”
appearing
elsewhere
herein.
Overview
The
terms
“Prospect,”
“we,”
“us”
and
“our”
mean
Prospect
Capital
Corporation
and
its
subsidiaries
unless
the
context
specifically
requires
otherwise.
Prospect
Capital
Corporation
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
OnDeck
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.
Effective
July
1,
2014,
we
began
consolidating
certain
of
our
wholly-owned
and
substantially
wholly-owned
holding
companies
formed
by
us
in
order
to
facilitate
our
investment
strategy.
The
following
companies
have
been
included
in
our
consolidated
financial
statements
since
July
1,
2014:
AMU
Holdings
Inc.
(“Airmall”);
APH
Property
Holdings,
LLC
(“APH”);
Arctic
Oilfield
Equipment
USA,
Inc.;
CCPI
Holdings
Inc.;
CP
Holdings
of
Delaware
LLC;
Credit
Central
Holdings
of
Delaware,
LLC;
Energy
Solutions
Holdings
Inc.;
First
Tower
Holdings
of
Delaware
LLC
(“First
Tower
Delaware”);
Harbortouch
Holdings
of
Delaware
Inc.;
MITY
Holdings
of
Delaware
Inc.;
Nationwide
Acceptance
Holdings
LLC;
NMMB
Holdings,
Inc.;
NPH
Property
Holdings,
LLC
(“NPH”);
STI
Holding,
Inc.;
UPH
Property
Holdings,
LLC
(“UPH”);
Valley
Electric
Holdings
I,
Inc.;
Valley
Electric
Holdings
II,
Inc.;
and
Wolf
Energy
Holdings
Inc.
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.
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
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”
),
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
seek
investments
with
historical
cash
flows,
asset
collateral
or
contracted
pro-forma
cash
flows.
We
currently
have
nine
origination
strategies
in
which
we
make
investments:
(1)
lending
in
private
equity
sponsored
transactions,
(2)
lending
directly
to
companies
not
owned
by
private
equity
firms,
(3)
control
investments
in
corporate
operating
companies,
(4)
control
investments
in
financial
companies,
(5)
investments
in
structured
credit,
(6)
real
estate
investments,
(7)
investments
in
syndicated
debt,
(8)
aircraft
leasing
and
(9)
online
lending.
We
continue
to
evaluate
other
origination
strategies
in
the
ordinary
course
of
business
with
no
specific
top-down
allocation
to
any
single
origination
strategy.
64
Lending
in
Private
Equity
Sponsored
Transactions
–
We
make
loans
to
companies
which
are
controlled
by
leading
private
equity
firms.
This
debt
can
take
the
form
of
first
lien,
second
lien,
unitranche
or
unsecured
loans.
In
making
these
investments,
we
look
for
a
diversified
customer
base,
recurring
demand
for
the
product
or
service,
barriers
to
entry,
strong
historical
cash
flow
and
experienced
management
teams.
These
loans
typically
have
significant
equity
subordinate
to
our
loan
position.
Historically,
this
strategy
has
comprised
approximately
50%-60%
of
our
business,
but
more
recently
it
is
less
than
50%
of
our
business.
Lending
Directly
to
Companies
–
We
provide
debt
financing
to
companies
owned
by
non-private
equity
firms,
the
company
founder,
a
management
team
or
a
family.
Here,
in
addition
to
the
strengths
we
look
for
in
a
sponsored
transaction,
we
also
look
for
the
alignment
with
the
management
team
with
significant
invested
capital.
This
strategy
often
has
less
competition
than
the
private
equity
sponsor
strategy
because
such
company
financing
needs
are
not
easily
addressed
by
banks
and
often
require
more
diligence
preparation.
Direct
lending
can
result
in
higher
returns
and
lower
leverage
than
sponsor
transactions
and
may
include
warrants
or
equity
to
us.
Historically,
this
strategy
has
comprised
approximately
5%-15%
of
our
business,
but
more
recently
it
is
less
than
5%
of
our
business.
Control
Investments
in
Corporate
Operating
Companies
–
This
strategy
involves
acquiring
controlling
stakes
in
non-financial
operating
companies.
Our
investments
in
these
companies
are
generally
structured
as
a
combination
of
yield-producing
debt
and
equity.
We
provide
enhanced
certainty
of
closure
to
our
counterparties,
give
the
seller
personal
liquidity
and
generally
look
for
management
to
continue
on
in
their
current
roles.
This
strategy
has
comprised
approximately
10%-15%
of
our
business.
Control
Investments
in
Financial
Companies
–
This
strategy
involves
acquiring
controlling
stakes
in
financial
companies,
including
consumer
direct
lending,
sub-
prime
auto
lending
and
other
strategies.
Our
investments
in
these
companies
are
generally
structured
as
a
combination
of
yield-producing
debt
and
equity.
These
investments
are
often
structured
in
a
tax-efficient
RIC-compliant
partnership,
enhancing
returns.
This
strategy
has
comprised
approximately
5%-15%
of
our
business.
Investments
in
Structured
Credit
–
We
make
investments
in
CLOs,
generally
taking
a
significant
position
in
the
subordinated
interests
(equity)
of
the
CLOs.
The
CLOs
include
a
diversified
portfolio
of
broadly
syndicated
loans
and
do
not
have
direct
exposure
to
real
estate,
mortgages,
debt
or
consumer
based
debt.
The
CLOs
in
which
we
invest
are
managed
by
top-tier
collateral
managers
that
have
been
thoroughly
diligenced
prior
to
investment.
This
strategy
has
comprised
approximately
10%-20%
of
our
business.
Real
Estate
Investments
–
We
make
investments
in
real
estate
through
our
wholly-owned
tax-efficient
real
estate
investment
trust
(“REIT”)
NPRC,
the
surviving
entity
of
the
May
23,
2016
merger
with
APRC
and
UPRC.
Our
real
estate
investments
are
in
various
classes
of
fully
developed
and
occupied
real
estate
properties
that
generate
current
yields.
We
seek
to
identify
properties
that
have
historically
high
occupancy
and
steady
cash
flow
generation.
NPRC
co-invests
with
established
and
experienced
property
managers
that
manage
such
properties
after
acquisition.
This
investment
strategy
has
comprised
approximately
5%-10%
of
our
business.
Investments
in
Syndicated
Debt
–
On
an
opportunistic
basis,
we
make
investments
in
loans
and
high
yield
bonds
that
have
been
sold
to
a
syndicate
of
buyers.
Here
we
look
for
investments
with
attractive
risk-adjusted
returns
after
we
have
completed
a
fundamental
credit
analysis.
These
investments
are
purchased
with
a
long
term,
buy-and-hold
outlook
and
we
look
to
provide
significant
structuring
input
by
providing
anchoring
orders.
This
strategy
has
comprised
approximately
5%-
10%
of
our
business.
Aircraft
Leasing
–
We
invest
in
debt
as
well
as
equity
in
aircraft
assets
subject
to
commercial
leases
to
credit-worthy
airlines
across
the
globe.
These
investments
present
attractive
return
opportunities
due
to
cash
flow
consistency
from
long-lived
assets
coupled
with
hard
asset
collateral.
We
seek
to
deliver
risk-adjusted
returns
with
strong
downside
protection
by
analyzing
relative
value
characteristics
across
the
spectrum
of
aircraft
types
of
all
vintages.
Our
target
portfolio
includes
both
in-production
and
out-of-production
jet
and
turboprop
aircraft
and
engines,
operated
by
airlines
across
the
globe.
This
strategy
comprised
approximately
1%
of
our
business.
Online
Lending
–
We
make
investments
in
loans
originated
by
certain
consumer
loan
and
small
and
medium
sized
business
(“SME”)
loan
facilitators.
We
purchase
each
loan
in
its
entirety
(i.e.,
a
“whole
loan”).
The
borrowers
are
consumers
and
SMEs.
The
loans
are
typically
serviced
by
the
facilitators
of
the
loans.
This
investment
strategy
has
comprised
approximately
4%-7%
of
our
business.
We
invest
primarily
in
first
and
second
lien
secured
loans
and
unsecured
debt,
which
in
some
cases
includes
an
equity
component.
First
and
second
lien
secured
loans
generally
are
senior
debt
instruments
that
rank
ahead
of
unsecured
debt
of
a
given
portfolio
company.
These
loans
also
have
the
benefit
of
security
interests
on
the
assets
of
the
portfolio
company,
which
may
rank
ahead
of
or
be
junior
to
other
security
interests.
Our
investments
in
CLOs
are
subordinated
to
senior
loans
and
are
generally
unsecured.
We
invest
in
debt
and
equity
positions
of
CLOs
which
are
a
form
of
securitization
in
which
the
cash
flows
of
a
portfolio
of
loans
are
pooled
and
passed
on
to
different
classes
of
owners
in
various
tranches.
Our
CLO
investments
are
derived
from
portfolios
of
corporate
debt
securities
which
are
generally
risk
rated
from
BB
to
B.
65
We
hold
many
of
our
control
investments
in
a
two-tier
structure
consisting
of
a
holding
company
and
one
or
more
related
operating
companies
for
tax
purposes.
These
holding
companies
serve
various
business
purposes
including
concentration
of
management
teams,
optimization
of
third
party
borrowing
costs,
improvement
of
supplier,
customer,
and
insurance
terms,
and
enhancement
of
co-investments
by
the
management
teams.
In
these
cases,
our
investment
in
the
holding
company,
generally
as
equity,
its
equity
investment
in
the
operating
company
and
along
with
any
debt
from
us
directly
to
the
operating
company
structure
represents
our
total
exposure
for
the
investment.
As
of
June
30,
2016
,
as
shown
in
our
Consolidated
Schedule
of
Investments,
the
cost
basis
and
fair
value
of
our
investments
in
controlled
companies
was
$1,768,220
and
$1,752,449
,
respectively.
This
structure
gives
rise
to
several
of
the
risks
described
in
our
public
documents
and
highlighted
elsewhere
in
this
Annual
Report.
On
July
1,
2014,
we
began
consolidating
all
wholly-owned
and
substantially
wholly-owned
holding
companies
formed
by
us
for
the
purpose
of
holding
our
controlled
investments
in
operating
companies.
There
were
no
significant
effects
of
consolidating
these
holding
companies
as
they
hold
minimal
assets
other
than
their
investments
in
the
controlled
operating
companies.
Investment
company
accounting
prohibits
the
consolidation
of
any
operating
companies.
Fourth Quarter Highlights
Investment Transactions
We
seek
to
be
a
long-term
investor
with
our
portfolio
companies.
During
the
three
months
ended
June
30,
2016
,
we
acquired
$62,930
of
new
investments,
completed
follow-on
investments
in
existing
portfolio
companies
totaling
approximately
$214,370
,
funded
$3,682
of
revolver
advances,
and
recorded
paid
in
kind
(“PIK”)
interest
of
$13,056
,
resulting
in
gross
investment
originations
of
$294,038
.
During
the
three
months
ended
June
30,
2016
,
we
sold
our
investment
in
Harbortouch
and
sold
down
two
investments
to
lower
retained
amounts,
and
received
several
partial
prepayments
and
amortization
payments
totaling
$383,460
,
including
realized
losses
totaling
$6,180
.
The
more
significant
of
these
transactions
are
discussed
in
“Portfolio
Investment
Activity.”
Debt Issuances and Redemptions
During
the
three
months
ended
June
30,
2016
,
we
issued
$
13,573
aggregate
principal
amount
of
Prospect
Capital
InterNotes®
for
net
proceeds
of
$
13,403
.
These
notes
were
issued
with
stated
interest
rates
of
5.50%
with
a
weighted
average
interest
rate
of
5.50%
.
These
notes
mature
between
April
15,
2021
and
June
15,
2021
.
The
following
table
summarizes
the
Prospect
Capital
InterNotes®
issued
during
the
three
months
ended
June
30,
2016
.
Tenor at
Origination
(in years)
Principal
Amount
Interest Rate
Range
Weighted
Average
Interest Rate
Maturity Date Range
5
$
13,573
5.50%
5.50%
April
15,
2021
–
June
15,
2021
During
the
three
months
ended
June
30,
2016
,
we
repaid
$
3,300
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
gain
on
the
extinguishment
of
Prospect
Capital
InterNotes®
in
the
three
months
ended
June
30,
2016
was
$
310
.
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.
During
the
period
from
June
28,
2016
to
June
30,
2016,
we
issued
$1,380
in
aggregate
principal
amount
of
our
2024
Notes
for
net
proceeds
of
$1,247
after
commissions
and
offering
costs.
Equity Issuances
On
April
21,
2016
,
May
19,
2016
and
June
23,
2016
,
we
issued
324,060
,
338,027
and
331,367
shares
of
our
common
stock
in
connection
with
the
dividend
reinvestment
plan,
respectively.
66
“Spin-Offs” of Certain Business Strategies
We
previously
announced
that
we
intend
to
unlock
value
by
“spinning
off”
three
“pure
play”
business
strategies
-
our
consumer
online
lending
business,
real
estate
business
and
structured
credit
business
-
to
our
shareholders
in
conjunction
with
rights
offering
capital
raises
in
which
existing
Prospect
shareholders
could
elect
to
participate
in
each
offering
or
sell
their
rights.
The
goals
of
these
“spin-offs”
include
leverage
and
earnings
neutrality
for
Prospect.
Our
primary
objective
is
to
maximize
the
valuation
of
each
offering
(declining
to
proceed
with
any
offering
if
we
find
any
valuation
not
to
be
attractive).
The
size
and
likelihood
of
each
of
these
dispositions,
some
of
which
are
expected
to
be
partial
rather
than
complete
spin-offs,
remain
to
be
determined,
but
we
currently
expect
the
collective
size
of
these
three
dispositions,
if
any,
to
be
10%
or
less
of
our
asset
base.
Any
such
dispositions
cannot
occur
unless
and
until
our
application
for
exemptive
relief
is
granted
by
the
SEC.
Should
the
SEC
not
grant
our
application
for
exemptive
relief,
these
dispositions
will
not
occur
as
initially
planned.
The
consummation
of
any
of
the
dispositions
also
depends
upon,
among
other
things:
market
conditions,
regulatory
and
exchange
listing
approval,
and
sufficient
investor
demand.
There
can
be
no
assurance
that
we
will
consummate
any
of
these
dispositions.
Investment Holdings
As
of
June
30,
2016
,
we
continue
to
pursue
our
investment
strategy.
At
June
30,
2016
,
approximately
$5,897,708
,
or
171.6%
,
of
our
net
assets
are
invested
in
125
long-term
portfolio
investments
and
CLOs.
During
the
year
ended
June
30,
2016
,
we
originated
$979,102
of
new
investments,
primarily
composed
of
$570,338
of
debt
and
equity
financing
to
non-controlled
portfolio
investments,
$312,144
of
debt
and
equity
financing
to
controlled
investments,
and
$96,620
of
subordinated
notes
in
CLOs.
Our
origination
efforts
are
focused
primarily
on
secured
lending
to
non-control
investments
to
reduce
the
risk
in
the
portfolio
by
investing
primarily
in
first
lien
loans,
though
we
also
continue
to
close
select
junior
debt
and
equity
investments.
Our
annualized
current
yield
was
12.7%
and
13.2%
as
of
June
30,
2015
and
June
30,
2016
,
respectively,
across
all
performing
interest
bearing
investments.
The
increase
in
our
current
yield
is
primarily
due
to
market
fluctuations
and
the
resulting
decline
in
our
portfolio
value.
Monetization
of
equity
positions
that
we
hold
and
loans
on
non-accrual
status
are
not
included
in
this
yield
calculation.
In
many
of
our
portfolio
companies
we
hold
equity
positions,
ranging
from
minority
interests
to
majority
stakes,
which
we
expect
over
time
to
contribute
to
our
investment
returns.
Some
of
these
equity
positions
include
features
such
as
contractual
minimum
internal
rates
of
returns,
preferred
distributions,
flip
structures
and
other
features
expected
to
generate
additional
investment
returns,
as
well
as
contractual
protections
and
preferences
over
junior
equity,
in
addition
to
the
yield
and
security
offered
by
our
cash
flow
and
collateral
debt
protections.
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
25%
or
more
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
of
June
30,
2016
,
we
own
controlling
interests
in
the
following
portfolio
companies:
Arctic
Energy
Services,
LLC
(“Arctic
Energy”);
CCPI
Inc.
(“CCPI”);
CP
Energy
Services
Inc.
(“CP
Energy”);
Credit
Central
Loan
Company,
LLC
(“Credit
Central”);
Echelon
Aviation
LLC
(“Echelon”);
Edmentum
Ultimate
Holdings,
LLC
(“Edmentum”);
First
Tower
Finance
Company
LLC
(“First
Tower
Finance”);
Freedom
Marine
Solutions,
LLC
(“Freedom
Marine”);
Gulf
Coast
Machine
&
Supply
Company
(“Gulf
Coast”);
MITY,
Inc.
(“MITY”);
NPRC;
Nationwide
Loan
Company
LLC
(f/k/a
Nationwide
Acceptance
LLC)
(“Nationwide”);
NMMB,
Inc.;
R-V
Industries,
Inc.
(“R-V”);
USES
Corp.
(“USES”);
Valley
Electric
Company,
Inc.
(“Valley
Electric”);
and
Wolf
Energy,
LLC.
We
also
own
an
affiliated
interest
in
BNN
Holdings
Corp
and
Targus
International,
LLC
(“Targus”).
The
following
shows
the
composition
of
our
investment
portfolio
by
level
of
control
as
of
June
30,
2016
and
June
30,
2015
:
67
Level of Control
Cost
Portfolio Fair Value
June 30, 2016
% of
% of
Portfolio
June 30, 2015
% of
Cost
Portfolio Fair Value
% of
Portfolio
Control
Investments
Affiliate
Investments
$ 1,768,220
29.0% $ 1,752,449
29.7%
$ 1,894,644
28.9% $ 1,974,202
29.9%
10,758
0.2%
11,320
0.2%
45,150
0.7%
45,945
0.7%
Non-Control/Non-Affiliate
Investments
4,312,122
70.8%
4,133,939
70.1%
4,619,582
70.4%
4,589,411
69.4%
Total
Investments
$ 6,091,100
100.0% $ 5,897,708
100.0%
$ 6,559,376 100.0% $ 6,609,558 100.0%
The
following
shows
the
composition
of
our
investment
portfolio
by
type
of
investment
as
of
June
30,
2016
and
June
30,
2015
:
Type of Investment
Cost % of Portfolio Fair Value
June 30, 2016
% of
Portfolio
June 30, 2015
% of
Cost
Portfolio Fair Value
Revolving
Line
of
Credit
$
13,274
Senior
Secured
Debt
Subordinated
Secured
Debt
Subordinated
Unsecured
Debt
Small
Business
Loans
CLO
Debt
3,072,839
1,228,598
75,878
14,603
0.2%
50.4%
20.2%
1.2%
0.2%
—
—
%
$
13,274
0.2%
$
30,546
0.5% $
30,546
2,941,722
1,209,604
68,358
14,215
—
50.0%
3,617,111
55.1% 3,533,447
20.5%
1,234,701
18.8% 1,205,303
1.2%
0.2%
—%
145,644
50,558
28,613
2.2%
0.8%
0.4%
144,271
50,892
32,398
% of
Portfolio
0.5%
53.5%
18.2%
2.2%
0.8%
0.5%
CLO
Residual
Interest
1,083,540
17.9%
1,009,696
17.1%
1,072,734
16.4% 1,113,023
16.8%
Preferred
Stock
Common
Stock
Membership
Interest
Participating
Interest(1)
Escrow
Receivable
Warrants
139,320
298,033
159,417
—
3,916
1,682
2.3%
4.9%
2.6%
—%
0.1%
0.0%
78,922
315,587
167,389
70,609
6,116
2,216
1.3%
5.4%
2.8%
1.2%
0.1%
—
41,047
181,404
148,192
—
7,144
1,682
0.6%
2.8%
2.3%
—%
0.1%
—%
4,361
164,984
278,537
42,787
5,984
3,025
0.1%
2.5%
4.2%
0.6%
0.1%
—%
Total
Investments
$ 6,091,100
100.0%
$ 5,897,708
100.0%
$ 6,559,376
100.0% $ 6,609,558
100.0%
(1) Participating
Interest
includes
our
participating
equity
investments,
such
as
net
profits
interests,
net
operating
income
interests,
net
revenue
interests,
and
overriding
royalty
interests.
The
following
shows
our
investments
in
interest
bearing
securities
by
type
of
investment
as
of
June
30,
2016
and
June
30,
2015
:
Type of Investment
Cost
Portfolio Fair Value
June 30, 2016
% of
% of
Portfolio
June 30, 2015
% of
Cost
Portfolio Fair Value
First
Lien
Second
Lien
Unsecured
Small
Business
Loans
CLO
Debt
$ 3,079,689
56.1% $ 2,948,572
56.1%
$ 3,642,761
58.9% $ 3,559,097
1,235,022
22.5% 1,216,028
23.1%
1,239,597
20.0% 1,210,199
75,878
14,603
—
1.4%
0.3%
—%
68,358
14,215
—
1.3%
0.3%
—%
145,644
50,558
28,613
2.4%
0.8%
0.5%
144,271
50,892
32,398
% of
Portfolio
58.3%
19.8%
2.4%
0.8%
0.5%
CLO
Residual
Interest
1,083,540
19.7% 1,009,696
19.2%
1,072,734
17.4% 1,113,023
18.2%
Total
Debt
Investments
$ 5,488,732
100.0% $ 5,256,869
100.0%
$ 6,179,907
100.0% $ 6,109,880
100.0%
68
The
following
shows
the
composition
of
our
investment
portfolio
by
geographic
location
as
of
June
30,
2016
and
June
30,
2015
:
Geographic Location
Cost
Portfolio Fair Value
June 30, 2016
% of
% of
Portfolio
June 30, 2015
% of
Cost
Portfolio Fair Value
% of
Portfolio
Canada
Cayman
Islands
France
MidWest
US
NorthEast
US
NorthWest
US
Puerto
Rico
SouthEast
US
SouthWest
US
Western
US
$
15,000
0.2% $
8,081
0.1%
$
15,000
0.2% $
15,000
0.2%
1,083,540
17.8% 1,009,696
17.1%
1,101,347
16.8% 1,145,421
17.3%
9,756
804,515
838,331
41,317
40,516
0.2%
13.2%
13.8%
0.7%
0.7%
9,015
849,029
824,408
40,122
40,516
0.2%
14.4%
13.9%
0.7%
0.7%
10,145
0.2%
9,734
749,036
11.4%
767,419
1,085,569
16.6% 1,151,510
—
40,911
—%
0.6%
—
37,539
1,498,976
24.6% 1,531,944
26.0%
1,609,956
24.5% 1,661,477
586,701
9.6%
486,695
8.3%
762,454
11.6%
693,138
1,172,448
19.2% 1,098,202
18.6%
1,184,958
18.1% 1,128,320
0.2%
11.6%
17.4%
—%
0.6%
25.1%
10.5%
17.1%
Total
Investments
$ 6,091,100
100.0% $ 5,897,708
100.0%
$ 6,559,376
100.0% $ 6,609,558
100.0%
69
The
following
shows
the
composition
of
our
investment
portfolio
by
industry
as
of
June
30,
2016
and
June
30,
2015
:
Industry
Cost
Portfolio Fair Value
June 30, 2016
% of
% of
Portfolio
June 30, 2015
% of
Cost
Portfolio Fair Value
% of
Portfolio
Aerospace
&
Defense
$
67,518
1.1% $
69,836
1.2%
$
70,860
1.1% $
78,675
1.2%
Business
Services
Chemicals
Commercial
Services
Construction
&
Engineering
Consumer
Finance
Consumer
Services
Diversified
Financial
Services
Durable
Consumer
Products
Food
Products
Healthcare
Hotels,
Restaurants
&
Leisure
Machinery
Manufacturing
Media
Metal
Services
&
Minerals
Oil
and
Gas
Production
Oil
and
Gas
Services
Online
Lending
Personal
&
Nondurable
Consumer
Products
Pharmaceuticals
Property
Management
Real
Estate
Retail
Software
&
Computer
Services
Telecommunication
Services
Textiles,
Apparel
&
Luxury
Goods
Transportation
Subtotal
Structured
Finance(1)
Total
Investments
249,482
4,967
247,144
60,436
449,203
194,554
115,648
457,075
287,626
307,136
139,813
330
219,503
371,440
9,934
5,460
286,105
406,931
213,585
70,739
3,916
335,048
—
153,485
4,392
278,552
67,538
4.1%
0.1%
4.1%
1.0%
7.4%
3.1%
1.9%
7.5%
4.7%
5.0%
2.3%
—%
3.6%
6.1%
0.2%
0.1%
4.7%
6.7%
3.5%
1.2%
0.1%
5.5%
—%
2.5%
0.1%
4.5%
1.1%
246,960
4,819
219,988
31,091
474,652
197,346
115,648
453,795
283,172
308,345
139,954
511
180,546
357,864
8,701
6,138
165,091
377,385
193,054
70,739
3,900
480,763
—
151,192
4,392
278,552
63,578
4.2%
0.1%
3.7%
0.5%
8.0%
3.2%
2.0%
7.7%
4.8%
5.2%
2.4%
—%
3.1%
6.1%
0.1%
0.1%
2.8%
6.4%
3.3%
1.2%
0.1%
8.2%
—%
2.6%
0.1%
4.7%
1.1%
646,021
4,963
245,913
58,837
426,697
190,037
120,327
439,172
282,185
435,893
177,748
376
163,380
361,825
25,670
3,000
289,803
263,958
213,796
74,951
5,880
412,080
63
217,429
4,573
252,200
70,392
9.8%
0.1%
3.8%
0.9%
6.5%
2.9%
1.8%
6.7%
4.3%
6.6%
2.7%
—%
2.5%
5.5%
0.4%
—%
4.4%
4.0%
3.4%
1.1%
0.1%
6.3%
—%
3.3%
0.1%
3.8%
1.1%
711,541
10.8%
5,000
241,620
30,497
486,977
190,216
119,919
422,033
281,365
434,446
177,926
563
126,921
350,365
23,745
22
246,817
260,526
193,046
74,588
3,814
465,196
260
217,472
4,595
252,200
63,792
0.1%
3.6%
0.4%
7.4%
2.9%
1.8%
6.4%
4.3%
6.6%
2.7%
—%
1.9%
5.3%
0.4%
—%
3.7%
3.9%
2.9%
1.1%
0.1%
7.0%
—%
3.3%
0.1%
3.8%
1.0%
$ 5,007,560
82.2% $ 4,888,012
82.9%
$ 5,458,029
83.2% $ 5,464,137
1,083,540
17.8% 1,009,696
17.1%
1,101,347
16.8% 1,145,421
82.7%
17.3%
$ 6,091,100
100.0% $ 5,897,708
100.0%
$ 6,559,376
100.0% $ 6,609,558
100.0%
(1) Our
CLO
investments
do
not
have
industry
concentrations
and
as
such
have
been
separated
in
the
table
above.
70
Portfolio Investment Activity
During
the
year
ended
June
30,
2016
,
we
acquired
$375,409
of
new
investments,
completed
follow-on
investments
in
existing
portfolio
companies
totaling
approximately
$573,338
,
funded
$9,824
of
revolver
advances,
and
recorded
PIK
interest
of
$20,531
,
resulting
in
gross
investment
originations
of
$979,102
.
The
more
significant
of
these
transactions
are
briefly
described
below.
On
July
1,
2015,
we
provided
$31,000
of
first
lien
senior
secured
financing
to
Intelius,
Inc.
(“Intelius”),
an
online
information
commerce
company,
of
which
$30,200
was
funded
at
closing.
On
August
11,
2015,
we
made
a
$13,500
follow-on
first
lien
senior
secured
debt
investment
in
Intelius,
of
which
$13,000
was
funded
at
closing,
to
support
an
acquisition.
The
$21,500
Term
Loan
A
note
bears
interest
at
the
greater
of
6.5%
or
LIBOR
plus
5.5%
and
has
a
final
maturity
of
July
1,
2020.
The
$21,500
Term
Loan
B
note
bears
interest
at
the
greater
of
12.5%
or
LIBOR
plus
11.5%
and
has
a
final
maturity
of
July
1,
2020.
The
$1,500
senior
secured
revolver,
which
was
not
funded
at
closing,
bears
interest
at
9.5%
or
LIBOR
plus
8.5%
and
has
a
final
maturity
of
August
11,
2016.
On
July
23,
2015,
we
made
an
investment
of
$37,969
to
purchase
80.73%
of
the
subordinated
notes
issued
by
Halcyon
Loan
Advisors
Funding
2015-3
Ltd.
in
a
co-investment
transaction
with
Priority
Income
Fund,
Inc.,
a
closed-end
fund
managed
by
an
affiliate
of
Prospect
Capital
Management.
On
August
6,
2015,
we
provided
$92,500
of
first
lien
senior
secured
debt
to
support
the
refinancing
of
Crosman
Corporation
(“Crosman”).
Concurrent
with
the
refinancing,
we
received
repayment
of
the
$40,000
second
lien
term
loan
previously
outstanding.
The
$52,500
Term
Loan
A
note
bears
interest
at
the
greater
of
9.0%
or
LIBOR
plus
8.7%
and
interest
payment
in
kind
of
4.0%,
and
has
a
final
maturity
of
August
5,
2020.
The
$40,000
Term
Loan
B
note
bears
interest
at
the
greater
of
16.0%
or
LIBOR
plus
15.7%
and
interest
payment
in
kind
of
4.0%,
and
has
a
final
maturity
of
August
5,
2020.
On
August
12,
2015,
we
made
an
investment
of
$22,898
to
purchase
50.04%
of
the
subordinated
notes
issued
by
Octagon
Investment
Partners
XVIII,
Ltd.
On
August
12,
2015,
we
sold
780
of
our
small
business
whole
loans
(with
a
cost
of
$30,968)
purchased
from
OnDeck
to
Jefferies
Asset
Funding
LLC
for
proceeds
of
$26,619,
net
of
related
transaction
expenses,
and
a
trust
certificate
representing
a
41.54%
interest
in
the
MarketPlace
Loan
Trust,
Series
2015-
OD2.
We
realized
a
loss
of
$775
on
the
sale.
On
August
21,
2015,
we
committed
to
funding
a
$16,000
second
lien
secured
investment
in
Sitel
Worldwide
Corporation,
a
provider
of
customer
care
outsourcing
services.
The
second
lien
term
loan
bears
interest
at
the
greater
of
10.5%
or
LIBOR
plus
9.5%
and
has
a
final
maturity
of
September
18,
2022.
On
September
16,
2015,
we
made
an
investment
of
$26,773
to
purchase
75.09%
of
the
subordinated
notes
issued
by
Apidos
CLO
XXII
in
a
co-investment
transaction
with
Priority
Income
Fund,
Inc.,
a
closed-end
fund
managed
by
an
affiliate
of
Prospect
Capital
Management.
On
October
2,
2015,
we
provided
$17,500
of
first
lien
senior
secured
debt
to
Easy
Gardener
Products,
Inc.,
a
designer,
marketer,
and
manufacturer
of
branded
lawn
and
garden
products.
The
first
lien
term
loan
bears
interest
at
the
greater
of
10.25%
or
LIBOR
plus
10.0%
and
has
a
final
maturity
of
September
30,
2020.
On
October
16,
2015,
we
made
a
$37,000
second
lien
secured
debt
investment
in
Universal
Fiber
Systems,
LLC,
a
manufacturer
of
custom
and
specialty
fiber
products
used
in
high
performance
applications.
The
second
lien
term
loan
bears
interest
at
the
greater
of
10.5%
or
LIBOR
plus
9.5%
and
has
a
final
maturity
of
October
2,
2022.
On
November
2,
2015,
we
provided
$50,000
of
first
lien
senior
secured
debt
to
Coverall
North
America,
Inc.
(“Coverall”),
a
leading
franchiser
of
commercial
cleaning
businesses.
We
invested
$25,000
in
Term
Loan
A
and
$25,000
in
Term
Loan
B
Notes.
Term
Loan
A
bears
interest
at
the
greater
of
7.0%
or
LIBOR
plus
6.0%
and
has
a
final
maturity
of
November
2,
2020.
Term
Loan
B
bears
interest
at
the
greater
of
12.0%
or
LIBOR
plus
11.0%
and
has
a
final
maturity
of
November
2,
2020.
As
part
of
the
recapitalization,
we
received
repayment
of
the
$49,600
loan
outstanding.
On
November
6,
2015,
we
made
a
$20,000
second
lien
secured
debt
investment
in
SCS
Merger
Sub,
Inc.,
a
value-added
reseller
of
data
center-focused
hardware,
software
and
related
services.
The
second
lien
term
loan
bears
interest
at
the
greater
of
10.5%
or
LIBOR
plus
9.5%
and
has
a
final
maturity
of
October
30,
2023.
On
November
9,
2015
and
December
28,
2015,
we
made
a
combined
$30,100
follow-on
first
lien
senior
secured
debt
investment
in
System
One
Holdings,
LLC
(“System
One”),
to
support
an
acquisition.
The
first
lien
term
loan
bears
interest
at
the
greater
of
11.25%
or
LIBOR
plus
10.5%
and
has
a
final
maturity
of
November
17,
2020.
71
On
December
3,
2015,
we
provided
$245,900
of
first
lien
senior
secured
debt
to
Broder
Bros.,
Co.
(“Broder”),
a
leading
distributor
of
imprintable
sportswear
and
accessories
in
the
United
States.
We
invested
$122,950
in
Term
Loan
A
and
$122,950
in
Term
Loan
B
Notes.
Term
Loan
A
bears
interest
at
the
greater
of
7.0%
or
LIBOR
plus
5.75%
and
has
a
final
maturity
of
June
3,
2021.
Term
Loan
B
bears
interest
at
the
greater
of
13.50%
or
LIBOR
plus
12.25%
and
has
a
final
maturity
of
June
3,
2021.
As
part
of
the
recapitalization,
we
sold
$5,000
and
received
a
repayment
of
$245,900
of
the
previous
loan
outstanding.
We
realized
no
gain
or
loss
on
the
sale.
On
February
3,
2016,
lenders
foreclosed
on
Targus
Group
International,
Inc.,
and
our
$21,613
first
lien
term
loan
was
extinguished
and
exchanged
for
1,262,737
common
units
representing
12.63%
equity
ownership
in
Targus
Cayman
HoldCo
Limited,
the
parent
company
of
Targus.
On
February
17,
2016,
we
provided
additional
debt
financing
to
support
the
recapitalization
of
Targus.
As
part
of
the
recapitalization,
we
invested
an
additional
$1,263
in
a
new
senior
secured
Term
Loan
A
notes
and
were
allocated
$3,788
in
new
senior
secured
Term
Loan
B
notes.
Term
Loan
A
and
Term
Loan
B
bear
interest
payment
in
kind
of
15.0%,
and
have
a
final
maturity
date
of
December
31,
2019.
During
the
same
period,
Targus
was
written-down
for
tax
purposes
and
a
loss
of
$14,194
was
therefore
realized
for
the
amount
that
the
amortized
cost
exceeded
the
fair
value,
reducing
the
amortized
cost
to
$3,479.
On
April
29,
2016,
we
invested
an
additional
$25,000
of
Senior
Secured
Term
Loan
A
and
$25,000
of
Senior
Secured
Term
Loan
B
debt
investments
in
Trinity
Services
Group,
Inc.
(“Trinity”).
On
April
29,
2016,
through
our
delayed
draw
term
loan
commitment
with
Instant
Web,
LLC,
we
funded
$8,000
of
Senior
Secured
Term
Loan
A
and
$8,000
of
Senior
Secured
Term
Loan
B.
During
the
period
from
May
18,
2016
through
June
22,
2016,
we
made
$34,726
of
follow-on
first
lien
senior
secured
debt
investments
in
Empire
Today,
LLC.
On
June
7,
2016,
we
made
a
$19,000
second
lien
secured
investment
in
Generation
Brands
Holdings,
Inc.,
a
leading
designer
and
provider
of
lighting
fixtures
for
commercial
and
residential
applications.
The
second
lien
term
loan
bears
interest
at
the
greater
of
11.0%
or
LIBOR
plus
10.0%
and
has
a
final
maturity
of
December
10,
2022.
On
June
8,
2016,
we
made
a
$17,000
first
lien
senior
secured
investment
in
Inpatient
Care
Management
Company,
LLC
(“Inpatient
Care”),
a
company
providing
general
surgery
services
to
hospitals
with
a
focus
on
emergency
care.
The
first
lien
term
loan
bears
interest
at
the
greater
of
11.5%
or
LIBOR
plus
10.5%
and
has
a
final
maturity
of
June
8,
2021.
During
the
period
from
June
10,
2016
through
June
29,
2016,
we
collectively
invested
an
additional
$11,109
of
second
lien
senior
secured
debt
in
NCP
Finance
Limited
Partnership.
During
the
period
from
June
15,
2016
through
June
29,
2016,
we
provided
additional
$3,500
debt
financing
to
USES
and
its
subsidiaries
in
the
form
of
additional
Term
Loan
A
debt
and,
in
connection
with
this
debt
financing,
USES
issued
to
us
268,962
shares
of
its
common
stock
representing
a
99.96%
common
equity
ownership
interest
in
USES.
Therefore,
USES
became
a
controlled
company
on
June
30,
2016.
On
June
17,
2016,
we
made
a
$25,000
follow-on
second
lien
secured
debt
investment
in
Instant
Web,
LLC.
Effective
May
23,
2016,
APRC
and
UPRC
merged
with
and
into
NPRC,
to
consolidate
all
of
our
real
estate
holdings,
with
NPRC
as
the
surviving
entity.
APRC
and
UPRC
have
been
dissolved.
No
gain
or
loss
was
recognized
upon
the
merger.
During
the
year
ended
June
30,
2016
,
we
made
29
follow-on
investments
in
NPRC
totaling
$243,584
to
support
the
online
consumer
lending
initiative.
We
invested
$41,118
of
equity
through
NPH
and
$202,466
of
debt
directly
to
NPRC
and
its
wholly-owned
subsidiaries.
We
also
provided
$12,449
of
equity
financing
to
NPRC,
$9,017
of
which
was
for
the
acquisition
of
Orchard
Village
Apartments,
a
multi-family
property
located
in
Aurora,
Illinois,
and
$3,432
to
fund
capital
expenditures
for
existing
properties.
During
the
period
from
July
1,
2015
through
May
23,
2016,
we
provided
$2,268
of
equity
financing
to
APRC,
and
$4,484
debt
and
$3,047
of
equity
financing
to
UPRC
to
fund
capital
expenditures
for
existing
properties.
During
the
year
ended
June
30,
2016
,
we
purchased
$68,799
of
small
business
whole
loans
from
OnDeck.
72
During
the
year
ended
June
30,
2016
,
we
received
full
repayments
on
eleven
investments,
sold
five
investments
in
addition
to
five
partial
sales,
and
received
several
partial
prepayments
and
amortization
payments
totaling
$1,338,875
,
net
of
realized
losses
totaling
$24,417
.
The
more
significant
of
these
transactions
are
briefly
described
below.
On
July
8,
2015,
we
sold
27.45%
of
the
outstanding
principal
balance
of
the
senior
secured
Term
Loan
A
investment
in
InterDent,
Inc.
(“Interdent”)
for
$34,415.
We
realized
no
gain
or
loss
on
the
sale.
On
July
24,
2015,
TB
Corp.
repaid
the
$23,628
loan
receivable
to
us.
On
August
7,
2015,
Ryan,
LLC
repaid
the
$72,701
loan
receivable
to
us.
On
September
1,
2015,
BNN
Holdings
Corp.
repaid
the
$42,922
loans
receivable
to
us.
On
September
16,
2015,
GTP
Operations,
LLC
repaid
the
$116,411
loan
receivable
to
us.
On
September
22,
2015,
we
sold
19.4%
of
the
outstanding
principal
balance
of
the
senior
secured
Term
Loan
A
investment
in
Instant
Web,
LLC
for
$29,447.
We
realized
no
gain
or
loss
on
the
sale.
On
September
25,
2015,
we
sold
an
additional
8.39%
of
the
total
outstanding
principal
balance
of
the
senior
secured
Term
Loan
A
investment
in
InterDent
for
$10,516.
We
realized
no
gain
or
loss
on
the
sale.
On
September
25,
2015,
Therakos,
Inc.
repaid
the
$13,000
loan
receivable
to
us.
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
equity
in
Arctic
Energy.
On
October
9,
2015,
BAART
Programs,
Inc.
repaid
the
$42,866
loans
receivable
to
us.
On
October
21,
2015,
Aderant
North
American,
Inc.
repaid
the
$7,000
loan
receivable
to
us.
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
Redeemable
Preferred
Stock
in
CP
Energy.
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.
On
November
16,
2015
and
November
25,
2015,
we
sold
our
$14,755
debt
investment
in
American
Gilsonite
Company
(“American
Gilsonite”).
We
realized
a
loss
of
$4,127
on
the
sale.
On
November
30,
2015,
Tolt
Solutions,
Inc.
repaid
the
$96,382
loan
receivable
to
us.
On
December
23,
2015,
Stauber
Performance
Ingredients,
Inc.
repaid
the
$16,811
loan
receivable
to
us.
On
January
21,
2016,
we
sold
100%
of
our
CIFC
Funding
2011-I,
Ltd.
Class
E
and
Class
D
notes
with
a
cost
basis
of
$29,004.
We
realized
a
gain
of
$3,911
on
the
sale.
On
March
22,
2016
and
March
24,
2016,
United
Sporting
Company,
Inc.
partially
repaid
the
$17,391
loan
receivable
to
us.
During
the
year
ended
June
30,
2016
,
we
sold
our
$16,100
debt
investment
in
ICON
Health
and
Fitness,
Inc
(“ICON”).
We
realized
a
loss
of
$1,170
on
the
sale.
During
the
year
ended
June
30,
2016
,
our
remaining
investment
in
New
Century
Transportation,
Inc.
was
written-off
for
tax
purposes
and
a
loss
of
$187
was
realized.
During
the
year
ended
June
30,
2016
,
our
remaining
investment
in
Wind
River
Resources
Corporation
(“Wind
River”)
was
written-off
for
tax
purposes
and
a
loss
of
$3,000
was
realized.
During
the
period
from
May
3,
2016
through
May
10,
2016,
we
collectively
sold
72.10%
of
the
outstanding
principal
balance
of
the
Senior
Secured
Term
Loan
A
investment
in
Trinity
for
$25,000.
There
was
no
gain
or
loss
realized
on
the
sale.
On
May
31,
2016,
we
sold
our
investment
in
Harbortouch
Payments,
LLC
(“Harbortouch”)
for
total
consideration
of
$328,032,
including
fees
and
escrowed
amounts.
Prior
to
the
sale,
$154,382
of
Senior
Secured
Term
Loan
B
loan
outstanding
was
73
converted
to
preferred
equity.
We
received
a
repayment
of
$146,989
loans
receivable
to
us
and
$157,639
of
proceeds
related
to
the
equity
investment.
We
recorded
a
realized
loss
of
$5,419
related
to
the
sale.
We
also
received
a
$5,145
prepayment
premium
for
early
repayment
of
the
outstanding
loans,
which
was
recorded
as
interest
income
in
the
year
ended
June
30,
2016
and
a
$12,909
advisory
fee
for
the
transaction,
which
was
recorded
as
other
income
in
the
year
ended
June
30,
2016.
In
addition,
there
is
$5,350
being
held
in
escrow
which
will
be
recognized
as
additional
realized
gain
if
and
when
it
is
received.
Concurrent
with
the
sale,
we
made
a
$27,500
second
lien
secured
investment
in
Harbortouch.
During
the
year
ended
June
30,
2016
,
we
received
partial
repayments
of
$115,532
of
our
loans
previously
outstanding
and
$12,396
as
a
return
of
capital
on
our
equity
investment
in
NPRC.
During
the
period
from
July
1,
2015
through
May
23,
2016,
we
received
a
partial
repayment
of
$29,703
of
our
loan
previously
outstanding
with
APRC
and
recorded
$11,016
of
dividend
income
from
APRC
in
connection
with
the
sale
of
its
Vista
Palma
Sola
(“Vista”)
property.
During
the
period
from
July
1,
2015
through
May
23,
2016,
we
received
a
partial
repayment
of
$7,567
of
our
loan
previously
outstanding
with
UPRC.
The
following
table
provides
a
summary
of
our
investment
activity
for
each
quarter
within
the
three
years
ending
June
30,
2016
:
Quarter Ended
September
30,
2013
December
31,
2013
March
31,
2014
June
30,
2014
September
30,
2014
December
31,
2014
March
31,
2015
June
30,
2015
September
30,
2015
December
31,
2015
March
31,
2016
June
30,
2016
Acquisitions(1)
Dispositions(2)
537,851
608,154
1,343,256
444,104
714,255
522,705
219,111
411,406
345,743
316,145
23,176
294,038
145,176
255,238
197,947
169,617
690,194
224,076
108,124
389,168
436,919
354,855
163,641
383,460
(1)
Includes
investments
in
new
portfolio
companies,
follow-on
investments
in
existing
portfolio
companies,
refinancings
and
PIK
interest.
(2)
Includes
sales,
scheduled
principal
payments,
prepayments
and
refinancings.
Investment Valuation
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
analysis
was
then
prepared
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
earnings
before
income
tax,
depreciation
and
amortization
(“EBITDA”)
multiples,
the
discounted
cash
flow
technique,
net
income
and/or
book
value
multiples
for
similar
guideline
public
companies
and/or
similar
recent
investment
transactions.
For
stressed
equity
investments,
a
liquidation
analysis
was
prepared.
During
the
year
ended
June
30,
2016,
we
changed
the
valuation
methodology
for
our
REITs
portfolio
(American
Property
REIT
Corp.
(“APRC”),
National
Property
REIT
Corp.
(“NPRC”),
and
United
Property
REIT
Corp.
(“UPRC”))
from
averaging
the
net
asset
value
and
dividend
yield
method
to
averaging
the
net
asset
value
and
discounted
cash
flow
method
utilizing
capitalization
rates
for
similar
guideline
companies
and/or
similar
recent
investment
transactions.
74
In
determining
the
range
of
values
for
our
investments
in
CLOs,
management
and
the
independent
valuation
firm
used
a
discounted
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.
For
each
CLO
security,
the
most
appropriate
valuation
approach
was
chosen
from
alternative
approaches
to
ensure
the
most
accurate
valuation
for
such
security.
To
value
a
CLO,
both
the
assets
and
the
liabilities
of
the
CLO
capital
structure
are
modeled.
Our
valuation
agent
utilizes
additional
methods
to
validate
the
results
from
the
discounted
cash
flow
method,
such
as
Monte
Carlo
simulations
of
key
model
variables,
analysis
of
relevant
data
observed
in
the
CLO
market,
and
review
of
certain
benchmark
credit
indices.
A
waterfall
engine
was
used
to
store
the
collateral
data,
generate
collateral
cash
flows
from
the
assets
based
on
various
assumptions
for
the
risk
factors,
distribute
the
cash
flows
to
the
liability
structure
based
on
the
payment
priorities,
and
discount
them
back
using
proper
discount
rates
to
expected
maturity
or
call
date.
The
Board
of
Directors
looked
at
several
factors
in
determining
where
within
the
range
to
value
the
asset
including:
recent
operating
and
financial
trends
for
the
asset,
independent
ratings
obtained
from
third
parties,
comparable
multiples
for
recent
sales
of
companies
within
the
industry
and
discounted
cash
flow
models
for
our
investments
in
CLOs.
The
composite
of
all
these
analyses,
applied
to
each
investment,
was
a
total
valuation
of
$5,897,708
.
Our
portfolio
companies
are
generally
lower
middle
market
companies,
outside
of
the
financial
sector,
with
less
than
$100,000
of
annual
earnings
before
income
tax,
depreciation
and
amortization
(“EBITDA”).
We
believe
our
market
has
experienced
less
volatility
than
others
because
we
believe
there
are
more
buy
and
hold
investors
who
own
these
less
liquid
investments.
Control
investments
offer
increased
risk
and
reward
over
straight
debt
investments.
Operating
results
and
changes
in
market
multiples
can
result
in
dramatic
changes
in
values
from
quarter
to
quarter.
Significant
downturns
in
operations
can
further
result
in
our
looking
to
recoveries
on
sales
of
assets
rather
than
the
enterprise
value
of
the
investment.
Transactions
between
our
controlled
investments
and
us
have
been
detailed
in
Note
14
to
the
accompanying
consolidated
financial
statements.
Several
control
investments
in
our
portfolio
are
under
enhanced
scrutiny
by
our
senior
management
and
our
Board
of
Directors
and
are
discussed
below.
First Tower Finance Company LLC
We
own
80.1%
of
First
Tower
Finance,
which
owns
100%
of
First
Tower,
LLC
(“First
Tower”),
the
operating
company.
First
Tower
is
a
multiline
specialty
finance
company
based
in
Flowood,
Mississippi
with
over
170
branch
offices.
On
June
15,
2012,
we
acquired
80.1%
of
First
Tower
businesses
As
of
June
30,
2016
,
First
Tower
had
$432,639
of
finance
receivables
net
of
unearned
charges.
As
of
June
30,
2016
,
First
Tower’s
total
debt
outstanding
to
parties
senior
to
us
was
$365,448
.
The
Board
of
Directors
decreased
the
fair
value
of
our
investment
in
First
Tower
to
$352,666
,
representing
a
premium
of
8%
to
its
amortized
cost
basis,
as
of
June
30,
2016
,
from
$365,950,
representing
a
premium
of
15%
to
its
amortized
cost
basis,
as
of
June
30,
2015.
The
decline
in
fair
value
was
driven
by
higher
credit
losses
and
reserves
for
insurance
losses,
as
well
as
an
increase
in
operating
costs.
First
Tower’s
operating
costs
were
higher
due
to
growth
in
loan
originations
as
the
company
expands
in
newer
states.
Freedom Marine Solutions, LLC
Prospect
owns
100%
of
the
equity
of
Energy
Solutions,
a
Consolidated
Holding
Company.
Energy
Solutions
owns
100%
of
Freedom
Marine.
Freedom
Marine
owns
100%
of
each
of
Vessel
Company,
LLC,
Vessel
Company
II,
LLC,
and
Vessel
Company
III,
LLC.
Freedom
Marine
owns,
manages,
and
operates
offshore
supply
vessels
to
provide
transportation
and
support
services
for
the
oil
and
gas
exploration
and
production
industries
in
the
Gulf
of
Mexico.
On
December
29,
2014,
Freedom
Marine
reached
a
settlement
for
and
received
$5,174,
net
of
third
party
obligations,
related
to
the
contingent
earn-out
from
the
sale
of
Gas
Solutions
in
January
2012
which
was
retained
by
Freedom
Marine.
This
is
a
final
settlement
and
no
further
payments
are
expected
from
the
sale.
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.
The
Board
of
Directors
decreased
the
fair
value
of
our
investment
in
Freedom
Marine
to
$26,618
as
of
June
30,
2016,
a
discount
of
$14,192
to
its
amortized
cost,
compared
to
the
$12,722
unrealized
depreciation
recorded
at
June
30,
2015.
The
decline
in
fair
value
was
driven
by
the
challenging
environment
for
the
oil
and
gas
industry,
which
in
turn
decreased
demand
for
Freedom
Marine’s
vessels.
75
Gulf Coast Machine & Supply Company
We
own
100%
of
the
preferred
equity
of
Gulf
Coast.
Gulf
Coast
is
a
provider
of
value-added
forging
solutions
to
energy
and
industrial
end
markets.
On
November
8,
2013,
Gulf
Coast
issued
$25,950
of
convertible
preferred
stock
to
Prospect
(representing
99.9%
of
the
voting
securities
of
Gulf
Coast)
in
exchange
for
crediting
the
same
amount
to
the
first
lien
term
loan
previously
outstanding,
leaving
a
first
lien
loan
balance
of
$15,000.
As
of
June
30,
2016
,
Gulf
Coast’s
total
debt
outstanding
to
parties
senior
to
us
was
$42,865.
Due
to
the
continued
depressed
energy
markets
coupled
with
lower
steel
prices
and
lower
margins
from
increased
competition
in
non-oil
and
gas
forging
markets,
the
Board
of
Directors
slightly
decreased
the
fair
value
of
our
investment
in
Gulf
Coast
to
$7,312
as
of
June
30,
2016,
a
discount
of
$53,063
to
its
amortized
cost,
compared
to
the
$45,032
unrealized
depreciation
recorded
at
June
30,
2015.
National Property REIT Corp.
NPRC
is
a
Maryland
corporation
and
a
qualified
REIT
for
federal
income
tax
purposes.
NPRC
is
held
for
purposes
of
investing,
operating,
financing,
leasing,
managing
and
selling
a
portfolio
of
real
estate
assets
and
engages
in
any
and
all
other
activities
that
may
be
necessary,
incidental,
or
convenient
to
perform
the
foregoing.
NPRC
acquires
real
estate
assets,
including,
but
not
limited
to,
industrial,
commercial,
and
multi-family
properties.
NPRC
may
acquire
real
estate
assets
directly
or
through
joint
ventures
by
making
a
majority
equity
investment
in
a
property-owning
entity.
Additionally,
through
its
wholly-owned
subsidiaries,
NPRC
invests
in
online
consumer
loans.
Effective
May
23,
2016,
APRC
and
UPRC
merged
with
and
into
NPRC,
to
consolidate
all
of
our
real
estate
holdings,
with
NPRC
as
the
surviving
entity.
As
of
June
30,
2016
,
we
own
100%
of
the
fully-diluted
common
equity
of
NPRC.
During
the
period
from
July
1,
2015
through
May
23,
2016,
we
provided
$2,268
of
equity
financing
to
APRC
to
fund
capital
expenditures
for
existing
properties.
In
addition,
during
the
period,
we
received
a
partial
repayment
of
$29,703
of
our
loan
previously
outstanding
and
recorded
$11,016
of
dividend
income
in
connection
with
the
sale
of
Vista
Palma
Sola
property.
During
the
period
from
July
1,
2015
through
May
23,
2016,
we
provided
$4,484
and
$3,047
of
debt
and
equity
financing,
respectively,
to
UPRC
to
fund
capital
expenditures
for
existing
properties.
In
addition,
during
the
period
from
July
1,
2015
through
June
30,
2016
,
we
received
a
partial
repayment
of
$7,567
of
our
loan
previously
outstanding.
During
the
year
ended
June
30,
2016
,
we
provided
$9,017
of
equity
financing
to
NPRC
for
the
acquisition
of
real
estate
properties
and
$3,433
of
equity
financing
to
NPRC
to
fund
capital
expenditures
for
existing
properties.
In
addition,
during
the
year
ended
June
30,
2016,
we
received
partial
repayments
of
$63,271
of
our
loans
previously
outstanding.
During
the
year
ended
June
30,
2016
,
we
provided
$202,466
and
$41,118
of
debt
and
equity
financing,
respectively,
to
NPRC
to
enable
certain
of
its
wholly-
owned
subsidiaries
to
invest
in
online
consumer
loans.
In
addition,
during
the
year
ended
June
30,
2016
,
we
received
partial
repayments
of
$52,260
of
our
loans
previously
outstanding
with
NPRC
and
its
wholly-owned
subsidiaries
and
$12,396
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
18
to
84
months.
As
of
June
30,
2016
,
the
outstanding
investment
in
online
consumer
loans
by
certain
of
NPRC’s
wholly-owned
subsidiaries
was
comprised
of
91,721
individual
loans
and
had
an
aggregate
fair
value
of
$674,423.
The
average
outstanding
individual
loan
balance
is
approximately
$8
and
the
loans
mature
on
dates
ranging
from
October
31,
2016
to
August
1,
2023
with
a
weighted-
average
outstanding
term
of
33
months
as
of
June
30,
2016
.
Fixed
interest
rates
range
from
4.0%
to
36.0%
with
a
weighted-average
current
interest
rate
of
22.0%.
As
of
June
30,
2016,
based
on
outstanding
principal
balance,
9.3%
of
the
portfolio
was
invested
in
super
prime
loans
(borrowers
with
a
Fair
Isaac
Corporation
score,
“FICO
score”,
of
720
or
greater),
24.8%
of
the
portfolio
in
prime
loans
(borrowers
with
a
FICO
score
of
660
to
719)
and
65.9%
of
the
portfolio
in
near
prime
loans
(borrowers
with
a
FICO
score
of
580
to
659).
76
Loan Type
Outstanding Balance
Interest Rate Range
Weighted Average Interest
Rate*
Super
Prime
Prime
Near
Prime
$
66,152
175,899
467,106
4.0%
-
36.0%
5.3%
-
36.0%
6.0%
-
36.0%
11.7%
14.9%
26.2%
*Based
on
outstanding
principal
of
the
unsecured
consumer
loans.
As
of
June
30,
2016
,
our
investment
in
NPRC
had
an
amortized
cost
of
$727,376
and
a
fair
value
of
$843,933
,
including
$363,170
of
fair
value
related
to
our
investment
in
the
online
consumer
loan
subsidiary
as
discussed
above.
The
remaining
fair
value
of
$480,763
relates
to
NPRC’s
real
estate
portfolio
was
comprised
of
thirty
eight
multi-families
properties,
twelve
self-storage
units
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
June
30,
2016
.
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
No.
Property Name
1557
Terrell
Mill
Road,
LLC
Lofton
Place,
LLC
Arlington
Park
Marietta,
LLC
Cordova
Regency,
LLC
Crestview
at
Oakleigh,
LLC
Inverness
Lakes,
LLC
Kings
Mill
Pensacola,
LLC
Plantations
at
Pine
Lake,
LLC
Verandas
at
Rocky
Ridge,
LLC
Plantations
at
Hillcrest,
LLC
Crestview
at
Cordova,
LLC
Taco
Bell,
OK
146
Forest
Parkway,
LLC
5100
Live
Oaks
Blvd,
LLC
NPRC
Carroll
Resort,
LLC
APH
Carroll
41,
LLC
Matthews
Reserve
II,
LLC
City
West
Apartments
II,
LLC
Vinings
Corner
II,
LLC
Acquisition
Date
Purchase
Price
Mortgage
Outstanding
12/28/2012
$
23,500
$
City
Marietta,
GA
Tampa,
FL
Marietta,
GA
Pensacola,
FL
Pensacola,
FL
Mobile,
AL
Pensacola,
FL
Tallahassee,
FL
Birmingham,
AL
Mobile,
AL
Pensacola,
FL
Yukon,
OK
4/30/2013
5/8/2013
11/15/2013
11/15/2013
11/15/2013
11/15/2013
11/15/2013
11/15/2013
1/17/2014
1/17/2014
6/4/2014
Forest
Park,
GA
10/24/2012
Tampa,
FL
1/17/2013
63,400
Pembroke
Pines,
FL
6/24/2013
225,000
Marietta,
GA
Matthews,
NC
Orlando,
FL
Smyrna,
GA
11/1/2013
11/19/2013
11/19/2013
11/19/2013
Uptown
Park
Apartments
II,
LLC
Altamonte
Springs,
FL
11/19/2013
Mission
Gate
II,
LLC
St.
Marin
Apartments
II,
LLC
Plano,
TX
Coppell,
TX
APH
Carroll
Bartram
Park,
LLC
Jacksonville,
FL
APH
Carroll
Atlantic
Beach,
LLC
Atlantic
Beach,
FL
23
Mile
Road
Self
Storage,
LLC
36th
Street
Self
Storage,
LLC
Chesterfield,
MI
Wyoming,
MI
Ball
Avenue
Self
Storage,
LLC
Grand
Rapids,
MI
Ford
Road
Self
Storage,
LLC
Westland,
MI
Ann
Arbor
Kalamazoo
Self
Storage,
LLC
Ann
Arbor,
MI
Ann
Arbor
Kalamazoo
Self
Storage,
LLC
Scio,
MI
Ann
Arbor
Kalamazoo
Self
Storage,
LLC
Kalamazoo,
MI
Jolly
Road
Self
Storage,
LLC
Okemos,
MI
Eaton
Rapids
Road
Self
Storage,
LLC
Lansing
West,
MI
Haggerty
Road
Self
Storage,
LLC
Novi,
MI
Waldon
Road
Self
Storage,
LLC
Lake
Orion,
MI
11/19/2013
11/19/2013
12/31/2013
1/31/2014
8/19/2014
8/19/2014
8/19/2014
8/29/2014
8/29/2014
8/29/2014
8/29/2014
1/16/2015
1/16/2015
1/16/2015
1/16/2015
77
26,000
14,850
13,750
17,500
29,600
20,750
18,000
15,600
6,930
8,500
1,719
7,400
30,600
22,063
23,562
35,691
36,590
47,621
73,078
38,000
13,025
5,804
4,800
7,281
4,642
4,458
8,927
2,363
7,492
1,741
6,700
6,965
14,897
20,402
9,650
11,375
13,845
24,700
17,550
14,092
10,205
4,881
8,126
—
—
46,700
181,707
32,713
19,964
23,354
33,026
29,839
41,711
62,552
28,100
8,766
4,350
3,600
5,460
3,480
3,345
6,695
1,775
5,620
1,305
5,025
5,225
Acquisition
Date
Purchase
Price
Mortgage
Outstanding
No.
Property Name
Tyler
Road
Self
Storage,
LLC
SSIL
I,
LLC
City
Ypsilanti,
MI
Aurora,
IL
Atlanta
Eastwood
Village
LLC
Stockbridge,
GA
Atlanta
Monterey
Village
LLC
Atlanta
Hidden
Creek
LLC
Atlanta
Meadow
Springs
LLC
Atlanta
Meadow
View
LLC
Atlanta
Peachtree
Landing
LLC
Taco
Bell,
MO
Jonesboro,
GA
Morrow,
GA
College
Park,
GA
College
Park,
GA
Fairburn,
GA
Marshall,
MO
1/16/2015
11/5/2015
12/12/2013
12/12/2013
12/12/2013
12/12/2013
12/12/2013
12/12/2013
6/4/2014
Canterbury
Green
Apartments
Holdings
LLC
Fort
Wayne,
IN
9/29/2014
Abbie
Lakes
OH
Partners,
LLC
Canal
Winchester,
OH
9/30/2014
Kengary
Way
OH
Partners,
LLC
Reynoldsburg,
OH
9/30/2014
Lakeview
Trail
OH
Partners,
LLC
Canal
Winchester,
OH
9/30/2014
Lakepoint
OH
Partners,
LLC
Pickerington,
OH
Sunbury
OH
Partners,
LLC
Heatherbridge
OH
Partners,
LLC
Jefferson
Chase
OH
Partners,
LLC
Goldenstrand
OH
Partners,
LLC
Columbus,
OH
Blacklick,
OH
Blacklick,
OH
Hilliard,
OH
9/30/2014
9/30/2014
9/30/2014
9/30/2014
10/29/2014
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
3,507
34,500
25,957
11,501
5,098
13,116
14,354
17,224
1,405
85,500
12,600
11,500
26,500
11,000
13,000
18,416
13,551
7,810
2,630
26,450
19,785
9,193
3,619
10,180
11,141
13,575
—
74,286
10,440
11,000
20,142
10,080
10,480
15,480
12,240
8,040
$ 1,200,441
$
972,796
The
Board
of
Directors
increased
the
fair
value
of
our
investment
in
NPRC
to
$843,933
as
of
June
30,
2016
,
a
premium
of
$116,557
from
its
amortized
cost,
compared
to
the
$49,350
unrealized
appreciation
,
inclusive
of
APRC
and
UPRC,
recorded
at
June
30,
2015
.
This
increase
is
primarily
due
to
improved
operating
performance
at
the
property
level
and
selected
cap
rates,
partially
offset
by
a
decline
in
our
online
lending
portfolio
value
resulting
from
an
increase
in
delinquent
loans.
NMMB, Inc.
Prospect
owns
100%
of
the
equity
of
NMMB
Holdings,
Inc.
(“NMMB
Holdings”),
a
Consolidated
Holding
Company.
NMMB
Holdings
owns
96.33%
of
the
fully-diluted
equity
of
NMMB,
Inc.
(f/k/a
NMMB
Acquisition,
Inc.)
(“NMMB”),
with
NMMB
management
owning
the
remaining
3.67%
of
the
equity.
NMMB
owns
100%
of
Refuel
Agency,
Inc.
(“Refuel
Agency”).
Refuel
Agency
owns
100%
of
Armed
Forces
Communications,
Inc.
(“Armed
Forces”).
NMMB
is
an
advertising
media
buying
business.
On
May
6,
2011,
Prospect
initially
made
a
$34,450
investment
(of
which
$31,750
was
funded
at
closing)
in
NMMB
Holdings
and
NMMB,
of
which
$24,250
was
a
senior
secured
term
loan
to
NMMB,
$3,000
was
a
senior
secured
revolver
to
NMMB
(of
which
$300
was
funded
at
closing),
$2,800
was
a
senior
subordinated
term
loan
to
NMMB
Holdings
and
$4,400
to
purchase
100%
of
the
Series
A
Preferred
Stock
of
NMMB
Holdings.
The
proceeds
received
by
NMMB
were
used
to
purchase
100%
of
the
equity
of
Refuel
Agency
and
assets
related
to
the
business
for
$30,069,
pay
$1,035
of
structuring
fees
to
Prospect
(which
was
recognized
by
Prospect
as
structuring
fee
income),
pay
$396
for
third
party
expenses
and
$250
was
retained
by
NMMB
for
working
capital.
The
Board
of
Directors
decreased
the
fair
value
of
our
investment
in
NMMB
to
$10,007,
representing
a
discount
of
58%
to
its
amortized
cost
basis,
as
of
June
30,
2016,
from
$12,052,
representing
a
discount
of
49%
to
its
amortized
cost
basis,
as
of
June
30,
2015.
The
decrease
in
fair
value
was
driven
by
declining
revenues
from
NMMB’s
print
business.
The
impact
of
this
decline
was
partially
offset
by
increases
in
gross
profit
and
EBITDA
margins
as
well
as
by
growth
in
the
digital
and
out-of-home
advertising
business
lines.
USES Corp.
On
June
15,
2016,
we
provided
additional
$1,300
debt
financing
to
USES
and
its
subsidiaries
in
the
form
of
additional
Term
Loan
A
debt
and,
in
connection
with
such
Term
Loan
A
debt
financing,
USES
issued
to
us
99,900
shares
of
its
common
stock.
On
June
29,
2016,
we
provided
additional
$2,200
debt
financing
to
USES
and
its
subsidiaries
in
the
form
of
additional
Term
Loan
A
debt
and,
in
connection
with
such
Term
Loan
A
debt
financing,
USES
issued
to
us
169,062
shares
of
its
common
78
stock.
As
a
result
of
such
debt
financing
and
recapitalization,
as
of
June
29,
2016,
we
held
268,962
shares
of
USES
common
stock
representing
a
99.96%
common
equity
ownership
interest
in
USES.
We
own
99.96%
of
USES
as
of
June
30,
2016
.
USES
provides
industrial
and
environmental
services
in
the
Gulf
States
region.
The
company
offers
industrial
services,
such
as
tank
and
chemical
cleaning,
hydro
blasting,
waste
management,
vacuum,
safety
training,
turnaround
management,
and
oilfield.
It
also
offers
response/remediation
services,
including
hazardous
and
non-hazardous
material
emergency
response,
oil
spill
response,
industrial
fire
suppression,
disaster
response,
remediation,
demolition
and
safety
training.
The
company
serves
pulp
paper,
oil
and
gas
production,
utilities,
transportation,
refinery,
petrochemical,
shipping,
manufacturing,
government,
engineering,
consulting,
spill
management
and
chemical
industries.
The
first
half
of
2016
saw
the
company’s
revenue
suffer
due
to
a
pull
back
in
capital
and
maintenance
spending
across
the
energy
sector.
In
addition
the
company
did
not
benefit
from
any
large
emergency
response
projects.
As
a
result
a
number
of
changes
have
been
made
to
position
the
company
for
growth
again.
The
Company
has
replaced
the
CEO
and
CFO.
Under
the
new
leadership,
the
company
is
now
operating
under
a
right
sized
cost
structure.
The
company
is
also
improving
its
fleet
of
equipment
with
support
from
Prospect
and
other
financing
sources.
Management
has
implemented
a
new
sales
strategy
that
is
helping
build
the
company’s
revenue
backlog
across
multiple
end
markets
and
service
lines.
Due
to
the
softening
of
the
energy
markets
partially
offset
by
increased
margins
on
projects,
the
Board
of
Directors
determined
the
fair
value
of
our
investment
in
USES
to
be
$40,286
as
of
June
30,
2016,
a
discount
of
$21,440
from
its
amortized
cost,
compared
to
the
$4,293
unrealized
depreciation
recorded
at
June
30,
2015.
Valley Electric Company, Inc.
We
own
94.99%
of
Valley
Electric
as
of
June
30,
2016
.
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.
(“Valley”).
Valley
is
a
leading
provider
of
specialty
electrical
services
in
the
state
of
Washington
and
is
among
the
top
50
electrical
contractors
in
the
U.S.
The
company,
with
its
headquarters
in
Everett,
Washington,
offers
a
comprehensive
array
of
contracting
services,
primarily
for
commercial,
industrial,
and
transportation
infrastructure
applications,
including
new
installation,
engineering
and
design,
design-build,
traffic
lighting
and
signalization,
low
to
medium
voltage
power
distribution,
construction
management,
energy
management
and
control
systems,
24-hour
electrical
maintenance
and
testing,
as
well
as
special
projects
and
tenant
improvement
services.
Valley
was
founded
in
1982
by
the
Ward
family,
who
held
the
company
until
the
end
of
2012.
On
December
31,
2012,
we
acquired
96.3%
of
the
outstanding
shares
of
Valley.
On
June
24,
2014,
Prospect
and
management
of
Valley
formed
Valley
Electric
and
contributed
their
shares
of
Valley
stock
to
Valley
Electric.
Valley
management
made
an
additional
equity
investment
in
Valley
Electric,
reducing
our
ownership
to
94.99%.
In
early
2016,
Valley’s
project
backlog
and
revenue
steadily
improved
primarily
due
to
a
more
robust
construction
market
in
the
state
of
Washington
and
successful
project
execution.
Due
to
the
softening
of
the
energy
markets
partially
offset
by
increased
project
margins,
the
Board
of
Directors
determined
the
fair
value
of
our
investment
in
Valley
Electric
to
be
$31,091
as
of
June
30,
2016
,
a
discount
of
$29,345
from
its
amortized
cost,
compared
to
the
$28,340
unrealized
depreciation
recorded
at
June
30,
2015
.
Equity
positions
in
our
portfolio
are
susceptible
to
potentially
significant
changes
in
value,
both
increases
as
well
as
decreases,
due
to
changes
in
operating
results
and
market
multiples.
Several
of
our
controlled
companies
experienced
such
volatility
and
we
recorded
corresponding
fluctuations
in
valuations
during
the
year
ended
June
30,
2016
.
See
above
for
discussions
regarding
the
fluctuations
in
NPRC,
First
Tower
Finance,
USES,
NMMB,
Freedom
Marine
and
Valley
Electric.
During
the
year
ended
June
30,
2016
,
the
value
of
our
investments
in
Arctic
Energy,
CP
Energy
and
Gulf
Coast
decreased
by
$22,024
,
$12,188
and
$8,031
,
respectively,
as
a
result
of
depressed
earnings
resulting
from
softness
of
the
energy
markets;
Echelon
decreased
by
$5,166
due
to
aircraft
sale
proceeds
and
resulting
dividend
distribution;
and
R-V
decreased
by
$3,017
due
to
lower
sales
profitability.
In
total,
ten
of
the
controlled
investments
are
valued
at
the
original
investment
amounts
or
higher,
and
seven
of
the
controlled
investments
have
been
valued
at
discounts
to
the
original
cost
basis.
Overall,
at
June
30,
2016
,
control
investments
are
valued
at
$15,771
below
their
amortized
cost.
We
hold
two
affiliate
investments
at
June
30,
2016
.
Our
affiliate
portfolio
companies
did
not
experience
a
significant
change
in
valuation
during
the
year
ended
June
30,
2016
.
Overall,
at
June
30,
2016
,
affiliate
investments
are
valued
at
$562
above
their
amortized
cost.
With
the
non-control/non-affiliate
investments,
generally,
there
is
less
volatility
related
to
our
total
investments
because
our
equity
positions
tend
to
be
smaller
than
with
our
control/affiliate
investments,
and
debt
investments
are
generally
not
as
susceptible
to
79
large
swings
in
value
as
equity
investments.
For
debt
investments,
the
fair
value
is
generally
limited
on
the
high
side
to
each
loan’s
par
value,
plus
any
prepayment
premium
that
could
be
imposed.
Many
of
the
debt
investments
in
this
category
have
not
experienced
a
significant
change
in
value,
as
they
were
previously
valued
at
or
near
par
value.
Non-control/non-affiliate
investments
did
not
experience
significant
changes
and
are
generally
performing
as
expected
or
better.
Two
of
our
non-control/non-affiliate
investments,
Ark-La-Tex
Wireline
Services
(“Ark-La-Tex”),
LLC
and
Spartan
Energy
Services,
Inc.
(“Spartan”),
are
valued
at
a
discount
to
amortized
cost
of
$32,548
and
$14,240
,
respectively,
due
to
a
decline
in
operating
results
from
softness
of
the
energy
markets.
During
the
year
ended
June
30,
2016
,
the
value
of
our
CLO
residual
interest
investments
decreased
by
$
114,133
primarily
due
to
non-credit
related
changes
in
the
capital
markets
impacting
the
underlying
collateral
and
increasing
our
discount
rate
by
404
bps
inclusive
of
new
investments.
Overall,
at
June
30,
2016
,
non-control/non-affiliate
investments
are
valued
$
57,551
below
their
amortized
cost,
excluding
our
investments
in
Ark-La-Tex,
Spartan,
and
CLO
investments,
as
the
remaining
companies
are
generally
performing
as
or
better
than
expected.
Capitalization
Our
investment
activities
are
capital
intensive
and
the
availability
and
cost
of
capital
is
a
critical
component
of
our
business.
We
capitalize
our
business
with
a
combination
of
debt
and
equity.
Our
debt
as
of
June
30,
2016
consists
of:
a
Revolving
Credit
Facility
availing
us
of
the
ability
to
borrow
debt
subject
to
borrowing
base
determinations;
Convertible
Notes
which
we
issued
in
February
2011,
April
2012,
August
2012,
December
2012
and
April
2014;
Public
Notes
which
we
issued
in
March
2013,
April
2014,
December
2015,
and
from
time
to
time,
through
our
Baby
Bond
Program;
and
Prospect
Capital
InterNotes®
which
we
issue
from
time
to
time.
Our
equity
capital
is
comprised
entirely
of
common
equity.
The
following
table
shows
the
maximum
draw
amounts
and
outstanding
borrowings
of
our
Revolving
Credit
Facility,
Convertible
Notes,
Public
Notes
and
Prospect
Capital
InterNotes
®
as
of
June
30,
2016
and
June
30,
2015
.
Revolving
Credit
Facility
Convertible
Notes
Public
Notes
Prospect
Capital
InterNotes®
Total
June 30, 2016
June 30, 2015
Maximum
Draw Amount
Amount
Outstanding
Maximum
Draw Amount
Amount
Outstanding
$
885,000
$
—
$
885,000
$
368,700
1,089,000
1,089,000
1,239,500
1,239,500
709,657
908,808
709,657
908,808
548,094
827,442
548,094
827,442
$
3,592,465
$
2,707,465
$
3,500,036
$
2,983,736
The
following
table
shows
the
contractual
maturities
of
our
Revolving
Credit
Facility,
Convertible
Notes,
Public
Notes
and
Prospect
Capital
InterNotes
®
as
of
June
30,
2016
.
Payments Due by Period
Total
Less than 1
Year
1 – 3 Years
3 – 5 Years
Revolving
Credit
Facility
$
—
$
—
$
—
$
—
$
Convertible
Notes
Public
Notes
Prospect
Capital
InterNotes®
1,089,000
167,500
529,500
709,657
908,808
—
—
8,819
257,198
392,000
300,000
360,599
After 5
Years
—
—
409,657
282,192
Total
Contractual
Obligations
$ 2,707,465
$
176,319
$
786,698
$ 1,052,599
$
691,849
80
The
Convertible
Notes
due
August
15,
2016,
with
an
outstanding
balance
of
$167,500
at
June
30,
2016,
were
paid
on
August
15,
2016
from
cash-on-hand,
primarily
generated
from
the
sale
of
Harbortouch.
The
following
table
shows
the
contractual
maturities
of
our
Revolving
Credit
Facility,
Convertible
Notes,
Public
Notes
and
Prospect
Capital
InterNotes
®
as
of
June
30,
2015
.
Payments Due by Period
Total
Less than 1
Year
1 – 3 Years
3 – 5 Years
Revolving
Credit
Facility
$
368,700
$
—
$
—
$
368,700
$
Convertible
Notes
Public
Notes
Prospect
Capital
InterNotes®
1,239,500
150,000
497,500
548,094
827,442
—
—
—
54,509
592,000
300,000
369,938
After 5
Years
—
—
248,094
402,995
Total
Contractual
Obligations
$ 2,983,736
$
150,000
$
552,009
$ 1,630,638
$
651,089
Historically,
we
have
funded
a
portion
of
our
cash
needs
through
borrowings
from
banks,
issuances
of
senior
securities,
including
secured,
unsecured
and
convertible
debt
securities,
or
issuances
of
common
equity.
For
flexibility,
we
maintain
a
universal
shelf
registration
statement
that
allows
for
the
public
offering
and
sale
of
our
debt
securities,
common
stock,
preferred
stock,
subscription
rights,
and
warrants
and
units
to
purchase
such
securities
in
an
amount
up
to
$5,000,000
less
issuances
to
date.
As
of
June
30,
2016
,
we
can
issue
up
to
$4,807,503
of
additional
debt
and
equity
securities
in
the
public
market
under
this
shelf
registration.
We
may
from
time
to
time
issue
securities
pursuant
to
the
shelf
registration
statement
or
otherwise
pursuant
to
private
offerings.
The
issuance
of
debt
or
equity
securities
will
depend
on
future
market
conditions,
funding
needs
and
other
factors
and
there
can
be
no
assurance
that
any
such
issuance
will
occur
or
be
successful.
Each
of
our
Unsecured
Notes
(as
defined
below)
are
our
general,
unsecured
obligations
and
rank
equal
in
right
of
payment
with
all
of
our
existing
and
future
unsecured
indebtedness
and
will
be
senior
in
right
of
payment
to
any
of
our
subordinated
indebtedness
that
may
be
issued
in
the
future.
The
Unsecured
Notes
are
effectively
subordinated
to
our
existing
secured
indebtedness,
such
as
our
credit
facility,
and
future
secured
indebtedness
to
the
extent
of
the
value
of
the
assets
securing
such
indebtedness
and
structurally
subordinated
to
any
existing
and
future
liabilities
and
other
indebtedness
of
any
of
our
subsidiaries.
Revolving Credit Facility
On
March
27,
2012,
we
closed
on
an
extended
and
expanded
credit
facility
with
a
syndicate
of
lenders
through
PCF
(the
“2012
Facility”).
The
lenders
had
extended
commitments
of
$857,500
under
the
2012
Facility
as
of
June
30,
2014,
which
was
increased
to
$877,500
in
July
2014.
The
2012
Facility
included
an
accordion
feature
which
allowed
commitments
to
be
increased
up
to
$1,000,000
in
the
aggregate.
Interest
on
borrowings
under
the
2012
Facility
was
one-month
LIBOR
plus
275
basis
points
with
no
minimum
LIBOR
floor.
Additionally,
the
lenders
charged
a
fee
on
the
unused
portion
of
the
2012
Facility
equal
to
either
50
basis
points
if
at
least
half
of
the
credit
facility
is
drawn
or
100
basis
points
otherwise.
On
August
29,
2014,
we
renegotiated
the
2012
Facility
and
closed
an
expanded
five
and
a
half
year
revolving
credit
facility
(the
“2014
Facility”
and
collectively
with
the
2012
Facility,
the
“Revolving
Credit
Facility”).
The
lenders
have
extended
commitments
of
$885,000
under
the
2014
Facility
as
of
June
30,
2016
.
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
June
30,
2016
,
we
were
in
compliance
with
the
applicable
covenants.
Interest
on
borrowings
under
the
2014
Facility
is
one-month
LIBOR
plus
225
basis
points
with
no
minimum
LIBOR
floor.
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.
81
As
of
June
30,
2016
and
June
30,
2015
,
we
had
$538,456
and
$721,800
,
respectively,
available
to
us
for
borrowing
under
the
Revolving
Credit
Facility,
of
which
the
amount
outstanding
was
$0
and
$368,700
,
respectively.
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
June
30,
2016
,
the
investments,
including
cash
and
money
market
funds,
used
as
collateral
for
the
Revolving
Credit
Facility
had
an
aggregate
fair
value
of
$1,373,569
,
which
represents
22.1%
of
our
total
investments,
including
cash
and
money
market
funds.
These
assets
are
held
and
owned
by
PCF,
a
bankruptcy
remote
special
purpose
entity,
and
as
such,
these
investments
are
not
available
to
our
general
creditors.
The
release
of
any
assets
from
PCF
requires
the
approval
of
the
facility
agent.
In
connection
with
the
origination
and
amendments
of
the
Revolving
Credit
Facility,
we
incurred
$12,405
of
new
fees
and
$3,539
of
fees
carried
over
for
continuing
participants
from
the
previous
facility,
which
are
being
amortized
over
the
term
of
the
facility
in
accordance
with
ASC
470-50,
of
which
$7,525
remains
to
be
amortized
and
is
included
within
deferred
financing
costs
on
the
Consolidated Statements of Assets and Liabilities as
of
June
30,
2016
.
During
the
year
ended
June
30,
2015,
in
accordance
with
ASC
470-50,
we
expensed
$332
of
fees
relating
to
credit
providers
in
the
2012
Facility
who
did
not
commit
to
the
2014
Facility.
During
the
years
ended
June
30,
2016,
2015
and
2014
,
we
recorded
$13,213
,
$14,424
,
and
$12,216
,
respectively,
of
interest
costs,
unused
fees
and
amortization
of
financing
costs
on
the
Revolving
Credit
Facility
as
interest
expense.
Convertible Notes
On
December
21,
2010,
we
issued
$150,000
aggregate
principal
amount
of
convertible
notes
that
matured
on
December
15,
2015
(the
“2015
Notes”).
The
2015
Notes
bore
interest
at
a
rate
of
6.25%
per
year,
payable
semi-annually
on
June
15
and
December
15
of
each
year,
beginning
June
15,
2011.
Total
proceeds
from
the
issuance
of
the
2015
Notes,
net
of
underwriting
discounts
and
offering
costs,
were
$145,200.
On
December
15,
2015,
we
repaid
the
outstanding
principal
amount
of
the
2015
Notes,
plus
interest.
No
gain
or
loss
was
realized
on
the
transaction.
On
February
18,
2011,
we
issued
$172,500
aggregate
principal
amount
of
convertible
notes
that
mature
on
August
15,
2016
(the
“2016
Notes”),
unless
previously
converted
or
repurchased
in
accordance
with
their
terms.
The
2016
Notes
bear
interest
at
a
rate
of
5.50%
per
year,
payable
semi-annually
on
February
15
and
August
15
of
each
year,
beginning
August
15,
2011.
Total
proceeds
from
the
issuance
of
the
2016
Notes,
net
of
underwriting
discounts
and
offering
costs,
were
$167,325.
Between
January
30,
2012
and
February
2,
2012,
we
repurchased
$5,000
aggregate
principal
amount
of
the
2016
Notes
at
a
price
of
97.5,
including
commissions.
The
transactions
resulted
in
our
recognizing
$10
of
loss
in
the
year
ended
June
30,
2012.
The
2016
Notes
were
repaid
on
maturity
of
August
15,
2016,
after
our
June
30,
2016
fiscal
year
end.
On
April
16,
2012,
we
issued
$130,000
aggregate
principal
amount
of
convertible
notes
that
mature
on
October
15,
2017
(the
“2017
Notes”),
unless
previously
converted
or
repurchased
in
accordance
with
their
terms.
The
2017
Notes
bear
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
August
14,
2012,
we
issued
$200,000
aggregate
principal
amount
of
convertible
notes
that
mature
on
March
15,
2018
(the
“2018
Notes”),
unless
previously
converted
or
repurchased
in
accordance
with
their
terms.
The
2018
Notes
bear
interest
at
a
rate
of
5.75%
per
year,
payable
semi-annually
on
March
15
and
September
15
of
each
year,
beginning
March
15,
2013.
Total
proceeds
from
the
issuance
of
the
2018
Notes,
net
of
underwriting
discounts
and
offering
costs,
were
$193,600.
On
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.
82
Certain
key
terms
related
to
the
convertible
features
for
the
2016
Notes,
the
2017
Notes,
the
2018
Notes,
the
2019
Notes
and
the
2020
Notes
(collectively,
the
“Convertible
Notes”)
are
listed
below.
Initial
conversion
rate(1)
Initial
conversion
price
Conversion
rate
at
June
30,
2016(1)(2)
Conversion
price
at
June
30
,
2016(2)(3)
Last
conversion
price
calculation
date
Dividend
threshold
amount
(per
share)(4)
2016 Notes
2017 Notes
2018 Notes
2019 Notes
2020 Notes
78.3699
85.8442
82.3451
79.7766
12.76
$
11.65
$
12.14
$
12.54
$
80.2196
87.7516
84.1497
79.8360
12.47
$
11.40
$
11.88
$
12.53
$
2/18/2016
4/16/2016
8/14/2015
12/21/2015
0.101150
$
0.101500
$
0.101600
$
0.110025
$
80.6647
12.40
80.6670
12.40
4/11/2016
0.110525
$
$
$
(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
in
effect
at
June
30,
2016
was
calculated
on
the
last
anniversary
of
the
issuance
and
will
be
adjusted
again
on
the
next
anniversary,
unless
the
exercise
price
shall
have
changed
by
more
than
1%
before
the
anniversary.
(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
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
$34,629
of
fees
which
are
being
amortized
over
the
terms
of
the
notes,
of
which
$14,639
remains
to
be
amortized
and
is
included
within
deferred
financing
costs
on
the
Consolidated Statement of Assets and Liabilities as
of
June
30,
2016
.
During
the
years
ended
June
30,
2016
,
2015
and
2014
,
we
recorded
$68,966
,
$74,365
and
$58,042
,
respectively,
of
interest
costs
and
amortization
of
financing
costs
on
the
Convertible
Notes
as
interest
expense.
Public Notes
On
May
1,
2012,
we
issued
$100,000
aggregate
principal
amount
of
unsecured
notes
that
were
scheduled
to
mature
on
November
15,
2022
(the
“2022
Notes”).
The
2022
Notes
bore
interest
at
a
rate
of
6.95%
per
year,
payable
quarterly
on
February
15,
May
15,
August
15
and
November
15
of
each
year,
beginning
August
15,
2012.
Total
proceeds
from
the
issuance
of
the
2022
Notes,
net
of
underwriting
discounts
and
offering
costs,
were
$97,000.
On
May
15,
2015,
we
redeemed
$100,000
aggregate
principal
amount
of
the
2022
Notes
at
par.
In
connection
with
this
transaction,
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
the
2022
Notes
in
the
year
ended
June
30,
2015
was
$2,600.
83
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
$245,966.
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.
During
the
period
from
June
28,
2016
to
June
30,
2016,
we
issued
$1,380
in
aggregate
principal
amount
of
our
2024
Notes
for
net
proceeds
of
$1,247
after
commissions
and
offering
costs.
The
2022
Notes,
the
2023
Notes,
the
5.00%
2019
Notes,
and
the
2024
Notes
(collectively,
the
“Public
Notes”)
are
direct
unsecured
obligations
and
rank
equally
with
all
of
our
unsecured
indebtedness
from
time
to
time
outstanding.
In
connection
with
the
issuance
of
the
2023
Notes,
the
5.00%
2019
Notes,
and
the
2024
Notes,
we
incurred
$13,109
of
fees
which
are
being
amortized
over
the
term
of
the
notes,
of
which
$10,289
remains
to
be
amortized
and
is
included
within
deferred
financing
costs
on
the
Consolidated Statement of Assets and Liabilities
as
of
June
30,
2016
.
During
the
years
ended
June
30,
2016,
2015
and
2014
,
we
recorded
$36,859
,
$37,063
,
and
$25,988
,
respectively,
of
interest
costs
and
amortization
of
financing
costs
on
the
Public
Notes
as
interest
expense
.
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
year
ended
June
30,
2016
,
we
issued
$88,435
aggregate
principal
amount
of
Prospect
Capital
InterNotes®
for
net
proceeds
of
$87,141
.
These
notes
were
issued
with
stated
interest
rates
ranging
from
4.625%
to
6.00%
with
a
weighted
average
interest
rate
of
5.18%
.
These
notes
mature
between
July
15,
2020
and
December
15,
2025
.
The
following
table
summarizes
the
Prospect
Capital
InterNotes®
issued
during
the
year
ended
June
30,
2016
.
Tenor at
Origination
(in years)
5
6.5
7
10
Principal
Amount
Interest Rate
Range
$
51,503
4.625%–6.00%
35,155
5.10%–5.25%
990
787
5.625%–6.00%
5.125%–6.00%
$
88,435
Weighted
Average
Interest Rate
5.12%
5.25%
5.77%
5.33%
84
Maturity Date Range
July
15,
2020
–
June
15,
2021
January
15,
2022
–
May
15,
2022
November
15,
2022
–
December
15,
2022
November
15,
2025
–
December
15,
2025
During
the
year
ended
June
30,
2015
,
we
issued
$125,696
aggregate
principal
amount
of
our
Prospect
Capital
InterNotes®
for
net
proceeds
of
$123,641
.
These
notes
were
issued
with
a
stated
interest
rates
ranging
from
3.375%
to
5.10%
with
a
weighted
average
interest
rate
of
4.65%
.
These
notes
mature
between
May
15,
2020
and
June
15,
2022
.
The
following
table
summarizes
the
Prospect
Capital
InterNotes®
issued
during
the
year
ended
June
30,
2015
.
Tenor at
Origination
(in years)
Principal
Amount
Interest Rate
Range
Weighted
Average
Interest Rate
5.25
$
7,126
4.625%
5.5
6
6.5
7
106,364
4.25%–4.75%
2,197
3,912
6,097
3.375%
5.10%
5.10%
$
125,696
4.625%
4.63%
3.375%
5.10%
5.10%
0.051
Maturity Date Range
August
15,
2020
–
September
15,
2020
May
15,
2020
–
November
15,
2020
April
15,
2021
–
May
15,
2021
December
15,
2021
May
15,
2022
–
June
15,
2022
During
the
year
ended
June
30,
2016
,
we
repaid
$7,069
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
gain
on
the
extinguishment
of
Prospect
Capital
InterNotes®
in
the
year
ended
June
30,
2016
was
$215.
The
following
table
summarizes
the
Prospect
Capital
InterNotes®
outstanding
as
of
June
30,
2016
.
Tenor at
Origination
(in years)
3
3.5
4
5
5.2
5.3
5.4
5.5
6
6.5
7
7.5
10
12
15
18
20
25
30
Principal
Amount
Interest Rate
Range
$
5,710
3,109
4.00%
4.00%
45,690
3.75%–4.00%
259,191
4.25%–5.75%
4,440
2,686
5,000
4.625%
4.625%
4.75%
109,808
4.25%–5.00%
2,197
3.375%
40,867
5.10%–5.50%
192,076
4.00%–6.55%
1,996
5.75%
37,533
3.62%–7.00%
2,978
6.00%
17,325
5.25%–6.00%
22,303
4.125%–6.25%
4,462
5.625%–6.00%
35,110
6.25%–6.50%
116,327
5.50%–6.75%
$
908,808
Weighted
Average
Interest Rate
4.00%
4.00%
3.92%
4.95%
4.625%
4.625%
4.75%
4.65%
3.375%
5.24%
5.13%
5.75%
6.11%
6.00%
5.36%
5.53%
5.89%
6.39%
6.23%
Maturity Date Range
October
15,
2016
April
15,
2017
November
15,
2017
–
May
15,
2018
July
15,
2018
–
June
15,
2021
August
15,
2020
–
September
15,
2020
September
15,
2020
August
15,
2019
February
15,
2019
–
November
15,
2020
April
15,
2021
–
May
15,
2021
February
15,
2020
–
May
15,
2022
June
15,
2019
–
December
15,
2022
February
15,
2021
March
15,
2022
–
December
15,
2025
November
15,
2025
–
December
15,
2025
May
15,
2028
–
November
15,
2028
December
15,
2030
–
August
15,
2031
November
15,
2032
–
October
15,
2033
August
15,
2038
–
May
15,
2039
November
15,
2042
–
October
15,
2043
During
the
year
ended
June
30,
2015
,
we
redeemed
$76,931
aggregate
principal
amount
of
our
Prospect
Capital
InterNotes®
at
par
with
a
weighted
average
interest
rate
of
6.06%
in
order
to
replace
debt
with
higher
interest
rates
with
debt
with
lower
rates.
During
the
year
ended
June
30,
2015,
we
repaid
$6,993
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
year
ended
June
30,
2015
was
$1,682.
The
following
table
summarizes
the
Prospect
Capital
InterNotes®
outstanding
as
of
June
30,
2015
.
85
Tenor at
Origination
(in years)
3
3.5
4
5
5.25
5.5
6
6.5
7
7.5
10
12
15
18
20
25
30
Principal
Amount
Interest Rate
Range
$
5,710
3,109
4.00%
4.00%
45,690
3.75%–4.00%
207,719
4.25%–5.00%
7,126
4.625%
115,184
4.25%–5.00%
2,197
5,712
3.375%
5.10%–5.50%
191,549
4.00%–5.85%
1,996
5.75%
36,925
3.29%–7.00%
2,978
6.00%
17,385
5.00%–6.00%
22,729
4.125%–6.25%
4,530
5.75%–6.00%
36,320
6.25%–6.50%
120,583
5.50%–6.75%
$
827,442
Weighted
Average
Interest Rate
4.00%
4.00%
3.92%
4.92%
4.63%
4.65%
3.38%
5.23%
5.13%
5.75%
6.11%
6.00%
5.14%
5.52%
5.89%
6.39%
6.23%
Maturity Date Range
October
15,
2016
April
15,
2017
November
15,
2017
–
May
15,
2018
July
15,
2018
–
May
15,
2019
August
15,
2020
–
September
15,
2020
February
15,
2019
–
November
15,
2020
April
15,
2021
–
May
15,
2021
February
15,
2020
–
December
15,
2021
September
15,
2019
–
June
15,
2022
February
15,
2021
March
15,
2022
–
May
15,
2024
November
15,
2025
–
December
15,
2025
May
15,
2028
–
November
15,
2028
December
15,
2030
–
August
15,
2031
November
15,
2032
–
October
15,
2033
August
15,
2038
–
May
15,
2039
November
15,
2042
–
October
15,
2043
In
connection
with
the
issuance
of
Prospect
Capital
InterNotes
®
,
we
incurred
$22,294
of
fees
which
are
being
amortized
over
the
term
of
the
notes,
of
which
$15,598
remains
to
be
amortized
and
is
included
within
deferred
financing
costs
on
the
Consolidated Statement of Assets and Liabilities as
of
June
30,
2016
.
During
the
years
ended
June
30,
2016,
2015
and
2014
,
we
recorded
$48,681
,
$44,808
,
and
$33,857
,
respectively,
of
interest
costs
and
amortization
of
financing
costs
on
the
Prospect
Capital
InterNotes
®
as
interest
expense.
Net Asset Value
During
the
year
ended
June
30,
2016
,
our
net
asset
value
decreased
by
$267,132
,
or
$0.69
per
share,
resulting
primarily
from
a
decrease
in
net
realized
and
unrealized
gains
and
losses
on
CLOs,
financial
and
energy
related
investments.
Our
net
investment
income
of
$371,128
,
or
$1.04
per
weighted
average
share
exceeded
dividends
to
shareholders
of
$356,110
,
or
$
1.00
per
share.
During
the
year
ended
June
30,
2016
,
we
repurchased
4,708,750
shares
of
our
common
stock
pursuant
to
our
publicly
announced
Repurchase
Program
for
$34,140
,
or
approximately
$7.25
weighted
average
price
per
share
at
approximately
a
30%
discount
to
net
asset
value
as
of
June
30,
2015.
Our
NAV
per
share
was
increased
by
approximately
$0.02
for
the
year
ended
June
30,
2016
as
a
result
of
the
share
repurchases.
During
the
year
ended
June
30,
2016
,
we
issued
2,725,222
shares
of
our
common
stock
in
connection
with
the
dividend
reinvestment
plan.
The
following
table
shows
the
calculation
of
net
asset
value
per
share
as
of
June
30,
2016
and
June
30,
2015
.
Net
assets
Shares
of
common
stock
issued
and
outstanding
Net
asset
value
per
share
Results of Operations
$
$
June 30, 2016
June 30, 2015
3,435,917
$
357,107,231
9.62
$
3,703,049
359,090,759
10.31
Net
increase
in
net
assets
resulting
from
operations
for
the
years
ended
June
30,
2016,
2015
and
2014
was
$103,362
,
$346,339
and
$319,020
.
During
the
year
ended
June
30,
2016
the
$242,977
decrease
is
primarily
due
to
a
$255,532
unfavorable
increase
in
net
realized
and
unrealized
losses
on
investments
when
comparing
results
for
the
years
ended
June
30,
2016
and
June
30,
2015
.
This
$255,532
is
primarily
due
to
softening
of
the
energy
markets,
non-credit
related
changes
in
the
capital
markets
and
increased
default
rates
impacting
the
underlying
collateral
of
our
CLO
residual
interest
investments.
These
factors
resulted
in
an
unfavorable
increase
in
net
unrealized
and
realized
losses
of
$15,178
in
our
energy-related
investments
and
$88,104
in
our
CLO
investments
for
the
year
ended
June
30,
2016
.
The
remaining
$152,250
increase
in
net
realized
and
unrealized
losses
is
primarily
due
to
net
86
unrealized
losses
for
certain
controlled
investments,
including
Harbortouch,
First
Tower
and
USES,
partially
offset
by
unrealized
gains
related
to
our
real
estate
investments.
During
the
year
ended
June
30,
2015
,
the
significant
increase
in
the
asset
base
resulted
in
an
additional
$135,233
of
interest
income
which
was
partially
offset
by
increased
interest
costs
from
the
leverage
utilized
of
$40,557
and
increased
base
management
fees
of
$26,981
.
Also
reducing
the
net
increase
in
net
assets
resulting
from
operations
for
the
year
ended
June
30,
2015
versus
June
30,
2014
were
significant
declines
in
the
dividends
received
from
Airmall,
Borga,
and
Credit
Central,
and
a
decrease
in
other
income
of
$37,266
.
The
decrease
in
other
income
is
primarily
from
a
reduction
in
structuring
fees
from
lower
origination
levels
and
purchases
of
online
consumer
and
commercial
loans,
which
do
not
generate
structuring
fees.
These
decreases
were
partially
offset
by
a
$25,745
favorable
decrease
in
net
realized
and
unrealized
losses
on
investments.
Net
increase
in
net
assets
resulting
from
operations
for
the
years
ended
June
30,
2016,
2015
and
2014
was
$0.29
,
$0.98
,
and
$1.06
per
weighted
average
share,
respectively.
The
decrease
in
net
assets
resulting
from
operations
for
the
year
ended
June
30,
2016
compared
to
the
year
ended
June
30,
2015
is
primarily
due
to
a
$0.71
per
weighted
average
share
decrease
in
net
realized
and
unrealized
losses
primarily
due
to
softening
of
the
energy
markets,
non-credit
related
changes
in
the
capital
markets
and
increased
default
rates
impacting
the
underlying
collateral
of
our
CLO
residual
interest
investments.
The
decrease
in
net
assets
resulting
from
operations
for
the
year
ended
June
30,
2015
compared
to
the
year
ended
June
30,
2014
is
primarily
due
to
a
$0.14
per
weighted
average
share
decrease
in
other
income
driven
by
reduced
structuring
fees
and
a
$0.07
per
weighted
average
share
decrease
in
dividend
income
received
from
our
investments
in
Airmall,
Borga,
and
Credit
Central.
These
decreases
were
partially
offset
by
a
$0.04
per
weighted
average
share
decrease
in
income
incentive
fees
and
a
$0.09
per
weighted
average
share
favorable
decrease
in
net
realized
and
unrealized
losses
on
investments.
While
we
seek
to
maximize
gains
and
minimize
losses,
our
investments
in
portfolio
companies
can
expose
our
capital
to
risks
greater
than
those
we
may
anticipate.
These
companies
typically
do
not
issue
securities
rated
investment
grade,
and
have
limited
resources,
limited
operating
history,
and
concentrated
product
lines
or
customers.
These
are
generally
private
companies
with
limited
operating
information
available
and
are
likely
to
depend
on
a
small
core
of
management
talents.
Changes
in
any
of
these
factors
can
have
a
significant
impact
on
the
value
of
the
portfolio
company.
Investment Income
We
generate
revenue
in
the
form
of
interest
income
on
the
debt
securities
that
we
own,
dividend
income
on
any
common
or
preferred
stock
that
we
own,
and
fees
generated
from
the
structuring
of
new
deals.
Our
investments,
if
in
the
form
of
debt
securities,
will
typically
have
a
term
of
one
to
ten
years
and
bear
interest
at
a
fixed
or
floating
rate.
To
the
extent
achievable,
we
will
seek
to
collateralize
our
investments
by
obtaining
security
interests
in
our
portfolio
companies’
assets.
We
also
may
acquire
minority
or
majority
equity
interests
in
our
portfolio
companies,
which
may
pay
cash
or
in-kind
dividends
on
a
recurring
or
otherwise
negotiated
basis.
In
addition,
we
may
generate
revenue
in
other
forms
including
prepayment
penalties
and
possibly
consulting
fees.
Any
such
fees
generated
in
connection
with
our
investments
are
recognized
as
earned.
Investment
income,
which
consists
of
interest
income,
including
accretion
of
loan
origination
fees
and
prepayment
penalty
fees,
dividend
income
and
other
income,
including
settlement
of
net
profits
interests,
overriding
royalty
interests
and
structuring
fees,
was
$791,973
,
$791,084
and
$712,291
for
the
years
ended
June
30,
2016,
2015
and
2014,
respectively.
Investment
income
remained
relatively
stable
for
the
year
ended
June
30,
2016
compared
to
the
year
ended
June
30,
2015
primarily
due
to
an
increase
in
dividend
income
offset
by
a
decrease
in
interest
income.
The
increases
for
the
year
ended
June
30,
2015
compared
to
the
year
ended
June
30,
2014
are
primarily
the
result
of
a
larger
income
producing
portfolio.
The
following
table
describes
the
various
components
of
investment
income
and
the
related
levels
of
debt
investments:
Interest
income
Dividend
income
Other
income
Year Ended June 30,
2016
2015
2014
$
731,618
$
748,974
$
613,741
26,501
33,854
7,663
34,447
26,837
71,713
Total
investment
income
$
791,973
$
791,084
$
712,291
Average
debt
principal
of
performing
investments
$ 6,013,754
$ 6,183,163
$ 4,886,910
Weighted
average
interest
rate
earned
on
performing
debt
and
equity
investments
12.17%
12.11%
12.56%
87
Average
interest
income
producing
assets
decreased
from
$6,183,163
for
the
year
ended
June
30,
2015
to
$6,013,754
for
the
year
ended
June
30,
2016
.
The
average
interest
earned
on
interest
bearing
performing
assets
increased
from
12.11%
for
the
year
ended
June
30,
2015
to
12.17%
for
the
year
ended
June
30,
2016
.
This
moderate
increase
is
primarily
due
to
repayments
of
lower
yielding
portfolio
investments.
Average
interest
income
producing
assets
increased
from
$4,886,910
for
the
year
ended
June
30,
2014
to
$6,183,163
for
the
year
ended
June
30,
2015
.
The
average
interest
earned
on
interest
bearing
performing
assets
decreased
from
12.56%
for
the
year
ended
June
30,
2014
to
12.11%
for
the
year
ended
June
30,
2015
.
This
decrease
is
primarily
due
to
originations
at
lower
rates
than
our
average
existing
portfolio
yield,
and
to
a
lesser
extent,
a
decline
in
prepayment
penalty
income.
Excluding
the
adjustment
for
prepayment
penalty
income,
our
annual
return
would
have
been
12.28%
for
the
year
ended
June
30,
2014
,
11.97%
for
the
year
ended
June
30,
2015
.
Investment
income
is
also
generated
from
dividends
and
other
income
which
is
less
predictable
than
interest
income.
Dividend
income
increased
from
$7,663
for
the
year
ended
June
30,
2015
to
$26,501
for
the
year
ended
June
30,
2016
.
The
$18,838
increase
in
dividend
income
is
primarily
attributable
to
a
$11,016
dividend
received
from
our
investment
in
APRC
and
$7,250
dividend
received
from
our
investment
in
Echelon.
No
such
dividends
were
received
from
either
APRC
or
Echelon
during
the
year
ended
June
30,
2015
.
Additionally,
we
received
dividends
of
$3,196
,
$3,963
and
$711
related
to
our
investments
in
CCPI,
Nationwide
and
MITY,
respectively,
during
the
year
ended
June
30,
2016
.
No
such
dividends
were
received
from
CCPI
or
MITY
during
the
year
ended
June
30,
2015
.
The
increase
in
dividend
income
was
partially
offset
by
dividends
of
$4,425
and
$1,929
received
from
our
investments
in
Nationwide
and
First
Tower,
respectively,
during
the
year
ended
June
30,
2015.
No
such
dividends
were
received
from
First
Tower
during
the
year
ended
June
30,
2016
.
Dividend
income
decreased
from
$26,837
for
the
year
ended
June
30,
2014
to
$7,663
for
the
year
ended
June
30,
2015
.
The
decrease
in
dividend
income
is
primarily
attributed
to
a
$12,000
decrease
in
the
level
of
dividends
received
from
our
investment
in
Airmall.
We
received
dividends
of
$12,000
from
Airmall
during
the
year
ended
June
30,
2014
.
No
such
dividends
were
received
from
Airmall
during
the
year
ended
June
30,
2015
.
The
decrease
in
dividend
income
is
further
attributed
to
a
$4,682
and
$3,246
decrease
in
the
level
of
dividends
received
from
our
investments
in
Credit
Central
and
Borga
(f/k/a
STI
Holding,
Inc.),
respectively.
We
received
dividends
of
$159
and
$4,841
from
Credit
Central
during
the
years
ended
June
30,
2015
and
June
30,
2014
,
respectively.
We
received
dividends
of
$3,246
from
Borga
during
the
year
ended
June
30,
2014
.
No
dividends
were
received
from
Borga
during
the
year
ended
June
30,
2015
.
The
decrease
in
dividend
income
was
partially
offset
by
dividends
of
$1,929
received
from
our
investment
in
First
Tower
during
the
year
ended
June
30,
2015
.
No
dividends
were
received
from
First
Tower
during
the
year
ended
June
30,
2014
.
Other
income
has
come
primarily
from
structuring
fees,
royalty
interests,
and
settlement
of
net
profits
interests.
Income
from
other
sources
decreased
from
$34,447
for
the
year
ended
June
30,
2015
to
$33,854
for
the
year
ended
June
30,
2016
.
The
decrease
is
primarily
due
to
a
$2,355
decrease
in
structuring
fees,
which
are
generated
from
originations
and
will
fluctuate
as
levels
of
originations
and
types
of
originations
fluctuate.
During
the
fiscal
year
ended
June
30,
2015,
we
elected
to
suspend
our
equity
raising
activities.
The
curtailment
of
capital
raising
activities
suppressed
our
levels
of
origination.
Total
originations
decreased
from
$1,867,477
in
the
year
ended
June
30,
2015
to
$979,102
in
the
year
ended
June
30,
2016
.
As
a
result,
structuring
fees
fell
from
$28,562
in
the
year
ended
June
30,
2015
to
$26,207
in
the
year
ended
June
30,
2016
.
Included
within
the
$26,207
of
structuring
fees
recognized
during
the
year
ended
June
30,
2016
is
a
$12,909
advisory
fee
for
the
Harbortouch
transaction,
as
well
as
from
follow-on
investments
in
existing
portfolio
companies
and
new
originations,
primarily
from
our
investments
in
Crosman,
Intelius,
Broder,
Coverall,
NPRC,
Inpatient
Care
and
System
One.
Income
from
other
sources
decreased
from
$71,713
for
the
year
ended
June
30,
2014
to
$34,447
for
the
year
ended
June
30,
2015
.
The
decrease
is
primarily
due
to
a
$30,965
decrease
in
structuring
fees.
Total
originations
decreased
from
$2,933,365
in
the
year
ended
June
30,
2014
to
$1,867,477
in
the
year
ended
June
30,
2015
.
As
a
result,
structuring
fees
fell
from
$59,527
in
the
year
ended
June
30,
2014
to
$28,562
in
the
year
ended
June
30,
2015
.
Included
within
the
$28,562
of
structuring
fees
recognized
during
the
year
ended
June
30,
2015
is
a
$3,000
fee
from
Airmall
related
to
the
sale
of
the
operating
company
for
which
a
fee
was
received
in
August
2014
and
a
$2,000
fee
from
Ajax
Rolled
Ring
&
Machine,
LLC
(“Ajax”)
related
to
the
sale
of
the
operating
company
for
which
a
fee
was
received
in
October
2014.
The
remaining
structuring
fees
recognized
during
the
year
ended
June
30,
2015
resulted
from
follow-on
investments
in
existing
portfolio
companies
and
new
originations,
primarily
from
our
investments
in
InterDent,
Instant
Web,
LLC,
Pacific
World
Corporation
(“Pacific
World”),
PrimeSport,
Inc.,
Trinity,
and
UPRC,
as
discussed
above.
To
a
lesser
extent,
the
decrease
in
other
income
resulted
from
a
decrease
in
miscellaneous
income
due
to
the
receipt
of
$5,825
of
legal
cost
reimbursement
from
a
litigation
settlement
during
the
year
ended
June
30,
2014
which
had
been
expensed
in
prior
years.
No
such
income
was
received
during
the
year
ended
June
30,
2015
.
88
Operating Expenses
Our
primary
operating
expenses
consist
of
investment
advisory
fees
(base
management
and
income
incentive
fees),
borrowing
costs,
legal
and
professional
fees
and
other
operating
and
overhead-related
expenses.
These
expenses
include
our
allocable
portion
of
overhead
under
the
Administration
Agreement
with
Prospect
Administration
under
which
Prospect
Administration
provides
administrative
services
and
facilities
for
us.
Our
investment
advisory
fees
compensate
the
Investment
Adviser
for
its
work
in
identifying,
evaluating,
negotiating,
closing
and
monitoring
our
investments.
We
bear
all
other
costs
and
expenses
of
our
operations
and
transactions.
Operating
expenses
were
$420,845
,
$428,337
and
$355,068
for
the
years
ended
June
30,
2016,
2015
and
2014,
respectively.
The
net
base
management
fee
was
$126,523
,
$134,590
,
and
$108,990
for
the
years
ended
June
30,
2016,
2015
and
2014,
respectively
(
$0.36
,
$0.38
and
$0.36
per
weighted
average
share,
respectfully).
The
changes
are
directly
related
to
the
level
of
our
total
assets.
The
Investment
Adviser
has
entered
into
a
servicing
agreement
with
certain
institutions,
where
we
serve
as
the
agent
and
collect
a
servicing
fee
on
behalf
of
the
Investment
Adviser.
We
received
payments
of
$1,893
and
$170
from
these
institutions
for
the
years
ended
June
30,
2016
and
2015,
respectively,
on
behalf
of
the
Investment
Adviser
for
providing
such
services
under
the
servicing
agreement.
We
were
given
a
credit
for
these
payments
as
a
reduction
of
base
management
fee
payable
by
us
to
the
Investment
Adviser
resulting
in
net
total
base
management
fees
of
$126,523
.
No
such
credits
were
received
during
the
year
ended
2014.
The
total
gross
base
management
fee
incurred
to
the
favor
of
the
Investment
Adviser
was
$128,416
,
$134,760
and
$108,990
during
the
years
ended
June
30,
2016,
2015
and
2014,
respectively.
For
the
years
ended
June
30,
2016,
2015
and
2014,
we
incurred
$92,782
,
$90,687
and
$89,306
of
income
incentive
fees,
respectively,
(
$0.26
,
$0.26
,
and
$0.30
per
weighted
average
share,
respectively).
Income
incentive
fees
remained
stable
year-over-year
on
a
dollars
basis,
but
the
per
share
decreases
were
driven
by
corresponding
decreases
in
pre-incentive
fee
net
investment
income
from
$1.49
per
weighted
average
share
for
the
year
ended
June
30,
2014
to
$1.28
per
weighted
average
share
for
the
year
ended
June
30,
2015
primarily
due
to
decreases
in
dividend
and
other
income
per
share.
For
the
year
ended
June
30,
2016
,
the
pre-
incentive
fee
net
investment
income
was
$1.30
per
weighted
average
share
(
$0.02
less
than
the
fiscal
year
ended
June
30,
2015)
due
to
year
over
year
decreases
in
base
management
fees
and
interest
expense.
No
capital
gains
incentive
fee
has
yet
been
incurred
pursuant
to
the
Investment
Advisory
Agreement.
During
the
years
ended
June
30,
2016,
2015
and
2014,
we
incurred
$167,719
,
$170,660
and
$130,103
,
respectively,
of
interest
expenses
related
to
our
Revolving
Credit
Facility,
Convertible
Notes,
Public
Notes
and
Prospect
Capital
InterNotes®
(collectively,
our
“Notes”).
These
expenses
are
related
directly
to
the
leveraging
capacity
put
into
place
for
each
of
those
years
and
the
levels
of
indebtedness
actually
undertaken
in
those
years.
The
table
below
describes
the
various
expenses
of
our
Notes
and
the
related
indicators
of
leveraging
capacity
and
indebtedness
during
these
years.
Year Ended June 30,
2016
2015
2014
Interest
on
borrowings
$
146,659
$
149,312
$
111,900
Amortization
of
deferred
financing
costs
Accretion
of
discount
on
Public
Notes
Facility
commitment
fees
13,561
200
7,299
14,266
213
6,869
11,491
156
6,556
Total
interest
and
credit
facility
expenses
$
167,719
$
170,660
$
130,103
Average
principal
debt
outstanding
$ 2,807,125
$ 2,830,727
$ 1,984,164
Weighted
average
stated
interest
rate
on
borrowings(1)
Weighted
average
interest
rate
on
borrowings(2)
5.22%
5.97%
5.27%
6.03%
5.64%
6.56%
(1)
Includes
only
the
stated
interest
expense.
(2)
Includes
the
stated
interest
expense,
amortization
of
deferred
financing
costs,
accretion
of
discount
on
Public
Notes
and
commitment
fees
on
the
undrawn
portion
of
our
Revolving
Credit
Facility.
Interest
expense
during
the
year
ended
June
30,
2016
and
June
30,
2015
is
relatively
stable
as
a
result
of
increased
issuances
through
our
InterNotes
programs
and
increased
utilization
of
our
Revolving
Credit
Facility,
offset
by
both
Public
and
Convertible
89
Note
maturities.
The
weighted
average
stated
interest
rate
on
borrowings
(excluding
amortization,
accretion
and
undrawn
facility
fees)
decreased
from
5.27%
for
the
year
ended
June
30,
2015
to
5.22%
for
the
year
ended
June
30,
2016
.
This
decrease
is
primarily
due
to
issuances
of
Prospect
Capital
InterNotes®
at
lower
rates.
The
allocation
of
gross
overhead
expense
from
Prospect
Administration
was
$20,090,
$21,992
and
$22,393
for
the
years
ended
June
30,
2016
,
2015
and
2014
,
respectively.
Prospect
Administration
received
estimated
payments
of
$7,443,
$7,014
and
$8,020
directly
from
our
portfolio
companies
and
certain
funds
managed
by
the
Investment
Adviser
for
legal,
tax
and
portfolio
level
accounting
services
during
the
years
ended
June
30,
2016
,
2015
and
2014,
respectively.
We
were
given
a
credit
for
these
payments
as
a
reduction
of
the
administrative
services
cost
payable
by
us
to
Prospect
Administration,
resulting
in
net
overhead
expense
of
$12,647
,
$14,977
and
14,373
during
the
years
ended
June
30,
2016,
2015
and
2014,
respectively.
Had
Prospect
Administration
not
received
these
payments,
Prospect
Administration’s
charges
for
its
administrative
services
would
have
increased
by
these
amounts
.
During
the
year
ended
June
30,
2016
,
we
renegotiated
the
managerial
assistance
agreement
with
First
Tower
and
reversed
$1,200
of
previously
accrued
managerial
assistance
at
First
Tower
Delaware
as
the
fee
was
paid
by
First
Tower,
which
decreased
our
overhead
allocation.
As
our
portfolio
continues
to
grow,
we
expect
Prospect
Administration
to
continue
to
increase
the
size
of
its
administrative
and
financial
staff.
Total
operating
expenses,
net
of
investment
advisory
fees,
interest
and
credit
facility
expenses,
allocation
of
overhead
from
Prospect
Administration
(“Other
Operating
Expenses”)
was
$21,174
,
$17,423
,
and
$12,296
for
the
years
ended
June
30,
2016,
2015
and
2014,
respectively.
The
increase
of
$3,751
and
$5,127
during
the
years
ended
June
30,
2016
and
2015,
respectively,
is
primarily
due
to
an
increase
in
administrative
expenses
related
to
investor
relations
and
the
growing
complexity
of
our
business.
Net Investment Income
Net
investment
income
represents
the
difference
between
investment
income
and
operating
expenses.
Net
investment
income
was
$371,128
,
$362,747
and
$357,223
for
the
years
ended
June
30,
2016,
2015
and
2014,
respectively.
The
$8,381
increase
during
the
year
ended
June
30,
2016
is
primarily
the
result
of
a
$18,838
increase
in
dividend
income
from
Echelon
and
APRC,
and
a
$5,972
decrease
in
base
management
fees
from
a
decrease
in
our
asset
base.
These
results
were
partially
offset
by
a
$17,356
decrease
in
interest
income,
primarily
due
to
a
decrease
in
our
interest
earning
asset
base.
During
the
year
ended
June
30,
2015
,
the
significant
increase
in
the
asset
base
resulted
in
an
additional
$135,233
of
interest
income
which
was
offset
by
increased
interest
costs
from
the
leverage
utilized
of
$40,557
and
increased
base
management
fees
of
$25,600
.
Also
reducing
net
investment
income
for
the
year
ended
June
30,
2015
versus
June
30,
2014
were
significant
declines
in
the
dividends
received
from
Airmall,
Borga,
Inc.
(“Borga”),
and
Credit
Central,
and
a
decrease
in
other
income
of
$37,266
.
The
decrease
in
other
income
is
primarily
from
a
reduction
in
structuring
fees
from
lower
origination
levels
and
purchases
of
online
consumer
and
commercial
loans,
which
do
not
generate
structuring
fees.
Net
investment
income
for
the
years
ended
June
30,
2016,
2015
and
2014
was
$1.04
,
$1.03
and
$1.19
per
weighted
average
share,
respectively.
During
the
year
ended
June
30,
2016,
the
increase
is
primarily
due
to
a
$0.02
per
weighted
average
share
decrease
in
base
management
fees.
This
decrease
was
partially
offset
by
a
$0.07
per
weighted
average
share
decrease
in
interest
income
driven
by
reduced
interest
earning
asset
base
and
an
increase
of
$0.05
per
weighted
average
share
in
dividend
income
received
by
our
investments
in
APRC
and
Echelon.
The
decrease
in
net
investment
income
for
the
year
ended
June
30,
2015
compared
to
the
year
ended
June
30,
2014
is
primarily
due
to
a
$0.14
per
weighted
average
share
decrease
in
other
income
driven
by
reduced
structuring
fees
and
a
$0.07
per
weighted
average
share
decrease
in
dividend
income
received
from
our
investments
in
Airmall,
Borga,
and
Credit
Central.
These
decreases
were
partially
offset
by
a
$0.04
per
weighted
average
share
decrease
in
income
incentive
fees.
Net Realized Gains/Losses
During
the
years
ended
June
30,
2016,
2015
and
2014,
we
recognized
net
realized
losses
on
investments
of
$24,417
,
$180,423
and
$3,346
,
respectively.
The
net
realized
loss
during
the
year
ended
June
30,
2016
was
primarily
due
to
the
write-down
of
our
investment
in
Targus
of
$14,194,
the
sale
of
our
investments
in
American
Gilsonite,
ICON,
and
Harbortouch
for
which
we
recognized
total
realized
losses
of
$10,860
and
the
write-off
of
defaulted
loans
in
our
small
business
lending
portfolio
of
$5,986
.
These
losses
were
partially
offset
by
net
realized
gains
from
the
sale
of
two
of
our
CLO
investments
for
which
we
realized
total
gains
of
$3,912.
90
The
net
realized
loss
during
the
year
ended
June
30,
2015
was
primarily
due
to
the
sale
of
our
investments
in
Airmall,
Ajax,
Borga,
BXC
Company,
Inc.
(“BXC”)
and
Vets
Securing
America,
Inc.
(“VSA”)
for
which
we
recognized
total
realized
losses
of
$47,546,
and
the
sale
of
four
of
our
CLO
investments
for
which
we
realized
total
losses
of
$15,561.
During
the
year
ended
June
30,
2015,
we
determined
that
the
impairments
of
several
of
our
investments
(e.g.,
Appalachian
Energy
Holdings,
LLC,
Change
Clean
Energy
Company,
Coalbed
LLC,
Edmentum,
Manx
Energy
Inc.,
NCT,
Stryker
Energy,
LLC,
The
Healing
Staff,
Inc.,
Wind
River,
and
Yatesville
Coal
Company)
were
other-than-temporary
and
recorded
total
realized
losses
of
$123,555
(which
were
previously
recognized
as
unrealized
losses)
for
the
amount
that
the
amortized
cost
exceeded
the
fair
value.
These
losses
were
partially
offset
by
net
realized
gains
from
the
proceeds
collected
on
warrants
redeemed
from
Snacks
Parent
Corporation,
litigation
settlements,
partial
sales,
and
the
release
of
escrowed
amounts
due
to
us
from
several
portfolio
companies,
for
which
we
recognized
total
realized
gains
of
$6,239.
During
the
year
ended
June
30,
2016
,
we
repurchased
$500
aggregate
principal
amount
of
the
2017
Notes
and
repaid
$7,069
aggregate
principal
amount
of
Prospect
Capital
InterNotes®
(including
amounts
repaid
in
accordance
with
the
Survivor’s
Option).
As
a
result
of
these
transactions,
we
recognized
net
realized
gain
on
debt
extinguishment
of
$224
in
the
year
ended
June
30,
2016
.
During
the
year
ended
June
30,
2015,
we
repurchased
$8,000
aggregate
principal
amount
of
the
2020
Notes,
redeemed
$100,000
aggregate
principal
amount
of
the
2022
Notes,
and
redeemed
$83,924
aggregate
principal
amount
of
Prospect
Capital
InterNotes®
(including
amounts
repaid
in
accordance
with
the
Survivor’s
Option).
As
a
result
of
these
transactions,
we
recognized
net
realized
losses
on
debt
extinguishment
of
$3,950
in
the
year
ended
June
30,
2015.
We
did
not
recognize
any
gains
or
losses
on
debt
extinguishment
during
the
year
ended
June
30,
2014.
Net Change in Unrealized (Depreciation) Appreciation
Net
change
in
unrealized
(depreciation)
appreciation
was
$(243,573)
,
$167,965
and
$(34,857)
for
the
years
ended
June
30,
2016,
2015
and
2014,
respectively.
For
the
year
ended
June
30,
2016
,
the
$(243,573)
change
in
net
unrealized
depreciation
was
driven
primarily
due
to
softening
of
the
energy
markets,
non-credit
related
changes
in
the
capital
markets
and
increased
default
rates
impacting
the
underlying
collateral
of
our
CLO
residual
interest
investments.
These
factors
resulted
in
net
unrealized
losses
of
$86,617
in
our
energy-related
investments
and
$114,131
in
our
CLO
investments.
The
remaining
$42,825
increase
in
unrealized
depreciation
is
primarily
due
to
net
unrealized
losses
for
certain
controlled
investments
-
Harbortouch,
First
Tower
and
USES.
Our
investment
in
Harbortouch
was
sold
and
the
previously
recorded
unrealized
gain
was
reversed.
Additionally,
First
Tower
and
USES
experienced
a
decline
in
operating
results
contributing
$21,471
and
$17,148
of
unrealized
losses
during
the
year
ended
June
30,
2016.
These
combined
unrealized
losses
in
certain
controlled
investments
were
partially
offset
by
unrealized
appreciation
in
our
real
estate
portfolio
due
to
improved
operating
performance
at
the
property
level
and
selected
cap
rates,
partially
offset
by
a
decline
in
our
online
lending
portfolio
value
resulting
from
an
increase
in
delinquent
loans.
For
the
year
ended
June
30,
2015,
the
$202,822
increase
in
net
change
in
unrealized
appreciation
was
primarily
the
result
of
realizing
losses
that
were
previously
unrealized
related
to
the
sale
of
our
investments
in
Airmall,
Ajax,
Borga,
BXC
and
VSA,
and
the
impairment
of
certain
investments
for
which
we
eliminated
the
unrealized
depreciation
balances
related
to
these
investments.
We
also
experienced
significant
write-ups
in
our
investments
in
APRC,
First
Tower,
Harbortouch,
NPRC,
and
UPRC.
These
instances
of
unrealized
appreciation
were
partially
offset
by
unrealized
depreciation
related
to
CP
Energy,
Gulf
Coast,
Pacific
World,
R-
V,
and
Valley
Electric.
Financial Condition, Liquidity and Capital Resources
For
the
years
ended
June
30,
2016,
2015
and
2014,
our
operating
activities
provided
(used)
$861,869
,
$45,464
,
$(1,725,231)
of
cash,
respectively.
There
were
no
investing
activities
for
the
years
ended
June
30,
2016,
2015
and
2014.
Financing
activities
(used)
provided
$654,097
,
$(69,663)
,
and
$1,656,220
of
cash
during
the
years
ended
June
30,
2016,
2015
and
2014,
respectively,
which
included
dividend
payments
of
$336,637
,
$414,833
and
$377,070
,
respectively.
Our
primary
uses
of
funds
have
been
to
continue
to
invest
in
portfolio
companies,
through
both
debt
and
equity
investments,
repay
outstanding
borrowings
and
to
make
cash
distributions
to
holders
of
our
common
stock.
Our
primary
sources
of
funds
have
historically
been
issuances
of
debt
and
equity.
More
recently,
we
have
and
may
continue
to
fund
a
portion
of
our
cash
needs
through
repayments
and
opportunistic
sales
of
our
existing
investment
portfolio.
We
may
also
securitize
a
portion
of
our
investments
in
unsecured
or
senior
secured
loans
or
other
assets.
Our
objective
is
to
put
in
place
such
borrowings
in
order
to
enable
us
to
expand
our
portfolio.
During
the
year
ended
June
30,
2016
,
we
borrowed
$615,000
and
made
repayments
totaling
$983,700
under
our
Revolving
Credit
Facility.
As
of
June
30,
2016
,
we
had
no
outstanding
balance
on
our
Revolving
Credit
Facility,
$1,089,000
outstanding
on
the
Convertible
Notes,
Public
Notes
with
a
carrying
value
of
$709,657
and
$908,808
outstanding
on
the
Prospect
Capital
InterNotes®.
(See
“Capitalization”
above.)
91
Undrawn
committed
revolvers
and
delayed
draw
term
loans
to
our
portfolio
companies
incur
commitment
and
unused
fees
ranging
from
0.00%
to
6.00%.
As
of
June
30,
2016
and
June
30,
2015
,
we
had
$40,560
and
$88,288
,
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
June
30,
2016
and
as
of
June
30,
2015
.
Our
shareholders’
equity
accounts
as
of
June
30,
2016
,
June
30,
2015
and
June
30,
2014
reflect
cumulative
shares
issued
as
of
those
respective
dates.
Our
common
stock
has
been
issued
through
public
offerings,
a
registered
direct
offering,
the
exercise
of
over-allotment
options
on
the
part
of
the
underwriters,
our
dividend
reinvestment
plan
and
in
connection
with
the
acquisition
of
certain
controlled
portfolio
companies.
When
our
common
stock
is
issued,
the
related
offering
expenses
have
been
charged
against
paid-in
capital
in
excess
of
par.
All
underwriting
fees
and
offering
expenses
were
borne
by
us.
As
part
of
our
Repurchase
Program,
we
delivered
a
notice
with
our
annual
proxy
mailing
on
September
23,
2015
and
our
most
recent
notice
was
delivered
with
a
shareholder
letter
mailing
on
February
2,
2016.
This
notice
extends
for
six
months
after
the
date
that
notice
is
delivered.
During
the
year
ended
June
30,
2016
,
we
repurchased
4,708,750
shares
of
our
common
stock
pursuant
to
our
publicly
announced
Repurchase
Program
for
$34,140
,
or
approximately
$7.25
weighted
average
price
per
share
at
approximately
a
30%
discount
to
net
asset
value
as
of
June
30,
2015.
Our
NAV
per
share
was
increased
by
approximately
$0.02
for
the
year
ended
June
30,
2016
as
a
result
of
the
share
repurchases.
On
November
3,
2015,
our
Registration
Statement
on
Form
N-2
was
declared
effective
by
the
SEC.
Under
this
Shelf
Registration
Statement,
we
can
issue
up
to
$4,807,503
of
additional
debt
and
equity
securities
in
the
public
market
as
of
June
30,
2016
.
Off-Balance Sheet Arrangements
As
of
June
30,
2016
,
we
did
not
have
any
off-balance
sheet
liabilities
or
other
contractual
obligations
that
are
reasonably
likely
to
have
a
current
or
future
material
effect
on
our
financial
condition,
other
than
those
which
originate
from
1)
the
investment
advisory
and
management
agreement
and
the
administration
agreement
and
2)
the
portfolio
companies.
Recent Developments
On
July
1,
2016,
we
made
an
investment
of
$7,320
to
purchase
19.7%
of
the
subordinated
notes
in
Madison
Park
Funding
IX,
Ltd.
On
July
22,
2016,
we
made
a
$32,500
Senior
Secured
Term
Loan
A
and
a
$32,500
Senior
Secured
Term
Loan
B
debt
investment
in
Universal
Turbine
Parts,
LLC,
an
independent
supplier
of
aftermarket
turboprop
engines
and
parts.
On
August
9,
2016,
JHH
Holdings,
Inc.
repaid
the
$35,507
loan
receivable
to
us.
On
August
9,
2016,
we
made
an
investment
of
$29,634
to
purchase
71.9%
of
the
subordinated
notes
in
Carlyle
Global
Market
Strategies
CLO
2016-3,
Ltd.
in
a
co-
investment
transaction
with
Priority
Income
Fund,
Inc.,
a
closed-end
fund
managed
by
an
affiliate
of
Prospect
Capital
Management
L.P.
On
August
14,
2016,
we
announced
the
then
current
conversion
rate
on
the
2018
Notes
as
84.1497
shares
of
common
stock
per
$1
principal
amount
of
the
2018
Notes
converted,
which
is
equivalent
to
a
conversion
price
of
approximately
$11.88.
On
August
15,
2016,
the
5.50%
unsecured
convertible
notes,
which
had
an
outstanding
principal
balance
of
$167,500,
matured
and
were
repaid
in
full
with
cash
on
hand,
primarily
from
the
Harbortouch
sale
proceeds.
On
August
22,
2016,
the
2014
Facility
was
amended
to
eliminate
some
of
the
restrictions
in
the
definition
of
an
eligible
loan
for
pledging
to
the
facility
and
increase
our
overall
borrowing
base.
During
the
period
from
July
1,
2016
through
August
29,
2016
,
we
made
seven
follow-on
investments
in
NPRC
totaling
$55,710
to
support
the
online
consumer
lending
initiative.
During
the
period
from
July
1,
2016
through
August
25,
2016
we
issued
$28,820
aggregate
principal
amount
of
Prospect
Capital
InterNotes®
for
net
proceeds
of
$28,464.
During
the
period
from
July
1,
2016
through
August
24,
2016,
we
issued
$37,901
in
aggregate
principal
amount
of
our
2024
Notes
for
net
proceeds
of
$37,106.
On
August
26,
2016,
we
announced
the
declaration
of
monthly
dividends
in
the
following
amounts
and
with
the
following
dates:
•
•
$0.08333
per
share
for
September
2016
to
holders
of
record
on
September
30,
2016
with
a
payment
date
of
October
20,
2016;
$0.08333
per
share
for
October
2016
to
holders
of
record
on
October
31,
2016
with
a
payment
date
of
November
17,
2016.
92
Critical Accounting Policies and Estimates
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-K,
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.
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
years
ended
June
30,
2016
,
2015
and
2014
.
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
our
portfolio
companies
and
any
other
parameters
used
in
determining
these
estimates
could
cause
actual
results
to
differ,
and
these
differences
could
be
material.
Cash and Cash Equivalents
Cash
and
cash
equivalents
include
funds
deposited
with
financial
institutions
and
short-term,
highly-liquid
overnight
investments
in
money
market
funds.
Cash
and
cash
equivalents
are
carried
at
cost
which
approximates
fair
value.
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.
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.
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.
Specifically,
we
record
all
security
transactions
on
a
trade
date
basis.
Amounts
for
investments
recognized
or
derecognized
but
not
yet
settled
are
reported
in
due
to
broker
or
as
a
receivable
for
investments
sold,
respectively,
in
the
Consolidated Statements of Assets and Liabilities .
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.
Credit Risk
93
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
the
security
less
likely
to
fully
earn
all
of
the
expected
income
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 Lending Risk
With
respect
to
our
online
consumer
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
consumer
and
small
and
medium
sized
business
loans,
and
our
ability
to
grow
our
portfolio
of
consumer
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
consumer
loans.
In
addition,
our
ability
to
analyze
the
risk-return
profile
of
consumer
loans
is
significantly
dependent
on
the
marketplace
facilitator's
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
platform,
we
may
incur
unanticipated
losses
which
could
adversely
impact
our
operating
results.
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
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.
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.
94
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
issues
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
analysis,
enterprise
value
(“EV”)
analysis,
net
asset
value
analysis,
liquidation
analysis,
discounted
cash
flow
analysis,
or
a
combination
of
methods,
as
appropriate.
The
yield
analysis
uses
loan
spreads
for
loans,
dividend
yields
for
certain
investments
and
other
relevant
information
implied
by
market
data
involving
identical
or
comparable
assets
or
liabilities.
Under
the
EV
analysis,
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
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
analysis.
The
net
asset
value
analysis
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
analysis
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
analysis
uses
valuation
techniques
to
convert
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
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
ASC
820
Level
3
securities
and
are
valued
using
a
discounted
cash
flow
model.
The
valuations
have
been
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).
For
each
CLO
security,
the
most
appropriate
valuation
approach
has
been
chosen
from
alternative
approaches
to
ensure
the
most
accurate
valuation
for
such
security.
To
value
a
CLO,
both
the
assets
and
the
liabilities
of
the
CLO
capital
structure
are
modeled.
Our
valuation
agent
utilizes
additional
methods
to
validate
the
results
from
the
discounted
cash
flow
method,
such
as
Monte
Carlo
simulations
of
key
model
variables,
analysis
of
relevant
data
observed
in
the
CLO
market,
and
review
of
certain
benchmark
credit
indices.
We
use
a
waterfall
engine
to
store
the
collateral
data,
generate
collateral
cash
flows
from
the
assets
based
on
various
assumptions
for
the
risk
factors,
distribute
the
cash
flows
to
the
liability
structure
based
on
the
payment
priorities,
and
discount
them
back
using
appropriate
market
discount
rates.
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,
interest
rate
risk,
downgrade
risk,
and
credit
spread
risk.
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
in
the
accompanying
Consolidated
Financial
Statements
for
further
discussion
of
our
financial
liabilities
that
are
measured
using
another
measurement
attribute.
95
Convertible Notes
We
have
recorded
the
Convertible
Notes
at
their
contractual
amounts.
The
Convertible
Notes
were
analyzed
for
any
features
that
would
require
bifurcation
and
such
features
were
determined
to
be
immaterial.
See
Note
5
in
the
accompanying
Consolidated
Financial
Statements
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.
Origination,
closing
and/or
commitment
fees
associated
with
investments
in
portfolio
companies
are
accreted
into
interest
income
over
the
respective
terms
of
the
applicable
loans.
Accretion
of
such
purchase
discounts
or
amortization
of
premiums
is
calculated
using
the
effective
interest
method
as
of
the
purchase
date
and
adjusted
only
for
material
amendments
or
prepayments.
Upon
the
prepayment
of
a
loan
or
debt
security,
any
prepayment
penalties
and
unamortized
loan
origination,
closing
and
commitment
fees
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
may
be
recognized
as
income
or
applied
to
principal
depending
upon
management’s
judgment.
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.
As
of
June
30,
2016
,
approximately
1.4%
of
our
total
assets
at
fair
value
are
in
non-accrual
status.
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.
Structuring
fees
and
similar
fees
are
recognized
as
income
is
earned,
usually
when
paid.
Structuring
fees,
excess
deal
deposits,
net
profits
interests
and
overriding
royalty
interests
are
included
in
other
income.
Federal and State Income Taxes
We
have
elected
to
be
treated
as
a
RIC
and
intend
to
continue
to
comply
with
the
requirements
of
the
Code
applicable
to
regulated
investment
companies.
We
are
required
to
distribute
at
least
90%
of
our
investment
company
taxable
income
and
intend
to
distribute
(or
retain
through
a
deemed
distribution)
all
of
our
investment
company
taxable
income
and
net
capital
gain
to
stockholders;
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
earned
in
the
calendar
year,
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
calendar
year
taxable
income
will
be
in
excess
of
estimated
current
calendar
year
dividend
distributions
from
such
taxable
income,
we
accrue
excise
taxes,
if
any,
on
estimated
excess
taxable
income.
As
of
June
30,
2016
and
June
30,
2015,
we
accrued
$1,100
and
$305,
respectively,
for
any
unpaid
potential
excise
tax
liability
and
have
included
these
amounts
within
other
liabilities
on
the
accompanying
Consolidated Statements of Assets and Liabilities .
96
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.
For
the
years
ended
June
30,
2016
and
June
30,
2015,
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
tax
returns
for
our
federal
tax
years
ended
August
31,
2013
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
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
which
approximates
the
effective
yield
method
for
our
Revolving
Credit
Facility,
Baby
Bond
Program,
and
Prospect
Capital
InterNotes®.
The
effective
interest
method
is
used
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.
Effective
July
1,
2016,
these
costs
will
be
reclassified
to
the
balance
sheet
as
a
deduction
from
the
debt
liability
rather
than
an
asset,
in
accordance
with
Accounting
Standards
Update
2015-03,
Simplifying the Presentation of Debt Issuance Costs (“ASU
2015-03”).
We
may
record
registration
expenses
related
to
shelf
filings
as
prepaid
assets.
These
expenses
consist
principally
of
SEC
registration
fees,
legal
fees
and
accounting
fees
incurred.
These
prepaid
assets
are
charged
to
capital
upon
the
receipt
of
proceeds
from
an
equity
offering
or
charged
to
expense
if
no
offering
is
completed.
As
of
June
30,
2016
and
June
30,
2015
,
there
are
no
prepaid
assets
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.
97
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 Pronouncement
In
April
2015,
the
FASB
issued
ASU
2015-03,
Interest
-
Imputation
of
Interest
(Subtopic
835-30):
Simplifying
the
Presentation
of
Debt
Issuance
Costs,
which
requires
debt
issuance
costs
related
to
a
recognized
debt
liability
to
be
presented
in
the
balance
sheet
as
a
direct
deduction
from
the
debt
liability
rather
than
as
an
asset.
The
new
guidance
will
make
the
presentation
of
debt
issuance
costs
consistent
with
the
presentation
of
debt
discounts
or
premiums.
ASU
2015-03
is
effective
for
financial
statements
issued
for
fiscal
years
beginning
after
December
15,
2015,
and
interim
periods
within
those
fiscal
years.
Early
adoption
is
permitted
for
financial
statements
that
have
not
been
previously
issued.
The
new
guidance
must
be
applied
on
a
retrospective
basis
to
all
prior
periods
presented
in
the
financial
statements.
The
adoption
of
the
amended
guidance
in
ASU
2015-03
is
expected
to
decrease
total
liabilities
by
decreasing
the
carrying
value
of
our
debt,
and
is
expected
to
decrease
total
assets
by
decreasing
deferred
financing
costs
of
our
debt,
but
is
not
expected
to
have
any
other
significant
effect
on
our
consolidated
financial
statements
and
disclosures.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
We
are
subject
to
financial
market
risks,
including
changes
in
interest
rates
and
equity
price
risk.
Interest
rate
sensitivity
refers
to
the
change
in
our
earnings
that
may
result
from
changes
in
the
level
of
interest
rates
impacting
some
of
the
loans
in
our
portfolio
which
have
floating
interest
rates.
Additionally,
because
we
fund
a
portion
of
our
investments
with
borrowings,
our
net
investment
income
is
affected
by
the
difference
between
the
rate
at
which
we
invest
and
the
rate
at
which
we
borrow.
As
a
result,
there
can
be
no
assurance
that
a
significant
change
in
market
interest
rates
will
not
have
a
material
adverse
effect
on
our
net
investment
income.
See
“Risk
Factors
-
Risks
Relating
to
Our
Business
-
Changes
in
interest
rates
may
affect
our
cost
of
capital
and
net
investment
income.”
Our
debt
investments
may
be
based
on
floating
rates
or
fixed
rates.
For
our
floating
rate
loans
the
rates
are
determined
from
the
LIBOR,
EURO
Interbank
Offer
Rate,
the
Federal
Funds
Rate
or
the
Prime
Rate.
The
floating
interest
rate
loans
may
be
subject
to
a
LIBOR
floor.
Our
loans
typically
have
durations
of
one
to
three
months
after
which
they
reset
to
current
market
interest
rates.
As
of
June
30,
2016,
91.0%
of
the
interesting
earning
investments
in
our
portfolio,
at
fair
value,
bore
interest
at
floating
rates.
We
also
have
a
revolving
credit
facility
and
certain
Prospect
Capital
InterNotes®
issuances
that
are
based
on
floating
LIBOR
rates.
Interest
on
borrowings
under
the
revolving
credit
facility
is
one-month
LIBOR
plus
225
basis
points
with
no
minimum
LIBOR
floor
and
there
is
no
outstanding
balance
as
of
June
30,
2016.
Interest
on
five
Prospect
Capital
InterNotes®
is
three-month
LIBOR
plus
a
range
of
350
to
300
basis
points
with
no
minimum
LIBOR
floor.
The
Convertible
Notes,
Public
Notes
and
remaining
Prospect
Capital
InterNotes®
bear
interest
at
fixed
rates.
The
following
table
shows
the
approximate
annual
impact
on
net
investment
income
of
base
rate
changes
in
interest
rates
(considering
interest
rate
flows
for
floating
rate
instruments,
excluding
our
investments
in
CLO
residual
interests)
to
our
loan
portfolio
and
outstanding
debt
as
of
June
30,
2016,
assuming
no
changes
in
our
investment
and
borrowing
structure:
(in thousands)
Basis Point Change
Up
300
basis
points
Up
200
basis
points
Up
100
basis
points
Down
100
basis
points
Interest Income
Interest Expense
Net Income
Net Investment Income
(1)
$
83,879
$
47,172
14,352
(219)
43
29
16
(10)
$
83,836
$
47,143
14,336
(209)
67,069
37,714
11,469
(251)
(1)
Includes
the
impact
of
income
incentive
fees.
See
Note
13
to
our
consolidated
financial
statements
for
the
year
ended
June
30,
2016
for
more
information
on
the
income
incentive
fees.
(2) As
of
June
30,
2016,
one
and
three
month
LIBOR
was
0.47%
and
0.65%,
respectively.
98
We
may
hedge
against
interest
rate
fluctuations
by
using
standard
hedging
instruments
such
as
futures,
options
and
forward
contracts
subject
to
the
requirements
of
the
1940
Act.
While
hedging
activities
may
insulate
us
against
adverse
changes
in
interest
rates,
they
may
also
limit
our
ability
to
participate
in
the
benefits
of
higher
interest
rates
with
respect
to
our
portfolio
of
investments.
During
the
year
ended
June
30,
2016,
we
did
not
engage
in
hedging
activities.
99
Item 8. Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report
of
Independent
Registered
Public
Accounting
Firm
Consolidated
Statements
of
Assets
and
Liabilities
as
of
June
30,
2016
and
June
30,
2015
Consolidated
Statements
of
Operations
for
the
years
ended
June
30,
2016,
2015
and
2014
Consolidated
Statements
of
Changes
in
Net
Assets
for
the
years
ended
June
30,
2016,
2015
and
2014
Consolidated
Statements
of
Cash
Flows
for
the
years
ended
June
30,
2016,
2015
and
2014
Consolidated
Schedules
of
Investments
as
of
June
30,
2016
and
June
30,
2015
Notes
to
Consolidated
Financial
Statements
100
Page
101
102
103
104
105
106
141
Board
of
Directors
and
Stockholders
Prospect
Capital
Corporation
New
York,
New
York
Report of Independent Registered Public Accounting Firm
We
have
audited
the
accompanying
consolidated
statements
of
assets
and
liabilities
of
Prospect
Capital
Corporation
(the
“Company”),
including
the
consolidated
schedules
of
investments,
as
of
June
30,
2016
and
2015,
and
the
related
consolidated
statements
of
operations,
changes
in
net
assets,
and
cash
flows
for
each
of
the
three
years
in
the
period
ended
June
30,
2016,
and
the
financial
highlights
for
each
of
the
five
years
in
the
period
ended
June
30,
2016.
These
consolidated
financial
statements
and
financial
highlights
are
the
responsibility
of
the
Company’s
management.
Our
responsibility
is
to
express
an
opinion
on
these
consolidated
financial
statements
and
financial
highlights
based
on
our
audits.
We
conducted
our
audits
in
accordance
with
the
standards
of
the
Public
Company
Accounting
Oversight
Board
(United
States).
Those
standards
require
that
we
plan
and
perform
the
audit
to
obtain
reasonable
assurance
about
whether
the
financial
statements
and
financial
highlights
are
free
of
material
misstatement.
An
audit
also
includes
examining,
on
a
test
basis,
evidence
supporting
the
amounts
and
disclosures
in
the
financial
statements.
Our
procedures
included
confirmation
of
securities
owned
as
of
June
30,
2016
and
2015
by
correspondence
with
the
custodians,
online
lending
servicers
and
portfolio
companies,
or
by
other
appropriate
auditing
procedures
where
replies
were
not
received.
An
audit
also
includes
assessing
the
accounting
principles
used
and
significant
estimates
made
by
management,
as
well
as
evaluating
the
overall
financial
statement
presentation.
We
believe
that
our
audits
provide
a
reasonable
basis
for
our
opinion.
In
our
opinion,
the
consolidated
financial
statements
and
financial
highlights
referred
to
above
present
fairly,
in
all
material
respects,
the
financial
position
of
Prospect
Capital
Corporation
at
June
30,
2016
and
2015,
and
the
results
of
its
operations,
the
changes
in
its
net
assets,
and
its
cash
flows
for
each
of
the
three
years
in
the
period
ended
June
30,
2016,
and
the
financial
highlights
for
each
of
the
five
years
in
the
period
ended
June
30,
2016,
in
conformity
with
accounting
principles
generally
accepted
in
the
United
States
of
America.
We
also
have
audited,
in
accordance
with
the
standards
of
the
Public
Company
Accounting
Oversight
Board
(United
States),
Prospect
Capital
Corporation’s
internal
control
over
financial
reporting
as
of
June
30,
2016,
based
on
criteria
established
in
Internal
Control—Integrated
Framework
(2013)
issued
by
the
Committee
of
Sponsoring
Organizations
of
the
Treadway
Commission
(COSO)
and
our
report
dated
August
29,
2016
expressed
an
unqualified
opinion
thereon.
/s/
BDO
USA,
LLP
BDO
USA,
LLP
New
York,
New
York
August
29,
2016
101
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES
(in thousands, except share and per share data)
June 30, 2016
June 30, 2015
Assets
Investments
at
fair
value:
Control
investments
(amortized
cost
of
$1,768,220
and
$1,894,644,
respectively)
$
1,752,449
$
1,974,202
Affiliate
investments
(amortized
cost
of
$10,758
and
$45,150,
respectively)
Non-control/non-affiliate
investments
(amortized
cost
of
$4,312,122
and
$4,619,582,
respectively)
Total
investments
at
fair
value
(amortized
cost
of
$6,091,100
and
$6,559,376,
respectively)
Cash
and
cash
equivalents
Receivables
for:
Interest,
net
Other
Prepaid
expenses
Deferred
financing
costs
Total Assets
Liabilities
Revolving
Credit
Facility
(Notes
4
and
8)
Convertible
Notes
(Notes
5
and
8)
Public
Notes
(Notes
6
and
8)
Prospect
Capital
InterNotes
®
(Notes
7
and
8)
Interest
payable
Due
to
broker
Dividends
payable
Due
to
Prospect
Capital
Management
(Note
13)
Due
to
Prospect
Administration
(Note
13)
Accrued
expenses
Other
liabilities
Commitments
and
Contingencies
(Note
3)
Total Liabilities
Net Assets
Components of Net Assets
Common
stock,
par
value
$0.001
per
share
(1,000,000,000
common
shares
authorized;
357,107,231
and
359,090,759
issued
and
outstanding,
respectively)
(Note
9)
Paid-in
capital
in
excess
of
par
(Note
9)
Accumulated
overdistributed
net
investment
income
Accumulated
net
realized
loss
on
investments
and
extinguishment
of
debt
Net
unrealized
(depreciation)
appreciation
on
investments
Net Assets
Net Asset Value Per Share (Note 16)
See
notes
to
consolidated
financial
statements.
102
11,320
4,133,939
5,897,708
317,798
12,127
168
855
48,051
45,945
4,589,411
6,609,558
110,026
20,408
2,885
757
54,420
6,276,707
6,798,054
—
1,089,000
709,657
908,808
40,804
957
29,758
54,149
1,765
2,259
3,633
—
368,700
1,239,500
548,094
827,442
39,659
26,778
29,923
2,550
4,238
3,408
4,713
—
2,840,790
3,435,917
$
3,095,005
3,703,049
357
$
359
3,967,397
3,975,672
(3,623)
(334,822)
(193,392)
(21,077)
(302,087)
50,182
3,435,917
$
3,703,049
9.62
$
10.31
$
$
$
$
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
Investment Income
Interest
income:
Control
investments
Affiliate
investments
Non-control/non-affiliate
investments
Structured
credit
securities
Total
interest
income
Dividend
income:
Control
investments
Affiliate
investments
Non-control/non-affiliate
investments
Total
dividend
income
Other
income:
Control
investments
Affiliate
investments
Non-control/non-affiliate
investments
Total
other
income
(Note
10)
Total Investment Income
Operating Expenses
Investment
advisory
fees:
Base
management
fee
(Note
13)
Income
incentive
fee
(Note
13)
Interest
and
credit
facility
expenses
Audit,
compliance
and
tax
related
fees
Allocation
of
overhead
from
Prospect
Administration
(Note
13)
Directors’
fees
Excise
tax
Other
general
and
administrative
expenses
Total Operating Expenses
Net Investment Income
Net Realized and Change in Unrealized Gains (Losses)
Net
realized
gains
(losses)
Control
investments
Affiliate
investments
Non-control/non-affiliate
investments
Net
realized
gains
(losses)
on
extinguishment
of
debt
Net
realized
losses
Net
change
in
unrealized
gains
(losses)
Control
investments
Affiliate
investments
Non-control/non-affiliate
investments
Net
change
in
unrealized
gains
(losses)
Net Realized and Change in Unrealized Losses
Net Increase in Net Assets Resulting from Operations
Net
increase
in
net
assets
resulting
from
operations
per
share
Dividends
declared
per
share
Year Ended June 30,
2016
2015
2014
$
207,377
$
200,409
$
153,307
896
347,132
176,213
731,618
3,799
385,710
159,056
748,974
4,358
334,039
122,037
613,741
26,435
6,811
26,687
—
66
778
74
—
150
26,501
7,663
26,837
22,528
12,975
43,671
—
11,326
33,854
226
21,246
34,447
17
28,025
71,713
791,973
791,084
712,291
126,523
92,782
167,719
4,428
12,647
379
2,295
14,072
420,845
371,128
(5,406)
(14,194)
(4,817)
224
134,590
108,990
90,687
89,306
170,660
130,103
3,772
14,977
379
2,505
10,767
428,337
362,747
2,959
14,373
325
(4,200)
13,212
355,068
357,223
(80,640)
—
(99,783)
(3,950)
—
—
(3,346)
—
(24,193)
(184,373)
(3,346)
(88,751)
158,346
(20,519)
(233)
(154,589)
(243,573)
(267,766)
503
9,116
167,965
(16,408)
(4,500)
(9,838)
(34,857)
(38,203)
$
$
$
103,362
$
346,339
$
319,020
0.29
$
(1.00)
$
0.98
$
(1.19)
$
1.06
(1.32)
See
notes
to
consolidated
financial
statements.
103
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
(in thousands, except share data)
Year Ended June 30,
2016
2015
2014
$
371,128
$
362,747
$
357,223
(24,417)
(180,423)
Operations
Net
investment
income
Net
realized
losses
on
investments
Net
change
in
unrealized
(depreciation)
appreciation
on
investments
(243,573)
167,965
Net
realized
gains
(losses)
on
extinguishment
of
debt
224
(3,950)
Net Increase in Net Assets Resulting from Operations
103,362
346,339
319,020
Distributions to Shareholders
Distribution
from
net
investment
income
Distribution
of
return
of
capital
Net Decrease in Net Assets Resulting from Distributions to
Shareholders
(356,110)
(421,594)
(403,188)
—
—
—
(356,110)
(421,594)
(403,188)
(3,346)
(34,857)
—
Common Stock Transactions
Issuance
of
common
stock,
net
of
underwriting
costs
Less:
Offering
costs
from
issuance
of
common
stock
Repurchase
of
common
stock
under
stock
repurchase
program
Value
of
shares
issued
to
acquire
controlled
investments
—
118
(34,140)
—
146,085
973,832
(644)
—
—
(1,380)
—
57,830
15,574
Value
of
shares
issued
through
reinvestment
of
dividends
19,638
14,681
Net (Decrease) Increase in Net Assets Resulting from Common Stock
Transactions
(14,384)
160,122
1,045,856
Total (Decrease) Increase in Net Assets
Net
assets
at
beginning
of
year
Net Assets at End of Year
(267,132)
84,867
961,688
3,703,049
3,618,182
2,656,494
$
3,435,917
$
3,703,049
$
3,618,182
Common Stock Activity
Shares
sold
Shares
issued
to
acquire
controlled
investments
Shares
repurchased
under
stock
repurchase
program
Shares
issued
through
reinvestment
of
dividends
—
—
(4,708,750)
14,845,556
88,054,653
—
—
5,326,949
—
2,725,222
1,618,566
1,408,070
Net
shares
(repurchased)
issued
due
to
common
stock
activity
(1,983,528)
16,464,122
94,789,672
Shares
issued
and
outstanding
at
beginning
of
year
359,090,759
342,626,637
247,836,965
Shares Issued and Outstanding at End of Year
357,107,231
359,090,759
342,626,637
See
notes
to
consolidated
financial
statements.
104
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, except share data)
Operating Activities
Net
increase
in
net
assets
resulting
from
operations
Net
realized
(gains)
losses
on
extinguishment
of
debt
Net
realized
losses
on
investments
Net
change
in
unrealized
depreciation
(appreciation)
on
investments
Amortization
of
discounts
and
premiums,
net
Accretion
of
discount
on
Public
Notes
(Note
6)
Amortization
of
deferred
financing
costs
Payment-in-kind
interest
Structuring
fees
Change
in
operating
assets
and
liabilities:
Payments
for
purchases
of
investments
Year Ended June 30,
2016
2015
2014
$
103,362
$
346,339
$
319,020
(224)
24,417
243,573
84,087
200
13,561
(20,531)
(9,393)
3,950
180,423
(167,965)
87,638
213
14,266
(29,277)
(20,916)
—
3,346
34,857
46,297
156
11,491
(15,145)
(45,087)
(921,679)
(1,817,284)
(2,815,303)
Proceeds
from
sale
of
investments
and
collection
of
investment
principal
1,311,375
1,411,562
767,978
Decrease
in
interest
receivable,
net
Decrease
(increase)
in
other
receivables
(Increase)
decrease
in
prepaid
expenses
(Decrease)
increase
in
due
to
broker
Increase
in
interest
payable
(Decrease)
increase
in
due
to
Prospect
Administration
Increase
(decrease)
in
due
to
Prospect
Capital
Management
(Decrease)
increase
in
accrued
expenses
(Decrease)
increase
in
other
liabilities
Net Cash Provided by (Used in) Operating Activities
Financing Activities
Borrowings
under
Revolving
Credit
Facility
(Note
4)
Principal
payments
under
Revolving
Credit
Facility
(Note
4)
Issuances
of
Public
Notes,
net
of
original
issue
discount
(Note
6)
(Redemptions)
and
issuances
of
Convertible
Notes
(Note
5)
Repurchase
of
Convertible
Notes,
net
(Note
5)
Redemption
of
Public
Notes,
net
(Note
6)
Issuances
of
Prospect
Capital
InterNotes®
(Note
7)
Redemptions
of
Prospect
Capital
InterNotes®,
net
(Note
7)
Financing
costs
paid
and
deferred
Cost
of
shares
repurchased
under
stock
repurchase
program
Proceeds
from
issuance
of
common
stock,
net
of
underwriting
costs
Offering
costs
from
issuance
of
common
stock
Dividends
paid
Net Cash (Used in) Provided by Financing Activities
Net Increase (Decrease) in Cash and Cash Equivalents
Cash
and
cash
equivalents
at
beginning
of
year
Cash and Cash Equivalents at End of Year
Supplemental Disclosures
Cash
paid
for
interest
Non-Cash Financing Activities
Value
of
shares
issued
through
reinvestment
of
dividends
Value
of
shares
issued
to
acquire
controlled
investments
Exchange
of
Prospect
Capital
InterNotes®
for
Public
Notes
$
$
$
$
$
8,281
2,717
(98)
(25,821)
1,145
(2,473)
51,599
(1,149)
(1,080)
861,869
615,000
(983,700)
161,364
(150,000)
(500)
—
88,435
(7,069)
(6,968)
(34,140)
—
118
(336,637)
(654,097)
207,772
110,026
1,589
(298)
2,071
26,778
2,200
2,030
2,547
(1,382)
980
866
1,810
(2,288)
(43,588)
13,075
842
(5,321)
2,445
(682)
45,464
(1,725,231)
1,567,000
1,078,500
(1,290,300)
(1,110,500)
—
—
(7,668)
(102,600)
125,696
(85,606)
(6,793)
—
146,085
(644)
(414,833)
255,000
400,000
—
—
473,762
(6,869)
(29,055)
—
973,832
(1,380)
(377,070)
(69,663)
1,656,220
(24,199)
134,225
(69,011)
203,236
134,225
317,798
$
110,026
$
152,817
$
153,982
$
105,410
19,638
$
14,681
$
—
$
—
$
—
$
—
$
15,574
57,830
45,000
See
notes
to
consolidated
financial
statements.
105
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS
(in thousands, except share data)
Portfolio Company
Locale /
Industry
Investments(1)
June 30, 2016
Principal
Value
Cost
Fair
Value(2)
% of Net
Assets
LEVEL 3 PORTFOLIO INVESTMENTS
Control Investments (greater than 25.00% voting control)(48)
Arctic
Energy
Services,
LLC(18)
Wyoming
/
Oil
&
Gas
Services
Class
D
Units
(32,915
units)
Class
E
Units
(21,080
units)
Class
A
Units
(700
units)
Class
C
Units
(10
units)
CCPI
Inc.(19)
Ohio
/
Manufacturing
Senior
Secured
Term
Loan
A
(10.00%,
due
12/31/2017)(3)
Senior
Secured
Term
Loan
B
(12.00%
plus
7.00%
PIK,
due
12/31/2017)(47)
Common
Stock
(14,857
shares)
12,313
9,320
CP
Energy
Services
Inc.(20)
Oklahoma
/
Oil
&
Gas
Services
Series
B
Convertible
Preferred
Stock
(1,043
shares)
Common
Stock
(2,924
shares)
Credit
Central
Loan
Company,
LLC(21)
South
Carolina
/
Consumer
Finance
Subordinated
Term
Loan
(10.00%
plus
10.00%
PIK,
due
6/26/2019)(15)(47)
Class
A
Shares
(7,500,000
shares)(15)
Net
Revenues
Interest
(25%
of
Net
Revenues)(15)
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)(11)(14)
(47)
Membership
Interest
(99%)
Edmentum
Ultimate
Holdings,
LLC(22)
Minnesota
/
Consumer
Services
Second
Lien
Revolving
Credit
Facility
to
Edmentum,
Inc.
–
$7,834
Commitment
(5.00%,
due
6/9/2020)(16)
Unsecured
Senior
PIK
Note
(8.50%
PIK,
due
6/9/2020)(47)
Unsecured
Junior
PIK
Note
(10.00%
PIK,
due
6/9/2020)(47)
Class
A
Common
Units
(370,964
units)
36,931
37,855
6,424
6,341
28,834
First
Tower
Finance
Company
LLC(23)
Mississippi
/
Consumer
Finance
Subordinated
Term
Loan
to
First
Tower,
LLC
(10.00%
plus
12.00%
PIK,
due
6/24/2019)(15)(47)
Class
A
Shares
(86,711,625
shares)(15)
255,762
Freedom
Marine
Solutions,
LLC(24)
Louisiana
/
Oil
&
Gas
Services
Membership
Interest
(100%)
Gulf
Coast
Machine
&
Supply
Company
Texas
/
Manufacturing
Senior
Secured
Term
Loan
(10.50%
(LIBOR
+
8.50%
with
2.00%
LIBOR
floor),
in
non-accrual
status
effective
1/1/2015,
due
10/12/2017)(11)(13)
Series
A
Convertible
Preferred
Stock
(99,900
shares)
38,892
See
notes
to
consolidated
financial
statements.
106
$
31,640 $
20,230
9,006
—
60,876
12,313
9,320
6,635
28,268
98,273
15,227
35,815
2,525
1.0%
0.1%
— —%
— —%
38,340
1.1%
12,313
0.4%
9,320
19,723
0.3%
0.5%
41,356
1.2%
76,002
2.2%
— —%
113,500
76,002
2.2%
36,931
11,633
—
48,564
37,855
19,907
57,762
6,424
6,341
22,337
6,576
41,678
255,762
70,476
326,238
40,810
40,810
34,425
25,950
60,375
36,931
11,707
3,616
1.1%
0.3%
0.1%
52,254
1.5%
37,855
22,966
1.1%
0.7%
60,821
1.8%
6,424
6,341
25,569
6,012
0.2%
0.2%
0.7%
0.2%
44,346
1.3%
255,762
96,904
7.4%
2.8%
352,666
10.2%
26,618
0.8%
26,618
0.8%
7,312
0.2%
— —%
7,312
0.2%
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)
(in thousands, except share data)
Portfolio Company
Locale /
Industry
Investments(1)
June 30, 2016
Principal
Value
Cost
Fair
Value(2)
% of Net
Assets
LEVEL 3 PORTFOLIO INVESTMENTS
Control Investments (greater than 25.00% voting control)(48)
MITY,
Inc.(26)
Utah
/
Durable
Consumer
Products
National
Property
REIT
Corp.(27)
Various
/
Real
Estate
Senior
Secured
Note
A
(10.00%
(LIBOR
+
7.00%
with
3.00%
LIBOR
floor),
due
3/19/2019)(3)(11)(13)
Senior
Secured
Note
B
(10.00%
(LIBOR
+
7.00%
with
3.00%
LIBOR
floor)
plus
10.00%
PIK,
due
3/19/2019)(3)(11)(13)(47)
Subordinated
Unsecured
Note
to
Broda
Enterprises
ULC
(10.00%,
due
on
demand)(15)
Common
Stock
(42,053
shares)
Senior
Secured
Term
Loan
A
(6.00%
(LIBOR
+
4.00%
with
2.00%
LIBOR
floor)
plus
5.50%
PIK,
due
4/1/2019)(11)(13)
(47)
Senior
Secured
Term
Loan
E
(11.00%
(LIBOR
+
9.00%
with
2.00%
LIBOR
floor)
plus
5.00%
PIK,
due
4/1/2019)(11)(13)
(47)
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)(13)(15)(47)
Common
Stock
(1,533,899
shares)
Net
Operating
Income
Interest
(5%
of
Net
Operating
Income)
Nationwide
Loan
Company
LLC(28)
Illinois
/
Consumer
Finance
Senior
Subordinated
Term
Loan
to
Nationwide
Acceptance
LLC
(10.00%
plus
10.00%
PIK,
due
6/18/2019)(15)(47)
Class
A
Shares
(29,343,795
shares)(15)
NMMB,
Inc.(29)
New
York
/
Media
Senior
Secured
Note
(14.00%,
due
5/6/2021)
Senior
Secured
Note
to
Armed
Forces
Communications,
Inc.
(14.00%,
due
5/6/2021)
Series
A
Preferred
Stock
(7,200
shares)
Series
B
Preferred
Stock
(5,669
shares)
R-V
Industries,
Inc. Pennsylvania
/
Manufacturing
Senior
Subordinated
Note
(10.00%
(LIBOR
+
9.00%
with
1.00%
LIBOR
floor),
due
6/12/2018)(3)(11)(13)
Common
Stock
(545,107
shares)
Warrant
(to
purchase
200,000
shares
of
Common
Stock,
expires
6/30/2017)
USES
Corp.
(31)
Texas
/
Commercial
Services
Senior
Secured
Term
Loan
A
(7.00%
(LIBOR
+
6.00%
with
1.00%
LIBOR
floor)
plus
2.00%
default
interest,
in
non-accrual
status
effective
4/1/2016,
due
3/31/2019)(11)(13)
Senior
Secured
Term
Loan
B
(13.50%
(LIBOR
+
12.50%
with
1.00%
LIBOR
floor)
plus
2.00%
default
interest,
in
non-accrual
status
effective
4/1/2016,
due
3/31/2019)(11)(13)
Common
Stock
(268,962
shares)
$
18,250 $
18,250 $
18,250
0.5%
16,442
16,442
16,442
0.5%
7,200
7,200
6,848
5,667
13,690
0.2%
0.4%
48,740
54,049
1.6%
248,677
248,677
248,677
7.2%
212,819
212,819
212,819
6.2%
99,972
16,696
3,714
7,000
28,622
99,972
165,908
—
727,376
16,696
16,201
32,897
3,714
7,000
7,200
5,669
99,972
215,491
66,974
2.9%
6.3%
2.0%
843,933
24.6%
16,696
19,117
0.5%
0.5%
35,813
1.0%
3,442
0.1%
6,487
0.2%
44 —%
34 —%
23,583
10,007
0.3%
28,622
5,087
1,682
35,391
28,622
6,039
0.8%
0.2%
2,216
0.1%
36,877
1.1%
26,300
26,158
26,300
0.8%
36,000
35,568
—
61,726
13,986
0.4%
— —%
40,286
1.2%
See
notes
to
consolidated
financial
statements.
107
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)
(in thousands, except share data)
Portfolio Company
Locale /
Industry
Investments(1)
Principal
Value
Cost
Fair
Value(2)
% of Net
Assets
June 30, 2016
LEVEL 3 PORTFOLIO INVESTMENTS
Control Investments (greater than 25.00% voting control)(48)
Valley
Electric
Company,
Inc.(32)
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
12/31/2019)(3)(11)(13)(47)
Senior
Secured
Note
(10.00%
plus
8.50%
PIK,
due
6/23/2019)
(47)
Common
Stock
(50,000
shares)
Wolf
Energy,
LLC Kansas
/
Oil
&
Gas
Production
Senior
Secured
Promissory
Note
secured
by
assets
formerly
owned
by
H&M
(18.00%,
in
non-accrual
status
effective
4/15/2013,
due
4/15/2018)
Membership
Interest
(100%)
Net
Profits
Interest
(8%
of
Equity
Distributions)(4)
Affiliate Investments (5.00% to 24.99% voting control)(49)
$
10,430 $
10,430 $
10,430
0.3%
23,802
38,257
23,802
26,204
60,436
20,661
0.6%
— —%
31,091
0.9%
—
—
—
—
659 —%
— —%
19 —%
678 —%
$ 1,768,220 $ 1,752,449
51.0%
BNN
Holdings
Corp.
Michigan
/
Healthcare Series
A
Preferred
Stock
(9,925.455
shares)(8)
$
1,780 $
2,270
0.1%
Series
B
Preferred
Stock
(1,753.636
shares)(8)
Targus
International,
LLC(33)
California
/
Durable
Consumer
Products
Senior
Secured
Term
Loan
A
(15.00%
PIK,
in
non-accrual
status
effective
10/1/15,
due
12/31/2019)(9)
Senior
Secured
Term
Loan
B
(15.00%
PIK
,
in
non-accrual
status
effective
10/1/15,
due
12/31/2019)(9)
Common
Stock
(1,262,737
shares)
1,319
3,957
See
notes
to
consolidated
financial
statements.
108
448
2,228
572 —%
2,842
0.1%
1,263
1,319 —%
3,788
3,479
8,530
3,957
3,202
8,478
$
10,758 $
11,320
0.1%
0.1%
0.2%
0.3%
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)
(in thousands, except share data)
Portfolio Company Locale / Industry
Investments(1)
LEVEL 3 PORTFOLIO INVESTMENTS
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
June 30, 2016
Principal
Value
Cost
Fair
Value(2)
% of Net
Assets
California
/
Machinery
AFI
Shareholder,
LLC
(f/k/a
Aircraft
Fasteners
International,
LLC)
Class
A
Units
(32,500
units)
$
330 $
511 —%
Airmall
Inc.
Pennsylvania
/
Property
Management
Escrow
Receivable
Ajax
Rolled
Ring
&
Machine,
LLC(42)
South
Carolina
/
Manufacturing
Escrow
Receivable
ALG
USA
Holdings,
LLC
Pennsylvania
/
Hotels,
Restaurants
&
Leisure
American
Gilsonite
Company
Utah
/
Metal
Services
&
Minerals
Second
Lien
Term
Loan
(10.25%
(LIBOR
+
9.00%
with
1.25%
LIBOR
floor),
due
2/28/2020)(9)(11)(13)
11,771
Membership
Interest
(1.93%)(34)
Apidos
CLO
IX
Cayman
Islands
/
Structured
Finance
Subordinated
Notes
(Residual
Interest,
current
yield
16.98%)(6)(15)
Apidos
CLO
XI
Cayman
Islands
/
Structured
Finance
Subordinated
Notes
(Residual
Interest,
current
yield
11.95%)(6)(15)
Apidos
CLO
XII
Cayman
Islands
/
Structured
Finance
Subordinated
Notes
(Residual
Interest,
current
yield
13.39%)(6)(15)
Apidos
CLO
XV
Cayman
Islands
/
Structured
Finance
Subordinated
Notes
(Residual
Interest,
current
yield
10.72%)(6)(15)
Apidos
CLO
XXII Cayman
Islands
/
Structured
Finance
Subordinated
Notes
(Residual
Interest,
current
yield
17.29%)(6)(7)(15)
23,525
38,340
44,063
36,515
31,350
330
511 —%
3,916
3,900
0.1%
3,916
3,900
0.1%
—
—
608 —%
608 —%
11,630
11,630
11,771
0.3%
11,771
0.3%
—
—
19,997
19,997
29,763
29,763
34,598
34,598
31,479
31,479
26,948
26,948
— —%
— —%
19,966
0.6%
19,966
0.6%
26,057
0.8%
26,057
0.8%
30,638
0.9%
30,638
0.9%
25,335
0.7%
25,335
0.7%
25,369
0.7%
25,369
0.7%
Arctic
Glacier
U.S.A.,
Inc.
Minnesota
/
Food
Products
Second
Lien
Term
Loan
(10.50%
(LIBOR
+
9.25%
with
1.25%
LIBOR
floor),
due
11/10/2019)(3)(11)(13)
Ark-La-Tex
Wireline
Services,
LLC
Louisiana
/
Oil
&
Gas
Services
Senior
Secured
Term
Loan
A
(6.50%
(LIBOR
+
5.50%
with
1.00%
LIBOR
floor),
in
non-accrual
status
effective
4/1/2016,
due
4/8/2019)(11)(14)
Senior
Secured
Term
Loan
B
(12.50%
(LIBOR
+
11.50%
with
1.00%
LIBOR
floor),
in
non-accrual
status
effective
4/1/2016,
due
4/8/2019)(11)(14)
150,000
150,000
145,546
4.2%
150,000
145,546
4.2%
21,322
21,088
11,779
0.3%
23,981
23,239
44,327
— —%
11,779
0.3%
Armor
Holding
II
LLC
New
York
/
Diversified
Financial
Services
Second
Lien
Term
Loan
(10.25%
(LIBOR
+
9.00%
with
1.25%
LIBOR
floor),
due
12/26/2020)(3)(9)(11)(13)
7,000
6,907
6,907
6,907
0.2%
6,907
0.2%
See
notes
to
consolidated
financial
statements.
109
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)
(in thousands, except share data)
Portfolio Company Locale / Industry
Investments(1)
LEVEL 3 PORTFOLIO INVESTMENTS
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
June 30, 2016
Principal
Value
Cost
Fair
Value(2)
% of Net
Assets
Atlantis
Health
Care
Group
(Puerto
Rico),
Inc.
Puerto
Rico
/
Healthcare
Revolving
Line
of
Credit
–
$7,000
Commitment
(10.25%
(LIBOR
+
8.25%
with
2.00%
LIBOR
floor),
due
8/21/2017)(11)(13)(16)
Senior
Term
Loan
(10.25%
(LIBOR
+
8.25%
with
2.00%
LIBOR
floor),
due
2/21/2018)(3)(11)(13)
Babson
CLO
Ltd.
2014-III
Cayman
Islands
/
Structured
Finance
Subordinated
Notes
(Residual
Interest,
current
yield
12.25%)(6)(7)(15)
Broder
Bros.,
Co.
Pennsylvania
/
Textiles,
Apparel
&
Luxury
Goods
Senior
Secured
Term
Loan
A
(7.00%
(LIBOR
+
5.75%
with
1.25%
LIBOR
floor),
due
6/03/2021)(3)(11)(14)
Senior
Secured
Term
Loan
B
(13.50%
(LIBOR
+
12.25%
with
1.25%
LIBOR
floor),
due
6/03/2021)(11)
(14)
$
2,350 $
2,350 $
2,350
0.1%
38,166
52,250
38,166
40,516
44,075
44,075
38,166
1.1%
40,516
1.2%
40,312
1.2%
40,312
1.2%
120,737
120,737
120,737
3.5%
121,475
121,475
121,475
3.5%
Brookside
Mill
CLO
Ltd.
Cayman
Islands
/
Structured
Finance
Subordinated
Notes
(Residual
Interest,
current
yield
14.44%)(6)(15)
26,000
242,212
242,212
7.0%
19,875
19,875
18,990
0.6%
18,990
0.6%
Capstone
Logistics
Acquisition,
Inc.
Georgia
/
Business
Services
Second
Lien
Term
Loan
(9.25%
(LIBOR
+
8.25%
with
1.00%
LIBOR
floor),
due
10/7/2022)(3)(9)(11)(14)
Cent
CLO
17
Limited
Cayman
Islands
/
Structured
Finance
Subordinated
Notes
(Residual
Interest,
current
yield
12.64%)(6)(15)
Cent
CLO
20
Limited
Cayman
Islands
/
Structured
Finance
Subordinated
Notes
(Residual
Interest,
current
yield
10.19%)(6)(15)
Cent
CLO
21
Limited
Cayman
Islands
/
Structured
Finance
Subordinated
Notes
(Residual
Interest,
current
yield
11.64%)(6)(7)(15)
CIFC
Funding
2013-III,
Ltd.
Cayman
Islands
/
Structured
Finance
Subordinated
Notes
(Residual
Interest,
current
yield
15.72%)(6)(15)
CIFC
Funding
2013-IV,
Ltd.
Cayman
Islands
/
Structured
Finance
Subordinated
Notes
(Residual
Interest,
current
yield
16.13%)(6)(15)
CIFC
Funding
2014-IV
Investor,
Ltd.
Cayman
Islands
/
Structured
Finance
Income
Notes
(Residual
Interest,
current
yield
15.05%)
(6)(7)(15)
Cinedigm
DC
Holdings,
LLC
New
York
/
Software
&
Computer
Services
Senior
Secured
Term
Loan
(11.00%
(LIBOR
+
9.00%
with
2.00%
LIBOR
floor)
plus
2.50%
PIK,
due
3/31/2021)(11)(13)(47)
101,828
101,298
97,752
2.8%
101,298
97,752
2.8%
24,870
40,275
48,528
44,100
45,500
41,500
65,990
18,839
18,839
32,835
32,835
38,125
38,125
32,338
32,338
33,414
33,414
31,729
31,729
65,940
65,940
16,695
0.5%
16,695
0.5%
26,501
0.8%
26,501
0.8%
31,467
0.9%
31,467
0.9%
29,634
0.9%
29,634
0.9%
32,752
0.9%
32,752
0.9%
30,378
0.9%
30,378
0.9%
65,990
1.9%
65,990
1.9%
See
notes
to
consolidated
financial
statements.
110
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)
(in thousands, except share data)
Portfolio Company
Locale /
Industry
Investments(1)
Principal
Value
Cost
Fair
Value(2)
% of Net
Assets
June 30, 2016
LEVEL 3 PORTFOLIO INVESTMENTS
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
Coverall
North
America,
Inc.
Florida
/
Commercial
Services
Crosman
Corporation
New
York
/
Manufacturing
Senior
Secured
Term
Loan
A
(7.00%
(LIBOR
+
6.00%
with
1.00%
LIBOR
floor),
due
11/02/2020)(3)
(11)(13)
Senior
Secured
Term
Loan
B
(12.00%
(LIBOR
+
11.00%
with
1.00%
LIBOR
floor),
due
11/02/2020)
(3)(11)(13)
Senior
Secured
Term
Loan
A
(9.16%
(LIBOR
+
8.70%
with
.30%
LIBOR
floor)
plus
4.00%
PIK,
due
8/5/2020)(3)(11)(14)(47)
Senior
Secured
Term
Loan
B
(16.16%
(LIBOR
+
15.70%
with
.30%
LIBOR
floor)
plus
4.00%
PIK,
due
8/5/2020)(11)(14)(47)
CURO
Group
Holdings
Corp
(f/k/a
Speedy
Cash
Holdings
Corp.)
Canada
/
Consumer
Finance
Senior
Unsecured
Notes
(12.00%,
due
11/15/2017)(9)
(15)
Easy
Gardener
Products,
Inc.
Texas
/
Durable
Consumer
Products
Senior
Secured
Term
Loan
(10.63%
(LIBOR
+
10.00%
with
.25%
LIBOR
floor),
due
09/30/2020)(3)
(11)(13)
$
24,250 $
24,250 $
24,250
0.7%
25,000
25,000
49,250
25,000
0.7%
49,250
1.4%
54,185
54,185
53,935
1.6%
41,284
15,000
17,369
41,284
95,469
15,000
15,000
17,369
17,369
40,458
1.1%
94,393
2.7%
8,081
0.2%
8,081
0.2%
17,369
0.5%
17,369
0.5%
Empire
Today,
LLC
Illinois
/
Durable
Consumer
Products
Senior
Secured
Note
(11.375%,
due
2/1/2017)(9)
50,426
49,988
49,938
1.4%
Fleetwash,
Inc.
New
Jersey
/
Business
Services
Senior
Secured
Term
Loan
B
(10.50%
(LIBOR
+
9.50%
with
1.00%
LIBOR
floor),
due
4/30/2019)(3)(11)(13)
Delayed
Draw
Term
Loan
–
$15,000
Commitment
(expires
4/30/2019)(11)(16)
49,988
49,938
1.4%
23,402
23,402
23,402
0.7%
—
—
— —%
23,402
23,402
0.7%
Focus
Brands,
Inc.
Galaxy
XV
CLO,
Ltd.
Galaxy
XVI
CLO,
Ltd.
Galaxy
XVII
CLO,
Ltd.
Generation
Brands
Holdings,
Inc.
Global
Employment
Solutions,
Inc.
Georgia
/
Consumer
Services
Cayman
Islands
/
Structured
Finance
Cayman
Islands
/
Structured
Finance
Cayman
Islands
/
Structured
Finance
Illinois
/
Durable
Consumer
Products
Colorado
/
Business
Services
Second
Lien
Term
Loan
(10.25%
(LIBOR
+
9.00%
with
1.25%
LIBOR
floor),
due
8/21/2018)(9)(11)(14)
18,000
Subordinated
Notes
(Residual
Interest,
current
yield
18.19%)(6)(15)
Subordinated
Notes
(Residual
Interest,
current
yield
16.22%)(6)(15)
Subordinated
Notes
(Residual
Interest,
current
yield
15.77%)(6)(7)(15)
Subordinated
Secured
Term
Loan
(11.00%
(LIBOR
+
10.00%
with
1.00%
LIBOR
floor),
due
12/10/2022)
(9)(11)(13)
Senior
Secured
Term
Loan
(10.25%
(LIBOR
+
9.25%
with
1.00%
LIBOR
floor),
due
6/26/2020)(3)(11)(14)
39,275
24,575
39,905
19,000
49,312
See
notes
to
consolidated
financial
statements.
17,876
17,876
29,037
29,037
19,195
19,195
31,077
31,077
18,437
18,437
49,312
49,312
18,000
0.5%
18,000
0.5%
30,452
0.9%
30,452
0.9%
18,925
0.5%
18,925
0.5%
29,820
0.9%
29,820
0.9%
19,000
0.6%
19,000
0.6%
49,312
1.4%
49,312
1.4%
111
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)
(in thousands, except share data)
Portfolio Company Locale / Industry
Investments(1)
LEVEL 3 PORTFOLIO INVESTMENTS
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
Halcyon
Loan
Advisors
Funding
2012-1
Ltd.
Cayman
Islands
/
Structured
Finance
Subordinated
Notes
(Residual
Interest,
current
yield
17.90%)(6)(15)
Halcyon
Loan
Advisors
Funding
2013-1
Ltd.
Cayman
Islands
/
Structured
Finance
Subordinated
Notes
(Residual
Interest,
current
yield
18.01%)(6)(15)
Halcyon
Loan
Advisors
Funding
2014-1
Ltd.
Cayman
Islands
/
Structured
Finance
Subordinated
Notes
(Residual
Interest,
current
yield
13.66%)(6)(15)
Halcyon
Loan
Advisors
Funding
2014-2
Ltd.
Cayman
Islands
/
Structured
Finance
Subordinated
Notes
(Residual
Interest,
current
yield
16.91%)(6)(7)(15)
Halcyon
Loan
Advisors
Funding
2015-3
Ltd.
Cayman
Islands
/
Structured
Finance
Subordinated
Notes
(Residual
Interest,
current
yield
15.86%)(6)(7)(15)
Harbortouch
Payments,
LLC
Pennsylvania
/
Business
Services
Second
Lien
Term
Loan
(10.00%
(LIBOR
+
9.00%
with
1.00%
LIBOR
floor)
plus
3.00%
PIK,
due
5/31/2023)(11)
(13)(47)
Escrow
Receivable
HarbourView
CLO
VII,
Ltd.
Cayman
Islands
/
Structured
Finance
Subordinated
Notes
(Residual
Interest,
current
yield
17.35%)(6)(7)(15)
Harley
Marine
Services,
Inc.
Washington
/
Transportation
Second
Lien
Term
Loan
(10.50%
(LIBOR
+
9.25%
with
1.25%
LIBOR
floor),
due
12/20/2019)(3)(9)(11)(13)
Hollander
Sleep
Products,
LLC
Florida
/
Durable
Consumer
Products
Senior
Secured
Term
Loan
(9.00%
(LIBOR
+
8.00%
with
1.00%
LIBOR
floor),
due
10/21/2020)(3)(11)(14)
ICV-CAS
Holdings,
LLC
New
York
/
Transportation
Escrow
Receivable
Inpatient
Care
Management
Company
LLC
Florida
/
Healthcare
Senior
Secured
Term
Loan
(11.50%
(LIBOR
+
10.50%
with
1.00%
LIBOR
floor),
due
6/8/2021(9)(11)(14)
Instant
Web,
LLC
Minnesota
/
Media
Senior
Secured
Term
Loan
A
(5.50%
(LIBOR
+
4.50%
with
1.00%
LIBOR
floor),
due
3/28/2019)(11)(13)
Senior
Secured
Term
Loan
B
(12.00%
(LIBOR
+
11.00%
with
1.00%
LIBOR
floor),
due
3/28/2019)(3)(11)(13)
Senior
Secured
Term
Loan
C-1
(12.75%
(LIBOR
+
11.75%
with
1.00%
LIBOR
floor),
due
3/28/2019)(11)(13)
Senior
Secured
Term
Loan
C-2
(13.50%
(LIBOR
+
12.50%
with
1.00%
LIBOR
floor),
due
3/28/2019)(11)(13)
See
notes
to
consolidated
financial
statements.
112
June 30, 2016
Principal
Value
Cost
Fair
Value(2)
% of Net
Assets
$
23,188 $
18,245 $
18,140
0.5%
18,245
18,140
0.5%
40,400
24,500
41,164
39,598
27,500
19,025
9,000
21,860
31,897
31,897
18,255
18,255
30,795
30,795
36,746
36,746
27,500
—
27,500
14,454
14,454
8,886
8,886
21,860
21,860
—
—
32,212
0.9%
32,212
0.9%
17,076
0.5%
17,076
0.5%
30,532
0.9%
30,532
0.9%
35,202
1.0%
35,202
1.0%
27,500
0.8%
1,602 —%
29,102
0.8%
13,005
0.4%
13,005
0.4%
8,886
0.3%
8,886
0.3%
21,098
0.6%
21,098
0.6%
6 —%
6 —%
17,000
17,000
17,000
17,000
0.5%
17,000
0.5%
122,943
122,943
122,943
3.6%
158,100
158,100
158,100
4.6%
27,000
27,000
27,000
0.8%
25,000
25,000
25,000
0.7%
333,043
333,043
9.7%
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)
(in thousands, except share data)
Portfolio Company
Locale / Industry
Investments(1)
LEVEL 3 PORTFOLIO INVESTMENTS
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
June 30, 2016
Principal
Value
Cost
Fair
Value(2)
% of Net
Assets
InterDent,
Inc.
California
/
Healthcare Senior
Secured
Term
Loan
A
(6.25%
(LIBOR
+
5.50%
with
0.75%
LIBOR
floor),
due
8/3/2017)(11)(14)
Senior
Secured
Term
Loan
B
(11.25%
(LIBOR
+
10.50%
with
0.75%
LIBOR
floor),
due
8/3/2017)(3)
(11)(14)
$
79,538 $
79,538 $
79,538
2.3%
131,125
131,125
130,582
3.8%
210,663
210,120
6.1%
JAC
Holding
Corporation
Michigan
/
Transportation
Senior
Secured
Note
(11.50%,
due
10/1/2019)(9)
2,868
Jefferson
Mill
CLO
Ltd.
Cayman
Islands
/
Structured
Finance
Subordinated
Notes
(Residual
Interest,
current
yield
9.75%)(6)(7)(15)
19,500
JHH
Holdings,
Inc. Texas
/
Healthcare
Second
Lien
Term
Loan
(11.25%
(LIBOR
+
10.00%
with
1.25%
LIBOR
floor)
plus
0.50%
PIK,
due
3/30/2019)(3)(11)(13)(47)
35,477
2,868
2,868
16,915
16,915
35,477
35,477
2,868
0.1%
2,868
0.1%
13,072
0.4%
13,072
0.4%
35,477
1.0%
35,477
1.0%
LaserShip,
Inc.
Virginia
/
Transportation
Senior
Secured
Term
Loan
A
(10.25%
(LIBOR
+
8.25%
with
2.00%
LIBOR
floor)
plus
2.00%
PIK,
due
3/18/2019)(3)(11)(14)(47)
Senior
Secured
Term
Loan
B
(10.25%
(LIBOR
+
8.25%
with
2.00%
LIBOR
floor)
plus
2.00%
PIK,
due
3/18/2019)(3)(11)(14)(47)
21,214
34,570
34,570
32,113
0.9%
21,214
55,784
22,890
22,890
22,259
22,259
19,705
0.6%
51,818
1.5%
23,376
0.7%
23,376
0.7%
21,174
0.6%
21,174
0.6%
LCM
XIV
Ltd.
Cayman
Islands
/
Structured
Finance
Income
Notes
(Residual
Interest,
current
yield
18.80%)
(6)(15)
30,500
Madison
Park
Funding
IX,
Ltd.
Cayman
Islands
/
Structured
Finance
Subordinated
Notes
(Residual
Interest,
current
yield
21.15%)(6)(15)
31,110
Matrixx
Initiatives,
Inc.
New
Jersey
/
Pharmaceuticals
Senior
Secured
Term
Loan
A
(7.50%
(LIBOR
+
6.00%
with
1.50%
LIBOR
floor),
due
8/9/2018)(3)(11)(13)
Senior
Secured
Term
Loan
B
(12.50%
(LIBOR
+
11.00%
with
1.50%
LIBOR
floor),
due
8/9/2018)(3)(11)(13)
Maverick
Healthcare
Equity,
LLC
Arizona
/
Healthcare
Preferred
Units
(1,250,000
units)
Class
A
Common
Units
(1,250,000
units)
Mineral
Fusion
Natural
Brands
Colorado
/
Personal
&
Nondurable
Consumer
Products
Membership
Interest
(1.43%)(37)
Mountain
View
CLO
2013-I
Ltd.
Cayman
Islands
/
Structured
Finance
Subordinated
Notes
(Residual
Interest,
current
yield
14.72%)(6)(15)
Mountain
View
CLO
IX
Ltd.
Cayman
Islands
/
Structured
Finance
Subordinated
Notes
(Residual
Interest,
current
yield
16.23%)(6)(7)(15)
30,177
30,177
30,177
0.9%
40,562
43,650
47,830
40,562
70,739
1,252
—
1,252
—
—
33,156
33,156
43,088
43,088
40,562
1.2%
70,739
2.1%
2,037
0.1%
353 —%
2,390
0.1%
266 —%
266 —%
30,928
0.9%
30,928
0.9%
40,218
1.2%
40,218
1.2%
See
notes
to
consolidated
financial
statements.
113
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)
(in thousands, except share data)
Portfolio Company
Locale / Industry
Investments(1)
LEVEL 3 PORTFOLIO INVESTMENTS
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
June 30, 2016
Principal
Value
Cost
Fair
Value(2)
% of Net
Assets
Nathan's
Famous,
Inc. New
York
/
Food
Products
Senior
Secured
Notes
(10.00%,
due
3/15/2020)(9)
$
3,000 $
3,000 $
3,000
0.1%
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)(9)(11)(14)(15)
27,199
Nixon,
Inc.
California
/
Durable
Consumer
Products
Senior
Secured
Term
Loan
(9.50%
plus
3.00%
PIK,
due
4/16/2018)(3)(9)(47)
14,311
Octagon
Investment
Partners
XV,
Ltd.
Cayman
Islands
/
Structured
Finance
Income
Notes
(Residual
Interest,
current
yield
16.54%)(6)(15)
Octagon
Investment
Partners
XVIII,
Ltd.
Cayman
Islands
/
Structured
Finance
Income
Notes
(Residual
Interest,
current
yield
20.29%)(6)(7)(15)
32,921
28,200
3,000
3,000
0.1%
26,504
26,504
14,197
14,197
26,213
26,213
20,046
20,046
25,838
0.7%
25,838
0.7%
11,776
0.3%
11,776
0.3%
24,027
0.7%
24,027
0.7%
19,701
0.6%
19,701
0.6%
Onyx
Payments(39)
Texas
/
Diversified
Financial
Services
Pacific
World
Corporation
California
/
Personal
&
Nondurable
Consumer
Products
Revolving
Line
of
Credit
–
$5,000
Commitment
(9.00%
(LIBOR
+
8.00%
with
1.00%
LIBOR
floor),
due
9/10/2016)(11)(13)(16)
Senior
Secured
Term
Loan
A
(6.50%
(LIBOR
+
5.50%
with
1.00%
LIBOR
floor),
due
9/10/2019)(3)
(11)(13)
Senior
Secured
Term
Loan
B
(13.50%
(LIBOR
+
12.50%
with
1.00%
LIBOR
floor),
due
9/10/2019)(3)
(11)(13)
Revolving
Line
of
Credit
–
$15,000
Commitment
(8.00%
(LIBOR
+
7.00%
with
1.00%
LIBOR
floor),
due
9/26/2020)(11)(14)(16)
Senior
Secured
Term
Loan
A
(6.00%
(LIBOR
+
5.00%
with
1.00%
LIBOR
floor),
due
9/26/2020)(11)
(14)
Senior
Secured
Term
Loan
B
(10.00%
(LIBOR
+
9.00%
with
1.00%
LIBOR
floor),
due
9/26/2020)(3)(11)(14)
Pelican
Products,
Inc. California
/
Durable
Consumer
Products
Second
Lien
Term
Loan
(9.25%
(LIBOR
+
8.25%
with
1.00%
LIBOR
floor),
due
4/9/2021)(3)(9)(11)
(14)
PeopleConnect
Intermediate,
LLC
(f/k/a
Intelius,
Inc.)
Washington
/
Software
&
Computer
Services
Revolving
Line
of
Credit
–
$1,500
Commitment
(9.50%
(LIBOR
+
8.50%
with
1.00%
LIBOR
floor),
due
8/11/16)(11)(13)(16)
Senior
Secured
Term
Loan
A
(6.50%
(LIBOR
+
5.50%
with
1.00%
LIBOR
floor),
due
7/1/2020)(3)
(11)(13)
Senior
Secured
Term
Loan
B
(12.50%
(LIBOR
+
11.50%
with
1.00%
LIBOR
floor),
due
7/1/2020)(3)
(11)(13)
1,000
1,000
1,000 —%
48,352
48,352
48,352
1.4%
59,389
59,389
59,389
1.8%
108,741
108,741
3.2%
2,500
2,500
2,500
0.1%
97,994
97,994
93,624
2.7%
97,994
97,994
81,567
2.4%
198,488
177,691
5.2%
17,500
17,486
17,486
15,744
0.5%
15,744
0.5%
—
—
— —%
20,379
20,379
19,907
0.6%
20,938
20,938
41,317
20,215
0.6%
40,122
1.2%
PGX
Holdings,
Inc.
(40)
Utah
/
Consumer
Services
Second
Lien
Term
Loan
(10.00%
(LIBOR
+
9.00%
with
1.00%
LIBOR
floor),
due
9/29/2021)(3)(11)(14)
135,000
135,000
135,000
135,000
3.9%
135,000
3.9%
See
notes
to
consolidated
financial
statements.
114
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)
(in thousands, except share data)
Portfolio Company
Locale / Industry
Investments(1)
LEVEL 3 PORTFOLIO INVESTMENTS
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
June 30, 2016
Principal
Value
Cost
Fair
Value(2)
% of Net
Assets
Photonis
Technologies
SAS
France
/
Aerospace
&
Defense
First
Lien
Term
Loan
(8.50%
(LIBOR
+
7.50%
with
1.00%
LIBOR
floor),
due
9/18/2019)(9)(11)(14)(15) $
Pinnacle
(US)
Acquisition
Co.
Limited
PlayPower,
Inc.
Texas
/
Software
&
Computer
Services
Second
Lien
Term
Loan
(10.50%
(LIBOR
+
9.25%
with
1.25%
LIBOR
floor),
due
8/3/2020)(9)(11)(13)
North
Carolina
/
Durable
Consumer
Products
Second
Lien
Term
Loan
(9.75%
(LIBOR
+
8.75%
with
1.00%
LIBOR
floor),
due
6/23/2022)(3)(9)(11)
(13)
Prime
Security
Services
Borrower,
LLC
Illinois
/
Consumer
Services
Second
Lien
Term
Loan
(9.75%
(LIBOR
+
8.75%
with
1.00%
LIBOR
floor),
due
7/1/2022)(9)(11)(14)
PrimeSport,
Inc.
Georgia
/
Hotels,
Restaurants
&
Leisure
Senior
Secured
Term
Loan
A
(7.00%
(LIBOR
+
6.00%
with
1.00%
LIBOR
floor),
due
2/11/2021)(3)(11)(13)
Senior
Secured
Term
Loan
B
(12.00%
(LIBOR
+
11.00%
with
1.00%
LIBOR
floor),
due
2/11/2021)(3)(11)(13)
Prince
Mineral
Holding
Corp.
New
York
/
Metal
Services
&
Minerals
Senior
Secured
Term
Loan
(11.50%,
due
12/15/2019)(9)
Rocket
Software,
Inc. Massachusetts
/
Software
&
Computer
Services
Second
Lien
Term
Loan
(10.25%
(LIBOR
+
8.75%
with
1.50%
LIBOR
floor),
due
2/8/2019)(3)(9)(11)
(13)
Royal
Holdings,
Inc.
Indiana
/
Chemicals
Second
Lien
Term
Loan
(8.50%
(LIBOR
+
7.50%
with
1.00%
LIBOR
floor),
due
6/19/2023)(9)(11)
(14)
SCS
Merger
Sub,
Inc. Texas
/
Software
&
Computer
Services
Second
Lien
Term
Loan
(10.50%
(LIBOR
+
9.50%
with
1.00%
LIBOR
floor),
due
10/30/2023)(3)(9)
(11)(14)
Security
Alarm
Financing
Enterprises,
L.P.(41)
California
/
Consumer
Services
Subordinated
Unsecured
Notes
(11.50%
(LIBOR
+
9.50%
with
2.00%
LIBOR
floor),
due
12/19/2020)
(11)(14)
9,927 $
9,756 $
9,015
0.3%
9,756
9,015
0.3%
7,037
6,918
6,918
5,425
0.2%
5,425
0.2%
11,000
10,856
10,856
10,911
0.3%
10,911
0.3%
10,000
9,870
9,870
10,000
0.3%
10,000
0.3%
53,683
53,683
53,683
1.6%
74,500
74,500
74,500
2.1%
128,183
128,183
3.7%
10,000
9,934
9,934
8,701
0.3%
8,701
0.3%
20,000
19,854
19,854
20,000
0.6%
20,000
0.6%
5,000
4,967
4,967
4,819
0.1%
4,819
0.1%
20,000
19,456
19,456
19,655
0.6%
19,655
0.6%
25,000
25,000
25,000
22,700
0.7%
22,700
0.7%
SESAC
Holdco
II
LLC Tennessee
/
Media
Second
Lien
Term
Loan
(9.00%
(LIBOR
+
8.00%
with
1.00%
LIBOR
floor),
due
4/22/2021)(3)(9)(11)
(13)
SITEL
Worldwide
Corporation
Tennessee
/
Business
Services
Second
Lien
Term
Loan
(10.50%
(LIBOR
+
9.50%
with
1.00%
LIBOR
floor),
due
9/18/2022)(9)(11)
(13)
10,000
16,000
Small
Business
Whole
Loan
Portfolio(43)
New
York
/
Online
Lending
741
Small
Business
Loans
purchased
from
On
Deck
Capital,
Inc.
14,603
9,878
9,878
9,878
0.3%
9,878
0.3%
15,715
15,715
14,603
14,603
15,715
0.5%
15,715
0.5%
14,215
0.4%
14,215
0.4%
See
notes
to
consolidated
financial
statements.
115
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)
(in thousands, except share data)
Portfolio Company Locale / Industry
Investments(1)
LEVEL 3 PORTFOLIO INVESTMENTS
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
Spartan
Energy
Services,
Inc.
Louisiana
/
Oil
&
Gas
Services
Senior
Secured
Term
Loan
A
(7.00%
(LIBOR
+
6.00%
with
1.00%
LIBOR
floor),
in
non-accrual
status
effective
4/1/2016,
due
12/28/2017)(11)(14)
Senior
Secured
Term
Loan
B
(13.00%
(LIBOR
+
12.00%
with
1.00%
LIBOR
floor),
in
non-accrual
status
effective
4/1/2016,
due
12/28/2017)(11)(14)
Stryker
Energy,
LLC
Ohio
/
Oil
&
Gas
Production
Overriding
Royalty
Interests(10)
Sudbury
Mill
CLO
Ltd.
Cayman
Islands
/
Structured
Finance
Subordinated
Notes
(Residual
Interest,
current
yield
12.64%)(6)(15)
Symphony
CLO
IX
Ltd.
Cayman
Islands
/
Structured
Finance
Preference
Shares
(Residual
Interest,
current
yield
14.11%)
(6)(15)
45,500
Symphony
CLO
XIV
Ltd.
Cayman
Islands
/
Structured
Finance
Subordinated
Notes
(Residual
Interest,
current
yield
13.12%)(6)(7)(15)
Symphony
CLO
XV,
Ltd.
Cayman
Islands
/
Structured
Finance
Subordinated
Notes
(Residual
Interest,
current
yield
13.76%)(6)(15)
49,250
50,250
System
One
Holdings,
LLC
Pennsylvania
/
Business
Services
Senior
Secured
Term
Loan
(11.25%
(LIBOR
+
10.50%
with
0.75%
LIBOR
floor),
due
11/17/2020)(3)(11)(14)
104,553
June 30, 2016
Principal
Value
Cost
Fair
Value(2)
% of Net
Assets
$
13,156 $
12,923 $
11,368
0.3%
14,123
—
28,200
13,669
26,592
984
0.1%
12,352
0.4%
—
—
20,865
20,865
32,629
32,629
39,602
39,602
44,141
44,141
— —%
— —%
17,395
0.5%
17,395
0.5%
29,267
0.9%
29,267
0.9%
35,703
1.0%
35,703
1.0%
39,523
1.2%
39,523
1.2%
104,553
104,553
104,553
3.0%
104,553
3.0%
TouchTunes
Interactive
Networks,
Inc.
New
York
/
Media
Second
Lien
Term
Loan
(9.25%
(LIBOR
+
8.25%
with
1.00%
LIBOR
floor),
due
5/29/2022)(9)(11)(14)
Traeger
Pellet
Grills
LLC
Oregon
/
Durable
Consumer
Products
Senior
Secured
Term
Loan
A
(6.50%
(LIBOR
+
4.50%
with
2.00%
LIBOR
floor),
due
6/18/2018)(3)(11)(13)
Senior
Secured
Term
Loan
B
(11.50%
(LIBOR
+
9.50%
with
2.00%
LIBOR
floor),
due
6/18/2018)(3)(11)(13)
Transaction
Network
Services,
Inc.
Virginia
/
Telecommunication
Services
Second
Lien
Term
Loan
(9.00%
(LIBOR
+
8.00%
with
1.00%
LIBOR
floor),
due
8/14/2020)(9)(11)(13)
Trinity
Services
Group,
Inc.(44)
Florida
/
Food
Products
Senior
Secured
Term
Loan
A
(6.50%
(LIBOR
+
5.50%
with
1.00%
LIBOR
floor),
due
8/13/2019)(11)(13)
5,000
4,936
4,936
4,936
0.1%
4,936
0.1%
34,519
34,519
34,519
1.0%
36,506
36,506
71,025
36,506
1.1%
71,025
2.1%
4,410
4,392
4,392
4,392
0.1%
4,392
0.1%
9,626
9,626
9,626
0.3%
Senior
Secured
Term
Loan
B
(11.50%
(LIBOR
+
10.50%
with
1.00%
LIBOR
floor),
due
8/13/2019)(3)(11)(13)
125,000
125,000
134,626
125,000
3.6%
134,626
3.9%
United
Sporting
Companies,
Inc.(45)
South
Carolina
/
Durable
Consumer
Products
Second
Lien
Term
Loan
(12.75%
(LIBOR
+
11.00%
with
1.75%
LIBOR
floor),
due
5/16/2018)(3)(11)(14)
140,847
140,847
140,847
136,668
4.0%
136,668
4.0%
Universal
Fiber
Systems,
LLC
Virginia
/
Textiles,
Apparel
&
Luxury
Goods
Second
Lien
Term
Loan
(10.50%
(LIBOR
+
9.50%
with
1.00%
LIBOR
floor),
due
10/02/2022)(3)(9)(11)(14)
37,000
36,340
36,340
1.1%
36,340
36,340
1.1%
See
notes
to
consolidated
financial
statements.
116
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)
(in thousands, except share data)
Portfolio Company Locale / Industry
Investments(1)
LEVEL 3 PORTFOLIO INVESTMENTS
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
USG
Intermediate,
LLC
Texas
/
Durable
Consumer
Products
Revolving
Line
of
Credit
–
$2,500
Commitment
(10.75%
(LIBOR
+
9.75%
with
1.00%
LIBOR
floor),
due
4/15/2017)(11)
(14)(16)
Senior
Secured
Term
Loan
A
(8.25%
(LIBOR
+
7.25%
with
1.00%
LIBOR
floor),
due
4/15/2020)(3)(11)(14)
Senior
Secured
Term
Loan
B
(13.25%
(LIBOR
+
12.25%
with
1.00%
LIBOR
floor),
due
4/15/2020)(3)(11)(14)
Equity
June 30, 2016
Principal
Value
Cost
Fair
Value(2)
% of Net
Assets
$
1,000 $
1,000 $
1,000 —%
16,779
16,779
16,779
0.5%
19,960
Venio
LLC
Pennsylvania
/
Business
Services
Second
Lien
Term
Loan
(12.00%
(LIBOR
+
9.50%
with
2.50%
LIBOR
floor)
plus
2.00%
default
interest,
in
non-
accrual
status
effective
12/31/15,
due
2/19/2020)(11)(13)
17,000
Voya
CLO
2012-2,
Ltd.
Cayman
Islands
/
Structured
Finance
Income
Notes
(Residual
Interest,
current
yield
18.84%)(6)
(15)
38,070
Voya
CLO
2012-3,
Ltd.
Cayman
Islands
/
Structured
Finance
Income
Notes
(Residual
Interest,
current
yield
18.51%)(6)
(15)
46,632
Voya
CLO
2012-4,
Ltd.
Cayman
Islands
/
Structured
Finance
Income
Notes
(Residual
Interest,
current
yield
19.09%)(6)
(15)
40,613
Voya
CLO
2014-1,
Ltd.
Cayman
Islands
/
Structured
Finance
Subordinated
Notes
(Residual
Interest,
current
yield
19.32%)(6)(7)(15)
Washington
Mill
CLO
Ltd.
Cayman
Islands
/
Structured
Finance
Subordinated
Notes
(Residual
Interest,
current
yield
9.52%)(6)(7)(15)
32,383
22,600
19,960
1
37,740
17,000
17,000
28,112
28,112
34,597
34,597
30,772
30,772
26,133
26,133
18,406
18,406
19,960
0.6%
— —%
37,739
1.1%
12,876
0.4%
12,876
0.4%
28,982
0.8%
28,982
0.8%
34,319
1.0%
34,319
1.0%
30,756
0.9%
30,756
0.9%
26,741
0.8%
26,741
0.8%
15,056
0.4%
15,056
0.4%
Water
Pik,
Inc.
Colorado
/
Personal
&
Nondurable
Consumer
Products
Wheel
Pros,
LLC
Colorado
/
Business
Services
Second
Lien
Term
Loan
(9.75%
(LIBOR
+
8.75%
with
1.00%
LIBOR
floor),
due
1/8/2021)(9)(11)(13)
15,439
15,097
15,097
15,097
0.4%
15,097
0.4%
Senior
Subordinated
Secured
Note
(11.00%
(LIBOR
+
7.00%
with
4.00%
LIBOR
floor),
due
6/29/2020)(3)(11)(13)
Senior
Subordinated
Secured
Note
(11.00%
(LIBOR
+
7.00%
with
4.00%
LIBOR
floor),
due
6/29/2020)(3)(11)
(13)
12,000
12,000
12,000
0.4%
5,460
5,460
17,460
5,460
0.2%
17,460
0.6%
Total Non-Control/Non-Affiliate Investments (Level 3)
$ 4,312,122 $ 4,133,939 120.3%
Total Portfolio Investments
$ 6,091,100 $ 5,897,708 171.6%
See
notes
to
consolidated
financial
statements.
117
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)
(in thousands, except share data)
Portfolio Company
Locale /
Industry
Investments(1)
June 30, 2015
Principal
Value
Cost
Fair
Value(2)
% of Net
Assets
LEVEL 3 PORTFOLIO INVESTMENTS
Control Investments (greater than 25.00% voting control)(50)
American
Property
REIT
Corp.(17)
Various
/
Real
Estate
Senior
Secured
Term
Loan
(6.00%
(LIBOR
+
4.00%
with
2.00%
LIBOR
floor)
plus
5.50%
PIK,
due
4/1/2019)(11)(13)
(47)
Common
Stock
(301,845
shares)
Net
Operating
Income
Interest
(5%
of
Net
Operating
Income)
Arctic
Energy
Services,
LLC(18)
Wyoming
/
Oil
&
Gas
Services
Senior
Secured
Term
Loan
(12.00%
(LIBOR
+
9.00%
with
3.00%
LIBOR
floor),
due
5/5/2019)(3)(11)(14)
Senior
Subordinated
Term
Loan
(14.00%
(LIBOR
+
11.00%
with
3.00%
LIBOR
floor),
due
5/5/2019)(3)(11)(14)
Class
A
Units
(700
units)
Class
C
Units
(10
units)
CCPI
Inc.(19)
Ohio
/
Manufacturing
Senior
Secured
Term
Loan
A
(10.00%,
due
12/31/2017)(3)
Senior
Secured
Term
Loan
B
(12.00%
plus
7.00%
PIK,
due
12/31/2017)(47)
Common
Stock
(14,857
shares)
CP
Energy
Services
Inc.(20)
Oklahoma
/
Oil
&
Gas
Services
Senior
Secured
Term
Loan
A
to
CP
Well
Testing,
LLC
(7.00%
(LIBOR
+
5.00%
with
2.00%
LIBOR
floor),
due
4/1/2019)(11)
(13)
Senior
Secured
Term
Loan
B
to
CP
Well
Testing,
LLC
(10.00%
(LIBOR
+
8.00%
with
2.00%
LIBOR
floor)
plus
7.50%
PIK,
due
4/1/2019)(3)(11)(13)(47)
Second
Lien
Term
Loan
to
CP
Well
Testing,
LLC
(9.00%
(LIBOR
+
7.00%
with
2.00%
LIBOR
floor)
plus
9.00%
PIK,
due
4/1/2019)(11)(13)(47)
Common
Stock
(2,924
shares)
Credit
Central
Loan
Company,
LLC(21)
South
Carolina
/
Consumer
Finance
Subordinated
Term
Loan
(10.00%
plus
10.00%
PIK,
due
6/26/2019)(15)(47)
Class
A
Shares
(7,500,000
shares)(15)
Net
Revenues
Interest
(25%
of
Net
Revenues)(15)
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)(11)(14)
(47)
Membership
Interest
(99%)
Edmentum
Ultimate
Holdings,
LLC(22)
Minnesota
/
Consumer
Services
Second
Lien
Revolving
Credit
Facility
to
Edmentum,
Inc.
–
$7,834
Commitment
(5.00%,
due
6/9/2020)(16)
Unsecured
Senior
PIK
Note
(8.50%
PIK,
due
6/9/2020)(47)
Unsecured
Junior
PIK
Note
(10.00%
PIK,
due
6/9/2020)(47)
Class
A
Common
Units
(370,964.14
units)
$
78,077 $
—
—
78,077 $
22,115
—
78,077
32,098
8,081
2.1%
0.9%
0.2%
100,192
118,256
3.2%
31,640
31,640
31,640
0.9%
20,230
—
—
16,763
8,844
—
20,230
8,879
127
60,876
16,763
8,844
8,553
20,230
8,374
0.5%
0.2%
120 —%
60,364
1.6%
16,763
0.5%
8,844
15,745
0.2%
0.4%
34,160
41,352
1.1%
11,035
11,035
11,035
0.3%
74,493
74,493
74,493
2.0%
15,563
—
15,563
15,227
5,481
0.2%
— —%
116,318
91,009
2.5%
36,333
—
—
40,808
—
4,896
5,875
19,868
—
36,333
11,633
—
47,966
40,808
19,907
60,715
4,896
5,875
19,868
6,577
37,216
36,333
14,529
4,310
1.0%
0.4%
0.1%
55,172
1.5%
40,808
28,133
1.1%
0.8%
68,941
1.9%
4,896
5,875
19,868
6,577
0.1%
0.2%
0.5%
0.2%
37,216
1.0%
See
notes
to
consolidated
financial
statements.
118
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)
(in thousands, except share data)
Portfolio Company
Locale /
Industry
Investments(1)
June 30, 2015
Principal
Value
Cost
Fair
Value(2)
% of Net
Assets
LEVEL 3 PORTFOLIO INVESTMENTS
Control Investments (greater than 25.00% voting control)(50)
First
Tower
Finance
Company
LLC(23)
Mississippi
/
Consumer
Finance
Subordinated
Term
Loan
to
First
Tower,
LLC
(10.00%
plus
12.00%
PIK,
due
6/24/2019)(15)(47)
Class
A
Shares
(83,729,323
shares)(15)
Freedom
Marine
Solutions,
LLC(24)
Louisiana
/
Oil
&
Gas
Services
Senior
Secured
Note
to
Vessel
Company,
LLC
(18.00%,
due
12/12/2016)
Senior
Secured
Note
to
Vessel
Company
II,
LLC
(13.00%,
due
11/25/2018)
Senior
Secured
Note
to
Vessel
Company
III,
LLC
(13.00%,
due
12/3/2018)
Membership
Interest
(100%)
$ 251,578 $
251,578 $
251,578
66,473
114,372
6.8%
3.1%
318,051
365,950
9.9%
3,500
3,500
3,500
0.1%
13,000
12,504
8,680
0.2%
16,000
16,000
7,808
39,812
26,000
25,950
51,950
13,790
0.4%
1,120 —%
27,090
0.7%
6,918
0.2%
— —%
6,918
0.2%
Gulf
Coast
Machine
&
Supply
Company
Texas
/
Manufacturing
Senior
Secured
Term
Loan
(10.50%
(LIBOR
+
8.50%
with
2.00%
LIBOR
floor),
in
non-accrual
status
effective
1/1/2015,
due
10/12/2017)(11)(13)
26,844
Series
A
Convertible
Preferred
Stock
(99,900
shares)
Harbortouch
Payments,
LLC(25)
Pennsylvania
/
Business
Services
Senior
Secured
Term
Loan
A
(9.00%
(LIBOR
+
7.00%
with
2.00%
LIBOR
floor),
due
9/30/2017)(3)(11)(13)
Senior
Secured
Term
Loan
B
(5.50%
(LIBOR
+
4.00%
with
1.50%
LIBOR
floor)
plus
5.50%
PIK,
due
3/31/2018)(11)(13)(47)
128,980
128,980
128,980
3.5%
144,878
144,878
144,878
3.9%
Senior
Secured
Term
Loan
C
(13.00%
(LIBOR
+
9.00%
with
4.00%
LIBOR
floor),
due
9/29/2018)(11)(13)
22,876
Class
C
Shares
(535
shares)
22,876
8,725
22,876
80,202
0.6%
2.2%
305,459
376,936
10.2%
MITY,
Inc.(26)
Utah
/
Durable
Consumer
Products
National
Property
REIT
Corp.(27)
Various
/
Real
Estate
Senior
Secured
Note
A
(10.00%
(LIBOR
+
7.00%
with
3.00%
LIBOR
floor),
due
3/19/2019)(3)(11)(13)
Senior
Secured
Note
B
(10.00%
(LIBOR
+
7.00%
with
3.00%
LIBOR
floor)
plus
10.00%
PIK,
due
3/19/2019)(11)(13)(47)
Subordinated
Unsecured
Note
to
Broda
Enterprises
ULC
(10.00%,
due
on
demand)(15)
Common
Stock
(42,053
shares)
Senior
Secured
Term
Loan
A
(6.00%
(LIBOR
+
4.00%
with
2.00%
LIBOR
floor)
plus
5.50%
PIK,
due
4/1/2019)(11)(13)
(47)
Senior
Secured
Term
Loan
C
(6.00%
(LIBOR
+
4.00%
with
2.00%
LIBOR
floor)
plus
7.50%
PIK,
due
4/1/2019)(11)(13)
(47)
Senior
Secured
Term
Loan
D
(14.00%
(LIBOR
+
12.00%
with
2.00%
LIBOR
floor)
plus
4.50%
PIK,
due
4/1/2019)(11)(13)
(47)
Senior
Secured
Term
Loan
A
to
ACL
Loan
Holdings,
Inc.
(6.00%
(LIBOR
+
4.00%
with
2.00%
LIBOR
floor)
plus
7.50%
PIK,
due
4/1/2019)(11)(13)(47)
Senior
Secured
Term
Loan
B
to
ACL
Loan
Holdings,
Inc.
(14.00%
(LIBOR
+
12.00%
with
2.00%
LIBOR
floor)
plus
4.50%
PIK,
due
4/1/2019)(11)(13)(47)
Common
Stock
(643,175
shares)
Net
Operating
Income
Interest
(5%
of
Net
Operating
Income)
18,250
18,250
18,250
0.5%
16,301
16,301
16,301
0.4%
7,200
7,200
6,849
5,827
10,417
0.2%
0.3%
48,600
50,795
1.4%
202,629
202,629
202,629
5.5%
44,147
44,147
44,147
1.2%
67,443
67,443
67,443
1.8%
20,413
20,413
20,413
0.6%
30,582
30,582
84,446
—
30,582
87,002
19,673
0.8%
2.3%
0.5%
449,660
471,889
12.7%
See
notes
to
consolidated
financial
statements.
119
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)
(in thousands, except share data)
Portfolio Company
Locale /
Industry
Investments(1)
Principal
Value
Cost
Fair
Value(2)
% of Net
Assets
June 30, 2015
LEVEL 3 PORTFOLIO INVESTMENTS
Control Investments (greater than 25.00% voting control)(50)
Nationwide
Loan
Company
LLC(28)
Illinois
/
Consumer
Finance
Senior
Subordinated
Term
Loan
to
Nationwide
Acceptance
LLC
(10.00%
plus
10.00%
PIK,
due
6/18/2019)(15)(47)
$
14,820 $
14,820 $
Class
A
Shares
(26,974,454.27
shares)(15)
NMMB,
Inc.(29)
New
York
/
Media
Senior
Secured
Note
(14.00%,
due
5/6/2016)
Senior
Secured
Note
to
Armed
Forces
Communications,
Inc.
(14.00%,
due
5/6/2016)
3,714
7,000
Series
A
Preferred
Stock
(7,200
shares)
Series
B
Preferred
Stock
(5,669
shares)
R-V
Industries,
Inc. Pennsylvania
/
Manufacturing
Senior
Subordinated
Note
(10.00%
(LIBOR
+
9.00%
with
1.00%
LIBOR
floor),
due
6/12/2018)(3)(11)(13)
29,237
Common
Stock
(545,107
shares)
Warrant
(to
purchase
200,000
shares
of
Common
Stock,
expires
6/30/2017)
United
Property
REIT
Corp.(30)
Various
/
Real
Estate
Senior
Term
Loan
(6.00%
(LIBOR
+
4.00%
with
2.00%
LIBOR
floor)
plus
5.50%
PIK,
due
4/1/2019)(11)(13)(47)
62,768
Common
Stock
(74,449
shares)
Net
Operating
Income
Interest
(5%
of
Net
Operating
Income)
14,795
29,615
3,714
7,000
7,200
5,669
14,820
19,730
0.4%
0.5%
34,550
0.9%
3,714
0.1%
7,000
0.2%
1,338 —%
— —%
23,583
12,052
0.3%
29,237
5,087
1,682
36,006
62,768
12,860
29,237
8,246
0.8%
0.2%
3,025
0.1%
40,508
1.1%
62,768
11,216
1.7%
0.3%
—
10,701
0.3%
75,628
84,685
2.3%
Valley
Electric
Company,
Inc.(32)
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
12/31/2017)(3)(11)(13)(47)
Senior
Secured
Note
(10.00%
plus
8.50%
PIK,
due
12/31/2018)(47)
Common
Stock
(50,000
shares)
10,340
10,340
10,340
0.3%
22,293
22,293
26,204
58,837
20,157
0.5%
— —%
30,497
0.8%
Wolf
Energy,
LLC Kansas
/
Oil
&
Gas
Production
Senior
Secured
Promissory
Note
secured
by
assets
formerly
owned
by
H&M
(18.00%,
in
non-accrual
status
effective
4/15/2013,
due
4/15/2018)
32,112
Membership
Interest
(100%)
Net
Profits
Interest
(8%
of
Equity
Distributions)(4)
—
—
—
—
— —%
— —%
22 —%
22 —%
Total Control Investments
$ 1,894,644 $ 1,974,202
53.3%
Affiliate Investments (5.00% to 24.99% voting control)(51)
BNN
Holdings
Corp.
Michigan
/
Healthcare
Senior
Term
Loan
A
(6.50%
(LIBOR
+
5.50%
with
1.00%
LIBOR
floor),
due
8/29/2019)(3)(11)(12)
Senior
Term
Loan
B
(11.50%
(LIBOR
+
10.50%
with
1.00%
LIBOR
floor),
due
8/29/2019)(3)(11)(12)
Series
A
Preferred
Stock
(9,925.455
shares)(8)
Series
B
Preferred
Stock
(1,753.636
shares)(8)
$
21,182 $
21,182 $
21,182
0.6%
21,740
21,740
1,780
448
21,740
0.6%
2,569 —%
454 —%
45,150
45,945
1.2%
Total Affiliate Investments
$
45,150 $
45,945
1.2%
See
notes
to
consolidated
financial
statements.
120
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)
(in thousands, except share data)
Portfolio Company Locale / Industry
Investments(1)
LEVEL 3 PORTFOLIO INVESTMENTS
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
June 30, 2015
Principal
Value
Cost
Fair
Value(2)
% of Net
Assets
Aderant
North
America,
Inc.
Georgia
/
Software
&
Computer
Services
Second
Lien
Term
Loan
(10.00%
(LIBOR
+
8.75%
with
1.25%
LIBOR
floor),
due
6/20/2019)(9)(11)(13)
$
7,000 $
6,928 $
7,000
0.2%
6,928
7,000
0.2%
California
/
Machinery
AFI
Shareholder,
LLC
(f/k/a
Aircraft
Fasteners
International,
LLC)
Class
A
Units
(32,500
units)
376
563 —%
Airmall
Inc.
Pennsylvania
/
Property
Management
Escrow
Receivable
Ajax
Rolled
Ring
&
Machine,
LLC(42)
South
Carolina
/
Manufacturing
Escrow
Receivable
ALG
USA
Holdings,
LLC
Pennsylvania
/
Hotels,
Restaurants
&
Leisure
Second
Lien
Term
Loan
(10.25%
(LIBOR
+
9.00%
with
1.25%
LIBOR
floor),
due
2/28/2020)(9)(11)(14)
American
Gilsonite
Company
Utah
/
Metal
Services
&
Minerals
Second
Lien
Term
Loan
(11.50%,
due
9/1/2017)(9)
Membership
Interest
(99.9999%)(34)
Apidos
CLO
IX
Cayman
Islands
/
Structured
Finance
Subordinated
Notes
(Residual
Interest,
current
yield
22.56%)(6)(15)
Apidos
CLO
XI
Cayman
Islands
/
Structured
Finance
Subordinated
Notes
(Residual
Interest,
current
yield
15.64%)(6)(15)
Apidos
CLO
XII
Cayman
Islands
/
Structured
Finance
Subordinated
Notes
(Residual
Interest,
current
yield
17.68%)(6)(15)
Apidos
CLO
XV
Cayman
Islands
/
Structured
Finance
Subordinated
Notes
(Residual
Interest,
current
yield
15.07%)(6)(15)
11,771
15,755
23,525
38,340
44,063
36,515
Arctic
Glacier
U.S.A.,
Inc.
Minnesota
/
Food
Products
Second
Lien
Term
Loan
(10.50%
(LIBOR
+
9.25%
with
1.25%
LIBOR
floor),
due
11/10/2019)(3)(11)(13)
150,000
376
563 —%
5,880
3,814
0.1%
5,880
1,264
1,264
11,593
11,593
15,755
—
15,755
20,644
20,644
31,485
31,485
37,751
37,751
33,958
33,958
3,814
0.1%
2,170
0.1%
2,170
0.1%
11,771
0.3%
11,771
0.3%
14,287
0.4%
— —%
14,287
0.4%
22,325
0.6%
22,325
0.6%
32,108
0.9%
32,108
0.9%
38,817
1.0%
38,817
1.0%
30,911
0.8%
30,911
0.8%
150,000
150,000
149,180
4.0%
149,180
4.0%
Ark-La-Tex
Wireline
Services,
LLC
Louisiana
/
Oil
&
Gas
Services
Senior
Secured
Term
Loan
A
(6.50%
(LIBOR
+
5.50%
with
1.00%
LIBOR
floor),
due
4/8/2019)(11)(14)
Senior
Secured
Term
Loan
B
(10.50%
(LIBOR
+
9.50%
with
1.00%
LIBOR
floor),
due
4/8/2019)(11)(14)
Armor
Holding
II
LLC
New
York
/
Diversified
Financial
Services
Second
Lien
Term
Loan
(10.25%
(LIBOR
+
9.00%
with
1.25%
LIBOR
floor),
due
12/26/2020)(3)(9)(11)(13)
Atlantis
Health
Care
Group
(Puerto
Rico),
Inc.
Puerto
Rico
/
Healthcare
Revolving
Line
of
Credit
–
$4,000
Commitment
(13.00%
(LIBOR
+
11.00%
with
2.00%
LIBOR
floor),
due
8/21/2016)(11)(13)(16)
Senior
Term
Loan
(10.00%
(LIBOR
+
8.00%
with
2.00%
LIBOR
floor),
due
2/21/2018)(3)(11)(13)
21,743
21,743
20,042
0.5%
23,697
23,697
45,440
21,675
0.6%
41,717
1.1%
7,000
6,888
6,888
6,480
0.2%
6,480
0.2%
2,350
2,350
2,350
0.1%
38,561
38,561
40,911
35,189
0.9%
37,539
1.0%
See
notes
to
consolidated
financial
statements.
121
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)
(in thousands, except share data)
Portfolio Company
Locale / Industry
Investments(1)
LEVEL 3 PORTFOLIO INVESTMENTS
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
June 30, 2015
Principal
Value
Cost
Fair
Value(2)
% of Net
Assets
BAART
Programs,
Inc.
California
/
Healthcare Revolving
Line
of
Credit
–
$5,000
Commitment
(8.75%
(LIBOR
+
8.25%
with
0.50%
LIBOR
floor),
due
6/30/2018)(13)(16)
Senior
Secured
Term
Loan
A
(6.25%
(LIBOR
+
5.75%
with
0.50%
LIBOR
floor),
due
6/30/2020)(11)(13)
Senior
Secured
Term
Loan
B
(11.25%
(LIBOR
+
10.75%
with
0.50%
LIBOR
floor),
due
6/30/2020)(11)
(13)
Delayed
Draw
Term
Loan
–
$10,500
Commitment
(expires
12/31/2015)(16)
$
1,000 $
1,000 $
1,000 —%
21,500
21,500
21,500
0.6%
21,500
21,500
21,500
0.6%
—
—
— —%
44,000
44,000
1.2%
Babson
CLO
Ltd.
2014-III
Cayman
Islands
/
Structured
Finance
Subordinated
Notes
(Residual
Interest,
current
yield
14.25%)(6)(7)(15)
52,250
47,799
47,799
47,148
1.3%
47,148
1.3%
Broder
Bros.,
Co.
Pennsylvania
/
Textiles,
Apparel
&
Luxury
Goods
Senior
Secured
Notes
(10.25%
(LIBOR
+
9.00%
with
1.25%
LIBOR
floor),
due
4/8/2019)(3)(11)(14)(35)
252,200
252,200
252,200
252,200
6.8%
252,200
6.8%
Brookside
Mill
CLO
Ltd.
Cayman
Islands
/
Structured
Finance
Subordinated
Notes
(Residual
Interest,
current
yield
19.25%)(6)(15)
26,000
Caleel
+
Hayden,
LLC
Colorado
/
Personal
&
Nondurable
Consumer
Products
Membership
Interest(37)
Capstone
Logistics
Acquisition,
Inc.
Georgia
/
Business
Services
Second
Lien
Term
Loan
(9.25%
(LIBOR
+
8.25%
with
1.00%
LIBOR
floor),
due
10/7/2022)(3)(11)(14)
102,500
Cent
CLO
17
Limited
Cayman
Islands
/
Structured
Finance
Subordinated
Notes
(Residual
Interest,
current
yield
14.90%)(6)(15)
Cent
CLO
20
Limited
Cayman
Islands
/
Structured
Finance
Subordinated
Notes
(Residual
Interest,
current
yield
12.49%)(6)(15)
Cent
CLO
21
Limited
Cayman
Islands
/
Structured
Finance
Subordinated
Notes
(Residual
Interest,
current
yield
13.42%)(6)(7)(15)
24,870
40,275
48,528
21,432
21,432
24,566
0.7%
24,566
0.7%
—
—
227 —%
227 —%
101,891
101,891
101,891
2.8%
101,891
2.8%
20,309
20,309
35,724
35,724
43,038
43,038
20,922
0.6%
20,922
0.6%
33,505
0.9%
33,505
0.9%
41,910
1.1%
41,910
1.1%
CIFC
Funding
2011-I,
Ltd.
Cayman
Islands
/
Structured
Finance
Class
D
Senior
Secured
Notes
(5.28%
(LIBOR
+
5.00%,
due
1/19/2023)(5)(11)(13)(15)
Class
E
Subordinated
Notes
(7.28%
(LIBOR
+
7.00%,
due
1/19/2023)(5)(11)(13)(15)
CIFC
Funding
2013-III,
Ltd.
Cayman
Islands
/
Structured
Finance
Subordinated
Notes
(Residual
Interest,
current
yield
14.56%)(6)(15)
CIFC
Funding
2013-IV,
Ltd.
Cayman
Islands
/
Structured
Finance
Subordinated
Notes
(Residual
Interest,
current
yield
14.87%)(6)(15)
CIFC
Funding
2014-IV
Investor,
Ltd.
Cayman
Islands
/
Structured
Finance
Income
Notes
(Residual
Interest,
current
yield
13.83%)
(6)(7)(15)
19,000
15,604
18,175
0.5%
15,400
44,100
45,500
13,009
28,613
35,412
35,412
36,124
36,124
14,223
0.4%
32,398
0.9%
35,599
1.0%
35,599
1.0%
38,265
1.0%
38,265
1.0%
41,500
34,921
34,921
36,195
1.0%
36,195
1.0%
See
notes
to
consolidated
financial
statements.
122
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)
(in thousands, except share data)
Portfolio Company Locale / Industry
Investments(1)
LEVEL 3 PORTFOLIO INVESTMENTS
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
June 30, 2015
Principal
Value
Cost
Fair
Value(2)
% of Net
Assets
Cinedigm
DC
Holdings,
LLC
New
York
/
Software
&
Computer
Services
Senior
Secured
Term
Loan
(11.00%
(LIBOR
+
9.00%
with
2.00%
LIBOR
floor)
plus
2.50%
PIK,
due
3/31/2021)(11)(13)(47)
$
67,449 $
67,399 $
67,449
1.8%
67,399
67,449
1.8%
Coverall
North
America,
Inc.
Florida
/
Commercial
Services
Senior
Secured
Term
Loan
(11.50%
(LIBOR
+
8.50%
with
3.00%
LIBOR
floor),
due
12/17/2017)(3)(11)(14)
49,922
Crosman
Corporation
New
York
/
Manufacturing
Second
Lien
Term
Loan
(12.00%
(LIBOR
+
10.50%
with
1.50%
LIBOR
floor),
due
12/30/2019)(3)(11)(14)
40,000
Diamondback
Operating,
LP
Oklahoma
/
Oil
&
Gas
Production
Net
Profits
Interest
(15%
of
Equity
Distributions)(4)
49,922
49,922
40,000
40,000
—
—
49,922
1.3%
49,922
1.3%
35,973
1.0%
35,973
1.0%
— —%
— —%
Empire
Today,
LLC Illinois
/
Durable
Consumer
Products
Senior
Secured
Note
(11.375%,
due
2/1/2017)(9)
15,700
15,518
13,070
0.4%
Fleetwash,
Inc.
New
Jersey
/
Business
Services
Senior
Secured
Term
Loan
B
(10.50%
(LIBOR
+
9.50%
with
1.00%
LIBOR
floor),
due
4/30/2019)(3)(11)(13)
Delayed
Draw
Term
Loan
–
$15,000
Commitment
(expires
4/30/2019)(16)
15,518
13,070
0.4%
24,446
24,446
24,446
0.7%
—
—
— —%
24,446
24,446
0.7%
Focus
Brands,
Inc.
Georgia
/
Consumer
Services
Second
Lien
Term
Loan
(10.25%
(LIBOR
+
9.00%
with
1.25%
LIBOR
floor),
due
8/21/2018)(9)(11)(14)
18,000
Galaxy
XV
CLO,
Ltd.
Cayman
Islands
/
Structured
Finance
Subordinated
Notes
(Residual
Interest,
current
yield
15.65%)(6)(15)
Galaxy
XVI
CLO,
Ltd.
Cayman
Islands
/
Structured
Finance
Subordinated
Notes
(Residual
Interest,
current
yield
13.97%)(6)(15)
Galaxy
XVII
CLO,
Ltd.
Cayman
Islands
/
Structured
Finance
Subordinated
Notes
(Residual
Interest,
current
yield
13.43%)(6)(7)(15)
Global
Employment
Solutions,
Inc.
Colorado
/
Business
Services
Senior
Secured
Term
Loan
(10.25%
(LIBOR
+
9.25%
with
1.00%
LIBOR
floor),
due
6/26/2020)(3)(11)(14)
35,025
24,575
39,905
49,567
GTP
Operations,
LLC(36)
Texas
/
Software
&
Computer
Services
Senior
Secured
Term
Loan
(10.00%
(LIBOR
+
5.00%
with
5.00%
LIBOR
floor),
due
12/11/2018)(3)(11)(13)
116,411
17,821
17,821
27,762
27,762
20,434
20,434
33,493
33,493
49,567
49,567
18,000
0.5%
18,000
0.5%
29,739
0.8%
29,739
0.8%
20,849
0.6%
20,849
0.6%
33,742
0.9%
33,742
0.9%
49,567
1.3%
49,567
1.3%
116,411
116,411
116,411
3.1%
116,411
3.1%
Halcyon
Loan
Advisors
Funding
2012-1
Ltd.
Cayman
Islands
/
Structured
Finance
Subordinated
Notes
(Residual
Interest,
current
yield
30.89%)(6)(15)
Halcyon
Loan
Advisors
Funding
2013-1
Ltd.
Cayman
Islands
/
Structured
Finance
Subordinated
Notes
(Residual
Interest,
current
yield
21.41%)(6)(15)
Halcyon
Loan
Advisors
Funding
2014-1
Ltd.
Cayman
Islands
/
Structured
Finance
Subordinated
Notes
(Residual
Interest,
current
yield
17.17%)(6)(15)
23,188
19,941
19,941
23,172
0.6%
23,172
0.6%
40,400
34,936
34,936
39,208
1.1%
39,208
1.1%
24,500
21,020
21,020
22,096
0.6%
22,096
0.6%
See
notes
to
consolidated
financial
statements.
123
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)
(in thousands, except share data)
Portfolio Company
Locale /
Industry
Investments(1)
Principal
Value
Cost
Fair
Value(2)
% of Net
Assets
June 30, 2015
LEVEL 3 PORTFOLIO INVESTMENTS
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
Halcyon
Loan
Advisors
Funding
2014-2
Ltd.
Cayman
Islands
/
Structured
Finance
Subordinated
Notes
(Residual
Interest,
current
yield
18.73%)(6)(7)(15)
HarbourView
CLO
VII,
Ltd.
Cayman
Islands
/
Structured
Finance
Subordinated
Notes
(Residual
Interest,
current
yield
17.84%)(6)(7)(15)
Harley
Marine
Services,
Inc.
Washington
/
Transportation
Second
Lien
Term
Loan
(10.50%
(LIBOR
+
9.25%
with
1.25%
LIBOR
floor),
due
12/20/2019)(3)(9)(11)(13)
Hollander
Sleep
Products,
LLC
Florida
/
Durable
Consumer
Products
Senior
Secured
Term
Loan
(9.00%
(LIBOR
+
8.00%
with
1.00%
LIBOR
floor),
due
10/21/2020)(3)(11)(14)
$
41,164 $
34,723 $
37,555
1.0%
34,723
37,555
1.0%
19,025
9,000
15,252
15,252
8,855
8,855
15,197
0.4%
15,197
0.4%
8,748
0.2%
8,748
0.2%
22,444
22,444
22,444
22,444
0.6%
22,444
0.6%
ICON
Health
&
Fitness,
Inc.
Utah
/
Durable
Consumer
Products
Senior
Secured
Note
(11.875%,
due
10/15/2016)(9)
16,100
16,103
16,100
0.4%
ICV-CSI
Holdings,
LLC
New
York
/
Transportation
Membership
Units
(1.6
units)
Instant
Web,
LLC
Minnesota
/
Media
Senior
Secured
Term
Loan
A
(5.50%
(LIBOR
+
4.50%
with
1.00%
LIBOR
floor),
due
3/28/2019)(11)(13)
Senior
Secured
Term
Loan
B
(12.00%
(LIBOR
+
11.00%
with
1.00%
LIBOR
floor),
due
3/28/2019)(3)(11)(13)
Senior
Secured
Term
Loan
C
(12.75%
(LIBOR
+
11.75%
with
1.00%
LIBOR
floor),
due
3/28/2019)(11)(13)
Delayed
Draw
Term
Loan
–
$16,000
Commitment
(expires
5/29/2016)(16)
16,103
16,100
0.4%
1,639
1,639
2,400
0.1%
2,400
0.1%
146,363
146,363
146,363
4.0%
150,100
150,100
150,100
4.0%
27,000
27,000
27,000
0.7%
—
—
— —%
323,463
323,463
8.7%
InterDent,
Inc.
California
/
Healthcare
Senior
Secured
Term
Loan
A
(6.25%
(LIBOR
+
5.25%
with
1.00%
LIBOR
floor),
due
8/3/2017)(11)(14)
125,350
125,350
125,350
3.4%
Senior
Secured
Term
Loan
B
(11.25%
(LIBOR
+
10.25%
with
1.00%
LIBOR
floor),
due
8/3/2017)(3)(11)(14)
131,125
JAC
Holding
Corporation
Michigan
/
Transportation
Senior
Secured
Note
(11.50%,
due
10/1/2019)(9)
3,000
131,125
256,475
131,125
3.5%
256,475
6.9%
3,000
3,000
3,000
0.1%
3,000
0.1%
Jefferson
Mill
CLO
Ltd.
Cayman
Islands
/
Structured
Finance
Subordinated
Notes
(Residual
Interest,
current
yield
15.65%)(6)(7)(15)
JHH
Holdings,
Inc.
Texas
/
Healthcare
Second
Lien
Term
Loan
(11.25%
(LIBOR
+
10.00%
with
1.25%
LIBOR
floor)
plus
0.50%
PIK,
due
3/30/2019)(3)
(11)(13)(47)
19,500
16,928
16,928
16,928
0.5%
16,928
0.5%
35,297
35,297
35,297
35,297
1.0%
35,297
1.0%
See
notes
to
consolidated
financial
statements.
124
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)
(in thousands, except share data)
Portfolio Company
Locale /
Industry
Investments(1)
LEVEL 3 PORTFOLIO INVESTMENTS
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
June 30, 2015
Principal
Value
Cost
Fair
Value(2)
% of Net
Assets
LaserShip,
Inc.
Virginia
/
Transportation
Senior
Secured
Term
Loan
A
(10.25%
(LIBOR
+
8.25%
with
2.00%
LIBOR
floor)
plus
2.00%
default
interest,
due
3/18/2019)(3)(11)(14)
Senior
Secured
Term
Loan
B
(10.25%
(LIBOR
+
8.25%
with
2.00%
LIBOR
floor)
plus
2.00%
default
interest,
due
3/18/2019)(3)(11)(14)
Delayed
Draw
Term
Loan
–
$6,000
Commitment
(expires
12/31/2016)(16)
LCM
XIV
Ltd.
Cayman
Islands
/
Structured
Finance
Income
Notes
(Residual
Interest,
current
yield
16.70%)(6)(15)
Madison
Park
Funding
IX,
Ltd.
Cayman
Islands
/
Structured
Finance
Subordinated
Notes
(Residual
Interest,
current
yield
21.64%)
(6)(15)
$
35,156 $
35,156 $
30,778
0.8%
21,555
21,555
18,866
0.5%
—
—
— —%
56,711
49,644
1.3%
26,500
22,636
22,636
23,163
0.6%
23,163
0.6%
31,110
23,663
23,663
25,804
0.7%
25,804
0.7%
Matrixx
Initiatives,
Inc.
New
Jersey
/
Pharmaceuticals
Senior
Secured
Term
Loan
A
(7.50%
(LIBOR
+
6.00%
with
1.50%
LIBOR
floor),
due
8/9/2018)(3)(11)(13)
34,389
34,389
34,026
0.9%
Senior
Secured
Term
Loan
B
(12.50%
(LIBOR
+
11.00%
with
1.50%
LIBOR
floor),
due
8/9/2018)(3)(11)(13)
40,562
Maverick
Healthcare
Equity,
LLC
Arizona
/
Healthcare
Preferred
Units
(1,250,000
units)
Class
A
Common
Units
(1,250,000
units)
40,562
74,951
1,252
—
40,562
1.1%
74,588
2.0%
2,190
0.1%
— —%
1,252
2,190
0.1%
Mountain
View
CLO
2013-I
Ltd.
Cayman
Islands
/
Structured
Finance
Subordinated
Notes
(Residual
Interest,
current
yield
18.47%)
(6)(15)
43,650
37,168
37,168
40,480
1.1%
40,480
1.1%
Mountain
View
CLO
IX
Ltd.
Cayman
Islands
/
Structured
Finance
Subordinated
Notes
(Residual
Interest,
current
yield
15.43%)
(6)(7)(15)
47,830
Nathan's
Famous,
Inc.
New
York
/
Food
Products
Senior
Secured
Notes
(10.00%,
due
3/15/2020)(9)
3,000
44,739
44,739
3,000
3,000
44,666
1.2%
44,666
1.2%
3,000
0.1%
3,000
0.1%
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)(9)(11)(14)(15)
New
Century
Transportation,
Inc.
New
Jersey
/
Transportation
Senior
Subordinated
Term
Loan
(12.00%
(LIBOR
+
10.00%
with
2.00%
LIBOR
floor)
plus
4.00%
PIK,
in
non-accrual
status
effective
4/1/2014,
due
2/3/2018)(11)(14)(47)
Nixon,
Inc.
California
/
Durable
Consumer
Products
Octagon
Investment
Partners
XV,
Ltd.
Cayman
Islands
/
Structured
Finance
Senior
Secured
Term
Loan
(8.75%
plus
2.75%
PIK,
due
4/16/2018)(3)(9)(47)
Income
Notes
(Residual
Interest,
current
yield
20.72%)(6)(15)
16,305
16,065
16,065
16,305
0.4%
16,305
0.4%
187
187
187
— —%
— —%
13,925
13,749
13,749
13,616
0.4%
13,616
0.4%
28,571
24,515
24,515
26,461
0.7%
26,461
0.7%
See
notes
to
consolidated
financial
statements.
125
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)
(in thousands, except share data)
Portfolio Company
Locale / Industry
Investments(1)
LEVEL 3 PORTFOLIO INVESTMENTS
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
June 30, 2015
Principal
Value
Cost
Fair
Value(2)
% of Net
Assets
Onyx
Payments(39) Texas
/
Diversified
Financial
Services
Pacific
World
Corporation
California
/
Personal
&
Nondurable
Consumer
Products
Revolving
Line
of
Credit
–
$5,000
Commitment
(9.00%
(LIBOR
+
8.00%
with
1.00%
LIBOR
floor),
due
9/10/2015)
(11)(13)(16)
Senior
Secured
Term
Loan
A
(6.50%
(LIBOR
+
5.50%
with
1.00%
LIBOR
floor),
due
9/10/2019)(3)(11)(13)
Senior
Secured
Term
Loan
B
(13.50%
(LIBOR
+
12.50%
with
1.00%
LIBOR
floor),
due
9/10/2019)(11)(13)
Revolving
Line
of
Credit
–
$15,000
Commitment
(8.00%
(LIBOR
+
7.00%
with
1.00%
LIBOR
floor),
due
9/26/2020)(11)(14)(16)
Senior
Secured
Term
Loan
A
(6.00%
(LIBOR
+
5.00%
with
1.00%
LIBOR
floor),
due
9/26/2020)(11)(14)
Senior
Secured
Term
Loan
B
(10.00%
(LIBOR
+
9.00%
with
1.00%
LIBOR
floor),
due
9/26/2020)(3)(11)(14)
$
2,000 $
2,000 $
2,000
0.1%
52,050
52,050
52,050
1.4%
59,389
59,389
59,389
1.6%
113,439
113,439
3.1%
6,500
6,500
6,500
0.2%
99,250
99,250
95,400
2.6%
99,250
99,250
81,772
2.2%
205,000
183,672
5.0%
Pelican
Products,
Inc.
California
/
Durable
Consumer
Products
Second
Lien
Term
Loan
(9.25%
(LIBOR
+
8.25%
with
1.00%
LIBOR
floor),
due
4/9/2021)(9)(11)(14)
17,500
PGX
Holdings,
Inc.
(40)
Utah
/
Consumer
Services
Second
Lien
Term
Loan
(10.00%
(LIBOR
+
9.00%
with
1.00%
LIBOR
floor),
due
9/29/2021)(3)(11)(14)
135,000
Photonis
Technologies
SAS
France
/
Aerospace
&
Defense
First
Lien
Term
Loan
(8.50%
(LIBOR
+
7.50%
with
1.00%
LIBOR
floor),
due
9/18/2019)(9)(11)(14)(15)
10,369
Pinnacle
(US)
Acquisition
Co.
Limited
PlayPower,
Inc.
Texas
/
Software
&
Computer
Services
Second
Lien
Term
Loan
(10.50%
(LIBOR
+
9.25%
with
1.25%
LIBOR
floor),
due
8/3/2020)(9)(11)(13)
North
Carolina
/
Durable
Consumer
Products
Second
Lien
Term
Loan
(9.75%
(LIBOR
+
8.75%
with
1.00%
LIBOR
floor),
due
6/23/2022)(9)(11)(13)
Prime
Security
Services
Borrower,
LLC
Illinois
/
Consumer
Services
Second
Lien
Term
Loan
(9.75%
(LIBOR
+
8.75%
with
1.00%
LIBOR
floor),
due
7/1/2022)(9)(11)(14)
7,037
10,000
10,000
17,484
17,484
17,500
0.5%
17,500
0.5%
135,000
135,000
135,000
3.6%
135,000
3.6%
10,145
10,145
9,734
0.3%
9,734
0.3%
6,890
6,890
9,850
9,850
9,850
9,850
6,612
0.2%
6,612
0.2%
9,850
0.3%
9,850
0.3%
9,850
0.3%
9,850
0.3%
PrimeSport,
Inc.
Georgia
/
Hotels,
Restaurants
&
Leisure
Revolving
Line
of
Credit
–
$15,000
Commitment
(9.50%
(LIBOR
+
8.50%
with
1.00%
LIBOR
floor),
due
7/31/2015)
(11)(13)(16)
Senior
Secured
Term
Loan
A
(7.00%
(LIBOR
+
6.00%
with
1.00%
LIBOR
floor),
due
2/11/2021)(3)(11)(13)
Senior
Secured
Term
Loan
B
(12.00%
(LIBOR
+
11.00%
with
1.00%
LIBOR
floor),
due
2/11/2021)(3)(11)
13,800
13,800
13,800
0.4%
54,227
54,227
54,227
1.4%
74,500
74,500
74,500
2.0%
142,527
142,527
3.8%
Prince
Mineral
Holding
Corp.
New
York
/
Metal
Services
&
Minerals
Senior
Secured
Term
Loan
(11.50%,
due
12/15/2019)
(9)
10,000
9,915
9,915
9,458
0.3%
9,458
0.3%
See
notes
to
consolidated
financial
statements.
126
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)
(in thousands, except share data)
Portfolio Company Locale / Industry
Investments(1)
LEVEL 3 PORTFOLIO INVESTMENTS
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
June 30, 2015
Principal
Value
Cost
Fair
Value(2)
% of Net
Assets
Rocket
Software,
Inc. Massachusetts
/
Software
&
Computer
Services
Second
Lien
Term
Loan
(10.25%
(LIBOR
+
8.75%
with
1.50%
LIBOR
floor),
due
2/8/2019)(3)(9)(11)(13)
$
20,000 $
19,801 $
20,000
0.5%
19,801
20,000
0.5%
Royal
Holdings,
Inc.
Indiana
/
Chemicals Second
Lien
Term
Loan
(8.50%
(LIBOR
+
7.50%
with
1.00%
LIBOR
floor),
due
6/19/2023)(9)(11)(14)
5,000
4,963
4,963
5,000
0.1%
5,000
0.1%
Ryan,
LLC
Texas
/
Business
Services
Subordinated
Unsecured
Notes
(12.00%
(LIBOR
+
9.00%
with
3.00%
LIBOR
floor)
plus
3.00%
PIK,
due
6/30/2018)(11)(13)(47)
72,701
72,701
72,701
72,701
2.0%
72,701
2.0%
Security
Alarm
Financing
Enterprises,
L.P.(41)
California
/
Consumer
Services
Subordinated
Unsecured
Notes
(11.50%
(LIBOR
+
9.50%
with
2.00%
LIBOR
floor),
due
12/19/2020)(11)
(14)
25,000
SESAC
Holdco
II
LLC
Tennessee
/
Media
Second
Lien
Term
Loan
(9.00%
(LIBOR
+
8.00%
with
1.00%
LIBOR
floor),
due
4/22/2021)(3)(9)(11)(13)
10,000
25,000
25,000
9,854
9,854
25,000
0.7%
25,000
0.7%
9,925
0.3%
9,925
0.3%
Small
Business
Whole
Loan
Portfolio(43)
New
York
/
Online
Lending
40
small
business
loans
purchased
from
Direct
Capital
Corporation
2,306
small
business
loans
purchased
from
On
Deck
Capital,
Inc.
492
492
362 —%
50,066
50,066
50,558
50,530
1.4%
50,892
1.4%
Spartan
Energy
Services,
Inc.
Louisiana
/
Oil
&
Gas
Services
Senior
Secured
Term
Loan
A
(7.00%
(LIBOR
+
6.00%
with
1.00%
LIBOR
floor),
due
12/28/2017)(3)(11)(14)
13,422
13,422
12,973
0.3%
Senior
Secured
Term
Loan
B
(11.00%
(LIBOR
+
10.00%
with
1.00%
LIBOR
floor),
due
12/28/2017)(3)(11)(14)
13,935
Speedy
Group
Holdings
Corp.
Canada
/
Consumer
Finance
Senior
Unsecured
Notes
(12.00%,
due
11/15/2017)(9)
(15)
15,000
13,935
27,357
15,000
15,000
13,664
0.4%
26,637
0.7%
15,000
0.4%
15,000
0.4%
Stauber
Performance
Ingredients,
Inc.
California
/
Food
Products
Senior
Secured
Term
Loan
A
(7.50%
(LIBOR
+
6.50%
with
1.00%
LIBOR
floor),
due
11/25/2019)(3)(11)(13)
Senior
Secured
Term
Loan
B
(10.50%
(LIBOR
+
9.50%
with
1.00%
LIBOR
floor),
due
11/25/2019)(3)(11)(13)
Stryker
Energy,
LLC Ohio
/
Oil
&
Gas
Production
Overriding
Royalty
Interests(10)
Sudbury
Mill
CLO
Ltd.
Cayman
Islands
/
Structured
Finance
Subordinated
Notes
(Residual
Interest,
current
yield
15.92%)(6)(15)
Symphony
CLO
IX
Ltd.
Cayman
Islands
/
Structured
Finance
Preference
Shares
(Residual
Interest,
current
yield
20.76%)(6)(15)
Symphony
CLO
XIV
Ltd.
Cayman
Islands
/
Structured
Finance
Subordinated
Notes
(Residual
Interest,
current
yield
12.24%)(6)(7)(15)
Symphony
CLO
XV,
Ltd.
Cayman
Islands
/
Structured
Finance
Subordinated
Notes
(Residual
Interest,
current
yield
11.72%)(6)(15)
9,561
9,799
9,561
9,561
0.2%
9,799
19,360
9,799
0.3%
19,360
0.5%
—
—
22,562
22,562
34,797
34,797
44,018
44,018
46,994
46,994
— —%
— —%
24,425
0.7%
24,425
0.7%
40,034
1.1%
40,034
1.1%
45,641
1.2%
45,641
1.2%
46,452
1.3%
46,452
1.3%
28,200
45,500
49,250
50,250
See
notes
to
consolidated
financial
statements.
127
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)
(in thousands, except share data)
Portfolio Company Locale / Industry
Investments(1)
LEVEL 3 PORTFOLIO INVESTMENTS
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
June 30, 2015
Principal
Value
Cost
Fair
Value(2)
% of Net
Assets
System
One
Holdings,
LLC
Pennsylvania
/
Business
Services
Senior
Secured
Term
Loan
(10.50%
(LIBOR
+
9.50%
with
1.00%
LIBOR
floor),
due
11/17/2020)(3)(11)(14)
Delayed
Draw
Term
Loan
–
$11,500
Commitment
(expires
12/31/2015)(16)
$
68,146 $
68,146 $
68,146
1.8%
—
—
— —%
68,146
68,146
1.8%
Targus
Group
International,
Inc.
California
/
Durable
Consumer
Products
First
Lien
Term
Loan
(11.75%
(PRIME
+
8.50%)
plus
1.00%
PIK
and
2.00%
default
interest,
due
5/24/2016)(9)
(11)(47)
TB
Corp.
Texas
/
Hotels,
Restaurants
&
Leisure
Senior
Subordinated
Note
(12.00%
plus
1.50%
PIK,
due
12/19/2018)(3)(47)
Therakos,
Inc.
New
Jersey
/
Healthcare
Second
Lien
Term
Loan
(10.75%
(LIBOR
+
9.50%
with
1.25%
LIBOR
floor),
due
6/27/2018)(9)(11)(13)
Tolt
Solutions,
Inc. South
Carolina
/
Business
Services
Senior
Secured
Term
Loan
A
(7.00%
(LIBOR
+
6.00%
with
1.00%
LIBOR
floor),
due
3/7/2019)(3)(11)(13)
Senior
Secured
Term
Loan
B
(12.00%
(LIBOR
+
11.00%
with
1.00%
LIBOR
floor),
due
3/7/2019)(3)(11)(13)
TouchTunes
Interactive
Networks,
Inc.
New
York
/
Media
Second
Lien
Term
Loan
(9.25%
(LIBOR
+
8.25%
with
1.00%
LIBOR
floor),
due
5/29/2022)(9)(11)(14)
21,487
21,378
21,378
17,233
0.5%
17,233
0.5%
23,628
13,000
23,628
23,628
12,808
12,808
23,628
0.6%
23,628
0.6%
13,000
0.4%
13,000
0.4%
47,802
47,802
45,548
1.2%
48,900
48,900
96,702
46,155
1.2%
91,703
2.4%
5,000
4,925
4,925
4,925
0.1%
4,925
0.1%
Traeger
Pellet
Grills
LLC
Oregon
/
Durable
Consumer
Products
Senior
Secured
Term
Loan
A
(6.50%
(LIBOR
+
4.50%
with
2.00%
LIBOR
floor),
due
6/18/2018)(3)(11)(13)
35,644
35,644
35,644
1.0%
Senior
Secured
Term
Loan
B
(11.50%
(LIBOR
+
9.50%
with
2.00%
LIBOR
floor),
due
6/18/2018)(3)(11)(13)
36,881
36,881
72,525
36,881
1.0%
72,525
2.0%
Transaction
Network
Services,
Inc.
Virginia
/
Telecommunication
Services
Second
Lien
Term
Loan
(9.00%
(LIBOR
+
8.00%
with
1.00%
LIBOR
floor),
due
8/14/2020)(9)(11)(14)
Trinity
Services
Group,
Inc.(44)
Florida
/
Food
Products
Senior
Secured
Term
Loan
A
(6.50%
(LIBOR
+
5.50%
with
1.00%
LIBOR
floor),
due
8/13/2019)(11)(13)
Senior
Secured
Term
Loan
B
(11.50%
(LIBOR
+
10.50%
with
1.00%
LIBOR
floor),
due
8/13/2019)(3)(11)(13)
United
Sporting
Companies,
Inc.(45)
South
Carolina
/
Durable
Consumer
Products
Second
Lien
Term
Loan
(12.75%
(LIBOR
+
11.00%
with
1.75%
LIBOR
floor),
due
5/16/2018)(3)(11)(14)
United
States
Environmental
Services,
LLC
Texas
/
Commercial
Services
Senior
Secured
Term
Loan
A
(6.50%
(LIBOR
+
5.50%
with
1.00%
LIBOR
floor)
plus
2.00%
default
interest,
due
3/31/2019)(3)(11)(13)
Senior
Secured
Term
Loan
B
(11.50%
(LIBOR
+
10.50%
with
1.00%
LIBOR
floor)
plus
2.00%
default
interest,
due
3/31/2019)(3)(11)(13)
4,595
4,573
4,573
4,595
0.1%
4,595
0.1%
9,825
9,825
9,825
0.3%
100,000
100,000
109,825
100,000
2.7%
109,825
3.0%
158,238
158,238
158,238
145,618
3.9%
145,618
3.9%
23,250
23,250
21,551
0.6%
36,000
36,000
59,250
33,406
0.9%
54,957
1.5%
See
notes
to
consolidated
financial
statements.
128
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)
(in thousands, except share data)
Portfolio Company
Locale /
Industry
Investments(1)
Principal
Value
Cost
Fair
Value(2)
% of Net
Assets
June 30, 2015
LEVEL 3 PORTFOLIO INVESTMENTS
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
USG
Intermediate,
LLC
Texas
/
Durable
Consumer
Products
Revolving
Line
of
Credit
–
$5,000
Commitment
(10.00%
(LIBOR
+
9.00%
with
1.00%
LIBOR
floor),
due
4/15/2016)(11)(14)(16)
Senior
Secured
Term
Loan
A
(7.50%
(LIBOR
+
6.50%
with
1.00%
LIBOR
floor),
due
4/15/2020)(3)(11)(14)
Senior
Secured
Term
Loan
B
(12.50%
(LIBOR
+
11.50%
with
1.00%
LIBOR
floor),
due
4/15/2020)(3)(11)(14)
Equity
Venio
LLC
Pennsylvania
/
Business
Services
Second
Lien
Term
Loan
(12.00%
(LIBOR
+
9.50%
with
2.50%
LIBOR
floor),
due
2/19/2020)(3)(11)(13)
Voya
CLO
2012-2,
Ltd.
Cayman
Islands
/
Structured
Finance
Voya
CLO
2012-3,
Ltd.
Cayman
Islands
/
Structured
Finance
Voya
CLO
2012-4,
Ltd.
Cayman
Islands
/
Structured
Finance
Income
Notes
(Residual
Interest,
current
yield
19.32%)(6)(15)
Income
Notes
(Residual
Interest,
current
yield
16.87%)(6)(15)
Income
Notes
(Residual
Interest,
current
yield
19.40%)(6)(15)
Voya
CLO
2014-1,
Ltd.
Cayman
Islands
/
Structured
Finance
Subordinated
Notes
(Residual
Interest,
current
yield
15.25%)
(6)(7)(15)
Washington
Mill
CLO
Ltd.
Cayman
Islands
/
Structured
Finance
Subordinated
Notes
(Residual
Interest,
current
yield
14.28%)
(6)(7)(15)
Water
Pik,
Inc.
Wheel
Pros,
LLC
Colorado
/
Personal
&
Nondurable
Consumer
Products
Colorado
/
Business
Services
Second
Lien
Term
Loan
(9.75%
(LIBOR
+
8.75%
with
1.00%
LIBOR
floor),
due
1/8/2021)(9)(11)(13)
Senior
Subordinated
Secured
Note
(11.00%
(LIBOR
+
7.00%
with
4.00%
LIBOR
floor),
due
6/29/2020)(3)(11)(13)
Delayed
Draw
Term
Loan
–
$3,000
Commitment
(expires
12/30/2015)(16)
Wind
River
Resources
Corporation(46)
Utah
/
Oil
&
Gas
Production
Senior
Secured
Note
(13.00%
(LIBOR
+
7.50%
with
5.50%
LIBOR
floor)
plus
3.00%
default
interest
on
principal
and
16.00%
default
interest
on
past
due
interest,
in
non-accrual
status
effective
12/1/2008,
past
due)(11)
Net
Profits
Interest
(5%
of
Equity
Distributions)(4)
$
— $
— $
— —%
21,587
21,587
21,587
0.6%
21,695
—
17,000
38,070
46,632
40,613
32,383
22,600
21,695
1
43,283
21,695
0.6%
— —%
43,282
1.2%
17,000
17,000
16,042
0.4%
16,042
0.4%
30,002
30,002
32,391
0.9%
32,391
0.9%
37,208
37,208
38,465
1.0%
38,465
1.0%
32,918
32,918
34,977
0.9%
34,977
0.9%
28,886
28,886
29,170
0.8%
29,170
0.8%
19,542
19,542
20,137
0.5%
20,137
0.5%
9,147
8,796
8,796
9,147
0.2%
9,147
0.2%
12,000
12,000
12,000
0.3%
—
—
— —%
12,000
12,000
0.3%
3,000
3,000
—
3,000
— —%
— —%
— —%
Total Non-Control/Non-Affiliate Investments (Level 3)
$ 4,619,519 $ 4,589,151 124.0%
Total Level 3 Portfolio Investments
$ 6,559,313 $ 6,609,298 178.5%
See
notes
to
consolidated
financial
statements.
129
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)
(in thousands, except share data)
Portfolio Company
Locale /
Industry
Investments(1)
June 30, 2015 (Audited)
Principal
Value
Cost
Fair
Value(2)
% of Net
Assets
LEVEL 1 PORTFOLIO INVESTMENTS
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
Dover
Saddlery,
Inc.
Massachusetts
/
Retail
Common
Stock
(30,974
shares)
$
Total Non-Control/Non-Affiliate Investments (Level 1) $
63 $
63
63 $
260 —%
260 —%
260 —%
Total Non-Control/Non-Affiliate Investments $ 4,619,582 $ 4,589,411
124.0%
Total Portfolio Investments $ 6,559,376 $ 6,609,558
178.5%
See
notes
to
consolidated
financial
statements.
130
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)
(in thousands, except share data)
Endnote Explanations as of June 30, 2016 and June 30, 2015
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
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.
Fair
value
is
determined
by
or
under
the
direction
of
our
Board
of
Directors.
As
of
June
30,
2015
,
one
of
our
portfolio
investments,
Dover
Saddlery,
Inc.
(“Dover”),
was
publicly
traded
and
classified
as
Level
1
within
the
valuation
hierarchy
established
by
ASC
820,
Fair Value Measurement (“ASC
820”).
On
July
1,
2015
we
redeemed
our
investment
in
Dover
and
realized
a
gain
of
$200.
As
of
June
30,
2015
,
the
fair
value
of
our
remaining
portfolio
investments
was
determined
using
significant
unobservable
inputs.
As
of
June
30,
2016
,
all
of
our
investments
were
classified
as
Level
3.
ASC
820
classifies
such
unobservable
inputs
used
to
measure
fair
value
as
Level
3
within
the
valuation
hierarchy.
See
Notes
2
and
3
within
the
accompanying
notes
to
consolidated
financial
statements
for
further
discussion.
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
June
30,
2016
and
June
30,
2015
were
$1,348,577
and
$1,511,585
,
respectively,
representing
22.9%
and
22.9%
of
our
total
investments,
respectively.
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.
This
investment
is
in
the
debt
class
of
a
CLO
security.
This
investment
is
in
the
equity
class
of
a
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
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.
Co-investment
with
another
fund
managed
by
an
affiliate
of
our
investment
adviser,
Prospect
Capital
Management
L.P.
See
Note
13
for
further
discussion.
On
a
fully
diluted
basis
represents
10.00%
of
voting
common
shares.
Syndicated
investment
which
was
originated
by
a
financial
institution
and
broadly
distributed.
(10) The
overriding
royalty
interests
held
receive
payments
at
the
stated
rates
based
upon
operations
of
the
borrower.
(11) Security,
or
a
portion
thereof,
has
a
floating
interest
rate
which
may
be
subject
to
a
LIBOR
or
PRIME
floor.
The
interest
rate
was
in
effect
at
June
30,
2016
and
June
30,
2015
.
(12) The
interest
rate
on
these
investments
is
subject
to
the
base
rate
of
6-Month
LIBOR,
which
was
0.44%
at
June
30,
2015
.
No
loans
utilized
a
base
rate
of
6
month
LIBOR
at
June
30,
2016.
The
current
base
rate
for
each
investment
may
be
different
from
the
reference
rate
on
June
30,
2015.
(13) The
interest
rate
on
these
investments
is
subject
to
the
base
rate
of
3-Month
LIBOR,
which
was
0.65%
and
0.28%
at
June
30,
2016
and
June
30,
2015
,
respectively.
The
current
base
rate
for
each
investment
may
be
different
from
the
reference
rate
on
June
30,
2016
and
June
30,
2015
.
(14) The
interest
rate
on
these
investments
is
subject
to
the
base
rate
of
1-Month
LIBOR,
which
was
0.47%
and
0.19%
at
June
30,
2016
and
June
30,
2015
,
respectively.
The
current
base
rate
for
each
investment
may
be
different
from
the
reference
rate
on
June
30,
2016
and
June
30,
2015
.
(15)
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
June
30,
2016
and
June
30,
2015
,
our
qualifying
assets
as
a
percentage
of
total
assets,
stood
at
74.58%
and
75.1%,
respectively.
We
monitor
the
status
of
these
assets
on
an
ongoing
basis.
See
notes
to
consolidated
financial
statements.
131
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)
(in thousands, except share data)
Endnote Explanations as of June 30, 2016 and June 30, 2015 (Continued)
(16) Undrawn
committed
revolvers
and
delayed
draw
term
loans
to
our
portfolio
companies
incur
commitment
and
unused
fees
ranging
from
0.00%
to
6.00%
.
As
of
June
30,
2016
and
June
30,
2015
,
we
had
$40,560
and
$88,288
,
respectively,
of
undrawn
revolver
and
delayed
draw
term
loan
commitments
to
our
portfolio
companies.
(17) APH
Property
Holdings,
LLC,
a
consolidated
entity
in
which
we
own
100%
of
the
membership
interests,
owns
100%
of
the
common
equity
of
American
Property
REIT
Corp.
(f/k/a
American
Property
Holdings
Corp.
(“APRC”)),
a
qualified
Real
Estate
Investment
Trust
(“REIT”)
which
holds
investments
in
several
real
estate
properties.
See
Note
3
for
further
discussion
of
the
properties
held
by
APRC.
Effective
May
23,
2016,
APRC
merged
with
and
into
National
Property
REIT
Corp.
(“NPRC”),
with
NPRC
as
the
surviving
entity.
(18) Arctic
Oilfield
Equipment
USA,
Inc.
(“Arctic
Oilfield”),
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
contro
lled
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
Oilfield
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.
(19) CCPI
Holdings
Inc.,
a
consolidated
entity
in
which
we
own
100%
of
the
common
stock,
owns
94.59%
and
94.95%
of
CCPI
Inc.
(“CCPI”),
the
operating
company,
as
of
June
30,
2016
and
June
30,
2015
,
respectively.
We
report
CCPI
as
a
separate
controlled
company.
(20) CP
Holdings
of
Delaware
LLC,
a
consolidated
entity
in
which
we
own
100%
of
the
membership
interests,
owns
82.3%
of
CP
Energy
Services
Inc.
(“CP
Energy”)
as
of
June
30,
2016
and
June
30,
2015
,
respectively.
As
of
June
30,
2015
,
CP
Energy
owned
directly
or
indirectly
100%
of
each
of
CP
Well
Testing,
LLC
(“CP
Well”);
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
Redeemable
Preferred
Stock
in
CP
Energy.
(21) Credit
Central
Holdings
of
Delaware,
LLC,
a
consolidated
entity
in
which
we
own
100%
of
the
membership
interests,
owns
74.93%
of
Credit
Central
Loan
Company,
LLC
(f/k/a
Credit
Central
Holdings,
LLC
(“Credit
Central”))
as
of
June
30,
2016
and
June
30,
2015
,
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) On
June
9,
2015,
we
provided
additional
debt
and
equity
financing
to
support
the
recapitalization
of
Edmentum,
Inc.
(“Edmentum”).
As
part
of
the
recapitalization,
we
exchanged
100%
of
the
$50,000
second
lien
term
loan
previously
outstanding
for
$26,365
of
junior
PIK
notes
and
370,964.14
Class
A
common
units
representing
37.1%
equity
ownership
in
Edmentum
Ultimate
Holdings,
LLC.
In
addition,
we
invested
$5,875
in
senior
PIK
notes
and
committed
$7,834
as
part
of
a
second
lien
revolving
credit
facility,
of
which
$4,896
was
funded
at
closing.
On
June
9,
2015,
we
determined
that
Edmentum
was
impaired
and
recorded
a
realized
loss
of
$22,116
for
the
amount
that
the
amortized
cost
exceeded
the
fair
value,
reducing
the
amortized
cost
to
$37,216.
(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
June
30,
2016
and
June
30,
2015
,
respectively.
We
report
First
Tower
Finance
as
a
separate
controlled
company.
(24) Energy
Solutions
Holdings
Inc.,
a
consolidated
entity
in
which
we
own
100%
of
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) Harbortouch
Holdings
of
Delaware
Inc.,
a
consolidated
entity
in
which
we
owned
100%
of
the
common
stock,
owned
100%
of
the
Class
C
voting
units
of
Harbortouch
Payments,
LLC
(“Harbortouch”),
which
provide
for
a
53.5%
residual
profits
allocation.
Harbortouch
management
owns
100%
of
the
Class
B
and
Class
D
voting
units
of
Harbortouch,
which
provide
for
a
46.5%
residual
profits
allocation.
Harbortouch
owns
100%
of
Credit
Card
Processing
USA,
LLC.
We
reported
Harbortouch
as
a
separate
controlled
company
as
of
June
30,
2015.
On
May
31,
2016,
we
sold
our
investment
in
Harbortouch
for
total
consideration
of
$328,032,
including
fees
and
escrowed
amounts.
Prior
to
the
sale,
$154,382
of
Senior
Secured
Term
Loan
B
loan
outstanding
was
converted
to
preferred
equity.
We
received
a
repayment
of
$146,989
loans
receivable
to
us
and
$157,639
of
proceeds
related
See
notes
to
consolidated
financial
statements.
132
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)
(in thousands, except share data)
Endnote Explanations as of June 30, 2016 and June 30, 2015 (Continued)
to
the
equity
investment.
We
recorded
a
realized
loss
of
$5,419
related
to
the
sale.
We
also
received
a
$5,145
prepayment
premium
for
early
repayment
of
the
outstanding
loans,
which
was
recorded
as
interest
income
in
the
year
ended
June
30,
2016
and
a
$12,909
advisory
fee
for
the
transaction,
which
was
recorded
as
other
income
in
the
year
ended
June
30,
2016.
In
addition,
there
is
$5,350
being
held
in
escrow
which
will
be
recognized
as
additional
realized
gain
if
and
when
it
is
received.
Concurrent
with
the
sale,
we
made
a
$27,500
second
lien
secured
investment
in
Harbortouch.
(26) MITY
Holdings
of
Delaware
Inc.
(“MITY
Delaware”),
a
consolidated
entity
in
which
we
own
100%
of
the
common
stock,
owns
95.83%
and
94.99%
of
the
equity
of
MITY,
Inc.
(f/k/a
MITY
Enterprises,
Inc.)
(“MITY”),
as
of
June
30,
2016
and
June
30,
2015
,
respectively.
MITY
owns
100%
of
each
of
MITY-
Lite,
Inc.;
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
June
30,
2016
and
June
30,
2015
,
the
principal
balance
of
this
note
was
CAD
7,371.
In
accordance
with
ASC
830,
Foreign Currency Matters (“ASC
830”),
this
note
was
remeasured
into
our
functional
currency,
US
Dollars
(USD),
and
is
presented
on
our
Consolidated
Schedule
of
Investments
in
USD.
(27) NPH
Property
Holdings,
LLC,
a
consolidated
entity
in
which
we
own
100%
of
the
membership
interests,
owns
100%
of
the
common
equity
of
NPRC
(f/k/a
National
Property
Holdings
Corp.),
a
property
REIT
which
holds
investments
in
several
real
estate
properties.
Additionally,
through
its
wholly-owned
subsidiaries,
NPRC
invests
in
online
consumer
loans.
We
report
NPRC
as
a
separate
controlled
company.
See
Note
3
for
further
discussion
of
the
properties
held
by
NPRC.
On
March
17,
2015,
we
entered
into
a
new
credit
agreement
with
ACL
Loan
Holdings,
Inc.
(“ACLLH”),
a
wholly-owned
subsidiary
of
NPRC,
to
form
two
new
tranches
of
senior
secured
term
loans,
Term
Loan
A
and
Term
Loan
B,
with
the
same
terms
as
the
then
existing
NPRC
Term
Loan
A
and
Term
Loan
B
due
to
us.
That
agreement
was
effective
as
of
June
30,
2014.
On
June
30,
2014,
ACLLH
made
a
non-cash
return
of
capital
distribution
of
$22,390
to
NPRC
and
NPRC
transferred
and
assigned
to
ACLLH
a
senior
secured
Term
Loan
A
due
to
us.
On
June
2,
2015,
we
amended
the
credit
agreement
with
NPRC
to
form
two
new
tranches
of
senior
secured
term
loans,
Term
Loan
C
and
Term
Loan
D,
with
the
same
terms
as
the
then
existing
ACLLH
Term
Loan
A
and
Term
Loan
B
due
to
us.
That
amendment
was
effective
as
of
April
1,
2015.
On
August
18,
2015,
we
amended
the
credit
agreement
with
NPRC
to
form
a
new
tranche
of
senior
secured
term
loans,
Term
Loan
E.
The
amendment
was
effective
as
of
July
1,
2015,
and
the
outstanding
Term
Loan
C
and
Term
Loan
D
balances
were
converted
to
Term
Loan
E.
On
August
12,
2015,
we
also
amended
the
credit
agreement
with
ACLLH
to
form
a
new
tranche
of
senior
secured
term
loans,
Term
Loan
C.
The
amendment
was
effective
as
of
July
1,
2015,
and
the
outstanding
Term
Loan
A
and
Term
Loan
B
balances
were
converted
to
Term
Loan
C.
Effective
May
23,
2016,
APRC
and
United
Property
REIT
Corp.
(“UPRC”)
merged
with
and
into
NPRC,
with
NPRC
as
the
surviving
entity.
APRC
and
UPRC
have
been
dissolved.
(28) Nationwide
Acceptance
Holdings
LLC,
a
consolidated
entity
in
which
we
own
100%
of
the
membership
interests,
owns
93.79%
of
Nationwide
Loan
Company
LLC
(f/k/a
Nationwide
Acceptance
LLC
(“Nationwide”)),
the
operating
company,
as
of
June
30,
2016
and
June
30,
2015
.
We
report
Nationwide
as
a
separate
controlled
company.
On
June
1,
2015,
Nationwide
completed
a
corporate
reorganization.
As
part
of
a
reorganization,
Nationwide
Acceptance
LLC
was
renamed
Nationwide
Loan
Company
LLC
(continues
as
“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
Nationwide
Acceptance
LLC
(“New
Nationwide”),
the
new
operating
company
wholly-owned
by
Pelican.
New
Nationwide
also
assumed
the
existing
senior
subordinated
term
loan
due
to
Prospect.
(29) NMMB
Holdings,
a
consolidated
entity
in
which
we
own
100%
of
the
equity,
owns
96.33%
of
the
fully
diluted
equity
of
NMMB,
Inc.
(“NMMB”)
as
of
June
30,
2016
and
June
30,
2015
.
NMMB
owns
100%
of
Refuel
Agency,
Inc.,
which
owns
100%
of
Armed
Forces
Communications,
Inc.
We
report
NMMB
as
a
separate
controlled
company.
(30) UPH
Property
Holdings,
LLC,
a
consolidated
entity
in
which
we
own
100%
of
the
membership
interests,
owns
100%
of
the
common
equity
of
UPRC
(f/k/a
United
Property
Holdings
Corp.),
a
property
REIT
which
holds
investments
in
several
real
estate
properties.
We
report
UPRC
as
a
separate
controlled
company.
See
Note
3
for
further
discussion
of
the
properties
held
by
UPRC.
Effective
May
23,
2016,
UPRC
merged
with
and
into
NPRC,
with
NPRC
as
the
surviving
entity.
(31) During
the
period
from
June
15,
2016
through
June
29,
2016,
we
provided
additional
$3,500
debt
financing
to
USES
Corp.
(“USES”)
and
its
subsidiaries
in
the
form
of
additional
Term
Loan
A
debt
and,
in
connection
with
this
debt
financing,
USES
issued
to
us
268,962
shares
of
its
common
stock
representing
a
99.96%
common
equity
ownership
interest
in
USES.
Therefore,
USES
became
a
controlled
company
on
June
30,
2016.
(32) 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.
(“Valley”).
We
report
Valley
Electric
as
a
separate
controlled
company.
See
notes
to
consolidated
financial
statements.
133
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)
(in thousands, except share data)
Endnote Explanations as of June 30, 2016 and June 30, 2015 (Continued)
(33) On
February
3,
2016,
lenders
foreclosed
on
Targus
Group
International,
Inc.,
and
our
$21,613
first
lien
term
loan
was
extinguished
and
exchanged
for
1,262,737
common
units
representing
12.63%
equity
ownership
in
Targus
Cayman
HoldCo
Limited,
the
parent
company
of
Targus
International
LLC
(“Targus”).
On
February
17,
2016,
we
provided
additional
debt
financing
to
support
the
recapitalization
of
Targus.
As
part
of
the
recapitalization,
we
invested
an
additional
$1,263
in
a
new
senior
secured
Term
Loan
A
notes
and
were
allocated
$3,788
in
new
senior
secured
Term
Loan
B
notes.
During
the
same
period,
Targus
was
written-down
for
tax
purposes
and
a
realized
loss
of
$14,194
therefore
was
realized
for
the
amount
that
the
amortized
cost
exceeded
the
fair
value.
(34) We
own
99.9999%
of
AGC/PEP,
LLC.
AGC/PEP,
LLC
owns
2,038
out
of
a
total
of
93,485
shares
(including
7,456
vested
and
unvested
management
options)
of
American
Gilsonite
Holding
Company
which
owns
100%
of
American
Gilsonite
Company.
(35) A
portion
of
the
senior
secured
note
is
denominated
in
Canadian
Dollars
(CAD).
As
of
June
30,
2015,
the
principal
balance
of
this
note
was
CAD
36,666.
In
accordance
with
ASC
830,
this
note
was
remeasured
into
our
functional
currency,
US
Dollars
(USD),
and
is
presented
on
our
Consolidated
Schedules
of
Investments
in
USD.
(36) GTP
Operations,
LLC,
Transplace,
LLC,
CI
(Transplace)
International,
LLC,
Transplace
Freight
Services,
LLC,
Transplace
Texas,
LP,
Transplace
Stuttgart,
LP,
Transplace
International,
Inc.,
Celtic
International,
LLC,
and
Treetop
Merger
Sub,
LLC
are
joint
borrowers
on
the
senior
secured
term
loan.
(37) As
of
June
30,
2016
and
June
30,
2015
,
we
own
1.43%
(13,220
shares)
of
Mineral
Fusion
Natural,
LLC,
a
subsidiary
of
Caleel
+
Hayden,
LLC,
common
and
preferred
interest.
(38) NCP
Finance
Limited
Partnership,
NCP
Finance
Ohio,
LLC,
and
certain
affiliates
thereof
are
joint
borrowers
on
the
subordinated
secured
term
loan
(39) Pegasus
Business
Intelligence,
LP,
Paycom
Acquisition,
LLC,
and
Paycom
Acquisition
Corp.
are
joint
borrowers
on
the
senior
secured
loan
facilities.
Paycom
Intermediate
Holdings,
Inc.
is
the
parent
guarantor
of
this
debt
investment.
These
entities
transact
business
internationally
under
the
trade
name
Onyx
Payments.
(40) As
of
June
30,
2015
,
Progrexion
Marketing,
Inc.,
Progrexion
Teleservices,
Inc.,
Progrexion
ASG,
Inc.,
Progrexion
IP,
Inc.,
Creditrepair.com,
Inc.,
and
eFolks,
LLC
were
joint
borrowers
on
the
senior
secured
term
loan.
PGX
Holdings,
Inc.
(“PGX”)
was
the
parent
guarantor
of
this
debt
investment.
As
of
June
30,
2016
,
PGX
is
the
sole
borrower
on
the
second
lien
term
loan.
(41) Security
Alarm
Financing
Enterprises,
L.P.
and
California
Security
Alarms,
Inc.
are
joint
borrowers
on
the
senior
subordinated
note.
(42) SB
Forging
Company,
Inc.
(“SB
Forging”),
a
consolidated
entity
in
which
we
own
100%
of
the
equity,
owned
100%
of
Ajax
Rolled
Ring
&
Machine,
LLC,
the
operating
company,
which
was
sold
on
October
10,
2014.
As
part
of
the
sale
there
is
$3,000
being
held
in
escrow
of
which
$802
and
$1,750
was
received
on
May
6,
2015
and
May
31,
2016,
respectively,
for
which
Prospect
realized
a
gain
of
the
same
amount.
(43) Our
wholly-owned
subsidiary
Prospect
Small
Business
Lending,
LLC
purchases
small
business
whole
loans
from
small
business
loan
originators,
including
On
Deck
Capital,
Inc.,
and
Direct
Capital
Corporation.
(44) Trinity
Services
Group,
Inc.
and
Trinity
Services
I,
LLC
are
joint
borrowers
on
the
senior
secured
loan
facility.
(45) 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.
(46) Wind
River
Resources
Corporation
and
Wind
River
II
Corporation
are
joint
borrowers
on
the
senior
secured
note.
The
interest
rate
for
this
investment
is
subject
to
the
base
rate
of
12-Month
LIBOR,
which
was
0.77%
at
June
30,
2015
.
(47) The
interest
rate
on
these
investments
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.
See
notes
to
consolidated
financial
statements.
134
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)
(in thousands, except share data)
Endnote Explanations as of June 30, 2016 and June 30, 2015 (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,
2016
:
Security Name
CCPI
Inc.
Cinedigm
DC
Holdings,
LLC
Credit
Central
Loan
Company
Crosman
Corporation
-
Senior
Secured
Term
Loan
A
Crosman
Corporation
-
Senior
Secured
Term
Loan
B
Echelon
Aviation
LLC
Edmentum
Ultimate
Holdings,
LLC
-
Unsecured
Senior
PIK
Note
Edmentum
Ultimate
Holdings,
LLC
-
Unsecured
Junior
PIK
Note
First
Tower
Finance
Company
LLC
Harbortouch
Payments,
LLC
JHH
Holdings,
Inc.
LaserShip
,
Inc.
-
Term
Loan
A
LaserShip
,
Inc.
-
Term
Loan
B
Mity,
Inc.
National
Property
REIT
Corp.
-
Senior
Secured
Term
Loan
A
National
Property
REIT
Corp.
-
Senior
Secured
Term
Loan
E
National
Property
REIT
Corp.
-
Senior
Secured
Term
Loan
C
to
ACL
Holdings,
Inc.
Nationwide
Loan
Company
LLC
Nixon,
Inc.
Valley
Electric
Co.
of
Mt.
Vernon,
Inc.
Valley
Electric
Company,
Inc.
PIK Rate -
Capitalized
PIK Rate -
Paid as cash
Maximum
Current PIK Rate
—%
—%
6.49%
4.00%
4.00%
—%
8.50%
10.00%
0.80%
N/A
0.50%
2.00%
2.00%
—%
—%
—%
—%
—%
3.00%
—%
3.42%
7.00%
2.50%
3.51%
—%
—%
2.25%
—%
—%
11.20%
N/A
—%
—%
—%
10.00%
5.50%
5.00%
5.00%
10.00%
—%
2.50%
5.08%
(A)
7.00%
2.50%
10.00%
4.00%
4.00%
2.25%
8.50%
10.00%
12.00%
3.00%
0.50%
2.00%
2.00%
10.00%
5.50%
5.00%
5.00%
10.00%
3.00%
2.50%
8.50%
See
notes
to
consolidated
financial
statements.
135
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)
(in thousands, except share data)
Endnote Explanations as of June 30, 2016 and June 30, 2015 (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
the
three
months
ended
June
30,
2015
:
Security Name
American
Property
REIT
Corp.
CCPI
Inc.
Cinedigm
DC
Holdings,
LLC
CP
Energy
Services
Inc.
-
Second
Lien
Term
Loan
CP
Energy
Services
Inc.
-
Senior
Secured
Term
Loan
B
Credit
Central
Loan
Company,
LLC
Echelon
Aviation
LLC
Edmentum
Ultimate
Holdings,
LLC
-
Unsecured
Senior
PIK
Note
Edmentum
Ultimate
Holdings,
LLC
-
Unsecured
Junior
PIK
Note
First
Tower
Finance
Company
LLC
Harbortouch
Payments,
LLC
JHH
Holdings,
Inc.
Mity,
Inc.
National
Property
REIT
Corp.
-
Senior
Secured
Term
Loan
A
National
Property
REIT
Corp.
-
Senior
Secured
Term
Loan
C
National
Property
REIT
Corp.
-
Senior
Secured
Term
Loan
D
National
Property
REIT
Corp.
-
Senior
Secured
Term
Loan
A
to
ACL
Loan
Holdings,
Inc.
National
Property
REIT
Corp.
-
Senior
Secured
Term
Loan
B
to
ACL
Loan
Holdings,
Inc.
Nationwide
Loan
Company
LLC
Nixon,
Inc.
Ryan,
LLC
TB
Corp.
Targus
Group
International,
Inc.
United
Property
REIT
Corp.
Valley
Electric
Co.
of
Mt.
Vernon,
Inc.
Valley
Electric
Company,
Inc.
PIK Rate -
Capitalized
PIK Rate -
Paid as cash
Maximum Current
PIK Rate
—%
7.00%
2.50%
9.00%
7.50%
—%
N/A
N/A
N/A
1.64%
5.50%
0.50%
10.00%
—%
—%
—%
—%
—%
—%
2.75%
3.00%
—%
1.00%
—%
2.50%
8.50%
5.50%
—%
—%
—%
—%
10.00%
N/A
N/A
N/A
10.36%
—%
—%
—%
5.50%
7.50%
4.50%
7.50%
4.50%
10.00%
—%
—%
1.50%
—%
5.50%
—%
—%
(B)
(B)
(B)
(C)
5.50%
7.00%
2.50%
9.00%
7.50%
10.00%
2.25%
8.50%
10.00%
12.00%
5.50%
0.50%
10.00%
5.50%
7.50%
4.50%
7.50%
4.50%
10.00%
2.75%
3.00%
1.50%
1.00%
5.50%
2.50%
8.50%
(A)
PIK
is
capitalized
quarterly;
next
PIK
payment/capitalization
date
at
June
30,
2016
is
August
31,
2016.
(B)
PIK
is
capitalized
quarterly;
next
PIK
payment
date
at
June
30,
2015
was
July
31,
2015.
(C)
PIK
is
capitalized
annually;
next
PIK
payment/capitalization
date
at
June
30,
2015
was
April
1,
2016.
See
notes
to
consolidated
financial
statements.
136
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)
(in thousands, except share data)
Endnote Explanations as of June 30, 2016 and June 30, 2015 (Continued)
(48) 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,
2016
with
these
controlled
investments
were
as
follows:
Portfolio Company
American
Property
REIT
Corp.***
Arctic
Energy
Services,
LLC
CCPI
Inc.
CP
Energy
Services
Inc.
Credit
Central
Loan
Company,
LLC
Echelon
Aviation
LLC
Edmentum
Ultimate
Holdings,
LLC
First
Tower
Finance
Company
LLC
Freedom
Marine
Solutions,
LLC
Gulf
Coast
Machine
&
Supply
Company
Harbortouch
Payments,
LLC
MITY,
Inc.
National
Property
REIT
Corp.****
Nationwide
Loan
Company
LLC
NMMB,
Inc.
R-V
Industries,
Inc.
SB
Forging
Company,
Inc.
United
Property
REIT
Corp.***
USES
Corp.
Valley
Electric
Company,
Inc.
Wolf
Energy,
LLC
Fair Value at
June 30, 2015
Gross
Additions
(Cost)*
Gross
Reductions
(Cost)**
Net unrealized
gains (losses)
Fair Value at
June 30, 2016
Interest
income
Dividend
income
Other
income
Net
realized
gains
(losses)
$
118,256 $
2,826 $
(103,017) $
(18,065) $
— $
7,306 $
11,016 $
899 $
60,364
41,352
91,009
55,172
68,941
—
475
(2,819)
921
—
—
(6,368)
—
(323)
(2,954)
(22,024)
5,897
(12,188)
(3,516)
(5,166)
38,340
41,356
76,002
52,254
60,821
1,123
3,123
(390)
7,398
5,700
—
3,196
—
—
—
—
— 2,067
—
7,250
37,216
9,358
(4,896)
2,668
44,346
3,650
365,950
8,866
(679)
(21,471)
352,666
56,698
27,090
1,000
—
(1,472)
26,618
1,112
6,918
9,500
(1,075)
(8,031)
7,312
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
376,936
50,795
9,503
139
(314,962)
—
(71,477)
3,115
—
54,049
33,419
5,762
— 12,909
—
711
(5,419)
13
471,889
256,737
20,979
94,328
843,933
62,690
— 5,375
34,550
12,052
40,508
3,583
—
—
—
—
84,685
—
30,497
22
7,531
55,297
1,599
—
(300)
—
(614)
—
(83,159)
(150)
—
—
(2,020)
(2,045)
(3,017)
35,813
10,007
36,877
3,212
1,525
2,908
3,963
—
299
—
—
—
—
—
—
—
—
(9,057)
(14,861)
(1,005)
656
—
40,286
31,091
678
6,778
—
5,363
—
— 1,278
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Total $
1,974,202 $
364,516 $
(497,518) $
(88,751) $
1,752,449 $
207,377 $
26,435 $ 22,528 $
(5,406)
*
Gross
additions
include
increases
in
the
cost
basis
of
the
investments
resulting
from
new
portfolio
investments,
and
PIK
interest.
**
Gross
reductions
include
decreases
in
the
cost
basis
of
investments
resulting
from
principal
collections
related
to
investments
repayments
or
sales,
and
impairments.
***Effective
May
23,
2016,
APRC
and
UPRC
merged
with
and
into
NPRC,
to
consolidate
all
of
our
real
estate
holdings,
with
NPRC
as
the
surviving
entity.
No
gain
or
loss
was
recognized
upon
the
merger.
****NPRC’s
gross
reductions
include
the
amortized
amounts
of
$73,314
and
$75,592
transferred
in
from
APRC
and
UPRC,
respectively,
in
conjunction
with
the
merger
described
above.
See
notes
to
consolidated
financial
statements.
137
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)
(in thousands, except share data)
Endnote Explanations as of June 30, 2016 and June 30, 2015 (Continued)
(49) 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,
2016
with
these
affiliated
investments
were
as
follows:
Portfolio Company
Fair Value
at
June 30,
2015
Gross
Additions
(Cost)*
Gross
Reductions
(Cost)**
Net
unrealized
gains (losses)
Fair Value at
June 30, 2016
Interest
income
Dividend
income
Other
income
Net
realized
gains
(losses)
BNN
Holdings
Corp.
Targus
International
LLC
$
45,945 $
—
— $
22,724
(42,922) $
(14,194)
Total $
45,945 $
22,724 $
(57,116) $
(181) $
(52)
(233) $
2,842 $
8,478
11,320 $
896 $
—
896 $
— $
—
— $
— $
—
— (14,194)
— $ (14,194)
*
Gross
additions
include
increases
in
the
cost
basis
of
the
investments
resulting
from
new
portfolio
investments,
and
PIK
interest.
**
Gross
reductions
include
decreases
in
the
cost
basis
of
investments
resulting
from
principal
collections
related
to
investments
repayments
or
sales,
and
impairments.
(50) 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,
2015
with
these
controlled
investments
were
as
follows:
See
notes
to
consolidated
financial
statements.
138
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)
(in thousands, except share data)
Endnote Explanations as of June 30, 2016 and June 30, 2015 (Continued)
Fair Value
at
June 30,
2014
Gross
Additions
(Cost)*
$
45,284 $
—
206,159
(102,543) ***
—
61,114
436
2,115
32,594
—
—
130,119
50,432
92,628
—
—
—
250
599
—
—
2,818
300
5,800
—
60,772
326,785
32,004
14,459
291,314
—
49,289
332
—
8,500
35,374
—
3,032
29,923
6,297
57,734
25,536
2,814
383
—
—
33,556
2,053
—
3,599
100
—
Portfolio Company
Airmall
Inc.
American
Property
REIT
Corp.
Appalachian
Energy
LLC
Arctic
Energy
Services,
LLC
Borga,
Inc.
BXC
Company,
Inc.
CCPI
Inc.
Change
Clean
Energy
Company,
LLC
Coalbed,
LLC
CP
Energy
Services
Inc.
Credit
Central
Loan
Company,
LLC
Echelon
Aviation
LLC
Edmentum
Ultimate
Holdings,
LLC
First
Tower
Finance
Company
LLC
Freedom
Marine
Solutions,
LLC
Gulf
Coast
Machine
&
Supply
Company
Harbortouch
Payments,
LLC
Manx
Energy,
Inc.
MITY,
Inc.
National
Property
REIT
Corp.
Nationwide
Loan
Company
LLC
(f/k/a
Nationwide
Acceptance
LLC)
NMMB,
Inc.
R-V
Industries,
Inc.
SB
Forging
Company,
Inc.
*****
United
Property
REIT
Corp.
Valley
Electric
Company,
Inc.
Vets
Securing
America,
Inc.****
Wolf
Energy,
LLC
Yatesville
Coal
Company,
LLC
Gross
Reductions
(Cost)**
Net
unrealized
gains (losses)
Fair Value
at
June 30,
2015
Interest
income
Dividend
income
Other
income
Net
realized
gains
(losses)
$
(57,500) $
12,216 $
— $
576 $
— $
3,000 $
(2,808)
(32)
(2,050)
14,672
118,256
14,747
2,050
—
—
—
(750)
60,364
6,721
(3,177)
(17,698)
(476)
—
—
—
(2,337)
(37,713)
(23,556)
2,741
15,333
8,635
—
—
—
—
—
—
41,352
3,332
—
—
—
—
(41,927)
91,010
16,420
6,777
8,226
55,172
68,941
7,375
6,895
—
37,216
—
(1,932)
40,765
365,950
52,900
1,929
(485)
(4,429)
27,090
4,461
—
(16,041)
6,918
1,370
(8,609)
(50)
(2,594)
58,857
376,936
29,834
50
1,068
—
—
50,795
5,783
(2,350)
—
4,163
5,372
(1,175)
(16,052)
34,550
12,052
40,507
3,005
1,521
3,018
4,425
—
298
(46,550)
21,014
—
956
159
1,220
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1,342
—
— (2,050)
—
—
— (2,589)
5
(16,949)
525
—
—
—
—
—
—
—
—
—
—
— (22,116)
—
—
—
579
—
—
1,959
—
—
—
—
—
—
—
(50)
(5)
—
—
—
—
—
—
—
—
—
—
2,000
(21,001)
2,345
—
—
—
— (3,246)
— (5,818)
— (1,449)
24,566
51,936 ***
(448)
8,631
84,685
5,893
(76)
(5,036)
30,497
4,991
(3,931)
(5,991)
3,831
2,414
1,449
—
22
—
—
—
—
—
— —
(1,449)
124,511
361,481 ***
(38,420)
24,317
471,889
30,611
Total $ 1,640,454 $
434,001
$
(258,599) $
158,346 $ 1,974,202 $ 200,409 $
6,811 $ 12,975 $ (78,081)
*
Gross
additions
include
increases
in
the
cost
basis
of
the
investments
resulting
from
new
portfolio
investments,
and
PIK
interest.
**
Gross
reductions
include
decreases
in
the
cost
basis
of
investments
resulting
from
principal
collections
related
to
investments
repayments
or
sales,
and
impairments.
Redemption
amounts
included
within
gross
reductions
include
the
cost
basis
adjustments
resulting
from
consolidation
on
July
1,
2014.
***
These
amounts
include
the
cost
basis
of
investments
transferred
from
APRC
and
UPRC
to
NPRC.
(See
Note
3
for
details.)
****
During
the
year
ended
June
30,
2015,
The
Healing
Staff,
Inc.
(“THS”)
ceased
operations
and
Vets
Securing
America,
Inc.
(“VSA”)
management
team
supervised
both
the
continued
operations
of
VSA
and
the
wind-down
of
activities
at
THS.
See
notes
to
consolidated
financial
statements.
139
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)
(in thousands, except share data)
Endnote Explanations as of June 30, 2016 and June 30, 2015 (Continued)
*****
Realized
loss
reflects
an
adjustment
from
three
months
ended
March
31,
2016,
pertaining
to
prior
period.
(51) 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,
2015
with
these
affiliated
investments
were
as
follows:
Portfolio Company
Fair Value at
June 30, 2014
Gross
Additions
(Cost)*
Gross
Reductions
(Cost)**
Net
unrealized
gains
(losses)
Fair Value at
June 30, 2015
Interest
income
Dividend
income
Other
income
Net realized
gains (losses)
BNN
Holdings
Corp.
$
32,121 $
44,000 $
(30,679) $
Total $
32,121 $
44,000 $
(30,679) $
503 $
503 $
45,945 $
45,945 $
3,799 $
3,799 $
778 $
778 $
226 $
226 $
—
—
*
Gross
additions
include
increases
in
the
cost
basis
of
the
investments
resulting
from
new
portfolio
investments,
and
PIK
interest.
**
Gross
reductions
include
decreases
in
the
cost
basis
of
investments
resulting
from
principal
collections
related
to
investments
repayments
or
sales,
and
impairments.
See
notes
to
consolidated
financial
statements.
140
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
Capital
Corporation
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
OnDeck
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.
Effective
July
1,
2014,
we
began
consolidating
certain
of
our
wholly-owned
and
substantially
wholly-owned
holding
companies
formed
by
us
in
order
to
facilitate
our
investment
strategy.
The
following
companies
have
been
included
in
our
consolidated
financial
statements
since
July
1,
2014:
AMU
Holdings
Inc.
;
APH
Property
Holdings,
LLC
(“APH”);
Arctic
Oilfield
Equipment
USA,
Inc.;
CCPI
Holdings
Inc.;
CP
Holdings
of
Delaware
LLC;
Credit
Central
Holdings
of
Delaware,
LLC;
Energy
Solutions
Holdings
Inc.;
First
Tower
Holdings
of
Delaware
LLC;
Harbortouch
Holdings
of
Delaware
Inc.;
MITY
Holdings
of
Delaware
Inc.;
Nationwide
Acceptance
Holdings
LLC;
NMMB
Holdings,
Inc.;
NPH
Property
Holdings,
LLC
(“NPH”);
STI
Holding,
Inc.;
UPH
Property
Holdings,
LLC
(“UPH”);
Valley
Electric
Holdings
I,
Inc.;
Valley
Electric
Holdings
II,
Inc.;
and
Wolf
Energy
Holdings
Inc.
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
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-K,
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.
141
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
years
ended
June
30,
2016
,
2015
and
2014
.
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
our
portfolio
companies
and
any
other
parameters
used
in
determining
these
estimates
could
cause
actual
results
to
differ,
and
these
differences
could
be
material.
Cash and Cash Equivalents
Cash
and
cash
equivalents
include
funds
deposited
with
financial
institutions
and
short-term,
highly-liquid
overnight
investments
in
money
market
funds.
Cash
and
cash
equivalents
are
carried
at
cost
which
approximates
fair
value.
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.
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.
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.
Specifically,
we
record
all
security
transactions
on
a
trade
date
basis.
Amounts
for
investments
recognized
or
derecognized
but
not
yet
settled
are
reported
in
due
to
broker
or
as
a
receivable
for
investments
sold,
respectively,
in
the
Consolidated Statements of Assets and Liabilities .
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.
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.
142
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
the
security
less
likely
to
fully
earn
all
of
the
expected
income
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 Lending Risk
With
respect
to
our
online
consumer
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
consumer
and
small
and
medium
sized
business
loans,
and
our
ability
to
grow
our
portfolio
of
consumer
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
consumer
loans.
In
addition,
our
ability
to
analyze
the
risk-return
profile
of
consumer
loans
is
significantly
dependent
on
the
marketplace
facilitator's
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
platform,
we
may
incur
unanticipated
losses
which
could
adversely
impact
our
operating
results.
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
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.
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
issues
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.
143
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
analysis,
enterprise
value
(“EV”)
analysis,
net
asset
value
analysis,
liquidation
analysis,
discounted
cash
flow
analysis,
or
a
combination
of
methods,
as
appropriate.
The
yield
analysis
uses
loan
spreads
for
loans,
dividend
yields
for
certain
investments
and
other
relevant
information
implied
by
market
data
involving
identical
or
comparable
assets
or
liabilities.
Under
the
EV
analysis,
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
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
analysis.
The
net
asset
value
analysis
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
analysis
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
analysis
uses
valuation
techniques
to
convert
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
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
ASC
820
Level
3
securities
and
are
valued
using
a
discounted
cash
flow
model.
The
valuations
have
been
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).
For
each
CLO
security,
the
most
appropriate
valuation
approach
has
been
chosen
from
alternative
approaches
to
ensure
the
most
accurate
valuation
for
such
security.
To
value
a
CLO,
both
the
assets
and
the
liabilities
of
the
CLO
capital
structure
are
modeled.
Our
valuation
agent
utilizes
additional
methods
to
validate
the
results
from
the
discounted
cash
flow
method,
such
as
Monte
Carlo
simulations
of
key
model
variables,
analysis
of
relevant
data
observed
in
the
CLO
market,
and
review
of
certain
benchmark
credit
indices.
We
use
a
waterfall
engine
to
store
the
collateral
data,
generate
collateral
cash
flows
from
the
assets
based
on
various
assumptions
for
the
risk
factors,
distribute
the
cash
flows
to
the
liability
structure
based
on
the
payment
priorities,
and
discount
them
back
using
appropriate
market
discount
rates.
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,
interest
rate
risk,
downgrade
risk,
and
credit
spread
risk.
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
further
discussion
of
our
financial
liabilities
that
are
measured
using
another
measurement
attribute.
Convertible Notes
We
have
recorded
the
Convertible
Notes
at
their
contractual
amounts.
The
Convertible
Notes
were
analyzed
for
any
features
that
would
require
bifurcation
and
such
features
were
determined
to
be
immaterial.
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.
Origination,
closing
and/or
commitment
fees
associated
with
investments
in
portfolio
companies
are
accreted
into
interest
income
over
the
respective
terms
of
the
applicable
loans.
Accretion
of
such
purchase
discounts
or
amortization
of
premiums
is
calculated
using
the
effective
interest
method
as
of
the
purchase
date
and
adjusted
only
for
material
amendments
or
prepayments.
Upon
the
prepayment
of
a
loan
or
debt
security,
any
prepayment
penalties
and
unamortized
loan
origination,
closing
and
commitment
fees
are
recorded
as
interest
income.
144
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
may
be
recognized
as
income
or
applied
to
principal
depending
upon
management’s
judgment.
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.
As
of
June
30,
2016
,
approximately
1.4%
of
our
total
assets
at
fair
value
are
in
non-accrual
status.
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.
Structuring
fees
and
similar
fees
are
recognized
as
income
is
earned,
usually
when
paid.
Structuring
fees,
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
regulated
investment
company
and
intend
to
continue
to
comply
with
the
requirements
of
the
Code
applicable
to
regulated
investment
companies.
We
are
required
to
distribute
at
least
90%
of
our
investment
company
taxable
income
and
intend
to
distribute
(or
retain
through
a
deemed
distribution)
all
of
our
investment
company
taxable
income
and
net
capital
gain
to
stockholders;
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
earned
in
the
calendar
year,
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
calendar
year
taxable
income
will
be
in
excess
of
estimated
current
calendar
year
dividend
distributions
from
such
taxable
income,
we
accrue
excise
taxes,
if
any,
on
estimated
excess
taxable
income.
As
of
June
30,
2016
and
June
30,
2015,
we
accrued
$1,100
and
$305,
respectively,
for
any
unpaid
potential
excise
tax
liability
and
have
included
these
amounts
within
other
liabilities
on
the
accompanying
Consolidated Statements of Assets and Liabilities .
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.
For
the
years
ended
June
30,
2016
and
June
30,
2015,
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
tax
returns
for
our
federal
tax
years
ended
August
31,
2013
and
thereafter
remain
subject
to
examination
by
the
Internal
Revenue
Service.
Dividends and Distributions
145
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
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
which
approximates
the
effective
yield
method
for
our
Revolving
Credit
Facility,
Baby
Bond
Program,
and
Prospect
Capital
InterNotes®.
The
effective
interest
method
is
used
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.
Effective
July
1,
2016,
these
costs
will
be
reclassified
to
the
balance
sheet
as
a
deduction
from
the
debt
liability
rather
than
an
asset,
in
accordance
with
Accounting
Standards
Update
2015-03,
Simplifying the Presentation of Debt Issuance Costs (“ASU
2015-03”).
We
may
record
registration
expenses
related
to
shelf
filings
as
prepaid
assets.
These
expenses
consist
principally
of
SEC
registration
fees,
legal
fees
and
accounting
fees
incurred.
These
prepaid
assets
are
charged
to
capital
upon
the
receipt
of
proceeds
from
an
equity
offering
or
charged
to
expense
if
no
offering
is
completed.
As
of
June
30,
2016
and
June
30,
2015
,
there
are
no
prepaid
assets
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 Pronouncement
In
April
2015,
the
FASB
issued
ASU
2015-03,
Interest
-
Imputation
of
Interest
(Subtopic
835-30):
Simplifying
the
Presentation
of
Debt
Issuance
Costs,
which
requires
debt
issuance
costs
related
to
a
recognized
debt
liability
to
be
presented
in
the
balance
sheet
as
a
direct
deduction
from
the
debt
liability
rather
than
as
an
asset.
The
new
guidance
will
make
the
presentation
of
debt
issuance
costs
consistent
with
the
presentation
of
debt
discounts
or
premiums.
ASU
2015-03
is
effective
for
financial
statements
issued
for
fiscal
years
beginning
after
December
15,
2015,
and
interim
periods
within
those
fiscal
years.
Early
adoption
is
permitted
for
financial
statements
that
have
not
been
previously
issued.
The
new
guidance
must
be
applied
on
a
retrospective
basis
to
all
prior
periods
presented
in
the
financial
statements.
The
adoption
of
the
amended
guidance
in
ASU
2015-03
is
expected
to
decrease
total
liabilities
by
decreasing
the
carrying
value
of
our
debt,
and
is
expected
to
decrease
total
assets
by
decreasing
deferred
financing
costs
of
our
debt,
but
is
not
expected
to
have
any
other
significant
effect
on
our
consolidated
financial
statements
and
disclosures.
Note 3. Portfolio Investments
At
June
30,
2016
,
we
had
investments
in
125
long-term
portfolio
investments,
which
had
an
amortized
cost
of
$6,091,100
and
a
fair
value
of
$5,897,708
.
At
June
30,
2015
,
we
had
investments
in
131
long-term
portfolio
investments,
which
had
an
amortized
cost
of
$6,559,376
and
a
fair
value
of
$6,609,558
.
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
$979,102
and
$1,867,477
during
the
years
ended
June
30,
2016
and
June
30,
2015
,
respectively.
Debt
repayments
and
considerations
from
sales
of
equity
securities
of
approximately
$1,338,875
and
$1,411,562
were
received
during
the
years
ended
June
30,
2016
and
June
30,
2015
,
respectively.
The
following
table
shows
the
composition
of
our
investment
portfolio
as
of
June
30,
2016
and
June
30,
2015
.
146
Revolving
Line
of
Credit
Senior
Secured
Debt
Subordinated
Secured
Debt
Subordinated
Unsecured
Debt
Small
Business
Loans
CLO
Debt
CLO
Residual
Interest
Equity
Total
Investments
June 30, 2016
June 30, 2015
Cost
Fair Value
Cost
Fair Value
$
13,274
$
13,274
$
30,546
$
3,072,839
1,228,598
75,878
14,603
—
2,941,722
1,209,604
68,358
14,215
—
3,617,111
1,234,701
145,644
50,558
28,613
1,083,540
1,009,696
1,072,734
602,368
640,839
379,469
$
6,091,100
$
5,897,708
$
6,559,376
$
30,546
3,533,447
1,205,303
144,271
50,892
32,398
1,113,023
499,678
6,609,558
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:
•
•
•
•
•
•
•
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
small
business
whole
loans
purchased
from
OnDeck
and
Direct
Capital
Corporation
(“Direct
Capital”).
CLO
Debt
includes
our
investments
in
the
“debt”
class
of
security
of
CLO
funds.
CLO
Residual
Interest
includes
our
investments
in
the
“equity”
class
of
security
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.
147
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,
2016
.
Revolving
Line
of
Credit
Senior
Secured
Debt
Subordinated
Secured
Debt
Subordinated
Unsecured
Debt
Small
Business
Loans
CLO
Residual
Interest
Equity
Total
Investments
Level 1
Level 2
Level 3
Total
—
$
—
$
13,274
$
—
—
—
—
—
—
—
—
—
—
—
—
2,941,722
1,209,604
68,358
14,215
1,009,696
640,839
—
$
—
$
5,897,708
$
13,274
2,941,722
1,209,604
68,358
14,215
1,009,696
640,839
5,897,708
$
$
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,
2015
.
Revolving
Line
of
Credit
Senior
Secured
Debt
Subordinated
Secured
Debt
Subordinated
Unsecured
Debt
Small
Business
Loans
CLO
Debt
CLO
Residual
Interest
Equity
Total
Investments
Level 1
Level 2
Level 3
Total
$
—
$
—
$
30,546
$
30,546
—
—
—
—
—
—
260
260
$
$
—
—
—
—
—
—
—
3,533,447
3,533,447
1,205,303
1,205,303
144,271
144,271
50,892
32,398
50,892
32,398
1,113,023
1,113,023
499,418
499,678
—
$
6,609,298
$
6,609,558
The
following
tables
show
the
aggregate
changes
in
the
fair
value
of
our
Level
3
investments
during
the
year
ended
June
30,
2016
.
Fair Value Measurements Using Unobservable Inputs (Level 3)
Fair
value
as
of
June
30,
2015
Net
realized
losses
on
investments
Net
change
in
unrealized
depreciation
Net
realized
and
unrealized
losses
Purchases
of
portfolio
investments
Payment-in-kind
interest
Amortization
of
discounts
and
premiums,
net
Repayments
and
sales
of
portfolio
investments
Transfers
within
Level
3(1)
Transfers
in
(out)
of
Level
3(1)
Control
Investments
Affiliate
Investments
Non-Control/
Non-Affiliate
Investments
$
1,974,202
$
45,945
$
4,589,151
$
Total
6,609,298
(27,737)
(243,376)
(271,113)
958,572
20,531
(84,087)
(14,194)
(8,137)
(233)
(154,392)
(14,427)
(162,529)
1,263
660,339
—
—
(42,922)
21,461
—
5,356
(84,087)
(800,459)
(1,335,493)
(73,832)
—
—
—
(5,406)
(88,751)
(94,157)
296,970
15,175
—
(492,112)
52,371
—
Fair
value
as
of
June
30,
2016
$
1,752,449
$
11,320
$
4,133,939
$
5,897,708
148
Revolving
Line of
Credit
Senior
Secured
Debt
Subordinated
Secured Debt
Subordinated
Unsecured
Debt
144,271
$
Small
Business
Loans
50,892
$ 32,398
$ 1,113,023
$ 499,418
$ 6,609,298
CLO
Residual
Interest
CLO
Debt
Equity
Total
1,205,303
$
Fair
value
as
of
June
30,
2015
Net
realized
(losses)
gains
on
investments
Net
change
in
unrealized
(depreciation)
appreciation
Net
realized
and
unrealized
(losses)
gains
Purchases
of
portfolio
investments
Payment-in-kind
interest
Accretion
(amortization)
of
discounts
and
premiums
Repayments
and
sales
of
portfolio
investments
Transfers
within
Level
3(1)
Transfers
in
(out)
of
Level
3(1)
Fair
value
as
of
June
30,
2016
$
30,546
$ 3,533,447
$
—
—
—
9,824
—
—
(27,096)
—
—
(1,246)
(47,455)
(48,701)
412,950
15,900
353
(847,644)
(124,583)
—
(7,456)
10,403
2,947
147,104
1,697
986
(73,200)
(75,233)
—
10
(5,986)
3,911
—
(16,970)
(27,737)
(722)
(3,784)
(114,131)
(81,541)
(243,376)
(6,146)
(6,136)
—
2,934
—
(6,708)
72,400
—
—
127
—
—
390
(114,131)
96,620
—
(85,816)
(98,511)
219,674
—
—
(72,711)
—
—
(102,369)
—
—
(32,915)
—
—
—
—
—
(179,558)
199,816
—
(271,113)
958,572
20,531
(84,087)
(1,335,493)
—
—
$
13,274
$ 2,941,722
$
1,209,604
$
68,358
$
14,215
$
—
$ 1,009,696
$ 640,839
$ 5,897,708
(1) Transfers
are
assumed
to
have
occurred
at
the
beginning
of
the
quarter
during
which
the
asset
was
transferred.
The
following
tables
show
the
aggregate
changes
in
the
fair
value
of
our
Level
3
investments
during
the
year
ended
June
30,
2015
.
Fair Value Measurements Using Unobservable Inputs (Level 3)
Fair
value
as
of
June
30,
2014
$
1,640,454
$
32,121
$
4,580,996
$
Control
Investments
Affiliate
Investments
Non-Control/
Non-Affiliate
Investments
Total
6,253,571
Net
realized
losses
on
investments
Net
change
in
unrealized
appreciation
Net
realized
and
unrealized
gains
(losses)
Purchases
of
portfolio
investments
Payment-in-kind
interest
Amortization
of
discounts
and
premiums,
net
Repayments
and
sales
of
portfolio
investments
Transfers
within
Level
3(1)
Transfers
in
(out)
of
Level
3(1)
(80,640)
158,346
77,706
361,151
22,850
—
(177,959)
50,000
—
—
503
503
(99,836)
(180,476)
9,024
(90,812)
167,873
(12,603)
15,050
1,461,999
1,838,200
—
—
6,427
(87,638)
29,277
(87,638)
(1,729)
(1,231,821)
(1,411,509)
—
—
(50,000)
—
—
—
Fair
value
as
of
June
30,
2015
$
1,974,202
$
45,945
$
4,589,151
$
6,609,298
Revolving
Line of
Credit
Senior
Secured
Debt
Subordinated
Secured Debt
Subordinated
Unsecured
Debt
Small
Business
Loans
2,786
$ 3,514,198
$
(1,095)
(36,955)
1,200,221
$
(77,745)
85,531
$
(6,502)
4,252
$
(2,490)
CLO
Residual
Interest
CLO
Debt
33,199
$ 1,093,985
$ 319,399
$ 6,253,571
Equity
Total
—
(15,561)
(40,128)
(180,476)
Fair
value
as
of
June
30,
2014
$
Net
realized
loss
on
investments
Net
change
in
unrealized
appreciation
(depreciation)
Net
realized
and
unrealized
(losses)
gains
Purchases
of
portfolio
investments
Payment-in-kind
interest
Accretion
(amortization)
of
discounts
and
premiums
Repayments
and
sales
of
portfolio
investments
Transfers
within
Level
3(1)
Transfers
in
(out)
of
Level
3(1)
659
(19,521)
(436)
58,196
—
—
(30,000)
—
—
(56,476)
1,205,788
25,695
314
(1,012,072)
(144,000)
—
42,658
(35,087)
170,767
1,412
3,617
(206,066)
70,439
—
Fair
value
as
of
June
30,
2015 $
30,546
$ 3,533,447
$
1,205,303
$
(1,374)
(7,876)
12,469
2,170
—
719
(1,296)
(9,043)
155,071
167,873
(1,771)
96,614
—
(1,296)
—
—
(24,604)
220,779
—
114,943
73,587
—
—
495
(92,064)
—
612
51,365
—
144,271
$
(48,203)
—
—
50,892
$
—
—
—
(85,073)
—
—
(30,707)
22,196
—
—
32,398
$ 1,113,023
$ 499,418
$ 6,609,298
(12,603)
1,838,200
29,277
(87,638)
(1,411,509)
—
(1) Transfers
are
assumed
to
have
occurred
at
the
beginning
of
the
quarter
during
which
the
asset
was
transferred.
The
net
change
in
unrealized
(depreciation)
appreciation
on
the
investments
that
use
Level
3
inputs
was
$(157,796)
and
$82,432
for
investments
still
held
as
of
June
30,
2016
and
June
30,
2015
,
respectively.
149
The
ranges
of
unobservable
inputs
used
in
the
fair
value
measurement
of
our
Level
3
investments
as
of
June
30,
2016
were
as
follows:
Asset Category
Fair Value
Primary Valuation Technique
Input
Range
Weighted
Average
Unobservable Input
Senior
Secured
Debt
Senior
Secured
Debt
Senior
Secured
Debt
Senior
Secured
Debt
Senior
Secured
Debt
Senior
Secured
Debt
(1)
Senior
Secured
Debt
(2)
Subordinated
Secured
Debt
Subordinated
Secured
Debt
Subordinated
Secured
Debt
(3)
Subordinated
Unsecured
Debt
Subordinated
Unsecured
Debt
Small
Business
Loans
(4)
CLO
Residual
Interest
Preferred
Equity
(6)
Preferred
Equity
Common
Equity/Interests/Warrants
(7)
$
2,167,389
115,893
64,418
37,856
7,972
99,972
461,496
871,593
28,622
309,389
30,781
37,577
14,215
76,081
2,842
92,391
Common
Equity/Interests/Warrants
(2)
215,490
Common
Equity/Interests/Warrants
(3)
127,727
Common
Equity/Interests/Warrants
(5)
Common
Equity/Interests/Warrants
Common
Equity/Interests/Warrants
Common
Equity/Interests/Warrants
Escrow
Receivable
66,973
22,965
3,616
26,638
6,116
Total
Level
3
Investments
$
5,897,708
Discounted
Cash
Flow
(Yield
analysis)
Enterprise
Value
Waterfall
(Market
approach)
Enterprise
Value
Waterfall
(Market
approach)
Enterprise
Value
Waterfall
(Discounted
cash
flow)
Liquidation
Analysis
Market
Yield
5.3%-27.6%
11.6%
EBITDA
Multiple
Revenue
Multiple
Discount
Rate
N/A
4.5x-6.8x
0.4x-0.6x
6.5%-8.5%
N/A
Enterprise
Value
Waterfall
Loss-adjusted
discount
rate
3.0%-18.0%
Enterprise
Value
Waterfall
(NAV
Analysis)
Enterprise
Value
Waterfall
(Income
approach)
Discounted
Cash
Flow
(Yield
Analysis)
Enterprise
Value
Waterfall
(Market
approach)
Enterprise
Value
Waterfall
(Market
approach)
Enterprise
Value
Waterfall
(Market
approach)
Discounted
Cash
Flow
(Yield
Analysis)
Enterprise
Value
Waterfall
(Market
approach)
Capitalization
Rate
Discount
Rate
3.4%-8.3%
6.5%-7.5%
Market
Yield
5.3%-25.7%
EBITDA
Multiple
Book
Value
Multiple
7.0x-8.0x
1.2x-3.7x
Earnings
Multiple
7.0x-11.0x
Market
Yield
14.1%-71.9%
EBITDA
Multiple
5.8x-8.5x
Discounted
Cash
Flow
Loss-Adjusted
Discount
Rate
1,009,696
Discounted
Cash
Flow
Discount
Rate
Enterprise
Value
Waterfall
(Market
approach)
EBITDA
Multiple
Discounted
Cash
Flow
Discount
Rate
12.7%-33.6%
15.6%-23.9%
4.5x-7.0x
6.2%-7.3%
4.8x-9.0x
3.4%-8.3%
6.5%-7.5%
EBITDA
Multiple
Capitalization
Rate
Discount
Rate
Book
Value
Multiple
1.2x-3.7x
Earnings
Multiple
Discount
Rate
Discount
Rate
Market
Yield
N/A
Discount
Rate
7.0x-11.0x
6.5%-7.5%
6.5%-8.5%
16.0%-18.0%
N/A
6.2%-7.5%
Enterprise
Value
Waterfall
(Market
approach)
Enterprise
Value
Waterfall
(NAV
analysis)
Enterprise
Value
Waterfall
(Income
approach)
Enterprise
Value
Waterfall
(Market
approach)
Enterprise
Value
Waterfall
(Market
approach)
Discounted
Cash
Flow
Discounted
Cash
Flow
Discounted
Cash
Flow
(Yield
analysis)
Liquidation
Analysis
Discounted
Cash
Flow
150
5.9x
0.5x
7.5%
N/A
13.5%
5.9%
7.0%
12.6%
7.5x
2.5x
10.2x
28.9%
7.7x
21.8%
18.0%
6.7x
6.8%
6.0x
5.9%
7.0%
2.3x
10.0x
7.0%
7.5%
17.0%
N/A
6.8%
(1) Represents
an
investment
in
a
Real
Estate
Investment
subsidiary.
The
Enterprise
Value
analysis
includes
the
fair
value
of
our
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
above.
In
addition,
the
valuation
also
used
projected
loss
rates
as
an
unobservable
input
ranging
from
1.07%-24.50%,
with
a
weighted
average
of
10.58%.
(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
observable
input
(book
value
multiple,
earnings
multiple
and
discount
rate)
is
weighted
equally.
For
these
companies
the
discount
rate
ranged
from
14.5%
to
18.0%
with
a
weighted
average
of
15.7%.
(4)
Includes
our
investments
in
small
business
whole
loans
purchased
from
OnDeck.
Valuation
also
used
projected
loss
rates
as
an
unobservable
input
ranging
from
0.71%-
5.25%,
with
a
weighted
average
of
1.22%.
(5) Represents
net
operating
income
interests
in
our
REIT
investments.
(6)
(7)
In
addition,
the
valuation
of
certain
controlled
energy
companies
utilizes
the
discounted
cash
flow
technique
whereby
the
significant
unobservable
input
is
the
discount
rate.
For
these
companies
each
observable
input
is
weighted
equally.
For
these
companies
the
discounted
rate
ranged
from
20.0%
to
21.0%
with
a
weighted
average
of
20.5%.
In
addition,
the
valuation
of
certain
energy
companies
utilizes
the
discounted
cash
flow
technique
whereby
the
significant
unobservable
input
is
the
discount
rate.
For
these
companies
each
observable
input
is
weighted
equally.
For
these
companies
the
discounted
rate
ranged
from
20.5%
to
21.5%
with
a
weighted
average
of
21.0%.
151
The
ranges
of
unobservable
inputs
used
in
the
fair
value
measurement
of
our
Level
3
investments
as
of
June
30,
2015
were
as
follows:
Asset Category
Fair Value
Primary Valuation Technique
Input
Range
Weighted
Average
Unobservable Input
Enterprise
value
waterfall
Loss-Adjusted
Discount
Rate
Enterprise
value
waterfall
Loss-Adjusted
Discount
Rate
Senior
Secured
Debt
Senior
Secured
Debt
Senior
Secured
Debt
Senior
Secured
Debt
Senior
Secured
Debt
(1)
Senior
Secured
Debt
(2)
Senior
Secured
Debt
Senior
Secured
Debt
(3)
Subordinated
Secured
Debt
Subordinated
Secured
Debt
Subordinated
Secured
Debt
(4)
Subordinated
Unsecured
Debt
Subordinated
Unsecured
Debt
Small
Business
Loans
(5)
Small
Business
Loans
(6)
CLO
Debt
CLO
Residual
Interest
Preferred
Equity
Preferred
Equity
Common
Equity/Interests/Warrants
Common
Equity/Interests/Warrants
(3)
$
2,421,188
563,050
40,808
6,918
98,025
64,560
25,970
343,474
847,624
54,948
302,731
112,701
31,570
362
50,530
32,398
1,113,023
4,091
3,023
135,333
130,316
Common
Equity/Interests/Warrants
(4)
148,631
Discounted
cash
flow
(Yield
analysis)
Enterprise
value
waterfall
(Market
approach)
Enterprise
value
waterfall
(Discounted
cash
flow)
Liquidation
Analysis
Enterprise
value
waterfall
Enterprise
value
waterfall
(NAV
analysis)
Enterprise
value
waterfall
(Market
approach)
Discounted
cash
flow
(Yield
analysis)
Enterprise
value
waterfall
(Market
approach)
Enterprise
value
waterfall
(Market
approach)
Enterprise
value
waterfall
(Market
approach)
Discounted
cash
flow
(Yield
analysis)
Enterprise
value
waterfall
(Market
approach)
Discounted
Cash
Flow
Discounted
Cash
Flow
Enterprise
value
waterfall
(Market
approach)
Discounted
cash
flow
(Yield
analysis)
Enterprise
value
waterfall
(Market
approach)
Enterprise
value
waterfall
(NAV
analysis)
Enterprise
value
waterfall
(Market
approach)
Enterprise
value
waterfall
(Market
approach)
Enterprise
value
waterfall
(Market
approach)
Common
Equity/Interests/Warrants
(7)
Common
Equity/Interests/Warrants
Common
Equity/Interests/Warrants
Common
Equity/Interests/Warrants
Common
Equity/Interests/Warrants
Escrow
Receivable
38,455
28,133
4,310
1,120
22
5,984
Discounted
cash
flow
Enterprise
value
waterfall
(Discounted
cash
flow)
Discounted
cash
flow
(Yield
analysis)
Enterprise
value
waterfall
Liquidation
analysis
Discounted
cash
flow
Total
Level
3
Investments
$
6,609,298
152
Market
Yield
6.1%-21.4%
11.3%
EBITDA
Multiple
3.5x-11.0x
Market
Yield
8.1%-18.3%
12.5%
Discount
Rate
N/A
Appraisal
7.0%-9.0%
N/A
3.8%-10.7%
5.4%-16.3%
N/A
Capitalization
Rate
5.6%-7.0%
Dividend
Yield
8.8%-11.7%
EBITDA
Multiple
Book
Value
Multiple
3.5x-6.0x
1.2x-3.8x
Earnings
multiple
6.8x-11.0x
Market
Yield
9.1%-15.3%
EBITDA
Multiple
5.8x-8.0x
Discount
Rate
Discount
Rate
6.1%-6.9%
11.2%-18.0%
EBITDA
multiple
4.5x
-
8.5x
Market
yield
19.8%
-
24.7%
EBITDA
multiple
3.5x-11.0x
Capitalization
Rate
5.6%-7.0%
Dividend
Yield
8.8%
-
11.7%
Book
value
multiple
1.2x-3.8x
Earnings
multiple
Discount
rate
Discount
rate
Market
yield
Appraisal
n/a
6.8x-11.0x
11.5%
-
12.5%
7.0%-9.0%
16.0%
-
18.0%
n/a
n/a
Discount
rate
7.0%-8.2%
8.1x
8.0%
N/A
6.9%
10.0%
N/A
6.0%
9.7%
4.7x
2.7x
10.3x
11.8%
7.2x
23.5%
24.9%
6.5%
14.0%
6.7x
22.2%
8.6x
5.9%
9.5%
2.5x
10.1x
12.0%
8.0%
17.0%
n/a
n/a
7.6%
Discounted
Cash
Flow
Loss-Adjusted
Discount
Rate
11.7%-27.3%
Discounted
Cash
Flow
Loss-Adjusted
Discount
Rate
20.4%-33.2%
(1) Represents
an
investment
in
a
REIT
subsidiary.
The
EV
analysis
includes
the
fair
value
of
our
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
above.
In
addition,
the
valuation
also
used
projected
loss
rates
as
an
unobservable
input
ranging
from
0.6%-26.5%,
with
a
weighted
average
of
8.4%.
(2) EV
analysis
is
based
on
the
fair
value
of
our
investments
in
consumer
loans
purchased
from
Lending
Club,
which
are
valued
using
a
discounted
cash
flow
valuation
technique.
The
key
unobservable
input
to
the
discounted
cash
flow
analysis
is
noted
above.
In
addition,
the
valuation
also
used
projected
loss
rates
as
an
unobservable
input
ranging
from
2.3%-23.8%,
with
a
weighted
average
of
16.9%.
(3) Represents
our
REIT
investments.
EV
waterfall
methodology
uses
both
the
net
asset
value
analysis
and
dividend
yield
analysis,
which
are
weighted
equally
(50%).
(4) Represents
investments
in
consumer
finance
controlled
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
observable
input
(book
value
multiple,
earnings
multiple
and
discount
rate)
is
weighted
equally.
For
these
companies
the
discount
rate
ranged
from
14.5%
-
18.0%
with
a
weighted
average
of
15.7%.
(5)
(6)
Includes
our
investments
in
small
business
whole
loans
purchased
from
Direct
Capital
Corporation
and
OnDeck
and
our
residual
interest
in
MarketPlace
Loan
Trust.
Valuation
also
used
projected
loss
rates
as
an
unobservable
input
ranging
from
4.2%-11.7%,
with
a
weighted
average
of
9.71%.
Includes
our
investments
in
small
business
whole
loans
purchased
from
OnDeck.
Valuation
also
used
projected
loss
rates
as
an
unobservable
input
ranging
from
4.2%-
11.7%,
with
a
weighted
average
of
9.7%.
(7) 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
analysis
was
then
prepared
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
earnings
before
income
tax,
depreciation
and
amortization
(“EBITDA”)
multiples,
the
discounted
cash
flow
technique,
net
income
and/or
book
value
multiples
for
similar
guideline
public
companies
and/or
similar
recent
investment
transactions.
For
stressed
equity
investments,
a
liquidation
analysis
was
prepared.
During
the
year
ended
June
30,
2016,
we
changed
the
valuation
methodology
for
our
REITs
portfolio
(APRC,
NPRC,
and
UPRC)
from
averaging
the
net
asset
value
and
dividend
yield
method
to
averaging
the
net
asset
value
and
discounted
cash
flow
method
utilizing
capitalization
rates
for
similar
guideline
companies
and/or
similar
recent
investment
transactions.
In
determining
the
range
of
values
for
our
investments
in
CLOs,
management
and
the
independent
valuation
firm
used
a
discounted
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.
For
each
CLO
security,
the
most
appropriate
valuation
approach
was
chosen
from
alternative
approaches
to
ensure
the
most
accurate
valuation
for
such
security.
To
value
a
CLO,
both
the
assets
and
the
liabilities
of
the
CLO
capital
structure
are
modeled.
Our
valuation
agent
utilizes
additional
methods
to
validate
the
results
from
the
discounted
cash
flow
method,
such
as
Monte
Carlo
simulations
of
key
model
variables,
analysis
of
relevant
data
observed
in
the
CLO
market,
and
review
of
certain
benchmark
credit
indices.
A
waterfall
engine
was
used
to
store
the
collateral
data,
generate
collateral
cash
flows
from
the
assets
based
on
various
assumptions
for
the
risk
factors,
distribute
the
cash
flows
to
the
liability
structure
based
on
the
payment
priorities,
and
discount
them
back
using
proper
discount
rates
to
expected
maturity
or
call
date.
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
CLO.
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,
our
prices
of
indices
and
securities
underlying
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
153
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
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.
An
increase
in
LIBOR
would
materially
increase
the
CLO’s
financing
costs.
Since
most
of
the
collateral
positions
within
the
CLOs
have
LIBOR
floors,
there
may
not
be
corresponding
increases
in
investment
income
(if
LIBOR
increases
but
stays
below
the
LIBOR
floor
rate
of
such
investments)
resulting
in
materially
smaller
distribution
payments
to
the
residual
interest
investors.
We
hold
more
than
10%
of
the
shares
in
a
foreign
corporation
that
is
treated
as
a
controlled
foreign
corporation
(“CFC”)
(including
residual
interest
tranche
investments
in
a
CLO
investment
treated
as
a
CFC),
for
which
we
are
treated
as
receiving
a
deemed
distribution
(taxable
as
ordinary
income)
each
year
from
such
foreign
corporation
in
an
amount
equal
to
our
pro
rata
share
of
the
corporation’s
income
for
the
tax
year
(including
both
ordinary
earnings
and
capital
gains).
We
are
required
to
include
such
deemed
distributions
from
a
CFC
in
our
income
and
we
are
required
to
distribute
such
income
to
maintain
our
RIC
status
regardless
of
whether
or
not
the
CFC
makes
an
actual
distribution
during
such
year.
If
we
acquire
shares
in
“passive
foreign
investment
companies”
(“PFICs”)
(including
residual
interest
tranche
investments
in
CLOs
that
are
PFICs),
we
may
be
subject
to
federal
income
tax
on
a
portion
of
any
“excess
distribution”
or
gain
from
the
disposition
of
such
shares
even
if
such
income
is
distributed
as
a
taxable
dividend
to
our
stockholders.
Certain
elections
may
be
available
to
mitigate
or
eliminate
such
tax
on
excess
distributions,
but
such
elections
(if
available)
will
generally
require
us
to
recognize
our
share
of
the
PFICs
income
for
each
year
regardless
of
whether
we
receive
any
distributions
from
such
PFICs.
We
must
nonetheless
distribute
such
income
to
maintain
its
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
its
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.
If
we
are
not
able
to
obtain
cash
from
other
sources,
we
may
fail
to
qualify
for
RIC
tax
treatment
and
thus
become
subject
to
corporate-level
income
tax.
The
significant
unobservable
input
used
to
value
our
investments
based
on
the
yield
analysis
and
discounted
cash
flow
analysis
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.
154
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
analysis.
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
may
result
in
an
increase
or
decrease,
respectively,
in
EV
which
may
increase
or
decrease
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.
Increases
or
decreases
in
the
capitalization
rate
would
result
in
a
decrease
or
increase,
respectively,
in
the
fair
value
measurement.
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.
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
year
ended
June
30,
2016
,
the
valuation
methodology
for
Empire
Today,
LLC
(“Empire”)
changed
to
remove
the
waterfall
analysis
used
in
previous
periods
due
to
positive
trends
in
financial
performance
and
deleveraging.
As
a
result
of
this
change
and
current
market
conditions,
as
well
as
additional
purchases
of
$34,726,
the
fair
value
of
our
investment
in
Empire
increased
to
$49,938
as
of
June
30,
2016
,
a
discount
of
$50
from
its
amortized
cost,
compared
to
the
$2,448
unrealized
depreciation
recorded
at
June
30,
2015
.
During
the
year
ended
June
30,
2016
,
the
valuation
methodology
for
Ark-La-Tex
Wireline
Services,
LLC
(“Ark-La-Tex”)
changed
to
add
the
waterfall
analysis
due
to
impairment
of
Term
Loan
A
and
Term
Loan
B.
As
a
result
of
this
change,
and
in
recognition
of
recent
company
performance
and
current
market
conditions,
the
fair
value
of
our
investment
in
Ark-La-Tex
decreased
to
$11,779
as
of
June
30,
2016
,
a
discount
of
$32,548
from
its
amortized
cost,
compared
to
the
$3,723
unrealized
depreciation
recorded
at
June
30,
2015
.
During
the
year
ended
June
30,
2016
,
the
valuation
methodology
for
Nixon,
Inc.
(“Nixon”)
changed
to
incorporate
a
waterfall
analysis.
As
a
result
of
the
company’s
performance
and
current
market
conditions,
the
fair
value
of
our
investment
in
Nixon
decreased
to
$11,776
as
of
June
30,
2016
,
a
discount
of
$2,421
from
its
amortized
cost,
compared
to
the
$133
unrealized
depreciation
recorded
at
June
30,
2015
.
During
the
year
ended
June
30,
2016
,
the
valuation
methodology
for
Royal
Holdings,
Inc.
(“Royal”)
changed
to
remove
the
relative
value
method
based
on
low
liquidity
of
first
lien
term
loan.
As
a
result
of
this
change
the
fair
value
of
our
investment
in
Royal
decreased
to
$4,819
as
of
June
30,
2016
,
a
discount
of
$148
from
its
amortized
cost,
compared
to
the
$37
unrealized
appreciation
recorded
at
June
30,
2015
.
During
the
year
ended
June
30,
2016
,
the
valuation
methodology
for
CURO
Group
Holding
Corp
(f/k/a
Speedy
Group
Holdings
Corp.)
(“Speedy”)
changed
to
remove
the
shadow
method
and
incorporate
relative
value
method.
As
a
result
of
this
change
and
decreased
market
prices,
the
fair
value
of
our
investment
in
Speedy
decreased
to
$8,081
as
of
June
30,
2016
,
a
discount
of
$6,919
from
its
amortized
cost.
No
unrealized
depreciation/appreciation
was
recorded
at
June
30,
2015
.
155
During
the
year
ended
June
30,
2016
,
the
valuation
methodology
for
USES
Corp.
(“USES”)
changed
to
incorporate
a
waterfall
analysis
due
to
impairment
of
Term
Loan
B.
As
a
result
of
this
change,
the
fair
value
of
our
investment
in
USES
decreased
to
$40,286
as
of
June
30,
2016
,
a
discount
of
$21,440
from
its
amortized
cost,
compared
to
the
$4,293
unrealized
depreciation
recorded
at
June
30,
2015
.
During
the
year
ended
June
30,
2016
,
the
valuation
methodology
for
Spartan
Energy
Services,
Inc.
(“Spartan”)
changed
to
add
the
waterfall
analysis
due
to
impairment
of
Term
Loan
B.
During
the
three
months
ended
June
30,
2016,
liquidation
analysis
was
added
due
to
impairment
of
both
Term
Loan
A
and
Term
Loan
B.
As
a
result
of
this
change
and
current
market
conditions,
the
fair
value
of
our
investment
in
Spartan
decreased
to
$12,352
as
of
June
30,
2016
,
a
discount
of
$14,240
from
its
amortized
cost,
compared
to
the
$720
unrealized
depreciation
recorded
at
June
30,
2015
.
During
the
year
ended
June
30,
2016
,
the
valuation
methodology
for
Arctic
Energy
Services,
LLC
(“Arctic
Energy”)
changed
to
incorporate
a
discounted
cash
flow
analysis.
As
a
result
of
the
company’s
performance
and
current
market
conditions,
the
fair
value
of
our
investment
in
Arctic
Energy
decreased
to
$38,340
as
of
June
30,
2016
,
a
discount
of
$22,536
from
its
amortized
cost,
compared
to
the
$512
unrealized
depreciation
recorded
at
June
30,
2015
.
During
the
year
ended
June
30,
2016
,
the
valuation
methodology
for
CP
Energy
Services
Inc.
(“CP
Energy”)
changed
to
incorporate
a
discounted
cash
flow
analysis.
As
a
result
of
the
company’s
performance
and
current
market
conditions,
the
fair
value
of
our
investment
in
CP
Energy
decreased
to
$76,002
as
of
June
30,
2016
,
a
discount
of
$37,498
from
its
amortized
cost,
compared
to
the
$25,309
unrealized
depreciation
recorded
at
June
30,
2015
.
During
the
year
ended
June
30,
2016
,
we
changed
the
valuation
methodology
for
our
REITs
portfolio
(American
Property
REIT
Corp.
(“APRC”),
NPRC,
and
United
Property
REIT
Corp.
(“UPRC”))
from
averaging
the
net
asset
value
and
dividend
yield
method
to
averaging
the
net
asset
value
and
discounted
cash
flow
method.
The
use
of
the
discounted
cash
flow
method
more
closely
reflects
the
valuation
techniques
used
by
the
broader
multifamily
real
estate
industry.
During
the
year
ended
June
30,
2016
,
we
removed
the
dividend
yield
method
and
used
the
discounted
cash
flow
method
for
NPRC.
The
discounted
cash
flow
method
is
averaged
with
the
net
asset
value
method.
The
fair
value
of
our
investment
in
NPRC
increased
primarily
as
a
result
of
improved
operating
performance
at
the
property
level
and
market
conditions.
Total
fair
value
of
our
investment
in
NPRC
increased
to
$843,933
as
of
June
30,
2016,
a
premium
of
$116,557
from
its
amortized
cost,
compared
to
the
$49,350
unrealized
appreciation
recorded
at
June
30,
2015
,
including
ARPC
and
UPRC.
Effective
May
23,
2016,
APRC
and
UPRC
merged
with
and
into
NPRC,
with
NPRC
as
the
surviving
entity.
APRC
and
UPRC
have
been
dissolved.
Effective
May
23,
2016,
APRC
and
UPRC
merged
with
and
into
NPRC,
with
NPRC
as
the
surviving
entity.
During
the
period
from
July
1,
2015
through
May
23,
2016,
we
provided
$2,268
of
equity
financing
to
APRC
to
fund
capital
expenditures
for
existing
properties.
In
addition,
during
the
period
from
July
1,
2015
through
May
23,
2016,
we
received
a
partial
repayment
of
$29,703
of
our
loan
previously
outstanding
and
recorded
$11,016
of
dividend
income
in
connection
with
the
sale
of
Vista.
During
the
period
from
July
1,
2015
through
May
23,
2016,
we
provided
$4,484
and
$3,047
of
debt
and
equity
financing,
respectively,
to
UPRC
to
fund
capital
expenditures
for
existing
properties.
In
addition,
during
the
period
from
July
1,
2015
through
May
23,
2016,
we
received
a
partial
repayment
of
$7,567
of
our
loan
previously
outstanding.
During
the
year
ended
June
30,
2016
,
we
provided
$9,017
of
equity
financing
to
NPRC
for
the
acquisition
of
real
estate
properties
and
$3,433
of
equity
financing
to
NPRC
to
fund
capital
expenditures
for
existing
properties.
In
addition,
during
the
year
ended
June
30,
2016
,
we
received
partial
repayments
of
$63,271
of
our
loans
previously
outstanding.
During
the
year
ended
June
30,
2016
,
we
provided
$202,466
and
$41,118
of
debt
and
equity
financing,
respectively,
to
NPRC
to
enable
certain
of
its
wholly-
owned
subsidiaries
to
invest
in
online
consumer
loans.
In
addition,
during
the
year
ended
June
30,
2016
,
we
received
partial
repayments
of
$52,260
of
our
loans
previously
outstanding
with
NPRC
and
its
wholly-owned
subsidiaries
and
$12,396
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
18
to
84
months.
As
of
June
30,
2016
,
the
outstanding
investment
in
online
consumer
loans
by
certain
of
NPRC’s
wholly-owned
subsidiaries
was
comprised
of
91,721
individual
loans
and
had
an
aggregate
fair
value
of
$674,423.
The
average
outstanding
individual
loan
balance
is
approximately
$8
and
the
loans
mature
on
dates
ranging
from
October
31,
2016
to
August
1,
2023
with
a
weighted-
average
outstanding
term
of
33
months
as
of
June
30,
2016
.
Fixed
interest
rates
range
from
4.0%
to
36.0%
with
a
weighted-average
current
interest
rate
of
22.0%.
156
As
of
June
30,
2016,
based
on
outstanding
principal
balance,
9.3%
of
the
portfolio
was
invested
in
super
prime
loans
(borrowers
with
a
Fair
Isaac
Corporation
score,
“FICO
score”,
of
720
or
greater),
24.8%
of
the
portfolio
in
prime
loans
(borrowers
with
a
FICO
score
of
660
to
719)
and
65.9%
of
the
portfolio
in
near
prime
loans
(borrowers
with
a
FICO
score
of
580
to
659).
Loan Type
Outstanding Balance
Interest Rate Range
Weighted Average Interest
Rate*
Super
Prime
Prime
Near
Prime
$
66,152
175,899
467,106
4.0%
-
36.0%
5.3%
-
36.0%
6.0%
-
36.0%
11.7%
14.9%
26.2%
*Based
on
outstanding
principal
of
the
unsecured
consumer
loans.
As
of
June
30,
2016
,
our
investment
in
NPRC
had
an
amortized
cost
of
$727,376
and
a
fair
value
of
$843,933
,
including
$363,170
of
fair
value
related
to
our
investment
in
the
online
consumer
loan
subsidiary
as
discussed
above.
The
remaining
fair
value
of
$480,763
relates
to
NPRC’s
real
estate
portfolio
was
comprised
of
thirty
eight
multi-families
properties,
twelve
self-storage
units
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
June
30,
2016
.
No.
Property Name
Acquisition
Date
Purchase
Price
Mortgage
Outstanding
1557
Terrell
Mill
Road,
LLC
Lofton
Place,
LLC
Arlington
Park
Marietta,
LLC
Cordova
Regency,
LLC
Crestview
at
Oakleigh,
LLC
Inverness
Lakes,
LLC
Kings
Mill
Pensacola,
LLC
Plantations
at
Pine
Lake,
LLC
Verandas
at
Rocky
Ridge,
LLC
Plantations
at
Hillcrest,
LLC
Crestview
at
Cordova,
LLC
Taco
Bell,
OK
146
Forest
Parkway,
LLC
5100
Live
Oaks
Blvd,
LLC
NPRC
Carroll
Resort,
LLC
APH
Carroll
41,
LLC
Matthews
Reserve
II,
LLC
City
West
Apartments
II,
LLC
Vinings
Corner
II,
LLC
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
City
Marietta,
GA
Tampa,
FL
Marietta,
GA
Pensacola,
FL
Pensacola,
FL
Mobile,
AL
Pensacola,
FL
Tallahassee,
FL
Birmingham,
AL
Mobile,
AL
Pensacola,
FL
Yukon,
OK
Forest
Park,
GA
Tampa,
FL
12/28/2012
$
23,500
$
4/30/2013
5/8/2013
11/15/2013
11/15/2013
11/15/2013
11/15/2013
11/15/2013
11/15/2013
1/17/2014
1/17/2014
6/4/2014
10/24/2012
26,000
14,850
13,750
17,500
29,600
20,750
18,000
15,600
6,930
8,500
1,719
7,400
1/17/2013
63,400
Pembroke
Pines,
FL
6/24/2013
225,000
Marietta,
GA
Matthews,
NC
Orlando,
FL
Smyrna,
GA
11/1/2013
11/19/2013
11/19/2013
11/19/2013
14,897
20,402
9,650
11,375
13,845
24,700
17,550
14,092
10,205
4,881
8,126
—
—
46,700
181,707
32,713
19,964
23,354
33,026
29,839
41,711
62,552
28,100
8,766
4,350
3,600
5,460
3,480
3,345
6,695
30,600
22,063
23,562
35,691
36,590
47,621
73,078
38,000
13,025
5,804
4,800
7,281
4,642
4,458
8,927
Uptown
Park
Apartments
II,
LLC
Altamonte
Springs,
FL
11/19/2013
Mission
Gate
II,
LLC
St.
Marin
Apartments
II,
LLC
APH
Carroll
Bartram
Park,
LLC
APH
Carroll
Atlantic
Beach,
LLC
23
Mile
Road
Self
Storage,
LLC
36th
Street
Self
Storage,
LLC
Ball
Avenue
Self
Storage,
LLC
Ford
Road
Self
Storage,
LLC
Plano,
TX
Coppell,
TX
Jacksonville,
FL
Atlantic
Beach,
FL
Chesterfield,
MI
Wyoming,
MI
Grand
Rapids,
MI
Westland,
MI
Ann
Arbor
Kalamazoo
Self
Storage,
LLC
Ann
Arbor,
MI
Ann
Arbor
Kalamazoo
Self
Storage,
LLC
Scio,
MI
11/19/2013
11/19/2013
12/31/2013
1/31/2014
8/19/2014
8/19/2014
8/19/2014
8/29/2014
8/29/2014
8/29/2014
157
No.
Property Name
City
Acquisition
Date
Purchase
Price
Mortgage
Outstanding
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
Ann
Arbor
Kalamazoo
Self
Storage,
LLC
Kalamazoo,
MI
Jolly
Road
Self
Storage,
LLC
Okemos,
MI
Eaton
Rapids
Road
Self
Storage,
LLC
Lansing
West,
MI
Haggerty
Road
Self
Storage,
LLC
Novi,
MI
Waldon
Road
Self
Storage,
LLC
Tyler
Road
Self
Storage,
LLC
SSIL
I,
LLC
Atlanta
Eastwood
Village
LLC
Atlanta
Monterey
Village
LLC
Atlanta
Hidden
Creek
LLC
Atlanta
Meadow
Springs
LLC
Atlanta
Meadow
View
LLC
Atlanta
Peachtree
Landing
LLC
Taco
Bell,
MO
Lake
Orion,
MI
Ypsilanti,
MI
Aurora,
IL
Stockbridge,
GA
Jonesboro,
GA
Morrow,
GA
College
Park,
GA
College
Park,
GA
Fairburn,
GA
Marshall,
MO
Canterbury
Green
Apartments
Holdings
LLC
Fort
Wayne,
IN
8/29/2014
1/16/2015
1/16/2015
1/16/2015
1/16/2015
1/16/2015
11/5/2015
12/12/2013
12/12/2013
12/12/2013
12/12/2013
12/12/2013
12/12/2013
6/4/2014
9/29/2014
Abbie
Lakes
OH
Partners,
LLC
Canal
Winchester,
OH
9/30/2014
Kengary
Way
OH
Partners,
LLC
Reynoldsburg,
OH
9/30/2014
Lakeview
Trail
OH
Partners,
LLC
Canal
Winchester,
OH
9/30/2014
Lakepoint
OH
Partners,
LLC
Sunbury
OH
Partners,
LLC
Heatherbridge
OH
Partners,
LLC
Jefferson
Chase
OH
Partners,
LLC
Goldenstrand
OH
Partners,
LLC
Pickerington,
OH
Columbus,
OH
Blacklick,
OH
Blacklick,
OH
Hilliard,
OH
9/30/2014
9/30/2014
9/30/2014
9/30/2014
10/29/2014
2,363
7,492
1,741
6,700
6,965
3,507
34,500
25,957
11,501
5,098
13,116
14,354
17,224
1,405
85,500
12,600
11,500
26,500
11,000
13,000
18,416
13,551
7,810
1,775
5,620
1,305
5,025
5,225
2,630
26,450
19,785
9,193
3,619
10,180
11,141
13,575
—
74,286
10,440
11,000
20,142
10,080
10,480
15,480
12,240
8,040
$ 1,200,441
$
972,796
On
August
1,
2014,
we
sold
our
investments
in
Airmall
Inc.
(“Airmall”)
for
net
proceeds
of
$51,379
and
realized
a
loss
of
$3,473
on
the
sale.
In
addition,
there
is
$6,000
being
held
in
escrow,
of
which
98%
is
due
to
Prospect,
which
will
be
recognized
as
an
additional
realized
loss
if
it
is
not
received.
Included
in
the
net
proceeds
were
$3,000
of
structuring
fees
from
Airmall
related
to
the
sale
of
the
operating
company
which
was
recognized
as
other
income
during
the
three
months
ended
September
30,
2014.
On
October
22,
2014,
we
received
a
tax
refund
of
$665
related
to
our
investment
in
Airmall
for
which
we
realized
a
gain
of
the
same
amount.
On
March
21,
2016,
we
received
$1,720
of
the
escrow
proceeds.
As
of
June
30,
2016
,
our
Board
of
Directors
has
valued
our
remaining
escrow
receivable
investment
in
Airmall
at
$3,000
which
we
expect
to
collect
in
early
fiscal
2017.
On
August
20,
2014,
we
sold
the
assets
of
Borga,
Inc.
(“Borga”),
a
wholly-owned
subsidiary
of
STI
Holding,
Inc.,
for
net
proceeds
of
$382
and
realized
a
loss
of
$2,589
on
the
sale.
On
December
29,
2014,
Borga
was
dissolved.
On
August
25,
2014,
we
sold
Boxercraft
Incorporated,
a
wholly-owned
subsidiary
of
BXC
Company,
Inc.,
for
net
proceeds
of
$750
and
realized
a
net
loss
of
$16,949
on
the
sale.
On
September
15,
2014,
Echelon
Aviation
LLC
repaid
$37,313
of
the
$78,121
loan
receivable
to
us.
On
September
30,
2014,
we
made
a
$26,431
follow-on
investment
in
Harbortouch
Payments,
LLC
(“Harbortouch”)
to
support
an
acquisition.
As
part
of
the
transaction,
we
received
$529
of
structuring
fee
income
and
$50
of
amendment
fee
income
from
Harbortouch
which
was
recognized
as
other
income.
During
the
three
months
ended
September
30,
2014,
we
impaired
our
investment
in
Appalachian
Energy
LLC
and
realized
a
loss
of
$2,050,
reducing
the
amortized
cost
to
zero.
On
October
3,
2014,
we
sold
our
$35,000
investment
in
Babson
CLO
Ltd.
2011-I
and
realized
a
loss
of
$6,410
on
the
sale.
158
On
October
10,
2014,
ARRM
sold
Ajax
Rolled
Ring
&
Machine,
LLC
to
a
third
party
and
repaid
the
$19,337
loan
receivable
to
us.
We
recorded
a
realized
loss
of
$21,001
related
to
the
sale.
Concurrent
with
the
sale,
our
ownership
increased
to
100%
of
the
outstanding
equity
of
SB
Forging.
As
such,
we
began
consolidating
SB
Forging
on
October
11,
2014.
In
addition,
there
is
$3,000
being
held
in
escrow
of
which
$802
and
$1,750
was
received
on
May
6,
2015
and
May
31,
2016,
respectively,
for
which
Prospect
realized
a
gain
of
the
same
amount.
On
October
20,
2014,
we
sold
our
$22,000
investment
in
Galaxy
XII
CLO,
Ltd.
and
realized
a
loss
of
$2,435
on
the
sale.
On
November
21,
2014,
Coalbed,
LLC
(“Coalbed”)
merged
with
and
into
Wolf
Energy,
LLC
(“Wolf
Energy”),
with
Wolf
Energy
as
the
surviving
entity.
During
the
three
months
ended
December
31,
2014,
we
impaired
our
investment
in
the
Coalbed
debt
assumed
by
Wolf
Energy
and
realized
a
loss
of
$5,991,
reducing
the
amortized
cost
to
zero.
On
December
4,
2014,
we
sold
our
$29,075
investment
in
Babson
CLO
Ltd.
2012-I
and
realized
a
loss
of
$3,833
on
the
sale.
On
January
15,
2015,
we
received
additional
proceeds
of
$66
for
which
Prospect
realized
a
gain
of
the
same
amount.
On
December
4,
2014,
we
sold
our
$27,850
investment
in
Babson
CLO
Ltd.
2012-II
and
realized
a
loss
of
$2,961
on
the
sale.
On
February
18,
2015,
we
received
additional
proceeds
of
$12
for
which
Prospect
realized
a
gain
of
the
same
amount.
During
the
three
months
ended
December
31,
2014,
Manx
Energy,
Inc.
was
dissolved
and
we
recorded
a
realized
loss
of
$50,
reducing
the
amortized
cost
to
zero.
During
the
three
months
ended
December
31,
2014,
we
impaired
our
investments
in
Change
Clean
Energy
Company,
LLC
and
Yatesville
Coal
Company,
LLC
and
recorded
a
realized
loss
of
$1,449,
reducing
the
amortized
cost
to
zero.
During
the
three
months
ended
December
31,
2014,
we
impaired
our
investment
in
New
Century
Transportation,
Inc.
(“NCT”)
a
realized
a
loss
of
$42,064,
reducing
the
amortized
cost
to
$980.
During
the
three
months
ended
December
31,
2014,
we
impaired
our
investment
in
Stryker
Energy,
LLC
and
realized
a
loss
of
$32,711,
reducing
the
amortized
cost
to
zero.
During
the
three
months
ended
December
31,
2014,
we
impaired
our
investment
in
Wind
River
Resources
Corporation
(“Wind
River”)
and
recorded
a
realized
loss
of
$11,650,
reducing
the
amortized
cost
to
$3,000.
During
the
three
months
ended
March
31,
2016,
our
remaining
investment
in
Wind
River
was
written-off
for
tax
purposes
and
a
loss
of
$3,000
was
therefore
realized.
On
June
5,
2015,
we
sold
our
equity
investment
in
Vets
Securing
America,
Inc.
(“VSA”)
and
realized
a
net
loss
of
$975
on
the
sale.
In
connection
with
the
sale,
VSA
was
released
as
a
borrower
on
the
secured
promissory
notes,
leaving
The
Healing
Staff,
Inc.
(“THS”)
as
the
sole
borrower.
During
the
year
ended
June
30,
2015,
THS
ceased
operations
and
we
recorded
a
realized
loss
of
$2,956,
reducing
the
amortized
cost
to
zero.
On
June
9,
2015,
we
provided
additional
debt
and
equity
financing
to
support
the
recapitalization
of
Edmentum
Ultimate
Holdings,
LLC
(“Edmentum”).
As
part
of
the
recapitalization,
we
exchanged
100%
of
the
$50,000
second
lien
term
loan
previously
outstanding
for
$26,365
of
junior
PIK
notes
and
370,964.14
Class
A
common
units
representing
37.1%
equity
ownership
in
Edmentum.
In
addition,
we
invested
$5,875
in
senior
PIK
notes
and
committed
$7,834
as
part
of
a
second
lien
revolving
credit
facility,
of
which
$4,896
was
funded
at
closing.
On
June
9,
2015,
we
determined
that
the
impairment
of
Edmentum
was
other-than-temporary
and
recorded
a
realized
loss
of
$22,116
for
the
amount
that
the
amortized
cost
exceeded
the
fair
value,
reducing
the
amortized
cost
to
$37,216.
On
August
12,
2015,
we
sold
780
of
our
small
business
whole
loans
(with
a
cost
of
$30,968)
purchased
from
OnDeck
to
Jefferies
Asset
Funding
LLC
for
proceeds
of
$26,619,
net
of
related
transaction
expenses,
and
a
trust
certificate
representing
a
41.54%
interest
in
the
MarketPlace
Loan
Trust,
Series
2015-OD2.
We
realized
a
loss
of
$775
on
the
sale.
On
September
30,
2015,
we
restructured
our
investment
in
Arctic
Energy.
Concurrent
with
the
restructuring,
we
exchanged
$31,640
senior
secured
loan
and
$20,230
subordinated
loan
for
Class
D
and
Class
E
equity
in
Arctic
Energy.
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
Redeemable
Preferred
Stock
in
CP
Energy.
On
October
30,
2015,
we
restructured
our
investment
in
Freedom
Marine
Solutions,
LLC
(“Freedom
Marine”).
Concurrent
with
the
restructuring,
we
exchanged
our
$32,500
senior
secured
loans
for
additional
membership
interest
in
Freedom
Marine.
159
On
November
16,
2015
and
November
25,
2015,
we
sold
our
$14,755
debt
investment
in
AGC.
We
realized
a
loss
of
$4,127
on
the
sale.
On
January
21,
2016,
we
sold
100%
of
our
CIFC
Funding
2011-I,
Ltd.
Class
E
and
Class
D
notes
with
a
cost
basis
of
$29,004.
We
realized
a
gain
of
$3,911
on
the
sale.
On
February
3,
2016,
lenders
foreclosed
on
Targus
Group
International,
Inc.,
and
our
$21,613
first
lien
term
loan
was
extinguished
and
exchanged
for
1,262,737
common
units
representing
12.63%
equity
ownership
in
Targus
Cayman
HoldCo
Limited,
the
parent
company
of
Targus
International
LLC
(“Targus”).
On
February
17,
2016,
we
provided
additional
debt
financing
to
support
the
recapitalization
of
Targus.
As
part
of
the
recapitalization,
we
invested
an
additional
$1,263
in
a
new
senior
secured
Term
Loan
A
notes
and
were
allocated
$3,788
in
new
senior
secured
Term
Loan
B
notes.
During
the
same
period,
Targus
was
written-
down
for
tax
purposes
and
a
realized
loss
of
$14,194
therefore
was
realized
for
the
amount
that
the
amortized
cost
exceeded
the
fair
value.
During
the
three
months
ended
March
31,
2016,
we
sold
our
$10,100
debt
investment
in
ICON
Health
and
Fitness,
Inc.
We
realized
a
loss
of
$1,053
on
the
sale.
On
March
22,
2016
and
March
24,
2016,
United
Sporting
Company,
Inc.
partially
repaid
the
$17,391
loan
receivable
to
us.
During
the
three
months
ended
March
31,
2016,
NCT
was
written-off
for
tax
purposes
and
a
loss
of
$187
was
realized.
On
April
29,
2016,
we
invested
an
additional
$25,000
of
Senior
Secured
Term
Loan
A
and
$25,000
of
Senior
Secured
Term
Loan
B
debt
investments
in
Trinity
Services
Group,
Inc.
(“Trinity”).
On
April
29,
2016,
through
our
delayed
draw
term
loan
commitment
with
Instant
Web,
LLC
(“IWCO”),
we
funded
$8,000
of
Senior
Secured
Term
Loan
A
and
$8,000
of
Senior
Secured
Term
Loan
B.
During
the
period
from
May
3,
2016
through
May
10,
2016,
we
collectively
sold
72.10%
of
the
outstanding
principal
balance
of
the
Senior
Secured
Term
Loan
A
investment
in
Trinity
for
$25,000.
There
was
no
gain
or
loss
realized
on
the
sale.
On
May
31,
2016,
we
sold
our
investment
in
Harbortouch
for
total
consideration
of
$328,032,
including
fees
and
escrowed
amounts.
Prior
to
the
sale,
$154,382
of
Senior
Secured
Term
Loan
B
loan
outstanding
was
converted
to
preferred
equity.
We
received
a
repayment
of
$146,989
loans
receivable
to
us
and
$157,639
of
proceeds
related
to
the
equity
investment.
We
recorded
a
realized
loss
of
$5,419
related
to
the
sale.
We
also
received
a
$5,145
prepayment
premium
for
early
repayment
of
the
outstanding
loans,
which
was
recorded
as
interest
income
in
the
year
ended
June
30,
2016
and
a
$12,909
advisory
fee
for
the
transaction,
which
was
recorded
as
other
income
in
the
year
ended
June
30,
2016.
In
addition,
there
is
$5,350
being
held
in
escrow
which
will
be
recognized
as
additional
realized
gain
if
and
when
it
is
received.
Concurrent
with
the
sale,
we
made
a
$27,500
second
lien
secured
investment
in
Harbortouch.
As
of
June
30,
2016
,
$3,737,046
of
our
loans,
at
fair
value,
bear
interest
at
floating
rates
and
have
LIBOR
floors
ranging
from
0.3%
to
4.0%.
As
of
June
30,
2016
,
$495,912
of
our
loans,
at
fair
value,
bear
interest
at
fixed
rates
ranging
from
5%
to
22.0%.
As
of
June
30,
2015
,
$4,413,161
of
our
loans,
at
fair
value,
bore
interest
at
floating
rates
and
$4,380,763
of
those
loans
had
LIBOR
floors
ranging
from
0.5%
to
5.5%.
As
of
June
30,
2015
,
$532,804
of
our
loans,
at
fair
value,
bear
interest
at
fixed
rates
ranging
from
5%
to
22.0%.
At
June
30,
2016
,
seven
loan
investments
were
on
non-accrual
status:
Ark-La-Tex,
Gulf
Coast
Machine
&
Supply
Company
(“Gulf
Coast”),
Spartan
Energy
Services,
Inc.
(“Spartan”),
Targus,
USES,
Venio
LLC
and
Wolf
Energy.
At
June
30,
2015
,
four
loan
investments
were
on
non-accrual
status:
Gulf
Coast,
NCT,
Wind
River
and
Wolf
Energy.
Principal
balances
of
these
loans
amounted
to
$234,307
and
$62,143
as
of
June
30,
2016
and
June
30,
2015
,
respectively.
The
fair
value
of
these
loans
amounted
to
$90,540
and
$6,918
as
of
June
30,
2016
and
June
30,
2015
,
respectively.
The
fair
values
of
these
investments
represent
approximately
1.4%
and
0.1%
of
our
total
assets
at
fair
value
as
of
June
30,
2016
and
June
30,
2015
,
respectively.
For
the
years
ended
June
30,
2016
,
2015
and
2014
,
the
income
foregone
as
a
result
of
not
accruing
interest
on
non-accrual
debt
investments
amounted
to
$23,089,
$22,927
and
$24,040,
respectively.
Undrawn
committed
revolvers
and
delayed
draw
term
loans
to
our
portfolio
companies
incur
commitment
and
unused
fees
ranging
from
0.00%
to
6.00%.
As
of
June
30,
2016
and
June
30,
2015
,
we
had
$40,560
and
$88,288
,
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
June
30,
2016
and
June
30,
2015
.
During
the
year
ended
June
30,
2016
,
we
sold
$99,377
of
the
outstanding
principal
balance
of
the
senior
secured
Term
Loan
A
investments
in
certain
portfolio
companies.
There
was
no
gain
or
loss
realized
on
the
sale.
We
serve
as
an
agent
for
these
loans
160
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
investment
test,
the
asset
test
and
the
income
test.
Rule
3-09
of
Regulation
S-X,
requires
separate
audited
financial
statements
of
an
unconsolidated
majority-owned
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%.
As
of
June
30,
2016
,
we
had
one
investment
that
represented
greater
than
10%
but
less
than
20%
of
our
total
investment
portfolio
at
fair
value.
As
of
June
30,
2015,
we
had
no
single
investment
that
represented
greater
than
10%
of
our
total
investment
portfolio
at
fair
value,
and
one
investment
whose
assets
represented
greater
than
10%
but
less
than
20%
of
our
total
assets.
Income,
consisting
of
interest,
dividends,
fees,
other
investment
income
and
gains
or
losses,
which
can
fluctuate
upon
repayment
or
sale
of
an
investment
or
the
marking
to
fair
value
an
investment
in
any
given
period,
can
be
highly
concentrated
among
several
investments.
In
accordance
with
Rules
1-02(w),
if
the
registrant’s
consolidated
income
or
the
absolute
value
of
its
loss
from
continuing
operations
before
income
taxes,
extraordinary
items
and
cumulative
effect
of
a
change
in
accounting
principle,
is
at
least
10%
less
than
the
average
of
the
last
five
fiscal
years
(including
zero
for
any
loss
years
in
the
numerator,
but
still
using
five
as
the
denominator),
the
average
should
be
substituted
as
the
denominator
in
the
income
test.
In
performing
the
income
analysis
for
the
year
ended
June
30,
2016
,
our
net
increase
in
net
assets
was
10%
less
than
the
average
increase
in
net
assets
for
the
last
five
fiscal
years.
Therefore,
we
used
the
five
year
average
net
increase
in
net
assets
and
determined
that
one
of
our
controlled
investments
individually
generated
more
than
10%
but
less
than
20%
of
our
income.
After
performing
the
income
analysis
for
the
year
ended
June
30,
2015,
we
determined
that
one
of
our
controlled
investments
individually
generated
more
than
10%
but
less
than
20%
of
our
income,
primarily
due
to
the
unrealized
appreciation
that
was
recognized
on
the
investment
during
the
year
ended
June
30,
2015.
As
such,
First
Tower
Finance,
an
unconsolidated
majority-owned
portfolio
company,
was
considered
a
significant
subsidiary
at
the
10%
level
as
of
June
30,
2016
,
and
NPRC
was
considered
a
significant
subsidiary
at
the
10%
level
as
of
June
30,
2015.
The
following
tables
show
summarized
financial
information
for
First
Tower
Finance
Company
LLC
and
its
subsidiaries,
which
met
the
10%
income
test
for
the
year
ended
June
30,
2016:
June 30, 2016
June 30, 2015
Balance Sheet Data
Cash
and
cash
equivalents
$
71,295 $
Receivables
Intangibles,
including
goodwill
Other
assets
Notes
payable
Notes
payable,
due
to
Prospect
or
Affiliate
Other
liabilities
Total
equity
432,639
106,179
21,234
365,448
255,762
51,544
(41,407)
65,614
400,451
121,822
17,373
334,637
251,578
47,493
(28,448)
Summary of Operations
Total
revenue
Total
expenses
Net
(loss)
income
Year Ended June 30,
2016
2015
2014
207,128
219,143
(12,015)
201,724
162,941
38,783
214,697
233,543
(18,846)
161
As
of
June
30,
2016
,
we
had
no
single
investment
that
represented
greater
than
20%
of
our
total
investment
portfolio
at
fair
value.
As
of
June
30,
2016
,
we
had
one
investment
whose
assets
represented
greater
than
20%
of
our
total
assets.
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
year
ended
June
30,
2016
,
we
determined
that
one
of
our
controlled
investments
individually
generated
more
than
20%
of
our
income,
primarily
due
to
the
unrealized
appreciation
that
was
recognized
on
the
investment
during
the
year
ended
June
30,
2016
.
After
performing
the
income
analysis
for
the
year
ended
June
30,
2015,
we
determined
that
two
of
our
controlled
investments
individually
generated
more
than
20%
of
our
income,
primarily
due
to
the
unrealized
appreciation
that
was
recognized
on
the
investments
during
the
year
ended
June
30,
2015.
As
such,
NPRC,
an
unconsolidated
majority-owned
portfolio
company,
was
considered
a
significant
subsidiary
at
the
20%
level
as
of
June
30,
2016
,
and
First
Tower
and
Harbortouch
were
considered
a
significant
subsidiary
at
the
20%
level
as
of
June
30,
2015.
We
included
the
audited
financial
statements
of
NPRC,
and
its
subsidiaries,
for
the
years
ended
December
31,
2015
and
2014
as
an
Exhibit
99.2
to
the
Form
10-K
filing
for
the
year
ended
June
30,
2016.
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
March
27,
2012,
we
closed
on
an
extended
and
expanded
credit
facility
with
a
syndicate
of
lenders
through
PCF
(the
“2012
Facility”).
The
lenders
had
extended
commitments
of
$857,500
under
the
2012
Facility
as
of
June
30,
2014,
which
was
increased
to
$877,500
in
July
2014.
The
2012
Facility
included
an
accordion
feature
which
allowed
commitments
to
be
increased
up
to
$1,000,000
in
the
aggregate.
Interest
on
borrowings
under
the
2012
Facility
was
one-month
LIBOR
plus
275
basis
points
with
no
minimum
LIBOR
floor.
Additionally,
the
lenders
charged
a
fee
on
the
unused
portion
of
the
2012
Facility
equal
to
either
50
basis
points
if
at
least
half
of
the
credit
facility
is
drawn
or
100
basis
points
otherwise.
On
August
29,
2014,
we
renegotiated
the
2012
Facility
and
closed
an
expanded
five
and
a
half
year
revolving
credit
facility
(the
“2014
Facility”
and
collectively
with
the
2012
Facility,
the
“Revolving
Credit
Facility”).
The
lenders
have
extended
commitments
of
$885,000
under
the
2014
Facility
as
of
June
30,
2016
.
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
June
30,
2016
,
we
were
in
compliance
with
the
applicable
covenants.
Interest
on
borrowings
under
the
2014
Facility
is
one-month
LIBOR
plus
225
basis
points
with
no
minimum
LIBOR
floor.
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
June
30,
2016
and
June
30,
2015
,
we
had
$538,456
and
$721,800
,
respectively,
available
to
us
for
borrowing
under
the
Revolving
Credit
Facility,
of
which
the
amount
outstanding
was
$0
and
$368,700
,
respectively.
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
June
30,
2016
,
the
investments,
including
cash
and
money
market
funds,
used
as
collateral
for
the
Revolving
Credit
Facility
had
an
aggregate
fair
value
of
$1,373,569
,
which
represents
22.1%
of
our
total
investments,
including
cash
and
money
market
funds.
These
assets
are
held
and
owned
by
PCF,
a
bankruptcy
remote
special
purpose
entity,
and
as
such,
these
investments
are
not
available
to
our
general
creditors.
The
release
of
any
assets
from
PCF
requires
the
approval
of
the
facility
agent.
In
connection
with
the
origination
and
amendments
of
the
Revolving
Credit
Facility,
we
incurred
$12,405
of
new
fees
and
$3,539
of
fees
carried
over
for
continuing
participants
from
the
previous
facility,
which
are
being
amortized
over
the
term
of
the
facility
in
accordance
with
ASC
470-50,
of
which
$7,525
remains
to
be
amortized
and
is
included
within
deferred
financing
costs
on
the
162
Consolidated Statements of Assets and Liabilities as
of
June
30,
2016
.
During
the
year
ended
June
30,
2015,
in
accordance
with
ASC
470-50,
we
expensed
$332
of
fees
relating
to
credit
providers
in
the
2012
Facility
who
did
not
commit
to
the
2014
Facility.
During
the
years
ended
June
30,
2016,
2015
and
2014
,
we
recorded
$13,213
,
$14,424
,
and
$12,216
,
respectively,
of
interest
costs,
unused
fees
and
amortization
of
financing
costs
on
the
Revolving
Credit
Facility
as
interest
expense.
Note 5. Convertible Notes
On
December
21,
2010,
we
issued
$150,000
aggregate
principal
amount
of
convertible
notes
that
matured
on
December
15,
2015
(the
“2015
Notes”).
The
2015
Notes
bore
interest
at
a
rate
of
6.25%
per
year,
payable
semi-annually
on
June
15
and
December
15
of
each
year,
beginning
June
15,
2011.
Total
proceeds
from
the
issuance
of
the
2015
Notes,
net
of
underwriting
discounts
and
offering
costs,
were
$145,200.
On
December
15,
2015,
we
repaid
the
outstanding
principal
amount
of
the
2015
Notes,
plus
interest.
No
gain
or
loss
was
realized
on
the
transaction.
On
February
18,
2011,
we
issued
$172,500
aggregate
principal
amount
of
convertible
notes
that
mature
on
August
15,
2016
(the
“2016
Notes”),
unless
previously
converted
or
repurchased
in
accordance
with
their
terms.
The
2016
Notes
bear
interest
at
a
rate
of
5.50%
per
year,
payable
semi-annually
on
February
15
and
August
15
of
each
year,
beginning
August
15,
2011.
Total
proceeds
from
the
issuance
of
the
2016
Notes,
net
of
underwriting
discounts
and
offering
costs,
were
$167,325.
Between
January
30,
2012
and
February
2,
2012,
we
repurchased
$5,000
aggregate
principal
amount
of
the
2016
Notes
at
a
price
of
97.5,
including
commissions.
The
transactions
resulted
in
our
recognizing
$10
of
loss
in
the
year
ended
June
30,
2012.
The
2016
Notes
were
repaid
on
maturity
of
August
15,
2016,
after
our
June
30,
2016
fiscal
year
end.
On
April
16,
2012,
we
issued
$130,000
aggregate
principal
amount
of
convertible
notes
that
mature
on
October
15,
2017
(the
“2017
Notes”),
unless
previously
converted
or
repurchased
in
accordance
with
their
terms.
The
2017
Notes
bear
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
August
14,
2012,
we
issued
$200,000
aggregate
principal
amount
of
convertible
notes
that
mature
on
March
15,
2018
(the
“2018
Notes”),
unless
previously
converted
or
repurchased
in
accordance
with
their
terms.
The
2018
Notes
bear
interest
at
a
rate
of
5.75%
per
year,
payable
semi-annually
on
March
15
and
September
15
of
each
year,
beginning
March
15,
2013.
Total
proceeds
from
the
issuance
of
the
2018
Notes,
net
of
underwriting
discounts
and
offering
costs,
were
$193,600.
On
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.
Certain
key
terms
related
to
the
convertible
features
for
the
2016
Notes,
the
2017
Notes,
the
2018
Notes,
the
2019
Notes
and
the
2020
Notes
(collectively,
the
“Convertible
Notes”)
are
listed
below.
Initial
conversion
rate(1)
Initial
conversion
price
Conversion
rate
at
June
30,
2016(1)(2)
Conversion
price
at
June
30
,
2016(2)(3)
Last
conversion
price
calculation
date
Dividend
threshold
amount
(per
share)(4)
2016 Notes
2017 Notes
2018 Notes
2019 Notes
2020 Notes
78.3699
85.8442
82.3451
79.7766
12.76
$
11.65
$
12.14
$
12.54
$
80.2196
87.7516
84.1497
79.8360
12.47
$
11.40
$
11.88
$
12.53
$
2/18/2016
4/16/2016
8/14/2015
12/21/2015
0.101150
$
0.101500
$
0.101600
$
0.110025
$
80.6647
12.40
80.6670
12.40
4/11/2016
0.110525
$
$
$
(1) Conversion
rates
denominated
in
shares
of
common
stock
per
$1
principal
amount
of
the
Convertible
Notes
converted.
163
(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
in
effect
at
June
30,
2016
was
calculated
on
the
last
anniversary
of
the
issuance
and
will
be
adjusted
again
on
the
next
anniversary,
unless
the
exercise
price
shall
have
changed
by
more
than
1%
before
the
anniversary.
(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
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
$34,629
of
fees
which
are
being
amortized
over
the
terms
of
the
notes,
of
which
$14,639
remains
to
be
amortized
and
is
included
within
deferred
financing
costs
on
the
Consolidated Statement of Assets and Liabilities as
of
June
30,
2016
.
During
the
years
ended
June
30,
2016
,
2015
and
2014
,
we
recorded
$68,966
,
$74,365
and
$58,042
,
respectively,
of
interest
costs
and
amortization
of
financing
costs
on
the
Convertible
Notes
as
interest
expense.
Note 6. Public Notes
On
May
1,
2012,
we
issued
$100,000
aggregate
principal
amount
of
unsecured
notes
that
were
scheduled
to
mature
on
November
15,
2022
(the
“2022
Notes”).
The
2022
Notes
bore
interest
at
a
rate
of
6.95%
per
year,
payable
quarterly
on
February
15,
May
15,
August
15
and
November
15
of
each
year,
beginning
August
15,
2012.
Total
proceeds
from
the
issuance
of
the
2022
Notes,
net
of
underwriting
discounts
and
offering
costs,
were
$97,000.
On
May
15,
2015,
we
redeemed
$100,000
aggregate
principal
amount
of
the
2022
Notes
at
par.
In
connection
with
this
transaction,
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
the
2022
Notes
in
the
year
ended
June
30,
2015
was
$2,600.
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
$245,966.
164
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.
During
the
period
from
June
28,
2016
to
June
30,
2016,
we
issued
$1,380
in
aggregate
principal
amount
of
our
2024
Notes
for
net
proceeds
of
$1,247
after
commissions
and
offering
costs.
The
2022
Notes,
the
2023
Notes,
the
5.00%
2019
Notes,
and
the
2024
Notes
(collectively,
the
“Public
Notes”)
are
direct
unsecured
obligations
and
rank
equally
with
all
of
our
unsecured
indebtedness
from
time
to
time
outstanding.
In
connection
with
the
issuance
of
the
2023
Notes,
the
5.00%
2019
Notes,
and
the
2024
Notes,
we
incurred
$13,109
of
fees
which
are
being
amortized
over
the
term
of
the
notes,
of
which
$10,289
remains
to
be
amortized
and
is
included
within
deferred
financing
costs
on
the
Consolidated Statement of Assets and Liabilities
as
of
June
30,
2016
.
During
the
years
ended
June
30,
2016,
2015
and
2014
,
we
recorded
$36,859
,
$37,063
,
and
$25,988
,
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
year
ended
June
30,
2016
,
we
issued
$88,435
aggregate
principal
amount
of
Prospect
Capital
InterNotes®
for
net
proceeds
of
$87,141
.
These
notes
were
issued
with
stated
interest
rates
ranging
from
4.625%
to
6.00%
with
a
weighted
average
interest
rate
of
5.18%
.
These
notes
mature
between
July
15,
2020
and
December
15,
2025
.
The
following
table
summarizes
the
Prospect
Capital
InterNotes®
issued
during
the
year
ended
June
30,
2016
.
Tenor at
Origination
(in years)
5
6.5
7
10
Principal
Amount
Interest Rate
Range
$
51,503
4.625%–6.00%
35,155
5.10%–5.25%
990
787
5.625%–6.00%
5.125%–6.00%
$
88,435
Weighted
Average
Interest Rate
5.12%
5.25%
5.77%
5.33%
165
Maturity Date Range
July
15,
2020
–
June
15,
2021
January
15,
2022
–
May
15,
2022
November
15,
2022
–
December
15,
2022
November
15,
2025
–
December
15,
2025
During
the
year
ended
June
30,
2015
,
we
issued
$125,696
aggregate
principal
amount
of
our
Prospect
Capital
InterNotes®
for
net
proceeds
of
$123,641
.
These
notes
were
issued
with
a
stated
interest
rates
ranging
from
3.375%
to
5.10%
with
a
weighted
average
interest
rate
of
4.65%
.
These
notes
mature
between
May
15,
2020
and
June
15,
2022
.
The
following
table
summarizes
the
Prospect
Capital
InterNotes®
issued
during
the
year
ended
June
30,
2015
.
Tenor at
Origination
(in years)
Principal
Amount
Interest Rate
Range
Weighted
Average
Interest Rate
5.25
$
7,126
4.625%
5.5
6
6.5
7
106,364
4.25%–4.75%
2,197
3,912
6,097
3.375%
5.10%
5.10%
$
125,696
4.625%
4.63%
3.375%
5.10%
5.10%
0.051
Maturity Date Range
August
15,
2020
–
September
15,
2020
May
15,
2020
–
November
15,
2020
April
15,
2021
–
May
15,
2021
December
15,
2021
May
15,
2022
–
June
15,
2022
During
the
year
ended
June
30,
2016
,
we
repaid
$7,069
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
gain
on
the
extinguishment
of
Prospect
Capital
InterNotes®
in
the
year
ended
June
30,
2016
was
$215.
The
following
table
summarizes
the
Prospect
Capital
InterNotes®
outstanding
as
of
June
30,
2016
.
Tenor at
Origination
(in years)
3
3.5
4
5
5.2
5.3
5.4
5.5
6
6.5
7
7.5
10
12
15
18
20
25
30
Principal
Amount
Interest Rate
Range
$
5,710
3,109
4.00%
4.00%
45,690
3.75%–4.00%
259,191
4.25%–5.75%
4,440
2,686
5,000
4.625%
4.625%
4.75%
109,808
4.25%–5.00%
2,197
3.375%
40,867
5.10%–5.50%
192,076
4.00%–6.55%
1,996
5.75%
37,533
3.62%–7.00%
2,978
6.00%
17,325
5.25%–6.00%
22,303
4.125%–6.25%
4,462
5.625%–6.00%
35,110
6.25%–6.50%
116,327
5.50%–6.75%
$
908,808
Weighted
Average
Interest Rate
4.00%
4.00%
3.92%
4.95%
4.625%
4.625%
4.75%
4.65%
3.375%
5.24%
5.13%
5.75%
6.11%
6.00%
5.36%
5.53%
5.89%
6.39%
6.23%
Maturity Date Range
October
15,
2016
April
15,
2017
November
15,
2017
–
May
15,
2018
July
15,
2018
–
June
15,
2021
August
15,
2020
–
September
15,
2020
September
15,
2020
August
15,
2019
February
15,
2019
–
November
15,
2020
April
15,
2021
–
May
15,
2021
February
15,
2020
–
May
15,
2022
June
15,
2019
–
December
15,
2022
February
15,
2021
March
15,
2022
–
December
15,
2025
November
15,
2025
–
December
15,
2025
May
15,
2028
–
November
15,
2028
December
15,
2030
–
August
15,
2031
November
15,
2032
–
October
15,
2033
August
15,
2038
–
May
15,
2039
November
15,
2042
–
October
15,
2043
During
the
year
ended
June
30,
2015
,
we
redeemed
$76,931
aggregate
principal
amount
of
our
Prospect
Capital
InterNotes®
at
par
with
a
weighted
average
interest
rate
of
6.06%
in
order
to
replace
debt
with
higher
interest
rates
with
debt
with
lower
rates.
During
the
year
ended
June
30,
2015,
we
repaid
$6,993
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
year
ended
June
30,
2015
was
$1,682.
The
following
table
summarizes
the
Prospect
Capital
InterNotes®
outstanding
as
of
June
30,
2015
.
166
Tenor at
Origination
(in years)
3
3.5
4
5
5.25
5.5
6
6.5
7
7.5
10
12
15
18
20
25
30
Principal
Amount
Interest Rate
Range
$
5,710
3,109
4.00%
4.00%
45,690
3.75%–4.00%
207,719
4.25%–5.00%
7,126
4.625%
115,184
4.25%–5.00%
2,197
5,712
3.375%
5.10%–5.50%
191,549
4.00%–5.85%
1,996
5.75%
36,925
3.29%–7.00%
2,978
6.00%
17,385
5.00%–6.00%
22,729
4.125%–6.25%
4,530
5.75%–6.00%
36,320
6.25%–6.50%
120,583
5.50%–6.75%
$
827,442
Weighted
Average
Interest Rate
4.00%
4.00%
3.92%
4.92%
4.63%
4.65%
3.38%
5.23%
5.13%
5.75%
6.11%
6.00%
5.14%
5.52%
5.89%
6.39%
6.23%
Maturity Date Range
October
15,
2016
April
15,
2017
November
15,
2017
–
May
15,
2018
July
15,
2018
–
May
15,
2019
August
15,
2020
–
September
15,
2020
February
15,
2019
–
November
15,
2020
April
15,
2021
–
May
15,
2021
February
15,
2020
–
December
15,
2021
September
15,
2019
–
June
15,
2022
February
15,
2021
March
15,
2022
–
May
15,
2024
November
15,
2025
–
December
15,
2025
May
15,
2028
–
November
15,
2028
December
15,
2030
–
August
15,
2031
November
15,
2032
–
October
15,
2033
August
15,
2038
–
May
15,
2039
November
15,
2042
–
October
15,
2043
In
connection
with
the
issuance
of
Prospect
Capital
InterNotes
®
,
we
incurred
$22,294
of
fees
which
are
being
amortized
over
the
term
of
the
notes,
of
which
$15,598
remains
to
be
amortized
and
is
included
within
deferred
financing
costs
on
the
Consolidated Statement of Assets and Liabilities as
of
June
30,
2016
.
During
the
years
ended
June
30,
2016,
2015
and
2014
,
we
recorded
$48,681
,
$44,808
,
and
$33,857
,
respectively,
of
interest
costs
and
amortization
of
financing
costs
on
the
Prospect
Capital
InterNotes
®
as
interest
expense.
Note 8. Fair Value and Maturity of Debt Outstanding
The
following
table
shows
the
maximum
draw
amounts
and
outstanding
borrowings
of
our
Revolving
Credit
Facility,
Convertible
Notes,
Public
Notes
and
Prospect
Capital
InterNotes®
as
of
June
30,
2016
and
June
30,
2015
.
Revolving
Credit
Facility
Convertible
Notes
Public
Notes
Prospect
Capital
InterNotes
®
Total
June 30, 2016
June 30, 2015
Maximum
Draw Amount
Amount
Outstanding
Maximum
Draw Amount
Amount
Outstanding
$
$
885,000
$
—
$
885,000
$
1,089,000
1,089,000
709,657
908,808
709,657
908,808
1,239,500
548,094
827,442
368,700
1,239,500
548,094
827,442
3,592,465
$
2,707,465
$
3,500,036
$
2,983,736
The
following
table
shows
the
contractual
maturities
of
our
Revolving
Credit
Facility,
Convertible
Notes,
Public
Notes
and
Prospect
Capital
InterNotes®
as
of
June
30,
2016
.
Revolving
Credit
Facility
Convertible
Notes
Public
Notes
Prospect
Capital
InterNotes®
Total
Contractual
Obligations
Payments Due by Period
Total
Less than 1
Year
1 – 3 Years
3 – 5 Years
After 5 Years
$
—
—
$
—
$
—
$
1,089,000
167,500
529,500
709,657
908,808
—
8,819
—
257,198
392,000
300,000
360,599
$
2,707,465
$
176,319
$
786,698
$
1,052,599
$
—
—
409,657
282,192
691,849
167
The
following
table
shows
the
contractual
maturities
of
our
Revolving
Credit
Facility,
Convertible
Notes,
Public
Notes
and
Prospect
Capital
InterNotes®
as
of
June
30,
2015
.
Revolving
Credit
Facility
Convertible
Notes
Public
Notes
Prospect
Capital
InterNotes
®
Total
Contractual
Obligations
Payments Due by Period
Total
Less than 1
Year
1 – 3 Years
3 – 5 Years
After 5 Years
$
368,700
$
—
$
—
$
368,700
$
1,239,500
150,000
497,500
548,094
827,442
—
—
—
54,509
592,000
300,000
369,938
$
2,983,736
$
150,000
$
552,009
$
1,630,638
$
—
—
248,094
402,995
651,089
As
permitted
by
ASC
825-10-25,
we
have
not
elected
to
value
our
Revolving
Credit
Facility,
Convertible
Notes,
Public
Notes
and
Prospect
Capital
InterNotes®
at
fair
value.
The
following
table
shows
the
fair
value
of
these
financial
liabilities
disaggregated
into
the
three
levels
of
the
ASC
820
valuation
hierarchy
as
of
June
30,
2016
.
Revolving
Credit
Facility
Convertible
Notes(1)
Public
Notes(1)
Prospect
Capital
InterNotes®(2)
Total
Fair Value Hierarchy
Level 1
Level 2
Level 3
Total
—
$
—
$
—
$
—
—
—
—
1,080,724
714,047
894,840
—
—
—
1,080,724
714,047
894,840
—
$
2,689,611
$
—
$
2,689,611
$
$
(1) We
use
available
market
quotes
to
estimate
the
fair
value
of
the
Convertible
Notes
and
Public
Notes.
(2) The
fair
value
of
Prospect
Capital
InterNotes®
is
estimated
by
discounting
remaining
payments
using
current
Treasury
rates.
The
following
table
shows
the
fair
value
of
these
financial
liabilities
disaggregated
into
the
three
levels
of
the
ASC
820
valuation
hierarchy
as
of
June
30,
2015
.
Revolving
Credit
Facility(1)
Convertible
Notes(2)
Public
Notes(2)
Prospect
Capital
InterNotes®(3)
Total
Fair Value Hierarchy
Level 1
Level 2
Level 3
Total
—
$
368,700
$
—
$
368,700
—
—
—
1,244,402
564,052
848,387
—
—
—
1,244,402
564,052
848,387
—
$
3,025,541
$
—
$
3,025,541
$
$
(1) The
carrying
value
of
our
Revolving
Credit
Facility
approximates
the
fair
value.
(2) We
use
available
market
quotes
to
estimate
the
fair
value
of
the
Convertible
Notes
and
Public
Notes.
(3) The
fair
value
of
Prospect
Capital
InterNotes®
is
estimated
by
discounting
remaining
payments
using
current
Treasury
rates.
168
Note 9. Stock Repurchase Program, Equity Offerings, Offering Expenses, and Distributions
On
August
24,
2011,
our
Board
of
Directors
approved
a
share
repurchase
plan
(the
“Repurchase
Program”)
under
which
we
may
repurchase
up
to
$100,000
of
our
common
stock
at
prices
below
our
net
asset
value
per
share.
Prior
to
any
repurchase,
we
are
required
to
notify
shareholders
of
our
intention
to
purchase
our
common
stock.
We
delivered
a
notice
with
our
annual
proxy
mailing
on
September
23,
2015
and
our
most
recent
notice
was
delivered
with
a
shareholder
letter
mailing
on
February
2,
2016.
This
notice
extends
for
six
months
after
the
date
that
notice
is
delivered.
During
the
year
ended
June
30,
2016
,
we
repurchased
4,708,750
shares
of
our
common
stock
pursuant
to
our
publicly
announced
Repurchase
Program
for
$34,140
,
or
approximately
$7.25
weighted
average
price
per
share
at
approximately
a
30%
discount
to
net
asset
value
as
of
June
30,
2015.
Our
NAV
per
share
was
increased
by
approximately
$0.02
for
the
year
ended
June
30,
2016
as
a
result
of
the
share
repurchases.
Repurchases of Common Stock
Year Ended June 30, 2016
Dollar
amount
repurchased
Shares
Repurchased
Weighted
average
price
per
share
$
7.25
Weighted
average
discount
to
June
30,
2015
net
asset
value
Approximate
dollar
value
of
shares
that
may
yet
be
purchased
under
the
plan
$
34,140
4,708,750
30%
65,860
There
were
no
repurchases
made
for
the
years
ended
June
30,
2015
and
2014
under
our
Repurchase
Program.
Excluding
dividend
reinvestments,
during
the
year
ended
June
30,
2016
we
did
not
issue
any
shares
of
our
common
stock.
Excluding
dividend
reinvestments,
we
issued
14,845,556
shares
of
our
common
stock
during
the
year
ended
June
30,
2015
.
The
following
table
summarizes
our
issuances
of
common
stock
during
the
years
ended
June
30,
2014
and
June
30,
2015.
Issuances of Common Stock
During
the
year
ended
June
30,
2014:
July
5,
2013
–
August
21,
2013(1)
August
2,
2013(2)
August
29,
2013
–
November
4,
2013(1)
November
12,
2013
–
February
5,
2014(1)
February
10,
2014
–
April
9,
2014(1)
March
31,
2014(2)
April
15,
2014
–
May
2,
2014(1)
May
5,
2014(2)
During
the
year
ended
June
30,
2015:
September
11,
2014
–
November
3,
2014(1)
November
17,
2014
–
December
3,
2014(1)
Number of
Shares Issued
Gross
Proceeds
Underwriting
Fees
Offering
Expenses
Average
Offering Price
9,818,907
$
107,725
$
902
$
169
$
1,918,342
21,006
24,127,242
272,114
27,301,889
307,045
21,592,715
239,305
2,306,294
5,213,900
1,102,313
24,908
56,995
11,916
—
2,703
3,069
2,233
—
445
—
—
414
436
168
—
193
—
9,490,975
$
95,149
$
5,354,581
51,678
474
$
268
175
$
469
10.97
10.95
11.28
11.25
11.08
10.80
10.93
10.81
10.03
9.65
(1) Shares
were
issued
in
connection
with
our
at-the-market
offering
program
which
we
enter
into
from
time
to
time
with
various
counterparties.
(2) Shares
were
issued
in
conjunction
with
our
investments
in
the
following
controlled
portfolio
companies:
CP
Holdings
of
Delaware
LLC,
Harbortouch
Holdings
of
Delaware
Inc.,
and
Arctic
Oilfield
Equipment
USA,
Inc.
Our
shareholders’
equity
accounts
as
of
June
30,
2016
,
June
30,
2015
and
June
30,
2014
reflect
cumulative
shares
issued
as
of
those
respective
dates.
Our
common
stock
has
been
issued
through
public
offerings,
a
registered
direct
offering,
the
exercise
of
over-allotment
options
on
the
part
of
the
underwriters,
our
dividend
reinvestment
plan
and
in
connection
with
the
acquisition
of
certain
controlled
portfolio
companies.
When
our
common
stock
is
issued,
the
related
offering
expenses
have
been
charged
against
paid-in
capital
in
excess
of
par.
All
underwriting
fees
and
offering
expenses
were
borne
by
us.
169
On
November
3,
2015,
our
Registration
Statement
on
Form
N-2
was
declared
effective
by
the
SEC.
Under
this
Shelf
Registration
Statement,
we
can
issue
up
to
$4,807,503
of
additional
debt
and
equity
securities
in
the
public
market
as
of
June
30,
2016
.
During
the
year
ended
June
30,
2016
and
June
30,
2015
,
we
distributed
approximately
$356,110
and
$421,594
,
respectively,
to
our
stockholders.
The
following
table
summarizes
our
distributions
declared
and
payable
for
the
year
ended
June
30,
2015
and
June
30,
2016
.
Declaration Date
Record Date
Payment Date
Amount Per Share
Amount Distributed (in
thousands)
2/3/2014
2/3/2014
2/3/2014
5/6/2014
5/6/2014
5/6/2014
9/24/2014
12/8/2014
12/8/2014
12/8/2014
5/6/2015
5/6/2015
5/6/2015
5/6/2015
8/24/2015
8/24/2015
11/4/2015
11/4/2015
11/4/2015
2/9/2016
2/9/2016
2/9/2016
5/9/2016
5/9/2016
7/31/2014
8/29/2014
9/30/2014
10/31/2014
11/28/2014
12/31/2014
1/30/2015
2/27/2015
3/31/2015
4/30/2015
5/29/2015
6/30/2015
8/21/2014
$
0.110475
$
9/18/2014
10/22/2014
11/20/2014
12/18/2014
1/22/2015
2/19/2015
3/19/2015
4/23/2015
5/21/2015
6/18/2015
7/23/2015
0.110500
0.110525
0.110550
0.110575
0.110600
0.110625
0.083330
0.083330
0.083330
0.083330
0.083330
37,863
37,885
38,519
38,977
39,583
39,623
39,648
29,878
29,887
29,898
29,910
29,923
Total
declared
and
payable
for
the
year
ended
June
30,
2015
$
421,594
7/31/2015
8/31/2015
9/30/2015
10/30/2015
11/30/2015
12/31/2015
1/29/2016
2/29/2016
3/31/2016
4/29/2016
5/31/2016
6/30/2016
8/20/2015
$
0.083330
$
9/17/2015
10/22/2015
11/19/2015
12/24/2015
1/21/2016
2/18/2016
3/24/2016
4/21/2016
5/19/2016
6/23/2016
7/21/2016
0.083330
0.083330
0.083330
0.083330
0.083330
0.083330
0.083330
0.083330
0.083330
0.083330
0.083330
29,909
29,605
29,601
29,600
29,611
29,616
29,641
29,663
29,674
29,702
29,730
29,758
Total
declared
and
payable
for
the
year
ended
June
30,
2016
$
356,110
Dividends
and
distributions
to
common
stockholders
are
recorded
on
the
ex-dividend
date.
As
such,
the
table
above
includes
distributions
with
record
dates
during
the
years
ended
June
30,
2016
and
June
30,
2015
.
It
does
not
include
distributions
previously
declared
to
stockholders
of
record
on
any
future
dates,
as
those
amounts
are
not
yet
determinable.
The
following
dividends
were
previously
declared
and
will
be
payable
subsequent
to
June
30,
2016
:
•
•
$0.08333
per
share
for
July
2016
to
holders
of
record
on
July
29,
2016
with
a
payment
date
of
August
18,
2016;
and
$0.08333
per
share
for
August
2016
to
holders
of
record
on
August
31,
2016
with
a
payment
date
of
September
22,
2016.
During
the
year
ended
June
30,
2016
and
June
30,
2015
,
we
issued
2,725,222
and
1,618,566
shares
of
our
common
stock,
respectively,
in
connection
with
the
dividend
reinvestment
plan.
On
February
9,
2016,
we
amended
our
dividend
reinvestment
plan
that
already
provides
for
reinvestment
of
our
dividends
or
distributions
on
behalf
of
our
stockholders,
unless
a
stockholder
elects
to
receive
cash,
to
add
the
ability
of
stockholders
to
purchase
additional
shares
by
making
optional
cash
investments.
Under
the
revised
dividend
reinvestment
and
direct
stock
170
repurchase
plan,
stockholders
may
elect
to
purchase
additional
shares
through
our
transfer
agent
in
the
open
market
or
in
negotiated
transactions.
During
the
year
ended
June
30,
2016
,
Prospect
officers
purchased
16,909,556
shares
of
our
stock,
or
4.74%
of
total
outstanding
shares
as
of
June
30,
2016
,
both
through
the
open
market
transactions
and
shares
issued
in
connection
with
our
dividend
reinvestment
plan.
As
of
June
30,
2016
,
we
have
reserved
89,219,237
shares
of
our
common
stock
for
issuance
upon
conversion
of
the
Convertible
Notes
(see
Note
5).
Note 10. Other Income
Other
income
consists
of
structuring
fees,
overriding
royalty
interests,
revenue
receipts
related
to
net
profit
interests,
deal
deposits,
administrative
agent
fees,
and
other
miscellaneous
and
sundry
cash
receipts.
The
following
table
shows
income
from
such
sources
during
the
years
ended
June
30,
2016
,
2015,
and
2014.
Year Ended June 30,
2016
2015
2014
Structuring,
advisory
and
amendment
fees
(refer
to
Note
3)
$
26,207
$
28,562
$
59,527
Recovery
of
legal
costs
from
prior
periods
from
legal
settlement
Royalty
and
Net
Revenue
interests
Administrative
agent
fees
Total
Other
Income
Note 11. Net Increase in Net Assets per Share
—
6,853
794
—
5,219
666
5,825
5,893
468
$
33,854
$
34,447
$
71,713
The
following
information
sets
forth
the
computation
of
net
increase
in
net
assets
resulting
from
operations
per
share
during
the
years
ended
June
30,
2016
,
2015,
and
2014.
Net
increase
in
net
assets
resulting
from
operations
Weighted
average
common
shares
outstanding
Net
increase
in
net
assets
resulting
from
operations
per
share
Note 12. Income Taxes
Year Ended June 30,
2016
2015
2014
103,362
$
346,339
$
319,020
356,134,297
353,648,522
300,283,941
0.29
$
0.98
$
1.06
$
$
While
our
fiscal
year
end
for
financial
reporting
purposes
is
June
30
of
each
year,
our
tax
year
end
is
August
31
of
each
year.
The
information
presented
in
this
footnote
is
based
on
our
tax
year
end
for
each
period
presented,
unless
otherwise
specified.
For
income
tax
purposes,
dividends
paid
and
distributions
made
to
shareholders
are
reported
as
ordinary
income,
capital
gains,
non-taxable
return
of
capital,
or
a
combination
thereof.
The
tax
character
of
dividends
paid
to
shareholders
during
the
tax
years
ended
August
31,
2015,
2014
and
2013
were
as
follows:
Ordinary
income
Capital
gain
Return
of
capital
Tax Year Ended August 31,
2015
2014
2013
$
413,640
$
413,051
$
282,621
—
—
—
—
—
—
Total
dividends
paid
to
shareholders
$
413,640
$
413,051
$
282,621
We
generate
certain
types
of
income
that
may
be
exempt
from
U.S.
withholding
tax
when
distributed
to
non-U.S
shareholders.
Under
IRC
Section
871(K),
a
RIC
is
permitted
to
designate
distributions
of
qualified
interest
income
and
short-term
capital
gains
as
exempt
from
U.S.
withholding
tax
when
paid
to
non-U.S.
shareholders
with
proper
documentation.
For
the
2016
calendar
year,
43.78%
of
our
distributions
as
of
June
30,
2016
qualified
as
interest
related
dividends
which
are
exempt
from
U.S.
withholding
tax
applicable
to
non
U.S.
shareholders.
171
For
the
tax
year
ending
August
31,
2016,
the
tax
character
of
dividends
paid
to
shareholders
through
June
30,
2016
is
expected
to
be
ordinary
income.
Because
of
the
difference
between
our
fiscal
and
tax
year
ends,
the
final
determination
of
the
tax
character
of
dividends
will
not
be
made
until
we
file
our
tax
return
for
the
tax
year
ending
August
31,
2016.
Taxable
income
generally
differs
from
net
increase
in
net
assets
resulting
from
operations
for
financial
reporting
purposes
due
to
temporary
and
permanent
differences
in
the
recognition
of
income
and
expenses,
and
generally
excludes
net
unrealized
gains
or
losses,
as
unrealized
gains
or
losses
are
generally
not
included
in
taxable
income
until
they
are
realized.
The
following
reconciles
the
net
increase
in
net
assets
resulting
from
operations
to
taxable
income
for
the
tax
years
ended
August
31,
2015,
2014
and
2013:
Tax Year Ended August 31,
2015
2014
2013
Net
increase
in
net
assets
resulting
from
operations
$
360,572
$
317,671
$
238,721
Net
realized
loss
on
investments
Net
unrealized
(appreciation)
depreciation
on
investments
Other
temporary
book-to-tax
differences
Permanent
differences
164,230
(157,745)
98,289
2,436
28,244
24,638
(9,122)
(4,317)
24,632
77,835
(6,994)
5,939
Taxable
income
before
deductions
for
distributions
$
467,782
$
357,114
$
340,133
Capital
losses
in
excess
of
capital
gains
earned
in
a
tax
year
may
generally
be
carried
forward
and
used
to
offset
capital
gains,
subject
to
certain
limitations.
The
Regulated
Investment
Company
Modernization
Act
(the
“RIC
Modernization
Act”)
was
enacted
on
December
22,
2010.
Under
the
RIC
Modernization
Act,
capital
losses
incurred
by
taxpayers
in
taxable
years
beginning
after
the
date
of
enactment
will
be
allowed
to
be
carried
forward
indefinitely
and
are
allowed
to
retain
their
character
as
either
short-term
or
long-term
losses.
As
such,
the
capital
loss
carryforwards
generated
by
us
after
the
August
31,
2011
tax
year
will
not
be
subject
to
expiration.
Any
losses
incurred
in
post-enactment
tax
years
will
be
required
to
be
utilized
prior
to
the
losses
incurred
in
pre-enactment
tax
years.
As
of
August
31,
2015,
we
had
capital
loss
carryforwards
of
approximately
$295,106
available
for
use
in
later
tax
years.
Of
the
amount
available
as
of
August
31,
2015,
$32,612
and
$46,156
will
expire
on
August
31,
2017
and
2018,
respectively,
and
$216,338
is
not
subject
to
expiration.
The
unused
balance
each
year
will
be
carried
forward
and
utilized
as
gains
are
realized,
subject
to
limitations.
While
our
ability
to
utilize
losses
in
the
future
depends
upon
a
variety
of
factors
that
cannot
be
known
in
advance,
substantially
all
of
the
Company's
capital
loss
carryforwards
may
become
permanently
unavailable
due
to
limitations
by
the
Code.
For
the
tax
year
ended
August
31,
2015,
we
had
taxable
income
in
excess
of
the
distributions
made
and
we
elected
to
carry
forward
the
excess
for
distribution
to
shareholders
in
the
tax
year
ending
August
31,
2016.
The
cumulative
amount
carried
forward
to
2016
is
approximately
$103,613.
As
of
June
30,
2016
,
the
cost
basis
of
investments
for
tax
purposes
was
$6,175,709
resulting
in
estimated
gross
unrealized
appreciation
and
depreciation
of
$192,035
and
$470,036,
respectively.
As
of
June
30,
2015,
the
cost
basis
of
investments
for
tax
purposes
was
$6,599,876
resulting
in
estimated
gross
unrealized
appreciation
and
depreciation
of
$263,892
and
$254,210,
respectively.
Due
to
the
difference
between
our
fiscal
year
end
and
tax
year
end,
the
cost
basis
of
our
investments
for
tax
purposes
as
of
June
30,
2016
and
June
30,
2015
was
calculated
based
on
the
book
cost
of
investments
as
of
June
30,
2016
and
June
30,
2015,
respectively,
with
cumulative
book-to-tax
adjustments
for
investments
through
August
31,
2015
and
2014,
respectively.
In
general,
we
may
make
certain
adjustments
to
the
classification
of
net
assets
as
a
result
of
permanent
book-to-tax
differences,
which
may
include
merger-related
items,
differences
in
the
book
and
tax
basis
of
certain
assets
and
liabilities,
and
nondeductible
federal
excise
taxes,
among
other
items.
During
the
tax
year
ended
August
31,
2015,
we
decreased
overdistributed
net
investment
income
by
$2,435,
increased
accumulated
net
realized
loss
on
investments
by
$8,542
and
increased
capital
in
excess
of
par
value
by
$6,107.
During
the
tax
year
ended
August
31,
2014,
we
increased
accumulated
overdistributed
net
investment
income
by
$4,316,
decreased
accumulated
net
realized
loss
on
investments
by
$3,384
and
increased
capital
in
excess
of
par
value
by
$932.
Due
to
the
difference
between
our
fiscal
and
tax
year
end,
the
reclassifications
for
the
taxable
year
ended
August
31,
2015
is
being
recorded
in
the
fiscal
year
ending
June
30,
2016
and
the
reclassifications
for
the
taxable
year
ended
August
31,
2014
were
recorded
in
the
fiscal
year
ended
June
30,
2015.
172
Note 13. Related Party Agreements and Transactions
Investment Advisory Agreement
We
have
entered
into
an
investment
advisory
and
management
agreement
with
the
Investment
Adviser,
Prospect
Capital
Management
L.P.,
(the
“Investment
Advisory
Agreement”)
under
which
the
Investment
Adviser,
subject
to
the
overall
supervision
of
our
Board
of
Directors,
manages
the
day-to-day
operations
of,
and
provides
investment
advisory
services
to,
us.
Under
the
terms
of
the
Investment
Advisory
Agreement,
the
Investment
Adviser:
(i)
determines
the
composition
of
our
portfolio,
the
nature
and
timing
of
the
changes
to
our
portfolio
and
the
manner
of
implementing
such
changes,
(ii)
identifies,
evaluates
and
negotiates
the
structure
of
the
investments
we
make
(including
performing
due
diligence
on
our
prospective
portfolio
companies);
and
(iii)
closes
and
monitors
investments
we
make.
The
Investment
Adviser’s
services
under
the
Investment
Advisory
Agreement
are
not
exclusive,
and
it
is
free
to
furnish
similar
services
to
other
entities
so
long
as
its
services
to
us
are
not
impaired.
For
providing
these
services
the
Investment
Adviser
receives
a
fee
from
us,
consisting
of
two
components:
a
base
management
fee
and
an
incentive
fee.
The
base
management
fee
is
calculated
at
an
annual
rate
of
2.00%
on
our
total
assets.
For
services
currently
rendered
under
the
Investment
Advisory
Agreement,
the
base
management
fee
is
payable
quarterly
in
arrears.
The
base
management
fee
is
calculated
based
on
the
average
value
of
our
gross
assets
at
the
end
of
the
two
most
recently
completed
calendar
quarters
and
appropriately
adjusted
for
any
share
issuances
or
repurchases
during
the
current
calendar
quarter.
The
total
gross
base
management
fee
incurred
to
the
favor
of
the
Investment
Adviser
was
$128,416
,
$134,760
,
$108,990
during
the
years
ended
June
30,
2016
,
2015,
and
2014
,
respectively.
The
Investment
Adviser
has
entered
into
a
servicing
agreement
with
certain
institutions
who
purchased
loans
with
us,
where
we
serve
as
the
agent
and
collect
a
servicing
fee
on
behalf
of
the
Investment
Adviser.
During
the
years
ended
June
30,
2016
and
2015
(beginning
with
the
quarter
ended
June
30,
2015),
we
received
payments
of
$1,893
and
$170
,
respectively,
from
these
institutions,
on
behalf
of
the
Investment
Adviser,
for
providing
such
services
under
the
servicing
agreement.
We
were
given
a
credit
for
these
payments,
which
reduced
the
base
management
fee
payable
to
$126,523
and
$134,590
for
the
years
ended
June
30,
2016
and
2015,
respectively.
The
incentive
fee
has
two
parts.
The
first
part,
the
income
incentive
fee,
is
calculated
and
payable
quarterly
in
arrears
based
on
our
pre-incentive
fee
net
investment
income
for
the
immediately
preceding
calendar
quarter.
For
this
purpose,
pre-incentive
fee
net
investment
income
means
interest
income,
dividend
income
and
any
other
income
(including
any
other
fees
(other
than
fees
for
providing
managerial
assistance),
such
as
commitment,
origination,
structuring,
diligence
and
consulting
fees
and
other
fees
that
we
receive
from
portfolio
companies)
accrued
during
the
calendar
quarter,
minus
our
operating
expenses
for
the
quarter
(including
the
base
management
fee,
expenses
payable
under
the
Administration
Agreement
described
below,
and
any
interest
expense
and
dividends
paid
on
any
issued
and
outstanding
preferred
stock,
but
excluding
the
incentive
fee).
Pre-incentive
fee
net
investment
income
includes,
in
the
case
of
investments
with
a
deferred
interest
feature
(such
as
original
issue
discount,
debt
instruments
with
payment-in-kind
interest
and
zero
coupon
securities),
accrued
income
that
we
have
not
yet
received
in
cash.
Pre-incentive
fee
net
investment
income
does
not
include
any
realized
capital
gains,
realized
capital
losses
or
unrealized
capital
appreciation
or
depreciation.
Pre-incentive
fee
net
investment
income,
expressed
as
a
rate
of
return
on
the
value
of
our
net
assets
at
the
end
of
the
immediately
preceding
calendar
quarter,
is
compared
to
a
“hurdle
rate”
of
1.75%
per
quarter
(7.00%
annualized).
The
net
investment
income
used
to
calculate
this
part
of
the
incentive
fee
is
also
included
in
the
amount
of
the
gross
assets
used
to
calculate
the
2.00%
base
management
fee.
We
pay
the
Investment
Adviser
an
income
incentive
fee
with
respect
to
our
pre-incentive
fee
net
investment
income
in
each
calendar
quarter
as
follows:
•
•
•
No
incentive
fee
in
any
calendar
quarter
in
which
our
pre-incentive
fee
net
investment
income
does
not
exceed
the
hurdle
rate;
100.00%
of
our
pre-incentive
fee
net
investment
income
with
respect
to
that
portion
of
such
pre-incentive
fee
net
investment
income,
if
any,
that
exceeds
the
hurdle
rate
but
is
less
than
125.00%
of
the
quarterly
hurdle
rate
in
any
calendar
quarter
(8.75%
annualized
assuming
a
7.00%
annualized
hurdle
rate);
and
20.00%
of
the
amount
of
our
pre-incentive
fee
net
investment
income,
if
any,
that
exceeds
125.00%
of
the
quarterly
hurdle
rate
in
any
calendar
quarter
(8.75%
annualized
assuming
a
7.00%
annualized
hurdle
rate).
These
calculations
are
appropriately
prorated
for
any
period
of
less
than
three
months
and
adjusted
for
any
share
issuances
or
repurchases
during
the
current
quarter.
173
The
second
part
of
the
incentive
fee,
the
capital
gains
incentive
fee,
is
determined
and
payable
in
arrears
as
of
the
end
of
each
calendar
year
(or
upon
termination
of
the
Investment
Advisory
Agreement,
as
of
the
termination
date),
and
equals
20.00%
of
our
realized
capital
gains
for
the
calendar
year,
if
any,
computed
net
of
all
realized
capital
losses
and
unrealized
capital
depreciation
at
the
end
of
such
year.
In
determining
the
capital
gains
incentive
fee
payable
to
the
Investment
Adviser,
we
calculate
the
aggregate
realized
capital
gains,
aggregate
realized
capital
losses
and
aggregate
unrealized
capital
depreciation,
as
applicable,
with
respect
to
each
investment
that
has
been
in
our
portfolio.
For
the
purpose
of
this
calculation,
an
“investment”
is
defined
as
the
total
of
all
rights
and
claims
which
may
be
asserted
against
a
portfolio
company
arising
from
our
participation
in
the
debt,
equity,
and
other
financial
instruments
issued
by
that
company.
Aggregate
realized
capital
gains,
if
any,
equal
the
sum
of
the
differences
between
the
aggregate
net
sales
price
of
each
investment
and
the
aggregate
cost
basis
of
such
investment
when
sold
or
otherwise
disposed.
Aggregate
realized
capital
losses
equal
the
sum
of
the
amounts
by
which
the
aggregate
net
sales
price
of
each
investment
is
less
than
the
aggregate
cost
basis
of
such
investment
when
sold
or
otherwise
disposed.
Aggregate
unrealized
capital
depreciation
equals
the
sum
of
the
differences,
if
negative,
between
the
aggregate
valuation
of
each
investment
and
the
aggregate
cost
basis
of
such
investment
as
of
the
applicable
calendar
year-end.
At
the
end
of
the
applicable
calendar
year,
the
amount
of
capital
gains
that
serves
as
the
basis
for
our
calculation
of
the
capital
gains
incentive
fee
involves
netting
aggregate
realized
capital
gains
against
aggregate
realized
capital
losses
on
a
since-inception
basis
and
then
reducing
this
amount
by
the
aggregate
unrealized
capital
depreciation.
If
this
number
is
positive,
then
the
capital
gains
incentive
fee
payable
is
equal
to
20.00%
of
such
amount,
less
the
aggregate
amount
of
any
capital
gains
incentive
fees
paid
since
inception.
The
total
income
incentive
fee
incurred
was
$92,782
,
$90,687
and
$89,306
during
the
years
ended
June
30,
2016,
2015
and
2014,
respectively.
No
capital
gains
incentive
fee
was
incurred
during
the
years
ended
June
30,
2016,
2015
and
2014.
Administration Agreement
We
have
also
entered
into
an
administration
agreement
(the
“Administration
Agreement”)
with
Prospect
Administration
under
which
Prospect
Administration,
among
other
things,
provides
(or
arranges
for
the
provision
of)
administrative
services
and
facilities
for
us.
For
providing
these
services,
we
reimburse
Prospect
Administration
for
our
allocable
portion
of
overhead
incurred
by
Prospect
Administration
in
performing
its
obligations
under
the
Administration
Agreement,
including
rent
and
our
allocable
portion
of
the
costs
of
our
Chief
Financial
Officer
and
Chief
Compliance
Officer
and
his
staff,
including
the
internal
legal
staff.
Under
this
agreement,
Prospect
Administration
furnishes
us
with
office
facilities,
equipment
and
clerical,
bookkeeping
and
record
keeping
services
at
such
facilities.
Prospect
Administration
also
performs,
or
oversees
the
performance
of,
our
required
administrative
services,
which
include,
among
other
things,
being
responsible
for
the
financial
records
that
we
are
required
to
maintain
and
preparing
reports
to
our
stockholders
and
reports
filed
with
the
SEC.
In
addition,
Prospect
Administration
assists
us
in
determining
and
publishing
our
net
asset
value,
overseeing
the
preparation
and
filing
of
our
tax
returns
and
the
printing
and
dissemination
of
reports
to
our
stockholders,
and
generally
oversees
the
payment
of
our
expenses
and
the
performance
of
administrative
and
professional
services
rendered
to
us
by
others.
Under
the
Administration
Agreement,
Prospect
Administration
also
provides
on
our
behalf
managerial
assistance
to
those
portfolio
companies
to
which
we
are
required
to
provide
such
assistance
(see
Managerial Assistance section
below).
The
Administration
Agreement
may
be
terminated
by
either
party
without
penalty
upon
60
days’
written
notice
to
the
other
party.
Prospect
Administration
is
a
wholly-owned
subsidiary
of
the
Investment
Adviser.
The
Administration
Agreement
provides
that,
absent
willful
misfeasance,
bad
faith
or
negligence
in
the
performance
of
its
duties
or
by
reason
of
the
reckless
disregard
of
its
duties
and
obligations,
Prospect
Administration
and
its
officers,
managers,
partners,
agents,
employees,
controlling
persons,
members
and
any
other
person
or
entity
affiliated
with
it
are
entitled
to
indemnification
from
us
for
any
damages,
liabilities,
costs
and
expenses
(including
reasonable
attorneys’
fees
and
amounts
reasonably
paid
in
settlement)
arising
from
the
rendering
of
Prospect
Administration’s
services
under
the
Administration
Agreement
or
otherwise
as
administrator
for
us.
Our
payments
to
Prospect
Administration
are
periodically
reviewed
by
our
Board
of
Directors.
The
allocation
of
gross
overhead
expense
from
Prospect
Administration
was
$20,090,
$21,992
and
$22,393
for
the
years
ended
June
30,
2016
,
2015
and
2014
,
respectively.
Prospect
Administration
received
estimated
payments
of
$7,443,
$7,014
and
$8,020
directly
from
our
portfolio
companies
and
certain
funds
managed
by
the
Investment
Adviser
for
legal,
tax
and
portfolio
level
accounting
services
during
the
years
ended
June
30,
2016
,
2015
and
2014,
respectively.
We
were
given
a
credit
for
these
payments
as
a
reduction
of
the
administrative
services
cost
payable
by
us
to
Prospect
Administration,
resulting
in
net
overhead
expense
of
$12,647
,
$14,977
and
14,373
during
the
years
ended
June
30,
2016,
2015
and
2014,
respectively.
Had
Prospect
Administration
not
received
these
payments,
Prospect
Administration’s
charges
for
its
administrative
services
would
have
increased
by
these
amounts
.
During
the
year
ended
June
30,
2016
,
we
renegotiated
the
managerial
assistance
agreement
with
First
Tower
LLC
and
reversed
$1,200
of
previously
accrued
managerial
assistance
at
First
Tower
Delaware
as
the
fee
was
paid
by
First
Tower
LLC,
which
decreased
our
overhead
allocation.
(See
Managerial Assistance section
below
and
Note
14
for
further
discussion.)
174
Managerial Assistance
As
a
BDC,
we
are
obligated
under
the
1940
Act
to
make
available
to
certain
of
our
portfolio
companies
significant
managerial
assistance.
“Making
available
significant
managerial
assistance”
refers
to
any
arrangement
whereby
we
provide
significant
guidance
and
counsel
concerning
the
management,
operations,
or
business
objectives
and
policies
of
a
portfolio
company.
We
are
also
deemed
to
be
providing
managerial
assistance
to
all
portfolio
companies
that
we
control,
either
by
ourselves
or
in
conjunction
with
others.
The
nature
and
extent
of
significant
managerial
assistance
provided
by
us
to
controlled
and
non-controlled
portfolio
companies
will
vary
according
to
the
particular
needs
of
each
portfolio
company.
Examples
of
such
activities
include
(i)
advice
on
recruiting,
hiring,
management
and
termination
of
employees,
officers
and
directors,
succession
planning
and
other
human
resource
matters;
(ii)
advice
on
capital
raising,
capital
budgeting,
and
capital
expenditures;
(iii)
advice
on
advertising,
marketing,
and
sales;
(iv)
advice
on
fulfillment,
operations,
and
execution;
(v)
advice
on
managing
relationships
with
unions
and
other
personnel
organizations,
financing
sources,
vendors,
customers,
lessors,
lessees,
lawyers,
accountants,
regulators
and
other
important
counterparties;
(vi)
evaluating
acquisition
and
divestiture
opportunities,
plant
expansions
and
closings,
and
market
expansions;
(vii)
participating
in
audit
committee,
nominating
committee,
board
and
management
meetings;
(viii)
consulting
with
and
advising
board
members
and
officers
of
portfolio
companies
(on
overall
strategy
and
other
matters);
and
(ix)
providing
other
organizational,
operational,
managerial
and
financial
guidance.
Prospect
Administration,
when
performing
a
managerial
assistance
agreement
executed
with
each
portfolio
company
to
which
we
provide
managerial
assistance,
arranges
for
the
provision
of
such
managerial
assistance
on
our
behalf.
When
doing
so,
Prospect
Administration
utilizes
personnel
of
our
Investment
Adviser.
We,
on
behalf
of
Prospect
Administration,
invoice
portfolio
companies
receiving
and
paying
for
managerial
assistance,
and
we
remit
to
Prospect
Administration
its
cost
of
providing
such
services,
including
the
charges
deemed
appropriate
by
our
Investment
Adviser
for
providing
such
managerial
assistance.
No
income
is
recognized
by
Prospect.
During
the
years
ended
June
30,
2016
,
2015,
and
2014
,
we
received
payments
of
$6,102,
$5,126
and
$6,612,
respectively,
from
our
portfolio
companies
for
managerial
assistance
and
subsequently
remitted
these
amounts
to
Prospect
Administration.
During
the
year
ended
June
30,
2016
,
we
reversed
$1,200
of
managerial
assistance
expense
related
to
our
consolidated
entity
First
Tower
Delaware
which
was
included
within
allocation
from
Prospect
Administration
on
our
Consolidated Statement of Operations for
the
year
ended
June
30,
2015
.
The
$1,200
was
subsequently
paid
to
Prospect
Administration
by
First
Tower
LLC,
the
operating
company.
See
Note
14
for
further
discussion.
Co-Investments
On
February
10,
2014,
we
received
an
exemptive
order
from
the
SEC
(the
“Order”)
that
gave
us
the
ability
to
negotiate
terms
other
than
price
and
quantity
of
co-
investment
transactions
with
other
funds
managed
by
the
Investment
Adviser
or
certain
affiliates,
including
Priority
Income
Fund,
Inc.
and
Pathway
Energy
Infrastructure
Fund,
Inc.,
subject
to
the
conditions
included
therein.
Under
the
terms
of
the
relief
permitting
us
to
co-invest
with
other
funds
managed
by
our
Investment
Adviser
or
its
affiliates,
a
“required
majority”
(as
defined
in
Section
57(o)
of
the
1940
Act)
of
our
independent
directors
must
make
certain
conclusions
in
connection
with
a
co-investment
transaction,
including
that
(1)
the
terms
of
the
proposed
transaction,
including
the
consideration
to
be
paid,
are
reasonable
and
fair
to
us
and
our
stockholders
and
do
not
involve
overreaching
of
us
or
our
stockholders
on
the
part
of
any
person
concerned
and
(2)
the
transaction
is
consistent
with
the
interests
of
our
stockholders
and
is
consistent
with
our
investment
objective
and
strategies.
In
certain
situations
where
co-investment
with
one
or
more
funds
managed
by
the
Investment
Adviser
or
its
affiliates
is
not
covered
by
the
Order,
such
as
when
there
is
an
opportunity
to
invest
in
different
securities
of
the
same
issuer,
the
personnel
of
the
Investment
Adviser
or
its
affiliates
will
need
to
decide
which
fund
will
proceed
with
the
investment.
Such
personnel
will
make
these
determinations
based
on
policies
and
procedures,
which
are
designed
to
reasonably
ensure
that
investment
opportunities
are
allocated
fairly
and
equitably
among
affiliated
funds
over
time
and
in
a
manner
that
is
consistent
with
applicable
laws,
rules
and
regulations.
Moreover,
except
in
certain
circumstances,
when
relying
on
the
Order,
we
will
be
unable
to
invest
in
any
issuer
in
which
one
or
more
funds
managed
by
the
Investment
Adviser
or
its
affiliates
has
previously
invested.
We
will
reimburse
CLO
investment
valuation
service
fees
initially
borne
by
Priority
Income
Fund,
Inc.
During
the
years
ended
June
30,
2016
and
2015,
we
recognized
expenses
that
were
reimbursed
for
valuation
services
of
$112,625
and
$72,470,
respectively.
No
such
expenses
were
incurred
for
the
year
ending
June
30,
2014.
As
of
June
30,
2016
,
we
had
co-investments
with
Priority
Income
Fund,
Inc.
in
the
following
CLO
funds:
Apidos
CLO
XXII,
Babson
CLO
Ltd.
2014-III,
Cent
CLO
21
Limited,
CIFC
Funding
2014-IV
Investor,
Ltd.,
Galaxy
XVII
CLO,
Ltd.,
Halcyon
Loan
Advisors
Funding
2014-2
Ltd.,
Halcyon
Loan
Advisors
Funding
2015-3
Ltd.,
HarbourView
CLO
VII,
Ltd.,
Jefferson
Mill
CLO
Ltd.,
Mountain
View
CLO
IX
Ltd.,
Octagon
Investment
Partners
XVIII,
Ltd.,
Symphony
CLO
XIV
Ltd.,
Voya
IM
CLO
2014-1
Ltd.
and
Washington
Mill
CLO
Ltd,
however
HarbourView
CLO
VII,
Ltd.
and
Octagon
Investment
Partners
XVIII,
Ltd.
are
not
considered
co-investments
pursuant
to
the
Order
as
they
were
purchased
on
the
secondary
market.
175
Note 14. Transactions with Controlled Companies
The
descriptions
below
detail
the
transactions
which
Prospect
Capital
Corporation
(“Prospect”)
has
entered
into
with
each
of
our
controlled
companies.
Certain
of
the
controlled
entities
discussed
below
were
consolidated
effective
July
1,
2014
(see
Note
1).
As
such,
transactions
with
these
Consolidated
Holding
Companies
for
the
years
ended
June
30,
2015
and
June
30,
2016
are
presented
on
a
consolidated
basis.
Airmall Inc.
As
of
June
30,
2014,
Prospect
owned
100%
of
the
equity
of
AMU
Holdings
Inc.
(“AMU”),
a
Consolidated
Holding
Company.
AMU
owned
98%
of
Airmall
Inc.
(f/k/a
Airmall
USA
Holdings,
Inc.)
(“Airmall”).
Airmall
is
a
developer
and
manager
of
airport
retail
operations.
On
July
30,
2010,
Prospect
made
a
$22,420
investment
in
AMU,
of
which
$12,500
was
a
senior
subordinated
note
and
$9,920
was
used
to
purchase
100%
of
the
preferred
and
common
equity
of
AMU.
AMU
used
its
combined
debt
and
equity
proceeds
of
$22,420
to
purchase
100%
of
Airmall’s
common
stock
for
$18,000,
to
pay
$1,573
of
structuring
fees
from
AMU
to
Prospect
(which
was
recognized
by
Prospect
as
structuring
fee
income),
$836
of
third
party
expenses,
$11
of
legal
services
provided
by
attorneys
at
Prospect
Administration,
and
$2,000
of
withholding
tax.
Prospect
then
purchased
for
$30,000
two
loans
of
Airmall
payable
to
unrealized
third
parties,
one
for
$10,000
and
the
other
$20,000.
Prospect
and
Airmall
subsequently
refinanced
the
two
loans
into
a
single
$30,000
loan
from
Airmall
to
Prospect.
On
October
1,
2013,
Prospect
made
an
additional
$2,600
investment
in
the
senior
subordinated
note,
of
which
$575
was
utilized
by
AMU
to
pay
interest
due
to
Prospect
and
$2,025
was
retained
by
AMU
for
working
capital.
On
November
25,
2013,
Prospect
funded
an
additional
$5,000
to
the
senior
subordinated
note,
which
was
utilized
by
AMU
to
pay
a
$5,000
dividend
to
Prospect.
On
December
4,
2013,
Prospect
sold
2%
of
the
outstanding
principal
balance
of
the
senior
secured
term
loan
to
Airmall
and
2%
of
the
outstanding
principal
balance
of
the
senior
subordinated
note
to
AMU
for
$972.
On
June
13,
2014,
Prospect
made
a
new
$19,993
investment
as
a
senior
secured
loan
to
Airmall.
Airmall
then
distributed
this
amount
to
AMU
as
a
return
of
capital,
which
AMU
used
to
pay
down
the
senior
subordinated
loan
in
the
same
amount.
The
minority
interest
held
by
a
third
party
in
AMU
was
exchanged
for
common
stock
of
Airmall.
On
July
1,
2014,
Prospect
began
consolidating
AMU.
As
a
result,
any
transactions
between
AMU
and
Prospect
are
eliminated
in
consolidation
and
as
such,
transactions
after
July
1,
2014
are
denoted
below
as
“N/A”.
On
August
1,
2014,
Prospect
sold
its
investments
in
Airmall
for
net
proceeds
of
$51,379
and
realized
a
loss
of
$3,473
on
the
sale.
In
addition,
there
is
$6,000
being
held
in
escrow,
of
which
98%
is
due
to
Prospect,
which
will
be
recognized
as
an
additional
realized
loss
if
it
is
not
received.
Included
in
the
net
proceeds
were
$3,000
of
structuring
fees
from
Airmall
related
to
the
sale
of
the
operating
company
which
was
recognized
as
other
income
during
the
year
ended
June
30,
2015.
On
October
22,
2014,
Prospect
received
a
tax
refund
of
$665
related
to
its
investment
in
Airmall
and
realized
a
gain
of
the
same
amount.
On
March
21,
2016,
Prospect
received
$1,720
of
the
escrow
proceeds
which
reduced
the
cost
basis
of
the
escrow
receivable
held
on
the
balance
sheet.
In
addition
to
the
repayments
noted
above,
the
following
amounts
were
paid
from
Airmall
to
Prospect
and
recorded
by
Prospect
as
repayment
of
loan
receivable:
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
$
593
49
The
following
dividends
were
declared
and
paid
from
Airmall
to
AMU
and
recognized
as
dividend
income
by
AMU:
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
$
7,000
N/A
The
following
dividends
were
declared
and
paid
from
AMU
to
Prospect
and
recognized
as
dividend
income
by
Prospect:
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
$
12,000
N/A
All
dividends
were
paid
from
earnings
and
profits
of
Airmall
and
AMU.
176
The
following
interest
payments
were
accrued
and
paid
from
AMU
to
Prospect
and
recognized
by
Prospect
as
interest
income:
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
$
3,159
N/A
Included
above,
the
following
payment-in-kind
interest
from
AMU
was
capitalized
and
recognized
by
Prospect
as
interest
income:
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
$
295
N/A
The
following
interest
payments
were
accrued
and
paid
from
Airmall
to
Prospect
and
recognized
by
Prospect
as
interest
income:
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
$
3,420
576
The
following
managerial
assistance
payments
were
paid
from
AMU
to
Prospect
and
subsequently
remitted
to
Prospect
Administration
(no
income
was
recognized
by
Prospect):
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
$
300
N/A
The
following
managerial
assistance
payments
were
paid
from
Airmall
to
Prospect
and
subsequently
remitted
to
Prospect
Administration
(no
income
was
recognized
by
Prospect):
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
$
—
75
The
following
payments
were
paid
from
Airmall
to
Prospect
Administration
as
reimbursement
for
legal,
tax
and
portfolio
level
accounting
services
provided
directly
to
Airmall
(no
direct
income
was
recognized
by
Prospect,
but
Prospect
was
given
credit
for
these
payments
as
a
reduction
of
the
administrative
services
costs
payable
by
Prospect
to
Prospect
Administration):
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
$
—
730
American Property REIT Corp.
APH
Property
Holdings,
LLC
(“APH”)
owned
100%
of
the
common
equity
of
American
Property
REIT
Corp.
(f/k/a
American
Property
Holdings
Corp.)
(“APRC”).
Effective
May
23,
2016,
in
connection
with
the
merger
of
APRC
and
United
Property
REIT
Corp.
(“UPRC”)
with
and
into
National
Property
REIT
Corp.
(f/k/a
National
Property
Holdings
Corp.)
(“NPRC”),
APH
and
UPH
Property
Holdings,
LLC
(“UPH”)
merged
with
and
into
NPH
Property
Holdings,
LLC
(“NPH”).
Prospect
owns
100%
of
the
equity
of
NPH,
a
Consolidated
Holding
Company,
and
NPH
owns
100%
of
the
common
equity
of
NPRC.
APRC
was
formed
to
hold
for
investment,
operate,
finance,
lease,
manage,
and
sell
a
portfolio
of
real
estate
assets
and
engage
in
any
and
all
other
activities
as
may
be
necessary,
incidental
or
convenient
to
carry
out
the
foregoing.
APRC
acquires
real
estate
assets,
including,
but
not
limited
to,
industrial,
commercial,
and
multi-
family
properties.
APRC
may
acquire
real
estate
assets
directly
or
through
joint
ventures
by
making
a
majority
equity
investment
in
a
property-owning
entity
(the
“JV”).
On
October
24,
2012,
Prospect
initially
made
a
$7,808
investment
in
APH,
of
which
$6,000
was
a
Senior
Term
Loan
and
$1,808
was
used
to
purchase
the
membership
interests
of
APH.
The
proceeds
were
utilized
by
APH
to
purchase
APRC
common
equity
for
$7,806,
with
$2
retained
by
APH
for
working
capital.
The
proceeds
were
utilized
by
APRC
to
purchase
a
100%
ownership
interest
in
146
Forest
Parkway,
LLC
for
$7,326,
pay
a
$250
non-refundable
deposit
and
$222
of
structuring
fees
to
Prospect
(which
was
recognized
by
Prospect
as
structuring
fee
income),
with
$8
retained
by
APRC
for
working
capital.
146
Forest
Parkway,
LLC
was
purchased
for
$7,400.
The
remaining
proceeds
were
used
to
pay
$168
of
third
party
expenses
and
$5
of
legal
services
provided
by
attorneys
at
Prospect
Administration,
with
$3
retained
by
the
JV
for
working
capital.
The
investment
was
subsequently
contributed
to
NPRC.
177
On
December
28,
2012,
Prospect
made
a
$9,594
investment
in
APH,
of
which
$6,400
was
a
Senior
Term
Loan
and
$3,194
was
used
to
purchase
additional
membership
interests
of
APH.
The
proceeds
were
utilized
by
APH
to
purchase
additional
APRC
common
equity
for
$9,594.
The
proceeds
were
utilized
by
APRC
to
purchase
a
92.7%
ownership
interest
in
1557
Terrell
Mill
Road,
LLC
for
$9,548,
with
$46
retained
by
APRC
for
other
expenses.
The
JV
was
purchased
for
$23,500
which
included
debt
financing
and
minority
interest
of
$15,275
and
$757,
respectively.
The
remaining
proceeds
were
used
to
pay
$286
of
structuring
fees
to
Prospect
(which
was
recognized
by
Prospect
as
structuring
fee
income)
and
$1,652
of
third
party
expenses,
with
$142
retained
by
the
JV
for
working
capital.
On
January
17,
2013,
Prospect
made
a
$30,348
investment
in
APH,
of
which
$27,600
was
a
Senior
Term
Loan
and
$2,748
was
used
to
purchase
additional
membership
interests
of
APH.
The
proceeds
were
utilized
by
APH
to
purchase
additional
APRC
common
equity
for
$29,348,
with
$1,000
retained
by
APH
for
working
capital.
The
proceeds
were
utilized
by
APRC
to
purchase
a
97.7%
ownership
interest
in
5100
Live
Oaks
Blvd,
LLC
for
$29,348.
The
JV
was
purchased
for
$63,400
which
included
debt
financing
and
minority
interest
of
$39,600
and
$686,
respectively.
The
remaining
proceeds
were
used
to
pay
$880
of
structuring
fees
to
Prospect
(which
was
recognized
by
Prospect
as
structuring
fee
income),
$4,265
of
third
party
expenses,
$14
of
legal
services
provided
by
attorneys
at
Prospect
Administration,
and
$1,030
of
prepaid
assets,
with
$45
retained
by
the
JV
for
working
capital.
The
investment
was
subsequently
contributed
to
NPRC.
On
April
30,
2013,
Prospect
made
a
$10,383
investment
in
APH,
of
which
$9,000
was
a
Senior
Term
Loan
and
$1,383
was
used
to
purchase
additional
membership
interests
of
APH.
The
proceeds
were
utilized
by
APH
to
purchase
additional
APRC
common
equity
for
$10,233,
with
$150
retained
by
APH
for
working
capital.
The
proceeds
were
utilized
by
APRC
to
purchase
a
93.2%
ownership
interest
in
Lofton
Place,
LLC
for
$10,233.
The
JV
was
purchased
for
$26,000
which
included
debt
financing
and
minority
interest
of
$16,965
and
$745,
respectively.
The
remaining
proceeds
were
used
to
pay
$306
of
structuring
fees
to
Prospect
(which
was
recognized
by
Prospect
as
structuring
fee
income),
$1,223
of
third
party
expenses,
$5
of
legal
services
provided
by
attorneys
at
Prospect
Administration,
and
$364
of
prepaid
assets,
with
$45
retained
by
the
JV
for
working
capital.
On
April
30,
2013,
Prospect
made
a
$10,863
investment
in
APH,
of
which
$9,000
was
a
Senior
Term
Loan
and
$1,863
was
used
to
purchase
additional
membership
interests
of
APH.
The
proceeds
were
utilized
by
APH
to
purchase
additional
APRC
common
equity
for
$10,708,
with
$155
retained
by
APH
for
working
capital.
The
proceeds
were
utilized
by
APRC
to
purchase
a
93.2%
ownership
interest
in
Vista
Palma
Sola,
LLC
for
$10,708.
The
JV
was
purchased
for
$27,000
which
included
debt
financing
and
minority
interest
of
$17,550
and
$785,
respectively.
The
remaining
proceeds
were
used
to
pay
$321
of
structuring
fees
to
Prospect
(which
was
recognized
by
Prospect
as
structuring
fee
income),
$1,272
of
third
party
expenses,
$4
of
legal
services
provided
by
attorneys
at
Prospect
Administration,
and
$401
of
prepaid
assets,
with
$45
retained
by
the
JV
for
working
capital.
On
May
8,
2013,
Prospect
made
a
$6,118
investment
in
APH,
of
which
$4,000
was
a
Senior
Term
Loan
and
$2,118
was
used
to
purchase
additional
membership
interests
of
APH.
The
proceeds
were
utilized
by
APH
to
purchase
additional
APRC
common
equity
for
$6,028,
with
$90
retained
by
APH
for
working
capital.
The
proceeds
were
utilized
by
APRC
to
purchase
a
93.3%
ownership
interest
in
Arlington
Park
Marietta,
LLC
for
$6,028.
Arlington
Park
Marietta,
LLC
was
purchased
for
$14,850
which
included
debt
financing
and
minority
interest
of
$9,650
and
$437,
respectively.
The
remaining
proceeds
were
used
to
pay
$181
of
structuring
fees
to
Prospect
(which
was
recognized
by
Prospect
as
structuring
fee
income),
$911
of
third
party
expenses,
and
$128
of
prepaid
assets,
with
$45
retained
by
the
JV
for
working
capital.
On
June
24,
2013,
Prospect
made
a
$76,533
investment
in
APH,
of
which
$63,000
was
a
Senior
Term
Loan
and
$13,533
was
used
to
purchase
additional
membership
interests
of
APH.
The
proceeds
were
utilized
by
APH
to
purchase
additional
APRC
common
equity
for
$75,233,
with
$1,300
retained
by
APH
for
working
capital.
The
proceeds
were
utilized
by
APRC
to
purchase
a
95.0%
ownership
interest
in
APH
Carroll
Resort,
LLC
for
$74,398
and
to
pay
$835
of
structuring
fees
to
Prospect
(which
was
recognized
by
Prospect
as
structuring
fee
income).
The
JV
was
purchased
for
$225,000
which
included
debt
financing
and
minority
interest
of
$157,500
and
$3,916,
respectively.
The
remaining
proceeds
were
used
to
pay
$1,436
of
structuring
fees
to
Prospect
(which
was
recognized
by
Prospect
as
structuring
fee
income),
$7,687
of
third
party
expenses,
$8
of
legal
services
provided
by
attorneys
at
Prospect
Administration,
and
$1,683
of
prepaid
assets.
The
investment
was
subsequently
contributed
to
NPRC
and
renamed
NPRC
Carroll
Resort,
LLC.
Between
October
29,
2013
and
December
4,
2013,
Prospect
made
an
$11,000
investment
in
APH,
of
which
$9,350
was
a
Senior
Term
Loan
and
$1,650
was
used
to
purchase
additional
membership
interests
of
APH.
The
proceeds
were
utilized
by
certain
of
APH’s
wholly-owned
subsidiaries
to
purchase
online
consumer
loans
from
a
third
party.
The
investment
was
subsequently
contributed
to
NPRC.
178
On
November
1,
2013,
Prospect
made
a
$9,869
investment
in
APH,
of
which
$8,200
was
a
Senior
Term
Loan
and
$1,669
was
used
to
purchase
additional
membership
interests
of
APH.
The
proceeds
were
utilized
by
APH
to
purchase
additional
APRC
common
equity
for
$9,869.
The
proceeds
were
utilized
by
APRC
to
purchase
a
94.0%
ownership
interest
in
APH
Carroll
41,
LLC
for
$9,548
and
to
pay
$102
of
structuring
fees
to
Prospect
(which
was
recognized
by
Prospect
as
structuring
fee
income),
with
$219
retained
by
APRC
for
working
capital.
The
JV
was
purchased
for
$30,600
which
included
debt
financing
and
minority
interest
of
$22,497
and
$609,
respectively.
The
remaining
proceeds
were
used
to
pay
$190
of
structuring
fees
to
Prospect
(which
was
recognized
by
Prospect
as
structuring
fee
income),
$1,589
of
third
party
expenses,
$5
of
legal
services
provided
by
attorneys
at
Prospect
Administration,
and
$270
of
prepaid
assets.
The
investment
was
subsequently
contributed
to
NPRC.
On
November
15,
2013,
Prospect
made
a
$45,900
investment
in
APH,
of
which
$38,500
was
a
Senior
Term
Loan
and
$7,400
was
used
to
purchase
additional
membership
interests
of
APH.
The
proceeds
were
utilized
by
APH
to
purchase
additional
APRC
common
equity
for
$45,900.
The
proceeds
were
utilized
by
APRC
to
purchase
a
99.3%
ownership
interest
in
APH
Gulf
Coast
Holdings,
LLC
for
$45,024
and
to
pay
$364
of
structuring
fees
to
Prospect
(which
was
recognized
by
Prospect
as
structuring
fee
income),
with
$512
retained
by
APRC
for
working
capital.
The
JV
was
purchased
for
$115,200
which
included
debt
financing
and
minority
interest
of
$75,558
and
$337,
respectively.
The
remaining
proceeds
were
used
to
pay
$1,013
of
structuring
fees
to
Prospect
(which
was
recognized
by
Prospect
as
structuring
fee
income),
$2,590
of
third
party
expenses,
$23
of
legal
services
provided
by
attorneys
at
Prospect
Administration,
and
$2,023
of
prepaid
assets,
with
$70
retained
by
the
JV
for
working
capital.
On
November
19,
2013,
Prospect
made
a
$66,188
investment
in
APH,
of
which
$55,000
was
a
Senior
Term
Loan
and
$11,188
was
used
to
purchase
additional
membership
interests
of
APH.
The
proceeds
were
utilized
by
APH
to
purchase
additional
APRC
common
equity
for
$66,188.
The
proceeds
were
utilized
by
APRC
to
purchase
a
90.0%
ownership
interest
in
APH
McDowell,
LLC
for
$64,392
and
to
pay
$695
of
structuring
fees
to
Prospect
(which
was
recognized
by
Prospect
as
structuring
fee
income),
with
$1,101
retained
by
APRC
for
working
capital.
The
JV
was
purchased
for
$238,605
which
included
debt
financing
and
minority
interest
of
$180,226
and
$7,155,
respectively.
The
remaining
proceeds
were
used
to
pay
$1,290
of
structuring
fees
to
Prospect
(which
was
recognized
by
Prospect
as
structuring
fee
income),
$9,205
of
third
party
expenses,
$23
of
legal
services
provided
by
attorneys
at
Prospect
Administration,
and
$1,160
of
prepaid
assets,
with
$1,490
retained
by
the
JV
for
working
capital.
The
investment
was
subsequently
contributed
to
NPRC
and
renamed
NPH
McDowell,
LLC.
On
December
12,
2013,
Prospect
made
a
$22,507
investment
in
APH,
of
which
$18,800
was
a
Senior
Term
Loan
and
$3,707
was
used
to
purchase
additional
membership
interests
of
APH.
The
proceeds
were
utilized
by
APH
to
purchase
additional
APRC
common
equity
for
$22,507.
The
proceeds
were
utilized
by
APRC
to
purchase
a
92.6%
ownership
interest
in
South
Atlanta
Portfolio
Holding
Company,
LLC
for
$21,874
and
to
pay
$238
of
structuring
fees
to
Prospect
(which
was
recognized
by
Prospect
as
structuring
fee
income),
with
$395
retained
by
APRC
for
working
capital.
The
JV
was
purchased
for
$87,250
which
included
debt
financing
and
minority
interest
of
$67,493
and
$1,756,
respectively.
The
remaining
proceeds
were
used
to
pay
$437
of
structuring
fees
to
Prospect
(which
was
recognized
by
Prospect
as
structuring
fee
income),
$2,920
of
third
party
expenses,
and
$116
of
prepaid
assets,
with
$400
retained
by
the
JV
for
working
capital.
The
investment
was
subsequently
contributed
to
UPRC.
On
December
31,
2013,
APRC
distributed
its
majority
interests
in
five
JVs
holding
real
estate
assets
to
APH.
APH
then
distributed
these
JV
interests
to
Prospect
in
a
transaction
characterized
as
a
return
of
capital.
Prospect,
on
the
same
day,
contributed
certain
of
these
JV
interests
to
NPH
and
the
remainder
to
UPH
(each
wholly-owned
subsidiaries
of
Prospect).
Each
of
NPH
and
UPH
immediately
thereafter
contributed
these
JV
interests
to
NPRC
and
UPRC,
respectively.
The
total
investments
in
the
JVs
transferred
consisted
of
$98,164
and
$20,022
of
debt
and
equity
financing,
respectively.
There
was
no
material
gain
or
loss
realized
on
these
transactions.
On
January
17,
2014,
Prospect
made
a
$6,565
investment
in
APH,
of
which
$5,500
was
a
Senior
Term
Loan
and
$1,065
was
used
to
purchase
additional
membership
interests
of
APH.
The
proceeds
were
utilized
by
APH
to
purchase
additional
APRC
common
equity
for
$6,565.
The
proceeds
were
utilized
by
APRC
to
purchase
a
99.3%
ownership
interest
in
APH
Gulf
Coast
Holdings,
LLC
for
$6,336
and
to
pay
$54
of
structuring
fees
to
Prospect
(which
was
recognized
by
Prospect
as
structuring
fee
income),
with
$175
retained
by
APRC
for
other
expenses.
The
JV
was
purchased
for
$15,430
which
included
debt
financing
and
minority
interest
of
$10,167
and
$48,
respectively.
The
remaining
proceeds
were
used
to
pay
$143
of
structuring
fees
to
Prospect
(which
was
recognized
by
Prospect
as
structuring
fee
income),
$627
of
third
party
expenses,
$4
of
legal
services
provided
by
attorneys
at
Prospect
Administration,
and
$312
of
prepaid
assets,
with
$35
retained
by
the
JV
for
working
capital.
Effective
April
1,
2014,
Prospect
made
a
new
$167,162
senior
term
loan
to
APRC.
APRC
then
distributed
this
amount
to
APH
as
a
return
of
capital
which
was
used
to
pay
down
the
Senior
Term
Loan
from
APH
by
the
same
amount.
On
June
4,
2014,
Prospect
made
a
$1,719
investment
in
APH
to
purchase
additional
membership
interests
of
APH,
which
was
revised
to
$1,732
on
July
1,
2014.
The
proceeds
were
utilized
by
APH
to
purchase
additional
APRC
common
equity
for
$1,732.
The
proceeds
were
utilized
by
APRC
to
acquire
the
real
property
located
at
975
South
Cornwell,
Yukon,
OK
(“Taco
Bell,
OK”)
for
$1,719
and
pay
$13
of
third
party
expenses.
179
On
July
1,
2014,
Prospect
began
consolidating
APH.
As
a
result,
any
transactions
between
APH
and
Prospect
are
eliminated
in
consolidation
and
as
such,
transactions
after
July
1,
2014
are
denoted
below
as
“N/A”.
On
November
26,
2014,
APRC
transferred
its
investment
in
APH
Carroll
Resort,
LLC
to
NPRC
and
the
investment
was
renamed
NPRC
Carroll
Resort,
LLC.
As
a
result,
Prospect’s
investments
in
APRC
related
to
this
property
also
transferred
to
NPRC.
The
investments
transferred
consisted
of
$10,237
of
equity
and
$65,586
of
debt.
There
was
no
gain
or
loss
realized
on
the
transaction.
On
May
1,
2015,
APRC
transferred
its
investment
in
5100
Live
Oaks
Blvd,
LLC
to
NPRC.
As
a
result,
Prospect’s
investments
in
APRC
related
to
this
property
also
transferred
to
NPRC.
The
investments
transferred
consisted
of
$2,748
of
equity
and
$29,990
of
debt.
There
was
no
gain
or
loss
realized
on
the
transaction.
On
May
6,
2015,
Prospect
made
a
$1,475
investment
in
APRC,
of
which
$1,381
was
a
Senior
Term
Loan
and
$94
was
used
to
purchase
additional
common
equity
of
APRC
through
APH.
The
proceeds
were
utilized
by
APRC
to
purchase
additional
ownership
interest
in
its
twelve
multi-family
properties
for
$1,473
and
pay
$2
of
legal
services
provided
by
attorneys
at
Prospect
Administration.
The
minority
interest
holder
also
invested
an
additional
$17
in
the
JVs.
The
proceeds
were
used
by
the
JVs
to
fund
$1,490
of
capital
expenditures.
During
the
year
ended
June
30,
2015
Prospect
received
$8
as
a
return
of
capital
on
the
equity
investment
in
APRC.
On
September
9,
2015,
Prospect
made
a
$799
investment
in
APRC
used
to
purchase
additional
common
equity
of
APRC
through
APH.
The
proceeds
were
utilized
by
APRC
to
purchase
additional
ownership
interest
in
its
twelve
multi-family
properties
for
$799.
The
minority
interest
holder
also
invested
an
additional
$12
in
the
JVs.
The
proceeds
were
used
by
the
JVs
to
fund
$811
of
capital
expenditures.
On
December
23,
2015,
Prospect
made
a
$1,469
investment
in
APRC
used
to
purchase
additional
common
equity
of
APRC
through
APH.
The
proceeds
were
utilized
by
APRC
to
purchase
additional
ownership
interest
in
its
eleven
multi-family
properties
for
$1,468
and
pay
$1
of
legal
services
provided
by
attorneys
at
Prospect
Administration.
The
minority
interest
holder
also
invested
an
additional
$20
in
the
JVs.
The
proceeds
were
used
by
the
JVs
to
fund
$1,488
of
capital
expenditures.
On
December
31,
2015,
APRC
made
a
partial
repayment
on
the
Senior
Term
Loan
of
$9,000
and
declared
a
dividend
of
$11,016
that
Prospect
recorded
as
dividend
income
in
connection
with
the
sale
of
the
Vista
Palma
Sola
property.
On
March
3,
2016,
APRC
used
supplemental
proceeds
to
make
a
partial
repayment
on
the
Senior
Term
Loan
of
$14,621.
On
March
28,
2016,
APRC
used
supplemental
proceeds
to
make
a
partial
repayment
on
the
Senior
Term
Loan
of
$3,109.
On
April
9,
2016,
APRC
used
supplemental
proceeds
to
make
a
partial
repayment
on
the
Senior
Term
Loan
of
$2,973.
Effective
May
23,
2016,
APRC
and
UPRC
merged
with
and
into
NPRC,
to
consolidate
all
of
our
real
estate
holdings,
with
NPRC
as
the
surviving
entity.
APRC
and
UPRC
have
been
dissolved.
No
gain
or
loss
was
recognized
upon
the
merger.
The
following
dividends
were
declared
and
paid
from
APRC
to
APH
(partially
via
a
wholly-owned
subsidiary
of
APH)
and
recognized
as
dividend
income
by
APH:
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
8,810
N/A
N/A
All
dividends
were
paid
from
earnings
and
profits
of
APRC.
The
following
interest
payments
were
accrued
and
paid
from
APH
to
Prospect
and
recognized
by
Prospect
as
interest
income:
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
13,928
N/A
N/A
180
Included
above,
the
following
payment-in-kind
interest
from
APH
was
capitalized
and
recognized
by
Prospect
as
interest
income:
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
4,084
N/A
N/A
The
following
interest
payments
were
accrued
and
paid
from
APRC
to
Prospect
and
recognized
by
Prospect
as
interest
income:
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
4,860
14,747
7,306
Included
above,
the
following
payment-in-kind
interest
from
APRC
was
capitalized
and
recognized
by
Prospect
as
interest
income:
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
581
4,529
558
The
following
interest
income
recognized
had
not
yet
been
paid
by
APRC
to
Prospect
and
was
included
by
Prospect
within
interest
receivable:
June
30,
2015
June
30,
2016
$
25
—
The
following
net
revenue
interest
payments
were
paid
from
APH
to
Prospect
and
recognized
by
Prospect
as
other
income:
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
1,418
N/A
N/A
The
following
net
revenue
interest
payments
were
paid
from
APRC
to
Prospect
and
recognized
by
Prospect
as
other
income:
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
—
1,342
899
The
following
managerial
assistance
payments
were
paid
from
APRC
to
Prospect
and
subsequently
remitted
to
Prospect
Administration
(no
income
was
recognized
by
Prospect):
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
637
590
528
The
following
managerial
assistance
payments
received
by
Prospect
had
not
yet
been
remitted
to
Prospect
Administration
and
were
included
by
Prospect
within
due
to
Prospect
Administration:
June
30,
2015
June
30,
2016
$
148
86
181
The
following
payments
were
paid
from
APRC
to
Prospect
Administration
as
reimbursement
for
legal,
tax
and
portfolio
level
accounting
services
provided
directly
to
APRC
(no
direct
income
was
recognized
by
Prospect,
but
Prospect
was
given
credit
for
these
payments
as
a
reduction
of
the
administrative
services
costs
payable
by
Prospect
to
Prospect
Administration):
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
1,791
301
860
The
following
amounts
were
due
from
APRC
to
Prospect
for
reimbursement
of
expenses
paid
by
Prospect
on
behalf
of
APRC
and
were
included
by
Prospect
within
other
receivables:
June
30,
2015
June
30,
2016
$
124
—
Arctic Energy Services, LLC
Prospect
owns
100%
of
the
equity
of
Arctic
Oilfield
Equipment
USA,
Inc.
(“Arctic
Equipment”),
a
Consolidated
Holding
Company.
Arctic
Equipment
owns
70%
of
the
equity
of
Arctic
Energy
Services,
LLC
(“Arctic
Energy”),
with
Ailport
Holdings,
LLC
(“Ailport”)
(100%
owned
and
controlled
by
Arctic
Energy
management)
owning
the
remaining
30%
of
the
equity
of
Arctic
Energy.
Arctic
Energy
provides
oilfield
service
personnel,
well
testing
flowback
equipment,
frac
support
systems
and
other
services
to
exploration
and
development
companies
in
the
Rocky
Mountains.
On
May
5,
2014,
Prospect
initially
purchased
100%
of
the
common
shares
of
Arctic
Equipment
for
$9,006.
Proceeds
were
utilized
by
Arctic
Equipment
to
purchase
70%
of
Arctic
Energy
as
described
in
the
following
paragraph.
On
May
5,
2014,
Prospect
made
an
additional
$51,870
investment
(including
in
exchange
for
1,102,313
common
shares
of
Prospect
at
fair
value
of
$11,916)
in
Arctic
Energy
in
exchange
for
a
$31,640
senior
secured
loan
and
a
$20,230
subordinated
loan.
Total
proceeds
received
by
Arctic
Energy
of
$60,876
were
used
to
purchase
70%
of
the
equity
interests
in
Arctic
Energy
from
Ailport
for
$47,516,
pay
$875
of
third-party
expenses,
$1,713
of
structuring
fees
to
Prospect
(which
was
recognized
as
structuring
fee
income),
$445
of
legal
services
provided
by
attorneys
at
Prospect
Administration
and
$10,327
was
retained
as
working
capital.
On
July
1,
2014,
Prospect
began
consolidating
Arctic
Equipment.
On
September
30,
2015,
we
restructured
our
investment
in
Arctic
Energy.
Concurrent
with
the
restructuring,
we
exchanged
our
$31,640
senior
secured
loan
and
$20,230
subordinated
loan
for
Class
D
and
Class
E
equity
in
Arctic
Energy.
The
following
interest
payments
were
accrued
and
paid
from
Arctic
Energy
to
Prospect
and
recognized
by
Prospect
as
interest
income:
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
1,050
6,721
1,123
The
following
interest
income
recognized
had
not
yet
been
paid
by
Arctic
Energy
to
Prospect
and
was
included
by
Prospect
within
interest
receivable:
June
30,
2015
June
30,
2016
$
18
—
The
following
managerial
assistance
payments
were
paid
from
Arctic
Energy
to
Prospect
and
subsequently
remitted
to
Prospect
Administration
(no
income
was
recognized
by
Prospect):
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
15
100
50
182
The
following
managerial
assistance
received
by
Prospect
had
not
yet
been
remitted
to
Prospect
Administration
and
were
included
by
Prospect
within
due
to
Prospect
Administration:
June
30,
2015
June
30,
2016
$
25
—
The
following
managerial
assistance
recognized
had
not
yet
been
paid
by
Arctic
Energy
to
Prospect
and
was
included
by
Prospect
within
other
receivables
and
due
to
Prospect
Administration:
June
30,
2015
June
30,
2016
$
—
50
The
following
payments
were
paid
from
Arctic
Energy
to
Prospect
Administration
as
reimbursement
for
legal,
tax
and
portfolio
level
accounting
services
provided
directly
to
Arctic
Energy
(no
direct
income
was
recognized
by
Prospect,
but
Prospect
was
given
credit
for
these
payments
as
a
reduction
of
the
administrative
services
costs
payable
by
Prospect
to
Prospect
Administration):
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
445
—
—
The
following
amounts
were
due
to
Arctic
Energy
from
Prospect
for
reimbursement
of
expenses
paid
by
Arctic
Energy
on
behalf
of
Prospect
and
were
included
by
Prospect
within
other
liabilities:
June
30,
2015
June
30,
2016
$
1
—
Borga, Inc.
As
of
June
30,
2014,
Prospect
owned
100%
of
the
equity
of
STI
Holding,
Inc.
(“STI”),
a
Consolidated
Holding
Company.
STI
owned
100%
of
the
equity
of
Borga,
Inc.
(“Borga”).
Borga
manufactures
pre-engineered
metal
buildings
and
components
for
the
agricultural
and
light
industrial
markets.
On
May
6,
2005,
Patriot
Capital
Funding,
Inc.
(“Patriot”)
(previously
acquired
by
Prospect)
provided
$14,000
in
senior
secured
debt
to
Borga.
The
debt
was
comprised
of
$1,000
Senior
Secured
Revolver,
$3,500
Senior
Secured
Term
Loan
A,
$2,500
Senior
Secured
Term
Loan
B
and
$7,000
Senior
Secured
Term
Loan
C.
On
March
31,
2009,
Borga
made
its
final
amortization
payment
on
the
Senior
Secured
Term
Loan
A.
The
other
loans
remained
outstanding.
Prospect
owned
warrants
to
purchase
33,750
shares
of
common
stock
in
Metal
Buildings
Holding
Corporation
(“Metal
Buildings”),
the
former
holding
company
of
Borga.
Metal
Buildings
owned
100%
of
Borga.
On
March
8,
2010,
Prospect
acquired
the
remaining
common
stock
of
Borga.
On
January
24,
2014,
Prospect
contributed
its
holdings
in
Borga
to
STI.
STI
also
held
$3,371
of
proceeds
from
the
sale
of
a
minority
equity
interest
in
Smart
Tuition
Holdings,
LLC
(“SMART”).
Prospect
initially
acquired
membership
interests
in
SMART
indirectly
as
part
of
the
Patriot
acquisition
on
December
2,
2009
recording
a
zero
cost
basis
for
the
equity
investment.
The
$3,371
was
distributed
to
Prospect
on
May
29,
2014,
of
which
$3,246
was
paid
from
earnings
and
profits
of
STI
and
was
recognized
as
dividend
income
by
Prospect.
The
remaining
$125
was
recognized
as
return
of
capital
by
Prospect.
On
July
1,
2014,
Prospect
began
consolidating
STI.
As
a
result,
any
transactions
between
STI
and
Prospect
are
eliminated
in
consolidation
and
as
such,
transactions
after
July
1,
2014
are
not
presented
below.
On
August
20,
2014,
Prospect
sold
the
assets
of
Borga,
a
wholly-owned
subsidiary
of
STI,
for
net
proceeds
of
$382
and
realized
a
loss
of
$2,589
on
the
sale.
On
December
29,
2014,
Borga
was
dissolved.
183
BXC Company, Inc.
As
of
June
30,
2014,
Prospect
owned
86.7%
of
Series
A
Preferred
Stock,
96.8%
of
Series
B
Preferred
Stock,
and
83.1%
of
fully
diluted
common
stock
of
BXC
Company,
Inc.
(f/k/a
BXC
Holding
Company)
(“BXC”).
BXC
owned
100%
of
the
common
stock
of
Boxercraft
Incorporated
(“Boxercraft”).
As
of
July
1,
2012,
the
cost
basis
of
Prospect’s
total
debt
and
equity
investment
in
Boxercraft
was
$15,123,
including
capitalized
payment-in-kind
interest
of
$1,466.
On
December
31,
2013,
Boxercraft
repaid
$100
of
the
senior
secured
term
loan.
On
April
18,
2014,
Prospect
made
a
new
$300
senior
secured
term
loan
to
Boxercraft.
During
the
period
from
July
1,
2012
through
June
30,
2014,
Prospect
capitalized
a
total
of
$804
of
paid-in-kind
interest
and
accreted
a
total
of
$1,321
of
the
original
purchase
discount,
increasing
the
total
debt
investment
to
$17,448
as
of
June
30,
2014.
Effective
March
28,
2014,
Prospect
acquired
voting
control
of
BXC
pursuant
to
a
voting
agreement
and
irrevocable
proxy.
Effective
May
8,
2014,
Prospect
acquired
control
of
BXC
by
transferring
shares
held
by
the
other
equity
holders
of
BXC
to
Prospect
pursuant
to
an
assignment
agreement
entered
into
with
such
other
equity
holders.
On
July
2,
2014,
Prospect
made
a
new
$250
senior
secured
term
loan
to
provide
liquidity
to
Boxercraft.
On
July
17,
2014,
Prospect
restructured
the
investments
in
BXC
and
Boxercraft.
The
existing
Senior
Secured
Term
Loan
A
and
a
portion
of
the
existing
Senior
Secured
Term
Loan
B
were
replaced
with
a
new
Senior
Secured
Term
Loan
A
to
Boxercraft.
The
remainder
of
the
existing
Senior
Secured
Term
Loan
B
and
the
existing
Senior
Secured
Term
Loan
C,
Senior
Secured
Term
Loan
D,
and
Senior
Secured
Term
Loan
E
were
replaced
with
a
new
Senior
Secured
Term
Loan
B
to
Boxercraft.
The
existing
Senior
Secured
Term
Loan
to
Boxercraft
was
converted
into
Series
D
Preferred
Stock
in
BXC.
During
the
year
ended
June
30,
2015,
Prospect
accrued
$5
of
administrative
agent
fees
from
Boxercraft
(which
were
recognized
by
Prospect
as
other
income).
On
August
25,
2014,
Prospect
sold
Boxercraft,
a
wholly-owned
subsidiary
of
BXC,
for
net
proceeds
of
$750
and
realized
a
net
loss
of
$16,949
on
the
sale.
CCPI Inc.
Prospect
owns
100%
of
the
equity
of
CCPI
Holdings
Inc.
(“CCPI
Holdings”),
a
Consolidated
Holding
Company.
CCPI
Holdings
owns
94.95%
of
the
equity
of
CCPI
Inc.
(“CCPI”),
with
CCPI
management
owning
the
remaining
5.05%
of
the
equity.
CCPI
owns
100%
of
each
of
CCPI
Europe
Ltd.
and
MEFEC
B.V.,
and
45%
of
Gulf
Temperature
Sensors
W.L.L.
On
December
13,
2012,
Prospect
initially
made
a
$15,921
investment
(including
467,928
common
shares
of
Prospect
at
fair
value
of
$5,021)
in
CCPI
Holdings,
$7,500
senior
secured
note
and
$8,443
equity
interest.
The
proceeds
received
by
CCPI
Holdings
were
partially
utilized
to
purchase
95.13%
of
CCPI
common
stock
for
$14,878.
The
remaining
proceeds
were
used
to
pay
$395
of
structuring
fees
from
CCPI
Holdings
to
Prospect
(which
were
recognized
by
Prospect
as
structuring
fee
income),
$215
for
legal
services
provided
by
attorneys
at
Prospect
Administration,
$137
for
third
party
expenses
and
$318
was
retained
by
CCPI
Holdings
for
working
capital.
On
December
13,
2012,
Prospect
made
an
additional
investment
of
$18,000
in
CCPI
senior
secured
debt.
The
proceeds
of
the
Prospect
loan
along
with
$14,878
of
equity
financing
from
CCPI
Holdings
(mentioned
above)
were
used
to
purchase
95.13%
of
CCPI
equity
from
the
sellers
for
$31,829,
provide
$120
of
debt
financing
to
CCPI
management
(to
partially
fund
a
purchase
by
management
of
CCPI
stock),
fund
$180
of
structuring
fees
from
CCPI
to
Prospect
(which
were
recognized
by
Prospect
as
structuring
fee
income),
pay
$548
of
third-party
expenses,
reimburse
$12
for
reimbursement
of
expenses
paid
by
Prospect
on
behalf
of
CCPI
(no
income
was
recognized
by
Prospect)
and
$189
was
retained
by
CCPI
as
working
capital.
During
the
year
ended
June
30,
2014,
certain
members
of
CCPI
management
exercised
options
to
purchase
common
stock,
decreasing
our
ownership
to
94.77%.
On
June
13,
2014,
Prospect
made
a
new
$8,218
senior
secured
note
to
CCPI.
CCPI
then
distributed
this
amount
to
CCPI
Holdings
as
a
return
of
capital
which
was
used
to
pay
down
the
$8,216
senior
secured
note
from
CCPI
Holdings
to
Prospect.
The
remaining
$2
was
distributed
to
Prospect
as
a
return
of
capital
of
Prospect’s
equity
investment
in
CCPI
Holdings.
On
July
1,
2014,
Prospect
began
consolidating
CCPI
Holdings.
As
a
result,
any
transactions
between
CCPI
Holdings
and
Prospect
are
eliminated
in
consolidation
and
as
such,
transactions
after
July
1,
2014
are
denoted
below
as
“N/A”.
During
the
year
ended
June
30,
2015,
CCPI
repurchased
30
shares
of
its
common
stock
from
a
former
CCPI
executive,
decreasing
the
number
of
shares
outstanding
and
increasing
Prospect’s
ownership
to
94.95%.
184
In
June
2015,
CCPI
engaged
Prospect
to
provide
certain
investment
banking
and
financial
advisory
services
in
connection
with
a
possible
transaction.
As
compensation
for
the
services
provided,
Prospect
received
$525
of
advisory
fees
from
CCPI
which
was
recognized
as
other
income
during
the
year
ended
June
30,
2015.
During
the
three
months
ended
September
30,
2015,
CCPI
repurchased
86
shares
of
its
common
stock
from
former
CCPI
executives.
Additionally,
certain
CCPI
executives
exercised
their
option
rights,
purchasing
246
shares
of
CCPI
common
stock.
These
transactions
increased
the
number
of
common
shares
outstanding
by
160
shares
and
thus
decreased
Prospect’s
ownership
to
93.99%.
As
of
June
30,
2016,
after
the
departure
of
a
former
CCPI
executive,
Prospect’s
ownership
of
CCPI
increased
to
94.59%.
In
addition
to
the
repayments
noted
above,
the
following
amounts
were
paid
from
CCPI
to
Prospect
and
recorded
by
Prospect
as
repayment
of
loan
receivable:
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
450
450
4,450
The
following
cash
distributions
were
declared
and
paid
from
CCPI
to
Prospect
and
recognized
as
a
return
of
capital
by
Prospect:
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
—
—
1,918
The
following
dividends
were
declared
and
paid
from
CCPI
to
CCPI
Holdings
and
recognized
as
dividend
income
by
CCPI
Holdings:
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
1,266
N/A
N/A
The
following
dividends
were
declared
and
paid
from
CCPI
Holdings
to
Prospect
and
recognized
as
dividend
income
by
Prospect:
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
500
N/A
N/A
The
following
dividends
were
declared
and
paid
from
CCPI
to
Prospect
and
recognized
as
dividend
income
by
Prospect:
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
—
—
3,196
All
dividends
were
paid
from
earnings
and
profits
of
CCPI
and
CCPI
Holdings.
The
following
interest
payments
were
accrued
and
paid
from
CCPI
Holdings
to
Prospect
and
recognized
by
Prospect
as
interest
income:
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
1,464
N/A
N/A
185
Included
above,
the
following
payment-in-kind
interest
from
CCPI
Holdings
was
capitalized
and
recognized
by
Prospect
as
interest
income:
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
557
N/A
N/A
The
following
interest
payments
were
accrued
and
paid
from
CCPI
to
Prospect
and
recognized
by
Prospect
as
interest
income:
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
1,848
3,332
3,123
Included
above,
the
following
payment-in-kind
interest
from
CCPI
was
capitalized
and
recognized
by
Prospect
as
interest
income:
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
27
599
475
The
following
royalty
payments
were
paid
from
CCPI
Holdings
to
Prospect
and
recognized
by
Prospect
as
other
income:
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
71
N/A
N/A
The
following
managerial
assistance
payments
were
paid
from
CCPI
to
Prospect
and
subsequently
remitted
to
Prospect
Administration
(no
income
was
recognized
by
Prospect):
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
240
240
240
The
following
managerial
assistance
payments
received
by
Prospect
had
not
yet
been
remitted
to
Prospect
Administration
and
were
included
by
Prospect
within
due
to
Prospect
Administration:
June
30,
2015
June
30,
2016
$
60
60
The
following
payments
were
paid
from
CCPI
to
Prospect
Administration
as
reimbursement
for
legal,
tax
and
portfolio
level
accounting
services
provided
directly
to
CCPI
(no
direct
income
was
recognized
by
Prospect,
but
Prospect
was
given
credit
for
these
payments
as
a
reduction
of
the
administrative
services
costs
payable
by
Prospect
to
Prospect
Administration):
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
249
—
96
The
following
amounts
were
due
from
CCPI
to
Prospect
for
reimbursement
of
expenses
paid
by
Prospect
on
behalf
of
CCPI
and
were
included
by
Prospect
within
other
receivables:
June
30,
2015
June
30,
2016
$
—
2
186
CP Energy Services Inc.
Prospect
owns
100%
of
the
equity
of
CP
Holdings
of
Delaware
LLC
(“CP
Holdings”),
a
Consolidated
Holding
Company.
CP
Holdings
owns
82.3%
of
the
equity
of
CP
Energy
Services
Inc.
(“CP
Energy”),
and
the
remaining
17.7%
of
the
equity
is
owned
by
CP
Energy
management.
As
of
June
30,
2014,
CP
Energy
owned
directly
or
indirectly
100%
of
each
of
CP
Well
Testing
Services,
LLC
(f/k/a
CP
Well
Testing
Holding
Company
LLC)
(“CP
Well
Testing”);
CP
Well
Testing,
LLC
(“CP
Well”);
Fluid
Management
Services,
Inc.
(f/k/a
Fluid
Management
Holdings,
Inc.)
(“Fluid
Management”);
Fluid
Management
Services
LLC
(f/k/a
Fluid
Management
Holdings
LLC);
Wright
Transport,
Inc.
(f/k/a
Wright
Holdings,
Inc.);
Wright
Foster
Disposals,
LLC;
Foster
Testing
Co.,
Inc.;
ProHaul
Transports,
LLC;
Artexoma
Logistics,
LLC;
and
Wright
Trucking,
Inc.
Effective
December
31,
2014,
CP
Energy
underwent
a
corporate
reorganization
in
order
to
consolidate
certain
of
its
wholly-owned
subsidiaries.
As
of
June
30,
2015,
CP
Energy
owned
directly
or
indirectly
100%
of
each
of
CP
Well;
Wright
Foster
Disposals,
LLC;
Foster
Testing
Co.,
Inc.;
ProHaul
Transports,
LLC;
and
Wright
Trucking,
Inc.
CP
Energy
provides
oilfield
flowback
services
and
fluid
hauling
and
disposal
services
through
its
subsidiaries.
On
October
3,
2012,
Prospect
initially
made
a
$21,500
senior
secured
debt
investment
in
CP
Well.
As
part
of
the
transaction,
Prospect
received
$430
of
structuring
fees
from
CP
Well
(which
was
recognized
by
Prospect
as
structuring
fee
income)
and
$7
was
paid
by
CP
Well
to
Prospect
Administration
for
legal
services
provided
by
attorneys
at
Prospect
Administration.
On
August
2,
2013,
Prospect
invested
$94,014
(including
1,918,342
unregistered
shares
of
Prospect
common
stock
at
a
fair
value
of
$21,006)
to
support
the
recapitalization
of
CP
Energy
where
Prospect
acquired
a
controlling
interest
in
CP
Energy.
On
August
2,
2013,
Prospect
invested
$12,741
into
CP
Holdings
to
purchase
100%
of
the
common
stock
in
CP
Holdings.
The
proceeds
were
used
by
CP
Holdings
to
purchase
82.9%
of
the
common
stock
in
CP
Energy
for
$12,135
and
pay
$606
of
legal
services
provided
by
attorneys
at
Prospect
Administration.
On
August
2,
2013,
Prospect
made
a
senior
secured
debt
investment
of
$58,773
in
CP
Energy.
CP
Energy
also
received
$2,505
management
co-investment
in
exchange
for
17.1%
of
CP
Energy
common
stock.
Total
proceeds
received
by
CP
Energy
of
$73,413
(including
the
$12,135
of
equity
financing
from
CP
Holdings
mentioned
above)
were
used
to
purchase
100%
of
the
equity
interests
in
CP
Well
Testing
and
Fluid
Management
for
$33,600
and
$34,576,
respectively.
The
remaining
proceeds
were
used
by
CP
Energy
to
pay
$1,414
of
structuring
fees
to
Prospect
(which
was
recognized
by
Prospect
as
structuring
fee
income)
and
pay
$823
of
third-party
expenses,
with
$3,000
retained
by
CP
Energy
for
working
capital.
On
August
2,
2013,
Prospect
made
an
additional
senior
secured
debt
investment
of
$22,500
in
CP
Well
Testing.
Total
proceeds
received
by
CP
Well
Testing
of
$56,100
(including
the
$33,600
of
equity
financing
from
CP
Energy
mentioned
above)
were
used
to
purchase
100%
of
the
equity
interests
in
CP
Well
for
$55,650
and
pay
$450
of
structuring
fees
to
Prospect
(which
was
recognized
by
Prospect
as
structuring
fee
income).
After
the
financing,
Prospect
received
repayment
of
the
$18,991
loan
previously
outstanding
from
CP
Well.
On
October
11,
2013,
Prospect
made
a
$746
follow-on
investment
in
CP
Holdings
to
fund
equity
into
CP
Energy
and
made
an
additional
senior
secured
loan
to
CP
Energy
of
$5,100.
Management
invested
an
additional
$154
of
equity
in
CP
Energy,
and
the
percentage
ownership
of
CP
Energy
did
not
change.
Total
proceeds
of
$6,000
were
used
to
purchase
flowback
equipment
and
expand
the
CP
Well
operations
in
West
Texas.
On
December
26,
2013,
Prospect
made
an
additional
$1,741
follow-on
investment
in
CP
Holdings
to
fund
equity
into
CP
Energy
and
made
an
additional
senior
secured
loan
to
CP
Energy
of
$11,900.
Management
invested
an
additional
$359
of
equity
in
CP
Energy,
and
the
percentage
ownership
of
CP
Energy
did
not
change.
Total
proceeds
of
$14,000
were
used
to
purchase
additional
equipment.
On
April
1,
2014,
Prospect
made
new
loans
to
CP
Well
(with
Foster
Testing
Co.,
Inc.;
ProHaul
Transports,
LLC;
and
Wright
Trucking,
Inc.
as
co-borrowers),
two
first
lien
loans
in
the
amount
of
$11,035
and
$72,238,
and
a
second
lien
loan
in
the
amount
of
$15,000.
The
proceeds
of
these
loans
were
used
to
repay
CP
Energy’s
senior
secured
term
loan
and
CP
Well
Testing’s
senior
secured
term
loan
previously
outstanding
from
Prospect.
On
July
1,
2014,
Prospect
began
consolidating
CP
Holdings.
As
a
result,
any
transactions
between
CP
Holdings
and
Prospect
are
eliminated
in
consolidation
and
as
such,
transactions
after
July
1,
2014
are
not
presented
below.
During
the
year
ended
June
30,
2015,
certain
members
of
CP
Energy
management
exercised
options
to
purchase
common
stock,
decreasing
our
ownership
to
82.3%.
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
Redeemable
Preferred
Stock
in
CP
Energy.
187
The
following
interest
payments
were
accrued
and
paid
from
CP
Energy
to
Prospect
and
recognized
by
Prospect
as
interest
income:
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
8,083
—
—
The
following
interest
payments
were
accrued
and
paid
from
CP
Well
Testing
to
Prospect
and
recognized
by
Prospect
as
interest
income:
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
1,657
—
—
The
following
interest
payments
were
accrued
and
paid
from
CP
Well
to
Prospect
and
recognized
by
Prospect
as
interest
income:
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
4,118
16,420
(390)
Included
above,
the
following
payment-in-kind
interest
from
CP
Well
was
capitalized
and
recognized
by
Prospect
as
interest
income:
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
—
2,818
(2,819)
The
following
interest
income
recognized
had
not
yet
been
paid
by
CP
Well
to
Prospect
and
was
included
by
Prospect
within
interest
receivable:
June
30,
2015
June
30,
2016
$
46
—
The
following
managerial
assistance
payments
were
paid
from
CP
Energy
to
Prospect
and
subsequently
remitted
to
Prospect
Administration
(no
income
was
recognized
by
Prospect):
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
275
300
300
The
following
managerial
assistance
payments
received
by
Prospect
had
not
yet
been
remitted
to
Prospect
Administration
and
were
included
by
Prospect
within
due
to
Prospect
Administration:
June
30,
2015
June
30,
2016
$
75
75
The
following
payments
were
paid
from
CP
Energy
to
Prospect
Administration
as
reimbursement
for
legal,
tax
and
portfolio
level
accounting
services
provided
directly
to
CP
Energy
(no
direct
income
was
recognized
by
Prospect,
but
Prospect
was
given
credit
for
these
payments
as
a
reduction
of
the
administrative
services
costs
payable
by
Prospect
to
Prospect
Administration):
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
609
60
—
188
The
following
amounts
were
due
from
CP
Energy
to
Prospect
for
reimbursement
of
expenses
paid
by
Prospect
on
behalf
of
CP
Energy
and
were
included
by
Prospect
within
other
receivables:
June
30,
2015
June
30,
2016
$
1
—
Credit Central Loan Company, LLC
Prospect
owns
100%
of
the
equity
of
Credit
Central
Holdings
of
Delaware,
LLC
(“Credit
Central
Delaware”),
a
Consolidated
Holding
Company.
Credit
Central
Delaware
owns
74.93%
of
the
equity
of
Credit
Central
Loan
Company,
LLC
(f/k/a
Credit
Central
Holdings,
LLC)
(“Credit
Central”),
with
entities
owned
by
Credit
Central
management
owning
the
remaining
25.07%
of
the
equity.
Credit
Central
owns
100%
of
each
of
Credit
Central,
LLC;
Credit
Central
South,
LLC;
Credit
Central
of
Texas,
LLC;
and
Credit
Central
of
Tennessee,
LLC.
Credit
Central
is
a
branch-based
provider
of
installment
loans.
On
December
28,
2012,
Prospect
initially
made
a
$47,663
investment
(including
the
fair
value
of
897,906
common
shares
of
Prospect
for
$9,581
on
that
date,
which
were
included
in
the
purchase
cost
paid
to
acquire
Credit
Central)
in
Credit
Central
Delaware,
of
which
$38,082
was
a
Senior
Secured
Revolving
Credit
Facility
and
$9,581
to
purchase
the
membership
interests
of
Credit
Central
Delaware.
The
proceeds
were
partially
utilized
to
purchase
74.75%
of
Credit
Central’s
membership
interests
for
$43,293.
The
remaining
proceeds
were
used
to
pay
$1,440
of
structuring
fees
from
Credit
Central
Delaware
to
Prospect
(which
was
recognized
by
Prospect
as
structuring
fee
income),
$638
for
third
party
expenses,
$292
for
legal
services
provided
by
attorneys
at
Prospect
Administration
and
$2,000
was
retained
by
Credit
Central
Delaware
for
working
capital.
On
March
28,
2014,
Prospect
funded
an
additional
$2,500
($2,125
to
the
Senior
Secured
Revolving
Credit
Facility
and
$375
to
purchase
additional
membership
interests
of
Credit
Central
Delaware)
which
was
utilized
by
Credit
Central
Delaware
to
pay
a
$2,000
dividend
to
Prospect
and
$500
was
retained
by
Credit
Central
Delaware
for
working
capital.
On
June
26,
2014,
Prospect
made
a
new
$36,333
second
lien
term
loan
to
Credit
Central.
Credit
Central
then
distributed
this
amount
to
Credit
Central
Delaware
as
a
return
of
capital
which
was
used
to
pay
down
the
Senior
Secured
Revolving
Credit
Facility
from
Credit
Central
Delaware
by
the
same
amount.
The
remaining
amount
of
the
Senior
Secured
Revolving
Credit
Facility,
$3,874,
was
then
converted
to
additional
membership
interests
in
Credit
Central
Delaware.
On
July
1,
2014,
Prospect
began
consolidating
Credit
Central
Delaware.
As
a
result,
any
transactions
between
Credit
Central
Delaware
and
Prospect
are
eliminated
in
consolidation
and
as
such,
transactions
after
July
1,
2014
are
denoted
below
as
“N/A”.
During
the
year
ended
June
30,
2015,
Credit
Central
redeemed
24,629
shares
of
its
membership
interest
from
former
Credit
Central
employees,
decreasing
the
number
of
shares
outstanding
and
increasing
Prospect’s
ownership
to
74.93%.
In
addition
to
the
repayments
noted
above,
the
following
amounts
were
paid
from
Credit
Central
to
Prospect
and
recorded
by
Prospect
as
repayment
of
loan
receivable:
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
—
300
323
The
following
dividends
were
declared
and
paid
from
Credit
Central
to
Credit
Central
Delaware
and
recognized
as
dividend
income
by
Credit
Central
Delaware:
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
10,431
N/A
N/A
The
following
dividends
were
declared
and
paid
from
Credit
Central
Delaware
to
Prospect
and
recognized
as
dividend
income
by
Prospect:
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
4,841
N/A
N/A
During
the
year
ended
June
30,
2015,
Prospect
reclassified
$159
of
return
of
capital
received
from
Credit
Central
Delaware
in
prior
periods
as
dividend
income.
189
All
dividends
were
paid
from
earnings
and
profits
of
Credit
Central
and
Credit
Central
Delaware.
The
following
interest
payments
were
accrued
and
paid
from
Credit
Central
Delaware
to
Prospect
and
recognized
by
Prospect
as
interest
income:
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
7,744
N/A
N/A
The
following
interest
payments
were
accrued
and
paid
from
Credit
Central
to
Prospect
and
recognized
by
Prospect
as
interest
income:
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
101
7,375
7,398
Included
above,
the
following
payment-in-kind
interest
from
Credit
Central
was
capitalized
and
recognized
by
Prospect
as
interest
income:
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
—
300
921
The
following
interest
income
recognized
had
not
yet
been
paid
by
Credit
Central
to
Prospect
and
was
included
by
Prospect
within
interest
receivable:
June
30,
2015
June
30,
2016
$
20
21
The
following
net
revenue
interest
payments
were
paid
from
Credit
Central
Delaware
to
Prospect
and
recognized
by
Prospect
as
other
income:
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
521
N/A
N/A
The
following
net
revenue
interest
payments
were
paid
from
Credit
Central
to
Prospect
and
recognized
by
Prospect
as
other
income:
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
—
1,220
2,067
The
following
managerial
assistance
payments
were
paid
from
Credit
Central
to
Prospect
and
subsequently
remitted
to
Prospect
Administration
(no
income
was
recognized
by
Prospect):
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
700
700
700
The
following
managerial
assistance
payments
received
by
Prospect
had
not
yet
been
remitted
to
Prospect
Administration
and
were
included
by
Prospect
within
due
to
Prospect
Administration:
June
30,
2015
June
30,
2016
$
175
175
190
The
following
payments
were
paid
from
Credit
Central
to
Prospect
Administration
as
reimbursement
for
legal,
tax
and
portfolio
level
accounting
services
provided
directly
to
Credit
Central
(no
direct
income
was
recognized
by
Prospect,
but
Prospect
was
given
credit
for
these
payments
as
a
reduction
of
the
administrative
services
costs
payable
by
Prospect
to
Prospect
Administration):
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
131
—
—
The
following
amounts
were
due
to
Credit
Central
from
Prospect
for
reimbursement
of
expenses
paid
by
Credit
Central
on
behalf
of
Prospect
and
were
included
by
Prospect
within
other
liabilities:
June
30,
2015
June
30,
2016
$
27
3
Echelon Aviation LLC
Prospect
owns
99.02%
of
the
membership
interests
of
Echelon
Aviation
LLC
(“Echelon”).
Echelon
owns
60.7%
of
the
equity
of
AerLift
Leasing
Limited
(“AerLift”).
On
March
31,
2014,
Prospect
initially
made
a
$92,628
investment
in
Echelon,
of
which
$78,521
was
a
Senior
Secured
Revolving
Credit
Facility
and
$14,107
to
purchase
100%
of
the
membership
interests
of
Echelon.
The
proceeds
were
partially
utilized
to
purchase
60.7%
of
AerLift’s
membership
interests
for
$83,657.
The
remaining
proceeds
were
used
to
pay
$2,771
of
structuring
fees
from
Echelon
to
Prospect
(which
was
recognized
by
Prospect
as
structuring
fee
income),
$540
for
third
party
expenses,
$664
for
legal
and
tax
services
provided
by
Prospect
Administration
and
$4,996
was
retained
by
Echelon
for
working
capital.
During
the
year
ended
June
30,
2014,
Echelon
issued
57,779.44
Class
B
shares
to
the
company’s
President,
decreasing
Prospect’s
ownership
to
99.49%.
On
July
1,
2014,
Prospect
sold
a
$400
participation
in
the
Senior
Secured
Revolving
Credit
Facility,
equal
to
0.51%
of
the
outstanding
principal
amount
on
that
date.
On
September
15,
2014,
Echelon
made
an
optional
partial
prepayment
of
$37,313
of
the
Senior
Secured
Revolving
Credit
Facility
outstanding.
On
September
30,
2014,
Prospect
made
an
additional
$5,800
investment
in
the
membership
interests
of
Echelon.
During
the
year
ended
June
30,
2015,
Echelon
issued
54,482.06
Class
B
shares
to
the
company’s
President,
decreasing
Prospect’s
ownership
to
99.02%.
On
March
28,
2016,
Echelon
made
an
optional
partial
prepayment
of
$2,954
of
the
Senior
Secured
Revolving
Credit
Facility
outstanding.
During
the
quarter
ended
March
31,
2016,
Echelon
issued
36,059
Class
B
shares
to
the
company’s
President,
decreasing
Prospect’s
ownership
to
98.97%.
The
following
dividends
were
declared
and
paid
from
Echelon
to
Prospect
and
recognized
as
dividend
income
by
Prospect:
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
—
—
7,250
All
dividends
were
paid
from
earnings
and
profits
of
Echelon.
The
following
interest
payments
were
accrued
and
paid
from
Echelon
to
Prospect
and
recognized
by
Prospect
as
interest
income:
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
2,809
6,895
5,700
191
The
following
interest
income
recognized
had
not
yet
been
paid
by
Echelon
to
Prospect
and
was
included
by
Prospect
within
interest
receivable:
June
30,
2015
June
30,
2016
$
2,412
2,335
The
following
managerial
assistance
payments
were
paid
from
Echelon
to
Prospect
and
subsequently
remitted
to
Prospect
Administration
(no
income
was
recognized
by
Prospect):
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
—
313
250
The
following
managerial
assistance
payments
received
by
Prospect
had
not
yet
been
remitted
to
Prospect
Administration
and
were
included
by
Prospect
within
due
to
Prospect
Administration:
June
30,
2015
June
30,
2016
$
63
63
The
following
payments
were
paid
from
Echelon
to
Prospect
Administration
as
reimbursement
for
legal,
tax
and
portfolio
level
accounting
services
provided
directly
to
Echelon
(no
direct
income
was
recognized
by
Prospect,
but
Prospect
was
given
credit
for
these
payments
as
a
reduction
of
the
administrative
services
costs
payable
by
Prospect
to
Prospect
Administration):
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
664
211
120
The
following
amounts
were
due
from
Echelon
to
Prospect
for
reimbursement
of
expenses
paid
by
Prospect
on
behalf
of
Echelon
and
were
included
by
Prospect
within
other
receivables:
June
30,
2015
June
30,
2016
$
30
—
Edmentum Ultimate Holdings, LLC
Prospect
owns
37.1%
of
the
equity
of
Edmentum
Ultimate
Holdings,
LLC
(“Edmentum
Holdings”).
Edmentum
Holdings
owns
100%
of
the
equity
of
Edmentum,
Inc.
(“Edmentum”).
Edmentum
is
the
largest
all
subscription
based,
software
as
a
service
provider
of
online
curriculum
and
assessments
to
the
U.S.
education
market.
Edmentum
provides
high-value,
comprehensive
online
solutions
that
support
educators
to
successfully
transition
learners
from
one
stage
to
the
next.
On
May
17,
2012,
Prospect
initially
made
a
$50,000
second
lien
term
loan
to
Edmentum.
On
June
9,
2015,
Prospect
provided
additional
debt
and
equity
financing
to
support
the
recapitalization
of
Edmentum.
As
part
of
the
recapitalization,
Prospect
exchanged
100%
of
the
$50,000
second
lien
term
loan
previously
outstanding
for
$26,365
of
junior
paid
in
kind
(“PIK”)
notes
and
370,964.14
Class
A
common
units
representing
37.1%
equity
ownership
in
Edmentum
Holdings.
In
addition,
Prospect
invested
$5,875
in
senior
PIK
notes
and
committed
$7,834
as
part
of
a
second
lien
revolving
credit
facility,
of
which
$4,896
was
funded
at
closing.
On
June
9,
2015,
our
investment
in
Edmentum
was
written-down
for
tax
purposes
and
a
loss
of
$22,116
was
therefore
realized
for
the
amount
that
the
amortized
cost
exceeded
the
fair
value,
reducing
the
amortized
cost
to
$37,216.
During
the
year
ended
June
30,
2016,
Prospect
funded
an
additional
$6,424
in
the
second
lien
revolving
credit
facility.
The
following
amounts
were
paid
from
Edmentum
to
Prospect
and
recorded
by
Prospect
as
repayment
of
loan
receivable:
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
N/A
—
4,896
192
The
following
interest
payments
were
accrued
and
paid
from
Edmentum
to
Prospect
and
recognized
by
Prospect
as
interest
income:
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
N/A
—
3,650
$
Included
above,
the
following
payment-in-kind
interest
from
Edmentum
was
capitalized
and
recognized
by
Prospect
as
interest
income:
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
N/A
—
2,934
The
following
interest
income
recognized
had
not
yet
been
paid
by
Edmentum
to
Prospect
and
was
included
by
Prospect
within
interest
receivable:
June
30,
2015
June
30,
2016
$
—
639
Energy Solutions Holdings Inc.
Prospect
owns
100%
of
the
equity
of
Energy
Solutions
Holdings
Inc.
(f/k/a
Gas
Solutions
Holdings
Inc.)
(“Energy
Solutions”),
a
Consolidated
Holding
Company.
Energy
Solutions
owns
100%
of
each
of
Change
Clean
Energy
Company,
LLC
(f/k/a
Change
Clean
Energy
Holdings,
LLC)
(“Change
Clean”);
Freedom
Marine
Solutions,
LLC
(f/k/a
Freedom
Marine
Services
Holdings,
LLC)
(“Freedom
Marine”);
and
Yatesville
Coal
Company,
LLC
(f/k/a
Yatesville
Coal
Holdings,
LLC)
(“Yatesville”).
Change
Clean
owns
100%
of
each
of
Change
Clean
Energy,
LLC
and
Down
East
Power
Company,
LLC,
and
50.1%
of
BioChips
LLC.
Freedom
Marine
owns
100%
of
each
of
Vessel
Company,
LLC
(f/k/a
Vessel
Holdings,
LLC)
(“Vessel”);
Vessel
Company
II,
LLC
(f/k/a
Vessel
Holdings
II,
LLC)
(“Vessel
II”);
and
Vessel
Company
III,
LLC
(f/k/a
Vessel
Holdings
III,
LLC)
(“Vessel
III”).
Yatesville
owns
100%
of
North
Fork
Collieries,
LLC.
Energy
Solutions
owns
interests
in
companies
operating
in
the
energy
sector.
These
include
companies
operating
offshore
supply
vessels,
ownership
of
a
non-
operating
biomass
electrical
generation
plant
and
several
coal
mines.
Energy
Solutions
subsidiaries
formerly
owned
interests
in
gathering
and
processing
business
in
east
Texas.
As
of
July
1,
2011,
the
cost
basis
of
Prospect’s
investment
in
Energy
Solutions,
including
debt
and
equity,
was
$42,003.
In
December
2011,
Prospect
completed
a
reorganization
of
Gas
Solutions
Holdings
Inc.
renaming
the
company
Energy
Solutions
and
transferring
ownership
of
other
operating
companies
owned
by
Prospect
and
operating
within
the
energy
industry.
As
part
of
the
reorganization,
Prospect
transferred
its
debt
and
equity
interests
with
cost
basis
of
$2,540
in
Change
Clean
Energy
Holdings,
Inc.
and
Change
Clean
Energy,
Inc.
to
Change
Clean;
$12,504
in
Freedom
Marine
Holdings,
Inc.
to
Freedom
Marine;
and
$1,449
of
Yatesville
Coal
Holdings,
Inc.
to
Yatesville.
Each
of
these
entities
is
wholly
owned
(directly
or
indirectly)
by
Energy
Solutions.
On
December
28,
2011,
Prospect
made
a
follow-on
$1,250
equity
investment
in
Energy
Solutions
and
a
$3,500
debt
investment
in
Vessel.
On
January
4,
2012,
Energy
Solutions
sold
its
gas
gathering
and
processing
assets
held
in
Gas
Solutions
II
Ltd.
(“Gas
Solutions”)
for
a
potential
sale
price
of
$199,805,
adjusted
for
the
final
working
capital
settlement,
including
a
potential
earn-out
of
$28,000
that
may
be
paid
based
on
the
future
performance
of
Gas
Solutions.
After
expenses,
including
structuring
fees
of
$9,966
paid
to
Prospect,
and
$3,152
of
third-party
expenses,
Gas
Solutions
LP
LLC
and
Gas
Solutions
GP
LLC,
subsidiaries
of
Gas
Solutions,
received
$157,100
and
$1,587
in
cash,
respectively,
and
subsequently
distributed
these
amounts,
$158,687
in
total,
to
Energy
Solutions.
The
sale
of
Gas
Solutions
by
Energy
Solutions
resulted
in
significant
earnings
and
profits,
as
defined
by
the
Code,
at
Energy
Solutions
for
calendar
year
2012.
In
accordance
with
ASC
946,
the
distributions
Prospect
received
from
Energy
Solutions
during
calendar
year
2012
were
required
to
be
recognized
as
dividend
income,
as
there
were
current
year
earnings
and
profits
sufficient
to
support
such
recognition.
As
a
result,
we
recognized
dividends
of
$53,820
from
Energy
Solutions
during
the
year
ended
June
30,
2013.
No
such
dividends
were
received
from
Energy
Solutions
during
the
year
ended
June
30,
2014.
During
the
year
ended
June
30,
2013,
Energy
Solutions
repaid
$28,500
of
senior
and
subordinated
secured
debt
due
to
Prospect.
In
addition
to
the
repayment
of
principal,
Prospect
received
$19,543
of
make-whole
fees
for
early
repayment
of
the
outstanding
loan
receivables,
which
was
recorded
as
additional
interest
income
during
the
year
ended
June
30,
2013.
193
On
November
25,
2013,
Prospect
restructured
its
investment
in
Freedom
Marine.
The
$12,504
subordinated
secured
loan
to
Jettco
Marine
Services,
LLC,
a
subsidiary
of
Freedom
Marine,
was
replaced
with
a
senior
secured
note
to
Vessel
II.
On
December
3,
2013,
Prospect
made
a
$16,000
senior
secured
investment
in
Vessel
III.
Overall,
the
restructuring
of
Prospect’s
investment
in
Freedom
Marine
provided
approximately
$16,000
net
new
senior
secured
debt
financing
to
support
the
acquisition
of
two
new
vessels.
Prospect
received
$2,480
of
structuring
fees
from
Energy
Solutions
related
to
the
Freedom
Marine
restructuring
which
was
recognized
as
other
income.
During
the
year
ended
June
30,
2014,
Energy
Solutions
repaid
the
remaining
$8,500
of
the
subordinated
secured
debt
due
to
Prospect.
In
addition
to
the
repayment
of
principal,
Prospect
received
$4,812
of
make-whole
fees
for
early
repayment
of
the
outstanding
loan
receivables,
which
was
recorded
as
additional
interest
income
during
the
year
ended
June
30,
2014.
On
November
28,
2012
and
January
1,
2014,
Prospect
received
$475
and
$25
of
litigation
settlement
proceeds
related
to
Change
Clean
and
recorded
a
reduction
in
its
equity
investment
cost
basis
for
Energy
Solutions,
respectively.
On
June
4,
2014,
Gas
Solutions
GP
LLC
and
Gas
Solutions
LP
LLC
merged
with
and
into
Freedom
Marine,
with
Freedom
Marine
as
the
surviving
entity.
On
July
1,
2014,
Prospect
began
consolidating
Energy
Solutions.
As
a
result,
any
transactions
between
Energy
Solutions
and
Prospect
are
eliminated
in
consolidation
and
as
such,
transactions
after
July
1,
2014
are
denoted
below
as
“N/A”.
Transactions
between
Prospect
and
Freedom
Marine
are
separately
discussed
below
under
“Freedom
Marine
Solutions,
LLC.”
During
the
three
months
ended
December
31,
2014,
Prospect
determined
that
our
remaining
investments
in
Change
Clean
and
Yatesville
were
impaired
and
recorded
a
realized
loss
of
$1,449,
reducing
the
amortized
cost
to
zero.
During
the
six
months
ended
December
31,
2015,
Prospect
dissolved
the
following
entities:
Change
Clean
Energy
Company,
LLC,
Change
Clean
Energy,
LLC,
Down
East
Power
Company,
LLC
and
BioChips
LLC.
The
following
interest
payments,
including
prepayment
penalty
fees,
were
accrued
and
paid
from
Energy
Solutions
to
Prospect
and
recognized
by
Prospect
as
interest
income:
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
5,368
N/A
N/A
The
following
managerial
assistance
payments
were
paid
from
Energy
Solutions
to
Prospect
and
subsequently
remitted
to
Prospect
Administration
(no
income
was
recognized
by
Prospect):
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
180
N/A
N/A
First Tower Finance Company LLC
Prospect
owns
100%
of
the
equity
of
First
Tower
Holdings
of
Delaware
LLC
(“First
Tower
Delaware”),
a
Consolidated
Holding
Company.
First
Tower
Delaware
owns
80.1%
of
First
Tower
Finance
Company
LLC
(f/k/a
First
Tower
Holdings
LLC)
(“First
Tower
Finance”).
First
Tower
Finance
owns
100%
of
First
Tower,
LLC
(“First
Tower”),
a
multiline
specialty
finance
company.
On
June
15,
2012,
Prospect
made
a
$287,953
investment
(including
14,518,207
common
shares
of
Prospect
at
a
fair
value
of
$160,571)
in
First
Tower
Delaware,
of
which
$244,760
was
a
Senior
Secured
Revolving
Credit
Facility
and
$43,193
of
membership
interest
in
First
Tower
Delaware.
The
proceeds
were
utilized
by
First
Tower
Delaware
to
purchase
80.1%
of
the
membership
interests
in
First
Tower
Finance
for
$282,968.
The
remaining
proceeds
at
First
Tower
Delaware
were
used
to
pay
$4,038
of
structuring
fees
from
First
Tower
Delaware
to
Prospect
(which
was
recognized
by
Prospect
as
structuring
fee
income),
$940
of
legal
services
provided
by
attorneys
at
Prospect
Administration,
and
$7
of
third
party
expenses.
Prospect
received
an
additional
$4,038
of
structuring
fees
from
First
Tower
(which
was
recognized
by
Prospect
as
structuring
fee
income).
Management
purchased
the
additional
19.9%
of
First
Tower
Finance
common
stock
for
$70,300.
The
combined
proceeds
received
by
First
Tower
Finance
of
$353,268
($282,968
equity
financing
from
First
Tower
Delaware
mentioned
above
and
$70,300
equity
financing
from
management)
were
used
to
purchase
100%
of
the
common
stock
of
First
Tower
for
$338,042,
pay
$11,188
of
third-party
expenses
and
$4,038
of
structuring
fees
from
First
Tower
mentioned
above
(which
was
recognized
by
Prospect
as
structuring
fee
income).
194
On
October
18,
2012,
Prospect
made
an
additional
$20,000
investment
through
the
Senior
Secured
Revolving
Credit
Facility,
$12,008
of
which
was
invested
by
First
Tower
Delaware
in
First
Tower
Finance
as
equity
and
$7,992
of
which
was
retained
by
First
Tower
Delaware
as
working
capital.
On
December
30,
2013,
Prospect
funded
an
additional
$10,000
into
First
Tower
Delaware,
$8,500
through
the
Senior
Secured
Revolving
Credit
Facility
and
$1,500
through
the
purchase
of
additional
membership
interests
in
First
Tower
Delaware.
$8,000
of
the
proceeds
were
utilized
by
First
Tower
Delaware
to
pay
structuring
fees
to
Prospect
for
the
renegotiation
and
expansion
of
First
Tower’s
third-party
revolver,
and
$2,000
of
the
proceeds
were
retained
by
First
Tower
Delaware
for
working
capital.
On
June
24,
2014,
Prospect
made
a
new
$251,246
second
lien
term
loan
to
First
Tower.
First
Tower
distributed
this
amount
to
First
Tower
Finance,
which
distributed
this
amount
to
First
Tower
Delaware
as
a
return
of
capital.
First
Tower
Delaware
used
the
distribution
to
partially
pay
down
the
Senior
Secured
Revolving
Credit
Facility.
The
remaining
$23,712
of
the
Senior
Secured
Revolving
Credit
Facility
was
then
converted
to
additional
membership
interests
held
by
Prospect
in
First
Tower
Delaware.
On
July
1,
2014,
Prospect
began
consolidating
First
Tower
Delaware.
As
a
result,
any
transactions
between
First
Tower
Delaware
and
Prospect
are
eliminated
in
consolidation
and
as
such,
transactions
after
July
1,
2014
are
denoted
below
as
“N/A”.
During
the
quarter
ended
December
31,
2015,
Prospect
made
an
additional
$8,005
investment
split
evenly
between
equity
and
the
second
lien
term
loan
to
First
Tower.
The
following
cash
distributions
were
declared
and
paid
from
First
Tower
Finance
to
First
Tower
Delaware
and
recognized
as
a
return
of
capital
by
First
Tower
Delaware:
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
14,912
N/A
N/A
The
following
dividends
were
declared
and
paid
from
First
Tower
Finance
to
First
Tower
Delaware
and
recognized
as
dividend
income
by
First
Tower
Delaware:
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
36,064
N/A
N/A
During
the
year
ended
June
30,
2015,
Prospect
reclassified
$1,929
of
return
of
capital
received
from
First
Tower
in
prior
periods
as
dividend
income.
All
dividends
were
paid
from
earnings
and
profits
of
First
Tower.
The
following
amounts
were
paid
from
First
Tower
to
Prospect
and
recorded
by
Prospect
as
repayment
of
loan
receivable:
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
—
—
679
The
following
interest
payments
were
accrued
and
paid
from
First
Tower
Delaware
to
Prospect
and
recognized
by
Prospect
as
interest
income:
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
53,489
N/A
N/A
Included
above,
the
following
payment-in-kind
interest
from
First
Tower
Delaware
was
capitalized
and
recognized
by
Prospect
as
interest
income:
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
1,698
N/A
N/A
195
The
following
interest
payments
were
accrued
and
paid
from
First
Tower
to
Prospect
and
recognized
by
Prospect
as
interest
income:
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
831
52,900
56,698
Included
above,
the
following
payment-in-kind
interest
from
First
Tower
was
capitalized
and
recognized
by
Prospect
as
interest
income:
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
—
332
861
The
following
interest
income
recognized
had
not
yet
been
paid
by
First
Tower
to
Prospect
and
was
included
by
Prospect
within
interest
receivable:
June
30,
2015
June
30,
2016
$
4,612
156
The
following
royalty
payments
were
accrued
and
paid
from
First
Tower
Delaware
to
Prospect
and
recognized
by
Prospect
as
other
income:
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
2,560
N/A
N/A
The
following
managerial
assistance
payments
were
paid
from
First
Tower
Delaware
to
Prospect
and
subsequently
remitted
to
Prospect
Administration
(no
income
was
recognized
by
Prospect):
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
2,400
N/A
N/A
During
the
year
ended
June
30,
2016,
the
managerial
assistance
agreement
between
First
Tower
Delaware
and
Prospect
Administration
was
amended
and
$1,200
of
managerial
assistance
expense
was
reversed
at
Prospect.
First
Tower
replaced
First
Tower
Delaware
in
the
managerial
assistance
agreement
with
Prospect
Administration
as
of
December
14,
2015.
The
following
managerial
assistance
payments
were
accrued
and
paid
from
First
Tower
Delaware
to
Prospect
Administration
and
recognized
by
Prospect
as
an
expense:
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
—
2,400
—
The
following
managerial
assistance
recognized
has
not
yet
been
paid
by
First
Tower
Delaware
to
Prospect
Administration
and
was
included
by
Prospect
within
due
to
Prospect
Administration.
June
30,
2015
June
30,
2016
$
600
—
196
The
following
managerial
assistance
payments
were
paid
from
First
Tower
Finance
to
Prospect
and
subsequently
remitted
to
Prospect
Administration
(no
income
was
recognized
by
Prospect):
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
N/A
N/A
1,200
$
The
following
managerial
assistance
payments
received
by
Prospect
has
not
yet
been
remitted
to
Prospect
Administration
and
were
included
by
Prospect
within
due
to
Prospect
Administration:
June
30,
2015
June
30,
2016
$
—
600
The
following
payments
were
paid
from
First
Tower
Delaware
to
Prospect
Administration
as
reimbursement
for
legal,
tax
and
portfolio
level
accounting
services
provided
directly
to
First
Tower
Delaware
(no
direct
income
was
recognized
by
Prospect,
but
Prospect
was
given
credit
for
these
payments
as
a
reduction
of
the
administrative
services
costs
payable
by
Prospect
to
Prospect
Administration):
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
243
N/A
N/A
The
following
amounts
were
due
from
First
Tower
to
Prospect
for
reimbursement
of
expenses
paid
by
Prospect
on
behalf
of
First
Tower
and
were
included
by
Prospect
within
other
receivables:
June
30,
2015
June
30,
2016
$
20
2
Freedom Marine Solutions, LLC
As
discussed
above,
Prospect
owns
100%
of
the
equity
of
Energy
Solutions,
a
Consolidated
Holding
Company.
Energy
Solutions
owns
100%
of
Freedom
Marine.
Freedom
Marine
owns
100%
of
each
of
Vessel,
Vessel
II,
and
Vessel
III.
As
of
July
1,
2014,
the
cost
basis
of
Prospect’s
total
debt
and
equity
investment
in
Freedom
Marine
was
$39,811,
which
consisted
of
the
following:
$3,500
senior
secured
note
to
Vessel;
$12,504
senior
secured
note
to
Vessel
II;
$16,000
senior
secured
note
to
Vessel
III;
and
$7,807
of
equity.
On
December
29,
2014,
Freedom
Marine
reached
a
settlement
for
and
received
$5,174,
net
of
third
party
obligations,
related
to
the
contingent
earn-out
from
the
sale
of
Gas
Solutions
in
January
2012
which
was
retained
by
Freedom
Marine.
This
is
a
final
settlement
and
no
further
payments
are
expected
from
the
sale.
(See
“Energy
Solutions
Holdings
Inc.”
above
for
more
information
related
to
the
sale
of
Gas
Solutions.)
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.
On
January
7,
2016
and
April
11,
2016,
Prospect
purchased
an
additional
$400
and
$600,
respectively,
in
membership
interests
in
Freedom
Marine
to
support
its
ongoing
operations
and
liquidity
needs.
The
following
interest
payments
were
accrued
and
paid
from
Vessel
to
Prospect
and
recognized
by
Prospect
as
interest
income:
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
641
639
159
197
The
following
interest
income
recognized
had
not
yet
been
paid
by
Vessel
to
Prospect
and
was
included
by
Prospect
within
interest
receivable:
June
30,
2015
June
30,
2016
$
2
—
The
following
interest
payments
were
accrued
and
paid
from
Vessel
II
to
Prospect
and
recognized
by
Prospect
as
interest
income:
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
1,023
1,713
427
The
following
interest
income
recognized
had
not
yet
been
paid
by
Vessel
II
to
Prospect
and
was
included
by
Prospect
within
interest
receivable:
June
30,
2015
June
30,
2016
$
5
—
The
following
interest
payments
were
accrued
and
paid
from
Vessel
III
to
Prospect
and
recognized
by
Prospect
as
interest
income:
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
1,213
2,109
526
The
following
interest
income
recognized
had
not
yet
been
paid
by
Vessel
III
to
Prospect
and
was
included
by
Prospect
within
interest
receivable:
June
30,
2015
June
30,
2016
$
6
—
The
following
managerial
assistance
payments
were
paid
from
Freedom
Marine
to
Prospect
and
subsequently
remitted
to
Prospect
Administration
(no
income
was
recognized
by
Prospect):
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
—
300
75
The
following
managerial
assistance
recognized
had
not
yet
been
paid
by
Freedom
Marine
to
Prospect
and
was
included
by
Prospect
within
other
receivables
and
due
to
Prospect
Administration:
June
30,
2015
June
30,
2016
$
—
225
The
following
payments
were
paid
from
Freedom
Marine
to
Prospect
Administration
as
reimbursement
for
legal,
tax
and
portfolio
level
accounting
services
provided
directly
to
Freedom
Marine
(no
direct
income
was
recognized
by
Prospect,
but
Prospect
was
given
credit
for
these
payments
as
a
reduction
of
the
administrative
services
costs
payable
by
Prospect
to
Prospect
Administration):
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
38
115
65
The
following
amounts
were
due
from
Freedom
Marine
to
Prospect
for
reimbursement
of
expenses
paid
by
Prospect
on
behalf
of
Freedom
Marine
and
were
included
by
Prospect
within
other
receivables:
June
30,
2015
June
30,
2016
$
3
—
198
Gulf Coast Machine & Supply Company
Prospect
owns
100%
of
the
preferred
equity
of
Gulf
Coast
Machine
&
Supply
Company
(“Gulf
Coast”).
Gulf
Coast
is
a
provider
of
value-added
forging
solutions
to
energy
and
industrial
end
markets.
On
October
12,
2012,
Prospect
initially
made
a
$42,000
first
lien
term
loan
to
Gulf
Coast,
of
which
$840
was
used
to
pay
structuring
fees
from
Gulf
Coast
to
Prospect
(which
was
recognized
by
Prospect
as
structuring
fee
income).
During
the
year
ended
June
30,
2013,
Gulf
Coast
repaid
$787
of
the
first
lien
term
loan.
Between
July
1,
2013
and
November
8,
2013,
Gulf
Coast
repaid
$263
of
the
first
lien
term
loan,
leaving
a
balance
of
$40,950.
On
November
8,
2013,
Gulf
Coast
issued
$25,950
of
convertible
preferred
stock
to
Prospect
(representing
99.9%
of
the
voting
securities
of
Gulf
Coast)
in
exchange
for
crediting
the
same
amount
to
the
first
lien
term
loan
previously
outstanding,
leaving
a
first
lien
loan
balance
of
$15,000.
Prior
to
this
conversion,
Prospect
was
just
a
lender
to
Gulf
Coast
and
the
investment
was
not
a
controlled
investment.
On
November
29,
2013
and
December
16,
2013,
Prospect
provided
an
additional
$1,000
and
$1,500,
respectively,
to
fund
working
capital
needs,
increasing
the
first
lien
loan
balance
to
$17,500.
During
the
year
ended
June
30,
2015,
Prospect
made
an
additional
$8,500
investment
in
the
first
lien
term
loan
to
Gulf
Coast
to
fund
capital
improvements
to
key
forging
equipment
and
other
liquidity
needs.
During
the
year
ended,
2016,
Prospect
made
an
additional
$9,500
investment
in
the
first
lien
term
loan
to
Gulf
Coast
to
fund
capital
improvements
to
key
forging
equipment
and
other
liquidity
needs.
The
following
amounts
were
paid
from
Gulf
Coast
to
Prospect
and
recorded
by
Prospect
as
repayment
of
loan
receivable:
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
—
—
1,075
The
following
interest
payments
were
accrued
and
paid
from
Gulf
Coast
to
Prospect
and
recognized
by
Prospect
as
interest
income:
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
1,449
1,370
—
The
following
amounts
were
due
from
Gulf
Coast
to
Prospect
for
reimbursement
of
expenses
paid
by
Prospect
on
behalf
of
Gulf
Coast
and
were
included
by
Prospect
within
other
receivables:
June
30,
2015
June
30,
2016
$
1
—
Harbortouch Payments, LLC
Prospect
owned
100%
of
the
equity
of
Harbortouch
Holdings
of
Delaware
Inc.
(“Harbortouch
Delaware”),
a
Consolidated
Holding
Company.
Harbortouch
Delaware
owned
100%
of
the
Class
C
voting
units
of
Harbortouch
Payments,
LLC
(“Harbortouch”),
which
provide
for
a
53.5%
residual
profits
allocation.
Harbortouch
management
owns
100%
of
the
Class
B
and
D
voting
units
of
Harbortouch,
which
provide
for
a
46.5%
residual
profits
allocation.
Harbortouch
owns
100%
of
Credit
Card
Processing
USA,
LLC.
Harbortouch
is
a
provider
of
transaction
processing
services
and
point-of
sale
equipment
used
by
merchants
across
the
United
States.
On
March
31,
2014,
Prospect
made
a
$147,898
investment
(including
2,306,294
common
shares
of
Prospect
at
a
fair
value
of
$24,908)
in
Harbortouch
Delaware.
Of
this
amount,
$123,000
was
loaned
in
exchanged
for
a
subordinated
note
and
$24,898
was
an
equity
contribution.
Harbortouch
Delaware
utilized
$137,972
to
purchase
100%
of
the
Harbortouch
Class
A
voting
preferred
units
which
provided
an
11%
preferred
return
and
a
53.5%
interest
in
the
residual
profits.
Harbortouch
Delaware
used
the
remaining
proceeds
to
pay
$4,920
of
structuring
fees
to
Prospect
(which
was
recognized
by
Prospect
as
structuring
fee
income),
$1,761
for
legal
services
provided
by
attorneys
at
Prospect
Administration
and
$3,245
was
retained
by
Harbortouch
Delaware
for
working
capital.
Additionally,
on
March
31,
2014,
Prospect
provided
Harbortouch
a
senior
secured
loan
of
$130,796.
Prospect
received
a
structuring
fee
of
$2,616
from
Harbortouch
(which
was
recognized
by
Prospect
as
structuring
fee
income).
199
On
April
1,
2014,
Prospect
made
a
new
$137,226
senior
secured
term
loan
to
Harbortouch.
Harbortouch
then
distributed
this
amount
to
Harbortouch
Delaware
as
a
return
of
capital
which
was
used
to
pay
down
the
$123,000
senior
secured
note
from
Harbortouch
Delaware
to
Prospect.
The
remaining
$14,226
was
distributed
to
Prospect
as
a
return
of
capital
of
Prospect’s
equity
investment
in
Harbortouch
Delaware.
On
July
1,
2014,
Prospect
began
consolidating
Harbortouch
Delaware.
As
a
result,
any
transactions
between
Harbortouch
Delaware
and
Prospect
are
eliminated
in
consolidation
and
as
such,
transactions
after
July
1,
2014
are
denoted
as
“N/A”.
On
September
30,
2014,
Prospect
made
a
new
$26,431
senior
secured
term
loan
to
Harbortouch
to
support
an
acquisition.
As
part
of
the
transaction,
Prospect
received
$529
of
structuring
fees
(which
was
recognized
by
Prospect
as
structuring
fee
income)
and
$50
of
amendment
fees
(which
was
recognized
by
Prospect
as
amendment
fee
income).
On
December
19,
2014,
Prospect
made
an
additional
$1,291
equity
investment
in
Harbortouch
Class
C
voting
units.
This
amount
was
deferred
consideration
stipulated
in
the
original
agreement.
On
May
31,
2016,
we
sold
our
investment
in
Harbortouch
for
total
consideration
of
$328,032,
including
fees
and
escrowed
amounts.
Prior
to
the
sale,
$154,382
of
Senior
Secured
Term
Loan
B
loan
outstanding
was
converted
to
preferred
equity.
We
received
a
repayment
of
$146,989
loans
receivable
to
us
and
$157,639
of
proceeds
related
to
the
equity
investment.
We
recorded
a
realized
loss
of
$5,419
related
to
the
sale.
We
also
received
a
$5,145
prepayment
premium
for
early
repayment
of
the
outstanding
loans,
which
was
recorded
as
interest
income
in
the
year
ended
June
30,
2016
and
a
$12,909
advisory
fee
for
the
transaction,
which
was
recorded
as
other
income
in
the
year
ended
June
30,
2016.
In
addition,
there
is
$5,350
being
held
in
escrow
which
will
be
recognized
as
additional
realized
gain
if
and
when
it
is
received.
Concurrent
with
the
sale,
we
made
a
$27,500
second
lien
secured
investment
in
Harbortouch.
In
addition
to
the
repayments
noted
above,
the
following
amounts
were
paid
from
Harbortouch
to
Prospect
and
recorded
by
Prospect
as
repayment
of
loan
receivable:
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
—
5,371
4,865
The
following
cash
distributions
were
declared
and
paid
from
Harbortouch
to
Prospect
and
recognized
as
a
return
of
capital
by
Prospect:
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
—
55
50
The
following
interest
payments
were
accrued
and
paid
from
Harbortouch
Delaware
to
Prospect
and
recognized
by
Prospect
as
interest
income:
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
55
N/A
N/A
The
following
interest
payments
were
accrued
and
paid
from
Harbortouch
to
Prospect
and
recognized
by
Prospect
as
interest
income:
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
6,824
29,834
28,274
200
Included
above,
the
following
payment-in-kind
interest
from
Harbortouch
was
capitalized
and
recognized
by
Prospect
as
interest
income:
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
—
7,652
9,503
The
following
interest
income
recognized
had
not
yet
been
paid
by
Harbortouch
to
Prospect
and
was
included
by
Prospect
within
interest
receivable:
June
30,
2015
June
30,
2016
$
2,077
—
The
following
managerial
assistance
payments
were
paid
from
Harbortouch
to
Prospect
and
subsequently
remitted
to
Prospect
Administration
(no
income
was
recognized
by
Prospect):
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
125
500
458
The
following
managerial
assistance
payments
received
by
Prospect
had
not
yet
been
remitted
to
Prospect
Administration
and
were
included
by
Prospect
within
due
to
Prospect
Administration:
June
30,
2015
June
30,
2016
$
125
83
The
following
payments
were
paid
from
Harbortouch
to
Prospect
Administration
as
reimbursement
for
legal,
tax
and
portfolio
level
accounting
services
provided
directly
to
Harbortouch
(no
direct
income
was
recognized
by
Prospect,
but
Prospect
was
given
credit
for
these
payments
as
a
reduction
of
the
administrative
services
costs
payable
by
Prospect
to
Prospect
Administration):
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
1,761
46
351
Manx Energy, Inc.
As
of
June
30,
2014,
Prospect
owned
41%
of
the
equity
of
Manx
Energy,
Inc.
(“Manx”).
Manx
was
formed
on
January
19,
2010
for
the
purpose
of
rolling
up
the
assets
of
existing
Prospect
portfolio
companies,
Coalbed,
LLC
(“Coalbed”),
Appalachian
Energy
LLC
(f/k/a
Appalachian
Energy
Holdings,
LLC)
(“AEH”)
and
Kinley
Exploration
LLC.
The
three
companies
were
combined
under
new
common
management.
On
January
19,
2010,
Prospect
made
a
$2,800
investment
at
closing
to
Manx
to
provide
for
working
capital.
On
the
same
date,
Prospect
exchanged
$2,100
and
$4,500
of
the
loans
to
AEH
and
Coalbed,
respectively,
for
Manx
preferred
equity,
and
Prospect’s
AEH
equity
interest
was
converted
into
Manx
common
stock.
There
was
no
change
to
fair
value
at
the
time
of
restructuring,
and
Prospect
continued
to
fully
reserve
any
income
accrued
for
Manx.
On
October
15,
2010
and
May
26,
2011,
Prospect
increased
its
loan
to
Manx
in
the
amount
of
$500
and
$250,
respectively,
to
provide
additional
working
capital.
As
of
June
30,
2011,
the
cost
basis
of
Prospect’s
investment
in
Manx,
including
debt
and
equity,
was
$19,019.
On
June
30,
2012,
AEH
and
Coalbed
loans
held
by
Manx
with
a
cost
basis
of
$7,991
were
removed
from
Manx
and
contributed
by
Prospect
to
Wolf
Energy
Holdings
Inc.,
a
separate
holding
company
wholly
owned
by
Prospect.
During
the
three
months
ended
June
30,
2013,
Prospect
determined
that
our
investment
in
Manx
was
impaired
and
recorded
a
realized
loss
of
$9,397
for
the
amount
that
the
amortized
cost
exceeded
the
fair
value,
reducing
the
amortized
cost
to
$500.
During
the
year
ended
June
30,
2014,
Manx
repaid
$450
of
the
senior
secured
note.
During
the
three
months
ended
December
31,
2014,
Manx
was
dissolved
and
Prospect
recorded
a
realized
loss
of
$50,
reducing
the
amortized
cost
to
zero.
201
MITY, Inc.
Prospect
owns
100%
of
the
equity
of
MITY
Holdings
of
Delaware
Inc.
(“MITY
Delaware”),
a
Consolidated
Holding
Company.
MITY
Delaware
holds
94.99%
of
the
equity
of
MITY,
Inc.
(f/k/a
MITY
Enterprises,
Inc.)
(“MITY”),
with
management
of
MITY
owning
the
remaining
5.01%
of
the
equity
of
MITY.
MITY
owns
100%
of
each
of
MITY-Lite,
Inc.
(“MITY-Lite”);
Broda
USA,
Inc.
(f/k/a
Broda
Enterprises
USA,
Inc.)
(“Broda
USA”);
and
Broda
Enterprises
ULC
(“Broda
Canada”).
MITY
is
a
designer,
manufacturer
and
seller
of
multipurpose
room
furniture
and
specialty
healthcare
seating
products.
On
September
19,
2013,
Prospect
made
a
$29,735
investment
in
MITY
Delaware,
of
which
$22,792
was
a
senior
secured
debt
to
MITY
Delaware
and
$6,943
was
a
capital
contribution
to
the
equity
of
MITY
Delaware.
The
proceeds
were
partially
utilized
to
purchase
97.7%
of
MITY
common
stock
for
$21,027.
The
remaining
proceeds
were
used
to
issue
a
$7,200
note
from
Broda
Canada
to
MITY
Delaware,
pay
$684
of
structuring
fees
from
MITY
Delaware
to
Prospect
(which
was
recognized
by
Prospect
as
structuring
fee
income),
$311
for
legal
services
provided
by
attorneys
employed
by
Prospect
Administration
and
$513
was
retained
by
MITY
Delaware
for
working
capital.
On
September
19,
2013,
Prospect
made
an
additional
$18,250
senior
secured
debt
investment
in
MITY.
The
proceeds
were
used
to
repay
existing
third-party
indebtedness,
pay
$365
of
structuring
fees
from
MITY
to
Prospect
(which
was
recognized
by
Prospect
as
structuring
fee
income),
pay
$1,143
of
third
party
expenses
and
$2,580
was
retained
by
MITY
for
working
capital.
Members
of
management
of
MITY
purchased
additional
shares
of
common
stock
of
MITY,
reducing
MITY
Delaware’s
ownership
to
94.99%.
MITY,
MITY-Lite
and
Broda
USA
are
joint
borrowers
on
the
senior
secured
debt
of
MITY.
On
June
23,
2014,
Prospect
made
a
new
$15,769
debt
investment
in
MITY
and
MITY
distributed
proceeds
to
MITY
Delaware
as
a
return
of
capital.
MITY
Delaware
used
this
distribution
to
pay
down
the
senior
secured
debt
of
MITY
Delaware
to
Prospect
by
the
same
amount.
The
remaining
amount
of
the
senior
secured
debt
due
from
MITY
Delaware
to
Prospect,
$7,200,
was
then
contributed
to
the
capital
of
MITY
Delaware.
On
June
23,
2014,
Prospect
also
extended
a
new
$7,500
senior
secured
revolving
facility
to
MITY,
which
was
unfunded
at
closing.
On
July
1,
2014,
Prospect
began
consolidating
MITY
Delaware.
As
a
result,
any
transactions
between
MITY
Delaware
and
Prospect
are
eliminated
in
consolidation
and
as
such,
transactions
after
July
1,
2014
are
denoted
below
as
“N/A”.
During
the
year
ended
June
30,
2015,
Prospect
funded
$2,500
of
MITY’s
senior
secured
revolving
facility,
which
MITY
fully
repaid
during
that
time.
During
the
quarter
ended
March
31,
2016,
Prospect’s
ownership
in
MITY
increased
to
95.83%
resulting
from
a
stock
repurchase
of
a
key
executive’s
shares.
The
following
cash
distributions
were
declared
and
paid
from
MITY
to
MITY
Delaware
and
recognized
as
return
of
capital
by
MITY
Delaware:
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
884
N/A
N/A
The
following
dividends
were
declared
and
paid
from
MITY
to
MITY
Delaware
and
recognized
as
dividend
income
by
MITY
Delaware:
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
861
N/A
N/A
The
following
dividends
were
declared
and
paid
from
MITY
to
Prospect
and
recognized
as
dividend
income
by
Prospect:
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
—
—
711
All
dividends
were
paid
from
earnings
and
profits
of
MITY.
202
The
following
interest
payments
were
accrued
and
paid
from
MITY
Delaware
to
Prospect
and
recognized
by
Prospect
as
interest
income:
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
3,177
N/A
N/A
Included
above,
the
following
payment-in-kind
interest
from
MITY
Delaware
was
capitalized
and
recognized
by
Prospect
as
interest
income:
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
177
N/A
N/A
The
following
interest
payments
were
accrued
and
paid
from
MITY
to
Prospect
and
recognized
by
Prospect
as
interest
income:
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
1,516
5,146
5,196
Included
above,
the
following
payment-in-kind
interest
from
MITY
was
capitalized
and
recognized
by
Prospect
as
interest
income:
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
—
532
139
The
following
interest
income
recognized
had
not
yet
been
paid
by
MITY
to
Prospect
and
was
included
by
Prospect
within
interest
receivable:
June
30,
2015
June
30,
2016
$
14
440
The
following
interest
payments
were
accrued
and
paid
from
Broda
Canada
to
Prospect
and
recognized
by
Prospect
as
interest
income:
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
—
637
566
The
following
interest
income
recognized
had
not
yet
been
paid
by
Broda
Canada
to
Prospect
and
was
included
by
Prospect
within
interest
receivable:
June
30,
2015
June
30,
2016
$
—
48
During
the
year
ended
June
30,
2015,
there
was
an
unfavorable
fluctuation
in
the
foreign
currency
exchange
rate
and
MITY
Delaware
recognized
$5
of
realized
loss
related
to
its
investment
in
Broda
Canada.
During
the
year
ended
June
30,
2016,
there
was
a
favorable
fluctuation
in
the
foreign
currency
exchange
rate
and
MITY
Delaware
recognized
$13
of
realized
gain
related
to
its
investment
in
Broda
Canada.
The
following
managerial
assistance
payments
were
paid
from
MITY
to
Prospect
and
subsequently
remitted
to
Prospect
Administration
(no
income
was
recognized
by
Prospect):
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
225
310
300
203
The
following
managerial
assistance
recognized
had
not
yet
been
paid
by
MITY
to
Prospect
and
was
included
by
Prospect
within
other
receivables
and
due
to
Prospect
Administration:
June
30,
2015
June
30,
2016
$
—
75
The
following
managerial
assistance
payments
received
by
Prospect
had
not
yet
been
remitted
to
Prospect
Administration
and
were
included
by
Prospect
within
due
to
Prospect
Administration:
June
30,
2015
June
30,
2016
$
75
—
The
following
payments
were
paid
from
MITY
to
Prospect
Administration
as
reimbursement
for
legal,
tax
and
portfolio
level
accounting
services
provided
directly
to
MITY
(no
direct
income
was
recognized
by
Prospect,
but
Prospect
was
given
credit
for
these
payments
as
a
reduction
of
the
administrative
services
costs
payable
by
Prospect
to
Prospect
Administration):
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
495
121
60
The
following
amounts
were
due
to
MITY
from
Prospect
for
reimbursement
of
expenses
paid
by
MITY
on
behalf
of
Prospect
and
were
included
within
other
liabilities:
June
30,
2015
June
30,
2016
$
1
—
National Property REIT Corp.
Prospect
owns
100%
of
the
equity
of
NPH
Property
Holdings,
LLC
(“NPH”),
a
Consolidated
Holding
Company.
NPH
owns
100%
of
the
common
equity
of
National
Property
REIT
Corp.
(f/k/a
National
Property
Holdings
Corp.)
(“NPRC”).
Effective
May
23,
2016,
in
connection
with
the
merger
of
APRC
and
United
Property
REIT
Corp.
UPRC
with
and
into
NPRC,
APH
and
UPH
merged
with
and
into
NPH.
NPRC
is
a
Maryland
corporation
and
a
qualified
REIT
for
federal
income
tax
purposes.
In
order
to
qualify
as
a
REIT,
NPRC
issued
125
shares
of
Series
A
Cumulative
Non-Voting
Preferred
Stock
to
125
accredited
investors.
The
preferred
stockholders
are
entitled
to
receive
cumulative
dividends
semi-annually
at
an
annual
rate
of
12.5%
and
do
not
have
the
ability
to
participate
in
the
management
or
operation
of
NPRC.
NPRC
was
formed
to
hold
for
investment,
operate,
finance,
lease,
manage,
and
sell
a
portfolio
of
real
estate
assets
and
engage
in
any
and
all
other
activities
as
may
be
necessary,
incidental
or
convenient
to
carry
out
the
foregoing.
NPRC
acquires
real
estate
assets,
including,
but
not
limited
to,
industrial,
commercial,
and
multi-
family
properties.
NPRC
may
acquire
real
estate
assets
directly
or
through
joint
ventures
by
making
a
majority
equity
investment
in
a
property-owning
entity
(the
“JV”).
Additionally,
through
its
wholly-owned
subsidiaries,
NPRC
invests
in
online
consumer
loans.
On
December
31,
2013,
APRC
distributed
its
majority
interests
in
five
JVs
holding
real
estate
assets
to
APH.
APH
then
distributed
these
JV
interests
to
Prospect
in
a
transaction
characterized
as
a
return
of
capital.
Prospect,
on
the
same
day,
contributed
certain
of
these
JV
interests
to
NPH
and
the
remainder
to
UPH
(each
wholly-owned
subsidiaries
of
Prospect).
Each
of
NPH
and
UPH
immediately
thereafter
contributed
these
JV
interests
to
NPRC
and
UPRC,
respectively.
The
total
investments
in
the
JVs
transferred
to
NPH
and
from
NPH
to
NPRC
consisted
of
$79,309
and
$16,315
of
debt
and
equity
financing,
respectively.
There
was
no
material
gain
or
loss
realized
on
these
transactions.
On
December
31,
2013,
Prospect
made
a
$10,620
investment
in
NPH,
of
which
$8,800
was
a
Senior
Term
Loan
and
$1,820
was
used
to
purchase
additional
membership
interests
of
NPH.
The
proceeds
were
utilized
by
NPH
to
purchase
additional
NPRC
common
equity
for
$10,620.
The
proceeds
were
utilized
by
NPRC
to
purchase
a
93.0%
ownership
interest
in
APH
Carroll
Bartram
Park,
LLC
for
$10,288
and
to
pay
$113
of
structuring
fees
to
Prospect
(which
was
recognized
by
Prospect
as
structuring
fee
income),
with
$219
retained
by
NPRC
for
working
capital.
The
JV
was
purchased
for
$38,000
which
included
debt
financing
and
minority
interest
of
$28,500
and
$774,
respectively.
The
remaining
proceeds
were
used
to
pay
$206
of
structuring
fees
to
Prospect
(which
was
recognized
by
Prospect
as
structuring
fee
income),
$1,038
of
third
party
expenses,
$5
of
legal
services
provided
by
attorneys
at
Prospect
Administration,
and
$304
of
prepaid
assets,
with
$9
retained
by
the
JV
for
working
capital.
204
Between
January
7,
2014
and
March
13,
2014,
Prospect
made
a
$14,000
investment
in
NPH,
of
which
$11,900
was
a
Senior
Term
Loan
and
$2,100
was
used
to
purchase
additional
membership
interests
of
NPH.
The
proceeds
were
utilized
by
certain
of
NPRC’s
wholly-owned
subsidiaries
to
purchase
online
consumer
loans
from
a
third
party.
On
January
31,
2014,
Prospect
made
a
$4,805
investment
in
NPH,
of
which
$4,000
was
a
Senior
Term
Loan
and
$805
used
to
purchase
additional
membership
interests
of
NPH.
The
proceeds
were
utilized
by
NPH
to
purchase
additional
NPRC
common
equity
for
$4,805.
The
proceeds
were
utilized
by
NPRC
to
purchase
a
93.0%
ownership
interest
in
APH
Carroll
Atlantic
Beach,
LLC
for
$4,603
and
to
pay
$52
of
structuring
fees
to
Prospect
(which
was
recognized
by
Prospect
as
structuring
fee
income),
with
$150
retained
by
NPRC
for
working
capital.
The
JV
was
purchased
for
$13,025
which
included
debt
financing
and
minority
interest
of
$9,118
and
$346,
respectively.
The
remaining
proceeds
were
used
to
pay
$92
of
structuring
fees
to
Prospect
(which
was
recognized
by
Prospect
as
structuring
fee
income),
$681
of
third
party
expenses,
$7
of
legal
services
provided
by
attorneys
at
Prospect
Administration,
and
$182
of
prepaid
assets,
with
$80
retained
by
the
JV
for
working
capital.
Effective
April
1,
2014,
Prospect
made
a
new
$104,460
senior
term
loan
to
NPRC.
NPRC
then
distributed
this
amount
to
NPH
as
a
return
of
capital
which
was
used
to
pay
down
the
Senior
Term
Loan
from
NPH
by
the
same
amount.
Between
April
3,
2014
and
May
21,
2014,
Prospect
made
an
$11,000
investment
in
NPH
and
NPRC,
of
which
$9,350
was
a
Senior
Term
Loan
to
NPRC
and
$1,650
was
used
to
purchase
additional
membership
interests
of
NPH.
The
proceeds
were
utilized
by
NPH
to
purchase
additional
NPRC
common
equity
for
$1,650.
The
proceeds
were
utilized
by
certain
of
NPRC’s
wholly-owned
subsidiaries
to
purchase
online
consumer
loans
from
a
third
party.
On
July
1,
2014,
Prospect
began
consolidating
NPH.
As
a
result,
any
transactions
between
NPH
and
Prospect
are
eliminated
in
consolidation
and
as
such,
transactions
after
July
1,
2014
are
denoted
below
as
“N/A”.
On
October
23,
2014,
UPRC
transferred
its
investment
in
Michigan
Storage,
LLC
to
NPRC.
As
a
result,
Prospect’s
investments
in
UPRC
related
to
these
properties
also
transferred
to
NPRC.
The
investments
transferred
consisted
of
$1,281
of
equity
and
$9,444
of
debt.
There
was
no
gain
or
loss
realized
on
the
transaction.
On
November
26,
2014,
APRC
transferred
its
investment
in
APH
Carroll
Resort,
LLC
to
NPRC
and
the
investment
was
renamed
NPRC
Carroll
Resort,
LLC.
As
a
result,
Prospect’s
investments
in
APRC
related
to
this
property
also
transferred
to
NPRC.
The
investments
transferred
consisted
of
$10,237
of
equity
and
$65,586
of
debt.
There
was
no
gain
or
loss
realized
on
the
transaction.
On
January
16,
2015,
Prospect
made
a
$13,871
investment
in
NPRC,
of
which
$11,810
was
a
Senior
Term
Loan
directly
to
NPRC
and
$2,061
was
used
to
purchase
additional
common
equity
of
NPRC
through
NPH.
The
proceeds
were
utilized
by
NPRC
to
purchase
additional
ownership
interest
in
Michigan
Storage,
LLC
(which
was
originally
purchased
by
UPRC
and
transferred
to
NPRC,
as
discussed
below)
for
$13,854,
with
$17
retained
by
NPRC
for
working
capital.
The
minority
interest
holder
also
invested
an
additional
$2,445
in
the
JV.
With
additional
debt
financing
of
$12,602,
the
total
proceeds
were
used
by
the
JV
to
purchase
five
additional
properties
for
$26,405.
The
remaining
proceeds
were
used
to
pay
$276
of
structuring
fees
to
Prospect
(which
was
recognized
by
Prospect
as
structuring
fee
income),
$1,762
of
third
party
expenses,
$65
in
pre-funded
capital
expenditures,
and
$393
of
prepaid
assets.
On
March
17,
2015,
Prospect
entered
into
a
new
credit
agreement
with
ACL
Loan
Holdings,
Inc.
(“ACLLH”),
a
wholly-owned
subsidiary
of
NPRC,
to
form
two
new
tranches
of
senior
secured
term
loans,
Term
Loan
A
and
Term
Loan
B,
with
the
same
terms
as
the
existing
NPRC
Term
Loan
A
and
Term
Loan
B
due
to
Prospect.
The
agreement
was
effective
as
of
June
30,
2014.
On
June
30,
2014,
ACLLH
made
a
non-cash
return
of
capital
distribution
of
$22,390
to
NPRC
and
NPRC
transferred
and
assigned
to
ACLLH
a
senior
secured
Term
Loan
A
due
to
Prospect.
On
May
1,
2015,
APRC
transferred
its
investment
in
5100
Live
Oaks
Blvd,
LLC
to
NPRC.
As
a
result,
Prospect’s
investments
in
APRC
related
to
this
property
also
transferred
to
NPRC.
The
investments
transferred
consisted
of
$2,748
of
equity
and
$29,990
of
debt.
There
was
no
gain
or
loss
realized
on
the
transaction.
On
May
6,
2015,
Prospect
made
a
$252
investment
in
NPRC,
of
which
$236
was
a
Senior
Term
Loan
and
$16
was
used
to
purchase
additional
common
equity
of
NPRC
through
NPH.
The
proceeds
were
utilized
by
NPRC
to
purchase
additional
ownership
interest
in
5100
Live
Oaks
Blvd,
LLC
for
$252.
The
minority
interest
holder
also
invested
an
additional
$6
in
the
JV.
The
proceeds
were
used
by
the
JV
to
fund
$258
of
capital
expenditures.
On
June
2,
2015,
Prospect
amended
the
credit
agreement
with
NPRC
to
form
two
new
tranches
of
senior
secured
term
loans,
Term
Loan
C
and
Term
Loan
D,
with
the
same
terms
as
the
existing
ACLLH
Term
Loan
A
and
Term
Loan
B
due
to
Prospect.
The
amendment
was
effective
as
of
April
1,
2015.
205
During
the
year
ended
June
30,
2015,
Prospect
made
thirty-six
follow-on
investments
in
NPRC
totaling
$224,200
to
support
the
online
consumer
lending
initiative.
Prospect
invested
$52,350
of
equity
through
NPH
and
$171,850
of
debt
directly
to
NPRC
and
its
wholly-owned
subsidiaries.
In
addition,
during
the
year
ended
June
30,
2015,
Prospect
received
partial
repayments
of
$32,883
of
the
loans
previously
outstanding
and
$5,577
as
a
return
of
capital
on
the
equity
investment
in
NPRC.
On
September
9,
2015,
Prospect
made
a
$159
investment
in
NPRC
used
to
purchase
additional
common
equity
of
NPRC
through
NPH.
The
proceeds
were
utilized
by
NPRC
to
purchase
additional
ownership
interest
in
its
multi-family
property
for
$159.
The
minority
interest
holder
also
invested
an
additional
$4
in
the
JVs.
The
proceeds
were
used
by
the
JVs
to
fund
$163
of
capital
expenditures.
On
November
5,
2015
Prospect
made
a
$9,017
investment
in
NPRC
used
to
purchase
additional
common
equity
in
NPRC
through
NPH.
The
proceeds
were
utilized
by
NPRC
to
purchase
an
80.0%
ownership
interest
in
SSIL
I,
LLC
for
$9,017.
The
JV
was
purchased
for
$34,500
which
included
debt
financing
and
minority
interest
of
$26,450
and
$2,254,
respectively.
The
remaining
proceeds
were
used
to
pay
$180
of
structuring
fees
to
Prospect
(which
was
recognized
by
Prospect
as
structuring
fee
income),
$1,243
of
escrows
and
reserves,
$1,243
of
third
party
expenses,
$42
of
legal
services
provided
by
attorneys
at
Prospect
Administration,
and
$513
of
capital
expenditures.
On
November
12,
2015,
NPRC
used
supplemental
debt
proceeds
obtained
by
their
JVs
to
make
a
partial
repayment
on
the
Senior
Term
Loan
of
22,098.
On
November
19,
2015,
Prospect
made
a
$695
investment
in
NPRC
used
to
purchase
additional
common
equity
of
NPRC
through
NPH.
The
proceeds
were
utilized
by
NPRC
to
purchase
additional
ownership
interest
in
its
multi-family
properties
for
$690
and
pay
$5
of
legal
services
provided
by
attorneys
at
Prospect
Administration.
The
minority
interest
holder
also
invested
an
additional
$76
in
the
JVs.
The
proceeds
were
used
by
the
JVs
to
fund
$766
of
capital
expenditures.
On
November
25,
2015,
Prospect
made
a
$323
investment
in
NPRC
used
to
purchase
additional
common
equity
of
NPRC
through
NPH.
The
proceeds
were
utilized
by
NPRC
to
purchase
additional
ownership
interest
in
its
multi-family
properties
for
$321
and
pay
$2
of
legal
services
provided
by
attorneys
at
Prospect
Administration.
The
minority
interest
holder
also
invested
an
additional
$19
in
the
JVs.
The
proceeds
were
used
by
the
JVs
to
fund
$340
of
capital
expenditures.
On
December
23,
2015,
Prospect
made
a
$499
investment
in
NPRC
used
to
purchase
additional
common
equity
of
NPRC
through
NPH.
The
proceeds
were
utilized
by
NPRC
to
purchase
additional
ownership
interest
in
its
multi-family
property
for
$499.
The
minority
interest
holder
also
invested
an
additional
$12
in
the
JVs.
The
proceeds
were
used
by
the
JVs
to
fund
$511
of
capital
expenditures.
On
December
30,
2015,
NPRC
used
supplemental
debt
proceeds
obtained
by
its’
JVs
to
make
a
partial
repayment
on
the
Senior
Term
Loan
of
9,821.
On
January
20,
2016,
NPRC
used
supplemental
proceeds
to
make
a
partial
repayment
on
the
Senior
Term
Loan
of
6,774.
On
February
10,
2016,
Prospect
made
a
$354
investment
in
NPRC
used
to
purchase
additional
common
equity
of
NPRC
through
NPH.
The
proceeds
were
utilized
by
NPRC
to
purchase
additional
ownership
interest
Carroll
Management
Group,
LLC
for
$352.
The
minority
interest
holder
also
invested
an
additional
$22
in
the
JVs.
The
proceeds
were
used
by
the
JVs
to
fund
$376
of
capital
expenditures.
On
February
24,
2016,
NPRC
used
supplemental
proceeds
to
make
a
partial
repayment
on
the
Senior
Term
Loan
of
24,579.
On
April
19,
2016,
Prospect
made
a
$1,404
investment
in
NPRC
used
to
purchase
additional
common
equity
of
NPRC
through
NPH.
The
proceeds
were
utilized
by
NPRC
to
purchase
additional
ownership
interest
in
NPH
McDowell,
LLC
for
$1,402
and
pay
$2
of
legal
services
provided
by
attorneys
at
Prospect
Administration.
The
minority
interest
holder
also
invested
an
additional
$155
in
the
JVs.
The
proceeds
were
used
by
the
JVs
to
fund
$1,557
of
capital
expenditures
.
During
the
year
ended
June
30,
2016
,
we
provided
$202,466
and
$41,118
of
debt
and
equity
financing,
respectively,
to
NPRC
to
enable
certain
of
its
wholly-
owned
subsidiaries
to
invest
in
online
consumer
loans.
In
addition,
during
the
year
ended
June
30,
2016
,
we
received
partial
repayments
of
$52,260
of
our
loans
previously
outstanding
with
NPRC
and
its
wholly-owned
subsidiaries
and
$12,396
as
a
return
of
capital
on
our
equity
investment
in
NPRC.
Effective
May
23,
2016,
APRC
and
UPRC
merged
with
and
into
NPRC,
to
consolidate
all
of
our
real
estate
holdings,
with
NPRC
as
the
surviving
entity.
APRC
and
UPRC
have
been
dissolved.
No
gain
or
loss
was
recognized
upon
the
merger.
206
The
following
dividends
were
declared
and
paid
from
NPRC
to
NPH
(partially
via
a
wholly-owned
subsidiary
of
NPH)
and
recognized
as
dividend
income
by
NPH:
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
2,696
N/A
N/A
All
dividends
were
paid
from
earnings
and
profits
of
NPRC.
The
following
interest
payments
were
accrued
and
paid
by
NPH
to
Prospect
and
recognized
by
Prospect
as
interest
income:
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
2,838
N/A
N/A
Included
above,
the
following
payment-in-kind
interest
from
NPH
was
capitalized
and
recognized
by
Prospect
as
interest
income:
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
432
N/A
N/A
The
following
interest
payments
were
accrued
and
paid
by
NPRC
to
Prospect
and
recognized
by
Prospect
as
interest
income:
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
3,135
23,869
40,147
Included
above,
the
following
payment-in-kind
interest
from
NPRC
was
capitalized
and
recognized
by
Prospect
as
interest
income:
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
18
3,056
703
The
following
interest
income
recognized
had
not
yet
been
paid
by
NPRC
to
Prospect
and
was
included
by
Prospect
within
interest
receivable:
June
30,
2015
June
30,
2016
$
116
174
The
following
interest
payments
were
accrued
and
paid
by
ACLLH
to
Prospect
and
recognized
by
Prospect
as
interest
income:
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
—
6,742
22,543
Included
above,
the
following
payment-in-kind
interest
from
ACLLH
was
capitalized
and
recognized
by
Prospect
as
interest
income:
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
—
816
—
207
The
following
interest
income
recognized
had
not
yet
been
paid
by
ACLLH
to
Prospect
and
was
included
by
Prospect
within
interest
receivable:
June
30,
2015
June
30,
2016
$
23
44
The
following
net
revenue
interest
payments
were
paid
from
NPH
to
Prospect
and
recognized
by
Prospect
as
other
income:
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
567
N/A
N/A
The
following
net
revenue
interest
payments
were
paid
from
NPRC
to
Prospect
and
recognized
by
Prospect
as
other
income:
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
The
following
structuring
fees
were
paid
from
NPRC
to
Prospect
and
recognized
by
Prospect
as
other
income:
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
The
following
structuring
fees
were
paid
from
ACLLH
to
Prospect
and
recognized
by
Prospect
as
other
income:
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
—
1,683
2,712
—
—
180
—
—
2,483
The
following
managerial
assistance
payments
were
paid
from
NPRC
to
Prospect
and
subsequently
remitted
to
Prospect
Administration
(no
income
was
recognized
by
Prospect):
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
255
510
593
The
following
managerial
assistance
payments
received
by
Prospect
had
not
yet
been
remitted
to
Prospect
Administration
and
were
included
by
Prospect
within
due
to
Prospect
Administration:
June
30,
2015
June
30,
2016
$
128
210
The
following
payments
were
paid
from
NPRC
to
Prospect
Administration
as
reimbursement
for
legal,
tax
and
portfolio
level
accounting
services
provided
directly
to
NPRC
(no
direct
income
was
recognized
by
Prospect,
but
Prospect
was
given
credit
for
these
payments
as
a
reduction
of
the
administrative
services
costs
payable
by
Prospect
to
Prospect
Administration):
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
207
1,164
2,363
The
following
amounts
were
due
from
NPRC
to
Prospect
for
reimbursement
of
expenses
paid
by
Prospect
on
behalf
of
NPRC
and
included
by
Prospect
within
other
receivables:
June
30,
2015
June
30,
2016
$
108
—
208
Nationwide Acceptance LLC
Prospect
owns
100%
of
the
membership
interests
of
Nationwide
Acceptance
Holdings
LLC
(“Nationwide
Holdings”),
a
Consolidated
Holding
Company.
Nationwide
Holdings
owns
93.79%
of
the
equity
of
Nationwide
Loan
Company
LLC
(f/k/a
Nationwide
Acceptance
LLC)
(“Nationwide”),
with
members
of
Nationwide
management
owning
the
remaining
6.21%
of
the
equity.
On
January
31,
2013,
Prospect
initially
made
a
$25,151
investment
in
Nationwide
Holdings,
of
which
$21,308
was
a
Senior
Secured
Revolving
Credit
Facility
and
$3,843
was
in
the
form
of
membership
interests
in
Nationwide
Holdings.
$21,885
of
the
proceeds
were
utilized
to
purchase
93.79%
of
the
membership
interests
in
Nationwide.
Proceeds
were
also
used
to
pay
$753
of
structuring
fees
from
Nationwide
Holdings
to
Prospect
(which
was
recognized
by
Prospect
as
structuring
fee
income),
$350
of
third
party
expenses
and
$163
of
legal
services
provided
by
attorneys
at
Prospect
Administration.
The
remaining
$2,000
was
retained
by
Nationwide
Holdings
as
working
capital.
In
December
2013,
Prospect
received
$1,500
of
structuring
fees
from
Nationwide
Holdings
related
to
the
amendment
of
the
loan
agreement.
On
March
28,
2014,
Prospect
funded
an
additional
$4,000
to
Nationwide
Holdings
($3,400
through
the
Senior
Secured
Revolving
Credit
Facility
and
$600
to
purchase
additional
membership
interests
in
Nationwide
Holdings).
The
additional
funding
along
with
cash
on
hand
was
utilized
by
Nationwide
Holdings
to
fund
a
$5,000
dividend
to
Prospect.
On
June
18,
2014,
Prospect
made
a
new
$14,820
second
lien
term
loan
to
Nationwide.
Nationwide
distributed
this
amount
to
Nationwide
Holdings
as
a
return
of
capital.
Nationwide
Holdings
used
the
distribution
to
pay
down
the
Senior
Secured
Revolving
Credit
Facility.
The
remaining
$9,888
of
the
Senior
Secured
Revolving
Credit
Facility
was
then
converted
to
additional
membership
interests
in
Nationwide
Holdings.
On
July
1,
2014,
Prospect
began
consolidating
Nationwide
Holdings.
As
a
result,
any
transactions
between
Nationwide
Holdings
and
Prospect
are
eliminated
in
consolidation
and
as
such,
transactions
after
July
1,
2014
are
denoted
below
as
“N/A”.
On
June
1,
2015,
Nationwide
completed
a
corporate
reorganization.
As
part
of
the
reorganization,
Nationwide
Acceptance
LLC
was
renamed
Nationwide
Loan
Company
LLC
(continues
as
“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
Nationwide
Acceptance
LLC
(“New
Nationwide”),
the
new
operating
company
wholly-owned
by
Pelican.
New
Nationwide
also
assumed
the
existing
senior
subordinated
term
loan
due
to
Prospect.
During
the
year
ended
June
30,
2015,
Prospect
made
additional
equity
investments
totaling
$2,814
in
Nationwide.
Nationwide
management
invested
an
additional
$186
of
equity
in
Nationwide,
and
Prospect’s
ownership
in
Nationwide
did
not
change.
During
the
quarter
ended
December
31,
2015,
Prospect
made
additional
investments
totaling
$1,876
in
the
senior
subordinated
term
loan
to
Nationwide.
On
March
31,
2016,
Prospect
made
an
additional
equity
investment
totaling
$1,407,
and
Prospect’s
ownership
in
Nationwide
did
not
change.
The
following
dividends
were
declared
and
paid
from
Nationwide
to
Nationwide
Holdings
and
recognized
as
dividend
income
by
Nationwide
Holdings:
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
7,074
N/A
N/A
The
following
dividends
were
declared
and
paid
from
Nationwide
Holdings
to
Prospect
and
recognized
as
dividend
income
by
Prospect:
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
5,000
N/A
N/A
209
The
following
dividends
were
declared
and
paid
from
Nationwide
to
Prospect
and
recognized
as
dividend
income
by
Prospect:
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
—
4,425
3,963
All
dividends
were
paid
from
earnings
and
profits
of
Nationwide
and
Nationwide
Holdings.
The
following
amounts
were
paid
from
Nationwide
to
Prospect
and
recorded
by
Prospect
as
repayment
of
loan
receivable:
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
—
—
300
The
following
interest
payments
were
accrued
and
paid
from
Nationwide
Holdings
to
Prospect
and
recognized
by
Prospect
as
interest
income:
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
4,322
N/A
N/A
The
following
interest
payments
were
accrued
and
paid
from
Nationwide
to
Prospect
and
recognized
by
Prospect
as
interest
income:
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
107
3,005
3,212
Included
above,
the
following
payment-in-kind
interest
from
Nationwide
was
capitalized
and
recognized
by
Prospect
as
interest
income:
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
—
—
300
The
following
interest
income
recognized
had
not
yet
been
paid
by
Nationwide
to
Prospect
and
was
included
by
Prospect
within
interest
receivable:
June
30,
2015
June
30,
2016
$
8
9
The
following
royalty
payments
were
paid
from
Nationwide
Holdings
to
Prospect
and
recognized
by
Prospect
as
other
income:
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
354
N/A
N/A
The
following
managerial
assistance
payments
were
paid
from
Nationwide
to
Prospect
and
subsequently
remitted
to
Prospect
Administration
(no
income
was
recognized
by
Prospect):
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
400
400
400
210
The
following
managerial
assistance
payments
received
by
Prospect
had
not
yet
been
remitted
to
Prospect
Administration
and
were
included
by
Prospect
within
due
to
Prospect
Administration:
June
30,
2015
June
30,
2016
$
100
100
The
following
payments
were
paid
from
Nationwide
to
Prospect
Administration
as
reimbursement
for
legal,
tax
and
portfolio
level
accounting
services
provided
directly
to
Nationwide
(no
direct
income
was
recognized
by
Prospect,
but
Prospect
was
given
credit
for
these
payments
as
a
reduction
of
the
administrative
service
costs
payable
by
Prospect
to
Prospect
Administration):
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
234
4
—
The
following
amounts
were
due
to
Nationwide
from
Prospect
for
reimbursement
of
expenses
paid
by
Nationwide
on
behalf
of
Prospect
and
were
included
by
Prospect
within
other
liabilities:
June
30,
2015
June
30,
2016
$
12
4
NMMB, Inc.
Prospect
owns
100%
of
the
equity
of
NMMB
Holdings,
Inc.
(“NMMB
Holdings”),
a
Consolidated
Holding
Company.
NMMB
Holdings
owns
96.33%
of
the
fully-
diluted
equity
of
NMMB,
Inc.
(f/k/a
NMMB
Acquisition,
Inc.)
(“NMMB”),
with
NMMB
management
owning
the
remaining
3.67%
of
the
equity.
NMMB
owns
100%
of
Refuel
Agency,
Inc.
(“Refuel
Agency”).
Refuel
Agency
owns
100%
of
Armed
Forces
Communications,
Inc.
(“Armed
Forces”).
NMMB
is
an
advertising
media
buying
business.
On
May
6,
2011,
Prospect
initially
made
a
$34,450
investment
(of
which
$31,750
was
funded
at
closing)
in
NMMB
Holdings
and
NMMB,
of
which
$24,250
was
a
senior
secured
term
loan
to
NMMB,
$3,000
was
a
senior
secured
revolver
to
NMMB
(of
which
$300
was
funded
at
closing),
$2,800
was
a
senior
subordinated
term
loan
to
NMMB
Holdings
and
$4,400
to
purchase
100%
of
the
Series
A
Preferred
Stock
of
NMMB
Holdings.
The
proceeds
received
by
NMMB
were
used
to
purchase
100%
of
the
equity
of
Refuel
Agency
and
assets
related
to
the
business
for
$30,069,
pay
$1,035
of
structuring
fees
to
Prospect
(which
was
recognized
by
Prospect
as
structuring
fee
income),
pay
$396
for
third
party
expenses
and
$250
was
retained
by
NMMB
for
working
capital.
On
May
31,
2011,
NMMB
repaid
the
$300
senior
secured
revolver.
During
the
year
ended
June
30,
2012,
NMMB
repaid
$2,550
of
the
senior
secured
term
loan.
During
the
year
ended
June
30,
2013,
NMMB
repaid
$5,700
of
the
senior
secured
term
loan
due.
On
December
13,
2013,
Prospect
invested
$8,086
for
preferred
equity
to
recapitalize
NMMB
Holdings.
The
proceeds
were
used
by
NMMB
Holdings
to
repay
in
full
the
$2,800
outstanding
under
the
subordinated
term
loan
and
the
remaining
$5,286
of
proceeds
from
Prospect
were
used
by
NMMB
Holdings
to
purchase
preferred
equity
in
NMMB.
NMMB
used
the
proceeds
from
the
preferred
equity
issuance
to
pay
down
the
senior
term
loan.
On
June
12,
2014,
Prospect
made
a
new
$7,000
senior
secured
term
loan
to
Armed
Forces.
Armed
Forces
distributed
this
amount
to
Refuel
Agency
as
a
return
of
capital.
Refuel
Agency
distributed
this
amount
to
NMMB
as
a
return
of
capital,
which
was
used
to
pay
down
$7,000
of
NMMB’s
$10,714
senior
secured
term
loan
to
Prospect.
On
July
1,
2014,
Prospect
began
consolidating
NMMB
Holdings.
As
a
result,
any
transactions
between
NMMB
Holdings
and
Prospect
are
eliminated
in
consolidation
and
as
such,
transactions
after
July
1,
2014
are
denoted
below
as
“N/A”.
On
October
1,
2014,
Prospect
made
an
additional
$383
equity
investment
in
NMMB
Series
B
Preferred
Stock,
increasing
Prospect’s
ownership
to
93.13%.
During
the
year
ended
June
30,
2015,
NMMB
repurchased
460
shares
of
its
common
stock
from
a
former
NMMB
executive,
decreasing
the
number
of
shares
outstanding
and
increasing
Prospect’s
ownership
to
96.33%.
211
The
following
interest
payments
were
accrued
and
paid
from
NMMB
Holdings
to
Prospect
and
recognized
by
Prospect
as
interest
income:
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
192
N/A
N/A
The
following
interest
payments
were
accrued
and
paid
from
NMMB
to
Prospect
and
recognized
by
Prospect
as
interest
income:
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
1,826
525
529
The
following
interest
income
recognized
had
not
yet
been
paid
by
NMMB
to
Prospect
and
was
included
by
Prospect
within
interest
receivable:
June
30,
2015
June
30,
2016
$
133
1
The
following
interest
payments
were
accrued
and
paid
from
Armed
Forces
to
Prospect
and
recognized
by
Prospect
as
interest
income:
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
33
996
996
The
following
interest
income
recognized
had
not
yet
been
paid
by
Armed
Forces
to
Prospect
and
was
included
by
Prospect
within
interest
receivable:
June
30,
2015
June
30,
2016
$
250
3
The
following
managerial
assistance
payments
were
paid
from
NMMB
to
Prospect
and
subsequently
remitted
to
Prospect
Administration
(no
income
was
recognized
by
Prospect):
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
100
—
—
The
following
managerial
assistance
recognized
had
not
yet
been
paid
by
NMMB
to
Prospect
and
was
included
by
Prospect
within
other
receivables
and
due
to
Prospect
Administration:
June
30,
2015
June
30,
2016
$
700
1,100
The
following
payments
were
paid
from
NMMB
to
Prospect
Administration
as
reimbursement
for
legal,
tax
and
portfolio
level
accounting
services
provided
directly
to
NMMB
(no
direct
income
was
recognized
by
Prospect,
but
Prospect
was
given
credit
for
these
payments
as
a
reduction
of
the
administrative
service
costs
payable
by
Prospect
to
Prospect
Administration):
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
15
—
—
212
The
following
amounts
were
due
from
NMMB
to
Prospect
for
reimbursement
of
expenses
paid
by
Prospect
on
behalf
of
NMMB
and
were
included
by
Prospect
within
other
receivables:
June
30,
2015
June
30,
2016
$
2
2
R-V Industries, Inc.
As
of
July
1,
2011
and
continuing
through
June
30,
2016
,
Prospect
owns
88.27%
of
the
fully-diluted
equity
of
R-V
Industries,
Inc.
(“R-V”),
with
R-V
management
owning
the
remaining
11.73%
of
the
equity.
As
of
June
30,
2011,
Prospect’s
equity
investment
cost
basis
was
$1,682
and
$5,087
for
warrants
and
common
stock,
respectively.
On
November
30,
2012,
Prospect
made
a
$9,500
second
lien
term
loan
to
R-V
and
R-V
received
an
additional
$4,000
of
senior
secured
financing
from
a
third-party
lender.
The
combined
$13,500
of
proceeds
was
partially
utilized
by
R-V
to
pay
a
dividend
to
its
common
stockholders
in
an
aggregate
amount
equal
to
$13,288
(including
$11,073
to
Prospect
recognized
by
Prospect
as
a
dividend).
The
remaining
proceeds
were
used
by
R-V
to
pay
$142
of
structuring
fees
to
Prospect
(which
was
recognized
by
Prospect
as
structuring
fee
income),
$47
for
third
party
expenses
and
$23
for
legal
services
provided
by
attorneys
at
Prospect
Administration.
On
June
12,
2013,
Prospect
provided
an
additional
$23,250
to
the
second
lien
term
loan
to
R-V.
The
proceeds
were
partially
utilized
by
R-V
to
pay
a
dividend
to
the
common
stockholders
in
an
aggregate
amount
equal
to
$15,000
(including
$13,240
dividend
to
Prospect).
The
remaining
proceeds
were
used
to
pay
off
$7,835
of
outstanding
debt
due
from
R-V
to
a
third-party,
$11
for
legal
services
provided
by
attorneys
at
Prospect
Administration
and
$404
was
retained
by
R-V
for
working
capital.
In
addition
to
the
repayments
noted
above,
the
following
amounts
were
paid
from
R-V
to
Prospect
and
recorded
by
Prospect
as
repayment
of
loan
receivable:
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
2,339
1,175
614
The
following
dividends
were
declared
and
paid
from
R-V
to
Prospect
and
recognized
as
dividend
income
by
Prospect:
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
1,100
298
299
All
dividends
were
paid
from
earnings
and
profits
of
R-V.
The
following
interest
payments
were
accrued
and
paid
from
R-V
to
Prospect
and
recognized
by
Prospect
as
interest
income:
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
3,188
3,018
2,908
The
following
managerial
assistance
payments
were
paid
from
R-V
to
Prospect
and
subsequently
remitted
to
Prospect
Administration
(no
income
was
recognized
by
Prospect):
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
180
180
180
The
following
managerial
assistance
payments
received
by
Prospect
had
not
yet
been
remitted
to
Prospect
Administration
and
were
included
by
Prospect
within
due
to
Prospect
Administration:
June
30,
2015
June
30,
2016
$
45
45
213
The
following
payments
were
paid
from
R-V
to
Prospect
Administration
as
reimbursement
for
legal,
tax
and
portfolio
level
accounting
services
provided
directly
to
R-V
(no
direct
income
was
recognized
by
Prospect,
but
Prospect
was
given
credit
for
these
payments
as
a
reduction
of
the
administrative
service
costs
payable
by
Prospect
to
Prospect
Administration):
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
—
13
2
The
following
amounts
were
due
to
R-V
from
Prospect
for
reimbursement
of
expenses
paid
by
R-V
on
behalf
of
Prospect
and
were
included
by
Prospect
within
other
liabilities:
June
30,
2015
June
30,
2016
$
2
1
SB Forging Company, Inc.
As
of
June
30,
2014,
Prospect
owned
79.53%
of
the
fully-diluted
common,
85.76%
of
the
Series
A
Preferred
and
100%
of
the
Series
B
Preferred
equity
of
ARRM
Services,
Inc.
(f/k/a
ARRM
Holdings,
Inc.)
(“ARRM”).
ARRM
owned
100%
of
the
equity
of
Ajax
Rolled
Ring
&
Machine,
LLC
(f/k/a
Ajax
Rolled
Ring
&
Machine,
Inc.)
(“Ajax”).
Ajax
forges
large
seamless
steel
rings
on
two
forging
mills
in
the
company’s
York,
South
Carolina
facility.
The
rings
are
used
in
a
range
of
industrial
applications,
including
in
construction
equipment
and
power
turbines.
Ajax
also
provides
machining
and
other
ancillary
services.
As
of
July
1,
2011,
the
cost
basis
of
Prospect’s
total
debt
and
equity
investment
in
Ajax
was
$41,699,
including
capitalized
payment-in-kind
interest
of
$3,535.
Prospect’s
investment
in
Ajax
consisted
of
the
following:
$20,607
of
senior
secured
term
debt
(“Tranche
A
Term
Loan”);
$15,035
of
subordinated
secured
term
debt
(“Tranche
B
Term
Loan”);
and
$6,057
of
common
equity.
In
October
2011,
ARRM
assumed
Ajax’s
Tranche
B
Term
Loan
and
the
equity
of
Ajax
was
exchanged
for
equity
in
ARRM.
Ajax
was
converted
into
a
limited
liability
company
shortly
thereafter.
On
December
28,
2012,
Prospect
provided
an
additional
$3,600
of
unsecured
debt
to
ARRM
(“Promissory
Demand
Note”).
On
April
1,
2013,
Prospect
refinanced
its
investment
in
Ajax
and
ARRM,
increasing
the
total
size
of
the
debt
investment
to
$38,537.
The
$19,837
Tranche
A
Term
Loan
was
replaced
with
a
new
senior
secured
term
loan
to
Ajax
in
the
same
amount.
The
$15,035
Tranche
B
Term
Loan
and
$3,600
Promissory
Demand
Note
were
replaced
with
a
new
subordinated
unsecured
term
loan
to
ARRM
in
the
amount
of
$18,700.
Prospect
received
$50
and
$46
of
structuring
fees
from
Ajax
and
ARRM,
respectively,
which
were
recognized
as
other
income.
On
June
28,
2013,
Prospect
provided
an
additional
$1,000
in
the
ARRM
subordinated
unsecured
term
loan
to
fund
equity
into
Ajax.
The
proceeds
were
used
by
Ajax
to
repay
senior
debt
to
a
third
party.
On
October
11,
2013,
Prospect
provided
$25,000
in
preferred
equity
for
the
recapitalization
of
ARRM.
After
the
financing,
Prospect
received
repayment
of
the
$20,008
subordinated
unsecured
term
loan
previously
outstanding
from
ARRM.
In
March
2014,
Prospect
received
$98
of
structuring
fees
from
Ajax
related
to
the
amendment
of
the
loan
agreement
in
September
2013.
On
October
10,
2014,
ARRM
sold
Ajax
to
a
third
party
and
repaid
the
$19,337
loan
receivable
to
Prospect.
Prospect
recorded
a
realized
loss
of
$21,001
related
to
the
sale.
Concurrent
with
the
sale,
Prospect’s
ownership
increased
to
100%
of
the
outstanding
equity
of
ARRM
Services,
Inc.
which
was
renamed
SB
Forging
Company,
Inc.
(“SB
Forging”).
As
such,
Prospect
began
consolidating
SB
Forging
on
October
11,
2014.
As
a
result,
any
transactions
between
SB
Forging
and
Prospect
are
eliminated
in
consolidation
and
as
such,
transactions
after
October
11,
2014
are
denoted
below
as
“N/A”.
In
addition,
there
is
$3,000
being
held
in
escrow
of
which
$802
was
received
on
May
6,
2015
for
which
Prospect
realized
a
gain
of
the
same
amount.
Prospect
received
$2,000
of
structuring
fees
from
Ajax
related
to
the
sale
of
the
operating
company
which
was
recognized
as
other
income
during
the
year
ended
June
30,
2015.
On
May
31,
2016,
$1,750
of
the
escrow
proceeds
were
received.
Prospect
realized
a
gain
of
the
same
amount.
In
addition
to
the
repayments
noted
above,
the
following
amounts
were
paid
from
Ajax
to
Prospect
and
recorded
by
Prospect
as
repayment
of
loan
receivable:
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
$
400
—
214
The
following
interest
payments,
including
prepayment
penalty
fees,
were
accrued
and
paid
from
ARRM
to
Prospect
and
recognized
by
Prospect
as
interest
income:
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
$
1,029
—
Included
above,
the
following
payment-in-kind
interest
from
ARRM
was
capitalized
and
recognized
by
Prospect
as
interest
income:
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
$
309
—
The
following
interest
payments,
including
prepayment
penalty
fees,
were
accrued
and
paid
from
Ajax
to
Prospect
and
recognized
by
Prospect
as
interest
income:
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
$
2,082
956
The
following
managerial
assistance
payments
were
paid
from
Ajax
to
Prospect
and
subsequently
remitted
to
Prospect
Administration
(no
income
was
recognized
by
Prospect):
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
$
180
45
The
following
payments
were
paid
from
SB
Forging
to
Prospect
Administration
as
reimbursement
for
legal,
tax
and
portfolio
level
accounting
services
provided
directly
to
SB
Forging
(no
direct
income
was
recognized
by
Prospect,
but
Prospect
was
given
credit
for
these
payments
as
a
reduction
of
the
administrative
services
costs
payable
by
Prospect
to
Prospect
Administration):
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
$
17
1,485
United Property REIT Corp.
UPH
Property
Holdings,
LLC
(“UPH”)
owned
100%
of
the
common
equity
of
United
Property
REIT
Corp.
(“UPRC”).
Effective
May
23,
2016,
in
connection
with
the
merger
of
UPRC
and
APRC
with
and
into
NPRC,
UPH
and
APH
merged
with
and
into
NPH.
Prospect
owns
100%
of
the
equity
of
NPH,
a
Consolidated
Holding
Company,
and
NPH
owns
100%
of
the
common
equity
of
NPRC.
UPRC
was
formed
to
hold
for
investment,
operate,
finance,
lease,
manage,
and
sell
a
portfolio
of
real
estate
assets
and
engage
in
any
and
all
other
activities
as
may
be
necessary,
incidental
or
convenient
to
carry
out
the
foregoing.
UPRC
acquires
real
estate
assets,
including,
but
not
limited
to,
industrial,
commercial,
and
multi-
family
properties.
UPRC
may
acquire
real
estate
assets
directly
or
through
joint
ventures
by
making
a
majority
equity
investment
in
a
property-owning
entity
(the
“JV”).
On
December
31,
2013,
APRC
distributed
its
majority
interests
in
five
JVs
holding
real
estate
assets
to
APH.
APH
then
distributed
these
JV
interests
to
Prospect
in
a
transaction
characterized
as
a
return
of
capital.
Prospect,
on
the
same
day,
contributed
certain
of
these
JV
interests
to
NPH
and
the
remainder
to
UPH
(each
wholly-owned
subsidiaries
of
Prospect).
Each
of
NPH
and
UPH
immediately
thereafter
contributed
these
JV
interests
to
NPRC
and
UPRC,
respectively.
The
total
investments
in
the
JVs
transferred
to
UPH
and
from
UPH
to
UPRC
consisted
of
$18,855
and
$3,707
of
debt
and
equity
financing,
respectively.
There
was
no
material
gain
or
loss
realized
on
these
transactions.
Effective
April
1,
2014,
Prospect
made
a
new
$19,027
senior
term
loan
to
UPRC.
UPRC
then
distributed
this
amount
to
UPH
as
a
return
of
capital
which
was
used
to
pay
down
the
Senior
Term
Loan
from
UPH
by
the
same
amount.
On
June
4,
2014,
Prospect
made
a
$1,405
investment
in
UPH
to
purchase
additional
membership
interests
of
UPH,
which
was
revised
to
$1,420
on
July
1,
2014.
The
proceeds
were
utilized
by
UPH
to
purchase
additional
UPRC
common
equity
for
$1,420.
The
proceeds
were
utilized
by
UPRC
to
acquire
the
real
property
located
at
1201
West
College,
Marshall,
MO
(“Taco
Bell,
MO”)
for
$1,405
and
pay
$15
of
third
party
expenses.
215
On
July
1,
2014,
Prospect
began
consolidating
UPH.
As
a
result,
any
transactions
between
UPH
and
Prospect
are
eliminated
in
consolidation
and
as
such,
transactions
after
July
1,
2014
are
denoted
below
as
“N/A”.
On
August
19,
2014
and
August
27,
2014,
Prospect
made
a
combined
$11,046
investment
in
UPRC,
of
which
$9,389
was
a
Senior
Term
Loan
directly
to
UPRC
and
$1,657
was
used
to
purchase
additional
common
equity
of
UPRC
through
UPH.
On
October
1,
2015,
UPRC
distributed
$376
to
Prospect
as
a
return
of
capital.
The
net
proceeds
were
utilized
by
UPRC
to
purchase
an
85.0%
ownership
interest
in
Michigan
Storage,
LLC
for
$10,579,
with
$42
retained
by
UPRC
for
working
capital
and
$49
restricted
for
future
property
acquisitions.
The
JV
was
purchased
for
$38,275
which
included
debt
financing
and
minority
interest
of
$28,705
and
$1,867,
respectively.
The
remaining
proceeds
were
used
to
pay
$210
of
structuring
fees
to
Prospect
(which
was
recognized
by
Prospect
as
structuring
fee
income),
$2,589
of
third
party
expenses,
and
$77
for
legal
services
provided
by
attorneys
at
Prospect
Administration.
The
investment
was
subsequently
contributed
to
NPRC.
On
September
29,
2014,
Prospect
made
a
$22,618
investment
in
UPRC,
of
which
$19,225
was
a
Senior
Term
Loan
and
$3,393
was
used
to
purchase
additional
common
equity
of
UPRC
through
UPH.
The
proceeds
were
utilized
by
UPRC
to
purchase
a
92.5%
ownership
interest
in
Canterbury
Green
Apartments
Holdings,
LLC
for
$22,036,
with
$582
retained
by
UPRC
for
working
capital.
The
JV
was
purchased
for
$85,500
which
included
debt
financing
and
minority
interest
of
$65,825
and
$1,787,
respectively.
The
remaining
proceeds
were
used
to
pay
$432
of
structuring
fees
to
Prospect
(which
was
recognized
by
Prospect
as
structuring
fee
income),
$2,135
of
third
party
expenses,
$82
for
legal
services
provided
by
attorneys
at
Prospect
Administration,
and
$1,249
of
prepaid
assets,
with
$250
retained
by
the
JV
for
working
capital.
On
September
30,
2014
and
October
29,
2014,
Prospect
made
a
combined
$22,688
investment
in
UPRC,
of
which
$19,290
was
a
Senior
Term
Loan
and
$3,398
was
used
to
purchase
additional
common
equity
of
UPRC
through
UPH.
The
proceeds
were
utilized
by
UPRC
to
purchase
a
66.2%
ownership
interest
in
Columbus
OH
Apartment
Holdco,
LLC
for
$21,992
and
to
pay
$241
of
structuring
fees
to
Prospect
(which
was
recognized
by
Prospect
as
structuring
fee
income),
with
$455
retained
by
UPRC
for
working
capital.
The
JV
was
purchased
for
$114,377
which
included
debt
financing
and
minority
interest
of
$97,902
and
$11,250,
respectively.
The
remaining
proceeds
were
used
to
pay
$440
of
structuring
fees
to
Prospect
(which
was
recognized
by
Prospect
as
structuring
fee
income),
$7,711
of
third
party
expenses,
$180
for
legal
services
provided
by
attorneys
at
Prospect
Administration,
$6,778
in
pre-funded
capital
expenditures,
and
$1,658
of
prepaid
assets.
On
October
23,
2014,
UPRC
transferred
its
investment
in
Michigan
Storage,
LLC
to
NPRC.
As
a
result,
Prospect’s
investments
in
UPRC
related
to
these
properties
also
transferred
to
NPRC.
The
investments
transferred
consisted
of
$1,281
of
equity
and
$9,444
of
debt.
There
was
no
gain
or
loss
realized
on
the
transaction.
On
November
12,
2014,
Prospect
made
a
$669
investment
in
UPRC,
of
which
$569
was
a
Senior
Term
Loan
and
$100
was
used
to
purchase
additional
common
equity
of
UPRC
through
UPH.
The
proceeds
were
utilized
by
UPRC
to
purchase
additional
ownership
interest
in
South
Atlanta
Portfolio
Holding
Company,
LLC
for
$667,
with
$2
retained
by
UPRC
for
working
capital.
The
minority
interest
holder
also
invested
an
additional
$53
in
the
JV.
The
proceeds
were
used
by
the
JV
to
fund
$707
of
capital
expenditures
and
pay
$13
of
structuring
fees
to
Prospect
(which
was
recognized
by
Prospect
as
structuring
fee
income).
On
April
27,
2015,
Prospect
made
a
$733
investment
in
UPRC,
of
which
$623
was
a
Senior
Term
Loan
and
$110
was
used
to
purchase
additional
common
equity
of
UPRC
through
UPH.
The
proceeds
were
utilized
by
UPRC
to
purchase
additional
ownership
interest
in
South
Atlanta
Portfolio
Holding
Company,
LLC
for
$731
and
pay
$2
of
legal
services
provided
by
attorneys
at
Prospect
Administration.
The
minority
interest
holder
also
invested
an
additional
$59
in
the
JV.
The
proceeds
were
used
by
the
JV
to
fund
$775
of
capital
expenditures
and
pay
$15
of
structuring
fees
to
Prospect
(which
was
recognized
by
Prospect
as
structuring
fee
income).
On
May
19,
2015,
Prospect
made
a
$4,730
investment
in
UPRC,
of
which
$3,926
was
a
Senior
Term
Loan
and
$804
was
used
to
purchase
additional
common
equity
of
UPRC
through
UPH.
The
proceeds
were
utilized
by
UPRC
to
purchase
additional
ownership
interest
in
Columbus
OH
Apartment
Holdco,
LLC
for
$4,658,
with
$72
retained
by
UPRC
for
working
capital.
The
proceeds
were
used
by
the
JV
to
fund
$4,565
of
capital
expenditures
and
pay
$93
of
structuring
fees
to
Prospect
(which
was
recognized
by
Prospect
as
structuring
fee
income).
On
July
9,
2015,
Prospect
made
a
$2,044
investment
in
UPRC,
of
which
$1,738
was
a
Senior
Term
Loan
and
$306
was
used
to
purchase
additional
common
equity
of
UPRC
through
UPH.
The
proceeds
were
utilized
by
UPRC
to
purchase
additional
ownership
interest
in
Canterbury
Green
Apartment
Holdings,
LLC
for
$2042,
and
pay
$2
of
legal
services
provided
by
attorneys
at
Prospect
Administration.
The
proceeds
were
used
by
the
JV
to
fund
$2,167
of
capital
expenditures
and
pay
$40
of
structuring
fees
to
Prospect
(which
was
recognized
by
Prospect
as
structuring
fee
income).
On
November
25,
2015,
Prospect
made
a
$3,433
investment
in
UPRC,
of
which
$2,746
was
a
Senior
Term
Loan
and
$687
was
used
to
purchase
additional
common
equity
of
UPRC
through
UPH.
The
proceeds
were
utilized
by
UPRC
to
purchase
216
additional
ownership
interest
in
Columbus
OH
Apartment
Holdco,
LLC
for
$3,274,
and
pay
$2
of
legal
services
provided
by
attorneys
at
Prospect
Administration
with
$158
retained
by
UPRC
for
working
capital.
The
proceeds
were
used
by
the
JV
to
fund
$3,209
of
capital
expenditures
and
pay
$65
of
structuring
fees
to
Prospect
(which
was
recognized
by
Prospect
as
structuring
fee
income).
On
March
9,
2016,
Prospect
made
a
$777
investment
in
UPRC
used
to
purchase
additional
common
equity
of
UPRC
through
UPH.
The
proceeds
were
utilized
by
UPRC
to
purchase
additional
ownership
interest
in
South
Atlanta
Portfolio
Holding
Company,
LLC
for
$775,
and
pay
$2
of
legal
services
provided
by
attorneys
at
Prospect.
The
minority
interest
holder
also
invested
an
additional
$62
in
the
JVs.
The
proceeds
were
used
by
the
JV
to
fund
$836
of
capital
expenditures.
On
March
9,
2016,
Prospect
made
a
$1,277
investment
in
UPRC
used
to
purchase
additional
common
equity
of
UPRC
through
UPH.
The
proceeds
were
utilized
by
UPRC
to
purchase
additional
ownership
interest
in
Canterbury
Green
Apartments
Holdings,
LLC
for
$1,277.
The
minority
interest
holder
also
invested
an
additional
$104
in
the
JVs.
The
proceeds
were
used
by
the
JV
to
fund
$1,381
of
capital
expenditures.
On
April
6,
2016,
UPRC
used
supplemental
proceeds
to
make
a
partial
repayment
on
the
Senior
Term
Loan
of
$7,567.
Effective
May
23,
2016,
APRC
and
UPRC
merged
with
and
into
NPRC,
to
consolidate
all
of
our
real
estate
holdings,
with
NPRC
as
the
surviving
entity.
APRC
and
UPRC
have
been
dissolved.
No
gain
or
loss
was
recognized
upon
the
merger.
The
following
dividends
were
declared
and
paid
from
UPRC
to
UPH
and
recognized
as
dividend
income
by
UPH:
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
510
N/A
N/A
All
dividends
were
paid
from
earnings
and
profits
of
UPRC.
The
following
interest
payments
were
accrued
and
paid
by
UPH
to
Prospect
and
recognized
by
Prospect
as
interest
income:
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
548
N/A
N/A
Included
above,
the
following
payment-in-kind
interest
from
UPH
was
capitalized
and
recognized
by
Prospect
as
interest
income:
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
173
N/A
N/A
The
following
interest
payments
were
accrued
and
paid
by
UPRC
to
Prospect
and
recognized
by
Prospect
as
interest
income:
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
553
5,893
6,777
Included
above,
the
following
payment-in-kind
interest
from
UPRC
was
capitalized
and
recognized
by
Prospect
as
interest
income:
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
—
162
—
217
The
following
interest
income
recognized
had
not
yet
been
paid
by
UPRC
to
Prospect
and
was
included
by
Prospect
within
interest
receivable:
June
30,
2015
June
30,
2016
$
20
—
The
following
net
revenue
interest
payments
were
paid
from
UPH
to
Prospect
and
recognized
by
Prospect
as
other
income:
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
156
N/A
N/A
The
following
net
revenue
interest
payments
were
paid
from
UPRC
to
Prospect
and
recognized
by
Prospect
as
other
income:
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
—
901
1,173
The
following
managerial
assistance
payments
were
paid
from
UPRC
to
Prospect
and
subsequently
remitted
to
Prospect
Administration
(no
income
was
recognized
by
Prospect):
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
100
200
179
The
following
managerial
assistance
payments
received
by
Prospect
had
not
yet
been
remitted
to
Prospect
Administration
and
were
included
by
Prospect
within
due
to
Prospect
Administration:
June
30,
2015
June
30,
2016
$
50
29
The
following
payments
were
paid
from
UPRC
to
Prospect
Administration
as
reimbursement
for
legal,
tax
and
portfolio
level
accounting
services
provided
directly
to
UPRC
(no
direct
income
was
recognized
by
Prospect,
but
Prospect
was
given
credit
for
these
payments
as
a
reduction
of
the
administrative
services
costs
payable
by
Prospect
to
Prospect
Administration):
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
85
262
788
The
following
amounts
were
due
from
UPRC
to
Prospect
for
reimbursement
of
expenses
paid
by
Prospect
on
behalf
of
UPRC
and
were
included
by
Prospect
within
other
receivables:
June
30,
2015
June
30,
2016
$
15
—
USES Corp.
On
June
15,
2016,
we
provided
additional
$1,300
debt
financing
to
USES
Corp.
(“USES”)
and
its
subsidiaries
in
the
form
of
additional
Term
Loan
A
debt
and,
in
connection
with
such
Term
Loan
A
debt
financing,
USES
issued
to
us
99,900
shares
of
its
common
stock.
On
June
29,
2016,
we
provided
additional
$2,200
debt
financing
to
USES
and
its
subsidiaries
in
the
form
of
additional
Term
Loan
A
debt
and,
in
connection
with
such
Term
Loan
A
debt
financing,
USES
issued
to
us
169,062
shares
of
its
common
stock.
As
a
result
of
such
debt
financing
and
recapitalization,
as
of
June
29,
2016,
we
held
268,962
shares
of
USES
common
stock
representing
a
99.96%
common
equity
ownership
interest
in
USES.
As
such,
USES
became
a
controlled
company
on
June
30,
2016.
218
Valley Electric Company, Inc.
Prospect
owns
100%
of
the
common
stock
of
Valley
Electric
Holdings
I,
Inc.
(“Valley
Holdings
I”),
a
Consolidated
Holding
Company.
Valley
Holdings
I
owns
100%
of
Valley
Electric
Holdings
II,
Inc.
(“Valley
Holdings
II”),
a
Consolidated
Holding
Company.
Valley
Holdings
II
owns
94.99%
of
Valley
Electric
Company,
Inc.
(“Valley
Electric”),
with
Valley
Electric
management
owning
the
remaining
5.01%
of
the
equity.
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.
(“Valley”),
a
leading
provider
of
specialty
electrical
services
in
the
state
of
Washington
and
among
the
top
50
electrical
contractors
in
the
United
States.
On
December
31,
2012,
Prospect
initially
invested
$52,098
(including
4,141,547
common
shares
of
Prospect
at
a
fair
value
of
$44,650)
in
exchange
for
$32,572
was
in
the
form
of
a
senior
secured
note
to
Valley
Holdings
I,
a
$10,000
senior
secured
note
to
Valley
(discussed
below)
and
$9,526
to
purchase
the
common
stock
of
Valley
Holdings
I.
The
proceeds
were
partially
utilized
by
Valley
Holdings
I
to
purchase
100%
of
Valley
Holdings
II
common
stock
for
$40,528.
The
remaining
proceeds
at
Valley
Holdings
I
were
used
to
pay
$977
of
structuring
fees
from
Valley
Holdings
I
to
Prospect
(which
were
recognized
by
Prospect
as
structuring
fee
income),
$345
for
legal
services
provided
by
attorneys
at
Prospect
Administration
and
$248
was
retained
by
Valley
Holdings
I
for
working
capital.
The
$40,528
of
proceeds
received
by
Valley
Holdings
II
were
subsequently
used
to
purchase
96.3%
of
Valley’s
common
stock.
Valley
management
provided
a
$1,500
co-
investment
in
Valley.
On
December
31,
2012,
Prospect
invested
$10,000
(as
mentioned
above)
into
Valley
in
the
form
of
senior
secured
debt.
Total
proceeds
of
$52,028
received
by
Valley
(including
$42,028
equity
investment
mentioned
above)
were
used
to
purchase
the
equity
of
Valley
from
third-party
sellers
for
$45,650,
pay
$4,628
of
third-
party
transaction
expenses
(including
bonuses
to
Valley’s
management
of
$2,320),
pay
$250
from
Valley
to
Prospect
(which
were
recognized
by
Prospect
as
structuring
fee
income)
and
$1,500
was
retained
by
Valley
for
working
capital.
On
June
24,
2014,
Valley
Holdings
II
and
management
of
Valley
formed
Valley
Electric
and
contributed
their
shares
of
Valley
stock
to
Valley
Electric.
Valley
management
made
an
additional
equity
investment
in
Valley
Electric,
reducing
our
ownership
to
94.99%.
Prospect
made
a
new
$20,471
senior
secured
loan
to
Valley
Electric.
Valley
Electric
then
distributed
this
amount
to
Valley
Holdings
I,
via
Valley
Holdings
II,
as
a
return
of
capital
which
was
used
to
pay
down
the
senior
secured
note
of
Valley
Holdings
I
by
the
same
amount.
The
remaining
principal
amount
of
the
senior
secured
note,
$16,754,
was
then
contributed
to
the
capital
of
Valley
Holdings
I.
On
July
1,
2014,
Prospect
began
consolidating
Valley
Holdings
I
and
Valley
Holdings
II.
As
a
result,
any
transactions
between
Valley
Holdings
I,
Valley
Holdings
II
and
Prospect
are
eliminated
in
consolidation
and
as
such,
transactions
after
July
1,
2014
are
denoted
below
as
“N/A”.
In
addition
to
the
repayments
noted
above,
the
following
amounts
were
paid
from
Valley
to
Prospect
and
recorded
by
Prospect
as
repayment
of
loan
receivable:
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
200
—
—
The
following
dividends
were
declared
and
paid
from
Valley
to
Valley
Holdings
II,
which
were
subsequently
distributed
to
and
recognized
as
dividend
income
by
Valley
Holdings
I:
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
2,953
N/A
N/A
All
dividends
were
paid
from
earnings
and
profits
of
Valley
and
Valley
Holdings
II.
The
following
interest
payments
were
accrued
and
paid
from
Valley
Holdings
I
to
Prospect
and
recognized
by
Prospect
as
interest
income:
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
6,323
N/A
N/A
219
Included
above,
the
following
payment-in-kind
interest
from
Valley
Holdings
I
was
capitalized
and
recognized
by
Prospect
as
interest
income:
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
3,162
N/A
N/A
The
following
interest
payments
were
accrued
and
paid
from
Valley
Electric
to
Prospect
and
recognized
by
Prospect
as
interest
income:
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
74
3,905
4,252
Included
above,
the
following
payment-in-kind
interest
from
Valley
Electric
was
capitalized
and
recognized
by
Prospect
as
interest
income:
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
29
1,794
1,509
The
following
interest
income
recognized
had
not
yet
been
paid
by
Valley
Electric
to
Prospect
and
was
included
by
Prospect
within
interest
receivable:
June
30,
2015
June
30,
2016
$
11
12
The
following
interest
payments
were
accrued
and
paid
from
Valley
to
Prospect
and
recognized
by
Prospect
as
interest
income:
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
1,074
1,086
1,111
Included
above,
the
following
payment-in-kind
interest
from
Valley
was
capitalized
and
recognized
by
Prospect
as
interest
income:
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
255
259
90
The
following
interest
income
recognized
had
not
yet
been
paid
by
Valley
to
Prospect
and
was
included
by
Prospect
within
interest
receivable:
June
30,
2015
June
30,
2016
$
3
3
The
following
royalty
payments
were
paid
from
Valley
Holdings
I
to
Prospect
and
recognized
by
Prospect
as
other
income:
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
148
N/A
N/A
220
The
following
managerial
assistance
payments
were
paid
from
Valley
to
Prospect
and
subsequently
remitted
to
Prospect
Administration
(no
income
was
recognized
by
Prospect):
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
300
300
300
The
following
managerial
assistance
payments
received
by
Prospect
had
not
yet
been
remitted
to
Prospect
Administration
and
were
included
by
Prospect
within
due
to
Prospect
Administration:
June
30,
2015
June
30,
2016
$
75
75
The
following
payments
were
paid
from
Valley
Electric
to
Prospect
Administration
as
reimbursement
for
legal,
tax
and
portfolio
level
accounting
services
provided
directly
to
Valley
Electric
(no
direct
income
was
recognized
by
Prospect,
but
Prospect
was
given
credit
for
these
payments
as
a
reduction
of
the
administrative
services
costs
payable
by
Prospect
to
Prospect
Administration):
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
91
18
9
Vets Securing America, Inc.
As
of
June
30,
2014,
Prospect
owned
100%
of
the
equity
of
Vets
Securing
America,
Inc.
(“VSA”)
and
100%
of
the
equity
of
The
Healing
Staff,
Inc.
(“THS”),
a
former
wholly-owned
subsidiary
of
ESA
Environmental
Specialists,
Inc.
(“ESA”).
During
the
year
ended
June
30,
2015,
THS
ceased
operations
and
the
VSA
management
team
supervised
both
the
continued
operations
of
VSA
and
the
wind-down
of
activities
at
THS.
VSA
provides
out-sourced
security
guards
staffing.
As
of
July
1,
2011,
the
cost
basis
of
Prospect’s
investment
in
THS
and
VSA,
including
debt
and
equity,
was
$18,219.
During
the
year
ended
June
30,
2012,
Prospect
made
follow-on
secured
debt
investments
of
$1,033
to
support
the
ongoing
operations
of
THS
and
VSA.
In
October
2011,
Prospect
sold
a
building
previously
acquired
from
ESA
for
$894.
In
January
2012,
Prospect
received
$2,250
of
litigation
settlement
proceeds
related
to
ESA.
The
proceeds
from
both
of
these
transactions
were
used
to
reduce
the
outstanding
loan
balances
due
from
THS
and
VSA
by
$3,144.
In
June
2012,
THS
and
VSA
repaid
$118
and
$42,
respectively,
of
loans
previously
outstanding.
In
May
2012,
in
connection
with
the
implementation
of
accounts
receivable
based
funding
programs
for
THS
and
VSA
with
a
third
party
provider,
Prospect
agreed
to
subordinate
its
first
priority
security
interest
in
all
of
the
accounts
receivable
and
other
assets
of
THS
and
VSA
to
the
third
party
provider
of
that
accounts
receivable
based
funding.
During
the
year
ended
June
30,
2013,
Prospect
determined
that
our
investment
in
THS
and
VSA
was
impaired
and
recorded
a
realized
loss
of
$12,117,
reducing
the
amortized
cost
to
$3,831.
During
the
year
ended
June
30,
2014,
Prospect
received
$5,825
of
legal
cost
reimbursement
related
to
the
ESA
litigation
settlement
which
had
been
expensed
in
prior
years.
The
proceeds
were
recognized
by
Prospect
as
other
income
during
the
year
ended
June
30,
2014.
During
the
year
ended
June
30,
2015,
Prospect
received
$685
related
to
the
ESA
litigation
settlement
which
was
recognized
as
realized
gain.
On
May
20,
2015,
Prospect
made
a
new
$100
secured
promissory
note
to
provide
liquidity
to
VSA.
As
of
June
30,
2014,
THS
and
VSA
were
joint
borrowers
on
the
secured
promissory
notes.
On
June
5,
2015,
Prospect
sold
its
equity
investment
in
VSA
and
realized
a
net
loss
of
$975
on
the
sale.
In
connection
with
the
sale,
VSA
was
released
as
a
borrower
on
the
secured
promissory
notes,
leaving
THS
as
the
sole
borrower.
During
the
year
ended
June
30,
2015,
THS
ceased
operations
and
Prospect
recorded
a
realized
loss
of
$2,956,
reducing
the
amortized
cost
to
zero.
Wolf Energy, LLC
Prospect
owns
100%
of
the
equity
of
Wolf
Energy
Holdings
Inc.
(“Wolf
Energy
Holdings”),
a
Consolidated
Holding
Company.
Wolf
Energy
Holdings
owns
100%
of
each
of
Appalachian
Energy
LLC
(f/k/a
Appalachian
Energy
Holdings,
LLC)
(“AEH”);
Coalbed,
LLC
(“Coalbed”);
and
Wolf
Energy,
LLC
(“Wolf
Energy”).
AEH
owns
100%
of
C&S
Operating,
LLC.
221
Wolf
Energy
Holdings
is
a
holding
company
formed
to
hold
100%
of
the
outstanding
membership
interests
of
each
of
AEH
and
Coalbed.
The
membership
interests
and
associated
operating
company
debt
of
AEH
and
Coalbed,
which
were
previously
owned
by
Manx
Energy,
Inc.
(“Manx”),
were
assigned
to
Wolf
Energy
Holdings
effective
June
30,
2012.
The
purpose
of
assignment
was
to
remove
those
activities
from
Manx
deemed
non-core
by
the
Manx
convertible
debt
investors
who
were
not
interested
in
funding
those
operations.
On
June
30,
2012,
AEH
and
Coalbed
loans
with
a
cost
basis
of
$7,991
were
assigned
by
Prospect
to
Wolf
Energy
Holdings
from
Manx.
In
addition,
effective
June
29,
2012,
C&J
Cladding
Holding
Company,
Inc.
(“C&J
Holdings”)
merged
with
and
into
Wolf
Energy
Holdings,
with
Wolf
Energy
Holdings
as
the
surviving
entity.
At
the
time
of
the
merger,
C&J
Holdings
held
the
remaining
undistributed
proceeds
in
cash
from
the
sale
of
its
membership
interests
in
C&J
Cladding,
LLC
(“C&J”)
(discussed
below).
The
merger
was
effectuated
in
connection
with
the
broader
simplification
of
Prospect’s
energy
investment
holdings.
On
June
1,
2012,
Prospect
sold
the
membership
interests
in
C&J
for
$5,500.
Proceeds
from
the
sale
were
used
to
pay
a
$3,000
distribution
to
Prospect
($580
reduction
in
cost
basis
and
$2,420
realized
gain
recognized
by
Prospect),
an
advisory
fee
of
$1,500
from
C&J
to
Prospect
(which
was
recognized
by
Prospect
as
other
income)
and
$978
was
retained
by
C&J
as
working
capital
to
pay
$22
of
legal
services
provided
by
attorneys
at
Prospect
Administration
and
third-party
expenses.
On
February
27,
2013,
Prospect
made
a
$50
senior
secured
debt
investment
senior
secured
to
East
Cumberland,
L.L.C.,
a
former
wholly-owned
subsidiary
of
AEH
with
AEH
as
guarantor.
Proceeds
were
used
to
pay
off
vendors.
On
April
15,
2013,
Prospect
foreclosed
on
the
assets
of
H&M
Oil
&
Gas,
LLC
(“H&M”).
At
the
time
of
foreclosure,
H&M
was
in
default
on
loans
receivables
due
to
Prospect
with
a
cost
basis
of
$64,449.
The
assets
previously
held
by
H&M
were
assigned
by
Prospect
to
Wolf
Energy
in
exchange
for
a
$66,000
term
loan
secured
by
the
assets.
The
cost
basis
in
this
loan
of
$44,632
was
determined
in
accordance
with
ASC
310-40,
Troubled Debt Restructurings by Creditors ,
and
was
equal
to
the
fair
value
of
assets
at
the
time
of
transfer
resulting
in
a
capital
loss
of
$19,647
in
connection
with
the
foreclosure
on
the
assets.
On
May
17,
2013,
Wolf
Energy
sold
the
assets
located
in
Martin
County,
which
were
previously
held
by
H&M,
for
$66,000.
Proceeds
from
the
sale
were
primarily
used
to
repay
the
loan,
accrued
interest
and
net
profits
interest
receivable
due
to
us
resulting
in
a
realized
capital
gain
of
$11,826
offsetting
the
previously
recognized
loss.
Prospect
received
$3,960
of
structuring
and
advisory
fees
from
Wolf
Energy
during
the
year
ended
June
30,
2013
related
to
the
sale
and
$991
under
the
net
profits
interest
agreement
which
was
recognized
as
other
income
during
the
fiscal
year
ended
June
30,
2013.
On
July
1,
2014,
Prospect
began
consolidating
Wolf
Energy
Holdings.
As
a
result,
any
transactions
between
Wolf
Energy
Holdings
and
Prospect
are
eliminated
in
consolidation
and
as
such,
transactions
after
July
1,
2014
are
denoted
below
as
“N/A”.
During
the
three
months
ended
September
30,
2014,
Prospect
determined
that
our
investment
in
AEH
was
impaired
and
recorded
a
realized
loss
of
$2,050,
reducing
the
amortized
cost
to
zero.
On
November
21,
2014,
Coalbed
merged
with
and
into
Wolf
Energy,
with
Wolf
Energy
as
the
surviving
entity.
During
the
three
months
ended
December
31,
2014,
Prospect
determined
that
our
investment
in
the
Coalbed
debt
assumed
by
Wolf
Energy
was
impaired
and
recorded
a
realized
loss
of
$5,991,
reducing
the
amortized
cost
to
zero.
During
the
year
ended
June
30,
2015,
Wolf
Energy
Holdings
received
a
tax
refund
of
$173
related
to
its
investment
in
C&J
and
Prospect
realized
a
gain
of
the
same
amount.
The
following
managerial
assistance
payments
were
paid
from
Wolf
Energy
to
Prospect
and
subsequently
remitted
to
Prospect
Administration
(no
income
was
recognized
by
Prospect):
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
—
—
124
The
following
managerial
assistance
recognized
had
not
yet
been
paid
by
Wolf
Energy
to
Prospect
and
was
included
by
Prospect
within
other
receivables
and
due
to
Prospect
Administration:
June
30,
2015
June
30,
2016
$
—
14
222
The
following
payments
were
paid
from
Wolf
Energy
Holdings
to
Prospect
Administration
as
reimbursement
for
legal,
tax
and
portfolio
level
accounting
services
provided
directly
to
Wolf
Energy
Holdings
(no
direct
income
was
recognized
by
Prospect,
but
Prospect
was
given
credit
for
these
payments
as
a
reduction
of
the
administrative
services
costs
payable
by
Prospect
to
Prospect
Administration):
Year
Ended
June
30,
2014
Year
Ended
June
30,
2015
Year
Ended
June
30,
2016
$
101
N/A
N/A
Note 15. Litigation
From
time
to
time,
we
may
become
involved
in
various
investigations,
claims
and
legal
proceedings
that
arise
in
the
ordinary
course
of
our
business.
These
matters
may
relate
to
intellectual
property,
employment,
tax,
regulation,
contract
or
other
matters.
The
resolution
of
such
matters
as
may
arise
will
be
subject
to
various
uncertainties
and,
even
if
such
claims
are
without
merit,
could
result
in
the
expenditure
of
significant
financial
and
managerial
resources.
We
are
not
aware
of
any
material
legal
proceedings
as
of
June
30,
2016
.
Our
Investment
Adviser
and
Administrator
have
been
named
as
defendants
in
a
lawsuit
filed
on
April
21,
2016
by
a
purported
shareholder
of
Prospect
in
the
United
States
District
Court
for
the
Southern
District
of
New
York
under
the
caption
Paskowitz
v.
Prospect
Capital
Management
and
Prospect
Administration.
The
complaint
alleges
that
the
defendants
received
purportedly
excessive
management
and
administrative
services
fees
from
us
in
violation
of
Section
36(b)
of
the
1940
Act.
The
plaintiff
seeks
to
recover
on
behalf
of
us
damages
in
an
amount
not
specified
in
the
complaint.
The
defendants
have
informed
us
that
they
believe
the
complaint
is
without
merit
and
intend
to
defend
themselves
vigorously
against
the
plaintiff’s
claims.
We
believe
that
the
lawsuit
is
not
likely
to
have
a
material
adverse
effect
on
Prospect.
On
June
30,
2016,
the
Investment
Adviser
and
the
Administrator
filed
a
motion
to
dismiss
the
complaint.
Note 16. Financial Highlights
The
following
is
a
schedule
of
financial
highlights
for
each
of
the
five
years
ended
in
the
period
ended
June
30,
2016
:
Per Share Data
Net
asset
value
at
beginning
of
year
Net
investment
income(1)
Net
realized
(losses)
gains
on
investments(1)
Net
change
in
unrealized
(depreciation)
appreciation
on
investments(1)
Net
realized
losses
on
extinguishment
of
debt(1)
Dividends
to
shareholders
Common
stock
transactions(2)
Net
asset
value
at
end
of
year
Per
share
market
value
at
end
of
year
Total
return
based
on
market
value(3)
Total
return
based
on
net
asset
value(3)
Shares
of
common
stock
outstanding
at
end
of
year
Weighted
average
shares
of
common
stock
outstanding
Ratios/Supplemental Data
Net
assets
at
end
of
year
Portfolio
turnover
rate
Annualized
ratio
of
operating
expenses
to
average
net
assets
Annualized
ratio
of
net
investment
income
to
average
net
assets
2016
2015
2014
2013
2012
Year Ended June 30,
$
$
$
$
$
$
10.31
1.04
(0.07)
(0.68)
—
(4)
(1.00)
0.02
9.62
7.82
21.84%
7.15%
10.56
1.03
(0.51)
0.47
(0.01)
(1.19)
(0.04)
10.31
7.37
$
$
$
(20.84%)
11.47%
10.72
1.19
(0.01)
(0.12)
—
(1.32)
0.10
10.56
$
$
10.83
1.57
(0.13)
(0.37)
—
(1.28)
0.10
10.72
$
$
$
10.63
10.88%
10.97%
$
10.80
6.24%
10.91%
10.36
1.63
0.32
(0.28)
—
(1.22)
0.02
10.83
11.39
27.21%
18.03%
357,107,231
359,090,759
342,626,637
247,836,965
139,633,870
356,134,297
353,648,522
300,283,941
207,069,971
114,394,554
$
3,435,917
$
3,703,049
$
3,618,182
$
2,656,494
$
1,511,974
15.98%
11.95%
10.54%
21.89%
15.21%
29.24%
11.66%
11.11%
11.50%
9.87%
11.18%
14.86%
29.06%
10.73%
14.92%
(1) Per
share
data
amount
is
based
on
the
weighted
average
number
of
common
shares
outstanding
for
the
year
presented
(except
for
dividends
to
shareholders
which
is
based
on
actual
rate
per
share).
223
(2) Common
stock
transactions
include
the
effect
of
our
issuance
of
common
stock
in
public
offerings
(net
of
underwriting
and
offering
costs),
shares
issued
in
connection
with
our
dividend
reinvestment
plan,
shares
issued
to
acquire
investments
and
shares
repurchased
below
net
asset
value
pursuant
to
our
Repurchase
Program.
(3) Total
return
based
on
market
value
is
based
on
the
change
in
market
price
per
share
between
the
opening
and
ending
market
prices
per
share
in
each
period
and
assumes
that
dividends
are
reinvested
in
accordance
with
our
dividend
reinvestment
plan.
Total
return
based
on
net
asset
value
is
based
upon
the
change
in
net
asset
value
per
share
between
the
opening
and
ending
net
asset
values
per
share
in
each
period
and
assumes
that
dividends
are
reinvested
in
accordance
with
our
dividend
reinvestment
plan.
(4) Amount
is
less
than
$0.01.
Note 17. Selected Quarterly Financial Data (Unaudited)
The
following
table
sets
forth
selected
financial
data
for
each
quarter
within
the
three
years
ending
June
30,
2016
.
Quarter Ended
September
30,
2013
December
31,
2013
March
31,
2014
June
30,
2014
September
30,
2014
December
31,
2014
March
31,
2015
June
30,
2015
September
30,
2015
December
31,
2015
March
31,
2016
June
30,
2016
Investment Income
Net Investment Income
Net Realized and Unrealized
Gains (Losses)
Total
161,034
178,090
190,327
182,840
Per Share(1)
0.62
0.62
0.60
0.54
Total
Per Share(1)
0.32
0.32
0.31
0.25
82,337
92,215
98,523
84,148
Total
Per Share(1)
(0.01)
(0.02)
(0.05)
(0.04)
(2,437)
(6,853)
(16,422)
(12,491)
202,021
198,883
191,350
198,830
200,251
209,191
189,493
193,038
0.59
0.56
0.53
0.55
0.56
0.59
0.53
0.54
94,463
91,325
87,441
89,518
91,242
100,893
87,626
91,367
0.28
0.26
0.24
0.25
0.26
0.28
0.25
0.26
(10,355)
(5,355)
(5,949)
5,251
(63,425)
(196,013)
(12,118)
3,790
(0.04)
(0.02)
(0.01)
0.01
(0.18)
(0.55)
(0.03)
0.01
Net Increase (Decrease) in
Net Assets from Operations
Per Share(1)
Total
79,900
85,362
82,101
71,657
84,108
85,970
81,492
94,769
27,817
(95,120)
75,508
95,157
0.31
0.30
0.26
0.21
0.24
0.24
0.23
0.26
0.08
(0.27)
0.21
0.27
(1) Per
share
amounts
are
calculated
using
the
weighted
average
number
of
common
shares
outstanding
for
the
period
presented.
As
such,
the
sum
of
the
quarterly
per
share
amounts
above
will
not
necessarily
equal
the
per
share
amounts
for
the
fiscal
year.
Note 18. Subsequent Events
On
July
1,
2016,
we
made
an
investment
of
$7,320
to
purchase
19.7%
of
the
subordinated
notes
in
Madison
Park
Funding
IX,
Ltd.
On
July
22,
2016,
we
made
a
$32,500
Senior
Secured
Term
Loan
A
and
a
$32,500
Senior
Secured
Term
Loan
B
debt
investment
in
Universal
Turbine
Parts,
LLC,
an
independent
supplier
of
aftermarket
turboprop
engines
and
parts.
On
August
9,
2016,
JHH
Holdings,
Inc.
repaid
the
$35,507
loan
receivable
to
us.
On
August
9,
2016,
we
made
an
investment
of
$29,634
to
purchase
71.9%
of
the
subordinated
notes
in
Carlyle
Global
Market
Strategies
CLO
2016-3,
Ltd.
in
a
co-
investment
transaction
with
Priority
Income
Fund,
Inc.,
a
closed-end
fund
managed
by
an
affiliate
of
Prospect
Capital
Management
L.P.
On
August
14,
2016,
we
announced
the
then
current
conversion
rate
on
the
2018
Notes
as
84.1497
shares
of
common
stock
per
$1
principal
amount
of
the
2018
Notes
converted,
which
is
equivalent
to
a
conversion
price
of
approximately
$11.88.
On
August
15,
2016,
the
5.50%
unsecured
convertible
notes,
which
had
an
outstanding
principal
balance
of
$167,500,
matured
and
were
repaid
in
full
with
cash
on
hand,
primarily
from
the
Harbortouch
sale
proceeds.
On
August
22,
2016,
the
2014
Facility
was
amended
to
eliminate
some
of
the
restrictions
in
the
definition
of
an
eligible
loan
for
pledging
to
the
facility
and
increase
our
overall
borrowing
base.
During
the
period
from
July
1,
2016
through
August
29,
2016
,
we
made
seven
follow-on
investments
in
NPRC
totaling
$55,710
to
support
the
online
consumer
lending
initiative.
During
the
period
from
July
1,
2016
through
August
25,
2016
we
issued
$28,820
aggregate
principal
amount
of
Prospect
Capital
InterNotes®
for
net
proceeds
of
$28,464.
224
During
the
period
from
July
1,
2016
through
August
24,
2016,
we
issued
$37,901
in
aggregate
principal
amount
of
our
2024
Notes
for
net
proceeds
of
$37,106.
On
August
26,
2016,
we
announced
the
declaration
of
monthly
dividends
in
the
following
amounts
and
with
the
following
dates:
•
•
$0.08333
per
share
for
September
2016
to
holders
of
record
on
September
30,
2016
with
a
payment
date
of
October
20,
2016;
$0.08333
per
share
for
October
2016
to
holders
of
record
on
October
31,
2016
with
a
payment
date
of
November
17,
2016.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not
applicable.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As
of
June
30,
2016
,
we
evaluated
the
effectiveness
of
the
design
and
operation
of
our
disclosure
controls
and
procedures
(as
defined
in
Rule
13a-15(e)
of
the
1934
Act).
Based
on
that
evaluation,
our
management,
including
the
Chief
Executive
Officer
and
Chief
Financial
Officer,
concluded
that
our
disclosure
controls
and
procedures
were
effective
and
provided
reasonable
assurance
that
information
required
to
be
disclosed
in
our
periodic
SEC
filings
is
recorded,
processed,
summarized
and
reported
within
the
time
periods
specified
in
the
SEC’s
rules
and
forms,
and
that
such
information
is
accumulated
and
communicated
to
our
management,
including
our
Chief
Executive
Officer
and
Chief
Financial
Officer,
as
appropriate,
to
allow
timely
decisions
regarding
required
disclosure.
However,
in
evaluating
the
disclosure
controls
and
procedures,
management
recognized
that
any
controls
and
procedures,
no
matter
how
well
designed
and
operated
can
provide
only
reasonable
assurance
of
achieving
the
desired
control
objectives,
and
management
necessarily
was
required
to
apply
its
judgment
in
evaluating
the
cost-benefit
relationship
of
such
possible
controls
and
procedures.
Report of Management on Internal Control Over Financial Reporting
Management
is
responsible
for
establishing
and
maintaining
adequate
internal
control
over
financial
reporting,
and
for
performing
an
assessment
of
the
effectiveness
of
internal
control
over
financial
reporting
as
of
June
30,
2016
.
Internal
control
over
financial
reporting
is
a
process
designed
to
provide
reasonable
assurance
regarding
the
reliability
of
financial
reporting
and
the
preparation
of
financial
statements
for
external
purposes
in
accordance
with
generally
accepted
accounting
principles.
The
Company’s
internal
control
over
financial
reporting
includes
those
policies
and
procedures
that
(i)
pertain
to
assets
of
the
Company;
(ii)
provide
reasonable
assurance
that
transactions
are
recorded
as
necessary
to
permit
preparation
of
financial
statements
in
accordance
with
generally
accepted
accounting
principles,
and
that
receipts
and
expenditures
of
the
Company
are
being
made
only
in
accordance
with
authorizations
of
management
and
directors
of
the
Company;
and
(iii)
provide
reasonable
assurance
regarding
prevention
or
timely
detection
of
unauthorized
acquisition,
use,
or
disposition
of
the
Company’s
assets
that
could
have
a
material
effect
on
the
financial
statements.
Management
performed
an
assessment
of
the
effectiveness
of
the
Company’s
internal
control
over
financial
reporting
as
of
June
30,
2016
based
upon
criteria
in
Internal
Control—Integrated
Framework
(2013)
issued
by
the
Committee
of
Sponsoring
Organizations
of
the
Treadway
Commission
(“COSO”).
Based
on
our
assessment,
management
determined
that
the
Company’s
internal
control
over
financial
reporting
was
effective
as
of
June
30,
2016
based
on
the
criteria
on
Internal
Control—Integrated
Framework
(2013)
issued
by
COSO.
There
were
no
changes
in
our
internal
control
over
financial
reporting
during
the
quarter
ended
June
30,
2016
that
have
materially
affected,
or
are
reasonably
likely
to
affect,
our
internal
control
over
financial
reporting.
Our
management’s
assessment
of
the
effectiveness
of
our
internal
control
over
financial
reporting
as
of
June
30,
2016
has
been
audited
by
BDO
USA,
LLP,
an
independent
registered
public
accounting
firm,
as
stated
in
their
report
which
appears
herein.
225
Board
of
Directors
and
Shareholders
Prospect
Capital
Corporation
New
York,
New
York
Report of Independent Registered Public Accounting Firm
We
have
audited
Prospect
Capital
Corporation’s
internal
control
over
financial
reporting
as
of
June
30,
2016
,
based
on
criteria
established
in
Internal
Control—
Integrated
Framework
(2013)
issued
by
the
Committee
of
Sponsoring
Organizations
of
the
Treadway
Commission
(the
COSO
criteria).
Prospect
Capital
Corporation’s
management
is
responsible
for
maintaining
effective
internal
control
over
financial
reporting
and
for
its
assessment
of
the
effectiveness
of
internal
control
over
financial
reporting,
included
in
the
accompanying
“Item
9A,
Report
of
Management
on
Internal
Control
Over
Financial
Reporting.”
Our
responsibility
is
to
express
an
opinion
on
the
company's
internal
control
over
financial
reporting
based
on
our
audit.
We
conducted
our
audit
in
accordance
with
the
standards
of
the
Public
Company
Accounting
Oversight
Board
(United
States).
Those
standards
require
that
we
plan
and
perform
the
audit
to
obtain
reasonable
assurance
about
whether
effective
internal
control
over
financial
reporting
was
maintained
in
all
material
respects.
Our
audit
included
obtaining
an
understanding
of
internal
control
over
financial
reporting,
assessing
the
risk
that
a
material
weakness
exists,
and
testing
and
evaluating
the
design
and
operating
effectiveness
of
internal
control
based
on
the
assessed
risk.
Our
audit
also
included
performing
such
other
procedures
as
we
considered
necessary
in
the
circumstances.
We
believe
that
our
audit
provides
a
reasonable
basis
for
our
opinion.
A
company’s
internal
control
over
financial
reporting
is
a
process
designed
to
provide
reasonable
assurance
regarding
the
reliability
of
financial
reporting
and
the
preparation
of
financial
statements
for
external
purposes
in
accordance
with
generally
accepted
accounting
principles.
A
company’s
internal
control
over
financial
reporting
includes
those
policies
and
procedures
that
(1)
pertain
to
the
maintenance
of
records
that,
in
reasonable
detail,
accurately
and
fairly
reflect
the
transactions
and
dispositions
of
the
assets
of
the
company;
(2)
provide
reasonable
assurance
that
transactions
are
recorded
as
necessary
to
permit
preparation
of
financial
statements
in
accordance
with
generally
accepted
accounting
principles,
and
that
receipts
and
expenditures
of
the
company
are
being
made
only
in
accordance
with
authorizations
of
management
and
directors
of
the
company;
and
(3)
provide
reasonable
assurance
regarding
prevention
or
timely
detection
of
unauthorized
acquisition,
use,
or
disposition
of
the
company’s
assets
that
could
have
a
material
effect
on
the
financial
statements.
Because
of
its
inherent
limitations,
internal
control
over
financial
reporting
may
not
prevent
or
detect
misstatements.
Also,
projections
of
any
evaluation
of
effectiveness
to
future
periods
are
subject
to
the
risk
that
controls
may
become
inadequate
because
of
changes
in
conditions,
or
that
the
degree
of
compliance
with
the
policies
or
procedures
may
deteriorate.
In
our
opinion,
Prospect
Capital
Corporation
maintained,
in
all
material
respects,
effective
internal
control
over
financial
reporting
as
of
June
30,
2016
,
based
on
the
COSO
criteria.
We
also
have
audited,
in
accordance
with
the
standards
of
the
Public
Company
Accounting
Oversight
Board
(United
States),
the
Consolidated
Statements
of
Assets
and
Liabilities
of
Prospect
Capital
Corporation,
including
the
consolidated
schedules
of
investments,
as
of
June
30,
2016
and
2015,
and
the
related
Consolidated
Statements
of
Operations,
Changes
in
Net
Assets,
and
Cash
Flows
for
each
of
the
three
years
in
the
period
ended
June
30,
2016
,
and
the
financial
highlights
for
each
of
the
five
years
in
the
period
ended
June
30,
2016
,
and
our
report
dated
August
29,
2016
expressed
an
unqualified
opinion
thereon.
/s/
BDO
USA,
LLP
BDO
USA,
LLP
New
York,
New
York
August
29,
2016
226
Item 9B. Other Information
Not
applicable.
Item 10. Directors, Executive Officers and Corporate Governance
Section 16(a) Beneficial Ownership Reporting Compliance
PART III
Section
16(a)
of
the
Securities
Exchange
Act
of
1934,
as
amended,
requires
the
Company’s
directors
and
executive
officers,
and
persons
who
own
more
than
10%
of
the
Company’s
common
stock
to
file
reports
of
ownership
and
changes
in
ownership
with
the
Securities
and
Exchange
Commission.
To
the
Company’s
knowledge,
during
the
fiscal
year
ended
June
30,
2016
,
the
Company’s
officers,
directors
and
greater
than
10%
stockholders
had
complied
with
all
Section
16(a)
filing
requirements,
except
that
one
Form
4
was
filed
three
days
late
on
behalf
of
John
F.
Barry
III,
Chief
Executive
Officer,
for
the
purchase
of
shares
of
common
stock
due
to
an
administrative
error.
The
information
required
by
Item
10
is
hereby
incorporated
by
reference
from
our
2016
Proxy
Statement.
Code of Ethics
We,
Prospect
Capital
Management
and
Prospect
Administration
have
each
adopted
a
code
of
ethics
pursuant
to
Rule
17j-1
under
the
1940
Act
that
establishes
procedures
for
personal
investments
and
restricts
certain
personal
securities
transactions.
Personnel
subject
to
each
code
may
invest
in
securities
for
their
personal
investment
accounts,
including
securities
that
may
be
purchased
or
held
by
us,
so
long
as
such
investments
are
made
in
accordance
with
the
code’s
requirements.
For
information
on
how
to
obtain
a
copy
of
each
code
of
ethics,
see
“Available
Information”
in
Part
I
of
this
Annual
Report.
Item 11. Executive Compensation
The
information
required
by
Item
11
is
hereby
incorporated
by
reference
from
our
2016
Proxy
Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The
information
required
by
Item
12
is
hereby
incorporated
by
reference
from
our
2016
Proxy
Statement.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The
information
required
by
Item
13
is
hereby
incorporated
by
reference
from
our
2016
Proxy
Statement.
Item 14. Principal Accountant Fees and Services
The
information
required
by
Item
14
is
hereby
incorporated
by
reference
from
our
2016
Proxy
Statement.
227
Item 15. Exhibits and Financial Statement Schedules
The
following
documents
are
filed
as
part
of
this
Annual
Report:
1. Financial
Statements
–
See
the
Index
to
Consolidated
Financial
Statements
in
Item
8
of
this
report.
PART IV
2. Financial
Statement
Schedules
–
The
financial
statements
of
Harbortouch
Payments,
LLC
required
by
Rule
3-09
of
Regulation
S-X
will
be
provided
as
Exhibit
99.1
to
this
report.
The
financial
statements
of
National
Property
REIT
Corp.,
NPH
McDowell,
LLC
and
Michigan
Storage,
LCC
required
by
Rule
3-09
of
Regulation
S-X
will
be
provided
as
Exhibit
99.2,
Exhibit
99.3
and
Exhibit
99.4,
respectively,
to
this
report.
3. Exhibits
–
The
following
exhibits
are
filed
as
part
of
this
report
or
hereby
incorporated
by
reference
to
exhibits
previously
filed
with
the
SEC
(according
to
the
number
assigned
to
them
in
Item
601
of
Regulation
S-K):
Exhibit No.
3.1
Articles
of
Amendment
and
Restatement(1)
3.2
Amended
and
Restated
Bylaws(3)
4.1
Form
of
Share
Certificate(2)
4.2
Form
of
Indenture(9)
4.3
Indenture
dated
as
of
December
21,
2010
relating
to
the
6.25%
Senior
Convertible
Notes,
by
and
between
the
Registrant
and
American
Stock
Transfer
&
Trust
Company,
LLC,
as
Trustee
and
Form
of
6.25%
Senior
Convertible
Note
due
2015(7)
4.4
Indenture
dated
as
of
February
18,
2011
relating
to
the
5.50%
Senior
Convertible
Notes,
by
and
between
the
Registrant
and
American
Stock
Transfer
&
Trust
Company,
LLC,
as
Trustee(8)
4.5
Form
of
5.50%
Senior
Convertible
Note
due
2016(6)
4.6
Indenture
dated
as
of
February
16,
2012,
by
and
between
the
Registrant
and
American
Stock
Transfer
&
Trust
Company,
LLC,
as
Trustee(10)
4.7
First
Supplemental
Indenture
dated
as
of
March
1,
2012,
to
the
Indenture
dated
as
of
February
16,
2012,
by
and
between
the
Registrant
and
American
Stock
Transfer
&
Trust
Company,
LLC,
as
Trustee
and
Form
of
7.00%
Prospect
Capital
InterNote®
due
2022(10)
4.8
Second
Supplemental
Indenture
dated
as
of
March
8,
2012,
to
the
Indenture
dated
as
of
February
16,
2012,
by
and
between
the
Registrant
and
American
Stock
Transfer
&
Trust
Company,
LLC,
as
Trustee(11)
4.9
Joinder
Supplemental
Indenture
dated
as
of
March
8,
2012,
to
the
Indenture
dated
as
of
February
16,
2012,
by
and
among
the
Registrant,
American
Stock
Transfer
&
Trust
Company,
LLC,
as
Original
Trustee,
and
U.S.
Bank
National
Association,
as
Series
Trustee
and
Form
of
6.900%
Prospect
Capital
InterNote®
due
2022(11)
4.10 Agreement
of
Resignation,
Appointment
and
Acceptance
dated
as
of
March
12,
2012,
by
and
among
the
Registrant,
American
Stock
Transfer
&
Trust
Company,
LLC,
as
Retiring
Trustee,
and
U.S.
Bank
National
Association,
as
Successor
Trustee
(the
“U.S.
Bank
Indenture”)(12)
4.11
Third
Supplemental
Indenture
dated
as
of
April
5,
2012,
to
the
U.S.
Bank
Indenture
and
Form
of
6.850%
Prospect
Capital
InterNote®
due
2022(14)
4.12
Fourth
Supplemental
Indenture
dated
as
of
April
12,
2012,
to
the
U.S.
Bank
Indenture
and
Form
of
6.700%
Prospect
Capital
InterNote®
due
2022(15)
4.13
Indenture
dated
as
of
April
16,
2012
relating
to
the
5.375%
Senior
Convertible
Notes,
by
and
between
the
Registrant
and
American
Stock
Transfer
&
Trust
Company,
as
Trustee(16)
4.14
Form
of
5.375%
Senior
Convertible
Note
due
2017(17)
4.15
Fifth
Supplemental
Indenture
dated
as
of
April
26,
2012,
to
the
U.S.
Bank
Indenture
and
Form
of
6.500%
Prospect
Capital
InterNote®
due
2022(18)
4.16
Indenture
dated
as
of
August
14,
2012
relating
to
the
5.75%
Senior
Convertible
Notes,
by
and
between
the
Registrant
and
American
Stock
Transfer
&
Trust
Company,
as
Trustee(19)
4.17
Form
of
5.75%
Senior
Convertible
Note
due
2018(20)
4.18 Nineteenth
Supplemental
Indenture
dated
as
of
September
27,
2012,
to
the
U.S.
Bank
Indenture
and
Form
of
5.850%
Prospect
Capital
InterNote®
due
2019(21)
4.19
Twentieth
Supplemental
Indenture
dated
as
of
October
4,
2012,
to
the
U.S.
Bank
Indenture
and
Form
of
5.700%
Prospect
Capital
InterNote®
due
2019(22)
228
Exhibit No.
4.20
Twenty-First
Supplemental
Indenture
dated
as
of
November
23,
2012,
to
the
U.S.
Bank
Indenture
and
Form
of
5.125%
Prospect
Capital
InterNote®
due
2019(23)
4.21
Twenty-Second
Supplemental
Indenture
dated
as
of
November
23,
2012,
to
the
U.S.
Bank
Indenture
and
Form
of
6.625%
Prospect
Capital
InterNote®
due
2042(23)
4.22
Twenty-Third
Supplemental
Indenture
dated
as
of
November
29,
2012,
to
the
U.S.
Bank
Indenture
and
Form
of
5.000%
Prospect
Capital
InterNote®
due
2019(24)
4.23
Twenty-Fourth
Supplemental
Indenture
dated
as
of
November
29,
2012,
to
the
U.S.
Bank
Indenture
and
Form
of
5.750%
Prospect
Capital
InterNote®
due
2032(24)
4.24
Twenty-Fifth
Supplemental
Indenture
dated
as
of
November
29,
2012,
to
the
U.S.
Bank
Indenture
and
Form
of
6.500%
Prospect
Capital
InterNote®
due
2042(24)
4.25
Twenty-Sixth
Supplemental
Indenture
dated
as
of
December
6,
2012,
to
the
U.S.
Bank
Indenture
and
Form
of
4.875%
Prospect
Capital
InterNote®
due
2019(25)
4.26
Twenty-Eighth
Supplemental
Indenture
dated
as
of
December
6,
2012,
to
the
U.S.
Bank
Indenture
and
Form
of
6.375%
Prospect
Capital
InterNote®
due
2042(25)
4.27
Twenty-Ninth
Supplemental
Indenture
dated
as
of
December
13,
2012,
to
the
U.S.
Bank
Indenture
and
Form
of
4.750%
Prospect
Capital
InterNote®
due
2019(26)
4.28
Thirty-First
Supplemental
Indenture
dated
as
of
December
13,
2012,
to
the
U.S.
Bank
Indenture
and
Form
of
6.250%
Prospect
Capital
InterNote®
due
2042(26)
4.29
Thirty-Second
Supplemental
Indenture
dated
as
of
December
20,
2012,
to
the
U.S.
Bank
Indenture
and
Form
of
4.625%
Prospect
Capital
InterNote®
due
2019(27)
4.30
Thirty-Fourth
Supplemental
Indenture
dated
as
of
December
20,
2012,
to
the
U.S.
Bank
Indenture
and
Form
of
6.125%
Prospect
Capital
InterNote®
due
2042(27)
4.31
Indenture
dated
as
of
December
21,
2012,
by
and
between
the
Registrant
and
American
Stock
Transfer
&
Trust
Company,
as
Trustee
and
Form
of
Global
Note
5.875%
Convertible
Senior
Note
Due
2019(28)
4.32
Thirty-Fifth
Supplemental
Indenture
dated
as
of
December
28,
2012,
to
the
U.S.
Bank
Indenture
and
Form
of
4.500%
Prospect
Capital
InterNote®
due
2019(29)
4.33
Thirty-Sixth
Supplemental
Indenture
dated
as
of
December
28,
2012,
to
the
U.S.
Bank
Indenture
and
Form
of
5.000%
Prospect
Capital
InterNote®
due
2030(29)
4.34
Thirty-Seventh
Supplemental
Indenture
dated
as
of
December
28,
2012,
to
the
U.S.
Bank
Indenture
and
Form
of
6.000%
Prospect
Capital
InterNote®
due
2042(29)
4.35
Thirty-Eighth
Supplemental
Indenture
dated
as
of
January
4,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
4.375%
Prospect
Capital
InterNote®
due
2020(30)
4.36
Thirty-Ninth
Supplemental
Indenture
dated
as
of
January
4,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
4.875%
Prospect
Capital
InterNote®
due
2031(30)
4.37
Fortieth
Supplemental
Indenture
dated
as
of
January
4,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
5.875%
Prospect
Capital
InterNote®
due
2043(30)
4.38
Forty-First
Supplemental
Indenture
dated
as
of
January
10,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
4.250%
Prospect
Capital
InterNote®
due
2020(31)
4.39
Forty-Second
Supplemental
Indenture
dated
as
of
January
10,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
4.750%
Prospect
Capital
InterNote®
due
2031(31)
4.40
Forty-Third
Supplemental
Indenture
dated
as
of
January
10,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
5.750%
Prospect
Capital
InterNote®
due
2043(31)
4.41
Forty-Fourth
Supplemental
Indenture
dated
as
of
January
17,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
4.125%
Prospect
Capital
InterNote®
due
2020(32)
4.42
Forty-Fifth
Supplemental
Indenture
dated
as
of
January
17,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
4.625%
Prospect
Capital
InterNote®
due
2031(32)
4.43
Forty-Sixth
Supplemental
Indenture
dated
as
of
January
17,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
5.625%
Prospect
Capital
InterNote®
due
2043(32)
4.44
Forty-Seventh
Supplemental
Indenture
dated
as
of
January
25,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
4.000%
Prospect
Capital
InterNote®
due
2020(33)
4.45
Forty-Eighth
Supplemental
Indenture
dated
as
of
January
25,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
4.500%
Prospect
Capital
InterNote®
due
2031(33)
229
Exhibit No.
4.46
Forty-Ninth
Supplemental
Indenture
dated
as
of
January
25,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
5.500%
Prospect
Capital
InterNote®
due
2043(33)
4.47
Fiftieth
Supplemental
Indenture
dated
as
of
January
31,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
4.000%
Prospect
Capital
InterNote®
due
2020(34)
4.48
Fifty-First
Supplemental
Indenture
dated
as
of
January
31,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
4.500%
Prospect
Capital
InterNote®
due
2031(34)
4.49
Fifty-Second
Supplemental
Indenture
dated
as
of
January
31,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
5.500%
Prospect
Capital
InterNote®
due
2043(34)
4.50
Fifty-Third
Supplemental
Indenture
dated
as
of
February
7,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
4.000%
Prospect
Capital
InterNote®
due
2020(35)
4.51
Fifty-Fourth
Supplemental
Indenture
dated
as
of
February
7,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
4.500%
Prospect
Capital
InterNote®
due
2031(35)
4.52
Fifty-Fifth
Supplemental
Indenture
dated
as
of
February
7,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
5.500%
Prospect
Capital
InterNote®
due
2043(35)
4.53
Fifty-Sixth
Supplemental
Indenture
dated
as
of
February
22,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
4.000%
Prospect
Capital
InterNote®
due
2020(36)
4.54
Fifty-Seventh
Supplemental
Indenture
dated
as
of
February
22,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
4.500%
Prospect
Capital
InterNote®
due
2031(36)
4.55
Fifty-Eighth
Supplemental
Indenture
dated
as
of
February
22,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
5.500%
Prospect
Capital
InterNote®
due
2043(36)
4.56
Fifty-Ninth
Supplemental
Indenture
dated
as
of
February
28,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
4.000%
Prospect
Capital
InterNote®
due
2020(37)
4.57
Sixtieth
Supplemental
Indenture
dated
as
of
February
28,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
4.500%
Prospect
Capital
InterNote®
due
2031(37)
4.58
Sixty-First
Supplemental
Indenture
dated
as
of
February
28,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
5.500%
Prospect
Capital
InterNote®
due
2043(37)
4.59
Sixty-Second
Supplemental
Indenture
dated
as
of
March
7,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
4.000%
Prospect
Capital
InterNote®
due
2020(38)
4.60
Sixty-Third
Supplemental
Indenture
dated
as
of
March
7,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
4.500%
Prospect
Capital
InterNote®
due
2031(38)
4.61
Sixty-Fourth
Supplemental
Indenture
dated
as
of
March
7,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
5.500%
Prospect
Capital
InterNote®
due
2043(38)
4.62
Sixty-Fifth
Supplemental
Indenture
dated
as
of
March
14,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
4.000%
Prospect
Capital
InterNote®
due
2020(39)
4.63
Sixty-Sixth
Supplemental
Indenture
dated
as
of
March
14,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
4.125%
to
6.000%
Prospect
Capital
InterNote®
due
2031(39)
4.64
Sixty-Seventh
Supplemental
Indenture
dated
as
of
March
14,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
5.500%
Prospect
Capital
InterNote®
due
2043(39)
4.65
Sixty-Eighth
Supplemental
Indenture
dated
as
of
March
14,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
Floating
Prospect
Capital
InterNote®
due
2023(39)
4.66
Supplemental
Indenture
dated
as
of
March
15,
2013,
to
the
U.S.
Bank
Indenture(40)
4.67
Form
of
Global
Note
5.875%
Senior
Note
due
2023(41)
4.68
Sixty-Ninth
Supplemental
Indenture
dated
as
of
March
21,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
4.000%
Prospect
Capital
InterNote®
due
2020(42)
4.69
Seventieth
Supplemental
Indenture
dated
as
of
March
21,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
4.125%
to
6.000%
Prospect
Capital
InterNote®
due
2031(42)
4.70
Seventy-First
Supplemental
Indenture
dated
as
of
March
21,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
5.500%
Prospect
Capital
InterNote®
due
2043(42)
4.71
Seventy-Second
Supplemental
Indenture
dated
as
of
March
21,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
Floating
Prospect
Capital
InterNote®
due
2023(42)
4.72
Seventy-Third
Supplemental
Indenture
dated
as
of
March
28,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
4.000%
Prospect
Capital
InterNote®
due
2020(43)
230
Exhibit No.
4.73
Seventy-Fourth
Supplemental
Indenture
dated
as
of
March
28,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
4.125%
to
6.000%
Prospect
Capital
InterNote®
due
2031(43)
4.74
Seventy-Fifth
Supplemental
Indenture
dated
as
of
March
28,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
5.500%
Prospect
Capital
InterNote®
due
2043(43)
4.75
Seventy-Sixth
Supplemental
Indenture
dated
as
of
March
28,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
Floating
Prospect
Capital
InterNote®
due
2023(43)
4.76
Seventy-Seventh
Supplemental
Indenture
dated
as
of
April
4,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
4.500%
Prospect
Capital
InterNote®
due
2020(44)
4.77
Seventy-Eighth
Supplemental
Indenture
dated
as
of
April
4,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
4.625%
to
6.500%
Prospect
Capital
InterNote®
due
2031(44)
4.78
Seventy-Ninth
Supplemental
Indenture
dated
as
of
April
4,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
6.000%
Prospect
Capital
InterNote®
due
2043(44)
4.79
Eightieth
Supplemental
Indenture
dated
as
of
April
4,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
Floating
Prospect
Capital
InterNote®
due
2023(44)
4.80
Eighty-First
Supplemental
Indenture
dated
as
of
April
11,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
4.500%
Prospect
Capital
InterNote®
due
2020(45)
4.81
Eighty-Second
Supplemental
Indenture
dated
as
of
April
11,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
5.500%
Prospect
Capital
InterNote®
due
2031(45)
4.82
Eighty-Third
Supplemental
Indenture
dated
as
of
April
11,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
6.000%
Prospect
Capital
InterNote®
due
2043(45)
4.83
Eighty-Fourth
Supplemental
Indenture
dated
as
of
April
11,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
Floating
Prospect
Capital
InterNote®
due
2023(45)
4.84
Eighty-Fifth
Supplemental
Indenture
dated
as
of
April
18,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
5.000%
Prospect
Capital
InterNote®
due
2020(46)
4.85
Eighty-Sixth
Supplemental
Indenture
dated
as
of
April
18,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
5.500%
Prospect
Capital
InterNote®
due
2031(46)
4.86
Eighty-Seventh
Supplemental
Indenture
dated
as
of
April
18,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
6.000%
Prospect
Capital
InterNote®
due
2043(46)
4.87
Eighty-Eighth
Supplemental
Indenture
dated
as
of
April
25,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
5.000%
Prospect
Capital
InterNote®
due
2020(47)
4.88
Eighty-Ninth
Supplemental
Indenture
dated
as
of
April
25,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
5.500%
Prospect
Capital
InterNote®
due
2031(47)
4.89 Ninetieth
Supplemental
Indenture
dated
as
of
April
25,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
6.000%
Prospect
Capital
InterNote®
due
2043(47)
4.90 Ninety-First
Supplemental
Indenture
dated
as
of
May
2,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
5.000%
Prospect
Capital
InterNote®
due
2020(48)
4.91 Ninety-Second
Supplemental
Indenture
dated
as
of
May
2,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
5.750%
Prospect
Capital
InterNote®
due
2031(48)
4.92 Ninety-Third
Supplemental
Indenture
dated
as
of
May
2,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
6.250%
Prospect
Capital
InterNote®
due
2043(48)
4.93 Ninety-Fourth
Supplemental
Indenture
dated
as
of
May
9,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
5.000%
Prospect
Capital
InterNote®
due
2020(49)
4.94 Ninety-Fifth
Supplemental
Indenture
dated
as
of
May
9,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
5.750%
Prospect
Capital
InterNote®
due
2031(49)
4.95 Ninety-Sixth
Supplemental
Indenture
dated
as
of
May
9,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
6.250%
Prospect
Capital
InterNote®
due
2043(49)
4.96 Ninety-Seventh
Supplemental
Indenture
dated
as
of
May
23,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
5.000%
Prospect
Capital
InterNote®
due
2020(50)
4.97 Ninety-Eighth
Supplemental
Indenture
dated
as
of
May
23,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
5.750%
Prospect
Capital
InterNote®
due
2031(50)
4.98 Ninety-Ninth
Supplemental
Indenture
dated
as
of
May
23,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
6.250%
Prospect
Capital
InterNote®
due
2043(50)
231
Exhibit No.
4.99 One
Hundredth
Supplemental
Indenture
dated
as
of
May
23,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
5.000%
to
7.000%
Prospect
Capital
InterNote®
due
2028(50)
4.100 One
Hundred-First
Supplemental
Indenture
dated
as
of
May
31,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
5.000%
Prospect
Capital
InterNote®
due
2020(51)
4.101 One
Hundred-Second
Supplemental
Indenture
dated
as
of
May
31,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
5.750%
Prospect
Capital
InterNote®
due
2031(51)
4.102 One
Hundred-Third
Supplemental
Indenture
dated
as
of
May
31,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
6.250%
Prospect
Capital
InterNote®
due
2043(51)
4.103 One
Hundred-Fourth
Supplemental
Indenture
dated
as
of
June
6,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
5.000%
Prospect
Capital
InterNote®
due
2020(52)
4.104 One
Hundred-Fifth
Supplemental
Indenture
dated
as
of
June
6,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
5.750%
Prospect
Capital
InterNote®
due
2031(52)
4.105 One
Hundred-Sixth
Supplemental
Indenture
dated
as
of
June
6,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
6.250%
Prospect
Capital
InterNote®
due
2043(52)
4.106 One
Hundred-Seventh
Supplemental
Indenture
dated
as
of
June
6,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
5.000%
to
7.000%
Prospect
Capital
InterNote®
due
2028(52)
4.107 One
Hundred-Eighth
Supplemental
Indenture
dated
as
of
June
13,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
5.000%
Prospect
Capital
InterNote®
due
2020(53)
4.108 One
Hundred-Ninth
Supplemental
Indenture
dated
as
of
June
13,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
5.750%
Prospect
Capital
InterNote®
due
2031(53)
4.109 One
Hundred-Tenth
Supplemental
Indenture
dated
as
of
June
13,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
6.250%
Prospect
Capital
InterNote®
due
2043(53)
4.110 One
Hundred-Eleventh
Supplemental
Indenture
dated
as
of
June
20,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
5.000%
Prospect
Capital
InterNote®
due
2020(54)
4.111 One
Hundred-Twelfth
Supplemental
Indenture
dated
as
of
June
20,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
5.750%
Prospect
Capital
InterNote®
due
2031(54)
4.112 One
Hundred-Thirteenth
Supplemental
Indenture
dated
as
of
June
20,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
6.250%
Prospect
Capital
InterNote®
due
2043(54)
4.113 One
Hundred-Fifteenth
Supplemental
Indenture
dated
as
of
June
27,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
6.000%
Prospect
Capital
InterNote®
due
2031(55)
4.114 One
Hundred-Sixteenth
Supplemental
Indenture
dated
as
of
June
27,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
6.500%
Prospect
Capital
InterNote®
due
2043(55)
4.115 One
Hundred-Seventeenth
Supplemental
Indenture
dated
as
of
July
5,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
4.750%
Prospect
Capital
InterNote®
due
2020(56)
4.116 One
Hundred-Eighteenth
Supplemental
Indenture
dated
as
of
July
5,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
5.500%
Prospect
Capital
InterNote®
due
2031(56)
4.117 One
Hundred-Nineteenth
Supplemental
Indenture
dated
as
of
July
5,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
6.250%
Prospect
Capital
InterNote®
due
2043(56)
4.118 One
Hundred-Twentieth
Supplemental
Indenture
dated
as
of
July
5,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
6.750%
Prospect
Capital
InterNote®
due
2043(56)
4.119 One
Hundred
Twenty-First
Supplemental
Indenture
dated
as
of
July
11,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
4.750%
Prospect
Capital
InterNote®
due
2020(57)
4.120 One
Hundred
Twenty-Second
Supplemental
Indenture
dated
as
of
July
11,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
5.500%
Prospect
Capital
InterNote®
due
2031(57)
4.121 One
Hundred
Twenty-Third
Supplemental
Indenture
dated
as
of
July
11,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
6.250%
Prospect
Capital
InterNote®
due
2043(57)
4.122 One
Hundred
Twenty-Fourth
Supplemental
Indenture
dated
as
of
July
11,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
6.750%
Prospect
Capital
InterNote®
due
2043(57)
4.123 One
Hundred
Twenty-Fifth
Supplemental
Indenture
dated
as
of
July
18,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
5.000%
Prospect
Capital
InterNote®
due
2020(58)
4.124 One
Hundred
Twenty-Sixth
Supplemental
Indenture
dated
as
of
July
18,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
5.750%
Prospect
Capital
InterNote®
due
2031(58)
232
Exhibit No.
4.125 One
Hundred
Twenty-Seventh
Supplemental
Indenture
dated
as
of
July
18,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
6.250%
Prospect
Capital
InterNote®
due
2043(58)
4.126 One
Hundred
Twenty-Eighth
Supplemental
Indenture
dated
as
of
July
18,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
6.750%
Prospect
Capital
InterNote®
due
2043(58)
4.127 One
Hundred
Twenty-Ninth
Supplemental
Indenture
dated
as
of
July
25,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
5.000%
Prospect
Capital
InterNote®
due
2020(59)
4.128 One
Hundred
Thirtieth
Supplemental
Indenture
dated
as
of
July
25,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
5.750%
Prospect
Capital
InterNote®
due
2031(59)
4.129 One
Hundred
Thirty-First
Supplemental
Indenture
dated
as
of
July
25,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
6.250%
Prospect
Capital
InterNote®
due
2043(59)
4.130 One
Hundred
Thirty-Second
Supplemental
Indenture
dated
as
of
July
25,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
6.750%
Prospect
Capital
InterNote®
due
2043(59)
4.131 One
Hundred
Thirty-Third
Supplemental
Indenture
dated
as
of
August
1,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
5.000%
Prospect
Capital
InterNote®
due
2019(60)
4.132 One
Hundred
Thirty-Fourth
Supplemental
Indenture
dated
as
of
August
1,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
5.750%
Prospect
Capital
InterNote®
due
2021(60)
4.133 One
Hundred
Thirty-Fifth
Supplemental
Indenture
dated
as
of
August
1,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
6.125%
Prospect
Capital
InterNote®
due
2031(60)
4.134 One
Hundred
Thirty-Sixth
Supplemental
Indenture
dated
as
of
August
1,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
6.625%
Prospect
Capital
InterNote®
due
2043(60)
4.135 One
Hundred
Thirty-Seventh
Supplemental
Indenture
dated
as
of
August
8,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
5.000%
Prospect
Capital
InterNote®
due
2018(61)
4.136 One
Hundred
Thirty-Eighth
Supplemental
Indenture
dated
as
of
August
8,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
5.500%
Prospect
Capital
InterNote®
due
2020(61)
4.137 One
Hundred
Thirty-Ninth
Supplemental
Indenture
dated
as
of
August
8,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
6.000%
Prospect
Capital
InterNote®
due
2031(61)
4.138 One
Hundred
Fortieth
Supplemental
Indenture
dated
as
of
August
8,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
6.500%
Prospect
Capital
InterNote®
due
2043(61)
4.139 One
Hundred
Forty-First
Supplemental
Indenture
dated
as
of
August
15,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
5.000%
Prospect
Capital
InterNote®
due
2018(62)
4.140 One
Hundred
Forty-Second
Supplemental
Indenture
dated
as
of
August
15,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
5.500%
Prospect
Capital
InterNote®
due
2020(62)
4.141 One
Hundred
Forty-Third
Supplemental
Indenture
dated
as
of
August
15,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
6.000%
Prospect
Capital
InterNote®
due
2028(62)
4.142 One
Hundred
Forty-Fourth
Supplemental
Indenture
dated
as
of
August
15,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
6.500%
Prospect
Capital
InterNote®
due
2038(62)
4.143 One
Hundred
Forty-Fifth
Supplemental
Indenture
dated
as
of
August
22,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
5.000%
Prospect
Capital
InterNote®
due
2018(63)
4.144 One
Hundred
Forty-Sixth
Supplemental
Indenture
dated
as
of
August
22,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
5.500%
Prospect
Capital
InterNote®
due
2020(63)
4.145 One
Hundred
Forty-Seventh
Supplemental
Indenture
dated
as
of
August
22,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
6.000%
Prospect
Capital
InterNote®
due
2028(63)
4.146 One
Hundred
Forty-Eighth
Supplemental
Indenture
dated
as
of
August
22,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
6.500%
Prospect
Capital
InterNote®
due
2038(63)
4.147 One
Hundred
Forty-Ninth
Supplemental
Indenture
dated
as
of
September
6,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
5.000%
Prospect
Capital
InterNote®
due
2018(64)
4.148 One
Hundred
Fiftieth
Supplemental
Indenture
dated
as
of
September
6,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
5.500%
Prospect
Capital
InterNote®
due
2020(64)
4.149 One
Hundred
Fifty-First
Supplemental
Indenture
dated
as
of
September
6,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
6.000%
Prospect
Capital
InterNote®
due
2028(64)
4.150 One
Hundred
Fifty-Second
Supplemental
Indenture
dated
as
of
September
6,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
6.500%
Prospect
Capital
InterNote®
due
2038(64)
233
Exhibit No.
4.151 One
Hundred
Fifty-Third
Supplemental
Indenture
dated
as
of
September
12,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
5.000%
Prospect
Capital
InterNote®
due
2018(65)
4.152 One
Hundred
Fifty-Fourth
Supplemental
Indenture
dated
as
of
September
12,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
5.500%
Prospect
Capital
InterNote®
due
2020(65)
4.153 One
Hundred
Fifty-Fifth
Supplemental
Indenture
dated
as
of
September
12,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
6.000%
Prospect
Capital
InterNote®
due
2033(65)
4.154 One
Hundred
Fifty-Sixth
Supplemental
Indenture
dated
as
of
September
12,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
6.500%
Prospect
Capital
InterNote®
due
2043(65)
4.155 One
Hundred
Fifty-Seventh
Supplemental
Indenture
dated
as
of
September
19,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
5.000%
Prospect
Capital
InterNote®
due
2018(66)
4.156 One
Hundred
Fifty-Eighth
Supplemental
Indenture
dated
as
of
September
19,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
5.500%
Prospect
Capital
InterNote®
due
2020(66)
4.157 One
Hundred
Fifty-Ninth
Supplemental
Indenture
dated
as
of
September
19,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
6.000%
Prospect
Capital
InterNote®
due
2033(66)
4.158 One
Hundred
Sixtieth
Supplemental
Indenture
dated
as
of
September
19,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
6.500%
Prospect
Capital
InterNote®
due
2043(66)
4.159 One
Hundred
Sixty-First
Supplemental
Indenture
dated
as
of
September
26,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
5.000%
Prospect
Capital
InterNote®
due
2018(67)
4.160 One
Hundred
Sixty-Second
Supplemental
Indenture
dated
as
of
September
26,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
5.500%
Prospect
Capital
InterNote®
due
2020(67)
4.161 One
Hundred
Sixty-Third
Supplemental
Indenture
dated
as
of
September
26,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
6.000%
Prospect
Capital
InterNote®
due
2033(67)
4.162 One
Hundred
Sixty-Fourth
Supplemental
Indenture
dated
as
of
September
26,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
6.500%
Prospect
Capital
InterNote®
due
2043(67)
4.163 One
Hundred
Sixty-Fifth
Supplemental
Indenture
dated
as
of
October
3,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
5.000%
Prospect
Capital
InterNote®
due
2018(68)
4.164 One
Hundred
Sixty-Sixth
Supplemental
Indenture
dated
as
of
October
3,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
5.500%
Prospect
Capital
InterNote®
due
2020(68)
4.165 One
Hundred
Sixty-Seventh
Supplemental
Indenture
dated
as
of
October
3,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
6.000%
Prospect
Capital
InterNote®
due
2033(68)
4.166 One
Hundred
Sixty-Eighth
Supplemental
Indenture
dated
as
of
October
3,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
6.500%
Prospect
Capital
InterNote®
due
2043(68)
4.167 One
Hundred
Sixty-Ninth
Supplemental
Indenture
dated
as
of
October
10,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
5.000%
Prospect
Capital
InterNote®
due
2018(69)
4.168 One
Hundred
Seventieth
Supplemental
Indenture
dated
as
of
October
10,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
5.500%
Prospect
Capital
InterNote®
due
2020(69)
4.169 One
Hundred
Seventy-First
Supplemental
Indenture
dated
as
of
October
10,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
6.000%
Prospect
Capital
InterNote®
due
2033(69)
4.170 One
Hundred
Seventy-Second
Supplemental
Indenture
dated
as
of
October
10,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
6.500%
Prospect
Capital
InterNote®
due
2043(69)
4.171 One
Hundred
Seventy-Third
Supplemental
Indenture
dated
as
of
October
18,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
5.000%
Prospect
Capital
InterNote®
due
2018(70)
4.172 One
Hundred
Seventy-Fourth
Supplemental
Indenture
dated
as
of
October
18,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
5.500%
Prospect
Capital
InterNote®
due
2020(70)
4.173 One
Hundred
Seventy-Fifth
Supplemental
Indenture
dated
as
of
October
18,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
6.000%
Prospect
Capital
InterNote®
due
2033(70)
4.174 One
Hundred
Seventy-Sixth
Supplemental
Indenture
dated
as
of
October
18,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
6.500%
Prospect
Capital
InterNote®
due
2043(70)
4.175 One
Hundred
Seventy-Seventh
Supplemental
Indenture
dated
as
of
October
24,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
4.000%
Prospect
Capital
InterNote®
due
2016(71)
4.176 One
Hundred
Seventy-Eighth
Supplemental
Indenture
dated
as
of
October
24,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
5.000%
Prospect
Capital
InterNote®
due
2018(71)
234
Exhibit No.
4.177 One
Hundred
Seventy-Ninth
Supplemental
Indenture
dated
as
of
October
24,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
5.500%
Prospect
Capital
InterNote®
due
2020(71)
4.178 One
Hundred
Eightieth
Supplemental
Indenture
dated
as
of
October
24,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
6.000%
Prospect
Capital
InterNote®
due
2033(71)
4.179 One
Hundred
Eighty-First
Supplemental
Indenture
dated
as
of
October
24,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
6.500%
Prospect
Capital
InterNote®
due
2043(71)
4.180 One
Hundred
Eighty-Second
Supplemental
Indenture
dated
as
of
October
31,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
4.000%
Prospect
Capital
InterNote®
due
2017(72)
4.181 One
Hundred
Eighty-Third
Supplemental
Indenture
dated
as
of
October
31,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
5.000%
Prospect
Capital
InterNote®
due
2018(72)
4.182 One
Hundred
Eighty-Fourth
Supplemental
Indenture
dated
as
of
October
31,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
5.500%
Prospect
Capital
InterNote®
due
2020(72)
4.183 One
Hundred
Eighty-Fifth
Supplemental
Indenture
dated
as
of
October
31,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
6.000%
Prospect
Capital
InterNote®
due
2028(72)
4.184 One
Hundred
Eighty-Sixth
Supplemental
Indenture
dated
as
of
October
31,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
6.500%
Prospect
Capital
InterNote®
due
2038(72)
4.185 One
Hundred
Eighty-Seventh
Supplemental
Indenture
dated
as
of
November
7,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
4.000%
Prospect
Capital
InterNote®
due
2017(73)
4.186 One
Hundred
Eighty-Eighth
Supplemental
Indenture
dated
as
of
November
7,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
5.000%
Prospect
Capital
InterNote®
due
2018(73)
4.187 One
Hundred
Eighty-Ninth
Supplemental
Indenture
dated
as
of
November
7,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
5.500%
Prospect
Capital
InterNote®
due
2020(73)
4.188 One
Hundred
Ninetieth
Supplemental
Indenture
dated
as
of
November
7,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
6.000%
Prospect
Capital
InterNote®
due
2028(73)
4.189 One
Hundred
Ninety-First
Supplemental
Indenture
dated
as
of
November
7,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
6.500%
Prospect
Capital
InterNote®
due
2038(73)
4.190 One
Hundred
Ninety-Second
Supplemental
Indenture
dated
as
of
November
15,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
4.000%
Prospect
Capital
InterNote®
due
2017(74)
4.191 One
Hundred
Ninety-Third
Supplemental
Indenture
dated
as
of
November
15,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
5.000%
Prospect
Capital
InterNote®
due
2018(74)
4.192 One
Hundred
Ninety-Fourth
Supplemental
Indenture
dated
as
of
November
15,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
5.500%
Prospect
Capital
InterNote®
due
2020(74)
4.193 One
Hundred
Ninety-Fifth
Supplemental
Indenture
dated
as
of
November
15,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
6.000%
Prospect
Capital
InterNote®
due
2028(74)
4.194 One
Hundred
Ninety-Sixth
Supplemental
Indenture
dated
as
of
November
15,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
6.500%
Prospect
Capital
InterNote®
due
2038(74)
4.195 One
Hundred
Ninety-Seventh
Supplemental
Indenture
dated
as
of
November
21,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
4.000%
Prospect
Capital
InterNote®
due
2017(75)
4.196 One
Hundred
Ninety-Eighth
Supplemental
Indenture
dated
as
of
November
21,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
5.000%
Prospect
Capital
InterNote®
due
2018(75)
4.197 One
Hundred
Ninety-Ninth
Supplemental
Indenture
dated
as
of
November
21,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
5.500%
Prospect
Capital
InterNote®
due
2020(75)
4.198 Two
Hundredth
Supplemental
Indenture
dated
as
of
November
21,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
6.000%
Prospect
Capital
InterNote®
due
2028(75)
4.199 Two
Hundred
First
Supplemental
Indenture
dated
as
of
November
21,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
6.500%
Prospect
Capital
InterNote®
due
2038(75)
4.200 Two
Hundred
Second
Supplemental
Indenture
dated
as
of
November
29,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
4.000%
Prospect
Capital
InterNote®
due
2017(76)
4.201 Two
Hundred
Third
Supplemental
Indenture
dated
as
of
November
29,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
5.000%
Prospect
Capital
InterNote®
due
2018(76)
4.202 Two
Hundred
Fourth
Supplemental
Indenture
dated
as
of
November
29,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
5.500%
Prospect
Capital
InterNote®
due
2020(76)
235
Exhibit No.
4.203 Two
Hundred
Fifth
Supplemental
Indenture
dated
as
of
November
29,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
6.000%
Prospect
Capital
InterNote®
due
2025(76)
4.204 Two
Hundred
Sixth
Supplemental
Indenture
dated
as
of
November
29,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
6.500%
Prospect
Capital
InterNote®
due
2038(76)
4.205 Two
Hundred
Seventh
Supplemental
Indenture
dated
as
of
December
5,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
4.000%
Prospect
Capital
InterNote®
due
2017(77)
4.206 Two
Hundred
Eighth
Supplemental
Indenture
dated
as
of
December
5,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
5.000%
Prospect
Capital
InterNote®
due
2018(77)
4.207 Two
Hundred
Tenth
Supplemental
Indenture
dated
as
of
December
5,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
6.000%
Prospect
Capital
InterNote®
due
2025(77)
4.208 Two
Hundred
Eleventh
Supplemental
Indenture
dated
as
of
December
5,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
6.500%
Prospect
Capital
InterNote®
due
2038(77)
4.209 Two
Hundred
Twelfth
Supplemental
Indenture
dated
as
of
December
12,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
4.000%
Prospect
Capital
InterNote®
due
2017(78)
4.210 Two
Hundred
Thirteenth
Supplemental
Indenture
dated
as
of
December
12,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
5.000%
Prospect
Capital
InterNote®
due
2018(78)
4.211 Two
Hundred
Fifteenth
Supplemental
Indenture
dated
as
of
December
12,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
6.000%
Prospect
Capital
InterNote®
due
2025(78)
4.212 Two
Hundred
Sixteenth
Supplemental
Indenture
dated
as
of
December
12,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
6.500%
Prospect
Capital
InterNote®
due
2038(78)
4.213 Two
Hundred
Seventeenth
Supplemental
Indenture
dated
as
of
December
19,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
4.000%
Prospect
Capital
InterNote®
due
2017(79)
4.214 Two
Hundred
Eighteenth
Supplemental
Indenture
dated
as
of
December
19,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
5.000%
Prospect
Capital
InterNote®
due
2018(79)
4.215 Two
Hundred
Twentieth
Supplemental
Indenture
dated
as
of
December
19,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
6.000%
Prospect
Capital
InterNote®
due
2025(79)
4.216 Two
Hundred
Twenty-First
Supplemental
Indenture
dated
as
of
December
19,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
6.500%
Prospect
Capital
InterNote®
due
2038(79)
4.217 Two
Hundred
Twenty-Second
Supplemental
Indenture
dated
as
of
December
27,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
4.000%
Prospect
Capital
InterNote®
due
2017(80)
4.218 Two
Hundred
Twenty-Third
Supplemental
Indenture
dated
as
of
December
27,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
5.000%
Prospect
Capital
InterNote®
due
2018(80)
4.219 Two
Hundred
Twenty-Fifth
Supplemental
Indenture
dated
as
of
December
27,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
6.000%
Prospect
Capital
InterNote®
due
2025(80)
4.220 Two
Hundred
Twenty-Sixth
Supplemental
Indenture
dated
as
of
December
27,
2013,
to
the
U.S.
Bank
Indenture
and
Form
of
6.500%
Prospect
Capital
InterNote®
due
2038(80)
4.221 Two
Hundred
Twenty-Seventh
Supplemental
Indenture
dated
as
of
January
3,
2014,
to
the
U.S.
Bank
Indenture
and
Form
of
4.000%
Prospect
Capital
InterNote®
due
2018(81)
4.222 Two
Hundred
Twenty-Eighth
Supplemental
Indenture
dated
as
of
January
3,
2014,
to
the
U.S.
Bank
Indenture
and
Form
of
5.000%
Prospect
Capital
InterNote®
due
2019(81)
4.223 Two
Hundred
Twenty-Ninth
Supplemental
Indenture
dated
as
of
January
3,
2014,
to
the
U.S.
Bank
Indenture
and
Form
of
5.500%
Prospect
Capital
InterNote®
due
2021(81)
4.224 Two
Hundred
Thirtieth
Supplemental
Indenture
dated
as
of
January
3,
2014,
to
the
U.S.
Bank
Indenture
and
Form
of
6.000%
Prospect
Capital
InterNote®
due
2026(81)
4.225 Two
Hundred
Thirty-First
Supplemental
Indenture
dated
as
of
January
3,
2014,
to
the
U.S.
Bank
Indenture
and
Form
of
6.500%
Prospect
Capital
InterNote®
due
2039(81)
4.226 Two
Hundred
Thirty-Second
Supplemental
Indenture
dated
as
of
January
9,
2014,
to
the
U.S.
Bank
Indenture
and
Form
of
4.000%
Prospect
Capital
InterNote®
due
2018(82)
4.227 Two
Hundred
Thirty-Third
Supplemental
Indenture
dated
as
of
January
9,
2014,
to
the
U.S.
Bank
Indenture
and
Form
of
5.000%
Prospect
Capital
InterNote®
due
2019(82)
4.228 Two
Hundred
Thirty-Fourth
Supplemental
Indenture
dated
as
of
January
9,
2014,
to
the
U.S.
Bank
Indenture
and
Form
of
5.500%
Prospect
Capital
InterNote®
due
2021(82)
236
Exhibit No.
4.229 Two
Hundred
Thirty-Fifth
Supplemental
Indenture
dated
as
of
January
9,
2014,
to
the
U.S.
Bank
Indenture
and
Form
of
6.000%
Prospect
Capital
InterNote®
due
2026(82)
4.230 Two
Hundred
Thirty-Sixth
Supplemental
Indenture
dated
as
of
January
9,
2014,
to
the
U.S.
Bank
Indenture
and
Form
of
6.500%
Prospect
Capital
InterNote®
due
2039(82)
4.231 Two
Hundred
Thirty-Seventh
Supplemental
Indenture
dated
as
of
January
16,
2014,
to
the
U.S.
Bank
Indenture
and
Form
of
4.000%
Prospect
Capital
InterNote®
due
2018(83)
4.232 Two
Hundred
Thirty-Eighth
Supplemental
Indenture
dated
as
of
January
16,
2014,
to
the
U.S.
Bank
Indenture
and
Form
of
5.000%
Prospect
Capital
InterNote®
due
2019(83)
4.233 Two
Hundred
Thirty-Ninth
Supplemental
Indenture
dated
as
of
January
16,
2014,
to
the
U.S.
Bank
Indenture
and
Form
of
5.500%
Prospect
Capital
InterNote®
due
2021(83)
4.234 Two
Hundred
Fortieth
Supplemental
Indenture
dated
as
of
January
16,
2014,
to
the
U.S.
Bank
Indenture
and
Form
of
6.000%
Prospect
Capital
InterNote®
due
2026(83)
4.235 Two
Hundred
Forty-First
Supplemental
Indenture
dated
as
of
January
16,
2014,
to
the
U.S.
Bank
Indenture
and
Form
of
6.500%
Prospect
Capital
InterNote®
due
2039(83)
4.236 Two
Hundred
Forty-Second
Supplemental
Indenture
dated
as
of
January
24,
2014,
to
the
U.S.
Bank
Indenture
and
Form
of
4.000%
Prospect
Capital
InterNote®
due
2018(84)
4.237 Two
Hundred
Forty-Third
Supplemental
Indenture
dated
as
of
January
24,
2014,
to
the
U.S.
Bank
Indenture
and
Form
of
5.000%
Prospect
Capital
InterNote®
due
2019(84)
4.238 Two
Hundred
Forty-Fourth
Supplemental
Indenture
dated
as
of
January
24,
2014,
to
the
U.S.
Bank
Indenture
and
Form
of
5.500%
Prospect
Capital
InterNote®
due
2021(84)
4.239 Two
Hundred
Forty-Fifth
Supplemental
Indenture
dated
as
of
January
24,
2014,
to
the
U.S.
Bank
Indenture
and
Form
of
6.000%
Prospect
Capital
InterNote®
due
2026(84)
4.240 Two
Hundred
Forty-Sixth
Supplemental
Indenture
dated
as
of
January
24,
2014,
to
the
U.S.
Bank
Indenture
and
Form
of
6.500%
Prospect
Capital
InterNote®
due
2039(84)
4.241 Two
Hundred
Forty-Seventh
Supplemental
Indenture
dated
as
of
January
30,
2014,
to
the
U.S.
Bank
Indenture
and
Form
of
4.000%
Prospect
Capital
InterNote®
due
2018(85)
4.242 Two
Hundred
Forty-Eighth
Supplemental
Indenture
dated
as
of
January
30,
2014,
to
the
U.S.
Bank
Indenture
and
Form
of
5.000%
Prospect
Capital
InterNote®
due
2019(85)
4.243 Two
Hundred
Forty-Ninth
Supplemental
Indenture
dated
as
of
January
30,
2014,
to
the
U.S.
Bank
Indenture
and
Form
of
5.500%
Prospect
Capital
InterNote®
due
2021(85)
4.244 Two
Hundred
Fiftieth
Supplemental
Indenture
dated
as
of
January
30,
2014,
to
the
U.S.
Bank
Indenture
and
Form
of
6.000%
Prospect
Capital
InterNote®
due
2026(85)
4.245 Two
Hundred
Fifty-First
Supplemental
Indenture
dated
as
of
January
30,
2014,
to
the
U.S.
Bank
Indenture
and
Form
of
6.500%
Prospect
Capital
InterNote®
due
2039(85)
4.246 Two
Hundred
Fifty-Second
Supplemental
Indenture
dated
as
of
February
6,
2014,
to
the
U.S.
Bank
Indenture
and
Form
of
4.000%
Prospect
Capital
InterNote®
due
2018(86)
4.247 Two
Hundred
Fifty-Third
Supplemental
Indenture
dated
as
of
February
6,
2014,
to
the
U.S.
Bank
Indenture
and
Form
of
5.000%
Prospect
Capital
InterNote®
due
2019(86)
4.248 Two
Hundred
Fifty-Fourth
Supplemental
Indenture
dated
as
of
February
6,
2014,
to
the
U.S.
Bank
Indenture
and
Form
of
5.500%
Prospect
Capital
InterNote®
due
2021(86)
4.249 Two
Hundred
Fifty-Fifth
Supplemental
Indenture
dated
as
of
February
6,
2014,
to
the
U.S.
Bank
Indenture
and
Form
of
6.000%
Prospect
Capital
InterNote®
due
2026(86)
4.250 Two
Hundred
Fifty-Sixth
Supplemental
Indenture
dated
as
of
February
6,
2014,
to
the
U.S.
Bank
Indenture
and
Form
of
6.500%
Prospect
Capital
InterNote®
due
2039(86)
4.251 Two
Hundred
Fifty-Seventh
Supplemental
Indenture
dated
as
of
February
13,
2014,
to
the
U.S.
Bank
Indenture
and
Form
of
4.000%
Prospect
Capital
InterNote®
due
2018(87)
4.252 Two
Hundred
Fifty-Eighth
Supplemental
Indenture
dated
as
of
February
13,
2014,
to
the
U.S.
Bank
Indenture
and
Form
of
5.000%
Prospect
Capital
InterNote®
due
2019(87)
4.253 Two
Hundred
Fifty-Ninth
Supplemental
Indenture
dated
as
of
February
13,
2014,
to
the
U.S.
Bank
Indenture
and
Form
of
5.500%
Prospect
Capital
InterNote®
due
2021(87)
4.254 Two
Hundred
Sixtieth
Supplemental
Indenture
dated
as
of
February
13,
2014,
to
the
U.S.
Bank
Indenture
and
Form
of
6.000%
Prospect
Capital
InterNote®
due
2026(87)
237
Exhibit No.
4.255 Two
Hundred
Sixty-First
Supplemental
Indenture
dated
as
of
February
13,
2014,
to
the
U.S.
Bank
Indenture
and
Form
of
6.500%
Prospect
Capital
InterNote®
due
2039(87)
4.256 Two
Hundred
Sixty-Seventh
Supplemental
Indenture
dated
as
of
February
19,
2014,
to
the
U.S.
Bank
Indenture
and
Form
of
4.75%
Prospect
Capital
InterNote®
due
2019(88)
4.257 Two
Hundred
Sixty-Second
Supplemental
Indenture
dated
as
of
February
21,
2014,
to
the
U.S.
Bank
Indenture
and
Form
of
4.000%
Prospect
Capital
InterNote®
due
2018(89)
4.258 Two
Hundred
Sixty-Third
Supplemental
Indenture
dated
as
of
February
21,
2014,
to
the
U.S.
Bank
Indenture
and
Form
of
5.000%
Prospect
Capital
InterNote®
due
2019(89)
4.259 Two
Hundred
Sixty-Fourth
Supplemental
Indenture
dated
as
of
February
21,
2014,
to
the
U.S.
Bank
Indenture
and
Form
of
5.500%
Prospect
Capital
InterNote®
due
2021(89)
4.260 Two
Hundred
Sixty-Fifth
Supplemental
Indenture
dated
as
of
February
21,
2014,
to
the
U.S.
Bank
Indenture
and
Form
of
6.000%
Prospect
Capital
InterNote®
due
2026(89)
4.261 Two
Hundred
Sixty-Sixth
Supplemental
Indenture
dated
as
of
February
21,
2014,
to
the
U.S.
Bank
Indenture
and
Form
of
6.500%
Prospect
Capital
InterNote®
due
2039(89)
4.262 Two
Hundred
Sixty-Eighth
Supplemental
Indenture
dated
as
of
February
27,
2014,
to
the
U.S.
Bank
Indenture
and
Form
of
3.750%
Prospect
Capital
InterNote®
due
2018(90)
4.263 Two
Hundred
Sixty-Ninth
Supplemental
Indenture
dated
as
of
February
27,
2014,
to
the
U.S.
Bank
Indenture
and
Form
of
4.750%
Prospect
Capital
InterNote®
due
2019(90)
4.264 Two
Hundred
Seventieth
Supplemental
Indenture
dated
as
of
February
27,
2014,
to
the
U.S.
Bank
Indenture
and
Form
of
5.250%
Prospect
Capital
InterNote®
due
2021(90)
4.265 Two
Hundred
Seventy-First
Supplemental
Indenture
dated
as
of
February
27,
2014,
to
the
U.S.
Bank
Indenture
and
Form
of
5.750%
Prospect
Capital
InterNote®
due
2026(90)
4.266 Two
Hundred
Seventy-Second
Supplemental
Indenture
dated
as
of
February
27,
2014,
to
the
U.S.
Bank
Indenture
and
Form
of
6.250%
Prospect
Capital
InterNote®
due
2039(90)
4.267 Two
Hundred
Seventy-Third
Supplemental
Indenture
dated
as
March
6,
2014,
to
the
U.S.
Bank
Indenture
and
Form
of
3.750%
Prospect
Capital
InterNote®
due
2018(91)
4.268 Two
Hundred
Seventy-Fourth
Supplemental
Indenture
dated
as
of
March
6,
2014,
to
the
U.S.
Bank
Indenture
and
Form
of
4.750%
Prospect
Capital
InterNote®
due
2019(91)
4.269 Two
Hundred
Seventy-Fifth
Supplemental
Indenture
dated
as
of
March
6,
2014,
to
the
U.S.
Bank
Indenture
and
Form
of
5.250%
Prospect
Capital
InterNote®
due
2021(91)
4.270 Two
Hundred
Seventy-Sixth
Supplemental
Indenture
dated
as
of
March
6,
2014,
to
the
U.S.
Bank
Indenture
and
Form
of
5.750%
Prospect
Capital
InterNote®
due
2026(91)
4.271 Two
Hundred
Seventy-Seventh
Supplemental
Indenture
dated
as
of
March
6,
2014,
to
the
U.S.
Bank
Indenture
and
Form
of
6.250%
Prospect
Capital
InterNote®
due
2039(91)
4.272 Supplement
No.
1
to
the
Two
Hundred
Sixty-Seventh
Supplemental
Indenture
dated
as
of
March
11,
2014,
to
the
U.S.
Bank
Indenture
and
Form
of
4.75%
Prospect
Capital
InterNote®
due
2019(92)
4.273 Two
Hundred
Seventy-Eighth
Supplemental
Indenture
dated
as
March
13,
2014,
to
the
U.S.
Bank
Indenture
and
Form
of
3.750%
Prospect
Capital
InterNote®
due
2018(93)
4.274 Two
Hundred
Seventy-Ninth
Supplemental
Indenture
dated
as
of
March
13,
2014,
to
the
U.S.
Bank
Indenture
and
Form
of
4.750%
Prospect
Capital
InterNote®
due
2019(93)
4.275 Two
Hundred
Eightieth
Supplemental
Indenture
dated
as
of
March
13,
2014,
to
the
U.S.
Bank
Indenture
and
Form
of
5.250%
Prospect
Capital
InterNote®
due
2021(93)
4.276 Two
Hundred
Eighty-First
Supplemental
Indenture
dated
as
of
March
13,
2014,
to
the
U.S.
Bank
Indenture
and
Form
of
5.750%
Prospect
Capital
InterNote®
due
2026(93)
4.277 Two
Hundred
Eighty-Second
Supplemental
Indenture
dated
as
of
March
13,
2014,
to
the
U.S.
Bank
Indenture
and
Form
of
6.250%
Prospect
Capital
InterNote®
due
2039(93)
4.278 Two
Hundred
Eighty-Fourth
Supplemental
Indenture
dated
as
March
20,
2014,
to
the
U.S.
Bank
Indenture
and
Form
of
3.750%
Prospect
Capital
InterNote®
due
2018(94)
4.279 Two
Hundred
Eighty-Fifth
Supplemental
Indenture
dated
as
of
March
20,
2014,
to
the
U.S.
Bank
Indenture
and
Form
of
4.750%
Prospect
Capital
InterNote®
due
2019(94)
4.280 Two
Hundred
Eighty-Sixth
Supplemental
Indenture
dated
as
of
March
20,
2014,
to
the
U.S.
Bank
Indenture
and
Form
of
5.250%
Prospect
Capital
InterNote®
due
2021(94)
238
Exhibit No.
4.281 Two
Hundred
Eighty-Seventh
Supplemental
Indenture
dated
as
of
March
20,
2014,
to
the
U.S.
Bank
Indenture
and
Form
of
5.750%
Prospect
Capital
InterNote®
due
2026(94)
4.282 Two
Hundred
Eighty-Eighth
Supplemental
Indenture
dated
as
of
March
20,
2014,
to
the
U.S.
Bank
Indenture
and
Form
of
6.250%
Prospect
Capital
InterNote®
due
2039(94)
4.283 Two
Hundred
Eighty-Ninth
Supplemental
Indenture
dated
as
March
27,
2014,
to
the
U.S.
Bank
Indenture
and
Form
of
3.750%
Prospect
Capital
InterNote®
due
2018(95)
4.284 Two
Hundred
Ninetieth
Supplemental
Indenture
dated
as
of
March
20,
2014,
to
the
U.S.
Bank
Indenture
and
Form
of
4.750%
Prospect
Capital
InterNote®
due
2019(95)
4.285 Two
Hundred
Ninety-First
Supplemental
Indenture
dated
as
of
March
27,
2014,
to
the
U.S.
Bank
Indenture
and
Form
of
5.250%
Prospect
Capital
InterNote®
due
2021(95)
4.286 Two
Hundred
Ninety-Second
Supplemental
Indenture
dated
as
of
March
27,
2014,
to
the
U.S.
Bank
Indenture
and
Form
of
5.750%
Prospect
Capital
InterNote®
due
2026(95)
4.287 Two
Hundred
Ninety-Third
Supplemental
Indenture
dated
as
of
March
27,
2014,
to
the
U.S.
Bank
Indenture
and
Form
of
6.250%
Prospect
Capital
InterNote®
due
2039(95)
4.288 Two
Hundred
Ninety-Fourth
Supplemental
Indenture
dated
as
of
April
3,
2014,
to
the
U.S.
Bank
Indenture
and
Form
of
3.750%
Prospect
Capital
InterNote®
due
2018(96)
4.289 Two
Hundred
Ninety-Fifth
Supplemental
Indenture
dated
as
of
April
3,
2014,
to
the
U.S.
Bank
Indenture
and
Form
of
4.500%
Prospect
Capital
InterNote®
due
2019(96)
4.290 Two
Hundred
Ninety-Sixth
Supplemental
Indenture
dated
as
of
April
3,
2014,
to
the
U.S.
Bank
Indenture
and
Form
of
5.250%
Prospect
Capital
InterNote®
due
2021(96)
4.291 Two
Hundred
Ninety-Seventh
Supplemental
Indenture
dated
as
of
April
3,
2014,
to
the
U.S.
Bank
Indenture
and
Form
of
5.750%
Prospect
Capital
InterNote®
due
2024(96)
4.292 Two
Hundred
Ninety-Eighth
Supplemental
Indenture
dated
as
of
April
3,
2014,
to
the
U.S.
Bank
Indenture
and
Form
of
6.250%
Prospect
Capital
InterNote®
due
2039(96)
4.293 Supplemental
Indenture
dated
as
of
April
7,
2014,
to
the
U.S.
Bank
Indenture
and
Form
of
5.000%
Senior
Notes
due
2019(97)
4.294 Two
Hundred
Ninety-Ninth
Supplemental
Indenture
dated
as
of
April
10,
2014,
to
the
U.S.
Bank
Indenture
and
Form
of
3.750%
Prospect
Capital
InterNote®
due
2018(98)
4.295 Three
Hundredth
Supplemental
Indenture
dated
as
of
April
10,
2014,
to
the
U.S.
Bank
Indenture
and
Form
of
4.250%
Prospect
Capital
InterNote®
due
2019(98)
4.296 Three
Hundred
First
Supplemental
Indenture
dated
as
of
April
10,
2014,
to
the
U.S.
Bank
Indenture
and
Form
of
5.250%
Prospect
Capital
InterNote®
due
2021(98)
4.297 Three
Hundred
Second
Supplemental
Indenture
dated
as
of
April
10,
2014,
to
the
U.S.
Bank
Indenture
and
Form
of
5.750%
Prospect
Capital
InterNote®
due
2024(98)
4.298 Three
Hundred
Third
Supplemental
Indenture
dated
as
of
April
10,
2014,
to
the
U.S.
Bank
Indenture
and
Form
of
6.250%
Prospect
Capital
InterNote®
due
2039(98)
4.299 Indenture
dated
as
of
April
11,
2014,
by
and
between
Prospect
Capital
Corporation
and
American
Stock
Transfer
&
Trust
Company,
as
Trustee
and
Form
of
Global
Note
of
4.75%
Senior
Convertible
Notes
Due
2020(99)
4.300 Three
Hundred
Fourth
Supplemental
Indenture
dated
as
of
April
17,
2014,
to
the
U.S.
Bank
Indenture
and
Form
of
3.750%
Prospect
Capital
InterNote®
due
2018(100)
4.301 Three
Hundred
Fifth
Supplemental
Indenture
dated
as
of
April
17,
2014,
to
the
U.S.
Bank
Indenture
and
Form
of
4.250%
Prospect
Capital
InterNote®
due
2019(100)
4.302 Three
Hundred
Sixth
Supplemental
Indenture
dated
as
of
April
17,
2014,
to
the
U.S.
Bank
Indenture
and
Form
of
5.250%
Prospect
Capital
InterNote®
due
2021(100)
4.303 Three
Hundred
Seventh
Supplemental
Indenture
dated
as
of
April
17,
2014,
to
the
U.S.
Bank
Indenture
and
Form
of
5.750%
Prospect
Capital
InterNote®
due
2024(100)
4.304 Three
Hundred
Eighth
Supplemental
Indenture
dated
as
of
April
17,
2014,
to
the
U.S.
Bank
Indenture
and
Form
of
6.250%
Prospect
Capital
InterNote®
due
2039(100)
4.305 Three
Hundred
Ninth
Supplemental
Indenture
dated
as
of
April
24,
2014,
to
the
U.S.
Bank
Indenture
and
Form
of
3.750%
Prospect
Capital
InterNote®
due
2018(101)
4.306 Three
Hundred
Tenth
Supplemental
Indenture
dated
as
of
April
24,
2014,
to
the
U.S.
Bank
Indenture
and
Form
of
4.500%
Prospect
Capital
InterNote®
due
2019(101)
239
Exhibit No.
4.307 Three
Hundred
Eleventh
Supplemental
Indenture
dated
as
of
April
24,
2014,
to
the
U.S.
Bank
Indenture
and
Form
of
5.250%
Prospect
Capital
InterNote®
due
2021(101)
4.308 Three
Hundred
Twelfth
Supplemental
Indenture
dated
as
of
April
24,
2014,
to
the
U.S.
Bank
Indenture
and
Form
of
5.750%
Prospect
Capital
InterNote®
due
2024(101)
4.309 Three
Hundred
Thirteenth
Supplemental
Indenture
dated
as
of
April
24,
2014,
to
the
U.S.
Bank
Indenture
and
Form
of
6.250%
Prospect
Capital
InterNote®
due
2039(101)
4.310 Three
Hundred
Fourteenth
Supplemental
Indenture
dated
as
of
May
1,
2014,
to
the
U.S.
Bank
Indenture
and
Form
of
3.750%
Prospect
Capital
InterNote®
due
2018(102)
4.311 Three
Hundred
Fifteenth
Supplemental
Indenture
dated
as
of
May
1,
2014,
to
the
U.S.
Bank
Indenture
and
Form
of
4.500%
Prospect
Capital
InterNote®
due
2019(102)
4.312 Three
Hundred
Sixteenth
Supplemental
Indenture
dated
as
of
May
1,
2014,
to
the
U.S.
Bank
Indenture
and
Form
of
5.250%
Prospect
Capital
InterNote®
due
2021(102)
4.313 Three
Hundred
Seventeenth
Supplemental
Indenture
dated
as
of
May
1,
2014,
to
the
U.S.
Bank
Indenture
and
Form
of
5.750%
Prospect
Capital
InterNote®
due
2024(102)
4.314 Three
Hundred
Eighteenth
Supplemental
Indenture
dated
as
of
May
1,
2014,
to
the
U.S.
Bank
Indenture
and
Form
of
6.250%
Prospect
Capital
InterNote®
due
2039(102)
4.315 Three
Hundred
Nineteenth
Supplemental
Indenture
dated
as
of
May
8,
2014,
to
the
U.S.
Bank
Indenture
and
Form
of
3.750%
Prospect
Capital
InterNote®
due
2018(103)
4.316 Three
Hundred
Twentieth
Supplemental
Indenture
dated
as
of
May
8,
2014,
to
the
U.S.
Bank
Indenture
and
Form
of
4.500%
Prospect
Capital
InterNote®
due
2019(103)
4.317 Three
Hundred
Twenty-First
Supplemental
Indenture
dated
as
of
May
8,
2014,
to
the
U.S.
Bank
Indenture
and
Form
of
5.250%
Prospect
Capital
InterNote®
due
2021(103)
4.318 Three
Hundred
Twenty-Second
Supplemental
Indenture
dated
as
of
May
8,
2014,
to
the
U.S.
Bank
Indenture
and
Form
of
5.750%
Prospect
Capital
InterNote®
due
2024(103)
4.319 Three
Hundred
Twenty-Third
Supplemental
Indenture
dated
as
of
May
8,
2014,
to
the
U.S.
Bank
Indenture
and
Form
of
6.250%
Prospect
Capital
InterNote®
due
2039(103)
4.320 Three
Hundred
Twenty-Fourth
Supplemental
Indenture
dated
as
of
November
17,
2014,
to
the
U.S.
Bank
Indenture
and
Form
of
4.250%
Prospect
Capital
InterNote®
due
2020(110)
4.321 Three
Hundred
Twenty-Fifth
Supplemental
Indenture
dated
as
of
November
28,
2014,
to
the
U.S.
Bank
Indenture
and
Form
of
4.250%
Prospect
Capital
InterNote®
due
2020(111)
4.322 Three
Hundred
Twenty-Sixth
Supplemental
Indenture
dated
as
of
December
4,
2014,
to
the
U.S.
Bank
Indenture
and
Form
of
4.250%
Prospect
Capital
InterNote®
due
2020(112)
4.323 Three
Hundred
Twenty-Seventh
Supplemental
Indenture
dated
as
of
December
11,
2014,
to
the
U.S.
Bank
Indenture
and
Form
of
4.250%
Prospect
Capital
InterNote®
due
2020(113)
4.324 Three
Hundred
Twenty-Eighth
Supplemental
Indenture
dated
as
of
December
18,
2014,
to
the
U.S.
Bank
Indenture
and
Form
of
4.250%
Prospect
Capital
InterNote®
due
2020(114)
4.325 Three
Hundred
Twenty-Ninth
Supplemental
Indenture
dated
as
of
December
29,
2014,
to
the
U.S.
Bank
Indenture
and
Form
of
4.250%
Prospect
Capital
InterNote®
due
2020(115)
4.326 Three
Hundred
Thirtieth
Supplemental
Indenture
dated
as
of
January
2,
2015,
to
the
U.S.
Bank
Indenture
and
Form
of
4.250%
Prospect
Capital
InterNote®
due
2020(116)
4.327 Three
Hundred
Thirty-First
Supplemental
Indenture
dated
as
of
January
8,
2015,
to
the
U.S.
Bank
Indenture
and
Form
of
4.250%
Prospect
Capital
InterNote®
due
2020(117)
4.328 Three
Hundred
Thirty-Second
Supplemental
Indenture
dated
as
of
January
15,
2015,
to
the
U.S.
Bank
Indenture
and
Form
of
4.500%
Prospect
Capital
InterNote®
due
2020(118)
4.329 Three
Hundred
Thirty-Third
Supplemental
Indenture
dated
as
of
January
23,
2015,
to
the
U.S.
Bank
Indenture
and
Form
of
4.750%
Prospect
Capital
InterNote®
due
2020(119)
4.330 Three
Hundred
Thirty-Fourth
Supplemental
Indenture
dated
as
of
January
29,
2015,
to
the
U.S.
Bank
Indenture
and
Form
of
4.750%
Prospect
Capital
InterNote®
due
2020(120)
4.331 Three
Hundred
Thirty-Fifth
Supplemental
Indenture
dated
as
of
February
5,
2015,
to
the
U.S.
Bank
Indenture
and
Form
of
4.750%
Prospect
Capital
InterNote®
due
2020(121)
4.332 Three
Hundred
Thirty-Sixth
Supplemental
Indenture
dated
as
of
February
20,
2015,
to
the
U.S.
Bank
Indenture
and
Form
of
4.750%
Prospect
Capital
InterNote®
due
2020(122)
240
Exhibit No.
4.333 Three
Hundred
Thirty-Seventh
Supplemental
Indenture
dated
as
of
February
26,
2015,
to
the
U.S.
Bank
Indenture
and
Form
of
4.750%
Prospect
Capital
InterNote®
due
2020(123)
4.334 Three
Hundred
Thirty-Eighth
Supplemental
Indenture
dated
as
of
March
5,
2015,
to
the
U.S.
Bank
Indenture
and
Form
of
4.750%
Prospect
Capital
InterNote®
due
2020(124)
4.335 Three
Hundred
Thirty-Ninth
Supplemental
Indenture
dated
as
of
March
12,
2015,
to
the
U.S.
Bank
Indenture
and
Form
of
4.750%
Prospect
Capital
InterNote®
due
2020(125)
4.336 Three
Hundred
Fortieth
Supplemental
Indenture
dated
as
of
March
19,
2015,
to
the
U.S.
Bank
Indenture
and
Form
of
4.750%
Prospect
Capital
InterNote®
due
2020(126)
4.337 Three
Hundred
Forty-First
Supplemental
Indenture
dated
as
of
March
26,
2015,
to
the
U.S.
Bank
Indenture
and
Form
of
4.750%
Prospect
Capital
InterNote®
due
2020(127)
4.338 Three
Hundred
Forty-Second
Supplemental
Indenture
dated
as
of
April
2,
2015,
to
the
U.S.
Bank
Indenture
and
Form
of
4.750%
Prospect
Capital
InterNote®
due
2020(128)
4.339 Three
Hundred
Forty-Third
Supplemental
Indenture
dated
as
of
April
9,
2015,
to
the
U.S.
Bank
Indenture
and
Form
of
4.750%
Prospect
Capital
InterNote®
due
2020(129)
4.340 Three
Hundred
Forty-Fourth
Supplemental
Indenture
dated
as
of
April
16,
2015,
to
the
U.S.
Bank
Indenture
and
Form
of
4.750%
Prospect
Capital
InterNote®
due
2020(130)
4.341 Three
Hundred
Forty-Fifth
Supplemental
Indenture
dated
as
of
April
16,
2015,
to
the
U.S.
Bank
Indenture
and
Form
of
3.375%
to
6.375%
Prospect
Capital
InterNote®
due
2021(130)
4.342 Three
Hundred
Forty-Sixth
Supplemental
Indenture
dated
as
of
April
23,
2015,
to
the
U.S.
Bank
Indenture
and
Form
of
4.750%
Prospect
Capital
InterNote®
due
2020(131)
4.343 Three
Hundred
Forty-Seventh
Supplemental
Indenture
dated
as
of
April
23,
2015,
to
the
U.S.
Bank
Indenture
and
Form
of
3.375%
to
6.375%
Prospect
Capital
InterNote®
due
2021(131)
4.344 Three
Hundred
Forty-Eighth
Supplemental
Indenture
dated
as
of
April
30,
2015,
to
the
U.S.
Bank
Indenture
and
Form
of
4.750%
Prospect
Capital
InterNote®
due
2020(132)
4.345 Three
Hundred
Forty-Ninth
Supplemental
Indenture
dated
as
of
April
30,
2015,
to
the
U.S.
Bank
Indenture
and
Form
of
3.375%
to
6.375%
Prospect
Capital
InterNote®
due
2021(132)
4.346 Three
Hundred
Fiftieth
Supplemental
Indenture
dated
as
of
May
7,
2015,
to
the
U.S.
Bank
Indenture
and
Form
of
4.750%
Prospect
Capital
InterNote®
due
2020(133)
4.347 Three
Hundred
Fifty-First
Supplemental
Indenture
dated
as
of
May
7,
2015,
to
the
U.S.
Bank
Indenture
and
Form
of
3.375%
to
6.375%
Prospect
Capital
InterNote®
due
2021(133)
4.348 Three
Hundred
Fifty-Second
Supplemental
Indenture
dated
as
of
May
21,
2015,
to
the
U.S.
Bank
Indenture
and
Form
of
4.750%
Prospect
Capital
InterNote®
due
2020(134)
4.349 Three
Hundred
Fifty-Third
Supplemental
Indenture
dated
as
of
May
29,
2015,
to
the
U.S.
Bank
Indenture
and
Form
of
4.625%
Prospect
Capital
InterNote®
due
2020(135)
4.350 Three
Hundred
Fifty-Fourth
Supplemental
Indenture
dated
as
of
May
29,
2015,
to
the
U.S.
Bank
Indenture
and
Form
of
5.100%
Prospect
Capital
InterNote®
due
2022(135)
4.351 Three
Hundred
Fifty-Fifth
Supplemental
Indenture
dated
as
of
June
4,
2015,
to
the
U.S.
Bank
Indenture
and
Form
of
4.625%
Prospect
Capital
InterNote®
due
2020(136)
4.352 Three
Hundred
Fifty-Sixth
Supplemental
Indenture
dated
as
of
June
4,
2015,
to
the
U.S.
Bank
Indenture
and
Form
of
5.100%
Prospect
Capital
InterNote®
due
2022(136)
4.353 Three
Hundred
Fifty-Seventh
Supplemental
Indenture
dated
as
of
June
11,
2015,
to
the
U.S.
Bank
Indenture
and
Form
of
4.625%
Prospect
Capital
InterNote®
due
2020(137)
4.354 Three
Hundred
Fifty-Eighth
Supplemental
Indenture
dated
as
of
June
11,
2015,
to
the
U.S.
Bank
Indenture
and
Form
of
5.100%
Prospect
Capital
InterNote®
due
2022(137)
4.355 Three
Hundred
Fifty-Ninth
Supplemental
Indenture
dated
as
of
June
18,
2015,
to
the
U.S.
Bank
Indenture
and
Form
of
4.625%
Prospect
Capital
InterNote®
due
2020(138)
4.356 Three
Hundred
Sixtieth
Supplemental
Indenture
dated
as
of
June
18,
2015,
to
the
U.S.
Bank
Indenture
and
Form
of
5.100%
Prospect
Capital
InterNote®
due
2021(138)
4.357 Three
Hundred
Sixty-First
Supplemental
Indenture
dated
as
of
June
25,
2015,
to
the
U.S.
Bank
Indenture
and
Form
of
4.625%
Prospect
Capital
InterNote®
due
2020(139)
4.358 Three
Hundred
Sixty-Second
Supplemental
Indenture
dated
as
of
June
25,
2015,
to
the
U.S.
Bank
Indenture
and
Form
of
5.100%
Prospect
Capital
InterNote®
due
2021(139)
241
Exhibit No.
4.359 Three
Hundred
Sixty-Third
Supplemental
Indenture
dated
as
of
July
2,
2015,
to
the
U.S.
Bank
Indenture
and
Form
of
4.625%
Prospect
Capital
InterNote®
due
2020(140)
4.360 Three
Hundred
Sixty-Fourth
Supplemental
Indenture
dated
as
of
July
2,
2015,
to
the
U.S.
Bank
Indenture
and
Form
of
5.100%
Prospect
Capital
InterNote®
due
2021(140)
4.361 Three
Hundred
Sixty-Fifth
Supplemental
Indenture
dated
as
of
July
9,
2015,
to
the
U.S.
Bank
Indenture
and
Form
of
4.750%
Prospect
Capital
InterNote®
due
2020(141)
4.362 Three
Hundred
Sixty-Sixth
Supplemental
Indenture
dated
as
of
July
9,
2015,
to
the
U.S.
Bank
Indenture
and
Form
of
5.250%
Prospect
Capital
InterNote®
due
2022(141)
4.363 Three
Hundred
Sixty-Seventh
Supplemental
Indenture
dated
as
of
July
16,
2015,
to
the
U.S.
Bank
Indenture
and
Form
of
4.750%
Prospect
Capital
InterNote®
due
2020(142)
4.364 Three
Hundred
Sixty-Eighth
Supplemental
Indenture
dated
as
of
July
16,
2015,
to
the
U.S.
Bank
Indenture
and
Form
of
5.250%
Prospect
Capital
InterNote®
due
2022(142)
4.365 Three
Hundred
Sixty-Ninth
Supplemental
Indenture
dated
as
of
July
23,
2015,
to
the
U.S.
Bank
Indenture
and
Form
of
4.750%
Prospect
Capital
InterNote®
due
2020(143)
4.366 Three
Hundred
Seventieth
Supplemental
Indenture
dated
as
of
July
23,
2015,
to
the
U.S.
Bank
Indenture
and
Form
of
5.250%
Prospect
Capital
InterNote®
due
2022(143)
4.367 Three
Hundred
Seventy-First
Supplemental
Indenture
dated
as
of
July
30,
2015,
to
the
U.S.
Bank
Indenture
and
Form
of
4.750%
Prospect
Capital
InterNote®
due
2020(144)
4.368 Three
Hundred
Seventy-Second
Supplemental
Indenture
dated
as
of
July
30,
2015,
to
the
U.S.
Bank
Indenture
and
Form
of
5.250%
Prospect
Capital
InterNote®
due
2022(144)
4.369 Three
Hundred
Seventy-Third
Supplemental
Indenture
dated
as
of
August
6,
2015,
to
the
U.S.
Bank
Indenture
and
Form
of
4.750%
Prospect
Capital
InterNote®
due
2020(145)
4.370 Three
Hundred
Seventy-Fourth
Supplemental
Indenture
dated
as
of
August
6,
2015,
to
the
U.S.
Bank
Indenture
and
Form
of
5.250%
Prospect
Capital
InterNote®
due
2022(145)
4.371 Three
Hundred
Seventy-Fifth
Supplemental
Indenture
dated
as
of
August
13,
2015,
to
the
U.S.
Bank
Indenture
and
Form
of
4.750%
Prospect
Capital
InterNote®
due
2020(146)
4.372 Three
Hundred
Seventy-Sixth
Supplemental
Indenture
dated
as
of
August
13,
2015,
to
the
U.S.
Bank
Indenture
and
Form
of
5.250%
Prospect
Capital
InterNote®
due
2022(146)
4.373 Three
Hundred
Seventy-Fifth
Supplemental
Indenture
dated
as
of
August
20,
2015,
to
the
U.S.
Bank
Indenture
and
Form
of
4.750%
Prospect
Capital
InterNote®
due
2020(147)
4.374 Three
Hundred
Seventy-Sixth
Supplemental
Indenture
dated
as
of
August
20,
2015,
to
the
U.S.
Bank
Indenture
and
Form
of
5.250%
Prospect
Capital
InterNote®
due
2022(147)
4.375 Three
Hundred
Seventy-Ninth
Supplemental
Indenture
dated
as
of
August
27,
2015,
to
the
U.S.
Bank
Indenture
and
Form
of
4.750%
Prospect
Capital
InterNote®
due
2020(148)
4.376 Three
Hundred
Eightieth
Supplemental
Indenture
dated
as
of
August
27,
2015,
to
the
U.S.
Bank
Indenture
and
Form
of
5.250%
Prospect
Capital
InterNote®
due
2022(148)
4.377 Three
Hundred
Eighty-One
Supplemental
Indenture
dated
as
of
September
11,
2015,
to
the
U.S.
Bank
Indenture
and
Form
of
4.750%
Prospect
Capital
InterNote®
due
2020(153)
4.378 Three
Hundred
Eighty-Second
Supplemental
Indenture
dated
as
of
September
11,
2015,
to
the
U.S.
Bank
Indenture
and
Form
of
5.250%
Prospect
Capital
InterNote®
due
2022(153)
4.379 Three
Hundred
Eighty-Third
Supplemental
Indenture
dated
as
of
September
17,
2015,
to
the
U.S.
Bank
Indenture
and
Form
of
4.750%
Prospect
Capital
InterNote®
due
2020(154)
4.380 Three
Hundred
Eighty-Fourth
Supplemental
Indenture
dated
as
of
September
17,
2015,
to
the
U.S.
Bank
Indenture
and
Form
of
5.250%
Prospect
Capital
InterNote®
due
2022(154)
4.381 Three
Hundred
Eighty-Fifth
Supplemental
Indenture
dated
as
of
September
24,
2015,
to
the
U.S.
Bank
Indenture
and
Form
of
4.750%
Prospect
Capital
InterNote®
due
2020(155)
4.382 Three
Hundred
Eighty-Sixth
Supplemental
Indenture
dated
as
of
September
24,
2015,
to
the
U.S.
Bank
Indenture
and
Form
of
5.250%
Prospect
Capital
InterNote®
due
2022(155)
4.383 Three
Hundred
Eighty-Seventh
Supplemental
Indenture
dated
as
of
October
1,
2015,
to
the
U.S.
Bank
Indenture
and
Form
of
4.750%
Prospect
Capital
InterNote®
due
2020(156)
4.384 Three
Hundred
Eighty-Eighth
Supplemental
Indenture
dated
as
of
October
1,
2015,
to
the
U.S.
Bank
Indenture
and
Form
of
5.250%
Prospect
Capital
InterNote®
due
2022(156)
242
Exhibit No.
4.385 Three
Hundred
Eighty-Ninth
Supplemental
Indenture
dated
as
of
October
8,
2015,
to
the
U.S.
Bank
Indenture
and
Form
of
4.750%
Prospect
Capital
InterNote®
due
2020(157)
4.386 Three
Hundred
Ninetieth
Supplemental
Indenture
dated
as
of
October
8,
2015,
to
the
U.S.
Bank
Indenture
and
Form
of
5.250%
Prospect
Capital
InterNote®
due
2022(157)
4.387 Three
Hundred
Ninety-First
Supplemental
Indenture
dated
as
of
October
16,
2015,
to
the
U.S.
Bank
Indenture
and
Form
of
4.750%
Prospect
Capital
InterNote®
due
2020(159)
4.388 Three
Hundred
Ninety-Second
Supplemental
Indenture
dated
as
of
October
16,
2015,
to
the
U.S.
Bank
Indenture
and
Form
of
5.250%
Prospect
Capital
InterNote®
due
2022(159)
4.389 Three
Hundred
Ninety-Third
Supplemental
Indenture
dated
as
of
October
22,
2015,
to
the
U.S.
Bank
Indenture
and
Form
of
4.750%
Prospect
Capital
InterNote®
due
2020(160)
4.390 Three
Hundred
Ninety-Fourth
Supplemental
Indenture
dated
as
of
October
22,
2015,
to
the
U.S.
Bank
Indenture
and
Form
of
5.250%
Prospect
Capital
InterNote®
due
2022(160)
4.391 Three
Hundred
Ninety-Fifth
Supplemental
Indenture
dated
as
of
October
29,
2015,
to
the
U.S.
Bank
Indenture
and
Form
of
4.750%
Prospect
Capital
InterNote®
due
2020(161)
4.392 Three
Hundred
Ninety-Sixth
Supplemental
Indenture
dated
as
of
October
29,
2015,
to
the
U.S.
Bank
Indenture
and
Form
of
5.250%
Prospect
Capital
InterNote®
due
2022(161)
4.393 Three
Hundred
Ninety-Seventh
Supplemental
Indenture
dated
as
of
November
4,
2015,
to
the
U.S.
Bank
Indenture
and
Form
of
4.750%
Prospect
Capital
InterNote®
due
2020(163)
4.394 Three
Hundred
Ninety-Eighth
Supplemental
Indenture
dated
as
of
November
4,
2015,
to
the
U.S.
Bank
Indenture
and
Form
of
5.250%
Prospect
Capital
InterNote®
due
2022(163)
4.395 Three
Hundred
Ninety-Ninth
Supplemental
Indenture
dated
as
of
November
19,
2015,
to
the
U.S.
Bank
Indenture
and
Form
of
5.000%
Prospect
Capital
InterNote®
due
2020(164)
4.396 Four
Hundredth
Supplemental
Indenture
dated
as
of
November
19,
2015,
to
the
U.S.
Bank
Indenture
and
Form
of
5.625%
Prospect
Capital
InterNote®
due
2022(164)
4.397 Four
Hundred
First
Supplemental
Indenture
dated
as
of
November
19,
2015,
to
the
U.S.
Bank
Indenture
and
Form
of
5.875%
Prospect
Capital
InterNote®
due
2025(164)
4.398 Four
Hundred
Second
Supplemental
Indenture
dated
as
of
November
27,
2015,
to
the
U.S.
Bank
Indenture
and
Form
of
5.125%
Prospect
Capital
InterNote®
due
2020(165)
4.399 Four
Hundred
Third
Supplemental
Indenture
dated
as
of
November
27,
2015,
to
the
U.S.
Bank
Indenture
and
Form
of
5.750%
Prospect
Capital
InterNote®
due
2022(165)
4.400 Four
Hundred
Fourth
Supplemental
Indenture
dated
as
of
November
27,
2015,
to
the
U.S.
Bank
Indenture
and
Form
of
6.000%
Prospect
Capital
InterNote®
due
2025(165)
4.401 Four
Hundred
Fifth
Supplemental
Indenture
dated
as
of
December
3,
2015,
to
the
U.S.
Bank
Indenture
and
Form
of
5.250%
Prospect
Capital
InterNote®
due
2020(166)
4.402 Four
Hundred
Sixth
Supplemental
Indenture
dated
as
of
December
3,
2015,
to
the
U.S.
Bank
Indenture
and
Form
of
5.750%
Prospect
Capital
InterNote®
due
2022(166)
4.403 Four
Hundred
Seventh
Supplemental
Indenture
dated
as
of
December
3,
2015,
to
the
U.S.
Bank
Indenture
and
Form
of
6.000%
Prospect
Capital
InterNote®
due
2025(166)
4.404 Supplemental
Indenture
dated
as
of
December
10,
2015,
to
the
U.S.
Bank
Indenture
and
Form
of
6.250%
Note
due
2024(167)
4.405 Four
Hundred
Eighth
Supplemental
Indenture
dated
as
of
December
17,
2015,
to
the
U.S.
Bank
Indenture
and
Form
of
5.375%
Prospect
Capital
InterNote®
due
2020(168)
4.406 Four
Hundred
Ninth
Supplemental
Indenture
dated
as
of
December
24,
2015,
to
the
U.S.
Bank
Indenture
and
Form
of
5.375%
Prospect
Capital
InterNote®
due
2020(169)
4.407 Four
Hundred
Tenth
Supplemental
Indenture
dated
as
of
December
31,
2015,
to
the
U.S.
Bank
Indenture
and
Form
of
5.375%
Prospect
Capital
InterNote®
due
2020(170)
4.408 Four
Hundred
Eleventh
Supplemental
Indenture
dated
as
of
January
7,
2016,
to
the
U.S.
Bank
Indenture
and
Form
of
5.375%
Prospect
Capital
InterNote®
due
2021(171)
4.409 Four
Hundred
Twelfth
Supplemental
Indenture
dated
as
of
January
14,
2016,
to
the
U.S.
Bank
Indenture
and
Form
of
5.375%
Prospect
Capital
InterNote®
due
2021(172)
4.410 Four
Hundred
Thirteenth
Supplemental
Indenture
dated
as
of
January
22,
2016,
to
the
U.S.
Bank
Indenture
and
Form
of
5.375%
Prospect
Capital
InterNote®
due
2021(173)
243
Exhibit No.
4.411 Four
Hundred
Fourteenth
Supplemental
Indenture
dated
as
of
March
3,
2016,
to
the
U.S.
Bank
Indenture
and
Form
of
5.375%
Prospect
Capital
InterNote®
due
2021(175)
4.412 Four
Hundred
Fifteenth
Supplemental
Indenture
dated
as
of
March
10,
2016,
to
the
U.S.
Bank
Indenture
and
Form
of
5.375%
Prospect
Capital
InterNote®
due
2021(176)
4.413 Four
Hundred
Sixteenth
Supplemental
Indenture
dated
as
of
March
17,
2016,
to
the
U.S.
Bank
Indenture
and
Form
of
5.375%
Prospect
Capital
InterNote®
due
2021(177)
4.414 Four
Hundred
Seventeenth
Supplemental
Indenture
dated
as
of
March
24,
2016,
to
the
U.S.
Bank
Indenture
and
Form
of
5.500%
Prospect
Capital
InterNote®
due
2021(178)
4.415 Four
Hundred
Eighteenth
Supplemental
Indenture
dated
as
of
March
31,
2016,
to
the
U.S.
Bank
Indenture
and
Form
of
5.500%
Prospect
Capital
InterNote®
due
2021(179)
4.416 Four
Hundred
Nineteenth
Supplemental
Indenture
dated
as
of
April
7,
2016,
to
the
U.S.
Bank
Indenture
and
Form
of
5.500%
Prospect
Capital
InterNote®
due
2021(180)
4.417 Four
Hundred
Twentieth
Supplemental
Indenture
dated
as
of
April
14,
2016,
to
the
U.S.
Bank
Indenture
and
Form
of
5.500%
Prospect
Capital
InterNote®
due
2021(181)
4.418 Four
Hundred
Twenty-First
Supplemental
Indenture
dated
as
of
April
21,
2016,
to
the
U.S.
Bank
Indenture
and
Form
of
5.500%
Prospect
Capital
InterNote®
due
2021(182)
4.419 Four
Hundred
Twenty-Second
Supplemental
Indenture
dated
as
of
April
28,
2016,
to
the
U.S.
Bank
Indenture
and
Form
of
5.500%
Prospect
Capital
InterNote®
due
2021(183)
4.420 Four
Hundred
Twenty-Third
Supplemental
Indenture
dated
as
of
May
5,
2016,
to
the
U.S.
Bank
Indenture
and
Form
of
5.500%
Prospect
Capital
InterNote®
due
2021(184)
4.421 Four
Hundred
Twenty-Fourth
Supplemental
Indenture
dated
as
of
May
12,
2016,
to
the
U.S.
Bank
Indenture
and
Form
of
5.500%
Prospect
Capital
InterNote®
due
2021(185)
4.422 Four
Hundred
Twenty-Fifth
Supplemental
Indenture
dated
as
of
May
26,
2016,
to
the
U.S.
Bank
Indenture
and
Form
of
5.500%
Prospect
Capital
InterNote®
due
2021(186)
4.423 Four
Hundred
Twenty-Sixth
Supplemental
Indenture
dated
as
of
June
3,
2016,
to
the
U.S.
Bank
Indenture
and
Form
of
5.500%
Prospect
Capital
InterNote®
due
2021(187)
4.424 Four
Hundred
Twenty-Seventh
Supplemental
Indenture
dated
as
of
June
9,
2016,
to
the
U.S.
Bank
Indenture
and
Form
of
5.500%
Prospect
Capital
InterNote®
due
2021(188)
4.425 Four
Hundred
Twenty-Eighth
Supplemental
Indenture
dated
as
of
June
16,
2016,
to
the
U.S.
Bank
Indenture
and
Form
of
5.500%
Prospect
Capital
InterNote®
due
2021(189)
4.426 Supplemental
Indenture
dated
as
of
June
22,
2016,
to
the
U.S.
Bank
Indenture,
and
Form
of
6.250%
Note
due
2024(190)
4.427 Four
Hundred
Twenty-Ninth
Supplemental
Indenture
dated
as
of
June
23,
2016,
to
the
U.S.
Bank
Indenture
and
Form
of
5.500%
Prospect
Capital
InterNote®
due
2021(190)
4.428 Form
of
6.250%
Notes
due
2024,
Note
1,
of
an
aggregate
principal
amount
of
$650,775.00,
pursuant
to
the
Supplemental
Indenture
dated
as
of
June
22,
2016,
to
the
U.S.
Bank
Indenture(191)
4.429 Form
of
6.250%
Notes
due
2024,
Note
2,
of
an
aggregate
principal
amount
of
$538,575.00,
pursuant
to
the
Supplemental
Indenture
dated
as
of
June
22,
2016,
to
the
U.S.
Bank
Indenture(191)
4.430 Form
of
6.250%
Notes
due
2024,
Note
3,
of
an
aggregate
principal
amount
of
$191,075.00,
pursuant
to
the
Supplemental
Indenture
dated
as
of
June
22,
2016,
to
the
U.S.
Bank
Indenture(191)
4.431 Four
Hundred
Thirtieth
Supplemental
Indenture
dated
as
of
June
30,
2016,
to
the
U.S.
Bank
Indenture
and
Form
of
5.500%
Prospect
Capital
InterNote®
due
2021(191)
4.432 Form
of
6.250%
Notes
due
2024,
Note
4,
of
an
aggregate
principal
amount
of
$563,000.00,
pursuant
to
the
Supplemental
Indenture
dated
as
of
June
22,
2016,
to
the
U.S.
Bank
Indenture(192)
4.433 Form
of
6.250%
Notes
due
2024,
Note
5,
of
an
aggregate
principal
amount
of
$323,825.00,
pursuant
to
the
Supplemental
Indenture
dated
as
of
June
22,
2016,
to
the
U.S.
Bank
Indenture(192)
4.434 Form
of
6.250%
Notes
due
2024,
Note
6,
of
an
aggregate
principal
amount
of
$730,600.00,
pursuant
to
the
Supplemental
Indenture
dated
as
of
June
22,
2016,
to
the
U.S.
Bank
Indenture(192)
4.435 Form
of
6.250%
Notes
due
2024,
Note
7,
of
an
aggregate
principal
amount
of
$265,125.00,
pursuant
to
the
Supplemental
Indenture
dated
as
of
June
22,
2016,
to
the
U.S.
Bank
Indenture(192)
4.436 Form
of
6.250%
Notes
due
2024,
Note
8,
of
an
aggregate
principal
amount
of
$722,100.00,
pursuant
to
the
Supplemental
Indenture
dated
as
of
June
22,
2016,
to
the
U.S.
Bank
Indenture(192)
244
Exhibit No.
4.437 Four
Hundred
Thirty-First
Supplemental
Indenture
dated
as
of
July
8,
2016,
to
the
U.S.
Bank
Indenture
and
Form
of
5.500%
Prospect
Capital
InterNote®
due
2021(192)
4.438 Form
of
6.250%
Notes
due
2024,
Note
9,
of
an
aggregate
principal
amount
of
$599,050.00,
pursuant
to
the
Supplemental
Indenture
dated
as
of
June
22,
2016,
to
the
U.S.
Bank
Indenture(193)
4.439 Form
of
6.250%
Notes
due
2024,
Note
10,
of
an
aggregate
principal
amount
of
$807,500.00,
pursuant
to
the
Supplemental
Indenture
dated
as
of
June
22,
2016,
to
the
U.S.
Bank
Indenture(193)
4.440 Form
of
6.250%
Notes
due
2024,
Note
11,
of
an
aggregate
principal
amount
of
$799,475.00,
pursuant
to
the
Supplemental
Indenture
dated
as
of
June
22,
2016,
to
the
U.S.
Bank
Indenture(193)
4.441 Form
of
6.250%
Notes
due
2024,
Note
12,
of
an
aggregate
principal
amount
of
$501,625.00,
pursuant
to
the
Supplemental
Indenture
dated
as
of
June
22,
2016,
to
the
U.S.
Bank
Indenture(193)
4.442 Four
Hundred
Thirty-Second
Supplemental
Indenture
dated
as
of
July
14,
2016,
to
the
U.S.
Bank
Indenture
and
Form
of
5.500%
Prospect
Capital
InterNote®
due
2021(193)
4.443 Form
of
6.250%
Notes
due
2024,
Note
13,
of
an
aggregate
principal
amount
of
$592,500.00,
pursuant
to
the
Supplemental
Indenture
dated
as
of
June
22,
2016,
to
the
U.S.
Bank
Indenture(194)
4.444 Form
of
6.250%
Notes
due
2024,
Note
14,
of
an
aggregate
principal
amount
of
$581,250.00,
pursuant
to
the
Supplemental
Indenture
dated
as
of
June
22,
2016,
to
the
U.S.
Bank
Indenture(194)
4.445 Form
of
6.250%
Notes
due
2024,
Note
15,
of
an
aggregate
principal
amount
of
$463,750.00,
pursuant
to
the
Supplemental
Indenture
dated
as
of
June
22,
2016,
to
the
U.S.
Bank
Indenture(194)
4.446 Form
of
6.250%
Notes
due
2024,
Note
16,
of
an
aggregate
principal
amount
of
$836,475.00,
pursuant
to
the
Supplemental
Indenture
dated
as
of
June
22,
2016,
to
the
U.S.
Bank
Indenture(194)
4.447 Form
of
6.250%
Notes
due
2024,
Note
17,
of
an
aggregate
principal
amount
of
$536,725.00,
pursuant
to
the
Supplemental
Indenture
dated
as
of
June
22,
2016,
to
the
U.S.
Bank
Indenture(194)
4.448 Four
Hundred
Thirty-Third
Supplemental
Indenture
dated
as
of
July
21,
2016,
to
the
U.S.
Bank
Indenture
and
Form
of
5.500%
Prospect
Capital
InterNote®
due
2021(194)
4.449 Form
of
6.250%
Notes
due
2024,
Note
18,
of
an
aggregate
principal
amount
of
$1,746,400.00,
pursuant
to
the
Supplemental
Indenture
dated
as
of
June
22,
2016,
to
the
U.S.
Bank
Indenture(195)
4.450 Form
of
6.250%
Notes
due
2024,
Note
19,
of
an
aggregate
principal
amount
of
$826,325.00,
pursuant
to
the
Supplemental
Indenture
dated
as
of
June
22,
2016,
to
the
U.S.
Bank
Indenture(195)
4.451 Form
of
6.250%
Notes
due
2024,
Note
20,
of
an
aggregate
principal
amount
of
$838,525.00,
pursuant
to
the
Supplemental
Indenture
dated
as
of
June
22,
2016,
to
the
U.S.
Bank
Indenture(195)
4.452 Form
of
6.250%
Notes
due
2024,
Note
21,
of
an
aggregate
principal
amount
of
$1,027,325.00,
pursuant
to
the
Supplemental
Indenture
dated
as
of
June
22,
2016,
to
the
U.S.
Bank
Indenture(195)
4.453 Form
of
6.250%
Notes
due
2024,
Note
22,
of
an
aggregate
principal
amount
of
$1,329,050.00,
pursuant
to
the
Supplemental
Indenture
dated
as
of
June
22,
2016,
to
the
U.S.
Bank
Indenture(195)
4.454 Four
Hundred
Thirty-Fourth
Supplemental
Indenture
dated
as
of
July
28,
2016,
to
the
U.S.
Bank
Indenture
and
Form
of
5.500%
Prospect
Capital
InterNote®
due
2021(195)
4.455 Form
of
6.250%
Notes
due
2024,
Note
23,
of
an
aggregate
principal
amount
of
$1,232,075.00,
pursuant
to
the
Supplemental
Indenture
dated
as
of
June
22,
2016,
to
the
U.S.
Bank
Indenture(196)
4.456 Form
of
6.250%
Notes
due
2024,
Note
24,
of
an
aggregate
principal
amount
of
$1,273,150.00,
pursuant
to
the
Supplemental
Indenture
dated
as
of
June
22,
2016,
to
the
U.S.
Bank
Indenture(196)
4.457 Form
of
6.250%
Notes
due
2024,
Note
25,
of
an
aggregate
principal
amount
of
$1,825,850.00,
pursuant
to
the
Supplemental
Indenture
dated
as
of
June
22,
2016,
to
the
U.S.
Bank
Indenture(196)
4.458 Form
of
6.250%
Notes
due
2024,
Note
26,
of
an
aggregate
principal
amount
of
$902,650.00,
pursuant
to
the
Supplemental
Indenture
dated
as
of
June
22,
2016,
to
the
U.S.
Bank
Indenture(196)
4.459 Form
of
6.250%
Notes
due
2024,
Note
27,
of
an
aggregate
principal
amount
of
$866,500.00,
pursuant
to
the
Supplemental
Indenture
dated
as
of
June
22,
2016,
to
the
U.S.
Bank
Indenture(196)
4.460 Four
Hundred
Thirty-Fifth
Supplemental
Indenture
dated
as
of
August
4,
2016,
to
the
U.S.
Bank
Indenture
and
Form
of
5.500%
Prospect
Capital
InterNote®
due
2021(196)
4.461 Form
of
6.250%
Notes
due
2024,
Note
28,
of
an
aggregate
principal
amount
of
$1,284,800.00,
pursuant
to
the
Supplemental
Indenture
dated
as
of
June
22,
2016,
to
the
U.S.
Bank
Indenture(197)
4.462 Form
of
6.250%
Notes
due
2024,
Note
29,
of
an
aggregate
principal
amount
of
$1,423,275.00,
pursuant
to
the
Supplemental
Indenture
dated
as
of
June
22,
2016,
to
the
U.S.
Bank
Indenture(197)
245
Exhibit No.
4.463 Form
of
6.250%
Notes
due
2024,
Note
30,
of
an
aggregate
principal
amount
of
$1,424,750.00,
pursuant
to
the
Supplemental
Indenture
dated
as
of
June
22,
2016,
to
the
U.S.
Bank
Indenture(197)
4.464 Form
of
6.250%
Notes
due
2024,
Note
31,
of
an
aggregate
principal
amount
of
$1,525,475.00,
pursuant
to
the
Supplemental
Indenture
dated
as
of
June
22,
2016,
to
the
U.S.
Bank
Indenture(197)
4.465 Form
of
6.250%
Notes
due
2024,
Note
32,
of
an
aggregate
principal
amount
of
$1,335,200.00,
pursuant
to
the
Supplemental
Indenture
dated
as
of
June
22,
2016,
to
the
U.S.
Bank
Indenture(197)
4.466 Four
Hundred
Thirty-Sixth
Supplemental
Indenture
dated
as
of
August
11,
2016,
to
the
U.S.
Bank
Indenture
and
Form
of
5.500%
Prospect
Capital
InterNote®
due
2021(197)
4.467 Form
of
6.250%
Notes
due
2024,
Note
33,
of
an
aggregate
principal
amount
of
$746,950.00,
pursuant
to
the
Supplemental
Indenture
dated
as
of
June
22,
2016,
to
the
U.S.
Bank
Indenture(198)
4.468 Form
of
6.250%
Notes
due
2024,
Note
34,
of
an
aggregate
principal
amount
of
$1,254,725.00,
pursuant
to
the
Supplemental
Indenture
dated
as
of
June
22,
2016,
to
the
U.S.
Bank
Indenture(198)
4.469 Form
of
6.250%
Notes
due
2024,
Note
35,
of
an
aggregate
principal
amount
of
$790,900.00,
pursuant
to
the
Supplemental
Indenture
dated
as
of
June
22,
2016,
to
the
U.S.
Bank
Indenture(198)
4.470 Form
of
6.250%
Notes
due
2024,
Note
36,
of
an
aggregate
principal
amount
of
$1,477,725.00,
pursuant
to
the
Supplemental
Indenture
dated
as
of
June
22,
2016,
to
the
U.S.
Bank
Indenture(198)
4.471 Form
of
6.250%
Notes
due
2024,
Note
37,
of
an
aggregate
principal
amount
of
$2,147,375.00,
pursuant
to
the
Supplemental
Indenture
dated
as
of
June
22,
2016,
to
the
U.S.
Bank
Indenture(198)
4.472 Four
Hundred
Thirty-Seventh
Supplemental
Indenture
dated
as
of
August
18,
2016,
to
the
U.S.
Bank
Indenture
and
Form
of
5.500%
Prospect
Capital
InterNote®
due
2021(198)
4.473 Form
of
6.250%
Notes
due
2024,
Note
38,
of
an
aggregate
principal
amount
of
$1,502,000.00,
pursuant
to
the
Supplemental
Indenture
dated
as
of
June
22,
2016,
to
the
U.S.
Bank
Indenture(199)
4.474 Form
of
6.250%
Notes
due
2024,
Note
39,
of
an
aggregate
principal
amount
of
$1,098,150.00,
pursuant
to
the
Supplemental
Indenture
dated
as
of
June
22,
2016,
to
the
U.S.
Bank
Indenture(199)
4.475 Form
of
6.250%
Notes
due
2024,
Note
40,
of
an
aggregate
principal
amount
of
$719,375.00,
pursuant
to
the
Supplemental
Indenture
dated
as
of
June
22,
2016,
to
the
U.S.
Bank
Indenture(199)
4.476 Form
of
6.250%
Notes
due
2024,
Note
41,
of
an
aggregate
principal
amount
of
$979,025.00,
pursuant
to
the
Supplemental
Indenture
dated
as
of
June
22,
2016,
to
the
U.S.
Bank
Indenture(199)
4.477 Four
Hundred
Thirty-Eighth
Supplemental
Indenture
dated
as
of
August
25,
2016,
to
the
U.S.
Bank
Indenture
and
Form
of
5.500%
Prospect
Capital
InterNote®
due
2021(199)
10.1
Investment
Advisory
Agreement
between
Registrant
and
Prospect
Capital
Management
L.P.(2)
10.2 Administration
Agreement
between
Registrant
and
Prospect
Administration
LLC(2)
10.3 Dividend
Reinvestment
and
Direct
Stock
Purchase
Plan(174)
10.4
Trademark
License
Agreement
between
the
Registrant
and
Prospect
Capital
Investment
Management,
LLC(2)
10.5
Transfer
Agency
and
Registrar
Services
Agreement(4)
10.6
Fifth
Amended
and
Restated
Loan
and
Servicing
Agreement,
dated
August
29,
2014,
among
Prospect
Capital
Funding
LLC,
Prospect
Capital
Corporation,
the
lenders
from
time
to
time
party
thereto,
the
managing
agents
from
time
to
time
party
thereto,
U.S.
Bank
National
Association
as
Calculation
Agent,
Paying
Agent
and
Documentation
Agent,
KeyBank
National
Association
as
Facility
Agent,
Key
Equipment
Finance
Inc.
and
Royal
Bank
of
Canada
as
Syndication
Agents,
and
KeyBank
National
Association
as
Structuring
Agent,
Sole
Lead
Arranger
and
Sole
Bookrunner(13)
10.7
Fourth
Amended
and
Restated
Selling
Agent
Agreement,
dated
November
7,
2014,
by
and
among,
the
Registrant,
Prospect
Capital
Management
L.P.,
Prospect
Administration
LLC,
Incapital
LLC
and
the
Agents
named
therein
and
added
from
time
to
time(109)
10.8 Amended
and
Restated
Custody
Agreement,
dated
as
of
September
23,
2014,
by
and
between
the
Registrant
and
U.S.
Bank
National
Association(106)
10.9 Custody
Agreement,
dated
as
of
April
24,
2013,
by
and
between
the
Registrant
and
Israeli
Discount
Bank
of
New
York
Ltd.(5)
10.10 Custody
Agreement,
dated
as
of
October
28,
2013,
by
and
between
the
Registrant
and
Fifth
Third
Bank(82)
10.11 Custody
Agreement,
dated
as
of
May
9,
2014,
by
and
between
the
Registrant
and
Customers
Bank(104)
10.12 Custody
Agreement,
dated
as
of
May
9,
2014,
by
and
between
the
Registrant
and
Peapack-Gladstone
Bank(105)
10.13 Custody
Agreement,
dated
as
of
October
10,
2014,
by
and
between
Prospect
Yield
Corporation,
LLC
and
U.S.
Bank
National
Association(106)
10.14 Debt
Distribution
Agreement,
dated
June
22,
2016(190)
246
Exhibit No.
11
Computation
of
Per
Share
Earnings
(included
in
the
notes
to
the
financial
statements
contained
in
this
report)
12
Computation
of
Ratios
(included
in
the
notes
to
the
financial
statements
contained
in
this
report)
14
Code
of
Ethics*
21
Subsidiaries
of
the
Registrant
(included
in
the
notes
to
the
consolidated
financial
statements
contained
in
this
annual
report)
22.1
Proxy
Statement(200)
22.2
Published
report
regarding
matters
submitted
to
vote
of
security
holders(201)
22.3
Published
report
regarding
matters
submitted
to
vote
of
security
holders(202)
23.1 Consent
of
MSPC,
Certified
Public
Accountants
of
Harbortouch
Payments,
LLC*
23.2 Consent
of
BDO
USA,
LLP,
Certified
Public
Accountants
of
National
Property
REIT
Corp.*
23.3 Consent
of
Hood
&
Strong
LLP,
Certified
Public
Accountants
of
NPH
McDowell,
LLC*
23.4 Consent
of
Tidwell
Group,
LLC,
Certified
Public
Accountants
of
Michigan
Storage,
LLC*
31.1 Certification
of
Chief
Executive
Officer
pursuant
to
Rule
13a-14(a)
of
the
Securities
Exchange
Act
of
1934,
as
amended*
31.2 Certification
of
Chief
Financial
Officer
pursuant
to
Rule
13a-14(a)
of
the
Securities
Exchange
Act
of
1934,
as
amended*
32.1 Certification
of
Chief
Executive
Officer
pursuant
to
Section
906
of
The
Sarbanes-Oxley
Act
of
2002
(18
U.S.C.
1350)*
32.2 Certification
of
Chief
Financial
Officer
pursuant
to
Section
906
of
The
Sarbanes-Oxley
Act
of
2002
(18
U.S.C.
1350)*
99.1 Audited
Consolidated
Financial
Statements
of
Harbortouch
Payments,
LLC
for
the
year
ended
December
31,
2015*
99.2 Audited
Combined
Consolidated
Financial
Statements
of
National
Property
REIT
Corp.
for
the
years
ended
December
31,
2015
and
2014*
99.3 Audited
Consolidated
Financial
Statements
of
NPH
McDowell,
LLC
for
the
years
ended
December
31,
2015
and
2014*
99.4 Audited
Consolidated
Financial
Statements
of
Michigan
Storage,
LLC
for
the
year
ended
December
31,
2015
and
the
period
of
July
22,
2014
(date
of
inception)
through
December
31,
2014*
________________________
*
Filed
herewith.
(1)
Incorporated
by
reference
to
Exhibit
3.1
of
the
Registrant’s
Form
8-K,
filed
on
May
9,
2014.
(2)
Incorporated
by
reference
from
the
Registrant’s
Pre-effective
Amendment
No.
2
to
the
Registration
Statement
on
Form
N-2,
filed
on
July
6,
2004.
(3)
Incorporated
by
reference
to
Exhibit
3.1
of
the
Registrant’s
Form
8-K,
filed
on
December
11,
2015.
(4)
Incorporated
by
reference
from
the
Registrant’s
Pre-effective
Amendment
No.
3
to
the
Registration
Statement
on
Form
N-2,
filed
on
July
23,
2004.
(5)
Incorporated
by
reference
to
Exhibit
10.258
of
the
Registrant’s
Form
10-K
filed
on
August
21,
2013.
(6)
Incorporated
by
reference
to
Exhibit
4.2
of
the
Registrant’s
Form
8-K,
filed
on
February
18,
2011.
(7)
Incorporated
by
reference
to
Exhibit
4.1
of
the
Registrant’s
Form
8-K,
filed
on
December
21,
2010.
(8)
Incorporated
by
reference
to
Exhibit
4.1
of
the
Registrant’s
Form
8-K,
filed
on
February
18,
2011.
(9)
Incorporated
by
reference
from
the
Registrant’s
Registration
Statement
on
Form
N-2,
filed
on
September
1,
2011.
(10)
Incorporated
by
reference
from
the
Registrant’s
Post-Effective
Amendment
No.
1
to
the
Registration
Statement
on
Form
N-2,
filed
on
March
1,
2012.
(11)
Incorporated
by
reference
from
the
Registrant’s
Post-Effective
Amendment
No.
2
to
the
Registration
Statement
on
Form
N-2,
filed
on
March
8,
2012.
(12)
Incorporated
by
reference
from
the
Registrant’s
Post-Effective
Amendment
No.
3
to
the
Registration
Statement
on
Form
N-2,
filed
on
March
14,
2012.
(13)
Incorporated
by
reference
to
Exhibit
10.1
of
the
Registrant's
Form
8-K,
filed
on
September
2,
2014.
(14)
Incorporated
by
reference
from
the
Registrant’s
Post-Effective
Amendment
No.
5
to
the
Registration
Statement
on
Form
N-2,
filed
on
April
5,
2012.
(15)
Incorporated
by
reference
from
the
Registrant’s
Post-Effective
Amendment
No.
6
to
the
Registration
Statement
on
Form
N-2,
filed
on
April
12,
2012.
(16)
Incorporated
by
reference
to
Exhibit
4.1
of
the
Registrant’s
Form
8-K,
filed
on
April
16,
2012.
(17)
Incorporated
by
reference
to
Exhibit
4.2
of
the
Registrant’s
Form
8-K,
filed
on
April
16,
2012.
(18)
Incorporated
by
reference
from
the
Registrant’s
Post-Effective
Amendment
No.
8
to
the
Registration
Statement
on
Form
N-2,
filed
on
April
26,
2012.
247
(19)
Incorporated
by
reference
to
Exhibit
4.1
of
the
Registrant’s
Form
8-K,
filed
on
August
14,
2012.
(20)
Incorporated
by
reference
to
Exhibit
4.2
of
the
Registrant’s
Form
8-K,
filed
on
August
14,
2012.
(21)
Incorporated
by
reference
from
the
Registrant’s
Post-Effective
Amendment
No.
26
to
the
Registration
Statement
on
Form
N-2,
filed
on
September
27,
2012.
(22)
Incorporated
by
reference
from
the
Registrant’s
Post-Effective
Amendment
No.
27
to
the
Registration
Statement
on
Form
N-2,
filed
on
October
4,
2012.
(23)
Incorporated
by
reference
from
the
Registrant’s
Post-Effective
Amendment
No.
2
to
the
Registration
Statement
on
Form
N-2,
filed
on
November
23,
2012.
(24)
Incorporated
by
reference
from
the
Registrant’s
Post-Effective
Amendment
No.
3
to
the
Registration
Statement
on
Form
N-2,
filed
on
November
29,
2012.
(25)
Incorporated
by
reference
from
the
Registrant’s
Post-Effective
Amendment
No.
4
to
the
Registration
Statement
on
Form
N-2,
filed
on
December
6,
2012.
(26)
Incorporated
by
reference
from
the
Registrant’s
Post-Effective
Amendment
No.
5
to
the
Registration
Statement
on
Form
N-2,
filed
on
December
13,
2012.
(27)
Incorporated
by
reference
from
the
Registrant’s
Post-Effective
Amendment
No.
6
to
the
Registration
Statement
on
Form
N-2,
filed
on
December
20,
2012.
(28)
Incorporated
by
reference
to
Exhibit
4.1
of
the
Registrant’s
Form
8-K,
filed
on
December
21,
2012.
(29)
Incorporated
by
reference
from
the
Registrant’s
Post-Effective
Amendment
No.
8
to
the
Registration
Statement
on
Form
N-2,
filed
on
December
28,
2012.
(30)
Incorporated
by
reference
from
the
Registrant’s
Post-Effective
Amendment
No.
9
to
the
Registration
Statement
on
Form
N-2,
filed
on
January
4,
2013.
(31)
Incorporated
by
reference
from
the
Registrant’s
Post-Effective
Amendment
No.
10
to
the
Registration
Statement
on
Form
N-2,
filed
on
January
10,
2013.
(32)
Incorporated
by
reference
from
the
Registrant’s
Post-Effective
Amendment
No.
11
to
the
Registration
Statement
on
Form
N-2,
filed
on
January
17,
2013.
(33)
Incorporated
by
reference
from
the
Registrant’s
Post-Effective
Amendment
No.
12
to
the
Registration
Statement
on
Form
N-2,
filed
on
January
25,
2013.
(34)
Incorporated
by
reference
from
the
Registrant’s
Post-Effective
Amendment
No.
13
to
the
Registration
Statement
on
Form
N-2,
filed
on
January
31,
2013.
(35)
Incorporated
by
reference
from
the
Registrant’s
Post-Effective
Amendment
No.
14
to
the
Registration
Statement
on
Form
N-2,
filed
on
February
7,
2013.
(36)
Incorporated
by
reference
from
the
Registrant’s
Post-Effective
Amendment
No.
16
to
the
Registration
Statement
on
Form
N-2,
filed
on
February
22,
2013.
(37)
Incorporated
by
reference
from
the
Registrant’s
Post-Effective
Amendment
No.
17
to
the
Registration
Statement
on
Form
N-2,
filed
on
February
28,
2013.
(38)
Incorporated
by
reference
from
the
Registrant’s
Post-Effective
Amendment
No.
18
to
the
Registration
Statement
on
Form
N-2,
filed
on
March
7,
2013.
(39)
Incorporated
by
reference
from
the
Registrant’s
Post-Effective
Amendment
No.
19
to
the
Registration
Statement
on
Form
N-2,
filed
on
March
14,
2013.
(40)
Incorporated
by
reference
to
Exhibit
4.1
of
the
Registrant’s
Form
8-K,
filed
on
March
15,
2013.
(41)
Incorporated
by
reference
to
Exhibit
4.2
of
the
Registrant’s
Form
8-K,
filed
on
March
15,
2013.
(42)
Incorporated
by
reference
from
the
Registrant’s
Post-Effective
Amendment
No.
21
to
the
Registration
Statement
on
Form
N-2,
filed
on
March
21,
2013.
(43)
Incorporated
by
reference
from
the
Registrant’s
Post-Effective
Amendment
No.
22
to
the
Registration
Statement
on
Form
N-2,
filed
on
March
28,
2013.
(44)
Incorporated
by
reference
from
the
Registrant’s
Post-Effective
Amendment
No.
23
to
the
Registration
Statement
on
Form
N-2,
filed
on
April
4,
2013.
(45)
Incorporated
by
reference
from
the
Registrant’s
Post-Effective
Amendment
No.
24
to
the
Registration
Statement
on
Form
N-2,
filed
on
April
11,
2013.
(46)
Incorporated
by
reference
from
the
Registrant’s
Post-Effective
Amendment
No.
25
to
the
Registration
Statement
on
Form
N-2,
filed
on
April
18,
2013.
(47)
Incorporated
by
reference
from
the
Registrant’s
Post-Effective
Amendment
No.
26
to
the
Registration
Statement
on
Form
N-2,
filed
on
April
25,
2013.
(48)
Incorporated
by
reference
from
the
Registrant’s
Post-Effective
Amendment
No.
27
to
the
Registration
Statement
on
Form
N-2,
filed
on
May
2,
2013.
248
(49)
Incorporated
by
reference
from
the
Registrant’s
Post-Effective
Amendment
No.
29
to
the
Registration
Statement
on
Form
N-2,
filed
on
May
9,
2013.
(50)
Incorporated
by
reference
from
the
Registrant’s
Post-Effective
Amendment
No.
30
to
the
Registration
Statement
on
Form
N-2,
filed
on
May
23,
2013.
(51)
Incorporated
by
reference
from
the
Registrant’s
Post-Effective
Amendment
No.
31
to
the
Registration
Statement
on
Form
N-2,
filed
on
May
31,
2013.
(52)
Incorporated
by
reference
from
the
Registrant’s
Post-Effective
Amendment
No.
32
to
the
Registration
Statement
on
Form
N-2,
filed
on
June
6,
2013.
(53)
Incorporated
by
reference
from
the
Registrant’s
Post-Effective
Amendment
No.
33
to
the
Registration
Statement
on
Form
N-2,
filed
on
June
13,
2013.
(54)
Incorporated
by
reference
from
the
Registrant’s
Post-Effective
Amendment
No.
34
to
the
Registration
Statement
on
Form
N-2,
filed
on
June
20,
2013.
(55)
Incorporated
by
reference
from
the
Registrant’s
Post-Effective
Amendment
No.
35
to
the
Registration
Statement
on
Form
N-2,
filed
on
June
27,
2013.
(56)
Incorporated
by
reference
from
the
Registrant’s
Post-Effective
Amendment
No.
36
to
the
Registration
Statement
on
Form
N-2,
filed
on
July
5,
2013.
(57)
Incorporated
by
reference
from
the
Registrant’s
Post-Effective
Amendment
No.
37
to
the
Registration
Statement
on
Form
N-2,
filed
on
July
11,
2013.
(58)
Incorporated
by
reference
from
the
Registrant’s
Post-Effective
Amendment
No.
38
to
the
Registration
Statement
on
Form
N-2,
filed
on
July
18,
2013.
(59)
Incorporated
by
reference
from
the
Registrant’s
Post-Effective
Amendment
No.
39
to
the
Registration
Statement
on
Form
N-2,
filed
on
July
25,
2013.
(60)
Incorporated
by
reference
from
the
Registrant’s
Post-Effective
Amendment
No.
40
to
the
Registration
Statement
on
Form
N-2,
filed
on
August
1,
2013.
(61)
Incorporated
by
reference
from
the
Registrant’s
Post-Effective
Amendment
No.
41
to
the
Registration
Statement
on
Form
N-2,
filed
on
August
8,
2013.
(62)
Incorporated
by
reference
from
the
Registrant’s
Post-Effective
Amendment
No.
42
to
the
Registration
Statement
on
Form
N-2,
filed
on
August
15,
2013.
(63)
Incorporated
by
reference
from
the
Registrant’s
Post-Effective
Amendment
No.
43
to
the
Registration
Statement
on
Form
N-2,
filed
on
August
22,
2013.
(64)
Incorporated
by
reference
from
the
Registrant’s
Post-Effective
Amendment
No.
45
to
the
Registration
Statement
on
Form
N-2,
filed
on
September
6,
2013.
(65)
Incorporated
by
reference
from
the
Registrant’s
Post-Effective
Amendment
No.
46
to
the
Registration
Statement
on
Form
N-2,
filed
on
September
12,
2013.
(66)
Incorporated
by
reference
from
the
Registrant’s
Post-Effective
Amendment
No.
47
to
the
Registration
Statement
on
Form
N-2,
filed
on
September
19,
2013.
(67)
Incorporated
by
reference
from
the
Registrant’s
Post-Effective
Amendment
No.
48
to
the
Registration
Statement
on
Form
N-2,
filed
on
September
26,
2013.
(68)
Incorporated
by
reference
from
the
Registrant’s
Post-Effective
Amendment
No.
49
to
the
Registration
Statement
on
Form
N-2,
filed
on
October
3,
2013.
(69)
Incorporated
by
reference
from
the
Registrant’s
Post-Effective
Amendment
No.
50
to
the
Registration
Statement
on
Form
N-2,
filed
on
October
10,
2013.
(70)
Incorporated
by
reference
from
the
Registrant’s
Post-Effective
Amendment
No.
51
to
the
Registration
Statement
on
Form
N-2,
filed
on
October
18,
2013.
(71)
Incorporated
by
reference
from
the
Registrant’s
Post-Effective
Amendment
No.
3
to
the
Registration
Statement
on
Form
N-2,
filed
on
October
24,
2013.
(72)
Incorporated
by
reference
from
the
Registrant’s
Post-Effective
Amendment
No.
4
to
the
Registration
Statement
on
Form
N-2,
filed
on
October
31,
2013.
(73)
Incorporated
by
reference
from
the
Registrant’s
Post-Effective
Amendment
No.
6
to
the
Registration
Statement
on
Form
N-2,
filed
on
November
7,
2013.
(74)
Incorporated
by
reference
from
the
Registrant’s
Post-Effective
Amendment
No.
7
to
the
Registration
Statement
on
Form
N-2,
filed
on
November
15,
2013.
(75)
Incorporated
by
reference
from
the
Registrant’s
Post-Effective
Amendment
No.
8
to
the
Registration
Statement
on
Form
N-2,
filed
on
November
21,
2013.
(76)
Incorporated
by
reference
from
the
Registrant’s
Post-Effective
Amendment
No.
9
to
the
Registration
Statement
on
Form
N-2,
filed
on
November
29,
2013.
249
(77)
Incorporated
by
reference
from
the
Registrant’s
Post-Effective
Amendment
No.
10
to
the
Registration
Statement
on
Form
N-2,
filed
on
December
5,
2013.
(78)
Incorporated
by
reference
from
the
Registrant’s
Post-Effective
Amendment
No.
11
to
the
Registration
Statement
on
Form
N-2,
filed
on
December
12,
2013.
(79)
Incorporated
by
reference
from
the
Registrant’s
Post-Effective
Amendment
No.
12
to
the
Registration
Statement
on
Form
N-2,
filed
on
December
19,
2013.
(80)
Incorporated
by
reference
from
the
Registrant’s
Post-Effective
Amendment
No.
13
to
the
Registration
Statement
on
Form
N-2,
filed
on
December
27,
2013.
(81)
Incorporated
by
reference
from
the
Registrant’s
Post-Effective
Amendment
No.
14
to
the
Registration
Statement
on
Form
N-2,
filed
on
January
3,
2014.
(82)
Incorporated
by
reference
from
the
Registrant’s
Post-Effective
Amendment
No.
15
to
the
Registration
Statement
on
Form
N-2,
filed
on
January
9,
2014.
(83)
Incorporated
by
reference
from
the
Registrant’s
Post-Effective
Amendment
No.
16
to
the
Registration
Statement
on
Form
N-2,
filed
on
January
16,
2014.
(84)
Incorporated
by
reference
from
the
Registrant’s
Post-Effective
Amendment
No.
17
to
the
Registration
Statement
on
Form
N-2,
filed
on
January
24,
2014.
(85)
Incorporated
by
reference
from
the
Registrant’s
Post-Effective
Amendment
No.
18
to
the
Registration
Statement
on
Form
N-2,
filed
on
January
30,
2014.
(86)
Incorporated
by
reference
from
the
Registrant’s
Post-Effective
Amendment
No.
19
to
the
Registration
Statement
on
Form
N-2,
filed
on
February
6,
2014.
(87)
Incorporated
by
reference
from
the
Registrant’s
Post-Effective
Amendment
No.
20
to
the
Registration
Statement
on
Form
N-2,
filed
on
February
13,
2014.
(88)
Incorporated
by
reference
from
the
Registrant’s
Post-Effective
Amendment
No.
21
to
the
Registration
Statement
on
Form
N-2,
filed
on
February
19,
2014.
(89)
Incorporated
by
reference
from
the
Registrant’s
Post-Effective
Amendment
No.
22
to
the
Registration
Statement
on
Form
N-2,
filed
on
February
21,
2014.
(90)
Incorporated
by
reference
from
the
Registrant’s
Post-Effective
Amendment
No.
23
to
the
Registration
Statement
on
Form
N-2,
filed
on
February
27,
2014.
(91)
Incorporated
by
reference
from
the
Registrant’s
Post-Effective
Amendment
No.
24
to
the
Registration
Statement
on
Form
N-2,
filed
on
March
6,
2014.
(92)
Incorporated
by
reference
from
the
Registrant’s
Post-Effective
Amendment
No.
25
to
the
Registration
Statement
on
Form
N-2,
filed
on
March
11,
2014.
(93)
Incorporated
by
reference
from
the
Registrant’s
Post-Effective
Amendment
No.
26
to
the
Registration
Statement
on
Form
N-2,
filed
on
March
13,
2014.
(94)
Incorporated
by
reference
from
the
Registrant’s
Post-Effective
Amendment
No.
27
to
the
Registration
Statement
on
Form
N-2,
filed
on
March
20,
2014.
(95)
Incorporated
by
reference
from
the
Registrant’s
Post-Effective
Amendment
No.
28
to
the
Registration
Statement
on
Form
N-2,
filed
on
March
27,
2014.
(96)
Incorporated
by
reference
from
the
Registrant’s
Post-Effective
Amendment
No.
29
to
the
Registration
Statement
on
Form
N-2,
filed
on
April
3,
2014.
(97)
Incorporated
by
reference
from
the
Registrant’s
Post-Effective
Amendment
No.
30
to
the
Registration
Statement
on
Form
N-2,
filed
on
April
7,
2014.
(98)
Incorporated
by
reference
from
the
Registrant’s
Post-Effective
Amendment
No.
31
to
the
Registration
Statement
on
Form
N-2,
filed
on
April
10,
2014.
(99)
Incorporated
by
reference
to
Exhibit
4.1
of
the
Registrant’s
Form
8-K,
filed
on
April
16,
2014.
(100)
Incorporated
by
reference
from
the
Registrant’s
Post-Effective
Amendment
No.
32
to
the
Registration
Statement
on
Form
N-2,
filed
on
April
17,
2014.
(101)
Incorporated
by
reference
from
the
Registrant’s
Post-Effective
Amendment
No.
33
to
the
Registration
Statement
on
Form
N-2,
filed
on
April
24,
2014.
(102)
Incorporated
by
reference
from
the
Registrant’s
Post-Effective
Amendment
No.
34
to
the
Registration
Statement
on
Form
N-2,
filed
on
May
1,
2014.
(103)
Incorporated
by
reference
from
the
Registrant’s
Post-Effective
Amendment
No.
35
to
the
Registration
Statement
on
Form
N-2,
filed
on
May
8,
2014.
(104)
Incorporated
by
reference
to
Exhibit
10.12
of
the
Registrant’s
Form
10-K,
filed
on
August
25,
2014.
(105)
Incorporated
by
reference
to
Exhibit
10.13
of
the
Registrant’s
Form
10-K,
filed
on
August
25,
2014.
250
(106)
Incorporated
by
reference
from
the
Registrant's
Pre-Effective
Amendment
No.
1
to
the
Registration
Statement
on
Form
N-2,
filed
on
October
14,
2014.
(107)
Incorporated
by
reference
to
Exhibit
99.1
of
the
Registrant's
Form
10-K/A,
filed
on
November
3,
2014.
(108)
Incorporated
by
reference
from
the
Registrant's
Pre-Effective
Amendment
No.
2
to
the
Registration
Statement
on
Form
N-2,
filed
on
November
3,
2014.
(109)
Incorporated
by
reference
from
the
Registrant's
Post-Effective
Amendment
No.
1
to
the
Registration
Statement
on
Form
N-2,
filed
on
November
3,
2014.
(110)
Incorporated
by
reference
from
the
Registrant's
Post-Effective
Amendment
No.
2
to
the
Registration
Statement
on
Form
N-2,
filed
on
November
20,
2014.
(111)
Incorporated
by
reference
from
the
Registrant's
Post-Effective
Amendment
No.
3
to
the
Registration
Statement
on
Form
N-2,
filed
on
November
28,
2014.
(112)
Incorporated
by
reference
from
the
Registrant's
Post-Effective
Amendment
No.
4
to
the
Registration
Statement
on
Form
N-2,
filed
on
December
4,
2014.
(113)
Incorporated
by
reference
from
the
Registrant's
Post-Effective
Amendment
No.
5
to
the
Registration
Statement
on
Form
N-2,
filed
on
December
11,
2014.
(114)
Incorporated
by
reference
from
the
Registrant's
Post-Effective
Amendment
No.
6
to
the
Registration
Statement
on
Form
N-2,
filed
on
December
18,
2014.
(115)
Incorporated
by
reference
from
the
Registrant's
Post-Effective
Amendment
No.
7
to
the
Registration
Statement
on
Form
N-2,
filed
on
December
29,
2014.
(116)
Incorporated
by
reference
from
the
Registrant's
Post-Effective
Amendment
No.
8
to
the
Registration
Statement
on
Form
N-2,
filed
on
January
5,
2015.
(117)
Incorporated
by
reference
from
the
Registrant's
Post-Effective
Amendment
No.
9
to
the
Registration
Statement
on
Form
N-2,
filed
on
January
8,
2015.
(118)
Incorporated
by
reference
from
the
Registrant's
Post-Effective
Amendment
No.
10
to
the
Registration
Statement
on
Form
N-2,
filed
on
January
15,
2015.
(119)
Incorporated
by
reference
from
the
Registrant's
Post-Effective
Amendment
No.
11
to
the
Registration
Statement
on
Form
N-2,
filed
on
January
23,
2015.
(120)
Incorporated
by
reference
from
the
Registrant's
Post-Effective
Amendment
No.
12
to
the
Registration
Statement
on
Form
N-2,
filed
on
January
29,
2015.
(121)
Incorporated
by
reference
from
the
Registrant's
Post-Effective
Amendment
No.
13
to
the
Registration
Statement
on
Form
N-2,
filed
on
February
5,
2015.
(122)
Incorporated
by
reference
from
the
Registrant's
Post-Effective
Amendment
No.
14
to
the
Registration
Statement
on
Form
N-2,
filed
on
February
20,
2015.
(123)
Incorporated
by
reference
from
the
Registrant's
Post-Effective
Amendment
No.
15
to
the
Registration
Statement
on
Form
N-2,
filed
on
February
26,
2015.
(124)
Incorporated
by
reference
from
the
Registrant's
Post-Effective
Amendment
No.
16
to
the
Registration
Statement
on
Form
N-2,
filed
on
March
5,
2015.
(125)
Incorporated
by
reference
from
the
Registrant's
Post-Effective
Amendment
No.
17
to
the
Registration
Statement
on
Form
N-2,
filed
on
March
12,
2015.
(126)
Incorporated
by
reference
from
the
Registrant's
Post-Effective
Amendment
No.
18
to
the
Registration
Statement
on
Form
N-2,
filed
on
March
19,
2015.
(127)
Incorporated
by
reference
from
the
Registrant's
Post-Effective
Amendment
No.
19
to
the
Registration
Statement
on
Form
N-2,
filed
on
March
26,
2015.
(128)
Incorporated
by
reference
from
the
Registrant's
Post-Effective
Amendment
No.
20
to
the
Registration
Statement
on
Form
N-2,
filed
on
April
2,
2015.
(129)
Incorporated
by
reference
from
the
Registrant's
Post-Effective
Amendment
No.
21
to
the
Registration
Statement
on
Form
N-2,
filed
on
April
9,
2015.
(130)
Incorporated
by
reference
from
the
Registrant's
Post-Effective
Amendment
No.
22
to
the
Registration
Statement
on
Form
N-2,
filed
on
April
16,
2015.
(131)
Incorporated
by
reference
from
the
Registrant's
Post-Effective
Amendment
No.
23
to
the
Registration
Statement
on
Form
N-2,
filed
on
April
23,
2015.
(132)
Incorporated
by
reference
from
the
Registrant's
Post-Effective
Amendment
No.
24
to
the
Registration
Statement
on
Form
N-2,
filed
on
April
29,
2015.
(133)
Incorporated
by
reference
from
the
Registrant's
Post-Effective
Amendment
No.
25
to
the
Registration
Statement
on
Form
N-2,
filed
on
May
7,
2015.
251
(134)
Incorporated
by
reference
from
the
Registrant's
Post-Effective
Amendment
No.
26
to
the
Registration
Statement
on
Form
N-2,
filed
on
May
21,
2015.
(135)
Incorporated
by
reference
from
the
Registrant's
Post-Effective
Amendment
No.
27
to
the
Registration
Statement
on
Form
N-2,
filed
on
May
29,
2015.
(136)
Incorporated
by
reference
from
the
Registrant's
Post-Effective
Amendment
No.
28
to
the
Registration
Statement
on
Form
N-2,
filed
on
June
4,
2015.
(137)
Incorporated
by
reference
from
the
Registrant's
Post-Effective
Amendment
No.
29
to
the
Registration
Statement
on
Form
N-2,
filed
on
June
11,
2015.
(138)
Incorporated
by
reference
from
the
Registrant's
Post-Effective
Amendment
No.
30
to
the
Registration
Statement
on
Form
N-2,
filed
on
June
18,
2015.
(139)
Incorporated
by
reference
from
the
Registrant's
Post-Effective
Amendment
No.
31
to
the
Registration
Statement
on
Form
N-2,
filed
on
June
25,
2015.
(140)
Incorporated
by
reference
from
the
Registrant's
Post-Effective
Amendment
No.
32
to
the
Registration
Statement
on
Form
N-2,
filed
on
July
2,
2015.
(141)
Incorporated
by
reference
from
the
Registrant's
Post-Effective
Amendment
No.
33
to
the
Registration
Statement
on
Form
N-2,
filed
on
July
9,
2015.
(142)
Incorporated
by
reference
from
the
Registrant's
Post-Effective
Amendment
No.
34
to
the
Registration
Statement
on
Form
N-2,
filed
on
July
16,
2015.
(143)
Incorporated
by
reference
from
the
Registrant's
Post-Effective
Amendment
No.
35
to
the
Registration
Statement
on
Form
N-2,
filed
on
July
23,
2015.
(144)
Incorporated
by
reference
from
the
Registrant's
Post-Effective
Amendment
No.
36
to
the
Registration
Statement
on
Form
N-2,
filed
on
July
30,
2015.
(145)
Incorporated
by
reference
from
the
Registrant's
Post-Effective
Amendment
No.
37
to
the
Registration
Statement
on
Form
N-2,
filed
on
August
6,
2015.
(146)
Incorporated
by
reference
from
the
Registrant's
Post-Effective
Amendment
No.
38
to
the
Registration
Statement
on
Form
N-2,
filed
on
August
13,
2015.
(147)
Incorporated
by
reference
from
the
Registrant's
Post-Effective
Amendment
No.
39
to
the
Registration
Statement
on
Form
N-2,
filed
on
August
20,
2015.
(148)
Incorporated
by
reference
from
the
Registrant's
Post-Effective
Amendment
No.
40
to
the
Registration
Statement
on
Form
N-2,
filed
on
August
27,
2015.
(149)
Incorporated
by
reference
to
Exhibit
14
of
the
Registrant’s
Form
10-K,
filed
on
August
26,
2015.
(150)
Incorporated
by
reference
from
the
Registrant's
Pre-Effective
Registration
Statement
on
Form
N-2,
filed
on
August
31,
2015.
(151)
Incorporated
by
reference
to
Exhibit
99.1
of
the
Registrant’s
Form
10-K/A,
filed
on
September
11,
2015.
(152)
Incorporated
by
reference
to
Exhibit
99.2
of
the
Registrant’s
Form
10-K/A,
filed
on
September
11,
2015.
(153)
Incorporated
by
reference
from
the
Registrant's
Post-Effective
Amendment
No.
42
to
the
Registration
Statement
on
Form
N-2,
filed
on
September
16,
2015.
(154)
Incorporated
by
reference
from
the
Registrant's
Post-Effective
Amendment
No.
43
to
the
Registration
Statement
on
Form
N-2,
filed
on
September
17,
2015.
(155)
Incorporated
by
reference
from
the
Registrant's
Post-Effective
Amendment
No.
44
to
the
Registration
Statement
on
Form
N-2,
filed
on
September
24,
2015.
(156)
Incorporated
by
reference
from
the
Registrant's
Post-Effective
Amendment
No.
45
to
the
Registration
Statement
on
Form
N-2,
filed
on
October
1,
2015.
(157)
Incorporated
by
reference
from
the
Registrant's
Post-Effective
Amendment
No.
46
to
the
Registration
Statement
on
Form
N-2,
filed
on
October
8,
2015.
(158)
Incorporated
by
reference
from
the
Registrant's
Pre-Effective
Amendment
No.
1
to
the
Registration
Statement
on
Form
N-2,
filed
on
October
9,
2015.
(159)
Incorporated
by
reference
from
the
Registrant's
Post-Effective
Amendment
No.
47
to
the
Registration
Statement
on
Form
N-2,
filed
on
October
16,
2015.
(160)
Incorporated
by
reference
from
the
Registrant's
Post-Effective
Amendment
No.
48
to
the
Registration
Statement
on
Form
N-2,
filed
on
October
22,
2015.
(161)
Incorporated
by
reference
from
the
Registrant's
Post-Effective
Amendment
No.
49
to
the
Registration
Statement
on
Form
N-2,
filed
on
October
29,
2015.
(162)
Incorporated
by
reference
from
the
Registrant's
Pre-Effective
Amendment
No.
2
to
the
Registration
Statement
on
Form
N-2,
filed
on
November
2,
2015.
252
(163)
Incorporated
by
reference
from
the
Registrant's
Post-Effective
Amendment
No.
50
to
the
Registration
Statement
on
Form
N-2,
filed
on
November
4,
2015.
(164)
Incorporated
by
reference
from
the
Registrant's
Post-Effective
Amendment
No.
1
to
the
Registration
Statement
on
Form
N-2,
filed
on
November
19,
2015.
(165)
Incorporated
by
reference
from
the
Registrant's
Post-Effective
Amendment
No.
2
to
the
Registration
Statement
on
Form
N-2,
filed
on
November
27,
2015.
(166)
Incorporated
by
reference
from
the
Registrant's
Post-Effective
Amendment
No.
3
to
the
Registration
Statement
on
Form
N-2,
filed
on
December
3,
2015.
(167)
Incorporated
by
reference
from
the
Registrant's
Post-Effective
Amendment
No.
4
to
the
Registration
Statement
on
Form
N-2,
filed
on
December
10,
2015.
(168)
Incorporated
by
reference
from
the
Registrant's
Post-Effective
Amendment
No.
5
to
the
Registration
Statement
on
Form
N-2,
filed
on
December
17,
2015.
(169)
Incorporated
by
reference
from
the
Registrant's
Post-Effective
Amendment
No.
6
to
the
Registration
Statement
on
Form
N-2,
filed
on
December
24,
2015.
(170)
Incorporated
by
reference
from
the
Registrant's
Post-Effective
Amendment
No.
7
to
the
Registration
Statement
on
Form
N-2,
filed
on
December
31,
2015.
(171)
Incorporated
by
reference
from
the
Registrant's
Post-Effective
Amendment
No.
8
to
the
Registration
Statement
on
Form
N-2,
filed
on
January
7,
2016.
(172)
Incorporated
by
reference
from
the
Registrant's
Post-Effective
Amendment
No.
9
to
the
Registration
Statement
on
Form
N-2,
filed
on
January
14,
2016.
(173)
Incorporated
by
reference
from
the
Registrant's
Post-Effective
Amendment
No.
10
to
the
Registration
Statement
on
Form
N-2,
filed
on
January
22,
2016.
(174)
Incorporated
by
reference
from
the
Registrant's
Post-Effective
Amendment
No.
11
to
the
Registration
Statement
on
Form
N-2,
filed
on
February
12,
2016.
(175)
Incorporated
by
reference
from
the
Registrant's
Post-Effective
Amendment
No.
12
to
the
Registration
Statement
on
Form
N-2,
filed
on
March
3,
2016.
(176)
Incorporated
by
reference
from
the
Registrant's
Post-Effective
Amendment
No.
13
to
the
Registration
Statement
on
Form
N-2,
filed
on
March
10,
2016.
(177)
Incorporated
by
reference
from
the
Registrant's
Post-Effective
Amendment
No.
14
to
the
Registration
Statement
on
Form
N-2,
filed
on
March
17,
2016.
(178)
Incorporated
by
reference
from
the
Registrant's
Post-Effective
Amendment
No.
15
to
the
Registration
Statement
on
Form
N-2,
filed
on
March
24,
2016.
(179)
Incorporated
by
reference
from
the
Registrant's
Post-Effective
Amendment
No.
16
to
the
Registration
Statement
on
Form
N-2,
filed
on
March
31,
2016.
(180)
Incorporated
by
reference
from
the
Registrant's
Post-Effective
Amendment
No.
17
to
the
Registration
Statement
on
Form
N-2,
filed
on
April
7,
2016.
(181)
Incorporated
by
reference
from
the
Registrant's
Post-Effective
Amendment
No.
18
to
the
Registration
Statement
on
Form
N-2,
filed
on
April
14,
2016.
(182)
Incorporated
by
reference
from
the
Registrant's
Post-Effective
Amendment
No.
19
to
the
Registration
Statement
on
Form
N-2,
filed
on
April
21,
2016.
(183)
Incorporated
by
reference
from
the
Registrant's
Post-Effective
Amendment
No.
20
to
the
Registration
Statement
on
Form
N-2,
filed
on
April
28,
2016.
(184)
Incorporated
by
reference
from
the
Registrant's
Post-Effective
Amendment
No.
21
to
the
Registration
Statement
on
Form
N-2,
filed
on
May
5,
2016.
(185)
Incorporated
by
reference
from
the
Registrant's
Post-Effective
Amendment
No.
22
to
the
Registration
Statement
on
Form
N-2,
filed
on
May
12,
2016.
(186)
Incorporated
by
reference
from
the
Registrant's
Post-Effective
Amendment
No.
23
to
the
Registration
Statement
on
Form
N-2,
filed
on
May
26,
2016.
(187)
Incorporated
by
reference
from
the
Registrant's
Post-Effective
Amendment
No.
24
to
the
Registration
Statement
on
Form
N-2,
filed
on
June
3,
2016.
(188)
Incorporated
by
reference
from
the
Registrant's
Post-Effective
Amendment
No.
25
to
the
Registration
Statement
on
Form
N-2,
filed
on
June
9,
2016.
(189)
Incorporated
by
reference
from
the
Registrant's
Post-Effective
Amendment
No.
26
to
the
Registration
Statement
on
Form
N-2,
filed
on
June
16,
2016.
(190)
Incorporated
by
reference
from
the
Registrant's
Post-Effective
Amendment
No.
27
to
the
Registration
Statement
on
Form
N-2,
filed
on
June
23,
2016.
253
(191)
Incorporated
by
reference
from
the
Registrant's
Post-Effective
Amendment
No.
28
to
the
Registration
Statement
on
Form
N-2,
filed
on
June
30,
2016.
(192)
Incorporated
by
reference
from
the
Registrant's
Post-Effective
Amendment
No.
29
to
the
Registration
Statement
on
Form
N-2,
filed
on
July
8,
2016.
(193)
Incorporated
by
reference
from
the
Registrant's
Post-Effective
Amendment
No.
30
to
the
Registration
Statement
on
Form
N-2,
filed
on
July
14,
2016.
(194)
Incorporated
by
reference
from
the
Registrant's
Post-Effective
Amendment
No.
31
to
the
Registration
Statement
on
Form
N-2,
filed
on
July
21,
2016.
(195)
Incorporated
by
reference
from
the
Registrant's
Post-Effective
Amendment
No.
32
to
the
Registration
Statement
on
Form
N-2,
filed
on
July
28,
2016.
(196)
Incorporated
by
reference
from
the
Registrant's
Post-Effective
Amendment
No.
33
to
the
Registration
Statement
on
Form
N-2,
filed
on
August
4,
2016.
(197)
Incorporated
by
reference
from
the
Registrant's
Post-Effective
Amendment
No.
34
to
the
Registration
Statement
on
Form
N-2,
filed
on
August
11,
2016.
(198)
Incorporated
by
reference
from
the
Registrant's
Post-Effective
Amendment
No.
35
to
the
Registration
Statement
on
Form
N-2,
filed
on
August
18,
2016.
(199)
Incorporated
by
reference
from
the
Registrant's
Post-Effective
Amendment
No.
36
to
the
Registration
Statement
on
Form
N-2,
filed
on
August
25,
2016.
(200)
Incorporated
by
reference
from
the
Registrant's
Proxy
Statement,
filed
on
September
10,
2015.
(201)
Incorporated
by
reference
from
the
Registrant’s
Form
8-K,
filed
on
December
7,
2015.
(202)
Incorporated
by
reference
from
the
Registrant’s
Form
8-K,
filed
on
January
8,
2016.
254
Pursuant
to
the
requirements
of
Section
13
or
15(d)
of
the
Securities
Exchange
Act
of
1934,
the
Registrant
has
duly
caused
this
report
to
be
signed
on
its
behalf
by
the
undersigned,
thereunto
duly
authorized
on
August
29,
2016
.
SIGNATURES
PROSPECT CAPITAL CORPORATION
By:
/s/
JOHN
F.
BARRY
III
John
F.
Barry
III
Chairman of the Board and Chief Executive Officer
Pursuant
to
the
requirements
of
the
Securities
Exchange
Act
of
1934,
this
report
has
been
signed
below
by
the
following
persons
on
behalf
of
the
Registrant
and
in
the
capacities
and
on
the
dates
indicated.
/s/
JOHN
F.
BARRY
III
John
F.
Barry
III
Chairman of the Board, Chief Executive Officer and Director
August
29,
2016
/s/
BRIAN
H.
OSWALD
Brian
H.
Oswald
Chief Financial Officer
August
29,
2016
/s/
M.
GRIER
ELIASEK
M.
Grier
Eliasek
President, Chief Operating Officer and Director
August
29,
2016
/s/
ANDREW
C.
COOPER
Andrew
C.
Cooper
Director
August
29,
2016
/s/
WILLIAM
J.
GREMP
William
J.
Gremp
Director
August
29,
2016
/s/
EUGENE
S.
STARK
Eugene
S.
Stark
Director
August
29,
2016
CODE OF ETHICS
FOR
PROSPECT CAPITAL CORPORATION
PROSPECT CAPITAL MANAGEMENT L.P.
(Board Approved: August 25, 2016)
Section I. Statement of General Fiduciary Principles
This Code of Ethics (the “Code”) has been adopted by each of Prospect Capital Corporation and its consolidated subsidiaries (“PCC” or the
“Corporation”), and Prospect Capital Management L.P., the investment adviser (the “Adviser” or “PCM”) of the Corporation (together “Prospect”) , in
compliance with Rule 17j-1 under the Investment Company Act of 1940 (the “1940 Act”) and Rule 204A-1 under the Investment Advisers Act of 1940
(the “Advisers Act”). The purpose of the Code is to establish standards and procedures for the detection and prevention of activities by which
persons having knowledge of the investments, investment intentions and other non-public information of the Corporation may abuse their fiduciary
duty to the Corporation, and otherwise to deal with the types of conflict of interest situations to which Rule 17j-1 and Rule 204A-1 are addressed.
The Code is based on the principle that the directors and officers of the Corporation, and the managers, partners, officers and employees of the
Adviser, who provide services to the Corporation, (i) owe a fiduciary duty to the Corporation to conduct their personal securities transactions in a
manner that does not interfere with the Corporation’s transactions or otherwise take unfair advantage of their relationship with the Corporation, and
(ii) owe a fiduciary duty of care, loyalty, honesty and good faith to act in the best interests of the Corporation and its shareholders. All Access
Persons (as defined below) are expected to adhere to this general principle as well as to comply with all of the specific provisions of this Code that
are applicable to them. Any Access Person who is affiliated with another entity that is a registered investment adviser is, in addition, expected to
comply with the provisions of the code of ethics that has been adopted by such other investment adviser.
Technical compliance with the Code will not automatically insulate any Access Person from scrutiny of transactions that show a pattern of
compromise or abuse of the individual’s fiduciary duty to the Corporation. Accordingly, all Access Persons must seek to avoid any actual or potential
conflicts between their personal interests and the interests of the Corporation and its shareholders. In sum, all Access Persons shall place the
interests of the Corporation before their own personal interests.
All Access Persons must read and retain this Code of Ethics.
Section II Definitions
(A)
“Access Person” means any Supervised Person (as defined below) of the Adviser who has access to non-public information regarding the
Corporation or any other clients’ purchase or sale of securities, or non-public information regarding the portfolio holdings of the Corporation or
any other clients for which the Adviser serves as investment adviser, or whose investment adviser or principal underwriter controls (as defined
below) the Adviser, is controlled by the Adviser, or is under common control with the Adviser, or Advisory Person (as defined below) of the
Corporation or the Adviser.
(B) An “Advisory Person” of the Corporation or the Adviser means: (i) any director, officer, general partner or employee of the Corporation or the
Adviser, or any company in a control relationship to the Corporation or the Adviser, who in connection with his or her regular functions or duties
makes, participates in, or obtains information regarding the purchase or sale of any Covered Security (as defined below) by the Corporation, or
whose functions relate to the making of any recommendation with respect to such purchases or sales; and (ii) any natural person in a control
relationship to the Corporation or the Adviser, who obtains information concerning recommendations made to the Corporation with regard to
the purchase or sale of any Covered Security by the Corporation.
(C)
“Beneficial Ownership” is interpreted in the same manner as it would be under Rule 16a-1(a)(2) under the Securities Exchange Act of 1934, as
amended (the “1934 Act”). Under this Rule, a person is deemed to have
1
beneficial ownership of a security if the person, directly or indirectly, through contract, arrangement, understanding, relationship or otherwise,
has or shares a direct or indirect pecuniary interest in such security. A “pecuniary interest” in a security means the opportunity, directly or
indirectly, to profit or share in any profit derived from a transaction in the security. A person is presumed to have an “indirect pecuniary interest”
in securities held by a member of his or her “Immediate Family” (although this presumption may be rebutted). For purposes of the Rule,
“Immediate Family” means any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law, son-
in-law, daughter-in-law, brother-in-law, or sister-in-law, and shall include adoptive relationships. An indirect pecuniary interest also includes,
among other things:
•
•
a general partner’s proportionate interest in the portfolio securities held by a general or limited partnership;
subject to certain exceptions specified in the Rule, a performance-related fee, other than an asset-based fee, received by any
broker, dealer, bank, insurance company, investment company, investment adviser, investment manager, trustee or person or entity
performing a similar function;
a person’s right to dividends that is separated or separable from the underlying securities;
•
• a person’s interest in securities held by certain trusts; and
•
a person’s right to acquire equity securities through the exercise or conversion of any derivative security, whether or not presently
exercisable. The term “derivative security” means any option, warrant, convertible security, stock appreciation right, or similar right
with an exercise or conversion privilege at a price related to an equity security, or similar securities with a value derived from the
value of an equity security.
A person who is a shareholder of a corporation or similar entity is not deemed to have a pecuniary interest in portfolio securities held by the
corporation or the entity if the shareholder is not a controlling shareholder of the corporation or the entity and does not have or share
investment control over the corporation’s or the entity’s portfolio.
(D)
“Chief Compliance Officer” means the Chief Compliance Officer of the Corporation or the Adviser, as the context requires.
(E)
(F)
“Control” shall have the same meaning as that set forth in Section 2(a)(9) of the 1940 Act. Under the 1940 Act, “control” means the power to
exercise a controlling influence over the management or policies of a company, unless such power is solely the result of an official position with
the company. A person is presumed to control a company if he or she owns beneficially, either directly or through one or more controlled
companies, more than 25% of the voting securities of that company.
“Covered Security” means a security as defined in Section 2(a)(36) of the 1940 Act and Section 202(a)(18) of the Advisers Act, which includes:
any note, stock, treasury stock, security future, bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit-
sharing agreement, collateral-trust certificate, pre-organization certificate or subscription, transferable share, investment contract, voting-trust
certificate, certificate of deposit for a security, fractional undivided interest in oil, gas, or other mineral rights, any put, call, straddle, option, or
privilege on any security (including a certificate of deposit) or on any group or index of securities (including any interest therein or based on the
value thereof), or any put, call, straddle, option, or privilege entered into on a national securities exchange relating to foreign currency, or, in
general, any interest or instrument commonly known as a “security,” or any certificate of interest or participation in, temporary or interim
certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase, any of the foregoing. Covered Security also means any
exchange traded fund.
“Covered Security” does not include: (i) direct obligations of the Government of the United States; (ii) bankers’ acceptances, bank certificates of
deposit, commercial paper and high quality short-term debt instruments, including repurchase agreements; (iii) shares issued by money market
funds; (iv) shares issued by open-end investment companies registered under the 1940 Act that are not Reportable Funds (as defined below);
and (v) shares issued by unit investment trusts that are invested exclusively in one or more open-end investment companies registered under
the 1940 Act, none of which are Reportable Funds.
2
References to a Covered Security in this Code (e.g., a prohibition or requirement applicable to the purchase or sale of a Covered Security)
shall be deemed to refer to and to include any warrant for, option in, or security immediately convertible into that Covered Security, and shall
also include any instrument that has an investment return or value that is based, in whole or in part, on that Covered Security (collectively,
“Derivatives”). Therefore, except as otherwise specifically provided by this Code: (i) any prohibition or requirement of this Code applicable to
the purchase or sale of a Covered Security shall also be applicable to the purchase or sale of a Derivative relating to that Covered Security;
and (ii) any prohibition or requirement of this Code applicable to the purchase or sale of a Derivative shall also be applicable to the purchase or
sale of a Covered Security relating to that Derivative.
(G)
“Independent Director” means a director of the Corporation who is not an “interested person” of the Corporation within the meaning of Section
2(a)(19) of the 1940 Act.
(H)
“Initial Public Offering” means an offering of securities registered under the Securities Act of 1933 (the “1933 Act”), the issuer of which,
immediately before the registration, was not subject to the reporting requirements of Sections 13 or 15(d) of the 1934 Act.
(I)
(J)
(K)
(L)
“Limited Offering” means an offering that is exempt from registration under the 1933 Act pursuant to Section 4(2) or Section 4(6) thereof or
pursuant to Rule 504, Rule 505, or Rule 506 thereunder.
“Reportable Fund” means any investment company registered under the 1940 Act: (i) for which the Adviser serves as an investment adviser; or
(ii) whose investment adviser or principal underwriter controls the Adviser, is controlled by the Adviser or is under common control with the
Adviser.
“Security Held or to be Acquired” by the Corporation means: (i) any Covered Security which, within the most recent 15 days: (A) is or has been
held by the Corporation; or (B) is being or has been considered by the Corporation or the Adviser for purchase by the Corporation; and (ii) any
option to purchase or sell, and any security convertible into or exchangeable for, a Covered Security described in Section II (F).
“Supervised Person” means any partner, officer, director (or other person occupying a similar status or performing similar functions) or
employee of the Adviser, or other person who provides investment advice on behalf of the Adviser and is subject to the supervision and control
of the Adviser.
Section III Objective and General Prohibitions
A. As set forth in this Code, all Supervised Persons must comply with applicable federal securities laws and regulations. Access Persons may not
engage in any investment transaction under circumstances in which he or she benefits from or interferes with the purchase or sale of investments by
the Corporation (or the Adviser on behalf of the Corporation). In addition, Access Persons may not use information concerning the investments or
investment intentions of the Corporation, or such person’s ability to improperly influence such investment intentions, for personal gain or in a manner
detrimental to the interests of the Corporation.
Access Persons may not engage in conduct that is deceitful, fraudulent or manipulative, or that involves false or misleading statements, in
connection with the purchase or sale of investments by the Corporation. In this regard, Access Persons should recognize that Rule 17j-1 makes it
unlawful for any affiliated person of the Corporation, or any affiliated person of an investment adviser for the Corporation, in connection with the
purchase or sale, directly or indirectly, by the person of a Security Held or to be Acquired by the Corporation to:
(i)
(ii)
(iii)
employ any device, scheme or artifice to defraud the Corporation;
make any untrue statement of a material fact to the Corporation or omit to state to the Corporation a material fact
necessary in order to make the statements made, in light of the circumstances under which they are made, not
misleading;
engage in any act, practice or course of business that operates or would operate as a fraud or deceit upon the
Corporation; or
3
(iv)
engage in any manipulative practice with respect to the Corporation.
Access Persons should also recognize that a violation of this Code, Rule 17j-1 or Rule 204A-1 may result in the imposition of: (1) sanctions as
provided by Section VIII below; or (2) administrative, civil and, in certain cases, criminal fines, sanctions or penalties. No Access Person may trade
any security without advance approval from an Approving Officer.
B. For purposes of this Section III.B, (i) “Prospect” shall mean Prospect Capital Corporation, Prospect Capital Management L.P., Prospect
Administration LLC, and any affiliate or portfolio company of any of the foregoing; (ii) “AP” shall mean any Access Person; and (iii) “relationship” shall
mean, without limitation, any employment, consulting or other arrangement with Prospect. For a period ending on the later of (a) two years after the
most recent circulation hereof to any AP, and (b) one year after termination of any AP’s relationship with Prospect, such AP shall not enter into
discussions for a commercial relationship, nor consummate a commercial relationship, with (i) Prospect, or (ii) any person, entity or counterparty (x)
with which Prospect has communicated, (y) as to which Prospect has considered issuing a term sheet or similar document, or (z) that Prospect has
been in discussions with about a term sheet or similar document, in the case of each of (x), (y) or (z), at any time during the course of such AP’s
relationship with Prospect.
Notwithstanding any other provision, document or agreement, in addition to each AP agreeing to comply with all common law duties imposed upon
an officer or employee, and those contained in this Manual, such AP also agrees not to aid any competitor or potential competitor of Prospect
engaged in secured, senior, second lien, subordinated or mezzanine lending or private equity investing (a) in the New York, New Jersey,
Connecticut “Tri State” area, (b) east of the Mississippi River, (c) in the United States or (d) in North America, or to do anything with any competitor
or any such potential competitor to the potential detriment of Prospect during the term of the AP’s employment with Prospect and for one year
thereafter. During, and for a period of one year after termination of, a AP’s employment with Prospect, such AP agrees not to take any action directly
or indirectly that could impair PCM or any affiliate’s contract or relationship with PCC or any affiliate. Activities constituting a violation of this
agreement include, among other things (the following list being non-exhaustive and included for illustrative purposes only): direct or indirect
employment by or acting as a consultant to, or being a research analyst, portfolio manager, business development professional, employee, agent,
owner or partner of, or permitting your name to be used in connection with the activities of any other business or organization (a) in the New York,
New Jersey, Connecticut “Tri State” area, (b) east of the Mississippi River, (c) in the United States or (d) in North America, which provides services
or products of a nature substantially similar to those provided by Prospect, PCC or any affiliate, or which otherwise competes with Prospect, PCC or
any affiliate. For a period of one year following termination of each AP’s employment with Prospect, such AP agrees (x) not to enter into discussions
for a commercial relationship, nor consummate a commercial relationship, with (i) any existing portfolio company of Prospect, (ii) any person, entity
or counterparty as to which Prospect has issued a term sheet at any time prior to such AP’s departure from Prospect, or (iii) any person, entity or
counterparty that Prospect has been in discussions with about a term sheet at any time prior to such AP’s departure from Prospect; and (y) not
tosolicit any person or personnel associated with Prospect to work elsewhere, or compete with Prospect or do anything that could or might
potentially impair, in any way, any aspect of Prospect’s business by using any confidential proprietary or nonpublic information such AP acquires as
a result of or in connection with such AP’s employment by Prospect for any purpose other than to advance the business objectives of Prospect and
even then only as authorized by the Chief Compliance Officer of each of Prospect and PCC. Notwithstanding any provision of this Manual or any
other agreement or document, each AP agrees, as a condition of their offer of a relationship and of any continuing employment, that the agreements
set forth in this Section III.B are a contract between such AP and Prospect, enforceable as a contract ancillary to such AP’s relationship with
Prospect, without which no such employment would be permitted to exist.
Each AP agrees to respect the confidentiality of all confidential, proprietary or nonpublic information such AP obtains as a result of or in connection
with such AP’s relationship with Prospect or any of its affiliates. Each AP agrees not to use any such confidential, proprietary or nonpublic
information for any purpose other than the purpose for which it has been entrusted to such AP, and will not use it to compete with or otherwise harm
Prospect.
4
Each AP of Prospect, and of any company Prospect invests in, is required to obey all standards of prudence and safety, and to comply at all times
with all civil and criminal legal standards, including but not limited to all international, federal, state, local, SRO, and other duly constituted authority
laws, regulations, procedures and protocols, and best practices, at all times, at work, at home, on vacation, domestically and internationally, and to
do everything possible at all times to avoid any potential risk, harm or injury to the person or property of anyone or anything else, wherever situated.
Accordingly, just as illustrative examples, it shall be a violation of the Compliance Manual of each of PCC and PCM to talk on a cell phone while
driving, text message while driving, drive while under the influence of alcohol, drive above applicable speed limits, trespass, refuse to cooperate with
an officer, ski or snowboard faster than is prudent, listen to an iPod while snowboarding, jaywalk, or fail to exercise due care on a golf course, at the
beach, walking on the streets of New York City, making discriminatory or hurtful remarks, faces or gestures, etc. The above list is designed to be
illustrative only and in no way exhaustive. Lapses of sound judgment are violations of the Compliance Manual of each of PCC and PCM.
Annex A is an integral part of this Section III.B as fully as if set forth herein in
haec
verba
.
Section IV Prohibited Transactions
Access Persons must comply with Section 9.4.2 of the Adviser’s Compliance Manual, which is excerpted below and may not purchase or sell any
individual publicly traded security without advance approval from the CCO of PCM or the CCO of PCC. Mutual Funds are exempt from this
prohibition.
9.4.2 Restricted Lists Upon notice that an employee of PCM is in possession of any material, non-public information regarding an issuer,
or otherwise at his or her discretion, the Chief Compliance Officer of PCM will place the issuer on a “Restricted List” and circulate the list to
employees. PCM officers, employees and their immediate family members are prohibited from personally, or on behalf of an advisory
account, purchasing or selling securities of an issuer during any period the issuer is listed on the Restricted List. Issuers of which PCM
employees are expected to have material, non-public information on a regular basis should generally be placed on the Restricted List. The
Chief Compliance Officer of PCM shall take steps to immediately inform all employees of the issuers listed on the Restricted List.
Personal Trading of PSEC shares
No affiliate, director, member, officer or employee of PCC or PCM, or any other person who has access to non-public information pertaining to the
operations, assets, investment activities or other material matters concerning the Corporation ("Access Persons") and their immediate family
members may trade in the Corporation’s shares (“PSEC Shares”):
(i)
(ii)
(iii)
(iv)
under any circumstances, when in possession of material non-public information;
without advance permission of one of the CCO of PCC or CCO of PCM (the "Approving Officers");
without providing a written confirm of any permitted trade under paragraph (ii) above immediately to the Approving Officers; and
other than during the period beginning on the business day immediately following any earnings call held by or on behalf of PCC and
ending on the later of (x) the four week anniversary of such date, or (y) one week before the end of the next fiscal quarter; provided, that
such “trading window” shall be closed at any time any Approving Officer comes into possession of material non-public information.
Notwithstanding the foregoing, an Access Person is not permitted to short PSEC Shares (or enter into any Derivative which has the economic effect
of increasing in value when PSEC Shares decrease in value). Upon submitting prospective trades to the Approving Officers for pre-approval, the
applicant will be informed of any restrictions or black-out periods due to 10Q or 10K filings or for any other reason that warrants suspension of
trading by Access Persons in order to comply with applicable laws and regulations and the policies and procedures of PCC or PCM.
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Additionally, Access Persons may make transactions in PSEC Shares outside the trading window if they are made pursuant to a predetermined,
non-discretionary trading plan, provided such plan has been reviewed and approved by the PCM CCO. In addition, the Adviser may grant stock or
other forms of equity of the Corporation to an Access Person outside the trading window if it is made pursuant to a predetermined employee stock
plan or vesting schedule, provided such grant has been reviewed and approved by the PCM CCO.
(A) Advisory Persons of the Corporation or the Adviser must obtain approval from the Corporation or the Adviser, as the case may be, before
directly or indirectly acquiring Beneficial Ownership in any securities in an Initial Public Offering or in a Limited Offering. Such approval must be
obtained from the Chief Compliance Officer of the Corporation or the Adviser, as the case may be, unless he is the person seeking such
approval, in which case it must be obtained from the President of the Corporation or of the Adviser.
(B) No Access Person shall recommend any transaction in any Covered Securities by the Corporation without having disclosed to the Chief
Compliance Officer of the Adviser and the Corporation, his or her interest, if any, in such Covered Security or the issuer thereof, including: the
Access Person’s Beneficial Ownership of any Covered Securities of such issuer; any contemplated transaction by the Access Person in such
Covered Securities; any position or other economic interest that the Access Person has with such issuer; and any present or proposed
business relationship between such issuer and the Access Person (or a party in which the Access Person has a significant interest).
(C) An Access Person must comply with the Adviser’s insider trading policies and procedures with respect to material non-public information.
Please refer to the section entitled “Insider Trading Procedures” in the Adviser’s Compliance Manual.
Section V Reports by Access Persons
(A) Initial Holdings Reports.
No later than 10 days after a person becomes an Access Person, such person must file with the Chief Compliance Officer a Holdings Report [See
attached]. The report requires the Access Person to list all Covered Securities in which the Access Person has Beneficial Ownership. It also requires
the Access Person to list all brokers, dealers, and banks where the Access Person maintained an account in which any securities (not just Covered
Securities) were held for the direct or indirect benefit of the Access Person on the date such person became an Access Person. The report must be
current as of a date no more than 45 days prior to the date the person became an Access Person. For purposes of this section, the term “Access
Person” shall also include such person’s Immediate Family sharing the same household.
(B) Quarterly Transactions Reports
No later than 30 days after the end of March, June, September, and December each year, each Access Person must file with the Chief Compliance
Officer a Quarterly Transactions Report [See attached]. The report requires each Access Person to list all transactions (other than transactions
effected pursuant to an automatic investment plan) during the most recent calendar quarter in Covered Securities, in which transactions such
Access Person had Beneficial Ownership. The report also requires each Access Person to list all brokers, dealers, and banks where such Access
Person established an account in which any securities (not just Covered Securities) were held during the quarter for the direct or indirect benefit of
the Access Person. For purposes of this section, the term “Access Person” shall also include such person’s Immediate Family sharing the same
household. Copies of statements or confirmations containing the information specified in the report may be submitted in lieu of listing the
transactions. Access Persons submitting statements (or causing statements to be submitted) will be deemed to have satisfied this reporting
requirement, and need only sign off quarterly on having complied. For periods in which no reportable transactions were effected, the Quarterly
Transactions Report shall contain a representation that no transactions subject to the reporting requirements were effected during the relevant time
period.
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(C) Annual Holdings Reports
By February 14 of each year, each Access Person must file with the Chief Compliance Officer an Annual Holdings Report [See attached]. The report
requires the Access Person to list all Covered Securities in which the Access Person has Beneficial Ownership as of December 31 of the prior year.
It also requires the Access Person to list all brokers, dealers, and banks where the Access Person maintained an account in which any securities
(not just Covered Securities) were held for the direct or indirect benefit of the Access Person as of December 31 of the prior year. For purposes of
this section, the term “Access Person” shall also include such person’s Immediate Family sharing the same household.
(D) Exceptions to Reporting Requirements.
(1) Independent Directors
Notwithstanding the reporting requirements set forth in this Section V, an Independent Director who would be required to make a report
under this Section V solely by reason of being a director of the Corporation is not required to file a Quarterly Transactions or Annual
Holdings Form upon becoming a director of the Corporation. Such an Independent Director remains exempt from filing such Quarterly
Transactions and Annual Holdings Forms unless such director knew or, in the ordinary course of fulfilling his or her official duties as a
director of the Corporation, should have known that during the 15-day period immediately preceding or after the date of the transaction in a
Covered Security by the director, such Covered Security is or was purchased or sold by the Corporation, or the Corporation or the Adviser
considered purchasing or selling such Covered Security.
(2) Access Persons
An Access Person need not make any report under Section V with respect to transactions effected for, and Covered Securities held in, any
account over which the Access Person has no direct or indirect influence or control.
An Access Person of the Adviser need not submit a Quarterly Transactions Form if all of the information in the report would duplicate
information held by the Adviser in its records that are required to be recorded pursuant to Rule 204-2(a)(13) under the Advisers Act, as
amended, so long as the Adviser receives such information no later than 15 days after the end of the applicable calendar quarter.
(E) Brokerage Accounts and Statements.
Access Persons, except Independent Directors, shall:
1. within 15 days after the end of each calendar quarter, identify the name of the broker, dealer or bank with whom the Access Person
established an account in which any securities were held during the quarter for the direct or indirect benefit of the Access Person and
identify any new account(s) and the date the account(s) were established. This information shall be included on the appropriate Quarterly
Transactions Form.
2.
Instruct the brokers, dealers or banks with whom they maintain such an account to provide duplicate account statements to the Chief
Compliance Officer of the Adviser.
3. On a quarterly basis, certify that they have complied with the requirements of (1) and (2) above as provided for in the Quarterly
Acknowledgement Form.
(F) Form of Reports.
A Quarterly Transactions Form may be attached to broker statements or other statements which provide a list of all personal Covered Securities
holdings and transactions in the time period covered by the report and contain the information required in the Quarterly Transactions Form.
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(G) Responsibility to Report.
It is the responsibility of each Access Person to take the initiative to comply with the requirements of this Section V. Any effort by the Corporation, or
by the Adviser and its affiliates, to facilitate the reporting process does not change or alter that responsibility.
(H) Where to File Reports.
All Quarterly Transactions, Annual Holdings, and Quarterly Acknowledgement Forms must be filed with the Chief Compliance Officer of the Adviser
or his or her appointee.
(I) Disclaimers.
Any report required by this Section V must contain a statement that the report will not be construed as an admission that the person making the
report has any direct or indirect Beneficial Ownership in the Covered Security to which the report relates.
Section VI Additional Prohibitions
(A) Confidentiality.
Until disclosed in a public report to shareholders or to the Securities and Exchange Commission in the normal course, it is the Adviser’s fiduciary
duty to keep all information concerning the identity of security holdings and financial circumstances of the Corporation confidential. In addition, all
information concerning the securities “being considered for purchase or sale” by the Corporation shall be kept confidential by all Access Persons and
disclosed by them to other Access Persons only on a “need to know” basis or as otherwise permitted by law. It shall be the responsibility of the Chief
Compliance Officer of the Adviser and the Corporation to report any inadequacy found in this regard to the directors of the Corporation.
(B) Outside Business Activities and Directorships.
Access Persons may not engage in any outside business activities that may give rise to actual, or the appearance of, conflicts of interest, interfere
with the duties to the Corporation or the Adviser, or otherwise jeopardize the integrity or reputation of the Corporation or the Adviser. Similarly, no
such outside business activities may be inconsistent with the interests of the Corporation or the Adviser. Access Persons may not use the
Corporation’s or Adviser’s name or related trademarks for personal benefit (or for the benefit of a third party). All directorships of public or private
companies held by Access Persons shall be reported to the Chief Compliance Officer of the Adviser and the Corporation.
Section VII Certification
(A) Initial, Quarterly and Annual Certification.
It is the duty of each Access Person to read and understand the Code of Ethics and consult with the Chief Compliance Officer of the Adviser with
respect to any portion of the Code that is not clearly understood. Access Persons who are directors, managers, officers or employees of the
Corporation or the Adviser shall be required to certify initially, quarterly and annually that they have read this Code and that they understand it and
recognize that they are subject to it and agree to comply with its terms. Furthermore, each time an amendment to the Code is made, Access
Persons shall be required to submit a written acknowledgement that they have received, read and understood the amendments to the Code and
agree to comply with its terms.
On a quarterly and annual basis, Access Persons shall certify their understanding of the Code of Ethics and the Compliance Manuals by signing and
submitting the Quarterly Acknowledgement Form to the Chief Compliance Officer of the Adviser or such designee.
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(B) Board Review.
No less frequently than annually, the Chief Compliance Officers of the Corporation and the Adviser must furnish to the Corporation’s board of
directors, and the board must consider, a written report that: (A) describes any issues arising under this Code of Ethics or procedures since the last
report to the board, including, but not limited to, information about material violations of the Code or procedures and sanctions imposed in response
to material violations; and (B) certifies that the Corporation or the Adviser, as applicable, has adopted procedures reasonably necessary to prevent
Access Persons from violating the Code.
Section VIII Sanctions
Any violation of this Code shall be subject to the imposition of such sanctions by the Corporation or the Adviser as may be deemed appropriate
under the circumstances to achieve the purposes of Rule 17j-1, Rule 204A-1 and this Code. The sanctions to be imposed shall be determined by the
board of directors, including a majority of the Independent Directors, provided, however, that with respect to violations by persons who are directors,
managers, officers or employees of the Adviser (or of a company that controls the Adviser), the sanctions to be imposed shall be determined by the
Adviser (or the controlling person thereof). Sanctions may include, but are not limited to, suspension or termination of employment, a letter of
censure and/or restitution of an amount equal to the difference between the price paid or received by the Corporation and the more advantageous
price paid or received by the offending person with respect to any security transaction.
Section IX Administration and Construction
(A) The administration of this Code shall be the responsibility of the Chief Compliance Officer of the Adviser.
(B) The duties of the Chief Compliance Officer of the Adviser are as follows:
(1) Continuous maintenance of a current list of the names of all Access Persons with an appropriate description of their title or employment,
including a notation of any directorships held by Access Persons who are officers or employees of the Adviser or of any company that
controls the Adviser, and informing all Access Persons of their reporting obligations hereunder;
(2) On an annual basis, providing all Access Persons a copy of this Code and informing such persons of their duties and obligations hereunder
including any supplemental training that may be required from time to time;
(3) Maintaining or supervising the maintenance of all records and reports required by this Code and reviewing Quarterly Transactions, Annual
Holdings, and Quarterly Acknowledgement Forms periodically;
(4) Preparing listings of all transactions effected by Access Persons who are subject to the requirement to file Quarterly Transactions, Annual
Holdings, and Quarterly Acknowledgement Forms and reviewing such transactions against a listing of all transactions effected by the
Corporation;
(5) Issuance either personally or with the assistance of counsel as may be appropriate, of any interpretation of this Code that may appear
inconsistent with the objectives of Rule 17j-1, Rule 204A-1 and this Code;
(6) Conducting such inspections or investigations as shall reasonably be required to detect and report, with recommendations, any apparent
violations of this Code to the board of directors of the Corporation; and
(7) Submission of a written report to the board of directors of the Corporation, no less frequently than annually, that describes any issues arising
under the Code since the last such report, including but not limited to the information described in Section VII (B).
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(C) The Chief Compliance Officer of the Adviser shall maintain or cause to be maintained in an easily accessible place at the principal place of
business of the Corporation and the Adviser, the following records:
1. A copy of all codes of ethics adopted by the Corporation or the Adviser and its affiliates, as the case may be, pursuant to Rule 17j-1 and/or
Rule 204A-1 that have been in effect at any time during the past five (5) years;
2. A record of each violation of such codes of ethics and of any action taken as a result of such violation for at least five (5) years after the end
of the fiscal year in which the violation occurs;
3. A copy of each report made by an Access Person for at least two (2) years after the end of the fiscal year in which the report is made, and
for an additional three (3) years in a place that need not be easily accessible;
4. A copy of each report made by the Chief Compliance Officer of the Adviser and/or the Corporation to the board of directors of the
Corporation for two (2) years from the end of the fiscal year of the Corporation in which such report is made or issued and for an additional
three (3) years in a place that need not be easily accessible;
5. A list of all persons who are, or within the past five (5) years have been, required to make reports pursuant to Rule 17j-1, Rule 204A-1 and
this Code of Ethics, or who are or were responsible for reviewing such reports;
6. A copy of each report required by Section VII (B) for at least two (2) years after the end of the fiscal year in which it is made, and for an
additional three (3) years in a place that need not be easily accessible; and
7. A record of any decision, and the reasons supporting the decision, to approve the acquisition by Advisory Persons of securities in an Initial
Public Offering or Limited Offering for at least five (5) years after the end of the fiscal year in which the approval is granted.
(D) This Code may not be amended or modified except in a written form that is specifically approved by majority vote of the Independent Directors.
This Code of Ethics initially was adopted and approved by the Board of Directors of the Corporation, including a majority of the Independent
Directors, at a meeting on June 9, 2004. An amendment to this Code was approved and ratified effective as of February 1, 2005 by the Board of
Directors of the Corporation, including a majority of the Independent Directors, at a meeting on February 10, 2005. A second set of amendments to
this Code was approved and ratified effective as of September 1, 2006 by the Board of Directors, including a majority of the Independent Directors,
at a meeting on September 6, 2006. The Code of Ethics was further reviewed, approved and ratified effective by the Board of Directors, including a
majority of the Independent Directors, at a meeting on September 28, 2007 and again at a meeting on March 28, 2008. The Code of Ethics was
further reviewed, approved and ratified effective by the Board of Directors, including a majority of the Independent Directors, at a meeting on
September 28, 2007, March 28, 2008, June 17, 2009, June 15, 2010, August 24, 2011, August 21, 2012, August 20, 2013, August 25, 2014, August
26, 2015 and August 25, 2016.
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Holdings Reporting Form (Annual and Initial)
Information is current as of: ________________ (must be no more than 45 days prior to the date of submission)
(month/day/year)
Check here if this is an Initial Holdings Report ___
(*If no holdings, write NONE *)
Broker
Account#
Security Name
Ticker or CUSIP (As
Applicable)
Type
(Common Stock,
Bond, etc.)
Number of Shares
Principal Amount
I certify that this form fully discloses all Covered Security holdings in which I have a Beneficial Ownership (as such terms are defined in the Code of Ethics). I
understand that I am presumed to have a Beneficial Ownership in Securities holdings of immediate family members living in the same household.
Deliver to the Chief Compliance Officer or designee within 10 days of becoming an Access Person, and by February 14 th of each year. Use additional sheets if
necessary.
Signature Date
Print Name
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Quarterly Transactions Reporting Form
For the Quarter Ended:
The following lists all transactions in Covered Securities in which I had any direct or indirect Beneficial Ownership interest, that were effected during the last
calendar quarter and required to be reported by Section V (B) of the Code of Ethics. Please sign and date this report, and return it to the Chief Compliance
Officer no later than the 15 th day of the month following the end of the quarter. Brokerage statements can be attached in lieu of listing purchases/sales/new
accounts; please indicate below if purchases/sales/changes were made. (*If no activity, write NONE *)
Number
of
Shares
Security
Name
Type
(common
stock, bond,
etc.)
Ticker or
CUSIP
Buy / Sell
Principal
Amount
Interest Rate
/ Maturity
Price
Date
Executed By
(Broker-Dealer or
Bank), including
Account #
New Accounts Established During the Quarter (*If no activity, write NONE *)
Name of Broker-Dealer or Bank
Account Title
Account Number
Date Account was Established
I certify that this form fully discloses all transactions Covered Securities in which I have a Beneficial Ownership (as such terms are defined in the Code of Ethics).
I further certify that this form fully discloses all Securities accounts opened during the calendar quarter noted above in which I have a Beneficial Ownership I
understand that I am presumed to have a Beneficial Ownership in Securities transactions of immediate family members living in the same household.
Deliver to the Chief Compliance Officer or designee within 30 days of the end of a calendar quarter. Use additional sheets if necessary.
Signature Date
Print Name
12
By clicking submit below I certify that this form fully discloses all transactions in Covered Securities in which I have a Beneficial Ownership (as such
terms are defined in the Code of Ethics), other than transactions which were previously reported on a duplicate account statement or confirmation
and reported to the Compliance Officer. I further certify that this form fully discloses all Securities accounts opened during the calendar quarter noted
above in which I have a Beneficial Ownership. I understand that I am presumed to have a Beneficial Ownership in Securities transactions of
immediate family members living with me in the same household.
Initial and Quarterly Acknowledgment Form
By clicking submit below I certify that (a) I have read and understood, and understand, the policies and procedures set forth in the Compliance
Manual of each of (i) Prospect Capital Corporation (“Prospect”) and (ii) Prospect Capital Management L.P. (“PCM”) as of the date set forth below, as
well as the Prospect and PCM Code of Ethics, implemented pursuant to Rule 17j-1 of the Investment Company Act of 1940 and Rule 204A-1 of the
Investment Advisors Act of 1940, and all amendments relating thereto, (b) I recognize that all such policies, procedures and codes (hereafter
“Rules”) apply fully to me at all times and (c) I agree to comply in all respects with the policies, procedures and codes described therein for the
duration of my employment or other business relationship with Prospect, PCM or any affiliate of either (and for as long as any of the Rules apply to
me), and to report promptly any deviation, regardless of immateriality, therefrom that I become aware of.
I hereby represent, covenant and agree that I have promptly, by a written instrument entitled “Notice of Violation” and signed by me, reported to two
or more Prospect or PCM Compliance Officers (such persons being John Barry, Grier Eliasek, Brian Oswald, Daria Becker or Joseph Ferraro (and
only after exhausting these possibilities, Gene Stark)) in writing each and every, and any and all, instances of conduct, action, inaction or any other
activity or circumstance by or involving any Prospect person, agent, representative, director, officer, personnel, employee, shareholder, consultant or
affiliate, that is or could be, or is or could be in my judgment, unfair, unethical, immoral, a violation of the letter or spirit of the Prospect or PCM
Compliance Manuals, or joint Code of Ethics, or of any other rule, regulation, law, code, best practice, or of any other standard of which I am aware,
including but not limited to investment, disclosure and workplace best practices and procedures, including but not limited to anti-discrimination,
whistleblower, and similar best practices, and represent, covenant and agree to so notify, by a written instrument signed by me, two or more of such
aforementioned Compliance Officers immediately if I learn that this representation is or becomes inaccurate or believe or learn that any such acts,
inactions or circumstances have occurred (or may be about to occur) since the commencement of my employment or other business relationship
with Prospect, for as long into the future as I continue my business relationship with Prospect. In particular, I will promptly report any (i)
discrimination actions, words or commissions, whether racial, gender, ethnic, sexual orientation, or any other type of discrimination and (ii) sexual
harassment of any kind, no matter how minor.
Name:_____________________________ (PRINT NAME)
Signature:_____________________________
Date:___________________
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Annex A – Dispute Resolution
Section III.B of this Code contains the entire agreement of PCC and any covered person with respect to the subject matter thereof and supersedes
all prior negotiations, agreements and understandings with respect thereto, both written and oral, other than those addressing the same subject
matter contained in the PCC Compliance Manual, the Adviser’s Compliance Manual and any separate written agreement between any covered
person and PCC or any of its affiliates, as applicable. Section III.B of this Code may not be contradicted by evidence of prior, contemporaneous or
subsequent oral agreements of the parties. There are no unwritten or oral agreements between the parties. Any offer of employment and any other
agreement of any kind between anyone and any of PCC, PCM, PA, or any affiliate of any, must be in the form of a formal written instrument (and not
an email or series of emails) signed in blue ink by John F. Barry and the counterparty. Section III.B of this Code may not be modified or amended
except by a formal written instrument (and not by an email or series of emails) signed by John F. Barry III as Authorized Signatory of PCC in blue ink
and by the covered person. No term or provision of Section III.B of this Code may be waived except by a formal written instrument signed (and not
by an email or series of emails) by the party against whom such waiver is sought; provided, that in the case of the PCC, such waiver must be signed
by John F. Barry III as Authorized Signatory of PCC in blue ink. PCC’s failure to insist at any time upon strict compliance with Section III.B of this
Code or any continued course of such conduct on its part will not constitute or be considered a waiver by PCC of any of its rights or privileges. A
waiver or consent, express or implied, of or to any breach or default by any party in the performance by that party of its obligations with respect to
Section III.B of this Code is not a waiver or consent of or to any other breach or default in the performance by that party of the same or any other
obligations of that party. All provisions of Section III.B of this Code are severable, and the unenforceability or invalidity of any of the provisions of
Section III.B of this Code shall not affect the validity or enforceability of the remaining provisions of Section III.B of this Code. Should any part of
Section III.B of this Code be held unenforceable, the unenforceable portion or portions shall be removed (and no more), and the remaining portions
of Section III.B of this Code shall be enforced as fully as possible (removing the minimum amount possible), and the parties shall thereafter
negotiate in good faith a provision replacing the provision removed so as to best achieve the original intent of the parties. Each covered person
agrees that injunctive relief shall be available to enforce his or her obligations described in Section III.B of this Code.
Notwithstanding any provision of Section III.B of this Code or any other agreement or document, should any covered person or any affiliate (“you”),
notwithstanding this Code or any other agreement, wish to assert any claim against PCC or any affiliate, you must notify PCC of your intention to do
so in writing within 30 days of termination of your employment from PCC or any affiliate. You agree that failure to notify PCC in writing of any
potential claim you might have within 30 days of termination of your employment will forever waive your right to seek any relief from PCC or any
affiliate. You further agree that, prior to asserting any claim, you will first provide PCC in writing at least 30 business days in advance of filing or
serving any such claim (a) certification that you have at all times complied with this Manual and the Adviser’s Compliance Manual in all respects and
(b) a complete statement detailing the claim you wish assert, the factual and legal grounds therefor, what PCC can and/or need do to cure, the
amount of time available for such cure, and the reasons why such claim is not barred by this Code, and you will thereafter engage in in-person
“executive to executive” mediation with PCC for at least 30 business days (i) after providing to PCC such certification and written statement and (ii)
prior to filing any such claim (other than with PCC) anywhere else (should you decide to file any such claim anywhere else (other than with PCC)
notwithstanding such filing being in violation of this Code), following these procedures:
A.
B.
C.
First, after you have provided PCC the certification and written statement referenced above, you shall promptly meet with PCC in person, in
a good faith attempt to resolve any dispute, and shall continue to mediate in person “executive to executive” for at least 30 business days;
Second, if the dispute remains unresolved after 30 business days following the commencement of the mediation described in the sentence
immediately above, or after such lesser time as agreed to by you and PCC, then you must submit such dispute to mediation or non-binding
arbitration before a mediator or arbitrator chosen by you and reasonably agreeable to PCC; and
Third, if such non-binding mediation or arbitration fails, you must submit such dispute to binding arbitration (not to a court) pursuant to this
agreement by delivering an arbitration notice to PCC
(whether or not such claim is permitted by this Code). Under no circumstances will you file any claim against PCC or any affiliate in any
court or anywhere other than in arbitration in New York City, Borough of Manhattan (“New York City”).
No part of this dispute resolution procedure shall be deemed to permit a claim not otherwise permitted.
Section III.B of this Code shall be governed by, and any claim by you or any affiliate against PCC shall be determined, in accordance with the
internal laws of the State of New York for contracts made and to be enforced therein, without regard to principles of conflicts of laws requiring
application of the law of any other jurisdiction. If you assert a claim and executive to executive mediation fails (after 30 business days of such
mediation) and thereafter non-binding arbitration or mediation fails, should you then decide to proceed with your claim, you agree to submit any
persisting claim (whether or not permitted by this Section III.B of this Code or this Annex A) including, but not limited to, any issue regarding
arbitrability, not to a court but only to binding arbitration in New York City in accordance with the Commercial Arbitration Rules and the Expedited
Procedures of the American Arbitration Association (“AAA”) then in effect (“the Rules”), except as modified herein. The arbitration shall be held and
the award shall issue in New York City before three arbitrators, agreed to by the parties within 30 business days of receipt by PCC or you of a copy
of the demand for arbitration, or in default thereof, appointed by the AAA in accordance with listing, ranking and striking provisions in the Rules. Any
arbitrator appointed by the AAA shall be a retired judge or a practicing attorney with no less than 15 years of experience with large, complex,
commercial cases and an experienced arbitrator. The parties hereby agree that there shall be no discovery (other than 50 or fewer written
interrogatories) relating to or in the arbitration, and they agree not to seek any such discovery (before any arbitrator, court or other tribunal). In
rendering the award, each arbitrator shall be required to apply the substantive law of the State of New York. The arbitral tribunal is not empowered to
award damages in excess of out-of-pocket expenses, and each party hereby irrevocably waives and disclaims to the maximum extent enforceable
under controlling law any right to recover before any court, arbitrator or other tribunal or forum special, punitive, compensatory, benefit of the
bargain, expectancy, exemplary, incidental, direct, indirect, consequential, “lost profits”, similar or other damages including, but not limited to,
multiples of damages or damages resulting from loss of profits, business impact or anticipated savings, and whether or not contemplated,
foreseeable or noticed. The award of the arbitrators shall be in writing and shall briefly state the findings of fact and conclusions of law on which it is
based. The award shall be final and binding upon the parties and shall be the sole and exclusive remedy between the parties regarding any claims,
counterclaims, issues or accountings presented to the arbitrators. Judgment upon the award may be entered and enforced in any court having
jurisdiction. The losing party shall pay the costs, fees and expenses of the arbitration including, but not limited to, the fees and expenses of the AAA
and the arbitrators and the legal fees and expenses of the prevailing party, which shall be included in the final award (and both parties shall post
before the arbitration commences adequate security for such fees and expenses equal to the greater of (i) $25,000 or (ii) such larger amount as the
arbitrators shall direct), with an immediate default judgment to be entered against any party (a) failing to post such security at least 30 days before
the scheduled date of the first hearing or (b) failing to pay the costs of arbitration, including filing fees, by the date due for any such payment. Any
costs, fees and expenses (including attorneys fees and expenses) incident to enforcing the arbitral award shall be included in any judgment
rendered thereon (including an estimate for post trial proceedings, appeals, collections, etc., the parties agreeing here that the loser shall pay all out-
of-pocket and legal expenses of the winner until paid in full following all collections). Each party unconditionally and irrevocably agrees to submit to
the exclusive jurisdiction of the state and federal courts located in New York City(the “New York Courts”) for the purpose of any proceedings to
compel or in aid of arbitration, and to the non-exclusive jurisdiction of New York Courts for proceedings for the enforcement of any award or decision
of the arbitrators. Each party hereto expressly consents and unconditionally submits to the jurisdiction of the AAA in New York City and, if applicable,
on confirmation, appeal or otherwise consistently herewith, the New York Courts in any such proceeding (and agrees that registered mail shall
suffice for service of process), and hereby waives any objection which such party may have based upon imperfect service (provided actual or
constructive notice is received), lack of personal jurisdiction, improper venue or inconvenient forum, AND EACH PARTY HERETO EXPRESSLY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT TO DISCOVERY (OTHER THAN 50 OR FEWER
WRITTEN INTERROGATORIES) OR TRIAL BY JURY IN ANY SUCH PROCEEDING. In the event either party obtains an order compelling
arbitration or denying a stay of arbitration (the “Arbitration Order”), the party compelled to arbitrate shall reimburse the party seeking enforcement of
this arbitration agreement for all its reasonable expenses, attorneys fees and costs incurred in
obtaining such relief, which expenses, fees and costs shall be determined forthwith upon entry of the Arbitration Order and payable within 30 days of
such order, without awaiting, and independent of, the outcome of any arbitration proceedings, and failure to make such payment when due shall
result in the immediate entry of a default judgment against the defaulting party with respect to the entire case. Notwithstanding anything else herein,
to the fullest extent permitted by applicable law, PCC shall have the right to initiate a claim in court, or within 30 days following receipt by PCC of the
first written statement of a claim as set forth in the first paragraph of this Annex A and in A. above to designate a New York Court to hear, resolve
and determine any part of any dispute between the parties (but only claims, including claims for injunctive relief, submitted by PCC or any affiliate
and not counterclaims, cross claims or claims submitted by others unless also submitted by PCC or any affiliate), to the fullest extent that such right
to so designate a court pursuant to the terms of this arbitration agreement remains enforceable under controlling law, but PCC and you agree that if
such right of PCC or any affiliate to so designate a court pursuant to the terms of this arbitration agreement no longer remains enforceable or is not
enforceable under controlling law, then the unenforceable portions of this sentence shall be severed from this arbitration agreement (as with any
other unenforceable portions of Section III.B of this Code), and the other enforceable procedures for resolving any claim between the parties set
forth herein shall continue in full force and effect to the maximum extent enforceable under controlling law. EACH PARTY HERETO EXPRESSLY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, (Y) ANY RIGHT TO DISCOVERY (OTHER THAN 50 OR FEWER
WRITTEN INTERROGATORIES), WHETHER PURSUANT TO THE FEDERAL RULES OF CIVIL PROCEDURE, OR ANY OTHER RULE,
REGULATION, OR CUSTOM (OF THE AAA OR OF ANY COURT) AND (Z) TRIAL BY JURY, IN EACH CASE WITH RESPECT TO ANY ASPECT
OF ANY DISPUTE RELATING HERETO OR BETWEEN OR AMONG THE PARTIES HERETO, INCLUDING ANY CLAIM, DEMAND, ACTION OR
CAUSE OF ACTION ARISING IN CONNECTION WITH ANY ASPECT OF THIS SECTION III.B OF THIS CODE, ANY TRANSACTION RELATING
THERETO, OR ANY OTHER INSTRUMENT, DOCUMENT, OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION THEREWITH,
WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE. Should you prevail on any claim, you agree that the damages are difficult to
calculate and therefore agree to the maximum extent enforceable under controlling law that $10,000 shall be the liquidated damages ceiling on any
claim by you against PCC or any affiliate, whether for out-of-pocket, special, punitive, compensatory, benefit of the bargain, expectancy, exemplary,
incidental, direct, indirect, consequential, “lost profits” or similar or other damages including, but not limited to, multiples of damages or damages
resulting from loss of profits, business impact or anticipated savings and whether or not contemplated, foreseeable or noticed, and you, in addition to
agreeing not to assert any such claim, agree not to assert before any court, arbitrator, or other tribunal or forum any claim for damages in excess of
such $10,000 amount. If you, in violation of this arbitration agreement, assert any claim against PCC or any affiliate anywhere, you agree that PCC’s
or any affiliate’s liquidated damages for the assertion of any such claim shall be $25,000 in addition to PCC’s or any affiliate’s legal fees associated
therewith and any other damages that PCC or any affiliate may show.
To the extent the agreement herein to arbitrate does not enjoy the respect and enforcement the parties intend, or upon PCC’s or any affiliate’s
initiation of a court proceeding or removal of any part of an arbitration to court, or on confirmation, appeal or otherwise consistently herewith, and
without diminishing your obligation hereunder to arbitrate, each party hereto consents and agrees that the New York Courts shall have exclusive
jurisdiction to hear and determine any claim or dispute between or among any of the parties hereto pertaining to any part of Section III.B of this Code
or this Annex A, any investigation, litigation, or proceeding related to or arising out of any such matters, any course of conduct, course of dealing,
statement (whether verbal or written) or action of any party to Section III.B of this Code and this Annex A and any of its affiliates, or otherwise, and
the arbitrability of any claim (which shall initially be determined by the arbitrators), and you agree not to assert any such claim or any claim relating
hereto (or to the subject matter hereof or anything related thereto) outside of arbitration, or upon appeal therefrom (or if arbitration is not enforced) to
courts other than a New York Court, provided that the parties hereto acknowledge that any appeals from those courts may have to be heard by a
court located outside of New York City, and provided further that enforcement of an arbitrator’s award may require a filing or a hearing in a court
located outside of New York City. You expressly waive any objection which you may have to New York jurisdiction based upon lack of personal
jurisdiction, improper venue or inconvenient forum. Service of any process, summons, notice or document by registered mail addressed to you shall
be effective service of process against you for any suit, action or proceeding brought in any forum and you shall not contest such service provided
you have actual or constructive notice. Judgment upon an arbitrator’s award or any court’s award shall include payment of all costs, fees and
expenses of the arbitration and any court proceeding,
including all costs, fees and expenses (including legal fees and expenses) incident to enforcing the arbitrator’s and any court’s award and any and
all appeals, collateral proceedings, collection proceedings, post judgment proceedings (and shall include an appropriate award for post-judgment
proceedings), etc.
CONSENT OF INDEPENDENT ACCOUNTANTS
EXHIBIT 23.1
We
have
issued
our
report
dated
April
14,
2016,
with
respect
to
the
financial
statements
of
Harbortouch
Payments
LLC,
included
in
the
Annual
Report
of
Prospect
Capital
Corporation
on
Form
10-K,
dated
August
29,
2016,
for
the
year
ended
June
30,
2016.
We
hereby
consent
to
the
inclusion
of
said
report
in
the
Form
10-K,
dated
August
29,
2016.
/s/
MSPC
Certified
Public
Accountants
and
Advisors,
A
Professional
Corporation
Cranford,
New
Jersey
August
29,
2016
CONSENT OF INDEPENDENT ACCOUNTANTS
EXHIBIT 23.2
We
have
issued
our
report
dated
August
18,
2016,
with
respect
to
the
financial
statements
of
National
Property
REIT
Corp.,
included
in
the
Annual
Report
of
Prospect
Capital
Corporation
on
Form
10-K,
dated
August
29,
2016,
for
the
year
ended
June
30,
2016.
We
hereby
consent
to
the
inclusion
of
said
report
in
the
Form
10-K,
dated
August
29,
2016.
/s/
BDO
USA,
LLP
August
29,
2016
CONSENT OF INDEPENDENT ACCOUNTANTS
EXHIBIT 23.3
We
have
issued
our
report
dated
March
7,
2016,
with
respect
to
the
financial
statements
of
NPH
McDowell,
LLC,
included
in
the
Annual
Report
of
Prospect
Capital
Corporation
on
Form
10-K,
dated
August
29,
2016,
for
the
year
ended
June
30,
2016.
We
hereby
consent
to
the
inclusion
of
said
report
in
the
Form
10-K,
dated
August
29,
2016.
/s/
Hood
&
Strong
LLP
August
29,
2016
CONSENT OF INDEPENDENT ACCOUNTANTS
EXHIBIT 23.4
We
have
issued
our
report
dated
April
4,
2016,
with
respect
to
the
financial
statements
of
Michigan
Storage,
LLC,
included
in
the
Annual
Report
of
Prospect
Capital
Corporation
on
Form
10-K,
dated
August
29,
2016,
for
the
year
ended
June
30,
2016.
We
hereby
consent
to
the
inclusion
of
said
report
in
the
Form
10-K,
dated
August
29,
2016.
/s/
Tidwell
Group,
LLC
Birmingham,
AL
August
29,
2016
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO RULE 13a-14(a)/15d-14(a)
I,
John
F.
Barry
III,
Chairman
of
the
Board
and
Chief
Executive
Officer
of
Prospect
Capital
Corporation,
certify
that:
1.
I
have
reviewed
this
annual
report
on
Form
10-K
of
Prospect
Capital
Corporation;
EXHIBIT 31.1
2. Based
on
my
knowledge,
this
report
does
not
contain
any
untrue
statement
of
a
material
fact
or
omit
to
state
a
material
fact
necessary
to
make
the
statements
made,
in
light
of
the
circumstances
under
which
such
statements
were
made,
not
misleading
with
respect
to
the
period
covered
by
this
report;
3. Based
on
my
knowledge,
the
financial
statements,
and
other
financial
information
included
in
this
report,
fairly
present
in
all
material
respects
the
financial
condition,
results
of
operations
and
cash
flows
of
the
registrant
as
of,
and
for,
the
periods
presented
in
this
report;
4. The
registrant’s
other
certifying
officer
and
I
are
responsible
for
establishing
and
maintaining
disclosure
controls
and
procedures
(as
defined
in
Exchange
Act
Rules
13a-15(e)
and
15d-15(e))
and
internal
control
over
financial
reporting
(as
defined
in
Exchange
Act
Rules
13a
15(f)
and
15d-15(f))
for
the
registrant
and
have:
(a) Designed
such
disclosure
controls
and
procedures,
or
caused
such
disclosure
controls
and
procedures
to
be
designed
under
our
supervision,
to
ensure
that
material
information
relating
to
the
registrant
is
made
known
to
us
by
others
within
those
entities,
particularly
during
the
period
in
which
this
report
is
being
prepared;
(b) Designed
such
internal
control
over
financial
reporting,
or
caused
such
internal
control
over
financial
reporting
to
be
designed
under
our
supervision,
to
provide
reasonable
assurance
regarding
the
reliability
of
financial
reporting
and
the
preparation
of
consolidated
financial
statements
for
external
purposes
in
accordance
with
generally
accepted
accounting
principles;
(c) Evaluated
the
effectiveness
of
the
registrant’s
disclosure
controls
and
procedures
and
presented
in
this
report
our
conclusions
about
the
effectiveness
of
the
disclosure
controls
and
procedures,
as
of
the
end
of
the
period
covered
by
this
report
based
on
such
evaluation;
and
(d) Disclosed
in
this
report
any
change
in
the
registrant’s
internal
control
over
financial
reporting
that
occurred
during
the
registrant’s
most
recent
fiscal
quarter
(the
registrant’s
fourth
fiscal
quarter
in
the
case
of
an
annual
report)
that
has
materially
affected,
or
is
reasonably
likely
to
materially
affect,
the
registrant’s
internal
control
over
the
financial
reporting;
and
5. The
registrant’s
other
certifying
officer
and
I
have
disclosed,
based
on
our
most
recent
evaluation
of
internal
control
over
financial
reporting,
to
the
registrant’s
auditors
and
the
audit
committee
of
the
registrant’s
board
of
directors
(or
persons
performing
the
equivalent
functions):
(a) All
significant
deficiencies
and
material
weaknesses
in
the
design
or
operation
of
internal
control
over
financial
reporting
which
are
reasonably
likely
to
adversely
affect
the
registrant’s
ability
to
record,
process,
summarize
and
report
financial
information;
and
(b) Any
fraud,
whether
or
not
material,
that
involves
management
or
other
employees
who
have
a
significant
role
in
the
registrant’s
internal
control
over
financial
reporting.
Date: August
29,
2016
/s/
JOHN
F.
BARRY
III
John
F.
Barry
III
Chairman of the Board and Chief Executive Officer
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO RULE 13a-14(a)/15d-14(a)
I,
Brian
H.
Oswald,
Chief
Financial
Officer
and
Treasurer
of
Prospect
Capital
Corporation,
certify
that:
1.
I
have
reviewed
this
annual
report
on
Form
10-K
of
Prospect
Capital
Corporation;
EXHIBIT 31.2
2. Based
on
my
knowledge,
this
report
does
not
contain
any
untrue
statement
of
a
material
fact
or
omit
to
state
a
material
fact
necessary
to
make
the
statements
made,
in
light
of
the
circumstances
under
which
such
statements
were
made,
not
misleading
with
respect
to
the
period
covered
by
this
report;
3. Based
on
my
knowledge,
the
financial
statements,
and
other
financial
information
included
in
this
report,
fairly
present
in
all
material
respects
the
financial
condition,
results
of
operations
and
cash
flows
of
the
registrant
as
of,
and
for,
the
periods
presented
in
this
report;
4. The
registrant’s
other
certifying
officer
and
I
are
responsible
for
establishing
and
maintaining
disclosure
controls
and
procedures
(as
defined
in
Exchange
Act
Rules
13a-15(e)
and
15d-15(e))
and
internal
control
over
financial
reporting
(as
defined
in
Exchange
Act
Rules
13a
15(f)
and
15d-15(f))
for
the
registrant
and
have:
(a) Designed
such
disclosure
controls
and
procedures,
or
caused
such
disclosure
controls
and
procedures
to
be
designed
under
our
supervision,
to
ensure
that
material
information
relating
to
the
registrant
is
made
known
to
us
by
others
within
those
entities,
particularly
during
the
period
in
which
this
report
is
being
prepared;
(b) Designed
such
internal
control
over
financial
reporting,
or
caused
such
internal
control
over
financial
reporting
to
be
designed
under
our
supervision,
to
provide
reasonable
assurance
regarding
the
reliability
of
financial
reporting
and
the
preparation
of
consolidated
financial
statements
for
external
purposes
in
accordance
with
generally
accepted
accounting
principles;
(c) Evaluated
the
effectiveness
of
the
registrant’s
disclosure
controls
and
procedures
and
presented
in
this
report
our
conclusions
about
the
effectiveness
of
the
disclosure
controls
and
procedures,
as
of
the
end
of
the
period
covered
by
this
report
based
on
such
evaluation;
and
(d) Disclosed
in
this
report
any
change
in
the
registrant’s
internal
control
over
financial
reporting
that
occurred
during
the
registrant’s
most
recent
fiscal
quarter
(the
registrant’s
fourth
fiscal
quarter
in
the
case
of
an
annual
report)
that
has
materially
affected,
or
is
reasonably
likely
to
materially
affect,
the
registrant’s
internal
control
over
the
financial
reporting;
and
5. The
registrant’s
other
certifying
officer
and
I
have
disclosed,
based
on
our
most
recent
evaluation
of
internal
control
over
financial
reporting,
to
the
registrant’s
auditors
and
the
audit
committee
of
the
registrant’s
board
of
directors
(or
persons
performing
the
equivalent
functions):
(a) All
significant
deficiencies
and
material
weaknesses
in
the
design
or
operation
of
internal
control
over
financial
reporting
which
are
reasonably
likely
to
adversely
affect
the
registrant’s
ability
to
record,
process,
summarize
and
report
financial
information;
and
(b) Any
fraud,
whether
or
not
material,
that
involves
management
or
other
employees
who
have
a
significant
role
in
the
registrant’s
internal
control
over
financial
reporting.
Date: August
29,
2016
/s/
BRIAN
H.
OSWALD
Brian
H.
Oswald
Chief Financial Officer
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C. 1350)
EXHIBIT 32.1
In
connection
with
the
annual
report
on
Form
10-K
for
the
period
ended
June
30,
2016
(the
“Report”)
of
Prospect
Capital
Corporation
(the
“Registrant”),
as
filed
with
the
Securities
and
Commission
on
the
date
hereof,
I,
John
F.
Barry
III,
Chairman
of
the
Board
and
Chief
Executive
Officer
of
the
Registrant,
hereby
certify,
to
the
best
of
my
knowledge,
that:
1. The
Report
fully
complies
with
the
requirements
of
Section
13(a)
or
15(d)
of
the
Securities
Exchange
Act
of
1934,
as
amended;
and
2. The
information
contained
in
the
Report
fairly
presents,
in
all
material
respects,
the
financial
condition
and
results
of
operations
of
the
Registrant.
Date: August
29,
2016
/s/
JOHN
F.
BARRY
III
John
F.
Barry
III
Chairman of the Board and Chief Executive Officer
A
signed
original
of
this
written
statement
required
by
Section
906,
or
other
document
authenticating,
acknowledging,
or
otherwise
adopting
the
signature
that
appears
in
typed
form
within
the
electronic
version
of
this
written
statement
required
by
Section
906,
has
been
provided
to
Prospect
Capital
Corporation
and
will
be
retained
by
Prospect
Capital
Corporation
and
furnished
to
the
Securities
and
Exchange
Commission
or
its
staff
upon
request.
The
foregoing
certification
is
being
furnished
solely
to
accompany
the
Report
pursuant
to
18
U.S.C.
ss.
1350,
and
is
not
being
filed
for
purposes
of
Section
18
of
the
Securities
Exchange
Act
of
1934,
as
amended,
and
are
not
to
be
incorporated
by
reference
into
any
filing
of
the
Registrant,
whether
made
before
or
after
the
date
hereof,
regardless
of
any
general
incorporation
language
in
such
filing.
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C. 1350)
EXHIBIT 32.2
In
connection
with
the
annual
report
on
Form
10-K
for
the
period
ended
June
30,
2016
(the
“Report”)
of
Prospect
Capital
Corporation
(the
“Registrant”),
as
filed
with
the
Securities
and
Commission
on
the
date
hereof,
I,
Brian
H.
Oswald,
Chief
Financial
Officer
of
the
Registrant,
hereby
certify,
to
the
best
of
my
knowledge,
that:
1. The
Report
fully
complies
with
the
requirements
of
Section
13(a)
or
15(d)
of
the
Securities
Exchange
Act
of
1934,
as
amended;
and
2. The
information
contained
in
the
Report
fairly
presents,
in
all
material
respects,
the
financial
condition
and
results
of
operations
of
the
Registrant.
Date: August
29,
2016
/s/
BRIAN
H.
OSWALD
Brian
H.
Oswald
Chief Financial Officer
A
signed
original
of
this
written
statement
required
by
Section
906,
or
other
document
authenticating,
acknowledging,
or
otherwise
adopting
the
signature
that
appears
in
typed
form
within
the
electronic
version
of
this
written
statement
required
by
Section
906,
has
been
provided
to
Prospect
Capital
Corporation
and
will
be
retained
by
Prospect
Capital
Corporation
and
furnished
to
the
Securities
and
Exchange
Commission
or
its
staff
upon
request.
The
foregoing
certification
is
being
furnished
solely
to
accompany
the
Report
pursuant
to
18
U.S.C.
ss.
1350,
and
is
not
being
filed
for
purposes
of
Section
18
of
the
Securities
Exchange
Act
of
1934,
as
amended,
and
are
not
to
be
incorporated
by
reference
into
any
filing
of
the
Registrant,
whether
made
before
or
after
the
date
hereof,
regardless
of
any
general
incorporation
language
in
such
filing.