Welcome to the 2nd Fiscal Quarter Earnings Release and Conference Call for Prospect Capital Corporation. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to John Barry, Chairman and CEO.
Please go ahead.
Thank you, Carrie. Joining me on the call today as usual are Grier Eliasek, our President and Chief Operating Officer and Kristin Van Dask, Our Chief Financial Officer. Kristin?
Thank you, John. This call is the property of Prospect Capital Corporation. Unauthorized use is prohibited. This call contains forward looking statements within the meaning of the securities laws that are intended to be subject to Safe Harbor Actual outcomes and results could differ materially from those forecasts due to the impact of many factors. We do not undertake to update our forward looking statements unless required by law.
For additional disclosure, See our earnings press release and our 10 Q filed previously and available on the Investor Relations tab on our website, prospectstreet.com. Now, I'll turn the call back over to John.
Thank you, Kristin. In the December Quarter, our net investment income or NII was $81,600,000 or $0.21 per common share, up $0.06 from the prior quarter. Our net income was $306,000,000 or $0.80 per common share, up $0.35 from the prior quarter. Our NAV stood at $8.96 per common share in December, up $0.56 and 7% from the prior quarter and representing our 3rd quarter in a row with NAV growth. In the December quarter, our net debt to equity ratio was 61.1%, Down 13% from March and down 7% from September.
In May, we moved our minimum 1940 Act regulatory asset coverage to 150%, Equivalent to 200 percent debt to equity. We have no plans To increase our actual drawn debt leverage beyond our historical target of 0.7 to 0.85 debt to equity, and We are announcing monthly cash common shareholder distributions of $0.06 per share For each of February, March April, these 3 months represent the 42nd, 43rd And 44th consecutive $0.06 dividend. Consistent with past practice, We plan on our next set of shareholder distribution announcements in May. Since our IPO Nearly 17 years ago, through our April 2021 distribution at The current share count, we will have paid out $8.60 per common share to original shareholders, Aggregating over $3,300,000,000 in cumulative distributions to all Common shareholders. Since October 2017, our NII per common share Has aggregated $2.55 while our shareholder distributions per share have aggregated 2 point $0.34 resulting in our NII exceeding distributions during this period by $0.21 per share.
Our NII covered distributions in the June 2020 fiscal year and have covered Distributions in the 2021 fiscal year to date as well. We are also pleased To announce continued preferred shareholder distributions on the yields of successful launches Of our $1,000,000,000 5.5 Percent Preferred Stock Program and 250,000,000 5.5 Percent Preferred Stock Program. Thank you. I'll now turn the call over to Grier.
Thank you, John. Our scale platform with over $6,100,000,000 of assets And undrawn credit continues to deliver solid performance in the current challenging environment. Our experienced Team consists of around 100 professionals, which represents 1 of the largest middle market investment groups In the industry, with our scale, longevity, experience and deep bench, We continue to focus on a diversified investment strategy that spans 3rd party private equity sponsor related lending, direct non sponsor lending, Prospect sponsored operating and financial buyouts, Structured Credit and Real Estate Yield Investing. Consistent with past cycles, We expect during the next downturn to see an increase in secondary opportunities coupled with wider spread primary opportunities with a pullback from other investment groups, particularly more highly leveraged one. This diversity allows us to source A broad range and high volume of opportunities, then select in a disciplined bottoms up manner, the opportunities we deem to be the most attractive Our team typically evaluates thousands of opportunities annually and invests in a disciplined manner in a low single digit percentage of such opportunities.
Our non bank structure gives us the flexibility to invest in multiple levels of the corporate capital stack With a preference for secured lending and senior loans. As of December, our portfolio at fair value Comprised over 47% secured first lien, 21% other senior secured debt, 13% Subordinated structured notes with underlying secured 1st lien collateral and 18% Equity Investments, which results in a stable 82% of our investments Being assets with underlying secured debt benefiting from borrower pledged collateral. Prospect's approach is one that generates attractive risk adjusted yields and are performing interest bearing investments. We're generating an annualized yield of 12.2% as of December, which was up 0.6% from the prior quarter. We achieved this increase despite a headwind from the past year decline in LIBOR, though we expect stability now due to our LIBOR Floors.
We also hold equity positions in certain investments that can act as yield enhancers or capital GAIN's contributors as such positions generate distributions. We've continued to prioritize senior and secured debt with our originations To protect against downside risk, while still achieving above market yields through credit selection discipline and a differentiated origination approach. As of December, we held 122 direct portfolio companies Even with the prior quarter with a fair value of over $5,600,000,000 which is an increase of $239,000,000 from We also continue to invest in a diversified fashion across many different portfolio company industries With no significant industry concentration, the largest is 16%. As of December, our asset concentration In the energy industry, it was 1.2% in the hotel, restaurant, leisure sector, 0.4% And in the retail industry, 0%. Non accruals as a percentage of total assets Stood at approximately 0.7% in December, flat from the prior quarter.
Our weighted average middle market Portfolio net leverage stood at 4.97x EBITDA, down 0.31 from the prior quarter and substantially below our reporting peers. Our weighted average EBITDA per portfolio company stood at $83,000,000 in December, which was an increase from $78,500,000 in the prior quarter. Originations End of December quarter aggregated $346,000,000 We also experienced $338,000,000 of repayments and exits As a validation of our capital preservation objective and sell down of larger credit exposures, which resulted in net Originations of $8,000,000 During the December quarter, our originations comprised 75% middle market finance, 24.8 percent Real Estate and 0.2 percent Middle Market Lending Buyouts. To date, we've deployed significant capital in the real estate arena through our private REIT strategy, Largely focused on multifamily workforce stabilized yield acquisition with attractive 10 year plus financing. NPRC, our private REIT, has real estate properties that have benefited over the last several years from rising rents, strong occupancies, High returning value added renovation programs and attractive financing recapitalization, resulting in an increase in cash yields as a validation of this income growth business alongside our corporate credit businesses.
NPRC as of December has exited completely 33 properties at an average IRR of 23.5 percent With an objective to redeploy capital into new property acquisitions, including with repeat property manager relationships. We continue to monitor our rent collections, which are holding up well in the current environment. Our structured credit business has delivered Attractive cash yields, demonstrating the benefits of pursuing majority stakes, working with world class management teams, providing strong collateral underwriting through primary issuance and focusing on attractive risk adjusted opportunities. As of December, we held $745,000,000 across 39 non recourse Subordinated structured notes investments. These underlying structured credit portfolios comprised around 1700 loans And a total asset base of around $17,000,000,000 As of December, this structured credit portfolio Experience a trailing 12 month default rate of 206 basis points, down 14 from the prior quarter And representing 177 basis points less than the broadly syndicated market default rate of 383 basis points.
In December, this portfolio generated an annualized cash yield of 17.2% And GAAP yield of 16.8%. As of December, our subordinated structured credit portfolio Has generated $1,260,000,000 in cumulative cash distributions to us, representing around 90% of our original investment. Through December, we've also exited Nine investments totaling $263,000,000 with an average realized IRR of 16.7 percent And cash on cash multiple of 1.48 times. Our subordinated structured credit portfolio consists entirely of majority owned positions. See fee rebates because of our majority position.
As majority holder, we control the ability to call a transaction In our sole discretion in the future, and we believe such options add substantial value to our portfolio. We have the option of waiting years to call a transaction in an optimal fashion rather than when loan asset valuations Might be temporarily low. We as majority investor can refinance liabilities on more advantageous terms, Remove bond baskets in exchange for better terms from debt investors in the deal and extend or reset the investment period to enhance value. We've completed 27 refinancings and resets since December 2017. So far in the current March quarter, we have booked $12,000,000 in originations and experienced $53,000,000 of repayments For $41,000,000 of net repayments, originations have comprised 56.5 percent Real Estate, 41.4 percent Middle market finance and 2% middle market lending buyout.
Thank you. I'll now turn the call over to Kristin.
Thank you, Grier. We believe our prudent leverage, diversified access to matched book funding, substantial majority of unencumbered assets Weighting toward unsecured fixed rate debt, avoidance of unfunded asset commitments and lack of near term maturities demonstrate both balance sheet strength as well as substantial liquidity to capitalize on attractive opportunities. Our company has locked in a ladder of liabilities extending 2 years into the future. Today, we have 0 debt maturing until July 2022. Our total unfunded eligible commitments to non control portfolio companies totals approximately 21,000,000 or less than 0.4 percent of our assets.
Our combined balance sheet cash and undrawn revolving credit facility commitments We were the 1st company in our industry to issue a convertible bond, develop a notes program, issue under a bond ATM, acquire another BDC and many other lists of firsts. Now we've added our programmatic perpetual preferred issuance to that list of firsts. Shareholders and unsecured creditors alike should appreciate the thoughtful approach differentiated in our industry, which we have taken toward construction at the right hand side of our balance sheet. As of December 2020, we held approximately $4,210,000,000 of our assets as unencumbered assets representing approximately 74% of our portfolio. The remaining assets are pledged to Prospect Capital Funding, where in September 2019, we completed an extension of our revolver to a refreshed 5 year maturity.
We currently have $1,775,000,000 of commitments from 30 banks. The facility revolves until September 2023, followed by a year of amortization with interest distributions continuing to be allowed to us. Of our floating rate assets, 89.6 percent have LIBOR floors with a weighted average floor of 1.62%. Outside of our revolver and benefiting from our unencumbered assets, We've issued at Prospect Capital Corporation, including in the past few years, multiple types of investment grade unsecured debt, including convertible bonds, institutional bonds, baby bonds and program notes. All of these types of unsecured debt have no financial covenants, no asset restrictions and no cross defaults with our revolver.
We enjoy an investment grade BBB negative rating from S and P, an investment grade Baa3 rating from Moody's, An investment grade BBB negative rating from Kroll and an investment grade BBB rating from Egan Jones. We've now tapped the unsecured term debt market on multiple occasions to ladder our maturities and to extend our liability duration Our debt maturities extend through 2,043. With so many banks and debt investors across So many debt tranches, we have substantially reduced our counterparty risk over the years. In the December 2020 quarter, we completed 2023 notes and $10,000,000 of our 6.375 percent 2024 notes. In the current March quarter through tender processes, we have retired $20,000,000 in 2025 notes and another $27,000,000 of 2022 notes, thereby taking that tranche down to $136,000,000 We recently, in the current March with a coupon of 3.7%.
We have continued to substitute more expensive term debt with significantly lower cost Revolving credit with an incremental 1.3% cost and our newly issued 2026 notes. We also have continued with our weekly programmatic intranet issuance on an efficient funding basis. We now have 8 separate unsecured debt issuances aggregating $1,400,000,000 not including our program notes with maturities extending to June 2029. As of December 2020, we had $759,000,000 of program notes outstanding with staggered maturities through October 2043. We also recently added a shareholder loyalty benefit to our dividend reinvestment plan or DRIP that allows for a 5% discount to the market price for DRIP participants.
As many brokerage firms either do not make drips automatic or have their own synthetic drips with no such 5% discount benefit. We encourage any shareholder interested in drip participation to Make sure to specify you wish to participate in the Prospect Capital Corporation DRIP plan through DTC at a 5% discount and obtain confirmation of same from your broker. Now, I'll turn the call back over to John.
Sorry. Thank you, Kristen. We could take questions now.
We will now begin the question and answer session. The first question is from Finian O'Shea with Wells Fargo Securities.
Hi, everyone. Good morning. Thanks for having me on. I guess first question, Grier, On the CLO portfolio this quarter, you saw a pretty good rebound there in yields. I know cash yields were up this quarter for that asset class, but any expanded color on A longer term fundamental improvement there?
Sure. So this portion of our book, which is about 13% of our book, small portion of our assets, essentially worked as advertised. These are Self healing vehicles and you go through a time of stress like you saw in 2020, Including a host of ratings downgrades rippling through the A minority of deals, and that is largely abated now, cash yields Up to 17.2 percent, that was up about 1100 basis points from the prior quarter and GAAP yields up About 3 20 basis points to just under 17%. From a longer term perspective, We're seeing not just an increase in loan prices, but now a reversal of those ratings downgrades Becoming upgrades, which tend to be slower than the downgrades. Typically, that's asymmetric, But that's moving in the right direction.
You saw a troughing of trailing 12 months default rates as well. We've always outperformed The overall loan market, generally by about 50%, so that has continued, but you're seeing a decline in those LTM default rates and We expect that to continue just looking forward in a runoff of things that occurred 12 months prior for defaults. So we're optimistic about the loan space. We're also seeing benefit Libor Floors, by the way. Sometimes floors work to your advantage, sometimes to your disadvantage.
When the floor is obviously above And there's an increase in prevailing rates that works a little bit to your disadvantage in terms of That's how your assets are structured. Here, the work to the advantage because of those floors, often 100 basis So with LIBOR close to 0, we're being paid nicely on the asset side of the ledger With the floor plus the spread, while the liabilities have no such floor. So a number of positive things occurring here. This again It's just a small part of our book and not likely to grow on our balance sheet. Any thoughts there, Finian?
That was helpful. Just if I could do one follow-up on the right side of The balance sheet for you or perhaps Kristen, I think you were saying that you would utilize the revolver more. We've noticed that. Any additional I mean, I guess, how much ideally would you say? And then if you have the numbers, Can you remind us of your available borrowing base?
I'll answer the first part and I'll ask Kristen To respond on the borrowing base, which of course is an iterative topic as you fund more originations, you pledge more of the borrowing base growth. So it stair steps upward as opposed to being static. But Historically, the long term, we've only had about 15% utilization. We've stepped that up to be closer to 35%, And we'd like to strike the right balance between having significant liquidity on And at all times, we think that's an important de risking element with utilizing our most efficient form of Financing, we have been retiring more expensive debt Through a series of tenders, we just called a more expensive traded baby bond That will actually be retired this week from notice that was given almost 30 days ago in conjunction with our new Institutional bond issuance, so we're calling paper that is in the 5% to 6.5% -ish range and we're replacing it with paper in more of the 3% to 4 That range on a term basis plus the revolver is just over 1% money. So we've made nice strides to Tremor, cost of financing on the right hand side of our balance sheet.
We'd like to continue shaping that And use that as a driver. But then, of course, just in terms of utilizing financing period, we are under levered Pretty significant right now with only 61 percent net debt to equity versus a target range of 70% to 85 And we're cautious, but we have a nice pipeline of deals where we look to deploy That capital as well. So cost of financing and amount of financing are significant levers to pull as Positive earnings callous as we see it for the future. And we have about $845,000,000 of combined cash and undrawn revolver. Chris, do you want to comment on the borrowing base, which again is static and increases as you pledge more asset?
Sure. Greer, you mentioned the $845,000,000 that we have on the cash and undrawn. We currently have about $370,000,000 borrowed with an additional 4
Thank you, both of you, and congratulations on the good quarter.
Thanks, Danielle.
The next question comes from Robert Dodd of Raymond James.
Hi, guys. And congrats on an impressive NAV quarter among other things. And congrats on being a top 100 stock at Robinhood too. So the NAV performance, obviously, up 7%, a good chunk of that Came from 2 assets in particular, I mean, not all of it by any means, but a good chunk of it, InterDent and Your Meet. So A couple of questions about that.
On InterDent, obviously a material markup, first time that asset has been marked up above cost In a while and that business has obviously been troubled for more than a decade, I think, You got involved in it. So the question is, has there been another restructuring? I mean, what's changed that now seems to be On a better path. I mean, obviously, dental was impacted by COVID. There's been a rebound there, but and there's still some headwinds there, but What drove the big markup in that business this quarter?
Sure. Well, I'm not sure I completely agree that Entrance has been sort of a troubled company for the longer term. The company Has two parts to it. It has a Medicaid based business in substantially in Oregon And then outside of Oregon, it has a fee for services business in other states, primarily in Western region. The Medicaid based business actually ended up being Substantial plus countercyclicality in the course of the past year When you're paid a per member per month rate and your utilization Drops, your costs drop, but you're still paid the same amount.
We saw substantial Performance in that part of the business model compared to fee for services probably speaking out there in the industry. So while you're Subject to reimbursement risk and what is the Medicaid enrollment in a particular region, You have other substantial benefits during downturns that shown through quite brightly. The business has been picking up market share and also banning from an overall growth of enrollment in that state. And just a general improvement in the blocking and tackling and efficiencies, broadly speaking, across the business. So Dental services, recurring revenue business, get your teeth cleaned twice a year.
A lot of the early on with the virus, there are Concerns about going to the dentist, there's still a little bit of a lingering impact of that, but we're Nearly where we were in the spring of 2020 from that standpoint. So we're happy with the trajectory Of the business, it's performing well. Valuations continue to be robust from a comps standpoint. Yes. So that's Enter Dent.
And I would say, we didn't really see our valuations as concentrated in a couple of credits. We had And across the board, robust increase in valuations in the book. I think we had Maybe 20 plus credits roughly that are more than $1,000,000 increase In valuations, whereas on the downside, we had maybe only 4 or 5 deals that had a more than $1,000,000 decrease. So the increase in valuations was very much broad based Across the book and not just concentrated in 1 or 2?
Fair point, but $120,000,000 of Appreciation. It did come from 2 assets. That is not an even split. But on the REIT, if I can, At the risk of digging up a very old issue, at what point does it become Appropriate to maybe spin off isn't the right thing to discuss, but it's 30% of NAV now. That's a very large Concentration and yes, there's diversity.
It owns lots of different properties, but if you had a manufacturing business that had 100 different products, you still wouldn't want a manufacturing business to be 30% of your NAV even if their product set was diversified. So what's the right Level for that to account for of portfolio concentrations, because right now it looks like if it continues on this path, which I don't think there's any reason to believe it won't right now. It's going to become an even more concentrated part of the book. And what's the right level there?
Right. Well, a couple of predicates there, again, not sure in complete agreement. The first is, we have historically Sold individual assets as we have proceeded. In fact, we've sold 33 properties. So while NPRC and our real estate business have performed strongly from a cash flow And total return and realized IRR standpoint, those 33 exits have generated 23.5% IRR, as we sell assets selectively and you probably see us Continue to pursue that, 2020 was a little bit muted for M and A across the board, not just within real estate, Then that's a mitigating factor to what I would call high quality problem of having increases and positive Results, we don't look at it through the way you started the question of a single concentration.
We look at this on more of a look through basis from a business standpoint where we have dozens of separately financed Properties with a diversity of management teams and a diversity of geographies. So much like you wouldn't take our middle market lending book and say that's a 69% concentration either. So real estate is about 19% Of our assets, but it is very significantly diversified. There is no cross collateralized Debt or other obligations, every asset has its own individual financing. So we look at a look through basis.
And in terms of portfolio construction and our allocation To real estate, I think it's unlikely to see real estate kind of take over the book or become A majority or anything like that, we maintain a balanced origination approach. It includes real estate. It includes corporate Credits. I mean, you mentioned spin offs. I suppose that could be interesting to consider at some point potentially.
But What you see is that private market valuations are Hi, Erinn. And this has been the case for actually several years, Robert, compared to public REITs. And there's a number of reasons for that. One is the leverage at which assets run. One is the, I think the players in the market and the capital that's aggregated and earmarked in the private markets different from the public REIT side of things.
Some of it may be macro fashion sentiment comparing REITs, auto to tech stock, But you do better selling your individual assets in the private marketplace as opposed to putting them into A separate standalone public format. But that's something we can continue analyzing over time in case that changes.
That's fair. If I can make a request to your point on, I mean, if I look in the disclosures in the Q that we have on NPRC, I mean, it appears revenue minus OpEx minus interest expense, it's simplified cash flow, it's negative. Obviously, that's not representative of Your point that average IRR on exits is 23%. So perhaps you could Do us a favor, give us better disclosure on the REIT about cash flows and the mechanics of the IRR because right now if look at the disclosures, it appears to be a cash flow negative business that does represent quite a large So that's just a request. But other than that, Well,
Rob, if I can respond to that, because I mean, a couple of things. First of all, Real estate generates depreciation, right? That's not an investment company and it doesn't use investment company accounting. REITs don't use investment company accounting, right? So the depreciation they spent off, which may have been money spent years prior, It is a factor, number 1.
Number 2 is what you're quoting there is also after giving effect to the Interest rate that Prospect Capital Corp. Charges to NPRC, which of course It comes to Psec as the home team, right? So we're a beneficiary of that, that substantially absorbs A good chunk of the net operating income. So I don't think looking at some type of net income figure, which includes non cash Appreciation and amortization.
That was for what it's worth, that's excluding the depreciation. And that's to I'm sorry to interrupt, but Right. That's precisely my point. I mean, if I have if there was more disclosure, we'd have an easier time figuring that out. Okay.
As it is, just revenue minus OpEx minus interest, Excluding depreciation and fair value adjustments, that number is negative. But that doesn't tell the whole story.
We will again, That's a huge factor. This is a significant I just want for the record, this is a significantly profitable Net operating income business, it's not a money loser at all, period, full stop. But we will review the disclosures And we already put in a ton of disclosures. We really saw that it's annual financials for NPRC. We have pages and pages of additional disclosures, But we're happy to take any comments, suggestions.
Feel free to make them. We'll definitely evaluate them. Always happy to evaluate Increasing and improving disclosures for sure. But this is not a money losing business by any stretch.
Thank you. That's all my questions.
Thank you.
Thank you.
And this concludes our question and answer I would now like to turn the conference back over to John Barry for any closing remarks.
Okay. Well, I do have a couple. One is that the improved performance at InterDerm is the result of The persistence, diligence, hard work, dedication of a wonderful management team We have 2 people leading the effort there who have overcome challenge after challenge, Many outside of their control. That's one of the I guess it's not exactly a secret, but I think people Often fail to appreciate the importance of having great management teams at our Portfolio companies and one of the absolute best is the team at InterDent. They've done a fabulous job.
As well, The internal prospect team, which spends many, many hours on that asset optimizing it, Has done a wonderful job. We hope to see more of that. Normally what happens in our business, unfortunately, When there's a problem and we are handed the keys to a company as occurred with InterDamp. That is After the sponsor has tried everything, every Hail Mary Pass, Every good, indifferent and bad idea. And they've all failed.
And the sponsor, a brand name, leveraged buyout firm on the tip of everyone's tongue, On the front page of The Wall Street Journal again and again has completely given up. I wish that were all that happened. But usually what also happens in the case of certain sponsors, and we know who they are, they've hollowed the company out. Well, we can't fix this. We've tried everything.
So let's Leave with as much money in our pocket as possible and give it to prospects. And then occasionally, there's a demand that we pay money for that privilege, which we have never exceeded to. So we definitely start out deep in our own end zone when we take over these companies. And I think the case of Internet shows that we're getting better and better at Doing what the sponsor should have done in the first place and performing where the sponsor has failed And fixing problems that should have been identified ahead of us and fixing them. And in the case of InterDent, we started by making significant management changes.
And that's the whole story there. In the case of our REIT or any other asset class where we invest, I hope We continue to have this problem that Robert Dodd has identified where the asset class performed so well Under our supervision, then we have to think about rebalancing by spinning off That's selling assets and the like. We hope to have that problem again and again and again Throughout and across our portfolio. It turns out that the REIT is fully diversified many, many properties there. I've noticed talking to our shareholders that many of our shareholders appreciate the stability of The cash flows at Prospect Capital Corporation, maybe one business unit is doing better than another At a given time, maybe aircraft leasing is doing well at one point and real estate is not doing so well, where online lending is doing better than our energy business.
Shareholders I speak to like to know That because of the diversity of our assets and the diversity of the cash flows, The significant cash flows those assets throw off that a problem in the oil patch is not a giant Hit to NAV or our income or travel Largely shutting down in the airline business isn't another heavy blow to us Because what happens is, where people can't eat in restaurants, how exposed are we to that? Not very. Hotels, same. So while the idea of spinning things off when they do really well Has some facial attraction. The shareholders I speak to like to know that there Our 8 cylinders under the hood that are all operating, making this car drive as steady as she goes.
So while we will consider spin offs, right now, it's not at the top of our list. And as far as the real estate business being extremely highly profitable and remunerative, You can't be earning these high IRRs, almost 30%, if the business were not Positive cash flow in every single quarter. So we are going to continue to work With what has worked well in the past, we're going to be steady as she goes. We're not going to be making any Sudden changes to business strategies that have worked well for us since 1988, we believe Steady as she goes. Okay.
Thank you, everyone. Have a wonderful afternoon. Bye now.
Thank you. Bye now.
The conference is now concluded. Thank you all for attending today's presentation. You may now disconnect your lines. Have a great day.