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spk_0: good afternoon and welcome to prosper capitals third fiscal quarter earnings release and conference call all participants will be in a listen only mode should you need assistance please ignore conference specialist by pressing the starkey followed by zero after today's presentation there will be an opportunity to ask questions to ask a question you may press star than one on your telephone keypad to withdraw your question please post star than to please note this event is being recorded i would now like to turn the conference over the chairman and chief executive officer john barry please go ahead that
spk_1: thank you joe i hope everyone can hear me
spk_2: joining on the call today i've realized if our president and chief operating officer and christian then desk our chief financial officer kristen
spk_3: thanks can
spk_4: def call as the property of prospect an authorized the is is prohibited this call contains forward looking statements that are intended to be subject to safe harbor protection actual developments and results are highly likely to very materially and we do not undertake the at they are forward looking statements unless required by law for additional disclosure see our earnings press release and ten que filed previously and available on our website prospect street dot com now are trying the call back over to
spk_5: john
spk_1: thank you chris than welcome everyone in the march quarter our net investment income or and i was eighty seven million dollars or twenty two cents per calm and share exceeding i distribution rate for common shared by for sense
spk_6: our basic met income attributable to common and shareholders was one hundred and fifty seven point two million dollars or forty cents per calm and share as the overall value of a dozen portfolio increase to the eighth can sec
spk_1: quarter due to a combination of positive company specific and macro factors our energy stood at ten dollars eighty one cents per calm and share in march up twenty one sense and two percent from the prior quarter and representing our a quarter in a row within a the growth
spk_6: our energy brigham and share is now at the highest level since september two thousand and fifteen
spk_1: over six years ago over the a coders when the pre pandemic december two thousand and nineteen quarter to the december twenty twenty one cool prospect has delivered the highest growth in the business development company industry in that as if the you calm and share with and a vapor calm and share increasing by twenty five percent over that time period tenth inception in two thousand and prospect has invested eighteen point seven billion dollars across three hundred ninety four investments exiting two hundred and seventy of those investments
spk_6: we have outperformed appears during the past multiple quarters of macro volatility
spk_1: as a direct result of our previous the risky
spk_6: not chasing leverage as well as other risk management controls
spk_1: we are staying true to their strategy that is served as well since nineteen eighty eight controlling and reducing portfolio and balance sheet risk both to protect the capital interested to us and to protect the ability of such capital to generate earnings for our shareholders
spk_5: in the march quarter or net that equity ratio
spk_1: was fifty three point nine percent yeah twenty point two percentage points from march twenty twenty and up
spk_6: two point six percentage points from the december cooler
spk_1: as we continue to run
spk_6: an under leveraged balance sheet which has been the case for us for multiple quarters
spk_1: over the past four years other with did the disease overall have increased to average with a typical was btc now at our her at around a hundred and forty percent that to total aqui
spk_6: or approximately sixty percentage points higher than for prospect
spk_1: running it have the leverage of the rest of the industry prospect has not increased the leverage instead you acting lower risk from lower their leverage with a cautious approach given macro dynamics it may twenty twenty we moved our minimum nineteen forty act regulatory as a coverage to one hundred and fifty percent equivalent to two hundred percent that to equity
spk_5: which not only increased or cushion but also gave his flexibility to pursue our subsequently announced junior capital perpetual preferred equity issuance which counts toward forty act as a coverage
spk_6: but which get significant equity treatment
spk_1: by our rating agencies we have no plans to increase our actual to on get rich beyond our historical target of point seven no two point eight five that to equity and we are currently significantly below such target range ross expo and she is highly differentiated from peers with one hundred percent about expanding coming from unsecured and non recourse debt which has been the case for prospect for more than fourteen years unsecured debt was seventy three point three percent of busmex total debt in march twenty twenty were about twenty two percentage points higher than around fifty percent for the typical listed b c i run secure and diversified funding profile provides us with significantly lower risk and significantly more investment strategy
spk_5: in balance sheet flexibility that many of our btc peers
spk_7: turning to the cash distribution for
spk_6: we are pleased to report the board the coloration
spk_1: of for more steady monthly distributions
spk_6: we are announcing monthly cash common shareholder distributions of six cents
spk_8: per share for each of may
spk_1: june
spk_6: july and august these four months represented fifty seven
spk_5: fifty eight fifty nine
spk_1: and sixty eighth consecutive six cents per share distributions continuing five years of table monthly cash shareholder distributions consistent with practice
spk_9: we plan on our next set of cheryl the distribution an announcement
spk_6: in august
spk_1: our go over the long term is to maintain
spk_6: and ideally grab the steady monthly cash shareholder distribution
spk_2: as we seek to provide low volatility stability to our shoulders amidst a macro market backdrop it delivers greater volatility elsewhere
spk_5: shareholders participating in our common stock trip for the twelve was ended march thirty first
spk_1: twenty twenty two received to return one percent greater their non participating shareholders
spk_6: for a total return of over eighteen percent
spk_1: both returns are greater than the same period returns on the snp five hundred and more glamorous household technology name's it do not pay dividends get their ip out nearly eighteen years the go through august twenty two distribution at the shit at the current share shericka
spk_6: we will fade out ninety dollars fifty six cents
spk_1: brigham and share to original shareholders aggregating approximately three point seven billion dollars in cumulative distributions to our common shareholders more than many household name high combined
spk_6: tense october two thousand and seventeen
spk_1: our and i'd recommend share has aggregated three dollars fifty nine said
spk_10: while our common and preferred shareholder distributions
spk_1: for a and share the aggregated three dollars twenty nine cents
spk_11: result the in our and i exceeding distributions
spk_6: during this period
spk_5: by thirty cents per share
spk_1: our and i covered distributions to common and prepared shareholders in the june twenty twenty one fiscal year
spk_6: and as exceeded calm and and preferred shareholder distributions and twenty twenty two fiscal year to date by eleven cents per share
spk_5: we are also pleased to announce continued prepared cheryl their distribution
spk_1: on the heels of successful launches other
spk_12: one point two five billion dollar five point five percent prepared preferred program
spk_6: and one hundred and fifty million
spk_1: five point three five percent listed preferred we have raised approximately six hundred and fifty million and preferred stock today
spk_6: with strong support from institutional investors are i eyes a broker dealers including the recent edition of to top five sized independent broker dealers systems as well as top wire as an original broker the
spk_1: your system
spk_2: we are currently focused on multiple initiative
spk_13: two and half hour and i
spk_1: are away and an ab in a creative fashion including first i one point two five billion perpetual preferred equity programs
spk_6: which could potentially be increased incapacity in and creative bash
spk_1: do a greater utilization of a cost efficient revolving credit facility
spk_5: with an incremental cost of approximately two point one nine percent today's one month vibe or three retirement of higher cost liabilities including reason
spk_6: successful ten robbers and repurchases or issuing lower class notes a good including reason three to thirty year
spk_1: danger unsecured no issue with his with coupons of approximately two point five percent to four point six two five percent
spk_5: fifth increase of short term live where rate based on plant that tightening to exceed floors and boost our asset yields
spk_1: and six increased originations of senior unsecured debt
spk_6: and selected equity investments
spk_1: do you ever targeted risk adjusted yields and total returns as we deploy available dry powder from our current owner leveraged balance sheet
spk_6: we believe there is no greater alignment between management and shareholders that through management to purchase
spk_5: a significant amount of dog
spk_6: particularly when management has purchased stuck on and same basis as other shareholders in the open market project management is the largest shareholder in prospect and has never saw the share
spk_1: our senior management team
spk_14: and employees eat our own cooking currently owning approximately twenty eight percent of shares outstanding representing one point two billion dollars of a common equity as measured at at a v
spk_6: thank you
spk_15: i went out turn the call over to greer
spk_16: thank you john our scale platform with over eight billion of assets and anjouan credit prospect capital corporation continues to deliver solid performance in the current dynamic environment our experience team consists of over one hundred professionals which represents one of the largest middle market investing groups in the industry with our scale longevity experience and deep bench we continue to focus on a diversified investment strategy that spans third party private equity sponsor related lending direct non sponsor lending prospect sponsored operating and financial by buyout 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 invest groups particularly highly leveraged one unlike many other groups we have maintained and continue to maintain significant dry powder the we expect will enable us to capitalize on such attractive opportunities as they arrive this diversity of origination approaches allows us to source a broad range it high volume of opportunities then select in a discipline bottoms up manner the opportunities we deem to be the most attractive on a risk adjusted basis our team typically evaluate thousands of opportunities annually and invest in a discipline manner in a low single digit percentage of such opportunities are not bank structure gives us the flexibility to invest in multiple levels of the corporate capital stack with a preference for secured lending and senior loan as of march twenty twenty two our portfolio it fair value comprise forty eight point four percent first plane debt eighteen point five percent second lien debt nine point eight percent subordinated structured notes with underlying secured first lane collateral and twenty three point three percent unsecured debt and equity investment resulting in seventy six point seven percent of our investments being assets with underlying sick your debt benefiting from borrower pledged collateral prospects approach is one that generates attractive risk adjusted yield and are performing interest bearing investments we're generating an annualized field of ten point six percent as of march twenty twenty two plat with the prior quarter we also hold equity positions and certain investment they can act as yield enhancers or capital gains contributors as such positions generate distribution
spk_17: we continue to prioritize senior and secure debt with our originations to protect against downside risk while also achieving above market yield through credit selection discipline
spk_16: added differentiated origination approach as of march twenty twenty two we held a hundred and twenty seven portfolio companies the same as the prior quarter with a fair value of seven point four billion increase of four hundred twenty seven million from the prior quarter we also continue to you invest in a diversified fashion across many different portfolio company industries with a preference for avoiding cyclicality and with no significant industry concentration the largest is eighteen point two percent as of march twenty twenty two or as a concentration in the energy industry stood at one point eight percent our concentration in the hotel restaurant and leisure sector stood at point three percent in our constitution in the retail industry stood at zero percent non across as a percentage of total assets stood at approximately point four percent march twenty twenty two remaining static from the prior quarter and down point five percent from jan twenty twenty are weighted average middle market portfolio net leverage should five point three times even the substantially below are reporting peers are weighted average even the her portfolio company stood it a hundred and one point one million in march of twenty twenty two an increase of four point six million and two percent from december twenty twenty one as we can you need to achieve solid profit growth with our portfolio company originations in the march twenty twenty two quarter aggregated five hundred and sixty five million we also experienced one hundred eighty five million of repayments and exit as a validation of arc capital preservation objective result the a net originations of three hundred and eighty million during the march quarter or originations comprised fifty six point three percent middle market lending nineteen point five percent real estate fourteen point five percent middle market lending and by bio five point seven percent subordinate structured notes and four percent other to date we've deployed significant capital in the real state arena through our private read strategy largely focused on multifamily workforce stabilized yield acquisitions with attractive seven to twelve year financing and prc or private rate has real estate properties that are benefited over the last several years and more recently from rising rents show and the inflation hedge nature of this business segment strong occupancy hi collection suburban work from home dynamic hi returning value added renovation program an attractive financing recapitalisation resulting in an increase in cash yield as the validation of this income growth business
spk_18: alongside our corporate credit businesses
spk_16: and see as of march has exited completely forty five properties at an average are our of twenty five point one percent an average realized cash multiple have invested capital of two point five time with an objective to redeploy capital into new property acquisitions including with repeat property manager relationship or structured credit business has delivered attractive cash yield demonstrating the benefits of pursuing majority stake working with world class management teams providing strong collateral underwriting through primary issue and and focusing on favorable risk adjusted opportunities as of march we held seven hundred twenty nine million across thirty seven non recourse subordinated structured notes investment we've maintained a static size for our subordinate structured notes portfolio on a dollar basis electing to grow or other investment strategies and resulting in the structured notes portfolio now comprising less than ten percent of our investment portfolio these underlying structured credit portfolios comprise around seventeen hundred low don't and a total as a base of around sixteen billion as of march this structured credit portfolio experienced a trailing twelve month default rate of eight basis points down eleven basis points for the prior quarter and representing eleven basis points less than the broadly syndicated market default rate of nineteen basis point in the march quarter this portfolio generated in analyzed cash yield of twenty point seven percent and gap yield of nine point seven percent with the difference representing a significant amortization of var cost basis as of march or subordinated structured credit portfolio has generated one point four two billion in cumulative cash distributions to are representing around one hundred and two percent of our original investment
spk_17: through march we've also realized twenty nine investment
spk_16: totaling one point zero zero three billion with an average realized or are of thirteen point nine percent in cash and cash multiple of one point six two time or subordinated structured credit portfolio consists entirely of majority own position such positions can enjoy significant benefit compared to minority holding in the same tranche in many cases we receive the 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 as valuations might be temporarily low we have majority investor can refinance liabilities on more advantageous terms robot and have kids in exchange for better terms then from getting dusters and a deal and extend or reset the invest in period to enhance value we completed thirty two replies and reset since december of two thousand and seventeen so far in the current june twenty twenty two quarter we have booked a hundred and twenty four million in origination and experience one hundred and fifteen million of repayments for nine million of net origination originations have consisted of eighty two point eight percent
spk_19: middle market lending eleven point six percent real estate four point eight percent middle market lending and bio and point eight percent other thank you
spk_4: i will now turn the call over to kristen prison thanks career we believe our prudent leverage diversified access to match book funding substantial majority of unencumbered asset waiting toward unsecured fixed rate that avoidance of unfunded effect commitments and lack of near term maturity demonstrate both both balance sheet strength as well as substantial liquid it is to capitalize on attractive opportunities our company has locked in a ladder of liabilities extending thirty years into the future today are so maturity of sixty point five million is our only that muttering for all of calendar year twenty twenty two our total unfunded eligible commitment to non control portfolio companies total of approximately forty two million representing approximately zero point six percent of our asset our combined balance cash and undrawn revolving credit facility commitment currently stand at approximately eight hundred and fifty million where a leader an innovator in our marketplace we were the first company in our industry to issue a convertible bonds develop a note program issue under a bond and equity eight pm acquire another btc and many other list of for and twenty twenty we also added or programatic perpetual preferred issue and to that list of for followed and twenty twenty one by are listed perpetual preferred as another for in the industry shareholders and unsecured creditor the like should appreciate the thoughtful approach differentiated in our industry which we have taken to work construction of the right hand side of our balance sheet as of march twenty twenty two we held approximately four point nine two billion over asset as unencumbered asset representing approximately sixty six percent of our portfolio the remaining assets are pledged to prospect capital funding a non recourse as pv were in april twenty twenty one we completed and upsizing an extension of our revolver to of refreshed five year maturity we currently have one point five billion of commitment from forty three bank an increase of thirteen lunder from march twenty twenty one and demonstrating strong support of our company from the lender community with a diversity unmatched by any other company in our industry the facility revolved until april twenty twenty five followed by a year of amortization with interest distribution continuing to be allowed to or are drawn pricing is now live or plus two point zero five percent a decrease of fifteen basis points from before are under on pricing between thirty five percent and sixty percent utilization have been reduced by thirty of point we also now have an improvement and are boring be due to a change in concentration basket which we estimate increased our barring base by approximately one hundred and fifty million of are floating rate assets ninety three point nine percent have live or floor with a weighted average floor of one point three four percent short term rates are now beginning to see these fourth giving up visibility for increased as that yields from fed rate hike outside of our revolver and benefiting from our unencumbered asset with issue that prospect capital corporation including in the past few years multiple types of investment grade unsecured debt including convertible bonds and petition on baby bonds and program note all of these type of unsecured that have no financial provenance know asset restriction and know cross default with our revolver we enjoy an investment grade triple be negative rating from smp and investment grade be doubly three rating from moody's and investment grade trip will be negative rating from crawl and investment grade triple be rating from egan joan and an investment grade trouble be low rating from dbrs and twenty twenty one be received the ladder investment grade rating taking us to five investment grade rating more than any other company in our industry all of these ratings have stable outlook we have now kept the unsecured term that market on multiple occasions the ladder or maturity and to extend our liability duration of thirty year er det metairie extends through twenty fifty two with so many banks and that investors across so many that trenches we have substantially reduced or counterparty risk over the year in the march twenty twenty two quarter be completed successful redemption candor offerings and repayment retiring thirty six million over and turnout in the march twenty twenty two quarter we have continued to substitute more expensive term debt was significantly lower cost revolving credit with an incremental two point one nine percent cost we also have continued with our weekly programatic internet issue and on an efficient funding basis today we have raised approximately six hundred fifty million in aggregate issuance of our perpetual preferred stock across our preferred program and lifted preferred with the ability potentially to upsides such program based on significant balance she capacity we now have seven separate unsecured debt issuance is aggregating one point six billion not including our program note with maturity the extending through october twenty twenty eight as of march twenty twenty two we had three hundred and forty one million of program notes outstanding was staggered maturity through twenty fifty two at march thirty for twenty twenty two are weighted average cost of unsecured debt financing with four point three five percent a decrease of point zero four percent from december thirty first and a decrease of point eight seven percent from march thirty first including usage of our revolving credit facility at march thirty first twenty twenty two are weighted average cost of all that financing with three point seven seven percent decrease of zero point one eight percent from december thirty first twenty twenty one and a decrease of zero point nine nine percent from march third the first twenty twenty one in two thousand and twenty we added a shareholder liar liar shareholder boil the benefit you are dividend reinvestment plant or drip that allows for a five percent discount to the market price for drip participants of many brokerage firms either do not make trip automatic or they have their own synthetic trip with no such five percent discount we encourage any shareholder interested in trip participation to contact your broker make sure to specify you wish to participate in the prospect capital corporations your plan through the teeth the at a five percent discount and obtain confirmation of thing from your broker
spk_20: our preferred holders can also elect to drip at a price per share of twenty five dollar
spk_5: now i'll turn the call back over to john
spk_0: okay thank you very much kristin a week and no answer any questions we will now begin the question and answer session to ask a question you may push store that one on your telephone keep up if you're using a speakerphone please pick up your said before posting the keys to withdraw your question please post or from to
spk_21: at this time we will pass momentarily to assemble a roster
spk_22: and first question comes from not peyton with raymond james please go ahead
spk_16: a all afternoon appreciate you taking my question from want to fill up on the preferred with would be fruitful on the right blood couple of months he tell the any changes you've seen a demand proof it's rape of birds sure we've seen an increase in demand for our preferred
spk_23: we've seen a volume steadily grow since we launched our preferred
spk_16: but the year and a half ago or including in recent weeks and i think the reason for that is the a combination of factors one factor is the when volatility picked up in the market and we've seen that surge out there was seen in the bond market another your fixed rate mortgage market we've seen of course and stock market many market the effect of the preferred a significant positive effect of having no volatility by design but still having a uncap liquidity comes through in in shine the really showcases those significant benefit another reason which is just starting now and we think will continue to build in coming weeks that there are a number of liquidity event occurring in the marketplace or particularly the private wealth management marketplace where holders and their representatives and advisors for same of a number of non traded preferred program as well as other types of programs are receiving significant cash from there been a particularly in the read stay and we expect and anticipate to benefit from recycling of that capital into our preferred which market research shows in the bunch just completed had about eighty percent market share prosecuted about eighty percent market share of the non trade preferred market the where the logical place to go especially after investors have enjoyed a very positive worked as advertised experience with the other programs out there and this is a great news for us with the significant demand because we thing yes there's been a ton of capital raised in the private credit space or folks have we continue have plenty of capital but their ability to leverage that capital is slowing dramatically you've seen about three hundred basis points increase in unsecured been financing costs in our sector all over the past four to six months we were very proactive in twenty twenty one about going out and availing or sell of attractive financing completing no fewer than three institutional bond deal in that year plus our program notes plus the first of it's kind of perpetual a traded preferred program or offering rather as well so we obtain plenty of inexpensive capital in twenty twenty one we also refreshed extended and sized a revolving credit facility which is kristen mentioned with forty three bank is more diverse of odd than any other facilities of it's kind in our industry so we voted up on an extensive capital and access the same and we're really in a universe of one
spk_24: the enjoying this access to capital
spk_16: in an attractive funding basis for our are preferred program and you were saying nice looks in the market we had a positive uptick in originations in the march quarter we're seeing or pipeline continue to build or none of us know if there's going to be a significant recessionary downturn and massive gap yard and and floating rate it spreads the tend to accompany same but should that occur we're ready and have plenty of capital to pounce on those opportunities which we really haven't seen and in quite some time the twenty twenty pandemic related sort of financial downturn with was quite sure live in the within a lot the by because of federal stimulus the next gen recessionary down to respect to be a quite different and will be locked the bargains to scoop up for those that are well capitalized the significant
spk_17: access to capital as we do and scale and also have a low leverage or profile so others will likely be playing defense
spk_21: and scrambling and will be able to go a grossly and often and benefit though that preferred program is then a terrific strategic driver for us in the past year and we us to continue going for
spk_16: yeah that that's helpful one more fully if i could do it again on base rates keep talking about any any rate reset mismatch between your portfolio out of here liability that we should expect the a modest interest dragged from from any mismatch
spk_25: we don't anticipate much of a mismatch because we really have already
spk_16: gone through the quarter just completed of of burning through innocent african fashion why bore floors so we're now you're starting to exceed those are floor so you tend to be three month live or driven and three month live war is about hundred and forty basis points right now and you're seeing a reset of are flooding rate contracts are burning through a significant number of floors already in benefiting us
spk_17: so there's no mismatch there and then
spk_16: well our asset side the ledgers dominated by floating rate on the liability side is inverted were more dominated by fixed rate and again are reaping the benefits of locking in in locking down inexpensive cheap financing of issuance over the course of twenty twenty one in that continues as we disclosed in the quarter just ended the i suspect this is quite different from many of our peers are financing cost dropped it dropped on an unsecured bases on it's own of the dropped on a mix effect basis as we continued the previously articulated approach prudently using a little bit more of our secured revolving credit facility with we expanded to one point five billion in i board bank or in the early part of the quarter just completed though are weighted average cost of all debt financing we just goes went down not up
spk_21: eighteen basis points in the past where i get i suspect that was quite different from our peers
spk_0: and not an accident but a direct reflection of what we be doing to lay the groundwork to drive profit growth for business got it but it me appreciate the time they commit
spk_5: oh no further questions at this time and with that we will conclude or question and answer session
spk_13: i would like to turn the conference back over to
spk_26: don't bury for closing remarks
spk_0: well thank you everyone have a wonderful afternoon
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