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Prospect Capital's CEO Discusses F4Q12 Results - Earnings Call Transcript

Our team typically originates thousands of opportunities per annum and invests in a disciplined manner in a 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. Our approach is one that generates attractive risk-adjusted yields and in our debt investments we’re generating an annualized yield of 13.6% as of June 30. We also hold equity positions and many transactions that can act as yield enhancers or capital gains contributors as such positions generate distributions.

Originations in F2012 were $1.12 billion, up 17% from the prior fiscal year. We also experienced $501 million of repayments as a nice validation of our capital preservation objective. As of June we are up to 82 portfolio companies, a 14% increase from the prior year and demonstrating both an increase in diversity as well as a migration towards both larger positions and larger portfolio companies. We also continue to invest in a diversified fashion across many different portfolio company industries with no significant industry concentration.

The June quarter was particularly active, with $573 million of originations and $146 million of repayments. Exits for SonicWall, Copernicus, C&J and Sports Helmets generated realized IRRs of 16%, 35%, 36%, and 41% respectively. We closed the First Tower acquisition in the June quarter and we are expecting to receive annualized yields in excess of 18% from this investment.

ESHI paid us $33 million in dividends in the June quarter and was a significant income contributor. We don’t know precisely what dividends ESHI will pay us in the future but we hope to see solid dividends in the next two quarters. The current September quarter is off to a strong start with $400 million or originations and $45 million of repayments. Pinnacle and US Healthworks exited with realized IRRs of 15% each.

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