The 9 Things Driving Prospect Capital Corporation

Here's the overview of Prospect Capital straight from the President and COO, Grier Eliasek.

Jun 30, 2014 at 9:03AM

Prospect Capital Corporation (NASDAQ:PSEC) is one of the biggest BDCs in the country --  investing in everything from syndicated loans to airplanes. Understanding its many business lines can be a task in and of itself, but a recent interview helps investors understand the high-level investing activities of the company.

In the following video, Motley Fool Financials Bureau Chief David Hanson and contributor Jordan Wathen interview Grier Eliasek on the going-ons of Prospect Capital's many different business lines.

Is Prospect the best dividend in the market?
The smartest investors know that dividend stocks simply crush their non-dividend paying counterparts over the long term. That's beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor's portfolio. To see our free report on these stocks, just click here now.

A transcript follows the video.

David Hanson: Welcome, Fools, I'm David Hanson and I'm joined in the studio by Jordan Wathen, and on the phone by the President and COO of Prospect Capital, Grier Eliasek. Grier, thanks for joining us today.

Grier Eliasek: Thank you for hosting me today, David and Jordan.

Hanson: We're going to dive right into it. For our listeners, Prospect Capital is one of the largest BDCs out there.

Grier, our first question for you is, a lot of the BDCs, large and small, are predominantly lenders to private equity companies for buyouts, but Prospect is a little bit different. They have their hands in more areas.

Can you give us a really brief overview of your main focus areas, as a business, and also which one of those businesses you get most excited about, looking out into the future?

Eliasek: Sure. With our more than $7 billion capital base, Prospect Capital is the only multi-line business development company. We believe our diversified origination profile gives us access to more investment opportunities than any other BDC.

We review more than 4,000 opportunities per annum across our 100-person team, so we can afford to be disciplined in our credit selection, and we close less than 2% of the opportunities that we review.

Also, if a BDC just has a pure credit book, that BDC can only go in one direction -- down, through defaults. Because we own controlling interests in many of our companies, we also capture the upside if those companies perform well. Those investments generally require larger check sizes, and have higher personnel/staffing requirements, which allows us to box out our competitors and use our scale to our advantage.

We have nine origination strategies. The first is sponsor finance, or lending money to private equity-owned companies, which is our largest segment. We generate significant repeat business, given our 26-year history as a company, and we also win significant business because we can write $50 to $300 million checks per deal, which smaller BDCs do not have the capital base to do.

Next up is direct lending, or lending money to non-institutionally owned companies. We have an internal cost center that calls on thousands of intermediaries to source proprietary deals in this highly inefficient market segment.

The third is operating buyouts, where we purchase a controlling interest in a company, alongside management, and also generally provide all the term debt to that company. We've had terrific success with our exits here, including exiting Gas Solutions and NRG manufacturing. These are a couple of deals that we exited a couple of years back, making 6-8 times our initial investment.

Then we do financial buyouts, which is the same as operating buyouts, except we can purchase these lending businesses in a tax-efficient manner, through partnerships. We own multiple such companies today, and are generating over 18% yields from this strategy.

Then we also do CLO equity, also known as structured credit, where we purchase majority interests in pools of syndicated loans against large corporate credits, and then we obtain financing from the investing grade market. We're generating over 20% cash yields from that business.

We also do real estate, where we own multiple private REITs and focus on purchasing garden style apartment complexes, generally across the Southeast, at favorable cap rates and long-term financing.

We also do online direct lending, which is a significant growth market focused on both consumers and small businesses.

We do aircraft leasing with an emphasis on midlife aircraft leased by credit-worthy airlines around the globe.

Then finally, syndicated debt investing, where we act as a liquidity bid when credit markets retract. That's a fairly dormant business for us right now.

We're excited about many of these businesses. If I had to highlight one area, it might be structured credit -- our CLO equity business. Prospect is the largest investor in U.S. CLO equity on the planet, and our book is performing well. Defaults are near zero, our vintages are spread across multiple years, and we have partnerships with the leading collateral managers around the world.

We expect to continue to be a market leader in the years to come.

Jordan Wathen has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers