In Prospect Capital Corporation's (NASDAQ:PSEC) May 6th earnings release, the company disclosed its ongoing discussions with the SEC about the possible need to consolidate certain of its holding companies. The mention of the SEC is rarely welcome news for shareholders.

This prompted lots of speculation the company's past earnings were incorrect or inflated, and even sparked some class action lawsuits alleging the company mislead its investors by miscategorizing some of its holdings.

Well, after the market closed on Tuesday, June 10, Prospect announced they had won their appeal with the SEC and that no consolidation of assets would be necessary, nor would the company have to restate its historical financial results. This is a huge relief for Prospect, which can stop worrying about lawsuits and other legal issues and go back to doing what it does best.

Much ado about nothing
As soon as the discussions with the SEC were announced, Prospect's shares immediately plunged by 5%, and dropped further as soon as the pending class action lawsuits were announced.

Investors and lawyers were still in a panic about the effect of the possibility of restating old financial results, even after the company declared very clearly that the outcome of the SEC discussions, whatever it may be, would have no impact on Prospect's ability to pay its dividends.

Even so, a handful of law firms pounced on Prospect, stating the company intentionally mislead investors and inflated revenue and earnings figures. One law firm even went so far as to state that Prospect's financial statements were completely false, and that the company's internal and financial controls are simply inadequate.

The company cooperated fully from the SEC from the beginning and even emphasized what little effect it would have, regardless of the outcome. Still, it produced a big discount in Prospect's shares, which plunged from the $11 range to just over $9 after the lawsuits were announced.

The fire sale is over, but a discount remains – for now
Buying Prospect right after the lawsuits were announced would have produced a dividend yield of over 14.5%, plus the potential for upside once everything was sorted out.

Even though you can't get quite this sweet of a deal anymore, there is still a pretty nice bargain to be had here, thanks to the company's recently increased credit commitments.

In the midst of the SEC and legal drama, Prospect announced a couple of increases to its revolving credit facility commitments, which spooked investors. The company has a target maximum of $1 billion in revolving credit commitments, and the recent increases brought Prospect $65 million closer to that amount, with a current $857.5 million in commitments.

Still, although higher borrowing might be a little scary, it's not too much of a cause for concern here. Quite the opposite actually. After a patchy history leading up to the financial crisis, Prospect has recently been very good at lending money to small and medium sized companies, and collecting more interest than it pays to borrow. This simply gives the company more capital to do just that.

The safest 13.5% dividend you can buy?
Prospect pays its dividend like clockwork, and actually hasn't reduced the payment amount since it began making monthly payments in 2010. In fact, the company has declared its payments all the way through December, and that will mark the 54th consecutive dividend increase for the company.

Now, not all of the businesses Prospect invests in are the most creditworthy companies in the world. If they were, they wouldn't be willing to pay Prospect so much interest.

However, Prospect's investment portfolio consists of the debt or equity of more than 125 companies, and it continues to add to the diversity. So, even if one of the companies defaults on their debt, it wouldn't be too big of a deal to Prospect's bottom line.

Prospect may just be the safest high-yielding play you can buy today, and it is still on sale.