PROSPECT CAPITAL CORP - FORM 10-Q - November 6, 2018

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EX-32.2 - EXHIBIT 32.2 - PROSPECT CAPITAL CORPpsec10-qq12019ex322.htm
EX-32.1 - EXHIBIT 32.1 - PROSPECT CAPITAL CORPpsec10-qq12019ex321.htm
EX-31.2 - EXHIBIT 31.2 - PROSPECT CAPITAL CORPpsec10-qq12019ex312.htm
EX-31.1 - EXHIBIT 31.1 - PROSPECT CAPITAL CORPpsec10-qq12019ex311.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2018
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 Commission File Number: 814-00659 
PROSPECT CAPITAL CORPORATION
(Exact name of Registrant as specified in its charter)
Maryland
43-2048643
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
10 East 40th Street, 42nd Floor
 
New York, New York
10016
(Address of principal executive offices)
(Zip Code)
Registrant's telephone number, including area code: (212) 448-0702
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). Yes o    No o
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer ý
Accelerated filer o
Non-accelerated filer o
Smaller reporting company o
 (Do not check if a smaller reporting company)
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o    No ý
Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date.
Class of Common Stock
 
Outstanding at November 6, 2018
$0.001 par value
 
365,480,989


Table of Contents
 
 
Page
 
PART I
FINANCIAL INFORMATION
 
 
 
 
 
 
 
 
PART II
OTHER INFORMATION
 
 
 



FORWARD-LOOKING STATEMENTS
This report contains information that may constitute “forward-looking statements.” Generally, the words “believe,” “expect,”
“intend,” “estimate,” “anticipate,” “project,” “will” and similar expressions identify forward-looking statements, which generally are not historical in nature. However, the absence of these words or similar expressions does not mean that a statement is not forward-looking. All statements that address operating performance, events or developments that we expect or anticipate will occur in the future—including statements relating to volume growth, share of sales and earnings per share growth, and statements expressing general views about future operating results—are forward-looking statements. Management believes that these forward-looking statements are reasonable as and when made. However, caution should be taken not to place undue reliance on any such forward-looking statements because such statements speak only as of the date when made. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. In addition, forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our historical experience and our present expectations or projections. These risks and uncertainties include, but are not limited to, those described in Part II, “Item 1A. Risk Factors” and elsewhere in this report and in our Annual Report on Form 10-K for the year ended June 30, 2018, and those described from time to time in our future reports filed with the Securities and Exchange Commission.

3

PART I
Item 1. Financial Statements
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES
(in thousands, except share and per share data)
 
September 30, 2018
 
June 30, 2018
 
 
 
(Unaudited)
 
(Audited)
Assets
 
 
 

Investments at fair value:
 

 
 

Control investments (amortized cost of $2,331,620 and $2,300,526, respectively)
$
2,487,337

 
$
2,404,326

Affiliate investments (amortized cost of $175,235 and $55,637, respectively)
95,993

 
58,436

Non-control/non-affiliate investments (amortized cost of $3,532,959 and $3,475,295, respectively)
3,353,353

 
3,264,517

Total investments at fair value (amortized cost of $6,039,814 and $5,831,458, respectively)
5,936,683

 
5,727,279

Cash
120,052

 
83,758

Receivables for:
 
 
 
Interest, net
23,516

 
19,783

Other
1,359

 
1,867

Due from broker (Note 6)
102,834

 
3,029

Deferred financing costs on Revolving Credit Facility (Note 4)
8,202

 
2,032

Due from Affiliate (Note 13)
5,888

 
88

Prepaid expenses
948

 
984

Total Assets 
6,199,482

 
5,838,820

Liabilities 
 

 
 

Revolving Credit Facility (Notes 4 and 8)
404,000

 
37,000

Convertible Notes (less unamortized debt issuance costs of $12,009 and $13,074, respectively)
(Notes 5 and 8)
810,138

 
809,073

Prospect Capital InterNotes® (less unamortized debt issuance costs of $11,875 and $11,998,
respectively) (Notes 7 and 8)
757,012

 
748,926

Public Notes (less unamortized discount and debt issuance costs of $12,219 and $11,007,
respectively) (Notes 6 and 8)
687,706

 
716,810

Due to Prospect Capital Management (Note 13)
51,327

 
49,045

Interest payable
27,365

 
33,741

Dividends payable
21,914

 
21,865

Due to broker
—

 
6,159

Accrued expenses
4,535

 
5,426

Due to Prospect Administration (Note 13)
2,396

 
2,212

Other liabilities
2,145

 
1,516

Total Liabilities 
2,768,538

 
2,431,773

Commitments and Contingencies (Note 3)
—

 
—

Net Assets 
$
3,430,944

 
$
3,407,047

 
 
 
 
Components of Net Assets 
 

 
 

Common stock, par value $0.001 per share (1,000,000,000 common shares authorized; 365,225,139 and 364,409,938 issued and outstanding, respectively) (Note 9)
$
365

 
$
364

Paid-in capital in excess of par (Note 9)
4,027,305

 
4,021,541

Accumulated overdistributed net investment income
(25,689
)
 
(45,186
)
Accumulated net realized loss
(467,906
)
 
(465,493
)
Net unrealized loss
(103,131
)
 
(104,179
)
Net Assets 
$
3,430,944

 
$
3,407,047

 
 
 
 
Net Asset Value Per Share (Note 16) 
$
9.39

 
$
9.35


See notes to consolidated financial statements.
4

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
(Unaudited)

 
Three Months Ended September 30,
 
2018
 
2017
Investment Income
 
 
 
Interest income:
 
 
 
Control investments
$
56,454

 
$
46,030

Affiliate investments
227

 
205

Non-control/non-affiliate investments
68,609

 
72,430

Structured credit securities
34,152

 
29,420

Total interest income
159,442

 
148,085

Dividend income:
 
 
 
Control investments
14,665

 
—

Non-control/non-affiliate investments
262

 
544

Total dividend income
14,927

 
544

Other income:
 
 
 
Control investments
2,791

 
2,091

Non-control/non-affiliate investments
3,262

 
7,859

Total other income (Note 10)
6,053

 
9,950

Total Investment Income
180,422

 
158,579

Operating Expenses
 
 
 
Base management fee (Note 13)
29,957

 
30,163

Income incentive fee (Note 13)
21,290

 
15,933

Interest and credit facility expenses
37,908

 
41,035

Allocation of overhead from Prospect Administration (Note 13)
3,365

 
3,528

Audit, compliance and tax related fees
393

 
1,088

Directors’ fees
79

 
113

Other general and administrative expenses
2,271

 
2,987

Total Operating Expenses
95,263

 
94,847

Net Investment Income
85,159

 
63,732

Net Realized and Net Change in Unrealized Gains (Losses) from Investments
 
 
 
Net realized gains
 
 
 
Control investments
1

 
9

Affiliate investments
—

 
846

Non-control/non-affiliate investments
1,040

 
582

Net realized gains
1,041

 
1,437

Net change in unrealized gains (losses)
 
 
 
Control investments
51,918

 
1,093

Affiliate investments
(13,755
)
 
5,193

Non-control/non-affiliate investments
(37,114
)
 
(59,037
)
Net change in unrealized gains (losses)
1,049

 
(52,751
)
Net Realized and Net Change in Unrealized Gains (Losses) from Investments
2,090

 
(51,314
)
Net realized losses on extinguishment of debt
(3,454
)
 
(445
)
Net Increase in Net Assets Resulting from Operations
$
83,795

 
$
11,973

Net increase in net assets resulting from operations per share
$
0.23

 
$
0.03

Dividends declared per share
$
(0.18
)
 
$
(0.23
)

See notes to consolidated financial statements.
5

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
(in thousands, except share data)
(Unaudited)

 
Three Months Ended September 30,
 

2018
 
2017
Operations
 

 
 

Net investment income
$
85,159

 
$
63,732

Net realized (losses) gains
(2,413
)
 
992

Net change in net unrealized gains (losses)
1,049

 
(52,751
)
Net Increase in Net Assets Resulting from Operations 
83,795

 
11,973

 
 
 
 
Distributions to Shareholders
 
 
 
Distribution from net investment income
(65,693
)
 
(81,647
)
Net Decrease in Net Assets Resulting from Distributions to Shareholders
(65,693
)
 
(81,647
)
 
 
 
 
Common Stock Transactions 
 
 
 
Value of shares issued through reinvestment of dividends
5,795

 
1,713

Net Increase in Net Assets Resulting from Common Stock Transactions
5,795

 
1,713

 
 
 
 
Total Increase (Decrease) in Net Assets
23,897

 
(67,961
)
Net assets at beginning of period
3,407,047

 
3,354,952

Net Assets at End of Period (Accumulated Overdistributed Net Investment Income of $25,689 and $72,726, respectively)
$
3,430,944

 
$
3,286,991

 
 
 
 
Common Stock Activity
 
 
 
Shares issued through reinvestment of dividends
815,201

 
233,489

  Shares issued and outstanding at beginning of period
364,409,938

 
360,076,933

Shares Issued and Outstanding at End of Period
365,225,139

 
360,310,422

 


See notes to consolidated financial statements.
6

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, except share data)
(Unaudited)

 
Three Months Ended September 30,
 
2018
 
2017
Operating Activities
 
 
 
Net increase in net assets resulting from operations
$
83,795

 
$
11,973

Net realized losses on extinguishment of debt
3,454

 
445

Net realized gains on investments
(1,041
)
 
(1,437
)
Net change in net unrealized (gains) losses on investments
(1,049
)
 
52,751

Amortization of discounts and (accretion of premiums), net
(7,839
)
 
11,133

Accretion of discount on Public Notes (Note 6)
131

 
69

Amortization of deferred financing costs
2,716

 
3,166

Payment-in-kind interest
(9,325
)
 
(1,980
)
Structuring fees
(2,854
)
 
(2,285
)
Change in operating assets and liabilities:
 
 
 
Payments for purchases of investments
(242,463
)
 
(217,886
)
Proceeds from sale of investments and collection of investment principal
55,166

 
310,894

Decrease in due to broker
(6,159
)
 
(47,416
)
Increase (Decrease) in due to Prospect Capital Management
2,282

 
(1,936
)
Increase in interest receivable, net
(3,733
)
 
(11,714
)
Decrease in interest payable
(6,376
)
 
(5,306
)
Decrease in accrued expenses
(891
)
 
(1,093
)
Increase in due from broker
(99,805
)
 
—

Increase in other liabilities
629

 
614

Decrease (Increase) in other receivables
508

 
(174
)
Increase in due from Prospect Administration
—

 
(12
)
Increase in due from affiliate
(5,800
)
 
(4
)
Decrease in prepaid expenses
36

 
144

Increase in due to Prospect Administration
184

 
—

Net Cash (Used in) Provided by Operating Activities
(238,434
)
 
99,946

Financing Activities
 
 
 
Borrowings under Revolving Credit Facility (Note 4)
436,000

 
—

Principal payments under Revolving Credit Facility (Note 4)
(69,000
)
 
—

Issuances of Public Notes, net of original issue discount (Note 6)
125,644

 
—

Redemptions of Public Notes (Note 6)
(153,536
)
 
—

Issuances of Prospect Capital InterNotes® (Note 7)
39,757

 
27,402

Redemptions of Prospect Capital InterNotes®, net (Note 7)
(31,794
)
 
(91,864
)
Financing costs paid and deferred
(12,494
)
 
(729
)
Dividends paid
(59,849
)
 
(88,321
)
Net Cash Provided by (Used in) Financing Activities
274,728

 
(153,512
)
 
 
 
 
Net Increase (Decrease) in Cash
36,294

 
(53,566
)
Cash at beginning of period
83,758

 
318,083

Cash at End of Period
$
120,052

 
$
264,517

Supplemental Disclosures
 
 
 
Cash paid for interest
$
41,437

 
$
43,106

Non-Cash Financing Activities
 
 
 
Value of shares issued through reinvestment of dividends
$
5,795

 
$
1,713

Cost basis of investments written off as worthless
$
—

 
$
310


See notes to consolidated financial statements.
7

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS
(in thousands, except share data)





 
September 30, 2018 (Unaudited)
Portfolio Company
Industry
Investments(1)(44)
Acquisition Date
Principal Value
Amortized Cost
Fair
Value(2)
% of Net Assets



 







LEVEL 3 PORTFOLIO INVESTMENTS
 
 
 
 
 



 







Control Investments (greater than 25.00% voting control)(47)
 
 
 
 
 



 







CCPI Inc.(19)
Electronic Equipment, Instruments & Components
Senior Secured Term Loan A (10.00%, due 12/31/2020)(3)
12/13/2012
$
2,825

$
2,825

$
2,825

0.1%
Senior Secured Term Loan B (12.00% plus 7.00% PIK, due 12/31/2020)(3)(46)
12/13/2012
17,651

17,651

17,651

0.5%
Common Stock (14,857 shares)(16)
12/13/2012


6,759

14,213

0.4%



 


27,235

34,689

1.0%
CP Energy Services Inc.(20)
Energy Equipment & Services
Senior Secured Term Loan (13.34% (LIBOR + 11.00% with 1.00% LIBOR floor), due 12/29/2022)(11)
12/29/2017
35,048

35,048

35,048

1.0%
Series B Convertible Preferred Stock (16.00%, 790 shares)(16)
10/30/2015


63,225

63,225

1.9%
Common Stock (102,924 shares)(16)
8/2/2013


81,203

44,367

1.3%



 


179,476

142,640

4.2%
Credit Central Loan Company, LLC(21)
Consumer Finance
Subordinated Term Loan (10.00% plus 10.00% PIK, due 6/26/2024)(14)(46)
6/24/2014
51,855

48,345

51,855

1.5%
Class A Units (10,640,642 units)(14)(16)
6/24/2014


13,731

17,477

0.5%
Net Revenues Interest (25% of Net Revenues)(14)(16)
1/28/2015


—

1,256

0.1%



 


62,076

70,588

2.1%
Echelon Transportation, LLC (f/k/a Echelon Aviation, LLC)
Aerospace & Defense
Senior Secured Term Loan (11.83% (LIBOR + 9.75% with 2.00% LIBOR floor) plus 2.25% PIK, due 3/31/2022)(13)(46)
3/31/2014
32,211

32,211

32,211

0.9%
Senior Secured Term Loan (11.08% (LIBOR + 9.00% with 2.00% LIBOR floor) plus 1.00% PIK, due 12/7/2024)(13)(46)
12/9/2016
17,012

17,012

17,012

0.5%
Membership Interest (100%)(16)
3/31/2014


22,738

38,152

1.1%



 


71,961

87,375

2.5%
First Tower Finance Company LLC(23)
Consumer Finance
Subordinated Term Loan to First Tower, LLC (10.00% plus 10.00% PIK, due 6/24/2019)(14)(46)
6/24/2014
272,170

272,170

272,170

7.9%
Class A Units (95,709,910 units)(14)(16)
6/24/2014


81,146

173,571

5.1%



 


353,316

445,741

13.0%
Freedom Marine Solutions, LLC(24)
Energy Equipment & Services
Membership Interest (100%)(16)
10/1/2009


43,592

14,600

0.4%



 


43,592

14,600

0.4%
InterDent, Inc. (52)
Health Care Providers & Services
Senior Secured Term Loan A (7.74% (LIBOR + 5.50% with 0.75% LIBOR floor), due 9/5/2020)(13)
8/3/2012
77,994

77,994

77,994

2.3%
Senior Secured Term Loan B (16.00% PIK, due 9/5/2020)(13)(46)
8/3/2012
103,090

103,090

103,090

3.0%
Senior Secured Term Loan A/B (2.49% (LIBOR + 0.25% with 0.75% LIBOR floor), due 9/5/2020)(13)
8/1/2018
14,000

14,000

14,000

0.4%
Senior Secured Term Loan C (18.00% PIK, due 9/5/2020)(46)
3/22/2018
35,766

35,766

25,215

0.7%
Senior Secured Term Loan D (1.00% PIK, due 9/5/2020)(46)
9/19/2018
5,001

5,001

—

—%
Warrants (to purchase 99,900 shares of Common Stock, expires 9/19/2030)(16)
2/23/2018


—

—

—%



 


235,851

220,299

6.4%

See notes to consolidated financial statements.
8

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)
(in thousands, except share data)




 
September 30, 2018 (Unaudited)
Portfolio Company
Industry
Investments(1)(44)
Acquisition Date
Principal Value
Amortized Cost
Fair
Value(2)
% of Net Assets



 







LEVEL 3 PORTFOLIO INVESTMENTS
 
 
 
 
 



 







Control Investments (greater than 25.00% voting control)(47)
 
 
 
 
 



 







MITY, Inc.(25)
Commercial Services & Supplies
Senior Secured Note A (10.00% (LIBOR + 7.00% with 3.00% LIBOR floor), due 1/30/2020)(3)(11)
9/19/2013
$
26,250

$
26,250

$
26,250

0.8%
Senior Secured Note B (10.00% (LIBOR + 7.00% with 3.00% LIBOR floor) plus 10.00% PIK, due 1/30/2020)(3)(11)(46)
6/23/2014
24,652

24,652

24,652

0.7%
Subordinated Unsecured Note to Broda Enterprises ULC (10.00%, due on demand)(14)
9/19/2013
5,702

7,200

5,702

0.2%
Common Stock (42,053 shares)(16)
9/19/2013


6,849

1,121

—%



 


64,951

57,725

1.7%
National Property REIT Corp.(26)
Equity Real Estate Investment Trusts (REITs) / Online Lending
Senior Secured Term Loan A (6.39% (LIBOR + 4.00% with 2.00% LIBOR floor) plus 10.50% PIK, due 4/1/2019)(11)(46)
4/1/2014
293,203

293,203

293,203

8.5%
Senior Secured Term Loan E (11.39% (LIBOR + 9.00% with 2.00% LIBOR floor) plus 1.50% PIK, due 4/1/2019)(11)(46)
4/1/2014
217,960

217,960

217,960

6.4%
Common Stock (3,102,279 shares)
12/31/2013


317,809

453,313

13.2%
Net Operating Income Interest (5% of Net Operating Income)
12/31/2013


—

107,487

3.1%



 


828,972

1,071,963

31.2%
Nationwide Loan Company LLC(27)
Consumer Finance
Senior Subordinated Term Loan to Nationwide Acceptance LLC (10.00% plus 10.00% PIK, due 6/18/2019)(14)(46)
6/18/2014
17,410

17,410

17,410

0.5%
Class A Units (32,456,159 units)(14)
1/31/2013


21,962

15,307

0.4%



 


39,372

32,717

0.9%
NMMB, Inc.(28)
Media
Senior Secured Note (14.00%, due 5/6/2021)(3)
5/6/2011
3,714

3,714

3,714

0.1%
Senior Secured Note to Armed Forces Communications, Inc. (14.00%, due 5/6/2021)(3)
6/12/2014
3,900

3,900

3,900

0.1%
Series A Preferred Stock (7,200 shares)(16)
12/12/2013


7,200

6,971

0.2%
Series B Preferred Stock (5,669 shares)(16)
12/12/2013


5,669

5,489

0.2%



 


20,483

20,074

0.6%
Pacific World Corporation(40)
Personal Products
Revolving Line of Credit – $26,000 Commitment (9.46% (LIBOR + 7.25% with 1.00% LIBOR floor), due 9/26/2020)(13)(15)
9/26/2014
20,825

20,825

20,825

0.6%
Senior Secured Term Loan A (7.46% (LIBOR + 5.25% with 1.00% LIBOR floor), due 9/26/2020)(13)
12/31/2014
96,000

96,000

96,000

2.8%
Senior Secured Term Loan B (11.46% PIK (LIBOR + 9.25% with 1.00% LIBOR floor), in non-accrual status effective 5/21/2018, due 9/26/2020)(13)
12/31/2014
99,166

96,500

47,333

1.4%
Convertible Preferred Equity (100,000 shares)(16)
6/15/2018


15,000

—

—%
Common Stock (6,778,414 shares)(16)
9/29/2017


—

—

—%



 


228,325

164,158

4.8%
R-V Industries, Inc.
Machinery
Senior Subordinated Note (11.39% (LIBOR + 9.00% with 1.00% LIBOR floor), due 3/31/2022)(3)(11)
6/12/2013
28,622

28,622

24,782

0.7%
Common Stock (745,107 shares)(16)
6/26/2007


6,866

—

—%



 


35,488

24,782

0.7%
SB Forging Company II, Inc. (f/k/a Gulf Coast Machine & Supply Company)(29)
Energy Equipment & Services
Series A Convertible Preferred Stock (99,900 shares)(16)
11/8/2013


—

2,201

0.1%
Common Stock (100 shares)(16)
11/8/2013


—

—

—%



 


—

2,201

0.1%

See notes to consolidated financial statements.
9

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)
(in thousands, except share data)




 
September 30, 2018 (Unaudited)
Portfolio Company
Industry
Investments(1)(44)
Acquisition Date
Principal Value
Amortized Cost
Fair
Value(2)
% of Net Assets



 







LEVEL 3 PORTFOLIO INVESTMENTS
 
 
 
 
 



 







Control Investments (greater than 25.00% voting control)(47)
 
 
 
 
 



 







USES Corp.(30)
Commercial Services & Supplies
Senior Secured Term Loan A (9.00% PIK, in non-accrual status effective 4/1/2016, due 7/22/2020)
3/31/2014
$
37,821

$
31,601

$
15,807

0.5%
Senior Secured Term Loan B (15.50% PIK, in non-accrual status effective 4/1/2016, due 7/22/2020)
3/31/2014
49,787

35,568

—

—%
Common Stock (268,962 shares)(16)
6/15/2016


—

—

—%



 


67,169

15,807

0.5%
Valley Electric Company, Inc.(31)
Construction & Engineering
Senior Secured Note to Valley Electric Co. of Mt. Vernon, Inc. (8.00% (LIBOR + 5.00% with 3.00% LIBOR floor) plus 2.50% PIK, due 12/31/2024)(3)(11)(46)
12/31/2012
10,430

10,430

10,430

0.3%
Senior Secured Note (8.00% plus 10.00% PIK, due 6/23/2024)(46)
6/24/2014
32,881

32,881

32,881

1.0%
Consolidated Revenue Interest (2.0%)(38)
6/22/2018


—

3,328

0.1%
Common Stock (50,000 shares)
12/31/2012


26,204

35,304

1.0%



 


69,515

81,943

2.4%
Wolf Energy, LLC(32)
Energy Equipment & Services
Membership Interest (100%)(16)
7/1/2014


—

—

—%
Membership Interest in Wolf Energy Services Company, LLC (100%)(16)
3/14/2017


3,838

22

—%
Net Profits Interest (8% of Equity Distributions)(4)(16)
4/15/2013


—

13

—%



 


3,838

35

—%
Total Control Investments (Level 3)
 
$
2,331,620

$
2,487,337

72.5%


See notes to consolidated financial statements.
10

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)
(in thousands, except share data)

 
 
 
 
September 30, 2018 (Unaudited)
Portfolio Company
Industry
Investments(1)(44)
Acquisition Date
Principal Value
Amortized Cost
Fair
Value(2)
% of Net Assets
 
 
 
 
 
 
 
 
LEVEL 3 PORTFOLIO INVESTMENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
Affiliate Investments (5.00% to 24.99% voting control)(48)
 
 
 
 
 
 
 
 
 
 
 
 
 
Edmentum Ultimate Holdings, LLC(22)
Diversified Consumer Services
Second Lien Revolving Credit Facility to Edmentum, Inc. – $8,032 Commitment (5.00% PIK, due 12/9/2021)(15)(46)
6/9/2015
$
177

$
177

$
177

—%
Unsecured Senior PIK Note (8.50% PIK, due 12/9/2021)(46)
6/9/2015
7,683

7,683

7,683

0.2%
Unsecured Junior PIK Note (10.00% PIK, in non-accrual status effective 1/1/2017, due 12/9/2021)
6/9/2015
36,127

23,829

17,793

0.5%
Class A Units (370,964 units)(16)
6/9/2015


6,577

—

—%
 
 
 
 
 
38,266

25,653

0.7%
Nixon, Inc.(39)
Textiles, Apparel & Luxury Goods
Common Stock (857 units)(16)
5/12/2017


—

—

—%
 
 
 
 
 
—

—

—%
Targus Cayman HoldCo Limited(33)
Textiles, Apparel & Luxury Goods
Common Stock (7,383,395 shares)(16)
5/24/2011


9,878

19,670

0.6%
 
 
 
 
 
9,878

19,670

0.6%
United Sporting Companies, Inc.(18)
Distributors
Second Lien Term Loan (13.24% (LIBOR + 11.00% with 1.75% LIBOR floor) plus 2.00% PIK, in non-accrual status effective 4/1/2017, due 11/16/2019)(13)
9/28/2012
154,814

127,091

50,670

1.5%
Common Stock (218,941 shares)(16)
5/2/2017


—

—

—%
 
 
 
 
 
127,091

50,670

1.5%
Total Affiliate Investments (Level 3)
 
$
175,235

$
95,993

2.8%

See notes to consolidated financial statements.
11

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)
(in thousands, except share data)

 
 
 
 
September 30, 2018 (Unaudited)
Portfolio Company
Industry
Investments(1)(44)
Acquisition Date
Principal Value
Amortized Cost
Fair
Value(2)
% of Net Assets
 
 
 
 
 
 
 
 
LEVEL 3 PORTFOLIO INVESTMENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
 
 
 
 
 
 
 
 
 
 
 
 
 
ACE Cash Express, Inc.
Consumer Finance
Senior Secured Note (12.00%, due 12/15/2022)(8)(14)
12/15/2017
$
20,000

$
19,748

$
21,371

0.6%



 

19,748

21,371

0.6%
AgaMatrix, Inc.
Health Care Equipment & Supplies
Senior Secured Term Loan (11.39% (LIBOR + 9.00% with 1.25% LIBOR floor), due 9/29/2022)(3)(11)
9/29/2017
35,380

35,380

35,380

1.0%



 

35,380

35,380

1.0%
American Gilsonite Company(34)
Chemicals
Membership Interest (0.05%, 131 shares)(16)
3/14/2008


—

—

—%



 

—

—

—%
Apidos CLO IX
Structured Finance
Subordinated Notes (Residual Interest, current yield 0.00%, due 7/15/2023)(5)(14)(17)
7/11/2012
23,525

21

76

—%



 

21

76

—%
Apidos CLO XI
Structured Finance
Subordinated Notes (Residual Interest, current yield 7.90%, due 10/17/2028)(5)(14)
1/17/2013
40,500

32,510

25,231

0.7%



 

32,510

25,231

0.7%
Apidos CLO XII
Structured Finance
Subordinated Notes (Residual Interest, current yield 13.71%, due 4/15/2031)(5)(14)
4/18/2013
52,203

34,302

26,718

0.8%



 

34,302

26,718

0.8%
Apidos CLO XV
Structured Finance
Subordinated Notes (Residual Interest, current yield 12.85%, due 4/20/2031)(5)(14)
10/16/2013
48,515

35,499

27,161

0.8%



 

35,499

27,161

0.8%
Apidos CLO XXII
Structured Finance
Subordinated Notes (Residual Interest, current yield 11.34%, due 10/20/2027)(5)(6)(14)
10/14/2015
31,350

27,848

25,122

0.7%



 

27,848

25,122

0.7%
Ark-La-Tex Wireline Services, LLC
Energy Equipment & Services
Senior Secured Term Loan B (13.76% (LIBOR + 11.50% with 1.00% LIBOR floor), in non-accrual status effective 4/1/2016, due 4/8/2019)(13)
4/8/2014
25,595

1,145

787

—%



 

1,145

787

—%
Atlantis Health Care Group (Puerto Rico), Inc.
Health Care Providers & Services
Revolving Line of Credit – $7,000 Commitment (10.84% (LIBOR + 8.50% with 1.50% LIBOR floor), due 8/21/2019)(11)
2/21/2013
7,000

7,000

6,869

0.2%
Senior Term Loan (10.84% (LIBOR + 8.50% with 1.50% LIBOR floor), due 2/21/2020)(3)(11)
2/21/2013
77,509

77,509

76,063

2.2%



 

84,509

82,932

2.4%
ATS Consolidated, Inc.
Electronic Equipment, Instruments & Components
Second Lien Term Loan (9.99% (LIBOR + 7.75%), due 2/27/2026)(8)(13)
3/19/2018
15,000

14,860

15,300

0.5%



 

14,860

15,300

0.5%
Autodata, Inc./ Autodata Solutions, Inc.(9)
Software
Second Lien Term Loan (9.49% (LIBOR + 7.25%), due 12/12/2025)(3)(8)(13)
12/14/2017
6,000

5,973

5,973

0.2%



 

5,973

5,973

0.2%
Barings CLO 2018-III (f/k/a Babson CLO Ltd. 2014-III)
Structured Finance
Subordinated Notes (Residual Interest, current yield 11.98%, due 7/20/2029)(5)(6)(14)
6/14/2018
83,098

51,204

44,371

1.3%



 

51,204

44,371

1.3%
Broder Bros., Co.
Textiles, Apparel & Luxury Goods
Senior Secured Note (10.39% (LIBOR + 8.00% with 1.25% LIBOR floor), due 12/02/2022)(3)(11)
12/4/2017
272,618

272,618

272,618

7.9%



 

272,618

272,618

7.9%

See notes to consolidated financial statements.
12

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)
(in thousands, except share data)

 
 
 
 
September 30, 2018 (Unaudited)
Portfolio Company
Industry
Investments(1)(44)
Acquisition Date
Principal Value
Amortized Cost
Fair
Value(2)
% of Net Assets
 
 
 
 
 
 
 
 
LEVEL 3 PORTFOLIO INVESTMENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
 
 
 
 
 
 
 
 
 
 
 
 
 
Brookside Mill CLO Ltd.
Structured Finance
Subordinated Notes (Residual Interest, current yield 8.07%, due 1/18/2028)(5)(14)
5/23/2013
$
36,300

$
18,865

$
13,535

0.4%



 


18,865

13,535

0.4%
California Street CLO IX Ltd. (f/k/a Symphony CLO IX Ltd.)
Structured Finance
Preference Shares (Residual Interest, current yield 10.74%, due 10/16/2028)(5)(14)
5/8/2012
58,915

41,855

35,997

1.1%



 


41,855

35,997

1.1%
Candle-Lite Company, LLC
Household Products
Senior Secured Term Loan A (7.81% (LIBOR + 5.50% with 1.25% LIBOR floor), due 1/23/2023)(3)(11)
1/23/2018
12,375

12,375

12,375

0.3%
Senior Secured Term Loan B (11.81% (LIBOR + 9.50% with 1.25% LIBOR floor), due 1/23/2023)(3)(11)
1/23/2018
12,500

12,500

12,500

0.4%



 


24,875

24,875

0.7%
Capstone Logistics Acquisition, Inc.
Commercial Services & Supplies
Second Lien Term Loan (10.49% (LIBOR + 8.25% with 1.00% LIBOR floor), due 10/7/2022)(3)(8)(13)
10/7/2014
101,030

100,690

101,030

2.9%



 


100,690

101,030

2.9%
Carlyle Global Market Strategies CLO 2014-4-R, Ltd.
Structured Finance
Subordinated Notes (Residual Interest, current yield 21.10%, due 7/15/2030)(5)(6)(14)
6/29/2018
25,534

18,797

19,440

0.6%



 


18,797

19,440

0.6%
Carlyle Global Market Strategies CLO 2016-3, Ltd.
Structured Finance
Subordinated Notes (Residual Interest, current yield 17.37%, due 10/20/2029)(5)(6)(14)
9/13/2016
32,200

32,705

28,604

0.8%



 


32,705

28,604

0.8%
Carlyle C17 CLO Limited (f/k/a Cent CLO 17 Limited)
Structured Finance
Subordinated Notes (Residual Interest, current yield 18.32%, due 4/30/2031)(5)(14)
5/10/2018
24,870

15,850

15,386

0.5%



 


15,850

15,386

0.5%
Cent CLO 20 Limited
Structured Finance
Subordinated Notes (Residual Interest, current yield 14.96%, due 1/25/2026)(5)(14)
1/15/2014
40,275

30,792

28,127

0.8%



 


30,792

28,127

0.8%
Cent CLO 21 Limited
Structured Finance
Subordinated Notes (Residual Interest, current yield 14.61%, due 7/27/2030)(5)(6)(14)
6/18/2014
49,552

38,539

31,536

0.9%



 


38,539

31,536

0.9%
Cent CLO 21 Limited
Structured Finance
Class E Notes (10.99% (LIBOR + 8.65%), due 7/27/2030)(6)(11)(14)(37)
7/27/2018
10,591

9,971

10,866

0.3%



 


9,971

10,866

0.3%
Centerfield Media Holding Company(35)
IT Services
Senior Secured Term Loan A (9.34% (LIBOR + 7.00% with 2.00% LIBOR floor), due 1/17/2022)(3)(11)
1/17/2017
75,732

75,732

75,732

2.2%
Senior Secured Term Loan B (14.84% (LIBOR + 12.50% with 2.00% LIBOR floor), due 1/17/2022)(11)
1/17/2017
78,100

78,100

78,100

2.3%



 


153,832

153,832

4.5%
CIFC Funding 2013-III-R, Ltd. (f/k/a CIFC Funding 2013-III, Ltd.)
Structured Finance
Subordinated Notes (Residual Interest, current yield 14.53%, due 4/24/2031)(5)(14)
4/5/2018
44,100

28,368

25,184

0.7%



 


28,368

25,184

0.7%
CIFC Funding 2013-IV, Ltd.
Structured Finance
Subordinated Notes (Residual Interest, current yield 16.81%, due 4/28/2031)(5)(14)
11/14/2013
45,500

32,857

27,855

0.8%



 


32,857

27,855

0.8%

See notes to consolidated financial statements.
13

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)
(in thousands, except share data)

 
 
 
 
September 30, 2018 (Unaudited)
Portfolio Company
Industry
Investments(1)(44)
Acquisition Date
Principal Value
Amortized Cost
Fair
Value(2)
% of Net Assets
 
 
 
 
 
 
 
 
LEVEL 3 PORTFOLIO INVESTMENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
 
 
 
 
 
 
 
 
 
 
 
 
 
CIFC Funding 2014-IV Investor, Ltd.
Structured Finance
Income Notes (Residual Interest, current yield 8.31%, due 10/19/2026)(5)(6)(14)
9/3/2014
$
41,500

$
28,175

$
22,084

0.6%



 


28,175

22,084

0.6%
CIFC Funding 2014-V, Ltd.
Structured Finance
Class F Notes (10.88% (LIBOR + 8.50%), due 10/17/2031)(6)(11)(14)(37)
9/27/2018
10,250

9,943

9,942

0.3%



 


9,943

9,942

0.3%
CIFC Funding 2016-I, Ltd.
Structured Finance
Income Notes (Residual Interest, current yield 13.13%, due 10/21/2028)(5)(6)(14)
12/21/2016
34,000

31,247

28,351

0.8%



 


31,247

28,351

0.8%
Cinedigm DC Holdings, LLC
Entertainment
Senior Secured Term Loan (11.31% (LIBOR + 9.00% with 2.00% LIBOR floor) plus 2.50% PIK, due 3/31/2021)(11)(46)
2/28/2013
29,965

29,915

29,965

0.9%



 


29,915

29,965

0.9%
Class Appraisal, LLC
Real Estate Management & Development
Revolving Line of Credit – $1,500 Commitment (10.64% (LIBOR + 8.25% with 1.50% LIBOR floor), due 3/12/2020)(11)(15)
3/12/2018
—

—

—

—%
Senior Secured Term Loan (10.64% (LIBOR + 8.25% with 1.50% LIBOR floor), due 3/10/2023)(3)(11)
3/12/2018
41,580

41,580

41,580

1.2%



 


41,580

41,580

1.2%
Coverall North America, Inc.
Commercial Services & Supplies
Senior Secured Term Loan A (8.34% (LIBOR + 6.00% with 1.00% LIBOR floor), due 11/02/2020)(3)(11)
11/2/2015
16,225

16,225

16,225

0.5%
Senior Secured Term Loan B (13.34% (LIBOR + 11.00% with 1.00% LIBOR floor), due 11/02/2020)(3)(11)
11/2/2015
24,375

24,375

24,375

0.7%



 


40,600

40,600

1.2%
CP VI Bella Midco
IT Services
Second Lien Term Loan (8.99% (LIBOR + 6.75%, due 12/29/2025)(8)(13)
12/28/2017
5,500

5,486

5,486

0.2%



 


5,486

5,486

0.2%
Digital Room, LLC
Commercial Services & Supplies
First Lien Term Loan (7.25% (LIBOR + 5.00% with 1.00% LIBOR floor), due 12/29/2023)(3)(8)(13)
2/9/2018
9,925

9,836

9,925

0.3%
Second Lien Term Loan (11.00% (LIBOR + 8.75% with 1.00% LIBOR floor), due 12/29/2024)(3)(8)(13)
2/8/2018
57,100

56,326

57,100

1.7%





66,162

67,025

2.0%
Dunn Paper, Inc.
Paper & Forest Products
Second Lien Term Loan (10.99% (LIBOR + 8.75% with 1.00% LIBOR floor), due 8/26/2023)(3)(8)(13)
10/7/2016
11,500

11,337

11,337

0.3%





11,337

11,337

0.3%
Dynatrace, LLC
Software
Second Lien Term Loan (9.22% (LIBOR + 7.00%), due 8/23/2026)(8)(13)
8/23/2018
3,000

2,993

2,993

0.1%





2,993

2,993

0.1%
Easy Gardener Products, Inc.
Household Durables
Senior Secured Term Loan (12.34% (LIBOR + 10.00% with 0.25% LIBOR floor), due 09/30/2020)(3)(11)
10/2/2015
16,894

16,894

15,399

0.5%





16,894

15,399

0.5%
Engine Group, Inc.(7)
Media
Senior Secured Term Loan (7.39% (LIBOR + 5.00% with 1.00% LIBOR floor), due 9/15/2022)(8)(11)
9/25/2017
4,710

4,710

4,690

0.1%
Second Lien Term Loan (11.39% (LIBOR + 9.00% with 1.00% LIBOR floor), due 9/15/2023)(3)(8)(11)
9/25/2017
35,000

35,000

34,320

1.0%





39,710

39,010

1.1%

See notes to consolidated financial statements.
14

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)
(in thousands, except share data)

 
 
 
 
September 30, 2018 (Unaudited)
Portfolio Company
Industry
Investments(1)(44)
Acquisition Date
Principal Value
Amortized Cost
Fair
Value(2)
% of Net Assets
 
 
 
 
 
 
 
 
LEVEL 3 PORTFOLIO INVESTMENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
 
 
 
 
 
 
 
 
 
 
 
 
 
EXC Holdings III Corp
Technology Hardware, Storage & Peripherals
Second Lien Term Loan (10.04% (LIBOR + 7.50% with 1.00% LIBOR floor), due 12/01/2025)(8)(10)
12/5/2017
$
12,500

$
12,388

$
12,500

0.4%





12,388

12,500

0.4%
Fleetwash, Inc.
Commercial Services & Supplies
Senior Secured Term Loan B (11.34% (LIBOR + 9.00% with 1.00% LIBOR floor), due 4/30/2022)(3)(11)
4/30/2014
21,544

21,544

21,544

0.6%
Delayed Draw Term Loan – $15,000 Commitment (10.34% (LIBOR + 8.00% with 1.00% LIBOR floor), expires 4/30/2022)(11)(15)
4/30/2014
—

—

—

—%





21,544

21,544

0.6%
Galaxy XV CLO, Ltd.
Structured Finance
Subordinated Notes (Residual Interest, current yield 10.89%, due 10/15/2030)(5)(14)
3/14/2013
50,525

35,233

30,617

0.9%





35,233

30,617

0.9%
Galaxy XXVII CLO, Ltd. (f/k/a Galaxy XVI CLO, Ltd.)
Structured Finance
Subordinated Notes (Residual Interest, current yield 10.28%, due 5/16/2031)(5)(14)
4/17/2018
24,575

16,495

13,668

0.4%





16,495

13,668

0.4%
Galaxy XXVIII CLO, Ltd. (f/k/a Galaxy XVII CLO, Ltd.)
Structured Finance
Subordinated Notes (Residual Interest, current yield 10.85%, due 7/15/2031)(5)(6)(14)
6/27/2014
39,905

28,281

18,664

0.5%





28,281

18,664

0.5%
Galaxy XXVIII CLO, Ltd.
Structured Finance
Class F Junior Notes (10.82% (LIBOR + 8.48%), due 7/15/2031)(6)(11)(14)(37)
7/16/2018
6,658

6,171

6,616

0.2%





6,171

6,616

0.2%
H.I.G. ECI Merger Sub, Inc.
IT Services
Senior Secured Term Loan A (7.84% (LIBOR + 5.50% with 1.50% LIBOR floor), due 5/31/2023)(3)(11)
5/31/2018
44,576

44,576

44,576

1.3%
Senior Secured Term Loan B (12.84% (LIBOR + 10.50% with 1.50% LIBOR floor), due 5/31/2023)(3)(11)
5/31/2018
29,900

29,900

29,900

0.9%





74,476

74,476

2.2%
Halcyon Loan Advisors Funding 2012-1 Ltd.
Structured Finance
Subordinated Notes (Residual Interest, current yield 0.00%, due 8/15/2023)(5)(14)(17)
8/21/2012
23,188

3,844

4,665

0.1%





3,844

4,665

0.1%
Halcyon Loan Advisors Funding 2013-1 Ltd.
Structured Finance
Subordinated Notes (Residual Interest, current yield 0.00%, due 4/15/2025)(5)(14)(17)
3/28/2013
40,400

21,359

13,109

0.4%





21,359

13,109

0.4%
Halcyon Loan Advisors Funding 2014-1 Ltd.
Structured Finance
Subordinated Notes (Residual Interest, current yield 1.35%, due 4/18/2026)(5)(14)
3/6/2014
24,500

13,315

11,201

0.3%





13,315

11,201

0.3%
Halcyon Loan Advisors Funding 2014-2 Ltd.
Structured Finance
Subordinated Notes (Residual Interest, current yield 0.00%, due 4/28/2025)(5)(6)(14)(17)
4/28/2014
41,164

23,151

16,598

0.5%





23,151

16,598

0.5%
Halcyon Loan Advisors Funding 2015-3 Ltd.
Structured Finance
Subordinated Notes (Residual Interest, current yield 20.18%, due 10/18/2027)(5)(6)(14)
9/3/2015
39,598

34,437

32,319

0.9%





34,437

32,319

0.9%

See notes to consolidated financial statements.
15

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)
(in thousands, except share data)

 
 
 
 
September 30, 2018 (Unaudited)
Portfolio Company
Industry
Investments(1)(44)
Acquisition Date
Principal Value
Amortized Cost
Fair
Value(2)
% of Net Assets
 
 
 
 
 
 
 
 
LEVEL 3 PORTFOLIO INVESTMENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
 
 
 
 
 
 
 
 
 
 
 
 
 
Halyard MD OPCO, LLC
Media
Revolving Line of Credit – $2,000 Commitment (10.39% (LIBOR + 8.00%), due 2/6/2020)(11)(15)
8/6/2018
$
—

$
—

$
—

—%
First Lien Term Loan (10.39% (LIBOR + 8.00% with 2.00% LIBOR floor), due 8/6/2023)(11)
8/6/2018
11,925

11,925

11,925

0.4%
Delayed Draw Term Loan – $3,500 Commitment (10.39% (LIBOR + 8.00% with 2.00% LIBOR floor), due 8/6/2019)(11)(15)
8/6/2018
—

—

—

—%





11,925

11,925

0.4%
Harbortouch Payments, LLC
Commercial Services & Supplies
Escrow Receivable
3/31/2014


—

932

—%





—

932

—%
HarbourView CLO VII-R, Ltd. (f/k/a HarbourView CLO VII, Ltd.)
Structured Finance
Subordinated Notes (Residual Interest, current yield 18.02%, due 7/18/2031)(5)(6)(14)
6/10/2015
19,025

14,029

13,632

0.4%





14,029

13,632

0.4%
Help/Systems Holdings, Inc.
Software
Second Lien Term Loan (9.99% (LIBOR + 7.75%), due 3/27/2026)(3)(8)(13)
4/17/2018
11,293

11,246

11,293

0.3%





11,246

11,293

0.3%
Ingenio, LLC
Interactive Media & Services
Senior Secured Term Loan (9.91% (LIBOR + 7.50% with 1.25% LIBOR floor), due 9/26/2022)(3)(8)(11)
9/25/2017
9,647

9,647

9,647

0.3%



 

9,647

9,647

0.3%
Inpatient Care Management Company, LLC
Health Care Providers & Services
Senior Secured Term Loan (10.34% (LIBOR + 8.00% with 1.00% LIBOR floor), due 6/8/2021)(3)(11)
6/8/2016
21,713

21,713

21,713

0.6%



 

21,713

21,713

0.6%
Janus International Group, LLC
Building Products
Second Lien Term Loan (9.99% (LIBOR + 7.75% with 1.00% LIBOR floor), due 2/12/2026)(3)(8)(13)
2/22/2018
20,000

19,824

20,000

0.6%



 

19,824

20,000

0.6%
JD Power and Associates
Capital Markets
Second Lien Term Loan (10.74% (LIBOR + 8.50% with 1.00% LIBOR floor), due 9/7/2024)(3)(8)(13)
9/16/2016
26,675

26,531

26,675

0.8%



 

26,531

26,675

0.8%
Jefferson Mill CLO Ltd.
Structured Finance
Subordinated Notes (Residual Interest, current yield 11.66%, due 10/20/2031)(5)(6)(14)
7/28/2015
23,594

18,297

12,917

0.4%



 

18,297

12,917

0.4%
K&N Parent, Inc.
Auto Components
Second Lien Term Loan (11.14% (LIBOR + 8.75% with 1.00% LIBOR floor), due 10/21/2024)(3)(8)(11)
10/20/2016
25,887

25,388

24,851

0.7%



 

25,388

24,851

0.7%
Keystone Acquisition Corp.(36)
Health Care Providers & Services
Second Lien Term Loan (11.64% (LIBOR + 9.25% with 1.00% LIBOR floor), due 5/1/2025)(3)(8)(11)
5/18/2017
50,000

50,000

50,000

1.5%



 

50,000

50,000

1.5%
LCM XIV Ltd.
Structured Finance
Income Notes (Residual Interest, current yield 16.64%, due 7/21/2031)(5)(14)
7/11/2013
49,934

27,644

24,770

0.7%



 

27,644

24,770

0.7%
Madison Park Funding IX, Ltd.
Structured Finance
Subordinated Notes (Residual Interest, current yield 0.00%, due 8/15/2022)(5)(14)(17)
7/18/2012
43,110

1,994

1,624

0.1%



 

1,994

1,624

0.1%

See notes to consolidated financial statements.
16

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)
(in thousands, except share data)

 
 
 
 
September 30, 2018 (Unaudited)
Portfolio Company
Industry
Investments(1)(44)
Acquisition Date
Principal Value
Amortized Cost
Fair
Value(2)
% of Net Assets
 
 
 
 
 
 
 
 
LEVEL 3 PORTFOLIO INVESTMENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
 
 
 
 
 
 
 
 
 
 
 
 
 
Maverick Healthcare Equity, LLC
Health Care Providers & Services
Preferred Units (10.00%, 1,250,000 units)(16)
10/31/2007


$
1,252

$
262

—%
Class A Common Units (1,250,000 units)(16)
10/31/2007


—

—

—%



 

1,252

262

—%
MedMark Services, Inc.(51)
Health Care Providers & Services
Second Lien Term Loan (10.35% (LIBOR + 8.25% with 1.00% LIBOR floor), due 3/1/2025)(3)(8)(13)
3/16/2018
$
7,000

6,935

6,935

0.2%



 

6,935

6,935

0.2%
Memorial MRI & Diagnostic, LLC
Health Care Providers & Services
Senior Secured Term Loan (10.89% (LIBOR + 8.50% with 1.00% LIBOR floor), due 3/16/2022)(11)
3/16/2017
36,735

36,735

36,735

1.1%



 

36,735

36,735

1.1%
Mobile Posse, Inc.
Media
First Lien Term Loan (10.89% (LIBOR + 8.50% with 2.00% LIBOR floor), due 4/3/2023)(3)(11)
4/3/2018
27,400

27,400

27,400

0.8%



 

27,400

27,400

0.8%
Mountain View CLO 2013-I Ltd.
Structured Finance
Subordinated Notes (Residual Interest, current yield 13.74%, due 10/15/2030)(5)(14)
5/1/2013
43,650

28,823

23,281

0.7%



 

28,823

23,281

0.7%
Mountain View CLO IX Ltd.
Structured Finance
Subordinated Notes (Residual Interest, current yield 18.61%, due 7/15/2031)(5)(6)(14)
6/25/2015
47,830

31,489

34,290

1.0%



 

31,489

34,290

1.0%
MRP Holdco, Inc.
Professional Services
Senior Secured Term Loan A (6.74% (LIBOR + 4.50% with 1.50% LIBOR floor), due 4/17/2024)(3)(13)
4/17/2018
42,785

42,785

42,785

1.2%
Senior Secured Term Loan B (10.74% (LIBOR + 8.50% with 1.50% LIBOR floor), due 4/17/2024)(13)
4/17/2018
43,000

43,000

43,000

1.3%



 

85,785

85,785

2.5%
Octagon Investment Partners XV, Ltd.
Structured Finance
Income Notes (Residual Interest, current yield 14.33%, due 7/19/2030)(5)(14)
2/20/2013
42,064

32,187

26,641

0.8%



 

32,187

26,641

0.8%
Octagon Investment Partners 18-R Ltd. (f/k/a Octagon Investment Partners XVIII, Ltd.)
Structured Finance
Subordinated Notes (Residual Interest, current yield 19.07%, due 4/16/2031)(5)(6)(14)
8/17/2015
46,016

27,409

25,634

0.8%



 

27,409

25,634

0.8%
Pearl Intermediate Parent LLC
Health Care Providers & Services
Second Lien Term Loan (8.42% (LIBOR + 6.25%), due 2/15/2026)(8)(13)
2/28/2018
5,000

4,977

4,977

0.1%



 

4,977

4,977

0.1%
PeopleConnect Intermediate, LLC (f/k/a Intelius, Inc.)
Interactive Media & Services
Revolving Line of Credit – $1,000 Commitment (11.84% (LIBOR + 9.50% with 1.00% LIBOR floor), due 7/1/2020)(11)(15)
7/1/2015
500

500

500

—%
Senior Secured Term Loan A (8.84% (LIBOR + 6.50% with 1.00% LIBOR floor), due 7/1/2020)(3)(11)
7/1/2015
18,548

18,548

18,548

0.5%
Senior Secured Term Loan B (14.84% (LIBOR + 12.50% with 1.00% LIBOR floor), due 7/1/2020)(3)(11)
7/1/2015
20,023

20,023

20,023

0.6%



 

39,071

39,071

1.1%
PGX Holdings, Inc.
Diversified Consumer Services
Second Lien Term Loan (11.24% (LIBOR + 9.00% with 1.00% LIBOR floor), due 9/29/2021)(3)(13)
9/29/2014
118,289

118,289

118,289

3.5%



 

118,289

118,289

3.5%

See notes to consolidated financial statements.
17

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)
(in thousands, except share data)

 
 
 
 
September 30, 2018 (Unaudited)
Portfolio Company
Industry
Investments(1)(44)
Acquisition Date
Principal Value
Amortized Cost
Fair
Value(2)
% of Net Assets
 
 
 
 
 
 
 
 
LEVEL 3 PORTFOLIO INVESTMENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
 
 
 
 
 
 
 
 
 
 
 
 
 
PharMerica Corporation
Pharmaceuticals
Second Lien Term Loan (9.90% (LIBOR + 7.75% with 1.00% LIBOR floor), due 12/7/2025)(3)(8)(13)
12/7/2017
$
12,000

$
11,882

$
12,000

0.4%



 

11,882

12,000

0.4%
Photonis Technologies SAS
Electronic Equipment, Instruments & Components
First Lien Term Loan (9.89% (LIBOR + 7.50% with 1.00% LIBOR floor), due 9/18/2019)(8)(11)(14)
9/10/2013
12,872

12,572

12,566

0.4%



 

12,572

12,566

0.4%
PlayPower, Inc.
Leisure Products
Second Lien Term Loan (11.14% (LIBOR + 8.75% with 1.00% LIBOR floor), due 6/23/2022)(3)(8)(11)
6/23/2015
11,000

10,910

11,000

0.3%



 

10,910

11,000

0.3%
Research Now Group, Inc. & Survey Sampling International LLC
Professional Services
First Lien Term Loan (7.74% (LIBOR + 5.50% with 1.00% LIBOR floor), due 12/20/2024)(8)(13)
1/5/2018
9,925

9,461

9,815

0.3%
Second Lien Term Loan (11.74% (LIBOR + 9.50% with 1.00% LIBOR floor), due 12/20/2025)(8)(13)
1/5/2018
50,000

46,848

48,282

1.4%



 

56,309

58,097

1.7%
RGIS Services, LLC
Commercial Services & Supplies
Senior Secured Term Loan (9.74% (LIBOR + 7.50% with 1.00% LIBOR floor), due 3/31/2023)(3)(8)(13)
4/20/2017
15,173

15,113

14,320

0.4%



 

15,113

14,320

0.4%
RME Group Holding Company
Media
Senior Secured Term Loan A (8.39% (LIBOR + 6.00% with 1.00% LIBOR floor), due 5/4/2022)(3)(11)
5/4/2017
34,958

34,958

34,958

1.0%
Senior Secured Term Loan B (13.39% (LIBOR + 11.00% with 1.00% LIBOR floor), due 5/4/2022)(3)(11)
5/4/2017
24,286

24,286

24,286

0.7%



 

59,244

59,244

1.7%
Rocket Software, Inc.
Software
Second Lien Term Loan (11.89% (LIBOR + 9.50% with 1.00% LIBOR floor), due 10/14/2024)(3)(8)(11)
10/20/2016
50,000

49,250

50,000

1.5%



 

49,250

50,000

1.5%
Romark WM-R Ltd. (f/k/a Washington Mill CLO Ltd.)
Structured Finance
Subordinated Notes (Residual Interest, current yield 14.02%, due 4/20/2031)(5)(6)(14)
5/15/2014
27,725

21,966

16,599

0.5%



 

21,966

16,599

0.5%
Rosa Mexicano
Hotels, Restaurants & Leisure
Revolving Line of Credit – $2,500 Commitment (9.89% (LIBOR + 7.50% with 1.50% LIBOR floor), due 3/29/2023(11)(15)
3/29/2018
—

—

—

—%
Senior Secured Term Loan (9.89% (LIBOR + 7.50% with 1.50% LIBOR floor), due 3/29/2023(3)(11)
3/29/2018
29,625

29,625

29,625

0.9%



 

29,625

29,625

0.9%
SCS Merger Sub, Inc.
IT Services
Second Lien Term Loan (11.74% (LIBOR + 9.50% with 1.00% LIBOR floor), due 10/30/2023)(3)(8)(13)
11/6/2015
20,000

19,624

20,000

0.6%



 

19,624

20,000

0.6%
Securus Technologies Holdings, Inc.
Communications Equipment
Second Lien Term Loan (10.49% (LIBOR + 8.25% with 1.00% LIBOR floor), due 11/01/2025)(3)(8)(13)
11/3/2017
48,000

47,872

48,000

1.4%



 

47,872

48,000

1.4%

See notes to consolidated financial statements.
18

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)
(in thousands, except share data)

 
 
 
 
September 30, 2018 (Unaudited)
Portfolio Company
Industry
Investments(1)(44)
Acquisition Date
Principal Value
Amortized Cost
Fair
Value(2)
% of Net Assets
 
 
 
 
 
 
 
 
LEVEL 3 PORTFOLIO INVESTMENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
 
 
 
 
 
 
 
 
 
 
 
 
 
SEOTownCenter, Inc.
IT Services
Senior Secured Term Loan A (9.84% (LIBOR + 7.50% with 2.00% LIBOR floor), due 4/07/2023)(3)(11)
4/10/2018
$
24,500

$
24,500

$
24,500

0.7%
Senior Secured Term Loan B (14.84% (LIBOR + 12.50% with 2.00% LIBOR floor), due 4/07/2023)(3)(11)
4/10/2018
17,000

17,000

17,000

0.5%



 

41,500

41,500

1.2%
SESAC Holdco II LLC
Entertainment
Second Lien Term Loan (9.49% (LIBOR + 7.25% with 1.00% LIBOR floor), due 2/23/2025)(8)(13)
3/2/2017
3,000

2,976

2,976

0.1%



 

2,976

2,976

0.1%
SMG US Midco
Hotels, Restaurants & Leisure
Second Lien Term Loan (9.24% (LIBOR + 7.00%), due 1/23/2026)(3)(8)(13)
1/23/2018
7,500

7,483

7,483

0.2%



 

7,483

7,483

0.2%
Spartan Energy Services, Inc.
Energy Equipment & Services
Senior Secured Term Loan A (8.08% (LIBOR + 6.00% with 1.00% LIBOR floor), due 12/28/2018)(13)
10/20/2014
13,156

12,840

13,156

0.4%
Senior Secured Term Loan B (14.08% PIK (LIBOR + 12.00% with 1.00% LIBOR floor), due 12/28/2018)(13)(46)
10/20/2014
18,899

18,174

18,899

0.5%



 

31,014

32,055

0.9%
Spectrum Holdings III Corp
Health Care Equipment & Supplies
Second Lien Term Loan (9.24% (LIBOR + 7.00% with 1.00% LIBOR floor), due 1/31/2026)(8)(13)
1/31/2018
7,500

7,465

7,465

0.2%



 

7,465

7,465

0.2%
Strategic Materials
Household Durables
Second Lien Term Loan (10.09% (LIBOR + 7.75% with 1.00% LIBOR floor), due 11/1/2025)(3)(8)(11)
11/1/2017
7,000

6,938

6,360

0.2%



 

6,938

6,360

0.2%
Stryker Energy, LLC
Energy Equipment & Services
Overriding Royalty Interests(43)
12/4/2006


—

—

—%



 

—

—

—%
Sudbury Mill CLO Ltd.
Structured Finance
Subordinated Notes (Residual Interest, current yield 8.52%, due 1/17/2026)(5)(14)
12/5/2013
28,200

18,119

15,178

0.4%



 

18,119

15,178

0.4%
Symphony CLO XIV Ltd.
Structured Finance
Subordinated Notes (Residual Interest, current yield 0.92%, due 7/14/2026)(5)(6)(14)
5/29/2014
49,250

33,606

25,550

0.7%



 

33,606

25,550

0.7%
Symphony CLO XV, Ltd.
Structured Finance
Subordinated Notes (Residual Interest, current yield 8.39%, due 10/17/2026)(5)(14)
11/17/2014
50,250

39,265

31,922

0.9%



 

39,265

31,922

0.9%
TGP HOLDINGS III LLC
Household Durables
Second Lien Term Loan (10.86% (LIBOR + 8.50% with 1.00% LIBOR floor), due 9/25/2025)(8)(11)
10/3/2017
3,000

2,961

2,961

0.1%



 


2,961

2,961

0.1%
TouchTunes Interactive Networks, Inc.
Entertainment
Second Lien Term Loan (10.36% (LIBOR + 8.25% with 1.00% LIBOR floor), due 5/29/2022)(3)(8)(13)
5/29/2015
14,000

13,931

14,000

0.4%



 


13,931

14,000

0.4%
Town & Country Holdings, Inc.
Distributors
First Lien Term Loan (11.89% (LIBOR + 8.50% with 1.50% LIBOR floor), due 1/26/2023)(3)(11)
1/26/2018
174,191

174,191

174,191

5.1%



 


174,191

174,191

5.1%

See notes to consolidated financial statements.
19

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)
(in thousands, except share data)

 
 
 
 
September 30, 2018 (Unaudited)
Portfolio Company
Industry
Investments(1)(44)
Acquisition Date
Principal Value
Amortized Cost
Fair
Value(2)
% of Net Assets
 
 
 
 
 
 
 
 
LEVEL 3 PORTFOLIO INVESTMENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
 
 
 
 
 
 
 
 
 
 
 
 
 
Transplace Holdings, Inc.
Transportation Infrastructure
Second Lien Term Loan (10.90% (LIBOR + 8.75% with 1.00% LIBOR floor), due 10/6/2025)(3)(8)(13)
10/5/2017
$
28,104

$
27,515

$
28,104

0.8%



 


27,515

28,104

0.8%
Turning Point Brands, Inc.(42)
Tobacco
Second Lien Term Loan (9.15% (LIBOR + 7.00%), due 3/7/2024)(3)(8)(13)
2/17/2017
14,500

14,399

14,399

0.4%



 


14,399

14,399

0.4%
Universal Fiber Systems, LLC
Textiles, Apparel & Luxury Goods
Second Lien Term Loan (11.70% (LIBOR + 9.50% with 1.00% LIBOR floor), due 10/02/2022)(3)(8)(12)
10/2/2015
37,000

36,578

37,000

1.1%



 


36,578

37,000

1.1%
Universal Turbine Parts, LLC
Trading Companies & Distributors
Senior Secured Term Loan A (8.09% (LIBOR + 5.75% with 1.00% LIBOR floor), due 7/22/2021)(11)
7/22/2016
31,200

31,200

27,181

0.8%
Senior Secured Term Loan B (14.09% (LIBOR + 11.75% with 1.00% LIBOR floor), in non-accrual status effective 7/1/2018, due 7/22/2021)(11)
7/22/2016
32,500

32,500

17,948

0.5%



 


63,700

45,129

1.3%
USG Intermediate, LLC
Leisure Products
Revolving Line of Credit – $2,000 Commitment (11.49% (LIBOR + 9.25% with 1.00% LIBOR floor), due 8/24/2019)(13)(15)
4/15/2015
1,500

1,500

1,500

0.1%
Senior Secured Term Loan A (8.99% (LIBOR + 6.75% with 1.00% LIBOR floor), due 8/24/2022)(3)(13)
4/15/2015
10,560

10,560

10,560

0.3%
Senior Secured Term Loan B (13.99% (LIBOR + 11.75% with 1.00% LIBOR floor), due 8/24/2022)(3)(13)
4/15/2015
20,492

20,492

20,492

0.6%
Equity(16)
4/15/2015


1

—

—%



 


32,553

32,552

1.0%
UTZ Quality Foods, LLC
Food Products
Second Lien Term Loan (9.49% (LIBOR + 7.25%), due 11/21/2025)(3)(8)(13)
11/21/2017
10,000

9,888

9,888

0.3%



 


9,888

9,888

0.3%
VC GB Holdings, Inc.
Household Durables
Subordinated Secured Term Loan (10.24% (LIBOR + 8.00% with 1.00% LIBOR floor), due 2/28/2025)(3)(8)(13)
2/28/2017
12,933

12,693

12,933

0.4%



 


12,693

12,933

0.4%
Venio LLC
Professional Services
Second Lien Term Loan (4.00% plus PIK 10.00% (LIBOR + 7.50% with 2.50% LIBOR floor), due 2/19/2020)(11)(46)
2/19/2014
22,605

19,080

21,726

0.6%



 


19,080

21,726

0.6%
Voya CLO 2012-2, Ltd.
Structured Finance
Income Notes (Residual Interest, current yield 0.00%, due 10/15/2022)(5)(14)(17)
8/28/2012
38,070

450

683

—%



 


450

683

—%
Voya CLO 2012-3, Ltd.
Structured Finance
Income Notes (Residual Interest, current yield 0.00%, due 10/15/2022)(5)(14)(17)
10/18/2012
46,632

—

683

—%



 


—

683

—%
Voya CLO 2012-4, Ltd.
Structured Finance
Income Notes (Residual Interest, current yield 11.92%, due 10/16/2028)(5)(14)
11/29/2012
40,613

30,974

28,353

0.8%



 


30,974

28,353

0.8%
Voya CLO 2014-1, Ltd.
Structured Finance
Subordinated Notes (Residual Interest, current yield 16.20%, due 4/18/2031)(5)(6)(14)
3/13/2014
40,773

28,696

25,197

0.7%



 


28,696

25,197

0.7%
Voya CLO 2016-3, Ltd.
Structured Finance
Subordinated Notes (Residual Interest, current yield 12.53%, due 10/18/2027)(5)(6)(14)
10/27/2016
28,100

27,472

22,702

0.7%



 


27,472

22,702

0.7%

See notes to consolidated financial statements.
20

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)
(in thousands, except share data)

 
 
 
 
September 30, 2018 (Unaudited)
Portfolio Company
Industry
Investments(1)(44)
Acquisition Date
Principal Value
Amortized Cost
Fair
Value(2)
% of Net Assets
 
 
 
 
 
 
 
 
LEVEL 3 PORTFOLIO INVESTMENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
 
 
 
 
 
 
 
 
 
 
 
 
 
Voya CLO 2017-3, Ltd.
Structured Finance
Subordinated Notes (Residual Interest, current yield 12.27%, due 7/20/2030)(5)(6)(14)
7/12/2017
$
44,885

$
48,253

$
42,624

1.2%



 


48,253

42,624

1.2%
VT Topco, Inc.
Commercial Services & Supplies
Second Lien Term Loan (9.34% (LIBOR + 7.00%), due 8/17/2026)(8)(11)
8/23/2018
7,000

6,966

6,966

0.2%



 


6,966

6,966

0.2%
Wink Holdco, Inc.
Insurance
Second Lien Term Loan (9.00% (LIBOR + 6.75% with 1.00% LIBOR floor), due 12/1/2025)(3)(8)(13)
12/1/2017
3,000

2,987

2,987

0.1%



 


2,987

2,987

0.1%
 
Total Non-Control/Non-Affiliate Investments (Level 3)
 
$
3,532,959

$
3,353,353

97.7%
 
 
 
 
 
 
 
 
 
 
Total Portfolio Investments (Level 3)
 
$
6,039,814

$
5,936,683

173.0%

See notes to consolidated financial statements.
21

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)
(in thousands, except share data)

 
 
 
 
June 30, 2018
Portfolio Company
Locale / Industry
Investments(1)(45)
Acquisition Date (53)
Principal Value
Amortized Cost
Fair
Value(2)
% of Net Assets
 
 
 
 
 
 
 
 
LEVEL 3 PORTFOLIO INVESTMENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
Control Investments (greater than 25.00% voting control)(49)
 
 
 
 
 
 
 
 
 
 
 
 
 
CCPI Inc.(19)
Ohio / Electronic Equipment, Instruments & Components
Senior Secured Term Loan A (10.00%, due 12/31/2020)(3)
12/13/2012
$
2,881

$
2,881

$
2,881

0.1%
Senior Secured Term Loan B (12.00% plus 7.00% PIK, due 12/31/2020)(3)(46)
12/13/2012
17,819

17,819

17,819

0.5%
Common Stock (14,857 shares)(16)
12/13/2012
 
6,759

15,056

0.4%
 
 
 
 
 
27,459

35,756

1.0%
CP Energy Services Inc.(20)
Oklahoma / Energy Equipment & Services
Senior Secured Term Loan (13.31% (LIBOR + 11.00% with 1.00% LIBOR floor), due 12/29/2022)(11)
12/29/2017
35,048

35,048

35,048

1.0%
Series B Convertible Preferred Stock (16.00%, 790 shares)(16)
10/30/2015


63,225

63,225

1.9%
Common Stock (102,924 shares)(16)
8/2/2013


81,203

24,988

0.7%
 
 
 
 
 
179,476

123,261

3.6%
Credit Central Loan Company, LLC(21)
South Carolina / Consumer Finance
Subordinated Term Loan (10.00% plus 10.00% PIK, due 6/26/2024)(14)(46)
6/24/2014
51,855

47,496

51,855

1.5%
Class A Units (10,640,642 units)(14)(16)
6/24/2014
 
13,731

23,196

0.7%
Net Revenues Interest (25% of Net Revenues)(14)(16)
1/28/2015
 
—

1,626

0.1%
 
 
 
 
 
61,227

76,677

2.3%
Echelon Transportation, LLC (f/k/a Echelon Aviation, LLC)
New York / Aerospace & Defense
Senior Secured Term Loan (11.75% (LIBOR + 9.75% with 2.00% LIBOR floor) plus 2.25% PIK, due 3/31/2022)(13)(46)
3/31/2014
31,055

31,055

31,055

0.9%
Senior Secured Term Loan (11.00% (LIBOR + 9.00% with 2.00% LIBOR floor) plus 1.00% PIK, due 12/7/2024)(13)(46)
12/9/2016
16,044

16,044

16,044

0.5%
Membership Interest (100%)(16)
3/31/2014
 
22,738

35,179

1.0%
 
 
 
 
 
69,837

82,278

2.4%
First Tower Finance Company LLC(23)
Mississippi / Consumer Finance
Subordinated Term Loan to First Tower, LLC (10.00% plus 10.00% PIK, due 6/24/2019)(14)(46)
6/24/2014
273,066

273,066

273,066

8.0%
Class A Units (95,709,910 units)(14)(16)
6/24/2014
 
81,146

169,944

5.0%
 
 
 
 
 
354,212

443,010

13.0%
Freedom Marine Solutions, LLC(24)
Louisiana / Energy Equipment & Services
Membership Interest (100%)(16)
10/1/2009
 
43,592

13,037

0.4%
 
 
 
 
 
43,592

13,037

0.4%
InterDent, Inc. (52)
California / Health Care Providers & Services
Senior Secured Term Loan A (7.59% (LIBOR + 5.50% with 0.75% LIBOR floor), due 12/31/2017, past due)(13)
8/3/2012
77,994

77,994

77,994

2.3%
Senior Secured Term Loan B (8.34% (LIBOR + 6.25% with 0.75% LIBOR floor) plus 4.25% PIK, due 12/31/2017, past due)(13)
8/3/2012
131,558

131,558

119,627

3.5%
Senior Secured Term Loan C (18.00% PIK, due on demand)(46)
3/22/2018
3,149

3,149

—

—%
Warrants (to purchase 4,900 shares of Common Stock, expires 3/22/2030)(16)
2/23/2018


—

—

—%
 
 
 
 
 
212,701

197,621

5.8%

See notes to consolidated financial statements.
22

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)
(in thousands, except share data)

 
 
 
 
June 30, 2018
Portfolio Company
Locale / Industry
Investments(1)(45)
Acquisition Date (53)
Principal Value
Amortized Cost
Fair
Value(2)
% of Net Assets
 
 
 
 
 
 
 
 
LEVEL 3 PORTFOLIO INVESTMENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
Control Investments (greater than 25.00% voting control)(49)
 
 
 
 
 
 
 
 
 
 
 
 
 
MITY, Inc.(25)
Utah / Commercial Services & Supplies
Senior Secured Note A (10.00% (LIBOR + 7.00% with 3.00% LIBOR floor), due 1/30/2020)(3)(11)
9/19/2013
$
26,250

$
26,250

$
26,250

0.8%
Senior Secured Note B (10.00% (LIBOR + 7.00% with 3.00% LIBOR floor) plus 10.00% PIK, due 1/30/2020)(3)(11)(46)
6/23/2014
24,442

24,442

24,442

0.7%
Subordinated Unsecured Note to Broda Enterprises ULC (10.00%, due on demand)(14)
9/19/2013
5,563

7,200

5,563

0.1%
Common Stock (42,053 shares)(16)
9/19/2013
 
6,849

2,639

0.1%
 
 
 
 
 
64,741

58,894

1.7%
National Property REIT Corp.(26)
Various / Equity Real Estate Investment Trusts (REITs) / Online Lending
Senior Secured Term Loan A (6.00% (LIBOR + 4.00% with 2.00% LIBOR floor) plus 10.50% PIK, due 4/1/2019)(13)(46)
4/1/2014
293,203

293,203

293,203

8.6%
Senior Secured Term Loan E (11.00% (LIBOR + 9.00% with 2.00% LIBOR floor) plus 1.50% PIK, due 4/1/2019)(13)(46)
4/1/2014
226,180

226,180

226,180

6.7%
Common Stock (3,042,393 shares)
12/31/2013


307,604

436,105

12.8%
Net Operating Income Interest (5% of Net Operating Income)
12/31/2013


—

99,488

2.9%
 
 
 
 
 
826,987

1,054,976

31.0%
Nationwide Loan Company LLC(27)
Illinois / Consumer Finance
Senior Subordinated Term Loan to Nationwide Acceptance LLC (10.00% plus 10.00% PIK, due 6/18/2019)(14)(46)
6/18/2014
17,410

17,410

17,410

0.5%
Class A Units (32,456,159 units)(14)(16)
1/31/2013
 
21,962

16,443

0.5%
 
 
 
 
 
39,372

33,853

1.0%
NMMB, Inc.(28)
New York / Media
Senior Secured Note (14.00%, due 5/6/2021)(3)
5/6/2011
3,714

3,714

3,714

0.1%
Senior Secured Note to Armed Forces Communications, Inc. (14.00%, due 5/6/2021)(3)
6/12/2014
4,900

4,900

4,900

0.2%
Series A Preferred Stock (7,200 shares)(16)
12/12/2013
 
7,200

5,663

0.2%
Series B Preferred Stock (5,669 shares)(16)
12/12/2013
 
5,669

4,458

0.1%
 
 
 
 
 
21,483

18,735

0.6%
Pacific World Corporation(40)
California / Personal Products
Revolving Line of Credit – $26,000 Commitment (9.34% (LIBOR + 7.25% with 1.00% LIBOR floor), due 9/26/2020)(13)(15)
9/26/2014
20,825

20,825

20,825

0.6%
Senior Secured Term Loan A (7.34% (LIBOR + 5.25% with 1.00% LIBOR floor), due 9/26/2020)(13)
12/31/2014
96,250

96,250

96,250

2.8%
Senior Secured Term Loan B (11.34% PIK (LIBOR + 9.25% with 1.00% LIBOR floor), in non-accrual status effective 5/21/2018, due 9/26/2020)(13)
12/31/2014
96,500

96,500

47,945

1.4%
Convertible Preferred Equity (100,000 shares)(16)
6/15/2018


15,000

—

—%
Common Stock (6,778,414 shares)(16)
9/29/2017


—

—

—%
 
 
 
 
 
228,575

165,020

4.8%
R-V Industries, Inc.
Pennsylvania / Machinery
Senior Subordinated Note (11.34% (LIBOR + 9.00% with 1.00% LIBOR floor), due 3/31/2022)(11)
6/12/2013
28,622

28,622

28,622

0.8%
Common Stock (745,107 shares)(16)
6/26/2007
 
6,866

3,264

0.1%
 
 
 
 
 
35,488

31,886

0.9%

See notes to consolidated financial statements.
23

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)
(in thousands, except share data)

 
 
 
 
June 30, 2018
Portfolio Company
Locale / Industry
Investments(1)(45)
Acquisition Date (53)
Principal Value
Amortized Cost
Fair
Value(2)
% of Net Assets
 
 
 
 
 
 
 
 
LEVEL 3 PORTFOLIO INVESTMENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
Control Investments (greater than 25.00% voting control)(49)
 
 
 
 
 
 
 
 
 
 
 
 
 
SB Forging Company II, Inc. (f/k/a Gulf Coast Machine & Supply Company)(29)
Texas / Energy Equipment & Services
Series A Convertible Preferred Stock (6.50%, 99,000 shares)(16)
11/8/2013
 
$
—

$
2,194

0.1%
Common Stock (100 shares)(16)
11/8/2013
 
—

—

—%
 
 
 
 
 
—

2,194

0.1%
USES Corp.(30)
Texas / Commercial Services & Supplies
Senior Secured Term Loan A (9.00% PIK, in non-accrual status effective 4/1/2016, due 7/22/2020)
3/31/2014
$
36,964

31,601

16,319

0.5%
Senior Secured Term Loan B (15.50% PIK, in non-accrual status effective 4/1/2016, due 7/22/2020)
3/31/2014
47,866

35,568

—

—%
Common Stock (268,962 shares)(16)
6/15/2016
 
—

—

—%
 
 
 
 
 
67,169

16,319

0.5%
Valley Electric Company, Inc.(31)
Washington / Construction & Engineering
Senior Secured Note to Valley Electric Co. of Mt. Vernon, Inc. (8.00% (LIBOR + 5.00% with 3.00% LIBOR floor) plus 2.50% PIK, due 12/31/2024)(3)(11)(46)
12/31/2012
10,430

10,430

10,430

0.3%
Senior Secured Note (8.00% plus 10.00% PIK, due 6/23/2024)(46)
6/24/2014
27,781

27,781

27,781

0.8%
Consolidated Revenue Interest (2.0%)
6/22/2018


—

—

—%
Common Stock (50,000 shares)(16)
12/31/2012
 
26,204

12,586

0.4%
 
 
 
 
 
64,415

50,797

1.5%
Wolf Energy, LLC(32)
Kansas / Energy Equipment & Services
Membership Interest (100%)(16)
7/1/2014
 
—

—

—%
Membership Interest in Wolf Energy Services Company, LLC (100%)(16)
3/14/2017
 
3,792

—

—%
Net Profits Interest (8% of Equity Distributions)(4)(16)
4/15/2013
 
—

12

—%
 
 
 
 
 
3,792

12

—%
Total Control Investments (Level 3)
 
$
2,300,526

$
2,404,326

70.6%
Affiliate Investments (5.00% to 24.99% voting control)(50)
 
 
 
 
 
 
 
 
 
 
 
 
 
Edmentum Ultimate Holdings, LLC(22)
Minnesota / Diversified Consumer Services
Second Lien Revolving Credit Facility to Edmentum, Inc. – $7,834 Commitment (5.00%, due 12/9/2021)(15)
6/9/2015
$
7,834

$
7,834

$
7,834

0.2%
Unsecured Senior PIK Note (8.50% PIK, due 12/9/2021)(46)
6/9/2015
7,520

7,520

7,520

0.2%
Unsecured Junior PIK Note (10.00% PIK, in non-accrual status effective 1/1/2017, due 12/9/2021)
6/9/2015
35,226

23,828

19,862

0.6%
Class A Units (370,964 units)(16)
6/9/2015


6,577

—

—%
 
 
 
 
 
45,759

35,216

1.0%
Nixon, Inc.(39)
California / Textiles, Apparel & Luxury Goods
Common Stock (857 units)(16)
5/12/2017


—

—

—%
 
 
 
 
 
—

—

—%
Targus International, LLC(33)
California / Textiles, Apparel & Luxury Goods
Common Stock (7,383,395 shares)(16)
5/24/2011


9,878

23,220

0.7%
 
 
 
 
 
9,878

23,220

0.7%
Total Affiliate Investments (Level 3)
 
$
55,637

$
58,436

1.7%


See notes to consolidated financial statements.
24

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)
(in thousands, except share data)

 
 
 
 
June 30, 2018
Portfolio Company
Locale / Industry
Investments(1)(45)
Acquisition Date (53)
Principal Value
Amortized Cost
Fair
Value(2)
% of Net Assets
 
 
 
 
 
 
 
 
LEVEL 3 PORTFOLIO INVESTMENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
 
 
 
 
 
 
 
 
 
 
 
 
 
ACE Cash Express, Inc.
Texas / Consumer Finance
Senior Secured Note (12.00%, due 12/15/2022)(8)(14)
12/15/2017
$
20,000

$
19,733

$
21,594

0.6%
 
 
 
 
 
19,733

21,594

0.6%
AgaMatrix, Inc.
New Hampshire / Healthcare Equipment and Supplies
Senior Secured Term Loan (11.33% (LIBOR + 9.00% with 1.25% LIBOR floor), due 9/29/2022)(3)(11)
9/29/2017
35,815

35,815

35,815

1.1%
 
 
 
 
 
35,815

35,815

1.1%
American Gilsonite Company(34)
Utah / Chemicals
Membership Interest (0.05%, 131 shares)(16)
3/14/2008


—

—

—%
 
 
 
 
 
—

—

—%
Apidos CLO IX
Cayman Islands / Structured Finance
Subordinated Notes (Residual Interest, current yield 0.00%, due 7/15/2023)(5)(14)(17)
7/11/2012
23,525

21

76

—%
 
 
 
 
 
21

76

—%
Apidos CLO XI
Cayman Islands / Structured Finance
Subordinated Notes (Residual Interest, current yield 7.80%, due 1/17/2028)(5)(14)
1/17/2013
40,500

32,397

25,000

0.7%
 
 
 
 
 
32,397

25,000

0.7%
Apidos CLO XII
Cayman Islands / Structured Finance
Subordinated Notes (Residual Interest, current yield 15.35%, due 4/15/2031)(5)(14)
4/18/2013
52,203

35,014

26,518

0.8%
 
 
 
 
 
35,014

26,518

0.8%
Apidos CLO XV
Cayman Islands / Structured Finance
Subordinated Notes (Residual Interest, current yield 14.14%, due 4/20/2031)(5)(14)
10/16/2013
48,515

35,776

26,960

0.8%
 
 
 
 
 
35,776

26,960

0.8%
Apidos CLO XXII
Cayman Islands / Structured Finance
Subordinated Notes (Residual Interest, current yield 12.65%, due 10/20/2027)(5)(6)(14)
10/14/2015
31,350

27,496

25,047

0.7%
 
 
 
 
 
27,496

25,047

0.7%
Ark-La-Tex Wireline Services, LLC
Louisiana / Energy Equipment & Services
Senior Secured Term Loan B (13.59% (LIBOR + 11.50% with 1.00% LIBOR floor), in non-accrual status effective 4/1/2016, due 4/8/2019)(13)
4/8/2014
25,595

1,145

787

—%
 
 
 
 
 
1,145

787

—%
Armor Holding II LLC
New York / Commercial Services & Supplies
Second Lien Term Loan (11.10% (LIBOR + 9.00% with 1.25% LIBOR floor), due 12/26/2020)(3)(8)(13)
6/26/2018
7,000

6,949

7,000

0.2%
 
 
 
 
 
6,949

7,000

0.2%
Atlantis Health Care Group (Puerto Rico), Inc.
Puerto Rico / Health Care Providers & Services
Revolving Line of Credit – $7,000 Commitment (10.81% (LIBOR + 8.50% with 1.50% LIBOR floor), due 8/21/2019)(11)(15)
2/21/2013
7,000

7,000

6,900

0.2%
Senior Term Loan (10.81% (LIBOR + 8.50% with 1.50% LIBOR floor), due 2/21/2020)(3)(11)
2/21/2013
77,713

77,713

76,607

2.2%
 
 
 
 
 
84,713

83,507

2.4%
ATS Consolidated, Inc.
Arizona / Electronic Equipment, Instruments & Components
Second Lien Term Loan (9.84% (LIBOR + 7.75%, due 2/27/2026)(8)(13)
3/19/2018
15,000

14,856

14,873

0.4%
 
 
 
 
 
14,856

14,873

0.4%

See notes to consolidated financial statements.
25

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)
(in thousands, except share data)

 
 
 
 
June 30, 2018
Portfolio Company
Locale / Industry
Investments(1)(45)
Acquisition Date (53)
Principal Value
Amortized Cost
Fair
Value(2)
% of Net Assets
 
 
 
 
 
 
 
 
LEVEL 3 PORTFOLIO INVESTMENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
 
 
 
 
 
 
 
 
 
 
 
 
 
Autodata, Inc. / Autodata Solutions, Inc.(9)
Canada / Software
Second Lien Term Loan (9.34% (LIBOR + 7.25% with 1.00% LIBOR floor), due 12/12/2025)(8)(13)
12/14/2017
$
6,000

$
5,972

$
5,972

0.2%
 
 
 
 
 
5,972

5,972

0.2%
Barings CLO 2018-III (f/k/a Babson CLO Ltd. 2014-III)
Cayman Islands / Structured Finance
Subordinated Notes (Residual Interest, current yield 11.35%, due 7/20/2029)(5)(6)(14)
6/14/2018
83,098

49,688

46,933

1.4%
 
 
 
 
 
49,688

46,933

1.4%
Broder Bros., Co.
Pennsylvania / Textiles, Apparel & Luxury Goods
Senior Secured Note (10.33% (LIBOR + 8.00% with 1.25% LIBOR floor), due 12/02/2022)(3)(11)
12/4/2017
274,009

274,009

274,009

8.0%
 
 
 
 
 
274,009

274,009

8.0%
Brookside Mill CLO Ltd.
Cayman Islands / Structured Finance
Subordinated Notes (Residual Interest, current yield 8.73%, due 1/18/2028)(5)(14)
5/23/2013
36,300

19,287

13,466

0.4%
 
 
 
 
 
19,287

13,466

0.4%
California Street CLO IX Ltd. (f/k/a Symphony CLO IX Ltd.)
Cayman Islands / Structured Finance
Preference Shares (Residual Interest, current yield 12.20%, due 10/16/2028)(5)(14)
5/8/2012
58,915

41,645

35,852

1.1%
 
 
 
 
 
41,645

35,852

1.1%
Candle-Lite Company, LLC
Ohio / Household & Personal Products
Senior Secured Term Loan A (7.81% (LIBOR + 5.50% with 1.25% LIBOR floor), due 1/23/2023)(3)(11)
1/23/2018
12,438

12,438

12,438

0.3%
Senior Secured Term Loan B (11.81% (LIBOR + 9.50% with 1.25% LIBOR floor), due 1/23/2023)(3)(11)
1/23/2018
12,500

12,500

12,500

0.4%
 
 
 
 
 
24,938

24,938

0.7%
Capstone Logistics Acquisition, Inc.
Georgia / Commercial Services & Supplies
Second Lien Term Loan (10.34% (LIBOR + 8.25% with 1.00% LIBOR floor), due 10/7/2022)(3)(8)(13)
10/7/2014
101,030

100,669

100,136

2.9%
 
 
 
 
 
100,669

100,136

2.9%
Carlyle Global Market Strategies CLO 2014-4-R, Ltd.
Cayman Islands / Structured Finance
Subordinated Notes (Residual Interest, current yield 20.73%, due 7/15/2030)(5)(6)(14)
6/29/2018
25,534

17,832

18,807

0.6%
 
 
 
 
 
17,832

18,807

0.6%
Carlyle Global Market Strategies CLO 2016-3, Ltd.
Cayman Islands / Structured Finance
Subordinated Notes (Residual Interest, current yield 18.00%, due 10/20/2029)(5)(6)(14)
9/13/2016
32,200

32,364

29,080

0.9%
 
 
 
 
 
32,364

29,080

0.9%
Carlyle C17 CLO Limited (f/k/a Cent CLO 17 Limited)
Cayman Islands / Structured Finance
Subordinated Notes (Residual Interest, current yield 18.34%, due 4/30/2031)(5)(14)
5/10/2018
24,870

15,140

15,196

0.4%
 
 
 
 
 
15,140

15,196

0.4%
Cent CLO 20 Limited
Cayman Islands / Structured Finance
Subordinated Notes (Residual Interest, current yield 15.40%, due 1/25/2026)(5)(14)
1/15/2014
40,275

31,692

28,269

0.8%
 
 
 
 
 
31,692

28,269

0.8%
Cent CLO 21 Limited
Cayman Islands / Structured Finance
Subordinated Notes (Residual Interest, current yield 17.56%, due 7/27/2026)(5)(6)(14)
6/18/2014
48,528

36,311

33,703

1.0%
 
 
 
 
 
36,311

33,703

1.0%

See notes to consolidated financial statements.
26

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)
(in thousands, except share data)

 
 
 
 
June 30, 2018
Portfolio Company
Locale / Industry
Investments(1)(45)
Acquisition Date (53)
Principal Value
Amortized Cost
Fair
Value(2)
% of Net Assets
 
 
 
 
 
 
 
 
LEVEL 3 PORTFOLIO INVESTMENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
 
 
 
 
 
 
 
 
 
 
 
 
 
Centerfield Media Holding Company(35)
California / Internet Software & Services
Senior Secured Term Loan A (9.31% (LIBOR + 7.00% with 2.00% LIBOR floor), due 1/17/2022)(3)(11)
1/17/2017
$
66,300

$
66,300

$
66,300

1.9%
Senior Secured Term Loan B (14.81% (LIBOR + 12.50% with 2.00% LIBOR floor), due 1/17/2022)(11)
1/17/2017
68,000

68,000

68,000

2.0%



 


134,300

134,300

3.9%
CIFC Funding 2013-III-R, Ltd. (f/k/a CIFC Funding 2013-III, Ltd.)
Cayman Islands / Structured Finance
Subordinated Notes (Residual Interest, current yield 14.43%, due 4/24/2031)(5)(14)
4/5/2018
44,100

27,624

25,250

0.7%



 


27,624

25,250

0.7%
CIFC Funding 2013-IV, Ltd.
Cayman Islands / Structured Finance
Subordinated Notes (Residual Interest, current yield 14.31%, due 4/28/2031)(5)(14)
11/14/2013
45,500

31,503

27,697

0.8%



 


31,503

27,697

0.8%
CIFC Funding 2014-IV Investor, Ltd.
Cayman Islands / Structured Finance
Income Notes (Residual Interest, current yield 8.46%, due 10/19/2026)(5)(6)(14)
9/3/2014
41,500

28,512

23,715

0.7%



 


28,512

23,715

0.7%
CIFC Funding 2016-I, Ltd.
Cayman Islands / Structured Finance
Income Notes (Residual Interest, current yield 13.11%, due 10/21/2028)(5)(6)(14)
12/21/2016
34,000

31,179

27,998

0.8%



 


31,179

27,998

0.8%
Cinedigm DC Holdings, LLC
New York / Media
Senior Secured Term Loan (11.31% (LIBOR + 9.00% with 2.00% LIBOR floor) plus 2.50% PIK, due 3/31/2021)(11)(46)
2/28/2013
31,460

31,410

31,460

0.9%
 
 
 
 
 
31,410

31,460

0.9%
Class Appraisal, LLC
Michigan / Real Estate Management & Development
Revolving Line of Credit – $1,500 Commitment (10.58% (LIBOR + 8.25% with 1.50% LIBOR floor), due 3/12/2020)(11)(15)
3/12/2018
—

—

—

—
Senior Secured Term Loan (10.58% (LIBOR + 8.25% with 1.50% LIBOR floor), due 3/10/2023)(3)(11)
3/12/2018
41,860

41,860

41,860

—
 
 
 
 
 
41,860

41,860

1.2%
Coverall North America, Inc.
Florida / Commercial Services & Supplies
Senior Secured Term Loan A (8.31% (LIBOR + 6.00% with 1.00% LIBOR floor), due 11/02/2020)(3)(11)
11/2/2015
19,100

19,100

19,100

—
Senior Secured Term Loan B (13.31% (LIBOR + 11.00% with 1.00% LIBOR floor), due 11/02/2020)(3)(11)
11/2/2015
24,750

24,750

24,750

—
 
 
 
 
 
43,850

43,850

1.3%
CP VI Bella Midco
Pennsylvania / IT Services
Second Lien Term Loan (8.84% (LIBOR + 6.75%, due 12/29/2025)(8)(13)
12/28/2017
2,000

1,990

1,990

—
 
 
 
 
 
1,990

1,990

0.1%
CURO Financial Technologies Corp.
Canada / Consumer Finance
Senior Secured Notes (12.00%, due 3/1/2022)(8)(14)
2/1/2017
10,896

10,837

11,844

0.3%
 
 
 
 
 
10,837

11,844

0.3%
Digital Room, LLC
California / Commercial Services & Supplies
First Lien Term Loan (7.10% (LIBOR + 5.00% with 1.00% LIBOR floor), due 12/29/2023)(3)(8)(13)
2/9/2018
9,950

9,857

9,925

0.3%
Second Lien Term Loan (10.85% (LIBOR + 8.75% with 1.00% LIBOR floor), due 12/29/2024)(3)(8)(13)
2/8/2018
57,100

56,295

57,100

1.7%
 
 
 
 
 
66,152

67,025

2.0%

See notes to consolidated financial statements.
27

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)
(in thousands, except share data)

 
 
 
 
June 30, 2018
Portfolio Company
Locale / Industry
Investments(1)(45)
Acquisition Date (53)
Principal Value
Amortized Cost
Fair
Value(2)
% of Net Assets
 
 
 
 
 
 
 
 
LEVEL 3 PORTFOLIO INVESTMENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
 
 
 
 
 
 
 
 
 
 
 
 
 
Dunn Paper, Inc.
Georgia / Paper & Forest Products
Second Lien Term Loan (10.84% (LIBOR + 8.75% with 1.00% LIBOR floor), due 8/26/2023)(3)(8)(13)
10/7/2016
$
11,500

$
11,328

$
11,226

0.3%
 
 
 
 
 
11,328

11,226

0.3%
Easy Gardener Products, Inc.
Texas / Household Durables
Senior Secured Term Loan (12.31% (LIBOR + 10.00% with 0.25% LIBOR floor), due 09/30/2020)(11)
10/2/2015
16,894

16,894

15,728

0.5%
 
 
 
 
 
16,894

15,728

0.5%
Engine Group, Inc.(7)
California / Media
Senior Secured Term Loan (7.08% (LIBOR + 4.75% with 1.00% LIBOR floor), due 9/15/2022)(8)(11)
9/25/2017
4,813

4,813

4,813

0.1%
Second Lien Term Loan (11.08% (LIBOR + 8.75% with 1.00% LIBOR floor), due 9/15/2023)(3)(8)(11)
9/25/2017
35,000

35,000

35,000

1.0%
 
 
 
 
 
39,813

39,813

1.1%
EXC Holdings III Corp
Massachusetts / Technology Hardware, Storage & Peripherals
Second Lien Term Loan (9.97% (LIBOR + 7.50% with 1.00% LIBOR floor), due 12/01/2025)(8)(10)
12/5/2017
12,500

12,384

12,500

0.4%
 
 
 
 
 
12,384

12,500

0.4%
Fleetwash, Inc.
New Jersey / Commercial Services & Supplies
Senior Secured Term Loan B (11.31% (LIBOR + 9.00% with 1.00% LIBOR floor), due 4/30/2022)(3)(11)
4/30/2014
21,544

21,544

21,544

0.6%
Delayed Draw Term Loan – $15,000 Commitment (10.31% (LIBOR + 8.00% with 1.00% LIBOR floor), expires 4/30/2022)(11)(15)
4/30/2014
—

—

—

—%
 
 
 
 
 
21,544

21,544

0.6%
Galaxy XV CLO, Ltd.
Cayman Islands / Structured Finance
Subordinated Notes (Residual Interest, current yield 12.42%, due 10/15/2030)(5)(14)
3/14/2013
50,525

34,853

30,457

0.9%
 
 
 
 
 
34,853

30,457

0.9%
Galaxy XXVII CLO, Ltd. (f/k/a Galaxy XVI CLO, Ltd.)
Cayman Islands / Structured Finance
Subordinated Notes (Residual Interest, current yield 13.57%, due 5/16/2031)(5)(14)
4/17/2018
24,575

16,936

13,688

0.4%
 
 
 
 
 
16,936

13,688

0.4%
Galaxy XXVIII CLO, Ltd. (f/k/a Galaxy XVII CLO, Ltd.)
Cayman Islands / Structured Finance
Subordinated Notes (Residual Interest, current yield 10.89%, due 7/15/2031)(5)(6)(14)
6/27/2014
39,905

28,009

22,335

0.7%
 
 
 
 
 
28,009

22,335

0.7%
Galaxy XXVIII CLO, Ltd.
Cayman Islands / Structured Finance
Class F Junior Notes (LIBOR + 8.48%, due 7/15/2031)(6)(11)(14)(37)

6,658

6,159

6,159

0.2%
 
 
 
 
 
6,159

6,159

0.2%
H.I.G. ECI Merger Sub, Inc.
Massachusetts / IT Services
Revolving Line of Credit – $5,000 Commitment (9.81% (LIBOR + 7.50% with 1.50% LIBOR floor), due 9/30/2018)(11)
5/31/2018
—

—

—

—%
Senior Secured Term Loan A (7.81% (LIBOR + 5.50% with 1.50% LIBOR floor), due 5/31/2023)(11)
5/31/2018
44,688

44,688

44,688

1.3%
Senior Secured Term Loan B (12.81% (LIBOR + 10.50% with 1.50% LIBOR floor), due 5/31/2023)(11)
5/31/2018
29,900

29,900

29,900

0.9%
 
 
 
 
 
74,588

74,588

2.2%

See notes to consolidated financial statements.
28

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)
(in thousands, except share data)

 
 
 
 
June 30, 2018
Portfolio Company
Locale / Industry
Investments(1)(45)
Acquisition Date (53)
Principal Value
Amortized Cost
Fair
Value(2)
% of Net Assets
 
 
 
 
 
 
 
 
LEVEL 3 PORTFOLIO INVESTMENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
 
 
 
 
 
 
 
 
 
 
 
 
 
Halcyon Loan Advisors Funding 2012-1 Ltd.
Cayman Islands / Structured Finance
Subordinated Notes (Residual Interest, current yield 0.00%, due 8/15/2023)(5)(14)(17)
8/21/2012
$
23,188

$
3,869

$
3,125

0.1%
 
 
 
 
 
3,869

3,125

0.1%
Halcyon Loan Advisors Funding 2013-1 Ltd.
Cayman Islands / Structured Finance
Subordinated Notes (Residual Interest, current yield 0.00%, due 4/15/2025)(5)(14)(17)
3/28/2013
40,400

22,057

11,017

0.3%
 
 
 
 
 
22,057

11,017

0.3%
Halcyon Loan Advisors Funding 2014-1 Ltd.
Cayman Islands / Structured Finance
Subordinated Notes (Residual Interest, current yield 10.30%, due 4/18/2026)(5)(14)
3/6/2014
24,500

14,007

11,647

0.3%
 
 
 
 
 
14,007

11,647

0.3%
Halcyon Loan Advisors Funding 2014-2 Ltd.
Cayman Islands / Structured Finance
Subordinated Notes (Residual Interest, current yield 8.64%, due 4/28/2025)(5)(6)(14)
4/28/2014
41,164

24,290

19,050

0.6%
 
 
 
 
 
24,290

19,050

0.6%
Halcyon Loan Advisors Funding 2015-3 Ltd.
Cayman Islands / Structured Finance
Subordinated Notes (Residual Interest, current yield 19.80%, due 10/18/2027)(5)(6)(14)
9/3/2015
39,598

34,675

32,513

1.0%
 
 
 
 
 
34,675

32,513

1.0%
Harbortouch Payments, LLC
Pennsylvania / Commercial Services & Supplies
Escrow Receivable
3/31/2014


—

917

—%
 
 
 
 
 
—

917

—%
HarbourView CLO VII-R, Ltd. (f/k/a HarbourView CLO VII, Ltd.)
Cayman Islands / Structured Finance
Subordinated Notes (Residual Interest, current yield 18.94%, due 7/18/2031)(5)(6)(14)
6/10/2015
19,025

13,411

13,689

0.4%
 
 
 
 
 
13,411

13,689

0.4%
Help/Systems Holdings, Inc.
Minnesota / Software
Second Lien Term Loan (9.84% (LIBOR + 7.75%, due 3/27/2026)(8)(13)
4/17/2018
11,293

11,244

11,293

0.3%
 
 
 
 
 
11,244

11,293

0.3%
Ingenio, LLC
California / Internet Software & Services
Senior Secured Term Loan (9.82% (LIBOR + 7.50% with 1.25% LIBOR floor), due 9/26/2022)(3)(8)(11)
9/25/2017
9,647

9,647

9,647

0.3%
 
 
 
 
 
9,647

9,647

0.3%
Inpatient Care Management Company, LLC
Florida / Health Care Providers & Services
Senior Secured Term Loan (10.31% (LIBOR + 8.00% with 1.00% LIBOR floor), due 6/8/2021)(3)(11)
6/8/2016
23,698

23,698

23,698

0.7%
 
 
 
 
 
23,698

23,698

0.7%
Janus International Group, LLC
Georgia / Building Products
Second Lien Term Loan (9.84% (LIBOR + 7.75% with 1.00% LIBOR floor), due 2/12/2026)(8)(13)
2/22/2018
10,000

9,905

10,000

0.3%
 
 
 
 
 
9,905

10,000

0.3%
JD Power and Associates
California / Capital Markets
Second Lien Term Loan (10.59% (LIBOR + 8.50% with 1.00% LIBOR floor), due 9/7/2024)(3)(8)(13)
9/16/2016
20,000

19,799

20,000

0.6%
 
 
 
 
 
19,799

20,000

0.6%
Jefferson Mill CLO Ltd.
Cayman Islands / Structured Finance
Subordinated Notes (Residual Interest, current yield 7.20%, due 7/20/2027)(5)(6)(14)
7/28/2015
19,500

16,078

12,392

0.4%
 
 
 
 
 
16,078

12,392

0.4%
K&N Parent, Inc.
California / Auto Components
Second Lien Term Loan (11.08% (LIBOR + 8.75% with 1.00% LIBOR floor), due 10/21/2024)(3)(8)(11)
10/20/2016
12,887

12,681

12,887

0.4%
 
 
 
 
 
12,681

12,887

0.4%

See notes to consolidated financial statements.
29

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)
(in thousands, except share data)

 
 
 
 
June 30, 2018
Portfolio Company
Locale / Industry
Investments(1)(45)
Acquisition Date (53)
Principal Value
Amortized Cost
Fair
Value(2)
% of Net Assets
 
 
 
 
 
 
 
 
LEVEL 3 PORTFOLIO INVESTMENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
 
 
 
 
 
 
 
 
 
 
 
 
 
Keystone Acquisition Corp.(36)
Pennsylvania / Health Care Providers & Services
Second Lien Term Loan (11.58% (LIBOR + 9.25% with 1.00% LIBOR floor), due 5/1/2025)(3)(8)(11)
5/18/2017
$
50,000

$
50,000

$
50,000

1.5%
 
 
 
 
 
50,000

50,000

1.5%
LCM XIV Ltd.
Cayman Islands / Structured Finance
Income Notes (Residual Interest, current yield 16.28%, due 7/21/2031)(5)(14)
7/11/2013
49,934

26,516

24,257

0.7%
 
 
 
 
 
26,516

24,257

0.7%
Madison Park Funding IX, Ltd.
Cayman Islands / Structured Finance
Subordinated Notes (Residual Interest, current yield 57.45%, due 8/15/2022)(5)(14)
7/18/2012
43,110

2,058

2,200

0.1%
 
 
 
 
 
2,058

2,200

0.1%
Maverick Healthcare Equity, LLC
Arizona / Health Care Providers & Services
Preferred Units (10.00%, 1,250,000 units)(16)
10/31/2007


1,252

446

—%
Class A Common Units (1,250,000 units)(16)
10/31/2007


—

—

—%
 
 
 
 
 
1,252

446

—%
MedMark Services, Inc.(51)
Texas / Health Care Providers & Services
Second Lien Term Loan (10.55% (LIBOR + 8.25% with 1.00% LIBOR floor), due 3/1/2025)(3)(8)(11)
3/16/2018
7,000

6,933

6,933

0.2%
 
 
 
 
 
6,933

6,933

0.2%
Memorial MRI & Diagnostic, LLC
Texas / Health Care Providers & Services
Senior Secured Term Loan (10.83% (LIBOR + 8.50% with 1.00% LIBOR floor), due 3/16/2022)(11)
3/16/2017
36,925

36,925

36,925

1.1%
 
 
 
 
 
36,925

36,925

1.1%
Mobile Posse, Inc.
Virginia / Media
First Lien Term Loan (10.83% (LIBOR + 8.50% with 2.00% LIBOR floor), due 4/3/2023)(3)(11)
4/3/2018
27,700

27,700

27,700

0.8%
 
 
 
 
 
27,700

27,700

0.8%
Mountain View CLO 2013-I Ltd.
Cayman Islands / Structured Finance
Subordinated Notes (Residual Interest, current yield 13.66%, due 10/15/2030)(5)(14)
5/1/2013
43,650

28,357

23,267

0.7%
 
 
 
 
 
28,357

23,267

0.7%
Mountain View CLO IX Ltd.
Cayman Islands / Structured Finance
Subordinated Notes (Residual Interest, current yield 17.63%, due 7/15/2031)(5)(6)(14)
6/25/2015
47,830

31,528

37,333

1.1%
 
 
 
 
 
31,528

37,333

1.1%
MRP Holdco, Inc.
Massachusetts / IT Services
Senior Secured Term Loan A (6.59% (LIBOR + 4.50% with 1.50% LIBOR floor), due 4/17/2024)(3)(13)
4/17/2018
43,000

43,000

43,000

1.3%
Senior Secured Term Loan B (10.59% (LIBOR + 8.50% with 1.50% LIBOR floor), due 4/17/2024)(13)
4/17/2018
43,000

43,000

43,000

1.3%
 
 
 
 
 
86,000

86,000

2.6%
Octagon Investment Partners XV, Ltd.
Cayman Islands / Structured Finance
Income Notes (Residual Interest, current yield 14.58%, due 7/19/2030)(5)(14)
2/20/2013
42,063

31,734

26,350

0.8%
 
 
 
 
 
31,734

26,350

0.8%
Octagon Investment Partners 18-R Ltd. (f/k/a Octagon Investment Partners XVIII, Ltd.)
Cayman Islands / Structured Finance
Income Notes (Residual Interest, current yield 17.26%, due 4/16/2031)(5)(6)(14)
8/17/2015
46,016

27,295

26,420

0.8%
 
 
 
 
 
27,295

26,420

0.8%
Pearl Intermediate Parent LLC
Connecticut / Health Care Providers & Services
Second Lien Term Loan (8.33% (LIBOR + 6.25%, due 2/15/2026)(8)(13)
2/28/2018
5,000

4,976

5,000

0.1%
 
 
 
 
 
4,976

5,000

0.1%

See notes to consolidated financial statements.
30

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)
(in thousands, except share data)

 
 
 
 
June 30, 2018
Portfolio Company
Locale / Industry
Investments(1)(45)
Acquisition Date (53)
Principal Value
Amortized Cost
Fair
Value(2)
% of Net Assets
 
 
 
 
 
 
 
 
LEVEL 3 PORTFOLIO INVESTMENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
 
 
 
 
 
 
 
 
 
 
 
 
 
PeopleConnect Intermediate, LLC (f/k/a Intelius, Inc.)
Washington / Internet Software & Services
Revolving Line of Credit – $1,000 Commitment (11.81% (LIBOR + 9.50% with 1.00% LIBOR floor), due 8/11/2020)(11)(15)
7/1/2015
$
500

$
500

$
500

—%
Senior Secured Term Loan A (8.81% (LIBOR + 6.50% with 1.00% LIBOR floor), due 7/1/2020)(3)(11)
7/1/2015
18,828

18,828

18,828

0.6%
Senior Secured Term Loan B (14.81% (LIBOR + 12.50% with 1.00% LIBOR floor), due 7/1/2020)(3)(11)
7/1/2015
20,163

20,163

20,163

0.6%
 
 
 
 
 
39,491

39,491

1.2%
PGX Holdings, Inc.
Utah / Diversified Consumer Services
Second Lien Term Loan (11.09% (LIBOR + 9.00% with 1.00% LIBOR floor), due 9/29/2021)(3)(13)
9/29/2014
118,289

118,289

118,289

3.5%
 
 
 
 
 
118,289

118,289

3.5%
PharMerica Corporation
Kentucky / Pharmaceuticals
Second Lien Term Loan (9.80% (LIBOR + 7.75% with 1.00% LIBOR floor), due 12/7/2025)(8)(13)
12/7/2017
12,000

11,882

12,000

0.4%
 
 
 
 
 
11,882

12,000

0.4%
Photonis Technologies SAS
France / Electronic Equipment, Instruments & Components
First Lien Term Loan (9.83% (LIBOR + 7.50% with 1.00% LIBOR floor), due 9/18/2019)(8)(11)(14)
9/10/2013
12,872

12,490

12,335

0.4%
 
 
 
 
 
12,490

12,335

0.4%
PlayPower, Inc.
North Carolina / Leisure Products
Second Lien Term Loan (11.08% (LIBOR + 8.75% with 1.00% LIBOR floor), due 6/23/2022)(3)(8)(11)
6/23/2015
11,000

10,904

11,000

0.3%
 
 
 
 
 
10,904

11,000

0.3%
Research Now Group, Inc.
Connecticut / Professional Services
First Lien Term Loan (7.86% (LIBOR + 5.50% with 1.00% LIBOR floor), due 12/20/2024)(8)(10)
1/5/2018
9,950

9,468

9,608

0.3%
Second Lien Term Loan (11.82% (LIBOR + 9.50% with 1.00% LIBOR floor), due 12/20/2025)(8)(11)
1/5/2018
50,000

46,738

47,382

1.4%
 
 
 
 
 
56,206

56,990

1.7%
RGIS Services, LLC
Michigan / Commercial Services & Supplies
Senior Secured Term Loan (9.59% (LIBOR + 7.50% with 1.00% LIBOR floor), due 3/31/2023)(3)(8)(13)
4/20/2017
15,173

15,113

14,339

0.4%
 
 
 
 
 
15,113

14,339

0.4%
RME Group Holding Company
Florida / Media
Senior Secured Term Loan A (8.33% (LIBOR + 6.00% with 1.00% LIBOR floor), due 5/4/2022)(3)(11)
5/4/2017
35,146

35,146

35,146

1.0%
Senior Secured Term Loan B (13.33% (LIBOR + 11.00% with 1.00% LIBOR floor), due 5/4/2022)(3)(11)
5/4/2017
24,349

24,349

24,349

0.7%
 
 
 
 
 
59,495

59,495

1.7%
Rocket Software, Inc.
Massachusetts / Software
Second Lien Term Loan (11.83% (LIBOR + 9.50% with 1.00% LIBOR floor), due 10/14/2024)(3)(8)(11)
10/20/2016
50,000

49,219

50,000

1.5%
 
 
 
 
 
49,219

50,000

1.5%
Romark WM-R Ltd. (f/k/a Washington Mill CLO Ltd.)
Cayman Islands / Structured Finance
Subordinated Notes (Residual Interest, current yield 12.41%, due 4/20/2031)(5)(6)(14)
5/15/2014
27,724

21,494

17,961

0.5%
 
 
 
 
 
21,494

17,961

0.5%

See notes to consolidated financial statements.
31

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)
(in thousands, except share data)

 
 
 
 
June 30, 2018
Portfolio Company
Locale / Industry
Investments(1)(45)
Acquisition Date (53)
Principal Value
Amortized Cost
Fair
Value(2)
% of Net Assets
 
 
 
 
 
 
 
 
LEVEL 3 PORTFOLIO INVESTMENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
 
 
 
 
 
 
 
 
 
 
 
 
 
Rosa Mexicano
New York / Hotels, Restaurants & Leisure
Revolving Line of Credit – $2,500 Commitment (9.83% (LIBOR + 7.50% with 1.50% LIBOR floor), due 3/29/2023(11)(15)
3/29/2018
$
—

$
—

$
—

—%
Senior Secured Term Loan (9.83% (LIBOR + 7.50% with 1.50% LIBOR floor), due 3/29/2023(3)(11)
3/29/2018
29,813

29,813

29,813

0.9%
 
 
 
 
 
29,813

29,813

0.9%
SCS Merger Sub, Inc.
Texas / IT Services
Second Lien Term Loan (11.59% (LIBOR + 9.50% with 1.00% LIBOR floor), due 10/30/2023)(3)(8)(13)
11/6/2015
20,000

19,605

20,000

0.6%
 
 
 
 
 
19,605

20,000

0.6%
Securus Technologies Holdings, Inc.
Texas / Communications Equipment
Second Lien Term Loan (10.34% (LIBOR + 8.25% with 1.00% LIBOR floor), due 11/01/2025)(8)(13)
11/3/2017
40,000

39,860

40,000

1.2%
 
 
 
 
 
39,860

40,000

1.2%
SEOTownCenter, Inc
Utah / Internet Software & Services
Senior Secured Term Loan A (9.84% (LIBOR + 7.50% with 2.00% LIBOR floor), due 4/07/2023)(3)(11)
4/10/2018
25,000

25,000

25,000

0.7%
Senior Secured Term Loan B (14.84% (LIBOR + 12.50% with 2.00% LIBOR floor), due 4/07/2023)(3)(11)
4/10/2018
17,000

17,000

17,000

0.5%
 
 
 
 
 
42,000

42,000

1.2%
SESAC Holdco II LLC
Tennessee / Media
Second Lien Term Loan (9.34% (LIBOR + 7.25% with 1.00% LIBOR floor), due 2/23/2025)(8)(13)
3/2/2017
3,000

2,975

2,975

0.1%
 
 
 
 
 
2,975

2,975

0.1%
Small Business Whole Loan Portfolio(41)
New York / Online Lending
124 Small Business Loans purchased from On Deck Capital, Inc.
2/21/2014
30

30

17

—%
 
 
 
 
 
30

17

—%
SMG US Midco
Pennsylvania / Hotels, Restaurants & Leisure
Second Lien Term Loan (9.09% (LIBOR + 7.00%, due 1/23/2026)(8)(13)
1/23/2018
7,500

7,482

7,482

0.2%
 
 
 
 
 
7,482

7,482

0.2%
Spartan Energy Services, Inc.
Louisiana / Energy Equipment & Services
Senior Secured Term Loan A (7.98% (LIBOR + 6.00% with 1.00% LIBOR floor), due 12/28/2018)(13)
10/20/2014
13,156

12,528

13,046

0.4%
Senior Secured Term Loan B (13.98% PIK (LIBOR + 12.00% with 1.00% LIBOR floor), due 12/28/2018)(13)(46)
10/20/2014
18,237

16,838

18,237

0.5%
 
 
 
 
 
29,366

31,283

0.9%
Spectrum Holdings III Corp
Georgia / Health Care Equipment & Supplies
Second Lien Term Loan (9.09% (LIBOR + 7.00% with 1.00% LIBOR floor), due 1/31/2026)(8)(13)
1/31/2018
7,500

7,464

7,464

0.2%
 
 
 
 
 
7,464

7,464

0.2%
Strategic Materials
Texas / Household Durables
Second Lien Term Loan (10.10% (LIBOR + 7.75% with 1.00% LIBOR floor), due 11/1/2025)(8)(11)
11/1/2017
7,000

6,936

6,936

0.2%
 
 
 
 
 
6,936

6,936

0.2%
Stryker Energy, LLC
Louisiana / Energy Equipment & Services
Overriding Royalty Interests (43)
12/4/2006
 
—

—

—%
 
 
 
 
 
—

—

—%

See notes to consolidated financial statements.
32

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)
(in thousands, except share data)

 
 
 
 
June 30, 2018
Portfolio Company
Locale / Industry
Investments(1)(45)
Acquisition Date (53)
Principal Value
Amortized Cost
Fair
Value(2)
% of Net Assets
 
 
 
 
 
 
 
 
LEVEL 3 PORTFOLIO INVESTMENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
 
 
 
 
 
 
 
 
 
 
 
 
 
Sudbury Mill CLO Ltd.
Cayman Islands / Structured Finance
Subordinated Notes (Residual Interest, current yield 5.47%, due 1/17/2026)(5)(14)
12/5/2013
$
28,200

$
18,183

$
14,218

0.4%
 
 
 
 
 
18,183

14,218

0.4%
Symphony CLO XIV Ltd.
Cayman Islands / Structured Finance
Subordinated Notes (Residual Interest, current yield 3.78%, due 7/14/2026)(5)(6)(14)
5/29/2014
49,250

34,297

27,478

0.8%
 
 
 
 
 
34,297

27,478

0.8%
Symphony CLO XV, Ltd.
Cayman Islands / Structured Finance
Subordinated Notes (Residual Interest, current yield 7.30%, due 10/17/2026)(5)(14)
11/17/2014
50,250

39,512

32,433

1.0%
 
 
 
 
 
39,512

32,433

1.0%
TGP HOLDINGS III LLC
Oregon / Household Durables
Second Lien Term Loan (10.83% (LIBOR + 8.50% with 1.00% LIBOR floor), due 9/25/2025)(8)(11)
10/3/2017
3,000

2,959

2,959

0.1%
 
 
 
 
 
2,959

2,959

0.1%
TouchTunes Interactive Networks, Inc.
New York / Internet Software & Services
Second Lien Term Loan (10.25% (LIBOR + 8.25% with 1.00% LIBOR floor), due 5/29/2022)(3)(8)(13)
5/29/2015
14,000

13,926

14,000

0.4%
 
 
 
 
 
13,926

14,000

0.4%
Town & Country Holdings, Inc.
New York / Distributors
First Lien Term Loan (11.33% (LIBOR + 9.00% with 1.25% LIBOR floor), due 1/26/2023)(3)(11)
1/26/2018
69,650

69,650

69,650

2.0%
 
 
 
 
 
69,650

69,650

2.0%
Transplace Holdings, Inc.
Texas / Transportation Infrastructure
Second Lien Term Loan (10.79% (LIBOR + 8.75% with 1.00% LIBOR floor), due 10/6/2025)(8)(13)
10/5/2017
28,104

27,494

28,104

0.8%
 
 
 
 
 
27,494

28,104

0.8%
Turning Point Brands, Inc.(42)
Kentucky / Tobacco
Second Lien Term Loan (9.04% (LIBOR + 7.00%), due 3/7/2024)(3)(8)(13)
2/17/2017
14,500

14,392

14,392

0.4%
 
 
 
 
 
14,392

14,392

0.4%
United Sporting Companies, Inc.(18)
South Carolina / Distributors
Second Lien Term Loan (13.09% (LIBOR + 11.00% with 1.75% LIBOR floor) plus 2.00% PIK, in non-accrual status effective 4/1/2017, due 11/16/2019)(13)(46)
9/28/2012
149,126

127,091

58,806

1.7%
Common Stock (24,967 shares)(16)
5/2/2017


—

—

—%
 
 
 
 
 
127,091

58,806

1.7%
Universal Fiber Systems, LLC
Virginia / Textiles, Apparel & Luxury Goods
Second Lien Term Loan (11.60% (LIBOR + 9.50% with 1.00% LIBOR floor), due 10/02/2022)(3)(8)(12)
10/2/2015
37,000

36,551

37,000

1.1%
 
 
 
 
 
36,551

37,000

1.1%
Universal Turbine Parts, LLC
Alabama / Trading Companies & Distributors
Senior Secured Term Loan A (8.06% (LIBOR + 5.75% with 1.00% LIBOR floor), due 7/22/2021)(3)(11)
7/22/2016
31,363

31,363

27,926

0.8%
Senior Secured Term Loan B (14.06% (LIBOR + 11.75% with 1.00% LIBOR floor), due 7/22/2021)(11)
7/22/2016
32,500

32,500

28,273

0.8%
 
 
 
 
 
63,863

56,199

1.6%

See notes to consolidated financial statements.
33

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)
(in thousands, except share data)

 
 
 
 
June 30, 2018
Portfolio Company
Locale / Industry
Investments(1)(45)
Acquisition Date (53)
Principal Value
Amortized Cost
Fair
Value(2)
% of Net Assets
 
 
 
 
 
 
 
 
LEVEL 3 PORTFOLIO INVESTMENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
 
 
 
 
 
 
 
 
 
 
 
 
 
USG Intermediate, LLC
Texas / Leisure Products
Revolving Line of Credit – $2,500 Commitment (11.34% (LIBOR + 9.25% with 1.00% LIBOR floor), due 8/24/2018)(13)(15)
4/15/2015
$
2,500

$
2,500

$
2,500

0.1%
Senior Secured Term Loan A (8.84% (LIBOR + 6.75% with 1.00% LIBOR floor), due 8/24/2022)(3)(13)
4/15/2015
11,385

11,385

11,385

0.3%
Senior Secured Term Loan B (13.84% (LIBOR + 11.75% with 1.00% LIBOR floor), due 8/24/2022)(3)(13)
4/15/2015
20,741

20,741

20,741

0.6%
Equity(16)
4/15/2015


1

—

—%
 
 
 
 
 
34,627

34,626

1.0%
UTZ Quality Foods, LLC
Pennsylvania / Food Products
Second Lien Term Loan (9.34% (LIBOR + 7.25%, due 11/21/2025)(8)(13)
11/21/2017
10,000

9,884

9,886

0.3%
 
 
 
 
 
9,884

9,886

0.3%
VC GB Holdings, Inc.
Illinois / Household Durables
Subordinated Secured Term Loan (10.09% (LIBOR + 8.00% with 1.00% LIBOR floor), due 2/28/2025)(3)(8)(13)
2/28/2017
16,000

15,750

16,000

0.5%
 
 
 
 
 
15,750

16,000

0.5%
Venio LLC
Pennsylvania / Professional Services
Second Lien Term Loan (4.00% plus PIK 10.00% (LIBOR + 7.50% with 2.50% LIBOR floor), due 2/19/2020)(11)(46)
2/19/2014
22,048

18,066

20,001

0.6%
 
 
 
 
 
18,066

20,001

0.6%
Voya CLO 2012-2, Ltd.
Cayman Islands / Structured Finance
Income Notes (Residual Interest, current yield 0.00%, due 10/15/2022)(5)(14)(17)
8/28/2012
38,070

450

595

—%
 
 
 
 
 
450

595

—%
Voya CLO 2012-3, Ltd.
Cayman Islands / Structured Finance
Income Notes (Residual Interest, current yield 0.00%, due 10/15/2022)(5)(14)(17)
10/18/2012
46,632

—

585

—%
 
 
 
 
 
—

585

—%
Voya CLO 2012-4, Ltd.
Cayman Islands / Structured Finance
Income Notes (Residual Interest, current yield 11.96%, due 10/16/2028)(5)(14)
11/29/2012
40,613

30,893

28,264

0.8%
 
 
 
 
 
30,893

28,264

0.8%
Voya CLO 2014-1, Ltd.
Cayman Islands / Structured Finance
Subordinated Notes (Residual Interest, current yield 16.47%, due 4/18/2031)(5)(6)(14)
3/13/2014
40,773

28,205

26,931

0.8%
 
 
 
 
 
28,205

26,931

0.8%
Voya CLO 2016-3, Ltd.
Cayman Islands / Structured Finance
Subordinated Notes (Residual Interest, current yield 12.68%, due 10/18/2027)(5)(6)(14)
10/27/2016
28,100

27,180

22,912

0.7%
 
 
 
 
 
27,180

22,912

0.7%
Voya CLO 2017-3, Ltd.
Cayman Islands / Structured Finance
Subordinated Notes (Residual Interest, current yield 12.26%, due 7/20/2030)(5)(6)(14)
7/12/2017
44,885

47,400

43,351

1.3%
 
 
 
 
 
47,400

43,351

1.3%
Wink Holdco, Inc.
Texas / Insurance
Second Lien Term Loan (8.85% (LIBOR + 6.75% with 1.00% LIBOR floor), due 12/1/2025)(8)(13)
12/1/2017
3,000

2,986

2,986

0.1%
 
 
 
 
 
2,986

2,986

0.1%
Total Non-Control/Non-Affiliate Investments (Level 3)
 
$
3,475,295

$
3,264,517

95.8%
 
 
 
 
 
Total Portfolio Investments (Level 3)
 
$
5,831,458

$
5,727,279

168.1%

See notes to consolidated financial statements.
34

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)
(in thousands, except share data)

Endnote Explanations as of September 30, 2018 (Unaudited) and June 30, 2018

(1)
The terms “Prospect,” “the Company,” “we,” “us” and “our” mean Prospect Capital Corporation and its subsidiaries unless the context specifically requires otherwise. The securities in which Prospect has invested were acquired in transactions that were exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”). These securities may be resold only in transactions that are exempt from registration under the Securities Act.
(2)
Fair value is determined by or under the direction of our Board of Directors. As of September 30, 2018 and June 30, 2018, all of our investments were valued using significant unobservable inputs. In accordance with ASC 820, such investments are classified as Level 3 within the fair value hierarchy. See Notes 2 and 3 within the accompanying notes to consolidated financial statements for further discussion.
(3)
Security, or a portion thereof, is held by Prospect Capital Funding LLC (“PCF”), our wholly-owned subsidiary and a bankruptcy remote special purpose entity, and is pledged as collateral for the Revolving Credit Facility and such security is not available as collateral to our general creditors (see Note 4). The fair values of the investments held by PCF at September 30, 2018 and June 30, 2018 were $1,490,354 and $1,307,955, respectively, representing 25.1% and 22.8% of our total investments, respectively.
(4)
In addition to the stated returns, the net profits interest held will be realized upon sale of the borrower or a sale of the interests.
(5)
This investment is in the equity class of the collateralized loan obligation (“CLO”) security. The CLO equity investments are entitled to recurring distributions which are generally equal to the excess cash flow generated from the underlying investments after payment of the contractual payments to debt holders and fund expenses. The current estimated yield, calculated using amortized cost, is based on the current projections of this excess cash flow taking into account assumptions which have been made regarding expected prepayments, losses and future reinvestment rates. These assumptions are periodically reviewed and adjusted. Ultimately, the actual yield may be higher or lower than the estimated yield if actual results differ from those used for the assumptions.
(6)
Co-investment with another fund managed by an affiliate of our investment adviser, Prospect Capital Management L.P. See Note 13 for further discussion.
(7)
Engine Group. Inc., Clearstream.TV. Inc., and ORC International, Inc., are joint borrowers on the senior secured and the second lien term loans.
(8)
Syndicated investment which was originated by a financial institution and broadly distributed.
(9)
Autodata, Inc. and Autodata Solutions, Inc. are joint borrowers.
(10)
The interest rate on these investments is subject to the base rate of 6-Month LIBOR, which was 2.60% and 2.50% at September 30, 2018 and June 30, 2018, respectively. The current base rate for each investment may be different from the reference rate on September 30, 2018 and June 30, 2018.
(11)
The interest rate on these investments is subject to the base rate of 3-Month LIBOR, which was 2.40% and 2.34% at September 30, 2018 and June 30, 2018, respectively. The current base rate for each investment may be different from the reference rate on September 30, 2018 and June 30, 2018.
(12)
The interest rate on these investments is subject to the base rate of 2-Month LIBOR, which was 2.31% and 2.17% at September 30, 2018 and June 30, 2018, respectively. The current base rate for each investment may be different from the reference rate on September 30, 2018 and June 30, 2018.
(13)
The interest rate on these investments is subject to the base rate of 1-Month LIBOR, which was 2.26% and 2.09% at September 30, 2018 and June 30, 2018, respectively. The current base rate for each investment may be different from the reference rate on September 30, 2018 and June 30, 2018.
(14)
Investment has been designated as an investment not “qualifying” under Section 55(a) of the Investment Company Act of 1940 (the “1940 Act”). Under the 1940 Act, we may not acquire any non-qualifying asset unless, at the time such acquisition is made, qualifying assets represent at least 70% of our total assets. As of September 30, 2018 and June 30, 2018, our qualifying assets as a percentage of total assets, stood at 74.93% and 73.20%, respectively. We monitor the status of these assets on an ongoing basis.
(15)
Undrawn committed revolvers and delayed draw term loans to our portfolio companies incur commitment and unused fees ranging from 0.00% to 5.00%. As of September 30, 2018 and June 30, 2018, we had $38,530 and $29,675, respectively, of undrawn revolver and delayed draw term loan commitments to our portfolio companies.
(16)
Represents non-income producing security that has not paid a dividend in the year preceding the reporting date.

See notes to consolidated financial statements.
35

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)
(in thousands, except share data)

Endnote Explanations as of September 30, 2018 (Unaudited) and June 30, 2018 (Continued)


(17)
The effective yield has been estimated to be 0% as expected future cash flows are anticipated to not be sufficient to repay the investment at cost. If the expected investment proceeds increase, there is a potential for future investment income from the investment. Distributions, once received, will be recognized as return of capital with any remaining unamortized investment costs written off if the actual distributions are less than the amortized investment cost.
(18)
Ellett Brothers, LLC, Evans Sports, Inc., Jerry’s Sports, Inc., Simmons Gun Specialties, Inc., Bonitz Brothers, Inc., and Outdoor Sports Headquarters, Inc. are joint borrowers on the second lien term loan. United Sporting Companies, Inc. (“USC”) is a parent guarantor of this debt investment, and is 100% owned by SportCo Holdings, Inc. (“SportCo”). Prospect previously held a 3.48% equity interest in SportCo and following an additional issuance common stock by SportCo, Prospect’s ownership increased to 22.0% as of September 30, 2018. As a result, Prospect’s investment in USC is classified as an affiliate investment as of September 30, 2018.
(19)
CCPI Holdings Inc., a consolidated entity in which we own 100% of the common stock, owns 94.59% of CCPI Inc. (“CCPI”), the operating company, as of September 30, 2018 and June 30, 2018. We report CCPI as a separate controlled company.
(20)
CP Holdings of Delaware LLC, a consolidated entity in which we own 100% of the membership interests, owns 99.8% of CP Energy Services Inc. (“CP Energy”) as of September 30, 2018 and June 30, 2018. CP Energy owns directly or indirectly 100% of each of CP Well Testing, LLC; Wright Foster Disposals, LLC; Foster Testing Co., Inc.; ProHaul Transports, LLC; and Wright Trucking, Inc. We report CP Energy as a separate controlled company. On October 1, 2017, we restructured our investment in CP Energy. Concurrent with the restructuring, we exchanged $35,048 of Series B Convertible Preferred Stock for $35,048 of senior secured debt. On January 18, 2018, CP Energy redeemed common shares belonging to senior management, which increased our ownership percentage from 82.3% to 94.2% as of March 31, 2018. Our ownership percentage in CP Energy further increased to 99.8% as of June 30, 2018 following the April 6, 2018 merger between Arctic Oilfield Equipment USA, Inc. (“Arctic Equipment"), a previously controlled portfolio company, and CP Energy, with CP Energy continuing as the surviving corporation. As a result of this transaction, our equity interest in Arctic Equipment was exchanged for newly issued common shares of CP Energy (See Note 14).
(21)
Credit Central Holdings of Delaware, LLC (“Credit Central Delaware”), a consolidated entity in which we own 100% of the membership interests, owns 98.26% of Credit Central Loan Company, LLC (f/k/a Credit Central Holdings, LLC (“Credit Central”)) as of September 30, 2018 and June 30, 2018. Credit Central owns 100% of each of Credit Central, LLC; Credit Central South, LLC; Credit Central of Texas, LLC; and Credit Central of Tennessee, LLC, the operating companies. We report Credit Central as a separate controlled company.
(22)
As of June 30, 2017, Prospect held a 37.1% membership interest in Edmentum Ultimate Holdings, LLC ("Edmentum Holdings"), which owns 100% of the equity of Edmentum, Inc. On February 23, 2018, certain participating members of Edmentum Holdings increased their revolving credit commitment and extended additional credit to Edmentum, Inc. in exchange for additional common units of Edmentum Holdings. As a result, Prospect's equity ownership was diluted to 11.5% and the investment was transferred from control to affiliate investment classification as of March 31, 2018.
(23)
First Tower Holdings of Delaware LLC, a consolidated entity in which we own 100% of the membership interests, owns 80.1% of First Tower Finance Company LLC (“First Tower Finance”), which owns 100% of First Tower, LLC, the operating company as of September 30, 2018 and June 30, 2018. We report First Tower Finance as a separate controlled company.
(24)
Energy Solutions Holdings Inc., a consolidated entity in which we own 100% of the equity, owns 100% of Freedom Marine Solutions, LLC (“Freedom Marine”), which owns Vessel Company, LLC, Vessel Company II, LLC and Vessel Company III, LLC. We report Freedom Marine as a separate controlled company.
(25)
MITY Holdings of Delaware Inc. (“MITY Delaware”), a consolidated entity in which we own 100% of the common stock, owns 95.58% of the equity of MITY, Inc. (f/k/a MITY Enterprises, Inc.) (“MITY”). MITY owns 100% of each of MITY-Lite, Inc. (“Mity-Lite”); Broda Enterprises USA, Inc.; and Broda Enterprises ULC (“Broda Canada”). We report MITY as a separate controlled company. MITY Delaware has a subordinated unsecured note issued and outstanding to Broda Canada that is denominated in Canadian Dollars (“CAD”). As of September 30, 2018 and June 30, 2018, the principal balance of this note was CAD 7,371. In accordance with ASC 830, Foreign Currency Matters (“ASC 830”), this note was remeasured into our functional currency, US Dollars (USD), and is presented on our Consolidated Schedule of Investments in USD. We formed a separate legal entity domiciled in the United States, MITY FSC, Inc., (“MITY FSC”) in which Prospect owns 96.88% of the equity, and MITY-Lite management owns the remaining portion.  MITY FSC does not have material operations.  This entity earns commission payments from MITY-Lite based on its sales to foreign customers, and distribute it to its shareholders based on pro-rata ownership.  During the three months ended September 30, 2018, we received $201 of such commission, which we recognized as other income.

See notes to consolidated financial statements.
36

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)
(in thousands, except share data)

Endnote Explanations as of September 30, 2018 (Unaudited) and June 30, 2018 (Continued)


(26)
NPH Property Holdings, LLC, a consolidated entity in which we own 100% of the membership interests, owns 100% of the common equity of National Property REIT Corp. (“NPRC”) (f/k/a National Property Holdings Corp.), a property REIT which holds investments in several real estate properties. Additionally, NPRC invests in online consumer loans through ACL Loan Holdings, Inc. (“ACLLH”) and American Consumer Lending Limited (“ACLL”), its wholly-owned subsidiaries. We report NPRC as a separate controlled company. See Note 3 for further discussion of the properties held by NPRC. During the quarter ended March 31, 2018, we restructured our investment in NPRC and exchanged $14,274 of ACLLH Senior Secured Term Loan C and $97,578 of ACLL Senior Secured Term Loan C for $111,852 of Senior Secured Term Loan E. On March 31, 2018, Prospect contributed $48,832 to NPRC as an increase to the NPRC Senior Secured Term Loan E. On the same day, NPRC distributed $48,832 as a return of capital to Prospect. During the quarter ended September 30, 2018, we received partial repayments of $8,221 of our loans previously outstanding with NPRC.
(27)
Nationwide Acceptance Holdings LLC, a consolidated entity in which we own 100% of the membership interests, owns 94.48% of Nationwide Loan Company LLC (f/k/a Nationwide Acceptance LLC), the operating company, as of September 30, 2018 and June 30, 2018. We report Nationwide Loan Company LLC as a separate controlled company. On June 1, 2015, Nationwide Acceptance LLC completed a reorganization and was renamed Nationwide Loan Company LLC (“Nationwide”) and formed two new wholly-owned subsidiaries: Pelican Loan Company LLC (“Pelican”) and Nationwide Consumer Loans LLC. Nationwide assigned 100% of the equity interests in its other subsidiaries to Pelican which, in turn, assigned these interests to a new operating company wholly-owned by Pelican named Nationwide Acceptance LLC (“New Nationwide”). New Nationwide also assumed the existing senior subordinated term loan due to Prospect.
(28)
NMMB Holdings, a consolidated entity in which we own 100% of the equity, owns 91.52% of the fully diluted equity of NMMB, Inc. (“NMMB”) as of September 30, 2018 and June 30, 2018. NMMB owns 100% of Refuel Agency, Inc., which owns 100% of Armed Forces Communications, Inc. We report NMMB as a separate controlled company.
(29)
On June 3, 2017, Gulf Coast Machine & Supply Company (“Gulf Coast”) sold all of its assets to a third party, for total consideration of $10,250, including escrowed amounts. The proceeds from the sale were primarily used to repay a $6,115 third party revolving credit facility, and the remainder was used to pay other legal and administrative costs incurred by Gulf Coast. As no proceeds were allocated to Prospect, our debt and equity investment in Gulfco was written-off and we recorded a realized loss of $66,103, during the year ended June 30, 2017. In June 2018, Gulf Coast received escrow proceeds of $2,050 related to the sale. On June 28, 2017, Gulf Coast was renamed to SB Forging Company II, Inc.
(30)
Prospect owns 99.96% of the equity of USES Corp. as of September 30, 2018 and June 30, 2018.
(31)
Valley Electric Holdings I, Inc., a consolidated entity in which we own 100% of the common stock, owns 100% of Valley Electric Holdings II, Inc. (“Valley Holdings II”), another consolidated entity. Valley Holdings II owns 94.99% of Valley Electric Company, Inc. (“Valley Electric”). Valley Electric owns 100% of the equity of VE Company, Inc., which owns 100% of the equity of Valley Electric Co. of Mt. Vernon, Inc. We report Valley Electric as a separate controlled company.
(32)
On March 14, 2017, assets previously held by Ark-La-Tex Wireline Services, LLC (“Ark-La-Tex”) were assigned to Wolf Energy Services Company, LLC, a new wholly-owned subsidiary of Wolf Energy Holdings, in exchange for a full reduction of Ark-La-Tex’s Senior Secured Term Loan A and a partial reduction of the Senior Secured Term Loan B cost basis, in total equal to $22,145. The cost basis of the transferred assets is equal to the appraised fair value of assets at the time of transfer. During the three months ended June 30, 2017, Ark-La-Tex Term Loan B was written-off and a loss of $19,818 was realized. On June 30, 2017, the 18.00% Senior Secured Promissory Note, due April 15, 2018, in Wolf Energy, LLC was contributed to the equity of Wolf Energy LLC. There was no impact from the transaction due to the note being on non-accrual status and having zero cost basis.
(33)
Prospect owns 16.04% of the equity in Targus Cayman HoldCo Limited, the parent company of Targus International LLC (“Targus”) as of September 30, 2018 and June 30, 2018, respectively. On September 25, 2017, Prospect exchanged $1,600 of Senior Secured Term Loan A and $4,799 of Senior Secured Term Loan B investments in Targus into 6,120,658 of common shares, and recorded a realized gain of $846, as a result of this transaction.
(34)
We own 99.9999% of AGC/PEP, LLC (“AGC/PEP”). As of September 30, 2016, AGC/PEP, owned 2,038 out of a total of 93,485 shares (including 7,456 vested and unvested management options) of American Gilsonite Holding Company (“AGC Holdco”) which owns 100% of American Gilsonite Company (“AGC”). On October 24, 2016, AGC filed for a joint prepackaged plan of reorganization under Chapter 11 of the bankruptcy code. During the year ended June 30, 2017, AGC emerged from bankruptcy and AGC Holdco was dissolved. AGC/PEP received a total of 131 shares representing a total ownership stake of 0.05% in AGC.
(35)
Centerfield Media Holding Company and Oology Direct Holdings, Inc. are joint borrowers and guarantors on the senior secured loan facilities.

See notes to consolidated financial statements.
37

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)
(in thousands, except share data)

Endnote Explanations as of September 30, 2018 (Unaudited) and June 30, 2018 (Continued)


(36)
Keystone Acquisition Corp. is the parent borrower on the second lien term loan. Other joint borrowers on this debt investment include Keystone Peer Review Organization, Inc., KEPRO Acquisitions, Inc., APS Healthcare Bethesda, Inc., Ohio KEPRO, Inc., and APS Healthcare Quality Review, Inc.
(37)
These investments are in the debt class of the CLO security. As of June 30, 2018, the all-in interest rate of the Galaxy XXVIII CLO, Ltd. Class F Junior Note was not yet determined as the investment was unsettled.
(38)
The consolidated revenue interest is equal to the lesser of (i) 2.0% of consolidated revenue for the twelve-month period ending on the last day of the prior fiscal quarter (or portion thereof) and (ii) 25% of the amount of interest accrued on the Notes at the cash interest rate for such fiscal quarter (or portion thereof).
(39)
As of September 30, 2018 and June 30, 2018, Prospect owns 8.57% of the equity in Encinitas Watches Holdco, LLC (f/k/a Nixon Holdco, LLC), the parent company of Nixon, Inc. On February 26, 2018, Prospect entered into a debt forgiveness agreement with Nixon, Inc., which terminated $17,472 Senior Secured Term Loan receivable due to us. We recorded a realized loss of $14,197 in our Consolidated Statement of Operations for the year ended June 30, 2018 as a result of this transaction.
(40)
On May 29, 2018, Prospect exercised its rights and remedies under its loan documents to exercise the shareholder voting rights in respect of the stock of Pacific World Corporation (“Pacific World”) and to appoint a new Board of Directors of Pacific World. As a result, Prospect’s investment in Pacific World is classified as a control investment.
(41)
Our wholly-owned subsidiary Prospect Small Business Lending, LLC purchases small business whole loans from small business loan originators, including On Deck Capital, Inc.
(42)
Turning Point Brands, Inc. and North Atlantic Trading Company, Inc. are joint borrowers and guarantors on the secured loan facility.
(43)
The overriding royalty interests held receive payments at the stated rates based upon operations of the borrower.
(44)
The following shows the composition of our investment portfolio at cost by control designation, investment type and by industry as of September 30, 2018:
Industry
1st Lien
Term Loan
2nd Lien
Term Loan
CLO (C)
Unsecured Debt
Equity (B)
Cost Total
Control Investments
 
 
 
 
 
 
Aerospace & Defense
$
49,223

$
—

$
—

$
—

$
22,738

$
71,961

Commercial Services & Supplies
118,071

—

—

7,200

6,849

132,120

Construction & Engineering
43,311

—

—

—

26,204

69,515

Consumer Finance
—

337,925

—

—

116,839

454,764

Electronic Equipment, Instruments & Components
20,476

—

—

—

6,759

27,235

Energy Equipment & Services
35,048

—

—

—

191,858

226,906

Equity Real Estate Investment Trusts (REITs)
293,203

—

—

—

216,860

510,063

Health Care Providers & Services
235,851

—

—

—

—

235,851

Machinery
—

28,622

—

—

6,866

35,488

Media
7,614

—

—

—

12,869

20,483

Online Lending
217,960

—

—

—

100,949

318,909

Personal Products
213,325

—

—

—

15,000

228,325

Total Control Investments
$
1,234,082

$
366,547

$
—

$
7,200

$
723,791

$
2,331,620

Affiliate Investments






Diversified Consumer Services
$
—

$
177

$
—

$
31,512

$
6,577

$
38,266

Distributors
—

127,091

—

—

—

127,091

Textiles, Apparel & Luxury Goods
—

—

—

—

9,878

9,878

 Total Affiliate Investments
$
—

$
127,268

$
—

$
31,512

$
16,455

$
175,235

Non-Control/Non-Affiliate Investments
 
 
 
 
 
 
Auto Components
$
—

$
25,388

$
—

$
—

$
—

$
25,388

Building Products
—

19,824

—

—

—

19,824


See notes to consolidated financial statements.
38

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)
(in thousands, except share data)

Endnote Explanations as of September 30, 2018 (Unaudited) and June 30, 2018 (Continued)


Industry
1st Lien
Term Loan
2nd Lien
Term Loan
CLO (C)
Unsecured Debt
Equity (B)
Cost Total
Capital Markets
$
—

$
26,531

$
—

$
—

$
—

$
26,531

Commercial Services & Supplies
87,093

163,982

—

—

—

251,075

Communications Equipment
—

47,872

—

—

—

47,872

Consumer Finance
19,748

—

—

—

—

19,748

Distributors
174,191

—

—

—

—

174,191

Diversified Consumer Services
—

118,289

—

—

—

118,289

Electronic Equipment, Instruments & Components
12,572

14,860

—

—

—

27,432

Energy Equipment & Services
32,159

—

—

—

—

32,159

Entertainment
29,915

16,907

—

—

—

46,822

Food Products
—

9,888

—

—

—

9,888

Health Care Equipment & Supplies
35,380

7,465

—

—

—

42,845

Health Care Providers & Services
142,957

61,912

—

—

1,252

206,121

Hotels, Restaurants & Leisure
29,625

7,483

—

—

—

37,108

Household Durables
16,894

22,592

—

—

—

39,486

Household Products
24,875

—

—

—

—

24,875

Insurance
—

2,987

—

—

—

2,987

Interactive Media & Services
48,718

—

—

—

—

48,718

IT Services
269,808

25,110

—

—

—

294,918

Leisure Products
32,552

10,910

—

—

1

43,463

Media
103,279

35,000

—

—

—

138,279

Paper & Forest Products
—

11,337

—

—

—

11,337

Pharmaceuticals
—

11,882

—

—

—

11,882

Professional Services
95,246

65,928

—

—

—

161,174

Real Estate Management & Development
41,580

—

—

—

—

41,580

Software
—

69,462

—

—

—

69,462

Technology Hardware, Storage & Peripherals
—

12,388

—


—

12,388

Textiles, Apparel & Luxury Goods
272,618

36,578

—

—

—

309,196

Tobacco
—

14,399

—

—

—

14,399

Trading Companies & Distributors
63,700

—

—

—

—

63,700

Transportation Infrastructure
—

27,515

—

—

—

27,515

Structured Finance (A)
—

—

1,132,307

—

—

1,132,307

 Total Non-Control/ Non-Affiliate
$
1,532,910

$
866,489

$
1,132,307

$
—

$
1,253

$
3,532,959

Total Portfolio Investment Cost
$
2,766,992

$
1,360,304

$
1,132,307

$
38,712

$
741,499

$
6,039,814

The following table shows the composition of our investment portfolio at fair value by control designation, investment type and by industry as of September 30, 2018:
Industry
1st Lien
Term Loan
2nd Lien
Term Loan
CLO (C)
Unsecured Debt
Equity (B)
Fair Value Total
Fair Value % of Net Assets
Control Investments













Aerospace & Defense
$
49,223

$
—

$
—

$
—

$
38,152

$
87,375

2.5
%
Commercial Services & Supplies
66,709

—

—

5,702

1,121

73,532

2.1
%
Construction & Engineering
43,311

—

—

—

38,632

81,943

2.4
%
Consumer Finance
—

341,435

—

—

207,611

549,046

16.0
%
Electronic Equipment, Instruments & Components
20,476

—

—

—

14,213

34,689

1.0
%
Energy Equipment & Services
35,048

—

—

—

124,428

159,476

4.6
%
Equity Real Estate Investment Trusts (REITs)
293,203

—

—

—

546,434

839,637

24.5
%
Health Care Providers & Services
220,299

—

—

—

—

220,299

6.4
%

See notes to consolidated financial statements.
39

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)
(in thousands, except share data)

Endnote Explanations as of September 30, 2018 (Unaudited) and June 30, 2018 (Continued)


Industry
1st Lien
Term Loan
2nd Lien
Term Loan
CLO (C)
Unsecured Debt
Equity (B)
Fair Value Total
Fair Value % of Net Assets
Machinery
$
—

$
24,782

$
—

$
—

$
—

$
24,782

0.7
%
Media
7,614

—

—

—

12,460

20,074

0.7
%
Online Lending
217,960

—

—

—

14,366

232,326

6.8
%
Personal Products
164,158

—

—

—

—

164,158

4.8
%
Total Control Investments
$
1,118,001

$
366,217

$
—

$
5,702

$
997,417

$
2,487,337

72.5
%
Fair Value % of Net Assets
32.6
%
10.7
%
—
%
0.2
%
29.1
%
72.5
%

Affiliate Investments







Diversified Consumer Services
$
—

$
177

$
—

$
25,476

$
—

$
25,653

0.7
%
Distributors
—

50,670

—

—

—

50,670

1.5
%
Textiles, Apparel & Luxury Goods
—

—

—

—

19,670

19,670

0.6
%
Total Affiliate Investments
$
—

$
50,847

$
—

$
25,476

$
19,670

$
95,993

2.8
%
Fair Value % of Net Assets
—
%
1.5
%
—
%
0.7
%
0.6
%
2.8
%

Non-Control/Non-Affiliate Investments













Auto Components
$
—

$
24,851

$
—

$
—

$
—

$
24,851

0.7
%
Building Products
—

20,000

—

—

—

20,000

0.6
%
Capital Markets
—

26,675

—

—

—

26,675

0.8
%
Commercial Services & Supplies
86,389

165,096

—

—

932

252,417

7.4
%
Communications Equipment
—

48,000

—

—

—

48,000

1.4
%
Consumer Finance
21,371

—

—

—

—

21,371

0.6
%
Distributors
174,191

—

—

—

—

174,191

5.1
%
Diversified Consumer Services
—

118,289

—

—

—

118,289

3.4
%
Electronic Equipment, Instruments & Components
12,566

15,300

—

—

—

27,866

0.8
%
Energy Equipment & Services
32,842

—

—

—

—

32,842

1.0
%
Entertainment
29,965

16,976

—

—

—

46,941

1.4
%
Food Products
—

9,888

—

—

—

9,888

0.3
%
Health Care Equipment & Supplies
35,380

7,465

—

—

—

42,845

1.3
%
Health Care Providers & Services
141,380

61,912

—

—

262

203,554

5.9
%
Hotels, Restaurants & Leisure
29,625

7,483

—

—

—

37,108

1.1
%
Household Durables
15,399

22,254

—

—

—

37,653

1.1
%
Household Products
24,875

—

—

—

—

24,875

0.7
%
Insurance
—

2,987

—

—

—

2,987

0.1
%
Interactive Media & Services
48,718

—

—

—

—

48,718

1.4
%
IT Services
269,808

25,486

—

—

—

295,294

8.6
%
Leisure Products
32,552

11,000

—

—

—

43,552

1.3
%
Media
103,259

34,320

—

—

—

137,579

4.0
%
Paper & Forest Products
—

11,337

—

—

—

11,337

0.3
%
Pharmaceuticals
—

12,000

—

—

—

12,000

0.3
%
Professional Services
95,600

70,008

—

—

—

165,608

4.9
%
Real Estate Management & Development
41,580

—

—

—

—

41,580

1.2
%
Software
—

70,259

—

—

—

70,259

2.0
%
Technology Hardware, Storage & Peripherals
—

12,500

—

—

—

12,500

0.4
%
Textiles, Apparel & Luxury Goods
272,618

37,000

—

—

—

309,618

9.0
%
Tobacco
—

14,399

—

—

—

14,399

0.4
%
Trading Companies & Distributors
45,129

—

—

—

—

45,129

1.3
%
Transportation Infrastructure
—

28,104

—

—

—

28,104

0.8
%

See notes to consolidated financial statements.
40

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)
(in thousands, except share data)

Endnote Explanations as of September 30, 2018 (Unaudited) and June 30, 2018 (Continued)


Industry
1st Lien
Term Loan
2nd Lien
Term Loan
CLO (C)
Unsecured Debt
Equity (B)
Fair Value Total
Fair Value % of Net Assets
Structured Finance (A)
$
—

$
—

$
965,323

$
—

$
—

$
965,323

28.1
%
Total Non-Control/ Non-Affiliate
$
1,513,247

$
873,589

$
965,323

$
—

$
1,194

$
3,353,353

97.7
%
Fair Value % of Net Assets
44.1
%
25.5
%
28.1
%
—
%
—
%
97.7
%

Total Portfolio
$
2,631,248

$
1,290,653

$
965,323

$
31,178

$
1,018,281

$
5,936,683

173.0
%
Fair Value % of Net Assets
76.7
%
37.6
%
28.1
%
0.9
%
29.7
%
173.0
%

(A) Our CLO investments do not have industry concentrations and as such have been separated in the table above.
(B) Equity, unless specifically stated otherwise, includes our investments in preferred stock, common stock, membership interests, net profits interests, net operating income interests, net revenue interests, overriding royalty interests, escrows receivable, and warrants.
(C) We hold three CLO debt investments: the Class E Notes of Cent CLO 21 Limited, the Class F Notes of CIFC Funding 2014-V, Ltd., and the Class F Subordinated Notes of Galaxy XXVIII CLO, Ltd. As of September 30, 2018 the cost and fair value are $26,085 and $27,424, respectively, and makes up 0.8% of our net assets. Our remaining CLO investments are held in CLO equity tranches which earn residual interest. As of September 30, 2018 the cost and fair value of our investment in the equity tranches are $1,106,222 and $937,899, respectively, and make up 27.3% of our net assets.

(45)
The following table shows the composition of our investment portfolio at cost by control designation, investment type and by industry as of June 30, 2018:
Industry
1st Lien
Term Loan
2nd Lien
Term Loan
CLO (C)
Unsecured Debt
Equity (B)
Cost Total
Control Investments
 
 
 
 
 
 
Aerospace & Defense
$
47,099

$
—

$
—

$
—

$
22,738

$
69,837

Commercial Services & Supplies
117,861

—

—

7,200

6,849

131,910

Construction & Engineering
38,211

—

—

—

26,204

64,415

Consumer Finance
—

337,972

—

—

116,839

454,811

Electronic Equipment, Instruments & Components
20,700

—

—

—

6,759

27,459

Energy Equipment & Services
35,048

—

—

—

191,812

226,860

Equity Real Estate Investment Trusts (REITs)
293,203

—

—

—

206,655

499,858

Health Care Providers & Services
212,701

—

—

—

—

212,701

Machinery
—

28,622

—

—

6,866

35,488

Media
8,614

—

—

—

12,869

21,483

Online Lending
226,180

—

—

—

100,949

327,129

Personal Products
213,575

—

—

—

15,000

228,575

    Total Control Investments
$
1,213,192

$
366,594

$
—

$
7,200

$
713,540

$
2,300,526

Affiliate Investments












Diversified Consumer Services
$
—

$
7,834

$
—

$
31,348

$
6,577

$
45,759

Textiles, Apparel & Luxury Goods
—

—

—

—

9,878

9,878

   Total Affiliate Investments
$
—

$
7,834

$
—

$
31,348

$
16,455

$
55,637

Non-Control/Non-Affiliate Investments












Auto Components
$
—

$
12,681

$
—

$
—

$
—

$
12,681

Building Products
—

9,905

—

—

—

9,905

Capital Markets
—

19,799

—

—

—

19,799

Commercial Services & Supplies
90,364

163,913

—

—

—

254,277

Communications Equipment
—

39,860

—

—

—

39,860

Consumer Finance
30,570

—

—

—

—

30,570

Distributors
343,659

127,091

—

—

—

470,750

Diversified Consumer Services
9,647

118,289

—

—

—

127,936


See notes to consolidated financial statements.
41

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)
(in thousands, except share data)

Endnote Explanations as of September 30, 2018 (Unaudited) and June 30, 2018 (Continued)


Industry
1st Lien
Term Loan
2nd Lien
Term Loan
CLO (C)
Unsecured Debt
Equity (B)
Cost Total
Electronic Equipment, Instruments & Components
$
12,490

$
14,856

$
—

$
—

$
—

$
27,346

Energy Equipment & Services
30,511

—

—

—

—

30,511

Food Products
—

9,884

—

—

—

9,884

Health Care Equipment & Supplies
35,815

7,464

—

—

—

43,279

Health Care Providers & Services
145,336

61,909

—

—

1,252

208,497

Hotels, Restaurants & Leisure
29,813

7,482

—

—

—

37,295

Household & Personal Products
24,938

—

—

—

—

24,938

Household Durables
16,894

25,645

—

—

—

42,539

Insurance
—

2,986

—

—

—

2,986

Internet & Direct Marketing Retail
4,813

35,000

—

—

—

39,813

Internet Software & Services
215,791

13,926

—

—

—

229,717

IT Services
160,588

21,595

—

—

—

182,183

Leisure Products
34,626

10,904

—

—

1

45,531

Media
118,605

2,975

—

—

—

121,580

Online Lending
—

—

—

30

—

30

Paper & Forest Products
—

11,328

—

—

—

11,328

Pharmaceuticals
—

11,882

—

—

—

11,882

Professional Services
9,468

64,804

—

—

—

74,272

Real Estate Management & Development
41,860

—

—

—

—

41,860

Software
—

66,435

—

—

—

66,435

Technology Hardware, Storage & Peripherals
—

12,384

—

—

—

12,384

Textiles, Apparel & Luxury Goods
—

36,551

—

—

—

36,551

Tobacco
—

14,392

—

—

—

14,392

Trading Companies & Distributors
63,863

—

—

—

—

63,863

Transportation Infrastructure
—

27,494

—

—

—

27,494

Structured Finance (A)
—

—

1,102,927

—

—

1,102,927

  Total Non-Control/ Non-Affiliate
$
1,419,651

$
951,434

$
1,102,927

$
30

$
1,253

$
3,475,295

Total Portfolio Investment Cost
$
2,632,843

$
1,325,862

$
1,102,927

$
38,578

$
731,248

$
5,831,458

The following table shows the composition of our investment portfolio at fair value by control designation, investment type and by industry as of June 30, 2018:
Industry
1st Lien
Term Loan
2nd Lien
Term Loan
CLO (C)
Unsecured Debt
Equity (B)
Fair Value Total
Fair Value % of Net Assets
Control Investments
 
 
 
 
 
 
 
Aerospace & Defense
$
47,099

$
—

$
—

$
—

$
35,179

$
82,278

2.4
%
Commercial Services & Supplies
67,011

—

—

5,563

2,639

75,213

2.2
%
Construction & Engineering
38,211

—

—

—

12,586

50,797

1.5
%
Consumer Finance
—

342,331

—

—

211,209

553,540

16.2
%
Electronic Equipment, Instruments & Components
20,700

—

—

—

15,056

35,756

1.1
%
Energy Equipment & Services
35,048

—

—

—

103,456

138,504

4.1
%
Equity Real Estate Investment Trusts (REITs)
293,203

—

—

—

518,712

811,915

23.8
%
Health Care Providers & Services
197,621

—

—

—

—

197,621

5.8
%
Machinery
—

28,622

—

—

3,264

31,886

0.9
%
Media
8,614

—

—

—

10,121

18,735

0.6
%
Online Lending
226,180

—

—

—

16,881

243,061

7.1
%

See notes to consolidated financial statements.
42

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)
(in thousands, except share data)

Endnote Explanations as of September 30, 2018 (Unaudited) and June 30, 2018 (Continued)


Industry
1st Lien
Term Loan
2nd Lien
Term Loan
CLO (C)
Unsecured Debt
Equity (B)
Fair Value Total
Fair Value % of Net Assets
Personal Products
$
165,020

$
—

$
—

$
—

$
—

$
165,020

4.9
%
Total Control Investments
$
1,098,707

$
370,953

$
—

$
5,563

$
929,103

$
2,404,326

70.6
%
 Fair Value % of Net Assets
32.2
%
10.9
%
—
%
0.2
%
27.3
%
70.6
%


Affiliate Investments














Diversified Consumer Services
$
—

$
7,834

$
—

$
27,382

$
—

$
35,216

1.0
%
Textiles, Apparel & Luxury Goods
—

—

—



23,220

23,220

0.7
%
Total Affiliate Investments
$
—

$
7,834

$
—

$
27,382

$
23,220

$
58,436

1.7
%
Fair Value % of Net Assets
—
%
0.2
%
—
%
0.8
%
0.7
%
1.7
%


Non-Control/Non-Affiliate Investments














Auto Components
$
—

$
12,887

$
—

$
—

$
—

$
12,887

0.4
%
Building Products
—

10,000

—

—

—

10,000

0.3
%
Capital Markets
—

20,000

—

—

—

20,000

0.6
%
Commercial Services & Supplies
89,658

164,236

—

—

917

254,811

7.5
%
Communications Equipment
—

40,000

—

—

—

40,000

1.2
%
Consumer Finance
33,438

—

—

—

—

33,438

1.0
%
Distributors
343,659

58,806

—

—

—

402,465

11.8
%
Diversified Consumer Services
9,647

118,289

—

—

—

127,936

3.8
%
Electronic Equipment, Instruments & Components
12,335

14,873

—

—

—

27,208

0.8
%
Energy Equipment & Services
32,070

—

—

—

—

32,070

0.9
%
Food Products
—

9,886

—

—

—

9,886

0.3
%
Health Care Equipment & Supplies
35,815

7,464

—

—

—

43,279

1.3
%
Health Care Providers & Services
144,130

61,933

—

—

446

206,509

6.0
%
Hotels, Restaurants & Leisure
29,813

7,482

—

—

—

37,295

1.1
%
Household & Personal Products
24,938

—

—

—

—

24,938

0.7
%
Household Durables
15,728

25,895

—

—

—

41,623

1.2
%
Insurance
—

2,986

—

—

—

2,986

0.1
%
Internet & Direct Marketing Retail
4,813

35,000

—

—

—

39,813

1.2
%
Internet Software & Services
215,791

14,000

—

—

—

229,791

6.7
%
IT Services
160,588

21,990

—

—

—

182,578

5.4
%
Leisure Products
34,626

11,000

—

—

—

45,626

1.3
%
Media
118,655

2,975

—

—

—

121,630

3.6
%
Online Lending
—

—

—

17

—

17

—
%
Paper & Forest Products
—

11,226

—

—

—

11,226

0.3
%
Pharmaceuticals
—

12,000

—

—

—

12,000

0.3
%
Professional Services
9,608

67,383

—

—

—

76,991

2.3
%
Real Estate Management & Development
41,860

—

—

—

—

41,860

1.2
%
Software
—

67,265

—

—

—

67,265

2.0
%
Technology Hardware, Storage & Peripherals
—

12,500

—

—

—

12,500

0.4
%
Textiles, Apparel & Luxury Goods
—

37,000

—

—

—

37,000

1.1
%
Tobacco
—

14,392

—

—

—

14,392

0.4
%
Trading Companies & Distributors
56,199

—

—

—

—

56,199

1.6
%
Transportation Infrastructure
—

28,104

—

—

—

28,104

0.8
%
Structured Finance (A)
—

—

960,194

—

—

960,194

28.2
%
 Total Non-Control/ Non-Affiliate
$
1,413,371

$
889,572

$
960,194

$
17

$
1,363

$
3,264,517

95.8
%
Fair Value % of Net Assets
41.5
%
26.1
%
28.2
%
—
%
—
%
95.8
%


Total Portfolio
$
2,512,078

$
1,268,359

$
960,194

$
32,962

$
953,686

$
5,727,279

168.1
%
Fair Value % of Net Assets
73.7
%
37.2
%
28.2
%
1.0
%
28.0
%
168.1
%


(A) Our CLO investments do not have industry concentrations and as such have been separated in the table above.

See notes to consolidated financial statements.
43

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)
(in thousands, except share data)

Endnote Explanations as of September 30, 2018 (Unaudited) and June 30, 2018 (Continued)


(B) Equity, unless specifically stated otherwise, includes our investments in preferred stock, common stock, membership interests, net profits interests, net operating income interests, net revenue interests, overriding royalty interests, escrows receivable, and warrants.
(C) We hold one CLO debt investment in the Class F Subordinated Notes of Galaxy XXVIII CLO, Ltd. As of June 30, 2018 the cost and fair value are $6,159 and $6,159, respectively, and makes up 0.2% of our net assets. Our remaining CLO investments are held in CLO equity tranches which earn residual interest. As of June 30, 2018 the cost and fair value of our investment in the equity tranches are $1,096,768 and $954,035, respectively, and make up 28.0% of our net assets.
(46)
The interest rate on these investments, excluding those on non-accrual, contains a paid in kind (“PIK”) provision, whereby the issuer has either the option or the obligation to make interest payments with the issuance of additional securities. The interest rate in the schedule represents the current interest rate in effect for these investments.
The following table provides additional details on these PIK investments, including the maximum annual PIK interest rate allowed under the existing credit agreements, as of and for three months ended September 30, 2018:
Security Name
PIK Rate -
Capitalized
PIK Rate -
Paid as cash
Maximum
Current PIK Rate
 
CCPI Inc.
—%
7.00%
7.00%
 
Cinedigm DC Holdings, LLC
—%
2.50%
2.50%
 
Credit Central Loan Company
—%
10.00%
10.00%
 
Echelon Transportation, LLC (f/k/a Echelon Aviation LLC)
2.25%
—%
2.25%
 
Echelon Transportation, LLC (f/k/a Echelon Aviation LLC)
1.00%
—%
1.00%
 
Edmentum Ultimate Holdings, LLC - Revolver
5.00%
—%
5.00%
 
Edmentum Ultimate Holdings, LLC - Senior PIK Note
8.50%
—%
8.50%
 
First Tower Finance Company LLC
1.80%
8.20%
10.00%
 
Interdent, Inc - Senior Secured Term Loan B
16.00%
—%
16.00%
 
Interdent, Inc - Senior Secured Term Loan C
18.00%
—%
18.00%
 
Interdent, Inc - Senior Secured Term Loan D
1.00%
—%
1.00%
 
Mity, Inc. - Senior Secured Term Loan B
3.37%
6.63%
10.00%
 
National Property REIT Corp. - Senior Secured Term Loan A
—%
10.50%
10.50%
 
National Property REIT Corp. - Senior Secured Term Loan E
—%
1.50%
1.50%
 
Nationwide Loan Company LLC
—%
10.00%
10.00%
 
Spartan Energy Services, Inc.
14.08%
—%
14.08%
 
Valley Electric Co. of Mt.
Vernon, Inc.
—%
2.50%
2.50%
 
Valley Electric Company, Inc.
—%
10.00%
10.00%
 
Venio LLC
10.00%
—%
10.00%
 


See notes to consolidated financial statements.
44

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)
(in thousands, except share data)

Endnote Explanations as of September 30, 2018 (Unaudited) and June 30, 2018 (Continued)


The following table provides additional details on these PIK investments, including the maximum annual PIK interest rate allowed under the existing credit agreements, as of and for three months ended June 30, 2018:
Security Name
PIK Rate -
Capitalized
PIK Rate -
Paid as cash
Maximum
Current PIK Rate
 
CCPI Inc.
—%
7.00%
7.00%
 
Cinedigm DC Holdings, LLC
—%
2.50%
2.50%
 
Credit Central Loan Company
—%
10.00%
10.00%
 
Echelon Transportation, LLC (f/k/a Echelon Aviation LLC)
N/A
N/A
2.25%
(A)
Echelon Transportation, LLC (f/k/a Echelon Aviation LLC)
N/A
N/A
1.00%
(A)
Edmentum Ultimate Holdings, LLC - Unsecured Senior PIK Note
8.50%
—%
8.50%
 
First Tower Finance Company LLC
1.45%
8.55%
10.00%
 
InterDent, Inc. - Senior Secured Team Loan B
4.25%
—%
4.25%
 
InterDent, Inc. - Senior Secured Team Loan C
18.00%
—%
18.00%
 
MITY, Inc.
—%
10.00%
10.00%
 
National Property REIT Corp. - Senior Secured Term Loan A
—%
10.50%
10.50%
 
National Property REIT Corp. - Senior Secured Term Loan E
—%
1.50%
1.50%
 
Nationwide Loan Company LLC
—%
10.00%
10.00%
 
Spartan Energy Services, Inc.
13.98%
—%
13.98%
 
Valley Electric Co. of Mt. Vernon, Inc.
—%
2.50%
2.50%
 
Valley Electric Company, Inc.
7.17%
2.83%
10.00%
 
Venio LLC
10.00%
—%
10.00%
 
(A) Next PIK payment/capitalization date was July 31, 2018.
(47)
As defined in the 1940 Act, we are deemed to “Control” these portfolio companies because we own more than 25% of the portfolio company’s outstanding voting securities. Transactions during the three months ended September 30, 2018 with these controlled investments were as follows:
Portfolio Company
Fair Value at June 30, 2018
Gross Additions (Cost)*
Gross Reductions (Cost)**
Net unrealized
gains (losses)
Fair Value at September 30, 2018
Interest
income
Dividend
income
Other
income
Net realized
gains (losses)
CCPI, Inc.
$
35,756

$
—

$
(223
)
$
(844
)
$
34,689

$
914

$
—

$
—

$
—

CP Energy Services Inc.
123,261

—

—

19,379

142,640

1,195

—

—

—

Credit Central Loan Company, LLC
76,677

848

—

(6,937
)
70,588

3,499

—

—

—

Echelon Transportation LLC
82,278

2,125

—

2,972

87,375

1,658

—

—

—

First Tower Finance Company LLC
443,010

1,258

(2,154
)
3,627

445,741

13,962

—

—

—

Freedom Marine Solutions, LLC
13,037

—

—

1,563

14,600

—

—

—

—

InterDent, Inc.
197,621

23,150

—

(472
)
220,299

6,821

—

—

—

MITY, Inc.
58,894

211

—

(1,380
)
57,725

2,068

—

201

1

National Property REIT Corp.
1,054,976

10,206

(8,221
)
15,002

1,071,963

20,398

11,000

2,287

—

Nationwide Loan Company LLC
33,853

—

—

(1,136
)
32,717

890

165

—

—

NMMB, Inc.
18,735

—

(1,001
)
2,340

20,074

310

—

—

—

Pacific World Corporation
165,020

—

(251
)
(611
)
164,158

2,332




R-V Industries, Inc.
31,886

—

—

(7,104
)
24,782

802

—

—

—

SB Forging Company II, Inc. (f/k/a Gulf Coast Machine & Supply Company)
2,194

—

—

7

2,201

—

—

—

—

USES Corp.
16,319

—

—

(512
)
15,807

—

—

—

—

Valley Electric Company, Inc.
50,797

5,100

—

26,046

81,943

1,605

3,500

303

—

Wolf Energy, LLC
12

45

—

(22
)
35

—

—

—

—

Total
$
2,404,326

$
42,943

$
(11,850
)
$
51,918

$
2,487,337

$
56,454

$
14,665

$
2,791

$
1

* Gross additions include increases in the cost basis of the investments resulting from new portfolio investments, OID accretion and PIK interest.
** Gross reductions include decreases in the cost basis of investments resulting from principal collections related to investments repayments or sales, impairments, and any transfer of investments.

See notes to consolidated financial statements.
45

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)
(in thousands, except share data)

Endnote Explanations as of September 30, 2018 (Unaudited) and June 30, 2018 (Continued)


(48)
As defined in the 1940 Act, we are deemed to be an “Affiliated company” of these portfolio companies because we own more than 5% of the portfolio company’s outstanding voting securities. Transactions during the three months ended September 30, 2018 with these affiliated investments were as follows:
Portfolio Company
Fair Value at June 30, 2018
Gross Additions (Cost)*
Gross Reductions (Cost)**
Net unrealized
gains (losses)
Fair Value at September 30, 2018
Interest
income
Dividend
income
Other
income
Net realized
gains (losses)
Edmentum Ultimate Holdings, LLC
$
35,216

$
361

$
(7,855
)
$
(2,069
)
$
25,653

$
227

$
—

$
—

$
—

Nixon, Inc.
—

—

—

—

—

—

—

—

—

Targus Cayman HoldCo Limited
23,220

—

—

(3,550
)
19,670

—

—

—

—

United Sporting Companies, Inc.***
—

58,806

—

(8,136
)
50,670

—

—

—

—

Total
$
58,436

$
59,167

$
(7,855
)
$
(13,755
)
$
95,993

$
227

$
—

$
—

$
—

* Gross additions include increases in the cost basis of the investments resulting from new portfolio investments, PIK interest, and any transfer of investments.
** Gross reductions include decreases in the cost basis of investments resulting from principal collections related to investments repayments or sales, impairments, and any transfer of investments.
*** Investment was transferred from non-controlled/non-affiliate investments at $58,806, the fair market value at the beginning of the three month period ended September 30, 2018. Refer to endnote #18.


See notes to consolidated financial statements.
46

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)
(in thousands, except share data)

Endnote Explanations as of September 30, 2018 (Unaudited) and June 30, 2018 (Continued)


(49)
As defined in the 1940 Act, we are deemed to “Control” these portfolio companies because we own more than 25% of the portfolio company’s outstanding voting securities. Transactions during the year ended June 30, 2018 with these controlled investments were as follows:
Portfolio Company
Fair Value at June 30, 2017
Gross Additions (Cost)*
Gross Reductions (Cost)**
Net unrealized
gains (losses)
Fair Value at June 30, 2018
Interest
income
Dividend
income
Other
income
Net realized
gains (losses)
Arctic Energy Services, LLC ***
$
17,370

$
—

$
(60,876
)
$
43,506

$
—

$
—

$
—

$
—

$
—

CCPI Inc.
43,052

—

(482
)
(6,814
)
35,756

3,704

—

—

—

CP Energy Services Inc. ***
72,216

65,976

—

(14,931
)
123,261

3,394

—

228

—

Credit Central Loan Company, LLC
64,435

2,240

—

10,002

76,677

12,755

—

903

—

Echelon Transportation, LLC (f/k/a Echelon Aviation LLC)
71,318

—

—

10,960

82,278

6,360

—

—

—

Edmentum Ultimate Holdings, LLC ****
46,895

5,394

(39,196
)
(13,093
)
—

572

—

—

—

First Tower Finance Company LLC
365,588

21,352

(6,735
)
62,805

443,010

47,422

—

2,664

—

Freedom Marine Solutions, LLC
23,994

982

—

(11,939
)
13,037

—

—

—

—

Interdent, Inc. *****
—

209,120

—

(11,499
)
197,621

4,775

—

—

—

MITY, Inc.
76,512

—

—

(17,618
)
58,894

8,206

—

1,093

13

National Property REIT Corp.
987,304

160,769

(124,078
)
30,981

1,054,976

90,582

11,279

8,834

—

Nationwide Loan Company LLC
36,945

4,370

—

(7,462
)
33,853

3,485

—

—

—

NMMB, Inc.
20,825

—

(1,999
)
(91
)
18,735

1,455

—

—

—

Pacific World Corporation ******
—

198,149

(250
)
(32,879
)
165,020

3,742

—

—

—

R-V Industries, Inc.
32,678

—

—

(792
)
31,886

3,064

—

—

—

SB Forging Company II, Inc. (f/k/a Gulf Coast Machine & Supply Company)
1,940

—

—

254

2,194

—

—

—

—

USES Corp.
12,517

3,000

(3
)
805

16,319

—

—

—

—

Valley Electric Company, Inc.
32,509

2,157

—

16,131

50,797

5,971

—

138

—

Wolf Energy, LLC
5,677

—

(3,009
)
(2,656
)
12

—

—

1,220

—

Total
$
1,911,775

$
673,509

$
(236,628
)
$
55,670

$
2,404,326

$
195,487

$
11,279

$
15,080

$
13

* Gross additions include increases in the cost basis of the investments resulting from new portfolio investments, PIK interest, and any transfer of investments.
** Gross reductions include decreases in the cost basis of investments resulting from principal collections related to investments repayments or sales, impairments, and any transfer of investments.
*** Arctic Energy Services, LLC cost basis was transferred to CP Energy Services Inc. on April 6, 2018 as a result of the merger between these controlled portfolio companies. There was no realized gain or loss recognized by us since this was a merger amongst two portfolio companies under our control.
**** The investment was transferred to affiliate investment classification at $31,362, the fair market value of the investment at the beginning of the three month period ended March 31, 2018. Refer to endnote #22.
***** The investment was transferred to control investment classification at $208,549, the fair market value of the investment at the beginning of the three month period ended June 30, 2018. Refer to endnote #52.
****** The investment was transferred from non-control/ non-affiliate to control investment classification at $183,151, the fair market value of the investment at the beginning of the three month period ended June 30, 2018. Refer to endnote #40.


See notes to consolidated financial statements.
47

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)
(in thousands, except share data)

Endnote Explanations as of September 30, 2018 (Unaudited) and June 30, 2018 (Continued)


(50)
As defined in the 1940 Act, we are deemed to be an “Affiliated company” of these portfolio companies because we own more than 5% of the portfolio company’s outstanding voting securities. Transactions during the year ended June 30, 2018 with these affiliated investments were as follows:
Portfolio Company
Fair Value at June 30, 2017
Gross Additions (Cost)*
Gross Reductions (Cost)**
Net unrealized
gains (losses)
Fair Value at June 30, 2018
Interest
income
Dividend
income
Other
income
Net realized
gains (losses)
Edmentum Ultimate Holdings, LLC ***
$
—

$
34,416

$
—

$
800

$
35,216

$
348

$
—

$
—

$
—

Nixon, Inc.
—

—

(14,197
)
14,197

—

—

—

—

(14,197
)
Targus International, LLC
11,429

1,117

—

10,674

23,220

205

—

—

846

Total
$
11,429

$
35,533

$
(14,197
)
$
25,671

$
58,436

$
553

$
—

$
—

$
(13,351
)
* Gross additions include increases in the cost basis of the investments resulting from new portfolio investments, PIK interest and any transfer of investments.
** Gross reductions include decreases in the cost basis of investments resulting from principal collections related to investments repayments or sales, impairments, and any transfer of investments.
*** The investment was transferred from controlled investment classification at $31,362, the fair market value of the investment at the beginning of the three month period ended March 31, 2018. Refer to endnote #22.

(51)
BAART Programs, Inc. and MedMark Services, Inc. are joint borrowers of the second lien term loan.
(52)
During the year ended June 30, 2018, Prospect exercised its rights and remedies under its loan documents to exercise the shareholder voting rights in respect of the stock of InterDent, Inc. (“InterDent”) and to appoint a new Board of Directors of InterDent. As a result, Prospect’s investment in InterDent is classified as a control investment.
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In accordance with endnote 8 of Regulation S-X Rule 12-12 - Form and Content of Schedules - Investments in securities of unaffiliated issuers, we have updated the presentation of our Consolidated Schedule of Investments to include the acquisition dates of our investments. The presentation of our Consolidated Schedule of Investments for the year ended June 30, 2018 has been similarly updated to provide comparable disclosures.

See notes to consolidated financial statements.
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PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)


Note 1. Organization
In this report, the terms “Prospect,” “the Company,” “we,” “us” and “our” mean Prospect Capital Corporation and its subsidiaries unless the context specifically requires otherwise.

Prospect is a financial services company that primarily lends to and invests in middle market privately-held companies. We are a closed-end investment company incorporated in Maryland. We have elected to be regulated as a business development company (“BDC”) under the Investment Company Act of 1940 (the “1940 Act”). As a BDC, we have elected to be treated as a regulated investment company (“RIC”), under Subchapter M of the Internal Revenue Code of 1986 (the “Code”). We were organized on April 13, 2004 and were funded in an initial public offering completed on July 27, 2004.

On May 15, 2007, we formed a wholly-owned subsidiary Prospect Capital Funding LLC (“PCF”), a Delaware limited liability company and a bankruptcy remote special purpose entity, which holds certain of our portfolio loan investments that are used as collateral for the revolving credit facility at PCF. Our wholly-owned subsidiary Prospect Small Business Lending, LLC (“PSBL”) was formed on January 27, 2014 and purchases small business whole loans on a recurring basis from online small business loan originators, including On Deck Capital, Inc. (“OnDeck”). On September 30, 2014, we formed a wholly-owned subsidiary Prospect Yield Corporation, LLC (“PYC”) and effective October 23, 2014, PYC holds our investments in collateralized loan obligations (“CLOs”). Each of these subsidiaries have been consolidated since operations commenced.
We consolidate certain of our wholly-owned and substantially wholly-owned holding companies formed by us in order to facilitate our investment strategy. The following companies are included in our consolidated financial statements and are collectively referred to as the “Consolidated Holding Companies”: APH Property Holdings, LLC (“APH”); Arctic Oilfield Equipment USA, Inc. (“Arctic Equipment”); CCPI Holdings Inc.; CP Holdings of Delaware LLC (“CP Holdings”); Credit Central Holdings of Delaware, LLC; Energy Solutions Holdings Inc.; First Tower Holdings of Delaware LLC (“First Tower Delaware”); Harbortouch Holdings of Delaware Inc.; MITY Holdings of Delaware Inc.; Nationwide Acceptance Holdings LLC; NMMB Holdings, Inc. (“NMMB Holdings”).; NPH Property Holdings, LLC (“NPH”); STI Holding, Inc.; UPH Property Holdings, LLC (“UPH”); Valley Electric Holdings I, Inc.; Valley Electric Holdings II, Inc.; and Wolf Energy Holdings Inc. (“Wolf Energy Holdings”). On October 10, 2014, concurrent with the sale of the operating company, our ownership increased to 100% of the outstanding equity of ARRM Services, Inc. (“ARRM”) which was renamed SB Forging Company, Inc. (“SB Forging”). As such, we began consolidating SB Forging on October 11, 2014. Effective May 23, 2016, in connection with the merger of American Property REIT Corp. (“APRC”) and United Property REIT Corp. (“UPRC”) with and into National Property REIT Corp. (“NPRC”), APH and UPH merged with and into NPH, and were dissolved. Effective April 6, 2018, Arctic Equipment merged with and into CP Energy Services, Inc. (“CP Energy”), a substantially wholly-owned subsidiary of CP Holdings, with CP Energy continuing as the surviving entity.
We are externally managed by our investment adviser, Prospect Capital Management L.P. (“Prospect Capital Management” or the “Investment Adviser”). Prospect Administration LLC (“Prospect Administration” or the “Administrator”), a wholly-owned subsidiary of the Investment Adviser, provides administrative services and facilities necessary for us to operate.
Our investment objective is to generate both current income and long-term capital appreciation through debt and equity investments. We invest primarily in senior and subordinated debt and equity of private companies in need of capital for acquisitions, divestitures, growth, development, recapitalizations and other purposes. We work with the management teams or financial sponsors to identify investments with historical cash flows, asset collateral or contracted pro-forma cash flows for investment.
Note 2. Significant Accounting Policies
Basis of Presentation and Consolidation
The accompanying consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (“GAAP”) pursuant to the requirements for reporting on Form 10-Q, ASC 946, Financial Services—Investment Companies (“ASC 946”), and Articles 6, 10 and 12 of Regulation S-X. Under the 1940 Act, ASC 946, and the regulations pursuant to Article 6 of Regulation S-X, we are precluded from consolidating any entity other than another investment company or an operating company which provides substantially all of its services to benefit us. Our consolidated financial statements include the accounts of Prospect, PCF, PSBL, PYC, and the Consolidated Holding Companies. All intercompany balances and transactions have been eliminated in consolidation. The financial results of our non-substantially wholly-owned holding companies and operating portfolio company investments are not consolidated in the financial statements. Any operating companies owned by the Consolidated Holding Companies are not consolidated.

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Reclassifications

Certain reclassifications have been made in the presentation of prior consolidated financial statements and accompanying notes to conform to the presentation as of and for the three months ended September 30, 2018.
Use of Estimates
The preparation of the consolidated financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of income, expenses, and gains and losses during the reported period. Changes in the economic environment, financial markets, creditworthiness of the issuers of our investment portfolio and any other parameters used in determining these estimates could cause actual results to differ, and these differences could be material.
Investment Classification
We are a non-diversified company within the meaning of the 1940 Act. As required by the 1940 Act, we classify our investments by level of control. As defined in the 1940 Act, “Control Investments” are those where there is the ability or power to exercise a controlling influence over the management or policies of a company. Control is generally deemed to exist when a company or individual possesses or has the right to acquire within 60 days or less, a beneficial ownership of more than 25% of the voting securities of an investee company. Under the 1940 Act, “Affiliate Investments” are defined by a lesser degree of influence and are deemed to exist through the possession outright or via the right to acquire within 60 days or less, beneficial ownership of 5% or more of the outstanding voting securities of another person. “Non-Control/Non-Affiliate Investments” are those that are neither Control Investments nor Affiliate Investments.
As a BDC, we must not acquire any assets other than “qualifying assets” specified in the 1940 Act unless, at the time the acquisition is made, at least 70% of our total assets are qualifying assets (with certain limited exceptions). As of September 30, 2018 and June 30, 2018, our qualifying assets as a percentage of total assets, stood at 74.93% and 73.20%, respectively.
Investment Transactions
Investments are recognized when we assume an obligation to acquire a financial instrument and assume the risks for gains or losses related to that instrument. Specifically, we record all security transactions on a trade date basis. Investments are derecognized when we assume an obligation to sell a financial instrument and forego the risks for gains or losses related to that instrument. In accordance with ASC 325-40, Beneficial Interest in Securitized Financial Assets, investments in CLOs are periodically assessed for other-than-temporary impairment (“OTTI”). When the Company determines that a CLO has OTTI, the amortized cost basis of the CLO is written down to its fair value as of the date of the determination based on events and information evaluated and that write-down is recognized as a realized loss. Amounts for investments traded but not yet settled are reported in Due to Broker or Due from Broker, in the Consolidated Statements of Assets and Liabilities.
Foreign Currency
Foreign currency amounts are translated into US Dollars (USD) on the following basis:
i.
fair value of investment securities, other assets and liabilities—at the spot exchange rate on the last business day of the period; and
ii.
purchases and sales of investment securities, income and expenses—at the rates of exchange prevailing on the respective dates of such investment transactions, income or expenses.
We do not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in fair values of investments held or disposed of during the period. Such fluctuations are included within the net realized and net change in unrealized gains or losses from investments in the Consolidated Statements of Operations.
Investment Risks
Our investments are subject to a variety of risks. Those risks include the following:
Market Risk
Market risk represents the potential loss that can be caused by a change in the fair value of the financial instrument.

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Credit Risk
Credit risk represents the risk that we would incur if the counterparties failed to perform pursuant to the terms of their agreements with us.
Liquidity Risk
Liquidity risk represents the possibility that we may not be able to rapidly adjust the size of our investment positions in times of high volatility and financial stress at a reasonable price.
Interest Rate Risk
Interest rate risk represents a change in interest rates, which could result in an adverse change in the fair value of an interest-bearing financial instrument.
Prepayment Risk
Many of our debt investments allow for prepayment of principal without penalty. Downward changes in interest rates may cause prepayments to occur at a faster than expected rate, thereby effectively shortening the maturity of the security and making us less likely to fully earn all of the expected income of that security and reinvesting in a lower yielding instrument.
Structured Credit Related Risk

CLO investments may be riskier and less transparent to us than direct investments in underlying companies. CLOs typically will have no significant assets other than their underlying senior secured loans. Therefore, payments on CLO investments are and will be payable solely from the cash flows from such senior secured loans. 
Online Small-and-Medium-Sized Business Lending Risk
With respect to our online small-and-medium-sized business (“SME”) lending initiative, we invest primarily in marketplace loans through marketplace lending platforms (e.g. OnDeck). We do not conduct loan origination activities ourselves. Therefore, our ability to purchase SME loans, and our ability to grow our portfolio of SME loans, is directly influenced by the business performance and competitiveness of the marketplace loan origination business of the marketplace lending platforms from which we purchase SME loans. In addition, our ability to analyze the risk-return profile of SME loans is significantly dependent on the marketplace platforms’ ability to effectively evaluate a borrower's credit profile and likelihood of default. If we are unable to effectively evaluate borrowers' credit profiles or the credit decisioning and scoring models implemented by each platform, we may incur unanticipated losses which could adversely impact our operating results.
Foreign Currency
Investments denominated in foreign currencies and foreign currency transactions may involve certain considerations and risks not typically associated with those of domestic origin. These risks include, but are not limited to, currency fluctuations and revaluations and future adverse political, social and economic developments, which could cause investments in foreign markets to be less liquid and prices more volatile than those of comparable U.S. companies or U.S. government securities.
Investment Valuation
To value our investments, we follow the guidance of ASC 820, Fair Value Measurement (“ASC 820”), that defines fair value, establishes a framework for measuring fair value in conformity with GAAP, and requires disclosures about fair value measurements. In accordance with ASC 820, the fair value of our investments is defined as the price that we would receive upon selling an investment in an orderly transaction to an independent buyer in the principal or most advantageous market in which that investment is transacted.
ASC 820 classifies the inputs used to measure these fair values into the following hierarchy:
Level 1: Quoted prices in active markets for identical assets or liabilities, accessible by us at the measurement date.
Level 2: Quoted prices for similar assets or liabilities in active markets, or quoted prices for identical or similar assets or liabilities in markets that are not active, or other observable inputs other than quoted prices.
Level 3: Unobservable inputs for the asset or liability.

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In all cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to each investment.
Our Board of Directors has established procedures for the valuation of our investment portfolio. These procedures are detailed below.
Investments for which market quotations are readily available are valued at such market quotations.
For most of our investments, market quotations are not available. With respect to investments for which market quotations are not readily available or when such market quotations are deemed not to represent fair value, our Board of Directors has approved a multi-step valuation process each quarter, as described below.
1.
Each portfolio company or investment is reviewed by our investment professionals with independent valuation firms engaged by our Board of Directors.
2.
The independent valuation firms prepare independent valuations for each investment based on their own independent assessments and issue their report.
3.
The Audit Committee of our Board of Directors reviews and discusses with the independent valuation firms the valuation reports, and then makes a recommendation to the Board of Directors of the value for each investment.
4.
The Board of Directors discusses valuations and determines the fair value of each investment in our portfolio in good faith based on the input of the Investment Adviser, the respective independent valuation firm and the Audit Committee.
Our non-CLO investments are valued utilizing a yield technique, enterprise value (“EV”) technique, net asset value technique, liquidation technique, discounted cash flow technique, or a combination of techniques, as appropriate. The yield technique uses loan spreads for loans and other relevant information implied by market data involving identical or comparable assets or liabilities. Under the EV technique, the EV of a portfolio company is first determined and allocated over the portfolio company’s securities in order of their preference relative to one another (i.e., “waterfall” allocation). To determine the EV, we typically use a market (multiples) valuation approach that considers relevant and applicable market trading data of guideline public companies, transaction metrics from precedent merger and acquisitions transactions, and/or a discounted cash flow technique. The net asset value technique, an income approach, is used to derive a value of an underlying investment (such as real estate property) by dividing a relevant earnings stream by an appropriate capitalization rate. For this purpose, we consider capitalization rates for similar properties as may be obtained from guideline public companies and/or relevant transactions. The liquidation technique is intended to approximate the net recovery value of an investment based on, among other things, assumptions regarding liquidation proceeds based on a hypothetical liquidation of a portfolio company’s assets. The discounted cash flow technique converts future cash flows or earnings to a range of fair values from which a single estimate may be derived utilizing an appropriate discount rate. The fair value measurement is based on the net present value indicated by current market expectations about those future amounts.
In applying these methodologies, additional factors that we consider in valuing our investments may include, as we deem relevant: security covenants, call protection provisions, and information rights; the nature and realizable value of any collateral; the portfolio company’s ability to make payments; the principal markets in which the portfolio company does business; publicly available financial ratios of peer companies; the principal market; and enterprise values, among other factors.
Our investments in CLOs are classified as Level 3 fair value measured securities under ASC 820 and are valued using a discounted multi-path cash flow model. The CLO structures are analyzed to identify the risk exposures and to determine an appropriate call date (i.e., expected maturity). These risk factors are sensitized in the multi-path cash flow model using Monte Carlo simulations, which is a simulation used to model the probability of different outcomes, to generate probability-weighted (i.e., multi-path) cash flows from the underlying assets and liabilities.  These cash flows are discounted using appropriate market discount rates, and relevant data in the CLO market as well as certain benchmark credit indices are considered, to determine the value of each CLO investment.  In addition, we generate a single-path cash flow utilizing our best estimate of expected cash receipts, and assess the reasonableness of the implied discount rate that would be effective for the value derived from the multi-path cash flows.  We are not responsible for and have no influence over the asset management of the portfolios underlying the CLO investments we hold, as those portfolios are managed by non-affiliated third party CLO collateral managers. The main risk factors are default risk, prepayment risk, interest rate risk, downgrade risk, and credit spread risk.

52

Valuation of Other Financial Assets and Financial Liabilities
ASC 825, Financial Instruments, specifically ASC 825-10-25, permits an entity to choose, at specified election dates, to measure eligible items at fair value (the “Fair Value Option”). We have not elected the Fair Value Option to report selected financial assets and financial liabilities. See Note 8 for the disclosure of the fair value of our outstanding debt and the market observable inputs used in determining fair value.
Convertible Notes
We have recorded the Convertible Notes at their contractual amounts. We have determined that the embedded conversion options in the Convertible Unsecured Notes are not required to be separately accounted for as a derivative under ASC 815, Derivatives and Hedging. See Note 5 for further discussion.
Revenue Recognition
Realized gains or losses on the sale of investments are calculated using the specific identification method.
Interest income, adjusted for amortization of premium and accretion of discount, is recorded on an accrual basis. Loan origination fees, original issue discount, and market discounts are capitalized and accreted into interest income over the respective terms of the applicable loans using the effective interest method or straight-line, as applicable, and adjusted only for material amendments or prepayments. Upon a prepayment of a loan, prepayment premiums, original issue discount, or market discounts are recorded as interest income.
Loans are placed on non-accrual status when there is reasonable doubt that principal or interest will be collected. Unpaid accrued interest is generally reversed when a loan is placed on non-accrual status. Interest payments received on non-accrual loans are either applied to the cost basis or interest income, depending upon management’s judgment of the collectibility of the loan receivable. Non-accrual loans are restored to accrual status when past due principal and interest is paid and in management’s judgment, is likely to remain current and future principal and interest collections when due are probable. Interest received and applied against cost while a loan is on non-accrual, and PIK interest capitalized but not recognized while on non-accrual, is recognized prospectively on the effective yield basis through maturity of the loan when placed back on accrual status, to the extent deemed collectible by management. As of September 30, 2018, approximately 2.4% of our total assets at fair value are in non-accrual status.
Some of our loans and other investments may have contractual payment-in-kind (“PIK”) interest or dividends. PIK income computed at the contractual rate is accrued into income and reflected as receivable up to the capitalization date. PIK investments offer issuers the option at each payment date of making payments in cash or in additional securities. When additional securities are received, they typically have the same terms, including maturity dates and interest rates as the original securities issued. On these payment dates, we capitalize the accrued interest (reflecting such amounts in the basis as additional securities received). PIK generally becomes due at maturity of the investment or upon the investment being called by the issuer. At the point that we believe PIK is not fully expected to be realized, the PIK investment will be placed on non-accrual status. When a PIK investment is placed on non-accrual status, the accrued, uncapitalized interest or dividends are reversed from the related receivable through interest or dividend income, respectively. We do not reverse previously capitalized PIK interest or dividends. Upon capitalization, PIK is subject to the fair value estimates associated with their related investments. PIK investments on non-accrual status are restored to accrual status if we believe that PIK is expected to be realized.
Interest income from investments in the “equity” class of security of CLO funds (typically preferred shares, income notes or subordinated notes) and “equity” class of security of securitized trust is recorded based upon an estimation of an effective yield to expected maturity utilizing assumed cash flows in accordance with ASC 325-40, Beneficial Interests in Securitized Financial Assets. We monitor the expected cash inflows from our CLO and securitized trust equity investments, including the expected residual payments, and the effective yield is determined and updated periodically.
Dividend income is recorded on the ex-dividend date.
Other income generally includes amendment fees, commitment fees, administrative agent fees and structuring fees which are recorded when earned. Excess deal deposits, net profits interests and overriding royalty interests are included in other income. See Note 10 for further discussion.
Federal and State Income Taxes
We have elected to be treated as a RIC and intend to continue to comply with the requirements of the Code applicable to regulated investment companies. We are required to distribute at least 90% of our investment company taxable income and intend to distribute (or retain through a deemed distribution) all of our investment company taxable income and net capital gains to stockholders;

53

therefore, we have made no provision for income taxes. The character of income and gains that we will distribute is determined in accordance with income tax regulations that may differ from GAAP. Book and tax basis differences relating to stockholder dividends and distributions and other permanent book and tax differences are reclassified to paid-in capital.
If we do not distribute (or are not deemed to have distributed) at least 98% of our annual ordinary income and 98.2% of our capital gains in the calendar year earned, we will generally be required to pay an excise tax equal to 4% of the amount by which 98% of our annual ordinary income and 98.2% of our capital gains exceed the distributions from such taxable income for the year. To the extent that we determine that our estimated current year annual taxable income will be in excess of estimated current year dividend distributions from such taxable income, we accrue excise taxes, if any, on estimated excess taxable income. As of September 30, 2018, we do not expect to have any excise tax due for the 2018 calendar year. Thus, we have not accrued any excise tax for this period.
If we fail to satisfy the annual distribution requirement or otherwise fail to qualify as a RIC in any taxable year, we would be subject to tax on all of our taxable income at regular corporate income tax rates. We would not be able to deduct distributions to stockholders, nor would we be required to make distributions. Distributions would generally be taxable to our individual and other non-corporate taxable stockholders as ordinary dividend income eligible for the reduced maximum rate applicable to qualified dividend income to the extent of our current and accumulated earnings and profits, provided certain holding period and other requirements are met. Subject to certain limitations under the Code, corporate distributions would be eligible for the dividends-received deduction. To qualify again to be taxed as a RIC in a subsequent year, we would be required to distribute to our shareholders our accumulated earnings and profits attributable to non-RIC years. In addition, if we failed to qualify as a RIC for a period greater than two taxable years, then, in order to qualify as a RIC in a subsequent year, we would be required to elect to recognize and pay tax on any net built-in gain (the excess of aggregate gain, including items of income, over aggregate loss that would have been realized if we had been liquidated) or, alternatively, be subject to taxation on such built-in gain recognized for a period of five years.

We follow ASC 740, Income Taxes (“ASC 740”). ASC 740 provides guidance for how uncertain tax positions should be recognized, measured, presented, and disclosed in the consolidated financial statements. ASC 740 requires the evaluation of tax positions taken or expected to be taken in the course of preparing our tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold are recorded as a tax benefit or expense in the current year. As of September 30, 2018 and for the three months then ended, we did not record any unrecognized tax benefits or liabilities. Management’s determinations regarding ASC 740 may be subject to review and adjustment at a later date based upon factors including, but not limited to, an on-going analysis of tax laws, regulations and interpretations thereof. Although we file both federal and state income tax returns, our major tax jurisdiction is federal. Our federal tax returns for the tax years ended August 31, 2015 and thereafter remain subject to examination by the Internal Revenue Service.
Dividends and Distributions
Dividends and distributions to common stockholders are recorded on the ex-dividend date. The amount, if any, to be paid as a monthly dividend or distribution is approved by our Board of Directors quarterly and is generally based upon our management’s estimate of our future taxable earnings. Net realized capital gains, if any, are distributed at least annually.
Financing Costs
We record origination expenses related to our Revolving Credit Facility, and Convertible Notes, Public Notes and Prospect Capital InterNotes® (collectively, our “Unsecured Notes”) as deferred financing costs. These expenses are deferred and amortized as part of interest expense using the straight-line method over the stated life of the obligation for our Revolving Credit Facility. The same methodology is used to approximate the effective yield method for our Prospect Capital InterNotes® and our at-the-market offerings of our existing unsecured notes that mature on June 15, 2024 (“2024 Notes Follow-on Program”) and June 15, 2028 (“2028 Notes Follow-on Program”). The effective interest method is used to amortize deferred financing costs for our remaining Unsecured Notes over the respective expected life or maturity. In the event that we modify or extinguish our debt before maturity, we follow the guidance in ASC 470-50, Modification and Extinguishments (“ASC 470-50”). For modifications to or exchanges of our Revolving Credit Facility, any unamortized deferred costs relating to lenders who are not part of the new lending group are expensed. For extinguishments of our Unsecured Notes, any unamortized deferred costs are deducted from the carrying amount of the debt in determining the gain or loss from the extinguishment.
Unamortized deferred financing costs are presented as a direct deduction to the respective Unsecured Notes (see Notes 5, 6, and 7).
We may record registration expenses related to shelf filings as prepaid expenses. These expenses consist principally of the Securities and Exchange Commission (“SEC”) registration fees, legal fees and accounting fees incurred. These prepaid expenses are charged

54

to capital upon the receipt of proceeds from an equity offering or charged to expense if no offering is completed. As of September 30, 2018 and June 30, 2018, there are no prepaid expenses related to registration expenses and all amounts incurred have been expensed.
Guarantees and Indemnification Agreements
We follow ASC 460, Guarantees (“ASC 460”). ASC 460 elaborates on the disclosure requirements of a guarantor in its interim and annual consolidated financial statements about its obligations under certain guarantees that it has issued. It also requires a guarantor to recognize, at the inception of a guarantee, for those guarantees that are covered by ASC 460, the fair value of the obligation undertaken in issuing certain guarantees.
Per Share Information
Net increase or decrease in net assets resulting from operations per share is calculated using the weighted average number of common shares outstanding for the period presented. In accordance with ASC 946, convertible securities are not considered in the calculation of net asset value per share.
Recent Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which amends the financial instruments impairment guidance so that an entity is required to measure expected credit losses for financial assets based on historical experience, current conditions and reasonable and supportable forecasts. As such, an entity will use forward-looking information to estimate credit losses. ASU 2016-13 also amends the guidance in FASB ASC Subtopic No. 325-40, Investments-Other, Beneficial Interests in Securitized Financial Assets, related to the subsequent measurement of accretable yield recognized as interest income over the life of a beneficial interest in securitized financial assets under the effective yield method. ASU 2016-13 is effective for financial statements issued for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted as of the fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. We are currently evaluating the impact, if any, of adopting this ASU on our consolidated financial statements.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts
and Cash Payments (“ASU 2016-15”), which addresses certain aspects of cash flow statement classification. One such amendment requires cash payments for debt prepayment or debt extinguishment costs to be classified as cash outflows for financing activities. ASU 2016-15 is effective for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity that elects early adoption must adopt all of the amendments in the same period. The adoption of the amended guidance in ASU 2016-15 did not have a significant effect on our consolidated financial statements and disclosures.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which amends accounting guidance for revenue recognition arising from contracts with customers. Under the new guidance, an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration the entity expects to be entitled to in exchange for those goods or services. In August 2015, the FASB also issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which deferred the effective date of the standard for one year. As a result, the guidance is effective for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted as of fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The application of this guidance did not have a material impact on our consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement. The standard will modify the disclosure requirements for fair value measurements by removing, modifying, or adding certain disclosures. ASU No. 2018-13 is effective for annual reporting periods beginning after December 15, 2019, including interim periods within that reporting period. Early adoption is permitted upon issuance of this ASU. We are currently evaluating the impact of adopting this ASU on our consolidated financial statements.

SEC Disclosure Update and Simplification
In August 2018, the SEC adopted the final rule under SEC Release No. 33-10532, Disclosure Update and Simplification, amending certain disclosure requirements that were redundant, duplicative, overlapping, outdated or superseded. The amendments are intended to facilitate the disclosure of information to investors and simplify compliance. As a result of the amendments, we are required to present a reconciliation of changes in stockholders’ equity in the notes or as a separate statement. This analysis should

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reconcile the beginning balance to the ending balance of each caption in stockholders’ equity for each period for which an income statement is required to be filed and comply with the remaining content requirements of Rule 3-04 of Regulation S-X. In October 2018, the SEC announced that this final rule will become effective on November 5, 2018. In light of the timing of effectiveness of the amendments and proximity of effectiveness to the filing date for most filers’ quarterly reports, the SEC Staff commented that it would not object if the first presentation of the changes in shareholders’ equity is included in a filer’s Form 10-Q for the quarter that begins after the effective date of the amendments. Due to the timing of our filing of this Form 10-Q, our first presentation of the changes in stockholders’ equity will be for our second quarter ended December 31, 2018. 
Tax Cuts and Jobs Act
On December 22, 2017, the President signed into law the Tax Cuts and Jobs Act (The “Tax Act”), which significantly changed the Code, including, a reduction in the corporate income tax rate, a new limitation on the deductibility of interest expense, and significant changes to the taxation of income earned from foreign sources and foreign subsidiaries. The Tax Act also authorizes the IRS to issue regulations with respect to the new provisions. We cannot predict how the changes in the Tax and Jobs Act, or regulations or other guidance issued under it, might affect us, our business or the business of our portfolio companies. However, our portfolio companies may or may not make certain elections under the Tax Act that could materially increase their taxable earnings and profits. Any such increase in the earnings and profits of a portfolio company may result in the characterization of certain distributions sourced from sale proceeds as dividend income, which may increase our distributable taxable income. During the three months ended September 30, 2018, we received $11,000 of such dividends from NPRC related to the gain on the sale of NPRC’s St. Marin, Central Park, and Matthews Reserve properties.
Note 3. Portfolio Investments
At September 30, 2018, we had investments in 137 long-term portfolio investments, which had an amortized cost of $6,039,814 and a fair value of $5,936,683. At June 30, 2018, we had investments in 135 long-term portfolio investments, which had an amortized cost of $5,831,458 and a fair value of $5,727,279.
The original cost basis of debt placement and equity securities acquired, including follow-on investments for existing portfolio companies, payment-in-kind interest, and structuring fees, totaled $254,642 and $222,151 during the three months ended September 30, 2018 and September 30, 2017, respectively. Debt repayments and considerations from sales of equity securities of approximately$55,166 and $310,894 were received during the three months ended September 30, 2018 and September 30, 2017, respectively.
The following table shows the composition of our investment portfolio as of September 30, 2018 and June 30, 2018.
 
September 30, 2018
 
June 30, 2018
 
Cost

Fair Value

Cost

Fair Value
Revolving Line of Credit
$
30,002


$
29,871


$
38,659


$
38,559

Senior Secured Debt
2,737,167


2,601,554


2,602,018


2,481,353

Subordinated Secured Debt
1,360,127


1,290,476


1,318,028


1,260,525

Subordinated Unsecured Debt
38,712


31,178


38,548


32,945

Small Business Loans
—


—


30


17

CLO Debt
26,085

 
27,424

 
6,159

 
6,159

CLO Residual Interest
1,106,222


937,899


1,096,768


954,035

Equity
741,499


1,018,281


731,248


953,686

Total Investments
$
6,039,814


$
5,936,683


$
5,831,458


$
5,727,279


56

In the previous table and throughout the remainder of this footnote, we aggregate our portfolio investments by type of investment, which may differ slightly from the nomenclature used by the constituent instruments defining the rights of holders of the investment, as disclosed on our Consolidated Schedules of Investments (“SOI”). The following investments are included in each category:
•
Revolving Line of Credit includes our investments in delayed draw term loans.
•
Senior Secured Debt includes investments listed on the SOI such as senior secured term loans, senior term loans, secured promissory notes, senior demand notes, and first lien term loans.
•
Subordinated Secured Debt includes investments listed on the SOI such as subordinated secured term loans, subordinated term loans, senior subordinated notes, and second lien term loans.
•
Subordinated Unsecured Debt includes investments listed on the SOI such as subordinated unsecured notes and senior unsecured notes.
•
Small Business Loans includes our investments in SME whole loans purchased from OnDeck.
•
CLO Debt includes our investment in the “debt” class of security of CLO funds.
•
CLO Residual Interest includes our investments in the “equity” security class of CLO funds such as income notes, preference shares, and subordinated notes.
•
Equity, unless specifically stated otherwise, includes our investments in preferred stock, common stock, membership interests, net profits interests, net operating income interests, net revenue interests, overriding royalty interests, escrows receivable, and warrants.

57

The following table shows the fair value of our investments disaggregated into the three levels of the ASC 820 valuation hierarchy as of September 30, 2018.
 
Level 1
 
Level 2
 
Level 3
 
Total
Revolving Line of Credit
$
—

 
$
—

 
$
29,871

 
$
29,871

Senior Secured Debt
—

 
—

 
2,601,554

 
2,601,554

Subordinated Secured Debt
—

 
—

 
1,290,476

 
1,290,476

Subordinated Unsecured Debt
—

 
—

 
31,178

 
31,178

Small Business Loans
—

 
—

 
—

 
—

CLO Debt
—

 
—

 
27,424

 
27,424

CLO Residual Interest
—

 
—

 
937,899

 
937,899

Equity
—

 
—

 
1,018,281

 
1,018,281

Total Investments
$
—

 
$
—

 
$
5,936,683

 
$
5,936,683

The following table shows the fair value of our investments disaggregated into the three levels of the ASC 820 valuation hierarchy as of June 30, 2018.
 
Level 1
 
Level 2
 
Level 3
 
Total
Revolving Line of Credit
$
—

 
$
—

 
$
38,559

 
$
38,559

Senior Secured Debt
—

 
—

 
2,481,353

 
2,481,353

Subordinated Secured Debt
—

 
—

 
1,260,525

 
1,260,525

Subordinated Unsecured Debt
—

 
—

 
32,945

 
32,945

Small Business Loans
—

 
—

 
17

 
17

CLO Debt
—

 
—

 
6,159

 
6,159

CLO Residual Interest
—

 
—

 
954,035

 
954,035

Equity
—

 
—

 
953,686

 
953,686

Total Investments
$
—

 
$
—

 
$
5,727,279

 
$
5,727,279

The following tables show the aggregate changes in the fair value of our Level 3 investments during the three months ended September 30, 2018.
 
Fair Value Measurements Using Unobservable Inputs (Level 3)
 
Control
 Investments
 
Affiliate
 Investments
 
Non-Control/
 Non-Affiliate
 Investments
 
Total
Fair value as of June 30, 2018
$
2,404,326

 
$
58,436

 
$
3,264,517

 
$
5,727,279

Net realized gains on investments
1

 
—

 
22

 
23

Net change in unrealized gains (losses)(1)
51,918

 
(13,755
)
 
(37,114
)
 
1,049

Net realized and unrealized gains (losses)
51,919

 
(13,755
)
 
(37,092
)
 
1,072

Purchases of portfolio investments
34,351

 
—

 
210,966

 
245,317

Payment-in-kind interest
7,744

 
361

 
1,220

 
9,325

Accretion (amortization) of discounts and premiums, net
848

 
—

 
6,991

 
7,839

Repayments and sales of portfolio investments
(11,851
)
 
(7,855
)
 
(34,443
)
 
(54,149
)
Transfers within Level 3(1)
—

 
58,806

 
(58,806
)
 
—

Transfers in (out) of Level 3(1)
—

 
—

 
—

 
—

Fair value as of September 30, 2018
$
2,487,337

 
$
95,993

 
$
3,353,353

 
$
5,936,683


58

 
Revolving Line of Credit
 
Senior Secured
Debt
 
Subordinated Secured Debt
 
Subordinated Unsecured Debt
 
Small Business Loans
 
CLO Debt
 
CLO 
Residual Interest
 
Equity
 
Total
Fair value as of June 30, 2018
$
38,559

 
$
2,481,353

 
$
1,260,525

 
$
32,945

 
$
17

 
$
6,159

 
$
954,035

 
$
953,686

 
$
5,727,279

Net realized gains on investments
—

 
—

 
—

 
1

 
22

 
—

 
—

 
—

 
23

Net change in unrealized gains (losses)(1)
(29
)
 
(14,950
)
 
(12,151
)
 
(1,930
)
 
13

 
1,337

 
(25,589
)
 
54,348

 
1,049

Net realized and unrealized (losses) gains
(29
)
 
(14,950
)
 
(12,151
)
 
(1,929
)
 
35

 
1,337

 
(25,589
)
 
54,348

 
1,072

Purchases of portfolio investments
—

 
161,300

 
50,800

 
—

 
—

 
19,898

 
3,072

 
10,247

 
245,317

Payment-in-kind interest
198

 
7,148

 
1,816

 
163

 
—

 
—

 
—

 
—

 
9,325

Accretion (amortization) of discounts and premiums, net
—

 
178

 
1,250

 
—

 
—

 
30

 
6,381

 
—

 
7,839

Repayments and sales of portfolio investments
(8,857
)
 
(33,475
)
 
(11,764
)
 
(1
)
 
(52
)
 
—

 
—

 
—

 
(54,149
)
Transfers within Level 3(1)
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Transfers in (out) of Level 3(1)
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Fair value as of September 30, 2018
$
29,871

 
$
2,601,554

 
$
1,290,476

 
$
31,178

 
$
—

 
$
27,424

 
$
937,899

 
$
1,018,281

 
$
5,936,683

(1)
Transfers are assumed to have occurred at the beginning of the quarter during which the asset was transferred.
The following tables show the aggregate changes in the fair value of our Level 3 investments during the three months ended September 30, 2017.
 
Fair Value Measurements Using Unobservable Inputs (Level 3)
 
Control
 Investments
 
Affiliate
 Investments
 
Non-Control/
 Non-Affiliate
 Investments
 
Total
Fair value as of June 30, 2017
$
1,911,775

 
$
11,429

 
$
3,915,101

 
$
5,838,305

Net realized gains on investments
9

 
846

 
560

 
1,415

Net change in unrealized gains (losses)
1,093

 
5,193

 
(59,037
)
 
(52,751
)
Net realized and unrealized gains (losses)
1,102

 
6,039

 
(58,477
)
 
(51,336
)
Purchases of portfolio investments
35,169

 
846

 
184,156

 
220,171

Payment-in-kind interest
1,709

 
271

 
—

 
1,980

Accretion (amortization) of discounts and premiums, net
429

 
—

 
(11,562
)
 
(11,133
)
Repayments and sales of portfolio investments
(16,818
)
 
(846
)
 
(293,206
)
 
(310,870
)
Transfers within Level 3(1)
—

 
—

 
—

 
—

Transfers in (out) of Level 3(1)
—

 
—

 
—

 
—

Fair value as of September 30, 2017
$
1,933,366

 
$
17,739

 
$
3,736,012

 
$
5,687,117

 
Revolving Line of Credit
 
Senior Secured
Debt
 
Subordinated Secured Debt
 
Subordinated Unsecured Debt
 
Small Business Loans
 
CLO 
Residual Interest
 
Equity
 
Total
Fair value as of June 30, 2017
$
27,409

 
$
2,798,796

 
$
1,107,040

 
$
44,434

 
$
7,964

 
$
1,079,712

 
$
772,950

 
$
5,838,305

Net realized gains (losses) on investments
—

 
847

 
—

 
9

 
(268
)
 
827

 
—

 
1,415

Net change in unrealized gains (losses)
—

 
(7,754
)
 
(14,441
)
 
(8,939
)
 
89

 
(44,754
)
 
23,048

 
(52,751
)
Net realized and unrealized (losses) gains
—

 
(6,907
)
 
(14,441
)
 
(8,930
)
 
(179
)
 
(43,927
)
 
23,048

 
(51,336
)
Purchases of portfolio investments
2,850

 
143,817

 
46,230

 
—

 
7,551

 
—

 
19,723

 
220,171

Payment-in-kind interest
—

 
815

 
1,015

 
150

 
—

 
—

 
—

 
1,980

Accretion (amortization) of discounts and premiums, net
—

 
44

 
973

 
—

 
—

 
(12,150
)
 
—

 
(11,133
)
Repayments and sales of portfolio investments
(7,834
)
 
(196,289
)
 
(34,015
)
 
(9
)
 
(9,667
)
 
(54,157
)
 
(8,899
)
 
(310,870
)
Transfers within Level 3(1)
—

 
(6,128
)
 
—

 
—

 
—

 
—

 
6,128

 
—

Transfers in (out) of Level 3(1)
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Fair value as of September 30, 2017
$
22,425

 
$
2,734,148

 
$
1,106,802

 
$
35,645

 
$
5,669

 
$
969,478

 
$
812,950

 
$
5,687,117

(1)
Transfers are assumed to have occurred at the beginning of the quarter during which the asset was transferred.
For the three months ended September 30, 2018 and September 30, 2017, the net change in unrealized gains (losses) on the investments that use Level 3 inputs was $2,094 and ($52,485) for investments still held as of September 30, 2018 and September 30, 2017, respectively.

59


The ranges of unobservable inputs used in the fair value measurement of our Level 3 investments as of September 30, 2018 were as follows:
 
 
 
 
 
 
Unobservable Input
Asset Category
 
Fair Value
 
Primary Valuation Approach or Technique
 
Input
 
Range
 
Weighted
Average
Senior Secured Debt
 
$1,493,012
 
Discounted Cash Flow
(Yield analysis)
 
Market yield
 
7.1% - 23.6%
 
11.1%
Senior Secured Debt
 
397,275
 
Enterprise Value Waterfall (Market approach)
 
EBITDA multiple
 
4.0x - 10.3x
 
8.3x
Senior Secured Debt
 
179,965
 
Enterprise Value Waterfall (Market approach)
 
Revenue multiple
 
0.3x - 1.6x
 
1.4x
Senior Secured Debt
 
49,223
 
Enterprise Value Waterfall (Discounted cash flow)
 
Discount rate
 
7.7% - 16.3%
 
11.0%
Senior Secured Debt
 
787
 
Liquidation Analysis
 
N/A
 
N/A
 
N/A
Senior Secured Debt (1)
 
217,960
 
Enterprise Value Waterfall
 
Loss-adjusted discount rate
 
3.0% - 13.9%
 
11.0%
Senior Secured Debt (2)
 
293,203
 
Enterprise Value Waterfall (NAV Analysis)
 
Capitalization Rate
 
3.4% - 8.7%
 
6.1%
Senior Secured Debt (2)
 
 
 
Discounted Cash Flow
 
Discount rate
 
6.5% - 7.5%
 
7.0%
Subordinated Secured Debt
 
873,589
 
Discounted Cash Flow
(Yield analysis)
 
Market yield
 
7.6% - 22.6%
 
11.8%
Subordinated Secured Debt
 
24,782
 
Enterprise Value Waterfall (Market approach)
 
EBITDA multiple
 
6.3x - 7.3x
 
6.8x
Subordinated Secured Debt
 
50,670
 
Enterprise Value Waterfall (Market approach)
 
Revenue multiple
 
0.3x - 0.4x
 
0.3x
Subordinated Secured Debt (3)
 
341,435
 
Enterprise Value Waterfall (Market approach)
 
Book value multiple
 
1.0x - 3.1x
 
2.5x
Subordinated Secured Debt (3)
 
 
 
Enterprise Value Waterfall (Market approach)
 
Earnings multiple
 
7.5x - 12.0x
 
11.9x
Subordinated Unsecured Debt
 
31,178
 
Enterprise Value Waterfall (Market approach)
 
EBITDA multiple
 
5.8x - 11.5x
 
9.7x
CLO Debt
 
27,424
 
Discounted Cash Flow
 
Discount rate (5)
 
11.7% - 12.1%
 
12.0%
CLO Residual Interest
 
937,899
 
Discounted Cash Flow
 
Discount rate (5)
 
2.6% - 32.5%
 
18.2%
Preferred Equity
 
75,947
 
Enterprise Value Waterfall (Market approach)
 
EBITDA multiple
 
4.0x - 9.0x
 
7.8x
Preferred Equity
 
2,201
 
Liquidation Analysis
 
N/A
 
N/A
 
N/A
Common Equity/Interests/Warrants
 
118,003
 
Enterprise value waterfall (Market approach)
 
EBITDA multiple
 
4.0x-9.0x
 
6.7x
Common Equity/Interests/Warrants (1)
 
14,366
 
Enterprise value waterfall
 
Loss-adjusted discount rate
 
3.0% - 13.9%
 
11.0x
Common Equity/Interests/Warrants (2)
 
438,947
 
Enterprise value waterfall (NAV analysis)
 
Capitalization Rate
 
3.4% - 8.7%
 
6.2%
Common Equity/Interests/Warrants (2)
 
 
 
Discounted cash flow
 
Discount rate
 
6.5% - 7.5%
 
7.0%
Common Equity/Interests/Warrants (3)
 
206,355
 
Enterprise value waterfall (Market approach)
 
Book value multiple
 
1.0x - 3.1x
 
2.4x
Common Equity/Interests/Warrants (3)
 
 
 
Enterprise value waterfall (Market approach)
 
Earnings multiple
 
7.5x - 12.0x
 
11.0x
Common Equity/Interests/Warrants (4)
 
107,487
 
Discounted cash flow
 
Discount rate
 
6.5% - 7.5%
 
7.0%
Common Equity/Interests/Warrants
 
39,408
 
Discounted cash flow
 
Discount rate
 
7.7% - 16.0%
 
8.9%
Common Equity/Interests/Warrants
 
14,635
 
Liquidation analysis
 
N/A
 
N/A
 
N/A
Escrow Receivable
 
932
 
Discounted cash flow
 
Discount rate
 
7.5% - 8.6%
 
8.1%
Total Level 3 Investments
 
$5,936,683
 
 
 
 
 
 
 
 

60


(1)
Represents an investment in a Real Estate Investment subsidiary. The Enterprise Value analysis includes the fair value of our investments in such indirect subsidiary’s consumer loans purchased from online consumer lending platforms, which are valued using a discounted cash flow valuation technique. The key unobservable input to the discounted cash flow analysis is noted above. In addition, the valuation also used projected loss rates as an unobservable input ranging from 0.0%-19.0%, with a weighted average of 3.5%.
(2)
Represents Real Estate Investments. Enterprise Value Waterfall methodology uses both the net asset value analysis and discounted cash flow technique, which are weighted equally (50%).
(3)
Represents investments in consumer finance subsidiaries. The enterprise value waterfall methodology utilizes book value and earnings multiples, as noted above. In addition, the valuation of certain consumer finance companies utilizes the discounted cash flow technique whereby the significant unobservable input is the discount rate. For these companies the discount rate ranged from 14.0% to 16.0% with a weighted average of 14.7%.
(4)
Represents net operating income interests in Real Estate Investments.
(5)
Represents the implied discount rate based on our internally generated single-cash flow model that is derived from the fair value estimated by the corresponding multi-path cash flow model utilized by the independent valuation firm.


61

The ranges of unobservable inputs used in the fair value measurement of our Level 3 investments as of June 30, 2018 were as follows:
 
 
 
 
 
 
Unobservable Input
Asset Category
 
Fair Value
 
Primary Valuation Approach or Technique
 
Input
 
Range
 
Weighted
Average
Senior Secured Debt
 
$
1,409,584

 
Discounted Cash Flow
(Yield analysis)
 
Market yield
 
7.0% - 21.2%
 
11.3%
Senior Secured Debt
 
361,720

 
Enterprise Value Waterfall (Market approach)
 
EBITDA multiple
 
4.0x - 10.3x
 
8.3x
Senior Secured Debt
 
181,339

 
Enterprise Value Waterfall (Market approach)
 
Revenue multiple
 
0.3x - 1.6x
 
1.4x
Senior Secured Debt
 
47,099

 
Enterprise Value Waterfall (Discounted cash flow)
 
Discount rate
 
7.5% - 16.1%
 
10.7%
Senior Secured Debt
 
787

 
Liquidation Analysis
 
N/A
 
N/A
 
N/A
Senior Secured Debt (1)
 
226,180

 
Enterprise Value Waterfall
 
Loss-adjusted discount rate
 
3.0% - 14.2%
 
11.0%
Senior Secured Debt (2)
 
293,203

 
Enterprise Value Waterfall (NAV Analysis)
 
Capitalization Rate
 
3.3% - 8.7%
 
6.0%
Senior Secured Debt (2)
 
—

 
Discounted Cash Flow
 
Discount rate
 
6.5% - 7.5%
 
7.0%
Subordinated Secured Debt
 
830,766

 
Discounted Cash Flow
(Yield analysis)
 
Market yield
 
7.6% - 22.5%
 
11.7%
Subordinated Secured Debt
 
28,622

 
Enterprise Value Waterfall (Market approach)
 
EBITDA multiple
 
6.5x - 7.5x
 
7.0x
Subordinated Secured Debt
 
58,806

 
Enterprise Value Waterfall (Market approach)
 
Revenue multiple
 
0.3x - 0.4x
 
0.4x
Subordinated Secured Debt (3)
 
342,331

 
Enterprise Value Waterfall (Market approach)
 
Book value multiple
 
0.8x - 3.1x
 
2.5x
Subordinated Secured Debt (3)
 
—

 
Enterprise Value Waterfall (Market approach)
 
Earnings multiple
 
7.5x - 13.0x
 
11.9x
Subordinated Unsecured Debt
 
32,945

 
Enterprise Value Waterfall (Market approach)
 
EBITDA multiple
 
5.8x - 11.5x
 
9.7%
Small Business Loans (4)
 
17

 
Discounted Cash Flow
 
Loss-adjusted discount rate
 
13.0% - 24.3%
 
15.5%
CLO Interests
 
960,194

 
Discounted Cash Flow
 
Discount rate (6)
 
2.33% - 24.28%
 
0.1724
Preferred Equity
 
73,792

 
Enterprise Value Waterfall (Market approach)
 
EBITDA multiple
 
4.0x - 9.0x
 
7.9x
Preferred Equity
 
2,194

 
Liquidation Analysis
 
N/A
 
N/A
 
N/A
Common Equity/Interests/Warrants
 
81,753

 
Enterprise value waterfall (Market approach)
 
EBITDA multiple
 
5.0x - 9.0x
 
6.8x
Common Equity/Interests/Warrants (1)
 
16,881

 
Enterprise value waterfall
 
Loss-adjusted discount rate
 
3.0% - 14.2%
 
11.0%
Common Equity/Interests/Warrants (2)
 
419,224

 
Enterprise value waterfall (NAV analysis)
 
Capitalization Rate
 
3.3% - 8.7%
 
6.0%
Common Equity/Interests/Warrants (2)
 
—

 
Discounted cash flow
 
Discount rate
 
6.5% - 7.5%
 
7.0%
Common Equity/Interests/Warrants (3)
 
209,583

 
Enterprise value waterfall (Market approach)
 
Book value multiple
 
0.8x - 3.1x
 
2.4x
Common Equity/Interests/Warrants (3)
 
—

 
Enterprise value waterfall (Market approach)
 
Earnings multiple
 
7.5x - 13.0x
 
11.9x
Common Equity/Interests/Warrants (5)
 
99,488

 
Discounted cash flow
 
Discount rate
 
6.5% - 7.5%
 
7.0%
Common Equity/Interests/Warrants
 
36,805

 
Discounted cash flow
 
Discount rate
 
7.5% - 15.5%
 
8.8%
Common Equity/Interests/Warrants
 
13,049

 
Liquidation analysis
 
N/A
 
N/A
 
N/A
Escrow Receivable
 
917

 
Discounted cash flow
 
Discount rate
 
7.3% - 8.4%
 
7.9%
Total Level 3 Investments
 
$
5,727,279

 
 
 
 
 
 
 
 



62

(1)
Represents an investment in a Real Estate Investment subsidiary. The Enterprise Value analysis includes the fair value of our investments in such indirect subsidiary’s consumer loans purchased from online consumer lending platforms, which are valued using a discounted cash flow valuation technique. The key unobservable input to the discounted cash flow analysis is noted above. In addition, the valuation also used projected loss rates as an unobservable input ranging from 0.0%-20.7%, with a weighted average of 4.2%.
(2)
Represents our REIT investments. EV waterfall methodology uses both the net asset value analysis and discounted cash flow technique, which are weighted equally (50%).
(3)
Represents investments in consumer finance subsidiaries. The enterprise value waterfall methodology utilizes book value and earnings multiples, as noted above. In addition, the valuation of certain consumer finance companies utilizes the discounted cash flow technique whereby the significant unobservable input is the discount rate. For these companies, each valuation technique (book value multiple, earnings multiple, and discount rate) is weighted equally. For these companies the discount rate ranged from 13.5% to 15.5% with a weighted average of 14.2%.
(4)
Includes our investments in small business whole loans purchased from OnDeck. Valuation also used projected loss rates as an unobservable input ranging from 0.00%-0.06%, with a weighted average of 0.01%.
(5)
Represents net operating income interests in our REIT investments.
(6)
Represents the implied discount rate based on our internally generated single-cash flows that is derived from the fair value estimated by the corresponding multi-path cash flow model utilized by the independent valuation firm.
In determining the range of values for debt instruments, except CLOs and debt investments in controlling portfolio companies, management and the independent valuation firm estimated corporate and security credit ratings and identified corresponding yields to maturity for each loan from relevant market data. A discounted cash flow technique was then applied using the appropriate yield to maturity as the discount rate, to determine a range of values. In determining the range of values for debt investments of controlled companies and equity investments, the enterprise value was determined by applying a market approach such as using earnings before income interest, tax, depreciation and amortization (“EBITDA”) multiples, net income and/or book value multiples for similar guideline public companies and/or similar recent investment transactions and/or an income approach, such as the discounted cash flow technique. For stressed debt and equity investments, a liquidation analysis was used.
In determining the range of values for our investments in CLOs, the independent valuation firm uses a discounted multi-path cash flow model. The valuations were accomplished through the analysis of the CLO deal structures to identify the risk exposures from the modeling point of view as well as to determine an appropriate call date (i.e., expected maturity). These risk factors are sensitized in the multi-path cash flow model using Monte Carlo simulations to generate probability-weighted (i.e., multi-path) cash flows for the underlying assets and liabilities. These cash flows are discounted using appropriate market discount rates, and relevant data in the CLO market and certain benchmark credit indices are considered, to determine the value of each CLO investment. In addition, we generate a single-path cash flow utilizing our best estimate of expected cash receipts, and assess the reasonableness of the implied discount rate that would be effective for the value derived from the corresponding multi-path cash flow model.
Our portfolio consists of residual interests in CLOs, which involve a number of significant risks. CLOs are typically very highly levered (10 - 14 times), and therefore the residual interest tranches that we invest in are subject to a higher degree of risk of total loss. In particular, investors in CLO residual interests indirectly bear risks of the underlying loan investments held by such CLOs. We generally have the right to receive payments only from the CLOs, and generally do not have direct rights against the underlying borrowers or the entity that sponsored the CLOs. While the CLOs we target generally enable the investor to acquire interests in a pool of senior loans without the expenses associated with directly holding the same investments, the prices of indices and securities underlying our CLOs will rise or fall. These prices (and, therefore, the prices of the CLOs) will be influenced by the same types of political and economic events that affect issuers of securities and capital markets generally. The failure by a CLO investment in which we invest to satisfy financial covenants, including with respect to adequate collateralization and/or interest coverage tests, could lead to a reduction in its payments to us. In the event that a CLO fails certain tests, holders of debt senior to us would be entitled to additional payments that would, in turn, reduce the payments we would otherwise be entitled to receive. Separately, we may incur expenses to the extent necessary to seek recovery upon default or to negotiate new terms with a defaulting CLO or any other investment we may make. If any of these occur, it could materially and adversely affect our operating results and cash flows.

The interests we have acquired in CLOs are generally thinly traded or have only a limited trading market. CLOs are typically privately offered and sold, even in the secondary market. As a result, investments in CLOs may be characterized as illiquid securities. In addition to the general risks associated with investing in debt securities, CLO residual interests carry additional risks, including, but not limited to: (i) the possibility that distributions from collateral securities will not be adequate to make interest or other payments; (ii) the quality of the collateral may decline in value or default; (iii) our investments in CLO tranches will likely be subordinate to other senior classes of note tranches thereof; and (iv) the complex structure of the security may not be fully

63

understood at the time of investment and may produce disputes with the CLO investment or unexpected investment results. Our net asset value may also decline over time if our principal recovery with respect to CLO residual interests is less than the cost of those investments. Our CLO investments and/or the CLO’s underlying senior secured loans may prepay more quickly than expected, which could have an adverse impact on our value.

An increase in LIBOR would materially increase the CLO’s financing costs. Since most of the collateral positions within the CLOs have LIBOR floors, there may not be corresponding increases in investment income (if LIBOR increases but stays below the LIBOR floor rate of such investments) resulting in materially smaller distribution payments to the residual interest investors.

On July 27, 2017, the Financial Conduct Authority (“FCA”) announced that it will no longer persuade or compel banks to submit rates for the calculation of the LIBOR rates after 2021 (the “FCA Announcement”). Furthermore, in the United States, efforts to identify a set of alternative U.S. dollar reference interest rates include proposals by the Alternative Reference Rates Committee of the Federal Reserve Board and the Federal Reserve Bank of New York. On August 24, 2017, the Federal Reserve Board requested public comment on a proposal by the Federal Reserve Bank of New York, in cooperation with the Office of Financial Research, to produce three new reference rates intended to serve as alternatives to LIBOR. These alternative rates are based on overnight repurchase agreement transactions secured by U.S. Treasury Securities. On December 12, 2017, following consideration of public comments, the Federal Reserve Board concluded that the public would benefit if the Federal Reserve Bank of New York published the three proposed reference rates as alternatives to LIBOR (the “Federal Reserve Board Notice”). The Federal Reserve Bank of New York said that the publication of these alternative rates is targeted to commence by mid-2018.

At this time, it is not possible to predict the effect of the FCA Announcement, the Federal Reserve Board Notice, or other regulatory changes or announcements, any establishment of alternative reference rates or any other reforms to LIBOR that may be enacted in the United Kingdom, the United States or elsewhere. As such, the potential effect of any such event on our net investment income cannot yet be determined. The CLOs in which the Company is invested generally contemplate a scenario where LIBOR is no longer available by requiring the CLO administrator to calculate a replacement rate primarily through dealer polling on the applicable measurement date. However, there is uncertainty regarding the effectiveness of the dealer polling processes, including the willingness of banks to provide such quotations, which could adversely impact our net investment income. In addition, the effect of a phase out of LIBOR on U.S. senior secured loans, the underlying assets of the CLOs in which we invest, is currently unclear. To the extent that any replacement rate utilized for senior secured loans differs from that utilized for a CLO that holds those loans, the CLO would experience an interest rate mismatch between its assets and liabilities which could have an adverse impact on the Company’s net investment income and portfolio returns.

We hold more than a 10% interest in certain foreign corporations that are treated as controlled foreign corporations (“CFC”) for U.S. federal income tax purposes (including our residual interest tranche investments in CLOs). Therefore, we are treated as receiving a deemed distribution (taxable as ordinary income) each year from such foreign corporations in an amount equal to our pro rata share of the corporation’s income for that tax year (including both ordinary earnings and capital gains). We are required to include such deemed distributions from a CFC in our taxable income and we are required to distribute at least 90% of such income to maintain our RIC status, regardless of whether or not the CFC makes an actual distribution during such year.

If we acquire shares in “passive foreign investment companies” (“PFICs”) (including residual interest tranche investments in CLOs that are PFICs), we may be subject to federal income tax on a portion of any “excess distribution” or gain from the disposition of such shares even if such income is distributed as a taxable dividend to our stockholders. Certain elections may be available to mitigate or eliminate such tax on excess distributions, but such elections (if available) will generally require us to recognize our share of the PFIC’s income for each year regardless of whether we receive any distributions from such PFICs. We must nonetheless distribute such income to maintain our status as a RIC.

Legislation enacted in 2010 imposes a withholding tax of 30% on payments of U.S. source interest and dividends paid after December 31, 2013, or gross proceeds from the disposition of an instrument that produces U.S. source interest or dividends paid after December 31, 2016, to certain non-U.S. entities, including certain non-U.S. financial institutions and investment funds, unless such non-U.S. entity complies with certain reporting requirements regarding its United States account holders and its United States owners. Most CLOs in which we invest will be treated as non-U.S. financial entities for this purpose, and therefore will be required to comply with these reporting requirements to avoid the 30% withholding. If a CLO in which we invest fails to properly comply with these reporting requirements, it could reduce the amounts available to distribute to residual interest and junior debt holders in such CLO vehicle, which could materially and adversely affect our operating results and cash flows.

If we are required to include amounts in income prior to receiving distributions representing such income, we may have to sell some of our investments at times and/or at prices management would not consider advantageous, raise additional debt or equity capital or forgo new investment opportunities for this purpose.


64

The significant unobservable input used to value our investments based on the yield technique and discounted cash flow technique is the market yield (or applicable discount rate) used to discount the estimated future cash flows expected to be received from the underlying investment, which includes both future principal and interest/dividend payments. Increases or decreases in the market yield (or applicable discount rate) would result in a decrease or increase, respectively, in the fair value measurement. Management and the independent valuation firms consider the following factors when selecting market yields or discount rates: risk of default, rating of the investment and comparable company investments, and call provisions.
The significant unobservable inputs used to value our investments based on the EV analysis may include market multiples of specified financial measures such as EBITDA, net income, or book value of identified guideline public companies, implied valuation multiples from precedent M&A transactions, and/or discount rates applied in a discounted cash flow technique. The independent valuation firm identifies a population of publicly traded companies with similar operations and key attributes to that of the portfolio company. Using valuation and operating metrics of these guideline public companies and/or as implied by relevant precedent transactions, a range of multiples of the latest twelve months EBITDA, or other measure such as net income or book value, is typically calculated. The independent valuation firm utilizes the determined multiples to estimate the portfolio company’s EV generally based on the latest twelve months EBITDA of the portfolio company (or other meaningful measure). Increases or decreases in the multiple would result in an increase or decrease, respectively, in EV which would result in an increase or decrease in the fair value measurement of the debt of controlled companies and/or equity investment, as applicable. In certain instances, a discounted cash flow analysis may be considered in estimating EV, in which case, discount rates based on a weighted average cost of capital and application of the capital asset pricing model may be utilized.
The significant unobservable input used to value our private REIT investments based on the net asset value analysis is the capitalization rate applied to the earnings measure of the underlying property. Increases or decreases in the capitalization rate would result in a decrease or increase, respectively, in the fair value measurement.
Changes in market yields, discount rates, capitalization rates or EBITDA multiples, each in isolation, may change the fair value measurement of certain of our investments. Generally, an increase in market yields, discount rates or capitalization rates, or a decrease in EBITDA (or other) multiples may result in a decrease in the fair value measurement of certain of our investments.
Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of our investments may fluctuate from period to period. Additionally, the fair value of our investments may differ significantly from the values that would have been used had a ready market existed for such investments and may differ materially from the values that we may ultimately realize. Further, such investments are generally subject to legal and other restrictions on resale or otherwise are less liquid than publicly traded securities. If we were required to liquidate a portfolio investment in a forced or liquidation sale, we could realize significantly less than the value at which we have recorded it.
In addition, changes in the market environment and other events that may occur over the life of the investments may cause the gains or losses ultimately realized on these investments to be different than the unrealized gains or losses reflected in the currently assigned valuations.
During the three months ended September 30, 2018, the valuation methodology for ACE Cash Express, Inc (“ACE”) changed to remove the shadow method. As a result of the company’s performance and current market conditions, the fair value of our investment in ACE decreased to $21,371 as of September 30, 2018, a premium of $1,623 from its amortized cost, compared to the $1,861 unrealized appreciation recorded at June 30, 2018.
During the three months ended September 30, 2018, the valuation methodology for Photonis Technologies SAS (“Photonis”) changed to remove the waterfall analysis. As a result of the company’s performance and current market conditions, the fair value of our investment in Photonis decreased to $12,566 as of September 30, 2018, a discount of $6 from its amortized cost, compared to the $155 unrealized depreciation recorded at June 30, 2018.
During the three months ended September 30, 2018, the valuation methodology for Transplace Holdings (“Transplace”) changed to remove the WACC method. As a result of the company’s performance and current market conditions, the fair value of our investment in Transplace decreased to $28,104 as of September 30, 2018, a premium of $589 from its amortized cost, compared to the $610 unrealized appreciation recorded at June 30, 2018.
During the three months ended September 30, 2018, the valuation methodology for Universal Turbine Parts, LLC (“UTP”) changed to incorporate a waterfall analysis. Due to a deterioration in operating results and resulting credit impairment, the fair value of our investment in UTP decreased to $45,129 as of September 30, 2018, a discount of $18,571 from its amortized cost, compared to the $7,664 unrealized depreciation recorded at June 30, 2018.


65

During the three months ended September 30, 2018, we provided $10,206 of equity financing to NPRC to fund capital expenditures for existing properties.
During the three months ended September 30, 2018, we received partial repayments of $8,221of our loans previously outstanding with NPRC and its wholly owned subsidiary.
The online consumer loan investments held by certain of NPRC’s wholly-owned subsidiaries are unsecured obligations of individual borrowers that are issued in amounts ranging from $1 to $50, with fixed terms ranging from 24 to 84 months. As of September 30, 2018, the outstanding investment in online consumer loans by certain of NPRC’s wholly-owned subsidiaries was comprised of 52,559 individual loans and residual interest in four securitizations, and had an aggregate fair value of $308,267. The average outstanding individual loan balance is approximately $5 and the loans mature on dates ranging from October 1, 2018 to April 19, 2025 with a weighted-average outstanding term of 26 months as of September 30, 2018. Fixed interest rates range from 4.0% to 36.0% with a weighted-average current interest rate of 23.9%. As of September 30, 2018, our investment in NPRC and its wholly-owned subsidiaries relating to online consumer lending had a fair value of $232,326.
As of September 30, 2018, based on outstanding principal balance, 7.1% of the portfolio was invested in super prime loans (borrowers with a Fair Isaac Corporation (“FICO”) score, of 720 or greater), 19.9% of the portfolio in prime loans (borrowers with a FICO score of 660 to 719) and 73.0% of the portfolio in near prime loans (borrowers with a FICO score of 580 to 659).
Loan Type
 
Outstanding Principal Balance
 
Fair Value
 
Interest Rate Range
 
Weighted Average Interest Rate*
Super Prime
 
$
18,093

 
$
17,495

 
4.0% - 26.0%
 
12.5%
Prime
 
50,792

 
47,786

 
4.0% - 36.0%
 
17.1%
Near Prime
 
186,177

 
171,273

 
6.0% - 36.0%
 
26.9%
*Weighted by outstanding principal balance of the online consumer loans.


As of September 30, 2018, our investment in NPRC and its wholly-owned subsidiaries had an amortized cost of $828,972 and a fair value of $1,071,963, including our investment in online consumer lending as discussed above. The fair value of $839,637 related to NPRC’s real estate portfolio was comprised of forty-five multi-families properties, twelve self-storage units, eight student housing properties and three commercial properties. The following table shows the location, acquisition date, purchase price, and mortgage outstanding due to other parties for each of the properties held by NPRC as of September 30, 2018.
No.
 
Property Name
 
City
 
Acquisition
Date
 
Purchase
Price
 
Mortgage
Outstanding
1
 
Filet of Chicken
 
Forest Park, GA
 
10/24/2012
 
$
7,400

 
$
—

2
 
5100 Live Oaks Blvd, LLC
 
Tampa, FL
 
1/17/2013
 
63,400

 
46,292

3
 
Lofton Place, LLC
 
Tampa, FL
 
4/30/2013
 
26,000

 
20,216

4
 
Arlington Park Marietta, LLC
 
Marietta, GA
 
5/8/2013
 
14,850

 
9,624

5
 
NPRC Carroll Resort, LLC
 
Pembroke Pines, FL
 
6/24/2013
 
225,000

 
175,108

6
 
Cordova Regency, LLC
 
Pensacola, FL
 
11/15/2013
 
13,750

 
11,375

7
 
Crestview at Oakleigh, LLC
 
Pensacola, FL
 
11/15/2013
 
17,500

 
13,845

8
 
Inverness Lakes, LLC
 
Mobile, AL
 
11/15/2013
 
29,600

 
24,700

9
 
Kings Mill Pensacola, LLC
 
Pensacola, FL
 
11/15/2013
 
20,750

 
17,550

10
 
Plantations at Pine Lake, LLC
 
Tallahassee, FL
 
11/15/2013
 
18,000

 
14,092

11
 
Verandas at Rocky Ridge, LLC
 
Birmingham, AL
 
11/15/2013
 
15,600

 
10,205

12
 
City West Apartments II, LLC
 
Orlando, FL
 
11/19/2013
 
23,562

 
22,997

13
 
Vinings Corner II, LLC
 
Smyrna, GA
 
11/19/2013
 
35,691

 
32,525

14
 
Atlanta Eastwood Village LLC
 
Stockbridge, GA
 
12/12/2013
 
25,957

 
22,455

15
 
Atlanta Monterey Village LLC
 
Jonesboro, GA
 
12/12/2013
 
11,501

 
10,925

16
 
Atlanta Hidden Creek LLC
 
Morrow, GA
 
12/12/2013
 
5,098

 
4,677

17
 
Atlanta Meadow Springs LLC
 
College Park, GA
 
12/12/2013
 
13,116

 
12,862

18
 
Atlanta Meadow View LLC
 
College Park, GA
 
12/12/2013
 
14,354

 
12,916

19
 
Atlanta Peachtree Landing LLC
 
Fairburn, GA
 
12/12/2013
 
17,224

 
15,300

20
 
NPH Carroll Bartram Park, LLC
 
Jacksonville, FL
 
12/31/2013
 
38,000

 
27,035


66

No.
 
Property Name
 
City
 
Acquisition
Date
 
Purchase
Price
 
Mortgage
Outstanding
21
 
Crestview at Cordova, LLC
 
Pensacola, FL
 
1/17/2014
 
$
8,500

 
$
7,755

22
 
NPH Carroll Atlantic Beach, LLC
 
Atlantic Beach, FL
 
1/31/2014
 
13,025

 
8,401

23
 
Taco Bell, OK
 
Yukon, OK
 
6/4/2014
 
1,719

 
—

24
 
Taco Bell, MO
 
Marshall, MO
 
6/4/2014
 
1,405

 
—

25
 
23 Mile Road Self Storage, LLC
 
Chesterfield, MI
 
8/19/2014
 
5,804

 
4,350

26
 
36th Street Self Storage, LLC
 
Wyoming, MI
 
8/19/2014
 
4,800

 
3,600

27
 
Ball Avenue Self Storage, LLC
 
Grand Rapids, MI
 
8/19/2014
 
7,281

 
5,460

28
 
Ford Road Self Storage, LLC
 
Westland, MI
 
8/29/2014
 
4,642

 
3,480

29
 
Ann Arbor Kalamazoo Self Storage, LLC
 
Ann Arbor, MI
 
8/29/2014
 
4,458

 
3,345

30
 
Ann Arbor Kalamazoo Self Storage, LLC
 
Ann Arbor, MI
 
8/29/2014
 
8,927

 
6,695

31
 
Ann Arbor Kalamazoo Self Storage, LLC
 
Kalamazoo, MI
 
8/29/2014
 
2,363

 
1,775

32
 
Canterbury Green Apartments Holdings LLC
 
Fort Wayne, IN
 
9/29/2014
 
85,500

 
86,635

33
 
Abbie Lakes OH Partners, LLC
 
Canal Winchester, OH
 
9/30/2014
 
12,600

 
14,236

34
 
Kengary Way OH Partners, LLC
 
Reynoldsburg, OH
 
9/30/2014
 
11,500

 
15,942

35
 
Lakeview Trail OH Partners, LLC
 
Canal Winchester, OH
 
9/30/2014
 
26,500

 
28,986

36
 
Lakepoint OH Partners, LLC
 
Pickerington, OH
 
9/30/2014
 
11,000

 
14,480

37
 
Sunbury OH Partners, LLC
 
Columbus, OH
 
9/30/2014
 
13,000

 
15,363

38
 
Heatherbridge OH Partners, LLC
 
Blacklick, OH
 
9/30/2014
 
18,416

 
18,328

39
 
Jefferson Chase OH Partners, LLC
 
Blacklick, OH
 
9/30/2014
 
13,551

 
19,500

40
 
Goldenstrand OH Partners, LLC
 
Hilliard, OH
 
10/29/2014
 
7,810

 
11,900

41
 
Jolly Road Self Storage, LLC
 
Okemos, MI
 
1/16/2015
 
7,492

 
5,620

42
 
Eaton Rapids Road Self Storage, LLC
 
Lansing West, MI
 
1/16/2015
 
1,741

 
1,305

43
 
Haggerty Road Self Storage, LLC
 
Novi, MI
 
1/16/2015
 
6,700

 
5,025

44
 
Waldon Road Self Storage, LLC
 
Lake Orion, MI
 
1/16/2015
 
6,965

 
5,225

45
 
Tyler Road Self Storage, LLC
 
Ypsilanti, MI
 
1/16/2015
 
3,507

 
2,630

46
 
SSIL I, LLC
 
Aurora, IL
 
11/5/2015
 
34,500

 
26,450

47
 
Vesper Tuscaloosa, LLC
 
Tuscaloosa, AL
 
9/28/2016
 
54,500

 
43,115

48
 
Vesper Iowa City, LLC
 
Iowa City, IA
 
9/28/2016
 
32,750

 
24,825

49
 
Vesper Corpus Christi, LLC
 
Corpus Christi, TX
 
9/28/2016
 
14,250

 
10,800

50
 
Vesper Campus Quarters, LLC
 
Corpus Christi, TX
 
9/28/2016
 
18,350

 
14,175

51
 
Vesper College Station, LLC
 
College Station, TX
 
9/28/2016
 
41,500

 
32,057

52
 
Vesper Kennesaw, LLC
 
Kennesaw, GA
 
9/28/2016
 
57,900

 
48,658

53
 
Vesper Statesboro, LLC
 
Statesboro, GA
 
9/28/2016
 
7,500

 
6,087

54
 
Vesper Manhattan KS, LLC
 
Manhattan, KS
 
9/28/2016
 
23,250

 
15,371

55
 
JSIP Union Place, LLC
 
Franklin, MA
 
12/7/2016
 
64,750

 
51,800

56
 
9220 Old Lantern Way, LLC
 
Laurel, MD
 
1/30/2017
 
187,250

 
153,580

57
 
7915 Baymeadows Circle Owner, LLC
 
Jacksonville, FL
 
10/31/2017
 
95,700

 
76,560

58

8025 Baymeadows Circle Owner, LLC

Jacksonville, FL

10/31/2017

15,300


12,240

59

23275 Riverside Drive Owner, LLC

Southfield, MI

11/8/2017

52,000


44,044

60

23741 Pond Road Owner, LLC

Southfield, MI

11/8/2017

16,500


14,185

61

150 Steeplechase Way Owner, LLC

Largo, MD

1/10/2018

44,500


36,668

62

Laurel Pointe Holdings, LLC

Forest Park, GA

5/9/2018

33,005


26,400

63

Bradford Ridge Holdings, LLC

Forest Park, GA

5/9/2018

12,500


10,000

64

Olentangy Commons Owner LLC

Columbus, OH

6/1/2018

113,000


92,876

65

Villages of Wildwood Holdings LLC

Fairfield, OH

7/20/2018

46,500


39,525

66

Falling Creek Holdings LLC

Richmond, VA

8/8/2018

25,000


19,335

67

Crown Pointe Passthrough LLC

Danbury, CT

8/30/2018

108,500


89,400

68

Ashwood Ridge Holdings LLC

Jonesboro, GA

9/21/2018

9,600


7,300

 
 

 
 
 
 
 
$
2,034,164

 
$
1,690,186


67

On September 25, 2017, Prospect exchanged $1,600 of Senior Secured Term Loan A and $4,799 of Senior Secured Term Loan B investments in Targus International, LLC into 6,120,658 of common shares of Targus Cayman HoldCo Limited, and recorded a realized gain of $846, as a result of this transaction.
As of September 30, 2018, $3,381,259 of our loans to portfolio companies, at fair value, bear interest at floating rates and have LIBOR floors ranging from 0.0% - 3.0%. As of September 30, 2018, $599,244 of our loans to portfolio companies, at fair value, bear interest at fixed rates ranging from 1.0% - 20.0%. As of June 30, 2018, $3,323,420 of our loans to portfolio companies, at fair value, bore interest at floating rates and have LIBOR floors ranging from 0.0% - 3.0%. As of June 30, 2018, $489,962 of our loans to portfolio companies, at fair value, bore interest at fixed rates ranging from 5.0% - 20.0%.
At September 30, 2018, six loan investments were on non-accrual status: Ark-La-Tex, Edmentum Ultimate Holdings, LLC (“Edmentum”, the Unsecured Junior PIK Note), Pacific World Corporation (Senior Secured Term Loan B), United Sporting Companies, Inc. (“USC”), USES Corp. (“USES”), and UTP (the Senior Secured Term Loan B). At June 30, 2018, five loan investments were on non-accrual status: Ark-La-Tex, Edmentum (the Unsecured Junior PIK Note), Pacific World Corporation (the Senior Secured Term Loan B), USC, and USES. Cost balances of these loans amounted to $348,234 and $315,733 as of September 30, 2018 and June 30, 2018, respectively. The fair value of these loans amounted to $150,338 and $143,719 as of September 30, 2018 and June 30, 2018, respectively. The fair values of these investments represent approximately 2.4% and 2.5% of our total assets at fair value as of September 30, 2018 and June 30, 2018, respectively.

Undrawn committed revolvers and delayed draw term loans to our portfolio companies incur commitment and unused fees ranging from 0.00% to 5.00%. As of September 30, 2018 and June 30, 2018, we had $38,530 and $29,675, respectively, of undrawn revolver and delayed draw term loan commitments to our portfolio companies. The fair value of our undrawn committed revolvers and delayed draw term loans was zero as of September 30, 2018 and June 30, 2018.
During the three months ended September 30, 2018 and the three months ended September 30, 2017, there were no sales of the senior secured Term Loan A investments. We serve as an agent for these loans and collect a servicing fee from the counterparties on behalf of the Investment Adviser. We receive a credit for these payments as a reduction of base management fee payable by us to the Investment Adviser. See Note 13 for further discussion.
Unconsolidated Significant Subsidiaries
Our investments are generally in small and mid-sized companies in a variety of industries. In accordance with Rules 3-09 and 4-08(g) of Regulation S-X, we must determine which of our unconsolidated controlled portfolio companies are considered “significant subsidiaries,” if any. In evaluating these investments, there are three tests utilized to determine if any of our controlled investments are considered significant subsidiaries: the asset test, the income test and the investment test. Rule 3-09 of Regulation S-X requires separate audited financial statements of an unconsolidated subsidiary in an annual report if any of the three tests exceed 20%. Rule 4-08(g) of Regulation S-X requires summarized financial information in an annual report if any of the three tests exceeds 10%, and summarized financial information in a quarterly report if either the investment or income test exceeds 20% pursuant to Rule 10-01(b) of Regulation S-X.
The following table summarizes the results of our analysis for the three tests for the three months ended September 30, 2018 and year ended June 30, 2018.
 
Asset Test
Income Test
Investment Test
 
Greater than 10% but Less than 20%
Greater than 20%
Greater than 10% but Less than 20%
Greater than 20%
Greater than 10% but Less than 20%
Greater than 20%
Three Months Ended September 30, 2018
N/A
NPRC
N/A
CP Energy First Tower Finance
NPRC Valley Electric
NPRC
-
Year Ended June 30, 2018
-
NPRC
Arctic (1)
First Tower Finance
NPRC
NPRC
-
(1) On April 6, 2018, our common equity investment in Arctic Equipment was exchanged for newly issued common shares of CP Energy as a result of a merger between the two companies.
Income, consisting of interest, dividends, fees, other investment income and realization of gains or losses, can fluctuate upon repayment or sale of an investment or the marking to fair value of an investment in any given year can be highly concentrated among several investments. After performing the income analysis for the three months ended September 30, 2018, as currently

68

promulgated by the SEC, we determined that three and two of our controlled investments, respectively, individually generated more than 20% of our income during the three months ended September 30, 2018 and for the year ended June 30, 2018. We do not believe that the calculation promulgated by the SEC correctly identifies significant subsidiaries but have included CP Energy Services, Inc. (“CP Energy”), First Tower Finance Company LLC (“First Tower Finance”), National Property REIT Corp. (“NPRC”) and Valley Electric Company, Inc. (“Valley Electric”) as significant subsidiaries.
The following tables show summarized financial information for CP Energy, which met the 20% income test for the three months ended September 30, 2018:
 
August 31, 2018
 
May 31, 2018
Balance Sheet Data
 
 
 
Cash and invested assets
$
4,302

 
$
6,482

Accounts receivable, net
10,330

 
7,942

Fixed Assets
58,956

 
58,570

Intangibles, including goodwill
15,536

 
17,869

Other assets
828

 
2,121

Long Term Debt
428

 
423

Notes payable, due to Prospect or Affiliate
38,006

 
36,570

Other liabilities
3,321

 
6,004

Total equity
48,197

 
49,987

 
Three Months Ended August 31,
 
2018
 
2017
Summary of Operations
 
 
 
Total revenue
$
21,043

 
$
12,361

Total expenses
22,614

 
14,343

Net income (loss)
$
(1,571
)
 
$
(1,982
)


69

The following tables show summarized financial information for First Tower Finance, which met the 20% income test for the three months ended September 30, 2018:
 
September 30, 2018
 
June 30, 2018
Balance Sheet Data
 
 
 
Cash and invested assets
$
79,636

 
$
76,088

Accounts receivable, net
549,893

 
527,035

Property, plant and equipment, net
29,860

 
29,685

Intangibles, including goodwill
71,866

 
75,672

Other assets
5,256

 
6,013

Notes payable, due to Prospect or Affiliate
272,170

 
273,066

Other liabilities
529,624

 
505,539

Total equity
(65,283
)
 
(64,112
)
 
Three Months Ended September 30,
 
2018

2017
Summary of Operations





Total revenue
$
66,617


$
57,543

Total expenses
67,547


58,128

Net income (loss)
$
(930
)

$
(585
)
The following tables show summarized financial information for NPRC, which met the 20% income test for the three months ended September 30, 2018:
 
September 30, 2018
 
June 30, 2018
Balance Sheet Data
 
 
 
 Cash and cash equivalents
$
119,419

 
$
131,683

 Real estate, net
1,871,313

 
$
1,702,380

 Unsecured consumer loans, at fair value
236,554

 
$
305,268

 Other assets
96,985

 
$
90,310

 Mortgages payable
1,678,836

 
$
1,519,353

Revolving credit facilities and other secured financing
102,829

 
$
167,294

Notes payable, due to Prospect or Affiliate
511,001

 
$
519,383

 Other liabilities
59,983

 
$
42,846

 Total equity
(28,378
)
 
$
(19,235
)
 
Three Months Ended September 30,
 
2018
 
2017
Summary of Operations
 
 
 
Total revenue
$
100,644


$
98,885

Total expenses
83,069


82,178

Operating income
17,575


16,707

Depreciation and amortization
(18,198
)

(19,101
)
Fair value adjustment
(8,080
)

(30,813
)
Net income (loss)
$
(8,703
)

$
(33,207
)

70

The following tables show summarized financial information for Valley Electric, which met the 20% income test for the three months ended September 30, 2018:
 
September 30, 2018
 
June 30, 2018
Balance Sheet Data
 
 
 
Cash and invested assets
$
(647
)
 
$
(1,821
)
Accounts receivable, net
36,757

 
37,358

Construction in Progress
24,635

 
15,667

Fixed Assets
3,105

 
2,735

Intangibles, including goodwill
9,185

 
9,622

Other assets
3,456

 
3,198

Notes payable, due to Prospect or Affiliate
10,430

 
10,430

Other liabilities
37,580

 
35,224

Total equity
28,481

 
21,105

 
Three Months Ended September 30,
 
2018
 
2017
Summary of Operations
 
 
 
Total revenue
$
53,480

 
$
32,865

Total expenses
45,892

 
31,705

Net income (loss)
$
7,588

 
$
1,160

The SEC has requested comments on the proper mechanics of how the calculations related to Rules 3-09 and 4-08(g) of Regulation S-X should be completed. There is currently diversity in practice for the calculations. We expect that the SEC will clarify the calculation methods in the future.
Note 4. Revolving Credit Facility
On August 29, 2014, we renegotiated our previous credit facility and closed an expanded five and a half year revolving credit facility (the “2014 Facility”). The lenders had extended commitments of $885,000 under the 2014 Facility as of June 30, 2018. The 2014 Facility included an accordion feature which allowed commitments to be increased up to $1,500,000 in the aggregate. Interest on borrowings under the 2014 Facility is one-month LIBOR plus 225 basis points. Additionally, the lenders charged a fee on the unused portion of the 2014 Facility equal to either 50 basis points if at least 35% of the credit facility was drawn or 100 basis points otherwise.
On August 1, 2018, we renegotiated the 2014 Facility and closed an expanded five and a half year revolving credit facility (the “2018 Facility” and collectively with the 2014 Facility, the “Revolving Credit Facility”). The lenders have extended commitments of $795,000 under the 2018 Facility as of September 30, 2018.The 2018 Facility includes an accordion feature which allows commitments to be increased up to $1,500,000 in the aggregate. The 2018 Facility matures on March 27, 2024. It includes a revolving period that extends through March 27, 2022, followed by an additional two-year amortization period, with distributions allowed to Prospect after the completion of the revolving period. During such two-year amortization period, all principal payments on the pledged assets will be applied to reduce the balance. At the end of the two-year amortization period, the remaining balance will become due, if required by the lenders.

The 2018 Facility contains restrictions pertaining to the geographic and industry concentrations of funded loans, maximum size of funded loans, interest rate payment frequency of funded loans, maturity dates of funded loans and minimum equity requirements. The 2018 Facility also contains certain requirements relating to portfolio performance, including required minimum portfolio yield and limitations on delinquencies and charge-offs, violation of which could result in the early termination of the 2018 Facility. The 2018 Facility also requires the maintenance of a minimum liquidity requirement. As of September 30, 2018, we were in compliance with the applicable covenants.
Interest on borrowings under the 2018 Facility is one-month LIBOR plus 220 basis points. Additionally, the lenders charge a fee on the unused portion of the credit facility equal to either 50 basis points if more than 60% of the credit facility is drawn, or 100 basis points if more than 35% and an amount less than or equal to 60% of the credit facility is drawn, or 150 basis points if an

71

amount less than or equal to 35% of the credit facility is drawn. The 2018 Facility requires us to pledge assets as collateral in order to borrow under the credit facility.
For the three months ended September 30, 2018 and 2017, the average stated interest rate (i.e., rate in effect plus the spread) and average outstanding borrowings for the Facility were as follows:
 
For the Three Months Ended September 30,
 
2018
2017
Average stated interest rate
4.31
%
3.46
%
Average outstanding balance
$36,333
—

As of September 30, 2018 and June 30, 2018, we had $336,167 and $547,205, respectively, available to us for borrowing under the Revolving Credit Facility, with $404,000 and $37,000 outstanding as of September 30, 2018 and June 30, 2018, respectively. As additional eligible investments are transferred to PCF and pledged under the Revolving Credit Facility, PCF will generate additional availability up to the current commitment amount of $795,000. As of September 30, 2018, the investments, including cash, used as collateral for the Revolving Credit Facility had an aggregate fair value of $1,513,897, which represents 25.0% of our total investments, including cash. These assets are held and owned by PCF, a bankruptcy remote special purpose entity, and as such, these investments are not available to our general creditors. The release of any assets from PCF requires the approval of the facility agent.
In connection with the origination and amendments of the Revolving Credit Facility, we incurred $8,431 of new fees and $1,473 were carried over for continuing participants from the previous facility, all of which are being amortized over the term of the facility in accordance with ASC 470-50. As of September 30, 2018, $8,202 remains to be amortized and is reflected as deferred financing costs on the Consolidated Statements of Assets and Liabilities. As of September 30, 2018, $325 of fees were expensed relating to credit providers in the 2014 Facility who did not commit to the 2018 Facility.
During the three months ended September 30, 2018 and September 30, 2017, we recorded $4,365 and $2,954, respectively, of interest costs, unused fees and amortization of financing costs on the Revolving Credit Facility as interest expense.
Note 5. Convertible Notes
On April 16, 2012, we issued $130,000 aggregate principal amount of convertible notes that matured on October 15, 2017 (the “2017 Notes”). The 2017 Notes bore interest at a rate of 5.375% per year, payable semi-annually on April 15 and October 15 of each year, beginning October 15, 2012. Total proceeds from the issuance of the 2017 Notes, net of underwriting discounts and offering costs, were $126,035. On March 28, 2016, we repurchased $500 aggregate principal amount of the 2017 Notes at a price of 98.25, including commissions. The transaction resulted in our recognizing a $9 gain for the period ended March 31, 2016. On April 6, 2017, we repurchased $78,766 aggregate principal amount of the 2017 Notes at a price of 102.0, including commissions. The transaction resulted in our recognizing a $1,786 loss during the three months ended June 30, 2017. On October 15, 2017, we repaid the outstanding principal amount of $50,734 of the 2017 Notes, plus interest. No gain or loss was realized on the transaction.
On August 14, 2012, we issued $200,000 aggregate principal amount of convertible notes that matured on March 15, 2018 (the “2018 Notes”). The 2018 Notes bore interest at a rate of 5.75% per year, payable semi-annually on March 15 and September 15 of each year, beginning March 15, 2013. Total proceeds from the issuance of the 2018 Notes, net of underwriting discounts and offering costs, were $193,600. On April 6, 2017, we repurchased $114,581 aggregate principal amount of the 2018 Notes at a price of 103.5, including commissions. The transaction resulted in our recognizing a $4,700 loss during the three months ended June 30, 2017. On March 15, 2018, we repaid the outstanding principal amount of $85,419 of the 2018 Notes, plus interest. No gain or loss was realized on the transaction.
On December 21, 2012, we issued $200,000 aggregate principal amount of convertible notes that mature on January 15, 2019 (the “2019 Notes”), unless previously converted or repurchased in accordance with their terms. The 2019 Notes bear interest at a rate of 5.875% per year, payable semi-annually on January 15 and July 15 of each year, beginning July 15, 2013. Total proceeds from the issuance of the 2019 Notes, net of underwriting discounts and offering costs, were $193,600. On May 30, 2018, we repurchased $98,353 aggregate principal amount of the 2019 Notes at a price of 102.0, including commissions. The transaction resulted in our recognizing a $2,383 loss during the three months ended June 30, 2018. As of September 30, 2018, the outstanding aggregate principal amount of the 2019 Notes is $101,647.

72

On April 11, 2014, we issued $400,000 aggregate principal amount of convertible notes that mature on April 15, 2020 (the “2020 Notes”), unless previously converted or repurchased in accordance with their terms. The 2020 Notes bear interest at a rate of 4.75% per year, payable semi-annually on April 15 and October 15 each year, beginning October 15, 2014. Total proceeds from the issuance of the 2020 Notes, net of underwriting discounts and offering costs, were $387,500. On January 30, 2015, we repurchased $8,000 aggregate principal amount of the 2020 Notes at a price of 93.0, including commissions. As a result of this transaction, we recorded a gain of $332, in the amount of the difference between the reacquisition price and the net carrying amount of the notes, net of the proportionate amount of unamortized debt issuance costs. As of September 30, 2018, the outstanding aggregate principal amount of the 2020 Notes is $392,000.
On April 11, 2017, we issued $225,000 aggregate principal amount of convertible notes that mature on July 15, 2022 (the “Original 2022 Notes”), unless previously converted or repurchased in accordance with their terms. The Original 2022 Notes bear interest at a rate of 4.95% per year, payable semi-annually on January 15 and July 15 each year, beginning July 15, 2017. Total proceeds from the issuance of the Original 2022 Notes, net of underwriting discounts and offering costs, were $218,010. On May 18, 2018, we issued an additional $103,500 aggregate principal amount of convertible notes that mature on July 15, 2022 (the “Additional 2022 Notes”, and together with the Original 2022 Notes, the “2022 Notes”), unless previously converted or repurchased in accordance with their terms. The Additional 2022 Notes were a further issuance of, and are fully fungible and rank equally in right of payment with, the Original 2022 Notes and bear interest at a rate of 4.95% per year, payable semi-annually on January 15 and July 15 each year, beginning July 15, 2018. Total proceeds from the issuance of the Additional 2022 Notes, net of underwriting discounts and offering costs, were $100,749. Following the issuance of the Additional 2022 Notes and as of September 30 2018, the outstanding aggregate principal amount of the 2022 Notes is $328,500.
Certain key terms related to the convertible features for the 2019 Notes, the 2020 Notes and the 2022 Notes (collectively, the “Convertible Notes”) are listed below.
 
 
2019 Notes

 
2020 Notes

 
2022 Notes

Initial conversion rate(1)
 
79.7766

 
80.6647

 
100.2305

Initial conversion price
 
$
12.54

 
$
12.40

 
$
9.98

Conversion rate at September 30, 2018(1)(2)
 
79.8360

 
80.6670

 
100.2305

Conversion price at September 30, 2018(2)(3)
 
$
12.53

 
$
12.40

 
$
9.98

Last conversion price calculation date
 
12/21/2017

 
4/11/2018

 
4/11/2018

Dividend threshold amount (per share)(4)
 
$
0.110025

 
$
0.110525

 
$
0.083330

(1)
Conversion rates denominated in shares of common stock per $1 principal amount of the Convertible Notes converted. 
(2)
Represents conversion rate and conversion price, as applicable, taking into account certain de minimis adjustments that will be made on the conversion date.
(3)
The conversion price will increase only if the current monthly dividends (per share) exceed the dividend threshold amount (per share).
(4)
The conversion rate is increased if monthly cash dividends paid to common shares exceed the monthly dividend threshold amount, subject to adjustment. Current dividend rates are at or below the minimum dividend threshold amount for further conversion rate adjustments for all bonds.
Upon conversion, unless a holder converts after a record date for an interest payment but prior to the corresponding interest payment date, the holder will receive a separate cash payment with respect to the notes surrendered for conversion representing accrued and unpaid interest to, but not including, the conversion date. Any such payment will be made on the settlement date applicable to the relevant conversion on the Convertible Notes.
No holder of Convertible Notes will be entitled to receive shares of our common stock upon conversion to the extent (but only to the extent) that such receipt would cause such converting holder to become, directly or indirectly, a beneficial owner (within the meaning of Section 13(d) of the Securities Exchange Act of 1934 and the rules and regulations promulgated thereunder) of more than 5.0% of the shares of our common stock outstanding at such time. The 5.0% limitation shall no longer apply following the effective date of any fundamental change. We will not issue any shares in connection with the conversion or redemption of the Convertible Notes which would equal or exceed 20% of the shares outstanding at the time of the transaction in accordance with NASDAQ rules.
Subject to certain exceptions, holders may require us to repurchase, for cash, all or part of their Convertible Notes upon a fundamental change at a price equal to 100% of the principal amount of the Convertible Notes being repurchased plus any accrued and unpaid interest up to, but excluding, the fundamental change repurchase date. In addition, upon a fundamental change that constitutes a

73

non-stock change of control we will also pay holders an amount in cash equal to the present value of all remaining interest payments (without duplication of the foregoing amounts) on such Convertible Notes through and including the maturity date.
In connection with the issuance of the Convertible Notes, we incurred $27,323 of fees which are being amortized over the terms of the notes, of which $12,009 remains to be amortized and is included as a reduction within Convertible Notes on the Consolidated Statement of Assets and Liabilities as of September 30, 2018.
During the three months ended September 30, 2018 and September 30, 2017, we recorded $11,435 and $13,656, respectively, of interest costs and amortization of financing costs on the Convertible Notes as interest expense.
Note 6. Public Notes
On March 15, 2013, we issued $250,000 aggregate principal amount of unsecured notes that mature on March 15, 2023 (the “Original 2023 Notes”). The Original 2023 Notes bear interest at a rate of 5.875% per year, payable semi-annually on March 15 and September 15 of each year, beginning September 15, 2013. Total proceeds from the issuance of the Original 2023 Notes, net of underwriting discounts and offering costs, were $243,641. On June 20, 2018, we issued an additional $70,000 aggregate principal amount of unsecured notes that mature on March 15, 2023 (the “Additional 2023 Notes”, and together with the Original 2023 Notes, the “2023 Notes”). The Additional 2023 Notes were a further issuance of, and are fully fungible and rank equally in right of payment with, the Original 2023 Notes and bear interest at a rate of 5.875% per year, payable semi-annually on March 15 and September 15 of each year, beginning September 15, 2018. Total proceeds from the issuance of the Additional 2023 Notes, net of underwriting discounts, were $69,403. As of September 30, 2018, the outstanding aggregate principal amount of the 2023 Notes is $320,000.
On April 7, 2014, we issued $300,000 aggregate principal amount of unsecured notes that mature on July 15, 2019 (the “5.00% 2019 Notes”). Included in the issuance is $45,000 of Prospect Capital InterNotes® that were exchanged for the 5.00% 2019 Notes. The 5.00% 2019 Notes bear interest at a rate of 5.00% per year, payable semi-annually on January 15 and July 15 of each year, beginning July 15, 2014. Total proceeds from the issuance of the 5.00% 2019 Notes, net of underwriting discounts and offering costs, were $295,998. On June 7, 2018, we commenced a tender offer to purchase for cash any and all of the $300,000 aggregate principal amount outstanding of the 5.00% 2019 Notes. On June 20, 2018, $146,464 aggregate principal amount of the 5.00% 2019 Notes, representing 48.8% of the previously outstanding 5.00% 2019 Notes, were validly tendered and accepted. The transaction resulted in our recognizing a loss of $3,705 during the three months ended June 30, 2018. On September 26, 2018, we repurchased the remaining $153,536 aggregate principal amount of the 5.00% 2019 Notes at a price of 101.645, including commissions. The transaction resulted in our recognizing a loss of $2,874 during the three months ended September 30, 2018.
On December 10, 2015, we issued $160,000 aggregate principal amount of unsecured notes that mature on June 15, 2024 (the “2024 Notes”). The 2024 Notes bear interest at a rate of 6.25% per year, payable quarterly on March 15, June 15, September 15 and December 15 of each year, beginning March 15, 2016. Total proceeds from the issuance of the Original 2024 Notes, net of underwriting discounts and offering costs, were $155,043. On June 16, 2016, we entered into an at-the-market (“ATM”) program with FBR Capital Markets & Co. through which we could sell, by means of ATM offerings, from time to time, up to $100,000 in aggregate principal amount of our existing 2024 Notes (“Initial 2024 Notes ATM”). Following the initial 2024 Notes ATM, the aggregate principal amount of the 2024 Notes issued was $199,281 for net proceeds of $193,253, after commissions and offering costs. On July 2, 2018, we entered into a second ATM program with B.Riley FBR, Inc. and BB&T Capital Markets, and on August 31, 2018 with Comerica Securities, Inc., through which we could sell, by means of ATM offerings, up to $100,000 in aggregate principal amount of the 2024 Notes (“Second 2024 Notes ATM”, and together with the Initial 2024 Notes ATM, the “2024 Notes Follow-on Program”). The 2024 Notes are listed on the New York Stock Exchange (“NYSE”) and trade thereon under the ticker “PBB.” During the three months ended September 30, 2018, we issued an additional $15,566 aggregate principal amount under the second 2024 Notes ATM, for net proceeds of $15,461, after commissions and offering costs. As of September 30, 2018, the outstanding aggregate principal amount of the 2024 Notes is $214,847.
On June 7, 2018, we issued $55,000 aggregate principal amount of unsecured notes that mature on June 15, 2028 (the “2028 Notes”). The 2028 Notes bear interest at a rate of 6.25% per year, payable quarterly on March 15, June 15, September 15, and December 15 of each year, beginning September 15, 2018. Total proceeds from the issuance of the 2028 Notes, net of underwriting discounts and offering costs were $53,119. On July 2, 2018, we entered into an ATM program with B.Riley FBR, Inc. and BB&T Capital Markets, and on August 31, 2018 with Comerica Securities, Inc., through which we could sell, by means of ATM offerings, up to $100,000 in aggregate principal amount of our existing 2028 Notes (“2028 Notes ATM” or “2028 Notes Follow-on Program”). The 2028 Notes are listed on the NYSE and trade thereon under the ticker “PBY.” During the three months ended September 30, 2018, we issued an additional $10,078 aggregate principal amount under the 2028 Notes ATM, for net proceeds of $9,963, after commissions and offering costs. As of September 30, 2018, the outstanding aggregate principal amount of the 2028 Notes is $65,078.

74

On September 27, 2018, we issued $100,000 aggregate principal amount of unsecured notes that mature on January 15, 2024 (the “6.375% 2024 Notes”). The 6.375% 2024 Notes settled on October 1, 2018. The 6.375% 2024 Notes bear interest at a rate of 6.375% per year, payable semi-annually on January 15 and July 15 of each year, beginning January 15, 2019. Total proceeds from the issuance of the 6.375% 2024 Notes, net of underwriting discounts and offering costs, were $98,985. Net proceeds are reflected in Due from Broker on the Consolidated Statements of Assets and Liabilities.
The 2023 Notes, the 2024 Notes, the 2028 Notes, and the 6.375% 2024 Notes (collectively, the “Public Notes”) are direct unsecured obligations and rank equally with all of our unsecured indebtedness from time to time outstanding.
In connection with the issuance of the Public Notes we recorded a discount of $3,337 and debt issuance costs of $13,689, which are being amortized over the terms of the notes. As of September 30, 2018, $2,093 of the original issue discount and $10,126 of the debt issuance costs remain to be amortized and are included as a reduction within Public Notes on the Consolidated Statement of Assets and Liabilities.
During the three months ended September 30, 2018 and September 30, 2017, we recorded $11,363 and $11,041, respectively, of interest costs and amortization of financing costs on the Public Notes as interest expense.
Note 7. Prospect Capital InterNotes® 
On February 16, 2012, we entered into a selling agent agreement (the “Selling Agent Agreement”) with Incapital LLC, as purchasing agent for our issuance and sale from time to time of up to $500,000 of Prospect Capital InterNotes® (the “InterNotes® Offering”), which was increased to $1,500,000 in May 2014. Additional agents may be appointed by us from time to time in connection with the InterNotes® Offering and become parties to the Selling Agent Agreement.
These notes are direct unsecured obligations and rank equally with all of our unsecured indebtedness from time to time outstanding. Each series of notes will be issued by a separate trust. These notes bear interest at fixed interest rates and offer a variety of maturities no less than twelve months from the original date of issuance.
During the three months ended September 30, 2018, we issued $39,757 aggregate principal amount of Prospect Capital InterNotes® for net proceeds of $39,093. These notes were issued with stated interest rates ranging from 5.00% to 6.00% with a weighted average interest rate of 5.48%. These notes mature between July 15, 2023 and September 15, 2028. The following table summarizes the Prospect Capital InterNotes® issued during the three months ended September 30, 2018:
Tenor at
Origination
(in years)
 
Principal
Amount
 
Interest Rate
Range
 
Weighted
Average
Interest Rate
 
Maturity Date Range
5
 
$
18,668

 
5.00
%
 
5.00
%
 
July 15, 2023 – September 15, 2023
7
 
7,172

 
5.50%–5.75%

 
5.73
%
 
July 15, 2025 – September 15, 2025
8
 
385

 
5.75
%
 
5.75
%
 
July 15, 2026
10
 
13,532

 
6.00
%
 
6.00
%
 
July 15, 2028 – September 15, 2028
 
 
$
39,757

 
 
 
 
 
 
During the three months ended September 30, 2017, we issued $27,402 aggregate principal amount of our Prospect Capital InterNotes® for net proceeds of $26,996. These notes were issued with stated interest rates ranging from 4.00% to 5.00% with a weighted average interest rate of 4.57%. These notes mature between July 15, 2022 and September 15, 2025. The following table summarizes the Prospect Capital InterNotes® issued during the three months ended September 30, 2017:
Tenor at
Origination
(in years)
 
Principal
Amount
 
Interest Rate
Range
 
Weighted
Average
Interest Rate
 
Maturity Date Range
5
 
$
17,059

 
4.00%–4.75%
 
4.42
%
 
July 15, 2022 – September 15, 2022
7
 
2,825

 
4.75%–5.00%
 
4.93
%
 
July 15, 2024
8
 
7,518

 
4.50%–5.00%
 
4.76
%
 
August 15, 2025 – September 15, 2025
 
 
$
27,402

 
 
 
 
 
 
During the three months ended September 30, 2018, we redeemed, prior to maturity, $29,360 aggregate principal amount of Prospect Capital InterNotes® at par with a weighted average interest rate of 4.70% in order to replace shorter maturity debt with longer-term debt. During the three months ended September 30, 2018, we repaid $2,434 aggregate principal amount of Prospect Capital InterNotes® at par in accordance with the Survivor’s Option, as defined in the InterNotes® Offering prospectus. As a

75

result of these transactions, we recorded a loss in the amount of the unamortized debt issuance costs. The net loss on the extinguishment of Prospect Capital InterNotes® in the three months ended September 30, 2018 was $256. The following table summarizes the Prospect Capital InterNotes® outstanding as of September 30, 2018:
Tenor at
Origination
(in years)
 
Principal
Amount
 
Interest Rate
Range
 
Weighted
Average
Interest Rate
 
Maturity Date Range
5
 
$
245,127

 
4.00% – 5.50%

 
4.93
%
 
July 15, 2020 - September 15, 2023
5.2
 
4,440

 
4.63%

 
4.63
%
 
August 15, 2020 - September 15, 2020
5.3
 
2,636

 
4.63%

 
4.63
%
 
September 15, 2020
5.5
 
69,570

 
4.25% – 4.75%

 
4.57
%
 
May 15, 2020 - November 15, 2020
6
 
2,182

 
4.88%

 
4.88
%
 
April 15, 2021 - May 15, 2021
6.5
 
38,672

 
5.10% – 5.25%

 
5.23
%
 
December 15, 2021 - May 15, 2022
7
 
143,604

 
4.00% – 5.75%

 
5.12
%
 
January 15, 2020 - September 15, 2025
7.5
 
1,996

 
5.75%

 
5.75
%
 
February 15, 2021
8
 
24,820

 
4.50% – 5.75%

 
4.67
%
 
August 15, 2025 - July 15, 2026
10
 
50,906

 
4.32% – 7.00%

 
6.11
%
 
March 15, 2022 - September 15, 2028
12
 
2,978

 
6.00
%
 
6.00
%
 
November 15, 2025 - December 15, 2025
15
 
17,163

 
5.25% – 6.00%

 
5.35
%
 
May 15, 2028 - November 15, 2028
18
 
20,199

 
4.13% – 6.25%

 
5.54
%
 
December 15, 2030 - August 15, 2031
20
 
4,060

 
5.75% – 6.00%

 
5.89
%
 
November 15, 2032 - October 15, 2033
25
 
32,834

 
6.25% – 6.50%

 
6.39
%
 
August 15, 2038 - May 15, 2039
30
 
107,700

 
5.50% – 6.75%

 
6.24
%
 
November 15, 2042 - October 15, 2043
 
 
$
768,887

 
 

 
 

 
 

76

During the three months ended September 30, 2017, we redeemed, prior to maturity $89,980 aggregate principal amount of Prospect Capital InterNotes® at par with a weighted average interest rate of 4.91% in order to replace debt with shorter maturity dates. During the three months ended September 30, 2017, we repaid $1,884 aggregate principal amount of Prospect Capital InterNotes® at par in accordance with the Survivor’s Option, as defined in the InterNotes® Offering prospectus. As a result of these transactions, we recorded a loss in the amount of the unamortized debt issuance costs. The net loss on the extinguishment of Prospect Capital InterNotes® in the three months ended September 30, 2017 was $445.
The following table summarizes the Prospect Capital InterNotes® outstanding as of June 30, 2018:
Tenor at
Origination
(in years)
 
Principal
Amount
 
Interest Rate
Range
 
Weighted
Average
Interest Rate
 
Maturity Date Range
5
 
$
228,835

 
4.00% – 5.50%

 
4.92
%
 
July 15, 2020 - June 15, 2023
5.2
 
4,440

 
4.63%

 
4.63
%
 
August 15, 2020 - September 15, 2020
5.3
 
2,636

 
4.63%

 
4.63
%
 
September 15, 2020
5.5
 
86,097

 
4.25% – 4.75%

 
4.61
%
 
May 15, 2020 - November 15, 2020
6
 
2,182

 
4.88%

 
4.88
%
 
April 15, 2021 - May 15, 2021
6.5
 
38,832

 
5.10% – 5.25%

 
5.23
%
 
December 15, 2021 - May 15, 2022
7
 
147,349

 
4.00% – 5.75%

 
5.05
%
 
January 15, 2020 - June 15, 2025
7.5
 
1,996

 
5.75%

 
5.75
%
 
February 15, 2021
8
 
24,720

 
4.50% – 5.25%

 
4.65
%
 
August 15, 2025 - May 15, 2026
10
 
37,424

 
5.34% – 7.00%

 
6.19
%
 
March 15, 2022 - December 15, 2025
12
 
2,978

 
6.00
%
 
6.00
%
 
November 15, 2025 - December 15, 2025
15
 
17,163

 
5.25% – 6.00%

 
5.35
%
 
May 15, 2028 - November 15, 2028
18
 
20,677

 
4.13% – 6.25%

 
5.55
%
 
December 15, 2030 - August 15, 2031
20
 
4,120

 
5.75% – 6.00%

 
5.89
%
 
November 15, 2032 - October 15, 2033
25
 
33,139

 
6.25% – 6.50%

 
6.39
%
 
August 15, 2038 - May 15, 2039
30
 
108,336

 
5.50% – 6.75%

 
6.24
%
 
November 15, 2042 - October 15, 2043
 
 
$
760,924

 
 

 
 

 
 
In connection with the issuance of Prospect Capital InterNotes®, we incurred $24,904 of fees which are being amortized over the term of the notes, of which $11,875 remains to be amortized and is included as a reduction within Prospect Capital InterNotes® on the Consolidated Statement of Assets and Liabilities as of September 30, 2018.
During the three months ended September 30, 2018 and September 30, 2017, we recorded $10,745 and $13,384, respectively, of interest costs and amortization of financing costs on the Prospect Capital InterNotes® as interest expense.

77

Note 8. Fair Value and Maturity of Debt Outstanding 
The following table shows our outstanding debt as of September 30, 2018.
 
Principal Outstanding
 
Unamortized Discount & Debt Issuance Costs
 
Net Carrying Value
 
Fair Value
(1)
 
Effective Interest Rate
 
Revolving Credit Facility(2)
$
404,000

 
$
8,202

 
$
404,000

(3)
$
404,000

 
1ML+2.20%

(6)
 
 
 
 
 
 
 
 
 
 
 
2019 Notes
101,647

 
183

 
101,464

 
102,282

(4)
6.51
%
(7)
2020 Notes
392,000

 
3,705

 
388,295

 
395,579

(4)
5.38
%
(7)
2022 Notes
328,500

 
8,121

 
320,379

 
325,458

(4)
5.71
%
(7)
Convertible Notes
822,147

 
12,009

 
810,138

 
823,319

 
 
 
 
 
 
 
 
 
 
 
 
 
 
2023 Notes
320,000

 
3,874

 
316,126

 
325,837

(4)
6.09
%
(7)
2024 Notes
214,847

 
4,898

 
209,949

 
215,105

(4)
6.76
%
(7)
2028 Notes
65,078

 
2,132

 
62,946

 
64,454

(4)
6.74
%
(7)
6.375% 2024 Notes
100,000

 
1,315

 
98,685

 
99,460

(4)
6.63
%
(7)
Public Notes
699,925

 
12,219

 
687,706

 
704,856

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Prospect Capital InterNotes®
768,887

 
11,875

 
757,012

 
790,235

(5)
5.81
%
(8)
Total
$
2,694,959

 
$
44,305

 
$
2,658,856

 
$
2,722,410

 
 
 
(1)
As permitted by ASC 825-10-25, we have not elected to value our Revolving Credit Facility, Convertible Notes, Public Notes and Prospect Capital InterNotes® at fair value. The fair value of these debt obligations are categorized as Level 2 under ASC 820 as of September 30, 2018.
(2)
The maximum draw amount of the Revolving Credit facility as of September 30, 2018 is $795,000.
(3)
Net Carrying Value excludes deferred financing costs associated with the Revolving Credit Facility. See Note 2 for accounting policy details.
(4)
We use available market quotes to estimate the fair value of the Convertible Notes and Public Notes.
(5)
The fair value of Prospect Capital InterNotes® is estimated by discounting remaining payments using current Treasury rates plus spread based on observable market inputs.
(6)
Represents the rate on drawn down and outstanding balances. Deferred debt issuance costs are amortized on a straight-line method over the stated life of the obligation.
(7)
The effective interest rate is equal to the effect of the stated interest, the accretion of original issue discount and amortization of debt issuance costs. For the 2024 Notes and the 2028 Notes, the rate presented is a combined effective interest rate of their respective original Note issuances and Note Follow-on Programs.
(8)
For the Prospect Capital InterNotes®, the rate presented is the weighted average effective interest rate. Interest expense and deferred debt issuance costs, which are amortized on a straight-line method over the stated life of the obligation which approximates level yield, are weighted against the average year-to-date principal balance.

78

The following table shows our outstanding debt as of June 30, 2018.
 
Principal Outstanding
 
Unamortized Discount & Debt Issuance Costs
 
Net Carrying Value
 
Fair Value (1)
 
Effective Interest Rate
 
Revolving Credit Facility(2)
$
37,000

 
$
2,032

 
$
37,000

(3)
$
37,000

 
1ML+2.25%

(6)
 
 
 
 
 
 
 
 
 
 
 
2019 Notes
101,647

 
339

 
101,308

 
103,562

(4)
6.51
%
(7)
2020 Notes
392,000

 
4,270

 
387,730

 
392,529

(4)
5.38
%
(7)
2022 Notes
328,500

 
8,465

 
320,035

 
320,084

(4)
5.69
%
(7)
Convertible Notes
822,147

 


 
809,073

 
816,175

 
 
 
 
 
 
 
 
 
 
 
 
 
 
5.00% 2019 Notes
153,536

 
456

 
153,080

 
155,483

(4)
5.29
%
(7)
2023 Notes
320,000

 
4,120

 
315,880

 
328,909

(4)
6.09
%
(7)
2024 Notes
199,281

 
4,559

 
194,722

 
202,151

(4)
6.74
%
(7)
2028 Notes
55,000

 
1,872

 
53,128

 
55,220

(4)
6.72
%
(7)
Public Notes
727,817

 


 
716,810

 
741,763

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Prospect Capital InterNotes®
760,924

 
11,998

 
748,926

 
779,400

(5)
5.76
%
(8)
Total
$
2,347,888

 


 
$
2,311,809

 
$
2,374,338

 
 
 

(1)
As permitted by ASC 825-10-25, we have not elected to value our Revolving Credit Facility, Convertible Notes, Public Notes and Prospect Capital InterNotes® at fair value. The fair value of these debt obligations are categorized as Level 2 under ASC 820 as of June 30, 2018.
(2)
The maximum draw amount of the Revolving Credit facility as of June 30, 2018 is $885,000.
(3)
Net Carrying Value excludes deferred financing costs associated with the Revolving Credit Facility. See Note 2 for accounting policy details.
(4)
We use available market quotes to estimate the fair value of the Convertible Notes and Public Notes.
(5)
The fair value of Prospect Capital InterNotes® is estimated by discounting remaining payments using current Treasury rates plus spread based on observable market inputs.
(6)
Represents the rate on drawn down and outstanding balances. Deferred debt issuance costs are amortized on a straight-line method over the stated life of the obligation.
(7)
The effective interest rate is equal to the effect of the stated interest, the accretion of original issue discount and amortization of debt issuance costs. For the 2024 Notes, the rate presented is a combined effective interest rate of the 2024 Notes and 2024 Notes Follow-on Program.
(8)
For the Prospect Capital InterNotes®, the rate presented is the weighted average effective interest rate. Interest expense and deferred debt issuance costs, which are amortized on a straight-line method over the stated life of the obligation which approximates level yield, are weighted against the average year-to-date principal balance.
The following table shows the contractual maturities of our Revolving Credit Facility, Convertible Notes, Public Notes and Prospect Capital InterNotes® as of September 30, 2018.
 
Payments Due by Period
 
Total
 
Less than 1 Year
 
1 – 3 Years
 
3 – 5 Years
 
After 5 Years
Revolving Credit Facility
$
404,000

 
$
—

 
$
—

 
$
—

 
$
404,000

Convertible Notes
822,147

 
101,647

 
392,000

 
328,500

 
—

Public Notes
699,925

 
—

 
—

 
320,000

 
379,925

Prospect Capital InterNotes®
768,887

 
—

 
285,650

 
226,047

 
257,190

Total Contractual Obligations
$
2,694,959

 
$
101,647

 
$
677,650

 
$
874,547

 
$
1,041,115


79

The following table shows the contractual maturities of our Revolving Credit Facility, Convertible Notes, Public Notes and Prospect Capital InterNotes® as of June 30, 2018.
 
Payments Due by Period
 
Total
 
Less than 1 Year
 
1 – 3 Years
 
3 – 5 Years
 
After 5 Years
Revolving Credit Facility
$
37,000

 
$
—

 
$
37,000

 
$
—

 
$
—

Convertible Notes
822,147

 
101,647

 
392,000

 
328,500

 
—

Public Notes
727,817

 
—

 
153,536

 
320,000

 
254,281

Prospect Capital InterNotes®
760,924

 
—

 
276,484

 
246,525

 
237,915

Total Contractual Obligations
$
2,347,888

 
$
101,647

 
$
859,020

 
$
895,025

 
$
492,196

Note 9. Stock Repurchase Program, Equity Offerings, Offering Expenses, and Distributions
On August 24, 2011, our Board of Directors approved a share repurchase plan (the “Repurchase Program”) under which we may repurchase up to $100,000 of our common stock at prices below our net asset value per share. Prior to any repurchase, we are required to notify shareholders of our intention to purchase our common stock. Our last notice was delivered with our annual proxy mailing on September 25, 2018.
We did not repurchase any shares of our common stock during the three months ended September 30, 2018 and September 30, 2017. As of September 30, 2018, the approximate dollar value of shares that may yet be purchased under the Repurchase Program is $65,860.

Excluding dividend reinvestments, during the three months ended September 30, 2018 and September 30, 2017, we did not issue any shares of our common stock.
On August 31, 2016, we filed a registration statement on Form N-2 (File No. 333-213391) with the SEC. We subsequently filed a Pre-Effective Amendment No. 2 thereto on November 1, 2016, which the SEC declared effective on November 3, 2016. On October 26, 2017, we filed Post-Effective Amendment No. 50 to the registration statement, which the SEC declared effective on October 30, 2017. The registration statement permits us to issue, through one or more transactions, up to an aggregate of $5,000,000 in securities, consisting of common stock, preferred stock, debt securities, subscription rights to purchase our securities, warrants representing rights to purchase our securities or separately tradeable units combining two or more of our securities. As of September 30, 2018, we have the ability to issue up to $4,221,013 in securities under the registration statement.
During the three months ended September 30, 2018 and September 30, 2017, we distributed approximately $65,693 and $81,647, respectively, to our stockholders. The following table summarizes our distributions declared and payable for the three months ended September 30, 2017 and September 30, 2018.
Declaration Date
 
Record Date
 
Payment Date
 
Amount Per Share
 
Amount Distributed (in thousands)
5/9/2017
 
7/31/2017
 
8/24/2017
 
$
0.083330

 
$
30,011

5/9/2017
 
8/31/2017
 
9/21/2017
 
0.083330

 
30,017

8/28/2017
 
9/29/2017
 
10/19/2017
 
0.060000

 
21,619

Total declared and payable for the three months ended September 30, 2017
 
 
$
81,647

 
 
 
 
 
 
 
 
 
5/9/2018
 
7/31/2018
 
8/23/2018
 
$
0.060000

 
$
21,881

5/9/2018
 
8/31/2018
 
9/20/2018
 
0.060000

 
21,898

8/28/2018
 
9/28/2018
 
10/18/2018
 
0.060000

 
21,914

Total declared and payable for the three months ended September 30, 2018
 
 
$
65,693

Dividends and distributions to common stockholders are recorded on the ex-dividend date. As such, the table above includes distributions with record dates during three months ended September 30, 2018 and September 30, 2017. It does not include distributions previously declared to stockholders of record on any future dates, as those amounts are not yet determinable. The following dividends were previously declared and will be recorded and payable subsequent to September 30, 2018:
•
$0.06 per share for October 2018 to holders of record on October 31, 2018 with a payment date of November 21, 2018.

80

During the three months ended September 30, 2018 and September 30, 2017, we issued 815,201 and 233,489 shares of our common stock, respectively, in connection with the dividend reinvestment plan.
On February 9, 2016, we amended our dividend reinvestment plan that provided for reinvestment of our dividends or distributions on behalf of our stockholders, unless a stockholder elects to receive cash, to add the ability of stockholders to purchase additional shares by making optional cash investments. Under the revised dividend reinvestment and direct stock repurchase plan, stockholders may elect to purchase additional shares through our transfer agent in the open market or in negotiated transactions.

During the three months ended September 30, 2018, Prospect officers purchased 18,892 shares of our stock, or 0.01% of total outstanding shares as of September 30, 2018, through shares issued in connection with our dividend reinvestment plan.
As of September 30, 2018, we have reserved 72,662,285 shares of our common stock for issuance upon conversion of the Convertible Notes (see Note 5).
Note 10. Other Income
Other income consists of structuring fees, overriding royalty interests, revenue receipts related to net profit interests, deal deposits, administrative agent fees, and other miscellaneous and sundry cash receipts. The following table shows income from such sources during the three months ended September 30, 2018 and September 30, 2017.
 
Three Months Ended September 30,
 
2018
 
2017
Structuring, amendment, and advisory fees
$
4,105

 
$
8,207

Royalty and Net Revenue interests
1,823

 
1,578

Administrative agent fees
125

 
165

Total Other Income
$
6,053

 
$
9,950

Note 11. Net Increase in Net Assets per Share
The following information sets forth the computation of net increase in net assets resulting from operations per share during the three months ended September 30, 2018 and September 30, 2017.
 
Three Months Ended September 30,
 
2018
 
2017
Net increase in net assets resulting from operations
$
83,795

 
$
11,973

Weighted average common shares outstanding
364,783,137
 
360,171,834

Net increase in net assets resulting from operations per share
0.23
 
$
0.03

Note 12. Income Taxes
While our fiscal year end for financial reporting purposes is June 30 of each year, our tax year end is August 31 of each year. The information presented in this footnote is based on our tax year end for each period presented, unless otherwise specified. The tax return for the tax year ended August 31, 2018 has not been filed. Taxable income and all amounts related to taxable income for the tax year ended August 31, 2018 are estimates and will not be fully determined until the Company’s tax return is filed.
For income tax purposes, dividends paid and distributions made to shareholders are reported as ordinary income, capital gains, non-taxable return of capital, or a combination thereof. The tax character of dividends paid to shareholders during the tax years ended August 31, 2018, 2017, and 2016 were as follows:
 
 
Tax Year Ended August 31,
 
 
2018
 
2017
 
2016
Ordinary income
 
$
269,095

 
$
359,215

 
$
355,985

Capital gain
 
—

 
—

 
—

Return of capital
 
—

 
—

 
—

Total distributions paid to shareholders
 
$
269,095

 
$
359,215

 
$
355,985


81

We generate certain types of income that may be exempt from U.S. withholding tax when distributed to non-U.S. shareholders. Under IRC Section 871(k), a RIC is permitted to designate distributions of qualified interest income and short-term capital gains as exempt from U.S. withholding tax when paid to non-U.S. shareholders with proper documentation. For the 2018 calendar year, 46.72% of our distributions as of September 30, 2018 qualified as interest related dividends which are exempt from U.S. withholding tax applicable to non-U.S. shareholders.

For the tax year ending August 31, 2019, the tax character of dividends paid to shareholders through September 30, 2018 is expected to be ordinary income. Because of the difference between our fiscal and tax year ends, the final determination of the tax character of dividends will not be made until we file our tax return for the tax year ending August 31, 2019.

Taxable income generally differs from net increase in net assets resulting from operations for financial reporting purposes due to temporary and permanent differences in the recognition of income and expenses, and generally excludes net unrealized gains or losses, as unrealized gains or losses are generally not included in taxable income until they are realized. The following reconciles the net increase in net assets resulting from operations to taxable income for the tax years ended August 31, 2018, 2017, and 2016:
 
 
Tax Year Ended August 31,
 
 
2018
 
2017
 
2016
Net increase in net assets resulting from operations
 
$
406,305

 
$
254,904

 
$
262,831

Net realized loss on investments
 
26,335

 
100,765

 
22,666

Net unrealized (gains) losses on investments
 
(105,599
)
 
(61,939
)
 
73,181

Other temporary book-to-tax differences
 
(63,938
)
 
(32,117
)
 
(56,036
)
Permanent differences
 
31

 
(772
)
 
2,489

Taxable income before deductions for distributions
 
$
263,134

 
$
260,841

 
$
305,131

Capital losses in excess of capital gains earned in a tax year may generally be carried forward and used to offset capital gains, subject to certain limitations. The Regulated Investment Company Modernization Act (the “RIC Modernization Act”) was enacted on December 22, 2010. Under the RIC Modernization Act, capital losses incurred by taxpayers in taxable years beginning after the date of enactment will be allowed to be carried forward indefinitely and are allowed to retain their character as either short-term or long-term losses. As such, the capital loss carryforwards generated by us after the August 31, 2011 tax year will not be subject to expiration. Any losses incurred in post-enactment tax years will be required to be utilized prior to the losses incurred in pre-enactment tax years. As of August 31, 2018, we had capital loss carryforwards of approximately $280,386 available for use in later tax years. The unused balance each year will be carried forward and utilized as gains are realized, subject to limitations. While our ability to utilize losses in the future depends upon a variety of factors that cannot be known in advance, some of the Company’s capital loss carryforwards may become permanently unavailable due to limitations by the Code.
For the tax year ended August 31, 2018, we had no cumulative taxable income in excess of cumulative distributions.
As of September 30, 2018, the cost basis of investments for tax purposes was $6,000,194 resulting in an estimated net unrealized loss of $63,511. As of September 30, 2018, the gross unrealized gains and losses were $497,371 and $560,882, respectively. As of June 30, 2018, the cost basis of investments for tax purposes was $5,871,043 resulting in an estimated net unrealized loss of $143,764. As of June 30, 2018, the gross unrealized gains and losses were $476,197 and $619,961, respectively. Due to the difference between our fiscal year end and tax year end, the cost basis of our investments for tax purposes as of September 30, 2018 and June 30, 2018 was calculated based on the book cost of investments as of September 30, 2018 and June 30, 2018, respectively, with cumulative book-to-tax adjustments for investments through August 31, 2018 and 2017, respectively.
In general, we may make certain adjustments to the classification of net assets as a result of permanent book-to-tax differences, which may include merger-related items, differences in the book and tax basis of certain assets and liabilities, and nondeductible federal excise taxes, among other items. During the tax year ended August 31, 2018, we decreased overdistributed net investment income by $31 and dereased capital in excess of par value by $31. During the tax year ended August 31, 2017, we increased overdistributed net investment income by $772 and increased capital in excess of par value by $772. Due to the difference between our fiscal and tax year end, the reclassifications for the taxable year ended August 31, 2018 is being recorded in the fiscal year ending June 30, 2019 and the reclassifications for the taxable year ended August 31, 2017 were recorded in the fiscal year ended June 30, 2018.

82

Note 13. Related Party Agreements and Transactions
Investment Advisory Agreement
We have entered into an investment advisory and management agreement with the Investment Adviser (the “Investment Advisory Agreement”) under which the Investment Adviser, subject to the overall supervision of our Board of Directors, manages the day-to-day operations of, and provides investment advisory services to, us. Under the terms of the Investment Advisory Agreement, the Investment Adviser: (i) determines the composition of our portfolio, the nature and timing of the changes to our portfolio and the manner of implementing such changes, (ii) identifies, evaluates and negotiates the structure of the investments we make (including performing due diligence on our prospective portfolio companies); and (iii) closes and monitors investments we make.
The Investment Adviser’s services under the Investment Advisory Agreement are not exclusive, and it is free to furnish similar services to other entities so long as its services to us are not impaired. For providing these services the Investment Adviser receives a fee from us, consisting of two components: a base management fee and an incentive fee. The base management fee is calculated at an annual rate of 2.00% on our total assets. For services currently rendered under the Investment Advisory Agreement, the base management fee is payable quarterly in arrears. The base management fee is calculated based on the average value of our gross assets at the end of the two most recently completed calendar quarters and appropriately adjusted for any share issuances or repurchases during the current calendar quarter.
The total gross base management fee incurred to the favor of the Investment Adviser was $30,095 and $30,379 during the three months ended September 30, 2018 and September 30, 2017, respectively.
The Investment Adviser has entered into a servicing agreement with certain institutions that purchased loans with us, where we serve as the agent and collect a servicing fee on behalf of the Investment Adviser. During the three months ended September 30, 2018 and September 30, 2017, we received payments of $138 and $216, respectively, from these institutions, on behalf of the Investment Adviser, for providing such services under the servicing agreement. We were given a credit for these payments, which reduced the base management fees to $29,957 and $30,163 for the three months ended September 30, 2018 and September 30, 2017, respectively.
The incentive fee has two parts. The first part, the income incentive fee, is calculated and payable quarterly in arrears based on our pre-incentive fee net investment income for the immediately preceding calendar quarter. For this purpose, pre-incentive fee net investment income means interest income, dividend income and any other income (including any other fees (other than fees for providing managerial assistance), such as commitment, origination, structuring, diligence and consulting fees and other fees that we receive from portfolio companies) accrued during the calendar quarter, minus our operating expenses for the quarter (including the base management fee, expenses payable under the Administration Agreement described below, and any interest expense and dividends paid on any issued and outstanding preferred stock, but excluding the incentive fee). Pre-incentive fee net investment income includes, in the case of investments with a deferred interest feature (such as original issue discount, debt instruments with payment-in-kind interest and zero coupon securities), accrued income that we have not yet received in cash. Pre-incentive fee net investment income does not include any realized capital gains, realized capital losses or unrealized capital gains or losses. Pre-incentive fee net investment income, expressed as a rate of return on the value of our net assets at the end of the immediately preceding calendar quarter, is compared to a “hurdle rate” of 1.75% per quarter (7.00% annualized).
The net investment income used to calculate this part of the incentive fee is also included in the amount of the gross assets used to calculate the 2.00% base management fee. We pay the Investment Adviser an income incentive fee with respect to our pre-incentive fee net investment income in each calendar quarter as follows: 
•
No incentive fee in any calendar quarter in which our pre-incentive fee net investment income does not exceed the hurdle rate;
•
100.00% of our pre-incentive fee net investment income with respect to that portion of such pre-incentive fee net investment income, if any, that exceeds the hurdle rate but is less than 125.00% of the quarterly hurdle rate in any calendar quarter (8.75% annualized assuming a 7.00% annualized hurdle rate); and
•
20.00% of the amount of our pre-incentive fee net investment income, if any, that exceeds 125.00% of the quarterly hurdle rate in any calendar quarter (8.75% annualized assuming a 7.00% annualized hurdle rate).
These calculations are appropriately prorated for any period of less than three months and adjusted for any share issuances or repurchases during the current quarter.

83

The second part of the incentive fee, the capital gains incentive fee, is determined and payable in arrears as of the end of each calendar year (or upon termination of the Investment Advisory Agreement, as of the termination date), and equals 20.00% of our realized capital gains for the calendar year, if any, computed net of all realized capital losses and unrealized capital depreciation at the end of such year. In determining the capital gains incentive fee payable to the Investment Adviser, we calculate the aggregate realized capital gains, aggregate realized capital losses and aggregate unrealized capital depreciation, as applicable, with respect to each investment that has been in our portfolio. For the purpose of this calculation, an “investment” is defined as the total of all rights and claims which may be asserted against a portfolio company arising from our participation in the debt, equity, and other financial instruments issued by that company. Aggregate realized capital gains, if any, equal the sum of the differences between the aggregate net sales price of each investment and the aggregate amortized cost basis of such investment when sold or otherwise disposed. Aggregate realized capital losses equal the sum of the amounts by which the aggregate net sales price of each investment is less than the aggregate amortized cost basis of such investment when sold or otherwise disposed. Aggregate unrealized capital depreciation equals the sum of the differences, if negative, between the aggregate valuation of each investment and the aggregate amortized cost basis of such investment as of the applicable calendar year-end. At the end of the applicable calendar year, the amount of capital gains that serves as the basis for our calculation of the capital gains incentive fee involves netting aggregate realized capital gains against aggregate realized capital losses on a since-inception basis and then reducing this amount by the aggregate unrealized capital depreciation. If this number is positive, then the capital gains incentive fee payable is equal to 20.00% of such amount, less the aggregate amount of any capital gains incentive fees paid since inception.
The total income incentive fee incurred was $21,290 and $15,933 during the three months ended September 30, 2018 and September 30, 2017, respectively. No capital gains incentive fee was incurred during the three months ended September 30, 2018 and September 30, 2017.
Administration Agreement
We have also entered into an administration agreement (the “Administration Agreement”) with Prospect Administration under which Prospect Administration, among other things, provides (or arranges for the provision of) administrative services and facilities for us. For providing these services, we reimburse Prospect Administration for our allocable portion of overhead incurred by Prospect Administration in performing its obligations under the Administration Agreement, including rent and our allocable portion of the costs of our Chief Financial Officer and Chief Compliance Officer and her staff, including the internal legal staff. Under this agreement, Prospect Administration furnishes us with office facilities, equipment and clerical, bookkeeping and record keeping services at such facilities. Prospect Administration also performs, or oversees the performance of, our required administrative services, which include, among other things, being responsible for the financial records that we are required to maintain and preparing reports to our stockholders and reports filed with the SEC. In addition, Prospect Administration assists us in determining and publishing our net asset value, overseeing the preparation and filing of our tax returns and the printing and dissemination of reports to our stockholders, and generally oversees the payment of our expenses and the performance of administrative and professional services rendered to us by others. Under the Administration Agreement, Prospect Administration also provides on our behalf managerial assistance to those portfolio companies to which we are required to provide such assistance (see Managerial Assistance section below). The Administration Agreement may be terminated by either party without penalty upon 60 days’ written notice to the other party. Prospect Administration is a wholly-owned subsidiary of the Investment Adviser.
The Administration Agreement provides that, absent willful misfeasance, bad faith or negligence in the performance of its duties or by reason of the reckless disregard of its duties and obligations, Prospect Administration and its officers, managers, partners, agents, employees, controlling persons, members and any other person or entity affiliated with it are entitled to indemnification from us for any damages, liabilities, costs and expenses (including reasonable attorneys’ fees and amounts reasonably paid in settlement) arising from the rendering of Prospect Administration’s services under the Administration Agreement or otherwise as administrator for us. Our payments to Prospect Administration are reviewed quarterly by our Board of Directors.
The allocation of gross overhead expense from Prospect Administration was $3,365 and $4,710 for the three months ended September 30, 2018 and September 30, 2017, respectively. Prospect Administration received estimated payments of $1,182 directly from our portfolio companies, and certain funds managed by the Investment Adviser for legal, tax and portfolio level accounting services during the three months ended September 30, 2017. Prospect Administration did not receive any estimated payments of similar nature during the three months ended September 30, 2018. We were given a credit for these payments as a reduction of the administrative services cost payable by us to Prospect Administration. Had Prospect Administration not received these payments, Prospect Administration’s charges for its administrative services would have increased by these amounts. Net overhead during the three months ended September 30, 2018 and September 30, 2017 totaled $3,365 and $3,528, respectively.
Managerial Assistance
As a BDC, we are obligated under the 1940 Act to make available to certain of our portfolio companies significant managerial assistance. “Making available significant managerial assistance” refers to any arrangement whereby we provide significant

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guidance and counsel concerning the management, operations, or business objectives and policies of a portfolio company. We are also deemed to be providing managerial assistance to all portfolio companies that we control, either by ourselves or in conjunction with others. The nature and extent of significant managerial assistance provided by us to controlled and non-controlled portfolio companies will vary according to the particular needs of each portfolio company. Examples of such activities include (i) advice on recruiting, hiring, management and termination of employees, officers and directors, succession planning and other human resource matters; (ii) advice on capital raising, capital budgeting, and capital expenditures; (iii) advice on advertising, marketing, and sales; (iv) advice on fulfillment, operations, and execution; (v) advice on managing relationships with unions and other personnel organizations, financing sources, vendors, customers, lessors, lessees, lawyers, accountants, regulators and other important counterparties; (vi) evaluating acquisition and divestiture opportunities, plant expansions and closings, and market expansions; (vii) participating in audit committee, nominating committee, board and management meetings; (viii) consulting with and advising board members and officers of portfolio companies (on overall strategy and other matters); and (ix) providing other organizational, operational, managerial and financial guidance.
Prospect Administration, when performing a managerial assistance agreement executed with each portfolio company to which we provide managerial assistance, arranges for the provision of such managerial assistance on our behalf. When doing so, Prospect Administration utilizes personnel of our Investment Adviser. We, on behalf of Prospect Administration, invoice portfolio companies receiving and paying for managerial assistance, and we remit to Prospect Administration its cost of providing such services, including the charges deemed appropriate by our Investment Adviser for providing such managerial assistance. No income is recognized by Prospect.
During the three months ended September 30, 2018 and September 30, 2017, we received payments of $2,043 and $1,093, respectively, from our portfolio companies for managerial assistance and subsequently remitted these amounts to Prospect Administration.
Co-Investments
On February 10, 2014, we received an exemptive order from the SEC (the “Order”) that gave us the ability to negotiate terms other than price and quantity of co-investment transactions with other funds managed by the Investment Adviser or certain affiliates, including Priority Income Fund, Inc. and Pathway Capital Opportunity Fund, Inc. (f/k/a Pathway Energy Infrastructure Fund, Inc.), subject to the conditions included therein. Under the terms of the relief permitting us to co-invest with other funds managed by our Investment Adviser or its affiliates, a “required majority” (as defined in Section 57(o) of the 1940 Act) of our independent directors must make certain conclusions in connection with a co-investment transaction, including that (1) the terms of the proposed transaction, including the consideration to be paid, are reasonable and fair to us and our stockholders and do not involve overreaching of us or our stockholders on the part of any person concerned and (2) the transaction is consistent with the interests of our stockholders and is consistent with our investment objective and strategies. In certain situations where co-investment with one or more funds managed by the Investment Adviser or its affiliates is not covered by the Order, such as when there is an opportunity to invest in different securities of the same issuer, the personnel of the Investment Adviser or its affiliates will need to decide which fund will proceed with the investment. Such personnel will make these determinations based on policies and procedures, which are designed to reasonably ensure that investment opportunities are allocated fairly and equitably among affiliated funds over time and in a manner that is consistent with applicable laws, rules and regulations. Moreover, except in certain circumstances, when relying on the Order, we will be unable to invest in any issuer in which one or more funds managed by the Investment Adviser or its affiliates has previously invested.
As of September 30, 2018, we had co-investments with Priority Income Fund, Inc. in the following CLO funds: Apidos CLO XXII, Barings CLO Ltd. 2018-III, Carlyle Global Market Strategies CLO 2016-3, Ltd., Cent CLO 21 Limited, CIFC Funding 2014-IV Investor, Ltd., CIFC Funding 2014-V, Ltd., CIFC Funding 2016-I, Ltd., Galaxy XXVIII CLO, Ltd., Halcyon Loan Advisors Funding 2014-2 Ltd., Halcyon Loan Advisors Funding 2015-3 Ltd., HarbourView CLO VII-R, Ltd., Jefferson Mill CLO Ltd., Mountain View CLO IX Ltd., Octagon Investment Partners 18-R Ltd., Romark WM-R Ltd., Symphony CLO XIV Ltd., Voya IM CLO 2014-1 Ltd., Voya CLO 2016-3, Ltd. and Voya CLO 2017-3, Ltd.; however HarbourView CLO VII-R, Ltd. and Octagon Investment Partners 18-R Ltd. are not considered co-investments pursuant to the Order as they were purchased on the secondary market.
As of September 30, 2018, we had a co-investment with Pathway Capital Opportunity Fund, Inc. in Carlyle Global Market Strategies CLO 2014-4-R, Ltd.; however, this investment is not considered a co-investment pursuant to the Order as it was purchased on the secondary market.
We reimburse CLO investment valuation services fees initially incurred by Priority Income Fund, Inc. During the three months ended September 30, 2018 and September 30, 2017, we recognized expenses that were reimbursed for valuation services of $53 and $52, respectively. Conversely, Priority Income Fund, Inc. and Pathway Capital Opportunity Fund, Inc. reimburse us for software fees, expenses which were initially incurred by Prospect. As of September 30, 2018 and June 30, 2018 we accrued a receivable

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from Priority Income Fund, Inc. and Pathway Capital Opportunity Fund, Inc. for software fees of $43 and $88, respectively, which will be reimbursed to us.
Due from NPRC
As of September 30, 2018, we recorded a $5.8 million due from affiliate on the Consolidated Statement of Assets and Liabilities for a partial repayment from our investment in NPRC senior secured term loan TLE that was received on October 1, 2018. The $5.8 million principal payment reduced the cost basis of our investment in NPRC senior secured term loan TLE as of September 30, 2018.
Note 14. Transactions with Controlled Companies
The descriptions below detail the transactions which Prospect Capital Corporation (“Prospect”) has entered into with each of our controlled companies. Certain of the controlled entities discussed below were consolidated effective July 1, 2014 (see Note 1). As such, transactions with these Consolidated Holding Companies are presented on a consolidated basis.
Arctic Energy Services, LLC
Prospect owns 100% of the equity of Arctic Oilfield Equipment USA, Inc. (“Arctic Equipment”), a Consolidated Holding Company. Arctic Equipment owns 70% of the equity of Arctic Energy Services, LLC (“Arctic Energy”), with Ailport Holdings, LLC (“Ailport”) (100% owned and controlled by Arctic Energy management) owning the remaining 30% of the equity of Arctic Energy. Arctic Energy provides oilfield service personnel, well testing flowback equipment, frac support systems and other services to exploration and development companies in the Rocky Mountains. As of June 30, 2017, we reported Arctic Energy as a separate controlled company. On April 6, 2018, Arctic Equipment merged with CP Energy and our equity interest was exchanged for newly issued common shares of CP Energy. Refer to discussion on CP Energy ownership below.
The following managerial assistance recognized had not yet been paid by Arctic Energy to Prospect and was included by Prospect within other receivables and due to Prospect Administration:
June 30, 2018
$
225

September 30, 2018
225

CCPI Inc.
Prospect owns 100% of the equity of CCPI Holdings Inc. (“CCPI Holdings”), a Consolidated Holding Company. CCPI Holdings owns 94.59% of the equity of CCPI Inc. (“CCPI”), with CCPI management owning the remaining 5.41% of the equity. CCPI owns 100% of each of CCPI Europe Ltd. and MEFEC B.V., and 45% of Gulf Temperature Sensors W.L.L.
On August 1, 2017, we entered into a participation agreement with CCPI management, and sold $144 of Prospect's investment in the Term Loan B debt.

The following amounts were paid from CCPI to Prospect and recorded by Prospect as repayment of loan receivable:
Three Months Ended September 30, 2017
$
112

Three Months Ended September 30, 2018
223

The following interest payments were accrued and paid from CCPI to Prospect and recognized by Prospect as interest income:
Three Months Ended September 30, 2017
$
935

Three Months Ended September 30, 2018
914

The following managerial assistance payments were paid from CCPI to Prospect and subsequently remitted to Prospect Administration (no income was recognized by Prospect):
Three Months Ended September 30, 2017
$
60

Three Months Ended September 30, 2018
60


86

The following managerial assistance payments received by Prospect had not yet been remitted to Prospect Administration and were included by Prospect within due to Prospect Administration:
June 30, 2018
$
—

September 30, 2018
60

The following managerial assistance recognized had not yet been paid by CCPI to Prospect and was included by Prospect within other receivables and due to Prospect Administration:
June 30, 2018
$
60

September 30, 2018
—

The following payments were paid from CCPI to Prospect Administration as reimbursement for legal, tax and portfolio level accounting services provided directly to CCPI (no direct income was recognized by Prospect, but Prospect was able to recognize these payments as a reduction of the administrative services costs payable by Prospect to Prospect Administration):
Three Months Ended September 30, 2017
45

Three Months Ended September 30, 2018
—

The following amounts were due from CCPI to Prospect for reimbursement of expenses paid by Prospect on behalf of CCPI and were included by Prospect within other receivables:
June 30, 2018
$
7

September 30, 2018
—

CP Energy Services Inc.
Prospect owns 100% of the equity of CP Holdings of Delaware LLC (“CP Holdings”), a Consolidated Holding Company. CP Holdings owns 99.8%% of the equity of CP Energy, and the remaining equity is owned by CP Energy management. CP Energy owns directly or indirectly 100% of each of CP Well; Wright Foster Disposals, LLC; Foster Testing Co., Inc.; ProHaul Transports, LLC; and Wright Trucking, Inc. CP Energy provides oilfield flowback services and fluid hauling and disposal services through its subsidiaries.

On October 1, 2017, we restructured our investment in CP Energy. Concurrent with the restructuring, we exchanged $35,048 of Series B Convertible Preferred Stock for $35,048 of senior secured debt. We received $228 of an advisory fee related to the above transaction, which we recognized as other income.

On January 18, 2018, CP Energy redeemed common shares belonging to senior management, which increased our ownership percentage from 82.3% to 94.2% as of March 31, 2018.

On April 6, 2018, our common equity investment cost in the amount of $60,876 at the date of the merger in Arctic Equipment was exchanged for newly issued common shares of CP Energy. As a result of this merger between these controlled portfolio companies, our equity ownership percentage in CP Energy increased to 99.8%. There was no realized gain or loss recognized by us since this was a merger amongst two portfolio companies under our control.

The following interest payments were accrued and paid from CP Energy to Prospect and recognized by Prospect as interest income:
Three Months Ended September 30, 2017
$
—

Three Months Ended September 30, 2018
1,195

The following interest income recognized had not yet been paid by CP Energy to Prospect and was included by Prospect within interest receivable:
June 30, 2018
$
—

September 30, 2018
1,182


87

The following managerial assistance payments received by Prospect had not yet been remitted to Prospect Administration and were included by Prospect within due to Prospect Administration:
June 30, 2018
$
150

September 30, 2018
—

The following managerial assistance recognized had not yet been paid by CP Energy to Prospect and was included by Prospect within other receivables and due to Prospect Administration:
June 30, 2018
$
—

September 30, 2018
150


The following amounts were due from CP Energy to Prospect for reimbursement of expenses paid by Prospect on behalf of CP Energy and were included by Prospect within other receivables:
June 30, 2018
$
55

September 30, 2018
1

Credit Central Loan Company, LLC
Prospect owns 100% of the equity of Credit Central Holdings of Delaware, LLC (“Credit Central Delaware”), a Consolidated Holding Company. Credit Central Delaware owns 98.26% of the equity of Credit Central Loan Company, LLC (f/k/a Credit Central Holdings, LLC) (“Credit Central”), with entities owned by Credit Central management owning the remaining 1.74% of the equity. Credit Central owns 100% of each of Credit Central, LLC; Credit Central South, LLC; Credit Central of Texas, LLC; and Credit Central of Tennessee, LLC. Credit Central is a branch-based provider of installment loans.
On September 28, 2016, Prospect performed a buyout of Credit Central management’s ownership stake, purchasing additional subordinated debt of $12,523 at a discount of $7,521. Prospect also purchased $2,098 of additional shares, increasing its ownership to 98.26%.
During the three months ended September 30, 2018 and September 30, 2017, the following amounts of the aforementioned original issue discount of $7,521 accreted during the respective period, and included in interest income.
Three Months Ended September 30, 2017
$
430

Three Months Ended September 30, 2018
848

The following interest payments were accrued and paid from Credit Central to Prospect and recognized by Prospect as interest income:
Three Months Ended September 30, 2017
$
3,080

Three Months Ended September 30, 2018
2,651

The following managerial assistance payments were paid from Credit Central to Prospect and subsequently remitted to Prospect Administration (no income was recognized by Prospect):
Three Months Ended September 30, 2017
$
175

Three Months Ended September 30, 2018
175

The following managerial assistance payments received by Prospect had not yet been remitted to Prospect Administration and were included by Prospect within due to Prospect Administration:
June 30, 2018
$
175

September 30, 2018
175


88

The following amounts were due to Credit Central from Prospect for reimbursement of expenses paid by Credit Central on behalf of Prospect and were included by Prospect within other liabilities: 
June 30, 2018
$
33

September 30, 2018
—

Echelon Transportation LLC (f/k/a Echelon Aviation LLC)
Prospect owns 100% of the membership interests of Echelon Transportation LLC (“Echelon”). Echelon owns 60.7% of the equity of AerLift Leasing Limited (“AerLift”).
On September 28, 2016, Echelon made an optional partial prepayment of $6,800 of the Senior Secured Revolving Credit Facility outstanding.
During the three months ended September 30, 2016, Echelon issued 36,275 Class B shares to the company’s President, decreasing Prospect’s ownership to 98.56%.
On December 9, 2016, Prospect made a follow-on $16,044 first lien senior secured debt and $2,830 equity investment in Echelon to support an asset acquisition, increasing Prospect’s ownership to 98.71%. Prospect recognized $1,121 in structuring fee income as a result of the transaction.

The following interest payments were accrued and paid from Echelon to Prospect and recognized by Prospect as interest income:
Three Months Ended September 30, 2017
$
1,603

Three Months Ended September 30, 2018
1,658

Included above, the following payment-in-kind interest from Echelon was capitalized and recognized by Prospect as interest income:
Three Months Ended September 30, 2017
$
—

Three Months Ended September 30, 2018
2,125

The following interest income recognized had not yet been paid by Echelon to Prospect and was included by Prospect within interest receivable:
June 30, 2018
$
2,631

September 30, 2018
1,135

The following managerial assistance payments were paid from Echelon to Prospect and subsequently remitted to Prospect Administration (no income was recognized by Prospect):
Three Months Ended September 30, 2017
$
63

Three Months Ended September 30, 2018
—

The following managerial assistance payments had not yet been paid by Echelon to Prospect and were included by Prospect within other receivables and due to Prospect Administration:
June 30, 2018
$
63

September 30, 2018
63

The following amounts were due from Echelon to Prospect for reimbursement of expenses paid by Prospect on behalf of Echelon and were included by Prospect within other receivables:
June 30, 2018
$
18

September 30, 2018
13


89

Edmentum Ultimate Holdings, LLC
As of June 30, 2017, Prospect held a 37.1% membership interest in Edmentum Ultimate Holdings, LLC ("Edmentum Holdings"), which owns 100% of the equity of Edmentum, Inc. On February 23, 2018, certain participating members of Edmentum Holdings increased their revolving credit commitment and extended additional credit to Edmentum, Inc. in exchange for additional common units of Edmentum Holdings. As a result, Prospect's equity ownership was diluted to 11.5% and the investment was transferred from control to affiliate investment classification as of March 31, 2018. Edmentum is the largest all subscription based, software as a service provider of online curriculum and assessments to the U.S. education market. Edmentum provides high-value, comprehensive online solutions that support educators to successfully transition learners from one stage to the next.
During the year ended June 30, 2017, Prospect funded an additional $7,835 in the second lien revolving credit facility.
During the year ended June 30, 2018, Prospect funded an additional $7,834 in the second lien revolving credit facility.
The following amounts were paid from Edmentum to Prospect and recorded by Prospect as repayment of loan receivable:
Three Months Ended September 30, 2017
$
7,834

Three Months Ended September 30, 2018
N/A

The following interest payments were accrued and paid from Edmentum to Prospect and recognized by Prospect as interest income:
Three Months Ended September 30, 2017
$
214

Three Months Ended September 30, 2018
N/A

Included above, the following payment-in-kind interest from Edmentum was capitalized and recognized by Prospect as interest income:
Three Months Ended September 30, 2017
$
150

Three Months Ended September 30, 2018
N/A

The following interest income recognized had not yet been paid by Edmentum to Prospect and was included by Prospect within interest receivable:
June 30, 2018
$
274

September 30, 2018
N/A

Energy Solutions Holdings Inc.
Prospect owns 100% of the equity of Energy Solutions Holdings Inc. (f/k/a Gas Solutions Holdings Inc.) (“Energy Solutions”), a Consolidated Holding Company. Energy Solutions owns 100% of each of Change Clean Energy Company, LLC (f/k/a Change Clean Energy Holdings, LLC) (“Change Clean”); Freedom Marine Solutions, LLC (f/k/a Freedom Marine Services Holdings, LLC) (“Freedom Marine”); and Yatesville Coal Company, LLC (f/k/a Yatesville Coal Holdings, LLC) (“Yatesville”). Change Clean owns 100% of each of Change Clean Energy, LLC and Down East Power Company, LLC, and 50.1% of BioChips LLC. Freedom Marine owns 100% of each of Vessel Company, LLC (f/k/a Vessel Holdings, LLC) (“Vessel”); Vessel Company II, LLC (f/k/a Vessel Holdings II, LLC) (“Vessel II”); and Vessel Company III, LLC (f/k/a Vessel Holdings III, LLC) (“Vessel III”). Yatesville owns 100% of North Fork Collieries, LLC.
Energy Solutions owns interests in companies operating in the energy sector. These include companies operating offshore supply vessels, ownership of a non-operating biomass electrical generation plant and several coal mines. Energy Solutions subsidiaries formerly owned interests in gathering and processing business in east Texas.
Transactions between Prospect and Freedom Marine are separately discussed below under “Freedom Marine Solutions, LLC.”
First Tower Finance Company LLC
Prospect owns 100% of the equity of First Tower Holdings of Delaware LLC (“First Tower Delaware”), a Consolidated Holding Company. First Tower Delaware owns 80.1% of First Tower Finance Company LLC (f/k/a First Tower Holdings LLC) (“First Tower Finance”). First Tower Finance owns 100% of First Tower, LLC (“First Tower”), a multiline specialty finance company.
During the three months ended December 31, 2016, Prospect made an additional $8,005 equity investment to First Tower.

90

During the three months ended March 31, 2018, we made a follow-on $16,921 subordinated debt investment in First Tower, and a $2,664 equity investment in First Tower Finance, to support an acquisition. In connection with this transaction, we received a $2,664 advisory fee from First Tower, which was recognized as other income.
The following amounts were paid from First Tower to Prospect and recorded by Prospect as repayment of loan receivable:
Three Months Ended September 30, 2017
$
1,911

Three Months Ended September 30, 2018
2,154

The following interest payments were accrued and paid from First Tower to Prospect and recognized by Prospect as interest income:
Three Months Ended September 30, 2017
$
11,341

Three Months Ended September 30, 2018
13,962

Included above, the following payment-in-kind interest from First Tower was capitalized and recognized by Prospect as interest income:
Three Months Ended September 30, 2017
$
870

Three Months Ended September 30, 2018
1,258

The following interest income recognized had not yet been paid by First Tower to Prospect and was included by Prospect within interest receivable:
June 30, 2018
$
4,703

September 30, 2018
4,687

The following managerial assistance recognized had not yet been paid by First Tower to Prospect and was included by Prospect within other receivables and due to Prospect Administration:
June 30, 2018
$
600

September 30, 2018
600

The following amounts were due from First Tower to Prospect for reimbursement of expenses paid by Prospect on behalf of First Tower and were included by Prospect within other receivables: 
June 30, 2018
$
26

September 30, 2018
28

Freedom Marine Solutions, LLC
As discussed above, Prospect owns 100% of the equity of Energy Solutions, a Consolidated Holding Company. Energy Solutions owns 100% of Freedom Marine. Freedom Marine owns 100% of each of Vessel, Vessel II, and Vessel III.
During the year ended June 30, 2017, Prospect purchased an additional $1,200 in membership interests in Freedom Marine to support its ongoing operations and liquidity needs.
During the year ended June 30, 2018, Prospect purchased an additional $982 in membership interests in Freedom Marine to support its ongoing operations and liquidity needs.
The following managerial assistance recognized had not yet been paid by Freedom Marine to Prospect and was included by Prospect within other receivables and due to Prospect Administration:
June 30, 2018
$
825

September 30, 2018
900


91

InterDent, Inc.
Following our assumption of assuming control, Prospect exercised its rights and remedies under its loan documents to exercise the shareholder voting rights in respect of the stock of InterDent, Inc. (“InterDent”) and to appoint a new Board of Directors of InterDent, all the members of which are our Investment Adviser’s professionals. As a result, as of June 30, 2018, Prospect’s investment in InterDent is classified as a control investment.
During the three months ended September 30, 2018, Prospect purchased $14,000 of first lien Senior Secured Term Loan A/B from a third party. In addition, Prospect purchased $5,000 of first lien Senior Secured Term Loan D and transferred $31,558 from Senior Secured Term Loan B to Senior Secured Term Loan C.
The following interest payments were accrued and paid from InderDent to Prospect and recognized by Prospect as interest income:
September 30, 2018
$
6,821

Included in the above, the following payment-in-kind interest from InterDent was capitalized and recognized by Prospect as interest income:
September 30, 2018
$
4,150

The following interest income recognized had not yet been paid by InterDent to Prospect and was included by Prospect within interest receivable:
June 30, 2017
$
127

September 30, 2018
245

MITY, Inc.
Prospect owns 100% of the equity of MITY Holdings of Delaware Inc. (“MITY Delaware”), a Consolidated Holding Company. MITY Delaware holds 95.48% of the equity of MITY, Inc. (f/k/a MITY Enterprises, Inc.) (“MITY”), with management of MITY owning the remaining 4.52% of the equity of MITY. MITY owns 100% of each of MITY-Lite, Inc. (“MITY-Lite”); Broda USA, Inc. (f/k/a Broda Enterprises USA, Inc.) (“Broda USA”); and Broda Enterprises ULC (“Broda Canada”). MITY is a designer, manufacturer and seller of multipurpose room furniture and specialty healthcare seating products.
During the three months ended December 31, 2016, Prospect formed a separate legal entity, MITY FSC, Inc., (“MITY FSC”) in which Prospect owns 96.88% of the equity, and MITY-Lite management owns the remaining portion.  MITY FSC does not have material operations.  This entity earns commission payments from MITY-Lite based on its sales to foreign customers, and distributes it to its shareholders based on pro-rata ownership.  During the three months ended September 30, 2018 and September 30, 2017, we received $201 and $211, respectively of such commission, which we recognized as other income.
On January 17, 2017, Prospect invested an additional $8,000 of Senior Secured Note A and $8,000 of Senior Secured Term Loan B debt investments in MITY to fund an acquisition. Prospect recognized structuring fee income of $480 from this additional investment.
The following interest payments were accrued and paid from MITY to Prospect and recognized by Prospect as interest income:
Three Months Ended September 30, 2017
$
1,920

Three Months Ended September 30, 2018
1,924

Included in the above, the following payment-in-kind interest from MITY was capitalized and recognized by Prospect as interest income:
September 30, 2018
$
211

The following interest income recognized had not yet been paid by MITY to Prospect and was included by Prospect within interest receivable:
June 30, 2018
$
—

September 30, 2018
212


92

The following interest payments were accrued and paid from Broda Canada to Prospect and recognized by Prospect as interest income:
Three Months Ended September 30, 2017
$
150

Three Months Ended September 30, 2018
144

During the three months ended September 30, 2017, there was a favorable fluctuation in the foreign currency exchange rate and Prospect recognized $12 of realized gain related to its investment in Broda Canada. During the three months ended September 30, 2018, there was a favorable fluctuation in the foreign currency exchange rate and Prospect recognized $1 of realized gain related to its investment in Broda Canada.

The following managerial assistance payments were paid from MITY to Prospect and subsequently remitted to Prospect Administration (no income was recognized by Prospect):
Three Months Ended September 30, 2017
$
75

Three Months Ended September 30, 2018
75

The following managerial assistance payments received by Prospect had not yet been remitted to Prospect Administration and were included by Prospect within due to Prospect Administration:
June 30, 2018
$
75

September 30, 2018
75

The following amounts were due from MITY to Prospect for reimbursement of expenses paid by Prospect on behalf of MITY and included by Prospect within other receivables:
June 30, 2018
$
51

September 30, 2018
—

National Property REIT Corp.
Prospect owns 100% of the equity of NPH, a Consolidated Holding Company. NPH owns 100% of the common equity of NPRC. Effective May 23, 2016, in connection with the merger of APRC and UPRC with and into NPRC, APH and UPH merged with and into NPH, and were dissolved.
NPRC is a Maryland corporation and a qualified REIT for federal income tax purposes. In order to qualify as a REIT, NPRC issued 125 shares of Series A Cumulative Non-Voting Preferred Stock to 125 accredited investors. The preferred stockholders are entitled to receive cumulative dividends semi-annually at an annual rate of 12.5% and do not have the ability to participate in the management or operation of NPRC.
NPRC was formed to hold for investment, operate, finance, lease, manage, and sell a portfolio of real estate assets and engage in any and all other activities as may be necessary, incidental or convenient to carry out the foregoing. NPRC acquires real estate assets, including, but not limited to, industrial, commercial, and multi-family properties. NPRC may acquire real estate assets directly or through joint ventures by making a majority equity investment in a property-owning entity (the “JV”). Additionally, through its wholly-owned subsidiaries, NPRC invests in online consumer loans.
On July 22, 2016 Prospect made a $2,700 investment in NPRC used to purchase additional common equity of NPRC through NPH. The proceeds were utilized by NPRC to purchase additional ownership interest in twelve multi-family properties for $2,698 and pay $2 of legal services provided by attorneys at Prospect Administration. The minority interest holder also invested an additional $49 in the JVs. The proceeds were used by the JVs to fund $2,747 of capital expenditures.
On August 4, 2016, Prospect made a $393 investment in NPRC used to purchase additional common equity of NPRC through NPH. The proceeds were utilized by NPRC to purchase additional ownership interest in four multi-family properties for $392 and pay $1 of legal services provided by attorneys at Prospect Administration. The minority interest holder also invested an additional $21 in the JVs. The proceeds were used by the JVs to fund $413 of capital expenditures.
On September 1, 2016, we made an investment into American Consumer Lending Limited (“ACLL”), a wholly-owned subsidiary of NPRC, under the ACLL credit agreement, for senior secured term loans, Term Loan C, with the same terms as the existing ACL Loan Holdings, Inc. (“ACLLH”) Term Loan C due to us.

93

On September 28, 2016 Prospect made a $46,381 investment in NPRC, of which $35,295 was a Senior Term Loan and $11,086 was used to purchase additional common equity of NPRC through NPH. The proceeds were utilized by NPRC to purchase a 64.2% ownership interest in Vesper Portfolio JV, LLC for $46,324 and to pay $57 for tax and legal services provided by professionals at Prospect Administration. The JV was purchased for $250,000 which included debt financing and minority interest of $192,382 and $25,817, respectively. The remaining proceeds were used to pay $1,060 of structuring fees to Prospect (which was recognized by Prospect as structuring fee income), $2,131 of third party expenses, $4,911 of pre-funded capex, and $5,310 of prepaid assets, with $1,111 retained by the JV for working capital.
On October 21, 2016 Prospect made a $514 investment in NPRC used to purchase additional common equity of NPRC through NPH. The proceeds were utilized by NPRC to purchase additional ownership interest in four multi-family properties for $512 and pay $2 of legal services provided by attorneys at Prospect Administration. The minority interest holder also invested an additional $33 in the JVs. The proceeds were used by the JVs to fund $545 of capital expenditures.

On November 17, 2016, NPRC used sale and supplemental loan proceeds to make a partial repayment on the Senior Term Loan of $19,149 and a return of capital on Prospects’ equity investment in NPRC of $9,204.

On November 23, 2016, Prospect made a $2,860 investment in NPRC used to purchase additional common equity of NPRC through NPH. The proceeds were utilized by NPRC to purchase additional ownership interest in seven multi-family properties for $2,859 and pay $1 of legal services provided by attorneys at Prospect Administration. The minority interest holder also invested an additional $231 in the JVs. The proceeds were used by the JVs to fund $3,090 of capital expenditures.

On December 7, 2016 Prospect made a $13,046 investment in NPRC, of which $9,653 was a Senior Term Loan and $3,393 was used to purchase additional common equity of NPRC through NPH. The proceeds were utilized by NPRC to purchase an 85% ownership interest in JSIP Union Place, LLC for $13,026 and to pay $20 of legal services provided by attorneys at Prospect Administration. The JV was purchased for $64,750 which included debt financing and minority interest of $51,800 and $2,299, respectively. The remaining proceeds were used to pay $261 of structuring fees to Prospect (which was recognized by Prospect as structuring fee income), $1,078 of third party expenses, $5 of pre-funded capital expenditures, and $458 of prepaid assets, with $573 retained by the JV for working capital.
On January 30, 2017 Prospect made a $41,365 investment in NPRC, of which $30,644 was a Senior Term Loan and $10,721 was used to purchase additional common equity of NPRC through NPH. The proceeds were utilized by NPRC to purchase a 92.5% ownership interest in 9220 Old Lantern Way LLC for $41,333 and to pay $32 of legal services provided by attorneys at Prospect Administration. The JV was purchased for $187,250 which included debt financing and minority interest of $153,580 and $3,351, respectively. The remaining proceeds were used to pay $827 of structuring fees to Prospect (which was recognized by Prospect as structuring fee income), $4,415 of third party expenses, $1,857 of pre-funded capital expenditures, and $3,540 of prepaid assets, with $375 retained by the JV for working capital.

On February 27, 2017 NPRC used sale and supplemental loan proceeds to make a partial repayment on the Senior Term Loan of $18,000 and a return of capital on Prospects’ equity investment in NPRC of $11,648. In connection to the partial repayment of the Senior Term Loan, NPRC paid a prepayment premium of $180 to Prospect (which was recognized by Prospect as interest income).

On March 7, 2017, Prospect made a $289 investment in NPRC used to purchase additional common equity of NPRC through NPH. The proceeds were utilized by NPRC to purchase additional ownership interest in SSIL I, LLC for $288. The minority interest holder also invested an additional $72 in the JV. The proceeds were used by the JV to fund $360 of capital expenditures.

On March 16, 2017, Prospect made a $4,273 investment in NPRC used to purchase additional common equity of NPRC through NPH. The proceeds were utilized by NPRC to purchase additional ownership interest in eight multi-family properties for $4,272 and pay $1 of legal services provided by attorneys at Prospect Administration. The proceeds were used by the JV to fund $4,272 of capital expenditures.
On April 3, 2017, Prospect made a $418 investment in NPRC used to purchase additional common equity of NPRC through NPH. The proceeds were utilized by NPRC to purchase additional ownership interest in three multi-family properties for $417 and pay $1 of legal services provided by attorneys at Prospect Administration. The minority interest holder also invested an additional $24 in the JV. The proceeds were used by the JV to fund $441 of capital expenditures.
On April 21, 2017, Prospect made a $2,106 investment in NPRC used to purchase additional common equity of NPRC through NPH. The proceeds were utilized by NPRC to purchase additional ownership interest in Vesper Portfolio JV, LLC for $2,105

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and pay $1 of legal services provided by attorneys at Prospect Administration. The proceeds were used by the JV to fund $2,105 of capital expenditures.
On June 30, 2017 NPRC used sale proceeds to make a partial repayment on the Senior Term Loan of $5,750 and a return of capital on Prospects’ equity investment in NPRC of $11,261. In connection to the partial repayment of the Senior Term Loan, NPRC paid a prepayment premium of $58 to Prospect (which was recognized by Prospect as interest income).
On July 10, 2017, Prospect made a $653 investment in NPRC, of which $450 was a Senior Term Loan and $202 was used to purchase additional common equity of NPRC through NPH. The proceeds were utilized by NPRC to purchase additional ownership interest in a multi-family JV for $639 and pay $1 of legal services provided by attorneys at Prospect Administration. The remaining proceeds were used to pay $13 of structuring fees to Prospect (which was recognized by Prospect as structuring fee income). The minority interest holder also purchased additional ownership interest in the JV for $163. The proceeds were used by the JV to fund $802 of capital expenditures.
On August 24, 2017, Prospect purchased additional common equity of NPRC through NPH for $2,401. The proceeds were utilized by NPRC to purchase additional ownership interest in a JV that owns eight student housing properties for $2,400 and pay $1 of legal services provided by attorneys at Prospect Administration. The proceeds were used by the JV to fund $2,400 of capital expenditures.
On September 13, 2017, Prospect made a $826 investment in NPRC, of which $662 was a Senior Term Loan and $164 was used to purchase additional common equity of NPRC through NPH. The proceeds were utilized by NPRC to purchase additional ownership interest in a JV entity that owns five multi-family properties for $825 and pay $2 of legal services provided by attorneys at Prospect Administration. The minority interest holder also purchased additional ownership interest in the JV for $92. The proceeds were used by the JV to fund $917 of capital expenditures.
On October 10, 2017, Prospect purchased additional common equity of NPRC through NPH for $4,094. NPRC utilized $4,091 of the proceeds as a capital contribution in multiple JV entities that own ten multi-family properties and to pay $3 for legal services provided by attorneys at Prospect Administration. The minority interest holder also contributed $87 of additional capital in the JV entities. The proceeds were utilized by the JV entities to fund $4,178 of capital expenditures.
On October 31, 2017, Prospect purchased additional common equity of NPRC through NPH for $27,004. The proceeds were utilized by NPRC to purchase a 92.5% ownership interest in Baymeadows Holdings LLC for $26,974 and to pay $30 for tax and legal services provided by professionals at Prospect Administration. The minority interest holder purchased ownership interest in the JV for $2,187. The JV utilized the total proceeds, which included debt financing of $88,800, to acquire $111,000 of multi-family real estate assets. The remaining proceeds were used by the JV to pay $539 of structuring fees to Prospect (which was recognized by Prospect as structuring fee income), $802 of third party expenses, $546 of pre-funded capital expenditures, $3,016 of prepaid assets, and $2,058 was retained by the JV as working capital.
On November 8, 2017, Prospect purchased additional common equity of NPRC through NPH for $15,911. The proceeds were utilized by NPRC to purchase a 92.5% ownership interest in Southfield Holdings LLC for $15,849, pay $10 for tax and legal services provided by professionals at Prospect Administration, and $52 was retained as working capital. The minority interest holder purchased ownership interest in the JV for $1,285. The JV utilized the total proceeds, which included debt financing of $58,229, to acquire $68,500 of multi-family real estate assets. The remaining proceeds were used by the JV to pay $317 of structuring fees to Prospect (which was recognized by Prospect as structuring fee income), $263 of third party expenses, $3,138 of pre-funded capital expenditures, $2,860 of prepaid assets, and $285 was retained by the JV as working capital.
On November 17, 2017, Prospect purchased additional common equity of NPRC through NPH for $1,019. NPRC utilized $1,018 of the proceeds as a capital contribution in multiple JV entities that own seven multi-family properties and to pay $1 for legal services provided by attorneys at Prospect Administration. The minority interest holder also contributed $82 of additional capital in the JV entities. The proceeds were used by the JV entities to fund $1,100 of capital expenditures.
On December 29, 2017, Prospect purchased additional common equity of NPRC through NPH for $10,000. NPRC utilized $200 of proceeds provided to pay a structuring fee to Prospect (which was recognized by Prospect as structuring fee income). On January 10, 2018, NPRC utilized $9,790 of proceeds provided by Prospect on December 29, 2017 to purchase a 92.5% interest in Steeplechase Holdings LLC. The remaining $10 was retained as working capital by NPRC. The minority interest holder purchased ownership interest in the JV for $794. The JV utilized the total proceeds, which included debt financing of $36,668, to acquire $44,500 of multi-family real estate assets. The remaining proceeds were used by the JV to pay $196 of structuring fees to NPRC, $986 of third party expenses, $370 of pre-funded capital expenditures, $911 of prepaid assets, and $289 was retained by the JV as working capital.

95

On January 26, 2018, Prospect purchased additional common equity of NPRC through NPH for $1,586. NPRC utilized the proceeds to purchase additional ownership interest in a JV that owns eight student housing properties for $1,585 and to pay $1 for legal services provided by attorneys at Prospect Administration. The proceeds were utilized by the JV entity to fund $1,585 of capital expenditures.
On March 1, 2018 Prospect exchanged $47,000 of ACLL Senior Secured Term Loan C for $47,000 of NPRC Senior Secured Term Loan E.

On March 19, 2018 Prospect exchanged $50,000 of ACLL Senior Secured Term Loan C for $50,000 of NPRC Senior Secured Term Loan E.

On March 29, 2018, Prospect purchased additional common equity of NPRC through NPH for $3,134. NPRC utilized $3,131 of the proceeds as a capital contribution in multiple JV entities that own nine multi-family properties and to pay $3 for legal services provided by attorneys at Prospect Administration. The minority interest holder also contributed $71 of additional capital in the JV entities. The proceeds were utilized by the JV entities to fund $3,202 of capital expenditures.
On March 29, 2018 Prospect exchanged $578 of ACLL Senior Secured Term Loan C and $14,274 of ACLLH Senior Secured Term Loan C for $14,852 of NPRC Senior Secured Term Loan E.

On March 30, 2018, Prospect purchased additional common equity of NPRC through NPH for $7,997. NPRC utilized $797 of the proceeds to fund the lender rate-lock deposit and initial deposits required under the purchase and sale agreement of a JV real estate transaction. NPRC utilized $200 of proceeds provided to pay a structuring fee to Prospect (which was recognized by Prospect as structuring fee income). The remaining $7,000 of proceeds were retained by NPRC to acquire a controlling interest in the JV real estate transaction.
On March 30, 2018 Prospect contributed $48,832 to NPRC as an increase to the NPRC Senior Secured Term Loan E. On the same day, NPRC distributed $48,832 as a return of capital to Prospect.
On April 13, 2018, Prospect purchased additional common equity of NPRC through NPH for $8,256. NPRC utilized $8,255 of the proceeds as a capital contribution in a JV entity that own eight multi-family properties and $1 was retained by NPRC as working capital. The proceeds were utilized by the JV entities to fund $8,255 of capital expenditures.
On May 11, 2018, Prospect purchased additional common equity of NPRC through NPH for $3,343. NPRC utilized $3,342 of the proceeds as a capital contribution in multiple JV entities that own eight multi-family properties and $1 was retained by NPRC as working capital. The minority interest holder also contributed $270 of additional capital in the JV entities. The proceeds were utilized by the JV entities to fund $3,612 of capital expenditures.
On May 25, 2018, Prospect purchased additional common equity of NPRC through NPH for $24,507. NPRC utilized $490 of proceeds provided to pay a structuring fee to Prospect (which was recognized by Prospect as structuring fee income). On June 1, 2018, NPRC utilized $23,271 of proceeds provided by Prospect on May 25, 2018 to purchase a 92.5% interest in Olentangy Commons Holdings, LLC. The remaining $746 was retained as working capital by NPRC. The minority interest holder purchased ownership interest in the JV for $1,887. The JV utilized the total proceeds, which included debt financing of $92,876, to acquire $113,000 of multi-family real estate assets. The remaining proceeds were used by the JV to pay $465 of structuring fees to NPRC, $861 of third party expenses, $1,706 of pre-funded capital expenditures, $798 of prepaid assets, and $1,204 was retained by the JV as working capital.
On June 14, 2018, Prospect purchased additional common equity of NPRC through NPH for $3,192. NPRC utilized $3,190 of the proceeds as a capital contribution in multiple JV entities that own three multi-family properties and $2 was retained by NPRC as working capital. The proceeds were utilized by the JV entities to fund $3,190 of capital expenditures.
On June 29, 2018, Prospect purchased additional common equity of NPRC through NPH for $10,780. NPRC utilized $1,471 of the proceeds to fund the lender rate-lock deposit and initial deposits required under the purchase and sale agreement of a JV real estate transaction. NPRC utilized $216 of proceeds provided to pay a structuring fee to Prospect (which was recognized by Prospect as structuring fee income). The remaining $9,093 of proceeds were retained by NPRC to acquire a controlling interest in the JV real estate transaction.
During the year ended June 30, 2018, we provided $21,858 and $13,434 of debt and equity financing, respectively, to NPRC and its wholly-owned subsidiaries to support the online consumer loans and online consumer loan backed products. In addition, during the year ended June 30, 2018, we received partial repayments of $113,675 of our loans previously outstanding with NPRC and its wholly-owned subsidiaries and $10,403 as a return of capital on our equity investment in NPRC.

96

During the three months ended September 30, 2018, we provided $10,206 of equity financing to NPRC to fund capital expenditures for existing properties.
During the three months ended September 30, 2018, we received partial repayments of $8,221of our loans previously outstanding with NPRC and its wholly owned subsidiary.
The following dividends were declared and paid from NPRC to Prospect and recognized as dividend income by Prospect:
Three Months Ended September 30, 2017
$
—

Three Months Ended September 30, 2018
11,000

All dividends were paid from earnings and profits of NPRC.

The following interest payments were accrued and paid by NPRC to Prospect and recognized by Prospect as interest income:
Three Months Ended September 30, 2017
$
17,337

Three Months Ended September 30, 2018
20,398

The following interest income recognized had not yet been paid by NPRC to Prospect and was included by Prospect within interest receivable:
June 30, 2018
$
426

September 30, 2018
630

The following interest payments were accrued and paid by ACLLH to Prospect and recognized by Prospect as interest income:
Three Months Ended September 30, 2017
$
1,802

Three Months Ended September 30, 2018
—

The following interest payments were accrued and paid by ACLL to Prospect and recognized by Prospect as interest income:
Three Months Ended September 30, 2017
$
4,203

Three Months Ended September 30, 2018
—

The following net operating income interest payments were paid from NPRC to Prospect and recognized by Prospect as other income:
Three Months Ended September 30, 2017
$
1,578

Three Months Ended September 30, 2018
1,663

The following structuring fees were paid from NPRC to Prospect and recognized by Prospect as other income:
Three Months Ended September 30, 2017
$
13

Three Months Ended September 30, 2018
624

The following structuring fees were paid from ACLLH to Prospect and recognized by Prospect as other income:
Three Months Ended September 30, 2017
$
288

Three Months Ended September 30, 2018
—

The following managerial assistance payments were paid from NPRC to Prospect and subsequently remitted to Prospect Administration (no income was recognized by Prospect):
Three Months Ended September 30, 2017
$
325

Three Months Ended September 30, 2018
525

The following managerial assistance payments received by Prospect had not yet been remitted to Prospect Administration and were included by Prospect within due to Prospect Administration:

97

June 30, 2018
$
525

September 30, 2018
525

The following payments were paid from NPRC to Prospect Administration as reimbursement for legal, tax and portfolio level accounting services provided directly to NPRC (no direct income was recognized by Prospect, but Prospect was able to recognize these payments as a reduction of the administrative services costs payable by Prospect to Prospect Administration):
Three Months Ended September 30, 2017
$
837

Three Months Ended September 30, 2018
132

The following amounts were due from NPRC to Prospect for reimbursement of expenses paid by Prospect on behalf of NPRC and included by Prospect within other receivables:
June 30, 2018
$
286

September 30, 2018
59

Nationwide Loan Company LLC
Prospect owns 100% of the membership interests of Nationwide Acceptance Holdings LLC (“Nationwide Holdings”), a Consolidated Holding Company. Nationwide Holdings owns 93.79% of the equity of Nationwide Loan Company LLC (f/k/a Nationwide Acceptance LLC) (“Nationwide”), with members of Nationwide management owning the remaining 6.21% of the equity.
On August 31, 2016, Prospect made an additional $123 investment in the senior subordinated term loan to Nationwide. Prospect also made an additional equity investment totaling $92, increasing Prospect’s ownership in Nationwide to 94.48%.
On May 31, 2017, Prospect made an additional equity investment totaling $1,889, and Prospect’s ownership in Nationwide did not change.
On October 31, 2017, Prospect made an additional equity investment totaling $3,779, and Prospect’s ownership in Nationwide did not change.
The following dividends were declared and paid from Nationwide to Prospect and recognized as dividend income by Prospect:
Three Months Ended September 30, 2017
$
730

Three Months Ended September 30, 2018
165

All dividends were paid from earnings and profits of Nationwide.
The following interest payments were accrued and paid from Nationwide to Prospect and recognized by Prospect as interest income:
Three Months Ended September 30, 2017
$
862

Three Months Ended September 30, 2018
890

Included above, the following payment-in-kind interest from Nationwide was capitalized and recognized by Prospect as interest income:
Three Months Ended September 30, 2017
$
145

Three Months Ended September 30, 2018
—

The following interest income recognized had not yet been paid by Nationwide to Prospect and was included by Prospect within interest receivable:
June 30, 2018
$
—

September 30, 2018
—


98

The following managerial assistance payments were paid from Nationwide to Prospect and subsequently remitted to Prospect Administration (no income was recognized by Prospect):
Three Months Ended September 30, 2017
$
100

Three Months Ended September 30, 2018
100

The following managerial assistance payments received by Prospect had not yet been remitted to Prospect Administration and were included by Prospect within due to Prospect Administration:
June 30, 2018
$
100

September 30, 2018
100

The following amounts were due from Nationwide to Prospect for reimbursement of expenses paid by Prospect on behalf of Nationwide and included by Prospect within other receivables:
June 30, 2018
$
15

September 30, 2018
16

NMMB, Inc.
Prospect owns 100% of the equity of NMMB Holdings, Inc. (“NMMB Holdings”), a Consolidated Holding Company. NMMB Holdings owns 91.52% of the fully-diluted equity of NMMB, Inc. (f/k/a NMMB Acquisition, Inc.) (“NMMB”), with NMMB management owning the remaining 8.67% of the equity. NMMB owns 100% of Refuel Agency, Inc. (“Refuel Agency”). Refuel Agency owns 100% of Armed Forces Communications, Inc. (“Armed Forces”). NMMB is an advertising media buying business.
The following amounts were paid from Armed Forces to Prospect and recorded by Prospect as repayment of loan receivable:
Three Months Ended September 30, 2017
$
—

Three Months Ended September 30, 2018
1,001

The following interest payments were accrued and paid from NMMB to Prospect and recognized by Prospect as interest income:
Three Months Ended September 30, 2017
$
133

Three Months Ended September 30, 2018
134

The following interest income recognized had not yet been paid by NMMB to Prospect and was included by Prospect within interest receivable:
June 30, 2018
$
1

September 30, 2018
4

The following interest payments were accrued and paid from Armed Forces to Prospect and recognized by Prospect as interest income:
Three Months Ended September 30, 2017
$
247

Three Months Ended September 30, 2018
176

The following interest income recognized had not yet been paid by Armed Forces to Prospect and was included by Prospect within interest receivable:
June 30, 2018
$
2

September 30, 2018
5

The following managerial assistance payments were paid from NMMB to Prospect and subsequently remitted to Prospect
Administration (no income was recognized by Prospect):
Three Months Ended September 30, 2017
$
100

Three Months Ended September 30, 2018
100


99

The following managerial assistance payments received by Prospect had not yet been remitted to Prospect Administration and were included by Prospect within due to Prospect Administration:
June 30, 2018
$
100

September 30, 2018
100

The following managerial assistance recognized had not yet been paid by NMMB to Prospect and was included by Prospect within other receivables and due to Prospect Administration:
June 30, 2018
$
1,288

September 30, 2018
1,288

The following amounts were due from NMMB to Prospect for reimbursement of expenses paid by Prospect on behalf of NMMB and were included by Prospect within other receivables:
June 30, 2018
$
4

September 30, 2018
—

Pacific World Corporation
On May 29, 2018, Prospect exercised its rights and remedies under its loan documents to exercise the shareholder voting rights in respect of the stock of Pacific World Corporation (“Pacific World”) and to appoint a new Board of Directors of Pacific World. As a result, as of June 30, 2018, Prospect’s investment in Pacific World is classified as a control investment.
On June 15, 2018, we made a $15,000 convertible preferred equity investment in Pacific World Corporation (“Pacific World”).
The following amounts were paid from Pacific World to Prospect and recorded by Prospect as repayment of loan receivable:
September 30, 2017
N/A

September 30, 2018
251

Since assuming control, the following interest payments were accrued and paid from Pacific World to Prospect and recognized by Prospect as interest income:
September 30, 2017
N/A

September 30, 2018
2,332

The following interest income recognized had not yet been paid by Pacific World to Prospect and was included by Prospect within interest receivable:
June 30, 2018
$
270

September 30, 2018
159

The following amounts were due from Pacific World to Prospect for reimbursement of expenses paid by Prospect on behalf of NMMB and were included by Prospect within other receivables:
June 30, 2018
$
—

September 30, 2018
92


R-V Industries, Inc.
Prospect owns 88.27% of the fully-diluted equity of R-V Industries, Inc. (“R-V”), with R-V management owning the remaining 11.73% of the equity. As of June 30, 2011, Prospect’s equity investment cost basis was $1,682 and $5,087 for warrants and common stock, respectively.

100

On December 24, 2016, Prospect exercised its warrant to purchase 200,000 common shares of R-V. Prospect recorded a realized gain of $172 from this redemption. Prospect’s ownership remains unchanged at 88.27%.
During the three months ended December 31, 2016, Prospect provided certain financial advisory services to R-V related to a possible transaction. Prospect recognized $124 in advisory fee income resulting from these services.
During the year ended June 30, 2017, cash distributions of $76 that were declared and paid from R-V to Prospect were recognized as a return of capital by Prospect.
The following interest payments were accrued and paid from R-V to Prospect and recognized by Prospect as interest income:
Three Months Ended September 30, 2017
$
738

Three Months Ended September 30, 2018
802

The following managerial assistance payments were paid from R-V to Prospect and subsequently remitted to Prospect Administration (no income was recognized by Prospect):
Three Months Ended September 30, 2017
$
45

Three Months Ended September 30, 2018
45

The following managerial assistance payments received by Prospect had not yet been remitted to Prospect Administration and were included by Prospect within due to Prospect Administration:
June 30, 2018
$
45

September 30, 2018
45

The following payments were paid from R-V to Prospect Administration as reimbursement for legal, tax and portfolio level accounting services provided directly to R-V (no direct income was recognized by Prospect, but Prospect was able to recognize these payments as a reduction of the administrative services costs payable by Prospect to Prospect Administration):
Three Months Ended September 30, 2017
$
2

Three Months Ended September 30, 2018
—

SB Forging Company, Inc.
As of June 30, 2014, Prospect owned 79.53% of the fully-diluted common, 85.76% of the Series A Preferred and 100% of the Series B Preferred equity of ARRM Services, Inc. (f/k/a ARRM Holdings, Inc.) (“ARRM”). ARRM owned 100% of the equity of Ajax Rolled Ring & Machine, LLC (f/k/a Ajax Rolled Ring & Machine, Inc.) (“Ajax”). Ajax forges large seamless steel rings on two forging mills in the company’s York, South Carolina facility. The rings are used in a range of industrial applications, including in construction equipment and power turbines. Ajax also provides machining and other ancillary services.
SB Forging Company II, Inc. (f/k/a Gulf Coast Machine & Supply Company)
Prospect owns 100% of the preferred equity of Gulf Coast Machine & Supply Company (“Gulf Coast”). Gulf Coast is a provider of value-added forging solutions to energy and industrial end markets.
During the year ended June 30, 2017, Prospect made additional investments of $8,750 in the first lien term loan to Gulf Coast to fund capital improvements to key forging equipment and other liquidity needs.
On June 3, 2017, Gulf Coast sold all of its assets to a third party, for total consideration of $10,250, including escrowed amounts. The proceeds from the sale were primarily used to repay a $6,115 third party revolving credit facility, and the remainder was used to pay other legal and administrative costs incurred by Gulfco. As no proceeds were allocated to Prospect, our debt and equity investment in Gulfco was written-off for tax purposes and we recorded a realized loss of $66,103 during the year ended June 30, 2017. Gulfco holds $2,050 in escrow related to the sale, which will be distributed to Prospect once released to Gulfco, and will be recognized as a realized gain if and when it is received. On June 28, 2017, Gulf Coast was renamed to SB Forging Company II, Inc.
On November 14, 2017, we received proceeds of $1,363 from our insurance carrier related to our investment in Gulfco. The $1,363 reimbursed us for covered third-party legal expenses incurred and expensed in prior periods, for which we recorded the amount received as a reduction to our legal fees for the current period. Prospect Administration also received $1,430 from the insurance

101

carrier related to covered legal services provided by Prospect Administration which was recorded as a reduction of allocation of overhead from Prospect Administration.

USES Corp.
On June 15, 2016, we provided additional $1,300 debt financing to USES Corp. (“USES”) and its subsidiaries in the form of additional Term Loan A debt and, in connection with such Term Loan A debt financing, USES issued to us 99,900 shares of its common stock.  On June 29, 2016, we provided additional $2,200 debt financing to USES and its subsidiaries in the form of additional Term Loan A debt and, in connection with such Term Loan A debt financing, USES issued to us 169,062 shares of its common stock.  As a result of such debt financing and recapitalization, as of June 29, 2016, we held 268,962 shares of USES common stock representing a 99.96% common equity ownership interest in USES. As such, USES became a controlled company on June 30, 2016.

During the year ended June 30, 2017, Prospect provided additional $2,599 debt financing to USES and its subsidiaries in the form of additional Term Loan A debt.

During the year ended June 30, 2018, Prospect provided additional $3,000 debt financing to USES and its subsidiaries in the form of additional Term Loan A debt.

During the year ended June 30, 2018, we entered into a participation agreement with USES management, and sold $3 of Prospect’s investment in the Term Loan A debt.

The following managerial assistance recognized had not yet been paid by USES to Prospect and was included by Prospect within other receivables and due to Prospect Administration:
June 30, 2018
$
625

September 30, 2018
700

Valley Electric Company, Inc.
Prospect owns 100% of the common stock of Valley Electric Holdings I, Inc. (“Valley Holdings I”), a Consolidated Holding Company. Valley Holdings I owns 100% of Valley Electric Holdings II, Inc. (“Valley Holdings II”), a Consolidated Holding Company. Valley Holdings II owns 94.99% of Valley Electric Company, Inc. (“Valley Electric”), with Valley Electric management owning the remaining 5.01% of the equity. Valley Electric owns 100% of the equity of VE Company, Inc., which owns 100% of the equity of Valley Electric Co. of Mt. Vernon, Inc. (“Valley”), a leading provider of specialty electrical services in the state of Washington and among the top 50 electrical contractors in the United States.
During the three months ended September 30, 2018, Prospect provided $5,100 of additional debt financing to Valley Electric.
The following dividends were declared and paid from Valley Electric to Prospect and recognized as dividend income by Prospect:
Three Months Ended September 30, 2017
$
—

Three Months Ended September 30, 2018
3,500

The following interest payments were accrued and paid from Valley Electric to Prospect and recognized by Prospect as interest income:
Three Months Ended September 30, 2017
$
1,185

Three Months Ended September 30, 2018
1,319

Included above, the following payment-in-kind interest from Valley Electric was capitalized and recognized by Prospect as interest income:
Three Months Ended September 30, 2017
$
544

Three Months Ended September 30, 2018
—

The following interest income recognized had not yet been paid by Valley Electric to Prospect and was included by Prospect within interest receivable:

102

June 30, 2018
$
14

September 30, 2018
16

The following interest payments were accrued and paid from Valley to Prospect and recognized by Prospect as interest income:
Three Months Ended September 30, 2017
$
280

Three Months Ended September 30, 2018
286

The following interest income recognized had not yet been paid by Valley to Prospect and was included by Prospect within interest receivable:
June 30, 2018
$
3

September 30, 2018
3

The following net operating income interest payments were paid from Valley Electric to Prospect and recognized by Prospect as other income:
Three Months Ended September 30, 2017
$
—

Three Months Ended September 30, 2018
150

The following structuring fees were paid from Valley Electric to Prospect and recognized by Prospect as other income:
Three Months Ended September 30, 2017
$
—

Three Months Ended September 30, 2018
153

The following managerial assistance payments were paid from Valley to Prospect and subsequently remitted to Prospect Administration (no income was recognized by Prospect):
Three Months Ended September 30, 2017
$
75

Three Months Ended September 30, 2018
75

The following managerial assistance payments received by Prospect had not yet been remitted to Prospect Administration and were included by Prospect within due to Prospect Administration:
June 30, 2018
$
75

September 30, 2018
75

The following amounts were due from Valley to Prospect for reimbursement of expenses paid by Prospect on behalf of Valley and were included by Prospect within other receivables:
June 30, 2018
$
3

September 30, 2018
6


Wolf Energy, LLC
Prospect owns 100% of the equity of Wolf Energy Holdings Inc. (“Wolf Energy Holdings”), a Consolidated Holding Company. Wolf Energy Holdings owns 100% of each of Appalachian Energy LLC (f/k/a Appalachian Energy Holdings, LLC) (“AEH”); Coalbed, LLC (“Coalbed”); and Wolf Energy, LLC (“Wolf Energy”). AEH owns 100% of C&S Operating, LLC.
Wolf Energy Holdings is a holding company formed to hold 100% of the outstanding membership interests of each of AEH and Coalbed. The membership interests and associated operating company debt of AEH and Coalbed, which were previously owned by Manx Energy, Inc. (“Manx”), were assigned to Wolf Energy Holdings effective June 30, 2012. The purpose of assignment was to remove those activities from Manx deemed non-core by the Manx convertible debt investors who were not interested in funding those operations. On June 30, 2012, AEH and Coalbed loans, with a cost basis of $7,991, were assigned by Prospect to Wolf Energy Holdings from Manx.

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On March 14, 2017, $22,145 of assets previously held by Ark-La-Tex Wireline Services, LLC (“Ark-La-Tex”) were assigned to Wolf Energy Services Company, LLC, (“Wolf Energy Services”) a wholly-owned subsidiary of Wolf Energy Holdings. During the year ended June 30, 2017, Wolf Energy Services received $2,768 from the partial sale of these transferred assets. During the year ended June 30, 2017 Wolf Energy Services received $12,576 from the sale of assets.
During the year ended June 30, 2018, Wolf Energy Services received $2,930 from the sale of assets.
On December 29, 2017, we entered into a fee agreement with Wolf Energy Services Company, LLC (“Wolf”), for services required to locate, inventory, foreclose, and liquidate assets that were transferred from Ark-La-Tex to Wolf. Per the agreement, we will receive a fee equal to 8.0% of gross liquidation proceeds in the event aggregate liquidation gross proceeds exceed $19,000 (currently $18,500). During the year ended June 30, 2018, we received $1,222 in liquidation fees, net of third-party transaction costs, which is reflected as other income on our accompanying Consolidated Statement of Operations.
The following managerial assistance recognized had not yet been paid by Wolf Energy to Prospect and was included by Prospect within other receivables and due to Prospect Administration:
June 30, 2018
$
41

September 30, 2018
55


The following amounts were due from Wolf Energy to Prospect for reimbursement of expenses paid by Prospect on behalf of Wolf Energy and were included by Prospect within other receivables:
June 30, 2018
$
41

September 30, 2018
15


Note 15. Litigation
From time to time, we may become involved in various investigations, claims and legal proceedings that arise in the ordinary course of our business. These matters may relate to intellectual property, employment, tax, regulation, contract or other matters. The resolution of such matters as may arise will be subject to various uncertainties and, even if such claims are without merit, could result in the expenditure of significant financial and managerial resources. We are not aware of any material legal proceedings as of September 30, 2018.

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Note 16. Financial Highlights
The following is a schedule of financial highlights for the three months ended September 30, 2018 and September 30, 2017:
 
Three Months Ended September 30,
 
 
2018
 
2017
 
Per Share Data
 

 
 

 
Net asset value at beginning of period
$
9.35

 
$
9.32

 
Net investment income(1)
0.23

 
0.18

 
Net realized and change in unrealized (losses) gains(1)
—

(4
)
(0.15
)
 
  Net increase from operations
0.23

 
0.03

 
Distributions of net investment income
(0.18
)
 
(0.23
)
 
Common stock transactions(2)
(0.01
)
 
—

(4)
  Net asset value at end of period
$
9.39

 
$
9.12

 
 
 
 
 
 
Per share market value at end of period
$
7.33

 
$
6.72

 
Total return based on market value(3)
12.03
%
 
(14.40
%)
 
Total return based on net asset value(3)
2.99
%
 
1.22
%
 
Shares of common stock outstanding at end of period
365,225,139

 
360,310,422

 
Weighted average shares of common stock outstanding
364,783,137

 
360,171,834

 
 
 
 
 
 
Ratios/Supplemental Data
 
 
 

 
Net assets at end of period
$
3,430,944

 
$
3,286,991

 
Portfolio turnover rate
0.95
%
 
3.85
%
 
Annualized ratio of operating expenses to average net assets
11.15
%
 
11.42
%
 
Annualized ratio of net investment income to average net assets
9.96
%
 
7.68
%
 
The following is a schedule of financial highlights for each of the five years ended in the period ended June 30, 2018:
 
Year Ended June 30,
 
2018
 
2017
 
2016
 
2015
 
2014
Per Share Data
 
 
 
 
 

 
 

 
 

Net asset value at beginning of year
$
9.32

 
$
9.62

 
$
10.31

 
$
10.56

 
$
10.72

Net investment income(1)
0.79

 
0.85

 
1.04

 
1.03

 
1.19

Net realized and change in unrealized gains (losses)(1)
0.04

 
(0.15
)
 
(0.75
)
 
(0.05
)
 
(0.13
)
  Net increase from operations
0.83

 
0.70

 
0.29

 
0.98

 
1.06

Distributions of net investment income
(0.77
)
 
(1.00
)
 
(1.00
)
 
(1.19
)
 
(1.32
)
Common stock transactions(2)
(0.03
)
 
—

(4)
0.02

 
(0.04
)
 
0.10

  Net asset value at end of year
$
9.35

 
$
9.32

 
$
9.62

 
$
10.31

 
$
10.56

 
 
 
 
 
 
 
 
 
 
Per share market value at end of year
$
6.71

 
$
8.12

 
$
7.82

 
$
7.37

 
$
10.63

Total return based on market value(3)
(7.42
%)
 
16.80
%
 
21.84
%
 
(20.84
%)
 
10.88
%
Total return based on net asset value(3)
12.39
%
 
8.98
%
 
7.15
%
 
11.47
%
 
10.97
%
Shares of common stock outstanding at end of year
364,409,938

 
360,076,933

 
357,107,231

 
359,090,759

 
342,626,637

Weighted average shares of common stock outstanding
361,456,075

 
358,841,714

 
356,134,297

 
353,648,522

 
300,283,941

 
 
 
 
 
 
 
 
 
 
Ratios/Supplemental Data
 
 
 
 
 
 
 

 
 
Net assets at end of year
$
3,407,047

 
$
3,354,952

 
$
3,435,917

 
$
3,703,049

 
$
3,618,182

Portfolio turnover rate
30.70
%
 
23.65
%
 
15.98
%
 
21.89
%
 
15.21
%
Ratio of operating expenses to average net assets
11.08
%
 
11.57
%
 
11.95
%
 
11.66
%
 
11.11
%
Ratio of net investment income to average net assets
8.57
%
 
8.96
%
 
10.54
%
 
9.87
%
 
11.18
%
(1)
Per share data amount is based on the weighted average number of common shares outstanding for the year/period presented (except for dividends to shareholders which is based on actual rate per share).

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(2)
Common stock transactions include the effect of our issuance of common stock in public offerings (net of underwriting and offering costs), shares issued in connection with our dividend reinvestment plan, shares issued to acquire investments and shares repurchased below net asset value pursuant to our Repurchase Program.
(3)
Total return based on market value is based on the change in market price per share between the opening and ending market prices per share in each period and assumes that dividends are reinvested in accordance with our dividend reinvestment plan. Total return based on net asset value is based upon the change in net asset value per share between the opening and ending net asset values per share in each period and assumes that dividends are reinvested in accordance with our dividend reinvestment plan. For periods less than a year, total return is not annualized.
(4)
Amount is less than $0.01.
Note 17. Selected Quarterly Financial Data (Unaudited)
The following table sets forth selected financial data for each quarter within the three years ending June 30, 2019.
 
 
Investment 
Income
 
Net Investment 
Income
 
Net Realized and 
Unrealized (Losses) Gains
 
Net Increase (Decrease) in 
Net Assets from Operations
Quarter Ended
 
Total
 
Per Share
(1)
 
Total
 
Per Share
(1)
 
Total
 
Per Share
(1)
 
Total
 
Per Share
(1)
September 30, 2016
 
$
179,832

 
$
0.50

 
$
78,919

 
$
0.22

 
$
2,447

 
$
0.01

 
$
81,366

 
$
0.23

December 31, 2016
 
183,480

 
0.51

 
84,405

 
0.24

 
16,475

 
0.04

 
100,880

 
0.28

March 31, 2017
 
171,032

 
0.48

 
73,080

 
0.20

 
(53,588
)
 
(0.15
)
 
19,492

 
0.05

June 30, 2017
 
166,702

 
0.46

 
69,678

 
0.19

 
(18,510
)
 
(0.05
)
 
51,168

 
0.14

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
September 30, 2017
 
$
158,579

 
$
0.44

 
$
63,732

 
$
0.18

 
$
(51,759
)
 
$
(0.15
)
 
$
11,973

 
$
0.03

December 31, 2017
 
162,400

 
0.45

 
73,192

 
0.20

 
48,535

 
0.14

 
121,727

 
0.34

March 31, 2018
 
162,835

 
0.45

 
70,446

 
0.19

 
(18,587
)
 
(0.04
)
 
51,859

 
0.14

June 30, 2018
 
174,031

 
0.48

 
79,480

 
0.22

 
34,823

 
0.09

 
114,304

 
0.31

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
September 30, 2018
 
$
180,422

 
$
0.49

 
$
85,159

 
$
0.23

 
$
(1,364
)
 
$
—

(2)
$
83,795

 
$
0.23

(1)
Per share amounts are calculated using the weighted average number of common shares outstanding for the period presented. As such, the sum of the quarterly per share amounts above will not necessarily equal the per share amounts for the fiscal year.
(2)
Amount is less than $0.01.
Note 18. Subsequent Events
During the period from October 1, 2018 through November 5, 2018 we issued $16,550 aggregate principal amount of Prospect Capital InterNotes® for net proceeds of $16,279.
During the period from October 1, 2018 through October 29, 2018, we issued $2,806 in aggregate principal amount of our 2024 Notes for net proceeds of $2,768 and issued $1,741 in aggregate principal amount of our 2028 Notes for net proceeds of $1,708.
On October 1, 2018, Fleetwash, Inc. fully repaid the $21,544 Senior Secured Term Loan B receivable to us.
We have provided notice to call on October 12, 2018 with settlement on November 15, 2018, $70,072 of our Prospect Capital InterNotes® at par maturing between May 15, 2020 and November 15, 2020, with a weighted average rate of 4.92%.
On October 10, 2018, we made a $25,000 Second Lien Term Loan investment in 8th Avenue Food & Provisions, Inc., a private food brands provider and manufacturer of peanut and other nut butters, pasta and healthy snacks.
On October 11, 2018, we increased total commitments to our revolving credit facility for Prospect Capital Funding LLC, one of our GAAP consolidated subsidiaries, by $35,000 to $830,000 in the aggregate.
On October 12, 2018, we made a $35,000 Second Lien Term Loan investment in CCS-CMGC Holdings, Inc., a leading provider of outsourced correctional healthcare and behavioral healthcare solutions for government customers.

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On October 18, 2018, ATS Consolidated, Inc. fully repaid the $15,000 Second Lien Term Loan receivable to us.
On October 25, 2018, we made a $12,500 Second Lien Term Loan investment in GlobalTranz Enterprises, Inc., a technology-enabled third-party logistics provider of transportation services, including full truckload, less-than-truckload, expedited (air), and intermodal services, along with logistics services and supply chain management solutions.
On October 31, 2018, our Registration Statement on Form N-2 (File No. 333-227124) was declared effective by the SEC. Under this Shelf Registration Statement, we can issue up to an aggregate of $5,000,000 in debt and equity securities in the public market.
On November 6, 2018, we announced the declaration of monthly dividends in the following amounts and with the following dates:
•
$0.06 per share for November 2018 to holders of record on November 30, 2018 with a payment date of December 20, 2018.
•
$0.06 per share for December 2018 to holders of record on January 2, 2019 with a payment date of January 24, 2019.
•
$0.06 per share for January 2019 to holders of record on January 31, 2019 with a payment date of February 21, 2019.

107

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
(All figures in this item are in thousands except share, per share and other data.)
The following discussion should be read in conjunction with our consolidated financial statements and related notes and other financial information appearing elsewhere in this Quarterly Report. In addition to historical information, the following discussion and other parts of this Quarterly Report contain forward-looking information that involves risks and uncertainties. Our actual results may differ significantly from any results expressed or implied by these forward-looking statements due to the factors discussed in Part II, “Item 1A. Risk Factors” and “Forward-Looking Statements” appearing elsewhere herein.
Overview
The terms “Prospect,” “the Company,” “we,” “us” and “our” mean Prospect Capital Corporation and its subsidiaries unless the context specifically requires otherwise.

Prospect is a financial services company that primarily lends to and invests in middle market privately-held companies. We are a closed-end investment company incorporated in Maryland. We have elected to be regulated as a business development company (“BDC”) under the Investment Company Act of 1940 (the “1940 Act”). As a BDC, we have elected to be treated as a regulated investment company (“RIC”), under Subchapter M of the Internal Revenue Code of 1986 (the “Code”). We were organized on April 13, 2004 and were funded in an initial public offering completed on July 27, 2004.

On May 15, 2007, we formed a wholly-owned subsidiary Prospect Capital Funding LLC (“PCF”), a Delaware limited liability company and a bankruptcy remote special purpose entity, which holds certain of our portfolio loan investments that are used as collateral for the revolving credit facility at PCF. Our wholly-owned subsidiary Prospect Small Business Lending, LLC (“PSBL”) was formed on January 27, 2014 and purchases small business whole loans on a recurring basis from online small business loan originators, including On Deck Capital, Inc. (“OnDeck”). On September 30, 2014, we formed a wholly-owned subsidiary Prospect Yield Corporation, LLC (“PYC”) and effective October 23, 2014, PYC holds our investments in collateralized loan obligations (“CLOs”). Each of these subsidiaries have been consolidated since operations commenced.
We consolidate certain of our wholly-owned and substantially wholly-owned holding companies formed by us in order to facilitate our investment strategy. The following companies are included in our consolidated financial statements and are collectively referred to as the “Consolidated Holding Companies”: APH Property Holdings, LLC (“APH”); Arctic Oilfield Equipment USA, Inc. (“Arctic Equipment”); CCPI Holdings Inc.; CP Holdings of Delaware LLC (“CP Holdings”); Credit Central Holdings of Delaware, LLC; Energy Solutions Holdings Inc.; First Tower Holdings of Delaware LLC (“First Tower Delaware”); Harbortouch Holdings of Delaware Inc.; MITY Holdings of Delaware Inc.; Nationwide Acceptance Holdings LLC; NMMB Holdings, Inc. (“NMMB Holdings”); NPH Property Holdings, LLC (“NPH”); STI Holding, Inc.; UPH Property Holdings, LLC (“UPH”); Valley Electric Holdings I, Inc.; Valley Electric Holdings II, Inc.; and Wolf Energy Holdings Inc. (“Wolf Energy Holdings”). On October 10, 2014, concurrent with the sale of the operating company, our ownership increased to 100% of the outstanding equity of ARRM Services, Inc., which was renamed SB Forging Company, Inc. (“SB Forging”). As such, we began consolidating SB Forging on October 11, 2014. Effective May 23, 2016, in connection with the merger of American Property REIT Corp. (“APRC”) and United Property REIT Corp. (“UPRC”) with and into National Property REIT Corp. (“NPRC”), APH and UPH merged with and into NPH, and were dissolved. Effective April 6, 2018, Arctic Equipment merged with and into CP Energy Services, Inc. (“CP Energy”), a substantially wholly-owner subsidiary of CP Holdings, with CP Energy continuing as the surviving entity.
We are externally managed by our investment adviser, Prospect Capital Management L.P. (“Prospect Capital Management” or the “Investment Adviser”). Prospect Administration LLC (“Prospect Administration”), a wholly-owned subsidiary of the Investment Adviser, provides administrative services and facilities necessary for us to operate.
Our investment objective is to generate both current income and long-term capital appreciation through debt and equity investments. We invest primarily in senior and subordinated debt and equity of private companies in need of capital for acquisitions, divestitures, growth, development, recapitalizations and other purposes. We work with the management teams or financial sponsors to seek investments with historical cash flows, asset collateral or contracted pro-forma cash flows.
We currently have nine strategies that guide our origination of investment opportunities: (1) lending to companies controlled by private equity sponsors, (2) lending to companies not controlled by private equity sponsors, (3) purchasing controlling equity positions and lending to operating companies, (4) purchasing controlling equity positions and lending to financial services companies, (5) purchasing controlling equity positions and lending to real estate companies, (6) purchasing controlling equity positions and lending to aircraft leasing companies (7) investing in structured credit (8) investing in syndicated debt and (9) investing in consumer and small business loans and asset-backed securitizations. We may also invest in other strategies and

108

opportunities from time to time that we view as attractive. We continue to evaluate other origination strategies in the ordinary course of business with no specific top-down allocation to any single origination strategy.
Lending to Companies Controlled by Private Equity Sponsors - We make agented loans to companies which are controlled by private equity sponsors. This debt can take the form of first lien, second lien, unitranche or unsecured loans. These loans typically have equity subordinate to our loan position. Historically, this strategy has comprised approximately 40%-60% of our portfolio.
Lending to Companies not Controlled by Private Equity Sponsors - We make loans to companies which are not controlled by private equity sponsors, such as companies that are controlled by the management team, the founder, a family or public shareholders. This origination strategy may have less competition to provide debt financing than the private-equity-sponsor origination strategy because such company financing needs are not easily addressed by banks and often require more diligence preparation. This origination strategy can result in investments with higher returns or lower leverage than the private-equity-sponsor origination strategy. Historically, this strategy has comprised up to approximately 15% of our portfolio.
Purchasing Controlling Equity Positions and Lending to Operating Companies - This strategy involves purchasing yield-producing debt and controlling equity positions in non-financial-services operating companies. We believe that we can provide enhanced certainty of closure and liquidity to sellers and we look for management to continue on in their current roles. This strategy has comprised approximately 5%-15% of our portfolio.
Purchasing Controlling Equity Positions and Lending to Financial Services Companies - This strategy involves purchasing yield-producing debt and control equity investments in financial services companies, including consumer direct lending, sub-prime auto lending and other strategies. These investments are often structured in tax-efficient partnerships, enhancing returns. This strategy has comprised approximately 5%-15% of our portfolio.
Purchasing Controlling Equity Positions and Lending to Real Estate Companies - We purchase debt and controlling equity positions in tax-efficient real estate investment trusts (“REIT” or “REITs”). NPRC’s, an operating company and the surviving entity of the May 23, 2016 merger with APRC and UPRC, real estate investments are in various classes of developed and occupied real estate properties that generate current yields, including multi-family properties, student housing, and self-storage. NPRC seeks to identify properties that have historically significant occupancy rates and recurring cash flow generation. NPRC generally co-invests with established and experienced property management teams that manage such properties after acquisition. Additionally, NPRC purchases loans originated by certain consumer loan facilitators. It purchases each loan in its entirety (i.e., a “whole loan”). The borrowers are consumers, and the loans are typically serviced by the facilitators of the loans. This investment strategy has comprised approximately 10%-20% of our business.
Purchasing Controlling Equity Positions and Lending to Aircraft Leasing Companies - We invest in debt as well as equity in companies with aircraft assets subject to commercial leases to airlines across the globe. We believe that these investments can present attractive return opportunities due to cash flow consistency from long-term leases coupled with hard asset residual value. We believe that these investment companies seek to deliver risk-adjusted returns with strong downside protection by analyzing relative value characteristics across a variety of aircraft types and vintages. This strategy historically has comprised less than 5% of our portfolio.
Investing in Structured Credit - We make investments in CLOs, often taking a significant position in the subordinated interests (equity) and debt of the CLOs. The underlying portfolio of each CLO investment is diversified across approximately 100 to 200 broadly syndicated loans and does not have direct exposure to real estate, mortgages, or consumer-based credit assets. The CLOs in which we invest are managed by established collateral management teams with many years of experience in the industry. This strategy has comprised approximately 10%-20% of our portfolio.
Investing in Syndicated Debt - On a primary or secondary basis, we purchase primarily senior and secured loans and high yield bonds that have been sold to a club or syndicate of buyers. These investments are often purchased with a long term, buy-and-hold outlook, and we often look to provide significant input to the transaction by providing anchoring orders. This strategy has comprised approximately 5%-10% of our portfolio.
Investing in Consumer and Small Business Loans and Asset-Backed Securitizations - We purchase loans originated by certain consumer and small-and-medium-sized business (“SME”) loan platforms. We generally purchase each loan in its entirety (i.e., a “whole loan”) and we invest in asset-backed securitizations collateralized by consumer or small business loans. The borrowers are consumers and SMEs and the loans are typically serviced by the platforms of the loans. This investment strategy has comprised up to approximately 0% of our portfolio.

109

We invest primarily in first and second lien secured loans and unsecured debt, which in some cases includes an equity component. First and second lien secured loans generally are senior debt instruments that rank ahead of unsecured debt of a given portfolio company. These loans also have the benefit of security interests on the assets of the portfolio company, which may rank ahead of or be junior to other security interests. Our investments in CLOs are subordinated to senior loans and are generally unsecured. We invest in debt and equity positions of CLOs which are a form of securitization in which the cash flows of a portfolio of loans are pooled and passed on to different classes of owners in various tranches. Our CLO investments are derived from portfolios of corporate debt securities which are generally risk rated from BB to B.
We hold many of our control investments in a two-tier structure consisting of a holding company and one or more related operating companies for tax purposes. These holding companies serve various business purposes including concentration of management teams, optimization of third party borrowing costs, improvement of supplier, customer, and insurance terms, and enhancement of co-investments by the management teams. In these cases, our investment, which is generally equity in the holding company, the holding company’s equity investment in the operating company and any debt from us directly to the operating company structure represents our total exposure for the investment. As of September 30, 2018, as shown in our Consolidated Schedule of Investments, the cost basis and fair value of our investments in controlled companies was $2,331,620 and $2,487,337, respectively. This structure gives rise to several of the risks described in our public documents and highlighted elsewhere in this Quarterly Report. We consolidate all wholly-owned and substantially wholly-owned holding companies formed by us for the purpose of holding our controlled investments in operating companies. There is no significant effect of consolidating these holding companies as they hold minimal assets other than their investments in the controlled operating companies. Investment company accounting prohibits the consolidation of any operating companies.
First Quarter Highlights
Investment Transactions
We seek to be a long-term investor with our portfolio companies. During the three months ended September 30, 2018, we acquired $44,927 of new investments, completed follow-on investments in existing portfolio companies totaling approximately $200,390, and recorded paid in kind (“PIK”) interest of $9,325, resulting in gross investment originations of $254,642. During the three months ended September 30, 2018, we received full repayments on 2 investments and received several partial prepayments and amortization payments totaling $55,166.

Debt Issuances and Redemptions
During the three months ended September 30, 2018, we redeemed $29,360 aggregate principal amount of Prospect Capital InterNotes® at par with a weighted average interest rate of 4.70% in order to replace shorter maturity debt with longer-term debt., and repaid $2,434 aggregate principal amount of Prospect Capital InterNotes® at par in accordance with the Survivor’s Option, as defined in the InterNotes® Offering prospectus. As a result of these transactions, we recorded a loss in the amount of the unamortized debt issuance costs. The net loss on the extinguishment of Prospect Capital InterNotes® in the three months ended September 30, 2018 was $255.
During the three months ended September 30, 2018 we issued $39,757 aggregate principal amount of Prospect Capital InterNotes® with a stated and weighted average interest rate of 5.48%, to extend our borrowing base. The newly issued notes mature between July 15, 2023 and September 15, 2028 and generated net proceeds of $39,093.
On September 26, 2018, we repurchased the remaining $153,536 aggregate principal amount of the 5.00% 2019 Notes at a price of 101.645, including commissions. The transaction resulted in our recognizing a loss of $2,874 during the three months ended September 30, 2018.
On September 27, 2018, we issued $100,000 aggregate principal amount of unsecured notes that mature on January 15, 2024 (the “6.375% 2024 Notes”). The 6.375% 2024 Notes settled on October 1, 2018. The 6.375% 2024 Notes bear interest at a rate of 6.375% per year, payable semi-annually on January 15 and July 15 of each year, beginning January 15, 2019. Total proceeds from the issuance of the 6.375% 2024 Notes, net of underwriting discounts and offering costs, were $98,985. Net proceeds are reflected in Due from Broker on the Consolidated Statements of Assets and Liabilities.
Equity Issuances
On July 19, 2018, August 23, 2018, and September 20, 2018, we issued 282,592, 270,136, and 262,473 shares of our common stock in connection with the dividend reinvestment plan, respectively.

110

Investment Holdings
As of September 30, 2018, we continue to pursue our investment strategy. At September 30, 2018, approximately $5,936,683, or 173.0%, of our net assets are invested in 137 long-term portfolio investments and CLOs.
During the three months ended September 30, 2018, we originated $254,642 of new investments, primarily composed of $212,548 of debt and equity financing to non-controlled portfolio investments and $42,094 of debt and equity financing to controlled investments. Our origination efforts are focused primarily on secured lending to non-control investments to reduce the risk in the portfolio by investing primarily in first lien loans, though we also continue to close select junior debt and equity investments. Our annualized current yield was 13.5% and 13.0% as of September 30, 2018 and June 30, 2018, respectively, across all performing interest bearing investments, excluding equity investments and non-accrual loans. Our annualized current yield was 10.8% and 10.5% as of September 30, 2018 and June 30, 2018, respectively, across all investments. The increase in yield across our performing interest bearing investments, excluding equity investments and non-accrual loans, is partially due to the increase in LIBOR above our floors amongst our interest bearing investments. Monetization of equity positions that we hold and loans on non-accrual status are not included in this yield calculation. In many of our portfolio companies we hold equity positions, ranging from minority interests to majority stakes, which we expect over time to contribute to our investment returns. Some of these equity positions include features such as contractual minimum internal rates of returns, preferred distributions, flip structures and other features expected to generate additional investment returns, as well as contractual protections and preferences over junior equity, in addition to the yield and security offered by our cash flow and collateral debt protections.
We are a non-diversified company within the meaning of the 1940 Act. As required by the 1940 Act, we classify our investments by level of control. As defined in the 1940 Act, “Control Investments” are those where there is the ability or power to exercise a controlling influence over the management or policies of a company. Control is generally deemed to exist when a company or individual possesses or has the right to acquire within 60 days or less, a beneficial ownership of 25% or more of the voting securities of an investee company. Under the 1940 Act, “Affiliate Investments” are defined by a lesser degree of influence and are deemed to exist through the possession outright or via the right to acquire within 60 days or less, beneficial ownership of 5% or more of the outstanding voting securities of another person. “Non-Control/Non-Affiliate Investments” are those that are neither Control Investments nor Affiliate Investments. As of September 30, 2018, we own controlling interests in the following portfolio companies: CCPI Inc. (“CCPI”); CP Energy Services Inc. (“CP Energy”); Credit Central Loan Company, LLC (“Credit Central”); Echelon Transportation, LLC (“Echelon”); First Tower Finance Company LLC (“First Tower Finance”); Freedom Marine Solutions, LLC (“Freedom Marine”); InterDent, Inc. (“InterDent”); MITY, Inc. (“MITY”); NPRC; Nationwide Loan Company LLC (f/k/a Nationwide Acceptance LLC) (“Nationwide”); NMMB, Inc. (“NMMB”); Pacific World Corporation (“Pacific World”); R-V Industries, Inc.; SB Forging Company II, Inc. (f/k/a Gulf Coast Machine & Supply Company) (“Gulfco”); USES Corp. (“USES”); Valley Electric Company, Inc. (“Valley Electric”); and Wolf Energy, LLC (“Wolf Energy”). As of September 30, 2018, we also own affiliated interests in Nixon, Inc. (“Nixon”), Targus Cayman HoldCo Limited (“Targus”), Edmentum Ultimate Holdings, LLC (“Edmentum”) and United Sporting Companies, Inc. (“USC”).
The following shows the composition of our investment portfolio by level of control as of September 30, 2018 and June 30, 2018:
 
September 30, 2018
 
June 30, 2018
Level of Control
Cost
% of Portfolio
Fair Value
% of Portfolio
 
Cost
% of Portfolio
Fair Value
% of Portfolio
Control Investments
$
2,331,620

38.6
%
$
2,487,337

41.9
%
 
$
2,300,526

39.5
%
$
2,404,326

42.0
%
Affiliate Investments
175,235

2.9
%
95,993

1.6
%
 
55,637

0.9
%
58,436

1.0
%
Non-Control/Non-Affiliate Investments
3,532,959

58.5
%
3,353,353

56.5
%
 
3,475,295

59.6
%
3,264,517

57.0
%
Total Investments
$
6,039,814

100.0
%
$
5,936,683

100.0
%
 
$
5,831,458

100.0
%
$
5,727,279

100.0
%

111

The following shows the composition of our investment portfolio by type of investment as of September 30, 2018 and June 30, 2018:
 
September 30, 2018
 
June 30, 2018
Type of Investment
Cost
% of Portfolio
Fair Value
% of Portfolio
 
Cost
% of Portfolio
Fair Value
% of Portfolio
Revolving Line of Credit
$
30,002

0.5
%
$
29,871

0.5
%
 
$
38,659

0.7
%
$
38,559

0.7
%
Senior Secured Debt
2,737,167

45.4
%
2,601,554

43.8
%
 
2,602,018

44.6
%
2,481,353

43.3
%
Subordinated Secured Debt
1,360,127

22.5
%
1,290,476

21.7
%
 
1,318,028

22.6
%
1,260,525

22.0
%
Subordinated Unsecured Debt
38,712

0.6
%
31,178

0.5
%
 
38,548

0.7
%
32,945

0.6
%
Small Business Loans
—

—
%
—

—
%
 
30

—
%
17

—
%
CLO Debt
26,085

0.4
%
27,424

0.5
%
 
6,159

0.1
%
6,159

0.1
%
CLO Residual Interest
1,106,222

18.3
%
937,899

15.8
%
 
1,096,768

18.8
%
954,035

16.7
%
Preferred Stock
92,346

1.5
%
78,148

1.3
%
 
92,346

1.6
%
75,986

1.3
%
Common Stock
455,569

7.5
%
567,988

9.6
%
 
445,364

7.6
%
517,858

9.0
%
Membership Interest
193,584

3.3
%
259,129

4.4
%
 
193,538

3.3
%
257,799

4.5
%
Participating Interest(1)
—

—
%
112,084

1.9
%
 
—

—
%
101,126

1.8
%
Escrow Receivable
—

—
%
932

—
%
 
—

—
%
917

—
%
Total Investments
$
6,039,814

100.0
%
$
5,936,683

100.0
%
 
$
5,831,458

100.0
%
$
5,727,279

100.0
%
(1)
Participating Interest includes our participating equity investments, such as net profits interests, net operating income interests, net revenue interests, and overriding royalty interests.
The following shows our investments in interest bearing securities by type of investment as of September 30, 2018 and June 30, 2018:
 
September 30, 2018
 
June 30, 2018
Type of Investment
Cost
% of Portfolio
Fair Value
% of Portfolio
 
Cost
% of Portfolio
Fair Value
% of Portfolio
First Lien
$
2,766,992

52.2
%
$
2,631,248

53.5
%
 
$
2,632,843

51.6
%
$
2,512,078

52.6
%
Second Lien
1,360,304

25.7
%
1,290,653

26.2
%
 
1,325,862

26.0
%
1,268,359

26.6
%
Unsecured
38,712

0.7
%
31,178

0.6
%
 
38,548

0.8
%
32,945

0.7
%
Small Business Loans
—

—
%
—

—
%
 
30

—
%
17

—
%
CLO Debt
26,085

0.5
%
27,424

0.6
%
 
6,159

0.1
%
6,159

0.1
%
CLO Residual Interest
1,106,222

20.9
%
937,899

19.1
%
 
1,096,768

21.5
%
954,035

20.0
%
Total Debt Investments
$
5,298,315

100.0
%
$
4,918,402

100.0
%
 
$
5,100,210

100.0
%
$
4,773,593

100.0
%

112

The following shows the composition of our investment portfolio by geographic location as of September 30, 2018 and June 30, 2018:
 
September 30, 2018
 
June 30, 2018
Geographic Location
Cost
% of Portfolio
Fair Value
% of Portfolio
 
Cost
% of Portfolio
Fair Value
% of Portfolio
Canada
$
5,973

0.1
%
$
5,973

0.1
%
 
$
16,809

0.3
%
$
17,816

0.3
%
Cayman Islands
1,132,307

18.7
%
965,323

16.3
%
 
1,102,927

18.9
%
960,194

16.8
%
France
12,572

0.2
%
12,566

0.2
%
 
12,490

0.2
%
12,334

0.2
%
MidAtlantic US
523,769

8.7
%
523,769

8.8
%
 
410,644

7.0
%
410,644

7.2
%
Midwest US
387,054

6.4
%
461,870

7.8
%
 
395,622

6.8
%
413,757

7.2
%
Northeast US
701,670

11.6
%
753,146

12.7
%
 
677,204

11.6
%
701,851

12.3
%
Northwest US
108,586

1.8
%
121,014

2.0
%
 
103,906

1.8
%
90,288

1.6
%
Puerto Rico
84,509

1.4
%
82,932

1.4
%
 
84,713

1.5
%
83,507

1.5
%
Southeast US
1,229,946

20.5
%
1,403,936

23.7
%
 
1,243,430

21.3
%
1,524,379

26.6
%
Southwest US
727,270

12.0
%
636,736

10.7
%
 
723,038

12.4
%
599,914

10.4
%
Western US
1,126,158

18.6
%
969,418

16.3
%
 
1,060,675

18.2
%
912,594

15.9
%
Total Investments
$
6,039,814

100.0
%
$
5,936,683

100.0
%
 
$
5,831,458

100.0
%
$
5,727,278

100.0
%

113

The following shows the composition of our investment portfolio by industry as of September 30, 2018 and June 30, 2018:
 
September 30, 2018
 
June 30, 2018
Industry
Cost
% of Portfolio
Fair Value
% of Portfolio
 
Cost
% of Portfolio
Fair Value
% of Portfolio
Aerospace & Defense
$
71,961

1.2
%
$
87,375

1.5
%
 
$
69,837

1.2
%
$
82,278

1.4
%
Auto Components
25,388

0.4
%
24,851

0.4
%
 
12,681

0.2
%
12,887

0.2
%
Building Products
19,824

0.3
%
20,000

0.3
%
 
9,905

0.2
%
10,000

0.2
%
Capital Markets
26,531

0.4
%
26,675

0.4
%
 
19,799

0.3
%
20,000

0.3
%
Commercial Services & Supplies
383,195

6.3
%
325,949

5.5
%
 
386,187

6.6
%
330,024

5.8
%
Communications Equipment
47,872

0.8
%
48,000

0.8
%
 
39,860

0.7
%
40,000

0.7
%
Construction & Engineering
69,515

1.2
%
81,943

1.4
%
 
64,415

1.1
%
50,797

0.9
%
Consumer Finance
474,512

7.9
%
570,417

9.6
%
 
485,381

8.3
%
586,978

10.2
%
Distributors
301,282

5.0
%
224,861

3.8
%
 
470,750

8.1
%
402,465

7.0
%
Diversified Consumer Services
156,555

2.6
%
143,942

2.4
%
 
173,695

3.0
%
163,152

2.8
%
Electronic Equipment, Instruments & Components
54,667

0.9
%
62,555

1.1
%
 
54,805

0.9
%
62,964

1.1
%
Energy Equipment & Services
259,065

4.3
%
192,318

3.2
%
 
257,371

4.4
%
170,574

3.0
%
Entertainment
46,822

0.8
%
46,941

0.8
%
 
—

—
%
—

—
%
Equity Real Estate Investment Trusts (REITs)
510,063

8.4
%
839,637

14.1
%
 
499,858

8.6
%
811,915

14.2
%
Food Products
9,888

0.2
%
9,888

0.2
%
 
9,884

0.2
%
9,886

0.2
%
Health Care Equipment & Supplies
42,845

0.7
%
42,845

0.7
%
 
43,279

0.7
%
43,279

0.8
%
Health Care Providers & Services
441,972

7.3
%
423,853

7.1
%
 
421,198

7.2
%
404,130

7.1
%
Hotels & Personal Products
—

—
%
—

—
%
 
24,938

0.4
%
24,938

0.4
%
Hotels, Restaurants & Leisure
37,108

0.6
%
37,108

0.6
%
 
37,295

0.6
%
37,295

0.6
%
Household Products
24,875

0.4
%
24,875

0.4
%
 
—

—
%
—

—
%
Household Durables
39,486

0.7
%
37,653

0.6
%
 
42,539

0.7
%
41,623

0.7
%
Insurance
2,987

—
%
2,987

0.1
%
 
2,986

0.1
%
2,986

0.1
%
Interactive Media & Services
48,718

0.8
%
48,718

0.8
%
 
—

—
%
—

—
%
Internet & Direct Marketing Retail
—

—
%
—

—
%
 
39,813

0.7
%
39,813

0.7
%
Internet Software & Services
—

—
%
—

—
%
 
229,717

4.0
%
229,791

4.0
%
IT Services
294,918

4.9
%
295,294

5.0
%
 
182,183

3.1
%
182,578

3.2
%
Leisure Products
43,463

0.7
%
43,552

0.7
%
 
45,531

0.8
%
45,626

0.8
%
Machinery
35,488

0.6
%
24,782

0.4
%
 
35,488

0.6
%
31,886

0.6
%
Media
158,762

2.6
%
157,653

2.7
%
 
143,063

2.5
%
140,365

2.4
%
Online Lending
318,909

5.2
%
232,326

4.0
%
 
327,159

5.6
%
243,078

4.2
%
Paper & Forest Products
11,337

0.2
%
11,337

0.2
%
 
11,328

0.2
%
11,226

0.2
%
Personal Products
228,325

3.8
%
164,158

2.8
%
 
228,575

3.9
%
165,020

2.9
%
Pharmaceuticals
11,882

0.2
%
12,000

0.2
%
 
11,882

0.2
%
12,000

0.2
%
Professional Services
161,174

2.7
%
165,608

2.8
%
 
74,272

1.3
%
76,991

1.3
%
Real Estate Management & Development
41,580

0.7
%
41,580

0.7
%
 
41,860

0.7
%
41,860

0.7
%
Software
69,462

1.2
%
70,259

1.2
%
 
66,435

1.1
%
67,265

1.2
%
Technology Hardware, Storage & Peripherals
12,388

0.2
%
12,500

0.2
%
 
12,384

0.2
%
12,500

0.2
%
Textiles, Apparel & Luxury Goods
319,074

5.3
%
329,288

5.5
%
 
46,429

0.8
%
60,220

1.1
%
Tobacco
14,399

0.2
%
14,399

0.2
%
 
14,392

0.3
%
14,392

0.3
%
Trading Companies & Distributors
63,700

1.1
%
45,129

0.8
%
 
63,863

1.1
%
56,199

1.0
%
Transportation Infrastructure
27,515

0.5
%
28,104

0.5
%
 
27,494

0.5
%
28,104

0.5
%
Subtotal
$
4,907,507

81.3
%
$
4,971,360

83.7
%
 
$
4,728,531

81.1
%
$
4,767,085

83.2
%
Structured Finance(1)
$
1,132,307

18.7
%
$
965,323

16.3
%
 
$
1,102,927

18.9
%
$
960,194

16.8
%
Total Investments
$
6,039,814

100.0
%
$
5,936,683

100.0
%
 
$
5,831,458

100.0
%
$
5,727,279

100.0
%
(1) Our CLO investments do not have industry concentrations and as such have been separated in the table above.

114

Portfolio Investment Activity
During the three months ended September 30, 2018, we acquired $44,927 of new investments, completed follow-on investments in existing portfolio companies totaling approximately $200,390, and recorded PIK interest of $9,325, resulting in gross investment originations of $254,642. The more significant of these transactions are briefly described below.
During the period from July 13, 2018 to July 16, 2018, we made follow-on first lien term loan investments of $105,000 in Town & Country Holdings, Inc., to support acquisitions. The first lien term loan bears interest at the greater of 10.00% or LIBOR plus 8.50% and has a final maturity of January 26, 2023.
On August 1, 2018, we purchased from a third party $14,000 of First Lien Senior Secured Term Loan A/B issued by InterDent, Inc. at par. On September 19, 2018, we made a $5,000 Senior Secured Term Loan D follow-on investment. The First Lien Senior Secured Term Loan A/B bears interest at the greater of 1.00% or LIBOR plus 0.25% and has a final maturity of September 5, 2020. The Senior Secured Term Loan D bears interest at 1.00% PIK interest and has a final maturity of September 5, 2020.
On August 6, 2018, we made a $17,500 senior secured investment in Halyard MD OPCO, LLC, a healthcare IT and advertising technology business that enables targeted advertising campaigns to healthcare providers and patients. Our investment is comprised of a $12,000 first lien term loan, a $2,000 unfunded revolving credit facility, and a $3,500 unfunded delayed draw investment. The first lien term loan bears interest at the greater of 10.00% or LIBOR plus 8.00% and has a final maturity of August 6, 2023. The unfunded revolving credit facility and delayed draw bear interest at the greater of 10.00% or LIBOR plus 8.00% and has a final maturity of August 6, 2019.
During the period from July 19, 2018 through September 20, 2018, we provided $10,206 of equity financing to NPRC, which was used to acquire additional real estate properties.
During the period from August 3, 2018 to September 6, 2018, we made follow-on second lien term loan investments of $10,000 in Janus International Group, LLC. The senior lien term loan bears interest at the greater of 8.75% or LIBOR plus 7.75% and has a final maturity of February 12, 2026.
During the period from August 14, 2018 to September 24, 2018, we made follow-on second lien term loan investments of $13,000 in K&N Parent, Inc. The second lien term loan bears interest at the greater of 9.75% or LIBOR plus 8.75% and has a final maturity of October 21, 2024.
On September 14, 2018, we made a $10,100 Senior Secured Term Loan A and a $10,100 Senior Secured Term Loan B debt investment in Centerfield Media Holding Company, a provider of customer acquisition and conversion services, to fund an acquisition.The Senior Secured Term Loan A bears interest at the greater of 9.00% or LIBOR plus 7.00% and has a final maturity of January 17, 2022. The Senior Secured Term Loan B bears interest at the greater of 14.50% or LIBOR plus 12.50% and has a final maturity of January 17, 2022.
During the three months ended September 30, 2018, we received full repayments on two investments and received several partial prepayments and amortization payments totaling $55,166, which resulted in net realized gains totaling $1,041. The more significant of these transactions are briefly described below.
On September 7, 2018, CURO Financial Technologies Corp. fully repaid the $10,896 Senior Secured Note receivable to us.

115

The following table provides a summary of our investment activity for each quarter within the three years ending June 30, 2019:
Quarter Ended
 
Acquisitions(1)
 
Dispositions(2)
September 30, 2016
 
347,150

 
114,331

December 31, 2016
 
469,537

 
644,995

March 31, 2017
 
449,607

 
302,513

June 30, 2017
 
223,176

 
352,043

September 30, 2017
 
222,151

 
310,894

December 31, 2017
 
738,737

 
1,041,126

March 31, 2018
 
429,928

 
116,978

June 30, 2018
 
339,841

 
362,287

September 30, 2018
 
254,642

 
55,166

(1)
Includes investments in new portfolio companies, follow-on investments in existing portfolio companies, refinancings and PIK interest.
(2)
Includes sales, scheduled principal payments, prepayments and refinancings.
Investment Valuation
In determining the range of values for debt instruments, except CLOs and debt investments in controlling portfolio companies, management and the independent valuation firm estimated corporate and security credit ratings and identified corresponding yields to maturity for each loan from relevant market data. A discounted cash flow technique was then prepared using the appropriate yield to maturity as the discount rate, to determine a range of values. In determining the range of values for debt investments of controlled companies and equity investments, the enterprise value was determined by applying earnings before interest, income tax, depreciation and amortization (“EBITDA”) multiples, the discounted cash flow technique, net income and/or book value multiples for similar guideline public companies and/or similar recent investment transactions. For stressed debt and equity investments, a liquidation analysis was prepared.
In determining the range of values for our investments in CLOs, the independent valuation firm uses a discounted multi-path cash flow model. The valuations were accomplished through the analysis of the CLO deal structures to identify the risk exposures from the modeling point of view as well as to determine an appropriate call date (i.e., expected maturity). These risk factors are sensitized in the multi-path cash flow model using Monte Carlo simulations, which is a simulation used to model the probability of different outcomes, to generate probability-weighted (i.e., multi-path) cash flows for the underlying assets and liabilities. These cash flows are discounted using appropriate market discount rates, and relevant data in the CLO market and certain benchmark credit indices are considered, to determine the value of each CLO investment. In addition, we generate a single-path cash flow utilizing our best estimate of expected cash receipts, and assess the reasonableness of the implied discount rate that would be effective for the value derived from the corresponding multi-path cash flow model.
With respect to our online consumer and SME lending initiative, we invest primarily in marketplace loans through marketplace lending platforms.  We do not conduct loan origination activities ourselves. Therefore, our ability to purchase consumer and SME loans, and our ability to grow our portfolio of consumer and SME loans, are directly influenced by the business performance and competitiveness of the marketplace loan origination business of the marketplace lending platforms from which we purchase consumer and SME loans. In addition, our ability to analyze the risk-return profile of consumer and SME loans is significantly dependent on the marketplace platforms’ ability to effectively evaluate a borrower's credit profile and likelihood of default. If we are unable to effectively evaluate borrowers' credit profiles or the credit decisioning and scoring models implemented by each platform, we may incur unanticipated losses which could adversely impact our operating results.
The Board of Directors looked at several factors in determining where within the range to value the asset including: recent operating and financial trends for the asset, independent ratings obtained from third parties, comparable multiples for recent sales of companies within the industry and discounted cash flow models for our investments in CLOs. The composite of all these various valuation techniques, applied to each investment, was a total valuation of $5,936,683.
Our portfolio companies are generally lower middle market companies, outside of the financial sector, with less than $100,000 of annual EBITDA. We believe our investment portfolio has experienced less volatility than others because we believe there are more buy and hold investors who own these less liquid investments.

116

Control investments offer increased risk and reward over straight debt investments. Operating results and changes in market multiples can result in dramatic changes in values from quarter to quarter. Significant downturns in operations can further result in our looking to recoveries on sales of assets rather than the enterprise value of the investment. Equity positions in our portfolio are susceptible to potentially significant changes in value, both increases as well as decreases, due to changes in operating results and market multiples. Several of our controlled companies discussed below experienced such changes and we recorded corresponding fluctuations in valuations during the three months ended September 30, 2018.
CP Energy Services Inc.
Prospect owns 100% of the equity of CP Holdings, a Consolidated Holding Company. CP Holdings owns 99.8% of the equity of CP Energy, and the remaining equity is owned by CP Energy management. CP Energy provides oilfield flowback services and fluid hauling and disposal services through its subsidiaries.
The fair value of our investment in CP Energy increased to $142,640 as of September 30, 2018, reflecting a discount of $36,836 to its amortized cost, compared to a discount of $56,215 to its amortized cost as of June 30, 2018. The increase in fair value was driven by an improvement in operating performance driven by revenue growth and increased profitability.
Credit Central Loan Company, LLC
Prospect owns 100% of the equity of Credit Central Holdings of Delaware, LLC (“Credit Central Delaware”), a Consolidated Holding Company. Credit Central Delaware owns 98.26% of Credit Central Loan Company, LLC (f/k/a Credit Central Holdings, LLC (“Credit Central”)) as of September 30, 2018 and June 30, 2018, with entities owned by Credit Central management owning the remaining 1.74% of the equity. Credit Central is a branch-based provider of installment loans.
The fair value of our investment in Credit Central decreased to $70,588, representing a premium of 14% to its amortized cost basis, as of September 30, 2018, from $76,677, representing a premium of 25% to its amortized cost basis, as of June 30, 2018. The decrease in fair value was driven by a decline in comparable public company trading multiples and in Credit Central’s financial performance.
National Property REIT Corp.
NPRC is a Maryland corporation and a qualified REIT for federal income tax purposes. NPRC is held for purposes of investing, operating, financing, leasing, managing and selling a portfolio of real estate assets and engages in any and all other activities that may be necessary, incidental, or convenient to perform the foregoing. NPRC acquires real estate assets, including, but not limited to, industrial, commercial, and multi-family properties. NPRC may acquire real estate assets directly or through joint ventures by making a majority equity investment in a property-owning entity. Additionally, through its wholly-owned subsidiaries, NPRC invests in online consumer loans. Effective May 23, 2016, APRC and UPRC merged with and into NPRC, to consolidate all of our real estate holdings, with NPRC as the surviving entity. As of September 30, 2018, we own 100% of the fully-diluted common equity of NPRC.
During the three months ended September 30, 2018, we provided $10,206 of equity financing to NPRC to fund capital expenditures for existing properties. In addition, we received partial repayments of $8,221of our loans previously outstanding with NPRC and its wholly owned subsidiary.
The online consumer loan investments held by certain of NPRC’s wholly-owned subsidiaries are unsecured obligations of individual borrowers that are issued in amounts ranging from $1 to $50, with fixed terms ranging from 24 to 84 months. As of September 30, 2018, the outstanding investment in online consumer loans by certain of NPRC’s wholly-owned subsidiaries was comprised of 52,559 individual loans and residual interest in four securitizations, and had an aggregate fair value of $308,267. The average outstanding individual loan balance is approximately $5 and the loans mature on dates ranging from October 1, 2018 to April 19, 2025 with a weighted-average outstanding term of 26 months as of September 30, 2018. Fixed interest rates range from 4.0% to 36.0% with a weighted-average current interest rate of 23.9%. As of September 30, 2018, our investment in NPRC and its wholly-owned subsidiaries relating to online consumer lending had a fair value of $232,326.
As of September 30, 2018, based on outstanding principal balance, 7.1% of the portfolio was invested in super prime loans (borrowers with a Fair Isaac Corporation (“FICO”) score, of 720 or greater), 19.9% of the portfolio in prime loans (borrowers with a FICO score of 660 to 719) and 73.0% of the portfolio in near prime loans (borrowers with a FICO score of 580 to 659).

117

Loan Type
 
Outstanding Principal Balance
 
Fair Value
 
Interest Rate Range
 
Weighted Average Interest Rate*
Super Prime
 
$
18,093

 
$
17,495

 
4.0% - 26.0%
 
12.5%
Prime
 
50,792

 
47,786

 
4.0% - 36.0%
 
17.1%
Near Prime
 
186,177

 
171,273

 
6.0% - 36.0%
 
26.9%
*Weighted by outstanding principal balance of the online consumer loans.

As of September 30, 2018, our investment in NPRC and its wholly-owned subsidiaries had an amortized cost of $828,972 and a fair value of $1,071,963, including our investment in online consumer lending as discussed above. The fair value of $839,637 related to NPRC’s real estate portfolio was comprised of forty-five multi-families properties, twelve self-storage units, eight student housing properties and three commercial properties. The following table shows the location, acquisition date, purchase price, and mortgage outstanding due to other parties for each of the properties held by NPRC as of September 30, 2018.
No.
 
Property Name
 
City
 
Acquisition
Date
 
Purchase
Price
 
Mortgage
Outstanding
1
 
Filet of Chicken
 
Forest Park, GA
 
10/24/2012
 
$
7,400

 
$
—

2
 
5100 Live Oaks Blvd, LLC
 
Tampa, FL
 
1/17/2013
 
63,400

 
46,292

3
 
Lofton Place, LLC
 
Tampa, FL
 
4/30/2013
 
26,000

 
20,216

4
 
Arlington Park Marietta, LLC
 
Marietta, GA
 
5/8/2013
 
14,850

 
9,624

5
 
NPRC Carroll Resort, LLC
 
Pembroke Pines, FL
 
6/24/2013
 
225,000

 
175,108

6
 
Cordova Regency, LLC
 
Pensacola, FL
 
11/15/2013
 
13,750

 
11,375

7
 
Crestview at Oakleigh, LLC
 
Pensacola, FL
 
11/15/2013
 
17,500

 
13,845

8
 
Inverness Lakes, LLC
 
Mobile, AL
 
11/15/2013
 
29,600

 
24,700

9
 
Kings Mill Pensacola, LLC
 
Pensacola, FL
 
11/15/2013
 
20,750

 
17,550

10
 
Plantations at Pine Lake, LLC
 
Tallahassee, FL
 
11/15/2013
 
18,000

 
14,092

11
 
Verandas at Rocky Ridge, LLC
 
Birmingham, AL
 
11/15/2013
 
15,600

 
10,205

12
 
City West Apartments II, LLC
 
Orlando, FL
 
11/19/2013
 
23,562

 
22,997

13
 
Vinings Corner II, LLC
 
Smyrna, GA
 
11/19/2013
 
35,691

 
32,525

14
 
Atlanta Eastwood Village LLC
 
Stockbridge, GA
 
12/12/2013
 
25,957

 
22,455

15
 
Atlanta Monterey Village LLC
 
Jonesboro, GA
 
12/12/2013
 
11,501

 
10,925

16
 
Atlanta Hidden Creek LLC
 
Morrow, GA
 
12/12/2013
 
5,098

 
4,677

17
 
Atlanta Meadow Springs LLC
 
College Park, GA
 
12/12/2013
 
13,116

 
12,862

18
 
Atlanta Meadow View LLC
 
College Park, GA
 
12/12/2013
 
14,354

 
12,916

19
 
Atlanta Peachtree Landing LLC
 
Fairburn, GA
 
12/12/2013
 
17,224

 
15,300

20
 
NPH Carroll Bartram Park, LLC
 
Jacksonville, FL
 
12/31/2013
 
38,000

 
27,035

21
 
Crestview at Cordova, LLC
 
Pensacola, FL
 
1/17/2014
 
8,500

 
7,755

22
 
NPH Carroll Atlantic Beach, LLC
 
Atlantic Beach, FL
 
1/31/2014
 
13,025

 
8,401

23
 
Taco Bell, OK
 
Yukon, OK
 
6/4/2014
 
1,719

 
—

24
 
Taco Bell, MO
 
Marshall, MO
 
6/4/2014
 
1,405

 
—

25
 
23 Mile Road Self Storage, LLC
 
Chesterfield, MI
 
8/19/2014
 
5,804

 
4,350

26
 
36th Street Self Storage, LLC
 
Wyoming, MI
 
8/19/2014
 
4,800

 
3,600

27
 
Ball Avenue Self Storage, LLC
 
Grand Rapids, MI
 
8/19/2014
 
7,281

 
5,460

28
 
Ford Road Self Storage, LLC
 
Westland, MI
 
8/29/2014
 
4,642

 
3,480

29
 
Ann Arbor Kalamazoo Self Storage, LLC
 
Ann Arbor, MI
 
8/29/2014
 
4,458

 
3,345

30
 
Ann Arbor Kalamazoo Self Storage, LLC
 
Ann Arbor, MI
 
8/29/2014
 
8,927

 
6,695

31
 
Ann Arbor Kalamazoo Self Storage, LLC
 
Kalamazoo, MI
 
8/29/2014
 
2,363

 
1,775

32
 
Canterbury Green Apartments Holdings LLC
 
Fort Wayne, IN
 
9/29/2014
 
85,500

 
86,635

33
 
Abbie Lakes OH Partners, LLC
 
Canal Winchester, OH
 
9/30/2014
 
12,600

 
14,236

34
 
Kengary Way OH Partners, LLC
 
Reynoldsburg, OH
 
9/30/2014
 
11,500

 
15,942

35
 
Lakeview Trail OH Partners, LLC
 
Canal Winchester, OH
 
9/30/2014
 
26,500

 
28,986

36
 
Lakepoint OH Partners, LLC
 
Pickerington, OH
 
9/30/2014
 
11,000

 
14,480

37
 
Sunbury OH Partners, LLC
 
Columbus, OH
 
9/30/2014
 
13,000

 
15,363

38
 
Heatherbridge OH Partners, LLC
 
Blacklick, OH
 
9/30/2014
 
18,416

 
18,328


118

No.
 
Property Name
 
City
 
Acquisition
Date
 
Purchase
Price
 
Mortgage
Outstanding
39
 
Jefferson Chase OH Partners, LLC
 
Blacklick, OH
 
9/30/2014
 
$
13,551

 
$
19,500

40
 
Goldenstrand OH Partners, LLC
 
Hilliard, OH
 
10/29/2014
 
7,810

 
11,900

41
 
Jolly Road Self Storage, LLC
 
Okemos, MI
 
1/16/2015
 
7,492

 
5,620

42
 
Eaton Rapids Road Self Storage, LLC
 
Lansing West, MI
 
1/16/2015
 
1,741

 
1,305

43
 
Haggerty Road Self Storage, LLC
 
Novi, MI
 
1/16/2015
 
6,700

 
5,025

44
 
Waldon Road Self Storage, LLC
 
Lake Orion, MI
 
1/16/2015
 
6,965

 
5,225

45
 
Tyler Road Self Storage, LLC
 
Ypsilanti, MI
 
1/16/2015
 
3,507

 
2,630

46
 
SSIL I, LLC
 
Aurora, IL
 
11/5/2015
 
34,500

 
26,450

47
 
Vesper Tuscaloosa, LLC
 
Tuscaloosa, AL
 
9/28/2016
 
54,500

 
43,115

48
 
Vesper Iowa City, LLC
 
Iowa City, IA
 
9/28/2016
 
32,750

 
24,825

49
 
Vesper Corpus Christi, LLC
 
Corpus Christi, TX
 
9/28/2016
 
14,250

 
10,800

50
 
Vesper Campus Quarters, LLC
 
Corpus Christi, TX
 
9/28/2016
 
18,350

 
14,175

51
 
Vesper College Station, LLC
 
College Station, TX
 
9/28/2016
 
41,500

 
32,057

52
 
Vesper Kennesaw, LLC
 
Kennesaw, GA
 
9/28/2016
 
57,900

 
48,658

53
 
Vesper Statesboro, LLC
 
Statesboro, GA
 
9/28/2016
 
7,500

 
6,087

54
 
Vesper Manhattan KS, LLC
 
Manhattan, KS
 
9/28/2016
 
23,250

 
15,371

55
 
JSIP Union Place, LLC
 
Franklin, MA
 
12/7/2016
 
64,750

 
51,800

56
 
9220 Old Lantern Way, LLC
 
Laurel, MD
 
1/30/2017
 
187,250

 
153,580

57
 
7915 Baymeadows Circle Owner, LLC
 
Jacksonville, FL
 
10/31/2017
 
95,700

 
76,560

58
 
8025 Baymeadows Circle Owner, LLC
 
Jacksonville, FL
 
10/31/2017
 
15,300

 
12,240

59
 
23275 Riverside Drive Owner, LLC
 
Southfield, MI
 
11/8/2017
 
52,000

 
44,044

60
 
23741 Pond Road Owner, LLC
 
Southfield, MI
 
11/8/2017
 
16,500

 
14,185

61
 
150 Steeplechase Way Owner, LLC
 
Largo, MD
 
1/10/2018
 
44,500

 
36,668

62
 
Laurel Pointe Holdings, LLC
 
Forest Park, GA
 
5/9/2018
 
33,005

 
26,400

63

Bradford Ridge Holdings, LLC

Forest Park, GA

5/9/2018

12,500


10,000

64

Olentangy Commons Owner LLC

Columbus, OH

6/1/2018

113,000


92,876

65

Villages of Wildwood Holdings LLC

Fairfield, OH

7/20/2018

46,500


39,525

66

Falling Creek Holdings LLC

Richmond, VA

8/8/2018

25,000


19,335

67

Crown Pointe Passthrough LLC

Danbury, CT

8/30/2018

108,500


89,400

68

Ashwood Ridge Holdings LLC

Jonesboro, GA

9/21/2018

9,600


7,300

 
 
 
 
 
 
 
 
$
2,034,164

 
$
1,690,186

The fair value of our investment increased in NPRC to $1,071,963 as of September 30, 2018, a premium of $242,991 from its amortized cost, compared to the $227,989 premium recorded at June 30, 2018. This increase is primarily attributable to increases in property values, driven by an increase in net operating income and a decline in capitalization rates.
R-V Industries, Inc.
Prospect owns 88.27% of the fully-diluted equity of R-V Industries, Inc. (“R-V”), with R-V management owning the remaining 11.73% of the equity. R-V is an industrial engineering and metal fabrication company specializing in designing, building, and installing industrial process equipment for customers throughout the U.S. and worldwide.
The fair value of our investment in R-V decreased to $24,782, representing a discount of 30% to its amortized cost basis, as of September 30, 2018, from $31,887, representing a premium of 10% to its amortized cost basis, as of June 30, 2018. The decrease in fair value was driven by a decline in operating performance.
Valley Electric Company, Inc.

Prospect owns 100% of the common stock of Valley Electric Holdings I, Inc. (“Valley Holdings I”), a Consolidated Holding
Company. Valley Holdings I owns 100% of Valley Electric Holdings II, Inc. (“Valley Holdings II”), a Consolidated Holding
Company. Valley Holdings II owns 94.99% of Valley Electric Company, Inc. (“Valley Electric”), with Valley Electric management owning the remaining 5.01% of the equity. Valley Electric owns 100% of the equity of VE Company, Inc., which owns 100% of the equity of Valley Electric Co. of Mt. Vernon, Inc. (“Valley”), a leading provider of specialty electrical services in the state of Washington and among the top electrical contractors in the United States. Due to increased demand for specialty electrical services

119

and higher project margins, the fair value of our investment in Valley Electric increased to $81,943 as of September 30, 2018, a premium of $12,428 from its amortized cost, compared to the $13,618 unrealized depreciation recorded at June 30, 2018.

Our controlled investments, other than those discussed above, are valued at $60,672 below cost and did not experience significant changes in operating performance or value. Overall, combined with those portfolio companies discussed above, our controlled investments at September 30, 2018 are valued at $155,717 above their amortized cost.
We hold four affiliate investments at September 30, 2018, which are valued at $79,242 below their amortized cost. This discount is primarily driven by our affiliate investment in USC, which is valued at a discount to amortized cost of $76,421.

With the non-control/non-affiliate investments, generally, there is less volatility related to our total investments because our equity positions tend to be smaller than with our control/affiliate investments, and debt investments are generally not as susceptible to large swings in value as equity investments. For debt investments, the fair value is generally limited on the high side to each loan’s par value, plus any prepayment premium that could be imposed. However, as of September 30, 2018, one of our non-control/ non-affiliate investments, Universal Turbine Parts, LLC (“UTP”) is valued at discount to amortized cost of $18,571. As of September 30, 2018, our CLO investment portfolio is valued at a $166,984 discount to amortized cost. Excluding UTP and the CLO investment portfolio, non-control/non-affiliate investments at September 30, 2018 are valued at $5,949 above their amortized cost and did not experience significant changes in operating performance or value.
Capitalization
Our investment activities are capital intensive and the availability and cost of capital is a critical component of our business. We capitalize our business with a combination of debt and equity. Our debt as of September 30, 2018 consists of: a Revolving Credit Facility availing us of the ability to borrow debt subject to borrowing base determinations; Convertible Notes which we issued in December 2012, April 2014 and April 2017 (with a follow-on issuance in May 2018); Public Notes which we issued in March 2013, December 2015 (and from time to time through our 2024 Notes Follow-on Program), June 2018 (and from time to time through our 2028 Notes Follow-on Program), and September 2018; and Prospect Capital InterNotes® which we issue from time to time. Our equity capital is comprised entirely of common equity.
The following table shows our outstanding debt as of September 30, 2018:
 
Principal Outstanding
 
Unamortized Discount & Debt Issuance Costs
 
Net Carrying Value
 
Fair Value
(1)
 
Effective Interest Rate
 
Revolving Credit Facility(2)
$
404,000

 
$
8,202

 
$
404,000

(3
)
$
404,000

 
1ML+2.20%

(6
)
 
 
 
 
 
 
 
 
 
 
 
2019 Notes
101,647

 
183

 
101,464

 
102,282

(4
)
6.51
%
(7
)
2020 Notes
392,000

 
3,705

 
388,295

 
395,579

(4
)
5.38
%
(7
)
2022 Notes
328,500

 
8,121

 
320,379

 
325,458

(4
)
5.71
%
(7
)
Convertible Notes
822,147

 
12,009

 
810,138

 
823,319

 
 
 
 
 
 
 
 
 
 
 
 
 
 
2023 Notes
320,000

 
3,874

 
316,126

 
325,837

(4
)
6.09
%
(7
)
2024 Notes
214,847

 
4,898

 
209,949

 
215,105

(4
)
6.76
%
(7
)
2028 Notes
65,078

 
2,132

 
62,946

 
64,454

(4
)
6.74
%
(7
)
6.375% 2024 Notes
100,000

 
1,315

 
98,685

 
99,460

(4
)
6.63
%
(7
)
Public Notes
699,925

 
12,219

 
687,706

 
704,856

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Prospect Capital InterNotes®
768,887

 
11,875

 
757,012

 
790,235

(5
)
5.81
%
(8
)
Total
$
2,694,959

 
$
44,305

 
$
2,658,856

 
$
2,722,410

 
 
 
(1)
As permitted by ASC 825-10-25, we have not elected to value our Revolving Credit Facility, Convertible Notes, Public Notes and Prospect Capital InterNotes® at fair value. The fair value of these debt obligations are categorized as Level 2 under ASC 820 as of September 30, 2018.
(2)
The maximum draw amount of the Revolving Credit facility as of September 30, 2018 is $795,000.
(3)
Net Carrying Value excludes deferred financing costs associated with the Revolving Credit Facility. See Critical Accounting Policies and Estimates for accounting policy details.

120

(4)
We use available market quotes to estimate the fair value of the Convertible Notes and Public Notes.
(5)
The fair value of Prospect Capital InterNotes® is estimated by discounting remaining payments using current Treasury rates plus spread based on observable market inputs.
(6)
Represents the rate on drawn down and outstanding balances. Deferred debt issuance costs are amortized on a straight-line method over the stated life of the obligation.
(7)
The effective interest rate is equal to the effect of the stated interest, the accretion of original issue discount and amortization of debt issuance costs. For the 2024 Notes and the 2028 Notes, the rate presented is a combined effective interest rate of their respective original Note issuances and Note Follow-on Programs..
(8)
For the Prospect Capital InterNotes®, the rate presented is the weighted average effective interest rate. Interest expense and deferred debt issuance costs, which are amortized on a straight-line method over the stated life of the obligation which approximates level yield, are weighted against the average year-to-date principal balance.
The following table shows the contractual maturities of our Revolving Credit Facility, Convertible Notes, Public Notes and Prospect Capital InterNotes® as of September 30, 2018:
 
Payments Due by Period
 
Total
 
Less than 1 Year
 
1 – 3 Years
 
3 – 5 Years
 
After 5 Years
Revolving Credit Facility
$
404,000

 
$
—

 
$
—

 
$
—

 
$
404,000

Convertible Notes
822,147

 
101,647

 
392,000

 
328,500

 
—

Public Notes
699,925

 
—

 
—

 
320,000

 
379,925

Prospect Capital InterNotes®
768,887

 
—

 
285,650

 
226,047

 
257,190

Total Contractual Obligations
$
2,694,959

 
$
101,647

 
$
677,650

 
$
874,547

 
$
1,041,115

The following table shows the contractual maturities of our Revolving Credit Facility, Convertible Notes, Public Notes and Prospect Capital InterNotes® as of June 30, 2018:
 
Payments Due by Period
 
Total
 
Less than 1 Year
 
1 – 3 Years
 
3 – 5 Years
 
After 5 Years
Revolving Credit Facility
$
37,000

 
$
—

 
$
37,000

 
$
—

 
$
—

Convertible Notes
822,147

 
101,647

 
392,000

 
328,500

 
—

Public Notes
727,817

 
—

 
153,536

 
320,000

 
254,281

Prospect Capital InterNotes®
760,924

 
—

 
276,484

 
246,525

 
237,915

Total Contractual Obligations
$
2,347,888

 
$
101,647

 
$
859,020

 
$
895,025

 
$
492,196

Historically, we have funded a portion of our cash needs through borrowings from banks, issuances of senior securities, including secured, unsecured and convertible debt securities, or issuances of common equity. For flexibility, we maintain a universal shelf registration statement that allows for the public offering and sale of our debt securities, common stock, preferred stock, subscription rights, and warrants and units to purchase such securities in an amount up to $5,000,000 less issuances to date. As of September 30, 2018, we can issue up to $4,221,013 of additional debt and equity securities in the public market under this shelf registration. We may from time to time issue securities pursuant to the shelf registration statement or otherwise pursuant to private offerings. The issuance of debt or equity securities will depend on future market conditions, funding needs and other factors and there can be no assurance that any such issuance will occur or be successful.
Each of our Convertible Notes, Public Notes and Prospect Capital InterNotes® (collectively, our “Unsecured Notes”) are our general, unsecured obligations and rank equal in right of payment with all of our existing and future unsecured indebtedness and will be senior in right of payment to any of our subordinated indebtedness that may be issued in the future. The Unsecured Notes are effectively subordinated to our existing secured indebtedness, such as our credit facility, and future secured indebtedness to the extent of the value of the assets securing such indebtedness and structurally subordinated to any existing and future liabilities and other indebtedness of any of our subsidiaries.

121

Revolving Credit Facility
On August 29, 2014, we renegotiated our previous credit facility and closed an expanded five and a half year revolving credit facility (the “2014 Facility”). The lenders had extended commitments of $885,000 under the 2014 Facility as of September 30, 2018. The 2014 Facility included an accordion feature which allowed commitments to be increased up to $1,500,000 in the aggregate. Interest on borrowings under the 2014 Facility is one-month LIBOR plus 225 basis points. Additionally, the lenders charged a fee on the unused portion of the 2014 Facility equal to either 50 basis points if at least 35% of the credit facility was drawn or 100 basis points otherwise.
On August 1, 2018, we renegotiated the 2014 Facility and closed an expanded five and a half year revolving credit facility (the “2018 Facility” and collectively with the 2014 Facility, the “Revolving Credit Facility”). The lenders have extended commitments of $795,000 under the 2018 Facility as of September 30, 2018.The 2018 Facility includes an accordion feature which allows commitments to be increased up to $1,500,000 in the aggregate. The 2018 Facility matures on March 27, 2024. It includes a revolving period that extends through March 27, 2022, followed by an additional two-year amortization period, with distributions allowed to Prospect after the completion of the revolving period. During such two-year amortization period, all principal payments on the pledged assets will be applied to reduce the balance. At the end of the two-year amortization period, the remaining balance will become due, if required by the lenders.

The 2018 Facility contains restrictions pertaining to the geographic and industry concentrations of funded loans, maximum size of funded loans, interest rate payment frequency of funded loans, maturity dates of funded loans and minimum equity requirements. The 2018 Facility also contains certain requirements relating to portfolio performance, including required minimum portfolio yield and limitations on delinquencies and charge-offs, violation of which could result in the early termination of the 2018 Facility. The 2018 Facility also requires the maintenance of a minimum liquidity requirement. As of September 30, 2018, we were in compliance with the applicable covenants.
Interest on borrowings under the 2018 Facility is one-month LIBOR plus 220 basis points. Additionally, the lenders charge a fee on the unused portion of the credit facility equal to either 50 basis points if more than 60% of the credit facility is drawn, or 100 basis points if more than 35% and an amount less than or equal to 60% of the credit facility is drawn, or 150 basis points if an amount less than or equal to 35% of the credit facility is drawn. The 2018 Facility requires us to pledge assets as collateral in order to borrow under the credit facility.
As of September 30, 2018 and June 30, 2018, we had $336,167 and $547,205, respectively, available to us for borrowing under the Revolving Credit Facility, with $404,000 and $37,000 outstanding as of September 30, 2018 and June 30, 2018, respectively. As additional eligible investments are transferred to PCF and pledged under the Revolving Credit Facility, PCF will generate additional availability up to the current commitment amount of $795,000. As of September 30, 2018, the investments, including cash, used as collateral for the Revolving Credit Facility had an aggregate fair value of $1,513,897, which represents 25.0% of our total investments, including cash. These assets are held and owned by PCF, a bankruptcy remote special purpose entity, and as such, these investments are not available to our general creditors. The release of any assets from PCF requires the approval of the facility agent.
In connection with the origination and amendments of the Revolving Credit Facility, we incurred $8,431 of new fees and $1,473 were carried over for continuing participants from the previous facility, all of which are being amortized over the term of the facility in accordance with ASC 470-50. As of September 30, 2018, $8,202 remains to be amortized and is reflected as deferred financing costs on the Consolidated Statements of Assets and Liabilities. As of September 30, 2018, $325 of fees were expensed relating to credit providers in the 2014 Facility who did not commit to the 2018 Facility.
During the three months ended September 30, 2018 and September 30, 2017, we recorded $4,365 and $2,954, respectively, of interest costs, unused fees and amortization of financing costs on the Revolving Credit Facility as interest expense.
Convertible Notes
On April 16, 2012, we issued $130,000 aggregate principal amount of convertible notes that matured on October 15, 2017 (the “2017 Notes”). The 2017 Notes bore interest at a rate of 5.375% per year, payable semi-annually on April 15 and October 15 of each year, beginning October 15, 2012. Total proceeds from the issuance of the 2017 Notes, net of underwriting discounts and offering costs, were $126,035. On March 28, 2016, we repurchased $500 aggregate principal amount of the 2017 Notes at a price of 98.25, including commissions. The transaction resulted in our recognizing a $9 gain for the period ended March 31, 2016. On April 6, 2017, we repurchased $78,766 aggregate principal amount of the 2017 Notes at a price of 102.0, including commissions. The transaction resulted in our recognizing a $1,786 loss during the three months ended June 30, 2017. On October 15, 2017, we repaid the outstanding principal amount of $50,734 of the 2017 Notes, plus interest. No gain or loss was realized on the transaction.

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On August 14, 2012, we issued $200,000 aggregate principal amount of convertible notes that matured on March 15, 2018 (the “2018 Notes”). The 2018 Notes bore interest at a rate of 5.75% per year, payable semi-annually on March 15 and September 15 of each year, beginning March 15, 2013. Total proceeds from the issuance of the 2018 Notes, net of underwriting discounts and offering costs, were $193,600. On April 6, 2017, we repurchased $114,581 aggregate principal amount of the 2018 Notes at a price of 103.5, including commissions. The transaction resulted in our recognizing a $4,700 loss during the three months ended June 30, 2017. On March 15, 2018, we repaid the outstanding principal amount of $85,419 of the 2018 Notes, plus interest. No gain or loss was realized on the transaction.
On December 21, 2012, we issued $200,000 aggregate principal amount of convertible notes that mature on January 15, 2019 (the “2019 Notes”), unless previously converted or repurchased in accordance with their terms. The 2019 Notes bear interest at a rate of 5.875% per year, payable semi-annually on January 15 and July 15 of each year, beginning July 15, 2013. Total proceeds from the issuance of the 2019 Notes, net of underwriting discounts and offering costs, were $193,600. On May 30, 2018, we repurchased $98,353 aggregate principal amount of the 2019 Notes at a price of 102.0, including commissions. The transaction resulted in our recognizing a $2,383 loss during the three months ended June 30, 2018. As of September 30, 2018, the outstanding aggregate principal amount of the 2019 Notes is $101,647.
On April 11, 2014, we issued $400,000 aggregate principal amount of convertible notes that mature on April 15, 2020 (the “2020 Notes”), unless previously converted or repurchased in accordance with their terms. The 2020 Notes bear interest at a rate of 4.75% per year, payable semi-annually on April 15 and October 15 each year, beginning October 15, 2014. Total proceeds from the issuance of the 2020 Notes, net of underwriting discounts and offering costs, were $387,500. On January 30, 2015, we repurchased $8,000 aggregate principal amount of the 2020 Notes at a price of 93.0, including commissions. As a result of this transaction, we recorded a gain of $332, in the amount of the difference between the reacquisition price and the net carrying amount of the notes, net of the proportionate amount of unamortized debt issuance costs. As of September 30, 2018, the outstanding aggregate principal amount of the 2020 Notes is $392,000.
On April 11, 2017, we issued $225,000 aggregate principal amount of convertible notes that mature on July 15, 2022 (the “Original 2022 Notes”), unless previously converted or repurchased in accordance with their terms. The Original 2022 Notes bear interest at a rate of 4.95% per year, payable semi-annually on January 15 and July 15 each year, beginning July 15, 2017. Total proceeds from the issuance of the Original 2022 Notes, net of underwriting discounts and offering costs, were $218,010. On May 18, 2018, we issued an additional $103,500 aggregate principal amount of convertible notes that mature on July 15, 2022 (the “Additional 2022 Notes”, and together with the Original 2022 Notes, the “2022 Notes”), unless previously converted or repurchased in accordance with their terms. The Additional 2022 Notes were a further issuance of, and are fully fungible and rank equally in right of payment with, the Original 2022 Notes and bear interest at a rate of 4.95% per year, payable semi-annually on January 15 and July 15 each year, beginning July 15, 2018. Total proceeds from the issuance of the Additional 2022 Notes, net of underwriting discounts and offering costs, were $100,749. Following the issuance of the Additional 2022 Notes and as of September 30 2018, the outstanding aggregate principal amount of the 2022 Notes is $328,500.
Certain key terms related to the convertible features for the 2019 Notes, the 2020 Notes and the 2022 Notes (collectively, the “Convertible Notes”) are listed below.
 
 
2019 Notes

 
2020 Notes

 
2022 Notes

Initial conversion rate(1)
 
79.7766

 
80.6647

 
100.2305

Initial conversion price
 
$
12.54

 
$
12.40

 
$
9.98

Conversion rate at September 30, 2018(1)(2)
 
79.8360

 
80.6670

 
100.2305

Conversion price at September 30, 2018(2)(3)
 
$
12.53

 
$
12.40

 
$
9.98

Last conversion price calculation date
 
12/21/2017

 
4/11/2018

 
4/11/2018

Dividend threshold amount (per share)(4)
 
$
0.110025

 
$
0.110525

 
$
0.083330

(1)
Conversion rates denominated in shares of common stock per $1 principal amount of the Convertible Notes converted. 
(2)
Represents conversion rate and conversion price, as applicable, taking into account certain de minimis adjustments that will be made on the conversion date.
(3)
The conversion price will increase only if the current monthly dividends (per share) exceed the dividend threshold amount (per share).
(4)
The conversion rate is increased if monthly cash dividends paid to common shares exceed the monthly dividend threshold amount, subject to adjustment. Current dividend rates are at or below the minimum dividend threshold amount for further conversion rate adjustments for all bonds.

123

Upon conversion, unless a holder converts after a record date for an interest payment but prior to the corresponding interest payment date, the holder will receive a separate cash payment with respect to the notes surrendered for conversion representing accrued and unpaid interest to, but not including, the conversion date. Any such payment will be made on the settlement date applicable to the relevant conversion on the Convertible Notes.
No holder of Convertible Notes will be entitled to receive shares of our common stock upon conversion to the extent (but only to the extent) that such receipt would cause such converting holder to become, directly or indirectly, a beneficial owner (within the meaning of Section 13(d) of the Securities Exchange Act of 1934 and the rules and regulations promulgated thereunder) of more than 5.0% of the shares of our common stock outstanding at such time. The 5.0% limitation shall no longer apply following the effective date of any fundamental change. We will not issue any shares in connection with the conversion or redemption of the Convertible Notes which would equal or exceed 20% of the shares outstanding at the time of the transaction in accordance with NASDAQ rules.
Subject to certain exceptions, holders may require us to repurchase, for cash, all or part of their Convertible Notes upon a fundamental change at a price equal to 100% of the principal amount of the Convertible Notes being repurchased plus any accrued and unpaid interest up to, but excluding, the fundamental change repurchase date. In addition, upon a fundamental change that constitutes a non-stock change of control we will also pay holders an amount in cash equal to the present value of all remaining interest payments (without duplication of the foregoing amounts) on such Convertible Notes through and including the maturity date.
In connection with the issuance of the Convertible Notes, we incurred $27,323 of fees which are being amortized over the terms of the notes, of which $12,009 remains to be amortized and is included as a reduction within Convertible Notes on the Consolidated Statement of Assets and Liabilities as of September 30, 2018.
During the three months ended September 30, 2018 and September 30, 2017, we recorded $11,435 and $13,656, respectively, of interest costs and amortization of financing costs on the Convertible Notes as interest expense.
Public Notes
On March 15, 2013, we issued $250,000 aggregate principal amount of unsecured notes that mature on March 15, 2023 (the “Original 2023 Notes”). The Original 2023 Notes bear interest at a rate of 5.875% per year, payable semi-annually on March 15 and September 15 of each year, beginning September 15, 2013. Total proceeds from the issuance of the Original 2023 Notes, net of underwriting discounts and offering costs, were $243,641. On June 20, 2018, we issued an additional $70,000 aggregate principal amount of unsecured notes that mature on March 15, 2023 (the “Additional 2023 Notes”, and together with the Original 2023 Notes, the “2023 Notes”). The Additional 2023 Notes were a further issuance of, and are fully fungible and rank equally in right of payment with, the Original 2023 Notes and bear interest at a rate of 5.875% per year, payable semi-annually on March 15 and September 15 of each year, beginning September 15, 2018. Total proceeds from the issuance of the Additional 2023 Notes, net of underwriting discounts, were $69,403. As of September 30, 2018, the outstanding aggregate principal amount of the 2023 Notes is $320,000.

On April 7, 2014, we issued $300,000 aggregate principal amount of unsecured notes that mature on July 15, 2019 (the “5.00% 2019 Notes”). Included in the issuance is $45,000 of Prospect Capital InterNotes® that were exchanged for the 5.00% 2019 Notes. The 5.00% 2019 Notes bear interest at a rate of 5.00% per year, payable semi-annually on January 15 and July 15 of each year, beginning July 15, 2014. Total proceeds from the issuance of the 5.00% 2019 Notes, net of underwriting discounts and offering costs, were $295,998. On June 7, 2018, we commenced a tender offer to purchase for cash any and all of the $300,000 aggregate principal amount outstanding of the 5.00% 2019 Notes. On June 20, 2018, $146,464 aggregate principal amount of the 5.00% 2019 Notes, representing 48.8% of the previously outstanding 5.00% 2019 Notes, were validly tendered and accepted. The transaction resulted in our recognizing a loss of $3,705 during the three months ended June 30, 2018. On September 26, 2018, we repurchased the remaining $153,536 aggregate principal amount of the 5.00% 2019 Notes at a price of 101.645, including commissions. The transaction resulted in our recognizing a loss of $2,874 during the three months ended September 30, 2018.

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On December 10, 2015, we issued $160,000 aggregate principal amount of unsecured notes that mature on June 15, 2024 (the “2024 Notes”). The 2024 Notes bear interest at a rate of 6.25% per year, payable quarterly on March 15, June 15, September 15 and December 15 of each year, beginning March 15, 2016. Total proceeds from the issuance of the Original 2024 Notes, net of underwriting discounts and offering costs, were $155,043. On June 16, 2016, we entered into an at-the-market (“ATM”) program with FBR Capital Markets & Co. through which we could sell, by means of ATM offerings, from time to time, up to $100,000 in aggregate principal amount of our existing 2024 Notes (“Initial 2024 Notes ATM”). Following the initial 2024 Notes ATM, the aggregate principal amount of the 2024 Notes issued was $199,281 for net proceeds of $193,253, after commissions and offering costs. On July 2, 2018, we entered into a second ATM program with B.Riley FBR, Inc. and BB&T Capital Markets, and on August 31, 2018 with Comerica Securities, Inc., through which we could sell, by means of ATM offerings, up to $100,000 in aggregate principal amount of the 2024 Notes (“Second 2024 Notes ATM”, and together with the Initial 2024 Notes ATM, the “2024 Notes Follow-on Program”). The 2024 Notes are listed on the New York Stock Exchange (“NYSE”) and trade thereon under the ticker “PBB.” During the three months ended September 30, 2018, we issued an additional $15,566 aggregate principal amount under the second 2024 Notes ATM, for net proceeds of $15,461, after commissions and offering costs. As of September 30, 2018 , the outstanding aggregate principal amount of the 2024 Notes is $214,847.
On June 7, 2018, we issued $55,000 aggregate principal amount of unsecured notes that mature on June 15, 2028 (the “2028 Notes”). The 2028 Notes bear interest at a rate of 6.25% per year, payable quarterly on March 15, June 15, September 15, and December 15 of each year, beginning September 15, 2018. Total proceeds from the issuance of the 2028 Notes, net of underwriting discounts and offering costs were $53,119. On July 2, 2018, we entered into an ATM program with B.Riley FBR, Inc. and BB&T Capital Markets, and on August 31, 2018 with Comerica Securities, Inc., through which we could sell, by means of ATM offerings, up to $100,000 in aggregate principal amount of our existing 2028 Notes (“2028 Notes ATM” or “2028 Notes Follow-on Program”). The 2028 Notes are listed on the NYSE and trade thereon under the ticker “PBY.” During the three months ended September 30, 2018, we issued an additional $10,078 aggregate principal amount under the 2028 Notes ATM, for net proceeds of $9,963, after commissions and offering costs. As of September 30, 2018, the outstanding aggregate principal amount of the 2028 Notes is $65,078.
On September 27, 2018, we issued $100,000 aggregate principal amount of unsecured notes that mature on January 15, 2024 (the “6.375% 2024 Notes”). The 6.375% 2024 Notes settled on October 1, 2018. The 6.375% 2024 Notes bear interest at a rate of 6.375% per year, payable semi-annually on January 15 and July 15 of each year, beginning January 15, 2019. Total proceeds from the issuance of the 6.375% 2024 Notes, net of underwriting discounts and offering costs, were $98,985. Net proceeds are reflected in Due from Broker on the Consolidated Statements of Assets and Liabilities.
The 2023 Notes, the 2024 Notes, the 2028 Notes, and the 6.375% 2024 Notes (collectively, the “Public Notes”) are direct unsecured obligations and rank equally with all of our unsecured indebtedness from time to time outstanding.
In connection with the issuance of the Public Notes we recorded a discount of $3,337 and debt issuance costs of $13,689, which are being amortized over the terms of the notes. As of September 30, 2018, $2,093 of the original issue discount and $10,126 of the debt issuance costs remain to be amortized and are included as a reduction within Public Notes on the Consolidated Statement of Assets and Liabilities.
During the three months ended September 30, 2018 and September 30, 2017, we recorded $11,363 and $11,041, respectively, of interest costs and amortization of financing costs on the Public Notes as interest expense.
Prospect Capital InterNotes®
On February 16, 2012, we entered into a selling agent agreement (the “Selling Agent Agreement”) with Incapital LLC, as purchasing agent for our issuance and sale from time to time of up to $500,000 of Prospect Capital InterNotes® (the “InterNotes® Offering”), which was increased to $1,500,000 in May 2014. Additional agents may be appointed by us from time to time in connection with the InterNotes® Offering and become parties to the Selling Agent Agreement.
These notes are direct unsecured obligations and rank equally with all of our unsecured indebtedness from time to time outstanding. Each series of notes will be issued by a separate trust. These notes bear interest at fixed interest rates and offer a variety of maturities no less than twelve months from the original date of issuance.
During the three months ended September 30, 2018, we issued $39,757 aggregate principal amount of Prospect Capital InterNotes® for net proceeds of $39,093. These notes were issued with stated interest rates ranging from 5.00% to 6.00% with a weighted average interest rate of 5.48%. These notes mature between July 15, 2023 and September 15, 2028.


125

The following table summarizes the Prospect Capital InterNotes® issued during the three months ended September 30, 2018:
Tenor at
Origination
(in years)
 
Principal
Amount
 
Interest Rate
Range
 
Weighted
Average
Interest Rate
 
Maturity Date Range
5
 
$
18,668

 
5.00
%
 
5.00
%
 
July 15, 2023 – September 15, 2023
7
 
7,172

 
5.50%–5.75%

 
5.73
%
 
July 15, 2025 – September 15, 2025
8
 
385

 
5.75
%
 
5.75
%
 
July 15, 2026
10
 
13,532

 
6.00
%
 
6.00
%
 
July 15, 2028 – September 15, 2028
 
 
$
39,757

 
 
 
 
 
 
During the three months ended September 30, 2017, we issued $27,402 aggregate principal amount of our Prospect Capital InterNotes® for net proceeds of $26,996. These notes were issued with stated interest rates ranging from 4.00% to 5.00% with a weighted average interest rate of 4.57%.

The following table summarizes the Prospect Capital InterNotes® issued during the three months ended September 30, 2017:
Tenor at
Origination
(in years)
 
Principal
Amount
 
Interest Rate
Range
 
Weighted
Average
Interest Rate
 
Maturity Date Range
5
 
$
17,059

 
4.00%–4.75%
 
4.42
%
 
July 15, 2022 – September 15, 2022
7
 
2,825

 
4.75%–5.00%
 
4.93
%
 
July 15, 2024
8
 
7,518

 
4.50%–5.00%
 
4.76
%
 
August 15, 2025 – September 15, 2025
 
 
$
27,402

 
 
 
 
 
 
During the three months ended September 30, 2018, we redeemed, prior to maturity, $29,360 aggregate principal amount of Prospect Capital InterNotes® at par with a weighted average interest rate of 4.70% in order to replace shorter maturity debt with longer-term debt. During the three months ended September 30, 2018, we repaid $2,434 aggregate principal amount of Prospect Capital InterNotes® at par in accordance with the Survivor’s Option, as defined in the InterNotes® Offering prospectus. As a result of these transactions, we recorded a loss in the amount of the unamortized debt issuance costs. The net loss on the extinguishment of Prospect Capital InterNotes® in the three months ended September 30, 2018 was $255.

The following table summarizes the Prospect Capital InterNotes® outstanding as of September 30, 2018:
Tenor at
Origination
(in years)
 
Principal
Amount
 
Interest Rate
Range
 
Weighted
Average
Interest Rate
 
Maturity Date Range
5
 
$
245,127

 
4.00% – 5.50%

 
4.93
%
 
July 15, 2020 - September 15, 2023
5.2
 
4,440

 
4.63%

 
4.63
%
 
August 15, 2020 - September 15, 2020
5.3
 
2,636

 
4.63%

 
4.63
%
 
September 15, 2020
5.5
 
69,570

 
4.25% – 4.75%

 
4.57
%
 
May 15, 2020 - November 15, 2020
6
 
2,182

 
4.88%

 
4.88
%
 
April 15, 2021 - May 15, 2021
6.5
 
38,672

 
5.10% – 5.25%

 
5.23
%
 
December 15, 2021 - May 15, 2022
7
 
143,604

 
4.00% – 5.75%

 
5.12
%
 
January 15, 2020 - September 15, 2025
7.5
 
1,996

 
5.75%

 
5.75
%
 
February 15, 2021
8
 
24,820

 
4.50% – 5.75%

 
4.67
%
 
August 15, 2025 - July 15, 2026
10
 
50,906

 
4.32% – 7.00%

 
6.11
%
 
March 15, 2022 - September 15, 2028
12
 
2,978

 
6.00
%
 
6.00
%
 
November 15, 2025 - December 15, 2025
15
 
17,163

 
5.25% – 6.00%

 
5.35
%
 
May 15, 2028 - November 15, 2028
18
 
20,199

 
4.13% – 6.25%

 
5.54
%
 
December 15, 2030 - August 15, 2031
20
 
4,060

 
5.75% – 6.00%

 
5.89
%
 
November 15, 2032 - October 15, 2033
25
 
32,834

 
6.25% – 6.50%

 
6.39
%
 
August 15, 2038 - May 15, 2039
30
 
107,700

 
5.50% – 6.75%

 
6.24
%
 
November 15, 2042 - October 15, 2043
 
 
$
768,887

 
 

 
 

 
 

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During the three months ended September 30, 2017, we redeemed, prior to maturity $89,980 aggregate principal amount of Prospect Capital InterNotes® at par with a weighted average interest rate of 4.91% in order to replace debt with shorter maturity dates. During the three months ended September 30, 2017, we repaid $1,884 aggregate principal amount of Prospect Capital InterNotes® at par in accordance with the Survivor’s Option, as defined in the InterNotes® Offering prospectus. As a result of these transactions, we recorded a loss in the amount of the unamortized debt issuance costs. The net loss on the extinguishment of Prospect Capital InterNotes® in the three months ended September 30, 2017 was $445.

The following table summarizes the Prospect Capital InterNotes® outstanding as of June 30, 2018:
Tenor at
Origination
(in years)
 
Principal
Amount
 
Interest Rate
Range
 
Weighted
Average
Interest Rate
 
Maturity Date Range
5
 
$
228,835

 
4.00% – 5.50%

 
4.92
%
 
July 15, 2020 - June 15, 2023
5.2
 
4,440

 
4.63%

 
4.63
%
 
August 15, 2020 - September 15, 2020
5.3
 
2,636

 
4.63%

 
4.63
%
 
September 15, 2020
5.5
 
86,097

 
4.25% – 4.75%

 
4.61
%
 
May 15, 2020 - November 15, 2020
6
 
2,182

 
4.88%

 
4.88
%
 
April 15, 2021 - May 15, 2021
6.5
 
38,832

 
5.10% – 5.25%

 
5.23
%
 
December 15, 2021 - May 15, 2022
7
 
147,349

 
4.00% – 5.75%

 
5.05
%
 
January 15, 2020 - June 15, 2025
7.5
 
1,996

 
5.75%

 
5.75
%
 
February 15, 2021
8
 
24,720

 
4.50% – 5.25%

 
4.65
%
 
August 15, 2025 - May 15, 2026
10
 
37,424

 
5.34% – 7.00%

 
6.19
%
 
March 15, 2022 - December 15, 2025
12
 
2,978

 
6.00
%
 
6.00
%
 
November 15, 2025 - December 15, 2025
15
 
17,163

 
5.25% – 6.00%

 
5.35
%
 
May 15, 2028 - November 15, 2028
18
 
20,677

 
4.13% – 6.25%

 
5.55
%
 
December 15, 2030 - August 15, 2031
20
 
4,120

 
5.75% – 6.00%

 
5.89
%
 
November 15, 2032 - October 15, 2033
25
 
33,139

 
6.25% – 6.50%

 
6.39
%
 
August 15, 2038 - May 15, 2039
30
 
108,336

 
5.50% – 6.75%

 
6.24
%
 
November 15, 2042 - October 15, 2043
 
 
$
760,924

 
 

 
 

 
 
In connection with the issuance of Prospect Capital InterNotes®, we incurred $24,904 of fees which are being amortized over the term of the notes, of which $11,875 remains to be amortized and is included as a reduction within Prospect Capital InterNotes® on the Consolidated Statement of Assets and Liabilities as of September 30, 2018.
During the three months ended September 30, 2018 and September 30, 2017 we recorded $10,745 and $13,384, respectively, of interest costs and amortization of financing costs on the Prospect Capital InterNotes® as interest expense.
Net Asset Value
During the three months ended September 30, 2018 our net asset value increased by $23,897, or $0.04 per share. The increase was primarily attributable to net investment income exceeding dividends by $0.05 per weighted average share for the three months ended September 30, 2018. The increase in net investment income per share resulted primarily from an increase in dividend income compared to the June 2018 quarter. The increase was partially offset by $0.01 per share decline from reinvestment of our dividends on behalf of our stockholders at current market prices. The following table shows the calculation of net asset value per share as of September 30, 2018 and June 30, 2018.
 
 
September 30, 2018
 
June 30, 2018
Net assets
 
$
3,430,944

 
$
3,407,047

Shares of common stock issued and outstanding
 
365,225,139

 
364,409,938

Net asset value per share
 
$
9.39

 
$
9.35

Results of Operations
Net increase in net assets resulting from operations for the three months ended September 30, 2018 and September 30, 2017 was $83,795, or $0.23 per share, and $11,973, or $0.03 per share, respectively. The increase of $71,822, or $0.20 per share, is primarily due to net unrealized gains on investments of $1,049 recognized for three months ended September 30, 2018 compared to a $52,751

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net unrealized loss recognized for the three months ended September 30, 2017. For the three months ended September 30, 2017, the $52,751 net change in unrealized losses was primarily the result of greater unrealized losses in our CLO portfolio and our investment in USC. Additionally, net investment income increased by $21,427, or $0.05 per share, for the three months ended September 30, 2018 compared to the three months ended September 30, 2017 due to an increase in interest income and dividend income of $11,357, or $0.03 per share, and $14,383, or $0.04 per share, respectively. This favorable variance was partially offset by a $5,151, or $0.01 per share, increase in advisory fees for the three months ended September 30, 2018 compared to the three months ended September 30, 2017.
While we seek to maximize gains and minimize losses, our investments in portfolio companies can expose our capital to risks greater than those we may anticipate. These companies typically do not issue securities rated investment grade, and have limited resources, limited operating history, and concentrated product lines or customers. These are generally private companies with limited operating information available and are likely to depend on a small core of management talents. Changes in any of these factors can have a significant impact on the value of the portfolio company.

Investment Income
We generate revenue in the form of interest income on the debt securities that we own, dividend income on any common or preferred stock that we own, and fees generated from the structuring of new deals. Our investments, if in the form of debt securities, will typically have a term of one to ten years and bear interest at a fixed or floating rate. To the extent achievable, we will seek to collateralize our investments by obtaining security interests in our portfolio companies’ assets. We also may acquire minority or majority equity interests in our portfolio companies, which may pay cash or in-kind dividends on a recurring or otherwise negotiated basis. In addition, we may generate revenue in other forms including prepayment penalties and possibly consulting fees. Any such fees generated in connection with our investments are recognized as earned.
Investment income, which consists of interest income, including accretion of loan origination fees, prepayment penalty fees, dividend income and other income, including settlement of net profits interests, overriding royalty interests and structuring fees, was $180,422 and $158,579 for the three months ended September 30, 2018 and September 30, 2017, respectively. Investment income increased $21,843, or $0.05 per share from three months ended September 30, 2017 compared to the three months ended September 30, 2018 primarily due to an increase in dividend income, an increase in cash-on-cash yields on our CLO investment portfolio due to a number of recent resets across the portfolio and the increase in LIBOR above our floors amongst our interest bearing investments.


128

The following table describes the various components of investment income and the related levels of debt investments:
 
Three Months Ended September 30,
 
2018
 
2017
Interest income
$
159,442

 
$
148,085

Dividend income
14,927

 
544

Other income
6,053

 
9,950

Total investment income
$
180,422

 
$
158,579

 
 
 
 
Average debt principal of performing interest bearing investments(1)
$
5,516,765

 
$
5,421,375

Weighted average interest rate earned on performing interest bearing investments(1)
11.31
%
 
10.93
%
Average debt principal of all interest bearing investments(2)
$
6,930,310

 
$
5,770,167

Weighted average interest rate earned on all interest bearing investments(2)
10.52
%
 
10.27
%
(1) Excludes equity investments and non-accrual loans.
(2) Excludes equity investments.

Average interest income producing assets increased from $5,421,375 for the three months ended September 30, 2017 to $5,516,765 for the three months ended September 30, 2018. The average interest earned on interest bearing performing assets increased from 10.93% for the three months ended September 30, 2017 to 11.31% for the three months ended September 30, 2018. The increase is primarily attributable to an increase in cash-on-cash yields on our CLO investment portfolio due to a number of recent resets across the portfolio. In addition, the increase in LIBOR above our floors amongst our interest bearing investments. See Item 3. Quantitative and Qualitative Disclosures about Market Risk for detailed disclosures with respect to the approximate annual impact on net investment income resulting from base rate changes in interest rate.

Investment income is also generated from dividends and other income which is less predictable than interest income. Dividend income increased from $544 for the three months ended September 30, 2017 to $14,927 for the three months ended September 30, 2018. The $14,383 increase in dividend income is primarily attributable to a $11,000 dividend received from our investment in NPRC, which was generated from taxable earnings and profits in connection with the gain on the sales of NPRC’s St. Marin, Central Park, and Matthews Reserve properties. In addition, we received a $3,500 dividend from our investment in Valley Electric. No such dividends were received from NPRC or Valley Electric for the three months ended September 30, 2017.

Other income is comprised of structuring fees, advisory fees, royalty interests, and settlement of net profits interests. Income from other sources decreased to $6,053 for the three months ended September 30, 2018 from $9,950 for the three months ended September 30, 2017. The $3,897 decline in is primarily attributable to a $3,233 structuring fee from our investment in Pacific World for services rendered in connection with amending its revolving credit facility received during three months ended September 30, 2017. No such structuring fee was received for the three months ended September 30, 2018.

Operating Expenses
Our primary operating expenses consist of investment advisory fees (base management and income incentive fees), borrowing costs, legal and professional fees, overhead-related expenses and other operating expenses. These expenses include our allocable portion of overhead under the Administration Agreement with Prospect Administration under which Prospect Administration provides administrative services and facilities for us. Our investment advisory fees compensate the Investment Adviser for its work in identifying, evaluating, negotiating, closing and monitoring our investments. We bear all other costs and expenses of our operations and transactions. Operating expenses were $95,263 and $94,847 for the three months ended September 30, 2018 and September 30, 2017, respectively.
Total gross base management fee was $30,095 and $30,379 for the three months ended September 30, 2018 and September 30, 2017, respectively. The decrease in total gross base management fee is directly related a decrease in average total assets. The Investment Adviser has entered into a servicing agreement with certain institutions who purchased loans with us, where we serve as the agent and collect a servicing fee on behalf of the Investment Adviser. We received payments of $138 and $216 from these institutions for the three months ended September 30, 2018 and September 30, 2017, respectively, on behalf of the Investment Adviser, for providing such services under the servicing agreement. We were given a credit for these payments as a reduction of base management fee payable by us to the Investment Adviser resulting in net base management fees of $29,957 and $30,163 for the three months ended September 30, 2018 and September 30, 2017, respectively.

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For the three months ended September 30, 2018 and September 30, 2017, we incurred $21,290 and $15,933 of income incentive fees, respectively ($0.06 and $0.04 per weighted average share, respectively). This increase was driven by a corresponding increase in pre-incentive fee net investment income from $79,665 for the three months ended September 30, 2017 to $106,449 for the three months ended September 30, 2018. No capital gains incentive fee has yet been incurred pursuant to the Investment Advisory Agreement.
During the three months ended September 30, 2018 and September 30, 2017, we incurred $37,908 and $41,035 respectively, of interest and credit facility expenses related to our Revolving Credit Facility, Convertible Notes, Public Notes and Prospect Capital InterNotes® (collectively, our “Notes”). These expenses are related directly to the leveraging capacity and the levels of indebtedness actually undertaken in those periods.
The table below describes the various expenses of our Notes and the related indicators of leveraging capacity and indebtedness during these years.
 
Three Months Ended September 30,
 
2018
 
2017
Interest on borrowings
$
32,985

 
$
35,538

Amortization of deferred financing costs
2,716

 
3,166

Accretion of discount on Public Notes
131

 
69

Facility commitment fees
2,076

 
2,262

Total interest and credit facility expenses
$
37,908

 
$
41,035

 
 
 
 
Average principal debt outstanding
$
2,496,642

 
$
2,666,070

Annualized weighted average stated interest rate on borrowings(1)
5.28
%
 
5.33
%
Annualized weighted average interest rate on borrowings(2)
6.07
%
 
6.16
%
(1)
Includes only the stated interest expense.
(2)
Includes the stated interest expense, amortization of deferred financing costs, accretion of discount on Public Notes and commitment fees on the undrawn portion of our Revolving Credit Facility.
Interest expense decreased by $3,127 for the three months ended September 30, 2018 as compared to three months ended September 30, 2017. The weighted average stated interest rate on borrowings (excluding amortization, accretion and undrawn facility fees) decreased from 5.33% for the three months ended September 30, 2017 to 5.28% for the three months ended September 30, 2018. This decrease is primarily due to increased utilization of our Revolving Credit Facility which bears a lower rate than our remaining debt.
The allocation of gross overhead expense from Prospect Administration was $3,365 and $4,710 for the three months ended September 30, 2018 and September 30, 2017, respectively. Prospect Administration received estimated payments of $1,182 directly from our portfolio companies, and certain funds managed by the Investment Adviser for legal, tax and portfolio level accounting services during the three months ended September 30, 2017. No such payments were received for the three months ended September 30, 2018. We were given a credit for these payments as a reduction of the administrative services cost payable by us to Prospect Administration. Had Prospect Administration not received these payments, Prospect Administration’s charges for its administrative services would have increased by these amounts. Net overhead during the three months ended September 30, 2018 and September 30, 2017 totaled $3,365 and $3,528, respectively.
Total operating expenses, excluding investment advisory fees, interest and credit facility expenses, and allocation of overhead from Prospect Administration (“Other Operating Expenses”), net of any expense reimbursements, were $2,743 and $4,188 for the three months ended September 30, 2018 and September 30, 2017, respectively. The $1,445 decline was primarily attributable to decreases in audit, compliance and tax related fees and other general and administrative expenses.

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Net Investment Income
Net investment income represents the difference between investment income and operating expenses. Net investment income was $85,159 and $63,732 for the three months ended September 30, 2018 and September 30, 2017, respectively. Net investment income for the three months ended September 30, 2018 and September 30, 2017 was $0.23 and $0.18 per weighted average share, respectively. During the three months ended September 30, 2018, the increase of $21,427, or $0.05 per weighted average share, was due to an increase in interest income and dividend income of $11,357, or $0.03 per share, and $14,383, or $0.04 per share, respectively. This favorable variance was partially offset by a $5,151, or $0.01 per share, increase in advisory fees for the three months ended September 30, 2018 compared to the three months ended September 30, 2017.
Net Realized (Losses) Gains
Net realized gain for the three months ended September 30, 2018 was $1,041, an unfavorable decrease in gains of $396 compared to the $1,437 net realized gain recognized during the three months ended September 30, 2017. The net realized gain during the three months ended September 30, 2018 was primarily due to the receipt of $1,000 of bankruptcy settlement proceeds from our investment in New Century Transportation, Inc, which was written-down during the three months ended December 31, 2014. The net realized gain during the three months ended September 30, 2017 was primarily due to the exchange of our loans with Targus International, LLC into common shares of Targus Cayman Holdco Limited, resulting in a realized gain of $846. Additionally, during the three months ended September 30, 2017, we recognized a realized gain on the call of our Madison IX CLO investment in the amount of $827.
Change in Unrealized Gains (Losses), Net
Net change in unrealized gains (losses) was $1,049 and ($52,751) for the three months ended September 30, 2018 and September 30, 2017, respectively. The $53,800 net favorable change in unrealized losses were primarily the result of $45,525 in unrealized gains related to our investments in CP Energy and Valley Electric driven by an improvement in operating performance driven by revenue growth and increased profitability. The fair value of our investment in NPRC increased resulting in an unrealized gain of $15,002 primarily driven by an increase in net operating income and a decline in capitalization rates. The favorable changes in unrealized losses were offset by a $10,907 decline in value of our investment in UTP due to a decline in operating performance. The value of our investment in USC also decreased by $8,136 due to both a decline in operating performance and the overall decline in demand for firearms and ammunition. Finally, our portfolio experienced $24,251 of unrealized losses in our CLO investments due to a decline in the weighted average spread in the underlying senior secured loan portfolios, increase in discount rates, and collateral losses.

During the three months ended September 30, 2017, the net change in unrealized losses of $52,751 was primarily the result of $44,754 unrealized losses in our CLO portfolio due to a decline in the weighted average spread in the underlying senior secured loan portfolios, increase in discount rates, and collateral losses. The value of our investment in USC decreased by $13,407 due to both a decline in operating performance and the overall decline in demand for firearms and ammunition.

Financial Condition, Liquidity and Capital Resources
For the three months ended September 30, 2018 and September 30, 2017, our operating activities used $238,434 and provided $99,946 of cash, respectively. There were no investing activities for the three months ended September 30, 2018 and September 30, 2017. Financing activities provided $274,728 and used $153,512 of cash during the three months ended September 30, 2018 and September 30, 2017, respectively, which included dividend payments of $59,849 and $88,321, respectively. Our primary uses of funds have been to continue to invest in portfolio companies, through both debt and equity investments, repay outstanding borrowings and to make cash distributions to holders of our common stock.

Our primary sources of funds have historically been issuances of debt and equity. More recently, we have and may continue to fund a portion of our cash needs through repayments and opportunistic sales of our existing investment portfolio. We may also securitize a portion of our investments in unsecured or senior secured loans or other assets. Our objective is to put in place such borrowings in order to enable us to expand our portfolio. During the three months ended September 30, 2018, we borrowed $436,000 and we made repayments totaling $69,000 under the Revolving Credit Facility. As of September 30, 2018, we had, net of unamortized discount and debt issuance costs, $810,138 outstanding on the Convertible Notes, $687,706 outstanding on the Public Notes and $757,012 outstanding on the Prospect Capital InterNotes®, and $404,000 outstanding balance on the Revolving Credit Facility. (See “Capitalization” above.)

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Undrawn committed revolvers and delayed draw term loans to our portfolio companies incur commitment and unused fees ranging from 0.00% to 5.00%. As of September 30, 2018 and June 30, 2018, we had $38,530 and $29,675, respectively, of undrawn revolver and delayed draw term loan commitments to our portfolio companies. The fair value of our undrawn committed revolvers and delayed draw term loans was zero as of September 30, 2018 and June 30, 2018.
Our shareholders’ equity accounts as of September 30, 2018 and June 30, 2018 reflect cumulative shares issued, net of shares repurchased, as of those respective dates. Our common stock has been issued through public offerings, a registered direct offering, the exercise of over-allotment options on the part of the underwriters, our dividend reinvestment plan and in connection with the acquisition of certain controlled portfolio companies. When our common stock is issued, the related offering expenses have been charged against paid-in capital in excess of par. All underwriting fees and offering expenses were borne by us.
As part of our Repurchase Program, we delivered a notice with our annual proxy mailing on September 25, 2018. We did not repurchase any shares of our common stock for the three months ended September 30, 2018 or September 30, 2017.
On August 31, 2016, we filed a registration statement on Form N-2 (File No. 333-213391) with the SEC. We subsequently filed a Pre-Effective Amendment No. 2 thereto on November 1, 2016, which the SEC declared effective on November 3, 2016. On October 26, 2017, we filed Post-Effective Amendment No. 50 to the registration statement, which the SEC declared effective on October 30, 2017. The registration statement permits us to issue, through one or more transactions, up to an aggregate of $5,000,000 in securities, consisting of common stock, preferred stock, debt securities, subscription rights to purchase our securities, warrants representing rights to purchase our securities or separately tradeable units combining two or more of our securities. As of September 30, 2018, we have the ability to issue up to $4,221,013 in securities under the registration statement.
Off-Balance Sheet Arrangements
As of September 30, 2018, we did not have any off-balance sheet liabilities or other contractual obligations that are reasonably likely to have a current or future material effect on our financial condition, other than those which originate from 1) the investment advisory and management agreement and the administration agreement and 2) the portfolio companies.
Recent Developments
During the period from October 1, 2018 through November 5, 2018 we issued $16,550 aggregate principal amount of Prospect Capital InterNotes® for net proceeds of $16,279.

During the period from October 1, 2018 through October 29, 2018, we issued $2,806 in aggregate principal amount of our 2024 Notes for net proceeds of $2,768 and issued $1,741 in aggregate principal amount of our 2028 Notes for net proceeds of $1,708.

On October 1, 2018, Fleetwash, Inc. fully repaid the $21,544 Senior Secured Term Loan B receivable to us.

We have provided notice to call on October 12, 2018 with settlement on November 15, 2018, $70,072 of our Prospect Capital InterNotes® at par maturing between May 15, 2020 and November 15, 2020, with a weighted average rate of 4.92%.

On October 10, 2018, we made a $25,000 Second Lien Term Loan investment in 8th Avenue Food & Provisions, Inc., a private food brands provider and manufacturer of peanut and other nut butters, pasta and healthy snacks.

On October 11, 2018, we increased total commitments to our revolving credit facility for Prospect Capital Funding LLC, one of our GAAP consolidated subsidiaries, by $35,000 to $830,000 in the aggregate.

On October 12, 2018, we made a $35,000 Second Lien Term Loan investment in CCS-CMGC Holdings, Inc., a leading provider of outsourced correctional healthcare and behavioral healthcare solutions for government customers.

On October 18, 2018, ATS Consolidated, Inc. fully repaid the $15,000 Second Lien Term Loan receivable to us.

On October 25, 2018, we made a $12,500 Second Lien Term Loan investment in GlobalTranz Enterprises, Inc., a technology-enabled third-party logistics provider of transportation services, including full truckload, less-than-truckload, expedited (air), and intermodal services, along with logistics services and supply chain management solutions.

On October 31, 2018, our Registration Statement on Form N-2 (File No. 333-227124) was declared effective by the SEC. Under this Shelf Registration Statement, we can issue up to an aggregate of $5,000,000 in debt and equity securities in the public market.


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On November 6, 2018, we announced the declaration of monthly dividends in the following amounts and with the following dates:
•
$0.06 per share for November 2018 to holders of record on November 30, 2018 with a payment date of December 20, 2018
•
$0.06 per share for December 2018 to holders of record on January 2, 2019 with a payment date of January 24, 2019.
•
$0.06 per share for January 2019 to holders of record on January 31, 2019 with a payment date of February 21, 2019.
Critical Accounting Policies and Estimates
Basis of Presentation and Consolidation
The accompanying consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (“GAAP”) pursuant to the requirements for reporting on Form 10-Q, ASC 946, Financial Services—Investment Companies (“ASC 946”), and Articles 6, 10 and 12 of Regulation S-X. Under the 1940 Act, ASC 946, and the regulations pursuant to Article 6 of Regulation S-X, we are precluded from consolidating any entity other than another investment company or an operating company which provides substantially all of its services to benefit us. Our consolidated financial statements include the accounts of Prospect, PCF, PSBL, PYC, and the Consolidated Holding Companies. All intercompany balances and transactions have been eliminated in consolidation. The financial results of our non-substantially wholly-owned holding companies and operating portfolio company investments are not consolidated in the financial statements. Any operating companies owned by the Consolidated Holding Companies are not consolidated.
Reclassifications

Certain reclassifications have been made in the presentation of prior consolidated financial statements and accompanying notes to conform to the presentation as of and for the three months ended September 30, 2018.
Use of Estimates
The preparation of the consolidated financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of income, expenses, and gains and losses during the reported period. Changes in the economic environment, financial markets, creditworthiness of the issuers of our investment portfolio and any other parameters used in determining these estimates could cause actual results to differ, and these differences could be material.
Investment Classification
We are a non-diversified company within the meaning of the 1940 Act. As required by the 1940 Act, we classify our investments by level of control. As defined in the 1940 Act, “Control Investments” are those where there is the ability or power to exercise a controlling influence over the management or policies of a company. Control is generally deemed to exist when a company or individual possesses or has the right to acquire within 60 days or less, a beneficial ownership of more than 25% of the voting securities of an investee company. Under the 1940 Act, “Affiliate Investments” are defined by a lesser degree of influence and are deemed to exist through the possession outright or via the right to acquire within 60 days or less, beneficial ownership of 5% or more of the outstanding voting securities of another person. “Non-Control/Non-Affiliate Investments” are those that are neither Control Investments nor Affiliate Investments.
As a BDC, we must not acquire any assets other than “qualifying assets” specified in the 1940 Act unless, at the time the acquisition is made, at least 70% of our total assets are qualifying assets (with certain limited exceptions). As of September 30, 2018 and June 30, 2018, our qualifying assets as a percentage of total assets, stood at 74.93% and 73.20%, respectively.
Investment Transactions
Investments are recognized when we assume an obligation to acquire a financial instrument and assume the risks for gains or losses related to that instrument. Specifically, we record all security transactions on a trade date basis. Investments are derecognized when we assume an obligation to sell a financial instrument and forego the risks for gains or losses related to that instrument. In accordance with ASC 325-40, Beneficial Interest in Securitized Financial Assets, investments in CLOs are periodically assessed for other-than-temporary impairment (“OTTI”). When the Company determines that a CLO has OTTI, the amortized cost basis of the CLO is written down to its fair value as of the date of the determination based on events and information evaluated and that write-down is recognized as a realized loss. Amounts for investments traded but not yet settled are reported in Due to Broker or Due from Broker, in the Consolidated Statements of Assets and Liabilities.

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Foreign Currency
Foreign currency amounts are translated into US Dollars (USD) on the following basis:
i.
fair value of investment securities, other assets and liabilities—at the spot exchange rate on the last business day of the period; and
ii.
purchases and sales of investment securities, income and expenses—at the rates of exchange prevailing on the respective dates of such investment transactions, income or expenses.
We do not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in fair values of investments held or disposed of during the period. Such fluctuations are included within the net realized and net change in unrealized gains or losses from investments in the Consolidated Statements of Operations.
Investment Risks
Our investments are subject to a variety of risks. Those risks include the following:
Market Risk
Market risk represents the potential loss that can be caused by a change in the fair value of the financial instrument.
Credit Risk
Credit risk represents the risk that we would incur if the counterparties failed to perform pursuant to the terms of their agreements with us.
Liquidity Risk
Liquidity risk represents the possibility that we may not be able to rapidly adjust the size of our investment positions in times of high volatility and financial stress at a reasonable price.
Interest Rate Risk
Interest rate risk represents a change in interest rates, which could result in an adverse change in the fair value of an interest-bearing financial instrument.
Prepayment Risk
Many of our debt investments allow for prepayment of principal without penalty. Downward changes in interest rates may cause prepayments to occur at a faster than expected rate, thereby effectively shortening the maturity of the security and making us less likely to fully earn all of the expected income of that security and reinvesting in a lower yielding instrument.
Structured Credit Related Risk

CLO investments may be riskier and less transparent to us than direct investments in underlying companies. CLOs typically will have no significant assets other than their underlying senior secured loans. Therefore, payments on CLO investments are and will be payable solely from the cash flows from such senior secured loans. 
Online Small-and-Medium-Sized Business Lending Risk
With respect to our online small-and-medium-sized business (“SME”) lending initiative, we invest primarily in marketplace loans through marketplace lending platforms (e.g. OnDeck). We do not conduct loan origination activities ourselves. Therefore, our ability to purchase SME loans, and our ability to grow our portfolio of SME loans, is directly influenced by the business performance and competitiveness of the marketplace loan origination business of the marketplace lending platforms from which we purchase SME loans. In addition, our ability to analyze the risk-return profile of SME loans is significantly dependent on the marketplace platforms’ ability to effectively evaluate a borrower's credit profile and likelihood of default. If we are unable to effectively evaluate borrowers' credit profiles or the credit decisioning and scoring models implemented by each platform, we may incur unanticipated losses which could adversely impact our operating results.

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Foreign Currency
Investments denominated in foreign currencies and foreign currency transactions may involve certain considerations and risks not typically associated with those of domestic origin. These risks include, but are not limited to, currency fluctuations and revaluations and future adverse political, social and economic developments, which could cause investments in foreign markets to be less liquid and prices more volatile than those of comparable U.S. companies or U.S. government securities.
Investment Valuation
To value our investments, we follow the guidance of ASC 820, Fair Value Measurement (“ASC 820”), that defines fair value, establishes a framework for measuring fair value in conformity with GAAP, and requires disclosures about fair value measurements. In accordance with ASC 820, the fair value of our investments is defined as the price that we would receive upon selling an investment in an orderly transaction to an independent buyer in the principal or most advantageous market in which that investment is transacted.
ASC 820 classifies the inputs used to measure these fair values into the following hierarchy:
Level 1: Quoted prices in active markets for identical assets or liabilities, accessible by us at the measurement date.
Level 2: Quoted prices for similar assets or liabilities in active markets, or quoted prices for identical or similar assets or liabilities in markets that are not active, or other observable inputs other than quoted prices.
Level 3: Unobservable inputs for the asset or liability.
In all cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to each investment.
Our Board of Directors has established procedures for the valuation of our investment portfolio. These procedures are detailed below.
Investments for which market quotations are readily available are valued at such market quotations.
For most of our investments, market quotations are not available. With respect to investments for which market quotations are not readily available or when such market quotations are deemed not to represent fair value, our Board of Directors has approved a multi-step valuation process each quarter, as described below.
1.
Each portfolio company or investment is reviewed by our investment professionals with independent valuation firms engaged by our Board of Directors.
2.
The independent valuation firms prepare independent valuations for each investment based on their own independent assessments and issue their report.
3.
The Audit Committee of our Board of Directors reviews and discusses with the independent valuation firms the valuation reports, and then makes a recommendation to the Board of Directors of the value for each investment.
4.
The Board of Directors discusses valuations and determines the fair value of each investment in our portfolio in good faith based on the input of the Investment Adviser, the respective independent valuation firm and the Audit Committee.
Our non-CLO investments are valued utilizing a yield technique, enterprise value (“EV”) technique, net asset value technique, liquidation technique, discounted cash flow technique, or a combination of techniques, as appropriate. The yield technique uses loan spreads for loans and other relevant information implied by market data involving identical or comparable assets or liabilities. Under the EV technique, the EV of a portfolio company is first determined and allocated over the portfolio company’s securities in order of their preference relative to one another (i.e., “waterfall” allocation). To determine the EV, we typically use a market (multiples) valuation approach that considers relevant and applicable market trading data of guideline public companies, transaction metrics from precedent merger and acquisitions transactions, and/or a discounted cash flow technique. The net asset value technique, an income approach, is used to derive a value of an underlying investment (such as real estate property) by dividing a relevant earnings stream by an appropriate capitalization rate. For this purpose, we consider capitalization rates for similar properties as may be obtained from guideline public companies and/or relevant transactions. The liquidation technique is intended to approximate the net recovery value of an investment based on, among other things, assumptions regarding liquidation proceeds based on a hypothetical liquidation of a portfolio company’s assets. The discounted cash flow technique converts future cash flows or earnings

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to a range of fair values from which a single estimate may be derived utilizing an appropriate discount rate. The fair value measurement is based on the net present value indicated by current market expectations about those future amounts.
In applying these methodologies, additional factors that we consider in valuing our investments may include, as we deem relevant: security covenants, call protection provisions, and information rights; the nature and realizable value of any collateral; the portfolio company’s ability to make payments; the principal markets in which the portfolio company does business; publicly available financial ratios of peer companies; the principal market; and enterprise values, among other factors.
Our investments in CLOs are classified as Level 3 fair value measured securities under ASC 820 and are valued using a discounted multi-path cash flow model. The CLO structures are analyzed to identify the risk exposures and to determine an appropriate call date (i.e., expected maturity). These risk factors are sensitized in the multi-path cash flow model using Monte Carlo simulations, which is a simulation used to model the probability of different outcomes, to generate probability-weighted (i.e., multi-path) cash flows from the underlying assets and liabilities.  These cash flows are discounted using appropriate market discount rates, and relevant data in the CLO market as well as certain benchmark credit indices are considered, to determine the value of each CLO investment.  In addition, we generate a single-path cash flow utilizing our best estimate of expected cash receipts, and assess the reasonableness of the implied discount rate that would be effective for the value derived from the multi-path cash flows.  We are not responsible for and have no influence over the asset management of the portfolios underlying the CLO investments we hold, as those portfolios are managed by non-affiliated third party CLO collateral managers. The main risk factors are default risk, prepayment risk, interest rate risk, downgrade risk, and credit spread risk.
Valuation of Other Financial Assets and Financial Liabilities
ASC 825, Financial Instruments, specifically ASC 825-10-25, permits an entity to choose, at specified election dates, to measure eligible items at fair value (the “Fair Value Option”). We have not elected the Fair Value Option to report selected financial assets and financial liabilities. See Note 8 in the accompanying Consolidated Financial Statements for the disclosure of the fair value of our outstanding debt and the market observable inputs used in determining fair value.
Convertible Notes
We have recorded the Convertible Notes at their contractual amounts. We have determined that the embedded conversion options in the Convertible Unsecured Notes are not required to be separately accounted for as a derivative under ASC 815, Derivatives and Hedging. See Note 5 in the accompanying Consolidated Financial Statements for further discussion.
Revenue Recognition
Realized gains or losses on the sale of investments are calculated using the specific identification method.
Interest income, adjusted for amortization of premium and accretion of discount, is recorded on an accrual basis. Loan origination fees, original issue discount, and market discounts are capitalized and accreted into interest income over the respective terms of the applicable loans using the effective interest method or straight-line, as applicable, and adjusted only for material amendments or prepayments. Upon a prepayment of a loan, prepayment premiums, original issue discount, or market discounts are recorded as interest income.
Loans are placed on non-accrual status when there is reasonable doubt that principal or interest will be collected. Unpaid accrued interest is generally reversed when a loan is placed on non-accrual status. Interest payments received on non-accrual loans are either applied to the cost basis or interest income, depending upon management’s judgment of the collectibility of the loan receivable. Non-accrual loans are restored to accrual status when past due principal and interest is paid and in management’s judgment, is likely to remain current and future principal and interest collections when due are probable. Interest received and applied against cost while a loan is on non-accrual, and PIK interest capitalized but not recognized while on non-accrual, is recognized prospectively on the effective yield basis through maturity of the loan when placed back on accrual status, to the extent deemed collectible by management. As of September 30, 2018, approximately 2.4% of our total assets at fair value are in non-accrual status.
Some of our loans and other investments may have contractual payment-in-kind (“PIK”) interest or dividends. PIK income computed at the contractual rate is accrued into income and reflected as receivable up to the capitalization date. PIK investments offer issuers the option at each payment date of making payments in cash or in additional securities. When additional securities are received, they typically have the same terms, including maturity dates and interest rates as the original securities issued. On these payment dates, we capitalize the accrued interest (reflecting such amounts in the basis as additional securities received). PIK generally becomes due at maturity of the investment or upon the investment being called by the issuer. At the point that we believe PIK is not fully expected to be realized, the PIK investment will be placed on non-accrual status. When a PIK investment is placed on non-accrual status, the accrued, uncapitalized interest or dividends are reversed from the related receivable through interest or

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dividend income, respectively. We do not reverse previously capitalized PIK interest or dividends. Upon capitalization, PIK is subject to the fair value estimates associated with their related investments. PIK investments on non-accrual status are restored to accrual status if we believe that PIK is expected to be realized.
Interest income from investments in the “equity” class of security of CLO funds (typically preferred shares, income notes or subordinated notes) and “equity” class of security of securitized trust is recorded based upon an estimation of an effective yield to expected maturity utilizing assumed cash flows in accordance with ASC 325-40, Beneficial Interests in Securitized Financial Assets. We monitor the expected cash inflows from our CLO and securitized trust equity investments, including the expected residual payments, and the effective yield is determined and updated periodically.
Dividend income is recorded on the ex-dividend date.
Other income generally includes amendment fees, commitment fees, administrative agent fees and structuring fees which are recorded when earned. Excess deal deposits, net profits interests and overriding royalty interests are included in other income. See Note 10 in the accompanying Consolidated Financial Statements for further discussion.
Federal and State Income Taxes
We have elected to be treated as a RIC and intend to continue to comply with the requirements of the Code applicable to regulated investment companies. We are required to distribute at least 90% of our investment company taxable income and intend to distribute (or retain through a deemed distribution) all of our investment company taxable income and net capital gains to stockholders; therefore, we have made no provision for income taxes. The character of income and gains that we will distribute is determined in accordance with income tax regulations that may differ from GAAP. Book and tax basis differences relating to stockholder dividends and distributions and other permanent book and tax differences are reclassified to paid-in capital.
If we do not distribute (or are not deemed to have distributed) at least 98% of our annual ordinary income and 98.2% of our capital gains in the calendar year earned, we will generally be required to pay an excise tax equal to 4% of the amount by which 98% of our annual ordinary income and 98.2% of our capital gains exceed the distributions from such taxable income for the year. To the extent that we determine that our estimated current year annual taxable income will be in excess of estimated current year dividend distributions from such taxable income, we accrue excise taxes, if any, on estimated excess taxable income. As of September 30, 2018, we do not expect to have any excise tax due for the 2018 calendar year. Thus, we have not accrued any excise tax for this period.
If we fail to satisfy the annual distribution requirement or otherwise fail to qualify as a RIC in any taxable year, we would be subject to tax on all of our taxable income at regular corporate income tax rates. We would not be able to deduct distributions to stockholders, nor would we be required to make distributions. Distributions would generally be taxable to our individual and other non-corporate taxable stockholders as ordinary dividend income eligible for the reduced maximum rate applicable to qualified dividend income to the extent of our current and accumulated earnings and profits, provided certain holding period and other requirements are met. Subject to certain limitations under the Code, corporate distributions would be eligible for the dividends-received deduction. To qualify again to be taxed as a RIC in a subsequent year, we would be required to distribute to our shareholders our accumulated earnings and profits attributable to non-RIC years. In addition, if we failed to qualify as a RIC for a period greater than two taxable years, then, in order to qualify as a RIC in a subsequent year, we would be required to elect to recognize and pay tax on any net built-in gain (the excess of aggregate gain, including items of income, over aggregate loss that would have been realized if we had been liquidated) or, alternatively, be subject to taxation on such built-in gain recognized for a period of five years.
We follow ASC 740, Income Taxes (“ASC 740”). ASC 740 provides guidance for how uncertain tax positions should be recognized, measured, presented, and disclosed in the consolidated financial statements. ASC 740 requires the evaluation of tax positions taken or expected to be taken in the course of preparing our tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold are recorded as a tax benefit or expense in the current year. As of September 30, 2018 and for the three months then ended, we did not record any unrecognized tax benefits or liabilities. Management’s determinations regarding ASC 740 may be subject to review and adjustment at a later date based upon factors including, but not limited to, an on-going analysis of tax laws, regulations and interpretations thereof. Although we file both federal and state income tax returns, our major tax jurisdiction is federal. Our federal tax returns for the tax years ended August 31, 2015 and thereafter remain subject to examination by the Internal Revenue Service.

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Dividends and Distributions
Dividends and distributions to common stockholders are recorded on the ex-dividend date. The amount, if any, to be paid as a monthly dividend or distribution is approved by our Board of Directors quarterly and is generally based upon our management’s estimate of our future taxable earnings. Net realized capital gains, if any, are distributed at least annually.
Financing Costs
We record origination expenses related to our Revolving Credit Facility and the Unsecured Notes as deferred financing costs. These expenses are deferred and amortized as part of interest expense using the straight-line method over the stated life of the obligation for our Revolving Credit Facility. The same methodology is used to approximate the effective yield method for our Prospect Capital InterNotes®, our 2024 Notes Follow-on Program, and our 2028 Notes Follow-on Program. The effective interest method is used to amortize deferred financing costs for our remaining Unsecured Notes over the respective expected life or maturity. In the event that we modify or extinguish our debt before maturity, we follow the guidance in ASC 470-50, Modification and Extinguishments (“ASC 470-50”). For modifications to or exchanges of our Revolving Credit Facility, any unamortized deferred costs relating to lenders who are not part of the new lending group are expensed. For extinguishments of our Unsecured Notes, any unamortized deferred costs are deducted from the carrying amount of the debt in determining the gain or loss from the extinguishment.
Unamortized deferred financing costs are presented as a direct deduction to the respective Unsecured Notes (see Notes 5, 6, and 7 in the accompanying Consolidated Financial Statements for further discussion).
We may record registration expenses related to shelf filings as prepaid expenses. These expenses consist principally of SEC registration fees, legal fees and accounting fees incurred. These prepaid expenses are charged to capital upon the receipt of proceeds from an equity offering or charged to expense if no offering is completed. As of September 30, 2018 and June 30, 2018, there are no prepaid expenses related to registration expenses and all amounts incurred have been expensed.
Guarantees and Indemnification Agreements
We follow ASC 460, Guarantees (“ASC 460”). ASC 460 elaborates on the disclosure requirements of a guarantor in its interim and annual consolidated financial statements about its obligations under certain guarantees that it has issued. It also requires a guarantor to recognize, at the inception of a guarantee, for those guarantees that are covered by ASC 460, the fair value of the obligation undertaken in issuing certain guarantees.
Per Share Information
Net increase or decrease in net assets resulting from operations per share is calculated using the weighted average number of common shares outstanding for the period presented. In accordance with ASC 946, convertible securities are not considered in the calculation of net asset value per share.
Recent Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which amends the financial instruments impairment guidance so that an entity is required to measure expected credit losses for financial assets based on historical experience, current conditions and reasonable and supportable forecasts. As such, an entity will use forward-looking information to estimate credit losses. ASU 2016-13 also amends the guidance in FASB ASC Subtopic No. 325-40, Investments-Other, Beneficial Interests in Securitized Financial Assets, related to the subsequent measurement of accretable yield recognized as interest income over the life of a beneficial interest in securitized financial assets under the effective yield method. ASU 2016-13 is effective for financial statements issued for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted as of the fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. We are currently evaluating the impact, if any, of adopting this ASU on our consolidated financial statements.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts
and Cash Payments (“ASU 2016-15”), which addresses certain aspects of cash flow statement classification. One such amendment requires cash payments for debt prepayment or debt extinguishment costs to be classified as cash outflows for financing activities. ASU 2016-15 is effective for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that

138

interim period. An entity that elects early adoption must adopt all of the amendments in the same period. The adoption of the amended guidance in ASU 2016-15 did not have a significant effect on our consolidated financial statements and disclosures.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which amends accounting guidance for revenue recognition arising from contracts with customers. Under the new guidance, an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration the entity expects to be entitled to in exchange for those goods or services. In August 2015, the FASB also issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which deferred the effective date of the standard for one year. As a result, the guidance is effective for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted as of fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The application of this guidance did not have a material impact on our consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement. The standard will modify the disclosure requirements for fair value measurements by removing, modifying, or adding certain disclosures. ASU No. 2018-13 is effective for annual reporting periods beginning after December 15, 2019, including interim periods within that reporting period. Early adoption is permitted upon issuance of this ASU. We are currently evaluating the impact of adopting this ASU on our consolidated financial statements.

SEC Disclosure Update and Simplification
In August 2018, the SEC adopted the final rule under SEC Release No. 33-10532, Disclosure Update and Simplification, amending certain disclosure requirements that were redundant, duplicative, overlapping, outdated or superseded. The amendments are intended to facilitate the disclosure of information to investors and simplify compliance. As a result of the amendments, we are required to present a reconciliation of changes in stockholders’ equity in the notes or as a separate statement. This analysis should reconcile the beginning balance to the ending balance of each caption in stockholders’ equity for each period for which an income statement is required to be filed and comply with the remaining content requirements of Rule 3-04 of Regulation S-X. In October 2018, the SEC announced that this final rule will become effective on November 5, 2018. In light of the timing of effectiveness of the amendments and proximity of effectiveness to the filing date for most filers’ quarterly reports, the SEC Staff commented that it would not object if the first presentation of the changes in shareholders’ equity is included in a filer’s Form 10-Q for the quarter that begins after the effective date of the amendments. Due to the timing of our filing of this Form 10-Q, our first presentation of the changes in stockholders’ equity will be for our second quarter ended December 31, 2018. 
Tax Cuts and Jobs Act

On December 22, 2017, the President signed into law the Tax Cuts and Jobs Act (The “Tax Act”), which significantly changed the Code, including, a reduction in the corporate income tax rate, a new limitation on the deductibility of interest expense, and significant changes to the taxation of income earned from foreign sources and foreign subsidiaries. The Tax Act also authorizes the IRS to issue regulations with respect to the new provisions. We cannot predict how the changes in the Tax and Jobs Act, or regulations or other guidance issued under it, might affect us, our business or the business of our portfolio companies. However, our portfolio companies may or may not make certain elections under the Tax Act that could materially increase their taxable earnings and profits. Any such increase in the earnings and profits of a portfolio company may result in the characterization of certain distributions sourced from sale proceeds as dividend income, which may increase our distributable taxable income. During the three months ended September 30, 2018, we received $11,000 of such dividends from NPRC related to the gain on the sale of NPRC’s St. Marin, Central Park, and Matthews Reserve properties.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
We are subject to financial market risks, including changes in interest rates and equity price risk. Interest rate sensitivity refers to the change in our earnings that may result from changes in the level of interest rates impacting some of the loans in our portfolio which have floating interest rates. Additionally, because we fund a portion of our investments with borrowings, our net investment income is affected by the difference between the rate at which we invest and the rate at which we borrow. As a result, there can be no assurance that a significant change in market interest rates will not have a material adverse effect on our net investment income. See “Risk Factors - Risks Relating to Our Business - Changes in interest rates may affect our cost of capital and net investment income”.
Our debt investments may be based on floating rates or fixed rates. For our floating rate loans the rates are determined from the LIBOR, EURO Interbank Offer Rate, the Federal Funds Rate or the Prime Rate. The floating interest rate loans may be subject to a LIBOR floor. Our loans typically have durations of one to three months after which they reset to current market interest rates. As of September 30, 2018, 87.82% of the interest earning investments in our portfolio, at fair value, bore interest at floating rates.

139

We also have a revolving credit facility and certain Prospect Capital InterNotes® issuances that are based on floating LIBOR rates. Interest on borrowings under the revolving credit facility is one-month LIBOR plus 220 basis points with no minimum LIBOR floor and an outstanding balance of $404,000 as of September 30, 2018. Interest on five Prospect Capital InterNotes® is three-month LIBOR plus a range of 300 to 350 basis points with no minimum LIBOR floor. The Convertible Notes, Public Notes and remaining Prospect Capital InterNotes® bear interest at fixed rates.
The following table shows the approximate annual impact on net investment income of base rate changes in interest rates (considering interest rate flows for floating rate instruments, excluding our investments in CLO residual interests) to our loan portfolio and outstanding debt as of September 30, 2018, assuming no changes in our investment and borrowing structure:
(in thousands)
Basis Point Change
 
Interest Income
 
Interest Expense
 
Net Investment Income
 
Net Investment Income (1)
Up 300 basis points
 
$
96,983

 
$
55

 
$
96,928

 
$
77,542

Up 200 basis points
 
64,162

 
37

 
64,125

 
51,300

Up 100 basis points
 
31,340

 
18

 
31,322

 
25,058

Down 100 basis points
 
(34,859
)
 
(43
)
 
(34,816
)
 
(27,853
)
(1)
Includes the impact of income incentive fees. See Note 13 in the accompanying Consolidated Financial Statements for more information on income incentive fees.

As of September 30, 2018, one, two, three, and six month LIBOR were 2.26%, 2.31%, 2.40%, and 2.60% respectively.

We may hedge against interest rate fluctuations by using standard hedging instruments such as futures, options and forward contracts subject to the requirements of the 1940 Act. While hedging activities may insulate us against adverse changes in interest rates, they may also limit our ability to participate in the benefits of higher interest rates with respect to our portfolio of investments. During the year ended September 30, 2018, we did not engage in hedging activities.

140

Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As of September 30, 2018, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the 1934 Act). Based on that evaluation, our management, including the Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures were effective and provided reasonable assurance that information required to be disclosed in our periodic SEC filings is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. However, in evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of such possible controls and procedures.

Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting during the quarter ended September 30, 2018, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II
Item 1. Legal Proceedings
From time to time, we may become involved in various investigations, claims and legal proceedings that arise in the ordinary course of our business. These matters may relate to intellectual property, employment, tax, regulation, contract or other matters. The resolution of such matters as may arise will be subject to various uncertainties and, even if such claims are without merit, could result in the expenditure of significant financial and managerial resources. We are not aware of any material legal proceedings as of September 30, 2018.
Item 1A. Risk Factors
In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year ended June 30, 2018, which could materially affect our business, financial condition or future results. The risks described in this report and in our Annual Report on Form 10-K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or future results.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits
The following exhibits are filed as part of this report or hereby incorporated by reference to exhibits previously filed with the SEC (according to the number assigned to them in Item 601 of Regulation S-K):
Exhibit No.
3.1
3.2
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9

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Exhibit No.
4.10
4.11
4.12
4.13
4.14
4.15
4.16
4.17
4.18
4.19
4.20
4.21
4.22
4.23
4.24
4.25
4.26
4.27
4.28
4.29
4.30
4.31
4.32
4.33
4.34
4.35

143

Exhibit No.
4.36
4.37
10.1
10.2
10.3
10.4
10.5
10.6
11
Computation of Per Share Earnings (included in the notes to the financial statements contained in this report)
12
Computation of Ratios (included in the notes to the financial statements contained in this report)
31.1
31.2
32.1
32.2
________________________
*
Filed herewith.
(1)
Incorporated by reference to Exhibit 3.1 of the Registrant’s form 8-K, filed on May 9, 2014.
(2)
Incorporated by reference to Exhibit 3.1 of the Registrant’s Form 8-K, filed on December 11, 2015.
(3)
Incorporated by reference from the Registrant's Post-Effective Amendment No. 84 to the Registration Statement on Form N-2, filed on July 2, 2018.
(4)
Incorporated by reference from the Registrant's Post-Effective Amendment No. 85 to the Registration Statement on Form N-2, filed on July 6, 2018.
(5)
Incorporated by reference from the Registrant's Post-Effective Amendment No. 86 to the Registration Statement on Form N-2, filed on July 12, 2018.
(6)
Incorporated by reference from the Registrant's Post-Effective Amendment No. 87 to the Registration Statement on Form N-2, filed on July 19, 2018.
(7)
Incorporated by reference from the Registrant's Post-Effective Amendment No. 88 to the Registration Statement on Form N-2, filed on July 26, 2018.
(8)
Incorporated by reference from the Registrant's Post-Effective Amendment No. 89 to the Registration Statement on Form N-2, filed on August 2, 2018.
(9)
Incorporated by reference to Exhibit 10.1 of the Registrant's Form 8-K, filed on August 6, 2018.
(10)
Incorporated by reference from the Registrant's Post-Effective Amendment No. 90 to the Registration Statement on Form N-2, filed on August 9, 2018.
(11)
Incorporated by reference from the Registrant's Post-Effective Amendment No. 91 to the Registration Statement on Form N-2, filed on August 16, 2018.
(12)
Incorporated by reference from the Registrant's Post-Effective Amendment No. 92 to the Registration Statement on Form N-2, filed on August 23, 2018.
(13)
Incorporated by reference from the Registrant's Post-Effective Amendment No. 93 to the Registration Statement on Form N-2, filed on August 30, 2018.
(14)
Incorporated by reference from the Registrant's Post-Effective Amendment No. 94 to the Registration Statement on Form N-2, filed on August 31, 2018.
(15)
Incorporated by reference from the Registrant's Post-Effective Amendment No. 95 to the Registration Statement on Form N-2, filed on September 13, 2018.
(16)
Incorporated by reference from the Registrant's Post-Effective Amendment No. 96 to the Registration Statement on Form N-2, filed on September 20, 2018.
(17)
Incorporated by reference from the Registrant's Post-Effective Amendment No. 97 to the Registration Statement on Form N-2, filed on September 27, 2018.

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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on November 6, 2018.
PROSPECT CAPITAL CORPORATION
 
By:
/s/ JOHN F. BARRY III
 
John F. Barry III
 
Chairman of the Board and Chief Executive Officer
 
 
By:
/s/ KRISTIN L. VAN DASK
 
Kristin L. Van Dask
 
Chief Financial Officer






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