DEF: Prospect Capital Seeks Stockholder Approval to Sell Shares Below NAV

Prospect Capital Corporation is asking stockholders to approve the renewal of its authorization to sell shares of common stock below the company's net asset value (NAV) per share, subject to certain limitations.

Summary

• Prospect Capital Corporation is seeking stockholder approval to renew its authorization to sell shares of its common stock below the then-current net asset value (NAV) per share for the next 12 months.
• A special meeting of stockholders will be held virtually on June 9, 2025, to vote on this proposal.
• The company is seeking this authorization to maintain financial flexibility and capitalize on potential investment opportunities during volatile market conditions.
• The maximum number of shares that can be sold below NAV on any given date is limited to 25% of the company's outstanding common stock.
• The company has engaged EQ Fund Solutions, LLC to assist in the solicitation of proxies for the Special Meeting for a fee of approximately $1,302,805 plus out-of-pocket expenses.
• As of March 11, 2025, Prospect Capital had 445,761,031 shares of common stock outstanding and various series of preferred stock outstanding.

Sentiment

Score: 6

Explanation: The document is neutral in tone, presenting both the potential benefits and risks of the proposal. While the company emphasizes the need for financial flexibility, it also acknowledges the dilutive effect on existing stockholders.

Positives

• The authorization provides Prospect Capital with flexibility to raise capital and take advantage of investment opportunities.
• Selling shares below NAV could increase the company's market capitalization and liquidity.
• The company may use a portion of the net proceeds from any such offering to repay outstanding borrowings.
• Stockholder approval of the Proposal will also enable us to continue to sell shares of our common stock at prices below our NAV per share in connection with the sale of our convertible preferred stock.

Negatives

• Selling shares below NAV would result in immediate dilution to existing common stockholders.
• Existing stockholders may experience a decrease in NAV per share and a disproportionate decrease in their interest in the company's earnings and assets.
• The market price of the company's common stock could decline as a result of selling shares below NAV.
• There is no maximum level of discount from NAV at which we may sell shares pursuant to this authority.

Risks

• Volatility in the capital markets could negatively impact the company's asset valuations, stockholders' equity, and asset coverage ratio.
• The company's ability to pay dividends, breach debt covenants, and qualify for tax treatment as a RIC could be negatively impacted if the asset coverage ratio falls below 150%.
• The company may not be able to access capital on favorable terms, or at all, in light of the inherent uncertainty and volatility of the financial markets.
• Stockholders should also consider that they will have no subscription, preferential or preemptive rights to additional shares of the common stock proposed to be authorized for issuance, and thus any future issuance of common stock will dilute such stockholders holdings of common stock as a percentage of shares outstanding to the extent stockholders do not purchase sufficient shares in the offering or otherwise to maintain their percentage interest.

Future Outlook

The company seeks to maintain consistent access to capital to capitalize on investment opportunities and manage its balance sheet effectively.

Management Comments

• John F. Barry III, Chief Executive Officer, urges stockholders to submit their proxies as soon as possible.
• The Board of Directors believes that having the flexibility to sell our common stock below NAV per share in certain instances is in the best interests of stockholders.

Industry Context

Many BDCs have sought and received authorization from their stockholders to sell shares of common stock at prices below NAV due to volatile market conditions and the need to access capital.

Comparison to Industry Standards

• Several BDCs have completed offerings of common stock at prices per share below their respective NAV.
• The document mentions that many BDCs have sought and received authorization from their stockholders to sell shares of common stock at prices below NAV for many of the same reasons discussed above.
• The document does not provide specific comparisons to other BDCs in terms of financial performance or specific projects.

Stakeholder Impact

• Existing stockholders may experience dilution if shares are sold below NAV.
• The company's investment advisor will benefit from additional investment management fees on the proceeds of such offerings.
• The company's ability to grow over time and continue to pay steady or increasing dividends to stockholders could be adversely affected if it is unable to access the capital markets.

Next Steps

• Stockholders are urged to vote on the proposal to authorize the sale of shares below NAV.
• The company will hold a special meeting of stockholders on June 9, 2025, to vote on the proposal.
• The Board of Directors will consider the potential dilutive effect of the issuance of shares at a price below the NAV per share when considering whether to authorize any such issuance.

Key Dates