PSEC 10-Q Q3 2015
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
ý
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2015
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 May 5, 2015
$0.001 par value
 
358,793,412




PROSPECT CAPITAL CORPORATION
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, 2014, and those described from time to time in our future reports filed with the Securities and Exchange Commission.

1


PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES
(in thousands, except share and per share data)
 
March 31, 2015
 
June 30, 2014
 
(Unaudited)
 
(Audited)
Assets
 

 
 

Investments at fair value:
 

 
 

Control investments (amortized cost of $1,792,504 and $1,719,242, respectively)
$
1,828,211

 
$
1,640,454

Affiliate investments (amortized cost of $45,370 and $31,829, respectively)
46,273

 
32,121

Non-control/non-affiliate investments (amortized cost of $4,752,152 and $4,620,451, respectively)
4,728,287

 
4,581,164

Total investments at fair value (amortized cost of $6,590,026 and $6,371,522, respectively)
6,602,771

 
6,253,739

Cash and cash equivalents
63,624

 
134,225

Receivables for:
 
 
 
Interest, net
24,369

 
21,997

Other
1,604

 
2,587

Prepaid expenses
1,860

 
2,828

Deferred financing costs
60,918

 
61,893

Total Assets 
6,755,146

 
6,477,269

 
 
 
 
Liabilities 
 

 
 

Revolving Credit Facility (Notes 4 and 8)
317,700

 
92,000

Convertible Notes (Notes 5 and 8)
1,239,500

 
1,247,500

Public Notes (Notes 6 and 8)
648,045

 
647,881

Prospect Capital InterNotes® (Notes 7 and 8)
778,718

 
785,670

Dividends payable
29,887

 
37,843

Due to Prospect Administration (Note 13)
2,544

 
2,208

Due to Prospect Capital Management (Note 13)
1,391

 
3

Accrued expenses
3,335

 
4,790

Interest payable
35,386

 
37,459

Other liabilities
4,052

 
3,733

Total Liabilities 
3,060,558

 
2,859,087

Net Assets 
$
3,694,588

 
$
3,618,182

 
 
 
 
Components of Net Assets 
 

 
 

Common stock, par value $0.001 per share (1,000,000,000 common shares authorized; 358,661,441 and 342,626,637 issued and outstanding, respectively) (Note 9)
$
359

 
$
343

Paid-in capital in excess of par (Note 9)
3,972,249

 
3,814,634

Accumulated (overdistributed) underdistributed net investment income
(20,864
)
 
42,086

Accumulated net realized loss on investments and extinguishment of debt
(269,901
)
 
(121,098
)
Net unrealized appreciation (depreciation) on investments
12,745

 
(117,783
)
Net Assets 
$
3,694,588

 
$
3,618,182

 
 
 
 
Net Asset Value Per Share (Note 16) 
$
10.30

 
$
10.56



See notes to consolidated financial statements.
2


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

 
Three Months Ended 
 March 31,
 
Nine Months Ended 
 March 31,
 
2015
 
2014
 
2015
 
2014
Investment Income
 

 
 

 
 
 
 
Interest income:
 

 
 

 
 
 
 
Control investments
$
50,418

 
$
38,129

 
$
146,230

 
$
107,848

Affiliate investments
973

 
727

 
2,814

 
3,622

Non-control/non-affiliate investments
94,556

 
85,811

 
290,665

 
243,343

CLO fund securities
39,046

 
31,709

 
118,238

 
87,087

Total interest income
184,993

 
156,376

 
557,947

 
441,900

Dividend income:
 
 
 
 
 
 
 
Control investments
1,346

 
7,575

 
4,756

 
23,527

Affiliate investments

 

 
778

 

Non-control/non-affiliate investments
24

 

 
46

 
12

Money market funds
1

 
15

 
27

 
32

Total dividend income
1,371

 
7,590

 
5,607

 
23,571

Other income:
 
 
 
 
 
 
 
Control investments
1,620

 
12,431

 
10,352

 
39,580

Affiliate investments

 
5

 
226

 
12

Non-control/non-affiliate investments
3,366

 
13,925

 
18,122

 
24,388

Total other income (Note 10)
4,986

 
26,361

 
28,700

 
63,980

Total Investment Income
191,350

 
190,327

 
592,254

 
529,451

Operating Expenses
 
 
 
 
 
 
 
Investment advisory fees:
 
 
 
 
 
 
 
Base management fee (Note 13)
33,679

 
28,709

 
100,878

 
76,829

Income incentive fee (Note 13)
21,860

 
24,631

 
68,307

 
68,269

Total investment advisory fees
55,539

 
53,340

 
169,185

 
145,098

Interest and credit facility expenses
42,213

 
31,747

 
127,371

 
88,410

Legal fees
(4
)
 
306

 
1,554

 
483

Valuation services
401

 
490

 
1,310

 
1,378

Audit, compliance and tax related fees
648

 
336

 
2,239

 
1,704

Allocation of overhead from Prospect Administration (Note 13)
2,984

 
3,986

 
8,414

 
11,958

Insurance expense
121

 
90

 
373

 
273

Directors’ fees
94

 
81

 
282

 
231

Excise tax
(793
)
 
1,000

 
982

 
3,000

Other general and administrative expenses
2,706

 
428

 
7,315

 
3,841

Total Operating Expenses
103,909

 
91,804

 
319,025

 
256,376

Net Investment Income
87,441

 
98,523

 
273,229

 
273,075

Net realized gains (losses) on investments
4,704

 
(1,600
)
 
(150,973
)
 
(3,482
)
Net change in unrealized (depreciation) appreciation on investments
(9,775
)
 
(14,822
)
 
130,528

 
(22,230
)
Net realized and unrealized losses on investments
(5,071
)
 
(16,422
)
 
(20,445
)
 
(25,712
)
Net realized losses on extinguishment of debt
(878
)
 

 
(1,214
)
 

Net Increase in Net Assets Resulting from Operations
$
81,492

 
$
82,101

 
$
251,570

 
$
247,363

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

 
$
0.26

 
$
0.71

 
$
0.86

Dividends declared per share
$
(0.28
)
 
$
(0.33
)
 
$
(0.94
)
 
$
(0.99
)

See notes to consolidated financial statements.
3


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

 
Nine Months Ended March 31,
 
2015
 
2014
Operations
 

 
 

Net investment income
$
273,229

 
$
273,075

Net realized losses on investments
(150,973
)
 
(3,482
)
Net change in unrealized appreciation (depreciation) on investments
130,528

 
(22,230
)
Net realized losses on extinguishment of debt
(1,214
)
 

Net Increase in Net Assets Resulting from Operations 
251,570

 
247,363

 
 
 
 
Distributions to Shareholders
 
 
 
Distribution from net investment income
(331,863
)
 
(289,875
)
Distribution of return of capital

 

Net Decrease in Net Assets Resulting from Distributions to Shareholders
(331,863
)
 
(289,875
)
 
 
 
 
Common Stock Transactions 
 
 
 
Issuance of common stock, net of underwriting costs
146,085

 
890,331

Less: Offering costs from issuance of common stock
(585
)
 
(1,187
)
Value of shares issued to acquire controlled investments

 
45,914

Value of shares issued through reinvestment of dividends
11,199

 
12,336

Net Increase in Net Assets Resulting from Common Stock Transactions 
156,699

 
947,394

 
 
 
 
Total Increase in Net Assets 
76,406

 
904,882

Net assets at beginning of period
3,618,182

 
2,656,494

Net Assets at End of Period
$
3,694,588

 
$
3,561,376

 
 
 
 
Common Stock Activity
 
 
 
Shares sold
14,845,556

 
80,343,264

Shares issued to acquire controlled investments

 
4,224,636

Shares issued through reinvestment of dividends
1,189,248

 
1,094,996

Total shares issued due to common stock activity
16,034,804

 
85,662,896

Shares issued and outstanding at beginning of period
342,626,637

 
247,836,965

Shares Issued and Outstanding at End of Period
358,661,441

 
333,499,861

 


See notes to consolidated financial statements.
4


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


 
Nine Months Ended March 31,
 
2015
 
2014
Operating Activities
 
 
 
Net increase in net assets resulting from operations
$
251,570

 
$
247,363

Net realized losses on extinguishment of debt
1,214

 

Net realized losses on investments
150,973

 
3,482

Net change in unrealized (appreciation) depreciation on investments
(130,528
)
 
22,230

Amortization of discounts and premiums, net
64,200

 
31,837

Accretion of discount on Public Notes (Note 6)
164

 
133

Amortization of deferred financing costs
9,601

 
7,810

Payment-in-kind interest
(16,485
)
 
(13,043
)
Structuring fees
(18,055
)
 
(40,064
)
Change in operating assets and liabilities:
 
 
 
Payments for purchases of investments
(1,594,481
)
 
(2,409,231
)
Proceeds from sale of investments and collection of investment principal
1,195,344

 
617,352

(Increase) decrease in interest receivable, net
(2,372
)
 
1,771

Decrease in other receivables
983

 
1,433

Decrease (increase) in prepaid expenses
968

 
(153
)
Decrease in due to broker

 
(43,588
)
Increase in due to Prospect Administration
336

 
509

Increase in due to Prospect Capital Management
1,388

 
21,412

(Decrease) increase in accrued expenses
(1,455
)
 
1,291

Decrease in interest payable
(2,073
)
 
(1,612
)
Increase in other liabilities
319

 
3,240

Net Cash Used in Operating Activities 
(88,389
)
 
(1,547,828
)
 
 
 
 
Financing Activities
 
 
 
Borrowings under Revolving Credit Facility (Note 4)
1,187,000

 
986,500

Principal payments under Revolving Credit Facility (Note 4)
(961,300
)
 
(381,500
)
Repurchase of Convertible Notes, net (Note 5)
(7,658
)
 

Issuance of Prospect Capital InterNotes® (Note 7)
74,967

 
407,208

Redemptions of Prospect Capital InterNotes®, net (Note 7)
(83,475
)
 
(3,341
)
Financing costs paid and deferred
(8,626
)
 
(10,423
)
Proceeds from issuance of common stock, net of underwriting costs
146,085

 
890,331

Offering costs from issuance of common stock
(585
)
 
(1,187
)
Dividends paid
(328,620
)
 
(268,028
)
Net Cash Provided by Financing Activities
17,788

 
1,619,560

 
 
 
 
Total (Decrease) Increase in Cash and Cash Equivalents
(70,601
)
 
71,732

Cash and cash equivalents at beginning of period
134,225

 
203,236

Cash and Cash Equivalents at End of Period
$
63,624

 
$
274,968

 
 
 
 
Supplemental Disclosures
 
 
 
Cash paid for interest
$
119,679

 
$
78,344

 
 
 
 
Non-Cash Financing Activities
 
 
 
Value of shares issued through reinvestment of dividends
$
11,199

 
$
12,336

Value of shares issued to acquire controlled investments
$

 
$
45,914

 

See notes to consolidated financial statements.
5


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


 
 
 
March 31, 2015 (Unaudited)
Portfolio Company
Locale / Industry
Investments(1)
Principal Value
Cost
Fair
Value(2)
% of Net Assets
 
 
 
 
 
 
 
LEVEL 3 PORTFOLIO INVESTMENTS
 
 
 
 
 
 
 
 
 
 
 
Control Investments (greater than 25.00% voting control)(47)
 
 
 
 
 
 
 
 
 
 
 
American Property REIT Corp.(32)
Various / Real Estate
Senior Secured Term Loan (6.00% (LIBOR + 4.00% with 2.00% LIBOR floor) plus 5.50% PIK, due 4/1/2019)(4)
$
106,686

$
106,686

$
106,686

2.9%
Common Stock (272,116 shares)
 
24,769

26,236

0.7%
Net Operating Income Interest (5% of Net Operating Income)
 

10,594

0.3%
 
 
 
 
131,455

143,516

3.9%
Arctic Energy Services, LLC(30)
Wyoming / Oil & Gas Production
Senior Secured Term Loan (12.00% (LIBOR + 9.00% with 3.00% LIBOR floor), due 5/5/2019)(3)(4)
31,640

31,640

31,640

0.9%
Senior Subordinated Term Loan (14.00% (LIBOR + 11.00% with 3.00% LIBOR floor), due 5/5/2019)(3)(4)
20,230

20,230

20,230

0.5%
Class A Units (700 units)
 
9,006

10,046

0.3%
 
 
 
 
60,876

61,916

1.7%
CCPI Inc.(33)
Ohio / Manufacturing
Senior Secured Term Loan A (10.00%, due 12/31/2017)(3)
16,875

16,875

16,875

0.5%
Senior Secured Term Loan B (12.00% plus 7.00% PIK, due 12/31/2017)
8,691

8,691

8,691

0.2%
Common Stock (14,857 shares)
 
8,553

11,308

0.3%
 
 
 
 
34,119

36,874

1.0%
CP Energy Services Inc.(38)
Oklahoma / Oil & Gas Production
Senior Secured Term Loan A to CP Well Testing, LLC (7.00% (LIBOR + 5.00% with 2.00% LIBOR floor), due 4/1/2019)(4)
11,035

11,035

11,035

0.3%
Senior Secured Term Loan B to CP Well Testing, LLC (10.00% (LIBOR + 8.00% with 2.00% LIBOR floor) plus 7.50% PIK, due 4/1/2019)(3)(4)
73,099

73,099

73,099

2.0%
Second Lien Term Loan to CP Well Testing, LLC (9.00% (LIBOR + 7.00% with 2.00% LIBOR floor) plus 9.00% PIK, due 4/1/2019)(4)
15,214

15,214

15,214

0.4%
Common Stock (2,924 shares)
 
15,227

2,290

0.1%
 
 
 
 
114,575

101,638

2.8%
Credit Central Loan Company, LLC(34)
Ohio / Consumer Finance
Subordinated Term Loan (10.00% plus 10.00% PIK, due 6/26/2019)(22)
36,333

36,333

36,333

1.0%
Class A Shares (7,500,000 shares)(22)
 
11,633

10,766

0.3%
Net Revenues Interest (25% of Net Revenues)(22)
 

4,443

0.1%
 
 
 
 
47,966

51,542

1.4%
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)(4)
40,808

40,808

40,808

1.1%
Class A Shares (11,335,318 shares)
 
19,907

28,133

0.8%
 
 
 
 
60,715

68,941

1.9%
First Tower Finance Company LLC(29)
Mississippi / Consumer Finance
Subordinated Term Loan to First Tower, LLC (10.00% plus 12.00% PIK, due 6/24/2019)(22)
251,246

251,246

251,246

6.8%
Class A Shares (83,729,323 shares)(22)
 
66,473

103,884

2.8%
 
 
 
 
317,719

355,130

9.6%
Freedom Marine Solutions, LLC(8)
Louisiana / Energy
Senior Secured Note to Vessel Company, LLC (18.00%, due 12/12/2016)
3,500

3,500

3,500

0.1%
Senior Secured Note to Vessel Company II, LLC (13.00%, due 11/25/2018)
13,000

12,504

9,499

0.3%
Senior Secured Note to Vessel Company III, LLC (13.00%, due 12/3/2018)
16,000

16,000

14,342

0.4%
Membership Interest (100%)
 
7,807

1,260

—%
 
 
 
 
39,811

28,601

0.8%

See notes to consolidated financial statements.
6


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

 
 
 
March 31, 2015 (Unaudited)
Portfolio Company
Locale / Industry
Investments(1)
Principal Value
Cost
Fair
Value(2)
% of Net Assets
 
 
 
 
 
 
 
LEVEL 3 PORTFOLIO INVESTMENTS
 
 
 
 
 
 
 
 
 
 
 
Control Investments (greater than 25.00% voting control)(47)
 
 
 
 
 
 
 
 
 
 
 
Gulf Coast Machine & Supply Company
Texas / Manufacturing
Senior Secured Term Loan (10.50% (LIBOR + 8.50% with 2.00% LIBOR floor), in non-accrual status effective 1/1/2015, due 10/12/2017)(4)
$
23,196

$
23,000

$
8,199

0.2%
Series A Convertible Preferred Stock (99,900 shares)
 
25,950


—%
 
 
 
 
48,950

8,199

0.2%
Harbortouch Payments, LLC(43)
Pennsylvania / Business Services
Senior Secured Term Loan A (9.00% (LIBOR + 7.00% with 2.00% LIBOR floor), due 9/30/2017)(3)(4)
129,663

129,663

129,663

3.5%
Senior Secured Term Loan B (5.50% (LIBOR + 4.00% with 1.50% LIBOR floor) plus 5.50% PIK, due 3/31/2018)(4)
137,226

137,226

137,226

3.7%
Senior Secured Term Loan C (13.00% (LIBOR + 9.00% with 4.00% LIBOR floor), due 9/29/2018)(4)
24,011

24,011

24,011

0.6%
Class C Shares (535 shares)
 
8,739

39,372

1.1%
 
 
 
 
299,639

330,272

8.9%
MITY, Inc.(17)
Utah / Durable Consumer Products
Senior Secured Note A (10.00% (LIBOR + 7.00% with 3.00% LIBOR floor), due 3/19/2019)(3)(4)
18,250

18,250

18,250

0.5%
Senior Secured Note B (10.00% (LIBOR + 7.00% with 3.00% LIBOR floor) plus 10.00% PIK, due 3/19/2019)(4)
15,896

15,896

15,896

0.4%
Subordinated Unsecured Note to Broda Enterprises ULC (10.00%, due on demand)(22)
7,200

7,200

7,200

0.2%
Common Stock (42,053 shares)
 
6,849

13,685

0.4%
 
 
 
 
48,195

55,031

1.5%
National Property REIT Corp.(40)
Various / Real Estate
Senior Secured Term Loan A (6.00% (LIBOR + 4.00% with 2.00% LIBOR floor) plus 5.50% PIK, due 4/1/2019)(4)
172,403

172,403

172,403

4.7%
Senior Secured Term Loan A to ACL Loan Holdings, Inc. (6.00% (LIBOR + 4.00% with 2.00% LIBOR floor) plus 5.50% PIK, due 4/1/2019)(4)
79,462

79,462

79,462

2.1%
Senior Secured Term Loan B to ACL Loan Holdings, Inc. (14.00% (LIBOR + 12.00% with 2.00% LIBOR floor) plus 3.00% PIK, due 4/1/2019)(4)
47,050

47,050

47,050

1.3%
Common Stock (84,567 shares)
 
68,757

70,665

1.9%
Net Operating Income Interest (5% of Net Operating Income)
 

20,221

0.5%
 
 
 
 
367,672

389,801

10.5%
Nationwide Acceptance LLC(36)
Illinois / Consumer Finance
Subordinated Term Loan (10.00% plus 10.00% PIK, due 6/18/2019)(22)
14,820

14,820

14,820

0.4%
Class A Shares (24,029,326 shares)(22)
 
12,919

15,304

0.4%
 
 
 
 
27,739

30,124

0.8%
NMMB, Inc.(24)
New York / Media
Senior Secured Note (14.00%, due 5/6/2016)
3,714

3,714

3,147

0.1%
Senior Secured Note to Armed Forces Communications, Inc. (14.00%, due 5/6/2016)
7,000

7,000

5,931

0.2%
Series A Preferred Stock (7,200 shares)
 
7,200


—%
Series B Preferred Stock (5,669 shares)
 
5,669


—%
 
 
 
 
23,583

9,078

0.3%
R-V Industries, Inc.
Pennsylvania / Manufacturing
Senior Subordinated Note (10.00% (LIBOR + 9.00% with 1.00% LIBOR floor), due 6/12/2018)(3)(4)
30,411

30,411

30,411

0.8%
Common Stock (545,107 shares)
 
5,087

8,287

0.2%
Warrant (to purchase 200,000 shares of Common Stock, expires 6/30/2017)
 
1,682

3,041

0.1%
 
 
 
 
37,180

41,739

1.1%

See notes to consolidated financial statements.
7


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

 
 
 
March 31, 2015 (Unaudited)
Portfolio Company
Locale / Industry
Investments(1)
Principal Value
Cost
Fair
Value(2)
% of Net Assets
 
 
 
 
 
 
 
LEVEL 3 PORTFOLIO INVESTMENTS
 
 
 
 
 
 
 
 
 
 
 
Control Investments (greater than 25.00% voting control)(47)
 
 
 
 
 
 
 
 
 
 
 
United Property REIT Corp.(41)
Various / Real Estate
Senior Term Loan (6.00% (LIBOR + 4.00% with 2.00% LIBOR floor) plus 5.50% PIK, due 4/1/2019)(4)
$
58,219

$
58,219

$
58,219

1.6%
Common Stock (70,689 shares)
 
11,946

12,783

0.3%
Net Operating Income Interest (5% of Net Operating Income)
 

10,916

0.3%
 
 
 
 
70,165

81,918

2.2%
Valley Electric Company, Inc.(35)
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 12/31/2017)(3)(4)
10,275

10,275

10,275

0.3%
Senior Secured Note (10.00% plus 8.50% PIK, due 12/31/2018)
21,835

21,835

21,835

0.6%
Common Stock (50,000 shares)
 
26,204


—%
 
 
 
 
58,314

32,110

0.9%
Vets Securing America, Inc.(9)
North Carolina / Contracting
Secured Promissory Notes to The Healing Staff, Inc. and Vets Securing America, Inc. (15.00%, in non-accrual status effective 12/22/2010, past due)
1,688

1,686


—%
Senior Demand Note to The Healing Staff, Inc. (15.00%, in non-accrual status effective 11/1/2010, past due)
1,170

1,170


—%
Common Stock of The Healing Staff, Inc. (1,000 shares)
 


—%
Common Stock of Vets Securing America, Inc. (1 share)
 
975


—%
 
 
 
 
3,831


—%
Wolf Energy, LLC(12)
Kansas / Oil & Gas Production
Senior Secured Promissory Note secured by assets formerly owned by H&M (18.00%, in non-accrual status effective 4/15/2013, due 4/15/2018)(37)
29,434


1,759

—%
Membership Interest (100%)
 


—%
Net Profits Interest (8% of Equity Distributions)(7)
 

22

—%
 
 
 
 

1,781

—%
Total Control Investments
 
$
1,792,504

$
1,828,211

49.5%
Affiliate Investments (5.00% to 24.99% voting control)(48)
 
 
 
 
 
 
 
 
 
 
 
BNN Holdings Corp.
Michigan / Healthcare
Senior Term Loan A (6.50% (LIBOR + 5.50% with 1.00% LIBOR floor), due 8/29/2019)(3)(4)
$
21,348

$
21,348

$
21,348

0.6%
Senior Term Loan B (11.50% (LIBOR + 10.50% with 1.00% LIBOR floor), due 8/29/2019)(3)(4)
21,795

21,795

21,795

0.6%
Series A Preferred Stock (9,925.455 shares)(13)
 
1,779

2,582

—%
Series B Preferred Stock (1,753.636 shares)(13)
 
448

548

—%
 
 
 
 
45,370

46,273

1.2%
Total Affiliate Investments
 
$
45,370

$
46,273

1.2%

See notes to consolidated financial statements.
8


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

 
 
 
March 31, 2015 (Unaudited)
Portfolio Company
Locale / Industry
Investments(1)
Principal Value
Cost
Fair
Value(2)
% of Net Assets
 
 
 
 
 
 
 
LEVEL 3 PORTFOLIO INVESTMENTS
 
 
 
 
 
 
 
 
 
 
 
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
 
 
 
 
 
 
 
 
 
 
 
Aderant North America, Inc.
Georgia / Software & Computer Services
Second Lien Term Loan (10.00% (LIBOR + 8.75% with 1.25% LIBOR floor), due 6/20/2019)(4)(16)
$
7,000

$
6,924

$
7,000

0.2%
 
 
 
 
6,924

7,000

0.2%
AFI Shareholder, LLC
(f/k/a Aircraft Fasteners International, LLC)
California / Machinery
Class A Units (32,500 units)
 
396

498

—%
 
 
 
 
396

498

—%
Airmall Inc.(27)
Pennsylvania / Property Management
Escrow Receivable
 
5,880

3,752

0.1%
 
 
 
 
5,880

3,752

0.1%
Ajax Rolled Ring & Machine, LLC(42)
South Carolina / Manufacturing
Escrow Receivable
 

1,731

—%
 
 
 
 

1,731

—%
ALG USA Holdings, LLC
Pennsylvania / Hotels, Restaurants & Leisure
Second Lien Term Loan (10.25% (LIBOR + 9.00% with 1.25% LIBOR floor), due 2/28/2020)(4)(16)
12,000

11,814

12,000

0.3%
 
 
 
 
11,814

12,000

0.3%
American Broadband Holding Company and Cameron Holdings of NC, Inc.
North Carolina / Telecommunication Services
Senior Secured Term Loan B (11.00% (LIBOR + 9.75% with 1.25% LIBOR floor), due 9/30/2018)(3)(4)
74,654

74,654

74,654

2.0%
 
 
 
 
74,654

74,654

2.0%
American Gilsonite Company
Utah / Metal Services & Minerals
Second Lien Term Loan (11.50%, due 9/1/2017)(16)
38,500

38,500

34,133

0.9%
Membership Interest (99.9999%)(15)
 

3,976

0.1%
 
 
 
 
38,500

38,109

1.0%
Apidos CLO IX
Cayman Islands / Diversified Financial Services
Subordinated Notes (Residual Interest, current yield 21.95%)(11)(22)
23,525

20,540

22,521

0.6%
 
 
 
 
20,540

22,521

0.6%
Apidos CLO XI
Cayman Islands / Diversified Financial Services
Subordinated Notes (Residual Interest, current yield 15.67%)(11)(22)
38,340

32,222

33,143

0.9%
 
 
 
 
32,222

33,143

0.9%
Apidos CLO XII
Cayman Islands / Diversified Financial Services
Subordinated Notes (Residual Interest, current yield 17.54%)(11)(22)
44,063

38,864

40,105

1.1%
 
 
 
 
38,864

40,105

1.1%
Apidos CLO XV
Cayman Islands / Diversified Financial Services
Subordinated Notes (Residual Interest, current yield 14.97%)(11)(22)
36,515

34,883

31,891

0.9%
 
 
 
 
34,883

31,891

0.9%
Arctic Glacier U.S.A., Inc.
Minnesota / Food Products
Second Lien Term Loan (10.50% (LIBOR + 9.25% with 1.25% LIBOR floor), due 11/10/2019)(3)(4)
150,000

150,000

148,436

4.0%
 
 
 
 
150,000

148,436

4.0%
Ark-La-Tex Wireline Services, LLC
Louisiana / Oil and Gas Production
Senior Secured Term Loan A (6.50% (LIBOR + 5.50% with 1.00% LIBOR floor), due 4/8/2019)(4)
26,325

26,325

24,497

0.7%
Senior Secured Term Loan B (10.50% (LIBOR + 9.50% with 1.00% LIBOR floor), due 4/8/2019)(4)
26,325

26,325

23,762

0.6%
 
 
 
 
52,650

48,259

1.3%
Armor Holding II LLC
New York / Diversified Financial Services
Second Lien Term Loan (10.25% (LIBOR + 9.00% with 1.25% LIBOR floor), due 12/26/2020)(3)(4)(16)
7,000

6,884

6,538

0.2%
 
 
 
 
6,884

6,538

0.2%

See notes to consolidated financial statements.
9


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

 
 
 
March 31, 2015 (Unaudited)
Portfolio Company
Locale / Industry
Investments(1)
Principal Value
Cost
Fair
Value(2)
% of Net Assets
 
 
 
 
 
 
 
LEVEL 3 PORTFOLIO INVESTMENTS
 
 
 
 
 
 
 
 
 
 
 
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
 
 
 
 
 
 
 
 
 
 
 
Atlantis Health Care Group (Puerto Rico), Inc.
Puerto Rico / Healthcare
Revolving Line of Credit – $4,000 Commitment (13.00% (LIBOR + 11.00% with 2.00% LIBOR floor), due 8/21/2016)(4)(25)(26)
$
2,350

$
2,350

$
2,350

0.1%
Senior Term Loan (10.00% (LIBOR + 8.00% with 2.00% LIBOR floor), due 2/21/2018)(3)(4)
38,660

38,660

35,340

0.9%
 
 
 
 
41,010

37,690

1.0%
Babson CLO Ltd. 2014-III
Cayman Islands / Diversified Financial Services
Subordinated Notes (Residual Interest, current yield 13.47%)(11)(22)
52,250

51,465

49,927

1.3%
 
 
 
 
51,465

49,927

1.3%
Blue Coat Systems, Inc.
Massachusetts / Software & Computer Services
Second Lien Term Loan (9.50% (LIBOR + 8.50% with 1.00% LIBOR floor), due 6/28/2020)(3)(4)(16)
11,000

10,911

11,000

0.3%
 
 
 
 
10,911

11,000

0.3%
Broder Bros., Co.
Pennsylvania / Textiles, Apparel & Luxury Goods
Senior Secured Notes (10.25% (LIBOR + 9.00% with 1.25% LIBOR floor), due 4/8/2019)(3)(4)(46)
253,675

253,675

253,675

6.9%
 
 
 
 
253,675

253,675

6.9%
Brookside Mill CLO Ltd.
Cayman Islands / Diversified Financial Services
Subordinated Notes (Residual Interest, current yield 19.42%)(11)(22)
26,000

21,956

24,131

0.7%
 
 
 
 
21,956

24,131

0.7%
Caleel + Hayden, LLC
Colorado / Personal & Nondurable Consumer Products
Membership Interest(31)
 

237

—%
 
 
 
 

237

—%
Capstone Logistics Acquisition, Inc.
Georgia / Business Services
Second Lien Term Loan (8.75% (LIBOR + 7.75% with 1.00% LIBOR floor), due 10/7/2022)(3)(4)
65,000

64,377

64,377

1.7%
 
 
 
 
64,377

64,377

1.7%
Cent CLO 17 Limited
Cayman Islands / Diversified Financial Services
Subordinated Notes (Residual Interest, current yield 13.90%)(11)(22)
24,870

20,642

21,432

0.6%
 
 
 
 
20,642

21,432

0.6%
Cent CLO 20 Limited
Cayman Islands / Diversified Financial Services
Subordinated Notes (Residual Interest, current yield 11.98%)(11)(22)
40,275

36,541

36,505

1.0%
 
 
 
 
36,541

36,505

1.0%
Cent CLO 21 Limited
Cayman Islands / Diversified Financial Services
Subordinated Notes (Residual Interest, current yield 12.80%)(11)(22)
48,528

44,488

42,781

1.2%
 
 
 
 
44,488

42,781

1.2%
CIFC Funding 2011-I, Ltd.
Cayman Islands / Diversified Financial Services
Class D Senior Secured Notes (5.25% (LIBOR + 5.00%, due 1/19/2023)(4)(22)
19,000

15,526

18,538

0.5%
Class E Subordinated Notes (7.25% (LIBOR + 7.00%, due 1/19/2023)(4)(22)
15,400

12,959

14,420

0.4%
 
 
 
 
28,485

32,958

0.9%
CIFC Funding 2013-III, Ltd.
Cayman Islands / Diversified Financial Services
Subordinated Notes (Residual Interest, current yield 15.47%)(11)(22)
44,100

36,654

39,473

1.1%
 
 
 
 
36,654

39,473

1.1%
CIFC Funding 2013-IV, Ltd.
Cayman Islands / Diversified Financial Services
Subordinated Notes (Residual Interest, current yield 14.38%)(11)(22)
45,500

37,174

39,114

1.1%
 
 
 
 
37,174

39,114

1.1%

See notes to consolidated financial statements.
10


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

 
 
 
March 31, 2015 (Unaudited)
Portfolio Company
Locale / Industry
Investments(1)
Principal Value
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.
Cayman Islands / Diversified Financial Services
Income Notes (Residual Interest, current yield 13.30%)(11)(22)
$
41,500

$
36,256

$
37,237

1.0%
 
 
 
 
36,256

37,237

1.0%
Cinedigm DC Holdings, LLC
New York / Software & Computer Services
Senior Secured Term Loan (11.00% (LIBOR + 9.00% with 2.00% LIBOR floor) plus 2.50% PIK, due 3/31/2021)(4)
67,967

67,917

67,967

1.8%
 
 
 
 
67,917

67,967

1.8%
The Copernicus Group, Inc.
North Carolina / Healthcare
Escrow Receivable
 

121

—%
 
 
 
 

121

—%
Coverall North America, Inc.
Florida / Commercial Services
Senior Secured Term Loan (11.50% (LIBOR + 8.50% with 3.00% LIBOR floor), due 12/17/2017)(3)(4)
50,244

50,244

50,244

1.4%
 
 
 
 
50,244

50,244

1.4%
Crosman Corporation
New York / Manufacturing
Second Lien Term Loan (12.00% (LIBOR + 10.50% with 1.50% LIBOR floor), due 12/30/2019)(3)(4)
40,000

40,000

38,166

1.0%
 
 
 
 
40,000

38,166

1.0%
Deltek, Inc.
Virginia / Software & Computer Services
Second Lien Term Loan (10.00% (LIBOR + 8.75% with 1.25% LIBOR floor), due 10/10/2019)(3)(4)(16)
12,000

11,868

11,868

0.3%
 
 
 
 
11,868

11,868

0.3%
Diamondback Operating, LP
Oklahoma / Oil & Gas Production
Net Profits Interest (15% of Equity Distributions)(7)
 


—%
 
 
 
 


—%
Edmentum, Inc.
Minnesota / Consumer Services
Second Lien Term Loan (12.00% (PRIME + 8.75%), in non-accrual status effective 1/1/2015, due 5/17/2019)(3)(4)(16)
50,000

48,623

25,329

0.7%
 
 
 
 
48,623

25,329

0.7%
Empire Today, LLC
Illinois / Durable Consumer Products
Senior Secured Note (11.375%, due 2/1/2017)(16)
15,700

15,492

13,491

0.4%
 
 
 
 
15,492

13,491

0.4%
Fischbein, LLC
North Carolina / Machinery
Escrow Receivable
 

123

—%
 
 
 
 

123

—%
Fleetwash, Inc.
New Jersey / Business Services
Senior Secured Term Loan A (6.50% (LIBOR + 5.50% with 1.00% LIBOR floor), due 4/30/2019)(4)
24,625

24,625

24,625

0.6%
Senior Secured Term Loan B (10.50% (LIBOR + 9.50% with 1.00% LIBOR floor), due 4/30/2019)(3)(4)
25,000

25,000

25,000

0.7%
Delayed Draw Term Loan – $15,000 Commitment (expires 4/30/2019)(25)



—%
 
 
 
 
49,625

49,625

1.3%
Focus Brands, Inc.
Georgia / Consumer Services
Second Lien Term Loan (10.25% (LIBOR + 9.00% with 1.25% LIBOR floor), due 8/21/2018)(4)(16)
18,000

17,810

18,000

0.5%
 
 
 
 
17,810

18,000

0.5%
Galaxy XV CLO, Ltd.
Cayman Islands / Diversified Financial Services
Subordinated Notes (Residual Interest, current yield 15.33%)(11)(22)
35,025

28,142

30,191

0.8%
 
 
 
 
28,142

30,191

0.8%
Galaxy XVI CLO, Ltd.
Cayman Islands / Diversified Financial Services
Subordinated Notes (Residual Interest, current yield 13.35%)(11)(22)
22,575

19,360

19,523

0.5%
 
 
 
 
19,360

19,523

0.5%

See notes to consolidated financial statements.
11


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

 
 
 
March 31, 2015 (Unaudited)
Portfolio Company
Locale / Industry
Investments(1)
Principal Value
Cost
Fair
Value(2)
% of Net Assets
 
 
 
 
 
 
 
LEVEL 3 PORTFOLIO INVESTMENTS
 
 
 
 
 
 
 
 
 
 
 
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
 
 
 
 
 
 
 
 
 
 
 
Galaxy XVII CLO, Ltd.
Cayman Islands / Diversified Financial Services
Subordinated Notes (Residual Interest, current yield 12.87%)(11)(22)
$
39,905

$
34,322

$
34,222

0.9%
 
 
 
 
34,322

34,222

0.9%
Global Employment Solutions, Inc.
Colorado / Business Services
Senior Secured Term Loan (10.00% (LIBOR + 9.00% with 1.00% LIBOR floor), due 3/25/2019)(3)(4)
28,393

28,393

28,393

0.8%
 
 
 
 
28,393

28,393

0.8%
GTP Operations, LLC(10)
Texas / Software & Computer Services
Senior Secured Term Loan (10.00% (LIBOR + 5.00% with 5.00% LIBOR floor), due 12/11/2018)(3)(4)
119,683

119,683

119,683

3.2%
 
 
 
 
119,683

119,683

3.2%
Halcyon Loan Advisors Funding 2012-1 Ltd.
Cayman Islands / Diversified Financial Services
Subordinated Notes (Residual Interest, current yield 28.96%)(11)(22)
23,188

20,086

22,303

0.6%
 
 
 
 
20,086

22,303

0.6%
Halcyon Loan Advisors Funding 2013-1 Ltd.
Cayman Islands / Diversified Financial Services
Subordinated Notes (Residual Interest, current yield 20.69%)(11)(22)
40,400

35,921

39,889

1.1%
 
 
 
 
35,921

39,889

1.1%
Halcyon Loan Advisors Funding 2014-1 Ltd.
Cayman Islands / Diversified Financial Services
Subordinated Notes (Residual Interest, current yield 16.99%)(11)(22)
24,500

21,408

22,578

0.6%
 
 
 
 
21,408

22,578

0.6%
Halcyon Loan Advisors Funding 2014-2 Ltd.
Cayman Islands / Diversified Financial Services
Subordinated Notes (Residual Interest, current yield 18.24%)(11)(22)
41,164

36,035

38,777

1.0%
 
 
 
 
36,035

38,777

1.0%
Harley Marine Services, Inc.
Washington / Transportation
Second Lien Term Loan (10.50% (LIBOR + 9.25% with 1.25% LIBOR floor), due 12/20/2019)(3)(4)(16)
9,000

8,848

8,517

0.2%
 
 
 
 
8,848

8,517

0.2%
Hollander Sleep Products, LLC
Florida / Durable Consumer Products
Senior Secured Term Loan (9.00% (LIBOR + 8.00% with 1.00% LIBOR floor), due 10/21/2020)(3)(4)
22,500

22,500

22,500

0.6%
 
 
 
 
22,500

22,500

0.6%
ICON Health & Fitness, Inc.
Utah / Durable Consumer Products
Senior Secured Note (11.875%, due 10/15/2016)(16)
21,850

21,945

21,632

0.6%
 
 
 
 
21,945

21,632

0.6%
ICV-CSI Holdings, LLC
New York / Transportation
Membership Units (1.6 units)
 
1,639

2,539

0.1%
 
 
 
 
1,639

2,539

0.1%
IDQ Holdings, Inc.
Texas / Automobile
Senior Secured Note (11.50%, due 4/1/2017)(16)
12,500

12,381

12,500

0.3%
 
 
 
 
12,381

12,500

0.3%
Ikaria, Inc.
New Jersey / Healthcare
Second Lien Term Loan (8.75% (LIBOR + 7.75% with 1.00% LIBOR floor), due 2/12/2022)(4)(16)
20,000

19,470

20,008

0.5%
 
 
 
 
19,470

20,008

0.5%
Instant Web, LLC
Minnesota / Media
Senior Secured Term Loan A (5.50% (LIBOR + 4.50% with 1.00% LIBOR floor), due 3/28/2019)(4)
146,978

146,978

146,978

4.0%
Senior Secured Term Loan B (12.00% (LIBOR + 11.00% with 1.00% LIBOR floor), due 3/28/2019)(3)(4)
150,100

150,100

150,100

4.1%
Senior Secured Term Loan C (12.75% (LIBOR + 11.75% with 1.00% LIBOR floor), due 3/28/2019)(4)
27,000

27,000

27,000

0.7%
Delayed Draw Term Loan – $16,000 Commitment (expires 5/29/2016)(25)



—%
 
 
 
 
324,078

324,078

8.8%

See notes to consolidated financial statements.
12


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

 
 
 
March 31, 2015 (Unaudited)
Portfolio Company
Locale / Industry
Investments(1)
Principal Value
Cost
Fair
Value(2)
% of Net Assets
 
 
 
 
 
 
 
LEVEL 3 PORTFOLIO INVESTMENTS
 
 
 
 
 
 
 
 
 
 
 
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
 
 
 
 
 
 
 
 
 
 
 
InterDent, Inc.
California / Healthcare
Senior Secured Term Loan A (6.25% (LIBOR + 5.25% with 1.00% LIBOR floor), due 8/3/2017)(4)
$
125,694

$
125,694

$
125,694

3.4%
Senior Secured Term Loan B (11.25% (LIBOR + 10.25% with 1.00% LIBOR floor), due 8/3/2017)(3)(4)
131,125

131,125

131,125

3.5%
 
 
 
 
256,819

256,819

6.9%
JAC Holding Corporation
Michigan / Transportation
Senior Secured Note (11.50%, due 10/1/2019)(16)
3,000

3,000

3,000

0.1%
 
 
 
 
3,000

3,000

0.1%
JHH Holdings, Inc.
Texas / Healthcare
Second Lien Term Loan (11.25% (LIBOR + 10.00% with 1.25% LIBOR floor) plus 0.50% PIK, due 3/30/2019)(3)(4)
35,252

35,252

35,252

1.0%
 
 
 
 
35,252

35,252

1.0%
LaserShip, Inc.
Virginia / Transportation
Senior Secured Term Loan A (10.25% (LIBOR + 8.25% with 2.00% LIBOR floor), due 3/18/2019)(3)(4)
35,391

35,391

33,110

0.9%
Senior Secured Term Loan B (10.25% (LIBOR + 8.25% with 2.00% LIBOR floor), due 3/18/2019)(3)(4)
21,694

21,694

20,294

0.5%
Delayed Draw Term Loan – $6,000 Commitment (expires 12/31/2016)(25)



—%
 
 
 
 
57,085

53,404

1.4%
LCM XIV Ltd.
Cayman Islands / Diversified Financial Services
Income Notes (Residual Interest, current yield 16.33%)(11)(22)
26,500

23,232

23,722

0.6%
 
 
 
 
23,232

23,722

0.6%
LHC Holdings Corp.
Florida / Healthcare
Revolving Line of Credit – $750 Commitment (9.50% (LIBOR + 8.00% with 1.50% LIBOR floor), due 12/31/2015)(4)(25)(26)



—%
Senior Subordinated Debt (12.50% (LIBOR + 11.00% with 1.50% LIBOR floor), due 12/31/2015)(3)(4)
1,265

1,265

1,265

—%
Membership Interest (125 units)
 
216

193

—%
 
 
 
 
1,481

1,458

—%
Madison Park Funding IX, Ltd.
Cayman Islands / Diversified Financial Services
Subordinated Notes (Residual Interest, current yield 17.86%)(11)(22)
31,110

23,606

25,083

0.7%
 
 
 
 
23,606

25,083

0.7%
Matrixx Initiatives, Inc.
New Jersey / Pharmaceuticals
Senior Secured Term Loan A (7.50% (LIBOR + 6.00% with 1.50% LIBOR floor) plus 2.00% PIK, due 8/9/2018)(3)(4)
36,232

36,232

36,032

1.0%
Senior Secured Term Loan B (12.50% (LIBOR + 11.00% with 1.50% LIBOR floor) plus 2.00% PIK, due 8/9/2018)(3)(4)
40,562

40,562

40,562

1.1%
 
 
 
 
76,794

76,594

2.1%
Maverick Healthcare Equity, LLC
Arizona / Healthcare
Preferred Units (1,250,000 units)
 
1,252

1,997

0.1%
Class A Common Units (1,250,000 units)
 


—%
 
 
 
 
1,252

1,997

0.1%
Mountain View CLO 2013-I Ltd.
Cayman Islands / Diversified Financial Services
Subordinated Notes (Residual Interest, current yield 18.13%)(11)(22)
43,650

38,274

41,698

1.1%
 
 
 
 
38,274

41,698

1.1%
Nathan's Famous, Inc.
New York / Food Products
Senior Secured Notes (10.00%, due 3/15/2020)(16)
3,000

3,000

3,000

0.1%
 
 
 
 
3,000

3,000

0.1%
NCP Finance Limited Partnership(23)
Ohio / Consumer Finance
Subordinated Secured Term Loan (11.00% (LIBOR + 9.75% with 1.25% LIBOR floor), due 9/30/2018)(3)(4)(16)(22)
16,346

16,098

16,346

0.4%
 
 
 
 
16,098

16,346

0.4%

See notes to consolidated financial statements.
13


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

 
 
 
March 31, 2015 (Unaudited)
Portfolio Company
Locale / Industry
Investments(1)
Principal Value
Cost
Fair
Value(2)
% of Net Assets
 
 
 
 
 
 
 
LEVEL 3 PORTFOLIO INVESTMENTS
 
 
 
 
 
 
 
 
 
 
 
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
 
 
 
 
 
 
 
 
 
 
 
New Century Transportation, Inc.
New Jersey / Transportation
Senior Subordinated Term Loan (12.00% (LIBOR + 10.00% with 2.00% LIBOR floor) plus 4.00% PIK, in non-accrual status effective 4/1/2014, due 2/3/2018)(4)
$
980

$
980

$

—%
 
 
 
 
980


—%
Nixon, Inc.
California / Durable Consumer Products
Senior Secured Term Loan (8.75% plus 2.75% PIK, due 4/16/2018)(3)(16)
13,828

13,641

13,641

0.4%
 
 
 
 
13,641

13,641

0.4%
Octagon Investment Partners XV, Ltd.
Cayman Islands / Diversified Financial Services
Income Notes (Residual Interest, current yield 22.03%)(11)(22)
26,901

23,438

24,764

0.7%
 
 
 
 
23,438

24,764

0.7%
Onyx Payments(44)
Texas / Diversified Financial Services
Revolving Line of Credit – $5,000 Commitment (9.00% (LIBOR + 8.00% with 1.00% LIBOR floor), due 9/10/2015)(4)(25)(26)
2,000

2,000

2,000

0.1%
Senior Secured Term Loan A (6.50% (LIBOR + 5.50% with 1.00% LIBOR floor), due 9/10/2019)(3)(4)
53,617

53,617

53,617

1.4%
Senior Secured Term Loan B (13.50% (LIBOR + 12.50% with 1.00% LIBOR floor), due 9/10/2019)(4)
59,389

59,389

59,389

1.6%
 
 
 
 
115,006

115,006

3.1%
Pacific World Corporation
California / Personal & Nondurable Consumer Products
Revolving Line of Credit – $15,000 Commitment (8.00% (LIBOR + 7.00% with 1.00% LIBOR floor), due 9/26/2020)(4)(25)(26)
2,500

2,500

2,500

0.1%
Senior Secured Term Loan A (6.00% (LIBOR + 5.00% with 1.00% LIBOR floor), due 9/26/2020)(4)
99,500

99,500

98,192

2.6%
Senior Secured Term Loan B (10.00% (LIBOR + 9.00% with 1.00% LIBOR floor), due 9/26/2020)(3)(4)
99,500

99,500

96,423

2.6%
 
 
 
 
201,500

197,115

5.3%
Pelican Products, Inc.
California / Durable Consumer Products
Second Lien Term Loan (9.25% (LIBOR + 8.25% with 1.00% LIBOR floor), due 4/9/2021)(4)(16)
17,500

17,483

17,399

0.5%
 
 
 
 
17,483

17,399

0.5%
PGX Holdings, Inc.(28)
Utah / Consumer Services
Second Lien Term Loan (10.00% (LIBOR + 9.00% with 1.00% LIBOR floor), due 9/29/2021)(3)(4)
135,000

135,000

135,000

3.7%
 
 
 
 
135,000

135,000

3.7%
Photonis Technologies SAS
France / Aerospace & Defense
First Lien Term Loan (8.50% (LIBOR + 7.50% with 1.00% LIBOR floor), due 9/18/2019)(4)(16)(22)
10,369

10,131

10,145

0.3%
 
 
 
 
10,131

10,145

0.3%
Pinnacle (US) Acquisition Co. Limited
Texas / Software & Computer Services
Second Lien Term Loan (10.50% (LIBOR + 9.25% with 1.25% LIBOR floor), due 8/3/2020)(4)(16)
7,037

6,885

6,321

0.2%
 
 
 
 
6,885

6,321

0.2%
PrimeSport, Inc.
Georgia / Hotels, Restaurants & Leisure
Revolving Line of Credit – $15,000 Commitment (9.50% (LIBOR + 8.50% with 1.00% LIBOR floor), due 7/31/2015)(4)(25)(26)
5,000

5,000

5,000

0.1%
Senior Secured Term Loan A (7.00% (LIBOR + 6.00% with 1.00% LIBOR floor), due 2/11/2021)(3)(4)
74,313

74,313

74,313

2.0%
Senior Secured Term Loan B (12.00% (LIBOR + 11.00% with 1.00% LIBOR floor), due 2/11/2021)(3)(4)
74,500

74,500

74,500

2.0%
 
 
 
 
153,813

153,813

4.1%
Prince Mineral Holding Corp.
New York / Metal Services & Minerals
Senior Secured Term Loan (11.50%, due 12/15/2019)(16)
10,000

9,912

9,700

0.3%
 
 
 
 
9,912

9,700

0.3%
 
 
 
 
 
 
 

See notes to consolidated financial statements.
14


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

 
 
 
March 31, 2015 (Unaudited)
Portfolio Company
Locale / Industry
Investments(1)
Principal Value
Cost
Fair
Value(2)
% of Net Assets
 
 
 
 
 
 
 
LEVEL 3 PORTFOLIO INVESTMENTS
 
 
 
 
 
 
 
 
 
 
 
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
 
 
 
 
 
 
 
 
 
 
 
Rocket Software, Inc.
Massachusetts / Software & Computer Services
Second Lien Term Loan (10.25% (LIBOR + 8.75% with 1.50% LIBOR floor), due 2/8/2019)(3)(4)(16)
$
20,000

$
19,790

$
20,000

0.5%
 
 
 
 
19,790

20,000

0.5%
Royal Adhesives & Sealants, LLC
Indiana / Chemicals
Second Lien Term Loan (9.75% (LIBOR + 8.50% with 1.25% LIBOR floor), due 1/31/2019)(4)(16)
20,000

19,695

20,000

0.5%
 
 
 
 
19,695

20,000

0.5%
Ryan, LLC
Texas / Business Services
Subordinated Unsecured Notes (12.00% (LIBOR + 9.00% with 3.00% LIBOR floor) plus 3.00% PIK, due 6/30/2018)(4)
72,153

72,153

72,153

2.0%
 
 
 
 
72,153

72,153

2.0%
Sandow Media, LLC
Florida / Media
Senior Secured Term Loan (12.00%, due 5/8/2018)
24,425

24,425

24,913

0.7%
 
 
 
 
24,425

24,913

0.7%
Security Alarm Financing Enterprises, L.P.(45)
California / Consumer Services
Senior Subordinated Note (11.50% (LIBOR + 9.50% with 2.00% LIBOR floor), due 12/19/2020)(4)
25,000

25,000

25,000

0.7%
 
 
 
 
25,000

25,000

0.7%
Small Business Whole Loan Portfolio(19)
New York / Diversified Financial Services
92 small business loans purchased from Direct Capital Corporation
1,057

1,057

658

—%
1,100 small business loans purchased from On Deck Capital, Inc.
39,263

39,263

37,632

1.0%
 
 
 
 
40,320

38,290

1.0%
Spartan Energy Services, Inc.
Louisiana / Energy
Senior Secured Term Loan A (7.00% (LIBOR + 6.00% with 1.00% LIBOR floor), due 12/28/2017)(3)(4)
14,024

14,024

13,929

0.4%
Senior Secured Term Loan B (11.00% (LIBOR + 10.00% with 1.00% LIBOR floor), due 12/28/2017)(3)(4)
14,024

14,024

14,024

0.4%
 
 
 
 
28,048

27,953

0.8%
Speedy Group Holdings Corp.
Canada / Consumer Finance
Senior Unsecured Notes (12.00%, due 11/15/2017)(16)(22)
15,000

15,000

15,000

0.4%
 
 
 
 
15,000

15,000

0.4%
Stauber Performance Ingredients, Inc.
California / Food Products
Senior Secured Term Loan A (7.50% (LIBOR + 6.50% with 1.00% LIBOR floor), due 11/25/2019)(3)(4)
11,082

11,082

11,082

0.3%
Senior Secured Term Loan B (10.50% (LIBOR + 9.50% with 1.00% LIBOR floor), due 11/25/2019)(3)(4)
11,138

11,138

11,138

0.3%
 
 
 
 
22,220

22,220

0.6%
Stryker Energy, LLC
Ohio / Oil & Gas Production
Overriding Royalty Interests(18)




—%
 
 
 
 


—%
Sudbury Mill CLO Ltd.
Cayman Islands / Diversified Financial Services
Subordinated Notes (Residual Interest, current yield 15.59%)(11)(22)
28,200

22,954

24,839

0.7%
 
 
 
 
22,954

24,839

0.7%
Symphony CLO IX Ltd.
Cayman Islands / Diversified Financial Services
Preference Shares (Residual Interest, current yield 20.72%)(11)(22)
45,500

35,659

41,533

1.1%
 
 
 
 
35,659

41,533

1.1%
Symphony CLO XIV Ltd.
Cayman Islands / Diversified Financial Services
Subordinated Notes (Residual Interest, current yield 11.07%)(11)(22)
49,250

46,274

46,491

1.3%
 
 
 
 
46,274

46,491

1.3%
Symphony CLO XV, Ltd.
Cayman Islands / Diversified Financial Services
Subordinated Notes (Residual Interest, current yield 11.13%)(11)(22)
50,250

49,066

47,883

1.3%
 
 
 
 
49,066

47,883

1.3%

See notes to consolidated financial statements.
15


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

 
 
 
March 31, 2015 (Unaudited)
Portfolio Company
Locale / Industry
Investments(1)
Principal Value
Cost
Fair
Value(2)
% of Net Assets
 
 
 
 
 
 
 
LEVEL 3 PORTFOLIO INVESTMENTS
 
 
 
 
 
 
 
 
 
 
 
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
 
 
 
 
 
 
 
 
 
 
 
System One Holdings, LLC
Pennsylvania / Business Services
Senior Secured Term Loan (10.50% (LIBOR + 9.50% with 1.00% LIBOR floor), due 11/17/2020)(3)(4)
$
68,146

$
68,146

$
68,146

1.8%
Delayed Draw Term Loan – $11,500 Commitment (expires 12/31/2015)(25)



—%
 
 
 
 
68,146

68,146

1.8%
Targus Group International, Inc.
California / Durable Consumer Products
First Lien Term Loan (11.75% (PRIME + 8.50%) plus 1.00% PIK and 2.00% default interest, due 5/24/2016)(3)(4)(16)
21,434

21,296

16,722

0.5%
 
 
 
 
21,296

16,722

0.5%
TB Corp.
Texas / Hotels, Restaurants & Leisure
Senior Subordinated Note (12.00% plus 1.50% PIK, due 12/19/2018)(3)
23,628

23,628

23,628

0.6%
 
 
 
 
23,628

23,628

0.6%
Therakos, Inc.
New Jersey / Healthcare
Second Lien Term Loan (10.75% (LIBOR + 9.50% with 1.25% LIBOR floor), due 6/27/2018)(4)(16)
13,000

12,796

13,000

0.4%
 
 
 
 
12,796

13,000

0.4%
Tolt Solutions, Inc.
South Carolina / Business Services
Senior Secured Term Loan A (7.00% (LIBOR + 6.00% with 1.00% LIBOR floor), due 3/7/2019)(3)(4)
47,971

47,971

47,416

1.3%
Senior Secured Term Loan B (12.00% (LIBOR + 11.00% with 1.00% LIBOR floor), due 3/7/2019)(3)(4)
48,900

48,900

48,107

1.3%
 
 
 
 
96,871

95,523

2.6%
Traeger Pellet Grills LLC
Oregon / Durable Consumer Products
Senior Secured Term Loan A (6.50% (LIBOR + 4.50% with 2.00% LIBOR floor), due 6/18/2018)(3)(4)
28,425

28,425

28,425

0.8%
Senior Secured Term Loan B (11.50% (LIBOR + 9.50% with 2.00% LIBOR floor), due 6/18/2018)(3)(4)
29,475

29,475

29,475

0.8%
 
 
 
 
57,900

57,900

1.6%
Transaction Network Services, Inc.
Virginia / Telecommunication Services
Second Lien Term Loan (9.00% (LIBOR + 8.00% with 1.00% LIBOR floor), due 8/14/2020)(4)(16)
4,595

4,572

4,595

0.1%
 
 
 
 
4,572

4,595

0.1%
Trinity Services Group, Inc.(14)
Florida / Food Products
Revolving Line of Credit – $10,000 Commitment (9.00% (LIBOR + 8.00% with 1.00% LIBOR floor), due 4/13/2015)(4)(25)(26)



—%
Senior Secured Term Loan A (6.50% (LIBOR + 5.50% with 1.00% LIBOR floor), due 8/13/2019)(4)
98,755

98,755

98,755

2.7%
Senior Secured Term Loan B (11.50% (LIBOR + 10.50% with 1.00% LIBOR floor), due 8/13/2019)(3)(4)
100,000

100,000

100,000

2.7%
 
 
 
 
198,755

198,755

5.4%
United Sporting Companies, Inc.(5)
South Carolina / Durable Consumer Products
Second Lien Term Loan (12.75% (LIBOR + 11.00% with 1.75% LIBOR floor), due 5/16/2018)(3)(4)
160,000

160,000

154,758

4.2%
 
 
 
 
160,000

154,758

4.2%
United States Environmental Services, LLC
Texas / Commercial Services
Senior Secured Term Loan A (6.50% (LIBOR + 5.50% with 1.00% LIBOR floor) plus 2.00% default interest, due 3/31/2019)(3)(4)
23,550

23,550

20,627

0.5%
Senior Secured Term Loan B (11.50% (LIBOR + 10.50% with 1.00% LIBOR floor) plus 2.00% default interest, due 3/31/2019)(3)(4)
36,000

36,000

27,762

0.8%
 
 
 
 
59,550

48,389

1.3%
Venio LLC
Pennsylvania / Business Services
Second Lien Term Loan (12.00% (LIBOR + 9.50% with 2.50% LIBOR floor), due 2/19/2020)(3)(4)
17,000

17,000

16,708

0.5%
 
 
 
 
17,000

16,708

0.5%
Voya CLO 2012-2, Ltd.
Cayman Islands / Diversified Financial Services
Income Notes (Residual Interest, current yield 19.11%)(11)(22)
38,070

29,906

33,168

0.9%
 
 
 
 
29,906

33,168

0.9%

See notes to consolidated financial statements.
16


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

 
 
 
March 31, 2015 (Unaudited)
Portfolio Company
Locale / Industry
Investments(1)
Principal Value
Cost
Fair
Value(2)
% of Net Assets
 
 
 
 
 
 
 
LEVEL 3 PORTFOLIO INVESTMENTS
 
 
 
 
 
 
 
 
 
 
 
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
 
 
 
 
 
 
 
 
 
 
 
Voya CLO 2012-3, Ltd.
Cayman Islands / Diversified Financial Services
Income Notes (Residual Interest, current yield 16.46%)(11)(22)
$
46,632

$
37,329

$
40,246

1.1%
 
 
 
 
37,329

40,246

1.1%
Voya CLO 2012-4, Ltd.
Cayman Islands / Diversified Financial Services
Income Notes (Residual Interest, current yield 18.90%)(11)(22)
40,613

33,301

36,097

1.0%
 
 
 
 
33,301

36,097

1.0%
Voya CLO 2014-1, Ltd.
Cayman Islands / Diversified Financial Services
Subordinated Notes (Residual Interest, current yield 14.70%)(11)(22)
32,383

29,652

29,657

0.8%
 
 
 
 
29,652

29,657

0.8%
Washington Mill CLO Ltd.
Cayman Islands / Diversified Financial Services
Subordinated Notes (Residual Interest, current yield 14.02%)(11)(22)
22,600

19,682

21,068

0.6%
 
 
 
 
19,682

21,068

0.6%
Water Pik, Inc.
Colorado / Personal & Nondurable Consumer Products
Second Lien Term Loan (9.75% (LIBOR + 8.75% with 1.00% LIBOR floor), due 1/8/2021)(4)(16)
9,147

8,784

8,784

0.2%
 
 
 
 
8,784

8,784

0.2%
Wheel Pros, LLC
Colorado / Business Services
Senior Subordinated Secured Note (11.00% (LIBOR + 7.00% with 4.00% LIBOR floor), due 6/29/2020)(3)(4)
12,000

12,000

12,000

0.3%
Delayed Draw Term Loan – $3,000 Commitment (expires 12/30/2015)(25)



—%
 
 
 
 
12,000

12,000

0.3%
Wind River Resources Corporation(39)
Utah / Oil & Gas Production
Senior Secured Note (13.00% (LIBOR + 7.50% with 5.50% LIBOR floor) plus 3.00% default interest on principal and 16.00% default interest on past due interest, in non-accrual status effective 12/1/2008, past due)(4)
3,000

3,000


—%
Net Profits Interest (5% of Equity Distributions)(7)
 


—%
 
 
 
 
3,000


—%
Total Non-Control/Non-Affiliate Investments (Level 3)
 
$
4,752,089

$
4,728,137

128.0%
 
 
 
 
 
Total Level 3 Portfolio Investments
 
$
6,589,963

$
6,602,621

178.7%
LEVEL 1 PORTFOLIO INVESTMENTS
 
 
 
 
 
 
 
 
 
 
 
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
 
 
 
 
 
 
 
 
 
 
 
Dover Saddlery, Inc.
Massachusetts / Retail
Common Stock (30,974 shares)
 
$
63

$
150

—%
 
 
 
 
63

150

—%
Total Non-Control/Non-Affiliate Investments (Level 1)
$
63

$
150

—%
 
 
 
 
 
Total Non-Control/Non-Affiliate Investments
$
4,752,152

$
4,728,287

128.0%
 
 
 
 
 
Total Portfolio Investments
$
6,590,026

$
6,602,771

178.7%

See notes to consolidated financial statements.
17


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

 
 
 
June 30, 2014 (Audited)
Portfolio Company
Locale / Industry
Investments(1)
Principal Value
Cost
Fair
Value(2)
% of Net Assets
 
 
 
 
 
 
 
LEVEL 3 PORTFOLIO INVESTMENTS
 
 
 
 
 
 
 
 
 
 
 
Control Investments (greater than 25.00% voting control)(49)
 
 
 
 
 
 
 
 
 
 
 
AMU Holdings Inc.(27)
Pennsylvania / Property Management
Senior Secured Term Loan A to Airmall Inc. (12.00% (LIBOR + 9.00% with 3.00% LIBOR floor), due 6/30/2015)(3)(4)
$
27,587

$
27,587

$
27,587

0.8%
Senior Secured Term Loan B to Airmall Inc. (12.00% plus 6.00% PIK, due 12/31/2015)
19,993

19,993

17,697

0.5%
Series A Preferred Stock of AMU Holdings Inc. (9,919.684 shares)
 
9,920


—%
Common Stock of AMU Holdings Inc. (100 shares)
 


—%
 
 
 
 
57,500

45,284

1.3%
APH Property
Holdings, LLC(32)
Florida /
Real Estate
Senior Term Loan to American Property REIT Corp. (6.00% (LIBOR + 4.00% with 2.00% LIBOR floor) plus 5.50% PIK, due 4/1/2019)(4)
167,743

167,743

167,743

4.6%
Membership Interest in APH Property Holdings, LLC
 
35,024

38,416

1.1%
 
 
 
 
202,767

206,159

5.7%
Arctic Oilfield Equipment USA, Inc.(30)
Wyoming / Oil & Gas Production
Senior Secured Term Loan to Arctic Energy Services, LLC (12.00% (LIBOR + 9.00% with 3.00% LIBOR floor), due 5/5/2019)(4)
31,640

31,640

31,640

0.9%
Senior Subordinated Term Loan to Arctic Energy Services, LLC (14.00% (LIBOR + 11.00% with 3.00% LIBOR floor), due 5/5/2019)(4)
20,230

20,230

20,230

0.6%
Common Stock of Arctic Oilfield Equipment USA, Inc. (100 shares)
 
9,006

9,244

0.2%
 
 
 
 
60,876

61,114

1.7%
ARRM Services, Inc.(42)
South Carolina / Manufacturing
Senior Secured Note to Ajax Rolled Ring & Machine, LLC (10.50% (LIBOR + 7.50% with 3.00% LIBOR floor), due 3/30/2018)(4)
19,337

19,337

19,337

0.5%
Series B Preferred Stock of ARRM Services, Inc. (25,000 shares)
 
21,156

6,199

0.2%
Series A Convertible Preferred Stock of ARRM Services, Inc. (6,142.60 shares)
 
6,057


—%
Common Stock of ARRM Services, Inc. (6.00 shares)
 


—%
 
 
 
 
46,550

25,536

0.7%
BXC Company, Inc.
(f/k/a BXC Holding Company)(20)
Georgia / Textiles, Apparel & Luxury Goods
Senior Secured Term Loan A to Boxercraft Incorporated (10.00% plus 1.00% PIK, in non-accrual status effective 1/1/2014, due 9/15/2015)
1,629

1,621

1,629

0.1%
Senior Secured Term Loan B to Boxercraft Incorporated (10.00% plus 1.00% PIK, in non-accrual status effective 1/1/2014, due 9/15/2015)
4,942

4,917

486

—%
Senior Secured Term Loan C to Boxercraft Incorporated (10.00% plus 1.00% PIK, in non-accrual status effective 1/1/2014, due 9/15/2015)
2,395

2,383


—%
Senior Secured Term Loan D to Boxercraft Incorporated (10.00% plus 1.00% PIK, in non-accrual status effective 4/18/2014, due 9/15/2015)
301

300


—%
Senior Secured Term Loan to Boxercraft Incorporated (10.00% plus 1.00% PIK, in non-accrual status effective 1/1/2014, due 9/15/2015)
8,410

8,227


—%
Series A Preferred Stock of BXC Company, Inc. (12,520,000 shares)
 


—%
Series B Preferred Stock of BXC Company, Inc. (2,400,000 shares)
 


—%
Common Stock of BXC Company, Inc.
(138,250 shares)
 


—%
Warrant (to purchase 15% of all classes of equity of BXC Company, Inc., expires 8/31/2022)
 


—%
 
 
 
 
17,448

2,115

0.1%

See notes to consolidated financial statements.
18


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

 
 
 
June 30, 2014 (Audited)
Portfolio Company
Locale / Industry
Investments(1)
Principal Value
Cost
Fair
Value(2)
% of Net Assets
 
 
 
 
 
 
 
LEVEL 3 PORTFOLIO INVESTMENTS
 
 
 
 
 
 
 
 
 
 
 
Control Investments (greater than 25.00% voting control)(49)
 
 
 
 
 
 
 
 
 
 
 
CCPI Holdings Inc.(33)
Ohio / Manufacturing
Senior Secured Term Loan A to CCPI Inc. (10.00%, due 12/31/2017)(3)
$
17,213

$
17,213

$
17,213

0.5%
Senior Secured Term Loan B to CCPI Inc. (12.00% plus 7.00% PIK, due 12/31/2017)
8,245

8,245

8,245

0.2%
Common Stock of CCPI Holdings Inc. (100 shares)
 
8,579

7,136

0.2%
 
 
 
 
34,037

32,594

0.9%
CP Holdings of
Delaware LLC(38)
Oklahoma / Oil & Gas Production
Senior Secured Term Loan A to CP Well Testing, LLC (7.00% (LIBOR + 5.00% with 2.00% LIBOR floor), due 4/1/2019)(4)
11,035

11,035

11,035

0.3%
Senior Secured Term Loan B to CP Well Testing, LLC (10.00% (LIBOR + 8.00% with 2.00% LIBOR floor) plus 7.50% PIK, due 4/1/2019)(4)
72,238

72,238

72,238

2.0%
Second Lien Term Loan to CP Well Testing, LLC (9.00% (LIBOR + 7.00% with 2.00% LIBOR floor) plus 9.00% PIK, due 4/1/2019)(4)
15,000

15,000

15,000

0.4%
Membership Interest in CP Holdings of Delaware LLC
 
15,228

31,846

0.9%
 
 
 
 
113,501

130,119

3.6%
Credit Central Holdings of Delaware, LLC(34)
Ohio / Consumer Finance
Subordinated Term Loan to Credit Central Loan Company, LLC (10.00% plus 10.00% PIK, due 6/26/2019)(22)
36,333

36,333

36,333

1.0%
Membership Interest in Credit Central Holdings of Delaware, LLC(22)
 
13,670

14,099

0.4%
 
 
 
 
50,003

50,432

1.4%
Echelon Aviation LLC
New York / Aerospace & Defense
Senior Secured Term Loan to Echelon Aviation LLC (11.75% (LIBOR + 9.75% with 2.00% LIBOR floor) plus 2.25% PIK, due 3/31/2022)(4)
78,521

78,521

78,521

2.2%
Membership Interest in Echelon Aviation LLC
 
14,107

14,107

0.4%
 
 
 
 
92,628

92,628

2.6%
Energy Solutions Holdings Inc.(8)
Texas / Energy
Senior Secured Note to Vessel Company, LLC (18.00%, due 12/12/2016)
3,500

3,500

3,500

0.1%
Senior Secured Note to Vessel Company II, LLC (13.00%, due 11/25/2018)
13,000

12,504

12,504

0.4%
Senior Secured Note to Vessel Company III, LLC (13.00%, due 12/3/2018)
16,000

16,000

16,000

0.4%
Senior Secured Note to Yatesville Coal Company, LLC (in non-accrual status effective 1/1/2009, past due)
1,449

1,449


—%
Common Stock of Energy Solutions Holdings Inc. (100 shares)
 
8,293


—%
 
 
 
 
41,746

32,004

0.9%
First Tower Holdings of Delaware LLC(29)
Mississippi / Consumer Finance
Subordinated Term Loan to First Tower, LLC (10.00% plus 7.00% PIK, due 6/24/2019)(22)
251,246

251,246

251,246

6.9%
Membership Interest in First Tower Holdings of Delaware LLC(22)
 
68,405

75,539

2.1%
 
 
 
 
319,651

326,785

9.0%
Gulf Coast Machine & Supply Company
Texas / Manufacturing
Senior Secured Term Loan to Gulf Coast Machine & Supply Company (10.50% (LIBOR + 8.50% with 2.00% LIBOR floor) plus 2.00% default interest on principal, due 10/12/2017)(4)
17,500

17,500

14,459

0.4%
Series A Convertible Preferred Stock of Gulf Coast Machine & Supply Company (99,900 shares)
 
25,950


—%
 
 
 
 
43,450

14,459

0.4%

See notes to consolidated financial statements.
19


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

 
 
 
June 30, 2014 (Audited)
Portfolio Company
Locale / Industry
Investments(1)
Principal Value
Cost
Fair
Value(2)
% of Net Assets
 
 
 
 
 
 
 
LEVEL 3 PORTFOLIO INVESTMENTS
 
 
 
 
 
 
 
 
 
 
 
Control Investments (greater than 25.00% voting control)(49)
 
 
 
 
 
 
 
 
 
 
 
Harbortouch Holdings of Delaware Inc.(43)
Pennsylvania / Business Services
Senior Secured Term Loan A to Harbortouch Payments, LLC (9.00% (LIBOR + 7.00% with 2.00% LIBOR floor), due 9/30/2017)(4)
$
130,796

$
130,796

$
130,796

3.6%
Senior Secured Term Loan B to Harbortouch Payments, LLC (5.50% (LIBOR + 4.00% with 1.50% LIBOR floor) plus 5.50% PIK, due 3/31/2018)(4)
137,226

137,226

137,226

3.8%
Common Stock of Harbortouch Holdings of Delaware Inc. (100 shares)
 
10,672

23,292

0.6%
 
 
 
 
278,694

291,314

8.0%
The Healing Staff, Inc.(9)
North Carolina / Contracting
Secured Promissory Notes to The Healing Staff, Inc. and Vets Securing America, Inc. (15.00%, in non-accrual status effective 12/22/2010, past due)
1,688

1,686


—%
Senior Demand Note to The Healing Staff, Inc. (15.00%, in non-accrual status effective 11/1/2010, past due)
1,170

1,170


—%
Common Stock of The Healing Staff, Inc. (1,000 shares)
 


—%
Common Stock of Vets Securing America, Inc. (1 share)
 
975


—%
 
 
 
 
3,831


—%
Manx Energy, Inc.(6)
Kansas / Oil & Gas Production
Senior Secured Note to Manx Energy, Inc. (13.00%, in non-accrual status effective 1/19/2010, past due)
50

50


—%
Series A-1 Preferred Stock of Manx Energy, Inc. (6,635 shares)
 


—%
Common Stock of Manx Energy, Inc. (17,082 shares)
 


—%
 
 
 
 
50


—%
MITY Holdings of Delaware Inc.(17)
Utah / Durable Consumer Products
Revolving Line of Credit to MITY, Inc. – $7,500 Commitment (9.50% (LIBOR + 7.00% with 2.50% LIBOR floor), due 12/23/2014)(4)(25)(26)



—%
Senior Secured Note A to MITY, Inc. (10.00% (LIBOR + 7.00% with 3.00% LIBOR floor), due 3/19/2019)(3)(4)
18,250

18,250

18,250

0.5%
Senior Secured Note B to MITY, Inc. (10.00% (LIBOR + 7.00% with 3.00% LIBOR floor) plus 10.00% PIK, due 3/19/2019)(4)
15,769

15,769

15,769

0.4%
Common Stock of MITY Holdings of Delaware Inc. (100 shares)
 
14,143

15,270

0.4%
 
 
 
 
48,162

49,289

1.3%
Nationwide Acceptance Holdings LLC(36)
Illinois / Consumer Finance
Subordinated Term Loan to Nationwide Acceptance LLC (10.00% plus 10.00% PIK, due 6/18/2019)(22)
14,820

14,820

14,820

0.4%
Membership Interest in Nationwide Acceptance Holdings LLC(22)
 
14,331

15,103

0.4%
 
 
 
 
29,151

29,923

0.8%
NMMB Holdings, Inc.(24)
New York / Media
Senior Secured Note to NMMB, Inc. (14.00%, due 5/6/2016)
3,714

3,714

2,183

0.1%
Senior Secured Note to Armed Forces Communications, Inc. (14.00%, due 5/6/2016)
7,000

7,000

4,114

0.1%
Series B Convertible Preferred Stock of NMMB Holdings, Inc. (8,086 shares)
 
8,086


—%
Series A Preferred Stock of NMMB Holdings, Inc. (4,400 shares)
 
4,400


—%
 
 
 
 
23,200

6,297

0.2%
NPH Property
Holdings, LLC(40)
Texas / Real Estate
Senior Term Loan to National Property REIT Corp. (6.00% (LIBOR + 4.00% with 2.00% LIBOR floor) plus 5.50% PIK, due 4/1/2019)(4)
105,309

105,309

105,309

2.9%
Membership Interest in NPH Property Holdings, LLC
 
21,290

19,202

0.5%
 
 
 
 
126,599

124,511

3.4%

See notes to consolidated financial statements.
20


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

 
 
 
June 30, 2014 (Audited)
Portfolio Company
Locale / Industry
Investments(1)
Principal Value
Cost
Fair
Value(2)
% of Net Assets
 
 
 
 
 
 
 
LEVEL 3 PORTFOLIO INVESTMENTS
 
 
 
 
 
 
 
 
 
 
 
Control Investments (greater than 25.00% voting control)(49)
 
 
 
 
 
 
 
 
 
 
 
R-V Industries, Inc.
Pennsylvania / Manufacturing
Senior Subordinated Note to R-V Industries, Inc. (10.00% (LIBOR + 9.00% with 1.00% LIBOR floor), due 6/12/2018)(3)(4)
$
30,411

$
30,411

$
30,411

0.8%
Common Stock of R-V Industries, Inc. (545,107 shares)
 
5,087

19,989

0.6%
Warrant (to purchase 200,000 shares of Common Stock of R-V Industries, expires 6/30/2017)
 
1,682

7,334

0.2%
 
 
 
 
37,180

57,734

1.6%
STI Holding, Inc.(21)
California / Manufacturing
Revolving Line of Credit to Borga, Inc. – $1,150 Commitment (5.00% (PRIME + 1.75%), in non-accrual status effective 3/2/2010, past due)(4)(25)
1,150

1,095

436

—%
Senior Secured Term Loan B to Borga, Inc. (8.50% (PRIME + 5.25%), in non-accrual status effective 3/2/2010, past due)(4)
1,612

1,501


—%
Senior Secured Term Loan C to Borga, Inc. (12.00% plus 4.00% PIK, in non-accrual status effective 3/2/2010, past due)
10,016

581


—%
Common Stock of STI Holding, Inc. (100 shares)
 


—%
Warrant (to purchase 33,750 shares of Common Stock of Borga, Inc., expires 5/6/2015)
 


—%
 
 
 
 
3,177

436

—%
UPH Property
Holdings, LLC(41)
Georgia /
Real Estate
Senior Term Loan to United Property REIT Corp. (6.00% (LIBOR + 4.00% with 2.00% LIBOR floor) plus 5.50% PIK, due 4/1/2019)(4)
19,027

19,027

19,027

0.5%
Membership Interest in UPH Property Holdings, LLC
 
5,113

5,539

0.2%
 
 
 
 
24,140

24,566

0.7%
Valley Electric
Holdings I, Inc.(35)
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 12/31/2017)(3)(4)
10,081

10,081

10,081

0.3%
Senior Secured Note to Valley Electric Company, Inc. (10.00% plus 8.5% PIK, due 12/31/2018)
20,500

20,500

20,500

0.6%
Common Stock of Valley Electric Holdings I, Inc. (100 shares)
 
26,279

2,975

—%
 
 
 
 
56,860

33,556

0.9%
Wolf Energy
Holdings Inc.(12)
Kansas / Oil & Gas Production
Senior Secured Promissory Note to Wolf Energy, LLC secured by assets formerly owned by H&M (18.00%, in non-accrual status effective 4/15/2013, due 4/15/2018)(37)
22,000


3,386

0.1%
Senior Secured Note to Appalachian Energy LLC (8.00%, in non-accrual status effective 1/19/2010, past due)(6)
2,865

2,000


—%
Senior Secured Note to Appalachian Energy LLC (8.00%, in non-accrual status, past due)(6)
56

50


—%
Senior Secured Note to Coalbed, LLC (8.00%, in non-accrual status effective 1/19/2010, past due)(6)
8,595

5,991


—%
Common Stock of Wolf Energy Holdings Inc.
(100 shares)
 


—%
Net Profits Interest in Wolf Energy, LLC (8% of Equity Distributions)(7)
 

213

—%
 
 
 
 
8,041

3,599

0.1%
Total Control Investments
 
$
1,719,242

$
1,640,454

45.3%

See notes to consolidated financial statements.
21


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

 
 
 
June 30, 2014 (Audited)
Portfolio Company
Locale / Industry
Investments(1)
Principal Value
Cost
Fair
Value(2)
% of Net Assets
 
 
 
 
 
 
 
LEVEL 3 PORTFOLIO INVESTMENTS
 
 
 
 
 
 
 
 
 
 
 
Affiliate Investments (5.00% to 24.99% voting control)(50)
 
 
 
 
 
 
 
 
 
 
 
BNN Holdings Corp.
Michigan / Healthcare
Senior Secured Note (10.00% (LIBOR + 8.00% with 2.00% LIBOR floor), due 12/17/2017)(3)(4)
$
28,950

$
28,950

$
28,950

0.8%
Series A Preferred Stock (9,925.455 shares)(13)
 
2,300

2,614

0.1%
Series B Preferred Stock (1,753.636 shares)(13)
 
579

557

—%
 
 
 
 
31,829

32,121

0.9%
Total Affiliate Investments
 
$
31,829

$
32,121

0.9%
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
 
 
 
 
 
 
 
 
 
 
 
Aderant North America, Inc.
Georgia /
Software & Computer Services
Second Lien Term Loan (10.00% (LIBOR + 8.75% with 1.25% LIBOR floor), due 6/20/2019)(4)(16)
$
7,000

$
6,914

$
7,000

0.2%
 
 
 
 
6,914

7,000

0.2%
Aircraft Fasteners International, LLC
California / Machinery
Class A Units (32,500 units)
 
396

505

—%
 
 
 
 
396

505

—%
ALG USA Holdings, LLC
Pennsylvania / Hotels, Restaurants & Leisure
Second Lien Term Loan (10.25% (LIBOR + 9.00% with 1.25% LIBOR floor), due 2/28/2020)(4)(16)
12,000

11,792

12,000

0.3%
 
 
 
 
11,792

12,000

0.3%
Allied Defense Group, Inc.
Virginia / Aerospace & Defense
Common Stock (10,000 shares)
 
5


—%
 
 
 
 
5


—%
American Broadband Holding Company and Cameron Holdings of NC, Inc.
North Carolina / Telecommunication Services
Senior Secured Term Loan B (11.00% (LIBOR + 9.75% with 1.25% LIBOR floor), due 9/30/2018)(3)(4)
74,654

74,654

74,654

2.1%
 
 
 
 
74,654

74,654

2.1%
American Gilsonite Company
Utah /
Metal Services & Minerals
Second Lien Term Loan (11.50%, due 9/1/2017)(16)
38,500

38,500

38,500

1.1%
Membership Interest (99.9999%)(15)
 

3,477

0.1%
 
 
 
 
38,500

41,977

1.2%
Apidos CLO IX
Cayman Islands / Diversified Financial Services
Subordinated Notes (Residual Interest, current yield 18.84%)(11)(22)
20,525

18,444

19,903

0.5%
 
 
 
 
18,444

19,903

0.5%
Apidos CLO XI
Cayman Islands / Diversified Financial Services
Subordinated Notes (Residual Interest, current yield 15.02%)(11)(22)
38,340

33,937

37,087

1.0%
 
 
 
 
33,937

37,087

1.0%
Apidos CLO XII
Cayman Islands / Diversified Financial Services
Subordinated Notes (Residual Interest, current yield 15.82%)(11)(22)
44,063

42,042

42,499

1.2%
 
 
 
 
42,042

42,499

1.2%
Apidos CLO XV
Cayman Islands / Diversified Financial Services
Subordinated Notes (Residual Interest, current yield 14.21%)(11)(22)
36,515

37,038

36,715

1.0%
 
 
 
 
37,038

36,715

1.0%
Arctic Glacier U.S.A., Inc.
Minnesota /
Food Products
Second Lien Term Loan (10.50% (LIBOR + 9.25% with 1.25% LIBOR floor), due 11/10/2019)(3)(4)
150,000

150,000

150,000

4.1%
 
 
 
 
150,000

150,000

4.1%

See notes to consolidated financial statements.
22


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

 
 
 
June 30, 2014 (Audited)
Portfolio Company
Locale / Industry
Investments(1)
Principal Value
Cost
Fair
Value(2)
% of Net Assets
 
 
 
 
 
 
 
LEVEL 3 PORTFOLIO INVESTMENTS
 
 
 
 
 
 
 
 
 
 
 
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
 
 
 
 
 
 
 
 
 
 
 
Ark-La-Tex Wireline Services, LLC
Louisiana / Oil and Gas Production
Senior Secured Term Loan A (6.50% (LIBOR + 5.50% with 1.00% LIBOR floor), due 4/8/2019)(4)
$
26,831

$
26,831

$
26,831

0.7%
Senior Secured Term Loan B (10.50% (LIBOR + 9.50% with 1.00% LIBOR floor), due 4/8/2019)(4)
26,831

26,831

26,831

0.7%
Delayed Draw Term Loan – $5,000 Commitment (expires 10/8/2015)(4)(25)



—%
 
 
 
 
53,662

53,662

1.4%
Armor Holding II LLC
New York / Diversified Financial Services
Second Lien Term Loan (10.25% (LIBOR + 9.00% with 1.25% LIBOR floor), due 12/26/2020)(3)(4)(16)
7,000

6,874

6,874

0.2%
 
 
 
 
6,874

6,874

0.2%
Atlantis Health Care Group (Puerto Rico), Inc.
Puerto Rico / Healthcare
Revolving Line of Credit – $3,000 Commitment (13.00% (LIBOR + 11.00% with 2.00% LIBOR floor), due 8/21/2014)(4)(25)(26)
2,350

2,350

2,350

0.1%
Senior Term Loan (10.00% (LIBOR + 8.00% with 2.00% LIBOR floor), due 2/21/2018)(3)(4)
38,957

38,957

34,102

0.9%
 
 
 
 
41,307

36,452

1.0%
Babson CLO Ltd. 2011-I
Cayman Islands / Diversified Financial Services
Subordinated Notes (Residual Interest, current yield 12.44%)(11)(22)
35,000

33,591

33,801

0.9%
 
 
 
 
33,591

33,801

0.9%
Babson CLO Ltd. 2012-I
Cayman Islands / Diversified Financial Services
Subordinated Notes (Residual Interest, current yield 13.35%)(11)(22)
29,075

23,471

26,401

0.7%
 
 
 
 
23,471

26,401

0.7%
Babson CLO Ltd. 2012-II
Cayman Islands / Diversified Financial Services
Subordinated Notes (Residual Interest, current yield 11.33%)(11)(22)
27,850

26,764

27,230

0.8%
 
 
 
 
26,764

27,230

0.8%
Blue Coat Systems, Inc.
Massachusetts / Software & Computer Services
Second Lien Term Loan (9.50% (LIBOR + 8.50% with 1.00% LIBOR floor), due 6/28/2020)(3)(4)(16)
11,000

10,902

11,000

0.3%
 
 
 
 
10,902

11,000

0.3%
Broder Bros., Co.
Pennsylvania / Textiles, Apparel & Luxury Goods
Senior Secured Notes (10.25% (LIBOR + 9.00% with 1.25% LIBOR floor), due 4/8/2019)(3)(4)(46)
257,575

257,575

257,575

7.1%
 
 
 
 
257,575

257,575

7.1%
Brookside Mill CLO Ltd.
Cayman Islands / Diversified Financial Services
Subordinated Notes (Residual Interest, current yield 19.62%)(11)(22)
26,000

22,613

25,081

0.7%
 
 
 
 
22,613

25,081

0.7%
Byrider Systems Acquisition Corp.
Indiana / Auto Finance
Senior Subordinated Notes (12.00% plus 2.00% PIK, due 11/3/2016)(3)(22)
11,139

11,139

11,139

0.3%
 
 
 
 
11,139

11,139

0.3%
Caleel + Hayden, LLC
Colorado / Personal & Nondurable Consumer Products
Membership Interest(31)
 

182

—%
Escrow Receivable
 

118

—%
 
 
 
 

300

—%
Capstone Logistics, LLC
Georgia / Commercial Services
Senior Secured Term Loan A (6.50% (LIBOR + 5.00% with 1.50% LIBOR floor), due 9/16/2016)(4)
92,085

92,085

92,085

2.6%
Senior Secured Term Loan B (11.50% (LIBOR + 10.00% with 1.50% LIBOR floor), due 9/16/2016)(3)(4)
98,465

98,465

98,465

2.7%
 
 
 
 
190,550

190,550

5.3%
 
 
 
 
 
 
 

See notes to consolidated financial statements.
23


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

 
 
 
June 30, 2014 (Audited)
Portfolio Company
Locale / Industry
Investments(1)
Principal Value
Cost
Fair
Value(2)
% of Net Assets
 
 
 
 
 
 
 
LEVEL 3 PORTFOLIO INVESTMENTS
 
 
 
 
 
 
 
 
 
 
 
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
 
 
 
 
 
 
 
 
 
 
 
Cent CLO 17 Limited
Cayman Islands / Diversified Financial Services
Subordinated Notes (Residual Interest, current yield 10.10%)(11)(22)
$
24,870

$
21,999

$
23,896

0.7%
 
 
 
 
21,999

23,896

0.7%
Cent CLO 20 Limited
Cayman Islands / Diversified Financial Services
Subordinated Notes (Residual Interest, current yield 10.83%)(11)(22)
40,275

40,483

40,259

1.1%
 
 
 
 
40,483

40,259

1.1%
Cent CLO 21 Limited
Cayman Islands / Diversified Financial Services
Subordinated Notes (Residual Interest, current yield 15.47%)(11)(22)
48,528

46,597

46,154

1.3%
 
 
 
 
46,597

46,154

1.3%
CIFC Funding 2011-I, Ltd.
Cayman Islands / Diversified Financial Services
Class D Senior Secured Notes (5.23% (LIBOR + 5.00%, due 1/19/2023)(4)(22)
19,000

15,304

18,037

0.5%
Class E Subordinated Notes (7.23% (LIBOR + 7.00%, due 1/19/2023)(4)(22)
15,400

12,814

15,162

0.4%
 
 
 
 
28,118

33,199

0.9%
CIFC Funding 2013-III, Ltd.
Cayman Islands / Diversified Financial Services
Subordinated Notes (Residual Interest, current yield 14.01%)(11)(22)
44,100

39,534

43,217

1.2%
 
 
 
 
39,534

43,217

1.2%
CIFC Funding 2013-IV, Ltd.
Cayman Islands / Diversified Financial Services
Subordinated Notes (Residual Interest, current yield 12.52%)(11)(22)
45,500

40,255

40,934

1.1%
 
 
 
 
40,255

40,934

1.1%
Cinedigm DC Holdings, LLC
New York / Software & Computer Services
Senior Secured Term Loan (11.00% (LIBOR + 9.00% with 2.00% LIBOR floor) plus 2.50% PIK, due 3/31/2021)(4)
68,714

68,664

68,714

1.9%
 
 
 
 
68,664

68,714

1.9%
The Copernicus Group, Inc.
North Carolina / Healthcare
Escrow Receivable
 

115

—%
 
 
 
 

115

—%
Correctional Healthcare Holding Company, Inc.
Colorado / Healthcare
Second Lien Term Loan (11.25%, due 1/11/2020)(3)
27,100

27,100

27,642

0.8%
 
 
 
 
27,100

27,642

0.8%
Coverall North America, Inc.
Florida / Commercial Services
Senior Secured Term Loan (11.50% (LIBOR + 8.50% with 3.00% LIBOR floor), due 12/17/2017)(3)(4)
51,210

51,210

51,210

1.4%
 
 
 
 
51,210

51,210

1.4%
Crosman Corporation
New York / Manufacturing
Second Lien Term Loan (12.00% (LIBOR + 10.50% with 1.50% LIBOR floor), due 12/30/2019)(3)(4)
40,000

40,000

39,708

1.1%
 
 
 
 
40,000

39,708

1.1%
CRT MIDCO, LLC
Wisconsin / Media
Senior Secured Term Loan (10.50% (LIBOR + 7.50% with 3.00% LIBOR floor), due 6/30/2017)(3)(4)
47,504

47,504

47,504

1.3%
 
 
 
 
47,504

47,504

1.3%
Deltek, Inc.
Virginia /
Software & Computer Services
Second Lien Term Loan (10.00% (LIBOR + 8.75% with 1.25% LIBOR floor), due 10/10/2019)(3)(4)(16)
12,000

11,852

12,000

0.3%
 
 
 
 
11,852

12,000

0.3%
Diamondback Operating, LP
Oklahoma / Oil & Gas Production
Net Profits Interest (15% of Equity Distributions)(7)
 


—%
 
 
 
 


—%
Edmentum, Inc.
Minnesota / Consumer Services
Second Lien Term Loan (11.25% (LIBOR + 9.75% with 1.50% LIBOR floor), due 5/17/2019)(3)(4)(16)
50,000

48,439

50,000

1.4%
 
 
 
 
48,439

50,000

1.4%

See notes to consolidated financial statements.
24


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

 
 
 
June 30, 2014 (Audited)
Portfolio Company
Locale / Industry
Investments(1)
Principal Value
Cost
Fair
Value(2)
% of Net Assets
 
 
 
 
 
 
 
LEVEL 3 PORTFOLIO INVESTMENTS
 
 
 
 
 
 
 
 
 
 
 
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
 
 
 
 
 
 
 
 
 
 
 
Empire Today, LLC
Illinois / Durable Consumer Products
Senior Secured Note (11.375%, due 2/1/2017)(16)
$
15,700

$
15,419

$
15,700

0.4%
 
 
 
 
15,419

15,700

0.4%
Fischbein, LLC
North Carolina / Machinery
Escrow Receivable
 

116

—%
 
 
 
 

116

—%
Fleetwash, Inc.
New Jersey / Business Services
Senior Secured Term Loan A (6.50% (LIBOR + 5.50% with 1.00% LIBOR floor), due 4/30/2019)(4)
25,000

25,000

25,000

0.7%
Senior Secured Term Loan B (10.50% (LIBOR + 9.50% with 1.00% LIBOR floor), due 4/30/2019)(4)
25,000

25,000

25,000

0.7%
Delayed Draw Term Loan – $15,000 Commitment (expires 4/30/2019)(25)



—%
 
 
 
 
50,000

50,000

1.4%
Focus Brands, Inc.
Georgia / Consumer Services
Second Lien Term Loan (10.25% (LIBOR + 9.00% with 1.25% LIBOR floor), due 8/21/2018)(4)(16)
18,000

17,776

18,000

0.5%
 
 
 
 
17,776

18,000

0.5%
Focus Products Group International, LLC
Illinois /
Durable Consumer Products
Senior Secured Term Loan (12.00% (LIBOR + 11.00% with 1.00% LIBOR floor), due 1/20/2017)(3)(4)
20,297

20,297

19,886

0.5%
Common Stock (5,638 shares)
 
27


—%
 
 
 
 
20,324

19,886

0.5%
Galaxy XII CLO, Ltd.
Cayman Islands / Diversified Financial Services
Subordinated Notes (Residual Interest, current yield 13.31%)(11)(22)
22,000

19,498

20,449

0.6%
 
 
 
 
19,498

20,449

0.6%
Galaxy XV CLO, Ltd.
Cayman Islands / Diversified Financial Services
Subordinated Notes (Residual Interest, current yield 14.27%)(11)(22)
35,025

29,777

31,824

0.9%
 
 
 
 
29,777

31,824

0.9%
Galaxy XVI CLO, Ltd.
Cayman Islands / Diversified Financial Services
Subordinated Notes (Residual Interest, current yield 12.19%)(11)(22)
22,575

20,790

20,573

0.6%
 
 
 
 
20,790

20,573

0.6%
Galaxy XVII CLO, Ltd.
Cayman Islands / Diversified Financial Services
Subordinated Notes (Residual Interest, current yield 14.79%)(11)(22)
39,905

36,811

36,589

1.0%
 
 
 
 
36,811

36,589

1.0%
Global Employment Solutions, Inc.
Colorado / Business Services
Senior Secured Term Loan (10.00% (LIBOR + 9.00% with 1.00% LIBOR floor), due 3/25/2019)(3)(4)
28,464

28,464

28,464

0.8%
 
 
 
 
28,464

28,464

0.8%
Grocery Outlet, Inc.
California / Retail
Second Lien Term Loan (10.50% (LIBOR + 9.25% with 1.25% LIBOR floor), due 6/17/2019)(4)(16)
14,457

14,168

14,457

0.4%
 
 
 
 
14,168

14,457

0.4%
GTP Operations, LLC(10)
Texas / Software & Computer Services
Senior Secured Term Loan (10.00% (LIBOR + 5.00% with 5.00% LIBOR floor), due 12/11/2018)(3)(4)
112,546

112,546

112,546

3.1%
 
 
 
 
112,546

112,546

3.1%
Halcyon Loan Advisors Funding 2012-1 Ltd.
Cayman Islands / Diversified Financial Services
Subordinated Notes (Residual Interest, current yield 21.35%)(11)(22)
23,188

20,600

22,570

0.6%
 
 
 
 
20,600

22,570

0.6%
Halcyon Loan Advisors Funding 2013-1 Ltd.
Cayman Islands / Diversified Financial Services
Subordinated Notes (Residual Interest, current yield 18.49%)(11)(22)
40,400

38,460

41,509

1.1%
 
 
 
 
38,460

41,509

1.1%

See notes to consolidated financial statements.
25


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

 
 
 
June 30, 2014 (Audited)
Portfolio Company
Locale / Industry
Investments(1)
Principal Value
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 2014-1 Ltd.
Cayman Islands / Diversified Financial Services
Subordinated Notes (Residual Interest, current yield 15.28%)(11)(22)
$
24,500

$
23,471

$
23,110

0.6%
 
 
 
 
23,471

23,110

0.6%
Halcyon Loan Advisors Funding 2014-2 Ltd.
Cayman Islands / Diversified Financial Services
Subordinated Notes (Residual Interest, current yield 16.06%)(11)(22)
41,164

38,630

38,066

1.1%
 
 
 
 
38,630

38,066

1.1%
Harley Marine Services, Inc.
Washington / Transportation
Second Lien Term Loan (10.50% (LIBOR + 9.25% with 1.25% LIBOR floor), due 12/20/2019)(3)(4)(16)
9,000

8,832

8,832

0.2%
 
 
 
 
8,832

8,832

0.2%
ICON Health & Fitness, Inc.
Utah / Durable Consumer Products
Senior Secured Note (11.875%, due 10/15/2016)(16)
21,850

22,005

20,889

0.6%
 
 
 
 
22,005

20,889

0.6%
ICV-CSI Holdings, LLC
New York / Transportation
Common Equity (1.6 units)
 
1,639

2,079

0.1%
 
 
 
 
1,639

2,079

0.1%
IDQ Holdings, Inc.
Texas / Automobile
Senior Secured Note (11.50%, due 4/1/2017)(16)
12,500

12,344

12,500

0.3%
 
 
 
 
12,344

12,500

0.3%
Ikaria, Inc.
New Jersey / Healthcare
Second Lien Term Loan (8.75% (LIBOR + 7.75% with 1.00% LIBOR floor), due 2/12/2022)(4)(16)
25,000

24,430

25,000

0.7%
 
 
 
 
24,430

25,000

0.7%
Injured Workers Pharmacy, LLC
Massachusetts / Healthcare
Second Lien Term Loan (11.50% (LIBOR + 7.00% with 4.50% LIBOR floor) plus 1.00% PIK, due 5/31/2019)(3)(4)
22,678

22,678

22,904

0.6%
 
 
 
 
22,678

22,904

0.6%
Instant Web, LLC
Minnesota / Media
Senior Secured Term Loan A (5.50% (LIBOR + 4.50% with 1.00% LIBOR floor), due 3/28/2019)(4)
126,453

126,453

126,453

3.5%
Senior Secured Term Loan B (12.00% (LIBOR + 11.00% with 1.00% LIBOR floor), due 3/28/2019)(3)(4)
128,000

128,000

128,000

3.6%
Senior Secured Term Loan C (12.75% (LIBOR + 11.75% with 1.00% LIBOR floor), due 3/28/2019)(4)
12,500

12,500

12,500

0.3%
 
 
 
 
266,953

266,953

7.4%
InterDent, Inc.
California / Healthcare
Senior Secured Term Loan A (7.25% (LIBOR + 5.75% with 1.50% LIBOR floor), due 8/3/2017)(4)
63,225

63,225

63,225

1.7%
Senior Secured Term Loan B (12.25% (LIBOR + 9.25% with 3.00% LIBOR floor), due 8/3/2017)(3)(4)
67,625

67,625

67,625

1.9%
 
 
 
 
130,850

130,850

3.6%
JHH Holdings, Inc.
Texas / Healthcare
Second Lien Term Loan (11.25% (LIBOR + 10.00% with 1.25% LIBOR floor) plus 0.50% PIK, due 3/30/2019)(3)(4)
35,119

35,119

35,119

1.0%
 
 
 
 
35,119

35,119

1.0%
LaserShip, Inc.
Virginia / Transportation
Revolving Line of Credit – $5,000 Commitment (10.25% (LIBOR + 8.25% with 2.00% LIBOR floor), due 12/21/2014)(4)(25)



—%
Senior Secured Term Loan A (10.25% (LIBOR + 8.25% with 2.00% LIBOR floor), due 3/18/2019)(3)(4)
36,094

36,094

36,094

1.0%
Senior Secured Term Loan B (10.25% (LIBOR + 8.25% with 2.00% LIBOR floor), due 3/18/2019)(3)(4)
22,111

22,111

22,111

0.6%
Delayed Draw Term Loan – $6,000 Commitment (expires 12/31/2016)(25)



—%
 
 
 
 
58,205

58,205

1.6%
 
 
 
 
 
 
 

See notes to consolidated financial statements.
26


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

 
 
 
June 30, 2014 (Audited)
Portfolio Company
Locale / Industry
Investments(1)
Principal Value
Cost
Fair
Value(2)
% of Net Assets
 
 
 
 
 
 
 
LEVEL 3 PORTFOLIO INVESTMENTS
 
 
 
 
 
 
 
 
 
 
 
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
 
 
 
 
 
 
 
 
 
 
 
LCM XIV Ltd.
Cayman Islands / Diversified Financial Services
Income Notes (Residual Interest, current yield 16.02%)(11)(22)
$
26,500

$
24,914

$
25,124

0.7%
 
 
 
 
24,914

25,124

0.7%
LHC Holdings Corp.
Florida / Healthcare
Revolving Line of Credit – $750 Commitment (8.50% (LIBOR + 6.00% with 2.50% LIBOR floor), due 5/31/2015)(4)(25)(26)



—%
Senior Subordinated Debt (10.50%, due 5/31/2015)(3)
1,865

1,865

1,865

0.1%
Membership Interest (125 units)
 
216

253

—%
 
 
 
 
2,081

2,118

0.1%
Madison Park Funding IX, Ltd.
Cayman Islands / Diversified Financial Services
Subordinated Notes (Residual Interest, current yield 12.97%)(11)(22)
31,110

24,546

27,266

0.8%
 
 
 
 
24,546

27,266

0.8%
Matrixx Initiatives, Inc.
New Jersey / Pharmaceuticals
Senior Secured Term Loan A (7.50% (LIBOR + 6.00% with 1.50% LIBOR floor), due 8/9/2018)(3)(4)
38,319

38,319

36,839

1.0%
Senior Secured Term Loan B (12.50% (LIBOR + 11.00% with 1.50% LIBOR floor), due 8/9/2018)(3)(4)
39,750

39,750

36,851

1.0%
 
 
 
 
78,069

73,690

2.0%
Maverick Healthcare Equity, LLC
Arizona / Healthcare
Preferred Units (1,250,000 units)
 
1,252

821

—%
Class A Common Units (1,250,000 units)
 


—%
 
 
 
 
1,252

821

—%
Mountain View CLO 2013-I Ltd.
Cayman Islands / Diversified Financial Services
Subordinated Notes (Residual Interest, current yield 15.64%)(11)(22)
43,650

40,754

43,555

1.2%
 
 
 
 
40,754

43,555

1.2%
NCP Finance Limited Partnership(23)
Ohio /
Consumer Finance
Subordinated Secured Term Loan (11.00% (LIBOR + 9.75% with 1.25% LIBOR floor), due 9/30/2018)(3)(4)(16)(22)
11,910

11,692

12,208

0.3%
 
 
 
 
11,692

12,208

0.3%
New Century Transportation, Inc.
New Jersey / Transportation
Senior Subordinated Term Loan (12.00% (LIBOR + 10.00% with 2.00% LIBOR floor) plus 4.00% PIK, in non-accrual status effective 4/1/2014, due 2/3/2018)(4)
44,000

44,000


—%
 
 
 
 
44,000


—%
Nixon, Inc.
California / Durable Consumer Products
Senior Secured Term Loan (8.75% plus 2.75% PIK, due 4/16/2018)(16)
13,532

13,316

13,316

0.4%
 
 
 
 
13,316

13,316

0.4%
NRG Manufacturing, Inc.
Texas / Manufacturing
Escrow Receivable
 

1,110

—%
 
 
 
 

1,110

—%
Octagon Investment Partners XV, Ltd.
Cayman Islands / Diversified Financial Services
Income Notes (Residual Interest, current yield 20.60%)(11)(22)
26,901

24,338

26,732

0.7%
 
 
 
 
24,338

26,732

0.7%
Onyx Payments(44)
Texas / Diversified Financial Services
Senior Secured Term Loan A (6.75% (LIBOR + 5.50% with 1.25% LIBOR floor), due 4/18/2018)(4)
15,125

15,125

15,125

0.4%
Senior Secured Term Loan B (13.75% (LIBOR + 12.50% with 1.25% LIBOR floor), due 4/18/2018)(4)
15,938

15,938

15,938

0.4%
 
 
 
 
31,063

31,063

0.8%
Pelican Products, Inc.
California / Durable Consumer Products
Second Lien Term Loan (9.25% (LIBOR + 8.25% with 1.00% LIBOR floor), due 4/9/2021)(4)(16)
17,500

17,482

17,500

0.5%
 
 
 
 
17,482

17,500

0.5%
 
 
 
 
 
 
 

See notes to consolidated financial statements.
27


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

 
 
 
June 30, 2014 (Audited)
Portfolio Company
Locale / Industry
Investments(1)
Principal Value
Cost
Fair
Value(2)
% of Net Assets
 
 
 
 
 
 
 
LEVEL 3 PORTFOLIO INVESTMENTS
 
 
 
 
 
 
 
 
 
 
 
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
 
 
 
 
 
 
 
 
 
 
 
PGX Holdings, Inc.(28)
Utah / Consumer Services
Senior Secured Term Loan (10.50% (LIBOR + 8.50% with 2.00% LIBOR floor), due 9/14/2017)(3)(4)
$
436,647

$
436,647

$
436,647

12.1%
 
 
 
 
436,647

436,647

12.1%
Photonis Technologies SAS
France / Aerospace & Defense
First Lien Term Loan (8.50% (LIBOR + 7.50% with 1.00% LIBOR floor), due 9/18/2019)(4)(16)(22)
10,448

10,170

10,339

0.3%
 
 
 
 
10,170

10,339

0.3%
Pinnacle (US) Acquisition Co. Limited
Texas / Software & Computer Services
Second Lien Term Loan (10.50% (LIBOR + 9.25% with 1.25% LIBOR floor), due 8/3/2020)(4)(16)
10,000

9,833

10,000

0.3%
 
 
 
 
9,833

10,000

0.3%
PrimeSport, Inc.
Georgia / Hotels, Restaurants & Leisure
Revolving Line of Credit – $15,000 Commitment (10.00% (LIBOR + 9.50% with 0.50% LIBOR floor), due 6/30/2015)(4)(25)(26)



—%
Senior Secured Term Loan A (7.50% (LIBOR + 6.50% with 1.00% LIBOR floor), due 12/23/2019)(3)(4)
43,263

43,263

43,263

1.2%
Senior Secured Term Loan B (11.50% (LIBOR + 10.50% with 1.00% LIBOR floor) plus 1.00% PIK, due 12/23/2019)(3)(4)
43,700

43,700

43,700

1.2%
 
 
 
 
86,963

86,963

2.4%
Prince Mineral Holding Corp.
New York / Metal Services & Minerals
Senior Secured Term Loan (11.50%, due 12/15/2019)(16)
10,000

9,902

10,000

0.3%
 
 
 
 
9,902

10,000

0.3%
Rocket Software, Inc.
Massachusetts / Software & Computer Services
Second Lien Term Loan (10.25% (LIBOR + 8.75% with 1.50% LIBOR floor), due 2/8/2019)(3)(4)(16)
20,000

19,758

20,000

0.6%
 
 
 
 
19,758

20,000

0.6%
Royal Adhesives & Sealants, LLC
Indiana / Chemicals
Second Lien Term Loan (9.75% (LIBOR + 8.50% with 1.25% LIBOR floor), due 1/31/2019)(4)(16)
20,000

19,648

19,713

0.5%
 
 
 
 
19,648

19,713

0.5%
Ryan, LLC
Texas / Business Services
Subordinated Unsecured Notes (12.00% (LIBOR + 9.00% with 3.00% LIBOR floor) plus 3.00% PIK, due 6/30/2018)(4)
70,531

70,531

70,531

1.9%
 
 
 
 
70,531

70,531

1.9%
Sandow Media, LLC
Florida / Media
Senior Secured Term Loan (12.00%, due 5/8/2018)(3)
25,081

25,081

23,524

0.7%
 
 
 
 
25,081

23,524

0.7%
Small Business Whole Loan Portfolio(19)
New York / Diversified Financial Services
144 small business loans purchased from On Deck Capital, Inc.
4,637

4,637

4,252

0.1%
 
 
 
 
4,637

4,252

0.1%
Snacks Parent Corporation
Minnesota / Food Products
Series A Preferred Stock (4,021.45 shares)
 


—%
Series B Preferred Stock (1,866.10 shares)
 


—%
Warrant (to purchase 31,196.52 shares of Common Stock, expires 11/12/2020)
 
591

1,819

0.1%
 
 
 
 
591

1,819

0.1%
Spartan Energy Services, Inc.
Louisiana / Energy
Senior Secured Term Loan (10.50% (LIBOR + 9.00% with 1.50% LIBOR floor), due 12/28/2017)(3)(4)
35,633

35,633

35,633

1.0%
 
 
 
 
35,633

35,633

1.0%
Speedy Group Holdings Corp.
Canada / Consumer Finance
Senior Unsecured Notes (12.00%, due 11/15/2017)(16)(22)
15,000

15,000

15,000

0.4%
 
 
 
 
15,000

15,000

0.4%
 
 
 
 
 
 
 

See notes to consolidated financial statements.
28


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

 
 
 
June 30, 2014 (Audited)
Portfolio Company
Locale / Industry
Investments(1)
Principal Value
Cost
Fair
Value(2)
% of Net Assets
 
 
 
 
 
 
 
LEVEL 3 PORTFOLIO INVESTMENTS
 
 
 
 
 
 
 
 
 
 
 
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
 
 
 
 
 
 
 
 
 
 
 
Sport Helmets Holdings, LLC
New York / Personal & Nondurable Consumer Products
Escrow Receivable
 
$

$
130

—%
 
 
 
 

130

—%
Stauber Performance Ingredients, Inc.
California / Food Products
Senior Secured Term Loan (10.50% (LIBOR + 7.50% with 3.00% LIBOR floor), due 1/21/2016)(3)(4)
$
12,809

12,809

12,809

0.4%
Senior Secured Term Loan (10.50% (LIBOR + 7.50% with 3.00% LIBOR floor), due 5/21/2017)(3)(4)
9,975

9,975

9,975

0.3%
 
 
 
 
22,784

22,784

0.7%
Stryker Energy, LLC
Ohio / Oil & Gas Production
Subordinated Secured Revolving Credit Facility – $50,300 Commitment (12.25% (LIBOR + 10.75% with 1.50% LIBOR floor) plus 3.75% PIK, in non-accrual status effective 12/1/2011, due 12/1/2015)(4)(25)
36,080

32,710


—%
Overriding Royalty Interests(18)
 


—%
 
 
 
 
32,710


—%
Sudbury Mill CLO Ltd.
Cayman Islands / Diversified Financial Services
Subordinated Notes (Residual Interest, current yield 16.25%)(11)(22)
28,200

26,914

26,140

0.7%
 
 
 
 
26,914

26,140

0.7%
Symphony CLO IX Ltd.
Cayman Islands / Diversified Financial Services
Preference Shares (Residual Interest, current yield 19.76%)(11)(22)
45,500

37,734

44,294

1.2%
 
 
 
 
37,734

44,294

1.2%
Symphony CLO XIV Ltd.
Cayman Islands / Diversified Financial Services
Subordinated Notes (Residual Interest, current yield 14.03%)(11)(22)
49,250

49,858

49,025

1.4%
 
 
 
 
49,858

49,025

1.4%
System One Holdings, LLC
Pennsylvania / Business Services
Senior Secured Term Loan (11.00% (LIBOR + 9.50% with 1.50% LIBOR floor), due 12/31/2018)(3)(4)
44,646

44,646

44,646

1.2%
 
 
 
 
44,646

44,646

1.2%
Targus Group International, Inc.
California / Durable Consumer Products
First Lien Term Loan (11.00% (LIBOR + 9.50% with 1.50% LIBOR floor) plus 1.0% PIK, due 5/24/2016)(3)(4)(16)
21,911

21,697

19,949

0.6%
 
 
 
 
21,697

19,949

0.6%
TB Corp.
Texas / Hotels, Restaurants & Leisure
Senior Subordinated Note (12.00% plus 1.50% PIK, due 12/19/2018)(3)
23,628

23,628

23,628

0.7%
 
 
 
 
23,628

23,628

0.7%
Tectum Holdings, Inc.
Michigan / Automobile
Second Lien Term Loan (9.00% (LIBOR + 8.00% with 1.00% LIBOR floor), due 3/12/2019)(4)(16)
10,000

9,952

9,952

0.3%
 
 
 
 
9,952

9,952

0.3%
Therakos, Inc.
New Jersey / Healthcare
Second Lien Term Loan (11.25% (LIBOR + 10.00% with 1.25% LIBOR floor), due 6/27/2018)(4)(16)
13,000

12,762

13,000

0.4%
 
 
 
 
12,762

13,000

0.4%
Tolt Solutions, Inc.
South Carolina / Business Services
Senior Secured Term Loan A (7.00% (LIBOR + 6.00% with 1.00% LIBOR floor), due 3/7/2019)(3)(4)
48,705

48,705

48,705

1.3%
Senior Secured Term Loan B (12.00% (LIBOR + 11.00% with 1.00% LIBOR floor), due 3/7/2019)(3)(4)
48,900

48,900

48,900

1.4%
 
 
 
 
97,605

97,605

2.7%
Traeger Pellet Grills LLC
Oregon / Durable Consumer Products
Senior Secured Term Loan A (6.50% (LIBOR + 4.50% with 2.00% LIBOR floor), due 6/18/2018)(3)(4)
29,100

29,100

29,100

0.8%
Senior Secured Term Loan B (11.50% (LIBOR + 9.50% with 2.00% LIBOR floor), due 6/18/2018)(3)(4)
29,700

29,700

29,700

0.8%
 
 
 
 
58,800

58,800

1.6%

See notes to consolidated financial statements.
29


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

 
 
 
June 30, 2014 (Audited)
Portfolio Company
Locale / Industry
Investments(1)
Principal Value
Cost
Fair
Value(2)
% of Net Assets
 
 
 
 
 
 
 
LEVEL 3 PORTFOLIO INVESTMENTS
 
 
 
 
 
 
 
 
 
 
 
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
 
 
 
 
 
 
 
 
 
 
 
Transaction Network Services, Inc.
Virginia / Telecommunication Services
Second Lien Term Loan (9.00% (LIBOR + 8.00% with 1.00% LIBOR floor), due 8/14/2020)(4)(16)
$
5,000

$
4,976

$
5,000

0.1%
 
 
 
 
4,976

5,000

0.1%
TriMark USA, LLC
Massachusetts / Hotels, Restaurants & Leisure
Second Lien Term Loan (10.00% (LIBOR + 9.00% with 1.00% LIBOR floor), due 8/11/2019)(4)(16)
10,000

9,810

9,810

0.3%
 
 
 
 
9,810

9,810

0.3%
United Sporting Companies, Inc.(5)
South Carolina / Durable Consumer Products
Second Lien Term Loan (12.75% (LIBOR + 11.00% with 1.75% LIBOR floor), due 5/16/2018)(3)(4)
160,000

160,000

160,000

4.4%
 
 
 
 
160,000

160,000

4.4%
United States Environmental Services, LLC
Texas / Commercial Services
Senior Secured Term Loan A (6.50% (LIBOR + 5.50% with 1.00% LIBOR floor), due 3/31/2019)(3)(4)
23,850

23,850

23,850

0.7%
Senior Secured Term Loan B (11.50% (LIBOR + 10.50% with 1.00% LIBOR floor), due 3/31/2019)(3)(4)
36,000

36,000

36,000

1.0%
 
 
 
 
59,850

59,850

1.7%
Venio LLC
Pennsylvania / Business Services
Second Lien Term Loan (12.00% (LIBOR + 9.50% with 2.50% LIBOR floor), due 2/19/2020)(3)(4)
17,000

17,000

16,726

0.5%
 
 
 
 
17,000

16,726

0.5%
Voya CLO 2012-2, Ltd.
Cayman Islands / Diversified Financial Services
Income Notes (Residual Interest, current yield 14.69%)(11)(22)
38,070

31,058

35,843

1.0%
 
 
 
 
31,058

35,843

1.0%
Voya CLO 2012-3, Ltd.
Cayman Islands / Diversified Financial Services
Income Notes (Residual Interest, current yield 12.97%)(11)(22)
46,632

39,368

43,960

1.2%
 
 
 
 
39,368

43,960

1.2%
Voya CLO 2012-4, Ltd.
Cayman Islands / Diversified Financial Services
Income Notes (Residual Interest, current yield 15.28%)(11)(22)
40,613

34,941

39,647

1.1%
 
 
 
 
34,941

39,647

1.1%
Voya CLO 2014-1, Ltd.
Cayman Islands / Diversified Financial Services
Subordinated Notes (Residual Interest, current yield 14.49%)(11)(22)
32,383

33,825

32,949

0.9%
 
 
 
 
33,825

32,949

0.9%
Washington Mill CLO Ltd.
Cayman Islands / Diversified Financial Services
Subordinated Notes (Residual Interest, current yield 17.43%)(11)(22)
22,600

21,601

21,583

0.6%
 
 
 
 
21,601

21,583

0.6%
Water Pik, Inc.
Colorado / Personal & Nondurable Consumer Products
Second Lien Term Loan (9.75% (LIBOR + 8.75% with 1.00% LIBOR floor), due 1/8/2021)(4)(16)
11,000

10,604

10,604

0.3%
 
 
 
 
10,604

10,604

0.3%
Wheel Pros, LLC
Colorado / Business Services
Senior Subordinated Secured Note (11.00% (LIBOR + 7.00% with 4.00% LIBOR floor), due 6/29/2020)(4)
12,000

12,000

12,000

0.3%
Delayed Draw Term Loan – $3,000 Commitment (expires 12/30/2015)(25)



—%
 
 
 
 
12,000

12,000

0.3%
 
 
 
 
 
 
 
 
 
 
 
 
 
 

See notes to consolidated financial statements.
30


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

 
 
 
June 30, 2014 (Audited)
Portfolio Company
Locale / Industry
Investments(1)
Principal Value
Cost
Fair
Value(2)
% of Net Assets
 
 
 
 
 
 
 
LEVEL 3 PORTFOLIO INVESTMENTS
 
 
 
 
 
 
 
 
 
 
 
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
 
 
 
 
 
 
 
 
 
 
 
Wind River Resources Corporation(39)
Utah / Oil & Gas Production
Senior Secured Note (13.00% (LIBOR + 7.50% with 5.50% LIBOR floor) plus 3.00% default interest on principal and 16.00% default interest on past due interest, in non-accrual status effective 12/1/2008, past due)(4)
$
15,000

$
14,650

$

—%
Net Profits Interest (5% of Equity Distributions)(7)
 


—%
 
 
 
 
14,650


—%
Total Non-Control/Non-Affiliate Investments (Level 3)
 
$
4,620,388

$
4,580,996

126.6%
 
 
 
 
 
Total Level 3 Portfolio Investments
 
$
6,371,459

$
6,253,571

172.8%
LEVEL 1 PORTFOLIO INVESTMENTS
 
 
 
 
 
 
 
 
 
 
 
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
 
 
 
 
 
 
 
 
 
 
 
Dover Saddlery, Inc.
Massachusetts / Retail
Common Stock (30,974 shares)
 
$
63

$
168

—%
 
 
 
 
63

168

—%
Total Non-Control/Non-Affiliate Investments (Level 1)
$
63

$
168

—%
 
 
 
 
 
Total Non-Control/Non-Affiliate Investments
$
4,620,451

$
4,581,164

126.6%
 
 
 
 
 
Total Portfolio Investments
$
6,371,522

$
6,253,739

172.8%



See notes to consolidated financial statements.
31


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

Endnote Explanations as of March 31, 2015 (Unaudited) and June 30, 2014 (Audited)

(1)
The terms “Prospect,” “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 March 31, 2015 and June 30, 2014, one of our portfolio investments, Dover Saddlery, Inc., was publicly traded and classified as Level 1 within the valuation hierarchy established by ASC 820, Fair Value Measurement (“ASC 820”). As of March 31, 2015 and June 30, 2014, the fair value of our remaining portfolio investments was determined using significant unobservable inputs. ASC 820 classifies such inputs used to measure fair value as Level 3 within the valuation 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 these investments held by PCF at March 31, 2015 and June 30, 2014 were $1,598,477 and $1,500,897, respectively; they represent 24.2% and 24.0% of our total investments, respectively.
(4)
Security, or a portion thereof, has a floating interest rate which may be subject to a LIBOR or PRIME floor. Stated interest rate was in effect at March 31, 2015 and June 30, 2014.
(5)
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. is a parent guarantor of this debt investment.
(6)
On January 19, 2010, we modified the terms of our senior secured debt in Appalachian Energy Holdings, LLC (“AEH”) and Coalbed, LLC (“Coalbed”) in conjunction with the formation of Manx Energy, Inc. (“Manx”), a new entity consisting of the assets of AEH, Coalbed and Kinley Exploration. The assets of the three companies were brought under new common management. We funded $2,800 at closing to Manx to provide for working capital. As part of the Manx roll-up, our loans to AEH and Coalbed were assigned to Manx and a portion of the debt was exchanged for Manx preferred equity, while our AEH equity interest was converted into Manx common stock. There was no change to fair value at the time of restructuring. On June 30, 2012, Manx returned the investments in Coalbed and AEH to us and we contributed these investments to Wolf Energy Holdings Inc. (“Wolf Energy Holdings”), a newly-formed, separately owned holding company. During the three months ended June 30, 2013, we determined that the impairment of Manx was other-than-temporary and recorded a realized loss of $9,397 for the amount that the amortized cost exceeded the fair value, reducing the amortized cost to $500. As of June 30, 2014, Prospect owned 41% of the equity of Manx. During the three months ended December 31, 2014, Manx was dissolved and we recorded a realized loss of $50, reducing the amortized cost to zero.
(7)
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.
(8)
During the quarter ended December 31, 2011, our ownership of Change Clean Energy Holdings, LLC, Change Clean Energy, LLC, Freedom Marine Services Holdings, LLC (“Freedom Marine”), and Yatesville Coal Holdings, LLC was transferred to Energy Solutions Holdings Inc. (f/k/a Gas Solutions Holdings, Inc.) (“Energy Solutions”) to consolidate all of our energy holdings under one management team. We own 100% of Energy Solutions. On December 28, 2011, we made a $3,500 debt investment in Vessel Holdings, LLC, a subsidiary of Freedom Marine. On November 25, 2013, we provided $13,000 in senior secured debt financing for the recapitalization of our investment in Jettco Marine Services, LLC (“Jettco”), a subsidiary of Freedom Marine. The subordinated secured loan to Jettco was replaced with a senior secured note to Vessel Holdings II, LLC, a new subsidiary of Freedom Marine. On December 3, 2013, we made a $16,000 senior secured investment in Vessel Holdings III, LLC, another new subsidiary of Freedom Marine. On June 4, 2014, Gas Solutions GP LLC and Gas Solutions LP LLC, two subsidiaries of Energy Solutions, merged with and into Freedom Marine, with Freedom Marine as the surviving entity. In June 2014, Freedom Marine Services Holdings, LLC was renamed Freedom Marine Solutions, LLC; Vessel Holdings, LLC was renamed Vessel Company, LLC; Vessel Holdings II, LLC was renamed Vessel Company II, LLC; Vessel Holdings III, LLC was renamed Vessel Company III, LLC; Yatesville Coal Holdings, LLC was renamed Yatesville Coal Company, LLC; and Change Clean Energy Holdings, LLC was renamed Change Clean Energy Company, LLC. On July 1, 2014, we began consolidating Energy Solutions and as a result, we began reporting our investments in Change Clean Energy Company, LLC, Freedom Marine Solutions, LLC and Yatesville Coal Company, LLC as separate controlled companies. During the three months ended December 31, 2014, we determined that the impairments of Change Clean Energy Company, LLC and Yatesville Coal Company, LLC were other-than-temporary and recorded a realized loss of $1,449, reducing the amortized cost to zero.

See notes to consolidated financial statements.
32


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

Endnote Explanations as of March 31, 2015 (Unaudited) and June 30, 2014 (Audited) (Continued)


(9)
We own 100% of the equity of Vets Securing America, Inc. (“VSA”) and 100% of the equity of The Healing Staff, Inc. (“THS”), a former wholly-owned subsidiary of ESA Environmental Specialists, Inc. During the nine months ended March 31, 2015, THS ceased operations. As of March 31, 2015, the VSA management team is supervising both the continued operations of VSA and the wind-down of activities at THS.
(10)
GTP Operations, LLC, Transplace, LLC, CI (Transplace) International, LLC, Transplace Freight Services, LLC, Transplace Texas, LP, Transplace Stuttgart, LP, Transplace International, Inc., Celtic International, LLC, and Treetop Merger Sub, LLC are joint borrowers on the senior secured term loan.
(11)
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 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.
(12)
Wolf Energy Holdings, an entity in which we own 100% of the common stock, owns 100% of the equity of Wolf Energy, LLC (“Wolf Energy”). Effective June 30, 2012, the membership interests and associated operating company debt of AEH and Coalbed, which were previously owned by Manx, were assigned to Wolf Energy Holdings. Effective June 6, 2014, Appalachian Energy Holdings, LLC was renamed Appalachian Energy LLC. On July 1, 2014, we began consolidating Wolf Energy Holdings and as a result, we began reporting our investments in Appalachian Energy LLC, Coalbed, LLC and Wolf Energy, LLC as separate controlled companies. During the three months ended September 30, 2014, we determined that the impairment of Appalachian Energy LLC was other-than-temporary and recorded a realized loss of $2,050, reducing the amortized cost to zero. On November 21, 2014, Coalbed merged with and into Wolf Energy, with Wolf Energy as the surviving entity. During the three months ended December 31, 2014, we determined that the impairment of the Coalbed debt assumed by Wolf Energy was other-than-temporary and recorded a realized loss of $5,991, reducing the amortized cost to zero.
(13)
On a fully diluted basis represents 10.00% of voting common shares.
(14)
Trinity Services Group, Inc. and Trinity Services I, LLC are joint borrowers on the senior secured loan facility.
(15)
We own 99.9999% of AGC/PEP, LLC. AGC/PEP, LLC owns 2,037.65 out of a total of 83,818.69 shares (including 5,111 vested and unvested management options) of American Gilsonite Holding Company which owns 100% of American Gilsonite Company.
(16)
Syndicated investment which was originated by a financial institution and broadly distributed.
(17)
MITY Holdings of Delaware Inc. (“MITY Delaware”), an entity in which we own 100% of the common stock, owns 94.99% of the equity of MITY, Inc. (f/k/a MITY Enterprises, Inc.) (“MITY”). MITY owns 100% of each of MITY-Lite, Inc.; Broda Enterprises USA, Inc.; and Broda Enterprises ULC (“Broda Canada”). On June 23, 2014, Prospect made a new $15,769 debt investment in MITY and MITY distributed proceeds to MITY Delaware as a return of capital. MITY Delaware used this distribution to pay down the senior secured debt of MITY Delaware to Prospect by the same amount. The remaining amount of the senior secured debt due from MITY Delaware to Prospect, $7,200, was then contributed to the capital of MITY Delaware. As a result of this transaction, Prospect held the $15,769 MITY note. Effective June 23, 2014, Mity Enterprises, Inc. was renamed MITY, Inc. and Broda Enterprises USA, Inc. was renamed Broda USA, Inc. On June 23, 2014, Prospect also extended a new $7,500 senior secured revolving facility to MITY, of which none was funded at closing. On July 1, 2014, we began consolidating MITY Delaware and as a result, we now report MITY, Inc. 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 March 31, 2015, 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.
(18)
The overriding royalty interests held receive payments at the stated rates based upon operations of the borrower.
(19)
Our wholly-owned subsidiary Prospect Small Business Lending, LLC purchases small business whole loans on a recurring basis from online small business loan originators, including On Deck Capital, Inc. and Direct Capital Corporation.

See notes to consolidated financial statements.
33


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

Endnote Explanations as of March 31, 2015 (Unaudited) and June 30, 2014 (Audited) (Continued)


(20)
Boxercraft Incorporated (“Boxercraft”) and BXC Company, Inc. (f/k/a BXC Holding Company) (“BXC”) are joint borrowers on our senior secured investments. Effective March 28, 2014, we acquired voting control of BXC pursuant to a voting agreement and irrevocable proxy. Effective May 8, 2014, we acquired control of BXC by transferring shares held by the other equity holders of BXC to us pursuant to an assignment agreement entered into with such other equity holders. As of June 30, 2014, we owned 86.7% of Series A preferred stock, 96.8% of Series B preferred stock, and 83.1% of the fully-diluted common stock of BXC. BXC owned 100% of the common stock of Boxercraft. We owned a warrant to purchase 15% of all classes of equity of BXC, which consisted of 3,755,000 shares of Series A preferred stock, 625,000 shares of Series B preferred stock, and 43,800 shares of voting common stock as of June 30, 2014. On August 25, 2014, we sold Boxercraft, a wholly-owned subsidiary of BXC, for net proceeds of $750 and realized a net loss of $16,949 on the sale.
(21)
We owned warrants to purchase 33,750 shares of common stock in Metal Buildings Holding Corporation (“Metal Buildings”), the former holding company of Borga, Inc. (“Borga”). Metal Buildings owned 100% of Borga. On March 8, 2010, we foreclosed on the stock in Borga that was held by Metal Buildings, obtaining 100% ownership of Borga. On January 24, 2014, we contributed our holdings in Borga to STI Holding, Inc. (“STI”), a wholly-owned holding company. On July 1, 2014, we began consolidating STI and as a result, we reported Borga, Inc. as a separate controlled company from July 1, 2014 until its sale on August 20, 2014. On August 20, 2014, we sold the assets of Borga, a wholly-owned subsidiary of STI, for net proceeds of $382 and realized a loss of $2,589 on the sale. On December 29, 2014, Borga was dissolved.
(22)
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. We monitor the status of these assets on an ongoing basis.
(23)
NCP Finance Limited Partnership, NCP Finance Ohio, LLC, and certain affiliates thereof are joint borrowers on the subordinated secured term loan.
(24)
On May 6, 2011, we made a secured first lien $24,250 debt investment to NMMB, Inc. (f/k/a NMMB Acquisition, Inc.) (“NMMB”), a $2,800 secured debt and $4,400 equity investment to NMMB Holdings, Inc. (“NMMB Holdings”). We owned 100% of the Series A Preferred Stock in NMMB Holdings. NMMB Holdings owned 100% of the Convertible Preferred Stock in NMMB. On December 13, 2013, we provided $8,086 in preferred equity for the recapitalization of NMMB Holdings. After the restructuring, we received repayment of $2,800 secured debt outstanding. We own 100% of the equity of NMMB Holdings as of March 31, 2015 and June 30, 2014. NMMB Holdings owns 96.33% and 92.93% of the fully diluted equity of NMMB as of March 31, 2015 and June 30, 2014, respectively. NMMB owns 100% of Refuel Agency, Inc. (“Refuel Agency”), which owns 100% of Armed Forces Communications, Inc. (“Armed Forces”). On June 12, 2014, Prospect made a new $7,000 senior secured term loan to Armed Forces. Armed Forces distributed this amount to Refuel Agency as a return of capital. Refuel Agency distributed this amount to NMMB as a return of capital, which was used to pay down $7,000 of NMMB’s $10,714 senior secured term loan to Prospect. On July 1, 2014, we began consolidating NMMB Holdings and as a result, we now report NMMB, Inc. as a separate controlled company.
(25)
Undrawn committed revolvers and delayed draw term loans to our portfolio companies incur commitment and unused fees ranging from 0.00% to 2.00%. As of March 31, 2015 and June 30, 2014, we had $89,400 and $72,118, respectively, of undrawn revolver and delayed draw term loan commitments to our portfolio companies.
(26)
Stated interest rates are based on March 31, 2015 and June 30, 2014 one month or three month LIBOR rates plus applicable spreads based on the respective credit agreements. Interest rates are subject to change based on actual elections by the borrower for a LIBOR rate contract or Base Rate contract when drawing on the revolver.
(27)
On July 30, 2010, we made a $30,000 senior secured debt investment in Airmall Inc. (“Airmall”), a $12,500 secured second lien in AMU Holdings Inc. (“AMU”), and acquired 100% of the Series A preferred stock and common stock of AMU. Our preferred stock in AMU had a 12.0% dividend rate which was paid from the dividends received from its operating subsidiary, Airmall. AMU owned 100% of the common stock in Airmall. On December 4, 2013, we sold a $972 participation in both debt investments, equal to 2% of the outstanding principal amount of loans on that date. On June 13, 2014, Prospect made a new $19,993 investment as a senior secured loan to Airmall. Airmall then distributed this amount to AMU as a return of capital, which AMU used to pay down the senior subordinated loan in the same amount. The minority interest held by a third party in AMU was exchanged for common stock of Airmall. As of June 30, 2014, we owned 100% of the equity of AMU, which owned 98% of Airmall. On July 1, 2014, we began consolidating AMU and as a result, we reported Airmall Inc. as a separate controlled company from July 1, 2014 until its sale on August 1, 2014. On August 1, 2014, we sold our investments in Airmall for net proceeds of $51,379 and realized a loss of $3,473 on the sale. In addition, there is $6,000 being held in escrow, of which 98% is due to Prospect, which will be recognized as an additional realized loss if it is not received. On October 22, 2014, we received a tax refund of $665 related to our investment in Airmall for which we realized a gain of the same amount.

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 March 31, 2015 (Unaudited) and June 30, 2014 (Audited) (Continued)


(28)
As of June 30, 2014, Progrexion Marketing, Inc., Progrexion Teleservices, Inc., Progrexion ASG, Inc., Progrexion IP, Inc., Creditrepair.com, Inc., and eFolks, LLC were joint borrowers on the senior secured term loan. PGX Holdings, Inc. was the parent guarantor of this debt investment. As of March 31, 2015, PGX Holdings, Inc. is the sole borrower on the second lien term loan.
(29)
First Tower Holdings of Delaware LLC (“First Tower Delaware”), an 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 (“First Tower”), the operating company. On June 24, 2014, Prospect made a new $251,246 second lien term loan to First Tower. First Tower distributed this amount to First Tower Finance, which distributed this amount to First Tower Delaware as a return of capital. First Tower Delaware used the distribution to partially pay down the Senior Secured Revolving Credit Facility. The remaining $23,712 of the Senior Secured Revolving Credit Facility was then converted to additional membership interests held by Prospect in First Tower Delaware. On July 1, 2014, we began consolidating First Tower Delaware and as a result, we now report First Tower Finance Company LLC as a separate controlled company.
(30)
Arctic Oilfield Equipment USA, Inc. (“Arctic Equipment”), an entity in which we own 100% of the common equity, owns 70% of the equity of Arctic Energy Services, LLC (“Arctic Energy”), the operating company. On July 1, 2014, we began consolidating Arctic Equipment and as a result, we now report Arctic Energy as a separate controlled company.
(31)
We own 2.8% (13,220 shares) of Mineral Fusion Natural, LLC, a subsidiary of Caleel + Hayden, LLC, common and preferred interest.
(32)
APH Property Holdings, LLC (“APH”), an entity in which we own 100% of the membership interests, owns 100% of the common equity of American Property REIT Corp. (f/k/a American Property Holdings Corp.) (“APRC”), a qualified REIT which holds investments in several real estate properties. Effective April 1, 2014, Prospect made a new $167,162 senior term loan to APRC. APRC then distributed this amount to APH as a return of capital which was used to pay down the Senior Term Loan from APH by the same amount. On July 1, 2014, we began consolidating APH and as a result, we now report APRC as a separate controlled company. See Note 3 for further discussion of the properties held by APRC.
(33)
CCPI Holdings Inc. (“CCPI Holdings”), an entity in which we own 100% of the common stock, owns 94.77% of CCPI Inc. (“CCPI”), the operating company. On June 13, 2014, Prospect made a new $8,218 senior secured note to CCPI. CCPI then distributed this amount to CCPI Holdings as a return of capital which was used to pay down the $8,216 senior secured note from CCPI Holdings to Prospect. The remaining $2 was distributed to Prospect as a return of capital of Prospect’s equity investment in CCPI Holdings. On July 1, 2014, we began consolidating CCPI Holdings and as a result, we now report CCPI Inc. as a separate controlled company.
(34)
Credit Central Holdings of Delaware, LLC (“Credit Central Delaware”), an entity in which we own 100% of the membership interests, owns 74.77% and 74.75% of Credit Central Loan Company, LLC (f/k/a Credit Central Holdings, LLC) (“Credit Central”) as of March 31, 2015 and June 30, 2014, respectively. 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. On June 26, 2014, Prospect made a new $36,333 second lien term loan to Credit Central. Credit Central then distributed this amount to Credit Central Delaware as a return of capital which was used to pay down the Senior Secured Revolving Credit Facility from Credit Central Delaware by the same amount. The remaining amount of the Senior Secured Revolving Credit Facility, $3,874, was then converted into additional membership interests in Credit Central Delaware. On July 1, 2014, we began consolidating Credit Central Delaware and as a result, we now report Credit Central Loan Company, LLC as a separate controlled company.
(35)
Valley Electric Holdings I, Inc. (“Valley Holdings I”), an entity in which we own 100% of the common stock, owns 100% of Valley Electric Holdings II, Inc. (“Valley Holdings II”). 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. (“Valley”). On June 24, 2014, Valley Holdings II and management of Valley formed Valley Electric and contributed their shares of Valley stock to Valley Electric. Prospect made a new $20,471 senior secured loan to Valley Electric. Valley Electric then distributed this amount to Valley Holdings I, via Valley Holdings II, as a return of capital which was used to pay down the senior secured note of Valley Holdings I by the same amount. The remaining principal amount of the senior secured note, $16,754, was then contributed to the capital of Valley Holdings I. On July 1, 2014, we began consolidating Valley Holdings I and Valley Holdings II and as a result, we now report Valley Electric Company, Inc. as a separate controlled company.

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 March 31, 2015 (Unaudited) and June 30, 2014 (Audited) (Continued)


(36)
Nationwide Acceptance Holdings LLC (“Nationwide Holdings”), an entity in which we own 100% of the membership interests, owns 93.79% of Nationwide Acceptance LLC (“Nationwide”), the operating company. On June 18, 2014, Prospect made a new $14,820 second lien term loan to Nationwide. Nationwide distributed this amount to Nationwide Holdings as a return of capital. Nationwide Holdings used the distribution to pay down the Senior Secured Revolving Credit Facility. The remaining $9,888 of the Senior Secured Revolving Credit Facility was then converted into additional membership interests in Nationwide Holdings. On July 1, 2014, we began consolidating Nationwide Holdings and as a result, we now report Nationwide Acceptance LLC as a separate controlled company.
(37)
On April 15, 2013, assets previously held by H&M Oil & Gas, LLC (“H&M”) were assigned to Wolf Energy in exchange for a $66,000 term loan secured by the assets. The cost basis in this loan of $44,632 was determined in accordance with ASC 310-40, Troubled Debt Restructurings by Creditors, and was equal to the fair value of assets at the time of transfer resulting in a capital loss of $19,647 in connection with the foreclosure on the assets. On May 17, 2013, Wolf Energy sold the assets located in Martin County, which were previously held by H&M, for $66,000. Proceeds from the sale were primarily used to repay the loan and net profits interest receivable due to us resulting in a realized capital gain of $11,826. We received $3,960 of structuring and advisory fees from Wolf Energy during the year ended June 30, 2013 related to the sale and $991 under the net profits interest agreement which was recognized as other income during the fiscal year ended June 30, 2013.
(38)
CP Holdings of Delaware LLC (“CP Holdings”), an entity in which we own 100% of the membership interests, owns 82.3% and 82.9% of CP Energy Services Inc. (“CP Energy”) as of March 31, 2015 and June 30, 2014, respectively. As of June 30, 2014, CP Energy owned directly or indirectly 100% of each of CP Well Testing Services, LLC (“CP Well Testing”); CP Well Testing, LLC (“CP Well”); Fluid Management Services, Inc.; Fluid Management Services, LLC; Wright Transport, Inc.; Wright Foster Disposals, LLC; Foster Testing Co., Inc.; ProHaul Transports, LLC; Artexoma Logistics, LLC; and Wright Trucking, Inc. On April 1, 2014, Prospect made new loans to CP Well (with ProHaul Transports, LLC; Wright Trucking, Inc.; and Foster Testing Co., Inc. as co-borrowers), comprised of two first lien loans in the amount of $11,035 and $72,238 and a second lien loan in the amount of $15,000. The proceeds of these loans were used to repay CP Well Testing’s senior secured term loan and CP Energy’s senior secured term loan from Prospect. On July 1, 2014, we began consolidating CP Holdings and as a result, we now report CP Energy Services Inc. as a separate controlled company. Effective December 31, 2014, CP Energy underwent a corporate reorganization in order to consolidate certain of its wholly-owned subsidiaries. As of March 31, 2015, CP Energy owned directly or indirectly 100% of each of CP Well; Wright Foster Disposals, LLC; Foster Testing Co., Inc.; ProHaul Transports, LLC; and Wright Trucking, Inc.
(39)
Wind River Resources Corporation and Wind River II Corporation are joint borrowers on the senior secured note.
(40)
NPH Property Holdings, LLC (“NPH”), an entity in which we own 100% of the membership interests, owns 100% of the common equity of National Property REIT Corp. (f/k/a National Property Holdings Corp.) (“NPRC”), a property REIT which holds investments in several real estate properties. Additionally, through its wholly-owned subsidiaries, NPRC invests in online consumer loans. Effective April 1, 2014, Prospect made a new $104,460 senior term loan to NPRC. NPRC then distributed this amount to NPH as a return of capital which was used to pay down the Senior Term Loan from NPH by the same amount. On July 1, 2014, we began consolidating NPH and as a result, we now report NPRC as a separate controlled company. See Note 3 for further discussion of the properties held by NPRC. On March 17, 2015, we entered into a new credit agreement, effective June 30, 2014, with ACL Loan Holdings, Inc. (“ACLLH”), a wholly-owned subsidiary of NPRC. The new credit agreement was in the form of two tranches of senior secured term loans, Term Loan A and Term Loan B, with the same terms as the existing NPRC Term Loan A and Term Loan B due to us. On June 30, 2014, ACLLH made a non-cash return of capital distribution of $22,390 to NPRC and NPRC transferred and assigned to ACLLH a senior secured Term Loan A due to us.
(41)
UPH Property Holdings, LLC (“UPH”), an entity in which we own 100% of the membership interests, owns 100% of the common equity of United Property REIT Corp. (f/k/a United Property Holdings Corp.) (“UPRC”), a property REIT which holds investments in several real estate properties. Effective April 1, 2014, Prospect made a new $19,027 senior term loan to UPRC. UPRC then distributed this amount to UPH as a return of capital which was used to pay down the Senior Term Loan from UPH by the same amount. On July 1, 2014, we began consolidating UPH and as a result, we now report UPRC as a separate controlled company. See Note 3 for further discussion of the properties held by UPRC.

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 March 31, 2015 (Unaudited) and June 30, 2014 (Audited) (Continued)


(42)
On April 4, 2008, we acquired a controlling equity interest in ARRM Holdings, Inc. (“ARRM”), which owned 100% of Ajax Rolled Ring & Machine, LLC (“Ajax”), the operating company. On April 1, 2013, we refinanced the existing $19,837 and $18,635 senior loans to Ajax and ARRM, respectively, increasing the total size of the debt investment to $38,537. Concurrent with the refinancing, we received repayment of the $18,635 loans previously outstanding. On October 11, 2013, we provided $25,000 in preferred equity for the recapitalization of ARRM. After the financing, we received repayment of the $20,009 subordinated unsecured loan previously outstanding. On June 12, 2014, ARRM Holdings, Inc. was renamed ARRM Services, Inc. As of June 30, 2014, we controlled 79.53% of the fully-diluted common, 85.76% of the Series A Preferred and 100% of the Series B Preferred equity of ARRM. On October 10, 2014, ARRM sold Ajax to a third party and repaid the $19,337 loan receivable to us and we recorded a realized loss of $23,560 related to the sale. Concurrent with the sale, 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. In addition, there is $3,000 being held in escrow which will be recognized as additional gain if and when received.
(43)
Harbortouch Holdings of Delaware Inc. (“Harbortouch Delaware”), an entity in which we own 100% of the common stock, owns 100% of the Class C voting units of Harbortouch Payments, LLC (“Harbortouch”), which provide for a 53.5% residual profits allocation. Harbortouch management owns 100% of the Class B and Class D voting units of Harbortouch, which provide for a 46.5% residual profits allocation. Harbortouch owns 100% of Credit Card Processing USA, LLC. On April 1, 2014, Prospect made a new $137,226 senior secured term loan to Harbortouch. Harbortouch then distributed this amount to Harbortouch Delaware as a return of capital which was used to pay down the $123,000 senior secured note from Harbortouch Delaware to Prospect. The remaining $14,226 was distributed to Prospect as a return of capital of Prospect’s equity investment in Harbortouch Delaware. On July 1, 2014, we began consolidating Harbortouch Delaware and as a result, we now report Harbortouch Payments, LLC as a separate controlled company.
(44)
Pegasus Business Intelligence, LP, Paycom Acquisition, LLC, and Paycom Acquisition Corp. are joint borrowers on the senior secured loan facility. Paycom Intermediate Holdings, Inc. is the parent guarantor of this debt investment. These entities transact business internationally under the trade name Onyx Payments.
(45)
Security Alarm Financing Enterprises, L.P. and California Security Alarms, Inc. are joint borrowers on the senior subordinated note.
(46)
A portion of the senior secured note is denominated in Canadian Dollars (CAD). As of June 30, 2014 and March 31, 2015, the principal balance of this note was CAD 37,422 and CAD 37,044, respectively. In accordance with ASC 830, this note was remeasured into our functional currency, US Dollars (USD), and is presented on our Consolidated Schedules of Investments in USD.

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 March 31, 2015 (Unaudited) and June 30, 2014 (Audited) (Continued)


(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 nine months ended March 31, 2015 with these controlled investments were as follows:
Portfolio Company
Purchases*
 
Redemptions*
Sales
Interest
income
Dividend
income
Other
income
Net realized
gains (losses)
Net unrealized
gains (losses)
Airmall Inc.
$

 
$
(47,580
)
$
(9,920
)
$
576

$

$
3,000

$
(2,808
)
$
12,216

American Property REIT Corp.
(75,810
)
**
(8
)

12,205


1,078


8,669

Appalachian Energy LLC

 
(2,050
)




(2,050
)
2,050

Arctic Energy Services, LLC

 


5,045




802

ARRM Services, Inc.

 
(19,337
)
(27,213
)
956


2,000

(23,560
)
21,014

Borga, Inc.

 

(2,589
)



(2,589
)
2,741

BXC Company, Inc.
250

 
(750
)
(16,949
)


5

(16,949
)
15,333

CCPI Inc.

 
(338
)

2,495




4,198

Change Clean Energy Company, LLC

 







Coalbed, LLC

 







CP Energy Services Inc.

 


12,273




(29,555
)
Credit Central Loan Company, LLC

 
(141
)

5,538

159

608


3,147

Echelon Aviation LLC
5,800

 
(37,313
)
(400
)
5,451




8,226

First Tower Finance Company LLC

 
1,929


38,921

1,929



30,277

Freedom Marine Solutions, LLC

 


3,349




(2,917
)
Gulf Coast Machine & Supply Company
5,500

 


1,370




(11,760
)
Harbortouch Payments, LLC
27,723

 
(3,595
)

22,092


579


18,013

Manx Energy, Inc.

 
(50
)




(50
)
50

MITY, Inc.
2,500

 
(2,500
)

4,360



(3
)
5,709

National Property REIT Corp.
274,919

**
(36,942
)

18,068


1,426


24,217

Nationwide Acceptance LLC
938

 


2,256

2,444



1,613

NMMB, Inc.
383

 


1,142




2,398

R-V Industries, Inc.

 


2,281

224



(15,995
)
United Property REIT Corp.
46,311

**
(376
)

4,134


1,656


11,327

Valley Electric Company, Inc.

 


3,718




(2,900
)
Vets Securing America, Inc.***

 





685


Wolf Energy, LLC

 
(5,991
)




(5,818
)
4,173

Yatesville Coal Company, LLC

 
(1,449
)




(1,449
)
1,449

Total
$
288,514

 
$
(156,491
)
$
(57,071
)
$
146,230

$
4,756

$
10,352

$
(54,591
)
$
114,495

(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 nine months ended March 31, 2015 with these affiliated investments were as follows:
Portfolio Company
Purchases*
Redemptions*
Sales
Interest
income
Dividend
income
Other
income
Net realized
gains (losses)
Net unrealized
gains (losses)
BNN Holdings Corp.
$
44,000

$
(30,459
)
$

$
2,814

$
778

$
226

$

$
611

Total
$
44,000

$
(30,459
)
$

$
2,814

$
778

$
226

$

$
611

* Purchase amounts do not include payment-in-kind interest. Redemption amounts include impairments. Redemption amounts do not include the cost basis adjustments resulting from consolidation on July 1, 2014.
** These amounts include the cost basis of investments transferred from APRC and UPRC to NPRC. (See Note 3 for details.)
*** During the nine months ended March 31, 2015, THS ceased operations. As of March 31, 2015, the VSA management team is supervising both the continued operations of VSA and the wind-down of activities at THS.

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 March 31, 2015 (Unaudited) and June 30, 2014 (Audited) (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, 2014 with these controlled investments were as follows:
Portfolio Company
Purchases*
Redemptions*
 
Sales
Interest
income
Dividend
income
Other
income
Net realized
gains (losses)
Net unrealized
gains (losses)
AMU Holdings Inc.
$
7,600

$
(593
)
 
$
(972
)
$
6,579

$
12,000

$

$

$
(15,694
)
APH Property Holdings, LLC
163,747

(118,186
)
**

18,788


5,946


3,393

Arctic Oilfield Equipment USA, Inc.
60,876


 

1,050


1,713


238

ARRM Services, Inc.
25,000

(24,251
)
 

(733
)

148


(14,957
)
BXC Company, Inc.
(f/k/a BXC Holding Company)***
300


 





(3,796
)
CCPI Holdings Inc.

(450
)
 

3,312

500

71


(1,443
)
CP Holdings of Delaware LLC
113,501


 

13,858


1,864


16,618

Credit Central Holdings of Delaware, LLC
2,500

(159
)
 

7,845

4,841

521


(2,371
)
Echelon Aviation LLC
92,628


 

2,809


2,771



Energy Solutions Holdings Inc.
16,000

(8,525
)
 

8,245


2,480


(2,168
)
First Tower Holdings of Delaware LLC
10,000


 

54,320


10,560


17,003

Gulf Coast Machine & Supply Company
28,450

(26,213
)
 

1,449




(777
)
Harbortouch Holdings of Delaware Inc.
278,694


 

6,879


7,536


12,620

The Healing Staff, Inc.


 



5,825



Manx Energy, Inc.

(450
)
 





104

MITY Holdings of Delaware Inc.
47,985


 

4,693


1,049


1,127

Nationwide Acceptance Holdings LLC
4,000


 

4,429

5,000

1,854


772

NMMB Holdings, Inc.
8,086

(8,086
)
 

2,051




(6,852
)
NPH Property Holdings, LLC
40,425

85,724

**

5,973


1,029


(2,088
)
R-V Industries, Inc.

(2,339
)
 

3,188

1,100



2,005

STI Holding, Inc.

(125
)
 


3,246



(25
)
UPH Property Holdings, LLC
1,405

22,562

**

1,101


156


426

Valley Electric Holdings I, Inc.

(200
)
 

7,471


148


(23,304
)
Wolf Energy Holdings Inc.


 





(1,350
)
Total
$
901,197

$
(81,291
)
 
$
(972
)
$
153,307

$
26,687

$
43,671

$

$
(20,519
)
(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, 2014 with these affiliated investments were as follows:
Portfolio Company
Purchases*
Redemptions*
 
Sales
Interest
income
Dividend
income
Other
income
Net realized
gains (losses)
Net unrealized
gains (losses)
BNN Holdings Corp.
$

$
(600
)
 
$

$
2,974

$

$

$

$
(194
)
BXC Holding Company***

(100
)
 

1,384


17


(4,163
)
Smart, LLC


 





(143
)
Total
$

$
(700
)
 
$

$
4,358

$

$
17

$

$
(4,500
)
* Purchase amounts do not include payment-in-kind interest. Redemption amounts include impairments.
** These amounts include the cost basis of investments transferred from APH to NPH and UPH.
*** During the year ended June 30, 2014, we acquired control of BXC Company, Inc. (f/k/a BXC Holding Company). As such, this investment was a controlled investment for part of the year and an affiliated investment for part of the year. See Note 14 for further discussion of this transaction.


See notes to consolidated financial statements.
39


PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
(Unaudited)

 
Note 1. Organization
In this report, the terms “Prospect,” “we,” “us” and “our” mean Prospect Capital Corporation and its subsidiaries unless the context specifically requires otherwise.
We were organized on April 13, 2004 and were funded in an initial public offering completed on July 27, 2004. 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 invest primarily in senior and subordinated debt and equity of companies in need of capital for acquisitions, divestitures, growth, development, recapitalizations and other purposes.
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”) and Direct Capital Corporation (“Direct Capital”). 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.
Effective July 1, 2014, we began consolidating certain of our wholly-owned and substantially wholly-owned holding companies formed by us in order to facilitate our investment strategy. The following companies have been included in our consolidated financial statements since July 1, 2014: AMU Holdings Inc.; APH Property Holdings, LLC; Arctic Oilfield Equipment USA, Inc.; CCPI Holdings Inc.; CP Holdings of Delaware LLC; Credit Central Holdings of Delaware, LLC; Energy Solutions Holdings Inc.; First Tower Holdings of Delaware LLC; Harbortouch Holdings of Delaware Inc.; MITY Holdings of Delaware Inc.; Nationwide Acceptance Holdings LLC; NMMB Holdings, Inc.; NPH Property Holdings, LLC; STI Holding, Inc.; UPH Property Holdings, LLC; Valley Electric Holdings I, Inc.; Valley Electric Holdings II, Inc.; and Wolf Energy Holdings Inc. 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. We collectively refer to these entities as the “Consolidated Holding Companies.”
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.
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 our portfolio companies and any other parameters used in determining these estimates could cause actual results to differ, and these differences could be material.

40


Cash and Cash Equivalents
Cash and cash equivalents include funds deposited with financial institutions and short-term, highly-liquid overnight investments in money market funds. Cash and cash equivalents are carried at cost which approximates fair value.
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.
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. 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. Specifically, we record all security transactions on a trade date basis. Amounts for investments recognized or derecognized but not yet settled are reported as receivables for investments sold and payables for investments purchased, respectively, in the Consolidated Statements of Assets and Liabilities.
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 the security less likely to be an income producing instrument.
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.

41


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 conduct independent valuations and make their own independent assessments.
3.
The Audit Committee of our Board of Directors reviews and discusses the preliminary valuation of Prospect Capital Management L.P. (the “Investment Adviser”) and that of the independent valuation firms.
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 analysis, enterprise value (“EV”) analysis, net asset value analysis, liquidation analysis, discounted cash flow analysis, or a combination of methods, as appropriate. The yield analysis uses loan spreads and other relevant information implied by market data involving identical or comparable assets or liabilities. Under the EV analysis, 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 approach that considers relevant and applicable market trading data of guideline public companies, transaction metrics from precedent M&A transactions and/or a discounted cash flow analysis. The net asset value analysis 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 analysis 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 analysis uses valuation techniques to convert 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 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 fair value pricing 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 ASC 820 Level 3 securities and are valued using a discounted cash flow model. The valuations have been 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. For each CLO security, the most appropriate valuation approach has been chosen from alternative approaches to ensure the most accurate valuation for such security. To value a CLO, both the assets and the liabilities of the CLO capital structure are modeled. We use a waterfall engine to store the collateral data, generate collateral cash flows from the assets based on various assumptions for the risk factors, distribute the cash flows to the liability structure based on the payment priorities, and discount them back using current market discount rates. The main risk factors are: default risk, interest rate risk, downgrade risk, and credit spread risk.

42


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 further discussion of our financial liabilities that are measured using another measurement attribute.
Convertible Notes
We have recorded the Convertible Notes at their contractual amounts. The Convertible Notes were analyzed for any features that would require bifurcation and such features were determined to be immaterial. 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. Origination, closing and/or commitment fees associated with investments in portfolio companies are accreted into interest income over the respective terms of the applicable loans. Accretion of such purchase discounts or amortization of premiums is calculated by the effective interest method as of the purchase date and adjusted only for material amendments or prepayments. Upon the prepayment of a loan or debt security, any prepayment penalties and unamortized loan origination, closing and commitment fees are recorded as interest income. The purchase discount for portfolio investments acquired from Patriot Capital Funding, Inc. (“Patriot”) was determined based on the difference between par value and fair value as of December 2, 2009, and continued to accrete until maturity or repayment of the respective loans. As of December 31, 2013, the purchase discount for the assets acquired from Patriot had been fully accreted. See Note 3 for further discussion.
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 may be recognized as income or applied to principal depending upon management’s judgment. 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. As of March 31, 2015, approximately 0.5% of our total assets are in non-accrual status.
Interest income from investments in the “equity” class of security of CLO funds (typically income notes or subordinated notes) 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 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.
Structuring fees and similar fees are recognized as income as earned, usually when paid. Structuring fees, 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 regulated investment company 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 gain 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. For the calendar year ended December 31, 2014, we did not incur an excise tax expense because our distributions exceeded our annual taxable income. As of March 31, 2015, we had a deposit with the IRS of $1,218 for excise taxes as we had made excise tax payments in excess of our expected excise tax liability through March 31, 2015.

43


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 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 reduced by an interest charge of 50% of such earnings and profits payable by us as an additional tax. 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 ten 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 March 31, 2015 and for the three and nine months then ended, we did not have a liability for any unrecognized tax benefits. 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 tax returns for each of our federal tax years since 2010 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 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 for our Revolving Credit Facility and the effective interest method for our 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.
We record registration expenses related to shelf filings as prepaid assets. These expenses consist principally of SEC registration fees, legal fees and accounting fees incurred. These prepaid assets are charged to capital upon the receipt of proceeds from an equity offering or charged to expense if no offering is completed.
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.

44


Recent Accounting Pronouncements
In August 2014, the FASB issued Accounting Standards Update 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (“ASU 2014-15”). ASU 2014-15 will explicitly require management to assess an entity’s ability to continue as a going concern, and to provide related footnote disclosure in certain circumstances. ASU 2014-15 is effective for annual and interim periods ending after December 15, 2016. Early application is permitted. The adoption of the amended guidance in ASU 2014-15 is not expected to have a significant effect on our consolidated financial statements and disclosures.
In January 2015, the FASB issued Accounting Standards Update 2015-01, Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items (“ASU 2015-01”). ASU 2015-01 simplifies income statement presentation by eliminating the need to determine whether to classify an item as an extraordinary item. ASU 2015-01 is effective for annual and interim periods beginning after December 15, 2015. Early adoption is permitted; however, adoption must occur at the beginning of an annual period. The adoption of the amended guidance in ASU 2015-01 is not expected to have a significant effect on our consolidated financial statements and disclosures.
In February 2015, the FASB issued Accounting Standards Update 2015-02, Amendments to the Consolidation Analysis (“ASU 2015-02”). ASU 2015-02 eliminates the deferral of FAS 167, which allowed reporting entities with interests in certain investment funds to follow the previous consolidation guidance in FIN 46(R), and makes other changes to both the variable interest model and the voting model. ASU 2015-02 is effective for annual and interim periods beginning after December 15, 2015. Early adoption is permitted, including adoption in an interim period. A reporting entity may apply the amendments using a modified retrospective approach by recording a cumulative-effect adjustment to equity as of the beginning of the period of adoption or may apply the amendments retrospectively. We are currently evaluating the effect the adoption of the amended guidance in ASU 2015-02 may have on our consolidated financial statements and disclosures.
In April 2015, the FASB issued Accounting Standards Update 2015-03, Simplifying the Presentation of Debt Issuance Costs (“ASU 2015-03”). ASU 2015-03 requires debt issuance costs related to a recognized debt liability to be presented in the balance sheet as a direct deduction from the debt liability rather than as an asset. The new guidance will make the presentation of debt issuance costs consistent with the presentation of debt discounts or premiums. ASU 2015-03 is effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Early adoption is permitted for financial statements that have not been previously issued. The new guidance must be applied on a retrospective basis to all prior periods presented in the financial statements. The adoption of the amended guidance in ASU 2015-03 is not expected to have a significant effect on our consolidated financial statements and disclosures.
Note 3. Portfolio Investments
At March 31, 2015, we had investments in 132 long-term portfolio investments, which had an amortized cost of $6,590,026 and a fair value of $6,602,771. At June 30, 2014, we had investments in 142 long-term portfolio investments, which had an amortized cost of $6,371,522 and a fair value of $6,253,739.
The original cost basis of debt placements and equity securities acquired, including follow-on investments for existing portfolio companies, totaled $1,629,021 and $2,508,252 during the nine months ended March 31, 2015 and March 31, 2014, respectively. Debt repayments and proceeds from sales of equity securities of approximately $1,195,344 and $617,352 were received during the nine months ended March 31, 2015 and March 31, 2014, respectively.
The following table shows the composition of our investment portfolio as of March 31, 2015 and June 30, 2014.
 
March 31, 2015
 
June 30, 2014
 
Cost
 
Fair Value
 
Cost
 
Fair Value
Revolving Line of Credit
$
11,850

 
$
11,850

 
$
3,445

 
$
2,786

Senior Secured Debt
3,718,150

 
3,657,943

 
3,578,339

 
3,514,198

Subordinated Secured Debt
1,320,511

 
1,283,682

 
1,272,275

 
1,200,221

Subordinated Unsecured Debt
94,353

 
94,353

 
85,531

 
85,531

Small Business Loans
40,320

 
38,290

 
4,637

 
4,252

CLO Debt
28,485

 
32,958

 
28,118

 
33,199

CLO Residual Interest
1,019,332

 
1,061,992

 
1,044,656

 
1,093,985

Equity
357,025

 
421,703

 
354,521

 
319,567

Total Investments
$
6,590,026

 
$
6,602,771

 
$
6,371,522

 
$
6,253,739


45


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:
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 small business whole loans purchased from OnDeck and Direct Capital.
CLO Debt includes our investments in the “debt” class of security of CLO funds.
CLO Residual Interest includes our investments in the “equity” class of security of CLO funds such as income notes, preference shares, and subordinated notes.
Equity 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, unless specifically stated otherwise. 
The following table shows the fair value of our investments disaggregated into the three levels of the ASC 820 valuation hierarchy as of March 31, 2015.
 
Level 1
 
Level 2
 
Level 3
 
Total
Revolving Line of Credit
$

 
$

 
$
11,850

 
$
11,850

Senior Secured Debt

 

 
3,657,943

 
3,657,943

Subordinated Secured Debt

 

 
1,283,682

 
1,283,682

Subordinated Unsecured Debt

 

 
94,353

 
94,353

Small Business Loans

 

 
38,290

 
38,290

CLO Debt

 

 
32,958

 
32,958

CLO Residual Interest

 

 
1,061,992

 
1,061,992

Equity
150

 

 
421,553

 
421,703

Total Investments
$
150

 
$

 
$
6,602,621

 
$
6,602,771

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, 2014.
 
Level 1
 
Level 2
 
Level 3
 
Total
Revolving Line of Credit
$

 
$

 
$
2,786

 
$
2,786

Senior Secured Debt

 

 
3,514,198

 
3,514,198

Subordinated Secured Debt

 

 
1,200,221

 
1,200,221

Subordinated Unsecured Debt

 

 
85,531

 
85,531

Small Business Loans

 

 
4,252

 
4,252

CLO Debt

 

 
33,199

 
33,199

CLO Residual Interest

 

 
1,093,985

 
1,093,985

Equity
168

 

 
319,399

 
319,567

Total Investments
$
168

 
$

 
$
6,253,571

 
$
6,253,739


46


The following tables show the aggregate changes in the fair value of our Level 3 investments during the nine months ended March 31, 2015.
 
Fair Value Measurements Using Unobservable Inputs (Level 3)
 
Control
 Investments
 
Affiliate
 Investments
 
Non-Control/
 Non-Affiliate
 Investments
 
Total
Fair value as of June 30, 2014
$
1,640,454

 
$
32,121

 
$
4,580,996

 
$
6,253,571

Net realized losses on investments
(54,591
)
 

 
(96,385
)
 
(150,976
)
Net change in unrealized appreciation
114,495

 
611

 
15,440

 
130,546

Net realized and unrealized gains (losses)
59,904

 
611

 
(80,945
)
 
(20,430
)
Purchases of portfolio investments
288,514

 
44,000

 
1,280,022

 
1,612,536

Payment-in-kind interest
11,224

 

 
5,261

 
16,485

Amortization of discounts and premiums

 

 
(64,200
)
 
(64,200
)
Repayments and sales of portfolio investments
(171,885
)
 
(30,459
)
 
(992,997
)
 
(1,195,341
)
Transfers within Level 3(1)

 

 

 

Transfers in (out) of Level 3(1)

 

 

 

Fair value as of March 31, 2015
$
1,828,211

 
$
46,273

 
$
4,728,137

 
$
6,602,621

 
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, 2014
$
2,786

 
$
3,514,198

 
$
1,200,221

 
$
85,531

 
$
4,252

 
$
33,199

 
$
1,093,985

 
$
319,399

 
$
6,253,571

Net realized losses on investments
(1,094
)
 
(33,874
)
 
(75,164
)
 
(4
)
 
(708
)
 

 
(15,562
)
 
(24,570
)
 
(150,976
)
Net change in unrealized appreciation (depreciation)
659

 
3,934

 
35,223

 

 
(1,644
)
 
(608
)
 
(6,667
)
 
99,649

 
130,546

Net realized and unrealized (losses) gains
(435
)
 
(29,940
)
 
(39,941
)
 
(4
)
 
(2,352
)
 
(608
)
 
(22,229
)
 
75,079

 
(20,430
)
Purchases of portfolio investments
39,500

 
1,065,797

 
237,830

 
6,593

 
63,887

 

 
141,167

 
57,762

 
1,612,536

Payment-in-kind interest

 
14,176

 
686

 
1,623

 

 

 

 

 
16,485

Accretion (amortization) of discounts and premiums

 
206

 
1,084

 

 

 
367

 
(65,857
)
 

 
(64,200
)
Repayments and sales of portfolio investments
(30,001
)
 
(906,494
)
 
(116,198
)
 
610

 
(27,497
)
 

 
(85,074
)
 
(30,687
)
 
(1,195,341
)
Transfers within Level 3(1)

 

 

 

 

 

 

 

 

Transfers in (out) of Level 3(1)

 

 

 

 

 

 

 

 

Fair value as of March 31, 2015
$
11,850

 
$
3,657,943

 
$
1,283,682

 
$
94,353

 
$
38,290

 
$
32,958

 
$
1,061,992

 
$
421,553

 
$
6,602,621

(1)
Transfers are assumed to have occurred at the beginning of the quarter during which the asset was transferred.

47


The following tables show the aggregate changes in the fair value of our Level 3 investments during the nine months ended March 31, 2014.
 
Fair Value Measurements Using Unobservable Inputs (Level 3)
 
Control
 Investments
 
Affiliate
 Investments
 
Non-Control/
 Non-Affiliate
 Investments
 
Total
Fair value as of June 30, 2013
$
811,634

 
$
42,443

 
$
3,318,663

 
$
4,172,740

Net realized losses on investments

 

 
(3,482
)
 
(3,482
)
Net change in unrealized (depreciation) appreciation
(37,881
)
 
(4,972
)
 
20,565

 
(22,288
)
Net realized and unrealized (losses) gains
(37,881
)
 
(4,972
)
 
17,083

 
(25,770
)
Purchases of portfolio investments
825,898

 

 
1,669,311

 
2,495,209

Payment-in-kind interest
8,605

 
90

 
4,348

 
13,043

Accretion (amortization) of discounts and premiums

 
399

 
(32,236
)
 
(31,837
)
Repayments and sales of portfolio investments
(67,651
)
 
(550
)
 
(549,151
)
 
(617,352
)
Transfers within Level 3(1)
18,609

 
(5,611
)
 
(12,998
)
 

Transfers in (out) of Level 3(1)

 

 

 

Fair value as of March 31, 2014
$
1,559,214

 
$
31,799

 
$
4,415,020

 
$
6,006,033

 
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, 2013
$
8,729

 
$
2,207,091

 
$
1,024,901

 
$
88,827

 
$

 
$
28,589

 
$
658,086

 
$
156,517

 
$
4,172,740

Net realized (losses) gains on investments

 
(1,494
)
 
(7,558
)
 

 

 

 
1,184

 
4,386

 
(3,482
)
Net change in unrealized (depreciation) appreciation
(83
)
 
(13,072
)
 
(255
)
 
(292
)
 
(104
)
 
4,630

 
47,721

 
(60,833
)
 
(22,288
)
Net realized and unrealized (losses) gains
(83
)
 
(14,566
)
 
(7,813
)
 
(292
)
 
(104
)
 
4,630

 
48,905

 
(56,447
)
 
(25,770
)
Purchases of portfolio investments
14,850

 
1,853,544

 
207,857

 

 
3,654

 

 
261,212

 
154,092

 
2,495,209

Payment-in-kind interest

 
10,077

 
2,630

 
336

 

 

 

 

 
13,043

Accretion (amortization) of discounts and premiums

 
613

 
1,237

 
8

 

 
335

 
(34,030
)
 

 
(31,837
)
Repayments and sales of portfolio investments
(20,643
)
 
(336,913
)
 
(174,992
)
 
(58,879
)
 
(250
)
 

 
(21,071
)
 
(4,604
)
 
(617,352
)
Transfers within Level 3(1)

 

 
(70,000
)
 
70,000

 

 

 

 

 

Transfers in (out) of Level 3(1)

 

 

 

 

 

 

 

 

Fair value as of March 31, 2014
$
2,853

 
$
3,719,846

 
$
983,820

 
$
100,000

 
$
3,300

 
$
33,554

 
$
913,102

 
$
249,558

 
$
6,006,033

(1)
Transfers are assumed to have occurred at the beginning of the quarter during which the asset was transferred.
For the nine months ended March 31, 2015 and March 31, 2014, the net change in unrealized appreciation (depreciation) on the investments that use Level 3 inputs was $42,583 and $(44,969) for investments still held as of March 31, 2015 and March 31, 2014, respectively.

48


The ranges of unobservable inputs used in the fair value measurement of our Level 3 investments as of March 31, 2015 were as follows:
 
 
 
 
 
 
Unobservable Input
Asset Category
 
Fair Value
 
Primary Valuation Technique
 
Input
 
Range
 
Weighted
Average
Senior Secured Debt
 
$
2,566,807

 
Yield Analysis
 
Market Yield
 
6.2%-21.0%
 
10.8%
Senior Secured Debt
 
536,146

 
EV Analysis
 
EBITDA Multiple
 
3.1x-9.5x
 
7.2x
Senior Secured Debt(1)
 
79,462

 
EV Analysis
 
Loss-Adjusted Discount Rate
 
4.5%-12.6%
 
7.4%
Senior Secured Debt(2)
 
47,050

 
EV Analysis
 
Loss-Adjusted Discount Rate
 
10.5%-14.7%
 
11.1%
Senior Secured Debt
 
40,808

 
EV Analysis
 
Discount Rate
 
7.0%-9.0%
 
8.0%
Senior Secured Debt
 
27,341

 
EV Analysis
 
Appraisal
 
N/A
 
N/A
Senior Secured Debt
 
24,913

 
EV Analysis
 
Sum of the Parts
 
N/A
 
N/A
Senior Secured Debt
 
9,958

 
Liquidation Analysis
 
N/A
 
N/A
 
N/A
Senior Secured Debt
 
337,308

 
Net Asset Value Analysis
 
Capitalization Rate
 
2.5%-9.7%
 
6.2%
Subordinated Secured Debt
 
915,428

 
Yield Analysis
 
Market Yield
 
8.1%-21.0%
 
12.1%
Subordinated Secured Debt
 
353,434

 
EV Analysis
 
EBITDA Multiple
 
3.1x-8.7x
 
7.6x
Subordinated Secured Debt
 
14,820

 
EV Analysis
 
Book Value Multiple
 
1.2x-1.4x
 
1.3x
Subordinated Unsecured Debt
 
87,153

 
Yield Analysis
 
Market Yield
 
6.2%-12.4%
 
10.8%
Subordinated Unsecured Debt
 
7,200

 
EV Analysis
 
EBITDA Multiple
 
5.6x-6.5x
 
6.0x
Small Business Loans(3)
 
658

 
Discounted Cash Flow
 
Loss-Adjusted Discount Rate
 
17.3%-27.2%
 
24.8%
Small Business Loans(4)
 
37,632

 
Discounted Cash Flow
 
Loss-Adjusted Discount Rate
 
20.0%-29.6%
 
22.6%
CLO Debt
 
32,958

 
Discounted Cash Flow
 
Discount Rate
 
5.8%-7.7%
 
6.8%
CLO Residual Interest
 
1,061,992

 
Discounted Cash Flow
 
Discount Rate
 
10.9%-18.5%
 
13.5%
Equity
 
212,119

 
EV Analysis
 
EBITDA Multiple
 
2.0x-9.5x
 
7.7x
Equity
 
15,304

 
EV Analysis
 
Book Value Multiple
 
1.2x-1.4x
 
1.3x
Equity
 
1,260

 
EV Analysis
 
Appraisal
 
N/A
 
N/A
Equity
 
3,130

 
Yield Analysis
 
Market Yield
 
17.6%-21.8%
 
19.7%
Equity
 
109,684

 
Net Asset Value Analysis
 
Capitalization Rate
 
2.5%-9.7%
 
6.2%
Equity
 
28,133

 
Discounted Cash Flow
 
Discount Rate
 
7.2%-8.0%
 
7.6%
Participating Interest(5)
 
46,174

 
Yield Analysis
 
Market Yield
 
10.0%-18.0%
 
11.1%
Participating Interest(5)
 
22

 
Liquidation Analysis
 
N/A
 
N/A
 
N/A
Escrow Receivable
 
5,727

 
Discounted Cash Flow
 
Discount Rate
 
6.8%-7.9%
 
7.4%
Total Level 3 Investments
 
$
6,602,621

 
 
 
 
 
 
 
 
(1)
EV analysis is based on the fair value of our investments in consumer loans purchased from Prosper, 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 0.7%-27.0%, with a weighted average of 8.1%.
(2)
EV analysis is based on the fair value of our investments in consumer loans purchased from Lending Club, 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 15.4%-24.3%, with a weighted average of 18.1%.
(3)
Includes our investments in small business whole loans purchased from Direct Capital. Valuation also used projected loss rates as an unobservable input ranging from 0.3%-60.0%, with a weighted average of 19.6%.
(4)
Includes our investments in small business whole loans purchased from OnDeck. Valuation also used projected loss rates as an unobservable input ranging from 7.7%-9.5%, with a weighted average of 8.6%.
(5)
Participating Interest includes our participating equity investments, such as net profits interests, net operating income interests, net revenue interests, and overriding royalty interests.

49


The ranges of unobservable inputs used in the fair value measurement of our Level 3 investments as of June 30, 2014 were as follows:
 
 
 
 
 
 
Unobservable Input
Asset Category
 
Fair Value
 
Primary Valuation Technique
 
Input
 
Range
 
Weighted
Average
Senior Secured Debt
 
$
2,550,073

 
Yield Analysis
 
Market Yield
 
5.5%-20.3%
 
11.1%
Senior Secured Debt
 
560,485

 
EV Analysis
 
EBITDA Multiple
 
3.5x-9.0x
 
7.1x
Senior Secured Debt
 
110,525

 
EV Analysis
 
Other
 
N/A
 
N/A
Senior Secured Debt
 
3,822

 
Liquidation Analysis
 
N/A
 
N/A
 
N/A
Senior Secured Debt
 
292,079

 
Net Asset Value Analysis
 
Capitalization Rate
 
4.5%-10.0%
 
7.4%
Subordinated Secured Debt
 
832,181

 
Yield Analysis
 
Market Yield
 
8.7%-14.7%
 
10.9%
Subordinated Secured Debt
 
353,220

 
EV Analysis
 
EBITDA Multiple
 
4.5x-8.2x
 
6.2x
Subordinated Secured Debt
 
14,820

 
EV Analysis
 
Book Value Multiple
 
1.2x-1.4x
 
1.3x
Subordinated Unsecured Debt
 
85,531

 
Yield Analysis
 
Market Yield
 
7.4%-14.4%
 
12.1%
Small Business Loans
 
4,252

 
Yield Analysis
 
Market Yield
 
75.5%-79.5%
 
77.5%
CLO Debt
 
33,199

 
Discounted Cash Flow
 
Discount Rate
 
4.2%-5.8%
 
4.9%
CLO Residual Interest
 
1,093,985

 
Discounted Cash Flow
 
Discount Rate
 
10.4%-23.7%
 
16.8%
Equity
 
222,059

 
EV Analysis
 
EBITDA Multiple
 
2.0x-15.3x
 
5.3x
Equity
 
15,103

 
EV Analysis
 
Book Value Multiple
 
1.2x-1.4x
 
1.3x
Equity
 
3,171

 
Yield Analysis
 
Market Yield
 
13.7%-16.5%
 
15.1%
Equity
 
63,157

 
Net Asset Value Analysis
 
Capitalization Rate
 
4.5%-10.0%
 
7.4%
Equity
 
14,107

 
Discounted Cash Flow
 
Discount Rate
 
8.0%-10.0%
 
9.0%
Participating Interest(1)
 
213

 
Liquidation Analysis
 
N/A
 
N/A
 
N/A
Escrow Receivable
 
1,589

 
Discounted Cash Flow
 
Discount Rate
 
6.6%-7.8%
 
7.2%
Total Level 3 Investments
 
$
6,253,571

 
 
 
 
 
 
 
 
 
(1)
Participating Interest includes our participating equity investments, such as net profits interests, net operating income interests, net revenue interests, and overriding royalty interests.
In determining the range of value for debt instruments except CLOs, management and the independent valuation firm generally estimated corporate and security credit ratings and identified corresponding yields to maturity for each loan from relevant market data. A discounted cash flow analysis was then prepared using the appropriate yield to maturity as the discount rate, to determine range of value. For non-traded equity investments, the enterprise value was determined by applying earnings before income tax, depreciation and amortization (“EBITDA”) multiples or book value multiples for similar guideline public companies and/or similar recent investment transactions. For stressed equity investments, a liquidation analysis was prepared. For the private REIT investments, enterprise values were determined based on an average of results from a net asset value analysis of the underlying property investments and a dividend yield analysis utilizing capitalization rates and dividend yields, respectively, for similar guideline companies and/or similar recent investment transactions.
In determining the range of value for our investments in CLOs, management and the independent valuation firm used a discounted 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. For each CLO security, the most appropriate valuation approach was chosen from alternative approaches to ensure the most accurate valuation for such security. A waterfall engine was used to store the collateral data, generate collateral cash flows from the assets based on various assumptions for the risk factors, distribute the cash flows to the liability structure based on the payment priorities, and discount them back using proper discount rates.
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. Our CLO investments are exposed to leveraged credit risk. If certain minimum collateral value ratios and/or interest coverage ratios are not met by a CLO, primarily due to senior secured loan defaults, then cash flow that otherwise would have been available to pay distributions to us on our CLO investments may instead be used to redeem any senior notes or to purchase additional senior secured loans, until the ratios again exceed the minimum required levels or any senior notes are repaid in full. Our CLO investments and/or the underlying senior secured loans may prepay more quickly than expected, which could have an adverse impact on our value. 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.

50


The significant unobservable input used to value our investments based on the yield analysis and discounted cash flow analysis 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 firm 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 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 analysis. 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 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 may result in an increase or decrease, respectively, in EV which may increase or decrease the fair value measurement of the debt 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 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 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 nine months ended March 31, 2015, the valuation methodology for American Gilsonite Company (“AGC”) changed to incorporate secondary trade data in addition to the yield analysis used in previous periods. As a result of this change, and in recognition of recent company performance and current market conditions, we decreased the fair value of our investment in AGC to $38,109 as of March 31, 2015, a discount of $391 from its amortized cost, compared to the $3,477 unrealized appreciation recorded at June 30, 2014.
During the nine months ended March 31, 2015, the valuation methodology for CCPI Inc. (“CCPI”) changed to solely an EV analysis by removing the discounted cash flow used in previous periods. Management adopted this change due to a lack of long-term forecasts for CCPI. As a result of this change, and in recognition of recent company performance and current market conditions, we increased the fair value of our investment in CCPI to $36,874 as of March 31, 2015, a premium of $2,755 to its amortized cost, compared to the $1,443 unrealized depreciation recorded at June 30, 2014.
During the nine months ended March 31, 2015, the valuation methodology for Edmentum, Inc. (“Edmentum”) changed to incorporate an EV analysis and weighted broker quotes in addition to the yield analysis used in previous periods. Management adopted the EV analysis due to a deterioration in operating results and resulting credit impairment. As a result of this change, and in recognition of recent company performance and current market conditions, we decreased the fair value of our investment in Edmentum to $25,329 as of March 31, 2015, a discount of $23,294 from its amortized cost, compared to the $1,561 unrealized appreciation recorded at June 30, 2014.

51


During the nine months ended March 31, 2015, the valuation methodology for Empire Today, LLC (“Empire Today”) changed to incorporate secondary trade data in addition to the yield analysis used in previous periods. As a result of this change, and in recognition of recent company performance and current market conditions, we decreased the fair value of our investment in Empire Today to $13,491 as of March 31, 2015, a discount of $2,001 from its amortized cost, compared to the $281 unrealized appreciation recorded at June 30, 2014.
During the nine months ended March 31, 2015, the valuation methodology for Gulf Coast Machine & Supply Company (“Gulf Coast”) changed to a liquidation analysis in place of the EV analysis used in previous periods. Management adopted the liquidation analysis due to a deterioration in operating results, resulting credit impairment, and the unavailability of revised budget figures. As a result of this change, and in recognition of recent company performance and current market conditions, we decreased the fair value of our investment in Gulf Coast to $8,199 as of March 31, 2015, a discount of $40,751 from its amortized cost, compared to the $28,991 unrealized depreciation recorded at June 30, 2014.
During the nine months ended March 31, 2015, the valuation methodology for Ikaria, Inc. (“Ikaria”) changed to incorporate weighted broker quotes and the expected proceeds from a pending transaction in addition to the yield analysis used in previous periods. As a result of this change, and in recognition of the sale value evidenced by a pending transaction, we decreased the fair value of our investment in Ikaria to $20,008 as of March 31, 2015, a premium of $538 to its amortized cost, compared to the $570 unrealized appreciation recorded at June 30, 2014.
During the nine months ended March 31, 2015, the valuation methodology for Prince Mineral Holding Corp. (“Prince”) changed to incorporate secondary trade data in addition to the yield analysis used in previous periods. As a result of this change, and in recognition of recent company performance and current market conditions, we decreased the fair value of our investment in Prince to $9,700 as of March 31, 2015, a discount of $212 from its amortized cost, compared to the $98 unrealized appreciation recorded at June 30, 2014.
During the nine months ended March 31, 2015, the valuation methodology for Sandow Media, LLC (“Sandow”) changed to solely an EV analysis by removing the yield analysis used in previous periods. Management adopted this change due to Prospect exercising certain equity voting rights during the period. As a result of this change, and in recognition of the pending repayment at 102% of par (see Note 18), we increased the fair value of our investment in Sandow to $24,913 as of March 31, 2015, a premium of $488 to its amortized cost, compared to the $1,557 unrealized depreciation recorded at June 30, 2014.
During the nine months ended March 31, 2015, the valuation methodology for Targus Group International, Inc. (“Targus”) changed to an EV analysis in place of the yield analysis and weighted broker quotes and used in previous periods. Management adopted the EV analysis due to a deterioration in operating results and resulting credit impairment. As a result of this change, and in recognition of recent company performance and current market conditions, we decreased the fair value of our investment in Targus to $16,722 as of March 31, 2015, a discount of $4,574 from its amortized cost, compared to the $1,748 unrealized depreciation recorded at June 30, 2014.
During the nine months ended March 31, 2015, the valuation methodology for United States Environmental Services, LLC (“USES”) changed to incorporate an EV analysis in addition to the yield analysis used in previous periods. Management adopted the EV analysis due to a deterioration in operating results and resulting credit impairment. As a result of this change, and in recognition of recent company performance and current market conditions, we decreased the fair value of our investment in USES to $48,389 as of March 31, 2015, a discount of $11,161 from its amortized cost, compared to being valued at cost at June 30, 2014.

52


During the nine months ended March 31, 2015, we did not provide any additional financing to American Property REIT Corp. (“APRC”) for the acquisition of real estate properties. On November 26, 2014, APRC transferred its investment in one property to National Property REIT Corp. (“NPRC”). As a result, our investment in APRC related to this property also transferred to NPRC. The investment transferred consisted of $10,237 of equity and $65,586 of debt. There was no gain or loss realized on the transaction. In addition, during the nine months ended March 31, 2015, we received $8 as a return of capital on the equity investment in APRC. As of March 31, 2015, our investment in APRC had an amortized cost of $131,455 and a fair value of $143,516.
As of March 31, 2015, APRC’s real estate portfolio was comprised of thirteen multi-family properties and one commercial property. The following table shows the location, acquisition date, purchase price, and mortgage outstanding due to other parties for each of the properties held by APRC as of March 31, 2015.
No.
 
Property Name
 
City
 
Acquisition
Date
 
Purchase
Price
 
Mortgage
Outstanding
1
 
1557 Terrell Mill Road, LLC
 
Marietta, GA
 
12/28/2012
 
$
23,500

 
$
15,229

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

 
39,600

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

 
16,965

4
 
Vista Palma Sola, LLC
 
Bradenton, FL
 
4/30/2013
 
27,000

 
17,550

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

 
9,650

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

 
9,026

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

 
11,488

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

 
19,400

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

 
13,622

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

 
11,817

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

 
10,205

12
 
Plantations at Hillcrest, LLC
 
Mobile, AL
 
1/17/2014
 
6,930

 
4,993

13
 
Crestview at Cordova, LLC
 
Pensacola, FL
 
1/17/2014
 
8,500

 
4,972

14
 
Taco Bell, OK
 
Yukon, OK
 
6/4/2014
 
1,719

 

 
 
 
 
 
 
 
 
$
287,099

 
$
184,517


53


During the nine months ended March 31, 2015, we provided $135,075 and $39,425 of debt and equity financing, respectively, to NPRC to enable certain of its wholly-owned subsidiaries to invest in online consumer loans. In addition, during the nine months ended March 31, 2015, we received partial repayments of $31,365 of the NPRC loan previously outstanding and $5,577 as a return of capital on the equity investment in NPRC.
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 $35, with fixed interest rates and fixed terms of either 36 or 60 months. As of March 31, 2015, the investment in online consumer loans by certain of NPRC’s wholly-owned subsidiaries had a fair value of $262,250. The average outstanding individual loan balance is approximately $9 and the loans mature on dates ranging from October 31, 2016 to March 30, 2020. Fixed interest rates range from 6.0% to 29.0% with a weighted-average current interest rate of 19.4%.
During the nine months ended March 31, 2015, we provided $11,810 and $2,061 of debt and equity financing, respectively, to NPRC for the acquisition of real estate properties. During the nine months ended March 31, 2015, APRC and United Property REIT Corp. (“UPRC”) transferred their investments in certain properties to NPRC. As a result, our investments in APRC and UPRC related to these properties also transferred to NPRC. The investments transferred consisted of $11,518 of equity and $75,030 of debt. There was no gain or loss realized on these transactions. As of March 31, 2015, our investment in NPRC had an amortized cost of $367,672 and a fair value of $389,801.
As of March 31, 2015, NPRC’s real estate portfolio was comprised of ten multi-family properties and thirteen 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 March 31, 2015.
No.
 
Property Name
 
City
 
Acquisition
Date
 
Purchase
Price
 
Mortgage
Outstanding
1
 
146 Forest Parkway, LLC
 
Forest Park, GA
 
10/24/2012
 
$
7,400

 
$

2
 
NPRC Carroll Resort, LLC
 
Pembroke Pines, FL
 
6/24/2013
 
225,000

 
157,500

3
 
APH Carroll 41, LLC
 
Marietta, GA
 
11/1/2013
 
30,600

 
22,173

4
 
Matthews Reserve II, LLC
 
Matthews, NC
 
11/19/2013
 
22,063

 
17,571

5
 
City West Apartments II, LLC
 
Orlando, FL
 
11/19/2013
 
23,562

 
18,533

6
 
Vinings Corner II, LLC
 
Smyrna, GA
 
11/19/2013
 
35,691

 
26,640

7
 
Uptown Park Apartments II, LLC
 
Altamonte Springs, FL
 
11/19/2013
 
36,590

 
27,471

8
 
Mission Gate II, LLC
 
Plano, TX
 
11/19/2013
 
47,621

 
36,148

9
 
St. Marin Apartments II, LLC
 
Coppell, TX
 
11/19/2013
 
73,078

 
53,863

10
 
APH Carroll Bartram Park, LLC
 
Jacksonville, FL
 
12/31/2013
 
38,000

 
28,500

11
 
APH Carroll Atlantic Beach, LLC
 
Atlantic Beach, FL
 
1/31/2014
 
13,025

 
8,951

12
 
23 Mile Road Self Storage, LLC
 
Chesterfield, MI
 
8/19/2014
 
5,804

 
4,350

13
 
36th Street Self Storage, LLC
 
Wyoming, MI
 
8/19/2014
 
4,800

 
3,600

14
 
Ball Avenue Self Storage, LLC
 
Grand Rapids, MI
 
8/19/2014
 
7,281

 
5,460

15
 
Ford Road Self Storage, LLC
 
Westland, MI
 
8/29/2014
 
4,642

 
3,480

16
 
Ann Arbor Kalamazoo Self Storage, LLC
 
Ann Arbor, MI
 
8/29/2014
 
4,458

 
3,345

17
 
Ann Arbor Kalamazoo Self Storage, LLC
 
Scio, MI
 
8/29/2014
 
8,927

 
6,695

18
 
Ann Arbor Kalamazoo Self Storage, LLC
 
Kalamazoo, MI
 
8/29/2014
 
2,363

 
1,775

19
 
Jolly Road Self Storage, LLC
 
Okemos, MI
 
1/16/2015
 
7,492

 
5,620

20
 
Eaton Rapids Road Self Storage, LLC
 
Lansing West, MI
 
1/16/2015
 
1,741

 
1,305

21
 
Haggerty Road Self Storage, LLC
 
Novi, MI
 
1/16/2015
 
6,700

 
5,025

22
 
Waldon Road Self Storage, LLC
 
Lake Orion, MI
 
1/16/2015
 
6,965

 
5,225

23
 
Tyler Road Self Storage, LLC
 
Ypsilanti, MI
 
1/16/2015
 
3,507

 
2,630

 
 
 
 
 
 
 
 
$
617,310

 
$
445,860


54


During the nine months ended March 31, 2015, we provided $48,473 and $8,172 of debt and equity financing, respectively, to UPRC for the acquisition of certain properties. On October 23, 2014, UPRC transferred its investments in certain properties to NPRC. As a result, our investment in UPRC related to these properties also transferred to NPRC. The investments transferred consisted of $1,281 of equity and $9,444 of debt. There was no gain or loss realized on these transactions. As of March 31, 2015, our investment in UPRC had an amortized cost of $70,165 and a fair value of $81,918.
As of March 31, 2015, UPRC’s real estate portfolio was comprised of fifteen multi-families properties and one commercial property. The following table shows the location, acquisition date, purchase price, and mortgage outstanding due to other parties for each of the properties held by UPRC as of March 31, 2015.
No.
 
Property Name
 
City
 
Acquisition
Date
 
Purchase
Price
 
Mortgage
Outstanding
1
 
Atlanta Eastwood Village LLC
 
Stockbridge, GA
 
12/12/2013
 
$
25,957

 
$
19,785

2
 
Atlanta Monterey Village LLC
 
Jonesboro, GA
 
12/12/2013
 
11,501

 
9,193

3
 
Atlanta Hidden Creek LLC
 
Morrow, GA
 
12/12/2013
 
5,098

 
3,619

4
 
Atlanta Meadow Springs LLC
 
College Park, GA
 
12/12/2013
 
13,116

 
10,180

5
 
Atlanta Meadow View LLC
 
College Park, GA
 
12/12/2013
 
14,354

 
11,141

6
 
Atlanta Peachtree Landing LLC
 
Fairburn, GA
 
12/12/2013
 
17,224

 
13,575

7
 
Taco Bell, MO
 
Marshall, MO
 
6/4/2014
 
1,405

 

8
 
Canterbury Green Apartments Holdings LLC
 
Fort Wayne, IN
 
9/29/2014
 
85,500

 
65,825

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

 
10,440

10
 
Kengary Way OH Partners, LLC
 
Reynoldsburg, OH
 
9/30/2014
 
11,500

 
11,000

11
 
Lakeview Trail OH Partners, LLC
 
Canal Winchester, OH
 
9/30/2014
 
26,500

 
20,142

12
 
Lakepoint OH Partners, LLC
 
Pickerington, OH
 
9/30/2014
 
11,000

 
10,080

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

 
10,480

14
 
Heatherbridge OH Partners, LLC
 
Blacklick, OH
 
9/30/2014
 
18,416

 
15,480

15
 
Jefferson Chase OH Partners, LLC
 
Blacklick, OH
 
9/30/2014
 
13,551

 
12,240

16
 
Goldenstrand OH Partners, LLC
 
Hilliard, OH
 
10/29/2014
 
7,810

 
8,040

 
 
 
 
 
 
 
 
$
288,532

 
$
231,220

On January 4, 2012, Energy Solutions Holdings Inc. (“Energy Solutions”) sold its gas gathering and processing assets held in Gas Solutions II Ltd. (“Gas Solutions”) for a potential sale price of $199,805, adjusted for the final working capital settlement, including a potential earn-out of $28,000 that may be paid based on the future performance of Gas Solutions. After expenses, including structuring fees of $9,966 paid to us, and $3,152 of third-party expenses, Gas Solutions LP LLC and Gas Solutions GP LLC, subsidiaries of Gas Solutions, received $157,100 and $1,587 in cash, respectively, and subsequently distributed these amounts, $158,687 in total, to Energy Solutions. The sale of Gas Solutions by Energy Solutions resulted in significant earnings and profits, as defined by the Code, at Energy Solutions for calendar year 2012. As a result, 2012 distributions from Energy Solutions to us were required to be recognized as dividend income, in accordance with ASC 946, as there were current year earnings and profits sufficient to support such recognition.
On June 4, 2014, Gas Solutions GP LLC and Gas Solutions LP LLC merged with and into Freedom Marine Solutions, LLC (f/k/a Freedom Marine Services Holdings, LLC) (“Freedom Marine”), another subsidiary of Energy Solutions, with Freedom Marine as the surviving entity. On December 29, 2014, Freedom Marine reached a settlement for and received $5,174, net of third party obligations, related to the contingent earn-out from the sale of Gas Solutions in January 2012 which was retained by Freedom Marine. This is a final settlement and no further payments are expected from the sale.
On August 6, 2013, we received a distribution of $4,065 related to our investment in NRG Manufacturing, Inc. (“NRG”) for which we realized a gain of $3,252. This was a partial release of the amount held in escrow. On February 17, 2015, we received a distribution of $7,140 related to our investment in NRG for which we realized a gain of $4,647. This was a full release of the amount held in escrow. The $7,140 distribution received from NRG included $1,739 as reimbursement for legal, tax and portfolio level accounting services provided directly to NRG for which Prospect received payment on behalf of Prospect Administration (no direct income was recognized by Prospect, but Prospect was given credit for these payments as a reduction of the administrative services costs payable by Prospect to Prospect Administration).
On October 31, 2013, we sold $18,755 of the National Bankruptcy Services, LLC loan receivable. The loan receivable was sold at a discount and we realized a loss of $7,853.

55


During the nine months ended March 31, 2014, Energy Solutions repaid $8,500 of our subordinated secured debt to us. In addition to the repayment of principal, we received $4,812 of make-whole fees for early repayment of the outstanding loan receivables, which was recorded as additional interest income during the nine months ended March 31, 2014.
On November 25, 2013, we provided $13,000 in senior secured debt financing for the recapitalization of our investment in Freedom Marine. The subordinated secured loan to Jettco Marine Services, LLC, a subsidiary of Freedom Marine, was replaced with a senior secured note to Vessel Company II, LLC (f/k/a Vessel Holdings II, LLC) (“Vessel II”), a new subsidiary of Freedom Marine. On December 3, 2013, we made a $16,000 senior secured investment in Vessel Company III, LLC (f/k/a Vessel Holdings III, LLC), another new subsidiary of Freedom Marine. Overall the restructuring of our investment in Freedom Marine provided approximately $16,000 net senior secured debt financing to support the acquisition of two new vessels. We received $2,480 of structuring fees from Energy Solutions related to the Freedom Marine restructuring which was recognized as other income during the nine months ended March 31, 2014.
During the nine months ended March 31, 2014, we received an $8,000 fee from First Tower Holdings of Delaware LLC (“First Tower Delaware”) related to the renegotiation and expansion of First Tower’s revolver in December 2013 which was recorded as other income and we provided an additional $8,500 and $1,500 of senior secured first-lien and common equity financing, respectively, to First Tower Delaware.
During the nine months ended March 31, 2014, we provided an additional $7,600 of subordinated secured financing to AMU Holdings Inc. (“AMU”). During the nine months ended March 31, 2014, we received distributions of $12,000 from AMU which were recorded as dividend income.
On March 31, 2014, we invested $246,250 in cash and 2,306,294 unregistered shares of our common stock to support the recapitalization of Harbortouch Payments, LLC (f/k/a United Bank Card, Inc. (d/b/a Harbortouch)), a provider of transaction processing services and point-of-sale equipment used by merchants across the United States. We invested $24,898 of equity and $123,000 of debt in Harbortouch Holdings of Delaware Inc., the newly-formed holding company, and $130,796 of debt in Harbortouch Payments, LLC, the operating company (collectively, “Harbortouch”). Through the recapitalization, we acquired a controlling interest in Harbortouch Holdings of Delaware Inc. After the recapitalization, we received repayment of the $23,894 loan previously outstanding. We received structuring fees of $7,536 and $8,544 related to our investment in Harbortouch which were recognized as other income during the three and nine months ended March 31, 2014, respectively.
On March 31, 2014, we provided $78,521 of debt and $14,107 of equity financing to Echelon Aviation LLC (“Echelon”), a newly established portfolio company which provides liquidity alternatives on aviation assets. In connection with our investment, we received a structuring fee of $2,771 from Echelon which was recognized as other income during the three and nine months ended March 31, 2014.
On August 1, 2014, we sold our investments in Airmall Inc. (“Airmall”) for net proceeds of $51,379 and realized a loss of $3,473 on the sale. In addition, there is $6,000 being held in escrow, of which 98% is due to Prospect, which will be recognized as an additional realized loss if it is not received. Included in the net proceeds were $3,000 of structuring fees from Airmall related to the sale of the operating company which was recognized as other income during the nine months ended March 31, 2015. On October 22, 2014, we received a tax refund of $665 related to our investment in Airmall for which we realized a gain of the same amount.
On August 20, 2014, we sold the assets of Borga, Inc., a wholly-owned subsidiary of STI Holding, Inc. (“STI”), for net proceeds of $382 and realized a loss of $2,589 on the sale. On December 29, 2014, Borga was dissolved.
On August 25, 2014, we sold Boxercraft Incorporated, a wholly-owned subsidiary of BXC Company, Inc. (“BXC”), for net proceeds of $750 and realized a net loss of $16,949 on the sale.
On September 15, 2014, Echelon repaid $37,313 of the $78,121 loan receivable to us.
On September 30, 2014, we made a $26,431 follow-on investment in Harbortouch to support an acquisition. As part of the transaction, we received $529 of structuring fee income and $50 of amendment fee income from Harbortouch which was recognized as other income.
During the three months ended September 30, 2014, we determined that the impairment of Appalachian Energy LLC was other-than-temporary and recorded a realized loss of $2,050, reducing the amortized cost to zero.
On October 3, 2014, we sold our $35,000 investment in Babson CLO Ltd. 2011-I and realized a loss of $6,410 on the sale.

56


On October 10, 2014, ARRM Services, Inc. (“ARRM”) sold Ajax Rolled Ring & Machine, LLC (“Ajax”) to a third party and repaid the $19,337 loan receivable to us and we recorded a realized loss of $23,560 related to the sale. Concurrent with the sale, our ownership increased to 100% of the outstanding equity in SB Forging (see Note 1). As such, we began consolidating SB Forging on October 11, 2014. In addition, there is $3,000 being held in escrow which will be recognized as additional gain if and when received. We received $2,000 of structuring fees from Ajax related to the sale of the operating company which was recognized as other income during the nine months ended March 31, 2015.
On October 20, 2014, we sold our $22,000 investment in Galaxy XII CLO, Ltd. and realized a loss of $2,435 on the sale.
On November 21, 2014, Coalbed, LLC (“Coalbed”) merged with and into Wolf Energy, LLC (“Wolf Energy”), with Wolf Energy as the surviving entity. During the three months ended December 31, 2014, we determined that the impairment of the Coalbed debt assumed by Wolf Energy was other-than-temporary and recorded a realized loss of $5,991, reducing the amortized cost to zero.
On December 4, 2014, we sold our $29,075 investment in Babson CLO Ltd. 2012-I and realized a loss of $3,767 on the sale.
On December 4, 2014, we sold our $27,850 investment in Babson CLO Ltd. 2012-II and realized a loss of $2,949 on the sale.
During the three months ended December 31, 2014, Manx Energy, Inc. (“Manx”) was dissolved and we recorded a realized loss of $50, reducing the amortized cost to zero.
During the three months ended December 31, 2014, we determined that the impairments of Change Clean Energy Company, LLC and Yatesville Coal Company, LLC (“Yatesville”) were other-than-temporary and recorded a realized loss of $1,449, reducing the amortized cost to zero.
During the three months ended December 31, 2014, we determined that the impairment of New Century Transportation, Inc. (“NCT”) was other-than-temporary and recorded a realized loss of $42,064, reducing the amortized cost to $980.
During the three months ended December 31, 2014, we determined that the impairment of Stryker Energy, LLC (“Stryker”) was other-than-temporary and recorded a realized loss of $32,711, reducing the amortized cost to zero.
During the three months ended December 31, 2014, we determined that the impairment of Wind River Resources Corporation (“Wind River”) was other-than-temporary and recorded a realized loss of $11,650, reducing the amortized cost to $3,000.
During the three and nine months ended March 31, 2014, we recognized zero and $400, respectively, of interest income due to purchase discount accretion for the assets acquired from Patriot. As of December 31, 2013, the purchase discount for the assets acquired from Patriot had been fully accreted. As such, no such income was recognized during the three or nine months ended March 31, 2015.
As of March 31, 2015, $4,510,970 of our loans, at fair value, bear interest at floating rates and $4,478,012 of those loans have LIBOR floors ranging from 1.0% to 5.5%. As of June 30, 2014, $4,499,955 of our loans, at fair value, bore interest at floating rates and $4,466,756 of those loans had LIBOR floors ranging from 1.25% to 6.00%.
At March 31, 2015, six loan investments were on non-accrual status: Edmentum, Gulf Coast, Vets Securing America, Inc., NCT, Wind River, and Wolf Energy. At June 30, 2014, nine loan investments were on non-accrual status: BXC, The Healing Staff, Inc., Manx, NCT, STI, Stryker, Wind River, Wolf Energy Holdings Inc., and Yatesville. Principal balances of these loans amounted to $109,468 and $163,408 as of March 31, 2015 and June 30, 2014, respectively. The fair value of these loans amounted to $35,287 and $5,937 as of March 31, 2015 and June 30, 2014, respectively. The fair values of these investments represent approximately 0.5% and 0.1% of our total assets as of March 31, 2015 and June 30, 2014, respectively. For the three months ended March 31, 2015 and March 31, 2014, the income foregone as a result of not accruing interest on non-accrual debt investments amounted to $3,050 and $5,262, respectively. For the nine months ended March 31, 2015 and March 31, 2014, the income foregone as a result of not accruing interest on non-accrual debt investments amounted to $18,450 and $15,918, respectively.
Undrawn committed revolvers and delayed draw term loans to our portfolio companies incur commitment and unused fees ranging from 0.00% to 2.00%. As of March 31, 2015 and June 30, 2014, we had $89,400 and $72,118, respectively, of undrawn revolver and delayed draw term loan commitments to our portfolio companies.

57


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 majority-owned portfolio companies, if any, are considered “significant subsidiaries.” In evaluating these investments, there are three tests utilized to determine if any of our investments are considered significant subsidiaries: the investment test, the asset test and the income test. Rule 3-09 of Regulation S-X, as interpreted by the SEC, requires separate audited financial statements of an unconsolidated majority-owned 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 any of the three tests exceeds 20%.
As of March 31, 2015, we had no single investment that represented greater than 20% of our total investment portfolio at fair value. As of March 31, 2015, we had no single investment whose assets represented greater than 20% of our total assets. 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 nine months ended March 31, 2015, we determined that one of our controlled investments individually generated more than 20% of our income, primarily due to the unrealized appreciation that was recognized on the investment during the nine months ended March 31, 2015. As such, the following unconsolidated majority-owned portfolio company was considered a significant subsidiary as of March 31, 2015: First Tower Finance Company LLC.
The following tables show summarized financial information for First Tower Finance Company LLC and its subsidiaries:
 
 
March 31, 2015
 
June 30, 2014
Balance Sheet Data
 
 
 
 
Cash and cash equivalents
 
$
71,919

 
$
60,368

Finance receivables, net
 
395,891

 
385,875

Intangibles, including goodwill
 
125,764

 
137,696

Other assets
 
15,158

 
14,056

Notes payable
 
264,432

 
250,965

Notes payable, due to Prospect or Affiliate
 
313,844

 
313,844

Other liabilities
 
53,058

 
46,276

Shareholder's deficit
 
(22,602
)
 
(13,090
)
 
 
Three Months Ended March 31,
 
Nine Months Ended March 31,
 
 
2015
 
2014
 
2015
 
2014
Summary of Operations
 
 
 
 
 
 
 
 
Total revenue
 
$
50,180

 
$
49,045

 
$
157,703

 
$
152,152

Total expenses
 
55,215

 
40,782

 
164,207

 
121,917

Net (loss) income
 
$
(5,035
)
 
$
8,263

 
$
(6,504
)
 
$
30,235

As the SEC has not released details on the mechanics of how the calculations related to Rules 3-09 and 4-08(g) of Regulation S-X are to be completed, there is diversity in practice for the calculation. Based on our interpretation of Rules 10-01(b)(1) and 4-08(g) of Regulation S-X and related calculations, we do not believe that summarized financial information is required for any other entities in the current quarterly financial statements. We expect that the SEC will clarify the calculation method in the near future.
Note 4. Revolving Credit Facility
On March 27, 2012, we closed on an extended and expanded credit facility with a syndicate of lenders through PCF (the “2012 Facility”). The lenders had extended commitments of $857,500 under the 2012 Facility as of June 30, 2014, which was increased to $877,500 in July 2014. The 2012 Facility included an accordion feature which allowed commitments to be increased up to $1,000,000 in the aggregate. Interest on borrowings under the 2012 Facility was one-month LIBOR plus 275 basis points with no minimum LIBOR floor. Additionally, the lenders charged a fee on the unused portion of the 2012 Facility equal to either 50 basis points if at least half of the credit facility is drawn or 100 basis points otherwise.

58


On August 29, 2014, we renegotiated the 2012 Facility and closed an expanded five and a half year revolving credit facility (the “2014 Facility” and collectively with the 2012 Facility, the “Revolving Credit Facility”). The lenders have extended commitments of $885,000 under the 2014 Facility as of March 31, 2015. The 2014 Facility includes an accordion feature which allows commitments to be increased up to $1,500,000 in the aggregate. The revolving period of the 2014 Facility extends through March 2019, with an additional one year amortization period (with distributions allowed) after the completion of the revolving period. During such one year amortization period, all principal payments on the pledged assets will be applied to reduce the balance. At the end of the one year amortization period, the remaining balance will become due, if required by the lenders.
The 2014 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 2014 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 2014 Facility. The 2014 Facility also requires the maintenance of a minimum liquidity requirement. As of March 31, 2015, we were in compliance with the applicable covenants.
Interest on borrowings under the 2014 Facility is one-month LIBOR plus 225 basis points with no minimum LIBOR floor. Additionally, the lenders charge a fee on the unused portion of the 2014 Facility equal to either 50 basis points if at least 35% of the credit facility is drawn or 100 basis points otherwise. The 2014 Facility requires us to pledge assets as collateral in order to borrow under the credit facility.
As of March 31, 2015 and June 30, 2014, we had $739,066 and $780,620, respectively, available to us for borrowing under the Revolving Credit Facility, of which the amount outstanding was $317,700 and $92,000, 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 $885,000. As of March 31, 2015, the investments used as collateral for the Revolving Credit Facility had an aggregate fair value of $1,609,258, which represents 24.2% of our total investments and money market funds. 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 $8,885 of new fees and $3,539 of fees carried over for continuing participants from the previous facility, which are being amortized over the term of the facility in accordance with ASC 470-50, of which $10,983 remains to be amortized and is included within deferred financing costs on the Consolidated Statement of Assets and Liabilities as of March 31, 2015. In accordance with ASC 470-50, we expensed $332 of fees relating to credit providers in the 2012 Facility who did not commit to the 2014 Facility.

During the three months ended March 31, 2015 and March 31, 2014, we recorded $3,545 and $3,243, respectively, of interest costs, unused fees and amortization of financing costs on the Revolving Credit Facility as interest expense. During the nine months ended March 31, 2015 and March 31, 2014, we recorded $10,803 and $8,319, respectively, of interest costs, unused fees and amortization of financing costs on the Revolving Credit Facility as interest expense.
Note 5. Convertible Notes
On December 21, 2010, we issued $150,000 aggregate principal amount of convertible notes that mature on December 15, 2015 (the “2015 Notes”), unless previously converted or repurchased in accordance with their terms. The 2015 Notes bear interest at a rate of 6.25% per year, payable semi-annually on June 15 and December 15 of each year, beginning June 15, 2011. Total proceeds from the issuance of the 2015 Notes, net of underwriting discounts and offering costs, were $145,200.
On February 18, 2011, we issued $172,500 aggregate principal amount of convertible notes that mature on August 15, 2016 (the “2016 Notes”), unless previously converted or repurchased in accordance with their terms. The 2016 Notes bear interest at a rate of 5.50% per year, payable semi-annually on February 15 and August 15 of each year, beginning August 15, 2011. Total proceeds from the issuance of the 2016 Notes, net of underwriting discounts and offering costs, were $167,325. Between January 30, 2012 and February 2, 2012, we repurchased $5,000 aggregate principal amount of the 2016 Notes at a price of 97.5, including commissions. The transactions resulted in our recognizing $10 of loss in the year ended June 30, 2012.
On April 16, 2012, we issued $130,000 aggregate principal amount of convertible notes that mature on October 15, 2017 (the “2017 Notes”), unless previously converted or repurchased in accordance with their terms. The 2017 Notes bear 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.

59


On August 14, 2012, we issued $200,000 aggregate principal amount of convertible notes that mature on March 15, 2018 (the “2018 Notes”), unless previously converted or repurchased in accordance with their terms. The 2018 Notes bear 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 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 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 in the amount of the difference between the reacquisition price and the net carrying amount of the 2020 Notes, net of the proportionate amount of unamortized debt issuance costs. The net gain on extinguishment of debt we recorded in the three and nine months ended March 31, 2015 was $342.
Certain key terms related to the convertible features for the 2015 Notes, the 2016 Notes, the 2017 Notes, the 2018 Notes, the 2019 Notes and the 2020 Notes (collectively, the “Convertible Notes”) are listed below.
 
2015 Notes

 
2016 Notes

 
2017 Notes

 
2018 Notes

 
2019 Notes

 
2020 Notes

Initial conversion rate(1)
88.0902

 
78.3699

 
85.8442

 
82.3451

 
79.7766

 
80.6647

Initial conversion price
$
11.35

 
$
12.76

 
$
11.65

 
$
12.14

 
$
12.54

 
$
12.40

Conversion rate at March 31, 2015(1)(2)
89.9752

 
80.2196

 
86.9426

 
83.6661

 
79.8248

 
80.6647

Conversion price at March 31, 2015(2)(3)
$
11.11

 
$
12.47

 
$
11.50

 
$
11.95

 
$
12.53

 
$
12.40

Last conversion price calculation date
12/21/2014

 
2/18/2015

 
4/16/2014

 
8/14/2014

 
12/21/2014

 
4/11/2014

Dividend threshold amount (per share)(4)
$
0.101125

 
$
0.101150

 
$
0.101500

 
$
0.101600

 
$
0.110025

 
$
0.110525

(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 in effect at March 31, 2015 was calculated on the last anniversary of the issuance and will be adjusted again on the next anniversary, unless the exercise price shall have changed by more than 1% before the anniversary.
(4)
The conversion rate is increased if monthly cash dividends paid to common shares exceed the monthly dividend threshold amount, subject to adjustment.
In no event will the total number of shares of common stock issuable upon conversion exceed 96.8992 per $1 principal amount of the 2015 Notes (the “conversion rate cap”), except that, to the extent we receive written guidance or a no-action letter from the staff of the Securities and Exchange Commission (the “Guidance”) permitting us to adjust the conversion rate in certain instances without regard to the conversion rate cap and to make the 2015 Notes convertible into certain reference property in accordance with certain reclassifications, business combinations, asset sales and corporate events by us without regard to the conversion rate cap, we will make such adjustments without regard to the conversion rate cap and will also, to the extent that we make any such adjustment without regard to the conversion rate cap pursuant to the Guidance, adjust the conversion rate cap accordingly. We will use our commercially reasonable efforts to obtain such Guidance as promptly as practicable.
Prior to obtaining the Guidance, we will not engage in certain transactions that would result in an adjustment to the conversion rate increasing the conversion rate beyond what it would have been in the absence of such transaction unless we have engaged in a reverse stock split or share combination transaction such that in our reasonable best estimation, the conversion rate following the adjustment for such transaction will not be any closer to the conversion rate cap than it would have been in the absence of such transaction.
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.

60


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 $39,167 of fees which are being amortized over the terms of the notes, of which $22,462 remains to be amortized and is included within deferred financing costs on the Consolidated Statement of Assets and Liabilities as of March 31, 2015.
During the three months ended March 31, 2015 and March 31, 2014, we recorded $18,572 and $13,378, respectively, of interest costs and amortization of financing costs on the Convertible Notes as interest expense. During the nine months ended March 31, 2015 and March 31, 2014, we recorded $55,776 and $40,048, respectively, of interest costs and amortization of financing costs on the Convertible Notes as interest expense.
Note 6. Public Notes
On May 1, 2012, we issued $100,000 aggregate principal amount of unsecured notes that mature on November 15, 2022 (the “2022 Notes”). The 2022 Notes bear interest at a rate of 6.95% per year, payable quarterly on February 15, May 15, August 15 and November 15 of each year, beginning August 15, 2012. Total proceeds from the issuance of the 2022 Notes, net of underwriting discounts and offering costs, were $97,000. On April 10, 2015, we provided notice of our intent to redeem 100% of the 2022 Notes outstanding (see Note 18).
On March 15, 2013, we issued $250,000 aggregate principal amount of unsecured notes that mature on March 15, 2023 (the “2023 Notes”). The 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 2023 Notes, net of underwriting discounts and offering costs, were $245,885.
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 $250,775.
The 2022 Notes, the 2023 Notes and the 5.00% 2019 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 incurred $11,367 of fees which are being amortized over the term of the notes, of which $9,507 remains to be amortized and is included within deferred financing costs on the Consolidated Statement of Assets and Liabilities as of March 31, 2015.
During the three months ended March 31, 2015 and March 31, 2014, we recorded $9,493 and $5,591, respectively, of interest costs and amortization of financing costs on the Public Notes as interest expense. During the nine months ended March 31, 2015 and March 31, 2014, we recorded $28,440 and $16,764, respectively, of interest costs and amortization of financing costs on the Public Notes as interest expense.

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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 nine months ended March 31, 2015, we issued $74,967 aggregate principal amount of our Prospect Capital InterNotes® for net proceeds of $73,730. These notes were issued with stated interest rates ranging from 4.25% to 4.75% with a weighted average interest rate of 4.58%. These notes mature between May 15, 2020 and September 15, 2020. All notes issued during the nine months ended March 31, 2015 mature 5.5 years from the original date of issuance.
During the nine months ended March 31, 2014, we issued $407,208 aggregate principal amount of our Prospect Capital InterNotes® for net proceeds of $400,062. These notes were issued with stated interest rates ranging from 3.75% to 6.75% with a weighted average interest rate of 5.14%. These notes mature between October 15, 2016 and October 15, 2043. The following table summarizes the Prospect Capital InterNotes® issued during the nine months ended March 31, 2014.
Tenor at
Origination
(in years)
 
Principal
Amount
 
Interest Rate
Range
 
Weighted
Average
Interest Rate
 
Maturity Date Range
3
 
$
5,710

 
4.00%
 
4.00
%
 
October 15, 2016
3.5
 
3,149

 
4.00%
 
4.00
%
 
April 15, 2017
4
 
36,992

 
3.75%–4.00%
 
3.96
%
 
November 15, 2017 – March 15, 2018
5
 
195,965

 
4.75%–5.00%
 
4.96
%
 
July 15, 2018 – August 15, 2019
5.5
 
43,820

 
4.75%–5.00%
 
4.77
%
 
February 15, 2019 – August 15, 2019
6.5
 
1,800

 
5.50%
 
5.50
%
 
February 15, 2020
7
 
47,227

 
5.25%–5.75%
 
5.50
%
 
July 15, 2020 – March 15, 2021
7.5
 
1,996

 
5.75%
 
5.75
%
 
February 15, 2021
10
 
13,691

 
5.75%–6.50%
 
6.02
%
 
January 15, 2024 – March 15, 2024
12
 
2,978

 
6.00%
 
6.00
%
 
November 15, 2025 – December 15, 2025
15
 
2,495

 
6.00%
 
6.00
%
 
August 15, 2028 – November 15, 2028
18
 
4,062

 
6.00%–6.25%
 
6.21
%
 
July 15, 2031 – August 15, 2031
20
 
2,791

 
6.00%
 
6.00
%
 
September 15, 2033 – October 15, 2033
25
 
24,382

 
6.25%–6.50%
 
6.45
%
 
August 15, 2038 – March 15, 2039
30
 
20,150

 
6.50%–6.75%
 
6.60
%
 
July 15, 2043 – October 15, 2043
 
 
$
407,208

 
 
 
 
 
 
During the nine months ended March 31, 2015, we redeemed $76,931 aggregate principal amount of our Prospect Capital InterNotes® at par with a weighted average interest rate of 6.06% in order to replace debt with higher interest rates with debt with lower rates. As a result of these transactions, we recorded a loss in the amount of the difference between the reacquisition price and the net carrying amount of the Prospect Capital InterNotes®, net of the proportionate amount of unamortized debt issuance costs. The net loss on extinguishment of debt we recorded in the three and nine months ended March 31, 2015 was $1,220 and $1,556, respectively. During the nine months ended March 31, 2015, we repaid $4,988 aggregate principal amount of our Prospect Capital InterNotes® at par in accordance with the Survivor’s Option, as defined in the InterNotes® Offering prospectus.

62


The following table summarizes the Prospect Capital InterNotes® outstanding as of March 31, 2015.
Tenor at
Origination
 (in years)
 
Principal
Amount
 
Interest Rate
Range
 
Weighted
Average
Interest Rate
 
Maturity Date Range
3
 
$
5,710

 
4.00%
 
4.00
%
 
October 15, 2016
3.5
 
3,109

 
4.00%
 
4.00
%
 
April 15, 2017
4
 
45,690

 
3.75%–4.00%
 
3.92
%
 
November 15, 2017 – May 15, 2018
5
 
212,784

 
4.25%–5.00%
 
4.91
%
 
July 15, 2018 – August 15, 2019
5.5
 
78,787

 
4.25%–5.00%
 
4.60
%
 
February 15, 2019 – September 15, 2020
6.5
 
1,800

 
5.50%
 
5.50
%
 
February 15, 2020
7
 
185,497

 
4.00%–5.85%
 
5.13
%
 
September 15, 2019 – May 15, 2021
7.5
 
1,996

 
5.75%
 
5.75
%
 
February 15, 2021
10
 
36,925

 
3.27%–7.00%
 
6.11
%
 
March 15, 2022 – May 15, 2024
12
 
2,978

 
6.00%
 
6.00
%
 
November 15, 2025 – December 15, 2025
15
 
17,400

 
5.00%–6.00%
 
5.14
%
 
May 15, 2028 – November 15, 2028
18
 
22,804

 
4.125%–6.25%
 
5.52
%
 
December 15, 2030 – August 15, 2031
20
 
4,630

 
5.75%–6.00%
 
5.90
%
 
November 15, 2032 – October 15, 2033
25
 
36,579

 
6.25%–6.50%
 
6.39
%
 
August 15, 2038 – May 15, 2039
30
 
122,029

 
5.50%–6.75%
 
6.23
%
 
November 15, 2042 – October 15, 2043
 
 
$
778,718

 
 
 
 

 
 
During the nine months ended March 31, 2014, we repaid $3,341 aggregate principal amount of our Prospect Capital InterNotes® at par in accordance with the Survivor’s Option, as defined in the InterNotes® Offering prospectus. During the year ended June 30, 2014, we repaid $6,869 aggregate principal amount of our Prospect Capital InterNotes® in accordance with the Survivor’s Option, as defined in the InterNotes® Offering prospectus. In connection with the issuance of the 5.00% 2019 Notes, $45,000 of previously-issued Prospect Capital InterNotes® were exchanged for the 5.00% 2019 Notes.
The following table summarizes the Prospect Capital InterNotes® outstanding as of June 30, 2014.
Tenor at
Origination
(in years)
 
Principal
Amount
 
Interest Rate
Range
 
Weighted
Average
Interest Rate
 
Maturity Date Range
3
 
$
5,710

 
4.00%
 
4.00
%
 
October 15, 2016
3.5
 
3,149

 
4.00%
 
4.00
%
 
April 15, 2017
4
 
45,751

 
3.75%–4.00%
 
3.92
%
 
November 15, 2017 – May 15, 2018
5
 
212,915

 
4.25%–5.00%
 
4.91
%
 
July 15, 2018 – August 15, 2019
5.5
 
3,820

 
5.00%
 
5.00
%
 
February 15, 2019
6.5
 
1,800

 
5.50%
 
5.50
%
 
February 15, 2020
7
 
256,903

 
4.00%–6.55%
 
5.39
%
 
June 15, 2019 – May 15, 2021
7.5
 
1,996

 
5.75%
 
5.75
%
 
February 15, 2021
10
 
41,952

 
3.23%–7.00%
 
6.18
%
 
March 15, 2022 – May 15, 2024
12
 
2,978

 
6.00%
 
6.00
%
 
November 15, 2025 – December 15, 2025
15
 
17,465

 
5.00%–6.00%
 
5.14
%
 
May 15, 2028 – November 15, 2028
18
 
25,435

 
4.125%–6.25%
 
5.49
%
 
December 15, 2030 – August 15, 2031
20
 
5,847

 
5.625%–6.00%
 
5.85
%
 
November 15, 2032 – October 15, 2033
25
 
34,886

 
6.25%–6.50%
 
6.39
%
 
August 15, 2038 – May 15, 2039
30
 
125,063

 
5.50%–6.75%
 
6.22
%
 
November 15, 2042 – October 15, 2043
 
 
$
785,670

 
 
 
 
 
 

63


In connection with the issuance of the Prospect Capital InterNotes®, we incurred $19,936 of fees which are being amortized over the term of the notes, of which $17,966 remains to be amortized and is included within deferred financing costs on the Consolidated Statement of Assets and Liabilities as of March 31, 2015.
During the three months ended March 31, 2015 and March 31, 2014, we recorded $10,603 and $9,535, respectively, of interest costs and amortization of financing costs on the Prospect Capital InterNotes® as interest expense. During the nine months ended March 31, 2015 and March 31, 2014, we recorded $32,352 and $23,279, respectively, of interest costs and amortization of financing costs on the Prospect Capital InterNotes® as interest expense.
Note 8. Fair Value and Maturity of Debt Outstanding 
The following table shows the maximum draw amounts and outstanding borrowings of our Revolving Credit Facility, Convertible Notes, Public Notes and Prospect Capital InterNotes® as of March 31, 2015 and June 30, 2014.
 
March 31, 2015
 
June 30, 2014
 
Maximum Draw Amount
 
Amount Outstanding
 
Maximum Draw Amount
 
Amount Outstanding
Revolving Credit Facility
$
885,000

 
$
317,700

 
$
857,500

 
$
92,000

Convertible Notes
1,239,500

 
1,239,500

 
1,247,500

 
1,247,500

Public Notes
648,045

 
648,045

 
647,881

 
647,881

Prospect Capital InterNotes®
778,718

 
778,718

 
785,670

 
785,670

Total
$
3,551,263

 
$
2,983,963

 
$
3,538,551

 
$
2,773,051

The following table shows the contractual maturities of our Revolving Credit Facility, Convertible Notes, Public Notes and Prospect Capital InterNotes® as of March 31, 2015.
 
Payments Due by Period
 
Total
 
Less than 1 Year
 
1 – 3 Years
 
3 – 5 Years
 
After 5 Years
Revolving Credit Facility
$
317,700

 
$

 
$

 
$
317,700

 
$

Convertible Notes
1,239,500

 
150,000

 
497,500

 
200,000

 
392,000

Public Notes
648,045

 

 

 
300,000

 
348,045

Prospect Capital InterNotes®
778,718

 

 
45,750

 
276,962

 
456,006

Total Contractual Obligations
$
2,983,963

 
$
150,000

 
$
543,250

 
$
1,094,662

 
$
1,196,051

The following table shows the contractual maturities of our Revolving Credit Facility, Convertible Notes, Public Notes and Prospect Capital InterNotes® as of June 30, 2014.
 
Payments Due by Period
 
Total
 
Less than 1 Year
 
1 – 3 Years
 
3 – 5 Years
 
After 5 Years
Revolving Credit Facility
$
92,000

 
$

 
$
92,000

 
$

 
$

Convertible Notes
1,247,500

 

 
317,500

 
530,000

 
400,000

Public Notes
647,881

 

 

 

 
647,881

Prospect Capital InterNotes®
785,670

 

 
8,859

 
261,456

 
515,355

Total Contractual Obligations
$
2,773,051

 
$

 
$
418,359

 
$
791,456

 
$
1,563,236


64


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 following table shows the fair value of these financial liabilities disaggregated into the three levels of the ASC 820 valuation hierarchy as of March 31, 2015.
 
Fair Value Hierarchy
 
 
 
Level 1
 
Level 2
 
Level 3
 
Total
Revolving Credit Facility(1)
$

 
$
317,700

 
$

 
$
317,700

Convertible Notes(2)

 
1,246,495

 

 
1,246,495

Public Notes(2)

 
677,964

 

 
677,964

Prospect Capital InterNotes®(3)

 
801,135

 

 
801,135

Total
$

 
$
3,043,294

 
$

 
$
3,043,294

(1)
The carrying value of our Revolving Credit Facility approximates the fair value.
(2)
We use available market quotes to estimate the fair value of the Convertible Notes and Public Notes.
(3)
The fair value of our Prospect Capital InterNotes® is estimated by discounting remaining payments using current Treasury rates.
The following table shows the fair value of these financial liabilities disaggregated into the three levels of the ASC 820 valuation hierarchy as of June 30, 2014.
 
Fair Value Hierarchy
 
 
 
Level 1
 
Level 2
 
Level 3
 
Total
Revolving Credit Facility(1)
$

 
$
92,000

 
$

 
$
92,000

Convertible Notes(2)

 
1,293,495

 

 
1,293,495

Public Notes(2)

 
679,816

 

 
679,816

Prospect Capital InterNotes®(3)

 
799,631

 

 
799,631

Total
$

 
$
2,864,942

 
$

 
$
2,864,942

(1)
The carrying value of our Revolving Credit Facility approximates the fair value.
(2)
We use available market quotes to estimate the fair value of the Convertible Notes and Public Notes. 
(3)
The fair value of our Prospect Capital InterNotes® is estimated by discounting remaining payments using current Treasury rates.

65


Note 9. Equity Offerings, Offering Expenses, and Distributions
Excluding dividend reinvestments, we issued 14,845,556 and 84,567,900 shares of our common stock during the nine months ended March 31, 2015 and March 31, 2014, respectively. The following table summarizes our issuances of common stock during the nine months ended March 31, 2014 and March 31, 2015.
Issuances of Common Stock
 
Number of
Shares Issued
 
Gross
Proceeds
 
Underwriting
Fees
 
Offering
Expenses
 
Average
Offering Price
During the nine months ended March 31, 2014:
 
 

 
 

 
 

 
 

July 5, 2013 – August 21, 2013(1)
 
9,818,907

 
$
107,725

 
$
902

 
$
169

 
$
10.97

August 2, 2013(2)
 
1,918,342

 
21,006

 

 

 
$
10.95

August 29, 2013 – November 4, 2013(1)
 
24,127,242

 
272,114

 
2,703

 
414

 
$
11.28

November 12, 2013 – February 5, 2014(1)
 
27,301,889

 
307,045

 
3,068

 
436

 
$
11.25

February 10, 2014 – March 31, 2014(1)
 
19,095,226

 
212,155

 
2,035

 
168

 
$
11.11

March 31, 2014(2)
 
2,306,294

 
24,908

 

 

 
$
10.80

 
 
 
 
 
 
 
 
 
 
 
During the nine months ended March 31, 2015:
 
 

 
 

 
 

 
 

September 11, 2014 – November 3, 2014(1)
 
9,490,975

 
95,149

 
474

 
175

 
$
10.03

November 17, 2014 – December 3, 2014(1)
 
5,354,581

 
51,678

 
268

 
410

 
$
9.65

(1)
Shares were issued in connection with our at-the-market offering program which we enter into from time to time with various counterparties.
(2)
On August 2, 2013 and March 31, 2014, we issued 1,918,342 and 2,306,294 shares of our common stock, respectively, in conjunction with our investments in CP Holdings of Delaware LLC and Harbortouch Holdings of Delaware Inc., controlled portfolio companies.
Our shareholders’ equity accounts as of March 31, 2015 and June 30, 2014 reflect cumulative shares issued 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 and our dividend reinvestment plan. 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.
On August 24, 2011, our Board of Directors approved a share repurchase plan under which we may repurchase up to $100,000 of our common stock at prices below our net asset value. We have not made any purchases of our common stock during the period from August 24, 2011 to March 31, 2015 pursuant to this plan. Prior to any repurchase, we are required to notify shareholders of our intention to purchase our common stock. This notice lasts for six months after notice is given. Our last notice was delivered with our annual proxy mailing on September 10, 2014.
Our Board of Directors, pursuant to the Maryland General Corporation Law, executed Articles of Amendment to increase the number of shares authorized for issuance from 500,000,000 to 1,000,000,000 in the aggregate. The amendment became effective May 6, 2014.
On November 4, 2014, our Registration Statement on Form N-2 was declared effective by the SEC. Under this Shelf Registration Statement, we can issue up to $4,873,355 of additional debt and equity securities in the public market as of March 31, 2015

66


During the nine months ended March 31, 2015 and March 31, 2014, we distributed approximately $331,863 and $289,875, respectively, to our stockholders. The following table summarizes our distributions declared and payable for the nine months ended March 31, 2014 and March 31, 2015.
Declaration Date
 
Record Date
 
Payment Date
 
Amount Per Share
 
Amount Distributed (in thousands)
5/6/2013
 
7/31/2013
 
8/22/2013
 
$
0.110175

 
$
28,001

5/6/2013
 
8/30/2013
 
9/19/2013
 
0.110200

 
28,759

6/17/2013
 
9/30/2013
 
10/24/2013
 
0.110225

 
29,915

6/17/2013
 
10/31/2013
 
11/21/2013
 
0.110250

 
31,224

6/17/2013
 
11/29/2013
 
12/19/2013
 
0.110275

 
32,189

6/17/2013
 
12/31/2013
 
1/23/2014
 
0.110300

 
33,229

8/21/2013
 
1/31/2014
 
2/20/2014
 
0.110325

 
34,239

8/21/2013
 
2/28/2014
 
3/20/2014
 
0.110350

 
35,509

8/21/2013
 
3/31/2014
 
4/17/2014
 
0.110375

 
36,810

Total declared and payable for the nine months ended March 31, 2014
 
 
$
289,875

 
 
 
 
 
 
 
 
 
2/3/2014
 
7/31/2014
 
8/21/2014
 
$
0.110475

 
$
37,863

2/3/2014
 
8/29/2014
 
9/18/2014
 
0.110500

 
37,885

2/3/2014
 
9/30/2014
 
10/22/2014
 
0.110525

 
38,519

5/6/2014
 
10/31/2014
 
11/20/2014
 
0.110550

 
38,977

5/6/2014
 
11/28/2014
 
12/18/2014
 
0.110575

 
39,583

5/6/2014
 
12/31/2014
 
1/22/2015
 
0.110600

 
39,623

9/24/2014
 
1/30/2015
 
2/19/2015
 
0.110625

 
39,648

12/8/2014
 
2/27/2015
 
3/19/2015
 
0.083330

 
29,878

12/8/2014
 
3/31/2015
 
4/23/2015
 
0.083330

 
29,887

Total declared and payable for the nine months ended March 31, 2015
 
 
$
331,863

Dividends and distributions to common stockholders are recorded on the ex-dividend date. As such, the table above includes distributions with record dates during the nine months ended March 31, 2015 and March 31, 2014. 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 payable subsequent to March 31, 2015:
$0.08333 per share for April 2015 to holders of record on April 30, 2015 with a payment date of May 21, 2015.
During the nine months ended March 31, 2015 and March 31, 2014, we issued 1,189,248 and 1,094,996 shares of our common stock, respectively, in connection with the dividend reinvestment plan.
As of March 31, 2015, we have reserved 102,790,062 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 for the three and nine months ended March 31, 2015 and March 31, 2014.
 
Three Months Ended 
 March 31,
 
Nine Months Ended 
 March 31,
 
2015
 
2014
 
2015
 
2014
Structuring and amendment fees (refer to Note 3)
$
3,380

 
$
24,522

 
$
24,988

 
$
54,321

Recovery of legal costs from prior periods from legal settlement

 

 

 
5,000

Royalty interests
1,390

 
1,704

 
3,218

 
4,316

Administrative agent fees
216

 
135

 
494

 
343

Total Other Income
$
4,986

 
$
26,361

 
$
28,700

 
$
63,980


67


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 for the three and nine months ended March 31, 2015 and March 31, 2014.
 
Three Months Ended 
 March 31,
 
Nine Months Ended 
 March 31,
 
2015
 
2014
 
2015
 
2014
Net increase in net assets resulting from operations
$
81,492

 
$
82,101

 
$
251,570

 
$
247,363

Weighted average common shares outstanding
358,449,304

 
316,388,733

 
351,922,217

 
286,949,781

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

 
$
0.26

 
$
0.71

 
$
0.86

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.
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, 2014, 2013 and 2012 were as follows:
 
 
Tax Year Ended August 31,
 
 
2014
 
2013
 
2012
Ordinary income
 
$
413,051

 
$
282,621

 
$
147,204

Capital gain
 

 

 

Return of capital
 

 

 

Total dividends paid to shareholders
 
$
413,051

 
$
282,621

 
$
147,204

For the tax year ending August 31, 2015, the tax character of dividends paid to shareholders through March 31, 2015 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, 2015.
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, 2014, 2013 and 2012:
 
 
Tax Year Ended August 31,
 
 
2014
 
2013
 
2012
Net increase in net assets resulting from operations
 
$
317,671

 
$
238,721

 
$
208,331

Net realized loss (gain) on investments
 
28,244

 
24,632

 
(38,363
)
Net unrealized depreciation on investments
 
24,638

 
77,835

 
32,367

Other temporary book-to-tax differences
 
(9,122
)
 
(6,994
)
 
(1,132
)
Permanent differences
 
(4,317
)
 
5,939

 
(6,103
)
Taxable income before deductions for distributions
 
$
357,114

 
$
340,133

 
$
195,100

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, 2014, we had capital loss carryforwards of approximately $117,393 available for use in later tax years. Of the amount available as of August 31, 2014, $623, $33,096 and $46,910 will expire on August 31, 2016, 2017 and 2018, respectively, and $36,764 is not subject to expiration. 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, substantially all of the Company’s capital loss carryforwards may become permanently unavailable due to limitations by the Code.

68


Under current tax law, capital losses and specific ordinary losses realized after October 31st and December 31st, respectively, may be deferred and treated as occurring on the first business day of the following tax year. As of August 31, 2014, we had deferred $22,601 of long-term capital losses which will be treated as arising on the first day of the tax year ending August 31, 2015.
For the tax year ended August 31, 2014, we had distributions in excess of taxable income. After the excess distributions, we still had cumulative taxable income in excess of cumulative distributions, and therefore, we elected to carry forward the excess for distribution to shareholders in the tax year ending August 31, 2015. The amount carried forward to 2015 was approximately $49,471. For the tax year ended August 31, 2013, we had taxable income in excess of the distributions made from such taxable income during the year, and therefore, we elected to carry forward the excess for distribution to shareholders in the tax year ended August 31, 2014. The amount carried forward to 2014 was approximately $105,408. For the tax year ended August 31, 2012, we had taxable income in excess of the distributions made from such taxable income during the year, and therefore, we elected to carry forward the excess for distribution to shareholders in the tax year ended August 31, 2013. The amount carried forward to 2013 was approximately $47,896.
As of March 31, 2015, the cost basis of investments for tax purposes was $6,630,526 resulting in estimated gross unrealized appreciation and depreciation of $212,369 and $240,124, respectively. As of June 30, 2014, the cost basis of investments for tax purposes was $6,424,182 resulting in estimated gross unrealized appreciation and depreciation of $139,620 and $310,063, respectively. Due to the difference between our fiscal and tax year ends, the cost basis of our investments for tax purposes as of March 31, 2015 and June 30, 2014 was calculated based on the book cost of investments as of March 31, 2015 and June 30, 2014, respectively, with cumulative book-to-tax adjustments for investments through each investment’s most current tax year end.
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 taxes, among other items. During the tax year ended August 31, 2014, we increased accumulated overdistributed net investment income by $4,316, decreased accumulated net realized loss on investments by $3,384 and increased capital in excess of par value by $932. During the tax year ended August 31, 2013, we increased accumulated undistributed net investment income by $5,939, increased accumulated net realized loss on investments by $2,621 and decreased capital in excess of par value by $3,318. Due to the difference between our fiscal and tax year ends, the reclassifications for the taxable year ended August 31, 2014 are recorded in the fiscal year ending June 30, 2015 and the reclassifications for the taxable year ended August 31, 2013 were recorded in the fiscal year ended June 30, 2014.
Note 13. Related Party Agreements and Transactions
Investment Advisory Agreement
On December 23, 2014, the Investment Adviser, Prospect Capital Management LLC, converted into a Delaware limited partnership and is now known as Prospect Capital Management L.P. (continues as the “Investment Adviser”). 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 gross assets (including amounts borrowed). 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 base management fee incurred to the favor of the Investment Adviser was $33,679 and $28,709 for the three months ended March 31, 2015 and March 31, 2014, respectively. The fees incurred for the nine months ended March 31, 2015 and March 31, 2014 were $100,878 and $76,829, respectively.

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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 appreciation or depreciation. 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.
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 its portfolio. For the purpose of this calculation, an “investment” is defined as the total of all rights and claims which maybe 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 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 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 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 $21,860 and $24,631 for the three months ended March 31, 2015 and March 31, 2014, respectively. The fees incurred for the nine months ended March 31, 2015 and March 31, 2014 were $68,307 and $68,269, respectively. No capital gains incentive fee was incurred for the three or nine months ended March 31, 2015 and March 31, 2014.

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Administration Agreement
We have also entered into an Administration Agreement with Prospect Administration LLC (“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 his staff. For the three months ended March 31, 2015 and March 31, 2014, the reimbursement was approximately $2,984 and $3,986, respectively. For the nine months ended March 31, 2015 and March 31, 2014, the reimbursement was approximately $8,414 and $11,958, respectively. 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” 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 subsidiary of the Investment Adviser.
During the three and nine months ended March 31, 2015, Prospect Administration received payments of $3,037 and $6,358, respectively, directly from our portfolio companies for legal, tax and portfolio level accounting services. 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.
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.
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 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 advice on (i) recruiting, hiring, management and termination of employees, officers and directors, succession planning and other human resource matters; (ii) capital raising, capital budgeting, and capital expenditures; (iii) advertising, marketing, and sales; (iv) fulfillment, operations, and execution; (v) 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. Our payments to Prospect Administration are periodically reviewed by our Board of Directors.

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During the three months ended March 31, 2015 and March 31, 2014, we received payments of $1,230 and $1,695, respectively, from our controlled portfolio companies for managerial assistance and subsequently remitted these amounts to Prospect Administration. During the nine months ended March 31, 2015 and March 31, 2014, we received payments of $3,795 and $4,852, respectively, from our controlled portfolio companies for managerial assistance and subsequently remitted these amounts to Prospect Administration. During the three and nine months ended March 31, 2015, we incurred $600 and $1,800, respectively, of managerial assistance expense related to our consolidated entity First Tower Delaware. This amount is included within other general and administrative expenses on our Consolidated Statements of Operations and is included within due to Prospect Administration on our Consolidated Statement of Assets and Liabilities as of March 31, 2015.
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 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 March 31, 2015, we had co-investments with Priority Income Fund, Inc. in the following CLO funds: Babson CLO Ltd. 2014-III; Cent CLO 21 Limited; CIFC Funding 2014-IV Investor, Ltd.; Galaxy XVII CLO, Ltd.; Halcyon Loan Advisors Funding 2014-2 Ltd.; Symphony CLO XIV Ltd.; Voya CLO 2014-1, Ltd.; and Washington Mill CLO Ltd.
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 for the three and nine months ended March 31, 2015 are presented on a consolidated basis.
Airmall Inc.
As of June 30, 2014, Prospect owned 100% of the equity of AMU Holdings Inc. (“AMU”), a Consolidated Holding Company. AMU owned 98% of Airmall Inc. (f/k/a Airmall USA Holdings, Inc.) (“Airmall”). Airmall is a developer and manager of airport retail operations.
On July 30, 2010, Prospect made a $22,420 investment in AMU, of which $12,500 was a senior subordinated note and $9,920 was used to purchase 100% of the preferred and common equity of AMU. AMU used its combined debt and equity proceeds of $22,420 to purchase 100% of Airmall’s common stock for $18,000, to pay $1,573 of structuring fees from AMU to Prospect (which was recognized by Prospect as structuring fee income), $836 of third party expenses, $11 of legal services provided by attorneys at Prospect Administration, and $2,000 of withholding tax. Prospect then purchased for $30,000 two loans of Airmall payable to unrealized third parties, one for $10,000 and the other $20,000. Prospect and Airmall subsequently refinanced the two loans into a single $30,000 loan from Airmall to Prospect.
On October 1, 2013, Prospect made an additional $2,600 investment in the senior subordinated note, of which $575 was utilized by AMU to pay interest due to Prospect and $2,025 was retained by AMU for working capital. On November 25, 2013, Prospect funded an additional $5,000 to the senior subordinated note, which was utilized by AMU to pay a $5,000 dividend to Prospect. On December 4, 2013, Prospect sold 2% of the outstanding principal balance of the senior secured term loan to Airmall and 2% of the outstanding principal balance of the senior subordinated note to AMU for $972.

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On June 13, 2014, Prospect made a new $19,993 investment as a senior secured loan to Airmall. Airmall then distributed this amount to AMU as a return of capital, which AMU used to pay down the senior subordinated loan in the same amount. The minority interest held by a third party in AMU was exchanged for common stock of Airmall.
On July 1, 2014, Prospect began consolidating AMU. As a result, any transactions between AMU and Prospect are eliminated in consolidation and as such, transactions after July 1, 2014 are not presented below.
On August 1, 2014, Prospect sold its investments in Airmall for net proceeds of $51,379 and realized a loss of $3,473 on the sale. In addition, there is $6,000 being held in escrow, of which 98% is due to Prospect, which will be recognized as an additional realized loss if it is not received. Included in the net proceeds were $3,000 of structuring fees from Airmall related to the sale of the operating company which was recognized as other income during the three months ended September 30, 2014. On October 22, 2014, Prospect received a tax refund of $665 related to its investment in Airmall and realized a gain of the same amount.
In addition to the repayments noted above, the following amounts were paid from Airmall to Prospect and recorded by Prospect as repayment of loan receivable:
Three Months Ended March 31, 2014
$
147

Three Months Ended March 31, 2015

Nine Months Ended March 31, 2014
446

Nine Months Ended March 31, 2015
47,580

The following dividends were declared and paid from Airmall to AMU and recognized as dividend income by AMU:
Three Months Ended March 31, 2014
$

Three Months Ended March 31, 2015
N/A

Nine Months Ended March 31, 2014
7,000

Nine Months Ended March 31, 2015
N/A

The following dividends were declared and paid from AMU to Prospect and recognized as dividend income by Prospect:
Three Months Ended March 31, 2014
$

Three Months Ended March 31, 2015
N/A

Nine Months Ended March 31, 2014
12,000

Nine Months Ended March 31, 2015
N/A

All dividends were paid from earnings and profits of Airmall and AMU.
The following interest payments were accrued and paid from AMU to Prospect and recognized by Prospect as interest income:
Three Months Ended March 31, 2014
$
885

Three Months Ended March 31, 2015
N/A

Nine Months Ended March 31, 2014
2,249

Nine Months Ended March 31, 2015
N/A

Included above, the following payment-in-kind interest from AMU was capitalized and recognized by Prospect as interest income:
Three Months Ended March 31, 2014
$
295

Three Months Ended March 31, 2015
N/A

Nine Months Ended March 31, 2014
295

Nine Months Ended March 31, 2015
N/A


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The following interest payments were accrued and paid from Airmall to Prospect and recognized by Prospect as interest income:
Three Months Ended March 31, 2014
$
825

Three Months Ended March 31, 2015

Nine Months Ended March 31, 2014
2,572

Nine Months Ended March 31, 2015
576

The following interest income recognized had not yet been paid by Airmall to Prospect and was included by Prospect within interest receivable:
June 30, 2014
$
920

March 31, 2015

The following managerial assistance payments were paid from AMU to Prospect and subsequently remitted to Prospect Administration (no income was recognized by Prospect):
Three Months Ended March 31, 2014
$
75

Three Months Ended March 31, 2015
N/A

Nine Months Ended March 31, 2014
300

Nine Months Ended March 31, 2015
N/A

The following managerial assistance payments were paid from Airmall to Prospect and subsequently remitted to Prospect Administration (no income was recognized by Prospect):
Three Months Ended March 31, 2014
$

Three Months Ended March 31, 2015

Nine Months Ended March 31, 2014

Nine Months Ended March 31, 2015
75

The following managerial assistance recognized had not yet been paid by Airmall to Prospect and was included by Prospect within other receivables and due to Prospect Administration:
June 30, 2014
$
75

March 31, 2015

The following payments were paid from Airmall to Prospect Administration as reimbursement for legal, tax and portfolio level accounting services provided directly to Airmall (no direct income was recognized by Prospect, but Prospect was given credit for these payments as a reduction of the administrative services costs payable by Prospect to Prospect Administration):
Three Months Ended March 31, 2014
$

Three Months Ended March 31, 2015

Nine Months Ended March 31, 2014

Nine Months Ended March 31, 2015
730

The following amounts were due from Airmall to Prospect for reimbursement of expenses paid by Prospect on behalf of Airmall and were included by Prospect within other receivables: 
June 30, 2014
$
11

March 31, 2015


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American Property REIT Corp.
Prospect owns 100% of the equity of APH Property Holdings, LLC (“APH”), a Consolidated Holding Company. APH owns 100% of the common equity of American Property REIT Corp. (f/k/a American Property Holdings Corp.) (“APRC”). APRC is a Maryland corporation and a qualified REIT for federal income tax purposes. In order to qualify as a REIT, APRC 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 APRC.
APRC 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. APRC acquires real estate assets, including, but not limited to, industrial, commercial, and multi-family properties. APRC may acquire real estate assets directly or through joint ventures by making a majority equity investment in a property-owning entity (the “JV”).
On October 24, 2012, Prospect initially made a $7,808 investment in APH, of which $6,000 was a Senior Term Loan and $1,808 was used to purchase the membership interests of APH. The proceeds were utilized by APH to purchase APRC common equity for $7,806, with $2 retained by APH for working capital. The proceeds were utilized by APRC to purchase a 100% ownership interest in 146 Forest Parkway, LLC for $7,326, pay a $250 non-refundable deposit and $222 of structuring fees to Prospect (which was recognized by Prospect as structuring fee income), with $8 retained by APRC for working capital. 146 Forest Parkway, LLC was purchased for $7,400. The remaining proceeds were used to pay $168 of third party expenses and $5 of legal services provided by attorneys at Prospect Administration, with $3 retained by the JV for working capital. The investment was subsequently contributed to NPRC.
On December 28, 2012, Prospect made a $9,594 investment in APH, of which $6,400 was a Senior Term Loan and $3,194 was used to purchase additional membership interests of APH. The proceeds were utilized by APH to purchase additional APRC common equity for $9,594. The proceeds were utilized by APRC to purchase a 92.7% ownership interest in 1557 Terrell Mill Road, LLC for $9,548, with $46 retained by APRC for other expenses. The JV was purchased for $23,500 which included debt financing and minority interest of $15,275 and $757, respectively. The remaining proceeds were used to pay $286 of structuring fees to Prospect (which was recognized by Prospect as structuring fee income) and $1,652 of third party expenses, with $142 retained by the JV for working capital.
On January 17, 2013, Prospect made a $30,348 investment in APH, of which $27,600 was a Senior Term Loan and $2,748 was used to purchase additional membership interests of APH. The proceeds were utilized by APH to purchase additional APRC common equity for $29,348, with $1,000 retained by APH for working capital. The proceeds were utilized by APRC to purchase a 97.7% ownership interest in 5100 Live Oaks Blvd, LLC for $29,348. The JV was purchased for $63,400 which included debt financing and minority interest of $39,600 and $686, respectively. The remaining proceeds were used to pay $880 of structuring fees to Prospect (which was recognized by Prospect as structuring fee income), $4,265 of third party expenses, $14 of legal services provided by attorneys at Prospect Administration, and $1,030 of prepaid assets, with $45 retained by the JV for working capital.
On April 30, 2013, Prospect made a $10,383 investment in APH, of which $9,000 was a Senior Term Loan and $1,383 was used to purchase additional membership interests of APH. The proceeds were utilized by APH to purchase additional APRC common equity for $10,233, with $150 retained by APH for working capital. The proceeds were utilized by APRC to purchase a 93.2% ownership interest in Lofton Place, LLC for $10,233. The JV was purchased for $26,000 which included debt financing and minority interest of $16,965 and $745, respectively. The remaining proceeds were used to pay $306 of structuring fees to Prospect (which was recognized by Prospect as structuring fee income), $1,223 of third party expenses, $5 of legal services provided by attorneys at Prospect Administration, and $364 of prepaid assets, with $45 retained by the JV for working capital.
On April 30, 2013, Prospect made a $10,863 investment in APH, of which $9,000 was a Senior Term Loan and $1,863 was used to purchase additional membership interests of APH. The proceeds were utilized by APH to purchase additional APRC common equity for $10,708, with $155 retained by APH for working capital. The proceeds were utilized by APRC to purchase a 93.2% ownership interest in Vista Palma Sola, LLC for $10,708. The JV was purchased for $27,000 which included debt financing and minority interest of $17,550 and $785, respectively. The remaining proceeds were used to pay $321 of structuring fees to Prospect (which was recognized by Prospect as structuring fee income), $1,272 of third party expenses, $4 of legal services provided by attorneys at Prospect Administration, and $401 of prepaid assets, with $45 retained by the JV for working capital.

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On May 8, 2013, Prospect made a $6,118 investment in APH, of which $4,000 was a Senior Term Loan and $2,118 was used to purchase additional membership interests of APH. The proceeds were utilized by APH to purchase additional APRC common equity for $6,028, with $90 retained by APH for working capital. The proceeds were utilized by APRC to purchase a 93.3% ownership interest in Arlington Park Marietta, LLC for $6,028. Arlington Park Marietta, LLC was purchased for $14,850 which included debt financing and minority interest of $9,650 and $437, respectively. The remaining proceeds were used to pay $181 of structuring fees to Prospect (which was recognized by Prospect as structuring fee income), $911 of third party expenses, and $128 of prepaid assets, with $45 retained by the JV for working capital.
On June 24, 2013, Prospect made a $76,533 investment in APH, of which $63,000 was a Senior Term Loan and $13,533 was used to purchase additional membership interests of APH. The proceeds were utilized by APH to purchase additional APRC common equity for $75,233, with $1,300 retained by APH for working capital. The proceeds were utilized by APRC to purchase a 95.0% ownership interest in APH Carroll Resort, LLC for $74,398 and to pay $835 of structuring fees to Prospect (which was recognized by Prospect as structuring fee income). The JV was purchased for $225,000 which included debt financing and minority interest of $157,500 and $3,916, respectively. The remaining proceeds were used to pay $1,436 of structuring fees to Prospect (which was recognized by Prospect as structuring fee income), $7,687 of third party expenses, $8 of legal services provided by attorneys at Prospect Administration, and $1,683 of prepaid assets. The investment was subsequently contributed to NPRC and renamed NPRC Carroll Resort, LLC.
Between October 29, 2013 and December 4, 2013, Prospect made an $11,000 investment in APH, of which $9,350 was a Senior Term Loan and $1,650 was used to purchase additional membership interests of APH. The proceeds were utilized by certain of APH’s wholly-owned subsidiaries to purchase online consumer loans from a third party. The investment was subsequently contributed to NPRC.
On November 1, 2013, Prospect made a $9,869 investment in APH, of which $8,200 was a Senior Term Loan and $1,669 was used to purchase additional membership interests of APH. The proceeds were utilized by APH to purchase additional APRC common equity for $9,869. The proceeds were utilized by APRC to purchase a 94.0% ownership interest in APH Carroll 41, LLC for $9,548 and to pay $102 of structuring fees to Prospect (which was recognized by Prospect as structuring fee income), with $219 retained by APRC for working capital. The JV was purchased for $30,600 which included debt financing and minority interest of $22,497 and $609, respectively. The remaining proceeds were used to pay $190 of structuring fees to Prospect (which was recognized by Prospect as structuring fee income), $1,589 of third party expenses, $5 of legal services provided by attorneys at Prospect Administration, and $270 of prepaid assets. The investment was subsequently contributed to NPRC.
On November 15, 2013, Prospect made a $45,900 investment in APH, of which $38,500 was a Senior Term Loan and $7,400 was used to purchase additional membership interests of APH. The proceeds were utilized by APH to purchase additional APRC common equity for $45,900. The proceeds were utilized by APRC to purchase a 99.3% ownership interest in APH Gulf Coast Holdings, LLC for $45,024 and to pay $364 of structuring fees to Prospect (which was recognized by Prospect as structuring fee income), with $512 retained by APRC for working capital. The JV was purchased for $115,200 which included debt financing and minority interest of $75,558 and $337, respectively. The remaining proceeds were used to pay $1,013 of structuring fees to Prospect (which was recognized by Prospect as structuring fee income), $2,590 of third party expenses, $23 of legal services provided by attorneys at Prospect Administration, and $2,023 of prepaid assets, with $70 retained by the JV for working capital.
On November 19, 2013, Prospect made a $66,188 investment in APH, of which $55,000 was a Senior Term Loan and $11,188 was used to purchase additional membership interests of APH. The proceeds were utilized by APH to purchase additional APRC common equity for $66,188. The proceeds were utilized by APRC to purchase a 90.0% ownership interest in APH McDowell, LLC for $64,392 and to pay $695 of structuring fees to Prospect (which was recognized by Prospect as structuring fee income), with $1,101 retained by APRC for working capital. The JV was purchased for $238,605 which included debt financing and minority interest of $180,226 and $7,155, respectively. The remaining proceeds were used to pay $1,290 of structuring fees to Prospect (which was recognized by Prospect as structuring fee income), $9,205 of third party expenses, $23 of legal services provided by attorneys at Prospect Administration, and $1,160 of prepaid assets, with $1,490 retained by the JV for working capital. The investment was subsequently contributed to NPRC and renamed NPH McDowell, LLC.
On December 12, 2013, Prospect made a $22,507 investment in APH, of which $18,800 was a Senior Term Loan and $3,707 was used to purchase additional membership interests of APH. The proceeds were utilized by APH to purchase additional APRC common equity for $22,507. The proceeds were utilized by APRC to purchase a 92.6% ownership interest in South Atlanta Portfolio Holding Company, LLC for $21,874 and to pay $238 of structuring fees to Prospect (which was recognized by Prospect as structuring fee income), with $395 retained by APRC for working capital. The JV was purchased for $87,250 which included debt financing and minority interest of $67,493 and $1,756, respectively. The remaining proceeds were used to pay $437 of structuring fees to Prospect (which was recognized by Prospect as structuring fee income), $2,920 of third party expenses, and $116 of prepaid assets, with $400 retained by the JV for working capital. The investment was subsequently contributed to UPRC.

76


On December 31, 2013, APRC distributed its majority interests in five JVs holding real estate assets to APH. APH then distributed these JV interests to Prospect in a transaction characterized as a return of capital. Prospect, on the same day, contributed certain of these JV interests to NPH Property Holdings, LLC and the remainder to UPH Property Holdings, LLC (each wholly-owned subsidiaries of Prospect). Each of NPH and UPH immediately thereafter contributed these JV interests to NPRC and UPRC, respectively. The total investments in the JVs transferred consisted of $98,164 and $20,022 of debt and equity financing, respectively. There was no material gain or loss realized on these transactions.
On January 17, 2014, Prospect made a $6,565 investment in APH, of which $5,500 was a Senior Term Loan and $1,065 was used to purchase additional membership interests of APH. The proceeds were utilized by APH to purchase additional APRC common equity for $6,565. The proceeds were utilized by APRC to purchase a 99.3% ownership interest in APH Gulf Coast Holdings, LLC for $6,336 and to pay $54 of structuring fees to Prospect (which was recognized by Prospect as structuring fee income), with $175 retained by APRC for other expenses. The JV was purchased for $15,430 which included debt financing and minority interest of $10,167 and $48, respectively. The remaining proceeds were used to pay $143 of structuring fees to Prospect (which was recognized by Prospect as structuring fee income), $627 of third party expenses, $4 of legal services provided by attorneys at Prospect Administration, and $312 of prepaid assets, with $35 retained by the JV for working capital.
Effective April 1, 2014, Prospect made a new $167,162 senior term loan to APRC. APRC then distributed this amount to APH as a return of capital which was used to pay down the Senior Term Loan from APH by the same amount.
On June 4, 2014, Prospect made a $1,719 investment in APH to purchase additional membership interests of APH, which was revised to $1,732 on July 1, 2014. The proceeds were utilized by APH to purchase additional APRC common equity for $1,732. The proceeds were utilized by APRC to acquire the real property located at 975 South Cornwell, Yukon, OK (“Taco Bell, OK”) for $1,719 and pay $13 of third party expenses.
On July 1, 2014, Prospect began consolidating APH. As a result, any transactions between APH and Prospect are eliminated in consolidation and as such, transactions after July 1, 2014 are not presented below.
On November 26, 2014, APRC transferred its investment in one property to NPRC. As a result, Prospect’s investment in APRC related to this property also transferred to NPRC. The investment transferred consisted of $10,237 of equity and $65,586 of debt. There was no gain or loss realized on the transaction.
During the nine months ended March 31, 2015, Prospect received $8 as a return of capital on the equity investment in APRC.
The following dividends were declared and paid from APRC to APH (partially via a wholly-owned subsidiary of APH) and recognized as dividend income by APH:
Three Months Ended March 31, 2014
$
6,020

Three Months Ended March 31, 2015
N/A

Nine Months Ended March 31, 2014
8,810

Nine Months Ended March 31, 2015
N/A

All dividends were paid from earnings and profits of APRC.
The following interest payments were accrued and paid from APH to Prospect and recognized by Prospect as interest income:
Three Months Ended March 31, 2014
$
4,746

Three Months Ended March 31, 2015
N/A

Nine Months Ended March 31, 2014
13,928

Nine Months Ended March 31, 2015
N/A

Included above, the following payment-in-kind interest from APH was capitalized and recognized by Prospect as interest income:
Three Months Ended March 31, 2014
$

Three Months Ended March 31, 2015
N/A

Nine Months Ended March 31, 2014
4,084

Nine Months Ended March 31, 2015
N/A


77


The following interest payments were accrued and paid from APRC to Prospect and recognized by Prospect as interest income:
Three Months Ended March 31, 2014
$

Three Months Ended March 31, 2015
3,047

Nine Months Ended March 31, 2014

Nine Months Ended March 31, 2015
12,205

Included above, the following payment-in-kind interest from APRC was capitalized and recognized by Prospect as interest income:
Three Months Ended March 31, 2014
$

Three Months Ended March 31, 2015
728

Nine Months Ended March 31, 2014

Nine Months Ended March 31, 2015
4,529

The following interest income recognized had not yet been paid by APRC to Prospect and was included by Prospect within interest receivable:
June 30, 2014
$
54

March 31, 2015
34

The following royalty payments were paid from APH to Prospect and recognized by Prospect as other income:
Three Months Ended March 31, 2014
$
385

Three Months Ended March 31, 2015
N/A

Nine Months Ended March 31, 2014
999

Nine Months Ended March 31, 2015
N/A

The following royalty payments were paid from APRC to Prospect and recognized by Prospect as other income:
Three Months Ended March 31, 2014
$

Three Months Ended March 31, 2015
265

Nine Months Ended March 31, 2014

Nine Months Ended March 31, 2015
1,078

The following managerial assistance payments were paid from APRC to Prospect and subsequently remitted to Prospect Administration (no income was recognized by Prospect):
Three Months Ended March 31, 2014
$
148

Three Months Ended March 31, 2015
148

Nine Months Ended March 31, 2014
489

Nine Months Ended March 31, 2015
443

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, 2014
$
148

March 31, 2015
148


78


The following payments were paid from APRC to Prospect Administration as reimbursement for legal, tax and portfolio level accounting services provided directly to APRC (no direct income was recognized by Prospect, but Prospect was given credit for these payments as a reduction of the administrative services costs payable by Prospect to Prospect Administration):
Three Months Ended March 31, 2014
$
744

Three Months Ended March 31, 2015
83

Nine Months Ended March 31, 2014
1,774

Nine Months Ended March 31, 2015
189

The following amounts were due from APRC to Prospect for reimbursement of expenses paid by Prospect on behalf of APRC and were included by Prospect within other receivables:
June 30, 2014
$
202

March 31, 2015
115

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.
On May 5, 2014, Prospect initially purchased 100% of the common shares of Arctic Equipment for $9,006. Proceeds were utilized by Arctic Equipment to purchase 70% of Arctic Energy as described in the following paragraph.
On May 5, 2014, Prospect made an additional $51,870 investment (including in exchange for 1,102,313 common shares of Prospect at fair value of $11,916) in Arctic Energy in exchange for a $31,640 senior secured loan and a $20,230 subordinated loan. Total proceeds received by Arctic Energy of $60,876 were used to purchase 70% of the equity interests in Arctic Energy from Ailport for $47,516, pay $875 of third-party expenses, $1,713 of structuring fees to Prospect (which was recognized as structuring fee income), $445 of legal services provided by attorneys at Prospect Administration and $10,327 was retained as working capital.
On July 1, 2014, Prospect began consolidating Arctic Equipment. As a result, any transactions between Arctic Equipment and Prospect are eliminated in consolidation and as such, transactions after July 1, 2014 are not presented below.
The following interest payments were accrued and paid from Arctic Energy to Prospect and recognized by Prospect as interest income:
Three Months Ended March 31, 2014
$

Three Months Ended March 31, 2015
1,657

Nine Months Ended March 31, 2014

Nine Months Ended March 31, 2015
5,045

The following interest income recognized had not yet been paid by Arctic Energy to Prospect and was included by Prospect within interest receivable:
June 30, 2014
$
18

March 31, 2015
18

The following managerial assistance payments were paid from Arctic Energy to Prospect and subsequently remitted to Prospect Administration (no income was recognized by Prospect):
Three Months Ended March 31, 2014
$

Three Months Ended March 31, 2015
25

Nine Months Ended March 31, 2014

Nine Months Ended March 31, 2015
75


79


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, 2014
$
15

March 31, 2015
25

The following amounts were due from Arctic Energy to Prospect for reimbursement of expenses paid by Prospect on behalf of Arctic Energy and were included by Prospect within other receivables:
June 30, 2014
$
6

March 31, 2015

The following amounts were due to Arctic Energy from Prospect for reimbursement of expenses paid by Arctic Energy on behalf of Prospect and were included by Prospect within other liabilities:
June 30, 2014
$

March 31, 2015
2

ARRM Services, 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.
As of July 1, 2011, the cost basis of Prospect’s total debt and equity investment in Ajax was $41,699, including capitalized payment-in-kind interest of $3,535. Prospect’s investment in Ajax consisted of the following: $20,607 of senior secured term debt (“Tranche A Term Loan”); $15,035 of subordinated secured term debt (“Tranche B Term Loan”); and $6,057 of common equity. In October 2011, ARRM assumed Ajax’s Tranche B Term Loan and the equity of Ajax was exchanged for equity in ARRM. Ajax was converted into a limited liability company shortly thereafter. On December 28, 2012, Prospect provided an additional $3,600 of unsecured debt to ARRM (“Promissory Demand Note”).
On April 1, 2013, Prospect refinanced its investment in Ajax and ARRM, increasing the total size of the debt investment to $38,537. The $19,837 Tranche A Term Loan was replaced with a new senior secured term loan to Ajax in the same amount. The $15,035 Tranche B Term Loan and $3,600 Promissory Demand Note were replaced with a new subordinated unsecured term loan to ARRM in the amount of $18,700. Prospect received $49 and $47 of structuring fees from Ajax and ARRM, respectively, which were recognized as other income.
On June 28, 2013, Prospect provided an additional $1,000 in the ARRM subordinated unsecured term loan to fund equity into Ajax. The proceeds were used by Ajax to repay senior debt to a third party. On October 11, 2013, Prospect provided $25,000 in preferred equity for the recapitalization of ARRM. After the financing, Prospect received repayment of the $20,009 subordinated unsecured term loan previously outstanding from ARRM. In March 2014, Prospect received $98 of structuring fees from Ajax related to the amendment of the loan agreement in September 2013.
On October 10, 2014, ARRM sold Ajax to a third party and repaid the $19,337 loan receivable to Prospect and Prospect recorded a realized loss of $23,560 related to the sale. Concurrent with the sale, Prospect’s ownership increased to 100% of the outstanding equity of ARRM Services, Inc. which was renamed SB Forging Company, Inc. (“SB Forging”). As such, Prospect began consolidating SB Forging on October 11, 2014. In addition, there is $3,000 being held in escrow which will be recognized as additional gain if and when received. Prospect received $2,000 of structuring fees from Ajax related to the sale of the operating company which was recognized as other income during the nine months ended March 31, 2015.
In addition to the repayments noted above, the following amounts were paid from Ajax to Prospect and recorded by Prospect as repayment of loan receivable:
Three Months Ended March 31, 2014
$
100

Three Months Ended March 31, 2015

Nine Months Ended March 31, 2014
300

Nine Months Ended March 31, 2015
19,337


80


The following interest payments, including prepayment penalty fees, were accrued and paid from ARRM to Prospect and recognized by Prospect as interest income:
Three Months Ended March 31, 2014
$

Three Months Ended March 31, 2015

Nine Months Ended March 31, 2014
1,029

Nine Months Ended March 31, 2015

Included above, the following payment-in-kind interest from ARRM was capitalized and recognized by Prospect as interest income:
Three Months Ended March 31, 2014
$

Three Months Ended March 31, 2015

Nine Months Ended March 31, 2014
309

Nine Months Ended March 31, 2015

The following interest payments were accrued and paid from Ajax to Prospect and recognized by Prospect as interest income:
Three Months Ended March 31, 2014
$
513

Three Months Ended March 31, 2015

Nine Months Ended March 31, 2014
1,566

Nine Months Ended March 31, 2015
956

The following interest income recognized had not yet been paid by Ajax to Prospect and was included by Prospect within interest receivable:
June 30, 2014
$
6

March 31, 2015

As of June 30, 2014, due to the pending sale transaction, Prospect reversed $3,844 of previously recognized payment-in-kind interest which we do not expect to receive.
The following managerial assistance payments were paid from Ajax to Prospect and subsequently remitted to Prospect Administration (no income was recognized by Prospect):
Three Months Ended March 31, 2014
$
45

Three Months Ended March 31, 2015

Nine Months Ended March 31, 2014
135

Nine Months Ended March 31, 2015
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, 2014
$
45

March 31, 2015

The following payments were paid from ARRM to Prospect Administration as reimbursement for legal, tax and portfolio level accounting services provided directly to ARRM (no direct income was recognized by Prospect, but Prospect was given credit for these payments as a reduction of the administrative services costs payable by Prospect to Prospect Administration):
Three Months Ended March 31, 2014
$

Three Months Ended March 31, 2015

Nine Months Ended March 31, 2014
17

Nine Months Ended March 31, 2015
1,391


81


The following amounts were due from Ajax to Prospect for reimbursement of expenses paid by Prospect on behalf of Ajax and were included by Prospect within other receivables:
June 30, 2014
$
2

March 31, 2015

Borga, Inc.
As of June 30, 2014, Prospect owned 100% of the equity of STI Holding, Inc. (“STI”), a Consolidated Holding Company. STI owned 100% of the equity of Borga, Inc. (“Borga”). Borga manufactures pre-engineered metal buildings and components for the agricultural and light industrial markets.
On May 6, 2005, Patriot Capital Funding, Inc. (“Patriot”) (previously acquired by Prospect) provided $14,000 in senior secured debt to Borga. The debt was comprised of $1,000 Senior Secured Revolver, $3,500 Senior Secured Term Loan A, $2,500 Senior Secured Term Loan B and $7,000 Senior Secured Term Loan C. On March 31, 2009, Borga made its final amortization payment on the Senior Secured Term Loan A. The other loans remained outstanding. Prospect owned warrants to purchase 33,750 shares of common stock in Metal Buildings Holding Corporation (“Metal Buildings”), the former holding company of Borga. Metal Buildings owned 100% of Borga.
On March 8, 2010, Prospect acquired the remaining common stock of Borga.
On January 24, 2014, Prospect contributed its holdings in Borga to STI. STI also held $3,371 of proceeds from the sale of a minority equity interest in Smart Tuition Holdings, LLC (“SMART”). Prospect initially acquired membership interests in SMART indirectly as part of the Patriot acquisition on December 2, 2009 recording a zero cost basis for the equity investment. The $3,371 was distributed to Prospect on May 29, 2014, of which $3,246 was paid from earnings and profits of STI and was recognized as dividend income by Prospect. The remaining $125 was recognized as return of capital by Prospect.
On July 1, 2014, Prospect began consolidating STI. As a result, any transactions between STI and Prospect are eliminated in consolidation and as such, transactions after July 1, 2014 are not presented below.
On August 20, 2014, Prospect sold the assets of Borga, a wholly-owned subsidiary of STI, for net proceeds of $382 and realized a loss of $2,589 on the sale. On December 29, 2014, Borga was dissolved.
BXC Company, Inc.
As of June 30, 2014, Prospect owned 86.7% of Series A Preferred Stock, 96.8% of Series B Preferred Stock, and 83.1% of fully diluted common stock of BXC Company, Inc. (f/k/a BXC Holding Company) (“BXC”). BXC owned 100% of the common stock of Boxercraft Incorporated (“Boxercraft”).
As of July 1, 2012, the cost basis of Prospect’s total debt and equity investment in Boxercraft was $15,123, including capitalized payment-in-kind interest of $1,466. On December 31, 2013, Boxercraft repaid $100 of the senior secured term loan. On April 18, 2014, Prospect made a new $300 senior secured term loan to Boxercraft. During the period from July 1, 2012 through June 30, 2014, Prospect capitalized a total of $804 of paid-in-kind interest and accreted a total of $1,321 of the original purchase discount, increasing the total debt investment to $17,448 as of June 30, 2014.
Effective March 28, 2014, Prospect acquired voting control of BXC pursuant to a voting agreement and irrevocable proxy. Effective May 8, 2014, Prospect acquired control of BXC by transferring shares held by the other equity holders of BXC to Prospect pursuant to an assignment agreement entered into with such other equity holders.
On July 2, 2014, Prospect made a new $250 senior secured term loan to provide liquidity to Boxercraft.
On July 17, 2014, Prospect restructured the investments in BXC and Boxercraft. The existing Senior Secured Term Loan A and a portion of the existing Senior Secured Term Loan B were replaced with a new Senior Secured Term Loan A to Boxercraft. The remainder of the existing Senior Secured Term Loan B and the existing Senior Secured Term Loan C, Senior Secured Term Loan D, and Senior Secured Term Loan E were replaced with a new Senior Secured Term Loan B to Boxercraft. The existing Senior Secured Term Loan to Boxercraft was converted into Series D Preferred Stock in BXC.
During the nine months ended March 31, 2015, Prospect accrued $5 of administrative agent fees from Boxercraft (which were recognized by Prospect as other income). On August 25, 2014, Prospect sold Boxercraft, a wholly-owned subsidiary of BXC, for net proceeds of $750 and realized a net loss of $16,949 on the sale.

82


CCPI Inc.
Prospect owns 100% of the equity of CCPI Holdings Inc. (“CCPI Holdings”), a Consolidated Holding Company. CCPI Holdings owns 94.77% of the equity of CCPI Inc. (“CCPI”), with CCPI management owning the remaining 5.23% 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 December 13, 2012, Prospect initially made a $15,921 investment (including 467,928 common shares of Prospect at fair value of $5,021) in CCPI Holdings, $7,500 senior secured note and $8,443 equity interest. The proceeds received by CCPI Holdings were partially utilized to purchase 95.13% of CCPI common stock for $14,878. The remaining proceeds were used to pay $395 of structuring fees from CCPI Holdings to Prospect (which were recognized by Prospect as structuring fee income), $215 for legal services provided by attorneys at Prospect Administration, $137 for third party expenses and $318 was retained by CCPI Holdings for working capital.
On December 13, 2012, Prospect made an additional investment of $18,000 in CCPI senior secured debt. The proceeds of the Prospect loan along with $14,878 of equity financing from CCPI Holdings (mentioned above) were used to purchase 95.13% of CCPI equity from the sellers for $31,829, provide $120 of debt financing to CCPI management (to partially fund a purchase by management of CCPI stock), fund $180 of structuring fees from CCPI to Prospect (which were recognized by Prospect as structuring fee income), pay $548 of third-party expenses, reimburse $12 for reimbursement of expenses paid by Prospect on behalf of CCPI (no income was recognized by Prospect) and $189 was retained by CCPI as working capital.
During the year ended June 30, 2014, certain members of CCPI management exercised options to purchase common stock, decreasing our ownership to 94.77%. On June 13, 2014, Prospect made a new $8,218 senior secured note to CCPI. CCPI then distributed this amount to CCPI Holdings as a return of capital which was used to pay down the $8,216 senior secured note from CCPI Holdings to Prospect. The remaining $2 was distributed to Prospect as a return of capital of Prospect’s equity investment in CCPI Holdings.
On July 1, 2014, Prospect began consolidating CCPI Holdings. As a result, any transactions between CCPI Holdings and Prospect are eliminated in consolidation and as such, transactions after July 1, 2014 are not presented below.
In addition to the repayments noted above, the following amounts were paid from CCPI to Prospect and recorded by Prospect as repayment of loan receivable:
Three Months Ended March 31, 2014
$
113

Three Months Ended March 31, 2015
113

Nine Months Ended March 31, 2014
338

Nine Months Ended March 31, 2015
338

The following dividends were declared and paid from CCPI to CCPI Holdings and recognized as dividend income by CCPI Holdings:
Three Months Ended March 31, 2014
$

Three Months Ended March 31, 2015
N/A

Nine Months Ended March 31, 2014
990

Nine Months Ended March 31, 2015
N/A

The following dividends were declared and paid from CCPI Holdings to Prospect and recognized as dividend income by Prospect:
Three Months Ended March 31, 2014
$
500

Three Months Ended March 31, 2015
N/A

Nine Months Ended March 31, 2014
500

Nine Months Ended March 31, 2015
N/A

All dividends were paid from earnings and profits of CCPI and CCPI Holdings.

83


The following interest payments were accrued and paid from CCPI Holdings to Prospect and recognized by Prospect as interest income:
Three Months Ended March 31, 2014
$
383

Three Months Ended March 31, 2015
N/A

Nine Months Ended March 31, 2014
1,147

Nine Months Ended March 31, 2015
N/A

Included above, the following payment-in-kind interest from CCPI Holdings was capitalized and recognized by Prospect as interest income:
Three Months Ended March 31, 2014
$
142

Three Months Ended March 31, 2015
N/A

Nine Months Ended March 31, 2014
557

Nine Months Ended March 31, 2015
N/A

The following interest payments were accrued and paid from CCPI to Prospect and recognized by Prospect as interest income:
Three Months Ended March 31, 2014
$
436

Three Months Ended March 31, 2015
841

Nine Months Ended March 31, 2014
1,332

Nine Months Ended March 31, 2015
2,495

Included above, the following payment-in-kind interest from CCPI was capitalized and recognized by Prospect as interest income:
Three Months Ended March 31, 2014
$

Three Months Ended March 31, 2015
152

Nine Months Ended March 31, 2014

Nine Months Ended March 31, 2015
446

The following interest income recognized had not yet been paid by CCPI to Prospect and was included by Prospect within interest receivable:
June 30, 2014
$
9

March 31, 2015

The following royalty payments were paid from CCPI Holdings to Prospect and recognized by Prospect as other income:
Three Months Ended March 31, 2014
$

Three Months Ended March 31, 2015
N/A

Nine Months Ended March 31, 2014
71

Nine Months Ended March 31, 2015
N/A

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 March 31, 2014
$
60

Three Months Ended March 31, 2015
60

Nine Months Ended March 31, 2014
180

Nine Months Ended March 31, 2015
180


84


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, 2014
$
60

March 31, 2015
60

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 given credit for these payments as a reduction of the administrative services costs payable by Prospect to Prospect Administration):
Three Months Ended March 31, 2014
$
177

Three Months Ended March 31, 2015

Nine Months Ended March 31, 2014
243

Nine Months Ended March 31, 2015

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, 2014
$
10

March 31, 2015
1

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 82.3% of the equity of CP Energy Services Inc. (“CP Energy”), and the remaining 17.7% of the equity is owned by CP Energy management. As of June 30, 2014, CP Energy owned directly or indirectly 100% of each of CP Well Testing Services, LLC (f/k/a CP Well Testing Holding Company LLC) (“CP Well Testing”); CP Well Testing, LLC (“CP Well”); Fluid Management Services, Inc. (f/k/a Fluid Management Holdings, Inc.) (“Fluid Management”); Fluid Management Services LLC (f/k/a Fluid Management Holdings LLC); Wright Transport, Inc. (f/k/a Wright Holdings, Inc.); Wright Foster Disposals, LLC; Foster Testing Co., Inc.; ProHaul Transports, LLC; Artexoma Logistics, LLC; and Wright Trucking, Inc. Effective December 31, 2014, CP Energy underwent a corporate reorganization in order to consolidate certain of its wholly-owned subsidiaries. As of March 31, 2015, CP Energy owned 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 3, 2012, Prospect initially made a $21,500 senior secured debt investment in CP Well. As part of the transaction, Prospect received $430 of structuring fees from CP Well (which was recognized by Prospect as structuring fee income) and $7 was paid by CP Well to Prospect Administration for legal services provided by attorneys at Prospect Administration.
On August 2, 2013, Prospect invested $94,014 (including 1,918,342 unregistered shares of Prospect common stock at a fair value of $21,006) to support the recapitalization of CP Energy where Prospect acquired a controlling interest in CP Energy.
On August 2, 2013, Prospect invested $12,741 into CP Holdings to purchase 100% of the common stock in CP Holdings. The proceeds were used by CP Holdings to purchase 82.9% of the common stock in CP Energy for $12,135 and pay $606 of legal services provided by attorneys at Prospect Administration.
On August 2, 2013, Prospect made a senior secured debt investment of $58,773 in CP Energy. CP Energy also received $2,505 management co-investment in exchange for 17.1% of CP Energy common stock. Total proceeds received by CP Energy of $73,413 (including the $12,135 of equity financing from CP Holdings mentioned above) were used to purchase 100% of the equity interests in CP Well Testing and Fluid Management for $33,600 and $34,576, respectively. The remaining proceeds were used by CP Energy to pay $1,414 of structuring fees to Prospect (which was recognized by Prospect as structuring fee income) and pay $823 of third-party expenses, with $3,000 retained by CP Energy for working capital.
On August 2, 2013, Prospect made an additional senior secured debt investment of $22,500 in CP Well Testing. Total proceeds received by CP Well Testing of $56,100 (including the $33,600 of equity financing from CP Energy mentioned above) were used to purchase 100% of the equity interests in CP Well for $55,650 and pay $450 of structuring fees to Prospect (which was recognized by Prospect as structuring fee income). After the financing, Prospect received repayment of the $18,991 loan previously outstanding from CP Well.

85


On October 11, 2013, Prospect made a $746 follow-on investment in CP Holdings to fund equity into CP Energy and made an additional senior secured loan to CP Energy of $5,100. Management invested an additional $154 of equity in CP Energy, and the percentage ownership of CP Energy did not change. Total proceeds of $6,000 were used to purchase flowback equipment and expand the CP Well operations in West Texas.
On December 26, 2013, Prospect made an additional $1,741 follow-on investment in CP Holdings to fund equity into CP Energy and made an additional senior secured loan to CP Energy of $11,900. Management invested an additional $359 of equity in CP Energy, and the percentage ownership of CP Energy did not change. Total proceeds of $14,000 were used to purchase additional equipment.
On April 1, 2014, Prospect made new loans to CP Well (with Foster Testing Co., Inc.; ProHaul Transports, LLC; and Wright Trucking, Inc. as co-borrowers), two first lien loans in the amount of $11,035 and $72,238, and a second lien loan in the amount of $15,000. The proceeds of these loans were used to repay CP Energy’s senior secured term loan and CP Well Testing’s senior secured term loan previously outstanding from Prospect. 
On July 1, 2014, Prospect began consolidating CP Holdings. As a result, any transactions between CP Holdings and Prospect are eliminated in consolidation and as such, transactions after July 1, 2014 are not presented below.
During the three months ended March 31, 2015, certain members of CP Energy management receiving stock options to purchase common stock, decreasing our ownership to 82.3%.
The following interest payments were accrued and paid from CP Energy to Prospect and recognized by Prospect as interest income:
Three Months Ended March 31, 2014
$
3,409

Three Months Ended March 31, 2015

Nine Months Ended March 31, 2014
8,121

Nine Months Ended March 31, 2015

The following interest payments were accrued and paid from CP Well Testing to Prospect and recognized by Prospect as interest income:
Three Months Ended March 31, 2014
$
619

Three Months Ended March 31, 2015

Nine Months Ended March 31, 2014
1,664

Nine Months Ended March 31, 2015

The following interest payments were accrued and paid from CP Well to Prospect and recognized by Prospect as interest income:
Three Months Ended March 31, 2014
$

Three Months Ended March 31, 2015
4,037

Nine Months Ended March 31, 2014

Nine Months Ended March 31, 2015
12,273

Included above, the following payment-in-kind interest from CP Well was capitalized and recognized by Prospect as interest income:
Three Months Ended March 31, 2014
$

Three Months Ended March 31, 2015
1,075

Nine Months Ended March 31, 2014

Nine Months Ended March 31, 2015
1,075

The following interest income recognized had not yet been paid by CP Well to Prospect and was included by Prospect within interest receivable:
June 30, 2014
$
45

March 31, 2015
45


86


The following managerial assistance payments were paid from CP Energy to Prospect and subsequently remitted to Prospect Administration (no income was recognized by Prospect):
Three Months Ended March 31, 2014
$
75

Three Months Ended March 31, 2015
75

Nine Months Ended March 31, 2014
200

Nine Months Ended March 31, 2015
225

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, 2014
$
75

March 31, 2015
75

The following payments were paid from CP Energy to Prospect Administration as reimbursement for legal, tax and portfolio level accounting services provided directly to CP Energy (no direct income was recognized by Prospect, but Prospect was given credit for these payments as a reduction of the administrative services costs payable to Prospect Administration):
Three Months Ended March 31, 2014
$

Three Months Ended March 31, 2015
60

Nine Months Ended March 31, 2014
609

Nine Months Ended March 31, 2015
60

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, 2014
$
4

March 31, 2015
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 74.77% 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 25.23% 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 December 28, 2012, Prospect initially made a $47,663 investment (including the fair value of 897,906 common shares of Prospect for $9,581 on that date, which were included in the purchase cost paid to acquire Credit Central) in Credit Central Delaware, of which $38,082 was a Senior Secured Revolving Credit Facility and $9,581 to purchase the membership interests of Credit Central Delaware. The proceeds were partially utilized to purchase 74.75% of Credit Central’s membership interests for $43,293. The remaining proceeds were used to pay $1,440 of structuring fees from Credit Central Delaware to Prospect (which was recognized by Prospect as structuring fee income), $638 for third party expenses, $292 for legal services provided by attorneys at Prospect Administration and $2,000 was retained by Credit Central Delaware for working capital. On March 28, 2014, Prospect funded an additional $2,500 ($2,125 to the Senior Secured Revolving Credit Facility and $375 to purchase additional membership interests of Credit Central Delaware) which was utilized by Credit Central Delaware to pay a $2,000 dividend to Prospect and $500 was retained by Credit Central Delaware for working capital.
On June 26, 2014, Prospect made a new $36,333 second lien term loan to Credit Central. Credit Central then distributed this amount to Credit Central Delaware as a return of capital which was used to pay down the Senior Secured Revolving Credit Facility from Credit Central Delaware by the same amount. The remaining amount of the Senior Secured Revolving Credit Facility, $3,874, was then converted to additional membership interests in Credit Central Delaware.
On July 1, 2014, Prospect began consolidating Credit Central Delaware. As a result, any transactions between Credit Central Delaware and Prospect are eliminated in consolidation and as such, transactions after July 1, 2014 are not presented below.
During the nine months ended March 31, 2015, Credit Central repurchased shares of Credit Central stock from a former Credit Central employee, decreasing the number of shares outstanding and increasing Prospect’s ownership to 74.77%.

87


In addition to the repayments noted above, the following amounts were paid from Credit Central to Prospect and recorded by Prospect as repayment of loan receivable:
Three Months Ended March 31, 2014
$

Three Months Ended March 31, 2015
300

Nine Months Ended March 31, 2014

Nine Months Ended March 31, 2015
300

During the three months ended March 31, 2015, Prospect reclassified $159 of return of capital received from Credit Central Delaware in prior periods as dividend income.
The following dividends were declared and paid from Credit Central to Credit Central Delaware and recognized as dividend income by Credit Central Delaware:
Three Months Ended March 31, 2014
$
2,943

Three Months Ended March 31, 2015
N/A

Nine Months Ended March 31, 2014
7,596

Nine Months Ended March 31, 2015
N/A

The following dividends were declared and paid from Credit Central Delaware to Prospect and recognized as dividend income by Prospect:
Three Months Ended March 31, 2014
$
2,000

Three Months Ended March 31, 2015
N/A

Nine Months Ended March 31, 2014
5,000

Nine Months Ended March 31, 2015
N/A

All dividends were paid from earnings and profits of Credit Central and Credit Central Delaware.
The following interest payments were accrued and paid from Credit Central Delaware to Prospect and recognized by Prospect as interest income:
Three Months Ended March 31, 2014
$
1,905

Three Months Ended March 31, 2015
N/A

Nine Months Ended March 31, 2014
5,819

Nine Months Ended March 31, 2015
N/A

The following interest payments were accrued and paid from Credit Central to Prospect and recognized by Prospect as interest income:
Three Months Ended March 31, 2014
$

Three Months Ended March 31, 2015
1,824

Nine Months Ended March 31, 2014

Nine Months Ended March 31, 2015
5,538

Included above, the following payment-in-kind interest from Credit Central was capitalized and recognized by Prospect as interest income:
Three Months Ended March 31, 2014
$

Three Months Ended March 31, 2015
300

Nine Months Ended March 31, 2014

Nine Months Ended March 31, 2015
300


88


The following interest income recognized had not yet been paid by Credit Central to Prospect and was included by Prospect within interest receivable:
June 30, 2014
$
20

March 31, 2015
20

The following royalty payments were paid from Credit Central Delaware to Prospect and recognized by Prospect as other income:
Three Months Ended March 31, 2014
$
147

Three Months Ended March 31, 2015
N/A

Nine Months Ended March 31, 2014
380

Nine Months Ended March 31, 2015
N/A

The following royalty payments were paid from Credit Central to Prospect and recognized by Prospect as other income:
Three Months Ended March 31, 2014
$

Three Months Ended March 31, 2015
608

Nine Months Ended March 31, 2014

Nine Months Ended March 31, 2015
608

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 March 31, 2014
$
175

Three Months Ended March 31, 2015
175

Nine Months Ended March 31, 2014
525

Nine Months Ended March 31, 2015
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:
June 30, 2014
$
175

March 31, 2015
175

The following payments were paid from Credit Central to Prospect Administration as reimbursement for legal, tax and portfolio level accounting services provided directly to Credit Central (no direct income was recognized by Prospect, but Prospect was given credit for these payments as a reduction of the administrative services costs payable to Prospect Administration):
Three Months Ended March 31, 2014
$
15

Three Months Ended March 31, 2015

Nine Months Ended March 31, 2014
126

Nine Months Ended March 31, 2015

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, 2014
$
38

March 31, 2015
30


89


Echelon Aviation LLC
Prospect owns 100% of the membership interests of Echelon Aviation LLC (“Echelon”). Echelon owns 60.7% of the equity of AerLift Leasing Limited (“AerLift”).
On March 31, 2014, Prospect initially made a $92,628 investment in Echelon, of which $78,521 was a Senior Secured Revolving Credit Facility and $14,107 to purchase the membership interests of Echelon. The proceeds were partially utilized to purchase 60.7% of AerLift’s membership interests for $83,657. The remaining proceeds were used to pay $2,771 of structuring fees from Echelon to Prospect (which was recognized by Prospect as structuring fee income), $540 for third party expenses, $664 for legal and tax services provided by Prospect Administration and $4,996 was retained by Echelon for working capital.
On July 1, 2014, Prospect sold a $400 participation in the Senior Secured Revolving Credit Facility, equal to 0.51% of the outstanding principal amount on that date.
On September 15, 2014, Echelon made an optional partial prepayment of $37,313 of the Senior Secured Revolving Credit Facility outstanding.
On September 30, 2014, Prospect made an additional $5,800 investment in the membership interests of Echelon.
The following interest payments were accrued and paid from Echelon to Prospect and recognized by Prospect as interest income:
Three Months Ended March 31, 2014
$
31

Three Months Ended March 31, 2015
1,428

Nine Months Ended March 31, 2014
31

Nine Months Ended March 31, 2015
5,451

The following interest income recognized had not yet been paid by Echelon to Prospect and was included by Prospect within interest receivable:
June 30, 2014
$
2,809

March 31, 2015
968

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 March 31, 2014
$

Three Months Ended March 31, 2015
125

Nine Months Ended March 31, 2014

Nine Months Ended March 31, 2015
250

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, 2014
$

March 31, 2015
63

The following managerial assistance recognized had not yet been paid by Echelon to Prospect and was included by Prospect within other receivables and due to Prospect Administration:
June 30, 2014
$
63

March 31, 2015


90


The following payments were paid from Echelon to Prospect Administration as reimbursement for legal, tax and portfolio level accounting services provided directly to Echelon (no direct income was recognized by Prospect, but Prospect was given credit for these payments as a reduction of the administrative services costs payable by Prospect to Prospect Administration):
Three Months Ended March 31, 2014
$
662

Three Months Ended March 31, 2015
206

Nine Months Ended March 31, 2014
662

Nine Months Ended March 31, 2015
211

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, 2014
$
78

March 31, 2015
5

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. As of July 1, 2011, the cost basis of Prospect’s investment in Energy Solutions, including debt and equity, was $42,003.
In December 2011, Prospect completed a reorganization of Gas Solutions Holdings Inc. renaming the company Energy Solutions and transferring ownership of other operating companies owned by Prospect and operating within the energy industry. As part of the reorganization, Prospect transferred its debt and equity interests with cost basis of $2,540 in Change Clean Energy Holdings, Inc. and Change Clean Energy, Inc. to Change Clean; $12,504 in Freedom Marine Holdings, Inc. to Freedom Marine; and $1,449 of Yatesville Coal Holdings, Inc. to Yatesville. Each of these entities is wholly owned (directly or indirectly) by Energy Solutions. On December 28, 2011, Prospect made a follow-on $1,250 equity investment in Energy Solutions and a $3,500 debt investment in Vessel.
On January 4, 2012, Energy Solutions sold its gas gathering and processing assets held in Gas Solutions II Ltd. (“Gas Solutions”) for a potential sale price of $199,805, adjusted for the final working capital settlement, including a potential earn-out of $28,000 that may be paid based on the future performance of Gas Solutions. After expenses, including structuring fees of $9,966 paid to us, and $3,152 of third-party expenses, Gas Solutions LP LLC and Gas Solutions GP LLC, subsidiaries of Gas Solutions, received $157,100 and $1,587 in cash, respectively, and subsequently distributed these amounts, $158,687 in total, to Energy Solutions. The sale of Gas Solutions by Energy Solutions resulted in significant earnings and profits, as defined by the Code, at Energy Solutions for calendar year 2012. As a result, 2012 distributions from Energy Solutions to us were required to be recognized as dividend income, in accordance with ASC 946, as there were current year earnings and profits sufficient to support such recognition.
On November 25, 2013, Prospect restructured its investment in Freedom Marine. The $12,504 subordinated secured loan to Jettco Marine Services, LLC, a subsidiary of Freedom Marine, was replaced with a senior secured note to Vessel II. On December 3, 2013, Prospect made a $16,000 senior secured investment in Vessel III. Overall, the restructuring of Prospect’s investment in Freedom Marine provided approximately $16,000 net new senior secured debt financing to support the acquisition of two new vessels. Prospect received $2,480 of structuring fees from Energy Solutions related to the Freedom Marine restructuring which was recognized as other income.
On November 28, 2012 and January 1, 2014, Prospect received $475 and $25 of litigation settlement proceeds related to Change Clean and recorded a reduction in its equity investment cost basis for Energy Solutions, respectively.

91


On June 4, 2014, Gas Solutions GP LLC and Gas Solutions LP LLC merged with and into Freedom Marine, with Freedom Marine as the surviving entity.
On July 1, 2014, Prospect began consolidating Energy Solutions. As a result, any transactions between Energy Solutions and Prospect are eliminated in consolidation and as such, transactions after July 1, 2014 are not presented below. Transactions between Prospect and Freedom Marine are separately discussed below under “Freedom Marine Solutions, LLC.”
During the three months ended December 31, 2014, Prospect determined that the impairments of Change Clean and Yatesville were other-than-temporary and recorded a realized loss of $1,449, reducing the amortized cost to zero.
In addition to the repayments noted above, the following amounts were paid from Energy Solutions to Prospect and recorded by Prospect as repayment of loan receivable:
Three Months Ended March 31, 2014
$

Three Months Ended March 31, 2015
N/A

Nine Months Ended March 31, 2014
8,500

Nine Months Ended March 31, 2015
N/A

The following interest payments, including prepayment penalty fees, were accrued and paid from Energy Solutions to Prospect and recognized by Prospect as interest income:
Three Months Ended March 31, 2014
$

Three Months Ended March 31, 2015
N/A

Nine Months Ended March 31, 2014
5,368

Nine Months Ended March 31, 2015
N/A

The following managerial assistance payments were paid from Energy Solutions to Prospect and subsequently remitted to Prospect Administration (no income was recognized by Prospect):
Three Months Ended March 31, 2014
$
45

Three Months Ended March 31, 2015
N/A

Nine Months Ended March 31, 2014
135

Nine Months Ended March 31, 2015
N/A

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, 2014
$
45

March 31, 2015
N/A

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.
On June 15, 2012, Prospect made a $287,953 investment (including 14,518,207 common shares of Prospect at a fair value of $160,571) in First Tower Delaware, of which $244,760 was a Senior Secured Revolving Credit Facility and $43,193 of membership interest in First Tower Delaware. The proceeds were utilized by First Tower Delaware to purchase 80.1% of the membership interests in First Tower Finance for $282,968. The remaining proceeds at First Tower Delaware were used to pay $4,038 of structuring fees from First Tower Delaware to Prospect (which was recognized by Prospect as structuring fee income), $940 of legal services provided by attorneys at Prospect Administration, and $7 of third party expenses. Prospect received an additional $4,038 of structuring fees from First Tower (which was recognized by Prospect as structuring fee income). Management purchased the additional 19.9% of First Tower Finance common stock for $70,300. The combined proceeds received by First Tower Finance of $353,268 ($282,968 equity financing from First Tower Delaware mentioned above and $70,300 equity financing from management) were used to purchase 100% of the common stock of First Tower for $338,042, pay $11,188 of third-party expenses and $4,038 of structuring fees from First Tower mentioned above (which was recognized by Prospect as structuring fee income).

92


On October 18, 2012, Prospect made an additional $20,000 investment through the Senior Secured Revolving Credit Facility, $12,008 of which was invested by First Tower Delaware in First Tower Finance as equity and $7,992 of which was retained by First Tower Delaware as working capital. On December 30, 2013, Prospect funded an additional $10,000 into First Tower Delaware, $8,500 through the Senior Secured Revolving Credit Facility and $1,500 through the purchase of additional membership interests in First Tower Delaware. $8,000 of the proceeds were utilized by First Tower Delaware to pay structuring fees to Prospect for the renegotiation and expansion of First Tower’s third-party revolver, and $2,000 of the proceeds were retained by First Tower Delaware for working capital.
On June 24, 2014, Prospect made a new $251,246 second lien term loan to First Tower. First Tower distributed this amount to First Tower Finance, which distributed this amount to First Tower Delaware as a return of capital. First Tower Delaware used the distribution to partially pay down the Senior Secured Revolving Credit Facility. The remaining $23,712 of the Senior Secured Revolving Credit Facility was then converted to additional membership interests held by Prospect in First Tower Delaware.
On July 1, 2014, Prospect began consolidating First Tower Delaware. As a result, any transactions between First Tower Delaware and Prospect are eliminated in consolidation and as such, transactions after July 1, 2014 are not presented below.
The following dividends were declared and paid from First Tower Finance to First Tower Delaware and recognized as dividend income by First Tower Delaware:
Three Months Ended March 31, 2014
$
9,524

Three Months Ended March 31, 2015
N/A

Nine Months Ended March 31, 2014
25,766

Nine Months Ended March 31, 2015
N/A

During the three months ended December 31, 2014, Prospect reclassified $1,929 of return of capital received from First Tower Finance in prior periods as dividend income.
All dividends were paid from earnings and profits of First Tower Finance.
The following cash distributions were declared and paid from First Tower Finance to First Tower Delaware and recognized as a return of capital by First Tower Delaware:
Three Months Ended March 31, 2014
$
3,755

Three Months Ended March 31, 2015
N/A

Nine Months Ended March 31, 2014
14,913

Nine Months Ended March 31, 2015
N/A

The following interest payments were accrued and paid from First Tower Delaware to Prospect and recognized by Prospect as interest income:
Three Months Ended March 31, 2014
$
13,663

Three Months Ended March 31, 2015
N/A

Nine Months Ended March 31, 2014
40,737

Nine Months Ended March 31, 2015
N/A

The following interest payments were accrued and paid from First Tower to Prospect and recognized by Prospect as interest income:
Three Months Ended March 31, 2014
$

Three Months Ended March 31, 2015
14,334

Nine Months Ended March 31, 2014

Nine Months Ended March 31, 2015
38,921

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, 2014
$
119

March 31, 2015
154


93


The following royalty payments were paid from First Tower Delaware to Prospect and recognized by Prospect as other income:
Three Months Ended March 31, 2014
$
664

Three Months Ended March 31, 2015
N/A

Nine Months Ended March 31, 2014
2,045

Nine Months Ended March 31, 2015
N/A

The following managerial assistance payments were paid from First Tower Delaware to Prospect and subsequently remitted to Prospect Administration (no income was recognized by Prospect):
Three Months Ended March 31, 2014
$
600

Three Months Ended March 31, 2015
N/A

Nine Months Ended March 31, 2014
1,800

Nine Months Ended March 31, 2015
N/A

At June 30, 2014, $600 of managerial assistance received by Prospect had not yet been remitted to Prospect Administration and was included by Prospect within due to Prospect Administration.
The following managerial assistance payments were accrued and paid from First Tower Delaware to Prospect Administration and recognized by Prospect as an expense:
Three Months Ended March 31, 2014
$

Three Months Ended March 31, 2015
600

Nine Months Ended March 31, 2014

Nine Months Ended March 31, 2015
1,800

At March 31, 2015, $600 of managerial assistance recognized had not yet been paid by First Tower Delaware to Prospect Administration and was included by Prospect within due to Prospect Administration.
The following payments were paid from First Tower Delaware to Prospect Administration as reimbursement for legal, tax and portfolio level accounting services provided directly to First Tower Delaware (no direct income was recognized by Prospect, but Prospect was given credit for these payments as a reduction of the administrative services costs payable by Prospect to Prospect Administration):
Three Months Ended March 31, 2014
$
16

Three Months Ended March 31, 2015
N/A

Nine Months Ended March 31, 2014
243

Nine Months Ended March 31, 2015
N/A

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, 2014
$
37

March 31, 2015
11

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.
As of July 1, 2014, the cost basis of Prospect’s total debt and equity investment in Freedom Marine was $39,811, which consisted of the following: $3,500 senior secured note to Vessel; $12,504 senior secured note to Vessel II; $16,000 senior secured note to Vessel III; and $7,807 of equity.

94


On December 29, 2014, Freedom Marine reached a settlement for and received $5,174, net of third party obligations, related to the contingent earn-out from the sale of Gas Solutions in January 2012 which was retained by Freedom Marine. This is a final settlement and no further payments are expected from the sale. (See “Energy Solutions Holdings Inc.” above for more information related to the sale of Gas Solutions.)
The following interest payments were accrued and paid from Vessel to Prospect and recognized by Prospect as interest income:
Three Months Ended March 31, 2014
$
157

Three Months Ended March 31, 2015
157

Nine Months Ended March 31, 2014
481

Nine Months Ended March 31, 2015
480

The following interest income recognized had not yet been paid by Vessel to Prospect and was included by Prospect within interest receivable:
June 30, 2014
$
2

March 31, 2015
2

The following interest payments were accrued and paid from Vessel II to Prospect and recognized by Prospect as interest income:
Three Months Ended March 31, 2014
$
422

Three Months Ended March 31, 2015
422

Nine Months Ended March 31, 2014
596

Nine Months Ended March 31, 2015
1,286

The following interest income recognized had not yet been paid by Vessel II to Prospect and was included by Prospect within interest receivable:
June 30, 2014
$
5

March 31, 2015
5

The following interest payments were accrued and paid from Vessel III to Prospect and recognized by Prospect as interest income:
Three Months Ended March 31, 2014
$
520

Three Months Ended March 31, 2015
520

Nine Months Ended March 31, 2014
688

Nine Months Ended March 31, 2015
1,583

The following interest income recognized had not yet been paid by Vessel III to Prospect and was included by Prospect within interest receivable:
June 30, 2014
$
6

March 31, 2015
6

The following managerial assistance payments were paid from Freedom Marine to Prospect and subsequently remitted to Prospect Administration (no income was recognized by Prospect):
Three Months Ended March 31, 2014
$

Three Months Ended March 31, 2015
75

Nine Months Ended March 31, 2014

Nine Months Ended March 31, 2015
225


95


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, 2014
$

March 31, 2015
75

The following payments were paid from Freedom Marine to Prospect Administration as reimbursement for legal, tax and portfolio level accounting services provided directly to Freedom Marine (no direct income was recognized by Prospect, but Prospect was given credit for these payments as a reduction of the administrative services costs payable by Prospect to Prospect Administration):
Three Months Ended March 31, 2014
$

Three Months Ended March 31, 2015
1

Nine Months Ended March 31, 2014
38

Nine Months Ended March 31, 2015
1

The following amounts were due from Freedom Marine to Prospect for reimbursement of expenses paid by Prospect on behalf of Freedom Marine and were included by Prospect within other receivables:
June 30, 2014
$
1

March 31, 2015
1

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.
On October 12, 2012, Prospect initially made a $42,000 first lien term loan to Gulf Coast, of which $840 was used to pay structuring fees from Gulf Coast to Prospect (which was recognized by Prospect as structuring fee income). During the year ended June 30, 2013, Gulf Coast repaid $787 of the first lien term loan.
Between July 1, 2013 and November 8, 2013, Gulf Coast repaid $263 of the first lien term loan, leaving a balance of $40,950. On November 8, 2013, Gulf Coast issued $25,950 of convertible preferred stock to Prospect (representing 99.9% of the voting securities of Gulf Coast) in exchange for crediting the same amount to the first lien term loan previously outstanding, leaving a first lien loan balance of $15,000. Prior to this conversion, Prospect was just a lender to Gulf Coast and the investment was not a controlled investment. On November 29, 2013 and December 16, 2013, Prospect provided an additional $1,000 and $1,500, respectively, to fund working capital needs, increasing the first lien loan balance to $17,500.
During the nine months ended March 31, 2015, Prospect made an additional $5,500 investment in the first lien term loan to Gulf Coast to fund capital improvements to key forging equipment and other liquidity needs.
The following interest payments were accrued and paid from Gulf Coast to Prospect and recognized by Prospect as interest income:
Three Months Ended March 31, 2014
$
547

Three Months Ended March 31, 2015
324

Nine Months Ended March 31, 2014
896

Nine Months Ended March 31, 2015
1,370

The following interest income recognized had not yet been paid by Gulf Coast to Prospect and was included by Prospect within interest receivable:
June 30, 2014
$
6

March 31, 2015

The following amounts were due from Gulf Coast to Prospect for reimbursement of expenses paid by Prospect on behalf of Gulf Coast and were included by Prospect within other receivables: 
June 30, 2014
$
342

March 31, 2015
1


96


Harbortouch Payments, LLC
Prospect owns 100% of the equity of Harbortouch Holdings of Delaware Inc. (“Harbortouch Delaware”), a Consolidated Holding Company. Harbortouch Delaware owns 100% of the Class C voting units of Harbortouch Payments, LLC (“Harbortouch”), which provide for a 53.5% residual profits allocation. Harbortouch management owns 100% of the Class B and D voting units of Harbortouch, which provide for a 46.5% residual profits allocation. Harbortouch owns 100% of Credit Card Processing USA, LLC. Harbortouch is a provider of transaction processing services and point-of sale equipment used by merchants across the United States.
On March 31, 2014, Prospect made a $147,898 investment (including 2,306,294 common shares of Prospect at a fair value of $24,908) in Harbortouch Delaware. Of this amount, $123,000 was loaned in exchanged for a subordinated note and $24,898 was an equity contribution. Harbortouch Delaware utilized $137,972 to purchase 100% of the Harbortouch Class A voting preferred units which provided an 11% preferred return and a 53.5% interest in the residual profits. Harbortouch Delaware used the remaining proceeds to pay $4,920 of structuring fees to Prospect (which was recognized by Prospect as structuring fee income), $1,761 for legal services provided by attorneys at Prospect Administration and $3,245 was retained by Harbortouch Delaware for working capital. Additionally, on March 31, 2014, Prospect provided Harbortouch a senior secured loan of $130,796. Prospect received a structuring fee of $2,616 from Harbortouch (which was recognized by Prospect as structuring fee income).
On April 1, 2014, Prospect made a new $137,226 senior secured term loan to Harbortouch. Harbortouch then distributed this amount to Harbortouch Delaware as a return of capital which was used to pay down the $123,000 senior secured note from Harbortouch Delaware to Prospect. The remaining $14,226 was distributed to Prospect as a return of capital of Prospect’s equity investment in Harbortouch Delaware.
On July 1, 2014, Prospect began consolidating Harbortouch Delaware. As a result, any transactions between Harbortouch Delaware and Prospect are eliminated in consolidation and as such, transactions after July 1, 2014 are not presented below.
On September 30, 2014, Prospect made a new $26,431 senior secured term loan to Harbortouch to support an acquisition. As part of the transaction, Prospect received $529 of structuring fees (which was recognized by Prospect as structuring fee income) and $50 of amendment fees (which was recognized by Prospect as amendment fee income).
On December 19, 2014, Prospect made an additional $1,292 equity investment in Harbortouch Class C voting units. This amount was deferred consideration stipulated in the original agreement.
In addition to the repayments noted above, the following amounts were paid from Harbortouch to Prospect and recorded by Prospect as repayment of loan receivable:
Three Months Ended March 31, 2014
$

Three Months Ended March 31, 2015
1,914

Nine Months Ended March 31, 2014

Nine Months Ended March 31, 2015
3,554

The following cash distributions were declared and paid from Harbortouch to Harbortouch Holdings and recognized as a return of capital by Harbortouch Holdings:
Three Months Ended March 31, 2014
$

Three Months Ended March 31, 2015
41

Nine Months Ended March 31, 2014

Nine Months Ended March 31, 2015
41

During the three months ended March 31, 2015, Harbortouch Holdings reclassified $27 of dividend income received from Harbortouch in prior periods as a return of capital.

97


The following interest payments were accrued and paid from Harbortouch Delaware to Prospect and recognized by Prospect as interest income:
Three Months Ended March 31, 2014
$
55

Three Months Ended March 31, 2015
N/A

Nine Months Ended March 31, 2014
55

Nine Months Ended March 31, 2015
N/A

The following interest payments were accrued and paid from Harbortouch to Prospect and recognized by Prospect as interest income:
Three Months Ended March 31, 2014
$
33

Three Months Ended March 31, 2015
7,502

Nine Months Ended March 31, 2014
33

Nine Months Ended March 31, 2015
22,092

The following interest income recognized had not yet been paid by Harbortouch to Prospect and was included by Prospect within interest receivable:
June 30, 2014
$
1,962

March 31, 2015
7,714

The following managerial assistance payments were paid from Harbortouch to Prospect and subsequently remitted to Prospect Administration (no income was recognized by Prospect):
Three Months Ended March 31, 2014
$

Three Months Ended March 31, 2015
125

Nine Months Ended March 31, 2014

Nine Months Ended March 31, 2015
375

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, 2014
$
125

March 31, 2015
125

The following payments were paid from Harbortouch to Prospect Administration as reimbursement for legal, tax and portfolio level accounting services provided directly to Harbortouch (no direct income was recognized by Prospect, but Prospect was given credit for these payments as a reduction of the administrative services costs payable by Prospect to Prospect Administration):
Three Months Ended March 31, 2014
$
1,761

Three Months Ended March 31, 2015

Nine Months Ended March 31, 2014
1,761

Nine Months Ended March 31, 2015
31

The following amounts were due from Harbortouch to Prospect for reimbursement of expenses paid by Prospect on behalf of Harbortouch and were included by Prospect within other receivables: 
June 30, 2014
$

March 31, 2015
2


98


Manx Energy, Inc.
As of June 30, 2014, Prospect owned 41% of the equity of Manx Energy, Inc. (“Manx”). Manx was formed on January 19, 2010 for the purpose of rolling up the assets of existing Prospect portfolio companies, Coalbed, LLC (“Coalbed”), Appalachian Energy LLC (f/k/a Appalachian Energy Holdings, LLC) (“AEH”) and Kinley Exploration LLC. The three companies were combined under new common management.
On January 19, 2010, Prospect made a $2,800 investment at closing to Manx to provide for working capital. On the same date, Prospect exchanged $2,100 and $4,500 of the loans to AEH and Coalbed, respectively, for Manx preferred equity, and Prospect’s AEH equity interest was converted into Manx common stock. There was no change to fair value at the time of restructuring, and Prospect continued to fully reserve any income accrued for Manx. On October 15, 2010 and May 26, 2011, Prospect increased its loan to Manx in the amount of $500 and $250, respectively, to provide additional working capital. As of June 30, 2011, the cost basis of Prospect’s investment in Manx, including debt and equity, was $19,019.
On June 30, 2012, AEH and Coalbed loans held by Manx with a cost basis of $7,991 were removed from Manx and contributed by Prospect to Wolf Energy Holdings Inc., a separate holding company wholly owned by Prospect. During the three months ended June 30, 2013, Prospect determined that the impairment of Manx was other-than-temporary and recorded a realized loss of $9,397 for the amount that the amortized cost exceeded the fair value, reducing the amortized cost to $500. During the year ended June 30, 2014, Manx repaid $450 of the senior secured note. During the three months ended December 31, 2014, Manx was dissolved and Prospect recorded a realized loss of $50, reducing the amortized cost to zero.
MITY, Inc.
Prospect owns 100% of the equity of MITY Holdings of Delaware Inc. (“MITY Delaware”), a Consolidated Holding Company. MITY Delaware holds 94.99% of the equity of MITY, Inc. (f/k/a MITY Enterprises, Inc.) (“MITY”), with management of MITY owning the remaining 5.01% 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.
On September 19, 2013, Prospect made a $29,735 investment in MITY Delaware, of which $22,792 was a senior secured debt to MITY Delaware and $6,943 was a capital contribution to the equity of MITY Delaware. The proceeds were partially utilized to purchase 97.7% of MITY common stock for $21,027. The remaining proceeds were used to issue a $7,200 note from Broda Canada to MITY Delaware, pay $684 of structuring fees from MITY Delaware to Prospect (which was recognized by Prospect as structuring fee income), $311 for legal services provided by attorneys employed by Prospect Administration and $513 was retained by MITY Delaware for working capital.
On September 19, 2013, Prospect made an additional $18,250 senior secured debt investment in MITY. The proceeds were used to repay existing third-party indebtedness, pay $365 of structuring fees from MITY to Prospect (which was recognized by Prospect as structuring fee income), pay $1,143 of third party expenses and $2,580 was retained by MITY for working capital. Members of management of MITY purchased additional shares of common stock of MITY, reducing MITY Delaware’s ownership to 94.99%. MITY, MITY-Lite and Broda USA are joint borrowers on the senior secured debt of MITY.
On June 23, 2014, Prospect made a new $15,769 debt investment in MITY and MITY distributed proceeds to MITY Delaware as a return of capital. MITY Delaware used this distribution to pay down the senior secured debt of MITY Delaware to Prospect by the same amount. The remaining amount of the senior secured debt due from MITY Delaware to Prospect, $7,200, was then contributed to the capital of MITY Delaware. On June 23, 2014, Prospect also extended a new $7,500 senior secured revolving facility to MITY, which was unfunded at closing.
On July 1, 2014, Prospect began consolidating MITY Delaware. As a result, any transactions between MITY Delaware and Prospect are eliminated in consolidation and as such, transactions after July 1, 2014 are not presented below.
During the nine months ended March 31, 2015, Prospect funded $2,500 of MITY’s senior secured revolving facility, which MITY fully repaid during that time.

99


The following dividends were declared and paid from MITY to MITY Delaware and recognized as dividend income by MITY Delaware:
Three Months Ended March 31, 2014
$
6

Three Months Ended March 31, 2015
N/A

Nine Months Ended March 31, 2014
473

Nine Months Ended March 31, 2015
N/A

All dividends were paid from earnings and profits of MITY.
The following cash distributions were declared and paid from MITY to MITY Delaware and recognized as a return of capital by MITY Delaware:
Three Months Ended March 31, 2014
$
601

Three Months Ended March 31, 2015
N/A

Nine Months Ended March 31, 2014
737

Nine Months Ended March 31, 2015
N/A

The following interest payments were accrued and paid from MITY Delaware to Prospect and recognized by Prospect as interest income:
Three Months Ended March 31, 2014
$
1,033

Three Months Ended March 31, 2015
N/A

Nine Months Ended March 31, 2014
2,224

Nine Months Ended March 31, 2015
N/A

Included above, the following payment-in-kind interest from MITY Delaware was capitalized and recognized by Prospect as interest income:
Three Months Ended March 31, 2014
$

Three Months Ended March 31, 2015
N/A

Nine Months Ended March 31, 2014
177

Nine Months Ended March 31, 2015
N/A

The following interest payments were accrued and paid from Broda Canada to MITY Delaware and recognized by Prospect as interest income:
Three Months Ended March 31, 2014
$

Three Months Ended March 31, 2015
149

Nine Months Ended March 31, 2014

Nine Months Ended March 31, 2015
486

During the three and nine months ended March 31, 2015, there was an unfavorable fluctuation in the foreign currency exchange rate and MITY Delaware recognized $3 of realized loss related to its investment in Broda Canada.
The following interest payments were accrued and paid from MITY to Prospect and recognized by Prospect as interest income:
Three Months Ended March 31, 2014
$
456

Three Months Ended March 31, 2015
1,259

Nine Months Ended March 31, 2014
983

Nine Months Ended March 31, 2015
3,874


100


Included above, the following payment-in-kind interest from MITY was capitalized and recognized by Prospect as interest income:
Three Months Ended March 31, 2014
$

Three Months Ended March 31, 2015
127

Nine Months Ended March 31, 2014

Nine Months Ended March 31, 2015
127

The following interest income recognized had not yet been paid by MITY to Prospect and was included by Prospect within interest receivable:
June 30, 2014
$
14

March 31, 2015
14

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 March 31, 2014
$
75

Three Months Ended March 31, 2015
75

Nine Months Ended March 31, 2014
150

Nine Months Ended March 31, 2015
235

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, 2014
$
75

March 31, 2015
75

The following managerial assistance recognized had not yet been paid by MITY to Prospect and was included by Prospect within other receivables and due to Prospect Administration:
June 30, 2014
$
10

March 31, 2015

The following payments were paid from MITY to Prospect Administration as reimbursement for legal, tax and portfolio level accounting services provided directly to MITY (no direct income was recognized by Prospect, but Prospect was given credit for these payments as a reduction of the administrative services costs payable by Prospect to Prospect Administration):
Three Months Ended March 31, 2014
$
12

Three Months Ended March 31, 2015
121

Nine Months Ended March 31, 2014
490

Nine Months Ended March 31, 2015
121

The following amounts were due to MITY from Prospect for reimbursement of expenses paid by MITY on behalf of Prospect and were included within other liabilities:
June 30, 2014
$
5

March 31, 2015
3

National Property REIT Corp.
Prospect owns 100% of the equity of NPH Property Holdings, LLC (“NPH”), a Consolidated Holding Company. NPH owns 100% of the common equity of National Property REIT Corp. (f/k/a National Property Holdings Corp.) (“NPRC”). 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.

101


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 December 31, 2013, APRC distributed its majority interests in five JVs holding real estate assets to APH. APH then distributed these JV interests to Prospect in a transaction characterized as a return of capital. Prospect, on the same day, contributed certain of these JV interests to NPH and the remainder to UPH (each wholly-owned subsidiaries of Prospect). Each of NPH and UPH immediately thereafter contributed these JV interests to NPRC and UPRC, respectively. The total investments in the JVs transferred to NPH and from NPH to NPRC consisted of $79,309 and $16,315 of debt and equity financing, respectively. There was no material gain or loss realized on these transactions.
On December 31, 2013, Prospect made a $10,620 investment in NPH, of which $8,800 was a Senior Term Loan and $1,820 was used to purchase additional membership interests of NPH. The proceeds were utilized by NPH to purchase additional NPRC common equity for $10,620. The proceeds were utilized by NPRC to purchase a 93.0% ownership interest in APH Carroll Bartram Park, LLC for $10,288 and to pay $113 of structuring fees to Prospect (which was recognized by Prospect as structuring fee income), with $219 retained by NPRC for working capital. The JV was purchased for $38,000 which included debt financing and minority interest of $28,500 and $774, respectively. The remaining proceeds were used to pay $206 of structuring fees to Prospect (which was recognized by Prospect as structuring fee income), $1,038 of third party expenses, $5 of legal services provided by attorneys at Prospect Administration, and $304 of prepaid assets, with $9 retained by the JV for working capital.
Between January 7, 2014 and March 13, 2014, Prospect made a $14,000 investment in NPH, of which $11,900 was a Senior Term Loan and $2,100 was used to purchase additional membership interests of NPH. The proceeds were utilized by certain of NPRC’s wholly-owned subsidiaries to purchase online consumer loans from a third party.
On January 31, 2014, Prospect made a $4,805 investment in NPH, of which $4,000 was a Senior Term Loan and $805 used to purchase additional membership interests of NPH. The proceeds were utilized by NPH to purchase additional NPRC common equity for $4,805. The proceeds were utilized by NPRC to purchase a 93.0% ownership interest in APH Carroll Atlantic Beach, LLC for $4,603 and to pay $52 of structuring fees to Prospect (which was recognized by Prospect as structuring fee income), with $150 retained by NPRC for working capital. The JV was purchased for $13,025 which included debt financing and minority interest of $9,118 and $346, respectively. The remaining proceeds were used to pay $92 of structuring fees to Prospect (which was recognized by Prospect as structuring fee income), $681 of third party expenses, $7 of legal services provided by attorneys at Prospect Administration, and $182 of prepaid assets, with $80 retained by the JV for working capital.
Effective April 1, 2014, Prospect made a new $104,460 senior term loan to NPRC. NPRC then distributed this amount to NPH as a return of capital which was used to pay down the Senior Term Loan from NPH by the same amount.
Between April 3, 2014 and May 21, 2014, Prospect made an $11,000 investment in NPH and NPRC, of which $9,350 was a Senior Term Loan to NPRC and $1,650 was used to purchase additional membership interests of NPH. The proceeds were utilized by NPH to purchase additional NPRC common equity for $1,650. The proceeds were utilized by certain of NPRC’s wholly-owned subsidiaries to purchase online consumer loans from a third party.
On July 1, 2014, Prospect began consolidating NPH. As a result, any transactions between NPH and Prospect are eliminated in consolidation and as such, transactions after July 1, 2014 are not presented below.
On January 16, 2015, Prospect made a $13,871 investment in NPRC, of which $11,810 was a Senior Term Loan directly to NPRC and $2,061 was used to purchase additional common equity of NPRC through NPH. The proceeds were utilized by NPRC to purchase additional ownership interest in Michigan Storage, LLC (which was originally purchased by UPRC and transferred to NPRC, as discussed below) for $13,854, with $17 retained by NPRC for working capital. The minority interest holder also invested an additional $2,445 in the JV. With additional debt financing of $12,602, the total proceeds were used by the JV to purchase five additional properties for $26,405. The remaining proceeds were used to pay $276 of structuring fees to Prospect (which was recognized by Prospect as structuring fee income), $1,762 of third party expenses, $65 in pre-funded capital expenditures, and $393 of prepaid assets.
During the nine months ended March 31, 2015, APRC and UPRC transferred their investments in certain properties to NPRC. As a result, Prospect’s investments in APRC and UPRC related to these properties also transferred to NPRC. The investments transferred consisted of $11,518 of equity and $75,030 of debt. There was no gain or loss realized on these transactions.

102


On March 17, 2015, Prospect entered into a new credit agreement, effective June 30, 2014, with ACL Loan Holdings, Inc. (“ACLLH”), a wholly-owned subsidiary of NPRC. The new credit agreement was in the form of two tranches of senior secured term loans, Term Loan A and Term Loan B, with the same terms as the existing NPRC Term Loan A and Term Loan B due to Prospect. On June 30, 2014, ACLLH made a non-cash return of capital distribution of $22,390 to NPRC and NPRC transferred and assigned to ACLLH a senior secured Term Loan A due to Prospect.
During the nine months ended March 31, 2015, Prospect made twenty-nine follow-on investments in NPRC totaling $174,500 to support the online consumer lending initiative. Prospect invested $39,425 of equity through NPH and $135,075 of debt directly to NPRC and its wholly-owned subsidiaries. In addition, during the nine months ended March 31, 2015, Prospect received partial repayments of $31,365 of the NPRC loan previously outstanding and $5,577 as a return of capital on the equity investment in NPRC.
The following dividends were declared and paid from NPRC to NPH (partially via a wholly-owned subsidiary of NPH) and recognized as dividend income by NPH:
Three Months Ended March 31, 2014
$
2,696

Three Months Ended March 31, 2015
N/A

Nine Months Ended March 31, 2014
2,696

Nine Months Ended March 31, 2015
N/A

All dividends were paid from earnings and profits of NPRC.
The following interest payments were accrued and paid by NPH to Prospect and recognized by Prospect as interest income:
Three Months Ended March 31, 2014
$
2,832

Three Months Ended March 31, 2015
N/A

Nine Months Ended March 31, 2014
2,838

Nine Months Ended March 31, 2015
N/A

Included above, the following payment-in-kind interest from NPH was capitalized and recognized by Prospect as interest income:
Three Months Ended March 31, 2014
$
432

Three Months Ended March 31, 2015
N/A

Nine Months Ended March 31, 2014
432

Nine Months Ended March 31, 2015
N/A

The following interest payments were accrued and paid by NPRC to Prospect and recognized by Prospect as interest income:
Three Months Ended March 31, 2014
$

Three Months Ended March 31, 2015
4,832

Nine Months Ended March 31, 2014

Nine Months Ended March 31, 2015
14,775

Included above, the following payment-in-kind interest from NPRC was capitalized and recognized by Prospect as interest income:
Three Months Ended March 31, 2014
$

Three Months Ended March 31, 2015
1,738

Nine Months Ended March 31, 2014

Nine Months Ended March 31, 2015
3,056

The following interest income recognized had not yet been paid by NPRC to Prospect and was included by Prospect within interest receivable:
June 30, 2014
$

March 31, 2015
55


103


The following interest payments were accrued and paid by ACLLH to Prospect and recognized by Prospect as interest income:
Three Months Ended March 31, 2014
$

Three Months Ended March 31, 2015
3,293

Nine Months Ended March 31, 2014

Nine Months Ended March 31, 2015
3,293

The following interest income recognized had not yet been paid by ACLLH to Prospect and was included by Prospect within interest receivable:
June 30, 2014
$

March 31, 2015
48

The following royalty payments were paid from NPH to Prospect and recognized by Prospect as other income:
Three Months Ended March 31, 2014
$
278

Three Months Ended March 31, 2015
N/A

Nine Months Ended March 31, 2014
278

Nine Months Ended March 31, 2015
N/A

The following royalty payments were paid from NPRC to Prospect and recognized by Prospect as other income:
Three Months Ended March 31, 2014
$

Three Months Ended March 31, 2015
506

Nine Months Ended March 31, 2014

Nine Months Ended March 31, 2015
1,150

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 March 31, 2014
$
128

Three Months Ended March 31, 2015
128

Nine Months Ended March 31, 2014
128

Nine Months Ended March 31, 2015
383

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, 2014
$
128

March 31, 2015
128

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 given credit for these payments as a reduction of the administrative services costs payable by Prospect to Prospect Administration):
Three Months Ended March 31, 2014
$
7

Three Months Ended March 31, 2015
649

Nine Months Ended March 31, 2014
7

Nine Months Ended March 31, 2015
709

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, 2014
$
13

March 31, 2015
66


104


Nationwide Acceptance 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 Acceptance LLC (“Nationwide”), with members of Nationwide management owning the remaining 6.21% of the equity.
On January 31, 2013, Prospect initially made a $25,151 investment in Nationwide Holdings, of which $21,308 was a Senior Secured Revolving Credit Facility and $3,843 was in the form of membership interests in Nationwide Holdings. $21,885 of the proceeds were utilized to purchase 93.79% of the membership interests in Nationwide. Proceeds were also used to pay $753 of structuring fees from Nationwide Holdings to Prospect (which was recognized by Prospect as structuring fee income), $350 of third party expenses and $163 of legal services provided by attorneys at Prospect Administration. The remaining $2,000 was retained by Nationwide Holdings as working capital.
In December 2013, Prospect received $1,500 of structuring fees from Nationwide Holdings related to the amendment of the loan agreement. On March 28, 2014, Prospect funded an additional $4,000 to Nationwide Holdings ($3,400 through the Senior Secured Revolving Credit Facility and $600 to purchase additional membership interests in Nationwide Holdings). The additional funding along with cash on hand was utilized by Nationwide Holdings to fund a $5,000 dividend to Prospect.
On June 18, 2014, Prospect made a new $14,820 second lien term loan to Nationwide. Nationwide distributed this amount to Nationwide Holdings as a return of capital. Nationwide Holdings used the distribution to pay down the Senior Secured Revolving Credit Facility. The remaining $9,888 of the Senior Secured Revolving Credit Facility was then converted to additional membership interests in Nationwide Holdings.
On July 1, 2014, Prospect began consolidating Nationwide Holdings. As a result, any transactions between Nationwide Holdings and Prospect are eliminated in consolidation and as such, transactions after July 1, 2014 are not presented below.
On September 30, 2014, Prospect made an additional $938 equity investment in Nationwide.
The following dividends were declared and paid from Nationwide to Nationwide Holdings and recognized as dividend income by Nationwide Holdings:
Three Months Ended March 31, 2014
$
1,984

Three Months Ended March 31, 2015
N/A

Nine Months Ended March 31, 2014
5,694

Nine Months Ended March 31, 2015
N/A

The following dividends were declared and paid from Nationwide Holdings to Prospect and recognized as dividend income by Prospect:
Three Months Ended March 31, 2014
$
5,000

Three Months Ended March 31, 2015
N/A

Nine Months Ended March 31, 2014
5,000

Nine Months Ended March 31, 2015
N/A

The following dividends were declared and paid from Nationwide to Nationwide Holdings and recognized as dividend income by Prospect:
Three Months Ended March 31, 2014
$

Three Months Ended March 31, 2015
1,139

Nine Months Ended March 31, 2014

Nine Months Ended March 31, 2015
2,444

All dividends were paid from earnings and profits of Nationwide and Nationwide Holdings.

105


The following interest payments were accrued and paid from Nationwide Holdings to Prospect and recognized by Prospect as interest income:
Three Months Ended March 31, 2014
$
1,067

Three Months Ended March 31, 2015
N/A

Nine Months Ended March 31, 2014
3,245

Nine Months Ended March 31, 2015
N/A

The following interest payments were accrued and paid from Nationwide to Prospect and recognized by Prospect as interest income:
Three Months Ended March 31, 2014
$

Three Months Ended March 31, 2015
741

Nine Months Ended March 31, 2014

Nine Months Ended March 31, 2015
2,256

The following interest income recognized had not yet been paid by Nationwide to Prospect and was included by Prospect within interest receivable:
June 30, 2014
$
8

March 31, 2015
8

The following royalty payments were paid from Nationwide Holdings to Prospect and recognized by Prospect as other income:
Three Months Ended March 31, 2014
$
99

Three Months Ended March 31, 2015
N/A

Nine Months Ended March 31, 2014
285

Nine Months Ended March 31, 2015
N/A

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 March 31, 2014
$
100

Three Months Ended March 31, 2015
100

Nine Months Ended March 31, 2014
300

Nine Months Ended March 31, 2015
300

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, 2014
$
100

March 31, 2015
100

The following payments were paid from Nationwide to Prospect Administration as reimbursement for legal, tax and portfolio level accounting services provided directly to Nationwide (no direct income was recognized by Prospect, but Prospect was given credit for these payments as a reduction of the administrative services costs payable by Prospect to Prospect Administration):
Three Months Ended March 31, 2014
$
17

Three Months Ended March 31, 2015

Nine Months Ended March 31, 2014
228

Nine Months Ended March 31, 2015
4


106


The following amounts were due from Nationwide to Prospect for reimbursement of expenses paid by Prospect on behalf of Nationwide and were included by Prospect within other receivables:
June 30, 2014
$
2

March 31, 2015

The following amounts were due to Nationwide from Prospect for reimbursement of expenses paid by Nationwide on behalf of Prospect and were included by Prospect within other liabilities:
June 30, 2014
$

March 31, 2015
16

NMMB, Inc.
Prospect owns 100% of the equity of NMMB Holdings, Inc. (“NMMB Holdings”), a Consolidated Holding Company. NMMB Holdings owns 96.33% of the fully-diluted equity of NMMB, Inc. (f/k/a NMMB Acquisition, Inc.) (“NMMB”), with NMMB management owning the remaining 3.67% 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.
On May 6, 2011, Prospect initially made a $34,450 investment (of which $31,750 was funded at closing) in NMMB Holdings and NMMB, of which $24,250 was a senior secured term loan to NMMB, $3,000 was a senior secured revolver to NMMB (of which $300 was funded at closing), $2,800 was a senior subordinated term loan to NMMB Holdings and $4,400 to purchase 100% of the Series A Preferred Stock of NMMB Holdings. The proceeds received by NMMB were used to purchase 100% of the equity of Refuel Agency and assets related to the business for $30,069, pay $1,035 of structuring fees to Prospect (which was recognized by Prospect as structuring fee income), pay $396 for third party expenses and $250 was retained by NMMB for working capital. On May 31, 2011, NMMB repaid the $300 senior secured revolver.
During the year ended June 30, 2012, NMMB repaid $2,550 of the senior secured term loan. During the year ended June 30, 2013, NMMB repaid $5,700 of the senior secured term loan due.
On December 13, 2013, Prospect invested $8,086 for preferred equity to recapitalize NMMB Holdings. The proceeds were used by NMMB Holdings to repay in full the $2,800 outstanding under the subordinated term loan and the remaining $5,286 of proceeds from Prospect were used by NMMB Holdings to purchase preferred equity in NMMB. NMMB used the proceeds from the preferred equity issuance to pay down the senior term loan.
On June 12, 2014, Prospect made a new $7,000 senior secured term loan to Armed Forces. Armed Forces distributed this amount to Refuel Agency as a return of capital. Refuel Agency distributed this amount to NMMB as a return of capital, which was used to pay down $7,000 of NMMB’s $10,714 senior secured term loan to Prospect.
On July 1, 2014, Prospect began consolidating NMMB Holdings. As a result, any transactions between NMMB Holdings and Prospect are eliminated in consolidation and as such, transactions after July 1, 2014 are not presented below.
On October 1, 2014, Prospect made an additional $383 equity investment in NMMB Series B Preferred Stock, increasing Prospect’s ownership to 93.13%. During the three months ended March 31, 2015, NMMB repurchased 460 shares of NMMB stock from a former NMMB executive, decreasing the number of shares outstanding and increasing Prospect’s ownership to 96.33%.
The following interest payments were accrued and paid from NMMB Holdings to Prospect and recognized by Prospect as interest income:
Three Months Ended March 31, 2014
$

Three Months Ended March 31, 2015
N/A

Nine Months Ended March 31, 2014
192

Nine Months Ended March 31, 2015
N/A


107


The following interest payments were accrued and paid from NMMB to Prospect and recognized by Prospect as interest income:
Three Months Ended March 31, 2014
$
375

Three Months Ended March 31, 2015
130

Nine Months Ended March 31, 2014
1,480

Nine Months Ended March 31, 2015
393

The following interest income recognized had not yet been paid by NMMB to Prospect and was included by Prospect within interest receivable:
June 30, 2014
$
1

March 31, 2015
1

The following interest payments were accrued and paid from Armed Forces to Prospect and recognized by Prospect as interest income:
Three Months Ended March 31, 2014
$

Three Months Ended March 31, 2015
245

Nine Months Ended March 31, 2014

Nine Months Ended March 31, 2015
749

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, 2014
$
3

March 31, 2015
3

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 March 31, 2014
$

Three Months Ended March 31, 2015

Nine Months Ended March 31, 2014
100

Nine Months Ended March 31, 2015

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, 2014
$
300

March 31, 2015
600

The following payments were paid from NMMB to Prospect Administration as reimbursement for legal, tax and portfolio level accounting services provided directly to NMMB (no direct income was recognized by Prospect, but Prospect was given credit for these payments as a reduction of the administrative services costs payable by Prospect to Prospect Administration):
Three Months Ended March 31, 2014
$
15

Three Months Ended March 31, 2015

Nine Months Ended March 31, 2014
15

Nine Months Ended March 31, 2015

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, 2014
$
1

March 31, 2015
1


108


R-V Industries, Inc.
As of July 1, 2011 and continuing through March 31, 2015, 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.
On November 30, 2012, Prospect made a $9,500 second lien term loan to R-V and R-V received an additional $4,000 of senior secured financing from a third-party lender. The combined $13,500 of proceeds was partially utilized by R-V to pay a dividend to its common stockholders in an aggregate amount equal to $13,288 (including $11,073 to Prospect recognized by Prospect as a dividend). The remaining proceeds were used by R-V to pay $142 of structuring fees to Prospect (which was recognized by Prospect as structuring fee income), $47 for third party expenses and $23 for legal services provided by attorneys at Prospect Administration.
On June 12, 2013, Prospect provided an additional $23,250 to the second lien term loan to R-V. The proceeds were partially utilized by R-V to pay a dividend to the common stockholders in an aggregate amount equal to $15,000 (including $13,240 dividend to Prospect). The remaining proceeds were used to pay off $7,835 of outstanding debt due from R-V to a third-party, $11 for legal services provided by attorneys at Prospect Administration and $404 was retained by R-V for working capital. On February 28, 2014, R-V repaid $2,339 of the second lien term loan due to Prospect.
The following dividends were declared and paid from R-V to Prospect and recognized as dividend income by Prospect:
Three Months Ended March 31, 2014
$
75

Three Months Ended March 31, 2015
75

Nine Months Ended March 31, 2014
1,026

Nine Months Ended March 31, 2015
224

All dividends were paid from earnings and profits of R-V.
The following interest payments were accrued and paid from R-V to Prospect and recognized by Prospect as interest income:
Three Months Ended March 31, 2014
$
789

Three Months Ended March 31, 2015
761

Nine Months Ended March 31, 2014
2,428

Nine Months Ended March 31, 2015
2,281

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 March 31, 2014
$
45

Three Months Ended March 31, 2015
45

Nine Months Ended March 31, 2014
135

Nine Months Ended March 31, 2015
135

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, 2014
$
45

March 31, 2015
45

The following amounts were due to R-V from Prospect for reimbursement of expenses paid by R-V on behalf of Prospect and were included by Prospect within other liabilities:
June 30, 2014
$
2

March 31, 2015
2


109


United Property REIT Corp.
Prospect owns 100% of the equity of UPH Property Holdings, LLC (“UPH”), a Consolidated Holding Company. UPH owns 100% of the common equity of United Property REIT Corp. (f/k/a United Property Holdings Corp.) (“UPRC”). UPRC is a Maryland corporation and a qualified REIT for federal income tax purposes. In order to qualify as a REIT, UPRC 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 UPRC.
UPRC 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. UPRC acquires real estate assets, including, but not limited to, industrial, commercial, and multi-family properties. UPRC may acquire real estate assets directly or through joint ventures by making a majority equity investment in a property-owning entity (the “JV”).
On December 31, 2013, APRC distributed its majority interests in five JVs holding real estate assets to APH. APH then distributed these JV interests to Prospect in a transaction characterized as a return of capital. Prospect, on the same day, contributed certain of these JV interests to NPH and the remainder to UPH (each wholly-owned subsidiaries of Prospect). Each of NPH and UPH immediately thereafter contributed these JV interests to NPRC and UPRC, respectively. The total investments in the JVs transferred to UPH and from UPH to UPRC consisted of $18,855 and $3,707 of debt and equity financing, respectively. There was no material gain or loss realized on these transactions.
Effective April 1, 2014, Prospect made a new $19,027 senior term loan to UPRC. UPRC then distributed this amount to UPH as a return of capital which was used to pay down the Senior Term Loan from UPH by the same amount.
On June 4, 2014, Prospect made a $1,405 investment in UPH to purchase additional membership interests of UPH, which was revised to $1,420 on July 1, 2014. The proceeds were utilized by UPH to purchase additional UPRC common equity for $1,420. The proceeds were utilized by UPRC to acquire the real property located at 1201 West College, Marshall, MO (“Taco Bell, MO”) for $1,405 and pay $15 of third party expenses.
On July 1, 2014, Prospect began consolidating UPH. As a result, any transactions between UPH and Prospect are eliminated in consolidation and as such, transactions after July 1, 2014 are not presented below.
On August 19,  2014 and August 27, 2014, Prospect made a combined $11,046 investment in UPRC, of which $9,389 was a Senior Term Loan directly to UPRC and $1,657 was used to purchase additional common equity of UPRC through UPH. On October 1, 2015, UPRC distributed $376 to Prospect as a return of capital. The net proceeds were utilized by UPRC to purchase an 85.0% ownership interest in Michigan Storage, LLC for $10,579, with $42 retained by UPRC for working capital and $49 restricted for future property acquisitions. The JV was purchased for $38,275 which included debt financing and minority interest of $28,705 and $1,867, respectively. The remaining proceeds were used to pay $210 of structuring fees to Prospect (which was recognized by Prospect as structuring fee income), $2,589 of third party expenses, and $77 for legal services provided by attorneys at Prospect Administration. The investment was subsequently contributed to NPRC.
On September 29, 2014, Prospect made a $22,618 investment in UPRC, of which $19,225 was a Senior Term Loan and $3,393 was used to purchase additional common equity of UPRC through UPH. The proceeds were utilized by UPRC to purchase a 92.5% ownership interest in Canterbury Green Apartments Holdings, LLC for $22,036, with $582 retained by UPRC for working capital. The JV was purchased for $85,500 which included debt financing and minority interest of $65,825 and $1,787, respectively. The remaining proceeds were used to pay $432 of structuring fees to Prospect (which was recognized by Prospect as structuring fee income), $2,135 of third party expenses, $82 for legal services provided by attorneys at Prospect Administration, and $1,249 of prepaid assets, with $250 retained by the JV for working capital.
On September 30, 2014 and October 29, 2014, Prospect made a combined $22,688 investment in UPRC, of which $19,290 was a Senior Term Loan and $3,398 was used to purchase additional common equity of UPRC through UPH. The proceeds were utilized by UPRC to purchase a 66.2% ownership interest in Columbus OH Apartment Holdco, LLC for $21,992 and to pay $241 of structuring fees to Prospect (which was recognized by Prospect as structuring fee income), with $455 retained by UPRC for working capital. The JV was purchased for $114,377 which included debt financing and minority interest of $97,902 and $11,250, respectively. The remaining proceeds were used to pay $440 of structuring fees to Prospect (which was recognized by Prospect as structuring fee income), $7,711 of third party expenses, $180 for legal services provided by attorneys at Prospect Administration, $6,778 in pre-funded capital expenditures, and $1,658 of prepaid assets.

110


On October 23, 2014, UPRC transferred its investment in certain properties to NPRC. As a result, Prospect’s investment in UPRC related to these properties also transferred to NPRC. The investments transferred consisted of $1,281 of equity and $9,444 of debt. There was no gain or loss realized on these transactions.
On November 12, 2014, Prospect made a $669 investment in UPRC, of which $569 was a Senior Term Loan and $100 was used to purchase additional common equity of UPRC through UPH. The proceeds were utilized by UPRC to purchase additional ownership interest in South Atlanta Portfolio Holding Company, LLC for $667, with $2 retained by UPRC for working capital. The minority interest holder also invested an additional $53 in the JV. The proceeds were used by the JV to fund $707 of capital expenditures and pay $13 of structuring fees to Prospect (which was recognized by Prospect as structuring fee income).
The following dividends were declared and paid from UPRC to UPH and recognized as dividend income by UPH:
Three Months Ended March 31, 2014
$
510

Three Months Ended March 31, 2015
N/A

Nine Months Ended March 31, 2014
510

Nine Months Ended March 31, 2015
N/A

All dividends were paid from earnings and profits of UPRC.
The following interest payments were accrued and paid by UPH to Prospect and recognized by Prospect as interest income:
Three Months Ended March 31, 2014
$
548

Three Months Ended March 31, 2015
N/A

Nine Months Ended March 31, 2014
548

Nine Months Ended March 31, 2015
N/A

Included above, the following payment-in-kind interest from UPH was capitalized and recognized by Prospect as interest income:
Three Months Ended March 31, 2014
$
173

Three Months Ended March 31, 2015
N/A

Nine Months Ended March 31, 2014
173

Nine Months Ended March 31, 2015
N/A

The following interest payments were accrued and paid by UPRC to Prospect and recognized by Prospect as interest income:
Three Months Ended March 31, 2014
$

Three Months Ended March 31, 2015
1,674

Nine Months Ended March 31, 2014

Nine Months Ended March 31, 2015
4,134

Included above, the following payment-in-kind interest from UPRC was capitalized and recognized by Prospect as interest income:
Three Months Ended March 31, 2014
$

Three Months Ended March 31, 2015

Nine Months Ended March 31, 2014

Nine Months Ended March 31, 2015
162

The following interest income recognized had not yet been paid by UPRC to Prospect and was included by Prospect within interest receivable:
June 30, 2014
$
6

March 31, 2015
19


111


The following royalty payments were paid from UPH to Prospect and recognized by Prospect as other income:
Three Months Ended March 31, 2014
$
69

Three Months Ended March 31, 2015
N/A

Nine Months Ended March 31, 2014
69

Nine Months Ended March 31, 2015
N/A

The following royalty payments were paid from UPRC to Prospect and recognized by Prospect as other income:
Three Months Ended March 31, 2014
$

Three Months Ended March 31, 2015

Nine Months Ended March 31, 2014

Nine Months Ended March 31, 2015
320

The following managerial assistance payments were paid from UPRC to Prospect and subsequently remitted to Prospect Administration (no income was recognized by Prospect):
Three Months Ended March 31, 2014
$
50

Three Months Ended March 31, 2015

Nine Months Ended March 31, 2014
50

Nine Months Ended March 31, 2015
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, 2014
$
50

March 31, 2015

The following managerial assistance recognized had not yet been paid by UPRC to Prospect and was included by Prospect within other receivables and due to Prospect Administration:
June 30, 2014
$

March 31, 2015
50

The following payments were paid from UPRC to Prospect Administration as reimbursement for legal, tax and portfolio level accounting services provided directly to UPRC (no direct income was recognized by Prospect, but Prospect was given credit for these payments as a reduction of the administrative services costs payable by Prospect to Prospect Administration):
Three Months Ended March 31, 2014
$
41

Three Months Ended March 31, 2015
104

Nine Months Ended March 31, 2014
41

Nine Months Ended March 31, 2015
177

The following amounts were due from UPRC to Prospect for reimbursement of expenses paid by Prospect on behalf of UPRC and were included by Prospect within other receivables:
June 30, 2014
$
32

March 31, 2015
9


112


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.
On December 31, 2012, Prospect initially invested $52,098 (including 4,141,547 common shares of Prospect at a fair value of $44,650) in exchange for $32,572 was in the form of a senior secured note to Valley Holdings I, a $10,000 senior secured note to Valley (discussed below) and $9,526 to purchase the common stock of Valley Holdings I. The proceeds were partially utilized by Valley Holdings I to purchase 100% of Valley Holdings II common stock for $40,528. The remaining proceeds at Valley Holdings I were used to pay $977 of structuring fees from Valley Holdings I to Prospect (which were recognized by Prospect as structuring fee income), $345 for legal services provided by attorneys at Prospect Administration and $248 was retained by Valley Holdings I for working capital. The $40,528 of proceeds received by Valley Holdings II were subsequently used to purchase 96.3% of Valley’s common stock. Valley management provided a $1,500 co-investment in Valley.
On December 31, 2012, Prospect invested $10,000 (as mentioned above) into Valley in the form of senior secured debt. Total proceeds of $52,028 received by Valley (including $42,028 equity investment mentioned above) were used to purchase the equity of Valley from third-party sellers for $45,650, pay $4,628 of third-party transaction expenses (including bonuses to Valley’s management of $2,320), pay $250 from Valley to Prospect (which were recognized by Prospect as structuring fee income) and $1,500 was retained by Valley for working capital.
On June 24, 2014, Valley Holdings II and management of Valley formed Valley Electric and contributed their shares of Valley stock to Valley Electric. Valley management made an additional equity investment in Valley Electric, reducing our ownership to 94.99%. Prospect made a new $20,471 senior secured loan to Valley Electric. Valley Electric then distributed this amount to Valley Holdings I, via Valley Holdings II, as a return of capital which was used to pay down the senior secured note of Valley Holdings I by the same amount. The remaining principal amount of the senior secured note, $16,754, was then contributed to the capital of Valley Holdings I.
On July 1, 2014, Prospect began consolidating Valley Holdings I and Valley Holdings II. As a result, any transactions between Valley Holdings I, Valley Holdings II and Prospect are eliminated in consolidation and as such, transactions after July 1, 2014 are not presented below.
In addition to the repayments noted above, the following amounts were paid from Valley to Prospect and recorded by Prospect as repayment of loan receivable:
Three Months Ended March 31, 2014
$
50

Three Months Ended March 31, 2015

Nine Months Ended March 31, 2014
150

Nine Months Ended March 31, 2015

The following dividends were declared and paid from Valley to Valley Holdings II, which were subsequently distributed to and recognized as dividend income by Valley Holdings I:
Three Months Ended March 31, 2014
$
867

Three Months Ended March 31, 2015
N/A

Nine Months Ended March 31, 2014
2,303

Nine Months Ended March 31, 2015
N/A

All dividends were paid from earnings and profits of Valley and Valley Holdings II.

113


The following interest payments were accrued and paid from Valley Holdings I to Prospect and recognized by Prospect as interest income:
Three Months Ended March 31, 2014
$
1,613

Three Months Ended March 31, 2015
N/A

Nine Months Ended March 31, 2014
4,792

Nine Months Ended March 31, 2015
N/A

Included above, the following payment-in-kind interest from Valley Holdings I was capitalized and recognized by Prospect as interest income:
Three Months Ended March 31, 2014
$
802

Three Months Ended March 31, 2015
N/A

Nine Months Ended March 31, 2014
2,386

Nine Months Ended March 31, 2015
N/A

The following interest payments were accrued and paid from Valley Electric to Prospect and recognized by Prospect as interest income:
Three Months Ended March 31, 2014
$

Three Months Ended March 31, 2015
972

Nine Months Ended March 31, 2014

Nine Months Ended March 31, 2015
2,906

Included above, the following payment-in-kind interest from Valley Electric was capitalized and recognized by Prospect as interest income:
Three Months Ended March 31, 2014
$

Three Months Ended March 31, 2015
454

Nine Months Ended March 31, 2014

Nine Months Ended March 31, 2015
1,335

The following interest income recognized had not yet been paid by Valley Electric to Prospect and was included by Prospect within interest receivable:
June 30, 2014
$
45

March 31, 2015
546

The following interest payments were accrued and paid from Valley to Prospect and recognized by Prospect as interest income:
Three Months Ended March 31, 2014
$
264

Three Months Ended March 31, 2015
268

Nine Months Ended March 31, 2014
806

Nine Months Ended March 31, 2015
812

Included above, the following payment-in-kind interest from Valley was capitalized and recognized by Prospect as interest income:
Three Months Ended March 31, 2014
$
63

Three Months Ended March 31, 2015
64

Nine Months Ended March 31, 2014
192

Nine Months Ended March 31, 2015
194


114


The following interest income recognized had not yet been paid by Valley to Prospect and was included by Prospect within interest receivable:
June 30, 2014
$
3

March 31, 2015
3

The following royalty payments were paid from Valley Holdings I to Prospect and recognized by Prospect as other income:
Three Months Ended March 31, 2014
$
43

Three Months Ended March 31, 2015
N/A

Nine Months Ended March 31, 2014
115

Nine Months Ended March 31, 2015
N/A

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 March 31, 2014
$
75

Three Months Ended March 31, 2015
75

Nine Months Ended March 31, 2014
225

Nine Months Ended March 31, 2015
225

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, 2014
$
75

March 31, 2015
75

The following payments were paid from Valley Electric to Prospect Administration as reimbursement for legal, tax and portfolio level accounting services provided directly to Valley Electric (no direct income was recognized by Prospect, but Prospect was given credit for these payments as a reduction of the administrative services costs payable by Prospect to Prospect Administration):
Three Months Ended March 31, 2014
$

Three Months Ended March 31, 2015

Nine Months Ended March 31, 2014
86

Nine Months Ended March 31, 2015
18

The following amounts were due from Valley Electric to Prospect for reimbursement of expenses paid by Prospect on behalf of Valley Electric and were included by Prospect within other receivables:
June 30, 2014
$

March 31, 2015
2

The following amounts were due to Valley Electric from Prospect for reimbursement of expenses paid by Valley Electric on behalf of Prospect and were included by Prospect within other liabilities:
June 30, 2014
$
6

March 31, 2015


115


Vets Securing America, Inc.
Prospect owns 100% of the equity of Vets Securing America, Inc. (“VSA”) and 100% of the equity of The Healing Staff, Inc. (“THS”), a former wholly-owned subsidiary of ESA Environmental Specialists, Inc. (“ESA”). During the nine months ended March 31, 2015, THS ceased operations. As of March 31, 2015, the VSA management team is supervising both the continued operations of VSA and the wind-down of activities at THS. VSA provides out-sourced security guards staffing.
As of July 1, 2011, the cost basis of Prospect’s investment in THS and VSA, including debt and equity, was $18,219. During the year ended June 30, 2012, Prospect made follow-on secured debt investments of $1,033 to support the ongoing operations of THS and VSA. In October 2011, Prospect sold a building previously acquired from ESA for $894. In January 2012, Prospect received $2,250 of litigation settlement proceeds related to ESA. The proceeds from both of these transactions were used to reduce the outstanding loan balances due from THS and VSA by $3,144. In June 2012, THS and VSA repaid $118 and $42, respectively, of loans previously outstanding.
In May 2012, in connection with the implementation of accounts receivable based funding programs for THS and VSA with a third party provider, Prospect agreed to subordinate Prospect’s first priority security interest in all of the accounts receivable and other assets of THS and VSA to the third party provider of that accounts receivable based funding.
During the year ended June 30, 2013, Prospect determined that the impairment of THS and VSA was other-than-temporary and recorded a realized loss of $12,117, reducing the amortized cost to $3,831. During the nine months ended March 31, 2014, Prospect received $5,000 of legal cost reimbursement related to the ESA litigation settlement which had been expensed in prior years. The proceeds were recognized by Prospect as other income during the nine months ended March 31, 2014. During the nine months ended March 31, 2015, Prospect received $685 related to the ESA litigation settlement which was recognized as realized gain.
The following amounts were due from THS and VSA to Prospect for reimbursement of expenses paid by Prospect on behalf of THS and VSA and were included by Prospect within other receivables: 
June 30, 2014
$
6

March 31, 2015
9

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.
In addition, effective June 29, 2012, C&J Cladding Holding Company, Inc. (“C&J Holdings”) merged with and into Wolf Energy Holdings, with Wolf Energy Holdings as the surviving entity. At the time of the merger, C&J Holdings held the remaining undistributed proceeds in cash from the sale of its membership interests in C&J Cladding, LLC (“C&J”) (discussed below). The merger was effectuated in connection with the broader simplification of Prospect’s energy investment holdings.
On June 1, 2012, Prospect sold the membership interests in C&J for $5,500. Proceeds from the sale were used to pay a $3,000 distribution to Prospect ($580 reduction in cost basis and $2,420 realized gain recognized by Prospect), an advisory fee of $1,500 from C&J to Prospect (which was recognized by Prospect as other income) and $978 was retained by C&J as working capital to pay $22 of legal services provided by attorneys at Prospect Administration and third-party expenses.
On February 27, 2013, Prospect made a $50 senior secured debt investment senior secured to East Cumberland, L.L.C., a former wholly-owned subsidiary of AEH with AEH as guarantor. Proceeds were used to pay off vendors.

116


On April 15, 2013, Prospect foreclosed on the assets of H&M Oil & Gas, LLC (“H&M”). At the time of foreclosure, H&M was in default on loans receivables due to Prospect with a cost basis of $64,449. The assets previously held by H&M were assigned by Prospect to Wolf Energy in exchange for a $66,000 term loan secured by the assets. The cost basis in this loan of $44,632 was determined in accordance with ASC 310-40, Troubled Debt Restructurings by Creditors, and was equal to the fair value of assets at the time of transfer resulting in a capital loss of $19,647 in connection with the foreclosure on the assets. On May 17, 2013, Wolf Energy sold the assets located in Martin County, which were previously held by H&M, for $66,000. Proceeds from the sale were primarily used to repay the loan and net profits interest receivable due to us resulting in a realized capital gain of $11,826 offsetting the previously recognized loss. Prospect received $3,960 of structuring and advisory fees from Wolf Energy during the year ended June 30, 2013 related to the sale and $991 under the net profits interest agreement which was recognized as other income during the fiscal year ended June 30, 2013.
On July 1, 2014, Prospect began consolidating Wolf Energy Holdings. As a result, any transactions between Wolf Energy Holdings and Prospect are eliminated in consolidation and as such, transactions after July 1, 2014 are not presented below.
During the three months ended September 30, 2014, Prospect determined that the impairment of AEH was other-than temporary and recorded a realized loss of $2,050, reducing the amortized cost to zero. On November 21, 2014, Coalbed merged with and into Wolf Energy, with Wolf Energy as the surviving entity. During the three months ended December 31, 2014, Prospect determined that the impairment of the Coalbed debt assumed by Wolf Energy was other-than-temporary and recorded a realized loss of $5,991, reducing the amortized cost to zero.
During the nine months ended March 31, 2015, Wolf Energy received a tax refund of $173 related to its investment in C&J and Prospect realized a gain of the same amount.
The following payments were paid from Wolf Energy to Prospect Administration as reimbursement for legal, tax and portfolio level accounting services provided directly to Wolf Energy (no direct income was recognized by Prospect, but Prospect was given credit for these payments as a reduction of the administrative services costs payable by Prospect to Prospect Administration):
Three Months Ended March 31, 2014
$
101

Three Months Ended March 31, 2015

Nine Months Ended March 31, 2014
101

Nine Months Ended March 31, 2015

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 these matters as they 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 litigation as of March 31, 2015.

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Note 16. Financial Highlights
The following is a schedule of financial highlights for the three and nine months ended March 31, 2015 and March 31, 2014:
 
Three Months Ended 
 March 31,
 
Nine Months Ended 
 March 31,
 
2015
 
2014
 
2015
 
2014
Per Share Data
 
 
 
 
 
 
 
Net asset value at beginning of period
$
10.35

 
$
10.73

 
$
10.56

 
$
10.72

Net investment income(1)
0.24

 
0.31

 
0.78

 
0.95

Net realized gains (losses) on investments(1)
0.01

 
(0.01
)
 
(0.44
)
 
(0.01
)
Net change in unrealized (depreciation) appreciation on investments(1)
(0.02
)
 
(0.04
)
 
0.37

 
(0.08
)
Net realized losses on extinguishment of debt(1)

(2)

 

(2)

Dividends to shareholders
(0.28
)
 
(0.33
)
 
(0.94
)
 
(0.99
)
Common stock transactions(3)

 
0.02

 
(0.03
)
 
0.09

Net asset value at end of period
$
10.30

 
$
10.68

 
$
10.30

 
$
10.68

 
 
 
 
 
 
 
 
Per share market value at end of period
$
8.45

 
$
10.80

 
$
8.45

 
$
10.80

Total return based on market value(4)
5.97
%
 
(0.85
%)
 
(11.98
%)
 
9.19
%
Total return based on net asset value(4)
3.09
%
 
2.52
%
 
8.00
%
 
8.78
%
Shares of common stock outstanding at end of period
358,661,441

 
333,499,861

 
358,661,441

 
333,499,861

Weighted average shares of common stock outstanding
358,449,304

 
316,388,733

 
351,922,217

 
286,949,781

 
 
 
 
 
 
 
 
Ratios/Supplemental Data
 

 
 

 
 

 
 

Net assets at end of period
$
3,694,588

 
$
3,561,376

 
$
3,694,588

 
$
3,561,376

Portfolio turnover rate
1.65
%
 
3.63
%
 
18.65
%
 
12.59
%
Annualized ratio of operating expenses to average net assets
11.23
%
 
10.81
%
 
11.63
%
 
11.00
%
Annualized ratio of net investment income to average net assets
9.45
%
 
11.60
%
 
9.96
%
 
11.71
%
(1)
Financial highlights are based on the weighted average number of common shares outstanding for the period presented (except for dividends to shareholders which is based on actual rate per share).
(2)
Amount is less than $0.01 per weighted average share.
(3)
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 and shares issued to acquire investments.
(4)
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, the return is not annualized.

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The following is a schedule of financial highlights for each of the five years in the period ended June 30, 2014:
 
Year Ended June 30,
 
2014
 
2013
 
2012
 
2011
 
2010
Per Share Data
 
 
 
 
 
 
 
 
 
Net asset value at beginning of year
$
10.72

 
$
10.83

 
$
10.36

 
$
10.30

 
$
12.40

Net investment income(1)
1.19

 
1.57

 
1.63

 
1.10

 
1.13

Net realized (losses) gains on investments(1)
(0.01
)
 
(0.13
)
 
0.32

 
0.19

 
(0.87
)
Net change in unrealized (depreciation) appreciation on investments(1)
(0.12
)
 
(0.37
)
 
(0.28
)
 
0.09

 
0.07

Dividends to shareholders
(1.32
)
 
(1.28
)
 
(1.22
)
 
(1.21
)
 
(1.33
)
Common stock transactions(2)
0.10

 
0.10

 
0.02

 
(0.11
)
 
(1.22
)
Fair value of equity issued for Patriot acquisition

 

 

 

 
0.12

Net asset value at end of year
$
10.56

 
$
10.72

 
$
10.83

 
$
10.36

 
$
10.30

 
 
 
 
 
 
 
 
 
 
Per share market value at end of year
$
10.63

 
$
10.80

 
$
11.39

 
$
10.11

 
$
9.65

Total return based on market value(3)
10.88
%
 
6.24
%
 
27.21
%
 
17.22
%
 
17.66
%
Total return based on net asset value(3)
10.97
%
 
10.91
%
 
18.03
%
 
12.54
%
 
(6.82
%)
Shares of common stock outstanding at end of year
342,626,637

 
247,836,965

 
139,633,870

 
107,606,690

 
69,086,862

Weighted average shares of common stock outstanding
300,283,941

 
207,069,971

 
114,394,554

 
85,978,757

 
59,429,222

 
 
 
 
 
 
 
 
 
 
Ratios/Supplemental Data
 

 
 

 
 

 
 

 
 

Net assets at end of year
$
3,618,182

 
$
2,656,494

 
$
1,511,974

 
$
1,114,357

 
$
711,424

Portfolio turnover rate
15.21
%
 
29.24
%
 
29.06
%
 
27.63
%
 
21.61
%
Annualized ratio of operating expenses to average net assets
11.11
%
 
11.50
%
 
10.73
%
 
8.47
%
 
7.54
%
Annualized ratio of net investment income to average net assets
11.18
%
 
14.86
%
 
14.92
%
 
10.60
%
 
10.69
%
(1)
Financial highlights are based on the weighted average number of common shares outstanding for the period presented (except for dividends to shareholders which is based on actual rate per share).
(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 and shares issued to acquire investments. The fair value of equity issued to acquire portfolio investments from Patriot has been presented separately for the year ended June 30, 2010.
(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.
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, 2015.
 
 
Investment Income
 
Net Investment Income
 
Net Realized and Unrealized Losses
 
Net Increase 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, 2012
 
$
123,636

 
$
0.76

 
$
74,027

 
$
0.46

 
$
(26,778
)
 
$
(0.17
)
 
$
47,249

 
$
0.29

December 31, 2012
 
166,035

 
0.85

 
99,216

 
0.51

 
(52,727
)
 
(0.27
)
 
46,489

 
0.24

March 31, 2013
 
120,195

 
0.53

 
59,585

 
0.26

 
(15,156
)
 
(0.07
)
 
44,429

 
0.20

June 30, 2013
 
166,470

 
0.68

 
92,096

 
0.38

 
(9,407
)
 
(0.04
)
 
82,689

 
0.34

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
September 30, 2013
 
161,034

 
0.62

 
82,337

 
0.32

 
(2,437
)
 
(0.01
)
 
79,900

 
0.31

December 31, 2013
 
178,090

 
0.62

 
92,215

 
0.32

 
(6,853
)
 
(0.02
)
 
85,362

 
0.30

March 31, 2014
 
190,327

 
0.60

 
98,523

 
0.31

 
(16,422
)
 
(0.05
)
 
82,101

 
0.26

June 30, 2014
 
182,840

 
0.54

 
84,148

 
0.25

 
(12,491
)
 
(0.04
)
 
71,657

 
0.21

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
September 30, 2014
 
202,021

 
0.59

 
94,463

 
0.28

 
(10,355
)
 
(0.04
)
 
84,108

 
0.24

December 31, 2014
 
198,883

 
0.56

 
91,325

 
0.26

 
(5,355
)
 
(0.02
)
 
85,970

 
0.24

March 31, 2015
 
191,350

 
0.53

 
87,441

 
0.24

 
(5,949
)
 
(0.01
)
 
81,492

 
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.

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Note 18. Subsequent Events
On April 2, 2015, we sold our $74,654 investment in American Broadband Holding Company. There was no gain or loss realized on the sale.
On April 8, 2015, we sold 60% of the outstanding principal balance of the senior secured Term Loan A investment in Trinity Services Group, Inc. for $59,253. There was no gain or loss realized on the sale.
On April 10, 2015, Sandow repaid the $24,425 loan receivable to us.
On April 10, 2015, we provided notice of our intent to redeem $100,000 aggregate principal amount of the 2022 Notes on May 15, 2015. We expect to recognize approximately $2,599 of realized loss as a result of the call.
On April 11, 2015, we announced the then current conversion rate on the 2020 Notes as 80.6670 shares of common stock per $1 principal amount of the 2020 Notes converted, which is equivalent to a conversion price of approximately $12.40.
On April 15, 2015, we provided $48,500 of first lien senior secured financing, of which $43,500 was funded at closing, to USG Intermediate, LLC, an entrepreneur-owned direct marketing company.
On April 16, 2015, we made a $10,000 second lien secured debt investment in SESAC Holdco II LLC, a performance rights organization based in Nashville, Tennessee.
On April 16, 2015, Ikaria, Inc. repaid the $20,000 loan receivable to us.
On April 16, 2015, we announced the then current conversion rate on the 2017 Notes as 87.7516 shares of common stock per $1 principal amount of the 2017 Notes converted, which is equivalent to a conversion price of approximately $11.40.
On April 23, 2015, we issued 131,971 shares of our common stock in connection with the dividend reinvestment plan.
During the period from April 1, 2015 through May 6, 2015, we made two follow-on investments in NPRC totaling $20,000 to support the online consumer lending initiative. We invested $5,500 of equity through NPH and $14,500 of debt directly to ACL Loan Holdings, Inc., a wholly-owned subsidiary of NPRC.
During the period from April 1, 2015 through May 6, 2015, our wholly-owned subsidiary PSBL purchased $13,779 of small business whole loans from OnDeck.
During the period from April 1, 2015 through May 6, 2015, we sold portions of two of our investments in syndicated debt totaling $20,500.
During the period from April 1, 2015 through May 6, 2015, we issued $25,045 aggregate principal amount of our Prospect Capital InterNotes® for net proceeds of $24,632. In addition, we sold $5,075 aggregate principal amount of our Prospect Capital InterNotes® for net proceeds of $4,991 with expected closing on May 7, 2015.
On May 6, 2015, we announced the declaration of monthly dividends in the following amounts and with the following dates:
$0.08333 per share for May 2015 to holders of record on May 29, 2015 with a payment date of June 18, 2015;
$0.08333 per share for June 2015 to holders of record on June 30, 2015 with a payment date of July 23, 2015;
$0.08333 per share for July 2015 to holders of record on July 31, 2015 with a payment date of August 20, 2015; and
$0.08333 per share for August 2015 to holders of record on August 31, 2015 with a payment date of September 17, 2015.

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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 could differ materially from those anticipated by such forward-looking information due to the factors discussed in Part II, “Item 1A. Risk Factors” and “Forward-Looking Statements” appearing elsewhere herein.
Overview
In this report, the terms “Prospect,” “we,” “us” and “our” mean Prospect Capital Corporation and its subsidiaries unless the context specifically requires otherwise.
We were organized on April 13, 2004 and were funded in an initial public offering completed on July 27, 2004. 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 invest primarily in senior and subordinated debt and equity of 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.
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”) and Direct Capital Corporation (“Direct Capital”). 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.
Effective July 1, 2014, we began consolidating certain of our wholly-owned and substantially wholly-owned holding companies formed by us in order to facilitate our investment strategy. The following companies have been included in our consolidated financial statements since July 1, 2014: AMU Holdings Inc.; APH Property Holdings, LLC; Arctic Oilfield Equipment USA, Inc.; CCPI Holdings Inc.; CP Holdings of Delaware LLC; Credit Central Holdings of Delaware, LLC; Energy Solutions Holdings Inc.; First Tower Holdings of Delaware LLC; Harbortouch Holdings of Delaware Inc.; MITY Holdings of Delaware Inc.; Nationwide Acceptance Holdings LLC; NMMB Holdings, Inc.; NPH Property Holdings, LLC; STI Holding, Inc.; UPH Property Holdings, LLC; Valley Electric Holdings I, Inc.; Valley Electric Holdings II, Inc.; and Wolf Energy Holdings Inc. 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. We collectively refer to these entities as the “Consolidated Holding Companies.”
We currently have nine origination strategies in which we make investments: (1) lending in private equity sponsored transactions, (2) lending directly to companies not owned by private equity firms, (3) control investments in corporate operating companies, (4) control investments in financial companies, (5) investments in structured credit, (6) real estate investments, (7) investments in syndicated debt, (8) aircraft leasing and (9) online lending. We continue to evaluate other origination strategies in the ordinary course of business with no specific tops-down allocation to any single origination strategy.
Lending in Private Equity Sponsored Transactions – We make loans to companies which are controlled by leading private equity firms. This debt can take the form of first lien, second lien, unitranche or unsecured loans. In making these investments, we look for a diversified customer base, recurring demand for the product or service, barriers to entry, strong historical cash flow and experienced management teams. These loans typically have significant equity subordinate to our loan position. Historically, this strategy has comprised approximately 50%-60% of our business, but more recently it is less than 50% of our business.

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Lending Directly to Companies – We provide debt financing to companies owned by non-private equity firms, the company founder, a management team or a family. Here, in addition to the strengths we look for in a sponsored transaction, we also look for the alignment with the management team with significant invested capital. This strategy often has less competition than the private equity sponsor strategy because such company financing needs are not easily addressed by banks and often require more diligence preparation. Direct lending can result in higher returns and lower leverage than sponsor transactions and may include warrants or equity to us. Historically, this strategy has comprised approximately 5%-15% of our business, but more recently it is less than 5% of our business.
Control Investments in Corporate Operating Companies – This strategy involves acquiring controlling stakes in non-financial operating companies. Our investments in these companies are generally structured as a combination of yield-producing debt and equity.  We provide certainty of closure to our counterparties, give the seller personal liquidity and generally look for management to continue on in their current roles. This strategy has comprised approximately 10%-15% of our business.
Control Investments in Financial Companies – This strategy involves acquiring controlling stakes in financial companies, including consumer direct lending, sub-prime auto lending and other strategies. Our investments in these companies are generally structured as a combination of yield-producing debt and equity. These investments are often structured in a tax-efficient RIC-compliant partnership, enhancing returns. This strategy has comprised approximately 5%-15% of our business.
Investments in Structured Credit – We make investments in CLOs, generally taking a significant position in the subordinated interests (equity) of the CLOs. The CLOs include a diversified portfolio of broadly syndicated loans and do not have direct exposure to real estate, mortgages, sub-prime debt or consumer based debt. The CLOs in which we invest are managed by top-tier collateral managers that have been thoroughly diligenced prior to investment. This strategy has comprised approximately 10%-20% of our business.
Real Estate Investments – We make investments in real estate through our three wholly-owned tax-efficient real estate investment trusts (“REITs”), American Property REIT Corp. (“APRC”), National Property REIT Corp. (“NPRC”) and United Property REIT Corp. (“UPRC” and collectively with APRC and NPRC, “our REITs”). Our real estate investments are in various classes of fully developed and occupied real estate properties that generate current yields. We seek to identify properties that have historically high occupancy and steady cash flow generation. Our REITs partner with established property managers with experience in managing the property type to manage such properties after acquisition. This is a more recent investment strategy that has comprised approximately 5%-10% of our business.
Investments in Syndicated Debt – On an opportunistic basis, we make investments in loans and high yield bonds that have been sold to a syndicate of buyers. Here we look for investments with attractive risk-adjusted returns after we have completed a fundamental credit analysis. These investments are purchased with a long term, buy-and-hold outlook and we look to provide significant structuring input by providing anchoring orders. This strategy has comprised approximately 5%-10% of our business.
Aircraft Leasing – We invest debt as well as equity in aircraft assets subject to commercial leases to credit-worthy airlines across the globe. These investments present attractive return opportunities due to cash flow consistency from long-lived assets coupled with hard asset collateral. We seek to deliver risk-adjusted returns with strong downside protection by analyzing relative value characteristics across the spectrum of aircraft types of all vintages. Our target portfolio includes both in-production and out-of-production jet and turboprop aircraft and engines, operated by airlines across the globe. This strategy comprised approximately 1.5% of our business in the fiscal year ended June 30, 2014 and approximately 1% as of March 31, 2015.
Online Lending – We make investments in loans originated by certain consumer loan and small and medium sized business (“SME”) originators. We purchase each loan in its entirety (i.e., a “whole loan”). The borrowers are consumers and SMEs. The loans are typically serviced by the originators of the loans. This strategy comprised approximately 1% of our business in the fiscal year ended June 30, 2014 and less than 3% as of March 31, 2015.
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.

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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 in the holding company, generally as equity, its equity investment in the operating company and along with any debt from us directly to the operating company structure represents our total exposure for the investment. As of March 31, 2015, as shown in our Consolidated Schedule of Investments, the cost basis and fair value of our investments in controlled companies was $1,792,504 and $1,828,211, respectively. This structure gives rise to several of the risks described in our public documents and highlighted in Part I, Item 1A of our Annual Report on Form 10-K for the year ended June 30, 2014. On July 1, 2014, we began consolidating all wholly-owned and substantially wholly-owned holding companies formed by us for the purpose of holding our controlled investments in operating companies. There were no significant effects 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.
We seek to be a long-term investor with our portfolio companies. The aggregate fair value of our portfolio investments was $6,602,771 and $6,253,739 as of March 31, 2015 and June 30, 2014, respectively. During the nine months ended March 31, 2015, our net cost of investments increased by $218,504, or 3.4%, as a result of the following: twelve new investments, several follow-on investments, and nine revolver advances totaling $1,612,536 (including structuring fees of $18,055); payment-in-kind interest of $16,485; net amortization of discounts and premiums of $64,200; and full repayments on ten investments, sale of ten investments, and several partial prepayments and amortization payments totaling $1,195,344, net of realized losses totaling $150,973.
Compared to the end of last fiscal year (ended June 30, 2014), net assets increased by $76,406, or 2.1%, during the nine months ended March 31, 2015, from $3,618,182 to $3,694,588. This increase resulted from the issuance of new shares of our common stock (less offering costs) in the amount of $145,500, dividend reinvestments of $11,199, and $251,570 from operations. These increases, in turn, were offset by $331,863 in dividend distributions to our stockholders. The $251,570 from operations is net of the following: net investment income of $273,229, net realized losses on investments of $150,973, net change in unrealized appreciation on investments of $130,528, and net realized losses on extinguishment of debt of $1,214.
Third Quarter Highlights
Investment Transactions
During the three months ended March 31, 2015, we acquired $3,000 of new investments, completed follow-on investments in existing portfolio companies totaling approximately $186,913, funded $23,000 of revolver advances, and recorded PIK interest of $6,198, resulting in gross investment originations of $219,111. During the three months ended March 31, 2015, we received full repayments on two investments and received several partial prepayments and amortization payments totaling $108,124, including realized gains totaling $4,704. The more significant of these transactions are discussed in “Portfolio Investment Activity.”
Revolving Credit Facility
On January 16, 2015, we increased total commitments to the 2014 Facility by $75,000. The lenders have extended total commitments of $885,000 as of March 31, 2015.
Debt Issuances and Redemptions
On January 30, 2015, we repurchased $8,000 aggregate principal amount of the 2020 Notes (as defined below) at a price of 93.0, including commissions. As a result of this transaction, we recorded a gain in the amount of the difference between the reacquisition price and the net carrying amount of the 2020 Notes, net of the proportionate amount of unamortized debt issuance costs. The net gain on extinguishment of debt we recorded in the three months ended March 31, 2015 was $342.
During the three months ended March 31, 2015, we redeemed $58,711 aggregate principal amount of our Prospect Capital InterNotes® at par with a weighted average interest rate of 6.12% and issued $53,178 aggregate principal amount of our Prospect Capital InterNotes® with stated interest rates ranging from 4.25% to 4.75% with a weighted average interest rate of 4.72% to reduce our borrowing cost. The newly issued notes mature between July 15, 2020 and September 15, 2020 and generated net proceeds of $52,301. During the three months ended March 31, 2015, we repaid $1,066 aggregate principal amount of our Prospect Capital InterNotes® at par in accordance with the Survivor’s Option, as defined in the InterNotes® Offering prospectus.
Equity Issuances
On January 22, 2015, February 19, 2015 and March 19, 2015, we issued 151,538, 146,186 and 113,596 shares of our common stock in connection with the dividend reinvestment plan, respectively.

123


Spin-Offs of Certain Business Strategies
On November 6, 2014, we announced that we intend to spin off certain “pure play” business strategies to our shareholders. We initially intend on focusing our spin-off efforts on three separate companies consisting of portions of our (i) CLO structured credit business, (ii) online consumer lending business, and (iii) real estate business. The size and likelihood of such spin-offs, which may be partial rather than complete spin-offs, remain to be determined. We may seek to file non-registered investment company spin-offs with confidential treatment with parallel registration progress to be made in the coming weeks toward the goal of consummating these initial spin-offs in mid-2015. The consummation of any of the spin-offs depends upon, among other things: market conditions, regulatory and exchange listing approval, and sufficient investor interest, and there can be no guarantee that we will consummate any of these spin-offs.
On March 11, 2015, Prospect Yield Corporation, LLC, our wholly-owned subsidiary, filed a registration statement with the SEC in connection with our rights offering disposition of a portion of our CLO structured credit business. We are a selling stockholder under the registration statement. We seek but cannot guarantee consummation of this disposition, which is subject to regulatory review, in the next several months of calendar year 2015.
On May 6, 2015, Prospect Finance Company, LLC, our indirect wholly-owned subsidiary, filed a confidential registration statement with the SEC in connection with our rights offering disposition of our online consumer lending business. We are a selling stockholder under the registration statement. We seek but cannot guarantee consummation of this disposition, which is subject to regulatory review, in the next several months of calendar year 2015.
Prospect Realty Income Trust Corp., our wholly-owned subsidiary, expects to file a confidential registration statement with the SEC in connection with our rights offering disposition of a portion of our real estate business imminently.
Investment Holdings
As of March 31, 2015, we continue to pursue our investment strategy. At March 31, 2015, approximately $6,602,771, or 178.7%, of our net assets are invested in 132 long-term portfolio investments and CLOs.
During the nine months ended March 31, 2015, we originated $1,629,021 of new investments, primarily composed of $1,188,116 of debt and equity financing to non-controlled investments, $299,738 of debt and equity financing to controlled investments, and $141,167 of subordinated notes in CLOs. 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 12.1% and 12.4% as of June 30, 2014 and March 31, 2015, respectively, across all performing interest bearing investments. The increase in our current yield is primarily the result of an increase in the interest rate for First Tower, LLC and increased investments in small business whole loans. 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 March 31, 2015, we own controlling interests in the following portfolio companies: American Property REIT Corp.; Arctic Energy Services, LLC; CCPI Inc.; CP Energy Services Inc.; Credit Central Loan Company, LLC; Echelon Aviation LLC; First Tower Finance Company LLC; Freedom Marine Solutions, LLC; Gulf Coast Machine & Supply Company; Harbortouch Payments, LLC; MITY, Inc.; National Property REIT Corp.; Nationwide Acceptance LLC; NMMB, Inc.; R-V Industries, Inc.; United Property REIT Corp.; Valley Electric Company, Inc.; Vets Securing America, Inc.; and Wolf Energy, LLC. We also own an affiliated interest in BNN Holdings Corp.

124


The following shows the composition of our investment portfolio by level of control as of March 31, 2015 and June 30, 2014:
 
March 31, 2015
 
June 30, 2014
Level of Control
Cost
% of Portfolio
Fair Value
% of Portfolio
 
Cost
% of Portfolio
Fair Value
% of Portfolio
Control Investments
$
1,792,504

27.2
%
$
1,828,211

27.7
%
 
$
1,719,242

27.0
%
$
1,640,454

26.2
%
Affiliate Investments
45,370

0.7
%
46,273

0.7
%
 
31,829

0.5
%
32,121

0.5
%
Non-Control/Non-Affiliate Investments
4,752,152

72.1
%
4,728,287

71.6
%
 
4,620,451

72.5
%
4,581,164

73.3
%
Total Investments
$
6,590,026

100.0
%
$
6,602,771

100.0
%
 
$
6,371,522

100.0
%
$
6,253,739

100.0
%
The following shows the composition of our investment portfolio by type of investment as of March 31, 2015 and June 30, 2014:
 
March 31, 2015
 
June 30, 2014
Type of Investment
Cost
% of Portfolio
Fair Value
% of Portfolio
 
Cost
% of Portfolio
Fair Value
% of Portfolio
Revolving Line of Credit
$
11,850

0.2
%
$
11,850

0.2
%
 
$
3,445

0.1
%
$
2,786

%
Senior Secured Debt
3,718,150

56.4
%
3,657,943

55.4
%
 
3,578,339

56.2
%
3,514,198

56.2
%
Subordinated Secured Debt
1,320,511

20.0
%
1,283,682

19.4
%
 
1,272,275

20.0
%
1,200,221

19.2
%
Subordinated Unsecured Debt
94,353

1.4
%
94,353

1.4
%
 
85,531

1.3
%
85,531

1.4
%
Small Business Loans
40,320

0.6
%
38,290

0.6
%
 
4,637

0.1
%
4,252

0.1
%
CLO Debt
28,485

0.4
%
32,958

0.5
%
 
28,118

0.4
%
33,199

0.5
%
CLO Residual Interest
1,019,332

15.5
%
1,061,992

16.1
%
 
1,044,656

16.4
%
1,093,985

17.5
%
Preferred Stock
42,694

0.7
%
5,625

0.1
%
 
80,096

1.3
%
10,696

0.2
%
Common Stock
288,101

4.4
%
342,863

5.2
%
 
84,768

1.3
%
80,153

1.3
%
Membership Interest
18,668

0.3
%
18,251

0.3
%
 
187,384

2.9
%
217,763

3.5
%
Participating Interest(1)

%
46,196

0.7
%
 

%
213

%
Escrow Receivable
5,880

0.1
%
5,727

0.1
%
 

%
1,589

%
Warrants
1,682

%
3,041

%
 
2,273

%
9,153

0.1
%
Total Investments
$
6,590,026

100.0
%
$
6,602,771

100.0
%
 
$
6,371,522

100.0
%
$
6,253,739

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.

125


The following shows our investments in interest bearing securities by type of investment as of March 31, 2015 and June 30, 2014:
 
March 31, 2015
 
June 30, 2014
Type of Investment
Cost
% of Portfolio
Fair Value
% of Portfolio
 
Cost
% of Portfolio
Fair Value
% of Portfolio
First Lien
$
3,730,000

59.8
%
$
3,669,793

59.4
%
 
$
3,581,784

59.5
%
$
3,516,984

59.3
%
Second Lien
1,320,511

21.2
%
1,283,682

20.8
%
 
1,272,275

21.1
%
1,200,221

20.2
%
Unsecured
94,353

1.5
%
94,353

1.5
%
 
85,531

1.4
%
85,531

1.4
%
Small Business Loans
40,320

0.6
%
38,290

0.6
%
 
4,637

0.1
%
4,252

0.1
%
CLO Debt
28,485

0.5
%
32,958

0.5
%
 
28,118

0.5
%
33,199

0.6
%
CLO Residual Interest
1,019,332

16.4
%
1,061,992

17.2
%
 
1,044,656

17.4
%
1,093,985

18.4
%
Total Debt Investments
$
6,233,001

100.0
%
$
6,181,068

100.0
%
 
$
6,017,001

100.0
%
$
5,934,172

100.0
%
The following shows the composition of our investment portfolio by geographic location as of March 31, 2015 and June 30, 2014:
 
March 31, 2015
 
June 30, 2014
Geographic Location
Cost
% of Portfolio
Fair Value
% of Portfolio
 
Cost
% of Portfolio
Fair Value
% of Portfolio
Canada
$
15,000

0.2
%
$
15,000

0.2
%
 
$
15,000

0.2
%
$
15,000

0.2
%
Cayman Islands
1,047,817

15.9
%
1,094,950

16.6
%
 
1,072,774

16.8
%
1,127,184

18.0
%
France
10,131

0.2
%
10,145

0.2
%
 
10,170

0.2
%
10,339

0.2
%
Midwest US
732,180

11.1
%
717,274

10.9
%
 
787,482

12.4
%
753,543

12.0
%
Northeast US
1,125,919

17.1
%
1,148,888

17.4
%
 
1,224,403

19.2
%
1,181,533

18.9
%
Puerto Rico
41,010

0.6
%
37,690

0.5
%
 
41,307

0.7
%
36,452

0.6
%
Southeast US
1,600,872

24.3
%
1,635,214

24.8
%
 
1,491,554

23.4
%
1,461,516

23.4
%
Southwest US
1,026,164

15.6
%
983,981

14.9
%
 
759,630

11.9
%
737,271

11.8
%
Western US
990,933

15.0
%
959,629

14.5
%
 
969,202

15.2
%
930,901

14.9
%
Total Investments
$
6,590,026

100.0
%
$
6,602,771

100.0
%
 
$
6,371,522

100.0
%
$
6,253,739

100.0
%

126


The following shows the composition of our investment portfolio by industry as of March 31, 2015 and June 30, 2014:
 
March 31, 2015
 
June 30, 2014
Industry
Cost
% of Portfolio
Fair Value
% of Portfolio
 
Cost
% of Portfolio
Fair Value
% of Portfolio
Aerospace & Defense
$
70,846

1.1
%
$
79,086

1.2
%
 
$
102,803

1.6
%
$
102,967

1.6
%
Auto Finance

%

%
 
11,139

0.2
%
11,139

0.2
%
Automobile
12,381

0.2
%
12,500

0.2
%
 
22,296

0.4
%
22,452

0.4
%
Business Services
643,827

9.8
%
672,820

10.2
%
 
598,940

9.4
%
611,286

9.8
%
Chemicals
19,695

0.3
%
20,000

0.3
%
 
19,648

0.3
%
19,713

0.3
%
Commercial Services
199,171

3.0
%
188,010

2.8
%
 
301,610

4.7
%
301,610

4.8
%
Construction & Engineering
58,314

0.9
%
32,110

0.5
%
 
56,860

0.9
%
33,556

0.5
%
Consumer Finance
424,522

6.4
%
468,142

7.1
%
 
425,497

6.7
%
434,348

6.9
%
Consumer Services
201,433

3.1
%
178,329

2.7
%
 
502,862

7.9
%
504,647

8.1
%
Contracting
3,831

0.1
%

%
 
3,831

0.1
%

%
Diversified Financial Services(1)
162,210

2.5
%
159,834

2.4
%
 
42,574

0.7
%
42,189

0.7
%
Durable Consumer Products
378,452

5.7
%
373,074

5.7
%
 
377,205

5.9
%
375,329

6.0
%
Energy
67,859

1.0
%
56,554

0.9
%
 
77,379

1.2
%
67,637

1.1
%
Food Products
373,975

5.7
%
372,411

5.6
%
 
173,375

2.7
%
174,603

2.8
%
Healthcare
413,450

6.3
%
412,618

6.3
%
 
329,408

5.2
%
326,142

5.2
%
Hotels, Restaurants & Leisure
177,441

2.7
%
177,441

2.7
%
 
132,193

2.1
%
132,401

2.1
%
Machinery
396

%
621

%
 
396

%
621

%
Manufacturing
160,249

2.4
%
126,709

1.9
%
 
204,394

3.2
%
171,577

2.7
%
Media
372,086

5.6
%
358,069

5.4
%
 
362,738

5.7
%
344,278

5.5
%
Metal Services & Minerals
48,412

0.7
%
47,809

0.7
%
 
48,402

0.8
%
51,977

0.8
%
Oil & Gas Production
231,101

3.5
%
213,594

3.2
%
 
283,490

4.4
%
248,494

4.0
%
Personal & Nondurable Consumer Products
210,284

3.2
%
206,136

3.1
%
 
10,604

0.2
%
11,034

0.2
%
Pharmaceuticals
76,794

1.2
%
76,594

1.2
%
 
78,069

1.2
%
73,690

1.2
%
Property Management
5,880

0.1
%
3,752

0.1
%
 
57,500

0.9
%
45,284

0.7
%
Real Estate
581,106

8.8
%
627,235

9.5
%
 
353,506

5.5
%
355,236

5.7
%
Retail
63

%
150

%
 
14,231

0.2
%
14,625

0.2
%
Software & Computer Services
243,978

3.7
%
243,839

3.7
%
 
240,469

3.8
%
241,260

3.9
%
Telecommunication Services
79,226

1.2
%
79,249

1.2
%
 
79,630

1.2
%
79,654

1.3
%
Textiles, Apparel & Luxury Goods
253,675

3.8
%
253,675

3.8
%
 
275,023

4.3
%
259,690

4.2
%
Transportation
71,552

1.1
%
67,460

1.0
%
 
112,676

1.8
%
69,116

1.1
%
Subtotal
$
5,542,209

84.1
%
$
5,507,821

83.4
%
 
$
5,298,748

83.2
%
$
5,126,555

82.0
%
CLO Investments(1)
1,047,817

15.9
%
1,094,950

16.6
%
 
1,072,774

16.8
%
1,127,184

18.0
%
Total Investments
$
6,590,026

100.0
%
$
6,602,771

100.0
%
 
$
6,371,522

100.0
%
$
6,253,739

100.0
%
(1)
Although designated as Diversified Financial Services within our Schedules of Investments in Item 1 of this report, our CLO investments do not have industry concentrations and as such have been separated in the table above.

127


Portfolio Investment Activity
During the nine months ended March 31, 2015, we acquired $671,970 of new investments, completed follow-on investments in existing portfolio companies totaling approximately $902,066, funded $38,500 of revolver advances, and recorded PIK interest of $16,485, resulting in gross investment originations of $1,629,021. The more significant of these transactions are briefly described below.
On July 17, 2014, we restructured our investments in BXC Company, Inc. (“BXC”) and Boxercraft Incorporated (“Boxercraft”), a wholly-owned subsidiary of BXC. The existing Senior Secured Term Loan A and a portion of the existing Senior Secured Term Loan B were replaced with a new Senior Secured Term Loan A to Boxercraft. The remainder of the existing Senior Secured Term Loan B and the existing Senior Secured Term Loan C, Senior Secured Term Loan D, and Senior Secured Term Loan E were replaced with a new Senior Secured Term Loan B to Boxercraft. The existing Senior Secured Term Loan to Boxercraft was converted into Series D Preferred Stock in BXC.
On August 5, 2014, we made an investment of $39,105 to purchase 70.94% of the subordinated notes in CIFC Funding 2014-IV Investor, Ltd. in a co-investment transaction with Priority Income Fund, Inc., a closed-end fund managed by an affiliate of Prospect Capital Management L.P. (the “Investment Adviser”).
On August 13, 2014, we provided $210,000 of first lien senior secured financing, of which $200,000 was funded at closing, to support the recapitalization of Trinity Services Group, Inc. (“Trinity”), a leading food services company in the H.I.G. Capital portfolio. We invested $100,000 in Term Loan A notes and $100,000 in Term Loan B notes. The Term Loan A bears interest in cash at the greater of 6.5% or LIBOR plus 5.5% and has a final maturity of August 13, 2019. The Term Loan B bears interest in cash at the greater of 11.5% or LIBOR plus 10.5% and has a final maturity of August 13, 2019. The $10,000 senior secured revolver, which was unfunded at closing, bears interest in cash at the greater of 9.0% or LIBOR plus 8.0% and had an original final maturity of February 13, 2015, which was extended to April 13, 2015.
On August 19, 2014 and August 27, 2014, we made a combined $10,670 follow-on investment in UPRC to acquire Michigan Storage, LLC, a portfolio of seven self-storage facilities located in Michigan. We invested $1,281 of equity through UPH Property Holdings, LLC and $9,389 of debt directly to UPRC. The senior secured term loan bears interest in cash at the greater of 6.0% or LIBOR plus 4.0% and interest payment in kind of 5.5% and has a final maturity of April 1, 2019. These properties were subsequently contributed to NPRC.
On August 29, 2014, we made a first lien senior secured investment of $44,000 to support the recapitalization of BNN Holdings Corp. (“Biotronic”). We invested an equal amount in Term Loan A notes and Term Loan B notes. The Term Loan A bears interest in cash at the greater of 6.5% or LIBOR plus 5.5% and has a final maturity of August 29, 2019. The Term Loan B bears interest in cash at the greater of 11.5% or LIBOR plus 10.5% and has a final maturity of August 29, 2019. As part of the recapitalization, we received repayment of the $28,950 loan previously outstanding.
On September 10, 2014, we made a $55,869 follow-on first lien senior secured debt investment in Onyx Payments (“Onyx”), of which $50,869 was funded at closing, to fund an acquisition. We invested an additional $25,028 in Term Loan A notes and $25,841 in Term Loan B notes. The Term Loan A bears interest in cash at the greater of 6.5% or LIBOR plus 5.5% and has a final maturity of September 10, 2019. The Term Loan B bears interest in cash at the greater of 13.5% or LIBOR plus 12.5% and has a final maturity of September 10, 2019. The $5,000 senior secured revolver, which was unfunded at closing, originally bore interest in cash at the greater of 9.0% or LIBOR plus 7.75%. Effective November 25, 2014, the terms of the revolver changed to the greater of 9.0% or LIBOR plus 8.0%. The revolver has a final maturity of September 10, 2015.
On September 26, 2014, we provided $215,000 of first lien senior secured financing, of which $202,500 was funded at closing, to Pacific World Corporation (“Pacific World”), a supplier of nail and beauty care products to food, drug, mass, and value retail channels worldwide. The $200,000 term loan originally bore interest in cash at the greater of 8.0% or LIBOR plus 7.0%. On December 31, 2014, the outstanding $200,000 term loan was split into equal tranches of Term Loan A notes and Term Loan B notes. The Term Loan A bears interest in cash at the greater of 6.0% or LIBOR plus 5.0% and has a final maturity of September 26, 2020. The Term Loan B bears interest in cash at the greater of 10.0% or LIBOR plus 9.0% and has a final maturity of September 26, 2020. The $15,000 senior secured revolver, of which $2,500 was funded at closing, bears interest in cash at the greater of 8.0% or LIBOR plus 7.0% and has a final maturity of September 26, 2020.
On September 29, 2014, we made a second lien secured investment of $144,000 to support the recapitalization of PGX Holdings, Inc. (“Progrexion”). The second lien term loan bears interest in cash at the greater of 10.0% or LIBOR plus 9.0% and has a final maturity of September 29, 2021. As part of the recapitalization, we received repayment of the $436,647 loan previously outstanding.

128


On September 29, 2014, we made a $22,618 follow-on investment in UPRC to acquire Canterbury Green Apartments Holdings, LLC, a multi-family property located in Fort Wayne, Indiana. We invested $3,393 of equity through UPH and $19,225 of debt directly to UPRC. The senior secured term loan bears interest in cash at the greater of 6.0% or LIBOR plus 4.0% and interest payment in kind of 5.5% and has a final maturity of April 1, 2019.
On September 30, 2014, we made a $26,431 follow-on first lien senior secured debt investment in Harbortouch Payments, LLC (“Harbortouch”) to support an acquisition. The Term Loan C bears interest in cash at the greater of 13.0% or LIBOR plus 9.0% and has a final maturity of September 29, 2018.
On September 30, 2014, we made a $42,200 follow-on first lien senior secured debt investment in PrimeSport, Inc. (“PrimeSport”) to fund a dividend recapitalization. We invested an equal amount in Term Loan A notes and Term Loan B notes. The Term Loan A originally bore interest in cash at the greater of 7.5% or LIBOR plus 6.5% and had a final maturity of December 23, 2019. Effective February 11, 2015, we amended the terms of this investment to the greater of 7.0% or LIBOR plus 6.0% and extended the final maturity to February 11, 2021. The Term Loan B originally bore interest in cash at the greater of 11.5% or LIBOR plus 10.5% and interest payment in kind of 1.0% and had a final maturity of December 23, 2019. Effective November 1, 2014, we amended the terms of this investment to the greater of 12.0% or LIBOR plus 11.0%, and on February 11, 2015, we extended the final maturity to February 11, 2021.
On September 30, 2014 and October 29, 2014, we made a combined $22,688 follow-on investment in UPRC to acquire Columbus OH Apartment Holdco, LLC, a portfolio of eight multi-family residential properties located in Ohio. We invested $3,398 of equity through UPH and $19,290 of debt directly to UPRC. The senior secured term loan bears interest in cash at the greater of 6.0% or LIBOR plus 4.0% and interest payment in kind of 5.5% and has a final maturity of April 1, 2019.
On October 6, 2014, we made a $35,221 follow-on first lien senior secured debt investment in Onyx to fund an acquisition. We invested an equal amount in Term Loan A notes and Term Loan B notes. The Term Loan A bears interest in cash at the greater of 6.5% or LIBOR plus 5.5% and has a final maturity of September 10, 2019. The Term Loan B bears interest in cash at the greater of 13.5% or LIBOR plus 12.5% and has a final maturity of September 10, 2019.
On October 8, 2014, we made a $65,000 second lien secured debt investment in Capstone Logistics Acquisition, Inc., a logistics services portfolio company. The second lien term loan bears interest in cash at the greater of 8.75% or LIBOR plus 7.75% and has a final maturity of October 7, 2022.
On October 9, 2014, we made an investment of $50,743 to purchase 83.60% of the subordinated notes in Babson CLO Ltd. 2014-III in a co-investment transaction with Priority Income Fund, Inc.
On October 17, 2104, we made an investment of $48,994 to purchase 90.54% of the subordinated notes in Symphony CLO XV, Ltd.
On October 21, 2014, we made a $22,500 first lien senior secured debt investment in Hollander Sleep Products, LLC, a manufacturer of bed pillows and mattress pads in the United States. The first lien term loan bears interest in cash at the greater of 9.0% or LIBOR plus 8.0% and has a final maturity of October 21, 2020.
On November 17, 2014, we made a $35,000 follow-on first lien senior secured debt investment in System One Holdings, LLC, of which $23,500 was funded at closing, to fund a dividend recapitalization. We invested an additional $23,500 of first lien term loan which bears interest in cash at the greater of 10.5% or LIBOR plus 9.5% and has a final maturity of November 17, 2020. We also provided $11,500 of delayed draw term loan commitment to support a future dividend recapitalization. The delayed draw term loan, which was unfunded at closing, would increase the existing first lien term loan and bear the same terms and conditions as the initial loan, if drawn.
On November 25, 2014, we made a $127,000 follow-on first lien senior secured debt investment in InterDent, Inc. (“InterDent”), of which $120,000 was funded at closing, as part of an add-on acquisition growth and recapitalization strategy. We invested an additional $60,000 in Term Loan A notes and $60,000 in Term Loan B notes. The Term Loan A bears interest in cash at the greater of 6.25% or LIBOR plus 5.25% and has a final maturity of August 3, 2017. The Term Loan B bears interest in cash at the greater of 11.25% or LIBOR plus 10.25% and has a final maturity of August 3, 2017. We also provided $7,000 of delayed draw term loan commitment to support future acquisitions. The delayed draw term loan, which was unfunded at closing, was fully drawn on December 23, 2014, increasing the existing Term Loan A and Term Loan B on a pro rata basis and bearing the same terms and conditions as the initial loans.

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On December 19, 2014, we provided a $25,000 loan to support the growth of Security Alarm Financing Enterprises, L.P., a national security alarm company. The senior subordinated note bears interest in cash at the greater of 11.5% or LIBOR plus 9.5% and has a final maturity of December 19, 2020.
On January 16, 2015, we made a $13,871 follow-on investment in NPRC to acquire five additional properties in Michigan Storage, LLC, a portfolio of twelve self-storage facilities located in Michigan. We invested $2,061 of equity through NPH Property Holdings, LLC and $11,810 of debt directly to NPRC. The senior secured term loan bears interest in cash at the greater of 6.0% or LIBOR plus 4.0% and interest payment in kind of 5.5% and has a final maturity of April 1, 2019.
On February 11, 2015, we made a $20,268 follow-on first lien senior secured debt investment in PrimeSport to support its acquisition by a new financial sponsor. We invested an additional $10,680 in Term Loan A notes and $9,588 in Term Loan B notes.The Term Loan A bears interest in cash at the greater of 7.0% or LIBOR plus 6.0% and has a final maturity of February 11, 2021. The Term Loan B bears interest in cash at the greater of 12.0% or LIBOR plus 11.0% and has a final maturity of February 11, 2021.
On March 30, 2015, we made a $74,700 follow-on first lien senior secured debt investment in Instant Web, LLC (“IWCO”), of which $58,700 was funded at closing, to support a recapitalization of the business. We invested an additional $22,100 in Term Loan A notes, $22,100 in Term Loan B notes, and $14,500 in Term Loan C notes. The Term Loan A bears interest in cash at the greater of 5.5% or LIBOR plus 4.5% and has a final maturity of March 28, 2019. The Term Loan B bears interest in cash at the greater of 12.0% or LIBOR plus 11.0% and has a final maturity of March 28, 2019. The Term Loan C bears interest in cash at the greater of 12.75% or LIBOR plus 11.75% and has a final maturity of March 28, 2019. We also provided $16,000 of delayed draw term loan commitment to support a future dividend recapitalization. The delayed draw term loan, which was unfunded at closing, would increase the existing Term Loan A and Term Loan B on a pro rata basis and bear the same terms and conditions as the initial loans, if drawn.
In addition to the purchases noted above, during the nine months ended March 31, 2015, we made twenty-nine follow-on investments in NPRC totaling $174,500 to support the online consumer lending initiative. We invested $39,425 of equity through NPH Property Holdings, LLC and $135,075 of debt directly to NPRC and its wholly-owned subsidiaries.
Additionally, during the nine months ended March 31, 2015, our wholly-owned subsidiary PSBL purchased $62,154 of small business whole loans from OnDeck and Direct Capital.
During the nine months ended March 31, 2015, we received full repayments on ten investments, sold ten investments, and received several partial prepayments and amortization payments totaling $1,195,344, net of realized losses totaling $150,973. The more significant of these transactions are briefly described below.
On July 22, 2014, Injured Workers Pharmacy, LLC repaid the $22,678 loan receivable to us.
On July 23, 2014, Correctional Healthcare Holding Company, Inc. repaid the $27,100 loan receivable to us.
On July 28, 2014, Tectum Holdings, Inc. repaid the $10,000 loan receivable to us.
On August 1, 2014, we sold our investments in Airmall Inc. (“Airmall”) for net proceeds of $51,379 and realized a loss of $3,473 on the sale. In addition, there is $6,000 being held in escrow, of which 98% is due to Prospect, which will be recognized as an additional realized loss if it is not received. On October 22, 2014, we received a tax refund of $665 related to our investment in Airmall for which we realized a gain of the same amount.
On August 20, 2014, we sold the assets of Borga, Inc. (“Borga”), a wholly-owned subsidiary of STI Holding, Inc., for net proceeds of $382 and realized a loss of $2,589 on the sale. On December 29, 2014, Borga was dissolved.
On August 22, 2014, Byrider Systems Acquisition Corp. repaid the $11,177 loan receivable to us.
On August 22, 2014, Capstone Logistics, LLC repaid the $189,941 loans receivable to us.
On August 22, 2014, TriMark USA, LLC repaid the $10,000 loan receivable to us.
On August 25, 2014, we sold Boxercraft, a wholly-owned subsidiary of BXC, for net proceeds of $750 and realized a net loss of $16,949 on the sale.
On September 15, 2014, Echelon Aviation LLC (“Echelon”) repaid $37,313 of the $78,121 loan receivable to us.

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On October 3, 2014, we sold our $35,000 investment in Babson CLO Ltd. 2011-I and realized a loss of $6,410 on the sale.
On October 7, 2014, Grocery Outlet, Inc. repaid the $14,457 loan receivable to us.
On October 10, 2014, ARRM Services, Inc. (“ARRM”) sold Ajax Rolled Ring & Machine, LLC (“Ajax”) to a third party and repaid the $19,337 loan receivable to us and we recorded a realized loss of $23,560 related to the sale. Concurrent with the sale, 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. In addition, there is $3,000 being held in escrow which will be recognized as additional gain if and when received.
On October 20, 2014, we sold our $22,000 investment in Galaxy XII CLO, Ltd. and realized a loss of $2,435 on the sale.
On December 4, 2014, we sold our $29,075 investment in Babson CLO Ltd. 2012-I and realized a loss of $3,767 on the sale.
On December 4, 2014, we sold our $27,850 investment in Babson CLO Ltd. 2012-II and realized a loss of $2,949 on the sale.
On December 24, 2014, Focus Products Group International, LLC repaid the $19,745 loan receivable to us.
On February 13, 2015, CRT MIDCO, LLC repaid the $46,754 loan receivable to us.
In addition to the repayments noted above, during the nine months ended March 31, 2015, we received partial repayments of $31,365 of the NPRC loan previously outstanding and $5,577 as a return of capital on the equity investment in NPRC.
The following table provides a summary of our investment activity for each quarter within the three years ending June 30, 2015:
Quarter Ended
 
Acquisitions(1)
 
Dispositions(2)
September 30, 2012
 
$
747,937

 
$
158,123

December 31, 2012
 
772,125

 
349,269

March 31, 2013
 
784,395

 
102,527

June 30, 2013
 
798,760

 
321,615

 
 
 
 
 
September 30, 2013
 
556,843

 
164,167

December 31, 2013
 
608,153

 
255,238

March 31, 2014
 
1,343,256

 
197,947

June 30, 2014
 
444,104

 
169,617

 
 
 
 
 
September 30, 2014
 
887,205

 
863,144

December 31, 2014
 
522,705

 
224,076

March 31, 2015
 
219,111

 
108,124

(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 fair value of our portfolio investments at March 31, 2015, the Audit Committee considered valuations from the independent valuation firms and from management having an aggregate range of $6,339,186 to $6,744,849, excluding money market investments.
In determining the range of value for debt instruments except CLOs, management and the independent valuation firm generally estimate corporate and security credit ratings and identify corresponding yields to maturity for each loan from relevant market data. A discounted cash flow analysis was then prepared using the appropriate yield to maturity as the discount rate, to determine range of value. For non-traded equity investments, the enterprise value was determined by applying EBITDA multiples or book value multiples for similar guideline public companies and/or similar recent investment transactions. For stressed equity investments, a liquidation analysis was prepared.
In determining the range of value for our investments in CLOs, management and the independent valuation firm used a discounted 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. For each CLO security, the most appropriate valuation approach was chosen from alternative approaches to ensure the most accurate valuation for such security. A waterfall

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engine is used to store the collateral data, generate collateral cash flows from the assets based on various assumptions for the risk factors, and distribute the cash flows to the liability structure based on the payment priorities, and discount them back using proper discount rates.
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 analyses, applied to each investment, was a total valuation of $6,602,771.
Our portfolio companies are generally lower middle market companies, outside of the financial sector, with less than $150,000 of annual EBITDA. We believe our market has experienced less volatility than others because we believe there are more buy and hold investors who own these less liquid investments.
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. Transactions between our controlled investments and us have been detailed in Note 14 to the accompanying consolidated financial statements. Several control investments in our portfolio are under enhanced scrutiny by our senior management and our Board of Directors and are discussed below.
American Property REIT Corp.
APRC is a Maryland corporation and a qualified REIT for federal income tax purposes. APRC 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. APRC acquires real estate assets, including, but not limited to, industrial, commercial, and multi-family properties. APRC may acquire real estate assets directly or through joint ventures by making a majority equity investment in a property-owning entity. As of March 31, 2015, we own 100% of the fully-diluted common equity of APRC.
During the nine months ended March 31, 2015, we did not provide any additional financing to APRC for the acquisition of real estate properties. On November 26, 2014, APRC transferred its investment in one property to NPRC. As a result, our investment in APRC related to this property also transferred to NPRC. The investment transferred consisted of $10,237 of equity and $65,586 of debt. There was no gain or loss realized on the transaction. In addition, during the nine months ended March 31, 2015, we received $8 as a return of capital on the equity investment in APRC. As of March 31, 2015, our investment in APRC had an amortized cost of $131,455 and a fair value of $143,516.
As of March 31, 2015, APRC’s real estate portfolio was comprised of thirteen multi-family properties and one commercial property. The following table shows the location, acquisition date, purchase price, and mortgage outstanding due to other parties for each of the properties held by APRC as of March 31, 2015.
No.
 
Property Name
 
City
 
Acquisition
Date
 
Purchase
Price
 
Mortgage
Outstanding
1
 
1557 Terrell Mill Road, LLC
 
Marietta, GA
 
12/28/2012
 
$
23,500

 
$
15,229

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

 
39,600

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

 
16,965

4
 
Vista Palma Sola, LLC
 
Bradenton, FL
 
4/30/2013
 
27,000

 
17,550

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

 
9,650

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

 
9,026

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

 
11,488

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

 
19,400

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

 
13,622

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

 
11,817

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

 
10,205

12
 
Plantations at Hillcrest, LLC
 
Mobile, AL
 
1/17/2014
 
6,930

 
4,993

13
 
Crestview at Cordova, LLC
 
Pensacola, FL
 
1/17/2014
 
8,500

 
4,972

14
 
Taco Bell, OK
 
Yukon, OK
 
6/4/2014
 
1,719

 

 
 
 
 
 
 
 
 
$
287,099

 
$
184,517


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Due to an increase in same property values driven by an increase in net operating income and a decrease in observed market capitalization rates for the properties, the Board of Directors increased the fair value of our investment in APRC to $143,516 as of March 31, 2015, a premium of $12,061 to its amortized cost, compared to the $3,392 unrealized appreciation recorded at June 30, 2014.
First Tower Finance Company LLC
We own 80.1% of First Tower Finance Company LLC (“First Tower Finance”), which owns 100% of First Tower, LLC (“First Tower”), the operating company. First Tower is a multiline specialty finance company based in Flowood, Mississippi with over 170 branch offices.
On June 15, 2012, we acquired 80.1% of First Tower businesses for $110,200 in cash and 14,518,207 unregistered shares of our common stock. Based on our share price of $11.06 at the time of issuance, we acquired our 80.1% interest in First Tower for approximately $270,771. The assets of First Tower acquired include, among other things, the subsidiaries owned by First Tower, which hold finance receivables, leaseholds, and tangible property associated with First Tower’s businesses. As part of the transaction, we received $4,038 in structuring fee income from First Tower. On October 18, 2012, we funded an additional $20,000 of senior secured debt to support seasonally high demand during the holiday season. On December 30, 2013, we funded an additional $10,000 to again support seasonal demand and received $8,000 of structuring fees related to the renegotiation and expansion of First Tower’s revolver with a third party which was recognized as other income. As of March 31, 2015, First Tower had total assets of approximately $608,732 including $395,891 of finance receivables net of unearned charges. As of March 31, 2015, First Tower’s total debt outstanding to parties senior to us was $264,432.
Due to First Tower’s maintained positive momentum driven by strong volumes and historically low delinquencies, the Board of Directors increased the fair value of our investment in First Tower Finance to $355,130 as of March 31, 2015, a premium of $37,411 to its amortized cost, compared to the $7,134 unrealized appreciation recorded at June 30, 2014.
Harbortouch Payments, LLC
Harbortouch is a merchant processor headquartered in Allentown, Pennsylvania. The company offers a range of payment processing equipment and services that facilitate the exchange of goods and services provided by small to medium-sized merchants located in the United States for payments made by credit, debit, prepaid, electronic gift, and loyalty cards. Harbortouch provides point-of-sale equipment free of cost to merchants and then manages the process whereby transaction information is sent to a consumer’s bank from the point-of-sale (front-end processing), and then funds are transferred from the consumer’s account to the merchant’s account (back-end processing).
On March 31, 2014, we acquired a controlling interest in Harbortouch for $147,898 in cash and 2,306,294 unregistered shares of our common stock. We funded $130,796 of senior secured term debt, $123,000 of subordinated term debt and $24,898 of equity at closing. As part of the transaction, we received $7,536 of structuring fee income from Harbortouch. On April 1, 2014, we restructured our investment in Harbortouch and $14,226 of equity was converted into additional debt investment. On September 30, 2014, we made a $26,431 follow-on investment in Harbortouch to support an acquisition. As part of the transaction, we received $529 of structuring fee income and $50 of amendment fee income from Harbortouch which was recorded as other income. On December 19, 2014, we made an additional $1,292 equity investment in Harbortouch Class C voting units. As of March 31, 2015, we own 100% of the Class C voting units of Harbortouch, which provide for a 53.5% residual profits allocation.
Due to favorable industry trends that resulted in higher EBITDA multiples and a corresponding increase in Harbortouch’s enterprise value, the Board of Directors increased the fair value of our investment in Harbortouch to $330,272 as of March 31, 2015, a premium of $30,633 to its amortized cost, compared to the $12,620 unrealized appreciation recorded at June 30, 2014.
National Property REIT Corp.
NPRC is a Maryland corporation and a qualified REIT for federal income tax purposes. 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. Additionally, through its wholly-owned subsidiaries, NPRC invests in online consumer loans. As of March 31, 2015, we own 100% of the fully-diluted common equity of NPRC.

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During the nine months ended March 31, 2015, we provided $135,075 and $39,425 of debt and equity financing, respectively, to NPRC to enable certain of its wholly-owned subsidiaries to invest in online consumer loans. In addition, during the nine months ended March 31, 2015, we received partial repayments of $31,365 of the NPRC loan previously outstanding and $5,577 as a return of capital on the equity investment in NPRC.
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 $35, with fixed interest rates and fixed terms of either 36 or 60 months. As of March 31, 2015, the investment in online consumer loans by certain of NPRC’s wholly-owned subsidiaries had a fair value of $262,250. The average outstanding individual loan balance is approximately $9 and the loans mature on dates ranging from October 31, 2016 to March 30, 2020. Fixed interest rates range from 6.0% to 29.0% with a weighted-average current interest rate of 19.4%.
During the nine months ended March 31, 2015, we provided $11,810 and $2,061 of debt and equity financing, respectively, to NPRC for the acquisition of real estate properties. During the nine months ended March 31, 2015, APRC and UPRC transferred their investments in certain properties to NPRC. As a result, our investments in APRC and UPRC related to these properties also transferred to NPRC. The investments transferred consisted of $11,518 of equity and $75,030 of debt. There was no gain or loss realized on these transactions. As of March 31, 2015, our investment in NPRC had an amortized cost of $367,672 and a fair value of $389,801.
As of March 31, 2015, NPRC’s real estate portfolio was comprised of ten multi-family properties and thirteen 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 March 31, 2015.
No.
 
Property Name
 
City
 
Acquisition
Date
 
Purchase
Price
 
Mortgage
Outstanding
1
 
146 Forest Parkway, LLC
 
Forest Park, GA
 
10/24/2012
 
$
7,400

 
$

2
 
NPRC Carroll Resort, LLC
 
Pembroke Pines, FL
 
6/24/2013
 
225,000

 
157,500

3
 
APH Carroll 41, LLC
 
Marietta, GA
 
11/1/2013
 
30,600

 
22,173

4
 
Matthews Reserve II, LLC
 
Matthews, NC
 
11/19/2013
 
22,063

 
17,571

5
 
City West Apartments II, LLC
 
Orlando, FL
 
11/19/2013
 
23,562

 
18,533

6
 
Vinings Corner II, LLC
 
Smyrna, GA
 
11/19/2013
 
35,691

 
26,640

7
 
Uptown Park Apartments II, LLC
 
Altamonte Springs, FL
 
11/19/2013
 
36,590

 
27,471

8
 
Mission Gate II, LLC
 
Plano, TX
 
11/19/2013
 
47,621

 
36,148

9
 
St. Marin Apartments II, LLC
 
Coppell, TX
 
11/19/2013
 
73,078

 
53,863

10
 
APH Carroll Bartram Park, LLC
 
Jacksonville, FL
 
12/31/2013
 
38,000

 
28,500

11
 
APH Carroll Atlantic Beach, LLC
 
Atlantic Beach, FL
 
1/31/2014
 
13,025

 
8,951

12
 
23 Mile Road Self Storage, LLC
 
Chesterfield, MI
 
8/19/2014
 
5,804

 
4,350

13
 
36th Street Self Storage, LLC
 
Wyoming, MI
 
8/19/2014
 
4,800

 
3,600

14
 
Ball Avenue Self Storage, LLC
 
Grand Rapids, MI
 
8/19/2014
 
7,281

 
5,460

15
 
Ford Road Self Storage, LLC
 
Westland, MI
 
8/29/2014
 
4,642

 
3,480

16
 
Ann Arbor Kalamazoo Self Storage, LLC
 
Ann Arbor, MI
 
8/29/2014
 
4,458

 
3,345

17
 
Ann Arbor Kalamazoo Self Storage, LLC
 
Scio, MI
 
8/29/2014
 
8,927

 
6,695

18
 
Ann Arbor Kalamazoo Self Storage, LLC
 
Kalamazoo, MI
 
8/29/2014
 
2,363

 
1,775

19
 
Jolly Road Self Storage, LLC
 
Okemos, MI
 
1/16/2015
 
7,492

 
5,620

20
 
Eaton Rapids Road Self Storage, LLC
 
Lansing West, MI
 
1/16/2015
 
1,741

 
1,305

21
 
Haggerty Road Self Storage, LLC
 
Novi, MI
 
1/16/2015
 
6,700

 
5,025

22
 
Waldon Road Self Storage, LLC
 
Lake Orion, MI
 
1/16/2015
 
6,965

 
5,225

23
 
Tyler Road Self Storage, LLC
 
Ypsilanti, MI
 
1/16/2015
 
3,507

 
2,630

 
 
 
 
 
 
 
 
$
617,310

 
$
445,860

Due to an increase in same property values driven by an increase in net operating income and a decrease in observed market capitalization rates for the properties, the Board of Directors increased the fair value of our investment in NPRC to $389,801 as of March 31, 2015, a premium of $22,129 to its amortized cost, compared to the $2,088 unrealized depreciation recorded at June 30, 2014.

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United Property REIT Corp.
UPRC is a Delaware limited liability company and a qualified REIT for federal income tax purposes. UPRC 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. UPRC acquires real estate assets, including, but not limited to, industrial, commercial, and multi-family properties. UPRC may acquire real estate assets directly or through joint ventures by making a majority equity investment in a property-owning entity. As of March 31, 2015, we own 100% of the fully-diluted common equity of UPRC.
During the nine months ended March 31, 2015, we provided $48,473 and $8,172 of debt and equity financing, respectively, to UPRC for the acquisition of certain properties. On October 23, 2014, UPRC transferred its investments in certain properties to NPRC. As a result, our investment in UPRC related to these properties also transferred to NPRC. The investments transferred consisted of $1,281 of equity and $9,444 of debt. There was no gain or loss realized on these transactions. As of March 31, 2015, our investment in UPRC had an amortized cost of $70,165 and a fair value of $81,918.
As of March 31, 2015, UPRC’s real estate portfolio was comprised of fifteen multi-families properties and one commercial property. The following table shows the location, acquisition date, purchase price, and mortgage outstanding due to other parties for each of the properties held by UPRC as of March 31, 2015.
No.
 
Property Name
 
City
 
Acquisition
Date
 
Purchase
Price
 
Mortgage
Outstanding
1
 
Atlanta Eastwood Village LLC
 
Stockbridge, GA
 
12/12/2013
 
$
25,957

 
$
19,785

2
 
Atlanta Monterey Village LLC
 
Jonesboro, GA
 
12/12/2013
 
11,501

 
9,193

3
 
Atlanta Hidden Creek LLC
 
Morrow, GA
 
12/12/2013
 
5,098

 
3,619

4
 
Atlanta Meadow Springs LLC
 
College Park, GA
 
12/12/2013
 
13,116

 
10,180

5
 
Atlanta Meadow View LLC
 
College Park, GA
 
12/12/2013
 
14,354

 
11,141

6
 
Atlanta Peachtree Landing LLC
 
Fairburn, GA
 
12/12/2013
 
17,224

 
13,575

7
 
Taco Bell, MO
 
Marshall, MO
 
6/4/2014
 
1,405

 

8
 
Canterbury Green Apartments Holdings LLC
 
Fort Wayne, IN
 
9/29/2014
 
85,500

 
65,825

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

 
10,440

10
 
Kengary Way OH Partners, LLC
 
Reynoldsburg, OH
 
9/30/2014
 
11,500

 
11,000

11
 
Lakeview Trail OH Partners, LLC
 
Canal Winchester, OH
 
9/30/2014
 
26,500

 
20,142

12
 
Lakepoint OH Partners, LLC
 
Pickerington, OH
 
9/30/2014
 
11,000

 
10,080

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

 
10,480

14
 
Heatherbridge OH Partners, LLC
 
Blacklick, OH
 
9/30/2014
 
18,416

 
15,480

15
 
Jefferson Chase OH Partners, LLC
 
Blacklick, OH
 
9/30/2014
 
13,551

 
12,240

16
 
Goldenstrand OH Partners, LLC
 
Hilliard, OH
 
10/29/2014
 
7,810

 
8,040

 
 
 
 
 
 
 
 
$
288,532

 
$
231,220

Due to an increase in same property values driven by an increase in net operating income and a decrease in observed market capitalization rates for the properties, the Board of Directors increased the fair value of our investment in UPRC to $81,918 as of March 31, 2015, a premium of $11,753 to its amortized cost, compared to the $426 unrealized appreciation recorded at June 30, 2014.
Valley Electric Company, Inc.
We own 94.99% of Valley Electric Company, Inc. (“Valley Electric”) as of March 31, 2015. 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”). Valley is a leading provider of specialty electrical services in the state of Washington and is among the top 50 electrical contractors in the U.S. The company, with its headquarters in Everett, Washington, offers a comprehensive array of contracting services, primarily for commercial, industrial, and transportation infrastructure applications, including new installation, engineering and design, design-build, traffic lighting and signalization, low to medium voltage power distribution, construction management, energy management and control systems, 24-hour electrical maintenance and testing, as well as special projects and tenant improvement services. Valley was founded in 1982 by the Ward family, who held the company until the end of 2012.

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On December 31, 2012, we acquired 96.3% of the outstanding shares of Valley. We funded the recapitalization of Valley with $42,572 of debt and $9,526 of equity financing. Through the recapitalization, we acquired a controlling interest in Valley for $7,449 in cash and 4,141,547 unregistered shares of our common stock. On June 24, 2014, Prospect and management of Valley formed Valley Electric and contributed their shares of Valley stock to Valley Electric. Valley management made an additional equity investment in Valley Electric, reducing our ownership to 94.99%.
Due to soft operating results, the Board of Directors decreased the fair value of our investment in Valley Electric to $32,110 as of March 31, 2015, a discount of $26,204 from its amortized cost, compared to the $23,304 unrealized depreciation recorded at June 30, 2014.
Equity positions in the portfolio are susceptible to potentially significant changes in value, both increases as well as decreases, due to changes in operating results. Several of our controlled companies experienced such volatility and we recorded corresponding fluctuations in valuations during the nine months ended March 31, 2015. See above for discussions regarding the fluctuations in APRC, First Tower, Harbortouch, NPRC, and UPRC. During the nine months ended March 31, 2015, the value of our investment in CP Energy Services Inc. (CP Energy) decreased by $29,555 as a result of depressed earnings resulting from softness of the energy markets; Gulf Coast Machine & Supply Company (“Gulf Coast”) decreased by $11,760 due to a decline in operating results; and R-V Industries, Inc. (“R-V”) decreased by $15,995 due to lower sales profitability. In total, thirteen of the controlled investments are valued at the original investment amounts or higher, and six of the controlled investments have been valued at discounts to the original investment. Overall, at March 31, 2015, control investments are valued at $35,707 above their amortized cost.
We hold one affiliate investment at March 31, 2015. Our affiliate portfolio company did not experience a significant change in valuation during the nine months ended March 31, 2015.
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 premia that could be imposed. Many of the debt investments in this category have not experienced a significant change in value, as they were previously valued at or near par value. Non-control/non-affiliate investments did not experience significant changes and are generally performing as expected or better than expected. During the nine months ended March 31, 2015, the value of one of our non-control/non-affiliate investments, Edmentum, Inc. (“Edmentum”), depreciated by $24,855 due to a decline in operating results. Overall, at March 31, 2015, non-control/non-affiliate investments are valued at $23,865 below their amortized cost.
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 March 31, 2015 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 2010, February 2011, April 2012, August 2012, December 2012 and April 2014; Public Notes which we issued in May 2012, March 2013 and April 2014; and Prospect Capital InterNotes® which we may issue from time to time. Our equity capital is comprised entirely of common equity.
The following table shows the maximum draw amounts and outstanding borrowings of our Revolving Credit Facility, Convertible Notes, Public Notes and Prospect Capital InterNotes® as of March 31, 2015 and June 30, 2014.
 
March 31, 2015
 
June 30, 2014
 
Maximum Draw Amount
 
Amount Outstanding
 
Maximum Draw Amount
 
Amount Outstanding
Revolving Credit Facility
$
885,000

 
$
317,700

 
$
857,500

 
$
92,000

Convertible Notes
1,239,500

 
1,239,500

 
1,247,500

 
1,247,500

Public Notes
648,045

 
648,045

 
647,881

 
647,881

Prospect Capital InterNotes®
778,718

 
778,718

 
785,670

 
785,670

Total
$
3,551,263

 
$
2,983,963

 
$
3,538,551

 
$
2,773,051


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The following table shows the contractual maturities of our Revolving Credit Facility, Convertible Notes, Public Notes and Prospect Capital InterNotes® as of March 31, 2015.
 
Payments Due by Period
 
Total
 
Less than 1 Year
 
1 – 3 Years
 
3 – 5 Years
 
After 5 Years
Revolving Credit Facility
$
317,700

 
$

 
$

 
$
317,700

 
$

Convertible Notes
1,239,500

 
150,000

 
497,500

 
200,000

 
392,000

Public Notes
648,045

 

 

 
300,000

 
348,045

Prospect Capital InterNotes®
778,718

 

 
45,750

 
276,962

 
456,006

Total Contractual Obligations
$
2,983,963

 
$
150,000

 
$
543,250

 
$
1,094,662

 
$
1,196,051

The following table shows the contractual maturities of our Revolving Credit Facility, Convertible Notes, Public Notes and Prospect Capital InterNotes® as of June 30, 2014.
 
Payments Due by Period
 
Total
 
Less than 1 Year
 
1 – 3 Years
 
3 – 5 Years
 
After 5 Years
Revolving Credit Facility
$
92,000

 
$

 
$
92,000

 
$

 
$

Convertible Notes
1,247,500

 

 
317,500

 
530,000

 
400,000

Public Notes
647,881

 

 

 

 
647,881

Prospect Capital InterNotes®
785,670

 

 
8,859

 
261,456

 
515,355

Total Contractual Obligations
$
2,773,051

 
$

 
$
418,359

 
$
791,456

 
$
1,563,236

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 March 31, 2015, we can issue up to $4,873,355 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 Unsecured Notes (as defined below) 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.
Revolving Credit Facility
On March 27, 2012, we closed on an extended and expanded credit facility with a syndicate of lenders through PCF (the “2012 Facility”). The lenders had extended commitments of $857,500 under the 2012 Facility as of June 30, 2014, which was increased to $877,500 in July 2014. The 2012 Facility included an accordion feature which allowed commitments to be increased up to $1,000,000 in the aggregate. Interest on borrowings under the 2012 Facility was one-month LIBOR plus 275 basis points with no minimum LIBOR floor. Additionally, the lenders charged a fee on the unused portion of the 2012 Facility equal to either 50 basis points if at least half of the credit facility is drawn or 100 basis points otherwise.
On August 29, 2014, we renegotiated the 2012 Facility and closed an expanded five and a half year revolving credit facility (the “2014 Facility” and collectively with the 2012 Facility, the “Revolving Credit Facility”). The lenders have extended commitments of $885,000 under the 2014 Facility as of March 31, 2015. The 2014 Facility includes an accordion feature which allows commitments to be increased up to $1,500,000 in the aggregate. The revolving period of the 2014 Facility extends through March 2019, with an additional one year amortization period (with distributions allowed) after the completion of the revolving period. During such one year amortization period, all principal payments on the pledged assets will be applied to reduce the balance. At the end of the one year amortization period, the remaining balance will become due, if required by the lenders.

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The 2014 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 2014 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 2014 Facility. The 2014 Facility also requires the maintenance of a minimum liquidity requirement. As of March 31, 2015, we were in compliance with the applicable covenants.
Interest on borrowings under the 2014 Facility is one-month LIBOR plus 225 basis points with no minimum LIBOR floor. Additionally, the lenders charge a fee on the unused portion of the 2014 Facility equal to either 50 basis points if at least 35% of the credit facility is drawn or 100 basis points otherwise. The 2014 Facility requires us to pledge assets as collateral in order to borrow under the credit facility.
As of March 31, 2015 and June 30, 2014, we had $739,066 and $780,620, respectively, available to us for borrowing under the Revolving Credit Facility, of which the amount outstanding was $317,700 and $92,000, 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 $885,000. As of March 31, 2015, the investments used as collateral for the Revolving Credit Facility had an aggregate fair value of $1,609,258, which represents 24.2% of our total investments and money market funds. 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 $8,885 of new fees and $3,539 of fees carried over for continuing participants from the previous facility, which are being amortized over the term of the facility in accordance with ASC 470-50, of which $10,983 remains to be amortized and is included within deferred financing costs on the Consolidated Statement of Assets and Liabilities as of March 31, 2015. In accordance with ASC 470-50, we expensed $332 of fees relating to credit providers in the 2012 Facility who did not commit to the 2014 Facility.

During the three months ended March 31, 2015 and March 31, 2014, we recorded $3,545 and $3,243, respectively, of interest costs, unused fees and amortization of financing costs on the Revolving Credit Facility as interest expense. During the nine months ended March 31, 2015 and March 31, 2014, we recorded $10,803 and $8,319, respectively, of interest costs, unused fees and amortization of financing costs on the Revolving Credit Facility as interest expense.
Convertible Notes
On December 21, 2010, we issued $150,000 aggregate principal amount of convertible notes that mature on December 15, 2015 (the “2015 Notes”), unless previously converted or repurchased in accordance with their terms. The 2015 Notes bear interest at a rate of 6.25% per year, payable semi-annually on June 15 and December 15 of each year, beginning June 15, 2011. Total proceeds from the issuance of the 2015 Notes, net of underwriting discounts and offering costs, were $145,200.
On February 18, 2011, we issued $172,500 aggregate principal amount of convertible notes that mature on August 15, 2016 (the “2016 Notes”), unless previously converted or repurchased in accordance with their terms. The 2016 Notes bear interest at a rate of 5.50% per year, payable semi-annually on February 15 and August 15 of each year, beginning August 15, 2011. Total proceeds from the issuance of the 2016 Notes, net of underwriting discounts and offering costs, were $167,325. Between January 30, 2012 and February 2, 2012, we repurchased $5,000 aggregate principal amount of the 2016 Notes at a price of 97.5, including commissions. The transactions resulted in our recognizing $10 of loss in the year ended June 30, 2012.
On April 16, 2012, we issued $130,000 aggregate principal amount of convertible notes that mature on October 15, 2017 (the “2017 Notes”), unless previously converted or repurchased in accordance with their terms. The 2017 Notes bear 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 August 14, 2012, we issued $200,000 aggregate principal amount of convertible notes that mature on March 15, 2018 (the “2018 Notes”), unless previously converted or repurchased in accordance with their terms. The 2018 Notes bear 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 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.

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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 in the amount of the difference between the reacquisition price and the net carrying amount of the 2020 Notes, net of the proportionate amount of unamortized debt issuance costs. The net gain on extinguishment of debt we recorded in the three and nine months ended March 31, 2015 was $342.
Certain key terms related to the convertible features for the 2015 Notes, the 2016 Notes, the 2017 Notes, the 2018 Notes, the 2019 Notes and the 2020 Notes (collectively, the “Convertible Notes”) are listed below.
 
2015 Notes

 
2016 Notes

 
2017 Notes

 
2018 Notes

 
2019 Notes

 
2020 Notes

Initial conversion rate(1)
88.0902

 
78.3699

 
85.8442

 
82.3451

 
79.7766

 
80.6647

Initial conversion price
$
11.35

 
$
12.76

 
$
11.65

 
$
12.14

 
$
12.54

 
$
12.40

Conversion rate at March 31, 2015(1)(2)
89.9752

 
80.2196

 
86.9426

 
83.6661

 
79.8248

 
80.6647

Conversion price at March 31, 2015(2)(3)
$
11.11

 
$
12.47

 
$
11.50

 
$
11.95

 
$
12.53

 
$
12.40

Last conversion price calculation date
12/21/2014

 
2/18/2015

 
4/16/2014

 
8/14/2014

 
12/21/2014

 
4/11/2014

Dividend threshold amount (per share)(4)
$
0.101125

 
$
0.101150

 
$
0.101500

 
$
0.101600

 
$
0.110025

 
$
0.110525

(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 in effect at March 31, 2015 was calculated on the last anniversary of the issuance and will be adjusted again on the next anniversary, unless the exercise price shall have changed by more than 1% before the anniversary.
(4)
The conversion rate is increased if monthly cash dividends paid to common shares exceed the monthly dividend threshold amount, subject to adjustment.
In no event will the total number of shares of common stock issuable upon conversion exceed 96.8992 per $1 principal amount of the 2015 Notes (the “conversion rate cap”), except that, to the extent we receive written guidance or a no-action letter from the staff of the Securities and Exchange Commission (the “Guidance”) permitting us to adjust the conversion rate in certain instances without regard to the conversion rate cap and to make the 2015 Notes convertible into certain reference property in accordance with certain reclassifications, business combinations, asset sales and corporate events by us without regard to the conversion rate cap, we will make such adjustments without regard to the conversion rate cap and will also, to the extent that we make any such adjustment without regard to the conversion rate cap pursuant to the Guidance, adjust the conversion rate cap accordingly. We will use our commercially reasonable efforts to obtain such Guidance as promptly as practicable.
Prior to obtaining the Guidance, we will not engage in certain transactions that would result in an adjustment to the conversion rate increasing the conversion rate beyond what it would have been in the absence of such transaction unless we have engaged in a reverse stock split or share combination transaction such that in our reasonable best estimation, the conversion rate following the adjustment for such transaction will not be any closer to the conversion rate cap than it would have been in the absence of such transaction.
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.

139


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 $39,167 of fees which are being amortized over the terms of the notes, of which $22,462 remains to be amortized and is included within deferred financing costs on the Consolidated Statement of Assets and Liabilities as of March 31, 2015.
During the three months ended March 31, 2015 and March 31, 2014, we recorded $18,572 and $13,378, respectively, of interest costs and amortization of financing costs on the Convertible Notes as interest expense. During the nine months ended March 31, 2015 and March 31, 2014, we recorded $55,776 and $40,048, respectively, of interest costs and amortization of financing costs on the Convertible Notes as interest expense.
Public Notes
On May 1, 2012, we issued $100,000 aggregate principal amount of unsecured notes that mature on November 15, 2022 (the “2022 Notes”). The 2022 Notes bear interest at a rate of 6.95% per year, payable quarterly on February 15, May 15, August 15 and November 15 of each year, beginning August 15, 2012. Total proceeds from the issuance of the 2022 Notes, net of underwriting discounts and offering costs, were $97,000. On April 10, 2015, we provided notice of our intent to redeem 100% of the 2022 Notes outstanding (see Recent Developments).
On March 15, 2013, we issued $250,000 aggregate principal amount of unsecured notes that mature on March 15, 2023 (the “2023 Notes”). The 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 2023 Notes, net of underwriting discounts and offering costs, were $245,885.
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 $250,775.
The 2022 Notes, the 2023 Notes and the 5.00% 2019 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 incurred $11,367 of fees which are being amortized over the term of the notes, of which $9,507 remains to be amortized and is included within deferred financing costs on the Consolidated Statement of Assets and Liabilities as of March 31, 2015.
During the three months ended March 31, 2015 and March 31, 2014, we recorded $9,493 and $5,591, respectively, of interest costs and amortization of financing costs on the Public Notes as interest expense. During the nine months ended March 31, 2015 and March 31, 2014, we recorded $28,440 and $16,764, 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 nine months ended March 31, 2015, we issued $74,967 aggregate principal amount of our Prospect Capital InterNotes® for net proceeds of $73,730. These notes were issued with stated interest rates ranging from 4.25% to 4.75% with a weighted average interest rate of 4.58%. These notes mature between May 15, 2020 and September 15, 2020. All notes issued during the nine months ended March 31, 2015 mature 5.5 years from the original date of issuance.

140


During the nine months ended March 31, 2014, we issued $407,208 aggregate principal amount of our Prospect Capital InterNotes® for net proceeds of $400,062. These notes were issued with stated interest rates ranging from 3.75% to 6.75% with a weighted average interest rate of 5.14%. These notes mature between October 15, 2016 and October 15, 2043. The following table summarizes the Prospect Capital InterNotes® issued during the nine months ended March 31, 2014.
Tenor at
Origination
(in years)
 
Principal
Amount
 
Interest Rate
Range
 
Weighted
Average
Interest Rate
 
Maturity Date Range
3
 
$
5,710

 
4.00%
 
4.00
%
 
October 15, 2016
3.5
 
3,149

 
4.00%
 
4.00
%
 
April 15, 2017
4
 
36,992

 
3.75%–4.00%
 
3.96
%
 
November 15, 2017 – March 15, 2018
5
 
195,965

 
4.75%–5.00%
 
4.96
%
 
July 15, 2018 – August 15, 2019
5.5
 
43,820

 
4.75%–5.00%
 
4.77
%
 
February 15, 2019 – August 15, 2019
6.5
 
1,800

 
5.50%
 
5.50
%
 
February 15, 2020
7
 
47,227

 
5.25%–5.75%
 
5.50
%
 
July 15, 2020 – March 15, 2021
7.5
 
1,996

 
5.75%
 
5.75
%
 
February 15, 2021
10
 
13,691

 
5.75%–6.50%
 
6.02
%
 
January 15, 2024 – March 15, 2024
12
 
2,978

 
6.00%
 
6.00
%
 
November 15, 2025 – December 15, 2025
15
 
2,495

 
6.00%
 
6.00
%
 
August 15, 2028 – November 15, 2028
18
 
4,062

 
6.00%–6.25%
 
6.21
%
 
July 15, 2031 – August 15, 2031
20
 
2,791

 
6.00%
 
6.00
%
 
September 15, 2033 – October 15, 2033
25
 
24,382

 
6.25%–6.50%
 
6.45
%
 
August 15, 2038 – March 15, 2039
30
 
20,150

 
6.50%–6.75%
 
6.60
%
 
July 15, 2043 – October 15, 2043
 
 
$
407,208

 
 
 
 
 
 
During the nine months ended March 31, 2015, we redeemed $76,931 aggregate principal amount of our Prospect Capital InterNotes® at par with a weighted average interest rate of 6.06% in order to replace debt with higher interest rates with debt with lower interest rates. As a result of these transactions, we recorded a loss in the amount of the difference between the reacquisition price and the net carrying amount of the Prospect Capital InterNotes®, net of the proportionate amount of unamortized debt issuance costs. The net loss on extinguishment of debt we recorded in the three and nine months ended March 31, 2015 was $1,220 and $1,556, respectively. During the nine months ended March 31, 2015, we repaid $4,988 aggregate principal amount of our Prospect Capital InterNotes® at par in accordance with the Survivor’s Option, as defined in the InterNotes® Offering prospectus.
The following table summarizes the Prospect Capital InterNotes® outstanding as of March 31, 2015.
Tenor at
Origination
 (in years)
 
Principal
Amount
 
Interest Rate
Range
 
Weighted
Average
Interest Rate
 
Maturity Date Range
3
 
$
5,710

 
4.00%
 
4.00
%
 
October 15, 2016
3.5
 
3,109

 
4.00%
 
4.00
%
 
April 15, 2017
4
 
45,690

 
3.75%–4.00%
 
3.92
%
 
November 15, 2017 – May 15, 2018
5
 
212,784

 
4.25%–5.00%
 
4.91
%
 
July 15, 2018 – August 15, 2019
5.5
 
78,787

 
4.25%–5.00%
 
4.60
%
 
February 15, 2019 – September 15, 2020
6.5
 
1,800

 
5.50%
 
5.50
%
 
February 15, 2020
7
 
185,497

 
4.00%–5.85%
 
5.13
%
 
September 15, 2019 – May 15, 2021
7.5
 
1,996

 
5.75%
 
5.75
%
 
February 15, 2021
10
 
36,925

 
3.27%–7.00%
 
6.11
%
 
March 15, 2022 – May 15, 2024
12
 
2,978

 
6.00%
 
6.00
%
 
November 15, 2025 – December 15, 2025
15
 
17,400

 
5.00%–6.00%
 
5.14
%
 
May 15, 2028 – November 15, 2028
18
 
22,804

 
4.125%–6.25%
 
5.52
%
 
December 15, 2030 – August 15, 2031
20
 
4,630

 
5.75%–6.00%
 
5.90
%
 
November 15, 2032 – October 15, 2033
25
 
36,579

 
6.25%–6.50%
 
6.39
%
 
August 15, 2038 – May 15, 2039
30
 
122,029

 
5.50%–6.75%
 
6.23
%
 
November 15, 2042 – October 15, 2043
 
 
$
778,718

 
 
 
 

 
 

141


During the nine months ended March 31, 2014, we repaid $3,341 aggregate principal amount of our Prospect Capital InterNotes® at par in accordance with the Survivor’s Option, as defined in the InterNotes® Offering prospectus. During the year ended June 30, 2014, we repaid $6,869 aggregate principal amount of our Prospect Capital InterNotes® in accordance with the Survivor’s Option, as defined in the InterNotes® Offering prospectus. In connection with the issuance of the 5.00% 2019 Notes, $45,000 of previously-issued Prospect Capital InterNotes® were exchanged for the 5.00% 2019 Notes.
The following table summarizes the Prospect Capital InterNotes® outstanding as of June 30, 2014.
Tenor at
Origination
(in years)
 
Principal
Amount
 
Interest Rate
Range
 
Weighted
Average
Interest Rate
 
Maturity Date Range
3
 
$
5,710

 
4.00%
 
4.00
%
 
October 15, 2016
3.5
 
3,149

 
4.00%
 
4.00
%
 
April 15, 2017
4
 
45,751

 
3.75%–4.00%
 
3.92
%
 
November 15, 2017 – May 15, 2018
5
 
212,915

 
4.25%–5.00%
 
4.91
%
 
July 15, 2018 – August 15, 2019
5.5
 
3,820

 
5.00%
 
5.00
%
 
February 15, 2019
6.5
 
1,800

 
5.50%
 
5.50
%
 
February 15, 2020
7
 
256,903

 
4.00%–6.55%
 
5.39
%
 
June 15, 2019 – May 15, 2021
7.5
 
1,996

 
5.75%
 
5.75
%
 
February 15, 2021
10
 
41,952

 
3.23%–7.00%
 
6.18
%
 
March 15, 2022 – May 15, 2024
12
 
2,978

 
6.00%
 
6.00
%
 
November 15, 2025 – December 15, 2025
15
 
17,465

 
5.00%–6.00%
 
5.14
%
 
May 15, 2028 – November 15, 2028
18
 
25,435

 
4.125%–6.25%
 
5.49
%
 
December 15, 2030 – August 15, 2031
20
 
5,847

 
5.625%–6.00%
 
5.85
%
 
November 15, 2032 – October 15, 2033
25
 
34,886

 
6.25%–6.50%
 
6.39
%
 
August 15, 2038 – May 15, 2039
30
 
125,063

 
5.50%–6.75%
 
6.22
%
 
November 15, 2042 – October 15, 2043
 
 
$
785,670

 
 
 
 
 
 
In connection with the issuance of the Prospect Capital InterNotes®, we incurred $19,936 of fees which are being amortized over the term of the notes, of which $17,966 remains to be amortized and is included within deferred financing costs on the Consolidated Statement of Assets and Liabilities as of March 31, 2015.
During the three months ended March 31, 2015 and March 31, 2014, we recorded $10,603 and $9,535, respectively, of interest costs and amortization of financing costs on the Prospect Capital InterNotes® as interest expense. During the nine months ended March 31, 2015 and March 31, 2014, we recorded $32,352 and $23,279, respectively, of interest costs and amortization of financing costs on the Prospect Capital InterNotes® as interest expense.
Net Asset Value
During the nine months ended March 31, 2015, we issued $156,699 of additional equity, net of underwriting and offering costs, by issuing 16,034,804 shares of our common stock. During the nine months ended March 31, 2015, we sold 14,845,556 shares of our common stock at an average price of $9.89 per share, and raised $146,827 of gross proceeds, under our ATM Program. Net proceeds were $145,500 after commissions to the broker-dealer on shares sold and offering costs. During the nine months ended March 31, 2015, we issued 1,189,248 shares of our common stock in connection with the dividend reinvestment plan. The following table shows the calculation of net asset value per share as of March 31, 2015 and June 30, 2014.
 
 
March 31, 2015
 
June 30, 2014
Net assets
 
$
3,694,588

 
$
3,618,182

Shares of common stock issued and outstanding
 
358,661,441

 
342,626,637

Net asset value per share
 
$
10.30

 
$
10.56


142


Results of Operations
Net increase in net assets resulting from operations for the three months ended March 31, 2015 and March 31, 2014 was $81,492 and $82,101, respectively. These results are relatively stable from year to year, but have significant fluctuations within the components of the change. The significant increase in the asset base resulted in an additional $28,617 of interest income which was offset by increased interest costs from the leverage utilized of $10,466 and increased base management fees of $4,970. Also reducing the net increase in net assets resulting from operations for the three months ended March 31, 2015 versus March 31, 2014 were significant declines in the dividends received from Credit Central and Nationwide, and a decrease in other income of $21,375. The decrease in other income is primarily from a reduction in structuring fees from lower origination levels and purchases of online consumer and commercial loans, which do not generate structuring fees. (See “Investment Income” for more details on our originations in each period.) These decreases were partially offset by an $11,351 favorable decrease in net realized and unrealized losses on investments. (See “Net Realized Gains (Losses)” and “Net Change in Unrealized Appreciation (Depreciation)” for further discussion.)
Net increase in net assets resulting from operations for the three months ended March 31, 2015 and March 31, 2014 was $0.23 and $0.26 per weighted average share, respectively. During the three months ended March 31, 2015, the decrease is primarily due to a $0.07 per weighted average share decrease in other income driven by reduced structuring fees and a $0.02 per weighted average share increase in interest and credit facility expenses. These decreases were partially offset by a $0.04 per weighted average share favorable decrease in net realized and unrealized losses on investments and a $0.02 per weighted average share decrease in income incentive fees.
Net increase in net assets resulting from operations for the nine months ended March 31, 2015 and March 31, 2014 was $251,570 and $247,363, respectively. These results are again relatively stable from year to year, but have significant fluctuations within the components of the change. The significant increase in the asset base resulted in an additional $116,047 of interest income which was offset by increased interest costs from the leverage utilized of $38,961 and increased base management fees of $24,049. Also reducing the net increase in net assets resulting from operations for the nine months ended March 31, 2015 versus March 31, 2014 were significant declines in the dividends received from Airmall, Credit Central and Nationwide, and a decrease in other income of $35,280. The decrease in other income is primarily from a reduction in structuring fees from lower origination levels and purchases of online consumer and commercial loans, which do not generate structuring fees. (See “Investment Income” for more details on our originations in each period.) These decreases were partially offset by a $5,267 favorable decrease in net realized and unrealized losses on investments. (See “Net Realized Gains (Losses)” and “Net Change in Unrealized Appreciation (Depreciation)” for further discussion.)
Net increase in net assets resulting from operations for the nine months ended March 31, 2015 and March 31, 2014 was $0.71 and $0.86 per weighted average share, respectively. During the nine months ended March 31, 2015, the decrease is primarily due to a $0.15 per weighted average share decrease in other income driven by reduced structuring fees and a $0.07 per weighted average share decrease in dividend income received from our investments in Airmall, Credit Central and Nationwide. These decreases were partially offset by a $0.05 per weighted average share decrease in income incentive fees and a $0.02 per weighted average share favorable decrease in net realized and unrealized losses on investments.
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 are typically not issuing securities rated investment grade, have limited resources, have limited operating history, have concentrated product lines or customers, 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.

143


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 and prepayment penalty fees, dividend income and other income, including settlement of net profits interests, overriding royalty interests and structuring fees, was $191,350 and $190,327 for the three months ended March 31, 2015 and March 31, 2014, respectively. Investment income was $592,254 and $529,451 for the nine months ended March 31, 2015 and March 31, 2014, respectively. During the three and nine months ended March 31, 2015, the increase in investment income is primarily the result of a larger income producing portfolio.
The following table describes the various components of investment income and the related levels of debt investments:
 
Three Months Ended 
 March 31,
 
Nine Months Ended 
 March 31,
 
2015
 
2014
 
2015
 
2014
Interest income
$
184,993

 
$
156,376

 
$
557,947

 
$
441,900

Dividend income
1,371

 
7,590

 
5,607

 
23,571

Other income
4,986

 
26,361

 
28,700

 
63,980

Total investment income
$
191,350


$
190,327

 
$
592,254

 
$
529,451

 
 
 
 
 
 
 
 
Average debt principal of performing investments
$
6,248,211

 
$
4,959,427

 
$
6,161,906

 
$
4,536,199

Weighted average interest rate earned on performing assets
11.84
%
 
12.61
%
 
11.90
%
 
12.80
%
Average interest income producing assets increased from $4,959,427 for the three months ended March 31, 2014 to $6,248,211 for the three months ended March 31, 2015. The average interest earned on interest bearing performing assets decreased from 12.61% for the three months ended March 31, 2014 to 11.84% for the three months ended March 31, 2015. Average interest income producing assets increased from $4,536,199 for the nine months ended March 31, 2014 to $6,161,906 for the nine months ended March 31, 2015. The average interest earned on interest bearing performing assets decreased from 12.80% for the nine months ended March 31, 2014 to 11.90% for the nine months ended March 31, 2015. The decrease in returns during the respective periods is primarily due to originations at lower rates than our average existing portfolio yield and, to a lesser extent, a decline in prepayment penalty income.
Investment income is also generated from dividends and other income. Dividend income decreased from $7,590 for the three months ended March 31, 2014 to $1,371 for the three months ended March 31, 2015. The decrease in dividend income is primarily attributed to a $1,841 and $3,861 decrease in the level of dividends received from our investments in Credit Central and Nationwide, respectively. We received dividends of $159 and $2,000 from Credit Central during the three months ended March 31, 2015 and March 31, 2014, respectively. We received dividends of $1,139 and $5,000 from Nationwide during the three months ended March 31, 2015 and March 31, 2014, respectively. The dividends received from Credit Central and Nationwide during the three months ended March 31, 2014 include distributions as part of follow-on financings in March 2014 for which we provided an additional $2,500 and $4,000, respectively.
Dividend income decreased from $23,571 for the nine months ended March 31, 2014 to $5,607 for the nine months ended March 31, 2015. The decrease in dividend income is primarily attributed to a $12,000 decrease in the level of dividends received from our investment in Airmall. We received dividends of $12,000 from Airmall during the nine months ended March 31, 2014. No such dividends were received during the nine months ended March 31, 2015 related to our investment in Airmall. The decrease in dividend income is further attributed to a $4,841 and $2,556 decrease in the level of dividends received from our investments in Credit Central and Nationwide, respectively. We received dividends of $159 and $5,000 from Credit Central during the nine months ended March 31, 2015 and March 31, 2014, respectively. We received dividends of $2,444 and $5,000 from Nationwide during the nine months ended March 31, 2015 and March 31, 2014, respectively. The decrease in dividend income was partially offset by dividends of $1,929 received from our investment in First Tower during the nine months ended March 31, 2015. No dividends were received from First Tower during the nine months ended March 31, 2014.

144


Other income has come primarily from structuring fees, royalty interests, and settlement of net profits interests. Income from other sources decreased from $26,361 for the three months ended March 31, 2014 to $4,986 for the three months ended March 31, 2015. The decrease is primarily due to a $21,292 decrease in structuring fees. These fees are primarily generated from originations and will fluctuate as levels of originations and types of loan originations fluctuate. The decrease is primarily from a reduction in structuring fees from lower origination levels and purchases of online consumer and commercial loans, which do not generate structuring fees. Total originations decreased from $1,343,256 in the three months ended March 31, 2014 to $219,111 in the three months ended March 31, 2015. During the three months ended March 31, 2014 and March 31, 2015, total originations included $17,320 and $88,249, respectively, of investments in online consumer and commercial loans. As a result, structuring fees fell from $24,659 in the three months ended March 31, 2014 to $3,367 in the three months ended March 31, 2015. The structuring fees recognized during the three months ended March 31, 2015 resulted from follow-on investments in existing portfolio companies, primarily from our investments in IWCO, NPRC, and PrimeSport, as discussed above.
Income from other sources decreased from $63,980 for the nine months ended March 31, 2014 to $28,700 for the nine months ended March 31, 2015. The decrease is primarily due to a $28,511 decrease in structuring fees. These fees are primarily generated from originations and will fluctuate as levels of originations and types of originations fluctuate. The decrease is primarily from a reduction in structuring fees from lower origination levels and purchases of online consumer and commercial loans, which do not generate structuring fees. Total originations decreased from $2,508,252 in the nine months ended March 31, 2014 to $1,629,021 in the nine months ended March 31, 2015. During the nine months ended March 31, 2014 and March 31, 2015, total originations included $28,320 and $236,654, respectively, of investments in online consumer and commercial loans. As a result, structuring fees fell from $52,673 in the nine months ended March 31, 2014 to $24,162 in the nine months ended March 31, 2015. Included within the $24,162 of structuring fees recognized during the nine months ended March 31, 2015 is a $3,000 fee from Airmall related to the sale of the operating company for which a fee was received in August 2014 and a $2,000 fee from Ajax related to the sale of the operating company for which a fee was received in October 2014. The remaining $19,162 of structuring fees recognized during the nine months ended March 31, 2015 resulted from follow-on investments in existing portfolio companies and new originations, primarily from our investments in InterDent, IWCO, Pacific World, PrimeSport, Trinity, and UPRC, as discussed above. To a lesser extent, the decrease in other income resulted from a decrease in miscellaneous income due to the receipt of $5,000 of legal cost reimbursement from a litigation settlement during the nine months ended March 31, 2014 which had been expensed in prior years. No such income was received during the nine months ended March 31, 2015.
Operating Expenses
Our primary operating expenses consist of investment advisory fees (base management and income incentive fees), borrowing costs, legal and professional fees and other operating and overhead-related 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 $103,909 and $91,804 for the three months ended March 31, 2015 and March 31, 2014, respectively. Operating expenses were $319,025 and $256,376 for the nine months ended March 31, 2015 and March 31, 2014, respectively.
The base management fee was $33,679 and $28,709 for the three months ended March 31, 2015 and March 31, 2014, respectively, holding consistent at $0.09 per weighted average share. The $4,970 increase is directly related to our growth in total assets. The base management fee was $100,878 and $76,829 for the nine months ended March 31, 2015 and March 31, 2014, respectively ($0.29 and $0.27 per weighted average share, respectively). The $24,049 increase is directly related to our growth in total assets and the $0.02 per weighted average share increase is also attributable to our increase in leverage.
For the three months ended March 31, 2015 and March 31, 2014, we incurred $21,860 and $24,631 of income incentive fees, respectively ($0.06 and $0.08 per weighted average share, respectively). This decrease was driven by a corresponding decrease in pre-incentive fee net investment income from $123,154 for the three months ended March 31, 2014 to $109,301 for the three months ended March 31, 2015 ($0.39 and $0.30 per weighted average share, respectively), primarily due to a decrease in dividend and other income. For the nine months ended March 31, 2015 and March 31, 2014, we incurred $68,307 and $68,269 of income incentive fees, respectively ($0.19 and $0.24 per weighted average share, respectively). Income income fees remained stable year-over-year on a dollars basis, but the per share decrease was driven by a corresponding decrease in pre-incentive fee net investment income from $1.19 per weighted average share for the nine months ended March 31, 2014 to $0.97 per weighted average share for the nine months ended March 31, 2015, primarily due to a decrease in dividend and other income. No capital gains incentive fee has yet been incurred pursuant to the Investment Advisory Agreement.
During the three months ended March 31, 2015 and March 31, 2014, we incurred $42,213 and $31,747, respectively, of expenses related to our Revolving Credit Facility, Convertible Notes, Public Notes and Prospect Capital InterNotes® (collectively, our “Notes”). During the nine months ended March 31, 2015 and March 31, 2014, we incurred $127,371 and $88,410, respectively, of expenses related to our Notes. These expenses are related directly to the leveraging capacity put into place for each of those periods and the levels of indebtedness actually undertaken in those periods.

145


The table below describes the various expenses of our Notes and the related indicators of leveraging capacity and indebtedness during these periods.
 
Three Months Ended 
 March 31,
 
Nine Months Ended 
 March 31,
 
2015
 
2014
 
2015
 
2014
Interest on borrowings
$
37,605

 
$
27,206

 
$
112,319

 
$
75,826

Amortization of deferred financing costs
2,913

 
2,812

 
9,601

 
7,810

Accretion of discount on Public Notes
47

 
45

 
164

 
133

Facility commitment fees
1,648

 
1,684

 
5,287

 
4,641

Total interest and credit facility expenses
$
42,213

 
$
31,747

 
$
127,371

 
$
88,410

 
 
 
 
 
 
 
 
Average principal debt outstanding
$
2,879,132

 
$
1,921,384

 
$
2,819,457

 
$
1,756,678

Weighted average stated interest rate on borrowings(1)
5.22
%
 
5.66
%
 
5.31
%
 
5.76
%
Weighted average interest rate on borrowings(2)
5.86
%
 
6.61
%
 
6.02
%
 
6.71
%
Revolving Credit Facility amount at beginning of period
$
810,000

 
$
650,000

 
$
857,500

 
$
552,500

(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.
The increase in interest expense for the three and nine months ended March 31, 2015 is primarily due to utilizing more debt including the issuance of additional Prospect Capital InterNotes®, the 5.00% 2019 Notes, and the 2020 Notes for which we incurred an incremental $10,095 and $36,218 of collective interest expense, respectively. The weighted average stated interest rate on borrowings (excluding amortization, accretion and undrawn facility fees) decreased from 5.66% for the three months ended March 31, 2014 to 5.22% for the three months ended March 31, 2015. The weighted average stated interest rate on borrowings (excluding amortization, accretion and undrawn facility fees) decreased from 5.76% for the nine months ended March 31, 2014 to 5.31% for the nine months ended March 31, 2015. This decrease is primarily due to issuances of debt at lower rates.
The allocation of overhead expense from Prospect Administration was $6,021 and $3,986 for the three months ended March 31, 2015 and March 31, 2014, respectively. The allocation of overhead expense from Prospect Administration was $14,772 and $11,958 for the nine months ended March 31, 2015 and March 31, 2014, respectively. During the three and nine months ended March 31, 2015, Prospect Administration received payments of $3,037 and $6,358, respectively, directly from our portfolio companies for legal, tax and portfolio level accounting services. We were given a credit for these payments as a reduction of the administrative services cost payable by us to Prospect Administration, resulting in net overhead expense of $2,984 and $8,414 during the three and nine months ended March 31, 2015, respectively. Had Prospect Administration not received these payments, Prospect Administration’s charges for its administrative services would have increased by these amounts. As our portfolio continues to grow, we expect Prospect Administration to continue to increase the size of its administrative and financial staff.
Excise tax expense was $1,000 and $3,000 for the three and nine months ended March 31, 2014, respectively. There was an excise tax benefit of $793 for the three months ended March 31, 2015, and an excise tax expense of $982 for the nine months ended March 31, 2015. We are in the process of amending our historical excise tax returns, which resulted in a reversal of $793 of previously recognized expense during the three months ended March 31, 2015. We previously paid $4,500 of excise taxes for the undistributed ordinary income retained at December 31, 2012. As of March 31, 2014 and March 31, 2015, we had a deposit with the IRS of $1,218 for excise taxes as we had made excise tax payments in excess of the excise tax liability through March 31, 2014 and March 31, 2015, respectively.
Total operating expenses, net of investment advisory fees, interest and credit facility expenses, allocation of overhead from Prospect Administration and excise tax (“Other Operating Expenses”) were $3,966 and $1,731 for the three months ended March 31, 2015 and March 31, 2014, respectively, holding consistent at $0.01 per weighted average share outstanding. Other Operating Expenses were $13,073 and $7,910 for the nine months ended March 31, 2015 and March 31, 2014, respectively. The increase of $5,163 during the nine months ended March 31, 2015 is primarily due to an increase in our legal fees related to the discussions with the SEC regarding consolidation and an increase in our investor relations expense due to increased proxy costs incurred for our larger investor base.

146


Net Investment Income
Net investment income represents the difference between investment income and operating expenses. Net investment income was $87,441 and $98,523 for the three months ended March 31, 2015 and March 31, 2014, respectively. The significant increase in the asset base resulted in an additional $28,617 of interest income which was offset by increased interest costs from the leverage utilized of $10,466 and increased base management fees of $4,970. Also reducing net investment income for the three months ended March 31, 2015 versus March 31, 2014 were significant declines in the dividends received from Credit Central and Nationwide, and a decrease in other income of $21,375. The decrease in other income is primarily from a reduction in structuring fees from lower origination levels and purchases of online consumer and commercial loans, which do not generate structuring fees. (Refer to “Investment Income” and “Operating Expenses” above for further discussion.)
Net investment income for the three months ended March 31, 2015 and March 31, 2014 was $0.24 and $0.31 per weighted average share, respectively. During the three months ended March 31, 2015, the decrease is primarily due to a $0.07 per weighted average share decrease in other income driven by reduced structuring fees and a $0.02 per weighted average share increase in interest and credit facility expenses. These decreases were partially offset by a $0.02 per weighted average share decrease in income incentive fees.
Net investment income was $273,229 and $273,075 for the nine months ended March 31, 2015 and March 31, 2014, respectively. The significant increase in the asset base resulted in an additional $116,047 of interest income which was offset by increased interest costs from the leverage utilized of $38,961 and increased base management fees of $24,049. Also reducing net investment income for the nine months ended March 31, 2015 versus March 31, 2014 were significant declines in the dividends received from Airmall, Credit Central and Nationwide, and a decrease in other income of $35,280. The decrease in other income is primarily from a reduction in structuring fees from lower origination levels and purchases of online consumer and commercial loans, which do not generate structuring fees. (Refer to “Investment Income” and “Operating Expenses” above for further discussion.)
Net investment income for the nine months ended March 31, 2015 and March 31, 2014 was $0.78 and $0.95 per weighted average share, respectively. During the nine months ended March 31, 2015, the decrease is primarily due to a $0.15 per weighted average share decrease in other income driven by reduced structuring fees and a $0.07 per weighted average share decrease in dividend income received from our investments in Airmall, Credit Central and Nationwide. These decreases were partially offset by a $0.05 per weighted average share decrease in income incentive fees.
Net Realized Gains (Losses)
During the three months ended March 31, 2015 and March 31, 2014, we recognized net realized gains (losses) on investments of $4,704 and $(1,600), respectively. The net realized gain during the three months ended March 31, 2015 was primarily due to a distribution related to our investment in NRG Manufacturing, Inc. (“NRG”) for which we realized a gain $4,647. This gain was supplemented by other realized gains totaling $357, primarily from partial sales and the release of escrowed amounts due to us from other portfolio companies. These gains were partially offset by realized losses resulting from the impairments of certain investments for which we recognized total realized losses of $300.
During the three months ended March 31, 2015, we repurchased $8,000 aggregate principal amount of the 2020 Notes and redeemed $58,711 aggregate principal amount of our Prospect Capital InterNotes®. As a result of these transactions, we recognized net realized losses of $878. We did not repurchase or redeem any of our debt during the three months ended March 31, 2014.
During the nine months ended March 31, 2015 and March 31, 2014, we recognized net realized losses on investments of $150,973 and $3,482, respectively. The net realized loss during the nine months ended March 31, 2015 was primarily due to the sale of our investments in Airmall, Ajax, Borga and BXC for which we recognized total realized losses of $46,571, and the sale of four of our CLO investments for which we realized total losses of $15,561, as discussed above. During the nine months ended March 31, 2015, we determined that the impairments of several of our investments (e.g., Appalachian Energy, Change Clean Energy Company, Coalbed, Manx, New Century Transportation, Stryker Energy, Wind River Resources Corporation, and Yatesville Coal Company) were other-than-temporary and recorded total realized losses of $96,700 (which were previously recognized as unrealized losses) for the amount that the amortized cost exceeded the fair value. These losses were partially offset by net realized gains from the proceeds collected on warrants redeemed from Snacks Parent Corporation, litigation settlements, partial sales, and the release of escrowed amounts due to us from several portfolio companies, for which we recognized total realized gains of $7,859.
During the nine months ended March 31, 2015, we repurchased $8,000 aggregate principal amount of the 2020 Notes and redeemed $76,931 aggregate principal amount of our Prospect Capital InterNotes®. As a result of these transactions, we recognized net realized losses of $1,214. We did not repurchase or redeem any of our debt during the nine months ended March 31, 2014.

147


Net Change in Unrealized Appreciation (Depreciation)
Net change in unrealized depreciation was $9,775 and $14,822 for the three months ended March 31, 2015 and March 31, 2014, respectively. The variability in results is primarily due to the valuation of equity positions in our portfolio susceptible to significant changes in value, both increases as well as decreases, due to operating results. For the three months ended March 31, 2015, the $5,047 decrease in net change in unrealized depreciation was primarily the result of significant write-downs in our investments in CP Energy, Edmentum, Gulf Coast, and R-V. These instances of unrealized depreciation were partially offset by unrealized appreciation related to APRC, Echelon, First Tower, and UPRC.
Net change in unrealized appreciation (depreciation) was $130,528 and $(22,230) for the nine months ended March 31, 2015 and March 31, 2014, respectively. The variability in results is primarily due to the valuation of equity positions in our portfolio susceptible to significant changes in value, both increases as well as decreases, due to operating results. For the nine months ended March 31, 2015, the $152,758 increase in net change in unrealized appreciation was primarily the result of realizing losses that were previously unrealized related to the sale of our investments in Airmall, Ajax, Borga and BXC, and the impairment of certain investments for which we eliminated the unrealized depreciation balances related to these investments. We also experienced significant write-ups in our investments in First Tower, Harbortouch, and NPRC. These instances of unrealized appreciation were partially offset by unrealized depreciation related to CP Energy, Edmentum, Gulf Coast, R-V, and USES.
Financial Condition, Liquidity and Capital Resources
For the nine months ended March 31, 2015 and March 31, 2014, our operating activities used $88,389 and $1,547,828 of cash, respectively. There were no investing activities for the nine months ended March 31, 2015 and March 31, 2014. Financing activities provided $17,788 and $1,619,560 of cash during the nine months ended March 31, 2015 and March 31, 2014, respectively, which included dividend payments of $328,620 and $268,028, 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 nine months ended March 31, 2015, we borrowed $1,187,000 and made repayments totaling $961,300 under our Revolving Credit Facility. As of March 31, 2015, we had $317,700 outstanding on our Revolving Credit Facility, $1,239,500 outstanding on our Convertible Notes, Public Notes with a carrying value of $648,045 and $778,718 outstanding on our Prospect Capital InterNotes®. (See “Capitalization” above.)
Undrawn committed revolvers and delayed draw term loans to our portfolio companies incur commitment and unused fees ranging from 0.00% to 2.00%. As of March 31, 2015 and June 30, 2014, we had $89,400 and $72,118, respectively, of undrawn revolver and delayed draw term loan commitments to our portfolio companies.
Our Board of Directors, pursuant to the Maryland General Corporation Law, executed Articles of Amendment to increase the number of shares authorized for issuance from 500,000,000 to 1,000,000,000 in the aggregate. The amendment became effective May 6, 2014.
On November 4, 2014, our Registration Statement on Form N-2 was declared effective by the SEC. Under this Shelf Registration Statement, we can issue up to $4,873,355 of additional debt and equity securities in the public market as of March 31, 2015.
On August 29, 2014, we entered into an ATM Program with BB&T Capital Markets, Goldman Sachs, KeyBanc Capital Markets, and RBC Capital Markets through which we could sell, by means of at-the-market offerings from time to time, up to 50,000,000 shares of our common stock. During the period from September 8, 2014 through October 29, 2014 (with settlement dates of September 11, 2014 to November 3, 2014), we sold 9,490,975 shares of our common stock at an average price of $10.03 per share, and raised $95,149 of gross proceeds, under the ATM Program. Net proceeds were $94,500 after commissions to the broker-dealer on shares sold and offering costs.
On November 7, 2014, we entered into an ATM Program with BB&T Capital Markets, Goldman Sachs, KeyBanc Capital Markets, RBC Capital Markets and Santander Investment Securities through which we could sell, by means of at-the-market offerings from time to time, up to 50,000,000 shares of our common stock. During the period from November 12, 2014 through November 28, 2014, (with settlement dates of November 17, 2014 to December 3, 2014), we sold 5,354,581 shares of our common stock at an average price of $9.65 per share, and raised $51,678 of gross proceeds, under the ATM Program. Net proceeds were $51,000 after commissions to the broker-dealer on shares sold and offering costs. There have been no issuances under the ATM Program subsequent to December 3, 2014.

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Off-Balance Sheet Arrangements
As of March 31, 2015, 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
On April 2, 2015, we sold our $74,654 investment in American Broadband Holding Company. There was no gain or loss realized on the sale.
On April 8, 2015, we sold 60% of the outstanding principal balance of the senior secured Term Loan A investment in Trinity for $59,253. There was no gain or loss realized on the sale.
On April 10, 2015, Sandow Media, LLC repaid the $24,425 loan receivable to us.
On April 10, 2015, we provided notice of our intent to redeem $100,000 aggregate principal amount of the 2022 Notes on May 15, 2015. We expect to recognize approximately $2,599 of realized loss as a result of the call.
On April 11, 2015, we announced the then current conversion rate on the 2020 Notes as 80.6670 shares of common stock per $1 principal amount of the 2020 Notes converted, which is equivalent to a conversion price of approximately $12.40.
On April 15, 2015, we provided $48,500 of first lien senior secured financing, of which $43,500 was funded at closing, to USG Intermediate, LLC, an entrepreneur-owned direct marketing company.
On April 16, 2015, we made a $10,000 second lien secured debt investment in SESAC Holdco II LLC, a performance rights organization based in Nashville, Tennessee.
On April 16, 2015, Ikaria, Inc. repaid the $20,000 loan receivable to us.
On April 16, 2015, we announced the then current conversion rate on the 2017 Notes as 87.7516 shares of common stock per $1 principal amount of the 2017 Notes converted, which is equivalent to a conversion price of approximately $11.40.
On April 23, 2015, we issued 131,971 shares of our common stock in connection with the dividend reinvestment plan.
During the period from April 1, 2015 through May 6, 2015, we made two follow-on investments in NPRC totaling $20,000 to support the online consumer lending initiative. We invested $5,500 of equity through NPH and $14,500 of debt directly to ACL Loan Holdings, Inc., a wholly-owned subsidiary of NPRC.
During the period from April 1, 2015 through May 6, 2015, our wholly-owned subsidiary PSBL purchased $13,779 of small business whole loans from OnDeck.
During the period from April 1, 2015 through May 6, 2015, we sold portions of two of our investments in syndicated debt totaling $20,500.
During the period from April 1, 2015 through May 6, 2015, we issued $25,045 aggregate principal amount of our Prospect Capital InterNotes® for net proceeds of $24,632. In addition, we sold $5,075 aggregate principal amount of our Prospect Capital InterNotes® for net proceeds of $4,991 with expected closing on May 7, 2015.
On May 6, 2015, we announced the declaration of monthly dividends in the following amounts and with the following dates:
$0.08333 per share for May 2015 to holders of record on May 29, 2015 with a payment date of June 18, 2015;
$0.08333 per share for June 2015 to holders of record on June 30, 2015 with a payment date of July 23, 2015;
$0.08333 per share for July 2015 to holders of record on July 31, 2015 with a payment date of August 20, 2015; and
$0.08333 per share for August 2015 to holders of record on August 31, 2015 with a payment date of September 17, 2015.

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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.
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 our portfolio companies and any other parameters used in determining these estimates could cause actual results to differ, and these differences could be material.
Cash and Cash Equivalents
Cash and cash equivalents include funds deposited with financial institutions and short-term, highly-liquid overnight investments in money market funds. Cash and cash equivalents are carried at cost which approximates fair value.
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.
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. 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. Specifically, we record all security transactions on a trade date basis. Amounts for investments recognized or derecognized but not yet settled are reported as receivables for investments sold and payables for investments purchased, respectively, in the Consolidated Statements of Assets and Liabilities.
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.

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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 the security less likely to be an income producing instrument.
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 conduct independent valuations and make their own independent assessments.
3.
The Audit Committee of our Board of Directors reviews and discusses the preliminary valuation of Prospect Capital Management L.P. (the “Investment Adviser”) and that of the independent valuation firms.
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.

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Our non-CLO investments are valued utilizing a yield analysis, enterprise value (“EV”) analysis, net asset value analysis, liquidation analysis, discounted cash flow analysis, or a combination of methods, as appropriate. The yield analysis uses loan spreads and other relevant information implied by market data involving identical or comparable assets or liabilities. Under the EV analysis, 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 approach that considers relevant and applicable market trading data of guideline public companies, transaction metrics from precedent M&A transactions and/or a discounted cash flow analysis. The net asset value analysis 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 analysis 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 analysis uses valuation techniques to convert 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 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 fair value pricing 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 ASC 820 Level 3 securities and are valued using a discounted cash flow model. The valuations have been 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. For each CLO security, the most appropriate valuation approach has been chosen from alternative approaches to ensure the most accurate valuation for such security. To value a CLO, both the assets and the liabilities of the CLO capital structure are modeled. We use a waterfall engine to store the collateral data, generate collateral cash flows from the assets based on various assumptions for the risk factors, distribute the cash flows to the liability structure based on the payment priorities, and discount them back using current market discount rates. The main risk factors are: default 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 for further discussion of our financial liabilities that are measured using another measurement attribute.
Convertible Notes
We have recorded the Convertible Notes at their contractual amounts. The Convertible Notes were analyzed for any features that would require bifurcation and such features were determined to be immaterial. 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. Origination, closing and/or commitment fees associated with investments in portfolio companies are accreted into interest income over the respective terms of the applicable loans. Accretion of such purchase discounts or amortization of premiums is calculated by the effective interest method as of the purchase date and adjusted only for material amendments or prepayments. Upon the prepayment of a loan or debt security, any prepayment penalties and unamortized loan origination, closing and commitment fees are recorded as interest income. The purchase discount for portfolio investments acquired from Patriot Capital Funding, Inc. (“Patriot”) was determined based on the difference between par value and fair value as of December 2, 2009, and continued to accrete until maturity or repayment of the respective loans. As of December 31, 2013, the purchase discount for the assets acquired from Patriot had been fully accreted. See Note 3 for further discussion.
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 may be recognized as income or applied to principal depending upon management’s judgment. 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. As of March 31, 2015, approximately 0.5% of our total assets are in non-accrual status.

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Interest income from investments in the “equity” class of security of CLO funds (typically income notes or subordinated notes) 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 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.
Structuring fees and similar fees are recognized as income as earned, usually when paid. Structuring fees, 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 regulated investment company 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 gain 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. For the calendar year ended December 31, 2014, we did not incur an excise tax expense because our distributions exceeded our annual taxable income. As of March 31, 2015, we had a deposit with the IRS of $1,218 for excise taxes as we had made excise tax payments in excess of our expected excise tax liability through March 31, 2015.
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 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 reduced by an interest charge of 50% of such earnings and profits payable by us as an additional tax. 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 ten 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 March 31, 2015 and for the three and nine months then ended, we did not have a liability for any tax benefits. 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 tax returns for each of our federal tax years since 2010 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 earnings. Net realized capital gains, if any, are distributed at least annually.

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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 for our Revolving Credit Facility and the effective interest method for our 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.
We record registration expenses related to shelf filings as prepaid assets. These expenses consist principally of SEC registration fees, legal fees and accounting fees incurred. These prepaid assets are charged to capital upon the receipt of proceeds from an equity offering or charged to expense if no offering is completed.
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 August 2014, the FASB issued Accounting Standards Update 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (“ASU 2014-15”). ASU 2014-15 will explicitly require management to assess an entity’s ability to continue as a going concern, and to provide related footnote disclosure in certain circumstances. ASU 2014-15 is effective for annual and interim periods ending after December 15, 2016. Early application is permitted. The adoption of the amended guidance in ASU 2014-15 is not expected to have a significant effect on our consolidated financial statements and disclosures.
In January 2015, the FASB issued Accounting Standards Update 2015-01, Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items (“ASU 2015-01”). ASU 2015-01 simplifies income statement presentation by eliminating the need to determine whether to classify an item as an extraordinary item. ASU 2015-01 is effective for annual and interim periods beginning after December 15, 2015. Early adoption is permitted; however, adoption must occur at the beginning of an annual period. The adoption of the amended guidance in ASU 2015-01 is not expected to have a significant effect on our consolidated financial statements and disclosures.
In February 2015, the FASB issued Accounting Standards Update 2015-02, Amendments to the Consolidation Analysis (“ASU 2015-02”). ASU 2015-02 eliminates the deferral of FAS 167, which allowed reporting entities with interests in certain investment funds to follow the previous consolidation guidance in FIN 46(R), and makes other changes to both the variable interest model and the voting model. ASU 2015-02 is effective for annual and interim periods beginning after December 15, 2015. Early adoption is permitted, including adoption in an interim period. A reporting entity may apply the amendments using a modified retrospective approach by recording a cumulative-effect adjustment to equity as of the beginning of the period of adoption or may apply the amendments retrospectively. We are currently evaluating the effect the adoption of the amended guidance in ASU 2015-02 may have on our consolidated financial statements and disclosures.
In April 2015, the FASB issued Accounting Standards Update 2015-03, Simplifying the Presentation of Debt Issuance Costs (“ASU 2015-03”). ASU 2015-03 requires debt issuance costs related to a recognized debt liability to be presented in the balance sheet as a direct deduction from the debt liability rather than as an asset. The new guidance will make the presentation of debt issuance costs consistent with the presentation of debt discounts or premiums. ASU 2015-03 is effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Early adoption is permitted for financial statements that have not been previously issued. The new guidance must be applied on a retrospective basis to all prior periods presented in the financial statements. The adoption of the amended guidance in ASU 2015-03 is not expected to have a significant effect on our consolidated financial statements and disclosures.

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Item 3. Quantitative and Qualitative Disclosures about Market Risk
We have no material changes to the disclosures on this matter made in our Annual Report on Form 10-K for the year ended June 30, 2014.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As of March 31, 2015, 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 March 31, 2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
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 these matters as they 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 litigation as of March 31, 2015.
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, 2014, 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 us. 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.

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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
Articles of Amendment and Restatement, as amended(1)
3.2
Amended and Restated Bylaws(2)
4.1
Three Hundred Thirtieth Supplemental Indenture dated as of January 2, 2015, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(3)
4.2
Form of 4.250% Prospect Capital InterNote® due 2020 (included as part of Exhibit 4.1)(3)
4.3
Three Hundred Thirty-First Supplemental Indenture dated as of January 8, 2015, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(4)
4.4
Form of 4.250% Prospect Capital InterNote® due 2020 (included as part of Exhibit 4.3)(4)
4.5
Three Hundred Thirty-Second Supplemental Indenture dated as of January 15, 2015, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(5)
4.6
Form of 4.500% Prospect Capital InterNote® due 2020 (included as part of Exhibit 4.5)(5)
4.7
Three Hundred Thirty-Third Supplemental Indenture dated as of January 23, 2015, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(6)
4.8
Form of 4.750% Prospect Capital InterNote® due 2020 (included as part of Exhibit 4.7)(6)
4.9
Three Hundred Thirty-Fourth Supplemental Indenture dated as of January 29, 2015, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(7)
4.10
Form of 4.750% Prospect Capital InterNote® due 2020 (included as part of Exhibit 4.9)(7)
4.11
Three Hundred Thirty-Fifth Supplemental Indenture dated as of February 5, 2015, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(8)
4.12
Form of 4.750% Prospect Capital InterNote® due 2020 (included as part of Exhibit 4.11)(8)
4.13
Three Hundred Thirty-Sixth Supplemental Indenture dated as of February 20, 2015, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(9)
4.14
Form of 4.750% Prospect Capital InterNote® due 2020 (included as part of Exhibit 4.13)(9)
4.15
Three Hundred Thirty-Seventh Supplemental Indenture dated as of February 26, 2015, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(10)
4.16
Form of 4.750% Prospect Capital InterNote® due 2020 (included as part of Exhibit 4.15)(10)
4.17
Three Hundred Thirty-Eighth Supplemental Indenture dated as of March 5, 2015, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(11)
4.18
Form of 4.750% Prospect Capital InterNote® due 2020 (included as part of Exhibit 4.17)(11)

156


Exhibit No.
4.19
Three Hundred Thirty-Ninth Supplemental Indenture dated as of March 12, 2015, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(12)
4.20
Form of 4.750% Prospect Capital InterNote® due 2020 (included as part of Exhibit 4.19)(12)
4.21
Three Hundred Fortieth Supplemental Indenture dated as of March 19, 2015, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(13)
4.22
Form of 4.750% Prospect Capital InterNote® due 2020 (included as part of Exhibit 4.21)(13)
4.23
Three Hundred Forty-First Supplemental Indenture dated as of March 26, 2015, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(14)
4.24
Form of 4.750% Prospect Capital InterNote® due 2020 (included as part of Exhibit 4.23)(14)
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
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended*
31.2
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended*
32.1
Certification of Chief Executive Officer pursuant to Section 906 of The Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350)*
32.2
Certification of Chief Financial Officer pursuant to Section 906 of The Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350)*
________________________
*
Filed herewith.
(1)
Incorporated by reference from the Registrant's Form 8-K filed on May 9, 2014.
(2)
Incorporated by reference from the Registrant's Form 8-K filed on August 26, 2011.
(3)
Incorporated by reference from Post-Effective Amendment No. 8 to the Registrant's Registration Statement, filed on January 5, 2015.
(4)
Incorporated by reference from Post-Effective Amendment No. 9 to the Registrant's Registration Statement, filed on January 8, 2015.
(5)
Incorporated by reference from Post-Effective Amendment No. 10 to the Registrant's Registration Statement, filed on January 15, 2015.
(6)
Incorporated by reference from Post-Effective Amendment No. 11 to the Registrant's Registration Statement, filed on January 23, 2015.
(7)
Incorporated by reference from Post-Effective Amendment No. 12 to the Registrant's Registration Statement, filed on January 29, 2015.
(8)
Incorporated by reference from Post-Effective Amendment No. 13 to the Registrant's Registration Statement, filed on February 5, 2015.
(9)
Incorporated by reference from Post-Effective Amendment No. 14 to the Registrant's Registration Statement, filed on February 20, 2015.
(10)
Incorporated by reference from Post-Effective Amendment No. 15 to the Registrant's Registration Statement, filed on February 26, 2015.
(11)
Incorporated by reference from Post-Effective Amendment No. 16 to the Registrant's Registration Statement, filed on March 5, 2015.
(12)
Incorporated by reference from Post-Effective Amendment No. 17 to the Registrant's Registration Statement, filed on March 12, 2015.
(13)
Incorporated by reference from Post-Effective Amendment No. 18 to the Registrant's Registration Statement, filed on March 19, 2015.
(14)
Incorporated by reference from Post-Effective Amendment No. 19 to the Registrant's Registration Statement, filed on March 26, 2015.


157


SIGNATURES
Pursuant to the requirements 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.
 
 
PROSPECT CAPITAL CORPORATION
 
 
 
Date:
May 6, 2015
By:
/s/ JOHN F. BARRY III
 
 
 
John F. Barry III
 
 
 
Chairman of the Board and Chief Executive Officer
 
 
 
 
Date:
May 6, 2015
By:
/s/ BRIAN H. OSWALD
 
 
 
Brian H. Oswald
 
 
 
Chief Financial Officer


158