HG bonds: Prospect Capital places 2026 notes to refinance debt; terms

Business development company Prospect Capital Corp. today completed an upsized $325 million offering of 3.706% five-year notes due Jan. 22, 2026, at T+350, or 3.982%.

The issue, which was initially marketed at $300 million, printed in line with at-the-number guidance and through initial whispers in the mid- to high T+300s.

Proceeds will be used primarily for refinancing of existing debt, including redemption of the company's June 2024 notes, of which about $233.8 million is outstanding. Other uses may include repayment of borrowings under its revolving credit facility, according to S&P Global Ratings, which earlier today assigned a BBB- rating to the new 2026 notes.

"Our ratings on PSEC reflect its low leverage, favorable funding, scale, and diversified originations. These factors are partially offset by unfavorable performance in some of the company's largest investments and relatively high exposure to equity and collateralized loan obligation residual interests, which we believe may be more volatile than typical business development company investments," the agency said today.

Ratings maintains a negative outlook on its rating. "The negative outlook reflects significant net unrealized depreciation in PSEC's investment portfolio, including three of its largest investments at cost (CP Energy Services, Pacific World, and United Sporting Cos.) and its portfolio of subordinated structured notes,” the agency stated. It noted that leverage is also near its tolerance for the rating.

Moody's today assigned a Baa3 rating to the new 2026 notes. "PSEC has more diverse investment strategies than most BDCs, but certain of the company's investments, including collateralized loan obligations, will likely demonstrate greater asset volatility than other investments. However, PSEC's exposure to sectors negatively affected by the coronavirus epidemic is lower than most rated BDCs, according to Moody's estimates," Moody's said today.

Moody's maintains a negative outlook, which dates to last April. Terms: