Equity Values: Stockholders' equity as of September 30, 2006: $191.17 million Net asset value per share: $14.86 First Fiscal Quarter Operating Results: Net investment income: $3.27 million Net investment income per share: $0.33 Net realized and unrealized appreciation: $0.69 million Net increase in net assets resulting from operations: $3.96 million Dividends to shareholders per share: $0.38 Portfolio: Number of new portfolio companies invested: 2 Number of portfolio companies at end of period: 17PORTFOLIO AND INVESTMENT ACTIVITY September 30, 2006, marked our first fiscal quarter and ninth full quarter since our initial public offering. Our portfolio on September 30, 2006, was invested approximately $156.96 million in 17 long-term investments, and the remainder in cash and short-term instruments. As of September 30, 2006, our portfolio generated a current yield of 16.9% across all our long-term debt and equity investments. This current yield includes interest from all our long-term investments as well as dividends from Gas Solutions Holdings, Inc. ("Gas Solutions"). Excluding such dividends, our weighted average long-term debt yield as of September 30, 2006, was 14.6%. We completed two new investments, as well as follow-on investments in the existing portfolio, totaling approximately $24.57 million in the prior quarter. Both of these new investments were structured as senior secured debt with equity-like participation rights. On September 1, 2006, we provided $11.0 million in senior secured debt financing and acquired a controlling interest in NRG ("NRG"), a leading fabricator of structures and vessels for oil and gas drilling applications based in Tomball, Texas. On September 1, 2006, we provided $4.3 million in senior secured debt financing to Cypress Consulting Services, Inc. ("Cypress"), a seismic surveying company based in Houston, Texas. On August 2, 2006, we completed the sale of all Evolution Petroleum Corporation ("EPM") registered common shares. The capital gain from these sales is approximately $2.27 million. Since September 30, 2006, we have provided further follow-on capital to existing portfolio companies, including a $5.0 million follow-on investment in Conquest Cherokee, LLC ("Conquest"), and we have also completed two new investments totaling $22.0 million in TLOGH, L.P. ("TLOGH"), and Jettco Marine Services LLC ("Jettco"). TLOGH is a Barnett Shale gas development company based in Dallas, Texas. Jettco is an offshore supply vessel company based in Morgan City, Louisiana. LIQUIDITY On August 10, 2006, we priced a public offering of 4.97 million shares of common stock at $15.30 per share, raising $76.06 million in gross proceeds. On August 28, 2006, the underwriters exercised their over-allotment option to purchase 0.75 million shares, raising an additional $11.41 million in gross proceeds. We currently have a $50.0 million revolving credit facility through HSH Nordbank, which we closed July 25, 2006. That facility is currently undrawn. We will draw on this facility to fund additional long-term investments. We are currently seeking to increase the size of this facility to include other lending institutions. CONFERENCE CALL We will host a conference call Monday, November 13, 2006, at 11:00 am Eastern Time. The conference call dial-in number is (877) 407-9205. A recording of the conference call will be available for approximately 7 days. To hear a replay, call (877) 660-6853 and use Playback Access Account code 286 and Playback Conference ID code 220023.
STATEMENTS OF NET ASSETS As of As of
(in thousands) September 30, June 30,
2006 2006
Assets
Cash and cash equivalents $ 33,453 $ 1,608
Investments in controlled entities at fair
value (cost - $62,585 and $39,759,
respectively) 73,610 49,585
Investments in affiliated entities at fair
value (cost - $28,382 and $25,329,
respectively) 28,383 25,329
Investments in non-controlled and
non-affiliated entities, at fair value (cost -
$56,874 and $58,505, respectively) 54,964 59,055
Interest receivable 1,959 1,639
Dividends receivable 149 13
Loan Principal Receivable 454 385
Due from broker - 369
Due from Prospect Capital Management, LLC - 28
Due from Prospect Administration, LLC 21 5
Prepaid expenses 266 77
Deferred financing fees 830 355
Deferred offering costs - 32
Total assets 194,089 138,480
Liabilities
Credit facility payable - 28,500
Accrued liabilities 1,616 843
Due to Prospect Capital Management, LLC 1,141 745
Other current liabilities 158 122
Total liabilities 2,915 30,210
Net Assets $ 191,174 $ 108,270
Components of Net Assets
Common stock, par value $.001 per share,
(100,000,000 and 100,000,000 common shares
authorized, respectively; 12,867,341 and
7,069,873 issued and outstanding,
respectively) $ 13 $ 7
Paid-in capital in excess of par 181,059 97,266
Undistributed (distributions in excess of) net
investment income (1,266) 319
Realized gain (loss) 2,252 301
Net unrealized appreciation 9,116 10,377
Net Assets $ 191,174 $ 108,270
Net Asset Value Per Share $ 14.86 $ 15.31
Three Three
months months
ended ended
STATEMENTS OF OPERATIONS September September
(in thousands) 30, 2006 30, 2005
Investment Income
Interest income, controlled entities. $ 2,246 $ 828
Interest income, affiliated entities (net of
foreign tax withholding of $110) 981 -
Interest income, non controlled and
non-affiliated entities 2,079 1,350
Interest income, cash equivalents - 179
Total interest income 5,306 2,357
Dividend income, controlled entities 850 556
Dividend income, non-controlled and
non-affiliated entities - 146
Dividend income, money market funds 276 50
Total dividend income 1,126 752
Total investment income 6,432 3,109
Operating Expenses
Investment advisory fees
Base management fee 616 510
Income incentive fee 818 -
Total investment advisory fees 1,434 510
Interest expense and credit facility costs 662 -
Chief Compliance Officer and Sub-administration
fees 119 81
Legal fees 280 719
Valuation services 93 41
Sarbanes-Oxley compliance expenses 45 -
Other professional fees 292 122
Insurance expense 75 98
Directors fees 63 55
Other general and administrative expenses 95 68
Total operating expenses 3,158 1,694
Net investment income 3,274 1,415
Net realized gain (loss) 1,951 (18)
Net unrealized appreciation (depreciation) (1,261) 76
Net increase in net assets resulting from
operations $ 3,964 $ 1,473
Net increase in net assets per weighted average
shares of common stock resulting from
operations $ 0.40 $ 0.21
For the For the
three three
months months
ended ended
September September
PER SHARE DATA 30, 2006 30, 2005
Net asset value, beginning of period $ 15.31 $ 14.59
Costs related to the secondary public offering (0.47) -
Net investment income 0.33 0.20
Realized gain 0.20 -
Net unrealized appreciation (0.13) 0.01
Dividend declared and paid (0.38) (0.20)
Net asset value at end of period $ 14.86 $ 14.60
ABOUT PROSPECT ENERGY CORPORATION
Prospect Energy Corporation (www.prospectenergy.com) is a closed-end
investment company that lends to and invests in energy-related businesses.
Prospect Energy's investment objective is to generate both current income
and long-term capital appreciation through debt and equity investments.
Prospect Energy has elected to be treated as a business development company
under the Investment Company Act of 1940 ("1940 Act"). We are required to
comply with a series of regulatory requirements under the 1940 Act as well
as applicable NASDAQ, federal and state rules and regulations. We have
elected to be treated as a regulated investment company under the Internal
Revenue Code of 1986. Failure to comply with any of the laws and
regulations that apply to Prospect Energy could have an adverse effect on
Prospect Energy and its shareholders.
This press release contains forward-looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995. Any such
statements, other than statements of historical fact, are highly likely to
be affected by other unknowable future events and conditions, including
elements of the future that are or are not under the Company's control, and
that the Company may or may not have considered; accordingly, such
statements cannot be guarantees or assurances of any aspect of future
performance. Actual developments and results are highly likely to vary
materially from these estimates and projections of the future. Such
statements speak only as of the time when made, and the Company undertakes
no obligation to update any such statement now or in the future.
Contact Information: Please send investment proposals to: Grier Eliasek President and Chief Operating Officer grier@prospectstreet.com Telephone (212) 448-0702