Prospect Capital Hits $7B Assets, Shifts Focus to Direct Lending

TL;DR

**PSEC is a stable BDC with $7 billion in assets, making it a solid income play as it doubles down on direct middle-market lending and sheds risky CLO equity.**

AI Summary

PROSPECT CAPITAL CORP (PSEC-PA) reported approximately $7 billion in total assets as of June 30, 2025, maintaining its position as one of the longest-running and largest Business Development Companies (BDCs). The company's investment objective is to generate both current income and long-term capital appreciation, primarily by lending to and investing in U.S. middle-market privately-held companies. PSEC focuses on senior and secured first-lien loans, typically less than $250 million, and to a lesser extent, second-lien loans, equity, and equity-linked investments. The portfolio is diversified across 32 industry categories, with no single industry (excluding CLOs) exceeding 19.5% of the portfolio on a cost or fair value basis. PSEC is externally managed by Prospect Capital Management L.P., which also provides managerial assistance to portfolio companies. The company has significantly exited its historical investments in structured credit, particularly equity tranches of CLOs, and now focuses on direct origination through long-term relationships.

Why It Matters

Prospect Capital's substantial asset base of $7 billion and its long operational history signal stability in the BDC space, offering investors a potentially reliable income stream through its focus on senior secured loans. This strategy provides a competitive edge by targeting the underserved middle-market, which often yields higher returns than larger, more liquid markets. For employees and customers of its portfolio companies, PSEC's capital injections support growth and stability. The shift away from structured credit (CLO equity tranches) towards direct origination in private middle-market companies could reduce exposure to market volatility and enhance control over investment performance, potentially attracting investors seeking less correlated assets.

Risk Assessment

Risk Level: medium — The risk level is medium due to the inherent illiquidity and valuation challenges of investing primarily in privately-held middle-market companies, as highlighted in 'Risk Factors – Most of our portfolio investments are recorded at fair value as determined in good faith... and, as a result, there is uncertainty as to the value of our portfolio investments.' While the portfolio is diversified across 32 industries, the non-diversified nature of the company under the 1940 Act means concentration risk in specific investments remains a concern.

Analyst Insight

Investors should consider PSEC for its potential for current income and long-term capital appreciation, particularly given its focus on senior secured loans to middle-market companies. However, they should be aware of the valuation complexities of private assets and the non-diversified nature of the company, which could lead to higher volatility than a diversified fund. Due diligence on the underlying portfolio company performance and the Investment Adviser's track record is crucial.

Key Numbers

• $7 billion — Total Assets (As of June 30, 2025, making PSEC one of the largest BDCs.)
• $1.349 billion — Market Value of Common Equity (Held by non-affiliates as of December 31, 2024, based on a closing price of $4.31.)
• 462,343,452 — Shares of Common Stock Outstanding (As of August 25, 2025.)
• $750 million — Maximum Annual Revenues (Typical target for middle-market portfolio companies.)
• $1 billion — Maximum Enterprise Value (Typical target for middle-market portfolio companies.)
• $250 million — Maximum Senior Secured Loan (Typical investment size for senior and secured loans.)
• 32 — Industry Categories (Number of industries across which PSEC's portfolio is diversified.)
• 19.5% — Maximum Industry Concentration (No individual industry (excluding CLOs) comprises more than this percentage of the portfolio.)
• 70% — BDC Asset Requirement (Minimum percentage of assets to be invested in 'eligible portfolio companies'.)
• 30% — Maximum Public/Non-U.S. Investment (Maximum percentage of portfolio that may be invested in broadly-traded public companies, financial companies, and/or non-U.S. companies.)

Key Players & Entities

• PROSPECT CAPITAL CORP (company) — Registrant and BDC
• Prospect Capital Management L.P. (company) — Investment Adviser
• Prospect Administration LLC (company) — Administrator
• John F. Barry III (person) — Senior Executive at Prospect Capital Management
• M. Grier Eliasek (person) — Senior Executive at Prospect Capital Management
• National Property REIT Corp. (company) — REIT subsidiary
• NASDAQ Global Select Market (regulator) — Exchange for Common Stock
• New York Stock Exchange (regulator) — Exchange for Preferred Stock
• Securities and Exchange Commission (regulator) — Regulatory body
• Internal Revenue Service (regulator) — Tax authority

FAQ

Risk Factors

• Economic Downturns [high — market]: The company's performance is significantly tied to the health of the U.S. middle market. Economic downturns can lead to increased defaults, reduced investment income, and decreased fair value of portfolio investments. The COVID-19 pandemic and subsequent economic volatility serve as a recent example of how widespread economic disruption can negatively impact BDCs.
• Interest Rate Volatility [medium — financial]: As a BDC, PSEC's profitability is sensitive to interest rate fluctuations. A significant portion of its assets are in floating-rate debt, meaning rising rates can increase investment income. However, rising rates also increase the cost of borrowing for PSEC, potentially impacting its net interest margin and ability to service its own debt.
• Reliance on External Manager [medium — operational]: PSEC is externally managed by Prospect Capital Management L.P. This reliance means the company's success is dependent on the expertise, performance, and continued availability of the investment adviser. Any disputes or changes in the relationship could disrupt operations and investment strategy.
• BDC Regulatory Requirements [high — regulatory]: As a BDC, PSEC must comply with the Investment Company Act of 1940, which includes requirements to invest at least 70% of its assets in 'eligible portfolio companies.' Failure to meet these requirements could result in the loss of its BDC status and potentially its RIC status, impacting its tax treatment and operational flexibility.
• Credit Risk of Portfolio Companies [high — financial]: The primary risk lies in the creditworthiness of its middle-market portfolio companies. Defaults or bankruptcies of these companies can lead to significant losses on loans and equity investments, impacting PSEC's net asset value and profitability. The diversification across 32 industries mitigates some of this risk, but concentration in specific sectors remains a concern.
• Competition for Deals [medium — market]: The middle-market lending space is competitive, with numerous BDCs and other financial institutions seeking similar investment opportunities. This competition can drive down yields on new investments and make it more challenging to deploy capital effectively, potentially impacting PSEC's ability to generate attractive returns.
• Cybersecurity Threats [medium — operational]: Like all financial institutions, PSEC is exposed to cybersecurity risks. A breach could compromise sensitive company and investor data, leading to financial losses, reputational damage, and regulatory penalties. The company's disclosure on cybersecurity (Item 1C) indicates awareness of this risk.

Industry Context

Prospect Capital Corp operates within the Business Development Company (BDC) sector, which primarily serves U.S. middle-market companies. This sector is characterized by direct lending and investment in privately held firms, often providing capital for growth, acquisitions, or recapitalizations. The competitive landscape includes other BDCs, private equity firms, and traditional lenders, with a trend towards direct origination and specialized financing solutions.

Regulatory Implications

As a BDC regulated under the Investment Company Act of 1940, PSEC must maintain specific asset allocation, with at least 70% invested in 'eligible portfolio companies.' Compliance with these rules is crucial to retain its BDC status and associated tax benefits as a Regulated Investment Company (RIC). Any deviation could lead to significant operational and financial repercussions.

What Investors Should Do

1. Monitor portfolio company performance and credit quality.
2. Analyze the impact of interest rate changes on net interest margin.
3. Evaluate the effectiveness of the external investment adviser.
4. Assess PSEC's compliance with BDC asset diversification requirements.

Key Dates

• 2004-04-13: Company organized — Marks the inception of Prospect Capital Corporation.
• 2004-07-27: Initial public offering completed — Provided initial funding and established PSEC as a publicly traded entity.
• 2025-06-30: Total assets reported — Indicates the scale of the company's operations, reaching approximately $7 billion.
• 2025-08-25: Shares of Common Stock Outstanding reported — Provides the total number of shares, relevant for per-share calculations and market capitalization.

Glossary

Business Development Company (BDC)

A type of closed-end investment company created by Congress to invest in small and medium-sized businesses and assist them with financing and management. (PSEC is regulated as a BDC, which dictates its investment strategies and regulatory requirements.)

Regulated Investment Company (RIC)

A U.S. tax term for a company that qualifies to be taxed as a mutual fund or a BDC, allowing it to pass income and capital gains to shareholders without being taxed at the corporate level. (PSEC's election to be treated as a RIC impacts its tax obligations and how it distributes earnings.)

Investment Company Act of 1940

A U.S. federal law that governs the regulation of investment companies, including mutual funds, closed-end funds, and BDCs. (PSEC must adhere to the rules and regulations set forth in this act, particularly regarding asset diversification and investment types.)

Middle Market Companies

Typically refers to companies with annual revenues between $10 million and $1 billion, or enterprise values between $10 million and $1 billion. (PSEC's primary investment focus is on these companies, indicating its target market segment.)

Senior Secured First Lien Loans

A type of debt where the lender has the primary claim on the borrower's assets in case of default, and this claim is secured by the borrower's first lien on those assets. (This is PSEC's core investment product, offering a relatively lower risk profile within its debt portfolio.)

CLOs (Collateralized Loan Obligations)

A type of structured asset-backed security backed by a pool of loans, typically corporate loans. (PSEC has significantly exited its investments in CLO equity tranches, shifting focus to direct origination.)

Year-Over-Year Comparison

Information comparing key metrics to the previous year, such as revenue growth, margin changes, and new risks, is not available in the provided text excerpt. The filing details assets as of June 30, 2025, but lacks comparative data from a prior period's 10-K.

Key Financial Figures

• $0.001 — ich registered Common Stock, par value $0.001 per share PSEC NASDAQ Global Select Mar
• $4.31 — ed on the closing price on that date of $4.31 on the NASDAQ Global Select Market). Fo
• $7 billion — ng and largest BDCs with approximate ly $7 billion o f total assets as of June 30, 2025.
• $750 million — anies with annual revenues of less than $750 million and enterprise values of less than $1 b
• $1 billion — lion and enterprise values of less than $1 billion. These private, middle-market companies
• $250 million — a senior and secured loan of less than $250 million. Our investments in senior and secured

Filing Documents

• psec-20250630.htm (10-K) — 12378KB
• psecq42025ex4810descriptio.htm (EX-4.810) — 46KB
• psec10-kq42025ex231.htm (EX-23.1) — 2KB
• psec10-kq42025ex232.htm (EX-23.2) — 2KB
• psec10-kq42025ex233.htm (EX-23.3) — 2KB
• psec10-kq42025ex234.htm (EX-23.4) — 2KB
• psec10-kq42025ex235.htm (EX-23.5) — 2KB
• psec10-kq42025ex311.htm (EX-31.1) — 10KB
• psec10-kq42025ex312.htm (EX-31.2) — 10KB
• psec10-kq42025ex321.htm (EX-32.1) — 6KB
• psec10-kq42025ex322.htm (EX-32.2) — 6KB
• psec10-kq42025ex991.htm (EX-99.1) — 1142KB
• psec10-kq42025ex992.htm (EX-99.2) — 1048KB
• psec10-kq42025ex993.htm (EX-99.3) — 526KB
• psec10-kq42025ex994.htm (EX-99.4) — 981KB
• psec-20250630_g1.jpg (GRAPHIC) — 149KB
• 0001287032-25-000232.txt ( ) — 65883KB
• psec-20250630.xsd (EX-101.SCH) — 198KB
• psec-20250630_cal.xml (EX-101.CAL) — 92KB
• psec-20250630_def.xml (EX-101.DEF) — 1558KB
• psec-20250630_lab.xml (EX-101.LAB) — 1435KB
• psec-20250630_pre.xml (EX-101.PRE) — 1568KB
• psec-20250630_htm.xml (XML) — 12207KB

Forward-Looking Statements

Forward-Looking Statements 1 PART I Item 1.

Business

Business 3 Item 1A.

Risk Factors

Risk Factors 31 Item 1B. Unresolved Staff Comments 73 Item 1C. Cybersecurity 73 Item 2.

Properties

Properties 74 Item 3.

Legal Proceedings

Legal Proceedings 74 Item 4. Mine Safety Disclosures 74 PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 75 Item 6. [Reserved] 87 Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations

Management's Discussion and Analysis of Financial Condition and Results of Operations 88 Item 7A.

Quantitative and Qualitative Disclosures About Market Risk

Quantitative and Qualitative Disclosures About Market Risk 123 Item 8.

Financial Statements and Supplementary Data

Financial Statements and Supplementary Data 124 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 252 Item 9A.

Controls and Procedures

Controls and Procedures 252 Item 9B. Other Information 254 Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections 255 PART III Item 10. Directors, Executive Officers and Corporate Governance 255 Item 11.

Executive Compensation

Executive Compensation 256 Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 256 Item 13. Certain Relationships and Related Transactions, and Director Independence 256 Item 14. Principal Accountant Fees and Services 256 PART IV Item 15. Exhibits and Financial Statement Schedules 257 Item 16. Form 10-K Summary 298

FORWARD-LOOKING STATEMENTS

FORWARD-LOOKING STATEMENTS This report contains information that may constitute "forward-looking statements." Generally, the words "believe," "expect," "intend," "estimate," "anticipate," "project," "will," "should," "could," "may," "plan" 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 I, "Item 1A. Risk Factors" and elsewhere in this report and those described from time to time in reports that we have filed or in the future may file with the Securities and Exchange Commission. The forward-looking statements contained in this report involve a number of risks and uncertainties, including statements concerning: our, or our portfolio companies', future operating results; our business prospects and the prospects of our portfolio companies; the return or

Business

Item 1. Business In this Annual Report, the terms "Prospect," "the Company", "we," "us" and "our" mean Prospect Capital Corporation and all entities included in our consolidated financial statements, unless the context specifically requires otherwise. General Prospect is a financial services company that primarily lends to and invests in middle market privately-held companies. We are a closed-end investment company incorporated in Maryland. We have elected to be regulated as a business development company ("BDC") under the Investment Company Act of 1940 (the "1940 Act"). As a BDC, we have elected to be treated as a regulated investment company ("RIC"), under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). We were organized on April 13, 2004, and were funded in an initial public offering completed on July 27, 2004. We are one of the longest-running and largest BDCs with approximate ly $7 billion o f total assets as of June 30, 2025. We are externally managed by our investment adviser, Prospect Capital Management L.P. ("Prospect Capital Management" or the "Investment Adviser"). Prospect Administration LLC ("Prospect Administration" or the "Administrator"), a wholly-owned subsidiary of the Investment Adviser, provides administrative services and facilities necessary for us to operate. Our Investment Objective and Policies Our investment objective is to generate both current income and long-term capital appreciation. We intend to invest primarily in privately owned United States ("U.S.") middle market companies, in senior and secured first lien loans and, to a lesser extent, second lien loans, as well as equity and equity-linked investments with capital-appreciation potential (such as senior and secured convertible debt, preferred equity, common equity and warrants). Most of our investments will be in private U.S. companies; however, we may also invest to some extent in broadly-traded public companies and non-U.S. companies (subject to

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