Prospect Capital Corporation (NASDAQ:PSEC) announced that it recorded 97% Recurring Interest Income Mix in the third quarter ended March 31, 2015. The NOO was $87.4 million compared to $98.5 million in 3Q2014.
The reasons for decline
The $11.1 million YOY decline on a dollars basis was driven primarily by decrease in structuring fees and increase in credit facility and interest expenses. Offsetting this decline in NII was a $0.02 per share drop in incentive management fees. Prospect Capital said that the drop in structuring fee income was led by lower origination levels and a shift towards online loans. They do not result in structuring fees.
The mix
Prospect Capital stated that origination mix has resulted in a rise of recurring income. It came at 96.7% of total investment income in the March 2015 quarter compared to 82.2% in 3Q2014. The recurring income component of NII surged YOY by $28.6 million. The increase in net assets was $81.5 million compared to $82.1 million in the same quarter a year ago. NI was stable YOY on a dollars basis and declined by $0.03 on a per share basis.
The payout structure
Prospect Capital Corporation (NASDAQ:PSEC) said that it is a tax-efficient regulated investment firm and therefore when it follows minimum share dividend payout of 90%, it needs to be based on taxable income. It cannot be measured on GAAP net investment income as Taxable income can decouple significantly from NII.
The numbers
In the recent quarter, the company posted taxable income of $93.7 million. In the first three quarters ended March 31, 2015, the taxable income came at $1 per weighted average share, surpassing company’s $0.94 per share of dividends. The taxable income enhances the probability of future special dividends to support regulated investment company designation. It is the prime reason to take base of taxable income.
