Prospect Capital Downgraded To Sell-Equivalent At Raymond James, Sees 30% Downside Risk

Raymond James’ Robert Dodd downgraded the rating for Prospect Capital Corporation (NASDAQ: PSEC) from Market Perform to Underperform, citing concerns surrounding the probability of NAV declines in the future and uncertainty around the sustainability of taxable income. He also expressed concern over “the secondary impact of such adjustments to their regulatory leverage levels.”

Prospect Capital reported its F2Q16 NII per share at $0.28, beating the Raymond James estimate of $0.26 and the consensus expectation of $0.25. The beat was driven by higher total investment income. The company recognized some portfolio depreciation in the quarter, similar to most of the BDC sector, owing to general market concerns and pricing trends.

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“Prospect’s CLO equity marks are still above its peers at 93 percent of cost, with others averaging large discounts to cost,” Dodd wrote, while adding, “We doubt that any BDC has materially marked up the value of its CLO investments in the fourth quarter as market conditions were deteriorating and appropriate discount rates were swelling.”

The NII per share estimate for FY17 has been reduced from $1.03 to $1.01, to reflect lower recurring dividend income forecasts. “These figures do not include the asset spin-offs, whose timing, size, and actual earnings impact are all still up in the air,” the analyst added.

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