(Market Cap $3.4B)
Prospect Capital intends to unlock value by spinning off certain “pure play” business strategies to its shareholders. The company wants, through these spinoffs, to
(i) expand business strategies that it has successfully grown and developed inside Prospect into pure play public companies with the potential for increased earnings multiples,
(ii) allow for continued revenue and earnings growth through more flexible non-business development company (“BDC”) formats (given such non-BDC formats are expected to benefit from not having one or more of the (a) 30% basket, (b) leverage, and (c) control basket constraints with which BDCs must comply), and (iii) free up its 30% basket and leverage capacity for new originations at Prospect.
The business strategies it intends to spin off to shareholders have grown faster than its overall growth rate in the past few years, with outlets in less constraining structures required to continue this strong growth. Management anticipate these non-BDC spinoffs will have tax efficient structures.
Prospect initially intends on focusing its spinoff efforts on three separate companies consisting of portions of its (i) collateralized loan obligation (“CLO”) structured credit business, (ii) online lending business, and (iii) real estate business.
The company would likely seek to spin off these businesses in conjunction with capital raises for each such business, with the goal of leverage and earnings neutrality for Prospect. The size and likelihood of such spinoffs, which may be partial rather than complete spinoffs, remain to be determined. Management may seek to file non-registered investment company spinoffs with confidential treatment with parallel registration progress to be made in the coming weeks toward the goal of consummating these initial spinoffs in early 2015.
It expects Prospect as a BDC to continue in the future to pursue its multi-line origination strategy (including continuing to invest in the strategies also being spun off to our shareholders) as a value-added differentiating factor compared with other BDCs.