Prospect Capital Emphasizes Portfolio Safety in Quarterly Update

Prospect Capital Corporation has released its financial results for the second fiscal quarter, highlighting a strategic pivot towards more secure investments. The company's core earnings remain sufficient to cover its shareholder distributions, a key focus for investors assessing the reliability of its monthly dividends amid evolving market conditions.

For the quarter ended December 31, 2025, Prospect Capital reported total investment income of $176 million. Its core operating metric, net investment income, reached $90.9 million, or $0.19 per share. This figure comfortably covers the company's ongoing dividend payments. However, a net loss of $6.6 million, or $0.01 per share, was recorded for the period, primarily attributed to unrealized mark-to-market adjustments within the investment portfolio. The net asset value (NAV) per share stood at $6.21 as of the quarter-end date.

A Strategic Shift Toward Senior Secured Loans

A central theme of the report is the ongoing transformation of the company's investment portfolio. Management is deliberately steering towards a more defensive posture by increasing exposure to first lien senior secured loans. This category now represents 71.4% of the portfolio, marking a substantial increase of 701 basis points. Concurrently, the firm has nearly fully exited its positions in riskier second-lien debt and structured equity securities.

The overall portfolio, valued at $6.4 billion, is spread across 91 portfolio companies operating in 32 different industries. Notably, the allocation to software companies is just 2.8% of the portfolio's value. This is a significant deviation from the industry norm for Business Development Companies (BDCs), where exposure to the software sector often exceeds 20%.

Should investors sell immediately? Or is it worth buying Prospect Capital?

Balance Sheet and Capital Management

Prospect Capital maintains a stable financial foundation, with a net debt-to-total asset ratio of 28.2%. The capital structure benefits from significant use of unsecured liabilities and preferred equity, which provides enhanced flexibility. The company also reported that recent exits from its lower-middle-market investments have generated an internal rate of return (IRR) of approximately 17.2%.

Regarding shareholder returns, the board has already declared monthly dividends of $0.045 per share for March and April of 2026. By the end of April, the company will have returned a cumulative total of roughly $21.93 per share to its investors since its initial public offering. The strategic emphasis on first-lien secured lending is expected to remain a cornerstone of the company's risk management approach in the current quarter.

Key Data Points:
* Net Investment Income: $0.19 per share ($90.9 million)
* Declared Dividends: Monthly payments of $0.045 confirmed through April 2026
* Portfolio Composition: First lien senior secured loans now constitute 71.4%