Prospect Capital announced Prospect entered into a definitive agreement to acquire 100% of Nicholas Financial’s stock. Prospect intends to refinance the business using proceeds from a $250 million
revolving credit facility being provided by Bank of America as administrative agent and Wells Fargo. The new facility is a floating-rate, three-year $250 million revolving credit facility.

Prospect entered into its definitive agreement to acquire Nicholas Financial’s stock for $16 per share. Subject to certain conditions, the transaction is expected to close in April 2014, although this timing could be earlier or later depending on the time required to obtain the requisite approvals. The Nicholas board of directors voted to recommend the transaction to the security holders of Nicholas.

Including the $199 million equity valuation for Nicholas and after taking into consideration its outstanding net debt, which is currently $127 million, the overall value placed on Nicholas in the transaction is approximately $326 million before estimated transaction fees and expenses.

The aggregate net proceeds from the recapitalization will be used to repay the existing debt of Nicholas and return a portion of the capital issued by Prospect to complete the transaction on the closing date. After receipt of the recapitalization cash distribution, Prospect will have a net investment in the transaction of approximately $139 million.

Following the closing of the transaction, Prospect expects Nicholas to pay out substantially all of its income to Prospect on an ongoing basis. Prospect has structured the post-recapitalization entity in a tax efficient manner expected to result in substantial elimination of corporate taxation going forward. For the trailing 12 months ending September 2013, Nicholas generated pre-tax income of $31.8 million.

Prospect’s post-recapitalization $139 million investment in Nicholas is expected to consist of $122 million of operating and holding company term loans and $17 million of a holding company equity investment.

The acquisition of Nicholas allows Prospect to build on its tax-efficient industry experience in both consumer lending and auto lending.

“With its significant borrower diversity, prudent third-party leverage, secured lending orientation, long operating history, consistent financial performance, steady growth and expected tax efficiency, Nicholas represents a compelling portfolio company investment opportunity,” said Grier Eliasek, president of Prospect.

“After Nicholas announced earlier in 2013 that we would commence a process to consider our strategic options, we went through a comprehensive review,” said Peter Vosotas, founder and CEO of Nicholas. “There is no doubt in my mind that the transaction we are announcing today with Prospect is in the best interests of our security holders, our employees, and our customers. We look forward to successfully consummating this transaction in the months ahead.”