Daily News: January 23, 2012

Prospect Capital, Shareholders Sell NRG

Prospect Capital Corporation announced that it and other third-party shareholders have executed a stock purchase agreement to sell their ownership interests in NRG Manufacturing Inc., a manufacturer of oilfield equipment.

The transaction is subject to regulatory approval and is expected to close within the next 30 days. Such closing would also result in full repayment of Prospect’s loan to NRG.

Prospect expects to collect approximately $100 million in cash in the March 2012 quarter related to the sale of NRG. This $100 million would consist of approximately $30 million of investment income in the form of prepayment premium and structuring fee, with the remaining approximately $70 million related to debt repayment and equity proceeds. Additional amounts are expected to be escrowed for potential collection in future periods, resulting in potential incremental post-closing proceeds to Prospect of approximately $14 million. As a result, Prospect would receive a total of up to $114 million from the sale of NRG.

Prospect initially invested approximately $12 million of debt and equity in September 2006 to help finance the acquisition of NRG. Including all cash flows over the life of the investment, but not including escrowed amounts, Prospect expects to realize at closing on its combined debt and equity investment a 59% annualized internal rate of return.

With the expected sale of NRG, Prospect estimates it will have generated cumulative net investment income in excess of cumulative distributions to shareholders for both the current August 2012 tax year as well as since Prospect’s inception.

“Coming on the heels of the sale of Gas Solutions by our Energy Solutions portfolio company, Prospect’s sale of NRG adds another valuable realization to the Prospect Capital track record,” said M. Grier Eliasek, president of Prospect. “Our team is hard at work to invest our substantial liquidity. With our more than $1 billion of new originations in calendar year 2011, we have significant capability to invest such liquidity.”

“We applaud the managers of NRG, who have built the company into a premier supplier of mission-critical oilfield equipment,” said Bart J. deBie, a managing director of Prospect Capital Management. “Prospect is actively seeking new control and non-control investments across all industries.”

Separately, Prospect has provided $18.3 million of secured second lien financing to a financial services processing company purchased by a private equity sponsor. Prospect has also invested $34.4 million in Class D senior secured notes and Class E subordinated notes for CIFC Funding 2011-I, Ltd., with third party first loss capital underneath Prospect’s position.

Prospect Capital Corporation is a closed-end investment company that lends to and invests in private and microcap public businesses.