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10-Q

Prospect Capital Corp (PSEC)

10-Q 2020-02-10 For: 2019-12-31
View Original
Added on April 10, 2026

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2019
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 814-00659

PROSPECT CAPITAL CORPORATION

(Exact name of registrant as specified in its charter)

Maryland 43-2048643
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
10 East 40th Street, 42nd Floor
New York, New York 10016
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 448-0702

Securities registered pursuant to Section 12(b) of the Act:

Title of each class Trading symbols Name of each exchange on which registered
Common Stock, $0.001 par value PSEC NASDAQ Global Select Market
6.25% Notes due 2024, par value $25 PBB New York Stock Exchange
6.25% Notes due 2028, par value $25 PBY New York Stock Exchange
6.875% Notes due 2029, par value $25 PBC New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes o    No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ý Accelerated filer o
Non-accelerated filer o Smaller reporting company o
Emerging growth company o
(Do not check if a smaller reporting company)

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o    No ý

As of February 7, 2020, there were 367,658,352 shares of the registrant’s common stock, $0.001 par value per share, outstanding.

Table of Contents

Page
Forward-Looking Statements 3
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Assets and Liabilities as of December 31, 2019 (unaudited) and June 30, 2019 4
Consolidated Statements of Operations for the three and six months ended December 31, 2019 and December 31, 2018 (unaudited) 5
Consolidated Statements of Changes in Net Assets for the three and six months ended December 31, 2019 and December 31, 2018 (unaudited) 6
Consolidated Statements of Cash Flows for the six months ended December 31, 2019 and December 31, 2018 (unaudited) 8
Consolidated Schedules of Investments as of December 31, 2019 (unaudited) and June 30, 2019 9
Notes to Consolidated Financial Statements 50
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 108
Item 3. Quantitative and Qualitative Disclosures About Market Risk 145
Item 4. Controls and Procedures 146
PART II OTHER INFORMATION
Item 1. Legal Proceedings 147
Item 1A. Risk Factors 147
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 147
Item 3. Defaults Upon Senior Securities 147
Item 4. Mine Safety Disclosures 147
Item 5. Other Information 148
Item 6. Exhibits 148
Signatures

FORWARD-LOOKING STATEMENTS

This report contains information that may constitute “forward-looking statements.” Generally, the words “believe,” “expect,”

“intend,” “estimate,” “anticipate,” “project,” “will” and similar expressions identify forward-looking statements, which generally are not historical in nature. However, the absence of these words or similar expressions does not mean that a statement is not forward-looking. All statements that address operating performance, events or developments that we expect or anticipate will occur in the future—including statements relating to volume growth, share of sales and earnings per share growth, and statements expressing general views about future operating results—are forward-looking statements. Management believes that these forward-looking statements are reasonable as and when made. However, caution should be taken not to place undue reliance on any such forward-looking statements because such statements speak only as of the date when made. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. In addition, forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our historical experience and our present expectations or projections. These risks and uncertainties include, but are not limited to, those described in Part II, “Item 1A. Risk Factors” and elsewhere in this report and in our Annual Report on Form 10-K for the year ended June 30, 2019, and those described from time to time in our future reports filed with the Securities and Exchange Commission.

The forward-looking statements contained in this report involve a number of risks and uncertainties, including statements concerning:

• our future operating results;
• our business prospects and the prospects of our portfolio companies;
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• the impact of investments that we expect to make;
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• our contractual arrangements and relationships with third parties;
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• the dependence of our future success on the general economy and its impact on the industries in which we invest;
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• the ability of our portfolio companies to achieve their objectives;
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• difficulty in obtaining financing or raising capital, especially in the current credit and equity environment;
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• the level and volatility of prevailing interest rates and credit spreads, magnified by the current turmoil in the credit markets;
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• adverse developments in the availability of desirable loan and investment opportunities whether they are due to competition, regulation or otherwise;
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• a compression of the yield on our investments and the cost of our liabilities, as well as the level of leverage available to us;
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• our regulatory structure and tax treatment, including our ability to operate as a business development company and a regulated investment company;
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• the adequacy of our cash resources and working capital;
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• the timing of cash flows, if any, from the operations of our portfolio companies;
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• the ability of the Investment Adviser to locate suitable investments for us and to monitor and administer our investments; and
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• authoritative generally accepted accounting principles or policy changes from such standard-setting bodies as the Financial Accounting Standards Board, the Securities and Exchange Commission, Internal Revenue Service, the NASDAQ Global Select Market, and other authorities that we are subject to, as well as their counterparts in any foreign jurisdictions where we might do business.
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3

PART I

Item 1. Financial Statements

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES

(in thousands, except share and per share data) December 31, 2019 June 30, 2019
(Unaudited) (Audited)
Assets
Investments at fair value:
Control investments (amortized cost of $2,397,025 and $2,385,806, respectively) $ 2,412,260 $ 2,475,924
Affiliate investments (amortized cost of $158,295 and $177,616, respectively) 87,623 76,682
Non-control/non-affiliate investments (amortized cost of $3,118,324 and $3,368,880, respectively) 2,768,662 3,100,947
Total investments at fair value (amortized cost of $5,673,644 and $5,932,302, respectively) 5,268,545 5,653,553
Cash 137,867 107,098
Receivables for:
Interest, net 11,872 26,504
Other 159 3,326
Deferred financing costs on Revolving Credit Facility (Note 4) 10,232 8,529
Due from broker 3,140 —
Prepaid expenses 478 1,053
Total Assets 5,432,293 5,800,063
Liabilities
Revolving Credit Facility (Notes 4 and 8) 92,000 167,000
Public Notes (less unamortized discount and debt issuance costs of $12,796 and $13,826,<br><br>respectively) (Notes 6 and 8) 781,578 780,548
Convertible Notes (less unamortized debt issuance costs of $11,310 and $13,867, respectively) (Notes 5 and 8) 657,104 739,997
Prospect Capital InterNotes® (less unamortized debt issuance costs of $12,457 and $12,349, <br> respectively) (Notes 7 and 8) 609,952 695,350
Due to Prospect Capital Management (Note 13) 44,515 46,525
Interest payable 30,837 34,104
Dividends payable 22,055 22,028
Accrued expenses 6,213 5,414
Due to Prospect Administration (Note 13) 2,929 1,885
Other liabilities 1,245 937
Total Liabilities 2,248,428 2,493,788
Commitments and Contingencies (Note 3)
Net Assets $ 3,183,865 $ 3,306,275
Components of Net Assets
Common stock, par value $0.001 per share (1,000,000,000 common shares authorized; 367,584,244 and 367,131,025 issued and outstanding, respectively) (Note 9) $ 367 $ 367
Paid-in capital in excess of par (Note 9) 4,042,785 4,039,872
Total distributable earnings (loss) (859,287 ) (733,964 )
Net Assets $ 3,183,865 $ 3,306,275
Net Asset Value Per Share (Note 16) $ 8.66 $ 9.01

See notes to consolidated financial statements.

4

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share data)

(Unaudited)

Three Months Ended December 31, Six Months Ended December 31,
2019 2018 2019 2018
Investment Income
Interest income:
Control investments $ 49,602 $ 53,674 $ 100,468 $ 110,128
Affiliate investments 2,463 174 2,702 401
Non-control/non-affiliate investments 59,152 68,679 121,102 137,288
Structured credit securities 29,442 35,467 62,343 69,619
Total interest income 140,659 157,994 286,615 317,436
Dividend income:
Control investments 3,268 13,000 7,068 27,665
Non-control/non-affiliate investments 241 266 695 528
Total dividend income 3,509 13,266 7,763 28,193
Other income:
Control investments 13,189 15,741 24,572 18,532
Non-control/non-affiliate investments 4,560 882 4,850 4,144
Total other income (Note 10) 17,749 16,623 29,422 22,676
Total Investment Income 161,917 187,883 323,800 368,305
Operating Expenses
Base management fee (Note 13) 27,543 33,187 56,006 63,144
Income incentive fee (Note 13) 16,971 20,203 34,736 41,493
Interest and credit facility expenses 37,059 40,656 75,957 78,564
Allocation of overhead from Prospect Administration (Note 13) 6,011 5,642 9,505 9,007
Audit, compliance and tax related fees 1,933 2,389 2,308 2,782
Directors’ fees 113 150 226 229
Other general and administrative expenses 4,402 4,845 6,117 7,116
Total Operating Expenses 94,032 107,072 184,855 202,335
Net Investment Income 67,885 80,811 138,945 165,970
Net Realized and Net Change in Unrealized Gains (Losses) from Investments
Net realized gains (losses)
Control investments — 2,801 — 2,802
Non-control/non-affiliate investments 1,909 192 (289 ) 1,232
Net realized gains (losses) 1,909 2,993 (289 ) 4,034
Net change in unrealized (losses) gains
Control investments (35,863 ) (85,733 ) (74,884 ) (33,815 )
Affiliate investments 12,242 (5,894 ) 30,262 (19,649 )
Non-control/non-affiliate investments (54,271 ) (59,069 ) (81,729 ) (96,183 )
Net change in unrealized (losses) gains (77,892 ) (150,696 ) (126,351 ) (149,647 )
Net Realized and Net Change in Unrealized (Losses) Gains from Investments (75,983 ) (147,703 ) (126,640 ) (145,613 )
Net realized losses on extinguishment of debt (3,105 ) (497 ) (5,443 ) (3,951 )
Net (Decrease) Increase in Net Assets Resulting from Operations $ (11,203 ) $ (67,389 ) $ 6,862 $ 16,406
Net (decrease) increase in net assets resulting from operations per share $ (0.03 ) $ (0.18 ) $ 0.02 $ 0.04
Dividends declared per share $ (0.18 ) $ (0.18 ) $ (0.36 ) $ (0.36 )

See notes to consolidated financial statements.

5

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS

(in thousands, except share data)

(Unaudited)

Common Stock
Six Months Ended December 31, 2018 Shares Par Paid-in capital in excess of par Distributable earnings (loss)(1) Total Net Assets
Balance as of June 30, 2018 364,409,938 $ 364 $ 4,021,541 $ (614,858 ) $ 3,407,047
Net Decrease in Net Assets resulting from Operations:
Net investment income 165,970 165,970
Net realized gains 83 83
Net change in unrealized losses (149,647 ) (149,647 )
Distributions to Shareholders —
Distributions from earnings (131,531 ) (131,531 )
Shares issued through reinvestment of dividends 1,646,028 2 11,251 11,253
Tax reclassifications of net assets (Note 12) (31 ) 31 —
Total increase (decrease) for the six months ended December 31, 2018 1,646,028 2 11,220 (115,094 ) (103,872 )
Balance as of December 31, 2018 366,055,966 $ 366 $ 4,032,761 $ (729,952 ) $ 3,303,175
Common Stock
--- --- --- --- --- --- --- --- --- --- --- --- ---
Six Months Ended December 31, 2019 Shares Par Paid-in capital in excess of par Distributable earnings (loss) Total Net Assets
Balance as of June 30, 2019 367,131,025 $ 367 $ 4,039,872 $ (733,964 ) $ 3,306,275
Net Decrease in Net Assets resulting from Operations:
Net investment income 138,945 138,945
Net realized losses (5,732 ) (5,732 )
Net change in unrealized losses (126,351 ) (126,351 )
Distributions to Shareholders —
Distributions from earnings (132,263 ) (132,263 )
Shares issued through reinvestment of dividends 453,219 — 2,991 2,991
Tax reclassifications of net assets (Note 12) (78 ) 78 —
Total increase (decrease) for the six months ended December 31, 2019 453,219 — 2,913 (125,323 ) (122,410 )
Balance as of December 31, 2019 367,584,244 $ 367 $ 4,042,785 $ (859,287 ) $ 3,183,865

(1) See Note 2. Significant Accounting Policies and Recent Accounting Updates.

See notes to consolidated financial statements.

6

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)

(in thousands, except share data)

(Unaudited)

Common Stock
Three Months Ended December 31, 2018 Shares Par Paid-in capital in excess of par Distributable earnings (loss)(1) Total Net Assets
Balance as of September 30, 2018 365,225,139 $ 365 $ 4,027,305 $ (596,726 ) $ 3,430,944
Net Decrease in Net Assets resulting from Operations:
Net investment income 80,811 80,811
Net realized gains 2,496 2,496
Net change in unrealized losses (150,696 ) (150,696 )
Distributions to Shareholders —
Distributions from earnings (65,837 ) (65,837 )
Shares issued through reinvestment of dividends 830,827 1 5,456 5,457
Total increase (decrease) for the three months ended December 31, 2018 830,827 1 5,456 (133,226 ) (127,769 )
Balance as of December 31, 2018 366,055,966 $ 366 $ 4,032,761 $ (729,952 ) $ 3,303,175
Common Stock
--- --- --- --- --- --- --- --- --- --- --- ---
Three Months Ended December 31, 2019 Shares Par Paid-in capital in excess of par Distributable earnings (loss) Total Net Assets
Balance as of September 30, 2019 367,363,872 $ 367 $ 4,041,338 $ (781,932 ) $ 3,259,773
Net Decrease in Net Assets resulting from Operations:
Net investment income 67,885 67,885
Net realized losses (1,196 ) (1,196 )
Net change in unrealized losses (77,892 ) (77,892 )
Distributions to Shareholders —
Distributions from earnings (66,152 ) (66,152 )
Shares issued through reinvestment of dividends 220,372 — 1,447 1,447
Total increase (decrease) for the three months ended December 31, 2019 220,372 — 1,447 (77,355 ) (75,908 )
Balance as of December 31, 2019 367,584,244 $ 367 $ 4,042,785 $ (859,287 ) $ 3,183,865

See notes to consolidated financial statements.

7

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands, except share data)

(Unaudited)

Six Months Ended December 31,
2019 2018
Operating Activities
Net increase in net assets resulting from operations $ 6,862 $ 16,406
Net realized losses on extinguishment of debt 5,443 3,951
Net realized losses (gains) on investments 289 (4,034 )
Net change in net unrealized losses (gains) on investments 126,351 149,647
Amortization of discounts (accretion of premiums), net 2,858 (120 )
Accretion of discount on Public Notes (Note 6) 515 235
Amortization of deferred financing costs 4,110 6,343
Payment-in-kind interest (21,175 ) (19,306 )
Structuring fees (5,177 ) (3,434 )
Change in operating assets and liabilities:
Payments for purchases of investments (344,587 ) (458,154 )
Proceeds from sale of investments and collection of investment principal 626,450 220,110
Decrease in due to broker — (6,159 )
(Decrease) increase in due to Prospect Capital Management (2,010 ) 2,256
Decrease in interest receivable, net 14,632 12,120
Decrease in interest payable (3,267 ) (766 )
Increase in accrued expenses 799 79
(Increase) decrease in due from broker (3,140 ) 2,449
Increase (Decrease) in other liabilities 308 (144 )
Decrease in other receivables 3,167 1,630
Decrease in prepaid expenses 575 416
Increase (decrease) in due to Prospect Administration 1,044 (427 )
Net Cash Provided by (Used in) Operating Activities 414,047 (76,902 )
Financing Activities
Borrowings under Revolving Credit Facility (Note 4) 398,000 746,791
Principal payments under Revolving Credit Facility (Note 4) (473,000 ) (486,791 )
Issuances of Public Notes, net of original issue discount (Note 6) — 182,427
Redemptions of Public Notes (Note 6) — (153,536 )
Redemptions of Convertible Notes, net (Note 5) (87,244 ) (13,433 )
Issuances of Prospect Capital InterNotes® (Note 7) 158,078 69,586
Redemptions of Prospect Capital InterNotes®, net (Note 7) (243,368 ) (104,851 )
Financing costs paid and deferred (6,497 ) (17,201 )
Dividends paid (129,247 ) (120,180 )
Net Cash (Used in) Provided by Financing Activities (383,278 ) 102,812
Net Increase in Cash 30,769 25,910
Cash at beginning of period 107,098 83,758
Cash at End of Period $ 137,867 $ 109,668
Supplemental Disclosures
Cash paid for interest $ 74,599 $ 72,752
Purchases of investments settled net of proceeds from sale of investments $ 50,237 $ —
Non-Cash Financing Activities
Value of shares issued through reinvestment of dividends $ 2,991 $ 11,253
Cost basis of investments written off as worthless $ 2,420 $ —

See notes to consolidated financial statements.

8

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULES OF INVESTMENTS AS OF DECEMBER 31, 2019 (Unaudited)

(in thousands, except share data)

December 31, 2019 (Unaudited)
Portfolio Company Industry Investments(1)(44) Acquisition Date(51) Principal Value Amortized Cost Fair<br>Value(2) % of Net Assets
Control Investments (greater than 25.00% voting control)(49)
CP Energy Services Inc.(20) Energy Equipment & Services Senior Secured Term Loan (12.95% (LIBOR + 11.00% with 1.00% LIBOR floor), due 12/29/2022)(11) 10/1/2017 $ 35,048 $ 35,048 $ 35,048 1.1%
Senior Secured Term Loan A to Spartan Energy Services, Inc. (9.80% (LIBOR + 8.00% with 1.00% LIBOR floor), due 12/31/2022)(13) 10/20/2014 13,156 13,156 13,156 0.4%
Senior Secured Term Loan B to Spartan Energy Services, Inc. (15.80% PIK (LIBOR + 14.00% with 1.00% LIBOR floor), due 12/31/2022)(13)(46) 10/20/2014 23,361 23,361 20,801 0.7%
Series B Convertible Preferred Stock (16.00%, 790 shares)(16) 10/30/2015 63,225 32,716 1.0%
Common Stock (102,924 shares)(16) 8/2/2013 86,241 — —%
221,031 101,721 3.2%
Credit Central Loan Company, LLC(21) Consumer Finance Subordinated Term Loan (10.00% plus 10.00% PIK, due 6/26/2024)(14)(46) 12/28/2012 56,862 53,696 56,862 1.8%
Class A Units (14,867,312 units)(14)(16) 12/28/2012 19,331 20,020 0.6%
Net Revenues Interest (25% of Net Revenues)(14)(16) 1/28/2015 — — —%
73,027 76,882 2.4%
Echelon Transportation, LLC Aerospace & Defense Senior Secured Term Loan (11.99% (LIBOR + 9.75% with 2.00% LIBOR floor) plus 2.25% PIK, due 3/31/2022)(13)(46) 3/31/2014 39,917 39,917 39,917 1.3%
Senior Secured Term Loan (11.24% (LIBOR + 9.00% with 2.00% LIBOR floor) plus 1.00% PIK, due 12/7/2024)(13)(46) 12/9/2016 19,198 19,198 19,198 0.6%
Membership Interest (100%)(16) 3/31/2014 22,738 31,950 1.0%
81,853 91,065 2.9%
First Tower Finance Company LLC(23) Consumer Finance Subordinated Term Loan to First Tower, LLC (10.00% plus 10.50% PIK, due 6/24/2024)(14)(46) 6/24/2014 277,987 277,987 277,987 8.7%
Class A Units (95,709,910 units)(14)(16) 6/14/2012 81,146 224,798 7.1%
359,133 502,785 15.8%
Freedom Marine Solutions, LLC(24) Energy Equipment & Services Membership Interest (100%)(16) 11/9/2006 43,892 14,920 0.5%
43,892 14,920 0.5%
InterDent, Inc.(29) Health Care Providers & Services Senior Secured Term Loan A/B (6.85% (LIBOR + 5.05% with 0.75% LIBOR floor), due 9/5/2020)(13) 8/1/2018 14,000 14,000 14,000 0.4%
Senior Secured Term Loan A (7.30% (LIBOR + 5.50% with 0.75% LIBOR floor), due 9/5/2020)(13) 8/3/2012 77,994 77,994 77,994 2.5%
Senior Secured Term Loan B (10.00% PIK, due 9/5/2020)(46) 8/3/2012 122,188 122,188 104,977 3.3%
Senior Secured Term Loan C (18.00% PIK, in non-accrual status effective 10/1/2018, due 9/5/2020) 3/22/2018 44,763 35,766 — —%
Senior Secured Term Loan D (1.00% PIK, in non-accrual status effective 10/1/2018, due 9/5/2020) 9/19/2018 5,065 5,001 — —%
Common Stock (99,900 shares)(16) 5/3/2019 1 — —%
254,950 196,971 6.2%

See notes to consolidated financial statements.

9

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULES OF INVESTMENTS AS OF DECEMBER 31, 2019 (Unaudited)

(in thousands, except share data)

December 31, 2019 (Unaudited)
Portfolio Company Industry Investments(1)(44) Acquisition Date(51) Principal Value Amortized Cost Fair<br>Value(2) % of Net Assets
Control Investments (greater than 25.00% voting control)(49)
Kickapoo Ranch Pet Resort Diversified Consumer Services Membership Interest (100%)(16) 8/26/2019 $ 2,378 $ 4,361 0.1%
2,378 4,361 0.1%
MITY, Inc.(25) Commercial Services & Supplies Senior Secured Note A (10.00% (LIBOR + 7.00% with 3.00% LIBOR floor), due 6/30/2020)(3)(11) 9/19/2013 $ 26,250 26,250 26,250 0.8%
Senior Secured Note B (10.00% (LIBOR + 7.00% with 3.00% LIBOR floor) plus 10.00% PIK, due 6/30/2020)(3)(11)(46) 9/19/2013 31,386 31,386 29,936 1.0%
Subordinated Unsecured Note to Broda Enterprises ULC (10.00%, due 1/1/2028)(14) 9/19/2013 5,683 6,627 — —%
Common Stock (42,053 shares)(16) 9/19/2013 6,849 — —%
71,112 56,186 1.8%
National Property REIT Corp.(26) Equity Real Estate Investment Trusts (REITs) / Online Lending / Structured Finance Senior Secured Term Loan A (6.50% (LIBOR + 3.50% with 3.00% LIBOR floor) plus 5.00% PIK, due 12/31/2023)(11)(46) 12/31/2018 433,553 433,553 433,553 13.6%
Senior Secured Term Loan B (5.00% (LIBOR + 2.00% with 3.00% LIBOR floor) plus 5.50% PIK, due 12/31/2023)(11)(46) 12/31/2018 79,000 79,000 79,000 2.5%
Senior Secured Term Loan C (15.00% (LIBOR + 12.00% with 3.00% LIBOR floor) plus 2.25% PIK, due 12/31/2023)(11)(46) 10/31/2019 51,428 51,428 51,428 1.6%
Residual Profit Interest(37) 12/31/2018 — 37,562 1.2%
Common Stock (3,203,927 shares)(52) 12/31/2013 176,693 425,345 13.4%
740,674 1,026,888 32.3%
Nationwide Loan Company LLC(27) Consumer Finance Senior Subordinated Term Loan to Nationwide Acceptance LLC (10.00% plus 10.00% PIK, due 6/18/2020)(14)(46) 6/18/2014 19,420 19,420 19,420 0.6%
Class A Units (32,456,159 units)(14) 1/31/2013 21,962 16,807 0.5%
41,382 36,227 1.1%
NMMB, Inc.(28) Media Senior Secured Note (10.50% (LIBOR + 8.50% with 2.00% LIBOR floor), due 12/30/2024)(11) 12/30/2019 15,100 15,100 15,100 0.5%
Common Stock (21,419 shares)(16) 12/30/2019 — 12,869 22,818 0.7%
27,969 37,918 1.2%
Pacific World Corporation(40) Personal Products Revolving Line of Credit – $26,000 Commitment (9.06% (LIBOR + 7.25% with 1.00% LIBOR floor), in non-accrual status effective 10/1/2019, due 9/26/2020)(13)(15) 9/26/2014 20,825 20,825 20,825 0.7%
Senior Secured Term Loan A (7.06% PIK (LIBOR + 5.25% with 1.00% LIBOR floor), in non-accrual status effective 10/24/2018, due 9/26/2020)(13) 12/31/2014 105,045 96,000 41,785 1.3%
Senior Secured Term Loan B (11.06% PIK (LIBOR + 9.25% with 1.00% LIBOR floor), in non-accrual status effective 5/21/2018, due 9/26/2020)(13) 12/31/2014 116,671 96,500 — —%
Convertible Preferred Equity (227,330shares)(16) 6/15/2018 34,100 — —%
Common Stock (6,778,414 shares)(16) 9/29/2017 — — —%
247,425 62,610 2.0%
R-V Industries, Inc. Machinery Senior Subordinated Note (10.95% (LIBOR + 9.00% with 1.00% LIBOR floor), due 3/31/2022)(3)(11) 6/12/2013 28,622 28,622 28,622 0.9%
Common Stock (745,107 shares)(16) 6/26/2007 6,866 7,881 0.2%
35,488 36,503 1.1%

See notes to consolidated financial statements.

10

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULES OF INVESTMENTS AS OF DECEMBER 31, 2019 (Unaudited)

(in thousands, except share data)

December 31, 2019 (Unaudited)
Portfolio Company Industry Investments(1)(44) Acquisition Date(51) Principal Value Amortized Cost Fair<br>Value(2) % of Net Assets
Control Investments (greater than 25.00% voting control)(49)
Universal Turbine Parts, LLC(34) Trading Companies & Distributors Delayed Draw Term Loan – $5,000 Commitment (10.25% (LIBOR + 7.75% with 2.50% LIBOR floor), due 7/22/2021)(13)(15) 2/28/2019 $ 998 $ 998 $ 998 —%
Senior Secured Term Loan A (7.70% (LIBOR + 5.75% with 1.00% LIBOR floor), due 7/22/2021)(11) 7/22/2016 30,388 30,388 27,624 0.9%
Senior Secured Term Loan B (13.70% PIK (LIBOR + 11.75% with 1.00% LIBOR floor), in non-accrual status effective 7/1/2018, due 7/22/2021)(11) 7/22/2016 40,163 32,500 — —%
Common Stock (10,000 units)(16) 12/10/2018 — — —%
63,886 28,622 0.9%
USES Corp.(30) Commercial Services & Supplies Senior Secured Term Loan A (9.00% PIK, in non-accrual status effective 4/1/2016, due 7/29/2022) 3/31/2014 42,013 30,651 16,101 0.5%
Senior Secured Term Loan B (15.50% PIK, in non-accrual status effective 4/1/2016, due 7/29/2022) 3/31/2014 61,318 35,568 — —%
Common Stock (268,962 shares)(16) 6/15/2016 — — —%
66,219 16,101 0.5%
Valley Electric Company, Inc.(31) Construction & Engineering Senior Secured Note to Valley Electric Co. of Mt. Vernon, Inc. (8.00% (LIBOR + 5.00% with 3.00% LIBOR floor) plus 2.50% PIK, due 12/31/2024)(3)(11)(46) 12/31/2012 10,430 10,430 10,430 0.3%
Senior Secured Note (8.00% plus 10.00% PIK, due 6/23/2024)(46) 6/24/2014 33,301 33,301 33,301 1.0%
Consolidated Revenue Interest (2.0%)(38) 6/22/2018 — 2,746 0.1%
Common Stock (50,000 shares) 12/31/2012 22,875 76,023 2.4%
66,606 122,500 3.8%
Total Control Investments $ 2,397,025 $ 2,412,260 75.8%
December 31, 2019 (Unaudited)
--- --- --- --- --- --- --- --- --- --- ---
Portfolio Company Industry Investments(1)(44) Acquisition Date(51) Principal Value Amortized Cost Fair<br>Value(2) % of Net Assets
Affiliate Investments (5.00% to 24.99% voting control)(48)
Edmentum Ultimate Holdings, LLC(22) Diversified Consumer Services Second Lien Revolving Credit Facility to Edmentum, Inc. – $7,834 Commitment (5.00% PIK, due 12/9/2021)(15)(46) 6/9/2015 $ 8,033 $ 8,033 $ 8,033 0.2%
Unsecured Senior PIK Note (8.50% PIK, due 12/9/2021)(46) 6/9/2015 8,548 8,548 8,548 0.3%
Unsecured Junior PIK Note (10.00% PIK, due 12/9/2021)(46) 6/9/2015 40,952 25,303 40,338 1.3%
Class A Units (370,964 units)(16) 6/9/2015 — 6,577 8,123 0.3%
48,461 65,042 2.1%
Nixon, Inc.(39) Textiles, Apparel & Luxury Goods Common Stock (857 units)(16) 5/12/2017 — — — —%
— — —%
Targus Cayman HoldCo Limited(33) Textiles, Apparel & Luxury Goods Common Stock (7,383,395 shares) 2/12/2016 — 2,805 16,224 0.5%
2,805 16,224 0.5%
United Sporting Companies, Inc.(18) Distributors Second Lien Term Loan (12.80% (LIBOR + 11.00% with 1.75% LIBOR floor) plus 2.00% PIK, in non-accrual status effective 4/1/2017, due 11/16/2019)(13) 9/28/2012 147,991 107,029 6,357 0.2%
Common Stock (218,941 shares)(16) 5/2/2017 — — — —%
107,029 6,357 0.2%
Total Affiliate Investments $ 158,295 $ 87,623 2.8%

See notes to consolidated financial statements.

11

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULES OF INVESTMENTS AS OF DECEMBER 31, 2019 (Unaudited)

(in thousands, except share data)

December 31, 2019 (Unaudited)
Portfolio Company Industry Investments(1)(44) Acquisition Date(51) Principal Value Amortized Cost Fair<br>Value(2) % of Net Assets
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
8th Avenue Food & Provisions, Inc. Food Products Second Lien Term Loan (9.49% (LIBOR + 7.75%), due 10/1/2026)(3)(8)(13) 10/10/2018 $ 25,000 $ 24,841 $ 24,841 0.8%
24,841 24,841 0.8%
ACE Cash Express, Inc. Consumer Finance Senior Secured Note (12.00%, due 12/15/2022)(8)(10)(14) 12/15/2017 30,000 28,563 25,491 0.8%
28,563 25,491 0.8%
Ahead Data Blue, LLC IT Services Second Lien Term Loan (10.30% (LIBOR + 8.50% with 1.50% LIBOR floor), due 11/8/2025)(13) 12/13/2019 70,000 70,000 70,000 2.2%
70,000 70,000 2.2%
AmeriLife Group, LLC Insurance Second Lien Term Loan (10.80% (LIBOR + 9.00%), due 6/11/2027)(3)(8)(13) 6/24/2019 10,000 10,000 10,000 0.3%
10,000 10,000 0.3%
Apidos CLO XI Structured Finance Subordinated Structured Note (Residual Interest, current yield 10.94%, due 10/17/2030)(5)(14) 1/17/2013 40,500 33,349 27,462 0.9%
33,349 27,462 0.9%
Apidos CLO XII Structured Finance Subordinated Structured Note (Residual Interest, current yield 15.64%, due 4/15/2031)(5)(14) 4/18/2013 52,203 37,154 30,457 1.0%
37,154 30,457 1.0%
Apidos CLO XV Structured Finance Subordinated Structured Note (Residual Interest, current yield 15.00%, due 4/21/2031)(5)(14) 10/16/2013 48,515 38,601 29,519 0.9%
38,601 29,519 0.9%
Apidos CLO XXII Structured Finance Subordinated Structured Note (Residual Interest, current yield 7.32%, due 10/20/2027)(5)(14) 10/14/2015 31,350 28,147 23,446 0.7%
28,147 23,446 0.7%
Ark-La-Tex Wireline Services, LLC Energy Equipment & Services Escrow Receivable 4/8/2014 — — —%
— — —%
Atlantis Health Care Group (Puerto Rico), Inc. Health Care Providers & Services Revolving Line of Credit – $6,000 Commitment (10.75% (LIBOR + 8.75% with 2.00% LIBOR floor), due 2/21/2020)(11)(15) 2/21/2013 2,000 2,000 2,000 0.1%
Senior Secured Term Loan (10.75% (LIBOR + 8.75% with 2.00% LIBOR floor), due 2/21/2020)(3)(11) 2/21/2013 73,919 73,919 73,919 2.3%
75,919 75,919 2.4%
Barings CLO 2018-III Structured Finance Subordinated Structured Note (Residual Interest, current yield 9.42%, due 7/20/2029)(5)(14) 11/18/2014 83,098 49,380 34,711 1.1%
49,380 34,711 1.1%
Broder Bros., Co. Textiles, Apparel & Luxury Goods Senior Secured Note (10.47% (LIBOR + 8.50% with 1.25% LIBOR floor), due 12/02/2022)(3)(11) 12/4/2017 172,844 172,844 172,844 5.4%
172,844 172,844 5.4%
Brookside Mill CLO Ltd. Structured Finance Subordinated Structured Note (Residual Interest, current yield 5.43%, due 1/17/2028)(5)(14) 5/23/2013 36,300 18,044 12,763 0.4%
18,044 12,763 0.4%
California Street CLO IX Ltd. Structured Finance Subordinated Structured Note (Residual Interest, current yield 10.64%, due 7/16/2032)(5)(14) 5/8/2012 58,915 41,473 31,743 1.0%
41,473 31,743 1.0%
Candle-Lite Company, LLC Household Products Senior Secured Term Loan A (7.42% (LIBOR + 5.50% with 1.25% LIBOR floor), due 1/23/2023)(3)(11) 1/23/2018 12,063 12,063 12,061 0.4%
Senior Secured Term Loan B (11.42% (LIBOR + 9.50% with 1.25% LIBOR floor), due 1/23/2023)(3)(11) 1/23/2018 12,500 12,500 12,500 0.4%
24,563 24,561 0.8%

See notes to consolidated financial statements.

12

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULES OF INVESTMENTS AS OF DECEMBER 31, 2019 (Unaudited)

(in thousands, except share data)

December 31, 2019 (Unaudited)
Portfolio Company Industry Investments(1)(44) Acquisition Date(51) Principal Value Amortized Cost Fair<br>Value(2) % of Net Assets
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
Capstone Logistics Acquisition, Inc. Commercial Services & Supplies Second Lien Term Loan (10.05% (LIBOR + 8.25% with 1.00% LIBOR floor), due 10/7/2022)(3)(8)(13) 10/7/2014 $ 98,982 $ 98,748 $ 98,982 3.1%
98,748 98,982 3.1%
Carlyle C17 CLO Limited Structured Finance Subordinated Structured Note (Residual Interest, current yield 20.27%, due 4/30/2031)(5)(14) 2/21/2013 24,870 15,023 12,792 0.4%
15,023 12,792 0.4%
Carlyle Global Market Strategies CLO 2014-4-R, Ltd. Structured Finance Subordinated Structured Note (Residual Interest, current yield 21.30%, due 7/15/2030)(5)(14) 4/12/2017 25,534 17,750 17,577 0.5%
17,750 17,577 0.5%
Carlyle Global Market Strategies CLO 2016-3, Ltd. Structured Finance Subordinated Structured Note (Residual Interest, current yield 11.59%, due 10/20/2029)(5)(14) 9/13/2016 32,200 34,555 26,208 0.8%
34,555 26,208 0.8%
CCPI Inc.(19) Electronic Equipment, Instruments & Components Escrow Receivable 2/28/2019 — 2,307 0.1%
— 2,307 0.1%
CCS-CMGC Holdings, Inc. Health Care Providers & Services First Lien Term Loan (7.30% (LIBOR + 5.50%), due 10/1/2025)(3)(8)(13) 5/23/2019 6,033 5,945 5,945 0.2%
First Lien Term Loan (7.43% (LIBOR + 5.50%), due 10/1/2025)(3)(8)(11) 5/23/2019 3,639 3,586 3,586 0.1%
Second Lien Term Loan (10.93% (LIBOR + 9.00%), due 10/1/2026)(3)(8)(11) 10/12/2018 37,000 36,399 36,399 1.1%
45,930 45,930 1.4%
Cent CLO 21 Limited Structured Finance Subordinated Structured Note (Residual Interest, current yield 13.37%, due 7/27/2030)(5)(14) 6/18/2014 49,552 38,609 28,433 0.9%
38,609 28,433 0.9%
CIFC Funding 2013-III-R, Ltd. Structured Finance Subordinated Structured Note (Residual Interest, current yield 12.15%, due 4/24/2031)(5)(14) 9/12/2013 44,100 29,748 22,814 0.7%
29,748 22,814 0.7%
CIFC Funding 2013-IV, Ltd. Structured Finance Subordinated Structured Note (Residual Interest, current yield 14.09%, due 4/28/2031)(5)(14) 11/14/2013 45,500 32,707 28,641 0.9%
32,707 28,641 0.9%
CIFC Funding 2014-IV-R, Ltd. Structured Finance Subordinated Structured Note (Residual Interest, current yield 13.42%, due 10/17/2030)(5)(14) 9/3/2014 44,467 30,913 25,457 0.8%
30,913 25,457 0.8%
CIFC Funding 2016-I, Ltd. Structured Finance Subordinated Structured Note (Residual Interest, current yield 11.55%, due 10/21/2031)(5)(14) 12/21/2016 34,000 31,031 27,479 0.9%
31,031 27,479 0.9%
Cinedigm DC Holdings, LLC Entertainment Senior Secured Term Loan (11.00% (LIBOR + 9.00% with 2.00% LIBOR floor) plus 2.50% PIK, due 3/31/2021)(11)(46) 2/28/2013 12,559 12,509 12,559 0.4%
12,509 12,559 0.4%
Class Valuation, LLC Real Estate Management & Development Revolving Line of Credit – $1,500 Commitment (10.20% (LIBOR + 8.25% with 1.50% LIBOR floor), due 3/12/2020)(11)(15) 3/12/2018 — — — —%
Senior Secured Term Loan (10.20% (LIBOR + 8.25% with 1.50% LIBOR floor), due 3/10/2023)(3)(11) 3/12/2018 38,432 38,432 38,432 1.2%
38,432 38,432 1.2%
Collections Acquisition Company, Inc. Diversified Financial Services Senior Secured Term Loan (10.15% (LIBOR + 7.65% with 2.50% LIBOR floor), due 6/3/2024)(3)(11) 12/3/2019 30,433 30,433 30,433 1.0%
30,433 30,433 1.0%

See notes to consolidated financial statements.

13

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULES OF INVESTMENTS AS OF DECEMBER 31, 2019 (Unaudited)

(in thousands, except share data)

December 31, 2019 (Unaudited)
Portfolio Company Industry Investments(1)(44) Acquisition Date(51) Principal Value Amortized Cost Fair<br>Value(2) % of Net Assets
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
Columbia Cent CLO 27 Limited Structured Finance Subordinated Structured Note (Residual Interest, current yield 17.36%, due 10/25/2028)(5)(14) 1/15/2014 $ 40,275 $ 22,646 $ 24,635 0.8%
22,646 24,635 0.8%
Coverall North America, Inc. Commercial Services & Supplies Senior Secured Term Loan A (7.95% (LIBOR + 6.00% with 1.00% LIBOR floor), due 11/02/2020)(3)(11) 11/2/2015 5,100 5,100 5,100 0.2%
Senior Secured Term Loan B (12.95% (LIBOR + 11.00% with 1.00% LIBOR floor), due 11/02/2020)(3)(11) 11/2/2015 23,000 23,000 23,000 0.7%
28,100 28,100 0.9%
CP VI Bella Midco IT Services Second Lien Term Loan (8.55% (LIBOR + 6.75%), due 12/29/2025)(3)(8)(13) 2/26/2018 15,750 15,707 15,750 0.5%
15,707 15,750 0.5%
Digital Room, LLC Commercial Services & Supplies First Lien Term Loan (6.80% (LIBOR + 5.00%), due 5/21/2026)(3)(8)(13) 5/29/2019 9,950 9,819 9,819 0.3%
Second Lien Term Loan (10.80% (LIBOR + 9.00%), due 5/21/2027)(3)(8)(13) 5/30/2019 70,000 70,000 69,477 2.2%
79,819 79,296 2.5%
Dunn Paper, Inc. Paper & Forest Products First Lien Term Loan (6.55% (LIBOR + 4.75% with 1.00% LIBOR floor), due 8/26/2022)(8)(13) 11/27/2019 4,488 4,371 4,371 0.1%
Second Lien Term Loan (10.55% (LIBOR + 8.75% with 1.00% LIBOR floor), due 8/26/2023)(3)(8)(13) 10/7/2016 11,500 11,379 11,379 0.4%
15,750 15,750 0.5%
Easy Gardener Products, Inc. Household Durables Senior Secured Term Loan (11.95% (LIBOR + 10.00% with 0.25% LIBOR floor), in non-accrual status effective 10/1/2019, due 09/30/2020)(11) 10/2/2015 15,719 15,719 4,353 0.1%
15,719 4,353 0.1%
Engine Group, Inc.(7) Media Senior Secured Term Loan (6.94% (LIBOR + 5.00% with 1.00% LIBOR floor), due 9/15/2022)(8)(11) 9/25/2017 4,220 4,220 4,031 0.1%
Second Lien Term Loan (10.94% (LIBOR + 9.00% with 1.00% LIBOR floor), due 9/15/2023)(3)(8)(11) 9/25/2017 35,000 35,000 31,305 1.0%
39,220 35,336 1.1%
EXC Holdings III Corp Technology Hardware, Storage & Peripherals Second Lien Term Loan (9.59% (LIBOR + 7.50% with 1.00% LIBOR floor), due 12/01/2025)(3)(8)(11) 12/5/2017 12,500 12,408 12,408 0.4%
12,408 12,408 0.4%
Galaxy XV CLO, Ltd. Structured Finance Subordinated Structured Note (Residual Interest, current yield 9.86%, due 10/15/2030)(5)(14) 3/14/2013 50,525 35,944 25,468 0.8%
35,944 25,468 0.8%
Galaxy XXVII CLO, Ltd. Structured Finance Subordinated Structured Note (Residual Interest, current yield 8.24%, due 5/16/2031)(5)(14) 11/5/2013 24,575 16,516 11,463 0.4%
16,516 11,463 0.4%
Galaxy XXVIII CLO, Ltd. Structured Finance Subordinated Structured Note (Residual Interest, current yield 7.75%, due 7/15/2031)(5)(14) 6/27/2014 39,905 28,720 18,207 0.6%
28,720 18,207 0.6%
GEON Performance Solutions, LLC Chemicals Revolving Line of Credit – $3,621 Commitment (7.96% (LIBOR+6.25% with 1.63% LIBOR floor), due10/25/2024)(13)(15) 12/12/2019 — — — —%
First Lien Term Loan (7.96% (LIBOR+6.25% with 1.63% LIBOR floor), due10/25/2024)(13) 12/12/2019 31,379 31,207 31,207 1.0%
31,207 31,207 1.0%

See notes to consolidated financial statements.

14

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULES OF INVESTMENTS AS OF DECEMBER 31, 2019 (Unaudited)

(in thousands, except share data)

December 31, 2019 (Unaudited)
Portfolio Company Industry Investments(1)(44) Acquisition Date(51) Principal Value Amortized Cost Fair<br>Value(2) % of Net Assets
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
Global Tel*Link Corporation Diversified Telecommunication Services First Lien Term Loan (6.05% (LIBOR + 4.25%), due 11/29/2025)(3)(8)(13) 8/20/2019 $ 9,950 $ 9,561 $ 9,490 0.3%
Second Lien Term Loan (10.05% (LIBOR + 8.25%), due 11/29/2026)(3)(8)(13) 12/4/2018 40,170 39,334 38,674 1.2%
48,895 48,164 1.5%
GlobalTranz Enterprises, Inc. Air Freight & Logistics Second Lien Term Loan (10.04% (LIBOR + 8.25%), due 5/15/2027)(3)(8)(13) 5/15/2019 12,500 12,500 12,385 0.4%
12,500 12,385 0.4%
H.I.G. ECI Merger Sub, Inc. IT Services Senior Secured Term Loan A (7.45% (LIBOR + 5.50% with 1.50% LIBOR floor), due 5/31/2023)(3)(11) 5/31/2018 44,016 44,016 44,016 1.4%
Senior Secured Term Loan B (12.45% (LIBOR + 10.50% with 1.50% LIBOR floor), due 5/31/2023)(3)(11) 5/31/2018 29,900 29,900 29,900 0.9%
73,916 73,916 2.3%
Halcyon Loan Advisors Funding 2012-1 Ltd. Structured Finance Subordinated Structured Note (Residual Interest, current yield 0.00%, due 8/15/2023)(5)(14)(17) 8/15/2012 23,188 3,758 — —%
3,758 — —%
Halcyon Loan Advisors Funding 2013-1 Ltd. Structured Finance Subordinated Structured Note (Residual Interest, current yield 0.00%, due 4/15/2025)(5)(14)(17) 3/28/2013 40,400 19,984 1,347 —%
19,984 1,347 —%
Halcyon Loan Advisors Funding 2014-1 Ltd. Structured Finance Subordinated Structured Note (Residual Interest, current yield 0.00%, due 4/18/2026)(5)(14)(17) 3/6/2014 24,500 11,822 1,244 —%
11,822 1,244 —%
Halcyon Loan Advisors Funding 2014-2 Ltd. Structured Finance Subordinated Structured Note (Residual Interest, current yield 0.00%, due 4/28/2025)(5)(14)(17) 4/28/2014 41,164 21,322 — —%
21,322 — —%
Halcyon Loan Advisors Funding 2015-3 Ltd. Structured Finance Subordinated Structured Note (Residual Interest, current yield 5.48%, due 10/18/2027)(5)(14) 9/3/2015 39,598 30,617 23,126 0.7%
30,617 23,126 0.7%
Halyard MD OpCo, LLC Media Revolving Line of Credit – $2,000 Commitment (9.94% (LIBOR + 8.00%), due 2/6/2020)(11)(15) 8/6/2018 — — — —%
First Lien Term Loan (10.00% (LIBOR + 8.00% with 2.00% LIBOR floor), due 8/6/2023)(3)(11) 8/6/2018 11,250 11,250 11,250 0.4%
11,250 11,250 0.4%
HarbourView CLO VII-R, Ltd. Structured Finance Subordinated Structured Note (Residual Interest, current yield 11.35%, due 7/18/2031)(5)(14) 6/10/2015 19,025 13,016 10,796 0.3%
13,016 10,796 0.3%
Help/Systems Holdings, Inc. Software First Lien Term Loan (6.55% (LIBOR + 4.75% with 1.00% LIBOR floor), due 11/19/2027)(3)(8)(13) 11/29/2019 8,500 8,416 8,416 0.3%
Second Lien Term Loan (9.80% (LIBOR + 8.00% with 1.00% LIBOR floor), due 11/19/2027)(3)(8)(13) 11/22/2019 17,500 17,157 17,157 0.5%
25,573 25,573 0.8%
Inpatient Care Management Company, LLC Health Care Providers & Services Senior Secured Term Loan (9.95% (LIBOR + 8.00% with 1.00% LIBOR floor), due 6/8/2021)(3)(11) 6/8/2016 16,729 16,729 16,568 0.5%
16,729 16,568 0.5%
Jefferson Mill CLO Ltd. Structured Finance Subordinated Structured Note (Residual Interest, current yield 11.33%, due 10/20/2031)(5)(14) 7/28/2015 23,594 18,864 12,525 0.4%
18,864 12,525 0.4%

See notes to consolidated financial statements.

15

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULES OF INVESTMENTS AS OF DECEMBER 31, 2019 (Unaudited)

(in thousands, except share data)

December 31, 2019 (Unaudited)
Portfolio Company Industry Investments(1)(44) Acquisition Date(51) Principal Value Amortized Cost Fair<br>Value(2) % of Net Assets
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
K&N Parent, Inc. Auto Components Second Lien Term Loan (10.55% (LIBOR + 8.75% with 1.00% LIBOR floor), due 10/21/2024)(3)(8)(13) 10/28/2016 $ 25,887 $ 25,491 $ 25,491 0.8%
25,491 25,491 0.8%
Keystone Acquisition Corp.(36) Health Care Providers & Services Second Lien Term Loan (11.19% (LIBOR + 9.25% with 1.00% LIBOR floor), due 5/1/2025)(3)(8)(11) 5/18/2017 50,000 50,000 50,000 1.6%
50,000 50,000 1.6%
LCM XIV Ltd. Structured Finance Subordinated Structured Note (Residual Interest, current yield 12.43%, due 7/21/2031)(5)(14) 7/11/2013 49,934 28,163 19,141 0.6%
28,163 19,141 0.6%
Maverick Healthcare Equity, LLC Health Care Providers & Services Preferred Units (10.00%, 1,250,000 units)(16) 10/31/2007 — — —%
Class A Common Units (1,250,000 units)(16) 10/31/2007 — — —%
— — —%
Medusind Acquisition, Inc.(9) Health Care Providers & Services First Lien Term Loan (10.25% (LIBOR + 8.25% with 1.00% LIBOR floor), due 4/8/2024)(3)(11) 9/30/2019 23,657 23,302 23,302 0.7%
23,302 23,302 0.7%
Mountain View CLO 2013-I Ltd. Structured Finance Subordinated Structured Note (Residual Interest, current yield 8.54%, due 10/15/2030)(5)(14) 5/1/2013 43,650 29,045 18,882 0.6%
29,045 18,882 0.6%
Mountain View CLO IX Ltd. Structured Finance Subordinated Structured Note (Residual Interest, current yield 17.73%, due 7/15/2031)(5)(14) 6/25/2015 47,830 29,179 29,285 0.9%
29,179 29,285 0.9%
Octagon Investment Partners XV, Ltd. Structured Finance Subordinated Structured Note (Residual Interest, current yield 11.41%, due 7/19/2030)(5)(14) 2/20/2013 42,064 33,179 24,320 0.8%
33,179 24,320 0.8%
Octagon Investment Partners 18-R Ltd. Structured Finance Subordinated Structured Note (Residual Interest, current yield 14.15%, due 4/16/2031)(5)(14) 8/17/2015 46,016 26,422 21,652 0.7%
26,422 21,652 0.7%
Pearl Intermediate Parent LLC Health Care Providers & Services Second Lien Term Loan (8.05% (LIBOR + 6.25%), due 2/15/2026)(3)(8)(13) 2/28/2018 5,000 4,980 4,978 0.1%
4,980 4,978 0.1%
PeopleConnect Intermediate, LLC Interactive Media & Services Revolving Line of Credit – $1,000 Commitment (11.45% (LIBOR + 9.50% with 1.00% LIBOR floor), due 7/1/2020)(11)(15) 7/1/2015 — — — —%
Senior Secured Term Loan A (8.45% (LIBOR + 6.50% with 1.00% LIBOR floor), due 7/1/2020)(3)(11) 7/1/2015 17,328 17,328 17,328 0.5%
Senior Secured Term Loan B (14.45% (LIBOR + 12.50% with 1.00% LIBOR floor), due 7/1/2020)(3)(11) 7/1/2015 19,413 19,413 19,413 0.6%
36,741 36,741 1.1%
PG Dental Holdings New Jersey, LLC Health Care Providers & Services Delayed Draw Term Loan – $5,000 Commitment (10.00% (LIBOR + 7.25% with 2.75% LIBOR floor), due 5/31/2024)(3)(11)(15) 5/31/2019 2,000 2,000 2,000 0.1%
Senior Secured Term Loan (10.00% (LIBOR + 7.25% with 2.75% LIBOR floor), due 5/31/2024)(3)(11) 5/31/2019 22,530 22,530 22,530 0.7%
24,530 24,530 0.8%
PGX Holdings, Inc. Diversified Consumer Services Second Lien Term Loan (10.80% (LIBOR + 9.00% with 1.00% LIBOR floor), due 9/29/2021)(3)(13) 9/29/2014 100,091 100,091 85,332 2.7%
100,091 85,332 2.7%

See notes to consolidated financial statements.

16

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULES OF INVESTMENTS AS OF DECEMBER 31, 2019 (Unaudited)

(in thousands, except share data)

December 31, 2019 (Unaudited)
Portfolio Company Industry Investments(1)(44) Acquisition Date(51) Principal Value Amortized Cost Fair<br>Value(2) % of Net Assets
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
PlayPower, Inc. Leisure Products First Lien Term Loan (7.46% (LIBOR + 5.50%), due 5/10/2026)(3)(8)(11) 5/16/2019 $ 6,468 $ 6,408 $ 6,408 0.2%
6,408 6,408 0.2%
Research Now Group, Inc. & Survey Sampling International LLC Professional Services First Lien Term Loan (7.41% (LIBOR + 5.50% with 1.00% LIBOR floor), due 12/20/2024)(3)(8)(11) 1/5/2018 9,800 9,426 9,800 0.3%
Second Lien Term Loan (11.41% (LIBOR + 9.50% with 1.00% LIBOR floor), due 12/20/2025)(3)(8)(11) 1/5/2018 50,000 47,397 50,000 1.6%
56,823 59,800 1.9%
RGIS Services, LLC Commercial Services & Supplies Senior Secured Term Loan (9.43% (LIBOR + 7.50% with 1.00% LIBOR floor), due 3/31/2023)(3)(8)(11) 4/20/2017 4,407 4,258 3,800 0.1%
Senior Secured Term Loan (9.41% (LIBOR + 7.50% with 1.00% LIBOR floor), due 3/31/2023)(3)(8)(11) 4/20/2017 5,021 4,852 4,329 0.1%
Senior Secured Term Loan (9.44% (LIBOR + 7.50% with 1.00% LIBOR floor), due 3/31/2023)(3)(8)(11) 4/20/2017 10,136 9,794 8,739 0.3%
18,904 16,868 0.5%
RME Group Holding Company Media Senior Secured Term Loan A (7.95% (LIBOR + 6.00% with 1.00% LIBOR floor), due 5/4/2022)(3)(11) 5/4/2017 28,021 28,021 28,021 0.9%
Senior Secured Term Loan B (12.95% (LIBOR + 11.00% with 1.00% LIBOR floor), due 5/4/2022)(3)(11) 5/4/2017 22,474 22,474 22,474 0.7%
50,495 50,495 1.6%
Rocket Software, Inc. Software Second Lien Term Loan (10.05% (LIBOR + 8.25%), due 11/27/2026)(3)(8)(13) 12/7/2018 50,000 49,568 49,568 1.6%
49,568 49,568 1.6%
Romark WM-R Ltd. Structured Finance Subordinated Structured Note (Residual Interest, current yield 11.68%, due 4/20/2031)(5)(14) 5/15/2014 27,725 22,752 15,618 0.5%
22,752 15,618 0.5%
Rosa Mexicano Hotels, Restaurants & Leisure Revolving Line of Credit– $500 Commitment (9.45% (LIBOR + 7.50% with 1.50% LIBOR floor), due 3/29/2023)(11)(15) 3/29/2018 — — — —%
Senior Secured Term Loan (9.45% (LIBOR + 7.50% with 1.50% LIBOR floor), due 3/29/2023)(3)(11) 3/29/2018 23,064 23,064 21,310 0.7%
23,064 21,310 0.7%
Securus Technologies Holdings, Inc. Communications Equipment First Lien Term Loan (6.30% (LIBOR + 4.50% with 1.00% LIBOR floor), due 11/1/2024)(8)(13) 9/3/2019 9,949 9,086 8,418 0.3%
Second Lien Term Loan (10.05% (LIBOR + 8.25% with 1.00% LIBOR floor), due 11/01/2025)(3)(8)(13) 11/3/2017 50,662 50,516 41,279 1.3%
59,602 49,697 1.6%
SEOTownCenter, Inc. IT Services Senior Secured Term Loan A (9.50% (LIBOR + 7.50% with 2.00% LIBOR floor), due 4/07/2023)(3)(11) 4/10/2018 25,000 25,000 25,000 0.8%
Senior Secured Term Loan B (14.50% (LIBOR + 12.50% with 2.00% LIBOR floor), due 4/07/2023)(3)(11) 4/10/2018 19,000 19,000 19,000 0.6%
44,000 44,000 1.4%
Shutterfly, Inc. Internet & Direct Marketing Retail First Lien Term Loan (7.80% (LIBOR + 6.00% with 1.00% LIBOR floor), due 9/25/2026)(8)(13) 12/9/2019 2,581 2,341 2,400 0.1%
First Lien Term Loan (7.94% (LIBOR + 6.00% with 1.00% LIBOR floor), due 9/25/2026)(8)(11) 12/9/2019 17,419 15,808 16,208 0.5%
18,149 18,608 0.6%

See notes to consolidated financial statements.

17

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULES OF INVESTMENTS AS OF DECEMBER 31, 2019 (Unaudited)

(in thousands, except share data)

December 31, 2019 (Unaudited)
Portfolio Company Industry Investments(1)(44) Acquisition Date(51) Principal Value Amortized Cost Fair<br>Value(2) % of Net Assets
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
SMG US Midco Hotels, Restaurants & Leisure Second Lien Term Loan (8.80% (LIBOR + 7.00%), due 1/23/2026)(3)(8)(13) 1/23/2018 $ 7,500 $ 7,486 $ 7,500 0.2%
7,486 7,500 0.2%
Sorenson Communications, LLC Diversified Telecommunication Services First Lien Term Loan (8.44% (LIBOR + 6.50%), due 4/29/2024)(3)(8)(11) 5/8/2019 9,286 9,216 9,216 0.3%
9,216 9,216 0.3%
Spectrum Holdings III Corp Health Care Equipment & Supplies Second Lien Term Loan (8.80% (LIBOR + 7.00% with 1.00% LIBOR floor), due 1/31/2026)(3)(8)(13) 2/13/2018 7,500 7,471 6,151 0.2%
7,471 6,151 0.2%
Staples, Inc. Distributors First Lien Term Loan (6.69% (LIBOR + 5.00%), due 4/16/2026)(3)(8)(10)(13) 12/3/2019 9,000 8,911 8,897 0.3%
8,911 8,897 0.3%
Strategic Materials Household Durables Second Lien Term Loan (9.68% (LIBOR + 7.75% with 1.00% LIBOR floor), due 11/1/2025)(3)(8)(11) 11/1/2017 7,000 6,949 5,590 0.2%
6,949 5,590 0.2%
Stryker Energy, LLC Energy Equipment & Services Overriding Royalty Interests(43) 12/4/2006 — — —%
— — —%
Sudbury Mill CLO Ltd. Structured Finance Subordinated Structured Note (Residual Interest, current yield 0.00%, due 1/17/2026)(5)(14)(17) 12/5/2013 28,200 14,230 4,194 0.1%
14,230 4,194 0.1%
Symphony CLO XIV, Ltd. Structured Finance Subordinated Structured Note (Residual Interest, current yield 0.00%, due 7/14/2026)(5)(14)(17) 5/29/2014 49,250 30,556 18,512 0.6%
30,556 18,512 0.6%
Symphony CLO XV, Ltd. Structured Finance Subordinated Structured Note (Residual Interest, current yield 9.66%, due 1/17/2032)(5)(14) 11/17/2014 63,831 42,907 23,550 0.7%
42,907 23,550 0.7%
TGP HOLDINGS III LLC Household Durables Second Lien Term Loan (10.30% (LIBOR + 8.50% with 1.00% LIBOR floor), due 9/25/2025)(8)(13) 10/3/2017 3,000 2,968 2,968 0.1%
2,968 2,968 0.1%
TouchTunes Interactive Networks, Inc. Entertainment Second Lien Term Loan (9.95% (LIBOR + 8.25% with 1.00% LIBOR floor), due 5/29/2022)(3)(8)(13) 6/5/2015 12,194 12,148 12,194 0.4%
12,148 12,194 0.4%
Town & Country Holdings, Inc. Distributors First Lien Term Loan (10.45% (LIBOR + 8.50% with 1.50% LIBOR floor), due 1/26/2023)(3)(11) 1/26/2018 164,898 164,898 162,268 5.1%
164,898 162,268 5.1%
Transplace Holdings, Inc. Transportation Infrastructure Second Lien Term Loan (10.55% (LIBOR + 8.75% with 1.00% LIBOR floor), due 10/6/2025)(3)(8)(13) 10/16/2017 28,104 27,620 28,104 0.9%
27,620 28,104 0.9%
Universal Fiber Systems, LLC Textiles, Apparel & Luxury Goods Second Lien Term Loan (11.43% (LIBOR + 9.50% with 1.00% LIBOR floor), due 10/02/2022)(3)(8)(11) 10/16/2015 37,000 36,710 36,710 1.1%
36,710 36,710 1.1%

See notes to consolidated financial statements.

18

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULES OF INVESTMENTS AS OF DECEMBER 31, 2019 (Unaudited)

(in thousands, except share data)

December 31, 2019 (Unaudited)
Portfolio Company Industry Investments(1)(44) Acquisition Date(51) Principal Value Amortized Cost Fair<br>Value(2) % of Net Assets
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
Upstream Newco, Inc. Health Care Providers & Services First Lien Term Loan (6.30% (LIBOR + 4.50%), due 11/20/2026)(8)(13) 12/2/2019 $ 8,250 $ 8,209 $ 8,209 0.2%
Second Lien Term Loan (10.30% (LIBOR + 8.50%), due 11/20/2027)(8)(13) 12/2/2019 22,000 21,797 21,797 0.7%
30,006 30,006 0.9%
USG Intermediate, LLC Leisure Products Revolving Line of Credit – $1,300 Commitment (11.05% (LIBOR + 9.25% with 1.00% LIBOR floor), due 8/24/2020)(13)(15) 4/15/2015 1,300 1,300 1,300 —%
Senior Secured Term Loan A (8.55% (LIBOR + 6.75% with 1.00% LIBOR floor), due 8/24/2022)(3)(13) 4/15/2015 3,159 3,159 3,159 0.1%
Senior Secured Term Loan B (13.55% (LIBOR + 11.75% with 1.00% LIBOR floor), due 8/24/2022)(3)(13) 4/15/2015 18,283 18,283 18,283 0.6%
Equity(16) 4/15/2015 1 — —%
22,743 22,742 0.7%
Venio LLC Professional Services Second Lien Term Loan (4.00% plus 10.00% PIK (LIBOR + 7.50% with 2.50% LIBOR floor), due 2/19/2020)(11)(46) 2/19/2014 26,291 25,848 25,416 0.8%
25,848 25,416 0.8%
Versant Health Holdco, Inc. (f/k/a Wink Holdco, Inc.) Insurance Second Lien Term Loan (8.55% (LIBOR + 6.75% with 1.00% LIBOR floor), due 12/1/2025)(3)(8)(13) 12/12/2017 3,000 2,989 2,989 0.1%
2,989 2,989 0.1%
Voya CLO 2012-4, Ltd. Structured Finance Subordinated Structured Note (Residual Interest, current yield 11.56%, due 10/16/2028)(5)(14) 11/29/2012 40,613 30,305 25,983 0.8%
30,305 25,983 0.8%
Voya CLO 2014-1, Ltd. Structured Finance Subordinated Structured Note (Residual Interest, current yield 10.80%, due 4/18/2031)(5)(14) 3/13/2014 40,773 29,965 21,733 0.7%
29,965 21,733 0.7%
Voya CLO 2016-3, Ltd. Structured Finance Subordinated Structured Note (Residual Interest, current yield 10.03%, due 10/20/2031)(5)(14) 10/27/2016 28,100 26,686 20,019 0.6%
26,686 20,019 0.6%
Voya CLO 2017-3, Ltd. Structured Finance Subordinated Structured Note (Residual Interest, current yield 10.45%, due 7/20/2030)(5)(14) 7/12/2017 44,885 50,585 40,255 1.2%
50,585 40,255 1.2%
VT Topco, Inc. Commercial Services & Supplies Second Lien Term Loan (8.94% (LIBOR + 7.00%), due 8/17/2026)(3)(8)(11) 8/23/2018 7,000 6,971 6,971 0.2%
6,971 6,971 0.2%
Total Non-Control/Non-Affiliate Investments $ 3,118,324 $ 2,768,662 86.9%
Total Portfolio Investments $ 5,673,644 $ 5,268,545 165.5%

See notes to consolidated financial statements.

19

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULES OF INVESTMENTS AS OF JUNE 30, 2019

(in thousands, except share data)

June 30, 2019
Portfolio Company Industry Investments(1)(45) Acquisition Date(51) Principal Value Amortized Cost Fair<br>Value(2) % of Net Assets
LEVEL 3 PORTFOLIO INVESTMENTS
Control Investments (greater than 25.00% voting control)(49)
CP Energy Services Inc.(20) Energy Equipment & Services Senior Secured Term Loan (13.60% (LIBOR + 11.00% with 1.00% LIBOR floor), due 12/29/2022)(11) 10/1/2017 $ 35,048 $ 35,048 $ 35,048 1.1%
Senior Secured Term Loan A to Spartan Energy Services, LLC (10.44% (LIBOR + 8.00% with 1.00% LIBOR floor), due 12/2/2019)(13) 10/20/2014 13,156 13,156 13,156 0.4%
Senior Secured Term Loan B to Spartan Energy Services, LLC (16.44% PIK (LIBOR + 14.00% with 1.00% LIBOR floor), due 12/2/2019)(13)(46) 10/20/2014 21,243 21,243 21,243 0.6%
Series B Convertible Preferred Stock (16.00%, 790 shares)(16) 10/30/2015 63,225 63,225 1.9%
Common Stock (102,924 shares)(16) 8/2/2013 81,203 6,259 0.2%
213,875 138,931 4.2%
Credit Central Loan Company, LLC(21) Consumer Finance Subordinated Term Loan (10.00% plus 10.00% PIK, due 6/26/2024)(14)(46) 12/28/2012 55,899 52,579 55,899 1.7%
Class A Units (10,640,642 units)(14)(16) 12/28/2012 13,731 15,518 0.5%
Net Revenue Interest (25% of Net Revenues)(14)(16) 1/28/2015 — — —%
66,310 71,417 2.2%
Echelon Transportation, LLC Aerospace & Defense Senior Secured Term Loan (12.25% (LIBOR + 9.75% with 2.00% LIBOR floor) plus 2.25% PIK, due 3/31/2022)(13)(46) 3/31/2014 36,778 36,778 36,778 1.1%
Senior Secured Term Loan (11.50% (LIBOR + 9.00% with 2.00% LIBOR floor) plus 1.00% PIK, due 12/7/2024)(13)(46) 12/9/2016 18,063 18,063 18,063 0.5%
Membership Interest (100%)(16) 3/31/2014 22,738 34,860 1.1%
77,579 89,701 2.7%
First Tower Finance Company LLC(23) Consumer Finance Subordinated Term Loan to First Tower, LLC (10.00% plus 10.50% PIK, due 6/24/2024)(14)(46) 6/24/2014 277,411 277,411 277,411 8.4%
Class A Units (95,709,910 units)(14)(16) 6/14/2012 81,146 216,625 6.6%
358,557 494,036 15.0%
Freedom Marine Solutions, LLC(24) Energy Equipment & Services Membership Interest (100%)(16) 11/9/2006 43,892 14,920 0.5%
43,892 14,920 0.5%
InterDent, Inc.(29) Health Care Providers & Services Senior Secured Term Loan A/B (2.66% (LIBOR + 0.25% with 0.75% LIBOR floor), due 9/5/2020)(13) 8/1/2018 14,000 14,000 14,000 0.4%
Senior Secured Term Loan A (7.91% (LIBOR + 5.50% with 0.75% LIBOR floor), due 9/5/2020)(13) 8/3/2012 77,994 77,994 77,994 2.4%
Senior Secured Term Loan B (16.00% PIK, due 9/5/2020)(46) 8/3/2012 116,111 116,111 116,111 3.5%
Senior Secured Term Loan C (18.00% PIK, in non-accrual status effective 10/1/2018, due 9/5/2020) 3/22/2018 40,873 35,766 16,771 0.5%
Senior Secured Term Loan D (1.00% PIK, in non-accrual status effective 10/1/2018, due 9/5/2020) 9/19/2018 5,039 5,001 — —%
Common Stock (99,900 shares)(16) 5/3/2019 1 — —%
248,873 224,876 6.8%

See notes to consolidated financial statements.

20

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULES OF INVESTMENTS AS OF JUNE 30, 2019

(in thousands, except share data)

June 30, 2019
Portfolio Company Industry Investments(1)(45) Acquisition Date(51) Principal Value Amortized Cost Fair<br>Value(2) % of Net Assets
LEVEL 3 PORTFOLIO INVESTMENTS
Control Investments (greater than 25.00% voting control)(49)
MITY, Inc.(25) Commercial Services & Supplies Senior Secured Note A (10.00% (LIBOR + 7.00% with 3.00% LIBOR floor), due 1/30/2020)(3)(11) 9/19/2013 $ 26,250 $ 26,250 $ 26,250 0.8%
Senior Secured Note B (10.00% (LIBOR + 7.00% with 3.00% LIBOR floor) plus 10.00% PIK, due 6/30/2020)(3)(11)(46) 9/19/2013 29,586 29,586 20,652 0.6%
Subordinated Unsecured Note to Broda Enterprises ULC (10.00%, due 1/1/2028)(14) 9/19/2013 5,635 6,915 — —%
Common Stock (42,053 shares)(16) 9/19/2013 6,849 — —%
69,600 46,902 1.4%
National Property REIT Corp.(26) Equity Real Estate Investment Trusts (REITs) / Online Lending Senior Secured Term Loan A (6.50% (LIBOR + 3.50% with 3.00% LIBOR floor) plus 5.00% PIK, due 12/31/2023)(11)(46) 12/31/2018 433,553 433,553 433,553 13.1%
Senior Secured Term Loan B (5.00% (LIBOR + 2.00% with 3.00% LIBOR floor) plus 5.50% PIK, due 12/31/2023)(11)(46) 12/31/2018 172,000 172,000 172,000 5.2%
Residual Profit Interest (25% of Residual Profit)(37) 12/31/2018 — 96,609 2.9%
Common Stock (3,110,101 shares)(52) 12/31/2013 163,836 302,303 9.2%
769,389 1,004,465 30.4%
Nationwide Loan Company LLC(27) Consumer Finance Senior Subordinated Term Loan to Nationwide Acceptance LLC (10.00% plus 10.00% PIK, due 6/18/2020)(14)(46) 6/18/2014 18,616 18,616 18,616 0.6%
Class A Units (32,456,159 units)(14) 1/31/2013 21,962 14,359 0.4%
40,578 32,975 1.0%
NMMB, Inc.(28) Media Senior Secured Note (14.00%, due 5/6/2021)(3) 5/6/2011 3,114 3,114 3,114 0.1%
Series A Preferred Stock (7,200 shares)(16) 5/6/2011 7,200 11,788 0.3%
Series B Preferred Stock (5,669 shares)(16) 5/6/2011 5,669 9,281 0.3%
15,983 24,183 0.7%
Pacific World Corporation(40) Personal Products Revolving Line of Credit – $26,000 Commitment (9.66% (LIBOR + 7.25% with 1.00% LIBOR floor), due 9/26/2020)(13)(15) 9/26/2014 20,825 20,469 20,825 0.6%
Senior Secured Term Loan A (7.66% PIK (LIBOR + 5.25% with 1.00% LIBOR floor), in non-accrual status effective 10/24/2018, due 9/26/2020)(13) 12/31/2014 101,186 96,000 91,602 2.8%
Senior Secured Term Loan B (11.66% PIK (LIBOR + 9.25% with 1.00% LIBOR floor), in non-accrual status effective 5/21/2018, due 9/26/2020)(13) 12/31/2014 110,116 96,500 — —%
Convertible Preferred Equity (166,666 shares)(16) 6/15/2018 25,000 — —%
Common Stock (6,778,414 shares)(16) 9/29/2017 — — —%
237,969 112,427 3.4%
R-V Industries, Inc. Machinery Senior Subordinated Note (11.32% (LIBOR + 9.00% with 1.00% LIBOR floor), due 3/31/2022)(3)(11) 6/12/2013 28,622 28,622 28,622 0.9%
Common Stock (745,107 shares)(16) 6/26/2007 6,866 5,002 0.1%
35,488 33,624 1.0%

See notes to consolidated financial statements.

21

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULES OF INVESTMENTS AS OF JUNE 30, 2019

(in thousands, except share data)

June 30, 2019
Portfolio Company Industry Investments(1)(45) Acquisition Date(51) Principal Value Amortized Cost Fair<br>Value(2) % of Net Assets
LEVEL 3 PORTFOLIO INVESTMENTS
Control Investments (greater than 25.00% voting control)(49)
Universal Turbine Parts, LLC(34) Trading Companies & Distributors Delayed Draw Term Loan – $5,000 Commitment (10.25% (LIBOR + 7.75% with 2.50% LIBOR floor), due 9/30/2020)(13)(15) 2/28/2019 $ — $ — $ — —%
Senior Secured Term Loan A (8.36% (LIBOR + 5.75% with 1.00% LIBOR floor), due 7/22/2021)(11) 7/22/2016 30,713 30,713 28,043 0.8%
Senior Secured Term Loan B (14.36% PIK (LIBOR + 11.75% with 1.00% LIBOR floor), in non-accrual status effective 7/1/2018, due 7/22/2021)(11) 7/22/2016 36,144 32,500 — —%
Common Stock (10,000 units)(16) 12/10/2018 — — —%
63,213 28,043 0.8%
USES Corp.(30) Commercial Services & Supplies Senior Secured Term Loan A (9.00% PIK, in non-accrual status effective 4/1/2016, due 7/22/2020) 3/31/2014 44,134 35,101 15,725 0.5%
Senior Secured Term Loan B (15.50% PIK, in non-accrual status effective 4/1/2016, due 7/22/2020) 3/31/2014 55,955 35,568 — —%
Common Stock (268,962 shares)(16) 6/15/2016 — — —%
70,669 15,725 0.5%
Valley Electric Company, Inc.(31) Construction & Engineering Senior Secured Note to Valley Electric Co. of Mt. Vernon, Inc. (8.00% (LIBOR + 5.00% with 3.00% LIBOR floor) plus 2.50% PIK, due 12/31/2024)(3)(11)(46) 12/31/2012 10,430 10,430 10,430 0.3%
Senior Secured Note (8.00% plus 10.00% PIK, due 6/23/2024)(46) 6/24/2014 33,301 33,301 33,301 1.0%
Consolidated Revenue Interest (2.0%)(38) 6/22/2018 — 3,032 0.1%
Common Stock (50,000 shares) 12/31/2012 26,204 96,922 2.9%
69,935 143,685 4.3%
Wolf Energy, LLC(32) Energy Equipment & Services Membership Interest (100%)(16) 7/1/2014 — — —%
Membership Interest in Wolf Energy Services Company, LLC (100%)(16) 3/14/2017 3,896 — —%
Net Profits Interest (8% of Equity Distributions)(4)(16) 4/15/2013 — 14 —%
3,896 14 —%
Total Control Investments (Level 3) $ 2,385,806 $ 2,475,924 74.9%

See notes to consolidated financial statements.

22

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULES OF INVESTMENTS AS OF JUNE 30, 2019

(in thousands, except share data)

June 30, 2019
Portfolio Company Industry Investments(1)(45) Acquisition Date(51) Principal Value Amortized Cost Fair<br>Value(2) % of Net Assets
LEVEL 3 PORTFOLIO INVESTMENTS
Affiliate Investments (5.00% to 24.99% voting control)(50)
Edmentum Ultimate Holdings, LLC(22) Diversified Consumer Services Second Lien Revolving Credit Facility to Edmentum, Inc. – $7,834 Commitment (5.00% PIK, due 12/9/2021)(15)(46) 6/9/2015 $ 8,159 $ 8,159 $ 8,159 0.2%
Unsecured Senior PIK Note (8.50% PIK, due 12/9/2021)(46) 6/9/2015 8,189 8,189 8,189 0.2%
Unsecured Junior PIK Note (10.00% PIK, in non-accrual status effective 1/1/2017, due 12/9/2021) 6/9/2015 38,936 23,829 24,869 0.8%
Class A Units (370,964 units)(16) 6/9/2015 6,577 — —%
46,754 41,217 1.2%
Nixon, Inc.(39) Textiles, Apparel & Luxury Goods Common Stock (857 units)(16) 5/12/2017 — — —%
— — —%
Targus Cayman HoldCo Limited(33) Textiles, Apparel & Luxury Goods Common Stock (7,383,395 shares) 2/12/2016 3,771 16,599 0.5%
3,771 16,599 0.5%
United Sporting Companies, Inc.(18) Distributors Second Lien Term Loan (13.40% (LIBOR + 11.00% with 1.75% LIBOR floor) plus 2.00% PIK, in non-accrual status effective 4/1/2017, due 11/16/2019)(13) 9/28/2012 168,052 127,091 18,866 0.6%
Common Stock (218,941 shares)(16) 5/2/2017 — — —%
127,091 18,866 0.6%
Total Affiliate Investments (Level 3) $ 177,616 $ 76,682 2.3%

See notes to consolidated financial statements.

23

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULES OF INVESTMENTS AS OF JUNE 30, 2019

(in thousands, except share data)

June 30, 2019
Portfolio Company Industry Investments(1)(45) Acquisition Date(51) Principal Value Amortized Cost Fair Value(2) % of Net Assets
LEVEL 3 PORTFOLIO INVESTMENTS
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
8th Avenue Food & Provisions, Inc. Food Products Second Lien Term Loan (10.17% (LIBOR + 7.75%), due 10/1/2026)(3)(8)(13) 10/10/2018 $ 25,000 $ 24,829 $ 24,829 0.8%
24,829 24,829 0.8%
ACE Cash Express, Inc. Consumer Finance Senior Secured Note (12.00%, due 12/15/2022)(8)(14) 12/15/2017 23,000 22,333 20,555 0.6%
22,333 20,555 0.6%
AgaMatrix, Inc. Health Care Equipment & Supplies Senior Secured Term Loan (11.33% (LIBOR + 9.00% with 1.25% LIBOR floor), due 9/29/2022)(3)(11) 9/29/2017 33,673 33,673 34,010 1.0%
33,673 34,010 1.0%
AmeriLife Group, LLC Insurance Second Lien Term Loan (11.40% (LIBOR + 9.00%), due 6/11/2027(8)(13) 6/24/2019 10,000 10,000 10,000 0.3%
10,000 10,000 0.3%
Apidos CLO IX Structured Finance Subordinated Structured Note (Residual Interest, current yield 0.00%, due 7/15/2023)(5)(14)(17) 7/11/2012 23,525 21 26 —%
21 26 —%
Apidos CLO XI Structured Finance Subordinated Structured Note (Residual Interest, current yield 9.96%, due 10/17/2028)(5)(14) 1/17/2013 40,500 33,572 27,982 0.8%
33,572 27,982 0.8%
Apidos CLO XII Structured Finance Subordinated Structured Note (Residual Interest, current yield 15.45%, due 4/15/2031)(5)(14) 4/18/2013 52,203 36,307 29,123 0.9%
36,307 29,123 0.9%
Apidos CLO XV Structured Finance Subordinated Structured Note (Residual Interest, current yield 14.77%, due 4/21/2031)(5)(14) 10/16/2013 48,515 37,777 29,018 0.9%
37,777 29,018 0.9%
Apidos CLO XXII Structured Finance Subordinated Structured Note (Residual Interest, current yield 9.95%, due 10/20/2027)(5)(14) 10/14/2015 31,350 28,691 24,948 0.8%
28,691 24,948 0.8%
Ark-La-Tex Wireline Services, LLC Energy Equipment & Services Escrow Receivable 4/8/2014 — — —%
— — —%
Atlantis Health Care Group (Puerto Rico), Inc. Health Care Providers & Services Revolving Line of Credit – $6,000 Commitment (11.34% (LIBOR + 8.75% with 2.00% LIBOR floor), due 2/21/2020)(11)(15) 2/21/2013 4,000 4,000 3,955 0.1%
Senior Secured Term Loan (11.34% (LIBOR + 8.75% with 2.00% LIBOR floor), due 2/21/2020)(3)(11) 2/21/2013 74,327 74,327 73,495 2.2%
78,327 77,450 2.3%
Barings CLO 2018-III Structured Finance Subordinated Structured Note (Residual Interest, current yield 12.58%, due 7/20/2029)(5)(14) 11/18/2014 83,098 51,040 39,031 1.2%
51,040 39,031 1.2%
Broder Bros., Co. Textiles, Apparel & Luxury Goods Senior Secured Note (10.83% (LIBOR + 8.50% with 1.25% LIBOR floor), due 12/02/2022)(3)(11) 12/4/2017 190,678 190,678 189,725 5.7%
190,678 189,725 5.7%
Brookside Mill CLO Ltd. Structured Finance Subordinated Structured Note (Residual Interest, current yield 8.36%, due 1/17/2028)(5)(14) 5/23/2013 36,300 18,560 13,611 0.4%
18,560 13,611 0.4%
California Street CLO IX Ltd. Structured Finance Subordinated Structured Note (Residual Interest, current yield 10.96%, due 10/16/2028)(5)(14) 5/8/2012 58,915 41,808 34,672 1.0%
41,808 34,672 1.0%

See notes to consolidated financial statements.

24

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULES OF INVESTMENTS AS OF JUNE 30, 2019

(in thousands, except share data)

June 30, 2019
Portfolio Company Industry Investments(1)(45) Acquisition Date(51) Principal Value Amortized Cost Fair Value(2) % of Net Assets
LEVEL 3 PORTFOLIO INVESTMENTS
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
Candle-Lite Company, LLC Household Products Senior Secured Term Loan A (8.03% (LIBOR + 5.50% with 1.25% LIBOR floor), due 1/23/2023)(3)(11) 1/23/2018 $ 12,188 $ 12,188 $ 12,188 0.4%
Senior Secured Term Loan B (12.03% (LIBOR + 9.50% with 1.25% LIBOR floor), due 1/23/2023)(3)(11) 1/23/2018 12,500 12,500 12,500 0.4%
24,688 24,688 0.8%
Capstone Logistics Acquisition, Inc. Commercial Services & Supplies Second Lien Term Loan (10.65% (LIBOR + 8.25% with 1.00% LIBOR floor), due 10/7/2022)(3)(8)(13) 10/7/2014 98,982 98,705 98,982 3.0%
98,705 98,982 3.0%
Carlyle C17 CLO Limited Structured Finance Subordinated Structured Note (Residual Interest, current yield 20.73%, due 4/30/2031)(5)(14) 2/21/2013 24,870 14,748 12,920 0.4%
14,748 12,920 0.4%
Carlyle Global Market Strategies CLO 2014-4-R, Ltd. Structured Finance Subordinated Structured Note (Residual Interest, current yield 21.84%, due 7/15/2030)(5)(14) 4/12/2017 25,534 17,282 18,293 0.6%
17,282 18,293 0.6%
Carlyle Global Market Strategies CLO 2016-3, Ltd. Structured Finance Subordinated Structured Note (Residual Interest, current yield 15.47%, due 10/20/2029)(5)(14) 9/13/2016 32,200 33,812 27,918 0.8%
33,812 27,918 0.8%
CCPI Inc.(19) Electronic Equipment, Instruments & Components Escrow Receivable 2/28/2019 — — 2,239 0.1%
— 2,239 0.1%
CCS-CMGC Holdings, Inc. Health Care Providers & Services First Lien Term Loan (7.90% (LIBOR + 5.50%), due 10/1/2025)(3)(8)(13) 5/23/2019 4,987 4,865 4,865 0.2%
Second Lien Term Loan (11.40% (LIBOR + 9.00%), due 10/1/2026)(3)(8)(13) 10/12/2018 35,000 34,362 34,362 1.0%
39,227 39,227 1.2%
Cent CLO 21 Limited Structured Finance Subordinated Structured Note (Residual Interest, current yield 13.77%, due 7/27/2030)(5)(14) 6/18/2014 49,552 38,392 29,335 0.9%
38,392 29,335 0.9%
Cent CLO 21 Limited Structured Finance Rated Secured Structured Note - Class E (11.23% (LIBOR + 8.65%), due 7/27/2030)(6)(11)(14) 7/27/2018 10,591 9,997 10,569 0.3%
9,997 10,569 0.3%
Centerfield Media Holding Company(35) IT Services Senior Secured Term Loan A (9.60% (LIBOR + 7.00% with 2.00% LIBOR floor), due 1/17/2022)(3)(11) 1/17/2017 73,474 73,474 73,474 2.2%
Senior Secured Term Loan B (15.10% (LIBOR + 12.50% with 2.00% LIBOR floor), due 1/17/2022)(11) 1/17/2017 78,100 78,100 78,100 2.4%
151,574 151,574 4.6%
CIFC Funding 2013-III-R, Ltd. Structured Finance Subordinated Structured Note (Residual Interest, current yield 14.98%, due 4/24/2031)(5)(14) 9/12/2013 44,100 29,748 25,748 0.8%
29,748 25,748 0.8%
CIFC Funding 2013-IV, Ltd. Structured Finance Subordinated Structured Note (Residual Interest, current yield 16.76%, due 4/28/2031)(5)(14) 11/14/2013 45,500 32,654 28,569 0.9%
32,654 28,569 0.9%
CIFC Funding 2014-IV-R, Ltd. Structured Finance Subordinated Structured Note (Residual Interest, current yield 14.92%, due 10/17/2030)(5)(14) 9/3/2014 44,467 30,860 24,709 0.7%
30,860 24,709 0.7%

See notes to consolidated financial statements.

25

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULES OF INVESTMENTS AS OF JUNE 30, 2019

(in thousands, except share data)

June 30, 2019
Portfolio Company Industry Investments(1)(45) Acquisition Date(51) Principal Value Amortized Cost Fair Value(2) % of Net Assets
LEVEL 3 PORTFOLIO INVESTMENTS
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
CIFC Funding 2014-V, Ltd. Structured Finance Rated Secured Structured Note - Class F (11.09% (LIBOR + 8.50%), due 10/17/2031)(6)(11)(14) 9/27/2018 $ 10,250 $ 9,958 $ 10,248 0.3%
9,958 10,248 0.3%
CIFC Funding 2016-I, Ltd. Structured Finance Subordinated Structured Note (Residual Interest, current yield 14.63%, due 10/21/2028)(5)(14) 12/21/2016 34,000 31,333 29,989 0.9%
31,333 29,989 0.9%
Cinedigm DC Holdings, LLC Entertainment Senior Secured Term Loan (11.53% (LIBOR + 9.00% with 2.00% LIBOR floor) plus 2.50% PIK, due 3/31/2021)(11)(46) 2/28/2013 16,178 16,128 16,178 0.5%
16,128 16,178 0.5%
Class Valuation, LLC (f/k/a Class Appraisal, LLC) Real Estate Management & Development Revolving Line of Credit – $1,500 Commitment (10.58% (LIBOR + 8.25% with 1.50% LIBOR floor), due 3/12/2020)(11)(15) 3/12/2018 — — — —%
Senior Secured Term Loan (10.58% (LIBOR + 8.25% with 1.50% LIBOR floor), due 3/10/2023)(3)(11) 3/12/2018 38,852 38,852 38,852 1.2%
38,852 38,852 1.2%
Columbia Cent CLO 27 Limited Structured Finance Rated Secured Structured Note - Class E (10.87% (LIBOR + 8.29%), due 10/25/2028)(6)(11)(14) 10/25/2018 7,450 7,235 7,436 0.2%
7,235 7,436 0.2%
Columbia Cent CLO 27 Limited Structured Finance Subordinated Structured Note (Residual Interest, current yield 16.18%, due 10/25/2028)(5)(14) 1/15/2014 40,275 22,206 23,808 0.7%
22,206 23,808 0.7%
Coverall North America, Inc. Commercial Services & Supplies Senior Secured Term Loan A (8.60% (LIBOR + 6.00% with 1.00% LIBOR floor), due 11/02/2020)(3)(11) 11/2/2015 8,475 8,475 8,475 0.3%
Senior Secured Term Loan B (13.60% (LIBOR + 11.00% with 1.00% LIBOR floor), due 11/02/2020)(3)(11) 11/2/2015 23,375 23,375 23,375 0.7%
31,850 31,850 1.0%
CP VI Bella Midco IT Services Second Lien Term Loan (9.15% (LIBOR + 6.75%), due 12/29/2025)(3)(8)(13) 2/26/2018 15,750 15,703 15,703 0.5%
15,703 15,703 0.5%
Digital Room, LLC Commercial Services & Supplies First Lien Term Loan (7.40% (LIBOR + 5.00%), due 5/21/2026)(3)(8)(13) 5/29/2019 10,000 9,852 10,000 0.3%
Second Lien Term Loan (11.40% (LIBOR + 9.00%), due 5/21/2027)(3)(8)(13) 5/30/2019 70,000 70,000 70,000 2.1%
79,852 80,000 2.4%
Dunn Paper, Inc. Paper & Forest Products Second Lien Term Loan (11.15% (LIBOR + 8.75% with 1.00% LIBOR floor), due 8/26/2023)(3)(8)(13) 10/7/2016 11,500 11,361 11,500 0.3%
11,361 11,500 0.3%
Dynatrace, LLC Software Second Lien Term Loan (9.40% (LIBOR + 7.00%), due 8/23/2026)(3)(8)(13) 8/31/2018 2,735 2,729 2,735 0.1%
2,729 2,735 0.1%
Easy Gardener Products, Inc. Household Durables Senior Secured Term Loan (12.60% (LIBOR + 10.00% with 0.25% LIBOR floor), due 09/30/2020)(3)(11) 10/2/2015 15,888 15,888 10,252 0.3%
15,888 10,252 0.3%

See notes to consolidated financial statements.

26

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULES OF INVESTMENTS AS OF JUNE 30, 2019

(in thousands, except share data)

June 30, 2019
Portfolio Company Industry Investments(1)(45) Acquisition Date(51) Principal Value Amortized Cost Fair Value(2) % of Net Assets
LEVEL 3 PORTFOLIO INVESTMENTS
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
Engine Group, Inc.(7) Media Senior Secured Term Loan (7.33% (LIBOR + 5.00% with 1.00% LIBOR floor), due 9/15/2022)(8)(11) 9/25/2017 $ 4,334 $ 4,334 $ 3,921 0.1%
Second Lien Term Loan (11.33% (LIBOR + 9.00% with 1.00% LIBOR floor), due 9/15/2023)(3)(8)(11) 9/25/2017 35,000 35,000 30,580 0.9%
39,334 34,501 1.0%
EXC Holdings III Corp Technology Hardware, Storage & Peripherals Second Lien Term Loan (10.10% (LIBOR + 7.50% with 1.00% LIBOR floor), due 12/01/2025)(3)(8)(11) 12/5/2017 12,500 12,400 12,400 0.4%
12,400 12,400 0.4%
Galaxy XV CLO, Ltd. Structured Finance Subordinated Structured Note (Residual Interest, current yield 12.11%, due 10/15/2030)(5)(14) 3/14/2013 50,525 36,037 28,398 0.9%
36,037 28,398 0.9%
Galaxy XXVII CLO, Ltd. Structured Finance Subordinated Structured Note (Residual Interest, current yield 9.63%, due 5/16/2031)(5)(14) 11/5/2013 24,575 16,644 12,275 0.4%
16,644 12,275 0.4%
Galaxy XXVIII CLO, Ltd. Structured Finance Rated Secured Structured Note - Class F (11.08% (LIBOR + 8.48%), due 7/15/2031)(6)(11)(14) 7/16/2018 6,658 6,188 6,648 0.2%
6,188 6,648 0.2%
Galaxy XXVIII CLO, Ltd. Structured Finance Subordinated Structured Note (Residual Interest, current yield 10.33%, due 7/15/2031)(5)(6)(14) 6/27/2014 39,905 29,850 19,976 0.6%
29,850 19,976 0.6%
Global Tel*Link Corporation Diversified Telecommunication Services Second Lien Term Loan (10.65% (LIBOR + 8.25%), due 11/29/2026)(3)(8)(13) 12/4/2018 26,750 26,311 26,311 0.8%
26,311 26,311 0.8%
GlobalTranz Enterprises, Inc. Air Freight & Logistics Second Lien Term Loan (10.64% (LIBOR + 8.25%), due 5/15/2027)(3)(8)(13) 5/15/2019 12,500 12,500 12,233 0.4%
12,500 12,233 0.4%
H.I.G. ECI Merger Sub, Inc. IT Services Senior Secured Term Loan A (8.10% (LIBOR + 5.50% with 1.50% LIBOR floor), due 5/31/2023)(3)(11) 5/31/2018 44,240 44,240 44,240 1.3%
Senior Secured Term Loan B (13.10% (LIBOR + 10.50% with 1.50% LIBOR floor), due 5/31/2023)(3)(11) 5/31/2018 29,900 29,900 28,843 0.9%
74,140 73,083 2.2%
Halcyon Loan Advisors Funding 2012-1 Ltd. Structured Finance Subordinated Structured Note (Residual Interest, current yield 0.00%, due 8/15/2023)(5)(14)(17) 8/15/2012 23,188 3,786 — —%
3,786 — —%
Halcyon Loan Advisors Funding 2013-1 Ltd. Structured Finance Subordinated Structured Note (Residual Interest, current yield 0.00%, due 4/15/2025)(5)(14)(17) 3/28/2013 40,400 19,984 5,563 0.2%
19,984 5,563 0.2%
Halcyon Loan Advisors Funding 2014-1 Ltd. Structured Finance Subordinated Structured Note (Residual Interest, current yield 0.00%, due 4/18/2026)(5)(14)(17) 3/6/2014 24,500 11,822 4,243 0.1%
11,822 4,243 0.1%
Halcyon Loan Advisors Funding 2014-2 Ltd. Structured Finance Subordinated Structured Note (Residual Interest, current yield 0.00%, due 4/28/2025)(5)(14)(17) 4/28/2014 41,164 21,322 3,921 0.1%
21,322 3,921 0.1%

See notes to consolidated financial statements.

27

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULES OF INVESTMENTS AS OF JUNE 30, 2019

(in thousands, except share data)

June 30, 2019
Portfolio Company Industry Investments(1)(45) Acquisition Date(51) Principal Value Amortized Cost Fair Value(2) % of Net Assets
LEVEL 3 PORTFOLIO INVESTMENTS
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
Halcyon Loan Advisors Funding 2015-3 Ltd. Structured Finance Subordinated Structured Note (Residual Interest, current yield 12.87%, due 10/18/2027)(5)(14) 9/3/2015 $ 39,598 $ 32,784 $ 27,783 0.8%
32,784 27,783 0.8%
HALYARD MD OPCO, LLC Media Revolving Line of Credit – $2,000 Commitment (10.33% (LIBOR + 8.00%), due 2/6/2020)(11)(15) 8/6/2018 — — — —%
First Lien Term Loan (10.33% (LIBOR + 8.00% with 2.00% LIBOR floor), due 8/6/2023)(3)(11) 8/6/2018 11,550 11,550 11,550 0.3%
11,550 11,550 0.3%
HarbourView CLO VII-R, Ltd. Structured Finance Subordinated Structured Note (Residual Interest, current yield 19.31%, due 7/18/2031)(5)(14) 6/10/2015 19,025 13,507 12,690 0.4%
13,507 12,690 0.4%
Help/Systems Holdings, Inc. Software Second Lien Term Loan (10.08% (LIBOR + 7.75%), due 3/27/2026)(3)(8)(11) 4/17/2018 12,499 12,457 12,457 0.4%
12,457 12,457 0.4%
Inpatient Care Management Company, LLC Health Care Providers & Services Senior Secured Term Loan (10.60% (LIBOR + 8.00% with 1.00% LIBOR floor), due 6/8/2021)(3)(11) 6/8/2016 19,313 19,313 19,000 0.6%
19,313 19,000 0.6%
Janus International Group, LLC Building Products Second Lien Term Loan (10.15% (LIBOR + 7.75% with 1.00% LIBOR floor), due 2/12/2026)(3)(8)(13) 2/22/2018 20,000 19,842 19,842 0.6%
19,842 19,842 0.6%
JD Power and Associates Capital Markets Second Lien Term Loan (10.90% (LIBOR + 8.50% with 1.00% LIBOR floor), due 9/7/2024)(3)(8)(13) 9/16/2016 25,222 25,084 25,222 0.8%
25,084 25,222 0.8%
Jefferson Mill CLO Ltd. Structured Finance Subordinated Structured Note (Residual Interest, current yield 13.08%, due 10/20/2031)(5)(14) 7/28/2015 23,594 18,306 12,172 0.4%
18,306 12,172 0.4%
K&N Parent, Inc. Auto Components Second Lien Term Loan (11.15% (LIBOR + 8.75% with 1.00% LIBOR floor), due 10/21/2024)(3)(8)(13) 10/28/2016 25,887 25,450 25,450 0.8%
25,450 25,450 0.8%
Keystone Acquisition Corp.(36) Health Care Providers & Services Second Lien Term Loan (11.58% (LIBOR + 9.25% with 1.00% LIBOR floor), due 5/1/2025)(3)(8)(11) 5/18/2017 50,000 50,000 50,000 1.5%
50,000 50,000 1.5%
LCM XIV Ltd. Structured Finance Subordinated Structured Note (Residual Interest, current yield 14.10%, due 7/21/2031)(5)(14) 7/11/2013 49,934 27,938 20,663 0.6%
27,938 20,663 0.6%
Madison Park Funding IX, Ltd. Structured Finance Subordinated Structured Note (Residual Interest, current yield 0.00%, due 8/15/2022)(5)(14)(17) 7/18/2012 43,110 1,949 1,109 —%
1,949 1,109 —%
Maverick Healthcare Equity, LLC Health Care Providers & Services Preferred Units (10.00%, 1,250,000 units)(16) 10/31/2007 — — — —%
Class A Common Units (1,250,000 units)(16) 10/31/2007 — — — —%
— — —%
MedMark Services, Inc.(41) Health Care Providers & Services Second Lien Term Loan (10.77% (LIBOR + 8.25% with 1.00% LIBOR floor), due 3/1/2025)(3)(8)(13) 3/16/2018 7,000 6,943 6,943 0.2%
6,943 6,943 0.2%
Mobile Posse, Inc. Media First Lien Term Loan (10.83% (LIBOR + 8.50% with 2.00% LIBOR floor), due 4/3/2023)(3)(11) 4/3/2018 20,500 20,500 20,500 0.6%
20,500 20,500 0.6%

See notes to consolidated financial statements.

28

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULES OF INVESTMENTS AS OF JUNE 30, 2019

(in thousands, except share data)

June 30, 2019
Portfolio Company Industry Investments(1)(45) Acquisition Date(51) Principal Value Amortized Cost Fair Value(2) % of Net Assets
LEVEL 3 PORTFOLIO INVESTMENTS
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
Mountain View CLO 2013-I Ltd. Structured Finance Subordinated Structured Note (Residual Interest, current yield 10.70%, due 10/15/2030)(5)(14) 5/1/2013 $ 43,650 $ 29,166 $ 20,919 0.6%
29,166 20,919 0.6%
Mountain View CLO IX Ltd. Structured Finance Subordinated Structured Note (Residual Interest, current yield 18.79%, due 7/15/2031)(5)(14) 6/25/2015 47,830 29,152 31,107 0.9%
29,152 31,107 0.9%
MRP Holdco, Inc. Professional Services Senior Secured Term Loan A (7.41% (LIBOR + 5.00% with 1.50% LIBOR floor), due 4/17/2024)(3)(13) 4/17/2018 53,963 53,963 53,963 1.6%
Senior Secured Term Loan B (11.41% (LIBOR + 9.00% with 1.50% LIBOR floor), due 4/17/2024)(13) 4/17/2018 55,000 55,000 55,000 1.7%
108,963 108,963 3.3%
Octagon Investment Partners XV, Ltd. Structured Finance Subordinated Structured Note (Residual Interest, current yield 12.68%, due 7/19/2030)(5)(14) 2/20/2013 42,064 33,148 26,239 0.8%
33,148 26,239 0.8%
Octagon Investment Partners 18-R Ltd. Structured Finance Subordinated Structured Note (Residual Interest, current yield 16.97%, due 4/16/2031)(5)(14) 8/17/2015 46,016 27,307 24,629 0.7%
27,307 24,629 0.7%
Pearl Intermediate Parent LLC Health Care Providers & Services Second Lien Term Loan (8.65% (LIBOR + 6.25%), due 2/15/2026)(3)(8)(13) 2/28/2018 5,000 4,979 4,979 0.2%
4,979 4,979 0.2%
PeopleConnect Intermediate, LLC Interactive Media & Services Revolving Line of Credit – $1,000 Commitment (12.10% (LIBOR + 9.50% with 1.00% LIBOR floor), due 7/1/2020)(11)(15) 7/1/2015 500 500 500 —%
Senior Secured Term Loan A (9.10% (LIBOR + 6.50% with 1.00% LIBOR floor), due 7/1/2020)(3)(11) 7/1/2015 17,741 17,741 17,741 0.5%
Senior Secured Term Loan B (15.10% (LIBOR + 12.50% with 1.00% LIBOR floor), due 7/1/2020)(3)(11) 7/1/2015 19,620 19,620 19,620 0.6%
37,861 37,861 1.1%
PG Dental Holdings New Jersey, LLC Health Care Providers & Services Delayed Draw Term Loan – $5,000 Commitment (10.00% (LIBOR + 7.25% with 2.75% LIBOR floor), due 5/31/2024)(11)(15) 5/31/2019 — — — —%
Senior Secured Term Loan (10.00% (LIBOR + 7.25% with 2.75% LIBOR floor), due 5/31/2024)(3)(11) 5/31/2019 22,760 22,760 22,760 0.7%
22,760 22,760 0.7%
PGX Holdings, Inc. Diversified Consumer Services Second Lien Term Loan (11.41% (LIBOR + 9.00% with 1.00% LIBOR floor), due 9/29/2021)(3)(13) 9/29/2014 100,091 100,091 100,091 3.0%
100,091 100,091 3.0%
PlayPower, Inc. Leisure Products First Lien Term Loan (7.90% (LIBOR + 5.50%), due 5/10/2026)(3)(8)(13) 5/16/2019 6,500 6,436 6,436 0.2%
6,436 6,436 0.2%
Research Now Group, Inc. & Survey Sampling International LLC Professional Services First Lien Term Loan (8.08% (LIBOR + 5.50% with 1.00% LIBOR floor), due 12/20/2024)(3)(8)(13) 1/5/2018 9,850 9,440 9,850 0.3%
Second Lien Term Loan (12.08% (LIBOR + 9.50% with 1.00% LIBOR floor), due 12/20/2025)(3)(8)(13) 1/5/2018 50,000 47,176 49,850 1.5%
56,616 59,700 1.8%

See notes to consolidated financial statements.

29

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULES OF INVESTMENTS AS OF JUNE 30, 2019

(in thousands, except share data)

June 30, 2019
Portfolio Company Industry Investments(1)(45) Acquisition Date(51) Principal Value Amortized Cost Fair Value(2) % of Net Assets
LEVEL 3 PORTFOLIO INVESTMENTS
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
RGIS Services, LLC Commercial Services & Supplies Senior Secured Term Loan (10.08% (LIBOR + 7.50% with 1.00% LIBOR floor), due 3/31/2023)(3)(8)(11) 4/20/2017 $ 4,407 $ 4,237 $ 3,659 0.1%
Senior Secured Term Loan (10.02% (LIBOR + 7.50% with 1.00% LIBOR floor), due 3/31/2023)(3)(8)(11) 4/20/2017 5,021 4,828 4,169 0.1%
Senior Secured Term Loan (9.90% (LIBOR + 7.50% with 1.00% LIBOR floor), due 3/31/2023)(3)(8)(13) 4/20/2017 10,136 9,746 8,416 0.3%
18,811 16,244 0.5%
RME Group Holding Company Media Senior Secured Term Loan A (8.33% (LIBOR + 6.00% with 1.00% LIBOR floor), due 5/4/2022)(3)(11) 5/4/2017 28,396 28,396 28,302 0.8%
Senior Secured Term Loan B (13.33% (LIBOR + 11.00% with 1.00% LIBOR floor), due 5/4/2022)(3)(11) 5/4/2017 22,599 22,599 22,431 0.7%
50,995 50,733 1.5%
Rocket Software, Inc. Software Second Lien Term Loan (10.65% (LIBOR + 8.25%), due 11/27/2026)(3)(8)(13) 12/7/2018 50,000 49,537 49,537 1.5%
49,537 49,537 1.5%
Romark WM-R Ltd. Structured Finance Subordinated Structured Note (Residual Interest, current yield 12.39%, due 4/20/2031)(5)(14) 5/15/2014 27,725 22,708 16,046 0.5%
22,708 16,046 0.5%
Rosa Mexicano Hotels, Restaurants & Leisure Revolving Line of Credit – $1,000 Commitment (9.83% (LIBOR + 7.50% with 1.50% LIBOR floor), due 3/29/2023(11)(15) 3/29/2018 — — — —%
Senior Secured Term Loan (9.83% (LIBOR + 7.50% with 1.50% LIBOR floor), due 3/29/2023(3)(11) 3/29/2018 27,252 27,252 27,252 0.8%
27,252 27,252 0.8%
SCS Merger Sub, Inc. IT Services Second Lien Term Loan (11.90% (LIBOR + 9.50% with 1.00% LIBOR floor), due 10/30/2023)(3)(8)(13) 11/6/2015 20,000 19,679 20,000 0.6%
19,679 20,000 0.6%
Securus Technologies Holdings, Inc. Communications Equipment Second Lien Term Loan (10.58% (LIBOR + 8.25% with 1.00% LIBOR floor), due 11/01/2025)(3)(8)(11) 11/3/2017 50,662 50,503 48,760 1.5%
50,503 48,760 1.5%
SEOTownCenter, Inc. IT Services Senior Secured Term Loan A (9.83% (LIBOR + 7.50% with 2.00% LIBOR floor), due 4/07/2023)(3)(11) 4/10/2018 26,000 26,000 26,000 0.8%
Senior Secured Term Loan B (14.83% (LIBOR + 12.50% with 2.00% LIBOR floor), due 4/07/2023)(3)(11) 4/10/2018 19,000 19,000 19,000 0.6%
45,000 45,000 1.4%
SESAC Holdco II LLC Entertainment Second Lien Term Loan (9.65% (LIBOR + 7.25% with 1.00% LIBOR floor), due 2/23/2025)(3)(8)(13) 3/2/2017 8,000 7,955 7,955 0.2%
7,955 7,955 0.2%
SMG US Midco Hotels, Restaurants & Leisure Second Lien Term Loan (9.40% (LIBOR + 7.00%), due 1/23/2026)(3)(8)(13) 1/23/2018 7,500 7,485 7,485 0.2%
7,485 7,485 0.2%
Sorenson Communications, LLC Diversified Telecommunication Services First Lien Term Loan (8.83% (LIBOR + 6.50%), due 4/29/2024(3)(8)(11) 5/8/2019 10,000 9,923 9,923 0.3%
9,923 9,923 0.3%

See notes to consolidated financial statements.

30

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULES OF INVESTMENTS AS OF JUNE 30, 2019

(in thousands, except share data)

June 30, 2019
Portfolio Company Industry Investments(1)(45) Acquisition Date(51) Principal Value Amortized Cost Fair Value(2) % of Net Assets
LEVEL 3 PORTFOLIO INVESTMENTS
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
Spectrum Holdings III Corp Health Care Equipment & Supplies Second Lien Term Loan (9.40% (LIBOR + 7.00% with 1.00% LIBOR floor), due 1/31/2026)(3)(8)(13) 2/13/2018 $ 7,500 $ 7,469 $ 7,144 0.2%
7,469 7,144 0.2%
Strategic Materials Household Durables Second Lien Term Loan (10.33% (LIBOR + 7.75% with 1.00% LIBOR floor), due 11/1/2025)(3)(8)(11) 11/1/2017 7,000 6,945 5,523 0.2%
6,945 5,523 0.2%
Stryker Energy, LLC Energy Equipment & Services Overriding Royalty Interests(43) 12/4/2006 — — —%
— — —%
Sudbury Mill CLO Ltd. Structured Finance Subordinated Structured Note (Residual Interest, current yield 0.00%, due 1/17/2026)(5)(14)(17) 12/5/2013 28,200 15,225 6,834 0.2%
15,225 6,834 0.2%
Symphony CLO XIV, Ltd. Structured Finance Subordinated Structured Note (Residual Interest, current yield 0.00%, due 7/14/2026)(5)(14)(17) 5/29/2014 49,250 31,246 18,847 0.6%
31,246 18,847 0.6%
Symphony CLO XV, Ltd. Structured Finance Rated Secured Structured Note - Class F (11.28% (LIBOR + 8.68%), due 1/17/2032)(6)(11)(14) 12/24/2018 12,000 11,396 11,950 0.4%
11,396 11,950 0.4%
Symphony CLO XV, Ltd. Structured Finance Subordinated Structured Note (Residual Interest, current yield 11.98%, due 1/17/2032)(5)(14) 11/17/2014 63,831 44,076 22,965 0.7%
44,076 22,965 0.7%
TGP HOLDINGS III LLC Household Durables Second Lien Term Loan (10.83% (LIBOR + 8.50% with 1.00% LIBOR floor), due 9/25/2025)(8)(11) 10/3/2017 3,000 2,965 2,965 0.1%
2,965 2,965 0.1%
TouchTunes Interactive Networks, Inc. Entertainment Second Lien Term Loan (10.68% (LIBOR + 8.25% with 1.00% LIBOR floor), due 5/29/2022)(3)(8)(13) 6/5/2015 12,194 12,138 12,194 0.4%
12,138 12,194 0.4%
Town & Country Holdings, Inc. Distributors First Lien Term Loan (10.83% (LIBOR + 8.50% with 1.50% LIBOR floor), due 1/26/2023)(3)(11) 1/26/2018 172,815 172,815 171,271 5.2%
172,815 171,271 5.2%
Transplace Holdings, Inc. Transportation Infrastructure Second Lien Term Loan (11.15% (LIBOR + 8.75% with 1.00% LIBOR floor), due 10/6/2025)(3)(8)(13) 10/16/2017 28,104 27,578 28,104 0.9%
27,578 28,104 0.9%
Turning Point Brands, Inc.(42) Tobacco Second Lien Term Loan (9.40% (LIBOR + 7.00%), due 3/7/2024)(3)(8)(13) 2/17/2017 14,500 14,419 14,500 0.4%
14,419 14,500 0.4%
Universal Fiber Systems, LLC Textiles, Apparel & Luxury Goods Second Lien Term Loan (11.91% (LIBOR + 9.50% with 1.00% LIBOR floor), due 10/02/2022)(3)(8)(13) 10/16/2015 37,000 36,657 36,657 1.1%
36,657 36,657 1.1%

See notes to consolidated financial statements.

31

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULES OF INVESTMENTS AS OF JUNE 30, 2019

(in thousands, except share data)

June 30, 2019
Portfolio Company Industry Investments(1)(45) Acquisition Date(51) Principal Value Amortized Cost Fair Value(2) % of Net Assets
LEVEL 3 PORTFOLIO INVESTMENTS
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
USG Intermediate, LLC Leisure Products Revolving Line of Credit – $2,000 Commitment (11.66% (LIBOR + 9.25% with 1.00% LIBOR floor), due 8/24/2019)(13)(15) 4/15/2015 $ 800 $ 800 $ 800 —%
Senior Secured Term Loan A (9.16% (LIBOR + 6.75% with 1.00% LIBOR floor), due 8/24/2022)(3)(13) 4/15/2015 6,387 6,387 6,387 0.2%
Senior Secured Term Loan B (14.16% (LIBOR + 11.75% with 1.00% LIBOR floor), due 8/24/2022)(3)(13) 4/15/2015 19,245 19,245 19,245 0.6%
Equity(16) 4/15/2015 — 1 — —%
26,433 26,432 0.8%
UTZ Quality Foods, LLC Food Products Second Lien Term Loan (9.65% (LIBOR + 7.25%), due 11/21/2025)(3)(8)(13) 11/28/2017 10,000 9,900 9,900 0.3%
9,900 9,900 0.3%
VC GB Holdings, Inc. Household Durables Subordinated Secured Term Loan (10.40% (LIBOR + 8.00% with 1.00% LIBOR floor), due 2/28/2025)(3)(8)(13) 2/28/2017 3,720 3,493 3,720 0.1%
3,493 3,720 0.1%
Venio LLC Professional Services Second Lien Term Loan (4.00% plus 10.10% PIK (LIBOR + 7.50% with 2.50% LIBOR floor), due 2/19/2020)(11)(46) 2/19/2014 24,382 22,519 21,515 0.7%
22,519 21,515 0.7%
Voya CLO 2012-2, Ltd. Structured Finance Subordinated Structured Note (Residual Interest, current yield 0.00%, due 10/15/2022)(5)(14)(17) 8/28/2012 38,070 450 516 —%
450 516 —%
Voya CLO 2012-3, Ltd. Structured Finance Subordinated Structured Note (Residual Interest, current yield 0.00%, due 10/15/2022)(5)(14)(17) 10/18/2012 46,632 — 516 —%
— 516 —%
Voya CLO 2012-4, Ltd. Structured Finance Subordinated Structured Note (Residual Interest, current yield 10.37%, due 10/16/2028)(5)(14) 11/29/2012 40,613 31,046 27,193 0.8%
31,046 27,193 0.8%
Voya CLO 2014-1, Ltd. Structured Finance Subordinated Structured Note (Residual Interest, current yield 13.21%, due 4/18/2031)(5)(14) 3/13/2014 40,773 29,978 22,515 0.7%
29,978 22,515 0.7%
Voya CLO 2016-3, Ltd. Structured Finance Subordinated Structured Note (Residual Interest, current yield 12.29%, due 10/20/2031)(5)(14) 10/27/2016 28,100 27,265 21,003 0.6%
27,265 21,003 0.6%
Voya CLO 2017-3, Ltd. Structured Finance Subordinated Structured Note (Residual Interest, current yield 12.44%, due 7/20/2030)(5)(14) 7/12/2017 44,885 50,244 42,872 1.3%
50,244 42,872 1.3%
VT Topco, Inc. Commercial Services & Supplies Second Lien Term Loan (9.33% (LIBOR + 7.00%), due 8/17/2026)(3)(8)(11) 8/23/2018 7,000 6,969 6,969 0.2%
6,969 6,969 0.2%
Wink Holdco, Inc. Insurance Second Lien Term Loan (9.16% (LIBOR + 6.75% with 1.00% LIBOR floor), due 12/1/2025)(3)(8)(13) 12/12/2017 3,000 2,988 2,988 0.1%
2,988 2,988 0.1%
Total Non-Control/Non-Affiliate Investments (Level 3) $ 3,368,880 $ 3,100,947 93.8%
Total Portfolio Investments (Level 3) $ 5,932,302 $ 5,653,553 171.0%

See notes to consolidated financial statements.

32

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)

(in thousands, except share data)

Endnote Explanations as of December 31, 2019 (Unaudited) and June 30, 2019

(1) The terms “Prospect,” “the Company,” “we,” “us” and “our” mean Prospect Capital Corporation and its subsidiaries unless the context specifically requires otherwise. The securities in which Prospect has invested were acquired in transactions that were exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”). These securities may be resold only in transactions that are exempt from registration under the Securities Act.
(2) Fair value is determined by or under the direction of our Board of Directors. Unless otherwise indicated by endnote 10 below, all of our investments are valued using significant unobservable inputs. In accordance with ASC 820, such investments are classified as Level 3 within the fair value hierarchy. See Notes 2 and 3 within the accompanying notes to consolidated financial statements for further discussion.
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(3) Security, or a portion thereof, is held by Prospect Capital Funding LLC (“PCF”), our wholly owned subsidiary and a bankruptcy remote special purpose entity, and is pledged as collateral for the Revolving Credit Facility and such security is not available as collateral to our general creditors (see Note 4). The fair values of the investments held by PCF at December 31, 2019 and June 30, 2019 were $1,447,727 and $1,636,067, respectively, representing 27.5% and 28.9% of our total investments, respectively.
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(4) In addition to the stated returns, the net profits interest held will be realized upon sale of the borrower or a sale of the interests.
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(5) This investment is in the equity class of the collateralized loan obligation (“CLO”) security, which is referred to as “Subordinated Structured Note,” or “SSN”. The SSN investments are entitled to recurring distributions which are generally equal to the excess cash flow generated from the underlying investments after payment of the contractual payments to debt holders and fund expenses. The current estimated yield, calculated using amortized cost, is based on the current projections of this excess cash flow taking into account assumptions which have been made regarding expected prepayments, losses and future reinvestment rates. These assumptions are periodically reviewed and adjusted. Ultimately, the actual yield may be higher or lower than the estimated yield if actual results differ from those used for the assumptions.
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(6) This investment is in the debt class of the CLO security, which is referred to as “Rated Secured Structured Note,” or “RSSN”.
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(7) Engine Group, Inc., Clearstream.TV, Inc., and ORC International, Inc., are joint borrowers on the senior secured and the second lien term loans.
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(8) Syndicated investment which was originated by a financial institution and broadly distributed.
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(9) Medusind Acquisition, Inc., Medusind Intermediate, Inc., Medusind Solutions Inc. and Medusind Inc. are joint borrowers.
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(10) This investment represents a Level 2 security in the ASC 820 table as of December 31, 2019. See Notes 2 and 3 within the accompanying notes to consolidated financial statements for further discussion.
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(11) The interest rate on these investments is subject to the base rate of 3-Month LIBOR, which was 1.91% and 2.32% at December 31, 2019 and June 30, 2019, respectively. The current base rate for each investment may be different from the reference rate on December 31, 2019 and June 30, 2019.
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(12) The interest rate on these investments is subject to the base rate of 2-Month LIBOR, which was 1.83% and 2.33% at December 31, 2019 and June 30, 2019, respectively. The current base rate for each investment may be different from the reference rate on December 31, 2019 and June 30, 2019.
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(13) The interest rate on these investments is subject to the base rate of 1-Month LIBOR, which was 1.76% and 2.40% at December 31, 2019 and June 30, 2019, respectively. The current base rate for each investment may be different from the reference rate on December 31, 2019 and June 30, 2019.
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(14) Investment has been designated as an investment not “qualifying” under Section 55(a) of the Investment Company Act of 1940 (the “1940 Act”). Under the 1940 Act, we may not acquire any non-qualifying asset unless, at the time such acquisition is made, qualifying assets represent at least 70% of our total assets. As of December 31, 2019 and June 30, 2019, our qualifying assets, as a percentage of total assets, stood at 73.62% and 73.85%, respectively. We monitor the status of these assets on an ongoing basis.
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(15) Undrawn committed revolvers and delayed draw term loans to our portfolio companies incur commitment and unused fees ranging from 0.00% to 5.00%. As of December 31, 2019 and June 30, 2019, we had $25,111 and $23,375, respectively, of undrawn revolver and delayed draw term loan commitments to our portfolio companies.
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See notes to consolidated financial statements.

33

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)

(in thousands, except share data)

Endnote Explanations as of December 31, 2019 (Unaudited) and June 30, 2019 (Continued)

(16) Represents non-income producing security that has not paid a dividend in the year preceding the reporting date.
(17) The effective yield has been estimated to be 0% as expected future cash flows are anticipated to not be sufficient to repay the investment at cost. If the expected investment proceeds increase, there is a potential for future investment income from the investment. Distributions, once received, will be recognized as return of capital with any remaining unamortized investment costs written off if the actual distributions are less than the amortized investment cost. If an investment has been impaired upon being called, any future distributions will be recorded as a return of capital. To the extent that the impaired cost basis of the SSN is fully recovered, any future distributions will be recorded as realized gains.
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(18) Ellett Brothers, LLC, Evans Sports, Inc., Jerry’s Sports, Inc., Simmons Gun Specialties, Inc., Bonitz Brothers, Inc., and Outdoor Sports Headquarters, Inc. are joint borrowers on the second lien term loan. United Sporting Companies, Inc. (“USC”) is a parent guarantor of this debt investment, and is 100% owned by SportCo Holdings, Inc. (“SportCo”). Prospect previously held a 3.48% equity interest in SportCo and following an additional issuance of common stock by SportCo, Prospect’s ownership increased to 22.0% as of September 30, 2018. As a result, Prospect’s investment in USC is classified as an affiliate investment beginning the period ended September 30, 2018. In June 2019, USC filed for Chapter 11 bankruptcy and began liquidating its remaining assets. During the six months ended December 31, 2019, USC used a portion of the proceeds from the ongoing liquidation to partially repay $20,061 of our Second Lien Term Loan.
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(19) CCPI Holdings Inc., a consolidated entity in which we own 100% of the common stock, held 94.59% of CCPI Inc. (“CCPI”), the operating company, as of June 30, 2018. On March 1, 2019, we sold our 94.59% common equity interest in CCPI for $18,865 in net proceeds. Concurrently, CCPI fully repaid the $2,797 Senior Secured Term Loan A and the $17,566 Senior Secured Term Loan B receivable to us. We recorded a realized gain of $12,105 on the sale of our equity position in CCPI. In connection with the sale, there is $2,364 being held in escrow that is due to us, which will be recognized as an additional realized gain when received.
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(20) CP Holdings of Delaware LLC (“CP Holdings”), a consolidated entity in which we own 100% of the membership interests, owns 99.83% of CP Energy Services Inc. (“CP Energy”) as of December 31, 2019 and June 30, 2019. CP Energy owns directly or indirectly 100% of each of CP Well Testing, LLC; Wright Foster Disposals, LLC; Foster Testing Co., Inc.; ProHaul Transports, LLC; and Wright Trucking, Inc. We report CP Energy as a separate controlled company. On April 6, 2018, Arctic Oilfield Equipment USA, Inc. (“Arctic Equipment”), a previously controlled portfolio company, merged with and into CP Energy, with CP Energy continuing as the surviving corporation. In June 2019, CP Energy purchased a controlling interest in the common equity of Spartan Energy Holdings, Inc. (“Spartan Holdings”), which owns 100% of Spartan Energy Services, LLC (“Spartan”), a portfolio company of Prospect with $34,399 in senior secured term loans (the “Spartan Term Loans”) due to us as of June 30, 2019. As a result of CP Energy’s purchase, and given Prospect’s controlling interest in CP Energy, we report our investments in Spartan as control investments beginning June 30, 2019. Spartan remains the direct borrower and guarantor to Prospect for the Spartan Term Loans. In December 2019, Wolf Energy Holdings, Inc. (“Wolf Energy Holdings”), our Consolidated Holding Company that previously owned 100% of Appalachian Energy LLC (“AEH”); Wolf Energy Services Company, LLC (Wolf Energy Services”); and Wolf Energy, LLC (collectively our previously controlled membership interest and net profit interest investments in “Wolf Energy”), merged with and into CP Energy, with CP Energy continuing as the surviving entity. CP Energy acquired 100% of our equity in Wolf Energy, which is reflected in our valuation of CP Energy common stock as of December 31, 2019. (See Note 14).
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(21) Credit Central Holdings of Delaware, LLC (“Credit Central Delaware”), a consolidated entity in which we own 100% of the membership interests, owns 98.63% and 98.41% of Credit Central Loan Company, LLC (f/k/a Credit Central Holdings, LLC (“Credit Central”)) as of December 31, 2019 and June 30, 2019, respectively. Credit Central owns 100% of each of Credit Central, LLC; Credit Central South, LLC; Credit Central of Texas, LLC; and Credit Central of Tennessee, LLC, the operating companies. We report Credit Central as a separate controlled company.
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(22) Prospect holds an 11.51% membership interest in Edmentum Ultimate Holdings, LLC (“Edmentum Holdings”), which owns 100% of the equity of Edmentum, Inc.
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(23) First Tower Holdings of Delaware LLC (“First Tower Delaware”), a consolidated entity in which we own 100% of the membership interests, owns 80.1% of First Tower Finance Company LLC (“First Tower Finance”), which owns 100% of First Tower, LLC, the operating company as of December 31, 2019 and June 30, 2019. We report First Tower Finance as a separate controlled company.
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See notes to consolidated financial statements.

34

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)

(in thousands, except share data)

Endnote Explanations as of December 31, 2019 (Unaudited) and June 30, 2019 (Continued)

(24) Energy Solutions Holdings Inc., a consolidated entity in which we own 100% of the equity, owns 100% of Freedom Marine Solutions, LLC (“Freedom Marine”), which owns Vessel Company, LLC, Vessel Company II, LLC and Vessel Company III, LLC. We report Freedom Marine as a separate controlled company.
(25) MITY Holdings of Delaware Inc. (“MITY Delaware”), a consolidated entity in which we own 100% of the common stock, owns 100% of the equity of MITY, Inc. (f/k/a MITY Enterprises, Inc.) (“MITY”). MITY owns 100% of each of MITY-Lite, Inc. (“Mity-Lite”); Broda Enterprises USA, Inc.; and Broda Enterprises ULC (“Broda Canada”). We report MITY as a separate controlled company. Our subordinated unsecured note issued and outstanding to Broda Canada is denominated in Canadian Dollars (“CAD”). As of December 31, 2019 and June 30, 2019, the principal balance of this note was CAD 7,371. In accordance with ASC 830, Foreign Currency Matters (“ASC 830”), this note was remeasured into our functional currency, US Dollars (USD), and is presented on our Consolidated Schedule of Investments in USD. We formed a separate legal entity domiciled in the United States, MITY FSC, Inc., (“MITY FSC”) in which Prospect owns 100% of the equity. MITY FSC does not have material operations. This entity earns commission payments from MITY-Lite based on its sales to foreign customers, and distributes it to its shareholder.
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(26) NPH Property Holdings, LLC (“NPH”), a consolidated entity in which we own 100% of the membership interests, owns 100% of the common equity of National Property REIT Corp. (“NPRC”) (f/k/a National Property Holdings Corp.), a property REIT which holds investments in several real estate properties. Additionally, NPRC invests in online consumer loans and rated secured structured notes through American Consumer Lending Limited (“ACLL”) and National General Lending Limited (“NGL”), respectively, its wholly owned subsidiaries. We report NPRC as a separate controlled company. See Note 3 for further discussion of the investments held by NPRC. During the period from July 1, 2018 to December 27, 2018, we received partial repayments of $21,181 for our loans previously outstanding with NPRC and its wholly owned subsidiaries and $15,000 as a return of capital on our equity investment. Effective December 31, 2018, we amended and restated the terms of our credit agreement with NPRC. As part of the amendment, we increased our investment through a New Term Loan A Secured Note (“New TLA”) in the aggregate principal amount of $433,553, a New Term Loan B Secured Note (“New TLB”) in the aggregate principal amount of $205,000, and our net operating income interest was revised to a residual profit interest (refer to endnote 37 for residual profit interest calculation). NPRC utilized a portion of the proceeds from the New TLA and New TLB to repay the previously outstanding Senior Secured Term Loan A and Senior Secured Term Loan E. The remaining proceeds of $140,351 were returned to us as a return of capital, reducing our equity investment in NPRC. Effective October 31, 2019, we amended the terms of our credit agreement to increase our investment in NPRC and its wholly-owned subsidiaries through a new Senior Secured Term Loan C (“TLC”). During the three months ended December 31, 2019, we provided $51,428 and $12,857 in TLC and equity financing, respectively.
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(27) Nationwide Acceptance Holdings LLC (“Nationwide Holdings”), a consolidated entity in which we own 100% of the membership interests, owns 94.48% of Nationwide Loan Company LLC (f/k/a Nationwide Acceptance LLC), the operating company, as of December 31, 2019 and June 30, 2019. We report Nationwide Loan Company LLC as a separate controlled company. On June 1, 2015, Nationwide Acceptance LLC completed a reorganization and was renamed Nationwide Loan Company LLC (“Nationwide”) and formed two new wholly owned subsidiaries: Pelican Loan Company LLC (“Pelican”) and Nationwide Consumer Loans LLC. Nationwide assigned 100% of the equity interests in its other subsidiaries to Pelican which, in turn, assigned these interests to a new operating company wholly owned by Pelican named Nationwide Acceptance LLC (“New Nationwide”). New Nationwide also assumed the existing senior subordinated term loan due to Prospect.
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(28) NMMB Holdings, Inc. (“NMMB Holdings”), a consolidated entity in which we own 100% of the equity, owns 92.42% and 94.10% of the fully diluted equity of NMMB, Inc. (“NMMB”) as of December 31, 2019 and June 30, 2019, respectively. NMMB owns 100% of Refuel Agency, Inc., which owns 100% of Armed Forces Communications, Inc. We report NMMB as a separate controlled company. On December 30, 2019, NMMB executed a dividend recapitalization whereby Prospect invested $15,100 of a first lien term loan to repay NMMB’s existing term loan, provide a shareholder distribution, and pay fees and expenses. As part of the recapitalization, Prospect converted its Series A and Series B preferred securities into 92.42% common equity and received a dividend distribution of $2,797.
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(29) During the year ended June 30, 2018, Prospect exercised its rights and remedies under its loan documents to exercise the shareholder voting rights in respect of the stock of InterDent, Inc. (“InterDent”) and to appoint a new Board of Directors of InterDent. As a result, Prospect’s investment in InterDent is classified as a control investment.
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(30) Prospect owns 99.96% of the equity of USES Corp. as of December 31, 2019 and June 30, 2019.
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(31) Valley Electric Holdings I, Inc., a consolidated entity in which we own 100% of the common stock, owns 100% of Valley Electric Holdings II, Inc. (“Valley Holdings II”), another consolidated entity. Valley Holdings II owns 94.99% of Valley
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See notes to consolidated financial statements.

35

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)

(in thousands, except share data)

Endnote Explanations as of December 31, 2019 (Unaudited) and June 30, 2019 (Continued)

Electric Company, Inc. (“Valley Electric”). Valley Electric owns 100% of the equity of VE Company, Inc., which owns 100% of the equity of Valley Electric Co. of Mt. Vernon, Inc. We report Valley Electric as a separate controlled company.

(32) On March 14, 2017, assets previously held by Ark-La-Tex Wireline Services, LLC (“Ark-La-Tex”) were assigned to Wolf Energy Services Company, LLC, a new wholly owned subsidiary of Wolf Energy Holdings, Inc. (“Wolf Energy Holdings”), in exchange for a full reduction of Ark-La-Tex’s Senior Secured Term Loan A and a partial reduction of the Senior Secured Term Loan B cost basis, in total equal to $22,145. The cost basis of the transferred assets is equal to the appraised fair value of assets at the time of transfer. During the three months ended June 30, 2017, Ark-La-Tex Term Loan B was written off and a loss of $19,818 was realized. On June 30, 2017, the 18.00% Senior Secured Promissory Note, due April 15, 2018, in Wolf Energy, LLC was contributed to the equity of Wolf Energy LLC. There was no impact from the transaction due to the note being on non-accrual status and having zero cost basis. In December 2019, Wolf Energy Holdings merged with and into CP Energy, with CP Energy continuing as the surviving entity. See endnote 20.
(33) Prospect owns 9.67% of the equity in Targus Cayman HoldCo Limited (“Targus”), the parent company of Targus International LLC (“Targus International”), as of December 31, 2019 and June 30, 2019.
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(34) On December 10, 2018, UTP Holdings Group, Inc. (“UTP Holdings”) purchased all of the voting stock of Universal Turbine Parts, LLC (“UTP”) and appointed a new Board of Directors to UTP Holdings, consisting of three employees of the Investment Advisor. At the time UTP Holdings acquired UTP, UTP Holdings (f/k/a Harbortouch Holdings of Delaware) was a wholly owned holding company controlled by Prospect and therefore Prospect’s investment in UTP is classified as a control investment as of June 30, 2019.
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(35) Centerfield Media Holding Company and Oology Direct Holdings, Inc. are joint borrowers and guarantors on the senior secured loan facilities.
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(36) Keystone Acquisition Corp. is the parent borrower on the second lien term loan. Other joint borrowers on this debt investment include Keystone Peer Review Organization, Inc., KEPRO Acquisitions, Inc., APS Healthcare Bethesda, Inc., Ohio KEPRO, Inc., and APS Healthcare Quality Review, Inc.
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(37) As of June 30, 2019, the residual profit interest was equal to 25% of NPRC’s residual profit, calculated quarterly in arrears. Effective October 31, 2019, the residual profit interest was amended to include both 8.33% of New TLA residual profit and 100% of New TLC residual profits, calculated in arrears.
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(38) The consolidated revenue interest is equal to the lesser of (i) 2.0% of consolidated revenue for the twelve-month period ending on the last day of the prior fiscal quarter (or portion thereof) and (ii) 25% of the amount of interest accrued on the Notes at the cash interest rate for such fiscal quarter (or portion thereof).
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(39) As of December 31, 2019 and June 30, 2019, Prospect owns 8.57% of the equity in Encinitas Watches Holdco, LLC (f/k/a Nixon Holdco, LLC), the parent company of Nixon, Inc. On February 26, 2018, Prospect entered into a debt forgiveness agreement with Nixon, Inc., which terminated $17,472 Senior Secured Term Loan receivable due to us. We recorded a realized loss of $14,197 in our Consolidated Statement of Operations for the year ended June 30, 2018 as a result of this transaction.
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(40) On May 29, 2018, Prospect exercised its rights and remedies under its loan documents to exercise the shareholder voting rights in respect of the stock of Pacific World Corporation (“Pacific World”) and to appoint a new Board of Directors of Pacific World. As a result, Prospect’s investment in Pacific World is classified as a control investment.
--- ---
(41) BAART Programs, Inc. and MedMark Services, Inc. are joint borrowers of the second lien term loan.
--- ---
(42) Turning Point Brands, Inc. and North Atlantic Trading Company, Inc. are joint borrowers and guarantors on the secured loan facility.
--- ---
(43) The overriding royalty interests held receive payments at the stated rates based upon operations of the borrower.
--- ---

See notes to consolidated financial statements.

36

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)

(in thousands, except share data)

Endnote Explanations as of December 31, 2019 (Unaudited) and June 30, 2019 (Continued)

(44) The following shows the composition of our investment portfolio at cost by control designation, investment type and by industry as of December 31, 2019:
Industry 1st Lien<br>Term Loan 2nd Lien<br>Term Loan Subordinated Structured Notes Subordinated Unsecured Debt Equity ^(B)^ Cost Total
--- --- --- --- --- --- --- --- --- --- --- --- ---
Control Investments
Aerospace & Defense $ 59,115 $ — $ — $ — $ 22,738 $ 81,853
Commercial Services & Supplies 123,855 — — 6,627 6,849 137,331
Construction & Engineering 43,731 — — — 22,875 66,606
Consumer Finance — 351,103 — — 122,439 473,542
Diversified Consumer Services — — — — 2,378 2,378
Energy Equipment & Services 71,565 — — — 193,358 264,923
Equity Real Estate Investment Trusts (REITs) 433,553 — — — 62,887 496,440
Health Care Providers & Services 254,949 — — — 1 254,950
Machinery — 28,622 — — 6,866 35,488
Media 15,100 — — — 12,869 27,969
Online Lending 79,000 — — — 100,949 179,949
Personal Products 213,325 — — — 34,100 247,425
Trading Companies & Distributors 63,886 — — — — 63,886
Structured Finance (A) 51,428 — — — 12,857 64,285
Total Control Investments $ 1,409,507 $ 379,725 $ — $ 6,627 $ 601,166 $ 2,397,025
Affiliate Investments
Distributors $ — $ 107,029 $ — $ — $ — $ 107,029
Diversified Consumer Services — 8,033 — 33,851 6,577 48,461
Textiles, Apparel & Luxury Goods — — — 2,805 2,805
Total Affiliate Investments $ — $ 115,062 $ — $ 33,851 $ 9,382 $ 158,295
Non-Control/Non-Affiliate Investments
Air Freight & Logistics $ — $ 12,500 $ — $ — $ — $ 12,500
Auto Components — 25,491 — — — 25,491
Capital Markets — — — — — —
Commercial Services & Supplies 56,823 175,719 — — — 232,542
Communications Equipment 9,086 50,516 — — — 59,602
Consumer Finance 28,563 — — — — 28,563
Distributors 173,809 — — — — 173,809
Diversified Consumer Services — 100,091 — — — 100,091
Diversified Financial Services 30,433 — — — — 30,433
Diversified Telecommunication Services 18,777 39,334 — — — 58,111
Entertainment 12,509 12,148 — — — 24,657
Food Products — 24,841 — — — 24,841
Health Care Equipment & Supplies — 7,471 — — — 7,471
Health Care Providers & Services 158,220 113,176 — — — 271,396
Hotels, Restaurants & Leisure 23,064 7,486 — — — 30,550
Household Durables 15,719 9,917 — — — 25,636
Household Products 24,563 — — — — 24,563
Insurance — 12,989 — — — 12,989
Interactive Media & Services 36,741 — — — — 36,741
Internet & Direct Marketing Retail 18,149 — — — — 18,149
IT Services 117,916 85,707 — — — 203,623

See notes to consolidated financial statements.

37

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)

(in thousands, except share data)

Endnote Explanations as of December 31, 2019 (Unaudited) and June 30, 2019 (Continued)

Industry 1st Lien<br>Term Loan 2nd Lien<br>Term Loan Subordinated Structured Notes Subordinated Unsecured Debt Equity ^(B)^ Cost Total
Leisure Products 29,150 — — — 1 29,151
Media 65,965 35,000 — — — 100,965
Paper & Forest Products 4,371 11,379 — — — 15,750
Professional Services 9,426 73,245 — — — 82,671
Real Estate Management & Development 38,432 — — — 38,432
Software 8,416 66,725 — — — 75,141
Technology Hardware, Storage & Peripherals 12,408 — — — 12,408
Textiles, Apparel & Luxury Goods 172,844 36,710 — — — 209,554
Transportation Infrastructure — 27,620 — — — 27,620
Structured Finance (A) — — 1,093,667 — — 1,093,667
Total Non-Control/Non-Affiliate $ 1,084,183 $ 940,473 $ 1,093,667 $ — $ 1 $ 3,118,324
Total Portfolio Investment Cost $ 2,493,690 $ 1,435,260 $ 1,093,667 $ 40,478 $ 610,549 $ 5,673,644

The following table shows the composition of our investment portfolio at fair value by control designation, investment type and by industry as of December 31, 2019:

Industry 1st Lien<br>Term Loan 2nd Lien<br>Term Loan Subordinated Structured Notes Subordinated Unsecured Debt Equity ^(B)^ Fair Value Total Fair Value % of Net Assets
Control Investments
Aerospace & Defense $ 59,115 $ — $ — $ — $ 31,950 $ 91,065 2.9 %
Commercial Services & Supplies 72,287 — — — — 72,287 2.3 %
Construction & Engineering 43,731 — — — 78,769 122,500 3.8 %
Consumer Finance — 354,269 — — 261,625 615,894 19.3 %
Diversified Consumer Services — — — — 4,361 4,361 0.1 %
Energy Equipment & Services 69,005 — — — 47,636 116,641 3.7 %
Equity Real Estate Investment Trusts (REITs) 433,553 — — — 450,746 884,299 27.8 %
Health Care Providers & Services 196,971 — — — — 196,971 6.2 %
Machinery — 28,622 — — 7,881 36,503 1.1 %
Media 15,100 — — — 22,818 37,918 1.2 %
Online Lending 79,000 — — — 1,291 80,291 2.5 %
Personal Products 62,610 — — — — 62,610 2.0 %
Trading Companies & Distributors 28,622 — — — 28,622 0.9 %
Structured Finance (A) 51,428 — — — 10,870 62,298 2.0 %
Total Control Investments $ 1,111,422 $ 382,891 $ — $ — $ 917,947 $ 2,412,260 75.8 %
Fair Value % of Net Assets 34.9 % 12.0 % — % — % 28.8 % 75.8 %
Affiliate Investments
Distributors $ — $ 6,357 $ — $ — $ — $ 6,357 0.2 %
Diversified Consumer Services — 8,033 — 48,886 8,123 65,042 2.0 %
Textiles, Apparel & Luxury Goods — — 16,224 16,224 0.5 %
Total Affiliate Investments $ — $ 14,390 $ — $ 48,886 $ 24,347 $ 87,623 2.8 %
Fair Value % of Net Assets — % 0.5 % — % 1.5 % 0.8 % 2.8 %
Non-Control/Non-Affiliate Investments
Air Freight & Logistics $ — $ 12,385 $ — $ — $ — $ 12,385 0.4 %
Auto Components — 25,491 — — — 25,491 0.8 %
Capital Markets — — — — — — — %
Commercial Services & Supplies 54,787 175,430 — — — 230,217 7.2 %
Communications Equipment 8,418 41,279 — — — 49,697 1.6 %
Consumer Finance 25,491 — — — — 25,491 0.8 %
Distributors 171,165 — — — — 171,165 5.4 %

See notes to consolidated financial statements.

38

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)

(in thousands, except share data)

Endnote Explanations as of December 31, 2019 (Unaudited) and June 30, 2019 (Continued)

Industry 1st Lien<br>Term Loan 2nd Lien<br>Term Loan Subordinated Structured Notes Subordinated Unsecured Debt Equity ^(B)^ Fair Value Total Fair Value % of Net Assets
Diversified Consumer Services — 85,332 — — — 85,332 2.7 %
Diversified Financial Services 30,433 — — — — 30,433 1.0 %
Diversified Telecommunication Services 18,706 38,674 — — — 57,380 1.8 %
Electronic Equipment, Instruments & Components — — — — 2,307 2,307 0.1 %
Entertainment 12,559 12,194 — — — 24,753 0.8 %
Food Products — 24,841 — — — 24,841 0.8 %
Health Care Equipment & Supplies — 6,151 — — — 6,151 0.2 %
Health Care Providers & Services 158,059 113,174 — — — 271,233 8.5 %
Hotels, Restaurants & Leisure 21,310 7,500 — — — 28,810 0.9 %
Household Durables 4,353 8,558 — — — 12,911 0.4 %
Household Products 24,561 — — — — 24,561 0.8 %
Insurance — 12,989 — — — 12,989 0.4 %
Interactive Media & Services 36,741 — — — — 36,741 1.2 %
Internet & Direct Marketing Retail 18,608 — — — — 18,608 0.6 %
IT Services 117,916 85,750 — — — 203,666 6.4 %
Leisure Products 29,150 — — — — 29,150 0.9 %
Media 65,776 31,305 — — — 97,081 3.0 %
Paper & Forest Products 4,371 11,379 — — — 15,750 0.5 %
Professional Services 9,800 75,416 — — — 85,216 2.7 %
Real Estate Management & Development 38,432 — — — — 38,432 1.2 %
Software 8,416 66,725 — — — 75,141 2.4 %
Technology Hardware, Storage & Peripherals — 12,408 — — — 12,408 0.4 %
Textiles, Apparel & Luxury Goods 172,844 36,710 — — — 209,554 6.6 %
Transportation Infrastructure — 28,104 — — — 28,104 0.9 %
Structured Finance (A) — — 791,457 — — 791,457 24.9 %
Total Non-Control/Non-Affiliate $ 1,063,103 $ 911,795 $ 791,457 $ — $ 2,307 $ 2,768,662 87.0 %
Fair Value % of Net Assets 33.4 % 28.6 % 24.9 % — % 0.1 % 87.0 %
Total Portfolio $ 2,174,525 $ 1,309,076 $ 791,457 $ 48,886 $ 944,601 $ 5,268,545 165.5 %
Fair Value % of Net Assets 68.3 % 41.1 % 24.9 % 1.5 % 29.7 % 165.5 %

(A) Our SSN investments do not have industry concentrations and as such have been separated in the tables above.

(B) Equity, unless specifically stated otherwise, includes our investments in preferred stock, common stock, membership interests, net profits interests, net operating income interests, net revenue interests, overriding royalty interests, escrows receivable, and warrants.

(45) The following table shows the composition of our investment portfolio at cost by control designation, investment type and by industry as of June 30, 2019:
Industry 1st Lien<br>Term Loan 2nd Lien<br>Term Loan Rated Secured Structured Notes Subordinated Structured Notes Subordinated Unsecured Debt Equity^(B)^ Cost Total
--- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Control Investments
Aerospace & Defense $ 54,841 $ — $ — $ — $ — $ 22,738 $ 77,579
Commercial Services & Supplies 126,505 — — — 6,915 6,849 140,269
Construction & Engineering 43,731 — — — — 26,204 69,935
Consumer Finance — 348,606 — — — 116,839 465,445
Energy Equipment & Services 69,447 — — — — 192,216 261,663
Equity Real Estate Investment Trusts (REITs) 433,553 — — — — 62,887 496,440
Health Care Providers & Services 248,872 — — — — 1 248,873

See notes to consolidated financial statements.

39

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)

(in thousands, except share data)

Endnote Explanations as of December 31, 2019 (Unaudited) and June 30, 2019 (Continued)

Industry 1st Lien<br>Term Loan 2nd Lien<br>Term Loan Rated Secured Structured Notes Subordinated Structured Notes Subordinated Unsecured Debt Equity^(B)^ Cost Total
Machinery — 28,622 — — — 6,866 35,488
Media 3,114 — — — — 12,869 15,983
Online Lending 172,000 — — — — 100,949 272,949
Personal Products 212,969 — — — — 25,000 237,969
Trading Companies & Distributors 63,213 — — — — — 63,213
Total Control Investments $ 1,428,245 $ 377,228 $ — $ — $ 6,915 $ 573,418 $ 2,385,806
Affiliate Investments
Distributors $ — $ 127,091 $ — $ — $ — $ — $ 127,091
Diversified Consumer Services — 8,159 — — 32,018 6,577 46,754
Textiles, Apparel & Luxury Goods — — — — — 3,771 3,771
Total Affiliate Investments $ — $ 135,250 $ — $ — $ 32,018 $ 10,348 $ 177,616
Non-Control/Non-Affiliate Investments
Air Freight & Logistics $ — $ 12,500 $ — $ — $ — $ — $ 12,500
Auto Components — 25,450 — — — — 25,450
Building Products — 19,842 — — — — 19,842
Capital Markets — 25,084 — — — — 25,084
Commercial Services & Supplies 60,513 175,674 — — — — 236,187
Communications Equipment — 50,503 — — — — 50,503
Consumer Finance 22,333 — — — — — 22,333
Distributors 172,815 — — — — — 172,815
Diversified Consumer Services — 100,091 — — — — 100,091
Diversified Telecommunication Services 9,923 26,311 — — — — 36,234
Entertainment 16,128 20,093 — — — — 36,221
Food Products — 34,729 — — — — 34,729
Health Care Equipment & Supplies 33,673 7,469 — — — — 41,142
Health Care Providers & Services 125,265 96,284 — — — — 221,549
Hotels, Restaurants & Leisure 27,252 7,485 — — — — 34,737
Household Durables 15,888 13,403 — — — — 29,291
Household Products 24,688 — — — — — 24,688
Insurance — 12,988 — — — — 12,988
Interactive Media & Services 37,861 — — — — — 37,861
IT Services 270,714 35,382 — — — — 306,096
Leisure Products 32,868 — — — — 1 32,869
Media 87,379 35,000 — — — — 122,379
Paper & Forest Products — 11,361 — — — — 11,361
Professional Services 118,403 69,695 — — — — 188,098
Real Estate Management & Development 38,852 — — — — — 38,852
Software — 64,723 — — — — 64,723
Technology Hardware, Storage & Peripherals — 12,400 — — — — 12,400
Textiles, Apparel & Luxury Goods 190,678 36,657 — — — — 227,335
Tobacco — 14,419 — — — — 14,419
Transportation Infrastructure — 27,578 — — — — 27,578
Structured Finance (A) — — 44,774 1,103,751 — — 1,148,525
Total Non-Control/Non-Affiliate $ 1,285,233 $ 935,121 $ 44,774 $ 1,103,751 $ — $ 1 $ 3,368,880
Total Portfolio Investment Cost $ 2,713,478 $ 1,447,599 $ 44,774 $ 1,103,751 $ 38,933 $ 583,767 $ 5,932,302

See notes to consolidated financial statements.

40

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)

(in thousands, except share data)

Endnote Explanations as of December 31, 2019 (Unaudited) and June 30, 2019 (Continued)

The following table shows the composition of our investment portfolio at fair value by control designation, investment type and by industry as of June 30, 2019: Industry 1st Lien<br>Term Loan 2nd Lien<br>Term Loan Rated Secured Structured Notes Subordinated Structured Notes Subordinated Unsecured Debt Equity^(B)^ Fair Value Total Fair Value % of Net Assets
Control Investments
Aerospace & Defense $ 54,841 $ — $ — $ — $ — $ 34,860 $ 89,701 2.7 %
Commercial Services & Supplies 62,627 — — — — — 62,627 1.9 %
Construction & Engineering 43,731 — — — 99,954 143,685 4.3 %
Consumer Finance — 351,926 — — — 246,502 598,428 18.1 %
Energy Equipment & Services 69,447 — — — — 84,418 153,865 4.7 %
Equity Real Estate Investment Trusts (REITs) 433,553 — — — — 394,134 827,687 25.0 %
Health Care Providers & Services 224,876 — — — — — 224,876 6.8 %
Machinery — 28,622 — — — 5,002 33,624 1.0 %
Media 3,114 — — — — 21,069 24,183 0.7 %
Online Lending 172,000 — — — — 4,778 176,778 5.3 %
Personal Products 112,427 — — — — — 112,427 3.4 %
Trading Companies & Distributors 28,043 — — — — — 28,043 0.8 %
Total Control Investments $ 1,204,659 $ 380,548 $ — $ — $ — $ 890,717 $ 2,475,924 74.9 %
Fair Value % of Net Assets 36.4 % 11.5 % — % — % — % 26.9 % 74.9 %
Affiliate Investments
Distributors $ — $ 18,866 $ — $ — $ — $ — $ 18,866 0.6 %
Diversified Consumer Services — 8,159 — — 33,058 — 41,217 1.2 %
Textiles, Apparel & Luxury Goods — — — — — 16,599 16,599 0.5 %
Total Affiliate Investments $ — $ 27,025 $ — $ — $ 33,058 $ 16,599 $ 76,682 2.3 %
Fair Value % of Net Assets — % 0.8 % — % — % 1.0 % 0.5 % 2.3 %
Non-Control/Non-Affiliate Investments
Air Freight & Logistics $ — $ 12,233 $ — $ — $ — $ — $ 12,233 0.4 %
Auto Components — 25,450 — — — — 25,450 0.8 %
Building Products — 19,842 — — — — 19,842 0.6 %
Capital Markets — 25,222 — — — — 25,222 0.8 %
Commercial Services & Supplies 58,094 175,951 — — — — 234,045 7.1 %
Communications Equipment — 48,760 — — — — 48,760 1.5 %
Consumer Finance 20,555 — — — — — 20,555 0.6 %
Distributors 171,271 — — — — — 171,271 5.2 %
Diversified Consumer Services — 100,091 — — — — 100,091 3.0 %
Diversified Telecommunication Services 9,923 26,311 — — — — 36,234 1.1 %
Electronic Equipment, Instruments & Components — — — — — 2,239 2,239 0.1 %
Entertainment 16,178 20,149 — — — — 36,327 1.1 %
Food Products — 34,729 — — — — 34,729 1.1 %
Health Care Equipment & Supplies 34,010 7,144 — — — — 41,154 1.2 %
Health Care Providers & Services 124,075 96,284 — — — — 220,359 6.7 %
Hotels, Restaurants & Leisure 27,252 7,485 — — — — 34,737 1.1 %
Household Durables 10,252 12,208 — — — — 22,460 0.7 %
Household Products 24,688 — — — — — 24,688 0.7 %
Insurance — 12,988 — — — — 12,988 0.4 %
Interactive Media & Services 37,861 — — — — — 37,861 1.1 %
IT Services 269,657 35,703 — — — — 305,360 9.2 %

See notes to consolidated financial statements.

41

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)

(in thousands, except share data)

Endnote Explanations as of December 31, 2019 (Unaudited) and June 30, 2019 (Continued)

Industry 1st Lien<br>Term Loan 2nd Lien<br>Term Loan Rated Secured Structured Notes Subordinated Structured Notes Subordinated Unsecured Debt Equity^(B)^ Fair Value Total Fair Value % of Net Assets
Leisure Products 32,868 — — — — — 32,868 1.0 %
Media 86,704 30,580 — — — — 117,284 3.5 %
Paper & Forest Products — 11,500 — — — — 11,500 0.3 %
Professional Services 118,813 71,365 — — — — 190,178 5.8 %
Real Estate Management & Development 38,852 — — — — — 38,852 1.2 %
Software — 64,729 — — — — 64,729 2.0 %
Technology Hardware, Storage & Peripherals — 12,400 — — — — 12,400 0.4 %
Textiles, Apparel & Luxury Goods 189,725 36,657 — — — — 226,382 6.8 %
Tobacco — 14,500 — — — — 14,500 0.4 %
Transportation Infrastructure — 28,104 — — — — 28,104 0.9 %
Structured Finance (A) — — 46,851 850,694 — — 897,545 27.1 %
Total Non-Control/Non-Affiliate $ 1,270,778 $ 930,385 $ 46,851 $ 850,694 $ — $ 2,239 $ 3,100,947 93.8 %
Fair Value % of Net Assets 38.4 % 28.1 % 1.4 % 25.7 % — % 0.1 % 93.8 %
Total Portfolio $ 2,475,437 $ 1,337,958 $ 46,851 $ 850,694 $ 33,058 $ 909,555 $ 5,653,553 171.0 %
Fair Value % of Net Assets 74.9 % 40.5 % 1.4 % 25.7 % 1.0 % 27.5 % 171.0 %

(A) Our RSSN and SSN investments do not have industry concentrations and as such have been separated in the tables above.

(B) Equity, unless specifically stated otherwise, includes our investments in preferred stock, common stock, membership interests, net profits interests, net operating income interests, net revenue interests, overriding royalty interests, escrows receivable, and warrants.

See notes to consolidated financial statements.

42

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)

(in thousands, except share data)

Endnote Explanations as of December 31, 2019 (Unaudited) and June 30, 2019 (Continued)

(46) The interest rate on these investments, excluding those on non-accrual, contains a paid in kind (“PIK”) provision, whereby the issuer has either the option or the obligation to make interest payments with the issuance of additional securities. The interest rate in the schedule represents the current interest rate in effect for these investments.

The following table provides additional details on these PIK investments, including the maximum annual PIK interest rate allowed under the existing credit agreements, as of and for three months ended December 31, 2019:

Security Name PIK Rate - <br>Capitalized PIK Rate - <br>Paid as cash Maximum <br>Current PIK Rate
Cinedigm DC Holdings, LLC — % 2.50 % 2.50 %
CP Energy - Spartan Energy Services, Inc. - Term Loan B 15.80 % — % 15.80 %
Credit Central Loan Company — % 10.00 % 10.00 % (A)
Echelon Transportation, LLC 2.25 % — % 2.25 % (B)
Echelon Transportation, LLC 1.00 % — % 1.00 % (C)
Edmentum Ultimate Holdings, LLC - Revolver 5.00 % — % 5.00 %
Edmentum Ultimate Holdings, LLC - Senior PIK Note 8.50 % — % 8.50 %
Edmentum Ultimate Holdings, LLC - Junior PIK Note 10.00 % — % 10.00 %
First Tower Finance Company LLC 0.20 % 10.30 % 10.50 %
Interdent, Inc - Senior Secured Term Loan B 10.00 % — % 10.00 %
MITY, Inc. - Senior Secured Term Loan B 10.00 % — % 10.00 %
National Property REIT Corp. - Senior Secured Term Loan A — % 5.00 % 5.00 %
National Property REIT Corp. - Senior Secured Term Loan B — % 5.50 % 5.50 %
National Property REIT Corp. - Senior Secured Term Loan C — % 2.25 % 2.25 % (D)
Nationwide Loan Company LLC 10.00 % — % 10.00 %
Valley Electric Co. of Mt. Vernon, Inc. — % 2.50 % 2.50 %
Valley Electric Company, Inc. — % 10.00 % 10.00 %
Venio LLC 10.00 % — % 10.00 %

(A) On December 17, 2018, the Credit Central Senior Subordinated Loan Agreement was amended to allow interest accruing in cash to be payable in kind resulting in a maximum current PIK rate of 20.00%.

(B) On January 31, 2018, the Echelon Fourth Amended and Restated Credit Agreement was amended to allow interest accruing in cash to be payable in kind resulting in a maximum current PIK rate of 14.50%.

(C) On January 31, 2018, the Echelon Fourth Amended and Restated Credit Agreement was amended to allow interest accruing in cash to be payable in kind resulting in a maximum current PIK rate of 12.50%.

(D) On October 31, 2019, the National Property REIT Corp. Eleventh Amended and Restated Credit Agreement was amended to increase our investment through a New Term Loan C Secured Note (“New TLC”) accruing interest payable in kind at a maximum current PIK rate of 2.25%.

See notes to consolidated financial statements.

43

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)

(in thousands, except share data)

Endnote Explanations as of December 31, 2019 (Unaudited) and June 30, 2019 (Continued)

The following table provides additional details on these PIK investments, including the maximum annual PIK interest rate allowed under the existing credit agreements, as of and for three months ended June 30, 2019: Security Name PIK Rate - <br>Capitalized PIK Rate - <br>Paid as cash Maximum <br>Current PIK Rate
Cinedigm DC Holdings, LLC —% 2.50% 2.50%
CP Energy - Spartan Energy Services, LLC Term Loan B 16.44% —% 16.44%
Credit Central Loan Company 6.53% 3.47% 10.00% (A)
Echelon Transportation, LLC 2.25% —% 2.25% (B)
Echelon Transportation, LLC 1.00% —% 1.00% (C)
Edmentum Ultimate Holdings, LLC - Revolver 5.00% —% 5.00%
Edmentum Ultimate Holdings, LLC - Senior PIK Note 8.50% —% 8.50%
First Tower Finance Company LLC 7.48% 3.02% 10.50%
Interdent, Inc - Senior Secured Term Loan B 16.00% —% 16.00%
MITY, Inc. 10.00% —% 10.00%
National Property REIT Corp. - Senior Secured Term Loan A —% 5.00% 5.00%
National Property REIT Corp. - Senior Secured Term Loan B —% 5.50% 5.50%
Nationwide Loan Company LLC 10.00% —% 10.00%
Valley Electric Co. of Mt. Vernon, Inc. —% 2.50% 2.50%
Valley Electric Company, Inc. 5.00% 5.00% 10.00%
Venio LLC 10.10% —% 10.10%

(A) On December 17, 2018, the Credit Central Senior Subordinated Loan Agreement was amended to allow interest accruing in cash to be payable in kind resulting in a maximum current PIK rate of 20.00%.

(B) On January 31, 2018, the Echelon Fourth Amended and Restated Credit Agreement was amended to allow interest accruing in cash to be payable in kind resulting in a maximum current PIK rate of 14.50%. Next PIK payment/capitalization date was July 31, 2019.

(C) On January 31, 2018, the Echelon Fourth Amended and Restated Credit Agreement was amended to allow interest accruing in cash to be payable in kind resulting in a maximum current PIK rate of 12.50%. Next PIK payment/capitalization date was July 31, 2019.

See notes to consolidated financial statements.

44

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)

(in thousands, except share data)

Endnote Explanations as of December 31, 2019 (Unaudited) and June 30, 2019 (Continued)

(47) As defined in the 1940 Act, we are deemed to “Control” these portfolio companies because we own more than 25% of the portfolio company’s outstanding voting securities. Transactions during the six months ended December 31, 2019 with these controlled investments were as follows:
Portfolio Company Fair Value at June 30, 2019 Gross Additions (Cost)(A) Gross Reductions (Cost)(B) Net unrealized<br>gains (losses) Fair Value at December 31, 2019 Interest<br>income Dividend<br>income Other<br>income Net realized<br>gains (losses)
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
CP Energy Services Inc. $ 104,533 $ 5,039 $ — $ (41,808 ) $ 67,764 $ 2,367 $ — $ — $ —
CP Energy - Spartan Energy Services, Inc. 34,398 2,119 — (2,560 ) 33,957 2,503 — — —
Credit Central Loan Company, LLC 71,417 6,716 — (1,251 ) 76,882 5,967 — 112 —
Echelon Aviation LLC 89,701 4,274 — (2,910 ) 91,065 4,074 — — —
First Tower Finance Company LLC 494,036 2,849 (2,273 ) 8,173 502,785 29,207 — — —
Freedom Marine Solutions, LLC 14,920 — — — 14,920 — — — —
InterDent, Inc. 224,876 6,077 — (33,982 ) 196,971 9,416 — — —
Kickapoo Ranch Pet Resort — 2,378 — 1,983 4,361 — — — —
MITY, Inc. 46,902 1,801 (289 ) 7,772 56,186 4,458 — 293 —
National Property REIT Corp. 1,004,465 64,285 (93,000 ) 51,138 1,026,888 33,469 — 23,281 —
Nationwide Loan Company LLC 32,975 804 — 2,448 36,227 1,930 — — —
NMMB, Inc. 24,183 15,100 (3,114 ) 1,749 37,918 138 2,797 453 —
Pacific World Corporation 112,427 9,100 356 (59,273 ) 62,610 527 — — —
R-V Industries, Inc. 33,624 — — 2,879 36,503 1,590 — — —
Universal Turbine Parts, LLC 28,043 1,000 (327 ) (94 ) 28,622 1,266 — 100 —
USES Corp. 15,725 1,500 (5,950 ) 4,826 16,101 — — — —
Valley Electric Company, Inc. 143,685 — (3,329 ) (17,856 ) 122,500 3,556 4,271 333 —
Wolf Energy, LLC 14 (3,914 ) 18 3,882 — — — — —
Total $ 2,475,924 $ 119,128 $ (107,908 ) $ (74,884 ) $ 2,412,260 $ 100,468 $ 7,068 $ 24,572 $ —

(A) Gross additions include increases in the cost basis of the investments resulting from new portfolio investments, OID accretion and PIK interest, and any transfer of investments.

(B) Gross reductions include decreases in the cost basis of investments resulting from principal collections related to investments repayments or sales, impairments, and any transfer of investments.

(48) As defined in the 1940 Act, we are deemed to be an “Affiliated company” of these portfolio companies because we own more than 5% of the portfolio company’s outstanding voting securities. Transactions during the six months ended December 31, 2019 with these affiliated investments were as follows:
Portfolio Company Fair Value at June 30, 2019 Gross Additions (Cost)(A) Gross Reductions (Cost)(B) Net unrealized<br>gains (losses) Fair Value at December 31, 2019 Interest<br>income Dividend<br>income Other<br>income Net realized<br>gains (losses)
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Edmentum Ultimate Holdings, LLC $ 41,217 $ 3,699 $ (1,992 ) $ 22,118 $ 65,042 $ 2,702 $ — $ — $ —
Nixon, Inc. — — — — — — — — —
Targus Cayman HoldCo Limited 16,599 — (967 ) 592 16,224 — — — —
United Sporting Companies, Inc. 18,866 — (20,061 ) 7,552 6,357 — — — —
Total $ 76,682 $ 3,699 $ (23,020 ) $ 30,262 $ 87,623 $ 2,702 $ — $ — $ —

(A) Gross additions include increases in the cost basis of the investments resulting from new portfolio investments, PIK interest, and any transfer of investments.

(B) Gross reductions include decreases in the cost basis of investments resulting from principal collections related to investments repayments or sales, impairments, and any transfer of investments.

See notes to consolidated financial statements.

45

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)

(in thousands, except share data)

Endnote Explanations as of December 31, 2019 (Unaudited) and June 30, 2019 (Continued)

(49) As defined in the 1940 Act, we are deemed to “Control” these portfolio companies because we own more than 25% of the portfolio company’s outstanding voting securities. Transactions during the year ended June 30, 2019 with these controlled investments were as follows:
Portfolio Company Fair Value at June 30, 2018 Gross Additions (Cost)(A) Gross Reductions (Cost)(B) Net unrealized<br>gains (losses) Fair Value at June 30, 2019 Interest<br>income Dividend<br>income Other<br>income Net realized<br>gains (losses)
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
CCPI, Inc. $ 35,756 $ — $ (27,459 ) $ (8,297 ) $ — $ 2,629 $ — $ 1,301 $ 12,105
CP Energy Services Inc.(C) 123,261 34,184 — (18,514 ) 138,931 4,810 — — —
Credit Central Loan Company, LLC 76,677 5,081 — (10,341 ) 71,417 11,886 — — —
Echelon Transportation LLC 82,278 7,742 — (319 ) 89,701 7,102 — — —
First Tower Finance Company LLC 443,010 6,823 (2,478 ) 46,681 494,036 56,125 — — —
Freedom Marine Solutions, LLC 13,037 300 — 1,583 14,920 — — — —
InterDent, Inc. 197,621 36,173 — (8,918 ) 224,876 24,779 — — —
MITY, Inc. 58,894 5,143 (284 ) (16,851 ) 46,902 8,149 — 276 —
National Property REIT Corp. 1,054,976 11,583 (69,181 ) 7,087 1,004,465 75,249 21,000 33,634 —
Nationwide Loan Company LLC 33,853 1,206 — (2,084 ) 32,975 3,621 165 — —
NMMB, Inc. 18,735 — (5,500 ) 10,948 24,183 958 — — —
Pacific World Corporation 165,020 19,000 (9,606 ) (61,987 ) 112,427 3,762 — — —
R-V Industries, Inc. 31,886 — — 1,738 33,624 3,295 — — —
SB Forging Company II, Inc. 2,194 — — (2,194 ) — — — — 2,204
Universal Turbine Parts, LLC (D) — 45,129 (488 ) (16,598 ) 28,043 1,970 — — —
USES Corp. 16,319 3,500 — (4,094 ) 15,725 — — — —
Valley Electric Company, Inc. 50,797 5,521 — 87,367 143,685 6,877 12,962 800 —
Wolf Energy, LLC 12 46 58 (102 ) 14 — — — —
Total $ 2,404,326 $ 181,431 $ (114,938 ) $ 5,105 $ 2,475,924 $ 211,212 $ 34,127 $ 36,011 $ 14,309

(A) Gross additions include increases in the cost basis of the investments resulting from new portfolio investments, PIK interest, and any transfer of investments.

(B) Gross reductions include decreases in the cost basis of investments resulting from principal collections related to investments repayments or sales, impairments, and any transfer of investments.

(C) In June 2019, CP Energy purchased approximately 67.2% (64.1% including options) of the common equity of Spartan Holdings, which owns 100% of Spartan, a portfolio company of Prospect. As a result of CP Energy’s purchase, and given Prospect’s controlling interest in CP Energy, our Spartan Term Loans are presented as control investments under CP Energy beginning June 30, 2019. Accordingly, Spartan was transferred from non-controlled/non-affiliate investments at $33,313, the fair market value at the beginning of the three month period ended June 30, 2019. Refer to endnote 20.
(D) Investment was transferred from non-controlled/non-affiliate investments at $45,129, the fair market value at the beginning of the three month period ended December 31, 2018. Refer to endnote 34.
--- ---
(50) As defined in the 1940 Act, we are deemed to be an “Affiliated company” of these portfolio companies because we own more than 5% of the portfolio company’s outstanding voting securities. Transactions during the year ended June 30, 2019 with these affiliated investments were as follows:
--- ---
Portfolio Company Fair Value at June 30, 2018 Gross Additions (Cost)(A) Gross Reductions (Cost)(B) Net unrealized<br>gains (losses) Fair Value at June 30, 2019 Interest<br>income Dividend<br>income Other<br>income Net realized<br>gains (losses)
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Edmentum Ultimate Holdings, LLC $ 35,216 $ 8,850 $ (7,855 ) $ 5,006 $ 41,217 $ 943 $ — $ — $ —
Nixon, Inc. — — — — — — — — —
Targus Cayman HoldCo Limited 23,220 — (6,106 ) (515 ) 16,599 — 659 — —
United Sporting Companies, Inc. (C) — 58,806 — (39,940 ) 18,866 — — — —
Total $ 58,436 $ 67,656 $ (13,961 ) $ (35,449 ) $ 76,682 $ 943 $ 659 $ — $ —

(A) Gross additions include increases in the cost basis of the investments resulting from new portfolio investments, PIK interest and any transfer of investments.

(B) Gross reductions include decreases in the cost basis of investments resulting from principal collections related to investments repayments or sales, impairments, and any transfer of investments.

(C) Investment was transferred from non-controlled/non-affiliate investments at $58,806, the fair market value at the beginning of the three month period ended September 30, 2018. Refer to endnote 18.

See notes to consolidated financial statements.

46

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)

(in thousands, except share data)

Endnote Explanations as of December 31, 2019 (Unaudited) and June 30, 2019 (Continued)

(51) Acquisition date represents the date of PSEC's initial investment. Follow-on acquisitions have occurred on the following dates to arrive at PSEC's current investment (excluding effects of capitalized PIK interest, premium/original issue discount amortization/accretion, and partial repayments) (See endnote 52 for NPRC follow-on acquisitions):
Portfolio Company Investment Follow-On Acquisition Dates Follow-On Acquisitions<br><br>(Excluding initial investment cost)
--- --- --- --- ---
ACE Cash Express, Inc. Senior Secured Note 5/24/2019, 7/16/2019, 12/20/2019 $ 10,882
AgaMatrix, Inc. Senior Secured Term Loan 4/11/2018 5,000
Apidos CLO IX Subordinated Structured Note 2/26/2015 2,325
Apidos CLO XI Subordinated Structured Note 11/10/2016 2,160
Apidos CLO XII Subordinated Structured Note 2/22/2018 4,070
Apidos CLO XV Subordinated Structured Note 4/20/2018 6,480
Atlantis Health Care Group (Puerto Rico), Inc. Revolving Line of Credit 4/15/2013, 5/21/2013, 3/11/2014, 6/26/2017, 9/29/2017, 10/12/2017, 10/31/2017 7,500
Atlantis Health Care Group (Puerto Rico), Inc. Senior Secured Term Loan 12/9/2016 42,000
Barings CLO 2018-III Subordinated Structured Note 6/15/2018 9,255
Broder Bros., Co. Senior Secured Note 1/29/2019, 2/28/2019 450
Brookside Mill CLO Ltd. Subordinated Structured Note 7/2/2013, 2/15/2018 3,696
California Street CLO IX Ltd. Subordinated Structured Note 9/9/2016, 10/17/2016 6,842
Capstone Logistics Acquisition, Inc. Second Lien Term Loan 6/12/2015 37,500
CCS-CMGC Holdings, Inc. First Lien Term Loan 10/8/2019 4,692
CCS-CMGC Holdings, Inc. Second Lien Term Loan 8/20/2019 1,993
Cent CLO 21 Limited Subordinated Structured Note 7/27/2018 1,024
Centerfield Media Holding Company Senior Secured Term Loan A 9/14/2018 10,100
Centerfield Media Holding Company Senior Secured Term Loan B 9/14/2018 10,100
CIFC Funding 2014-IV-R, Ltd. Subordinated Structured Note 10/18/2018 1,158
Coverall North America, Inc. Senior Secured Term Loan A 7/2/2018 13
Coverall North America, Inc. Senior Secured Term Loan B 7/2/2018 2
CP Energy Services Inc. Common Stock 10/11/2013, 12/26/2013, 4/6/2018, 12/31/2019 69,586
CP VI Bella Midco Second Lien Term Loan 8/10/2018, 10/15/2018, 5/23/2019, 6/4/2019 13,711
Credit Central Loan Company, LLC Class A Units 12/28/2012, 3/28/2014, 6/26/2014, 9/28/2016, 8/21/2019 11,975
Credit Central Loan Company, LLC Subordinated Term Loan 6/26/2014, 9/28/2016 41,335
Echelon Transportation, LLC Membership Interest 3/31/2014, 9/30/2014, 12/9/2016 22,488
Echelon Transportation, LLC Senior Secured Term Loan 11/14/2018, 7/9/2019 2,100
Edmentum Ultimate Holdings, LLC Second Lien Revolving Credit Facility to Edmentum, Inc. 2/19/2016, 3/17/2016, 4/20/2016, 5/19/2016, 6/22/2016, 1/31/2017, 2/14/2017, 3/1/2017, 3/14/2017, 3/28/2017, 4/11/2017, 4/25/2017, 5/10/2017, 10/30/2017, 11/8/2017, 11/21/2017, 12/20/2017, 1/3/2018, 1/17/2018, 1/30/2018, 12/12/2018, 12/21/2018, 1/15/2019, 2/1/2019, 2/26/2019, 2/28/2019, 3/18/2019, 4/9/2019,11/22/2019,12/17/2019 32,767
First Tower Finance Company LLC Class A Units 12/30/2013, 6/24/2014, 12/15/2015, 11/21/2016, 3/9/2018 39,885
First Tower Finance Company LLC Subordinated Term Loan to First Tower, LLC 12/15/2015, 3/9/2018 20,924
Freedom Marine Solutions, LLC Membership Interest 10/1/2009, 12/22/2009, 1/13/2010, 3/30/2010, 5/13/2010, 2/14/2011, 4/28/2011, 7/7/2011, 10/20/2011, 10/30/2015, 1/7/2016, 4/11/2016, 8/11/2016, 1/30/2017, 4/20/2017, 6/13/2017, 8/30/2017, 1/17/2018, 2/15/2018, 5/8/2018, 10/31/2018 39,868
Galaxy XV CLO, Ltd. Subordinated Structured Note 8/26/2015, 3/15/2017 9,161
Galaxy XXVII CLO, Ltd. Subordinated Structured Note 6/16/2015 1,460
GEON Performance Solutions, LLC Revolving Line of Credit 12/12/2019 724
Global Tel*Link Corporation Second Lien Term Loan 4/10/2019, 8/22/2019, 9/20/2019 14,686
HELP/SYSTEMS HOLDINGS, INC. First Lien Term Loan 11/29/2019 8,415
Help/Systems Holdings, Inc. Second Lien Term Loan 5/10/2018, 3/11/2019, 11/22/2019 19,649
Inpatient Care Management Company, LLC Senior Secured Term Loan 12/22/2016, 6/29/2018 10,003
Interdent, Inc. Senior Secured Term Loan A 2/11/2014, 4/21/2014, 11/25/2014, 12/23/2014 76,125
Interdent, Inc. Senior Secured Term Loan B 2/11/2014, 4/21/2014, 11/25/2014, 12/23/2014 76,125
Interdent, Inc. Senior Secured Term Loan C 8/1/2018 31,558

See notes to consolidated financial statements.

47

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)

(in thousands, except share data)

Endnote Explanations as of December 31, 2019 (Unaudited) and June 30, 2019 (Continued)

Portfolio Company Investment Follow-On Acquisition Dates Follow-On Acquisitions<br><br>(Excluding initial investment cost)
Janus International Group, LLC Second Lien Term Loan 8/3/2018, 8/9/2018, 8/20/2018, 9/6/2018 9,915
JD Power and Associates Second Lien Term Loan 8/10/2017, 8/31/2018, 3/11/2019, 4/10/2019 15,239
Jefferson Mill CLO Ltd. Subordinated Structured Note 9/27/2018 2,047
K&N Parent, Inc. Second Lien Term Loan 8/14/2018, 9/5/2018, 9/7/2018, 9/10/2018, 9/24/2018 12,695
Kickapoo Ranch Pet Resort Membership Interest 10/21/2019, 12/4/2019 28
LCM XIV Ltd. Subordinated Structured Note 11/2/2015, 6/6/2018 9,422
Madison Park Funding IX, Ltd. Subordinated Structured Note 9/27/2018 7,320
MITY, Inc. Common Stock 6/23/2014 7,200
MITY, Inc. Senior Secured Note A 1/17/2017 8,000
MITY, Inc. Senior Secured Note B 6/23/2014, 1/17/2017, 6/3/2019 26,769
MRP Holdco, Inc. Senior Secured Term Loan A 12/7/2018 12,000
MRP Holdco, Inc. Senior Secured Term Loan B 12/7/2018 12,000
Nationwide Loan Company LLC Class A Units 3/28/2014, 6/18/2014, 9/30/2014, 6/29/2015, 3/31/2016, 8/31/2016, 5/31/2017, 10/31/2017 20,469
Nationwide Loan Company LLC Senior Subordinated Term Loan to Nationwide Acceptance LLC 12/28/2015, 8/31/2016 1,999
National Property REIT Corp. Senior Secured Term Loan C 10/31/2019 51,428
NMMB, Inc. Senior Secured Term Loan 12/30/2019 15,100
NMMB, Inc. Series A and B Preferred Stock 12/13/2013, 10/1/2014 8,469
Octagon Investment Partners XV, Ltd. Subordinated Structured Note 4/30/2015, 8/6/2015, 6/30/2017 10,516
Octagon Investment Partners 18-R Ltd. Subordinated Structured Note 4/20/2018 8,908
Pacific World Corporation Revolving Line of Credit 10/21/2014, 12/19/2014, 4/7/2015, 4/22/2015, 8/12/2016, 10/18/2016, 2/7/2017, 2/21/2017, 4/26/2017, 10/11/2017, 10/17/2017, 1/16/2018, 12/27/2018, 3/15/2019, 7/2/2019, 8/15/2019 36,825
Pacific World Corporation Convertible Preferred Equity 4/3/2019, 4/29/2019, 6/3/2019, 10/4/2019, 11/12/2019, 12/20/2019 17,100
PeopleConnect Intermediate, LLC Revolving Line of Credit 12/18/2017 500
PeopleConnect Intermediate, LLC Senior Secured Term Loan A 8/11/2015 6,500
PeopleConnect Intermediate, LLC Senior Secured Term Loan B 8/11/2015 6,500
PG Dental Holdings New Jersey, LLC Delayed Draw Term Loan 8/26/2019 2,000
PG Dental Holdings New Jersey, LLC Senior Secured Term Loan 5/31/2019 20
PGX Holdings, Inc. Second Lien Term Loan 12/23/2016, 12/28/2016 15,034
RGIS Services, LLC Senior Secured Term Loan 7/19/2017, 8/2/2017, 8/9/2017, 8/16/2017, 9/11/2017, 4/10/2019, 5/1/2019 19,293
Romark WM-R Ltd. Subordinated Structured Note 10/21/2014, 4/12/2018 5,313
R-V Industries, Inc. Common Stock 12/27/2016 1,854
Securus Technologies Holdings, Inc. Second Lien Term Loan 11/13/2017, 11/24/2017, 8/6/2018, 8/24/2018, 3/18/2019 22,750
SEOTownCenter, Inc. Senior Secured Term Loan A 11/2/2018 3,000
SEOTownCenter, Inc. Senior Secured Term Loan B 11/2/2018 2,000
SESAC Holdco II LLC Second Lien Term Loan 4/5/2019 4,975
Sorenson Communications, LLC First Lien Term Loan 5/14/2019 8,000
Symphony CLO XV, Ltd. Subordinated Structured Note 12/24/2018 2,655
TouchTunes Interactive Networks, Inc. Second Lien Term Loan 11/3/2016, 11/14/2016 9,000
Town & Country Holdings, Inc. First Lien Term Loan 7/13/2018, 7/16/2018 105,000
Transplace Holdings, Inc. Second Lien Term Loan 1/4/2018 3,518
United Sporting Companies, Inc. Second Lien Term Loan 3/7/2013 58,650
Universal Turbine Parts, LLC Delayed Draw Term Loan 10/24/2019 1,000
USES Corp. Senior Secured Term Loan A 6/15/2016, 6/29/2016, 2/22/2017, 4/27/2017, 5/4/2017, 8/30/2017, 10/11/2017, 12/11/2018, 8/30/2019 14,100
USG Intermediate, LLC Revolving Line of Credit 7/2/2015, 9/23/2015, 9/14/2017, 8/21/2019 5,200
USG Intermediate, LLC Senior Secured Term Loan A 8/24/2017 2,025
USG Intermediate, LLC Senior Secured Term Loan B 8/24/2017 2,975
Valley Electric Company, Inc. Common Stock 12/31/2012, 6/24/2014 18,502

See notes to consolidated financial statements.

48

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)

(in thousands, except share data)

Endnote Explanations as of December 31, 2019 (Unaudited) and June 30, 2019 (Continued)

Portfolio Company Investment Follow-On Acquisition Dates Follow-On Acquisitions<br><br>(Excluding initial investment cost)
Valley Electric Company, Inc. Senior Secured Note 6/30/2014, 8/31/2018 5,129
VC GB Holdings, Inc. Subordinated Secured Term Loan 3/13/2019 1,485
Voya CLO 2014-1, Ltd. Subordinated Structured Note 4/19/2018 3,943
Voya CLO 2016-3, Ltd. Subordinated Structured Note 7/1/2019 75
Wolf Energy, LLC Membership Interest in Wolf Energy Services Company, LLC 5/17/2017 16
(52) Since Prospect's initial common equity investment in NPRC on December 31, 2013, we have made numerous additional follow-on investments that have been used to invest in new and existing properties as well as online consumer loans and rated secured structured notes. These follow-on acquisitions are summarized by fiscal year below (excluding effects of return of capital distributions). Details of specific transactions are included in the respective fiscal year Form 10-K filing:
--- ---
Fiscal Year Follow-On Investments<br><br>(NPRC Common Stock, excluding cost of initial investment)
--- --- ---
2014 $ 4,555
2015 68,693
2016 93,857
2017 116,830
2018 137,024
2019 11,582
2020 12,857

See notes to consolidated financial statements.

49

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(in thousands, except share and per share data)

Note 1. Organization

In this report, the terms “Prospect,” “the Company,” “we,” “us” and “our” mean Prospect Capital Corporation and its subsidiaries unless the context specifically requires otherwise.

Prospect is a financial services company that primarily lends to and invests in middle market privately-held companies. We are a closed-end investment company incorporated in Maryland. We have elected to be regulated as a business development company (“BDC”) under the Investment Company Act of 1940 (the “1940 Act”). As a BDC, we have elected to be treated as a regulated investment company (“RIC”), under Subchapter M of the Internal Revenue Code of 1986 (the “Code”). We were organized on April 13, 2004, and were funded in an initial public offering completed on July 27, 2004.

On May 15, 2007, we formed a wholly owned subsidiary Prospect Capital Funding LLC (“PCF”), a Delaware limited liability company and a bankruptcy remote special purpose entity, which holds certain of our portfolio loan investments that are used as collateral for the revolving credit facility at PCF. Our wholly owned subsidiary Prospect Small Business Lending, LLC (“PSBL”) was formed on January 27, 2014, and purchases small business whole loans on a recurring basis from online small business loan originators, including On Deck Capital, Inc. (“OnDeck”). On September 30, 2014, we formed a wholly owned subsidiary Prospect Yield Corporation, LLC (“PYC”) and effective October 23, 2014, PYC holds a portion of our investments in Rated Secured Structured Notes (“RSSN”) and Subordinated Structured Notes (“SSN”) (collectively referred to as “collateralized loan obligations” or “CLOs”). Each of these subsidiaries have been consolidated since operations commenced.

We consolidate certain of our wholly owned and substantially wholly owned holding companies formed by us in order to facilitate our investment strategy. The following companies are included in our consolidated financial statements and are collectively referred to as the “Consolidated Holding Companies”: CP Holdings of Delaware LLC; Credit Central Holdings of Delaware, LLC; Energy Solutions Holdings Inc.; First Tower Holdings of Delaware LLC; MITY Holdings of Delaware Inc.; Nationwide Acceptance Holdings LLC; NMMB Holdings, Inc.; NPH Property Holdings, LLC; STI Holding, Inc.; UTP Holdings Group Inc.; Valley Electric Holdings I, Inc.; and Valley Electric Holdings II, Inc.

We are externally managed by our investment adviser, Prospect Capital Management L.P. (“Prospect Capital Management” or the “Investment Adviser”). Prospect Administration LLC (“Prospect Administration” or the “Administrator”), a wholly owned subsidiary of the Investment Adviser, provides administrative services and facilities necessary for us to operate.

Our investment objective is to generate both current income and long-term capital appreciation through debt and equity investments. We invest primarily in senior and subordinated debt and equity of private companies in need of capital for acquisitions, divestitures, growth, development, recapitalizations and other purposes. We work with the management teams or financial sponsors to identify investments with historical cash flows, asset collateral or contracted pro forma cash flows for investment.

Note 2. Significant Accounting Policies

Basis of Presentation and Consolidation

The accompanying consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (“GAAP”) pursuant to the requirements for reporting on Form 10-Q, ASC 946, Financial Services—Investment Companies (“ASC 946”), and Articles 6, 10 and 12 of Regulation S-X. Under the 1940 Act, ASC 946, and the regulations pursuant to Article 6 of Regulation S-X, we are precluded from consolidating any entity other than another investment company or an operating company which provides substantially all of its services to benefit us. Our consolidated financial statements include the accounts of Prospect, PCF, PSBL, PYC, and the Consolidated Holding Companies. All intercompany balances and transactions have been eliminated in consolidation. The financial results of our non-substantially wholly owned holding companies and operating portfolio company investments are not consolidated in the financial statements. Any operating companies owned by the Consolidated Holding Companies are not consolidated.

Reclassifications

Certain reclassifications have been made in the presentation of prior consolidated financial statements and accompanying notes to conform to the presentation as of and for the six months ended December 31, 2019.

50

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)

(in thousands, except share and per share data)

Use of Estimates

The preparation of the consolidated financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of income, expenses, and gains and losses during the reported period. Changes in the economic environment, financial markets, creditworthiness of the issuers of our investment portfolio and any other parameters used in determining these estimates could cause actual results to differ, and these differences could be material.

Investment Classification

We are a non-diversified company within the meaning of the 1940 Act. As required by the 1940 Act, we classify our investments by level of control. As defined in the 1940 Act, “Control Investments” are those where there is the ability or power to exercise a controlling influence over the management or policies of a company. Control is generally deemed to exist when a company or individual possesses or has the right to acquire within 60 days or less, a beneficial ownership of more than 25% of the voting securities of an investee company. Under the 1940 Act, “Affiliate Investments” are defined by a lesser degree of influence and are deemed to exist through the possession outright or via the right to acquire within 60 days or less, beneficial ownership of 5% or more of the outstanding voting securities of another person. “Non-Control/Non-Affiliate Investments” are those that are neither Control Investments nor Affiliate Investments.

As a BDC, we must not acquire any assets other than “qualifying assets” specified in the 1940 Act unless, at the time the acquisition is made, at least 70% of our total assets are qualifying assets (with certain limited exceptions). As of December 31, 2019 and June 30, 2019, our qualifying assets as a percentage of total assets, stood at 73.62% and 73.85%, respectively.

Investment Transactions

Investments are recognized when we assume an obligation to acquire a financial instrument and assume the risks for gains or losses related to that instrument. Specifically, we record all security transactions on a trade date basis. Investments are derecognized when we assume an obligation to sell a financial instrument and forego the risks for gains or losses related to that instrument. In accordance with ASC 325-40, Beneficial Interest in Securitized Financial Assets, investments in CLOs are periodically assessed for other-than-temporary impairment (“OTTI”). When the Company determines that a CLO has OTTI, the amortized cost basis of the CLO is written down to its fair value as of the date of the determination based on events and information evaluated and that write-down is recognized as a realized loss. Amounts for investments traded but not yet settled are reported in Due to Broker or Due from Broker, in the Consolidated Statements of Assets and Liabilities.

Foreign Currency

Foreign currency amounts are translated into US Dollars (USD) on the following basis:

i. fair value of investment securities, other assets and liabilities—at the spot exchange rate on the last business day of the period; and
ii. purchases and sales of investment securities, income and expenses—at the rates of exchange prevailing on the respective dates of such investment transactions, income or expenses.
--- ---

We do not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in fair values of investments held or disposed of during the period. Such fluctuations are included within the net realized and net change in unrealized gains or losses from investments in the Consolidated Statements of Operations.

Investment Risks

Our investments are subject to a variety of risks. Those risks include the following:

Market Risk

Market risk represents the potential loss that can be caused by a change in the fair value of the financial instrument.

51

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)

(in thousands, except share and per share data)

Credit Risk

Credit risk represents the risk that we would incur if the counterparties failed to perform pursuant to the terms of their agreements with us.

Liquidity Risk

Liquidity risk represents the possibility that we may not be able to rapidly adjust the size of our investment positions in times of high volatility and financial stress at a reasonable price.

Interest Rate Risk

Interest rate risk represents a change in interest rates, which could result in an adverse change in the fair value of an interest-bearing financial instrument.

Prepayment Risk

Many of our debt investments allow for prepayment of principal without penalty. Downward changes in interest rates may cause prepayments to occur at a faster than expected rate, thereby effectively shortening the maturity of the security and making us less likely to fully earn all of the expected income of that security and reinvesting in a lower yielding instrument.

Structured Credit Related Risk

CLO investments may be riskier and less transparent to us than direct investments in underlying companies. CLOs typically will have no significant assets other than their underlying senior secured loans. Therefore, payments on CLO investments are and will be payable solely from the cash flows from such senior secured loans.

Online Small-and-Medium-Sized Business Lending Risk

With respect to our online small-and-medium-sized business (“SME”) lending initiative, we invest primarily in marketplace loans through marketplace lending platforms (e.g. OnDeck). We do not conduct loan origination activities ourselves. Therefore, our ability to purchase SME loans, and our ability to grow our portfolio of SME loans, is directly influenced by the business performance and competitiveness of the marketplace loan origination business of the marketplace lending platforms from which we purchase SME loans. In addition, our ability to analyze the risk-return profile of SME loans is significantly dependent on the marketplace platforms’ ability to effectively evaluate a borrower's credit profile and likelihood of default. If we are unable to effectively evaluate borrowers' credit profiles or the credit decisioning and scoring models implemented by each platform, we may incur unanticipated losses which could adversely impact our operating results.

Foreign Currency

Investments denominated in foreign currencies and foreign currency transactions may involve certain considerations and risks not typically associated with those of domestic origin. These risks include, but are not limited to, currency fluctuations and revaluations and future adverse political, social and economic developments, which could cause investments in foreign markets to be less liquid and prices more volatile than those of comparable U.S. companies or U.S. government securities.

Investment Valuation

To value our investments, we follow the guidance of ASC 820, Fair Value Measurement (“ASC 820”), that defines fair value, establishes a framework for measuring fair value in conformity with GAAP, and requires disclosures about fair value measurements. In accordance with ASC 820, the fair value of our investments is defined as the price that we would receive upon selling an investment in an orderly transaction to an independent buyer in the principal or most advantageous market in which that investment is transacted.

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PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)

(in thousands, except share and per share data)

ASC 820 classifies the inputs used to measure these fair values into the following hierarchy:

Level 1: Quoted prices in active markets for identical assets or liabilities, accessible by us at the measurement date.

Level 2: Quoted prices for similar assets or liabilities in active markets, or quoted prices for identical or similar assets or liabilities in markets that are not active, or other observable inputs other than quoted prices.

Level 3: Unobservable inputs for the asset or liability.

In all cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to each investment.

Our Board of Directors has established procedures for the valuation of our investment portfolio. These procedures are detailed below.

Investments for which market quotations are readily available are valued at such market quotations.

For most of our investments, market quotations are not available. With respect to investments for which market quotations are not readily available or when such market quotations are deemed not to represent fair value, our Board of Directors has approved a multi-step valuation process each quarter, as described below.

1. Each portfolio company or investment is reviewed by our investment professionals with independent valuation firms engaged by our Board of Directors.
2. The independent valuation firms prepare independent valuations for each investment based on their own independent assessments and issue their report.
--- ---
3. The Audit Committee of our Board of Directors reviews and discusses with the independent valuation firms the valuation reports, and then makes a recommendation to the Board of Directors of the value for each investment.
--- ---
4. The Board of Directors discusses valuations and determines the fair value of each investment in our portfolio in good faith based on the input of the Investment Adviser, the respective independent valuation firm and the Audit Committee.
--- ---

Our non-CLO investments are valued utilizing a yield technique, enterprise value (“EV”) technique, net asset value technique, asset recovery technique, discounted cash flow technique, or a combination of techniques, as appropriate. The yield technique uses loan spreads for loans and other relevant information implied by market data involving identical or comparable assets or liabilities. Under the EV technique, the EV of a portfolio company is first determined and allocated over the portfolio company’s securities in order of their preference relative to one another (i.e., “waterfall” allocation). To determine the EV, we typically use a market (multiples) valuation approach that considers relevant and applicable market trading data of guideline public companies, transaction metrics from precedent merger and acquisitions transactions, and/or a discounted cash flow technique. The net asset value technique, an income approach, is used to derive a value of an underlying investment (such as real estate property) by dividing a relevant earnings stream by an appropriate capitalization rate. For this purpose, we consider capitalization rates for similar properties as may be obtained from guideline public companies and/or relevant transactions. The asset recovery technique is intended to approximate the net recovery value of an investment based on, among other things, assumptions regarding liquidation proceeds based on a hypothetical liquidation of a portfolio company’s assets. The discounted cash flow technique converts future cash flows or earnings to a range of fair values from which a single estimate may be derived utilizing an appropriate discount rate. The fair value measurement is based on the net present value indicated by current market expectations about those future amounts.

In applying these methodologies, additional factors that we consider in valuing our investments may include, as we deem relevant: security covenants, call protection provisions, and information rights; the nature and realizable value of any collateral; the portfolio company’s ability to make payments; the principal markets in which the portfolio company does business; publicly available financial ratios of peer companies; the principal market; and enterprise values, among other factors.

Our investments in CLOs are classified as Level 3 fair value measured securities under ASC 820 and are valued using a discounted multi-path cash flow model. The CLO structures are analyzed to identify the risk exposures and to determine an appropriate call date (i.e., expected maturity). These risk factors are sensitized in the multi-path cash flow model using Monte Carlo simulations, which is a simulation used to model the probability of different outcomes, to generate probability-weighted (i.e., multi-path) cash flows from the underlying assets and liabilities.  These cash flows are discounted using appropriate market discount rates, and

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)

(in thousands, except share and per share data)

relevant data in the CLO market as well as certain benchmark credit indices are considered, to determine the value of each CLO investment.  In addition, we generate a single-path cash flow utilizing our best estimate of expected cash receipts, and assess the reasonableness of the implied discount rate that would be effective for the value derived from the multi-path cash flows.  We are not responsible for and have no influence over the asset management of the portfolios underlying the CLO investments we hold, as those portfolios are managed by non-affiliated third-party CLO collateral managers. The main risk factors are default risk, prepayment risk, interest rate risk, downgrade risk, and credit spread risk.

Valuation of Other Financial Assets and Financial Liabilities

ASC 825, Financial Instruments, specifically ASC 825-10-25, permits an entity to choose, at specified election dates, to measure eligible items at fair value (the “Fair Value Option”). We have not elected the Fair Value Option to report selected financial assets and financial liabilities. See Note 8 for the disclosure of the fair value of our outstanding debt and the market observable inputs used in determining fair value.

Convertible Notes

We have recorded the Convertible Notes at their contractual amounts. We have determined that the embedded conversion options in the Convertible Unsecured Notes are not required to be separately accounted for as a derivative under ASC 815, Derivatives and Hedging. See Note 5 for further discussion.

Revenue Recognition

Realized gains or losses on the sale of investments are calculated using the specific identification method.

Interest income, adjusted for amortization of premium and accretion of discount, is recorded on an accrual basis. Loan origination fees, original issue discount, and market discounts are capitalized and accreted into interest income over the respective terms of the applicable loans using the effective interest method or straight-line, as applicable, and adjusted only for material amendments or prepayments. Upon a prepayment of a loan, prepayment premiums, original issue discount, or market discounts are recorded as interest income.

Loans are placed on non-accrual status when there is reasonable doubt that principal or interest will be collected. Unpaid accrued interest is generally reversed when a loan is placed on non-accrual status. Interest payments received on non-accrual loans are either applied to the cost basis or interest income, depending upon management’s judgment of the collectibility of the loan receivable. Non-accrual loans are restored to accrual status when past due principal and interest is paid and in management’s judgment, is likely to remain current and future principal and interest collections when due are probable. Interest received and applied against cost while a loan is on non-accrual, and PIK interest capitalized but not recognized while on non-accrual, is recognized prospectively on the effective yield basis through maturity of the loan when placed back on accrual status, to the extent deemed collectible by management. As of December 31, 2019, approximately 1.6% of our total assets at fair value are in non-accrual status.

Some of our loans and other investments may have contractual payment-in-kind (“PIK”) interest or dividends. PIK income computed at the contractual rate is accrued into income and reflected as receivable up to the capitalization date. PIK investments offer issuers the option at each payment date of making payments in cash or in additional securities. When additional securities are received, they typically have the same terms, including maturity dates and interest rates as the original securities issued. On these payment dates, we capitalize the accrued interest (reflecting such amounts in the basis as additional securities received). PIK generally becomes due at maturity of the investment or upon the investment being called by the issuer. At the point that we believe PIK is not fully expected to be realized, the PIK investment will be placed on non-accrual status. When a PIK investment is placed on non-accrual status, the accrued, uncapitalized interest or dividends are reversed from the related receivable through interest or dividend income, respectively. We do not reverse previously capitalized PIK interest or dividends. Upon capitalization, PIK is subject to the fair value estimates associated with their related investments. PIK investments on non-accrual status are restored to accrual status if we believe that PIK is expected to be realized.

Interest income from investments in Subordinated Structured Notes (typically preferred shares, income notes or subordinated notes of CLO funds) and “equity” class of security of securitized trust is recorded based upon an estimation of an effective yield to expected maturity utilizing assumed cash flows in accordance with ASC 325-40, Beneficial Interests in Securitized Financial Assets. We monitor the expected cash inflows from our CLO and securitized trust equity investments, including the expected residual payments, and the effective yield is determined and updated periodically.

Dividend income is recorded on the ex-dividend date.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)

(in thousands, except share and per share data)

Other income generally includes amendment fees, commitment fees, administrative agent fees and structuring fees which are recorded when earned. Excess deal deposits, net profits interests and overriding royalty interests are included in other income. See Note 10 for further discussion.

Federal and State Income Taxes

We have elected to be treated as a RIC and intend to continue to comply with the requirements of the Code applicable to regulated investment companies. We are required to distribute at least 90% of our investment company taxable income and intend to distribute (or retain through a deemed distribution) all of our investment company taxable income and net capital gain to stockholders; therefore, we have made no provision for income taxes. The character of income and gains that we will distribute is determined in accordance with income tax regulations that may differ from GAAP. Book and tax basis differences relating to stockholder dividends and distributions and other permanent book and tax differences are reclassified to paid-in capital.

If we do not distribute (or are not deemed to have distributed) at least 98% of our annual ordinary income and 98.2% of our capital gains in the calendar year earned, we will generally be required to pay an excise tax equal to 4% of the amount by which 98% of our annual ordinary income and 98.2% of our capital gains exceed the distributions from such taxable income for the year. To the extent that we determine that our estimated current year annual taxable income will be in excess of estimated current year dividend distributions from such taxable income, we accrue excise taxes, if any, on estimated excess taxable income. As of December 31, 2019, we do not expect to have any excise tax due for the 2019 calendar year. Thus, we have not accrued any excise tax for this period.

If we fail to satisfy the annual distribution requirement or otherwise fail to qualify as a RIC in any taxable year, we would be subject to tax on all of our taxable income at regular corporate income tax rates. We would not be able to deduct distributions to stockholders, nor would we be required to make distributions. Distributions would generally be taxable to our individual and other non-corporate taxable stockholders as ordinary dividend income eligible for the reduced maximum rate applicable to qualified dividend income to the extent of our current and accumulated earnings and profits, provided certain holding period and other requirements are met. Subject to certain limitations under the Code, corporate distributions would be eligible for the dividends-received deduction. To qualify again to be taxed as a RIC in a subsequent year, we would be required to distribute to our shareholders our accumulated earnings and profits attributable to non-RIC years. In addition, if we failed to qualify as a RIC for a period greater than two taxable years, then, in order to qualify as a RIC in a subsequent year, we would be required to elect to recognize and pay tax on any net built-in gain (the excess of aggregate gain, including items of income, over aggregate loss that would have been realized if we had been liquidated) or, alternatively, be subject to taxation on such built-in gain recognized for a period of five years.

We follow ASC 740, Income Taxes (“ASC 740”). ASC 740 provides guidance for how uncertain tax positions should be recognized, measured, presented, and disclosed in the consolidated financial statements. ASC 740 requires the evaluation of tax positions taken or expected to be taken in the course of preparing our tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold are recorded as a tax benefit or expense in the current year. As of December 31, 2019, we did not record any unrecognized tax benefits or liabilities. Management’s determinations regarding ASC 740 may be subject to review and adjustment at a later date based upon factors including, but not limited to, an on-going analysis of tax laws, regulations and interpretations thereof. Although we file both federal and state income tax returns, our major tax jurisdiction is federal. Our federal tax returns for the tax years ended August 31, 2016 and thereafter remain subject to examination by the Internal Revenue Service.

Dividends and Distributions

Dividends and distributions to common stockholders are recorded on the ex-dividend date. The amount, if any, to be paid as a monthly dividend or distribution is approved by our Board of Directors quarterly and is generally based upon our management’s estimate of our future taxable earnings. Net realized capital gains, if any, are distributed at least annually.

Financing Costs

We record origination expenses related to our Revolving Credit Facility, and Convertible Notes, Public Notes and Prospect Capital InterNotes® (collectively, our “Unsecured Notes”) as deferred financing costs. These expenses are deferred and amortized as part of interest expense using the straight-line method over the stated life of the obligation for our Revolving Credit Facility. The same methodology is used to approximate the effective yield method for our Prospect Capital InterNotes® and our at-the-market offerings of our existing unsecured notes that mature on June 15, 2024 (“2024 Notes Follow-on Program”), June 15, 2028 (“2028 Notes Follow-on Program”), and June 15, 2029 (“2029 Follow-on Program”). The effective interest method is used to amortize deferred

55

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)

(in thousands, except share and per share data)

financing costs for our remaining Unsecured Notes over the respective expected life or maturity. In the event that we modify or extinguish our debt before maturity, we follow the guidance in ASC 470-50, Modification and Extinguishments (“ASC 470-50”). For modifications to or exchanges of our Revolving Credit Facility, any unamortized deferred costs relating to lenders who are not part of the new lending group are expensed. For extinguishments of our Unsecured Notes, any unamortized deferred costs are deducted from the carrying amount of the debt in determining the gain or loss from the extinguishment.

Unamortized deferred financing costs are presented as a direct deduction to the respective Unsecured Notes (see Notes 5, 6, and 7).

We may record registration expenses related to shelf filings as prepaid expenses. These expenses consist principally of the Securities and Exchange Commission (“SEC”) registration fees, legal fees and accounting fees incurred. These prepaid expenses are charged to capital upon the receipt of proceeds from an equity offering or charged to expense if no offering is completed. As of December 31, 2019 and June 30, 2019, there are no prepaid expenses related to registration expenses and all amounts incurred have been expensed.

Guarantees and Indemnification Agreements

We follow ASC 460, Guarantees (“ASC 460”). ASC 460 elaborates on the disclosure requirements of a guarantor in its interim and annual consolidated financial statements about its obligations under certain guarantees that it has issued. It also requires a guarantor to recognize, at the inception of a guarantee, for those guarantees that are covered by ASC 460, the fair value of the obligation undertaken in issuing certain guarantees.

Per Share Information

Net increase or decrease in net assets resulting from operations per share is calculated using the weighted average number of common shares outstanding for the period presented. In accordance with ASC 946, convertible securities are not considered in the calculation of net asset value per share.

Recent Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which amends the financial instruments impairment guidance so that an entity is required to measure expected credit losses for financial assets based on historical experience, current conditions and reasonable and supportable forecasts. As such, an entity will use forward-looking information to estimate credit losses. ASU 2016-13 also amends the guidance in FASB ASC Subtopic No. 325-40, Investments-Other, Beneficial Interests in Securitized Financial Assets, related to the subsequent measurement of accretable yield recognized as interest income over the life of a beneficial interest in securitized financial assets under the effective yield method. ASU 2016-13 is effective for financial statements issued for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted as of the fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. We are currently evaluating the impact, if any, of adopting this ASU on our consolidated financial statements.

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement. The standard will modify the disclosure requirements for fair value measurements by removing, modifying, or adding certain disclosures. ASU No. 2018-13 is effective for annual reporting periods beginning after December 15, 2019, including interim periods within that reporting period. Early adoption is permitted upon issuance of this ASU. We are currently evaluating the impact of adopting this ASU on our consolidated financial statements.

SEC Disclosure Update and Simplification

In August 2018, the SEC adopted the final rule under SEC Release No. 33-10532, Disclosure Update and Simplification, amending certain disclosure requirements that were redundant, duplicative, overlapping, outdated or superseded. The amendments are intended to facilitate the disclosure of information to investors and simplify compliance. We have adopted the amendments and have retrospectively applied the presentation amendments to the prior period statements presented.

Prior to adoption and in accordance with previous SEC rules, we presented distributable earnings (loss) on the Consolidated Statements of Assets and Liabilities, as three components: 1) accumulated overdistributed net investment income; 2) accumulated net unrealized gain (loss) on investments; and 3) accumulated net realized gain (loss) on investments. We also presented distributions from earnings on the Consolidated Statements of Changes in Net Assets as distributions from net investment income. In accordance with the SEC Release, distributable earnings and distributions from distributable earnings are shown in total on the Consolidated Statements of Assets and Liabilities and Consolidated Statements of Changes in Net Assets, respectively.

56

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)

(in thousands, except share and per share data)

The following table provides the reconciliation of the components of distributable earnings (loss) to conform to the current period presentation for the six months ended December 31, 2018:

Overdistributed net investment income Realized gains (losses) Net unrealized loss Distributable earnings (loss)
Balance as of June 30, 2018 $ (45,186 ) $ (465,493 ) $ (104,179 ) $ (614,858 )
Net Increase in Net Assets Resulting from Operations:
Net investment income 165,970 — — 165,970
Net realized gains — 83 — 83
Net change in net unrealized losses — — (149,647 ) (149,647 )
Distributions to Shareholders:
Distributions from net investment income (131,531 ) — — (131,531 )
Tax reclassifications of net assets (Note 12) 31 — — 31
Balance as of December 31, 2018 $ (10,716 ) $ (465,410 ) $ (253,826 ) $ (729,952 )

Tax Cuts and Jobs Act

On December 22, 2017, the President signed into law the Tax Cuts and Jobs Act (the “Tax Act”), which significantly changed the Code, including, a reduction in the corporate income tax rate, a new limitation on the deductibility of interest expense, and significant changes to the taxation of income earned from foreign sources and foreign subsidiaries. The Tax Act also authorizes the IRS to issue regulations with respect to the new provisions. We cannot predict how the changes in the Tax Act, or regulations or other guidance issued under it, might affect us, our business or the business of our portfolio companies. However, our portfolio companies may or may not make certain elections under the Tax Act that could materially increase their taxable earnings and profits. Any such increase in the earnings and profits of a portfolio company may result in the characterization of certain distributions sourced from sale proceeds as dividend income, which may increase our distributable taxable income.

Note 3. Portfolio Investments

At December 31, 2019, we had investments in 120 long-term portfolio investments, which had an amortized cost of $5,673,644 and a fair value of $5,268,545. At June 30, 2019, we had investments in 135 long-term portfolio investments, which had an amortized cost of $5,932,302 and a fair value of $5,653,553.

The original cost basis of debt placement and equity securities acquired, including follow-on investments for existing portfolio companies, payment-in-kind interest, and structuring fees, totaled $421,176 and $480,894 during the six months ended December 31, 2019 and December 31, 2018, respectively. Debt repayments and considerations from sales of equity securities of approximately $676,687 and $220,110 were received during the six months ended December 31, 2019 and December 31, 2018, respectively.

The following table shows the composition of our investment portfolio as of December 31, 2019 and June 30, 2019:

December 31, 2019 June 30, 2019
Cost Fair Value Cost Fair Value
Revolving Line of Credit $ 35,156 $ 35,156 $ 33,928 $ 34,239
Senior Secured Debt 2,466,567 2,147,402 2,687,709 2,449,357
Subordinated Secured Debt 1,427,227 1,301,043 1,439,440 1,329,799
Subordinated Unsecured Debt 40,478 48,886 38,933 33,058
Rated Secured Structured Notes — — 44,774 46,851
Subordinated Structured Notes 1,093,667 791,457 1,103,751 850,694
Equity 610,549 944,601 583,767 909,555
Total Investments $ 5,673,644 $ 5,268,545 $ 5,932,302 $ 5,653,553

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PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)

(in thousands, except share and per share data)

In the previous table and throughout the remainder of this footnote, we aggregate our portfolio investments by type of investment, which may differ slightly from the nomenclature used by the constituent instruments defining the rights of holders of the investment, as disclosed on our Consolidated Schedules of Investments (“SOI”). The following investments are included in each category:

• Revolving Line of Credit includes our investments in delayed draw term loans.
• Senior Secured Debt includes investments listed on the SOI such as senior secured term loans, senior term loans, secured promissory notes, senior demand notes, and first lien term loans.
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• Subordinated Secured Debt includes investments listed on the SOI such as subordinated secured term loans, subordinated term loans, senior subordinated notes, and second lien term loans.
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• Subordinated Unsecured Debt includes investments listed on the SOI such as subordinated unsecured notes and senior unsecured notes.
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• Small Business Loans includes our investments in SME whole loans purchased from OnDeck.
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• Rated Secured Structured Notes includes our investments in the “debt” class of security of CLO funds.
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• Subordinated Structured Notes includes our investments in the “equity” security class of CLO funds such as income notes, preference shares, and subordinated notes.
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• Equity, unless specifically stated otherwise, includes our investments in preferred stock, common stock, membership interests, net profits interests, net operating income interests, net revenue interests, overriding royalty interests, escrows receivable, and warrants.
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The following table shows the fair value of our investments disaggregated into the three levels of the ASC 820 valuation hierarchy as of December 31, 2019:

Level 1 Level 2 Level 3 Total
Revolving Line of Credit $ — $ — $ 35,156 $ 35,156
Senior Secured Debt — 34,388 2,113,014 2,147,402
Subordinated Secured Debt — — 1,301,043 1,301,043
Subordinated Unsecured Debt — — 48,886 48,886
Rated Secured Structured Notes — — — —
Subordinated Structured Notes — — 791,457 791,457
Equity — — 944,601 944,601
Total Investments $ — $ 34,388 $ 5,234,157 $ 5,268,545

The following table shows the fair value of our investments disaggregated into the three levels of the ASC 820 valuation hierarchy as of June 30, 2019:

Level 1 Level 2 Level 3 Total
Revolving Line of Credit $ — $ — $ 34,239 $ 34,239
Senior Secured Debt — — 2,449,357 2,449,357
Subordinated Secured Debt — — 1,329,799 1,329,799
Subordinated Unsecured Debt — — 33,058 33,058
Rated Secured Structured Notes — — 46,851 46,851
Subordinated Structured Notes — — 850,694 850,694
Equity — — 909,555 909,555
Total Investments $ — $ — $ 5,653,553 $ 5,653,553

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)

(in thousands, except share and per share data)

The following tables show the aggregate changes in the fair value of our Level 3 investments during the six months ended December 31, 2019:

Fair Value Measurements Using Unobservable Inputs (Level 3)
Control<br><br>Investments Affiliate<br><br>Investments Non-Control/<br><br>Non-Affiliate<br><br>Investments Total
Fair value as of June 30, 2019 $ 2,475,924 $ 76,682 $ 3,100,947 $ 5,653,553
Net realized losses on investments $ — $ — $ (616 ) $ (616 )
Net change in unrealized (losses) gains(1) (74,884 ) 30,262 (80,422 ) (125,044 )
Net realized and unrealized (losses) gains $ (74,884 ) $ 30,262 $ (81,038 ) $ (125,660 )
Purchases of portfolio investments 100,586 2,820 281,590 384,996
Payment-in-kind interest 18,387 879 1,909 21,175
Accretion (amortization) of discounts and premiums, net 155 1,141 (4,289 ) (2,993 )
Repayments and sales of portfolio investments (107,908 ) (24,161 ) (544,290 ) (676,359 )
Transfers within Level 3 — — — —
Transfers in (out) of Level 3(1) — — (20,555 ) (20,555 )
Fair value as of December 31, 2019 $ 2,412,260 $ 87,623 $ 2,734,274 $ 5,234,157
Revolving Line of Credit Senior Secured<br>Debt Subordinated Secured Debt Subordinated Unsecured Debt Rated Secured Structured Notes Subordinated Structured Notes Equity Total
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Fair value as of June 30, 2019 $ 34,239 $ 2,449,357 $ 1,329,799 $ 33,058 $ 46,851 $ 850,694 $ 909,555 $ 5,653,553
Net realized (losses) gains on investments — (120 ) 15 — 1,885 (2,396 ) — (616 )
Net change in unrealized (losses) gains(1) (311 ) (79,506 ) (16,545 ) 14,284 (2,078 ) (49,153 ) 8,265 (125,044 )
Net realized and unrealized (losses) gains (311 ) (79,626 ) (16,530 ) 14,284 (193 ) (51,549 ) 8,265 (125,660 )
Purchases of portfolio investments 7,044 217,452 123,908 — 5,534 — 31,058 384,996
Payment-in-kind interest 187 13,770 6,526 692 — — — 21,175
Accretion (amortization) of discounts and premiums, net — 295 3,304 1,141 (70 ) (7,663 ) — (2,993 )
Repayments and sales of portfolio investments (6,003 ) (467,679 ) (145,964 ) (289 ) (52,122 ) (25 ) (4,277 ) (676,359 )
Transfers within Level 3 — — — — — — — —
Transfers in (out) of Level 3(1) — (20,555 ) — — — — — (20,555 )
Fair value as of December 31, 2019 $ 35,156 $ 2,113,014 $ 1,301,043 $ 48,886 $ — $ 791,457 $ 944,601 $ 5,234,157
(1) Transfers are assumed to have occurred at the beginning of the quarter during which the asset was transferred. During the three months ended September 30, 2019 one of our senior secured notes transferred from Level 3 to Level 2 because the inputs to the valuation became observable.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)

(in thousands, except share and per share data)

The following tables show the aggregate changes in the fair value of our Level 3 investments during the six months ended December 31, 2018: Fair Value Measurements Using Unobservable Inputs (Level 3)
Control<br><br>Investments Affiliate<br><br>Investments Non-Control/<br><br>Non-Affiliate<br><br>Investments Total
Fair value as of June 30, 2018 $ 2,404,326 $ 58,436 $ 3,264,517 $ 5,727,279
Net realized gains on investments 2,802 — 48 2,850
Net change in unrealized (losses)(1) (33,815 ) (19,649 ) (96,183 ) (149,647 )
Net realized and unrealized (losses) (31,013 ) (19,649 ) (96,135 ) (146,797 )
Purchases of portfolio investments 46,129 1,567 413,892 461,588
Payment-in-kind interest 15,440 556 3,310 19,306
Accretion (amortization) of discounts and premiums, net 907 — (787 ) 120
Repayments and sales of portfolio investments (48,152 ) (7,855 ) (162,919 ) (218,926 )
Transfers within Level 3(1) 45,129 58,806 (103,935 ) —
Transfers in (out) of Level 3(1) — — — —
Fair value as of December 31, 2018 $ 2,432,766 $ 91,861 $ 3,317,943 $ 5,842,570
Revolving Line of Credit Senior Secured<br>Debt Subordinated Secured Debt Subordinated Unsecured Debt Small Business Loans Rated Secured Structured Notes Subordinated Structured Notes Equity Total
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Fair value as of June 30, 2018 $ 38,559 $ 2,481,353 $ 1,260,525 $ 32,945 $ 17 $ 6,159 $ 954,035 $ 953,686 $ 5,727,279
Net realized gains on investments — — — — 22 — — 2,828 2,850
Net change in unrealized gains (losses) 10 (69,884 ) (32,575 ) (7,243 ) 13 2,853 (65,606 ) 22,785 (149,647 )
Net realized and unrealized gains (losses) 10 (69,884 ) (32,575 ) (7,243 ) 35 2,853 (65,606 ) 25,613 (146,797 )
Purchases of portfolio investments 6,568 335,751 202,283 — — 38,524 6,887 (128,425 ) 461,588
Payment-in-kind interest 226 13,233 5,516 331 — — — — 19,306
Accretion (amortization) of discounts and premiums, net — 2,324 3,521 — — 100 (5,825 ) — 120
Repayments and sales of portfolio investments (16,855 ) (92,339 ) (91,911 ) — (52 ) — — (17,769 ) (218,926 )
Transfers within Level 3 — — — — — — — — —
Transfers in (out) of Level 3 — — — — — — — — —
Fair value as of December 31, 2018 $ 28,508 $ 2,670,438 $ 1,347,359 $ 26,033 $ — $ 47,636 $ 889,491 $ 833,105 $ 5,842,570
(1) Transfers are assumed to have occurred at the beginning of the quarter during which the asset was transferred.
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For the six months ended December 31, 2019 and December 31, 2018, the net change in unrealized losses on the investments that use Level 3 inputs was ($114,964) and ($144,551) for investments still held as of December 31, 2019 and December 31, 2018, respectively.

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(in thousands, except share and per share data)

The ranges of unobservable inputs used in the fair value measurement of our Level 3 investments as of December 31, 2019 were as follows: Unobservable Input
Asset Category Fair Value Primary Valuation Approach or Technique Input Range Weighted<br><br>Average
Senior Secured Debt $ 1,024,362 Discounted cash flow<br><br>(Yield analysis) Market yield 5.7% to 19.0% 10.3%
Senior Secured Debt 380,993 Enterprise value waterfall (Market approach) EBITDA multiple 3.5x to 9.5x 7.2x
Senior Secured Debt 83,064 Enterprise value waterfall (Market approach) Revenue multiple 0.5x to 1.1x 0.8x
Senior Secured Debt 59,115 Enterprise value waterfall (Discounted cash flow) Discount rate 7.5% to 10.4% 8.8%
Senior Secured Debt 28,622 Asset recovery analysis N/A N/A N/A
Senior Secured Debt (1) 79,000 Enterprise value waterfall Loss-adjusted discount rate 4.2% to 15.6% 10.6%
Senior Secured Debt (2) 51,428 Enterprise value waterfall Discount rate (3) 8.9% to 12.7% 10.4%
Senior Secured Debt 433,553 Enterprise value waterfall (NAV analysis) Capitalization Rate 3.9% to 8.1% 6.0%
Subordinated Secured Debt 911,795 Discounted cash flow<br><br>(Yield analysis) Market yield 5.8% to 25.7% 12.0%
Subordinated Secured Debt 36,655 Enterprise value waterfall (Market approach) EBITDA multiple 7.5x to 12.0x 8.8x
Subordinated Secured Debt 6,357 Asset recovery analysis N/A N/A N/A
Subordinated Secured Debt (4) 354,269 Enterprise value waterfall (Market approach) Tangible book value multiple 0.9x to 3.0x 2.2x
Subordinated Unsecured Debt 48,886 Enterprise value waterfall (Market approach) EBITDA multiple 11.0x to 12.0x 11.5x
Subordinated Structured Notes 791,457 Discounted cash flow Discount rate (3) 1.6% to 26.0% 20.0%
Preferred Equity 32,716 Enterprise value waterfall (Market approach) EBITDA multiple 5.5x to 6.5x 6.0x
Common Equity/Interests/Warrants 131,069 Enterprise value waterfall (Market approach) EBITDA multiple 3.8x to 12.0x 5.1x
Common Equity/Interests/Warrants (1) 1,291 Enterprise value waterfall Loss-adjusted discount rate 4.2% to 15.6% 10.6%
Common Equity/Interests/Warrants (2) 10,870 Enterprise value waterfall Discount rate (3) 8.9% to 12.7% 10.4%
Common Equity/Interests/Warrants 413,184 Enterprise value waterfall (NAV analysis) Capitalization Rate 3.9% to 8.1% 6.0%
Common Equity/Interests/Warrants 4,361 Enterprise value waterfall (Market approach) Revenue multiple 0.5x to 1.1x 0.8x
Common Equity/Interests/Warrants (5) 261,625 Enterprise value waterfall (Market approach) Tangible book value multiple 0.9x to 3.0x 2.8x
Common Equity/Interests/Warrants (6) 37,562 Enterprise value waterfall (NAV analysis) Capitalization Rate 3.9% to 8.1% 6.0%
Common Equity/Interests/Warrants 34,696 Enterprise value waterfall (Discounted cash flow) Discount rate 7.8% to 9.8% 9.3%
Common Equity/Interests/Warrants 14,920 Asset recovery analysis N/A N/A N/A
Escrow Receivable 2,307 Discounted cash flow Discount rate 6.1% to 7.2% 6.7%
Total Level 3 Investments $ 5,234,157

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(in thousands, except share and per share data)

(1) Represents an investment in a Real Estate Investment Trust subsidiary. The Enterprise Value analysis includes the fair value of our investments in such indirect subsidiary’s consumer loans purchased from online consumer lending platforms, which are valued using a discounted cash flow valuation technique. The key unobservable input to the discounted cash flow analysis is noted above. In addition, the valuation also used projected loss rates as an unobservable input ranging from 0.0% to 8.8%, with a weighted average of 0.7%.
(2) Represents an investment in a Real Estate Investment Trust subsidiary. The Enterprise Value analysis includes the fair value of our investments in such indirect subsidiary’s rated secured structured notes, which are valued using a discounted cash flow valuation technique. The key unobservable input to the discounted cash flow analysis is noted above.
--- ---
(3) Represents the implied discount rate based on our internally generated single-cash flow model that is derived from the fair value estimated by the corresponding multi-path cash flow model utilized by the independent valuation firm.
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(4) Represents investments in consumer finance subsidiaries. The enterprise value waterfall methodology utilizes book value multiples as noted above. In addition, the valuation of certain consumer finance companies utilizes the enterprise value waterfall technique whereby the significant unobservable input is the earnings multiple and the discounted cash flow technique whereby the significant unobservable input is the discount rate. For these companies the earnings multiple ranges from 8.5x to 12.0x with a weighted average of 11.1x and the discount rate ranges from 12.6% to 14.6% with a weighted average of 13.3%.
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(5) Represents investments in consumer finance subsidiaries. The enterprise value waterfall methodology utilizes book value multiples as noted above. In addition, the valuation of certain consumer finance companies utilizes the enterprise value waterfall technique whereby the significant unobservable input is the earnings multiple and the discounted cash flow technique whereby the significant unobservable input is the discount rate. For these companies the earnings multiple ranges from 8.5x to 12.0x with a weighted average of 11.3x and the discount rate ranges from 12.6% to 14.6% with a weighted average of 13.3%.
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(6) Represents Residual Profit Interests in Real Estate Investments.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)

(in thousands, except share and per share data)

The ranges of unobservable inputs used in the fair value measurement of our Level 3 investments as of June 30, 2019 were as follows:

Unobservable Input
Asset Category Fair Value Primary Valuation Approach or Technique Input Range Weighted<br><br>Average
Senior Secured Debt $ 1,260,526 Discounted Cash Flow<br><br>(Yield analysis) Market yield 5.6% - 19.1% 10.3%
Senior Secured Debt 434,524 Enterprise Value Waterfall (Market approach) EBITDA multiple 3.0x - 9.5x 7.7x
Senior Secured Debt 128,152 Enterprise Value Waterfall (Market approach) Revenue multiple 0.5x - 1.3x 1.1x
Senior Secured Debt 54,841 Enterprise Value Waterfall (Discounted cash flow) Discount rate 7.6% - 10.5% 8.9%
Senior Secured Debt (1) 172,000 Enterprise Value Waterfall Loss-adjusted discount rate 3.9% - 14.1% 10.6%
Senior Secured Debt (2) 433,553 Enterprise Value Waterfall (NAV Analysis) Capitalization Rate 3.9% - 7.9% 5.9%
Discounted Cash Flow Discount rate 6.5% - 7.5% 7.0%
Subordinated Secured Debt 930,385 Discounted Cash Flow<br><br>(Yield analysis) Market yield 6.1% - 26.4% 11.5%
Subordinated Secured Debt 28,622 Enterprise Value Waterfall (Market approach) EBITDA multiple 8.0x - 9.0x 8.5x
Subordinated Secured Debt 18,866 Liquidation Analysis N/A N/A N/A
Subordinated Secured Debt (3) 351,926 Enterprise Value Waterfall (Market approach) Book value multiple 0.8x - 3.0x 2.7x
Subordinated Unsecured Debt 33,058 Enterprise Value Waterfall (Market approach) EBITDA multiple 5.8x - 11.3x 10.8x
Rated Secured Structured Notes 46,851 Discounted Cash Flow Discount rate (4) 10.7% - 11.1% 10.9%
Subordinated Structured Notes 850,694 Discounted Cash Flow Discount rate (4) 2.2% - 34.2% 19.8%
Preferred Equity 84,294 Enterprise Value Waterfall (Market approach) EBITDA multiple 4.0x - 8.5x 7.1x
Common Equity/Interests/Warrants 127,814 Enterprise value waterfall (Market approach) EBITDA multiple 5.8x - 9.0x 6.5x
Common Equity/Interests/Warrants (1) 4,778 Enterprise value waterfall Loss-adjusted discount rate 3.9% - 14.1% 10.6%
Common Equity/Interests/Warrants (2) 297,525 Enterprise value waterfall (NAV analysis) Capitalization rate 3.9% - 7.9% 5.9%
Discounted cash flow Discount rate 6.5% - 7.5% 7.0%
Common Equity/Interests/Warrants (5) 246,502 Enterprise value waterfall (Market approach) Book value multiple 0.8x - 3.0x 2.6x
Common Equity/Interests/Warrants (6) 96,609 Discounted cash flow Capitalization rate 3.9% - 7.9% 5.9%
Common Equity/Interests/Warrants 34,860 Discounted cash flow Discount rate 7.1% - 14.6% 8.4%
Common Equity/Interests/Warrants 14,934 Liquidation analysis N/A N/A N/A
Escrow Receivable 2,239 Discounted cash flow Discount rate 6.1% - 7.2% 6.7%
Total Level 3 Investments $ 5,653,553

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)

(in thousands, except share and per share data)

(1) Represents an investment in a Real Estate Investment Trust subsidiary. The Enterprise Value analysis includes the fair value of our investments in such indirect subsidiary’s consumer loans purchased from online consumer lending platforms, which are valued using a discounted cash flow valuation technique. The key unobservable input to the discounted cash flow analysis is noted above. In addition, the valuation also used projected loss rates as an unobservable input ranging from 0.0%-12.5%, with a weighted average of 1.3%.
(2) Represents Real Estate Investments. Enterprise Value Waterfall methodology uses both the net asset value analysis and discounted cash flow technique, which are weighted equally (50%).
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(3) Represents investments in consumer finance subsidiaries. The enterprise value waterfall methodology utilizes tangible book value multiples as noted above. In addition, the valuation of certain consumer finance companies utilizes the enterprise value waterfall technique whereby the significant unobservable input is the earnings multiple and the discounted cash flow technique whereby the significant unobservable input is the discount rate. For these companies the earnings multiple ranges from 8.8x to 12.5x with a weighted average of 11.5x and the discount rate ranges from 12.7% to 14.6% with a weighted average of 13.3%.
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(4) Represents the implied discount rate based on our internally generated single-cash flow model that is derived from the fair value estimated by the corresponding multi-path cash flow model utilized by the independent valuation firm.
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(5) Represents investments in consumer finance subsidiaries. The enterprise value waterfall methodology utilizes book value multiples as noted above. In addition, the valuation of certain consumer finance companies utilizes the enterprise value waterfall technique whereby the significant unobservable input is the earnings multiple and the discounted cash flow technique whereby the significant unobservable input is the discount rate. For these companies the earnings multiple ranges from 8.8x to 12.5x with a weighted average of 11.8x and the discount rate ranges from 12.7% to 14.6% with a weighted average of 13.3%.
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(6) Represents Residual Profit Interests in Real Estate Investments.
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Investments for which market quotations are readily available are typically valued at such market quotations. In order to validate market quotations, management and the independent valuation firm look at a number of factors to determine if the quotations are representative of fair value, including the source and nature of the quotations. In determining the range of values for debt instruments where market quotations are not available, except CLOs and debt investments in controlling portfolio companies, management and the independent valuation firm estimated corporate and security credit ratings and identified corresponding yields to maturity for each loan from relevant market data. A discounted cash flow technique was then applied using the appropriate yield to maturity as the discount rate, to determine a range of values. In determining the range of values for debt investments of controlled companies and equity investments, the enterprise value was determined by applying a market approach such as using earnings before income interest, tax, depreciation and amortization (“EBITDA”) multiples, net income and/or book value multiples for similar guideline public companies and/or similar recent investment transactions and/or an income approach, such as the discounted cash flow technique. The enterprise value technique may also be used to value debt investments which are credit impaired. For stressed debt and equity investments, an asset recovery analysis was used.

In determining the range of values for our investments in CLOs, the independent valuation firm uses a discounted multi-path cash flow model. The valuations were accomplished through the analysis of the CLO deal structures to identify the risk exposures from the modeling point of view as well as to determine an appropriate call date (i.e., expected maturity). These risk factors are sensitized in the multi-path cash flow model using Monte Carlo simulations to generate probability-weighted (i.e., multi-path) cash flows for the underlying assets and liabilities. These cash flows are discounted using appropriate market discount rates, and relevant data in the CLO market and certain benchmark credit indices are considered, to determine the value of each CLO investment. In addition, we generate a single-path cash flow utilizing our best estimate of expected cash receipts, and assess the reasonableness of the implied discount rate that would be effective for the value derived from the corresponding multi-path cash flow model.

Our portfolio consists of residual interests and debt investments in CLOs, which involve a number of significant risks. CLOs are typically very highly levered (10 - 14 times), and therefore the residual interest tranches that we invest in are subject to a higher degree of risk of total loss. In particular, investors in CLO residual interests indirectly bear risks of the underlying loan investments held by such CLOs. We generally have the right to receive payments only from the CLOs, and generally do not have direct rights against the underlying borrowers or the entity that sponsored the CLOs. While the CLOs we target generally enable the investor to acquire interests in a pool of senior loans without the expenses associated with directly holding the same investments, the prices of indices and securities underlying our CLOs will rise or fall. These prices (and, therefore, the prices of the CLOs) will be influenced by the same types of political and economic events that affect issuers of securities and capital markets generally. The failure by a CLO investment in which we invest to satisfy financial covenants, including with respect to adequate collateralization and/or interest coverage tests, could lead to a reduction in its payments to us. In the event that a CLO fails certain tests, holders of debt senior to us would be entitled to additional payments that would, in turn, reduce the payments we would otherwise be entitled to receive. Separately, we may incur expenses to the extent necessary to seek recovery upon default or to negotiate new

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)

(in thousands, except share and per share data)

terms with a defaulting CLO or any other investment we may make. If any of these occur, it could materially and adversely affect our operating results and cash flows.

The interests we have acquired in CLOs are generally thinly traded or have only a limited trading market. CLOs are typically privately offered and sold, even in the secondary market. As a result, investments in CLOs may be characterized as illiquid securities. In addition to the general risks associated with investing in debt securities, CLO residual interests carry additional risks, including, but not limited to: (i) the possibility that distributions from collateral securities will not be adequate to make interest or other payments; (ii) the quality of the collateral may decline in value or default; (iii) our investments in CLO tranches will likely be subordinate to other senior classes of note tranches thereof; and (iv) the complex structure of the security may not be fully understood at the time of investment and may produce disputes with the CLO investment or unexpected investment results. Our net asset value may also decline over time if our principal recovery with respect to CLO residual interests is less than the cost of those investments. Our CLO investments and/or the CLOs’ underlying senior secured loans may prepay more quickly than expected, which could have an adverse impact on our value.

An increase in LIBOR would materially increase the CLO’s financing costs. Since most of the collateral positions within the CLOs have LIBOR floors, there may not be corresponding increases in investment income (if LIBOR increases but stays below the LIBOR floor rate of such investments) resulting in materially smaller distribution payments to the residual interest investors.

On July 27, 2017, the Financial Conduct Authority (“FCA”) announced that it will no longer persuade or compel banks to submit rates for the calculation of the LIBOR rates after 2021 (the “FCA Announcement”). Furthermore, in the United States, efforts to identify a set of alternative U.S. dollar reference interest rates include proposals by the Alternative Reference Rates Committee of the Federal Reserve Board and the Federal Reserve Bank of New York. On August 24, 2017, the Federal Reserve Board requested public comment on a proposal by the Federal Reserve Bank of New York, in cooperation with the Office of Financial Research, to produce three new reference rates intended to serve as alternatives to LIBOR. These alternative rates are based on overnight repurchase agreement transactions secured by U.S. Treasury Securities. On December 12, 2017, following consideration of public comments, the Federal Reserve Board concluded that the public would benefit if the Federal Reserve Bank of New York published the three proposed reference rates as alternatives to LIBOR (the “Federal Reserve Board Notice”). The Federal Reserve Bank of New York said that the publication of these alternative rates is targeted to commence by mid-2018.

At this time, it is not possible to predict the effect of the FCA Announcement, the Federal Reserve Board Notice, or other regulatory changes or announcements, any establishment of alternative reference rates or any other reforms to LIBOR that may be enacted in the United Kingdom, the United States or elsewhere. As such, the potential effect of any such event on our net investment income cannot yet be determined. The CLOs in which the Company is invested generally contemplate a scenario where LIBOR is no longer available by requiring the CLO administrator to calculate a replacement rate primarily through dealer polling on the applicable measurement date. However, there is uncertainty regarding the effectiveness of the dealer polling processes, including the willingness of banks to provide such quotations, which could adversely impact our net investment income. In addition, the effect of a phase out of LIBOR on U.S. senior secured loans, the underlying assets of the CLOs in which we invest, is currently unclear. To the extent that any replacement rate utilized for senior secured loans differs from that utilized for a CLO that holds those loans, the CLO would experience an interest rate mismatch between its assets and liabilities which could have an adverse impact on the Company’s net investment income and portfolio returns.

We hold more than a 10% interest in certain foreign corporations that are treated as controlled foreign corporations (“CFC”) for U.S. federal income tax purposes (including our residual interest tranche investments in CLOs). Therefore, we are treated as receiving a deemed distribution (taxable as ordinary income) each year from such foreign corporations in an amount equal to our pro rata share of the corporation’s income for that tax year (including both ordinary earnings and capital gains). We are required to include such deemed distributions from a CFC in our taxable income and we are required to distribute at least 90% of such income to maintain our RIC status, regardless of whether or not the CFC makes an actual distribution during such year.

If we acquire shares in “passive foreign investment companies” (“PFICs”) (including residual interest tranche investments in CLOs that are PFICs), we may be subject to federal income tax on a portion of any “excess distribution” or gain from the disposition of such shares even if such income is distributed as a taxable dividend to our stockholders. Certain elections may be available to mitigate or eliminate such tax on excess distributions, but such elections (if available) will generally require us to recognize our share of the PFIC’s income for each year regardless of whether we receive any distributions from such PFICs. We must nonetheless distribute such income to maintain our status as a RIC.

Legislation enacted in 2010 imposes a withholding tax of 30% on payments of U.S. source interest and dividends paid after December 31, 2013, or gross proceeds from the disposition of an instrument that produces U.S. source interest or dividends paid after December 31, 2016, to certain non-U.S. entities, including certain non-U.S. financial institutions and investment funds, unless

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)

(in thousands, except share and per share data)

such non-U.S. entity complies with certain reporting requirements regarding its United States account holders and its United States owners. Most CLOs in which we invest will be treated as non-U.S. financial entities for this purpose, and therefore will be required to comply with these reporting requirements to avoid the 30% withholding. If a CLO in which we invest fails to properly comply with these reporting requirements, it could reduce the amounts available to distribute to residual interest and junior debt holders in such CLO vehicle, which could materially and adversely affect our operating results and cash flows.

If we are required to include amounts in income prior to receiving distributions representing such income, we may have to sell some of our investments at times and/or at prices management would not consider advantageous, raise additional debt or equity capital or forgo new investment opportunities for this purpose.

The significant unobservable input used to value our investments based on the yield technique and discounted cash flow technique is the market yield (or applicable discount rate) used to discount the estimated future cash flows expected to be received from the underlying investment, which includes both future principal and interest/dividend payments. Increases or decreases in the market yield (or applicable discount rate) would result in a decrease or increase, respectively, in the fair value measurement. Management and the independent valuation firms consider the following factors when selecting market yields or discount rates: risk of default, rating of the investment and comparable company investments, and call provisions.

The significant unobservable inputs used to value our investments based on the EV analysis may include market multiples of specified financial measures such as EBITDA, net income, or book value of identified guideline public companies, implied valuation multiples from precedent M&A transactions, and/or discount rates applied in a discounted cash flow technique. The independent valuation firm identifies a population of publicly traded companies with similar operations and key attributes to that of the portfolio company. Using valuation and operating metrics of these guideline public companies and/or as implied by relevant precedent transactions, a range of multiples of the latest twelve months EBITDA, or other measure such as net income or book value, is typically calculated. The independent valuation firm utilizes the determined multiples to estimate the portfolio company’s EV generally based on the latest twelve months EBITDA of the portfolio company (or other meaningful measure). Increases or decreases in the multiple would result in an increase or decrease, respectively, in EV which would result in an increase or decrease in the fair value measurement of the debt of controlled companies and/or equity investment, as applicable. In certain instances, a discounted cash flow analysis may be considered in estimating EV, in which case, discount rates based on a weighted average cost of capital and application of the capital asset pricing model may be utilized.

The significant unobservable input used to value our private REIT investments based on the net asset value analysis is the capitalization rate applied to the earnings measure of the underlying property. Increases or decreases in the capitalization rate would result in a decrease or increase, respectively, in the fair value measurement.

Changes in market yields, discount rates, capitalization rates or EBITDA multiples, each in isolation, may change the fair value measurement of certain of our investments. Generally, an increase in market yields, discount rates or capitalization rates, or a decrease in EBITDA (or other) multiples may result in a decrease in the fair value measurement of certain of our investments.

Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of our investments may fluctuate from period to period. Additionally, the fair value of our investments may differ significantly from the values that would have been used had a ready market existed for such investments and may differ materially from the values that we may ultimately realize. Further, such investments are generally subject to legal and other restrictions on resale or otherwise are less liquid than publicly traded securities. If we were required to liquidate a portfolio investment in a forced or liquidation sale, we could realize significantly less than the value at which we have recorded it.

In addition, changes in the market environment and other events that may occur over the life of the investments may cause the gains or losses ultimately realized on these investments to be different than the unrealized gains or losses reflected in the currently assigned valuations.

During the six months ended December 31, 2019, the valuation methodology for Engine Group, Inc. (“Engine”) changed to remove the waterfall analysis. As a result of the company’s performance and decrease in observed market spreads, the fair value of our investment in Engine increased to $35,336 as of December 31, 2019, a discount of $3,884 from its amortized cost, compared to the $4,833 unrealized depreciation recorded at June 30, 2019.

During the six months ended December 31, 2019, the valuation methodology for Pacific World Corporation (“Pacific World”) changed to incorporate an asset recovery analysis. As a result of the company’s performance, the fair value of our investment in Pacific World decreased to $62,610 as of December 31, 2019, a discount of $184,815 from its amortized cost, compared to the $125,542 unrealized depreciation recorded at June 30, 2019.

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(in thousands, except share and per share data)

During the six months ended December 31, 2019, the valuation methodology for Easy Gardener Products, Inc. (“Easy Gardener”) changed to incorporate an asset recovery analysis. As a result of the company’s performance, the fair value of our investment in Easy Gardener decreased to $4,353 as of December 31, 2019, a discount of $11,366 from its amortized cost, compared to the $5,636 unrealized depreciation recorded at June 30, 2019.

During the six months ended December 31, 2019, the valuation methodology for Rocket Software, Inc. (“Rocket”) changed to incorporate a shadow method. As a result of the company’s performance, the fair value of our investment in Rocket increased to $49,568 as of December 31, 2019, equivalent to its amortized cost, same as recorded at June 30, 2019.

During the six months ended December 31, 2019, four of our Subordinated Structured Notes were deemed to have an other-than-temporary loss. In accordance with ASC 325-40, Beneficial Interest in Securitized Financial Assets, we recorded a total loss of $2,420 related to these investments for the amount our amortized cost exceeded fair value as of the respective determination dates. During the six months ended December 31, 2018, there was no OTTI assessed for any Subordinated Structured Notes within our portfolio.

During the six months ended December 31, 2019, the valuation methodology for National Property REIT Corporation (“NPRC”) and its wholly owned subsidiaries relating to the real estate portfolio changed to remove the Discounted Cash Flow Method. Management utilizes the Enterprise Value Waterfall (NAV Analysis) to value its investment in NPRC and its wholly owned subsidiaries relating to the real estate portfolio as this method is aligned with current industry practice and with Management’s experience in buying and selling income producing real estate assets. The fair value of our investment in NPRC and its wholly owned subsidiaries relating to the real estate portfolio increased by $56,612, to $884,299, during the six months ended December 31, 2019, attributable to both an improvement in property operations and values, and the change in methodology.

During the six months ended December 31, 2019, we received partial repayments of $93,000 of our loans previously outstanding with NPRC, and provided $12,857 of equity financing and $51,428 of debt financing to NPRC to fund purchases of rated secured structured notes, expenses and structuring fees.

The online consumer loan investments held by certain of NPRC’s wholly owned subsidiaries are unsecured obligations of individual borrowers that are issued in amounts ranging from $1 to $50, with fixed terms ranging from 24 to 84 months. As of December 31, 2019, the outstanding investment in online consumer loans by certain of NPRC’s wholly owned subsidiaries was comprised of 16,769 individual loans and residual interest in four securitizations, and had an aggregate fair value of $75,560. The average outstanding individual loan balance is approximately $3 and the loans mature on dates ranging from January 1, 2020 to April 19, 2025 with a weighted-average outstanding term of 20 months as of December 31, 2019. Fixed interest rates range from 4.0% to 36.0% with a weighted-average current interest rate of 22.8%. As of December 31, 2019, our investment in NPRC and its wholly-owned subsidiaries relating to online consumer lending had a fair value of $80,291.

As of December 31, 2019, based on outstanding principal balance, 10.3% of the portfolio was invested in super prime loans (borrowers with a Fair Isaac Corporation (“FICO”) score, of 720 or greater), 27.0% of the portfolio in prime loans (borrowers with a FICO score of 660 to 719) and 62.7% of the portfolio in near prime loans (borrowers with a FICO score of 580 to 659, a portion of which are considered sub-prime).

Loan Type Outstanding Principal Balance Fair Value Interest Rate Range Weighted Average Interest Rate*
Super Prime $ 5,843 $ 4,976 4.0% - 24.1% 12.5%
Prime 15,374 12,085 6.0% - 36.0% 17.6%
Near Prime 35,739 36,539 6.0% - 36.0% 26.6%

*Weighted by outstanding principal balance of the online consumer loans.

The rated secured structured note investments held by certain of NPRC’s wholly owned subsidiaries are subordinated debt interests in broadly syndicated loans managed by established collateral management teams with many years of experience in the industry. As of December 31, 2019, the outstanding investment in rated secured structured notes by certain of NPRC’s wholly owned subsidiaries was comprised of 24 investments with a fair value of $129,053 and face value of $136,849. The average outstanding note is approximately $5,702 with a stated maturity date ranging from April 2027 to October 2032 and weighted-average stated maturity of 11.3 years as of December 31, 2019. Coupons range from three-month Libor (“3ML”) plus 5.45% to 9.45% with a weighted-average coupon of 3ML + 7.38%. As of December 31, 2019, our investment in NPRC and its wholly-owned subsidiaries relating to rated secured structured notes had a fair value of $62,298.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)

(in thousands, except share and per share data)

As of December 31, 2019, based on outstanding notional balance, 38.7% of the portfolio was invested in Single - B rated tranches and 61.3% of the portfolio in BB rated tranches.

As of December 31, 2019, our investment in NPRC and its wholly owned subsidiaries had an amortized cost of $740,674 and a fair value of $1,026,888, including our investment in online consumer lending and rated secured structured notes as discussed above. As of December 31, 2019, our investment in NPRC and its wholly owned subsidiaries relating to the real estate portfolio had a fair value of $884,299. This portfolio was comprised of thirty-nine multi-families properties, twelve self-storage properties, eight student housing properties and three commercial properties. The following table shows the location, acquisition date, purchase price, and mortgage outstanding due to other parties for each of the properties held by NPRC as of December 31, 2019.

No. Property Name City Acquisition Date Purchase Price Mortgage Outstanding
1 Filet of Chicken Forest Park, GA 10/24/2012 $ 7,400 $ —
2 Arlington Park Marietta, LLC Marietta, GA 5/8/2013 14,850 —
3 Cordova Regency, LLC Pensacola, FL 11/15/2013 13,750 11,201
4 Crestview at Oakleigh, LLC Pensacola, FL 11/15/2013 17,500 13,633
5 Inverness Lakes, LLC Mobile, AL 11/15/2013 29,600 24,322
6 Kings Mill Pensacola, LLC Pensacola, FL 11/15/2013 20,750 17,281
7 Plantations at Pine Lake, LLC Tallahassee, FL 11/15/2013 18,000 13,876
8 Verandas at Rocky Ridge, LLC Birmingham, AL 11/15/2013 15,600 10,048
9 Crestview at Cordova, LLC Pensacola, FL 1/17/2014 8,500 7,509
10 Taco Bell, OK Yukon, OK 6/4/2014 1,719 —
11 Taco Bell, MO Marshall, MO 6/4/2014 1,405 —
12 23 Mile Road Self Storage, LLC Chesterfield, MI 8/19/2014 5,804 4,333
13 36th Street Self Storage, LLC Wyoming, MI 8/19/2014 4,800 3,586
14 Ball Avenue Self Storage, LLC Grand Rapids, MI 8/19/2014 7,281 5,439
15 Ford Road Self Storage, LLC Westland, MI 8/29/2014 4,642 3,467
16 Ann Arbor Kalamazoo Self Storage, LLC Ann Arbor, MI 8/29/2014 4,458 3,332
17 Ann Arbor Kalamazoo Self Storage, LLC Ann Arbor, MI 8/29/2014 8,927 6,669
18 Ann Arbor Kalamazoo Self Storage, LLC Kalamazoo, MI 8/29/2014 2,363 1,768
19 Canterbury Green Apartments Holdings LLC Fort Wayne, IN 9/29/2014 85,500 86,131
20 Abbie Lakes OH Partners, LLC Canal Winchester, OH 9/30/2014 12,600 15,704
21 Kengary Way OH Partners, LLC Reynoldsburg, OH 9/30/2014 11,500 15,872
22 Lakeview Trail OH Partners, LLC Canal Winchester, OH 9/30/2014 26,500 30,284
23 Lakepoint OH Partners, LLC Pickerington, OH 9/30/2014 11,000 17,230
24 Sunbury OH Partners, LLC Columbus, OH 9/30/2014 13,000 17,467
25 Heatherbridge OH Partners, LLC Blacklick, OH 9/30/2014 18,416 25,009
26 Jefferson Chase OH Partners, LLC Blacklick, OH 9/30/2014 13,551 19,424
27 Goldenstrand OH Partners, LLC Hilliard, OH 10/29/2014 7,810 11,853
28 Jolly Road Self Storage, LLC Okemos, MI 1/16/2015 7,492 5,620
29 Eaton Rapids Road Self Storage, LLC Lansing West, MI 1/16/2015 1,741 1,305
30 Haggerty Road Self Storage, LLC Novi, MI 1/16/2015 6,700 5,025
31 Waldon Road Self Storage, LLC Lake Orion, MI 1/16/2015 6,965 5,225
32 Tyler Road Self Storage, LLC Ypsilanti, MI 1/16/2015 3,507 2,630
33 SSIL I, LLC Aurora, IL 11/5/2015 34,500 26,450
34 Vesper Tuscaloosa, LLC Tuscaloosa, AL 9/28/2016 54,500 43,087
35 Vesper Iowa City, LLC Iowa City, IA 9/28/2016 32,750 24,825
36 Vesper Corpus Christi, LLC Corpus Christi, TX 9/28/2016 14,250 10,800
37 Vesper Campus Quarters, LLC Corpus Christi, TX 9/28/2016 18,350 14,175
38 Vesper College Station, LLC College Station, TX 9/28/2016 41,500 32,058
39 Vesper Kennesaw, LLC Kennesaw, GA 9/28/2016 57,900 48,600
40 Vesper Statesboro, LLC Statesboro, GA 9/28/2016 7,500 7,480
41 Vesper Manhattan KS, LLC Manhattan, KS 9/28/2016 23,250 15,459
42 JSIP Union Place, LLC Franklin, MA 12/7/2016 64,750 51,800

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)

(in thousands, except share and per share data)

No. Property Name City Acquisition Date Purchase Price Mortgage Outstanding
43 9220 Old Lantern Way, LLC Laurel, MD 1/30/2017 187,250 153,580
44 7915 Baymeadows Circle Owner, LLC Jacksonville, FL 10/31/2017 95,700 76,560
45 8025 Baymeadows Circle Owner, LLC Jacksonville, FL 10/31/2017 15,300 12,240
46 23275 Riverside Drive Owner, LLC Southfield, MI 11/8/2017 52,000 44,044
47 23741 Pond Road Owner, LLC Southfield, MI 11/8/2017 16,500 14,185
48 150 Steeplechase Way Owner, LLC Largo, MD 1/10/2018 44,500 36,668
49 Laurel Pointe Holdings, LLC Forest Park, GA 5/9/2018 33,005 26,400
50 Bradford Ridge Holdings, LLC Forest Park, GA 5/9/2018 12,500 10,000
51 Olentangy Commons Owner LLC Columbus, OH 6/1/2018 113,000 92,876
52 Villages of Wildwood Holdings LLC Fairfield, OH 7/20/2018 46,500 39,525
53 Falling Creek Holdings LLC Richmond, VA 8/8/2018 25,000 19,335
54 Crown Pointe Passthrough LLC Danbury, CT 8/30/2018 108,500 89,400
55 Ashwood Ridge Holdings LLC Jonesboro, GA 9/21/2018 9,600 7,300
56 Lorring Owner LLC Forestville, MD 10/30/2018 58,521 47,680
57 Hamptons Apartments Owner, LLC Beachwood, OH 1/9/2019 96,500 79,520
58 5224 Long Road Holdings, LLC Orlando, FL 6/28/2019 26,500 21,200
59 Druid Hills Holdings LLC Atlanta, GA 7/30/2019 96,000 79,104
60 Bel Canto NPRC Parcstone LLC Fayetteville, NC 10/15/2019 45,000 30,127
61 Bel Canto NPRC Stone Ridge LLC Fayetteville, NC 10/15/2019 21,900 14,662
62 Sterling Place Holdings LLC Columbus, OH 10/28/2019 41,500 34,196
$ 1,908,157 $ 1,588,579

On December 10, 2018, we received a final distribution from our investment in American Gilsonite Company and recorded a realized gain of $24, as a result of this transaction.

On December 31, 2018, we liquidated our investment in SB Forging Company II, we recorded a realized gain of $2,802, as a result of this transaction.

On July 16, 2019, we sold $16,000, or 8.39%, of the outstanding principal balance of the senior secured note investment in Broder Bros., Co. We recorded a realized loss of $120 as a result of these transactions.

On August 6, 2019, Medmark repaid the $7,000 subordinated secured loan receivable to us. We recorded a realized gain of $13 as a result of these transactions.

On November 1, 2019, we sold six of our rated secured structured notes to NPRC’s wholly-owned subsidiary National General Lending Limited (“NGL”) at fair value. We recorded a realized gain of $1,885 as a result of these transactions.

As of December 31, 2019, $2,941,429 of our loans to portfolio companies, at fair value, bear interest at floating rates and have LIBOR floors ranging from 0.0% - 3.0%. As of December 31, 2019, $591,058 of our loans to portfolio companies, at fair value, bear interest at fixed rates ranging from 1.0% - 20.5%. As of June 30, 2019, $3,294,584 of our loans to portfolio companies, at fair value, bore interest at floating rates and have LIBOR floors ranging from 0.0% - 3.0%. As of June 30, 2019, $598,720 of our loans to portfolio companies, at fair value, bore interest at fixed rates ranging from 1.0% - 20.5%.

At December 31, 2019, ten loan investments were on non-accrual status: Easy Gardener Products, Inc., Interdent (the Senior Secured Term Loan C and the Senior Secured Term Loan D), Pacific World Corporation (the Revolving Line of Credit, the Senior Secured Term Loan A and the Senior Secured Term Loan B), United Sporting Companies, Inc. (“USC”), USES Corp. (“USES,” the Senior Secured Term Loan A and the Senior Secured Term Loan B), and UTP (the Senior Secured Term Loan B). At June 30, 2019, nine loan investments were on non-accrual status: Edmentum (the Unsecured Junior PIK Note), InterDent (the Senior Secured Term Loan C and the Senior Secured Term Loan D), Pacific World Corporation (the Senior Secured Term Loan A and the Senior Secured Term Loan B), USC, USES (the Senior Secured Term Loan A and the Senior Secured Term Loan B), and UTP (the Senior Secured Term Loan B). Cost balances of these loans amounted to $475,559 and $487,356 as of December 31, 2019 and June 30, 2019, respectively. The fair value of these loans amounted to $89,421 and $167,833 as of December 31, 2019 and June 30, 2019, respectively. The fair values of these investments represent approximately 1.6% and 2.9% of our total assets at fair value as of December 31, 2019 and June 30, 2019, respectively.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)

(in thousands, except share and per share data)

Undrawn committed revolvers and delayed draw term loans to our portfolio companies incur commitment and unused fees ranging from 0.00% to 5.00%. As of December 31, 2019 and June 30, 2019, we had $25,111 and $23,375, respectively, of undrawn revolver and delayed draw term loan commitments to our portfolio companies. The fair value of our undrawn committed revolvers and delayed draw term loans was zero as of December 31, 2019 and June 30, 2019.

We have guaranteed $2,487 in standby letters of credit issued through a financial intermediary and $2,919 of equipment lease obligations on behalf of InterDent, Inc. (“InterDent”) as of December 31, 2019. Under these arrangements, we would be required to make payments to the financial intermediary or equipment lease provider, respectively, if InterDent was to default on their related payment obligations. As of December 31, 2019, we have not recorded a liability on the statement of assets and liabilities for these guarantees as the likelihood of default on the standby letters of credit or equipment lease is deemed to be remote.

Unconsolidated Significant Subsidiaries

Our investments are generally in small and mid-sized companies in a variety of industries. In accordance with Regulation S-X 3-09 and Regulation S-X 4-08(g), we must determine which of our unconsolidated controlled portfolio companies are considered “significant subsidiaries,” if any. In evaluating these investments, there are three tests utilized to determine if any of our controlled investments are considered significant subsidiaries: the asset test, the income test and the investment test. Regulation S-X 3-09 requires separate audited financial statements of an unconsolidated subsidiary in an annual report if any of the three tests exceed 20%. Regulation S-X 4-08(g) requires summarized financial information in an annual report if any of the three tests exceeds 10%.

Pursuant to Regulation S-X 10-01(b), Interim Financial Statements, summarized interim income statement information is required for an unconsolidated subsidiary within a quarterly report if the unconsolidated subsidiary would otherwise require separate audited financial statements within an annual report pursuant to Regulation S-X 3-09.

CP Energy Services Inc. (“CP Energy”) is a significant subsidiary due to income for the six months ended December 31, 2019. The following table shows summarized income statement information for CP Energy for the periods included in this quarterly report:

One Month Ended October 31, Three Months Ended December 31, Four Months Ended October 31, Six Months Ended December 31,
Summary Statement of Operations 2019 2018 2019 2018
Total revenue $ 3,259 $ 13,143 $ 16,448 $ 33,530
Cost of sales 2,635 10,964 12,788 24,778
Operating expenses 668 3,230 2,941 5,354
Other expenses (including tax expense) 1,859 6,453 9,320 13,519
Net loss $ (1,903 ) $ (7,504 ) $ (8,601 ) $ (10,121 )

Credit Central Loan Company, LLC (“Credit Central”) is a significant subsidiary due to income for the six months ended December 31, 2019. The following table shows summarized income statement information for Credit Central for the periods included in this quarterly report:

Three Months Ended December 31, Six Months Ended December 31,
Summary Statement of Operations 2019 2018 2019 2018
Total revenue $ 19,614 $ 19,907 $ 38,471 $ 38,802
Cost of sales 7,199 6,356 12,806 11,492
Operating expenses 10,882 11,677 23,283 23,597
Net income $ 1,533 $ 1,874 $ 2,382 $ 3,713

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)

(in thousands, except share and per share data)

First Tower Finance Company LLC (“First Tower Finance”), which was a significant subsidiary due to income for our fiscal years ending June 30, 2019 and June 30, 2018, is a significant subsidiary due to income for the six months ended December 31, 2019. The following table shows summarized income statement information for First Tower Finance for the periods included in this quarterly report:

Two Months Ended November 30, Three Months Ended December 31, Five Months Ended November 30, Six Months Ended December 31,
Summary Statement of Operations 2019 2018 2019 2018
Total revenue $ 47,046 $ 72,445 $ 116,235 $ 139,062
Total expenses 11,987 22,965 27,924 37,722
Loss before income tax 34,996 52,592 89,544 105,382
Income tax (38 ) (88 ) (20 ) (38 )
Net income (loss) $ 101 $ (3,024 ) $ (1,213 ) $ (4,004 )

InterDent, Inc. (“InterDent”) is a significant subsidiary due to income for the six months ended December 31, 2019. The following table shows summarized income statement information for InterDent for the periods included in this quarterly report:

Three Months Ended December 31, Six Months Ended December 31,
Summary Statement of Operations 2019 2018 2019 2018
Total revenue $ 73,297 $ 73,393 $ 146,570 $ 153,005
Cost of sales 56,076 54,078 107,957 108,675
Operating expenses 20,221 25,683 44,372 52,278
Other expenses (including tax expense) 8,145 5,574 16,492 13,793
Net loss $ (11,145 ) $ (11,942 ) $ (22,251 ) $ (21,739 )

MITY, Inc. (“MITY”) is a significant subsidiary due to income for the six months ended December 31, 2019. The following table shows summarized income statement information for MITY for the periods included in this quarterly report:

Three Months Ended December 31, Six Months Ended December 31,
Summary Statement of Operations 2019 2018 2019 2018
Total revenue $ 31,138 $ 33,821 $ 76,116 $ 64,632
Cost of sales 25,247 29,275 59,697 53,267
Operating expenses 5,761 4,906 12,854 9,999
Other expenses (including tax expense) 4,034 2,896 9,325 6,548
Net loss $ (3,904 ) $ (3,256 ) $ (5,760 ) $ (5,182 )

National Property REIT Corp. (“NPRC”), which was a significant subsidiary due to assets and income for our fiscal years ending June 30, 2019 and June 30, 2018, is a significant subsidiary due to assets and income for the six months ended December 31, 2019. The following table shows summarized income statement information for NPRC for the periods included in this quarterly report:

Three Months Ended December 31, Six Months Ended December 31,
Summary Statement of Operations 2019 2018 2019 2018
Total revenue $ 72,994 $ 168,614 $ 289,595 $ 269,258
Operating expenses 80,633 101,507 184,630 184,577
Operating income $ (7,639 ) $ 67,107 $ 104,965 $ 84,681
Depreciation and amortization (25,203 ) (22,901 ) (49,046 ) (41,099 )
Fair value adjustment (2,088 ) (11,641 ) (4,957 ) (19,720 )
Net (loss) income $ (34,930 ) $ 32,565 $ 50,962 $ 23,862

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)

(in thousands, except share and per share data)

Nationwide Loan Company LLC (“Nationwide”) is a significant subsidiary due to income for the six months ended December 31, 2019. The following table shows summarized income statement information for Nationwide for the periods included in this quarterly report:

Three Months Ended December 31, Six Months Ended December 31,
Summary Statement of Operations 2019 2018 2019 2018
Total revenue $ 7,864 $ 8,836 $ 16,024 $ 17,872
Total expenses 9,247 9,793 18,259 19,861
Net loss $ (1,383 ) $ (957 ) $ (2,235 ) $ (1,989 )

NMMB, Inc. (“NMMB”) is a significant subsidiary due to income for the six months ended December 31, 2019. The following table shows summarized income statement information for NMMB for the periods included in this quarterly report:

Two Months Ended November 30, Three Months Ended December 31, Five Months Ended November 30, Six Months Ended December 31,
Summary Statement of Operations 2019 2018 2019 2018
Total revenue $ 6,253 $ 11,179 $ 13,696 $ 18,760
Cost of sales 3,315 6,642 6,656 11,111
Operating expenses 1,242 2,263 3,146 4,224
Other expenses (including tax expense) 422 852 1,098 1,735
Net income $ 1,274 $ 1,422 $ 2,796 $ 1,690

Pacific World Corporation (“Pacific World”), which was a significant subsidiary due to income for our fiscal year ending June 30, 2019, is a significant subsidiary due to income for the six months ended December 31, 2019. The following table shows summarized income statement information for Pacific World for the periods included in this quarterly report:

Two Months Ended November 30, Three Months Ended December 31, Five Months Ended November 30, Six Months Ended December 31,
Summary Statement of Operations 2019 2018 2019 2018
Net Sales $ 13,403 $ 20,527 $ 31,108 $ 44,948
Cost of sales 10,818 18,076 25,412 36,376
Selling, general and administrative expenses 7,304 19,557 17,841 39,812
Interest expense 4,012 6,135 10,121 11,756
Other expense (income), net (1,012 ) 774 128 1,547
Income tax expense (benefit) 50 109 130 210
Net loss $ (7,768 ) $ (24,124 ) $ (22,524 ) $ (44,754 )

R-V Industries, Inc. (“R-V”) is a significant subsidiary due to income for the six months ended December 31, 2019. The following table shows summarized income statement information for R-V for the periods included in this quarterly report:

Three Months Ended December 31, Six Months Ended December 31,
Summary Statement of Operations 2019 2018 2019 2018
Total revenue $ 11,926 $ 12,000 $ 22,786 $ 23,061
Cost of sales 9,101 9,097 16,675 17,570
Operating expenses 2,318 2,363 4,555 4,592
Other expenses (including tax expense) 984 686 2,156 1,674
Net loss $ (477 ) $ (146 ) $ (600 ) $ (775 )

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)

(in thousands, except share and per share data)

USES Corp. (“USES”) is a significant subsidiary due to income for the six months ended December 31, 2019. The following table shows summarized income statement information for USES for the periods included in this quarterly report:

One Month Ended October 31, Three Months Ended December 31, Four Months Ended October 31, Six Months Ended December 31,
Summary Statement of Operations 2019 2018 2019 2018
Total revenue $ 4,507 $ 13,940 $ 15,818 $ 27,430
Cost of sales 3,448 12,533 13,076 25,830
Operating expenses 1,066 2,911 4,058 6,089
Other expenses (including tax expense) 1,480 9,719 7,413 18,007
Net loss $ (1,487 ) $ (11,223 ) $ (8,729 ) $ (22,496 )

Valley Electric Company, Inc. (“Valley Electric”), which was a significant subsidiary due to income for our fiscal year ending June 30, 2019, is a significant subsidiary due to income for the six months ended December 31, 2019. The following table shows summarized income statement information for Valley Electric for the periods included in this quarterly report:

Three Months Ended December 31, Six Months Ended December 31,
Summary Statement of Operations 2019 2018 2019 2018
Total revenue $ 65,500 $ 62,191 $ 134,779 $ 115,671
Cost of sales 57,315 51,375 116,984 93,262
Operating expenses 2,304 3,956 6,060 7,626
Other expenses (including tax expense) 3,845 2,005 6,035 3,879
Net income $ 2,036 $ 4,855 $ 5,700 $ 10,904

The SEC has requested comments on the proper mechanics of how the calculations related to Regulation S-X 3-09 and Regulation S-X 4-08(g) should be completed. There is currently diversity in practice for the calculations. We expect that the SEC will clarify the calculation methods in the future.

Note 4. Revolving Credit Facility

On August 29, 2014, we renegotiated our previous credit facility and closed an expanded five and a half year revolving credit facility (the “2014 Facility”). The lenders had extended commitments of $885,000 under the 2014 Facility as of June 30, 2018. The 2014 Facility included an accordion feature which allowed commitments to be increased up to $1,500,000 in the aggregate. Interest on borrowings under the 2014 Facility was one-month LIBOR plus 225 basis points. Additionally, the lenders charged a fee on the unused portion of the 2014 Facility equal to either 50 basis points if at least 35% of the credit facility was drawn or 100 basis points otherwise.

On August 1, 2018, we renegotiated the 2014 Facility and closed an expanded five and a half year revolving credit (the “2018 Facility”). The lenders had extended commitments of $1,132,500 as of June 30, 2019. The 2018 Facility included an accordion feature which allowed commitments to be increased up to $1,500,000 in the aggregate.

On September 9, 2019, we amended the 2018 Facility and closed an expanded revolving credit facility (the “2019 Facility” and collectively with the 2014 Facility and the 2018 Facility, the “Revolving Credit Facility”). The lenders had extended commitments of $1,077,500 as of December 31, 2019. The Revolving Credit Facility includes an accordion feature which allows commitments to be increased up to $1,500,000 in the aggregate. The Revolving Credit Facility Facility matures on September 9, 2024. It includes a revolving period that extends through September 9, 2023, followed by an additional one-year amortization period, with distributions allowed to Prospect after the completion of the revolving period. During such one-year amortization period, all principal payments on the pledged assets will be applied to reduce the balance. At the end of the one-year amortization period, the remaining balance will become due, if required by the lenders.

The Revolving Credit Facility contains restrictions pertaining to the geographic and industry concentrations of funded loans, maximum size of funded loans, interest rate payment frequency of funded loans, maturity dates of funded loans and minimum equity requirements. The Revolving Facility also contains certain requirements relating to portfolio performance, including required

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)

(in thousands, except share and per share data)

minimum portfolio yield and limitations on delinquencies and charge-offs, violation of which could result in the early termination of the Revolving Credit Facility. The Revolving Credit Facility also requires the maintenance of a minimum liquidity requirement. As of December 31, 2019, we were in compliance with the applicable covenants.

Interest on borrowings under the 2019 Facility is one-month LIBOR plus 220 basis points. Additionally, the lenders charge a fee on the unused portion of the credit facility equal to either 50 basis points if more than 60% of the credit facility is drawn, or 100 basis points if more than 35% and an amount less than or equal to 60% of the credit facility is drawn, or 150 basis points if an amount less than or equal to 35% of the credit facility is drawn. The 2019 Facility requires us to pledge assets as collateral in order to borrow under the credit facility.

For the six months ended December 31, 2019 and December 31, 2018, the average stated interest rate (i.e., rate in effect plus the spread) and average outstanding borrowings for the Revolving Credit Facility were as follows:

Three Months Ended December 31, Six Months Ended December 31,
2019 2018 2019 2018
Average stated interest rate 4.03 4.50 4.19 4.43
Average outstanding balance 135,359 308,424 111,565 237,283

All values are in US Dollars.

As of December 31, 2019 and June 30, 2019, we had $607,513 and $684,212, respectively, available to us for borrowing under the Revolving Credit Facility, of which $92,000 and $167,000 was outstanding as of December 31, 2019 and June 30, 2019, respectively. As of December 31, 2019, the investments, including cash and cash equivalents, used as collateral for the Revolving Credit Facility had an aggregate fair value of $1,475,727, which represents 27.3% of our total investments, including cash and cash equivalents. These assets are held and owned by PCF, a bankruptcy remote special purpose entity, and, as such, these investments are not available to our general creditors. As additional eligible investments are transferred to PCF and pledged under the Revolving Credit Facility, PCF will generate additional availability up to the current commitment amount of $1,077,500. The release of any assets from PCF requires the approval of the facility agent.

In connection with the origination and amendments of the Revolving Credit Facility, we incurred $10,904 of new fees and $7,787 were carried over for continuing participants from the previous facilities, all of which are being amortized over the term of the facility in accordance with ASC 470-50. As of December 31, 2019, $10,232 remains to be amortized and is reflected as deferred financing costs on the Consolidated Statements of Assets and Liabilities. During the six months ended December 31, 2019, $398 of fees were expensed relating to credit providers in the 2018 Facility who did not commit to the 2019 Facility.

During the three months ended December 31, 2019 and December 31, 2018, we recorded $5,552 and $6,960, respectively, of interest costs, unused fees and amortization of financing costs on the Revolving Credit Facility as interest expense. During the six months ended December 31, 2019 and December 31, 2018, we recorded $10,974 and $11,326, respectively, of interest costs, unused fees and amortization of financing costs on the Revolving Credit Facility as interest expense.

Note 5. Convertible Notes

2017 Notes

On April 16, 2012, we issued $130,000 aggregate principal amount of convertible notes that matured on October 15, 2017 (the “2017 Notes”). The 2017 Notes bore interest at a rate of 5.375% per year, payable semi-annually on April 15 and October 15 of each year, beginning October 15, 2012. Total proceeds from the issuance of the 2017 Notes, net of underwriting discounts and offering costs, were $126,035. On March 28, 2016, we repurchased $500 aggregate principal amount of the 2017 Notes at a price of 98.25, including commissions. The transaction resulted in our recognizing a $9 gain for the period ended March 31, 2016. On April 6, 2017, we repurchased $78,766 aggregate principal amount of the 2017 Notes at a price of 102.0, including commissions. The transaction resulted in our recognizing a $1,786 loss during the three months ended June 30, 2017. On October 15, 2017, we repaid the outstanding principal amount of $50,734 of the 2017 Notes, plus interest. No gain or loss was realized on the transaction.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)

(in thousands, except share and per share data)

2018 Notes

On August 14, 2012, we issued $200,000 aggregate principal amount of convertible notes that matured on March 15, 2018 (the “2018 Notes”). The 2018 Notes bore interest at a rate of 5.75% per year, payable semi-annually on March 15 and September 15 of each year, beginning March 15, 2013. Total proceeds from the issuance of the 2018 Notes, net of underwriting discounts and offering costs, were $193,600. On April 6, 2017, we repurchased $114,581 aggregate principal amount of the 2018 Notes at a price of 103.5, including commissions. The transaction resulted in our recognizing a $4,700 loss during the three months ended June 30, 2017. On March 15, 2018, we repaid the outstanding principal amount of $85,419 of the 2018 Notes, plus interest. No gain or loss was realized on the transaction.

2019 Notes

On December 21, 2012, we issued $200,000 aggregate principal amount of convertible notes that matured on January 15, 2019 (the “2019 Notes”). The 2019 Notes bore interest at a rate of 5.875% per year, payable semi-annually on January 15 and July 15 of each year, beginning July 15, 2013. Total proceeds from the issuance of the 2019 Notes, net of underwriting discounts and offering costs, were $193,600. On May 30, 2018, we repurchased $98,353 aggregate principal amount of the 2019 Notes at a price of 102.0, including commissions. The transaction resulted in our recognizing a $2,383 loss during the three months ended June 30, 2018. On January 15, 2019, we repaid the outstanding principal amount of $101,647 of the 2019 Notes, plus interest. No gain or loss was realized on the transaction.

2020 Notes

On April 11, 2014, we issued $400,000 aggregate principal amount of convertible notes that mature on April 15, 2020 (the “2020 Notes”), unless previously converted or repurchased in accordance with their terms. The 2020 Notes bear interest at a rate of 4.75% per year, payable semi-annually on April 15 and October 15 each year, beginning October 15, 2014. Total proceeds from the issuance of the 2020 Notes, net of underwriting discounts and offering costs, were $387,500. On January 30, 2015, we repurchased $8,000 aggregate principal amount of the 2020 Notes at a price of 93.0, including commissions. As a result of this transaction, we recorded a gain of $332, in the amount of the difference between the reacquisition price and the net carrying amount of the 2020 Notes, net of the proportionate amount of unamortized debt issuance cost. During the three months ended December 31, 2018, we repurchased an additional $13,500 aggregate principal amount of the 2020 Notes at a price of 99.5, including commissions. As a result of this transaction, we recorded a loss of $41, in the amount of the difference between the reacquisition price and the net carrying amount of the 2020 Notes, net of the proportionate amount of unamortized debt issuance costs. During the three months ended March 31, 2019, we repurchased an additional $129,798 aggregate principal amount of the 2020 Notes at a weighted average price of 101.4, including commission. As a result of these transactions, we recorded a net loss of $2,787 during the three months ended March 31, 2019, in the amount of the difference between the reacquisition price and the net carrying amounts of the 2020 Notes, net of the proportionate amount of unamortized debt issuance costs. During the three months ended June 30, 2019, we repurchased an additional $24,588 aggregate principal amount of the 2020 Notes at a weighted average price of $101.10, including commissions. As a result of these transactions, we recorded a net loss of $414 during the three months ended June 30, 2019, in the amount of the difference of the reacquisition price and the net carrying amounts of the 2020 Notes, net of the proportionate amount of unamortized debt issuance costs.

On June 28, 2019, we commenced a tender offer to purchase for cash any and all of the $224,114 then outstanding aggregate principal amount of the 2020 Notes (“June Tender Offer”). On July 27, 2019, $32,948 aggregate principal amount of the 2020 Notes, representing 14.7% of the previously outstanding 2020 Notes, were validly tendered and accepted. On August 12, 2019, we commenced a tender offer to purchase for cash up to $60,000 aggregate principal amount of the 2020 Notes (“August Tender Offer”). On September 10, 2019, $13,597 aggregate principal amount of the 2020 Notes, representing 7.1% of the previously outstanding 2020 Notes, were validly tendered and accepted. The June Tender Offer and August Tender Offer, resulted in our recognizing a loss of $668 during the three month ended September 30, 2019.

On September 24, 2019, we commenced a tender offer to purchase for cash up to $40,000 outstanding aggregate principal amount of the 2020 Notes (“2020 Notes September Tender Offer”). On October 23, 2019, $2,140 aggregate principal amount of the 2020 Notes, representing 1.2% of the previously outstanding 2020 Notes, were validly tendered and accepted. On November 7, 2019, we commenced a tender offer to purchase for cash up to $10,000 aggregate principal amount of the 2020 Notes (“2020 Notes November Tender Offer”). On December 7, 2019, $392 aggregate principal amount of the 2020 Notes, representing 0.2% of the previously outstanding 2020 Notes, were validly tendered and accepted. The 2020 Notes September Tender Offer and 2020 Notes November Tender Offer resulted in our recognizing a loss of $31 during the three months ended December 31, 2019.

On December 23, 2019, we commenced a tender offer to purchase for cash up to $10,000 aggregate principal amount of the 2020 Notes (“2020 Notes December Tender Offer”). The 2020 Notes December Tender Offer expired at 12:00 midnight, New York City

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(in thousands, except share and per share data)

time, on January 23, 2020 (one minute after 11:59 p.m., New York City time, on January 22, 2020) (Note 18). As of December 31, 2019, the outstanding aggregate principal amount of the 2020 Notes is $175,037.

2022 Notes

On April 11, 2017, we issued $225,000 aggregate principal amount of convertible notes that mature on July 15, 2022 (the “Original 2022 Notes”), unless previously converted or repurchased in accordance with their terms. The Original 2022 Notes bear interest at a rate of 4.95% per year, payable semi-annually on January 15 and July 15 each year, beginning July 15, 2017. Total proceeds from the issuance of the Original 2022 Notes, net of underwriting discounts and offering costs, were $218,010. On May 18, 2018, we issued an additional $103,500 aggregate principal amount of convertible notes that mature on July 15, 2022 (the “Additional 2022 Notes,” and together with the Original 2022 Notes, the “2022 Notes”), unless previously converted or repurchased in accordance with their terms. The Additional 2022 Notes were a further issuance of, and are fully fungible and rank equally in right of payment with, the Original 2022 Notes and bear interest at a rate of 4.95% per year, payable semi-annually on January 15 and July 15 each year, beginning July 15, 2018. Total proceeds from the issuance of the Additional 2022 Notes, net of underwriting discounts and offering costs, were $100,749.

On October 18, 2019, we repurchased $22,941 aggregate principal amount of the 2022 Notes at a price of 102.8 including commissions. As a result of this transaction, we recorded a loss of $1,072 in the amount of the difference between the reacquisition price and the net carrying amount of the 2022 Notes, net of the proportionate amount of unamortized debt issuance costs. On November 7, 2019, we commenced a tender offer to purchase for cash up to $50,000 aggregate principal amount of the 2022 Notes (“2022 Notes November Tender Offer”). On December 7, 2019, $13,432 aggregate principal amount of the 2022 Notes, representing 4.4% of the previously outstanding 2022 Notes, were validly tendered and accepted. The 2022 Notes November Tender Offer resulted in our recognizing a loss of $599, in the amount of the difference between the reacquisition price and the net carrying amount of the 2022 Notes, net of the proportionate amount of unamortized debt issuance costs.

On December 23, 2019, we commenced a tender offer to purchase for cash up to $25,000 aggregate principal amount of the 2022 Notes (“2022 Notes December Tender Offer”). The 2022 Notes December Tender Offer expired at 12:00 midnight, New York City time, on January 23, 2020 (one minute after 11:59 p.m., New York City time, on January 22, 2020) (Note 18). As of December 31, 2019, the outstanding aggregate principal amount of the 2022 Notes is $292,127.

2025 Notes

On March 1, 2019, we issued $175,000 aggregate principal amount of senior convertible notes that mature on March 1, 2025 (the “2025 Notes”), unless previously converted or repurchased in accordance with their terms. We granted the underwriters a 13-day over-allotment option to purchase up to an additional $26,250 aggregate principal amount of the 2025 Notes. The underwriters fully exercised the over-allotment option on March 11, 20l9 and we issued $26,250 aggregate principal amount of 2025 Notes at settlement on March 13, 2019. The 2025 Notes bear interest at a rate of 6.375% per year, payable semi-annually on March 1 and September 1 each year, beginning September 1, 2019. Total proceeds from the issuance of the 2025 Notes, net of underwriting discounts and offering costs, were $198,674. As of December 31, 2019, the outstanding aggregate principal amount of the 2025 Notes is $201,250.

Certain key terms related to the convertible features for the 2020 Notes, the 2022 Notes, and the 2025 Notes (collectively, the “Convertible Notes”) are listed below:

2020 Notes 2022 Notes 2025 Notes
Initial conversion rate(1) 80.6647 100.2305 110.7420
Initial conversion price $ 12.40 $ 9.98 $ 9.03
Conversion rate at December 31, 2019(1)(2) 80.6670 100.2305 110.7420
Conversion price at December 31, 2019(2)(3) $ 12.40 $ 9.98 $ 9.03
Last conversion price calculation date 4/11/2019 4/11/2019 3/1/2019
Dividend threshold amount (per share)(4) $ 0.110525 $ 0.083330 $ 0.060000
(1) Conversion rates denominated in shares of common stock per $1 principal amount of the Convertible Notes converted.
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(2) Represents conversion rate and conversion price, as applicable, taking into account certain de minimis adjustments that will be made on the conversion date.
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(3) The conversion price will increase only if the current monthly dividends (per share) exceed the dividend threshold amount (per share).
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(in thousands, except share and per share data)

(4) The conversion rate is increased if monthly cash dividends paid to common shares exceed the monthly dividend threshold amount, subject to adjustment. Current dividend rates are at or below the minimum dividend threshold amount for further conversion rate adjustments for all bonds.

Upon conversion, unless a holder converts after a record date for an interest payment but prior to the corresponding interest payment date, the holder will receive a separate cash payment with respect to the notes surrendered for conversion representing accrued and unpaid interest to, but not including, the conversion date. Any such payment will be made on the settlement date applicable to the relevant conversion on the Convertible Notes.

No holder of Convertible Notes will be entitled to receive shares of our common stock upon conversion to the extent (but only to the extent) that such receipt would cause such converting holder to become, directly or indirectly, a beneficial owner (within the meaning of Section 13(d) of the Securities Exchange Act of 1934 and the rules and regulations promulgated thereunder) of more than 5.0% of the shares of our common stock outstanding at such time. The 5.0% limitation shall no longer apply following the effective date of any fundamental change. We will not issue any shares in connection with the conversion or redemption of the Convertible Notes which would equal or exceed 20% of the shares outstanding at the time of the transaction in accordance with NASDAQ rules.

Subject to certain exceptions, holders may require us to repurchase, for cash, all or part of their Convertible Notes upon a fundamental change at a price equal to 100% of the principal amount of the Convertible Notes being repurchased plus any accrued and unpaid interest up to, but excluding, the fundamental change repurchase date. In addition, upon a fundamental change that constitutes a non-stock change of control we will also pay holders an amount in cash equal to the present value of all remaining interest payments (without duplication of the foregoing amounts) on such Convertible Notes through and including the maturity date.

In connection with the issuance of the Convertible Notes, we recorded a discount of $4,025 and debt issuance costs of $21,655 which are being amortized over the terms of the Convertible Notes. As of December 31, 2019, $3,557 of the original issue discount and $7,753 of the debt issuance costs remain to be amortized and are included as a reduction within Convertible Notes on the Consolidated Statement of Assets and Liabilities.

During the three months ended December 31, 2019 and December 31, 2018, we recorded $9,706 and $11,457, respectively, of interest costs and amortization of financing costs on the Convertible Notes as interest expense. During the six months ended December 31, 2019 and December 31, 2018, we recorded $20,361 and $22,892, respectively, of interest costs and amortization of financing costs on the Convertible Notes as interest expense.

Note 6. Public Notes

2023 Notes

On March 15, 2013, we issued $250,000 aggregate principal amount of unsecured notes that mature on March 15, 2023 (the “Original 2023 Notes”). The Original 2023 Notes bear interest at a rate of 5.875% per year, payable semi-annually on March 15 and September 15 of each year, beginning September 15, 2013. Total proceeds from the issuance of the Original 2023 Notes, net of underwriting discounts and offering costs, were $243,641. On June 20, 2018, we issued an additional $70,000 aggregate principal amount of unsecured notes that mature on March 15, 2023 (the “Additional 2023 Notes,” and together with the Original 2023 Notes, the “2023 Notes”). The Additional 2023 Notes were a further issuance of, and are fully fungible and rank equally in right of payment with, the Original 2023 Notes and bear interest at a rate of 5.875% per year, payable semi-annually on March 15 and September 15 of each year, beginning September 15, 2018. Total proceeds from the issuance of the Additional 2023 Notes, net of underwriting discounts, were $69,403. As of December 31, 2019, the outstanding aggregate principal amount of the 2023 Notes is $320,000.

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(in thousands, except share and per share data)

5.00% 2019 Notes

On April 7, 2014, we issued $300,000 aggregate principal amount of unsecured notes that mature on July 15, 2019 (the “5.00% 2019 Notes”). Included in the issuance is $45,000 of Prospect Capital InterNotes® that were exchanged for the 5.00% 2019 Notes. The 5.00% 2019 Notes bear interest at a rate of 5.00% per year, payable semi-annually on January 15 and July 15 of each year, beginning July 15, 2014. Total proceeds from the issuance of the 5.00% 2019 Notes, net of underwriting discounts and offering costs, were $295,998. On June 7, 2018, we commenced a tender offer to purchase for cash any and all of the $300,000 aggregate principal amount outstanding of the 5.00% 2019 Notes. On June 20, 2018, $146,464 aggregate principal amount of the 5.00% 2019 Notes, representing 48.8% of the previously outstanding 5.00% 2019 Notes, were validly tendered and accepted. The transaction resulted in our recognizing a loss of $3,705 during the three months ended June 30, 2018. On September 26, 2018, we repurchased the remaining $153,536 aggregate principal amount of the 5.00% 2019 Notes at a price of 101.645, including commissions. The transaction resulted in our recognizing a loss of $2,874 during the three months ended September 30, 2018.

2024 Notes

On December 10, 2015, we issued $160,000 aggregate principal amount of unsecured notes that mature on June 15, 2024 (the “2024 Notes”). The 2024 Notes bear interest at a rate of 6.25% per year, payable quarterly on March 15, June 15, September 15 and December 15 of each year, beginning March 15, 2016. Total proceeds from the issuance of the 2024 Notes, net of underwriting discounts and offering costs, were $155,043. On June 16, 2016, we entered into an at-the-market (“ATM”) program with FBR Capital Markets & Co. through which we could sell, by means of ATM offerings, from time to time, up to $100,000 in aggregate principal amount of our existing 2024 Notes (“Initial 2024 Notes ATM”). Following the initial 2024 Notes ATM, the aggregate principal amount of the 2024 Notes issued was $199,281 for net proceeds of $193,253, after commissions and offering costs. On July 2, 2018, we entered into a second ATM program with B. Riley FBR, Inc. and BB&T Capital Markets, and on August 31, 2018 with Comerica Securities, Inc., through which we could sell, by means of ATM offerings, up to $100,000 in aggregate principal amount of the 2024 Notes (“Second 2024 Notes ATM,” and together with the Initial 2024 Notes ATM, the “2024 Notes Follow-on Program”). The 2024 Notes are listed on the New York Stock Exchange (“NYSE”) and trade thereon under the ticker “PBB”. During the year ended June 30, 2019, we issued an additional $35,162 aggregate principal amount under the Second 2024 Notes ATM, for net proceeds of $34,855, after commissions and offering costs. As of December 31, 2019, the outstanding aggregate principal amount of the 2024 Notes is $234,443.

2028 Notes

On June 7, 2018, we issued $55,000 aggregate principal amount of unsecured notes that mature on June 15, 2028 (the “2028 Notes”). The 2028 Notes bear interest at a rate of 6.25% per year, payable quarterly on March 15, June 15, September 15, and December 15 of each year, beginning September 15, 2018. Total proceeds from the issuance of the 2028 Notes, net of underwriting discounts and offering costs were $53,119. On July 2, 2018, we entered into an ATM program with B. Riley FBR, Inc. and BB&T Capital Markets, and on August 31, 2018 with Comerica Securities, Inc., through which we could sell, by means of ATM offerings, up to $100,000 in aggregate principal amount of our existing 2028 Notes (“2028 Notes ATM” or “2028 Notes Follow-on Program”). The 2028 Notes are listed on the NYSE and trade thereon under the ticker “PBY”. During the year ended June 30, 2019, we issued an additional $15,761 aggregate principal amount under the 2028 Notes ATM, for net proceeds of $15,530, after commissions and offering costs. As of December 31, 2019, the outstanding aggregate principal amount of the 2028 Notes is $70,761.

6.375% 2024 Notes

On October 1, 2018, we issued $100,000 aggregate principal amount of unsecured notes that mature on January 15, 2024 (the “6.375% 2024 Notes”). The 6.375% 2024 Notes bear interest at a rate of 6.375% per year, payable semi-annually on January 15 and July 15 of each year, beginning January 15, 2019. Total proceeds from the issuance of the 6.375% 2024 Notes, net of underwriting discounts and offering costs, were $98,985. As of December 31, 2019, the outstanding aggregate principal amount of the 6.375% 2024 Notes is $100,000.

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(in thousands, except share and per share data)

2029 Notes

On December 5, 2018, we issued $50,000 aggregate principal amount of unsecured notes that mature on June 15, 2029 (the “2029 Notes”). The 2029 Notes bear interest at a rate of 6.875% per year, payable quarterly on March 15, June 15, September 15, and December 15 of each year, beginning March 15, 2019. Total proceeds from the issuance of the 2029 Notes, net of underwriting discounts and offering costs, were $48,057. On February 9, 2019, we entered into an ATM program with B. Riley FBR, Inc., BB&T Capital Markets, and Comerica Securities, Inc., through which we could sell, by means of ATM offerings, up to $100,000 in aggregate principal amount of our existing 2029 Notes (“2029 Notes ATM” or “2029 Notes Follow-on Program”). The 2029 Notes are listed on the NYSE and trade thereon under the ticker “PBC”. During the year ended June 30, 2019, we issued an additional $19,170 aggregate principal amount under the 2029 Notes ATM, for net proceeds of $18,523, after commissions and offering costs. As of December 31, 2019, the outstanding aggregate principal amount of the 2029 Notes is $69,170.

The 2023 Notes, the 2024 Notes, the 2028 Notes, the 6.375% 2024 Notes, and the 2029 Notes (collectively, the “Public Notes”) are direct unsecured obligations and rank equally with all of our unsecured indebtedness from time to time outstanding.

In connection with the issuance of the Public Notes we recorded a discount of $4,112 and debt issuance costs of $16,226, which are being amortized over the terms of the notes. As of December 31, 2019, $2,287 of the original issue discount and $10,509 of the debt issuance costs remain to be amortized and are included as a reduction within Public Notes on the Consolidated Statement of Assets and Liabilities.

During the three months ended December 31, 2019 and December 31, 2018, we recorded $12,829 and $11,467, respectively, of interest costs and amortization of financing costs on the Public Notes as interest expense. During the six months ended December 31, 2019 and December 31, 2018, we recorded $25,647 and $22,830, respectively, of interest costs and amortization of financing costs on the Public Notes as interest expense.

Note 7. Prospect Capital InterNotes®

On February 16, 2012, we entered into a selling agent agreement (the “Original Selling Agent Agreement”) with Incapital LLC, as purchasing agent for our issuance and sale from time to time of up to $500,000 of Prospect Capital InterNotes®, which was increased to $1,500,000 in May 2014. We sold approximately $1,454,466 in aggregate principal amount of Prospect Capital InterNotes® under the Original Selling Agent Agreement. On May 10, 2019, the Original Selling Agent Agreement was terminated, and we entered into a new selling agent agreement with Incapital LLC (the “May 2019 Selling Agent Agreement”), authorizing the issuance and sale from time to time of up to $1,000,000 of Prospect Capital InterNotes® (the “InterNotes® Offering”).

On September 16, 2019, the May 2019 Selling Agent Agreement was terminated, and we entered into a new selling agent agreement with Incapital LLC (the “Selling Agent Agreement”), authorizing the issuance and sale from time to time of up to $500,000 of Prospect Capital InterNotes® (the “InterNotes® Offering”). Additional agents may be appointed by us from time to time in connection with the InterNotes® Offering and become parties to the Selling Agent Agreement. Additional agents may be appointed by us from time to time in connection with the InterNotes® Offering and become parties to the Selling Agent Agreement.

These notes are direct unsecured obligations and rank equally with all of our unsecured indebtedness from time to time outstanding. Each series of notes will be issued by a separate trust. These notes bear interest at fixed interest rates and offer a variety of maturities no less than twelve months from the original date of issuance.

During the six months ended December 31, 2019, we issued $158,078 aggregate principal amount of Prospect Capital InterNotes® for net proceeds of $155,409. These notes were issued with stated interest rates ranging from 3.75% to 5.50% with a weighted average interest rate of 4.35%. These notes mature between July 15, 2024 and January 15, 2030. The following table summarizes the Prospect Capital InterNotes® issued during the six months ended December 31, 2019:

Tenor at<br>Origination<br>(in years) Principal<br>Amount Interest Rate<br>Range Weighted<br>Average<br>Interest Rate Maturity Date Range
5 $ 67,426 3.75%–5.00% 4.19 % July 15, 2024 – January 15, 2025
7 35,277 4.00%–5.25% 4.27 % July 15, 2026 – January 15, 2027
10 55,375 3.75%–5.50% 4.59 % July 15, 2029 – January 15, 2030
$ 158,078

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(in thousands, except share and per share data)

During the six months ended December 31, 2018, we issued $69,586 aggregate principal amount of our Prospect Capital InterNotes® for net proceeds of $68,439. These notes were issued with stated interest rates ranging from 5.00% to 6.25% with a weighted average interest rate of 5.64%. These notes mature between July 15, 2023 and November 15, 2028. The following table summarizes the Prospect Capital InterNotes® issued during the six months ended December 31, 2018:

Tenor at<br>Origination<br>(in years) Principal<br>Amount Interest Rate<br>Range Weighted<br>Average<br>Interest Rate Maturity Date Range
5 $ 33,295 5.00%-5.75% 5.29 % July 15, 2023 – January 15, 2024
7 14,718 5.50%–6.00% 5.84 % July 15, 2025 – January 15, 2026
8 385 5.75% 5.75 % July 15, 2026
10 21,188 6.00%–6.25% 6.06 % July 15, 2028 – November 15, 2028
$ 69,586

During the six months ended December 31, 2019, we redeemed, prior to maturity, $240,188 aggregate principal amount of Prospect Capital InterNotes® at par with a weighted average interest rate of 5.07% in order to replace shorter maturity debt with longer-term debt. During the six months ended December 31, 2019, we repaid $3,180 aggregate principal amount of Prospect Capital InterNotes® at par in accordance with the Survivor’s Option, as defined in the InterNotes® Offering prospectus. As a result of these transactions, we recorded a loss in the amount of the unamortized debt issuance costs. The net loss on the extinguishment of Prospect Capital InterNotes® in the six months ended December 31, 2019 was $2,279.

The following table summarizes the Prospect Capital InterNotes® outstanding as of December 31, 2019:

Tenor at<br>Origination<br>(in years) Principal<br>Amount Interest Rate<br>Range Weighted<br>Average<br>Interest Rate Maturity Date Range
5 $ 188,296 3.75% – 5.75% 4.97 % April 15, 2022 – January 15, 2025
7 94,811 4.00% – 6.00% 5.19 % July 15, 2024 – January 15, 2027
8 24,475 4.50% – 5.75% 4.67 % August 15, 2025 – July 15, 2026
10 139,528 3.75% – 6.25% 5.43 % January 15, 2024 – January 15, 2030
12 2,978 6.00% 6.00 % November 15, 2025 – December 15, 2025
15 17,063 5.25% – 6.00% 5.35 % May 15, 2028 – November 15, 2028
18 18,902 4.13% – 6.25% 5.58 % December 15, 2030 – August 15, 2031
20 3,847 5.75% – 6.00% 5.89 % November 15, 2032 – October 15, 2033
25 31,126 6.25% – 6.50% 6.39 % August 15, 2038 – May 15, 2039
30 101,383 5.50% – 6.75% 6.25 % November 15, 2042 – October 15, 2043
$ 622,409

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)

(in thousands, except share and per share data)

During the six months ended December 31, 2018, we redeemed, prior to maturity $99,432 aggregate principal amount of Prospect Capital InterNotes® at par with a weighted average interest rate of 4.86% in order to replace debt with shorter maturity dates. During the six months ended December 31, 2018, we repaid $5,419 aggregate principal amount of Prospect Capital InterNotes® at par in accordance with the Survivor’s Option, as defined in the InterNotes® Offering prospectus. As a result of these transactions, we recorded a loss in the amount of the unamortized debt issuance costs. The net loss on the extinguishment of Prospect Capital InterNotes® in the six months ended December 31, 2018 was $711.

The following table summarizes the Prospect Capital InterNotes® outstanding as of June 30, 2019:

Tenor at<br>Origination<br>(in years) Principal<br>Amount Interest Rate<br>Range Weighted<br>Average<br>Interest Rate Maturity Date Range
5 $ 283,450 4.00% – 5.75% 5.10 % July 15, 2021 - June 15, 2024
5.5 1,399 4.25% 4.25 % July 15, 2020
6.5 34,745 5.10% – 5.25% 5.24 % January 15, 2022 - May 15, 2022
7.0 83,731 4.00% – 6.00% 5.56 % January 15, 2020 - June 15, 2026
8 1,996 5.75% 5.75 % February 15, 2021
8 24,500 4.50% – 5.75% 4.67 % August 15, 2025 - July 15, 2026
10 99,529 5.50% – 7.00% 6.09 % March 15, 2022 - June 15, 2029
12 2,978 6.00% 6.00 % November 15, 2025 - December 15, 2025
15 17,077 5.25% – 6.00% 5.35 % May 15, 2028 - November 15, 2028
18 19,306 4.13% – 6.25% 5.58 % December 15, 2030 - August 15, 2031
20 3,887 5.75% – 6.00% 5.90 % November 15, 2032 - October 15, 2033
25 31,855 6.25% – 6.50% 6.39 % August 15, 2038 - May 15, 2039
30 103,246 5.50% – 6.75% 6.24 % November 15, 2042 - October 15, 2043
$ 707,699

In connection with the issuance of Prospect Capital InterNotes®, we incurred $27,696 of fees which are being amortized over the term of the notes, of which $12,457 remains to be amortized and is included as a reduction within Prospect Capital InterNotes® on the Consolidated Statement of Assets and Liabilities as of December 31, 2019.

During the three months ended December 31, 2019 and December 31, 2018, we recorded $8,972 and $10,771, respectively, of interest costs and amortization of financing costs on the Prospect Capital InterNotes® as interest expense. During the six months ended December 31, 2019 and December 31, 2018, we recorded $18,975 and $21,516, respectively, of interest costs and amortization of financing costs on the Prospect Capital InterNotes® as interest expense.

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(in thousands, except share and per share data)

Note 8. Fair Value and Maturity of Debt Outstanding

The following table shows our outstanding debt as of December 31, 2019.

Principal Outstanding Unamortized Discount & Debt Issuance Costs Net Carrying Value Fair Value(1) Effective Interest Rate
Revolving Credit Facility(2) $ 92,000 $ 10,232 $ 92,000 (3) $ 92,000 1ML+2.20% (6)
2020 Notes 175,037 583 174,454 175,914 (4) 5.79 % (7)
2022 Notes 292,127 4,975 287,152 300,353 (4) 5.68 % (7)
2025 Notes 201,250 5,752 195,498 214,818 (4) 6.63 % (7)
Convertible Notes 668,414 657,104 691,085
6.375% 2024 Notes 100,000 893 99,107 105,648 (4) 6.64 % (7)
2023 Notes 320,000 2,854 317,146 341,997 (4) 6.09 % (7)
2024 Notes 234,443 4,370 230,073 237,256 (4) 6.76 % (7)
2028 Notes 70,761 2,243 68,518 73,142 (4) 6.77 % (7)
2029 Notes 69,170 2,436 66,734 72,850 (4) 7.38 % (7)
Public Notes 794,374 781,578 830,893
Prospect Capital InterNotes® 622,409 12,457 609,952 677,900 (5) 6.19 % (8)
Total $ 2,177,197 $ 2,140,634 $ 2,291,878
(1) As permitted by ASC 825-10-25, we have not elected to value our Revolving Credit Facility, Convertible Notes, Public Notes and Prospect Capital InterNotes® at fair value. The fair value of these debt obligations are categorized as Level 2 under ASC 820 as of December 31, 2019.
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(2) The maximum draw amount of the Revolving Credit facility as of December 31, 2019 is $1,077,500.
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(3) Net Carrying Value excludes deferred financing costs associated with the Revolving Credit Facility. See Note 2 for accounting policy details.
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(4) We use available market quotes to estimate the fair value of the Convertible Notes and Public Notes.
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(5) The fair value of Prospect Capital InterNotes® is estimated by discounting remaining payments using current Treasury rates plus spread based on observable market inputs.
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(6) Represents the rate on drawn down and outstanding balances. Deferred debt issuance costs are amortized on a straight-line method over the stated life of the obligation.
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(7) The effective interest rate is equal to the effect of the stated interest, the accretion of original issue discount and amortization of debt issuance costs. For the 2024 Notes, the 2028 Notes, and the 2029 Notes, the rate presented is a combined effective interest rate of their respective original Note issuances and Note Follow-on Programs.
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(8) For the Prospect Capital InterNotes®, the rate presented is the weighted average effective interest rate. Interest expense and deferred debt issuance costs, which are amortized on a straight-line method over the stated life of the obligation which approximates level yield, are weighted against the average year-to-date principal balance.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)

(in thousands, except share and per share data)

The following table shows our outstanding debt as of June 30, 2019:

Principal Outstanding Unamortized Discount & Debt Issuance Costs Net Carrying Value Fair Value (1) Effective Interest Rate
Revolving Credit Facility(2) $ 167,000 $ 8,529 $ 167,000 (3) $ 167,000 1ML+2.20% (6)
2020 Notes 224,114 1,012 223,102 226,933 (4) 5.38 % (7)
2022 Notes 328,500 6,681 321,819 330,964 (4) 5.71 % (7)
2025 Notes 201,250 6,174 195,076 207,847 (4) 6.63 % (7)
Convertible Notes 753,864 739,997 765,744
6.375% 2024 Notes 100,000 1,020 98,980 106,747 (4) 5.29 % (7)
2023 Notes 320,000 3,270 316,730 340,314 (4) 6.09 % (7)
2024 Notes 234,443 4,746 229,697 239,788 (4) 6.74 % (7)
2028 Notes 70,761 2,303 68,458 73,025 (4) 6.72 % (7)
2029 Notes 69,170 2,487 66,683 71,245 (4) 7.38 % (7)
Public Notes 794,374 780,548 831,119
Prospect Capital InterNotes® 707,699 12,349 695,350 741,227 (5) 6.16 % (8)
Total $ 2,422,937 $ 2,382,895 $ 2,505,090
(1) As permitted by ASC 825-10-25, we have not elected to value our Revolving Credit Facility, Convertible Notes, Public Notes and Prospect Capital InterNotes® at fair value. The fair value of these debt obligations are categorized as Level 2 under ASC 820 as of June 30, 2019.
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(2) The maximum draw amount of the Revolving Credit facility as of June 30, 2019 is $1,132,500.
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(3) Net Carrying Value excludes deferred financing costs associated with the Revolving Credit Facility. See Note 2 for accounting policy details.
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(4) We use available market quotes to estimate the fair value of the Convertible Notes and Public Notes.
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(5) The fair value of Prospect Capital InterNotes® is estimated by discounting remaining payments using current Treasury rates plus spread based on observable market inputs.
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(6) Represents the rate on drawn down and outstanding balances. Deferred debt issuance costs are amortized on a straight-line method over the stated life of the obligation.
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(7) The effective interest rate is equal to the effect of the stated interest, the accretion of original issue discount and amortization of debt issuance costs. For the 2024 Notes, the 2028 Notes, and the 2029 Notes, the rate presented is a combined effective interest rate of their respective original Note issuances and Note Follow-on Programs.
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(8) For the Prospect Capital InterNotes®, the rate presented is the weighted average effective interest rate. Interest expense and deferred debt issuance costs, which are amortized on a straight-line method over the stated life of the obligation which approximates level yield, are weighted against the average year-to-date principal balance.
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The following table shows the contractual maturities of our Revolving Credit Facility, Convertible Notes, Public Notes and Prospect Capital InterNotes® as of December 31, 2019:

Payments Due by Period
Total Less than 1 Year 1 – 3 Years 3 – 5 Years After 5 Years
Revolving Credit Facility $ 92,000 — $ — $ 92,000 $ —
Convertible Notes 668,414 175,037 292,127 — 201,250
Public Notes 794,374 — — 654,443 139,931
Prospect Capital InterNotes® 622,409 — 15,634 194,550 412,225
Total Contractual Obligations $ 2,177,197 $ 175,037 $ 307,761 $ 940,993 $ 753,406

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)

(in thousands, except share and per share data)

The following table shows the contractual maturities of our Revolving Credit Facility, Convertible Notes, Public Notes and Prospect Capital InterNotes® as of June 30, 2019:

Payments Due by Period
Total Less than 1 Year 1 – 3 Years 3 – 5 Years After 5 Years
Revolving Credit Facility $ 167,000 $ — $ — $ 167,000 $ —
Convertible Notes 753,864 224,114 — 328,500 201,250
Public Notes 794,374 — — 654,443 139,931
Prospect Capital InterNotes® 707,699 4,402 188,037 189,795 325,465
Total Contractual Obligations $ 2,422,937 $ 228,516 $ 188,037 $ 1,339,738 $ 666,646

Note 9. Stock Repurchase Program, Equity Offerings, Offering Expenses, and Distributions

On August 24, 2011, our Board of Directors approved a share repurchase plan (the “Repurchase Program”) under which we may repurchase up to $100,000 of our common stock at prices below our net asset value per share. Prior to any repurchase, we are required to notify shareholders of our intention to purchase our common stock. Our last notice was delivered with our annual proxy mailing on September 19, 2019.

We did not repurchase any shares of our common stock during the six months ended December 31, 2019 and December 31, 2018. As of December 31, 2019, the approximate dollar value of shares that may yet be purchased under the Repurchase Program is $65,860.

Excluding dividend reinvestments, during the six months ended December 31, 2019 and December 31, 2018, we did not issue any shares of our common stock.

During the six months ended December 31, 2019 and December 31, 2018, we distributed approximately $132,263 and $131,531, respectively, to our stockholders. The following table summarizes our distributions declared and payable for the six months ended December 31, 2018 and December 31, 2019.

Declaration Date Record Date Payment Date Amount Per Share Amount Distributed (in thousands)
5/9/2018 7/31/2018 8/23/2018 $ 0.060 $ 21,882
5/9/2018 8/31/2018 9/20/2018 0.060 21,898
8/28/2018 9/28/2018 10/18/2018 0.060 21,914
8/28/2018 10/31/2018 11/21/2018 0.060 21,930
11/6/2018 11/30/2018 12/20/2018 0.060 21,945
11/6/2018 1/2/2019 1/24/2019 0.060 21,962
Total declared and payable for the six months ended December 31, 2018 $ 131,531
5/8/2019 7/31/2019 8/22/2019 $ 0.060 $ 22,032
5/8/2019 8/30/2019 9/19/2019 0.060 22,037
8/27/2019 9/30/2019 10/24/2019 0.060 22,042
8/27/2019 10/31/2019 11/20/2019 0.060 22,046
11/6/2019 11/29/2019 12/19/2019 0.060 22,051
11/6/2019 1/2/2020 1/23/2020 0.060 22,055
Total declared and payable for the six months ended December 31, 2019 $ 132,263

Dividends and distributions to common stockholders are recorded on the ex-dividend date. As such, the table above includes distributions with record dates during six months ended December 31, 2019 and December 31, 2018. It does not include distributions previously declared to stockholders of record on any future dates, as those amounts are not yet determinable. The following dividends were previously declared and will be recorded and payable subsequent to December 31, 2019:

• $0.06 per share for January 2020 holders of record on January 31, 2020 with a payment date of February 20, 2020.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)

(in thousands, except share and per share data)

During the six months ended December 31, 2019 and December 31, 2018, we issued 453,219 and 1,646,028 shares of our common stock, respectively, in connection with the dividend reinvestment plan.

On February 9, 2016, we amended our dividend reinvestment plan that provided for reinvestment of our dividends or distributions on behalf of our stockholders, unless a stockholder elects to receive cash, to add the ability of stockholders to purchase additional shares by making optional cash investments. Under the revised dividend reinvestment and direct stock repurchase plan, stockholders may elect to purchase additional shares through our transfer agent in the open market or in negotiated transactions.

During the six months ended December 31, 2019, Prospect officers and directors purchased 639,452 shares of our stock, or 0.17% of total outstanding shares as of December 31, 2019, both through the open market transactions and shares issued in connection with our dividend reinvestment plan.

As of December 31, 2019, we have reserved 65,686,577 shares of our common stock for issuance upon conversion of the Convertible Notes (see Note 5).

Note 10. Other Income

Other income consists of structuring fees, overriding royalty interests, revenue receipts related to net profit interests, deal deposits, administrative agent fees, and other miscellaneous and sundry cash receipts. The following table shows income from such sources during the three and six months ended December 31, 2019 and December 31, 2018.

Three Months Ended December 31, Six Months Ended December 31,
2019 2018 2019 2018
Structuring, advisory, and amendment fees $ 8,050 $ 14,339 $ 16,360 $ 18,444
Royalty and net revenue interests 9,600 2,107 12,833 3,930
Administrative agent fees 99 177 229 302
Total other income $ 17,749 $ 16,623 $ 29,422 $ 22,676

Note 11. Net Increase (Decrease) in Net Assets per Share

The following information sets forth the computation of net increase in net assets resulting from operations per share during the three and six months ended December 31, 2019 and December 31, 2018:

Three Months Ended December 31, Six Months Ended December 31,
2019 2018 2019 2018
Net (decrease) increase in net assets resulting from operations $ (11,203 ) $ (67,389 ) $ 6,862 $ 16,406
Weighted average common shares outstanding 367,459,411 365,591,722 367,349,087 365,187,429
Net (decrease) increase in net assets resulting from operations per share $ (0.03 ) $ (0.18 ) $ 0.02 $ 0.04

Note 12. Income Taxes

While our fiscal year end for financial reporting purposes is June 30 of each year, our tax year end is August 31 of each year. The information presented in this footnote is based on our tax year end for each period presented, unless otherwise specified. The tax return for the tax year ended August 31, 2019 has not been filed. Taxable income and all amounts related to taxable income for the tax year ended August 31, 2019 are estimates and will not be fully determined until the Company’s tax return is filed.

For income tax purposes, dividends paid and distributions made to shareholders are reported as ordinary income, capital gains, non-taxable return of capital, or a combination thereof. The tax character of dividends paid to shareholders during the tax years ended August 31, 2019, 2018, and 2017 were as follows:

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)

(in thousands, except share and per share data)

Tax Year Ended August 31,
2019 2018 2017
Ordinary income $ 263,773 $ 269,095 $ 359,215
Capital gain — — —
Return of capital — — —
Total dividends paid to shareholders $ 263,773 $ 269,095 $ 359,215

We generate certain types of income that may be exempt from U.S. withholding tax when distributed to non-U.S. shareholders. Under IRC Section 871(k), a RIC is permitted to designate distributions of qualified interest income and short-term capital gains as exempt from U.S. withholding tax when paid to non-U.S. shareholders with proper documentation. For the 2019 calendar year, 42.18% of our distributions as of December 31, 2019 qualified as interest related dividends which are exempt from U.S. withholding tax applicable to non-U.S. shareholders.

For the tax year ending August 31, 2020, the tax character of dividends paid to shareholders through December 31, 2019 is expected to be ordinary income. Because of the difference between our fiscal and tax year ends, the final determination of the tax character of dividends will not be made until we file our tax return for the tax year ending August 31, 2020.

Taxable income generally differs from net increase in net assets resulting from operations for financial reporting purposes due to temporary and permanent differences in the recognition of income and expenses, and generally excludes net unrealized gains or losses, as unrealized gains or losses are generally not included in taxable income until they are realized. The following reconciles the net increase in net assets resulting from operations to taxable income for the tax years ended August 31, 2019, 2018, and 2017:

Tax Year Ended August 31,
2019 2018 2017
Net increase in net assets resulting from operations $ 422,090 $ 389,732 $ 254,904
Net realized (gains) losses on investments (5,923 ) 26,762 100,765
Net unrealized (gains) on investments (111,838 ) (105,599 ) (61,939 )
Other temporary book-to-tax differences (66,859 ) (42,583 ) (32,117 )
Permanent differences 78 31 (772 )
Taxable income before deductions for distributions $ 237,548 $ 268,343 $ 260,841

Capital losses in excess of capital gains earned in a tax year may generally be carried forward and used to offset capital gains, subject to certain limitations. As of August 31, 2019, we had capital loss carryforwards of approximately $193,893 available for use in later tax years. The unused balance each year will be carried forward and utilized as gains are realized, subject to limitations. While our ability to utilize losses in the future depends upon a variety of factors that cannot be known in advance, some of the Company’s capital loss carryforwards may become permanently unavailable due to limitations by the Code.

For the tax year ended August 31, 2019, we had no cumulative taxable income in excess of cumulative distributions.

As of December 31, 2019, the cost basis of investments for tax purposes was $5,688,388 resulting in an estimated net unrealized loss of $419,843. As of December 31, 2019, the gross unrealized gains and losses were $652,130 and $1,071,973, respectively. As of June 30, 2019, the cost basis of investments for tax purposes was $5,905,269 resulting in an estimated net unrealized loss of $251,716. As of June 30, 2019, the gross unrealized gains and losses were $595,002 and $846,718, respectively. Due to the difference between our fiscal year end and tax year end, the cost basis of our investments for tax purposes as of December 31, 2019 and June 30, 2019 was calculated based on the book cost of investments as of December 31, 2019 and June 30, 2019, respectively, with cumulative book-to-tax adjustments for investments through August 31, 2019 and 2018, respectively.

In general, we may make certain adjustments to the classification of net assets as a result of permanent book-to-tax differences, which may include merger-related items, differences in the book and tax basis of certain assets and liabilities, and nondeductible federal excise taxes, among other items. During the tax year ended August 31, 2019, we decreased overdistributed net investment income by $78 and decreased capital in excess of par value by $78. During the tax year ended August 31, 2018, we decreased overdistributed net investment income by $31 and decreased capital in excess of par value by $31. Due to the difference between our fiscal and tax year end, the reclassifications for the taxable year ended August 31, 2019 is being recorded in the fiscal year ending June 30, 2020 and the reclassifications for the taxable year ended August 31, 2018 were recorded in the fiscal year ended June 30, 2019.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)

(in thousands, except share and per share data)

Note 13. Related Party Agreements and Transactions

Investment Advisory Agreement

We have entered into an investment advisory and management agreement with the Investment Adviser (the “Investment Advisory Agreement”) under which the Investment Adviser, subject to the overall supervision of our Board of Directors, manages the day-to-day operations of, and provides investment advisory services to, us. Under the terms of the Investment Advisory Agreement, the Investment Adviser: (i) determines the composition of our portfolio, the nature and timing of the changes to our portfolio and the manner of implementing such changes; (ii) identifies, evaluates and negotiates the structure of the investments we make (including performing due diligence on our prospective portfolio companies); and (iii) closes and monitors investments we make.

The Investment Adviser’s services under the Investment Advisory Agreement are not exclusive, and it is free to furnish similar services to other entities so long as its services to us are not impaired. For providing these services the Investment Adviser receives a fee from us, consisting of two components: a base management fee and an incentive fee. The base management fee is calculated at an annual rate of 2.00% on our total assets. For services currently rendered under the Investment Advisory Agreement, the base management fee is payable quarterly in arrears. The base management fee is calculated based on the average value of our gross assets at the end of the two most recently completed calendar quarters and appropriately adjusted for any share issuances or repurchases during the current calendar quarter.

The total gross base management fee incurred to the favor of the Investment Adviser was $27,543 and $33,187 during the three months ended December 31, 2019 and December 31, 2018, respectively. The total gross base management fee for three months ended December 31, 2018 included a $2,757 adjustment for fees earned in prior periods that were neither expensed nor paid to the Investment Adviser, for which we incurred $64 in accrued interest on those past due amounts. The interest on the amount owed to the Investment Adviser was calculated using the average of 1-month LIBOR rates from September 2010 through the date of payment. The total gross base management fee incurred to the favor of the Investment Advisor was $56,006 and $63,282 during the six months ended December 31, 2019 and December 31, 2018, respectively. The Investment Adviser has entered into a servicing agreement with certain institutions that purchased loans with us, where we serve as the agent and collect a servicing fee on behalf of the Investment Adviser. We receive payments from these institutions on behalf of the Investment Adviser, for providing such services under the servicing agreement. We were given a credit for these payments as a reduction of the base management fee payable by us to the Investment Adviser. We received payments of $138 from these institutions for the six months ended December 31, 2018, resulting in a net base management fee of $63,144 for the prior year to date period. There was no such adjustment in the six months ended December 31, 2019.

The incentive fee has two parts. The first part, the income incentive fee, is calculated and payable quarterly in arrears based on our pre-incentive fee net investment income for the immediately preceding calendar quarter. For this purpose, pre-incentive fee net investment income means interest income, dividend income and any other income (including any other fees (other than fees for providing managerial assistance), such as commitment, origination, structuring, diligence and consulting fees and other fees that we receive from portfolio companies) accrued during the calendar quarter, minus our operating expenses for the quarter (including the base management fee, expenses payable under the Administration Agreement described below, and any interest expense and dividends paid on any issued and outstanding preferred stock, but excluding the incentive fee). Pre-incentive fee net investment income includes, in the case of investments with a deferred interest feature (such as original issue discount, debt instruments with payment-in-kind interest and zero coupon securities), accrued income that we have not yet received in cash. Pre-incentive fee net investment income does not include any realized capital gains, realized capital losses or unrealized capital gains or losses. Pre-incentive fee net investment income, expressed as a rate of return on the value of our net assets at the end of the immediately preceding calendar quarter, is compared to a “hurdle rate” of 1.75% per quarter (7.00% annualized).

The net investment income used to calculate this part of the incentive fee is also included in the amount of the gross assets used to calculate the 2.00% base management fee. We pay the Investment Adviser an income incentive fee with respect to our pre-incentive fee net investment income in each calendar quarter as follows:

• No incentive fee in any calendar quarter in which our pre-incentive fee net investment income does not exceed the hurdle rate;
• 100.00% of our pre-incentive fee net investment income with respect to that portion of such pre-incentive fee net investment income, if any, that exceeds the hurdle rate but is less than 125.00% of the quarterly hurdle rate in any calendar quarter (8.75% annualized assuming a 7.00% annualized hurdle rate); and
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• 20.00% of the amount of our pre-incentive fee net investment income, if any, that exceeds 125.00% of the quarterly hurdle rate in any calendar quarter (8.75% annualized assuming a 7.00% annualized hurdle rate).
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PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)

(in thousands, except share and per share data)

These calculations are appropriately prorated for any period of less than three months and adjusted for any share issuances or repurchases during the current quarter.

The second part of the incentive fee, the capital gains incentive fee, is determined and payable in arrears as of the end of each calendar year (or upon termination of the Investment Advisory Agreement, as of the termination date), and equals 20.00% of our realized capital gains for the calendar year, if any, computed net of all realized capital losses and unrealized capital depreciation at the end of such year. In determining the capital gains incentive fee payable to the Investment Adviser, we calculate the aggregate realized capital gains, aggregate realized capital losses and aggregate unrealized capital depreciation, as applicable, with respect to each investment that has been in our portfolio. For the purpose of this calculation, an “investment” is defined as the total of all rights and claims which may be asserted against a portfolio company arising from our participation in the debt, equity, and other financial instruments issued by that company. Aggregate realized capital gains, if any, equal the sum of the differences between the aggregate net sales price of each investment and the aggregate amortized cost basis of such investment when sold or otherwise disposed. Aggregate realized capital losses equal the sum of the amounts by which the aggregate net sales price of each investment is less than the aggregate amortized cost basis of such investment when sold or otherwise disposed. Aggregate unrealized capital depreciation equals the sum of the differences, if negative, between the aggregate valuation of each investment and the aggregate amortized cost basis of such investment as of the applicable calendar year-end. At the end of the applicable calendar year, the amount of capital gains that serves as the basis for our calculation of the capital gains incentive fee involves netting aggregate realized capital gains against aggregate realized capital losses on a since-inception basis and then reducing this amount by the aggregate unrealized capital depreciation. If this number is positive, then the capital gains incentive fee payable is equal to 20.00% of such amount, less the aggregate amount of any capital gains incentive fees paid since inception.

The total income incentive fee incurred was $16,971 and $20,203 during the three months ended December 31, 2019 and December 31, 2018, respectively. The fees incurred for the six months ended December 31, 2019 and December 31, 2018 were $34,736 and $41,493, respectively. No capital gains incentive fee was incurred during the three or six months ended December 31, 2019 and December 31, 2018.

Administration Agreement

We have also entered into an administration agreement (the “Administration Agreement”) with Prospect Administration under which Prospect Administration, among other things, provides (or arranges for the provision of) administrative services and facilities for us. For providing these services, we reimburse Prospect Administration for our allocable portion of overhead incurred by Prospect Administration in performing its obligations under the Administration Agreement, including rent and our allocable portion of the costs of our Chief Financial Officer and Chief Compliance Officer and her staff, including the internal legal staff. Under this agreement, Prospect Administration furnishes us with office facilities, equipment and clerical, bookkeeping and record keeping services at such facilities. Prospect Administration also performs, or oversees the performance of, our required administrative services, which include, among other things, being responsible for the financial records that we are required to maintain and preparing reports to our stockholders and reports filed with the SEC. In addition, Prospect Administration assists us in determining and publishing our net asset value, overseeing the preparation and filing of our tax returns and the printing and dissemination of reports to our stockholders, and generally oversees the payment of our expenses and the performance of administrative and professional services rendered to us by others. Under the Administration Agreement, Prospect Administration also provides on our behalf managerial assistance to those portfolio companies to which we are required to provide such assistance (see Managerial Assistance section below). The Administration Agreement may be terminated by either party without penalty upon 60 days’ written notice to the other party. Prospect Administration is a wholly owned subsidiary of the Investment Adviser.

The Administration Agreement provides that, absent willful misfeasance, bad faith or negligence in the performance of its duties or by reason of the reckless disregard of its duties and obligations, Prospect Administration and its officers, managers, partners, agents, employees, controlling persons, members and any other person or entity affiliated with it are entitled to indemnification from us for any damages, liabilities, costs and expenses (including reasonable attorneys’ fees and amounts reasonably paid in settlement) arising from the rendering of Prospect Administration’s services under the Administration Agreement or otherwise as administrator for us. Our payments to Prospect Administration are reviewed quarterly by our Board of Directors.

The allocation of net overhead expense from Prospect Administration was $6,011 and $5,642 for the three months ended December 31, 2019 and December 31, 2018, respectively.

The allocation of net overhead expense from Prospect Administration was $9,505 and $9,007 for the six months ended December 31, 2019 and December 31, 2018, respectively. Prospect Administration received estimated payments of $584 directly from our portfolio companies, and certain funds managed by the Investment Adviser for legal services during the six months ended December 31, 2019. No such payments were received during the six months ended December 31, 2018. We were given a credit for these

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)

(in thousands, except share and per share data)

payments as a reduction of the administrative services cost payable by us to Prospect Administration. Had Prospect Administration not received these payments, Prospect Administration’s charges for its administrative services would have increased by this amount.

Managerial Assistance

As a BDC, we are obligated under the 1940 Act to make available to certain of our portfolio companies significant managerial assistance. “Making available significant managerial assistance” refers to any arrangement whereby we provide significant guidance and counsel concerning the management, operations, or business objectives and policies of a portfolio company. We are also deemed to be providing managerial assistance to all portfolio companies that we control, either by ourselves or in conjunction with others. The nature and extent of significant managerial assistance provided by us to controlled and non-controlled portfolio companies will vary according to the particular needs of each portfolio company. Examples of such activities include (i) advice on recruiting, hiring, management and termination of employees, officers and directors, succession planning and other human resource matters; (ii) advice on capital raising, capital budgeting, and capital expenditures; (iii) advice on advertising, marketing, and sales; (iv) advice on fulfillment, operations, and execution; (v) advice on managing relationships with unions and other personnel organizations, financing sources, vendors, customers, lessors, lessees, lawyers, accountants, regulators and other important counterparties; (vi) evaluating acquisition and divestiture opportunities, plant expansions and closings, and market expansions; (vii) participating in audit committee, nominating committee, board and management meetings; (viii) consulting with and advising board members and officers of portfolio companies (on overall strategy and other matters); and (ix) providing other organizational, operational, managerial and financial guidance.

Prospect Administration, when performing a managerial assistance agreement executed with each portfolio company to which we provide managerial assistance, arranges for the provision of such managerial assistance on our behalf. When doing so, Prospect Administration utilizes personnel of our Investment Adviser. We, on behalf of Prospect Administration, invoice portfolio companies receiving and paying for managerial assistance, and we remit to Prospect Administration its cost of providing such services, including the charges deemed appropriate by our Investment Adviser for providing such managerial assistance. No income is recognized by Prospect.

During the three months ended December 31, 2019 and December 31, 2018, we received payments of $600 and $2,994, respectively, from our portfolio companies for managerial assistance and subsequently remitted these amounts to Prospect Administration. During the six months ended December 31, 2019 and December 31, 2018, we received payments of $1,300 and $4,947, respectively, from our portfolio companies for managerial assistance and subsequently remitted these amounts to Prospect Administration.

Co-Investments

On January 13, 2020, we received an exemptive order from the SEC (the “Order”), which superseded a prior co-investment exemptive order granted on February 10, 2014, that gave us the ability to negotiate terms other than price and quantity of co-investment transactions with other funds managed or owned by the Investment Adviser or certain affiliates, including Priority Income Fund, Inc. and TP Flexible Income Fund, Inc.,where co-investing would otherwise be prohibited under the 1940 Act, subject to the conditions included therein.

Under the terms of the Order, a “required majority” (as defined in Section 57(o) of the 1940 Act) of our independent directors must make certain conclusions in connection with a co-investment transaction, including that (1) the terms of the proposed transaction, including the consideration to be paid, are reasonable and fair to us and our stockholders and do not involve overreaching of us or our stockholders on the part of any person concerned and (2) the transaction is consistent with the interests of our stockholders and is consistent with our investment objective and strategies. In certain situations where a co-investment with one or more funds managed or owned by the Investment Adviser or its affiliates is not covered by the Order, such as when there is an opportunity to invest in different securities of the same issuer, the personnel of the Investment Adviser or its affiliates will need to decide which fund will proceed with the investment. Such personnel will make these determinations based on policies and procedures, which are designed to reasonably ensure that investment opportunities are allocated fairly and equitably among affiliated funds over time and in a manner that is consistent with applicable laws, rules and regulations. Moreover, except in certain circumstances, when relying on the Order, we will be unable to invest in any issuer in which one or more funds managed or owned by the Investment Adviser or its affiliates has previously invested.

We reimburse CLO investment valuation services fees initially incurred by Priority Income Fund, Inc. During the three months ended December 31, 2019 and December 31, 2018, we recognized expenses that were reimbursed for valuation services of $39 and $51, respectively. During the six months ended December 31, 2019 and December 31, 2018, we recognized expenses that were reimbursed for valuation services of $87 and $103, respectively. Conversely, Priority Income Fund, Inc. and TP Flexible Income Fund, Inc. reimburse us for software fees, expenses which were initially incurred by Prospect. As of December 31, 2019

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)

(in thousands, except share and per share data)

and June 30, 2019, we accrued a receivable from Priority Income Fund, Inc. and TP Flexible Income Fund, Inc. for software fees of $37 and $32, respectively, which will be reimbursed to us.

Note 14. Transactions with Controlled Companies

The descriptions below detail the transactions which Prospect Capital Corporation (“Prospect”) has entered into with each of our controlled companies. Certain of the controlled entities discussed below were consolidated effective July 1, 2014 (see Note 1). As such, transactions with these Consolidated Holding Companies are presented on a consolidated basis.

Arctic Energy Services, LLC

Prospect owned 100% of the equity of Arctic Oilfield Equipment USA, Inc. (“Arctic Equipment”), a Consolidated Holding Company. Arctic Equipment owns 70% of the equity of Arctic Energy Services, LLC (“Arctic Energy”), with Ailport Holdings, LLC (“Ailport”) (100% owned and controlled by Arctic Energy management) owning the remaining 30% of the equity of Arctic Energy. Arctic Energy provides oilfield service personnel, well testing flowback equipment, frac support systems and other services to exploration and development companies in the Rocky Mountains. As of June 30, 2017, we reported Arctic Energy as a separate controlled company. On April 6, 2018, Arctic Equipment merged with CP Energy Services, Inc. (“CP Energy”) and our equity interest was exchanged for newly issued common shares of CP Energy. Refer to discussion on CP Energy ownership below.

CCPI Inc.

Prospect owns 100% of the equity of CCPI Holdings Inc. (“CCPI Holdings”), a Consolidated Holding Company. CCPI Holdings held 94.59% of the equity of CCPI Inc. (“CCPI”) as of June 30, 2018, with CCPI management owning the remaining 5.41% of the equity. CCPI owns 100% of each of CCPI Europe Ltd. and MEFEC B.V., and 45% of Gulf Temperature Sensors W.L.L. On March 1, 2019, we converted the $2,797 Senior Secured Term Loan A and the $17,566 Senior Secured Term Loan B to preferred equity and subsequently sold our $6,759 common equity interest in CCPI, Inc. and our new $20,363 preferred shares. We recorded a realized gain of $12,105 on the sale of our equity position in CCPI, Inc. In addition, there is $2,364 being held in escrow that is due to us, which will be recognized as an additional realized gain when received.

Three Months Ended Six Months Ended
December 31, 2019 December 31, 2018 December 31, 2019 December 31, 2018
Interest Income $ — $ 909 $ — $ 1,823
Other Income
Advisory Fee — — — 1,301
Total Other Income $ — $ — $ — $ 1,301
Managerial Assistance (1) $ — $ 69 $ — $ 129
Reimbursement of Legal, Tax, etc.(2) — — 54 —

(1) No income recognized by Prospect. MA payments were paid from CCPI to Prospect and subsequently remitted to PA.

(2) Paid from CCPI to PA as reimbursement for legal, tax, and portfolio level accounting services provided directly to CCPI (No direct income recognized by Prospect, but we were given a credit for these payments as a reduction to the administrative services payable by Prospect to PA).

Three Months Ended Six Months Ended
December 31, 2019 December 31, 2018 December 31, 2019 December 31, 2018
Repayment of loan receivable $ — $ 114 $ — $ 337

CP Energy Services Inc.

Prospect owns 100% of the equity of CP Holdings of Delaware LLC (“CP Holdings”), a Consolidated Holding Company. CP Holdings owns 99.8% of the equity of CP Energy Services, Inc. (“CP Energy”), and the remaining equity is owned by CP Energy management. CP Energy owns directly or indirectly 100% of each of CP Well; Wright Foster Disposals, LLC; Foster Testing Co., Inc.; ProHaul Transports, LLC; and Wright Trucking, Inc. CP Energy provides oilfield flowback services and fluid hauling and disposal services through its subsidiaries.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)

(in thousands, except share and per share data)

On October 1, 2017, we restructured our investment in CP Energy. Concurrent with the restructuring, we exchanged $35,048 of Series B Convertible Preferred Stock for $35,048 of senior secured debt. We received $228 of an advisory fee related to the above transaction, which we recognized as other income.

On January 18, 2018, CP Energy redeemed common shares belonging to senior management, which increased our ownership percentage from 82.3% to 94.2% as of March 31, 2018.

On April 6, 2018, Arctic Oilfield Equipment USA, Inc. (“Arctic Equipment”), a previously controlled portfolio company, merged with and into CP Energy, with CP Energy continuing as the surviving corporation. On the date of the merger, our common equity investment cost in the amount of $60,876 in Arctic Equipment was exchanged for newly issued common shares of CP Energy. As a result of this merger between these controlled portfolio companies, our equity ownership percentage in CP Energy increased to 99.8%. There were no realized gain or loss recognized by us since this was a merger amongst two portfolio companies under our control.

In June 2019, CP Energy purchased a controlling interest in the common equity of Spartan Energy Holdings, Inc. (“Spartan Holdings”), which owns 100% of Spartan Energy Services, LLC (“Spartan”) a portfolio company of Prospect with $34,399 in senior secured term loans (the “Spartan Term Loans”) due to us as of June 30, 2019. As a result of CP Energy’s purchase, and given Prospect’s controlling interest in CP Energy, our Spartan Term Loans are presented as control investments under CP Energy beginning June 30, 2019. Spartan remains the direct borrow and guarantor to Prospect for the Spartan Term Loans.

In December 2019, Wolf Energy Holdings, Inc. (“Wolf Energy Holdings”), our Consolidated Holding Company that previously owned 100% of Appalachian Energy LLC (“AEH”); Wolf Energy Services Company, LLC (Wolf Energy Services”); and Wolf Energy, LLC (collectively our previously controlled membership interest and net profit interest investments in “Wolf Energy”), merged with and into CP Energy, with CP Energy continuing as the surviving entity. CP Energy acquired 100% of our equity investment in Wolf Energy, which is reflected in our valuation of the CP Energy common stock as of December 31, 2019.

Three Months Ended Six Months Ended
December 31, 2019 December 31, 2018 December 31, 2019 December 31, 2018
Interest Income
Interest Income from CP Energy $ 1,174 $ 1,200 $ 2,367 $ 2,395
Interest Income from Spartan 1,252 — 2,503 —
Total Interest Income $ 2,426 $ 1,200 $ 4,870 $ 2,395
Managerial Assistance (1) $ — $ 300 $ 150 $ 300

(1) No income recognized by Prospect. MA payments were paid from CP Energy to Prospect and subsequently remitted to PA.

Three Months Ended Six Months Ended
December 31, 2019 December 31, 2018 December 31, 2019 December 31, 2018
Additions $ 5,039 $ — $ 5,039 $ —
Interest Income Capitalized as PIK 921 — 2,119 — As of
--- --- --- --- ---
December 31, 2019 June 30, 2019
Interest Receivable (2) $ 1,201 $ 1,624
Other Receivables - Due to PA (3) — 150
Other Receivables (4) 14 35

(2) Interest income recognized but not yet paid.

(3) Managerial assistance recognized but not yet paid by CP Energy and is included by Prospect within Other Receivable and Due to PA.

(4) Represents amounts due from CP Energy and Spartan to Prospect for reimbursement of expenses paid by Prospect on behalf of CP Energy and Spartan.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)

(in thousands, except share and per share data)

Credit Central Loan Company, LLC

Prospect owns 100% of the equity of Credit Central Holdings of Delaware, LLC (“Credit Central Delaware”), a Consolidated Holding Company. Credit Central Delaware owns 98.63% of the equity of Credit Central Loan Company, LLC (f/k/a Credit Central Holdings, LLC) (“Credit Central”), with entities owned by Credit Central management owning the remaining equity. Credit Central owns 100% of each of Credit Central, LLC; Credit Central South, LLC; Credit Central of Texas, LLC; and Credit Central of Tennessee, LLC. Credit Central is a branch-based provider of installment loans.

Three Months Ended Six Months Ended
December 31, 2019 December 31, 2018 December 31, 2019 December 31, 2018
Interest Income $ 2,986 $ 2,733 $ 5,967 $ 6,232
Other Income
Structuring Fee $ — $ — $ 112 $ —
Total Other Income $ — $ — $ 112 $ —
Managerial Assistance (1) $ — $ 175 $ — $ 350
Reimbursement of Legal, Tax, etc.(2) — — 7 —

(1) No income recognized by Prospect. MA payments were paid from Credit Central to Prospect and subsequently remitted to PA.

(2) Paid from Credit Central to PA as reimbursement for legal, tax, and portfolio level accounting services provided directly to Credit Central (No direct income recognized by Prospect, but we were given a credit for these payments as a reduction to the administrative services payable by Prospect to PA).

Three Months Ended Six Months Ended
December 31, 2019 December 31, 2018 December 31, 2019 December 31, 2018
Additions (3) $ — $ — $ 5,600 $ —
Accreted Original Issue Discount 80 60 153 908
Interest Income Capitalized as PIK — 1,775 963 1,775

(3) During the three months ended September 30, 2019, Prospect provided $5,600 of equity financing to support growth in Credit Central’s loan portfolio.

As of
December 31, 2019 June 30, 2019
Interest Receivable (4) $ 32 $ 963
Other Receivables - Due to PA (5) — 175

(4) Interest income recognized but not yet paid.

(5) Managerial assistance recognized but not yet paid by Credit Central and is included by Prospect within Other Receivable and Due to PA.

Echelon Transportation LLC (f/k/a Echelon Aviation LLC)

Prospect owns 100% of the membership interests of Echelon Transportation LLC (“Echelon”). Echelon owns 60.7% of the equity of AerLift Leasing Limited (“AerLift”).

Three Months Ended Six Months Ended
December 31, 2019 December 31, 2018 December 31, 2019 December 31, 2018
Interest Income $ 2,053 $ 1,725 $ 4,074 $ 3,383
Managerial Assistance (1) — 125 — 125
Reimbursement of Legal, Tax, etc.(2) — 735 — 735

(1) No income recognized by Prospect. MA payments were paid from Echelon to Prospect and subsequently remitted to PA.

(2) Paid from Echelon to PA as reimbursement for legal, tax, and portfolio level accounting services provided directly to Echelon (No direct income recognized by Prospect, but we were given a credit for these payments as a reduction to the administrative services payable by Prospect to PA).

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)

(in thousands, except share and per share data)

Three Months Ended Six Months Ended
December 31, 2019 December 31, 2018 December 31, 2019 December 31, 2018
Additions (3) $ — $ — $ 500 $ —
Interest Income Capitalized as PIK — — 3,774 2,125

(3) During the six months ended December 31, 2019, Prospect made a follow-on $500 first lien senior secured debt.

As of
December 31, 2019 June 30, 2019
Interest Receivable (4) $ 3,437 $ 3,162
Other Receivables - Due to PA (5) — 63
Other Receivables (6) 5 3

(4) Interest income recognized but not yet paid.

(5) Managerial assistance recognized but not yet paid by Echelon and is included by Prospect within Other Receivable and Due to PA.

(6) Represents amounts due from Echelon to Prospect for reimbursement of expenses paid by Prospect on behalf of Echelon.

Energy Solutions Holdings Inc.

Prospect owns 100% of the equity of Energy Solutions Holdings Inc. (f/k/a Gas Solutions Holdings Inc.) (“Energy Solutions”), a Consolidated Holding Company. Energy Solutions owns 100% of each of Change Clean Energy Company, LLC (f/k/a Change Clean Energy Holdings, LLC) (“Change Clean”); Freedom Marine Solutions, LLC (f/k/a Freedom Marine Services Holdings, LLC) (“Freedom Marine”); and Yatesville Coal Company, LLC (f/k/a Yatesville Coal Holdings, LLC) (“Yatesville”). Change Clean owns 100% of each of Change Clean Energy, LLC and Down East Power Company, LLC, and 50.1% of BioChips LLC. Freedom Marine owns 100% of each of Vessel Company, LLC (f/k/a Vessel Holdings, LLC) (“Vessel”); Vessel Company II, LLC (f/k/a Vessel Holdings II, LLC) (“Vessel II”); and Vessel Company III, LLC (f/k/a Vessel Holdings III, LLC) (“Vessel III”). Yatesville owns 100% of North Fork Collieries, LLC.

Energy Solutions owns interests in companies operating in the energy sector. These include companies operating offshore supply vessels, ownership of a non-operating biomass electrical generation plant and several coal mines. Energy Solutions subsidiaries formerly owned interests in gathering and processing business in east Texas.

Transactions between Prospect and Freedom Marine are separately discussed below under “Freedom Marine Solutions, LLC.”

First Tower Finance Company LLC

Prospect owns 100% of the equity of First Tower Holdings of Delaware LLC (“First Tower Delaware”), a Consolidated Holding Company. First Tower Delaware owns 80.1% of First Tower Finance Company LLC (f/k/a First Tower Holdings LLC) (“First Tower Finance”). First Tower Finance owns 100% of First Tower, LLC (“First Tower”), a multiline specialty finance company.

Three Months Ended Six Months Ended
December 31, 2019 December 31, 2018 December 31, 2019 December 31, 2018
Interest Income $ 14,570 $ 13,917 $ 29,207 $ 27,879
Managerial Assistance (1) 600 1,200 1,200 1,200
Reimbursement of Legal, Tax, etc. (2) — — 1 —

(1) No income recognized by Prospect. MA payments were paid from First Tower to Prospect and subsequently remitted to PA.

(2) Paid from First Tower to PA as reimbursement for legal, tax, and portfolio level accounting services provided directly to First Tower (No direct income recognized by Prospect, but we were given a credit for these payments as a reduction to the administrative services payable by Prospect to PA).

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)

(in thousands, except share and per share data)

Three Months Ended Six Months Ended
December 31, 2019 December 31, 2018 December 31, 2019 December 31, 2018
Interest Income Capitalized as PIK $ 183 $ 324 $ 2,849 $ 1,582
Repayment of loan receivable 239 324 2,273 2,478 As of
--- --- --- --- ---
December 31, 2019 June 30, 2019
Interest Receivable (3) $ 77 $ 4,897
Other Receivables (4) 3 7

(3) Interest income recognized but not yet paid.

(4) Represents amounts due from Credit Central to Prospect for reimbursement of expenses paid by Prospect on behalf of Credit Central.

Freedom Marine Solutions, LLC

As discussed above, Prospect owns 100% of the equity of Energy Solutions, a Consolidated Holding Company. Energy Solutions owns 100% of Freedom Marine. Freedom Marine owns 100% of each of Vessel, Vessel II, and Vessel III.

During the year ended June 30, 2018, Prospect purchased an additional $982 in membership interests in Freedom Marine to support its ongoing operations and liquidity needs.

During the year ended June 30, 2019, Prospect purchased an additional $300 in membership interests in Freedom Marine to

support its ongoing operations and liquidity needs.

As of
December 31, 2019 June 30, 2019
Other Receivables (1) $ — $ 1,125

(1) Represents amounts due from Freedom Marine to Prospect for reimbursement of expenses paid by Prospect on behalf of Freedom Marine.

InterDent, Inc.

Following our assumption of assuming control, Prospect exercised its rights and remedies under its loan documents to exercise the shareholder voting rights in respect of the stock of InterDent, Inc. (“InterDent”) and to appoint a new Board of Directors of InterDent, all the members of which are our Investment Adviser’s professionals. As a result, as of June 30, 2018, Prospect’s investment in InterDent is classified as a control investment.

During the six months ended December 31, 2018, Prospect purchased $14,000 of first lien Senior Secured Term Loan A/B from a third-party. In addition, Prospect purchased $5,000 of first lien Senior Secured Term Loan D and transferred $31,558 from Senior Secured Term Loan B to Senior Secured Term Loan C.

On May 3, 2019 Prospect executed warrants to purchase 99.9% of the 100,000 shares of common stock outstanding of

InterDent Inc. at a purchase price of $0.01 per share.

Three Months Ended Six Months Ended
December 31, 2019 December 31, 2018 December 31, 2019 December 31, 2018
Interest Income $ 4,757 $ 5,809 $ 9,416 $ 12,630

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PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)

(in thousands, except share and per share data)

Three Months Ended Six Months Ended
December 31, 2019 December 31, 2018 December 31, 2019 December 31, 2018
Additions (1) $ — $ — $ — $ 19,000
Interest Income Capitalized as PIK 3,045 4,307 6,077 8,457

(1) During the six months ended December 31, 2018, Prospect purchased $14,000 of first lien Senior Secured Term Loan A/B from a third-party. In addition, Prospect purchased $5,000 of first lien Senior Secured Term Loan D and transferred $31,558 from Senior Secured Term Loan B to Senior Secured Term Loan C.

As of
December 31, 2019 June 30, 2019
Interest Receivable (2) $ 53 $ 209
Other Receivables (3) 1 6

(2) Interest income recognized but not yet paid.

(3) Represents amounts due from InterDent to Prospect for reimbursement of expenses paid by Prospect on behalf of InterDent.

Kickapoo Ranch Pet Resort

Prospect owns 100% of the Membership Interest of Kickapoo Ranch Pet Resort (“Kickapoo”). Kickapoo is a luxury pet boarding facility.

During the six months ended December 31, 2019, we provided $2,378 of equity financing to Kickapoo.

MITY, Inc.

Prospect owns 100% of the equity of MITY Holdings of Delaware Inc. (“MITY Delaware”), a Consolidated Holding Company.

As of June 30, 2018, MITY Delaware owns 95.58% of the equity of MITY, Inc. (f/k/a MITY Enterprises, Inc.) (“MITY”). Effective March 13, 2019, MITY Delaware’s equity ownership of MITY increased to 100%. MITY owns 100% of each of MITY-Lite, Inc. (“MITY-Lite”); Broda USA, Inc. (f/k/a Broda Enterprises USA, Inc.) (“Broda USA”); and Broda Enterprises ULC (“Broda Canada”). MITY is a designer, manufacturer and seller of multipurpose room furniture and specialty healthcare seating products.

During the three months ended December 31, 2016, Prospect formed a separate legal entity, MITY FSC, Inc., (“MITY FSC”) in which Prospect owns 100% of the equity. MITY FSC does not have material operations. This entity earns commission payments from MITY-Lite based on its sales to foreign customers, and distributes it to Prospect as its shareholder. We recognize such commission, if any, as other income.

Three Months Ended Six Months Ended
December 31, 2019 December 31, 2018 December 31, 2019 December 31, 2018
Interest Income
Interest Income from MITY-Lite $ 2,103 $ 1,952 $ 4,169 $ 3,876
Interest Income from Broda Canada 146 143 289 287
Total Interest Income $ 2,249 $ 2,095 $ 4,458 $ 4,163
Other Income
Advisory Fee $ 293 $ — $ 293 $ 201
Managerial Assistance (1) — 75 — 150

(1) No income recognized by Prospect. MA payments were paid from MITY to Prospect and subsequently remitted to PA.

Three Months Ended Six Months Ended
December 31, 2019 December 31, 2018 December 31, 2019 December 31, 2018
Interest Income Capitalized as PIK $ 788 $ 845 $ 1,801 $ 1,056
Repayment of loan receivable 146 — 289 —

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)

(in thousands, except share and per share data)

As of
December 31, 2019 June 30, 2019
Interest Receivable (3) $ 25 $ 252
Other Receivables - Due to PA (4) — 75
Other Receivables (5) 1 1

(3) Interest income recognized but not yet paid.

(4) Managerial assistance recognized but not yet paid by MITY and is included by Prospect within Other Receivable and Due to PA.

(5) Represents amounts due from MITY to Prospect for reimbursement of expenses paid by Prospect on behalf of MITY.

National Property REIT Corp.

Prospect owns 100% of the equity of NPH, a Consolidated Holding Company. NPH owns 100% of the common equity of NPRC. Effective May 23, 2016, in connection with the merger of APRC and UPRC with and into NPRC, APH and UPH merged with and into NPH, and were dissolved.

NPRC is a Maryland corporation and a qualified REIT for federal income tax purposes. In order to qualify as a REIT, NPRC issued 125 shares of Series A Cumulative Non-Voting Preferred Stock to 125 accredited investors. The preferred stockholders are entitled to receive cumulative dividends semi-annually at an annual rate of 12.5% and do not have the ability to participate in the management or operation of NPRC.

NPRC was formed to hold for investment, operate, finance, lease, manage, and sell a portfolio of real estate assets and engage in any and all other activities as may be necessary, incidental or convenient to carry out the foregoing. NPRC acquires real estate assets, including, but not limited to, industrial, commercial, and multi-family properties. NPRC may acquire real estate assets directly or through joint ventures by making a majority equity investment in a property-owning entity (the “JV”). Additionally, through its wholly owned subsidiaries, NPRC invests in online consumer loans.

On July 19, 2018, Prospect purchased additional common equity of NPRC through NPH for $6,921. NPRC utilized $138 of proceeds provided to pay a structuring fee to Prospect (which was recognized by Prospect as structuring fee income). NPRC utilized $6,697 of proceeds provided by Prospect to purchase a 90% interest in Falling Creek Holdings LLC. The remaining $86 was retained as working capital by NPRC. The minority interest holder purchased ownership interest in the JV for $744. The JV utilized the total proceeds, which included debt financing of $19,335, to acquire a $25,000 multi-family real estate asset. The remaining proceeds were used by the JV to pay $134 of structuring fees to NPRC, $709 of third-party expenses, $430 of pre-funded capital expenditures, $312 of prepaid assets, and $191 was retained by the JV as working capital.

On September 20, 2018, Prospect purchased additional common equity of NPRC through NPH for $3,285. NPRC utilized $66 of proceeds provided to pay a structuring fee to Prospect (which was recognized by Prospect as structuring fee income). NPRC applied the remaining proceeds provided by Prospect to purchase $3,284 of additional ownership interest in a JV entity. The JV utilized the total proceeds, which included debt financing of $7,300, to acquire a $9,600 multi-family real estate asset. The remaining proceeds were used by the JV to pay $79 of structuring fees to NPRC, $277 of third-party expenses, $20 of pre-funded capital expenditures, $482 of prepaid assets, and $126 was retained by the JV as working capital.

On October 19, 2018, Prospect purchased additional common equity of NPRC through NPH for $1,376. NPRC applied the proceeds to purchase $1,376 of additional ownership interest in multiple JV entities that own 9 multi-family properties and retained $1 as working capital. The minority interest holder also contributed $35 of additional capital in the JV entities. The proceeds were utilized by the JV entities to fund $1,411 of capital expenditures.

Effective December 31, 2018, we amended and restated the terms of our credit agreement with NPRC. As part of the amendment, we increased our investment through a New Term Loan A Secured Note (“New TLA”) in the aggregate principal amount of $433,553 and a New Term Loan B Secured Note (“New TLB”) in the aggregate principal amount of $205,000. NPRC utilized a portion of the proceeds from the New TLA and New TLB to repay the previously outstanding Senior Secured Term Loan A and Senior Secured Term Loan E. The remaining proceeds of $140,351 were returned to us as a return of capital, reducing our equity investment in NPRC.

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PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)

(in thousands, except share and per share data)

During the year ended June 30, 2019, we provided $10,206 of equity financing to NPRC for the acquisition of real estate properties and $1,377 of equity financing to NPRC to fund capital expenditures for existing real estate properties.

During the year ended June 30, 2019, we received partial repayments of $54,181 of our loans previously outstanding with NPRC and its wholly owned subsidiary and $15,000 as a return of capital on our equity investment in NPRC.

During the six months ended December 31, 2019, we received partial repayments of $93,000 of our loans previously outstanding with NPRC, and provided $12,857 of equity financing and $51,428 of debt financing to NPRC to fund purchases of rated secured structured notes, expenses and structuring fees.

Effective October 31, 2019, we amended the terms of our credit agreement to increase our investment in NPRC and its wholly-owned subsidiaries through a new Senior Secured Term Loan C (“TLC”). During the three months ended December 31, 2019, we provided $51,428 and $12,857 in TLC and equity financing, respectively. NPRC used the proceeds to fund purchases of rated secured structured notes.

Three Months Ended Six Months Ended
December 31, 2019 December 31, 2018 December 31, 2019 December 31, 2018
Interest Income $ 16,877 $ 19,954 $ 33,469 $ 40,352
Dividend Income (1) — 9,000 — 20,000
Other Income
Structuring Fee $ 2,744 $ 13,141 $ 3,190 $ 13,765
Advisory Fee — — 7,595 —
Royalty/Net Interest 9,266 1,935 12,496 3,598
Total Other Income $ 12,010 $ 15,076 $ 23,281 $ 17,363
Managerial Assistance (2) $ — $ 525 $ — $ 1,050
Reimbursement of Legal, Tax, etc.(3) 101 93 447 225

(1) All dividends were paid from earnings and profits.

(2) No income recognized by Prospect. MA payments were paid from NPRC to Prospect and subsequently remitted to PA.

(3) Paid from NPRC to PA as reimbursement for legal, tax, and portfolio level accounting services provided directly to NPRC (No direct income recognized by Prospect, but we were given a credit for these payments as a reduction to the administrative services payable by Prospect to PA).

Three Months Ended Six Months Ended
December 31, 2019 December 31, 2018 December 31, 2019 December 31, 2018
Additions (4) $ 64,285 $ 1,376 $ 64,285 $ 11,582
Repayment of loan receivable 32,317 12,960 93,000 21,180

(4) During the six months ended December 31, 2018, we provided $10,206 of equity financing to NPRC for the acquisition of real estate properties and $1,376 of equity financing to NPRC to fund capital expenditures for existing real estate properties.

As of
December 31, 2019 June 30, 2019
Interest Receivable (5) $ 1,433 $ 4,565
Other Receivables - Due to PA (6) — 2,100
Other Receivables (7) 12 32

(5) Interest income recognized but not yet paid.

(6) Managerial assistance recognized but not yet paid by NPRC and is included by Prospect within Other Receivable and Due to PA.

(7) Represents amounts due from NPRC to Prospect for reimbursement of expenses paid by Prospect on behalf of NPRC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)

(in thousands, except share and per share data)

Nationwide Loan Company LLC

Prospect owns 100% of the membership interests of Nationwide Acceptance Holdings LLC (“Nationwide Holdings”), a Consolidated Holding Company. Nationwide Holdings owns 94.48% of the equity of Nationwide Loan Company LLC (f/k/a Nationwide Acceptance LLC) (“Nationwide”), with members of Nationwide management owning the remaining equity.

On October 31, 2017, Prospect made an additional equity investment totaling $3,779, and Prospect’s ownership in Nationwide did not change.

Three Months Ended Six Months Ended
December 31, 2019 December 31, 2018 December 31, 2019 December 31, 2018
Interest Income $ 976 $ 897 $ 1,930 $ 1,787
Dividend Income (1) — — — 165
Managerial Assistance (2) — 100 100 200

(1) All dividends were paid from earnings and profits of Nationwide.

(2) No income recognized by Prospect. MA payments were paid from Nationwide to Prospect and subsequently remitted to PA.

Three Months Ended Six Months Ended
December 31, 2019 December 31, 2018 December 31, 2019 December 31, 2018
Interest Income Capitalized as PIK $ 487 $ 444 $ 804 $ 444 As of
--- --- --- --- ---
December 31, 2019 June 30, 2019
Interest Receivable (3) $ 11 $ —
Other Receivables - Due to PA (4) — 100
Other Receivables (5) 3 4

(3) Interest income recognized but not yet paid.

(4) Managerial assistance recognized but not yet paid by Nationwide and is included by Prospect within Other Receivable and Due to PA.

(5) Represents amounts due from Nationwide to Prospect for reimbursement of expenses paid by Prospect on behalf of Nationwide.

NMMB, Inc.

Prospect owns 100% of the equity of NMMB Holdings, Inc. (“NMMB Holdings”), a Consolidated Holding Company. NMMB Holdings owns 92.42% and 94.10% of the fully-diluted equity of NMMB, Inc. (f/k/a NMMB Acquisition, Inc.) (“NMMB”) as of December 31, 2019 and June 30, 2019, with NMMB management owning the remaining equity. NMMB owns 100% of Refuel Agency, Inc. (“Refuel Agency”). Refuel Agency owns 100% of Armed Forces Communications, Inc. (“Armed Forces”). NMMB is an advertising media buying business. On December 30, 2019, NMMB executed a dividend recapitalization whereby Prospect invested $15,100 of a first lien term loan to repay NMMB’s existing term loan, provide a shareholder distribution, and pay fees and expenses. As part of the recapitalization, Prospect converted its Series A and Series B preferred securities into 92.42% common equity and received a dividend distribution of $2,797.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)

(in thousands, except share and per share data)

Three Months Ended Six Months Ended
December 31, 2019 December 31, 2018 December 31, 2019 December 31, 2018
Interest Income
Interest Income from Armed Forces $ — $ 140 $ — $ 316
Interest Income from NMMB 47 133 138 267
Total Interest Income $ 47 $ 273 $ 138 $ 583
Dividend Income (1) $ 2,797 $ — $ 2,797 $ —
Other Income
Structuring Fee $ 453 $ — $ 453 $ —
Total Other Income $ 453 $ — $ 453 $ —
Managerial Assistance (1) $ — $ 100 $ — $ 200

(1) No income recognized by Prospect. MA payments were paid from NMMB to Prospect and subsequently remitted to PA.

Three Months Ended Six Months Ended
December 31, 2019 December 31, 2018 December 31, 2019 December 31, 2018
Repayment of loan receivable
Repayment from Armed Forces $ — $ — $ — $ 1,000
Repayment from NMMB 1,614 — 3,114 —
Total Repayment of loan receivable $ 1,614 $ — $ 3,114 $ 1,000 As of
--- --- --- --- ---
December 31, 2019 June 30, 2019
Interest Receivable (2) $ 9 $ 4
Other Receivables - Due to PA (3) — 100

(2) Interest income recognized but not yet paid.

(3) Managerial assistance recognized but not yet paid by NMMB and is included by Prospect within Other Receivable and Due to PA.

Pacific World Corporation

On May 29, 2018, Prospect exercised its rights and remedies under its loan documents to exercise the shareholder voting rights in respect of the stock of Pacific World Corporation (“Pacific World”) and to appoint a new Board of Directors of Pacific World. As a result, as of June 30, 2018, Prospect’s investment in Pacific World is classified as a control investment.

On June 15, 2018, we made a $15,000 convertible preferred equity investment in Pacific World.

During the year ended June 30, 2019, we funded $9,000 in revolver draws and received $9,250 in repayments from Pacific World.

During the year ended June 30, 2019, we made an additional $10,000 convertible preferred equity investment in Pacific World.

Three Months Ended Six Months Ended
December 31, 2019 December 31, 2018 December 31, 2019 December 31, 2018
Interest Income $ (536 ) $ 922 $ 527 $ 3,253

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)

(in thousands, except share and per share data)

Three Months Ended Six Months Ended
December 31, 2019 December 31, 2018 December 31, 2019 December 31, 2018
Additions (1) $ 7,100 $ 5,000 $ 9,456 $ 5,000
Repayment of loan receivable — 5,000 — 5,250

(1) During the six months ended December 31, 2019, Prospect provided $9,100 of equity financing to Pacific World to fund working capital needs.

As of
December 31, 2019 June 30, 2019
Interest Receivable (2) $ — $ —
Other Receivables (3) 62 46

(2) Interest income recognized but not yet paid.

(3) Represents amounts due from Pacific World to Prospect for reimbursement of expenses paid by Prospect on behalf of Pacific World.

R-V Industries, Inc.

Prospect owns 88.27% of the fully-diluted equity of R-V Industries, Inc. (“R-V”), with R-V management owning the remaining 11.73% of the equity. As of June 30, 2011, Prospect’s equity investment cost basis was $1,682 and $5,087 for warrants and common stock, respectively.

During the year ended June 30, 2017, cash distributions of $76 that were declared and paid from R-V to Prospect were recognized as a return of capital by Prospect.

Three Months Ended Six Months Ended
December 31, 2019 December 31, 2018 December 31, 2019 December 31, 2018
Interest Income $ 786 $ 826 $ 1,590 $ 1,628
Managerial Assistance (1) — 45 — 90
Reimbursement of Legal, Tax, etc.(2) — — 12 —

(1) No income recognized by Prospect. MA payments were paid from R-V to Prospect and subsequently remitted to PA.

(2) Paid from R-V to PA as reimbursement for legal, tax, and portfolio level accounting services provided directly to R-V (No direct income recognized by Prospect, but we were given a credit for these payments as a reduction to the administrative services payable by Prospect to PA).

As of
December 31, 2019 June 30, 2019
Interest Receivable (3) $ 9 $ 9
Other Receivables - Due to PA (4) — 46

(3) Interest income recognized but not yet paid.

(4) Managerial assistance recognized but not yet paid by R-V and is included by Prospect within Other Receivable and Due to PA.

SB Forging Company, Inc.

As of June 30, 2014, Prospect owned 79.53% of the fully-diluted common, 85.76% of the Series A Preferred and 100% of the Series B Preferred equity of ARRM Services, Inc. (f/k/a ARRM Holdings, Inc.) (“ARRM”). ARRM owned 100% of the equity of Ajax Rolled Ring & Machine, LLC (f/k/a Ajax Rolled Ring & Machine, Inc.) (“Ajax”). Ajax forges large seamless steel rings on two forging mills in the company’s York, South Carolina facility. The rings are used in a range of industrial applications, including in construction equipment and power turbines. Ajax also provides machining and other ancillary services.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)

(in thousands, except share and per share data)

SB Forging Company II, Inc. (f/k/a Gulf Coast Machine & Supply Company)

Prospect owns 100% of the preferred equity of Gulf Coast Machine & Supply Company (“Gulf Coast”). Gulf Coast is a provider of value-added forging solutions to energy and industrial end markets.

On June 28, 2017, Gulf Coast was renamed to SB Forging Company II, Inc.

On November 14, 2017, we received proceeds of $1,363 from our insurance carrier related to our investment in Gulfco. The $1,363 reimbursed us for covered third-party legal expenses incurred and expensed in prior periods, for which we recorded the amount received as a reduction to our legal fees for the current period. Prospect Administration also received $1,430 from the insurance carrier related to covered legal services provided by Prospect Administration which was recorded as a reduction of allocation of overhead from Prospect Administration.

In June 2018, SB Forging Company II, Inc. received escrow proceeds of $2,050 related to the sale. The escrow proceeds and $154 of excess cash held at SB Forging Company II, Inc. were subsequently distributed and in connection with the liquidation of our investment, we recorded a realized gain of $2,204 in our Consolidated Statement of Operations during the year ended June 30, 2019.

Universal Turbine Parts, LLC

On December 10, 2018, UTP Holdings Group, Inc. (“UTP Holdings”) purchased all of the voting stock of Universal Turbine Parts, LLC (“UTP”) and appointed a new Board of Directors to UTP Holdings, consisting of three employees of the Investment Advisor. At the time UTP Holdings acquired UTP, UTP Holdings (f/k/a Harbortouch Holdings of Delaware) was a wholly-owned holding company controlled by Prospect and therefore Prospect’s investment in UTP is classified as a control investment.

Three Months Ended Six Months Ended
December 31, 2019 December 31, 2018 December 31, 2019 December 31, 2018
Interest Income $ 633 $ 654 $ 1,266 $ 654
Other Income
Structuring Fee $ 100 N/A $ 100 N/A
Total Other Income $ — N/A $ — N/A
Managerial Assistance (2) 3 N/A 3 N/A Three Months Ended Six Months Ended
--- --- --- --- --- --- --- --- ---
December 31, 2019 December 31, 2018 December 31, 2019 December 31, 2018
Additions (1) $ 1,000 $ — $ 1,000 $ —
Repayment of loan receivable 164 162 327 162

(1) During the six months ended December 31, 2019, Prospect provided $1,000 of Delayed Draw Term Loan financing to UTP.

As of
December 31, 2019 June 30, 2019
Interest Receivable (4) $ 6 $ —
Other Receivables - Due to PA (2) — 3
Other Receivables (3) 1 1

(2) Managerial assistance recognized but not yet paid by UTP and is included by Prospect within Other Receivable and Due to PA.

(3) Represents amounts due from UTP to Prospect for reimbursement of expenses paid by Prospect on behalf of UTP.

USES Corp.

On June 15, 2016, we provided additional $1,300 debt financing to USES Corp. (“USES”) and its subsidiaries in the form of additional Term Loan A debt and, in connection with such Term Loan A debt financing, USES issued to us 99,900 shares of its common stock. On June 29, 2016, we provided additional $2,200 debt financing to USES and its subsidiaries in the form of additional Term Loan A debt and, in connection with such Term Loan A debt financing, USES issued to us 169,062 shares of its

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)

(in thousands, except share and per share data)

common stock. As a result of such debt financing and recapitalization, as of June 29, 2016, we held 268,962 shares of USES common stock representing a 99.96% common equity ownership interest in USES. As such, USES became a controlled company on June 30, 2016.

During the year ended June 30, 2018, Prospect provided additional $3,000 debt financing to USES and its subsidiaries in the form of additional Term Loan A debt.

During the year ended June 30, 2018, we entered into a participation agreement with USES management, and sold $3 of Prospect’s investment in the Term Loan A debt.

During the six months ended December 31, 2018, Prospect provided additional $3,500 debt financing to USES and its subsidiaries in the form of additional Term Loan A debt.

During the year ended June 30, 2019, Prospect provided additional $3,500 debt financing to USES and its subsidiaries in the form of additional Term Loan A debt.

Three Months Ended Six Months Ended
December 31, 2019 December 31, 2018 December 31, 2019 December 31, 2018
Additions (1) $ — $ 3,500 $ 1,500 $ 3,500
Repayment of loan receivable (2) 5,950 — 5,950 —

(1) During the six months ended December 31, 2019, Prospect provided $1,500 of equity financing to USES to fund capital expenditures and repayment of accounts payable.

(2) During the six months ended December 31, 2019, Prospect received $5,950 of Senior Secured Term Loan A repayment.

As of
December 31, 2019 June 30, 2019
Other Receivables - Due to PA (3) $ — $ 925

(3) Represents amounts due from USES to Prospect for reimbursement of expenses paid by Prospect on behalf of USES.

Valley Electric Company, Inc.

Prospect owns 100% of the common stock of Valley Electric Holdings I, Inc. (“Valley Holdings I”), a Consolidated Holding Company. Valley Holdings I owns 100% of Valley Electric Holdings II, Inc. (“Valley Holdings II”), a Consolidated Holding Company. Valley Holdings II owns 94.99% of Valley Electric Company, Inc. (“Valley Electric”), with Valley Electric management owning the remaining 5.01% of the equity. Valley Electric owns 100% of the equity of VE Company, Inc., which owns 100% of the equity of Valley Electric Co. of Mt. Vernon, Inc. (“Valley”), a leading provider of specialty electrical services in the state of Washington and among the top 50 electrical contractors in the United States.

During the six months ended December 31, 2018, Prospect provided $5,100 of additional debt financing to Valley Electric. In addition, distributions of $3,329 that were declared and paid from Valley to Prospect were recognized as a return of capital by Prospect.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)

(in thousands, except share and per share data)

Three Months Ended Six Months Ended
December 31, 2019 December 31, 2018 December 31, 2019 December 31, 2018
Interest Income
Interest Income from Valley $ 280 $ 274 $ 560 $ 560
Interest Income from Valley Electric 1,498 1,487 2,996 2,806
Total Interest Income $ 1,778 $ 1,761 $ 3,556 $ 3,366
Dividend Income (1) $ 471 $ 4,000 $ 4,271 $ 7,500
Other Income
Structuring Fee $ — $ — $ — $ 153
Royalty/Net Interest 333 169 333 319
Total Other Income $ 333 $ 169 $ — $ 472
Managerial Assistance (2) $ — $ 150 $ — $ 225
Reimbursement of Legal, Tax, etc. (3) 29 — 29 —

(1) All dividends were paid from earnings and profits.

(2) No income recognized by Prospect. MA payments were paid from Valley Electric to Prospect and subsequently remitted to PA.

(3) Paid from Valley to PA as reimbursement for legal, tax, and portfolio level accounting services provided directly to Valley (No direct income recognized by Prospect, but we were given a credit for these payments as a reduction to the administrative services payable by Prospect to PA).

Three Months Ended Six Months Ended
December 31, 2019 December 31, 2018 December 31, 2019 December 31, 2018
Additions $ — $ — $ — $ 5,100
As of
--- --- --- --- ---
December 31, 2019 June 30, 2019
Interest Receivable (4) $ 19 $ 17
Other Receivables (5) 10 9

(4) Interest income recognized but not yet paid.

(5) Represents amounts due from Valley Electric to Prospect for reimbursement of expenses paid by Prospect on behalf of Valley Electric.

Wolf Energy, LLC

Prospect owns 100% of the equity of Wolf Energy Holdings Inc. (“Wolf Energy Holdings”), a Consolidated Holding Company.

Wolf Energy Holdings owns 100% of each of Appalachian Energy LLC (f/k/a Appalachian Energy Holdings, LLC) (“AEH”);

Coalbed, LLC (“Coalbed”); and Wolf Energy, LLC (“Wolf Energy”). AEH owns 100% of C&S Operating, LLC.

Wolf Energy Holdings is a holding company formed to hold 100% of the outstanding membership interests of each of AEH and

Coalbed. The membership interests and associated operating company debt of AEH and Coalbed, which were previously owned

by Manx Energy, Inc. (“Manx”), were assigned to Wolf Energy Holdings effective June 30, 2012. The purpose of assignment was to remove those activities from Manx deemed non-core by the Manx convertible debt investors who were not interested in funding those operations. On June 30, 2012, AEH and Coalbed loans, with a cost basis of $7,991, were assigned by Prospect to Wolf Energy Holdings from Manx.

During the six months ended December 31, 2018, Wolf Energy Services received $58 from the sale of assets.

In December 2019, Wolf Energy Holdings, Inc. (“Wolf Energy Holdings”), our Consolidated Holding Company that previously owned 100% of Appalachian Energy LLC (“AEH”); Wolf Energy Services Company, LLC (Wolf Energy Services”); and Wolf

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)

(in thousands, except share and per share data)

Energy, LLC (collectively our previously controlled membership interest and net profit interest investments in “Wolf Energy”), merged with and into CP Energy, with CP Energy continuing as the surviving entity. CP Energy acquired 100% of our equity in Wolf Energy, which is reflected in our valuation of CP Energy common stock as of December 31, 2019. During the six months ended December 31, 2019, the cost basis in Wolf Energy Holdings of $3,914 was transferred to CP Energy.

During the six months ended December 31, 2019, cash distributions of $18 that were declared and paid from Wolf to Prospect were recognized as a return of capital by Prospect.

As of
December 31, 2019 June 30, 2019
Other Receivables - Due to PA (1) $ — $ 41
Other Receivables (2) — 15

(1) Managerial assistance recognized but not yet paid by Wolf and is included by Prospect within Other Receivable and Due to PA.

(2) Represents amounts due from Wolf to Prospect for reimbursement of expenses paid by Prospect on behalf of Wolf.

Note 15. Litigation

From time to time, we may become involved in various investigations, claims and legal proceedings that arise in the ordinary course of our business. These matters may relate to intellectual property, employment, tax, regulation, contract or other matters. The resolution of such matters as may arise will be subject to various uncertainties and, even if such claims are without merit, could result in the expenditure of significant financial and managerial resources. We are not aware of any material legal proceedings as of December 31, 2019.

Note 16. Financial Highlights

The following is a schedule of financial highlights for the three and six months ended December 31, 2019 and December 31, 2018:

Three Months Ended December 31, Six Months Ended December 31,
2019 2018 2019 2018
Per Share Data
Net asset value at beginning of period $ 8.87 $ 9.39 $ 9.01 $ 9.35
Net investment income^(1)^ 0.18 0.22 0.37 0.45
Net realized and change in unrealized losses^(1)^ (0.21 ) (0.40 ) (4) (0.35 ) (0.41 )
Net increase from operations (0.03 ) (0.18 ) 0.02 0.04
Distributions of net investment income (0.18 ) (0.18 ) (0.36 ) (0.36 )
Common stock transactions^(2)^ — (0.01 ) (0.01 ) (0.01 )
Net asset value at end of period $ 8.66 $ 9.02 $ 8.66 $ 9.02
Per share market value at end of period $ 6.44 $ 6.31 $ 6.44 $ 6.31
Total return based on market value^(3)^ 0.43 % (11.54 %) 4.13 % (0.90 %)
Total return based on net asset value^(3)^ 0.33 % (1.29 %) 1.48 % 1.67 %
Shares of common stock outstanding at end of period 367,584,244 366,055,966 367,584,244 366,055,966
Weighted average shares of common stock outstanding 367,459,411 365,591,722 367,349,087 365,187,429
Ratios/Supplemental Data
Net assets at end of period $ 3,183,865 $ 3,303,175 $ 3,183,865 $ 3,303,175
Portfolio turnover rate 6.09 % 2.78 % 7.72 % 3.77 %
Annualized ratio of operating expenses to average net assets 11.67 % 12.72 % 11.38 % 11.97 %
Annualized ratio of net investment income to average net assets 8.43 % 9.60 % 8.55 % 9.82 %

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PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)

(in thousands, except share and per share data)

The following is a schedule of financial highlights for each of the five years ended in the period ended June 30, 2019:

Year Ended June 30,
2019 2018 2017 2016 2015
Per Share Data
Net asset value at beginning of year $ 9.35 $ 9.32 $ 9.62 $ 10.31 $ 10.56
Net investment income^(1)^ 0.85 0.79 0.85 1.04 1.03
Net realized and change in unrealized (losses) gains^(1)^ (0.46 ) 0.04 (0.15 ) (0.75 ) (0.05 )
Net increase from operations 0.39 0.83 0.70 0.29 0.98
Distributions of net investment income (0.72 ) (0.77 ) (1.00 ) (1.00 ) (1.19 )
Common stock transactions^(2)^ (0.01 ) (0.03 ) — (4) 0.02 (0.04 )
Net asset value at end of year $ 9.01 $ 9.35 $ 9.32 $ 9.62 $ 10.31
Per share market value at end of year $ 6.53 $ 6.71 $ 8.12 $ 7.82 $ 7.37
Total return based on market value^(3)^ 8.23 % (7.42 %) 16.80 % 21.84 % (20.84 %)
Total return based on net asset value^(3)^ 7.17 % 12.39 % 8.98 % 7.15 % 11.47 %
Shares of common stock outstanding at end of year 367,131,025 364,409,938 360,076,933 357,107,231 359,090,759
Weighted average shares of common stock outstanding 365,984,541 361,456,075 358,841,714 356,134,297 353,648,522
Ratios/Supplemental Data
Net assets at end of year $ 3,306,275 $ 3,407,047 $ 3,354,952 $ 3,435,917 $ 3,703,049
Portfolio turnover rate 10.86 % 30.70 % 23.65 % 15.98 % 21.89 %
Ratio of operating expenses to average net assets 11.65 % 11.08 % 11.57 % 11.95 % 11.66 %
Ratio of net investment income to average net assets 9.32 % 8.57 % 8.96 % 10.54 % 9.87 %
(1) Per share data amount is based on the weighted average number of common shares outstanding for the year/period presented (except for dividends to shareholders which is based on actual rate per share).
--- ---
(2) Common stock transactions include the effect of our issuance of common stock in public offerings (net of underwriting and offering costs), shares issued in connection with our dividend reinvestment plan, shares issued to acquire investments and shares repurchased below net asset value pursuant to our Repurchase Program.
--- ---
(3) Total return based on market value is based on the change in market price per share between the opening and ending market prices per share in each period and assumes that dividends are reinvested in accordance with our dividend reinvestment plan. Total return based on net asset value is based upon the change in net asset value per share between the opening and ending net asset values per share in each period and assumes that dividends are reinvested in accordance with our dividend reinvestment plan. For periods less than a year, total return is not annualized.
--- ---
(4) Amount is less than $0.01.
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PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)

(in thousands, except share and per share data)

Note 17. Selected Quarterly Financial Data (Unaudited)

The following table sets forth selected financial data for each quarter within the three years ending June 30, 2020:

Investment<br><br>Income Net Investment<br><br>Income Net Realized and<br><br>Unrealized (Losses) Gains Net Increase (Decrease) in<br><br>Net Assets from Operations
Quarter Ended Total Per Share<br><br>(1) Total Per Share<br><br>(1) Total Per Share<br><br>(1) Total Per Share<br><br>(1)
September 30, 2017 $ 158,579 $ 0.44 $ 63,732 $ 0.18 $ (51,759 ) $ (0.15 ) $ 11,973 $ 0.03
December 31, 2017 162,400 0.45 73,192 0.20 48,535 0.14 121,727 0.34
March 31, 2018 162,835 0.45 70,446 0.19 (18,587 ) (0.04 ) 51,859 0.14
June 30, 2018 174,031 0.48 79,480 0.22 34,823 0.09 114,304 0.31
September 30, 2018 $ 180,422 $ 0.49 $ 85,159 $ 0.23 $ (1,364 ) $ — (2) $ 83,795 $ 0.23
December 31, 2018 187,883 0.51 80,811 0.22 (148,200 ) (0.40 ) (67,389 ) (0.18 )
March 31, 2019 171,109 0.47 77,262 0.21 11,933 0.03 89,195 0.24
June 30, 2019 164,353 0.45 69,627 0.19 (30,741 ) (0.08 ) 38,886 0.11
September 30, 2019 $ 161,883 $ 0.44 $ 71,060 $ 0.19 $ (52,995 ) $ (0.14 ) $ 18,065 $ 0.05
December 31, 2019 161,917 0.44 67,885 0.18 (79,088 ) (0.21 ) (11,203 ) (0.03 )
(1) Per share amounts are calculated using the weighted average number of common shares outstanding for the period presented. As such, the sum of the quarterly per share amounts above will not necessarily equal the per share amounts for the fiscal year.
--- ---
(2) Amount is less than $0.01.
--- ---

Note 18. Subsequent Events

During the period from January 1, 2020 through February 6, 2020 we issued $41,406 aggregate principal amount of Prospect Capital InterNotes® for net proceeds of $40,748.

During the period of January 1, 2020 through February 6, 2020, we provided notice to call or settled previous notices to call certain of our Prospect Capital InterNotes® at par with the following terms:

Notice Date Settlement Date Maturity Date Range Interest Rate Range Principal
12/11/2019 1/15/2020 July 15, 2022 4.500% - 4.750% $ 3,918

On January 10, 2020, we made a new $20,000 First Lien Term Loan investment in EDSCO Holding Company LLC, a manufacturer of foundation anchoring systems for large infrastructure installations such as power transmission poles and electrical substation structures.

On January 22, 2020, PeopleConnect Intermediate, LLC (“PeopleConnect”) fully repaid the $17,328 Senior Secured Term Loan A and the $19,413 Senior Secured Term Loan B receivable to us at par. Concurrent with the repayment, our $1,000 unfunded revolving line of credit to PeopleConnect was terminated.

On January 22, 2020, we provided $246,000 of Senior Secured investments to PeopleConnect Holdings, Inc. and PubRec Holdings, Inc., online information commerce companies. Included in this investment is a $10,000 Revolving Line of Credit and a $5,000 Delayed Draw term loan, which were unfunded at close. On January 28, 2020, we sold $24,994 of our Senior Secured Term Loan investment and $1,082 of our Revolving Line of Credit commitment, or 10.6% of our initial investment, at a price of 98.0. As a result of the sale, we recorded a realized loss of $522 for the three months ended March 31, 2020.

On January 23, 2020, we provided $18,252 and $4,563 of Senior Secured Term Loan C and equity financing, respectively, to National Property REIT Corp. (“NPRC”) and its wholly-owned subsidiaries to support investments in rated secured structured notes. On January 31, 2020, we received partial repayments of $7,500 of our Senior Secured Term Loan B outstanding with NPRC and its wholly-owned subsidiaries.

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PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)

(in thousands, except share and per share data)

The 2020 Notes December Tender Offer and the 2022 Notes December Tender Offer (collectively the “December Tender Offers”) expired at 12:00 midnight, New York City time, on January 23, 2020 (one minute after 11:59 p.m., New York City time, on January 22, 2020). As of the expiration date of the December Tender Offers, (i) $2,215 aggregate principal amount of the 2020 Notes, representing approximately 1.27% of the outstanding 2020 Notes, and (ii) $1,302 aggregate principal amount of the 2022 Notes, representing approximately 0.45% of the outstanding 2022 Notes, were validly tendered and accepted. Following the settlement of the December Tender Offers, (i) approximately $172,822 aggregate principal amount of the 2020 Notes remains outstanding, and (ii) approximately $290,825 aggregate principal amount of the 2022 Notes remains outstanding.

On January 24, 2020, we made a $30,000 first lien term loan investment in LGC US Finco, LLC, a manufacturer of industrial gaskets and fasteners.

On February 10, 2020, we announced the declaration of monthly dividends in the following amounts and with the following dates:

• $0.06 per share for February 2020 to holders of record on February 28, 2020 with a payment date of March 19, 2020.
• $0.06 per share for March 2020 to holders of record on March 31, 2020 with a payment date of April 23, 2020.
--- ---
• $0.06 per share for April 2020 to holders of record on April 30, 2020 with a payment date of May 21, 2020.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

(All figures in this item are in thousands except share, per share and other data.)

The following discussion should be read in conjunction with our consolidated financial statements and related notes and other financial information appearing elsewhere in this Quarterly Report. In addition to historical information, the following discussion and other parts of this Quarterly Report contain forward-looking information that involves risks and uncertainties. Our actual results may differ significantly from any results expressed or implied by these forward-looking statements due to the factors discussed in Part II, “Item 1A. Risk Factors” and “Forward-Looking Statements” appearing elsewhere herein.

Overview

The terms “Prospect,” “the Company,” “we,” “us” and “our” mean Prospect Capital Corporation and its subsidiaries unless the context specifically requires otherwise.

Prospect is a financial services company that primarily lends to and invests in middle market privately-held companies. We are a closed-end investment company incorporated in Maryland. We have elected to be regulated as a business development company (“BDC”) under the Investment Company Act of 1940 (the “1940 Act”). As a BDC, we have elected to be treated as a regulated investment company (“RIC”), under Subchapter M of the Internal Revenue Code of 1986 (the “Code”). We were organized on April 13, 2004, and were funded in an initial public offering completed on July 27, 2004.

On May 15, 2007, we formed a wholly owned subsidiary Prospect Capital Funding LLC (“PCF”), a Delaware limited liability company and a bankruptcy remote special purpose entity, which holds certain of our portfolio loan investments that are used as collateral for the revolving credit facility at PCF. Our wholly owned subsidiary Prospect Small Business Lending, LLC (“PSBL”) was formed on January 27, 2014, and purchases small business whole loans on a recurring basis from online small business loan originators, including On Deck Capital, Inc. (“OnDeck”). On September 30, 2014, we formed a wholly owned subsidiary Prospect Yield Corporation, LLC (“PYC”) and effective October 23, 2014, PYC holds a portion of our investments in Rated Secured Structured Notes (“RSSN”) and Subordinated Structured Notes (“SSN”) (collectively referred to as “collateralized loan obligations” or “CLOs”). Each of these subsidiaries have been consolidated since operations commenced.

We consolidate certain of our wholly owned and substantially wholly owned holding companies formed by us in order to facilitate our investment strategy. The following companies are included in our consolidated financial statements and are collectively referred to as the “Consolidated Holding Companies”: CP Holdings of Delaware LLC (“CP Holdings”); Credit Central Holdings of Delaware, LLC (“Credit Central Delaware”); Energy Solutions Holdings Inc.; First Tower Holdings of Delaware LLC (“First Tower Delaware”); MITY Holdings of Delaware Inc. (“MITY Delaware”); Nationwide Acceptance Holdings LLC; NMMB Holdings, Inc. (“NMMB Holdings”); NPH Property Holdings, LLC (“NPH”); STI Holding, Inc.; UTP Holdings Group Inc. ( “UTP Holdings”; Valley Electric Holdings I, Inc. (“Valley Holdings I”); and Valley Electric Holdings II, Inc. (“Valley Holdings II”).

We are externally managed by our investment adviser, Prospect Capital Management L.P. (“Prospect Capital Management” or the “Investment Adviser”). Prospect Administration LLC (“Prospect Administration”), a wholly owned subsidiary of the Investment Adviser, provides administrative services and facilities necessary for us to operate.

Our investment objective is to generate both current income and long-term capital appreciation through debt and equity investments. We invest primarily in senior and subordinated debt and equity of private companies in need of capital for acquisitions, divestitures, growth, development, recapitalizations and other purposes. We work with the management teams or financial sponsors to seek investments with historical cash flows, asset collateral or contracted pro forma cash flows.

We currently have nine strategies that guide our origination of investment opportunities: (1) lending to companies controlled by private equity sponsors, (2) lending to companies not controlled by private equity sponsors, (3) purchasing controlling equity positions and lending to operating companies, (4) purchasing controlling equity positions and lending to financial services companies, (5) purchasing controlling equity positions and lending to real estate companies, (6) purchasing controlling equity positions and lending to aircraft leasing companies, (7) investing in structured credit, (8) investing in syndicated debt, and (9) investing in consumer and small business loans and asset-backed securitizations. We may also invest in other strategies and opportunities from time to time that we view as attractive. We continue to evaluate other origination strategies in the ordinary course of business with no specific top-down allocation to any single origination strategy.

Lending to Companies Controlled by Private Equity Sponsors - We make agented loans to companies which are controlled by private equity sponsors. This debt can take the form of first lien, second lien, unitranche or unsecured loans. These loans typically have equity subordinate to our loan position. Historically, this strategy has comprised approximately 25%-50% of our portfolio.

108

Lending to Companies not Controlled by Private Equity Sponsors - We make loans to companies which are not controlled by private equity sponsors, such as companies that are controlled by the management team, the founder, a family or public shareholders. This origination strategy may have less competition to provide debt financing than the private-equity-sponsor origination strategy because such company financing needs are not easily addressed by banks and often require more diligence preparation. This origination strategy can result in investments with higher returns or lower leverage than the private-equity-sponsor origination strategy. Historically, this strategy has comprised less than 5% of our portfolio.

Purchasing Controlling Equity Positions and Lending to Operating Companies - This strategy involves purchasing yield-producing debt and controlling equity positions in non-financial-services operating companies. We believe that we can provide enhanced certainty of closure and liquidity to sellers and we look for management to continue on in their current roles. This strategy has comprised approximately 5%-10% of our portfolio.

Purchasing Controlling Equity Positions and Lending to Financial Services Companies - This strategy involves purchasing yield-producing debt and control equity investments in financial services companies, including consumer direct lending, sub-prime auto lending and other strategies. These investments are often structured in tax-efficient partnerships, enhancing returns. This strategy has comprised approximately 5%-15% of our portfolio.

Purchasing Controlling Equity Positions and Lending to Real Estate Companies - We purchase debt and controlling equity positions in tax-efficient real estate investment trusts (“REIT” or “REITs”). The real estate investments of National Property REIT Corp. (“NPRC”) are in various classes of developed and occupied real estate properties that generate current yields, including multi-family properties, student housing, and self-storage. NPRC seeks to identify properties that have historically significant occupancy rates and recurring cash flow generation. NPRC generally co-invests with established and experienced property management teams that manage such properties after acquisition. Additionally, NPRC purchases loans originated by certain consumer loan facilitators. It purchases each loan in its entirety (i.e., a “whole loan”). The borrowers are consumers, and the loans are typically serviced by the facilitators of the loans. This investment strategy has comprised approximately 10%-20% of our business.

Purchasing Controlling Equity Positions and Lending to Aircraft Leasing Companies - We invest in debt as well as equity in companies with aircraft assets subject to commercial leases to airlines across the globe. We believe that these investments can present attractive return opportunities due to cash flow consistency from long-term leases coupled with hard asset residual value. We believe that these investment companies seek to deliver risk-adjusted returns with strong downside protection by analyzing relative value characteristics across a variety of aircraft types and vintages. This strategy historically has comprised less than 5% of our portfolio.

Investing in Structured Credit - We make investments in CLOs, often taking a significant position in the subordinated interests (equity) and debt of the CLOs. The underlying portfolio of each CLO investment is diversified across approximately 100 to 200 broadly syndicated loans and does not have direct exposure to real estate, mortgages, or consumer-based credit assets. The CLOs in which we invest are managed by established collateral management teams with many years of experience in the industry. This strategy has comprised approximately 10%-20% of our portfolio.

Investing in Syndicated Debt - On a primary or secondary basis, we purchase primarily senior and secured loans and high yield bonds that have been sold to a club or syndicate of buyers. These investments are often purchased with a long term, buy-and-hold outlook, and we often look to provide significant input to the transaction by providing anchoring orders. This strategy has comprised approximately 10%-25% of our portfolio.

Investing in Consumer and Small Business Loans and Asset-Backed Securitizations - We purchase loans originated by certain consumer and small-and-medium-sized business (“SME”) loan platforms. We generally purchase each loan in its entirety (i.e., a “whole loan”) and we invest in asset-backed securitizations collateralized by consumer or small business loans. The borrowers are consumers and SMEs and the loans are typically serviced by the platforms of the loans. This investment strategy has comprised up to approximately 0% of our portfolio.

We invest primarily in first and second lien secured loans and unsecured debt, which in some cases includes an equity component. First and second lien secured loans generally are senior debt instruments that rank ahead of unsecured debt of a given portfolio company. These loans also have the benefit of security interests on the assets of the portfolio company, which may rank ahead of or be junior to other security interests. Our investments in CLOs are subordinated to senior loans and are generally unsecured. We invest in debt and equity positions of CLOs which are a form of securitization in which the cash flows of a portfolio of loans are pooled and passed on to different classes of owners in various tranches. Our CLO investments are derived from portfolios of corporate debt securities which are generally risk rated from BB to B.

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We hold many of our control investments in a two-tier structure consisting of a holding company and one or more related operating companies for tax purposes. These holding companies serve various business purposes including concentration of management teams, optimization of third-party borrowing costs, improvement of supplier, customer, and insurance terms, and enhancement of co-investments by the management teams. In these cases, our investment, which is generally equity in the holding company, the holding company’s equity investment in the operating company and any debt from us directly to the operating company structure represents our total exposure for the investment. As of December 31, 2019, as shown in our Consolidated Schedule of Investments, the cost basis and fair value of our investments in controlled companies was $2,397,025 and $2,412,260, respectively. This structure gives rise to several of the risks described in our public documents and highlighted elsewhere in this Quarterly Report. We consolidate all wholly owned and substantially wholly owned holding companies formed by us for the purpose of holding our controlled investments in operating companies. There is no significant effect of consolidating these holding companies as they hold minimal assets other than their investments in the controlled operating companies. Investment company accounting prohibits the consolidation of any operating companies.

Second Quarter Highlights

Investment Transactions

We seek to be a long-term investor with our portfolio companies. During the three months ended December 31, 2019, we acquired $193,222 of new investments, completed follow-on investments in existing portfolio companies totaling approximately $122,193, funded $4,544 of revolver advances, and recorded paid in kind (“PIK”) interest of $6,677, resulting in gross investment originations of $326,636. During the three months ended December 31, 2019, we received full repayments totaling $345,332, received $2,000 of revolver paydowns, and received several partial prepayments, scheduled principal amortization payments, and return of capital distributions, resulting in net repayments of $431,514.

Debt Issuances and Redemptions

During the three months ended December 31, 2019, we repaid $1,701 aggregate principal amount of Prospect Capital InterNotes® at par in accordance with the Survivor’s Option, as defined in the InterNotes® Offering prospectus. In order to replace short maturity debt with longer-term debt, we redeemed prior to maturity $96,208 aggregate principal amount of Prospect Capital InterNotes® at par with a weighted average interest rate of 4.78%. As a result of these transactions, we recorded a loss in the amount of the unamortized debt issuance costs. The net loss on the extinguishment of Prospect Capital InterNotes® in the three months ended December 31, 2019 was $1,086.

During the three months ended December 31, 2019, we issued $62,943 aggregate principal amount of Prospect Capital InterNotes® with a stated and weighted average interest rate of 4.09%, to extend our borrowing base. The newly issued notes mature between October 15, 2024 and January 15, 2030 and generated net proceeds of $61,950.

On October 18, 2019, we repurchased $22,941 of the 4.950% convertible notes that mature on July 15, 2022 (“2022 Notes”) at a price of 102.80, including commissions. As a result of this transaction, we recorded a net loss of $1,072 during the three months ended December 31, 2019, in the amount of the difference of the reacquisition price and the net carrying amounts of the 2022 Notes, net of the proportionate amount of unamortized debt issuance costs.

On September 24, 2019, we commenced a tender offer to purchase for cash up to $40,000 aggregate principal amount of the 2020 Notes (“2020 Notes September Tender Offer”), of which $177,569 was then outstanding. The 2020 Notes September Tender Offer expired at 12:00 midnight on October 23, 2019 (one minute after 11:59 p.m. New York City time, on October 22, 2019). On October 23, 2019, we announced the expiration and results of the 2020 Notes September Tender Offer. On October 25, 2019, $2,140 aggregate principal amount of such notes, representing approximately 1.21% of the outstanding 2020 Notes, were validly tendered and accepted. The 2020 Notes September Tender Offer resulted in our recognizing a loss of $27.

On November 7, 2019, we commenced a tender offer to purchase for cash (i) up to $10,000 aggregate principal amount of our 4.75% Senior Convertible Notes due 2020 (the “2020 Notes November Tender Offer”), of which $175,429 aggregate principal amount of the 2020 Notes were then outstanding, and (ii) up to $50,000 aggregate principal amount of our 4.95% Senior Convertible Notes due 2022 (the “2022 Notes November Tender Offer”, and together with the 2020 Notes November Tender Offer, the “November Tender Offers”), of which $305,559 aggregate principal amount of the 2022 Notes were then outstanding. On December 7, 2019, we announced the expiration and results of the November Tender Offers. On December 11, 2019, $392 aggregate principal amount of the 2020 Notes, representing approximately 0.22% of the outstanding 2020 Notes, and $13,432 aggregate principal amount of the 2022 Notes, representing approximately 4.40% of the outstanding 2022 Notes, were validly tendered and accepted. The November Tender Offers resulted in our recognizing a loss of $4 and $599 for the 2020 Notes and the 2022 Notes, respectively. The November Tender Offers each expired at 12:00 midnight, New York City time, on December 7, 2019 (one minute after 11:59 p.m. New York City time, on December 6, 2019).

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On December 23, 2019, we commenced two separate tender offers to purchase for cash (i) up to $10,000 aggregate principal amount of the 2020 Notes (the “2020 Notes December Tender Offer”) and (ii) up to $25,000 aggregate principal amount of the 2022 Notes (the “2022 Notes December Tender Offer”, and together with the 2020 Notes December Tender Offer, the “December Tender Offers”). The December Tender Offers will each expire at 12:00 midnight, New York City time, on January 23, 2020 (one minute after 11:59 p.m. New York City time, on January 22, 2020).

Equity Issuances

On October 24, 2019, November 20, 2019, and December19, 2019 we issued 63,076, 82,501, and 74,795 shares of our common stock in connection with the dividend reinvestment plan, respectively.

Investment Holdings

At December 31, 2019, we have $5,268,545, or 165.5%, of our net assets invested in 120 long-term portfolio investments and CLOs.

Our annualized current yield was 12.8% and 13.1% as of December 31, 2019 and June 30, 2019, respectively, across all performing interest bearing investments, excluding equity investments and non-accrual loans. Our annualized current yield was 10.3% and 10.6% as of December 31, 2019 and June 30, 2019, respectively, across all investments. Monetization of equity positions that we hold and loans on non-accrual status are not included in this yield calculation. In many of our portfolio companies we hold equity positions, ranging from minority interests to majority stakes, which we expect over time to contribute to our investment returns. Some of these equity positions include features such as contractual minimum internal rates of returns, preferred distributions, flip structures and other features expected to generate additional investment returns, as well as contractual protections and preferences over junior equity, in addition to the yield and security offered by our cash flow and collateral debt protections.

We are a non-diversified company within the meaning of the 1940 Act. As required by the 1940 Act, we classify our investments by level of control. As defined in the 1940 Act, “Control Investments” are those where there is the ability or power to exercise a controlling influence over the management or policies of a company. Control is generally deemed to exist when a company or individual possesses or has the right to acquire within 60 days or less, a beneficial ownership of 25% or more of the voting securities of an investee company. Under the 1940 Act, “Affiliate Investments” are defined by a lesser degree of influence and are deemed to exist through the possession outright or via the right to acquire within 60 days or less, beneficial ownership of 5% or more of the outstanding voting securities of another person. “Non-Control/Non-Affiliate Investments” are those that are neither Control Investments nor Affiliate Investments. As of December 31, 2019, we own controlling interests in the following portfolio companies: CP Energy Services Inc. (“CP Energy”); Credit Central Loan Company, LLC (“Credit Central”); Echelon Transportation, LLC (“Echelon”); First Tower Finance Company LLC (“First Tower Finance”); Freedom Marine Solutions, LLC (“Freedom Marine”); InterDent, Inc. (“InterDent”); Kickapoo Ranch Pet Resort (“Kickapoo”); MITY, Inc. (“MITY”); NPRC; Nationwide Loan Company LLC (“Nationwide”); NMMB, Inc. (“NMMB”); Pacific World Corporation (“Pacific World”); R-V Industries, Inc. (“R-V”); Universal Turbine Parts, LLC (“UTP”); USES Corp. (“USES”); and Valley Electric Company, Inc. (“Valley Electric”). In June 2019, CP Energy purchased a controlling interest in the common equity of Spartan Energy Holdings, Inc. (“Spartan Holdings”), which owns 100% of Spartan Energy Services, LLC (“Spartan”), a portfolio company of Prospect with $34,399 in senior secured term loans (the “Spartan Term Loans”) due to us as of June 30, 2019. As a result of CP Energy’s purchase, and given Prospect’s controlling interest in CP Energy, we report our investments in Spartan as control investments beginning June 30, 2019. Spartan remains the direct borrow and guarantor to Prospect for the Spartan Term Loans.

As of December 31, 2019, we also own affiliated interests in Edmentum Ultimate Holdings, LLC (“Edmentum”), Nixon, Inc. (“Nixon”), Targus Cayman HoldCo Limited (“Targus”), and United Sporting Companies, Inc. (“USC”).

The following shows the composition of our investment portfolio by level of control as of December 31, 2019 and June 30, 2019:

December 31, 2019 June 30, 2019
Level of Control Cost % of Portfolio Fair Value % of Portfolio Cost % of Portfolio Fair Value % of Portfolio
Control Investments $ 2,397,025 42.2 % $ 2,412,260 45.8 % $ 2,385,806 40.2 % $ 2,475,924 43.8 %
Affiliate Investments 158,295 2.8 % 87,623 1.7 % 177,616 3.0 % 76,682 1.4 %
Non-Control/Non-Affiliate Investments 3,118,324 55.0 % 2,768,662 52.5 % 3,368,880 56.8 % 3,100,947 54.8 %
Total Investments $ 5,673,644 100.0 % $ 5,268,545 100.0 % $ 5,932,302 100.0 % $ 5,653,553 100.0 %

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The following shows the composition of our investment portfolio by type of investment as of December 31, 2019 and June 30, 2019: December 31, 2019 June 30, 2019
Type of Investment Cost % of Portfolio Fair Value % of Portfolio Cost % of Portfolio Fair Value % of Portfolio
Revolving Line of Credit $ 35,156 0.6 % $ 35,156 0.7 % $ 33,928 0.6 % $ 34,239 0.6 %
Senior Secured Debt 2,466,567 43.5 % 2,147,402 40.8 % 2,687,709 45.3 % 2,449,357 43.3 %
Subordinated Secured Debt 1,427,227 25.2 % 1,301,043 24.7 % 1,439,440 24.3 % 1,329,799 23.5 %
Subordinated Unsecured Debt 40,478 0.6 % 48,886 0.9 % 38,933 0.7 % 33,058 0.6 %
Rated Secured Structured Notes — — % — — % 44,774 0.8 % 46,851 0.8 %
Subordinated Structured Notes 1,093,667 19.3 % 791,457 15.0 % 1,103,751 18.4 % 850,694 15.1 %
Preferred Stock 97,325 1.7 % 32,716 0.6 % 101,094 1.7 % 84,294 1.5 %
Common Stock 315,200 5.6 % 548,291 10.4 % 288,731 4.9 % 427,085 7.6 %
Membership Interest 198,024 3.5 % 320,979 6.1 % 193,942 3.3 % 296,282 5.2 %
Participating Interest(1) — — % 40,308 0.8 % — — % 99,655 1.8 %
Escrow Receivable — — % 2,307 — % — — % 2,239 — %
Total Investments $ 5,673,644 100.0 % $ 5,268,545 100.0 % $ 5,932,302 100.0 % $ 5,653,553 100.0 %
(1) Participating Interest includes our participating equity investments, such as net profits interests, net operating income interests, net revenue interests, and overriding royalty interests.
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The following shows our investments in interest bearing securities by type of investment as of December 31, 2019 and June 30, 2019:

December 31, 2019 June 30, 2019
Type of Investment Cost % Fair Value % Cost % Fair Value %
First Lien $ 2,493,690 49.3 % $ 2,174,525 50.3 % $ 2,713,478 50.7 % $ 2,475,437 52.2 %
Second Lien 1,435,260 28.3 % 1,309,076 30.3 % 1,447,599 27.1 % 1,337,958 28.2 %
Unsecured 40,478 0.8 % 48,886 1.1 % 38,933 0.7 % 33,058 0.7 %
Rated Secured Structured Notes — — % — — % 44,774 0.9 % 46,851 1.0 %
Subordinated Structured Notes 1,093,667 21.6 % 791,457 18.3 % 1,103,751 20.6 % 850,694 17.9 %
Total Interest Bearing Investments $ 5,063,095 100.0 % $ 4,323,944 100.0 % $ 5,348,535 100.0 % $ 4,743,998 100.0 %
The following shows the composition of our investment portfolio by industry as of December 31, 2019 and June 30, 2019: December 31, 2019 June 30, 2019
Industry Cost % of Portfolio Fair Value % of Portfolio Cost % of Portfolio Fair Value % of Portfolio
Aerospace & Defense $ 81,853 1.4 % $ 91,065 1.7 % $ 77,579 1.3 % $ 89,701 1.6 %
Air Freight & Logistics 12,500 0.2 % 12,385 0.2 % 12,500 0.2 % 12,233 0.2 %
Auto Components 25,491 0.4 % 25,491 0.5 % 25,450 0.4 % 25,450 0.5 %
Building Products — — % — — % 19,842 0.3 % 19,842 0.4 %
Capital Markets — — % — — % 25,084 0.4 % 25,222 0.4 %
Chemicals 31,207 0.6 % 31,207 0.6 % — — % — — %
Commercial Services & Supplies 369,873 6.6 % 302,504 5.7 % 376,456 6.3 % 296,672 5.2 %
Communications Equipment 59,602 1.1 % 49,697 0.9 % 50,503 0.9 % 48,760 0.9 %
Construction & Engineering 66,606 1.2 % 122,500 2.3 % 69,935 1.2 % 143,685 2.5 %
Consumer Finance 502,105 8.8 % 641,385 12.2 % 487,778 8.2 % 618,983 10.9 %
Distributors 280,838 4.9 % 177,522 3.4 % 299,906 5.1 % 190,137 3.4 %
Diversified Consumer Services 150,930 2.8 % 154,735 2.9 % 146,845 2.5 % 141,308 2.5 %
Diversified Financial Services 30,433 0.5 % 30,433 0.7 % — — % — — %

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December 31, 2019 June 30, 2019
Industry Cost % of Portfolio Fair Value % of Portfolio Cost % of Portfolio Fair Value % of Portfolio
Diversified Telecommunication Services 58,111 1.0 % 57,380 1.2 % 36,234 0.6 % 36,234 0.6 %
Electronic Equipment, Instruments & Components — — % 2,307 — % — — % 2,239 — %
Energy Equipment & Services 264,923 4.7 % 116,641 2.2 % 261,663 4.4 % 153,865 2.7 %
Entertainment 24,657 0.4 % 24,753 0.5 % 36,221 0.6 % 36,327 0.6 %
Equity Real Estate Investment Trusts (REITs) 496,440 8.7 % 884,299 16.8 % 496,440 8.4 % 827,687 14.6 %
Food Products 24,841 0.4 % 24,841 0.5 % 34,729 0.6 % 34,729 0.6 %
Health Care Equipment & Supplies 7,471 0.1 % 6,151 0.1 % 41,142 0.7 % 41,154 0.7 %
Health Care Providers & Services 526,346 9.4 % 468,204 8.9 % 470,422 7.9 % 445,235 7.9 %
Hotels, Restaurants & Leisure 30,550 0.5 % 28,810 0.5 % 34,737 0.6 % 34,737 0.7 %
Household Durables 25,636 0.5 % 12,911 0.2 % 29,291 0.5 % 22,460 0.4 %
Household Products 24,563 0.4 % 24,561 0.5 % 24,688 0.4 % 24,688 0.4 %
Insurance 12,989 0.2 % 12,989 0.2 % 12,988 0.2 % 12,988 0.2 %
Interactive Media & Services 36,741 0.6 % 36,741 0.7 % 37,861 0.6 % 37,861 0.7 %
Internet & Direct Marketing Retail 18,149 0.3 % 18,608 0.4 % — — % — — %
IT Services 203,623 3.6 % 203,666 3.9 % 306,096 5.2 % 305,360 5.4 %
Leisure Products 29,151 0.5 % 29,150 0.6 % 32,869 0.6 % 32,868 0.6 %
Machinery 35,488 0.6 % 36,503 0.7 % 35,488 0.6 % 33,624 0.6 %
Media 128,934 2.3 % 134,999 2.6 % 138,362 2.3 % 141,467 2.5 %
Online Lending 179,949 3.2 % 80,291 1.5 % 272,949 4.6 % 176,778 3.1 %
Paper & Forest Products 15,750 0.3 % 15,750 0.3 % 11,361 0.2 % 11,500 0.2 %
Personal Products 247,425 4.4 % 62,610 1.2 % 237,969 4.0 % 112,427 2.0 %
Professional Services 82,671 1.5 % 85,216 1.6 % 188,098 3.2 % 190,178 3.4 %
Real Estate Management & Development 38,432 0.7 % 38,432 0.7 % 38,852 0.7 % 38,852 0.7 %
Software 75,141 1.3 % 75,141 1.4 % 64,723 1.1 % 64,729 1.1 %
Technology Hardware, Storage & Peripherals 12,408 0.2 % 12,408 0.2 % 12,400 0.2 % 12,400 0.2 %
Textiles, Apparel & Luxury Goods 212,359 3.7 % 225,778 4.3 % 231,106 3.9 % 242,981 4.3 %
Tobacco — — % — — % 14,419 0.2 % 14,500 0.4 %
Trading Companies & Distributors 63,886 1.1 % 28,622 0.5 % 63,213 1.1 % 28,043 0.5 %
Transportation Infrastructure 27,620 0.5 % 28,104 0.5 % 27,578 0.5 % 28,104 0.5 %
Subtotal $ 4,515,692 79.6 % $ 4,414,790 83.8 % $ 4,783,777 80.7 % $ 4,756,008 84.1 %
Structured Finance(1) $ 1,157,952 20.4 % $ 853,755 16.2 % $ 1,148,525 19.3 % $ 897,545 15.9 %
Total Investments $ 5,673,644 100.0 % $ 5,268,545 100.0 % $ 5,932,302 100.0 % $ 5,653,553 100.0 %

(1) Our RSSN and SSN investments do not have industry concentrations and as such have been separated in the tables above. As of December 31, 2019, Structured Finance includes $62,298 of senior secured debt and equity investments held through our investment in NPRC and it’s wholly-owned subsidiary.

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Portfolio Investment Activity

Our origination efforts are focused primarily on secured lending to non-control investments to reduce the risk in the portfolio by investing primarily in first lien loans, though we also continue to close select junior debt and equity investments. Our gross investment activity for the six months ended December 31, 2019 and December 31, 2018 are presented below:

Six months ended December 31,
2019 2018
Investments made in new portfolio companies $ 225,731 $ 209,041
Follow-on investments made in existing portfolio companies ^(1)^ 169,226 245,980
Revolver advances 5,044 6,567
PIK interest 21,175 19,306
Total acquisitions $ 421,176 $ 480,894
Acquisitions by portfolio composition
1st Lien Term Loan $ 250,450 $ 213,633
2nd Lien Term Loan 133,441 209,592
Rated Secured Structured Notes 5,534 38,524
Subordinated Structured Notes — 6,887
Subordinated Unsecured Debt 693 330
Equity 31,058 11,928
Total acquisitions by portfolio composition $ 421,176 $ 480,894
Investments sold $ 16,000 $ —
Partial repayments ^(2)^ 178,459 94,781
Full repayments 477,824 104,440
Revolver paydowns 4,693 16,855
Total dispositions $ 676,976 $ 216,076
Dispositions by portfolio composition
1st Lien Term Loan $ 470,666 $ 101,340
2nd Lien Term Loan 149,087 99,764
Rated Secured Structured Notes 50,237 —
Small Business Whole Loan Portfolio — 30
Subordinated Structured Notes 2,420 —
Subordinated Unsecured Debt 289 —
Equity 4,277 14,942
Total dispositions by portfolio composition $ 676,976 $ 216,076
Weighted average interest rates for new investments by portfolio composition ^(3)^
1st Lien Term Loan 8.88 % 10.81 %
2nd Lien Term Loan 10.30 % 10.77 %
Rated Secured Structured Notes N/A 12.31 %

(1) Includes follow-on investments in existing portfolio companies and refinancings, if any.

(2) Includes partial prepayments of principal, scheduled amortization payments, return of capital, and refinancings, if any.

(3) Weighted average interest rates for new investments by portfolio composition is calculated with the current rate at the end of the period.

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Investment Valuation

Investments for which market quotations are readily available are typically valued at such market quotations. In order to validate market quotations, management and the independent valuation firm look at a number of factors to determine if the quotations are representative of fair value, including the source and nature of the quotations. In determining the range of values for debt instruments where market quotations are not available, except CLOs and debt investments in controlling portfolio companies, management and the independent valuation firm estimated corporate and security credit ratings and identified corresponding yields to maturity for each loan from relevant market data. A discounted cash flow technique was then applied using the appropriate yield to maturity as the discount rate, to determine a range of values. In determining the range of values for debt investments of controlled companies and equity investments, the enterprise value was determined by applying a market approach such as using earnings before income interest, tax, depreciation and amortization (“EBITDA”) multiples, net income and/or book value multiples for similar guideline public companies and/or similar recent investment transactions and/or an income approach, such as the discounted cash flow technique. The enterprise value technique may also be used to value debt investments which are credit impaired. For stressed debt and equity investments, an asset recovery analysis was used.

In determining the range of values for our investments in CLOs, the independent valuation firm uses a discounted multi-path cash flow model. The valuations were accomplished through the analysis of the CLO deal structures to identify the risk exposures from the modeling point of view as well as to determine an appropriate call date (i.e., expected maturity). These risk factors are sensitized in the multi-path cash flow model using Monte Carlo simulations, which are simulations used to model the probability of different outcomes, to generate probability-weighted (i.e., multi-path) cash flows for the underlying assets and liabilities. These cash flows are discounted using appropriate market discount rates, and relevant data in the CLO market and certain benchmark credit indices are considered, to determine the value of each CLO investment. In addition, we generate a single-path cash flow utilizing our best estimate of expected cash receipts, and assess the reasonableness of the implied discount rate that would be effective for the value derived from the corresponding multi-path cash flow model.

With respect to our online consumer and SME lending initiative, we invest primarily in marketplace loans through marketplace lending platforms.  We do not conduct loan origination activities ourselves. Therefore, our ability to purchase consumer and SME loans, and our ability to grow our portfolio of consumer and SME loans, are directly influenced by the business performance and competitiveness of the marketplace loan origination business of the marketplace lending platforms from which we purchase consumer and SME loans. In addition, our ability to analyze the risk-return profile of consumer and SME loans is significantly dependent on the marketplace platforms’ ability to effectively evaluate a borrower's credit profile and likelihood of default. If we are unable to effectively evaluate borrowers’ credit profiles or the credit decisioning and scoring models implemented by each platform, we may incur unanticipated losses which could adversely impact our operating results.

The Board of Directors looked at several factors in determining where within the range to value the asset including: recent operating and financial trends for the asset, independent ratings obtained from third parties, comparable multiples for recent sales of companies within the industry and discounted cash flow models for our investments in CLOs. The composite of all these various valuation techniques, applied to each investment, was a total valuation of $5,268,545.

Our portfolio companies are generally lower middle market companies, outside of the financial sector, with less than $100,000 of annual EBITDA. We believe our investment portfolio has experienced less volatility than others because we believe there are more buy and hold investors who own these less liquid investments.

Control investments offer increased risk and reward over straight debt investments. Operating results and changes in market multiples can result in dramatic changes in values from quarter to quarter. Significant downturns in operations can further result in our looking to recoveries on sales of assets rather than the enterprise value of the investment. Equity positions in our portfolio are susceptible to potentially significant changes in value, both increases as well as decreases, due to changes in operating results and market multiples. Several of our controlled companies discussed below experienced such changes and we recorded corresponding fluctuations in valuations during the six months ended December 31, 2019.

CP Energy Services Inc.

Prospect owns 100% of the equity of CP Holdings, a Consolidated Holding Company. CP Holdings owns 99.8% of the equity of CP Energy, and the remaining equity is owned by CP Energy management. CP Energy provides oilfield flowback services and fluid hauling and disposal services through its subsidiaries.

On April 6, 2018, Arctic Oilfield Equipment USA, Inc. (“Arctic Equipment”), a previously controlled portfolio company, merged with and into CP Energy, with CP Energy continuing as the surviving corporation. In June 2019, CP Energy purchased approximately 64.1% of the common equity of Spartan Holdings, which owns 100% of Spartan, a portfolio company of Prospect with $34,399 in senior secured term loans due to us as of June 30, 2019. As a result of CP Energy’s purchase, and given Prospect’s controlling

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interest in CP Energy, our Spartan Term Loans are presented as control investments under CP Energy beginning June 30, 2019. Spartan remains the direct borrower and guarantor to Prospect for the Spartan Term Loans. On December 30, 2019, Wolf Energy LLC, Wolf Energy Services LLC, and AEH LLC (collectively referred to as “Wolf Energy”), a previously controlled portfolio company, merged with and into CP Energy, with CP Energy continuing as the surviving corporation. See Note 14 in our Consolidated Financial Statements for further discussion.

The fair value of our investment in CP Energy decreased to $101,721 as of December 31, 2019, which is a discount of $119,310 from its amortized cost, compared to a fair value of $138,931 as of June 30, 2019, representing a discount of $74,944 to its amortized cost. The increase in discount to amortized cost resulted from a decline in financial performance.

First Tower Finance Company LLC

Prospect owns 100% of the equity of First Tower Delaware, a consolidated holding company. First Tower Delaware owns 80.1% of First Tower Finance. First Tower Finance owns 100% of First Tower, LLC (“First Tower”), a multiline specialty finance company.

The fair value of our investment in First Tower increased to $502,785 as of December 31, 2019, representing a premium of $143,652 to its amortized cost basis compared to a fair value of $494,036 as of June 30, 2019, representing a premium of $135,479 to its amortized cost. The increase in premium to amortized cost was driven by strong financial performance due to growth in receivables and positive impact of the acquisition completed in the quarter ending March 31, 2018.

InterDent, Inc.

Following assumption of control, Prospect exercised its rights and remedies under its loan documents to exercise the shareholder voting rights in respect of the stock of InterDent, Inc. (“InterDent”) and to appoint a new Board of Directors of InterDent, all the members of which are our Investment Adviser’s professionals. As a result, as of June 30, 2018, Prospect’s investment in InterDent is classified as a control investment.

The fair value of our investment in InterDent decreased to $196,971 as of December 31, 2019, representing a discount of $57,979 to its amortized cost basis, compared to a fair value of $224,876 as of June 30, 2019, representing a discount of $23,997 to its amortized cost basis. The increase in discount to amortized cost was driven by investments in operating initiatives as well as cost inflation.

MITY, Inc.

Prospect owns 100% of the equity of MITY Delaware, a consolidated holding company. MITY Delaware holds 95.58% of the equity of MITY. Effective March 13, 2019, MITY Delaware’s equity ownership of MITY increased to 100%. MITY owns 100% of each of MITY-Lite, Inc. (“Mity-Lite”); Broda Enterprises USA, Inc.; and Broda Enterprises ULC (“Broda Canada”).

The fair value of our investment in Mity increased to $56,186 as of December 31, 2019, a discount of $14,926 to its amortized cost basis compared to a fair value of $46,902 as of June 30, 2019, a discount of $22,698 to its amortized cost. The decrease to the discount was driven by stronger financial performance.

National Property REIT Corp.

NPRC is a Maryland corporation and a qualified REIT for federal income tax purposes. NPRC is held for purposes of investing, operating, financing, leasing, managing and selling a portfolio of real estate assets and engages in any and all other activities that may be necessary, incidental, or convenient to perform the foregoing. NPRC acquires real estate assets, including, but not limited to, industrial, commercial, and multi-family properties. NPRC may acquire real estate assets directly or through joint ventures by making a majority equity investment in a property-owning entity. Additionally, through its wholly owned subsidiaries, NPRC invests in online consumer loans. Effective May 23, 2016, APRC and UPRC merged with and into NPRC, to consolidate all of our real estate holdings, with NPRC as the surviving entity. As of December 31, 2019, we own 100% of the fully-diluted common equity of NPRC.

During the six months ended December 31, 2019, we received partial repayments of $93,000 of our loans previously outstanding with NPRC.

The online consumer loan investments held by certain of NPRC’s wholly owned subsidiaries are unsecured obligations of individual borrowers that are issued in amounts ranging from $1 to $50, with fixed terms ranging from 24 to 84 months. As of December 31, 2019, the outstanding investment in online consumer loans by certain of NPRC’s wholly owned subsidiaries was comprised of 16,769 individual loans and residual interest in four securitizations, and had an aggregate fair value of $75,560. The average outstanding individual loan balance is approximately $3 and the loans mature on dates ranging from January 1, 2020 to April 19,

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2025 with a weighted-average outstanding term of 20 months as of December 31, 2019. Fixed interest rates range from 4.0% to 36.0% with a weighted-average current interest rate of 22.8%. As of December 31, 2019, our investment in NPRC and its wholly-owned subsidiaries relating to online consumer lending had a fair value of $80,291.

As of December 31, 2019, based on outstanding principal balance, 10.3% of the portfolio was invested in super prime loans (borrowers with a Fair Isaac Corporation (“FICO”) score, of 720 or greater), 27.0% of the portfolio in prime loans (borrowers with a FICO score of 660 to 719) and 62.7% of the portfolio in near prime loans (borrowers with a FICO score of 580 to 659, a portion of which are considered sub-prime).

Loan Type Outstanding Principal Balance Fair Value Interest Rate Range Weighted Average Interest Rate*
Super Prime $ 5,843 $ 4,976 4.0% - 24.1% 12.5%
Prime 15,374 12,085 6.0% - 36.0% 17.6%
Near Prime 35,739 36,539 6.0% - 36.0% 26.6%

*Weighted by outstanding principal balance of the online consumer loans.

The rated secured structured note investments held by certain of NPRC’s wholly owned subsidiaries are subordinated debt interests in broadly syndicated loans managed by established collateral management teams with many years of experience in the industry. As of December 31, 2019, the outstanding investment in rated secured structured notes by certain of NPRC’s wholly owned subsidiaries was comprised of 24 investments with a fair value of $129,053 and face value of $136,849. The average outstanding note is approximately $5,702 with a stated maturity date ranging from April 2027 to October 2032 and weighted-average stated maturity of 11.3 years as of December 31, 2019. Coupons range from three-month Libor (“3ML”) plus 5.45% to 9.45% with a weighted-average coupon of 3ML + 7.38%. As of December 31, 2019, our investment in NPRC and its wholly-owned subsidiaries relating to rated secured structured notes had a fair value of $62,298.

As of December 31, 2019, based on outstanding notional balance, 38.7% of the portfolio was invested in Single - B rated tranches and 61.3% of the portfolio in BB rated tranches.

As of December 31, 2019, our investment in NPRC and its wholly owned subsidiaries had an amortized cost of $740,674 and a fair value of $1,026,888, including our investment in online consumer lending and rated secured structured notes as discussed above. As of December 31, 2019, our investment in NPRC and its wholly owned subsidiaries relating to the real estate portfolio had a fair value of $884,299. This portfolio was comprised of thirty-nine multi-families properties, twelve self-storage properties, eight student housing properties and three commercial properties. The following table shows the location, acquisition date, purchase price, and mortgage outstanding due to other parties for each of the properties held by NPRC as of December 31, 2019.

No. Property Name City Acquisition Date Purchase Price Mortgage Outstanding
1 Filet of Chicken Forest Park, GA 10/24/2012 $ 7,400 $ —
2 Arlington Park Marietta, LLC Marietta, GA 5/8/2013 14,850 —
3 Cordova Regency, LLC Pensacola, FL 11/15/2013 13,750 11,201
4 Crestview at Oakleigh, LLC Pensacola, FL 11/15/2013 17,500 13,633
5 Inverness Lakes, LLC Mobile, AL 11/15/2013 29,600 24,322
6 Kings Mill Pensacola, LLC Pensacola, FL 11/15/2013 20,750 17,281
7 Plantations at Pine Lake, LLC Tallahassee, FL 11/15/2013 18,000 13,876
8 Verandas at Rocky Ridge, LLC Birmingham, AL 11/15/2013 15,600 10,048
9 Crestview at Cordova, LLC Pensacola, FL 1/17/2014 8,500 7,509
10 Taco Bell, OK Yukon, OK 6/4/2014 1,719 —
11 Taco Bell, MO Marshall, MO 6/4/2014 1,405 —
12 23 Mile Road Self Storage, LLC Chesterfield, MI 8/19/2014 5,804 4,333
13 36th Street Self Storage, LLC Wyoming, MI 8/19/2014 4,800 3,586
14 Ball Avenue Self Storage, LLC Grand Rapids, MI 8/19/2014 7,281 5,439
15 Ford Road Self Storage, LLC Westland, MI 8/29/2014 4,642 3,467
16 Ann Arbor Kalamazoo Self Storage, LLC Ann Arbor, MI 8/29/2014 4,458 3,332
17 Ann Arbor Kalamazoo Self Storage, LLC Ann Arbor, MI 8/29/2014 8,927 6,669
18 Ann Arbor Kalamazoo Self Storage, LLC Kalamazoo, MI 8/29/2014 2,363 1,768
19 Canterbury Green Apartments Holdings LLC Fort Wayne, IN 9/29/2014 85,500 86,131

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No. Property Name City Acquisition Date Purchase Price Mortgage Outstanding
20 Abbie Lakes OH Partners, LLC Canal Winchester, OH 9/30/2014 12,600 15,704
21 Kengary Way OH Partners, LLC Reynoldsburg, OH 9/30/2014 11,500 15,872
22 Lakeview Trail OH Partners, LLC Canal Winchester, OH 9/30/2014 26,500 30,284
23 Lakepoint OH Partners, LLC Pickerington, OH 9/30/2014 11,000 17,230
24 Sunbury OH Partners, LLC Columbus, OH 9/30/2014 13,000 17,467
25 Heatherbridge OH Partners, LLC Blacklick, OH 9/30/2014 18,416 25,009
26 Jefferson Chase OH Partners, LLC Blacklick, OH 9/30/2014 13,551 19,424
27 Goldenstrand OH Partners, LLC Hilliard, OH 10/29/2014 7,810 11,853
28 Jolly Road Self Storage, LLC Okemos, MI 1/16/2015 7,492 5,620
29 Eaton Rapids Road Self Storage, LLC Lansing West, MI 1/16/2015 1,741 1,305
30 Haggerty Road Self Storage, LLC Novi, MI 1/16/2015 6,700 5,025
31 Waldon Road Self Storage, LLC Lake Orion, MI 1/16/2015 6,965 5,225
32 Tyler Road Self Storage, LLC Ypsilanti, MI 1/16/2015 3,507 2,630
33 SSIL I, LLC Aurora, IL 11/5/2015 34,500 26,450
34 Vesper Tuscaloosa, LLC Tuscaloosa, AL 9/28/2016 54,500 43,087
35 Vesper Iowa City, LLC Iowa City, IA 9/28/2016 32,750 24,825
36 Vesper Corpus Christi, LLC Corpus Christi, TX 9/28/2016 14,250 10,800
37 Vesper Campus Quarters, LLC Corpus Christi, TX 9/28/2016 18,350 14,175
38 Vesper College Station, LLC College Station, TX 9/28/2016 41,500 32,058
39 Vesper Kennesaw, LLC Kennesaw, GA 9/28/2016 57,900 48,600
40 Vesper Statesboro, LLC Statesboro, GA 9/28/2016 7,500 7,480
41 Vesper Manhattan KS, LLC Manhattan, KS 9/28/2016 23,250 15,459
42 JSIP Union Place, LLC Franklin, MA 12/7/2016 64,750 51,800
43 9220 Old Lantern Way, LLC Laurel, MD 1/30/2017 187,250 153,580
44 7915 Baymeadows Circle Owner, LLC Jacksonville, FL 10/31/2017 95,700 76,560
45 8025 Baymeadows Circle Owner, LLC Jacksonville, FL 10/31/2017 15,300 12,240
46 23275 Riverside Drive Owner, LLC Southfield, MI 11/8/2017 52,000 44,044
47 23741 Pond Road Owner, LLC Southfield, MI 11/8/2017 16,500 14,185
48 150 Steeplechase Way Owner, LLC Largo, MD 1/10/2018 44,500 36,668
49 Laurel Pointe Holdings, LLC Forest Park, GA 5/9/2018 33,005 26,400
50 Bradford Ridge Holdings, LLC Forest Park, GA 5/9/2018 12,500 10,000
51 Olentangy Commons Owner LLC Columbus, OH 6/1/2018 113,000 92,876
52 Villages of Wildwood Holdings LLC Fairfield, OH 7/20/2018 46,500 39,525
53 Falling Creek Holdings LLC Richmond, VA 8/8/2018 25,000 19,335
54 Crown Pointe Passthrough LLC Danbury, CT 8/30/2018 108,500 89,400
55 Ashwood Ridge Holdings LLC Jonesboro, GA 9/21/2018 9,600 7,300
56 Lorring Owner LLC Forestville, MD 10/30/2018 58,521 47,680
57 Hamptons Apartments Owner, LLC Beachwood, OH 1/9/2019 96,500 79,520
58 5224 Long Road Holdings, LLC Orlando, FL 6/28/2019 26,500 21,200
59 Druid Hills Holdings LLC Atlanta, GA 7/30/2019 96,000 79,104
60 Bel Canto NPRC Parcstone LLC Fayetteville, NC 10/15/2019 45,000 30,127
61 Bel Canto NPRC Stone Ridge LLC Fayetteville, NC 10/15/2019 21,900 14,662
62 Sterling Place Holdings LLC Columbus, OH 10/28/2019 41,500 34,196
$ 1,908,157 $ 1,588,579

During the six months ended December 31, 2019, the valuation methodology for National Property REIT Corporation (“NPRC”) and its wholly owned subsidiaries relating to the real estate portfolio changed to remove the Discounted Cash Flow Method. Management utilizes the Enterprise Value Waterfall (NAV Analysis) to value its investment in NPRC and its wholly owned subsidiaries relating to the real estate portfolio as this method is aligned with current industry practice and with Management’s experience in buying and selling income producing real estate assets. The fair value of our investment in NPRC and its wholly owned subsidiaries relating to the real estate portfolio increased by $56,612, to $884,299, during the six months ended December 31, 2019, attributable to both an improvement in property operations and values, and the change in methodology.

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The fair value of our investment in NPRC increased to $1,026,888 as of December 31, 2019, representing a premium of $286,214 to its amortized cost basis, compared to a fair value of $1,004,465 as of June 30, 2019, representing a premium of $235,076. The increase in premium to amortized cost is primarily due to the increase in property values and change in methodology discussed above.

NMMB, Inc.

Prospect owns 100% of the equity of NMMB Holdings, a consolidated holding company. NMMB Holdings owns 92.40% and 94.10% of the fully-diluted equity of NMMB as of December 31, 2019 and June 30, 2019, respectively, with NMMB management owning the remaining equity. NMMB owns 100% of Refuel Agency, Inc. (“Refuel Agency”). Refuel Agency owns 100% of Armed Forces Communications, Inc. NMMB is an advertising media buying business.

The fair value of our investment in NMMB increased to $37,918 as of December 31, 2019, representing a premium of $9,949 to its amortized cost basis, compared to a fair value of $24,183 as of June 30, 2019, representing a premium of $8,200 to its amortized cost basis. The increase to the premium was driven by improved financial performance, including revenue growth and higher gross profit and operating margins.

Pacific World Corporation

On May 29, 2018, Prospect exercised its rights and remedies under its loan documents to exercise the shareholder voting rights in respect of the stock of Pacific World Corporation (“Pacific World”) and to appoint a new Board of Directors of Pacific World. As a result, as of June 30, 2018, Prospect’s investment in Pacific World is classified as a control investment. Pacific World supplies nail and beauty care products to food, drug, mass, and value retail channels worldwide.

The fair value of our investment in Pacific World decreased to $62,610 as of December 31, 2019, representing a discount of $184,815 to its amortized cost basis, compared to a fair value of $112,427 as of June 30, 2019, representing a discount of $125,542 to its amortized cost basis. The increase in discount to amortized cost resulted from a deterioration in financial performance.

Valley Electric Company, Inc.

Prospect owns 100% of the common stock of Valley Holdings I, a Consolidated Holding Company. Valley Holdings I owns 100% of Valley Holdings II, a Consolidated Holding Company. Valley Holdings II owns 94.99% of Valley Electric, with Valley Electric management owning the remaining 5.01% of the equity. Valley Electric owns 100% of the equity of VE Company, Inc., which owns 100% of the equity of Valley Electric Co. of Mt. Vernon, Inc. (“Valley”), a leading provider of specialty electrical services in the state of Washington and among the top electrical contractors in the United States.

The fair value of our investment in Valley Electric decreased to $122,500 as of December 31, 2019, a premium of $55,894 from its amortized cost, compared to a fair value of $143,685 as of June 30, 2019, representing a $73,750 premium to its amortized cost. While Valley Electric’s financial performance remains strong, the decrease in premium to amortized cost was driven by adverse market conditions.

Our controlled investments, other than those discussed above, are valued at $103,444 below cost and did not experience significant changes in operating performance or value during the six months ended December 31, 2019. This discount is primarily driven by our controlled investments in Freedom Marine, Universal Turbine Parts, and USES, which are valued at a discount to amortized cost of $28,972, $35,264, and $50,118, respectively. Overall, combined with those portfolio companies discussed above, our controlled investments at December 31, 2019 are valued at $15,235 above their amortized cost.

We hold four affiliate investments at December 31, 2019, which are valued at $70,672 below their amortized cost. This discount is primarily driven by our affiliate investment in USC, which is valued at a discount to amortized cost of $100,672. In June, 2019, USC filed for Chapter 11 bankruptcy and began liquidating its remaining assets. During the six months ended December 31, 2019, USC used a portion of the proceeds from the ongoing liquidation to partially repay $20,061 of our Second Lien Term Loan. Excluding USC, our affiliate investments are valued at $30,000 above their amortized cost as of December 31, 2019.

With the non-control/non-affiliate investments, generally, there is less volatility related to our total investments because our equity positions tend to be smaller than with our control/affiliate investments, and debt investments are generally not as susceptible to large swings in value as equity investments. For debt investments, the fair value is generally limited on the high side to each loan’s par value, plus any prepayment premium that could be imposed. As of December 31, 2019, our CLO investment portfolio is valued at a $302,210 discount to amortized cost. Excluding the CLO investment portfolio, non-control/non-affiliate investments at December 31, 2019 are valued at $47,452 below their amortized cost and did not experience significant changes in operating performance or value.

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Capitalization

Our investment activities are capital intensive and the availability and cost of capital is a critical component of our business. We capitalize our business with a combination of debt and equity. Our debt as of December 31, 2019 consists of: a Revolving Credit Facility availing us of the ability to borrow debt, subject to borrowing base determinations; Convertible Notes, which we issued in April 2014, April 2017 (with a follow-on issuance in May 2018), and March 2019; Public Notes which we issued in March 2013, December 2015 (and from time to time through our 2024 Notes Follow-on Program), June 2018 (and from time to time through our 2028 Notes Follow-on Program), October 2018, and December 2018 (and from time to time through our 2029 Notes Follow-on Program); and Prospect Capital InterNotes® which we issue from time to time. Our equity capital is comprised entirely of common equity.

The following table shows our outstanding debt as of December 31, 2019:

Principal Outstanding Unamortized Discount & Debt Issuance Costs Net Carrying Value Fair Value(1) Effective Interest Rate
Revolving Credit Facility(2) $ 92,000 $ 10,232 $ 92,000 (3 ) $ 92,000 1ML+2.20% (6 )
2020 Notes 175,037 583 174,454 175,914 (4 ) 5.79 % (7 )
2022 Notes 292,127 4,975 287,152 300,353 (4 ) 5.68 % (7 )
2025 Notes 201,250 5,752 195,498 214,818 (4 ) 6.63 % (7 )
Convertible Notes 668,414 657,104 691,085
6.375% 2024 Notes 100,000 893 99,107 105,648 (4 ) 6.64 % (7 )
2023 Notes 320,000 2,854 317,146 341,997 (4 ) 6.09 % (7 )
2024 Notes 234,443 4,370 230,073 237,256 (4 ) 6.76 % (7 )
2028 Notes 70,761 2,243 68,518 73,142 (4 ) 6.77 % (7 )
2029 Notes 69,170 2,436 66,734 72,850 (4 ) 7.38 % (7 )
Public Notes 794,374 781,578 830,893
Prospect Capital InterNotes® 622,409 12,457 609,952 677,900 (5 ) 6.19 % (8 )
Total $ 2,177,197 $ 2,140,634 $ 2,291,878
(1) As permitted by ASC 825-10-25, we have not elected to value our Revolving Credit Facility, Convertible Notes, Public Notes and Prospect Capital InterNotes® at fair value. The fair value of these debt obligations are categorized as Level 2 under ASC 820 as of December 31, 2019.
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(2) The maximum draw amount of the Revolving Credit facility as of December 31, 2019 is $1,077,500.
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(3) Net Carrying Value excludes deferred financing costs associated with the Revolving Credit Facility. See Critical Accounting Policies and Estimates for accounting policy details.
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(4) We use available market quotes to estimate the fair value of the Convertible Notes and Public Notes.
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(5) The fair value of Prospect Capital InterNotes® is estimated by discounting remaining payments using current Treasury rates plus spread based on observable market inputs.
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(6) Represents the rate on drawn down and outstanding balances. Deferred debt issuance costs are amortized on a straight-line method over the stated life of the obligation.
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(7) The effective interest rate is equal to the effect of the stated interest, the accretion of original issue discount and amortization of debt issuance costs. For the 2024 Notes, the 2028 Notes, and the 2029 Notes, the rate presented is a combined effective interest rate of their respective original Note issuances and Note Follow-on Programs.
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(8) For the Prospect Capital InterNotes®, the rate presented is the weighted average effective interest rate. Interest expense and deferred debt issuance costs, which are amortized on a straight-line method over the stated life of the obligation which approximates level yield, are weighted against the average year-to-date principal balance.
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The following table shows the contractual maturities of our Revolving Credit Facility, Convertible Notes, Public Notes and Prospect Capital InterNotes® as of December 31, 2019:

Payments Due by Period
Total Less than 1 Year 1 – 3 Years 3 – 5 Years After 5 Years
Revolving Credit Facility $ 92,000 $ — $ — $ 92,000 $ —
Convertible Notes 668,414 175,037 292,127 — 201,250
Public Notes 794,374 — — 654,443 139,931
Prospect Capital InterNotes® 622,409 — 15,634 194,550 412,225
Total Contractual Obligations $ 2,177,197 $ 175,037 $ 307,761 $ 940,993 $ 753,406

The following table shows the contractual maturities of our Revolving Credit Facility, Convertible Notes, Public Notes and Prospect Capital InterNotes® as of June 30, 2019:

Payments Due by Period
Total Less than 1 Year 1 – 3 Years 3 – 5 Years After 5 Years
Revolving Credit Facility $ 167,000 $ — $ — $ 167,000 $ —
Convertible Notes 753,864 224,114 — 328,500 201,250
Public Notes 794,374 — — 654,443 139,931
Prospect Capital InterNotes® 707,699 4,402 188,037 189,795 325,465
Total Contractual Obligations $ 2,422,937 $ 228,516 $ 188,037 $ 1,339,738 $ 666,646

Historically, we have funded a portion of our cash needs through borrowings from banks, issuances of senior securities, including secured, unsecured and convertible debt securities, or issuances of common equity. For flexibility, we maintain a shelf registration statement that allows for the public offering and sale of our Prospect Capital InterNotes®, on a continuous basis, in an amount up to $500,000 less issuances to date. As of December 31, 2019, we can issue up to $417,152 of additional InterNotes® debt securities in the public market under this shelf registration. We may from time to time issue securities pursuant to the shelf registration statement or otherwise pursuant to private offerings. The issuance of debt or equity securities will depend on future market conditions, funding needs and other factors and there can be no assurance that any such issuance will occur or be successful.

Each of our Convertible Notes, Public Notes and Prospect Capital InterNotes® (collectively, our “Unsecured Notes”) are our general, unsecured obligations and rank equal in right of payment with all of our existing and future unsecured indebtedness and will be senior in right of payment to any of our subordinated indebtedness that may be issued in the future. The Unsecured Notes are effectively subordinated to our existing secured indebtedness, such as our credit facility, and future secured indebtedness to the extent of the value of the assets securing such indebtedness and structurally subordinated to any existing and future liabilities and other indebtedness of any of our subsidiaries.

Revolving Credit Facility

On August 29, 2014, we renegotiated our previous credit facility and closed an expanded five and a half year revolving credit facility (the “2014 Facility”). The lenders had extended commitments of $885,000 under the 2014 Facility as of June 30, 2018. The 2014 Facility included an accordion feature which allowed commitments to be increased up to $1,500,000 in the aggregate. Interest on borrowings under the 2014 Facility was one-month LIBOR plus 225 basis points. Additionally, the lenders charged a fee on the unused portion of the 2014 Facility equal to either 50 basis points if at least 35% of the credit facility was drawn or 100 basis points otherwise.

On August 1, 2018, we renegotiated the 2014 Facility and closed an expanded five and a half year revolving credit (the “2018 Facility”). The lenders had extended commitments of $1,132,500 as of June 30, 2019. The 2018 Facility included an accordion feature which allowed commitments to be increased up to $1,500,000 in the aggregate.

On September 9, 2019, we amended the 2018 Facility and closed an expanded revolving credit facility (the “2019 Facility” and collectively with the 2014 Facility and the 2018 Facility, the “Revolving Credit Facility”). The lenders had extended commitments of $1,077,500 as of December 31, 2019. The Revolving Credit Facility includes an accordion feature which allows commitments to be increased up to $1,500,000 in the aggregate. The Revolving Credit Facility Facility matures on September 9, 2024. It includes a revolving period that extends through September 9, 2023, followed by an additional one-year amortization period, with distributions allowed to Prospect after the completion of the revolving period. During such one-year amortization period, all

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principal payments on the pledged assets will be applied to reduce the balance. At the end of the one-year amortization period, the remaining balance will become due, if required by the lenders.

The Revolving Credit Facility contains restrictions pertaining to the geographic and industry concentrations of funded loans, maximum size of funded loans, interest rate payment frequency of funded loans, maturity dates of funded loans and minimum equity requirements. The Revolving Facility also contains certain requirements relating to portfolio performance, including required minimum portfolio yield and limitations on delinquencies and charge-offs, violation of which could result in the early termination of the Revolving Credit Facility. The Revolving Credit Facility also requires the maintenance of a minimum liquidity requirement. As of December 31, 2019, we were in compliance with the applicable covenants.

Interest on borrowings under the 2019 Facility is one-month LIBOR plus 220 basis points. Additionally, the lenders charge a fee on the unused portion of the credit facility equal to either 50 basis points if more than 60% of the credit facility is drawn, or 100 basis points if more than 35% and an amount less than or equal to 60% of the credit facility is drawn, or 150 basis points if an amount less than or equal to 35% of the credit facility is drawn. The 2019 Facility requires us to pledge assets as collateral in order to borrow under the credit facility.

For the six months ended December 31, 2019 and December 31, 2018, the average stated interest rate (i.e., rate in effect plus the spread) and average outstanding borrowings for the Revolving Credit Facility were as follows:

Three Months Ended December 31, Six Months Ended December 31,
2019 2018 2019 2018
Average stated interest rate 4.03 4.50 4.19 4.43
Average outstanding balance 135,359 308,424 111,565 237,283

All values are in US Dollars.

As of December 31, 2019 and June 30, 2019, we had $607,513 and $684,212, respectively, available to us for borrowing under the Revolving Credit Facility, of which $92,000 and $167,000 was outstanding as of December 31, 2019 and June 30, 2019, respectively. As of December 31, 2019, the investments, including cash and cash equivalents, used as collateral for the Revolving Credit Facility had an aggregate fair value of $1,475,727, which represents 27.3% of our total investments, including cash and cash equivalents. These assets are held and owned by PCF, a bankruptcy remote special purpose entity, and, as such, these investments are not available to our general creditors. As additional eligible investments are transferred to PCF and pledged under the Revolving Credit Facility, PCF will generate additional availability up to the current commitment amount of $1,077,500. The release of any assets from PCF requires the approval of the facility agent.

In connection with the origination and amendments of the Revolving Credit Facility, we incurred $10,904 of new fees and $7,787 were carried over for continuing participants from the previous facilities, all of which are being amortized over the term of the facility in accordance with ASC 470-50. As of December 31, 2019, $10,232 remains to be amortized and is reflected as deferred financing costs on the Consolidated Statements of Assets and Liabilities. During the six months ended December 31, 2019, $398 of fees were expensed relating to credit providers in the 2018 Facility who did not commit to the 2019 Facility.

During the three months ended December 31, 2019 and December 31, 2018, we recorded $5,552 and $6,960, respectively, of interest costs, unused fees and amortization of financing costs on the Revolving Credit Facility as interest expense.

Convertible Notes

On April 16, 2012, we issued $130,000 aggregate principal amount of convertible notes that matured on October 15, 2017 (the “2017 Notes”). The 2017 Notes bore interest at a rate of 5.375% per year, payable semi-annually on April 15 and October 15 of each year, beginning October 15, 2012. Total proceeds from the issuance of the 2017 Notes, net of underwriting discounts and offering costs, were $126,035. On March 28, 2016, we repurchased $500 aggregate principal amount of the 2017 Notes at a price of 98.25, including commissions. The transaction resulted in our recognizing a $9 gain for the period ended March 31, 2016. On April 6, 2017, we repurchased $78,766 aggregate principal amount of the 2017 Notes at a price of 102.0, including commissions. The transaction resulted in our recognizing a $1,786 loss during the three months ended June 30, 2017. On October 15, 2017, we repaid the outstanding principal amount of $50,734 of the 2017 Notes, plus interest. No gain or loss was realized on the transaction.

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On August 14, 2012, we issued $200,000 aggregate principal amount of convertible notes that matured on March 15, 2018 (the “2018 Notes”). The 2018 Notes bore interest at a rate of 5.75% per year, payable semi-annually on March 15 and September 15 of each year, beginning March 15, 2013. Total proceeds from the issuance of the 2018 Notes, net of underwriting discounts and offering costs, were $193,600. On April 6, 2017, we repurchased $114,581 aggregate principal amount of the 2018 Notes at a price of 103.5, including commissions. The transaction resulted in our recognizing a $4,700 loss during the three months ended June 30, 2017. On March 15, 2018, we repaid the outstanding principal amount of $85,419 of the 2018 Notes, plus interest. No gain or loss was realized on the transaction.

On December 21, 2012, we issued $200,000 aggregate principal amount of convertible notes that matured on January 15, 2019 (the “2019 Notes”). The 2019 Notes bore interest at a rate of 5.875% per year, payable semi-annually on January 15 and July 15 of each year, beginning July 15, 2013. Total proceeds from the issuance of the 2019 Notes, net of underwriting discounts and offering costs, were $193,600. On May 30, 2018, we repurchased $98,353 aggregate principal amount of the 2019 Notes at a price of 102.0, including commissions. The transaction resulted in our recognizing a $2,383 loss during the three months ended June 30, 2018. On January 15, 2019, we repaid the outstanding principal amount of $101,647 of the 2019 Notes, plus interest. No gain or loss was realized on the transaction.

On April 11, 2014, we issued $400,000 aggregate principal amount of convertible notes that mature on April 15, 2020 (the “2020 Notes”), unless previously converted or repurchased in accordance with their terms. The 2020 Notes bear interest at a rate of 4.75% per year, payable semi-annually on April 15 and October 15 each year, beginning October 15, 2014. Total proceeds from the issuance of the 2020 Notes, net of underwriting discounts and offering costs, were $387,500. On January 30, 2015, we repurchased $8,000 aggregate principal amount of the 2020 Notes at a price of 93.0, including commissions. As a result of this transaction, we recorded a gain of $332, in the amount of the difference between the reacquisition price and the net carrying amount of the 2020 Notes, net of the proportionate amount of unamortized debt issuance cost. During the three months ended December 31, 2018, we repurchased an additional $13,500 aggregate principal amount of the 2020 Notes at a price of 99.5, including commissions. As a result of this transaction, we recorded a loss of $41, in the amount of the difference between the reacquisition price and the net carrying amount of the 2020 Notes, net of the proportionate amount of unamortized debt issuance costs. During the three months ended March 31, 2019, we repurchased an additional $129,798 aggregate principal amount of the 2020 Notes at a weighted average price of 101.4, including commission. As a result of these transactions, we recorded a net loss of $2,787 during the three months ended March 31, 2019, in the amount of the difference between the reacquisition price and the net carrying amounts of the 2020 Notes, net of the proportionate amount of unamortized debt issuance costs. During the three months ended June 30, 2019, we repurchased an additional $24,588 aggregate principal amount of the 2020 Notes at a weighted average price of $101.10, including commissions. As a result of these transactions, we recorded a net loss of $414 during the three months ended June 30, 2019, in the amount of the difference of the reacquisition price and the net carrying amounts of the 2020 Notes, net of the proportionate amount of unamortized debt issuance costs.

On June 28, 2019, we commenced a tender offer to purchase for cash any and all of the $224,114 then outstanding aggregate principal amount of the 2020 Notes (“June Tender Offer”). On July 27, 2019, $32,948 aggregate principal amount of the 2020 Notes, representing 14.7% of the previously outstanding 2020 Notes, were validly tendered and accepted. On August 12, 2019, we commenced a tender offer to purchase for cash up to $60,000 aggregate principal amount of the 2020 Notes (“August Tender Offer”). On September 10, 2019, $13,597 aggregate principal amount of the 2020 Notes, representing 7.1% of the previously outstanding 2020 Notes, were validly tendered and accepted. The June Tender Offer and August Tender Offer, resulted in our recognizing a loss of $668 during the three month ended September 30, 2019.

On September 24, 2019, we commenced a tender offer to purchase for cash up to $40,000 outstanding aggregate principal amount of the 2020 Notes (“2020 Notes September Tender Offer”). On October 23, 2019, $2,140 aggregate principal amount of the 2020 Notes, representing 1.2% of the previously outstanding 2020 Notes, were validly tendered and accepted. On November 7, 2019, we commenced a tender offer to purchase for cash up to $10,000 aggregate principal amount of the 2020 Notes (“2020 Notes November Tender Offer”). On December 7, 2019, $392 aggregate principal amount of the 2020 Notes, representing 0.2% of the previously outstanding 2020 Notes, were validly tendered and accepted. The 2020 Notes September Tender Offer and 2020 Notes November Tender Offer resulted in our recognizing a loss of $31 during the three months ended December 31, 2019.

On December 23, 2019, we commenced a tender offer to purchase for cash up to $10,000 aggregate principal amount of the 2020 Notes (“2020 Notes December Tender Offer”). The 2020 Notes December Tender Offer expired at 12:00 midnight, New York City time, on January 23, 2020 (one minute after 11:59 p.m., New York City time, on January 22, 2020) (Note 18). As of December 31, 2019, the outstanding aggregate principal amount of the 2020 Notes is $175,037.

On April 11, 2017, we issued $225,000 aggregate principal amount of convertible notes that mature on July 15, 2022 (the “Original 2022 Notes”), unless previously converted or repurchased in accordance with their terms. The Original 2022 Notes bear interest at a rate of 4.95% per year, payable semi-annually on January 15 and July 15 each year, beginning July 15, 2017. Total proceeds from the issuance of the Original 2022 Notes, net of underwriting discounts and offering costs, were $218,010. On May 18, 2018,

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we issued an additional $103,500 aggregate principal amount of convertible notes that mature on July 15, 2022 (the “Additional 2022 Notes,” and together with the Original 2022 Notes, the “2022 Notes”), unless previously converted or repurchased in accordance with their terms. The Additional 2022 Notes were a further issuance of, and are fully fungible and rank equally in right of payment with, the Original 2022 Notes and bear interest at a rate of 4.95% per year, payable semi-annually on January 15 and July 15 each year, beginning July 15, 2018. Total proceeds from the issuance of the Additional 2022 Notes, net of underwriting discounts and offering costs, were $100,749.

On October 18, 2019, we repurchased $22,941 aggregate principal amount of the 2022 Notes at a price of 102.8 including commissions. As a result of this transaction, we recorded a loss of $1,072 in the amount of the difference between the reacquisition price and the net carrying amount of the 2022 Notes, net of the proportionate amount of unamortized debt issuance costs. On November 7, 2019, we commenced a tender offer to purchase for cash up to $50,000 aggregate principal amount of the 2022 Notes (“2022 Notes November Tender Offer”). On December 7, 2019, $13,432 aggregate principal amount of the 2022 Notes, representing 4.4% of the previously outstanding 2022 Notes, were validly tendered and accepted. The 2022 Notes November Tender Offer resulted in our recognizing a loss of $599, in the amount of the difference between the reacquisition price and the net carrying amount of the 2022 Notes, net of the proportionate amount of unamortized debt issuance costs.

On December 23, 2019, we commenced a tender offer to purchase for cash up to $25,000 aggregate principal amount of the 2022 Notes (“2022 Notes December Tender Offer”). The 2022 Notes December Tender Offer expired at 12:00 midnight, New York City time, on January 23, 2020 (one minute after 11:59 p.m., New York City time, on January 22, 2020) (Note 18). As of December 31, 2019, the outstanding aggregate principal amount of the 2022 Notes is $292,127.

On March 1, 2019, we issued $175,000 aggregate principal amount of senior convertible notes that mature on March 1, 2025 (the “2025 Notes”), unless previously converted or repurchased in accordance with their terms. We granted the underwriters a 13-day over-allotment option to purchase up to an additional $26,250 aggregate principal amount of the 2025 Notes. The underwriters fully exercised the over-allotment option on March 11, 20l9 and we issued $26,250 aggregate principal amount of 2025 Notes at settlement on March 13, 2019. The 2025 Notes bear interest at a rate of 6.375% per year, payable semi-annually on March 1 and September 1 each year, beginning September 1, 2019. Total proceeds from the issuance of the 2025 Notes, net of underwriting discounts and offering costs, were $198,674. As of December 31, 2019, the outstanding aggregate principal amount of the 2025 Notes is $201,250.

Certain key terms related to the convertible features for the 2020 Notes, the 2022 Notes, and the 2025 Notes (collectively, the “Convertible Notes”) are listed below:

2020 Notes 2022 Notes 2025 Notes
Initial conversion rate(1) 80.6647 100.2305 110.7420
Initial conversion price $ 12.40 $ 9.98 $ 9.03
Conversion rate at December 31, 2019(1)(2) 80.6670 100.2305 110.7420
Conversion price at December 31, 2019(2)(3) $ 12.40 $ 9.98 $ 9.03
Last conversion price calculation date 4/11/2019 4/11/2019 3/1/2019
Dividend threshold amount (per share)(4) $ 0.110525 $ 0.083330 $ 0.060000
(1) Conversion rates denominated in shares of common stock per $1 principal amount of the Convertible Notes converted.
--- ---
(2) Represents conversion rate and conversion price, as applicable, taking into account certain de minimis adjustments that will be made on the conversion date.
--- ---
(3) The conversion price will increase only if the current monthly dividends (per share) exceed the dividend threshold amount (per share).
--- ---
(4) The conversion rate is increased if monthly cash dividends paid to common shares exceed the monthly dividend threshold amount, subject to adjustment. Current dividend rates are at or below the minimum dividend threshold amount for further conversion rate adjustments for all bonds.
--- ---

Upon conversion, unless a holder converts after a record date for an interest payment but prior to the corresponding interest payment date, the holder will receive a separate cash payment with respect to the notes surrendered for conversion representing accrued and unpaid interest to, but not including, the conversion date. Any such payment will be made on the settlement date applicable to the relevant conversion on the Convertible Notes.

No holder of Convertible Notes will be entitled to receive shares of our common stock upon conversion to the extent (but only to the extent) that such receipt would cause such converting holder to become, directly or indirectly, a beneficial owner (within the meaning of Section 13(d) of the Securities Exchange Act of 1934 and the rules and regulations promulgated thereunder) of more

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than 5.0% of the shares of our common stock outstanding at such time. The 5.0% limitation shall no longer apply following the effective date of any fundamental change. We will not issue any shares in connection with the conversion or redemption of the Convertible Notes which would equal or exceed 20% of the shares outstanding at the time of the transaction in accordance with NASDAQ rules.

Subject to certain exceptions, holders may require us to repurchase, for cash, all or part of their Convertible Notes upon a fundamental change at a price equal to 100% of the principal amount of the Convertible Notes being repurchased plus any accrued and unpaid interest up to, but excluding, the fundamental change repurchase date. In addition, upon a fundamental change that constitutes a non-stock change of control we will also pay holders an amount in cash equal to the present value of all remaining interest payments (without duplication of the foregoing amounts) on such Convertible Notes through and including the maturity date.

In connection with the issuance of the Convertible Notes, we recorded a discount of $4,025 and debt issuance costs of $21,655 which are being amortized over the terms of the Convertible Notes. As of December 31, 2019, $3,557 of the original issue discount and $7,753 of the debt issuance costs remain to be amortized and are included as a reduction within Convertible Notes on the Consolidated Statement of Assets and Liabilities.

During the three months ended December 31, 2019 and December 31, 2018, we recorded $9,706 and $11,457, respectively, of interest costs and amortization of financing costs on the Convertible Notes as interest expense. During the six months ended December 31, 2019 and December 31, 2018, we recorded $20,361 and $22,892, respectively, of interest costs and amortization of financing costs on the Convertible Notes as interest expense.

Public Notes

On March 15, 2013, we issued $250,000 aggregate principal amount of unsecured notes that mature on March 15, 2023 (the “Original 2023 Notes”). The Original 2023 Notes bear interest at a rate of 5.875% per year, payable semi-annually on March 15 and September 15 of each year, beginning September 15, 2013. Total proceeds from the issuance of the Original 2023 Notes, net of underwriting discounts and offering costs, were $243,641. On June 20, 2018, we issued an additional $70,000 aggregate principal amount of unsecured notes that mature on March 15, 2023 (the “Additional 2023 Notes,” and together with the Original 2023 Notes, the “2023 Notes”). The Additional 2023 Notes were a further issuance of, and are fully fungible and rank equally in right of payment with, the Original 2023 Notes and bear interest at a rate of 5.875% per year, payable semi-annually on March 15 and September 15 of each year, beginning September 15, 2018. Total proceeds from the issuance of the Additional 2023 Notes, net of underwriting discounts, were $69,403. As of December 31, 2019, the outstanding aggregate principal amount of the 2023 Notes is $320,000.

On April 7, 2014, we issued $300,000 aggregate principal amount of unsecured notes that mature on July 15, 2019 (the “5.00% 2019 Notes”). Included in the issuance is $45,000 of Prospect Capital InterNotes® that were exchanged for the 5.00% 2019 Notes. The 5.00% 2019 Notes bear interest at a rate of 5.00% per year, payable semi-annually on January 15 and July 15 of each year, beginning July 15, 2014. Total proceeds from the issuance of the 5.00% 2019 Notes, net of underwriting discounts and offering costs, were $295,998. On June 7, 2018, we commenced a tender offer to purchase for cash any and all of the $300,000 aggregate principal amount outstanding of the 5.00% 2019 Notes. On June 20, 2018, $146,464 aggregate principal amount of the 5.00% 2019 Notes, representing 48.8% of the previously outstanding 5.00% 2019 Notes, were validly tendered and accepted. The transaction resulted in our recognizing a loss of $3,705 during the three months ended June 30, 2018. On September 26, 2018, we repurchased the remaining $153,536 aggregate principal amount of the 5.00% 2019 Notes at a price of 101.645, including commissions. The transaction resulted in our recognizing a loss of $2,874 during the three months ended September 30, 2018.

On December 10, 2015, we issued $160,000 aggregate principal amount of unsecured notes that mature on June 15, 2024 (the “2024 Notes”). The 2024 Notes bear interest at a rate of 6.25% per year, payable quarterly on March 15, June 15, September 15 and December 15 of each year, beginning March 15, 2016. Total proceeds from the issuance of the 2024 Notes, net of underwriting discounts and offering costs, were $155,043. On June 16, 2016, we entered into an at-the-market (“ATM”) program with FBR Capital Markets & Co. through which we could sell, by means of ATM offerings, from time to time, up to $100,000 in aggregate principal amount of our existing 2024 Notes (“Initial 2024 Notes ATM”). Following the initial 2024 Notes ATM, the aggregate principal amount of the 2024 Notes issued was $199,281 for net proceeds of $193,253, after commissions and offering costs. On July 2, 2018, we entered into a second ATM program with B. Riley FBR, Inc. and BB&T Capital Markets, and on August 31, 2018 with Comerica Securities, Inc., through which we could sell, by means of ATM offerings, up to $100,000 in aggregate principal amount of the 2024 Notes (“Second 2024 Notes ATM,” and together with the Initial 2024 Notes ATM, the “2024 Notes Follow-on Program”). The 2024 Notes are listed on the New York Stock Exchange (“NYSE”) and trade thereon under the ticker “PBB”. During the year ended June 30, 2019, we issued an additional $35,162 aggregate principal amount under the Second 2024 Notes ATM, for net proceeds of $34,855, after commissions and offering costs. As of December 31, 2019, the outstanding aggregate principal amount of the 2024 Notes is $234,443.

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On June 7, 2018, we issued $55,000 aggregate principal amount of unsecured notes that mature on June 15, 2028 (the “2028 Notes”). The 2028 Notes bear interest at a rate of 6.25% per year, payable quarterly on March 15, June 15, September 15, and December 15 of each year, beginning September 15, 2018. Total proceeds from the issuance of the 2028 Notes, net of underwriting discounts and offering costs were $53,119. On July 2, 2018, we entered into an ATM program with B. Riley FBR, Inc. and BB&T Capital Markets, and on August 31, 2018 with Comerica Securities, Inc., through which we could sell, by means of ATM offerings, up to $100,000 in aggregate principal amount of our existing 2028 Notes (“2028 Notes ATM” or “2028 Notes Follow-on Program”). The 2028 Notes are listed on the NYSE and trade thereon under the ticker “PBY”. During the year ended June 30, 2019, we issued an additional $15,761 aggregate principal amount under the 2028 Notes ATM, for net proceeds of $15,530, after commissions and offering costs. As of December 31, 2019, the outstanding aggregate principal amount of the 2028 Notes is $70,761.

On October 1, 2018, we issued $100,000 aggregate principal amount of unsecured notes that mature on January 15, 2024 (the “6.375% 2024 Notes”). The 6.375% 2024 Notes bear interest at a rate of 6.375% per year, payable semi-annually on January 15 and July 15 of each year, beginning January 15, 2019. Total proceeds from the issuance of the 6.375% 2024 Notes, net of underwriting discounts and offering costs, were $98,985. As of December 31, 2019, the outstanding aggregate principal amount of the 6.375% 2024 Notes is $100,000.

On December 5, 2018, we issued $50,000 aggregate principal amount of unsecured notes that mature on June 15, 2029 (the “2029 Notes”). The 2029 Notes bear interest at a rate of 6.875% per year, payable quarterly on March 15, June 15, September 15, and December 15 of each year, beginning March 15, 2019. Total proceeds from the issuance of the 2029 Notes, net of underwriting discounts and offering costs, were $48,057. On February 9, 2019, we entered into an ATM program with B. Riley FBR, Inc., BB&T Capital Markets, and Comerica Securities, Inc., through which we could sell, by means of ATM offerings, up to $100,000 in aggregate principal amount of our existing 2029 Notes (“2029 Notes ATM” or “2029 Notes Follow-on Program”). The 2029 Notes are listed on the NYSE and trade thereon under the ticker “PBC”. During the year ended June 30, 2019, we issued an additional $19,170 aggregate principal amount under the 2029 Notes ATM, for net proceeds of $18,523, after commissions and offering costs. As of December 31, 2019, the outstanding aggregate principal amount of the 2029 Notes is $69,170.

The 2023 Notes, the 2024 Notes, the 2028 Notes, the 6.375% 2024 Notes, and the 2029 Notes (collectively, the “Public Notes”) are direct unsecured obligations and rank equally with all of our unsecured indebtedness from time to time outstanding.

In connection with the issuance of the Public Notes we recorded a discount of $4,112 and debt issuance costs of $16,226, which are being amortized over the terms of the notes. As of December 31, 2019, $2,287 of the original issue discount and $10,509 of the debt issuance costs remain to be amortized and are included as a reduction within Public Notes on the Consolidated Statement of Assets and Liabilities.

During the three months ended December 31, 2019 and December 31, 2018, we recorded $12,829 and $11,467, respectively, of interest costs and amortization of financing costs on the Public Notes as interest expense. During the six months ended December 31, 2019 and December 31, 2018, we recorded $25,647 and $22,830, respectively, of interest costs and amortization of financing costs on the Public Notes as interest expense.

Prospect Capital InterNotes®

On February 16, 2012, we entered into a selling agent agreement (the “Original Selling Agent Agreement”) with Incapital LLC, as purchasing agent for our issuance and sale from time to time of up to $500,000 of Prospect Capital InterNotes®, which was increased to $1,500,000 in May 2014. We sold approximately $1,454,466 in aggregate principal amount of Prospect Capital InterNotes® under the Original Selling Agent Agreement. On May 10, 2019, the Original Selling Agent Agreement was terminated, and we entered into a new selling agent agreement with Incapital LLC (the “May 2019 Selling Agent Agreement”), authorizing the issuance and sale from time to time of up to $1,000,000 of Prospect Capital InterNotes® (the “InterNotes® Offering”).

On September 16, 2019, the May 2019 Selling Agent Agreement was terminated, and we entered into a new selling agent agreement with Incapital LLC (the “Selling Agent Agreement”), authorizing the issuance and sale from time to time of up to $500,000 of Prospect Capital InterNotes® (the “InterNotes® Offering”). Additional agents may be appointed by us from time to time in connection with the InterNotes® Offering and become parties to the Selling Agent Agreement. Additional agents may be appointed by us from time to time in connection with the InterNotes® Offering and become parties to the Selling Agent Agreement.

These notes are direct unsecured obligations and rank equally with all of our unsecured indebtedness from time to time outstanding. Each series of notes will be issued by a separate trust. These notes bear interest at fixed interest rates and offer a variety of maturities no less than twelve months from the original date of issuance.

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During the six months ended December 31, 2019, we issued $158,078 aggregate principal amount of Prospect Capital InterNotes® for net proceeds of $155,409. These notes were issued with stated interest rates ranging from 3.75% to 5.50% with a weighted average interest rate of 4.35%. These notes mature between July 15, 2024 and January 15, 2030.

The following table summarizes the Prospect Capital InterNotes® issued during the six months ended December 31, 2019:

Tenor at<br>Origination<br>(in years) Principal<br>Amount Interest Rate<br>Range Weighted<br>Average<br>Interest Rate Maturity Date Range
5 $ 67,426 3.75%–5.00% 4.19 % July 15, 2024 – January 15, 2025
7 35,277 4.00%–5.25% 4.27 % July 15, 2026 – January 15, 2027
10 55,375 3.75%–5.50% 4.59 % July 15, 2029 – January 15, 2030
$ 158,078

During the six months ended December 31, 2018, we issued $69,586 aggregate principal amount of our Prospect Capital InterNotes® for net proceeds of $68,439. These notes were issued with stated interest rates ranging from 5.00% to 6.25% with a weighted average interest rate of 5.64%. These notes mature between July 15, 2023 and November 15, 2028.

The following table summarizes the Prospect Capital InterNotes® issued during the six months ended December 31, 2018:

Tenor at<br>Origination<br>(in years) Principal<br>Amount Interest Rate<br>Range Weighted<br>Average<br>Interest Rate Maturity Date Range
5 $ 33,295 5.00%-5.75% 5.29 % July 15, 2023 – January 15, 2024
7 14,718 5.50%–6.00% 5.84 % July 15, 2025 – January 15, 2026
8 385 5.75% 5.75 % July 15, 2026
10 21,188 6.00%-6.25% 6.06 % July 15, 2028 – November 15, 2028
$ 69,586

During the six months ended December 31, 2019, we redeemed, prior to maturity, $240,188 aggregate principal amount of Prospect Capital InterNotes® at par with a weighted average interest rate of 5.07% in order to replace shorter maturity debt with longer-term debt. During the six months ended December 31, 2019, we repaid $3,180 aggregate principal amount of Prospect Capital InterNotes® at par in accordance with the Survivor’s Option, as defined in the InterNotes® Offering prospectus. As a result of these transactions, we recorded a loss in the amount of the unamortized debt issuance costs. The net loss on the extinguishment of Prospect Capital InterNotes® in the six months ended December 31, 2019 was $2,279.

The following table summarizes the Prospect Capital InterNotes® outstanding as of December 31, 2019:

Tenor at<br>Origination<br>(in years) Principal<br>Amount Interest Rate<br>Range Weighted<br>Average<br>Interest Rate Maturity Date Range
5 $ 188,296 3.75% – 5.75% 4.97 % April 15, 2022 – January 15, 2025
7 94,811 4.00% – 6.00% 5.19 % July 15, 2024 – January 15, 2027
8 24,475 4.50% – 5.75% 4.67 % August 15, 2025 – July 15, 2026
10 139,528 3.75% – 6.25% 5.43 % January 15, 2024 – January 15, 2030
12 2,978 6.00% 6.00 % November 15, 2025 – December 15, 2025
15 17,063 5.25% – 6.00% 5.35 % May 15, 2028 – November 15, 2028
18 18,902 4.13% – 6.25% 5.58 % December 15, 2030 – August 15, 2031
20 3,847 5.75% – 6.00% 5.89 % November 15, 2032 – October 15, 2033
25 31,126 6.25% – 6.50% 6.39 % August 15, 2038 – May 15, 2039
30 101,383 5.50% – 6.75% 6.25 % November 15, 2042 – October 15, 2043
$ 622,409

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During the six months ended December 31, 2018, we redeemed, prior to maturity $99,432 aggregate principal amount of Prospect Capital InterNotes® at par with a weighted average interest rate of 4.86% in order to replace debt with shorter maturity dates. During the six months ended December 31, 2018, we repaid $5,419 aggregate principal amount of Prospect Capital InterNotes® at par in accordance with the Survivor’s Option, as defined in the InterNotes® Offering prospectus. As a result of these transactions, we recorded a loss in the amount of the unamortized debt issuance costs. The net loss on the extinguishment of Prospect Capital InterNotes® in the six months ended December 31, 2018 was $711.

The following table summarizes the Prospect Capital InterNotes® outstanding as of June 30, 2019:

Tenor at<br>Origination<br>(in years) Principal<br>Amount Interest Rate<br>Range Weighted<br>Average<br>Interest Rate Maturity Date Range
5 $ 283,450 4.00% – 5.75% 5.10 % July 15, 2021 - June 15, 2024
5.5 1,399 4.25% 4.25 % July 15, 2020
6.5 34,745 5.10% – 5.25% 5.24 % January 15, 2022 - May 15, 2022
7 83,731 4.00% – 6.00% 5.56 % January 15, 2020 - June 15, 2026
8 1,996 5.75% 5.75 % February 15, 2021
8 24,500 4.50% – 5.75% 4.67 % August 15, 2025 - July 15, 2026
10 99,529 5.50% – 7.00% 6.09 % March 15, 2022 - June 15, 2029
12 2,978 6.00% 6.00 % November 15, 2025 - December 15, 2025
15 17,077 5.25% – 6.00% 5.35 % May 15, 2028 - November 15, 2028
18 19,306 4.13% – 6.25% 5.58 % December 15, 2030 - August 15, 2031
20 3,887 5.75% – 6.00% 5.90 % November 15, 2032 - October 15, 2033
25 31,855 6.25% – 6.50% 6.39 % August 15, 2038 - May 15, 2039
30 103,246 5.50% – 6.75% 6.24 % November 15, 2042 - October 15, 2043
$ 707,699

In connection with the issuance of Prospect Capital InterNotes®, we incurred $27,696 of fees which are being amortized over the term of the notes, of which $12,457 remains to be amortized and is included as a reduction within Prospect Capital InterNotes® on the Consolidated Statement of Assets and Liabilities as of December 31, 2019.

During the three months ended December 31, 2019 and December 31, 2018, we recorded $8,972 and $10,771, respectively, of interest costs and amortization of financing costs on the Prospect Capital InterNotes® as interest expense. During the six months ended December 31, 2019 and December 31, 2018 we recorded $18,975 and $21,516, respectively, of interest costs and amortization of financing costs on the Prospect Capital InterNotes® as interest expense.

Net Asset Value

During the six months ended December 31, 2019, our net asset value decreased by $122,410, or $0.35 per share. The decrease was primarily attributable to an increase in net realized and net change in unrealized losses of $132,083, or $0.35 per weighted average share, coupled with a decrease of $0.01 per weighted average share as a result of reinvestment of our dividends on behalf of our stockholders at current market prices. This decrease was partially offset by net investment income of $138,945, or $0.37 per weighted average share, exceeding dividends of $132,263, or $0.36 per weighted average share, resulting in a net increase of $0.01 per weighted average share for the six months ended December 31, 2019. The following table shows the calculation of net asset value per share as of December 31, 2019 and June 30, 2019.

December 31, 2019 June 30, 2019
Net assets $ 3,183,865 $ 3,306,275
Shares of common stock issued and outstanding 367,584,244 367,131,025
Net asset value per share $ 8.66 $ 9.01

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Results of Operations

Operating results for the three and six months ended December 31, 2019 and December 31, 2018 were as follows:

Three Months Ended December 31, Six Months Ended December 31,
2019 2018 2019 2018
Investment income $ 161,917 $ 187,883 $ 323,800 $ 368,305
Operating expenses 94,032 107,072 184,855 202,335
Net investment income 67,885 80,811 138,945 165,970
Net realized gains (losses) 1,909 2,993 (289 ) 4,034
Net change in unrealized (losses) gains from investments (77,892 ) (150,696 ) (126,351 ) (149,647 )
Net realized losses on extinguishment of debt (3,105 ) (497 ) (5,443 ) (3,951 )
Net (decrease) increase in net assets resulting from operations $ (11,203 ) $ (67,389 ) $ 6,862 $ 16,406

While we seek to maximize gains and minimize losses, our investments in portfolio companies can expose our capital to risks greater than those we may anticipate. These companies typically do not issue securities rated investment grade, and have limited resources, limited operating history, and concentrated product lines or customers. These are generally private companies with limited operating information available and are likely to depend on a small core of management talents. Changes in any of these factors can have a significant impact on the value of the portfolio company.

Investment Income

We generate revenue in the form of interest income on the debt securities that we own, dividend income on any common or preferred stock that we own, and fees generated from the structuring of new deals. Our investments, if in the form of debt securities, will typically have a term of one to ten years and bear interest at a fixed or floating rate. To the extent achievable, we will seek to collateralize our investments by obtaining security interests in our portfolio companies’ assets. We also may acquire minority or majority equity interests in our portfolio companies, which may pay cash or in-kind dividends on a recurring or otherwise negotiated basis. In addition, we may generate revenue in other forms including prepayment penalties and possibly consulting fees. Any such fees generated in connection with our investments are recognized as earned.

The following table describes the various components of investment income and the related levels of debt investments:

Three Months Ended December 31, Six Months Ended December 31,
2019 2018 2019 2018
Interest income $ 140,659 $ 157,994 $ 286,615 $ 317,436
Dividend income 3,509 13,266 7,763 28,193
Other income 17,749 16,623 29,422 22,676
Total investment income $ 161,917 $ 187,883 $ 323,800 $ 368,305
Average debt principal of performing interest bearing investments^(1)^ $ 5,180,789 $ 5,504,149 $ 5,277,676 $ 5,503,842
Weighted average interest rate earned on performing interest bearing investments^(1)^ 10.62 % 11.23 % 10.63 % 11.28 %
Average debt principal of all interest bearing investments^(2)^ $ 5,771,741 $ 6,058,947 $ 5,872,360 $ 5,994,970
Weighted average interest rate earned on all interest bearing investments^(2)^ 9.54 % 10.20 % 9.55 % 10.36 %

^(1)^ Excludes equity investments and non-accrual loans.

^(2)^ Excludes equity investments.

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Average interest income producing assets decreased from $5,504,149 for the three months ended December 31, 2018 to $5,180,789 for the three months ended December 31, 2019. The decrease in average income producing assets was a result of repayments. The average interest earned on performing interest bearing performing assets decreased from 11.23% for the three months ended December 31, 2018 to 10.62% for the three months ended December 31, 2019. The decrease is primarily due to an increase in foregone interest due to non-accrual investments, decline in LIBOR and reduced returns from our structured credit investments. The average interest earned on all interest bearing performing assets decreased from 10.20% for the three months ended December 31, 2018 to 9.54% for the three months ended December 31, 2019. The decrease is primarily due to a decline in LIBOR and reduced returns from our structured credit investments.

Average interest income producing assets decreased from $5,503,842 for the six months ended December 31, 2018 to $5,277,676 for the six months ended December 31, 2019. The average interest earned on interest bearing performing assets decreased from 11.28% for the six months ended December 31, 2018 to 10.63% for the six months ended December 31, 2019. The decrease is primarily due to an increase in foregone interest due to non-accrual investments, decline in LIBOR and reduced returns from our structured credit investments. The average interest earned on all interest bearing performing assets decreased from 10.36% for the six months ended December 31, 2018 to 9.55% for the six months ended December 31, 2019. The decrease is primarily due to an increase in foregone interest due to a decline in LIBOR and reduced returns from our structured credit investments.

Investment income is also generated from dividends and other income which is less predictable than interest income. The following table describes dividend income earned for the three and six months ended December 31, 2019 and December 31, 2018, respectively:

Three Months Ended December 31, Six Months Ended December 31,
2019 2018 2019 2018
Dividend income
National Property REIT Corp. $ — $ 9,000 $ — $ 20,000
Valley Electric Company, Inc. 471 4,000 4,271 7,500
NMMB, Inc. 2,797 — 2,797 —
Other, net 241 266 695 693
Total dividend income $ 3,509 $ 13,266 $ 7,763 $ 28,193

Other income is comprised of structuring fees, advisory fees, royalty interests, settlement of net profits interests and settlement of residual profits interests. The following table describes other income earned for the three and six months ended December 31, 2019 and December 31, 2018, respectively:

Three Months Ended December 31, Six Months Ended December 31,
2019 2018 2019 2018
Structuring, advisory and amendment fees
National Property REIT Corp. $ 2,744 $ 13,637 $ 10,785 $ 14,195
Town & Country Holdings, Inc. — — — 2,100
PeopleConnect Intermediate, LLC 2,410 — 2,410 —
Ahead Data Blue, LLC 1,400 — 1,400 —
Other, net 1,496 702 1,765 2,149
Total structuring, advisory and amendment fees $ 8,050 $ 14,339 $ 16,360 $ 18,444
Royalty and net revenue interests
National Property REIT Corp. 9,265 1,935 12,496 3,737
Other, net 335 172 337 193
Total royalty and net revenue interests 9,600 2,107 12,833 3,930
Administrative agent fees
Other, net 99 177 229 302
Total administrative agent fees 99 177 229 302
Total other income $ 17,749 $ 16,623 $ 29,422 $ 22,676

Operating Expenses

Our primary operating expenses consist of investment advisory fees (base management and income incentive fees), borrowing costs, legal and professional fees, overhead-related expenses and other operating expenses. These expenses include our allocable portion of overhead under the Administration Agreement with Prospect Administration under which Prospect Administration provides administrative services and facilities for us. Our investment advisory fees compensate the Investment Adviser for its work in identifying, evaluating, negotiating, closing and monitoring our investments. We bear all other costs and expenses of our operations and transactions.

The following table describes the various components of our operating expenses:

Three Months Ended December 31, Six Months Ended December 31,
2019 2018 2019 2018
Base management fee $ 27,543 $ 33,187 $ 56,006 $ 63,144
Income incentive fee 16,971 20,203 34,736 41,493
Interest and credit facility expenses 37,059 40,656 75,957 78,564
Allocation of overhead from Prospect Administration 6,011 5,642 9,505 9,007
Audit, compliance and tax related fees 1,933 2,389 2,308 2,782
Directors' fees 113 150 226 229
Other general and administrative expenses 4,402 4,845 6,117 7,116
Total operating expenses $ 94,032 $ 107,072 $ 184,855 $ 202,335

Total gross and net base management fee was $27,543 and $33,187 for the three months ended December 31, 2019 and December 31, 2018, respectively. The decrease in total gross base management fee is directly related to a decrease in average total assets as well as a $2,757 adjustment for fees included for the three months ended December 31, 2018, earned in prior periods that were neither expensed nor paid to the Investment Adviser. The Investment Adviser has entered into a servicing agreement with certain institutions that purchased loans with us, where we serve as the agent and collect a servicing fee on behalf of the Investment Adviser. We receive payments from these institutions on behalf of the Investment Adviser, for providing such services under the servicing agreement. We are given a credit for these payments as a reduction of the base management fee payable by us to the Investment Adviser. No such payments were received for the three months ended December 31, 2019 and December 31, 2018.

Total gross base management fee was $56,006 and $63,282 for the six months ended December 31, 2019 and December 31, 2018, respectively. The decrease in total gross base management fee is directly related to a decrease in average total assets as well as a $2,757 adjustment for fees earned in prior periods that were neither expensed nor paid to the Investment Adviser, for which we incurred $64 in accrued interest on those past due amounts. The interest on the amount owed to the Investment Adviser was calculated using the average of 1-month LIBOR rates from September 2010 through the date of payment. The Investment Adviser has entered into a servicing agreement with certain institutions that purchased loans with us, where we serve as the agent and collect a servicing fee on behalf of the Investment Adviser. We receive payments from these institutions on behalf of the Investment Adviser, for providing such services under the servicing agreement. We are given a credit for these payments as a reduction of the base management fee payable by us to the Investment Adviser. We received payments of $138 from these institutions for the six months ended December 31, 2018. No such payments were received for the six months ended December 31, 2019. We were given a credit for these payments as a reduction of base management fee payable by us to the Investment Adviser resulting in net base management fee of $56,006 and $63,114 for the six months ended December 31, 2019 and December 31, 2018, respectively.

For the three months ended December 31, 2019 and December 31, 2018, we incurred $16,971 and $20,203 of income incentive fees, respectively. This decrease was driven by a corresponding decrease in pre-incentive fee net investment income from $101,014 for the three months ended December 31, 2018 to $84,856 for the three months ended December 31, 2019. No capital gains incentive fee has yet been incurred pursuant to the Investment Advisory Agreement.

For the six months ended December 31, 2019 and December 31, 2018, we incurred $34,736 and $41,493 of income incentive fees, respectively. This decrease was driven by a corresponding decrease in pre-incentive fee net investment income from $207,463 for the six months ended December 31, 2018 to $173,681 for the six months ended December 31, 2019. No capital gains incentive fee has yet been incurred pursuant to the Investment Advisory Agreement.

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During the three months ended December 31, 2019 and December 31, 2018, we incurred $37,059 and $40,656 respectively, of interest and credit facility expenses related to our Revolving Credit Facility, Convertible Notes, Public Notes and Prospect Capital InterNotes® (collectively, our “Notes”). During the six months ended December 31, 2019 and December 31, 2018, we incurred $75,957 and $78,564, respectively, of interest expenses related to our Notes. These expenses are related directly to the leveraging capacity and the levels of indebtedness actually undertaken in those periods.

The table below describes the various expenses of our Notes and the related indicators of leveraging capacity and indebtedness during these years:

Three Months Ended December 31, Six Months Ended December 31,
2019 2018 2019 2018
Interest on borrowings $ 31,318 $ 34,998 $ 63,767 $ 67,983
Amortization of deferred financing costs 1,869 3,627 4,110 6,343
Accretion of discount on unsecured debt 261 104 515 235
Facility commitment fees 3,611 1,927 7,565 4,003
Total interest and credit facility expenses $ 37,059 $ 40,656 $ 75,957 $ 78,564
Average principal debt outstanding $ 2,242,390 $ 2,600,363 $ 2,274,070 $ 2,548,458
Annualized weighted average stated interest rate on borrowings^(1)^ 5.59 % 5.38 % 5.61 % 5.34 %
Annualized weighted average interest rate on borrowings^(2)^ 6.61 % 6.25 % 6.68 % 6.17 %
(1) Includes only the stated interest expense.
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(2) Includes the stated interest expense, amortization of deferred financing costs, accretion of discount on Public Notes and commitment fees on the undrawn portion of our Revolving Credit Facility.
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Interest expense is relatively stable on a dollars basis for the three months ended December 31, 2019 as compared to the three months ended December 31, 2018. The weighted average stated interest rate on borrowings (excluding amortization, accretion and undrawn facility fees) increased from 5.38% for the three months ended December 31, 2018 to 5.59% for the three months ended December 31, 2019. This increase is primarily due to issuances of Public Notes and 2025 Notes at higher rates, partially offset by repurchases of our Convertible Notes and increased utilization of our Revolving Credit Facility, which bears a lower rate than our remaining debt.

Interest expense is relatively stable on a dollars basis for the six months ended December 31, 2019 as compared to the six months ended December 31, 2018 . The weighted average stated interest rate on borrowings (excluding amortization, accretion and undrawn facility fees) increased from 5.34% for the six months ended December 31, 2018 to 5.61% for the six months ended December 31, 2019. This increase is primarily due to issuances of Public Notes and the 2025 Notes during the second half of the prior year at higher rates, partially offset by repurchases of our Convertible Notes and increased utilization of our Revolving Credit Facility, which bears a lower rate than our remaining debt.

The allocation of net overhead expense from Prospect Administration was $6,011 and $5,642 for the three months ended December 31, 2019 and December 31, 2018, respectively.

The allocation of net overhead expense from Prospect Administration was $9,505 and $9,007 for the six months ended December 31, 2019 and December 31, 2018, respectively. Prospect Administration received estimated payments of $584 directly from our portfolio companies, and certain funds managed by the Investment Adviser for legal services during the six months ended December 31, 2019. No such payments were received during the six months ended December 31, 2018. We were given a credit for these payments as a reduction of the administrative services cost payable by us to Prospect Administration. Had Prospect Administration not received these payments, Prospect Administration’s charges for its administrative services would have increased by this amount.

Total operating expenses, excluding investment advisory fees, interest and credit facility expenses, and allocation of overhead from Prospect Administration (“Other Operating Expenses”), net of any expense reimbursements, were $6,448 and $7,384 for the three months ended December 31, 2019 and December 31, 2018, respectively. The $936 decrease was primarily attributable to decreases in legal fees and audit, compliance and tax related fees.

Total operating expenses, excluding investment advisory fees, interest and credit facility expenses, and allocation of overhead from Prospect Administration (“Other Operating Expenses”), net of any expense reimbursements, were $8,651 and $10,127 for

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the six months ended December 31, 2019 and December 31, 2018, respectively. The $1,476 decrease was primarily attributable to decreases in legal fees and audit, compliance and tax related fees.

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Net Investment Income

Net investment income represents the difference between investment income and operating expenses. Net investment income was $67,885 and $80,811 for the three months ended December 31, 2019 and December 31, 2018, respectively. The decrease of $12,926 was primarily due to a decrease in investment income of $25,966 partially offset by a decrease in operating expenses of $13,040. Refer to above Investment Income and Operating Expenses discussions for detail.

Net investment income was $138,945 and $165,970 for the six months ended December 31, 2019 and December 31, 2018, respectively. The decrease of $27,025 was primarily due to a decrease in investment income of $44,505 partially offset by a decrease in operating expenses of $17,480. Refer to above Investment Income and Operating Expenses discussions for detail.

Net Realized (Losses) Gains

The following table details net realized gains from investments for the three months ended December 31, 2019 and December 31, 2018:

Three Months Ended December 31,
Portfolio Company 2019 2018
Gulf Coast $ — $ 2,802
Rated Secured Structured Note Portfolio 1,885 —
Other, net 24 191
Net realized gains $ 1,909 $ 2,993

The following table details net realized (losses) gains from investments for the six months ended December 31, 2019 and December 31, 2018:

Six Months Ended December 31,
Portfolio Company 2019 2018
Gulf Coast $ — $ 2,802
Rated Secured Structured Note Portfolio 1,885 —
New Century Transportation, Inc. — 1,000
Madison Park Funding XI, Ltd. (1,949 ) —
Voya CLO 2012-2, Ltd. (450 ) —
Other, net 225 232
Net realized (losses) gains $ (289 ) $ 4,034

The following table details net realized (losses) on extinguishment of debt for the three months ended December 31, 2019 and December 31, 2018:

Three Months Ended December 31,
Debt Extinguished 2019 2018
2022 Convertible Notes $ (1,671 ) $ —
Prospect Capital InterNotes® (1,086 ) (456 )
2020 Convertible Notes (31 ) (41 )
Other, net (317 ) —
Net realized gains $ (3,105 ) $ (497 )

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The following table details net realized (losses) on extinguishment of debt for the six months ended December 31, 2019 and December 31, 2018:

Six Months Ended December 31,
Debt Extinguished 2019 2018
5.00% 2019 Notes $ — $ (2,874 )
Prospect Capital InterNotes® (2,279 ) (712 )
2022 Convertible Notes (1,671 ) —
2020 Convertible Notes (699 ) (41 )
Other, net (794 ) (324 )
Net realized gains $ (5,443 ) $ (3,951 )

Change in Unrealized (Losses) Gains, Net

The following table details net change in unrealized (losses) gains for our portfolio for the three months ended and six months ended December 31, 2019 and December 31, 2018, respectively:

Three Months Ended December 31, Six Months Ended December 31,
2019 2018 2019 2018
Control investments $ (35,863 ) $ (85,733 ) $ (74,884 ) $ (33,815 )
Affiliate investments 12,242 (5,894 ) 30,262 (19,649 )
Non-control/non-affiliate investments (54,271 ) (59,069 ) (81,729 ) (96,183 )
Net change in unrealized (losses) gains $ (77,892 ) $ (150,696 ) $ (126,351 ) $ (149,647 )
The following table details net change in unrealized gains (losses) on investments for the three months ended December 31, 2019: Net Change in Unrealized Gains (Losses)
National Property REIT Corp. $ 25,938
Edmentum Ultimate Holdings, LLC 9,146
MITY, Inc. 8,180
USES Corp. 6,961
First Tower Finance Company LLC 5,822
Securus Technologies Holdings, Inc. (5,685 )
InterDent, Inc. (12,956 )
PGX Holdings, Inc. (14,759 )
Subordinated Structured Notes (22,860 )
CP Energy Services Inc. (30,103 )
Pacific World Corporation (44,935 )
Other, net (2,641 )
Net change in unrealized (losses) $ (77,892 )

The following table details net change in unrealized gains (losses) on investments for the three months ended December 31, 2018:

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Net Change in Unrealized Gains (Losses)
Valley Electric Company, Inc. $ 7,815
CCPI Inc. 6,706
MITY, Inc. (6,372 )
United Sporting Companies, Inc. (7,700 )
Universal Turbine Parts, LLC (8,135 )
CP Energy Services Inc. (12,422 )
National Property REIT Corp. (28,921 )
Pacific World Corporation (31,628 )
Subordinated Structured Notes (39,765 )
Other, net (30,274 )
Net change in unrealized (losses) $ (150,696 )

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The following table details net change in unrealized gains (losses) on investments for the six months ended December 31, 2019:

Net Change in Unrealized Gains (Losses)
National Property REIT Corp. $ 51,138
Edmentum Ultimate Holdings, LLC 22,118
First Tower Finance Company LLC 8,173
MITY, Inc. 7,772
United Sporting Companies, Inc. 7,552
Easy Gardener Products, Inc. (5,730 )
Securus Technologies Holdings, Inc. (8,161 )
PGX Holdings, Inc. (14,759 )
Valley Electric Company, Inc. (17,856 )
InterDent, Inc. (33,982 )
CP Energy Services Inc. (40,486 )
Subordinated Structured Notes (49,153 )
Pacific World Corporation (59,273 )
Other, net 6,296
Net change in unrealized (losses) $ (126,351 )

The following table details net change in unrealized gains (losses) on investments for the six months ended December 31, 2018:

Net Change in Unrealized Gains (Losses)
Valley Electric Company, Inc. $ 33,861
CP Energy Services Inc. 6,957
NMMB, Inc. 6,311
CCPI Inc. 5,863
Echelon Aviation LLC 5,817
Engine Group, Inc. (5,067 )
R-V Industries, Inc. (7,216 )
MITY, Inc. (7,751 )
Credit Central Loan Company, LLC (10,499 )
National Property REIT Corp. (13,918 )
United Sporting Companies, Inc. (15,836 )
Universal Turbine Parts, LLC (19,043 )
Pacific World Corporation (32,240 )
Subordinated Structured Notes (64,477 )
Other, net (32,409 )
Net change in unrealized (losses) $ (149,647 )

Financial Condition, Liquidity and Capital Resources

For the six months ended December 31, 2019 and December 31, 2018, our operating activities provided $414,047 and used $76,902 of cash, respectively. There were no investing activities for the six months ended December 31, 2019 and December 31, 2018. Financing activities used $383,278 and provided $102,812 of cash during the six months ended December 31, 2019 and December 31, 2018, respectively, which included dividend payments of $129,247 and $120,180, respectively. Our primary uses of funds have been to continue to invest in portfolio companies, through both debt and equity investments, repay outstanding borrowings and to make cash distributions to holders of our common stock.

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Our primary sources of funds have historically been issuances of debt and equity. More recently, we have and may continue to fund a portion of our cash needs through repayments and opportunistic sales of our existing investment portfolio. We may also securitize a portion of our investments in unsecured or senior secured loans or other assets. Our objective is to put in place such borrowings in order to enable us to expand our portfolio. During the six months ended December 31, 2019, we borrowed $398,000 and we made repayments totaling $473,000 under the Revolving Credit Facility. As of December 31, 2019, our outstanding balance on the Revolving Credit Facility was $92,000. As of December 31, 2019, we had, net of unamortized discount and debt issuance costs, $657,104 outstanding on the Convertible Notes, $781,578 outstanding on the Public Notes and $609,952 outstanding on the Prospect Capital InterNotes® (See “Capitalization” above).

Undrawn committed revolvers and delayed draw term loans to our portfolio companies incur commitment and unused fees ranging from 0.00% to 5.00%. As of December 31, 2019 and June 30, 2019, we had $25,111 and $23,375, respectively, of undrawn revolver and delayed draw term loan commitments to our portfolio companies. The fair value of our undrawn committed revolvers and delayed draw term loans was zero as of December 31, 2019 and June 30, 2019.

We have guaranteed $2,487 in standby letters of credit issued through a financial intermediary and $2,919 of equipment lease obligations on behalf of InterDent, Inc. (“InterDent”) as of December 31, 2019. Under these arrangements, we would be required to make payments to the financial intermediary or equipment lease provider, respectively, if InterDent was to default on their related payment obligations. As of December 31, 2019, we have not recorded a liability on the statement of assets and liabilities for these guarantees as the likelihood of default on the standby letters of credit or equipment lease is deemed to be remote.

Our shareholders’ equity accounts as of December 31, 2019 and June 30, 2019 reflect cumulative shares issued, net of shares repurchased, as of those respective dates. Our common stock has been issued through public offerings, a registered direct offering, the exercise of over-allotment options on the part of the underwriters, our dividend reinvestment plan and in connection with the acquisition of certain controlled portfolio companies. When our common stock is issued, the related offering expenses have been charged against paid-in capital in excess of par. All underwriting fees and offering expenses were borne by us.

As part of our Repurchase Program, we delivered a notice with our annual proxy mailing on September 19, 2019. We did not repurchase any shares of our common stock for the six months ended December 31, 2019 or December 31, 2018.

Off-Balance Sheet Arrangements

As of December 31, 2019, we did not have any off-balance sheet liabilities or other contractual obligations that are reasonably likely to have a current or future material effect on our financial condition, other than those which originate from 1) the investment advisory and management agreement and the administration agreement and 2) the portfolio companies.

Recent Developments

During the period from January 1, 2020 through February 6, 2020 we issued $41,406 aggregate principal amount of Prospect Capital InterNotes® for net proceeds of $40,748.

During the period of January 1, 2020 through February 6, 2020, we provided notice to call or settled previous notices to call certain of our Prospect Capital InterNotes® at par with the following terms:

Notice Date Settlement Date Maturity Date Range Interest Rate Range Principal
12/11/2019 1/15/2020 July 15, 2022 4.500% - 4.750% $ 3,918

On January 10, 2020, we made a new $20,000 First Lien Term Loan investment in EDSCO Holding Company LLC, a manufacturer of foundation anchoring systems for large infrastructure installations such as power transmission poles and electrical substation structures.

On January 22, 2020, PeopleConnect Intermediate, LLC (“PeopleConnect”) fully repaid the $17,328 Senior Secured Term Loan A and the $19,413 Senior Secured Term Loan B receivable to us at par. Concurrent with the repayment, our $1,000 unfunded revolving line of credit to PeopleConnect was terminated.

On January 22, 2020, we provided $246,000 of Senior Secured investments to PeopleConnect Holdings, Inc. and PubRec Holdings, Inc., online information commerce companies. Included in this investment is a $10,000 Revolving Line of Credit and a $5,000 Delayed Draw term loan, which were unfunded at close. On January 28, 2020, we sold $24,994 of our Senior Secured Term Loan investment and $1,082 of our Revolving Line of Credit commitment, or 10.6% of our initial investment, at a price of 98.0. As a result of the sale, we recorded a realized loss of $522 for the three months ended March 31, 2020.

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On January 23, 2020, we provided $18,252 and $4,563 of Senior Secured Term Loan C and equity financing, respectively, to National Property REIT Corp. (“NPRC”) and its wholly-owned subsidiaries to support investments in rated secured structured notes. On January 31, 2020, we received partial repayments of $7,500 of our Senior Secured Term Loan B outstanding with NPRC and its wholly-owned subsidiaries.

The 2020 Notes December Tender Offer and the 2022 Notes December Tender Offer (collectively the “December Tender Offers”) expired at 12:00 midnight, New York City time, on January 23, 2020 (one minute after 11:59 p.m., New York City time, on January 22, 2020). As of the expiration date of the December Tender Offers, (i) $2,215 aggregate principal amount of the 2020 Notes, representing approximately 1.27% of the outstanding 2020 Notes, and (ii) $1,302 aggregate principal amount of the 2022 Notes, representing approximately 0.45% of the outstanding 2022 Notes, were validly tendered and accepted. Following the settlement of the December Tender Offers, (i) approximately $172,822 aggregate principal amount of the 2020 Notes remains outstanding, and (ii) approximately $290,825 aggregate principal amount of the 2022 Notes remains outstanding.

On January 24, 2020, we made a $30,000 first lien term loan investment in LGC US Finco, LLC, a manufacturer of industrial gaskets and fasteners.

On February 10, 2020, we announced the declaration of monthly dividends in the following amounts and with the following dates:

• $0.06 per share for February 2020 to holders of record on February 28, 2020 with a payment date of March 19, 2020.
• $0.06 per share for March 2020 to holders of record on March 31, 2020 with a payment date of April 23, 2020.
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• $0.06 per share for April 2020 to holders of record on April 30, 2020 with a payment date of May 21, 2020.
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Critical Accounting Policies and Estimates

Basis of Presentation and Consolidation

The accompanying consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (“GAAP”) pursuant to the requirements for reporting on Form 10-Q, ASC 946, Financial Services—Investment Companies (“ASC 946”), and Articles 6, 10 and 12 of Regulation S-X. Under the 1940 Act, ASC 946, and the regulations pursuant to Article 6 of Regulation S-X, we are precluded from consolidating any entity other than another investment company or an operating company which provides substantially all of its services to benefit us. Our consolidated financial statements include the accounts of Prospect, PCF, PSBL, PYC, and the Consolidated Holding Companies. All intercompany balances and transactions have been eliminated in consolidation. The financial results of our non-substantially wholly owned holding companies and operating portfolio company investments are not consolidated in the financial statements. Any operating companies owned by the Consolidated Holding Companies are not consolidated.

Reclassifications

Certain reclassifications have been made in the presentation of prior consolidated financial statements and accompanying notes to conform to the presentation as of and for the six months ended December 31, 2019.

Use of Estimates

The preparation of the consolidated financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of income, expenses, and gains and losses during the reported period. Changes in the economic environment, financial markets, creditworthiness of the issuers of our investment portfolio and any other parameters used in determining these estimates could cause actual results to differ, and these differences could be material.

Investment Classification

We are a non-diversified company within the meaning of the 1940 Act. As required by the 1940 Act, we classify our investments by level of control. As defined in the 1940 Act, “Control Investments” are those where there is the ability or power to exercise a controlling influence over the management or policies of a company. Control is generally deemed to exist when a company or individual possesses or has the right to acquire within 60 days or less, a beneficial ownership of more than 25% of the voting securities of an investee company. Under the 1940 Act, “Affiliate Investments” are defined by a lesser degree of influence and are deemed to exist through the possession outright or via the right to acquire within 60 days or less, beneficial ownership of 5% or more of the outstanding voting securities of another person. “Non-Control/Non-Affiliate Investments” are those that are neither Control Investments nor Affiliate Investments.

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As a BDC, we must not acquire any assets other than “qualifying assets” specified in the 1940 Act unless, at the time the acquisition is made, at least 70% of our total assets are qualifying assets (with certain limited exceptions). As of December 31, 2019 and June 30, 2019, our qualifying assets as a percentage of total assets, stood at 73.62% and 73.85%, respectively.

Investment Transactions

Investments are recognized when we assume an obligation to acquire a financial instrument and assume the risks for gains or losses related to that instrument. Specifically, we record all security transactions on a trade date basis. Investments are derecognized when we assume an obligation to sell a financial instrument and forego the risks for gains or losses related to that instrument. In accordance with ASC 325-40, Beneficial Interest in Securitized Financial Assets, investments in CLOs are periodically assessed for other-than-temporary impairment (“OTTI”). When the Company determines that a CLO has OTTI, the amortized cost basis of the CLO is written down to its fair value as of the date of the determination based on events and information evaluated and that write-down is recognized as a realized loss. Amounts for investments traded but not yet settled are reported in Due to Broker or Due from Broker, in the Consolidated Statements of Assets and Liabilities.

Foreign Currency

Foreign currency amounts are translated into US Dollars (USD) on the following basis:

i. fair value of investment securities, other assets and liabilities—at the spot exchange rate on the last business day of the period; and
ii. purchases and sales of investment securities, income and expenses—at the rates of exchange prevailing on the respective dates of such investment transactions, income or expenses.
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We do not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in fair values of investments held or disposed of during the period. Such fluctuations are included within the net realized and net change in unrealized gains or losses from investments in the Consolidated Statements of Operations.

Investment Risks

Our investments are subject to a variety of risks. Those risks include the following:

Market Risk

Market risk represents the potential loss that can be caused by a change in the fair value of the financial instrument.

Credit Risk

Credit risk represents the risk that we would incur if the counterparties failed to perform pursuant to the terms of their agreements with us.

Liquidity Risk

Liquidity risk represents the possibility that we may not be able to rapidly adjust the size of our investment positions in times of high volatility and financial stress at a reasonable price.

Interest Rate Risk

Interest rate risk represents a change in interest rates, which could result in an adverse change in the fair value of an interest-bearing financial instrument.

Prepayment Risk

Many of our debt investments allow for prepayment of principal without penalty. Downward changes in interest rates may cause prepayments to occur at a faster than expected rate, thereby effectively shortening the maturity of the security and making us less likely to fully earn all of the expected income of that security and reinvesting in a lower yielding instrument.

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Structured Credit Related Risk

CLO investments may be riskier and less transparent to us than direct investments in underlying companies. CLOs typically will have no significant assets other than their underlying senior secured loans. Therefore, payments on CLO investments are and will be payable solely from the cash flows from such senior secured loans.

Online Small-and-Medium-Sized Business Lending Risk

With respect to our online small-and-medium-sized business (“SME”) lending initiative, we invest primarily in marketplace loans through marketplace lending platforms (e.g. OnDeck). We do not conduct loan origination activities ourselves. Therefore, our ability to purchase SME loans, and our ability to grow our portfolio of SME loans, is directly influenced by the business performance and competitiveness of the marketplace loan origination business of the marketplace lending platforms from which we purchase SME loans. In addition, our ability to analyze the risk-return profile of SME loans is significantly dependent on the marketplace platforms’ ability to effectively evaluate a borrower's credit profile and likelihood of default. If we are unable to effectively evaluate borrowers' credit profiles or the credit decisioning and scoring models implemented by each platform, we may incur unanticipated losses which could adversely impact our operating results.

Foreign Currency

Investments denominated in foreign currencies and foreign currency transactions may involve certain considerations and risks not typically associated with those of domestic origin. These risks include, but are not limited to, currency fluctuations and revaluations and future adverse political, social and economic developments, which could cause investments in foreign markets to be less liquid and prices more volatile than those of comparable U.S. companies or U.S. government securities.

Investment Valuation

To value our investments, we follow the guidance of ASC 820, Fair Value Measurement (“ASC 820”), that defines fair value, establishes a framework for measuring fair value in conformity with GAAP, and requires disclosures about fair value measurements. In accordance with ASC 820, the fair value of our investments is defined as the price that we would receive upon selling an investment in an orderly transaction to an independent buyer in the principal or most advantageous market in which that investment is transacted.

ASC 820 classifies the inputs used to measure these fair values into the following hierarchy:

Level 1: Quoted prices in active markets for identical assets or liabilities, accessible by us at the measurement date.

Level 2: Quoted prices for similar assets or liabilities in active markets, or quoted prices for identical or similar assets or liabilities in markets that are not active, or other observable inputs other than quoted prices.

Level 3: Unobservable inputs for the asset or liability.

In all cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to each investment.

Our Board of Directors has established procedures for the valuation of our investment portfolio. These procedures are detailed below.

Investments for which market quotations are readily available are valued at such market quotations.

For most of our investments, market quotations are not available. With respect to investments for which market quotations are not readily available or when such market quotations are deemed not to represent fair value, our Board of Directors has approved a multi-step valuation process each quarter, as described below.

1. Each portfolio company or investment is reviewed by our investment professionals with independent valuation firms engaged by our Board of Directors.
2. The independent valuation firms prepare independent valuations for each investment based on their own independent assessments and issue their report.
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3. The Audit Committee of our Board of Directors reviews and discusses with the independent valuation firms the valuation reports, and then makes a recommendation to the Board of Directors of the value for each investment.
4. The Board of Directors discusses valuations and determines the fair value of each investment in our portfolio in good faith based on the input of the Investment Adviser, the respective independent valuation firm and the Audit Committee.
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Our non-CLO investments are valued utilizing a yield technique, enterprise value (“EV”) technique, net asset value technique, asset recovery technique, discounted cash flow technique, or a combination of techniques, as appropriate. The yield technique uses loan spreads for loans and other relevant information implied by market data involving identical or comparable assets or liabilities. Under the EV technique, the EV of a portfolio company is first determined and allocated over the portfolio company’s securities in order of their preference relative to one another (i.e., “waterfall” allocation). To determine the EV, we typically use a market (multiples) valuation approach that considers relevant and applicable market trading data of guideline public companies, transaction metrics from precedent merger and acquisitions transactions, and/or a discounted cash flow technique. The net asset value technique, an income approach, is used to derive a value of an underlying investment (such as real estate property) by dividing a relevant earnings stream by an appropriate capitalization rate. For this purpose, we consider capitalization rates for similar properties as may be obtained from guideline public companies and/or relevant transactions. The asset recovery technique is intended to approximate the net recovery value of an investment based on, among other things, assumptions regarding liquidation proceeds based on a hypothetical liquidation of a portfolio company’s assets. The discounted cash flow technique converts future cash flows or earnings to a range of fair values from which a single estimate may be derived utilizing an appropriate discount rate. The fair value measurement is based on the net present value indicated by current market expectations about those future amounts.

In applying these methodologies, additional factors that we consider in valuing our investments may include, as we deem relevant: security covenants, call protection provisions, and information rights; the nature and realizable value of any collateral; the portfolio company’s ability to make payments; the principal markets in which the portfolio company does business; publicly available financial ratios of peer companies; the principal market; and enterprise values, among other factors.

Our investments in CLOs are classified as Level 3 fair value measured securities under ASC 820 and are valued using a discounted multi-path cash flow model. The CLO structures are analyzed to identify the risk exposures and to determine an appropriate call date (i.e., expected maturity). These risk factors are sensitized in the multi-path cash flow model using Monte Carlo simulations, which is a simulation used to model the probability of different outcomes, to generate probability-weighted (i.e., multi-path) cash flows from the underlying assets and liabilities.  These cash flows are discounted using appropriate market discount rates, and relevant data in the CLO market as well as certain benchmark credit indices are considered, to determine the value of each CLO investment.  In addition, we generate a single-path cash flow utilizing our best estimate of expected cash receipts, and assess the reasonableness of the implied discount rate that would be effective for the value derived from the multi-path cash flows.  We are not responsible for and have no influence over the asset management of the portfolios underlying the CLO investments we hold, as those portfolios are managed by non-affiliated third-party CLO collateral managers. The main risk factors are default risk, prepayment risk, interest rate risk, downgrade risk, and credit spread risk.

Valuation of Other Financial Assets and Financial Liabilities

ASC 825, Financial Instruments, specifically ASC 825-10-25, permits an entity to choose, at specified election dates, to measure eligible items at fair value (the “Fair Value Option”). We have not elected the Fair Value Option to report selected financial assets and financial liabilities. See Note 8 in the accompanying Consolidated Financial Statements for the disclosure of the fair value of our outstanding debt and the market observable inputs used in determining fair value.

Convertible Notes

We have recorded the Convertible Notes at their contractual amounts. We have determined that the embedded conversion options in the Convertible Unsecured Notes are not required to be separately accounted for as a derivative under ASC 815, Derivatives and Hedging. See Note 5 in the accompanying Consolidated Financial Statements for further discussion.

Revenue Recognition

Realized gains or losses on the sale of investments are calculated using the specific identification method.

Interest income, adjusted for amortization of premium and accretion of discount, is recorded on an accrual basis. Loan origination fees, original issue discount, and market discounts are capitalized and accreted into interest income over the respective terms of the applicable loans using the effective interest method or straight-line, as applicable, and adjusted only for material amendments or prepayments. Upon a prepayment of a loan, prepayment premiums, original issue discount, or market discounts are recorded as interest income.

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Loans are placed on non-accrual status when there is reasonable doubt that principal or interest will be collected. Unpaid accrued interest is generally reversed when a loan is placed on non-accrual status. Interest payments received on non-accrual loans are either applied to the cost basis or interest income, depending upon management’s judgment of the collectibility of the loan receivable. Non-accrual loans are restored to accrual status when past due principal and interest is paid and in management’s judgment, is likely to remain current and future principal and interest collections when due are probable. Interest received and applied against cost while a loan is on non-accrual, and PIK interest capitalized but not recognized while on non-accrual, is recognized prospectively on the effective yield basis through maturity of the loan when placed back on accrual status, to the extent deemed collectible by management. As of December 31, 2019, approximately 1.6% of our total assets at fair value are in non-accrual status.

Some of our loans and other investments may have contractual payment-in-kind (“PIK”) interest or dividends. PIK income computed at the contractual rate is accrued into income and reflected as receivable up to the capitalization date. PIK investments offer issuers the option at each payment date of making payments in cash or in additional securities. When additional securities are received, they typically have the same terms, including maturity dates and interest rates as the original securities issued. On these payment dates, we capitalize the accrued interest (reflecting such amounts in the basis as additional securities received). PIK generally becomes due at maturity of the investment or upon the investment being called by the issuer. At the point that we believe PIK is not fully expected to be realized, the PIK investment will be placed on non-accrual status. When a PIK investment is placed on non-accrual status, the accrued, uncapitalized interest or dividends are reversed from the related receivable through interest or dividend income, respectively. We do not reverse previously capitalized PIK interest or dividends. Upon capitalization, PIK is subject to the fair value estimates associated with their related investments. PIK investments on non-accrual status are restored to accrual status if we believe that PIK is expected to be realized.

Interest income from investments in Subordinated Structured Notes (typically preferred shares, income notes or subordinated notes of CLO funds) and “equity” class of security of securitized trust is recorded based upon an estimation of an effective yield to expected maturity utilizing assumed cash flows in accordance with ASC 325-40, Beneficial Interests in Securitized Financial Assets. We monitor the expected cash inflows from our CLO and securitized trust equity investments, including the expected residual payments, and the effective yield is determined and updated periodically.

Dividend income is recorded on the ex-dividend date.

Other income generally includes amendment fees, commitment fees, administrative agent fees and structuring fees which are recorded when earned. Excess deal deposits, net profits interests and overriding royalty interests are included in other income. See Note 10 in the accompanying Consolidated Financial Statements for further discussion.

Federal and State Income Taxes

We have elected to be treated as a RIC and intend to continue to comply with the requirements of the Code applicable to regulated investment companies. We are required to distribute at least 90% of our investment company taxable income and intend to distribute (or retain through a deemed distribution) all of our investment company taxable income and net capital gain to stockholders; therefore, we have made no provision for income taxes. The character of income and gains that we will distribute is determined in accordance with income tax regulations that may differ from GAAP. Book and tax basis differences relating to stockholder dividends and distributions and other permanent book and tax differences are reclassified to paid-in capital.

If we do not distribute (or are not deemed to have distributed) at least 98% of our annual ordinary income and 98.2% of our capital gains in the calendar year earned, we will generally be required to pay an excise tax equal to 4% of the amount by which 98% of our annual ordinary income and 98.2% of our capital gains exceed the distributions from such taxable income for the year. To the extent that we determine that our estimated current year annual taxable income will be in excess of estimated current year dividend distributions from such taxable income, we accrue excise taxes, if any, on estimated excess taxable income. As of December 31, 2019, we do not expect to have any excise tax due for the 2019 calendar year. Thus, we have not accrued any excise tax for this period.

If we fail to satisfy the annual distribution requirement or otherwise fail to qualify as a RIC in any taxable year, we would be subject to tax on all of our taxable income at regular corporate income tax rates. We would not be able to deduct distributions to stockholders, nor would we be required to make distributions. Distributions would generally be taxable to our individual and other non-corporate taxable stockholders as ordinary dividend income eligible for the reduced maximum rate applicable to qualified dividend income to the extent of our current and accumulated earnings and profits, provided certain holding period and other requirements are met. Subject to certain limitations under the Code, corporate distributions would be eligible for the dividends-received deduction. To qualify again to be taxed as a RIC in a subsequent year, we would be required to distribute to our shareholders our accumulated earnings and profits attributable to non-RIC years. In addition, if we failed to qualify as a RIC for a period greater than two taxable years, then, in order to qualify as a RIC in a subsequent year, we would be required to elect to recognize and pay tax on any net built-in gain (the excess of aggregate gain, including items of income, over aggregate loss that would have been

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realized if we had been liquidated) or, alternatively, be subject to taxation on such built-in gain recognized for a period of five years.

We follow ASC 740, Income Taxes (“ASC 740”). ASC 740 provides guidance for how uncertain tax positions should be recognized, measured, presented, and disclosed in the consolidated financial statements. ASC 740 requires the evaluation of tax positions taken or expected to be taken in the course of preparing our tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold are recorded as a tax benefit or expense in the current year. As of December 31, 2019, we did not record any unrecognized tax benefits or liabilities. Management’s determinations regarding ASC 740 may be subject to review and adjustment at a later date based upon factors including, but not limited to, an on-going analysis of tax laws, regulations and interpretations thereof. Although we file both federal and state income tax returns, our major tax jurisdiction is federal. Our federal tax returns for the tax years ended August 31, 2016 and thereafter remain subject to examination by the Internal Revenue Service.

Dividends and Distributions

Dividends and distributions to common stockholders are recorded on the ex-dividend date. The amount, if any, to be paid as a monthly dividend or distribution is approved by our Board of Directors quarterly and is generally based upon our management’s estimate of our future taxable earnings. Net realized capital gains, if any, are distributed at least annually.

Financing Costs

We record origination expenses related to our Revolving Credit Facility and the Unsecured Notes as deferred financing costs. These expenses are deferred and amortized as part of interest expense using the straight-line method over the stated life of the obligation for our Revolving Credit Facility. The same methodology is used to approximate the effective yield method for our Prospect Capital InterNotes® and our 2024, 2028, and 2029 Notes Follow-on Programs. The effective interest method is used to amortize deferred financing costs for our remaining Unsecured Notes over the respective expected life or maturity. In the event that we modify or extinguish our debt before maturity, we follow the guidance in ASC 470-50, Modification and Extinguishments (“ASC 470-50”). For modifications to or exchanges of our Revolving Credit Facility, any unamortized deferred costs relating to lenders who are not part of the new lending group are expensed. For extinguishments of our Unsecured Notes, any unamortized deferred costs are deducted from the carrying amount of the debt in determining the gain or loss from the extinguishment.

Unamortized deferred financing costs are presented as a direct deduction to the respective Unsecured Notes (see Notes 5, 6, and 7 in the accompanying Consolidated Financial Statements for further discussion).

We may record registration expenses related to shelf filings as prepaid expenses. These expenses consist principally of SEC registration fees, legal fees and accounting fees incurred. These prepaid expenses are charged to capital upon the receipt of proceeds from an equity offering or charged to expense if no offering is completed. As of December 31, 2019 and June 30, 2019, there are no prepaid expenses related to registration expenses and all amounts incurred have been expensed.

Guarantees and Indemnification Agreements

We follow ASC 460, Guarantees (“ASC 460”). ASC 460 elaborates on the disclosure requirements of a guarantor in its interim and annual consolidated financial statements about its obligations under certain guarantees that it has issued. It also requires a guarantor to recognize, at the inception of a guarantee, for those guarantees that are covered by ASC 460, the fair value of the obligation undertaken in issuing certain guarantees.

Per Share Information

Net increase or decrease in net assets resulting from operations per share is calculated using the weighted average number of common shares outstanding for the period presented. In accordance with ASC 946, convertible securities are not considered in the calculation of net asset value per share.

Recent Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which amends the financial instruments impairment guidance so that an entity is required to measure expected credit losses for financial assets based on historical experience, current conditions and reasonable and supportable forecasts. As such, an entity will use forward-looking information to estimate credit losses. ASU 2016-13 also amends the guidance in FASB ASC Subtopic No. 325-40, Investments-Other, Beneficial Interests in Securitized Financial Assets, related to the subsequent measurement of accretable yield recognized as interest income over the life of a beneficial interest in securitized financial assets under the effective yield method. ASU 2016-13 is effective for financial statements issued for fiscal

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years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted as of the fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. We are currently evaluating the impact, if any, of adopting this ASU on our consolidated financial statements.

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement. The standard will modify the disclosure requirements for fair value measurements by removing, modifying, or adding certain disclosures. ASU No. 2018-13 is effective for annual reporting periods beginning after December 15, 2019, including interim periods within that reporting period. Early adoption is permitted upon issuance of this ASU. We are currently evaluating the impact of adopting this ASU on our consolidated financial statements.

SEC Disclosure Update and Simplification

In August 2018, the SEC adopted the final rule under SEC Release No. 33-10532, Disclosure Update and Simplification, amending certain disclosure requirements that were redundant, duplicative, overlapping, outdated or superseded. The amendments are intended to facilitate the disclosure of information to investors and simplify compliance. We have adopted the amendments and have retrospectively applied the presentation amendments to the prior period statements presented.

Prior to adoption and in accordance with previous SEC rules, we presented distributable earnings (loss) on the Consolidated Statements of Assets and Liabilities, as three components: 1) accumulated overdistributed net investment income; 2) accumulated net unrealized gain (loss) on investments; and 3) accumulated net realized gain (loss) on investments. We also presented distributions from earnings on the Consolidated Statements of Changes in Net Assets as distributions from net investment income. In accordance with the SEC Release, distributable earnings and distributions from distributable earnings are shown in total on the Consolidated Statements of Assets and Liabilities and Consolidated Statements of Changes in Net Assets, respectively.

The following table provides the reconciliation of the components of distributable earnings (loss) to conform to the current period presentation for the six months ended December 31, 2018:

Overdistributed net investment income Realized gains (losses) Net unrealized loss Distributable earnings (loss)
Balance as of June 30, 2018 $ (45,186 ) $ (465,493 ) $ (104,179 ) $ (614,858 )
Net Increase in Net Assets Resulting from Operations:
Net investment income 165,970 0 0 165,970
Net realized gains 0 83 0 83
Net change in net unrealized losses 0 0 (149,647 ) (149,647 )
Distributions to Shareholders:
Distributions from net investment income (131,531 ) 0 0 (131,531 )
Tax reclassifications of net assets (Note 12) 31 0 0 31
Balance as of December 31, 2018 $ (10,716 ) $ (465,410 ) $ (253,826 ) $ (729,952 )

Tax Cuts and Jobs Act

On December 22, 2017, the President signed into law the Tax Cuts and Jobs Act (the “Tax Act”), which significantly changed the Code, including, a reduction in the corporate income tax rate, a new limitation on the deductibility of interest expense, and significant changes to the taxation of income earned from foreign sources and foreign subsidiaries. The Tax Act also authorizes the IRS to issue regulations with respect to the new provisions. We cannot predict how the changes in the Tax Act, or regulations or other guidance issued under it, might affect us, our business or the business of our portfolio companies. However, our portfolio companies may or may not make certain elections under the Tax Act that could materially increase their taxable earnings and profits. Any such increase in the earnings and profits of a portfolio company may result in the characterization of certain distributions sourced from sale proceeds as dividend income, which may increase our distributable taxable income.

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Item 3. Quantitative and Qualitative Disclosures about Market Risk

We are subject to financial market risks, including changes in interest rates and equity price risk. Interest rate sensitivity refers to the change in our earnings that may result from changes in the level of interest rates impacting some of the loans in our portfolio which have floating interest rates. Additionally, because we fund a portion of our investments with borrowings, our net investment income is affected by the difference between the rate at which we invest and the rate at which we borrow. As a result, there can be no assurance that a significant change in market interest rates will not have a material adverse effect on our net investment income. See “Risk Factors - Risks Relating to Our Business - Changes in interest rates may affect our cost of capital and net investment income”.

Our debt investments may be based on floating rates or fixed rates. For our floating rate loans the rates are determined from the LIBOR, EURO Interbank Offer Rate, the Federal Funds Rate or the Prime Rate. The floating interest rate loans may be subject to a LIBOR floor. Our loans typically have durations of one to three months after which they reset to current market interest rates. As of December 31, 2019, 86.33% of the interest earning investments in our portfolio, at fair value, bore interest at floating rates.

We also have a revolving credit facility and certain Prospect Capital InterNotes® issuances that are based on floating LIBOR rates. Interest on borrowings under the revolving credit facility is one-month LIBOR plus 220 basis points with no minimum LIBOR floor and an outstanding balance of $92,000 as of December 31, 2019. The Convertible Notes, Public Notes and Prospect Capital InterNotes® bear interest at fixed rates.

The following table shows the approximate annual impact on net investment income of base rate changes in interest rates (considering interest rate flows for floating rate instruments, excluding our investments in Subordinated Structured Notes) to our loan portfolio and outstanding debt as of December 31, 2019, assuming no changes in our investment and borrowing structure:

(in thousands)<br><br>Basis Point Change Interest Income Interest Expense Net Investment Income Net Investment Income (1)
Up 300 basis points $ 80,268 $ 3 $ 80,265 $ 64,212
Up 200 basis points $ 51,034 $ 2 $ 51,033 $ 40,826
Up 100 basis points $ 21,801 $ 1 $ 21,800 $ 17,440
Down 100 basis points $ (16,963 ) $ — $ (16,963 ) $ (13,570 )
Down 200 basis points $ (20,146 ) $ (1 ) $ (20,145 ) $ (16,116 )
Down 300 basis points $ (20,146 ) $ (2 ) $ (20,144 ) $ (16,115 )
(1) Includes the impact of income incentive fees. See Note 13 in the accompanying Consolidated Financial Statements for more information on income incentive fees.
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As of December 31, 2019, one, two and three month LIBOR were 1.76%, 1.83% and 1.91%, respectively.

We may hedge against interest rate fluctuations by using standard hedging instruments such as futures, options and forward contracts subject to the requirements of the 1940 Act. While hedging activities may insulate us against adverse changes in interest rates, they may also limit our ability to participate in the benefits of higher interest rates with respect to our portfolio of investments. During the year ended December 31, 2019, we did not engage in hedging activities.

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Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As of December 31, 2019, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the 1934 Act). Based on that evaluation, our management, including the Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures were effective and provided reasonable assurance that information required to be disclosed in our periodic SEC filings is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. However, in evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of such possible controls and procedures.

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting during the quarter ended December 31, 2019, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II

Item 1. Legal Proceedings

From time to time, we may become involved in various investigations, claims and legal proceedings that arise in the ordinary course of our business. These matters may relate to intellectual property, employment, tax, regulation, contract or other matters. The resolution of such matters as may arise will be subject to various uncertainties and, even if such claims are without merit, could result in the expenditure of significant financial and managerial resources. We are not aware of any material legal proceedings as of December 31, 2019.

Item 1A. Risk Factors

In addition to the other information set forth in this report, you should carefully consider the factors discussed below and the risk factors in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended June 30, 2019, which could materially affect our business, financial condition or future results. The risks described in this report and in our Annual Report on Form 10-K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or future results.

Changes relating to the LIBOR calculation process may adversely affect the value of the LIBOR-indexed, floating-rate debt securities in our portfolio or issued by us.

In the recent past, concerns have been publicized that some of the member banks surveyed by the British Bankers’ Association, or the “BBA,” in connection with the calculation of LIBOR across a range of maturities and currencies may have been under-reporting or otherwise manipulating the inter-bank lending rate applicable to them in order to profit on their derivatives positions or to avoid an appearance of capital insufficiency or adverse reputational or other consequences that may have resulted from reporting inter-bank lending rates higher than those they actually submitted. A number of BBA member banks entered into settlements with their regulators and law enforcement agencies with respect to alleged manipulation of LIBOR, and investigations by regulators and governmental authorities in various jurisdictions are ongoing.

In July 2017, the head of the United Kingdom Financial Conduct Authority announced the desire to phase out the use of LIBOR by the end of 2021. The announcement indicates that the continuation of LIBOR on the current basis cannot and will not be guaranteed after 2021. It is impossible to predict whether and to what extent banks will continue to provide LIBOR submissions to the administrator of LIBOR or whether any additional reforms to LIBOR may be enacted in the United Kingdom or elsewhere. Actions by the British Bankers’ Association, the United Kingdom Financial Conduct Authority or other regulators or law enforcement agencies as a result of these or future events, may result in changes to the manner in which LIBOR is determined. In addition, any further changes or reforms to the determination or supervision of LIBOR may result in a sudden or prolonged increase or decrease in reported LIBOR, which could have an adverse impact on the market for LIBOR-based securities or the value of our portfolio of LIBOR-indexed, floating-rate debt securities

At this time, no consensus exists as to what rate or rates will become accepted alternatives to LIBOR, although the U.S. Federal Reserve, in connection with the Alternative Reference Rates Committee, a steering committee comprised of large U.S. financial institutions, is considering replacing U.S. dollar LIBOR with the Secured Overnight Financing Rate (“SOFR”). Given the inherent differences between LIBOR and SOFR, or any other alternative benchmark rate that may be established, there are many uncertainties regarding a transition from LIBOR, including but not limited to the need to amend all contracts with LIBOR as the referenced rate and how this will impact the cost of variable rate debt and certain derivative financial instruments. In addition, SOFR or other replacement rates may fail to gain market acceptance. Any failure of SOFR or alternative reference rates to gain market acceptance could adversely affect the return on, value of and market for securities linked to such rates.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Not applicable.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

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Item 5. Other Information

Not applicable.

Item 6. Exhibits

The following exhibits are filed as part of this report or hereby incorporated by reference to exhibits previously filed with the SEC (according to the number assigned to them in Item 601 of Regulation S-K):

Exhibit No.
3.1 Articles of Amendment and Restatement(1)
3.2 Amended and Restated Bylaws(2)
4.1 Seven Hundred Thirty-Sixth Supplemental Indenture dated as of October 3, 2019, to the U.S. Bank Indenture, and Form of 3.750% Prospect Capital InterNote® due 2024(3)
4.2 Seven Hundred Thirty-Seventh Supplemental Indenture dated as of October 3, 2019, to the U.S. Bank Indenture, and Form of 4.000% Prospect Capital InterNote® due 2026(3)
4.3 Seven Hundred Thirty-Eighth Supplemental Indenture dated as of October 3, 2019, to the U.S. Bank Indenture, and Form of 4.250% Prospect Capital InterNote® due 2029(3)
4.4 Seven Hundred Thirty-Ninth Supplemental Indenture dated as of October 3, 2019, to the U.S. Bank Indenture, and Form of 3.750% to 6.250% Prospect Capital InterNote® due 2029(3)
4.5 Seven Hundred Fortieth Supplemental Indenture dated as of October 10, 2019, to the U.S. Bank Indenture, and Form of 3.750% Prospect Capital InterNote® due 2024(4)
4.6 Seven Hundred Forty-First Supplemental Indenture dated as of October 10, 2019, to the U.S. Bank Indenture, and Form of 4.000% Prospect Capital InterNote® due 2026(4)
4.7 Seven Hundred Forty-Second Supplemental Indenture dated as of October 10, 2019, to the U.S. Bank Indenture, and Form of 4.250% Prospect Capital InterNote® due 2029(4)
4.8 Seven Hundred Forty-Third Supplemental Indenture dated as of October 10, 2019, to the U.S. Bank Indenture, and Form of 3.750% to 6.250% Prospect Capital InterNote® due 2029(4)
4.9 Seven Hundred Forty-Fourth Supplemental Indenture dated as of October 18, 2019, to the U.S. Bank Indenture, and Form of 3.750% Prospect Capital InterNote® due 2024(5)
4.10 Seven Hundred Forty-Fifth Supplemental Indenture dated as of October 18, 2019, to the U.S. Bank Indenture, and Form of 4.000% Prospect Capital InterNote® due 2026(5)
4.11 Seven Hundred Forty-Sixth Supplemental Indenture dated as of October 18, 2019, to the U.S. Bank Indenture, and Form of 4.250% Prospect Capital InterNote® due 2029(5)
4.12 Seven Hundred Forty-Seventh Supplemental Indenture dated as of October 24, 2019, to the U.S. Bank Indenture, and Form of 3.750% Prospect Capital InterNote® due 2024(6)
4.13 Seven Hundred Forty-Eighth Supplemental Indenture dated as of October 24, 2019, to the U.S. Bank Indenture, and Form of 4.000% Prospect Capital InterNote® due 2026(6)
4.14 Seven Hundred Forty-Ninth Supplemental Indenture dated as of October 24, 2019, to the U.S. Bank Indenture, and Form of 4.250% Prospect Capital InterNote® due 2029(6)
4.15 Seven Hundred Fiftieth Supplemental Indenture dated as of October 31, 2019, to the U.S. Bank Indenture, and Form of 3.750% Prospect Capital InterNote® due 2024(7)
4.16 Seven Hundred Fifty-First Supplemental Indenture dated as of October 31, 2019, to the U.S. Bank Indenture, and Form of 4.000% Prospect Capital InterNote® due 2026(7)
4.17 Seven Hundred Fifty-Second Supplemental Indenture dated as of October 31, 2019, to the U.S. Bank Indenture, and Form of 4.250% Prospect Capital InterNote® due 2029(7)
4.18 Seven Hundred Fifty-Third Supplemental Indenture dated as of November 7, 2019, to the U.S. Bank Indenture, and Form of 4.000% Prospect Capital InterNote® due 2024(8)
4.19 Seven Hundred Fifty-Fourth Supplemental Indenture dated as of November 7, 2019, to the U.S. Bank Indenture, and Form of 4.250% Prospect Capital InterNote® due 2026(8)
4.20 Seven Hundred Fifty-Fifth Supplemental Indenture dated as of November 7, 2019, to the U.S. Bank Indenture, and Form of 4.500% Prospect Capital InterNote® due 2029(8)
4.21 Seven Hundred Fifty-Sixth Supplemental Indenture dated as of November 21, 2019, to the U.S. Bank Indenture, and Form of 4.000% Prospect Capital InterNote® due 2024(9)

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Exhibit No.
4.22 Seven Hundred Fifty-Seventh Supplemental Indenture dated as of November 21, 2019, to the U.S. Bank Indenture, and Form of 4.250% Prospect Capital InterNote® due 2026(9)
4.23 Seven Hundred Fifty-Eighth Supplemental Indenture dated as of November 21, 2019, to the U.S. Bank Indenture, and Form of 4.500% Prospect Capital InterNote® due 2029(9)
4.24 Seven Hundred Fifty-Ninth Supplemental Indenture dated as of November 29, 2019, to the U.S. Bank Indenture, and Form of 4.000% Prospect Capital InterNote® due 2024(10)
4.25 Seven Hundred Sixtieth Supplemental Indenture dated as of November 29, 2019, to the U.S. Bank Indenture, and Form of 4.250% Prospect Capital InterNote® due 2026(10)
4.26 Seven Hundred Sixty-First Supplemental Indenture dated as of November 29, 2019, to the U.S. Bank Indenture, and Form of 4.500% Prospect Capital InterNote® due 2029(10)
4.27 Seven Hundred Sixty-Second Supplemental Indenture dated as of December 5, 2019, to the U.S. Bank Indenture, and Form of 4.000% Prospect Capital InterNote® due 2024(11)
4.28 Seven Hundred Sixty-Third Supplemental Indenture dated as of December 5, 2019, to the U.S. Bank Indenture, and Form of 4.250% Prospect Capital InterNote® due 2026(11)
4.29 Seven Hundred Sixty-Fourth Supplemental Indenture dated as of December 5, 2019, to the U.S. Bank Indenture, and Form of 4.500% Prospect Capital InterNote® due 2029(11)
4.30 Seven Hundred Sixty-Fifth Supplemental Indenture dated as of December 12, 2019, to the U.S. Bank Indenture, and Form of 4.000% Prospect Capital InterNote® due 2024(12)
4.31 Seven Hundred Sixty-Sixth Supplemental Indenture dated as of December 12, 2019, to the U.S. Bank Indenture, and Form of 4.250% Prospect Capital InterNote® due 2026(12)
4.32 Seven Hundred Sixty-Seventh Supplemental Indenture dated as of December 12, 2019, to the U.S. Bank Indenture, and Form of 4.500% Prospect Capital InterNote® due 2029(12)
4.33 Seven Hundred Sixty-Eighth Supplemental Indenture dated as of December 19, 2019, to the U.S. Bank Indenture, and Form of 3.750% Prospect Capital InterNote® due 2024(13)
4.34 Seven Hundred Sixty-Ninth Supplemental Indenture dated as of December 19, 2019, to the U.S. Bank Indenture, and Form of 4.000% Prospect Capital InterNote® due 2026(13)
4.35 Seven Hundred Seventieth Supplemental Indenture dated as of December 19, 2019, to the U.S. Bank Indenture, and Form of 4.250% Prospect Capital InterNote® due 2029(13)
4.36 Seven Hundred Seventy-First Supplemental Indenture dated as of December 27, 2019, to the U.S. Bank Indenture, and Form of 4.000% Prospect Capital InterNote® due 2024(14)
4.37 Seven Hundred Seventy-Second Supplemental Indenture dated as of December 27, 2019, to the U.S. Bank Indenture, and Form of 4.250% Prospect Capital InterNote® due 2026(14)
4.38 Seven Hundred Seventy-Third Supplemental Indenture dated as of December 27, 2019, to the U.S. Bank Indenture, and Form of 4.500% Prospect Capital InterNote® due 2029(14)
11 Computation of Per Share Earnings (included in the notes to the financial statements contained in this report)
12 Computation of Ratios (included in the notes to the financial statements contained in this report)
31.1 Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended*
31.2 Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended*
32.1 Certification of Chief Executive Officer pursuant to Section 906 of The Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350)*
32.2 Certification of Chief Financial Officer pursuant to Section 906 of The Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350)* ________________________
* Filed herewith.
(1) Incorporated by reference to Exhibit 3.1 of the Registrant’s form 8-K, filed on May 9, 2014.
(2) Incorporated by reference to Exhibit 3.1 of the Registrant’s Form 8-K, filed on December 11, 2015.
(3) Incorporated by reference from the Registrant’s Post-Effective Amendment No. 2 to the Registration Statement on Form N-2, filed on October 3, 2019.
(4) Incorporated by reference from the Registrant’s Post-Effective Amendment No. 3 to the Registration Statement on Form N-2, filed on October 10, 2019.
(5) Incorporated by reference from the Registrant’s Post-Effective Amendment No. 4 to the Registration Statement on Form N-2, filed on October 18, 2019.

149

(6) Incorporated by reference from the Registrant’s Post-Effective Amendment No. 5 to the Registration Statement on Form N-2, filed on October 24, 2019.
(7) Incorporated by reference from the Registrant’s Post-Effective Amendment No. 6 to the Registration Statement on Form N-2, filed on October 31, 2019.
(8) Incorporated by reference from the Registrant’s Post-Effective Amendment No. 7 to the Registration Statement on Form N-2, filed on November 7, 2019.
(9) Incorporated by reference from the Registrant’s Post-Effective Amendment No. 8 to the Registration Statement on Form N-2, filed on November 21, 2019.
(10) Incorporated by reference from the Registrant’s Post-Effective Amendment No. 9 to the Registration Statement on Form N-2, filed on November 29, 2019.
(11) Incorporated by reference from the Registrant’s Post-Effective Amendment No. 10 to the Registration Statement on Form N-2, filed on December 5, 2019.
(12) Incorporated by reference from the Registrant’s Post-Effective Amendment No. 11 to the Registration Statement on Form N-2, filed on December 12, 2019.
(13) Incorporated by reference from the Registrant’s Post-Effective Amendment No. 12 to the Registration Statement on Form N-2, filed on December 19, 2019.
(14) Incorporated by reference from the Registrant’s Post-Effective Amendment No. 13 to the Registration Statement on Form N-2, filed on December 27, 2019.

150

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

PROSPECT CAPITAL CORPORATION
February 10, 2020 By: /s/ JOHN F. BARRY III
Date John F. Barry III
Chairman of the Board and Chief Executive Officer
February 10, 2020 By: /s/ KRISTIN L. VAN DASK
Date Kristin L. Van Dask
Chief Financial Officer 
		Exhibit

EXHIBIT 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO RULE 13a-14(a)/15d-14(a)

I, John F. Barry III, Chairman of the Board and Chief Executive Officer of Prospect Capital Corporation, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Prospect Capital Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
--- ---
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
--- ---
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a 15(f) and 15d-15(f)) for the registrant and have:
--- ---
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant is made known to us by others within those entities, particularly during the period in which this report is being prepared;
--- ---
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with generally accepted accounting principles;
--- ---
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
--- ---
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over the financial reporting; and
--- ---
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
--- ---
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
--- ---
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
--- ---
Date: February 10, 2020
--- ---
/s/ JOHN F. BARRY III
John F. Barry III
Chairman of the Board and Chief Executive Officer 
		Exhibit

EXHIBIT 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO RULE 13a-14(a)/15d-14(a)

I, Kristin L. Van Dask, Chief Financial Officer and Treasurer of Prospect Capital Corporation, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Prospect Capital Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
--- ---
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
--- ---
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a 15(f) and 15d-15(f)) for the registrant and have:
--- ---
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant is made known to us by others within those entities, particularly during the period in which this report is being prepared;
--- ---
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with generally accepted accounting principles;
--- ---
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
--- ---
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over the financial reporting; and
--- ---
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
--- ---
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
--- ---
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
--- ---
Date: February 10, 2020
--- ---
/s/ KRISTIN L. VAN DASK
Kristin L. Van Dask
Chief Financial Officer 
		Exhibit

EXHIBIT 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C. 1350)

In connection with the quarterly report on Form 10-Q for the period ended December 31, 2019 (the “Report”) of Prospect Capital Corporation (the “Registrant”), as filed with the Securities and Commission on the date hereof, I, John F. Barry III, Chairman of the Board and Chief Executive Officer of the Registrant, hereby certify, to the best of my knowledge, that:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.
--- ---
Date: February 10, 2020
--- ---
/s/ JOHN F. BARRY III
John F. Barry III
Chairman of the Board and Chief Executive Officer

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Prospect Capital Corporation and will be retained by Prospect Capital Corporation and furnished to the Securities and Exchange Commission or its staff upon request.

The foregoing certification is being furnished solely to accompany the Report pursuant to 18 U.S.C. ss. 1350, and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and are not to be incorporated by reference into any filing of the Registrant, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

		Exhibit

EXHIBIT 32.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C. 1350)

In connection with the quarterly report on Form 10-Q for the period ended December 31, 2019 (the “Report”) of Prospect Capital Corporation (the “Registrant”), as filed with the Securities and Commission on the date hereof, I, Kristin L. Van Dask, Chief Financial Officer of the Registrant, hereby certify, to the best of my knowledge, that:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.
--- ---
Date: February 10, 2020
--- ---
/s/ KRISTIN L. VAN DASK
Kristin L. Van Dask
Chief Financial Officer

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Prospect Capital Corporation and will be retained by Prospect Capital Corporation and furnished to the Securities and Exchange Commission or its staff upon request.

The foregoing certification is being furnished solely to accompany the Report pursuant to 18 U.S.C. ss. 1350, and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and are not to be incorporated by reference into any filing of the Registrant, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

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