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10-Q

Prospect Capital Corp (PSEC)

10-Q 2020-11-09 For: 2020-09-30
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 September 30, 2020
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 November 6, 2020, there were 380,592,543 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 September 30, 2020 (unaudited) and June 30, 2020 4
Consolidated Statements of Operations for the three months ended September 30, 2020 and September 30, 2019 (unaudited) 5
Consolidated Statements of Changes in Net Assets for the three months ended September 30, 2020 and September 30, 2019 (unaudited) 6
Consolidated Statements of Cash Flows for the three months ended September 30, 2020 and September 30, 2019 (unaudited) 7
Consolidated Schedules of Investments as of September 30, 2020 (unaudited) and June 30, 2020 8
Notes to Consolidated Financial Statements 48
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 104
Item 3. Quantitative and Qualitative Disclosures About Market Risk 137
Item 4. Controls and Procedures 139
PART II OTHER INFORMATION
Item 1. Legal Proceedings 140
Item 1A. Risk Factors 140
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 144
Item 3. Defaults Upon Senior Securities 144
Item 4. Mine Safety Disclosures 144
Item 5. Other Information 145
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,” “should,” “could,” “may,” “plan” 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, 2020, and those described from time to time in reports that we have filed or in the future may file 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;
--- ---
• 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 impact of global health epidemics, including, but not limited to, the recent and ongoing novel coronavirus (“Wuhan Virus”) pandemic, on our and our portfolio companies’ business and the global economy;
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• uncertainty surrounding the financial stability of the United States, Europe, and China;
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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, and the impact of a protracted decline in the liquidity of credit markets on our and our portfolio companies’ business;
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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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• the impact of changes in London Interbank Offered Rate (“LIBOR”) on our operating results;
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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) September 30, 2020 June 30, 2020
(Unaudited) (Audited)
Assets
Investments at fair value:
Control investments (amortized cost of $2,321,471 and $2,286,725, respectively) $ 2,307,572 $ 2,259,292
Affiliate investments (amortized cost of $171,649 and $163,484, respectively) 262,175 187,537
Non-control/non-affiliate investments (amortized cost of $3,335,811 and $3,332,509, respectively) 2,816,638 2,785,499
Total investments at fair value (amortized cost of $5,828,931 and $5,782,718, respectively) 5,386,385 5,232,328
Cash 28,303 44,561
Receivables for:
Interest, net 11,011 11,712
Other 938 106
Deferred financing costs on Revolving Credit Facility (Note 4) 8,596 9,145
Due from broker 1,892 1,063
Prepaid expenses 907 1,248
Due from Affiliate (Note 13) 38 —
Total Assets 5,438,070 5,300,163
Liabilities
Revolving Credit Facility (Notes 4 and 8) 250,993 237,536
Public Notes (less unamortized discount and debt issuance costs of $11,011 and $11,613,<br><br>respectively) (Notes 6 and 8) 782,708 782,106
Prospect Capital InterNotes® (less unamortized debt issuance costs of $12,959 and $12,802, <br> respectively) (Notes 7 and 8) 705,362 667,427
Convertible Notes (less unamortized debt issuance costs of $7,899 and $8,892, <br>respectively) (Notes 5 and 8) 422,171 450,598
Due to Prospect Capital Management (Note 13) 41,232 42,481
Interest payable 17,374 29,066
Dividends payable 22,727 22,412
Accrued expenses 5,654 3,648
Due to Prospect Administration (Note 13) 8,164 7,000
Due to broker — 1
Other liabilities 658 2,027
Total Liabilities 2,257,043 2,244,302
Commitments and Contingencies (Note 3)
Net Assets $ 3,181,027 $ 3,055,861
Components of Net Assets
Common stock, par value $0.001 per share (1,880,000,000 common shares authorized; 378,776,958 and 373,538,499 issued and outstanding, respectively) (Note 9) $ 379 $ 374
Paid-in capital in excess of par (Note 9) 4,096,150 4,070,874
Total distributable loss (915,502 ) (1,015,387 )
Net Assets $ 3,181,027 $ 3,055,861
Net Asset Value Per Share (Note 16) $ 8.40 $ 8.18

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 September 30,
2020 2019
Investment Income
Interest income:
Control investments $ 48,727 $ 50,866
Affiliate investments 7,362 239
Non-control/non-affiliate investments 51,250 61,950
Structured credit securities 24,900 32,901
Total interest income 132,239 145,956
Dividend income:
Control investments — 3,800
Non-control/non-affiliate investments 25 454
Total dividend income 25 4,254
Other income:
Control investments 9,071 11,383
Non-control/non-affiliate investments 1,545 290
Total other income (Note 10) 10,616 11,673
Total Investment Income 142,880 161,883
Operating Expenses
Base management fee (Note 13) 26,850 28,463
Income incentive fee (Note 13) 14,386 17,765
Interest and credit facility expenses 34,049 38,898
Allocation of overhead from Prospect Administration (Note 13) 4,657 3,494
Audit, compliance and tax related fees 938 375
Directors’ fees 113 113
Other general and administrative expenses 4,342 1,715
Total Operating Expenses 85,335 90,823
Net Investment Income 57,545 71,060
Net Realized and Net Change in Unrealized Gains (Losses) from Investments
Net realized gains (losses)
Control investments 2,832 —
Non-control/non-affiliate investments 11 (2,198 )
Net realized gains (losses) 2,843 (2,198 )
Net change in unrealized gains (losses)
Control investments 13,535 (39,021 )
Affiliate investments 66,473 18,020
Non-control/non-affiliate investments 27,836 (27,458 )
Net change in unrealized gains (losses) 107,844 (48,459 )
Net Realized and Net Change in Unrealized Gains (Losses) from Investments 110,687 (50,657 )
Net realized losses on extinguishment of debt (486 ) (2,338 )
Net Increase in Net Assets Resulting from Operations $ 167,746 $ 18,065
Net increase in net assets resulting from operations per share $ 0.45 $ 0.05
Dividends declared per share $ (0.18 ) $ (0.18 )

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
Three Months Ended September 30, 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 Increase in Net Assets resulting from Operations:
Net investment income 71,060 71,060
Net realized losses (4,536 ) (4,536 )
Net change in unrealized losses (48,459 ) (48,459 )
Distributions to Shareholders
Distributions from earnings (66,111 ) (66,111 )
Shares issued through reinvestment of dividends 232,847 1,544 1,544
Tax reclassifications of net assets (Note 12) (78 ) 78 —
Total increase (decrease) for the three months ended September 30, 2019 232,847 — 1,466 (47,968 ) (46,502 )
Balance as of September 30, 2019 367,363,872 $ 367 $ 4,041,338 $ (781,932 ) $ 3,259,773
Common Stock
--- --- --- --- --- --- --- --- --- --- --- ---
Three Months Ended September 30, 2020 Shares Par Paid-in capital in excess of par Distributable earnings (loss) Total Net Assets
Balance as of June 30, 2020 373,538,499 $ 374 $ 4,070,874 $ (1,015,387 ) $ 3,055,861
Net Increase in Net Assets resulting from Operations:
Net investment income 57,545 57,545
Net realized gains 2,357 2,357
Net change in unrealized gains 107,844 107,844
Distributions to Shareholders
Distributions from earnings (67,861 ) (67,861 )
Shares issued through reinvestment of dividends 5,238,459 5 25,276 25,281
Total increase for the three months ended September 30, 2020 5,238,459 5 25,276 99,885 125,166
Balance as of September 30, 2020 378,776,958 $ 379 $ 4,096,150 $ (915,502 ) $ 3,181,027

See notes to consolidated financial statements.

6

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands, except share data)

(Unaudited)

Three Months Ended September 30,
2020 2019
Operating Activities
Net increase in net assets resulting from operations $ 167,746 $ 18,065
Net realized losses on extinguishment of debt 486 2,338
Net realized (gains) losses on investments (2,843 ) 2,198
Net change in unrealized (gains) losses on investments (107,844 ) 48,459
Amortization of (accretion of premiums) discounts, net (14,482 ) 1,704
Accretion of original issue discount 269 254
Amortization of deferred financing costs 1,921 2,241
Payment-in-kind interest (20,341 ) (14,498 )
Structuring fees (170 ) (612 )
Change in operating assets and liabilities:
Payments for purchases of investments (156,630 ) (79,430 )
Proceeds from sale of investments and collection of investment principal 148,253 245,173
Decrease in due to broker (1 ) —
Decrease in due to Prospect Capital Management (1,249 ) (297 )
Decrease in interest receivable, net 701 13,978
Decrease in interest payable (11,692 ) (11,740 )
Increase (decrease) in accrued expenses 2,006 (726 )
Increase in due from broker (829 ) (4,121 )
(Decrease) increase in other liabilities (1,369 ) 39
(Increase) decrease in other receivables (832 ) 3,126
Increase in due from affiliate (38 ) —
Decrease in prepaid expenses 341 281
Increase (decrease) in due to Prospect Administration 1,164 (1,374 )
Net Cash Provided by Operating Activities 4,567 225,058
Financing Activities
Borrowings under Revolving Credit Facility (Note 4) 212,900 211,000
Principal payments under Revolving Credit Facility (Note 4) (199,443 ) (270,000 )
Redemptions of Convertible Notes, net (Note 5) (29,420 ) (47,016 )
Issuances of Prospect Capital InterNotes® (Note 7) 38,657 95,135
Redemptions of Prospect Capital InterNotes®, net (Note 7) (565 ) (145,459 )
Financing costs paid and deferred (689 ) (5,088 )
Dividends paid (42,265 ) (64,554 )
Net Cash Used in Financing Activities (20,825 ) (225,982 )
Net Decrease in Cash (16,258 ) (924 )
Cash at beginning of period 44,561 107,098
Cash at End of Period $ 28,303 $ 106,174
Supplemental Disclosures
Cash paid for interest $ 43,551 $ 48,143
Non-Cash Financing Activities
Value of shares issued through reinvestment of dividends $ 25,281 $ 1,544
Cost basis of investments written off as worthless $ — $ 2,420

See notes to consolidated financial statements.

7

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULES OF INVESTMENTS AS OF SEPTEMBER 30, 2020 (Unaudited)

(in thousands, except share data)

September 30, 2020 (Unaudited)
Portfolio Company Industry Investments(1)(37) Acquisition Date(44) Coupon/Yield Floor Legal Maturity Principal Value Amortized Cost Fair<br>Value(2) % of Net Assets
Control Investments (greater than 25.00% voting control)(40)
CP Energy Services Inc. (20) Energy Equipment & Services Senior Secured Term Loan 10/1/2017 12.00% (3ML+ 11.00%) 1.00 12/29/2022 $ 37,870 $ 37,870 $ 34,894 1.1 % (10)(39)
Senior Secured Term Loan A to Spartan Energy Services, LLC 10/20/2014 9.00% (1ML+ 8.00%) 1.00 12/31/2022 13,156 13,156 13,156 0.3 % (10)
Series A Preferred Units to Spartan Energy Holdings, Inc. (10,000 shares) 9/25/2020 — N/A — 26,193 6,259 0.2 % (16)
Series B Convertible Preferred Stock (790 shares) 10/30/2015 — N/A — 63,225 — — % (16)
Common Stock (102,924 shares) 8/2/2013 — N/A — 86,240 — — % (16)
226,684 54,309 1.6 %
Credit Central Loan Company, LLC (21) Consumer Finance Subordinated Term Loan 12/28/2012 10.00% plus 10.00% PIK — 6/26/2024 66,126 63,239 66,126 2.1 % (14)(39)
Class A Units (14,867,312 units) 12/28/2012 — N/A — 19,331 12,198 0.4 % (14)(16)
Net Revenues Interest (25% of Net Revenues) 1/28/2015 — N/A — — — — % (14)(16)
82,570 78,324 2.5 %
Echelon Transportation, LLC Aerospace & Defense Senior Secured Term Loan 3/31/2014 11.75% (1ML+ 9.75%) plus 2.25% PIK 2.00 3/31/2022 48,160 48,160 48,160 1.5 % (10)(39)
Senior Secured Term Loan 12/9/2016 11.00% (1ML+ 9.00%) plus 1.00% PIK 2.00 12/7/2024 21,637 21,637 21,637 0.7 % (10)(39)
Membership Interest (100%) 3/31/2014 — N/A — 22,738 22,327 0.7 % (16)
92,535 92,124 2.9 %
First Tower Finance Company LLC (23) Consumer Finance Subordinated Term Loan to First Tower, LLC 6/24/2014 10.00% plus 12.00% PIK — 6/24/2024 272,158 272,158 272,158 8.6 % (14)(39)
Class A Units (95,709,910 units) 6/14/2012 — N/A — 81,146 237,942 7.5 % (14)(16)
353,304 510,100 16.1 %
Freedom Marine Solutions, LLC (24) Energy Equipment & Services Membership Interest (100%) 11/9/2006 — N/A — 43,892 12,351 0.4 % (16)
43,892 12,351 0.4 %
InterDent, Inc. (29) Health Care Providers & Services Senior Secured Term Loan A/B 8/1/2018 11.85% (1ML+ 9.85%) 2.00 9/5/2022 14,250 14,249 14,249 0.4 % (10)(39)
Senior Secured Term Loan A 8/3/2012 6.50% (1ML+ 5.50%) 1.00 9/5/2022 79,242 79,242 79,242 2.5 % -10
Senior Secured Term Loan B 8/3/2012 10.00% PIK — 9/5/2022 131,725 131,725 131,725 4.1 %
Common Stock (99,900 shares) 5/3/2019 — N/A — 45,118 11,768 0.4 % (16)
270,334 236,984 7.4 %
Kickapoo Ranch Pet Resort Diversified Consumer Services Membership Interest (100%) 8/26/2019 — N/A — 2,378 3,000 0.1 % (16)
2,378 3,000 0.1 %
MITY, Inc. (25) Commercial Services & Supplies Senior Secured Note A 9/19/2013 10.00% (3ML+ 7.00%) 3.00 4/30/2025 26,250 26,250 26,250 0.8 % (10)
Senior Secured Note B 6/23/2014 10.00% (3ML+ 7.00%) plus 10.00% PIK 3.00 4/30/2025 33,859 33,859 22,729 0.7 % (10)(39)
Subordinated Unsecured Note to Broda Enterprises ULC 9/19/2013 10.00% — 1/1/2028 7,200 6,205 — — % (14)
Common Stock (42,053 shares) 9/19/2013 — N/A — 6,849 — — % (16)
73,163 48,979 1.5 %
National Property REIT Corp. (26) Equity Real Estate Investment Trusts (REITs) / Online Lending / Structured Finance Senior Secured Term Loan A 12/31/2018 4.44% (3ML+ 1.44%) plus 3.53% PIK 3.00 12/31/2023 319,379 319,379 319,379 10.0 % (10)(39)
Senior Secured Term Loan B 12/31/2018 5.00% (3ML+ 2.00%) plus 5.50% PIK 3.00 12/31/2023 30,621 30,621 30,621 1.0 % (10)(39)
Senior Secured Term Loan C 10/31/2019 11.00% (3ML+ 10.00%) plus 2.25% PIK 1.00 12/31/2023 101,200 101,200 101,200 3.2 % (10)(39)
Senior Secured Term Loan D 6/19/2020 3.50% (3ML+ 0.50%) plus 2.50% PIK 3.00 12/31/2023 183,425 183,425 183,425 5.8 % (10)(39)
Residual Profit Interest 12/31/2018 — N/A — — — — % (35)
Common Stock (3,254,594 shares) 12/31/2013 — N/A — 210 278,955 8.8 % (45)
634,835 913,580 28.8 %

See notes to consolidated financial statements.

8

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULES OF INVESTMENTS AS OF SEPTEMBER 30, 2020 (Unaudited)

(in thousands, except share data)

September 30, 2020 (Unaudited)
Portfolio Company Industry Investments(1)(37) Acquisition Date(44) Coupon/Yield Floor Legal Maturity Principal Value Amortized Cost Fair<br>Value(2) % of Net Assets
Control Investments (greater than 25.00% voting control)(40)
Nationwide Loan Company LLC (27) Consumer Finance Senior Subordinated Term Loan to Nationwide Acceptance LLC 6/18/2014 10.00% plus 10.00% PIK — 6/18/2021 $ 20,260 $ 20,260 $ 20,260 0.6 % (14)(39)
Class A Units (38,550,460 units) 1/31/2013 — N/A — 20,462 16,836 0.5 % (14)(16)
40,722 37,096 1.1 %
NMMB, Inc. (28) Media Delayed Draw Term Loan - $10,000 Commitment 3/25/2020 10.50% (3ML+ 8.50%) 2.00 12/30/2024 — — — — % (10)(15)
Senior Secured Note 12/30/2019 10.50% (3ML+ 8.50%) 2.00 12/30/2024 4,987 4,987 4,987 0.2 % (3)(10)
Common Stock (21,419 shares) 12/30/2019 — N/A — 12,869 23,113 0.7 %
17,856 28,100 0.9 %
Pacific World Corporation (36) Personal Products Revolving Line of Credit - $26,000 Commitment 9/26/2014 8.25% (1ML+ 7.25%) 1.00 9/26/2025 20,825 20,825 20,825 0.7 % (10)(15)
Senior Secured Term Loan A 12/31/2014 6.25% PIK (1ML+ 5.25%) 1.00 9/26/2025 39,716 39,716 39,716 1.2 % (10)(39)
Convertible Preferred Equity (273,400 shares) 6/15/2018 — N/A — 186,795 6,433 0.2 % (16)
Common Stock (6,778,414 shares) 9/29/2017 — N/A — — — — % (16)
247,336 66,974 2.1 %
R-V Industries, Inc. Machinery Senior Subordinated Note 6/12/2013 10.00% (3ML+ 9.00%) 1.00 3/31/2022 28,623 28,623 28,622 0.9 % (3)(10)
Common Stock (745,107 shares) 6/26/2007 — N/A — 6,866 12,477 0.4 % (16)
35,489 41,099 1.3 %
Universal Turbine Parts, LLC (34) Trading Companies & Distributors Delayed Draw Term Loan - $5,000 Commitment 2/28/2019 10.25% (1ML+ 7.75%) 2.50 7/22/2021 2,880 2,880 2,880 0.1 % (10)(15)
Senior Secured Term Loan A 7/22/2016 6.75% (3ML+ 5.75%) 1.00 7/22/2021 29,900 29,900 25,586 0.8 % (10)
Senior Secured Term Loan B 7/22/2016 12.75% PIK (3ML+ 11.75%) 1.00 7/22/2021 44,340 32,500 — — % (9)(10)
Common Stock (10,000 units) 12/10/2018 — N/A — — — — % (16)
65,280 28,466 0.9 %
USES Corp. (30) Commercial Services & Supplies Senior Secured Term Loan A 3/31/2014 9.00% PIK — 7/29/2022 51,493 30,651 22,462 0.7 % (9)
Senior Secured Term Loan B 3/31/2014 15.50% PIK — 7/29/2022 68,943 35,568 — — % (9)
Common Stock (268,962 shares) 6/15/2016 — N/A — — — — % (16)
66,219 22,462 0.7 %
Valley Electric Company, Inc. (31) Construction & Engineering Senior Secured Note to Valley Electric Co. of Mt. Vernon, Inc. 12/31/2012 8.00% (3ML+ 5.00%) plus 2.50% PIK 3.00 12/31/2024 10,430 10,430 10,430 0.3 % (3)(10)(39)
Senior Secured Note 6/24/2014 8.00% plus 10.00% PIK — 6/23/2024 33,301 33,301 33,301 1.0 % (39)
Consolidated Revenue Interest (2.0%) 6/22/2018 — N/A — — 2,332 0.1 % (12)
Common Stock (50,000 shares) 12/31/2012 — N/A — 25,143 87,561 2.8 %
68,874 133,624 4.2 %
Total Control Investments (Level 3) $ 2,321,471 $ 2,307,572 72.5 %

See notes to consolidated financial statements.

9

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULES OF INVESTMENTS AS OF SEPTEMBER 30, 2020 (Unaudited)

(in thousands, except share data)

September 30, 2020 (Unaudited)
Portfolio Company Industry Investments(1)(37) Acquisition Date(44) Coupon/Yield Floor Legal Maturity Principal Value Amortized Cost Fair<br>Value(2) % of Net Assets
Affiliate Investments (5.00% to 24.99% voting control)(41)
Edmentum Ultimate Holdings, LLC (22) Diversified Consumer Services Second Lien Revolving Credit Facility to Edmentum, Inc. - $7,834 Commitment 6/9/2015 5.00% PIK — 12/9/2021 $ 8,648 $ 8,648 $ 8,648 0.2 % (15)(39)
Unsecured Senior PIK Note 6/9/2015 8.50% PIK — 12/9/2021 9,114 9,114 9,114 0.3 % (39)
Unsecured Junior PIK Note 6/9/2015 10.00% PIK — 12/9/2021 44,148 32,875 44,148 1.4 % (39)
Class A Units (370,964 units) 6/9/2015 — N/A — 6,577 5,698 0.2 % (16)
57,214 67,608 2.1 %
Nixon, Inc. (32) Textiles, Apparel & Luxury Goods Common Stock (857 units) 5/12/2017 — N/A — — — — % (16)
— — — %
PGX Holdings, Inc. (6) Diversified Consumer Services 1.5 Lien Term Loan 5/27/2020 11.50% PIK (12ML+ 10.50%) 1.00 3/29/2024 2,873 2,873 2,873 0.1 % (10)(39)
Second Lien Term Loan 9/29/2014 15.75% PIK (1ML+ 14.75%) 1.00 9/29/2024 108,758 108,757 108,757 3.4 % (10)(39)
Common Stock (40,780,359 shares) 5/27/2020 — N/A — — 57,951 1.8 % (16)
111,630 169,581 5.3 %
Targus Cayman HoldCo Limited (33) Textiles, Apparel & Luxury Goods Common Stock (7,383,395 shares) 2/12/2016 — N/A — 2,805 24,986 0.8 % (16)
2,805 24,986 0.8 %
Total Affiliate Investments (Level 3) $ 171,649 $ 262,175 8.2 %

See notes to consolidated financial statements.

10

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULES OF INVESTMENTS AS OF SEPTEMBER 30, 2020 (Unaudited)

(in thousands, except share data)

September 30, 2020 (Unaudited)
Portfolio Company Industry Investments(1)(37) Acquisition Date(44) Coupon/Yield Floor Legal Maturity 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 10/10/2018 7.90% (1ML+ 7.75%) — 10/1/2026 $ 25,000 $ 24,859 $ 25,000 0.8 % (3)(8)(10)
24,859 25,000 0.8 %
ACE Cash Express, Inc. Consumer Finance Senior Secured Note 12/15/2017 12.00% — 12/15/2022 34,498 32,156 29,210 0.9 % (8)(14)
32,156 29,210 0.9 %
Ahead Data Blue, LLC IT Services Second Lien Term Loan 12/13/2019 10.00% (1ML+ 8.50%) 1.50 11/8/2025 70,000 70,000 70,000 2.2 % (3)(10)
70,000 70,000 2.2 %
AmeriLife Holdings, LLC Insurance Second Lien Term Loan 4/2/2020 9.50% (6ML+ 8.50%) 1.00 3/18/2028 14,250 13,978 13,978 0.4 % (8)(10)
13,978 13,978 0.4 %
Apidos CLO XI Structured Finance Subordinated Structured Note 12/6/2012 Residual Interest, current yield 10.40% — 10/17/2030 40,500 32,862 26,231 0.8 % (5)(14)
32,862 26,231 0.8 %
Apidos CLO XII Structured Finance Subordinated Structured Note 3/15/2013 Residual Interest, current yield 14.79% — 4/15/2031 52,203 39,315 30,351 1.0 % (5)(14)
39,315 30,351 1.0 %
Apidos CLO XV Structured Finance Subordinated Structured Note 9/13/2013 Residual Interest, current yield 13.20% — 4/21/2031 48,515 40,149 28,846 0.9 % (5)(14)
40,149 28,846 0.9 %
Apidos CLO XXII Structured Finance Subordinated Structured Note 9/16/2015 Residual Interest, current yield 16.74% — 4/21/2031 35,855 30,678 25,133 0.8 % (5)(14)
30,678 25,133 0.8 %
Atlantis Health Care Group (Puerto Rico), Inc. Health Care Providers & Services Revolving Line of Credit - $3,000 Commitment 2/21/2013 10.75% (3ML+ 8.75%) 2.00 4/30/2021 — — — — % (10)(15)
Senior Secured Term Loan 2/21/2013 10.75% (3ML+ 8.75%) 2.00 4/30/2021 71,205 71,205 71,205 2.2 % (3)(10)
71,205 71,205 2.2 %
Barings CLO 2018-III Structured Finance Subordinated Structured Note 10/9/2014 Residual Interest, current yield 5.58% — 7/20/2029 83,098 47,714 31,875 1.0 % (5)(14)
47,714 31,875 1.0 %
Broder Bros., Co. Textiles, Apparel & Luxury Goods Senior Secured Note 12/4/2017 9.75% (3ML+ 8.50%) 1.25 12/2/2022 165,390 165,390 165,390 5.2 % (3)(10)
165,390 165,390 5.2 %
Brookside Mill CLO Ltd. Structured Finance Subordinated Structured Note 4/25/2013 Residual Interest, current yield 0.00% — 1/17/2028 36,300 17,033 12,204 0.4 % (5)(14)(17)
17,033 12,204 0.4 %
California Street CLO IX Ltd. Structured Finance Subordinated Structured Note 4/19/2012 Residual Interest, current yield 8.25% — 7/16/2032 58,915 41,677 27,920 0.9 % (5)(14)
41,677 27,920 0.9 %
Candle-Lite Company, LLC Household Products Senior Secured Term Loan A 1/23/2018 6.75% (3ML+ 5.50%) 1.25 1/23/2023 11,875 11,875 11,875 0.4 % (3)(10)
Senior Secured Term Loan B 1/23/2018 10.75% (3ML+ 9.50%) 1.25 1/23/2023 12,500 12,500 12,500 0.4 % (3)(10)
24,375 24,375 0.8 %
Capstone Logistics Acquisition, Inc. Commercial Services & Supplies Second Lien Term Loan 10/7/2014 9.25% (1ML+ 8.25%) 1.00 10/7/2022 98,982 98,811 98,982 3.1 % (3)(8)(10)
98,811 98,982 3.1 %
Carlyle C17 CLO Limited Structured Finance Subordinated Structured Note 1/24/2013 Residual Interest, current yield 19.82% — 4/30/2031 24,870 15,599 13,480 0.4 % (5)(14)
15,599 13,480 0.4 %
Carlyle Global Market Strategies CLO 2014-4-R, Ltd. Structured Finance Subordinated Structured Note 4/7/2017 Residual Interest, current yield 16.36% — 7/15/2030 25,534 19,436 16,156 0.5 % (5)(14)
19,436 16,156 0.5 %
Carlyle Global Market Strategies CLO 2016-3, Ltd. Structured Finance Subordinated Structured Note 8/9/2016 Residual Interest, current yield 10.76% — 10/22/2029 32,200 34,433 26,191 0.8 % (5)(14)
34,433 26,191 0.8 %

See notes to consolidated financial statements.

11

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULES OF INVESTMENTS AS OF SEPTEMBER 30, 2020 (Unaudited)

(in thousands, except share data)

September 30, 2020 (Unaudited)
Portfolio Company Industry Investments(1)(37) Acquisition Date(44) Coupon/Yield Floor Legal Maturity Principal Value Amortized Cost Fair<br>Value(2) % of Net Assets
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
CCS-CMGC Holdings, Inc. Health Care Providers & Services First Lien Term Loan 5/23/2019 5.76% (3ML+ 5.50%) — 10/1/2025 $ 3,615 $ 3,568 $ 3,615 0.1 % (3)(8)(10)
First Lien Term Loan 5/23/2019 5.72% (3ML+ 5.50%) — 10/1/2025 5,984 5,908 5,984 0.2 % (3)(8)(10)
Second Lien Term Loan 10/12/2018 9.26% (3ML+ 9.00%) — 10/1/2026 37,000 36,466 37,000 1.2 % (3)(8)(10)
45,942 46,599 1.5 %
Cent CLO 21 Limited Structured Finance Subordinated Structured Note 5/15/2014 Residual Interest, current yield 7.79% — 7/29/2030 49,552 39,083 27,016 0.8 % (5)(14)
39,083 27,016 0.8 %
CIFC Funding 2013-III-R, Ltd. Structured Finance Subordinated Structured Note 8/2/2013 Residual Interest, current yield 12.54% — 4/24/2031 44,100 30,064 22,175 0.7 % (5)(14)
30,064 22,175 0.7 %
CIFC Funding 2013-IV, Ltd. Structured Finance Subordinated Structured Note 10/22/2013 Residual Interest, current yield 15.49% — 4/28/2031 45,500 33,730 28,626 0.9 % (5)(14)
33,730 28,626 0.9 %
CIFC Funding 2014-IV-R, Ltd. Structured Finance Subordinated Structured Note 8/5/2014 Residual Interest, current yield 10.76% — 10/17/2030 44,467 31,478 21,047 0.7 % (5)(14)
31,478 21,047 0.7 %
CIFC Funding 2016-I, Ltd. Structured Finance Subordinated Structured Note 12/9/2016 Residual Interest, current yield 9.78% — 10/21/2031 34,000 30,301 27,045 0.9 % (5)(14)
30,301 27,045 0.9 %
Cinedigm DC Holdings, LLC Entertainment Senior Secured Term Loan 2/28/2013 11.00% (3ML+ 9.00%) plus 2.50% PIK 2.00 3/31/2021 12,107 12,057 12,038 0.4 % (10)(39)
12,057 12,038 0.4 %
Class Valuation, LLC Real Estate Management & Development Senior Secured Term Loan 3/12/2018 9.75% (3ML+ 8.25%) 1.50 3/10/2023 31,537 31,537 31,537 1.0 % (3)(10)
31,537 31,537 1.0 %
Collections Acquisition Company, Inc. Diversified Financial Services Senior Secured Term Loan 12/3/2019 10.15% (3ML+ 7.65%) 2.50 6/3/2024 30,165 30,165 30,165 0.9 % (3)(10)
30,165 30,165 0.9 %
Columbia Cent CLO 27 Limited Structured Finance Subordinated Structured Note 12/18/2013 Residual Interest, current yield 6.24% — 10/25/2028 40,275 23,202 18,935 0.6 % (5)(14)
23,202 18,935 0.6 %
Coverall North America, Inc. Commercial Services & Supplies Senior Secured Term Loan A 11/2/2015 7.00% (3ML+ 6.00%) 1.00 5/3/2021 — — — — % (3)(10)
21,872 21,872 0.7 %
CP VI Bella Midco IT Services Second Lien Term Loan 2/26/2018 6.90% (1ML+ 6.75%) — 12/29/2025 15,750 15,712 15,750 0.5 % (3)(8)(10)
15,712 15,750 0.5 %
Curo Group Holdings Corp. Consumer Finance Second Lien Term Loan 7/30/2020 — — 9/1/2025 3,421 2,757 2,870 0.1 %
2,757 2,870 0.1 %
Digital Room, LLC Commercial Services & Supplies First Lien Term Loan 5/29/2019 5.27% (6ML+ 5.00%) — 5/21/2026 9,875 9,769 9,631 0.3 % (3)(8)(10)
Second Lien Term Loan 5/30/2019 9.27% (6ML+ 9.00%) — 5/21/2027 70,000 70,000 68,199 2.1 % (3)(8)(10)
79,769 77,830 2.4 %
Dunn Paper, Inc. Paper & Forest Products First Lien Term Loan 11/27/2019 5.75% (2ML+ 4.75%) 1.00 8/26/2022 3,541 3,475 3,475 0.1 % (3)(8)(10)
First Lien Term Loan 11/27/2019 5.75% (1ML+ 4.75%) 1.00 8/26/2022 947 929 929 — % (3)(8)(10)
Second Lien Term Loan 10/7/2016 9.75% (1ML+ 8.75%) 1.00 8/26/2023 11,500 11,404 11,404 0.4 % (3)(8)(10)
15,808 15,808 0.5 %
Easy Gardener Products, Inc. Household Durables Third Lien Term Loan 6/11/2020 10.25% (3ML+ 10.00%) 0.25 9/30/2024 3,980 3,980 3,980 0.1 % (10)
Class A Units of EZG Holdings, Inc. (200 units) 6/11/2020 — N/A — 312 781 — % (16)
Class B Units of EZG Holdings, Inc. (12,525 units) 6/11/2020 — N/A — 1,688 5,029 0.2 % (16)
5,980 9,790 0.3 %

See notes to consolidated financial statements.

12

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULES OF INVESTMENTS AS OF SEPTEMBER 30, 2020 (Unaudited)

(in thousands, except share data)

September 30, 2020 (Unaudited)
Portfolio Company Industry Investments(1)(37) Acquisition Date(44) Coupon/Yield Floor Legal Maturity Principal Value Amortized Cost Fair<br>Value(2) % of Net Assets
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
EDSCO Holding Company LLC Machinery Senior Secured Term Loan 1/10/2020 7.50% (1ML+ 6.00%) 1.50 1/10/2025 $ 17,703 $ 17,703 $ 17,703 0.6 % (3)(10)
17,703 17,703 0.6 %
Engine Group, Inc. (7) Media Senior Secured Term Loan 9/25/2017 6.00% (1ML+ 5.00%) 1.00 9/15/2022 4,220 4,220 3,204 0.1 % (8)(9)(10)
Second Lien Term Loan 9/25/2017 10.00% (1ML+ 9.00%) 1.00 9/15/2023 35,000 35,000 7,386 0.2 % (8)(9)(10)
39,220 10,590 0.3 %
EXC Holdings III Corp Technology Hardware, Storage & Peripherals Second Lien Term Loan 12/5/2017 8.50% (3ML+ 7.50%) 1.00 12/1/2025 12,500 12,419 12,377 0.4 % (3)(8)(10)
12,419 12,377 0.4 %
First Brands Group Auto Components First Lien Term Loan 8/6/2020 8.50% (2ML+ 7.50%) 1.00 2/2/2024 27,179 25,724 26,477 0.8 % (3)(8)(10)
25,724 26,477 0.8 %
Galaxy XV CLO, Ltd. Structured Finance Subordinated Structured Note 2/13/2013 Residual Interest, current yield 13.37% — 10/15/2030 50,525 35,931 25,611 0.8 % (5)(14)
35,931 25,611 0.8 %
Galaxy XXVII CLO, Ltd. Structured Finance Subordinated Structured Note 9/30/2013 Residual Interest, current yield 12.40% — 5/16/2031 24,575 16,679 11,559 0.4 % (5)(14)
16,679 11,559 0.4 %
Galaxy XXVIII CLO, Ltd. Structured Finance Subordinated Structured Note 5/30/2014 Residual Interest, current yield 11.41% — 7/15/2031 39,905 29,154 16,170 0.5 % (5)(14)
29,154 16,170 0.5 %
GEON Performance Solutions, LLC Chemicals Revolving Line of Credit - $3,621 Commitment 12/12/2019 7.88% (1ML+ 6.25%) 1.63 10/25/2024 — — — — % (10)(15)
First Lien Term Loan 12/12/2019 7.88% (1ML+ 6.25%) 1.63 10/25/2024 31,222 31,077 31,222 1.0 % (3)(10)
31,077 31,222 1.0 %
Global Tel*Link Corporation Diversified Telecommunication Services First Lien Term Loan 8/20/2019 4.40% (1ML+ 4.25%) — 11/29/2025 9,874 9,536 9,471 0.3 % (3)(8)(10)
Second Lien Term Loan 12/4/2018 8.40% (1ML+ 8.25%) — 11/29/2026 40,170 39,424 39,082 1.2 % (3)(8)(10)
48,960 48,553 1.5 %
GlobalTranz Enterprises, Inc. Air Freight & Logistics Second Lien Term Loan 5/15/2019 8.39% (1ML+ 8.25%) — 5/15/2027 12,500 12,500 10,386 0.3 % (3)(8)(10)
12,500 10,386 0.3 %
Eze Castle Integration, Inc. (f/k/a/ H.I.G. ECI Merger Sub, Inc.) IT Services First Lien Term Loan 7/15/2020 10.00% (1ML+ 8.50%) 1.50 7/15/2025 48,094 48,094 48,094 1.5 % (3)(10)
Delayed Draw Term Loan - $1,786 Commitment 7/15/2020 10.00% (1ML+ 8.50%) 1.50 7/15/2025 — — — — % (3)(10)(15)
48,094 48,094 1.5 %
Halcyon Loan Advisors Funding 2012-1 Ltd. Structured Finance Subordinated Structured Note 8/7/2012 Residual Interest, current yield 0.00% — 8/15/2023 23,188 3,726 — — % (5)(14)(17)
3,726 — — %
Halcyon Loan Advisors Funding 2013-1 Ltd. Structured Finance Subordinated Structured Note 3/8/2013 Residual Interest, current yield 0.00% — 4/15/2025 40,400 19,984 — — % (5)(14)(17)
19,984 — — %
Halcyon Loan Advisors Funding 2014-1 Ltd. Structured Finance Subordinated Structured Note 2/7/2014 Residual Interest, current yield 0.00% — 4/20/2026 24,500 11,822 — — % (5)(14)(17)
11,822 — — %
Halcyon Loan Advisors Funding 2014-2 Ltd. Structured Finance Subordinated Structured Note 4/14/2014 Residual Interest, current yield 0.00% — 4/28/2025 41,164 21,322 — — % (5)(14)(17)
21,322 — — %
Halcyon Loan Advisors Funding 2015-3 Ltd. Structured Finance Subordinated Structured Note 7/23/2015 Residual Interest, current yield 0.00% — 10/18/2027 39,598 29,671 15,189 0.5 % (5)(14)(17)
29,671 15,189 0.5 %

See notes to consolidated financial statements.

13

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULES OF INVESTMENTS AS OF SEPTEMBER 30, 2020 (Unaudited)

(in thousands, except share data)

September 30, 2020 (Unaudited)
Portfolio Company Industry Investments(1)(37) Acquisition Date(44) Coupon/Yield Floor Legal Maturity Principal Value Amortized Cost Fair<br>Value(2) % of Net Assets
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
Halyard MD OpCo, LLC Media First Lien Term Loan 8/6/2018 10.00% (3ML+ 8.00%) 2.00 8/6/2023 $ 10,265 $ 10,265 $ 10,265 0.3 % (3)(10)
10,265 10,265 0.3 %
HarbourView CLO VII-R, Ltd. Structured Finance Subordinated Structured Note 6/5/2015 Residual Interest, current yield 0.00% — 7/18/2031 19,025 12,817 5,010 0.2 % (5)(14)(17)
12,817 5,010 0.2 %
Help/Systems Holdings, Inc. Software First Lien Term Loan 11/29/2019 5.75% (3ML+ 4.75%) 1.00 11/19/2026 8,458 8,386 8,458 0.3 % (3)(8)(10)
Second Lien Term Loan 11/22/2019 9.00% (3ML+ 8.00%) 1.00 11/19/2027 17,500 17,198 17,198 0.5 % (3)(8)(10)
25,584 25,656 0.8 %
Inpatient Care Management Company, LLC Health Care Providers & Services Senior Secured Term Loan 6/8/2016 9.00% (3ML+ 8.00%) 1.00 6/8/2021 14,000 14,000 13,973 0.4 % (3)(10)
14,000 13,973 0.4 %
Jefferson Mill CLO Ltd. Structured Finance Subordinated Structured Note 6/26/2015 Residual Interest, current yield 10.39% — 10/20/2031 23,594 19,760 12,476 0.4 % (5)(14)
19,760 12,476 0.4 %
K&N Parent, Inc. Auto Components First Lien Term Loan 3/3/2020 5.75% (1ML+ 4.75%) 1.00 10/20/2023 1,431 1,255 1,382 — % (3)(8)(10)
Second Lien Term Loan 10/28/2016 9.75% (1ML+ 8.75%) 1.00 10/21/2024 25,887 25,553 24,160 0.8 % (3)(8)(10)
26,808 25,542 0.8 %
Keystone Acquisition Corp. (4) Health Care Providers & Services Second Lien Term Loan 5/18/2017 10.25% (3ML+ 9.25%) 1.00 5/1/2025 50,000 50,000 49,692 1.6 % (3)(8)(10)
50,000 49,692 1.6 %
LCM XIV Ltd. Structured Finance Subordinated Structured Note 6/25/2013 Residual Interest, current yield 12.46% — 7/21/2031 49,934 28,707 19,322 0.6 % (5)(14)
28,707 19,322 0.6 %
Legility, LLC Professional Services First Lien Term Loan 2/28/2020 7.00% (6ML+ 6.00%) 1.00 12/17/2025 19,750 19,390 19,750 0.6 % (3)(8)(10)
19,390 19,750 0.6 %
LGC US FINCO, LLC Machinery First Lien Term Loan 1/24/2020 7.50% (1ML+ 6.50%) 1.00 12/20/2025 29,550 28,758 26,562 0.8 % (3)(8)(10)
28,758 26,562 0.8 %
Maverick Healthcare Equity, LLC Health Care Providers & Services Preferred Units (1,250,000 units) 10/31/2007 — N/A — — — — % (16)
Class A Common Units (1,250,000 units) 10/31/2007 — N/A — — — — % (16)
— — — %
Medusind Acquisition, Inc. (19) Health Care Providers & Services First Lien Term Loan 9/30/2019 9.00% (3ML+ 8.00%) 1.00 4/8/2024 24,324 24,032 23,674 0.7 % (3)(10)
24,032 23,674 0.7 %
Mountain View CLO 2013-I Ltd. Structured Finance Subordinated Structured Note 4/17/2013 Residual Interest, current yield 1.15% — 10/15/2030 43,650 28,516 15,324 0.5 % (5)(14)
28,516 15,324 0.5 %
Mountain View CLO IX Ltd. Structured Finance Subordinated Structured Note 5/13/2015 Residual Interest, current yield 14.50% — 7/15/2031 47,830 29,590 26,834 0.8 % (5)(14)
29,590 26,834 0.8 %
Octagon Investment Partners XV, Ltd. Structured Finance Subordinated Structured Note 1/24/2013 Residual Interest, current yield 11.73% — 7/19/2030 42,064 32,969 24,504 0.8 % (5)(14)
32,969 24,504 0.8 %
Octagon Investment Partners 18-R Ltd. Structured Finance Subordinated Structured Note 8/12/2015 Residual Interest, current yield 16.00% — 4/16/2031 46,016 25,925 18,360 0.6 % (5)(14)
25,925 18,360 0.6 %
Pearl Intermediate Parent LLC Health Care Providers & Services Second Lien Term Loan 2/28/2018 6.40% (1ML+ 6.25%) — 2/15/2026 5,000 4,983 4,994 0.2 % (3)(8)(10)
4,983 4,994 0.2 %

See notes to consolidated financial statements.

14

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULES OF INVESTMENTS AS OF SEPTEMBER 30, 2020 (Unaudited)

(in thousands, except share data)

September 30, 2020 (Unaudited)
Portfolio Company Industry Investments(1)(37) Acquisition Date(44) Coupon/Yield Floor Legal Maturity Principal Value Amortized Cost Fair<br>Value(2) % of Net Assets
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
PeopleConnect Holdings, LLC (11) Interactive Media & Services Revolving Line of Credit - $8,918 Commitment 1/22/2020 10.00% (1ML+ 8.25%) 1.75 1/22/2025 $ — $ — $ — — % (10)(15)
Delayed Draw Term Loan - $5,000 Commitment 1/22/2020 10.00% (3ML+ 8.25%) 1.75 1/22/2021 — — — — % (10)(15)
Senior Secured Term Loan 1/22/2020 10.00% (3ML+ 8.25%) 1.75 1/22/2025 195,577 195,577 195,577 6.1 % (3)(10)
195,577 195,577 6.1 %
PG Dental Holdings New Jersey, LLC Health Care Providers & Services Delayed Draw Term Loan - $5,000 Commitment 5/31/2019 10.00% (3ML+ 7.25%) 2.75 5/31/2024 2,500 2,500 2,500 0.1 % (3)(10)(15)
Senior Secured Term Loan 5/31/2019 10.00% (3ML+ 7.25%) 2.75 5/31/2024 22,185 22,185 22,185 0.7 % (3)(10)
24,685 24,685 0.8 %
PlayPower, Inc. Leisure Products First Lien Term Loan 5/16/2019 5.72% (3ML+ 5.50%) — 5/10/2026 6,246 6,194 5,993 0.2 % (3)(8)(10)
6,194 5,993 0.2 %
Research Now Group, Inc. & Survey Sampling International LLC Professional Services First Lien Term Loan 1/5/2018 6.50% (6ML+ 5.50%) 1.00 12/20/2024 9,725 9,404 9,619 0.3 % (3)(8)(10)
Second Lien Term Loan 1/5/2018 10.50% (6ML+ 9.50%) 1.00 12/20/2025 50,000 47,727 49,167 1.5 % (3)(8)(10)
57,131 58,786 1.8 %
RGIS Services, LLC Commercial Services & Supplies Senior Secured Term Loan 6/25/2020 8.50% (3ML+ 7.50%) 1.00 6/25/2025 8,822 8,822 8,822 0.2 % (8)(10)
Membership Interest (4.34%) 6/25/2020 — N/A — 10,303 8,419 0.3 % (16)
19,125 17,241 0.5 %
RME Group Holding Company Media Senior Secured Term Loan A 5/4/2017 7.00% (3ML+ 6.00%) 1.00 5/4/2022 27,459 27,458 27,153 0.8 % (3)(10)
Senior Secured Term Loan B 5/4/2017 12.00% (3ML+ 11.00%) 1.00 5/4/2022 22,286 22,286 22,032 0.7 % (3)(10)
49,744 49,185 1.5 %
Rocket Software, Inc. Software Second Lien Term Loan 12/7/2018 8.51% (3ML+ 8.25%) — 11/27/2026 50,000 49,615 48,730 1.5 % (3)(8)(10)
49,615 48,730 1.5 %
Romark WM-R Ltd. Structured Finance Subordinated Structured Note 4/11/2014 Residual Interest, current yield 10.90% — 4/21/2031 27,725 23,604 14,940 0.5 % (5)(14)
23,604 14,940 0.5 %
Rosa Mexicano Hotels, Restaurants & Leisure Revolving Line of Credit - $500 Commitment 3/29/2018 6.50% (3ML+ 5.25%) plus 2.25% PIK 1.25 3/29/2023 510 510 465 — % (10)(15)(39)
Senior Secured Term Loan 3/29/2018 6.50% (3ML+ 5.25%) plus 2.25% PIK 1.25 3/29/2023 23,324 23,324 21,256 0.7 % (10)(39)
23,834 21,721 0.7 %
Securus Technologies Holdings, Inc. Communications Equipment First Lien Term Loan 9/3/2019 5.50% (6ML+ 4.50%) 1.00 11/1/2024 9,898 9,142 9,007 0.3 % (8)(10)
Second Lien Term Loan 11/3/2017 9.25% (6ML+ 8.25%) 1.00 11/1/2025 50,662 50,539 45,184 1.4 % (3)(8)(10)
59,681 54,191 1.7 %
SEOTownCenter, Inc. IT Services Senior Secured Term Loan A 4/10/2018 7.73% (3ML+ 7.50%) — 4/7/2023 24,644 24,643 24,644 0.8 % (3)(10)(39)
Senior Secured Term Loan B 4/10/2018 12.73% (3ML+ 12.50%) — 4/7/2023 19,119 19,119 19,119 0.6 % (3)(10)(39)
43,762 43,763 1.4 %
Shearer’s Foods, LLC Food Products Second Lien Term Loan 9/28/2020 8.75% (3ML+ 7.75%) 1.00 9/23/2028 5,000 4,900 4,938 0.2 % (8)(10)
4,900 4,938 0.2 %
Shutterfly, Inc. Internet & Direct Marketing Retail First Lien Term Loan 12/9/2019 7.00% (3ML+ 6.00%) 1.00 9/25/2026 17,419 15,775 16,562 0.5 % (3)(8)(10)
15,775 16,562 0.5 %
Sorenson Communications, LLC Diversified Telecommunication Services First Lien Term Loan 5/8/2019 6.72% (3ML+ 6.50%) — 4/29/2024 7,564 7,507 7,564 0.2 % (3)(8)(10)
7,507 7,564 0.2 %

See notes to consolidated financial statements.

15

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULES OF INVESTMENTS AS OF SEPTEMBER 30, 2020 (Unaudited)

(in thousands, except share data)

September 30, 2020 (Unaudited)
Portfolio Company Industry Investments(1)(37) Acquisition Date(44) Coupon/Yield Floor Legal Maturity Principal Value Amortized Cost Fair<br>Value(2) % of Net Assets
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
Spectrum Holdings III Corp Health Care Equipment & Supplies Second Lien Term Loan 2/13/2018 8.00% (6ML+ 7.00%) 1.00 1/31/2026 $ 7,500 $ 7,475 $ 5,845 0.2 % (3)(8)(10)
7,475 5,845 0.2 %
Staples, Inc. Distributors First Lien Term Loan 12/3/2019 5.25% (3ML+ 5.00%) — 4/16/2026 8,932 8,854 8,438 0.3 % (3)(8)(10)
8,854 8,438 0.3 %
Strategic Materials Household Durables Second Lien Term Loan 11/1/2017 8.75% (3ML+ 7.75%) 1.00 11/1/2025 7,000 6,956 5,249 0.2 % (3)(8)(10)
6,956 5,249 0.2 %
Sudbury Mill CLO Ltd. Structured Finance Subordinated Structured Note 11/14/2013 Residual Interest, current yield 0.00% — 1/19/2026 28,200 13,875 3,135 0.1 % (5)(14)(17)
13,875 3,135 0.1 %
Symphony CLO XIV, Ltd. Structured Finance Subordinated Structured Note 5/6/2014 Residual Interest, current yield 0.00% — 7/14/2026 49,250 29,076 15,318 0.5 % (5)(14)(17)
29,076 15,318 0.5 %
Symphony CLO XV, Ltd. Structured Finance Subordinated Structured Note 10/17/2014 Residual Interest, current yield 8.04% — 1/19/2032 63,831 43,830 22,567 0.7 % (5)(14)
43,830 22,567 0.7 %
TGP HOLDINGS III LLC Household Durables Second Lien Term Loan 10/3/2017 9.50% (3ML+ 8.50%) 1.00 9/25/2025 3,000 2,972 3,000 0.1 % (8)(10)
2,972 3,000 0.1 %
The Octave Music Group, Inc. (f/k/a Touchtunes Interactive Networks, Inc.) Entertainment First Lien Term Loan 3/6/2020 6.25% (1ML+ 5.25%) plus 0.75% PIK 1.00 5/29/2025 38,573 38,225 37,002 1.2 % (8)(10)(39)
38,225 37,002 1.2 %
Town & Country Holdings, Inc. Distributors First Lien Term Loan 1/26/2018 8.73% (3ML+ 8.50%) — 1/26/2023 163,521 163,521 163,521 5.1 % (3)(10)(39)
163,521 163,521 5.1 %
Transplace Holdings, Inc. Transportation Infrastructure Second Lien Term Loan 10/16/2017 9.75% (6ML+ 8.75%) 1.00 10/6/2025 28,104 27,683 27,683 0.9 % (3)(8)(10)
27,683 27,683 0.9 %
United Sporting Companies, Inc. (18) Distributors Second Lien Term Loan 9/28/2012 12.75% (1ML+ 11.00%) plus 2.00% PIK 1.75 11/16/2019 147,423 105,431 6,580 0.2 % (9)(10)
105,431 6,580 0.2 %
Universal Fiber Systems, LLC Textiles, Apparel & Luxury Goods Second Lien Term Loan 10/16/2015 10.50% (1ML+ 9.50%) 1.00 10/2/2022 37,000 36,789 34,797 1.1 % (3)(8)(10)
36,789 34,797 1.1 %
Upstream Newco, Inc. Health Care Providers & Services First Lien Term Loan 12/2/2019 4.65% (1ML+ 4.50%) — 11/20/2026 8,210 8,172 8,018 0.2 % (3)(8)(10)
Second Lien Term Loan 12/2/2019 8.65% (1ML+ 8.50%) — 11/20/2027 22,000 21,816 21,869 0.7 % (3)(8)(10)
29,988 29,887 0.9 %
USG Intermediate, LLC Leisure Products Revolving Line of Credit - $3,000 Commitment 4/15/2015 10.25% (1ML+ 9.25%) 1.00 8/24/2021 3,000 3,000 3,000 0.1 % (10)(15)
Senior Secured Term Loan B 4/15/2015 12.75% (1ML+ 11.75%) 1.00 8/24/2022 16,393 16,393 16,393 0.5 % (3)(10)
Equity 4/15/2015 — N/A — 1 — — % (16)
19,394 19,393 0.6 %
Venio LLC Professional Services Second Lien Term Loan 2/19/2014 4.00% plus 10.00% PIK (3ML + 7.50%) — 2/19/2020 18,196 18,196 18,196 0.6 % (10)(39)
18,196 18,196 0.6 %
Versant Health Holdco, Inc. (f/k/a Wink Holdco, Inc.) Insurance Second Lien Term Loan 12/12/2017 7.75% (1ML+ 6.75%) 1.00 12/1/2025 3,000 2,990 3,000 0.1 % (3)(8)(10)
2,990 3,000 0.1 %
Voya CLO 2012-4, Ltd. Structured Finance Subordinated Structured Note 11/5/2012 Residual Interest, current yield 5.31% — 10/15/2030 40,613 30,399 23,584 0.7 % (5)(14)
30,399 23,584 0.7 %

See notes to consolidated financial statements.

16

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULES OF INVESTMENTS AS OF SEPTEMBER 30, 2020 (Unaudited)

(in thousands, except share data)

September 30, 2020 (Unaudited)
Portfolio Company Industry Investments(1)(37) Acquisition Date(44) Coupon/Yield Floor Legal Maturity Principal Value Amortized Cost Fair<br>Value(2) % of Net Assets
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
Voya CLO 2014-1, Ltd. Structured Finance Subordinated Structured Note 2/5/2014 Residual Interest, current yield 4.95% — 4/18/2031 $ 40,772 $ 30,683 $ 18,428 0.6 % (5)(14)
30,683 18,428 0.6 %
Voya CLO 2016-3, Ltd. Structured Finance Subordinated Structured Note 9/30/2016 Residual Interest, current yield 8.36% — 10/20/2031 28,100 26,204 19,485 0.6 % (5)(14)
26,204 19,485 0.6 %
Voya CLO 2017-3, Ltd. Structured Finance Subordinated Structured Note 6/13/2017 Residual Interest, current yield 9.80% — 7/22/2030 44,885 49,945 39,467 1.3 % (5)(14)
49,945 39,467 1.3 %
VT Topco, Inc. Commercial Services & Supplies Second Lien Term Loan 8/23/2018 7.15% (1ML+ 7.00%) — 8/17/2026 7,000 6,974 6,688 0.2 %
6,974 6,688 0.2 %
Total Non-Control/Non-Affiliate Investments (Level 3) $ 3,335,811 $ 2,816,638 88.5 %
Total Portfolio Investments (Level 3) $ 5,828,931 $ 5,386,385 169.2 %

See notes to consolidated financial statements.

17

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULES OF INVESTMENTS AS OF JUNE 30, 2020

(in thousands, except share data)

June 30, 2020
Portfolio Company Industry Investments(1)(38) Acquisition Date(44) Coupon/Yield Floor Legal Maturity Principal Value Amortized Cost Fair<br>Value(2) % of <br>Net Assets
LEVEL 3 PORTFOLIO INVESTMENTS
Control Investments (greater than 25.00% voting control)(42)
CP Energy Services Inc. (20) Energy Equipment & Services Senior Secured Term Loan 10/1/2017 12.00% (3ML+ 11.00%) 1.00 12/29/2022 $ 36,744 $ 36,744 $ 36,744 1.2% (10)(39)
Senior Secured Term Loan A to Spartan Energy Services, LLC 10/20/2014 9.00% (1ML+ 8.00%) 1.00 12/31/2022 13,156 13,156 13,156 0.4% (10)
Senior Secured Term Loan B to Spartan Energy Services, LLC 10/20/2014 15.00% PIK (1ML+ 14.00%) 1.00 12/31/2022 25,234 23,360 5,555 0.1%
Series B Convertible Preferred Stock (790 shares) 10/30/2015 — N/A — 63,225 14,430 0.5% (16)
Common Stock (102,924 shares) 8/2/2013 — N/A — 86,241 — —% (16)
222,726 69,885 2.2%
Credit Central Loan Company, LLC (21) Consumer Finance Subordinated Term Loan 12/28/2012 10.00% plus 10.00% PIK — 6/26/2024 62,859 59,870 62,859 2.1% (14)(39)
Class A Units (14,867,312 units) 12/28/2012 — N/A — 19,331 12,826 0.4% (14)(16)
Net Revenues Interest (25% of Net Revenues) 1/28/2015 — N/A — — — —% (14)(16)
79,201 75,685 2.5%
Echelon Transportation, LLC Aerospace & Defense Senior Secured Term Loan 3/31/2014 11.75% (1ML+ 9.75%) plus 2.25% PIK 2.00 3/31/2022 45,072 45,072 45,072 1.4% (10)(39)
Senior Secured Term Loan 12/9/2016 11.00% (1ML+ 9.00%) plus 1.00% PIK 2.00 12/7/2024 20,399 20,399 20,399 0.7% (10)(39)
Membership Interest (100%) 3/31/2014 — N/A — 22,737 20,156 0.7% (16)
88,208 85,627 2.8%
First Tower Finance Company LLC (23) Consumer Finance Subordinated Term Loan to First Tower, LLC 6/24/2014 10.00% plus 10.50% PIK — 6/24/2024 277,069 277,069 277,069 9.0% (14)(39)
Class A Units (95,709,910 units) 6/14/2012 — N/A — 81,146 231,396 7.6% (14)(16)
358,215 508,465 16.6%
Freedom Marine Solutions, LLC (24) Energy Equipment & Services Membership Interest (100%) 11/9/2006 — N/A — 43,892 12,351 0.4% (16)
43,892 12,351 0.4%
InterDent, Inc. (29) Health Care Providers & Services Senior Secured Term Loan A/B 8/1/2018 7.05% (1ML+ 5.05%) 2.00 9/5/2020 14,249 14,249 14,249 0.5% (10)(39)
Senior Secured Term Loan A 8/3/2012 6.25% (1ML+ 5.50%) 0.75 9/5/2020 79,242 79,242 79,242 2.6% (10)(39)
Senior Secured Term Loan B 8/3/2012 10.00% PIK — 9/5/2020 128,443 128,443 128,443 4.2% (39)
Senior Secured Term Loan C 3/22/2018 18.00% PIK — 9/5/2020 48,929 35,767 8,823 0.3%
Senior Secured Term Loan D 9/19/2018 1.00% PIK — 9/5/2020 9,458 9,351 — —%
Common Stock (99,900 shares) 5/3/2019 — N/A — 1 — —% (16)
267,053 230,757 7.6%
Kickapoo Ranch Pet Resort Diversified Consumer Services Membership Interest (100%) 8/26/2019 — N/A — 2,378 3,286 0.1% (16)
2,378 3,286 0.1%
MITY, Inc. (25) Commercial Services & Supplies Senior Secured Note A 9/19/2013 10.00% (3ML+ 7.00%) 3.00 4/30/2025 26,250 26,250 26,250 0.9% (10)
Senior Secured Note B 6/23/2014 10.00% (3ML+ 7.00%) plus 10.00% PIK 3.00 4/30/2025 33,008 33,008 25,655 0.8% (10)(39)
Subordinated Unsecured Note to Broda Enterprises ULC 9/19/2013 10.00% — 1/1/2028 7,200 6,350 — —% (14)
Common Stock (42,053 shares) 9/19/2013 — N/A — 6,849 — —% (16)
72,457 51,905 1.7%

See notes to consolidated financial statements.

18

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULES OF INVESTMENTS AS OF JUNE 30, 2020

(in thousands, except share data)

June 30, 2020
Portfolio Company Industry Investments(1)(38) Acquisition Date(44) Coupon/Yield Floor Legal Maturity Principal Value Amortized Cost Fair<br>Value(2) % of <br>Net Assets
LEVEL 3 PORTFOLIO INVESTMENTS
Control Investments (greater than 25.00% voting control)(42)
National Property REIT Corp. (26) Equity Real Estate Investment Trusts (REITs) / Online Lending / Structured Finance Senior Secured Term Loan A 12/31/2018 4.44% (3ML+ 1.44%) plus 3.53% PIK 3.00 12/31/2023 $ 302,633 $ 302,633 $ 302,633 9.9% (10)(39)
Senior Secured Term Loan B 12/31/2018 5.00% (3ML+ 2.00%) plus 5.50% PIK 3.00 12/31/2023 45,950 45,950 45,950 1.5% (10)(39)
Senior Secured Term Loan C 10/31/2019 11.00% (3ML+ 10.00%) plus 2.25% PIK 1.00 12/31/2023 79,200 79,200 79,200 2.6% (10)(39)
Senior Secured Term Loan D 6/19/2020 3.50% (3ML+ 0.50%) plus 2.50% PIK 3.00 12/31/2023 183,425 183,425 183,425 6.0% (10)(39)
Residual Profit Interest 12/31/2018 — N/A — — 21,461 0.7% (35)
Common Stock (3,254,594 shares) 12/31/2013 — N/A — 210 246,064 8.1% (45)
611,418 878,733 28.8%
Nationwide Loan Company LLC (27) Consumer Finance Senior Subordinated Term Loan to Nationwide Acceptance LLC 6/18/2014 10.00% plus 10.00% PIK — 6/18/2021 20,087 20,087 20,087 0.6% (14)(39)
Class A Units (38,550,460 units) 1/31/2013 — N/A — 20,462 17,151 0.6% (14)(16)
40,549 37,238 1.2%
NMMB, Inc. (28) Media Delayed Draw Term Loan - $10,000 Commitment 3/25/2020 10.50% (3ML+ 8.50%) 2.00 12/30/2024 — — — —% (10)(15)
Senior Secured Note 12/30/2019 10.50% (3ML+ 8.50%) 2.00 12/30/2024 5,025 5,025 5,025 0.2% (3)(10)
Common Stock (21,419 shares) 12/30/2019 — N/A — 12,869 28,643 0.9%
17,894 33,668 1.1%
Pacific World Corporation (36) Personal Products Revolving Line of Credit - $26,000 Commitment 9/26/2014 8.25% (1ML+ 7.25%) 1.00 9/26/2020 20,825 20,825 20,825 0.7% (10)(15)
Senior Secured Term Loan A 12/31/2014 6.25% PIK (1ML+ 5.25%) 1.00 9/26/2020 39,082 39,082 39,082 1.3% (10)(39)
Convertible Preferred Equity (247,330 shares) 6/15/2018 — N/A — 186,795 — —% (16)
Common Stock (6,778,414 shares) 9/29/2017 — N/A — — — —% (16)
246,702 59,907 2.0%
R-V Industries, Inc. Machinery Senior Subordinated Note 6/12/2013 10.00% (3ML+ 9.00%) 1.00 3/31/2022 28,622 28,622 28,622 0.9% (3)(10)
Common Stock (745,107 shares) 6/26/2007 — N/A — 6,867 9,943 0.3% (16)
35,489 38,565 1.2%
Universal Turbine Parts, LLC (34) Trading Companies & Distributors Delayed Draw Term Loan - $5,000 Commitment 2/28/2019 10.25% (1ML+ 7.75%) 2.50 7/22/2021 2,887 2,887 2,887 0.1% (10)(15)
Senior Secured Term Loan A 7/22/2016 6.75% (3ML+ 5.75%) 1.00 7/22/2021 30,063 30,063 23,712 0.8% (10)
Senior Secured Term Loan B 7/22/2016 12.75% PIK (3ML+ 11.75%) 1.00 7/22/2021 42,941 32,500 — —% (9)(10)
Common Stock (10,000 units) 12/10/2018 — N/A — — — —% (16)
65,450 26,599 0.9%
USES Corp. (30) Commercial Services & Supplies Senior Secured Term Loan A 3/31/2014 9.00% PIK — 7/29/2022 50,327 30,651 17,325 0.6% (9)
Senior Secured Term Loan B 3/31/2014 15.50% PIK — 7/29/2022 66,283 35,568 — —% (9)
Common Stock (268,962 shares) 6/15/2016 — N/A — — — —% (16)
66,219 17,325 0.6%

See notes to consolidated financial statements.

19

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULES OF INVESTMENTS AS OF JUNE 30, 2020

(in thousands, except share data)

June 30, 2020
Portfolio Company Industry Investments(1)(38) Acquisition Date(44) Coupon/Yield Floor Legal Maturity Principal Value Amortized Cost Fair<br>Value(2) % of <br>Net Assets
LEVEL 3 PORTFOLIO INVESTMENTS
Control Investments (greater than 25.00% voting control)(42)
Valley Electric Company, Inc. (31) Construction & Engineering Senior Secured Note to Valley Electric Co. of Mt. Vernon, Inc. 12/31/2012 8.00% (3ML+ 5.00%) plus 2.50% PIK 3.00 12/31/2024 $ 10,430 $ 10,430 $ 10,430 0.3% (3)(10)(39)
Senior Secured Note 6/24/2014 8.00% plus 10.00% PIK — 6/23/2024 33,301 33,301 33,301 1.1% (39)
Consolidated Revenue Interest (2.0%) 6/22/2018 — N/A — — 2,448 0.1% (12)
Common Stock (50,000 shares) 12/31/2012 — N/A — 25,143 83,117 2.7%
68,874 129,296 4.2%
Total Control Investments (Level 3) $ 2,286,725 $ 2,259,292 73.9%

See notes to consolidated financial statements.

20

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULES OF INVESTMENTS AS OF JUNE 30, 2020

(in thousands, except share data)

June 30, 2020
Portfolio Company Industry Investments(1)(38) Acquisition Date(44) Coupon/Yield Floor Legal Maturity Principal Value Amortized Cost Fair<br>Value(2) % of <br>Net Assets
LEVEL 3 PORTFOLIO INVESTMENTS
Affiliate Investments (5.00% to 24.99% voting control)(43)
Edmentum Ultimate Holdings, LLC (22) Diversified Consumer Services Second Lien Revolving Credit Facility to Edmentum, Inc. - $7,834 Commitment 6/9/2015 5.00% PIK — 12/9/2021 $ 8,539 $ 9,986 $ 8,539 0.2% (15)(39)
Unsecured Senior PIK Note 6/9/2015 8.50% PIK — 12/9/2021 8,920 8,920 8,920 0.3% (39)
Unsecured Junior PIK Note 6/9/2015 10.00% PIK — 12/9/2021 43,048 28,665 42,159 1.4% (39)
Class A Units (370,964 units) 6/9/2015 — N/A — 6,577 — —% (16)
54,148 59,618 1.9%
Nixon, Inc. (32) Textiles, Apparel & Luxury Goods Common Stock (857 units) 5/12/2017 — N/A — — — —% (16)
— — —%
PGX Holdings, Inc. (6) Diversified Consumer Services 1.5 Lien Term Loan 5/27/2020 11.50% PIK (3ML+ 10.50%) 1.00 3/29/2024 1,981 1,981 1,981 0.1% (10)(39)
Second Lien Term Loan 9/29/2014 15.75% PIK (1ML+ 14.75%) 1.00 9/29/2024 104,550 104,550 98,873 3.2% (10)(39)
Common Stock (28,961,715 shares) 5/27/2020 — N/A — — 5,857 0.2% (16)
106,531 106,711 3.5%
Targus Cayman HoldCo Limited (33) Textiles, Apparel & Luxury Goods Common Stock (7,383,395 shares) 2/12/2016 — N/A — 2,805 21,208 0.7% (16)
2,805 21,208 0.7%
Total Affiliate Investments (Level 3) $ 163,484 $ 187,537 6.1%

See notes to consolidated financial statements.

21

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULES OF INVESTMENTS AS OF JUNE 30, 2020

(in thousands, except share data)

June 30, 2020
Portfolio Company Industry Investments(1)(38) Acquisition Date(44) Coupon/Yield Floor Legal Maturity Principal Value Amortized Cost Fair<br>Value(2) % of <br>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 10/10/2018 7.93% (1ML+ 7.75%) — 10/1/2026 $ 25,000 $ 24,853 $ 25,000 0.8 % (3)(8)(10)
24,853 25,000 0.8 %
ACE Cash Express, Inc. Consumer Finance Senior Secured Note 12/15/2017 12.00% — 12/15/2022 30,000 28,806 24,338 0.8 % (8)(14)
28,806 24,338 0.8 %
Ahead Data Blue, LLC IT Services Second Lien Term Loan 12/13/2019 10.00% (3ML+ 8.50%) 1.50 11/8/2025 70,000 70,000 70,000 2.3 % (3)(10)
70,000 70,000 2.3 %
AmeriLife Holdings, LLC Insurance Second Lien Term Loan 4/2/2020 9.50% (3ML+ 8.50%) 1.00 3/18/2028 10,000 9,806 9,806 0.3 % (8)(10)
9,806 9,806 0.3 %
Apidos CLO XI Structured Finance Subordinated Structured Note 12/6/2012 Residual Interest, current yield 8.74% — 10/17/2030 40,500 32,650 25,211 0.8 % (5)(14)
32,650 25,211 0.8 %
Apidos CLO XII Structured Finance Subordinated Structured Note 3/15/2013 Residual Interest, current yield 14.25% — 4/15/2031 52,202 38,099 29,275 1.0 % (5)(14)
38,099 29,275 1.0 %
Apidos CLO XV Structured Finance Subordinated Structured Note 9/13/2013 Residual Interest, current yield 12.38% — 4/21/2031 48,515 39,270 27,793 0.9 % (5)(14)
39,270 27,793 0.9 %
Apidos CLO XXII Structured Finance Subordinated Structured Note 9/16/2015 Residual Interest, current yield 15.58% — 4/21/2031 35,855 30,035 24,192 0.8 % (5)(14)
30,035 24,192 0.8 %
Ark-La-Tex Wireline Services, LLC Energy Equipment & Services Escrow Receivable 4/8/2014 — N/A — — — — %
— — — %
Atlantis Health Care Group (Puerto Rico), Inc. Health Care Providers & Services Revolving Line of Credit - $3,000 Commitment 2/21/2013 10.75% (3ML+ 8.75%) 2.00 4/30/2021 — — — — % (10)(15)
Senior Secured Term Loan 2/21/2013 10.75% (3ML+ 8.75%) 2.00 4/30/2021 71,409 71,409 71,409 2.3 % (3)(10)
71,409 71,409 2.3 %
Barings CLO 2018-III Structured Finance Subordinated Structured Note 10/9/2014 Residual Interest, current yield 3.93% — 7/20/2029 83,098 48,464 30,106 1.0 % (5)(14)
48,464 30,106 1.0 %
Broder Bros., Co. Textiles, Apparel & Luxury Goods Senior Secured Note 12/4/2017 9.75% (3ML+ 8.50%) 1.25 12/2/2022 166,307 166,307 164,656 5.4 % (3)(10)
166,307 164,656 5.4 %
Brookside Mill CLO Ltd. Structured Finance Subordinated Structured Note 4/25/2013 Residual Interest, current yield 0.00% — 1/17/2028 36,300 17,033 11,920 0.4 % (5)(14)(17)
17,033 11,920 0.4 %
California Street CLO IX Ltd. Structured Finance Subordinated Structured Note 4/19/2012 Residual Interest, current yield 6.69% — 7/16/2032 58,915 40,994 27,579 0.9 % (5)(14)
40,994 27,579 0.9 %
Candle-Lite Company, LLC Household Products Senior Secured Term Loan A 1/23/2018 6.75% (3ML+ 5.50%) 1.25 1/23/2023 11,937 11,937 11,937 0.4 % (3)(10)
Senior Secured Term Loan B 1/23/2018 10.75% (3ML+ 9.50%) 1.25 1/23/2023 12,500 12,500 12,425 0.4 % (3)(10)
24,437 24,362 0.8 %
Capstone Logistics Acquisition, Inc. Commercial Services & Supplies Second Lien Term Loan 10/7/2014 9.32% (6ML+ 8.25%) 1.00 10/7/2022 98,982 98,790 98,982 3.2 % (3)(8)(10)
98,790 98,982 3.2 %
Carlyle C17 CLO Limited Structured Finance Subordinated Structured Note 1/24/2013 Residual Interest, current yield 20.31% — 4/30/2031 24,870 15,391 13,009 0.4 % (5)(14)
15,391 13,009 0.4 %

See notes to consolidated financial statements.

22

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULES OF INVESTMENTS AS OF JUNE 30, 2020

(in thousands, except share data)

June 30, 2020
Portfolio Company Industry Investments(1)(38) Acquisition Date(44) Coupon/Yield Floor Legal Maturity Principal Value Amortized Cost Fair<br>Value(2) % of <br>Net Assets
LEVEL 3 PORTFOLIO INVESTMENTS
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
Carlyle Global Market Strategies CLO 2014-4-R, Ltd. Structured Finance Subordinated Structured Note 4/7/2017 Residual Interest, current yield 17.05% — 7/15/2030 $ 25,534 $ 18,656 $ 15,534 0.5 % (5)(14)
18,656 15,534 0.5 %
Carlyle Global Market Strategies CLO 2016-3, Ltd. Structured Finance Subordinated Structured Note 8/9/2016 Residual Interest, current yield 12.42% — 10/22/2029 32,200 33,536 25,358 0.8 % (5)(14)
33,536 25,358 0.8 %
CCS-CMGC Holdings, Inc. Health Care Providers & Services First Lien Term Loan 5/23/2019 6.57% (6ML+ 5.50%) — 10/1/2025 6,010 5,929 5,929 0.2 % (3)(8)(10)
First Lien Term Loan 5/23/2019 6.26% (3ML+ 5.50%) — 10/1/2025 3,615 3,566 3,566 0.1 % (3)(8)(10)
Second Lien Term Loan 10/12/2018 9.76% (3ML+ 9.00%) — 10/1/2026 37,000 36,443 36,443 1.2 % (3)(8)(10)
45,938 45,938 1.5 %
Cent CLO 21 Limited Structured Finance Subordinated Structured Note 5/15/2014 Residual Interest, current yield 7.80% — 7/29/2030 49,552 38,806 26,006 0.9 % (5)(14)
38,806 26,006 0.9 %
CIFC Funding 2013-III-R, Ltd. Structured Finance Subordinated Structured Note 8/2/2013 Residual Interest, current yield 10.23% — 4/24/2031 44,100 29,717 21,373 0.7 % (5)(14)
29,717 21,373 0.7 %
CIFC Funding 2013-IV, Ltd. Structured Finance Subordinated Structured Note 10/22/2013 Residual Interest, current yield 13.44% — 4/28/2031 45,500 33,090 27,518 0.9 % (5)(14)
33,090 27,518 0.9 %
CIFC Funding 2014-IV-R, Ltd. Structured Finance Subordinated Structured Note 8/5/2014 Residual Interest, current yield 9.49% — 10/17/2030 44,467 31,238 22,711 0.7 % (5)(14)
31,238 22,711 0.7 %
CIFC Funding 2016-I, Ltd. Structured Finance Subordinated Structured Note 12/9/2016 Residual Interest, current yield 9.57% — 10/21/2031 34,000 30,096 26,209 0.9 % (5)(14)
30,096 26,209 0.9 %
Cinedigm DC Holdings, LLC Entertainment Senior Secured Term Loan 2/28/2013 11.00% (3ML+ 9.00%) plus 2.50% PIK 2.00 3/31/2021 12,107 12,057 12,107 0.4 % (10)(39)
12,057 12,107 0.4 %
Class Valuation, LLC Real Estate Management & Development Senior Secured Term Loan 3/12/2018 9.75% (3ML+ 8.25%) 1.50 3/10/2023 31,747 31,747 31,747 1.0 % (3)(10)
31,747 31,747 1.0 %
Collections Acquisition Company, Inc. Diversified Financial Services Senior Secured Term Loan 12/3/2019 10.15% (3ML+ 7.65%) 2.50 6/3/2024 30,165 30,165 30,165 1.0 % (3)(10)
30,165 30,165 1.0 %
Columbia Cent CLO 27 Limited Structured Finance Subordinated Structured Note 12/18/2013 Residual Interest, current yield 7.78% — 10/25/2028 40,275 23,099 18,356 0.6 % (5)(14)
23,099 18,356 0.6 %
Coverall North America, Inc. Commercial Services & Supplies Senior Secured Term Loan A 11/2/2015 7.00% (3ML+ 6.00%) 1.00 5/3/2021 2,622 2,622 2,622 0.1 % (3)(10)
Senior Secured Term Loan B 11/2/2015 12.00% (3ML+ 11.00%) 1.00 5/3/2021 22,750 22,750 22,750 0.7 % (3)(10)
25,372 25,372 0.8 %
CP VI Bella Midco IT Services Second Lien Term Loan 2/26/2018 6.93% (1ML+ 6.75%) — 12/29/2025 15,750 15,711 15,750 0.5 % (3)(8)(10)
15,711 15,750 0.5 %
Digital Room, LLC Commercial Services & Supplies First Lien Term Loan 5/29/2019 6.07% (6ML+ 5.00%) — 5/21/2026 9,900 9,785 9,359 0.3 % (3)(8)(10)
Second Lien Term Loan 5/30/2019 10.07% (6ML+ 9.00%) — 5/21/2027 70,000 70,000 66,761 2.2 % (3)(8)(10)
79,785 76,120 2.5 %
Dunn Paper, Inc. Paper & Forest Products First Lien Term Loan 11/27/2019 5.75% (1ML+ 4.75%) 1.00 8/26/2022 4,488 4,393 4,393 0.1 % (3)(8)(10)
Second Lien Term Loan 10/7/2016 9.75% (1ML+ 8.75%) 1.00 8/26/2023 11,500 11,395 11,395 0.4 % (3)(8)(10)
15,788 15,788 0.5 %

See notes to consolidated financial statements.

23

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULES OF INVESTMENTS AS OF JUNE 30, 2020

(in thousands, except share data)

June 30, 2020
Portfolio Company Industry Investments(1)(38) Acquisition Date(44) Coupon/Yield Floor Legal Maturity Principal Value Amortized Cost Fair<br>Value(2) % of <br>Net Assets
LEVEL 3 PORTFOLIO INVESTMENTS
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
Easy Gardener Products, Inc. Household Durables Third Lien Term Loan 6/11/2020 10.31% (3ML+ 10.00%) 0.25 9/30/2024 $ 3,990 $ 3,990 $ 3,990 0.2 % (10)
Class A Units of EZG Holdings, Inc. (200 units) 6/11/2020 — N/A — 313 781 — % (16)
Class B Units of EZG Holdings, Inc. (12,525 units) 6/11/2020 — N/A — 1,688 3,072 0.1 % (16)
5,991 7,843 0.3 %
EDSCO Holding Company LLC Machinery Senior Secured Term Loan 1/10/2020 7.50% (1ML+ 6.00%) 1.50 1/10/2025 19,875 19,875 19,875 0.7 % (3)(10)
19,875 19,875 0.7 %
Engine Group, Inc. (7) Media Senior Secured Term Loan 9/25/2017 6.00% (1ML+ 5.00%) 1.00 9/15/2022 4,220 4,220 3,760 0.1 % (8)(9)(10)
Second Lien Term Loan 9/25/2017 10.00% (1ML+ 9.00%) 1.00 9/15/2023 35,000 35,000 2,754 0.1 % (8)(9)(10)
39,220 6,514 0.2 %
EXC Holdings III Corp Technology Hardware, Storage & Peripherals Second Lien Term Loan 12/5/2017 8.94% (3ML+ 7.50%) 1.00 12/1/2025 12,500 12,415 12,318 0.4 % (3)(8)(10)
12,415 12,318 0.4 %
Galaxy XV CLO, Ltd. Structured Finance Subordinated Structured Note 2/13/2013 Residual Interest, current yield 11.47% — 10/15/2030 50,525 35,451 24,637 0.8 % (5)(14)
35,451 24,637 0.8 %
Galaxy XXVII CLO, Ltd. Structured Finance Subordinated Structured Note 9/30/2013 Residual Interest, current yield 10.18% — 5/16/2031 24,575 16,647 11,093 0.4 % (5)(14)
16,647 11,093 0.4 %
Galaxy XXVIII CLO, Ltd. Structured Finance Subordinated Structured Note 5/30/2014 Residual Interest, current yield 9.89% — 7/15/2031 39,905 28,584 16,973 0.6 % (5)(14)
28,584 16,973 0.6 %
GEON Performance Solutions, LLC Chemicals Revolving Line of Credit - $3,621 Commitment 12/12/2019 7.88% (1ML+ 6.25%) 1.63 10/25/2024 769 769 767 — % (10)(15)
First Lien Term Loan 12/12/2019 7.88% (1ML+ 6.25%) 1.63 10/25/2024 31,223 31,068 31,124 1.0 % (3)(10)
31,837 31,891 1.0 %
Global Tel*Link Corporation Diversified Telecommunication Services First Lien Term Loan 8/20/2019 4.43% (1ML+ 4.25%) — 11/29/2025 9,893 9,538 9,237 0.3 % (3)(8)(10)
Second Lien Term Loan 12/4/2018 8.43% (1ML+ 8.25%) — 11/29/2026 40,170 39,394 37,908 1.2 % (3)(8)(10)
48,932 47,145 1.5 %
GlobalTranz Enterprises, Inc. Air Freight & Logistics Second Lien Term Loan 5/15/2019 8.43% (1ML+ 8.25%) — 5/15/2027 12,500 12,500 10,755 0.4 % (3)(8)(10)
12,500 10,755 0.4 %
H.I.G. ECI Merger Sub, Inc. IT Services Senior Secured Term Loan A 5/31/2018 7.00% (3ML+ 5.50%) 1.50 5/31/2023 43,792 43,792 44,230 1.4 % (3)(10)
Senior Secured Term Loan B 5/31/2018 12.00% (3ML+ 10.50%) 1.50 5/31/2023 29,900 29,900 30,199 1.0 % (3)(10)
73,692 74,429 2.4 %
Halcyon Loan Advisors Funding 2012-1 Ltd. Structured Finance Subordinated Structured Note 8/7/2012 Residual Interest, current yield 0.00% — 8/15/2023 23,187 3,736 — — % (5)(14)(17)
3,736 — — %
Halcyon Loan Advisors Funding 2013-1 Ltd. Structured Finance Subordinated Structured Note 3/8/2013 Residual Interest, current yield 0.00% — 4/15/2025 40,400 19,984 — — % (5)(14)(17)
19,984 — — %
Halcyon Loan Advisors Funding 2014-1 Ltd. Structured Finance Subordinated Structured Note 2/7/2014 Residual Interest, current yield 0.00% — 4/20/2026 24,500 11,822 — — % (5)(14)(17)
11,822 — — %
Halcyon Loan Advisors Funding 2014-2 Ltd. Structured Finance Subordinated Structured Note 4/14/2014 Residual Interest, current yield 0.00% — 4/28/2025 41,164 21,322 — — % (5)(14)(17)
21,322 — — %
Halcyon Loan Advisors Funding 2015-3 Ltd. Structured Finance Subordinated Structured Note 7/23/2015 Residual Interest, current yield 0.00% — 10/18/2027 39,597 29,716 16,694 0.5 % (5)(14)(17)
29,716 16,694 0.5 %

See notes to consolidated financial statements.

24

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULES OF INVESTMENTS AS OF JUNE 30, 2020

(in thousands, except share data)

June 30, 2020
Portfolio Company Industry Investments(1)(38) Acquisition Date(44) Coupon/Yield Floor Legal Maturity Principal Value Amortized Cost Fair<br>Value(2) % of <br>Net Assets
LEVEL 3 PORTFOLIO INVESTMENTS
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
Halyard MD OpCo, LLC Media First Lien Term Loan 8/6/2018 10.00% (3ML+ 8.00%) 2.00 8/6/2023 $ 10,415 $ 10,415 $ 10,415 0.3 % (3)(10)
10,415 10,415 0.3 %
HarbourView CLO VII-R, Ltd. Structured Finance Subordinated Structured Note 6/5/2015 Residual Interest, current yield 0.00% — 7/18/2031 19,025 12,817 5,814 0.2 % (5)(14)(17)
12,817 5,814 0.2 %
Help/Systems Holdings, Inc. Software First Lien Term Loan 11/29/2019 5.75% (1ML+ 4.75%) 1.00 11/19/2026 8,500 8,425 8,425 0.3 % (3)(8)(10)
Second Lien Term Loan 11/22/2019 9.00% (1ML+ 8.00%) 1.00 11/19/2027 17,500 17,184 17,184 0.6 % (3)(8)(10)
25,609 25,609 0.9 %
Inpatient Care Management Company, LLC Health Care Providers & Services Senior Secured Term Loan 6/8/2016 9.00% (3ML+ 8.00%) 1.00 6/8/2021 14,930 14,930 14,746 0.5 % (3)(10)
14,930 14,746 0.5 %
Jefferson Mill CLO Ltd. Structured Finance Subordinated Structured Note 6/26/2015 Residual Interest, current yield 9.08% — 10/20/2031 23,594 19,252 11,962 0.4 % (5)(14)
19,252 11,962 0.4 %
K&N Parent, Inc. Auto Components First Lien Term Loan 3/3/2020 5.82% (6ML+ 4.75%) 1.00 10/20/2023 1,434 1,244 1,373 — % (3)(8)(10)
Second Lien Term Loan 10/28/2016 9.82% (6ML+ 8.75%) 1.00 10/21/2024 25,887 25,532 23,494 0.8 % (3)(8)(10)
26,776 24,867 0.8 %
Keystone Acquisition Corp. (36) Health Care Providers & Services Second Lien Term Loan 5/18/2017 10.25% (3ML+ 9.25%) 1.00 5/1/2025 50,000 50,000 49,435 1.6 % (3)(8)(10)
50,000 49,435 1.6 %
LCM XIV Ltd. Structured Finance Subordinated Structured Note 6/25/2013 Residual Interest, current yield 10.41% — 7/21/2031 49,934 28,237 18,634 0.6 % (5)(14)
28,237 18,634 0.6 %
Legility, LLC Professional Services First Lien Term Loan 2/28/2020 7.00% (3ML+ 6.00%) 1.00 12/17/2025 774 759 764 — % (3)(8)(10)
First Lien Term Loan 2/28/2020 7.00% (6ML+ 6.00%) 1.00 12/17/2025 19,101 18,739 18,860 0.6 % (3)(8)(10)
19,498 19,624 0.6 %
LGC US FINCO, LLC Machinery First Lien Term Loan 1/24/2020 7.50% (1ML+ 6.50%) 1.00 12/20/2025 29,700 28,870 28,780 0.9 % (3)(8)(10)
28,870 28,780 0.9 %
Maverick Healthcare Equity, LLC Health Care Providers & Services Preferred Units (1,250,000 units) 10/31/2007 — N/A — — — — % (16)
Class A Common Units (1,250,000 units) 10/31/2007 — N/A — — — — % (16)
— — — %
Medusind Acquisition, Inc. (19) Health Care Providers & Services First Lien Term Loan 9/30/2019 9.00% (3ML+ 8.00%) 1.00 4/8/2024 24,387 24,074 23,800 0.8 % (3)(10)(39)
24,074 23,800 0.8 %
Mountain View CLO 2013-I Ltd. Structured Finance Subordinated Structured Note 4/17/2013 Residual Interest, current yield 2.19% — 10/15/2030 43,650 28,479 14,794 0.5 % (5)(14)
28,479 14,794 0.5 %
Mountain View CLO IX Ltd. Structured Finance Subordinated Structured Note 5/13/2015 Residual Interest, current yield 14.53% — 7/15/2031 47,830 29,046 25,909 0.8 % (5)(14)
29,046 25,909 0.8 %
Octagon Investment Partners XV, Ltd. Structured Finance Subordinated Structured Note 1/24/2013 Residual Interest, current yield 9.72% — 7/19/2030 42,064 32,798 23,572 0.8 % (5)(14)
32,798 23,572 0.8 %
Octagon Investment Partners 18-R Ltd. Structured Finance Subordinated Structured Note 8/12/2015 Residual Interest, current yield 13.38% — 4/16/2031 46,016 25,700 19,111 0.6 % (5)(14)
25,700 19,111 0.6 %
Pearl Intermediate Parent LLC Health Care Providers & Services Second Lien Term Loan 2/28/2018 6.43% (1ML+ 6.25%) — 2/15/2026 5,000 4,982 4,943 0.2 % (3)(8)(10)
4,982 4,943 0.2 %

See notes to consolidated financial statements.

25

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULES OF INVESTMENTS AS OF JUNE 30, 2020

(in thousands, except share data)

June 30, 2020
Portfolio Company Industry Investments(1)(38) Acquisition Date(44) Coupon/Yield Floor Legal Maturity Principal Value Amortized Cost Fair<br>Value(2) % of <br>Net Assets
LEVEL 3 PORTFOLIO INVESTMENTS
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
PeopleConnect Holdings, LLC (11) Interactive Media & Services Revolving Line of Credit - $8,918 Commitment 1/22/2020 10.00% (1ML+ 8.25%) 1.75 1/22/2025 $ — $ — $ — — % (10)(15)
Delayed Draw Term Loan - $5,000 Commitment 1/22/2020 10.00% (3ML+ 8.25%) 1.75 1/22/2021 — — — — % (10)(15)
Senior Secured Term Loan 1/22/2020 10.00% (3ML+ 8.25%) 1.75 1/22/2025 200,728 200,728 200,728 6.6 % (3)(10)
200,728 200,728 6.6 %
PG Dental Holdings New Jersey, LLC Health Care Providers & Services Delayed Draw Term Loan - $5,000 Commitment 5/31/2019 10.00% (3ML+ 7.25%) 2.75 5/31/2024 2,500 2,500 2,477 0.1 % (3)(10)(15)
Senior Secured Term Loan 5/31/2019 10.00% (3ML+ 7.25%) 2.75 5/31/2024 22,300 22,300 22,095 0.7 % (3)(10)
24,800 24,572 0.8 %
PlayPower, Inc. Leisure Products First Lien Term Loan 5/16/2019 5.81% (3ML+ 5.50%) — 5/10/2026 6,341 6,286 6,087 0.2 % (3)(8)(10)
6,286 6,087 0.2 %
Research Now Group, Inc. & Survey Sampling International LLC Professional Services First Lien Term Loan 1/5/2018 6.50% (3ML+ 5.50%) 1.00 12/20/2024 9,750 9,412 9,651 0.4 % (3)(8)(10)
Second Lien Term Loan 1/5/2018 10.50% (3ML+ 9.50%) 1.00 12/20/2025 50,000 47,617 50,000 1.6 % (3)(8)(10)
57,029 59,651 2.0 %
RGIS Services, LLC Commercial Services & Supplies Senior Secured Term Loan 6/25/2020 8.50% (3ML+ 7.50%) 1.00 6/25/2025 8,678 8,678 8,678 0.3 % (8)(10)
Membership Interest (4.34%) 6/25/2020 — N/A — 10,303 9,233 0.3 % (16)
18,981 17,911 0.6 %
RME Group Holding Company Media Senior Secured Term Loan A 5/4/2017 7.00% (3ML+ 6.00%) 1.00 5/4/2022 27,646 27,646 27,646 0.9 % (3)(10)
Senior Secured Term Loan B 5/4/2017 12.00% (3ML+ 11.00%) 1.00 5/4/2022 22,349 22,349 22,349 0.7 % (3)(10)
49,995 49,995 1.6 %
Rocket Software, Inc. Software Second Lien Term Loan 12/7/2018 9.01% (3ML+ 8.25%) — 11/27/2026 50,000 49,599 48,136 1.6 % (3)(8)(10)
49,599 48,136 1.6 %
Romark WM-R Ltd. Structured Finance Subordinated Structured Note 4/11/2014 Residual Interest, current yield 8.32% — 4/21/2031 27,725 22,967 14,374 0.5 % (5)(14)
22,967 14,374 0.5 %
Rosa Mexicano Hotels, Restaurants & Leisure Revolving Line of Credit - $500 Commitment 3/29/2018 2.75% (3ML+ 1.50%) plus 6.00% PIK 1.25 3/29/2023 502 502 449 — % (10)(15)(39)
Senior Secured Term Loan 3/29/2018 2.75% (3ML+ 1.50%) plus 6.00% PIK 1.25 3/29/2023 22,999 22,999 20,559 0.7 % (10)(39)
23,501 21,008 0.7 %
Securus Technologies Holdings, Inc. Communications Equipment First Lien Term Loan 9/3/2019 5.50% (1ML+ 4.50%) 1.00 11/1/2024 9,898 9,105 8,671 0.3 % (8)(10)
Second Lien Term Loan 11/3/2017 9.25% (3ML+ 8.25%) 1.00 11/1/2025 50,662 50,533 42,166 1.4 % (3)(8)(10)
59,638 50,837 1.7 %
SEOTownCenter, Inc. IT Services Senior Secured Term Loan A 4/10/2018 9.50% (3ML+ 7.50%) 2.00 4/7/2023 24,763 24,763 24,763 0.8 % (3)(10)(39)
Senior Secured Term Loan B 4/10/2018 14.50% (3ML+ 12.50%) 2.00 4/7/2023 19,119 19,119 19,119 0.6 % (3)(10)(39)
43,882 43,882 1.4 %
Shutterfly, Inc. Internet & Direct Marketing Retail First Lien Term Loan 12/9/2019 7.00% (3ML+ 6.00%) 1.00 9/25/2026 17,419 15,706 16,440 0.5 % (3)(8)(10)
15,706 16,440 0.5 %
Sorenson Communications, LLC Diversified Telecommunication Services First Lien Term Loan 5/8/2019 6.81% (3ML+ 6.50%) — 4/29/2024 8,227 8,166 8,166 0.3 % (3)(8)(10)
8,166 8,166 0.3 %
Spectrum Holdings III Corp Health Care Equipment & Supplies Second Lien Term Loan 2/13/2018 8.07% (6ML+ 7.00%) 1.00 1/31/2026 7,500 7,474 5,606 0.2 % (3)(8)(10)
7,474 5,606 0.2 %
Staples, Inc. Distributors First Lien Term Loan 12/3/2019 5.69% (3ML+ 5.00%) — 4/16/2026 8,955 8,873 8,135 0.3 % (3)(8)(10)
8,873 8,135 0.3 %
Strategic Materials Household Durables Second Lien Term Loan 11/1/2017 8.75% (3ML+ 7.75%) 1.00 11/1/2025 7,000 6,953 5,223 0.2 % (3)(8)(10)
6,953 5,223 0.2 %

See notes to consolidated financial statements.

26

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULES OF INVESTMENTS AS OF JUNE 30, 2020

(in thousands, except share data)

June 30, 2020
Portfolio Company Industry Investments(1)(38) Acquisition Date(44) Coupon/Yield Floor Legal Maturity Principal Value Amortized Cost Fair<br>Value(2) % of <br>Net Assets
LEVEL 3 PORTFOLIO INVESTMENTS
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
Stryker Energy, LLC Energy Equipment & Services Overriding Royalty Interests 12/4/2006 — N/A $ — $ — $ — — % (13)
— — — %
Sudbury Mill CLO Ltd. Structured Finance Subordinated Structured Note 11/14/2013 Residual Interest, current yield 0.00% — 1/19/2026 28,200 13,875 2,632 0.1 % (5)(14)(17)
13,875 2,632 0.1 %
Symphony CLO XIV, Ltd. Structured Finance Subordinated Structured Note 5/6/2014 Residual Interest, current yield 0.00% — 7/14/2026 49,250 29,171 13,608 0.4 % (5)(14)(17)
29,171 13,608 0.4 %
Symphony CLO XV, Ltd. Structured Finance Subordinated Structured Note 10/17/2014 Residual Interest, current yield 3.91% — 1/19/2032 63,831 43,104 20,287 0.7 % (5)(14)
43,104 20,287 0.7 %
TGP HOLDINGS III LLC Household Durables Second Lien Term Loan 10/3/2017 9.50% (3ML+ 8.50%) 1.00 9/25/2025 3,000 2,971 3,000 0.1 % (8)(10)
2,971 3,000 0.1 %
The Octave Music Group, Inc. (f/k/a Touchtunes Interactive Networks, Inc.) Entertainment First Lien Term Loan 3/6/2020 6.25% (3ML+ 5.25%) plus 0.75% PIK 1.00 5/29/2025 38,912 38,544 36,910 1.2 % (8)(10)(39)
38,544 36,910 1.2 %
Town & Country Holdings, Inc. Distributors First Lien Term Loan 1/26/2018 8.81% (3ML+ 8.50%) — 1/26/2023 163,980 163,980 160,830 5.3 % (3)(10)(39)
163,980 160,830 5.3 %
Transplace Holdings, Inc. Transportation Infrastructure Second Lien Term Loan 10/16/2017 9.82% (6ML+ 8.75%) 1.00 10/6/2025 28,104 27,662 27,662 0.9 % (3)(8)(10)
27,662 27,662 0.9 %
United Sporting Companies, Inc. (18) Distributors Second Lien Term Loan 9/28/2012 12.75% (1ML+ 11.00%) plus 2.00% PIK 1.75 11/16/2019 147,470 105,478 6,966 0.2 % (9)(10)
105,478 6,966 0.2 %
Universal Fiber Systems, LLC Textiles, Apparel & Luxury Goods Second Lien Term Loan 10/16/2015 10.50% (1ML+ 9.50%) 1.00 10/2/2022 37,000 36,762 35,363 1.2 % (3)(8)(10)
36,762 35,363 1.2 %
Upstream Newco, Inc. Health Care Providers & Services First Lien Term Loan 12/2/2019 4.68% (1ML+ 4.50%) — 11/20/2026 8,229 8,192 7,802 0.3 % (3)(8)(10)
Second Lien Term Loan 12/2/2019 9.57% (6ML+ 8.50%) — 11/20/2027 22,000 21,810 22,000 0.7 % (3)(8)(10)
30,002 29,802 1.0 %
USG Intermediate, LLC Leisure Products Revolving Line of Credit - $1,000 Commitment 4/15/2015 10.25% (1ML+ 9.25%) 1.00 8/24/2020 1,000 1,000 1,000 — % (10)(15)
Senior Secured Term Loan B 4/15/2015 12.75% (1ML+ 11.75%) 1.00 8/24/2022 17,232 17,232 17,232 0.6 % (3)(10)
Equity 4/15/2015 — N/A — 1 — — % (16)
18,233 18,232 0.6 %
Venio LLC Professional Services Second Lien Term Loan 2/19/2014 4.00% plus 10.00% PIK (3ML + 7.50%) 2.50 2/19/2020 27,637 27,637 27,267 0.9 % (10)(39)
27,637 27,267 0.9 %
Versant Health Holdco, Inc. (f/k/a Wink Holdco, Inc.) Insurance Second Lien Term Loan 12/12/2017 7.75% (3ML+ 6.75%) 1.00 12/1/2025 3,000 2,990 2,938 0.1 % (3)(8)(10)
2,990 2,938 0.1 %
Voya CLO 2012-4, Ltd. Structured Finance Subordinated Structured Note 11/5/2012 Residual Interest, current yield 7.00% — 10/15/2030 40,613 29,996 22,509 0.7 % (5)(14)
29,996 22,509 0.7 %
Voya CLO 2014-1, Ltd. Structured Finance Subordinated Structured Note 2/5/2014 Residual Interest, current yield 4.39% — 4/18/2031 40,773 30,303 17,668 0.6 % (5)(14)
30,303 17,668 0.6 %
Voya CLO 2016-3, Ltd. Structured Finance Subordinated Structured Note 9/30/2016 Residual Interest, current yield 8.35% — 10/20/2031 28,100 26,253 18,680 0.6 % (5)(14)
26,253 18,680 0.6 %

See notes to consolidated financial statements.

27

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULES OF INVESTMENTS AS OF JUNE 30, 2020

(in thousands, except share data)

June 30, 2020
Portfolio Company Industry Investments(1)(38) Acquisition Date(44) Coupon/Yield Floor Legal Maturity Principal Value Amortized Cost Fair<br>Value(2) % of <br>Net Assets
LEVEL 3 PORTFOLIO INVESTMENTS
Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
Voya CLO 2017-3, Ltd. Structured Finance Subordinated Structured Note 6/13/2017 Residual Interest, current yield 9.24% — 7/22/2030 $ 44,885 $ 49,645 $ 37,860 1.2 % (5)(14)
49,645 37,860 1.2 %
VT Topco, Inc. Commercial Services & Supplies Second Lien Term Loan 8/23/2018 7.18% (1ML+ 7.00%) — 8/17/2026 7,000 6,973 6,662 0.2 % (3)(8)(10)
6,973 6,662 0.2 %
Total Non-Control/Non-Affiliate Investments (Level 3) $ 3,332,509 $ 2,785,499 91.2 %
Total Portfolio Investments (Level 3) $ 5,782,718 $ 5,232,328 171.3 %

See notes to consolidated financial statements.

28

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CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)

(in thousands, except share data)

Endnote Explanations as of September 30, 2020 (Unaudited) and June 30, 2020

(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 September 30, 2020 and June 30, 2020 were $1,498,393 and $1,491,022, respectively, representing 27.8% and 28.5% of our total investments, respectively.
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(4) 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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(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) During the year ended June 30, 2020, we increased our investment in PGX Holdings, Inc. (“PGX”) through a new 1.5 Lien Term Loan in the aggregate principal amount of $1,981. Attached to the incremental term loan investment were shares of common stock representing an 11.4% equity interest in PGX. As a result, our investment in PGX was transferred from non-control/non-affiliate to affiliate classification as of June 30, 2020.
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(7) Engine Group, Inc., EMX Digital, Inc. (f/k/a Clearstream.TV, Inc.), and Engine 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) Investment on non-accrual status as of the reporting date (See Note 2).
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(10) Certain variable rate securities in our portfolio bear interest at a rate determined by a publicly disclosed base rate plus a basis point spread. The 1-Month LIBOR, or “1ML”, was 0.15% as of September 30, 2020 and 0.16% as of June 30, 2020. The 2-Month LIBOR, or “2ML”, was 0.19% as of September 30, 2020 and 0.23% as of June 30, 2020. The 3-Month LIBOR, or “3ML”, was 0.23% as of September 30, 2020 and 0.30% as of June 30, 2020. The 6-Month LIBOR, or “6ML”, was 0.26% as of September 30, 2020 and 0.37% as of June 30, 2020. The 12-Month LIBOR, or “12ML”, was 0.36% as of September 30, 2020 and 0.55% as of June 30, 2020.
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(11) PeopleConnect Holdings, Inc. and Pubrec Holdings, Inc. are joint borrowers
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(12) 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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(13) The overriding royalty interests held receive payments at the stated rates based upon operations of the borrower.
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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 September 30, 2020 and June 30, 2020, our qualifying
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See notes to consolidated financial statements.

29

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CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)

(in thousands, except share data)

Endnote Explanations as of September 30, 2020 (Unaudited) and June 30, 2020 (Continued)

assets, as a percentage of total assets, stood at 74.53% and 74.44%, respectively. We monitor the status of these assets on an ongoing basis.

(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 September 30, 2020 and June 30, 2020, we had $42,099 and $41,487, respectively, of undrawn revolver and delayed draw term loan commitments to our portfolio companies.
(16) Represents non-income producing security that has not paid a dividend in the year preceding the reporting date.
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(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 year ended June 30, 2020, USC used a portion of the proceeds from the ongoing liquidation to partially repay $20,594 of our Second Lien Term Loan and our 22.0% equity interest was canceled, resulting in a transfer of our investment to non-control/non-affiliate classification as of June 30, 2020.
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(19) Medusind Acquisition, Inc., Medusind Intermediate, Inc., Medusind Solutions Inc. and Medusind Inc. are joint borrowers.
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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 99.8% of CP Energy Services Inc. (“CP Energy”) as of September 30, 2020 and June 30, 2020. 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 $13,156 in senior secured term loans (the “Spartan Term Loans”) due to us as of June 30, 2020. 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 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). In September 2020, we made a new $26,193 Series A preferred stock investment in Spartan Energy Holdings, Inc., which equates to 100% of the Series A non-voting non-convertible preferred stock outstanding. In September 2020, Spartan Energy Services, LLC fully repaid the $26,193 Senior Secured Term Loan B receivable to us at par. We recorded a realized gain of $2,832 in our Consolidated Statement of Operations for the quarter ended September 30, 2020 as a result of this transaction.
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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% of Credit Central Loan Company, LLC (f/k/a Credit Central Holdings, LLC (“Credit Central”)) as of September 30, 2020 and June 30, 2020. 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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See notes to consolidated financial statements.

30

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CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)

(in thousands, except share data)

Endnote Explanations as of September 30, 2020 (Unaudited) and June 30, 2020 (Continued)

(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 September 30, 2020 and June 30, 2020. We report First Tower Finance as a separate controlled company.
(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.
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(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 September 30, 2020 and June 30, 2020, 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. 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 $51,428 Senior Secured Term Loan C (“TLC”) and $12,857 in equity financing. Effective June 19, 2020, 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 D secured note (“TLD”) in the aggregate principal amount of $183,425 and the proceeds were returned to us as a return of capital, reducing our equity investment in NPRC.
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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 September 30, 2020 and June 30, 2020. 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 92.25% of the fully diluted equity of NMMB, Inc. (“NMMB”) as of September 30, 2020 and June 30, 2020. 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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See notes to consolidated financial statements.

31

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)

(in thousands, except share data)

Endnote Explanations as of September 30, 2020 (Unaudited) and June 30, 2020 (Continued)

(30) Prospect owns 99.96% of the equity of USES Corp. as of September 30, 2020 and June 30, 2020.
(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 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.
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(32) As of September 30, 2020 and June 30, 2020, 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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(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 September 30, 2020 and June 30, 2020.
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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 became classified as a control investment during the year ended June 30, 2019.
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(35) As of September 30, 2020 and June 30, 2020, the residual profit interest includes both (i) 8.33% of New TLA and TLD residual profit and (ii) 100% of TLC residual profits, with both calculated quarterly in arrears
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(36) Prospect owns 100% of the preferred equity of Pacific World Corporation (“Pacific World”), which represents a 99.96% ownership interest of Pacific World as of September 30, 2020 and June 30, 2020, respectively. As a result, Prospect’s investment in Pacific World is classified as a control investment.
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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 September 30, 2020 (Unaudited) and June 30, 2020 (Continued)

(37) The following shows the composition of our investment portfolio at cost by control designation, investment type and by industry as of September 30, 2020:
Industry 1st Lien<br>Term Loan 1.5 Lien Term Loan 2nd Lien<br>Term Loan 3rd Lien Term Loan Subordinated Structured Notes Subordinated Unsecured Debt Equity ^(B)^ Cost Total
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Control Investments
Aerospace & Defense $ 69,797 $ — $ — $ — $ — $ — $ 22,738 $ 92,535
Commercial Services & Supplies 126,328 — — — — 6,205 6,849 139,382
Construction & Engineering 43,731 — — — — — 25,143 68,874
Consumer Finance — — 355,657 — — — 120,939 476,596
Diversified Consumer Services — — — — — — 2,378 2,378
Energy Equipment & Services 51,026 — — — — — 219,550 270,576
Equity Real Estate Investment Trusts (REITs) 502,804 — — — — — 210 503,014
Health Care Providers & Services 225,216 — — — — — 45,118 270,334
Machinery — — 28,623 — — — 6,866 35,489
Media 4,987 — — — — — 12,869 17,856
Online Lending 30,621 — — — — — — 30,621
Personal Products 60,541 — — — — — 186,795 247,336
Trading Companies & Distributors 65,280 — — — — — — 65,280
Structured Finance (A) 101,200 — — — — — — 101,200
Total Control Investments $ 1,281,531 $ — $ 384,280 $ — $ — $ 6,205 $ 649,455 $ 2,321,471
Affiliate Investments
Diversified Consumer Services $ — $ 2,873 $ 117,405 $ — $ — $ 41,989 $ 6,577 $ 168,844
Textiles, Apparel & Luxury Goods — — — — — — 2,805 2,805
Total Affiliate Investments $ — $ 2,873 $ 117,405 $ — $ — $ 41,989 $ 9,382 $ 171,649
Non-Control/Non-Affiliate Investments
Air Freight & Logistics $ — — $ 12,500 — $ — $ — $ — $ 12,500
Auto Components 26,979 — 25,553 — — — — 52,532
Chemicals 31,077 — — — — — — 31,077
Commercial Services & Supplies 40,463 — 175,785 — — — 10,303 226,551
Communications Equipment 9,142 — 50,539 — — — — 59,681
Consumer Finance 32,156 — 2,757 — — — — 34,913
Distributors 172,375 — 105,431 — — — — 277,806
Diversified Financial Services 30,165 — — — — — — 30,165
Diversified Telecommunication Services 17,043 — 39,424 — — — — 56,467
Entertainment 50,282 — — — — — — 50,282
Food Products — — 29,759 — — — — 29,759
Health Care Equipment & Supplies — — 7,475 — — — — 7,475
Health Care Providers & Services 151,569 — 113,265 — — — — 264,834
Hotels, Restaurants & Leisure 23,834 — — — — — — 23,834
Household Durables — — 9,928 3,979 — — 2,001 15,908
Household Products 24,375 — — — — — — 24,375
Insurance — — 16,968 — — — — 16,968
Interactive Media & Services 195,577 — — — — — — 195,577
Internet & Direct Marketing Retail 15,775 — — — — — — 15,775
IT Services 91,856 — 85,712 — — — — 177,568
Leisure Products 25,587 — — — — — 1 25,588

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 September 30, 2020 (Unaudited) and June 30, 2020 (Continued)

Industry 1st Lien<br>Term Loan 1.5 Lien Term Loan 2nd Lien<br>Term Loan 3rd Lien Term Loan Subordinated Structured Notes Subordinated Unsecured Debt Equity ^(B)^ Cost Total
Machinery 46,461 — — — — — — 46,461
Media 64,229 — 35,000 — — — — 99,229
Paper & Forest Products 4,404 — 11,404 — — — — 15,808
Professional Services 28,794 — 65,923 — — — — 94,717
Real Estate Management & Development 31,537 — — — — — — 31,537
Software 8,386 — 66,813 — — — — 75,199
Technology Hardware, Storage & Peripherals — — 12,419 — — — — 12,419
Textiles, Apparel & Luxury Goods 165,390 — 36,789 — — — — 202,179
Transportation Infrastructure — — 27,683 — — — — 27,683
Structured Finance (A) — — — — 1,100,944 — — 1,100,944
Total Non-Control/Non-Affiliate $ 1,287,456 $ — $ 931,127 $ 3,979 $ 1,100,944 $ — $ 12,305 $ 3,335,811
Total Portfolio Investment Cost $ 2,568,987 $ 2,873 $ 1,432,812 $ 3,979 $ 1,100,944 $ 48,194 $ 671,142 $ 5,828,931

The following table shows the composition of our investment portfolio at fair value by control designation, investment type and by industry as of September 30, 2020:

Industry 1st Lien<br>Term Loan 1.5 Lien Term Loan 2nd Lien<br>Term Loan 3rd Lien Term Loan Subordinated Structured Notes Subordinated Unsecured Debt Equity ^(B)^ Fair Value Total Fair Value % of Net Assets
Control Investments
Aerospace & Defense $ 69,797 — $ — $ — $ — $ — $ 22,327 $ 92,124 2.9 %
Commercial Services & Supplies 71,441 — — — — — — 71,441 2.2 %
Construction & Engineering 43,731 — — — — — 89,893 133,624 4.2 %
Consumer Finance — — 358,544 — — — 266,976 625,520 19.7 %
Diversified Consumer Services — — — — — — 3,000 3,000 0.1 %
Energy Equipment & Services 48,050 — — — — — 18,610 66,660 2.1 %
Equity Real Estate Investment Trusts (REITs) 502,804 — — — — — 278,955 781,759 24.6 %
Health Care Providers & Services 225,216 — — — — — 11,768 236,984 7.4 %
Machinery — — 28,622 — — — 12,477 41,099 1.3 %
Media 4,987 — — — — — 23,113 28,100 0.9 %
Online Lending 30,621 — — — — — — 30,621 1.0 %
Personal Products 60,541 — — — — — 6,433 66,974 2.1 %
Trading Companies & Distributors 28,466 — — — — — — 28,466 0.9 %
Structured Finance (A) 101,200 — — — — — — 101,200 3.2 %
Total Control Investments $ 1,186,854 $ — $ 387,166 $ — $ — $ — $ 733,552 $ 2,307,572 72.5 %
Fair Value % of Net Assets 37.3 % — % 12.1 % — % — % — % 23.1 % 72.5 %

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 September 30, 2020 (Unaudited) and June 30, 2020 (Continued)

Industry 1st Lien<br>Term Loan 1.5 Lien Term Loan 2nd Lien<br>Term Loan 3rd Lien Term Loan Subordinated Structured Notes Subordinated Unsecured Debt Equity ^(B)^ Fair Value Total Fair Value % of Net Assets
Affiliate Investments
Distributors $ — $ — $ — $ — $ — $ — $ — $ — — %
Diversified Consumer Services — 2,873 117,405 — — 53,262 63,649 237,189 7.5 %
Textiles, Apparel & Luxury Goods — — — — — — 24,986 24,986 0.8 %
Total Affiliate Investments $ — $ 2,873 $ 117,405 $ — $ — $ 53,262 $ 88,635 $ 262,175 8.2 %
Fair Value % of Net Assets — % 0.1 % 3.6 % — % — % 1.7 % 2.8 % 8.2 %
Non-Control/Non-Affiliate Investments
Air Freight & Logistics $ — $ — $ 10,386 $ — $ — $ — $ — $ 10,386 0.3 %
Auto Components 27,859 — 24,160 — — — — 52,019 1.6 %
Chemicals 31,222 — — — — — — 31,222 1.0 %
Commercial Services & Supplies 40,325 — 173,869 — — — 8,419 222,613 7.0 %
Communications Equipment 9,007 — 45,184 — — — — 54,191 1.7 %
Consumer Finance 29,210 — 2,870 — — — — 32,080 1.0 %
Distributors 171,959 — 6,580 — — — — 178,539 5.6 %
Diversified Financial Services 30,165 — — — — — — 30,165 0.9 %
Diversified Telecommunication Services 17,035 — 39,082 — — — — 56,117 1.8 %
Entertainment 49,040 — — — — — — 49,040 1.5 %
Food Products — — 29,938 — — — — 29,938 0.9 %
Health Care Equipment & Supplies — — 5,845 — — — — 5,845 0.2 %
Health Care Providers & Services 151,154 — 113,555 — — — — 264,709 8.3 %
Hotels, Restaurants & Leisure 21,721 — — — — — — 21,721 0.7 %
Household Durables — — 8,249 3,980 — — 5,810 18,039 0.6 %
Household Products 24,375 — — — — — — 24,375 0.8 %
Insurance — — 16,978 — — — — 16,978 0.5 %
Interactive Media & Services 195,577 — — — — — — 195,577 6.1 %
Internet & Direct Marketing Retail 16,562 — — — — — — 16,562 0.5 %
IT Services 91,857 — 85,750 — — — — 177,607 5.6 %
Leisure Products 25,386 — — — — — — 25,386 0.8 %
Machinery 44,265 — — — — — — 44,265 1.4 %
Media 62,654 — 7,386 — — — — 70,040 2.2 %
Paper & Forest Products 4,404 — 11,404 — — — — 15,808 0.5 %
Professional Services 29,369 — 67,363 — — — — 96,732 3.0 %
Real Estate Management & Development 31,537 — — — — — — 31,537 1.0 %
Software 8,458 — 65,928 — — — — 74,386 2.3 %
Technology Hardware, Storage & Peripherals — — 12,377 — — — — 12,377 0.4 %
Textiles, Apparel & Luxury Goods 165,390 — 34,797 — — — — 200,187 6.3 %
Transportation Infrastructure — — 27,683 — — — — 27,683 0.9 %

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 September 30, 2020 (Unaudited) and June 30, 2020 (Continued)

Industry 1st Lien<br>Term Loan 1.5 Lien Term Loan 2nd Lien<br>Term Loan 3rd Lien Term Loan Subordinated Structured Notes Subordinated Unsecured Debt Equity ^(B)^ Fair Value Total Fair Value % of Net Assets
Structured Finance (A) — — — — 730,514 — — 730,514 23.0 %
Total Non-Control/Non-Affiliate $ 1,278,531 $ — $ 789,384 $ 3,980 $ 730,514 $ — $ 14,229 $ 2,816,638 88.5 %
Fair Value % of Net Assets 40.2 % — % 24.8 % 0.1 % 23.0 % — % 0.4 % 88.5 %
Total Portfolio $ 2,465,385 $ 2,873 $ 1,293,955 $ 3,980 $ 730,514 $ 53,262 $ 836,416 $ 5,386,385 169.3 %
Fair Value % of Net Assets 77.5 % 0.1 % 40.7 % 0.1 % 22.9 % 1.7 % 26.3 % 169.3 %

(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.

(38) The following table shows the composition of our investment portfolio at cost by control designation, investment type and by industry as of June 30, 2020:
Industry 1st Lien<br>Term Loan 1.5 Lien Term Loan 2nd Lien<br>Term Loan 3rd Lien Term Loan Subordinated Structured Notes Subordinated Unsecured Debt Equity^(B)^ Cost Total
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Control Investments
Aerospace & Defense $ 65,471 $ — $ — $ — $ — $ — $ 22,737 $ 88,208
Commercial Services & Supplies 125,477 — — — — 6,350 6,849 138,676
Construction & Engineering 43,731 — — — — — 25,143 68,874
Consumer Finance — — 357,026 — — — 120,939 477,965
Diversified Consumer Finance — — — — — — 2,378 2,378
Energy Equipment & Services 73,260 — — — — — 193,358 266,618
Equity Real Estate Investment Trusts (REITs) 486,058 — — — — — 210 486,268
Health Care Providers & Services 267,052 — — — — — 1 267,053
Machinery — — 28,622 — — — 6,867 35,489
Media 5,025 — — — — — 12,869 17,894
Online Lending 45,950 — — — — — — 45,950
Personal Products 59,907 — — — — — 186,795 246,702
Trading Companies & Distributors 65,450 — — — — — — 65,450
Structured Finance (A) 79,200 — — — — — — 79,200
Total Control Investments $ 1,316,581 $ — $ 385,648 $ — $ — $ 6,350 $ 578,146 $ 2,286,725
Affiliate Investments
Diversified Consumer Services $ — $ 1,981 $ 114,536 $ — $ — $ 37,585 $ 6,577 $ 160,679
Textiles, Apparel & Luxury Goods — — — — — — 2,805 2,805
Total Affiliate Investments $ — $ 1,981 $ 114,536 $ — $ — $ 37,585 $ 9,382 $ 163,484
Non-Control/Non-Affiliate Investments
Air Freight & Logistics $ — $ — $ 12,500 $ — $ — $ — $ — $ 12,500
Auto Components 1,244 — 25,532 — — — — 26,776
Chemicals 31,837 — — — — — — 31,837
Commercial Services & Supplies 43,835 — 175,763 — — 10,303 229,901
Communications Equipment 9,105 — 50,533 — — — 59,638
Consumer Finance 28,806 — — — — — — 28,806
Distributors 172,853 — 105,478 — — — — 278,331
Diversified Financial Services 30,165 — — — — — — 30,165
Diversified Telecommunication Services 17,704 — 39,394 — — — — 57,098

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 September 30, 2020 (Unaudited) and June 30, 2020 (Continued)

Industry 1st Lien<br>Term Loan 1.5 Lien Term Loan 2nd Lien<br>Term Loan 3rd Lien Term Loan Subordinated Structured Notes Subordinated Unsecured Debt Equity^(B)^ Cost Total
Entertainment 50,601 — — — — — — 50,601
Food Products — — 24,853 — — — — 24,853
Health Care Equipment & Supplies — — 7,474 — — — — 7,474
Health Care Providers & Services 152,900 — 113,235 — — — — 266,135
Hotels, Restaurants & Leisure 23,501 — — — — — — 23,501
Household Durables — — 9,924 3,990 — — 2,001 15,915
Household Products 24,437 — — — — — — 24,437
Insurance — — 12,796 — — — — 12,796
Interactive Media & Services 200,728 — — — — — — 200,728
Internet & Direct Marketing Retail 15,706 — — — — — — 15,706
IT Services 117,574 — 85,711 — — — — 203,285
Leisure Products 24,518 — — — — — 1 24,519
Machinery 48,745 — — — — — — 48,745
Media 64,630 — 35,000 — — — — 99,630
Paper & Forest Products 4,393 — 11,395 — — — — 15,788
Professional Services 28,910 — 75,254 — — — — 104,164
Real Estate Management & Development 31,747 — — — — — — 31,747
Software 8,425 — 66,783 — — — — 75,208
Technology Hardware, Storage & Peripherals — — 12,415 — — — — 12,415
Textiles, Apparel & Luxury Goods 166,307 — 36,762 — — — — 203,069
Transportation Infrastructure — — 27,662 — — — — 27,662
Structured Finance (A) — — — — 1,089,079 — — 1,089,079
Total Non-Control/Non-Affiliate $ 1,298,671 $ — $ 928,464 $ 3,990 $ 1,089,079 $ — $ 12,305 $ 3,332,509
Total Portfolio Investment Cost $ 2,615,252 $ 1,981 $ 1,428,648 $ 3,990 $ 1,089,079 $ 43,935 $ 599,833 $ 5,782,718
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, 2020: Industry 1st Lien<br>Term Loan 1.5 Lien Term Loan 2nd Lien<br>Term Loan 3rd Lien Term Loan Subordinated Structured Notes Subordinated Unsecured Debt Equity^(B)^ Fair Value Total Fair Value % of Net Assets
Control Investments
Aerospace & Defense $ 65,471 $ — $ — $ — $ — $ — $ 20,156 $ 85,627 2.8 %
Commercial Services & Supplies 69,230 — — — — — — 69,230 2.3 %
Construction & Engineering 43,731 — — — — — 85,565 129,296 4.2 %
Consumer Finance — — 360,015 — — — 261,373 621,388 20.3 %
Diversified Consumer Services — — — — — — 3,286 3,286 0.1 %
Energy Equipment & Services 55,455 — — — — — 26,781 82,236 2.7 %
Equity Real Estate Investment Trusts (REITs) 486,058 — — — — — 267,525 753,583 24.7 %
Health Care Providers & Services 230,757 — — — — — — 230,757 7.6 %
Machinery — — 28,622 — — — 9,943 38,565 1.3 %
Media 5,025 — — — — — 28,643 33,668 1.1 %
Online Lending 45,950 — — — — — — 45,950 1.5 %
Personal Products 59,907 — — — — — — 59,907 2.0 %
Trading Companies & Distributors 26,599 — — — — — — 26,599 0.9 %

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 September 30, 2020 (Unaudited) and June 30, 2020 (Continued)

Industry 1st Lien<br>Term Loan 1.5 Lien Term Loan 2nd Lien<br>Term Loan 3rd Lien Term Loan Subordinated Structured Notes Subordinated Unsecured Debt Equity^(B)^ Fair Value Total Fair Value % of Net Assets
Structured Finance (A) 79,200 — — — — — — 79,200 2.6 %
Total Control Investments $ 1,167,383 $ — $ 388,637 $ — $ — $ — $ 703,272 $ 2,259,292 73.9 %
Fair Value % of Net Assets 38.2 % 12.7 % — % — % — % 23.0 % 73.9 %
Affiliate Investments
Diversified Consumer Services $ — $ 1,981 $ 107,412 $ — $ — $ 51,079 $ 5,857 $ 166,329 5.4 %
Textiles, Apparel & Luxury Goods — — — — — — 21,208 21,208 0.7 %
Total Affiliate Investments $ — $ 1,981 $ 107,412 $ — $ — $ 51,079 $ 27,065 $ 187,537 6.1 %
Fair Value % of Net Assets — % 0.1 % 3.5 % — % — % 1.7 % 0.9 % 6.1 %
Non-Control/Non-Affiliate Investments
Air Freight & Logistics $ — $ — $ 10,755 $ — $ — $ — $ — $ 10,755 0.4 %
Auto Components 1,373 — 23,494 — — — — 24,867 0.8 %
Chemicals 31,891 — — — — — — 31,891 1.0 %
Commercial Services & Supplies 43,409 — 172,405 — — — 9,233 225,047 7.4 %
Communications Equipment 8,671 — 42,166 — — — — 50,837 1.7 %
Consumer Finance 24,338 — — — — — — 24,338 0.8 %
Distributors 168,965 — 6,966 — — — — 175,931 5.8 %
Diversified Financial Services 30,165 — — — — — — 30,165 1.0 %
Diversified Telecommunication Services 17,403 — 37,908 — — — — 55,311 1.8 %
Entertainment 49,017 — — — — — — 49,017 1.6 %
Food Products — — 25,000 — — — — 25,000 0.8 %
Health Care Equipment & Supplies — — 5,606 — — — — 5,606 0.2 %
Health Care Providers & Services 151,824 — 112,821 — — — — 264,645 8.7 %
Hotels, Restaurants & Leisure 21,008 — — — — — — 21,008 0.7 %
Household Durables — — 8,223 3,990 — — 3,853 16,066 0.5 %
Household Products 24,362 — — — — — — 24,362 0.8 %
Insurance — — 12,744 — — — — 12,744 0.4 %
Interactive Media & Services 200,728 — — — — — — 200,728 6.6 %
Internet & Direct Marketing Retail 16,440 — — — — — — 16,440 0.5 %
IT Services 118,311 — 85,750 — — — — 204,061 6.7 %
Leisure Products 24,319 — — — — — — 24,319 0.8 %
Machinery 48,655 — — — — — — 48,655 1.6 %
Media 64,170 — 2,754 — — — — 66,924 2.2 %
Paper & Forest Products 4,393 — 11,395 — — — — 15,788 0.5 %
Professional Services 29,275 — 77,267 — — — — 106,542 3.5 %
Real Estate Management & Development 31,747 — — — — — — 31,747 1.0 %
Software 8,425 — 65,320 — — — — 73,745 2.4 %
Technology Hardware, Storage & Peripherals — — 12,318 — — — — 12,318 0.4 %
Textiles, Apparel & Luxury Goods 164,656 — 35,363 — — — — 200,019 6.5 %
Transportation Infrastructure — — 27,662 — — — — 27,662 0.9 %

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 September 30, 2020 (Unaudited) and June 30, 2020 (Continued)

Industry 1st Lien<br>Term Loan 1.5 Lien Term Loan 2nd Lien<br>Term Loan 3rd Lien Term Loan Subordinated Structured Notes Subordinated Unsecured Debt Equity^(B)^ Fair Value Total Fair Value % of Net Assets
Structured Finance (A) — — — — 708,961 — — 708,961 23.2 %
Total Non-Control/Non-Affiliate $ 1,283,545 $ — $ 775,917 $ 3,990 $ 708,961 $ — $ 13,086 $ 2,785,499 91.2 %
Fair Value % of Net Assets 42.0 % — % 25.4 % 0.1 % 23.2 % — % 0.4 % 91.2 %
Total Portfolio $ 2,450,928 $ 1,981 $ 1,271,966 $ 3,990 $ 708,961 $ 51,079 $ 743,423 $ 5,232,328 171.2 %
Fair Value % of Net Assets 80.2 % 0.1 % 41.6 % 0.1 % 23.2 % 1.7 % 24.3 % 171.2 %

(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.

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 September 30, 2020 (Unaudited) and June 30, 2020 (Continued)

(39) 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 September 30, 2020:

Security Name PIK Rate - <br>Capitalized PIK Rate - <br>Paid as cash Maximum <br>Current PIK Rate
Cinedigm DC Holdings, LLC - Senior Secured Term Loan — % 2.50 % 2.50 %
CP Energy Services Inc. - Senior Secured Term Loan 12.00 % — % 12.00 % (A)
Credit Central Loan Company, LLC - Subordinated Term Loan 10.00 % — % 10.00 % (B)
Echelon Transportation, LLC - Senior Secured Term Loan 2.25 % — % 2.25 % (C)
Echelon Transportation, LLC - Senior Secured Term Loan 1.00 % — % 1.00 % (D)
Edmentum Ultimate Holdings, LLC - Second Lien Revolving Credit Facility 5.00 % — % 5.00 %
Edmentum Ultimate Holdings, LLC - Unsecured Senior PIK Note 8.50 % — % 8.50 %
Edmentum Ultimate Holdings, LLC - Unsecured Junior PIK Note 10.00 % — % 10.00 %
First Tower Finance Company LLC - Subordinated Term Loan — % 12.00 % 12.00 %
InterDent, Inc. - Senior Secured Term Loan B 10.00 % — % 10.00 %
MITY, Inc. - Senior Secured Note B 10.00 % — % 10.00 %
National Property REIT Corp. - Senior Secured Term Loan A-2 — % 3.53 % 3.53 %
National Property REIT Corp. - Senior Secured Term Loan B-2 — % 5.50 % 5.50 %
National Property REIT Corp. - Senior Secured Term Loan C — % 2.25 % 2.25 %
National Property REIT Corp. - Senior Secured Term Loan D — % 2.50 % 2.50 %
Nationwide Loan Company LLC - Senior Subordinated Term Loan 3.35 % 6.65 % 10.00 %
Pacific World Corporation - Senior Secured Term Loan A 6.25 % — % 6.25 %
PGX Holdings, Inc. - Second Lien Term Loan 15.75 % — % 15.75 %
PGX Holdings, Inc. - 1.5 Lien 11.50 % — % 11.50 %
Rosa Mexicano - Revolving Line of Credit 5.50 % — % 5.50 % (E)
Rosa Mexicano - Senior Secured Term Loan 5.50 % — % 5.50 % (E)
RGIS Services, LLC - Senior Secured Term Loan 6.50 % — % 6.50 %
SEOTOWNCENTER, INC. - Senior Secured Term Loan A — % 4.00 % 4.00 % (F)
SEOTOWNCENTER, INC. - Senior Secured Term Loan B — % 9.00 % 9.00 % (G)
The Octave Music Group, Inc. (fka Touchtunes) - First Lien Term Loan — % 0.75 % 0.75 %
Town & Country Holdings, Inc. - First Lien Term Loan — % 5.00 % 5.00 % (H)
Valley Electric Co. of Mt. Vernon, Inc. - Senior Secured Note — % 2.50 % 2.50 %
Valley Electric Company, Inc. - Senior Secured Note — % 10.00 % 10.00 %
Venio LLC - Second Lien Term Loan 5.00 % 5.00 % 10.00 %

(A) On August 28, 2020, the CP Energy Sixth Amendment to Loan Agreement was amended to allow 100% of the September 30, 2020 interest accruing in cash to be payable in kind resulting in a current PIK rate capitalized of 12.00%.

(B) 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%.

(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 14.00%.

(D) 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 12.00%.

(E) On April 29, 2020, the Rosa Mexicano Fifth Amendment and Waiver to Loan Agreement was amended to allow interest accruing in cash to be payable in kind resulting in a maximum current PIK rate of 5.50%.

(F) On May 20, 2020, the SEOTownCenter Limited Waiver and Fourth Amendment to Loan Agreement was amended to allow a Maximum Term Loan A PIK Rate of 4.00% for the interest accruing in cash to be payable in kind, at the borrowers election.

(G) On May 20, 2020, the SEOTownCenter Limited Waiver and Fourth Amendment to Loan Agreement was amended to allow a Maximum Term Loan B PIK Rate of 9.00% for the interest accruing in cash to be payable in kind, at the borrowers election.

(H) On March 31, 2020, the Town & Country Fourth Amendment to Loan Agreement was amended to allow a Maximum Term Loan PIK Rate of 5.00% for the interest accruing in cash to be payable in kind, at the borrowers election.

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 September 30, 2020 (Unaudited) and June 30, 2020 (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, 2020: Security Name PIK Rate - <br>Capitalized PIK Rate - <br>Paid as cash Maximum <br>Current PIK Rate
Cinedigm DC Holdings, LLC - Senior Secured Term Loan —% 2.50% 2.50%
CP Energy Services Inc. - Senior Secured Term Loan 12.00% —% 12.00% (A)
Credit Central Loan Company, LLC - Subordinated Term Loan 10.00% —% 10.00% (B)
Echelon Transportation, LLC - Senior Secured Term Loan 2.25% —% 2.25% (C)
Echelon Transportation, LLC - Senior Secured Term Loan 1.00% —% 1.00% (D)
Edmentum Ultimate Holdings, LLC - Second Lien Revolving Credit Facility 5.00% —% 5.00%
Edmentum Ultimate Holdings, LLC - Unsecured Senior PIK Note 8.50% —% 8.50%
Edmentum Ultimate Holdings, LLC - Unsecured Junior PIK Note 10.00% —% 10.00%
First Tower Finance Company LLC - Subordinated Term Loan 4.40% 6.10% 10.50%
InterDent, Inc. - Senior Secured Term Loan A 6.25% —% 6.25% (E)
InterDent, Inc. - Senior Secured Term Loan A/B 7.05% —% 7.05% (F)
InterDent, Inc. - Senior Secured Term Loan B 10.00% —% 10.00%
Medusind Acquisition, Inc - First Lien Term Loan 5.49% 3.51% 9.00% (G)
MITY, Inc. - Senior Secured Note B 10.00% —% 10.00%
National Property REIT Corp. - Senior Secured Term Loan A —% 3.53% 3.53%
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%
National Property REIT Corp. - Senior Secured Term Loan D —% 2.50% 2.50%
Nationwide Loan Company LLC - Senior Subordinated Term Loan 10.00% —% 10.00%
Pacific World Corporation - Senior Secured Term Loan A —% —% 6.25% (H)
PGX Holdings, Inc. - 1.5 Lien 11.50% —% 11.50% (I)
PGX Holdings, Inc. - Second Lien Term Loan 15.75% —% 15.75% (J)
Rosa Mexicano - Revolver 6.00% —% 6.00% (K)
Rosa Mexicano - Senior Secured Term Loan 6.00% —% 6.00% (L)
SEOTOWNCENTER, INC. - Senior Secured Term Loan A —% 4.00% 4.00% (M)
SEOTOWNCENTER, INC. - Senior Secured Term Loan B —% 9.00% 9.00% (N)
The Octave Music Group, Inc. (fka Touchtunes) - First Lien Term Loan —% 0.75% 0.75%
Town & Country Holdings, Inc. - First Lien Term Loan —% 5.00% 5.00% (O)
Valley Electric Co. of Mt. Vernon, Inc. - Senior Secured Note —% 2.50% 2.50%
Valley Electric Company, Inc. - Senior Secured Note —% 10.00% 10.00%
Venio LLC - Second Lien Term Loan 10.00% —% 10.00%

(A) On March 30, 2020, the CP Energy Fourth Amendment to Loan Agreement was amended to allow 100% of the June 30, 2020 interest accruing in cash to be payable in kind resulting in a current PIK rate capitalized of 12.00%.

(B) 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%.

(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 14.50%.

(D) 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%.

(E) On April 6, 2020, the Interdent Sixteenth Amendment was amended to allow interest accruing in cash to be payable in kind resulting in a maximum current PIK rate of 6.25%.

(F) On April 6, 2020, the Interdent Sixteenth Amendment was amended to allow interest accruing in cash to be payable in kind resulting in a maximum current PIK rate of 7.05%.

(G) On April 13, 2020, the Medusind Fourth Amendment to Credit and Guaranty Agreement was amended to allow $409 of the June 30, 2020 interest accruing in cash to be payable in kind resulting in a current PIK rate capitalized of 5.49%.

(H) Pacific World Term Loan A was placed on accrual status effective June 29, 2020. The next Term Loan A PIK interest payment/capitalization date is July 29, 2020.

(I) On May 27, 2020, the PGX 1.5 Lien Credit Agreement was entered to allow interest accrue and be payable in kind resulting in a maximum current PIK rate of 11.50%. The 1.5 Lien PIK interest will not capitalize until September 30, 2020.

(J) On May 27, 2020, the PGX Third Amendment to the Second Lien Credit Agreement was amended to allow interest accrue and be payable in kind resulting in a maximum current PIK rate of 15.75%.

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 September 30, 2020 (Unaudited) and June 30, 2020 (Continued)

(K) On April 29, 2020, the Rosa Mexicano Fifth Amendment and Waiver to Loan Agreement was amended to allow interest accruing in cash to be payable in kind resulting in a maximum current PIK rate of 6.00%.

(L) On April 29, 2020, the Rosa Mexicano Fifth Amendment and Waiver to Loan Agreement was amended to allow interest accruing in cash to be payable in kind resulting in a maximum current PIK rate of 6.00%.

(M) On May 20, 2020, the SEOTownCenter Limited Waiver and Fourth Amendment to Loan Agreement was amended to allow a Maximum Term Loan A PIK Rate of 4.00% for the interest accruing in cash to be payable in kind, at the borrowers election.

(N) On May 20, 2020, the SEOTownCenter Limited Waiver and Fourth Amendment to Loan Agreement was amended to allow a Maximum Term Loan B PIK Rate of 9.00% for the interest accruing in cash to be payable in kind, at the borrowers election.

(O) On March 31, 2020, the Town & Country Fourth Amendment to Loan Agreement was amended to allow a Maximum Term Loan PIK Rate of 5.00% for the interest accruing in cash to be payable in kind, at the borrowers election.

(40) 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 three months ended September 30, 2020 with these controlled investments were as follows:
Portfolio Company Fair Value at June 30, 2020 Gross Additions (Cost)(A) Gross Reductions (Cost)(B) Net unrealized<br>gains (losses) Fair Value at September 30, 2020 Interest<br>income Dividend<br>income Other<br>income Net realized<br>gains (losses)
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
CP Energy Services Inc. $ 51,174 $ 1,127 $ (1 ) $ (17,406 ) $ 34,894 $ 1,127 $ — $ — $ —
CP Energy - Spartan Energy Services, Inc. 18,711 26,193 (23,361 ) (2,128 ) 19,415 303 — 6 2,832
Credit Central Loan Company, LLC 75,685 3,369 — (730 ) 78,324 3,370 — — —
Echelon Transportation, LLC 85,627 4,325 — 2,172 92,124 2,338 — — —
First Tower Finance Company LLC 508,465 — (4,911 ) 6,546 510,100 15,480 — — —
Freedom Marine Solutions, LLC 12,351 — — — 12,351 — — — —
InterDent, Inc. 230,757 3,282 — 2,945 236,984 4,937 — — —
Kickapoo Ranch Pet Resort 3,286 — — (286 ) 3,000 — — — —
MITY, Inc. 51,905 851 (145 ) (3,632 ) 48,979 2,373 — — —
National Property REIT Corp. 878,733 38,746 (15,329 ) 11,430 913,580 13,402 — 8,898 —
Nationwide Loan Company LLC 37,238 173 — (315 ) 37,096 1,033 — — —
NMMB, Inc. 33,668 — (38 ) (5,530 ) 28,100 135 — — —
Pacific World Corporation 59,907 634 — 6,433 66,974 1,141 — — —
R-V Industries, Inc. 38,565 — — 2,534 41,099 716 — — —
Universal Turbine Parts, LLC 26,599 — (170 ) 2,037 28,466 594 — — —
USES Corp. 17,325 — — 5,137 22,462 — — — —
Valley Electric Company, Inc. 129,296 — — 4,328 133,624 1,778 — 167 —
Total $ 2,259,292 $ 78,700 $ (43,955 ) $ 13,535 $ 2,307,572 $ 48,727 $ — $ 9,071 $ 2,832

(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.

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 September 30, 2020 (Unaudited) and June 30, 2020 (Continued)

(41) 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 three months ended September 30, 2020 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 September 30, 2020 Interest<br>income Dividend<br>income Other<br>income Net realized<br>gains (losses)
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Edmentum Ultimate Holdings, LLC $ 59,618 $ 3,066 $ — $ 4,924 $ 67,608 $ 3,090 $ — $ — $ —
Nixon, Inc. — — — — — — — — —
PGX Holdings, Inc. 106,711 5,099 — 57,771 169,581 4,272 — — —
Targus Cayman HoldCo Limited 21,208 — — 3,778 24,986 — — — —
Total $ 187,537 $ 8,165 $ — $ 66,473 $ 262,175 $ 7,362 $ — $ — $ —

(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.

43

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED)

(in thousands, except share data)

Endnote Explanations as of September 30, 2020 (Unaudited) and June 30, 2020 (Continued)

(42) 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, 2020 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 June 30, 2020 Interest<br>income Dividend<br>income Other<br>income Net realized<br>gains (losses)
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
CP Energy Services Inc. $ 104,533 $ 6,735 $ — $ (60,094 ) $ 51,174 $ 4,636 $ — $ — $ —
CP Energy - Spartan Energy Services, LLC 34,398 2,119 — (17,806 ) 18,711 3,115 — 13 —
Credit Central Loan Company, LLC 71,417 12,891 — (8,623 ) 75,685 12,145 — 112 —
Echelon Transportation LLC 89,701 10,630 — (14,704 ) 85,627 8,349 — — —
First Tower Finance Company LLC 494,036 6,178 (6,518 ) 14,769 508,465 57,802 — — —
Freedom Marine Solutions, LLC 14,920 — — (2,569 ) 12,351 — — — —
InterDent, Inc. 224,876 18,180 — (12,299 ) 230,757 18,823 — — —
Kickapoo Ranch Pet Resort — 2,378 — 908 3,286 — — 36 —
MITY, Inc. 46,902 3,421 (566 ) 2,148 51,905 9,027 — 587 —
National Property REIT Corp. 1,004,465 118,309 (276,279 ) 32,238 878,733 67,303 — 45,345 —
Nationwide Loan Company LLC 32,975 1,470 (1,500 ) 4,293 37,238 3,917 — — —
NMMB, Inc. 24,183 15,100 (13,190 ) 7,575 33,668 653 2,797 453 —
Pacific World Corporation 112,427 12,100 (3,366 ) (61,254 ) 59,907 2,457 — — —
R-V Industries, Inc. 33,624 — — 4,941 38,565 3,087 — — —
Universal Turbine Parts, LLC 28,043 2,900 (664 ) (3,680 ) 26,599 2,528 — 100 —
USES Corp. 15,725 1,500 (5,950 ) 6,050 17,325 — — — —
Valley Electric Company, Inc. 143,685 — (1,062 ) (13,327 ) 129,296 7,106 7,538 665 —
Wolf Energy, LLC 14 (3,914 ) 18 3,882 — — — — —
Total $ 2,475,924 $ 209,997 $ (309,077 ) $ (117,552 ) $ 2,259,292 $ 200,948 $ 10,335 $ 47,311 $ —

(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.

(43) 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, 2020 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 June 30, 2020 Interest<br>income Dividend<br>income Other<br>income Net realized<br>gains (losses)
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Edmentum Ultimate Holdings, LLC $ 41,217 $ 10,528 $ (3,133 ) $ 11,006 $ 59,618 $ 8,150 $ — $ — $ —
Nixon, Inc. — — — — — — — — —
PGX Holdings, Inc. (C) — 63,679 — 43,032 106,711 4,499 — 38 —
Targus Cayman HoldCo Limited 16,599 — (967 ) 5,576 21,208 — — — —
United Sporting Companies, Inc. (D) 18,866 (4,716 ) (21,613 ) 7,463 — — — — —
Total $ 76,682 $ 69,491 $ (25,713 ) $ 67,077 $ 187,537 $ 12,649 $ — $ 38 $ —
(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 $57,239, the fair market value at the beginning of the three month period ended June 30, 2020.
--- ---
(D) Investment was transferred to non-controlled/non-affiliate investments at $4,716, the fair market value at the beginning of the three month period ended June 30, 2020. Refer to endnote 18.
--- ---

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 September 30, 2020 (Unaudited) and June 30, 2020 (Continued)

(44) 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 45 for NPRC equity 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, 8/27/2020, 9/30/2020 $ 14,095
Amerilife Group, LLC Second Lien Term Loan 9/3/2020 4,165
Apidos CLO XI Subordinated Structured Note 11/2/2016 2,160
Apidos CLO XII Subordinated Structured Note 1/26/2018 4,070
Apidos CLO XV Subordinated Structured Note 3/29/2018 6,480
Apidos CLO XXII Subordinated Structured Note 2/24/2020 1,912
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 5/18/2018 9,255
Broder Bros., Co. Senior Secured Note 1/29/2019, 2/28/2019 450
Brookside Mill CLO Ltd. Subordinated Structured Note 1/29/2018 3,605
California Street CLO IX Ltd. Subordinated Structured Note 9/6/2016, 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 7/12/2018 1,024
CIFC Funding 2014-IV-R, Ltd. Subordinated Structured Note 10/12/2018 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
Curo Group Holdings Corp. Second Lien Term Loan 7/31/2020 841
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, 5/5/2020 4,600
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, 1/21/2020 33,080
First Brands Group First Lien Term Loan 8/19/2020 5,615
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 8/21/2015, 3/10/2017 9,161
Galaxy XXVII CLO, Ltd. Subordinated Structured Note 6/11/2015 1,460
GEON Performance Solutions, LLC Revolving Line of Credit 12/12/2019, 1/10/2020, 2/3/2020, 2/6/2020, 3/2/2020, 3/6/2020, 4/9/2020, 5/7/2020, 6/3/2020 3,796
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

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 September 30, 2020 (Unaudited) and June 30, 2020 (Continued)

Portfolio Company Investment Follow-On Acquisition Dates Follow-On Acquisitions<br><br>(Excluding initial investment cost)
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
Interdent, Inc. Senior Secured Term Loan D 2/3/2020, 4/6/2020 4,350
Jefferson Mill CLO Ltd. Subordinated Structured Note 9/21/2018 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 9/25/2015, 5/18/2018 9,422
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 1/17/2017, 6/3/2019 11,000
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 A 4/3/2020, 5/15/2020, 6/10/2020, 7/29/2020, 8/14/2020, 9/15/2020 36,054
National Property REIT Corp. Senior Secured Term Loan C 10/23/2019, 1/23/2020, 3/31/2020, 4/8/2020, 8/4/2020 101,200
NMMB, Inc. Senior Secured Term Loan 12/30/2019 15,100
Octagon Investment Partners XV, Ltd. Subordinated Structured Note 4/27/2015, 8/3/2015, 6/27/2017 10,516
Octagon Investment Partners 18-R Ltd. Subordinated Structured Note 3/23/2018 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, 1/7/2020, 3/5/2020 20,100
PeopleConnect Holdings, LLC Revolving Line of Credit 1/31/2020 1,115
PG Dental Holdings New Jersey, LLC Delayed Draw Term Loan 8/26/2019, 4/3/2020 2,500
PG Dental Holdings New Jersey, LLC Senior Secured Term Loan 5/31/2019 20
PGX Holdings, Inc. 1.5 Lien Loan 9/18/2020 809
PGX Holdings, Inc. Second Lien Term Loan 12/23/2016, 12/28/2016 15,034
Romark WM-R Ltd. Subordinated Structured Note 3/29/2018 5,125
Rosa Mexicano Revolving Line of Credit 3/27/2020 500
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
Sorenson Communications, LLC First Lien Term Loan 5/14/2019 8,000
Symphony CLO XV, Ltd. Subordinated Structured Note 12/7/2018 2,655
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, 2/7/2020, 2/26/2020 2,900
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, 9/17/2020 7,200
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
Valley Electric Company, Inc. Senior Secured Note 6/30/2014, 8/31/2018 5,129
Voya CLO 2014-1, Ltd. Subordinated Structured Note 3/29/2018 3,943

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 September 30, 2020 (Unaudited) and June 30, 2020 (Continued)

(45) 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 (refer to endnote 44 for NPRC term loan follow-on investments):
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 19,800

See notes to consolidated financial statements.

47

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 collateralized loan obligations ("CLOs"), which we also refer to as subordinated structured notes ("SSNs"). 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; Energy Solutions Holdings Inc.; First Tower Holdings of Delaware LLC (“First Tower Delaware”); MITY Holdings of Delaware Inc.; Nationwide Acceptance Holdings LLC; NMMB Holdings, Inc. (“NMMB Holdings”); NPH Property Holdings, LLC (“NPH”); Prospect Opportunity Holdings I, Inc. (“POHI”); SB Forging Company, Inc. (“SB Forging”); 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” 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 three months ended September 30, 2020.

48

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 September 30, 2020 and June 30, 2020, our qualifying assets as a percentage of total assets, stood at 74.53% and 74.44%, 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. 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.

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.

49

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)

(in thousands, except share and per share data)

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.

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.

50

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)

(in thousands, except share and per share data)

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 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.

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PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)

(in thousands, except share and per share data)

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 September 30, 2020, approximately 0.7% 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 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.

52

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)

(in thousands, except share and per share data)

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 September 30, 2020, we do not expect to have any excise tax due for the 2020 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 stockholders 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 September 30, 2020, 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, 2017 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 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 September 30, 2020 and June 30, 2020, there are no prepaid expenses related to registration expenses and all amounts incurred have been expensed.

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PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)

(in thousands, except share and per share data)

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. The effectiveness of the amended guidance in ASU 2016-13 did not have a material effect on our consolidated financial statements and disclosures.

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. The effectiveness of the amended guidance in ASU 2018-13 did not have a material effect on our consolidated financial statements and disclosures.

In May 2020, the SEC adopted rule amendments that will impact the requirement of investment companies, including BDCs, to disclose the financial statements of certain of their portfolio companies or certain acquired funds (the “Final Rules”). The Final Rules adopted a new definition of “significant subsidiary” set forth in Rule 1-02(w)(2) of Regulation S-X under the Securities Act. Rules 3-09 and 4-08(g) of Regulation S-X require investment companies to include separate financial statements or summary financial information, respectively, in such investment company’s periodic reports for any portfolio company that meets the definition of “significant subsidiary.” The Final Rules adopt a new definition of “significant subsidiary” applicable only to investment companies that (i) modifies the investment test and the income test, and (ii) eliminates the asset test currently in the definition of “significant subsidiary” in Rule 1-02(w) of Regulation S-X. The new Rule 1-02(w)(2) of Regulation S-X is intended to more accurately capture these portfolio companies that are more likely to materially impact the financial condition of an investment company. The Final Rules will be effective on January 1, 2021, but voluntary compliance is permitted in advance of the effective date. We evaluated the impact of adopting the Final Rules on our consolidated financial statements and because the new definition of “significant subsidiary” contained therein is specific to investment companies, we elected to early adopt the Final Rules for our year ended June 30, 2020. Refer to Note 3. Portfolio Investments - Unconsolidated Significant Subsidiaries for disclosure.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform. The amendments in ASU 2020-04 provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The standard is effective as of March 12, 2020 through December 31, 2022. Management is currently evaluating the impact of the optional guidance on the Company's consolidated financial statements and disclosures. The Company did not utilize the optional expedients and exceptions provided by ASU 2020-04 during the three months ended September 30, 2020.

In August 2020, FASB issued ASU 2020-06, Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies the accounting for convertible instruments by removing the separation models for (1) convertible debt with a cash conversion feature and (2) convertible instruments with a beneficial conversion feature. As a result,

54

PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)

(in thousands, except share and per share data)

after adoption, a convertible debt instrument will be accounted for as a single liability measured at its amortized cost. Additionally, ASU 2020-06 requires the application of the if-converted method to calculate the impact of convertible instruments on diluted earnings per share. ASU 2020-06 is effective for fiscal years beginning after December 15, 2021, with early adoption permitted.

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 and Jobs 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. Additional uncertainty is anticipated particularly in light of the current presidential election in the United States and the impact the presidential and congressional elections may have on federal regulation and taxation. We will continue to monitor and account for the future impacts of federal regulatory and state guidance in the interim period in which such additional guidance is issued.

Note 3. Portfolio Investments

At September 30, 2020, we had investments in 122 long-term portfolio investments and CLOs, which had an amortized cost of $5,828,931 and a fair value of $5,386,385. At June 30, 2020, we had investments in 121 long-term portfolio investments and CLOs, which had an amortized cost of $5,782,718 and a fair value of $5,232,328.

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 $177,141 and $94,540 during the three months ended September 30, 2020 and September 30, 2019, respectively. Debt repayments and considerations from sales of equity securities of approximately $145,410 and $247,371 were received during the three months ended September 30, 2020 and September 30, 2019, respectively.

The following table shows the composition of our investment portfolio as of September 30, 2020 and June 30, 2020:

September 30, 2020 June 30, 2020
Cost Fair Value Cost Fair Value
Revolving Line of Credit $ 38,363 $ 38,318 $ 38,469 $ 36,944
Senior Secured Debt 2,539,272 2,435,715 2,586,769 2,422,523
Subordinated Secured Debt 1,431,016 1,292,160 1,424,633 1,269,398
Subordinated Unsecured Debt 48,194 53,262 43,935 51,079
Subordinated Structured Notes 1,100,944 730,514 1,089,079 708,961
Equity 671,142 836,416 599,833 743,423
Total Investments $ 5,828,931 $ 5,386,385 $ 5,782,718 $ 5,232,328

55

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, 1.5 lien term loans, second lien term loans, and third 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 September 30, 2020:

Level 1 Level 2 Level 3 Total
Revolving Line of Credit $ — $ — $ 38,318 $ 38,318
Senior Secured Debt — — 2,435,715 2,435,715
Subordinated Secured Debt — — 1,292,160 1,292,160
Subordinated Unsecured Debt — — 53,262 53,262
Subordinated Structured Notes — — 730,514 730,514
Equity — — 836,416 836,416
Total Investments $ — $ — $ 5,386,385 $ 5,386,385

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, 2020:

Level 1 Level 2 Level 3 Total
Revolving Line of Credit $ — $ — $ 36,944 $ 36,944
Senior Secured Debt — — 2,422,523 2,422,523
Subordinated Secured Debt — — 1,269,398 1,269,398
Subordinated Unsecured Debt — — 51,079 51,079
Subordinated Structured Notes — — 708,961 708,961
Equity — — 743,423 743,423
Total Investments $ — $ — $ 5,232,328 $ 5,232,328

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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 three months ended September 30, 2020:

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, 2020 $ 2,259,292 $ 187,537 $ 2,785,499 $ 5,232,328
Net realized losses on investments $ 2,832 $ — $ — $ 2,832
Net change in unrealized (losses) gains(1) 13,535 66,473 27,836 107,844
Net realized and unrealized (losses) gains 16,367 66,473 27,836 110,676
Purchases of portfolio investments 64,939 808 91,053 156,800
Payment-in-kind interest 13,660 5,694 987 20,341
Accretion (amortization) of discounts and premiums, net 101 1,663 12,718 14,482
Repayments and sales of portfolio investments (46,787 ) — (101,455 ) (148,242 )
Fair value as of September 30, 2020 $ 2,307,572 $ 262,175 $ 2,816,638 $ 5,386,385
Revolving Line of Credit Senior Secured<br>Debt Subordinated Secured Debt Subordinated Unsecured Debt Subordinated Structured Notes Equity Total
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Fair value as of June 30, 2020 $ 36,944 $ 2,422,523 $ 1,269,398 $ 51,079 $ 708,961 $ 743,423 $ 5,232,328
Net realized (losses) gains on investments 2,832 — 2,832
Net change in unrealized (losses) gains(1) 35 60,684 16,380 (629 ) 9,692 21,682 107,844
Net realized and unrealized (losses) gains 35 63,516 16,380 (629 ) 9,692 21,682 110,676
Purchases of portfolio investments 2,000 115,998 12,607 — — 26,195 156,800
Payment-in-kind interest 116 10,689 8,242 1,294 — — 20,341
Accretion (amortization) of discounts and premiums, net — 507 451 1,663 11,861 — 14,482
Repayments and sales of portfolio investments (777 ) (132,401 ) (14,918 ) (145 ) — (1 ) (148,242 )
Transfers within Level 3(1) — (45,117 ) — — — 45,117 —
Fair value as of September 30, 2020 $ 38,318 $ 2,435,715 $ 1,292,160 $ 53,262 $ 730,514 $ 836,416 $ 5,386,385
(1) Transfers are assumed to have occurred at the beginning of the quarter during which the asset was transferred.
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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 three months ended September 30, 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 gains on investments — — (2,490 ) (2,490 )
Net change in unrealized (losses)(1) (39,021 ) 18,020 (29,610 ) (50,611 )
Net realized and unrealized (losses) (39,021 ) 18,020 (32,100 ) (53,101 )
Purchases of portfolio investments 11,950 — 66,297 78,247
Payment-in-kind interest 12,962 283 1,253 14,498
Accretion (amortization) of discounts and premiums, net 73 — (1,838 ) (1,765 )
Repayments and sales of portfolio investments (64,158 ) (21,722 ) (159,000 ) (244,880 )
Transfers in (out) of Level 3(1) — — (20,555 ) (20,555 )
Fair value as of September 30, 2019 $ 2,397,730 $ 73,263 $ 2,955,004 $ 5,425,997
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, 2019 $ 34,239 $ 2,449,357 $ 1,329,799 $ 33,058 $ — $ 46,851 $ 850,694 $ 909,555 $ 5,653,553
Net realized gains on investments — (120 ) 12 — 36 — (2,418 ) — (2,490 )
Net change in unrealized gains (losses) (401 ) (37,849 ) 2,596 9,429 — (193 ) (26,295 ) 2,102 (50,611 )
Net realized and unrealized gains (losses) (401 ) (37,969 ) 2,608 9,429 36 (193 ) (28,713 ) 2,102 (53,101 )
Purchases of portfolio investments 2,500 45,299 14,964 — — 5,534 — 9,950 78,247
Payment-in-kind interest 104 9,016 5,200 178 — — — — 14,498
Accretion (amortization) of discounts and premiums, net — 104 1,897 — — (53 ) (3,713 ) — (1,765 )
Repayments and sales of portfolio investments (2,337 ) (144,899 ) (97,474 ) (143 ) (36 ) — — 9 (244,880 )
Transfers in (out) of Level 3 — (20,555 ) — — — — — — (20,555 )
Fair value as of September 30, 2019 $ 34,105 $ 2,300,353 $ 1,256,994 $ 42,522 $ — $ 52,139 $ 818,268 $ 921,616 $ 5,425,997
(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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The net change in unrealized gains (losses) on the investments that use Level 3 inputs was $54,481 and ($49,639) for investments still held as of September 30, 2020 and September 30, 2019, respectively.

Impact of the novel coronavirus (“Wuhan Virus”) pandemic

The U.S. capital markets are experiencing a period of extreme volatility and disruption. In December 2019, a novel strain of coronavirus (the "Wuhan Virus") surfaced in Wuhan, China. The Wuhan Virus has been declared a pandemic by the World Health Organization and, in response to the outbreak, the U.S. Health and Human Services Secretary has declared a public health emergency in the United States. The Wuhan Virus has had a devastating impact on the global economy, including the U.S. economy, and has resulted in a global economic rescission.

Many states, including those in which we and our portfolio companies operate, have issued orders requiring the closure of non-essential businesses and/or requiring residents to stay at home. The Wuhan Virus pandemic and preventative measures taken to contain or mitigate its spread have caused, and are continuing to cause, business shutdowns, or the reintroduction of business shutdowns, cancellations of and restrictions on events and travel, significant reductions in demand for certain goods and services, reductions in and restrictions on business activity and financial transactions, supply chain interruptions and overall economic and financial market instability both globally and in the United States. Such effects will likely continue for the duration of the pandemic, which is uncertain, and for some period thereafter. While several countries, as well as certain states, counties and cities in the United States, have begun to lift the public health restrictions with a view to reopening their economies, recurring Wuhan Virus

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PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)

(in thousands, except share and per share data)

outbreaks have led to the re-introduction of such restrictions in certain states in the United States and globally and could continue to lead to the re-introduction of such restrictions elsewhere. Additionally, the absence of viable treatment options or a vaccine could lead people to continue to self-isolate and not participate in the economy at prepandemic levels for a prolonged period of time. Further, the extent and strength of any economic recovery after the Wuhan Virus pandemic abates, including following any "second wave" or other intensifying of the pandemic, is uncertain and subject to various factors and conditions. Even after the Wuhan Virus pandemic subsides, the U.S. economy and most other major global economies may continue to experience a recession.

The Wuhan Virus pandemic (including the preventative measures taken in response thereto) has to date (i) created significant business disruption issues for certain of our portfolio companies, and (ii) materially and adversely impacted the value and performance of certain of our portfolio companies and SSN investments. The Wuhan Virus pandemic is having a particularly adverse impact on industries in which certain of our portfolio companies operate, including energy, hospitality, travel, retail and restaurants. Certain of our portfolio companies in other industries have also been significantly impacted. The Wuhan Virus pandemic is continuing as of the filing date of this Quarterly Report, and its extended duration may have further adverse impacts on our portfolio companies and SSN investments after September 30, 2020, including for the reasons described herein. Although on March 27, 2020, the U.S. government enacted the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which contains provisions intended to mitigate the adverse economic effects of the Wuhan Virus pandemic, it is uncertain whether, or how much, our portfolio companies will be able to benefit from the CARES Act or any other subsequent legislation intended to provide financial relief or assistance. As a result of this disruption and the pressures on their liquidity, certain of our portfolio companies have been, or may continue to be, incentivized to draw on most, if not all, of the unfunded portion of any revolving or delayed draw term loans made by us, subject to availability under the terms of such loans.

As a BDC, we are required to carry our investments at fair value as determined in good faith by our Board of Directors. Depending on market conditions, we could incur substantial losses in future periods, which could have a material adverse impact on our business, financial condition, and results of operations.

Although it is difficult to predict the extent of the impact of the Wuhan Virus outbreak on the underlying CLO vehicles we invest in, the failure by a CLO vehicle to satisfy certain 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 the CLO vehicle fails certain tests, holders of debt senior to us may 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 terms with a defaulting CLO vehicle 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 Wuhan Virus pandemic has adversely impacted the fair value of our investments as of September 30, 2020, and the values assigned as of this date may differ materially from the values that we may ultimately realize with respect to our investments. The impact of the Wuhan Virus pandemic may not yet be fully reflected in the valuation of our investments as our valuations, and particularly valuations of private investments and private companies, are inherently uncertain, may fluctuate over short periods of time and are often based on estimates, comparisons and qualitative evaluations of private information that is often from a time period earlier, generally two to three months, than the quarter for which we are reporting. Additionally, we may not have yet received information or certifications from our portfolio companies that indicate any or the full extent of declining performance or non-compliance with debt covenants, as applicable, as a result of the Wuhan Virus pandemic. As a result, our valuations at September 30, 2020 may not show the complete or continuing impact of the Wuhan Virus pandemic and the resulting measures taken in response thereto. In addition, write downs in the value of our investments have reduced, and any additional write downs may further reduce, our net asset value (and, as a result, our asset coverage calculation). Accordingly, we may continue to incur additional net unrealized losses or may incur realized losses after September 30, 2020, which could have a material adverse effect on our business, financial condition and results of operations.

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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 September 30, 2020 were as follows: Unobservable Input
Asset Category Fair Value Primary Valuation Approach or Technique Input Range Weighted<br><br>Average
Senior Secured Debt $ 1,278,531 Discounted cash flow (Yield analysis) Market yield 4.8% to 21.7% 10.3%
Senior Secured Debt 357,807 Enterprise value waterfall (Market approach) EBITDA multiple 4.3x to 9.9x 8.1x
Senior Secured Debt 124,625 Enterprise value waterfall (Market approach) Revenue multiple 0.5x to 1.2x 0.9x
Senior Secured Debt 69,797 Enterprise value waterfall (Discounted cash flow) Discount rate 8.2% to 11.1% 9.5%
Senior Secured Debt (1) 30,621 Enterprise value waterfall Loss-adjusted discount rate 5.0% to 17.5% 11.8%
Senior Secured Debt (2) 101,200 Enterprise value waterfall Discount rate (3) 7.7% to 14.0% 9.9%
Senior Secured Debt 502,804 Enterprise value waterfall (NAV analysis) Capitalization Rate 4.2% to 8.1% 6.2%
Subordinated Secured Debt 876,238 Discounted cash flow (Yield analysis) Market yield 6.4% to 20.1% 10.8%
Subordinated Secured Debt 37,270 Enterprise value waterfall (Market approach) EBITDA multiple 7.0x to 12.5x 8.5x
Subordinated Secured Debt 22,176 Enterprise value waterfall (Market approach) Revenue multiple 0.3x to 0.5x 0.4x
Subordinated Secured Debt (4) 358,544 Enterprise value waterfall (Market approach) Tangible book value multiple 0.8x to 2.7x 2.5x
Subordinated Secured Debt 6,580 Asset recovery analysis n/a n/a n/a
Subordinated Unsecured Debt 53,262 Enterprise value waterfall (Market approach) EBITDA multiple 5.3x to 12.5x 12.0x
Subordinated Structured Notes 730,514 Discounted cash flow Discount rate (3) 2.7% to 32.5% 22.2%
Preferred Equity 12,692 Enterprise value waterfall (Market approach) Revenue multiple 0.5x to 1.1x 0.8x
Common Equity/Interests/Warrants 231,973 Enterprise value waterfall (Market approach) EBITDA multiple 4.3x to 12.5x 6.6x
Common Equity/Interests/Warrants 5,810 Enterprise value waterfall (Market approach) Revenue multiple 0.4x to 0.5x 0.4x
Common Equity/Interests/Warrants (2) 12,082 Enterprise value waterfall Discount rate (3) 7.7% to 14.0% 9.9%
Common Equity/Interests/Warrants 244,634 Enterprise value waterfall (NAV analysis) Capitalization Rate 4.2% to 8.1% 6.2%
Common Equity/Interests/Warrants (4) 266,976 Enterprise value waterfall (Market approach) Tangible book value multiple 0.8x to 2.7x 2.5x
Common Equity/Interests/Warrants (5) 22,239 Enterprise value waterfall (NAV analysis) Capitalization Rate 4.2% to 8.1% 6.2%
Common Equity/Interests/Warrants 27,659 Enterprise value waterfall (Discounted cash flow) Discount rate 8.5% to 30.0% 11.6%
Common Equity/Interests/Warrants 12,351 Asset recovery analysis n/a n/a n/a
Total Level 3 Investments $ 5,386,385

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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%-4.5%, with a weighted average of 0.2%.
(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.
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(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 6.8x to 8.0x with a weighted average of 7.5x and the discount rate ranges from 13.1% to 14.1% with a weighted average of 13.6%.
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(5) Represents Residual Profit Interests in Real Estate Investments.
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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 June 30, 2020 were as follows:

Unobservable Input
Asset Category Fair Value Primary Valuation Approach or Technique Input Range Weighted<br><br>Average
Senior Secured Debt $ 1,283,545 Discounted cash flow<br><br>(Yield analysis) Market yield 5.6% to 22.6% 10.7%
Senior Secured Debt 395,412 Enterprise value waterfall (Market approach) EBITDA multiple 4.0x to 12.5x 8.0x
Senior Secured Debt 103,831 Enterprise value waterfall (Market approach) Revenue multiple 0.4x to 1.2x 0.9x
Senior Secured Debt 65,471 Enterprise value waterfall (Discounted cash flow) Discount rate (3) 8.6% to 11.4% 9.8%
Senior Secured Debt (1) 45,950 Enterprise value waterfall Loss-adjusted discount rate 5.0% to 16.5% 11.2%
Senior Secured Debt (2) 79,200 Enterprise value waterfall Discount rate (3) 7.3% to 12.8% 9.6%
Senior Secured Debt 486,058 Enterprise value waterfall (NAV analysis) Capitalization Rate 4.0% to 8.1% 6.1%
Subordinated Secured Debt 839,784 Discounted cash flow<br><br>(Yield analysis) Market yield 7.0% to 20.8% 11.9%
Subordinated Secured Debt 58,643 Enterprise value waterfall (Market approach) EBITDA multiple 7.0x to 10.5x 8.2x
Subordinated Secured Debt 3,990 Enterprise value waterfall (Market approach) Revenue multiple 0.4x to 0.5x 0.4x
Subordinated Secured Debt (4) 360,015 Enterprise value waterfall (Market approach) Tangible book value multiple 0.9x to 2.9x 2.6x
Subordinated Secured Debt 6,966 Asset recovery analysis n/a n/a n/a
Subordinated Unsecured Debt 51,079 Enterprise value waterfall (Market approach) EBITDA multiple 5.0x to 12.5x 12.0x
Subordinated Structured Notes 708,961 Discounted cash flow Discount rate (3) 4.1% to 26.9% 20.6%
Preferred Equity 14,430 Enterprise value waterfall (Market approach) EBITDA multiple 5.4x to 6.4x 5.9x
Common Equity/Interests/Warrants 158,001 Enterprise value waterfall (Market approach) EBITDA multiple 4.0x to 12.5x 5.4x
Common Equity/Interests/Warrants 3,853 Enterprise value waterfall (Market approach) Revenue multiple 0.4x to 0.5x 0.4x
Common Equity/Interests/Warrants (2) 9,987 Enterprise value waterfall Discount rate (3) 7.3% to 12.8% 9.6%
Common Equity/Interests/Warrants 236,077 Enterprise value waterfall (NAV analysis) Capitalization Rate 4.0% to 8.1% 6.1%
Common Equity/Interests/Warrants (4) 261,373 Enterprise value waterfall (Market approach) Tangible book value multiple 0.9x to 2.9x 2.6x
Common Equity/Interests/Warrants (5) 21,461 Enterprise value waterfall (NAV analysis) Capitalization Rate 4.0% to 8.1% 6.1%
Common Equity/Interests/Warrants 25,890 Enterprise value waterfall (Discounted cash flow) Discount rate (3) 8.9% to 30.0% 12.2%
Common Equity/Interests/Warrants 12,351 Asset recovery analysis n/a n/a n/a
Total Level 3 Investments $ 5,232,328

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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%-4.8%, with a weighted average of 0.3%.
(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.
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(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.
--- ---
(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 7.3x to 8.4x with a weighted average of 7.9x and the discount rate ranges from 13.1% to 14.1% with a weighted average of 13.6%.
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(5) Represents Residual Profit Interests in Real Estate Investments.
--- ---

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 interest, taxes, 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, 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 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,

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(in thousands, except share and per share data)

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 (“ARRC”) 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”). In April 2018, the Federal Reserve System, in conjunction with the ARRC, announced the replacement of LIBOR with a new index, calculated by short term repurchase agreements collateralized by U.S. Treasury securities, called the Secured Overnight Financing Rate (“SOFR”). On June 12, 2019, the Staff from the SEC’s Division of Corporate Finance, Division of Investment Management, Division of Trading and Markets, and Office of the Chief Accountant issued a statement about the potentially significant effects on financial markets and market participants when LIBOR is discontinued in 2021 and no longer available as a reference benchmark rate. The Staff encouraged all market participants to identify contracts that reference LIBOR and begin transitions to alternative rates.

At this time, it is not possible to predict the effect of the FCA Announcement or other regulatory changes or announcements, any establishment of any alternative reference rates, including SOFR and its market acceptance, 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. Recently, the CLOs we are invested in have included, or have been amended to include, language permitting the CLO investment manager to implement a market replacement rate (like SOFR) upon the occurrence of certain material disruption events. However, we cannot ensure that all CLOs in which we are invested will have such provisions, nor can we ensure the CLO investment managers will undertake the suggested amendments when able. 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.

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(in thousands, except share and per share data)

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 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 three months ended September 30, 2020, the valuation methodology for Ahead Data Blue, LLC (“Ahead Data Blue”) changed to incorporate the take-out technique. As a result of the company’s continued performance, the fair value of our investment in Ahead Data Blue remained at $70,000 as of September 30, 2020, which is equal to its amortized cost.

During the three months ended September 30, 2020, the valuation methodology for Engine Group, Inc. (“Engine”) for the Second Lien Term Loan changed to incorporate the yield technique. As a result of the company’s impending restructuring transaction, the

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(in thousands, except share and per share data)

fair value of our investment in the Engine Second Lien Term Loan increased to $7,386 as of September 30, 2020, a discount of $27,614 from its amortized cost, compared to the $32,246 unrealized depreciation recorded at June 30, 2020.

During the three months ended September 30, 2020, the valuation methodology for EXC Holdings III Corp (“EXC”) changed to incorporate Markit quotes. As a result of the company’s performance and tightened market spreads, the fair value of our investment in EXC increased to $12,377 as of September 30, 2020, a discount of $42 from its amortized cost, compared to the $97 unrealized depreciation recorded at June 30, 2020.

During the three months ended September 30, 2020, the valuation methodology for Global Tel*Link Corporation (“Global Tel”) for the First Lien Term Loan changed to incorporate Markit quotes. As a result of tightened market spreads, the fair value of our investment in Global Tel First Lien Term Loan increased to $9,471 as of September 30, 2020, a discount of $65 from its amortized cost, compared to the $301 unrealized depreciation recorded at June 30, 2020.

During the three months ended September 30, 2020, the valuation methodology for Research Now Group, Inc. & Survey Sampling International LLC (“Research Now”) for the First Lien Term Loan changed to incorporate Markit quotes. As a result of the company’s performance, the fair value of our investment in Research Now First Lien Term Loan decreased to $9,619 as of September 30, 2020, a premium of $214 from its amortized cost, compared to the $239 unrealized appreciation recorded at June 30, 2020.

During the three months ended September 30, 2020, the valuation methodology for Rosa Mexicano changed to incorporate the Current Value Method (“CVM”). As a result of tightened market spreads, the fair value of our investment in Rosa Mexicano increased to $21,721 as of September 30, 2020, a discount of $2,113 from its amortized cost, compared to the $2,493 unrealized depreciation recorded at June 30, 2020.

During the three months ended September 30, 2020, the valuation methodology for Shutterfly, Inc. (“Shutterfly”) changed to remove Markit quotes. As a result of tightened market spreads, the fair value of our investment in Shutterfly increased to $16,562 as of September 30, 2020, a premium of $787 from its amortized cost, compared to the $734 unrealized appreciation recorded at June 30, 2020.

During the three months ended September 30, 2020, the valuation methodology for Venio LLC (“Venio”) changed to remove the yield method. As a result of the company’s sale of the Reporting and Consulting business, the fair value of our investment in Venio increased to $18,196 as of September 30, 2020.

During the three months ended September 30, 2019, we recorded a realized loss of $2,420 related to four of our Subordinated Structured Notes. During the three months ended September 30, 2020, we did not record any such loss.

During the three months ended September 30, 2020, we received partial repayments of $15,329 of our loans previously outstanding with NPRC, and $38,746 of debt financing to NPRC to provide working capital and support real estate capital expenditures and to fund purchases of rated secured structured notes.

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 September 30, 2020, the outstanding investment in online consumer loans by certain of NPRC’s wholly-owned subsidiaries was comprised of 6,354 individual loans and residual interest in four securitizations, and had an aggregate fair value of $30,644. The average outstanding individual loan balance is approximately $3 and the loans mature on dates ranging from October 1, 2020 to April 19, 2025 with a weighted-average outstanding term of 18 months as of September 30, 2020. Fixed interest rates range from 6.0% to 36.0% with a weighted-average current interest rate of 22.0%. As of September 30, 2020, our investment in NPRC and its wholly-owned subsidiaries relating to online consumer lending had a fair value of $30,621.

As of September 30, 2020, based on outstanding principal balance, 13.6% of the portfolio was invested in super prime loans (borrowers with a Fair Isaac Corporation (“FICO”) score, of 720 or greater), 32.8% of the portfolio in prime loans (borrowers with a FICO score of 660 to 719) and 53.6% 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 $ 2,785 $ 2,691 6.0% - 24.1% 12.5%
Prime 6,731 6,334 6.0% - 36.0% 18.0%
Near Prime 11,024 10,608 6.0% - 36.0% 26.8%

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)

(in thousands, except share and per share data)

*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 September 30, 2020, the outstanding investment in rated secured structured notes by certain of NPRC’s wholly owned subsidiaries was comprised of 34 investments with a fair value of $188,885 and face value of $208,342. The average outstanding note is approximately $6,128 with an expected maturity date ranging from April 2026 to April 2029 and weighted-average expected maturity of 8 years as of September 30, 2020. Coupons range from three-month Libor (“3ML”) plus 5.45% to 9.45% with a weighted-average coupon of 3ML + 7.16%. As of September 30, 2020, our investment in NPRC and its wholly-owned subsidiaries relating to rated secured structured notes had a fair value of $101,200.

As of September 30, 2020, based on outstanding notional balance, 25% of the portfolio was invested in Single - B rated tranches and 75% of the portfolio in BB rated tranches.

As of September 30, 2020, our investment in NPRC and its wholly owned subsidiaries had an amortized cost of $634,835 and a fair value of $913,580, including our investment in online consumer lending and rated secured structured notes as discussed above. The fair value of $781,759 related to NPRC’s real estate portfolio was comprised of thirty-nine multi-families 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 September 30, 2020.

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 11,068
4 Crestview at Oakleigh, LLC Pensacola, FL 11/15/2013 17,500 13,470
5 Inverness Lakes, LLC Mobile, AL 11/15/2013 29,600 24,030
6 Kings Mill Pensacola, LLC Pensacola, FL 11/15/2013 20,750 17,074
7 Plantations at Pine Lake, LLC Tallahassee, FL 11/15/2013 18,000 13,710
8 Verandas at Rocky Ridge, LLC Birmingham, AL 11/15/2013 15,600 9,928
9 Crestview at Cordova, LLC Pensacola, FL 1/17/2014 8,500 12,952
10 Taco Bell, OK Yukon, OK 6/4/2014 1,719 —
11 Taco Bell, MO Marshall, MO 6/4/2014 1,405 —
12 Canterbury Green Apartments Holdings LLC Fort Wayne, IN 9/29/2014 85,500 85,118
13 Abbie Lakes OH Partners, LLC Canal Winchester, OH 9/30/2014 12,600 15,527
14 Kengary Way OH Partners, LLC Reynoldsburg, OH 9/30/2014 11,500 15,694
15 Lakeview Trail OH Partners, LLC Canal Winchester, OH 9/30/2014 26,500 29,942
16 Lakepoint OH Partners, LLC Pickerington, OH 9/30/2014 11,000 17,036
17 Sunbury OH Partners, LLC Columbus, OH 9/30/2014 13,000 17,272
18 Heatherbridge OH Partners, LLC Blacklick, OH 9/30/2014 18,416 24,718
19 Jefferson Chase OH Partners, LLC Blacklick, OH 9/30/2014 13,551 19,210
20 Goldenstrand OH Partners, LLC Hilliard, OH 10/29/2014 7,810 11,719
21 SSIL I, LLC Aurora, IL 11/5/2015 34,500 26,144
22 Vesper Tuscaloosa, LLC Tuscaloosa, AL 9/28/2016 54,500 43,070
23 Vesper Iowa City, LLC Iowa City, IA 9/28/2016 32,750 24,825
24 Vesper Corpus Christi, LLC Corpus Christi, TX 9/28/2016 14,250 10,800
25 Vesper Campus Quarters, LLC Corpus Christi, TX 9/28/2016 18,350 14,175
26 Vesper College Station, LLC College Station, TX 9/28/2016 41,500 32,058
27 Vesper Kennesaw, LLC Kennesaw, GA 9/28/2016 57,900 51,160
28 Vesper Statesboro, LLC Statesboro, GA 9/28/2016 7,500 7,480
29 Vesper Manhattan KS, LLC Manhattan, KS 9/28/2016 23,250 14,679
30 JSIP Union Place, LLC Franklin, MA 12/7/2016 64,750 51,800
31 9220 Old Lantern Way, LLC Laurel, MD 1/30/2017 187,250 153,580
32 7915 Baymeadows Circle Owner, LLC Jacksonville, FL 10/31/2017 95,700 76,560
33 8025 Baymeadows Circle Owner, LLC Jacksonville, FL 10/31/2017 15,300 12,240

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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
34 23275 Riverside Drive Owner, LLC Southfield, MI 11/8/2017 52,000 44,044
35 23741 Pond Road Owner, LLC Southfield, MI 11/8/2017 16,500 14,185
36 150 Steeplechase Way Owner, LLC Largo, MD 1/10/2018 44,500 36,668
37 Laurel Pointe Holdings, LLC Forest Park, GA 5/9/2018 33,005 26,400
38 Bradford Ridge Holdings, LLC Forest Park, GA 5/9/2018 12,500 10,000
39 Olentangy Commons Owner LLC Columbus, OH 6/1/2018 113,000 92,876
40 Villages of Wildwood Holdings LLC Fairfield, OH 7/20/2018 46,500 39,525
41 Falling Creek Holdings LLC Richmond, VA 8/8/2018 25,000 19,335
42 Crown Pointe Passthrough LLC Danbury, CT 8/30/2018 108,500 89,400
43 Ashwood Ridge Holdings LLC Jonesboro, GA 9/21/2018 9,600 7,300
44 Lorring Owner LLC Forestville, MD 10/30/2018 58,521 47,680
45 Hamptons Apartments Owner, LLC Beachwood, OH 1/9/2019 96,500 79,520
46 5224 Long Road Holdings, LLC Orlando, FL 6/28/2019 26,500 21,200
47 Druid Hills Holdings LLC Atlanta, GA 7/30/2019 96,000 79,104
48 Bel Canto NPRC Parcstone LLC Fayetteville, NC 10/15/2019 45,000 30,127
49 Bel Canto NPRC Stone Ridge LLC Fayetteville, NC 10/15/2019 21,900 14,662
50 Sterling Place Holdings LLC Columbus, OH 10/28/2019 41,500 34,196
$ 1,843,477 $ 1,543,261

On September 28 2020, Spartan Energy Services, LLC fully repaid the $26,193 Senior Secured Term Loan B receivable to us at par. We recorded a realized gain of $2,832 as a result of this transaction.

As of September 30, 2020, $3,179,433 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 September 30, 2020, $640,022 of our loans to portfolio companies, at fair value, bear interest at fixed rates ranging from 5.0% - 22.0%. As of June 30, 2020, $3,148,081 of our loans to portfolio companies, at fair value, bore interest at floating rates and have LIBOR floors ranging from 0.0% to 3.0%. As of June 30, 2020, $631,863 of our loans to portfolio companies, at fair value, bore interest at fixed rates ranging from 1.0% to 20.5%.

As of September 30, 2020 and June 30, 2020, the cost basis of our loans on non-accrual status amounted to $243,370 and $311,895, respectively, with fair value of $39,632 and $45,183, respectively. The fair values of these investments represent approximately 0.7% and 0.9% of our total assets at fair value as of September 30, 2020 and June 30, 2020, respectively.

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 September 30, 2020 and June 30, 2020, we had $42,099 and $41,487, 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 September 30, 2020 and June 30, 2020.

We have guaranteed $2,487 in standby letters of credit issued through a financial intermediary and $4,186 of equipment lease obligations on behalf of InterDent, Inc. (“InterDent”) as of September 30, 2020. 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 September 30, 2020, 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, we have voluntarily adopted the SEC’s new definition of “significant subsidiary” as set forth in Rule 1-02(w)(2) for BDC’s and closed end investment companies. Refer to Note 2. Significant Accounting policies - Recent Accounting Pronouncements for our assessment of the Final Rules and early adoption. Regulation S-X 3-09 requires separate audited financial statements of an unconsolidated subsidiary in an annual report. Regulation S-X 4-08(g) requires summarized financial information in an annual report.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)

(in thousands, except share and per share data)

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.

During three months ended September 30, 2020, NPRC was deemed to be a significant subsidiary. The following table shows summarized income statement information for NPRC for the periods included in this quarterly report:

Three Months Ended September 30,
Summary Statement of Operations 2020 2019
Total revenue $ 70,474 $ 216,601
Operating expenses 76,142 103,997
Operating income (5,668 ) 112,604
Depreciation and amortization (16,356 ) (23,843 )
Fair value adjustment 506 (2,869 )
Net income (loss) (21,518 ) 85,892

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 facility (the “2018 Facility”). The lenders have 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 September 30, 2020. 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 Credit 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 September 30, 2020, 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 three months ended September 30, 2020 and September 30, 2019, 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:

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)

(in thousands, except share and per share data)

Three Months Ended September 30,
2020 2019
Average stated interest rate 2.37 4.45
Average outstanding balance 377,113 87,772

All values are in US Dollars.

As of September 30, 2020 and June 30, 2020, we had $512,615 and $545,496, respectively, available to us for borrowing under the Revolving Credit Facility, net of $250,993 and $237,536 outstanding borrowings as of the respective balance sheet dates. As of September 30, 2020, the investments, including cash and cash equivalents, used as collateral for the Revolving Credit Facility had an aggregate fair value of $1,519,658, which represents 28.1% 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 September 30, 2020, $8,596 remains to be amortized and is reflected as deferred financing costs on the Consolidated Statements of Assets and Liabilities.

During the three months ended September 30, 2020 and September 30, 2019, we recorded $4,633 and $5,422, respectively, of interest costs, unused fees and amortization of financing costs on the Revolving Credit Facility as interest expense.

Note 5. Convertible Notes

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,

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)

(in thousands, except share and per share data)

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 months 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”). On January 22, 2020, $2,215 aggregate principal amount of the 2020 Notes, representing 1.3% of the previously outstanding 2020 Notes, were validly tendered and accepted. The 2020 Notes December Tender Offer resulted in our recognizing a loss of $14 during the three months ended March 31, 2020. During the three months ended March 31, 2020, we repurchased an additional $45,111 aggregate principal amount of the 2020 Notes at a weighted average price of 100.5 including commissions. As a result of this transaction, we recorded a loss of $220, 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.

On April 15, 2020, we repaid the outstanding principal amount of $127,711 of the 2020 Notes, plus interest. No gain or loss was realized on the transaction.

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”). On January 22, 2020, $1,302 aggregate principal amount of the 2022 Notes, representing 0.5% of the previously outstanding 2022 Notes, were validly tendered and accepted. The 2022 Notes December Tender Offer resulted in our recognizing a loss of $51 during the three months ended March 31, 2020. During the three months ended March 31, 2020, we repurchased an additional $32,585 aggregate principal amount of the 2022 Notes at a weighted average price of 89.1 including commissions. As a result of this transaction, we recorded a gain of $3,045, 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 July 23, 2020, we commenced a tender offer to purchase for cash up to $100,000 aggregate principal amount of the 2022 Notes (“2022 Notes July Tender Offer”). On August 19, 2020, $29,420 aggregate principal amount of the 2022 Notes, representing

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)

(in thousands, except share and per share data)

11.4% of the previously outstanding 2022 Notes, were validly tendered and accepted. The 2022 Notes July Tender Offer resulted in our recognizing a loss of $396 during the three months ended September 30, 2020.

On September 3, 2020, we commenced a tender offer to purchase for cash up to $228,820 aggregate principal amount of the 2022 Notes (“2022 Notes September Tender Offer”). The 2022 Notes September Tender Offer expired at 12:00 midnight, New York City time, on October 2, 2020 (one minute after 11:59 PM, on October 1, 2020). As of September 30, 2020, the outstanding aggregate principal amount of the 2022 Notes is $228,820.

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 September 30, 2020, 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.

2022 Notes 2025 Notes
Initial conversion rate(1) 100.2305 110.7420
Initial conversion price $ 9.98 $ 9.03
Conversion rate at September 30, 2020(1)(2) 100.2305 110.7420
Conversion price at September 30, 2020(2)(3) $ 9.98 $ 9.03
Last conversion price calculation date 4/11/2020 3/1/2020
Dividend threshold amount (per share)(4) $ 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 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.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)

(in thousands, except share and per share data)

In connection with the issuance of the Convertible Notes, we recorded a discount of $4,025 and debt issuance costs of $20,751 which are being amortized over the terms of the Convertible Notes. As of September 30, 2020, $3,113 of the original issue discount and $4,786 of the debt issuance costs remain to be amortized and is included as a reduction within Convertible Notes on the Consolidated Statement of Assets and Liabilities.

During the three months ended September 30, 2020 and September 30, 2019, we recorded $6,865 and $10,655, 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 September 30, 2020, the outstanding aggregate principal amount of the 2023 Notes is $320,000.

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 $3,705 loss 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 year ended June 30, 2019.

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. On March 20, 2020, we commenced a tender offer to purchase for cash any and all of the $234,443 aggregate principal amount of the 2024 Notes (“2024 Notes March Tender Offer”). On March 31, 2020, $655 aggregate principal amount of the 2024 Notes, representing 0.3% of the previously outstanding 2024 Notes, were validly tendered and accepted. The 2024 Notes March Tender Offer, resulted in our recognizing a gain of $203 during the three months ended March 31, 2020. As of September 30, 2020, the outstanding aggregate principal amount of the 2024 Notes is $233,788.

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(in thousands, except share and per share data)

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 September 30, 2020, 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 September 30, 2020, the outstanding aggregate principal amount of the 6.375% 2024 Notes is $100,000.

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 September 30, 2020, 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 term of the notes. As of September 30, 2020, $1,935 of the original issue discount and $9,076 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 September 30, 2020 and September 30, 2019, we recorded $12,843 and $12,818, 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. 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®.

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 “September 2019 Selling Agent Agreement”), authorizing the issuance and sale from time to time of up to $500,000 of Prospect Capital InterNotes®. We sold approximately $1,700,000 in aggregate principal amount of Prospect Capital InterNotes® under the Original Selling Agent Agreement, May 2019 Selling Agent Agreement, and September 2019 Selling Agent Agreement (collectively the “Previous Selling Agent Agreements”).

On February 13, 2020, the September 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 $1,000,000 of Prospect Capital InterNotes® (collectively with the previously authorized selling agent agreements, the

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(in thousands, except share and per share data)

“InterNotes® Offerings”). 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. We have, from time to time, repurchased certain notes issued through the InterNotes® Offerings and, therefore, as of September 30, 2020, $718,321 aggregate principal amount of Prospect Capital InterNotes® were outstanding.

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 three months ended September 30, 2020, we issued $38,657 aggregate principal amount of Prospect Capital InterNotes® for net proceeds of $38,070. These notes were issued with stated interest rates ranging from 4.75% to 6.00% with a weighted average interest rate of 5.42%. These notes mature between July 15, 2025 and October 15, 2030. The following table summarizes the Prospect Capital InterNotes® issued during the three months ended September 30, 2020:

Tenor at<br>Origination<br>(in years) Principal<br>Amount Interest Rate<br>Range Weighted<br>Average<br>Interest Rate Maturity Date Range
5 $ 24,906 4.75%–5.50% 5.31 % July 15, 2025 – October 15, 2025
7 5,884 5.00%–5.75% 5.49 % July 15, 2027 – October 15, 2027
10 7,867 5.25%–6.00% 5.75 % July 15, 2030 – October 15, 2030
$ 38,657

During the three months ended September 30, 2019, we issued $95,135 aggregate principal amount of our Prospect Capital InterNotes® for net proceeds of $93,459. These notes were issued with stated interest rates ranging from 3.75% to 5.50% with a weighted average interest rate of 4.51%. These notes mature between July 15, 2024 and October 15, 2029. The following table summarizes the Prospect Capital InterNotes® issued during the three months ended September 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 $ 32,479 3.75%-5.00% 4.44 % July 15, 2024 – October 15, 2024
7 24,020 4.00%–5.25% 4.32 % July 15, 2026 – October 15, 2026
10 38,636 3.75%–5.50% 4.69 % July 15, 2029 – October 15, 2029
$ 95,135

During the three months ended September 30, 2020, we repaid $565 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 three months ended September 30, 2020 was $14.

The following table summarizes the Prospect Capital InterNotes® outstanding as of September 30, 2020:

Tenor at<br>Origination<br>(in years) Principal<br>Amount Interest Rate<br>Range Weighted<br>Average<br>Interest Rate Maturity Date Range
5 $ 243,146 3.75% – 5.75% 4.86 % September 15, 2023 – October 15, 2025
7 110,348 4.00% – 6.00% 5.13 % July 15, 2024 – October 15, 2027
8 24,325 4.50% – 5.75% 4.67 % August 15, 2025 – July 15, 2026
10 167,479 3.75% – 6.25% 5.34 % January 15, 2024 – October 15, 2030
12 2,978 6.00% 6.00 % November 15, 2025 – December 15, 2025
15 16,851 5.75% – 6.00% 5.79 % May 15, 2028 – November 15, 2028
18 18,721 4.50% – 6.25% 5.58 % December 15, 2030 – August 15, 2031
20 3,812 5.75% – 6.00% 5.89 % November 15, 2032 – October 15, 2033
25 30,710 6.25% – 6.50% 6.39 % August 15, 2038 – May 15, 2039
30 99,951 5.50% – 6.75% 6.25 % November 15, 2042 – October 15, 2043
$ 718,321

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)

(in thousands, except share and per share data)

During the three months ended September 30, 2019, we redeemed, prior to maturity $143,980 aggregate principal amount of Prospect Capital InterNotes® at par with a weighted average interest rate of 5.26% in order to replace shorter maturity debt with longer-term debt. During the three months ended September 30, 2019, we repaid $1,479 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 three months ended September 30, 2019 was $1,193.

The following table summarizes the Prospect Capital InterNotes® outstanding as of June 30, 2020:

Tenor at<br>Origination<br>(in years) Principal<br>Amount Interest Rate<br>Range Weighted<br>Average<br>Interest Rate Maturity Date Range
5 $ 218,240 3.75% – 5.75% 4.81 % September 15, 2023 - July 15, 2025
7 104,529 4.00% – 6.00% 5.11 % July 15, 2024 - July 15, 2027
8 24,325 4.50% – 5.75% 4.67 % August 15, 2025 - July 15, 2026
10 159,802 3.75% – 6.25% 5.32 % January 15, 2024 - July 15, 2030
12 2,978 6.00% 6.00 % November 15, 2025 - December 15, 2025
15 16,851 5.75% – 6.00% 5.79 % May 15, 2028 - November 15, 2028
18 18,741 4.50% – 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 30,710 6.25% – 6.50% 6.39 % August 15, 2038 - May 15, 2039
30 100,206 5.50% – 6.75% 6.25 % November 15, 2042 - October 15, 2043
$ 680,229

In connection with the issuance of Prospect Capital InterNotes®, we incurred $29,477 of fees which are being amortized over the term of the notes, of which $12,959 remains to be amortized and is included as a reduction within Prospect Capital InterNotes® on the Consolidated Statement of Assets and Liabilities as of September 30, 2020.

During the three months ended September 30, 2020 and September 30, 2019, we recorded $9,708 and $10,003, respectively, of interest costs and amortization of financing costs on the Prospect Capital InterNotes® as interest expense.

Note 8. Fair Value and Maturity of Debt Outstanding

As of September 30, 2020, our asset coverage stood at 243.6% based on outstanding senior securities of $2,193,103. As of June 30, 2020, our asset coverage stood at 239.2% based on outstanding senior securities of $2,170,974.

Information about our senior securities is shown in the following table as of the end of each of the last ten fiscal years and as of September 30, 2020. (All figures in this item are in thousands except per unit data)

Total Amount<br>Outstanding(1) Asset<br>Coverage per<br>Unit(2) Involuntary<br>Liquidating<br>Preference per<br>Unit(3) Average<br>Market<br>Value per<br>Unit(4)
Credit Facility
Fiscal 2021 (as of September 30, 2020) $ 250,993 $ 21,408 — —
Fiscal 2020 (as of June 30, 2020) 237,536 22,000 — —
Fiscal 2019 (as of June 30, 2019) 167,000 34,298 — —
Fiscal 2018 (as of June 30, 2018) 37,000 155,503 — —
Fiscal 2017 (as of June 30, 2017) — — — —
Fiscal 2016 (as of June 30, 2016) — — — —
Fiscal 2015 (as of June 30, 2015) 368,700 18,136 — —
Fiscal 2014 (as of June 30, 2014) 92,000 69,470 — —
Fiscal 2013 (as of June 30, 2013) 124,000 34,996 — —
Fiscal 2012 (as of June 30, 2012) 96,000 22,668 — —
Fiscal 2011 (as of June 30, 2011) 84,200 18,065 — —

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)

(in thousands, except share and per share data)

Fiscal 2010 (as of June 30, 2010) 100,300 8,093 — —
2015 Notes(5)
Fiscal 2015 (as of June 30, 2015) $ 150,000 $ 2,241 — —
Fiscal 2014 (as of June 30, 2014) 150,000 2,305 — —
Fiscal 2013 (as of June 30, 2013) 150,000 2,578 — —
Fiscal 2012 (as of June 30, 2012) 150,000 3,277 — —
Fiscal 2011 (as of June 30, 2011) 150,000 3,740 — —
2016 Notes(6)
Fiscal 2016 (as of June 30, 2016) $ 167,500 $ 2,269 — —
Fiscal 2015 (as of June 30, 2015) 167,500 2,241 — —
Fiscal 2014 (as of June 30, 2014) 167,500 2,305 — —
Fiscal 2013 (as of June 30, 2013) 167,500 2,578 — —
Fiscal 2012 (as of June 30, 2012) 167,500 3,277 — —
Fiscal 2011 (as of June 30, 2011) 172,500 3,740 — —
2017 Notes(7)
Fiscal 2017 (as of June 30, 2017) $ 50,734 $ 2,251 — —
Fiscal 2016 (as of June 30, 2016) 129,500 2,269 — —
Fiscal 2015 (as of June 30, 2015) 130,000 2,241 — —
Fiscal 2014 (as of June 30, 2014) 130,000 2,305 — —
Fiscal 2013 (as of June 30, 2013) 130,000 2,578 — —
Fiscal 2012 (as of June 30, 2012) 130,000 3,277 — —
2018 Notes(8)
Fiscal 2017 (as of June 30, 2017) $ 85,419 $ 2,251 — —
Fiscal 2016 (as of June 30, 2016) 200,000 2,269 — —
Fiscal 2015 (as of June 30, 2015) 200,000 2,241 — —
Fiscal 2014 (as of June 30, 2014) 200,000 2,305 — —
Fiscal 2013 (as of June 30, 2013) 200,000 2,578 — —
2019 Notes(10)
Fiscal 2018 (as of June 30, 2018) $ 101,647 $ 2,452 — —
Fiscal 2017 (as of June 30, 2017) 200,000 2,251 — —
Fiscal 2016 (as of June 30, 2016) 200,000 2,269 — —
Fiscal 2015 (as of June 30, 2015) 200,000 2,241 — —
Fiscal 2014 (as of June 30, 2014) 200,000 2,305 — —
Fiscal 2013 (as of June 30, 2013) 200,000 2,578 — —
5.00% 2019 Notes(11)
Fiscal 2018 (as of June 30, 2018) $ 153,536 $ 2,452 — —
Fiscal 2017 (as of June 30, 2017) 300,000 2,251 — —
Fiscal 2016 (as of June 30, 2016) 300,000 2,269 — —
Fiscal 2015 (as of June 30, 2015) 300,000 2,241 — —
Fiscal 2014 (as of June 30, 2014) 300,000 2,305 — —
2020 Notes (14)
Fiscal 2019 (as of June 30, 2019) $ 224,114 $ 2,365 — —
Fiscal 2018 (as of June 30, 2018) 392,000 2,452 — —
Fiscal 2017 (as of June 30, 2017) 392,000 2,251 — —
Fiscal 2016 (as of June 30, 2016) 392,000 2,269 — —

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)

(in thousands, except share and per share data)

Fiscal 2015 (as of June 30, 2015) 392,000 2,241 — —
Fiscal 2014 (as of June 30, 2014) 400,000 2,305 — —
6.95% 2022 Notes(9)
Fiscal 2014 (as of June 30, 2014) $ 100,000 $ 2,305 — $ 1,038
Fiscal 2013 (as of June 30, 2013) 100,000 2,578 — 1,036
Fiscal 2012 (as of June 30, 2012) 100,000 3,277 — 996
2022 Notes
Fiscal 2021 (as of September 30, 2020) $ 228,820 $ 2,451 — —
Fiscal 2020 (as of June 30, 2020) 258,240 2,408 — —
Fiscal 2019 (as of June 30, 2019) 328,500 2,365 — —
Fiscal 2018 (as of June 30, 2018) 328,500 2,452 — —
Fiscal 2017 (as of June 30, 2017) 225,000 2,251 — —
2023 Notes(12)
Fiscal 2021 (as of September 30, 2020) $ 319,218 $ 2,451 — —
Fiscal 2020 (as of June 30, 2020) 319,145 $ 2,408 — —
Fiscal 2019 (as of June 30, 2019) 318,863 2,365 — —
Fiscal 2018 (as of June 30, 2018) 318,675 2,452 — —
Fiscal 2017 (as of June 30, 2017) 248,507 2,251 — —
Fiscal 2016 (as of June 30, 2016) 248,293 2,269 — —
Fiscal 2015 (as of June 30, 2015) 248,094 2,241 — —
Fiscal 2014 (as of June 30, 2014) 247,881 2,305 — —
Fiscal 2013 (as of June 30, 2013) 247,725 2,578 — —
2024 Notes
Fiscal 2021 (as of September 30, 2020) $ 233,788 $ 2,451 — $ 1,030
Fiscal 2020 (as of June 30, 2020) 233,788 2,408 — 959
Fiscal 2019 (as of June 30, 2019) 234,443 2,365 — 1,002
Fiscal 2018 (as of June 30, 2018) 199,281 2,452 — 1,029
Fiscal 2017 (as of June 30, 2017) 199,281 2,251 — 1,027
Fiscal 2016 (as of June 30, 2016) 161,364 2,269 — 951
6.375% 2024 Notes(12)
Fiscal 2021 (as of September 30, 2020) $ 99,794 $ 2,451 — —
Fiscal 2020 (as of June 30, 2020) 99,780 2,408 — —
Fiscal 2019 (as of June 30, 2019) 99,726 2,365 — —
2025 Notes
Fiscal 2021 (as of September 30, 2020) $ 201,250 $ 2,451 — —
Fiscal 2020 (as of June 30, 2020) 201,250 2,408 — —
Fiscal 2019 (as of June 30, 2019) 201,250 2,365 — —
2028 Notes
Fiscal 2021 (as of September 30, 2020) $ 70,761 $ 2,451 — $ 1,002
Fiscal 2020 (as of June 30, 2020) 70,761 2,408 — 950
Fiscal 2019 (as of June 30, 2019) 70,761 2,365 — 984
Fiscal 2018 (as of June 30, 2018) 55,000 2,452 — 1,004

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)

(in thousands, except share and per share data)

2029 Notes
Fiscal 2021 (as of September 30, 2020) $ 69,170 $ 2,451 — $ 1,016
Fiscal 2020 (as of June 30, 2020) 69,170 2,408 — 970
Fiscal 2019 (as of June 30, 2019) 69,170 2,365 983
Prospect Capital InterNotes®
Fiscal 2021 (as of September 30, 2020) $ 718,321 $ 2,451 — —
Fiscal 2020 (as of June 30, 2020) 680,229 2,408 — —
Fiscal 2019 (as of June 30, 2019) 707,699 2,365 — —
Fiscal 2018 (as of June 30, 2018) 760,924 2,452 — —
Fiscal 2017 (as of June 30, 2017) 980,494 2,251 — —
Fiscal 2016 (as of June 30, 2016) 908,808 2,269 — —
Fiscal 2015 (as of June 30, 2015) 827,442 2,241 — —
Fiscal 2014 (as of June 30, 2014) 785,670 2,305 — —
Fiscal 2013 (as of June 30, 2013) 363,777 2,578 — —
Fiscal 2012 (as of June 30, 2012) 20,638 3,277 — —
All Senior Securities(12)(13)
Fiscal 2021 (as of September 30, 2020) $ 2,192,115 $ 2,451 — —
Fiscal 2020 (as of June 30, 2020) 2,169,899 2,408 — —
Fiscal 2019 (as of June 30, 2019) 2,421,526 2,365 — —
Fiscal 2018 (as of June 30, 2018) 2,346,563 2,452 — —
Fiscal 2017 (as of June 30, 2017) 2,681,435 2,251 — —
Fiscal 2016 (as of June 30, 2016) 2,707,465 2,269 — —
Fiscal 2015 (as of June 30, 2015) 2,983,736 2,241 — —
Fiscal 2014 (as of June 30, 2014) 2,773,051 2,305 — —
Fiscal 2013 (as of June 30, 2013) 1,683,002 2,578 — —
Fiscal 2012 (as of June 30, 2012) 664,138 3,277 — —
Fiscal 2011 (as of June 30, 2011) 406,700 3,740 — —
Fiscal 2010 (as of June 30, 2010) 100,300 8,093 — —
(1) Except as noted, the total amount of each class of senior securities outstanding at the end of the year/period presented (in 000’s).
--- ---
(2) The asset coverage ratio for a class of secured senior securities representing indebtedness is calculated as our consolidated total assets, less all liabilities and indebtedness not represented by senior securities, divided by secured senior securities representing indebtedness. The asset coverage ratio for a class of unsecured senior securities is inclusive of all senior securities. This asset coverage ratio is multiplied by $1,000 to determine the Asset Coverage Per Unit.
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(3) This column is inapplicable.
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(4) This column is inapplicable, except for the 6.95% 2022 Notes, the 2024 Notes, the 2028 Notes and the 2029 Notes. The average market value per unit is calculated as an average of quarter-end prices and shown as the market value per $1,000 of indebtedness.
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(5) We repaid the outstanding principal amount of the 2015 Notes on December 15, 2015.
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(6) We repaid the outstanding principal amount of the 2016 Notes on August 15, 2016.
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(7) We repaid the outstanding principal amount of the 2017 Notes on October 15, 2017.
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(8) We repaid the outstanding principal amount of the 2018 Notes on March 15, 2018.
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(9) We redeemed the 6.95% 2022 Notes on May 15, 2015.
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(10) We repaid the outstanding principal amount of the 2019 Notes on January 15, 2019.
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(11) We redeemed the 5.00% 2019 Notes on September 26, 2018.
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(12) For the period ended September 30, 2020 and all fiscal years ended June 30th, the notes are presented net of unamortized discount.
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(13) While we do not consider commitments to fund under revolving arrangements to be Senior Securities, if we were to elect to treat such unfunded commitments, which were $42,009 as of September 30, 2020 as Senior Securities for purposes of Section 18 of the 1940 Act, our asset coverage per unit would be $2,405.
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(14) We repaid the outstanding principal amount of the 2020 Notes on April 15, 2020.
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(in thousands, except share and per share data)

The following table shows our outstanding debt as of September 30, 2020.

Principal Outstanding Unamortized Discount & Debt Issuance Costs Net Carrying Value Fair Value(1) Effective Interest Rate
Revolving Credit Facility(2) $ 250,993 $ 8,596 $ 250,993 (3) $ 250,993 1ML+2.20% (6)
2022 Notes 228,820 2,864 225,956 231,799 (4) 5.65 % (7)
2025 Notes 201,250 5,035 196,215 207,076 (4) 6.63 % (7)
Convertible Notes 430,070 422,171 438,875
6.375% 2024 Notes 100,000 695 99,305 104,389 (4) 6.64 % (7)
2023 Notes 320,000 2,207 317,793 331,581 (4) 6.09 % (7)
2024 Notes 233,788 3,721 230,067 240,708 (4) 6.76 % (7)
2028 Notes 70,761 2,091 68,670 70,837 (4) 6.77 % (7)
2029 Notes 69,170 2,297 66,873 70,277 (4) 7.38 % (7)
Public Notes 793,719 782,708 817,792
Prospect Capital InterNotes® 718,321 12,959 705,362 740,257 (5) 6.04 % (8)
Total $ 2,193,103 $ 2,161,234 $ 2,247,917
(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 September 30, 2020.
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(2) The maximum draw amount of the Revolving Credit facility as of September 30, 2020 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, 2020:

Principal Outstanding Unamortized Discount & Debt Issuance Costs Net Carrying Value Fair Value (1) Effective Interest Rate
Revolving Credit Facility(2) $ 237,536 $ 9,145 $ 237,536 (3) $ 237,536 1ML+2.20% (6)
2022 Notes 258,240 3,615 254,625 247,133 (4) 5.65 % (7)
2025 Notes 201,250 5,277 195,973 194,279 (4) 6.63 % (7)
Convertible Notes 459,490 450,598 441,412
6.375% 2024 Notes 100,000 762 99,238 100,771 (4) 6.64 % (7)
2023 Notes 320,000 2,426 317,574 325,395 (4) 6.09 % (7)
2024 Notes 233,788 3,939 229,849 229,580 (4) 6.76 % (7)
2028 Notes 70,761 2,142 68,619 66,842 (4) 6.77 % (7)
2029 Notes 69,170 2,344 66,826 67,233 (4) 7.38 % (7)
Public Notes 793,719 782,106 789,821
Prospect Capital InterNotes® 680,229 12,802 667,427 658,292 (5) 6.06 % (8)
Total $ 2,170,974 $ 2,137,667 $ 2,127,061
(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, 2020.
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(2) The maximum draw amount of the Revolving Credit facility as of June 30, 2020 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.
--- ---
(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.
--- ---
(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 September 30, 2020:

Payments Due by Period
Total Less than 1 Year 1 – 3 Years 3 – 5 Years After 5 Years
Revolving Credit Facility $ 250,993 — $ — $ 250,993 $ —
Convertible Notes 430,070 — 228,820 201,250 —
Public Notes 793,719 — 320,000 333,788 139,931
Prospect Capital InterNotes® 718,321 — 4,478 277,855 435,988
Total Contractual Obligations $ 2,193,103 $ — $ 553,298 $ 1,063,886 $ 575,919

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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, 2020:

Payments Due by Period
Total Less than 1 Year 1 – 3 Years 3 – 5 Years After 5 Years
Revolving Credit Facility $ 237,536 $ — $ — $ 237,536 $ —
Convertible Notes 459,490 — 258,240 201,250 —
Public Notes 793,719 — 320,000 333,788 139,931
Prospect Capital InterNotes® 680,229 — — 243,062 437,167
Total Contractual Obligations $ 2,170,974 $ — $ 578,240 $ 1,015,636 $ 577,098

We may from time to time seek to cancel or purchase our outstanding debt through cash purchases and/or exchanges, in open market purchases, privately negotiated transactions or otherwise. The amounts involved may be material. In addition, we may from time to time enter into additional debt facilities, increase the size of existing facilities or issue additional debt securities, including secured debt, unsecured debt and/or debt securities convertible into common stock. Any such purchases or exchanges of outstanding debt would be subject to prevailing market conditions, our liquidity requirements, contractual and regulatory restrictions and other factors.

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 stockholders of our intention to purchase our common stock.

We did not repurchase any shares of our common stock under the Repurchase Program for the three months ended September 30, 2020 and September 30, 2019. As of September 30, 2020, the approximate dollar value of shares that may yet be purchased under the Repurchase Program is $65,860.

On February 13, 2020, we filed a registration statement on Form N-2 (File No. 333-236415) that was effective upon filing pursuant to Rule 462(e) under the Securities Act as permitted under the Small Business Credit Availability Act. The registration statement permits us to issue, through one or more transactions, an indeterminate amount of securities, consisting of common stock, preferred stock, debt securities, subscription rights to purchase our securities, warrants representing rights to purchase our securities or separately tradeable units combining two or more of our securities.

Our stockholders’ equity accounts as of September 30, 2020 and September 30, 2019 reflect cumulative shares issued 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.

On June 12, 2020, we entered into equity distribution agreements with each of RBC Capital Markets, LLC, Barclays Capital Inc., and KeyBanc Capital Markets Inc. pursuant to which we may offer and sell, by means of at-the-market offerings, up to 50,000,000 shares of our $0.001 par value Common Stock.

Excluding dividend reinvestments, during the three months ended September 30, 2020 and September 30, 2019, we did not issue any shares of our common stock.

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.

On April 17, 2020, our Board of Directors approved further amendments to our dividend reinvestment plan, effective May 21, 2020, that principally provide for the number of newly-issued shares of our common stock to be credited to a stockholder’s account shall be determined by dividing the total dollar amount of the distribution payable to such stockholder by 95% of the market price per share of our common stock at the close of regular trading on the Nasdaq Global Select Market on the date fixed by the Board of Directors for such distribution.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)

(in thousands, except share and per share data)

On August 3, 2020, we entered into a Dealer Manager Agreement with Preferred Capital Securities, LLC (the “Dealer Manager”) (the “Dealer Manager Agreement”), pursuant to which the Dealer Manager has agreed to serve as the Company’s agent, principal distributor and exclusive dealer manager for the Company’s offering of up to 40,000,000 shares, par value $0.001 per share, of preferred stock, with a $1,000,000 aggregate liquidation preference. Such Preferred Stock will initially be issued in multiple series, including the 5.50% Series A1 Preferred Stock (“Series A1 Preferred Stock”), the 5.50% Series M1 Preferred Stock (“Series M1 Preferred Stock”), and the 5.50% Series M2 Preferred Stock (“Series M2 Preferred Stock”, and together with the Series M1 Preferred Stock, the “Series M Preferred Stock”). In connection with such offering, on August 3, 2020, we filed Articles Supplementary with the State Department of Assessments and Taxation of Maryland, reclassifying and designating 120,000,000 shares of the Company’s authorized and unissued shares of common stock into shares of Preferred Stock as “Convertible Preferred Stock.”

During the three months ended September 30, 2020 and September 30, 2019, we distributed approximately $67,861 and $66,111, respectively, to our stockholders. The following table summarizes our distributions declared and payable for the three months ended September 30, 2019 and September 30, 2020.

Declaration Date Record Date Payment Date Amount Per Share Amount Distributed (in thousands)
5/8/2019 7/31/2019 8/22/2019 $ 0.06 $ 22,032
5/8/2019 8/30/2019 9/19/2019 0.06 22,037
8/27/2019 9/30/2019 10/24/2019 0.06 22,042
Total declared and payable for the three months ended September 30, 2019 $ 66,111
5/11/2020 7/31/2020 8/20/2020 $ 0.06 $ 22,515
5/11/2020 8/31/2020 9/17/2020 0.06 22,619
8/26/2020 9/30/2020 10/22/2020 0.06 22,727
Total declared and payable for the three months ended September 30, 2020 $ 67,861

Dividends and distributions to common stockholders are recorded on the ex-dividend date. As such, the table above includes distributions with record dates during three months ended September 30, 2020 and September 30, 2019. 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 September 30, 2020:

• $0.06 per share for October 2020 holders of record on October 30, 2020 with a payment date of November 19, 2020.

During the three months ended September 30, 2020 and September 30, 2019, we issued 5,238,459 and 232,847 shares of our common stock, respectively, in connection with the dividend reinvestment plan.

During the three months ended September 30, 2020, Prospect officers and directors purchased 2,768,819 shares of our stock, or 0.73% of total outstanding shares as of September 30, 2020, both through the open market transactions and shares issued in connection with our dividend reinvestment plan.

As of September 30, 2020, we have reserved 45,221,571 shares of our common stock for issuance upon conversion of the Convertible Notes (see Note 5) and 1,000,000,000 shares of our common stock for issuance upon conversion of the Preferred Stock (as defined in Note 18 below).

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)

(in thousands, except share and per share data)

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 months ended September 30, 2020 and September 30, 2019.

Three Months Ended September 30,
2020 2019
Structuring, advisory, and amendment fees $ 1,426 $ 8,310
Royalty and net revenue interests 9,066 3,232
Administrative agent fees 124 131
Total other income $ 10,616 $ 11,673

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 months ended September 30, 2020 and September 30, 2019:

Three Months Ended September 30,
2020 2019
Net increase in net assets resulting from operations $ 167,746 $ 18,065
Weighted average common shares outstanding 375,910,891 367,238,762
Net increase in net assets resulting from operations per share $ 0.45 $ 0.05

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.

For income tax purposes, dividends paid and distributions made to stockholders are reported as ordinary income, capital gains, non-taxable return of capital, or a combination thereof. The tax character of dividends paid to stockholders during the tax years ended August 31, 2020, 2019, and 2018 were as follows:

Tax Year Ended August 31,
2020 2019 2018
Ordinary income $ 207,989 $ 263,773 $ 269,095
Capital gain — — —
Return of capital 57,772 — —
Total dividends paid to stockholders $ 265,761 $ 263,773 $ 269,095

We generate certain types of income that may be exempt from U.S. withholding tax when distributed to non-U.S. stockholders. 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. stockholders with proper documentation. For the 2020 calendar year, 50.50% of our distributions as of September 30, 2020 qualified as interest related dividends which are exempt from U.S. withholding tax applicable to non-U.S. stockholders.

For the tax year ending August 31, 2021, the tax character of dividends paid to stockholders through September 30, 2020 is expected to be ordinary income and return of capital however due to the difference between our fiscal and tax year ends, the final determination of the tax character of dividends between ordinary income, capital gains, and return of capital will not be made until we file our tax return for the tax year ending August 31, 2021.

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)

(in thousands, except share and per share data)

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, 2020, 2019, and 2018:

Tax Year Ended August 31,
2020 2019 2018
Net increase (decrease) in net assets resulting from operations $ (78,949 ) $ 93,093 $ 389,732
Net realized (gains) losses on investments 10,139 (5,923 ) 26,762
Net unrealized (gains) losses on investments 328,997 217,159 (105,599 )
Other temporary book-to-tax differences (88,670 ) (87,511 ) (42,583 )
Permanent differences 57 78 31
Taxable income before deductions for distributions $ 171,574 $ 216,896 $ 268,343

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, 2020, we had capital loss carryforwards of approximately $104,108 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, 2020, we had no cumulative taxable income in excess of cumulative distributions.

As of September 30, 2020, the cost basis of investments for tax purposes was $5,833,754 resulting in an estimated net unrealized loss of $447,369. As of September 30, 2020, the gross unrealized gains and losses were $728,752 and $1,176,121, respectively. As of June 30, 2020, the cost basis of investments for tax purposes was $5,778,417 resulting in an estimated net unrealized loss of $546,088. As of June 30, 2020, the gross unrealized gains and losses were $654,709 and $1,200,797, 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 September 30, 2020 and June 30, 2020 was calculated based on the book cost of investments as of September 30, 2020 and June 30, 2020, respectively, with cumulative book-to-tax adjustments for investments through August 31, 2020 and 2019, 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, 2020, we decreased overdistributed net investment income by $57 and decreased capital in excess of par value by $57. 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. 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.

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 $26,850 and $28,463 during the three months ended September 30, 2020 and September 30, 2019, respectively.

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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 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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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 $14,386 and $17,765 during the three months ended September 30, 2020 and September 30, 2019, respectively. No capital gains incentive fee was incurred during the three or three months ended September 30, 2020 and September 30, 2019.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)

(in thousands, except share and per share data)

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 $4,657 and $3,494 for the three months ended September 30, 2020 and September 30, 2019, respectively. Prospect Administration received estimated payments of $66 and $584 directly from our portfolio companies, and certain funds managed by the Investment Adviser for legal services during the three months ended September 30, 2020 and September 30, 2019, respectively. 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.

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.

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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 three months ended September 30, 2020 and September 30, 2019, we received payments of $1,848 and $700, 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 suspended 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 by the Investment Adviser or certain affiliates, including Priority Income Fund, Inc. and Prospect Flexible Income Fund, Inc. (f/k/a 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 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 September 30, 2020 and September 30, 2019, we recognized expenses that were reimbursed for valuation services of $31 and $48, respectively. Conversely, Priority Income Fund, Inc. and Prospect Flexible Income Fund, Inc. (f/k/a TP Flexible Income Fund, Inc.) reimburse us for software fees, expenses which were initially incurred by Prospect. As of September 30, 2020 and June 30, 2020, we accrued a receivable from Priority Income Fund, Inc. and Prospect Flexible Income Fund, Inc. (f/k/a TP Flexible Income Fund, Inc.) for software fees of $0 and $8, 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.

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. 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

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(in thousands, except share and per share data)

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
September 30, 2020 September 30, 2019
Interest Income
Interest Income from CP Energy $ 1,127 $ 1,193
Interest Income from Spartan 303 1,251
Total Interest Income $ 1,430 $ 2,444
Other Income
Administrative Agent $ 6 $ —
Total Other Income 6 —
Managerial Assistance (1) — 150
Realized Gain 2,832 —

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

Three Months Ended
September 30, 2020 September 30, 2019
Additions $ 26,193 $ —
Interest Income Capitalized as PIK 1,127 1,198
Repayment of Loan Receivable 23,361 —
Return of Capital 1 — As of
--- --- --- --- ---
September 30, 2020 June 30, 2020
Interest Receivable (2) $ 16 $ 15
Other Receivables (3) 17 16

(2) Interest income recognized but not yet paid.

(3) 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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(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
September 30, 2020 September 30, 2019
Interest Income $ 3,370 $ 2,981
Other Income
Structuring Fee $ — $ 112
Total Other Income $ — $ 112
Managerial Assistance (1) $ 175 $ —
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
September 30, 2020 September 30, 2019
Additions (3) $ — $ 5,600
Accreted Original Issue Discount 101 73
Interest Income Capitalized as PIK 3,268 963

(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
September 30, 2020 June 30, 2020
Interest Receivable (4) $ 37 $ 35
Other Receivables (5) 2 2

(4) Interest income recognized but not yet paid.

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

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
September 30, 2020 September 30, 2019
Interest Income $ 2,338 $ 2,021 Three Months Ended
--- --- --- --- ---
September 30, 2020 September 30, 2019
Additions (1) $ — $ 500
Interest Income Capitalized as PIK 4,325 3,774

(1) During the three months ended September 30, 2019, Prospect made a follow-on $500 first lien senior secured debt.

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(in thousands, except share and per share data)

As of
September 30, 2020 June 30, 2020
Interest Receivable (2) $ 1,608 $ 3,606
Other Receivables - Due to PA (3) 63 —
Other Receivables (4) 7 7

(2) Interest income recognized but not yet paid.

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

(4) 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
September 30, 2020 September 30, 2019
Interest Income $ 15,480 $ 14,637
Managerial Assistance (1) 600 600
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).

Three Months Ended
September 30, 2020 September 30, 2019
Interest Income Capitalized as PIK $ — $ 2,666
Repayment of loan receivable 4,911 2,034 As of
--- --- --- --- ---
September 30, 2020 June 30, 2020
Interest Receivable (3) $ 166 $ 158
Other Receivables (4) 10 10

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(in thousands, except share and per share data)

(3) Interest income recognized but not yet paid.

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

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.

InterDent, Inc.

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, all the members of which are our Investment Adviser’s professionals. As a result, Prospect’s investment in InterDent is classified as a control investment.

Effective September 30, 2020, we restructured our investment in InterDent whereby we contributed 100% of the outstanding aggregate principal amount of our Senior Secured Term Loan C and Senior Secured Term Loan D to the capital of InterDent. The principal contributions were made gross of all previously accrued and unpaid interest paid-in-kind.

Three Months Ended
September 30, 2020 September 30, 2019
Interest Income $ 4,937 $ 4,659 Three Months Ended
--- --- ---
September 30, 2020 September 30, 2019
Interest Income Capitalized as PIK 3,282 3,032 As of
--- --- --- --- ---
September 30, 2020 June 30, 2020
Interest Receivable (1) $ 65 $ 52
Other Receivables (2) 10 —

(1) Interest income recognized but not yet paid.

(2) 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.

Three Months Ended
September 30, 2020 September 30, 2019
Additions (1) $ — $ 2,350

(1) During the three months ended September 30, 2019, we provided $2,350 of equity financing to Kickapoo.

As of
September 30, 2020 June 30, 2020
Other Receivables (2) $ 2 $ —

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

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(in thousands, except share and per share data)

MITY, Inc.

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

MITY Delaware 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 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 its shareholder. We recognize such commission, if any, as other income.

Three Months Ended
September 30, 2020 September 30, 2019
Interest Income
Interest Income from MITY-Lite $ 2,373 $ 2,066
Interest Income from Broda Canada — 143
Total Interest Income $ 2,373 $ 2,209
Managerial Assistance (1) 75 —

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

Three Months Ended
September 30, 2020 September 30, 2019
Interest Income Capitalized as PIK $ 851 $ 1,013
Repayment of loan receivable 145 143 As of
--- --- --- --- ---
September 30, 2020 June 30, 2020
Interest Receivable (2) $ 26 $ 26
Other Receivables (3) 1 1

(2) Interest income recognized but not yet paid.

(3) 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 Property Holdings, LLC (“NPH”), a consolidated holding company. NPH owns 100% of the common equity of National Property REIT Corp. (“NPRC”).

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 and rated secured structured notes (“RSSN”).

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(in thousands, except share and per share data)

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.

Effective June 19, 2020, we amended and restated the terms of our credit agreement with NPRC, as part of the amendment we increased out investment through a new Term Loan D secured note in the aggregate principal amount of $183,425 and the proceeds were returned to us as a return of capital, reducing our equity investment in NPRC. We received structuring fees of $3,669 as a result of the amendment.

During the three months ended September 30, 2020, we received partial repayments of $15,329 of our loans previously outstanding with NPRC, and provided $38,746 of debt financing to NPRC to provide working capital and support real estate capital expenditures and to fund purchases of rated secured structured notes.

Three Months Ended
September 30, 2020 September 30, 2019
Interest Income $ 13,402 $ 16,592
Other Income
Structuring Fee $ — $ 446
Advisory Fee — 7,595
Royalty/Net Interest 8,898 3,230
Total Other Income $ 8,898 $ 11,271
Managerial Assistance (1) $ 525 $ —
Reimbursement of Legal, Tax, etc.(2) 164 346

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

(2) 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
September 30, 2020 September 30, 2019
Additions $ 38,746 $ —
Repayment of loan receivable 15,329 60,683
As of
--- --- --- --- ---
September 30, 2020 June 30, 2020
Interest Receivable (3) $ 216 $ 212
Other Receivables (4) 1 2

(3) Interest income recognized but not yet paid.

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

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 5.52% of the equity.

On March 24, 2020, Prospect received distributions of $1,500 that were paid from Nationwide Holdings to Prospect and were recognized as a return of capital by Prospect.

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PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

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(in thousands, except share and per share data)

Three Months Ended
September 30, 2020 September 30, 2019
Interest Income $ 1,033 $ 954
Managerial Assistance (1) 100 100

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

Three Months Ended
September 30, 2020 September 30, 2019
Interest Income Capitalized as PIK $ 173 $ 316 As of
--- --- --- --- ---
September 30, 2020 June 30, 2020
Interest Receivable (2) $ 11 $ 11
Other Receivables (3) 2 2

(2) Interest income recognized but not yet paid.

(3) 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 92.25% and 92.50% of the fully-diluted equity of NMMB, Inc. (f/k/a NMMB Acquisition, Inc.) (“NMMB”) as of September 30, 2020 and June 30, 2020, 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.

Three Months Ended
September 30, 2020 September 30, 2019
Interest Income
Interest Income from NMMB 135 91
Total Interest Income $ 135 $ 91
Managerial Assistance (1) $ 100 $ —

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

Three Months Ended
September 30, 2020 September 30, 2019
Repayment of loan receivable
Repayment from Armed Forces $ — $ 1,500
Repayment from NMMB 38 —
Total Repayment of loan receivable (2) $ 38 $ 1,500

(2) During the three months ended September 30, 2020, Prospect received partial repayments totaling $38 for our Senior Secured Notes outstanding with NMMB, Inc.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)

(in thousands, except share and per share data)

As of
September 30, 2020 June 30, 2020
Interest Receivable (3) $ 1 $ 1
Other Receivables  (4) — 2

(3) Interest income recognized but not yet paid.

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

Pacific World Corporation

Prospect owns 100% of the preferred equity of Pacific World Corporation (“Pacific World”), which represents a 99.96% ownership interest of Pacific World as of September 30, 2020 and June 30, 2020, respectively. As a result, Prospect’s investment in Pacific World is classified as a control investment.

Effective June 30, 2020, we restructured our investment in Pacific World whereby we contributed 100% of the outstanding aggregate principal amount of our Senior Secured Term Loan B and all but $39,082 of the outstanding aggregate principal amount of our Senior Secured Term Loan A to the capital of Pacific World. The principal contributions were made gross of all previously accrued and unpaid interest paid-in-kind.

Three Months Ended
September 30, 2020 September 30, 2019
Interest Income $ 1,141 $ 1,063
Three Months Ended
--- --- --- --- ---
September 30, 2020 September 30, 2019
Additions (1) $ — $ 2,000
Interest Income Capitalized as PIK 634 —

(1) During the three months ended September 30, 2019, Prospect provided $2,000 of equity financing to Pacific World to fund working capital needs.

As of
September 30, 2020 June 30, 2020
Interest Receivable (2) $ 72 $ 10
Other Receivables (3) 29 19

(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.

Three Months Ended
September 30, 2020 September 30, 2019
Interest Income $ 716 $ 804
Managerial Assistance (1) 45 —
Reimbursement of Legal, Tax, etc.(2) — 12

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PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)

(in thousands, except share and per share data)

(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
September 30, 2020 June 30, 2020
Interest Receivable (3) $ 8 $ 8

(3) Interest income recognized but not yet paid.

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.

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 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
September 30, 2020 September 30, 2019
Interest Income $ 594 $ 633
Managerial Assistance (1) 3 —

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

Three Months Ended
September 30, 2020 September 30, 2019
Repayment of loan receivable 170 163

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(in thousands, except share and per share data)

As of
September 30, 2020 June 30, 2020
Interest Receivable (2) $ 6 $ 6
Other Receivables (3) 1 1

(2) Interest income recognized by not yet paid.

(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 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.

Three Months Ended
September 30, 2020 September 30, 2019
Additions (1) $ — $ 1,500

(1) During the three months ended September 30, 2019, Prospect provided $1,500 of equity financing to USES to fund capital expenditures and repayment of accounts payable.

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.

Three Months Ended
September 30, 2020 September 30, 2019
Interest Income
Interest Income from Valley $ 280 $ 280
Interest Income from Valley Electric 1,498 1,498
Total Interest Income $ 1,778 $ 1,778
Dividend Income (1) $ — $ 3,800
Other Income
Residual Profit Interest 167 —
Total Other Income $ 167 $ —
Managerial Assistance (2) $ 150 $ —

(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.

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PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)

(in thousands, except share and per share data)

As of
September 30, 2020 June 30, 2020
Interest Receivable (3) $ 15 $ 15
Other Receivables (4) 2 2

(3) Interest income recognized but not yet paid.

(4) 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.

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. During the six months ended December 31, 2019, the cost basis in Wolf Energy Holdings of $3,914 was transferred to CP Energy.

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 September 30, 2020.

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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 16. Financial Highlights

The following is a schedule of financial highlights for the three months ended September 30, 2020 and September 30, 2019:

Three Months Ended September 30,
2020 2019
Per Share Data
Net asset value at beginning of period $ 8.18 $ 9.01
Net investment income^(1)^ 0.15 0.19
Net realized and change in unrealized (losses) gains^(1)^ 0.30 (0.14 )
Net increase from operations 0.45 0.05
Distributions of net investment income (0.18 ) (0.18 )
Common stock transactions^(2)^ (0.05 ) (0.01 )
Net asset value at end of period $ 8.40 $ 8.87
Per share market value at end of period $ 5.03 $ 6.59
Total return based on market value^(3)^ 2.15 % 3.69 %
Total return based on net asset value^(3)^ 6.57 % 1.14 %
Shares of common stock outstanding at end of period 378,776,958 367,363,872
Weighted average shares of common stock outstanding 375,910,891 367,238,762
Ratios/Supplemental Data
Net assets at end of period $ 3,181,027 $ 3,259,773
Portfolio turnover rate 2.79 % 1.70 %
Annualized ratio of operating expenses to average net assets 10.95 % 11.07 %
Annualized ratio of net investment income to average net assets 7.38 % 8.66 %

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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, 2020:

Year Ended June 30,
2020 2019 2018 2017 2016
Per Share Data
Net asset value at beginning of year $ 9.01 $ 9.35 $ 9.32 $ 9.62 $ 10.31
Net investment income^(1)^ 0.72 0.85 0.79 0.85 1.04
Net realized and change in unrealized (losses) gains^(1)^ (0.76 ) (0.46 ) 0.04 (0.15 ) (0.75 )
Net (decrease) increase from operations (0.04 ) 0.39 0.83 0.70 0.29
Distributions of net investment income (0.72 ) (0.72 ) (0.77 ) (1.00 ) (1.00 )
Common stock transactions^(2)^ (0.07 ) (0.01 ) (0.03 ) — (4) 0.02
Net asset value at end of year $ 8.18 $ 9.01 $ 9.35 $ 9.32 $ 9.62
Per share market value at end of year $ 5.11 $ 6.53 $ 6.71 $ 8.12 $ 7.82
Total return based on market value^(3)^ (11.35 %) 8.23 % (7.42 %) 16.80 % 21.84 %
Total return based on net asset value^(3)^ 2.84 % 7.17 % 12.39 % 8.98 % 7.15 %
Shares of common stock outstanding at end of year 373,538,499 367,131,025 364,409,938 360,076,933 357,107,231
Weighted average shares of common stock outstanding 368,094,299 365,984,541 361,456,075 358,841,714 356,134,297
Ratios/Supplemental Data
Net assets at end of year $ 3,055,861 $ 3,306,275 $ 3,407,047 $ 3,354,952 $ 3,435,917
Portfolio turnover rate 16.46 % 10.86 % 30.70 % 23.65 % 15.98 %
Ratio of operating expenses to average net assets 11.37 % 11.65 % 11.08 % 11.57 % 11.95 %
Ratio of net investment income to average net assets 8.44 % 9.32 % 8.57 % 8.96 % 10.54 %
(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 stockholders 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, 2021:

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, 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 )
March 31, 2020 154,501 0.42 68,476 0.19 (254,175 ) (0.70 ) (185,699 ) (0.51 )
June 30, 2020 145,229 0.39 58,273 0.16 104,340 0.28 162,613 0.44
September 30, 2020 $ 142,880 $ 0.38 $ 57,545 $ 0.15 $ 110,201 $ 0.30 $ 167,746 $ 0.45
(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 October 5, 2020 through November 5, 2020 we issued $11,616 aggregate principal amount of Prospect Capital InterNotes® for net proceeds of $11,435.

The 2022 Notes September Tender Offer expired at 12:00 midnight, New York City time, on October 2, 2020 (one minute after 11:59 p.m., New York City time, on October 1, 2020). As of the expiration date, $6,035 aggregate principal amount of the 2022 Notes, representing 2.64% of the previously outstanding 2022 Notes, were validly tendered and accepted at the purchase price of 101.00, plus accrued and unpaid interest, pursuant to the 2022 Notes September Tender Offer. Following settlement of the 2022 Notes September Tender Offer on October 6, 2020, approximately $222,785 aggregate principal amount of the 2022 Notes remain outstanding.

During the period of October 15, 2020 through October 30, 2020, we provided $12,451 of Senior Secured Term Loan A funding to NPRC and its wholly-owned subsidiaries to fund the acquisition of a real estate property and support capital expenditures for existing real estate properties.

On October 16, 2020, Ahead Data Blue, LLC (“Ahead Data Blue”) fully repaid the $70,000 Second Lien Term Loan receivable to us at par. Concurrent with the repayment, we made a new $57,500 Second Lien Term Loan investment in Ahead Data Blue to support a change of control transaction.

On October 19, 2020, we commenced a tender offer to purchase for cash any and all of the aggregate outstanding 2022 Notes at the purchase price of 102.625, plus accrued and unpaid interest (the “2022 Notes October Tender Offer”), of which $222,785 aggregate principal amount was then outstanding following the settlement of the 2022 Notes September Tender Offer. The 2022 Notes October Tender Offer will expire at 12:00 midnight, New York City time, on November 17, 2020 (one minute after 11:59 p.m., New York City time, on November 16, 2020), or any other date and time to which the Company extends the 2022 Notes October Tender Offer.

On October 30, 2020, we entered into a Dealer Manager Agreement with Incapital LLC, pursuant to which Incapital LLC has agreed to serve as the Company’s agent and dealer manager for the Company’s offering of up to 10,000,000 shares, par value $0.001 per share, of 5.50% Series AA1 Preferred Stock, with a $250,000 aggregate liquidation preference (the “Series AA1 Preferred Stock”, and together with the Series A1 Preferred Stock, Series M1 Preferred Stock and Series M2 Preferred Stock for

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PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)

(in thousands, except share and per share data)

purposes of Note 18, the “Preferred Stock”). In connection with such offering, on October 30, 2020, we filed Articles Supplementary with the State Department of Assessments and Taxation of Maryland, reclassifying and designating 20,000,000 shares of the Company’s authorized and unissued shares of common stock into shares of Preferred Stock as “Convertible Preferred Stock.”

On October 30, 2020, Halyard MD OpCo, LLC fully repaid the $10,265 First Lien Term Loan receivable to us at par.

On November 9, 2020, we announced the declaration of monthly dividends for our Preferred Stock for holders of record on the following dates based on an annual rate equal to 5.50% of the stated value of $25 per share as set forth in the Articles Supplementary for the Preferred Stock, from the date of issuance or, if later from the most recent dividend payment date, as follows:

Monthly Cash Preferred Shareholder Distribution Record Date Payment Date Monthly Amount ($ per share), before pro ration for partial periods
October and November 2020 11/18/2020 12/1/2020 $0.114583

On November 9, 2020, we announced the declaration of monthly dividends on our common stock as follows:

Monthly Cash Common Shareholder Distribution Record Date Payment Date Amount ($ per share)
November 2020 11/30/2020 12/24/2020 $0.0600
December 2020 12/31/2020 01/21/2021 $0.0600
January 2021 01/29/2021 02/18/2021 $0.0600

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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 collateralized loan obligations ("CLOs"), which we also refer to as subordinated structured notes ("SSNs"). 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”); Prospect Opportunity Holdings I, Inc. (“POHI”); SB Forging Company, Inc. (“SB Forging”); 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 eight 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, and (8) investing in syndicated debt. 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.

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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 10%-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 makes investments in rated secured structured notes (debt of structured credit). The underlying portfolio of each rated secured structured note 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 rated secured structured notes in which NPRC invests are managed by established collateral management teams with many years of experience in the industry. 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 structured credit, often taking a significant position in subordinated structured notes (equity) and rated secured structured notes (debt). The underlying portfolio of each structured credit 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 structured credit 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.

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 structured credit are subordinated to senior loans and are generally unsecured. We invest in debt and equity positions of structured credit 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 structured credit 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 September 30, 2020, as shown in our Consolidated Schedule of Investments, the cost basis and fair value of our investments in controlled companies was $2,321,471 and $2,307,572, 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.

First Quarter Highlights

Investment Transactions

We seek to be a long-term investor with our portfolio companies. During the three months ended September 30, 2020, we acquired $101,411 of new investments, completed follow-on investments in existing portfolio companies totaling approximately $53,389, funded $2,000 of revolver advances, and recorded PIK interest of $20,341, resulting in gross investment originations of $177,141. During the three months ended September 30, 2020, we received full repayments totaling $97,488, received $777 of revolver paydowns, and received several partial prepayments, scheduled principal amortization payments, and return of capital distributions, resulting in net repayments of $145,410.

Debt Issuances and Redemptions

During the three months ended September 30, 2020, we repaid $565 aggregate principal amount of Prospect Capital InterNotes® at par in accordance with the Survivor’s Option, as defined in the InterNotes® Offering prospectus.

During the three months ended September 30, 2020, we issued $38,657 aggregate principal amount of Prospect Capital InterNotes® with a weighted average stated interest rate of 5.42%, to extend our borrowing base. The newly issued notes mature between July 15, 2025 and October 15, 2030 and generated net proceeds of $38,070.

On July 23, 2020, we commenced a tender offer to purchase for cash up to $100,000 aggregate principal amount of the convertible notes that mature on July 15, 2022 (“2022 Notes July Tender Offer”), of which $258,240 aggregate principal amount of the 2022 Notes were then outstanding. On August 19, 2020, we announced the expiration and results of the 2022 Notes July Tender Offer. On August 24, 2020, $29,420 aggregate principal amount of the 2022 Notes, representing 11.39% of the previously outstanding 2022 Notes, were validly tendered and accepted. The 2022 July Tender Offer resulted in our recognizing a loss of $396. The 2022 Notes July Tender Offer expired at 12:00 midnight, New York City time, on August 19, 2020 (one minute after 11:59 p.m. New York City time on August 18, 2020).

On September 3, 2020, we commenced a tender offer to purchase for cash up to $228,820 aggregate principal amount of the 2022 Notes (“2022 Notes September Tender Offer”), of which $228,820 aggregate principal amount of the 2022 Notes were then outstanding. The 2022 Notes September Tender Offer will expire at 12:00 midnight, New York City time, on October 2, 2020 (one minute after 11:59 PM, on October 1, 2020).

Equity Issuances

On July 23, 2020, August 20, 2020, and September 17, 2020 we issued 1,716,619, 1,742,536, and 1,779,304 shares of our common stock in connection with the dividend reinvestment plan, respectively.

On August 3, 2020, we entered into a Dealer Manager Agreement with Preferred Capital Securities, LLC (the “Dealer Manager”) (the “Dealer Manager Agreement”), pursuant to which the Dealer Manager has agreed to serve as the Company’s agent, principal distributor and exclusive dealer manager for the Company’s offering of up to 40,000,000 shares, par value $0.001 per share, of preferred stock, with a $1,000,000 aggregate liquidation preference. Such Preferred Stock will initially be issued in multiple series, including the 5.50% Series A1 Preferred Stock (“Series A1 Preferred Stock”), the 5.50% Series M1 Preferred Stock (“Series M1 Preferred Stock”), and the 5.50% Series M2 Preferred Stock (“Series M2 Preferred Stock”, and together with the Series M1 Preferred Stock, the “Series M Preferred Stock”).

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Investment Holdings

At September 30, 2020, we have $5,386,385, or 169.2%, of our net assets invested in 122 long-term portfolio investments and CLOs.

Our annualized current yield was 11.6% and 11.4% as of September 30, 2020 and June 30, 2020, respectively, across all performing interest bearing investments, excluding equity investments and non-accrual loans. Our annualized current yield was 9.7% and 9.7% as of September 30, 2020 and June 30, 2020, 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 September 30, 2020, 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 of 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 $13,156 in senior secured term loans (the “Spartan Term Loan A”) due to us as of September 30, 2020. 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 investment. Spartan remains the direct borrow and guarantor to Prospect for the Spartan Term Loan A.

As of September 30, 2020, we also own affiliated interests in Edmentum Ultimate Holdings, LLC (“Edmentum”); Nixon, Inc. (“Nixon”), PGX Holdings, Inc. (“PGX”), and Targus Cayman HoldCo Limited (“Targus”).

The following shows the composition of our investment portfolio by level of control as of September 30, 2020 and June 30, 2020:

September 30, 2020 June 30, 2020
Level of Control Cost % of Portfolio Fair Value % of Portfolio Cost % of Portfolio Fair Value % of Portfolio
Control Investments $ 2,321,471 39.9 % $ 2,307,572 42.8 % $ 2,286,725 39.5 % $ 2,259,292 43.2 %
Affiliate Investments 171,649 2.9 % 262,175 4.9 % 163,484 2.8 % 187,537 3.6 %
Non-Control/Non-Affiliate Investments 3,335,811 57.2 % 2,816,638 52.3 % 3,332,509 57.7 % 2,785,499 53.2 %
Total Investments $ 5,828,931 100.0 % $ 5,386,385 100.0 % $ 5,782,718 100.0 % $ 5,232,328 100.0 %

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The following shows the composition of our investment portfolio by type of investment as of September 30, 2020 and June 30, 2020: September 30, 2020 June 30, 2020
Type of Investment Cost % of Portfolio Fair Value % of Portfolio Cost % of Portfolio Fair Value % of Portfolio
Revolving Line of Credit $ 38,363 0.7 % $ 38,318 0.7 % $ 38,469 0.7 % $ 36,944 0.7 %
Senior Secured Debt 2,539,272 43.6 % 2,435,715 45.3 % 2,586,769 44.8 % 2,422,523 46.3 %
Subordinated Secured Debt 1,431,016 24.6 % 1,292,160 24.0 % 1,424,633 24.6 % 1,269,398 24.3 %
Subordinated Unsecured Debt 48,194 0.8 % 53,262 1.0 % 43,935 0.8 % 51,079 1.0 %
Subordinated Structured Notes 1,100,944 18.8 % 730,514 13.6 % 1,089,079 18.8 % 708,961 13.5 %
Preferred Stock 276,213 4.7 % 12,692 0.2 % 250,020 4.3 % 14,430 0.3 %
Common Stock 186,101 3.2 % 496,811 9.2 % 140,986 2.4 % 394,832 7.5 %
Membership Interest 208,828 3.6 % 324,581 6.0 % 208,827 3.6 % 310,252 5.9 %
Participating Interest(1) — — % 2,332 — % — — % 23,909 0.5 %
Total Investments $ 5,828,931 100.0 % $ 5,386,385 100.0 % $ 5,782,718 100.0 % $ 5,232,328 100.0 %
(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 September 30, 2020 and June 30, 2020:

September 30, 2020 June 30, 2020
Type of Investment Cost % of Portfolio Fair Value % of Portfolio Cost % of Portfolio Fair Value % of Portfolio
First Lien $ 2,568,987 49.8 % $ 2,465,385 54.2 % $ 2,615,252 50.5 % $ 2,450,928 54.7 %
1.5 Lien 2,873 0.1 % 2,873 0.1 % 1,981 — % 1,981 — %
Second Lien(1) 1,432,812 27.8 % 1,293,955 28.4 % 1,428,648 27.6 % 1,271,966 28.3 %
Third Lien 3,979 0.1 % 3,980 0.1 % 3,990 0.1 % 3,990 0.1 %
Unsecured 48,194 0.9 % 53,262 1.2 % 43,935 0.8 % 51,079 1.1 %
Subordinated Structured Notes 1,100,944 21.3 % 730,514 16.0 % 1,089,079 21.0 % 708,961 15.8 %
Total Interest Bearing Investments $ 5,157,789 100.0 % $ 4,549,969 100.0 % $ 5,182,885 100.0 % $ 4,488,905 100.0 %
(1) Includes the Second Lien Revolving Credit Facility to Edmentum, Inc., which is otherwise classified as Revolving Line of Credit.
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The following shows the composition of our investment portfolio by industry as of September 30, 2020 and June 30, 2020: September 30, 2020 June 30, 2020
Industry Cost % of Portfolio Fair Value % of Portfolio Cost % of Portfolio Fair Value % of Portfolio
Aerospace & Defense $ 92,535 1.6 % $ 92,124 1.7 % $ 88,208 1.5 % $ 85,627 1.6 %
Air Freight & Logistics 12,500 0.2 % 10,386 0.2 % 12,500 0.2 % 10,755 0.2 %
Auto Components 52,532 0.9 % 52,019 1.0 % 26,776 0.5 % 24,867 0.5 %
Chemicals 31,077 0.5 % 31,222 0.6 % 31,837 0.6 % 31,891 0.6 %
Commercial Services & Supplies 365,933 6.4 % 294,054 5.5 % 368,577 6.4 % 294,277 5.6 %
Communications Equipment 59,681 1.0 % 54,191 1.0 % 59,638 1.0 % 50,837 1.0 %
Construction & Engineering 68,874 1.2 % 133,624 2.5 % 68,874 1.2 % 129,296 2.5 %
Consumer Finance 511,509 8.8 % 657,600 12.2 % 506,771 8.8 % 645,726 12.3 %
Distributors 277,806 4.8 % 178,539 3.3 % 278,331 4.8 % 175,931 3.4 %
Diversified Consumer Services 171,222 2.9 % 240,189 4.5 % 163,057 2.8 % 169,615 3.2 %
Diversified Financial Services 30,165 0.5 % 30,165 0.6 % 30,165 0.5 % 30,165 0.6 %
Diversified Telecommunication Services 56,467 1.0 % 56,117 1.0 % 57,098 1.0 % 55,311 1.1 %
Energy Equipment & Services 270,576 4.6 % 66,660 1.2 % 266,618 4.6 % 82,236 1.6 %
Entertainment 50,282 0.9 % 49,040 0.9 % 50,601 0.9 % 49,017 0.9 %
Equity Real Estate Investment Trusts (REITs) 503,014 8.7 % 781,759 14.5 % 486,268 8.4 % 753,583 14.4 %
Food Products 29,759 0.5 % 29,938 0.6 % 24,853 0.4 % 25,000 0.5 %
Health Care Equipment & Supplies 7,475 0.1 % 5,845 0.1 % 7,474 0.1 % 5,606 0.1 %
Health Care Providers & Services 535,168 9.2 % 501,693 9.3 % 533,188 9.2 % 495,402 9.5 %
Hotels, Restaurants & Leisure 23,834 0.4 % 21,721 0.4 % 23,501 0.4 % 21,008 0.4 %
Household Durables 15,908 0.3 % 18,039 0.3 % 24,437 0.4 % 24,362 0.5 %
Household Products 24,375 0.4 % 24,375 0.5 % 15,915 0.3 % 16,066 0.3 %
Insurance 16,968 0.3 % 16,978 0.3 % 12,796 0.2 % 12,744 0.2 %
Interactive Media & Services 195,577 3.4 % 195,577 3.6 % 200,728 3.5 % 200,728 3.8 %
Internet & Direct Marketing Retail 15,775 0.3 % 16,562 0.3 % 15,706 0.3 % 16,440 0.3 %
IT Services 177,568 3.0 % 177,607 3.3 % 203,285 3.5 % 204,061 3.9 %
Leisure Products 25,588 0.4 % 25,386 0.5 % 24,519 0.4 % 24,319 0.5 %
Machinery 81,950 1.4 % 85,364 1.6 % 84,234 1.5 % 87,220 1.7 %
Media 117,085 2.0 % 98,140 1.8 % 117,524 2.0 % 100,592 1.9 %
Online Lending 30,621 0.5 % 30,621 0.6 % 45,950 0.8 % 45,950 0.9 %
Paper & Forest Products 15,808 0.3 % 15,808 0.3 % 15,788 0.3 % 15,788 0.3 %
Personal Products 247,336 4.2 % 66,974 1.2 % 246,702 4.3 % 59,907 1.1 %
Professional Services 94,717 1.6 % 96,732 1.8 % 104,164 1.8 % 106,542 2.0 %
Real Estate Management & Development 31,537 0.5 % 31,537 0.6 % 31,747 0.5 % 31,747 0.6 %
Software 75,199 1.3 % 74,386 1.4 % 75,208 1.3 % 73,745 1.4 %
Technology Hardware, Storage & Peripherals 12,419 0.2 % 12,377 0.2 % 12,415 0.2 % 12,318 0.2 %
Textiles, Apparel & Luxury Goods 204,984 3.5 % 225,173 4.2 % 205,874 3.6 % 221,227 4.2 %
Trading Companies & Distributors 65,280 1.1 % 28,466 0.5 % 65,450 1.1 % 26,599 0.5 %
Transportation Infrastructure 27,683 0.5 % 27,683 0.5 % 27,662 0.5 % 27,662 0.5 %
Subtotal $ 4,626,787 79.4 % $ 4,554,671 84.6 % $ 4,614,439 79.8 % $ 4,444,167 84.8 %
Structured Finance(1) $ 1,202,144 20.6 % $ 831,714 15.4 % $ 1,168,279 20.2 % $ 788,161 15.2 %
Total Investments $ 5,828,931 100.0 % $ 5,386,385 100.0 % $ 5,782,718 100.0 % $ 5,232,328 100.0 %

(1) Our RSSN and SSN investments do not have industry concentrations and as such have been separated in the tables above. As of September 30, 2020 and June 30, 2020, Structured Finance includes $101,200 and $79,200, respectively, of senior secured debt 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. For information regarding investment activity for the three months ended September 30, 2020 and September 30, 2019 are presented below:

Three months ended September 30,
2020 2019
Investments made in new portfolio companies $ 101,411 $ 32,509
Follow-on investments made in existing portfolio companies ^(1)^ 53,389 47,033
Revolver advances 2,000 500
PIK interest 20,341 14,498
Total acquisitions $ 177,141 $ 94,540
Acquisitions by portfolio composition
1st Lien Term Loan $ 128,695 $ 58,610
Subordinated Secured Debt 20,959 20,268
Rated Secured Structured Notes — 5,534
Subordinated Unsecured Debt 1,294 178
Equity 26,193 9,950
Total acquisitions by portfolio composition $ 177,141 $ 94,540
Investments sold $ — $ 16,000
Partial repayments ^(2)^ 47,145 96,408
Full repayments 97,488 130,072
Revolver paydowns 777 2,693
Total dispositions $ 145,410 $ 245,173
Dispositions by portfolio composition
1st Lien Term Loan $ 130,346 $ 145,502
Subordinated Secured Debt 14,918 99,671
Subordinated Unsecured Debt 145 —
Equity 1 —
Total dispositions by portfolio composition $ 145,410 $ 245,173
Weighted average interest rates for new investments by portfolio composition ^(3)^
1st Lien Term Loan 9.54 % 9.25 %
Subordinated Secured Debt 8.61 % N/A

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

(2) Includes partial prepayments of principal, scheduled amortization payments, 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. In addition, Revolving Line of Credit and Delayed Draw Term Loans are excluded from the calculation.

110

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 interest, taxes, 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, 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 $5,386,385.

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.

Impact of the novel coronavirus (the “Wuhan Virus”) pandemic

As of September 30, 2020, there remains to be global uncertainty surrounding the Wuhan Virus pandemic, which has caused severe disruptions in the global economy and has negatively impacted the fair value and performance of certain investments since the pandemic began. For the three months ended September 30, 2020, the resulting changes in net unrealized depreciation on investments were largely due to widening credit spreads as market participants expected a higher yield on similar investments given the significant market volatility generated by the Wuhan Virus pandemic. To a lesser extent, the changes in net unrealized depreciation on investments for certain of our portfolio companies also reflected other factors such as specific industry concerns, uncertainty about the duration of business shutdowns and near-term liquidity needs. For additional information concerning the Wuhan Virus pandemic and its potential impact on our business and our operating results, see Part II, Item 1A. Risk Factors, “Risk Factors - The Wuhan Virus pandemic has caused severe disruptions in the global economy, which has had, and may continue to have, a negative impact on our portfolio companies and our business and operations.”

111

Control Company 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. Our controlled companies discussed below experienced such changes and we recorded corresponding fluctuations in valuations during the three months ended September 30, 2020.

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 a controlling interest in the common equity of Spartan Holdings, which owns 100% of Spartan, a portfolio company of Prospect with $13,156 in senior secured term loans due to us as of September 30, 2020. As a result of CP Energy’s purchase, and given Prospect’s controlling interest in CP Energy, our Spartan Term Loan A is 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 $54,309 as of September 30, 2020, which is a discount of $172,375 from its amortized cost, compared to a fair value of $69,885 as of June 30, 2020, representing a discount of $152,841 to its amortized cost. The increase in discount to amortized cost resulted from a decline in financial performance and corresponding valuation multiples as a result of headwinds in the oil and gas industry, primarily associated with the demand imbalance stemming from the novel coronavirus.

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, self-storage, and student housing 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 and RSSNs. As of September 30, 2020, we own 100% of the fully-diluted common equity of NPRC.

During the three months ended September 30, 2020, we received partial repayments of $15,329 of our loans previously outstanding with NPRC, and $38,746 of debt financing to NPRC to provide working capital and support real estate capital expenditures and to fund purchases of rated secured structured notes.

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 September 30, 2020, the outstanding investment in online consumer loans by certain of NPRC’s wholly-owned subsidiaries was comprised of 6,354 individual loans and residual interest in four securitizations, and had an aggregate fair value of $30,644. The average outstanding individual loan balance is approximately $3 and the loans mature on dates ranging from October 1, 2020 to April 19, 2025 with a weighted-average outstanding term of 18 months as of September 30, 2020. Fixed interest rates range from 6.0% to 36.0% with a weighted-average current interest rate of 22.0%. As of September 30, 2020, our investment in NPRC and its wholly-owned subsidiaries relating to online consumer lending had a fair value of $30,621.

As of September 30, 2020, based on outstanding principal balance, 13.6% of the portfolio was invested in super prime loans (borrowers with a Fair Isaac Corporation (“FICO”) score, of 720 or greater), 32.8% of the portfolio in prime loans (borrowers with a FICO score of 660 to 719) and 53.6% of the portfolio in near prime loans (borrowers with a FICO score of 580 to 659, a portion of which are considered sub-prime).

112

Loan Type Outstanding Principal Balance Fair Value Interest Rate Range Weighted Average Interest Rate*
Super Prime $ 2,785 $ 2,691 6.0% - 24.1% 12.5%
Prime 6,731 6,334 6.0% - 36.0% 18.0%
Near Prime 11,024 10,608 6.0% - 36.0% 26.8%

*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 September 30, 2020, the outstanding investment in rated secured structured notes by certain of NPRC’s wholly owned subsidiaries was comprised of 34 investments with a fair value of $188,885 and face value of $208,342. The average outstanding note is approximately $6,128 with an expected maturity date ranging from April 2026 to April 2029 and weighted-average expected maturity of 8 years as of September 30, 2020. Coupons range from three-month Libor (“3ML”) plus 5.45% to 9.45% with a weighted-average coupon of 3ML + 7.16%. As of September 30, 2020, our investment in NPRC and its wholly-owned subsidiaries relating to rated secured structured notes had a fair value of $101,200.

As of September 30, 2020, based on outstanding notional balance, 25% of the portfolio was invested in Single - B rated tranches and 75% of the portfolio in BB rated tranches.

As of September 30, 2020, our investment in NPRC and its wholly owned subsidiaries had an amortized cost of $634,835 and a fair value of $913,580, including our investment in online consumer lending and rated secured structured notes as discussed above. The fair value of $781,759 related to NPRC’s real estate portfolio was comprised of thirty-nine multi-families 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 September 30, 2020.

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 11,068
4 Crestview at Oakleigh, LLC Pensacola, FL 11/15/2013 17,500 13,470
5 Inverness Lakes, LLC Mobile, AL 11/15/2013 29,600 24,030
6 Kings Mill Pensacola, LLC Pensacola, FL 11/15/2013 20,750 17,074
7 Plantations at Pine Lake, LLC Tallahassee, FL 11/15/2013 18,000 13,710
8 Verandas at Rocky Ridge, LLC Birmingham, AL 11/15/2013 15,600 9,928
9 Crestview at Cordova, LLC Pensacola, FL 1/17/2014 8,500 12,952
10 Taco Bell, OK Yukon, OK 6/4/2014 1,719 —
11 Taco Bell, MO Marshall, MO 6/4/2014 1,405 —
12 Canterbury Green Apartments Holdings LLC Fort Wayne, IN 9/29/2014 85,500 85,118
13 Abbie Lakes OH Partners, LLC Canal Winchester, OH 9/30/2014 12,600 15,527
14 Kengary Way OH Partners, LLC Reynoldsburg, OH 9/30/2014 11,500 15,694
15 Lakeview Trail OH Partners, LLC Canal Winchester, OH 9/30/2014 26,500 29,942
16 Lakepoint OH Partners, LLC Pickerington, OH 9/30/2014 11,000 17,036
17 Sunbury OH Partners, LLC Columbus, OH 9/30/2014 13,000 17,272
18 Heatherbridge OH Partners, LLC Blacklick, OH 9/30/2014 18,416 24,718
19 Jefferson Chase OH Partners, LLC Blacklick, OH 9/30/2014 13,551 19,210
20 Goldenstrand OH Partners, LLC Hilliard, OH 10/29/2014 7,810 11,719
21 SSIL I, LLC Aurora, IL 11/5/2015 34,500 26,144
22 Vesper Tuscaloosa, LLC Tuscaloosa, AL 9/28/2016 54,500 43,070
23 Vesper Iowa City, LLC Iowa City, IA 9/28/2016 32,750 24,825
24 Vesper Corpus Christi, LLC Corpus Christi, TX 9/28/2016 14,250 10,800
25 Vesper Campus Quarters, LLC Corpus Christi, TX 9/28/2016 18,350 14,175
26 Vesper College Station, LLC College Station, TX 9/28/2016 41,500 32,058
27 Vesper Kennesaw, LLC Kennesaw, GA 9/28/2016 57,900 51,160
28 Vesper Statesboro, LLC Statesboro, GA 9/28/2016 7,500 7,480

113

No. Property Name City Acquisition Date Purchase Price Mortgage Outstanding
29 Vesper Manhattan KS, LLC Manhattan, KS 9/28/2016 23,250 14,679
30 JSIP Union Place, LLC Franklin, MA 12/7/2016 64,750 51,800
31 9220 Old Lantern Way, LLC Laurel, MD 1/30/2017 187,250 153,580
32 7915 Baymeadows Circle Owner, LLC Jacksonville, FL 10/31/2017 95,700 76,560
33 8025 Baymeadows Circle Owner, LLC Jacksonville, FL 10/31/2017 15,300 12,240
34 23275 Riverside Drive Owner, LLC Southfield, MI 11/8/2017 52,000 44,044
35 23741 Pond Road Owner, LLC Southfield, MI 11/8/2017 16,500 14,185
36 150 Steeplechase Way Owner, LLC Largo, MD 1/10/2018 44,500 36,668
37 Laurel Pointe Holdings, LLC Forest Park, GA 5/9/2018 33,005 26,400
38 Bradford Ridge Holdings, LLC Forest Park, GA 5/9/2018 12,500 10,000
39 Olentangy Commons Owner LLC Columbus, OH 6/1/2018 113,000 92,876
40 Villages of Wildwood Holdings LLC Fairfield, OH 7/20/2018 46,500 39,525
41 Falling Creek Holdings LLC Richmond, VA 8/8/2018 25,000 19,335
42 Crown Pointe Passthrough LLC Danbury, CT 8/30/2018 108,500 89,400
43 Ashwood Ridge Holdings LLC Jonesboro, GA 9/21/2018 9,600 7,300
44 Lorring Owner LLC Forestville, MD 10/30/2018 58,521 47,680
45 Hamptons Apartments Owner, LLC Beachwood, OH 1/9/2019 96,500 79,520
46 5224 Long Road Holdings, LLC Orlando, FL 6/28/2019 26,500 21,200
47 Druid Hills Holdings LLC Atlanta, GA 7/30/2019 96,000 79,104
48 Bel Canto NPRC Parcstone LLC Fayetteville, NC 10/15/2019 45,000 30,127
49 Bel Canto NPRC Stone Ridge LLC Fayetteville, NC 10/15/2019 21,900 14,662
50 Sterling Place Holdings LLC Columbus, OH 10/28/2019 41,500 34,196
$ 1,843,477 $ 1,543,261

The fair value of our investment in NPRC increased to $913,580 as of September 30, 2020, a premium of $278,745 from its amortized cost basis compared to a fair value of $878,733 as of June 30, 2020, representing a premium of $267,315. The increase in premium to amortized cost is primarily due to an increase in property values and change in methodology discussed above.

Our controlled investments, including those discussed above, are valued at $13,899 below their amortized cost as of September 30, 2020.

Affiliate and Non-Control Company Investments

We hold four affiliate investments at September 30, 2020 with a total fair value of $262,175, a premium of $90,526 from their combined amortized cost, compared to a fair value of $187,537 as of June 30, 2020, representing a $24,053 premium to its amortized cost. The increase in premium is primarily driven by our investment in PGX Holdings, Inc. (“Progrexion”), which is valued at a premium of $57,951 at September 30, 2020 compared to a premium of $180 as of June 30, 2020. Progrexion’s increase in premium was driven by strong financial performance.

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. However, as of September 30, 2020, two of our non-control/ non-affiliate investments, Engine Group, Inc. (“Engine”) and USC are valued at discounts to amortized cost of $28,630 and $98,851, respectively. As of September 30, 2020, our CLO investment portfolio is valued at a $370,430 discount to amortized cost. Excluding Engine, USC, and the CLO investment portfolio, non-control/non-affiliate investments at September 30, 2020 are valued at $21,262 below their amortized cost largely due to widening credit spreads as market participants expected a higher yield on similar investments given the significant market volatility generated by the Wuhan Virus pandemic. For more information on change in unrealized, see “Results of Operations - Change in Unrealized Gains/Losses.”

114

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 September 30, 2020 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 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. As of September 30, 2020, our equity capital is comprised entirely of common equity.

The following table shows our outstanding debt as of September 30, 2020.

Principal Outstanding Unamortized Discount & Debt Issuance Costs Net Carrying Value Fair Value(1) Effective Interest Rate
Revolving Credit Facility(2) $ 250,993 $ 8,596 $ 250,993 (3 ) $ 250,993 1ML+2.20% (6 )
2022 Notes 228,820 2,864 225,956 231,799 (4 ) 5.65 % (7 )
2025 Notes 201,250 5,035 196,215 207,076 (4 ) 6.63 % (7 )
Convertible Notes 430,070 422,171 438,875
6.375% 2024 Notes 100,000 695 99,305 104,389 (4 ) 6.64 % (7 )
2023 Notes 320,000 2,207 317,793 331,581 (4 ) 6.09 % (7 )
2024 Notes 233,788 3,721 230,067 240,708 (4 ) 6.76 % (7 )
2028 Notes 70,761 2,091 68,670 70,837 (4 ) 6.77 % (7 )
2029 Notes 69,170 2,297 66,873 70,277 (4 ) 7.38 % (7 )
Public Notes 793,719 782,708 817,792
Prospect Capital InterNotes® 718,321 12,959 705,362 740,257 (5 ) 6.04 % (8 )
Total $ 2,193,103 $ 2,161,234 $ 2,247,917
(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 September 30, 2020.
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(2) The maximum draw amount of the Revolving Credit facility as of September 30, 2020 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 September 30, 2020.

Payments Due by Period
Total Less than 1 Year 1 – 3 Years 3 – 5 Years After 5 Years
Revolving Credit Facility $ 250,993 $ — $ — $ 250,993 $ —
Convertible Notes 430,070 — 228,820 201,250 —
Public Notes 793,719 — 320,000 333,788 139,931
Prospect Capital InterNotes® 718,321 — 4,478 277,855 435,988
Total Contractual Obligations $ 2,193,103 $ — $ 553,298 $ 1,063,886 $ 575,919

The following table shows the contractual maturities of our Revolving Credit Facility, Convertible Notes, Public Notes and Prospect Capital InterNotes® as of June 30, 2020:

Payments Due by Period
Total Less than 1 Year 1 – 3 Years 3 – 5 Years After 5 Years
Revolving Credit Facility $ 237,536 $ — $ — $ 237,536 $ —
Convertible Notes 459,490 — 258,240 201,250 —
Public Notes 793,719 — 320,000 333,788 139,931
Prospect Capital InterNotes® 680,229 — — 243,062 437,167
Total Contractual Obligations $ 2,170,974 $ — $ 578,240 $ 1,015,636 $ 577,098

We may from time to time seek to cancel or purchase our outstanding debt through cash purchases and/or exchanges, in open market purchases, privately negotiated transactions or otherwise. The amounts involved may be material. In addition, we may from time to time enter into additional debt facilities, increase the size of existing facilities or issue additional debt securities, including secured debt, unsecured debt and/or debt securities convertible into common stock. Any such purchases or exchanges of outstanding debt would be subject to prevailing market conditions, our liquidity requirements, contractual and regulatory restrictions and other factors.

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 universal shelf registration statement that allows for the public offering and sale of our debt securities, common stock, preferred stock, subscription rights, and warrants and units to purchase such securities up to an indeterminate amount. 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 facility (the “2018 Facility”). The lenders have 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.

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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 September 30, 2020. 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 Credit 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 September 30, 2020, 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 three months ended September 30, 2020 and September 30, 2019, 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 September 30,
2020 2019
Average stated interest rate 2.37 4.45
Average outstanding balance 377,113 87,772

All values are in US Dollars.

As of September 30, 2020 and June 30, 2020, we had $512,615 and $545,496, respectively, available to us for borrowing under the Revolving Credit Facility, net of $250,993 and $237,536 outstanding borrowings as of the respective balance sheet dates. As of September 30, 2020, the investments, including cash and cash equivalents, used as collateral for the Revolving Credit Facility had an aggregate fair value of $1,519,658, which represents 28.1% 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 September 30, 2020, $8,596 remains to be amortized and is reflected as deferred financing costs on the Consolidated Statements of Assets and Liabilities.

During the three months ended September 30, 2020 and September 30, 2019, we recorded $4,633 and $5,422, respectively, of interest costs, unused fees and amortization of financing costs on the Revolving Credit Facility as interest expense.

Convertible 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.

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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 months 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”). On January 22, 2020, $2,215 aggregate principal amount of the 2020 Notes, representing 1.3% of the previously outstanding 2020 Notes, were validly tendered and accepted. The 2020 Notes December Tender Offer resulted in our recognizing a loss of $14 during the three months ended March 31, 2020. During the three months ended March 31, 2020, we repurchased an additional $45,111 aggregate principal amount of the 2020 Notes at a weighted average price of 100.5 including commissions. As a result of this transaction, we recorded a loss of $220, 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.

On April 15, 2020, we repaid the outstanding principal amount of $127,711 of the 2020 Notes, plus interest. No gain or loss was realized on the transaction.

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.

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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”). On January 22, 2020, $1,302 aggregate principal amount of the 2022 Notes, representing 0.5% of the previously outstanding 2022 Notes, were validly tendered and accepted. The 2022 Notes December Tender Offer resulted in our recognizing a loss of $51 during the three months ended March 31, 2020. During the three months ended March 31, 2020, we repurchased an additional $32,585 aggregate principal amount of the 2022 Notes at a weighted average price of 89.1 including commissions. As a result of this transaction, we recorded a gain of $3,045, 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 July 23, 2020, we commenced a tender offer to purchase for cash up to $100,000 aggregate principal amount of the 2022 Notes (“2022 Notes July Tender Offer”). On August 19, 2020, $29,420 aggregate principal amount of the 2022 Notes, representing 11.4% of the previously outstanding 2022 Notes, were validly tendered and accepted. The 2022 Notes July Tender Offer resulted in our recognizing a loss of $396 during the three months ended September 30, 2020.

On September 3, 2020, we commenced a tender offer to purchase for cash up to $228,820 aggregate principal amount of the 2022 Notes (“2022 Notes September Tender Offer”). The 2022 Notes September Tender Offer expired at 12:00 midnight, New York City time, on October 2, 2020 (one minute after 11:59 PM, on October 1, 2020). As of September 30, 2020, the outstanding aggregate principal amount of the 2022 Notes is $228,820.

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 September 30, 2020, 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.

2022 Notes 2025 Notes
Initial conversion rate(1) 100.2305 110.7420
Initial conversion price $ 9.98 $ 9.03
Conversion rate at September 30, 2020(1)(2) 100.2305 110.7420
Conversion price at September 30, 2020(2)(3) $ 9.98 $ 9.03
Last conversion price calculation date 4/11/2020 3/1/2020
Dividend threshold amount (per share)(4) $ 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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(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.
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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 $20,751 which are being amortized over the terms of the Convertible Notes. As of September 30, 2020, $3,113 of the original issue discount and $4,786 of the debt issuance costs remain to be amortized and is included as a reduction within Convertible Notes on the Consolidated Statement of Assets and Liabilities.

During the three months ended September 30, 2020 and September 30, 2019, we recorded $6,865 and $10,655, 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 September 30, 2020, 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 $3,705 loss 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 year ended June 30, 2019.

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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. On March 20, 2020, we commenced a tender offer to purchase for cash any and all of the $234,443 aggregate principal amount of the 2024 Notes (“2024 Notes March Tender Offer”). On March 31, 2020, $655 aggregate principal amount of the 2024 Notes, representing 0.3% of the previously outstanding 2024 Notes, were validly tendered and accepted. The 2024 Notes March Tender Offer, resulted in our recognizing a gain of $203 during the three months ended March 31, 2020. As of September 30, 2020, the outstanding aggregate principal amount of the 2024 Notes is $233,788.

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 September 30, 2020, 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 September 30, 2020, 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 September 30, 2020, 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 term of the notes. As of September 30, 2020, $1,935 of the original issue discount and $9,076 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 September 30, 2020 and September 30, 2019, we recorded $12,843 and $12,818, respectively, of interest costs and amortization of financing costs on the Public Notes as interest expense.

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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. 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®.

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 “September 2019 Selling Agent Agreement”), authorizing the issuance and sale from time to time of up to $500,000 of Prospect Capital InterNotes®. We sold approximately $1,700,000 in aggregate principal amount of Prospect Capital InterNotes® under the Original Selling Agent Agreement, May 2019 Selling Agent Agreement, and September 2019 Selling Agent Agreement (collectively the “Previous Selling Agent Agreements”).

On February 13, 2020, the September 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 $1,000,000 of Prospect Capital InterNotes® (collectively with the previously authorized selling agent agreements, the “InterNotes® Offerings”). 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. We have, from time to time, repurchased certain notes issued through the InterNotes® Offerings and, therefore, as of September 30, 2020, $718,321 aggregate principal amount of Prospect Capital InterNotes® were outstanding.

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 three months ended September 30, 2020, we issued $38,657 aggregate principal amount of Prospect Capital InterNotes® for net proceeds of $38,070. These notes were issued with stated interest rates ranging from 4.75% to 6.00% with a weighted average interest rate of 5.42%. These notes mature between July 15, 2025 and October 15, 2030.

The following table summarizes the Prospect Capital InterNotes® issued during the three months ended September 30, 2020:

Tenor at<br>Origination<br>(in years) Principal<br>Amount Interest Rate<br>Range Weighted<br>Average<br>Interest Rate Maturity Date Range
5 $ 24,906 4.75%–5.50% 5.31 % July 15, 2025 – October 15, 2025
7 5,884 5.00%–5.75% 5.49 % July 15, 2027 – October 15, 2027
10 7,867 5.25%–6.00% 5.75 % July 15, 2030 – October 15, 2030
$ 38,657

During the three months ended September 30, 2019, we issued $95,135 aggregate principal amount of our Prospect Capital InterNotes® for net proceeds of $93,459. These notes were issued with stated interest rates ranging from 3.75% to 5.50% with a weighted average interest rate of 4.51%. These notes mature between July 15, 2024 and October 15, 2029.

The following table summarizes the Prospect Capital InterNotes® issued during the three months ended September 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 $ 32,479 3.75%-5.00% 4.44 % July 15, 2024 – October 15, 2024
7 24,020 4.00%–5.25% 4.32 % July 15, 2026 – October 15, 2026
10 38,636 6.00%-6.25% 6.13 % July 15, 2028 – March 15, 2029
$ 95,135

During the three months ended September 30, 2020, we repaid $565 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 three months ended September 30, 2020 was $14.

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The following table summarizes the Prospect Capital InterNotes® outstanding as of September 30, 2020:

Tenor at<br>Origination<br>(in years) Principal<br>Amount Interest Rate<br>Range Weighted<br>Average<br>Interest Rate Maturity Date Range
5 $ 243,146 3.75% – 5.75% 4.86 % September 15, 2023 – October 15, 2025
7 110,348 4.00% – 6.00% 5.13 % July 15, 2024 – October 15, 2027
8 24,325 4.50% – 5.75% 4.67 % August 15, 2025 – July 15, 2026
10 167,479 3.75% – 6.25% 5.34 % January 15, 2024 – October 15, 2030
12 2,978 6.00% 6.00 % November 15, 2025 – December 15, 2025
15 16,851 5.75% – 6.00% 5.79 % May 15, 2028 – November 15, 2028
18 18,721 4.50% – 6.25% 5.58 % December 15, 2030 – August 15, 2031
20 3,812 5.75% – 6.00% 5.89 % November 15, 2032 – October 15, 2033
25 30,710 6.25% – 6.50% 6.39 % August 15, 2038 – May 15, 2039
30 99,951 5.50% – 6.75% 6.25 % November 15, 2042 – October 15, 2043
$ 718,321

During the three months ended September 30, 2019, we redeemed, prior to maturity $143,980 aggregate principal amount of Prospect Capital InterNotes® at par with a weighted average interest rate of 5.26% in order to replace shorter maturity debt with longer-term debt. During the three months ended September 30, 2019, we repaid $1,479 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 three months ended September 30, 2019 was $1,193.

The following table summarizes the Prospect Capital InterNotes® outstanding as of June 30, 2020:

Tenor at<br>Origination<br>(in years) Principal<br>Amount Interest Rate<br>Range Weighted<br>Average<br>Interest Rate Maturity Date Range
5 $ 218,240 3.75% – 5.75% 4.81 % September 15, 2023 - July 15, 2025
7.0 104,529 4.00% – 6.00% 5.11 % July 15, 2024 - July 15, 2027
8.0 24,325 4.50% – 5.75% 4.67 % August 15, 2025 - July 15, 2026
10 159,802 3.75% – 6.25% 5.32 % January 15, 2024 - July 15, 2030
12 2,978 6.00% 6.00 % November 15, 2025 - December 15, 2025
15 16,851 5.75% – 6.00% 5.79 % May 15, 2028 - November 15, 2028
18 18,741 4.50% – 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 30,710 6.25% – 6.50% 6.39 % August 15, 2038 - May 15, 2039
30 100,206 5.50% – 6.75% 6.25 % November 15, 2042 - October 15, 2043
$ 680,229

In connection with the issuance of Prospect Capital InterNotes®, we incurred $29,477 of fees which are being amortized over the term of the notes, of which $12,959 remains to be amortized and is included as a reduction within Prospect Capital InterNotes® on the Consolidated Statement of Assets and Liabilities as of September 30, 2020.

During the three months ended September 30, 2020 and September 30, 2019, we recorded $9,708 and $10,003, respectively, of interest costs and amortization of financing costs on the Prospect Capital InterNotes® as interest expense.

Net Asset Value

During the three months ended September 30, 2020, our net asset value increased by $125,166, or $0.22 per share. The increase was primarily attributable to an increase in net realized and net change in unrealized gains of $110,201, or $0.30 per weighted average share. The increase was primarily offset by $0.05 of dilution per share related to common stock issuances through our dividend reinvestment program, and further offset by distributions of $67,861, or $0.18 per weighted average share, exceeding net investment income of $57,545, or $0.15 per weighted average share, resulting in a net decrease of $0.03 per weighted average share for the three months ended September 30, 2020. The following table shows the calculation of net asset value per share as of September 30, 2020 and June 30, 2020.

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September 30, 2020 June 30, 2020
Net assets $ 3,181,027 $ 3,055,861
Shares of common stock issued and outstanding 378,776,958 373,538,499
Net asset value per share $ 8.40 $ 8.18

Results of Operations

Operating results for the three months ended September 30, 2020 and September 30, 2019 were as follows:

Three Months Ended September 30,
2020 2019
Investment income $ 142,880 $ 161,883
Operating expenses 85,335 90,823
Net investment income 57,545 71,060
Net realized gains (losses) from investments 2,843 (2,198 )
Net change in unrealized gains (losses) from investments 107,844 (48,459 )
Net realized losses on extinguishment of debt (486 ) (2,338 )
Net increase in net assets resulting from operations $ 167,746 $ 18,065

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.

Investment income consists of interest income, including accretion of loan origination fees and prepayment penalty fees, dividend income and other income, including settlement of net profits interests, overriding royalty interests and structuring fees.

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

Three Months Ended September 30,
2020 2019
Interest income $ 132,239 $ 145,956
Dividend income 25 4,254
Other income 10,616 11,673
Total investment income $ 142,880 $ 161,883
Average debt principal of performing interest bearing investments^(1)^ $ 5,395,867 $ 5,374,563
Weighted average interest rate earned on performing interest bearing investments^(1)^ 9.59 % 10.63 %
Average debt principal of all interest bearing investments^(2)^ $ 5,825,885 $ 5,972,978
Weighted average interest rate earned on all interest bearing investments^(2)^ 8.88 % 9.56 %

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

^(2)^ Excludes equity investments.

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Average interest income producing assets increased from $5,374,563 for the three months ended September 30, 2019 to $5,395,867 for the three months ended September 30, 2020. The average interest earned on interest bearing performing assets decreased from 10.63% for the three months ended September 30, 2019 to 9.59% for the three months ended September 30, 2020. The average interest earned on all interest bearing performing assets decreased from 9.56% for the three months ended September 30, 2019 to 8.88% for the three months ended September 30, 2020. The decrease in both is primarily 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 months ended September 30, 2020 and September 30, 2019, respectively:

Three Months Ended September 30,
2020 2019
Dividend income
Valley Electric Company, Inc. $ — $ 3,800
Other, net 25 454
Total dividend income $ 25 $ 4,254

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 months ended September 30, 2020 and September 30, 2019, respectively:

Three Months Ended September 30,
2020 2019
Structuring, advisory and amendment fees
National Property REIT Corp. $ — $ 8,039
Eze Castle Integration, Inc. 1,250 —
Other, net 176 271
Total structuring, advisory and amendment fees $ 1,426 $ 8,310
Royalty and net revenue interests
National Property REIT Corp. $ 8,898 $ 3,232
Other, net 168 —
Total royalty and net revenue interests $ 9,066 $ 3,232
Administrative agent fees
Other, net $ 124 $ 131
Total administrative agent fees 124 131
Total other income $ 10,616 $ 11,673

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.

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

Three Months Ended September 30,
2020 2019
Base management fee $ 26,850 $ 28,463
Income incentive fee 14,386 17,765
Interest and credit facility expenses 34,049 38,898
Allocation of overhead from Prospect Administration 4,657 3,494
Audit, compliance and tax related fees 938 375
Directors’ fees 113 113
Other general and administrative expenses 4,342 1,715
Total operating expenses $ 85,335 $ 90,823

Total gross and net base management fee was $26,850 and 28,463 for the three months ended September 30, 2020 and September 30, 2019, respectively. The decrease in total gross base management fee is directly related to a decrease in average total assets.

For the three months ended September 30, 2020 and September 30, 2019, we incurred $14,386 and $17,765 of income incentive fees, respectively. This decrease was driven by a corresponding decrease in pre-incentive fee net investment income from $88,825 for the three months ended September 30, 2019 to $71,931 for the three months ended September 30, 2020. No capital gains incentive fee has yet been incurred pursuant to the Investment Advisory Agreement.

During the three months ended September 30, 2020 and September 30, 2019, we incurred $34,049 and $38,898 respectively, of interest and credit facility expenses related to our Revolving Credit Facility, Convertible Notes, Public Notes and Prospect Capital InterNotes® (collectively, our “Notes”). These expenses are related directly to the leveraging capacity put into place for each of those periods 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 September 30,
2020 2019
Interest on borrowings $ 30,058 $ 32,449
Amortization of deferred financing costs 1,920 2,241
Accretion of discount on unsecured debt 269 254
Facility commitment fees 1,802 3,954
Total interest and credit facility expenses $ 34,049 $ 38,898
Average principal debt outstanding $ 2,314,135 $ 2,305,797
Annualized weighted average stated interest rate on borrowings^(1)^ 5.20 % 5.63 %
Annualized weighted average interest rate on borrowings^(2)^ 5.89 % 6.75 %
(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 decreased from $38,898 for the three months ended September 30, 2019 to $34,049 for the three months ended September 30, 2020. The weighted average stated interest rate on borrowings (excluding amortization, accretion and undrawn facility fees) decreased from 5.63% for the three months ended September 30, 2019 to 5.20% for the three months ended September 30, 2020. This decrease is primarily due to a decrease in the amount of additional InterNotes issued, increase in repurchased InterNotes in 2020 fiscal year, as well as repurchases of our Convertible Notes.

The allocation of net overhead expense from Prospect Administration was $4,657 and $3,494 for the three months ended September 30, 2020 and September 30, 2019, respectively. Prospect Administration received estimated payments of $66 and $584 directly from our portfolio companies, and certain funds managed by the Investment Adviser for legal services during the three months ended September 30, 2020 and September 30, 2019, respectively. We were given a credit for these payments as a reduction of the

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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 $5,393 and $2,203 for the three months ended September 30, 2020 and September 30, 2019, respectively. The $3,190 increase was primarily attributable to an increase in legal fees and investor relations related fees.

Net Investment Income

Net investment income represents the difference between investment income and operating expenses. Net investment income was $57,545 and $71,060 for the three months ended September 30, 2020 and September 30, 2019, respectively. The decrease of $13,515 was primarily due to a decrease in investment income of $19,003 partially offset by a decrease in operating expenses of $5,488. Refer to above Investment Income and Operating Expenses discussions for detail.

Net Realized (Losses) Gains

The following table details net realized gains (losses) from investments for the three months ended September 30, 2020 and September 30, 2019:

Three Months Ended September 30,
Portfolio Company 2020 2019
Spartan - Term Loan B $ 2,832 $ —
Madison Park Funding IX, Ltd. — (1,949 )
Voya CLO 2012-2 Ltd. — (450 )
Other, net 11 201
Net realized gains (losses) $ 2,843 $ (2,198 )

The following table details net realized losses on extinguishment of debt for the three months ended September 30, 2020 and September 30, 2019:

Three Months Ended September 30,
Debt Extinguished 2020 2019
2022 Notes $ (396 ) $ —
Prospect Capital InterNotes® (14 ) (1,193 )
2020 Notes — (668 )
Other, net (76 ) (477 )
Net realized losses $ (486 ) $ (2,338 )

Change in Unrealized (Losses) Gains

The following table details net change in unrealized (losses) gains for our portfolio for the three months ended September 30, 2020 and September 30, 2019, respectively:

Three Months Ended September 30,
2020^(1)^ 2019
Control investments $ 13,535 $ (39,021 )
Affiliate investments 66,473 18,020
Non-control/non-affiliate investments 27,836 (27,458 )
Net change in unrealized gains (losses) $ 107,844 $ (48,459 )

(1) For the three months ended September 30, 2020, the fair value of our investments was negatively impacted by the uncertainty surrounding the impact of the Wuhan Virus pandemic. For more information, see “Investment Valuation”.

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The following table details reflects net change in unrealized gains (losses) on investments for the three months ended September 30, 2020: Net Change in Unrealized Gains (Losses)
PGX Holdings, Inc. $ 57,771
Other, net 22,428
National Property REIT Corp. 11,430
Subordinated Structured Notes 9,689
First Tower Finance Company LLC 6,546
Pacific World Corporation 6,433
USES Corp. 5,137
Edmentum Ultimate Holdings, LLC 4,924
Valley Electric Company, Inc. 4,328
Engine Group, Inc. 4,076
Targus Cayman HoldCo Limited 3,778
MITY, Inc. (3,632 )
NMMB, Inc. (5,530 )
CP Energy Services Inc. (19,534 )
Net change in unrealized gains $ 107,844

The following table reflects net change in unrealized gains (losses) on investments for the three months ended September 30, 2019:

Net Change in Unrealized Gains (Losses)
National Property REIT Corp. $ 25,200
Edmentum Ultimate Holdings, LLC 12,972
Other, net 7,015
CP Energy Services Inc. (10,376 )
Pacific World Corporation (14,338 )
InterDent, Inc. (21,026 )
Valley Electric Company, Inc. (21,611 )
Subordinated Structured Notes (26,295 )
Net change in unrealized (losses) $ (48,459 )

Financial Condition, Liquidity and Capital Resources

For the three months ended September 30, 2020 and September 30, 2019, our operating activities provided $4,567 and provided $225,058 of cash, respectively. There were no investing activities for the three months ended September 30, 2020 and September 30, 2019. Financing activities used $20,825 and $225,982 of cash during the three months ended September 30, 2020 and September 30, 2019, respectively, which included dividend payments of $42,265 and $64,554, 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.

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 three months ended September 30, 2020, we borrowed $212,900 and we made repayments totaling $199,443 under the Revolving Credit Facility. As of September 30, 2020, our outstanding balance on the Revolving Credit Facility was $250,993. As of September 30, 2020, we had, net of unamortized discount and debt issuance costs, $422,171 outstanding on the Convertible Notes, $782,708 outstanding on the Public Notes and $705,362 outstanding on the Prospect Capital InterNotes® (See “Capitalization” above).

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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 September 30, 2020 and June 30, 2020, we had $42,099 and $41,487, 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 September 30, 2020 and June 30, 2020.

We have guaranteed $2,487 in standby letters of credit issued through a financial intermediary and $4,186 of equipment lease obligations on behalf of InterDent, Inc. (“InterDent”) as of September 30, 2020. 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 September 30, 2020, 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.

On February 13, 2020, we filed a registration statement on Form N-2 (File No. 333-236415) that was effective upon filing pursuant to Rule 462(e) under the Securities Act as permitted under the Small Business Credit Availability Act. The registration statement permits us to issue, through one or more transactions, an indeterminate amount of securities, consisting of common stock, preferred stock, debt securities, subscription rights to purchase our securities, warrants representing rights to purchase our securities or separately tradeable units combining two or more of our securities.

Our stockholders’ equity accounts as of September 30, 2020 and June 30, 2020 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.

We did not repurchase any shares of our common stock for the three months ended September 30, 2020 or September 30, 2019.

Off-Balance Sheet Arrangements

As of September 30, 2020, 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 October 5, 2020 through November 5, 2020 we issued $11,616 aggregate principal amount of Prospect Capital InterNotes® for net proceeds of $11,435.

The 2022 Notes September Tender Offer expired at 12:00 midnight, New York City time, on October 2, 2020 (one minute after 11:59 p.m., New York City time, on October 1, 2020). As of the expiration date, $6,035 aggregate principal amount of the 2022 Notes, representing 2.64% of the previously outstanding 2022 Notes, were validly tendered and accepted at the purchase price of 101.00, plus accrued and unpaid interest, pursuant to the 2022 Notes September Tender Offer. Following settlement of the 2022 Notes September Tender Offer on October 6, 2020, approximately $222,785 aggregate principal amount of the 2022 Notes remain outstanding.

During the period of October 15, 2020 through October 30, 2020, we provided $12,451 of Senior Secured Term Loan A funding to NPRC and its wholly-owned subsidiaries to fund the acquisition of a real estate property and support capital expenditures for existing real estate properties.

On October 16, 2020, Ahead Data Blue, LLC (“Ahead Data Blue”) fully repaid the $70,000 Second Lien Term Loan receivable to us at par. Concurrent with the repayment, we made a new $57,500 Second Lien Term Loan investment in Ahead Data Blue to support a change of control transaction.

On October 19, 2020, we commenced a tender offer to purchase for cash any and all of the aggregate outstanding 2022 Notes at the purchase price of 102.625, plus accrued and unpaid interest (the “2022 Notes October Tender Offer”), of which $222,785 aggregate principal amount was then outstanding following the settlement of the 2022 Notes September Tender Offer. The 2022 Notes October Tender Offer will expire at 12:00 midnight, New York City time, on November 17, 2020 (one minute after 11:59 p.m., New York City time, on November 16, 2020), or any other date and time to which the Company extends the 2022 Notes October Tender Offer.

On October 30, 2020, we entered into a Dealer Manager Agreement with Incapital LLC, pursuant to which Incapital LLC has agreed to serve as the Company’s agent and dealer manager for the Company’s offering of up to 10,000,000 shares, par value $0.001 per share, of 5.50% Series AA1 Preferred Stock, with a $250,000 aggregate liquidation preference (the “Series AA1

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Preferred Stock”, and together with the Series A1 Preferred Stock, Series M1 Preferred Stock and Series M2 Preferred Stock for purposes of “Recent Developments”, the “Preferred Stock”). In connection with such offering, on October 30, 2020, we filed Articles Supplementary with the State Department of Assessments and Taxation of Maryland, reclassifying and designating 20,000,000 shares of the Company’s authorized and unissued shares of common stock into shares of Preferred Stock as “Convertible Preferred Stock.”

On October 30, 2020, Halyard MD OpCo, LLC fully repaid the $10,265 First Lien Term Loan receivable to us at par.

On November 9, 2020, we announced the declaration of monthly dividends for our Preferred Stock for holders of record on the following dates based on an annual rate equal to 5.50% of the stated value of $25 per share as set forth in the Articles Supplementary for the Preferred Stock, from the date of issuance or, if later from the most recent dividend payment date, as follows:

Monthly Cash Preferred Shareholder Distribution Record Date Payment Date Monthly Amount ($ per share), before pro ration for partial periods
October and November 2020 11/18/2020 12/1/2020 $0.114583

On November 9, 2020, we announced the declaration of monthly dividends on our common stock as follows:

Monthly Cash Common Shareholder Distribution Record Date Payment Date Amount ($ per share)
November 2020 11/30/2020 12/24/2020 $0.0600
December 2020 12/31/2020 1/21/2021 $0.0600
January 2021 1/29/2021 2/18/2021 $0.0600

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 three months ended September 30, 2020.

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.

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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 September 30, 2020 and June 30, 2020, our qualifying assets as a percentage of total assets, stood at 74.53% and 74.44%, 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. 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.

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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.

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.

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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.
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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.

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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 September 30, 2020, approximately 0.7% 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 September 30, 2020, we do not expect to have any excise tax due for the 2020 calendar year. Thus, we have not accrued any excise tax for this period.

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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 stockholders 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 September 30, 2020, 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, 2017 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 September 30, 2020 and June 30, 2020, 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.

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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. The effectiveness of the amended guidance in ASU 2016-13 did not have a material effect on our consolidated financial statements and disclosures.

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. The effectiveness of the amended guidance in ASU 2018-13 did not have a material effect on our consolidated financial statements and disclosures.

In May 2020, the SEC adopted rule amendments that will impact the requirement of investment companies, including BDCs, to disclose the financial statements of certain of their portfolio companies or certain acquired funds (the “Final Rules”). The Final Rules adopted a new definition of “significant subsidiary” set forth in Rule 1-02(w)(2) of Regulation S-X under the Securities Act. Rules 3-09 and 4-08(g) of Regulation S-X require investment companies to include separate financial statements or summary financial information, respectively, in such investment company’s periodic reports for any portfolio company that meets the definition of “significant subsidiary.” The Final Rules adopt a new definition of “significant subsidiary” applicable only to investment companies that (i) modifies the investment test and the income test, and (ii) eliminates the asset test currently in the definition of “significant subsidiary” in Rule 1-02(w) of Regulation S-X. The new Rule 1-02(w)(2) of Regulation S-X is intended to more accurately capture these portfolio companies that are more likely to materially impact the financial condition of an investment company. The Final Rules will be effective on January 1, 2021, but voluntary compliance is permitted in advance of the effective date. We evaluated the impact of adopting the Final Rules on our consolidated financial statements and because the new definition of “significant subsidiary” contained therein is specific to investment companies, we elected to early adopt the Final Rules for our year ended June 30, 2020. Refer to Note 3. Portfolio Investments - Unconsolidated Significant Subsidiaries for disclosure.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform. The amendments in ASU 2020-04 provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The standard is effective as of March 12, 2020 through December 31, 2022. Management is currently evaluating the impact of the optional guidance on the Company's consolidated financial statements and disclosures. The Company did not utilize the optional expedients and exceptions provided by ASU 2020-04 during the three months ended September 30, 2020.

In August 2020, FASB issued ASU 2020-06, Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies the accounting for convertible instruments by removing the separation models for (1) convertible debt with a cash conversion feature and (2) convertible instruments with a beneficial conversion feature. As a result, after adoption, a convertible debt instrument will be accounted for as a single liability measured at its amortized cost. Additionally, ASU 2020-06 requires the application of the if-converted method to calculate the impact of convertible instruments on diluted earnings per share. ASU 2020-06 is effective for fiscal years beginning after December 15, 2021, with early adoption permitted.

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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 and Jobs 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. Additional uncertainty is anticipated particularly in light of the current presidential election in the United States and the impact the presidential and congressional elections may have on federal regulation and taxation. We will continue to monitor and account for the future impacts of federal regulatory and state guidance in the interim period in which such additional guidance is issued.

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. Uncertainty with respect to the economic effects of the Wuhan Virus outbreak has introduced significant volatility in the financial markets, and the effects of this volatility could materially impact our market risks, including those listed below. For additional information concerning the Wuhan Virus pandemic and its potential impact on our business and our operating results, see Part I, Item 1A. Risk Factors, “Risks Relating to Our Business - The Wuhan Virus pandemic has caused severe disruptions in the global economy, which has had, and may continue to have, a negative impact on our portfolio companies and our business and operations” in our Annual Report on Form 10-K.

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 Part II, Item 1A. Risk Factors, “Risks Relating to Our Business - Rising interest rates may adversely affect the value of our portfolio investments which could have an adverse effect on our business, financial condition and results of operations”.

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, three or six months after which they reset to current market interest rates. As of September 30, 2020, 85.93% of the interest earning investments in our portfolio, at fair value, bore interest at floating rates.

We also have a revolving credit facility that is 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 $250,993 as of September 30, 2020. 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 September 30, 2020, 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 $ 58,486 $ 7,530 $ 50,956 $ 40,765
Up 200 basis points $ 31,321 $ 5,020 $ 26,301 $ 21,041
Up 100 basis points $ 8,651 $ 2,510 $ 6,141 $ 4,913
Down 100 basis points $ (1,208 ) $ (382 ) $ (826 ) $ (661 )
(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 September 30, 2020, one, two, three, six, and twelve month LIBOR were 0.15%, 0.19%, 0.23%, 0.26%, and 0.36% respectively.

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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 September 30, 2020, we did not engage in hedging activities.

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Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As of September 30, 2020, 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. We are continually monitoring and assessing the Wuhan Virus pandemic to determine any potential impact on the design and operating effectiveness of our internal control over financial reporting.

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting during the quarter ended September 30, 2020, 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

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

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 September 30, 2020.

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, 2020, 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. (All figures in this item are in thousands except share, per share and other data.)

Risks Relating to Business

The Wuhan Virus pandemic has caused severe disruptions in the global economy, which has had, and may continue to have, a negative impact on our portfolio companies and our business and operations.

As of the filing date of this Quarterly Report, there is an outbreak of a highly contagious form of a novel coronavirus (“Wuhan Virus”). The Wuhan Virus has been declared a pandemic by the World Health Organization and, in response to the outbreak, the U.S. Health and Human Services Secretary has declared a public health emergency in the United States. The Wuhan Virus has had a devastating impact on the global economy, including the U.S. economy, and has resulted in a global economic rescission.

Many states, including those in which we and our portfolio companies operate, have issued orders requiring the closure of non-essential businesses and/or requiring or encouraging residents to stay at home. The Wuhan Virus pandemic and preventative measures taken to contain or mitigate its spread have caused, and are continuing to cause, business shutdowns, or the re-introduction of business shutdowns, cancellations of and restrictions on events and travel, significant reductions in demand for certain goods and services, reductions in and restrictions on business activity and financial transactions, supply chain interruptions and overall economic and financial market instability both globally and in the United States. Such effects will likely continue for the duration of the pandemic, which is uncertain, and for some period thereafter. While several countries, as well as certain states, counties and cities in the United States, have begun to lift the public health restrictions with a view to reopening their economies, recurring Wuhan Virus outbreaks have led to the re-introduction of such restrictions in certain states in the United States and globally and could continue to lead to the re-introduction of such restrictions elsewhere. Additionally, the absence of viable treatment options or a vaccine could lead people to continue to self-isolate and not participate in the economy at pre-pandemic levels for a prolonged period of time. Potential consequences of the current unprecedented measures taken in response to the spread of Wuhan Virus, and current market disruptions and volatility on our business include, but are not limited to:

• sudden, unexpected and/or severe declines in the market price of our securities or net asset value;
• inability of the Company to accurately or reliably value its portfolio;
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• inability of the Company to comply with certain asset coverage ratios that would prevent the Company from paying dividends to our common stockholders and that could result in breaches of covenants or events of default under our credit agreement or debt indentures;
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• inability of the Company to pay any dividends and distributions or service its debt;
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• inability of the Company to maintain its status as a regulated investment company under the Code;
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• potentially severe, sudden and unexpected declines in the value of our investments;
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• increased risk of default or bankruptcy by the companies in which we invest;
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• increased risk of companies in which we invest being unable to weather an extended cessation of normal economic activity and thereby impairing their ability to continue functioning as a going concern;
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• reduced economic demand resulting from mass employee layoffs or furloughs in response to governmental action taken to slow the spread of Wuhan Virus, which could impact the continued viability of the companies in which we invest;
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• companies in which we invest being disproportionally impacted by governmental action aimed at slowing the spread of Wuhan Virus or mitigating its economic effects;
• limited availability of new investment opportunities;
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• inability for us to replace our existing leverage when it becomes due or replace it on terms as favorable as our existing leverage;
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• a reduction in interest rates, including interest rates based on LIBOR and similar benchmarks, which may adversely impact our ability to lend money at attractive rates; and
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• general threats to the Company’s ability to operate successfully as a business development company.
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The Wuhan Virus pandemic (including the preventative measures taken in response thereto) has to date (i) created significant business disruption issues for certain of our portfolio companies, and (ii) materially and adversely impacted the value and performance of certain of our portfolio companies. The Wuhan Virus pandemic is having a particularly adverse impact on industries in which certain of our portfolio companies operate, including aircraft leasing, energy, hospitality, travel, retail and restaurants. Certain of our portfolio companies in other industries have also been significantly impacted. The Wuhan Virus pandemic is continuing as of the filing date of this Quarterly Report, and its extended duration may have further adverse impacts on our portfolio companies after September 30, 2020, including for the reasons described below. Although on March 27, 2020, the U.S. government enacted the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which contains provisions intended to mitigate the adverse economic effects of the Wuhan Virus pandemic, it is uncertain whether, or how much, our portfolio companies will be able to benefit from the CARES Act or any other subsequent legislation intended to provide financial relief or assistance. As a result of this disruption and the pressures on their liquidity, certain of our portfolio companies have been, or may continue to be, incentivized to draw on most, if not all, of the unfunded portion of any revolving or delayed draw term loans made by us, subject to availability under the terms of such loans.

The effects described above on our portfolio companies have, for certain of our portfolio companies to date, impacted their ability to make payments on their loans on a timely basis and in some cases have required us to amend certain terms, including payment terms. In addition, an extended duration of the Wuhan Virus pandemic may impact the ability of our portfolio companies to continue making their loan payments on a timely basis or meeting their loan covenants. The inability of portfolio companies to make timely payments or meet loan covenants may in the future require us to undertake similar amendment actions with respect to other of our investments or to restructure our investments. The amendment or restructuring of our investments may include the need for us to make additional investments in our portfolio companies (including debt or equity investments) beyond any existing commitments, exchange debt for equity, or change the payment terms of our investments to permit a portfolio company to pay a portion of its interest through payment-in-kind, which would defer the cash collection of such interest and add it to the principal balance, which would generally be due upon repayment of the outstanding principal.

The Wuhan Virus pandemic has adversely impacted the fair value of our investments as of September 30, 2020, and the values assigned as of this date may differ materially from the values that we may ultimately realize with respect to our investments. The impact of the Wuhan Virus pandemic may not yet be fully reflected in the valuation of our investments as our valuations, and particularly valuations of private investments and private companies, are inherently uncertain, may fluctuate over short periods of time and are often based on estimates, comparisons and qualitative evaluations of private information that is often from a time period earlier, generally two to three months, than the period for which we are reporting. Additionally, we may not have yet received information or certifications from our portfolio companies that indicate any or the full extent of declining performance or non-compliance with debt covenants, as applicable, as a result of the Wuhan Virus pandemic. As a result, our valuations at September 30, 2020 may not show the complete or continuing impact of the Wuhan Virus pandemic and the resulting measures taken in response thereto. In addition, write downs in the value of our investments have reduced, and any additional write downs may further reduce, our net asset value (and, as a result, our asset coverage calculation). Accordingly, we may continue to incur additional net unrealized losses or may incur realized losses after September 30, 2020, which could have a material adverse effect on our business, financial condition and results of operations.

The volatility and disruption to the global economy from the Wuhan Virus pandemic has affected, and is expected to continue to affect, the pace of our investment activity, which may have a material adverse impact on our results of operations. Such volatility and disruption have also led to the increased credit spreads in the private debt capital markets.

In response to the Wuhan Virus pandemic, Prospect Capital Management L.P. (“Prospect Capital Management” or our “Investment Adviser”) instituted a work from home policy. Although certain employees are currently allowed to return to their offices in certain circumstances, subject to health and safety protocols, it is expected that most employees will continue to work remotely for the foreseeable future. Extended periods of an extended period of remote working could strain our technology resources and introduce operational risks, including heightened cybersecurity risk. Remote working environments may be less secure and more susceptible to hacking attacks, including phishing and social engineering attempts that seek to exploit the Wuhan Virus pandemic.

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Despite actions of the U.S. federal government and foreign governments, the uncertainty surrounding the Wuhan Virus pandemic and other factors has contributed to significant volatility and declines in the global public equity markets and global debt capital markets, including the market price of shares of our common stock and the trading prices of our issued debt securities. Shares of our common stock are trading below our net asset value as of the filing date of this Quarterly Report. Market conditions may make it difficult for us to raise equity capital because, subject to some limited exceptions, as a BDC, we are generally not able to issue additional shares of our common stock at a price less than net asset value without general approval by our stockholders, which we currently have until June 12, 2021, and approval of the specific issuance by our Board of Directors. Moreover, these market conditions may make it difficult to access or obtain new indebtedness with similar terms to our existing indebtedness or otherwise have a negative effect on our cost of capital. See “Risk Factors-Risks Relating to Our Business-Capital markets may experience periods of disruption and instability. Such market conditions may materially and adversely affect debt and equity capital markets in the United States and abroad, which may have a negative impact on our business and operations” in our Annual Report on Form 10-K for the fiscal year ended June 30, 2020.

It is virtually impossible to determine the ultimate impact of Wuhan Virus at this time. Further, the extent and strength of any economic recovery after the Wuhan Virus pandemic abates, including following any “second wave” or other intensifying of the pandemic, is uncertain and subject to various factors and conditions. Even after the Wuhan Virus pandemic subsides, the U.S. economy and most other major global economies may continue to experience a recession.

Accordingly, an investment in the Company is subject to an elevated degree of risk as compared to other market environments.

Risks Relating to Our Securities

Senior securities, including debt and preferred equity, expose us to additional risks, including the typical risks associated with leverage and could adversely affect our business, financial condition and results of operations.

We use our revolving credit facility to leverage our portfolio and we expect in the future to borrow from and issue senior debt securities to banks and other lenders and may securitize certain of our portfolio investments. We also have the Unsecured Notes outstanding and have launched a convertible preferred share offering program, which are forms of leverage and are senior in payment rights to our common stock.

Business development companies are generally able to issue senior securities such that their asset coverage, as defined in the 1940 Act, equals at least 200% of gross assets less all liabilities and indebtedness not represented by senior securities, after each issuance of senior securities. In March 2018, the Small Business Credit Availability Act added Section 61(a)(2) to the 1940 Act, a successor provision to Section 61(a)(1) referenced therein, which reduces the asset coverage requirement applicable to business development companies from 200% to 150% so long as the business development company meets certain disclosure requirements and obtains certain approvals. On May 5, 2020, the Company's stockholders voted to approve the application of the reduced asset coverage requirements in Section 61(a) (2) to the Company effective as of May 6, 2020. As a result of the stockholder approval, effective May 6, 2020, the asset coverage ratio under the 1940 Act applicable to the Company decreased to 150% from 200%. In other words, under the 1940 Act, the Company is now able to borrow $2 for investment purposes for every $1 of investor equity, as opposed to borrowing $1 for investment purposes for every $1 of investor equity. As a result, the Company will be able to incur additional indebtedness in the future and investors in the Company may face increased investment risk. In addition, the Company’s management fee payable to the Investment Adviser is based on the Company's average adjusted gross assets, which includes leverage and, as a result, if the Company incurs additional leverage, management fees paid to the Investment Adviser would increase.

With certain limited exceptions, as a BDC, we are only allowed to borrow amounts or otherwise issue senior securities such that our asset coverage, as defined in the 1940 Act, is at least 150% after such borrowing or other issuance. The amount of leverage that we employ will depend on the Investment Adviser’s and our Board of Directors’ assessment of market conditions and other factors at the time of any proposed borrowing. There is no assurance that a leveraging strategy will be successful. Leverage involves risks and special considerations for stockholders, any of which could adversely affect our business, financial condition and results of operations, including the following:

• A likelihood of greater volatility in the net asset value and market price of our common stock;
• Diminished operating flexibility as a result of asset coverage or investment portfolio composition requirements required by lenders or investors that are more stringent than those imposed by the 1940 Act;
--- ---
• The possibility that investments will have to be liquidated at less than full value or at inopportune times to comply with debt covenants or to pay interest or dividends on the leverage;
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• Increased operating expenses due to the cost of leverage, including issuance and servicing costs;
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• Convertible or exchangeable securities, such as the Convertible Notes outstanding or those issued in the future (including the Preferred Stock (as defined herein)) may have rights, preferences and privileges more favorable than those of our common stock including, the case of the Preferred Stock, the statutory right under the 1940 Act to vote, as a separate class, on the election of two of our directors and approval of certain fundamental transactions in certain circumstances;
• Subordination to lenders’ superior claims on our assets as a result of which lenders will be able to receive proceeds available in the case of our liquidation before any proceeds will be distributed to our stockholders;
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• Difficulty meeting our payment and other obligations under the Unsecured Notes and our other outstanding debt or preferred equity;
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• The occurrence of an event of default if we fail to comply with the financial and/or other restrictive covenants contained in our debt agreements, including the credit agreement and each indenture governing the Unsecured Notes, which event of default could result in all or some of our debt becoming immediately due and payable;
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• Reduced availability of our cash flow to fund investments, acquisitions and other general corporate purposes, and limiting our ability to obtain additional financing for these purposes;
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• The risk of increased sensitivity to interest rate increases on our indebtedness with variable interest rates, including borrowings under our amended senior credit facility; and
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• Reduced flexibility in planning for, or reacting to, and increasing our vulnerability to, changes in our business, the industry in which we operate and the general economy.
--- ---

For example, the amount we may borrow under our revolving credit facility is determined, in part, by the fair value of our investments. If the fair value of our investments declines, we may be forced to sell investments at a loss to maintain compliance with our borrowing limits. Other debt facilities we may enter into in the future may contain similar provisions. Any such forced sales would reduce our net asset value and also make it difficult for the net asset value to recover. The Investment Adviser and our Board of Directors in their best judgment nevertheless may determine to use leverage if they expect that the benefits to our stockholders of maintaining the leveraged position will outweigh the risks.

• In addition, our ability to meet our payment and other obligations of the Preferred Stock, the Unsecured Notes and our credit facility depends on our ability to generate significant cash flow in the future. This, to some extent, is subject to general economic, financial, competitive, legislative and regulatory factors as well as other factors that are beyond our control. We cannot provide assurance that our business will generate cash flow from operations, or that future borrowings will be available to us under our existing credit facility or otherwise, in an amount sufficient to enable us to meet our payment obligations under the Preferred Stock, the Unsecured Notes and our other debt and to fund other liquidity needs. If we are not able to generate sufficient cash flow to service our debt and preferred equity obligations, we may need to refinance or restructure our debt or preferred equity, including the Unsecured Notes, sell assets, reduce or delay capital investments, or seek to raise additional capital. If we are unable to implement one or more of these alternatives, we may not be able to meet our payment obligations under the Preferred Stock, the Unsecured Notes and our other debt.

Illustration.    The following tables illustrate the effect of leverage on returns from an investment in our common stock assuming various annual returns, net of interest expense. The calculations in the tables below are hypothetical and actual returns may be higher or lower than those appearing below.

The below calculation assumes (i) $6.5 billion in total assets, (ii) an average cost of funds of 5.39% (including preferred dividend payments of 5.50% per annum), (iii) $2.0 billion in debt outstanding, (iv) $1.3 billion in liquidation preference of Preferred Stock outstanding, and (v) $3.2 billion of common stockholders’ equity. Assumed Return on Our Portfolio (net of expenses) (10)% (5)% 0% 5% 10%
Corresponding Return to Common Stockholder(1) (25.9)% (15.7)% (5.6)% 4.6% 14.8%

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The below calculation assumes (i) $6.5 billion in total assets, (ii) an average cost of funds of 5.33%, (iii) $2.2 billion in debt outstanding and (iv) $4.3 billion of common stockholders’ equity. Assumed Return on Our Portfolio (net of expenses) (10)% (5)% 0% 5% 10%
Corresponding Return to Common Stockholder(2) (17.8)% (10.3)% (2.7%) 4.8% 12.4%

(1) Assumes no conversion of Preferred Stock to common stock.

(2) Assumes conversion rate based on the 5-day VWAP of our common stock on September 30, 2020, which was $5.04, and a Holder Optional Conversion Fee (as defined in the prospectus supplement relating to the applicable offering) of 9.50% and 9.00% on Series A Preferred Stock and Series AA Preferred Stock, respectively, of the maximum public offering price disclosed within the applicable prospectus supplements. The actual 5-day VWAP of our common stock on a Holder Conversion Exercise Date may be more or less than $5.04, which may result in more or less shares of common stock issued.

The assumed portfolio return is required by regulation of the SEC and is not a prediction of, and does not represent, our projected or actual performance. Actual returns may be greater or less than those appearing in the table.

Pursuant to SEC regulations, this table is calculated as of September 30, 2020. As a result, it has not been updated to take into account any changes in assets or leverage since September 30, 2020.

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

Our common stock is traded on the NASDAQ Global Select Market under the symbol “PSEC.”

The following table sets forth, for the quarterly reporting periods indicated, the net asset value per share of our common stock and the high and low sales prices for our common stock, as reported on the NASDAQ Global Select Market. Our common stock historically has traded at prices both above and below its net asset value. There can be no assurance, however, that such premium or discount, as applicable, to net asset value will be maintained. See also “Item 1A. Risk Factors” in Part I of our Annual Report on Form 10-K for the year ended June 30, 2020 for additional information about the risks and uncertainties we face.

Stock Price Premium (Discount)<br><br>of High to NAV Premium<br><br>(Discount)<br><br>of Low to NAV
NAV(1) High(2) Low(2)
Year Ended June 30, 2019
First quarter $ 9.39 $ 7.58 $ 6.67 (19.3 )% (29.0 )%
Second quarter 9.02 7.27 5.77 (19.4 )% (36.0 )%
Third quarter 9.08 6.93 6.27 (23.7 )% (30.9 )%
Fourth quarter 9.01 6.83 6.24 (24.2 )% (30.7 )%
Year Ended June 30, 2020
First quarter $ 8.87 $ 6.73 $ 6.30 (24.1 )% (29.0 )%
Second quarter 8.66 6.70 6.37 (22.6 )% (26.4 )%
Third quarter 7.98 6.61 4.04 (17.2 )% (49.4 )%
Fourth quarter 8.18 5.74 3.78 (29.8 )% (53.8 )%
Twelve Months Ending June 30, 2021
First quarter $ 8.40 $ 5.17 $ 4.69 (38.5 )% (44.2 )%

(1) Net asset value per share is determined as of the last day in the relevant quarter and therefore may not reflect the net asset value per share on the date of the high or low sales price. The NAVs shown are based on outstanding shares of our common stock at the end of each period.

(2) The High/Low Stock Price is calculated as of the closing price on a given day in the applicable quarter.

Recent Sales of Common Stock Below Net Asset Value

At our 2009, 2010, 2011, 2012 and 2013 annual meeting of stockholders, and at a special meeting of stockholders held on June 12, 2020, our stockholders approved our ability to sell shares of our common stock at a price or prices below our NAV per share at the time of sale in one or more offerings. The current approval to sell shares of our common stock below our NAV per share is valid until June 12, 2021 and subject to certain conditions as set forth in the proxy statement relating to the special meeting (including that the number of shares sold on any given date does not exceed 25% of our outstanding common stock immediately prior to such sale). Accordingly, we may make offerings of our common stock without any limitation on the total amount of dilution to stockholders. Our prospectus supplement and accompanying prospectus relating to this offering contains additional information about these offerings. Pursuant to the authority granted at our June 12, 2020 special meeting of stockholders and the approval of our Board of Directors, we have made the following offerings:

Date of Offering Price Per Share to Investors Shares Issued Estimated Net Asset Value per Share(1) Percentage Dilution
June 15, 2020 to June 22, 2020(2) $5.29 - $5.40 1,158,222 $7.93 - 7.94 0.10%

(1) The data for sales of common shares below NAV pursuant to our equity distribution agreements are estimates based on our last reported NAV prior to the respective period adjusted for capital events occurring during the period since the last calculated NAV. All amounts presented are approximations based on the best available data at the time of issuance.

(2) At the market offering. Dates of offering represent the sales dates of the stock. The settlement dates are two business days later than the sale dates.

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FEES AND EXPENSES

The following tables are intended to assist you in understanding the costs and expenses that an investor in shares of common stock will bear directly or indirectly. We caution you that some of the percentages indicated in the table below are estimates and may vary. These tables are based on our assets and common stock outstanding as of September 30, 2020, except that we assume that we have issued $1.25 billion in Preferred Stock paying dividends of 5.50% per annum, we have borrowed $1.08 billion under our credit facility, which is the maximum amount available under the credit facility with the current levels of other debt, in addition to our other indebtedness of $1.9 billion. Except where the context suggests otherwise, any reference to fees or expenses paid by “you” or “us” or that “we” will pay fees or expenses, the Company will pay such fees and expenses out of our net assets and, consequently, you will indirectly bear such fees or expenses as an investor in the Company’s common stock. However, you will not be required to deliver any money or otherwise bear personal liability or responsibility for such fees or expenses.

Stockholder transaction expenses: A Shares M Shares AA Shares
Sales Load (as a percentage of offering price) 10.00%(1) 3.00%(2) 10.00%(3)
Offering expenses borne by the Company (as a percentage of offering price) (4) (4) (5)
Preferred Stock Dividend reinvestment plan expenses (6) None None None
Total stockholder transaction expenses (as a percentage of offering price): 11.5% 4.5% 10.5%
Annual expenses (as a percentage of net assets attributable to common stock):
Management fees (7) 4.66%
Incentive fees payable under Investment Advisory Agreement (20% of realized capital gains and 20% of pre-incentive fee net investment income) (8) 1.82%
Total advisory fees 6.48%
Total interest expenses (9) 4.56%
Other expenses (10) 1.27%
Total annual expenses (8)(10)(11) 12.31%
Dividends on Preferred Stock(12) 2.17%
Total annual expenses after dividends on Preferred Stock (13) 14.48%

Example

The following table demonstrates the projected dollar amount of cumulative expenses we would pay out of net assets and that you would indirectly bear over various periods with respect to a hypothetical investment in our common stock. In calculating the following expense amounts, we have assumed we have issued $1.25 billion in Preferred Stock paying dividends of 5.50% per annum, we have borrowed $251.0 million available under our line of credit, in addition to our other indebtedness of $1.9 billion, and that our annual operating expenses would remain at the levels set forth in the table above and that we would pay the costs shown in the table above.

1 Year 3 Years 5 Years 10 Years
A Shares and AA Shares - You would pay the following expenses on a $1,000 investment in shares of our common stock, assuming a 5% annual return on our portfolio* $ 149 $ 340 $ 508 $ 850
A Shares and AA Shares - You would pay the following expenses on a $1,000 investment in shares of our common stock, assuming a 5% annual return on our portfolio** $ 159 $ 363 $ 541 $ 887

* Assumes that we will not realize any capital gains computed net of all realized capital losses and unrealized capital depreciation on our portfolio.

** Assumes no unrealized capital depreciation or realized capital losses and 5% annual return on our portfolio resulting entirely from net realized capital gains (and therefore subject to the capital gains incentive fee).

While the example assumes, as required by the SEC, a 5% annual return on our portfolio, our performance will vary and may result in a return greater or less than 5%. The income incentive fee under our Investment Advisory Agreement with Prospect Capital Management is unlikely to be material assuming a 5% annual return on our portfolio and is not included in the

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example. If we achieve sufficient returns on our portfolio, including through the realization of capital gains, to trigger an incentive fee of a material amount, our distributions to our common stockholders and our expenses would likely be higher. In addition, while the example assumes reinvestment of all dividends and other distributions at NAV, common stockholders that participate in our common stock dividend reinvestment plan will receive a number of shares of our common stock determined by dividing the total dollar amount of the distribution payable to a participant by 95% of the market price per share of our common stock at the close of trading on the valuation date for the distribution.

This example and the expenses in the table above should not be considered a representation of our future expenses. Actual expenses (including the cost of debt, if any, and other expenses) may be greater or less than those shown.

(1)    Includes up to a 7.0% selling commission on the $25.00 per share (the “Stated Value”) paid by the Company and a dealer manager fee equal to 3.0% of the Stated Value paid by the Company. Reductions in selling commissions will be reflected in reduced public offering prices as described in the “Plan of Distribution” section of the applicable prospectus supplement and the net proceeds to us will not be impacted by such reductions; therefore, we will bear a reduction in net proceeds to us up to 7.0% of the Stated Value on all A Shares although the selling commission compensation paid by us to our dealer manager may represent less than 7.0% of the Stated Value. We may, through the Holder Optional Conversion Fee, recoup a portion of the Sales Load if stockholders exercise a Holder Optional Conversion (as defined in the prospectus supplement relating to the applicable offering) of their Preferred Stock prior to the 5-year anniversary of the original issue date. The Holder Optional Conversion Fee is 9.00% of the maximum public offering price disclosed herein prior to the first anniversary of the issuance of such Preferred Stock, 8.00% of the maximum public offering price disclosed herein on or after the first anniversary but prior to the second anniversary, 7.00% of the maximum public offering price disclosed herein on or after the second anniversary but prior to the third anniversary, 6.00% of the maximum public offering price disclosed herein on or after the third anniversary but prior to the fourth anniversary, 5.00% of the maximum public offering price disclosed herein on or after the fourth anniversary but prior to the fifth anniversary and 0.00% on or after the fifth anniversary.

(2)    Includes a dealer manager fee equal to 3.0% of the Stated Value paid by the Company.

(3)    Includes a 10% selling concession on the Stated Value paid by the Company. We may, through the Holder Optional Conversion Fee, recoup a portion of the Sales Load if stockholders exercise a Holder Optional Conversion of their Preferred Stock prior to the 5-year anniversary of the original issue date. The Holder Optional Conversion Fee is 9.50% of the maximum public offering price disclosed herein prior to the first anniversary of the issuance of such Preferred Stock, 8.50% of the maximum public offering price disclosed herein on or after the first anniversary but prior to the second anniversary, 7.50% of the maximum public offering price disclosed herein on or after the second anniversary but prior to the third anniversary, 6.50% of the maximum public offering price disclosed herein on or after the third anniversary but prior to the fifth anniversary and 0.00% on or after the fifth anniversary.

(4)    The selling commission and dealer manager fee, when combined with organization and offering expenses (including due diligence expenses and fees for establishing servicing arrangements for new stockholder accounts), are not expected to exceed 11.5% of the gross offering proceeds. Our Board of Directors may, in its discretion, authorize the Company to incur underwriting and other offering expenses in excess of 11.5% of the gross offering proceeds. In no event will the combined selling commission, dealer manager fee and offering expenses exceed FINRA’s limit on underwriting and other offering expenses.

(5)    The selling concession, when combined with organization and offering expenses (including due diligence expenses), are not expected to exceed 10.5% of the gross offering proceeds. Our Board of Directors may, in its discretion, authorize the Company to incur underwriting and other offering expenses in excess of 10.5% of the gross offering proceeds. In no event will the combined selling concession and offering expenses exceed FINRA’s limit on underwriting and other offering expenses.

(6)    The expenses of the dividend reinvestment plan are included in “other expenses.” See “Capitalization” in the applicable prospectus supplement.

(7)    Our base management fee is 2% of our gross assets (which include any amount borrowed, i.e., total assets without deduction for any liabilities, including any borrowed amounts for non-investment purposes, for which purpose we have not and have no intention of borrowing). Although no plans are in place to borrow the full amount under our line of credit, assuming that we borrowed $1.1 billion, the 2% management fee of gross assets equals approximately 4.66% of net assets.

(8)    Based on our net investment income and realized capital gains, less realized and unrealized capital losses, earned on our portfolio for the year ended September 30, 2020, all of which consisted of an income incentive fee. This historical amount

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has been adjusted to reflect the issuance of 50,000,000 shares of Preferred Stock. The capital gain incentive fee is paid without regard to pre-incentive fee income. For a more detailed discussion of the calculation of the two-part incentive fee, see “Management Services-Investment Advisory Agreement” in the applicable prospectus.

(9)    As of September 30, 2020, we had $1.9 billion outstanding of Unsecured Notes (as defined below) in various maturities, ranging from September 15, 2023 to October 15, 2043, and interest rates, ranging from 3.75% to 6.88%, some of which are convertible into shares of Company common stock at various conversion rates.

(10)    “Other expenses” are based on estimated amounts for the current fiscal year. The amount shown above represents annualized expenses during our year ended September 30, 2020 representing all of our estimated recurring operating expenses (except fees and expenses reported in other items of this table) that are deducted from our operating income and reflected as expenses in our Statement of Operations. The estimate of our overhead expenses, including payments under an administration agreement with Prospect Administration, or the Administration Agreement is based on our projected allocable portion of overhead and other expenses incurred by Prospect Administration in performing its obligations under the Administration Agreement. See “Business-Management Services-Administration Agreement” in the applicable prospectus.

(11)    If all 50,000,000 shares of Preferred Stock were converted into common stock and assuming all the Series A and Series AA Shares of Preferred Stock pay a Holder Optional Conversion Fee of 9.00% and 9.50%, respectively, of the maximum public offering price disclosed within the applicable prospectus supplement and are converted at a conversion rate based on the 5-day VWAP of our common stock on September 30, 2020, which was $5.04, then management fees would be 3.44%, incentive fees payable under our Investment Advisory Agreement would be 1.34%, total advisory fees would be 4.78%, total interest expenses would be 3.36%, other expenses would be 0.94%, and total annual expenses would be 9.00% of net assets attributable to our common stock. The actual 5-day VWAP of our common stock on a conversion date may be more or less than $5.04, which may result in fees that are higher or lower than those described herein. These figures are based on the same assumptions described in the other notes to this fee table.

(12)    Based on the 5.50% per annum dividend rate applicable to the A Shares, M Shares, and AA Shares. Other series of preferred stock, including other series of preferred stock being sold in different offerings, may bear different annual dividend rates. No dividend will be paid on shares of Preferred Stock after they have been converted to shares of common stock.

(13)     The indirect expenses associated with the Company’s investments in collateralized loan obligations are not included in the fee table presentation, but if such expenses were included in the fee table presentation then the Company’s total annual expenses would have been 13.10%, or 15.27% after dividends on Preferred Stock.

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 Eight Hundred Thirty-Seventh Supplemental Indenture dated as of July 2, 2020, to the U.S. Bank Indenture, and Form of 5.500% Prospect Capital InterNote® due 2025(3)
4.2 Eight Hundred Thirty-Eighth Supplemental Indenture dated as of July 2, 2020, to the U.S. Bank Indenture, and Form of 5.750% Prospect Capital InterNote® due 2027(3)
4.3 Eight Hundred Thirty-Ninth Supplemental Indenture dated as of July 2, 2020, to the U.S. Bank Indenture, and Form of 6.000% Prospect Capital InterNote® due 2030(3)
4.4 Eight Hundred Fortieth Supplemental Indenture dated as of July 9, 2020, to the U.S. Bank Indenture, and Form of 5.500% Prospect Capital InterNote® due 2025(4)
4.5 Eight Hundred Forty-First Supplemental Indenture dated as of July 9, 2020, to the U.S. Bank Indenture, and Form of 5.750% Prospect Capital InterNote® due 2027(4)
4.6 Eight Hundred Forty-Second Supplemental Indenture dated as of July 9, 2020, to the U.S. Bank Indenture, and Form of 6.000% Prospect Capital InterNote® due 2030(4)
4.7 Eight Hundred Forty-Third Supplemental Indenture dated as of July 16, 2020, to the U.S. Bank Indenture, and Form of 5.500% Prospect Capital InterNote® due 2025(5)
4.8 Eight Hundred Forty-Fourth Supplemental Indenture dated as of July 16, 2020, to the U.S. Bank Indenture, and Form of 5.750% Prospect Capital InterNote® due 2027(5)

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Exhibit No.
4.9 Eight Hundred Forty-Fifth Supplemental Indenture dated as of July 16, 2020, to the U.S. Bank Indenture, and Form of 6.000% Prospect Capital InterNote® due 2030(5)
4.10 Eight Hundred Forty-Sixth Supplemental Indenture dated as of July 23, 2020, to the U.S. Bank Indenture, and Form of 5.500% Prospect Capital InterNote® due 2025(6)
4.11 Eight Hundred Forty-Seventh Supplemental Indenture dated as of July 23, 2020, to the U.S. Bank Indenture, and Form of 5.750% Prospect Capital InterNote® due 2027(6)
4.12 Eight Hundred Forty-Eighth Supplemental Indenture dated as of July 23, 2020, to the U.S. Bank Indenture, and Form of 6.000% Prospect Capital InterNote® due 2030(6)
4.13 Eight Hundred Forty-Ninth Supplemental Indenture dated as of July 30, 2020, to the U.S. Bank Indenture, and Form of 5.500% Prospect Capital InterNote® due 2025(7)
4.14 Eight Hundred Fiftieth Supplemental Indenture dated as of July 30, 2020, to the U.S. Bank Indenture, and Form of 5.750% Prospect Capital InterNote® due 2027(7)
4.15 Eight Hundred Fifty-First Supplemental Indenture dated as of July 30, 2020, to the U.S. Bank Indenture, and Form of 6.000% Prospect Capital InterNote® due 2030(7)
4.16 Eight Hundred Fifty-Second Supplemental Indenture dated as of August 6, 2020, to the U.S. Bank Indenture, and Form of 5.500% Prospect Capital InterNote® due 2025(8)
4.17 Eight Hundred Fifty-Third Supplemental Indenture dated as of August 6, 2020, to the U.S. Bank Indenture, and Form of 5.750% Prospect Capital InterNote® due 2027(8)
4.18 Eight Hundred Fifty-Fourth Supplemental Indenture dated as of August 6, 2020, to the U.S. Bank Indenture, and Form of 6.000% Prospect Capital InterNote® due 2030(8)
4.19 Eight Hundred Fifty-Fifth Supplemental Indenture dated as of August 13, 2020, to the U.S. Bank Indenture, and Form of 5.500% Prospect Capital InterNote® due 2025(9)
4.20 Eight Hundred Fifty-Sixth Supplemental Indenture dated as of August 13, 2020, to the U.S. Bank Indenture, and Form of 5.750% Prospect Capital InterNote® due 2027(9)
4.21 Eight Hundred Fifty-Seventh Supplemental Indenture dated as of August 13, 2020, to the U.S. Bank Indenture, and Form of 6.000% Prospect Capital InterNote® due 2030(9)
4.22 Eight Hundred Fifty-Eighth Supplemental Indenture dated as of August 20, 2020, to the U.S. Bank Indenture, and Form of 5.250% Prospect Capital InterNote® due 2025(10)
4.23 Eight Hundred Fifty-Ninth Supplemental Indenture dated as of August 20, 2020, to the U.S. Bank Indenture, and Form of 5.500% Prospect Capital InterNote® due 2027(10)
4.24 Eight Hundred Sixtieth Supplemental Indenture dated as of August 20, 2020, to the U.S. Bank Indenture, and Form of 5.750% Prospect Capital InterNote® due 2030(10)
4.25 Eight Hundred Sixty-First Supplemental Indenture dated as of August 27, 2020, to the U.S. Bank Indenture, and Form of 5.250% Prospect Capital InterNote® due 2025(11)
4.26 Eight Hundred Sixty-Second Supplemental Indenture dated as of August 27, 2020, to the U.S. Bank Indenture, and Form of 5.500% Prospect Capital InterNote® due 2027(11)
4.27 Eight Hundred Sixty-Third Supplemental Indenture dated as of August 27, 2020, to the U.S. Bank Indenture, and Form of 5.750% Prospect Capital InterNote® due 2030(11)
4.28 Eight Hundred Sixty-Fourth Supplemental Indenture dated as of September 11, 2020, to the U.S. Bank Indenture, and Form of 5.000% Prospect Capital InterNote® due 2025(12)
4.29 Eight Hundred Sixty-Fifth Supplemental Indenture dated as of September 11, 2020, to the U.S. Bank Indenture, and Form of 5.200% Prospect Capital InterNote® due 2027(12)
4.30 Eight Hundred Sixty-Sixth Supplemental Indenture dated as of September 11, 2020, to the U.S. Bank Indenture, and Form of 5.400% Prospect Capital InterNote® due 2030(12)
4.31 Eight Hundred Sixty-Seventh Supplemental Indenture dated as of September 17, 2020, to the U.S. Bank Indenture, and Form of 5.000% Prospect Capital InterNote® due 2025(13)
4.32 Eight Hundred Sixty-Eighth Supplemental Indenture dated as of September 17, 2020, to the U.S. Bank Indenture, and Form of 5.200% Prospect Capital InterNote® due 2027(13)
4.33 Eight Hundred Sixty-Ninth Supplemental Indenture dated as of September 17, 2020, to the U.S. Bank Indenture, and Form of 5.400% Prospect Capital InterNote® due 2030(13)
4.34 Eight Hundred Seventieth Supplemental Indenture dated as of September 24, 2020, to the U.S. Bank Indenture, and Form of 5.000% Prospect Capital InterNote® due 2025(14)
4.35 Eight Hundred Seventy-First Supplemental Indenture dated as of September 24, 2020, to the U.S. Bank Indenture, and Form of 5.200% Prospect Capital InterNote® due 2027(14)
4.36 Eight Hundred Seventy-Second Supplemental Indenture dated as of September 24, 2020, to the U.S. Bank Indenture, and Form of 5.400% Prospect Capital InterNote® due 2030(14)
10.1 Articles of Amendment(15)

149

Exhibit No.
10.2 Articles Supplementary to the Articles of Amendment and Restatement of Prospect Capital Corporation (16)
10.3 Articles Supplementary to the Articles of Amendment and Restatement of Prospect Capital Corporation (17)
10.4 Certificate of Correction to the Articles Supplementary of Prospect Capital Corporation(18)
10.5 Dealer Manager Agreement, dated as of August 3, 2020, by and between Prospect Capital Corporation and Preferred Capital Securities, LLC(19)
10.6 Escrow Agreement, by and between Preferred Capital Securities, LLC, Prospect Capital Corporation and UMB Bank, National Association(20)
10.7 Form of Subscription Agreement(21)
10.8 Dealer Manager Agreement, dated October 30, 2020, by and among, the Company, Prospect Capital Management(22)
10.9 Preferred Stock Dividend Reinvestment Plan(23)
10.10 Amended and Restated Preferred Stock Dividend Reinvestment Plan(24)
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. 15 to the Registration Statement on Form N-2, filed on July 2, 2020.
(4) Incorporated by reference from the Registrant’s Post-Effective Amendment No. 16 to the Registration Statement on Form N-2, filed on July 9, 2020.
(5) Incorporated by reference from the Registrant’s Post-Effective Amendment No. 17 to the Registration Statement on Form N-2, filed on July 16, 2020.
(6) Incorporated by reference from the Registrant’s Post-Effective Amendment No. 18 to the Registration Statement on Form N-2, filed on July 23, 2020.
(7) Incorporated by reference from the Registrant’s Post-Effective Amendment No. 19 to the Registration Statement on Form N-2, filed on July 30, 2020.
(8) Incorporated by reference from the Registrant’s Post-Effective Amendment No. 20 to the Registration Statement on Form N-2, filed on August 6, 2020.
(9) Incorporated by reference from the Registrant’s Post-Effective Amendment No. 21 to the Registration Statement on Form N-2, filed on August 13, 2020.
(10) Incorporated by reference from the Registrant’s Post-Effective Amendment No. 22 to the Registration Statement on Form N-2, filed on August 20, 2020.
(11) Incorporated by reference from the Registrant’s Post-Effective Amendment No. 23 to the Registration Statement on Form N-2, filed on August 27, 2020.
(12) Incorporated by reference from the Registrant’s Post-Effective Amendment No. 24 to the Registration Statement on Form N-2, filed on September 11, 2020.
(13) Incorporated by reference from the Registrant’s Post-Effective Amendment No. 25 to the Registration Statement on Form N-2, filed on September 17, 2020.
(14) Incorporated by reference from the Registrant’s Post-Effective Amendment No. 26 to the Registration Statement on Form N-2, filed on September 24, 2020.
(15) Incorporated by reference to Exhibit 3.1 of the Registrant’s Form 8-K, filed on August 4, 2020.
(16) Incorporated by reference to Exhibit 3.2 of the Registrant’s Form 8-K, filed on August 4, 2020.
(17) Incorporated by reference to Exhibit 3.1 of the Registrant’s Form 8-K, filed on November 4, 2020.
(18) Incorporated by reference to Exhibit 3.2 of the Registrant’s Form 8-K, filed on November 4, 2020.
(19) Incorporated by reference to Exhibit 1.1 of the Registrant’s Form 8-K, filed on August 4, 2020.
(20) Incorporated by reference to Exhibit 10.1 of the Registrant’s Form 8-K, filed on August 4, 2020.

150

(21) Incorporated by reference to Exhibit 4.1 of the Registrant’s Form 8-K, filed on August 4, 2020.
(22) Incorporated by reference to Exhibit 1.1 of the Registrant’s Form 8-K, filed on November 4, 2020.
(23) Incorporated by reference to Exhibit 99.1 of the Registrant’s Form 8-K, filed on August 4, 2020.
(24) Incorporated by reference to Exhibit 99.1 of the Registrant’s Form 8-K, filed on November 4, 2020.

151

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
November 9, 2020 By: /s/ JOHN F. BARRY III
Date John F. Barry III
Chairman of the Board and Chief Executive Officer
November 9, 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: November 9, 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: November 9, 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 September 30, 2020 (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: November 9, 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 September 30, 2020 (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: November 9, 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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