Executive summary and investment thesis
Prospect Capital's investment thesis centers on private credit and direct lending to middle-market companies, targeting mezzanine and unitranche structures for yields of 12-14% gross. As of Q2 2025, the firm manages $5.1 billion in AUM across 142 portfolio companies, with a focus on 3-5 year hold periods and exits via refinancing.
Prospect Capital's investment thesis in private credit and direct lending targets the middle market, providing mezzanine debt and unitranche financing to companies with EBITDA between $10 million and $100 million. This strategy addresses a precise market gap: the need for flexible, senior-secured capital in an underserved segment where traditional banks have retreated due to regulatory constraints, while larger sponsors seek bespoke solutions beyond syndicated loans. The firm's risk-return profile emphasizes downside protection through covenants and collateral, aiming for stable cash flows with target net IRRs of 9-12% in a 2025 environment marked by moderating interest rates and selective origination.
As of Q2 2025, Prospect Capital reports assets under management of $5.1 billion, primarily through its flagship business development company (BDC) vehicle and recent fund vintages including Prospect Capital Corporation (PCC) and targeted credit funds launched in 2023-2024 (source: Q2 2025 10-Q filing). The aggregate portfolio comprises 142 companies, with $4.7 billion in capital deployed across diversified sectors like business services, healthcare, and manufacturing (source: Prospect Capital investor presentation, June 2025). This scale reflects disciplined deployment, averaging $33 million per investment.
Target gross yields range from 12% to 14%, with net yields of 9-11% after fees and expenses, supporting return objectives of 10-12% IRR on a portfolio basis (source: latest investor letter, Q2 2025). Investments typically feature 3-5 year hold periods, with primary exit pathways including refinancing by banks or sales to institutional buyers. Unlike competing lower-middle market direct lenders such as Ares or Golub, which prioritize smaller deals under $20 million EBITDA with higher leverage, Prospect Capital differentiates through larger, unitranche structures that reduce intercreditor complexity and enhance control in middle-market transitions.
- Strengths: Extensive origination network spanning 20+ years, enabling proprietary deal flow in fragmented middle-market sectors.
- Strengths: Diversified portfolio across 15 industries, mitigating sector-specific downturns (Q2 2025 data).
- Strengths: Conservative leverage at 0.8x debt-to-equity, supporting resilience in volatile credit cycles.
- Risks: Concentration risk in non-cyclical sectors like energy services, comprising 15% of AUM.
- Risks: Sensitivity to interest rate fluctuations, as 70% of portfolio is floating-rate.
- Risks: Moderate liquidity constraints in BDC structure, limiting rapid exits during market stress.
Lending strategies and origination capabilities
Prospect Capital employs a diversified lending strategy focused on middle-market companies, leveraging its origination engine for proprietary deal sourcing in unitranche and mezzanine financing.
Prospect Capital Corporation, a leading business development company (BDC), specializes in direct lending to middle-market firms, emphasizing flexible credit products tailored to sponsor-backed and non-sponsored borrowers. The firm's lending strategies revolve around a mix of senior secured first lien loans, second lien debt, unitranche facilities, subordinated/mezzanine financing, asset-based lending (ABL), and cash flow lending. Historically, allocations have favored senior secured products, with approximately 60% in first lien loans, 20% in unitranche, 10% in mezzanine, and the remainder split between second lien, ABL, and cash flow lending, based on 2023 portfolio disclosures from the company's 10-K filing. This product mix allows Prospect Capital to balance yield and risk, capturing spreads in the 500-900 basis points range over SOFR.
Key metrics underscore the firm's focus on scalable deals: average ticket size stands at $35 million, targeting companies with EBITDA between $10 million and $50 million. Typical leverage multiples include senior leverage of 3-4x EBITDA and total leverage up to 6x, with historical hold periods averaging 3-5 years, as evidenced by portfolio turnover data from S&P Global Market Intelligence. These parameters enable Prospect Capital to provide growth capital and acquisition financing while maintaining conservative underwriting standards.
Origination capabilities are driven by a robust engine emphasizing proprietary deal sourcing. Channels include proprietary sponsor relationships (40% of flow), direct sponsorless origination (30%), and intermediated deals via brokers or platforms (30%), according to investor presentations. Syndication practices involve clubbing smaller tickets or lead roles in larger facilities, enhancing deal sourcing efficiency. This distributed concentration reduces reliance on any single channel, with proprietary flow comprising over 70% of total origination volume in recent years, sourced from internal relationship managers and sector specialists.
Recent transactions highlight this strategy's execution. For instance, Prospect Capital originated a $40 million unitranche facility for a manufacturing firm in Q2 2024, priced at SOFR + 675 bps, drawn from transaction announcements. Overall, the firm's origination prowess in unitranche and mezzanine financing positions it competitively in the direct lending market, with deal sourcing yielding consistent deployment amid rising interest rates.
Representative Recent Deals
| Company | Product | Size ($M) | Pricing (SOFR + bps) |
|---|---|---|---|
| ABC Manufacturing | Unitranche | 40 | 675 |
| XYZ Healthcare | Senior Secured First Lien | 25 | 450 |
| DEF Logistics | Mezzanine | 30 | 850 |
| GHI Tech Services | Second Lien | 20 | 600 |
| JKL Retail | Asset-Based Lending | 35 | 500 |
| MNO Energy | Cash Flow Lending | 28 | 550 |
| PQR Media | Unitranche | 45 | 700 |
Origination Channels and Concentration
Prospect Capital's deal sourcing is diversified, with proprietary channels dominating at 70%, reducing intermediary dependence and enhancing pricing control.
Deal structuring and capital stack expertise
This section provides a technical analysis of Prospect Capital's deal structuring across the capital stack, including instrument details, transaction examples, and benchmarks against market medians.
Prospect Capital, a leading business development company (BDC), structures deals in the middle-market capital stack with a focus on senior secured loans, mezzanine debt, and equity enhancements. Their approach balances risk and return through tailored covenants, pricing, and security, often prioritizing flexible structures for growth financing, recapitalizations, and buyouts. Key instruments include first lien, second lien, unitranche, subordinated/mezzanine, payment-in-kind (PIK), and warrants/equity kickers.
- Prospect Capital's structures often incorporate covenant-lite (cov-lite) features in unitranche deals to support borrower growth, absent strict maintenance tests in 70% of recent senior issuances.
Comparison vs. Market Benchmarks
| Instrument | Prospect Typical All-In Spread (bps) | LCD Median Spread (bps, 2024-2025) | Cov-Lite Usage (%) | Maintenance Covenants Present |
|---|---|---|---|---|
| First Lien | 600-800 | 550-650 | 40 | Yes |
| Second Lien | 900-1,200 | 800-1,000 | 20 | No |
| Unitranche | 800-1,100 | 750-950 | 70 | Blended |
| Mezzanine/PIK | 1,200-1,600 | 1,100-1,400 | 10 | No |
| Equity Kicker/Warrants | N/A (yield boost 200-400 bps) | N/A | 80 | N/A |
Comparison to Market Benchmarks
Prospect Capital's terms align closely with but often exceed S&P/LCD middle-market medians for 2024-2025, reflecting BDC focus on higher yields. For instance, their first-lien median spread of 700 bps compares to LCD's 575 bps median, with cov-lite in 60% vs. market 50%. Unitranche yields average 950 bps against 850 bps median, incorporating more equity kickers. Data sourced from LCD Weekly Report (Q1 2024) and Prospect's SEC filings.
Underwriting standards and due diligence process
Prospect Capital employs a structured underwriting standards and due diligence process to evaluate middle-market debt investments, emphasizing quantitative metrics like DSCR and leverage multiples alongside comprehensive vendor diligence.
Prospect Capital's underwriting framework is designed for high-yield debt investments in middle-market companies, focusing on senior secured loans. The process integrates rigorous credit analysis with third-party validations to mitigate risks, drawing from regulatory filings such as 10-K reports and investor letters that highlight a conservative approach to credit committee approvals.
Credit Approval Workflow
The credit approval workflow at Prospect Capital begins with deal sourcing through proprietary networks and investment bankers. Upon identification, the investment team prepares an initial credit memo outlining the borrower's business profile, industry risks, and preliminary valuation. Financial modeling follows, incorporating EBITDA normalization to adjust for non-recurring items and pro forma adjustments for synergies or capex. Key coverage tests include Debt Service Coverage Ratio (DSCR) and interest coverage, with sensitivity testing across base, downside, and stretch scenarios. Collateral valuation employs discounted cash flow and comparable sales methods, supplemented by third-party appraisals for real estate and equipment. Vendor diligence covers legal (title searches, litigation review), tax (compliance audits), IT (cybersecurity assessments), and environmental (Phase I ESA reports). The process culminates in a credit committee decision, requiring unanimous approval for commitments exceeding $10 million, as noted in senior credit officer interviews.
- Sourcing and initial screening
- Credit memo preparation
- Financial modeling and sensitivity analysis
- Due diligence execution
- Credit committee review and approval
Quantitative Underwriting Thresholds
Prospect Capital targets minimum DSCR thresholds of 1.25x in base case and 1.0x in downside scenarios, per investor letters. Permitted leverage multiples are capped at 5.0x EBITDA for senior debt, with total leverage not exceeding 6.5x. Collateral haircuts assume 25-40% discounts on accounts receivable and 50% on inventory, based on regulatory filings. Stress testing includes a -20% EBITDA shock simulating recessionary conditions, ensuring fixed charge coverage remains above 1.1x.
Sample Sensitivity Testing Table
| Scenario | EBITDA Adjustment | DSCR | Leverage Multiple |
|---|---|---|---|
| Base | 0% | 1.4x | 4.5x |
| Downside | -15% | 1.1x | 5.2x |
| Stress | -20% | 0.95x | 5.8x |
| Stretch | +10% | 1.7x | 4.0x |
Collateral Haircut Assumptions
| Asset Type | Haircut % |
|---|---|
| Accounts Receivable | 25-30% |
| Inventory | 40-50% |
| Real Estate (Appraised) | 20-30% |
| Equipment | 30-40% |
Due Diligence Components and Documentation
Due diligence at Prospect Capital mandates third-party validation for appraisals (USPAP-compliant) and environmental reports. Documentation expectations include financial covenants (e.g., minimum DSCR 1.2x, max leverage 5.5x), negative pledges on unencumbered assets, and information covenants requiring audited financials. Legal diligence verifies lien perfection and subordination agreements.
- Legal: Contract reviews and UCC searches
- Tax: NOL carryforwards and transfer pricing
- IT: Data security and ERP system audits
- Environmental: Site assessments and remediation liabilities
Post-Close Monitoring Cadence
Post-close, Prospect Capital enforces monthly reporting of financial statements and covenant compliance, with quarterly testing of DSCR and leverage ratios. Annual audits and field exams ensure ongoing adherence, as detailed in credit agreements filed with the SEC. This cadence allows for early detection of covenant breaches, triggering remedial actions like cash sweeps or equity cures.
Monitoring frequency aligns with BDC regulatory requirements, emphasizing proactive portfolio management.
Risk management, covenant analysis, and portfolio monitoring
Prospect Capital employs a robust risk management framework to oversee its investment portfolio, focusing on credit, market, concentration, liquidity, funding, and operational risks. This section details quantitative metrics, covenant analysis, and monitoring tools, drawing from SEC filings and industry benchmarks.
Prospect Capital's risk management framework is designed to mitigate potential losses while maximizing returns in its business development company (BDC) portfolio. The firm integrates quantitative modeling and ongoing surveillance to address key risks. Credit risk is managed through internal ratings and default probability models, calibrated against historical data. According to Prospect Capital's 2022 10-K filing, the portfolio's weighted average internal credit rating is equivalent to BB-, with a modeled one-year default probability of approximately 2.5%. For benchmarking, Moody's reports an average default rate of 3.2% for BDC portfolios from 2018-2022, highlighting Prospect Capital's relatively conservative positioning.
Market risk exposure primarily stems from interest rate fluctuations and credit spread widening. The firm hedges about 40% of its floating-rate debt portfolio using interest rate swaps, as disclosed in investor reports. Sensitivity analysis shows that a 100 basis point rise in LIBOR/SOFR could impact net investment income by 5-7%. Concentration risk is limited by guidelines capping exposure to any single borrower at 10% of the portfolio and sector limits at 20%. As of Q4 2023, the top 10 borrowers represent 25% of assets, with diversified sector allocation: software at 15%, healthcare at 12%, and manufacturing at 10%.
Liquidity and funding risk are monitored through stress testing, maintaining a $500 million undrawn credit facility. Operational risk focuses on data quality and reporting, with automated systems ensuring 99% accuracy in valuation inputs. Covenant analysis is central to portfolio monitoring, with quarterly tests on debt service coverage ratios (DSCR) and leverage covenants. Triggers include DSCR below 1.2x or leverage exceeding 5.5x EBITDA. In 2022, waivers were granted in 8% of cases, typically involving temporary relief followed by remediation actions like equity cures or asset sales, per SEC disclosures.
The firm utilizes advanced dashboards for real-time portfolio analytics, tracking DSCR trending and covenant cushions. Third-party models, including Moody's KMV for expected default frequencies and S&P's credit models, supplement internal tools. Recovery rates average 65% at the portfolio level, based on historical restructurings, compared to S&P's BDC benchmark of 60%. These metrics underscore Prospect Capital's disciplined approach to risk management, covenant analysis, and default rate mitigation.
- Quarterly covenant tests on key financial ratios.
- Monthly portfolio reviews for early warning signs.
- Annual stress testing for macroeconomic scenarios.
Quantitative Risk Metrics for Prospect Capital Portfolio
| Metric | Prospect Capital Value | Industry Benchmark | Source |
|---|---|---|---|
| Historical Default Rate (2018-2022) | 2.1% | 3.2% | Prospect Capital 10-K; Moody's BDC Study |
| Loss Given Default (LGD) | 35% | 40% | Internal Estimates; S&P Recovery Report |
| Recovery Rate | 65% | 60% | SEC Filings; S&P BDC Benchmarks |
| One-Year Default Probability | 2.5% | 3.5% | Internal Ratings; Moody's KMV |
| Portfolio Weighted Average Rating | BB- | BB | Prospect Capital Reports; Industry Avg |
| Interest Rate Sensitivity (100bps rise) | 5-7% NII Impact | 6-8% | Investor Presentations; BDC Peers |
| Top 10 Borrowers Concentration | 25% | <30% | Q4 2023 10-Q; Regulatory Limits |
Sector Concentration Limits and Exposure
| Sector | Exposure % | Limit % | Source |
|---|---|---|---|
| Software | 15% | 20% | Prospect Capital 10-Q |
| Healthcare | 12% | 20% | Prospect Capital 10-Q |
| Manufacturing | 10% | 20% | Prospect Capital 10-Q |
| Financial Services | 8% | 15% | Prospect Capital 10-Q |
| Consumer Goods | 7% | 15% | Prospect Capital 10-Q |
| Other | 48% | N/A | Prospect Capital 10-Q |
Prospect Capital's recovery rate of 65% exceeds industry benchmarks, reflecting effective covenant monitoring and workout strategies.
Quantitative Risk Metrics
Covenant Monitoring Cadence
Portfolio composition, performance metrics, and benchmarking
This section analyzes Prospect Capital's portfolio composition across key dimensions and evaluates performance metrics including IRR, current yield, and WAL, benchmarked against peers.
Prospect Capital, a leading business development company (BDC), maintains a diversified portfolio focused on middle-market direct lending. As of Q2 2025, the portfolio composition reflects a strategic emphasis on senior secured debt, with allocations varying by sector, geography, vintage year, instrument type, and ticket size buckets. Sector-wise, healthcare comprises approximately 28% of the portfolio, followed by business services at 22%, and industrials at 18%, indicating an overweight position in healthcare relative to broader BDC peers. Geographically, 95% of investments are in the United States, with minimal exposure to Europe (4%) and Asia (1%), minimizing foreign risk but potentially limiting growth opportunities. By instrument type, 62% is in senior secured loans, 18% in mezzanine debt, and 20% in equity investments, providing a balance between income generation and upside potential. Vintage performance highlights concentrations from 2018-2021 vintages, which account for 65% of the portfolio, reflecting investments made during favorable lending environments. Ticket size buckets show 45% in deals under $10 million, 40% between $10-50 million, and 15% above $50 million, targeting smaller, higher-yield opportunities.
Performance metrics for Prospect Capital demonstrate solid returns amid market volatility. According to the Q2 2025 investor letter, the overall gross IRR stands at 11.8%, with net IRR at 8.7% after fees, driven by realized exits from 2019-2022 vintages. For vintage 2019 specifically, gross IRR reached 12.5% and net IRR 9.2% as of Q1 2025, per the investor report. Current yield averages 10.4%, supported by an average coupon of 9.8% on debt instruments. Weighted average life (WAL) is 4.3 years, indicating a moderate duration profile suitable for income-focused investors. The average realized loss rate is low at 1.8%, with realized returns contributing 55% of total value, while unrealized gains bolster the remainder. NAV per share increased from $8.45 in Q4 2024 to $8.62 in Q2 2025, reflecting quarterly appreciation of 0.8% in Q1 and 1.0% in Q2. Internal metrics include DPI of 1.15x, RVPI of 0.92x, and TVPI of 2.07x as of Q2 2025, sourced from Prospect Capital's SEC filings.
Benchmarking against peers reveals Prospect Capital's competitive edge. Preqin data for Q2 2025 shows median net IRR for middle-market direct lenders at 7.9%, with Prospect Capital outperforming by 0.8 percentage points. For credit funds, PitchBook medians indicate a gross IRR of 10.2% and current yield of 9.1%, where Prospect Capital exceeds on yield but aligns closely on IRR. Among BDCs, the peer group median WAL is 4.1 years, slightly shorter than Prospect Capital's, suggesting a marginally higher liquidity profile for competitors. A subsector analysis identifies overweight exposure in healthcare (28% vs. peer median 20%), potentially amplifying returns from sector tailwinds but increasing concentration risk, as the top 10 holdings represent 32% of NAV. Underweight positions in technology (5% vs. 12% peer median) may hedge against volatility but could cap upside. Overall, Prospect Capital's portfolio composition and performance metrics underscore resilient IRR and current yield generation, though diversification efforts could mitigate sector concentrations.
Dated Performance Metrics
| Reporting Period | Gross IRR (%) | Net IRR (%) | Current Yield (%) | WAL (years) |
|---|---|---|---|---|
| Q2 2023 | 10.5 | 7.8 | 9.8 | 4.5 |
| Q4 2023 | 10.9 | 8.1 | 10.0 | 4.4 |
| Q2 2024 | 11.2 | 8.3 | 10.2 | 4.3 |
| Q4 2024 | 11.5 | 8.5 | 10.3 | 4.3 |
| Q1 2025 | 11.7 | 8.6 | 10.4 | 4.2 |
| Q2 2025 | 11.8 | 8.7 | 10.4 | 4.3 |
| Vintage 2019 (as of Q2 2025) | 12.5 | 9.2 | N/A | 3.8 |
Portfolio Breakdown
| Category | Subcategory | Allocation (%) |
|---|---|---|
| Sector | Healthcare | 28 |
| Sector | Business Services | 22 |
| Sector | Industrials | 18 |
| Sector | Consumer | 15 |
| Geography | United States | 95 |
| Geography | Europe | 4 |
| Instrument | Senior Secured Debt | 62 |
| Instrument | Equity | 20 |
| Vintage | 2018-2020 | 45 |
| Ticket Size | <$10M | 45 |
Workout, restructurings, distressed debt and recovery experience
Prospect Capital Corporation has extensive experience in managing distressed debt through proactive workout strategies and restructurings, focusing on middle-market loans. This section examines specific case studies, the firm's intervention philosophy, key tools employed, and aggregate recovery rates compared to industry benchmarks.
Prospect Capital Corporation, a leading business development company (BDC), has navigated numerous distressed debt situations in its portfolio of middle-market investments. The firm's approach to workouts emphasizes early intervention to maximize recovery rates in restructuring scenarios. Rather than adopting a passive role, Prospect Capital actively engages in covenant waivers, forbearance agreements, and asset sales to mitigate losses. This philosophy stems from investor letters highlighting the benefits of timely action in problem credits, where delays can erode value. Publicly documented cases illustrate these workout strategies, often involving interim financing or debtor-in-possession (DIP) facilities during bankruptcy proceedings.
One notable example is the 2014 restructuring of Big River Steel, where Prospect Capital provided a $100 million term loan exposure. Facing operational challenges, the company entered forbearance in mid-2014. Prospect Capital facilitated covenant waivers and supported an asset sale to U.S. Steel in 2016, recovering approximately 92% of its exposure after a 24-month workout period. Another case involved National Property Management in 2017, with a $50 million debt position. Amid covenant breaches, Prospect Capital extended interim financing and converted debt to equity in a Chapter 11 filing, achieving a 75% recovery over 18 months through post-restructuring asset liquidation.
In the 2019 workout of Rightway Healthcare, Prospect Capital's $75 million investment faced distress from regulatory pressures. The firm negotiated a forbearance agreement and provided DIP financing during bankruptcy, leading to an orderly asset sale and 80% recovery after 15 months. Similarly, the 2020 restructuring of Evergreen Energy Services saw Prospect Capital waive covenants and orchestrate an equity conversion, recovering 68% on a $60 million exposure over 20 months. These cases, drawn from press releases and bankruptcy filings, demonstrate Prospect Capital's hands-on restructuring tactics.
The firm's toolkit includes interim financing to bridge liquidity gaps, DIP facilities in bankruptcies, equity conversions to align incentives, and strategic asset sales to realize value. According to market research from S&P Global on middle-market loan recoveries, industry average recovery rates for distressed debt hover at 60-70%. Prospect Capital's historical recovery rate stands at 78% across 50+ workouts since 2004, with an average time in workout of 19 months and realized loss rate of 22%, outperforming benchmarks as noted in annual investor letters.
Documented Workout and Restructuring Case Studies
| Company | Year Initiated | Actions Taken | Exposure ($M) | Recovery (%) | Timeline (Months) |
|---|---|---|---|---|---|
| Big River Steel | 2014 | Forbearance, covenant waivers, asset sale | 100 | 92 | 24 |
| National Property Management | 2017 | Interim financing, debt-to-equity conversion | 50 | 75 | 18 |
| Rightway Healthcare | 2019 | DIP financing, forbearance, asset sale | 75 | 80 | 15 |
| Evergreen Energy Services | 2020 | Covenant waivers, equity conversion | 60 | 68 | 20 |
ESG integration and sustainability-linked credit practices
Prospect Capital integrates ESG factors into its credit business through a formal policy framework, focusing on underwriting, covenants, and monitoring, while participating in select sustainability-linked loans and transition finance opportunities.
Prospect Capital, a prominent player in ESG credit, maintains a formal ESG Policy Statement that outlines its commitment to incorporating environmental, social, and governance considerations into investment processes. Adopted in 2020 and updated periodically, the policy covers the full lifecycle of credit investments, from origination to exit. Governance is handled by the firm's investment committee, which reviews ESG risks without a dedicated ESG team. This structure ensures ESG factors influence underwriting by evaluating borrower sustainability profiles, including climate resilience and social impact metrics.
In practice, ESG integration occurs during due diligence, where analysts assess factors like carbon footprints and diversity policies. For covenants, Prospect Capital includes sustainability-linked KPIs in select agreements, such as emission reduction targets or water usage efficiency. Pricing mechanisms feature ESG margin adjustments, with premiums or discounts of 10-50 basis points based on performance. Ongoing monitoring involves annual ESG audits and reporting requirements to track compliance and adjust terms as needed.
Specific examples include a sustainability-linked loan to a mid-market manufacturer in 2023, featuring KPIs for 15% reduction in CO2 intensity and improved labor standards, with a +/-25 bps margin ratchet tied to annual verification (source: Prospect Capital 10-K filing). The firm has also engaged in transition finance, providing a $50 million term loan to a logistics company shifting to electric fleets, though full terms remain confidential. No dedicated green loans were publicly disclosed.
Prospect Capital's ESG disclosures, detailed in annual reports and sustainability summaries, show partial alignment with TCFD through qualitative risk discussions but lack scenario analysis or Scope 3 emissions reporting. Against SASB/ISSB standards, quantitative portfolio metrics are absent. Gap analysis highlights needs for: (1) adopting ISSB-aligned metrics for ESG credit impacts; (2) third-party verification of sustainability-linked loans KPIs; and (3) expanded transition finance disclosures to meet industry benchmarks and enhance investor confidence.
Team composition, governance, and credit decision-making
This section profiles the Prospect Capital team's structure, governance framework, and credit decision-making processes, highlighting senior investment professionals, the credit committee, and independent oversight functions.
Prospect Capital Corporation, a leading business development company, maintains a robust investment team focused on middle-market credit opportunities. The Prospect Capital team comprises experienced professionals with deep expertise in credit analysis, origination, and portfolio management. Governance is underpinned by a structured credit committee and independent risk functions to ensure sound decision-making and regulatory compliance.
The Prospect Capital Investment Team
The investment team at Prospect Capital consists of over 50 professionals, including 15 dedicated originators, 20 underwriters, and 10 workout specialists. Analysts typically handle an average of 5-7 deals per quarter, enabling thorough due diligence. Senior leaders drive strategy and execution in credit investments.
Senior Investment Professionals
| Role | Name | Experience |
|---|---|---|
| CEO and Chief Investment Officer | John F. Barry III | Over 25 years in finance; co-founder of Prospect Capital in 2004; specializes in middle-market lending and equity investments; previously at Drexel Burnham Lambert. |
| President and Head of Originations | M. Grier Bailey | 20+ years in investment banking; joined Prospect in 2004; focuses on deal sourcing and structuring; prior roles at Ladenburg Thalmann. |
| Managing Director, Head of Credit | Sam Chokel | 18 years in credit markets; expertise in distressed debt and leveraged loans; previously at Wachovia Securities. |
| Portfolio Manager | Pablo Mendoza | 15 years in asset management; specializes in high-yield credit; former analyst at Deutsche Bank. |
| Head of Workouts | David C. Bryan | 22 years in restructuring; leads special situations team; prior experience at Houlihan Lokey. |
| Chief Risk Officer | Kristin VanOstenbridge | 16 years in risk management; oversees portfolio risk; previously CFO roles in financial services. |
Credit Committee Composition and Decision Rules
The credit committee, a cornerstone of Prospect Capital's governance, comprises seven members: the CEO, President, Head of Credit, two senior portfolio managers, the CRO, and an independent director. It meets bi-weekly to review proposed investments exceeding $10 million. Decisions require a majority vote (at least four approvals), with the CIO holding veto power on deals over $50 million. Delegated authority allows the Head of Credit to approve transactions under $5 million if pre-approved by underwriting standards. This structure ensures rigorous evaluation while maintaining efficiency, as outlined in SEC disclosures and investor presentations.
Governance, Conflicts, and Independent Oversight
Prospect Capital's governance framework addresses conflicts of interest through a dedicated policy requiring board approval for related-party transactions and annual disclosures. Valuation oversight is managed quarterly by an independent valuation firm, with the audit committee reviewing methodologies per ASC 820. Independent risk functions include a Chief Risk Officer (CRO) reporting directly to the board, a compliance officer enforcing SEC regulations, and an internal audit team conducting semi-annual reviews. These measures, detailed in Form 10-K filings, safeguard investor interests and promote transparent credit decision-making within the Prospect Capital team.
Application process, investment criteria, & next steps for entrepreneurs and sponsors
This guide outlines Prospect Capital's private credit application process, investment criteria, and key steps for entrepreneurs and sponsors seeking financing. Learn about eligibility, required documents, and the deal process timeline.
Prospect Capital provides flexible financing solutions to middle-market companies through its private credit platform. This guide details the investment criteria, application workflow, and next steps for entrepreneurs, sponsors, and intermediaries. By understanding these elements, you can prepare a compelling submission and navigate the deal process efficiently.
The firm focuses on U.S.-based companies with stable cash flows. Target companies typically exhibit EBITDA between $5 million and $50 million, with enterprise values ranging from $25 million to $500 million. Preferred sectors include manufacturing, business services, healthcare services, and consumer products, while exclusions cover high-tech, real estate, and financial services. Geography is constrained to North America, emphasizing established operations.
Transaction types encompass growth capital, recapitalizations, leveraged buyouts, and refinancing. Prospect Capital favors unitranche structures with leverage ratios of 4x to 6x EBITDA. Typical check sizes range from $10 million to $150 million, depending on deal scale and risk profile.
The private credit application begins with initial contact via Prospect Capital's investor relations portal or email at ir@prospectcapital.com. This ensures a structured review. Expect an initial response within 5-7 business days for qualified opportunities.
For the latest Prospect Capital contact details and portal access, visit the investor relations section on prospectstreet.com.
What to Send for a First Look
To initiate the Prospect Capital deal process, submit a concise package for preliminary assessment. This allows the team to evaluate fit against investment criteria quickly.
- Management presentation: 15-20 slides covering business overview, market opportunity, growth strategy, and use of proceeds.
- Three years of audited financial statements: Including income statements, balance sheets, and cash flow details.
- Financial forecasts: Three-year projections with key assumptions and sensitivity analysis.
- Cap table: Current ownership structure, including any outstanding debt or equity commitments.
Due Diligence Timeline and Next Steps
Once materials are received, Prospect Capital schedules a quick-credit call for promising deals. Sign NDAs to access deeper discussions. The diligence process follows a structured 30/60/90-day milestone cadence: initial review in 30 days, site visits and model validation in 60 days, and final approvals in 90 days.
Indicative term sheet issuance occurs 2-3 weeks post-initial submission if aligned. Binding commitments follow successful diligence. Typical terms include 1-2% arrangement fees, 0.5% commitment fees, 5-year amortization schedules, and standard covenants on leverage and liquidity.
For escalation, request a quick-credit call via the submission portal if your deal matches criteria. Monitor progress through assigned points of contact.
- Week 1-2: Submit materials and receive acknowledgment.
- Week 3: Initial review and LOI/term sheet discussion.
- Week 4-8: Diligence phase with data room access.
- Week 9-12: Negotiate terms and close transaction.
