Replies to post #502 on Prospect Capital Corp (PSEC)

[Barlow63]

Thanks Red, that's great information. I was considering jumping in at the $8 mark, but now I'll wait until I see more reward on the dividend side for the risk that comes with buying the stock of a company who is managed by an outside team.

[redfairway]

Prospect Capital Files to Launch 3 Spin-offs

By Amey Stone

Prospect Capital (PSEC), a business development company, has filed to spin off three of its businesses into separate publicly-traded companies. It is in the middle of the regulatory process now, but hopes to complete all three in 2015 says Grier Eliasek, Prospect’s president.

Eliasek hopes the spin-offs, which will become pure-plays in their respective sectors, will command higher multiples on their own than they do as part of Prospect’s more diversified BDC structure. The BDC sector, which has been out of favor with investors for a while, has tumbled in recent weeks as interest rates have risen. BDCs are publicly-traded investment companies that mostly make loans to middle market companies.

Prospect’s businesses are broader than that and Eliasek believes at least three of the business lines will be better able to grow if spun out and, for a few, that also removes regulatory limits on how big they can become as part of the diversified BDC structure.

The three business segments to be spun off are structured credit (it would become a closed-end fund), online lending (it would take on a corporate structure), and real estate (it would become a real estate investment trust).

Prospect would essentially sell the assets to the new public companies and then would reinvest the cash in its current businesses. Existing shareholders would receive rights to purchase shares of the new companies.

Wunderlich Securities analyst Merrill Ross gave Prospect a valuation of $13 a share based on a sum-of-the-parts analysis after it announced plans for the spin-offs last November. But her current price target is $11.50. She rates the shares a Buy. Prospect is now trading at around $8 a share and has a yield of 12%.