PSEC - Prospect Capital: Potentially Impacted By Interest Rate Cuts (Rating Downgrade)

2024-03-27 10:21:32 ET

Summary

• PSEC offers a monthly dividend distribution of $0.06/share that has not grown since 2017.
• There are better alternative BDCs out there offering superior portfolio investments that have better capitalized on the higher interest rate environment.
• Interest rates remain a threat to PSEC's total Net Investment Income. Rate cuts are anticipated in the latter half of 2024 and can result in lower profitability metrics.

Overview

I previously covered Prospect Capital ( PSEC ) back in November of 2023. Since then, PSEC has delivered a total return of nearly 12%. At the time, my original thesis was that the price dropped so significantly that the discount to NAV was about 45%. Such a large discount to NAV presented an opportunity to capture some income while we waited for the price to recover. At the time my original thesis was published, the price of PSEC was $5.14/share. Shortly after the price shot up above $6/share. Now the price has come back down and I think the discount is less attractive this time around. While the premium still sits at a discount to NAV of -38%, I believe the upcoming interest rate changes may negatively impact PSEC's portfolio....

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