Prospect Capital Corporation (PSEC): Big Dividend, Big Risks

And the distressed assets have recovered not just because of PSEC’s great underwriting standards, but also because of where we are in the market cycle (i.e. the market/economy has recovered, and while this is out of PSEC’s control, PSEC has certainly benefitted).

For added perspective, this next chart shows Prospect’s declining ROE in recent years as we move further away from the financial crisis vintage year originations/investments.

Worth considering, PSEC trades somewhat similarly to publically-traded high-yield debt as represented by ticker JNK and shown in the following correlation table.

For more perspective, this next chart shows the spread (versus Treasuries) for high-yield bonds has come down a lot since the financial crisis (and since early 2016 for that matter- which is important because PSEC was a lot cheaper at the start of 2016), and this suggests Prospect will likely not be able to make the same juicy-yielding investments it made during the financial crisis which it has also benefitted from in recent years because those loans lasted more than just a year or two as inferred from our earlier vintage year chart.