Prospect Capital Corp: Navigating Middle Market Lending in Q2 2025

As we delve into the Q2 2025 earnings call of Prospect Capital Corporation (NASDAQ: PSEC), we find a company that has successfully navigated the middle market lending landscape, focusing on first lien senior secured loans and strategic equity investments. Prospect Capital's approach has contributed to its strong financial performance and growth.

Prospect Capital's middle market lending strategy has been a key driver of its success. The company recently provided a first lien senior secured term loan, a first lien senior secured convertible term loan, and a preferred equity investment to Taos Footwear Holdings, LLC ("Taos Footwear"), aggregating $65 million. This investment, made in collaboration with Taos Footwear's founder and leadership team, is a testament to Prospect Capital's ability to identify and support promising middle market companies. Taos Footwear, a leading innovative footwear brand, is renowned for its supportive footbed that has reshaped the lifestyle footwear industry over the past 20 years.



Prospect Capital's focus on first lien senior secured middle market loans has also enabled it to maintain a strong balance sheet and generate consistent returns for its shareholders. In Q2 2025, the company reported net investment income (NII) of $86.4 million or $0.20 per common share, demonstrating the success of its lending strategy. Prospect Capital's NAV was $3.4 billion or $7.84 per common share, indicating a healthy balance sheet and strong asset base.

Prospect Capital's approach to amortizing its subordinated structured notes portfolio has also contributed to its financial health. As of December 31, 2024, the portfolio represented 5.8% of the investment portfolio, a reduction of 210 basis points from 7.9% as of December 31, 2023. This reduction indicates a strategic effort to decrease exposure to subordinated structured notes, which are typically riskier and have lower priority in repayment compared to senior debt. By reducing exposure to these notes, Prospect Capital can lower its overall risk profile and improve the quality of its investment portfolio.



In conclusion, Prospect Capital Corporation's focus on first lien senior secured middle market loans, strategic equity investments, and the amortization of its subordinated structured notes portfolio have contributed to its strong financial performance in Q2 2025. As the company continues to execute its middle market lending strategy, it is well-positioned to capitalize on opportunities in the market and generate value for its shareholders.