What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-05-09 compared with 2022-02-08 · 325 added, 272 removed, 904 unchanged (40% of the section changed)

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In these cases, our investment, which is generally equity in the holding company, the holding company’s equity investment in the operating company and any debt from us directly to the operating company structure represents our total exposure for the investment.

As of December 31, 2021, as shown in our Consolidated Schedule of Investments , the cost basis and fair value of our investments in controlled companies was $2,364,241 and $3,057,923, respectively.

As of March 31, 2022, as shown in our Consolidated Schedule of Investments , the cost basis and fair value of our investments in controlled companies was $2,588,661 and $3,378,505, respectively.

This structure gives rise to several of the risks described in our public documents and highlighted elsewhere in this Quarterly Report.

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On June 11, 2021, at a special meeting of our stockholders, our stockholders authorized us to sell shares of our common stock (during the next 12 months) at a price or prices below our net asset value per share at the time of sale in one or more offerings, subject to certain conditions as set forth in the proxy statement relating to the special meeting (including that the number of shares sold on any given date does not exceed 25% of its outstanding common stock immediately prior to such sale).

Second Quarter Highlights

On March 14, 2022, we filed a notice of meeting and the definitive proxy statement in connection with a special meeting of our stockholders that is scheduled to be held on June 10, 2022 for the purpose of asking our stockholders to vote on a proposal to authorize us, with approval of our Board of Directors, to sell shares of our common stock at a price or prices below our then current net asset value per share in one or more offerings during the next 12 months following such approval, subject to certain conditions.

Third Quarter Highlights

Investment Transactions

We seek to be a long-term investor with our portfolio companies.

During the three months ended December 31, 2021, we acquired $495,268 of new investments, completed follow-on investments in existing portfolio companies totaling approximately $339,183, funded $5,000 of revolver advances, and recorded PIK interest of $15,922, resulting in gross investment originations of $855,373.

During the three months ended December 31, 2021, we received full repayments totaling $179,279, received $52 of revolver paydowns, and received $264,729 in partial prepayments, scheduled principal amortization payments, and return of capital distributions, resulting in net repayments of $444,060.

During the three months ended March 31, 2022, we acquired $187,393 of new investments, completed follow-on investments in existing portfolio companies totaling approximately $351,117, and recorded PIK interest of $26,317, resulting in gross investment originations of $564,827.

During the three months ended March 31, 2022, we received full repayments totaling $96,824, received $4,451 in sales, received $1,552 of revolver paydowns, and received $81,734 in partial prepayments, scheduled principal amortization payments, and return of capital distributions, resulting in net repayments of $184,561.

Debt Issuances and Redemptions

During the three months ended December 31, 2021, we repaid $286 aggregate principal amount of Prospect Capital InterNotes® at par in accordance with the Survivor’s Option, as defined in the InterNotes® Offering prospectus.

During the three months ended March 31, 2022, we repaid $266 aggregate principal amount of Prospect Capital InterNotes® at par in accordance with the Survivor’s Option, as defined in the InterNotes® Offering prospectus.

In order to replace short maturity debt with longer-term debt, we redeemed $35,084 aggregate principal amount of Prospect Capital InterNotes® at par with a weighted average interest rate of 6.38%.

As a result of these transactions, we recorded a loss in the amount of the unamortized debt issuance costs.

The net loss on the extinguishment of Prospect Capital InterNotes® in the three months ended December 31, 2021 was $1,743.

During the three months ended December 31, 2021, we issued $32,665 aggregate principal amount of Prospect Capital InterNotes® with a weighted average stated interest rate of 3.26%, to extend our borrowing base.

The newly issued notes mature between October 15, 2026 and December 15, 2051 and generated net proceeds of $31,969.

During the three months ended December 31, 2021, we increased total commitments to the Revolving Credit Facility by $20,000 to $1,297,500 in the aggregate.

On October 8, 2021, we commenced a tender offer to purchase for cash any and all of the $81,389 aggregate principal amount of the 6.375% 2024 Notes at a purchase price of $107.75, plus accrued and unpaid interest (“6.375% 2024 Notes October 2021 Tender Offer”).

On October 15, 2021, $149 aggregate principal amount of the 6.375% 2024 Notes, representing 0.18% of the previously outstanding 6.375% 2024 Notes, were validly tendered and accepted.

The 6.375% 2024 Notes October 2021 Tender Offer resulted in our recognizing a loss of $12.

On December 30, 2021, we redeemed $69,170 of the aggregate principal amount of the 2029 Notes.

The transaction resulted in our recognizing a loss of $2,044 during the three months ended December 31, 2021.

Following the redemption, none of the 2029 Notes remained outstanding.

The net loss on the extinguishment of Prospect Capital InterNotes® in the three months ended March 31, 2022 was $941.

During the three months ended March 31, 2022, we issued $35,587 aggregate principal amount of Prospect Capital InterNotes® with a weighted average stated interest rate of 4.03%, to extend our borrowing base.

The newly issued notes mature between February 15, 2025 and March 15, 2052 and generated net proceeds of $34,999.

During the three months ended March 31, 2022, we increased total commitments to the Revolving Credit Facility by $202,500 to $1,500,000 in the aggregate.

Equity Issuances

On October 21, 2021, November 18, 2021, and December 23, 2021, we issued 357,734, 346,308, and 365,384 shares of our common stock in connection with the dividend reinvestment plan, respectively.

During the three months ended December 31, 2021, 3,601 shares of our Series A1 Preferred Stock were converted to 10,116 shares of our common stock, in connection with Holder Optional Conversion.

During the three months ended December 31, 2021, we issued 3,642,372 shares of our Series A1 Preferred Stock for net proceeds of $82,744, and 214,935 shares of our Series M1 Preferred Stock for net proceeds of $5,212, each excluding offering costs and preferred stock dividend reinvestment.

On January 20, 2022, February 17, 2022, and March 22, 2022, we issued 357,288, 378,344, and 384,588 shares of our common stock in connection with the dividend reinvestment plan, respectively.

During the three months ended March 31, 2022, 2,600 shares of our Series A1 Preferred Stock and 2,000 shares of our Series M1 Preferred Stock were converted to 13,661 shares of our common stock, in connection with Holder Optional Conversions and Optional Redemptions Following Death of a Holder.

During the three months ended March 31, 2022, we issued 4,641,270 shares of our Series A1 Preferred Stock and 862,920 shares of our Series M1 Preferred Stock for net proceeds of $125,355, each excluding offering costs and preferred stock dividend reinvestment.

On January 1, 2022, February 1, 2022, and March 1, 2022, we issued 876, 1,672, and 1,721 shares of our Series A1 and M1 Preferred Stock in connection with the dividend reinvestment plan, respectively.

Investment Holdings

At December 31, 2021, we have $7,002,846, or 169.1%, of our net assets applicable to common shares invested in 127 long-term portfolio investments and CLOs.

Our annualized current yield was 10.6% and 11.7% as of December 31, 2021 and June 30, 2021, respectively, across all performing interest bearing investments, excluding equity investments and non-accrual loans.

Our annualized current yield was 8.1% and 9.2% as of December 31, 2021 and June 30, 2021, respectively, across all investments.

Monetization of equity positions that we hold and loans on non-accrual status are not included in this yield calculation.

At March 31, 2022, we have $7,429,931, or 175.4%, of our net assets applicable to common shares invested in 127 long-term portfolio investments and CLOs.

Our annualized current yield was 10.6% and 11.7% as of March 31, 2022 and June 30, 2021, respectively, across all performing interest bearing investments, excluding equity investments and non-accrual loans.

Our annualized current yield was 8.1% and 9.2% as of March 31, 2022 and June 30, 2021, respectively, across all investments.

In many of our portfolio companies we hold equity positions, ranging from minority interests to majority stakes, which we expect over time to contribute to our investment returns.

Some of these equity positions include features such as contractual minimum internal rates of returns,

preferred distributions, flip structures and other features expected to generate additional investment returns, as well as contractual protections and preferences over junior equity, in addition to the yield and security offered by our cash flow and collateral debt protections.

Some of these equity positions include features such as contractual minimum internal rates of returns, preferred distributions, flip structures and other features expected to generate additional investment returns, as well as contractual protections and preferences over junior equity, in addition to the yield and security offered by our cash flow and collateral debt protections.

We are a non-diversified company within the meaning of the 1940 Act.

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“Non-Control/Non-Affiliate Investments” are those that are neither Control Investments nor Affiliate Investments.

As of December 31, 2021, we own controlling interests in the following portfolio companies:

As of March 31, 2022, we own controlling interests in the following portfolio companies:

CP Energy Services Inc.

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In June 2019, CP Energy purchased a controlling interest of the common equity of Spartan Energy Holdings, Inc.

(“Spartan Holdings”), which owns 100% of Spartan Energy Services, LLC (“Spartan”), a portfolio company of Prospect with $16,019 in senior secured term loans (the “Spartan Term Loan A”) due to us as of December 31, 2021.

(“Spartan Holdings”), which owns 100% of Spartan Energy Services, LLC (“Spartan”), a portfolio company of Prospect with $26,258 in senior secured term loans (the “Spartan Term Loan A”) due to us as of March 31, 2022.

As a result of CP Energy’s purchase, and given Prospect’s controlling interest in CP Energy, we report our investments in Spartan as control investment.

Spartan remains the direct borrow and guarantor to Prospect for the Spartan Term Loan A.

As of December 31, 2021, we also own affiliated interests in Nixon, Inc.

As of March 31, 2022, we also own affiliated interests in Nixon, Inc.

(“Nixon”), PGX Holdings, Inc.

(“PGX”), RGIS Services, LLC, (“RGIS”), and Targus Cayman HoldCo Limited (“Targus”).

The following shows the composition of our investment portfolio by level of control as of December 31, 2021 and June 30, 2021:

December 31, 2021 June 30, 2021

The following shows the composition of our investment portfolio by level of control as of March 31, 2022 and June 30, 2021:

March 31, 2022 June 30, 2021

Level of Control Cost % of Portfolio Fair Value % of Portfolio Cost % of Portfolio Fair Value % of Portfolio

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$ 6,887,937 100.0 % $ 7,429,931 100.0 % $ 6,058,124 100.0 % $ 6,201,778 100.0 %

The following shows the composition of our investment portfolio by type of investment as of December 31, 2021 and June 30, 2021:

December 31, 2021 June 30, 2021

The following shows the composition of our investment portfolio by type of investment as of March 31, 2022 and June 30, 2021:

March 31, 2022 June 30, 2021

Type of Investment Cost % of Portfolio Fair Value % of Portfolio Cost % of Portfolio Fair Value % of Portfolio

Revolving Line of Credit $ 37,260 0.6 % $ 37,252 0.5 % $ 27,522 0.5 % $ 27,503 0.4 %

Senior Secured Debt 3,283,057 50.2 % 3,232,137 46.2 % 3,166,861 52.2 % 3,128,845 50.5 %

Subordinated Secured Debt 1,459,195 22.3 % 1,365,465 19.5 % 1,069,767 17.7 % 981,425 15.8 %

Subordinated Unsecured Debt 7,200 0.1 % 5,824 0.1 % 7,200 0.1 % 3,715 0.1 %

First Lien Revolving Line of Credit $ 36,235 0.5 % $ 36,214 0.5 % $ 27,522 0.5 % $ 27,503 0.4 %

First Lien Debt 3,629,580 52.7 % 3,561,170 47.9 % 3,166,861 52.2 % 3,128,845 50.4 %

1.5 Lien Debt — — % — — % 18,164 0.3 % 18,164 0.3 %

Second Lien Debt 1,480,241 21.5 % 1,373,240 18.5 % 1,047,653 17.3 % 959,311 15.5 %

Third Lien Debt — — % — — % 3,950 0.1 % 3,950 0.1 %

Unsecured Debt 7,200 0.1 % 5,719 0.1 % 7,200 0.1 % 3,715 0.1 %

Subordinated Structured Notes 1,016,280 14.8 % 728,833 9.8 % 1,090,175 18.0 % 756,109 12.2 %

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(1) Participating Interest includes our participating equity investments, such as net profits interests, net operating income interests, net revenue interests, and overriding royalty interests.

The following shows our investments in interest bearing securities by type of investment as of December 31, 2021 and June 30, 2021:

December 31, 2021 June 30, 2021

The following shows our investments in interest bearing securities by type of investment as of March 31, 2022 and June 30, 2021:

March 31, 2022 June 30, 2021

Type of Investment Cost % of Portfolio Fair Value % of Portfolio Cost % of Portfolio Fair Value % of Portfolio

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Total Interest Bearing Investments $ 6,169,536 100.0 % $ 5,705,176 100.0 % $ 5,361,525 100.0 % $ 4,897,597 100.0 %

The following shows the composition of our investment portfolio by industry as of December 31, 2021 and June 30, 2021:

December 31, 2021 June 30, 2021

The following shows the composition of our investment portfolio by industry as of March 31, 2022 and June 30, 2021:

March 31, 2022 June 30, 2021

Industry Cost % of Portfolio Fair Value % of Portfolio Cost % of Portfolio Fair Value % of Portfolio

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(1) Our SSN investments do not have industry concentrations and as such have been separated in the tables above.

As of December 31, 2021 and June 30, 2021, Structured Finance includes $108,600 and $90,200, respectively, of senior secured debt investments held through our investment in NPRC and its wholly-owned subsidiary.

As of March 31, 2022 and June 30, 2021, Structured Finance includes $140,800 and $90,200, respectively, of senior secured debt investments held through our investment in NPRC and its wholly-owned subsidiary.

Portfolio Investment Activity

Our origination efforts are focused primarily on secured lending to non-control investments to reduce the risk in the portfolio by investing primarily in first lien loans, though we also continue to close select junior debt and equity investments.

For information regarding investment activity for the six months ended December 31, 2021 and December 31, 2020 are presented below:

Six months ended December 31,

For information regarding investment activity for the nine months ended March 31, 2022 and March 31, 2021 are presented below:

Nine months ended March 31,

Investments made in new portfolio companies $ 997,817 $ 459,277

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PIK interest (2)

61,030 58,750

Total acquisitions $ 1,844,869 $ 781,138

Acquisitions by portfolio composition

1st Lien Term Loan $ 541,452 $ 355,892

Subordinated Secured Debt 721,825 138,014

First Lien Debt $ 1,021,834 $ 575,545

Second Lien Debt 796,351 176,780

Subordinated Structured Notes 9,518 —

Subordinated Unsecured Debt — 2,620

Unsecured Debt — 2,620

Equity 17,166 26,193

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Dispositions by portfolio composition

1st Lien Term Loan $ 490,177 $ 233,865

Subordinated Secured Debt 268,477 195,656

Subordinated Unsecured Debt — 54,880

First Lien Debt $ 592,601 $ 364,083

1.5 Lien Debt 18,164 —

Second Lien Debt 300,292 249,421

Third Lien Debt 3,950 —

Unsecured Debt — 53,738

Subordinated Structured Notes 9,406 —

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Weighted average interest rates for new investments by portfolio composition (4)

1st Lien Term Loan 7.61 % 9.55 %

Subordinated Secured Debt 9.30 % 9.38 %

First Lien Debt 8.30 % 9.32 %

Second Lien Debt 9.54 % 9.41 %

(1) Includes follow-on investments in existing portfolio companies and refinancings, if any.

(2) During the nine months ended March 31, 2022, approximately $56,824 of PIK interest capitalized was accrued as interest income and the remaining $4,206 is included due to the timing of interest payment dates and resulting capitalization occurring in the current year.

During the nine months ended March 31, 2021, approximately $53,729 of PIK interest capitalized was accrued as interest income and the remaining $5,021 was included due to the timing of interest payment dates and resulting capitalization occurring during the prior year.

(3) Includes partial prepayments of principal, scheduled amortization payments, impairments, and refinancings, if any.

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The Board of Directors looked at several factors in determining where within the range to valu e the asset including:

recent operating and financial trends for the asset, independent ratings obtained from third parties, comparable multiples for recent sales of companies within the industry and discounted cash flow models for our investments in CLOs.

The composite of all these various valuation techniques, applied to each investment, was a total valuation of $7,429,931.

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Impact of the novel coronavirus (the “COVID-19”) pandemic

As of December 31, 2021, there remains to be global uncertainty surrounding the COVID-19 pandemic, which has caused severe disruptions in the global economy and has negatively impacted the fair value and performance of certain investments since the pandemic began.

For the three months ended December 31, 2021, the aggregate increases in fair value and net unrealized dep reciation on investments were driven by the expansion of comparable company trading multiples and/or tightened credit spreads as the level of market volatility generated by the COVID-19 pandemic declined over the three month period.

As of March 31, 2022, there remains to be global uncertainty surrounding the COVID-19 pandemic, which has caused severe disruptions in the global economy and has negatively impacted the fair value and performance of certain investments since the pandemic began.

For the three months ended March 31, 2022, the aggregate increases in fair value and net unrealized dep reciation on investments were driven by the expansion of comparable company trading multiples and/or tightened credit spreads as the level of market volatility generated by the COVID-19 pandemic declined over the three month period.

For certain investments in our portfolio, the valuations continue to reflect factors such as specific industry concerns, uncertainty about the duration of business shutdowns and near-term liquidity needs.

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Equity positions in our portfolio are susceptible to potentially significant changes in value, both increases as well as decreases, due to changes in operating results and market multiples.

Our controlled companies discussed below experienced such changes and we recorded corresponding fluctuati ons in valuations during the six months ended December 31, 2021.

Our controlled companies discussed below experienced such changes and we recorded corresponding fluctuati ons in valuations during the nine months ended March 31, 2022.

CP Energy Services, Inc.

Prospect owns 100% of the equity of CP Holdings, a Consolidated Holding Company.

CP Holdings owns 99.8% of the equity of CP Energy, and the remaining equity is owned by CP Energy management.

CP Energy provides oilfield flowback services and fluid hauling and disposal services through its subsidiaries.

In June 2019, CP Energy purchased a controlling interest in the common equity of Spartan Energy Holdings, Inc.

(“Spartan Holdings”), which owns 100% of Spartan Energy Services, LLC (“Spartan”) a portfolio company of Prospect with $26,258 in first lien term loans (the “Spartan Term Loans”) due to us as of March 31, 2022.

As a result of CP Energy’s purchase, and given Prospect’s controlling interest in CP Energy, our Spartan Term Loans are presented as control investments under CP Energy beginning June 30, 2019.

Spartan remains the direct borrow and guarantor to Prospect for the Spartan Term Loans.

The fair value of our investment in CP Energy increased to $118,461 as of March 31, 2022, which is a discount of $128,777 from its amortized cost, compared to a fair value of $71,487 as of June 30, 2021, representing a discount of $161,249 to its amortized cost.

The decrease in discount to amortized cost resulted from improved performance and increased activity in the oil and gas industry

Echelon Transportation, LLC

Prospect owns 100% of the equity of Echelon, a consolidated holding company.

Echelon owns 60.7% of the equity of AerLift.

Echelon is an aircraft leasing company.

The fair value of our investment in Echelon decreased to $67,959 as of March 31, 2022, representing a discount of $40,831 to its amortized cost basis, compared to a fair value of $84,240 as of June 30, 2021, representing a discount of $13,904 to its amortized cost basis.

The increase in discount to amortized cost resulted from lower aircraft residual values.

First Tower Finance Company LLC

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First Tower Finance owns 100% of First Tower, LLC (“First Tower”), a multiline specialty finance company.

The fair value of our investment in First Tower increased to $625,097 as of December 31, 2021, representing a premium of $263,152 to its amortized cost basis compared to a fair value of $592,356 as of June 30, 2021, a premium of $236,502 to its amortized cost.

The increase in premium to amortized cost was driven by strong financial performance and expansion of comparable company trading multiples.

The fair value of our investment in First Tower increased to $645,156 as of March 31, 2022, representing a premium of $265,526 to its amortized cost basis compared to a fair value of $592,356 as of June 30, 2021, a premium of $236,502 to its amortized cost.

The increase in premium to amortized cost was driven by strong financial performance.

InterDent, Inc.

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InterDent provides business and administrative support services to a regionally-diversified set of dental practices so that dentists can focus on delivering high-quality clinical care and patient satisfaction.

The fair value of our investment in InterDent increased to $448,134 as of December 31, 2021, a premium of $148,942 to its amortized cost basis compared to a fair value of $412,339 as of June 30, 2021, a premium of $129,650 to its amortized cost.

The increase in premium to amortized cost was driven by increased financial performance.

The fair value of our investment in InterDent decreased to $409,757 as of March 31, 2022, a premium of $95,973 to its amortized cost basis compared to a fair value of $412,339 as of June 30, 2021, a premium of $129,650 to its amortized cost.

The decrease in premium to amortized cost was driven by a decline in financial performance.

National Property REIT Corp.

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NPRC is held for purposes of investing, operating, financing, leasing, managing and selling a portfolio of real estate assets and engages in any and all other activities that may be necessary, incidental, or convenient to perform the foregoing.

NPRC acquires real estate assets, including, but not limited to, industrial, commercial, and multi-family properties, self-storage, and student housing properties.

NPRC acquires real estate assets, including, but not

limited to, industrial, commercial, and multi-family properties, self-storage, and student housing properties.

NPRC may acquire real estate assets directly or through joint ventures by making a majority equity investment in a property-owning entity.

Additionally, through its wholly owned subsidiaries, NPRC invests in online consumer loans and RSSNs.

As of December 31, 2021, we own 100% of the fully-diluted common equity of NPRC.

During the six months ended December 31, 2021, we received partial repayments of $279,882 of our loans previously outstanding with NPRC and provided $112,156 of debt financing and $3,200 of equity financing to NPRC for the acqusition of real estate properties, to fund capital expenditures for existing real estate properties, to provide working capital, to fund purchases of rated secured structured notes, and to support the purchase of high yield corporate debt.

As of March 31, 2022, we own 100% of the fully-diluted common equity of NPRC.

During the nine months ended March 31, 2022, we received partial repayments of $289,882 of our loans previously outstanding with NPRC and provided $268,547 of debt financing and $11,620 of equity financing to NPRC for the acqusition of real estate properties, to fund capital expenditures for existing real estate properties, to provide working capital, to fund purchases of rated secured structured notes, and to support the purchase of high yield corporate debt.

The online consumer loan investments held by certain of NPRC’s wholly owned subsidiaries are unsecured obligations of individual borrowers that are issued in amounts ranging from $1 to $50, with fixed terms ranging from 36 to 84 months.

As of December 31, 2021, the outstanding investment in online consumer loans by certain of NPRC’s wholly-owned subsidiaries was comprised of 841 individual loans, residual interest in two securitizations, and one high yield corporate bond, and had an aggregate fair value of $13,272.

The average outstanding individual loan balance is approximately $4 and the loans mature on dates ranging from January 1, 2022 to April 19, 2025 with a weighted-average outstanding term of 15 months as of December 31, 2021.

As of March 31, 2022, the outstanding investment in online consumer loans by certain of NPRC’s wholly-owned subsidiaries was comprised of 626 individual loans, residual interest in four securitizations, and one high yield corporate bond, and had an aggregate fair value of $40,279.

The average outstanding individual loan balance is approximately $4 and the loans mature on dates ranging from April 1, 2022 to April 19, 2025 with a weighted-average outstanding term of 14 months as of March 31, 2022.

Fixed interest rates range from 6.0% to 36.0% with a weighted-average current interest rate of 20.0%.

As of December 31, 2021, our investment in NPRC and its wholly-owned subsidiaries relating to online consumer lending had a fair value of $6,600.

As of December 31, 2021, based on outstanding principal balance, 22.5% of the portfolio was invested in super prime loans (borrowers with a Fair Isaac Corporation (“FICO”) score, of 720 or greater), 40.1% of the portfolio in prime loans (borrowers with a FICO score of 660 to 719) and 37.4% of the portfolio in near prime loans (borrowers with a FICO score of 580 to 659, a portion of which are considered sub-prime).

As of March 31, 2022, our investment in NPRC and its wholly-owned subsidiaries relating to online consumer lending had a fair value of $29,080.

As of March 31, 2022, based on outstanding principal balance, 24.1% of the portfolio was invested in super prime loans (borrowers with a Fair Isaac Corporation (“FICO”) score, of 720 or greater), 38.5% of the portfolio in prime loans (borrowers with a FICO score of 660 to 719) and 37.5% of the portfolio in near prime loans (borrowers with a FICO score of 580 to 659, a portion of which are considered sub-prime).

Loan Type Outstanding Principal Balance Fair Value Interest Rate Range Weighted Average Interest Rate*

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The rated secured structured note investments held by certain of NPRC’s wholly owned subsidiaries are subordinated debt interests in broadly syndicated loans managed by established collateral management teams with many years of experience in the industry.

As of December 31, 2021, the outstanding investment in rated secured structured notes by certain of NPRC’s wholly owned subsidiaries was comprised of 43 investments with a fair value of $237,125 and face value of $246,307.

The average outstanding note is approximately $5,728 with an expected maturity date ranging from April 2026 to January 2032 and weighted-average expected maturity of 6 years as of December 31, 2021.

As of March 31, 2022, the outstanding investment in rated secured structured notes by certain of NPRC’s wholly owned subsidiaries was comprised of 58 investments with a fair value of $303,060 and face value of $315,813.

The average outstanding note is approximately $5,445 with an expected maturity date ranging from April 2026 to January 2032 and weighted-average expected maturity of 7 years as of March 31, 2022.

Coupons range from three-month LIBOR (“3ML”) plus 5.31% to 9.45% with a weighted-average coupon of 3ML + 7.1%.

As of December 31, 2021, our investment in NPRC and its wholly-owned subsidiaries relating to rated secured structured notes had a fair value of $108,600.

As of December 31, 2021, based on outstanding notional balance, 19.6% of the portfolio was invested in Single - B rated tranches and 80.4% of the portfolio in BB rated tranches.

As of December 31, 2021, our investment in NPRC and its wholly-owned subsidiaries had an amortized cost of $589,185 and a fair value of $1,223,798, including our investment in online consumer lending and rated secured structured notes as discussed above.

The fair value of $1,108,598 related to NPRC’s real estate portfolio was comprised of forty-three multi-family properties, eight student housing properties and three commercial properties.

The following table shows the location, acquisition date, purchase price, and mortgage outstanding due to other parties for each of the properties held by NPRC as of December 31, 2021

As of March 31, 2022, our investment in NPRC and its wholly-owned subsidiaries relating to rated secured structured notes had a fair value of $140,800.

As of March 31, 2022, based on outstanding notional balance, 17.8% of the portfolio was invested in Single - B rated tranches and 82.2% of the portfolio in BB rated tranches.

As of March 31, 2022, our investment in NPRC and its wholly-owned subsidiaries had an amortized cost of $743,996 and a fair value of $1,528,576, including our investment in online consumer lending and rated secured structured notes as discussed above.

The fair value of $1,358,696 related to NPRC’s real estate portfolio was comprised of forty-seven multi-family properties, eight student housing properties and three commercial properties.

The following table shows the location, acquisition date, purchase price, and mortgage outstanding due to other parties for each of the properties held by NPRC as of March 31, 2022

Property Name City Acquisition Date Purchase Price Mortgage Outstanding

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2 Arlington Park Marietta, LLC Marietta, GA 5/8/2013 14,850 13,494

3 Verandas at Rocky Ridge, LLC Birmingham, AL 11/15/2013 15,600 18,410

3 Taco Bell, OK Yukon, OK 6/4/2014 1,719 —

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7 Lakeview Trail OH Partners, LLC Canal Winchester, OH 9/30/2014 26,500 29,207

Property Name City Acquisition Date Purchase Price Mortgage Outstanding

8 Lakepoint OH Partners, LLC Pickerington, OH 9/30/2014 11,000 16,620

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28 Olentangy Commons Owner LLC Columbus, OH 6/1/2018 113,000 92,876

Property Name City Acquisition Date Purchase Price Mortgage Outstanding

29 Villages of Wildwood Holdings LLC Fairfield, OH 7/20/2018 46,500 39,525

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53 Orlando 442 Owner, LLC (West Vue Apartments) Orlando, FL 12/30/2021 97,500 73,000

54 NPRC Wolfchase LLC Memphis, TN 3/18/2022 82,100 60,000

55 NPRC Twin Oaks LLC Hattiesburg.

MS 3/18/2022 44,850 33,830

56 NPRC Lancaster LLC Birmingham, AL 3/18/2022 37,550 28,350

57 NPRC Rutland LLC Macon, GA 3/18/2022 29,750 22,500

58 Southport Owner LLC (Southport Crossing) Indianapolis, IN 3/29/2022 48,100 36,075

$ 2,525,726 $ 2,083,929

The fair value of our investment in NPRC increased to $1,223,798 as of December 31, 2021, a premium of $634,613 from its amortized cost basis compared to a fair value of $1,189,755 as of June 30, 2021, representing a premium of $436,044.

The fair value of our investment in NPRC increased to $1,528,576 as of March 31, 2022, a premium of $784,580 from its amortized cost basis compared to a fair value of $1,189,755 as of June 30, 2021, representing a premium of $436,044.

The increase in premium is primarily driven by compression of capitalization rates and, to a lesser extent, growth in net operating income in our real estate portfolio.

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NMMB Holdings owns 90.42% and 94.82% of the fully-diluted equity of NMMB, Inc.

(f/k/a NMMB Acquisition, Inc.) (“NMMB”) as of December 31, 2021 and June 30, 2021 , respectively, with NMMB management owning the remaining equity.

(f/k/a NMMB Acquisition, Inc.) (“NMMB”) as of March 31, 2022 and June 30, 2021, respectively, with NMMB management owning the remaining equity.

NMMB owns 100% of Refuel Agency, Inc.

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NMMB is an advertising media buying business.

The fair value of our investment in NMMB increased to $78,715 as of December 31, 2021 , representing a premium of $61,048 to its amortized cost basis, compared to a fair value of $46,888 as of June 30, 2021, representing a premium of $29,145 to its amortized cost basis.

The fair value of our investment in NMMB increased to $80,268 as of March 31, 2022, representing a premium of $50,508 to its amortized cost basis, compared to a fair value of $46,888 as of June 30, 2021, representing a premium of $29,145 to its amortized cost basis.

The increase to the premium was driven by strong financial performance.

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Pacific World supplies nail and beauty care products to food, drug, mass, and value retail channels worldwide.

The fair value of our investment in Pacific World decreased to $64,851 as of December 31, 2021, a discount of $193,063 to its amortized cost basis, compared to a fair value of $71,097 as of June 30, 2021, representing discount of $178,148 to its amortized cost.

The fair value of our investment in Pacific World decreased to $56,787 as of March 31, 2022, representing a discount of $202,321 to its amortized cost basis, compared to a fair value of $71,097 as of June 30, 2021, representing discount of $178,148 to its amortized cost.

The increase in discount to amortized cost resulted from a decline in financial performance.

Our controlled investments, including those discussed above, are valued at $693,682 above their amortized cost as of December 31, 2021.

Our controlled investments, including those discussed above, are valued at $789,844 above their amortized cost as of March 31, 2022.

Affiliate and Non-Control Company Investments

We hold three affiliate investments at December 31, 2021 with a total fair value of $429,954, a premium of $191,417 from their combined amortized cost, compared to a fair value of $356,734 as of June 30, 2020, representing a $153,791 premium to its amortized cost.

The increase in premium is primarily driven by our investment in PGX Holdings, Inc.

(“Progrexion”).

Progrexion is a consumer credit repair technology and services company.

Progrexion is valued at a premium of $153,759 at December 31, 2021 compared to a premium of $126,933 as of June 30, 2021.

The increase in Progrexion’s premium to amortized cost was driven by strong financial performance and tightening credit spreads.

We hold four affiliate investments at March 31, 2022 (PGX Holdings, Inc.

(“Progrexion”), Nixon, Inc., RGIS Services, LLC, (“RGIS”), and Targus Cayman HoldCo Limited (“Targus”)) with a total fair value of $417,652, a premium of $179,807 from their combined amortized cost as of March 31, 2022, compared to a fair value of $356,734 as of June 30, 2021, representing a $153,791 premium to its amortized cost.

The increase in premium is primarily driven by our investment in Progrexion, which is valued at a premium of $141,123 at March 31, 2022 compared to a premium of $126,933 as of June 30, 2021.

The increase in Progrexion’s premium to amortized cost was driven by strong financial performance.

With the non-control/non-affiliate investments, generally, there is less volatility related to our total investments because our equity positions tend to be smaller than with our control/affiliate investments, and debt investments are generally not as susceptible to large swings in value as equity investments.

For debt investments, the fair value is generally limited on the high side to each loan’s par value, plus any prepayment premium that could be imposed.

However, as of December 31, 2021, two of our non-control/ non-affiliate investments, Engine Group, Inc.

However, as of March 31, 2022, two of our non-control/ non-affiliate investments, Engine Group, Inc.

(“Engine”) and USC are valued at discounts to amortized cost of $26,820 and $97,446, respectively.

As of December 31, 2021, our CLO investment portfolio is valued at a $306,321 discount to amortized cost.

Excluding Engine, USC, and the CLO investment portfolio, the fair value of our non-control/non-affiliate investments at December 31, 2021 are valued at $7,583 above their amortized cost and did not experience significant changes in operating performance or value.

Our largest non-control/non-affiliate investment is PeopleConnect Holdings, LLC (“PeopleConnect”), which has a fair value equal to its amortized cost basis of $249,831 and represents approximately 6.0% of our Net Asset Value as of December 31, 2021.

As of March 31, 2022, our CLO investment portfolio is valued at a $287,447 discount to amortized cost.

Excluding Engine, USC, and the CLO investment portfolio, the fair value of our non-control/non-affiliate investments at March 31, 2022 are valued at $15,944 below their amortized cost and did not experience significant changes in operating performance or value.

Our largest non-control/non-affiliate investment is PeopleConnect Holdings, LLC (“PeopleConnect”), which has a fair value equal to its amortized cost basis of $242,681 and represents approximately 5.7% of our Net Asset Value as of March 31, 2022.

PeopleConnect is an online information commerce company.

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We capitalize our business with a combination of debt and equity.

Our debt as of December 31, 2021 consists of:

Our debt as of March 31, 2022 consists of:

a Revolving Credit Facility availing us of the ability to borrow debt subject to borrowing base determinations;

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and Prospect Capital InterNotes® which we issue from time to time.

As of December 31, 2021, our equity capital is comprised of common and preferred equity.

The following table shows our outstanding debt as of December 31, 2021.

As of March 31, 2022, our equity capital is comprised of common and preferred equity.

The following table shows our outstanding debt as of March 31, 2022:

Principal Outstanding Unamortized Discount & Debt Issuance Costs Net Carrying Value Fair Value(1) Effective Interest Rate

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(1) As permitted by ASC 825-10-25, we have not elected to value our Revolving Credit Facility, Convertible Notes, Public Notes and Prospect Capital InterNotes® at fair value.

The fair value of these debt obligations are categorized as Level 2 under ASC 820 as of December 31, 2021.

(2) The maximum draw amount of the Revolving Credit facility as of December 31, 2021 is $1,297,500.

The fair value of these debt obligations are categorized as Level 2 under ASC 820 as of March 31, 2022.

(2) The maximum draw amount of the Revolving Credit facility as of March 31, 2022 is $1,500,000.

(3) Net Carrying Value excludes deferred financing costs associated with the Revolving Credit Facility.

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Interest expense and deferred debt issuance costs, which are amortized on a straight-line method over the stated life of the obligation which approximates level yield, are weighted against the average year-to-date principal balance.

The following table shows the contractual maturities of our Revolving Credit Facility, Convertible Notes, Public Notes and Prospect Capital InterNotes ® as of December 31, 2021.

The following table shows the contractual maturities of our Revolving Credit Facility, Convertible Notes, Public Notes and Prospect Capital InterNotes ® as of March 31, 2022:

Payments Due by Period

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Each of our Convertible Notes, Public Notes and Prospect Capital InterNotes® (collectively, our “Unsecured Notes”) are our general, unsecured obligations and rank equal in right of payment with all of our existing and future unsecured indebtedness and will be senior in right of payment to any of our subordinated indebtedness that may be issued in the future.

The Unsecured

Notes are effectively subordinated to our existing secured indebtedness, such as our credit facility, and future secured indebtedness to the extent of the value of the assets securing such indebtedness and structurally subordinated to any existing and future liabilities and other indebtedness of any of our subsidiaries.

The Unsecured Notes are effectively subordinated to our existing secured indebtedness, such as our credit facility, and future secured indebtedness to the extent of the value of the assets securing such indebtedness and structurally subordinated to any existing and future liabilities and other indebtedness of any of our subsidiaries.

Revolving Credit Facility

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On April 28, 2021, we amended the 2019 Facility and closed an expanded five year revolving credit facility (the “2021 Facility” and collectively with the 2014 Facility, the 2018 Facility, and the 2019 Facility, the “Revolving Credit Facility”).

The lenders had extended commitments of $1,297,500 as of December 31, 2021.

The lenders had extended commitments of $1,500,000 as of March 31, 2022.

The 2021 Facility includes an accordion feature which allows commitments to be increased up to $1,500,000 in the aggregate.

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The Revolving Credit Facility also requires the maintenance of a minimum liquidity requirement.

As of December 31, 2021, we were in compliance with the applicable covenants.

As of March 31, 2022, we were in compliance with the applicable covenants.

Interest on borrowings under the 2021 Facility is one-month LIBOR plus 205 basis points.

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The 2021 Facility requires us to pledge assets as collateral in order to borrow under the credit facility.

For the six months ended December 31, 2021 and December 31, 2020, the average stated interest rate (i.e., rate in effect plus the spread) and average outstanding borrowings for the Revolving Credit Facility were as follows:

Three Months Ended December 31, Six Months Ended December 31,

For the nine months ended March 31, 2022 and March 31, 2021, the average stated interest rate (i.e., rate in effect plus the spread) and average outstanding borrowings for the Revolving Credit Facility were as follows:

Three Months Ended March 31, Nine Months Ended March 31,

2022 2021 2022 2021

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Average outstanding balance $737,280 $373,734 $546,080 $376,646

As of December 31, 2021 and June 30, 2021, we had $726,309 and $640,853, respectively, available to us for borrowing under the Revolving Credit Facility, net of $472,608 and $356,937 outstanding borrowings as of the respective balance sheet dates.

As of December 31, 2021, the investments, including cash and cash equivalents, used as collateral for the Revolving Credit Facility had an aggregate fair value of $2,068,703, which represents 29.4% of our total investments, including cash and cash equivalents.

As of March 31, 2022 and June 30, 2021, we had $730,410 and $640,853, respectively, available to us for borrowing under the Revolving Credit Facility, net of $699,440 and $356,937 outstanding borrowings as of the respective balance sheet dates.

As of March 31, 2022, the investments, including cash and cash equivalents, used as collateral for the Revolving Credit Facility had an aggregate fair value of $2,559,645, which represents 34.3% of our total investments, including cash and cash equivalents.

These assets are held and owned by PCF, a bankruptcy remote special purpose entity, and, as such, these investments are not available to our general creditors.

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In connection with the origination and amendments of the Revolving Credit Facility, we incurred $18,746 of new fees and $7,509 were carried over from the previous facilities, all of which are being amortized over the term of the facility in accordance with ASC 470-50.

As of December 31, 2021, $9,869 remains to be amortized and is reflected as deferred financing costs on the Consolidated Statements of Assets and Liabilities.

During the three months ended December 31, 2021 and December 31, 2020, we recorded $5,133 and $4,630, respectively, of interest costs, unused fees and amortization of financing costs on the Revolving Credit Facility as interest expense.

During the six months ended December 31, 2021 and December 31, 2020, we recorded $9,702 and $9,263, respectively, of interest costs, unused fees and amortization of financing costs on the Revolving Credit Facility as interest expense.

As of March 31, 2022, $11,504 remains to be amortized and is reflected as deferred financing costs on the Consolidated Statements of Assets and Liabilities.

During the three months ended March 31, 2022 and March 31, 2021, we recorded $6,452 and $4,509, respectively, of interest costs, unused fees and amortization of financing costs on the Revolving Credit Facility as interest expense.

During the nine months ended March 31, 2022 and March 31, 2021, we recorded $16,153 and $13,772, respectively, of interest costs, unused fees and amortization of financing costs on the Revolving Credit Facility as interest expense.

Convertible Notes

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On October 18, 2019, we repurchased $22,941 aggregate principal amount of the 2022 Notes at a price of $102.8 including commissions.

As a result of this transaction, we recorded a loss of $1,072 in the amount of the difference between the reacquisition price and the net carrying amount of the 2022 Notes, net of the proportionate amount of unamortized debt issuance costs.

issuance costs.

On November 7, 2019, we commenced a tender offer to purchase for cash up to $50,000 aggregate principal amount of the 2022 Notes (“2022 Notes November Tender Offer”).

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On October 1, 2020, $6,035 aggregate principal amount of the 2022 Notes, representing 2.64% of the previously outstanding 2022 Notes, were validly tendered and accepted.

On October 19, 2020, we commenced a tender offer to purchase for cash any and all

of the $222,785 aggregate principal amount outstanding of the 2022 Notes at the purchase price of $102.625, plus accrued and unpaid interest (“2022 Notes October Tender Offer”).

On October 19, 2020, we commenced a tender offer to purchase for cash any and all of the $222,785 aggregate principal amount outstanding of the 2022 Notes at the purchase price of $102.625, plus accrued and unpaid interest (“2022 Notes October Tender Offer”).

On November 16, 2020, $59,863 aggregate principal amount of the 2022 Notes, representing 26.87% of the previously outstanding 2022 Notes, were validly tendered and accepted.

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The 2022 Notes August 2021 Tender Offer resulted in our recognizing a loss of $1,584.

As of December 31, 2021, the outstanding aggregate principal amount of the 2022 Notes is $60,501.

As of March 31, 2022, the outstanding aggregate principal amount of the 2022 Notes is $60,501.

On March 1, 2019, we issued $175,000 aggregate principal amount of senior convertible notes that mature on March 1, 2025 (the “2025 Notes”), unless previously converted or repurchased in accordance with their terms.

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As a result of this transaction, we recorded a loss of $2,466, in the amount of the difference between the reacquisition price and the net carrying amount of the 2025 Notes, net of the proportionate amount of unamortized debt issuance costs.

As of December 31, 2021, the outstanding aggregate principal amount of the 2025 Notes is $156,168.

As of March 31, 2022, the outstanding aggregate principal amount of the 2025 Notes is $156,168.

Certain key terms related to the convertible features for the 2022 Notes, and the 2025 Notes (collectively, the “Convertible Notes”) are listed below.

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Initial conversion price $ 9.98 $ 9.03

Conversion rate at December 31, 2021(1)(2) 100.2305 110.7420

Conversion price at December 31, 2021(2)(3) $ 9.98 $ 9.03

Conversion rate at March 31, 2022(1)(2) 100.2305 110.7420

Conversion price at March 31, 2022(2)(3) $ 9.98 $ 9.03

Last conversion price calculation date 4/11/2021 3/1/2022

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In connection with the issuance of the Convertible Notes, we recorded a discount of $3,369 and debt issuance costs of $9,035 which are being amortized over the terms of the Convertible Notes.

As of December 31, 2021, $1,775 of the original issue discount and $1,331 of the debt issuance costs remain to be amortized and is included as a reduction within Convertible Notes on the Consolidated Statement of Assets and Liabilities.

During the three months ended December 31, 2021 and December 31, 2020, we recorded $3,547 and $6,170, respectively, of interest costs and amortization of financing costs on the Convertible Notes as interest expense.

During the six months ended December 31, 2021 and December 31, 2020, we recorded $7,782 and $13,035, respectively, of interest costs and amortization of financing costs on the Covertible Notes as interest expense.

As of March 31, 2022, $1,643 of the original issue discount

and $1,151 of the debt issuance costs remain to be amortized and is included as a reduction within Convertible Notes on the Consolidated Statement of Assets and Liabilities.

During the three months ended March 31, 2022 and March 31, 2021, we recorded $3,550 and $4,870, respectively, of interest costs and amortization of financing costs on the Convertible Notes as interest expense.

During the nine months ended March 31, 2022 and March 31, 2021, we recorded $11,333 and $17,905, respectively, of interest costs and amortization of financing costs on the Covertible Notes as interest expense.

On March 15, 2013, we issued $250,000 aggregate principal amount of unsecured notes that mature on March 15, 2023 (the “Original 2023 Notes”).

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The 2023 Notes April 2021 Tender Offer resulted in our recognizing a loss of $43 during the three months ended June 30, 2021.

As of December 31, 2021, the outstanding aggregate principal amount of the 2023 Notes is $284,219.

As of March 31, 2022, the outstanding aggregate principal amount of the 2023 Notes is $284,219.

On December 10, 2015, we issued $160,000 aggregate principal amount of unsecured notes that mature on June 15, 2024 (the “2024 Notes”).

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The 6.375% 2024 Notes October 2021 Tender Offer resulted in our recognizing a loss of $12.

As of December 31, 2021, the outstanding aggregate principal amount of the 6.375% 2024 Notes is $81,240.

As of March 31, 2022, the outstanding aggregate principal amount of the 6.375% 2024 Notes is $81,240.

On December 5, 2018, we issued $50,000 aggregate principal amount of unsecured notes that mature on June 15, 2029 (the “2029 Notes”).

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Total proceeds from the issuance of the Additional 2026 Notes, net of underwriting discounts and offering costs, were $74,061.

As of December 31, 2021, the outstanding aggregate principal amount of the 2026 Notes is $400,000.

As of March 31, 2022, the outstanding aggregate principal amount of the 2026 Notes is $400,000.

On May 27, 2021, we issued $300,000 aggregate principal amount of unsecured notes that mature on November 15, 2026 (the “3.364% 2026 Notes”).

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Total proceeds from the issuance of the 3.364% 2026 Notes, net of underwriting discounts and offering costs, were $293,283.

As of December 31, 2021, the outstanding aggregate principal amount of the 3.364% 2026 Notes is $300,000.

As of March 31, 2022, the outstanding aggregate principal amount of the 3.364% 2026 Notes is $300,000.

On September 30, 2021, we issued $300,000 aggregate principal amount of unsecured notes that mature on October 15, 2028 (the “3.437% 2028 Notes”).

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Total proceeds from the issuance of the 3.437% 2028 Notes, net of underwriting discounts and offering costs, were $291,798.

As of December 31, 2021, the outstanding aggregate principal amount of the 3.437% 2028 Notes is $300,000.

As of March 31, 2022, the outstanding aggregate principal amount of the 3.437% 2028 Notes is $300,000.

The 2023 Notes, the 6.375% 2024 Notes, the 2026 Notes, the 3.364% 2026 Notes, and the 3.437% 2028 Notes (collectively, the “Public Notes”) are direct unsecured obligations and rank equally with all of our unsecured indebtedness from time to time outstanding.

In connection with the issuance of the Public Notes we recorded a discount of $15,802 and debt issuance costs of $17,834, which are being amortized over the term of the notes.

As of December 31, 2021, $12,467 of the original issue discount and $12,375 of the debt issuance costs remain to be amortized and are included as a reduction within Public Notes on the Consolidated Statement of Assets and Liabilities.

During the three months ended December 31, 2021 and December 31, 2020, we recorded $16,822 and $12,719, respectively, of interest costs and amortization of financing costs on the Public Notes as interest expense.

During the six months ended December 31, 2021 and December 31, 2020, we recorded $30,754 and $25,562, respectively, of interest costs and amortization of financing costs on the Public Notes as interest expense.

As of March 31, 2022, $11,854 of the original issue discount and $11,747 of the debt issuance costs remain to be amortized and are included as a reduction within Public Notes on the Consolidated Statement of Assets and Liabilities.

During the three months ended March 31, 2022 and March 31, 2021, we recorded $15,581 and $12,879, respectively, of interest costs and amortization of financing costs on the Public Notes as interest expense.

During the nine months ended March 31, 2022 and March 31, 2021, we recorded $46,336 and $38,441, respectively, of interest costs and amortization of financing costs on the Public Notes as interest expense.

Prospect Capital InterNotes ®

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On September 16, 2019, the May 2019 Selling Agent Agreement was terminated, and we entered into a new selling agent agreement with InspereX LLC (the “September 2019 Selling Agent Agreement”), authorizing the issuance and sale from time to time of up to $500,000 of Prospect Capital InterNotes®.

We sold approximately $1,700,000 in aggregate principal amount of Prospect Capital InterNotes® under the Original Selling Agent Agreement, May 2019 Selling Agent Agreement, and September 2019 Selling Agent Agreement (collectively the “Previous Selling Agent Agreements”).

We sold approximately $1,700,000 in aggregate principal amount of

Prospect Capital InterNotes® under the Original Selling Agent Agreement, May 2019 Selling Agent Agreement, and September 2019 Selling Agent Agreement (collectively the “Previous Selling Agent Agreements”).

On February 13, 2020, the September 2019 Selling Agent Agreement was terminated, and we entered into a new selling agent agreement with InspereX LLC (the “Selling Agent Agreement”), authorizing the issuance and sale from time to time of up to $1,000,000 of Prospect Capital InterNotes® (collectively with the previously authorized selling agent agreements, the “InterNotes® Offerings”).

Additional agents may be appointed by us from time to time in connection with the InterNotes® Offering and become parties to the Selling Agent Agreement.

We have, from time to time, repurchased certain notes issued through the InterNotes® Offerings and, therefore, as of December 31, 2021, $340,537 aggregate principal amount of Prospect Capital InterNotes® were outstanding.

We have, from time to time, repurchased certain notes issued through the InterNotes® Offerings and, therefore, as of March 31, 2022, $340,774 aggregate principal amount of Prospect Capital InterNotes® were outstanding.

These notes are direct unsecured obligations and rank equally with all of our unsecured indebtedness from time to time outstanding.

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These notes bear interest at fixed interest rates and offer a variety of maturities no less than twelve months from the original date of issuance.

During the six months ended December 31, 2021, we issued $120,322 aggregate principal amount of Prospect Capital InterNotes® for net proceeds of $117,442.

During the nine months ended March 31, 2022, we issued $155,909 aggregate principal amount of Prospect Capital InterNotes® for net proceeds of $152,441.

These notes were issued with stated interest rates ranging from 2.25% to 4.63% with a weighted average interest rate of 3.48%.

These notes mature between July 15, 2026 and December 15, 2051.

The following table summarizes the Prospect Capital InterNotes® issued during the six months ended December 31, 2021:

These notes mature between February 15, 2025 and March 15, 2052.

The following table summarizes the Prospect Capital InterNotes® issued during the nine months ended March 31, 2022:

(in years) Principal

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Interest Rate Maturity Date Range

5 $ 32,244 2.25% – 3.25% 2.63% July 15, 2026 – December 15, 2026

7 20,018 2.75% – 3.50% 2.99% July 15, 2028 – December 15, 2028

10 20,045 3.15% – 3.75% 3.30% July 15, 2031 – December 15, 2031

3 $ 1,499 2.50% 2.50% February 15, 2025 – March 15, 2025

5 58,068 2.25% – 4.50% 3.26% July 15, 2026 – March 15, 2027

7 20,929 2.75% – 4.25% 3.02% July 15, 2028 – February 15, 2029

10 22,435 3.15% – 4.50% 3.38% July 15, 2031 – March 15, 2032

12 2,422 3.70% 3.70% July 15, 2033

15 14,098 3.50% – 4.00% 3.80% July 15, 2036 – December 15, 2036

30 31,495 4.00% – 4.25% 4.01% July 15, 2051 – December 15, 2051

During the six months ended December 31, 2020, we issued $81,467 aggregate principal amount of our Prospect Capital InterNotes® for net proceeds of $80,203.

15 15,041 3.50% – 4.50% 3.84% July 15, 2036 – February 15, 2037

30 35,515 4.00% – 4.63% 4.06% July 15, 2051 – March 15, 2052

During the nine months ended March 31, 2021, we issued $109,562 aggregate principal amount of our Prospect Capital InterNotes® for net proceeds of $107,830.

These notes were issued with stated interest rates ranging from 1.50% to 6.00% with a weighted average interest rate of 4.70%.

These notes mature between July 15, 2025 and December 15, 2030 .

The following table summarizes the Prospect Capital InterNotes® issued during the six months ended December 31, 2020:

These notes mature between Janaury 15, 2024 and April 15, 2031.

The following table summarizes the Prospect Capital InterNotes® issued during the nine months ended March 31, 2021:

(in years) Principal

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Interest Rate Maturity Date Range

5 $ 49,426 4.25% – 5.50% 4.99% July 15, 2025 – December 15, 2025

7 13,064 4.50% – 5.75% 5.18% July 15, 2027 – December 15, 2027

10 18,977 4.75% – 6.00% 5.40% July 15, 2030 – December 15, 2030

During the six months ended December 31, 2021, we repaid $957 aggregate principal amount of Prospect Capital InterNotes® at par in accordance with the Survivor’s Option, as defined in the InterNotes® Offering prospectus.

3 $ 662 1.50 % 1.50% January 15, 2024

5 62,567 3.00% – 5.50% 4.60% July 15, 2025 – April 15, 2026

7 16,921 3.25% – 5.75% 4.84% July 15, 2027 – April 15, 2028

10 29,412 3.50% – 6.00% 4.90% July 15, 2030 – April 15, 2031

During the nine months ended March 31, 2022, we repaid $1,223 aggregate principal amount of Prospect Capital InterNotes® at par in accordance with the Survivor’s Option, as defined in the InterNotes® Offering prospectus.

In order to replace short maturity debt with longer-term debt, we redeemed $322,623 aggregate principal amount of Prospect Capital InterNotes® at par with a weighted average interest rate of 5.45%.

As a result of these transactions, we recorded a loss in the amount of the unamortized debt issuance costs.

The net loss on the extinguishment of Prospect Capital InterNotes® in the six months ended December 31, 2021 was $5,462.

The following table summarizes the Prospect Capital InterNotes® outstanding as of December 31, 2021:

The net loss on the extinguishment of Prospect Capital InterNotes® in the nine months ended March 31, 2022 was $6,403.

The following table summarizes the Prospect Capital InterNotes® outstanding as of March 31, 2022:

(in years) Principal

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Interest Rate Maturity Date Range

3 $ 662 1.50% 1.50% January 15, 2024

5 62,537 2.25% – 3.25% 2.81% January 15, 2026 – December 15, 2026

3 $ 2,161 1.50% – 2.50% 2.19% January 15, 2024 – March 15, 2025

5 88,361 2.25% – 4.50% 3.17% January 15, 2026 – March 15, 2027

6 15,107 3.00% 3.00% June 15, 2027 – July 15, 2027

7 28,341 2.75% – 4.00% 3.15% January 15, 2028 – December 15, 2028

7 29,252 2.75% – 4.25% 3.17% January 15, 2028 – February 15, 2029

8 3,511 3.40% – 3.50% 3.45% June 15, 2029 – July 15, 2029

10 74,926 3.15% – 4.50% 3.84% August 15, 2029 – December 15, 2031

10 77,185 3.15% – 4.50% 3.85% August 15, 2029 – March 15, 2032

12 15,066 3.70% – 4.00% 3.95% June 15, 2033 – July 15, 2033

15 14,978 3.50% – 6.00% 3.93% August 15, 2028 – December 15, 2036

18 6,509 4.50% – 6.25% 5.50% January 15, 2031 – August 15, 2031

20 2,482 5.75% – 6.00% 5.84% November 15, 2032 – September 15, 2033

25 21,611 6.25% – 6.50% 6.41% August 15, 2038 – May 15, 2039

30 94,807 4.00% – 6.75% 5.52% November 15, 2042 – December 15, 2051

During the six months ended December 31, 2020, we repaid $2,689 aggregate principal amount of Prospect Capital InterNotes® at par in accordance with the Survivor’s Option, as defined in the InterNotes® Offering prospectus.

15 15,041 3.50% – 4.50% 3.84% July 15, 2036 – February 15, 2037

18 3,085 4.50% – 5.00% 4.73% January 15, 2031 – April 15, 2031

20 1,597 5.75% 5.75% November 15, 2032

25 8,036 6.25% – 6.50% 6.37% November 15, 2038 – May 15, 2039

30 82,372 4.00% – 6.63% 5.29% November 15, 2042 – March 15, 2052

During the nine months ended March 31, 2021, we repaid $4,022 aggregate principal amount of Prospect Capital InterNotes® at par in accordance with the Survivor’s Option, as defined in the InterNotes® Offering prospectus.

In order to replace short maturity debt with longer-term debt, we redeemed $112,489 aggregate principal amount of Prospect Capital InterNotes® at par with a weighted average interest rate of 5.45%.

As a result of these transactions, we recorded a loss in the amount of the unamortized debt issuance costs.

The net loss on the extinguishment of Prospect Capital InterNotes® in the six months ended December 31, 2020 was $69.

The net loss on the extinguishment of Prospect Capital InterNotes® in the nine months ended March 31, 2021 was $1,100.

The following table summarizes the Prospect Capital InterNotes® outstanding as of June 30, 2021:

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30 97,608 5.50% – 6.75% 6.25% November 15, 2042 – October 15, 2043

In connection with the issuance of Prospect Capital InterNotes ® , we incurred $25,785 of fees which are being amortized over the term of the notes, of which $7,667 remains to be amortized and is included as a reduction within Prospect Capital InterNotes ® on the Consolidated Statement of Assets and Liabilities as of December 31, 2021.

During the three months ended December 31, 2021 and December 31, 2020, we recorded $4,177 and $10,208, respectively, of interest costs and amortization of financing costs on the Prospect Capital InterNotes® as interest expense.

During the six months ended December 31, 2021 and December 31, 2020, we recorded $9,479 and $19,916, respectively, of interest costs and amortization of financing costs on the Prospect Capital InterNotes® as interest expense.

In connection with the issuance of Prospect Capital InterNotes ® , we incurred $25,485 of fees which are being amortized over the term of the notes, of which $7,196 remains to be amortized and is included as a reduction within Prospect Capital InterNotes ® on the Consolidated Statement of Assets and Liabilities as of March 31, 2022.

During the three months ended March 31, 2022 and March 31, 2021, we recorded $3,652 and $10,515, respectively, of interest costs and amortization of financing costs on the Prospect Capital InterNotes® as interest expense.

During the nine months ended March 31, 2022 and March 31, 2021, we recorded $13,130 and $30,431, respectively, of interest costs and amortization of financing costs on the Prospect Capital InterNotes® as interest expense.

Net Asset Value Applicable to Common Stockholders

During the six months ended December 31, 2021, our net asset value applicable to common shares increased by $331,651 or $0.79 per common share.

During the nine months ended March 31, 2022, our net asset value applicable to common shares increased by $427,534 or $1.00 per common share.

The increase was primarily attributable to an increase in net realized and net change in unrealized gains of $376,109, or $0.96 per basic weighted average common share.

During the six months ended December 31, 2021, net investment income of $166,926, or $0.43 per basic weighted average common share, also exceeded distributions to common and preferred stockholders of $149,892 (including distributions classified as return of capital distributions to common stockholders), or $0.39 per basic weighted average common share, resulting in a net increase of $0.04 per basic weighted average common share.

The increase was primarily offset by $0.02 of dilution per common share related to common stock issuances through our common stock and dividend reinvestment program for the six months ended December 31, 2021.

The following table shows the calculation of net asset value per common share as of December 31, 2021 and June 30, 2021.

December 31, 2021 June 30, 2021

During the nine months ended March 31, 2022, net investment income of $253,931, or $0.65 per basic weighted average common share, also exceeded distributions to common and preferred stockholders of $227,470 (including distributions classified as return of capital distributions to common stockholders), or $0.58 per basic weighted average common share, resulting in a net increase of $0.07 per basic weighted average common share.

The increase was primarily offset by $0.03 of dilution per common share related to common stock issuances through our dividend reinvestment program for the nine months ended March 31, 2022.

The following table shows the calculation of net asset value per common share as of March 31, 2022 and June 30, 2021.

March 31, 2022 June 30, 2021

Net assets $ 4,236,011 $ 3,945,517

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Results of Operations

Operating results for the three and six months ended December 31, 2021 and December 31, 2020 were as follows:

Three Months Ended December 31, Six Months Ended December 31,

Operating results for the three and nine months ended March 31, 2022 and March 31, 2021 were as follows:

Three Months Ended March 31, Nine Months Ended March 31,

2022 2021 2022 2021

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The following table describes the various components of investment income and the related levels of debt investments:

Three Months Ended December 31, Six Months Ended December 31,

Three Months Ended March 31, Nine Months Ended March 31,

2022 2021 2022 2021

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(2) Excludes equity investments.

The average interest earned on interest bearing performing assets decreased from 10.45% for the three months ended December 31, 2020 to 9.25% for the three months ended December 31, 2021.

The average interest earned on all interest bearing assets decreased from 9.85% for the three months ended December 31, 2020 to 8.83% for the three months ended December 31, 2021.

The decrease is primarily due to decreases in interest income due to reduced returns from our structured credit investments.

The average interest earned on interest bearing performing assets decreased from 10.02% for the six months ended December 31, 2020 to 9.57% for the six months ended December 31, 2021.

The average interest earned on all interest bearing assets decreased from 9.36% for the six months ended December 31, 2020 to 9.14% for the six months ended December 31, 2021.

The decrease is primarily due to decreases in interest income due to reduced returns from our structured credit investments.

The average interest earned on interest bearing performing assets decreased from 10.18% for the three months ended March 31, 2021 to 8.95% for the three months ended March 31, 2022.

The average interest earned on all interest bearing assets decreased from 9.63% for the three months ended March 31, 2021 to 8.56% for the three months ended March 31, 2022.

The decrease is primarily due to reduced returns from our structured credit investments.

The average interest earned on interest bearing performing assets decreased from 10.08% for the nine months ended March 31, 2021 to 9.35% for the nine months ended March 31, 2022.

The average interest earned on all interest bearing assets decreased from 9.45% for the nine months ended March 31, 2021 to 8.94% for the nine months ended March 31, 2022.

The decrease is primarily due to reduced returns from our structured credit investments.

Investment income is also generated from dividends and other income which is less predictable than interest income.

The following table describes dividend income earned for the three and six months ended December 31, 2021 and December 31, 2020, respectively:

Three Months Ended December 31, Six Months Ended December 31,

The following table describes dividend income earned for the three and nine months ended March 31, 2022 and March 31, 2021, respectively:

Three Months Ended March 31, Nine Months Ended March 31,

2022 2021 2022 2021

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Other income is comprised of structuring fees, advisory fees, amendment fees, royalty interests, settlement of net profits interests, settlement of residual profits interests, administrative agent fees and other miscellaneous and sundry cash receipts.

The following table describes other income earned for the three and six months ended December 31, 2021 and December 31, 2020, respectively:

Three Months Ended December 31, Six Months Ended December 31,

The following table describes other income earned for the three and nine months ended March 31, 2022 and March 31, 2021, respectively:

Three Months Ended March 31, Nine Months Ended March 31,

2022 2021 2022 2021

Structuring, advisory and amendment fees

Belnick, LLC $ 1,750 $ — $ 1,750 $ —

National Property REIT Corp.

1,593 904 2,815 2,337

Global Tel*Link Corporation 1,500 — 1,500 —

SEOTownCenter, Inc.

1,040 — 1,040 —

USG Intermediate, LLC 687 — 687 —

Magnate Worldwide, LLC 666 — 3,516 —

First Tower Finance Company LLC 664 5,443 7,898 15,443

PeopleConnect Intermediate, LLC — — 2,495 —

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DRI Holding Inc.

2,238 — 2,238 —

BCPE Osprey Buyer, Inc.

1,812 — 1,812 —

BCPE North Star US Holdco 2, Inc.

1,463 — 1,463 —

National Property REIT Corp.

1,222 1,433 1,222 1,433

Victor Technology, LLC — — 600 —

Medical Solutions Holdings, Inc.

First Tower Finance Company LLC — 10,000 7,234 10,000

PGX Holdings, Inc.

Ahead Data Blue, LLC — — — 1,725

Interventional Management Services, LLC — 1,510 — 1,510

Orva Buyer, LLC — — — 810

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Eze Castle Integration, Inc.

OneTouchPoint Corp.

Other, net 2,249 208 4,601 774

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The following table describes the various components of our operating expenses:

Three Months Ended December 31, Six Months Ended December 31,

Three Months Ended March 31, Nine Months Ended March 31,

2022 2021 2022 2021

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Total operating expenses $ 94,426 $ 86,054 $ 272,350 $ 262,120

Total gross and net base management fee was $33,843 and $27,833 for the three months ended December 31, 2021 and December 31, 2020, respectively.

Total gross and net base management fee was $36,426 and $29,183 for the three months ended March 31, 2022 and March 31, 2021, respectively.

The increase in total gross base management fee is directly related to a increase in average total assets.

Total gross base management fee was $66,046 and $54,683 for the six months ended December 31, 2021 and December 31, 2020, respectively.

Total gross base management fee was $102,472 and $83,866 for the nine months ended March 31, 2022 and March 31, 2021, respectively.

The increase in total gross base management fee is directly related to a increase in average total assets.

For the three months ended December 31, 2021 and December 31, 2020, we incurred $19,589 and $20,717 of income incentive fees, respectively.

This decrease was driven by a corresponding decrease in pre-incentive fee net investment income (net of preferred stock dividends) from $102,232 for the three months ended December 31, 2020 to $97,944 for the three months ended December 31, 2021.

For the three months ended March 31, 2022 and March 31, 2021, we incurred $19,967 and $18,251 of income incentive fees, respectively.

This increase was driven by a corresponding increase in pre-incentive fee net investment income (net of preferred stock dividends) from $91,253 for the three months ended March 31, 2021 to $99,833 for the three months ended March 31, 2022.

No capital gains incentive fee has yet been incurred pursuant to the Investment Advisory Agreement.

Income incentive fee for the three months ended December 31, 2020 includes a $264 adjustment for fees earned in prior periods that were neither expensed nor paid to the Investment Adviser.

For the six months ended December 31, 2021 and December 31, 2020, we incurred $39,329 and $35,103 of income incentive fees, respectively.

This increase was driven by a corresponding increase in pre-incentive fee net investment income (net of preferred stock dividends) from $174,163 for the six months ended December 31, 2020 to $196,646 for the six months ended December 31, 2021.

Income incentive fee for the nine months ended March 31, 2021 includes a $264 adjustment for fees earned in prior periods that were neither expensed nor paid to the Investment Adviser.

For the nine months ended March 31, 2022 and March 31, 2021, we incurred $59,296 and $53,354 of income incentive fees, respectively.

This increase was driven by a corresponding increase in pre-incentive fee net investment income (net of preferred stock dividends) from $265,416 for the nine months ended March 31, 2021 to $296,479 for the nine months ended March 31, 2022.

No capital gains incentive fee has yet been incurred pursuant to the Investment Advisory Agreement.

During the three months ended December 31, 2021 and December 31, 2020, we incurred $29,679 and $33,727 respectively, of interest and credit facility expenses related to our Revolving Credit Facility, Convertible Notes, Public Notes and Prospect Capital InterNotes® (collectively, our “Notes”).

During the six months ended December 31, 2021 and December 31, 2020, we incurred $57,717 and $67,776, respectively, of interest expenses related to our Notes.

During the three months ended March 31, 2022 and March 31, 2021, we incurred $29,235 and $32,773 respectively, of interest and credit facility expenses related to our Revolving Credit Facility, Convertible Notes, Public Notes and Prospect Capital InterNotes® (collectively, our “Notes”).

During the nine months ended March 31, 2022 and March 31, 2021, we incurred $86,952 and $100,549, respectively, of interest expenses related to our Notes.

These expenses are related directly to the leveraging capacity put into place for each of those periods and the levels of indebtedness actually undertaken in those periods.

The table below describes the various expenses of our Notes and the related indicators of leveraging capacity and indebtedness during these years:

Three Months Ended December 31, Six Months Ended December 31,

Three Months Ended March 31, Nine Months Ended March 31,

2022 2021 2022 2021

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(2) Includes the stated interest expense, amortization of deferred financing costs, accretion of discount on Public Notes and commitment fees on the undrawn portion of our Revolving Credit Facility.

Interest expense decreased from $33,727 for the three months ended December 31, 2020 to $29,679 for the three months ended December 31, 2021.

The weighted average stated interest rate on borrowings (excluding amortization, accretion and undrawn facility fees) decreased from 5.19% for the three months ended December 31, 2020 to 4.08% for the three months ended December 31, 2021, primarily due to redemptions of our Prospect Capital InterNotes®, as well as repurchases of our Convertible Notes, June 2024 Baby Bond and June 2028 Baby Bond.

Interest expense decreased from $28,849 for the three months ended March 31, 2021 to $25,131 for the three months ended March 31, 2022.

The weighted average stated interest rate on borrowings (excluding amortization, accretion and undrawn facility fees) decreased from 4.82% for the three months ended March 31, 2021 to 3.78% for the three months ended March 31, 2022, primarily due to redemptions of our Prospect Capital InterNotes®, increased utilization of our Revolving Credit Facility, and repurchases of our Convertible Notes, June 2024 Baby Bond, June 2028 Baby Bond and June 2029 Baby Bond.

In addition to Prospect Capital InterNotes®, the 2026 Notes, 3.364% 2026 Notes, and the 2028 Bond were issued at lower rates.

Interest expense decreased from $67,776 for the six months ended December 31, 2020 to $57,717 for the six months ended December 31, 2021.

The weighted average stated interest rate on borrowings (excluding amortization, accretion and undrawn facility fees) decreased from 5.19% for the six months ended December 31, 2020 to 4.17% for the six months ended December 31, 2021.

This decrease is primarily due to redemptions of our Prospect Capital InterNotes®, as well as repurchases of our Convertible Notes, June 2024 Baby Bond and June 2028 Baby Bond.

Interest expense decreased from $88,709 for the nine months ended March 31, 2021 to $74,668 for the nine months ended March 31, 2022.

The weighted average stated interest rate on borrowings (excluding amortization, accretion and undrawn facility fees) decreased from 5.07% for the nine months ended March 31, 2021 to 4.03% for the nine months ended March 31, 2022.

This decrease is primarily due to redemptions of our Prospect Capital InterNotes®, increased utilization of our Revolving Credit Facility, and repurchases of our Convertible Notes, June 2024 Baby Bond, June 2028 Baby Bond and June 2029 Baby Bond.

In addition to Prospect Capital InterNotes®, the 2026 Notes and 3.364% 2026 Notes, and the 2028 Bond were issued at lower rates.

The allocation of net overhead expense from Prospect Administration was $2,239 and $3,426 for the three months ended December 31, 2021 and December 31, 2020, respectively.

In addition, during the three months ended December 31, 2020, we were given a credit in the amount of $3,522 for legal expenses incurred on behalf of our portfolio companies that were subsequently remitted to Prospect Administration in the subsequent quarter.

The allocation of net overhead expense from Prospect Administration was $6,765 and $8,083 for the six months ended December 31, 2021 and December 31, 2020, respectively.

Prospect Administration received estimated payments of $4,315 and $548 directly from our portfolio companies, and certain funds managed by the Investment Adviser for legal services during the six months ended December 31, 2021 and December 31, 2020, respectively.

In addition, during the six months ended December 31, 2020, we were given a credit in the amount of $3,522 for legal expenses incurred on behalf of our portfolio companies that were subsequently remitted to Prospect Administration in the subsequent quarter.

The allocation of net overhead expense from Prospect Administration was $4,126 and $2,685 for the three months ended March 31, 2022 and March 31, 2021, respectively.

In addition, during the three months ended March 31, 2021, we were given a credit in the amount of $3,522 for legal expenses incurred on behalf of our portfolio companies that were subsequently remitted to Prospect Administration in the subsequent quarter.

The allocation of net overhead expense from Prospect Administration was $10,891 and $10,768 for the nine months ended March 31, 2022 and March 31, 2021, respectively.

Prospect Administration received estimated payments of $5,391 and $1,038 directly from our portfolio companies, and certain funds managed by the Investment Adviser for legal services during the nine months ended March 31, 2022 and March 31, 2021, respectively.

In addition, during the nine months ended March 31, 2021, we were given a credit in the amount of $3,522 for legal expenses incurred on behalf of our portfolio companies that were subsequently remitted to Prospect Administration in the subsequent quarter.

We were given a credit for these payments as a reduction of the administrative services cost payable by us to Prospect Administration.

Had Prospect Administration not received these payments, Prospect Administration’s charges for its administrative services would have increased by this amount.

Total operating expenses, excluding investment advisory fees, interest and credit facility expenses, and allocation of overhead from Prospect Administration (“Other Operating Expenses”), net of any expense reimbursements, were $4,469 and $5,028 for the three months ended December 31, 2021 and December 31, 2020, respectively.

The decrease was primarily attributable to a decrease in legal fees.

Total operating expenses, excluding investment advisory fees, interest and credit facility expenses, and allocation of overhead from Prospect Administration (“Other Operating Expenses”), net of any expense reimbursements, were $8,067 and $10,421 for the six months ended December 31, 2021 and December 31, 2020, respectively.

The decrease was primarily attributable to a decrease in legal fees and a decrease in general and administrative expenses.

We were given no such credit during the nine months ended March 31, 2022.

Total operating expenses, excluding investment advisory fees, interest and credit facility expenses, and allocation of overhead from Prospect Administration (“Other Operating Expenses”), net of any expense reimbursements, were $4,672 and $3,162 for the three months ended March 31, 2022 and March 31, 2021, respectively.

The increase was primarily attributable to a increase in legal fees offset by a decrease in general and administrative expenses.

Total operating expenses, excluding investment advisory fees, interest and credit facility expenses, and allocation of overhead from Prospect Administration (“Other Operating Expenses”), net of any expense reimbursements, were $12,739 and $13,583 for the nine months ended March 31, 2022 and March 31, 2021, respectively.

The decrease was primarily attributable to a decrease in general and administrative expenses.

Net Realized Gains (Losses)

The following table details net realized gains (losses) from investments for the three months ended December 31, 2021 and December 31, 2020:

Three Months Ended December 31,

The following table details net realized gains (losses) from investments for the three months ended March 31, 2022 and March 31, 2021:

Three Months Ended March 31,

Portfolio Company 2022 2021

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Sudbury Mill CLO, Ltd.

Brookside Mill CLO (7,683) —

Dunn Paper, Inc.

Other, net 4 136

Net realized (losses) gains $ (2,254) $ 881

The following table details net realized gains (losses) from investments for the six months ended December 31, 2021 and December 31, 2020:

Six Months Ended December 31,

The following table details net realized gains (losses) from investments for the nine months ended March 31, 2022 and March 31, 2021:

Nine Months Ended March 31,

Portfolio Company 2022 2021

1 unchanged sentence

Spartan - Term Loan B — 2,832

Brookside Mill CLO (7,683) —

Sudbury Mill CLO, Ltd.

Dunn Paper, Inc.

Other, net (418) 150

1 unchanged sentence

Net Realized Loss from Extinguishment of Debt

During the three months ended December 31, 2021 and December 31, 2020, we recorded a net realized loss from the extinguishment of debt of $3,851 and $5,094, respectively.

During the six months ended December 31, 2021 and December 31, 2020, we recorded a net realized loss from the extinguishment of debt of $9,208 and $5,580, respectively.

During the three months ended March 31, 2022 and March 31, 2021, we recorded a net realized loss from the extinguishment of debt of $941 and $12,835, respectively.

During the nine months ended March 31, 2022 and March 31, 2021, we recorded a net realized loss from the extinguishment of debt of $10,149 and $18,415, respectively.

Refer to Capitalization for additional discussion.

Change in Unrealized Gains (Losses)

The following table details net change in unrealized (losses) gains for our portfolio for the six months ended December 31, 2021 and December 31, 2020, respectively:

Three Months Ended December 31, Six Months Ended December 31,

The following table details net change in unrealized (losses) gains for our portfolio for the three and nine months ended March 31, 2022 and March 31, 2021, respectively:

Three Months Ended March 31, Nine Months Ended March 31,

2022 2021 2022 2021

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Net change in unrealized gains (losses) $ 80,486 $ 184,960 $ 398,340 $ 518,577

The following table details reflects net change in unrealized gains (losses) on investments for the three months ended December 31, 2021:

The following table details reflects net change in unrealized gains (losses) on investments for the three months ended March 31, 2022:

Net Change in Unrealized Gains (Losses)

National Property REIT Corp.

PGX Holdings, Inc.

CP Energy Services Inc.

Subordinated Structured Notes 18,874

First Tower Finance Company LLC 11,247

Other, net 4,367

InterDent, Inc.

Curo Group Holdings Corp.

Credit Central Loan Company, LLC (6,531)

K&N Parent, Inc.

Pacific World Corporation (9,258)

PGX Holdings, Inc.

Echelon Transportation, LLC (17,588)

InterDent, Inc.

Net change in unrealized gains $ 80,486

The following table reflects net change in unrealized gains (losses) on investments for the three months ended December 31, 2020:

The following table reflects net change in unrealized gains (losses) on investments for the three months ended March 31, 2021:

Net Change in Unrealized Gains (Losses)

InterDent, Inc.

First Tower Finance Company LLC 47,983

National Property REIT Corp.

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Other, net 16,853

First Tower Finance Company LLC 20,529

Subordinated Structured Notes 11,527

Valley Electric Company, Inc.

CP Energy Services Inc.

Credit Central Loan Company, LLC (6,091)

Echelon Transportation, LLC (6,819)

Edmentum Ultimate Holdings, LLC (10,394)

Net change in unrealized gains $ 184,960

The following table details net change in unrealized gains (losses) on investments for the six months ended December 31, 2021:

The following table details net change in unrealized gains (losses) on investments for the nine months ended March 31, 2022:

Net Change in Unrealized Gains (Losses)

1 unchanged sentence

Subordinated Structured Notes 46,619

PGX Holdings, Inc.

CP Energy Services Inc.

First Tower Finance Company LLC 29,024

InterDent, Inc.

PGX Holdings, Inc.

Targus Cayman HoldCo Limited 10,331

Credit Central Loan Company, LLC 7,661

R-V Industries, Inc.

Other, net (5,257)

Echelon Transportation, LLC (9,339)

K&N Parent, Inc.

Curo Group Holdings Corp.

Pacific World Corporation (24,173)

Echelon Transportation, LLC (26,927)

InterDent, Inc.

Net change in unrealized gains $ 398,340

The following table details net change in unrealized gains (losses) on investments for the six months ended December 31, 2020:

The following table details net change in unrealized gains (losses) on investments for the nine months ended March 31, 2021:

Net Change in Unrealized Gains (Losses)

InterDent, Inc.

PGX Holdings, Inc.

National Property REIT Corp.

InterDent, Inc.

First Tower Finance Company LLC 75,057

2 unchanged sentences

Valley Electric Company, Inc.

R-V Industries, Inc.

Pacific World Corporation 9,634

R-V Industries 8,304

Securus Technologies Holdings, Inc.

ACE Cash Express, Inc.

Targus Cayman HoldCo Limited 5,225

Engine Group, Inc.

Edmentum Ultimate Holdings, LLC (5,471)

Credit Central Loan Company, LLC (10,145)

Echelon Transportation, LLC (12,456)

CP Energy Services, Inc.

14 unchanged sentences

dollar LIBOR, at this time, it is not possible to predict the effect of any such changes, any establishment of alternative reference rates or other reforms to LIBOR that may be enacted in the United States, United Kingdom or elsewhere or, whether the COVID-19 will have further effect on LIBOR transition plans.

The elimination of LIBOR or any other changes or reforms to the determination or supervision of LIBOR could have an adverse impact on the market for or value of any LIBOR-linked securities, loans, and other financial obligations or extensions of credit held by or due to us or on our overall financial condition or results of operations.

to us or on our overall financial condition or results of operations.

At this time, it is not possible to predict the effect of the FCA Announcement or other regulatory changes or announcements, any establishment of any alternative reference rates, including SOFR and its market acceptance, or any other reforms to LIBOR that may be enacted in the United Kingdom, the United States or elsewhere.

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In addition, the effect of a phase out of LIBOR on U.S.

senior secured loans, the underlying assets of the CLOs in which we invest, is currently unclear.

senior secured loans, the underlying assets of the CLOs in which we invest, is currently unclear, even if certain statutory regimes may apply, e.g., N.Y.

Law § 18-401 or the Adjustable Interest Rate (LIBOR) Act.

To the extent that any replacement rate utilized for senior secured loans differs from that utilized for a CLO that holds those loans, the CLO would experience an interest rate mismatch between its assets and liabilities which could have an adverse impact on the Company’s net investment income and portfolio returns.

For the six months ended December 31, 2021 and December 31, 2020, our operating activities used $301,585 and provided $92,648 of cash, respectively.

The change in our operating activities is primarily driven by an increase in net originations for the six months ended December 31, 2021.

There were no investing activities for the six months ended December 31, 2021 and December 31, 2020.

Financing activities provided $283,001 and used $87,112 of cash during the six months ended December 31, 2021 and December 31, 2020, respectively, which included dividend payments of $131,356 and $84,175, respectively.

The change in our financing activities is primarily driven by an increase in proceeds from issuance of preferred stock used to finance our increase in net originations for the six months ended December 31, 2021.

For the nine months ended March 31, 2022 and March 31, 2021, our operating activities used $589,727 and provided $131,003 of cash, respectively.

The change in our operating activities is primarily driven by an increase in net originations for the nine months ended March 31, 2022.

There were no investing activities for the nine months ended March 31, 2022 and March 31, 2021.

Financing activities provided $562,519 and used $74,575 of cash during the nine months ended March 31, 2022 and March 31, 2021, respectively, which included dividend payments of $199,697 and $132,671, respectively.

The change in our financing activities is primarily driven by an increase in proceeds from issuance of preferred stock used to finance our increase in net originations for the nine months ended March 31, 2022.

Our primary uses of funds have been to continue to invest in portfolio companies, through both debt and equity investments, repay outstanding borrowings and to make cash distributions to our stockholders.

Our primary sources of funds have historically been issuances of debt and equity.

More recently, we have and may continue to fund a portion of our cash needs through repayments and opportunistic sales of our existing investment portfolio.

We have and may continue to fund a portion of our cash needs through repayments and opportunistic sales of our existing investment portfolio.

We may also securitize a portion of our investments in unsecured or senior secured loans or other assets.

Our objective is to put in place such borrowings in order to enable us to expand our portfolio.

During the six months ended December 31, 2021, we borrowed $968,618 and we made repayments totaling $852,947 under the Revolving Credit Facility.

As of December 31, 2021, our outstanding balance on the Revolving Credit Facility was $472,608.

As of December 31, 2021, we had, net of unamortized discount and debt issuance costs, $213,563 outstanding on the Convertible Notes, $1,340,617 outstanding on the Public Notes and $332,870 outstanding on the Prospect Capital InterNotes® (See “Capitalization” above).

During the nine months ended March 31, 2022, we borrowed $1,627,051 and we made repayments totaling $1,284,548 under the Revolving Credit Facility.

As of March 31, 2022, our outstanding balance on the Revolving Credit Facility was $699,440.

As of March 31, 2022, we had, net of unamortized discount and debt issuance costs, $213,875 outstanding on the Convertible Notes, $1,341,858 outstanding on the Public Notes and $333,578 outstanding on the Prospect Capital InterNotes® (See “Capitalization” above).

Undrawn committed revolvers and delayed draw term loans to our portfolio companies incur commitment and unused fees ranging from 0.00% to 7.25%.

As of December 31, 2021 and June 30, 2021, we had $48,672 and $67,385, respectively, of undrawn revolver and delayed draw term loan commitments to our portfolio companies.

The fair value of our undrawn committed revolvers and delayed draw term loans was zero as of December 31, 2021 and June 30, 2021.

As of March 31, 2022 and June 30, 2021, we had $43,351 and $67,385, respectively, of undrawn revolver and delayed draw term loan commitments to our portfolio companies.

The fair value of our undrawn committed revolvers and delayed draw term loans was zero as of March 31, 2022 and June 30, 2021.

We have guaranteed $2,737 in standby letters of credit issued through a financial intermediary and $1,835 of equipment lease obligations on behalf of InterDent, Inc.

(“InterDent”) as of December 31, 2021.

(“InterDent”) as of March 31, 2022.

Under these arrangements, we would be required to make payments to the financial intermediary or equipment lease provider, respectively, if InterDent was to default on their related payment obligations.

As of December 31, 2021, we have not recorded a liability on the statement of assets and liabilities for these guarantees as the likelihood of default on the standby letters of credit or equipment lease is deemed to be remote .

As of March 31, 2022, we have not recorded a liability on the statement of assets and liabilities for these guarantees as the likelihood of default on the standby letters of credit or equipment lease is deemed to be remote .

On February 13, 2020, we filed a registration statement on Form N-2 (File No.

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Preferred Stock

On August 3, 2020, we entered into a Dealer Manager Agreement with Preferred Capital Securities, LLC (“PCS”), pursuant to which PCS has agreed to serve as the Company’s agent, principal distributor and dealer manager for the Company’s offering of up to 40,000,000 shares, par value $0.001 per share, of preferred stock, with a liquidation preference of $25.00 per share.

Such preferred stock will initially be issued in multiple series, including the 5.50% Series A1 Preferred Stock (“Series A1 Preferred Stock”), the 5.50% Series M1 Preferred Stock (“Series M1 Preferred Stock”), and the 5.50% Series M2 Preferred Stock (“Series M2 Preferred Stock”, and together with the Series M1 Preferred Stock, the “Series M Preferred Stock”).

In connection with such offering, on August 3, 2020, we filed Articles Supplementary with the State Department of Assessments and Taxation of Maryland (“SDAT”), reclassifying and designating 120,000,000 shares of the Company’s authorized and unissued shares of common stock into shares of preferred stock as “Convertible Preferred Stock.” On October 30, 2020, we entered into a Dealer Manager Agreement with InspereX LLC, pursuant to which InspereX LLC has agreed to serve as the Company’s agent and dealer manager for the Company’s offering of up to 10,000,000 shares, par value $0.001 per share, of 5.50% Series AA1 Preferred Stock, with a liquidation preference of $25.00 per share (the “Series AA1 Preferred Stock”).

In connection with such offering, on October 30, 2020, we filed Articles Supplementary with the SDAT, reclassifying and designating an additional 20,000,000 shares of the Company’s authorized and unissued shares of common stock into shares of preferred stock as Convertible Preferred Stock.

On May 19, 2021, we entered into an Underwriting Agreement with UBS Securities LLC, relating to the offer and sale of 187,000 shares, par value $0.001 per share, of 5.50% Series A2 Preferred Stock, with a liquidation preference of $25.00 per share (the “Series A2 Preferred Stock”, and together with the Series A1 Preferred Stock, Series M1 Preferred Stock, Series M2 Preferred Stock and Series AA1 Preferred Stock, the “5.50% Preferred Stock”).

up to 40,000,000 shares, par value $0.001 per share, of preferred stock, with a liquidation preference of $25.00 per share.

In connection with such offering, on August 3, 2020, we filed Articles Supplementary with the State Department of Assessments and Taxation of Maryland (“SDAT”), reclassifying and designating 120,000,000 shares of the Company’s authorized and unissued shares of common stock into shares of preferred stock as “Convertible Preferred Stock.” On October 30, 2020, and amended on February 18, 2022, we entered into a Dealer Manager Agreement with InspereX LLC, pursuant to which InspereX LLC has agreed to serve as the Company’s agent and dealer manager for the Company’s offering of up to 10,000,000 shares, par value $0.001 per share, of preferred stock, with a liquidation preference of $25.00 per share.

Such preferred stock will initially be issued in multiple series, including the 5.50% Series AA1 Preferred Stock (the “Series AA1 Preferred Stock”) and the 5.50% Series MM1 Preferred Stock (the “Series MM1 Preferred Stock” and together with the Series M1 Preferred Stock and the Series M2 Preferred Stock, the “Series M Preferred Stock”).

In connection with such offering, on October 30, 2020 and February 17, 2022, we filed Articles Supplementary with the SDAT, reclassifying and designating an additional 40,000,000 shares of the Company’s authorized and unissued shares of common stock into shares of preferred stock as Convertible Preferred Stock.

On May 19, 2021, we entered into an Underwriting Agreement with UBS Securities LLC, relating to the offer and sale of 187,000 shares, par value $0.001 per share, of 5.50% Series A2 Preferred Stock, with a liquidation preference of $25.00 per share (the “Series A2 Preferred Stock”, and together with the Series A1 Preferred Stock, Series M1 Preferred Stock, Series M2 Preferred Stock, Series AA1 Preferred Stock, and Series MM1 Preferred Stock, the “5.50% Preferred Stock”).

The issuance of the Series A2 Preferred Stock settled on May 26, 2021.

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Subject to certain limitations, each share of 5.50% Preferred Stock may be converted at our option (the “Issuer Optional Conversion”).

We will settle any Issuer Optional Conversion by paying or delivering, as the case may be, (A) any portion of the IOC Settlement Amount (as defined below) that we elect to pay in cash and (B) a number of shares of our common stock at a conversion rate equal to (1) (a) the IOC Settlement Amount, minus (b) any portion of the IOC Settlement Amount that we elect to pay in cash, divided by (2) the 5-day VWAP, subject to our ability to obtain or maintain any stockholder approval that may be required under the 1940 Act to permit us to sell our common stock below net asset value if the 5-day VWAP represents a discount to our net asset value per share of common stock.

We will settle any Issuer Optional Conversion by paying or delivering, as the case may be, (A) any portion of the

IOC Settlement Amount (as defined below) that we elect to pay in cash and (B) a number of shares of our common stock at a conversion rate equal to (1) (a) the IOC Settlement Amount, minus (b) any portion of the IOC Settlement Amount that we elect to pay in cash, divided by (2) the 5-day VWAP, subject to our ability to obtain or maintain any stockholder approval that may be required under the 1940 Act to permit us to sell our common stock below net asset value if the 5-day VWAP represents a discount to our net asset value per share of common stock.

For the 5.50% Preferred Stock, “IOC Settlement Amount” means (A) the Stated Value, plus (B) unpaid dividends accrued to, but not including, the date fixed for conversion.

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(ii) any changes resulting from a subdivision or combination or a change solely in par value;

(iii) any transaction where the shares of our Voting Stock outstanding immediately prior to such transaction constitute, or are converted into or exchanged for, a majority of the Voting Stock of the surviving “person” (as that term is used in Section 13(d)(3) of the Exchange Act) or any direct or indirect parent company of the surviving “person” (as that term is used in Section 13(d)(3) of the Exchange Act) immediately after giving effect to such transaction;

(iii) any transaction where the shares of our Voting Stock

outstanding immediately prior to such transaction constitute, or are converted into or exchanged for, a majority of the Voting Stock of the surviving “person” (as that term is used in Section 13(d)(3) of the Exchange Act) or any direct or indirect parent company of the surviving “person” (as that term is used in Section 13(d)(3) of the Exchange Act) immediately after giving effect to such transaction;

(iv) any transaction if (A) we become a direct or indirect wholly-owned subsidiary of a holding company and (B)(1) the direct or indirect holders of the Voting Stock of such holding company immediately following that transaction are substantially the same as the holders of our Voting Stock immediately prior to that transaction or (2) immediately following that transaction no “person” (as that term is used in Section 13(d)(3) of the Exchange Act) is the beneficial owner, directly or indirectly, of more than 50% of the Voting Stock of such holding company;

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For so long as the Series A Preferred Stock is outstanding, we will not exercise any option we have to convert any other series of our outstanding preferred stock to common stock, including the Issuer Optional Conversion, or any other security ranking junior to such preferred stock.

As a result, and in accordance with ASC 480, we have presented both our 5.50% Preferred Stock and Series A Preferred Stock within temporary equity on our Consolidated Statement of Assets and Liabilities as of December 31, 2021.

We determined the estimated value as of December 31, 2021 of our Preferred Stock, with a $25.00 stated value per share.

We engaged a third-party valuation service to assist in our determination based on the calculation resulting from the total equity on our Consolidated Statements of Assets and Liabilities in our Quarterly Report on Form 10-Q for the quarter ended December 31, 2021 (the “Form 10-Q”), which was prepared in accordance with U.S.

We determined the estimated value as of March 31, 2022 of our 5.50% Preferred Stock, with a $25.00 stated value per share.

We engaged a third-party valuation service to assist in our determination based on the calculation resulting from the total equity on our Consolidated Statements of Assets and Liabilities in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2022 (the “Form 10-Q”), which was prepared in accordance with U.S.

generally accepted accounting principles in the United States of America, adjusted for the fair value of our investments (i.e.

from our Consolidated Schedule of Investments ) and total liabilities, divided by the number of shares of our Preferred Stock outstanding.

Based on this methodology and because the result from the calculation above is greater than the $25.00 per share stated value of our Preferred Stock, the estimated value of our Preferred Stock as of December 31, 2021 is $25.00 per share.

Our common stockholders’ equity accounts as of December 31, 2021 and June 30, 2021 reflect cumulative shares issued, net of shares repurchased, as of those respective dates.

Our common stock has been issued through public offerings, a registered direct offering, the exercise of over-allotment options on the part of the underwriters, our dividend reinvestment plan and in connection with the acquisition of certain controlled portfolio companies.

Based on this methodology and because the result from the calculation above is greater than the $25.00 per share stated value of our 5.50% Preferred Stock, the estimated value of our 5.50% Preferred Stock as of March 31, 2022 is $25.00 per share.

Our common stockholders’ equity accounts as of March 31, 2022 and June 30, 2021 reflect cumulative shares issued, net of shares repurchased, as of those respective dates.

When our common stock is issued, the related offering expenses have been charged against paid-in capital in excess of par.

All underwriting fees and offering expenses were borne by us.

We did not repurchase any shares of our common stock for the six months ended December 31, 2021 or December 31, 2020.

We did not repurchase any shares of our common stock for the nine months ended March 31, 2022 or March 31, 2021.

Recent Developments

On January 20, 2022, we made a new $87,500 First Lien Term Loan investment in Belnick, LLC, an importer and online seller of furniture and furnishings to both commercial and retail customers primarily through long-term e-commerce partnerships.

On January 21, 2022, we increased total commitments of the Revolving Credit Facility to the maximum accordion facility size of $1,500,000.

On February 7, 2022, we made an additional $75,000 Second Lien Term Loan investment in Global Tel*Link Corporation.

We expect the additional investment to settle on or about February 11, 2022.

On February 8, 2022, we announced the declaration of monthly dividends for our 5.50% Preferred Stock for holders of record on the following dates based on an annual rate equal to 5.50% of the Stated Value of $25 per share as set forth in the Articles Supplementary for the Preferred Stock, from the date of issuance or, if later from the most recent dividend payment date (the first business day of the month, with no additional dividend accruing in January as a result), as follows:

On April 26, 2022, we made a new $18,500 First Lien Term Loan investment and a $75,000 Second Lien Term Loan investment in DTI Holdco, Inc., a technology-enabled e-discovery legal service provider, offering solutions to both corporate and law firm clients.

Our investment settled on May 2, 2022.

On May 9, 2022, we announced the declaration of monthly dividends for our 5.50% Preferred Stock for holders of record on the following dates based on an annual rate equal to 5.50% of the Stated Value of $25 per share as set forth in the Articles Supplementary for the Preferred Stock, from the date of issuance or, if later from the most recent dividend payment date, as follows:

Monthly Cash 5.50% Preferred Shareholder Distribution Record Date Payment Date Monthly Amount ($ per share), before pro ration for partial periods

March 2022 3/23/2022 4/1/2022 $0.114583

April 2022 4/20/2022 5/2/2022 $0.114583

May 2022 5/18/2022 6/1/2022 $0.114583

June 2022 6/22/2022 7/1/2022 $0.114583

July 2022 7/20/2022 8/1/2022 $0.114583

August 2022 8/17/2022 9/1/2022 $0.114583

On February 8, 2022, we announced the declaration of quarterly dividends for our 5.35% Preferred Stock for holders of record on the following dates based on an annual rate equal to 5.35% of the Stated Value of $25.00 per share as set forth in the Articles Supplementary for the 5.35% Preferred Stock, from the date of issuance or, if later from the most recent dividend payment date, as follows:

Quarterly Cash 5.35% Preferred Shareholder Distribution Record Date Payment Date Amount ($ per share)

February 2022 - April 2022 4/20/2022 5/2/2022 $0.334375

On February 8, 2022, we announced the declaration of monthly dividends on our common stock as follows:

May 2022 - July 2022 7/20/2022 8/1/2022 $0.334375

On May 9, 2022, we announced the declaration of monthly dividends on our common stock as follows:

Monthly Cash Common Shareholder Distribution Record Date Payment Date Amount ($ per share)

February 2022 2/24/2022 3/22/2022 $0.0600

March 2022 3/29/2022 4/20/2022 $0.0600

April 2022 4/27/2022 5/19/2022 $0.0600

May 2022 5/27/2022 6/21/2022 $0.0600

June 2022 6/28/2022 7/20/2022 $0.0600

July 2022 7/27/2022 8/18/2022 $0.0600

August 2022 8/29/2022 9/21/2022 $0.0600

Critical Accounting Policies and Estimates

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis