Executive Summary

NII of $83.5M ($0.19/share) declined sequentially from $0.20 and y/y from $0.23; Total Investment Income (revenue) was $170.7M, down q/q from $185.5M and y/y from $202.2M .
EPS beat consensus while revenue was slightly below: Primary EPS $0.19 vs $0.14 consensus (beat), revenue $170.7M vs $174.3M consensus (miss)* .
NAV/share fell to $7.25 (from $7.84 q/q; $8.99 y/y) on sizable unrealized depreciation, notably in control and non‑control investments .
Liquidity and capital stack remain conservative: $1.72B cash + undrawn RC, net debt/total assets 28.7%, 87.5% of capital unsecured debt + preferred; company repaid March 2025 convert and tendered 39.6% of 2026 notes .
Dividend maintained at $0.045/month for May–Aug 2025; management continues rotating into first‑lien senior secured loans and exiting lower‑yielding/variable real estate and CLO equity exposures .

What Went Well and What Went Wrong

What Went Well
- Portfolio de‑risking/rotation: first‑lien exposure rose to 65.5% (up ~650 bps y/y); subordinated structured notes down to 4.2% of assets (‑310 bps y/y) . “We expect to continue to amortize and exit our subordinated structured notes portfolio and to reinvest primarily in first lien senior secured middle market loans.” .
- Credit quality and core yields: non‑accruals 0.6% of total assets; performing interest‑bearing assets yielded 11.5% as of March . “Our interest income in the March quarter was 93% of total investment income, reflecting a strong recurring revenue profile.” .
- Balance sheet strength: $1.716B liquidity, net debt/total assets 28.7%, largely unsecured funding and extended ladder; repaid March 2025 convertible and executed a tender for 2026 notes .
What Went Wrong
- NAV and GAAP earnings pressure: NAV/share fell to $7.25; GAAP net loss to common of $(171.3)M driven by net realized and unrealized losses, including $(160.9)M net unrealized .
- Top‑line softness: Total Investment Income declined q/q and y/y; revenue slightly missed consensus* .
- Other income normalization at NPRC: management noted exit‑related “other income” from real estate slowed alongside rates volatility; near‑term contributions may remain subdued until exit pacing normalizes .

Financial Results

Headline P&L and NAV (FY2025 quarters; oldest → newest)

Metric	Q1 2025 (Sep-24)	Q2 2025 (Dec-24)	Q3 2025 (Mar-25)
Total Investment Income ($M)	$196.3	$185.5	$170.7
Net Investment Income ($M)	$89.9	$86.4	$83.5
NII/Share ($)	$0.21	$0.20	$0.19
GAAP Net Income to Common ($M)	$(165.1)	$(31.0)	$(171.3)
GAAP EPS ($)	$(0.38)	$(0.07)	$(0.39)
NAV/Share ($)	$8.10	$7.84	$7.25

Q3 YoY (Mar quarter)

Metric	Q3 2024 (Mar-24)	Q3 2025 (Mar-25)
Total Investment Income ($M)	$202.2	$170.7
NII ($M)	$94.4	$83.5
NII/Share ($)	$0.23	$0.19
GAAP Net Income to Common ($M)	$113.9	$(171.3)
NAV/Share ($)	$8.99	$7.25

Consensus vs Actual (Primary EPS and Revenue; FY2025, oldest → newest)

Metric	Q1 2025	Q2 2025	Q3 2025
Primary EPS – Actual ($)	0.21	0.20	0.19
Primary EPS – Consensus ($)	0.17*	0.14*	0.14*
Revenue – Actual ($M)	196.3	185.5	170.7
Revenue – Consensus ($M)	202.3*	189.7*	174.3*

Q3 2025 result: EPS beat (+$0.05), revenue miss (‑$3.6M)* .

Portfolio mix (fair value, % of investments)

Category	Sep 30, 2024	Dec 31, 2024	Mar 31, 2025
First Lien Debt	64.9%	64.9%	65.5%
Second Lien Debt	11.1%	10.2%	10.5%
Subordinated Structured Notes	6.2%	5.8%	4.2%
Unsecured Debt	0.1%	0.1%	0.1%
Equity Investments	17.7%	19.0%	19.7%
Mix with Underlying Collateral	82.2%	80.9%	80.2%

Key KPIs (oldest → newest)

KPI	Sep 30, 2024	Dec 31, 2024	Mar 31, 2025
Non‑Accruals (% of total assets)	0.5%	0.4%	0.6%
Annualized Yield – All Investments	9.7%	9.1%	9.2%
Annualized Yield – Performing Interest‑Bearing	11.8%	11.2%	11.5%
% Interest‑Bearing Assets at Floating	81.0%	79.8%	77.5%
Net of Cash Debt / Total Assets	29.7%	28.1%	28.7%
Liquidity (Cash + Undrawn RC, $M)	1,631	1,880	1,716
Unencumbered Assets ($M)	4,853	4,764	4,440
Wtd Avg EBITDA / Portfolio Co. ($000s)	104,682	101,644	97,732
Middle‑Market Wtd Avg Net Leverage	5.7x	6.1x	5.6x

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Common monthly dividend	Feb–Apr 2025	$0.045/share per month	—	—
Common monthly dividend	May–Aug 2025	—	$0.045/share per month (May–Aug 2025)	Maintained rate
Floating‑Rate Preferred dividend	Jun–Aug 2025	—	$0.135417 per month	Announced
7.50% Preferred dividend	Jun–Aug 2025	—	$0.156250 per month	Announced
5.50% Preferred dividend	Jun–Aug 2025	—	$0.114583 per month	Announced

Capital actions during/around the quarter (context): repaid $156.2M March 2025 notes; launched and accepted tender for 3.706% 2026 notes ($135.7M accepted, 39.6% of $342.9M outstanding) .

Earnings Call Themes & Trends

Topic	Previous Mentions (Q1 FY25)	Previous Mentions (Q2 FY25)	Current Period (Q3 FY25)	Trend
Rotation to first‑lien senior secured loans	Emphasized; first‑lien mix reached 65% y/y; reducing CLO equity and real estate	64.9% first‑lien; plan to amortize CLO equity and redeploy	65.5% first‑lien; CLO equity 4.2% of assets; continue exits	Continued execution
NPRC real estate “other income”	Cautious on exit‑related income; rightsizing distribution	6.9% income yield in Dec quarter; exits continue	Other income slower; expect normalization as markets stabilize	Normalization pending
PIK income	—	PIK down ~50% vs June ’24; $20M in Dec	$19.5M in Mar; down vs prior periods	Lower PIK, more cash income
Dividend coverage levers	Distribution rightsized to $0.045	—	Focus on lower‑middle market spreads/floors, rotate from CLO equity/RE to lift yields; under‑levered balance sheet	Multiple levers to support NII
Funding mix & access	Revolver upsized/extended; IG ratings reaffirmed	$1.9B liquidity; unsecured term debt 85% of indebtedness; 48 banks	$1.7B liquidity; unsecured + preferred 87.5% of capital; tender of 2026s	Stable/liability mgmt active
Credit quality	Non‑accruals 0.5%	Non‑accruals 0.4%	Non‑accruals 0.6%	Still low, modest uptick

Management Commentary

“In the March quarter, our net investment income, or NII, was $83.5 million, $0.19 per common share. Our NAV was $3.2 billion, $7.25 per common share.”
“Our subordinated structured notes portfolio…represented 4.2% of our investment portfolio…We expect to continue to amortize and exit [it] and to reinvest primarily in first lien senior secured middle market loans.”
“The remaining real estate property portfolio includes 58 properties that paid us an income yield of 4.5% for the March quarter…We expect to continue to redeploy future asset sale proceeds primarily into…first lien middle market loans.”
“Our company has locked in a ladder of liabilities extending 27 years into the future…combined balance sheet cash and undrawn revolving credit facility commitments stood at $1.7 billion as of March.”
On NPRC/other income: “Exit‑related income…slowed a bit, as the Fed hiked, and in particular, 10‑year treasuries spiked…We think things are starting to normalize.”

Q&A Highlights

NPRC/other income trajectory: Management expects exit‑related income to normalize as market volatility subsides; remains focused on orderly, value‑maximizing NPRC reductions .
Dividend coverage strategy: Levers include shifting toward lower/middle‑market loans with wider spreads and higher SOFR floors, rotating from low‑GAAP CLO equity and lower‑yielding real estate, and judiciously increasing leverage from a conservative base (~30% debt/total cap) .
Funding mix: Company will continue to prioritize both unsecured debt and preferreds, noting programmatic access even through volatility and the value of diversified funding channels .

Estimates Context

Q3 FY25 EPS beat: $0.19 vs $0.14 consensus; revenue miss: $170.7M vs $174.3M consensus*. Near‑term estimate revisions may reflect lower “other income” and persistent NAV pressure, partially offset by higher first‑lien mix and yield‑lift from portfolio rotation .
Backdrop: EPS outperformed consensus in each of FY2025’s first three quarters, while revenue tracked modestly below single‑point consensus each quarter, consistent with de‑emphasizing non‑recurring “other income” streams*.
S&P Global estimates used for consensus/actual comparison for Primary EPS and Revenue.*

Key Takeaways for Investors

Core income resilient but trending lower as the portfolio intentionally rotates away from higher‑variability NPRC/CLO equity sources toward first‑lien loans; this supports EPS beats even as revenue normalizes and “other income” moderates .
NAV attrition is the central debate: sizable unrealized losses weighed on GAAP EPS and NAV; watch forward marks on control/non‑control positions as a stock narrative driver .
Credit remains sound: non‑accruals are low and yields robust; weighted average portfolio company EBITDA drifted down, but leverage is broadly stable vs prior quarters .
Funding/liquidity provide optionality: sizeable revolver capacity, long liability ladder, active liability management (convertible repayment; 2026 note tender) mitigate refinancing risk into 2026 .
Dividend maintained at $0.045/month through August; management outlined multiple levers (mix, floors, leverage) to support coverage into a lower‑SOFR backdrop .
Near‑term catalysts: additional NPRC asset sales and CLO equity amortization/redeployment to lift NII; monitoring of rate trajectory/floors and origination pace vs repayments will shape top‑line trends .
Risk watch‑list: further unrealized depreciation, slower exit markets dampening other income, and any uptick in non‑accruals against a softer macro tape .

Notes and sources

Q3 FY2025 8‑K (Item 2.02) press release and financial statements .
Q3 FY2025 earnings call transcript (prepared remarks and Q&A) .
Prior‑quarter press releases and transcripts for trend analysis: Q2 FY2025 (Dec‑24) ; Q1 FY2025 (Sep‑24) .
Capital actions press releases: tender launch (Apr 9, 2025) ; tender results (Apr 18, 2025) .
Scheduling/housekeeping: earnings release timing (May 6, 2025) .

Estimate data disclaimer

*Values retrieved from S&P Global (Capital IQ) via GetEstimates.

PROSPECT CAPITAL CORP (PSEC)·Q3 2025 Earnings Summary