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Fitch Rates CIFC Funding 2015-I, Ltd./LLC

NEW YORK–(BUSINESS WIRE)–Fitch Ratings has assigned the following ratings to CIFC Funding 2015-I,
Ltd./LLC:

–$340,000,000 class A-1 senior secured floating rate notes AAAsf;
Outlook Stable;

–$50,000,000 class A-2 senior secured loans AAAsf; Outlook Stable;

–$0 class A-2 senior secured floating rate notes AAAsf; Outlook
Stable.

Fitch does not rate the class A-1-DD, A-2-DD, B, B-DD, C, C-DD, D, D-DD,
E-1, E-1-DD, E-2, E-2-DD, F, F-DD or subordinated notes.

TRANSACTION SUMMARY

CIFC Funding 2015-I, Ltd. (the issuer) and CIFC Funding 2015-I, LLC (the
co-issuer) comprise an arbitrage cash flow collateralized loan
obligation (CLO) that will be managed by CIFC Asset Management LLC
(CIFC). Net proceeds from the issuance of the secured and subordinated
notes will be used to purchase a portfolio of approximately $600 million
of primarily senior secured leveraged loans. The CLO will have a
four-year reinvestment period and a one and a half year non-call period.

KEY RATING DRIVERS

Sufficient Credit Enhancement: Credit enhancement (CE) of 35% for class
A-1 notes, class A-2 loans, and class A-2 notes (together, class A
debt), in addition to excess spread, is sufficient to protect against
portfolio default and recovery rate projections in an AAAsf stress
scenario. The degree of CE available to class A debt is lower than the
average CE of recent CLO issuances; however, cash flow modeling
indicates performance in line with other AAAsf CLO notes.

B Asset Quality: The average credit quality of the indicative
portfolio is B, which is comparable to recent CLOs. Issuers rated in
the B rating category denote a highly speculative credit quality;
however, in Fitchs opinion, class A notes are unlikely to be affected
by the foreseeable level of defaults. Class A debt is projected to be
able to withstand default rates of up to 59%.

Strong Recovery Expectations: The indicative portfolio consists of 97.9%
first lien senior secured loans. Approximately 91.6% of the indicative
portfolio has either strong recovery prospects or a Fitch-assigned
recovery rating of RR2 or higher, resulting in a base case recovery
assumption of 76.2%. In determining the class A debt rating, Fitch
stressed the indicative portfolio by assuming a higher portfolio
concentration of assets with lower recovery prospects and further
reduced recovery assumptions for higher rating stress assumptions. The
analysis of class A debt assumed a 35.2% recovery rate in Fitchs
AAAsf scenario.

RATING SENSITIVITIES

Fitch evaluated the structures sensitivity to the potential variability
of key model assumptions, including decreases in recovery rates and
increases in default rates or correlation. Fitch expects the class A
debt to remain investment grade even under the most extreme sensitivity
scenarios. Results under these sensitivity scenarios ranged between
A-sf and AAAsf for the class A debt.

Sources of information used to assess these ratings were provided by the
arranger, BNP Paribas Securities Corp., and the public domain. Key
Rating Drivers and Rating Sensitivities are further described in the
accompanying new issue report which will be available shortly to
investors on Fitchs website at www.fitchratings.com.

For more information about Fitchs comprehensive subscription service
FitchResearch, which includes all presale reports, surveillance and
credit reports on more than 20 asset classes, contact product sales at
+1-212-908-0800 or at webmaster@fitchratings.com.

Additional information is available at www.fitchratings.com.

Applicable Criteria and Related Research:

–Global Structured Finance Rating Criteria (Aug. 4, 2014);

–Global Rating Criteria for Corporate CDOs (July 25, 2014);

–Criteria for Interest Rate Stresses in Structured Finance
Transactions and Covered Bonds (Dec. 19, 2014);

–Counterparty Criteria for Structured Finance and Covered Bonds (May
14, 2014).

Applicable Criteria and Related Research:

Global Structured Finance Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=754389

Global Rating Criteria for Corporate CDOs

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=753057

Criteria for Interest Rate Stresses in Structured Finance Transactions
and Covered Bonds

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=838868

Counterparty Criteria for Structured Finance and Covered Bonds

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=744158

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=981591

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND
DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING
THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS.
IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE
AVAILABLE ON THE AGENCYS PUBLIC WEBSITE WWW.FITCHRATINGS.COM.
PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS
SITE AT ALL TIMES. FITCHS CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS
OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES
AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF
THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE
RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR
RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY
CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH
WEBSITE.

Fitch to Rate ECP CLO 2015-7, Ltd./LLC; Issues Presale

NEW YORK–(BUSINESS WIRE)–

Fitch Ratings expects to assign the following rating to ECP CLO 2015-7,
Ltd./LLC:

–$321,100,000 class A-1 notes AAAsf; Outlook Stable.

Fitch does not expect to rate the class A-1-F, A-2, A-2-F, B-1, B-1-F,
B-2, B-2-F, C, C-F, D, D-F, E, E-F or subordinated notes.

TRANSACTION SUMMARY

ECP CLO 2015-7, Ltd. (the issuer) and ECP CLO 2015-7 LLC (the co-issuer)
represent an arbitrage cash flow collateralized loan obligation (CLO)
that will be managed by Silvermine Capital Management (Silvermine). A
portion of net proceeds from the issuance of notes will be used to repay
parties that provided interim financing, allowing the issuer to purchase
collateral prior to the closing date. The remainder of net proceeds will
be used to purchase assets to reach a target portfolio of $500 million
of leveraged loans. The CLO will have a four-year reinvestment period.

KEY RATING DRIVERS

Sufficient Credit Enhancement: Credit enhancement (CE) of 35.8% for
class A-1, in addition to excess spread, is sufficient to protect
against portfolio default and recovery rate projections in the AAAsf
stress scenario. The level of CE for class A-1 notes is below the
average for recent CLO issuances.

B+/B Asset Quality: The average credit quality of the indicative
portfolio is B+/B, which is slightly better than that of recent CLOs.
Issuers rated in the B rating category denote relatively weak credit
quality; however, in Fitchs opinion, class A-1 notes are unlikely to be
affected by the foreseeable level of defaults. The class A-1 notes are
robust against default rates of up to 58.8%.

Strong Recovery Expectations: The indicative portfolio consists of 94.8%
senior-secured loans. Approximately 90.9% of the indicative portfolio
has strong recovery prospects or a Fitch-assigned Recovery Rating of
RR2 or higher and the base case recovery assumption is 73.6%. In
determining ratings for class A-1 notes, Fitch stressed the indicative
portfolio by assuming a higher portfolio concentration of assets with
lower recovery prospects and further reduced recovery assumptions for
higher rating stresses resulting in a 35.4% recovery rate assumption in
Fitchs AAAsf scenario.

RATING SENSITIVITIES

Fitch evaluated the structures sensitivity to the potential variability
of key model assumptions, including decreases in recovery rates and
increases in default rates or correlation. Fitch expects the class A-1
notes to remain investment grade even under the most extreme sensitivity
scenarios. Results under these sensitivity scenarios ranged between
A+sf and AAAsf for the class A-1 notes.

The expected ratings are based on information provided to Fitch as of
March 18, 2015. Sources of information used to assess these ratings were
provided by the arranger, Citigroup Global Markets Inc., and the public
domain. Key Rating Drivers and Rating Sensitivities are further
described in the accompanying presale report.

The presale report is available to investors on Fitchs web site at www.fitchratings.com.
For more information about Fitchs comprehensive subscription service
FitchResearch, which includes all presale reports, surveillance and
credit reports on more than 20 asset classes, contact product sales at
+1-212-908-0800 or at webmaster@fitchratings.com.

Additional information is available at www.fitchratings.com.

Applicable Criteria and Related Research:

–Global Structured Finance Rating Criteria (Aug. 4, 2014);

–Global Rating Criteria for Corporate CDOs (July 25, 2014);

–Criteria for Interest Rate Stresses in Structured Finance
Transactions and Covered Bonds (Dec. 19, 2014);

–Counterparty Criteria for Structured Finance and Covered Bonds (May
14, 2014).

Applicable Criteria and Related Research: ECP CLO 2015-7, Ltd./LLC (US
Structured Credit)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=863737

Global Structured Finance Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=754389

Global Rating Criteria for Corporate CDOs

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=753057

Criteria for Interest Rate Stresses in Structured Finance Transactions

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=695535

Counterparty Criteria for Structured Finance and Covered Bonds

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=744158

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=981536

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND
DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING
THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS.
IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE
AVAILABLE ON THE AGENCYS PUBLIC WEBSITE WWW.FITCHRATINGS.COM.
PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS
SITE AT ALL TIMES. FITCHS CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS
OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES
AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF
THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE
RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR
RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY
CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH
WEBSITE.

Payday lenders brace for crackdown

Payday lenders are pushing back against forthcoming rules for quick-cash loans, contending that a federal crackdown on the much-maligned industry would also harm consumers.

The regulations, a top priority for the Consumer Financial Protection Bureau, are expected to be unveiled as soon as this month. Though the agency has not revealed the scope of the proposal, observers say it is likely to target short-term loans, including those requiring a borrower’s car title as collateral.

Fifth Street Senior Floating Rate Corp Given Average Recommendation of "Buy …

Fifth Street Senior Floating Rate Corp (NASDAQ:FSFR) has been given an average recommendation of Buy by the six ratings firms that are currently covering the stock, American Banking Market News reports. Two equities research analysts have rated the stock with a hold recommendation and four have issued a buy recommendation on the company. The average 1-year price target among brokers that have issued a report on the stock in the last year is $12.85.

Shares of Fifth Street Senior Floating Rate Corp (NASDAQ:FSFR) traded down 0.28% during mid-day trading on Thursday, hitting $10.79. The stock had a trading volume of 9,580 shares. Fifth Street Senior Floating Rate Corp has a 52-week low of $9.71 and a 52-week high of $15.10. The stock has a 50-day moving average of $10. and a 200-day moving average of $10..

Fifth Street Senior Floating Rate Corp (NASDAQ:FSFR) last posted its quarterly earnings results on Monday, February 9th. The company reported $0.35 earnings per share (EPS) for the quarter, beating the consensus estimate of $0.29 by $0.06. Analysts expect that Fifth Street Senior Floating Rate Corp will post $1.25 EPS for the current fiscal year.

The company also recently announced a monthly dividend, which will be paid on Friday, May 15th. Shareholders of record on Friday, May 1st will be paid a dividend of $0.10 per share. This represents a $1.20 annualized dividend and a dividend yield of 11.09%. The ex-dividend date is Wednesday, April 29th.

Several analysts have recently commented on the stock. Analysts at Deutsche Bank reiterated a buy rating and set a $12.50 price target (down previously from $13.25) on shares of Fifth Street Senior Floating Rate Corp in a research note on Tuesday, February 10th. Separately, analysts at MLV Co
reiterated a buy rating and set a $12.50 price target on shares of Fifth Street Senior Floating Rate Corp in a research note on Monday, February 9th.

Fifth Street Senior Floating Rate Corp. is a closed-end, non-diversified management investment company. The Company investment objective is to maximize the Company’s portfolio’s total return by generating income from its debt investments while seeking to preserve its capital. The Company intends to achieve its investment objective by investing primarily in senior secured loans, including first lien, unitranche and second lien debt instruments, that pay interest at rates, which are determined periodically on the basis of a floating base lending rate, made to private middle market companies whose debt is rated below investment grade, which the Company refer to collectively as senior loans.

Receive News Ratings for Fifth Street Senior Floating Rate Corp Daily – Enter your email address below to receive a concise daily summary of the latest news and analysts ratings for Fifth Street Senior Floating Rate Corp and related companies with Analyst Ratings Networks FREE daily email newsletter.

Leyte releases P1.4 million fresh loans for rice program

InterAksyon.com means BUSINESS

TACLOBAN CITY – Rice farmers got another boost from the provincial government of Leyte as the latter released fresh loans under the More Income in the Countryside thru Rice (MIC-Rice) program of Governor Leopoldo Dominico Petilla.

A total of 98 farmers, with 67 from Babatngon town, four from Sta. Fe town and seven from Tanauan town availed of the financial aid for the new planting season.

The provincial government has allotted more than P1.4 million for this fresh release of cash loans under the program.

The MIC-Rice Program is a continuation of the ICOT-Rice Program implemented during the leadership of then governor and now Energy Secretary Carlos Jericho Petilla.

The official saw fit to continue the project as it helps the farmers ensure production for their livelihood and help the province attain rice sufficiency.

The same mechanism under the previous ICOT-P Rice Program is being employed by the MIC-Rice Program where farmers are offered cash loans amounting to P15,000 per hectare to cover the expenses for labor, seeds, fertilizers, insurance and pesticides.

The farmers would pay back their loans in terms of good quality palay (unhusked rice) which the provincial government would itself buy from the farmers with price higher than the prevailing market rates.

“This project has been designed to spur farmers’ participation in the local government’s rice production enhancement program. But with the devastation of super typhoon Yolanda in 2013, the program revisited its goals of helping farmers regain their rice produce and ensure rice sufficiency in the province,” Petilla added.

The governor also said that because the project needs a big budget allotment, recipient towns and rice farmer beneficiaries are closely evaluated and monitored.

Leyte has some 60,000 hectares of rice land. In 2007, the Department of Agriculture acknowledged Leyte’s performance of being one of the top producing provinces for the prime commodity. It ranked sixth in rice production all over the country.

Between 2000 and 2009, Leyte posted the third biggest increase in rice production among all provinces, behind Nueva Ecija and Iloilo, and has the highest average annual growth rate in terms of yield per hectare output.

 

National Securities Begins Coverage on Solar Capital (SLRC)

National Securities started coverage on shares of Solar Capital (NASDAQ:SLRC) in a research report released on Wednesday morning. The firm issued a buy rating and a $23.00 price objective on the stock.

We are initiating coverage of Solar Capital Ltd. (SLRC) with a BUY rating and $23 price target. Solar Capital has the potential to deliver strong earnings growth over the next two years due to its low leverage, spare debt capacity, and growth levers from primary origination platforms along with its joint venture unitranche program with PIMCO (Pacific Investment Management Company) and the life sciences venture lending initiative to lend to companies that are in a middle stage of development and have significant equity cushions. We anticipate NII/share (net investment income per share) growth of 5.8% and 15.9% in 2015 and 2016, respectively. The company also has a $275 million (at cost) ownership of Crystal Financial which is an asset backed lender focused entirely on senior secured, floating rate loans and is not correlated with Solar’s primary middle market leveraged loan business. At a time when most BDCs are fully levered up and dealing with asset quality issues, Solar has nonaccruals at less than 1% of its investment portfolio at fair value and debt-to-equity (D/E) of only 0.24x with a target of 0.65x – 0.70x. The company should also be able to increase its quarterly dividend by 10% in 2016, in our opinion, as a result of strong and sustainable NII (net investment income) growth with no expected share issuances needed to fund growth. Solar has 90% of its portfolio in senior secured loans (including Crystal Financial) and earns impressive yields on its portfolio. Our $23 price target implies an estimated 2016 P/ NII of 12.1x, dividend yield of 7.0%, and P/NAV of 1.04x compared to the BDC sector averages of 9.1x, 10.2%, and 0.95x, respectively. , National Securitiess analyst commented.

Shares of Solar Capital (NASDAQ:SLRC) opened at 19.69 on Wednesday. Solar Capital has a 1-year low of $17.20 and a 1-year high of $22.38. The stocks 50-day moving average is $19. and its 200-day moving average is $18..

Solar Capital (NASDAQ:SLRC) last issued its quarterly earnings data on Wednesday, February 25th. The company reported $0.40 earnings per share (EPS) for the quarter, beating the consensus estimate of $0.39 by $0.01. On average, analysts predict that Solar Capital will post $1.62 earnings per share for the current fiscal year.

The company also recently declared a quarterly dividend, which will be paid on Thursday, April 2nd. Stockholders of record on Thursday, March 19th will be given a dividend of $0.40 per share. This represents a $1.60 dividend on an annualized basis and a yield of 8.13%. The ex-dividend date of this dividend is Tuesday, March 17th.

Other equities research analysts have also recently issued reports about the stock. Analysts at TheStreet upgraded shares of Solar Capital from a hold rating to a buy rating in a research note on Tuesday, March 3rd. Analysts at Wells Fargo Co. upgraded shares of Solar Capital from a market perform rating to an outperform rating in a research note on Thursday, February 26th. Finally, analysts at Deutsche Bank lowered their price target on shares of Solar Capital from $24.50 to $24.30 and set a buy rating on the stock in a research note on Thursday, February 26th. Two investment analysts have rated the stock with a hold rating and five have given a buy rating to the companys stock. The stock currently has an average rating of Buy and a consensus target price of $22.20.

Solar Capital Ltd. is a closed-end, externally managed, non-diversified management investment company that has elected to be treated as a business development company. The Companys investment objective is to generate both current income and capital appreciation through debt and equity investments. The Company invests primarily in leveraged middle markets companies in the form of senior secured loans, mezzanine loans and equity securities.

To view National Securities full report, visit National Securities official website.

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How to get the most from credit card rewards

Do you qualify?

To be approved for a rewards card, you generally need good or excellent credit, with a FICO score around 720 and up (out of a possible 850). If your score is lower, you may not be approved for a card or the rewards will be smaller.

For example, a zero-percent balance transfer offer might get reduced from 18 months to six months, said Jill Gonzalez, a spokeswoman at WalletHub, an online resource for financial products and news.

Twenty-somethings who are still building a credit history may have trouble meeting the credit score threshold.

And if you do qualify, Youve got to be very disciplined about your spending, said Curtis Arnold, founder of CardRatings.com and BestPrepaidDebitCards.com, which keep tabs on industry trends. Studies show that credit cards, especially rewards cards, cause you to spend more than if you used cash.

Arnolds advice: Make sure you have a budget and can stick to it before opening up a rewards card. Get a couple of years under your belt just using a plain-Jane card, he said.

What if you use credit cards wisely, but have a low credit score? In that case, check out secured credit cards, which require a cash deposit upfront to back the cards credit line. Some secured cards now offer rewards. LifeMiles Visa Secured, from US Bank, for example, lets you earn airline miles that you can redeem with Star Alliance members, including United Airlines.

How do you earn rewards?

Rewards generally are earned when you use your credit card to make purchases: Spend a dollar and get a reward. But today, more issuers are offering generous sign-up bonuses just for opening a new card and charging a certain amount in the first few months.

Chase Sapphire Preferred, for example, gives new cardholders 40,000 points — enough to cover $500 worth of airfare or hotel stays — when you spend $4,000 in the first three months that the account is open.

Issuers are also rewarding customers who practice good credit card habits.

Take BankAmericard Better Balance Rewards, from Bank of America. You get $25 per quarter if you pay more than the monthly minimum on time each month, plus an additional $5 if you have a checking or savings account with the bank.

It disconnects the rewards from how much you spend, Goldman said.

If you have a good credit score and no credit card debt, look for cards that let you earn 2 percent or more whenever you make a purchase. That should be the minimum reward you get today, Goldman said.

Consider Citi Double Cash, which Citibank introduced last year. You earn 1 percent for every dollar spent, plus another 1 percent for every dollar you pay off on your card — a reward for spending and using credit wisely.

Prospect Capital Corp.’s Dividend And NAV Sustainability Analysis (Post Fiscal …

Authors Note: PART 2 of this article is a continuation from PART 1 which was discussed in a previous publication. Please see PART 1 of this article for an initial discussion on the current dividend sustainability of Prospect Capital Corp. (NASDAQ:PSEC). PART 1 helps lead to a better understanding of the topics/trends that will be discussed in PART 2. The link to PART 1s analysis is provided below:

Prospect Capital Corp.s Dividend and NAV Sustainability Analysis (Post Fiscal Q2 2015 Earnings) – Part 1

This two-part article is a very detailed look at Prospect Capital Corp.s dividend and NAV sustainability. I perform this detailed analysis for readers who anticipate/want such an analysis performed (which has increased from recent reader feedback). For readers who just want the summarized conclusions/results, I would suggest to scroll down to the Conclusions Drawn section at the bottom of the each part of the article.

Focus of PART 2 of Article:

PART 1 of this article mainly analyzed PSECs past and current performance regarding the companys quarterly NII, cumulative undistributed NII, net ICTI, and cumulative UTI figures (including four tests being performed). PART 2 will transition to a more forward-looking dividend sustainability analysis and will discuss some additional topics/trends to consider in a general net rising interest rate environment that may counter (or confirm) the evidence obtained within PART 1. PART 2 will also perform an analysis on PSECs future NAV sustainability. At the end of this article, I will include the following PSEC projections: 1) next set of dividend declarations (dividend per share rate for May 2015 and June 2015); and 2) NAV per share ranges for the next several fiscal quarters. I will also include my current BUY, SELL, or HOLD recommendation regarding PSEC.

Additional Topics/Trends Impacting PSECs Future Dividend and NAV Sustainability:

In addition to the four tests performed in PART 1 of this article, some recent topics/trends that will affect the future dividend and NAV sustainability of PSEC should also be addressed. The following three topics/trends will play an important role regarding the future dividend and NAV sustainability of PSEC: 1) an in-depth analysis on how the companys investment portfolio is currently set up for the eventual rise to the London Interbank Offered Rate (LIBOR) over the next several years; 2) a cost/fair market value (FMV) investment rating analysis on the companys debt and equity investments; and 3) a quarterly FMV gain (loss) analysis on the companys debt and equity investments.

Prior to discussing the three topic/trends stated above, let me provide some general examples of how PSECs investment portfolio can have income and valuation fluctuations over time. Income fluctuations have a direct impact on PSECs future dividend sustainability. Valuation fluctuations have a direct impact on PSECs future NAV sustainability (with some variables intertwining).

For instance, if a portfolio company starts to see slowing operations and/or net losses, an FMV write-down (also known as capital depreciation) would likely occur on PSECs debt investment. As such, the value of PSECs investment portfolio would be reduced causing an immediate drop to EPS. This occurs even if the write-down is still unrealized. Through generally accepted accounting principles (GAAP), quarterly FMV write-downs or write-ups (also known as capital appreciation) occur. Quarterly FMV fluctuations are also known as mark-to-market adjustments. These FMV fluctuations have an immediate and direct impact on PSECs future NAV sustainability. Let us now assume this same portfolio company begins to show signs of the inability to pay its loan obligations. This would cause PSECs debt investment within that portfolio company to be put on non-accrual status. When this occurs, interest income would not be recognized as interest payments are not being received. As such, this would cause an immediate drop in PSECs NII/net ICTI and have a direct impact on PSECs future dividend sustainability.

One business development company (BDC), Fifth Street Finance Corp. (NASDAQ:FSC), recently experienced a similar situation as discussed above. Several of FSCs portfolio companies recently had deteriorating operations due to various macroeconomic and/or individual business conditions. One such condition was the recent material decrease in oil prices. As such, material FMV write-downs were recorded during FSCs fiscal first quarter of 2015 (quarter ending 12/31/2014). These FMV write-downs directly affected FSCs NAV sustainability. As outlined in the generalized example earlier, along with these modest – material FMV write-downs, FSC decided to also put these debt investments on non-accrual status during the fiscal first quarter of 2015. As such, this caused FSCs NII/net ICTI to be modestly reduced during the quarter. This event was one of several reasons why FSC recently materially reduced the companys monthly dividend per share rate beginning in March 2015. In my professional opinion, the main reason for the material reduction was new managements conservative policy regarding future dividend distributions.

Getting back to PSEC, the same general risks discussed earlier could also occur on the companys equity investments. If a portfolio company (which PSEC has an equity investment in) starts to see slowing operations and/or net losses, PSECs equity investment would generally be deemed less valuable. As such, an FMV equity write-down/capital depreciation would occur. In a worst case scenario, a total write-off would be necessary leaving PSECs equity investment worthless. Similar to the debt investment example above, this would cause an immediate drop to EPS. As such, this would have an immediate and direct impact on PSECs future NAV sustainability. If a portfolio company (which PSEC has an equity investment in) begins to show signs of an inability to pay its loan obligations (whether with PSEC or elsewhere), PSECs equity investment in that company would most likely see a reduction in dividend income. The probability of a portion or all of the cash distributions received by PSEC from the portfolio company would be deemed a return of capital (ROC) per GAAP and thus not a component of NII or net ICTI. As such, this would cause an immediate drop to PSECs NII/net ICTI and have a direct impact on PSECs future dividend sustainability.

With that being said, let us now perform an in-depth analysis on how PSECs investment portfolio is currently set up for the eventual rise to LIBOR over the next several years.

1) Eventual Rise in LIBOR and the Impact on PSECs Investment Portfolio:

There have been many readers who have asked about this first topic/trend via private correspondence. From these conversations, I have come to the conclusion some readers are having trouble understanding what will directly occur to PSECs interest income and expense accounts when the Federal Reserve (FOMC) begins to increase the Federal (Fed) Funds Rate. In particular, this topic will analyze the relationship between LIBOR and PSECs cash LIBOR floor associated with most of the companys debt investments. While not having a material impact on PSECs NII until the FOMC begins to modestly increase the Fed Funds Rate, I still believe a discussion of the eventual impacts of a rise in LIBOR should be discussed since this event will eventually have a direct impact on the PSECs future dividend sustainability. Under more extreme modeling forecasts, this event will not materially impact PSECs NII for at least another year. With that being said, each BDC will have varying timeframes regarding material impacts to NII (will be explained later in the article).

Let us first take a look at the one-month, three-month, six-month, and twelve-month LIBOR percentages during PSECs fiscal third quarter of 2015 (quarter ending 3/31/2015). This will help put things in perspective when analyzing PSECs floating-rate debt investments later in this section of the article.

Table 6 – LIBOR Percentages for PSECs Fiscal Third Quarter of 2015

(click to enlarge)

(Source: Table created entirely by myself, obtaining LIBOR data via private access to a professional resource [Thomson Reuters])

Using Table 6 above as a reference, one can see each LIBOR maturity only had minor movements during PSECs fiscal third quarter of 2015 (through the week ending 3/13/2015). As of 3/13/2015, one-month, three-month, six-month, and twelve-month LIBOR were 0.17%, 0.27%, 0.40%, and 0.71%, respectively. When compared to historical LIBOR, these percentages continued to be near historical lows. However, with that being said, the six-month and twelve-month LIBOR percentages began to slightly increase over the past several weeks as the notion of the FOMC raising the Fed Funds Rate earlier than anticipated has increased due to stronger than expected recent macroeconomic/jobs data.

Since most industry experts would agree that an increase in LIBOR in the future is a higher probability when compared to LIBOR decreasing (since the current percentages continue to be near historical lows), this analysis will assume an incremental, gradual rise to LIBOR across all maturities over the next several years. For PSEC (and the BDC sector in general), a gradual rise in LIBOR has two general implications.

First, this would be a positive factor regarding the sectors new loan originations that would most likely have higher stated interest rates when compared to both fixed- and floating-rate debt investments. Of course, factors like credit/spread risk come into play regarding this scenario but we will assume a steepening yield curve will exist. Over the past several years, new loan originations within the same general debt classifications (senior secured, subordinated secured, subordinated unsecured, CLO, etc.) have continued to experience a gradual decrease in the average interest rate charged on these new investments due to general market conditions and increased competition within the BDC sector. This is basically known as yield compression and has basically hurt each BDC over the past several years. PSEC has not been an exception. To show the extent of PSECs yield compression over the past several years (technically, the companys weighted average annualized yield on its debt investments), Table 7 is provided below.

Table 7 – PSEC Quarterly Annualized Weighted Average Yield Analysis (Evidence of Recent Yield Compression)

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(Source: Table created entirely by myself, partially using PSEC data obtained from the SECs EDGAR Database)

Using Table 7 above as a reference, as of 6/30/2012 PSEC had an annualized weighted average yield on the companys debt investments of 13.9%. Through a gradual decline (a few quarters contradicted this notion), PSECs annualized weighted average yield modestly decreased to 11.9% as of 9/30/2014. PSECs mounting cumulative quarterly net decrease to this annualized weighted average yield percentage basically caused a gradual decrease to the companys quarterly NII (generally speaking; several quarters had exceptions). However, it should also be noted PSECs annualized weighted average yield slightly increased to 12.3% as of 12/31/2014. Furthermore, the eventual modest increase in LIBOR should begin to reverse this multi-year trend.

Second, this would be a negative factor regarding PSECs (and the BDC sectors) floating-rate credit facilities (which have a low fixed interest rate and LIBOR attachment) and a few other forms of debt borrowings. The BDC sector has continued to have low costs of capital on credit facilities as LIBOR has continued to remain suppressed. However, with an eventual rise in LIBOR, all floating-rate debt borrowings would also begin to have increased interest rates. With that being said, on a net basis, after LIBOR rises above certain thresholds, each BDC would eventually benefit from this event. This is due to the fact each BDCs floating-rate debt investments (assets) generally have a greater monetary amount versus each companys floating-rate debt borrowings (liabilities).

For purposes of this analysis, we will focus on the cash LIBOR floor of all of PSECs existing floating-rate debt investments as of 12/31/2014. By performing this analysis, readers will begin to see some of the general implications an eventual rise to LIBOR will have on PSECs investment portfolio (which would directly affect the companys future dividend sustainability).

Table 8 – PSEC Cash LIBOR Floor Analysis (As of 12/31/2014)

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(Source: Table created entirely by myself, partially using PSEC data obtained from the SECs EDGAR Database [link provided below Table 7])

Using Table 8 above as a reference, I have classified all of PSECs debt investments into the applicable classifications as of 12/31/2014 (based on principal balances). I have classified all of PSECs floating-rate debt investments into the applicable cash LIBOR floors (includes, but separates the companys CLO residual interests for additional accuracy). All of PSECs equity investments are excluded from Table 8 due to the fact this topic/trend does not apply to those types of investments. By looking at the data within Table 8 above, one can better understand how an eventual rise in LIBOR would affect PSECs interest income being generated on the companys debt investments.

As of 12/31/2014, PSEC had $1.96 billion of debt investments that had cash LIBOR floors of less than or equal to 1.00%. This calculates to 31% of PSECs debt investments. This means when the corresponding LIBOR percentage rises above 1.00%, approximately 31% of PSECs debt investments will begin to recognize additional interest income. When compared to 4% as of 12/31/2013, this specific classification had a material increase in percentage (and monetary amount) during the 2014 calendar year which is a positive trend for PSEC.

PSEC had $636, $346, and $160 million of debt investments that had cash LIBOR floors of 1.25%, 1.50%, and 1.75%, respectively. This calculates to 10%, 5%, and 3% of PSECs debt investments as of 12/31/2014. Therefore, $3.10 billion (or 49%) of PSECs debt investments had cash LIBOR floors less than 2%. When compared to 39% as of 12/31/2013, these specific classifications had a modest increase in percentage (and monetary amount) during the 2014 calendar year which was another positive trend for PSEC.

PSEC had $973, $20, and $451 million of debt investments that had cash LIBOR floors of 2.00%, 2.50%, and greater than or equal to 3.00%, respectively. This calculates to 15%, lt; 1%, and 7% of PSECs debt investments as of 12/31/2014. Therefore, $1.44 billion (or 23%; rounded) of PSECs debt investment had cash LIBOR floors equal to or greater than 2%.

Finally, PSEC had $587 million (or 9%) of debt investments that had no cash LIBOR floor (fixed-rate in nature) or the debt investment was on non-accrual status as of 12/31/2014. Simply put, during the 2014 calendar tax year, PSEC materially increased the companys lower cash LIBOR floor debt investments while decreasing its higher cash LIBOR floor and fixed-rate debt investments.

Directly supporting this notion, as of 12/31/2013 PSEC had a weighted average cash LIBOR floor of 1.83%. As of 12/31/2014, PSEC was able to lower the companys weighted average cash LIBOR floor to 1.54%. When calculated, this was a weighted average cash LIBOR floor decrease of (29) basis points (bps) during the 2014 calendar year which I consider to be a material change within one year. With that being said, as will be presented in a future BDC comparison article, as of 12/31/2014 PSEC still had a fairly high weighted average cash LIBOR floor when compared to other sector peers.

Therefore, as the Fed Funds Rate begins to increase (current indications are late-2015) LIBOR will also begin to increase (relative high correlation between the two rates over time). Eventually, as each cash LIBOR floor is surpassed, PSEC will begin to recognize increased interest income on the companys floating-rate debt investments. This will directly have a positive effect on PSECs future dividend sustainability. NII will also begin to increase because PSEC had 94% of the companys outstanding borrowings in the following fixed-rate instruments as of 12/31/2014: 1) senior convertible notes of $1.24 billion; 2) senior unsecured notes of $648 million; and 3) Prospect Capital InterNotes of $831 million. Since PSEC has locked in relatively low fixed-rate debt financing (compared to historical rates) over an extended period of time, the eventual rise in the Fed Funds Rate/LIBOR should be deemed as a positive sign for the company.

2) Cost and FMV Investment Rating Analysis on PSECs Debt and Equity Investments:

The second topic/trend to discuss is a cost and FMV investment rating analysis associated with PSECs debt and equity investments. In particular, this analysis will highlight specific portfolio companies that have had FMV write-downs in the past and who are currently susceptible to further FMV write-downs over the next several fiscal quarters. Since FMV write-downs are one of the main determinants of whether to put a debt investment on non-accrual status (ceasing to recognize interest income on a particular loan), this analysis has a direct impact on PSECs future dividend sustainability. Furthermore, since FMV write-downs (whether unrealized or realized) directly affect PSECs EPS in the quarter of occurrence, this analysis also has a direct impact on the companys future NAV sustainability.

I believe this analysis will bring some added clarity to readers to better understand how PSECs investment portfolio was rated, regarding investment valuations, as of 9/30/2014 and 12/31/2014. To begin this analysis, Table 9 is provided below.

Table 9 – PSEC Investment Rating Analysis (Based on Cost Basis and FMV)

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(Source: Table created entirely by myself, partially using PSEC data obtained from the SECs EDGAR Database [link provided below Table 7])

Using Table 9 above as a reference, I classify PSECs debt and equity investments within one of the following three portfolios: 1) control (dark blue coloring); 2) affiliate (olive green coloring); or 3) non-control/affiliate (purple coloring). A control investment is where PSEC owns (through an equity investment) more than 25% of a portfolio companys outstanding voting securities. An affiliate investment is where PSEC owns (through an equity investment) more than 5% but less than 25% of a portfolio companys outstanding voting securities. Within these three classifications, five different investment ratings are shown based on each portfolios recent cost basis and FMV. I include each portfolios cost basis to better highlight past FMV unrealized appreciation (depreciation) within each classification.

An investment rating of 1 describes the portion of PSECs debt and equity investments that were performing at or above expectations. An investment rating of 2 describes the portion of investments that were performing near expectations. An investment rating of 3 describes the portion of investments that were performing slightly below expectations. An investment rating of 4 describes the portion of investments that were performing modestly below expectations. Finally, an investment rating of 5 describes the portion of investments that were performing materially below expectations.

Investment Rating 1 and 2 (Performing Near, At, or Above Expectations):

Still using Table 9 as a reference, I have classified 87% and 72% of PSECs investment portfolio performing at or above expectations as of 9/30/2014 and 12/31/2014, respectively (based on FMV). As such, PSECs investment portfolio had a material percentage decrease regarding debt and equity investments performing at or above expectations during the fiscal second quarter of 2015. In my opinion, this is a negative trend due to the fact most of PSECs quarterly loan originations funded at close and add-on investments typically begin within this investment rating. During the fiscal second quarter of 2015, PSEC had quarterly loan originations funded at close and add-on investments of $523 million. Therefore, a material portion of PSECs existing debt and equity investments were reclassified out of the investment rating 1 classification and into a lower rating during the fiscal second quarter of 2015. As of 12/31/2014, this investment rating had a cost basis of $4.57 billion while having an FMV of $4.75 billion.

I have classified 7% and 20% of PSECs investment portfolio performing near expectations as of 9/30/2014 and 12/31/2014, respectively (based on FMV). As such, PSECs investment portfolio had a material percentage increase regarding debt and equity investments performing near expectations during the fiscal second quarter of 2015. This material increase in percentage was mainly attributed to various debt and equity investments being reclassified from an investment rating of 1 to an investment rating of 2. As of 12/31/2014, this investment rating had a cost basis of $1.33 billion while having an FMV of $1.31 billion.

When combined, I have classified 94% and 92% of PSECs investment portfolio performing near, at, or above expectations as of 9/30/2014 and 12/31/2014, respectively (based on FMV). When calculated, these two combined investment ratings had a decrease of (2%) during the fiscal second quarter of 2015. I believe this should be viewed as a somewhat cautionary trend regarding PSECs future NAV sustainability.

When calculated, I have determined 6% and 8% of PSECs investment portfolio was experiencing varying levels of underperformance/non-performance as of 9/30/2014 and 12/31/2014, respectively (based on FMV). When based on the investment portfolios cost basis, these percentages increase to 9% as of 9/30/2014 and 12/31/2014. When compared to several larger BDC peers (based on market capitalizations), PSEC had a larger percentage of debt and equity investments performing either slightly, modestly, or materially below expectations as of 12/31/2014.

To put things in better perspective, as was discussed in a prior BDC comparison article, Main Street Capital Corp. (NYSE:MAIN), Ares Capital Corp. (NASDAQ:ARCC), and PSEC had an FMV versus cost ratio of 1.0846, 1.0173, and 1.0035 as of 12/31/2014, respectively.

Investment Rating 3 (Performing Slightly Below Expectations):

I have classified 3% and 4% of PSECs investment portfolio performing slightly below expectations as of 9/30/2014 and 12/31/2014, respectively (based on FMV). All debt and equity investments within this classification should be carefully monitored each quarter to watch for further FMV write-offs and possible non-accruals. As of 9/30/2014, this investment rating had a cost basis of $188 million while having an FMV of $174 million. As of 12/31/2014, this investment rating had a cost basis of $261 million while having an FMV of $244 million. When calculated, this analysis shows PSECs investment portfolio had an increased FMV balance of $70 million regarding the companys debt and equity investments performing slightly below expectations. I believe this should also be seen as a cautionary trend due to the fact a majority of the increased FMV balance was attributed to several debt and equity investments being reclassified from an investment rating of 2 to an investment rating of 3.

Investment Rating 4 (Performing Modestly Below Expectations):

I have classified 2% and 3% of PSECs investment portfolio performing modestly below expectations as of 9/30/2014 and 12/31/2014, respectively (based on FMV). All debt investments within this classification should be CONSIDERED for non-accruals. Also, debt and equity investments within this classification have a moderate probability of a partial non-recovery of ones remaining principal/cost basis. As of 9/30/2014, this investment rating had a cost basis of $138 million while having an FMV of $119 million. As of 12/31/2014, this investment rating had a cost basis of $204 million while having an FMV of $177 million. When calculated, this analysis shows PSECs investment portfolio had an increased FMV balance of $58 million regarding the companys debt and equity investments performing modestly below expectations. The fiscal second quarter of 2015 was the second consecutive quarter where a modest increase to this investment rating occurred. Again, I believe this should be seen as a cautionary trend.

I believe one notable portfolio company to continue monitoring within this investment rating is United States Environmental Services, LLC (US Environmental). PSEC currently has two senior secured loans with US Environmental which recognized material unrealized FMV losses during the fiscal first quarter of 2015. As such, these specific investments went from a classification of 1 to 4 within just one quarter. It should also be noted US Environmental was a fairly new portfolio company with funded loan originations beginning in the fiscal third quarter of 2014 (quarter ending 3/31/2014). Within just three quarters, PSECs debt investments in US Environmental went from performing at or above expectations to performing modestly below expectations. PSEC continued to write-down these two senior secured loans during the fiscal second quarter of 2015. Due to the fact both senior secured loans mature in 2019 and still had an FMV of $51 million as of 12/31/2014, this particular portfolio company should continue to have a heightened level of monitoring for possible additional unrealized FMV losses and possible non-accruals in the future.

Investment Rating 5 (Performing Materially Below Expectations):

Finally, I have classified 1% of PSECs investment portfolio performing materially below expectations as of 9/30/2014 and 12/31/2014 (based on FMV). All debt investments within this classification should be on non-accrual status (unless there is a specific reason otherwise). Also, certain debt and equity investments within this classification have a moderate to high probability of a partial non-recovery of ones remaining principal/cost basis (including a possible total write-off).

As of 9/30/2014, this investment rating had a cost basis of $260 million while having an FMV of $47 million. As of 12/31/2014, this investment rating had a cost basis of $145 million while having an FMV of $49 million. When calculated, this analysis shows PSECs investment portfolio had an increased FMV balance of $2 million regarding the companys debt and equity investments performing materially below expectations. It is never a positive sign when a company has any part of its investment portfolio within this rating classification. From an FMV perspective, the monetary amount of PSECs investments with a rating classification of 5 remained relatively unchanged during the fiscal second quarter of 2015. However, from a cost basis perspective, the monetary amount of PSECs investments with a rating classification of 5 materially decreased during the fiscal second quarter of 2015 due to the fact the company cleaned up its balance sheet during the quarter by finally determining other than temporary impairments on various portfolio companies that previously were deemed totally worthless or near worthless. Due to the fact most of these portfolio companies already had FMVs at or near $0 as of 9/30/2014, this event was merely an unrealized to realized reclassification.

Readers should also consider the cost basis versus FMV amount within this classification. As of 12/31/2014, PSECs debt and equity investments within this classification had a cost basis of $145 million while only having an FMV of $49 million. Hypothetically speaking, if all the debt and equity investments within this classification eventually were deemed worthless (FMV of $0), this would currently decrease PSECs NAV by ($0.14) per share.

As of 12/31/2014, I have classified several portfolio companies with at least one debt or equity investment having a rating classification of 5. The following portfolio companies had at least one debt or equity investment that was materially underperforming expectations (excludes investments with an FMV balance of $0 or an escrow receivable): 1) Freedom Marine Solutions, LLC (Freedom); 2) Gulf Coast Machine and Supply Co. (Gulf); 3) NMMB, Inc. (NMMB); 4) Valley Electric Company, Inc. (Valley); and 5) Wolf Energy, LLC (Wolf). Again, I am not saying the ENTIRE investment in each of these portfolio companies had an investment rating of 5. However, at least one debt or equity investment within each of the portfolio companies listed above had this classification.

The following portfolio companies listed above had debt investments on non-accrual status as of 12/31/2014 (which still had FMV balances): 1) Wolf. Out of the remaining portfolio companies which still had debt investments with an FMV as of 12/31/2014, I believe Freedom, Gulf, and NNMB had the most susceptible loans being put on non-accrual status in the near future. I will be paying particular attention to these portfolio companies for a possible non-accrual within the next several fiscal quarters. Readers should understand a non-accrual would bring the risk of a slight decrease in interest income per GAAP and the risk of further decreases in NAV from future FMV write-offs.

Simply put, this analysis shows 92% of PSECs investment portfolio as of 12/31/2014 was relatively stable and in good health (performing loans and equity investments; based on FMV). When calculated, 8% of PSECs investment portfolio showed signs of slight, moderate, or material underperformance. I believe the debt and equity investments within these portfolio companies should continue to be monitored to a greater degree as they are the most susceptible to continued FMV write-downs, non-performance (which would lead to non-accruals), and ultimately a probable partial (in some cases total) loss of principal/cost basis. This would negatively impact PSECs future dividend and NAV sustainability. When compared to the calculated percentages from the prior quarter (94% and 6%), I believe PSECs investment portfolio, from a valuation standpoint, appeared to be modestly less attractive.

3) Quarterly FMV Gain (Loss) Analysis on PSECs Debt and Equity Investments:

The last topic/trend to discuss is a quarterly FMV gain (loss) analysis associated with PSECs debt and equity investments. This is somewhat different than the cost/FMV investment ratings analysis performed in the previous section of the article. This quarterly FMV gain (loss) analysis includes ALL investment ratings and specifically analyzes all material unrealized FMV gains (losses) regardless of what investment rating a portfolio company is in. This analysis helps detect unrealized FMV gains (losses) that recently occurred and helps identify potential struggling investments that were once (or still are) performing near, at, or above expectations. This analysis also helps identify which debt and equity investments, that were once troubled, are now showing recent signs of modest to material improvement.

When PSEC reported results in regards to the companys fiscal second quarter of 2015, multiple portfolio companies caught my attention regarding a material unrealized FMV gain (loss). This will have a direct impact on PSECs future NAV sustainability.

Table 10 – PSEC Quarterly Material FMV Gain (Loss) Analysis

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(Source: Table created entirely by myself, partially using PSEC data obtained from the SECs EDGAR Database [link provided below Table 7])

Using Table 10 above as a reference, the following portfolio companies had a material unrealized FMV gain during the fiscal second quarter of 2015: 1) American Property REIT Corp. (American); 2) Echelon Aviation, LLC (Echelon); 3) First Tower Finance Company, LLC (First Tower); 4) Harbortouch Payments, LLC (Harbortouch); 5) National Property REIT Corp. (National); and 6) United Property REIT Corp. (United). The following portfolio companies had a material unrealized FMV loss during the fiscal second quarter of 2015: 1) CP Energy Services, Inc. (CP Energy); 2) Freedom; 3) R-V Industries, Inc. (R-V); 4) Edmentum, Inc. (Edmentum); 5) Pacific World Corp. (Pacific); 6) Small Business Whole Loan Portfolio (Small Business); and 7) United Sporting Companies, Inc. (United Sporting). Out of the seven portfolio companies who had a material unrealized FMV loss for the fiscal second quarter of 2015, three were control investments. For future quarters, the portfolio companies shown in Table 10 above will be one of the first groups of investments I will pay attention to regarding quarterly FMV gains (losses).

It should also be noted PSECs collateralized loan obligation (CLO) portfolio began to show minor signs of stress during the fiscal second quarter of 2015. Taking a step back, a CLO is a form of securitization where debt investments are pooled together and passed on to different classes of owners in various tranches. Instead of receiving a fixed interest amount, a CLO investment distributes interest (per a waterfall calculation) based on which particular level a company is situated within the tranche structure. Depending on which tranche a company is classified within, each class of owners is entitled to more/less of the interest payments than the next. However, with this added potential interest income is the heightened risk of being allocated a greater proportion of principal losses in the case of non-performance of a portion (or all) of the CLO. One main point readers should take from a CLO is these types of investments generally have a higher level of risk (potential principal loss) but also have a higher level of return (potential yield). Again, this all gets back to the risk versus reward metric. Along with the potential high risk/high reward profile of a CLO investment (dependent on each companys tranche), there are complex methods to value these types of securitizations at regular intervals. These valuation techniques are based on modeled projections using a high degree of management judgment.

In other words, these securities are extremely difficult to precisely value and PSEC, along with an independent valuation company, uses various models/assumptions to create an estimated FMV at a given point in time. Each securitization is made up of numerous debt investments either domestically, globally, or a combination of both. Also, the loans held within these securitizations are usually comprised of numerous sectors. As such, readers should understand the notion that a CLO investment will generally have material unrealized FMV gains (losses) as macroeconomic conditions change. Again, such events will have a direct impact on PSECs future dividend and NAV sustainability.

However, readers should also understand PSECs CLO portfolio continued to have an FMV materially above its cost basis as of 12/31/2014. With that being said, I believe heightened monitoring of PSECs CLO portfolio should continue to be a priority as credit risk has recently begun to increase. These risks would also have a direct impact on PSECs future dividend and NAV sustainability.

Side Note: It should also be mentioned that on 3/11/2015, Prospect Yield Corp, LLC (PSECs recently-formed, wholly-owned subsidiary; PYC) filed a registration statement with the SEC thus moving the companys previously announced CLO portfolio spin-off forward. While details are still not available to the public regarding which specific CLO investments will remain with PYC or be transferred to PSEC, this event (and the other proposed spin-offs) will have a direct impact on PSECs dividend and NAV sustainability. However, at this point in time, I believe these future events can only be made a footnote per se and not be specifically analyzed until the spin-offs are finalized. As more details are made available to the public, it is only prudent that my future PSEC dividend and NAV sustainability articles will be updated as these future spin-offs are finalized.

Conclusions Drawn – PART 2:

To summarize what was performed in PART 2 of this article, the following three topic/trends were discussed which will have a direct impact on the future dividend and NAV sustainability of PSEC: 1) an in-depth analysis on how the companys investment portfolio is currently set up for the eventual rise to the London Interbank Offered Rate (LIBOR) over the next several years; 2) a cost/ FMV investment rating analysis on the companys debt and equity investments; and 3) a quarterly FMV gain (loss) analysis on the companys debt and equity investments.

When all the information from both parts of this article (four tests from PART 1 and the three topics/trends from PART 2) are taken into consideration, I believe the probability of PSEC being able to maintain the companys current monthly dividend of $0.0833 per share through the fiscal fourth quarter of 2015 (through June 2015) is fairly high.

As such, I am projecting PSEC declares the following monthly dividends for May 2015 and June 2015:

Dividend for May 2015 (Paid in June 2015): $0.0833 per shareDividend for June 2015 (Paid in July 2015): $0.0833 per share

When the three topics/trends from PART 2 of this article are taken into consideration, including other factors not specifically analyzed in this article (have been discussed in prior PSEC articles), I believe there is relatively strong evidence several of PSECs debt and equity investments are at risk for varying levels of net realized and unrealized FMV losses (especially certain control investments) in future quarters. However, there are also a few debt and equity investments that should continue to perform at or above expectations in future quarters. I project the probability associated with future net unrealized FMV losses are currently slightly greater than the probability associated with future net unrealized FMV gains. Due to PSECs newly reduced monthly dividend distributions per share rate, the amount of these potential losses should only have a minor NAV impact when compared to PSECs total investment portfolio. As such, I am projecting the following quarterly NAV ranges over the next several fiscal quarters:

NAV as of 3/31/2015 (Fiscal Third Quarter of 2015): $10.20 – $10.40 per shareNAV as of 6/30/2015 (Fiscal Fourth Quarter of 2015): $10.20 – $10.50 per shareNAV as of 9/30/2015 (Fiscal First Quarter of 2016): $10.15 – $10.55 per share

Therefore, I am currently projecting a flat – slight decrease in PSECs NAV over the next three fiscal quarters. When considering PSEC has recently benefited from the companys monthly dividend reduction in February 2015, I believe the projected minor change in NAV should be seen as cautionary. This includes the notion PSECs investment portfolio as of 12/31/2014 looked slightly less appealing when compared to 9/30/2014. This also considers the modest increase in several risk factors over the past several months including PSECs oil and gas exposure, credit risk on the companys CLO portfolio, spread risk in regards to a recent flattening of the yield curve, and the companys continued fairly high weighted average cash LIBOR floor.

On the other hand, PSECs economic return (dividends received and change in NAV) should continue to provide a slight to modest positive return over the next three fiscal quarters. In other words, as long as PSECs NAV does not decrease by approximately ($0.78) per share over the next three fiscal quarters, the companys economic return will still be positive.

PSEC recently closed at $8.49 per share as of 3/17/2015. This was a ($1.86) per share discount to PSECs NAV of $10.35 per share as of 12/31/2014. This calculates to a price to NAV discount of (17.97%). From the analysis provided above, including additional factors not analyzed within this particular two-part article, I currently rate PSEC as a SELL when the companys stock price is trading below a material (less than 10%) discount to NAV as of 12/31/2014, a HOLD when trading at a material (at or greater than 10% but less than 15%) discount to NAV as of 12/31/2014, and a BUY when trading at an excessively material (at or greater than 15%) discount to NAV as of 12/31/2014. As such, I currently rate PSEC as a BUY as I believe the companys current stock price reflects most (if not all) of the cautionary/negative factors stated in prior articles and both parts of this article.

Final Note: Each investors BUY, SELL, or HOLD decision is based on ones risk tolerance, time horizon, and dividend income goals. My personal recommendation may not fit each investors current investing strategy.

Secured lending records best start to year since 2008

Last month saw the Finance amp; Leasing Association (FLA) report that the number of secured loan repossessions was at its lowest level for at least six years in 2014 with a total of 414. The 79 repossessions reported in the last quarter of 2014 was down 35.8% compared with the last quarter of 2013.

Matt Tristram, co-founder and director of Loans Warehouse, said: Its fair to say that the secured loan industry has picked up where it left off at the end of 2014, with continued monthly growth reconfirming that as an industry we continue on the right path.

Lenders appetite to lend continues and the competition for rates has seen further enhancements to criteria.

Masthaven Secured Loans, Blemain Finance and Central Trust have all reduced rates again, with headline rates now 7.60%, 7.63% and 9.10% respectively.

The latest new entrant to the market, Paragon Personal Finance, has reduced its lending rates announced in October 2014 and introduced fixed rate products.

Loans Warehouse predicted that competition for secured loans against buy-to-let properties is about to increase. For example, Shawbrook Bank has reduced rates on its buy-to-let range whilst increasing the availability of the lsquo;valuation bypass option to further reduce costs and processing times. Meanwhile Evolution Money has released its first buy-to-let range with rates from 12.7% at 90% LTV.

Figures released by the Finance and Leasing Association (FLA) last week, reflected a positive picture for the seconds market with pound;51m of lending in the month of January, a 13% year-on-year rise.

Sometimes borrowing to clear debt is wise

The costs lenders charge to give people credit varies from reasonable to very expensive. While some forms of credit may seem easier to get than others, people need to be wary of loans that seem too good to be true. Many people make the mistake of taking out several lines of costly credit and sometimes end up finding their financial situation very difficult to control. Having one or more credit cards can become financially challenging and lead to missed repayments, a poor credit rating and large repayment bills.

If credit spirals out of control or even if you feel that it might, then you must take action – burying your head in the sand is never the solution.

The stress caused by financial strain is like no other so any steps you can take to manage your debt better are worth taking. One such step could be to take out a loan to cover other forms of credit.

So when should you consider doing so?

If you have a credit card with a high interest rate and you just cant seem to clear the balance, taking out a personal loan might enable you to do this.

However, those considering this option should also give serious thought to cutting up their credit card for once and for all to ensure they dont end up in the same position down the road.

People often find themselves struggling to cover the cost of necessary household expenditure such as car tax, motor, home and health insurance. While its always best to plan ahead for these costs, sometimes its just not possible. You may sometimes need to consider taking out a loan for all or some of these costs. In 2014, Tullamore Credit Union issued 550 loans to members for such household essentials.

Households may find that they are making several different repayments on a monthly basis to clear outstanding debt – often these repayments come out at various times of the month and are hard to manage. Consolidating your various lines of credit into one personal loan can be a useful way to budget.

Consolidating debt with a manageable monthly repayment can also often mean keeping a clean credit history and preventing your credit rating falling into disrepair.

Try to match the length of any loan (that is, the term) to the purpose. Spreading loans over a longer period than necessary can reduce repayments in the short term, but contribute to greater problems down the line. Also, be aware of optional payments or balloon payments at the end of the loan. These can amount to thousands of euro, and have to be repaid quickly.

When considering your various personal loan options, look beyond the marketing headlines and consider the whole picture – including a loans flexibility and overall cost.

One of the big advantages of credit union loans is that there are no administration or documentation fees, or hidden charges on them. Likewise there are no penalties for early repayment of loans.

Dennis Daly is CEO of Tullamore Credit Union

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