Prospect Capital Corporation Stock

Good day, and welcome to the Prospect Capital First Quarter 2027 Earnings Release and Conference Call. [Operator Instructions].

Please note, this event is being recorded. I would now like to turn the conference call over to Mr. John Barry, Chairman and CEO. Mr. Barry, the floor is yours, sir.

Thank you, Michael, for that excellent introduction. Joining me on the call today are Grier Eliasek, our President; and Chief Operating Officer, and Kristin Van Dask, our Chief Financial Officer. Kristin?

Thanks, John. This call contains forward-looking statements intended to be subject to safe harbor protection. Future results are highly likely to vary materially. We do not undertake to update our forward-looking statements. For additional disclosure, see our earnings press release and 10-Q filed previously and available on our website, prospectstreet.com. John?

Thank you, Kristin. In the September quarter, our net investment income, or NII, was $76 million or $0.15 per common share. At September 30, our NAV was approximately $2.9 billion or $5.36 per common share. Our net debt to total assets ratio, was 25%. Unsecured debt plus unsecured perpetual preferred was 90.7% of total debt plus preferred. We are announcing monthly common shareholder distributions of $0.035 per share for each of November, December and January. Our Board has approved a common share repurchase authorization of $200 million. Our preferred shareholder cash distributions continue at their contractual rate.

Thank you. I'll now turn the call over to Grier Eliasek.

Thank you, John. Over the past 22-plus years, Prospect Capital Corporation has invested approximately $13.7 billion in over 350 exited investments out of around $23 billion invested in over 450 total investments that have earned a 12% unlevered investment level, gross cash IRR to Prospect Capital Corporation. This multi-decade time period includes the GFC and has been dominated in general by low prevailing market interest rates.

In Prospect's primary business of middle market lending over the same 22-year time period. Prospect's exited investments resulted in an investment level exited gross IRR of around 14.5% based on total capital invested of around $11.5 billion, and total proceeds from such exited investments of around $14.8 billion with an annualized realized loss rate of only 20 basis points. Prospect's middle market portfolio compares favorably to peers across key credit metrics with more than a turn, lower net leverage at the portfolio company level, 4.8x for us versus 6.1x EBITDA for the market.

We also have stronger cash interest coverage, 211% for the Prospect portfolio companies versus 160% for the market. And we have an 80% lower annualized net realized loss rate, 20 basis points for us compared to 100 basis points per annum for the market. Together, these credit metrics demonstrate that Prospect's portfolio has a stronger credit profile and performance than industry benchmarks.

As of September, we held 85 portfolio companies across 31 different industries, with an aggregate fair value of just under $6 billion. Our portfolio at fair market value included 1.8%, so less than 2% of investments in software companies, which is significantly less by an order of magnitude than the 22% average across business development companies from an industry equity research report in June. At Prospect, we primarily focus on senior and secured debt, which was 83% of our portfolio at cost in September. Our middle market lending strategy is the primary focus of our company. With such strategy as of September, representing 84% of our investments at cost.

Middle market lending comprised 83% of our originations during the September quarter with a continued focus on first lien senior secured loans. Investments during the quarter included follow-on investments in existing portfolio companies to support acquisitions, working capital needs, organic growth initiatives and other objectives. We've completed the exit of our subordinated structured notes portfolio, such portfolio representing essentially 0% of our investment portfolio at cost, a reduction of 840 basis points since June 2024. Our real estate property portfolio at National Property REIT Corp, NPRC, totaled 15% of our investments at cost as of September and continue to focus on developed, occupied and cash-flowing multifamily investments.

Since the inception of this strategy, 14 years ago in 2012 and through September of 2026. We have exited 60 property investments, earning an unlevered investment level, gross cash IRR of 23% and cash-on-cash multiple of 2.4x. We exited 6 property investments in the last 12 months ended September. The remaining real estate property portfolio included 50 properties providing an opportunity for income enhancement from a portfolio rotation strategy. Our aggregate investments in NPRC included $159 million unrealized gain as of September. And we expect to continue to redeploy future real estate property exit proceeds primarily into more first lien senior secured loans with selected equity-linked investments, thereby providing substantial potential upside in our portfolio.

Our interest income for the 12-month period ending September was 89% of total investment income, reflecting a strong recurring revenue profile for our business. Payment income and interest income for the 12-month period ended September 2026, was reduced by 53% from the 12-month period ended September 2024. It was down to 11% of total investment income for the September 2026 quarter. Nonaccruals as a percentage of total investments as of September stood at around 0.2% based on fair market value and 1.8% at cost. Those are down 0.5% and 2.9%, respectively, from the prior quarter. Investment originations in the September quarter aggregated $90 million and consisted of 83% middle market investments with a significant majority of first lien senior secured loans. We also experienced $257 million of repayments and exits resulting in net repayments of $167 million. Since the quarter ended September 30, we have received $69.4 million of second lien debt repayments, which would bring our second lien debt mix to 10% of our investments at cost on a pro forma basis as we continue to emphasize first lien senior secured lending for new originations.

Thank you I'll now turn the call over to Kristin. Kristin?

Thanks, Grier. We believe our prudent leverage, diversified access to matched book funding, substantial majority of unencumbered assets, weighting toward unsecured fixed rate debt and low unfunded asset commitments all demonstrate balance sheet strength as well as substantial liquidity to capitalize on attractive opportunities. Our company has locked in a ladder of liabilities extending 25 years into the future.

We have retired multiple upcoming maturities. On October 14, 2026, we gave notice of our election to redeem all $263.2 million aggregate principal amount of our outstanding November 2026 notes. Following the redemption, none of the November 2026 notes will remain outstanding, and our track record of repaying unsecured bondholders since inception increases to $5.5 billion across nearly 1,000 tranches, including institutional, retail and medium-term notes. On October 30, 2025, we successfully completed the institutional issuance of approximately $168 million in aggregate principal amount of senior unsecured 5.5% notes due 2030, which mature on December 31, 2030.

On October 29, 2026, we priced an institutional offering of $300 million in aggregate principal amount of notes due 2031. We intend to use the net proceeds primarily to refinance existing indebtedness, including the November 2026 notes and borrowings under the revolving credit facility. Our unfunded eligible commitments to portfolio companies total approximately $58 million, of which $6 million is considered outside our sole discretion, representing approximately 1% and 0.1% of our total assets as of September 2026, respectively.

Our combined balance sheet cash and undrawn revolving credit facility commitments stood at $1.9 billion as of September, and we held $4.0 billion of our assets as unencumbered assets, representing approximately 66% of our total assets. The remaining assets are pledged to prospect capital funding, a nonrecourse SPV. We currently have $2.12 billion of commitments from 48 banks demonstrating strong support of our company from the lender community with a diversity unmatched by any other company in our industry. The facility does not mature until June 2029 and revolves until June 2028. Our drawn pricing continues to be SOFR plus 2.05%.

Outside of our revolver, we have access to diversified funding sources across multiple investor types and have successfully issued securities in an array of markets, both domestic and international. Prospect has issued multiple types of unsecured debt, institutional nonconvertible bonds, institutional convertible bonds, retail baby bonds and retail program notes. All of these types of unsecured debt had no asset restrictions and no cross defaults with our revolver.

We have tapped the unsecured term debt market on multiple occasions to ladder our maturities and to extend our liability duration out 25 years with our debt maturities extending through 2052. With so many banks and debt investors across so many unsecured and nonrecourse debt tranches, we have substantially reduced our counterparty risk. At September 30, 2026, our weighted average cost of unsecured debt financing was 4.84%.

Now I'll turn the call back over to John.

Thank you, Kristin. We can answer questions now. Thank you.

[Operator Instructions]. Well, this time we're showing no questions, we will go ahead and conclude the question-and-answer session. I would now like to turn the conference call back over to Mr. Barry for any closing remarks. Sir?

Okay. Have a wonderful weekend. Bye now.

Thank you, sir. All right. Thank you, everyone, and thank you for your time today. The conference call has now concluded. At this time, you may disconnect your lines. Take care, and have a great day.

Good day, and welcome to the Prospect Capital Fourth Quarter 2026 Earnings Release and Conference Call. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the conference over to John Barry, Chairman and CEO. Please go ahead.

Thank you, Cale. Joining me on the call today are Grier Eliasek, our President and Chief Operating Officer; and Kristin Van Dask, our Chief Financial Officer. Kristin?

Thanks, John. This call contains forward-looking statements intended to be subject to safe harbor protection. Future results are highly likely to vary materially. We do not undertake to update our forward-looking statements. For additional disclosure, see our earnings press release and 10-K filed previously and available on our website, prospectstreet.com. John?

Thank you, Kristin. In the June quarter, our net investment income, or NII, was $78 million, consistent with the prior quarter or $0.15 per common share. Our NAV was approximately $2.9 billion or $5.71 per common share. At June 30, our net debt to total assets ratio was 28.6%. Unsecured debt plus unsecured perpetual preferred was 83.7% of total debt plus preferred. We are announcing monthly common shareholder distributions of $0.035 per share for each of September and October.

Since our IPO 22 years ago through our October 2026 declared distribution, we will have distributed over $4.8 billion or $22.14 per share. Our preferred shareholder cash distributions continue at their contractual rates. On July 1, 2026, Prospect closed a successful sale of its portfolio company, Valley Electric, with total consideration of approximately $328 million. Over the life of the Valley Electric investment since 2012 and including expected net exit proceeds of approximately $281 million, together with prior interest on debt, equity distributions and other cash flow streams, Prospect achieved a 20.5% realized gross annualized IRR and 4.8x multiple of invested capital, the 13th highest IRR significant investment for Prospect Capital Corporation.

If the cash received on July 1 from the sale of Valley Electric had been received previously and repaid borrowings under our revolver, the revolver's drawn amount would have been $323 million on June 30 on a pro forma basis. We are proud of our 38-year history of innovation and first-to-market accomplishments in alternative asset management, direct lending and business development companies. We continue to see many opportunities to deploy large language models, generative, predictive, machine learning and other AI and automation tools across every one of Prospect's businesses and investment portfolios, including majority equity-owned companies and properties where Prospect captures upside from improvements.

We believe these initiatives will capture economic upside from profit enhancements, both in terms of revenues and costs and may result in tens of millions of dollars of annualized cash flow benefit, some of which we have already realized and an even greater amount on a multiple-driven value basis. We view artificial intelligence as a transformational once-in-a-generation opportunity to enhance profitability and build on our long-standing culture of innovation and first-to-market leadership in the alternative asset management, direct lending and business development company industries. We intend Prospect to be the leader applying transformative AI tools to all we do. Thank you.

I'll now turn the call over to Grier.

Thank you, John. Over the past 2 decades, Prospect Capital Corporation has invested approximately $13.4 billion in over 350 exited investments, out of approximately $23 billion invested in over 450 total investments that have earned a 12% unlevered investment level gross cash IRR to Prospect Capital Corporation. This multi-decade time period includes the GFC and has been dominated in general by low prevailing market interest rates. In Prospect's primary business of middle market lending over the same 22-year time period, Prospect's exited investments resulted in an investment level exited gross IRR of approximately 14.4% based on total capital invested of around $11.5 billion and total proceeds from such exited investments of around $14.7 billion, with an annualized loss rate of 20 basis points.

Prospect's middle market portfolio company compare favorably to peers across key credit metrics with lower net leverage, 4.9 turns versus 6.1 turns for peers, stronger cash interest coverage, 223% compared to 160% for peers and a lower annualized net realized loss rate, 20 basis points versus 100 basis points. Together, these metrics demonstrate the portfolio's stronger credit profile and performance.

As of June 2026, we held 91 portfolio companies across 31 different industries with an aggregate fair value of $6.3 billion. Our portfolio at fair market value included 2.3% of investments in software companies, significantly less than the 22% average across business development companies from a recent equity research report in June.

We primarily focus on senior and secured debt, which was 84% of our portfolio at cost as of June. Our middle market lending strategy is the primary focus of our company with such strategy as of June representing 85% of our investments at cost. Middle market lending comprised 91% of our originations during the June quarter with a continued focus on first lien senior secured loans. Investments during the quarter included new first lien senior secured loan investments in Safety Solutions Financing, a provider of fire security products and services; Abacus Dermatology Management, the management services organization; Eyefive, a provider of on-demand product and order fulfillment services as well as follow-on investments in existing portfolio companies to support acquisitions, working capital needs, organic growth initiatives and other objectives.

We've essentially completed the exit of our subordinated structured notes portfolio as of June with such portfolio representing around 0% of our investment portfolio at cost, a reduction of 840 basis points from 8.4% as of June 2024. Our real estate property portfolio at National Property REIT Corp, or NPRC, totaled 14% of our investments at cost as of June and continue to focus on developed and occupied cash flow multifamily investments.

Since inception of this strategy 14 years ago in 2012 and through June of 2026, we have exited nearly 60 property investments, earning an unlevered investment level gross cash IRR of 24% and cash-on-cash multiple of 2.4x. We exited 6 property investments in the most recently completed fiscal year through June 2026, earning an IRR of 18% and multiple of 2.3x.

The remaining real estate property portfolio included 52 properties, paying us an income yield of 5.3% for the June quarter, providing an opportunity for potential income enhancement from a portfolio rotation strategy. Prospect's aggregate investments in NPRC included a $185 million unrealized gain as of June, and we expect to continue to redeploy future real estate property exit proceeds primarily into more first lien senior secured corporate loans with selected equity-linked investments. Our interest income for the 12-month period ending June 2026 was 91% of our total investment income, reflecting a strong recurring revenue profile for our business.

Payment-in-kind interest income for the last 12-month period ending June 2026 has been reduced 53% for the 12-month period ending June of 2024 and was 10% of total investment income for the June 2026 fiscal year. Nonaccruals as a percentage of total assets as of June stood at approximately 0.7% based on fair market value, consistent with the prior quarter. Investment originations in the June quarter aggregate $166 million, consisting of 91% middle market investments with a significant majority of first lien senior secured loans. We also experienced $46 million of repayments and exits, representing in net originations of $120 million. Thank you.

I'll now turn the call over to Kristin. Kristin?

Thanks, Grier. We believe our prudent leverage, diversified access to matched book funding, substantial majority of unencumbered assets, weighting toward unsecured fixed rate debt and avoidance of unfunded asset commitments all demonstrate balance sheet strength as well as substantial liquidity to capitalize on attractive opportunities. Our company has locked in a ladder of liabilities extending 25 years into the future. On October 30, 2025, we successfully completed the institutional issuance of approximately $168 million in aggregate principal amount of senior unsecured 5.5% notes due 2030, which mature on December 31, 2030.

Our unfunded eligible commitments to portfolio companies totaled approximately $65 million, of which $52 million are considered at our sole discretion, representing approximately 1% and 0.8% of our total assets as of June 2026, respectively. Our combined balance sheet cash and undrawn revolving credit facility commitments stood at $1.6 billion as of June prior to the sale of Valley Electric on July 1. And we held $4.2 billion of our assets as unencumbered assets, representing approximately 66% of our portfolio. The remaining assets are pledged to Prospect Capital Funding, a nonrecourse SPV.

We currently have $2.12 billion of commitments from 48 banks, demonstrating strong support of our company from the lender community with a diversity unmatched by any other company in our industry. The facility does not mature until June 2029 and revolves until June 2028. Our drawn pricing continues to be SOFR plus 2.05%. Outside of our revolver, we have access to diversified funding sources across multiple investor types and have successfully issued securities in an array of markets. Prospect has issued multiple types of unsecured debt, institutional nonconvertible bonds, institutional convertible bonds, retail baby bonds and retail program notes.

All of these types of unsecured debt have no asset restrictions and no cross defaults with our revolver. We have tapped the unsecured term debt market on multiple occasions to ladder our maturities and to extend our liability duration out 25 years with our debt maturities extending through 2052. With so many banks and debt investors across so many unsecured and nonrecourse debt tranches, we have substantially reduced our counterparty risk. At June 30, 2026, our weighted average cost of unsecured debt financing was 4.78%.

Now I'll turn the call back over to John. John?

Thank you, Kristin. Time for the Q&A, bring on the questions. Thank you.

[Operator Instructions] At this time, there are no further questions. I would like to turn the conference back over to John Barry for any closing remarks.

Okay, everyone. I hope you enjoy this upcoming August weekend. Stay dry. Bye now.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Good morning, and welcome to the Prospect Capital Third Quarter 2026 Earnings Release and Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to John Barry, Chairman and CEO. Please go ahead, sir.

Thank you, Drew. Joining me on the call today are Grier Eliasek, our President and Chief Operating Officer; and Kristin Van Dask, our Chief Financial Officer. Kristin?

Thanks, John. This call contains forward-looking statements that are intended to be subject to safe harbor protection. Future results are highly likely to vary materially. We do not undertake to update our forward-looking statements. For additional disclosure, see our earnings press release and 10-Q filed previously and available on our website, prospectstreet.com. Now I'll turn the call back over to John.

Thank you, Kristin. In the March quarter, our net investment income, or NII, was $78 million or $0.16 per common share. Our NAV was approximately $3 billion or $6.05 per common share. At March 31, our net debt to total assets ratio was 27%. Unsecured debt plus unsecured perpetual preferred was 88% of total debt plus preferred. We are announcing monthly common shareholder distributions of $0.035 per share for each of May, June, July and August. Since our IPO nearly 22 years ago, through our August 2026 declared distribution, we will have distributed approximately $4.8 billion or $22.07 per share. Our preferred shareholder cash distributions continue at their contract rates.

We continue to progress our strategic priorities, including rotation of assets into an increased focus on our core business of first lien senior secured middle market loans with our first lien mix increasing 790 basis points to 72% since June 2024. We are focusing on new investments in companies with less than $50 million of EBITDA, including companies with smaller funded private equity sponsors, independent sponsors and no third-party financial sponsors. Number two, reduction in second lien senior secured middle market loans with our second lien mix decreasing 404 basis points to 12.4% since June 2024. Exiting subordinated structured notes with our subordinated structured notes mix decreasing 837 basis points to near 0 since June 2024.

Number four, exiting targeted equity-linked assets, including real estate, with 5 additional properties sold in the current fiscal year and certain corporate investments, including the exit of Echelon Transportation in February 2026, with other exits targeted and in progress. Number five, enhancement of portfolio company operating performance and profitability, including through adoption of artificial intelligence and automation initiatives focused on enhancing revenues and reducing costs. And number six, utilization of our cost-effective floating rate revolver, which significantly matches our floating rate assets. Thank you. I will now turn the call over to Grier.

Thank you, John. Over the past 2 decades, Prospect Capital Corporation has invested approximately $13.4 billion in over 350 exited investments out of over $22 billion invested in over 450 total investments that have earned a 12% unlevered investment level gross cash IRR to Prospect Capital Corporation. This multi-decade time period predates and includes the GFC and has been dominated in general by low prevailing market interest rates. In Prospect's primary business of middle market lending over the same nearly 22-year time period, Prospect's exited investments resulted in an investment level exited gross IRR of approximately 14.4% based on total capital invested of approximately $11.4 billion and total proceeds from such exit investments of about $14.7 billion, with an annualized realized loss rate of 20 basis points.

In Prospect's core targeted business of middle market lending to companies with less than $50 million of EBITDA over the same nearly 22-year time period, Prospect's exited investments resulted in an investment level exited gross IRR of approximately 16.9% based on total capital invested of around $6.5 billion and total proceeds from such exit investments of about $8.6 billion with an annualized net realized loss rate of 10 basis points. Prospect's EBITDA to interest coverage for our primary business of middle market lending is about 205%, which increases to around 230% for Prospect's core targeted middle market lending to companies with less than $50 million of EBITDA.

As of March 2026, we held 89 portfolio companies across 31 different industries with an aggregate fair value of $6.3 billion. Our portfolio at fair market value included 2.5% of investments in software companies, which is significantly less than the 23% average across BDCs with publicly traded unsecured bonds from the Wall Street Fixed Income Research report in the last couple of months. We primarily focus on senior and secured debt, which was 84% of our portfolio at cost as of March. Our middle market lending strategy is the primary focus of our company with such strategy as of March, representing 85% of our investments at cost, an increase of 875 basis points in our business mix from June of 2024. Middle market lending comprised 94% of our originations during the March quarter with a continued focus on first lien senior secured loans.

Investments during the quarter included follow-on investments in existing portfolio companies to support acquisitions, working capital needs, organic growth initiatives and other objectives. We've essentially completed the exit of our subordinated structured notes portfolio as of March, with such portfolio representing nearly 0% of our investment portfolio at cost and representing a reduction of 837 basis points from 8.4% in June of 2024. Our real estate property portfolio at National Property REIT Corp. NPRC totaled 14% of our investments at cost as of March and continue to focus on developed and occupied cash flow multifamily investments. Since inception of this strategy 14 years ago in 2012 and through March of 2026, we have exited 57 property investments, earning an unlevered investment level gross cash IRR of 24% and cash-on-cash multiple of 2.4x.

We exited 5 property investments in the current fiscal year through March 2026, earning an unlevered investment level gross cash IRR of 18% and cash-on-cash multiple of 2.3x. The remaining real estate property portfolio included 53 properties and paid us an income yield of 5.2% for the March quarter, providing an opportunity for potential income enhancement at Prospect from a portfolio rotation strategy into more corporate first lien senior secured middle market originations. Prospect's aggregate investment in NPRC included a $229 million unrealized gain as of March. We expect to continue to redeploy future real estate property exit proceeds primarily into more first lien senior secured loans with selected equity-linked investments.

Our interest income for the 12-month period ending March 2026 was 92% of total investment income, reflecting a strong recurring revenue profile of our business. Payment-in-kind interest income for the last 12-month period ending March 2026 was reduced by 41% for the prior 12-month period and was 11% of total investment income for the quarter. Nonaccruals as a percentage of total assets as of March stood at around 0.7% based on fair market value, consistent with the prior quarter. Investment originations in the March quarter aggregated $115 million and consisted of 94% middle market investments with a significant majority first lien senior secured loans. We also experienced $222 million in repayments and exits as a validation of our capital preservation objective, resulting in net repayments of $107 million. Thank you. I'll now turn the call over to Kristin. Kristin?

Thanks, Grier. We believe our prudent leverage, diversified access to matched book funding, substantial majority of unencumbered assets, weighting toward unsecured fixed rate debt and avoidance of unfunded asset commitments all demonstrate balance sheet strength as well as substantial liquidity to capitalize on attractive opportunities. Our company has locked in a ladder of liabilities extending 25 years into the future. On October 30, 2025, we successfully completed the institutional issuance of approximately $168 million in aggregate principal amount of senior unsecured 5.5% notes due 2030, which mature on December 31, 2030. Our unfunded eligible commitments to portfolio companies totaled approximately $28 million, of which $17 million are considered at our sole discretion, representing approximately 0.4% and 0.3% of our total assets as of March 2026, respectively.

Our combined balance sheet cash and undrawn revolving credit facility commitments stood at $1.8 billion as of March, and we held $4.2 billion of our assets as unencumbered assets, representing approximately 65% of our portfolio. The remaining assets are pledged to Prospect Capital Funding, a nonrecourse SPV. We currently have $2.12 billion of commitments from 48 banks, demonstrating strong support of our company from the lender community with a diversity unmatched by any other company in our industry. The facility does not mature until June 2029 and revolves until June 2028. Our drawn pricing continues to be SOFR plus 2.05%.

Outside of our revolver, we have access to diversified funding sources across multiple investor types and have successfully issued securities in an array of markets. Prospect has issued multiple types of unsecured debt, institutional nonconvertible bonds, institutional convertible bonds, retail baby bonds and retail program notes. All of these types of unsecured debt have no asset restrictions and no cross defaults with our revolver. We've tapped the unsecured term debt market on multiple occasions to ladder our maturities and to extend our liability duration out 25 years with our debt maturities extending through 2052. With so many banks and debt investors across so many unsecured and nonrecourse debt tranches, we have substantially reduced our counterparty risk. At March 31, 2026, our weighted average cost of unsecured debt financing was 4.71%. Now I'll turn the call back over to John.

Kristin, thank you very much. We can now answer any questions.

[Operator Instructions] This concludes our question-and-answer session. I would like to turn the conference back over to John Barry, Chairman and CEO, for any closing remarks.

Okay. Well, thank you, everyone. Have a wonderful day and a wonderful weekend. Bye now.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Good day, and welcome to the Prospect Capital Second Fiscal Quarter 2026 Earnings Release and Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to John Barry, Chairman and CEO. Please go ahead.

Thank you, Michael. Joining me on the call today once again are Grier Eliasek, our President and Chief Operating Officer; and Kristin Van Dask, our Chief Financial Officer. Kristin?

Thanks, John. This call contains forward-looking statements that are intended to be subject to safe harbor protection. Future results are highly likely to vary materially. We do not undertake to update our forward-looking statements. For additional disclosure, see our earnings press release and 10-Q filed previously and available on our website, prospectstreet.com. Now I'll turn the call back over to John.

Okay. Thank you, Kristin. In our December quarter, our net investment income was $91 million or $0.19 per common share. Our NAV was approximately $3 billion, $6.21 per common share. At December 31, our net debt to total assets ratio was 28.2%. Unsecured debt plus unsecured perpetual preferred was 85.3% of total debt plus preferred. We are announcing monthly common shareholder distributions of $0.045 per share for each of February, March and April. Since our IPO nearly 22 years ago, through our April 2026 declared distribution, we will have distributed $4.7 billion or $21.93 per share. Our preferred shareholder cash distributions continue at their contract rates.

We continue to make progress with our strategic priorities, including: number one, rotation of assets into our core business of first lien senior secured middle market loans with our first lien mix increasing 728 basis points to 71.4% since June 2024. We are focusing on new investments in companies with less than $50 million of EBITDA, including companies with smaller funded private equity sponsors, independent sponsors and no third-party financial sponsors. Number two, reduction in second lien senior secured middle market loans with our second lien mix decreasing 371 basis points to 12.7% since June 2024. Number three, exiting subordinated structured notes with our subordinated structured notes mix decreasing 818 basis points to near 0 since June 2024.

Number four, exiting targeted equity-linked assets, including real estate, with 5 additional real estate properties sold in the current fiscal year more targeted and certain corporate investments sold, including significant assets within Echelon Transportation in July and December 2025 and other exits targeted. Number five, enhancement of portfolio company operations, especially where we hold equity-linked investments; and number six, utilization of our cost-efficient floating rate revolver, which significantly matches our floating rate assets. Thank you. I'll now turn the call over to Grier.

Thank you, John. Over the past 2-plus decades, Prospect Capital Corporation has invested approximately $13.1 billion in over 350 exited investments out of over $22 billion in over 450 total investments that have earned a 12% unlevered investment level gross cash IRR to Prospect Capital Corporation. This multi-decade time period includes the GFC and has been dominated in general by low prevailing market interest rates. In Prospect's primary business of primary -- of middle market lending over the same nearly 22-year time period, Prospect's exited investments resulted in an investment level exited gross IRR of approximately 14.5% based on total capital invested of about $11.2 billion and total proceeds from such exited investments of about $14.3 billion with an annualized realized loss rate of 0.2%.

In Prospect's core targeted business of middle market lending to companies with less than $50 million of EBITDA over the same nearly 22-year time period, Prospect's exited investments resulted in an investment level exited gross IRR of approximately 17.2% based on total capital invested of about $6.3 billion and total proceeds from such exited investments of about $8.3 billion, with an annualized net realized loss rate in this segment of 0.1%. Prospect's EBITDA to interest coverage for our primary business of middle market lending is about 210%, which increases to about 230% for Prospect's core targeted middle market lending to companies with less than $50 million of EBITDA. As of December 2025, we held 91 portfolio companies across 32 different industries with an aggregate fair value of $6.4 billion.

Our portfolio at cost included 2.8% of investments in software companies, which is significantly less than the 22% average across business development companies with publicly traded unsecured bonds from a recent Wall Street Fixed Income Research report. We primarily focus on senior and secured debt, which was 84% of our portfolio at cost as of December. Our middle market lending strategy is the primary focus of our company, with such strategy as of December representing 85% of our investments at cost, an increase of 878 basis points from June 2024. Middle market lending comprised 100% of our originations during the December quarter with a continued prioritization of first lien senior secured loans. Investments during the quarter included follow-on investments in existing portfolio companies to support acquisitions, working capital needs, organic growth initiatives and other objectives.

We've essentially completed the exit of our subordinated structured notes portfolio as of December with such portfolio representing only 0.2% of our investment portfolio at cost, which represents a reduction of 818 basis points from 8.4% in June 2024. Our real estate property portfolio at National Property REIT Corp, NPRC totaled 14% of our investments at cost as of December and continued its focus on developed and occupied cash flow multifamily investments. Since the inception of this strategy, 14 years ago in 2012 and through December 2025, we've exited 56 property investments, earning an unlevered investment level gross cash IRR of 24% and cash-on-cash multiple of 2.4x. We exited 4 property investments in the current fiscal year through December 2025 that earned an unlevered investment level gross cash IRR of 21% and cash-on-cash multiple of 2.4x.

NPRC exited one additional property investment after December 31, 2025, and has multiple additional properties in various stages of an exit process. The remaining real estate property portfolio included 54 properties and paid us an income yield of 5.4% for the December quarter, providing an opportunity for potential income enhancement from a portfolio rotation strategy. Prospect's aggregate investments in NPRC included a $270 million unrealized gain as of December. We expect to continue to redeploy future real estate property exit proceeds primarily into more first lien senior secured loans with selected equity-linked investments. Our interest income for the 12-month period ending December 2025 was 92% of our total investment income, reflecting a strong recurring revenue profile for our business.

Payment in kind interest income for the last 12-month period ended December 2025 was reduced by 46% from the 12-month period ending December 2024 and was 8.6% of total investment income for the December 2025 quarter. Nonaccruals as a percentage of total assets as of December stood at approximately 0.7% based on fair market value. Investment originations in the December quarter aggregated $80 million and consisted of 100% middle market investments with a significant majority of first lien senior secured loans. We also experienced $79 million in repayments and exits as a validation of our capital preservation objective, resulting in net repayments of $1 million. Thank you. I'll now turn the call over to Kristin. Kristin?

Thanks, Grier. We believe our prudent leverage, diversified access to match book funding, substantial majority of unencumbered assets, weighting toward unsecured fixed rate debt and avoidance of unfunded asset commitments all demonstrate balance sheet strength as well as substantial liquidity to capitalize on attractive opportunities. Our company has locked in a ladder of liabilities extending 26 years into the future. On October 30, 2025, we successfully completed the institutional issuance of approximately $168 million in aggregate principal amount of senior unsecured 5.5% notes due 2030, which mature on December 31, 2030. Our unfunded eligible commitments to portfolio companies totaled approximately $34 million, of which $23 million are considered at our sole discretion, representing approximately 0.5% and 0.3% of our total assets as of December 2025, respectively.

Our combined balance sheet cash and undrawn revolving credit facility commitments stood at $1.6 billion as of December, and we held $4.2 billion of our assets as unencumbered assets, representing approximately 64% of our portfolio. The remaining assets are pledged to Prospect Capital Funding, a nonrecourse SPV. We currently have $2.12 billion of commitments from 48 banks, demonstrating strong support of our company from the lender community with the diversity unmatched by any other company in our industry. The facility does not mature until June 2029 and revolves until June 2028. Our drawn pricing continues to be SOFR plus 2.05%. Outside of our revolver, we have access to diversified funding sources across multiple investor types and have successfully issued securities in an array of markets. Prospect has issued multiple types of unsecured debt, institutional nonconvertible bonds, institutional convertible bonds, retail baby bonds and retail program notes.

All of these types of unsecured debt have no financial covenants, no asset restrictions and no cross defaults with our revolver. We've tapped the unsecured term debt market on multiple occasions to ladder our maturities and to extend our liability duration out 26 years with our debt maturities extending through 2052. With so many banks and debt investors across so many unsecured and nonrecourse debt tranches, we have substantially reduced our counterparty risk. At December 31, 2025, our weighted average cost of unsecured debt financing was 4.68%. Now I'll turn the call back over to John.

Thank you, Kristin. We will now answer any questions.

[Operator Instructions] And your first question today comes from Finian O'Shea with Wells Fargo.

I wanted to ask on Tower, sort of a 2-parter. One is to the extent that tax refunds are higher this year, do you anticipate that's a headwind to loan balances? And then seeing Tower, it's been a really big winner for you. Is that part of the optimization strategy to say, exit the equity-linked types of investments? Or is that still one of sort of a firm hold for now, one that you definitely want to keep?

Well, Fini, this is John. I would say that we want to stick with our great winners and First Tower is absolutely one of them. We have a fabulous CEO there, frankly, be very hard to find a better CEO. So we have no current plans to do anything but continue to work with Frank. Grier?

Sure. Thank you for your questions, Finian. On the second one on potentially exiting Tower, we have no such plans, as John mentioned. Recall that we have substantial tax advantages as a regulated investment company under subchapter M, paying no income taxes as a business development company. And the income generated by First Tower is quite favorable, good income under our tax regime. So we're able to hold First Tower as a tax partnership rather than a C-corporation, thereby avoiding an extra level of taxation. Any prospective buyer of Tower given its scale, would quite likely either be a C-corp or have potential future plans to maybe IPO the business to become -- and that would require a C-corp under the tax law, which would immediately create significantly tax drag. So that's a way of saying that we are the logical lowest cost of capital, most tax-efficient owner of that business.

On top of it, it's a very yieldy strategy that we like in our business. Whenever we open up a new branch, it has an expected IRR typically of well over 30%. It's attractive income type of business with low-cost third-party ABL financing that's going lower, still enhancing the yield as SOFR continues to drop, also part of the forward curve. The business is also firing on all cylinders with in recent periods, record low on a multi-decade basis, delinquencies, record low on a multi-decade basis charge-offs. The company has optimized its strategy, not overexpanding, but expanding prudently and thoughtfully into new states and new offices within existing and new states, Florida and Tennessee, for example, are significant opportunities for expansion on top of Texas, which has been a more recent area for expansion.

So the business is doing well, and again, we have no plans to rotate out of it. In terms of your first question from a tax refund standpoint, yes, the dynamic of consumers borrowing money for holiday spending in the December quarter and then repaying some of those borrowings in the first half of the following calendar year based on tax refunds is not a new phenomenon at all. That's been the case for decades, creates a little bit of seasonality, which is fine and not problematic. I hadn't heard that tax refunds would necessarily be abnormally large or cause any distortions to Tower's business in any way. And of course, there are multiple drivers of consumer demand, not just holiday spending, but other aspects as well, including what's going on in the bank and nonbank borrower and lender markets. There's a very high barrier to entry in the nonbank installment finance business.

There's not a whole lot of new lending going on to new entrants. There's a fairly well-defined existing group of banks that are lenders to that business and don't tend to, from our observation, be that desirous of expanding into new entrants, but rather sticking with incumbents creating a benefit to being already in that business with an established bank group and a history in the case of Tower that spans over 40 years. So we see strong demand. We also see a phenomenon in which Tower and other companies have determined this over time, Tower is not alone in this and some of our other companies have also optimized on this basis. The best indicator you have of consumer credit is your existing customers and your existing credit experience with those customers.

So as they demonstrate a strong history over time of repayment and delevering, providing additional financing to those solid credit customers in the form of larger loans becomes a very smart way to enhance profitability, not the only way, but a meaningful driver to avoid potential charge-offs or reduce that risk for new borrowers for which one does not necessarily have a prior credit experience.

So hopefully, that's a little bit of context on First Tower, which we first invested in 2012, 2013 time frame. So we're going on 12, 13, 14 years roughly of a history with that management team, which is outstanding, which is very well aligned with us, has made additional growth investments in the business right alongside us, and we couldn't be more pleased with how that business and team is performing.

That's great. I appreciate the color. A follow-up on the prefs. Conversions are stable. One thing you've touched on in the past, you've given us color on that market. In terms of impacts from other products in the nontraded channel. So today, as we all know, there are a lot of headlines sort of hitting the larger nontraded BDC market. Does that have an impact, good or bad, on your convertible pref product line?

I mean not really directly. I think that interest rates are a meaningful factor, Finian. And in the current environment, folks are -- some folks are deprioritizing floating rate investments or vehicles that have significant underlying floating rate exposure. Everybody likes to float up and get a higher yield. They don't necessarily like to float down and get paid less, right? So you see that dynamic, not just with nontraded BDCs that, of course, rode the wave up from 6 yields to 10 yields to investors and now have been riding the wave a bit downward with distribution reductions based on underlying loans paying less with prevailing SOFR going down. You see that dynamic with interval funds and anything that's floating rate in nature. I think it makes fixed rate investments to our sector, no matter what that form might be, all the more compelling.

And I'm talking not just about fixed rate preferreds, which is essentially what all our preferreds are and newly issued preferreds, but also bonds for BDCs. So prioritization of investors from what we see is rotating back towards fixed rate and wanting to lock in a nice yield should rates continue to decline, at least on a short-term basis as evidenced by the forward curve. So I think that's a nontrivial dynamic at play here, which maybe keeps folks in their seats when it comes to sitting on fixed rate paper.

That's helpful as well. And I try to stay disciplined according to convention. But if I could throw in a bonus question. You guys have avoided software historically, which is pretty favorable to you at this point. That's causing a lot of the market consternation. Curious if you have any view on those sort of -- that sort of overhang being too heavy? Is it time to maybe pivot into enterprise SaaS software that's sort of a mainstay of a lot of your BDC peers portfolios. And that would be all for me.

Grier, just one second. Fini, thank you for your questions. I always hesitate to comment on what other people are doing or their investment strategies, whether I have an opinion or not. I'm very focused on our company. So I really don't know what's happening or going to happen with AI, software. And I don't think anybody else does. So I just want to preface anything that anyone has to say here with intellectual modesty and admitting that not only am I unable to forecast what might be happening in that sector. I have no first-hand information about what any of our competitors are doing. So that's my two cents on that, an admission of intense ignorance, if you will. All right, Grier?

Sure. Yes, we can only speak as to our own underwriting and thoughts. It's really a big difference in private credit compared to the broadly syndicated market for what the exposures are for software in the 2. In the broadly syndicated market, there's a nontrivial amount of software, I think, 10% or so, give or take, last I saw. And in that market, they tend to be cash flowing software companies. And the reason for that is you need to get a rating. That's a very rating-centric market. With the BDC market, less rating-centric. And what a lot of folks have done is to invest in annual recurring revenue loans that have less than a 1.0x fixed charge coverage. Those loans, when you go get a rating, whether it's credit estimate or private rating or what have you, tend to come back as CCC and with the lower type of rating. And of course, there's risk attached to that because there's no cash flow exit when you're below 1.0x fixed charge coverage, you're consuming cash and you need growth of the business to enable repayment, coupled with liquidity of a burgeoning software market.

And that was always antithetical or has been to date to our underwriting culture of seeking multiple sources of repayment, seeking downside protection, principal protection in the loans we make. We'd like to see delevering occur from the underlying cash flow available for debt service out of the business. We historically have underwritten with around a 1.5x fixed charge coverage or better with each deal. And those annual recurring revenue or ARR deals never offered those, and we thought looked quite risky from our point of view. So we passed on every single one of them. We've never done a single such deal. We understand that others in the industry have pursued that sector, and we'll see what happens. I don't think we're in a position to prognosticate on what's going to happen with AI impacting those software companies.

We'll just note that if anyone, whether they're an equity investor or a bond investor is worried about software exposure, then you not worry about it when it comes to Prospect Capital Corporation. We are the absolute lowest with software exposure at less than 3% compared to the BDC average, which is around 22% for bond issuers.

Seeing no additional questions, this concludes our question-and-answer session. I would like to turn the conference back over to John Barry for any closing remarks.

Okay. Well, thank you, everyone. Have a wonderful day now. Bye.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Good day, and welcome to the Prospect Capital First Fiscal Quarter 2026 Earnings Release and Conference Call. [Operator Instructions] Please note, this event is being recorded.

I would now like to turn the conference over to John Barry, Chairman and CEO. Please go ahead.

Thank you, Danielle. Joining me on the call this morning are Grier Eliasek, our President and Chief Operating Officer; and Kristin Van Dask, our Chief Financial Officer. Kristin?

Thanks, John. This call contains forward-looking statements that are intended to be subject to safe harbor protection. Future results are highly likely to vary materially. We do not undertake to update our forward-looking statements. For additional disclosure, see our earnings press release and 10-Q filed previously and available on our website, prospectstreet.com.

Now I'll turn the call back over to John.

Thank you, Kristin. In the September quarter, our net investment income, or NII, was $79.4 million or $0.17 per common share. Our net asset value was $3 billion or $6.45 per common share. At September 30, our net debt to total assets ratio was 28.2%. Unsecured debt plus unsecured perpetual preferred was 80.8% of total debt plus preferred. We are announcing monthly common shareholder distributions of $4.5 per share for each of November, December and January.

Since our IPO 20 years ago through our January 2026 declared distribution, we will have distributed over $4.6 billion or $21.79 per share. Our preferred shareholder cash distributions continue at their contracted rates. We continue to make progress repositioning our business, including rotation of assets into an increased focus on our core business of first-lien senior secured middle market loans with our first lien mix increasing 701 basis points to 71.1% from June 2024. We are focusing on new investments in companies with less than $50 million of EBITDA, including companies with smaller funded private equity sponsors, independent sponsors and no third-party financial sponsors where we see less competition, better returns and more protection.

Reduction in our second lien senior secured middle market loans with our second lien mix decreasing 292 basis points to 13.5% from June 2024. Exit of our subordinated structured notes with our subordinated structured notes mix decreasing 808 basis points to 0.3% from June 2024. Exit of targeted equity-linked securities, including real estate with 3 additional properties sold since July 1, 2025, and certain corporate investments, including the sale of significant assets within [ Echelon ] Transportation in July 2025. And with remaining assets expected to be sold in the December 2025 quarter with other exits targeted. Enhancement of portfolio company operations and greater utilization of our cost-efficient floating rate revolver, which largely matches our floating rate assets.

Thank you. I will now turn the call over to Grier.

Thank you, John. Over the past 2 decades, Prospect Capital Corporation has invested approximately $13 billion in nearly 400 exited investments out of over $22 billion in nearly 500 total investments that have earned a 12% unlevered investment level gross cash internal rate of return or IRR to Prospect Capital Corporation. This multi-decade time period includes the GFC and has been dominated in general by low prevailing market interest rates.

As of September 2025, we held 92 portfolio companies across 32 different industries with an aggregate fair value of $6.5 billion. We primarily focus on senior and secured debt which was 85% of our portfolio at cost as of September. Our middle market lending strategy is the primary focus of our company. With such strategy as of September 2025, representing 85% of our investments at cost, an increase of 864 basis points from June of 2024.

In our middle market lending strategy, we've continued our focus on first lien senior secured loans during the quarter, with such investments totaling 81% of originations during the quarter. Investments during the quarter included a new investments in the ridge, also known as HealthCare Venture Partners, a provider of health care services and other follow-on investments in existing portfolio companies to support acquisitions, working capital needs, organic growth initiatives and other objectives. We've substantially completed the exit of our subordinated structured notes portfolio as of September 2025. With such portfolio representing only 0.3% of our investment portfolio at cost, which represents a reduction of 808 basis points from 8.4% as of June 2024.

In our real estate property portfolio at National Property REIT Corp, or NPRC, which represented 14% of our investments at cost as of September 2025 and which is focused on developed and occupied cash-flowing multifamily investments. Since the inception of this strategy in 2012 and through October 31, 2025. We have now exited 55 property investments that have earned an unlevered investment level, gross cash IRR of 24% and cash-on-cash multiple of 2.4x. We exited 3 property investments since June 2025, for approximately $59 million of net proceeds to Prospect Capital Corp. and then earned an unlevered investment level gross cash IRR of 23% and cash-on-cash multiple of 2.3x. The remaining real estate property portfolio includes 55 properties, and paid us an income yield of 5.1% for the September quarter.

Prospect's aggregate investments in NPRC included a $320 million unrealized gain as of September. We expect to continue to redeploy future asset sale proceeds primarily into more first lien senior secured loans with selected equity-linked investments. Prospect's approach is one that generates attractive risk-adjusted yields and our performing interest-bearing investments, we're generating an annualized yield of 11.8% for the quarter ended September. Our interest income in the September quarter was 97% of total investment income, reflecting a strong and high-quality recurring revenue profile for our business. Payment in kind income for the quarter ended September 2025 was reduced by over 50% from the quarter ended September 2024.

Non-accruals as a percentage of total assets as of September stood at approximately 0.7% based on fair market value. Investment originations in the September quarter aggregated $92 million and were comprised of 72% middle market investments with a significant majority of first lien senior secured loans. We also experienced $235 million of repayments and exits as a validation of our capital preservation objective, resulting in net repayments of $143 million.

Thank you. And I'll now turn the call over to Kristin. Kristin?

Thanks, Grier. We believe our prudent leverage, diversified access to matched book funding, substantial majority of unencumbered assets, weighting toward unsecured fixed rate debt and avoidance of unfunded asset commitments all demonstrate balance sheet strength as well as substantial liquidity to capitalize on attractive opportunities. Our company has locked in a ladder of liabilities extending 26 years into future.

On October 30, 2025, we successfully completed the institutional issuance of approximately [ $168 ] million in aggregate principal amount of senior unsecured 5.5% notes due 2030, which mature on December 31, 2030. We expect to use the net proceeds of the offering, primarily for the refinancing of existing indebtedness. Our unfunded eligible commitments to portfolio companies totaled approximately $36 million, of which $15 million are considered at our sole discretion, representing approximately 0.5% and 0.2% of our total assets as of September, respectively.

Our combined balance sheet cash and undrawn revolving credit facility commitments stood at $1.5 billion as of September, and we held $4.2 billion of our assets as unencumbered assets, representing approximately 63% of our portfolio. The remaining assets are pledged to prospect capital funding, a nonrecourse SPV. We currently have $2.12 billion of commitments from 48 banks, demonstrating strong support of our company from the lender community with the diversity unmatched by any other company in our industry. The facility does not mature until June 2029. And and revolves until June 2028. Our drawn pricing continues to be SOFR plus 2.05%.

Outside of our revolver, we have access to diversified funding sources across multiple investor types and have successfully issued securities in an array of markets. Prospect has issued multiple types of unsecured debt institutional nonconvertible bonds, institutional convertible bonds, retail baby bonds and retail program notes. All of these types of unsecured debt have no financial covenants, no asset restrictions and no cross-defaults with our revolver. We have tapped the unsecured term debt market on multiple occasions to ladder our maturities and to extend our liability duration out 26 years with our debt maturities extending through 2052. With so many banks and debt investors across so many unsecured and nonrecourse debt tranches, we have substantially reduced our counterparty risk. At September 30, 2025, our weighted average cost of unsecured debt financing was 4.54%.

Now I'll turn the call back over to John.

Thank you, Kristin. We can take calls now, questions now.

[Operator Instructions] The first question comes from Finian O'Shea from Wells Fargo.

I want to ask about the equity linked rotation. You've made some good progress there as you sort of embark on that. But seeing if you can give us color on how far it goes and what are maybe the sacred cows within a lot of that's in the control book, particularly one area, consumer finance, you're still putting money in. Those companies are doing well. But are there -- is that sort of what's supposed to remain? And/or how much or how much of the rest is sort of a candidate to move versus what you view as a strategic holding?

Sure. I'll take that. Go ahead, John.

No, no, please take it Grier.

Okay. So Finian, yes, we do like to make first lien and senior and secured loans to companies. And we do really increasing percentage of time like to have some portion of our paper as equity linked. Ideally without a trade-off involved, the best type, of course, is penny warrants, the free type. And then the next best is convertible debt that is still senior and secured, has the cash pay coupon pledgeable to our facility, but then has ups as well and then various types of convertible preferred that have coupons and liquidation preferences on top of third-party capital all the way to a some heads up capital.

So our strategy is one of evaluating each investment in the book and looking at it on a foregone yield and foregone IRR. Including giving effect to accretion through our roughly [ S200 ] secured credit facility for those foregone returns at a price that we think is actionable with a third-party purchaser in the market that's the guidepost we use to make decisions to optimize the portfolio. And what that leads us to is to look to divest over time generally when you've had appreciated equity-linked assets and we're looking forward and maybe there's upside in the future, but not quite as much as we're not foregoing as much. And we're also paying careful attention to foregone yield as well, wanting to rotate and drive and optimize increase revenue, increase income for our business.

The best candidate for that in our portfolio is real estate. I mentioned we've sold 55 properties. We have another 50 or so to go. Returns on recent exits sort of backward looking are fairly similar to the overall returns we've generated on the other 50 or so exits with IRRs in the low 20s and a multiple of invested capital generally above 2x cash on cash. But the extant book after giving effect within real estate to appreciation of value is generating about a 5% income yield. That, of course, is much lower than what we can achieve in the market for new originations. We are focused on smaller companies increasingly sub-$50 million EBITDA and really sub-$25 million to $35 million because there's so much competition in the upper middle market that is bid away spreads, that is bid away floors, that is bid away covenants, that is bid away earnings quality, that has bid away on strong documents, so many problems there that we intensely dislike. And so we're focused on the harder to originate but well worth it when you do smaller in.

Our last dozen or so deals closed have had an average spread in the 700s compared to the upper middle market, which is to [indiscernible] with a 4 handle by comparison. We're getting much higher floors, generally above 300 basis points on those deals and look at what's happening with short-term rates were down to about 375 and folks are cutting distributions out there experiencing lower yields. What went up Canada almost certainly will go down again from a floating rate perspective.

So we can put money out at, call it, 10% to 12% unlevered in the lower middle market then we lever that in our [ S200 ] facility at a 50%, 60% advance rate. And we're talking about a 15% plus income yield return before giving effect to any equity-linked benefit. That 15, of course, is vastly superior on an income yield perspective, to the 5% I was quoting on real estate. So we view that as an earnings powerhouse that we're unleashing through that rotation that we're pursuing that doesn't mean we're going to dispose of the real estate portfolio liquidy split. We're doing so in a [indiscernible], value maximizing basis on a bottoms-up look at different geographies, different properties, we concluded you maximize value by selling individual assets or smaller groups of assets as opposed to the whole. There's just a lot more buyers who can transact with individual assets as opposed to cut a multibillion dollar check. Usually, those guys look for significant bargains that were not too interested in parting with.

So that's what's going on with real estate. We're seeing solid NOI growth. We've had about 7% NOI growth. And we're seeing tailwinds there as supply has diminished and look for us to continue to monetize assets in coming quarters. Then you have other assets on the corporate side, I'll divide that into non-financials and financials that you mentioned. We have a number of very successful nonfinancial deals where you have some equity-linked positions that have appreciated significantly. And again, when you look at on a foregone yield and IRR basis, we say, okay, we think it could make sense at the right price, the deal business is dynamic, and you never know exactly what the outcome will be. But at the right price, there's a potential transaction there.

So we've got various processes that are ongoing there, and we'll disclose that at the appropriate point should we find interesting exit points. And again, an unleashing of earnings power by rotating those appreciated assets into more in a diversified way of income-producing properties.

In the financial book that you talked about, those are really, for the most part, long-term holds for multiple reasons. I mean, that doesn't mean we would say no. if some huge outlier bid came along. But we have substantial tax advantages that aren't enjoyed by other public companies because we're a BDC, where [indiscernible], we pay no corporate taxes as long as, of course, we meet the regulatory requirements, which we have for our 20-plus year history and intend on continuing to do and we hold these financials as tax partnerships. So there's no taxes at the underlying portfolio company level.

If these companies say, First Tower, for example, were to become its own public company, and it's large enough business that perhaps it could or could some day, it would need to be a corporate taxpayer under the regs, and that would be an erosion of value in any potential buyer would keep that in mind for their eventual exit. So we enjoy a very low cost of capital as the natural resting ground for financials.

And just more important than that, we've had terrific success focusing on areas that are highly recurring and recession resilience. And I'm talking about installment lending, which is what First Tower and Credit Central and our latest deal, which is QCHI, all transacting. We do have a small auto book very small. That's been a tougher business. That's a scale business. It's less of a customer loyalty recurring cash flow business because in automobile purchase is episodic. But for these installment lenders, they're doing 50% to 75% plus of their business with current customers, and there's a substantial loyalty element that grounds the business and really creates low volatility. And as short-term rates are starting now to subside, that's a further tailwind on for those businesses that utilize third-party ABL that's floating rate in nature. I think with Tower something like every 100 basis point reduction in SOFR increases pretax net income by somewhere in the range of $5 million to $10 million. And then, of course, there's a valuation benefit from that as well.

So that's what we're after. We've made a lot of progress in the last year, Finian, exiting our structured credit book was a big part of that process. That book could become low yielding on a GAAP basis as well. And we're rotating and having great success with deals like the Ridge, deals like [ Verifi ] Diagnostics, deals like [ Druid City ], a Discovery Point, [indiscernible], [ Tau and QC ] as equity link deals have had substantial write-ups year-to-date since we closed each of them. So the strategy is working well, and we're going to continue to execute on that game plan.

No, I appreciate that. A lot of color there. And just as a follow-up, progress as well on the liability front, can you talk about the Israeli bond, if that is that sort of a one-off or a new channel? And if you anticipate or are planning more meaningful movement on the unsecured front?

Sure. It's a new channel. It's not a one-off. It's something we've evaluated for a very long time. And we thought the timing made sense for us. We've been utilizing our revolver to retire liabilities. We utilized our 48 bank strong $2.1 billion revolver a few months ago to take out our first half of 2026, original issue $400 million bond and could utilize that as well for our next maturity, which isn't until the tail end of 2026.

But I thought this was an interesting and strategic place to issue. We have strong relationships there. We've had institutional support from that market on other types of issuance and prospect. And so just made a decent-sized market, and I think you'll see us on a thoughtful basis, continue to expand our presence there. And -- but that doesn't mean that's going to be our only source of financing. We're big, big believers in diversified financing. The fact that we have almost 50 banks in our facility shows we're not taking substantial counterparty risk, which can be problematic, especially in downturns. We saw that happen in the GFC with folks. While that's a big reason why we're able to buy Patriot Capital for example, and what happened to that business when we did the first BDC acquisition history.

But prospect, of course, created the bond market for BDCs. We're the first issue convertible bonds going back to 2010 and then straight institutional bonds in 2012 and first and only to issue medium-term notes. So we've been doing this for a very long time and are big believers in diversified access to funding, and we think that creates a strong credit profile for all, including, of course, equity investors that benefit from that diversified funding.

Awesome. Thank you, everybody. Congrats on the quarter.

This concludes our question-and-answer session. I would like to turn the conference back over to John Barry for closing remarks.

Okay. Thank you, everyone. Have a wonderful day. Bye now.

Thanks all.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.