Prospect Capital To Buy Patriot Capital Funding

Prospect Capital Corp. (Nasdaq: PSEC) has agreed to acquire Patriot Capital Funding Inc. (Nasdaq: PCAP) for $197 million.

Prospect Capital Corporation (NASDAQ: PSEC) (“Prospect”) announced today that it has entered into a definitive agreement to acquire Patriot Capital Funding, Inc. (NASDAQ: PCAP) (“Patriot”).

Prospect is acquiring Patriot for $197 million, comprised of (a) cash to repay all Patriot debt, anticipated to be $110.5 million when the acquisition closes, plus (b) Prospect shares exchanged at a ratio of approximately 0.3992 Prospect shares for each Patriot share, or 8,616,467 Prospect shares for 21,584,251 Patriot shares, with such exchange ratio decreased by any tax distributions Patriot may declare before closing.

The acquisition, unanimously approved by both of Prospect’s and Patriot’s Board of Directors, is expected to close in the next 60 days. The acquisition is subject to Patriot stockholder approval and other customary closing conditions. Patriot’s shareholders will own 15% of Prospect’s outstanding shares pro forma for the acquisition, so Prospect shareholder approval is not required.

Prospect believes the benefits of the acquisition for its shareholders include, but are not limited to:

— Accretion: Prospect expects the Prospect shares issued to generate 64 cents per share per quarter of net investment income, which would be accretive to Prospect at 10 cents per share per quarter across all Prospect shares pro forma for the acquisition. Prospect expects to generate a more than 20% IRR and 2x cash-on-cash return on the Patriot acquisition.

— Attractive Price: Prospect is acquiring Patriot for 63% of asset cost, 75% of asset book value, and 54% of equity book value. Purchases of assets below book value, if such assets have existing leverage, imply even greater discounts to equity book value. Prospect’s purchase price, assuming Prospect has to pay 100 cents on the dollar for the debt financed portion of the Patriot portfolio, translates into 54 cents on the dollar for the equity portion.

— Synergy: Because Patriot has been in default without forbearance from its lenders, creating a risk of lender foreclosure eliminating Patriot equity value, and because Patriot has ceased its dividend, Patriot’s stock price has traded at significant discounts to net asset value. Prospect’s acquisition, which pays off Patriot’s existing debt, enables both a premium to the Patriot share price as well as a discount to Patriot net asset value, unlocking value for mutual shareholder benefit.

— Scale: With this acquisition, Prospect’s gross assets increase by more than 35% and equity capitalization increases by more than 14% without incurring underwriting costs associated with a stock offering. Prospect expects this greater scale to enhance daily trading volume, increase Prospect’s attractiveness to lending institutions, and expand access to investment opportunities, including both individual transactions as well as portfolio purchase opportunities similar to Patriot.

— Diversification: Prospect will double its number of portfolio companies to over 60 by adding approximately 30 companies located in 13 U.S. states and covering 18 industry sectors.

— Seniority: 70% of the acquired asset value is in portfolio companies where Patriot has a senior secured position in the capital structure.

— Private Equity Sponsor Expansion: Patriot has pursued a strategy of lending to middle market private equity sponsors. With this acquisition, Prospect deepens its presence in the sponsor marketplace, building on Prospect’s own sponsor business in addition to Prospect’s direct lending and controlled buyouts.

— Low Leverage: On a combined basis, Prospect’s debt to equity is expected to be less than 20%.

— Tax-free: The acquisition is expected to be considered a tax-free reorganization under the Internal Revenue Code.

All amounts set forth herein are estimates subject to change.

“The Patriot acquisition is a perfect example of our previously stated strategy to go on offense in the current opportunity-rich marketplace in which competitors have faltered with overleveraged balance sheets,” said M. Grier Eliasek, President of Prospect. “We are pursuing other move-the- needle portfolio opportunities similar to Patriot in addition to continuing our work on individual transactions.”

“We are pleased to be completing with Patriot the first of what we hope will be multiple strategically compelling acquisitions to drive superior value to our shareholders,” said John F. Barry III, Chief Executive Officer of Prospect. “We would not have signed this agreement but for the creativity, drive, and persistence of Grier Eliasek, and his team, focusing and executing on this wonderful opportunity for Prospect and Patriot. We look forward to having Richard Buckanavage and other Patriot professionals join our team.”

Skadden, Arps, Slate, Meagher & Flom LLP served as Prospect’s legal counsel in connection with the transaction and related matters.

FBR Capital Markets & Co. served as financial advisor to Patriot in connection with the transaction, and Sutherland Asbill & Brennan LLP served as Patriot’s legal counsel in connection with the transaction and related matters.


Prospect Capital Corporation ( is a closed-end investment company that lends to and invests in private and microcap public businesses. Prospect’s investment objective is to generate both current income and long-term capital appreciation through debt and equity investments.

Prospect has elected to be treated as a business development company under the Investment Company Act of 1940 (the “1940 Act”). Prospect is required to comply with a series of regulatory requirements under the 1940 Act as well as applicable NASDAQ, federal and state rules and regulations. Prospect has elected to be treated as a regulated investment company under the Internal Revenue Code of 1986. Failure to comply with any of the laws and regulations that apply to Prospect could have an adverse effect on Prospect and its shareholders.


Patriot Capital Funding, Inc. ( is a specialty finance company primarily providing customized financing solutions to private equity sponsors focused on making investments in small- to mid- sized companies. Patriot Capital Funding typically invests in companies with annual revenues generally ranging from $10 million to $100 million that operate in diverse industry sectors. Investments usually take the form of senior secured loans, junior secured loans, and/or subordinated debt investments — which may contain equity or equity-related instruments. Patriot Capital Funding also offers “one-stop” financing, which typically includes a revolving credit line, one or more senior term loans and a subordinated debt investment. Patriot Capital Funding also makes equity co- investments of up to $3.0 million.