(Bloomberg) — Prospect Capital Corp.’s CEO and founder John F. Barry III lashed out at a Wall Street analyst during a quarterly earnings call, defending the investment firm’s track record and blasting some of the analyst’s questions as “absurd.”
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The altercation occurred after Wells Fargo & Co.’s Finian O’Shea asked under what circumstances Prospect would force the conversion of some of its preferred stock into common shares, a scenario Barry said the firm has no reason to contemplate.
“No, we’re not running over and looking at break glass here. I just am amazed at these questions,” Barry said in a heated exchange, a rare occurrence during corporate earning calls. “Is the house on fire? Why are we talking about something like that?”
He then started quizzing O’Shea over some of the company’s financials, cutting him off repeatedly as he attempted to answer.
“Why don’t you do the world a favor and do a little research before you come on an earnings call with absurd questions like this?,” Barry said toward the end of the exchange. “You don’t even know what you’re talking about.”
Prospect, which runs a $8 billion publicly traded private credit fund, has faced increased criticism in recent months over its frequent use of so-called payment-in-kind arrangements, which allow borrowers to pay interest with more debt, as well as its reliance on individual investors for funding.
Prospect did not respond to a request for comment about the Thursday call. A representative for Wells Fargo declined to comment.
During the call and in prior statements made on its website, Prospect defended its 20-year track record, stressed that it has access to diversified sources of funding and that it sees PIK arrangements as appropriate for some borrowers.
NAV Drop
Prospect reported net investment income of $102.9 million for its fourth fiscal quarter, a drop of 8.7% compared to the same period last year. Its net asset value per share, a measure of the value of its investments, dropped to $8.74 at the end the quarter, the lowest reading since 2020, according to data compiled by Bloomberg.
Shares in the fund, which trades under the PSEC ticker, were little changed on Thursday at $5.01 as of 1:29 p.m. in New York. That represents a roughly 43% discount to the value of the fund’s assets at the end of the June quarter.
In addition to the preferred stock, O’Shea also asked questions about a writedown in Prospect’s portfolio of collateralized loan obligations and about investments made by a real estate investment trust that Prospect fully controls and that makes up one-fifth of the fund’s assets.
“Here we go again, here we go again,” Barry snapped back. “The REIT owns a giant portfolio of multifamily properties. Giant. The REIT generates huge cash flows up to PSEC. You probably don’t even know what they are.”
Prospect has been criticized for what some analysts see as a circular financing arrangement with the REIT. Hedgeye Risk Management, a research firm that provides short recommendations to investors, has argued that the REIT produces no free cash of its own and relies on funding from Prospect to generate most of its income.
Over its 2024 fiscal year, Prospect provided $248 million of debt financing and $4.6 million of equity financing to the REIT add received repayments of $108.9 million according to its quarterly filings.
After the exchange, Grier Eliasek, president and chief operating officer at Prospect, jumped in to answer some of O’Shea’s questions.
He attributed the conversion of some preferred shares during the past quarter to a large institutional holder in Israel who needed liquidity, argued that certain provisions for future conversions are legacy language in deal documents that Prospect cannot actually invoke and explained that the REIT purchased multifamily property during the most recent quarter and used cash it received from Prospect for capital expenditures.
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