PSEC

Prospect Capital ($PSEC) CEO Buys $70M in Stock Despite 40% Plunge... The 20% Dividend Paradox

09/29/2025 20:08

Prospect Capital ($PSEC) is a Business Development Company (BDC) that provides debt and equity investments to middle-market companies, primarily targeting U.S. and Canadian firms with EBITDA between $5 million and $150 million. The company operates a diversified investment portfolio spanning mezzanine financing to leveraged buyouts and real estate investments across sectors including energy, industrials, healthcare, and technology. The most notable development is CEO John Barry's persistent large-scale share purchases. From August 2024 through September 2025, he acquired over 15 million shares, investing approximately $70 million even as the stock price declined from $4.70 to $2.76, a drop of over 40%. While all transactions were executed under a 10b5-1 pre-arranged plan, this sustained buying during a declining market suggests strong management conviction in the company's long-term value. COO Grier Eliasek and CFO Kristin Van Dask have also consistently purchased shares, demonstrating unified management confidence. Such insider buying during a declining stock price is uncommon and could signal positive sentiment for investors. Financially, the company presents a mixed picture. Trailing twelve-month revenue reached $719.44 million, but net losses of $593.76 million resulted in a -65.32% profit margin, likely reflecting portfolio company value declines and credit losses typical for BDCs. However, levered free cash flow remains positive at $169.59 million, indicating healthy operational cash generation capabilities. The most attractive feature for investors is the 20.69% dividend yield, maintained at $0.54 per share with an ex-dividend date of October 29. This high yield appeals to income-seeking investors, though sustainability depends on future portfolio performance and credit conditions. Recent business activities have been robust. The company completed its $115 million acquisition of QC Holdings in July after announcing the deal in April, and invested $18 million in The Ridge in September. Additionally, PSEC extended its revolving credit facility to over $2.1 billion through 2029, securing ample liquidity. The stock currently trades at 0.41x book value, indicating the market significantly discounts the company's net asset value. This reflects broader BDC sector concerns about credit risks and valuation pressures in a rising interest rate environment. Key factors to monitor include the November 6 earnings release and credit condition changes among portfolio companies. If middle-market lending conditions improve and portfolio value declines stabilize, management's persistent buying could reward investors. Conversely, further credit deterioration or dividend payment disruptions could pose additional downside risks. Investors seeking high dividend yields while accepting middle-market credit risk exposure may find PSEC attractive. While CEO buying signals are positive, fundamental improvements must support any sustainable price recovery.