Prospect Fund Sees Asset Growth

Prospect Floating Rate and Alternative Income Fund, Inc. reported steady growth for the quarter ending December 31, 2024, focusing on floating rate loans and alternative income opportunities to fuel its expansion. The company’s strategy centers on lending to middle-market companies—those with annual revenues between $50 million and $2.5 billion—while maintaining a diverse portfolio to manage risk and capture returns in a changing credit environment.

The fund’s portfolio grew significantly over the quarter, with total assets climbing to $102.9 million from $76.7 million in June 2024. Investments at fair value hit $83.4 million, up from $59.5 million, driven largely by new deployments in senior secured first-lien loans, which now make up the majority of its holdings. These floating rate loans are designed to help the fund capture upside in rising rate environments while offering downside protection against inflation.

Strategic Use of Leverage and Rising Income

To support this growth, Prospect increased its borrowings through its senior secured revolving credit facility, bringing total debt to $44.5 million from $27.8 million last quarter. This strategic use of leverage gives the company flexibility to invest in high-potential opportunities across industries like healthcare, telecommunications, and business services—all key components of its portfolio.

Investment income for the six months ended December 31, 2024, jumped to $4.5 million from $1 million during the same period in 2023. The boost was driven by interest income on floating rate loans. Expenses also increased, largely due to higher interest costs tied to additional borrowing, but the company managed to finish the six-month period with net investment income of $1.4 million—reversing a $500,000 loss in 2023.

Navigating Risks While Staying Agile

Market conditions remain unpredictable, with inflation, rate volatility, and geopolitical risks all top of mind for investors. Prospect’s management acknowledges these challenges but remains focused on using its floating rate strategy to stay nimble. Its investments are spread across multiple sectors, helping to reduce exposure to any single market shock and positioning the fund to seize opportunities as they arise.

Maintaining credit quality is central to this strategy. As of December 31, 2024, just 0.72% of total assets were on non-accrual status, down from 1.96% at midyear. This decline shows improving credit conditions in the portfolio—a trend the company plans to build on by closely monitoring its holdings. Investments in structured finance products like CLOs add diversification and yield potential, but these positions require constant evaluation as market conditions evolve.

Capital Management and Shareholder Focus

Prospect has been active in managing its capital base. During the six-month period, the company repurchased 150,638 shares of Class A common stock at a cost of $692,000. This ongoing share repurchase program is part of its broader effort to enhance shareholder value while maintaining ample liquidity for future investments.

In July 2024, the company raised $10 million by issuing new Class A shares to its investment adviser, strengthening its balance sheet and providing additional resources to pursue growth opportunities.

Positioned for What’s Next

Prospect’s strategy for the coming year is clear: continue expanding its floating rate loan portfolio and seek new opportunities in the middle market. The company is keeping a close eye on interest rate trends and credit markets, positioning itself to act quickly when new opportunities arise.

By maintaining a disciplined approach to portfolio management and focusing on sectors with long-term growth potential, Prospect aims to deliver competitive returns while adapting to whatever the market throws next.