Exceptional Opportunity To Buy Investment Grade Baby Bond With A Yield 7.1% From Prospect Capital

Co-produced with PendragonY for High Dividend Opportunities.

Summary
At High Dividend Opportunities, we always are looking for juicy dividends trading at attractive valuations. This week, we spotted a mispriced investment grade baby bond that's currently yielding 7.06%. The bond being discussed in this article is the Prospect Capital Corporation 6.875% Note (PBC) maturing in 2029, and is issued by Prospect Capital (PSEC), one of the largest business development companies (BDCs) which makes debt investments (loans) and equity investments in smaller-sized companies. It also invests in collateralized loan obligations (CLOs). It's one of the larger BDCs, has traded on the exchange since 2004, and has issued hundreds of bonds. PBC is rated BBB-, an investment grade rating, by S&P. The current yield is 7.06%. It's first callable on Dec. 15, 2021, but doesn’t mature until June 15, 2029. In the report below, we will compare PBC with other bonds issued by PSEC and other similar "baby bonds" to highlight the mispricing and why we believe PBC is a highly opportunistic investment now.
The Opportunity
PBC has drifted lower since it hit its high of $25.30. Currently this bond trades at a sizable discount to other similar bonds of Prospect Capital. Why is it trading this cheap? It seems that there's a big stubborn seller who is liquidating his position. PBC has only been trading for a few months since this is a relatively new bond. The seller is probably one of the... Read more