SecProbe.io

UNITED STATES
SECURITIES AND EXCHANGE COMMISSlqN
WASHINGTON, D.C.20S49
DIVISION OF
INVESTMENT MANAGEMENT
Carne Lekstutis, Esq.
Skadden, Ars, Slate,
Meagher & Flom LLP
Four Times Squae
New York, New York 10036-6522
Re: Prospect Capital Corporation (the "Ftid")
File Numbers 814-00659 & 333-164270
Dear Mr. Lekstutis:
On November 19, 2010, the Fund filed a registration statement on Form N-t:"
under the Securities Act of 1933 ("Securities Act"). Your letter ofeveadate :~if¡~
. accompaned the filing. Your letter requests limited review in accoi:dapce withS!~MPties
Act Release No. 6510 (Februar 15, 1984). With certin exceptions, wè have lii1:êd our
review of the filing. Th~ Fund is a business development company ("BDC") regiated
under the Investment Company Act of 1940 ("1940 Act"). The filing registers the
offering, pursuant to Rule 415 under the Securties Act, of the Fund's common and,.
preferred stocks, debt securties and warants. The filing is intended to replace the
Fund's current shelf registration statement and, accordingly, it has been submitted
pursuant to the requirements of Rule 415(a)(6) under the Securities Act.
Our comments regarding the filing are set forth below.
General
1. We remind the Fund of its obligation to file electronic reports with respectto its
fidelity bond coverage under Rule 17 g-1 (g) under the 1940 Act. .. .
2. In light of disclosure under the caption "Risk Factors - Risks Relating To Our
Investment" regarding the Fund's contemplated investments in derivative instreits, .
confirm that the Fund's derivatives disclosure reflects the observations set fort ia,the
recent letter from Bar Miler, Associate Director in the Division oflnyestmentÚ'ti.r "
Management to the Investment Company Intitute. In sumar, you. should pr9-~~~' ""~'"
more understandable disclosure on this topic to investors. Funds are enaollagta.,p,focuš
disclosure on actual anticipated operations rather than investments thàtileyoognt'wake.
, :.-- ,.-::",.FW1ds are also instrcted to tailor their strategy discussion, not as genercstatertats of
policy, rather they are to describe the specific instrents in which the fud invèst~()r
wil invest principally, and to tailor the risk disclosure to reflect the types ofderi'Vatives
used, and the extent of and the purposes of such use. See Letter toKare McMiHap
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Esq., General Counsel, Investment Company Intitúte, Dervatives:'Re1äted Disêlošûres'
by Investment Companes (July 30, 2010).
3. The fee table on the facing page discloses, the amount of shares being registered.
Confirm that shares to be used to fulfill over-allotments are included in the sharesneing
registered.
4. Although the Fund is classified as a non-diversified C?mpany, several references
appear in the document indicating that the Fund contiues to diversify its portfolio or that
it is diversifyg its portfolio. For example, see disclosure captioned "Risk Factgrs -
Risks Relating to Our Investment." Please revise the disclosure. '
Prospectus Cover
5. Disclosure in the second paragraph references the Fund's intent to issue rights.
Disclosure in Par C of the filing discusses the Fund's intent to reoffer rights not taei
durng a rights offering. Revise the disclosure to reflect the. Fund'sintent to engagt':in
transferable and non-transferable rights offerigs, as well as the risks tas,narehQlqçi. ofthe former. ' ..
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6. Disclosure captioned "Prospectu Sumar -c. The Offerig~d in.dicates tna(tn.e "'
Fund may sell common stock, or warants, options or rights to acqiiit~the Fund':S:~,~:,1J
common stock, at a price below the curent net asset value upon approvâloftheE~d's:
directors, including a majority of its independent directors, in certaincirçumstaç~š;'
Revise the disclosure to indicate, if accurate, that shareholders hav~apPro"eçtWsli2iicy,
the duration of that approval, and the maximunidisco'ut to net assetvahîtR(w1M~l1¡thê'Fund wil issue such shares. ' " .': :" :: jtitl3; :" at'. ,;-,: : , ,,'-~:".;
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7. Add disclosure that explains the securtization process more fuly and disclöse the
risks to Fund shareholders, with respect to the following highight~ disclosure appearng
under the caption "Risk Factors - Senior securties, including debt, expose us to ':"
additional risks, including the typical risks associated with leveragé": "We curentIy use
our revolving credit facilty to leverage our portfolio and we expect)nthe futue ~l;."
borrow from and issue senior debt securties to bans and other lendètsaridmaY:~f;S:
securitize certain of our portfolio investments." (Emphasis added.):" ",. ,;::tE'"i
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Also, add disclosure indicating:..'
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· ' that the Fund's investments in or holdings of, paricipationsinsecurtizått~Îis,
wil not be included withi the Fund's investm~nt ineligibl~PQi-folio.C(mpfIies,
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that the Fund wil invest or hold no more than 30% ofits ås~éts'in se.cunt! '
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in plai English, the salient characterstics of a "debtsecurtiation"and ë~plain ,,'
why the Fund may securtize loans, rather than sell them to;i:t1d par,';"/J;:r.::Wi-:"':
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;-,'j--:,"7;- \i.:.;~; O'· the material differences betwee, and the consequences of, sellmg verus
securtization transactions. In the alternative, disclose that there are no materal
differences,
· all the materal risks of securtizations. Wil the Fund hold any residua or
subordinate interests?,
· all fees paid in connection with a securtization. Does the ádviser benefit from a
securtization arangement? Does the "sale" to a special purose vehicle or
subsidiar trgger any gains (or losses) that are subject to an incentive fee?, and
· how the securtization affects the two hundred percent asset coverage requirementunder the 1940 Act., .
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Furer, advise the staff as to whether:
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the statu under the 1940 Act of any slil?sidia.orspe5ialppr9~e vel191e,¡~~edfor
thepllose of securtizing Fund asse,ts.. ,wmllW:$libsi4iar.ot;:~PV IAake it '
private offerig.of debt securties, or will.itBè'a r~gi~tered offèrg under t:~
Securities Act? May that offering create the risk ,of liabilty to the Fund? ,atd
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the Fund proposes to consolidate the fiancials9fthesecurti~tiÓn stib~ì'Jr~
with that of the Fund. .,' " '", ,.'" ":'/
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9. Revise a subsequent sub-caption which'lJegis withthé phráS.~d'lailure,;to.~~tend
our existing credit facilty, which is curently scheduled to' expire: " '."oy disclösin~' the
fees the Fund incurs in connection with a credit facilty'~1dtl~;
10. Disclosure sub-captioned "We need to raise additional capital tngrow b~~~#Se we
must distrbute most of our income" states that: "W~ J:av~ sought additiona.l canlml,~py
borrowing from financial institutions and may issue debt securties, or addition~lt9Rity
securties. If we fail to obtain fuds from such s()ii~s or from other sources tod~dour
investments, we could be limited in our abilty to gro'Y;whichmayhave ana4ver~~
effect on the value of our common stock." (Emphciisadded) Expiahtle meånrtg of
the underlined clauseto the staff ' , " " ',d' "': ~', '"H'~i ",;,,'H\iz'
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11. Disclosure sub-captioned "Potential conflctsofinterest coUldiipactolld:ft~~'
investment retus" states that: "In the courseofourinvestfg actiyiti~~;:undertl~'~tl:"\
Investment , Advisory Agreement we pay base ,man~gement and incentìy~IeFs t~;,~~Rspect
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Úl: CoÓJ,,1P121620lORPFD
imI2011-3:15:05 PP: '

Capital Management, and reimburse Prospect Capita Managementf()r'Certex~~es,it.", '
, incurs." (Emphasis added.) No such reimbursements or waivers me f(~ference in:the' "
expense table. It is unclear whether any such expenses are included under "Other ,
expenses." Confi that no reimbursements or waivers were incured by the Fund durg
the most recent fiscal year.
12. The sub-captioned disclosure which begis with the phrase "Our incentive fee
could induce Prospect. . ." discusses cer risk associated with the Fund's incentive fee.
The incentive fee has two components (realized gains and net income) which combine
with the base fee to form the total management fee paid to the Fund's advisor. As to each
component of that fee, at an appropriate location, disclose when it is determned, the
maner in which it is computed and when it is paid.
13. Disclosure with the caption that begins with the sentence "Capital markets have
recently been in a period of disruption ard instabilty. . ." discusses the recent period of
extreme market volatilty. In light of the Fund's abilty to invest in foreign secwiM~s, the
disclosure should refer as well to the curent uncety regarding cerain EurozQ.ït.. . .
countres and, if deemed appropriate or relevant, the recent incidentn~fered to by some
as the "flash crash."
Also, update the discussions appearng in thsdisc10sure andèls~wh~I'e.jIllWe" ,
filing regarding shareholder approval to sell below net asset value. ¡', i i/'v,;jcm'ixli
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14. The second paragraph of the discussion under the caption thaIbe.gjnswilktle ..
phrase "Reguations governg our operation.. ." discusses the Fund's abilty tpJSslle
, securities below net asset value. Revise that discussion to indicate the .aiount()tdillltion
allowed, i.e., the maximum limit or, if applicable, the absence of any limit, andil~r;~ffecton voting. . . ..., . '. ' , :.L ' d' t~k' ',:
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15. The thrd paragraph of the discussion under thecaptioIi thafb~&ïs witilhe:T-
phrase "Reguations governg our operation. .." discloses that: '''o:sêcurtize"la~, we
may create a wholly owned subsidiar and contrbute a pool ofloantosuch sul?s~~tar.
This could include the sale of interests in the loans by the subsidiar ona non-r~Prse
basis to purchasers who we would expect to be wiling to accet a lowerdiiteresttatp to
invest in investment grade loan pools." Confi that these subsidiares wil heflaec
with whole loans, or whether they may include interests from other pools~ ahdaon:litm
that all such loans wil be rated. ',' ))1'¡1,;''; . -"';~
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16. If the Fund may invest in emerging or develqping market secllties, reyise,lle
discussion sub-captioned "Our investments in foreign securties may involve sign,lìcant
risks in addition to the risks inherent in U.S. investments" to indicate that facti. j~*l,;
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1 7. Disclosure under the sub-caption that begis with the phrase "Pr()":sion~_Qf~e
Maryland General Corporation Law and of our charer and bylaws coui-d;deteni~iWtt... ..- " . "". - - " . : '"" ': ::," ~:- ;'-":
discloses the following: "Although our bylaws include such a provision,slicha;'ltgMÏsion
mayalso be amended or elimiated by our Board of Directors at aiytÏme in th~'ff~e,~", \' .''-' :",;" :::,r:'~:'~'~;;.:¥~T.~~:',
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provided that we wil notify the Division of Investnient Nlan~gement;flt!tl~~~ç .
amending or elimating this provision." It is the view of the stafftlat.gptig ~'FH ,.'.
, Marland Control Share Acquisition Act would,be,açting ina,manerÏß~~i.st~li!with,..
§ l8(i) of the 1940 Act The Fund should add disclosure to the above quoted disC1ösUre "
that reflects the staffs position. See Boulder Total Return Fund, Inc. (pub. avaiL. Nov.15,2010). ' ,
18. Update the "Senior Securties" table to reflect the latest issuace of convertible
debt. Indicate whether the expense table takes into account the Fund's recent issuace of
leverage.
19. Disclosure captioned "Regulation" indicates that the Fund may invest up to 10%,
of its assets in other investment companes. If the Fund may invest in unegistered fuds,
such as hedge fuds or fuds that do not fall under the definition of investment company
by virte of §3(c)(I) or §3(c)(7) of the 1940 Act, add appropriate strategy and risk
disclosure. In addition, if the Fund may invest in the. afore mentioned fuds, add ,i. .appropriate disclosure to the expense table. r* * * * * * * *.* *'*
:',. .' .;:t';ti::::We note that portions o.fthe filing are incomplete.\Vemayhávè'aa(1iti9ilã1~!' "J
comments on suçh portions when you completetherin å pre-effectiv,eaieG~~øfd?~)l
disclosures made in response to ths letter, on infötiation supplied in y-ol:rêspkna~' .
letter, or on exhbits added in any pre-effective ameidments. ". 'n~0\')'i¡i::'
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Whenever a comment is made in one location,it is considered applicable tqa11
similar disclosure appearg elsewhere in the registratIon statement.
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Response to this letter should be in the fômi ora pr~-éffectiVêdanendmeit ,li!è '
pursuant to Rule 472 under the Securties Act. Wher~ nochange will1J~ 1l~g~in:lb~
filing in response to a comment, please indicate ths fact in your respons~ letter,antiti
briefly state the basis for your position. Where changes are made ihrespalise t~,~~:j' ..
comments provide information regarding the natue: of the change and,iF;à.pp~0iW~~, thé
location of such new or revised disclosure in the aiend~filing~AsreguirÇdn)dliçrule,
please insure that you mark new or revised disclosure tö, ildicate change.' ,", '," ht;t:d+'
;,/;d').;'"
Please advise us if you have submitted or expect to submit apexemptive
application or no-action request in connection with your regi;stration, statement.
You should review and comply with all applicable require:reJt~()ftle feCl~r~
securties laws in cOnnection with the preparation ana. 4istrbution9tá~relinR~10'.prospectus.,' ,',;;: ',,';;.:WL.,
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We urge all persons who are responsible.föi:the äçcuracy and.ad,equ~cy¡gr:the
disclosure. in the filings reviewed by the staff to be cerai that they have proviq(xl~l
information investors require for an informeddecisio~.Sincethe Fund 'and its' 'i 'j" '
Lo: COmp..1P12162010RPFD
II112011-3:15:Q PM

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::'--:". '-.: .:......,. . _.:--management are in p()s~ession. of all facts rtlatiKtalh~fup4"sqi~Çlg~C-,lllÇM(~~~i
responsible for the accuracy and adequacy of the disclosures they h~ve niáde. '~"~",:,-;,: ,
In the event the Fund requests acceleration of the effective date of the pending
registration statement, it should fush a letter, at the tie of such request,
acknowledging that '
· the Fund is responsible for the adequacy and accuracy ofthediscloswe in
the filing;
· should the Commssion or the staff acting pursuant to delegated authority,
declare the fiing effective, it does not foreclose the Commssion from
takng any action with respect to the filing;
· the action of the Commssion or the staff, acting pursuant to delegated
authority, in declarg the filing effective, does not relieve the Fund from
its full responsibilty for the adequacy and accuracy of the disclosure inthe fiing; and "",;i
· the Fund may not assert ths action as a,defense in an)'pr()çe~~ing~tiated
by the Commssion or any person under the federal s~9urtiesla'M~:!gf,the
United States. . ":";;
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In addition, please be advised that the 'Divisioh or-Enforcer¿Ilth~ågM~~~;iôall
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information you provide