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LETTER TO THE S.E.C.

Prospect Capital Corporation

10 East 40th Street • 44th Floor • New York, New York 10016

October 2, 2008

VIA EDGAR AND BY COURIER

Mr. Larry Green

Division of Investment Management

Securities and Exchange Commission

100 F Street, N.E.

Washington, D.C. 20549

Mail Stop 0123

    Re:

    Prospect Capital Corporation

Preliminary Proxy Statement on Schedule 14A

Filed on September 18, 2008

File Number 814-00659

Dear Mr. Green:

          Set forth below are the responses of Prospect Capital Corporation (the “Company”), to the
comments of the staff of the Division of Investment Management (the “Staff”) of the Securities and
Exchange Commission (the “Commission”), received by the undersigned by telephone on September 23,
2008, with respect to the Preliminary Schedule 14A filed by the Company on September 18, 2008 (the
“Proxy Statement”).

Notice

    1.

    Please confirm that the Company will file a post-effective amendment pursuant to
Section 8(c) of the Securities Act in connection with any offering of shares below Net
Asset Value (“NAV”) or warrants, options or rights.

    In response to this comment, we advise the Staff that we believe that to require the
Company to file a post-effective amendment before conducting any offering at a price below
its NAV, or before conducting any offering of warrants, options or rights, could prevent
the Company from being able to conduct offerings, would place the Company at a competitive
disadvantage relative to other business development companies (“BDCs”) and would be
disadvantageous to the Company’s stockholders.

    First, most common stock offerings over the last year or two by the Company and by other
BDCs have been structured as “overnight offerings,” meaning that the offering is either
priced after the close of the market on one day and orders are confirmed prior to the
opening of the market the following day or indications of interest are taken after the
close one day and the pricing occurs before the opening of the market the following day,
with orders taken immediately thereafter. Overnight offerings are intended to minimize the
market impact of the pendency of an offering. These offerings are highly dependent on the
shelf offering process under which offerings can be launched without the need for review of
disclosure documents by the Commission or for a declaration of effectiveness. It does not
appear that an overnight offering could be undertaken if the

    Mr. Larry Green

    Securities and Exchange Commission

    Page 2

    October 2, 2008

    issuer were required to file a post-effective amendment in connection with the offering.
Thus, to impose this requirement on the Company would have the effect of denying the
Company access to the capital markets through what has become the dominant offering process
for BDCs.

    The requirement to file a post-effective amendment before conducting any offering at a
price below its NAV, or before conducting any offering of warrants, options or rights would
also place the Company at a competitive disadvantage relative to other BDCs. In particular,
there are a number of BDCs whose shelf registration statements were declared effective this
year that were not subject to this requirement. These companies therefore have available to
them the shelf registration process that is a necessary ingredient to an overnight offering
 — and because they do have the shelf registration process available to them, with its
certainty on timing, they have a distinct advantage in attracting underwriters to assist in
their offerings of common stock.

    As mentioned above, one of the primary benefits of overnight offerings is the minimization
of the adverse impact of the public announcement of an offering by a company on the price
of such company’s common stock. If the Company were required to file a post-effective
amendment prior to conducting an offering, the price of the Company’s common stock would be
adversely affected by publicity surrounding the filing. This would result in the Company
receiving a lower price per share when it eventually was able to conduct the offering after
the post-effective amendment was declared effective. The delay imposed by the filing of the
post-effective amendment and the resultant signaling to the market clearly would not be in
the best interests of the Company’s stockholders.

    So-called “overnight” deals have become the predominant method of BDC offerings because the
short selling community has found that short selling into any and all BDC offerings, often
without complying with law and regulations, has created a “self fulfilling” prophecy
whereby these short sellers almost always make money if they short sell upon the first
publicity and cover by purchasing in the offering, whether or not they are permitted to do
so by applicable law and regulations. Overnight offerings, in which the fact of the
offering is made known to the entire retail systems of the underwriting brokers the night
before pricing and first trading of the new issue, do not deny any market participants the
steady flow of accurate and timely information required for effective and fair markets.
These overnight offerings do make it more difficult for short sellers, some of whom may not
be in full compliance with all applicable laws and regulations, from manipulating a BDC’s
stock downward just as an offering is priced, thereby enabling them to cover at often
significantly lower prices than where they sold short, and possibly disrupt an offering and
send the BDC stock into a tailspin that will make them more money. While short sellers may
be the primary creators of this depressive effect on a BDC stock price just as an offering
prices, we believe that ordinary selling at such a time in light of the “self fulfilling”
prophecy magnifies that negative effect. We also believe that this depressive effect is

    Mr. Larry Green

    Securities and Exchange Commission

    Page 3

    October 2, 2008

    further magnified by short sellers working in concert, by the requirement that underwriters
cease making markets during an offering, by the news blackout then required, and by other
factors. Accordingly, we believe that not requiring a post-effective amendment, a decision
made with respect to other BDCs, is the correct decision, because it preserves to the BDC
access to the national capital markets in an equitable and fair way, permitting orderly
underwritings free from the manipulations of others serving their own ends, ends which may
not be consistent with fair and orderly markets, and the important role of BDCs in
providing capital to middle market companies, a role as important today, as ever, if not
more important than ever before. If the Company is not permitted to raise capital
without a post-effective amendment being pre-cleared, the Company’s access to the capital
markets will be severely constrained on any terms, and perhaps denied all together, not at
all the intent of Congress.

Notice, Page 2 and the Proxy Card

    2.

    Please identify the types of securities that will be authorized for issuance under
Proposal IV.

    In response to this comment, Proposal IV has been modified to include the following
language, which specifies the type of securities that may be authorized:

“To consider and vote upon a proposal to authorize the Company, with
approval of its Board of Directors, to issue warrants, options and rights to
subscribe to, convert to, or purchase shares of the Company’s common stock
in one or more offerings.”

Page 3

    3.

    Under the section “Additional Solicitation,” please address how broker non-votes and
abstentions will be handled if a stockholder vote is called.

    In response to this comment, we have modified the end of the first paragraph of the section
entitled “Additional Solicitation” to include that abstentions will not be included in
determining the number of votes cast and, as a result, will have no effect for such
purposes. We do not expect there to be any broker non-votes to a stockholder vote relating
to adjournment.

Page 5

    4.

    Please make clear in Proposal I — Election of Directors, that each of the nominees
has agreed to being named in the proxy statement.

    In response to this comment, we have added language to Proposal I that makes it clear that
each of the nominees has agreed to being named in the proxy statement.

    Mr. Larry Green

    Securities and Exchange Commission

    Page 4

    October 2, 2008

Page 17

    5.

    We do not believe that the footnote (1) is necessary

    In response to this comment, we have removed the footnote.

Page 21

    6.

    In the first paragraph under Proposal IV, we do not believe that a BDC can issue
convertible preferred stock and convertible debentures. Please revise the disclosure
appropriately.

    In response to this comment, we respectfully advise the Staff that we disagree with its
assertion that a BDC cannot issue convertible securities. We reference Section 61(a)(3) of
the Investment Company Act of 1940 (the “1940 Act”), which provides:

(3) “Notwithstanding section 18(d)...a business development company may
issue warrants, options, or rights to subscribe or convert to voting
securities of such company, accompanied by securities, if ...”

    It is clear that under the 1940 Act, a business development company may issue debt
securities or preferred stock. It is equally clear that Section 61(a)(3) of the 1940 Act
permits a business development company to issue warrants, options, or rights that can
convert into common stock if the conditions of that section are met. This would include a
convertible debt security or convertible preferred stock, which are effectively debt or
preferred stock coupled with a right to convert to common stock. In addition, we believe
that it is the Commission and the Staff’s position that a business development company may
issue convertible securities, provided the issuance does not violate Section 18(d) of the
1940 Act.

    The ability of a closed-end fund and the ability of a business development company to issue
convertible securities is long-established. On two occasions when the Commission or the
Staff addressed the question of whether a convertible security can be issued by an
investment company without violating Section 18(d) of the 1940 Act, the Commission and the
Staff have indicated that the primary issue in this determination is whether the conversion
feature is “predominant.” See Allegheny Corp., 37 SEC 424 (1956); Bunker Hill
Income Securities Inc., File No. 811-2392 (available October 29, 1982).

    In Allegheny, the Commission held that a convertibility option did not bring a
security within Section 18(d), so long as the right to purchase the common stock on
conversion did not so dominate the investment characteristics of the senior securities as
to make that security, in substance, not a senior security but a right to purchase within
the meaning of Section 18(d). The Commission later acknowledged that a closed-end fund may
issue convertible securities in Investment Company Act Release No. 5632 (March 12, 1969)
(“Release 5632). In Release 5632, the Commission provided checklists for

    Mr. Larry Green

    Securities and Exchange Commission

    Page 5

    October 2, 2008

    registration statements being filed under the 1940 Act. On the checklist for the Form S-4
(used by closed-end investment companies at that time), question 34 provides: “If
convertible debt or convertible preferreds are proposed to be offered, are the conversion
rates such that the security would not be a warrant prohibited by Section 18(d) of the
Investment Company Act? (See Alleghany Corporation 37 S.E.C. 424.).” Release 5632 makes it
evident that the Commission believed that the issuance of convertible securities by
closed-end funds was not an unusual occurrence and was permitted as long as it did not
violate Section 18(d) of the 1940 Act (i.e., the conversion feature could not be the
dominant feature as discussed in Allegheny).*

    In Bunker Hill, the issuer, sought assurances from the Staff that it would not recommend
action against it for issuing convertible debt securities. In response, the Commission
cited Allegheny and reaffirmed that Section 18(d) only prohibited convertible
securities where the convertibility feature is the predominant factor in the market value
of the security at its issuance. The Commission also stated that “where the conversion
feature predominates among a security’s investment characteristics, the bar of [s]ection
18(d) applies, and where it does not, [s]ection 18(d) does not apply.”

    It is clear from these examples that the Commission has adopted the position that the
issuance by closed-end funds and business development companies of convertible securities,
including convertible debt or convertible preferred securities, is permissible and does not
violate Section 18(d) as long as the conversion feature is not predominant. It is only
when the conversion option is dominant that Section 18(d) would be violated, and in that
case, a business development company must look to Section 61(a)(3), which allows a business
development company to, among other things, issue a security with the option to convert to
common stock upon obtaining shareholder approval. The purpose of Proposal IV is to obtain
that approval. If obtained, the Company could issue such convertible securities, subject
to the other requirements of Section 61(a)(3).

          In connection with responding to the comments of the Staff with respect to the Proxy
Statement, we acknowledge the following:

    •

    the Company is responsible for the adequacy and accuracy of the disclosure in
the filing;

    •

    Staff comments or changes to disclosure in response to Staff comments do not
foreclose the Securities and Exchange Commission from taking any action with respect
to the filing; and

    *

    We are aware of a closed-end fund, Royce Value Trust,
Inc., having issued a convertible security in the 1990’s that we understand
included the submission to the Staff of an “Allegheny” analysis for Section
18(d) purposes.

    Mr. Larry Green

    Securities and Exchange Commission

    Page 6

    October 2, 2008

    •

    the Company may not assert Staff comments as a defense in any proceeding
initiated by the Securities and Exchange Commission or any person under the federal
securities laws of the United States.

               We respectfully request that additional comments, if any, in connection with the subject
filing be directed to Clifford Chance US LLP, Attention: Andrew S. Epstein, Esq., and Leonard
Mackey, Jr., Esq., 31 West 52nd Street, New York, New York 10019, telephone (212)
878-8000, facsimile (212) 878-8375, and me.

    Very truly yours,

    Prospect Capital Corporation

    /s/ Brian H. Oswald

    Brian H. Oswald

    Managing Director

    cc:

    John F. Barry III

M. Grier Eliasek

Andrew S. Epstein