Prospect Floating Rate Fund Raises More Capital after Warning Default is Possible

 The White Law Group continues to investigate potential securities claims involving FINRA-registered broker dealers who may have improperly recommended Prospect Floating Rate and Alternative Income Fund to investors.

Prospect Floating Rate and Alternative Income Fund Warning

We reported in February 2023 that the Prospect Floating Rate and Alternative Income Fund had issued a warning to shareholders that “there is substantial doubt about the company’s ability to continue as a going concern” for at least one year after Feb. 13, 2023.

The business development company, formerly known as Prospect Sustainable Income Fund Inc., Prospect Flexible Income Fund Inc., TP Flexible Income Fund, and Triton Pacific Investment Corporation noted in a quarterly filing that it has been unable to raise sufficient capital to build a portfolio that generates enough revenue to cover the company’s expenses.

Prospect has only been able to fund distributions to shareholders and pay a portion of its expenses through the expense limitation agreement from its adviser, according to the fillings.

Now, according to a new filing on February 2, 2024, the company has filed a form D to purportedly raise $100,000,000 in capital from investors.

Declining Net Asset Value 

On September 28, 2023, the company initiated a tender offer under its share repurchase program. This offer aimed to purchase shares of our issued and outstanding Class A common stock using the cash retained during the quarter ended June 30, 2023, resulting from issuing shares through our distribution reinvestment plan. The total cash retained during that quarter was approximately $113,374.

The tender offer was for cash at a price equivalent to the net asset value per share as of October 31, 2023. The company successfully purchased 21,113 shares at $5.37 per share, totaling approximately $113,374. The original offering price was purportedly $10 per share.

Risks of Investing in Business Development Companies (BDCs) 

BDCs were created by the U.S. Congress to stimulate investments in privately owned American companies that may have limited access to debt and equity capital.

Non-traded BDCs offer retail investors access to private debt, an asset class that typically has only been available to high-net-worth and institutional investors. By investing in a non-traded BDC, individuals are able to pool their capital to invest in private American companies. For more information on BDCs, please see: BDCs – the good, the bad, and the UGLY

Business Development Companies have many of the same problems for investors as non-traded REITs – like high-risk, high commissions, and lack of liquidity. Brokers or advisors often charge a 7% commission and the firm 1%, which makes it more difficult to see results from the investment.

According to FINRA these products are an ongoing concern for the regulator and firms must ensure they are suitable for an investor’s risk profile and investment strategy. Many of these non-traded BDCs were promised to provide steady growth, and invulnerability from volatile markets, which is not the case.

Brokerage firms are required to perform adequate due diligence on any investment they recommend and to ensure that all recommendations are suitable for the investor considering that investor’s age, investment experience, net worth, risk tolerance, investment objectives, and income.  Firms that fail to perform adequate due diligence or that make unsuitable recommendations can be held responsible for investment losses in a FINRA arbitration claim.

Potential Lawsuits to Recover Investment Losses  

If you are concerned about an investment in Prospect Floating Rate and Alternative Income Fund and would like to discuss your litigation options, please call the securities attorneys of The White Law Group at 888-637-5510 for a consultation.  

The White Law Group is a national securities fraud, securities arbitration, and investor protection law firm with offices in Chicago, Illinois and Seattle, Washington.  The firm represents investors in FINRA arbitration claims throughout the country.  For more information on the firm, visit https://whitesecuritieslaw.com.