Prospect BCD fka Prospect Sustainable Income Fund Warns Default is Possible
According to the DI Wire this week, Prospect Floating Rate and Alternative Income Fund has 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 notes 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. After December 31, 2022, the adviser will reportedly no longer be required to waive fees.
Further on July 6, 2022, the end date of a “ramp period” provision within its credit facility was further extended from Aug. 25, 2022 to August 25, 2023. Without a further extension on the credit facility or a refinancing of the credit facility, the company warns that it may lead to default.
The company notes that it is seeking to improve its financial position through a number of actions to possibly refinance the credit facility, but that it currently has sufficient collateral to repay the amounts due. Prospect notes that in order to meet these obligations, it may not be able to sell a “significant number of investments” that it would need to, to be successful, according the filing.
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 making it more difficult to see results from the investment.
According to FINRA these products are an ongoing concern for the regulator and that 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 in light of that particular 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 Flexible Income Fund Inc. 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.
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