Private Credit Pioneer Prospect Capital Struggles as Industry Booms

What's happening: Bloomberg reports that Prospect Capital, a private credit pioneer managing $7.2 billion, is struggling with a dysfunctional corporate culture centered around CEO John Barry III, who allegedly bullies staff and makes erratic business decisions that have isolated the firm within the industry.

Why it matters:

• Reputation damage has frozen Prospect out of coveted loan deals, forcing them into riskier investments with struggling borrowers

• Financial impact is evident in their 28% stock drop last year, junk credit rating, and widening 45% gap between asset values and market price

• Industry implications show how leadership problems can undermine even established players in the booming private credit market

The key moves:

• Deal indecision has become a pattern, with Prospect sometimes backing out of transactions at the last minute, burning bridges with partners like Raymond James

• Valuation tactics include selecting the highest possible marks from third-party valuators and increasingly relying on payment-in-kind (PIK) instead of cash

• Leadership style features public berating of analysts and employees, with Barry once spending 6.5 minutes attacking a Wells Fargo analyst during an earnings call

By the numbers:

• $7.2 billion in assets under management at Prospect Capital

• 23% of Prospect's investment income came from PIK in the last quarter, more than double from five years ago

• 77% stock decline from its peak two decades ago

Key quotes:

• "When your fund is persistently trading below the value of its assets, that is the market saying it doesn't believe you" - James Morrow, founder of Callodine Group

• "Why don't you do the world a favor and do a little research before you come on an earnings call with absurd questions like this?" - John Barry III to analyst Finian O'Shea during an earnings call

The wrap: Prospect Capital's story demonstrates how toxic leadership can transform a pioneering firm into an industry pariah, even in a thriving market segment. While Barry's firm helped establish private credit as a major financial force, its current struggles with borrower quality, financing access, and investor confidence highlight how internal dysfunction can directly translate to external business decline.