Prospect Capital Corp. is discussing an 8% yield on its first junk-bond offering since 2021, seeking to raise $500 million through a five-year note to refinance debt bearing interest at 3.364% maturing in November. The firm, which lost its high-grade status in 2024 when S&P and Moody's downgraded it, faces rising funding costs as five-year Treasury yields hit multi-decade highs. The proposed bond sale will increase Prospect Capital's weighted average cost of debt financing by up to 0.5 percentage point to about 6.5%, still below the 11% yield threshold typical for private-credit funds.

Moody's assigned a Ba1 rating to the proposed issue, one step below investment grade. Proceeds will partially pay down the company's revolving credit facility and strengthen balance sheet liquidity. Pareto Securities serves as the sole bookrunner, having held investor calls on Thursday.