Prospect Capital announced it has entered into a definitive agreement to acquire 100% of the common stock of Nicholas Financial, Inc. for $16.00 per share. Subject to certain conditions, the transaction is currently contemplated to close in April 2014, although this timing could be earlier or later depending on the time required to obtain the requisite approvals. The Board of Directors of Nicholas has voted to recommend the transaction to the security holders of Nicholas.

Founded in 1986, Nicholas is a specialty finance company headquartered in Clearwater, Florida. Nicholas is engaged primarily as an indirect lender in the consumer automobile lending business, where Nicholas purchases loans originated by more than 1,600 car dealerships. Nicholas operates in 15 states through 65 branch offices, which manage the origination and collection of loans. In the past year, Nicholas financed the purchase of nearly 15,000 previously owned automobiles. Nicholas currently employs more than 320 people and has an aggregate loan portfolio in excess of $290 million.

Based on the terms set forth in the definitive agreement, Prospect for approximately $199 million in consideration will be acquiring 100% of the common stock and outstanding options to acquire common stock of Nicholas. The options to acquire common stock will be acquired for cash in an amount equal to their net exercise value, and each outstanding share of common stock of Nicholas will be converted into the right to receive the number of shares of Prospect common stock determined by dividing $16.00 by the volume weighted average price per share of Prospect common stock for the 20 trading days prior to the closing of the transaction. The transaction is intended to qualify as a tax-free reorganization. Completion of the transaction is subject to certain conditions, including the approval of Nicholas security holders, the receipt of all necessary regulatory approvals, including expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, and the satisfaction of other terms and conditions.

Including the $199 million equity valuation for Nicholas and after taking into consideration its outstanding net debt, which is currently $127 million, the overall value placed on Nicholas in the transaction is approximately $326 million before estimated transaction fees and expenses. Upon closing the transaction, Prospect intends to refinance the business using proceeds from a newly committed $250 million revolving credit facility from bank lenders and an operating company term loan that Prospect will provide. The aggregate net proceeds from this recapitalization will be used to repay the existing debt of Nicholas and return a portion of capital issued by Prospect to complete the transaction on the closing date. After receipt of the recapitalization cash distribution, Prospect will have a net investment in the transaction of approximately $139 million.

The new revolving credit facility is being provided jointly by Bank of America, N.A., as administrative agent and Wells Fargo, National Association. The new facility is a floating-rate three-year $250 million revolving credit facility that is priced at an attractive spread to Libor relative to other credit facilities in place with consumer lending companies.