Prospect Capital's preferred shares yield less than bonds despite higher risk, rated 'Sell' with bond switch advised.

Prospect Capital Corporation offers preferred shares with a 5.35% coupon and 7.9% yield, but these trade at a significant discount to net asset value due to concerns over balance sheet and portfolio quality. The preferred shares yield less than the company's long-dated bonds, despite carrying greater bankruptcy risk, making them unattractive on a risk/reward basis. Analysts recommend selling the preferred shares and switching to the bonds for better yield and capital structure protection. This is notable as Prospect Capital is among the few business development companies with outstanding preferred shares.