UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of report (Date of earliest event reported): February 6, 2017
CAPITAL SOUTHWEST CORPORATION
(Exact Name Of Registrant As Specified In Charter)
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Texas |
814-00061 |
75-1072796 |
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(State or Other Jurisdiction of Incorporation) |
(Commission File Number) |
(IRS Employer Identification No.) |
5400 Lyndon B. Johnson Freeway, Suite 1300
Dallas, Texas 75240
(Address of Principal Executive Offices) (Zip Code)
Registrant’s telephone number, including area code: (214) 238-5700
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
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Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
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Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
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Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
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Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item 2.02 Results of Operations and Financial Condition.
On February 6, 2017, Capital Southwest Corporation (the “Company”) issued a press release, a copy of which has been furnished as Exhibit 99.1 hereto.
The information furnished in this Current Report on Form 8-K under Item 2.02, including Exhibit 99.1, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1934, except as shall be expressly set forth by reference in a future filing.
Item 7.01 Regulation FD Disclosure.
The Company expects to hold a conference call with analysts and investors on February 7, 2017. A copy of the investor presentation slides to be used by the Company on such conference call is furnished as Exhibit 99.2 to this Form 8-K and incorporated herein by reference.
The information set forth under this Item 7.01, including Exhibit 99.2, is being furnished and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, except as shall be expressly set forth by specific reference in such filing.
Item 9.01 Financial Statements and Exhibits
(d) Exhibits
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Exhibit No. |
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Description |
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99.1 |
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Press release issued by Capital Southwest Corporation on February 6, 2017 |
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99.2 |
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Investor presentation slides |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Dated: February 6, 2017
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By: |
/s/ Bowen S. Diehl |
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Name: Bowen S. Diehl |
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Title: Chief Executive Officer and President |
EXHIBIT INDEX
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Exhibit No. |
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Description |
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Press release issued by Capital Southwest Corporation on February 6, 2017 |
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Investor presentation slides |
Exhibit 99.1
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Lincoln Centre Tower I 5400 Lyndon B. Johnson Freeway, Suite 1300 Dallas, Texas 75240 T 214.238.5700 F 214.238.5701 |
Capital Southwest Announces Financial Results for Third Fiscal Quarter Ended December 31, 2016
CSWC Increases Pre-Tax Net Investment Income to $0.21 Per Share
Dallas, Texas – February 6, 2017 – Capital Southwest Corporation (“Capital Southwest” or the “Company”; Nasdaq: CSWC) today announced its financial results for the third fiscal quarter ended December 31, 2016.
Third Quarter Fiscal Year 2017 Financial Highlights
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Total Investment Portfolio: $267.1 million |
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Total Credit Portfolio: $151.5 million |
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$25 million in new credit investments originated during the quarter |
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$7 million in prepayments during the quarter |
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Total CSWC investment in I-45 SLF: $58.7 million |
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I-45 SLF portfolio increased to $186.6 million from $172.5 million during the quarter |
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$39 million in new credit investments originated during the quarter |
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$18 million in prepayments during the quarter |
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I-45 SLF portfolio consists of 41 issuers; 96% 1st Lien Debt and 4% 2nd Lien Debt |
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Total Equity Portfolio, excluding investment in I-45 SLF: $57.0 million |
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Pre-Tax Net Investment Income of $3.4 million, or $0.21 per weighted average diluted share |
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Dividends declared: $0.17 per share |
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Net Realized and Unrealized Portfolio Appreciation: $5.0 million |
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Total Cash: $32.7 million |
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Total Net Assets: $285.4 million |
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Net Asset Value per Share: $17.88 |
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Weighted Average Yield on Debt Investments: 10.32% |
In commenting on the Company's results, Bowen Diehl, President and Chief Executive Officer, stated, “We are pleased with our continued progress towards building a robust middle market focused, internally-managed, BDC paying a market dividend, that our shareholders can have confidence in, while growing NAV per share. Recent realizations in our portfolio have begun to demonstrate our ability to generate attractive risk adjusted returns across our credit platform.”
Portfolio and Investment Activities
During the quarter ended December 31, 2016, the Company originated five new on-balance sheet credit investments totaling $25.0 million. The Company also grew the I-45 SLF investment portfolio to $186.6 million from $172.5 million. The Company received a full prepayment on its investment in Vivid Seats in the amount of $6.9 million, recognizing a realized gain of $0.4 million and an IRR of 21.5%. The Company also received proceeds related to scheduled repayments of certain debt securities totaling $1.7 million.
New investment transactions which occurred during the quarter ended December 31, 2016 are summarized as follows:
Lighting Retrofit International, $8.0 million 1st Lien Senior Secured Debt: Lighting Retrofit International is a leading provider of design-build energy efficiency services to energy service companies and utility clients.
Premiere Global Services, Inc., $2.0 million 2nd Lien Senior Secured Debt: Premiere Global is a leading global provider of audio conferencing solutions and SaaS‐based web and video collaboration solutions to large global companies, mid‐sized companies, and SMBs.
Polycom Inc., $4.5 million 1st Lien Senior Secured Debt: Polycom is a global provider of open, standards-based unified communication and collaboration solutions for voice and video communication and content sharing.
Digital Room, $7.0 million 2nd Lien Senior Secured Debt: Digital Room is a leading e-commerce provider of high-quality customized printed products to graphic designers and SMBs, and to a lesser extent resellers and consumers in U.S.
Restaurant Technologies, Inc., $3.5 million 2nd Lien Senior Secured Debt: Restaurant Technologies is the leading provider of integrated, closed-loop cooking oil management solutions to the foodservice industry.
Subsequent to quarter end, the Company originated a new lower middle market investment in in a marketing services company in which Capital Southwest led a $17.1 million unitranche loan, syndicating out a $5.0 million first-out participation at closing and holding a $12.1 million last-out position. The Company also invested $1.0 million in equity in the transaction pari passu with the private equity sponsor. The Company also completed a follow-on investment in Lighting Retrofit International totaling $2.2 million. We received proceeds of $10.8 million from Hygea Holdings, which included a full repayment of our debt and proceeds from the sale of our warrants, generating an estimated IRR of 56%. Additionally, we received full prepayment on our investment in Polycom in the amount of $4.3 million, generating an estimated IRR of 32%.
Third Fiscal Quarter 2017 Operating Results
For the quarter ended December 31, 2016, Capital Southwest reported total investment income of $6.9 million, compared to $4.7 million in the prior quarter. The increase in investment income was attributable to an increase in average debt investments outstanding, an increase in the weighted average yield on debt investments, and an increase in dividends paid from I-45 SLF.
For the quarter ended December 31, 2016, total operating expenses (excluding tax and interest expense) were $3.1 million, compared to $2.8 million in the prior quarter. The increase in operating expenses was due primarily to legal fees related to corporate matters and an increase in share based compensation during the quarter.
For the quarter ended December 31, 2016, there was interest expense of $0.3 million recorded compared to $0.1 million in the prior quarter. The increase in interest expense was due to increased debt outstanding on the revolving credit facility during the quarter.
For the quarter ended December 31, 2016, total pre-tax net investment income was $3.4 million compared to $1.8 million in the prior quarter.
For the quarter ended December 31, 2016, there was a tax expense of $0.5 million recorded compared to $0.4 million in the prior quarter.
During the quarter ended December 31, 2016, Capital Southwest recorded realized and unrealized gains on investments of $5.0 million. The net increase in net assets resulting from operations was $7.9 million, compared to $6.9 million in the prior quarter.
The Company’s net asset value, or NAV, at December 31, 2016 was $17.88 per share, as compared to $17.74 at September 30, 2016. The increase in NAV was primarily due to an increase in net realized and unrealized gains in the current quarter.
Liquidity and Capital Resources
At December 31, 2016 Capital Southwest had unrestricted cash and money market balances of approximately $32.7 million, total assets of approximately $312.3 million, and net assets of approximately $285.4 million.
In September 2016, the Company entered into a credit facility to provide additional liquidity to support its investment and operational activities. The facility includes total commitments of $100.0 million from a diversified group of five lenders and is scheduled to mature on August 30, 2020. As of December 31, 2016, Capital Southwest had $15.0 million in borrowings outstanding under the credit facility.
Additionally, I-45 SLF has total commitments outstanding on its credit facility of $145.0 million. As of December 31, 2016, I-45 SLF had $120.0 million in borrowings outstanding.
Share Repurchase Program
On January 25, 2016, Capital Southwest announced that its Board of Directors authorized the repurchase of up to $10 million of its common stock at prices below the Company’s net asset value per share as reported in its most recent financial statements. The Board authorized the plan because it believes that the Company’s common stock may be undervalued from time to time due to market volatility. As of December 31, 2016, no shares have been purchased under the plan.
Third Fiscal Quarter 2017 Financial Results Conference Call and Webcast
Capital Southwest has scheduled a conference call on Tuesday, February 7, 2017, at 11:00 a.m. Eastern Time to discuss the third quarter 2017 financial results. You may access the call by dialing 1-855-835-4076 and using the passcode 51604928 at least 10 minutes before the call. The call can also be accessed using the Investor Relations section of Capital Southwest's website at www.capitalsouthwest.com, or by using http://edge.media-server.com/m/p/yckm2fmg.
A telephonic replay will be available through February 14, 2017 by dialing 1-855-859-2056 and using the passcode 51604928. An audio archive of the conference call will also be available on the Investor Relations section of Capital Southwest’s website.
For a more detailed discussion of the financial and other information included in this press release, please refer to the Capital Southwest Form 10-Q for the period ended December 31, 2016 to be filed with the Securities and Exchange Commission and Capital Southwest’s Third Fiscal Quarter 2017 Earnings Presentation to be posted on the Investor Relations section of Capital Southwest’s website at www.capitalsouthwest.com.
About Capital Southwest
Capital Southwest Corporation (Nasdaq: CSWC) is a Dallas, Texas-based publicly traded business development company, with approximately $285.4 million in net assets as of December 31, 2016. Capital Southwest is a middle market lending firm focused on supporting the acquisition and growth of middle market businesses with $5 to $20 million investments across the capital structure, including first lien, unitranche, second lien and subordinated debt, as well as non-control equity co-investments. Since Capital Southwest's formation in 1961, it has always sought to invest in companies with strong management teams and sound financial performance. As a public company with a permanent capital base, Capital Southwest is fortunate to have the flexibility to be creative in its financing solutions and to invest to support the growth of its portfolio companies over long periods of time.
Forward-Looking Statements
This press release contains historical information and forward-looking statements within the meaning of The Private Securities Litigation Reform Act of 1995 with respect to the business and investments of Capital Southwest. Forward-looking statements are statements that are not historical statements and can often be identified by words such as “will,” “believe,” “expect” and similar expressions, and variations or negatives of these words. These statements are based on management's current expectations, assumptions and beliefs. They are not guarantees of future results and are subject to numerous risks, uncertainties and assumptions that could cause actual results to differ materially from those expressed in any forward-looking statement. These risks include risks related to changes in the markets in which Capital Southwest invests, changes in the financial and lending markets and general economic and business conditions.
Readers should not place undue reliance on any forward-looking statements and are encouraged to review Capital Southwest's Annual Report on Form 10-K for the year ended March 31, 2016 and subsequent fillings with the Securities and Exchange Commission for a more complete discussion of the risks and other factors that could affect any forward-looking statements. Except as required by the federal securities laws, Capital Southwest does not undertake any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changing circumstances or any other reason after the date of this press release.
Investor Relations Contacts:
Michael S. Sarner, Chief Financial Officer
214-884-3829
Exhibit 99.2
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Capital Southwest Corporation Q3 2017 Earnings Presentation 5400 Lyndon B. Johnson Freeway, Suite 1300 Dallas, Texas 75240 214.238.5700 capitalsouthwest.com February 7, 2017 |
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This presentation contains forward-looking statements within the meaning of The Private Securities Litigation Reform Act of 1995 relating to, among other things the business, financial condition and results of operations of Capital Southwest, the anticipated investment strategies and investments of Capital Southwest, and future market demand. Any statements preceded or followed by or that include the words "believe," "expect," "intend," "plan," "should" or similar words, phrases or expressions or the negative thereof, or any other statements that are not historical statements are forward-looking statements. These statements are made on the basis of the current beliefs, expectations and assumptions of the management of Capital Southwest. There are a number of risks and uncertainties that could cause Capital Southwest’s actual results to differ materially from the forward-looking statements included in this presentation. In light of these risks, uncertainties, assumptions, and other factors inherent in forward-looking statements, actual results may differ materially from those discussed in this presentation. Other unknown or unpredictable factors could also have a material adverse effect on Capital Southwest’s actual future results, performance, or achievements. For a further discussion of these and other risks and uncertainties applicable to Capital Southwest and its business, see Capital Southwest’s Annual Report on Form 10-K for the fiscal year ended March 31, 2016 and its subsequent filings with the Securities and Exchange Commission. As a result of the foregoing, readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this presentation. Capital Southwest does not assume any obligation revise or to update these forward-looking statements to reflect any new information, subsequent events or circumstances, or otherwise, except as may be required by law. Forward-Looking Statements |
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Bowen S. Diehl President and Chief Executive Officer Michael S. Sarner Chief Financial Officer Chris Rehberger VP Finance / Treasurer Conference Call Participants |
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In January 2015, CSWC refocused its investment strategy to become a lender to middle-market companies across the capital structure CSWC was formed in 1961, and became a BDC in 1988 Publicly-traded on Nasdaq under CSWC ticker Internally-managed BDC with RIC status for tax purposes In December 2014, announced intent to split into two separate companies with tax-free spin-off of industrial growth company (“CSW Industrials”; Nasdaq: CSWI) which was completed September 30th, 2015 17 employees based in Dallas, Texas Total Balance Sheet Assets of $312 MM as of December 31, 2016 CSWC has made significant strides towards rotating its investment portfolio from equity to credit CSWC Company Overview |
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Build a BDC that pays shareholders attractive and sustainable dividends by establishing: A portfolio of investments balanced between liquid and illiquid asset classes A portfolio of predominantly cash generating loans An investment discipline focused on granularity and diversity across asset classes Consistent NAV per share growth through selective equity co-investments A match of fixed and floating rates with financing sources Maintain a shareholder friendly Internally Managed structure which: Aligns management incentives with long term sustainable shareholder value creation Incurs lower operating expenses versus the Externally Managed Structure Historically has rewarded performing Internally Managed BDCs with price to book premiums of 0.5x versus Externally Managed peers Continue to execute on our I-45 SLF joint venture with Main Street which: Enhances CSWC origination capabilities in the upper middle market Grows recurring cash income by investing in a pool of granular and diversified upper middle market first lien loans Allows an appropriate 2:1 leverage given the asset class Cultivates relationships with financial institutions within the I-45 credit facility Pursue an SBIC License and participation in the SBA Debenture Program to further capitalize our lower middle market investment strategy CSWC Corporate Strategy |
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Lower Middle Market (“LMM”): CSWC led or Club Deals Companies with EBITDA greater than $3 MM Typically leverage of 2x – 4x Debt to EBITDA through CSWC debt Commitment size up to $20 MM with hold sizes generally ranging from $5 to $15 MM Originate both Sponsored and Non-sponsored debt investments Securities include first lien, unitranche, second lien and subordinated debt Non-control equity co-investments alongside debt investments Upper Middle Market (“UMM”): Syndicated or Club First and Second Lien Companies typically have in excess of $50 MM in EBITDA Typically leverage of 3x – 5.5x Debt to EBITDA through CSWC debt position Hold sizes generally ranging from $5 to $10 MM Floating Rate First and Second Lien debt securities More liquid assets relative to Lower Middle Market investments Provides flexibility to invest/divest opportunistically based on market conditions and liquidity position Two Pronged Investment Strategy |
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Portfolio Rotation Focused on Credit 6/30/2014 (excl. CSWI Companies) 12/31/2016 Investable Assets Since June 2014, CSWC has transformed its investment portfolio increasing income earning assets from 1% of the investable portfolio to 84% Exited 22 legacy portfolio equity investments, generating $230 MM in proceeds Invested $179 MM in 30 middle-market credit investments on balance sheet Invested $230 MM in 50 credits within I-45 Senior Loan Fund (“I-45”) Cash , 23% Non - Yielding Assets , 77% Debt Assets , 1% 1% of Total Assets Generating Recurring Income Cash , 11% Non - Yielding Assets , 5% Debt Assets , 51% I - 45 , 20% Yielding Equity Assets , 14% 84% of Total Assets Generating Recurring Income |
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Balance Sheet Credit Portfolio Growth On Balance Sheet credit portfolio has grown to $151 MM at 12/31/16 from $45 MM at 9/30/15 Debt Portfolio (Cost) $45.1 $60.9 $93.4 $84.2 $137.0 $151.0 $0.0 $20.0 $40.0 $60.0 $80.0 $100.0 $120.0 $140.0 $160.0 9/30/2015 12/31/2015 3/31/2016 6/30/2016 9/30/2016 12/31/2016 (In Millions) 12/31/2015 3/31/2016 6/30/2016 9/30/2016 12/31/2016 Debt Investments at Cost Beginning Total Debt Portfolio (Cost) $45.1 $60.9 $93.4 $84.2 $137.0 New Originations $17.9 $32.9 $1.7 $53.7 $24.4 Repayments & Exits ($2.1) ($0.6) ($10.9) ($1.0) ($10.6) OID $0.0 $0.1 $0.1 $0.1 $0.1 Change in Debt Investments (Cost) $15.8 $32.5 ($9.2) $52.8 $13.9 Ending Total Debt Portfolio (Cost) $60.9 $93.4 $84.2 $137.0 $151.0 |
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Portfolio Exits Since Launch of Credit Strategy $33 MM in Credit Portfolio exits generated 32% weighted average IRR 1Exits occurring after 12/31/16; Estimated realized gain and IRR Note: Market Segment refers to Upper Middle Market (“UMM”) and Lower Middle Market (“LMM”) Portfolio Originations - Since Quarter End Portfolio Exits Name Industry Type Market Date of Exit Proceeds Realized Gain IRR Freedom Truck Finance Last Out Unitranche LMM April 2016 $5,998 $0 14.2% Bob's Discount Furniture Retail 2nd Lien UMM June 2016 $5,000 $191 15.1% Vivid Seats Hotel, Gaming & Leisure 1st Lien UMM October 2016 $6,913 $446 21.5% Hygea (1) Healthcare & Pharmaceuticals 1st Lien w/ Warrants LMM January 2017 $10,804 $2,866 56.2% Polycom (1) Telecommunications 1st Lien UMM January 2017 $4,305 $74 32.2% Total / Wtd. Avg. $33,019 $3,577 31.9% |
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Q3 2017 Portfolio Originations Solid portfolio growth with $25 MM in new investments originated in Q3 2017 at a weighted average YTM of 10.3% Note: Market Segment refers to Upper Middle Market (“UMM”) and Lower Middle Market (“LMM”) Q3 2017 Portfolio Originations Name Industry Type Market Segment Par Value Coupon Yield to Maturity Lighting Retrofit International Environmental Services 1st Lien LMM $8,000 L + 9.75% (0.5% floor) 10.5% American Teleconferencing Telecommunications 2nd Lien UMM $2,006 L + 9.50% (1.0% floor) 11.5% Polycom Telecommunications 1st Lien UMM $4,500 L + 6.50% (1.0% floor) 7.8% Digital Room Paper and Forest Products 2nd Lien UMM $7,000 L + 10.0% (1.0% floor) 11.4% Restaurant Technologies Restaurants 2nd Lien UMM $3,500 L + 8.75% (1.0% floor) 10.1% Total $25,006 10.3% |
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-45 Portfolio Growth I-45 portfolio assets grew to $187 MM Current I-45 Portfolio (By Type) Current I-45 Portfolio (By Industry) First Lien 96% Second Lien Current I-45 Portfolio (By Industry)Business Services Media, Marketing & Ent Consumer Products & Retail Software & IT Services Telecommunications 14% 11% 10% 8% 8% 6% 5% 5% 4% 4% 4% 4% 4% 3% 3% 3% 3% 3%2% I-45 Portfolio Statistics 3\31\2016 6\30\2016 9\30\2016 12\31\2016 Total Debt Investments at Fair Value $ 99,214 $134,470 $172,519 $186,643 Number of Issuers 24 31 36 41 Wtd. Avg. Issuer EBITDA $81,564 $ 83,004 $100,144 $88,970 Avg. Investment Size as a % of Portfolio 4.17% 3.23% 2.78% 2.44% Wtd. Avg. Leverage on Investments (1) 3.3x 3.7x 3.6x 3.5x Wtd. Avg. Yield to Maturity 7.85% 8.36% 8.36% 8.21% Wtd. Avg. Duration (Yrs) 4.2 4.2 4.4 4.4 1 Through I-45 Security CSWC capital southwest Page 11 |
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Portfolio Mix as of 12/31/2016 at Fair Value Current Investment Portfolio (By Type) Current Investment Portfolio (By Industry) Current Portfolio of $267 MM continues to be granular, diverse, and focused on income generating securities Multi - Sector Holdings (I - 45) 22% Industrial Products 17% Distribution 8% Business Services 5% Energy Services (Upstream) 5% Telecommunicat ions 5% Software & IT Services 4% Consumer Products and Retail 4% Healthcare Services 4% Paper & Forest Products 4% Food, Agriculture & Beverage 4% Media, Marketing, & Entertainment 4% Gaming & Leisure 3% Restaurants 3% Environmental Services 3% Healthcare Products 2% Consumer Services 2% Financial Services 1% 1st Lien 34% I - 45 Senior Loan Fund 22% 2nd Lien 18% Senior Subordinated Debt 5% Yielding Equity 15% Non - Yielding Equity 6% |
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Generating Consistent Dividend and NAV Growth Over the past four quarters, CSWC has generated $0.42 per share in Pre-Tax Net Investment Income and paid out $0.38 per share in Dividends Dividend Yield has increased to 4.21% at 12/31/16 from 1.15% at 3/31/16 NAV has increased to $17.88 per share at 12/31/16 from $17.34 per share at 3/31/16 1.15 % 1.76 % 2.99 % 4.21 % Dividend Yield – Annualized Quarterly Dividend / CSWC Share Price at Qtr. End $17.34 $17.39 $17.74 $17.88 $0.04 $0.06 $0.11 $0.17 $0.00 $0.02 $0.04 $0.06 $0.08 $0.10 $0.12 $0.14 $0.16 $0.18 $17.00 $17.10 $17.20 $17.30 $17.40 $17.50 $17.60 $17.70 $17.80 $17.90 $18.00 3/31/2016 6/30/2016 9/30/2016 12/31/2016 NAV per Share Dividend per Share |
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Financial Highlights Q3 2017 Pre-Tax Net Investment Income of $3.4 MM or $0.21 per weighted average diluted share Paid quarterly dividend in January of $0.17 per share Increased Investment Portfolio to $267 MM from $238 MM $25 MM deployed in five new originations $7 MM proceeds received in one prepayment $8 MM additional equity funded to I-45 Increased I-45 Senior Loan Fund investment portfolio to $187 MM from $173 MM I-45 distributed $2.4 MM dividend to CSWC, including $0.8 MM in gains from prepayments $39 MM deployed in nine new originations $18 MM proceeds received in four prepayments $32.7 MM in cash available for investment activity as of quarter end $85 MM available to draw on Credit Facility as of quarter end Q3 2017 Highlights |
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Portfolio Statistics 1 CSWC’s $2.7 MM sub debt investment (legacy 2012 funding) in Titan Liner has been restructured, with CSWC taking a controlling position in the company. 2 CSWC utilizes an internal 1 - 4 investment rating system in which 1 represents material outperformance and 4 represents material underperformance. All new investments are initially set to 2. 3 Excludes CSWC equity investment in I-45 Senior Loan Fund. Continuing to build a performing credit portfolio Quarter Ended 3/31/2016 Quarter Ended 6/30/2016 Quarter Ended 9/30/2016 Quarter Ended 12/31/2016 Portfolio Statistics Fair Value of Debt Investments $92,832 $83,730 $137,586 $151,465 Average Debt Investment Hold Size $5,157 $4,925 $5,982 $5,826 Fair Value of Debt Investments as a % of Cost 99% 99% 100% 100% % of Debt Portfolio on Non-Accrual (at Fair Value) 1 0.0% 0.0% 1.8% 0.0% Weighted Average Investment Rating 2 2.0 1.9 1.9 1.9 Weighted Average Yield on Debt Investments 10.67% 10.08% 10.00% 10.32% Total Fair Value of Portfolio Investments $178,436 $175,915 $238,319 $267,131 Weighted Average Yield on all Portfolio Investments 9.46% 9.35% 9.13% 10.78% Investment Mix (Debt vs. Equity) 3 65% / 35% 62% / 38% 73% / 27% 73% / 27% Investment Mix (Yielding vs. Non-Yielding) 90% / 10% 90% / 10% 94% / 6% 94% / 6% |
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Financial Highlights Quarter Ended 3/31/2016 Quarter Ended 6/30/2016 Quarter Ended 9/30/2016 Quarter Ended 12/31/2016 Financial Highlights Pre-Tax Net Investment Income Per Wtd Avg Diluted Share $0.04 $0.06 $0.11 $0.21 Pre-Tax Net Investment Income Return on Equity (ROE) 1.03% 1.34% 2.54% 4.79% Dividends Per Share $0.04 $0.06 $0.11 $0.17 Earnings Per Wtd Avg Diluted Share $0.16 $0.17 $0.44 $0.49 Earnings Return on Equity (ROE) 3.67% 3.93% 9.87% 11.07% NAV Per Share $17.34 $17.39 $17.74 $17.88 Cash & Cash Equivalents $95,969 $96,957 $57,840 $32,671 Debt to Equity 0.0x 0.0x 0.0x 0.1x |
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Balance Sheet Highlights (In Thousands, except per share amounts) Quarter Ended 3/31/2016 Quarter Ended 6/30/2016 Quarter Ended 9/30/2016 Quarter Ended 12/31/2016 Assets Portfolio Investments $178,436 $175,915 $238,319 $267,131 Cash & Cash Equivalents $95,969 $96,957 $57,840 $32,671 Deferred Tax Asset $2,342 $1,874 $1,940 $1,940 Other Assets $7,746 $6,110 $9,176 $10,592 Total Assets $284,493 $280,856 $307,275 $312,334 Liabilities Credit Facility $0 $0 $0 $15,000 Payable for Unsettled Transaction $3,940 $0 $19,361 $0 Other Liabilities $7,918 $7,572 $8,985 $11,890 Total Liabilities $11,858 $7,572 $28,346 $26,890 Shareholders Equity Net Asset Value $272,635 $273,284 $278,929 $285,444 NAV per Share $17.34 $17.39 $17.74 $17.88 Debt to Equity 0.0x 0.0x 0.0x 0.1x Shares Outstanding at Period End 15,726 15,718 15,727 15,965 |
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Income Statement Highlights (In Thousands, except per share amounts) Quarter Ended 3/31/16 Quarter Ended 6/30/16 Quarter Ended 9/30/16 Quarter Ended 12/31/16 Investment Income Interest Income $2,110 $2,292 $2,630 $3,611 Dividend Income $1,578 $1,769 $1,995 $3,078 Fees and Other Income $123 $96 $101 $176 Total Investment Income $3,811 $4,157 $4,726 $6,865 Expenses Cash Compensation $1,403 $1,484 $1,404 $1,476 Share Based Compensation $257 $239 $255 $321 General & Administrative $1,192 $1,344 $1,015 $1,144 Spin-off Related Expenses $251 $172 $172 $172 Total Expenses (excluding Interest) $3,103 $3,239 $2,846 $3,113 Interest Expense $0 $0 $103 $343 Pre-Tax Net Investment Income $708 $918 $1,777 $3,409 Taxes and Gain / (Loss) Income Tax Benefit (Expense) $788 ($547) ($412) ($536) Net realized gain (loss) on investments $12 $199 $3,527 $72 Net increase (decrease) in unrealized appreciation of investments $1,001 $2,127 $2,026 $4,940 Net increase (decrease) in net assets resulting from operations $2,509 $2,697 $6,918 $7,885 Weighted Average Shares Outstanding 15,795 15,791 15,806 15,932 Pre-Tax Net Investment Income Per Weighted Average Share $0.04 $0.06 $0.11 $0.21 Dividends Per Share $0.04 $0.06 $0.11 $0.17 |
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Investment Income Detail Constructing a portfolio of investments with recurring cash yield (In Thousands) Quarter Ended 3/31/2016 Quarter Ended 6/30/2016 Quarter Ended 9/30/16 Quarter Ended 12/31/16 Investment Income Breakdown Cash Interest $2,063 $2,216 $2,535 $3,490 Cash Dividends $1,578 $1,769 $1,995 $3,078 Management/Admin Fees $115 $95 $95 $105 Amortization of purchase discounts and fees $47 $76 $100 $120 Other Income & Fees (non-recurring) $8 $1 $1 $73 Total Investment Income $3,811 $4,157 $4,726 $6,865 Key Metrics Cash Income as a % of Investment Income 98.8% 98.2% 97.9% 98.3% % of Total Investment Income that is Recurring 99.8% 100.0% 100.0% 98.8% |
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Interest Rate Sensitivity Yielding Debt Portfolio Composition Debt Portfolio Well-Positioned for Changes to Base Interest Rates Note: Illustrative change in NII is based on a projection of our existing debt investments as of 12/31/16, adjusted only for changes in Base Rates. The results of this analysis include the I-45 Senior Loan Fund, which is comprised of 100% floating rate assets and liabilities. Fixed 8% Floating 92% Change in Base Interest Rates Illustrative NII Change ($'s) Illustrative NII Change (Per Share) (50bps) $466,196 $0.03 50 bps $831,955 $0.05 100bps $1,767,014 $0.11 150bps $2,702,351 $0.17 200bps $3,637,688 $0.23 |
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Corporate Information Board of Directors Senior Management Fiscal Year End Inside Directors March 31 Joseph B. Armes Bowen S. Diehl Bowen S. Diehl President & Chief Executive Officer Independent Auditor Grant Thornton Dallas, TX Independent Directors Michael S. Sarner John H. Wilson Chief Financial Officer, Secretary & Treasurer William R. Thomas T. Duane Morgan Corporate Counsel David R. Brooks Investor Relations Thompson & Knight / Jones Day Dallas, TX Jack D. Furst Michael S. Sarner Capital Southwest Corporate Offices & Website 214-884-3829 5400 LBJ Freeway msarner@capitalsouthwest.com Transfer Agent 13th Floor American Stock Transfer & Trust Company, LLC Dallas, TX 75240 Securities Listing 800-937-5449 http://www.capitalsouthwest.com NASDAQ: CSWC www.amstock.com |
